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Eking out growth amidst challenges

BFS shines despite unusually high furloughs

Coforge (COFORGE IN) reported in-line revenue growth at 1.4% QoQ USD as also in-line EBIT margin at 13.8%. The traction came in from North America and RoW within geographies and BFS among verticals. Pipeline continued to be robust at USD 974mn, up 4% QoQ. Within service lines, BPS saw weakness, while growth was led by cloud (up 4% QoQ), Data integration (+7%) and ADM (+4%). EBIT margin rose 200bps QoQ, supported by increased offshoring, increased fixed-price contracts and 70bps rise in gross margin. The print looks robust and near-term visibility intact with robust executable order book.

Large deal momentum continues to prop executable orderbook

Pipeline is robust with executable order book at an all-time high of USD 974mn, up 15.8% YoY. Fresh order intake at USD 354mn rose 13% QoQ, resulting in eighth consecutive quarter of USD 300mn+ order intake. COFORGE signed three large deals and seven new logos in Q3. The order intake was particularly robust for Europe (up by USD34mn QoQ).

Rosy outlook

Organic CC revenue growth YTD stood at 14.7%. The management maintained its FY24 growth guidance at 13-16% YoY CC. Margin may grow on account of cost reversal in the absence of furloughs (worth ~50bps), with FY24 exit margin in line with FY23. SG&A investments may peak out at 15%, resulting in significantly better margin in FY25 YoY. Exit rate for margin is expected to be ~20% for FY24E. Utilization may hover around 81%.

Valuations: Reiterate Buy;

TP raised to INR 8,100 FY24 revenue growth guidance (of 13-16% in CC) is intact, on TCV of USD 974mn executable orderbook. We retain our positive stance given: 1) improving executable orderbook and steady large deal wins, 2) consistent revenue growth and 3) traction in BFS. We marginally tweak FY25E/26E earnings estimates ~1-4% each. Maintain Buy with higher TP of INR 8,100 from INR 6,230, on 33.2x Dec-25E EPS (five-year average +1 sd; versus 27.3x earlier).

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