IGI Logo

AI-led Execution Strengthens; Encora Integration Enhances Growth Visibility

Q1FY27 reinforces our positive view on Coforge, with resilient execution and accelerating AI-led demand underpinning industry-leading growth despite a challenging macro environment. Organic revenue grew 1.2% QoQ CC (5.2% excluding portfolio exits), while Encora integration is tracking ahead of plan, supporting management's confidence of delivering 15.5%+ FY27 consolidated EBIT margin. AI-led engineering, cloud and data services now contribute 86% of revenues, positioning Coforge well to capture the next wave of enterprise AI operationalisation. A record executable order book of USD 2.23 Bn (+44% YoY), a healthy large-deal momentum and improving synergy realisation provide strong FY27 earnings visibility. We expect deal ramp-ups, AI monetisation and Encora synergies to drive sustained earnings growth and maintain our ‘BUY’ rating with a TP of INR 2,050, based on 28x FY28E EPS.

Revenue In-line, Margin Beats Estimate; Order Momentum Remains Healthy

* COFORGE reported Q1FY27 revenues at USD 592.2 Mn, up 21.1% QoQ and 33.9% YoY (vs. CIE estimate of USD 586.2 Mn). In INR terms, revenue stood at INR 55,277 Mn, up 24.2% QoQ and 49.9% YoY (vs. CIE estimate of INR 55,103 Mn) on the back of Encora acquisition

* The consolidated revenue includes USD 100.7 Mn from two months of Encora acquisition, with organic CC growth of 1.1% QoQ and 5.2% QoQ excluding exited businesses

* EBIT stood at INR 8,823 Mn, up 19.7% QoQ and 109.1% YoY (vs CIE estimate of INR 7,882 Mn). EBIT margin came at 16.0% for Q1FY27, down 60 bps QoQ and up 452 bps YoY (vs. CIE estimate of 14.3%)

* PAT for the quarter came in at INR 5,187 Mn, down 15.3% QoQ and up 107.1% YoY (vs. CIE estimate of INR 5,729 Mn). PAT is down due to exceptional cost owing to one-time acquisition expenses

Broad-based Growth; AI-led Order Book Supports Growth

Coforge reported a strong Q1FY27, with organic revenue growing 1.2% QoQ CC despite planned portfolio exits. Excluding the Government and Data Center businesses, the core business grew 5.2% QoQ CC, reflecting broad-based execution across key verticals. Healthcare & Hi-tech led growth (+11.6% QoQ), followed by Insurance (+4.6%), BFS (+2.9%) and Travel (+1.7%). Order intake remained healthy at USD 691 Mn, while the executable 12-month order book reached a record USD 2.23 Bn (+44.2% YoY), providing strong revenue visibility. Management indicated Q2 will be another robust growth quarter, with recently signed large deals anticipated to ramp-up more meaningfully from Q3. AI-led engineering, cloud and data services now account for 86% of revenues, positioning Coforge to benefit from the structural shift toward enterprise AI deployment and operationalisation.

Margin Expansion Ahead of Plan; Encora Synergies Well on Track

Consolidated EBITM stood at 16.0%, while the organic business delivered 16.7%, reflecting disciplined execution despite continued investments. Encora reported 19.1% EBITM, with its SG&A ratio declining from 10.0% to 6.6% within the first quarter of integration, demonstrating faster-than-expected synergy realisation. The management reiterated confidence in exceeding its 15.5% consolidated EBIT guidance and maintained FY27 EBITDA guidance of 20.5–21.0%, supported by operational efficiency, integration benefits and a richer AI-led services mix. We expect AI operationalisation, recurring managed services and continued execution on cost synergies to support further margin expansion while sustaining Coforge's premium growth profile.

For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer

SEBI Registration no.: INZ 000160131