Coforge AI-led services and Encora synergies strengthen growth and margin visibility

Investment View and Valuation

Choice Equity Broking’s July 28, 2026 Q1 FY27 result update on Coforge Ltd. retains a BUY rating and raises the target price to Rs 2,050, valuing the stock at 28 times FY28E EPS. The positive view is based on resilient execution, accelerating AI-led demand, a record executable order book, large-deal momentum and faster-than-expected Encora integration synergies.

Choice expects deal ramp-ups, AI monetisation and cost synergies to sustain earnings growth and margin expansion despite a challenging macro environment.

Q1 FY27 Financial Performance

Coforge reported Q1 FY27 consolidated revenue of USD 592.2 million, up 21.1 per cent quarter-on-quarter and 33.9 per cent year-on-year, versus Choice Institutional Equities’ estimate of USD 586.2 million. Revenue in rupee terms was Rs 55,277 million, up 24.2 per cent quarter-on-quarter and 49.9 per cent year-on-year, modestly ahead of the broker’s Rs 55,103 million estimate, aided by the Encora acquisition. Encora contributed USD 100.7 million during two months of consolidation.

Organic constant-currency revenue growth was 1.1 per cent quarter-on-quarter, or 5.2 per cent excluding the exited Government and Data Center businesses.

Q1 FY27 EBIT was Rs 8,823 million, 11.9 per cent above Choice’s forecast. EBIT margin was down 60 basis points quarter-on-quarter but increased 452 basis points year-on-year and was 166 basis points ahead of the broker’s estimate. PAT declined quarter-on-quarter but rose year-on-year, missing the estimate because of one-time acquisition costs.

The quarter included USD 40 million of intangible amortisation and USD 6.5 million of one-off acquisition costs. Management expects minimal integration expense in Q2 and none thereafter.

Demand, Order Book and AI-Led Growth

Underlying demand was broad based, with Healthcare and Hi-tech growing 11.6 per cent quarter-on-quarter, Insurance 4.6 per cent, BFS 2.9 per cent and Travel 1.7 per cent.

Fresh organic order intake was USD 691 million, while the executable 12-month order book reached a record USD 2.23 billion, up 44.2 per cent year-on-year. Management indicated that Q2 should be another robust growth quarter, with recently signed large deals expected to ramp more meaningfully from Q3.

AI-led engineering, cloud and data services accounted for 86 per cent of revenue. Coforge is expanding its Neuron enterprise AI platform and had invested USD 58 million in AI during FY26, supported by more than 11,000 AI and data professionals. Product Engineering represented 50.4 per cent of Q1 FY27 service revenue.

Encora Integration and Synergies

Encora integration is central to the investment thesis. Management completed day-one integration and migrated all 45 legal entities to SAP S/4HANA within a week.

The acquired business generated USD 100.2 million of revenue in its first two consolidated months, with an EBITDA margin of 20.3 per cent and an EBIT margin of 19.1 per cent. Its SG&A ratio declined from 10.0 per cent to 6.6 per cent, while 40 per cent of G&A costs had already been eliminated.

Management said the acquisition remains EPS-accretive in FY27 despite higher interest expense and equity dilution. Coforge financed the acquisition with a USD 550 million, three-year fixed-rate term loan at 4.6 per cent interest, or 2.99 per cent post tax, with repayments through Q1 FY30.

Margin Guidance and Forecasts

Management reiterated confidence in exceeding a 15.5 per cent consolidated FY27 EBIT margin and maintained FY27 EBITDA-margin guidance of 20.5-21.0 per cent.

Following the quarter, the broker reduced FY27E and FY28E revenue estimates by 4.0 per cent and 2.3 per cent, respectively. However, it raised FY28E EBIT by 7.3 per cent and FY28E EPS by 8.2 per cent on stronger margin assumptions.

Key Risks and Considerations

• Planned portfolio exits could affect growth.
• One-off acquisition costs and higher interest costs could weigh on earnings.
• Equity dilution remains a consideration following the Encora acquisition.
• The investment thesis depends on executing deal ramp-ups and achieving Encora synergies as expected.