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Coforge reported a 2.7% CC QoQ revenue growth, ahead of JMFe: 2.4%. More importantly, the company reported a record high USD 531mn TCV of deal wins (c.2x book-to-bill) and a 20% rise in 12-M executable order book (EOB). These lend visibility not only to current year growth but also beyond. The company reiterated its FY24E cc revenue guidance of 13-16%. Although that would imply a 3-5% CQGR, a 1.3x revenue conversion to 12-M EOB conversion ratio makes it achievable, in our view. 1Q margin miss notwithstanding, the company expects to recoup margins through the year to achieve 18.3% adjusted (ex-ESOP) EBITDA margins. Our estimates largely build this guidance - 15.8% USD revenue and 18.1% EBITDA margin for FY24E. A better revenue visibility for Coforge should translate into lower valuation discount to PSYS, in our view. We therefore raise our target multiple for Coforge from 20x to 22x (vs 23x for PSYS) and revise our TP to INR 5,300 (from INR 4,620). Maintain BUY. Coforge remains our preferred mid-cap pick.

* 1QFY24 – in-line quarter: Revenues grew 2.7% in CC QoQ terms, ahead of JMFe: +2.4%. The growth was broad based with BFS/Insurance/Others growing 2.8%/4.3%/ 1.7% QoQ (USD terms). Among geographies, growth was driven by US (+5.4%) while EU and ROW dragged. EBIT margin declined by 410bps QoQ to 11.9%, missing JMFe/ Consensus est. of 13.5%/13.8%. Full impact of annual wage hike, headcount addition, hedge losses (-60bps) and visa cost impacted margins. Consequently, PAT (before onetime celebration cost) decline by 26% YoY. Net cash declined from INR 2.6bn in 4QFY23 to (INR 5.4bn) in 1Q as the company paid USD 41mn to raise its stake in Coforge BP

* Guidance and outlook - intact: Coforge year beginning guidance of 13-16% was built on a healthy 12-M executable order book. If at all, the company has strengthened its order book. The company won USD 530mn TCV of deals. This includes a USD 300mn deal from an existing BFSI client with a minimum ACV of USD 60mn. Additionally, the company won another USD 65mn deal with net new above 50%. What is more comforting is that the company won USD 300mn deal against an incumbent vendor, allaying fears that midscale players may lose in vendor consolidation scenario. Importantly, the company indicated that the said deal is not margin dilutive. The company reiterated its margin outlook and believes its can recoup margins over the next three quarters. With the wage hike behind and growth pick-up ahead, we believe flat EBIT margin is achievable.

* EPS largely unchanged; Maintain BUY: Our revenue growth estimates are largely unchanged as a strong deal win and improved order book lends visibility. We have maintained our EBIT margin estimates as well. Our FY24E EPS is lower by 4% driven largely by lower other income (due to lower net cash). Changes to FY25-26E EPS are minimal. We raise our target multiple to 22x (from 20x), bringing it closer to PSYS (23x). A strong and quantifiable revenue visibility for Coforge, especially in the current environment, deserves lower discount to peers, in our view. Though Coforge is not immune to macro environment, it has demonstrated that execution far outweighs external environment for a company of that scale. The stock should reflect that. BUY.

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