Buy Coforge ltd For Target Rs.1,400 By Emkay Global Financial Services Ltd
Coforge’s Q4 operating performance was a mixed bag, on adjusted basis. Reported revenue grew 1.7% QoQ to USD489mn (2.0% in CC). Adj EBITM (including hedge loss) came in at 15.2%, higher than our estimate of 14.7%. Coforge signed 5 large deals in Q4 (21 in FY26), with total order intake of USD648mn, lifting the next 12M executable orderbook to USD1.75bn; excludes framework agreements (like a >USD150mn/5Y deal in the UK public sector), expected to contribute from FY27. The mgmt expects Agentic AI to create a large managed services layer driving structural, recurring, high?margin demand tailwind. The company decided to discontinue the low-margin, pass-through India business (~USD40–45mn in FY26; USD15-20mn quarterly run rate in Q4), which will result in a flattish sequential growth in Q1, absorbing revenue headwind through growth in services revenue, followed by acceleration from Q2. The company expects a) industry-leading revenue growth in FY27 despite a slow start, b) EBITDAM/EBITM (incl Encora) to sustain at 20.5-21%/15.5% in FY27, c) FCF/PAT of >100%. We tweak FY27E/28E EPS by -0.9%/2.1%, factoring in the Q4 performance, management guidance, and the Encora acquisition. We retain BUY on Coforge and TP of Rs1,400 at 22x Mar-28E EPS.
Results summary
Revenue grew 1.7% QoQ to USD489.1mn (CC: 2%). In its hedge accounting policy, Coforge reclassified realized hedge gain/loss from revenue to forex gain/loss. Adjusted for these changes, revenue came in at Rs43.8bn, lower than our expectation of Rs44.1bn. Reported EBITM rose by 230bps QoQ to 16.6%, mainly on SG&A leverage (100bps), forex (80bps), direct cost reduction (50bps), lower marketing (40bps) and ESOP (20bps) costs, partially offset by doubtful debt provision (60bps). Adj EBITM (incl hedge) was 15.1% vs Emkay at 14.7%. Headcount up 1.2% QoQ to 35,777. What we like: Margin beat, strong deal intake. What we do not like: Flattish start of FY27, softness in BFS.
Healthcare and Hi-tech lead the growth in Q4
Revenue growth was driven by Healthcare and Hi-tech (15.5% QoQ in USD terms), TTH (7.4%), Insurance (5.0%), Government outside India (24.3%), and BFS (0.8%), partially offset by Others (-3.3%). Across geographies, growth was primarily driven by Americas (5.3% QoQ in USD terms), followed by EMEA (1.8%) and RoW (0.9%).
AI strategy anchored on six strategic moats and five growth vectors
Coforge highlighted 6 strategic moats to seize the growing AI opportunity: i) deep domain expertise backed by >150 scaled AI engagements in BFS, insurance, travel, healthcare; ii) strong client relationships; iii) reimagined delivery model using hybrid AI teams, aiding 40–50% faster time-to-market; iv) scalable agility via lean talent + internal AI adoption; v) proprietary OneAI platform for enterprise-scale deployment (>100 domain solutions, >75 horizontal capabilities); vi) AI-trained workforce (Exhibit 1). Building on these moats, the management outlined 5 AI monetization levers: i) outcome-based pricing via Mod Squads1 , ii) upstream AI advisory across multiple LLMs, iii) brownfield modernization, iv) AI-led engineering transformation, v) agentic AI platform orchestration (the most strategic and highest-margin opportunity). (Exhibits 2-3)
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