Recommendation From Computers - Software Sector

Recommendation From Computers - Software Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.  

COFORGE LTD. : TURNING TECHNOLOGY INTO PROFITS

HERE IS WHY
βœ“   Strong financial position
βœ“   Robust order book
βœ“   Focus on cost rationalisation

Formerly known as NIIT Technologies, Coforge Ltd. is a global IT corporation providing end-to end software solutions and services. Its expertise in the field of AI, cloud and insight-driven technologies transforms the clients’ businesses into intelligent, high-growth enterprises. It has a strong presence in various industry verticals such as insurance, travel and hospitality, banking and financial services, and several others such as retail, healthcare and manufacturing where the company is growing its presence. A majority of the business is done outside India, with US contributing nearly 48 per cent to the revenues.

The company reported net sales of Rs 4,662.8 crore in FY21 compared to Rs 4,183.9 crore in FY20. That is a growth of nearly 11.44 per cent. Except for the travel and hospitality segment which faced the biggest negative impact in the first phase of the pandemic, all other businesses reported healthy growth, which has led to a robust financial position in FY21. Its EBIDTA stood at Rs 812.1 crore in FY21 as against Rs 791 crore in the previous year. That is a sloppy growth of over 2.6 per cent. Also, the PAT was almost flat with a small decrease from Rs 467.6 crore to Rs 466 crore from FY20 to FY21, respectively.

Strong cash generation was witnessed with a growth of nearly 156 per cent as can be seen in the cash flows from operating activities increasing from Rs 297 crore in FY20 to Rs 762 crore in FY21. Net sales for the quarter ended June 2021 stood at almost Rs 1,461.6 crore. That’s a growth of 15.86 per cent on QoQ basis and 38.28 per cent on YoY basis. The EBITDA, exclusive of other income, was Rs 211.4 crore, which saw a slight growth of 0.76 per cent QoQ and nearly 24.7 per cent YoY. The EBITDA margin decreased by 237 bps from the previous quarter to 15.57 per cent due to global annual wage hikes and transition expenses in four of the five deals signed.

The net profit number stood at Rs 131.2 crore, implying de-growth of 4.5 per cent QoQ and a growth of 58.26 per cent YoY. The PAT margin too witnessed a sequential decline of 191 bps, dipping to 8.98 per cent. However, the management expects the margins to expand substantially in the coming quarters starting with an increase of 200 bps in Q2FY22 on the back of a healthy order book and consistent deal signing momentum. In April 2021 it acquired 60 per cent stake in SLK Global Solutions, a business process transformation corporation which offers business process management (BPM) and digital solutions for the financial services industry.

Coforge’s order intake for Q1FY22 stood at Rs 2,385 crore as against Rs 1,507 crore in the previous quarter. The spike has come on the back of two large deals won in BFS and insurance verticals and one major deal in cloud and infrastructure services business. The consolidated orders booked for the next 12 months are at Rs 4,838 crore. The company has low client concentration which diversifies its associated risk. It has delivered extraordinary returns for its stakeholders with ROE standing strong at 19.41 per cent with the ROCE even higher at 24.92 per cent. It has insignificant debt in the books. The management expects to post strong consolidated growth in FY22 considering the contribution from SLK Global Solutions. And it has provided organic growth guidance in constant currency terms of nearly 17 per cent in FY22. We therefore recommend our reader-investors to BUY this stock.

 

Rate this article:
No rating
Comments are only visible to subscribers.

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR