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Maintains growth momentum along with strong margin performance

Our view and valuation Reported strong financial performance with revenue slightly above estimates and EBIT margin significantly above estimates for the quarter.    Robust deal booking for the quarter(all time high) provides strong revenue visibility. Attrition remains high but expected to moderate over next few months. Client mining strategy of upselling and cross selling among top clients continues to serve it well.  Certain costs related to travel and admin have started coming 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 20% plus EBITDA margin going ahead. The macroeconomic concerns around global GDP growth and high inflation are potential risk factors.  We estimate revenue CAGR of 17.6% over FY22?24E with average EBIT margin of 18.3%. High revenue concentration from top client at 26.0% remains a risk factor.

We maintain ADD Rating on the stock with revised target price of Rs 3,432, valuing the stock at 27x on FY24E EPS. We have cut down our target PE multiple from 34x to 27x to account higher cost of capital(WACC) in this environment of high macroeconomic uncertainty. The stock trades at PER of 22.8x on FY24E EPS.   

Result Highlights

* Reported revenue of Rs 31.2bn, ( up 7.7% QoQ in INR terms, up 4.0% QoQ in USD terms). The growth was led by strong performance in BFSI( up 6.5% QoQ), CMT( up 5.9% QoQ), Travel segment( up 11.2% QoQ). In terms of geography, North America led the growth at 8.5% QoQ.

* EBIT margin increased by 22 bps QoQ to 19.2%, led by positive operating leverage

* Deal booking remained strong at TCV of    $570mn ( vs $504 mn in Q1FY22, $390mn in Q4FY22).

* Added 13 new clients during the quarter to reach 274 active clients. Revenue concentration from top client increased by 110 bps QoQ to 26%.

* Offshore effort mix increased by 30 bps QoQ to 86.6%.

* Added 2,384 employees during the quarter to teach headcount of 37,455 employees. LTM attrition increased by 70 bps QoQ to 24.5%. Utilization decreased by 190 bps QoQ to 81.2%

* DSO decreased by 10 days QoQ to 50 days. Cash and Equivalents of $500mn as of June 30, 2022.

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