Coforge Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Growth accelerates, led by travel: Constant-currency revenue grew 31.2% sequentially in Travel, driving overall momentum; BFS declined 1.1% QoQ but grew 32% YoY, with large deals seen as "near imminent."
• Margin held flat despite multiple headwinds: EBIT margin stayed at 13.2% as higher amortization, depreciation from an AI data centre deal, subcontractor costs, deal ramp-up, and visa renewals were absorbed; management targets 14% reported EBIT for FY26.
• Five large deals won, Cigniti cross-sell firing: A second top-3 Cigniti client was won this quarter, and the third is being pursued as one of the largest opportunities; the firm aims to close at least 20 large deals this fiscal year versus 14 last year.
• AI platform and agent launches signal build-out: AgentSphere (100+ foundational agents) and Forge-X (10X productivity in legacy modernization) were launched, alongside agentic AI solutions on the ServiceNow marketplace.
• What to watch next quarter: Whether the "near imminent" BFSI large deals materialize, the pace of margin expansion as deal ramp-up costs recede, and the trajectory of the top 6-10 client correction expected in Q2.

Growth Drivers & Execution Model

• Execution intensity as a metric: Management tracks the weekly count of proactive large-deal proposals submitted as its single most important performance measure, arguing this discipline underpins sustained accelerating growth.
• Big-bet persistence: The firm claims it has never given up on a big bet; if a bet underperforms, the team is reassigned but the bet is always delivered on, creating a culture that does not walk away from commitments.
• Hyper-specialization and engineering assets: Growth is attributed to deep specialization in select industries plus proprietary platforms like Forge-X and the Quasar AI marketplace, which now holds over 100 case examples.
• Competitive positioning: 19 of the top 20 clients were won against large-scale system integrators, a fact management uses to argue the firm is taking share from incumbents rather than competing only on price.

Sudhir Singh: "For us Coforge, the single most important measure for turning in year after year sustained performance is every week's count of proactive large-deal proposals submitted."

Vertical Performance

Margins: Headwinds Absorbed, Expansion Path Set

• Q1 margin walk: EBIT margin held flat at 13.2% despite higher amortization of intangibles from recent acquisitions, increased depreciation from the AI-powered data centre deal, higher subcontractor expenses from the Cigniti acquisition, ramp-up costs for one of the largest deals (~1,000 people onboarded before billing starts), and increased visa costs from typical Q1 renewals.
• Historical Q1 pattern: Management noted that Q1 margins typically get depressed by ~100 bps even without wage hikes, making the flat outcome a relative positive.
• FY26 trajectory: Q2 should benefit as deal ramp-up onboarding costs are now behind and operational leverage plays out. Q3 will see an ESOP cost reduction of 80-90 bps that offsets the wage hike headwind. Historically, margins expand post-Q1.
• 14% EBIT target: Management believes it has established a path to deliver 14% reported EBIT in FY26 itself, calling it "doable" on a like-to-like basis versus the 13.2% reported in Q1.
• Disclosure shift: Margin commentary will now focus on EBITDA and EPS rather than adjusted EBITDA, with comprehensive P&L, balance sheet, cash flow, EBITDA and EPS reconciliation provided in the management fact sheet.

Sudhir Singh: "As our industry pivots, there will, over time be a new set of leaders and winners. It is our intent to be at the head of that select pack."

Deal Wins & the Cigniti Cross-Sell Engine

• Five large deals in Q1: (1) AI-infused app modernization for a top-3 Cigniti client, US-based, $30M+ TCV, using GitHub Copilot and Quasar Accelerators; (2) digital transformation on Pega Cloud for a North America client; (3) workplace platform transformation with AI-enabled Microsoft Services for a North America client; (4) building a GCC to transform exchange operations for a Middle East client; (5) technology infrastructure transformation for an Asia client to scale CAC services.
• Large-deal definition: Management gives sales credit only for deals that are not renewals, calling renewals "table stakes." The firm aims to close at least 20 large deals this fiscal year versus 14 last year.
• Cigniti cross-sell in action: A second top-3 client of Cigniti has now been won, different from the one won last quarter. The third top-3 client is being pursued as one of the largest opportunities in the pipeline.
• Sabre deal ramp: The largest deal signed last quarter continues to ramp sequentially in Q2; headcount is expected to stabilize from Q3 onwards.

Sudhir Singh: "We give credit to our sales teams only for deals that are not renewal. We believe that renewals should be table stakes."

AI & Platform Build-Out

• AgentSphere: Launched with over 100 foundational agents addressing industry pain points across travel, financial services, and healthcare, signaling a move toward packaged, repeatable AI solutions.
• Forge-X: A unified delivery platform applying AI to accelerate software development; its Code Insight AI component delivers 10X productivity gains in legacy modernization, a capability that directly supports the app-modernization deal pipeline.
• ServiceNow marketplace: Agentic AI solutions launched, including SmartGen Change, which ranks among the top 5 partner-created AI agents on ServiceNow. DisputeXelerate, a prepackaged dispute management solution, is now offered on the ServiceNow financial services platform following a successful US rollout.
• Partnerships: Partnered with Zscaler to launch Secure Access 360 on Microsoft Azure for zero trust access, and with Snowflake to introduce a data insights retrieval AI system on Snowflake Cortex.
• Client AI examples: A GenAI solution for a large multinational bank's wealth/private banking division delivers real-time analysis and automated transcription, built with a hyperscaler. AI streamlining for a leading European bank covers customer onboarding, loan processing, and business banking.

Balance Sheet, Capex & One-Time Items

• Data centre deal: $85M invested over two quarters in an AI-powered data centre; $62M was received as an advance from the client (deferred revenue), with the remaining $23M funded via a 3.5% term loan. The asset is capitalized on the company's books, has a 5-year useful life, and is not dedicated to a single client. No further data centre plays are planned in the short to medium term.
• Capex outlook: Capex will taper down to original levels of 2-3% of revenue for the rest of FY26; the recent increase to ~5% was a blip driven entirely by the data centre deal.
• EPS adjustments: Reported EPS of Rs.9.5 includes an $8.4M one-time gain from the AdvantageGo sale, offset by an exceptional legal cost provision for a cybersecurity breach from two years ago (with E&O insurance coverage, the provision will be reversed upon settlement) and a $5.5M broad-based employee bonus provision. Normalized EPS is Rs.9.
• One-time bonus: The Rs.458 crore bonus was not part of the existing bonus plan, was decided during the quarter, and will not recur next quarter, through the year, or next year.
• Working capital: Total working capital cycle stands at 101 days, composed of 64 days billed, 24 days unbilled, and 13 days in contract assets.
• Merger timeline: Exchange approvals for the Coforge-Cigniti merger have been received; the first motion has been filed with the NCLT. The effective date of the merger is April 1, 2026, with the process expected to conclude around December 2025 or January 2026.

Guidance & Commitments

Key Metrics