Buy Coforge; target of Rs 4031: Prabhudas Lilladher

Prabhudas Lilladher's research report on Coforge

Coforge reported miss on revenue growth at 4.7% QoQ CC, 2.7% QoQ USD (Ple: 4%) led by decline in Insurance vertical by 6.3% QoQ CC. BFS grew 11.1% QoQ CC, Others grew 11.4% QoQ CC, while Travel vertical grew 1% QoQ CC (on a high base in Q4FY22). But both Insurance and Travel are poised for strong rebound from Q2FY23. Management is confident of achieving at least 20% YoY CC growth in FY23 despite worsening macro environment led by consistent deal wins - close to record high TCV of $315mn in Q1FY23 and healthy 12 months’ executable order book of $745mn (16% YoY). Adjusted EBITDA margin at 16.5% declined 390bps QoQ led by 250bps impact from higher than normal wage hikes and 100bps increase in SG&A, due to investments in sales and leadership. Margins are expected to increase by 100-200bps QoQ in Q2FY23 led by increase in offshore revenue, utilization and higher number of freshers turning billable. We model 18.4% adjusted EBITDA margins, near lower end of margin guidance of 18.5%-19%. Our EPS estimates change 5%/1.6% in FY23/24 led by slight cut in revenue and margin estimate due to miss in Q1 and higher minority income going forward.

Outlook

We continue to value Coforge on 24x FY24 EPS to arrive at TP of Rs.4031. At CMP, stock trades at 27x/22x on FY23/24E EPS of INR 135/168 with Revenue and EPS CAGR of 16%/24% respectively over FY22-24. Maintain ‘BUY’.

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Coforge - 250722 -prabhu