Coforge gains 4% on crossing $1-bn revenue milestone: What do brokerages say?

Coforge

Shares of mid-cap IT player Coforge traded up by 4 percent intraday on April 28, despite a 48 percent decline in on-year consolidated net profit at Rs 117 crore. The company's revenue from operations jumped 25 percent Rs 2,170 crore in the fourth quarter of FY23.

“We believe that our performance during the quarter was marked by two key achievements. The first was a quarterly sequential US dollar growth of 5 percent. The second major landmark has been the firm crossing the $1 billion revenue mark. Our performance heading into FY24 sets us up well to deliver robust growth,” said CEO Sudhir Singh.

Foreign brokerage firm Jefferies has upgraded the stock to ‘hold’ at a target price (TP) of Rs 3,760 and said the Q4 revenues were in-line with their expectations, though profits missed estimates. Steady deal wins were in-line with FY24 growth guidance, it said, adding that investments in growth will limit margin expansion. The brokerage has raised its FY24 estimates by 4 percent but lowered FY25 estimates by 2 percent.

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The company won $301 million of TCV (total contract value) in 4QFY23, flat year-on-year, including two large deals.

“The ramp-up of the two large deals signed during 4Q and 11 large deals in FY23 are expected to deliver sustainable and predictable growth in FY24. The overall deal pipeline remains healthy across its client buckets with no meaningful instances of deal deferrals or spending cuts,” said brokerage firm Motilal Oswal, which has a ‘neutral’ rating on the stock at a TP of Rs 4,290.

The brokerage was, however, disappointed with margin performance for the quarter which increased 110 bps QoQ against its expectation of 200 bps. This was primarily due to rigorous investments in building S&M team, technology, and functional capabilities, it said, adding that management indicated that it would continue to spend on S&M (all through FY24) to support incremental growth and gain higher wallet share from each of the strategic accounts.

Also Read: Mphasis shares gain 2% despite missing Street projections for Q4

The company has guided for a 50bps gross margin expansion and flat adjusted EBITDA margin YoY in FY24 and targets organic revenue growth in the range of 13-16 percent YoY CC (constant currency).

“We largely maintain our revenue estimates while moderating margins (60-70bps) driving 4-5 percent cuts to our FY24-25 EPS. We believe risk to current book of business remains high, especially for mid-caps. But Coforge’s 12-month EOB and guidance provide a quantifiable visibility into next year’s growth,” wrote analysts at JM Financial.

The brokerage has a given a ‘buy’ rating to the company but has reduced TP from Rs 4,790 earlier to Rs 4,620.

Elara Securities, on the other hand, has increased its TP from Rs 5,280 earlier to Rs 5,360. “We retain our positive view, given (1) an improving executable orderbook, (2) steady large deal wins, and (3) consistent revenue growth” it said.

Coforge’s market cap has increased over 16 percent in the last one month. At 2.27pm, the scrip was trading 3.34 percent up at Rs 4,186.75 with the benchmark Nifty IT trading up by 1.05 percent at 27,642.35 points.

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