Coforge shares: Why Chairman’s resignation concerns are overdone; fresh target prices

Concerns relating to Coforge's Chairman OP Bhatt resignation after an internal audit review are overdone, said analysts who retained 'Buy' on the IT stock after a 5 per cent slide in the previous session. While Coforge Ltd had highlighted some disclosure and process concerns, analysts noted that the Chairman’s term was coming to an end anyways, as the renewal was not approved by shareholders in the recent AGM.

Axis Capital has suggested 'Buy' on the stock with a target of Rs 2870. Antique Stock Broking suggested a 'Buy' with a target of Rs 2,000. Nuvama Institutional Equities gave a target of Rs 2,350, while retaining it 'Buy' rating.

"We see no impact of this even on the business or financials of the company. We also do not see any concern related to the functioning of the board, as the matter relates to disclosure and process concerns, which are not from the board’s side. We stay positive on Coforge story. Retain ‘BUY’ with a target of Rs 2,350; currently trades at 25x FY28E PE," Nuvama said.

This brokerage noted that the non-renewal of Bhatt’s role as board member and Chairman, given his age, was not a big surprise. While the lack of disclosures, leading to his resignation, was a surprise, it is not a reflection of the company, the board and its practices.

"Business of course remains unaffected with no impact on financials either. We also find concerns related to the board functioning and/or influence by PE firms (Advent) as overdone," it said while finding attractively valuations at a sharp discount to Persistent Systems Ltd.

Bhatt in his resignation letter said he could not continue on the board while there remains a disagreement considering the characteristics of his "good faith actions in the board evaluation process" would not be conducive to the effective functioning.

MOFSL said the issue appears to have stemmed from the Board Evaluation Exercise, in which an internal review identified concerns relating to the handling of the evaluation process and the disclosure of certain material information.

"It is also worth noting that Mr. Bhatt's term was scheduled to end on 30th April 2027. At the recent AGM, his reappointment resolution received 65.5 per cent shareholder approval, below the 75 per cent threshold required for the reappointment of an Independent Director. In our understanding, the resignation appears to have been voluntary and initiated by Mr. Bhatt himself given that his term was nearing its end," MOFSL said.

MOFSL said it continued to expect Coforge to be the growth leader within its coverage universe and reiterated it as our top pick. Strong deal wins, continued execution, improving cash conversion, and further margin upside from the Encora integration support medium-term growth outlook, it said.

"We continue to value Coforge at 29 times FY28E EPS with a target price of Rs 2,200, implying 19 per cent upside. Reiterate our BUY rating," it said.