Coforge's Growth and Investment Potential | Stock Spotlight

- Company Overview: Coforge is a leading Indian IT service company specializing in BFSI, insurance, travel, and transportation.

- Performance Comparison: The stock has underperformed both the Nifty and the IT index in the past 3 months, partially due to negative reactions to news of a large capital raise.

- Growth Momentum: Despite seasonal fluctuations, the company has sustained growth with a sequential growth of 1.8% in Q3 and expects a growth rate of 13 to 16% for the fiscal year.

- Order Inflow: Q3 saw an order inflow of $354 million, marking the eighth consecutive quarter with inflows exceeding $300 million. The company secured three large deals and seven new clients.

- Order Backlog: The executable order book stood at $974 million at the end of Q3, indicating a growth of 16% year-on-year, providing good revenue visibility for FY25.

- Margin Uptick: Operating margins adjusted for ESOP rose by 200 basis points sequentially, although reported operating margins were impacted by furloughs. The company expects a sharp uptick in margins in Q4.

- Factors Supporting Margin Improvement: Factors such as peaking sales and marketing expenses, higher offshoring, and stable resource costs are expected to support margin improvement.

- Capital Raise Plan: The company plans to raise 3,200 CR (9% of current market capitalization), aimed at retiring debt, reducing interest expenses, and pursuing inorganic growth opportunities.

- Long-Term Growth Story: Despite short-term challenges, Coforge is seen as a long-term growth leader, with a target of reaching $2 billion in revenue in the next 4 to 5 years, with a portion of this growth expected to come from inorganic sources.

- Investment Outlook: Coforge is viewed as a stock with long-term growth potential, suitable for addition on any weakness in its valuation.