ICICI Securities has reaffirmed its BUY recommendation on Coforge Ltd while revising the target price to Rs 1,980, citing the company’s transformative acquisition of Encora as a decisive strategic move into AI-led digital engineering. The all-stock acquisition, valued at approximately Rs 21,000 crore, significantly enhances Coforge’s exposure to AI-native product engineering, cloud modernization, and data platforms. While the near-term outlook carries execution and dilution risks, ICICI Securities believes the transaction materially strengthens Coforge’s long-term earnings quality, geographic reach, and client depth. The investment thesis now hinges on disciplined integration, synergy realization, and the company’s ability to convert AI capability into sustained profitability.

ICICI Securities Maintains BUY Call With Revised Target of Rs 1,980

ICICI Securities has maintained its BUY rating on Coforge Ltd, even as it reduced the target price to Rs 1,980 from Rs 2,230. The revised target implies an upside of about 18% from the current market price of Rs 1,685. The brokerage has applied a conservative valuation multiple of 32x FY28E earnings, down from 34x earlier, reflecting heightened execution risk following the announcement of the Encora acquisition.

The downgrade in valuation multiple does not stem from concerns around strategic fit, but rather from near-term uncertainty around dilution, leverage, and the timing of earnings accretion.

Encora Acquisition Marks a Strategic Shift Toward AI Engineering

• All-stock transaction reshapes Coforge’s growth trajectory.
Coforge has agreed to acquire Encora from Advent International, Warburg Pincus, and other minority shareholders through an all-stock share swap. The enterprise value of the transaction stands at US$2.35 billion, translating to roughly Rs 21,000 crore, with closure expected within four to six months, subject to regulatory and shareholder approvals.

• Equity issuance introduces near-term dilution.
The deal involves the issuance of 9.38 crore equity shares at Rs 1,815.91 per share, resulting in Encora shareholders owning approximately 20–21% of the combined entity. An additional bridge loan or potential QIP of up to US$550 million may be required to retire Encora’s existing debt, creating a temporary capital-raise overhang.

Why Encora Matters: Capability, Not Just Scale

• AI-native engineering DNA strengthens differentiation.
Encora brings a fundamentally different operating model, built around agent-led software engineering and its proprietary AIVA AI platform. This positions Coforge away from traditional labor-arbitrage services and toward AI-driven, high-value engineering workflows.

• Exposure to fast-growing verticals improves revenue mix.
Encora meaningfully expands Coforge’s presence in high-growth Hi-Tech and Healthcare verticals, each already operating at annualized revenue run rates exceeding US$170 million.

• Near-shore LATAM delivery enhances client responsiveness.
With more than 3,100 delivery professionals in Latin America, Encora significantly strengthens Coforge’s near-shore delivery capabilities, particularly for North American clients.

Financial Profile of Encora and Combined Entity

• Strong standalone economics.
Encora is expected to deliver approximately US$600 million in revenue in FY26 with an adjusted EBITDA margin of about 19%. Revenue per employee stands at US$74,000, higher than Coforge’s current US$69,000.

• Combined revenue run rate of US$2.5 billion.
Post-acquisition, the combined entity is expected to operate at a revenue run rate of US$2.5 billion, with management guiding toward a 14% EBIT margin after factoring in intangible amortization.

• EPS accretion guided by FY27.
While management has indicated that the transaction will be EPS-accretive by FY27, ICICI Securities’ conservative estimates point to EPS dilution of 2.9% in FY27E and 1.7% in FY28E, primarily due to integration costs and amortization.

Financial Performance and Forecast Snapshot

ICICI Securities projects a three-year revenue CAGR of over 20% through FY28, driven by organic growth and Encora-led capability expansion.

Balance Sheet Remains Resilient Despite Deal Size

• Debt levels remain negligible.
Coforge continues to operate with minimal debt, providing flexibility to absorb integration-related volatility.

• Strong cash generation supports growth.
Operating cash flows are expected to rise steadily, reaching nearly Rs 2,850 crore by FY28, offering comfort on funding requirements.

• Valuation multiples likely to remain sensitive.
Given the scale of the acquisition, ICICI Securities cautions that valuation multiples may remain under pressure until integration milestones and synergy realization become visible.

Stock Levels and Investment Strategy

• Current Market Price (CMP): Rs 1,685
• Rating: BUY
• Target Price: Rs 1,980
• Upside Potential: ~18%
• Investment Horizon: 12 months

Key Technical Levels:

Immediate support: Rs 1,600

Strong accumulation zone: Rs 1,520–1,550

Near-term resistance: Rs 1,780

Breakout confirmation: Above Rs 1,820

Medium-term investor target: Rs 1,980

ICICI Securities recommends accumulating the stock on declines, particularly during broader technology-sector volatility.

Key Risks That Could Alter the Thesis

• Integration and execution risk.
Given the leadership- and capability-centric nature of Encora, talent retention and cultural alignment remain critical.

• Delayed synergy realization.
Failure to monetize AI platforms or cross-sell effectively could impact margin expansion.

• Capital-raise overhang.
A potential QIP to refinance Encora’s debt could weigh on near-term sentiment.

Bottomline: A Bold Bet With Execution as the Deciding Factor

Coforge’s acquisition of Encora represents one of the most ambitious bets by an Indian mid-tier IT services firm on AI-native engineering. The strategic logic is compelling: deeper client relationships, differentiated capabilities, and a platform-led future. However, the size and complexity of the transaction elevate execution risk in the near term. ICICI Securities’ BUY call reflects confidence in Coforge’s long-term transformation, while its revised target price underscores the need for patience as the integration story unfolds. For investors willing to look beyond short-term volatility, Coforge offers a rare opportunity to participate in the next phase of AI-driven digital services evolution.