IGI Logo

Bigger bites, powering the next growth phase

We initiate coverage on COFORGE with ‘BUY’ rating and TP of Rs 2,140 valuing at 32x FY28E earnings, with potential upside of ~32%. COFORGE has positioned itself in the leader’s quadrant, backed by a strategic moat built on deep domain expertise across verticals. COFORGE posted ~14% organic CAGR over FY20-25, driven by strong traction in BFSI, TTH (together accounted for ~50% of revenue), and Healthcare. Its executable order book of ~USD1.6bn provides revenue visibility of ~80%. The 10 large deal wins in H1FY26, vs. 14 wins in full year FY25, reinforce our confidence in sustained mid-teens organic growth. Number of clients at the mid and top end of the pyramid has grown at >20% CAGR over the last 5 years, reflecting deep client mining and scaling initiatives. Strengthening client pyramid is also an outcome of aggressive acquisition strategy (SLK & Cigniti), and most recently Encora would help with onboarding potential and scalable accounts. Operating margin is likely to be ~14% in the medium term due to higher amortization and limited growth within Encora before it achieves full synergy benefits.

We assume Encora deal to conclude and integrate successfully in 2QFY27. Considering the historical growth and margin profile of the company, we assume Encora to report revenue growth 11% YoY and EBITDA margins of ~20.5% in FY27E, which translates to an organic growth CAGR of 15.6% over FY26-28E for Coforge. Alongside, we also assume fresh issue of 93.8mn shares that need to be allotted to sellers of Encora. Additionally, we are parking the term loan of Encora under near-term obligations before the funding decisions are made.

* BFS and TTH remain growth engines: COFORGE has delivered strong BFS growth, of 25% organic CAGR over FY20–25, by focusing on mid-tier global banks with faster decision cycles and higher consolidation potential. TTH witnessed modest performance amid travel restriction before clocking ~13% organic CAGR over FY22-25, reflecting a post-pandemic recovery and improving client spending sentiment

* Elevated revenue visibility, large deals to aid further: COFORGE’s executable order book has increased from USD468mn in FY20 to ~USD1.6bn in H1FY26, reflecting stronger deal quality and potential. Revenue visibility is supported by managed services and proactive, relationship-led origination. Large deal wins and ~90% repeat business have improved order intake, conversion rates, and long-term revenue certainty.

* Robust account scaling: Number of USD 1mn+ clients has expanded sharply from 80 in FY20 to 243 in H1FY26, while revenue per USD 1mn+ client has inched up, to ~USD7.7mn (H1FY26 annualized). This indicates that growth is driven by systematic account mining and scaling, with many clients moving up the revenue ladder – most visibly into the USD5-10mn bracket.

* Strategic acquisitions to expand TAM & geography: With its largest acquisition of Encora, Coforge has pulled out new vertical (Hi-Tech) and deepened its presence in BFS, Healthcare and TTH, while plugged the gaps that were missing earlier. Secondly, Encora is US dominated (~80% of revenue), which encompasses Coforge’s goal to broaden its presence and scaling senior leadership team in the region. Lastly, the management moat to scale clients at a higher band (>10m+) would help rigorous client roasting, as it onboards 11 new 10mn+ accounts with average age of 10+ years through Encora.

Please refer disclaimer at https://www.plindia.com/disclaimer/

SEBI Registration No. INH000000271