- 3 years ago
Coforge has guided for 13-16% revenue growth in FY24 when several of its larger peers have cut estimates. What’s driving this confidence? CEO Sudhir Singh breaks down the June quarter numbers.
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00:00 BQ Prime joining us today is Mr. Sudhir Singh. He's the CEO of CoForge. He's speaking to
00:06 us a day after the company reported its first quarter results where the revenue went up
00:11 sequentially, net profit went up 44%, but the margin was down by 400 bps. Mr. Singh,
00:18 welcome to BQ Prime.
00:19 Thank you very much for having me. Glad to be here.
00:23 While the results have come out, what stood out completely that you have maintained your
00:30 revenue guidance for the entire year at 13 to 16%? Please take us through this. What
00:36 gives you the confidence to maintain your guidance at such high levels?
00:40 Well, they're really not high levels compared to where we are. If you look at the state
00:45 of the business, if you look at this quarter, if you look at the last two quarters, the
00:48 ramp that we built up, unlike a lot of our other peers in the industry is very different
00:53 and it's far steeper. So for us to deliver 13 to 16%, all we need to do is to deliver
00:59 slightly less than what we've delivered in Q1. And the intent obviously is to do a lot
01:05 better. So when we look at our numbers, when we look at metrics like the order executable,
01:09 which is the locked in orders over the next 12 months, which are right now 19.1% higher
01:15 than where they were about a year back. When we look at CoForge as a firm and our performance
01:21 over the last six years, the growth in order executable, if you correlate that with the
01:28 revenue that was realized in the subsequent 12 months, there's been a very strong correlation.
01:32 Our order executable is at 19.1% higher than where it was. And I said this earlier 12 months
01:38 back, the guidance we've given is only 13 to 16% CC growth. In a quarter like quarter
01:45 one, we've grown 2.7%. More importantly, we've signed a $300 million deal in BFS, a stressed
01:53 sector. We have our order intake has been the highest in the history of the firm. So
01:59 you tally all of this large clients doing very well, large deal velocity, large deal
02:05 size going up. Our net headcount in our case again has been an outlier. Our net headcount
02:11 has gone up by 4.3% given the work that is already locked in, statement of works which
02:16 are there. That's where the confidence comes from. So we're not just looking at macro and
02:20 looking down and looking at what the peers are talking about and calling out. We are
02:24 looking grounds up, we are looking statement of work by statement of work, MSA by MSA,
02:28 line by line, prospect by prospect, 13 to 16% every which way we've stress tested it
02:37 is a guidance that we will, and I say this with absolute conviction, we will positively
02:42 definitely under every scenario deliver upon, no question about it.
02:46 So would you consider yourself as the outlier in this current scenario in the Indian ID
02:50 space?
02:51 Well, I'll let you be the judge of that. You obviously track the other firms a lot more
02:56 than I do. I know this for a fact, 13 to 16% the number that we've given. You look at our
03:01 track record over the last six years, we've never missed our guidance. We don't intend
03:05 to start doing it this year. That number we will deliver.
03:09 Okay. Very interesting point that you made was about the BFS segment. There definitely
03:14 you have clocked a $300 million deal that you have said. Your BFSI revenue is up this
03:24 year. Again, how are you doing it? I mean, I just wanted to, I was looking at the numbers
03:31 and seeing that's quite opposite to what we have seen elsewhere. So how are you scoring
03:35 these BFSI deals as well? Who are the clients?
03:38 Well, as you can imagine, banking clients are the clients with whom we signed two large
03:45 deals in BFS this quarter. One of them is an asset and wealth management major. The
03:51 other one is a large retail commercial bank. We've always said this, and I said this even
03:57 when the going was good and we were doing extremely well, others were doing well, that
04:01 it's only when the macros are tough, when demand is uncertain, that relative performance
04:07 becomes important and performance of firms across this industry will get very widely
04:13 dispersed. We've been prepping for this time. We've got the right leadership. We've built
04:18 the right capabilities. If there's one thing that we do right and we pride ourselves upon,
04:24 it is our execution intensity. Everything that we do is grounds up. Capabilities that
04:30 we built come from a very, very solid base. Two thirds of this billion dollar organization
04:37 is focused only on financial services. That means the inferences, two thirds of the 25
04:44 odd thousand employees, team members of CoForge focus on that space. BFS is a space where
04:49 we think we have very deep, very differentiated capabilities and an exceptionally strong relationship
04:55 engine at the front end. That's why we're gaining significant wallet share, even though
05:00 the size of the wallet is dropping.
05:03 Okay. Going ahead, so yours is a 30 to 16% guidance. Things look looking bullish right
05:09 now. What would be some of the challenges that you expect to face in the rest of the
05:14 year right now in FY24?
05:15 Really nothing material that's going to come in the way of 13 to 16%. I mean, there could
05:21 be challenges if you were aiming for more than 16%, but 13 to 16, if you look at what
05:26 we've done, we have been an outlier. And I said this earlier in the fact that our head
05:30 count has gone up by a thousand employees. Our head count in Q1 has gone up 4.3% at a
05:37 time when other firms have been cutting head count. We've taken the hard decisions in Q1
05:44 itself on the 1st of April, on the first day of Q1, which is when our annual increments
05:49 are given, we did not delay anything. 100% of our employee universe has been handed over
05:55 the increments. In Q1, annual bonus of last year, unlike some of our peers, we've not
06:01 delayed any of that. We paid all of it out. We have not gone back and taken away any offer
06:07 made to campus hires or to lateral hires. That's why our head count has gone up. We
06:12 are looking at the business that we've signed. We're looking at the resource requirement
06:15 that we have, and that's why we signed up for a thousand people. So that's how I would
06:19 present. That's where we're heading. That's what's building up as an answer to that question.
06:26 Okay. If I remember correctly, in the previous quarter also, it was the first time that you
06:31 hit $1 billion in revenue. Where do you think the next $1 billion is coming from?
06:38 It's going to come largely from the same set of clients that we have. The big change that's
06:41 happened over the last five years, as we move from 400 million to a billion, is that when
06:45 it comes to banking, insurance and travel, the number of tier one clients from these
06:49 industries has gone up. We take a lot of pride in the fact that in five years, we moved away
06:54 from having 9,000 Global Thousand clients to 61 Global Thousand clients. So a lot of
07:00 growth is going to be organic from the clients we've already acquired. And farming is going
07:05 to be a big engine. The second avenue of growth for us is going to be the new verticals that
07:09 we will establish. We will, before the end of this year, possibly call our public sector
07:14 as the fourth vertical, and hence the fourth growth driver of the firm outside banking,
07:18 insurance and travel. For us, a lot of growth is also going to come from the tech capabilities
07:23 that we've incubated. Data analytics infused with AI is a very strong growth engine for
07:27 us. Cloud based services continue to grow for us, despite the uncertain macros that
07:33 everyone's talking about. So it's going to be a mix of new vertical addition. It's going
07:37 to be a mix of very active farming under a customer success officer framework that we've
07:42 built. And it's going to be a mix of going after select, high potential, scalable, must
07:49 have accounts.
07:50 By when do you think that will happen? And the second question here is, can you also
07:55 explain the fact, explain the margin decline that you have seen in this quarter?
08:01 So we've said this earlier. We believe that it will happen in less than five years, not
08:08 in five years, in less than five years. And we don't feel comfortable at this stage in
08:12 giving the specific here. But our intent is to get there with the fastest possible speed.
08:18 And to that extent, we will also look at inorganic acquisitions starting as soon as we can identify
08:24 the right asset to make sure that we get a two billion with great speed. As far as margins
08:28 are concerned, margins are absolutely in line with the margin that progression that happens
08:32 in CoForge every year. If you look at the last three years, quarter one, including this
08:37 year, quarter one is always 16 to 16 and a half percent. And after doing 16 to 16 and
08:43 a half percent for the full year, we've delivered between 18.3 to 18.7. This year, if you look
08:49 at us in quarter one, our headcount has gone up 4.3%. So we've taken that hit in quarter
08:54 one.
08:55 So most of the costs are due to these costs?
08:57 Yes, they've all come in, the bench is there to staff. We take all our annual visa costs
09:02 in quarter one. And the third thing that's very important is the way we do our P&L is
09:09 a hedge gain and loss is netted off against revenue. Now this year, in quarter one, the
09:14 results that we declared yesterday, we had a loss. Last year in Q1, we had a gain. The
09:20 difference is 60 bps. So on a like to like basis, our margin Q1 compared to last year
09:26 is actually 10 bps higher. And all that we've told the market is that we will come around
09:31 for the full year at the same margin levels. We haven't talked about an expansion and margin
09:35 this year. So it's going to be the same story. It's not a new attempt at trying to do something
09:42 that we haven't done earlier. Every year, quarter one is 16 to 16 and a half. Every
09:46 year we've delivered for the last three years, including this year, 18.3 to 18.7. That's
09:50 the contention. And that again, given the investments we've done up front, salary cost
09:55 is fully baked in, hiring is really being done with speed. I think, and I believe, and
10:00 I more than believe that we will deliver on those things.
10:04 So at what operational profitability do you want to exit FI24 at?
10:10 The same levels that we did last time. If you look at us last year, quarter four, if
10:14 I remember right, was around 19.6%, which fundamentally meant that for the year we delivered
10:19 around 18.3. We would like to have a RAM that is reasonably similar to last year's RAM.
10:26 Got it. One final question, sir. There's a new field called generative AI. There's a
10:31 lot of buzz. Just wanted to get a feel of what CoForge is doing in that space, sir.
10:37 Absolutely. So generative AI, of course, is the new buzzword after the cognitive AI space
10:43 that like a lot of other organizations we've been intensely focused on. CoForge has not
10:48 just embraced AI. We started doing that five years back when it was more centered around
10:52 cognitive. We are also now in a stage where we're trying to institutionalize it across
10:57 the organization. As we speak today, we've already created a hundred solutions across
11:04 40 clients, 40 of our existing clients. A mix of both cognitive and gen AI. Our growth
11:10 pattern, our growth forward strategy around gen AI fundamentally has the following pillars.
11:15 The first is partnerships with hyperscalers and partners, including, of course, the hyperscalers,
11:22 but the beggar, the salesforce and the service now, right now. The second aspect of that
11:26 has been the AI trained pool across the organization, which currently stands at about a thousand
11:32 or so. We are not trained on AI-centric technologies across the hyperscalers and partners. We intend
11:37 to double it over the next two quarters. The third prong is the partnerships that we've
11:42 established with academia, with MIT, the Massachusetts Institute of Technology, with the European
11:49 University of Pennsylvania. We already have an active collaboration going on in terms
11:55 of populating the AI innovation COE that CoForge has and driving growth. The fourth thing that
12:02 we are doing is working with the partners, making sure that we start putting things out
12:08 there which are true blue solutions on their platform. If you go to Microsoft Azure today,
12:12 and if you look at gen AI solutions, CoForge already has eight gen AI-based solutions on
12:18 the Microsoft Azure marketplace, which I suspect is one of the highest that any service provider
12:23 on Microsoft Azure today has. So our strategy is multi-pronged. It's not a new strategy.
12:28 It's an extension of what we've done on the cognitive AI front. And gen AI, just as we
12:32 embraced and institutionalized cognitive AI, is going to follow the same pattern within
12:38 CoForge. We've embraced it. We will now, like cognitive AI, try to institutionalize it.
12:43 Any dedicated investment that you have towards AI? Have you marked some cash towards it?
12:49 I'll try to stay away from it. It's very, very difficult to call out analytics, automation,
12:55 and AI investments as separate. Everything that we are doing, the strategy we're following
13:01 is an AI-first strategy. So service lines like even product engineering, service lines
13:06 like cloud, service lines like data analytics, service lines like automation, all of them,
13:12 the investments going in have a mix of AI. I'd like to stay away from calling out a specific
13:17 number because it's going to become like the whole conversation that we used to have around
13:20 digital with everybody competing to talk about whether it was 30, 40, or 70% of their revenue.
13:25 But anything and everything that we're doing by way of investment, the lens that the firm
13:29 is carrying is as part of the AI-first strategy, do we have an AI component investment linked
13:36 to that component into the overall investment? What about training of the staff in this new
13:41 technology in gen AI? How to make them upskill them in this new sphere?
13:49 As I said, how are they done and dusted? Trainings, another thousand to be closed in the next
13:55 two quarters itself. So if you speak six months from now, that thousand will be 2000. And
13:59 then of course, we'll try to accelerate it further later on. We have the partnerships
14:05 that we have with MIT, for instance, fundamentally have been established to make sure that our
14:09 folks aren't just getting trained on AI, but they're also getting exposed on an ongoing
14:13 basis to the latest generation, not just the 3.5 LLM model of GPT, but 4.0 and the ones
14:20 that are going to follow.
14:22 All right. Thank you so much, Mr. Singh, for joining us today. It was quite an insightful
14:27 chat. I seriously consider that your performance has been an outlier so far. I hope all the
14:32 best for the rest of the fiscal.
14:34 Thank you very much. It's been fantastic speaking with you.
14:37 And thank you, viewers, for tuning in. This is Tushar for BQ Prime.
14:51 [BLANK_AUDIO]
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