IGI Logo

Acquisition synergies and high order intake to drive growth

Coforge reported robust Q2FY25 revenues at $369.4mn, up 26.3% QoQ and 33.0% YoY in cc (+26.8% QoQ and +32.8% YoY in USD terms) led by broad based growth across verticals. INR revenue for the quarter stood at INR30,623mn, up 27.5% QoQ and 34.5% YoY. The company recorded a total order intake of $516mn ($67mn from Cigniti) for Q2FY25. The total order book executable over the next 12 months is at $1.31bn, up 40.0% YoY. APAT (excl. minority) for the quarter came at INR2,552mn, up 35.6% YoY with Basic EPS at INR30.3.

* Outlook: Looking ahead, a 27% sequential dollar growth, with the organic business expanding by 6.3% sequentially, growth accompanied by a notable 145bps expansion in EBITDA for H1, marking the second consecutive quarter of significant net headcount additions, the large deal pipeline appearing robust, and the next 12-month signed order book which is now 40% higher YoY suggest strong confidence in robust and sustained growth in the upcoming quarters. The growth and the margin expansion at Cigniti are a preview of sustained growth and further and further increases in margin to follow. The medium-term guidance of hitting the $2bn mark, and delivering a concurrent material expansion in EBITDA is intact.

* GenAI opportunities: Company is increasingly collaborating with clients to implement real-life AI programs that extend beyond proof of concepts. AI capabilities are rapidly expanding, with new solutions being launched regularly. The development of QE 360, a platform designed to automate the testing lifecycle through AI, aims to disrupt the testing landscape. Key features include AI-based test case generation, low code/no code automation creation, AI-driven test data management, automation self-healing, and AI-based visual testing. Additionally, the company keeps adding AI specialists to its team, highlighting ongoing opportunities in GenAI and Advanced Analytics.

* Margins to improve: Adj. EBITDA margins for Q2 came at 16.5% (-90bps YoY) after rolling out wage hikes. Profitability was also impacted to the extent of 2.3% due to acquisition and integration related expenses which is expected to normalize in coming quarters. Management expects Cigniti EBITDA margins to reach 18% by Q4 from current 16.2% levels.

Valuation: With the Cigniti business leadership now operating under Coforge’s operational control, company remains committed to delivering robust growth across both organizations, both in the short and the long term. We have introduced FY27E and expect Revenue/EBIT/PAT to grow at a CAGR of 21.9%/29.1%/29.7% respectively over FY24-FY27E. The stock has rallied 10% recently and therefore we downgrade our rating to REDUCE to arrive at a revised target price of INR7,809 implying a P/E of 32x on Sep-FY27E EPS of INR244.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131