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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%.    It continues to remain one of our top picks in Tier‐2 IT space, well positioned to capitalize on demand environment. We maintain BUY on the stock with revised target price of Rs 7,952/share

Result Highlights

* Reported revenue of Rs 41.4bn, up 9.8% in INR terms( up 8.6% in USD terms) , well above estimate. The growth was broadbased‐  led by 19% QoQ growth in manufacturing vertical. Analytics, AI and Cognitive continue to be key growth driver at 13.8% QoQ growth.

* EBIT margin was up 74 bps QoQ to 17.9%, led by 40bps benefit from operating leverage and 30 bps benefit from currency movement

* Demand environment remains very strong with deal pipeline significantly ahead of same quarter last year.  

* Added 27 new clients in the quarter to reach 476 active number of clients.

* Added around 1800 employees in the quarter to reach 44,200 employees. LTM attrition increased by 290 bps QoQ to 22.5% , though quarterly attrition has almost peaked.  

* Utilisation( excluding trainees)   was down 230 bps QoQ to 81.4% on Q3 seasonality

Valuation

The stock trades at PER of 34.5x 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 value the stock at 41x on FY24E earnings, arriving at target price of Rs 7,952/share

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