Coforge Ltd Q3 2025 Earnings Call Transcript

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

Question: Sulabh Govila - Morgan Stanley - Analyst : Am I audible?

Question: Sulabh Govila - Morgan Stanley - Analyst : Congrats on a very strong quarter. My first question is with respect to the overall demand environment that we see in the world today, especially with respect to the client of -- this is the time when the clients are deciding on their budgets, and there is a sort of growth divergence that we've seen with respect to the industry in the last two quarters, especially. So just wanted to understand, from an industry perspective, hearing from the demand side, especially given that there is a budget time going on.

Question: Sulabh Govila - Morgan Stanley - Analyst : Understood. And my second question is with respect to Cigniti, the cross-sell that we've seen this quarter, if we could highlight what all services we were able to cross-sell in that particular deal, whether there are more such deals in the pipeline. And the current deal, did it involve replacing of existing vendors? Or it was a new project altogether? So just color around that would be very helpful. 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 23, 2025 / 2:45AM, COFO.NS - Q3 2025 Coforge Ltd Earnings Call

Question: Abhishek Pathak - Motilal Oswal - Analyst : Congrats on a great quarter. So I just had a couple of questions. So firstly, Sudhir, as Coforge, let's say, goes from $2 billion to, let's say, $3 billion in revenues, how does one expect to sustain the advantages that Coforge currently has in terms of, let's say, winning deals, challenging incumbents? Doesn't the bigger size sort of put more pressure or change some of the fundamental moats that you've created? That's one. The second question is deal wins have been quite strong again this quarter. The last 12 months average is close to 490, I believe. And considering there's a certain amount of acceleration in discretionary, can we expect this run rate to accelerate in the next year? And lastly, I just wanted your thoughts on the insurance vertical. There has been a significant amount of disruption with regards to the California fires. And just your perspective on how it affects us, if at all, and how does that change, let's say, the outlook on the vertical that we had maybe last quarter and now. Thank you.

Question: Vibhor Singhal - Nuvama Equities - Analyst : Yeah, hi. Thanks for taking my questions and congrats on a solid performance yet again. Sudhir, a couple of questions for you, and then I have one for Saurabh. So I mean the growth, of course, is super strong. So but just two aspects of this. What are the conversations around the Gen AI adoption at this point of time? It was widely believed that the Gen AI adoption in the initial stages could actually be deflationary in nature. There could be some cannibalization of revenue. What's your view on this? Are we already into that phase? Or do you think that we might see that phase maybe some quarters down the line? And which were -- I mean how do you see that playing out? And secondly, on the travel vertical, I just wanted to pick your brain. I think the travel vertical has rebounded quite sharply for us. Last year was not that great in a year. I mean, it was still a good year, but I think still growth was softer than the other verticals. So has -- is this turnaround because of a recovery in our core travel clients like airlines and hospitality? Or is it because of the travel ancillary companies like logistics or some other domains that we had diversified into? I have one more question.

Question: Vibhor Singhal - Nuvama Equities - Analyst : I'll probably ask Saurabh after you answer these.

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. Thank you so much for that detailed information. Saurabh, I have just a question for so Saurabh. So Saurabh, if you could just briefly outline the impact of the ESOP -- the impact of the two ESOP schemes that we had, one was in 2019, Saurabh, if I'm correct. How will that weigh out over the next couple of quarters? And of course, you mentioned the current ESOP scheme also will probably -- when is the timeline for that expected to be a positive impact on the margins? And just a related question, utilization is at 81% at this point of time. I mean most of our peers are operating at almost 85%, one our closest peers took that level to around 87% in this quarter. So any specific reason that we are keeping it at these levels? Is it a merger-related anomaly? And do you think this could be a good margin lever going forward?

Question: Vibhor Singhal - Nuvama Equities - Analyst : Got it. My question on utilization, if you could just answer that as well, please.

Question: Ankit Pande - DSP Mutual Fund - Analyst : Is my voice audible now?

Question: Ankit Pande - DSP Mutual Fund - Analyst : Congratulations to Sudhir and team for excellent performance and execution in a low-growth environment into this quarter. I have just two quick questions for you. My first question is on the large deal wins. The deal wins which we have won into this quarter are specifically into which vertical? And what's the nature of those deals? I mean, are they more into cost-oriented efficiency driven? Or they are more into (technical difficulty).

Question: Ankit Pande - DSP Mutual Fund - Analyst : Yeah. Second question is the furlough-related impact. Is it morely in BFSI in this quarter? And can we expect revival in that for the next quarter?

Question: Ankit Pande - DSP Mutual Fund - Analyst : Thank you and best of luck for CY25.

Question: Sandeep Shah - Ikura Securities - Analyst : Thanks for the opportunity and congrats on great execution. Sudhir, just wanted to understand the profile of the deals on GCC in terms of margin profile, will it be slightly linear or nonlinear? And will this may impact our free cash flow? And what is the pipeline around GCC deals we are tracking?

Question: Sandeep Shah - Ikura Securities - Analyst : Yeah. And Saurabh, just a follow-up question. Any impact on free cash flow where we may have to invest upfront in asset?

Question: Sandeep Shah - Ikura Securities - Analyst : Okay. And --

Question: Sandeep Shah - Ikura Securities - Analyst : Okay. And just last two questions. In the earlier calls, we were guiding for a 50 bps increase in the adjusted EBITDA margin and flattish reported EBITDA margin. So do we still stand by because that also requires big jump in the fourth quarter implied adjusted EBITDA margin? And the second question on the debtors. If I look at it on a Q-on-Q basis, it has gone up by 30%. Any reason for that? And do you believe this collection has delayed, that means fourth quarter free cash flow could be even higher than third quarter? 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 23, 2025 / 2:45AM, COFO.NS - Q3 2025 Coforge Ltd Earnings Call

Question: Sandeep Shah - Ikura Securities - Analyst : Yeah. In terms of the adjusted EBITDA margin in --

Question: Sandeep Shah - Ikura Securities - Analyst : Okay. So my question on debtors was more on Cigniti, but I agree, on the consol basis, it has gone down.

Question: Shradha Agrawal - AMSEC - Analyst : Can you hear me?

Question: Shradha Agrawal - AMSEC - Analyst : Congratulations on a great quarter, sir. A couple of questions. First, if I look at the top clients performance, that number has been very strong, and top 5, top 10 clients growing at almost upwards of 12%, 13% on a sequential basis. So anything to highlight there in terms of top client performance?

Question: Shradha Agrawal - AMSEC - Analyst : Right. And two questions for Saurabh. Saurabh, when do we expect this integration and merger-related expenses to continue in our books? And what --

Question: Shradha Agrawal - AMSEC - Analyst : And what is the difference between reported and adjusted margins in Cigniti?

Question: Shradha Agrawal - AMSEC - Analyst : Got it. Just that my numbers show that Cigniti-reported EBITDA margin is 16.5% and adjusted EBITDA is 17.3%. So wanted to cross check if it is 17.1% and 17.3% that you're talking about? Or it's 16.5% and 17.3%?

Question: Ashis Dash - Mirae Asset Capital - Analyst : Just want to understand our BPaaS segment. So I can say that the additions of employees continues to share your outlook on the BPaaS.

Question: Ashis Dash - Mirae Asset Capital - Analyst : Okay. Got it. My second question is, Sudhir, when you discussed about your revenue aspirations and the third point you mention that, you need deep functional expertise for the hyperscalers. So one question I would like to understand, particularly BPaaS division has been basically driven under your industry. So it's kind of, you guys might not have all the expertise in all the subsegments. So I just want to understand if you are seeing that the revenue aspiration would be driven by this deep functional expertise. What are the investments you would like to do in the -- particularly in the BPaaS, particularly -- overall, I just want to understand your thoughts like what kind of more investments you require for that deep functional expertise or other subsegments. 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 23, 2025 / 2:45AM, COFO.NS - Q3 2025 Coforge Ltd Earnings Call

Question: Kawaljeet Saluja - Kotak Securities - Analyst : Sudhir, congrats. Crazy growth here. A quick couple of questions. One is that you mentioned that ServiceNow and Salesforce is a trending factor the area of practice in very strong. Now in both these practices, essentially, there's a fair bit of license procurement. And say that happens in the December quarter, seasonal trend, so does that hold true for Coforge as well? And if yes, can you quantify, let's say, the contribution that you had from the stage of third-party licenses in the December quarter?

Question: Kawaljeet Saluja - Kotak Securities - Analyst : That includes the license cost as well?

Question: Kawaljeet Saluja - Kotak Securities - Analyst : Fantastic. The second question is for Saurabh. Saurabh, you had a net cash and yet a fairly high negative order income INR357 million. What explains the disconnect? And when does one start seeing a synchronization of other income in sync with your cash balances or net cash balances?

Question: Dipesh Mehta - MK Global - Analyst : Couple of questions. First about the quarter three itself. Whether it played out, let's say, in line with your expectation or they're better kind of thing compared to, let's say, beginning of quarter? And if it is trade better, what worked well in the quarter? Second question is about the pipeline. You indicated a very robust deal pipeline. So if you can help us, let's say, when we were two years back, how the nature of the pipeline is shaping us for us compared to two years back versus now, when we acquired a few capabilities through M&A as well as organic development. So if you can give some sense and how it is helping us to maintain momentum. And last question is for tax rate. How one should look combined tax rate for the entity? Thanks.