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Attrition down further, maintains at least 20% CC growth guidance for FY23 - Coforge Q2

ICICIdirect Research 25 Oct 2022 DISCLAIMER

What's Buzzing 

Coforge continued to guide for at least 20% CC revenue growth for FY23. The margin guidance band was maintained at 18.5-19% for FY23. Attrition of 16.4% was lowest in the industry. 


Revenues grew 6.2% QoQ in CC terms while dollar revenues grew 3.4% QoQ to US$246.9 mn. Rupee revenues were up 7.1% QoQ to Rs 1959 crore. Geography wise, the growth in revenues was led by America region (51% mix), which grew 3.4% QoQ while EMEA region (38% mix) reported growth of 7.9% on a low base (down 4.8% in Q1). Vertical wise, growth was led by BFS, insurance, travel verticals, which grew 11.1%, 3.9%, 2.9% QoQ, respectively, while manufacturing vertical reported a decline of 4.7% QoQ. Reported EBITDA margins were up ~165 bps QoQ while adjusted EBITDA margins (ex-Esop costs) were up 190 bps QoQ, aided by continued offshoring expansion, utilisation uptick, higher contribution from higher margin businesses and operational improvements. LTM attrition continued to be lowest among large peers as it was down 160 bps QoQ to 16.4%. The order book remains robust as TCV for the quarter was at US$304 mn. It added 249 employees during the quarter. 

Our Perspective 

The company's revenue performance continued to be robust while continued healthy TCV indicates that growth guidance of at least 20% in CC is achievable. The company is aspiring to reach US$2 billion (bn) revenues in the next five years (FY23-28). IT business headcount continues to be healthy while there has been a decline in BPO business headcount for last three to four quarters, which is partly as per plan on the company’s continuous focus on bringing in automation there and partly because of some mortgage exposure impacting volumes. Attrition continued to be the lowest in the industry. All verticals, including travel, are doing well and is expected to keep growth momentum ahead. We remain bullish on the prospects of the company on continued strong growth and attrition discipline. Pricing is also an important lever, which would play out in a gradual nature in our view. We estimate 16.8%, 20.4%, 21.3% revenue, EBITDA, PAT CAGR, respectively, in FY22-25E.

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