Buy Coforge Ltd for the Target Rs. 3,000 by Motilal Oswal Financial Services Ltd
* We attended Coforge’s Investor Day 2025 wherein the management discussions were largely centered on strategic objectives, growth vectors and execution intensity. Key takeaways: Growth drivers are clearly articulated around four pillars: 1) Big bets on AI-led engineering, Data and ServiceNow, with geographies such as North America West, Midwest and ANZ still underpenetrated; 2) Focus on structuring large contracts through proactive deals rather than RFP-driven deals, with a target of ~20 large deals this year (10 done so far); 3) Scaling up key accounts by deepening relationships with existing Fortune 2000 clients; and 4) Acquisitions focused not on capabilities but on client base access with capabilities to be created internally.
* We believe Coforge’s strong executable order book and resilient client spending across verticals bode well for its organic business. Cross-selling opportunities in Cigniti remain highly synergistic for the company. We continue to view Coforge as a structurally strong mid-tier player wellplaced to benefit from vendor consolidation/cost-takeout deals and digital transformation. We value Coforge at 38x FY28E EPS with a TP of INR3,000, implying a 54% potential upside. Reiterate BUY.
BFS and TTH: Core verticals expected to drive growth
* We believe Coforge’s BFS vertical has transitioned from a niche franchise to a scaled growth engine (Exhibit 1). Banking is seeing positive trends driven by lower interest rates and evolving regulatory requirements. Financial services demand is supported by shifts toward T+0 settlements, regulatory changes, and payments modernization.
* Management highlighted rising budget allocation toward compliance and risk management, led by tightening regulations. We believe this provides Coforge with a resilient, non-discretionary revenue stream.
* AI is emerging as an embedded enabler across BFS transformation in the early adoption phase, rather than as a standalone service line. We believe AI-led legacy modernization and cloud transformation are accelerating enterprise-wide automation.
* Travel is one of the strategic verticals for Coforge, contributing ~23% of revenue. The company has built deep domain expertise and hyperspecialization in this segment.
* A pivot point is emerging in global travel technology, with airlines expected to invest ~USD50b in modernization over the next decade, including USD1–2b per large network carrier. In parallel, modern airline retailing represents a USD40b+ annual value pool.
* Coforge plans to gain market share in this big opportunity. Aeronova.AI, its CoE for modern airline retailing, boosts its competitive positioning.
* We believe Coforge seems to be striking the right chords. Its strong offerings in BFS as well as TTH positions it well to capture the demand.
North America: Targeting underpenetrated West Coast and Midwest
* North America, Coforge’s most important market (~60% of revenue), remains underpenetrated compared to peers (peers at 75-80% penetration). Growth continues to be led by BFS and TTH, while the next focus areas will be to grow its presence in HLS and West and Midwest regions.
* HLS offers a meaningful opportunity, supported by rising healthcare IT spends. Anti-incumbency is visible, with customers dissatisfied with long, costly pilot cycles. Coforge won one of the clients as a result of anti-incumbency with its Quasar Document AI platform.
* Coforge is targeting four sub-verticals, 1) Payers, 2) Med-tech, 3) Life –sciences, and 4) Providers. Payers represent the largest addressable segment, with strong demand for reducing technical debt and consolidating legacy platforms.
* Historically, BFS, Insurance and TTH focused Eastern and Southern America for Coforge. The company only works with 16 out of 216 Fortune 1000 companies headquartered in West Coast, indicating room for expansion. Coforge is correcting its concentration as it plans to grow presence in West and Midwest regions (~30% of Americas revenue). Its focus verticals would be Hi-tech, Retail and CPG and Manufacturing in West Coast and Midwest regions.
AI: Shift from experiment technology to business use on the horizon
* We expect enterprise focus to shift from experimentation to execution as management teams push for measurable outcomes from AI investments.
* Coforge Management believes the main gap is not data availability but AI fluency - the ability to apply AI with clear business context. Customers continue to view AI as a technology tool, while Coforge is positioning it as a business-led transformation supported by domain teams and its AI CoE.
* Coforge is investing across Quasar AI Studio, Quasar AgentSphere, Quasar Marketplace and Trust to support build, deploy and governance of AI solutions.
* We expect increased focus on faster value delivery and changing commercial structures, with a gradual shift from digital FTE models to outcome-based pricing for AI-led programs.
Margins could be range-bound in short term
* Management has guided for margins to be stable at 14%, though we believe that in the current demand environment, margins could be at risk. That said, we still expect a notable improvement YoY in FY26, with margins likely to land fairly close to management’s target. We estimate FY26 EBIT margin at 13.8% (vs. the company’s guidance of 14%).
Valuation and view
* We expect Coforge to be the growth leader in our coverage universe and reiterate it as our top pick. We believe Coforge’s strong executable order book and resilient client spending across verticals bode well for its organic business. Cigniti may prove to be an effective long-term asset. We value Coforge at 38x FY28E EPS with a TP of INR3,000, implying a 54% upside potential. We reiterate our BUY rating on the stock.
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