Coforge's $2.35-Billion Encora Buy Draws Cautious Thumbs-Up From Brokerages

Coforge Ltd.'s move to acquire California-based Encora in a $2.35 billion deal has drawn a measured but constructive reaction from brokerages, who broadly agree that the transaction is strategically sound but financially front-loaded.

The deal strengthens Coforge's hand in AI-led digital engineering, even as it brings dilution, integration and margin delivery sharply into focus, analysts said.

The acquisition values Encora at an enterprise value of $2.35 billion, including $1.89 billion of equity to be issued via preferential shares at Rs 1,815 per share (about 21% dilution) and $550 million of debt, which Coforge plans to retire through bridge financing or a QIP.

Encora is expected to deliver around $600 million in FY26 revenue, growing at about 13% CAGR over FY23–FY26, with adjusted Ebitda margins near 19%. Post-acquisition, the combined entity is expected to run at around 14% Ebit margins, including amortisation of intangibles, with management guiding for EPS accretion over time.

Dolat Capital said the acquisition is strategically compelling, as it materially scales Coforge’s capabilities in AI-first product engineering, data and cloud. It highlighted Encora’s strong presence in HiTech and Healthcare, and its Latin America nearshore base with 3,100+ engineers, as key positives.

However, Dolat flagged three risks:

• Earnings dilution due to 21% equity issuance

• Integration and execution risk in a large cross-border deal

• Margin trajectory amid amortisation costs

The brokerage firm noted that while revenue upgrades for FY27–28 are meaningful, EPS cuts in the near term reflect the cost of growth. It expects volatility around the QIP and fundraise, even as the long-term positioning improves.

DAM Capital said the Encora acquisition is “strategically transformative”, giving Coforge instant scale in AI-native digital engineering and expanding its $10 million-plus client bucket to 45, improving cross-sell visibility.

The brokerage also underlined that the deal will strengthen Coforge’s AI stack, diversify delivery footprint across India and Latin America and accelerate entry into digital-native and platform clients.

But DAM Capital emphasised that the acquisition is financially demanding. It pointed to:

• Equity dilution of 21%

• Assumption of $550 million debt

• Dependence on bridge financing and a potential QIP

DAM Capital said the valuation of around 3.9x FY26E revenue and nearly 20.6x Ebitda is “full but justified” given Encora’s growth profile, but stressed that EPS neutrality depends on margin delivery of over 15% by FY27.

Coforge share price settled 3.7% lower at Rs 1673.25 on the BSE on Friday, ahead of the deal announcement, compared to a 0.4% decline in the benchmark Sensex. The stock is down 13% this year.

Of the 38 analysts tracking the company, 28 have a 'buy' rating, four recommend 'hold' and six suggest 'sell', according to Bloomberg data. The average of 12-month price targets indicates a potential upside of 20%.