Coforge shares extend gain on dividend, FY23 guidance. Rs 3,800 to Rs 5,300, where is the stock headed?

Shares of Coforge gained 3 per cent in Monday's trade, to take winning run to the sixth straight session. The stock has been in news recently after the IT firm announced healthy set of quarterly results, record deal wins and upward revision in FY23 guidance. The company board also declared a third interim dividend of Rs 19 per share, lifting investor sentiment. But analyst view differ on valuations, with price targets ranging from Rs 3,800 to Rs 5,300 levels.

"Coforge’s Q3FY23 numbers were strong – revenue grew 3.7 per cent CC QoQ to $251.7 million, in-line with our/Street’s estimates. EBIT margin expanded 10bp QoQ to 14.5 per cent, below our/Street’s forecasts of 15.5 per cent. At Rs 228.20 crore, PAT was broadly in line with our/Street’s estimates of Ts 235 crore/Rs 218 crore. Coforge also upgraded its guidance to 22 per cent CC YoY growth, from at least 20 per cent earlier," said Nuvama Institutional Equities.

The brokerage, which has a target of Rs 5,300 on the stock, said deal wins were at its highest ever at $345 million, up 40 per cent YoY. and pipeline remains robust, which gives it confidence on strong growth estimates.

Motilal Oswal Securities said the stock currently trades at 23 times FY24E EPS. It broadly maintained its FY23 estimates, while raising FY24E and FY25E EPS by 3 per cent and 5 per cent, respectively, on better revenue visibility.

"We believe the robust outlook is already factored into the price and we do not see any potential upside from here on. Our target of Rs 4,040 implies 23 times FY24E EPS. We reiterate our Neutral rating on fair valuations," it said.

JM Financial, which initiated coverage on the stock, forecast 17 per cent dollar revenue and 30 per cent EPS CAGR over FY23-25E, highest in its coverage universe.

"We believe that Coforge’s PER multiples, while +0.5x SD above 5-year median, could sustain. We value the stock at 21 times forward EPS, 10 per cent discount to our target multiple for Persistent Systems/Infosys, to arrive at target of Rs 4,790. We assume coverage with a BUY rating," it said.

For YES Securities, Coforge's financial performance was mixed as both revenue growth and EBIT margin for the quarter came in slightly below its estimates. The IT firm reported constant currency revenue growth of 3.7 per cent QoQ, led by manufacturing vertical (up 8.3 per cent QoQ).

There was sequential improvement in EBIT margin(up 11 bps QoQ) led by improving employee pyramid, higher offshoring and increasing utilisation, it said addind that there was slight decrease in reported employee attrition as LTM attrition increased by 60 bps QoQ to 15.8 per cent. That said, the brokerage has revised target price to Rs 4,980 per share at 28 times on FY24E EPS.

Emkay Global has a neutral on the stock with a target of Rs 3,800.  Coforge’s operating performance came below Emkay's expectations.

"On the back of robust deal intake, all-time high executable backlog, and improving margin gradient, management has revised its organic CC revenue growth guidance for FY23 to 22 per cent (earlier at least 20 per cent), implying 3.5 per cent CC growth in Q4. It has retained its adjusted EBITDA margin guidance of 18.5-19 per cent for FY23. We have raised our EPS estimates by 2-3 per cent over FY23E-25E, factoring in the Q3 performance. We retain Hold with a target of Rs 3,800 from Rs 3,740 earlier), at 21 times December 2024E EPS, considering limited upside risks and the overhang of further stake sale by Baring," it said.

Meanwhile, Arihant Capital Markets has upgraded its rating on the stock to 'Accumulate' from 'Hold'. It said Coforge at a PE of 23 times its FY25E EPS of Rs 194 yields a target price of Rs 4,464 per share.

The stock rose 2.97 per cent to hit a high of Rs 4,222.40 on BSE.
 

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