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Inline financial performance with stable operating margin

Our view

Overall, the revenue and EBIT margin for the quarter was broadly inline. The Direct segment forming 93.5% of revenue has been driving the revenue growth, while DXC segment revenue continues to decline and contributes just 4.8% to revenue. Deal booking remains robust which provides strong revenue growth visibility. Certain costs related to travel and admin have started coming back as IT companies switch to hybrid mode of working. While the attrition remains high, we expect it to maintain broadly stable margin over medium term led by improving employee pyramid and positive operating leverage. We estimate revenue CAGR of 17.3% over FY22?FY24E with average EBIT margin of 16.3%. We maintain ADD Rating on the stock and value it at 23x on FY24E earnings, arriving at target price of Rs 2,516/share. We have cut down our target valuation PE multiple from 28x to 23x to account for higher cost of capital(WACC) in this environment of high macroeconomic uncertainty. The stock trades at PER of 20.7x on FY24E EPS.

Result Highlights

* Reported revenue of Rs 34.1bn( up 4.1% QoQ in INR terms). The cc growth was 1.6% QoQ. The growth was led by TMT( up 5.6% QpQ), Logistics & Transportation( up 6% QoQ)

* Direct revenue grew by 5.0% QoQ; while DXC revenue declined by 4.4% QoQ. DXC now contributes 4.8% of gross revenue. Direct now acounts for 93.5% of revenue.

* EBIT margin increased by 8 bps QoQ to 15.3%, led by continued focus on productivity measures

* Reported new TCV wins of $302mn in the quarter vs $347mn in Q4FY22.

* Offshore revenue mix grew by 10 bps QoQ to 41.7%

* Added 365 ( up 1% QoQ)employees in the quarter to reach 36,899 employees. Excluding trainees, offshore utilization decreased by 300 bps QoQ to 74%.

* Cash and equivalents increased by Rs 3.3bn QoQ to Rs 31.1bn ? DSO increased by 2 days QoQ to 63 days

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