Company Update - Coforge Ltd - ICICI Direct

Coforge Ltd (Coforge) has entered into an agreement with M/s SLK Global Solutions Pvt Ltd (SLK) to acquire a 60% stake in the company for a consideration of ~US$122 million (Rs. 918 crore) leading to a valuation of ~3x FY20 EV/sales. The company will acquire additional 20% over the next two years. The company will fund the acquisition via debt (~Rs. 375 crore or US$50 million) and rest through cash. The acquisition will add ~10% to the company's topline. We believe it has robust EBITDA and PAT margin. Hence, we expect SLK to be PAT margin accretive. SLK is a business process company with ~49% of revenues generated from mortgage, 40% from banking and the rest from insurance.

Valuation & Outlook

The acquired company has been growing at a healthy 22% CAGR in FY18-20. Going forward, SLK is expected to further grow at a consistent pace and Coforge can also cross sell IT services to its clients. This will further boost the company's financials. The acquisition will add ~10% to the company's topline and is expected to be EBITDA and EPS accretive. This, coupled with consistent large deal wins, digital prowess, client mining in BFS & Insurance, healthy order book and revival in travel segment are other key positives for Coforge. However, most positives are factored in the current price. Hence, we downgrade the stock from BUY to HOLD with a revised target price of Rs. 3,300 (27x PE on FY23E EPS) (earlier target price Rs. 2,875).

For details, click on the link below:https://www.icicidirect.com/mailimages/IDirect_Coforge_CoUpdate_Apr21.pdf

Shares of Coforge Ltd. was last trading in BSE at Rs.3120 as compared to the previous close of Rs. 3168.3. The total number of shares traded during the day was 26303 in over 4097 trades.

The stock hit an intraday high of Rs. 3196 and intraday low of 3038.25. The net turnover during the day was Rs. 81623247.

Source : Equity Bulls

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