Buy Coforge target of Rs 5596: Prabhudas Lilladher

Prabhudas Lilladher's research report on Coforge

Coforge revenue growth of 6.5% USD QoQ, below our estimates (Ple: 7.8%), but above consensus estimates (Cons: 5.8%). Miss in revenue was led by lower than estimated organic growth +2.9% QoQ USD (Ple: 4.4%), mainly due to flattish growth in insurance vertical because of delayed Advantage Go license realization which is expected to bounce back in Q3 aiding both revenue and margins. Inorganic contribution from SLK is at ~$22 mn (in-line with our estimates). Management raised organic growth guidance to ‘at least’ 22% YoY CC for FY22 from earlier 19% on back of sustained strong deal momentum – 1) 2Q Order book at $285 mn, +42% YoY and 2) robust next 12 months’ executable order book of $688 Mn, +40.7% YoY including $603 mn organic component. SLK global acquisition is performing better than management’s expectations and is expected to grow 22% YoY CC in FY22. This translates to overall revenue growth of at least 35% YoY CC in FY22. We estimate overall growth of 37% YoY USD (organic growth of 23% YoY USD).

Outlook

Our EPS estimates decrease by 7.4%/4.9%/2.4% for FY22/23/24 on account of higher minority interest because of higher profitability of SLK (Coforge owns 60% stake in SLK Global) partially offset by increase in revenue in FY23 and FY24 given management’s target to reach $1Bn revenue in FY23. We arrive at DCF based TP of 5596 (implying target multiple of 33x on FY24 EPS). At CMP, stock trades at 36x/30x FY23/24E EPS of INR 142/169 with Revenue and EPS CAGR of 16.4%/24.7% respectively over FY22-24. Reiterate BUY.

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