A large Indian IT services company trades at 18x earnings against its own ten-year average of 26x. Revenue growth has slowed from 15% to 4%. Headcount fell 3% last year while revenue was flat, so revenue per employee rose. Operating margin improved 120 basis points. The order book is at a record, but the average contract tenure has shortened. Attrition has fallen from 24% to 12%. Management attributes the slowdown to client caution on discretionary spend, and has guided to a recovery in the second half.
Write a buy or sell recommendation. Thesis in the first two lines, then the evidence, then the two risks that would make you wrong and what you would watch to catch them early.
100 points, 60% to pass.
The tension is between improving efficiency metrics and deteriorating growth. Rising revenue per employee with falling headcount can mean genuine productivity or it can mean the firm is harvesting rather than investing. A record order book with shorter tenure is genuinely ambiguous — more work, less locked in. The strongest pitches take a view on whether the de-rating prices in a cyclical pause or a structural change in how clients buy, and say explicitly which they believe.