Coforge delivered a strong Q3 FY26 with 4.4% CC revenue growth and 32.8% YTD dollar growth, fueled by significant large deal wins and robust key account expansion. Despite a QoQ dip in EBIT margins to 13.4% due to wage hikes and hedge losses, the company is on track to meet its 14% FY26 EBIT guidance and anticipates an exceptional FY27. Strategic acquisitions like Encora and a strong focus on AI-led engineering are expected to drive continued industry-leading growth, supported by a healthy order book and strong free cash flow generation.
vs Q4 FY26
| Metric | Value | YoY |
|---|---|---|
| Revenue | ₹4.2K Cr | — |
| EBIT Margin | 13.4% | +1.9% YoY |
| Underlying EBIT Margin (ex-hedge losses) | 14.4% | — |
| EPS (ex-exceptional items) | ₹10.9 | — |
| Free Cash Flow | 45.7 million | — |
| FCF to Normalized PAT | 110% | — |
| Metric | Latest | Trend |
|---|---|---|
| Revenue(million) | 4188.1 | |
| EBIT Margin | 13.4% | |
| LTM Attrition | 10.9% | |
| Headcount(number) | 34896 | |
| Free Cash Flow(million) | 45.7 |
Total Value
USD 1.72 billion
as of 2025-12-31
Inflow this qtr
USD 593 million
Execution
executable over the next 12 months
Composition
"Q3 saw strong order intake with six large deals signed, contributing to a 30% higher next 12-month order book, setting up robust growth for FY26 and FY27."
| Category | Headline | |
|---|---|---|
Capex | USD 3 million | |
Debt | Debt disclosed Maturity: 3 years | |
M&A | Encora acquisition · pending regulatory · Consideration ₹NaN (mixed) | |
Liquidity | Liquidity disclosed Free cash flow (FCF) for the quarter came in at $45.7 million, resulting in an FCF to normalized PAT of 110%. |
| Category | Target | Priority |
|---|---|---|
| Profitability | EBIT Margin→15% | High |
| Profitability | EBIT Margin→14% | High |
| Profitability | EPS Dilution (Combined Business)→no dilution | High |
| Profitability | Margin Increase→further increase | High |
| Cash Flow | FCF to Normalized PAT→70% to 80% | High |
| Growth | Healthcare, Hi-Tech, Public Sector Growth→on steroids | Medium |
| Growth | Banking Vertical Growth→fastest growing core vertical | Medium |
| Growth | Insurance Vertical Growth→robust growth | Medium |
| Order Book | Total Number of Large Deals→will go up | Medium |
| Operational Efficiency | Utilization Rate→sharply increase | Medium |
| Operational Efficiency | Working Capital Cycle→closer to 50 days | High |
| # | Metric | |
|---|---|---|
| 01 | Encora Acquisition Closure & Consolidation | |
| 02 | Q4 EBIT Margin Achievement | |
| 03 | Utilization Rate Increase | |
| 04 | Clarity on Hedging Policy Changes | |
| 05 | Banking and Travel Vertical Performance |
| Severity | Risk |
|---|---|
medium | EBIT margin compression due to wage hikes Wage hikes had a 150 bps impact on margins in Q3, partially offset by margin initiatives. Management |
medium | Increased hedge losses impacting reported EBIT Hedge losses amounted to INR 434 million in Q3, reflecting an adverse impact of 26 bps on reported EBIT and 90 bps on EBIT margins when taken in the top line. Management |
low | Exceptional items impacting net profit INR 147 crores in exceptional items, including New Labour code, Encora acquisition expenses, and cybersecurity legal expenses. Management |
low | Integration and funding expenses for Encora acquisition Expected $10-$15 million over the next two quarters for integration and funding expenses related to the Encora acquisition. Management |
Coforge reported a sequential revenue growth of 4.4% in constant currency (CC) terms for Q3 FY26, contributing to an impressive year-to-date (YTD) dollar revenue growth of 32.8%. This performance was underpinned by strong large deal velocity, with six large deals signed in the seasonally weak quarter. Management expressed confidence in achieving a very successful FY26 and an exceptional FY27, citing a next 12-month signed order book that is 30% higher year-on-year, standing at $1.72 billion.
The reported EBIT margin for Q3 FY26 was 13.4%, a 60 basis points (bps) sequential decline, primarily due to wage hikes which impacted margins by 150 bps. However, this was partially offset by ongoing margin initiatives and lower ESOP costs. Excluding hedge losses, the underlying EBIT for the firm was 14.4%. The company aims to register a 15% EBIT in Q4, which would lead to meeting its 14% EBIT guidance for the full FY26, demonstrating effective cost management despite inflationary pressures.
The acquisition of Encora is highlighted as a defining moment, establishing a scaled AI-led engineering, data services, and cloud services capability. This is expected to accelerate Coforge's industry-leading growth. The firm is finalizing a $550 million, 3-year term loan for Encora, with regulatory approvals anticipated by March-April 2026, ensuring no EPS dilution in FY27 for the combined entity. Coforge is actively infusing AI into every engagement, moving towards hybrid delivery models and outcome-based commercial structures, with platforms like ForgeX and CodeInsightAI deployed across 54 clients.
Q3 FY26 saw a total order intake of $593 million, nearly reaching the $600 million mark. The company's top 5 and top 10 clients grew by 51% and 47% YTD respectively in dollar terms, contributing 21.0% and 30.7% to Q3 revenue. Verticals like Healthcare and Hi-Tech, contributing 10.5% of total revenue, nearly doubled year-on-year. Banking is expected to be the fastest-growing core vertical next year, while Travel and Insurance are also projected for robust growth, with Banking and Travel expected to outpace Insurance.
Coforge demonstrated strong cash flow generation, with Free Cash Flow (FCF) for the quarter reaching $45.7 million. This translated to an FCF to normalized PAT ratio of 110%, significantly exceeding the company's sustained guidance of 70% to 80%. The working capital cycle remained efficient at 49 days, a slight increase from 48 days in the previous quarter, with billed DSO at 67 days, unbilled at 28 days, and contract assets at 14 days.
The total headcount at the end of Q3 stood at 35,341, with a net addition of 445 people during the quarter. Utilization was 81.8% and is expected to sharply increase in Q4. The company maintained one of the lowest attrition rates in the industry, with LTM attrition falling further to 10.9%. Management noted that headcount growth lagging revenue growth is partly due to outcome-based contracts and strategic induction of freshers, which helps manage the average revenue per employee (ARC).