Coforge Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Exceptional quarter, 5.9% sequential CC growth: Execution intensity drove the strongest Q2 in recent memory, with the executable order book up 26.7% YoY to \$1.63 billion and large deal velocity accelerating.
• 14% EBIT margin now a hard floor: Management committed that if the 14% reported EBIT target is hit in FY26, it becomes the minimum threshold for all future years, with any surplus reinvested into growth.
• AI is reshaping the delivery model, not just the pitch: Revenue per employee is nudging \$70,000 as proprietary platforms (Code Insight AI, BlueSwan, EvolveOps) embed AI into legacy modernization, quality engineering, and infrastructure management.
• Cigniti acquisition proving transformational: The largest deal currently being pursued came from Cigniti's client portfolio, two of its top three clients have already signed large deals, and key leadership talent has been absorbed.
• What to watch next quarter: The 100-150 bps wage hike impact on Q3 margins, whether EMEA's pent-up demand converts into closed deals, and the pace at which the executable order book converts to revenue.

Growth & Demand Environment

• Broad-based momentum: The 5.9% sequential CC growth was led by the travel vertical at 6.4% in dollar terms, with banking, insurance, and travel all showing positive trends.
• Demand is mutating, not shrinking: Management argues that AI has changed the nature of demand but addressable demand continues to grow at a solid clip, with banking benefiting from lower interest rates, regulatory shifts, and real-time payments infrastructure, while insurance enters an above-trend growth phase with P&C growing ~4.5% per year and L&A growing ~5% per year.
• Large deal velocity accelerating: Five large deals were signed in Q2 and ten in H1, versus fourteen in all of last year, with the median deal size also increasing.
• EMEA recovery expected: Delays and slowdowns in new opportunities and sign-offs over the last couple of quarters are now reversing, with management expecting significant upside over the next two quarters as pent-up demand in insurance and public sector converts to closed deals.
• H2 outlook robust: Management stated H2 will be a robust growth half over an already strong H1, with Q4 traditionally one of the strongest quarters and pipeline growth supporting the outlook.

Sudhir Singh: "Demand front, we talked about it over the last few quarters as well. We continue to believe that demand, especially with the advent of AI, has mutated, but the addressable demand continues to grow at a solid clip."

Large Deals & Order Book

• Five large deals in Q2: Three from North America (two insurance, one new airline) and two from Asia Pacific. Two of the three North American deals were new clients opened with a large contract.
• Deal composition: One North American deal focused on legacy modernization of mainframe; the new airline deal centered on digital transformation across data services and IT services; the third North American insurance deal optimized operations by implementing AI-infused modern AMS and QE using Coforge's own platforms.
• Executable order book surge: The \$1.63 billion order book, up 26.7% YoY, was driven by deals signed outside the large-deal category plus the ramp-up of deals signed in the previous quarter that had not yet fully ramped, increasing 12-month revenue without new intake.
• Sabre deal at steady state: No further ramp-up is expected, and the rebadging exercise is completely over.

AI Strategy & Delivery Model

• Proprietary platforms embedding AI: Code Insight AI targets legacy modernization and reverse engineering, EvolveOps AI anchors the Mission Zero initiative in cloud and infrastructure management (over 25 clients completed a full year without a single P1 incident), and BlueSwan QE AI platform (from the Cigniti acquisition) accelerates quality engineering.
• Quasar AI platform update: Now offers multi-framework agentic support, secure RAG as a service, and smart LLM routing, positioning Coforge to help clients navigate the next 18-24 months of competing AI standards and tools.
• Agentic AI in production: Agentic production support resolves L1 and L1.5 issues in nightly ETL cycles, delivering cost savings and optimizing margins on managed service contracts. A leading broker-dealer fintech chose Coforge to design and build its agentic AI platform for financial advisory workflows, and another US airline selected Coforge for an enterprise agentic AI framework on AWS Agent Core.
• Revenue per employee rising: Tech services RPE is nudging \$70,000, illustrating the impact of AI-led platforms, though management says it is early days and a more definite view will emerge in 2-3 quarters.
• AI implementation complexity underestimated: Real value from AI requires deep engineering across cloud, data, and tooling for LLMs and SLMs, a complexity that management believes plays to Coforge's strengths and explains why large deal velocity continues to increase despite macros.

John Speight: "I think people have underestimated the complexity of implementing AI across the enterprise. Yes, you can do a POC here and there, but to actually get real value out of it needs deep, deep engineering prowess across the whole infrastructure from cloud, data, and then obviously the tooling of actually using that data into your LLMs, your SLMs, and so on to actually derive insights and value."

Margins & Profitability

• 251 bps sequential EBIT expansion: Reported EBIT margin reached 14%, up 251 bps QoQ and 240 bps YoY, though a hedge loss adversely impacted EBIT by 78 bps while ESOP cost reduction gave a 20 bps upside.
• PAT improvement: PAT at 9.4% of revenue, up 82 bps QoQ and 275 bps YoY, with PBT up 410 bps QoQ due to FX gains and the absence of a \$3 million exceptional legal expense from Q1.
• Gross margin driver: SG&A costs reduced because people moved from unbilled delivery and overheads to billing, causing gross margin to go up.
• Q3 margin headwind: Wage hikes effective 1st October will impact margins by 100-150 bps, partially offset by lower ESOP costs, declining depreciation and amortization as a percentage of revenue, and other levers. The intent is for smart improvement in Q4 to reach the 14% level.
• 14% as floor, not ceiling: Once 14% EBIT is hit this year, management commits to that as the minimum threshold going forward, with the primary aim being to prioritize growth over any further EBIT improvement. Anything above 14% will be reinvested for growth.

Sudhir Singh: "If we do hit the 14% reported EBIT margin plan for the year, we will, at a minimum, irrespective of the changes in the macros, commit ourselves to delivering on that as the minimum threshold going forward in the years to come."

Cigniti Integration & M&A

• Acquisition vindicated: Management described the Cigniti acquisition as one of the best decisions made over the last nine years, noting that the largest deal currently being pursued came from Cigniti's client portfolio, and two out of the top three Cigniti clients acquired over the last five quarters have already signed large deals.
• Talent absorption: Key leaders including the CMO, data automation leader, and QE practice head came from Cigniti.
• Merger timeline: NCLT approval has been received and the company has been asked to convene a creditors and shareholders meeting. Once the date is set, the meeting must be convened within 35-40 days, after which the second motion filing goes back to NCLT. Completion is expected by the December/January timeframe, with minority interest taken off effective 1st April 2025.
• Cross-selling runway: Management declined to give a timeline for how long the cross-selling and up-selling opportunity remains applicable, stating only that it "is likely to keep on getting strong."

Sudhir Singh: "As we reflect back as a team, Sumeet, we think that one of the best things and one of the best decisions that we ever made as a team over the last nine years was the Cigniti acquisition. You will recall that we got a lot of flak for that acquisition going into that acquisition."

People, Operations & Cash Flow

• Headcount and utilization: Net addition of 709 people, with utilization at 82.3% and attrition falling to 11.4%, one of the lowest in the industry. Hiring was light at 2% because the company focused on utilization, not just headcount addition, while moving into a seasonally weak quarter with holidays and furloughs.
• Revenue per headcount gap: Revenue per headcount increased from \$67k to \$69k as nonlinearity plays out, with headcount added towards the end of last quarter having no full-quarter revenue contribution. Subcontracting was not a factor.
• Free cash flow: FCF increased to \$37.1 million, with an FCF to PAT ratio of 86%. Credit line reduction lowered interest expenses. On a sustained basis, management expects FCF to PAT at around 70% to 80% going forward.
• DSO increase explained: Year-on-year growth of 31% inflates DSO because the calculation uses last twelve months revenue, and currency movement also impacts. If calculated on the current quarter run rate, DSO numbers would fall significantly. Management focuses on maintaining FCF to PAT of 75-80% to address DSO concerns.
• Unbilled revenue: The increase is not just due to Sabre; any development contract or large contract has upfront effort with requisite billing milestones, creating a timing difference between customer approval and billing. Long-term unbilled revenue has always existed, and there has been an increase in liability as well.

Sudhir Singh: "We believe on a sustained basis, you should expect free cash flow to PAT at around 70% to 80% going forward."

Guidance & Commitments

Key Metrics