Key Rating Drivers & Detailed Description

Strengths:

Strong position in the IT staffing segment with improving profitability: 

Collabera is one of the largest players in providing specialised staffing and has gradually transitioned itself from pure staffing company to project-based IT services company. CTPL’s clientele over the years includes reputed organisations such as BNP Paribas, Goldman Sachs, IBM, Qualcomm, Infosys, HCL, Wipro, etc. Some of these corporations have established relationships with the group at a global level.

Now, the company is transitioning to offer Digital Engineering solutions wherein the Company will provide end-to-end IT solutions to enterprises. The company expects to leverage its strong client relationships built over the years to ramp up the digital solutions business. The business model of the company is undergoing material change due to the change in strategy. While the digital solutions business will require the company to build a resource base with enhanced skillsets, it may also affect the way the company is carrying its legacy business. Hence, seamless transition remains a key monitorable going forward.

The revenue has grown at a CAGR of 26% over the last five fiscals between fiscal 2019 to fiscal 2023 and by 20% in fiscal 2023 to ~Rs 1,500 crore on a consolidated basis. The growth was primarily driven by international business especially Philippines. The company is currently supported by an employee base of 2868 in India with an increase in revenue per employees over the years. It generates less than half of its revenue from India (42%) while remaining is majorly from Philippines (32%), Australia (4.5%), Singapore and Malaysia (7%), thus ensuring a diversified geographical reach. The revenue performance, however, is expected to report modest growth in the near term due to the change in business model.  

In fiscal 2023, the operating margin improved to ~10.5%, as against ~9.6% in the last fiscal. The improvement was backed by higher revenue from high margin project-based business. Going forward, the profitability is expected to improve further with higher revenue from the digital services business.

Strong financial risk profile: 

CTPL had nil long term debt as on March 31, 2023. Capital structure was healthy with adjusted gearing expected to remain below 0.5 times over the medium term. Debt protection metrics were comfortable too, with interest coverage and net cash accrual to total debt ratios expected over 30 times and over 1.0 times respectively over the medium term. Any sustained increase in debt will remain a key monitorable.

Weaknesses:

Exposure to sectoral concentration risk

With IT based staffing/ project contributing to 100% revenue, CTPL faces significant sectoral concentration risk. In comparison, few peers are well shielded from this risk, as they offer generalized staffing to a diversified end-user base. While a slowdown in the IT industry could negatively impact business, CTPL derives ~95% of total revenue from repeat customers, thus benefitting from replacement demand.

Exposure to intense competition

The company operates in two business segments, i.e., staffing, and digital engineering services. The company faces intense competition in both these industries. Intense competition from several domestic and overseas players exerts pricing pressure and keeps the overall staffing margin at an average level of around 5%. However, in the staffing industry, as CTPL operates in a niche segment, offering specialised (IT based) staffing for the clients, it earns a comparatively higher margin than its peers, which provide generalised staffing. The scale of operations remains relatively modest at Rs 1500 crores in fiscal 2023 as compared to other players in both the business models. Given the largely service-oriented nature of the IT business, most players face high attrition rates. Issues relating to workforce availability can also adversely impact the group's relationship with clients and therefore, its revenue flow.

The digital services business is also expected to face intense competition from established players and the ability of CTPL to build resources, generate repeat business and improve the scale significantly remain essential going forward.

Annexure – List of entities consolidated

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