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Both revenue and margin performance was muted.

Our view

Overall, the performance was less than expectation in terms of revenue growth and margin. The weak seasonality of third quarter also had an impact on the company.   Robust deal booking provides strong revenue visibility. But, it continues to face the margin headwinds as attrition remains high.  The new business strategy with focus on deeper connect with clients seems to be working fine.  We maintain ADD Rating on the stock with revised target price of Rs 741/share

Result Highlights

* Reported revenue of Rs 203.1bn, up 3.3% QoQ in INR terms‐ below expectation. IT services revenue grew 2.3% QoQ in USD terms to $2.64bn. The revenue growth was led by strong performance in BFSI and consumer verticals.

* EBIT margin was down 37 bps QoQ to 16.9%, mainly led by higher employee cost ( cost of revenue) that grew 4.2% sequentially.

* Deal booking remained strong as it closed 11 large deals with TCV of over $600 mn.

* Total number of active customers increased by 31 QoQ to 1315. Total number of headcount increased by ~10,300 QoQ to 231,671. Net utilization was down 340 bps QoQ to 85.8 %, led by higher fresher onboarding and seasonal factor.

* LTM attrition increased by 220 bps QoQ to 22.7%, as demand for talent remains strong.

* Declared an interim dividend of Rs 1/ share.

* Guided for sequential revenue growth of 2‐4% QoQ for Q4FY22

Valuation

The stock trades at PER of 21.9x 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 25x on FY24E earnings, arriving at target price of Rs 741/share.

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