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Strong show in the Direct segment of the company

Our view

Overall, the revenue growth was strong, while the margin came below expectation. Now, the Direct segment has been powering the growth of the company, while DXC segment revenue has become insignificant and likely to stabilize at mid single digit of revenue contribution. We expect revenue to grow at CAGR of 16.9% over FY22E‐ FY24E with average EBIT margin of 17.2%. We maintain ADD on the stock with revised target price of Rs 3,550/share.

Result Highlights

* .Reported revenue of Rs 28.7 bn( up 6.6% QoQ in INR terms) which was above estimate. The growth was led by strong sequential growth of 9.8% QoQ in the Direct segment which contributed 92% of revenue. In terms of verticals, the growth was led by BFSI segment(55% of revenue) grew 13.3% QoQ.

* DXC segment revenue declined by 25.5% QoQ  as per the trend and it contributed 6% to revenue.

* EBIT margin declined by 81 bps QoQ to 15.1%( below expectation), on account of higher general and administrative expenses to 5.6% of revenue from 4.2% of revenue.

* Deal momentum remained strong with New TCV wins of $241 mn.  

* Onsite revenue mix was flat QoQ at 59%.

* Added 841 employees QoQ to reach 32,295 employees. Offshore utilisation including trainees decreased by 100 bps QoQ to 80% on higher hiring.

Valuation

The stock trades at PER of 30.3x on FY24E EPS. Robust deal booking provides strong visibility about revenue outlook over medium term. However, it faces potential margin headwinds such as travel expenses coming back and high attrition. We rollover to FY24E estimates and value the stock at 33x on FY24E earnings, arriving at target price of Rs 3,550/share  

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