Coforge shares gain nearly 3% as Morgan Stanley sees up to 17% upside

Terming the stock as a preferred midcap IT pick, Morgan Stanley stated that a focused and transformed Coforge has shown scalability attributes that can keep its revenue growth profile higher for longer against its peers.

Valuations are at a premium but have the potential to sustain, driven by robust revenue growth, and strong free cash flow (FCF) conversion, the brokerage stated in a report.

Morgan Stanley expects a revenue compounded annual growth rate (CAGR) of 14,7% over the FY24-FY26 period on a constant currency basis.

It also expects earnings before interest tax (EBIT) margin to improve by 190 basis points in the FY 24-26 period.

The brokerage listed three main catalysts that it thinks would drive revenue growth in the mid-term. The first is Deal total contract value (TCV) which has inched up from a quarterly run rate of $300 million plus, according to Morgan Stanley.

The company delivers on growth aspirations faster than currently expected by market while an uptick in new grad contribution to net adds, which drives margin higher, it added.

Coforge last month had expressed confidence in achieving the projected revenue growth of 13-16% in FY24 on the back of the current demand situation and project pipeline.

The company, which competes with rivals like Wipro, Accenture and Cognizant, is hopeful of increased margins in the third quarter of FY24.

Shares of Coforge were trading 2.67% higher at ₹6306 apiece at 10:15 am on Thursday, January 11.