Coforge Acquires Encora: Comprehensive Analysis of Valuation and Growth Prospects

Based on brokerage API data and public market information (see references below), I will systematically analyze from five dimensions: valuation, growth, synergies, risks, and timeline, and clearly note that both target prices and current prices are denominated in Indian Rupees.

• Transaction structure: All-stock acquisition with an enterprise value of approximately $2.35 billion (≈ ₹21,133 crore) [1,2,3]
• Equity dilution: Approximately 20-21% (estimated based on an exchange price of ₹1,815 per share in some reports) [4,5]
• Consideration: Issue approximately $1.89 billion (≈ ₹1.7 trillion) worth of Coforge shares to Encora shareholders (including Advent International and Warburg Pincus), after which the sellers will collectively hold about 20% of Coforge’s expanded share capital [1]
• Revenue guidance: Combined FY27 revenue is expected to reach around $2.5 billion; of which AI-related segments (engineering/cloud/data) account for about $2 billion (AI engineering: ~$1.25 billion, cloud: ~$500 million, data: ~$250 million) [3,5]
• Profit margin guidance: Combined EBIT margin of approximately 14% (FY27), and the acquisition is expected to drive EPS accretion starting from FY27 [4,5]

• Current share price (2025-12-29): ₹1,686.40 [7]
• Macquarie rating/target price: Outperform/₹6,117 (+263% vs current) [Macquarie-related reports from search results]
• Other brokerages’ target prices (denominated in Rupees, comparable to current price):
  • Jefferies: ₹2,180 (Buy) [search results]
  • Kotak Securities: ₹2,250 (Buy) [search results]
  • DAM Capital: ₹1,880 (Buy) [search results]

For easier comparison, taking the current price of ₹1,686.40 as the base:

• Macquarie (₹6,117): +263%

• Jefferies (₹2,180): +29.3%

• Kotak (₹2,250): +33.4%

• DAM Capital (₹1,880): +11.5%

• Valuation multiples reference:

  • Encora transaction value of ~$2.35 billion corresponds to Encora’s FY26 revenue of ~$600 million, implying a revenue multiple of ~3.9x; Encora’s adjusted EBITDA margin is ~19% (FY26), so if calculated using EBITDA, the valuation is in a relatively high range [2,4,5]
  • Combined EBIT margin guidance is ~14% (FY27), significantly lower than Encora’s standalone EBITDA level, reflecting intangible asset amortization and integration costs [4,5]

Brokerage consensus: Macquarie gives a higher target price, reflecting its optimistic assumptions about long-term AI capability moat and valuation re-rating; other investment banks also maintain Buy ratings but with more conservative target prices, focusing more on execution and dilution pressure in the short term.

• Short-term (FY27-28): Multiple institutions expect EPS dilution of ~5-6% [search results; DAM Capital’s view]
• Mid-term (starting from FY27): Company guidance states the acquisition will drive EPS accretion starting from FY27 (subject to revenue and cost synergy realization) [4,5]

Why “dilution first, then accretion”?

• Equity dilution of ~20-21%, expanding the denominator;
• New intangible asset amortization and financing costs will pull down net profit in the short term;
• As integration progresses and synergies are released ($2 billion in AI-related revenue/14% EBIT margin), profitability will recover and turn to accretion.

1. Revenue side (scale and capability moat):

   • Combined FY27 total revenue: ~$2.5 billion [3,5]
   • AI-related segments (engineering/cloud/data): ~$2 billion, including ~$1.25 billion from AI engineering, ~$500 million from cloud, and ~$250 million from data [3,5]
   • Incremental customers: Expected to increase the number of $10 million-level customers to 45 (significantly higher than original Coforge), enhancing large customer stickiness and per-customer output [4,5]

2. Profit margin and profitability:

   • Combined EBIT margin guidance: ~14% (FY27) [4,5]
   • Encora’s adjusted EBITDA margin: ~19% (FY26), providing potential upside for profitability (note the difference between net profit/EBIT口径 after integration) [2,4,5]

3. Geographic and delivery capabilities:

   • Enhanced nearshore delivery capabilities in Latin America (over 3,100 SMEs), optimizing cost structure and service delivery flexibility [5]
   • Strengthened customer coverage in the U.S. Midwest and West, facilitating incremental business opportunities [3,5]

4. Vertical and skill complementarity:

   • Strengthened HiTech and Healthcare vertical capabilities, combined with Encora’s AI-native engineering/cloud/data capabilities, enhancing premium capability in high-end consulting and project delivery [1,3]

• DCF scenarios (based on historical and analyst forecasts; target prices denominated in Rupees) [brokerage API analysis]:

  • Conservative: ₹5,130.45 (+204.3%)
  • Base: ₹8,207.12 (+386.8%)
  • Optimistic: ₹20,478.37 (+1,114.6%)
  • Probability-weighted: ~₹11,271.98 (+568.6%)

• Relative valuation reference (current market) [7]:

  • P/E (TTM): ~48.23x; P/B:8.18x
  • ROE:15.82%

• Relationship with Macquarie’s target price (₹6,117):

  • Macquarie’s target price (₹6,117) is more conservative compared to the DCF base case (₹8,207.12), reflecting a prudent trade-off between execution risks and market expectations.

• Execution and integration risks:
  • Large cross-border mergers often face challenges in cultural, talent, and system integration. If synergy realization falls short of expectations, the mid-term EPS accretion target may not be achieved.
• Valuation and dilution pressure:
  • The transaction consideration has a not-low valuation multiple (~3.9x revenue), combined with equity dilution of ~20-21%, putting obvious short-term pressure on the share price.
• Macro and demand environment:
  • Current demand environment volatility is increasing, and some institutions have pointed out uncertainties in revenue and order delivery节奏 [search results].
• Profit margin recovery timeline:
  • Although Encora’s EBITDA is ~19%, the combined EBIT guidance is 14% (FY27), so it is necessary to monitor when amortization and one-time costs are fully absorbed.

• Long-term (3-5 years):

  • Three main lines (AI engineering/cloud/data) drive long-term growth, combined with strengthened vertical capabilities, providing upside elasticity for valuation.
  • If integration is successful, EPS will gradually recover and accrete starting from FY27, and valuation is expected to move closer to the premium range of industry growth leaders.

• Short-term (6-12 months):

  • Focus on milestones: Integration progress (customers/projects/systems), AI-related order conversion rate, EBIT recovery path, and cost control.
  • EPS dilution magnitude, capital cost, and exchange share implementation节奏 have significant impacts on the share price.

Macquarie upgraded to Outperform and gave a higher target price (₹6,117) mainly based on high expectations for long-term AI capability moat and revenue/profit growth; many other brokerages also maintain Buy ratings but with more conservative target prices, generally recognizing the strategic positioning and mid-term upside potential.

Investor perspective:

• Short-term: Need to tolerate high valuation multiples and EPS dilution, focusing on integration milestones;
• Long-term: If synergies are realized as expected, Coforge is expected to form differentiated competitiveness in AI/cloud/data fields, supporting both valuation and performance growth.

• [0] Jinling API Data
• [1] The Times of India - “Coforge-Encora deal: IT firm to acquire AI player Encora for $2.35 bn” (https://timesofindia.indiatimes.com/business/india-business/coforge-encora-deal-it-firm-to-acquire-ai-player-encora-for-2-35-bn-pe-investors-to-hold-one-fifth-stake/articleshow/126191092.cms)
• [2] The Economic Times - “Coforge to acquire US-based Encora in $2.35 billion deal” (https://m.economictimes.com/tech/information-tech/coforge-to-acquire-us-based-encora-in-2-35-billion-deal/articleshow/126190011.cms)
• [3] Investing.com - “Coforge to acquire AI-native firm Encora for $2.35 billion” (https://www.investing.com/news/company-news/coforge-to-acquire-ainative-firm-encora-for-235-billion-93CH-4423060)
• [4] Coforge Investor Presentation - December 26, 2025 (PDF) (https://www.coforge.com/hubfs/Intimation-for-Acquistion-26December-25.pdf)
• [5] NDTV Profit - “How Brokerages View Coforge After Landmark Encora Deal” (https://www.ndtvprofit.com/markets/how-brokerages-are-viewing-coforge-after-landmark-encora-deal-check-target-price-buy-sell-share-price)
• [6] NDTV Profit - “Coforge, Titan, Stylam Industries And More On Brokerages’ Radar” (https://www.ndtvprofit.com/markets/stock-picks-today-coforge-titan-stylam-industries-and-more-on-brokerages-radar)
• [7] Jinling API Data - Coforge Company Overview & Real-Time Quote (2025-12-29)
• [8] Multibagg.ai - “Coforge’s $2.35B Encora Buyout: A New AI Services Giant Emerges” (https://www.multibagg.ai/market-pulse/articles/coforge-acquires-encora-ai-deal-cmjofhj3n6bukkx0jwej0qkyh)

Notes:

• Unless otherwise noted, all share prices and target prices are denominated in Rupees for unified comparison.
• Transaction scale and EPS guidance are from company documents and mainstream media; valuation and multiples are simplified calculations based on public guidance—please refer to official announcements for accuracy.
• Macquarie’s Outperform rating and target price information are from public reports and web search results; other brokerages’ target prices are from public market reports.
• DCF analysis is based on historical data and analyst consensus forecasts, with model uncertainties.