Coforge share price: Data-centre capex concerns overdone? Target prices post steep fall

Coforge Ltd may have tumbled over 9 per cent yesterday, stock analysts believe concerns regarding the data-centre capex are overdone, and that the IT firm's strong executable order book and resilient client spending across verticals bode well for its organic business. They largely maintained their 'Buy' call on the stock, with targets suggesting up to 33 per cent potential upside. 

Coforge has incurred a capex of $85 million to set up a data centre for a client, with $62 million received as advance from the client and the rest funded through a term loan. Nuvama said the terms of the deal ensure the company makes its usual EBIT margins (14–15 per cent) on the deal, thereby preventing any dilution in returns. In any case, management anticipates capex cost to return to normal levels going forward, the brokerage said. 

"Coforge looks all set to deliver strong +25 per cent YoY growth in FY26. We find concerns regarding the data-centre capex to be overdone. We are tweaking FY26E/27E EPS by -5.7 per cent/-4.4 per cent, primarily due to lower other income (exceptional in FY26). We are now valuing Coforge at 40x (35x earlier) FY27E PE on the back of an improving growth trajectory, yielding a target of Rs 2,000 (earlier Rs 1,880); maintain ‘BUY’," Nuvama said.

MOFSL said the cross-sell opportunities in Cigniti remain highly synergistic for the company. But softer cash flow performance during the quarter may exert pressure on the return profile. 

"We have cut our EPS estimates for FY26 by 5 per cent, while largely maintaining our FY27 EPS estimates. We value COFORGE at 38x (earlier 40x) FY27E EPS with a target of Rs 2,240, implying a 34 per cent potential upside. We reiterate our BUY rating on the stock," it said.

Nirmal Bang Institutional Equities said Coforge is firing on all cylinders with significant growth across all areas; strategic initiatives along with cross-sell and up-sell opportunities in Cigniti are paying off. 

It expects Coforge to outperform the industry on synergy play, broad-based growth across verticals and services, improving BFSI demand trajectory, solid 12-month executable order book, margin levers, and strong large-deal focused engine. 

"Post 1Q, we maintain our revenue estimates, while marginally tweaking our above consensus EPS estimates downwards by 1.9 per cent/0.3 per cent for FY27/FY28, respectively. Expect consolidated US$ revenue/EBIT/EPS CAGR over FY25-28E at 17 per cent/25 per cent/19 per cent. We reiterate ‘BUY’ with a lower target of Rs 2,066 (vs earlier Rs 2,295) on an unchanged target multiple of 34.9x at 5-yr mean on Jun-27E EPS
(earlier multiple was 34.8x)," Nirmal Bang said.