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Topline beat led by the direct channel, margin in line

In USD terms, revenue grew 18% YoY above our estimate of 16% growth in 2QFY22. Adjusted EBIT (excluding a M&A charge) rose 15% YoY (est. 13%) and APAT grew 19% (est. 19%). P&L highlights

* Revenue grew 6.1% QoQ to USD385m, above our estimate of 4.8%. In CC terms, revenue growth stood at 6.6% QoQ and 17.2% YoY.

* EBIT margin (adjusted for a M&A charge) dipped 10bp QoQ to 15.8%, in line with our estimate of 15.8%. Reported EBIT stood at 15.1%.

* Reported PAT was flat QoQ at INR3.6b. While PAT adjusted for a M&A charge grew by 5.2% QoQ and 19.5% YoY.

Strong momentum in the direct channel, drag in DXC continues

* The stellar growth in the direct channel (+9.9% QoQ CC; +31.5% YoY CC) was encouraging. However, the strong momentum was partially offset by a 24.5% sequential decline (down 53.3% YoY) in the DXC business (run-rate down to USD25m).

* DXC now contributes only 6% to overall revenue (v/s 9% in 1QFY22).

* Growth was led by BFS (+13% QoQ), while other verticals were soft: Insurance +2.1% QoQ, TMT -6.5%, Logistics and Transportation -0.8%, and Others +2.5%.

* Within Services, growth was driven by Infrastructure Services (20.3% QoQ), followed by Application Services (+4.8%), and Business Process Services (3.4%).

* Total headcount stood at 32.3k employees, implying a net staff addition of 841.

* Offshore utilization, including trainees, reduced by 100bp to 80%.

MPHL had a new deal TCV of USD241m in the direct channel, of which 68% were in new-gen services.

* Valuation and view: We would revisit our estimates after the earnings call. We await further clarity on its near-term outlook, DXC channel, and margin. We maintain our Buy rating.

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