'Conditions Apply': Coforge analysts decode the company's big and 'bold' deal

Analysts having coverage on Coforge Ltd. have cited multiple conditions for its latest acquisition to emerge as a successful one for the company, with some even citing multiple concerns associated with it.

After market closing hours on Friday, Coforge announced the acquisition of US-based Encora for $2.35 billion, creating a combined entity with ~$2.5 billion in revenues and ambitions to play in the big league of AI, product engineering and cloud-led services.

The company is paying nearly $2.5 billion for an acquisition that has close to $600 million in estimated revenue for the year. Analysts who track the stock have not downgraded or upgraded it, they have highlighted the conditions under which the transaction can be successful, while also stating that there are concerns that come with it. Here's a look at those in detail:

Kotak Institutional Equities

The brokerage has maintained its "buy" rating on Coforge with a price target of ₹2,250. It said that while the asset is good in their view, its pricey.

While there are strong revenue synergies and some cost synergies available, they will require good execution, given he ongoing demand environment and considerable risks involved, the Kotak note said.

Kotak's note also stated that sharp and immediate execution of synergies will be key to driving the acquisition towards the stated outlook of EPS accretion in financial year 2027, which they believe, is a "challenging task."

Motilal Oswal

Motilal Oswal too, has maintained its "buy" rating on Coforge with a price target of ₹2,500.

It wrote that Encora will add capability and depth to Coforge, but integration will be a key monitorable going forward and while there is limited clarity at this stage on the integration approach, the past evidence is supportive.

Referring to Coforge's past deals of SLK Global and Cigniti, Motilal Oswal wrote that these acquisitions were largely client-led, while this one is more capability and leadership-led, making talent retention and execution discipline more critical, given the large scale of the deal.

Nuvama

Nuvama's "buy" rating on Coforge comes with a price target of ₹2,250.

The acquisition is likely to create an AI-native engineering, cloud, and data services powerhouse for Coforge, and also expand its geographic presence.

Nuvama likes the acquisition and transaction structure, calling it Coforge's "biggest and boldest" yet, and adding hat Encora will further accelerate Coforge's growth.

DAM Capital

Although DAM Capital as maintained its "buy" rating on Coforge with a price target of ₹1,800, it has highlighted multiple concerns with the transaction.

First, it is paying a price-to-sales multiple of 4.6 times, which is in-line with its trading multiple in financial year 2025, for a business that is delivering only 7% to 8% organic growth, compared to Coforge's mid-teens.

Second, the assumption of EPS accretion hinges on a swap at ₹1,815 per share, which is a 8.5% premium to Friday's close, along with amortization of intangibles, which is 20% of Encora's equity value over a 12-14-year period, which is longer than the usual industry norm.

Third, absence of any meaningful lock-in for incoming PE shareholders such as Advent and Warburg Pincus, could lead to incremental supply pressure on the stock, while integration risks remain as with any large acquisition.

However, considering the acquisition anticipation, the stock has corrected over 11% in the last three sessions and now trades at 26.7 times its estimated financial year 2028 earnings, offering some valuation comfort, DAM Capital stated.

Shares of Coforge had ended 3.7% lower last Friday at ₹1,674. The stock is now down 13% so far in 2025.