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Coforge slips 5% as board approves Rs 3,200 crore fund raise

In the past one month, the global digital services and solutions provider's stock has underperformed in the market falling by 14 per cent. In comparison, the S&P BSE Sensex was down by 0.04 per cent

Coforge

Coforge

Deepak Korgaonkar New Delhi

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Shares of Coforge slipped 5 per cent in Monday’s intra-day trade to Rs 5,785 on the Bombay Stock Exchange (BSE). This came after the company’s board approved fund raising of up to Rs 3,200 crore through qualified institutional placement (QIP) or other permissible modes.

In the past one month, the global digital services and solutions provider's stock has underperformed in the market falling by 14 per cent. In comparison, the S&P BSE Sensex was down by 0.04 per cent.

However, in the past one year, the stock rallied 54 per cent, as against 26 per cent surge in the benchmark index. Share price of Coforge had hit a record high of Rs 6,847.45 on February 19, 2024.

Meanwhile, Coforge recorded an order intake of $354 million during the December quarter (Q3FY24). With the last quarter  being the eighth consecutive quarter where the firm reported an order intake of more than $300 million. In terms of geographic regions, Americas contributed $110 million, EMEA $172 million and Rest of the World $72 million to the Q3 order intake. The company’s executable order book, which reflects the total value of locked orders over the next 12 months, stands at $974 million and was up 15.8 per cent on a YoY basis in Q3.

Coforge expects growth momentum to continue in Q4 with margin improvement. According to the company's management, macro headwind will continue in FY25. The company expects margin improvement of 150-200bps in Q4, on the back of new business ramp-ups and the reversal of furloughs. Management estimates a 40bps-50bps headwinds due to higher than anticipated furloughs, and expecting it to reverse in Q4.

Demand environment remains challenging

The company's clients have completed their budgeting cycle for the CY24 and there is no significant increase in budgets. It expects clarity on the release of budgets for tech projects in the second half of the year. Business environment is also highly competitive with sustained pricing pressure due to depressed demand in the market. However, Conforge has green shoots emerging in terms of growth opportunities, particularly in areas of driving agility in software delivery, new product propositions, and compliance and regulatory requirements. 

"Even though management commentary around flat IT budgets and pressure on RTB spend is not encouraging, we draw comfort from Coforge’s consistent execution led wallet share gain. These should help sustain the multiples, in our view," said analysts at JM Financial Institutional Securities in the Q3 result update.

Given the extreme furlough impact in Q3FY24, and pain within the ex-BFS vertical, the fourth quarter requires a significant heavy lifting to reach the middle or upper-end of the guidance band. Management was comfortable delivering FY24 growth at the lower end of the guidance band of 13-16 per cent, Motilal Oswal Financial Services had said in the result update.

The brokerage firm expects the large deal ramp-ups and healthy funnel to support Coforge's growth despite the near-term challenges. These would help the company achieve its FY24 revenue guidance.

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First Published: Mar 18 2024 | 11:12 AM IST

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