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With 1-Year Return of 112.03% This IT Stock Gets A Buy Call From Axis Securities

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Coforge is a worldwide digital services and solutions company that uses Cloud, Data, Integration, and Automation innovations to drive its clients. In the previous year, this mid-cap IT stock has performed well by offering a significant return. As of now (4 Jan, 3:30 pm), this stock has returned 112.03 percent in the last year and 207.97 percent in the last five years. In the last 1 year, the shares of Coforge Ltd have rallied from Rs. 2882.55 (as of 5 Jan 2021) to Rs. 6112.00 per share as of 4th Jan 2022. Coforge Ltd shares are expected to grow up to a target price of Rs. 6,870 per share in a year, according to the brokerage firm Axis Securities, which has maintained a buy rating for the stock.

 

The brokerage’s take on Coforge Ltd
 

The brokerage’s take on Coforge Ltd

On 3rd January 2022, the brokerage has said in its research report that the company's "FY21 revenue stood at Rs 4,663 Cr, delivering YoY growth of 11.4%. The operating margins were at 18%, exhibiting a healthy expansion of 80 bps, and were aided by higher offshoring, higher utilization, lower attrition, and a favorable currency mix. Net profit stood at Rs 19,351 Cr, reporting a growth of 16.6% YoY and a net profit margin of 19.3%. Cash conversion continues to be very strong at Rs 38,660 Cr. Free cash flow was recorded at Rs 22,020 Cr, growing 21.8% over the prior year. The company witnessed a strong RoE expansion of 150 bps which stood at 27% for the year. This was on account of strong volume growth, increasing execution efficiency, and higher free cash flow generation during the year."

According to the brokerage "From the perspective of revenue distribution, Infy has a strong and geographically diversified presence. The US and Europe contributed 61.3% and 24.2% of the revenue respectively while India and the 'Others' contributed 2.9% and the rest 11.6%. Segment-wise, the BFSI contributed 33.0% of the revenue while retail and communication contributed 15.0% and 13.0%, respectively. Higher utilization (84.7% in FY21) and all-time lower attritions (10.9% in FY21) also help to gain higher operating margins. The company witnessed an unprecedented demand for digital services primarily on account of the pandemic intensifying need for greater resilience and agility within enterprises. It also continued to outpace the market growth rate and gained further global market share."

Axis Securities has also claimed that "The Board recommended a final dividend of Rs 27/share, making the total FY21 dividend to Rs 38/share. Consistent with its shareholder-friendly capital-allocation policy, the company paid out Rs 33,873 Cr in dividends. It also announced a buyback in FY21 amounting to 95% of the free cash flow. The order book signed every quarter in FY21 was higher than the corresponding quarter of the prior year. Coforge closed the year with an all-time high annual TCV of $780 Mn, representing a growth of 17.1% YoY out of which executable deal wins are $520 Mn."

Buy Coforge Ltd Suggests Axis Securities

Buy Coforge Ltd Suggests Axis Securities

According to the brokerage "The management has guided double-digit growth in FY22 in the backdrop of robust deal wins. Additionally, higher offshoring, better utilization, and lower attrition are likely to result in operating margin expansions in the near term. We recommend a BUY rating on the stock and assign a 37x P/E multiple to its FY24E earnings of Rs 184.2/share to arrive at a TP of Rs 6870/share, implying an upside of 15% from CMP."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. 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.

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