News

Published: May 2, 2023
Updated: May 2, 2023

Coforge Achieves $1 Billion Revenue Milestone, Shares Soar 4%

Coforge, a mid-cap IT player, experienced a remarkable 22.4% growth in FY23. Despite a 48% year-on-year drop in consolidated net profit to Rs 117 crore, the company's shares surged 4% on April 28. Coforge's Q4FY23 operating income rose 25% to Rs 2,170 crore, marking two significant accomplishments for the company. With a sequential quarterly increase in US dollars and surpassing the $1 billion revenue mark, Coforge is well- positioned for strong growth in FY24, according to CEO Sudhir Singh.

Jefferies Upgrades Stock, Highlights Growth Potential:

Foreign brokerage firm Jefferies upgraded Coforge's stock to "hold" and set a target price (TP) of Rs 3,760. While the company's Q4FY23 revenue met expectations, profits fell short. However, steady deal wins align with FY24 growth guidance. Jefferies anticipates growth investments will limit margin expansion but has raised its FY24 forecast by 4%. The brokerage has slightly lowered its FY25 indication by 2%.

Positive Deal Wins and Growth Outlook:

Coforge secured $301 million TCV (Total Contract Value) in Q4FY23, remaining flat year- over-year, including two substantial deals. The company's 11 mega-deals in FY23 and the recently signed Q4 mega-deals are expected to drive sustainable and predictable growth in FY24. The overall deal pipeline remains robust, with no significant instances of deferrals or spending cuts, as stated by brokerage firm Motilal Oswal. With a "neutral" rating, Motilal Oswal sets a target price of Rs 4,290.

Margin Performance and Growth Strategy:

While Coforge's margin performance disappointed some, rising by 110 basis points quarter- on-quarter instead of the expected 200 basis points, this was primarily due to strategic investments in sales and marketing teams, technology, and functional capabilities. Management plans to continue spending on sales and marketing throughout FY24 to support incremental growth and increase wallet share from strategic accounts. The company aims for a gross margin growth of 50 basis points in FY24, while adjusted EBITDA margins remain flat year-over-year. The targeted organic revenue growth is in the 13-16% year-over- year CC range.

Target Price Adjustments:

JM Financial maintains a "buy" call on Coforge but has lowered its target price to Rs 4,620 from Rs 4,790. Conversely, Elara Securities has raised its target price to Rs 5,360 from Rs 5,280.

Positive Market Response:

Coforge's market capitalization has increased by over 16% in the past month. At 2:27 pm, shares were up 3.34% at Rs 4,186.75, while the benchmark Nifty IT was up 1.05% at 27,642.35.

Coforge's achievement of crossing the $1 billion revenue milestone signifies its robust growth trajectory. The company's steady deal wins, coupled with investments in strategic areas, position it for strong performance in FY24. With positive market responses and the support of brokerage firms, Coforge aims to continue its growth momentum and deliver value to shareholders in the coming years.