Kotak Institutional Equities has issued a BUY call on Coforge Ltd., an IT services company, with a revised fair value target of Rs 2,100 per share, up from Rs 1,800, reflecting confidence in the company’s accelerating growth trajectory and margin expansion prospects through FY2026-28E. The research highlights Coforge’s differentiated solution-driven approach, strategic investments in verticals and geographies, and robust deal pipeline as key drivers for sustained industry-leading performance.

Summary: Coforge Positioned for Strong Growth and Margin Expansion

Coforge is on a compelling growth path, underpinned by a proactive, solution-oriented business model and strategic investments in high-potential verticals such as healthcare and public services. The company’s management expresses confidence in achieving industry-leading revenue growth of 22.6% in FY2026E and margin expansion to 13-14%. Kotak Institutional Equities has raised revenue and earnings estimates by 2-3% and 4-10%, respectively, and values the stock at 35 times June 2027 estimated EPS. Key catalysts include a bulging pipeline of proactive large deals, AI integration as a business transformation lever, and disciplined M&A execution. Investors should consider Coforge a BUY with an upside target of Rs2,100 from the current market price of Rs1,888.

1. Accelerating Revenue Growth and Elevated Earnings Trajectory

Coforge has demonstrated a robust 15% constant-currency organic revenue CAGR over eight years, with acceleration to 19% in the last four years. The company aims to sustain this elevated growth momentum, supported by deep vertical expertise and broad service offerings. Kotak forecasts a 22.6% organic constant-currency revenue growth for FY2026E, with revenue rising to Rs163 billion and net profits reaching Rs16 billion. Earnings per share (EPS) are projected to grow sharply from Rs29 in 2025 to Rs55.5 in 2027, reflecting operational leverage and margin improvement.

2. Differentiated Solution-Driven Business Model

Unlike traditional IT service providers, Coforge’s solution teams comprise business experts with consulting backgrounds embedded at client sites. This enables iterative workshops to understand client challenges and craft tailored solutions proactively, rather than waiting for formal requests for proposals (RFPs). This approach has resulted in a bulging pipeline of proactive large deals, which management tracks as a dynamic metric beyond conventional total contract value (TCV) or order book figures. This client-centric, consultative model is a core competitive advantage driving Coforge’s large deal wins and sustained growth.

3. Strategic Focus on Growth Verticals and Geographic Expansion

Coforge’s growth engine is fueled by investments in three key areas:

Geographic Expansion: Targeting the US West Coast, Australia, and rapidly growing ASEAN markets.

Vertical Deepening: Significant bets on life sciences and payers within healthcare, and expansion in public services in the US and UK.

Partnership Ecosystem: Strengthening alliances with established partners like DuckCreek and Pega, while cultivating emerging partnerships with ServiceNow, Nvidia, Zscaler, and HP.

These initiatives are designed to propel Coforge beyond the US$2 billion revenue milestone and sustain long-term growth.

4. Margin Expansion Drivers and Operational Efficiency

Management targets a GAAP EBIT margin of 14% by FY2027E, with a strong possibility of achieving this in FY2026E. Key margin tailwinds include:

Divestment of the loss-making AdvantageGo business, improving margins by 40-50 basis points.

Amortization expenses growing slower than revenues, providing a 20-30 basis point tailwind.

Operating leverage from strong revenue growth.

Normalization of employee stock option plan (ESOP) costs from 180 bps to 90-100 bps in 2HFY26.

Delayed wage increases effective October 1, providing additional margin support.

These factors collectively enable margin expansion without aggressive cost-cutting, preserving growth investments.

5. M&A Strategy: Focused Integration and Value Creation

Coforge pursues two types of acquisitions:

Competency Acquisitions: Small-sized deals to augment capabilities, such as ServiceNow assets.

Scale Acquisitions: Targets with strong client relationships but operational inefficiencies, where Coforge applies its proven integration playbook.

The integration approach is hands-on, with immediate operational control and selective retention of high performers. This strategy has delivered excellent internal rates of return (IRRs) and is expected to continue supporting growth. The recent acquisition of Cigniti exemplifies this, contributing to expanded EBITDA margins in the 17-18% range and enabling large deal wins with top clients.

6. AI as a Business Transformation Catalyst

Coforge distinguishes itself by embedding AI not merely as a cost-efficiency tool but as a core element in business model transformation. The company addresses the AI fluency gap among clients by co-ideating solutions through collaborative workshops. AI is integrated by design in most large deals, enabling new revenue streams and shifting the narrative from AI as a deflationary force to a growth enabler. This proactive AI strategy positions Coforge favorably in the evolving technology landscape.

7. Vertical Highlights: Travel Sector Resilience

Despite macroeconomic headwinds, Coforge’s travel vertical is poised for robust growth. In airports, the shift towards retail sales driven by digital experience solutions creates new revenue opportunities. Airlines are adopting IATA’s ‘One Order and One Offer’ standards, requiring complex booking system overhauls akin to ERP implementations—an area where Coforge’s expertise provides a competitive edge. This vertical’s structural tailwinds underpin Coforge’s diversified growth profile.

8. Key Financial and Valuation Metrics

The stock currently trades at Rs1,888 with a fair value of Rs2,100, implying a 12-month upside of approximately 11%. The valuation is based on a 35X multiple of June 2027 estimated EPS, reflecting confidence in sustained earnings growth and margin expansion.

9. Investment Outlook and Risk Considerations

Kotak Institutional Equities maintains a BUY rating on Coforge, citing:

Strong organic growth prospects driven by a differentiated business model.

Margin expansion supported by operational efficiencies and cost normalization.

Strategic acquisitions and partnerships enhancing capabilities and client reach.

AI integration as a growth catalyst rather than just a cost saver.

Investors should monitor execution risks related to large deal conversions, competitive pressures in IT services, and macroeconomic factors impacting client spending. However, Coforge’s proactive deal pipeline and diversified verticals mitigate some of these risks.

Bottomline for Investors: Coforge as a Compelling Growth Story in IT Services

Coforge stands out as a well-managed IT services firm with a clear strategy to sustain elevated growth and profitability. Its solution-driven approach, strategic vertical focus, and disciplined M&A integration provide a robust foundation for long-term value creation. With a BUY recommendation and a target price of Rs2,100, the stock offers investors an attractive risk-reward profile in the evolving digital services landscape.