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Coforge Ltd

| Q2 FY2026 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤24th Oct 25

Summary : Coforge delivered exceptional Q2 FY26 results, driven by strong AI-led growth, robust order intake, and healthy margins, with a positive outlook despite macro uncertainties.

Management Perspective positive : Management repeatedly used phrases like 'exceptional quarter', 'robust health of the business', 'sustained, robust, and accelerating growth story', and 'extremely bullish' on certain geographies and teams.

Concall Report Analysis & Insights

Business Overview

  1. Coforge reported an exceptional Q2 FY26 with 5.9% sequential constant currency growth.
  2. EBIT for the quarter was 14%, reflecting robust business health and margin progression.
  3. The 12-month signed order book reached a record $1.63 billion, up 26.7% year-on-year.
  4. AI is deeply embedded in delivery models, transforming core business and BPO services.
  5. Employee attrition fell to 11.4%, one of the lowest in the industry.

Future Growth Prospects

  1. Committed to sustained, robust organic growth for the ninth consecutive year.
  2. AI-driven service portfolio, including proprietary platforms, fuels durable revenue growth.
  3. Banking, insurance, and travel verticals show positive demand trends and solid outlook.
  4. Healthcare and public sector outside India are growing rapidly, nearing critical mass for separate reporting.
  5. Cigniti acquisition provides strong cross-selling opportunities and leadership talent.

Management Insights

  1. Q2 FY26 was an exceptional quarter, reflecting robust business health across key operating metrics.
  2. Execution intensity, delivering on strategies, is Coforge's core DNA, especially with AI transformation.
  3. AI platforms like Code Insight AI, BlueSwan, and ForgeX are integrated into delivery models.
  4. Committed to a minimum 14% EBIT margin going forward, prioritizing growth over further margin expansion.
  5. The Cigniti acquisition has been a fantastic integration, bringing in new clients and leadership.

Risk Factors

  1. Uncertain macros continue to swirl around the industry.
  2. Hedge losses impacted reported revenue and EBIT.
  3. DSO has increased due to significant year-on-year growth and currency movements.
  4. Wage hikes will impact Q3 margins, though levers exist to partially offset.

Good To Know

  1. NCLT approval for Cigniti merger expected by December/January, effective April 1, 2025.
  2. Healthcare vertical may be carved out for separate reporting in Q1 FY27 once it reaches $100 million.
  3. John Speight has been added to the Board, while Gautam has resigned.
  4. The company aims to maintain free cash flow to PAT ratio at 70-80% going forward.
  5. ETR on a sustained basis is expected to be roughly 23.5% to 24%.

Key Drivers

  1. Exceptional Q2 FY26 financial performance.
  2. Record 12-month signed order book.
  3. Strong AI-driven service portfolio.
  4. Sustained robust organic growth.

Key Analyst Discussions

Competitive Environment

  1. AI is seen as a clear tailwind for firms that understand domain and apply relevant AI technology.
  2. Coforge prioritizes growth and investment over expanding margins beyond the 14% minimum.
  3. The company's execution mentality and AI engineering prowess drive value for clients.

Market Trends & Consumer Behavior

  1. Demand is increasing on the margins, with positive trends observed in banking, insurance, and travel verticals.
  2. EMEA experienced delays in new opportunities but is expected to recover with significant upside.
  3. Australia, New Zealand, Asia-Pacific, and Middle East are trending very positively.

Financial Highlights

  1. Management aims for sustained robust growth, minimum 14% EBIT, and 70-80% FCF to PAT.
  2. The gap between CC and dollar revenue growth is attributed to hedge losses, currency headwinds, and India business growth.
  3. DSO increase is due to 30% YoY growth and currency impact, with focus on maintaining FCF to PAT.
  4. Wage hikes will cause a 100-150 bps margin drop in Q3, partially offset by ESOP and depreciation.
  5. Discounting income on long-term contracts is recognized as 90% revenue upfront, 10% as other income.

Product Composition

  1. Healthcare growth is driven by AI for patient care, end-to-end platforms, and focus on payer/life science.
  2. Cigniti acquisition has led to strong cross-selling, with large deals already signed from its client portfolio.
  3. AI-led platforms are driving an upward trend in revenue per employee, though it's still early days.

Strategic Considerations

  1. The second half of FY26 is expected to be a robust growth period, with Q4 traditionally strong.
  2. The company will continue to focus on robust organic growth and strategic acquisitions.
  3. The increase in the 12-month executable order book is due to new deals and ramping up of previous quarter's deals.
Coforge Ltd (COFORGE) Concall Report Analysis & Insights | Dhanarthi