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Deal TCV velocity anchors growth visibility

Margins set to expand as one-offs subside

* COFORGE reported a strong 4QFY25 revenue growth of 3.4% QoQ in CC terms, above our estimate of 3.0% QoQ CC. Reported revenue (adjusted for disc. operations) stood at USD404m (up 3.3% QoQ/43.6% YoY). The company reported an order intake of USD2.1b in 4Q with five large deals, resulting in a robust 12-month executable order book of USD1.5b (+47% YoY). Adj. EBITDA (pre-RSU) margin came in at 18.7% (est. 18.3%). Adj. PAT stood at INR2.9b (up 25% QoQ/23% YoY).

* The company’s revenue/EBIT/adj. PAT grew 33.8%/28.6%/17.0% in FY25. We expect revenue/EBIT/adj. PAT to grow by 55.1%/58.7%/66.6% YoY in 1QFY26. We reiterate our BUY rating on COFORGE with a TP of INR11,000, implying a 47% potential upside.

Our view: Stronger organic growth and deal bookings point to a brisk FY26E

* High revenue growth visibility led by executable order book: COFORGE's executable order book remains a reliable indicator of short-term revenue growth outlook; it is up 47% YoY in FY25. The underlying business momentum is healthy, driven by consistent deal wins and resilient client spending across key verticals. Management also expects organic growth in FY26 to exceed FY25 (~15% cc YoY), reflecting continued confidence in the core business. Taken together, we believe revenue visibility over the next 12 months remains high.

* Sabre deal ramp-up on track; management confident of improving margins despite the ramp-up: According to management, the Sabre ramp-up was on track, and more importantly, it was confident that this ramp-up will not be margin dilutive, aided by steady execution and a favorable offshore delivery mix.

* COFORGE has also proactively de-risked the engagement with credit insurance, and Sabre’s ongoing deleveraging further strengthens confidence. In our view, this deal not only validates COFORGE’s large-deal execution capabilities but also reinforces its ability to scale without materially impacting profitability.

* Confident of reaching USD2b by FY27E: Management reiterated its confidence in achieving the USD2b revenue mark before FY27. Growth in FY26 is expected to exceed FY25 levels (which already saw ~31% YoY growth), fueled by transformation-led demand, cross-sell momentum, and continued traction in large managed services deals.

* Margin guidance constructive; room for upside as one-offs normalize: FY25 adjusted EBITDA margin stood at 18%, impacted by one-off M&A costs (Cigniti integration, Rhythmos acquisition, and AdvantageGo divestment). Most of these headwinds are now behind. We expect its EBITDA margin to expand 100-120bp over the next 12–18 months, with management guiding for ~18% EBITDA margin by FY27. COFORGE expects the reported EBIT margin to expand materially in FY26 and reach 14% by FY27. ESOP costs are also expected to decline ~80bp by 2HFY26, creating additional margin headroom.

* As we mentioned in our earlier reports (dated 4th Apr’25: Liberation Day and Indian IT: Breaking point or turning point? and dated 30th Mar’25: Technology 4Q Preview: Tempered expectations), there is earnings risk for Indian IT services across the board, and prefer bottom-up and margin expansion stories in place of top-down discretionary bets. The previous downcycle showed that mid-tier firms can thrive in cost-focused environments.

* Coforge’s recent deal with Sabre is a strong indicator that mid-tiers now have both the scale and the solution maturity to win cost-saving deals. Among Tier-II players, our top pick is COFORGE. Its strong offerings in BFS should enable it to participate in a demand recovery, and a strong TCV also indicates a robust nearterm growth outlook. We believe COFORGE’s organic business is in great shape and Cigniti could prove to be an effective long-term asset.

Valuation and changes to our estimates

* We broadly maintain our estimates. We believe COFORGE’s strong executable order book and resilient client spending across verticals bode well for its organic business. We value COFORGE at 38x FY27E EPS to arrive at our TP of INR11,000, implying a 47% potential upside. We reaffirm COFORGE as our top pick.

Beat on revenue and margins; deal TCV strong with 5 large deal wins in 4Q

* COFORGE’s revenue grew 3.4% QoQ CC (est. 3.0% CC). Reported USD growth (adj. discontinued operations) was 3.3% QoQ. For FY25, the company’s revenue stood at USD1.5b, up ~31% YoY (15% CC organic).

* Growth was led by the BFS vertical (+11.6% QoQ), followed by TTH, which was up 5.5% QoQ.

* Order intake was USD2.1b. Five large deals were signed during the quarter. The 12-month executable order book rose 47.4% YoY at USD1.5b. It added 10 new logos during the quarter.

* The EBIT margin for COFORGE was 13.2%, above our estimates of 12.9%. For FY25, its EBIT margin stood at ~13%.

* EBITDA rose 14% QoQ/36% YoY to INR5.7b.

* Utilization improved 70bp QoQ to 82.0%. Net employee addition stood at 403, up ~1% QoQ. Attrition dropped 100bp QoQ at 10.9%.

* Adj. PAT stood at INR2.9b (up 25% QoQ/23% YoY). The Cigniti M&A expenses were INR148m compared to 162m in 3QFY25. The PAT miss was on account of one-off M&A expenses (Cigniti, Rhythmos + AdvantageGo divestment expense).

* The Board declared an interim dividend of INR19/share.

Key highlights from the management commentary

* COFORGE enters FY26 with its highest-ever order intake, and the large deal pipeline remains robust. Growth in FY25 has been broad-based across geographies, service lines, and industry verticals.

* The company is focusing heavily on execution discipline and scaling large-deal solutions to gain wallet share. Industry-led engineering is a key strategic pillar.

* Transformation and legacy modernization initiatives will accelerate growth in the coming fiscal year.

* COFORGE remains confident in reaching its USD2b revenue target by or before FY27. The quality of growth remains high, led by large deals and strong deal momentum. Significant cross-sell and upsell opportunities exist in acquired accounts.

* GCC-driven and GCC-led revenue contributes ~10% of total revenue. Several organizations are turning to COFORGE for offshore execution.

* The FY25 deal TCV reached USD3.5b, with USD2.1b booked in 4Q alone. The company added 10 new logos in 4Q and expects the median size of large deals to remain consistent. The Sabre USD1.5b deal has ramped up strongly and will continue over the next three quarters. It is not expected to dilute margins.

* Reported EBITDA margin is expected to approach 18% by FY27. The 4QFY25 EBIT margin was 13.2%; the company aims to raise this to 14% by FY27, with visible improvements in FY26. Reported EBIT will expand materially in FY26.

* It expects material additions in the coming quarters to support deal ramp-ups.

* Recent acquisitions (Rhythmos and ServiceNow capabilities) have margin profiles comparable to COFORGE’s core business.

Valuation and view

* We broadly maintain our estimates. We believe COFORGE’s strong executable order book and resilient client spending across verticals bode well for its organic business. We value the stock at 38x FY27E EPS to arrive at our TP of INR11,000, implying a 47% potential upside. We reaffirm COFORGE as our top pick.

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