Coforge Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sulabh Govila - Morgan Stanley - Analyst : Congrats on a good quarter. Sudhir, you mentioned on the outlook near term as well as going forward. So I just wanted to double click on that. In the next quarter, particularly, what are you hearing on furloughs from the quarter and the expectation for the same versus, let's say, last year? And then with respect to verticals, last quarter, you had specifically called out BFS to grow, let's say, in double digit for the year. Is there any incremental positive change in other verticals also that you've heard during the quarter? That's my first one.

Question: Sulabh Govila - Morgan Stanley - Analyst : Understood, Sudhir. The second question I had was on Cigniti. Is the go-to-market and cross-sell plan already in motion there? And if you could highlight any updates on the same?

Question: Sulabh Govila - Morgan Stanley - Analyst : Understood. And then if a third question I may ask related to the bookkeeping question. Saurabh, below EBITDA, this one-off on transaction-related expenses as well as past liabilities from Cigniti. Just wanted to understand whether they will recur from 3Q or they are done?

Question: Abhishek Pathak - Motilal Oswal Securities Ltd. - Analyst : Yes. Great quarter. So I think as Sudhir mentioned, I guess, the signed revenue growth was probably a bigger surprise than the margin beat. My question -- the first question is considering the demand is now certainly recovering across the board. Does it now become easier to sort of cross-sell service lines and services to Cigniti clients in this environment? And if yes, does it significantly sort of change or other upgrade or expectations from Cigniti versus what we acquired, maybe six, seven months back. That's one. And secondly, on the headcount bit, I guess, you've been hiring quite strongly over the past couple of quarters. And the utilization levels are now at 82%. I guess a lot of your peers are operating at 85%. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 2:45AM, COFO.NS - Q2 2025 Coforge Ltd Earnings Call So is it tempting to sort of just sort of sweat the asset a bit more and go to 85% and manage margins or even exceed over there? Or do you think the demand is recovering sort of so much that you still want to hire and sort of still sort of build up that muscle on the headcount side?

Question: Abhishek Pathak - Motilal Oswal Securities Ltd. - Analyst : Very, very clear, Sudhir. And if I could just squeeze in one more on the Cigniti margins. So the three expansion is incredibly heartening. Now going forward, is there any more low-hanging fruit that you will quite easily plug and the margins may expand to your guided range? Or do you think it requires further -- it requires more discipline going forward on Cigniti?

Question: Debashish Mazumdar - Svan Investment - Analyst : Excellent set of numbers. So I have three set of questions. First on macro, second on organic cool and pardon Cigniti. So the first one is for Sudhir, obviously, Sudhir, if I remember correctly, one year back, you were the first person to call out that the macro recovery, what others are building and it is not going to come so easily. So do you think we have crossed that level and while recovery has kind of started coming back, especially in your sort of clients and sectors. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 2:45AM, COFO.NS - Q2 2025 Coforge Ltd Earnings Call

Question: Debashish Mazumdar - Svan Investment - Analyst : Okay, understood. The second question is related to the Coforge organic business. And congrats again for a good comeback quarter with a blown up kind of CC growth. The question that I have is, if I see the vertical-wise growth and geography-based growth, it seems to be extremely broad-based. So is it like that this 5% kind of number is sustainable for next two to three quarters because it has not come from any single customer or single vertical? And do you see that this recovery per path is going to continue for at least for the next three, four quarters?

Question: Debashish Mazumdar - Svan Investment - Analyst : Sure, sure. Good to hear that. Just a related question to that. If I see our hiring data. So in most of our peers, either revenue growth has come in, in that case, hiring doesn't come or vice versa. In our case, we are seeing that both revenue growth and hiring going hand in hand with a very tight utilization level of 80% to 82% and a tight attrition of 10%, 11%. So what I'm trying to understand is have we cracked a very good model kind of hiring and growth goes hand in hand and it doesn't create any impact on our utilization in sync quarter, we don't go into an upside hiring. We have moved into adjusting time hiring. So I just wanted to get some thoughts on the strategy there.

Question: Debashish Mazumdar - Svan Investment - Analyst : Sure. Sure. Very clear. One last question on Cigniti. In case when we were acquiring Cigniti, we were very clear that there are two, three large clients,

Question: Debashish Mazumdar - Svan Investment - Analyst : So just to harp on this point. So in this quarter, growth in Cigniti numbers, we are getting growth from selling higher Cigniti business to the existing clients in a more efficient way or it is like selling more Coforge capabilities to the existing clients of Cigniti?

Question: Vibhor Singhal - Nuvama Group - Analyst : Congrats, Sudhir and team yet again for a very strong performance. So my first question was on the travel vertical. This vertical had a pretty weak FY24. And not just for as entire impact for the entire industry. What is the outlook on this vertical? How are we seeing this? The growth has been quite strong this quarter for sure. So are things turning around? Are airlines, hospitality and other parts of it looking to increased net expense? And any other large deal pipeline that -- or deals that you might have signed or you might be looking to sign in coming quarters, Sudhir?

Question: Vibhor Singhal - Nuvama Group - Analyst : And what marks this change in the outlook for the vertical? From the commentary that we're hearing from payers, I believe in the airlines, people are -- companies are still really under the pressure of delayed delivery from Boeing, and that is why many of their programs have been pushed out and hence, the expense have been kind of muted. Any color on that? What has changed? And what is the view on the airline specifically?

Question: Vibhor Singhal - Nuvama Group - Analyst : Got it. That was really helpful. My second question, Sudhir, is on the overall banking segment. So of course, I mean excluding insurance, insurance, of course, had a rough solid quarter this year. On the banking vertical, what is the -- what are we looking at in terms of, let's say, new growth areas over and above our existing capabilities? How does Cigniti add -- I mean, I'm sure Cigniti has more presence in the other verticals that we are looking to farm. But any contribution from Cigniti? But if not, how is the overall outlook on banking, specifically on any other sub verticals that we might be looking to spawn?

Question: Vibhor Singhal - Nuvama Group - Analyst : Got it. Got it. And since you touched up on the call, any color as to how much mortgage could be in terms of revenue size or percentage of revenue?

Question: Vibhor Singhal - Nuvama Group - Analyst : Sure. Not a problem. I have just have some bookkeeping questions for sort of trivial but necessary nonetheless. So you mentioned the new ESOP scheme has been approved and the cost for that will come in from Q3?

Question: Vibhor Singhal - Nuvama Group - Analyst : And that would be -- how much basis point that you mentioned? I'm sorry I missed that part.

Question: Vibhor Singhal - Nuvama Group - Analyst : So next quarter, we are looking at a 90 to 100 basis point headwind from -- on a QoQ basis?

Question: Vibhor Singhal - Nuvama Group - Analyst : 120 bps.

Question: Vibhor Singhal - Nuvama Group - Analyst : Okay. Got it. Got it. So 38% is already there in the P&L?

Question: Vibhor Singhal - Nuvama Group - Analyst : Incremental spatially 140 basis points next quarter. And in Q1, another 30 basis points will go away, which is of the current ESOP?

Question: Vibhor Singhal - Nuvama Group - Analyst : So minus 1 20 in this quarter, Q3, same in Q4 and then plus 16 in Q1 just spread out the math.

Question: Vibhor Singhal - Nuvama Group - Analyst : Got it. Got it. And also, there was this INR 14.4 crores consulting expense in Cigniti this quarter. Last quarter, of course, we had some expenses. So I am assuming these are related to the merger and integration. Are these expenses now done? Or do you expect some more of them to come in Q3 and Q4?

Question: Vibhor Singhal - Nuvama Group - Analyst : Got it. Got it. And just last question on the open offer. As per a the timing of the open offer, we are looking to close in terms of post tendering and everything by November -- mid-November or any time is expected to close by December 7, if I read the shade correctly.

Question: Manik Taneja - Axis Capital Limited - Analyst : Really extremely strong performance once again. Just wanted to pick your thoughts on a very interesting statement that you made at the outset saying that the next seven years look much more exciting for the leadership team. If you could give us some -- while you've talked about the $2 billion revenue growth target, but if you could help us understand if you're looking at further acceleration in terms of growth given the platform that we've created now? That's question number one. The second question was with regards to basically more a bookkeeping question. In terms of what is yielding the cash generation for us through recent years, despite the fact that we continue to do extremely well from a growth standpoint? Those are all my questions.

Question: Manik Taneja - Axis Capital Limited - Analyst : We also wanted to get your thoughts around some of the recent deals. We've seen an increasing share of GDD rollout led deals in the industry, including for you. If you could help us understand what's driving that? And do you see that as a risk from a medium-term standpoint, given the call option that customers would have?

Question: Abhishek Bhandari - Nomura - Analyst : Thank you for the chance. All of my questions have been answered. Thank you and all the best.

Question: Kawaljeet Saluja - Kotak Institutional Equities - Analyst : Congratulations. A couple of questions. So first is that your deal pipeline and deal wins have been exceptionally strong, which I don't think in mirrors across the industry. But nonetheless, would have to get your views on whether it's the environment or something has changed in Coforge's portfolio? That's the first question. The second question relates to the question asked by Manik on GCC. I mean, how would you characterize the durability of revenues of GCCs. And how are the nature and shape of engagements defrayed? And the third question I have is for Saurabh. Saurabh, the gap in the Ind AS margins and the fact sheet margins have expanded quite a bit in the current quarter, what would you accept sale to? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 2:45AM, COFO.NS - Q2 2025 Coforge Ltd Earnings Call

Question: Ravi Menon - Macquarie Group - Analyst : Congrats on really good revenue numbers. Two questions. One, it looks like you integrated Cigniti, even though you still have only 27.98% stake. I guess this is because you now have control of the company. Is that right?

Question: Ravi Menon - Macquarie Group - Analyst : Second is the deal wins of $516 million. It's the third best in any quarter so far. Could you talk a bit about how much of a proportion of this are renewals and what's a net new?

Question: Ravi Menon - Macquarie Group - Analyst : Great. And any of the ECC deals, do they have any build-up rate transfer sort of structure?