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Maintained steady operating performance

Our view and valuation

Overall, the revenue and margin performance in the quarter was broadly inline with expectation. Demand environment continues to remain robust in all the operating segments of the company as reflected in deal booking for the quarter. It has reiterated FY23 revenue guidance of 13.5?15.5% growth in USD terms, which remains as per expectation. Its hiring target for FY23 remains well on track and that offers strong revenue growth visibility. Other expenses such as travel and admin costs have started increasing as offices open gradually. However, positive operating leverage, better revenue mix and continued focus on productivity measures should enable EBIT margin above 18% in medium term. We expect revenue CAGR of 16.2% over FY22?FY24E with average EBIT margin of 18.3%.

We change our Rating from ADD to NEUTRAL on the stock, inline with revised Recommendation parameters    and    value it at 27.5x on FY24E earnings, arriving at target price of Rs 3,388 /share. We have cut down target multiple from 35x to 27.5x to account for higher cost of capital(WACC) in this environment of high macroeconomic uncertainty. The stock trades at PER of 25.1x on FY24E EPS.

Result Highlights

* Reported revenue of Rs 18.7bn (up 6.7% QoQ in INR terms, up 3.2% QoQ in USD terms). Growth was led by Plant engineering( up 7.5% QoQ) and Industrial products( up 4.4% QoQ), benefiting from spends towards digital manufacturing, energy transition and smart and connected products. Telecom and Hitech( up 0.1% QoQ) had muted performance in the quarter. 

* The CC(Constant currency) revenue growth for the quarter was 4.7% QoQ

* EBIT margin declined by 32 bps QoQ on higher other expense, up 8.8% QoQ (Wage hike would be in Q2)

* Reported all time high deal booking in the quarter. Won a total of seven deals with TCV of $10mn plus, that includes a 50mn deal.

* Offshore revenue mix grew 160 bps QoQ to 56.2%, inline with trend.

* Number of active clients grew by 13 QoQ to 337.

* Net headcount increased by 572 QoQ to 21,433. LTM attrition increased by 280 bps QoQ to 23.2%.

* Maintained its revenue growth guidance of 13.5%?15.5% in USD terms for FY23

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