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Maintains robust operating performance   

Our view and valuation

Overall, the performance was robust across operating parameters. While revenue came inline, EBIT margin was above estimates. Demand environment continues to remain robust for the company; though few clients have become cautious about evolving macroeconomic situation. Offshore and onsite employee attrition has started to moderate and that should ease pressure on margin. We expect it to be among the growth leaders in the Tier 2 IT companies  led by its capabilities across verticals and service lines and should be able to maintain net margin of 14?15% for FY23. Its hiring target for FY23 remains well on track and that offers strong revenue growth visibility.   It continues to remain one of our top picks in Tier?2 IT space, well positioned to capitalize on robust demand environment. We expect revenue CAGR of 18.8% over FY22?FY24E, with average EBIT margin of 17.0%.

We maintain BUY on the stock with revised target price of Rs 4,960/share at revised multiple of 27x on FY24E EPS. We have cut down target multiple from 34x to 27x to account for higher cost of capital(WACC) in this environment of high macroeconomic Uncertainty. The stock trades at PER of 21.1x on FY24E EPS.

Result Highlights

* Reported revenue of Rs 45.2bn( up 5.1% QoQ in INR terms, up 1.7% QoQ in USD terms). The cc growth was 2.9% QoQ. The growth was led by BFS( up 6.3% QoQ in USD terms; while Manufacturing( down 12.6% QoQ) had soft quarter. In terms of service offerings, Analytics, AI and Cognitive( up 8.5% QoQ): Enterprise Integration( up 8.8% QoQ) were growth drivers. North America( up 5.5% QoQ in USD terms) led the growth in terms of geographic breakup.

* EBIT margin was down 129 bps QoQ to 17%, on account of wage hike in the quarter and other supply side constraints.

* Deal booking remained strong as it booked 4 large deal wins with net new TCV of $79mn.

* Offshore revenue mix grew by 110 bps QoQ to 61.3%

* Added 2,118 employees in the quarter to end the quarter 48,766 employees. Employee utilization increased by 20 bps QoQ to 81.3%. LTM attrition was down 20 bps QoQ to 23.8%  

* Added 29 new clients during the quarter compared to addition of 25 in Q4FY22.

* Billed DSO decreased by 4 days QoQ to 61 days

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