Coforge shares tumble after Encora deal; Elara downgrades, Macquarie lifts target by 77%

Shares of Coforge dropped nearly 4.5 per cent from day's high as the company announced to acquire Encora, a IT services company, from Advent International, Warburg Pincus and other minority shareholders in all stock deal valued at $2.35 billion. However, brokerage firms continue to remain divided on the stock with some downgrading, while other giving it a big thumbsup.

The acquisition likely brings in benefits in terms of Coforge addressing its gaps in the North American market (West and Mid-West regions that contribute only 25 per cent to its North America revenues), expansion of its near shore delivery centers in the LATAM market (which are servicing US clients ), scaling up its emerging verticals of Healthcare and Hi -tech, said Elara Capital.

"However, valuation s at EV/sales of 3.9 times appear expensive considering that Encora posted only 7-10 per cent organic revenue growth in the past two years, lower than Coforge's revenue growth. We downgrade Coforge to 'reduce' from an 'accumulate' with a lower target price of Rs 1,720 apeice," it said.

Shares of Coforge Ltd rose to Rs 1,715 on Monday, before falling to Rs 1,638 during the session, suggesting a 4.5 per cent fall from day's high. The company managed to hold a total market capitalization of Rs 56,000 crore. The stock had settled at Rs 1,673.25 on Monday. The stock has surged more 44 per cent from its 52-week low at Rs 1,190.84, hit in April 2025.

Emkay Global said that the deal represents a strategically positive albeit execution intensive step, with potential to enhance Coforge’s AI-led engineering, cloud, and data capabilities over the medium term. It expects the stock to see near-term overhang due to execution risks inherent in a transaction of this scale, along with potential further equity dilution.

"However, Coforge’s historical execution track record provides some comfort. Pending closure, the transaction has not been included in our estimates, and we expect no significant change to the EPS as of now. We retain 'Add; on the stock, with target price of Rs 2,000 at 32 times Dec-27E EPS," Emkay said.

On the other hand, overseas brokerage firm Macquarie has upgraded Coforge to 'outperform' from 'underperform' rating and revised its target price to Rs 2,230 from Rs 1,260, increasing its by 77 per cent. Macquarie sees Encora acquisition is long-term positive for Coforge.

It believes that the acquisition of Encora (privately held) will improve Coforge's service portfolio and view this deal as positive in the long term as it can accelerate Coforge's revenue growth. Macquarie is expecting longer-term sustainable revenue growth to now be 15-18 per cent.

Similarly, Centrums expects demand environment for IT services to improve incrementally going ahead. The discretionary tech spending remains muted but there are green shoots in verticals such as BFSI. There has been improvement TCV to revenue conversion and that will drive business growth. AI led solutions are seeing more traction with clients, it said.

"Coforge's focus on maintaining 14% plus EBIT margin, coupled with disciplined cost management and operational efficiency, It has guided for strong free cash flow conversion with no major capex coming up. We expect Revenue/EBITDA/PAT to clock 23%/27.2%/35.6% CAGR over FY25-FY28E. We have kept our estimates unchanged," it said with a ' buy' rating and a target price of Rs 2,179.