In a time when the Information Technology (IT) sector in India is underperforming and analysts are suggesting a cautious stance. Following a stellar Q4 FY26 earnings and a strategic shift toward an AI-native delivery model, PL Capital initiates coverage on Coforge, implying a 51% upside from the current market price of INR 1,347 per share. This valuation is anchored in a rigorous analysis of the company’s USD 1.75 billion (~INR 16,500 crore) executable order book, its successful integration of Encora, and a structural margin reset driven by artificial intelligence.

Coforge Q4 FY26 Performance: Core of PL Capital Coverage

Coforge Q4 FY26 results served as the primary catalyst for this bullish outlook. The company reported a revenue of USD 489.1 million, representing a 2.0% QoQ growth in Constant Currency (CC) terms. This slightly beat the consensus estimate of 1.8%, showcasing resilient demand even as global enterprises rationalize their IT spending.

Operating Margins: The Star of the Show

The most significant surprise came from the EBIT margin, which landed at 16.6%, a staggering 230 basis points (bps) increase quarter-on-quarter. This outperformed PL Capital’s internal estimates of 14.6% and the broader market consensus of 14.8%.

The margin expansion was driven by a multi-pronged efficiency drive:

• SG&A Leverage: Contributed +100 bps.
• Currency Tailwinds: Contributed +80 bps.
• Direct Cost Reduction: Contributed +50 bps.
• Marketing & ESOP Optimization: Combined contribution of +60 bps.

While a provision for doubtful debts acted as a -60 bps drag, the overall trajectory remains sharply upward. For the full fiscal year 2026, the EBIT margin expanded by 370 bps YoY to 14.4%, signaling that the company is successfully converting growth into actual bottom-line profitability.

PL Capital Coverage on Coforge: Order Book and Visibility

For any IT services firm, the “Executable Order Book” (EOB) is the most reliable predictor of near-term revenue. Coforge’s EOB for the next 12 months (NTM) stands at a record USD 1.75 billion, marking a 16.4% YoY increase.

In Q4 FY26 alone, the company secured fresh order intakes worth USD 648 million, supported by five large deal wins. The geographical distribution of these deals highlights Coforge’s strengthening grip on the North American market, with the Americas share of order intake standing at 67.5%.

Beyond the recorded order book, management highlighted “framework agreements” that are not yet reflected in the EOB. These agreements provide incremental visibility for sustained organic growth throughout FY27, acting as a buffer against potential delays in project commencements.

AI: From Pilot Projects to “Agentic AI” at Scale

PL Capital’s report on Coforge emphasises that the company is no longer just “exploring” AI; it is embedding it into its core delivery fabric. Management has pivoted toward an AI-native services player model, moving beyond simple Large Language Model (LLM) implementations to “Agentic AI” workflows.

The “Mod Squad” Delivery Model

Coforge is doubling down on its “Mod Squad” (Modernisation Squad) delivery model. By infusing AI into software development lifecycles, the company is achieving significant productivity gains. Management aspires to achieve an EBIT margin of ~15.5% in FY27 by leveraging these AI-led efficiencies.

The demand is currently bifurcated into three structural drivers:

• AI-Led Modernization: Upgrading legacy systems to be AI-ready.
• Agentic AI: Creating autonomous agents that handle complex business workflows.
• Managed Services: High-margin, governance-led services that manage the lifecycle of AI agents.

As management noted in the conference call, while AI reduces the cost of “code creation,” it significantly expands downstream demand for integration, monitoring, and data pipeline management. This shift is creating new, recurring, high-margin revenue pools that didn’t exist 24 months ago.

The Encora and Cigniti Impact

The acquisition strategy of Coforge has been a masterclass in capability building.

The Encora Integration: The integration of Encora has been completed, which fundamentally altered Coforge’s service mix, strengthening its Product Engineering and High-Tech capabilities. It allows Coforge to compete for high-value engineering contracts that were previously out of reach. PL Capital has factored in the Encora consolidation to revise its USD revenue growth estimates to 45.7% for FY27E (up from 42% earlier).

The Cigniti Acquisition: Coforge’s acquisition of a minority stake in Cigniti is also nearing completion. While this involves equity dilution and interest costs on the USD 550 million debt raised, it is expected to be EPS-accretive in the long run. Cigniti brings world-class digital assurance and quality engineering at scale, providing a significant cross-selling opportunity to Coforge’s existing BFS (Banking and Financial Services) and Insurance clients.

Vertical Analysis: Pockets of Strength and Recovery

Coforge’s revenue growth in Q4 was broad-based, with the exception of the BFS vertical.

• Healthcare & Hi-Tech: The standout performer, growing 15.5% QoQ CC. This segment is benefiting heavily from the Encora integration.
• Travel, Transportation, and Hospitality (TTH): Grew 7.5% QoQ CC. This remains Coforge’s “moat,” where its domain expertise is unparalleled.
• Insurance: A steady 5.0% QoQ CC growth.
• BFS (Banking & Financial Services): Delivered a moderate 0.8% growth. The softness was attributed to client-specific challenges and a leadership transition. However, with large deal wins in the pipeline, management anticipates a recovery starting in mid-FY27.

Coforge Financial Projections: FY27E and FY28E

PL Capital has revised its earnings estimates upward, reflecting higher confidence in margin sustainability and revenue growth.

The jump in revenue from INR 16,400 crore in FY26 to a projected INR 25,100 crore in FY27E represents a 53.3% YoY growth, largely driven by the full-year consolidation of acquisitions and a 13% organic growth rate.

Cash Flow and Return Ratios

A critical highlight for investors is the Free Cash Flow (FCF) conversion. Management has raised its FCF/PAT aspiration to ~100% from FY27 onwards, up from the previous 70-80%. This indicates a disciplined approach to working capital and collections. While RoE (Return on Equity) is expected to dip temporarily to 13.3% in FY27E due to the Cigniti-related equity dilution, it is projected to stabilise as synergies kick in.

Why the Coforge Target Price is Justified?

Coforge share price is currently trading at a discount to its historical multiples and its peers. PL Capital’s valuation is based on a 28x P/E multiple assigned to the FY28E EPS.

The Valuation Logic

Projected FY28E EPS: INR 72.0
Applied Multiple: 28x
Target Price: INR 2,020
Current Market Price (CMP): INR 1,347
Potential Upside: ~50%

This multiple is justified by a projected USD revenue growth of 45.7% for FY27E (factoring in consolidations) and a very healthy 13% organic growth rate. Furthermore, management has raised its Free Cash Flow (FCF) conversion aspiration to ~100% of PAT, indicating that the company is becoming a cash-generating machine.

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Disclaimer: This article is based on the research report by PL Capital (Prabhudas Lilladher) dated May 06, 2026. Stock market investments are subject to market risks. Please consult with a certified financial advisor before making any investment decisions.

Rajat Bhati has a strong technical background and 5 years of experience in the stock market. He focuses on equity research, technical analysis, IPO valuations, and risk management, helping investors make clearer, data-backed decisions. Today, he works full-time to educate people about the opportunities in IPO market.