Add Coforge Ltd For Target Rs. 1,850 By Emkay Global Financial Services Ltd
Consistent delivery; growth momentum to sustain in H2
Coforge posted a strong operating performance in Q2. Revenue grew 4.5% QoQ to USD462.1mn (5.9% in CC), ahead of our estimate of 5% CC. Revenue growth was broad?based in Q2, led by TTH (6.4% QoQ in USD term), Others (5.9%; includes Healthcare, Retail, Hi?tech, Manufacturing), and BFSI (4.0%). Coforge signed 5 large deals with total order intake of USD514mn, lifting the next 12M executable orderbook to USD1.63bn, up ~27% YoY. Annualized revenue per billable employee in the IT business inched up 3%/17% QoQ/YoY to ~USD70k on the back of AI-led platforms adoption; the management expects the trend to continue. It remains confident about the revenue growth momentum enduring in FY26, with H2 being better than H1, supported by strong deal wins and healthy pipeline. It aspires to achieve EBITM of 14% in FY26 and to maintain the margin level as the minimum threshold going forward. In addition, it aims to maintain FCF/PAT in the 75-80% range, ahead. We tweak FY26-28E adjusted EPS by ~3%, factoring in the Q2 performance. We retain ADD on the stock while we revise up our TP by ~6% to Rs1,850 (from Rs1,750) at 32x Sep-27E EPS.
Results Summary
Revenue grew 4.5% QoQ (5.9% in CC) to USD462.1mn, better than our expectations of 5% in CC. Revenue growth was broad-based, driven by TTH (6.4% QoQ in USD terms), Others (5.9%), BFS (4.0%), Insurance (1.8%), and ‘Government outside India’ (0.4%). EBITM was up by 240bps sequentially to 14%, above our expectations of 13.5%. There is a convergence between GAAP and non-GAAP (exchange vs factsheet format reported) EBITM in Q2. Reported net profit grew 18.4% QoQ to Rs3.8bn, above our estimate of Rs3.4bn, on higher other income. Deal intake TCV stood at USD514mn vs USD507mn in Q1. Headcount grew 2.1% QoQ to 34,896. LTM attrition (ex-BPS) remained steady at 11.4% vs 11.3% QoQ. The company declared interim dividend of Rs4/sh. What we liked: Broad-based revenue growth momentum, healthy deal intake, EBITM beat, and convergence between GAAP and non-GAAP EBITM. What we did not like: Higher DSO.
Earnings Call KTAs
1) Despite the uncertain macro, demand remained resilient and continued to improve on the margin, supported by solid trends across banking, insurance, and travel. The company’s continued focus on driving robust organic growth complements its successful integration of acquisitions. 2) Banking demand remains strong, supported by lower interest rates, regulatory shifts, and adoption of real-time transactions across payments and settlements. 3) Insurance is entering an above-trend growth phase (P&C: ~4.5%; Life and Annuities: ~5%), driven by complex risks, focus on specialized products like cyber, higher interest rates, and growing interest in savings products…(contd)…
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