Fresh Order Intake Remained Healthy At $315m, Buy The Stock For 25% Return: Sharekhan

Top brokerage firm Sharekhan recommends investors to buy the stocks of Coforge Ltd. The company's fresh order intake of $315 million remained healthy, and grew 4.7% q-o-q.

Stock To Buy: Target Price, Current Market Price

The Current Market Price (CMP) of Coforge Ltd. is Rs. 3732. Sharekhan has estimated a Target Price for the stock at Rs. 4680. This stock has the potential to give a 25.40% return, in the upcoming 1 year. This is a large-cap stock with a market capitalization of around Rs. 23,438 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 3732
Target Price	Rs. 4680
Potential 1 year return	25.40%
52 week high share price	Rs. 6,135.00
52 week low share price	Rs. 3,218.10

Coforge delivered slightly below-than-expected revenue growth in Q1FY2023 owing to a sharp revenue decline in its insurance vertical, while margins missed our estimates at a wide range of 110 bps, which dragged down net profit by 28% q-o-q. EBIT margin contracted 300 bps q-o-q to 12.5%. The company reiterated its revenue growth outlook of at least 20% on CC terms after factoring in all possible macro events and adjusted EBITDA margin band of 18.5-19% for FY2023.

Sharekhan: Why Should You Buy This Stock?

Commenting on the stock's advantage, Sharekhan said, "Medium-term growth is expected to be led by strong order intake, investment in talents, recovery in the travel industry, robust growth momentum in BFS and solid execution. The EBITDA margin is likely to improve marginally in FY2023E, aided by rising offshore revenue, pyramid rationalization and operating leverage."

"Coforge is well poised to achieve its strong revenue growth guidance in FY2023E on the back of strong order intake, recovery in the travel industry, continued growth momentum in BFS vertical, new logo addition, investments in the leadership team and strong execution. Further, its executable order bookings for next 12 months remain 73% of our FY2023E revenue estimates. Coforge is expected to clock a revenue/earnings CAGR of 16%/22%, respectively over FY2022-24E, implies a market leading growth among the top mid-tier peers," the firm added.

However, any integration issues in ongoing M&A activities, especially IP-related transactions, could affect earnings. Further, high dependence on IMS could create challenges to its revenue growth trajectory is a key risk.

Company portfolio

Established in 1981, Coforge (earlier known as NIIT Technologies) is one of the leading mid-sized Indian IT services company, engaged in providing services in cloud, managed services, data & analytics, automation, application development & maintenance and Business Process Management. The company focuses on three key industries such as insurance, travel, transportation & hospitality and BFS. The company has started focusing on other industries such as manufacturing, healthcare, hi-tech, public sector to capture the opportunity. Constant currency (CC) revenue growth was at 4.7% q-o-q led by strong growth in BFS (up 11.1% q-o-q on CC) and other verticals (up 11.4% q-o-q on CC), while the USD revenue grew by 2.7% q-o-q to $238.7 million owing to a higher exposure to EMEA region (contributed 36.9% to total revenue).

Disclaimer

The above stock was picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.