Motilal Oswal Financial Services has issued a BUY recommendation for Coforge Limited, spotlighting its transformative acquisition of Encora, a US-based AI-led engineering powerhouse. This all-equity deal, valued at an enterprise worth USD2.35 billion, catapults Coforge into a USD2.5 billion revenue behemoth, fortifying its Hi-Tech and Healthcare verticals while promising EPS accretion from inception. With a target price of Rs2,500—implying 49% upside from the current Rs1,673—analysts underscore robust organic growth, superior revenue per employee metrics, and strategic synergies amid vendor consolidation trends. Integration risks persist, yet historical precedents and resilient client spending signal a compelling mid-tier contender in digital transformation.

Coforge's Bold Encora Gambit

Strategic Anchor in AI-Led Engineering. Coforge's acquisition of Encora, boasting USD516 million in FY25 revenue and 9,300 engineers, pivots the firm toward AI-native platforms like Iva, a composable agentic system blending human and AI execution. This bolsters Hi-Tech and Healthcare exposure—each at USD170 million—aligning with enterprise demands for data-cloud convergence. Management envisions scaling these into a USD2 billion engine, leveraging Encora's Fortune 500 ties and LATAM nearshore prowess.

Encora's revenue per employee of USD74,000 eclipses Coforge's USD69,000, outpacing peers like EPAM and Globant despite nearshore emphasis, signaling billing efficiency. The deal, at 4.5x FY25 EV/Sales, mirrors scaled digital engineering valuations, surpassing Altran's 1.2x precedent. Sellers Advent and Warburg roll over stakes, nominating two board seats sans control shift, affirming long-term conviction. Closing eyed in 4-6 months post-approvals.

Transaction Mechanics Decoded

All-Equity Swap with Debt Retirement. Coforge deploys USD1.89 billion in equity via share swap—diluting 21.25% post-issue—while bridging USD550 million Encora debt, potentially via QIP. Proforma FY26 revenue hits USD600 million at 19% adjusted EBITDA, blending to 14% EBIT post-intangible amortization (USD37-38 million annually over 13-14 years). Even at Rs1,815 QIP pricing, EPS accretes immediately.

Financial Fortifications Ahead

Proforma Synergies Propel Growth. Standalone Coforge FY26E revenue surges to Rs164.9 billion (37% YoY), with PAT at Rs15.9 billion; combined FY28 entity yields Rs337.7 billion revenue, 14.4% EBIT margins, and diluted EPS of Rs74. Total shares balloon to 476 million post-dilution, yet RoE climbs to 24.8%. Order book resilience and cross-sell from Cigniti/SLK precedents underpin 27% CAGR through FY28.

Encora adds 11 of 45 clients exceeding USD10 million revenue, with top-10 tenure over a decade. North America revenue leaps 50% to USD1.4 billion, tapping Midwest/West Coast via Silicon Valley roots. Diversified mix—top-five clients under 20%—mirrors Coforge, enabling RFP consolidation bids heretofore elusive.

Valuation Vanguard

32x FY28E EPS Justifies Premium. At Rs2,500 target, Coforge trades 21.3x FY28E EPS, 5.9x P/B, and 11x EV/EBITDA—compressing from current 37.4x/7.8x/18.2x. Dividend yield hits 2.3% at 50% payout. Acquisition excludes synergies, yet GA savings of 1-2% and client mining amplify upside. Peers' 2-1.3x EV/Sales contextualizes the premium for AI-depth.

Investor Roadmap: Support and Targets

Technical Levels for Tactical Entry. Bulls defend Rs1,600 base; breach signals pullback to Rs1,500 (200-DMA). Upside pierces Rs1,800 resistance toward Rs2,100 en route to Rs2,500. Volume surge above 5 million shares confirms momentum. Long-term holders eye Rs2,800 by FY28 on 25%+ CAGR.

Risk-Adjusted Targets. Conservative: Rs2,200 (30% upside, 28x FY27E). Base: Rs2,500 (49%). Optimistic: Rs2,800 (67%, synergies realized). Monitor integration—talent retention, margin trajectory post-amortization. Vendor deals and AI tailwinds mitigate execution perils.
​

Coforge emerges as a mid-cap strong bet, blending organic vigor with inorganic scale. Motilal Oswal's BUY reiterates conviction in its vendor-consolidation niche amid digital upheaval. Investors, position accordingly.