Brokerages Weigh In On Coforges $2.35 Billion Acquisition Of AI-Native Firm Encora

After IT services firm Coforge announced the purchase of US-based tech services firm Encora for an enterprise value of $2.35 billion, a top brokerage firm expected this transaction to enhance exposure to high-growth hi-tech and healthcare segments.

"We expect revenue/EBITDA/PAT CAGR of 21.3%/26.3%/31.0% respectively, (ex-Encora's numbers). At CMP, Coforge trades at 29.5x and 25.8x on FY27E and FY28E, respectively. We value the stock at 33x on FY28E EPS with a PT of Rs. 2,133 and a Buy rating," according to a ShareKhan report.

Acquisition is slightly pricier versus Coforge's valuation. Coforge's FY26E P/S stands at 3.5x. Acquisition strategically strengthens exposure to high-growth Hi-Tech and Healthcare segments, positioning Coforge favorably in AI-intensive engineering services, leveraging Encora's established AI-native platforms and agentic frameworks.

Coforge-Encora Transaction Details

Coforge's board has approved acquisition of Encora, a US-based AI-native digital engineering firm, valued at an enterprise value of $2.35 billion ($1.89 billion equity value and $550 million to be raised via QIP or a bridge loan to retire Encora's loan). The deal is expected to be closed in 4-6 months, subject to regulatory approvals.

Coforge believes that the deal would not be EPS dilutive on a consolidated basis due to Encora's strong margins and the consequent synergies. Encora will hold a 21.25% stake post-issue in Coforge, with the right to nominate two directors on the board. The consideration has been agreed at a share price of Rs 1,815 per share.

The Encora Group's consolidated turnover for FY26E is $600 million with adjusted EBITDA at 19%. 
Consolidated turnover of the target Companies for FY23, FY24 and FY25 is $414 million, $481 million and $516 million, respectively.

Also Read: Coforge Share Price Jumps Over 6% On Impressive Q2 Earnings: Is It Time To Buy, Sell, Or Hold? | Republic World

The combined business is expected to operate at an EBIT margin of 14% post amortization of intangibles that will be created as part of the purchase price allocation for this acquisition.

Acquisition rationale: This centers on bolstering Coforge's AI-driven engineering services capabilities, leveraging Encora's established AI-native platforms and agentic frameworks.

Vertically, the transaction significantly enhances exposure to high-growth hi-tech and healthcare segments, supporting Coforge's strategic focus on engineering-led industries with superior spend visibility and robust AI application potential. Coforge's prior acquisitions (SLK Global and Cigniti) were successfully executed, demonstrating successful integration, effective client mining, and subsequent margin expansion. However, the Encora acquisition differs notably, being primarily a capability-driven transaction rather than client-centric, with meaningful value realization being dependent on execution.

'Buy' Call On Coforge Ltd

"We maintain a 'Buy' rating on Coforge, led by a robust executable order book and resilient client spending across key verticals, supporting solid organic growth traction, it said.

The Encora deal strategically strengthens exposure to the high-growth Hi-Tech and Healthcare segments, positioning Coforge favorably in AI-intensive engineering services. Our current estimates and valuation exclude Encora's financial contribution for now.

The brokerage continues to view "Coforge as a structurally strong mid-tier IT services name, well-placed to benefit from vendor consolidation, cost-optimisation programs, and strong orderbook."

While long-term value creation will hinge on effective integration, management's proven track record in prior acquisitions delivering revenue synergies and margin expansion bolsters our confidence in a successful outcome.

The brokerage note valued "Coforge at 33x on FY28E EPS with a price target (PT) of Rs. 2,133."

Key Risks Ahead For Coforge

Successful value creation from the deal hinges critically on integration execution and synergy realization, leadership retention, margin and cost discipline during the integration phase, as well as the trajectory of post-deal amortization charges and their impact on reported earnings-any slippage in these areas could materially impair long-term returns.

Rupee appreciation and/or adverse cross- currency movements, macro headwinds and a possible recession in the US could moderate the pace of technology spends.

As of 3:23 PM on Tuesday, the share price of Coforge Ltd was 1.58% lower at Rs 1655.85 apiece.

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