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Overall, strong operating performance in Q2FY22

Our view

Reported strong financial performance with both the revenue and EBIT margin for the quarter well above consensus estimates. Robust deal booking provides strong revenue visibility. But, it continues to face the margin headwinds as attrition has sharply picked up. Revenue concentration with the top client remains high at 24.3%. We expect it to report revenue CAGR of 18.9% with average EBIT margin of 17.0% over FY22E‐FY24E. We maintain BUY Rating on the stock with revised target price of Rs 5,050.

Result Highlights

* Reported revenue of Rs 25,862 mn( up12.9% in INR terms, up 12.8% in USD terms). Organic USD growth was around 12% QoQ, higher sequential growth  led seasonal projects especially in Retail , CPG and Manufacturing.

* Reported EBIT margin of 18.2%, up 50 bps QoQ, despite wage hike in the quarter, led by operating leverage and cost optimization.

* Deal wins remain strong  with TCV of $360 mn( up 19℅ yoy).

* Employee attrition jumped 400 bps QoQ to 17.7% due to high demand for talent.

* Utilization was down 30 bps QoQ to 82.9%. Net addition of 2,476 employees in the quarter  

* Offshore revenue mix grew 150 bps QoQ to 85℅ as per the trend

* Declared dividend of Rs 10/ share.

Valuation

The stock trades at PER of 38.1x on FY24E EPS. Robust deal booking and growing share of digital revenue provides strong visibility about revenue growth. Positive operating leverage and the efficiency measures should help to broadly maintain stable margin. We rollover to FY24 estimates and value the stock at 41x on FY24 earnings, arriving at target price of Rs 5,050/share.

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