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Shares of Coforge Ltd. opened as much as 3% lower on Monday, October 26, after the IT services company reported its second-quarter results for FY27, with brokerages offering mixed views on the stock. However, the stock has erased its early losses and are now trading with gains of 1%. Coforge's revenue grew 10.9% quarter-on-quarter in constant currency (CC) terms, below the estimated growth of 12.5%.
Organic revenue growth came in at 3.8%, within the expected range of 3.5%–4.5%. The company's EBIT margin stood at 16%, broadly in line with expectations. However, it raised its FY27 EBIT margin guidance to 16% from 15.5%.
Fresh order intake hit a record $1.04 billion in the quarter, up 50.6% from $691 million in the previous quarter. How brokerages reacted Nomura has a 'Buy' rating on Coforge, with a price target of ₹2,300. The brokerage highlighted the company's focus on improving margins and said strong deal wins position it for continued growth.
Coforge's revenue grew 3.8% quarter-on-quarter in organic constant currency terms, broadly in line with expectations of around 4%. Encora's financials were consolidated for the entire quarter. EBIT margin came in at 16%, in line with estimates, while free cash flow stood at $53.8 million, equivalent to 89% of profit after tax.
Jefferies has a 'Buy' rating on the stock, with a price target of ₹2,230. The brokerage said revenue fell short of expectations, while margins were better than anticipated. A 7% quarter-on-quarter increase in the executable order book, a strong deal pipeline and an improved margin outlook position Coforge for continued growth, Jefferies said.
It expects the company to deliver compound annual growth rates (CAGRs) of 14% in organic constant currency revenue and 26% in earnings per share (EPS). The brokerage added that strong earnings delivery could support the stock's performance, even after its 56% rally over the past six months. Jefferies has raised its EPS estimates by 3%–5%.
Citi has a 'Sell' rating on Coforge, with a price target of ₹1,750. The brokerage said reported constant currency revenue growth of 10.9% quarter-on-quarter was below its estimate of 12.3%. EBIT margin, at 16%, was in line with expectations.
Citi highlighted several forward-looking indicators, including organic headcount growth of around 9% year-on-year, trailing 12-month order inflows of $2.9 billion and a 45.4% year-on-year increase in the executable order book. However, it noted that the order book growth was significantly boosted by the consolidation of Encora. Citi said the company's raised FY27 margin guidance of 16%, along with management's indication of a 17% exit margin in the fourth quarter, would be key factors to watch.
The brokerage added that organic growth in the executable order book and cash conversion trends, measured by operating cash flow relative to EBITDA, warrant close monitoring. UBS has a 'Buy' rating on Coforge, with a price target of ₹2,460. The brokerage said the company's second-quarter performance was broadly in line on revenue growth, while margins were slightly better than expected.
Consolidated revenue grew 10.9% quarter-on-quarter in constant currency terms, compared with UBS's estimate of 11.4%. Organic revenue growth was 3.8%, implying that Encora's revenue was broadly flat during the quarter, according to the brokerage. EBIT margin came in at 16%, marginally ahead of UBS's estimate of 15.9%.
However, reported net income of ₹6.3 billion was 8% below UBS's estimate, with net other income and exceptional integration costs weighing on earnings despite the margin performance. Coforge shares closed 0.43% lower at ₹1,900.50 on Friday. The stock has gained around 15% so far this year.
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Source: CNBC TV18
