Buy Coforge; target of Rs 4926: YES Securities

YES Securities is bullish on Coforge has recommended buy rating on the stock with a target price of Rs 4926 in its research report dated April 27, 2023.

Broker Research

April 29, 2023 / 10:01 IST

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YES Securities' research report on Coforge

Coforge (COFORGE) reported broadly inline financial performance for the quarter. The sequential revenue growth was slightly above estimates; while, EBIT margin came in slightly below expectation. It reported constant currency growth of 4.7% QoQ(up 5.0% QoQ in USD terms), led by Manufacturing vertical( up 7.3% QoQ) and Insurance(up 5.5% QoQ). There was sequential improvementin EBIT margin(up 93 bps QoQ) led by improving employee pyramid, higher offshoring and other efficiency measures. Employee attrition continues to decline as LTM attrition increased by 170 bps QoQ to 14.1%. Its employee attrition remains one of the lowest in the IT Industry. Offshore revenue mix now contributes 50.7% to total revenue, having grown from 44% as of Q2FY22. The long term demand environment remains robust led by strong deal wins and robust deal pipeline. However, the clients especially in select sectors have become cautious regarding the evolving macroeconomic situation and it can lead to moderation in near term revenue growth. Revenue guidance of 13%-16% in cc terms for FY24 remains strong. Falling employee attrition is expected to support operating margin going ahead. We estimate revenue CAGR of 17.5% over FY23‐25E with average EBIT margin of 14.9%.

Outlook

We maintain our BUY rating on the stock with revised target price of Rs 4,926/share at PER of 23.5x on FY25E EPS. The stock trades at PER of 23.1x/19.1x on FY24E/FY25E EPS.

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