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Motilal Oswal Report
At Coforge Ltd.'s Investor Day 2023, the management has reiterated its FY24 USD revenue growth guidance of 13-16% YoY, but noted persistent pressure on client spending in industries like banking, financial services and insurance.
The company continues to benefit from its sharp focus on execution (with a three-in-a-box model), along with relatively favourable demand in travel, transportation and hospitality) followed by Insurance (especially life and annuity).
Despite the challenging environment, Coforge remains confident about generating incremental revenues from its clients, especially from 16 priority accounts, which it expects to contribute 45% of its incremental growth in FY24.
On the other hand, management commentary indicated increasing concerns about deal closures and a shift in spending to cost optimisation over the last two quarters, although Coforge believes it is too small to be impacted by the slowdown.
Coforge does not expect industry spending to improve over H2 FY24 versus H1, which adds to risk on FY25 revenue growth for the industry. It expects to improve gross margin by 50 basis point YoY in FY24, which it plans to reinvest in selling, general and administrative and deliver flat margin (pre-restricted stock units 18.3%) in FY24.
It expects to slowly move to 35% gross margin over the medium term, resulting in 150-300 bp Ebitda margin expansion.
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