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Inline performance on both revenue and operating margin front

Our view and valuation

Reported strong financial performance with revenue and EBIT margin broadly inline with estimates for the quarter.  Robust deal booking provides strong revenue visibility. Attrition remains high but expected to stabilize over next 6 months. Client mining strategy of upselling and cross selling among top clients continues to serve it well.  We expect certain costs related to travel and admin to come back as IT companies switch to hybrid mode of working. However,  improving employing pyramid, positive operating leverage and the efficiency measures should help to broadly maintain stable margin going ahead. We estimate revenue CAGR of 17.4% over FY22‐24E with average EBIT margin of 17.6%. High revenue concentration from top client at 24.9% remains a risk factor.

We maintain ADD Rating on the stock with revised target price of Rs 4507, valuing the stock at 34x on FY24E EPS. We have cut down our target PE multiple from 41x to 34x to account higher cost of capital(WACC) going ahead. The stock trades at PER of 29.9x on FY24E EPS.   

Result Highlights

Reported revenue of Rs 28,974 mn, ( up 4.7% QoQ in USD terms , up 5.4% QoQ in INR terms). Revenue growth was led by strong performance in verticals like BFSI(up 8.9% QoQ), Travel Transportation and Hospitality(up  9.2% QoQ); While Retail, CPG and Manufacturing had muted quarter( down 2.4% QoQ).

EBIT margin was down 30 bps QoQ to 18.9% inline with estimates, on higher employee cost( employee cost increased by 60 bps  QoQ as % of revenue)

Deal booking remained robust at overall TCV of $390 mn in Q4FY22 compared to $358 in Q3FY22 and $375 mn in Q4FY21.

Offshore effort mix increased by 30 bps QoQ to 86.3%

Added 11 clients in the quarter compared to addition of 8 clients in Q3FY22.

Utilization increased by 160 bps QoQ to 83.1%. Added 3,112 employees in the quarter to reach 35,071 employees (Addition almost 9.5% of Q3FY22 employee base). LTM attrition increased by 190 bps QoQ to 23.8% in line with industry trend.

Recommended a final dividend of 270% (₹27 per equity share of par value ₹10 each) for the financial year ended March 31, 2022

KEY CON‐CALL HIGHLIGHTS

Growth was broadbased across verticals and the demand environment remains strong.

Continues to strengthen its offerings related to hyperscalers. It is increasing its investment in Metaverse offerings.

Continues to see increasing number of deals expand into strategic engagement with clients

There was a rampdown in a Retail account that affected sequential growth for the this segment.

Expects employee attrition to stabilise over coming quarters. It has increased fresher hiring to manage high attrition.

Focus remains on upselling and cross‐selling to top clients as part of client mining strategy. Continues to rationalise tail accounts

Aims to deliver among industry leading revenue growth for FY23 with EBITDA margin of around 20%.

Would use all levers like utilisation, employee pyramid, productivity measures and premium pricing for niche skills to maintain margin. 

There can be some increase in onsite effort mix once covid19 tapers off in Europe and the US.

Expanded its presence in Germany, Poland and Finland during the quarter

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