July 29: Coforge’s 1QFY27 performance was higher than expected on sales, while operating margins witnessed a marginal miss, according to an analysis by Equirus Securities. The company’s strong order intake, healthy large-deal pipeline, improving margin and free cash flow execution, and faster-than-expected integration of Encora are expected to support robust organic growth in the coming quarters.
US$ revenue in constant currency terms grew 22.3% quarter-on-quarter in 1QFY27, ahead of the estimated 20.4% growth. Excluding the impact of the Encora acquisition, effective May 1, 2026, and exited businesses, organic constant currency growth stood at 5.2% QoQ. Including planned exited businesses, organic constant currency growth was 1.1% QoQ, compared with the estimated flat growth. Growth during the quarter was broad-based across verticals and markets, except for the Others and ROW segment, which declined due to the exit of certain low-margin businesses.
Coforge reported EBITDAM and EBITM, excluding foreign exchange gains/losses, at 20.3% and 16.0%, respectively, compared with 20.6% and 16.6% in the previous quarter and estimates of 20.8% and 16.2%. Organic EBITM, excluding Encora, stood at 16.7%. The company expects to surpass its FY27E consolidated EBITM target of 15.5%, supported by AI-led productivity gains, cost and G&A synergies from the Encora acquisition, and muted supply-side cost pressures, including highly selective wage hikes.
Order intake remained strong, with 1QFY27 order intake at US$691 million, compared with US$648 million in the previous quarter and US$507 million a year earlier. The 12-month executable order intake stood at US$2.23 billion, registering 44% year-on-year growth, largely reflecting the consolidation of Encora. Coforge signed four large deals during the quarter, compared with five in 4QFY26 and 21 during FY26. The company also indicated expectations of a strong 2QFY27, with one of the highest numbers of large deals historically and a healthy deal pipeline. This includes a new business deal announced in July 2026 worth more than US$230 million.
The integration of Encora is progressing faster than expected, with the company pursuing cost and revenue synergies, including opportunities involving large deals from Encora’s client base. The scaled adoption of an AI-led delivery model is also emerging as a key driver of operating performance, with approximately 33% of projects now executed using AI-infused delivery methods. Additionally, 6–7% of sales is now generated through output-based pricing models.
Equirus Securities believes Coforge’s growth prospects remain strong, supported by healthy order intake, a robust large-deal pipeline, improving organic growth visibility, margin expansion and free cash flow execution. The company’s financial estimates have also been updated to factor in 100% consolidation of the Cigniti acquisition, compared with 54% earlier.
Considering the robust organic sales growth outlook, improving margin and free cash flow execution, and reasonable valuations, Equirus Securities maintains its LONG rating on Coforge with a revised September 2027 target price of Rs. 1,930, compared with the earlier June 2027 target of Rs. 1,410. The revised target is based on a target P/E multiple of 25x applied to estimated EPS of Rs. 77.2, compared with the earlier implied target P/E of 20.3x on EPS of Rs. 69.5.
The brokerage continues to factor in a 25–30% discount to Coforge’s three-year and five-year mean P/E multiples, considering ongoing macroeconomic volatility, sizable M&A activity and associated equity dilution, potential pressure on return on equity, and the medium- to long-term risk of AI-led cannibalisation across the technology services industry.
