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Informist, Friday, Jan. 23, 2026

 

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--Coforge: Aim 15?IT margin for Jan-Mar, 14% target for FY26 
--CONTEXT: Comments by Coforge management in post-earnings analyst concall 
--Coforge: Utilisation expected to increase sharply in Jan-Mar 
--Coforge: Continue to hire "aggressively" from campuses, laterally 
--Coforge: Wage hikes had 150-bps impact on EBIT margin Q3 
--Coforge: Banking may be the fastest-growing vertical for co next year 
--Coforge: Expect higher YoY growth in insurance vertical FY27 
--Coforge: Expect to sign a large deal in healthcare vertical Q4 
--Coforge: No intentions to approach public sector clients in US for now 
--Coforge: Expect final approval for Cigniti merger by March-end 
--Coforge:Expect legal costs tied to regulatory approvals for acquisition Q4 
--Coforge:Confidence "strong" for further margin increase in FY27 after FY26 
 

 

By Shakshi Jain and Adhithya Aji

 

MUMBAI – Digital solutions and services provider Coforge Ltd. is targetting an earnings before interest and tax margin of 15% for the ongoing quarter to close 2025-26 (Apr-Mar) with an overall EBIT margin of 14%, Chief Executive Officer and Executive Director Sudhir Singh said in a conference call with analysts on Friday. In fact, the company also holds "strong" confidence regarding a further increase in its margin in the next financial year.

 

"...in quarter four of last year, we had said that we're taking margin improvement initiatives...wherein we were looking at improving ARCs (additional resource charges). We were looking at containing bench and we were looking at containing overheads. We had taken a lot of actions between quarter two, quarter one, and quarter three is the period when at least we've seen the impact of those in the P&L because of which even after wage hikes, the salary costs have not gone up...And you will continue to see this benefit flowing down. And that is what gives us confidence for quarter four EBIT margins as well," the management said.

 

For the December quarter, the company's EBIT margin expanded 191 basis points on year but contracted 60 bps on quarter to 13.4%. During the quarter, the company saw a 150-bps impact from annual salary increments, which was partially offset by margin improvement initiatives and lower costs tied to employee stock ownership plan. Coforge also recorded an impact of 90 bps on its reported EBIT margin for the December quarter on account of hedge losses. The management said it is revisiting the company's hedging strategy to arrive at a way that will allow Coforge to account for hedge gains and losses as part of other income so that the company's operational performance is not hampered. 

 

In the ongoing quarter, Coforge anticipates a sharp uptick in employee utilisation, the management said.  "The reason why we are right now not seeing an upside is because we continue to induct freshers. And that's why we continue to maintain lower levels of utilisation," the management said. It had earlier said that the company continued to hire "aggressively" from campuses as well as laterally. The company net added 445 employees in the December quarter, taking its overall employee count to 35,341. Its utilisation of employees, including trainees, was slightly lower at 81.7% compared with 82.3% in the trailing quarter.

 

SEGMENTAL OUTLOOK

The company's management expects a better year-on-year growth in the insurance vertical in FY27. Further, it expects the travel and banking verticals to outpace the growth in the insurance segment."Given the large deal momentum we've seen in quarter three, and what we think is likely to happen in quarter four, we would suspect that while healthcare and hi-tech will continue to grow at a tier that they are, banking might, might be the fastest growing core vertical of the firm next year given the growth momentum that we see ahead of us," the management said.

 

In the December quarter, Coforge bagged six large deals, of which two were in the banking segment and one each in the travel and insurance categories. In the ongoing quarter, Coforge expects to close a large deal in the healthcare segment, the managment said.  

 

In the business segment that covers public sector clients in international markets, the management said Coforge's focus remains restricted to Australia and the UK as of now. "We have no plans, no intention of approaching the US public sector," it added. 

 

In the December quarter, revenue in dollar terms from Coforge's largest business of banking and financial services was down 2.4% sequentially. Revenue from its second-largest vertical of travel and hospitality rose 1.6% on quarter and revenue from the healthcare vertical grew 8.5%. Sales in the insurance segment recorded a 1.5% sequential rise while those in the 'government outside India' segment registered a 5.7?cline on a quarter-on-quarter basis.  

 

MERGERS & ACQUSITIONS

Answering a question on the merger and integration of Cigniti Technologies Ltd., the management said it expects a final approval before the company reports its March quarter earnings. It said the approval of shareholders has been received and the company filed a second motion applicatiion before the National Company Law Tribunal in December. A hearing with the NCLT is scheduled in March and the management expects a result in one or two hearings. 

 

"...The effective date of the merger is 1st April, 2025. So, which means we will, if we have not reported our numbers for Q4 and the financial year FY26, we will restate the three quarters and when we report the full year numbers, hopefully there'll be no minority interest and new shares to Cigniti shareholders would have got issued...So, from a financial perspective, the integration would happen or the merger would get consummated by the time we report FY26 financials," the management said.

 

On the Encora acquisition, the company is close to finalising a term loan of $550 million for a period of three years with a consortium of four to five banks. "We are comfortable with the pricing that we have negotiated with the banks and have concluded that we will not need a QIP (qualified institutional placement) for retiring the term loan in the target company," it added. Coforge has made the necessary submissions and expects to receive regulatory approvals for the acquisition by March. 

 

"As we have just concluded a large acquisition and are in process of taking regulatory approvals, we are expecting expenses associated with the transaction including integration, funding, and W&I (warranty and indemnity) insurance and others over the course of next two quarters," the management said.

 

At 1207 IST, shares of Coforge were down over 3% at INR 1,635.70 on the National Stock Exchange.  End

 

US$1 = INR 91.60

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

 

Edited by Avishek Dutta

 

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