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Informist, Monday, Dec. 29, 2025

 

By Anshul Choudhary

 

MUMBAI – Analysts are cautious over Coforge Ltd.'s announcement of its acquisition of US-based Encora. While acknowledging the strategic rationale, they have raised concern over the valuation paid and stressed that successful execution and integration of such a large acquisition will be critical before drawing conclusions on Encora's future contribution.

 

Coforge Friday said it will buy artificial intelligence software engineering firm Encora at an enterprise value of $2.35 billion. The company expects Encora to report a revenue of $600 million in 2025-26 (Apr-Mar) and be EPS accretive for the combined business in FY27.

 

While the plans for buying Encora were largely lauded by brokerages, analysts also said they will wait for more clarity before including Encora earnings in their estimates for Coforge. "There are few monitorables that one should look at: How well they integrate everything and how well they capatilise on the skill sets," said Manav Medewala, a research analyst at Mirae Asset Sharekhan. "It can take around two quarters once the acquisition is complete to get a clear picture of the future of this acquisition. We'll also get some more clarity on the acquisition after the company's Q3 call."

 

Analysts are likely to include their estimates for Encora once the acquisition is completed, which is expected in four-six months. However, it may take few more quarters after that for analysts to fully bake in growth expectation of Encora considering the size and the nature of the acquisition.

 

"...earlier acquisitions (by Coforge) were largely client-led, whereas this transaction is more capability- and leadership-driven, making talent retention and execution discipline more critical given the larger scale of the deal," Motilal Oswal Financial Services said in a report.

 

Analysts acknowledged Coforge has strong synergies with Encora business and it can significantly add to growth if done the right way. However, there are some doubts considering Encora's organic growth has been weaker than that of Coforge.

 

"...valuations at EV/sales of 3.9x appear expensive considering that Encora posted only 7-10% organic revenue growth in the past two years, lower than Coforge's revenue growth," Elara Securities said. This pushed Elara to cut Coforge's earnings multiple to 34 times from 39 times earlier, leading to the brokerage reducing its target price by 19% to INR 1,720 and downgrading the rating to 'reduce' from 'accumulate'.

 

The weaker organic revenue growth of Encora has raised some concerns that Coforge's growth may take a slight dip immediately after the acquisition is completed. However, considering Coforge has been successful in executing acquisition in the past, analysts are positive it will manage to improve Encora's growth in the long run.

 

"Encora's sales can grow 12-13% in dollar terms once synergies between the two companies start picking up," Manav of Mirae Asset Sharekhan said. "Taking a two-year perspective, this kind of growth is achievable for Encora. A depreciation in rupee may also provide some boost to earnings in INR terms."

 

Several brokerages are bullish on the company with brokerages Motilal Oswal, Nuvama Wealth Managment, Emkay Global Financial Services, maintaining their 'buy' or equivalent recommendations. Their target prices are in the range of INR 2,000-2,500 per share.

 

INVESTOR CONCERN

Concerns around execution may limit any upside in the stock prices even as the acquisition provided a re-rating opportunity for the stock, analysts said. "We expect the stock to see near term overhang due to execution risks inherent in a transaction of this scale (>30% of Coforge's revenue and >25% of employee base...," Emkay Global said.   

 

Coforge investors are also worried about dilution of their stake. Encora shareholders are set to get close to 21% stake in Coforge as part of the acquisition agreement. Further, Coforge also approved plans of raising $500 million through a qualified institutional placement to fund the acquisition.

 

Owing to concerns about stake dilution, shares of Coforge have fallen over 10% since Tuesday, when the company announced plans of discussing fund raise. Post the news of Encora acquisition, share volumes rose by more than 60% Monday but there was not much change in stock price. At 1226 IST, shares of Coforge traded nearly 1% higher at INR 1,687.00 per share.  End

 

US$1 = INR 89.97

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Akul Nishant Akhoury

 

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