Buy Coforge; target of Rs 3051: Prabhudas Lilladher

Prabhudas Lilladher's research report on Coforge

Coforge reported revenue of 160.8$ mn, strong growth of 3.8% QoQ USD (Ple: 2.7% QoQ USD) despite being seasonally weak quarter. This growth was on top of very high growth of 10.5% QoQ USD in 2Q21 Revenue growth was led by sustained strong performance in BFS and continued strong recovery in deeply impacted Travel & Transport vertical. EBIT Margin declined by 80 bps QoQ to 13% led by investments to retain proven talent. Coforge’s primary focus will be building deep differentiated tech capabilities across subverticals followed by strengthening sales teams. Strong deal momentum continued, with fresh order book at 192$ Mn and 12-month executable order book was up 18% YoY and 2.5% QoQ to USD 500$ Mn. With 75% of large deal pipeline revolving around cloud, and 5 deals wins of size 25mn+, this segment is going to be the next driver of growth for coming 2-3 years. Coforge is poised to show strong momentum in FY22 and could outpace peers by wide margin.

Outlook

We assign 23X(unchanged) multiple for Coforge to arrive at a TP of Rs.3051 (earlier Rs2,996) valued on FY23 EPS of Rs.132. At CMP, stock trades at 21.4x/18.2x FY22/23E EPS of INR 113/132.6. Reiterate BUY.

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