The shares of Coforge Ltd rallied 7.15% to reach an intraday high of ₹ 4250.00 apiece on the National Stock Exchange (NSE). The IT services provider reported better-than-expected net profit for the October to December quarter (Q3FY23), which is a seasonally weak quarter. Its shares were trading at ₹ 4210.60 apiece at 12:36 PM on Friday.
Result
Coforge’s profit rose 24.2% to ₹ 228.2 crores in the latest quarter against ₹ 183.7 crores in the corresponding quarter last year. Its revenue increased by 24% to ₹ 2055.8 crores in Q3FY23. The EBITDA margin for the quarter stood at 18.5%.
Dividend
The company’s board has recommended an interim dividend of ₹ 19 per share and the record date for the same is February 03, 2023. The payment of the dividend/ dispatch of dividend warrants will be done within 30 days from the date of declaration of the dividend.
Business Highlights
“The firm has signed the largest number of large deals in a quarter in its history. As a consequence, the order intake at US$ 345 million has been the highest ever. This performance in a seasonally weak quarter sets us up very well for FY2024.” said Mr Sudhir Singh, Chief Executive Officer, Coforge Ltd.
The company’s revenue from the U.S. and Europe accounts for about 80% of its total revenue. It rose in the third quarter despite rising concerns over growth and tech spending in export markets, especially in Europe.
Coforge has updated its annual revenue growth guidance to 22% in constant currency terms for the fiscal year 2023. It said that it de-risked its operating profile with declining client concentration.
Target
Global brokerage Macquarie sees digital transformation as a multi-year growth driver for the midcap IT industry. It has an outperform rating on the shares of Coforge Ltd.
In a report released last week, Macquarie said that while midcap IT firms have been rewarded with a PE re-rating in recent years, their valuations should reflect the differences in both growth rates and their risks to growth. It prefers companies that have a proven client mining ability, increasing offshore execution and declining concentration among top clients.
Macquarie expects a sustainable growth trend for Coforge, courtesy of its timely investments. It is poised to gain scale in the banking vertical after tapping into the US retail bank sector through its recent acquisition. Coforge ranks third in the pecking order for Macquarie within the midcap IT space.
It has a target price of ₹ 6260 per share, which translates to an upside of 48.67 percent, as compared to its share price of ₹ 4210.60.
About the company
Coforge is an IT Services company that provides end-to-end software solutions and is among the top 20 exporters in India. It has IT partnerships with large businesses across the world and its customers include British Airways, the ING group, SEI Investments, Sabre, and SITA.
It is a mid-cap company with a market capitalization of ₹ 24,224 crores. The company has an ideal return on equity of 25.45 percent and an ideal debt-to-equity ratio of 0.27. Its shares were trading at a price-to-earnings ratio of 33.21, which is higher than the industry average of 27.40, indicating that it might be overvalued, or that investors are willing to pay a higher price for its future earnings.
Written by Simran Bafna
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