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Inline performance along with improvement in EBIT margin led by cost optimization

Our view

Reported strong financial performance with revenue broadly in line and EBIT margin for the quarter well above consensus estimates. Robust deal booking provides strong revenue visibility. It continues to face the margin headwinds as attrition has sharply picked up. Revenue concentration with the top client remains high at 24.9%. We maintain BUY Rating on the stock with revised target price of Rs 5,105

Result Highlights

▪ Reported revenue of $366 mn in Q3FY22,( up 4.7% in USD terms, up 6.3% in INR terms). The growth was led by strong performance in Communication Media and Technology( up 6.1% QoQ); and the Travel and Hospitality vertical( up 7.4% QoQ)

▪ EBIT margin increased by 100 bps QoQ to 19.2%( above estimate), led by cost optimisation and other productivity measures.

▪ Deal booking remained strong as it signed TCV of $358mn in the quarter compared to $312 mn in Q3FY21

▪ Effort mix increased by 100 bps QoQ to 86%, inline with offshoring trend

▪ Utilization was down 140 bps QoQ to 81.5% on account of Q3 seasonality

▪ Added ~2,200 employees in the quarter to reach 31,959 employees.

▪ LTM attrition increased by 420 bps QoQ to 21.9% in line with industry trend

Valuation

The stock trades at PER of 36.5x 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 value the stock at 41x on FY24 earnings, arriving at target price of Rs 5,105/share.

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