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    Coforge

    COFORGE
    Information Technology·24 Jul 2025
    Management Summary

    Coforge delivered an exceptional Q1 FY26, marked by 9.6% sequential dollar growth and robust order intake of $507 million, pushing the executable order book to a record $1.55 billion. Despite significant investments in an AI data center and one-time expenses, EBIT margins were maintained at 13.2%. The company remains confident in achieving 14% EBIT in FY26, driven by strong execution, hyper-specialization, and deep engineering capabilities.

    Highlights

    5
    • Q1 FY26 recorded 9.6% sequential dollar growth, setting a strong foundation for the fiscal year.

    • EBIT margin maintained at 13.2% despite significant ramp-up costs for a large deal and one-time expenses.

    • Total order intake for Q1 was $507 million, including five large deals, demonstrating strong sales execution.

    • Executable order book for the next 12 months reached a record $1.55 billion, a 46.9% increase YoY.

    • Last 12-month attrition rate fell to 11.3%, indicating strong talent retention and a stable workforce.

    Concerns

    3
    • BFS vertical saw a marginal sequential decline of 1.1% QoQ in dollar terms, though YoY growth remains strong at 32%.

    • EBIT margin remained flat due to higher amortization from recent acquisitions, increased depreciation from the AI-powered data center deal, and one-time bonus provision of $5.5 million.

    • FCF was negative in Q1 due to significant capex incurred for the AI data center deal ($65 million, with $58 million allocated to it).

    Key financials

    Metrics

    7

    Periods

    2

    Headline

    6
    • Revenue
      442.4 Mn
      QoQ+9.6%
    • Revenue (CC)
      YoY+51.5%QoQ+8%
    • EBIT Margin
      13.2%
    • EBIT
      58.3 Mn
      QoQ+9.2%
    • EPS
      ₹9.5

    LTM

    1
    • Attrition
      11.3%

    Segment breakdown

    Travel
    31.2% Sequential Dollar Growth
    Other Emerging Verticals (Healthcare, Retail, High Tech)
    12.8% Sequential Dollar Growth
    Government (outside India)
    6.8% Sequential Dollar Growth
    Insurance
    1% Sequential Dollar Growth
    BFS
    -1.1% Sequential Dollar Growth32% YoY Growth
    List

    Order Book

    high confidence

    Total Value

    USD 1.55 billion

    as of 2025-06-30

    quantified
    46.9% YoY

    Inflow this qtr

    USD 507 million

    Execution

    executable over the next 12 months

    "Q1 was another strong quarter for order intake and large deals closure, with increasing velocity and median size of large deals signed."

    Source:
    Prepared remarks

    Capital allocation

    4
    high confidence
    CategoryHeadline
    Capex

    USD 65 million

    Partially funded by $62 million advance from client (recorded as deferred revenue) and $23 million through a term loan at 3.5% interest.

    Debt

    Debt disclosed

    Cost 3.5%

    M&A

    Cigniti

    merger · pending regulatory

    Liquidity

    Liquidity disclosed

    Operating Cash Flow (OCF) for the quarter stood at $43.8 million, which is 115% of reported PAT. Free Cash Flow (FCF) was negative due to capex incurred for the data center deal.

    Guidance & targets

    4
    CategoryTargetPriority
    Profitability
    Reported EBIT
    14%
    High
    Profitability
    OCF to EBITDA
    65-70%
    High
    Order Intake
    Large Deals Signed
    at least 20
    High
    Capex
    Capex as % of Revenue
    2-3% or 5%
    Medium

    Sabre Deal Ramp-up

    next quarter
    CurrentSequential growth in Q1
    TargetContinued sequential growth in Q2

    Why it matters

    The Sabre deal is a significant contributor to the Travel vertical's strong growth, and its continued ramp-up is key to overall revenue momentum.

    Sabre deal will continue to ramp up sequentially in Q2 as well. And Q3 onwards we would expect the resource loading, the total headcount to stabilize. Q2, the quarter that we are now beginning in, should again see a sequential growth on the Sabre side.

    How to verify

    key_financials.segment_breakdown[name='Travel'].metrics[label='Sequential Dollar Growth']

    Risks & concerns

    2
    RiskSeverity

    Macro environment uncertainty

    The 'run the enterprise' budget continues to oscillate due to macro uncertainties, but discretionary spend for change the enterprise budget remains unabated.Analyst acknowledged

    medium

    Cybersecurity breach related legal costs

    Exceptional expenses were incurred for a legal cost related to a cybersecurity breach from two years ago, with a provision made in P&L, expected to be reversed upon settlement with insurer.Management acknowledged

    low

    Q&A highlights

    7

    “So we got two things. Number one, historically, Q1 has been a quarter wherein margins get depressed and even without wage hike, it used to come down by 100 BPS or so. This quarter, wherein we were ramping up one of the largest deals and we all understand that when you are ramping up a deal of that scale and size around some 1000 odd people in an account, there are expenses that will come and hit you because the billing does not start at the same time. Despite that, we were able to maintain EBIT margins and I am talking about EBIT because that is what the guidance is going forward. It will still remain flat.”

    Clarified the impact of Q1 ramp-up costs and historical Q1 margin trends on current quarter's flat EBIT margin, and explained the expected margin expansion in Q2/Q3 due to operating leverage and ESOP cost reduction.

    asked by Prateek Maheshwari

    2 min read7 chapters

    Detailed Narrative

    01

    Exceptional Q1 FY26 Performance and Growth Drivers

    Coforge reported an exceptional Q1 FY26, achieving 9.6% sequential dollar growth and setting a strong foundation for the fiscal year. This performance is attributed to the firm's unique execution intensity, hyper-specialization in select industries, and deep engineering capabilities. The company's sustained, robust, and accelerating growth story is now entering its ninth year, with management confident in delivering 14% reported EBIT in FY26.

    02

    Robust Order Intake and Executable Order Book

    The quarter saw strong order intake, with five large deals signed and a total order intake of $507 million. The executable order book, representing locked orders for the next 12 months, reached a record $1.55 billion, marking a 46.9% increase year-over-year. Management aims to close at least 20 large deals in the current fiscal year, building on the 14 signed last year.

    03

    Vertical Performance and Client Mining

    Growth was primarily led by the Travel vertical, which grew 31.2% sequentially in dollar terms, and other emerging verticals (healthcare, retail, high tech) at 12.8%. While BFS saw a marginal sequential decline of 1.1%, it maintained a strong 32% YoY growth. Top 5 clients grew 24.0% sequentially and 49.5% YoY, contributing 20.7% to Q1 revenue, indicating strong client mining and relationship health.

    04

    EBIT Margin Management Amidst Investments and One-offs

    Despite a significant ramp-up in a large deal, higher amortization from recent acquisitions, increased depreciation from the AI data center, and a $5.5 million one-time📎 bonus provision, Coforge maintained its EBIT margin at 13.2%. The company also incurred exceptional expense📎s related to a cybersecurity breach, offset by an $8.4 million gain from the AdvantageGo business sale. Management expects margins to expand in Q2 and Q3 due to operating leverage and reduced ESOP costs.

    05

    Strategic AI Investments and Data Center Infrastructure

    Coforge invested $65 million in capex during Q1, with $58 million allocated to an AI data center project. Over the last two quarters, total investment in the AI-powered data center reached $85 million, partially funded by a $62 million client advance and a $23 million term loan at 3.5% interest. These assets are owned by Coforge, not dedicated to a single client, and are expected to taper down to original capex levels post-investment phase.

    06

    Talent Management and Attrition

    The company's headcount stood at 34,187, with a net addition of 1,164 people during the quarter. Utilization was healthy at 82.1%. The last 12-month attrition rate further declined to 11.3%, positioning Coforge as one of the lowest attrition firms in the industry. This strong talent retention is a key factor in the firm's sustained growth and execution capabilities.

    07

    Cigniti Merger Update and Future Outlook

    Exchange approvals have been received for the proposed Coforge and Cigniti merger, with the first motion filing to NCLT underway. The final integration is expected around December 2025 to January 2026. Management expressed high confidence in the BFS vertical's continued strong demand, driven by margin pressures, product innovation, and regulatory changes, expecting it to maintain its share of the firm's revenue.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.