Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Coforge Ltd (BOM:532541, Financial) reported a strong sequential revenue growth of 26.8% in US dollar terms for Q2 FY 2025.
- The company's organic business grew by 6.3% sequentially, while the Cigniti business grew by 6.1%, showcasing robust performance across both segments.
- EBITDA margin for the quarter improved to 15.8%, reflecting a year-on-year growth of 37.6%.
- The order intake for the quarter was USD 516 million, with a significant increase in the next 12 months signed order book by 40% year-over-year.
- Coforge Ltd (BOM:532541) has successfully integrated Cigniti, with synergies exceeding expectations and a target to achieve an 18% EBITDA margin for Cigniti by the end of the financial year.
Negative Points
- The organic EBITDA margin for the quarter declined by 126 bps over the previous quarter, impacted by wage hikes.
- Acquisition and integration-related expenses had a 2.3% impact on profitability, which is expected to normalize in coming quarters.
- The company faces potential headwinds from ESOP costs, expected to increase by 180 to 200 bps per quarter for the next two quarters.
- There are concerns about the durability of revenues from GCCs, as initial mandates are time-bound and may not sustain long-term.
- Despite strong performance, the macroeconomic environment remains uncertain, particularly in the banking sector, due to geopolitical events and high inflation.
Q & A Highlights
Q: What are the expectations for furloughs in the next quarter, and how are different verticals performing?
A: Sudhir Singh, CEO: We expect furloughs to be in line with the normal trend in quarter three. BFS has grown 5.2% sequentially, insurance by almost 9%, travel by more than 6%, and government by more than 6%. We maintain our assertion that all verticals will deliver growth in the same ballpark going forward.
Q: Is the go-to-market and cross-sell plan for Cigniti in motion, and what are the updates?
A: Sudhir Singh, CEO: The go-to-market plan is firmly in place, led by a Coforge leader. Cross-sell is moving exceptionally well, with the team embracing the additional service lines they can now sell.
Q: Are there any recurring transaction-related expenses or past liabilities from Cigniti expected in the future?
A: Saurabh Goel, CFO: We don't expect any past liabilities to come in as we've addressed expected exposures. Integration-related expenses will be minimal in the next few quarters and then will die off.
Q: How is the demand environment affecting cross-sell opportunities with Cigniti clients, and what is the strategy for headcount and utilization?
A: Sudhir Singh, CEO: The demand environment recovery is not the main driver; it's the synergy between our teams. We are not looking to increase utilization further as we want to address the strong pipeline and growth opportunities.
Q: What is the outlook for the travel vertical, and are there any large deals in the pipeline?
A: Sudhir Singh, CEO: The large deal pipeline for the travel vertical is promising, with deals in IT modernization, GCC ramp-up, e-commerce, and guest experience. Travel tech firms are in a massive spend phase, and our efforts in displacing competition are working well.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
