Neutral Coforge; target of Rs 2690: Motilal Oswal

Motilal Oswal's research report on Coforge

Coforge’s reported an in line 3QFY21 USD revenue growth of 3.3% QoQ CC, with strong growth in BFS, Travel, and Others. However, the same was tempered by weakness in Insurance on account of project completions. It reiterated its FY21 USD CC revenue growth guidance of 6% YoY and indicated strong growth in FY22. n EBITDA margin (pre-RSU) fell 80bp QoQ to 18% due to select wage hikes to keep attrition low (10.4%). It reported a healthy order intake of USD192m and would execute USD501m over the next 12 months (+18% YoY). n The management’s FY21 revenue growth guidance indicates a strong exit to FY21 (+7% QoQ in CC). Moreover, it expects growth in the Travel vertical to continue as spends at major clients recover. This, coupled with continued delivery in BFSI, should help it deliver over 20% USD revenue growth in FY22. n It also expects to deliver FY22 EBITDA margin (pre-RSU) of at least 18%, despite increasing salaries due to elevated demand. With the impact of RSU moderating from FY22, we are factoring in EBIT improvement of 80bp YoY and PAT growth of 29% YoY. n The stock is currently trading at 20.7x FY23E EPS, a 30% premium to its fiveyear P/E of 16x. This fairly factors in strong growth delivery from Coforge. n We upgrade our FY21-23E EPS estimates by 2-7%. Our TP of INR2,690/share implies 23x FY23E EPS. Maintain Neutral on fair valuations.

Outlook

We value the company at 23x FY23E EPS. Maintain Neutral on fair valuations.

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