'Expect gross margin to grow despite IT spending caution'

In an interview, Sudhir Singh, Coforge chief executive, spoke about why revenue growth projection is significantly lower for FY24, what the company is doing to expand gross margins, hiring plans, and why he feels that generative AI is still an uncertain hype cycle.

- Shouvik Das

NEW DELHI: Midcap information technology (IT) services firm Coforge posted record earnings in FY23, outpacing its own 20% revenue growth guidance and crossing $1 billion in annual revenue. In an interview, Sudhir Singh, its chief executive, spoke about why revenue growth projection is significantly lower for FY24, what the company is doing to further expand gross margins despite revenue growth drop, hiring plans, and why he feels that generative AI is still an uncertain hype cycle. Edited excerpts:

Your Ebitda margin dropped by 60bps despite record annual revenue. What contributed to this?

The only material factor for this was that we take our hedge gains and losses, and offset that against our revenue. This year, the hedge losses were significant due to currency fluctuations, the impact of which was 60bps. This drop is not due to performance issues, but because of the way we do our accounting. At the company performance level, there was a reported drop of 40bps. But, that’s largely because of the 60bps hedge loss that our Ebitda margin accounted for.

Your revenue growth forecast for FY24 is 13-16%. This is lower than the 22.4% constant currency revenue growth achieved in FY23 against a 20% guidance. Is this linked to slowdowns and concerns from clients?

We are seeing concerns, but how this will translate depends on which sectors are being hit the most in terms of slowdowns. In theory, the macroeconomic uncertainty is leading clients to be cautious about their spending on an ongoing basis. But, the demand from clients varies across industries.