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Coforge, in its Analyst Day, laid out a credible blueprint to double its revenues (from USD 1bn to USD 2bn) within the next five years. Credible, in our view, because it is predicated on a) a successful playbook of past five years – focussed (sub) verticals, partnerships and geographies; b) a realistic growth target – implied CAGR of c.15% versus past 5 year CAGR of 17% (USD terms); and c) existing building blocks – sales, delivery engine in place. The company expects incremental revenues to come from a) scaling existing accounts – USD 450mn; b) three new verticals – USD 150mn; c) partnerships (ServiceNow, AWS, MS) – USD 150mn; and d) tuck-in acquisitions – USD 150mn. In the near term though, the company did flag off a challenging spending environment, especially among BFS clients. However, a strong 12-M executable order book (EOB) lends visibility as the company does not expect any leakage here. With 75-77% of FY24 revenues (12-M EOB as % of FY24 guidance range) in the bag, Coforge’s FY24 revenue visibility is probably the highest among Indian IT Services players at this stage. This forms a key rationale of our constructive stance on the name. At 20x FY25E PER, we find valuations reasonable as well. Retain BUY.

* 2023 Analyst Day – CEO’s playbook: Sudhir Singh, Coforge’s CEO, picked his battles to turnaround the company. He reprioritised the company’s focus on select sub-verticals e.g risk and compliance in BFS, P&C in Insurance, airlines in Travel etc. Partnership with select few were scaled substantially e.g Duck Creek (10x in past 5 years), Pega (6-7x), Mulesoft. These initiatives were supported by leadership injections from tier-1 players, significant improvement in sales and delivery incentives etc. With the building blocks in place, Sudhir now wants to replicate this playbook to achieve the next USD 1bn for the company. The plan is to add three new verticals (Public services is one, retail/healthcare could be the other two) and scale next three partnerships (ServiceNow, AWS, MS). Select acquisitions could fill white spaces in geographies – e.g west coast in US, continental Europe – and capabilities – cybersecurity, SaaS. Importantly, he expects 45% of incremental revenues to come from scaling existing clients. The construct and pace of incremental growth (15% CAGR) makes it an achievable target, in our view.

* FY24 – visibility amidst uncertainty: Coforge’s medium term target does not ignore nearterm demand challenges. It expects uncertainty to last through FY24. Softness is more pronounced in BFS vertical (among Coforge’s portfolio). That said, the company does not see risk to its 14-16% CC revenue guidance. A healthy 12-M EOB (USD 869mn), less dependence on few large deals – the company won 2 USD 50mn+ and 7 USD 30mn+ deals in FY23, and better prospects in insurance as well as travel vertical are driving confidence. In fact, the company does not see any leakage or ramp-up delays in 12-M EOB given these orders are at SOW stage. Coforge is also confident to achieve its 50bps gross margin expansion guidance. The company had ramped up BFS accounts through expensive lateral hires (3x average cost). Now as it deployes freshers, it expects to save 100bps on cost. These lend support to earning trajectory. We forecast 27% FY23-26E EPS CAGR (unchanged). At 20x (0.7x PEG), valuations are reasonable. BUY.

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