Coforge Ltd Q3 2024 Earnings Call Transcript

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

Question: Girish Pai - Nirmal Bang - Analyst : Okay, thanks for the opportunity. Sudhir, just wanted some comments on what you said in the analyst meet in July of last year, you talked about a competitive situation where there was a lot of price based [tussle] going on between various players. Has the competitive situation improved or worsened or it still remains the same?

Question: Girish Pai - Nirmal Bang - Analyst : The other comment that you made in that analyst meet was around generative AI where you kind of hinted at potential deflationary pressures coming from there. Do you see that kind of panning out in the immediate term or you think it's going to be like somewhere down the pipe? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2024 / 11:30AM, COFO.NS - Q3 2024 Coforge Ltd Earnings Call

Question: Girish Pai - Nirmal Bang - Analyst : And if I may squeeze a last question. This is regarding leakage of -- in your TCV numbers, are you seeing any leakage and if there is one, is that higher compared to say what you saw 12 months back?

Question: Girish Pai - Nirmal Bang - Analyst : Okay, thank you Sudhir. Thank you.

Question: Sandeep Shah - Equirus Securities Private Limited - Analyst : Yes, thanks. Thanks for the opportunity. First question is looking at the demand commentary, it's slightly mixed across verticals. So is it fair to assume with the headwinds which we are still witnessing in the macro versus some of your consulting peers are actually talking about discretionary spend revival, which could happen in the BFSI as a vertical. Is it fair to assume in the worst case scenario also what we achieve in a constant currency growth in FY24 we can actually replicate that in FY25. I'm asking Sudhir is at the end of last calendar year, the 12-month executable order book has grown at 20% versus this time we are at the end of the calendar year, it is growing at 16%.

Question: Sandeep Shah - Equirus Securities Private Limited - Analyst : Okay. And the second question is in terms of margins. I agree there has been a good pickup in terms of the gross margins, but the kind of utilization increase, the kind of offshore increase, is it fair to assume FY25 would see slightly higher tailwinds in terms of average resource cost as well as some amount of SG&A leverage versus the investment which we are doing in (inaudible) ?

Question: Sandeep Shah - Equirus Securities Private Limited - Analyst : Okay. And just the last bookkeeping observation. Once suggestion, please don't stop giving separate line item on cost of revenue as well as the ESOP cost because we guide on our adjusted EBITDA margin.

Question: Shradha Agarwal - AMSEC - Analyst : Yes, hi, Sudhir. Congrats on a good quarter. Couple of questions. First is on the three large deal wins that we've spoken about, can you quantify a bit more of renewals, (inaudible) a new deal component involved in it? And if yes, what could be the quantum of new deal signed? And what verticals are spread across?

Question: Shradha Agarwal - AMSEC - Analyst : Got it. And in terms of our performance geography wise, it seems that the furlough impact in Europe this time around was not as significant as what we saw in the US. So if that was the case and if at all in general, how are the growth dynamics between the two geographies?

Question: Shradha Agarwal - AMSEC - Analyst : That's helpful. And Saurabh just one question, could it be -- would it be possible for you to give the breakup of other income?

Question: Shradha Agarwal - AMSEC - Analyst : Sure, thanks.

Question: Ravi Menon - Macquarie Group - Analyst : Hi thank you. So you talked about how BFS continues to be having a difficult time, but the last four quarters, you've delivered good growth in BFS. So could you give us some idea about what sort of programs are you seeing and what is the pipeline looking like over there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2024 / 11:30AM, COFO.NS - Q3 2024 Coforge Ltd Earnings Call

Question: Ravi Menon - Macquarie Group - Analyst : Thanks. And it looks like Europe done really well this quarter, I think even year on year, Europe is up a lot better than the US. So again, any color on the verticals? What's really contributed to growth there and can be sustained?

Question: Ravi Menon - Macquarie Group - Analyst : (inaudible) utilization, how much headroom do you think you have to improve that?

Question: Ravi Menon - Macquarie Group - Analyst : Thank you so much, best of luck.

Question: Abhishek Kumar - JM Financial Ltd - Analyst : Yeah, hi, thanks for taking my question. This is Abhishek from JM Financial. Sudhir, as you rightly mentioned, the story of Coforge has been to eke out growth in a challenging environment. But when I look at the performance across verticals, even if I look at the nine months of this year, it seems to be again driven predominantly by BFS. While I think at the beginning of the year, you had said that probably most of the verticals will grow in a narrow range. So just wanted to understand, you know, the demand in other verticals are kind of surprised us negatively or we have not been able to eke out the growth in other verticals as well as we have been able to do in the BFS. Any color? And the question really is because if the trend continues, does it become a headwind next year.

Question: Abhishek Kumar - JM Financial Ltd - Analyst : Okay. That's helpful. Thank you and all the best.

Question: Kavaljit Saluja - Kotak - Analyst : Hi. Thanks for giving me the opportunity. And Sudhir congratulations on once again, a robust quarter. A couple of housekeeping questions and then a question for you Sudhir. But Saurabh for you, Saurabh, a couple of questions are at first is that have you locked in on the type of instrument REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2024 / 11:30AM, COFO.NS - Q3 2024 Coforge Ltd Earnings Call of ESOPs that you want to give out because the accrual that you're taking is 3%, which seems to be (inaudible). So are you ongoing for an (inaudible) structure or more of a ESOP structure, which is a discount to the market price?

Question: Kavaljit Saluja - Kotak - Analyst : Okay, (inaudible) to basically have a preference between the two ESOPs where would you -- what would you prefer?

Question: Kavaljit Saluja - Kotak - Analyst : Okay. Other question for -- thanks for that Saurabh, other question is for Sudhir. Sudhir, I just saw a couple of changes at the Board level, is the Board refresh complete, post the change in post exit of bearing or that's something which will materialized a complete (inaudible) at a latter date? And second is that if they don't want to be additions right? What sort of type of additions you would love to see? (multiple speakers) the Board, but nonetheless, I understand that.

Question: Kavaljit Saluja - Kotak - Analyst : Okay, fantastic. The third question again for (inaudible) when I look at the composition of our revenue mix, of course, you always had a different mix courtesy the strength in Europe. But when I look at the growth in ROW, that's been quite remarkable. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2024 / 11:30AM, COFO.NS - Q3 2024 Coforge Ltd Earnings Call Just wanted to get a bit more of a say insight with the type of program, the idea of winning in the ROW world. This question is more in the context of the fact that for the industry, ROW has never been a very happy hunting ground yet so.

Question: Kavaljit Saluja - Kotak - Analyst : Thank you so much and all the best in the future.

Question: Manik Taneja - Axis Capital - Analyst : Thank you for the opportunity. And once again, congratulations for the steady execution. Sudhir, while you already answered a few questions around outlook let me trying my luck once again. So given the macro backdrop, given the exit arithmetics this year heading into FY25 and both looking at your order and executable order book, how should one be thinking about FY25 growth compared to FY24, and (inaudible) front? That's question number one. The second question was for Saurabh with regards to our segmental margins. While you've provided some outlook around the Asia Pacific business mix. But when I look at your segmental margins, both India and Asia-Pac seems to be a drag on margins, if you could talk about what's reeling that and how should we be thinking about the trajectory going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2024 / 11:30AM, COFO.NS - Q3 2024 Coforge Ltd Earnings Call

Question: Rahul Jain - Dolat Capital - Analyst : Hello.

Question: Rahul Jain - Dolat Capital - Analyst : Yeah hi, just two questions. Firstly, on the travel, of course, you gave some insight to us, but would appreciate if you could help us reconcile that why the expenses would have taken hit? Is it because they have a lot of one time spend they did in the past there was not getting in this year. While this is a higher market competitiveness, are there any other factor that you would highlight?

Question: Rahul Jain - Dolat Capital - Analyst : Yeah. So I'm saying that in the travel vertical that we have seen relatively weaker performance or flattish performance, is it because there's a lot of spend that happened in the previous calendar, which were like one off -- onetime in nature, and that's why we could see this? Or this is simply a function of higher competitiveness that we observed in the previous calendar, otherwise, this has been our strength area. So what explains that?

Question: Rahul Jain - Dolat Capital - Analyst : Right. And secondly, you know, since we are at the end of the quarter three, would it make better sense to narrow down on the top end of the band for our guidance, given the visibility that being high for the (multiple speakers)

Question: Rahul Jain - Dolat Capital - Analyst : Sure, that's helpful. Thanks a lot and best of luck for the time.

Question: Ashwin Mehta - Ambit Private Limited - Analyst : Yeah, can you hear me? Yeah thanks for the opportunity. Just one question, Saurabh, in terms of other expenses, there was a INR69 crore increase this quarter and this was more than our revenue increase. So just wanted to get a sense in terms of the nature of this increase, is it more any bought out items or pass through elements which are driving this? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 22, 2024 / 11:30AM, COFO.NS - Q3 2024 Coforge Ltd Earnings Call

Question: Ashwin Mehta - Ambit Private Limited - Analyst : Thanks Saurabh. That explains, all the best for the future.

Question: Ashish Das - Mirae Capital - Analyst : Hi, good evening and thanks for the opportunity. So my question is on your top accounts, so last two consecutive quarters, I see that your top 5, top 10 accounts declined sequentially and now though you explained that follows is one of the reason. And also you mentioned that BFS is doing well, your [TTH] vertical has bottomed out. So can we expect that these top accounts will start growing in coming quarters?

Question: Ashish Das - Mirae Capital - Analyst : Okay. Just last question on the gross margin trend, in the Investor Day, you mentioned that there is a possibility that if I'm not wrong, so gross margin would the improve 100 bps in FY25, so that guidance -- that aspiration continues?

Question: Ashish Das - Mirae Capital - Analyst : Right.

Question: Ashish Das - Mirae Capital - Analyst : Thank you.

Question: Manik Taneja - Axis Capital - Analyst : Hi, thank you again once again for the opportunity. So Sudhir, just a clarification question, when you mentioned that we should be coming in closer to the lower end of the guided range, that implies almost only about a 1.2% sequential growth, which is going to be lower than what we achieved in Q3, and in the backdrop of what you are suggesting in terms of (inaudible) going away, some improvement, et cetera, et cetera, how should -- what is dragging the implied or what is driving the Q4 performance for us?

Question: Manik Taneja - Axis Capital - Analyst : Sure. Thank you for that clarification.

Question: Girish Pai - Nirmal Bang - Analyst : Okay. Thank you. So I just had a question on color on the spending slowdown that you've seen the industry. How much do you attribute this to macro worsening versus the normalization of heightened spending that you've seen during the pandemic? And what does this have in terms of implication for a pent up demand driven pickup in growth, say in FY26?

Question: Girish Pai - Nirmal Bang - Analyst : I was just asking what is -- suppose it's like 100% is you know how much of that is contributed by the heightened spending that we saw during the pandemic versus the macro concerns that you can see?

Question: Girish Pai - Nirmal Bang - Analyst : Thank you.