MOSL: COFORGE (Neutral)-Strong all round delivery, valuations steep
COFORGE: Strong all round delivery, valuations steep
(COFORGE IN, Mkt Cap USD4.1b, CMP INR5063, TP INR5440, 7% Upside, Neutral)
- COFORGE reported an organic revenue growth of 3.9% QoQ CC in 2QFY22. Including the one-month incremental contribution from SLK Global, revenue growth stood in line at 6.6% QoQ (USD). Growth was driven by deal ramp-ups in the Americas (+30% QoQ, including the impact from SLK Global). It reported an order intake of USD285m (-10% QoQ/+42% YoY), implying a book-to-bill ratio of 1.3x. This also included three large deals.
- EBITDA margin (pre-RSU) increased by 250bp QoQ to 18.6% (est: 18.2%), led by large deal ramp ups, higher offshoring and utilization, and pyramid rationalization.
- While the management increased its FY22 organic revenue growth guidance to at least 22% YoY CC (+300bp from 1QFY22 levels), we expect it to grow at a much faster pace (~27.5% YoY). The management sees materially sequential growth in 2HFY22. SLK Global’s performance is expected to be better than anticipated, with the management guiding at least 22% YoY CC in FY22 (est. 25%). We expect COFORGE to deliver a consolidated growth of 38% YoY in FY22E.
- Given the strong demand tailwind, solid deal wins, and healthy pipeline, COFORGE should continue its strong performance in FY23E as well, leading to a USD revenue CAGR of 30% (25% organic CAGR) over FY21-23E.
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