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Coforge slips 10% post Q4 results, acquisition of Cigniti Technologies

The stock of Coforge is trading at its lowest level since June 2023. With today's decline, it corrected 34 per cent from its 52-week high of Rs 6,840 touched on February 19, 2024



Deepak Korgaonkar Mumbai

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Shares of Coforge slipped 10 per cent to Rs 4,505.25, hitting nine-month low on the BSE in Friday’s intra-day trade after the company announced the acquisition of a 54 per cent stake in Cigniti Technologies at a per share price of Rs 1,415. The acquisition process is expected to be completed by the second quarter of financial year 2024-25 (Q2FY25).

The stock of Coforge is trading at its lowest level since June 2023. With today’s decline, it corrected 34 per cent from its 52-week high of Rs 6,840 touched on February 19, 2024.

Meanwhile, shares of Cigniti hit a 52-week high of Rs 1,394, gaining nearly 2 per cent in intra-day trade. At 10:38 am; the stock was down 3 per cent to Rs 1,336.20, after hitting a low of Rs 1,329.85 in intra-day deals. In comparison, the S&P BSE Sensex was down 0.22 per cent at 74,443.

Cigniti is an Indian IT services company that specialises in digital engineering solutions, digital assurance services, and IP and innovation platforms.

Coforge believes that the acquisition of Cigniti will not only help it grow to a $2 billion by FY27, but equally ensure that Coforge’s operating margins improve by 150-200 basis points by FY27 itself.

The management highlighted the following three key reasons for acquiring Cigniti subsuming the addition of three verticals namely - retail, hi-tech and healthcare; scaling up its presence across the Southwest, Midwest and West US (currently only on east coast); and aiding Coforge to tap opportunities that the proliferation of AI is creating for specialized assurance services.

While deal valuations are reasonable, Cigniti is largely into digital assurance and testing which may be the biggest impacted segment (cannibalise its own revenue) amid GenAI adoption, going ahead. Furthermore, the company also aims to merge it post the majority stake acquisition consummation, the swap ratio and relative valuation will be determined later. Key ahead would be Coforge's ability to push its services to Cigniti accounts, ICICI Securities said in a note.

Meanwhile, Coforge reported an in-line 1.9 per cent constant currency (CC) quarter-on-quarter growth in revenue at $286.8 million for the March quarter (Q4FY24). The company reported a 94.8 per cent year-on-year increase in net profit to Rs 223.7 crore, on the back of revenue of Rs 2,358.5 crore, up 8.7 per cent from the same period last year.

Coforge’s execution-focus helps it win deals consistently (TTM TCV: USD 1.9bn; 1.8x BTB) while protecting its current book of business. 17 per cent YoY growth in 12-M executable order book (EOB), higher than revenue growth (13 per cent) reflect the trend while undergirding a healthy revenue visibility, analysts at JM Financial Institutional Securities said.

Surprisingly however, management refrained from providing quantitative guidance for FY25, citing elevated uncertainty. A 1.3x year-beginning EOB to NTM revenue conversion (lowest in past 5 years) in FY24 was at the lower bound of historical range, indicating higher leakage. 1.2x conversion, assuming leakages deteriorate further, would imply c.10 per cent FY25E USD revenue growth, the brokerage firm said in the result update.

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First Published: May 03 2024 | 11:11 AM IST

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