Stock of the Week : Coforge Ltd for Target Rs. 2200 - GEPL Capital
Coforge Ltd
Buy Coforge Ltd CMP 1910.7 Target 2200 Stop loss 1790
Coforge is rendering Information Technology / Information Technology Enabled Services (IT / ITES) across various geographical areas and is engaged in Application Development & Maintenance, Managed Services, Cloud Computing and Business Process Outsourcing to organizations in a number of sectors.
Investment Rationale
* Coforge Reports Exceptional Q2; Margin Outlook Strengthens: Coforge reported an "exceptional quarter" with Q2 FY2026 Revenue coming at $462.1 mn. Sequential revenue growth was 5.9% in Constant Currency (CC) terms, 4.5% in US dollar terms, and 8.1% in Indian rupee terms. The reported EBIT margin was 14%. This represented an increase of 251 basis points quarter-on-quarter and 240 basis points year-on-year. The company is targeting a potential pathway to achieve a 14% EBIT margin for the full Fiscal Year 2026. The primary growth philosophy focuses on robust organic growth, supplemented by successfully executing turnarounds of acquired assets.
* Strong Demand Outlook Across Core Verticals: Travel, Insurance, and Banking verticals should continue to performing well. Healthcare is cited as a rapidly growing area, expected to achieve a book of business nearing $100 million by the end of the year. The public sector outside India has already crossed $150 million. It is anticipated to reach a $200 million run rate in the coming quarters. The demand outlook across core verticals (banking, insurance, and travel) is solid, noting that demand has evolved with the advent of AI, but the addressable market continues to grow.
* Cigniti Acquisition to Strengthen Capabilities & Growth Engine: Coforge will be acquiring Cigniti Technologies, transforming both its capabilities and client portfolio. The integration will significantly bolster Coforge's commercial performance through enhanced domain expertise, technology platforms, and cross-selling opportunities. As of Q2 FY2026, the formal regulatory and integration process is nearing completion. Management anticipates that the acquisiton should be consummated in the December 2025 to January 2026 timeframe.
* Valuations: We model a Revenue/PAT CAGR of 20%/27% and estimate COFORGE to clock PAT of Rs 1,674 Cr by FY28E. COFORGE is trading at forward P/E(x) of 38.2x and we value at 44(x) FY28E and Recommend BUY on COFORGE with target Price of Rs. 2,200 (15%).
Observation
* COFORGE hit a lifetime high of Rs.2005 in Dec 2024, followed by a correction to the Rs.1194 level, where it formed a Change in Polarity (CIP) pattern. Since then, the stock has resumed its bullish structure, forming Higher Highs and Higher Lows on the monthly timeframe.
* On the weekly chart, the stock has broken out of a Descending Channel pattern in the last week, and sustained above previous swing high strengthening the positive outlook.
* Notably, the stock has taken a strong support of its 50-week EMA (Rs.1613), signaling a strengthening bullish undertone.
* The momentum indicator RSI remains above 60 and exhibits a bullish crossover, further validating the ongoing upward momentum.
Inference & Expectations
* Considering these factors, it can be inferred that COFORGE stock is set to continue uptrend.
* Going ahead we expect the prices to move higher till 2200 level.
* The stop loss must be at 1790 level, strictly on the closing basis.
SEBI Registration number is INH000000081.
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