Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Positive/Crisil A1+’ ratings on the bank loan facilities of Coforge Ltd (Coforge).

 

The ratings continue to reflect the expectations of a sustained improvement in Coforge’s business risk profile, with steady double-digit growth in revenue, majorly through organic growth. Further, business risk profile is expected to benefit from the recently concluded acquisition of Cigniti Technologies Ltd (Cigniti). The company’s financial risk profile remains robust, supported by healthy capital structure and annual cash generating ability. The ratings, however, remain constrained by Coforge’s relatively modest scale of operations and concentration on the US market (~56% of revenues in 9MFY2025) as compared to some large domestic IT services companies amid intense competition in the IT industry.

 

Coforge has successfully raised funds to the tune of Rs 2,240 crore, through qualified institutional placement, to fund the Cigniti acquisition. Crisil Ratings notes that Coforge has acquired 54% stake in Cigniti and has taken over Cigniti’s board control as on July 05, 2024. Coforge has made a share swap arrangement with the minority shareholders (46%) of Cigniti through an open offer thereby making Cigniti a wholly owned subsidiary of Coforge and ultimately merging it. Through this acquisition, Coforge benefits from an enhanced business and financial risk profile. The company ventures into a new vertical in Retail, Hi-tech and Healthcare and gains an expanded presence in the US market. Coforge also benefits from the addition of customers from Cigniti and the business risk profile shall be aided through cross-selling of products and services to these new customers.

 

Revenues in fiscal 2024 grew by 15% on -year to Rs 9,179 crore, as against a single digit growth reported by the industry overall. This was supported by a healthy growth in the key verticals of BFSI, Travel and others through prudent cross selling services across segments. During the first nine months of fiscal 2025, the company reported revenues of Rs 8,781 crore, an on-year growth of 29% through the combination of Cigniti (ex of it, revenues grew by 10.4%). The said acquisition also adds to improved business risk profile of the company through its presence into newer verticals in Retail, Hi-tech and Healthcare; also expanding presence in the US market. While revenues could grow by ~25-30% in fiscal 2025 on factoring the Cigniti acquisition, a 12-14% growth is expected over the medium term. The company has also been able to maintain a steady operating profitability level of 17-18% over the last few fiscals through several cost optimisation measures. During the first nine months of fiscal 2025, the operating margins fell to 13.07% from 15% in previous corresponding period, due to the integration expenses related to the Cigniti acquisition. Crisil Ratings believe the margins are expected to remain at 13-14% levels in fiscal 2025 due to these integration costs from the acquisition while normalizing to previous levels of 16-17% over the medium term.

 

Aided by healthy capital structure through robust networth and comparatively low debt, Coforge continues to demonstrate a strong financial profile as on December 31, 2024. The cash accruals largely remain sufficient to meet cash flow needs, and the company is expected to close net debt free this fiscal. Any significant debt-funded acquisition which alters the debt protection metrics is a key monitorable.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Coforge and its subsidiaries, in which it holds direct or indirect majority stake, because of common management and strong business and financial linkages. Additionally, Crisil Ratings has amortised goodwill on acquisitions for ten years.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Consistent growth in operations despite industry challenges while maintaining steady profitability: Coforge’s revenues registered a healthy growth of 29% in the first nine months of fiscal 2025 (ex of Cigniti it grew by 10%) as against a single digit growth in the industry in the same period. Despite a challenging macro-economic environment, Coforge’s presence in critical and niche product and services offerings have aided the healthy growth of 22% in the banking and financial services sector, 22% growth in the insurance sector, 45% growth in travel, transport, and hospitality (TTH) and 46% growth in others (incl. Cigniti acquisition) during Q3FY2025 demonstrating its foothold with the customers. Operating margins for the first nine months of fiscal 2025 stood at 13.07% which has moderated from 15% in previous period owing to the Cigniti integration expenses.

 

• Niche service offerings with diversified revenue mix across verticals and practices: Revenue comes from a mix of IT services to the BFS (27.5%), insurance (18.8%), TTH (18.1%), Government outside India (6.9%) and others (28.7%). Among the practices, it has a diversified portfolio spread across Engineering (41.9%), Intelligent automation (8.9%), Data and integration (22.4%), Cloud and infrastructure management (19.1%) and business process management (7.6%). Through the Cigniti acquisition, Coforge will benefit through an expanded presence in the BFSI segment and venture into new verticals of Retail, Hi-tech and Healthcare. While prudent acquisitions have augured well for the company; it has also demonstrated healthy growth organically too. During the first nine months of fiscal 2025, 56% of revenue accrued from America; 34.2% from Europe, the Middle East and Asia (EMEA); and the remaining from other geographies.

 

• Healthy financial profile: As on December 31, 2024, debt of Rs 687 crore, comprised mainly of short-term borrowings. Networth has doubled itself from the previous period and stood over Rs 6,145 crore as on December 31, 2024. While the company has acquired entities as also seen historically, their modest sizes and healthy cash positions have not necessitated substantial contracting of debt. Financial risk profile is also supported by liquidity of Rs 947 crore as on December 31, 2024. Continuing strong networth amid moderate capital expenditure (capex) and healthy cash accrual should keep financial risk profile healthy over the medium term. The debt protection metrices are expected to remain healthy below unity over the medium given the low debt and improving profitability. Any significant debt-funded acquisition which alters the debt protection metrics is a key monitorable.

 

Weaknesses:

• Average size of operations: The company is a mid-tier player in the Indian IT industry, as reflected by revenues of Rs 9,179 in fiscal 2024. This restricts the pricing flexibility and the ability to bid for large orders and marquee clients. Nevertheless, the scale is expected to improve post the acquisition of Cigniti.

 

• Exposure to intense competition: The IT industry in India is challenging because of intense competition among local players and entry of multinational corporations that are continuously expanding their offshore operations in India. To offset this, players must continuously acquire and retain customers, maintain an efficient cost structure, and ensure effective labour retention and utilisation. The revenues and margins remain exposed to forex risks as revenues are derived from the international market. Protectionist measures adopted by governments across the world remain yet another business challenge for Indian IT companies.

Liquidity: Strong

Liquid surplus stood at Rs 947 crore as on December 31, 2024. Expected cash accrual of about Rs 1,200-1,500 crore per annum over the medium term is likely to be sufficient to fund dividend payments, moderate capex (~Rs 500 crore) and augment liquid surplus. The company has also repaid the outstanding NCDs of Rs 340 crore through its surplus liquidity. Fund-based limit of Rs 988 crore (incl. limit of $17.20 million in the US and $ 57 Mn in UK) was moderately utilised at 66% in the 12 months through December 31, 2024.

Outlook: Positive

Crisil Ratings believes Coforge’s business risk profile will further improve with robust growth in revenues supported by the Cigniti acquisition which will also improve the company’s market position. This combined with its comfortable financial risk profile to improve overall credit risk profile

Rating sensitivity factors

Upward factors:

• Steady double-digit growth in revenue and sustained operating profitability at 15-17%
• Sustenance of strong financial risk profile and better liquidity

 

Downward factors:

• Slowdown in key verticals leading to decline in revenue and fall in operating profitability to below 12%
• Sustained moderation in debt protection metrics because of continued debt-funded acquisitions or large capex
• Depletion in liquid surplus

About the Company

Coforge is an IT company providing end-to-end software solutions and services. It was formerly known as NIIT Technologies Ltd and was incorporated in April 2003 when NIIT Ltd (NIIT) spun off its software solutions business (excluding knowledge solutions) into a separate legal entity. The company is currently a professionally run business with an independent board of directors.

 

On a consolidated level, in the first nine months of fiscal 2025, the company reported revenue of Rs 8,781 crore (Rs 6,820 crore in the corresponding period of fiscal 2024) and net profit of Rs 628 crore (Rs 606 crore).

Key Financial Indicators (Consolidated)

Particulars	Unit	2024	2023
Revenue	Rs crore	9,179	8,014
Profit after tax (PAT)#	Rs crore	836	745
PAT margin	%	9.10	9.27
Adjusted debt (including leases)/adjusted networth	Times	0.19	0.19
Interest coverage	Times	11.76	16.65

#Adjusted for goodwill amortisation

Crisil Ratings adjusted numbers

Any other information: Not Applicable