Coforge share price soars 17% today: Axis Securities initiates coverage with a BUY rating

Axis Securities has initiated coverage on Coforge with a BUY rating. Axis Securities says it believes Coforge is well placed to bounce back post the COVID-19 pandemic. Digital forms an important block for Coforge’s future growth journey which is manifested in consistent revenue growth witnessed in the segment. Coforge’s management is seeing strong demand traction in digital transformation where customers are looking at custom-built development on newer technology. The company is targeting overall double-digit revenue growth for FY22E which will be led by healthy traction in the Digital business, especially in Healthcare and BFSI. The company continues its strategy to focus on IP-led offerings, digital transformation, software-based offerings, and large enterprise accounts for its future growth. Coforge management has articulated that Data, Digital, and IoT will be key elements for building digital solutions for its customers operating in the Healthcare, Financial, Industrial and Manufacturing verticals.

The recovery will be led by:

1) Significant growth opportunities in cloud transformation and other digital services
2) Sustainable operating margins led by better services mix and operational efficiencies
3) Healthy balance sheet, strong return ratios, and free cash flow generation
 4) Superior execution capabilities
5) Ramp-up in new deal wins and strong client additions

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These factors are expected to help Coforge in attaining sustainable growth in the long term.

Focus on strategic clients to provide long term sustainable growth:

Coforge has specialized services in cloud computing, digitisations, and business analytics and has leadership in Enterprise software, Consumer Software and Innovation Services. Coforge’s experienced and competent management team is sharply focused on increasing the wallet share of existing clients. It continues to witness good traction in adoption of collaboration tools, cloud, and digitization by its top client. Although the momentum and concentration of the Top Client’s IT spending remain high, the company aims to reduce concentration risk. Stable delivery capabilities coupled with strong deal wins is expected to accelerate growth momentum in the forthcoming quarters.

Axis Securities believes Coforge has a resilient business model supported by multiple long-term contracts with the world’s leading brands. Axis Securities believes that the company is well-positioned to capture the immense growth opportunity on account:

1)      Better service mix
2)       Sharp focus on customer-centricity
3)      Margin tailwinds driven by cost efficiencies, lower input costs, rupee depreciation, and lower travel cost
4)      Healthy cash flow generation