Earnings Outlook
Visa costs, HR usage may drag Coforge consol PAT dn
This story was originally published at 22:55 IST on 16 July 2024
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By Narayana Krishna
HYDERABAD – Increased visa costs and lower human resource utilisation are likely to drag software services and digital solutions company Coforge Ltd’s June quarter consolidated net profit down 3% sequentially on a constant currency basis to 2.2 bln rupees. Revenue for the quarter, however, is expected to rise 3% sequentially to 24.3 bln rupees, according to the average of estimates from 10 brokerages.
Coforge offers digital solutions for verticals like travel, transportation, hospitality, and banking and financial services. Growth in the travel and insurance verticals, along with the banking and financial services segment, is likely to drive its Apr-Jun performance, analysts said. Year-on-year, Coforge's net profit is seen rising 22.4% and revenue is seen up 9.4%.
The estimates for Coforge's Apr-Jun net profit range from 1.9 bln rupees, by Nirmal Bang, to 2.5 bln rupees, by PhillipCapital. The revenue estimates range from 24.2 bln rupees, again by Nirmal Bang, to 24.6 bln rupees, by Axis Securities. In dollar terms, the company's revenue is seen at $292.23 mln, according to the average of estimates from six brokerages. The company is scheduled to announce its Apr-Jun earnings on Monday.
“We expect 1.7% quarter-on-quarter revenue growth broad-based across verticals," Kotak Institutional Equities said in its pre-earnings note. "Moderation in sequential growth is a result of muted discretionary spending environment and timing of ramp-up of large deals skewed towards Jul-Sep.”
Indsec Securities and Finance said Coforge's June quarter revenue is seen up 1.5-1.8% sequentially in constant currency terms on account of a pick-up in the travel and insurance verticals and inline performance from the banking and financial services segment. Nirmal Bang said the company may see 1.9% sequential growth in revenues but face cross-currency headwinds.
The analysts are divided on Coforge’s June quarter earnings before interest and tax, or EBIT, margins. Nirmal Bang said Coforge’s EBIT margins may contract as much as 350 basis points sequentially. Kotak Institutional Equities expects a decline of only 110 bps, citing the company's deferral of wage increases as a reason. Coforge may implement wage hikes from this month, the brokerage said. The average of estimates available from eight brokerages for Coforge Apr-Jun EBIT margins is 12.56%. The EBIT estimates ranged from 10.9% to 13.50%.
The analysts have not taken into account Coforge’s announcement of acquiring Cigniti Technologies Ltd, as it came close to the end of the quarter and costs related to the acquisition are spread into Jul-Sep.
Market participants will keep an eye on the company's commentary on revenue growth outlook, margins and new deals outlook, timeline for consolidation of Cigniti, and measures to improve utilisation.
Today, Coforge shares closed marginally lower at 5,896.90 rupees on the National Stock Exchange.
Following are the Apr-Jun earnings estimates for Coforge Ltd from 10 brokerages:
| Brokerage | Net Sales | Net Profit | EBIT margin (%) | $ Revenue (Million) |
| ---(In mln rupees)--- | ||||
| Anand Rathi Share and Stock Brokers Ltd | 24,228.00 | 2,282.00 | 13.20 | 290 |
| Axis Securities Ltd | 24,600.00 | 2,120.00 | 11.80 | -- |
| Incred Research Services Pvt Ltd | 24,243.00 | 2,255.00 | 13.50 | 291 |
| Indsec Securities and Finance Ltd | 24,200.00 | 2,000.00 | 11.80 | 300 |
| Kotak Institutional Equities | 24,303.00 | 2,258.00 | 12.70 | 291 |
| Motilal Oswal Financial Services Ltd | 24,289.00 | 2,351.00 | 13.30 | 291 |
| Nirmal Bang Equities Pvt Ltd | 24,194.00 | 1,930.00 | 10.90 | -- |
| Nuvama Wealth Management Ltd | 24,311.00 | 2,256.00 | -- | -- |
| PhillipCapital (India) Pvt Ltd | 24,270.00 | 2,496.00 | 13.30 | 291 |
| Sharekhan Ltd | 24,260.00 | 2,440.00 | -- | -- |
| Average | 24,289.80 | 2,238.80 | 12.56 | 292.23 |
End
Edited by Rajeev Pai
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