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Overall, performance was ahead of expectations

Our view

Overall, the performance in the quarter was well ahead of expectation. Demand environment continues to remain robust for the company. We expect it to be among the growth leader in the Tier 2 IT companies and should be able to maintain net margin of 14‐15%. Trades at PE of  35.7x on FY24E EPS. It continues to remain one of our top picks in Tier‐2 IT space. We maintain BUY on the stock with revised target price of Rs 7,864/share.

Result Highlights

* Reported revenue of Rs 37,670 mn(up 8.8% in INR terms; up 8.3% in USD terms).   The growth was broad‐based;   led by strong performance in the manufacturing vertical which grew 12.4% QoQ. In terms of   geographies, the growth was led by North America( up 8.9% QoQ), accounting for 67.5% of revenue.

* EBIT margin increased by 80 bps QoQ to 17.2%, above expectation, led by positive operating leverage as SG&A declined from 12.3% of revenue in Q1FY22 to 11.5% in Q2FY22.

* Offshore revenue mix increased by 190 bps QoQ to 59.2% as per industry trend. Total number of active clients grew by 25 QoQ to 463

* Utilisation ( excluding trainees) was down 40 bps QoQ to 83.7% on higher hiring in the quarter  

* LTM attrition increased by 440 bps QoQ to 19.6% in line with industry trend . Total number of employees increased by 4,084 QoQ to 42,382.

* Declared interim dividend of Rs 15/ share, with Oct 26 as the record date.

Valuation

The stock trades at PER of 35.7x on FY24E EPS. Robust deal booking provides strong visibility about revenue outlook and the company remains focused on growth while maintaining net margin of 14‐15%. We rollover to FY24 estimates and value the stock at 41x on FY24E earnings, arriving at target price of Rs 7,864/share .

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