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Coforge reported a mixed operating performance in Q1 with strong revenue growth, while margin missed our estimate. Revenue grew 9.6% QoQ to USD442mn (8% in CC; organic 5.9% in CC), better than our expectations. Revenue growth was led by TTH (31.2% QoQ; contributed over 60% of incremental revenue in Q1, owing to Sabre deal ramp-up), Others (12.8%), and Government outside India (6.8%). Adj EBITM was flat QoQ at 13.2%; however, reported EBITM declined by 50bps to 11.3%, lower than expected. In Q1, Coforge signed 5 large deals totaling USD507mn, lifting the next 12M executable orderbook to USD1.55bn, up ~47% YoY. The management remains confident about the revenue growth momentum continuing in FY26, on deal wins and the pipeline. It guided for adj EBITM of 14% in FY26. Quality of earnings is reflected in the gap between reported EBITM and adj EBITM; higher capex (USD65mn in Q1; USD85mn in the last two quarters) on AI-powered data centers and poor cash conversion remain areas of concern. We revised adj EPS estimates by -5.8% to 1.1% over FY26-28E, factoring in Q1 performance and the outlook. Considering the strong execution track record, expectations of a similar improvement in the reported EBITM trajectory as implied for the adjusted EBITM guidance, and better FCF conversion likely with moderation in capex intensity, we retain ADD with TP of Rs1,850, at 36x Jun-27E EPS

Results summary Revenue grew 9.6% QoQ (8% in CC, organic 5.9% in CC) to USD442.4mn, better than our expectations of 7% in CC. Revenue growth was driven by TTH (31.2% QoQ), Others– primarily Healthcare, Retail, Hi-Tech, Manufacturing (12.8%), Government outside India (6.8%), and Insurance (1%), while BFS declined 1.1% QoQ. Adj EBITM was flat QoQ at 13.2%; however, reported EBITM declined by 50bps to 11.3%. Reported net profit grew ~21.4% QoQ to Rs3.2bn due to a one-off gain from disposal of stake in AdvantageGo to the tune of Rs702mn. Adj net profit (adj for one-off transaction-related expenses, legal costs, and one-time bonus of Rs749mn) grew 36.5% QoQ to Rs3.9bn, above our estimate. Deal intake TCV stood at USD507mn vs USD2,126mn in Q4. Headcount grew ~2.1% QoQ to 34,187. LTM attrition increased to 11.3%, from 10.9% in Q4. The company declared interim dividend of Rs4/sh. What we liked: Revenue growth momentum, strong deal intake. What we did not like: Margin miss, weak FCF.

Earnings call KTAs

1) The company remains confident about sustaining the growth momentum on execution intensity, hyper-specialization in a few select industries, deep engineering capabilities, and assets. It expects H2 to be stronger than H1.

2) The mgmt remains confident about delivering 14% adjusted EBITM in FY26 on likely lower ESOP costs, continued revenue growth momentum, SG&A leverage, and the offshore shift

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