Large deal wins, execution to drive outperformance for Coforge in FY26

The stock of midcap information technology (IT) major Coforge has been one of the star performers in the IT pack, gaining 18 per cent in the past month and 70 per cent over the year. Given the strong show in the fourth quarter (January-March) of financial year 2024-25 (Q4FY25), where it outdid expectations, a robust deal intake, and strong execution, brokerages expect it to turn in another industry-beating growth performance in FY26. Some brokerages have also upgraded the stock, given the revenue growth projections and the 21 per cent correction since the start of the calendar year to date (CYTD).

 

The near-term trigger for the stock is the Q4 performance. Aided by the rampup of large deal wins, and led by BFSI (banking, financial services, and insurance), travel, and overseas government verticals, the company reported a 3.4 per cent constant-currency revenue growth on a sequential basis. While BFSI saw a 13.2 per cent dollar revenue growth, travel and overseas government revenues registered a growth of 7.5 per cent and 8.5 per cent, respectively. Among geographical segments, rest of the world (ROW) market led on the growth front, rising 35.9 per cent quarter-on-quarter (Q-o-Q).

 

Strong deal wins in the March quarter bolstered the overall contract value for FY25. While overall FY25 order flow stood at $3.4 billion, up 75 per cent year-on-year (Y-o-Y), about $2.1 billion came in Q4 alone. The gains in the quarter were led by the mega Sabre deal worth $1.5 billion to be executed over 13 years. 

 

The company, which ended FY25 with revenues of just under $1.5 billion, maintained its $2 billion revenue target for FY27. Its growth in the medium term is likely to be broad-based, similar to its historical performance. The 12-month executable order book at $1.5 billion is also up 47 per cent — part of it contributed by the Cigniti acquisition.

 

Lower employee stock options (Esop) and operating leverage helped the company post an adjusted operating profit margin of 18.7 per cent, up 110 basis points (bps) Q-o-Q. Margins at the earnings before interest and taxes (Ebit) was at 13.2 per cent, and was higher than analyst estimates. A large portion of the margin gains, according to BOB Capital Markets, has come from better gross margins than expected. Some of it has come from lower-than-expected selling and general administration, and Esop costs. The company is eyeing an Ebit margin of 14 per cent in FY26.

 

Abhishek Kumar and Nandan Arekal of JM Financial Research say: “The management’s view that FY26 exit Ebit margins can expand to 14 per cent (from 13.2 per cent currently) means growth is not coming at the expense of profitability, especially from the Sabre deal. We, however, suspect it could come at a higher finance cost, as factoring/credit insurance of receivables of a B-/B3 rated Sabre could be higher.” The brokerage has a “Buy” rating, with a target price of ₹10,000.

 

Given the order book and execution, most brokerages believe that the company will maintain its growth momentum in FY26. Kotak Research forecasts a strong 20.8 per cent organic revenue growth in constant-currency terms in FY26 as compared to 16.4 per cent growth in FY25. This, according to analysts led by Kawaljeet Saluja of the brokerage, will come on the back of a strong broad-based growth momentum across geographies, verticals and services, healthy increase in 12-month order backlog, strong deal win trajectory and pipeline, and revenue synergies from Cigniti through cross-selling of Coforge’s services to Cigniti’s large accounts. The brokerage has a “Buy” rating with a target or fair value of ₹9,000.

 

While Emkay Research has an unchanged target price of ₹8,200, it has upgraded the stock to “Add” from “Reduce”, given stock price correction, continued revenue growth momentum supported by deal intake and pipeline, and strong execution.