Coforge hosted conference call on July 202024. In the conference call the company was represented by Mr Sudhir Singh-MD and Mr Saurabh Goel-CFO.

Key Takeaways of the call

Revenue for the quarter stood at Rs 2221.0 crore and US$ 271.8 million up 2.7% QoQ and 18.4% YoY in constant currency (CC) terms.

The travel and transportation vertical remained muted this quarter, indicating initial signs of softness in the segment.

EBITDA margin stood at 16% in Q1FY2024 and was down 360 bps QoQ. Decline in margin was due to wage hikes, visa cost, continued investment in talent, and increasing bench strength in anticipation of growth in top accounts. The margin contraction was in anticipated line of the company.

The company expects the margins to follow an earlier trend of wage hike cycle, where the impact in Q1 is prominent followed by gradual recovery for the rest of the year.

Human Recourse:

Head count as on June end stood at 24224 with net addition of 1000 people during the quarter.

LTM attrition stood at 13.3% down 470 bps YoY.

During the quarter, the company rolled out annual wage hikes for all the employees and honored all commitments to onboard campus hires. The compensation revision also included annual bonus and ESOP components.

Order Book:

Total order book executable over the next 12 months at US$ 897 million.

Order intake was US$ 531 million during the quarter. Q1FY2024 was the sixth consecutive quarter of US$ 300+ million order intake. Of the total TCV of US$ US$ 531 million, North America contributed US $ 156 million, EMEA contributed 346 million and the balance was US $ 30 million was contributed from RoW.

The order intake included one US $ 300 million deal and one US $ 65 million deal. The US $ 300 million deal is originating from a strong three-year old client relationship and it is on the vendor consolidation side, which has US $ 60 million lock-in revenue every year for the next five years.

The company added 6 new clients during the quarter.

Management is confident to get the order backlog executed on time as all these deals are signed contracts and hold integrity. It does not expect any material slippages to have any meaningful impact on its growth trajectory.

Guidance:

The management has retained revenue growth guidance in the range of 13-16% in cc terms for FY2024 and has maintained the full-year EBITDA (Pre-RSU) guidance of 18% in FY2024. The company expects 50 bps improvement in gross margin.

Outlook:

The demand environment continues to be stressed. However, the deep vertical presence and differentiated horizontal offerings are insulating the company against the current environment.

The management of the company indicated that Travel, Transport and Hospitality (TTH) vertical is doing significantly well. The company has gained higher wallet share from existing accounts. However, TTH vertical is facing a supply crunch at this moment due to higher demand.

Within BFS, the banks are struggling to take decisions in the short- to medium-term and they are monitoring the macros closely. Outside mortgage, asset wealth management and Retail & Commercial banking remained weak. Mortgage business is small within BFS to have an impact on revenues.

Dividend: The Board of Directors have recommended dividend of Rs 19 per equity share.

Management Commentary:

Commenting on the performance Mr Sudhir Singh, Chief Executive Officer said: “Exceptional execution by Team Coforge in a testing environment allowed us to deliver another quarter of sustained, robust and profitable growth. The five-year $ 300Mn TCV deal in the BFS space along with another five year $ 65 Mn TCV deal in the same sector underlined the execution rigor of the team. During the quarter we increased our net headcount by 1000 employees to support future growth, fully rolled out the annual salary increments for our employees on April 1st, honored all commitments to onboard campus hires, met our commitment to distribute around 21,500 i-pads to employees to mark our $ 1 Billion milestone and saw attrition drop down to 13.3%. The quarter’s performance sets us up very well for meeting our annual revenue guidance of 13% to 16% cc growth.”