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Coforge Q1FY23 result review -Guided upgraded to at least 20% CC revenue growth in FY23

ICICIdirect Research 25 Jul 2022 DISCLAIMER

What’s buzzing:

Coforge now guiding atleast  20% CC revenue growth in FY23 vs earlier guidance of 20% growth, margin guidance band maintained at 18.5-19% for FY23. Attrition at 18.0% now is even lower than TCS

Context:

The company’s revenue grew 4.7% QoQ in CC terms while dollar revenues grew 2.7% QoQ to US$238.7 million. Rupee revenues were up 5% QoQ to |1,829 crore. Geography wise, the growth in revenues was led by America region (51% mix) which grew by 5.6% QoQ while AMEA region (12% mix) reported growth of 18.7% on low base. The growth in EMEA region was weak as it reported decline of 4.8% QoQ.  Vertical wise growth was led by BFSI/Manufacturing which grew by 9.4%/8.5% QoQ respectively while insurance vertical reported decline of 7.7% QoQ. Travel vertical was flat QoQ ( on base of 15% QoQ growth in the last quarter) . EBITDA margin declined ~300bps to 16% on salary hikes and increase in SG&A costs. LTM attrition continue to be lowest amongst the large peers  as it increased by only 30bps QoQ to 18%. Order book remains robust as TCV for the quarter was at US$315mn which is one of the highest quarterly order book.

Our Perspective:

The company’s revenue and EBITDA guidance for FY23 factors in all the possible macro headwinds. What is standout for Coforge is its attrition, which is now even lower than TCS at 18%. The deal win continue to be robust as it is one of the highest quarterly TCV for the company which is expected to provide momentum for revenue growth ahead. The company expects margins to improve  by 150bps to 200bps QoQ due to continued higher offshoring focus as well as utilisation improvement going forward due to deployment of freshers it hired in FY22. BFSI continued to show growth momentum because of large deal wins in this segment ( US$105mn deal in Q1FY22 and another US$50mn deal in Q4FY22). On travel vertical, the company is already above the pre-pandemic level while cloud transformation, contract less on boarding and automation are some of the key areas of spending in this vertical. The only service vulnerable to any possible slowdown in client spending ahead will be ADM( application development ), 24% of the revenue mix. We baked in 19.1%/26.3%/28.2% revenue/EBITDA/PAT CAGR growth over FY22-24E.   

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