Coforge shares tumble 10% after Q4 results, Cigniti acquisition; brokerages cut target prices

Shares of Coforge Ltd crashed as much as 10 per cent to Rs 4505.25 during the trading session on Friday after the company announced its quarterly earnings for the March 2024 quarter, dividend and acquisition plans of Cigniti Technologies. However, the brokerage firms remained positive on the IT firm. Coforge on Thursday reported a consolidated net profit of Rs 223.7 crore for the quarter ending on March 31, 2024, rising 94.86 per cent on a year-on-year (YoY) basis compared to a profit of Rs 114.8 crore in the year-ago period. The IT firm reported a consolidated revenue from operations of Rs 2,358.5 crore, up 8.7 per cent YoY from Rs 2,170 crore. The board of the company recommended an interim dividend of Rs 19 per share; the record date for this will be May 15, 2024. Ebitda margins for the March 2024 quarter came in at 19 per cent, rising 105 basis points QoQ, while its total order book executable stood at $1,019 million, up 17.3 per cent year-on-year. "Coforge is among the top quartile performers in the industry in FY24 on organic growth and can repeat this in FY25, we believe it should be valued at 26.1 times March 2026 EPS. We reiterate ‘Accumulate’ with a target price of Rs 5,602. This is among the highest target PE multiples for Tier-2 companies as we expect faster-than-peer growth and ROICs," said Nirmal Bang. Nirmal Bang has assumed that the cash and the share swap will lead to a dilution in current equity of Coforge by approximately 12.5 per cent. The management did not talk much about the demand environment and discretionary spending on the call. However, it did mention that the overall environment remains tough and new large deals are coming in at lower margins, it said. Management refrained from giving any quantitative guidance, which we believe is due to uncertainty of execution. We cut FY25E and 26E EPS by on lower growth and cut target multiple to 27 times from 30 times on acquisition led derating, yielding target price of Rs 5,850 from Rs 7,000 earlier, said Nuvama Institutional Equities retaining a 'buy' tag. For the entire financial year 2023-24, the company reported a consolidated net profit of Rs 808 crore, up 16.4 per cent YoY, while consolidated revenue from operations for the year rose 14.5 per cent YoY to Rs 9,179 crore. Order intake for the entire financial year went up 56 per cent year-on-year at $1.9 billion. However, JM Financial has slashed its target price sharply. However, the brokerage estimates that the acquisition will be EPS accretive at current price. Synergies are difficult to realise, especially in large acquisitions, it said. "But we are willing to give the benefit of doubt to Coforge’s clinical execution track-record." "We have not merged the financials yet pending the merger process. But we cut Coforge’s FY25 and 26E EPS by 24 per cent and 25 per cent, respectively, on lower growth/margin assumptions. 20 per cent correction on a year-to-date basis seems to price this in already," it added, maintaining a 'buy' with a revised target price of Rs 5,570 from Rs 6,940 earlier.. The IT player also stated that it had signed a definitive agreement to take over Cigniti Technologies, an AI & IP-led digital assurance and engineering services company in India. "Coforge believes that the acquisition of Cigniti will not only help it grow to a $2 billion by FY27, but equally importantly ensure that Coforge’s operating margins improve by 150-200 basis points by FY27 itself," the company said. Coforge continues to invest strongly in its sales and marketing capabilities to ensure continued and robust growth in the years ahead expecting SG&A expenses to be in the range of 15 per cent. The management is confident of delivering a robust organic growth in FY25E led by 17.3 per cent higher executable order book and expecting growth to be broad based, said Choice Broking. "Management is confident of delivering robust organic growth in FY25E backed by high order intake during Q4 and from the synergies of acquistion. We maintain our rating to BUY and arrive at a revised target price of Rs 6,007 implying a P/E of 29 times on FY26E EPS of Rs 207," it said. Axis Securities believe Coforge is well-placed for growth given its multiple long-term contracts with the world’s leading brands from a long-term perspective. Better revenue visibility gives us confidence in the company’s business growth moving forward. We recommend a 'buy' rating on it and assign a 24 times P/E multiple to its FY26E earnings to arrive at a target price of Rs 5,585."