Jefferies raises Coforge’s target price amid cost-optimisation drive; shares gain

Coforge shares gained 2 percent in trade on December 11 after global brokerage Jefferies increased its target price on the IT services player. The brokerage firm raised its TP from Rs 6,250 to Rs 6,580 apiece, and maintained its ‘buy’ call on Coforge as the company optimises costs with the aim of improving margins by 150-300 bps over next 3-4 years.

As of 12.05 pm, Coforge shares were trading at Rs 5,858.55, higher by 1.31 percent on the NSE.

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The management highlighted that the macro remains challenging in the third quarter, but the new project wins suggest that outlook for Q4 may be better. The deals won are in the banking and insurance verticals, not so much in the travel segment. Coforge is likely to achieve the lower-end of its growth guidance for FY24, ie, 13-16 percent YoYcc.

The management emphasised that CY24 budget details are unclear at present. Nevertheless, they anticipate FY25 growth to align with FY24 figures, even if the demand environment does not show improvement.

“Coforge’s executable order book provides strong growth visibility and is iron clad given that they include only those deals where clients have signed a Statement of Work (SoW),” noted Jefferies.

Additionally, the company is planning on scaling up 4 new verticals: Public Sector, Healthcare, HiTech, and Retail in an attempt to clock a topline of $2 billion.

The financials

“Management is focused on delivering sector-leading growth and that focus remains so despite promoter exits. Furthermore, with one of the better ESOP plans in the industry, Coforge’s management is well incentivized to deliver a strong performance,” added the brokerage.

Coforge has reported a 9.5 percent rise in net profit for the July-September period at Rs 181 crore compared to Rs 165.3 crore it registered in the June quarter of FY24. The company’s revenue increased 2.5 percent sequentially in constant currency terms to Rs 2,276.2 crore.

The increase in topline was aided by strong order wins as the company recorded a total order intake of $313 million in Q2, including three large deals, marking the seventh consecutive quarter where order intake remained steady above the $300 million mark.

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