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Looking to scale up healthcare vertical

We attended Coforge (COFORGE IN) Investor Day recently. Strong growth over the years could be attributed to: 1) stable leadership for the past eight years, with hyperspecialized industry expertise in the verticals it operates, 2) its proactive approach in providing industry-specific solutions to client’s business problems rather than waiting for Request for Proposal (RFP) floating. The company clarified that it is not looking to invest in the data centre business. It may look at a few M&A opportunities but stated these opportunities will be considered to gain access to fortune clients rather than filing up any capability gaps. The company sees strong growth opportunities in the healthcare business in the US albeit it is small business. COFORGE is also looking to close 20 large deals in FY26 vs 14 in FY25. Management refrained from providing any guidance for FY27. We retain Accumulate with a higher TP of INR 2,120.

Strong growth in the past: COFORGE’S growth in the past was aided by hyper specialization in a few select industries (BFS, insurance, and travel), execution intensity, and deep engineering. The strategy emphasizes proactive deal creation, rather than participation in the competitive RFP. The company is likely to reach USD 2bn exit revenue in the next couple of quarters but has refrained from providing any further guidance on revenue for FY27.

Healthcare and North America remain large opportunity: While currently a sub-USD 100mn unit, healthcare is identified as a vertical with significant scale-up opportunity considering USD 4.5tn spending on healthcare in the US market. Management says it is looking to cash in on the anti-incumbency opportunity available since clients are not happy with current service providers. Opportunity is available in sub-segments, such as payers (enrolment platform), med-tech (medical devices), life sciences (clinical imaging platform) and in the electronic health records (EHR) space. Expansion in North America is focused on the Midwest and on the West Coast, which currently account for ~25% of US revenue in FY25. It serves 16 of 216 local Fortune 500 on the West Coast offering significant headroom.

Travel remains key growth lever in the medium term: The company is deeply embedded in the travel ecosystem, as it works with 60 airlines globally. It said tech spending in the travel segment is likely to grow by 6-7% in FY26 vs 3-4% earlier. Management says there is huge opportunity available in this space in the long term as each airline is likely to spend close to USD 1-2bn in the next 10-15 years for tech upgrade

Retain Accumulate with a higher TP of INR 2,120: Management’s proactive approach along with stable leadership yields strong revenue growth. Fresh order intake of USD 3.5 bn and executable order book at USD 1.5 Bn as on FY25 along with an aspiration of closing of 20 deals likely to provide strong revenue visibility. We tweak our USD revenue estimates for FY27 to 14% (from 13%). We maintain Accumulate with a higher TP of INR 2,120 from INR 2,010 based on 39x (unchanged) FY27E P/E. Key risk is slower-than-expected growth.

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