Coforge’s recent announcement to acquire a majority stake in Cigniti Technologies is expected to bolster its North American revenues by 33%, marking a significant expansion in one of the company’s key geographical markets, Sudhir Singh, CEO of Coforge told FE. Currently, revenue from North America contributes to 34% of Coforge’s total topline.
Coforge on Thursday said it will acquire up to 54% stake or up to 7.162 million equity shares in Cigniti Technologies at Rs 1,415 per share and believes that acquisition will help it grow to a $2 billion company by FY27 and improve its operating margins by 150-200 bps by FY27.
“What we propose to do is to try to close a QIP within a month itself, we will move with speed to get operating control as soon as we can,” he added.
Singh identified three critical benefits from the acquisition. Firstly, it introduces three new verticals which significantly expand Coforge’s service portfolio. “Going forward, the merged entity will have around $100 million retail vertical, and two verticals in healthcare and hi-tech that will be operating at about $50 million plus,” he said.
Secondly, the acquisition expands Coforge’s geographical footprint across North America, particularly in the West, Southwest, and Midwest regions. “The client footprint across the west, southwest and the Midwest US… our North America revenues, jumped by almost 33% as soon as the merger and the acquisition is consummated,” he added.
The third benefit is enhancing Coforge’s capabilities in AI assurance, aligning with the company’s strategic emphasis on AI-first initiatives. “And being an AI-first firm that we’re talking about… Areas like model validation, model performance testing, output validation, to prevent AI hallucination are becoming increasingly important,” Singh noted, highlighting Cigniti’s expertise in these areas.
Shares of Coforge, however, fell 10% on Friday as many brokerage houses slashed their target price on the stock citing that the acquisition of Cigniti adds another layer of execution risk and raised concerns on guidance.
Singh said the company’s robust order intake and the future revenue projections promise continued growth. “Our order executable at the start of FY25 is significantly higher than last year, and this should translate into sustained revenue growth. We are starting in FY25 with an order executable, that is 17.3% higher. We’ve also on the margin front, given a hard guidance for the year, we’ve said our margins will expand 50 bps.”
The company’s order book in financial year 2024 rose 17.3% on year to $ 1,019 million.
In terms of client management, Singh emphasized a strategic shift towards more selective engagement. “We are not walking away from clients who we’ve signed, but we’re being more choosy about who’s going to be joining the club going forward… we will not sign new logos unless they can scale up to being $10 million relationships within two to three years,” he said.
The company’s new client addition in FY24 fell to 29 against 44 in FY23 across its portfolio geographies-Americas, EMEA, and the rest of the world.
Additionally, the firm has formally introduced Gen AI as its 10th service line, marking a significant step in embedding advanced AI capabilities across its operations. “AI is now a service line, a service line where the P&L gets measured,” he said.