Buy Coforge; target of Rs 2784: Prabhudas Lilladher
Prabhudas Lilladher is bullish on Coforge has recommended buy rating on the stock with a target price of Rs 2784 in its research report dated October 23, 2020.
October 23, 2020 / 02:24 PM IST
Prabhudas Lilladher's research report on Coforge
Coforge reported robust 8.1% CC growth QoQ (Ple: 7.5%) exceeding their guidance of 7% CC growth in Q2. This translated to 154.9 USD Mn revenue up 10.7% QoQ growth. (Ple/Cons: 10%). Revenue growth was broad-based with Insurance (34% of revs) posted growth of ~14% QoQ USD, Travel & transport (19% of revs) revived & posted 10.5% QoQ USD on account of strong wallet share expansion amongst existing large clients. EBIT Margin expanded by 221 bps QoQ at 13.8% in Q2. They have undertaken cost optimization measures to improve margins and they will maintain margins at these levels. They have substantially reduced SG&A costs during H2FY21 from 16% in 2QFY20 to 13.8% in Q2. Strong deal momentum continued with order book exceptionally strong at 201$ Mn in Q2 vs 186$ Mn in Q1 up 8% QoQ, 12-month executable order book was up 5.2% QoQ to USD 489$ Mn (vs 465$ Mn in 1Q21 and 405$ Mn in 2Q20). Management indicated that order book remains robust despite decision making delays at client’s end. Led by strong commentary, we raise Coforge USD revenue growth assumption to 6.7%/18.7%/16.8% for FY21/FY22E/23E (vs 4.3%/16.2%/15.9% earlier). Coforge is poised to show strong momentum in FY22 and could outpace peers by wide margin.
We assign 23X(unchanged) multiple for Coforge similar to LTI multiple as Coforge growth momentum will surpass everyone in FY22 & concentrated share float (Baring holds 70.3% in NIIT Tech) can also lead to steeper P/E multiple increase for the stock. We arrive at a TP of Rs.2784 (earlier Rs2,634) valued at 23X Sep-20 EPS of Rs.121. At CMP, stock trades at 21x/19x FY22/23E EPS of INR 113/129. Reiterate BUY.
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