Buy Coforge Ltd For Target Rs.5,945 - Yes Securities
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Growth outlook remains strong led by robust deals
Our view
While, the organic growth for the quarter was slightly below expectation, other operating and financial performance remained strong. The revenue guidance (22% in cc terms for FY22) remains strong led by robust deal win and it would remain among the growth leaders in tier 2 IT space. The company is expected to achieve improving margin trajectory over next two quarters led by higher offshoring and improving employee pyramid. We maintain BUY on the stock with revised target price of Rs 5,945/share.
Result Highlights
* Total revenue growth( including contribution from recently acquired SLK Global) was 6.5% QoQ in USD terms, 7.4% QoQ in INR terms). Organic growth was slightly below expectation at 3.9% QoQ in cc terms due to slippage of certain license revenue to Q3FY22. EMEA and Insurance had muted quarter and are expected to bounce back strongly in Q3FY22.
* EBIT margin expanded by 250 bps QoQ to 14%, led by rising offshoring and improving employee pyramid. Q1FY 22 margin also had impact from wage hike.
* Order intake for Q2 remained strong $285mn , compared to quarterly average of around $200mn for FY21.
* Offshore revenue mix has grown by 400 bps QoQ to 44%, driving up margin. New client addition remained strong 11 compared to similar addition in Q1FY22.
* Utilisation was up 150 bps QoQ to 78.5%, with attrition increasing by 270 bps QoQ to 15.3%.
* Increased organic growth guidance for FY22 from 19% to 22%( with SLK global also expected to show organic growth of 22% YoY for FY22).
Valuation
The stock trades at PER of 32.1x on FY24E EPS. Robust deal booking provides strong visibility about revenue outlook over medium term and is expected to achieve around ~19% adjusted EBITDA margin for FY22E. We rollover to FY24E estimates and value the stock at 37.5x on FY24E earnings, arriving at target price of Rs 5,945/share.
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