Large deal momentum, improving profitability keep Coforge stock buoyant
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The stock of Coforge has gained 13% since May 05 compared with 5% increase in the BSE IT index after the mid-tier IT exporter reported strong sequential revenue growth, expansion in operating margin and record deal wins for the March quarter. Amid strong growth in dew deals in FY25, the company has retained the $2 billion revenue target for FY27 compared with a revenue of $1.4 billion in FY25, notwithstanding the uncertainty in the revival of discretionary projects.Coforge is a global IT solutions provider employing 33,497 professionals and present across 23 countries. The US is its biggest market, contributing 54% to the revenue in FY25. It earns around 30% revenue from the banking and financial services (BFS) vertical, over 18% each from travel, transportation, hospitality (TTH) and insurance. The company is fully owned by public shareholders and therefore doesn't have any promoter group.The company reported a record order intake of $2,126 million for the March quarter, aided by a large multi-year deal with the US based Sabre Corporation, a travel technology company. In March, Coforge bagged a 13-year $1,560 million deal with Sabre to accelerate the latter's product delivery. Even after excluding this mega deal, Coforge still reported 13% sequential increase in the deal wins at $566 million. The company's management expects to sustain the momentum in large deals. The executable order book over the next 12 months increased by 48% year-on-year to $1,505 million.While the company's operating margin (EBIT margin) fell by 50 basis points year-on-year to 13% in FY25, it reported quarterly improvement in the fourth quarter of the fiscal year. The margin expanded by 120 basis points to 13.2%. The company expects to improve the margin to 14% by the end of FY26.Unlike majority of the larger peers, Coforge reported lower employee attrition rate for the March quarter. The attrition contracted to 10.9% from 11.9% in the December quarter and 11.5% in the year-ago quarter. Despite lower attrition, it continued to hire employees – the net headcount addition was 8,771 in FY25.JM Financial Research expects earnings of Coforge to increase by 25% annually between FY25 and FY28. The brokerage has revised the stock's target price to Rs10,000 from Rs9,610. The stock was last traded at Rs 8,465.2 on Tuesday on the BSE.
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