Coforge falls over 2% after Citi cuts target price, downgrades stock to ‘sell’

Shares of Coforge Ltd fell as much as 2.4 percent after Citigroup downgraded the IT company's stock to ‘sell’ from ‘neutral’. The brokerage house also cut its target price to Rs 3,390 versus its earlier target price of Rs 3,780.

The downgrade comes on lower price-to-earnings (P/E) ratio of 23 times versus 26 times owing to macro risks. The brokerage revised its financial year 2023-24 earnings per share (EPS) estimates by 0-1 percent. Citi also believes that near-term growth is priced in with valuations at close to 25 times one-year forward.

However, there are few monitorable going forward for Coforge. This includes the headcount growth of around 11 percent, executable order book which grew 15 percent in this quarter as compared to same quarter last year and the overall order book size at close to 300 million. This is higher than the last four-quarter average of close to 288 million.

Global headcount of the company increased to 22,742 as of June 30, 2022 from 22,500 at the end of March 31, 2022 while attrition at the company stood at 18 percent, according to a BSE filing. Company's total order book executable over the next 12 months stood at $745 million (about Rs 5,953 crore).

According to Citi, apart from the fundamentals and valuations, promoters who hold 40 percent private equity - have constantly been selling in the last one year. So, a stake sale overhang remains.

Coforge on Friday posted a 21.1 percent increase in consolidated profit after tax at Rs 149.7 crore in the first quarter ended June 30, 2022.