Add Coforge Ltd For Target Rs.4190 - ICICI Securities
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Coforge (NIITEC): Breakout above a falling channel indicates extension of the pullback rally
* The Technology stocks are witnessing a technical rebound after the price and time wise correction in the last six months. Within the midcap IT space we remain constructive on Coforge as it has registered a breakout above the falling channel containing decline since January 2022 and is seen sustaining above the same post its Q1FY23 numbers signalling extension of the current pullback rally and offers fresh entry opportunity
* Buying demand is seen emerging in the stock after last one month base formation around the support area of | 3300-3500 being the 80% retracement of the previous major rally of May 2021 to January 2022 (|2785-6135)
* We expect the stock to continue with its current pullback and head towards | 4190 levels in the coming months being the 61.8% retracement of the previous major decline MarchJune 2022 (| 4873-3218)
* Among the oscillators the weekly 14 periods RSI is seen rebounding from the oversold territory and is seen sustaining above its nine periods average thus validates positive bias
Fundamental View: Coforge (NIITEC)
* Coforge (NIITEC) offers system integration, apps & BPO services to BFSI, travel & healthcare verticals. Company’s revenue grew at 18.1% CAGR in the past five years & it has Healthy OCF, EBITDA (~75%) and robust return ratios (RoCE > 20%)
* The company indicated increase in deal sizes; it signed a US$105 mn BFS deal (for four years), insurance US$20 million (three years). It also indicted healthy order book to drive growth
* The company has indicated bottoming out of travel vertical (in US), its preferred partnership with Fortune 500 insurance & Tier 1 banking companies, its recent acquisition and aggressive hiring will drive 19.1% revenue CAGR over FY22-24E
* The company expects 40 bps improvement in margins over FY22-24E due to offshoring, higher margins in acquired company, reversal of travel discount and growth
* Coforge’s share price has grown by ~7.6x over the past five years (from ~| 476 in May 2017 to ~| 3656 levels in May 2022). We value Coforge at | 4370 i.e. 25x P/E on FY24E EPS
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