From a deal perspective, the acquisition is meaningful both in size and impact. Rahul Jain, from Dolat Capital speaking to ET Now, said, “This is a significant transaction from a size perspective and adds about 30% plus to the current run rate of revenue.” He noted that Coforge’s ability to combine strong organic growth with bold acquisitions has helped it grow faster than many peers, adding that “their historical strong organic growth and consistent bold step on the M&A side as well has helped them scale much faster,” while emphasising that “all this scale also help in the organic side of the business.”
The Encora deal is also expected to strengthen Coforge’s position in key verticals such as healthcare and high-tech. Jain pointed out that “this transaction bring in two specific vertical expertise be it on the healthcare side or on the high-tech side.” He added that management has already articulated the need to broaden offerings and deepen exposure in select markets, noting that “to scale from this point they need to widen the canvas in terms of service offering, vertical addition,” and highlighting that “they have done well on the cross synergy point of view as well.”
Funding for the acquisition has been another area of focus for investors, particularly around potential dilution. Jain explained that “the bigger transaction value, it is funded through a share swap,” limiting incremental equity issuance. He said any further fund-raising would be linked to the debt being assumed as part of the deal, stating that “the QIP would only be required to take care of the 500 odd million of debt.” On dilution, he added that “the dilution would not be significant… maybe another 5% to 6%.”
Despite Coforge trading at a premium valuation relative to several IT peers, Jain believes there is still headroom if execution remains strong. He acknowledged that “from a pure absolute multiple point of view… it is trading at 28-29 times,” but argued that “if we look at the growth premium… it is actually trading quite reasonable.” Drawing on past experience, he noted that earlier scepticism had given way to strong returns, saying “because it delivered well, it gave out of proportion return.” Summing up, he said “the risk-reward is favourable… it definitely provides an opportunity for people who believe in their execution skill.”
As Coforge moves into the integration phase, the focus will remain on synergy realisation, balance-sheet discipline and consistent delivery. While the Encora acquisition significantly broadens the company’s strategic canvas, its success will ultimately depend on how effectively these plans are executed in the coming quarters.
