On Thursday, JPMorgan maintained an Overweight rating on Coforge Ltd (COFORGE:IN) shares and increased the price target to INR 9,300 from INR 6,900. The upward adjustment reflects the anticipated benefits from the consolidation of Cigniti Technologies into Coforge's financial estimates starting in the second quarter of the fiscal year 2025.
The analyst from JPMorgan expressed confidence in the merged entity's ability to achieve its revenue target of $2 billion by the fiscal year 2027, along with an expected margin expansion of 210 basis points, aligning with management's target of 150-250 basis points. The integration of Cigniti is seen as a key driver for this growth, with the management indicating that Cigniti's business is expected to grow faster than Coforge's organic business in the medium term.
Cigniti's EBITDA margins are projected to significantly improve, with targets of 16% between the second and fourth quarters of 2025, an increase from 12.6% in the first quarter and 14% for the fiscal year 2024. The management's strategy includes reducing marketing and subcontractor expenses to achieve these margin improvements.
In addition to the Cigniti consolidation, the core business of Coforge is expected to see a growth rebound starting from the second quarter, driven by the Banking, Insurance, and Travel sectors. The forecast for the combined organic and Cigniti businesses suggests a 13% and 12% compound annual growth rate in revenue, respectively, with EBITDA margins expanding by 200 and 300 basis points over the period from fiscal year 2024 to 2027.
The financial analysis indicates that the consolidation will result in approximately 15% earnings per share accretion after accounting for the dilution from the share swap related to the remaining 46% stake in Cigniti. With these developments, Coforge has been highlighted as a top pick in the IT Services sector by JPMorgan.
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