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Dolat Capital Report
Coforge Ltd. reported constant currency rev growth of 2.3% QoQ (our estimate: 2%) led by broad based growth. Deal win stood at $313 million including three large deal wins in banking, financial services and insurance and travel.
Adjusted Ebitda margin up 234 basis points QoQ to 17.6% (our estimate: 17.2%) led by increase in gross margin (110 bps) offset by higher selling, general and administrative (20 bps).
Management retained revenue growth guidance of 13%-16% in CC terms and adjusted Ebitda margin (before employee stock ownership plan) around 18.3% with 50 bps improvement in gross margin.
Next twelve months executable total contract value up 4.2%/16.6% QoQ/YoY at $935 million.
What to expect next quarter
We have factored in revenue growth of 2% QoQ in CC for Q3 FY24, due to seasonally weak quarter and incorporating guidance band of 13-16%. Operating profit margin is expected to increase by 150 bps led by hedge gains, absence of one-off client event cost from Q2 and lower ESOP costs.
Valuation
Management remain confident of growth momentum backed by three large deal wins in BFS and travel vertical and continued focus on execution.
We believe Coforge would deliver decent growth momentum over next four-six quarters where other IT peers are reporting flat to low single digit growth, raising our growth confidence.
Hence, we currently value Coforge at 25 times (earlier 25 times on FY25E) on FY26E Earnings of Rs 195.1 with target price of Rs. 4,880 per share and maintain our 'Sell' rating on the stock.
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Also Read: Happiest Minds Q2 Results Review - Guided For 12% Organic Revenue Growth For FY24: Yes Securities
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