Coforge shares rise 8.4% on record deal, acquisition, stock split

This report has been updated.    Shares of Coforge rose as much as 11.1 per cent in intraday trading on the BSE on Wednesday, helped by its record $1.56 billion deal with US travel and technology company Sabre.  "Coforge is on an upward trend in the industry, winning several impressive engagements in recent months and showing real appetite to take on business, versus some of its competitors.  Many enterprise clients are preferring to work with midsize providers who are willing to go the extra mile for them," Phil Fersht, CEO of HfS Research, said.

 

The intraday rise, one of the highest for the mid-tier IT services company, came on a day when the broader BSE Information Technology index also rose 2 per cent. Coforge shares opened at ₹7,474 in the morning, touched a high of ₹8,007.35, before paring gains and closing at ₹7,811 per share, up 8.4 per cent. The shares have, however, fallen 19.2 per cent this year.

 

"Coforge has a longstanding relationship with Sabre and was already one of their largest providers. Hence, this is a consolidation and continuation of their relationship. It is also part of the vendor consolidation trend we are seeing in the industry," said Peter Bendor-Samuel, chief executive of Everest Group.

 

The deal, which spans 13 years, is expected to bring in $120 million annually from the next financial year and bolster the company's position in the travel vertical. It is also bigger than the company's revenue of $1.05 billion for FY24.

 

Bendor-Samuel said the deal provides a fillip for other mid-size firms to capture large or mega deals as they are deemed large enough to deliver and have longstanding relationships built on trust and performance.

 

"This does not change the narrative of the shrinking deal sizes, which is driven by uncertainty around AI and its impact. However, it does show that the vendor consolidation movement, which has been under way for the last two years, has not completely run its course," Bendor-Samuel said.

 

Sumit Pokharna, vice president Kotak Securities, said the deal showed Coforge's growing sales prowess in the travel tourism and hospitality (TTH) vertical, which has rebounded sharply after years of slump due to the pandemic.

 

"The deal will immediately add 8-10 per cent revenue growth for the next financial year, though as for most mega deals, it will be margin dilutive. We expect a margin reduction of about 50 basis points to 13 per cent for FY26," he told Business Standard.

 

Coforge has also announced two acquisitions. It will buy Rythmos, a US cloud engineering company, for $30 million and TM Labs Pty, an Australian company, for about $13 million.

 

The company has also approved a stock split, the first in its history, where shares of ₹10 face value will be split into five shares of ₹2 each.