M&As Remain an Integral Part of Coforge's Growth Strategy Coforge has consistently outpaced large-cap peers in constant currency growth, with total contract value (TCV) expanding 6 times from USD 507 million in FY18 to USD 3.5 billion in FY25, supported by steady large-deal wins.
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Mergers and acquisitions (M&As) remain an integral part of the overall growth strategy for Coforge, according to a report by Emkay Research based on its annual report and interaction with the management.
"It has helped the company in capability expansion, market entry, and portfolio diversification as well as differentiation," the report stated.
In FY25, Coforge made a string of strategic acquisitions. It acquired Hyderabad-based Cigniti Technologies to expand capabilities in digital assurance and engineering services. Then, it acquired US-based Xceltrait Inc., to enhance it ServiceNow capabilities.
In the same fiscal year, it acquired Rythmos to strengthen its data practice and cloud engineering capabilities, coupled with deep industry knowledge in the airline sector, and it acquired TMLabs to enhance its digital engineering capabilities in the Australian market. It also entered into an asset purchase agreement with OptML Inc. and its shareholders, to acquire customer contracts, key managerial personnel, employees and subcontractors/vendors of OptML Inc.
Coforge delivered strong and consistent revenue growth performance on the back of a) execution discipline and strong delivery, b) focus on driving growth through solution-based large-size managed service deals, and c) sharp focus on building deep domain SME (Subject Matter Expert)-led specific engineering competencies, the report said.
Coforge has consistently outpaced large-cap peers in constant currency growth, with total contract value (TCV) expanding 6 times from USD 507 million in FY18 to USD 3.5 billion in FY25, supported by steady large-deal wins.
"Even during the Covid period, despite a 20 per cent contribution from the travel vertical, Coforge sustained growth momentum in FY21 through diversification and execution strength. Strategic acquisitions such as SLK Global (BFSI) and Cigniti (quality engineering and digital assurance) have expanded the company's addressable market and sharpened its capabilities across high-growth verticals. Such inorganic moves, coupled with organic traction, drove 19.5 per cent USD revenue CAGR in FY20-25, ahead of the industry," the Emkay report stated.
Coforge's contract costs rose 82 per cent YoY to INR 7.3 billion in FY25 (6.1 per cent of revenue vs 4.4 /0.5 per cent in FY24/18), indicating a shift toward multi-year constructs anchored by the Sabre program. Non-current contract costs increased 86 per cent YoY to INR 5.8 billion (79 per cent of total), consistent with elongated payout tails and amortization horizons of mega deals like the 13-year USD 1.56 billion Sabre engagement.
The report further stated that Coforge's operating margins remained under pressure in FY25, due to an increase in ESOP-related costs and "other expenses" – primarily resulting from an increase in a) legal and professional cost due to M&As, b) subcontractor cost attributed to M&As, deal ramp-up, etc, and c) other production cost mainly due to the amortization component tied to the contract cost.
"Despite such near-term pressures, the management remains confident of achieving EBITM of about 14 per cent in FY26. This outlook is supported by expectations of lower ESOP-related expenses, continued revenue growth momentum, improved operating leverage from SG&A optimization, absence of one-offs, and a shift toward offshore delivery," the report stated.
