| Coforge Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA / Stable / CRISIL A1+ '; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
| ||||||
| ||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities and non-convertible debentures (NCDs) of Coforge Ltd (Coforge; erstwhile NIIT Technologies Ltd).
Revenue grew 25% year-on-year to Rs 8,015 crore during fiscal 2023, supported by new deal wins and client additions across all segments, but mainly led by banking & financial services (BFS), and travel, transportation and hospitality. Coforge continues to have a healthy presence in the BFS vertical, which contributed the largest share of revenue at ~31% in fiscal 2023; with ~90% coming from the US and European markets. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin moderated slightly to 16.5% from 17.7% during fiscal 2022 due to growing employee base and high attrition, which is seen moderating from its peaks.
Steady growth in orders over the years is reflected in order book of $1.3 billion in fiscal 2023 vis-à-vis $1.1 billion in fiscal 2022. Financial risk profile remains strong because of sizeable networth, and robust gearing and debt protection metrics. Cash surplus was healthy at Rs 603 crore as on March 31, 2023.
The ratings continue to reflect the diversified revenue mix of Coforge across geographies and verticals, and healthy financial risk profile. These strengths are partially offset by modest scale of operations and exposure to intense competition in the information technology (IT) industry. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Coforge and its subsidiaries, in which it holds direct or indirect majority stake, because of common management and strong business and financial linkages. Additionally, CRISIL Ratings has amortised goodwill on acquisitions for 5 years. With adoption of Ind AS 116 with effect from April 01, 2019, lease liabilities are being treated as debt while related adjustments are also made in depreciation and amortisation and interest cost components.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Weaknesses:
|
Liquidity: Strong Liquid surplus stood at Rs 603 crore as on March 31, 2023. Expected cash accrual of about Rs 1,000 crore per annum over the medium term is likely to be sufficient to fund dividend payments, moderate capex (Rs 150-200 crore) and augment liquid surplus. Liquid surplus should be sufficient to fund payment of Rs 334 crore for the remaining 20% stake in SLK in fiscal 2024. Fund-based limit of Rs 510 crore (excluding limit of $15 million in the US) was moderately utilised at 45% in the 12 months through January 2023.
ESG profile The environment, social, and governance (ESG) profile of Coforge supports its already strong credit risk profile.
The IT sector has a low impact on the environment because of the inherent nature of digital services, core operations as well as products. The sector has a social impact because of its large workforce. Coforge has continuously focused on mitigating its environmental and social impact. . Key ESG highlights:
There is growing importance of ESG among investors and lenders. The company’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable Coforge will continue to benefit from its longstanding relationships with clients in diverse verticals and growth in the digital services segment. While being open to acquisitions, the company is also expected to maintain healthy financial risk profile over the medium term. |
Rating Sensitivity factors Upward factors
Downward factors
|
About the Company Coforge is an IT company providing end-to-end software solutions and services. It was formerly known as NIIT Technologies Ltd and was incorporated in April 2003 when NIIT Ltd (NIIT) spun off its software solutions business (excluding knowledge solutions) into a separate legal entity. In May 2019, NIIT and the founder's family members sold total stake of 30.2% in Coforge to Hulst BV (Hulst; affiliate of Baring Private Equity Asia). In August 2019, Hulst acquired 39.85% stake through an open offer, increasing its total stake in Coforge to 70.05%.
Coforge is a capability maturity model level 5 player in the software services industry. It is among the top 20 Indian software exporters. Prominent global customers include British Airways, the ING group, SEI Investments Company, Sabre Corporation and SITA. Over the years, Coforge has set up subsidiaries in the US, Singapore, Australia, the UK, Germany, and Thailand to market and mobilise projects for the software division. The company has business partnerships with large IT companies across the world. |
Key Financial Indicators (CRISIL Ratings-adjusted)
#Adjusted for goodwill amortisation |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
**Fully interchangeable with letter of credit *Interchangeable with bank guarantee |
Annexure – List of entities consolidated
|
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|