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Steady operating performance

MTCL delivered a steady operating performance in Q4. Revenue grew by 4.7% QoQ (CC 5.2%) to USD383.8mn, broadly in line with our expectations. EBITDAM contracted by ~50bps QoQ to 21% and came in a tad better than our expectations.

Deal wins remained healthy in Q4 at USD390mn vs. USD358mn in Q3, taking the TCV of deals signed in FY22 to ~USD1.6bn (16.7% YoY). Management indicated that the deal intake remains well-balanced across annuity and transformational deals.

The company is confident about maintaining revenue growth momentum and delivering top quartile growth in FY23 while sustaining EBITDAM over 20% on the back of broadbased revenue growth, strong deal wins, and a healthy deal pipeline.

We raise our FY23E/24E EPS by 3.2%/3.5%, factoring in the Q4 performance and higher other income assumptions. Considering rich valuations, we maintain Hold rating on the stock with a TP of Rs4,400 (Rs4,300 earlier) at 33x Mar’24E EPS.

What we liked? Broad-based revenue growth, healthy deal intake and margin beat amid supply-side challenges

What we did not like? Uptick in LTM attrition (23.8% in Q4 vs. 21.9% in Q3FY22; though quarterly annualized attrition fell to 24.9% from ~29.5% in Q3FY22) and softness in RCM

Revenue growth momentum remains healthy: Revenue grew by 4.7% QoQ (5.2% CC) in Q4, thanks to a strong broad-based demand environment, steady progress on client mining, deepening partnerships with cloud hyperscalers, and a steady ramp-up of past deal wins. Revenue growth was broad-based, led by TTH (9.3% QoQ), BFSI (8.9%) and CMT (5.2%). RCM declined sequentially by 2.6% due to the ramp-down in retail account, while Healthcare, the newly carved-out vertical, maintained its momentum and grew by 20.9% QoQ albeit on a small base. Management is confident of sustaining the revenue growth momentum, driven by the strengthening of relationships with its existing clients, adding new logos with focused upselling and cross-selling, stitching new partnerships with strategic partners, and diversifying its offerings. The Top client grew by 4.7%, and management reiterated confidence in sustaining growth in the top account while widening the growth base by expanding relationships with other strategic accounts and reducing the dependency on the top client. Management believes that the urgency of clients to shift to cloud will continue to drive demand and it is confident of delivering industry-leading profitable growth in FY23 on broad-based robust demand, healthy deal intake, deal pipeline, aggressive customer mining, end-to-end digital capabilities, and disciplined execution

Aspires to achieve 20%+ EBITDAM: Q4FY22 EBITDAM contracted by 50bps QoQ to 21% and came in 30bps above our estimates. MTCL aspires to achieve 20%+ EBITDAM, supported by sustained revenue growth momentum, right pricing, a flattening employee pyramid (added 1,500+ freshers/qrtr in last 2-3 quarters, plans to ramp it up further in FY23) and optimization of subcontracting expenses. These factors should help negate the impact of rising costs of talent, considering strong demand and tight job markets, anticipated wage hikes wef Q2FY23 and investments in front-end sales, and identified white space opportunities.

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