← Throughline · holding view Deep analysis ↗ Q4 FY26
COFORGE Coforge Ltd · IT services Q4 FY26 · concall
Pattern: fy27 growth conversion multiple

FY26 closed at 29.2% USD growth and 14.4% EBIT.

5 weak · 12 clean — pushback across 5 of 17 Q&A turns

Focused evidence 5 of 17

Abhishek Pathak · Motilal Oswalweak

If I apply a conservative revenue conversion multiple to your 12-month forward executable order book, I arrive at a very punchy FY27 growth number of almost 18% to 19%. So, does the previous 1.3x to 1.4x multiple to your 12-month order book still hold? Should we assume a higher conversion rate or a lower conversion rate, depending on the global macros or AI deflation? Also, how much of the margin upgrade is down to AI usage internally, and how much of it is down to pricing and getting into more identified solutions that can lead to better pricing? Lastly, on the hedge book reclassification side, what prompted that change?

As far as revenue is concerned, last year when we started off the year, we had indicated that we would deliver robust growth. The intent always is to grow as much as possible, and that is how we landed up at 29.2% USD growth. This year, again, the intent is to deliver robust growth, but the intent is equally not to classify that or to offer hard numbers around it, which you well know. The environment is challenging, and yet the confidence is high that we should be able to deliver industry-leading growth. As far as EBIT is concerned, we believe the EBIT reset in Q4 has been a structural reset. It has come off the back of automation and AI-led interventions. It has also come largely off the back of a deeply held conviction that in an AI-infused era, our G&A costs have to be held constant in absolute terms, and it is AI-based interventions that are allowing us to do it. Saurabh added: On the hedge front, we were working with our auditors. We thought it was better to do it towards the year-end, so that the reporting gets aligned more with market practices. If you add back the hedge losses against revenue in the current quarter, the EBIT margin was 15.2% against our guidance of 15%.

Sulabh Govila · Morgan Stanleyweak

My first question is on revenue growth. Last year, when we entered the year, we had a tailwind of the mega deal that we had won in March. This year, given that we do not have a tailwind of that level, how should we expect growth to pan out, particularly from a cadence perspective, given that 1H was quite strong last year versus 2H? How do you think about 1H versus 2H this year, not from a number perspective, but from a cadence perspective? Also, could you provide some color on the framework agreements that you talked about? Are they different versus the usual?

You are absolutely right about your observation around the fact that we had the $1.56 billion tailwind this year. We believe the tailwind comes from framework agreements that we have signed and not recognized under the order executable that we have shared with you. These are agreements where the MSA does not spell out a specific amount, and hence, we do not add that to the order executable number. We have already signed a material framework engagement. We think we will, in reasonably short order, sign bigger framework agreements too, where pipeline closure is in its near-final stages. A lot of our confidence around revenue growth also comes not just from the order executable, but from how balanced the portfolio is. At this point in time, whether it is travel, healthcare, banking, or insurance, we feel good about all of them. We are not hitching our wagon to one star. The entire constellation seems to be moving in the right direction from our point of view.

Vibhor Singhal · Nuvama Equitiesweak

My first question is on the AI opportunity. You mentioned that while AI code might be cheaper to write, it is much more expensive to maintain, implement, and integrate into the existing systems of companies. From a broader industry point of view, do you believe that this AI opportunity will lead to an overall expansion for the industry? Let us say the IT industry today is around $250 billion. Will we actually see this become much bigger than $250 billion two, three, or four years down the line? A related question is that in the last cycle, which was the digital and cloud cycle, a large part of the opportunity was initially captured by Tier 1 players because Tier 2 players were quite small at that point in time. In this cycle, because mid-tier players like us and our peers have now reached a certain size and capability level, do you believe the winners or beneficiaries of this cycle could be different?

The AI opportunity that we see is multifold. As we have said, we are seeing a very significant near-term modernization surge using AI technologies. That is real. That is now. There is another wave building up very strongly, which is the agent deployment wave. Firms that ride those waves are firms that will continue to do well. It is difficult for me to talk about whether the Indian IT industry will do well or not, but the tech services industry has to do well. There is a clear need for: AI-ready data pipelines, Agent lifecycle management, Recurring, high-margin managed services to monitor models and govern agents. Vic Gupta added: If you look at the ecosystem, at least in our client base, there is a lot of application entanglement and a lot of opportunity around brownfield migrations of applications to modernized systems and agentic systems. No Fortune 1000 company has no integration problems. We feel that, for us, we are faster to execute and nimble to change.

Dipesh Mehta · Emkay Globalweak

My first question is on hedge losses in OCI, considering the change in accounting practice. Could you provide some sense of what the OCI number will be? What is the balance sheet number considering the hedge position at the end of the quarter?

The OCI will not change. The hedge loss in other income will be INR 164 crores for the year and INR 70 crores for the quarter, which is already there as part of the fact sheet. On the balance sheet number, I will come back to you on that.

Ravi Menon · Axis Capitalweak

On FCF conversion, the rough math indicates that if FCF to PAT goes above 100%, it would be about 60% or north of that. That is good, but still a little lower than best-in-class. What do we need to do to move towards best-in-class?

Ravi, it is a step-up from where we were, whether it is margins or free cash flow. It reflects the investments we have been making in client relationships and in the business. The results of those investments are now visible in profitability and cash flow. In another couple of years, this can move towards 110% to 120%. It is a gradual move from not focusing on FCF to PAT, to giving guidance of 70% to 80%, delivering on that, moving to 100%, and then looking at how next year goes before probably upping it further.

▸ Other Q&A (12)
Sulabh Govila · Morgan Stanley

My second question is for Saurabh on free cash flow. What are the specific drivers behind the change from 70% to 80% FCF to PAT to 100%?

We had earlier mentioned that we would maintain 70% to 80% FCF to PAT. But the rigor that we have brought into the organization, in terms of the way collections are being followed, the way payables are being managed, and the way contracts are being structured, gives us confidence that 100% is the bare minimum FCF to PAT we will deliver in FY27, along with the significant step-up in profitability that we mentioned in our prepared remarks.

Vibhor Singhal · Nuvama Equities

My next question is on the travel vertical. Given the Gulf War and where crude is, do you foresee a headwind in that vertical in the immediate future? Have any client conversations started around airlines temporarily pulling back technology spends?

At this point in time, Vibhor, from our perspective, the travel vertical continues to do really well, even in the short term. We saw a press report yesterday that talked about the impact of Spirit Airlines on Coforge. We want to reiterate that the impact is negligible to none. The budgeted revenue from that airline was about 10 bps for FY27. So the near-term travel business is on the up and up. Saurabh talked earlier about the fact that there is a low-margin portfolio in India that we will discontinue immediately, and the negative impact of that will flow into Q1. Despite that significant portfolio, we expect to be flattish in Q1 and to be on a very fast growth trajectory from Q2 onwards. Travel, healthcare, banking, insurance, public sector, and even high-tech, the new vertical we have started, should do extremely well in FY27.

Vibhor Singhal · Nuvama Equities

Just one or two bookkeeping questions for Saurabh. Since Sudhir mentioned discontinuing the India business operation, could you quantify the amount of that business we intend to discontinue from Q1? Also, there is a 150 bps margin gap that we are talking about in FY27 between standalone and consolidated margins. I assume that is because of amortization? What is the amortization we are looking at on an annual basis?

It should have an impact of roughly $15 million to $20 million in pass-through revenue in Q1 itself. The other deals that we had signed in the current year and the order book that we have will still make up for it and probably nullify the impact of this reduction. On a QoQ basis, on a reported basis, yes, we expect flattish. On the margin gap, you are absolutely right. It is because of amortization. Otherwise, we feel very good about hitting 16.5% to 17% EBIT margins if there was no amortization. The amortization is roughly $40 million a year.

Dipesh Mehta · Emkay Global

My second question is on the framework agreement. How should one understand its conversion into the order book in coming quarters? Will it be gradual conversion, or do you expect some of it to be relatively large-deal-like? Also, is it different from the usual 12- to 18-month structure? The second question is on BFS. BFS remained softer than the company average in FY26 and even in Q4. Could you provide some sense of the BFS growth trajectory and the demand drivers there?

It is not an atypical framework deal in the neutral state. This is a typical way that the UK public sector business works. You will have seen the press that we were awarded a $150 million plus deal in the UK public sector. That was a sole award to Coforge, structured over five years. The expected run rate as a base is around $4 million to $5 million per quarter. During the quarter, what happens is that there are multiple TSRs or SOWs against that award, purely to Coforge. Sudhir added on BFS: We see structural demand drivers ahead of us. BFS in our case came in at 12%. In relative terms, it was low, but in absolute terms, that was still a solid performance in a year like this. We expect performance around BFS to improve in FY27 over FY26.

Ravi Menon · Axis Capital

Could there be some near-term headwinds, especially in product engineering, probably more with Encora than with the Coforge portfolio? Some smaller SaaS companies may face pressure. Could we see some revenue headwinds near term, even if longer term we gain share by adopting AI for coding early?

Ravi, thanks for the question. The answer is no. The high-tech business of Encora that we have taken over is under a new leader, based out of a new office that we were planning for and have already established. It is functioning. We expect the high-tech business to start growing from Q1 itself and grow handsomely through FY27.

Ravi Menon · Axis Capital

One more question on ESOP cost. How much should that be next year as a proportion of overall compensation or revenue? Are you not envisaging that to move up even with new leaders from Encora being onboard?

It will stay where it is. Around 0.8% to 0.9% is where it will stay. It is not going to go up or significantly go down. When the new plan was rolled out, we were close to 2%, and it has come down gradually. It will stay around 0.7% to 0.8%. We are not expecting that to go up.

Sandeep Shah · Equirus Securities

I wanted to understand the framework deal from the UK government. Is it fair to assume the potential that we may consider in our budget is the $150 million TCV over five years that John disclosed, and that $4 million to $6 million additional revenue may start flowing from Q1 itself? And will framework deals be in other sectors also?

Yes, the revenue, as John said, is going to start flowing from Q1 itself. The $150 million deal is already signed. That is the award. John added: We are very well placed in the UK public sector space. We have had significant successes in engagements. You would have seen one in Scotland not long ago, in the press, about the rollout for the 111 services there. Our reputation across the public sector is very high. We have a number of opportunities at the moment, many of them in the $10 million to $100 million size. The $150 million is signed, and there are others that we think are locked and loaded, and we will be awarded those as well, in addition to what is signed. On other sectors: No. Framework deals only come from UK public sector in our case.

Sandeep Shah · Equirus Securities

For Saurabh, the capex looks like there is an inflow in the cash flow statement. What has led to that? Second, the discontinued business of $15 million to $20 million, is that quarterly run rate or yearly run rate?

On cash flow, the positive inflow is because part of the assets pertaining to the AI-led data center that we built in Q1 have been sold. They have been bought back by the client, which led to an immediate inflow during the quarter. On the India discontinued business, it was the quarterly run rate for the last couple of quarters. We are now going to close that and not sign up such deals. This business had generated $40 million to $45 million last year, out of which $40 million came in over the last two quarters.

Sandeep Shah · Equirus Securities

On minority interest, there is a quantum decline this quarter. Is it fair to assume we have already taken 100% stake effective FY26-end? Why does the P&L still reflect a bigger charge?

Going forward, you will see minority interest come down from INR 53 crores to INR 54 crores in one quarter to almost INR 9 crores. The reduction in minority interest is yet to happen. It will happen from Q1 onwards because the share allotment is happening. The record date for share allotment is 16 May, and hence minority interest is being carried in the P&L up till that time. If you look at the P&L, the minority interest is INR 54 crores in Q4, which will come down to INR 9 crores. That will give upside from a profit after tax perspective. But the number of shares will also go up when the allotment of shares to Cigniti shareholders happens. It will still give upside on the EPS front. That is more to come in next quarter.

Kawaljeet Saluja · Kotak Securities

My first question is for Sudhir. When I look at the banking vertical, revenues are stuck in the $120 million to $123 million range for five quarters. We also hear about clients in the banking sector expanding captives. Is anything hurting that portfolio, which used to be a big growth driver?

What slowed down our growth to only 12% for the current year, Kawaljeet, was the fact that one of our top three banking clients did not grow this year. That client account has now been transferred over to John's personal stewardship, and we feel far more positive about it. It has nothing in our mind to do with the GCC movement. It is more to do with a client-specific issue that we had and we believe we have addressed. John added: We have completely refactored how we are engaging with that client. We have a brand-new team. We are also recognizing that we have to disrupt in that account. We have a large footprint, and we are using our AI capabilities to completely transform how we engage and how we run. On the back of that, we expect significant growth. It was one single large client-specific issue. It is reversed. So next year, FY27 banking should show better numbers.

Kawaljeet Saluja · Kotak Securities

My second question is on durability of margins. It is great to see consolidated EBIT margin going up to 15.5%. Any thoughts on durability of it? Is this guidance only for FY27 or is there a greater runway?

We should be able to improve FY28 over FY27, obviously not by this quantum. But at least incrementally, Kawaljeet, the threshold that we have shared for FY27 will be the minimum. That should be expected from us starting FY28 onwards.

Kawaljeet Saluja · Kotak Securities

My third question is for Saurabh. I see a big decline in hedges for the quarter on a sequential basis. Is there any policy change? On that loan point, the $550 million loan is good, and the headline interest rate is 4.5%. Do you intend to hedge that, given that the rupee has been depreciating? On your P&L and hedges, the average rate is 90 for $300 million. A calculation at current spot rate indicates hedges of around INR 140 crores to INR 150 crores. Is that correct?

We have taken a dollar loan of $550 million, and it gives us a natural hedge. That loan has been taken in India. It is to ensure that the cash flows and the balance sheet are aligned to the liability we have in the balance sheet. We are moving towards balance sheet hedges, and that is where you see a decline in the cash flow hedges. That is where we get the natural hedge, because our receivables are in dollars in India. The number of hedges has gone down because we have a natural hedge, with receivables in dollars and payables in dollars. That is correct on the INR 140-150 crores. That is the mark-to-market. There may be losses for one or two more quarters, and then I think from the third quarter it starts tapering off.

▸ Prepared remarks (5 blocks)
Good evening and thank you for joining us today. Please allow me to start today's call with a quick reflection. This month marks the beginning of my 10th year at Coforge. It will also mark the 10th year since John, Saurabh, Madan, Vic, and I started the turnaround at Coforge. We were a <strong>$400 million</strong> firm when we started nine years back. We hope to close this, the 10th year of our turnaround story, with the firm having grown almost seven times in just 10 years. The turnaround of Coforge has been driven by an execution intensity that is uniquely our own and also by an insatiable hunger to make a mark on industry. Today, as we look at FY27 and beyond, that execution intensity remains undimmed, and our hunger for growth remains unquenched.
Our margins are poised to take a big step up starting FY27, and we believe that our growth story is not even half done. Over the last nine years, we have as a team delivered: A revenue CAGR over nine years of <strong>21.7%</strong>; An EBIT CAGR of 24.6%; A PAT CAGR of 24.1%; An EPS CAGR of 22%; and a Free Cash Flow CAGR of 19% that is over nine years. There is no firm in our industry that can present metrics at that level for the extended nine-year period that we have. During these nine years, there were periods when we made contrarian bets and shared a positive contrarian growth outlook on calls like these even when the macros were bleak. We have proved each one of those contrarian bets and backed each one of our guidance statements and made sure they came true on the basis of our subsequent performance.
Five years back, when COVID struck, we shared that despite our material exposure to the travel vertical, we would grow smartly in that year itself, at a time when our peers were projecting declines on account of COVID. And we did grow, and handsomely at that. Again, two years back, on a call like this when we acquired Cigniti, there were concerns that a publicly listed testing services firm with a 12% EBITDA would kill the Coforge growth story. However, two years later, today, that portfolio operates at a 19% EBITDA and the growth of the constituent clients that came into Coforge from Cigniti has exploded on the back of very effective cross-sell. The top two clients of Cigniti that offered USD 25 to 30 million revenue per year when we acquired them two years back have scaled up to $75 million per year collectively. I say this because, as you hear our commentary today, and as you reflect on what we share by way of our expected performance trajectory going ahead, we would urge you to please remember that we are the team that has delivered unfailingly for nine years on all plans that we have shared with you. We have every intention of coming true on all the outlook commentary that we share today with you on this call. With that preamble, I shall now cover our performance for Q4 and fiscal year'26. Last quarter, during our Q3 results call, I had shared that we believed we were on course to close a very successful FY26 and that we were headed for an exceptional FY27. We are pleased to report that FY26 has panned out as indicated and, equally importantly, FY27 is poised to deliver on that promise of exceptional performance. ANNUAL PERFORMANCE REVIEW Moving on to the Annual Performance Review, I am pleased to share that FY26 was a very successful year for the firm. The firm grew 29.2% in U.S. dollar terms. The quality of our growth was remarkable in that all our key industry units grew strongly through the year, and the growth was led by our top 10 and top 20 client relationships. We signed 21 large deals through the year, with 11 of them coming through in the second half of the year. Growth was broad-based, with all key industry units performing strongly. Reported EBIT of the firm grew by 370 bps in FY26 over FY25. Beyond these immediate metrics, the real highlight of FY26 has been the quiet yet vital work that was done at our backend to truly automate and AI-enable our backend processes and functions, and to reshape and right-size our delivery and G&A organizations. That quiet effort, unshared till now, has now structurally reset the margin profile of Coforge for FY27 and beyond. Coforge was always an industry leader on the revenue growth front, yet our EBITDA and EBIT numbers were middle of the pack. Starting in FY27, that is this year itself, we believe we will, along with retaining revenue growth leadership, emerge as one of the highest EBITDA and EBIT performers across the mid-cap segment. Moving on to the quarterly performance review. The quarterly sequential CC revenue growth of 2% in Q4 followed the sequential CC growth of 8%, 5.9%, and 4.4% recorded between Q1 and Q3.
The Q4 year-on-year growth rate was <strong>21.2%</strong> in US dollar terms. Free cash flow to PAT for the quarter came in at 110%, significantly ahead of our guidance of around 70% FCF on a sustained basis. I would like to draw your attention to the fact that Q4 FY26 EBIT of the firm is 16.6%, while it was 12.3% in the same quarter a year back. In Q4 FY26, the firm registered a sequential revenue growth of 2% in CC terms, 1.7% in US dollar terms, and 5.2% in INR terms. For the year, as noted earlier, we have grown 29.2% in dollar terms. Our ability to grow at this rate in a very challenging environment is driven by our ability to increase wallet share, particularly across our key accounts. An exceptional market-based industry solutioning and AI specialist cadre drives this by staying laser-focused on continually crafting business solution-led proactive deals and solutions. Twenty one large deals in FY26 is reflective of the success of that engine and that cadre. In FY26, in US dollar terms: The healthcare and high-tech vertical grew by 98%; The travel vertical grew 62%; The BFS vertical grew 12%; Government outside India grew 17.5%; Other emerging verticals, which include retail and manufacturing, grew 27%. Our key accounts drove significant growth this fiscal, outpacing the broader business. The top 5 accounts of the firm grew 45.8% year-on-year in US dollar terms, and accounts ranked 6 through 10 grew at 30%. Collectively, these 10 accounts contributed 30.8% of the total revenue, and they grew at 40.4%. We would like you to note that the top 10 clients are spread across industries. Five are BFS clients, three are travel clients, one is an insurance client, and one is a public sector client. Moving on to Order Intake - Q4 was a very strong quarter, both from an order intake and a large deal closure perspective. During the quarter, we signed five large deals. The total order intake during the quarter was 648 million US dollars. The executable order book, which reflects the total value of locked orders over the next 12 months, stands at a record 1.75 billion USD. This number is 16.4% higher than at the same time last year. This number does not include the impact of framework agreements that we have already signed and that are nearly assured revenue streams for FY27 and beyond. We expect revenue realized in FY27 from those signed framework agreements not accounted for in the signed order book to also be material. On the people front, our total headcount at the end of Q4 stood at 35,777. We saw a net people addition of 436 during the quarter. Utilization during the quarter stood at 82.5%. Last 12-month attrition for the quarter remains one of the lowest in the industry at 10.8 percent. We remain, as always, one of the lowest attrition firms across the industry.
Most enterprise AI pilots never reach production. The gap is not just the model, it is the surrounding architecture and the way the work gets delivered. Pilots run in controlled conditions that mask the structural issues production really exposes. We have closed this gap with two things built together: a reference architecture designed for production-grade behavior, and a delivery model that leads with business outcomes. Our reference architecture enforces deterministic guardrails around probabilistic LLM outputs, solving the two failure moats that trap clients in pilots, hallucinated domain logic, and lost agent coherence in long-running processes. This architecture, the reference architecture, has three layers: a business architecture layer, the decisioning engine or decisioning atlas, and a composable AI backbone.
Watch next