Stock To Buy: IT Company With A Strong Deal Pipeline And Improved Margins

Brokerage firm Anand Rathi has a buy call on the stock of Coforge Ltd, an IT Services company. The broking firm sees a very strong upside on the stock.

Buy the Coforge stock

Current market price	Rs 4698
Target price	Rs 6465
Gains %	37%

According to Anand Rathi, Coforge Limited reported revenue growth from operation of 39.3% YoY at Rs.16,581 million during Q3-FY22 as against Rs.11,906 million in Q3-FY21. "In Dollar terms, revenues were up 37.8% to $221.6. On an organic basis excluding SLK Global, revenues for the quarter were $199.2 million and Rs. 14,906 Million, Up 23.9% in dollar terms and 25.2% in rupee terms, year-on-year. Growth was led by Banking and Financial Service segment," the broking firm has said.

Sharp jump in earnings

Coforge Ltd reported EBITDA of Rs 3,033 million in Q3-FY22 as against Rs 2,016 million in Q3-FY21, growth of 50.4% YoY. EBITDA Margins for Q3-FY22 stood at 18.3%.

"On a sequential basis EBITDA margin expanded 140 basis points. On back of higher Offshore Revenue and flattening of delivery Pyramid, the company was able to record expansion in margin at times of supply side pressure in the industry. The profit after tax (PAT) for Q3-FY22 came in at Rs.1,837 million as against Rs.1,220 million during Q3-FY21 recording a growth of 50.6% YoY," the brokerage has said.

Banking sector sees growth

Growth was led by Banking and Financial Service segment which grew 23% sequentially during Q3-FY22. Insurance Segment registered flat growth during the Quarter.

"Total order book executable over the next twelve months has expanded 40% YoY and 2% QoQ to $701 million as on 31st December 2021. Order intake during the quarter stood at $247 million, with USA contributing 36.8% whereas EMEA contributing 44.5% to the order intake. Of the total business during the quarter Repeat business accounted for 92%," Anand Rathi said in its report.

The total employees count including SLK Global stood at 22,130. Utilization during Q3FY22 came in at 78.5%. The attrition rate stands at 16.3% lower than that of Industry average.

Focus on organic growth

According to Anand Rathi, Coforge is planning for an organic growth (excluding SLK Global contribution) of at least 24% in constant currency terms during FY22, higher than earlier guidance of 22% growth. The company is eyeing 37% of consolidated (including SLK Global) growth in constant currency terms in FY22. The company continues to target an adjusted EBITDA margin of 19% for the year. Further management gave guidance of 44% growth in adjusted EBITDA for FY22.

"We expect the growth momentum to continue supported by strong deal pipeline along with consistent large deal wins and healthy revenue and margin guidance. We maintain our Buy rating on the stock with target price of Rs. 6,465 per share," the broking firm has said.

Disclaimer:

Investing in equities is risky and investors must therefore understand the risk. The author and Greynium Information Technologies Pvt Ltd would not be responsible for any losses caused based on the article. The author and his family do not hold shares of Coforge. Investors should exercise caution on account of heightened volatility in the markets currently.