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CG issues addressed, Business Outlook maintained

Coforge’s governance call provided clarity on the recent resignations of Chairman O.P. Bhatt and NRC Chair D.K. Singh, which followed observations from the internal audit of the Board Evaluation Report around inadequate disclosure of certain evaluation findings to other Board members, including the Chairman’s lowest performance rating. While the episode raises a governance overhang, the Board indicated that the matter has been addressed through the internal audit process and does not expect further board churn. Interim Chair Vivek Sharma will lead the search for two additional independent directors and oversee the permanent Chair selection. The Board further clarified that Vivek Sharma has excluded himself from consideration for the permanent Chair role, with the company evaluating both internal and external candidates, including the new independent directors appointed through the ongoing search. Management emphasised that it sees no impact on business operations, client engagements or financial outlook and reaffirmed its FY27 guidance. Management also remained confident on Q2 FY27, reiterating that the company is on track to potentially deliver its highest-ever number of large deal wins in a quarter, providing comfort on demand momentum despite the ongoing governance transition. We view the governance developments as a near-term sentiment overhang; however, the unchanged operating outlook and strong deal pipeline limit the risk of any meaningful impact on our underlying investment thesis. We maintain our BUY rating with a target price of INR 2,120, based on 28x FY28E EPS

Internal Audit flags gaps:

KPMG’s internal audit of the Board Evaluation Report identified concerns around the process, particularly inadequate disclosure of certain material evaluation findings to other Board members, including the Chairman’s lowest performance rating. The Board subsequently sought explanations from the concerned directors and based on the audit findings and their responses, accepted the resignations of O.P. Bhatt and D.K. Singh. The developments have resulted in a change in Board leadership and triggered a process to induct two additional independent directors and appoint a permanent Chairperson, although the Board maintains that there is no further expected churn

Business outlook maintained:

CFO reiterated that the recent Board developments have no impact on Coforge’s business operations, financial performance or outlook, with management fully focused on execution. The company maintained its FY27 guidance of 20.5–21% EBITDA margin, ≥15.5% EBIT margin and >100% FCF/PAT conversion, along with its ~US$5bn four-year revenue ambition. Management also remains confident on the near-term trajectory, with Q2 FY27 progressing as planned and no disruption to client engagements

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