Coforge shares tank 5% despite decent Q1; Morgan Stanley remains overweight

Coforge shares are up 27 percent in the last three months.

Coforge shares tanked over 5 percent to Rs 1,743 in morning deals on July 24 even as its first-quarter results outperformed expectations and stood out amid a tepid showing by industry peers.

The midcap IT firm posted an 8 percent growth in revenue in constant currency terms for the June quarter. The performance also sharply contrasted with Persistent Systems and LTIMindtree, which reported CC growth of 3.3 percent and 0.8 percent, respectively.

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A key growth driver this quarter was the ramp-up of Coforge’s $1.6 billion contract with Sabre, which powered a 31 percent sequential surge in its travel, transportation, and hospitality vertical. This helped offset weakness in its BFSI segment, where banking revenue slipped 1.1 percent and insurance saw a modest 1 percent uptick in US dollar terms.

The company’s rupee revenue rose 8.6 percent sequentially to Rs 3,687 crore. On the margin front, EBITDA improved by 60 basis points to 17.5 percent, while EBIT margin held steady at 13.2 percent.

Coforge's BFS business declined by 1.1 percent during the quarter, while the insurance business grew 1 percent sequentially in US Dollar terms.

Also read: Mutual funds bet big on small-caps in June quarter; majority sees MF stake rise

Coforge secured new deals worth $507 million during the quarter. While this is significantly lower than the $2.1 billion haul in the previous quarter, the earlier number included the mega Sabre deal. Importantly, the executable order book for the next 12 months now stands at $1.54 billion—up 3 percent sequentially and a robust 44 percent year-on-year.

Following Q1, Morgan Stanley maintained an Overweight rating on Coforge with a target price of Rs 1,880 per share. Growth was led by the travel and other verticals, while the BFSI and insurance segments lagged, the international brokerage said.

At about 9:45 am, shares of the company were trading at Rs 1,747, lower by 5.5 percent from the last close on the NSE. Coforge shares are up 23 percent in the last three months.

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