■ Q1FY22 net revenues grew 6.6% QoQ to Rs26.9bn, above estimates, on the back of healthy growth in the Direct business, negating a drop in the DXC business. EBITM fell 20bps QoQ to 15.9% due to higher employee costs and a one-off Covid impact (-30bps).
■ Direct revenues grew 10.8% QoQ (9.8% CC) to Rs23.8bn. Broad-based demand uptick, robust new deal wins (USD505mn in Q1) and a healthy deal pipeline should help sustain revenue growth. Management expects the Direct business to post industry-leading growth in FY22.
■ DXC revenues declined 17.7% QoQ and 46.6% YoY to ~Rs2.5bn. Management expects weakness to persist in DXC, and its revenue share is likely to decline to mid- to high-single digits by the end of FY22 (9.2% in Q1FY22).
■ We raise EPS estimates by 3-7% for FY22-24, factoring in the Q1 beat. Strong traction in the Direct business and a robust deal intake augur well for revenue growth. However, uncertainties around DXC and Digital Risk businesses remain an overhang. Retain Hold with a revised TP of Rs2,560 (earlier Rs2,260) on 27x Jun'23E EPS (earlier 25x).