Coforge (COFORGE IN) – Q2FY27 Result Update – Stealing wallet share, moving from cost to value play – BUY

Coforge reported a largely in-line Q2FY27 performance, with record deal wins and an improved margin outlook. Revenue grew 10.9% QoQ CC, including organic growth of 3.8%, broadly in line with our estimates of 11.3% and 3.6%, respectively, while EBIT margin at 16.0% was marginally ahead of our 15.8% estimate. Deal momentum remained robust, with eight large deal wins (the highest ever in a quarter) and order intake exceeding US$1bn, taking the 12-month executable order book to US$2.38bn (+45% YoY). Management expects to sign eight or more large deals in Q3, while 20%+ YoY growth in the top 10 and top 20 accounts reinforces growth visibility. Encora’s revenue performance was flat QoQ in Q2, while integration continues to progress well, with margin synergies ahead of plan and revenue growth expected to mirror Coforge’s from Q3 onwards. On margins, management raised FY27E EBIT margin guidance to 16% from 15.5%, targets 17% in Q4FY27 and aspires to position Coforge among the top three margin leaders in the industry. The margin expansion is expected to be supported by AI-led productivity in fixed-price contracts, further G&A efficiencies, utilization improvement (currently at 82.4%) and operating leverage. With AI deployed across 520+ engagements and 260+ agents in live operations, increasing AI-led efficiencies provide further scope for margin expansion beyond FY27. Accordingly, we largely maintain our FY27E/FY28E/FY29E CC revenue estimates while raising EBIT margin estimates to 16.0%/16.5%/17.0%, respectively, from 15.5%/15.6%/15.7% earlier, factoring in management’s stronger margin confidence and the potential for sustained operating leverage. We raise our valuation multiple to 27x (from 26x) Sept.28E EPS, implying a revised target price of INR 2,300 (from INR 2,230). We maintain our BUY rating.