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Coforge reported 2.3% cc QoQ growth, ahead of JMFe: 2%. Growth was broad-based. Deal wins were strong (USD 313mn TCV, book-to-bill of 1.12). 12-M executable order book (EOB) outpaced revenues (+16% vs 14% YoY cc) again. Adjusted EBITDA margin (ex of ESOP expenses) expanded 160bps QoQ (in-line). Coforge is becoming a credible challenger in its focus areas e.g risk and compliance, card and payments in BFS. This shows up in deal wins against larger incumbents. A profitable growth indicates Coforge’s proposition goes beyond cost. Coforge has also protected its book of business better than most, reflected in consistent EOB growth and smaller deal wins (2/3rd of TCV in 2Q; JMFe). The granularities of its performance lend credibility to its consistently positive outlook. That said, seasonal weakness in 3Q will likely drive a tepid next quarter, before growth picks up in 4Q. We build these as we moderate our FY24E cc revenue growth to 13.5% (12.5% USD), at the lower end of 13- 16% guidance (unchanged). Our FY24-25E EPS is down by 14%/6%, due to higher ESOP expenses and expectations of a more gradual uptick in margins. Notwithstanding these moderations, Coforge’s earning visibility (24% EPS CAGR over FY23-26E) remains one of the highest in the sector, in our view. We therefore shed our conservative stance that mid-caps should necessarily trade at a discount to their larger peers. We raise our target multiple for Coforge to 24x forward EPS (from 22x) – in-line with its current FY25 multiples and at a 20% premium to INFO. Maintain BUY with a revised TP of INR 5,730 (from INR 5,300).

*2QFY24 – ahead of expectations: Coforge reported 2.3% cc QoQ revenue growth, above JMFe: 2%. Growth was led by BFSI (+3.8% cc QoQ) whereas Insurance (2.4%) and Travel (2.2%) also grew in-line. Geographically also, growth was well spread out. EBITDA margins improved marginally by 33bps (JMFe: +170bps). Higher ESOP charges (2.4x QoQ), due to accelerated vesting, drove the miss. Adjusted EBITDA (ex-ESOP) however expanded by 160bps QoQ, in-line. Lower other income resulted in PAT miss (INR 1.8bn vs JMFe: INR 2.3bn). OCF/EBITDA was 49%. Management expects this to improve to 65- 70% in 2H as many cash expenses – vendor payments, variable pay etc. are in 1H.

*Deal win momentum sustains: Coforge won USD 313mn TCV of deals during the quarter. Though a decline from record bookings in 1Q (USD 531mn), at 1.12x book-to-bill, it was a decent inflow. Deal wins include three large deals (USD 20mn+) – one in BFS (a new logo) and two in Travel in the EMEA region. 12-M EOB grew by 16% YoY, ahead of revenue growth (14% YoY cc). This not only provides visibility beyond FY24, but also reflects a more resilient book of business. Deal pipeline, velocity and probability of win remain strong, per the management. So does revenue conversion.

* Maintains guidance: Coforge maintained its FY24 cc revenue growth guidance of 13- 16%, implying 2H CQGR of 2.2-5.7% (JMFe). The company flagged off a potentially tepid 3Q. That would raise the 4Q ask substantially for upper end of the guidance. We therefore lower our FY24E cc growth to 13.5%. The company also reiterated its margin guidance of maintaining adj. EBITDA margin at FY23 levels (18.3%). Specific tailwinds in 3Q (c.100bps) and a likely growth pick-up in 4Q make this achievable, in our view. 

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