Coforge: Operating Performance Misses Expectations In Q2 Of FY2022

 HOLD

CMP: Rs5069  |  Target Price: Rs5100

■    Coforge's operating performance was lower than expectations in Q2FY22. Revenues grew 6.5% QoQ to USD212.8mn (7.5% CC; organic 3.9% CC), missing our estimate by 2.3%. EBITM expanded by 280bps QoQ to 13.6% on the back of offshore shift, higher utilization and other operating efficiencies.

■    Coforge raised its organic revenue growth guidance to at least 22% YoY CC (from 19%), based on H1 performance, solid deal intake, NTM order book and a strong pipeline. It retained adjusted EBITDAM (ex-ESOP and acquisition related costs) guidance of 19% for FY22.

■    Order bookings were robust with a total fresh order intake of USD285mn on the back of three large deals won during Q2, with two of them having a TCV of over USD50mn each. The order book executable over NTM increased 41% YoY to USD688mn (organic 23%).

■    We cut FY22E/FY23E/FY24E EPS by 3.1-4.4%, factoring in the Q2 miss. We upgrade Coforge to Hold from Sell with a revised TP of Rs5,100 at 34x Sep'23E EPS (earlier 29x), factoring in the stock price correction and underperformance (~10% down in 1M; underperformed Nifty IT index by 5%/9% in 1M/3M), and higher medium-term growth assumptions (see Exhibit 18).