Multibagger mid-cap IT stock: Coforge shares are upbeat after the $2.35 billion acquisition of US-based Encora – the biggest acquisition ever made by an Indian IT services company. Brokerages are upbeat on the stock’s future potential despite the near 10% drop in the short-term. According to Jefferies and Motilal Oswal, the Encora acquisition strengthens Coforge’s position in AI-led engineering services and adds scale in the US market.
Motilal Oswal has reaffirmed its Buy rating and set a target price of Rs 2,500 on Coforge, pointing to an upside of about 49% from current levels. Jefferies has also maintained its Buy rating, with a base target of Rs 2,180, which implies nearly 30% upside. Jefferies added that if execution remains strong and revenue growth improves, the stock could move to Rs 2,470, translating into upside of nearly 48%. Both brokerages said the recent fall f is linked to near-term dilution concerns rather than fundamentals.
#1. Coforge: What Jefferies says about size and structure of the deal
Jefferies said the $2.35 billion Encora acquisition is the largest deal ever completed by an Indian IT services firm. Encora is expected to add about $600 million in revenue, which could lift Coforge’s FY27 revenue by around 28%.
The brokerage noted that the deal values Encora at 3.9 times EV to sales and about 20.6 times EV to adjusted EBITDA, both higher than Coforge’s current multiples. Coforge plans to fund the transaction by issuing shares worth about $1.9 billion to Encora’s shareholders at Rs 1,815 per share. It may also raise another $550 million through a QIP to repay Encora’s term loan. Jefferies said the deal is expected to close in about six months.
#2. Motilal Oswal on why Encora fits Coforge’s AI focus
Motilal Oswal said Encora is heavily focused on AI-led engineering services, with about 77% of its revenue coming from this segment. Encora brings more than 3,100 AI and engineering specialists into Coforge and has built proprietary platforms in this space.
The brokerage added that Encora’s delivery model is centred on nearshore locations in Latin America, which helps serve US clients more efficiently. This also strengthens Coforge’s presence in the US West and Midwest, where it previously had limited exposure.
#3. Coforge: What the deal means for Hi-Tech and Healthcare businesses
According to Jefferies, the Encora acquisition will help Coforge scale its Hi-Tech and Healthcare verticals to more than $170 million each. Encora serves 131 clients that generate over $1 million in annual revenue, giving Coforge a stronger base of large accounts.
Jefferies said the number of relationships worth more than $10 million is expected to increase from 34 to 45 after the merger. Management has also guided for margin improvement of up to 200 basis points over time through cost savings and cross-selling opportunities across the combined client base.
#4. Coforge: How earnings and margins could play out
Jefferies said Encora has delivered organic growth of about 7% to 8% in recent years, and total revenue growth of around 11% CAGR. The brokerage said the acquisition would be EPS neutral if Encora grows at about 14% CAGR between FY26 and FY28 and expands EBITDA margins to around 21%.
If growth and margins do not improve, Jefferies estimates that FY28 EPS could see a negative impact of about 7%. On the margin front, the combined entity is expected to operate at an EBIT margin of about 14% even after accounting for amortisation of intangibles.
Motilal Oswal added that Encora’s revenue per employee is about $74,000, higher than Coforge’s roughly $69,000, despite Encora’s heavy use of nearshore centres, which usually have lower billing rates.
#5. Coforge: Valuation and stock performance so far
Jefferies noted that Coforge is currently trading at around 32 times earnings, which is broadly in line with its five-year average valuation. The brokerage said the stock’s recent correction already prices in near-term dilution risks. Despite the recent 10% stock dip, Jefferies believes the long-term re-rating potential far outweighs the temporary integration risks
Coforge shares were muted in intra-day trade today, but over the past five days, the share price has fallen 10.30%. It is down 12.35% over the past month. It declined 13.34% over the past six months. Over a longer period, the stock is still up 206.31% over the past five years.
Coforge shares are upbeat after the $2.35 billion acquisition of US-based Encora – the biggest acquisition ever made by an Indian IT services company. Brokerages are upbeat on the stock’s future potential despite the near 10% drop in the short-term. According to Jefferies and Motilal Oswal, the Encora acquisition strengthens Coforge’s position in AI-led engineering services and adds scale in the US market.
Motilal Oswal has reaffirmed its Buy rating and set a target price of Rs 2,500 on Coforge, pointing to an upside of about 49% from current levels. Jefferies has also maintained its Buy rating, with a base target of Rs 2,180, which implies nearly 30% upside. Jefferies added that if execution remains strong and revenue growth improves, the stock could move to Rs 2,470, translating into upside of nearly 48%. Both brokerages said the recent fall f is linked to near-term dilution concerns rather than fundamentals.
