Coforge Ltd:Annual Report 2023-24 Analysis

Coforge Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Coforge Ltd. was formerly known as NIIT Technologies Ltd. and was established in 1992 as part of the NIIT Group. In May 2019, Baring Private Equity Asia (BPEA) acquired a majority stake in the company, leading to its rebranding as Coforge.

Headquarters Location and Global Presence #

The company’s headquarters is located in Noida, Uttar Pradesh, India. Coforge has a global presence with offices and development centers across North America, Europe, Asia-Pacific, and Australia.

Company Vision and Mission #

• Vision: To be a leading global provider of digital transformation services, delivering exceptional value to our clients.
• Mission: To leverage emerging technologies and industry expertise to help clients solve complex business challenges and achieve their strategic goals.

Key Milestones in Their Growth Journey #

• Early Years (1992-2000s): Focused on providing IT services and solutions primarily in the financial services and travel sectors.
• Expansion and Diversification (2000s-2019): Expanded service offerings, entered new verticals like insurance and manufacturing, and grew its global footprint through acquisitions and partnerships.
• Rebranding and Transformation (2019-Present): Under the new ownership of BPEA, the company rebranded to Coforge and embarked on a focused strategy of digital transformation, emphasizing cloud, data, and automation technologies.

Stock Exchange Listing Details and Market Capitalization #

Coforge Ltd. is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). As of late 2023, its market capitalization is around INR 35,000 Crores.

Recent Financial Performance Highlights #

• Reports consistently growing revenue.
• Focus on improving profitability margins through operational efficiencies.
• Healthy order book indicating future growth potential.

Management Team and Leadership Structure #

The leadership team comprises experienced professionals with expertise in technology, business strategy, and operations. The CEO leads the company’s overall strategy and execution, supported by a team of functional heads.

Notable Awards or Recognitions #

• Recognized as a “Leader” in various industry analyst reports for specific service areas and verticals.
• Awarded for excellence in innovation, customer service, and employee engagement.

Their Products #

Coforge provides services rather than products.

Complete Service Portfolio with Categories #

• Digital Transformation Services: Cloud computing, data analytics, artificial intelligence, machine learning, blockchain, and IoT.
• Application Development and Maintenance: Custom application development, application modernization, testing, and maintenance.
• Business Process Management (BPM): Automation, process optimization, and customer experience management.
• Infrastructure Management Services: Cloud infrastructure management, network management, and security services.
• Digital Process Automation (DPA): Intelligent automation of processes across industries like insurance, healthcare, and banking.

Flagship or Signature Service Lines #

• Coforge Quasar: AI-powered cloud based data platform to facilitate better data and analytics across enterprises.

Key Technological Innovations or Patents #

Coforge is actively involved in developing innovative solutions using emerging technologies. While specific patent details require dedicated research.

Primary Customers #

Target Industries and Sectors #

• Financial Services: Banking, insurance, and capital markets.
• Travel and Transportation: Airlines, hotels, and logistics companies.
• Healthcare: Healthcare providers, payers, and pharmaceutical companies.
• Manufacturing: Automotive, aerospace, and industrial equipment.

Geographic Markets (Domestic vs. International) #

Primarily international with a strong presence in North America and Europe. Domestic revenue accounts for a smaller percentage.

Major Client Segments #

Large enterprises across the targeted industries.

Major Competitors #

Direct Competitors in India and Globally #

Major competitors include global IT services companies like TCS, Infosys, Wipro, HCLTech, and Cognizant. Additionally, they compete with niche players specializing in specific industries or technologies.

How They Differentiate From Competitors #

• Deep domain expertise: Focus on specific verticals allows them to offer specialized solutions.
• Agile approach: Emphasize agility and innovation to respond quickly to client needs.
• Strong partnerships: Leverage partnerships with technology vendors to deliver best-in-class solutions.

Future Outlook #

Expansion Plans or Growth Strategy #

• Strategic acquisitions: Targeting companies with complementary capabilities or market presence.
• Investments in emerging technologies: Expanding expertise in areas like AI, cloud, and blockchain.
• Geographic expansion: Focusing on high-growth regions.

Sustainability Initiatives or ESG Commitments #

Coforge is committed to environmental sustainability and social responsibility. They are increasingly focusing on:

• Reducing carbon footprint through energy efficiency and renewable energy usage.
• Promoting diversity and inclusion in the workplace.
• Supporting community development initiatives.

Industry Trends Affecting Their Business #

• Digital transformation: Increasing demand for digital solutions across industries.
• Cloud adoption: Growing adoption of cloud computing services.
• Data analytics: Rising importance of data-driven decision-making.
• Cybersecurity: Growing need for robust cybersecurity solutions.

Long-Term Vision and Strategic Goals #

To be a leading global provider of digital transformation services, recognized for its expertise, innovation, and customer focus.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics (Consolidated) #

• Revenue Growth: Coforge demonstrated consistent revenue growth. FY24 revenue stood at INR 91,790 million, reflecting a 14.5% increase from FY23 (INR 80,146 million). Organic revenue growth of 13.3% in CC terms, 11.7% in USD terms and 14.5% in INR terms.
• EBITDA Margin: The adjusted EBITDA margin for FY24 was 17.6%, a 64 bps decrease compared to FY23, attributed to increased sales, marketing, and pre-sales costs.
• Net Profit Margin: Net profit margin was 8.8%, the same as in FY23.
• Net Profit (After Minority Interest): Increased by 16.5% to INR 8,080 million in FY24 from INR 6,938 million in FY23.
• Days Sales Outstanding (DSO): DSO improved, decreasing to 56 days in FY24 from 61 days in FY23.
• Return on Equity (RoE): Decreased by 24.8%, implying a slight decrease.
• Debt - Equity Ratio: Increased to 0.12 in FY24 from 0.11 in FY23, implying an increase on the dependence of borrowed funds.
• Attrition Rate (excluding BPS): Decreased to 11.5% compared to 14.1%.

Business Segment Performance (FY24) #

• Banking & Financial Services (BFS): Led growth with a 17.1% YoY increase in USD terms, contributing 32.2% of total revenues. Signed two US$ 300 million+ TCV deals.
• Insurance: Grew by 9.6% in USD terms, contributing 22.2% of total revenues. Acquired new Tier 1 Insurance carriers as clients.
• Travel, Transportation & Hospitality (TTH): Grew by 4.9% in USD terms, contributing 18% of total revenues.
• Others (including Healthcare, Hi-Tech, Retail, and Overseas Public Sector): Collectively grew by 12% in USD terms, representing 27.6% of total revenues.

Geographic Revenue Breakdown (FY24) #

• Americas: Grew by 10.8% YoY, contributing 48.3% of global revenues.
• EMEA: Grew by 16% YoY, representing 39.4% of revenue mix.
• Rest of World (RoW): Grew 26% YoY, contributing 12.3% of total revenues.

Major Strategic Initiatives and Their Progress #

• ‘Transform at the Intersect’: Focused on leveraging emerging technologies (AI, Cloud, Data) and deep domain expertise in select industry verticals.
• AI Initiatives: Launched ‘Quasar’ AI platform, integrating over twenty three Large Language Models (LLMs) and pre-built use cases. Collaborated with Microsoft on co-pilot solutions for insurance underwriting.
• Partnerships: Strengthened relationships with key technology platforms like Microsoft, AWS, Google, ServiceNow, Salesforce, Pega, and Appian.
• Upskilling: Launched large-scale AI training program for employees.
• M&A: Signed a definitive agreement to take over Cigniti Technologies Limited to scale and create new verticals.
• Shareholders Approval: Received shareholders approval by way of issuance of equity shares having face value of Rs. 10 each of the Company (‘Equity Shares’) and / or other eligible securities or any combination thereof for an aggregate amount not exceeding ’ 32,000 Mn by way of Qualified Institutional Placement (‘QIP’) or other permissible modes.

Risk Landscape Changes #

• Increased Cybersecurity Threats: Mentioned as a continued focus area, with investments in threat intelligence services and compliance certifications.
• Geopolitical Tensions: Referenced as a potential downside risk to the global economy, impacting decision-making and investment.
• Macroeconomic Headwinds: The tech services industry encountered macroeconomic headwinds.

ESG Initiatives and Metrics #

• Environmental Sustainability: Continued efforts in water conservation, waste recycling, and renewable energy (solar). LEED Platinum certification for the Greater Noida campus. Upgraded AC units to environmentally friendly refrigerants.
• Social Responsibility: Inaugurated ‘The Coforge Public Library’ in Noida, India. Continued support for education and skill development programs.
• Employee Engagement: Received Great Place To Work® Certification™ for the third consecutive year. Maintained low attrition rates.
• Diversity, Equity, and Inclusion: Launched ‘EmpowHER’ program for women employees. Conducted diversity and inclusion training.
• Waste Management: Converted all employee fleet from diesel/petrol to CNG.
• Renewable Energy: Solar plant contributing reduction in carbon footprint and overall grid consumption.
• CSR Committee Composition: Active CSR committee with details on membership and meeting attendance provided, indicates governance structure for social responsibility.

Management Outlook #

• The management expressed a focus on continued, consistent, sustainable, and profitable revenue growth, aiming for industry-leading growth in FY25.
• A key goal is to reach USD 2 billion in revenue.
• Strategies include scaling existing key accounts, developing new and emerging verticals, leveraging the partner ecosystem, and strategic acquisitions.
• Continued investment in sales, marketing, and capabilities.

Detailed Analysis #

Financial Position Analysis of Coforge Limited #

Balance Sheet Analysis: 3-Year Comparative (Consolidated, INR Mn) #

Significant Year-over-Year Changes (>10%, Consolidated) #

• Non-Current Assets: Increased by 13.9% (FY24 vs FY23), primarily due to increases in Right of Use Assets and Other Non-Current Assets. Increased by 13.44% (FY23 vs FY22)
• Other Non-Current Assets: Increased significantly by 146.9% (FY24 vs FY23), primarily due to Increase in contract cost.
• Deferred Tax Assets: Increased by 48.6% from the year ended 31 March 2023.
• Equity Attributable to Owners: Increased by 17.6% (FY24 vs FY23), due to profit for the year and share based payments.
• Non-Current Liabilities: Increased by 9.7%(FY24 vs FY23)
• Lease Liabilities: Increased by 29.8%(FY24 vs FY23)
• Current Liabilities: Decreased by 11.9% (FY24 vs FY23), mainly driven by a reduction in other financial liabilities, partially offset by increases in trade payables.
• Borrowing: Increase by 967(FY24 vs FY23)
• **Trade Payable:**Increased by 24.4%(FY24 vs FY23)
• Other Financial Liabilities Decreased by 67.7%(FY24 vs FY23)
• Cash and Cash equivalents: Decreased by 43.5%(FY24 vs FY23)

Working Capital Trends (Consolidated) #

• The current ratio improved from 1.56 in FY23 to 1.80 in FY24, showcasing improved liquidity.
• Net working capital increased,driven primarily by decreased current liabilities.

Asset Quality Metrics (Consolidated) #

• Impairment for trade receivables increased from Rs. 581Mn to 645Mn, indicating a small deterioration in credit quality.

Debt Structure and Maturity Profile (Consolidated) #

The Company’s primary debt is composed of fixed interest rate of 7.49% to 8.39%. non-convertible bonds due in April 2026. During the year the company has taken Working Capital loan.

Off-Balance Sheet Items (Consolidated) #

• Contingent Liabilities: INR 1,388 million as of March 31, 2024 (primarily tax related), compared to INR 1,007 million as of March 31, 2023.
• Guarantees given on behalf of overseas subsidiaries: INR 5,689 million (31 March 2023: INR 2,073 million).

Coforge Limited Financial Analysis (FY24) #

Revenue Breakdown by Segment/Geography #

• Banking and Financial Services (BFS): FY24 revenue contribution was 32.2%, with 17.1% YoY growth in USD terms.
• Insurance: FY24 revenue contribution was 22.2%, with 9.6% YoY growth in USD terms.
• Travel, Transportation & Hospitality (TTH): FY24 revenue contribution was 18%, with 4.9% YoY growth in USD terms.
• Others (including Healthcare, Hi-tech, Retail, and Overseas Public Sector): FY24 revenue contribution was 27.6%, with 12% YoY growth in USD terms.
• Americas: FY24 revenue contribution was 48.3%, with a YoY growth of 10.8%.
• EMEA (Europe, Middle East, and Africa): FY24 revenue contribution was 39.4%, showing a YoY growth of 16%.
• Rest of the World (RoW): FY24 contribution was 12.3%, with the highest growth rate of 26% YoY.
• Asia Pacific: FY24 contribution was 6.9%
• India: FY24 contribution was 5.4%
• Consolidated revenue for FY24 grew 14.5% YoY to INR 91,790 million. Organic revenue growth was 13.3% in constant currency terms.

Cost Structure Analysis #

• Employee Benefits Expense: Increased to INR 32,790 million in FY24 from INR 28,866 million in FY23.
• Other Expenses: Rose to INR 10,602 million in FY24 from INR 8,530 million in FY23.
• SG&A Expenses: As a percentage of total revenue, increased from 14.3% in FY23 to 15% in FY24, attributed to increased sales, marketing, and pre-sales costs.

Margin Analysis #

• Gross Margin: FY24 Gross Margin was relatively flat at 32.6%.
• EBITDA Margin (before ESOP costs): FY24 was 17.6%, a decrease of 64 bps compared to FY23.
• Net Profit Margin: FY24 stood at 8.8%, with net profits (after minority interest) at INR 8,080 million.

Non-Recurring Items #

• Exceptional Items: FY23 included an exceptional item of INR 523 million, which was a provision that was not specified further. No such item was recorded in FY24.

EPS Analysis #

• Consolidated Basic EPS: FY24 was INR 131.56, up from INR 113.77 in FY23.
• Consolidated Diluted EPS: FY24 was INR 129.59, compared to INR 111.53 in FY23.
• Standalone Basic EPS: FY24 was INR 161.49, up from INR 120.12 in FY23.
• Standalone Diluted EPS: FY24 Was INR 159.07, compared to 117.75.

Quarterly Trends #

• Q4 FY24 saw the signing of a USD 400 million TCV deal.
• Q1 FY24 included a USD 300 million+ TCV deal.

Strategic and Management Analysis of Coforge Limited #

Long-Term Strategic Goals and Progress #

• Coforge aims for “Transform at the Intersect,” focusing on integrating emerging technologies and domain expertise, specifically targeting Banking & Financial Services, Insurance, Government, and Travel, Transport, and Hospitality. Expansion into Retail, Healthcare, and Hi-Tech sectors is underway.
• A key goal is to reach USD 2 billion in revenue, up from USD 1.119 billion in FY24 (13.3% CC organic revenue growth).
• Record order intake of USD 1.97 billion in FY24, up 56% year-over-year.
• Largest ever order book executable for the next 12 months at USD 1.02 Billion, up 17.3% year on year.
• Successfully divested by BPEA EQT, becoming solely board-governed.

Competitive Advantages and Market Positioning #

• Strong focus on select industry verticals, indicating specialized domain expertise.
• Repeat business rate of 92% in FY24 demonstrates a high level of customer satisfaction and retention.
• Recognition by various partner, and analyst firms, positioning as an innovator and leader in various service categories.
• Partnerships with major platforms, including Microsoft, AWS, Google, Salesforce, Pega, ServiceNow and Appian.

Innovation Initiatives and R&D Effectiveness #

• Coforge has established a dedicated AI Centre of Excellence, launching the AI platform ‘Quasar’ with over 23 integrated Large Language Models (LLMs) and 200+ industry use cases.
• Launch of AI-based solutions like Agent Assist, BLAZAR, QE 360, and Ticket Manager demonstrates application of AI to improve client operations.
• Collaboration with Microsoft, launching co-pilot offerings.

M&A Strategy and Execution #

• A definitive agreement to acquire Cigniti Technologies Limited aims to scale up Coforge’s presence in new verticals (Retail, Hi-Tech, Healthcare) and expand geographic reach in the U.S.
• The Cigniti acquisition is expected to address opportunities in specialized assurance services, driven by AI proliferation.
• Approved raising of funds, not exceeding ’ 32,000 Mn, to be used for Qualified Institutional Placement.
• Internal group restructuring amongst its wholly owned subsidiaries to consolidate for operational efficiency and administrative convenience.

Management’s Track Record in Execution #

• Consistent revenue growth over the last six years, with a CAGR of 16%.
• FY24 organic revenue growth of 13.3% in CC terms met guidance, despite macroeconomic headwinds.
• Signing of eleven large deals in FY24, including two deals over USD 300 million TCV.
• Consistent profitability with adjusted EBITDA margin of 17.6% in FY24.
• Industry-low attrition rate (11.5%).
• Strategic partnership with industry leaders like Newgen, ServiceNow, Origami Risk, and One Shield, reinforcing it’s reputation as a market leader in Insurance core transformation.

Capital Allocation Strategy #

• Consistent return of surplus cash to shareholders through dividends, with four interim dividends declared in FY24, totaling INR 76 per share.
• Planned fundraising of up to INR 32,000 million through a Qualified Institutional Placement (QIP) or other means.
• Investments in sales, marketing, and pre-sales, along with employee increments and variable pay-outs.

Organizational Changes and Their Impact #

• Transition to a solely board-governed, professionally managed entity after the exit of BPEA EQT.
• Change in CFO during the year, with Ajay Kalra resigning and Saurabh Goel appointed.
• Internal group restucturing was completed, transferring ownership of 3 wholly owned subsidiairies (Coforge Services Ltd, Coforge SmartServe Limited and Coforge SF Private Limited) to Coforge DPA Private Limited.

Coforge ESG Framework and Sustainability Analysis #

Environmental Metrics and Targets #

• Coforge Limited aims to be Carbon Neutral and Water Positive by 2030, and Zero Waste by 2030.
• Focusing on transition from LPG to PNG, promoting usage of CNG vehicles over diesel/petrol in NCR locations.
• Food and horticulture waste processed in-house for manure production during FY24.
• Reduced WC flushing capacity from 9 liters to 6 liters per flush.
• Securing renewable energy connections to power facilities.
• Upgraded AC unit to use environmentally friendly refrigerants.
• Total Scope 1 GHG emissions for FY24: 413 metric tonnes of CO2 equivalent (down from 703 in FY23).
• Total Scope 2 GHG emissions for FY24: 8,688 metric tonnes of CO2 equivalent (up from 6,727 in FY23).
• Total energy consumption increased from 37,439 GJ in FY23 to 47,938 in FY24.
• Total Energy Consumption from Non-Renewable sources increased to 47,432 in FY24, compared to 36,841 in FY23
• Energy consumption from renewable sources decreased from 598 GJ in FY23 to 506 GJ in FY24
• Total water withdrawal increased to 121,472 kiloliters in FY24 (up from 93,603 in FY23).
• Total water consumption increased to 110,385 kiloliters in FY24 (from 83,598 Kiloliter in FY23).
• Waste generation increased to 24.1 metric tonnes in FY24 (from 17 metric tonnes in FY23).

Social Responsibility Programs #

• CSR initiatives focus on Education & Environment, impacting over 600,000 beneficiaries.
• Educational programs: digital skilling for over 10,000 students, entrepreneurship training for over 1,000, and formal education for more than 30,000 students.
• Coforge Public Library: free access to over 10,000 books and 35 million digital titles.
• Environmental initiatives: water and soil conservation, waste management, afforestation, and combating climate change.
• Employee volunteering: 3,092 volunteers, contributing over 15,000 man-hours.
• CSR spending for FY24: INR 91.26 million, meeting the statutory requirement of 2% of the average net profit.

Governance Structure and Effectiveness #

• Board comprises 8 members, with 62.50% (5 members) being Independent Directors, including an Independent Chairperson.
• Board met 9 times during FY24.
• Established committees: Audit, Nomination & Remuneration, Stakeholders’ Relationship, CSR, and Risk Management.
• All Independent Directors meet the requirements specified under Section 149(6) of the Companies Act, 2013, and SEBI Listing Regulations.
• Adopted Structured Digital Database System to monitor,regulate and ensure reporting of trades by designated persons.
• Code of Conduct in place for Board Members and Senior Management, with compliance affirmed for FY24.
• Whistle Blower Policy in place, approved by the Audit Committee.
• Annual performance evaluations of the Board, individual Directors, and statutory committees are conducted.

Sustainability Investments #

• Investments in sustainability projects:
  • Pond rejuvenation, rainwater harvesting, and clean drinking water provision at schools.
  • Commercial cultivation in fluoride-affected areas, organic farming adoption, and soil conservation.
  • Biodiversity parks setup to restore ecological balance, with 40,000 saplings planted.
  • Promotion and installation of renewable energy solutions, including solar panels and solar streetlights.
  • Acquisition of step down subsidiaries Coforge Limited- Company One Person(Saudi Arabia) and Coforge S.A de C.V. (Mexico).
• Invested in AI centre of excellence and partnerships with leading technology platform that invests in AI such as, Microsoft, AWS, Google, Salesforce, Pega and Appian.

Regulatory Compliance and Future Preparations #

• Complies with applicable Secretarial Standards issued by the Institute of Company Secretaries of India and the Ministry of Corporate Affairs.
• Compliant with the requirements of Corporate Governance under the SEBI Listing Regulations.
• Certified with Environment Health & Safety Management System (EHSMS) standards i.e., ISO 14001:2015 and ISO 45001:2018
• Has a Business Responsibility and Sustainability Report (BRSR) for FY24.
• No fraud has been reported by the Auditors to the Audit Committee or the Board.
• Preparing for future regulations by investing in renewable energy and sustainable sourcing, and by engaging with stakeholders on ESG topics.

Future Outlook: Projections and Guidance #

Management Guidance and Assumptions #

• Management aims for industry-leading revenue growth in FY25 and has guided to expand gross margins.
• Management has targeted scaling up existing key accounts (Must Grow Accounts - MHAs), citing significant headroom for growth through cross-sale, upsell, and wallet share gain.
• Management plans to scale up new and emerging verticals, potentially adding Public Services (outside India), Retail, Hi-Tech Technology, and Healthcare.
• Management guides to continue investment in front-end leadership and capability enhancements.
• The Company is modeling developer productivity increases with tools like Github copilot.
• Targets include becoming Carbon Neutral by 2030, Water Positive by 2030, and Zero Waste by 2030.

Market Growth Forecasts #

• Global economy is forecast to grow at 3.2% during CY24 and CY25, similar to CY23.
• Global inflation is projected to decline steadily to 5.9% in 2024 and 4.5% in 2025.
• Worldwide IT spending is expected to grow by 8% in 2024, to a total of $5.06 Trillion.
• IT services segment is projected to grow by 9.7% reaching $1.52 Trillion.
• Indian technology industry revenue is estimated to reach USD 254 Bn in FY24 (~3.8% y-o-y growth).
• Indian tech services export revenue is expected to reach USD 199 billion, with a growth of 3.3%.
• NASSCOM’s CEO survey indicates expectations of technology spending increase in 2024, with industries like Hi-Tech, BFSI, and TMT expected to improve.

Planned Strategic Initiatives #

• The company will engage with emerging technologies to drive customer transformation within its core verticals.
• Coforge intends to expand partnerships, particularly with Microsoft, AWS, ServiceNow, and potentially Mendix, Unqork, OutSystems, Insurity, Guidewire, Surify, and FAST.
• The company focuses on leveraging its proprietary platform, ‘Quasar,’ to integrate multiple Large Language Models (LLMs) and offer pre-built AI use cases for clients.
• Strategic investments will be directed toward sales, marketing, and presales.
• The Company seeks to diversify the business by adding new services to its portfolio such as Retail, Hi-Tech, and Healthcare.
• Co-work with its partners to take human centred approach to solving client problems, including customer journeys and realizing MarTech and Commerce implementation and rollouts.
• Coforge plans to improve its ESG scores.

Efficiency Improvement Targets #

• The Group expects to improve gross margins in FY25.
• Coforge is implementing cost reduction initiatives related to resource utilization, energy consumption and water conservation.

Potential Challenges and Opportunities #

• Challenges:
  • Macroeconomic headwinds, including global economic slowdown and volatility, pose risks.
  • Cybersecurity threats and the need for continuous adaptation to new technologies represent ongoing challenges.
  • Intense competition exists in the IT services industry.
  • Talent acquisition, retention, and upskilling are crucial for growth.
  • Changing immigration regulations could affect the Company’s ability to deploy personnel globally.
• Opportunities:
  • Growing demand for digital transformation services, cloud adoption, and data analytics provide expansion opportunities.
  • Generative AI and its potential applications, as reflected in Coforge’s “Quasar” platform, represent a key growth area.
  • Expansion into new industry verticals and scaling up existing accounts offer growth potential.
  • Strategic partnerships with technology platforms provide avenues for co-creation and innovation.
  • Increasing GCC and ER&D service portfolios in India.

Scenario Analysis and Sensitivity to Key Assumptions #

• Revenue Growth Sensitivity: The Company’s 13.3% constant currency revenue growth in FY24 demonstrates resilience. If the global economy slows more than the predicted 3.2% growth rate, revenue growth could be negatively impacted, especially in sensitive sectors like BFS and Travel.
• Margin Sensitivity: Gross margins have remained flat at 32.6%. The stated increase in sales, marketing, and pre-sales costs, bucketed under SG&A, impacted EBITDA margins. If these investments do not yield the expected return in terms of new client acquisition and deal closures, margins could be further pressured.
• Large Deal Sensitivity: The FY24 order intake of USD 1.97 billion (up 56% YoY) and the record 12-month executable order book of USD 1.02 billion provide near-term revenue visibility. However, any significant delays or cancellations in these large deals could negatively impact revenue projections.
• Partnership Success Sensitivity: The success of the partnership-led growth strategy depends on the effective collaboration and integration with platform partners. If these partnerships do not deliver the anticipated synergies, growth targets may be missed.
• Acquisition Success Sensitivity: If the planned Qualified Institutional Placement to fund acquisitions, up to INR 32,000 Mn, does not result in value-accretive acquisitions, the company could fail to meet its expansion goals.
• Macroeconomic Condition Sensitivity: Changes in macroeconomic and geopolitical environment affects the Company’s risks related to foreign exchange, customers’ and prospective customers’ technology spending.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Auditor’s Opinion: The auditors, S.R. Batliboi & Associates LLP, issued an unmodified opinion on the standalone and consolidated financial statements, stating they give a true and fair view in conformity with generally accepted accounting principles in India.
• Qualifications: One Qualification under CARO report point 3(vii)(a), for slight delays in deposit of undisputed statutory dues.

Key Accounting Policies and Changes #

• Revenue Recognition: Revenue is recognized upon transfer of control of promised products or services, reflecting the expected consideration. Methods include time-and-material, fixed-price, and percentage-of-completion.
• Foreign Currency Translation: Functional currency is the Indian Rupee (INR). Foreign currency transactions are recorded at the exchange rate prevailing on the transaction date.
• Leases: The Group, as a lessee, recognizes a right-of-use asset and a corresponding lease liability at the commencement date of the lease.
• Impairment of financial assets: Follows “simplified approach” for recognition of impairment loss allowance on trade receivable and contract assets.
• Goodwill Impairment Testing: Goodwill is tested for impairment annually and allocated to Cash-Generating Units (CGUs).
• Accounting Policy Changes: The Company adopted amendments related to the definition of accounting estimates (Ind AS 8) and disclosure of accounting policies (Ind AS 1), with no material impact on measurement or presentation except for enhanced disclosures. Also applied amendments narrowing down the scope of the initial recognition exemption under Ind AS 12.
• Dividend: Final dividend when approved shall be paid during any financial year out of the surplus in the profit and loss account. Interim dividend when approved shall be paid during any financial year out of the surplus in the profit and loss account and out of the profits of the financial year in which such interim dividend is declared; or out of any other funds as may be permitted by law.

Internal Control Effectiveness #

• Auditor’s Opinion: The auditors issued an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting.
• Accounting Software Audit Trail: The audit trail feature is not enabled for direct changes to data when using certain access rights.

Regulatory Compliance Status #

• General Compliance: The Company is in compliance with the requirements of Corporate Governance under the SEBI Listing Regulations, 2015.
• Secretarial Standards: The Company complies with applicable Secretarial Standards.
• Statutory Dues: Slight delays in a few cases in depositing undisputed statutory dues like provident fund and income tax (specifically mentioned in the CARO annexure).
• SEBI PIT Regulation: The Company has a robust code of conduct, structured database, and penalty framework to prohibit and monitor insider trading.

Legal Proceedings and Their Potential Impact #

• Contingent Liabilities: Claims against the Company not acknowledged as debts totaled INR 1,388 million (including INR 1,087 million for income tax matters).
• Management Assessment: Management believes the ultimate outcome of pending legal proceedings will not have a material adverse effect on the Company’s financial position.
• Specific Disputed Tax Demand: Income tax demands for various assessment years and GST demands are under dispute and have not been deposited.

Related Party Transactions #

• Materiality: No materially significant related party transactions occurred that have a potential conflict with the interests of the Company at large.
• Disclosure: All related party transactions were in the ordinary course of business and on an arm’s length basis.
• Transactions: The company has an internal group restructuring amongst its wholly-owned subsidiaries to consolidate for operational efficiency and administrative convenience.

Subsequent Events #

• Fundraising Approval: Shareholders approved raising funds up to INR 32,000 million via equity shares and/or other securities.
• Acquisition Agreement: The Company agreed to acquire up to 54% of Cigniti Technologies Limited, triggering a mandatory open offer.
• New Director Appointment: The Board appointed Mr. Om Prakash Bhatt as an Additional and Independent Director, subject to shareholder approval.
• Executive Director Appointment: The Board of Directors of the Company have approved the appointment of Mr. Gautam Samantha as Executive Director.
• Loan Facility: A facility agreement was entered into for a loan facility of up to $250,000,000 to finance the acquisition of shares in Cigniti Technologies Limited, with the Company providing a guarantee.
• NCB terms amendment: The Board considered and approved certain amendments to the terms of listed, rated, redeemable, non-convertible bonds.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: Generally high, evidenced by the unmodified audit opinion and adherence to Ind AS. The use of estimates (e.g., impairment provisions, revenue recognition on fixed-price contracts, fair value of financial instruments) introduces an element of subjectivity, but processes and controls appear robust.
• Regulatory Risk:
  • Moderate. The slight delays in depositing statutory dues, although quantified, indicate a need for strengthened internal processes.
  • The ongoing tax disputes, while assessed as not having a material adverse effect by management, present a potential risk that needs continuous monitoring.
  • The audit trail feature of the accounting software not being enabled at the database level for direct data changes poses some risk to financial reporting.