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EPAM: Robust demand to sustain

EPAM reported robust Q3FY21 results: revenue grew 51.6% YoY to USD988.5mn (46.6% YoY in cc), beating Street’s estimate of USD966.3mn. GAAP Income from operations margin stood at 14.6%, down 20bps YoY. Diluted EPS at USD1.95, up 27.5% YoY, too beat Street’s estimate of USD1.92.

Management highlighted the company is on an exciting growth route in its 28-year journey, and that there are higher levels of transformation across industries. Accordingly, EPAM is investing in capabilities and growing teams through digital transformation and product engineering offerings. It is targeting to grow revenue to USD10bn. EPAM is not rated.

Strong demand across industry groups and geographies

Financial services (23% of revenue) grew 68.9% YoY driven by very strong broadbased growth in asset management, insurance, payments, and banking. Travel & Consumer surged 79.3% YoY, Software & Hi-tech shot up 46.6% YoY, Business information & Media grew 23.6% YoY and Life Sciences & Healthcare expanded 29.5% YoY. By geography, North America/Europe/CIS/APAC grew 51.6%/50.9%/49.7%/60.4% YoY. OCF stood at USD206.1mn, and FCF at USD184.9mn grew YoY, 129% conversion of adjusted net income. Acquisitions completed in the last 12 months contributed approximately 8% to revenue growth in the quarter.

Robust guidance

Management highlighted renewed demand and return to growth across travel customers. EPAM is merging physical and digital to create superior retail experiences. It has closed five acquisitions, which will enable to expand current offerings in salesforce, cybersecurity, analytics, strategy consulting and presence in Latin America. Revenue guidance for Q4FY21 is USD1,075–1,085mn, growth of 49% at mid-point. EPAM has raised full-year 2021 outlook and now expects revenue growth to be at least 40% YoY and 38% in cc.

Outlook: Digital continues to be strong

EPAM expects a strong demand outlook and continues to see some improvement in pricing and demand from existing clients. It will continue to add headcount at greater than historical rates; however it faces biggest challenge in bringing in talent. Management highlighted there is very strong demand and there is no sign that this demand will go down.

EPAM will continue to invest aggressively in digital capabilities. As companies continue to embark on their agenda of digital transformation, and modernising and moving their applications to cloud, demand for IT companies is likely to be solid. Meanwhile, Indian IT services companies are also likely to turn in similarly strong growth trends in digital that EPAM is witnessing. EPAM is not rated.

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