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Our view

The revenue growth was slight above expectation due to robust organic growth as well as contribution from Capco acquisition. However, the margins have come under pressure due to wage hike and higher attrition. While some of margin pressure would be managed through improved employee pyramid and other productivity measures, but the risks to margin remain. Organic revenue growth for FY22 would be in double digit led by robust deal wins. The valuation remains stretched as its trades at 22x on FY23 earnings. Consequently, we maintain ADD on the stock with revised target price of Rs 625.

Result Highlights

* Revenue growth at 12.2% QoQ in USD terms for IT services was slightly above estimate even after considering the completion of Capco acquisition in the quarter.   Organic growth was 4.9% QoQ. Growth was broadbased as BFSI grew 23% QoQ, Consumer grew 14% QoQ and Energy and utilities grew 11.8% QoQ; there was some softness in manufacturing vertical.

* Excluding other operating income, Consolidated EBIT margin was down 330 bps QoQ, as per estimates , due to wage hike , more hiring and adverse margin impact of Capco acquisition.  

* For Q2FY22, it has provided strong revenue guidance of 5‐7% sequential growth in IT services.( Capco impact is considered)

* Net utilisation increased by 80 bps QoQ to 86.8%.

* LTM Attrition increased by 340 bps QoQ to 15.5%. Added ~12,000 employees in the quarter.

* Added 129 customers in the quarter compared to 52 addition in Q4FY21.

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