Reduce Coforge; target of Rs 5200: Emkay Global Financial

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Emkay Global Financial's research report on Coforge

Coforge posted weak Q4 results – revenue and margin both missed estimates. Deal intake grew >2x in Q4, QoQ and YoY, on the back of a large renewal deal (USD400mn TCV; 6Y tenure). NTM executable orderbook grew 5%/17% QoQ/YoY; growth was slower than the deal intake on higher share of renewal. Mgmt refrained from giving quantitative revenue guidance, unlike in prior few years, due to market uncertainty. Coforge has entered into a share purchase agreement with promoters/select public shareholders of Cigniti Technologies, for acquiring up to ~54% stake for cash consideration of Rs1,415/sh, to scale new verticals/improve US presence. We cut FY25E/26E EPS by 15.3%/11.8%, factoring-in the Q4 miss, slower revenue and weak margin trajectory. We do not incorporate the Cigniti acquisition in our estimate, awaiting more clarity.

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Outlook

Given the soft margin trajectory, potential equity dilution, and merger-related risks, we cut target PER to 28x (from 30x). Despite the 10%/22% correction in stock price in the last 1M/3M, we believe valuation is rich as the earnings cut remains rather severe; retain REDUCE; cut TP to Rs5,200 at 28x Mar-26E EPS.

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Coforge - 03052024 - emkay