Quotes from Executive Director & CEO Mr. Sudhir Singh

“New order intake crossed US$1.15bn. Signed 11 large deals including a US$105m deal and three US$50m+ deals.”

“Large deal signing helped Coforge to materially scale offshore operations, which in turn helped expand adjusted EBITDA margin by 90bp in FY22.”

“Coforge is now focused on carving an accelerated growth path to the US$2bn revenue milestone.”

“Experienced strong growth across entire offering spectrum during the year and all service lines are scaled businesses today.”

“Digital portfolio comprising product engineering, intelligent automation, and data & integration service line make up 51.5% of technology revenue and 46.6% of overall revenue.”

“Digital and Cloud-Infra services formed 71.3% of technology revenue and grew 24.5% in FY22.”

“Coforge became an AWS Travel & Hospitality Competency Partner, reflecting the firm’s demonstrated expertise in helping travel & hospitality clients transform their businesses.”

“Coforge announced a global partnership with Kong – a Gartner 2021 leader in Full Lifecycle API management.”

“Coforge earned the global elite distinction in the new Pega partners program and also specialized distinctions in customer service, delivery and manufacturing.”

“Coforge Salesforce BU won the ‘JAPAC – breakthrough partner of the year’ awards from MuleSoft.”

Other key takeaways

As of 31 Mar 2022, Coforge is serving 60+ Forbes Global 1000 clients. The company has been empanelled as a preferred tech services partner across multiple Fortune 100 and Fortune 500 clients.

“A warehouse management platform developed by Coforge is being used by one of the largest freight forwarder airports in the world.”

“With Salesforce, Coforge helps enterprises build stronger, more valuable relationships with customers across channels and offer personalized experiences, with all information and tools on a single interface as, according to Salesforce, 84% of customers feel that experiences are as important as the actual products and services.”

Coforge helps remove data silos and create a seamlessly connected ecosystem that allows instant access to information and drives new, data-driven insights, as according to MuleSoft, 89% of IT leaders say data silos are an obstacle to digital transformation.

Hyper-Intelligence Platform is Coforge’s knowledge graph platform that enables ingestion, pre-processing, processing and decisioning. It enables transformation, processing, migration, etc. from unstructured to structured data, from SQL to NoSQL, from Block to Object, and from on-prem to Cloud.

·       The company’s proprietary Data Xpress Toolkit enables the acceleration of journey to modernization and analytics. Tableau capabilities help clients deliver powerful analytics to make smarter decisions with Salesforce and other platforms.

The company’s proprietary MuleSoft Migration Toolkit accelerates migration to MuleSoft at a rapid pace. This toolkit accelerates time-to-value through reusability, modularity and collaboration while increasing agility and flexible architecture that evolves as the business.

AIOps Platform – advanced hyper-automation AI OPS platform (an integrated

programmable platform) services to realize current trends, optimization and transformation avenues while balancing performance, availability, and resilience for clients.

·       The cloud adoption is being driven through innovation acceleration as Hyperscale Cloud Providers (Amazon Web Services, Microsoft Azure, Google Cloud) ship over three thousand new releases a year to help customers achieve real business outcomes. However, at the same time, organizations are sometimes overspending (with 80% overshooting their Cloud budgets in 2020), budgets are getting wasted (on an average, over 30% of Cloud spending in organizations is wasted), and the skills gap is widening (90% of organizations say they suffer a growing Cloud skills gap).

·       Coforge plans to continue driving significant Cloud penetration within its portfolio by showcasing capabilities that are built on strategic alliances with Hyperscalers (especially AWS and Azure) for sourcing market-leading hyper-converged infrastructure, network, and security services. Journey to Cloud is being driven through Coforge’s Cloud Innovation Factory which showcases skills ranging from prototyping to MVPs and Coforge’s ability to drive migrations at scale leveraging migration factory processes.

·       The company is in the process of establishing a Centre of Excellence (CoE) in emerging technologies (SmartChains, Artificial Intelligence, Metaverse, cognitive services like video analytics, advanced natural language processing, text summarization, and extended reality advanced user interfaces) to build capabilities and drive significant mind share and wallet share.

·       Multiple proofs-of-concept (PoCs) have been created in partnership with customers in the company’s lab at Bengaluru and Noida for technology incubation and adoption to solve business problems.

Employee metrics

Employee count increased by 10,109 in FY22 to 22,500. 6,299 resources were added from acquisitions. The company added 1,680 fresh graduates, which is more than six times of the corresponding figure last year.

Last 12-month (LTM) attrition (excluding business process operations) rate as at end-4QFY22 stood at 17.7% vs. 10.5% in 4QFY21. Higher net hiring led to moderation in utilization (including trainees) by 490bp yoy in 4QFY22, at 76.1%.

Percentage increase in median remuneration of employees in FY22 was 27.15% vs. a 7.82% increase in FY21. Increase in salary of employees in India was 9.3% and 4.8% for employees outside India.

Professional credibility through various certification drives helped 1,986 employees to get trained and certified as on 31 Mar in FY22, thereby enhancing their capabilities and creating a future-ready workforce. Top 5 categories basis count are - Microsoft Azure with 1,002, followed by 303 for PEGA, SAFe certification counts at 207, Appian at 142 and Salesforce at 102.

Key acquisitons

Coforge acquired a 60% stake in SLK Global (to strengthen financial services vertical, scale BPM operations and enhance relationship with large financial services firms) on 28 Apr 2021 (date of acquisition of control) for Rs9,201m. The company has funded this acquisition through redeemable non-convertible bonds (Rs3,400m) and the remaining via internal accruals. Goodwill accounted for Rs6,126m. SLK Global contributed Rs6,108m to overall revenue in FY22 and Rs973m to PAT. The company will acquire the remaining 20% stake, as per the agreement, within two years of acquisition with the consideration payable as a multiple of earnings and accordingly, it has recorded put liability for future acquisition.

“On 21 Jan 2022, the Group entered into a Limited Liability Company or LLC agreement and incorporated M/s Coforge Healthcare Digital Automation LLC (‘Healthcare’). The Group infused Rs113m in the newly incorporated Healthcare. The group paid a consideration of Rs113m and 45% stake to sellers in lieu of customer contracts as well as certain employees. The above arrangement has been recorded as business combination in accordance with IFRS 3. Accordingly, the Group recorded a goodwill of Rs173m and customer relationship of Rs45m and non-compete fee of Rs2m. As per the terms of the agreement, the Group will acquire the remaining stake of 45% over a period of three years. The put option to acquire the remaining 45% has been fairly valued at Rs116m.”

During FY22, Coforge acquired the balance 18.6% stake in Coforge SF Private Limited (erstwhile Whishworks IT Consulting Private Limited), making it a wholly-owned subsidiary of the company, effective 5 Oct 2021, for a consideration of Rs729m.

Financials

P&L takeaways:

FY22 US$ revenue of Coforge was up 37.9% at $866.5m vs. a 11.4% growth in FY21 while Indian Rupee or INR reported revenue was up 37.9% at Rs64.3bn.

FY22 EBITDA was up 41.4% yoy at Rs11bn with a 17.1% EBITDA margin vs. 16.7% in FY21. Margin walk for a 40bp increase: growth leverage and moderation in ESOP expenses (40bp tailwind) was offset by higher professional expenses (200bp headwind). EBIT margin was up 80bp at 13.6% as depreciation & amortization expenses were up 23.7% yoy and formed 3.5% of revenue (vs. 3.9% in FY21) while absolute EBIT was up 46.8% yoy at Rs8.7bn. Reported PAT was up 45.2% yoy at Rs6.6bn.

Employee cost was up 36.2% yoy at Rs38.4bn (59.6% of revenue vs. 60.4% in FY21) while professional expenses were up 70.9% yoy in FY22 at Rs6.5bn and formed 10.2% of revenue (vs. 8.2% in FY21).

Other income was up 58.9% at Rs518m led by a 226.9% increase in government incentive (Rs170m), exchange gain of Rs160m (vs. Nil in FY21) offset by a 1.7% decline in interest & dividend income (Rs115m) and a 54.1% fall in miscellaneous income (Rs72m).

Tax expenses were up 12.7% yoy at Rs1,468m led by a 10.3% increase in current tax to Rs1,774m while deferred tax credit was unchanged yoy at Rs306m. Effective tax rate for FY22 stood at 17% vs. 21.8% in FY21.

Balance sheet takeaways:

Liquidity: As on 31 Mar 2022, Coforge has Rs4,468m as cash & cash equivalents, and Rs67m as bank balances other than cash & cash equivalents.

Borrowings: The company has non-current borrowings of Rs3,365m (Rs3m in FY21) and Rs180m (Rs7m in FY21) as current borrowings. Borrowings have increased to fund SLK Global’s acquisition. 

Capex: Gross block addition in property, plant & equipment stood at Rs991m (vs. Rs521m in FY21), which was mostly led by addition in computers (Rs800m), vehicles (Rs112m), and office equipment & others (Rs44m). Capital work-in-progress stood at Rs86m (vs. Rs2m in FY21).

Goodwill valuation increased from Rs4,226m to Rs10,708m led by SLK Global acquisition. Gross addition in intangibles stood at Rs3,230m due to acquisitions and Rs347m due to acquired software, with net carrying amount of intangibles at Rs3,199m vs. Rs1,464m in FY21.

Cash flow takeaways:

Operating cash flow (OCF) was up by 0.4% in FY22 at Rs7,656m as higher operating profit before working capital changes (up 33.3%) was offset by higher working capital led by trade receivables (up 30.1% yoy) and in turn impacted cash flow and conversion (OCF/EBITDA was at 69.5% in FY22 vs. 97.8% in FY21), although it was still healthy. Capex was up by 97.1% in FY22 at Rs1,541m, which impacted free cash flow (down 10.6% in FY22 at Rs6,116m). The company’s board maintained interim dividend of Rs13 per share through the quarters in FY22 with total interim dividend being Rs52 per share in FY22 (vs. Rs13 in FY21) and the dividend payout ratio at ~49%.

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