On the positive side, the traction in new deals for the banks, financial services, and insurance (BFSI) vertical showed improvement and headcount increased year-on-year for the first time in five quarters. Given the seasonal weakness in the remaining two quarters of the current fiscal year, the overall growth and margin trajectory may show stress on a full year basis, which may weigh on the company’s stock price in the near term.
Revenue grew by 2.2% sequentially to $7,670 million in the second quarter of the fiscal year compared with the average 1.9% growth anticipated by analysts. In addition, revenue growth crossed 2% for the first time since the December 2022 quarter when it had grown by 2.9% sequentially. This also helped the incremental trailing 12-month (TTM) top line to cross $ 1,000 million and reach $ 1,113 million after dipping to $ 986 million in the previous quarter.In rupee terms, the top line grew by 2.6% to Rs 64,259 crore. However, profitability took a hit amid improved project ramp ups and higher subcontracting costs. The operating margin shrank by 60 basis points to 24.1% while net profit fell by 1.1% to Rs 11,909 crore. Analysts had anticipated 20-40 basis points improvement in the margin and 3.9% average profit growth.The total contract value (TCV) of new deals was $ 8.6 billion, marginally higher than $ 8.3 billion clocked in the previous quarter but much lower than $ 11.3 billion seen in the year-ago quarter. The TCV of new deals in the BFSI vertical was $ 2.9 billion compared with $ 2.7 billion in the previous quarter. The headcount increased by 3,739 year-on-year and 5,726 quarter-on-quarter to 6,12,724. The attrition rate rose by a tad to 12.3% from 12.1% in the prior quarter.
The stock has gained 8% in the past three months in the anticipation of a recovery in discretionary demand. It may show weakness in the short term given the company’s muted Q2 show and modest improvement in the TCV of new deals.
