Buy Coforge; target of Rs 2370: Motilal Oswal

Moneycontrol • 6 days ago

Original source

Key Investment Pillars

  • Deal momentum remains strong, supporting growth visibility: Coforge reported a record quarterly order intake of USD1,040m, up 102% YoY, with eight large deal wins.
  • Encora integration nearing completion; growth expected to accelerate in 2HFY27: Encora's growth is expected to mirror Coforge's from 3QFY27, as integration is complete and both businesses now operate as a single unit.
  • Margin trajectory improving, with further expansion levers: Margin gains have so far been supported by G&A efficiency, with further improvement expected from AI-led efficiency and high utilization.
  • Organic growth led by BFSI and government; healthcare and high-tech decline: Organic QoQ CC revenue growth was led by government outside India, BFSI, insurance, emerging verticals, and travel, transportation, and hospitality.

Thesis Validation Checklist

  • Watch for deal wins and growth acceleration in 2HFY27: Eight or more large deals are expected in 3QFY27, potentially surpassing the 2Q record.
  • Monitor margin expansion and cash conversion: Consolidated EBIT margin is expected to remain at or above 17% in FY28, with a steady-state tax rate of 23-24%.
  • Track client outcomes and AI adoption: Coforge expects to be the industry growth leader for the third consecutive year in FY27, with a strong demand outlook and improving cash conversion.