Coforge Shares Surge After Strong Q2 Results, Nuvama and JM Financial Raise Targets

Strategic Insights -

Brokerages see sustained growth as Coforge management delivers steady margins, strong cash flow, and a visible order book, leading to a renewed optimism in the mid-cap IT space. The time of writing this report, Coforge's share price was trading around Rs 1,830 on the NSE. Coforge's strong Q2 results have prompted brokerages Nuvama and JM Financial to raise their targets, citing clean earnings, steady margins, and robust cash flows.

Key Takeaways:

  • Coforge's share price surged over 4% on Monday after Nuvama Institutional Equities and JM Financial raised their price targets, citing the company's strong September-quarter performance.
  • Both brokerages have a Buy rating on the stock and have raised their 12-month price target for the counter.
  • Nuvama Institutional Equities raised its target price to Rs 2,250 from Rs 2,000 earlier, valuing the stock at 38 times average FY27--FY28 earnings.
  • JM Financial Institutional Securities maintained its Buy call with a revised target price of Rs 2,040 (up from Rs 1,850 earlier) and a valuation multiple of 35x forward earnings.
  • Coforge's Q2 revenue grew 5.9% QoQ in constant currency and 25.7% YoY, led by the Travel and Americas segments, largely from the ramp-up of the Sabre deal.
  • EBIT margin expanded to 14%, exactly in line with JM Financial's forecast.
  • Coforge's order intake stood at $514 million (around Rs 4,500 crore) in Q2, taking its last twelve months' total contract value to $3.6 billion (Rs 30,000 crore).
  • The company signed five large deals this quarter, two new insurance contracts, and one in travel from North America, along with two in Asia-Pacific.
  • Coforge's deal wins steady, order book strengthens, with a 12-month executable order book rose 6% sequentially to $1.63 billion (Rs 13,900 crore), up 27% year-on-year.
  • Coforge margins were helped by lower selling and administrative costs and reduced ESOP expenses. Hedge losses of about Rs 30.7 crore acted as a drag, but this was offset by operational efficiency.
  • Management said a wage hike from October would impact Q3 margins by 100--150 basis points, though this would be partly cushioned by lower depreciation as a share of revenue and cost benefits from automation.
  • Coforge ended the quarter with 34,896 employees, adding 709 people sequentially, most of them in billable roles.

Statistics:

  • Coforge's share price rose over 4% on Monday.
  • Nuvama Institutional Equities raised its 12-month target price to Rs 2,250 from Rs 2,000 earlier.
  • JM Financial Institutional Securities maintained its Buy call with a revised target price of Rs 2,040 (up from Rs 1,850 earlier).
  • Coforge's Q2 revenue grew 5.9% QoQ in constant currency and 25.7% YoY.
  • EBIT margin expanded to 14%.
  • Coforge's order intake stood at $514 million (around Rs 4,500 crore) in Q2.
  • The 12-month executable order book rose 6% sequentially to $1.63 billion (Rs 13,900 crore), up 27% year-on-year.
  • Coforge ended the quarter with 34,896 employees.
  • Coforge's return on equity is forecast at 20.4% by Nuvama Institutional Equities.

Sources:

  • Nuvama Institutional Equities
  • JM Financial Institutional Securities
  • IE Online Media Services Pvt. Ltd.
  • Contify.com