On Wednesday, Citi updated its stance on Coforge Ltd (COFORGE:IN), raising the price target to INR 4,825 from INR 4,550, while continuing to recommend a Sell rating on the stock. The adjustment comes after Citi's interaction with Coforge's CFO, Mr. Saurabh Goel, to gain insights into the company's business dynamics.
Coforge is aiming to achieve $2 billion in revenues by fiscal year 2027, along with an improvement in operating margins by 150 to 250 basis points. The management has observed a more favorable demand environment compared to the beginning of the quarter, with an increase in the number of deals with a duration of 12 to 18 months.
Revenue growth for the first quarter of 2025 is expected to align with the levels seen in the fourth quarter of 2024. Still, the second quarter of 2025 is anticipated to experience healthy growth, primarily due to the acceleration in deal signings. The integration of the recently acquired Cigniti Technologies is progressing as planned and is expected to be consolidated into Coforge's financials starting from July 1, 2024.
The company plans to defer wage increases for most employees to the second quarter and anticipates these hikes to be lower than usual. Despite these cost-saving measures, Coforge intends to maintain its reported EBITDA margin guidance, projecting it to remain flat in fiscal year 2025 compared to fiscal year 2024.
Current valuations of Coforge stock are hovering around 30 times the 1-year forward consensus earnings per share (EPS). The Sell rating by Citi reflects a cautious stance on the stock despite the raised price target and the company's strategic initiatives.
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