Coforge gains deal visibility as Encora synergies lift margins and cash conversion

Investment View and Valuation

Motilal Oswal Financial Services retained its Buy rating on Coforge in its July 28, 2026 result update and described the company as its top pick. The positive view is based on strong large-deal wins, broadening growth across verticals, execution on the Encora integration, improving cash conversion and potential for further margin expansion. Motilal Oswal expects Coforge to be the growth leader within its coverage universe.

The broker values Coforge at 29 times FY28E EPS, increased from 26 times, and sets a target price of Rs 2,200, implying 31 per cent potential upside from the CMP of Rs 1,686.

1QFY27 Financial Performance

Coforge reported consolidated revenue of USD 592.2 million in 1QFY27, up 21.1 per cent quarter on quarter and 33.3 per cent year on year in USD terms. The results include two months of Encora following its consolidation from May 1, 2026.

Organic constant-currency revenue growth was 1.1 per cent quarter on quarter, ahead of Motilal Oswal’s expectation of flat growth. After adjusting for the planned discontinuation of a USD 15 million low-margin India Government portfolio and the USD 4 million impact from the data-centre asset divestment, underlying organic growth was 5.2 per cent quarter on quarter.

Large Deals and Revenue Visibility

Order intake was USD 691 million in 1QFY27, up 36.3 per cent year on year, with four large deals signed. The next-12-month executable order book reached an all-time high of USD 2.23 billion, up 44 per cent year on year.

Management expects 2QFY27 large-deal signings to approach full-year FY24 levels. A USD 230 million-plus, five-year AI-led transformation deal with a European client was announced after quarter-end, with ramp-up already underway through 20-30 delivery teams.

Motilal Oswal expects most large deals closed in 2QFY27 to contribute materially from 3QFY27. It sees the order book supporting revenue visibility for the next 14-16 months.

Profitability and Operating Metrics

Profitability was ahead of expectations. Consolidated EBIT margin was 16.0 per cent, above consensus of 15.6 per cent and management’s FY27 consolidated EBIT-margin guidance of at least 15.5 per cent. Standalone EBIT margin was 16.7 per cent.

Consolidated adjusted PAT was Rs 5.6 billion, down 14.4 per cent quarter on quarter but up 83.2 per cent year on year, compared with consensus of Rs 5.4 billion. Motilal Oswal’s Rs 5.1 billion PAT estimate covered only the organic business and was not directly comparable because reported results include Encora and a higher post-acquisition share count.

Utilisation was stable at 82.5 per cent. Net headcount rose by 10,451, primarily because of Encora, while attrition declined 40 basis points quarter on quarter to 10.4 per cent.

Encora Integration and Margin Outlook

Management said the Encora integration is progressing faster than planned. Encora delivered a 20.3 per cent EBITDA margin and a 19.1 per cent EBIT margin in its first quarter under Coforge.

Combined G&A was reduced to 6.6 per cent of revenue, implying an approximately 40 per cent reduction in Encora’s pre-acquisition G&A cost base. Further benefits are expected from 2QFY27.

Motilal Oswal consequently builds a 16.1 per cent EBIT margin for FY27E and FY28E. Management reaffirmed FY27 consolidated EBITDA-margin guidance of 20.5-21.0 per cent and EBIT-margin guidance of at least 15.5 per cent, while targeting an outcome above these levels.

Cash Flow and Factors to Monitor

Free cash flow was USD 52.9 million, equivalent to 95.3 per cent of PAT, a substantial improvement from negative 56.5 per cent in 1QFY26. Management reiterated its FY27 target of more than 100 per cent FCF-to-PAT conversion.

Motilal Oswal considers the improvement in cash flow potentially structural but wants to see it sustained over subsequent quarters. Key factors to monitor include:

• Delivery and integration execution.
• The remaining hedge mark-to-market loss, which is expected to unwind over the next two quarters.
• Acquisition-related interest costs.
• Repayment of the fully drawn USD 550 million term loan.
• Amortisation of customer-relationship intangibles from Encora at roughly USD 40 million annually over 12 years.

AI Strategy and Contract Mix

Management believes Coforge’s AI differentiation will arise from applying business context, processes and risk expertise rather than from model ownership. The company is using its Neuron platform, forward-deployed engineers and hybrid agent-human Mod Squads to move towards outcome-based engagements.

Outcome-based and subscription contracts represent 6-7 per cent of global revenue run-rate.