Coforge Valuation: Coforge valuation, US worry mean strong Q3 may not spark D-St run

Rich valuation amid rising uncertainty in demand from the US, its largest market, is expected to keep the stock range-bound in the short term, while sustained momentum in deal wins and expected margin expansion will keep long-term prospects intact.

IT sector valuations have fallen over the past few weeks amid fears of a possible slowdown in the US economy, which may impact technology spending by outsourcing clients. The tariff-related stance of the Trump administration may stoke inflation and restrict the Federal Reserve’s ability to reduce interest rates, which in turn may affect economic growth. The BSE Information Technology index has lost 11.6% this year after gaining over 8% between September 30 and December 13 when it hit a record high.

Agencies

Coforge’s trailing price-earnings (P/E) multiple rose to over 80 at the end of December 2024 from around 60 at the end of September 2024 driven by hopes of a recovery in the discretionary spending by clients in the new year. However, such a recovery may be delayed if IT budgets take a hit. In tandem with the changing market perception, Coforge’s P/E has now moderated to around 66.

On the business front, the company has been reporting traction with the top line growing in double digits year-on-year in the two consecutive quarters to December 2024. At ₹3,318.2 crore, revenue grew by 42.8% in the third quarter, the highest growth among the top 10 IT exporters in the country. In constant currency terms, it rose by 8.4% sequentially and 40.3% year-on-year, reflecting strong business momentum. Net profit before adjusting for the minority interest rose by 5.4% to ₹256 crore. The executable order book over the next 12 months expanded to $1,365 million from $974 million a year ago.

The company’s headcount increased to 33,094 from 32,493 sequentially while attrition inched up to 11.9% from 11.7%. The company stated that the integration of Cigniti, acquired in 2024, reported improving synergies.”Deal wins continued to be robust, which should aid strong revenue growth in the coming quarters,” said Elara Securities in a report. The brokerage has raised the stock price target to ₹9,950 from ₹8,110 citing a strong order book and enhancing capabilities on the artificial intelligence platform. The stock was traded at ₹7,493 at the end of Thursday’s trade on the BSE.On Tuesday, the company announced that it would consider a stock split. The exact ratio will be known after the board meeting on March 4.