Detailed Rationale

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

 

On December 26, 2025, Coforge signed a definitive agreement to acquire 100% of Encora (Encora US Holdco, Inc, and Encora Holdings Ltd) at an enterprise value of $2.35 billion. In an all-stock transaction, the sellers (Advent International and Warburg Pincus) will receive $1.89 billion through a preferential allotment of Coforge’s equity at Rs 1,815.91 per share, translating into ~20% ownership in the combined entity. In addition, Coforge is evaluating a qualified institutional placement (QIP) issuance of up to $550 million to retire the existing debt in the books of Encora. The transaction is subject to shareholders and regulatory clearances and is expected to close within the next six months.

 

Crisil Ratings forecasts that even in a scenario where the QIP option is not exercised, the consolidated leverage, as measured by the ratio of net debt to earnings before interest taxes, depreciation and amortisation (Ebitda), will not weaken beyond ~1 time in fiscal 2027 (0.38 time in the first six months of fiscal 2026). Coforge’s acquisition of Encora will scale the company into a ~$2.5 billion (Rs 23,000 crore) business with the hi-tech and healthcare verticals reaching a $170 million run-rate and strengthening Coforge’s presence in the West and Mid-West US. Coforge’s existing business will also benefit through cross-selling capabilities across the combined client base to drive growth, and the cost synergies will aid margin expansion.

 

The ratings continue to reflect Coforge’s established market position in the Indian information technology (IT) services sector with consistent growth in operations and steady profitability despite industry challenges, and niche service offerings with revenue diversified across verticals and practices. The ratings also factor in the company’s healthy financial risk profile. The strengths are partially offset by Coforge’s high revenue dependence on the US (~54% of revenue in the first six months of fiscal 2026) and intense competition in the IT industry.

 

Coforge’s consolidated operating income grew 31% on-year to Rs 12,091 crore in fiscal 2025, supported by the acquisition of Cigniti Technologies Ltd (Cigniti), outpacing the industry’s single-digit growth and demonstrating strong execution capabilities. Growth was driven by strong performance in the banking, financial services and insurance (BFSI) and travel verticals as well as the new verticals such as retail, hi-tech, and healthcare acquired through Cigniti, fueled by effective cross-selling. Coforge's revenue grew 40% on-year to Rs 7,674 crore in the first half of fiscal 2026, driven by the impact of Cigniti and other acquisitions. Coforge’s order book expanded ~6 times to $3.5 billion in fiscal 2026 from $507 million in fiscal 2018 supported by steady large-deal wins in the travel and BFSI segments. Notably, the share of new wins (across existing and new customers) in total contract value (TCV) numbers has increased, strengthening the business risk profile. Coforge’s revenue is projected to grow 25-30% in fiscal 2026, driven by healthy 12-month execution pipeline, with artificial intelligence (AI) adoption supporting medium-term growth. The company’s operating profitability improved to 17.1% during the first six months of fiscal 2026 from 14.4% in the corresponding period of the previous fiscal. The margin remained low at 14.3% in fiscal 2025 because of Cigniti-related integration and QIP expenses. Crisil Ratings believes Coforge’s operating margin will remain healthy at 17-18% in fiscal 2026 and over the medium term in the absence of one-off expenses and backed by selling and overhead cost optimisation and improved operating leverage.

 

Aided by healthy capital structure through robust networth and comparatively low debt, Coforge maintained its strong financial risk profile as on September 30, 2025. The company undertook capital expenditure (capex) towards an AI-powered data centre in Thailand for an outlay of ~$85 million as on September 30, 2025. The funding structure partly cushions the burden with $62 million recovered through client advances and the remaining financed through a term loan of Rs $23 million. The cash accrual will largely remain sufficient to meet cash flow needs, and the company is likely to close fiscal 2026 with nil net debt.

Key Rating Drivers - Strengths

Consistent growth in operations and steady profitability despite industry challenges

Coforge has demonstrated steady revenue growth, with compound annual growth rate (CAGR) of 24% over the five years through fiscal 2025. The growth has been fuelled by organic expansion and prudent acquisitions in niche offerings and capabilities. The company registered healthy growth of 43% in the first six months of fiscal 2026 as against single-digit growth for the industry. In a challenging macroeconomic environment, Coforge’s presence in critical and niche product and services offerings aided healthy growth of 17% in the banking and financial services (BFS) sector, 6% in the insurance sector, 61% in travel, transport, and hospitality (TTH), 15% in the government outside India and 31% in other segments in the first six months of fiscal 2026, demonstrating its strong relationship with customers. Operating margin for the first six months of fiscal 2025 stood at 17.1%, up from 17.0% in the corresponding period of the previous fiscal owing to improved operating leverage and value-based deal execution. Coforge’s acquisition of Encora will help scale the company into a ~$2.5 billion (Rs 23,000 crore) business backed by cross-selling capabilities across the combined client base.

 

Niche service offerings with revenue diversified across verticals and practices

Revenue comes from a mix of IT services for the BFS (27.6%), insurance (15.1%), TTH (23.3%), government outside India (7.0%) and other segments (26.9%). Coforge has a diversified portfolio spread across engineering (46.1%), intelligent automation (7.8%), data and integration (21.2%), cloud and infrastructure management (17.1%) and business process management (7.8%). Coforge has benefited through an expanded presence in the BFSI segment and ventured into new verticals of retail, hi-tech and healthcare through Cigniti’s acquisition. Coforge’s acquisition of Encora will help the hi-tech and healthcare verticals reach a $170 million run-rate. While prudent acquisitions have augured well for the company, it has also demonstrated healthy organic growth. During the first six months of fiscal 2026, 59.2% of revenue accrued from America; 30.4% from Europe, the Middle East and Asia (EMEA); and the remaining from other geographies.

 

Healthy financial risk profile
As on September 30, 2025, debt of Rs 971 crore largely comprised short-term borrowings of Rs 469 crore and term loans of Rs 138 crore and the balance was lease-related debt. Networth has doubled since March 31, 2024, to Rs 8,923 crore as on September 30, 2025. While Coforge has acquired entities to support growth in operations, their modest sizes and healthy cash positions have not necessitated substantial debt. The company undertook capex towards an AI-powered data centre in Thailand for an outlay of ~$85 million as on September 30, 2025. The funding structure partly cushions the burden with $62 million (73%) already recovered through client advances and the remaining $23 million (27%) financed through a Thai Baht–denominated term loan of $23 million at interest rate of ~3.5%. Coforge’s financial risk profile is also supported by liquidity of Rs 559 crore as on September 30, 2025. Continuing strong networth amid moderate capex and healthy cash accrual should keep the financial risk profile healthy over the medium term. Leverage is expected to remain healthy below unity over the medium given the low debt and improving profitability. In the event of large acquisitions, too, Crisil Ratings does not expect Coforge’s net debt to Ebitda ratio to exceed 2 times. Any sharp increase in debt leading to weakening of the financial risk profile will be monitored.

Key Rating Drivers - Weaknesses

High geographical concentration risk

The company is a mid-tier player in the Indian IT industry, as reflected by revenue of Rs 12,0591 crore in fiscal 2025. This restricts pricing flexibility and the ability to bid for large orders and marquee clients as compared to some large, top tier domestic IT players with revenue in excess of Rs 1 lakh crore. Moreover, in line with trends in the global IT services industry, Coforge derives a significant portion of its revenue (59.2% in the second quarter of fiscal 2026) from the US followed by 30.4% from EMEA and the remaining from other geographies. The acquisition of Encora will increase Coforge’s presence in the US. This exposes the company's revenue and earnings to structural and region-specific challenges in the US. That said, through organic growth with key wins from existing customers as well as inorganic growth, the company has outperformed its peers in terms of sector growth and this is expected to continue over the medium term.

 

Exposure to intense competition

The IT industry in India is challenging because of intense competition among local players and entry of multinational corporations which 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. Revenue and profitability remain exposed to fluctuations in foreign exchange (forex) rates as revenue is 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 559 crore as on September 30, 2025. Crisil Ratings expects the cash accrual to remain healthy at Rs 1,200-1,500 crore per annum over the medium term. The cash accrual will be sufficient to meet term debt obligation of Rs 193 crore during fiscals 2026-2028 pertaining to the Thai Baht denominated loan as well as dividend payments and capex, and will augment the liquid surplus. Bank limits of Rs 989 crore were utilised 73% on average over the 12 months ended August 31, 2025.

Outlook Stable

Crisil Ratings believes Coforge’s business risk profile will remain healthy despite the prevailing softness in demand and global headwinds in the IT services industry, supported by the company’s robust order book and recent acquisitions. The company is likely to sustain healthy operating profitability over the medium term. The financial profile will remain adequately supported by strong annual cash generation and limited capital spending, ensuring strong debt metrics.

Rating Sensitivity Factors

Upward Factors

• Sustained high double-digit revenue growth, driven by improved market share and product diversification, with operating profitability sustained at 17-18%
• Continued 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 14%
• 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 a professionally run business with an independent board of directors.

 

On a consolidated level, in the first six months of fiscal 2026, Coforge reported revenue of Rs 7,674 crore (Rs 5,382 crore in the corresponding period of fiscal 2025, related to continuing operations) and net profit of Rs 782 crore (Rs 373 crore).

Key Financial Indicators (consolidated; Crisil Ratings adjusted numbers)

Particulars	Unit	2025	2024
Operating income	Rs crore	12,091	9,179
Profit after tax (PAT)#	Rs crore	742	836
PAT margin	%	7.74	9.10
Adjusted debt (excluding leases)/Adjusted networth	Times	0.09	0.12
Interest coverage	Times	18.75	14.62

#Adjusted for goodwill amortisation of Rs 194 crore in fiscal 2025

Any other information: Not applicable