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Coforge Q4FY22 result review: Guides for 20% revenue growth in FY23; attrition one of lowest in industry

ICICI Securities 12 May 2022

What’s Buzzing

Coforge guided for 20% revenue growth in CC in FY23. The margin guidance band was maintained at 18.5-19% for FY23. Attrition of 17.7% continues to be one of the lowest in the industry.

Context

US$ revenues grew 4.9% QoQ to US$232.4 million (5% QoQ growth in CC) while rupee revenues grew 5.1% QoQ to Rs 1,732 crore. The company did not call out organic growth for Q4. Geography wise, growth in revenues was led by EMEA region, which grew 23.9% QoQ while US business reported decline of 1.8% QoQ. Vertical wise growth was led by BFSI, which grew 2.3% QoQ while recovery in travel & hospitality resulted in growth of 15.2% QoQ. EBITDA margin improved ~70 bps QoQ to 18.9%. Adjusted margins for the quarter (adjusted for Esop and acquisition related costs) was at 20.6%, up 90 bps QoQ. LTM attrition was at 17.7% for Q4, up 140 bps QoQ. The company’s workforce for FY22 was at 22,500 with net addition of over 10,000 employees in FY22.

Our Perspective

The company’s revenue guidance for FY23 reflects strong growth in deal momentum, which is up 48% YoY. What stands out for Coforge is i) LTM attrition of 17.7% continues to be the lowest among its peers (only TCS is better at 17.4%) ii) the company continued to win large deals. It won 11 large deals, which includes one 100 mn+ deal and three 50 mn+ deals while peers mentioned about unavailability of many large deals in the market, which could mean wallet share gain, iii) more confident commentary on pricing compared to earlier quarters. The company is aspiring to reach US$2 billion revenues in the medium term. We do not see any risk on the same due to strong deal momentum. The company’s margin guidance despite significant salary increase in FY23 vs. FY22 is commendable and is also on account of their continued focus on offshore revenues and pyramid optimisation with an elevated level of fresher hiring in FY23. Pricing is also an important lever, which would play out in a gradual nature, in our view. We estimate 18.1%, 18.1%, 21.5% revenue, EBITDA, PAT CAGR, respectively, over FY22-24E.

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