Coforge Q1 Result Review - Healthy Deal Momentum To Help Deliver FY24 Guidance: Motilal Oswal
But the strong outlook already priced in.
BQ Prime’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.
Motilal Oswal Report
Coforge Ltd. posted Q1 FY24 revenue growth of 2.7% QoQ in constant currency terms, below our estimate of 3.2%. Reported revenue stood at $271.8 million (up 2.8% QoQ/13.9% YoY).
The growth was broad-based across verticals and service lines with Insurance/ banking, financial services leading the growth pack at +4.7%/+3.1% QoQ, while travel, transportation and hospitality was up 1.2% QoQ.
The company recorded the highest ever total contract value wins during the quarter with two large deals in BFS vertical having a TCV of $300 million (for five years) and $65 million, taking the overall deal signed in Q1 to $531 million.
This resulted in a robust 12- month executable order book of $897 million (+20.4% YoY), despite adverse macros. Coforge maintained its FY24 U.S. dollar constant currency revenue growth guidance of 13-16% YoY.
The growth momentum continued for Insurance and BFS verticals, aided by ramp-up of large deals and robust growth in top accounts. Management indicated that while the demand environment is stressed, the company is winning disproportionately against its peers on differentiated value offerings.
The strong delivery is reflected in winning two large deals in Q1 FY24, which should support the growth momentum for FY24. Despite the modest revenue miss, Coforge reported net hiring of 1,000 employees to support the anticipated volumes.
We expect the company to deliver revenue growth at the upper end of the guidance band of 13-16% CC YoY, which will result in FY23-25E USD revenue CAGR of 15.2%.
However, Q1 FY24 Ebitda margin came in below our estimate, with 360 bp QoQ decline versus our estimated decline of 90 bp QoQ. This was primarily due to the full impact of compensation, bigger bench and continued investment in sales team.
Management, however, remained confident of a margin recovery aided by the margin-accretive large deal ramp ups, increase in utilisation and improved offshore mix.
Coforge has guided for a flat YoY adjusted Ebitda margin for FY24. We have cut our FY24/25E Ebit margin by 50 bp, resulting in a 22% INR profit after tax CAGR over FY23-25.
We believe the robust outlook is already factored into the price and we do not see any potential upside from here.
Our target price of Rs 4,460 implies 23 times FY25E earnings per share. We reiterate our 'Neutral' rating on fair valuations.
Click on the attachment to read the full report:
DISCLAIMER
This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.
Users have no license to copy, modify, or distribute the content without permission of the Original Owner.