IT Slowdown: 2024 To Be A Repeat Of 2023, Coforge CEO Says
Coforge’s robust performance has come despite the slowdown, CEO Sudhir Singh says. That has given the company enough confidence to retain its growth and profitability guidance for FY24.
2024 is set to bring with it a sense of déjà vu for India’s IT services industry, as the veil of slowdown seen last year is unlikely to lift.
That’s according to Sudhir Singh, chief executive officer of Coforge Ltd., which—despite the uncertainties around demand—has managed to live up to growth expectations in a lacklustre year, so much so that the company has retained its annual guidance set at the beginning of the ongoing financial year.
“As we are planning for the future, we hope to turn in robust, sustainable and profitable growth, but as far as planning is concerned, we are assuming that this year will be a repeat of last year on the demand front,” Singh told NDTV Profit, during a post-earnings interaction on Tuesday. “And I want to underline this: our performance has come despite very weak macros. We do not see any material uptick in demand any time soon.”
Revenue of the Noida-based IT services firm rose 2.1% over the previous three months to Rs 2,323.3 crore in the quarter ended Dec. 31, according to an exchange filing on Monday. That compares with the Rs 2,340-crore consensus estimate of analysts tracked by Bloomberg.
Coforge Q3 Results: Key Highlights (Consolidated, QoQ)
Revenue up 2.1% at Rs 2,323.3 crore (Bloomberg estimate: Rs 2,340 crore).
Revenue up 1.8% in constant currency terms, 1.4% in dollar terms.
EBIT up 19.1% at Rs 314 crore (Bloomberg estimate: Rs 328.4 crore).
EBIT margin up 193 bps, at 13.5% (Bloomberg estimate: 14.04%).
Net profit up 29.2% at Rs 242.8 crore (Bloomberg estimate: Rs 245.73 crore).
That performance, in a seasonally weak quarter, has allowed the company to retain its revenue growth guidance at 13-16% for the fiscal ending March 31. Even operational profitability is seen sustaining at more than 18%.
What’s giving Coforge confidence is its deal wins, and how they are converting into revenue.
“The revenue has come on the back of the ability to execute plans and the large deals we have been signing on a consistent basis,” Singh said.
Coforge has signed eight large deals so far this fiscal, including three in the seasonally weak third quarter. In fact, the company has clocked deal wins in excess of $300 million for eight straight quarters. Additionally, the company has set up a new organisation structure to focus on $50-100 million clients and identified six service lines to drive long-term growth.
“What’s always marked us out is that when we talk up our large deals, we do follow it up with revenue growth in the subsequent quarters,” he said. “As we look at our current pipeline, we feel very confident about the fact that our deal velocity is likely to sustain, and that it will continue to drive growth for us.”
“If you look at our results, in the first three quarters, we are growing at 14.3% in constant currency terms—this is all organic growth. We are currently doing that on the back of the large deals we have been signing.”
To be sure, Coforge wasn’t immune to the seasonality at play.
While the company has maintained its growth expectations for FY24, thanks to extreme furloughs, it expects the top line to come in at the lower end of the 13-16% range. The furloughs ate into the margins as well, about 40-50 basis points, but were offset by lower ESOP cost and higher gross margin. The management has indicated that client budgets are likely to remain flat in fiscal 2025.
On Tuesday, Coforge shares fell 1.24% to Rs 6,200.10 apiece on the BSE even as the benchmark Sensex ended the day 1.47% lower at 70,370.55 points.
