Coforge’s turnaround story is one for the books. But what now?

But it hasn’t always been a growth story. The Noida-based company started as a division within NIIT Technologies Ltd in 1992. As a small software services division within an organization largely focused on computer learning, it did not see much growth.

That is until Sudhir Singh took the helm as the chief executive in 2017-18. Close on the heels of this ex-Infosys executive who swears by a hands-on approach to management, Baring Private Equity Asia joined the company’s cap table in April 2019. The private equity firm later raised its stake to 70%, taking over control from the promoters. Since then, there has been no looking back.

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A company that had been growing at a modest compound annual growth rate (CAGR) of 11.3% in the six years up until 2017-18 moved into the fast lane by almost doubling its growth in the next six years. Rebranded as Coforge in August 2020, its turnaround story has been one for the books.

Niche business focus

A key element in Coforge’s turnaround has been its self-awareness. Unlike its peers who kept struggling to compete with the industry leaders, Coforge acknowledged that it could not efficiently compete with the biggies in their territory.

So, Coforge picked up a niche in the banking, insurance, and travel sectors. Its tech specialists developed a deep understanding of these businesses, allowing them to develop solutions in sub-segments largely overlooked by the large players. For instance, Coforge developed Pega for workforce automation in the banking sector, AdvantageGo for insurers to manage costs and risk, and Monalisa for cloud-based airline solutions. It also partnered with Duck Creek for insurance solutions.

Of its $1.1 billion revenue in 2023-24, more than 15% came from Pega and Duck Creek alone. They have grown exponentially from $7 million to $110 million and from $5 million to $70 million, respectively, over the last seven years.

People-led turnaround

People have been a key pillar of Coforge’s success. Instead of poaching leaders from tier-2 peers, the who’s who of tier-1 IT companies were brought in to steer the business and from locations close to the clients.

Furthermore, thanks to its focused strategy on specific sub-segments, the company was able to hire subject matter experts with practical experience in the sectors. In addition, the sales force incentives were quadrupled to bring in large margin-accretive deals, while delivery incentives were tripled.

The company has seen unparalleled senior leadership stability in an industry known for high attrition. Of the 14 key executives who led the turnaround at Coforge, all but one are still leading the business. Extending beyond the top brass, the overall attrition rate of 11.9% is also one of the lowest in the industry.

All in all, the efforts across the corporate ladder were streamlined to align with the long-term business vision.

Another quarter of stellar performance

In Q3FY25, Coforge’s top line and operating profit grew by around 40% year-on-year to $397 million and $70.5 million. Esops, merger expenses, and depreciation led to a mellower 10% growth in profit after tax (PAT) to $32 million. For the second consecutive quarter, it won deals worth more than $500 million, taking its trailing 12-month fresh order intake to more than $2 billion and extending its revenue visibility.

Coforge announced a 13-year contract worth more than $1.5 billion with struggling travel tech provider Sabre. Notwithstanding issues in receivables, this is the largest deal ever secured by Coforge and is expected to supplement 2025-26 revenues by $80-120 million.

While such large deal wins could add to customer concentration risk, which has ticked up in the December quarter, they are expected to help operational leverage and improve margins. From 17.8% in the third quarter, the company aims to expand its Ebitda margin by 1.5-2.5 percentage points by 2026-27. Ebitda is short for earnings before interest, taxes, depreciation and amortization.

Markets celebrated the latest quarter’s earnings. Coforge shares jumped by 12% on a single day but gave up the gains in a week.

Next growth phase

Coforge has corrected by 20% in 2025 so far, partly due to mid-double-digit corrections in the mid-cap and IT indices. But there is also a company-specific factor at play. While a niche focus has helped Coforge so far, the management acknowledges that the next leg of growth will have to come from playing the same game as the large players.

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Moving away from its currently concentrated exposure of 65% to BFSI and Travel, Coforge is looking to expand beyond niche services in its focus sectors, as well as into new sectors such as healthcare, retail, and global public sector. It will also need to move away from low-code and no-code software services, which contribute about 15% to its revenue and have a weak competitive moat.

It has entered emerging technologies by building relationships in cloud computing with AWS and ServiceNow, and in customer relationship management with Salesforce. In artificial intelligence, it has developed Quazar for document processing and has been leveraging ChatGPT for insurance use cases. It is also exploring the metaverse for its clients in the travel sector.

It’s disadvantage

Coforge is planning to drive growth by expanding in North America. While North America contributes 56% of Coforge’s revenues, the broader Indian IT sector derives about 70% of its revenues from the region. This is to say that Coforge will have to meet larger players head-on in North America.

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While Coforge is aiming for a $2 billion revenue by 2026-27, it is much smaller in scale compared to peers and ranks 10th in India by revenues. Larger players have deeper and longer client relationships, as well as a larger workforce to offer services quicker and at a much larger scale. They also have deeper pockets to offer near-shoring services, which is the need of the hour in the new world era of protectionism.

Inorganic expansion risks

Over the years, Coforge has made several acquisitions, including RuleTek, Wishworks, SLK Global, and Cigniti. SLK Global has grown from $60 million in 2020 to $100 million. Cigniti Technologies was acquired in May 2024 to help Coforge broaden its reach into North America. Thanks to synergies with Coforge, Cigniti’s revenues have grown 3.5% sequentially, and its operating profit margin has expanded from 11% in the March quarter of 2023-24 to 17.3% in the latest reported quarter.

The latest in the series of acquisitions have been Xceltrait, Rythmos, and TMLabs. The pace of expansion has accelerated in recent years and could turn margin-dilutive depending on the margin profiles of the acquired businesses.

Moreover, in this new leg of growth that needs agility and cohesive vision, the democratic decision-making of a board-run company could play spoilsport. It will have to be seen how Coforge navigates these challenges.

For more such analyses, read Profit Pulse.

Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser. X: @ananyaroycfa

Disclosure: The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.