Coforge’s all-equity acquisition of Encora signals a major shift in AI-driven engineering growth

Coforge’s landmark $2.35 billion all-equity deal to acquire US-based AI-native engineering firm Encora aims to transform its scale and capabilities, highlighting a strategic move into the accelerating digital engineering and AI services sector amid ongoing industry consolidation.

Motilal Oswal has reiterated a BUY recommendation on Coforge after the Indian IT services firm unveiled a landmark all‑equity acquisition of Encora, a US‑based AI‑native engineering...

company, in a transaction valued at an enterprise value of $2.35 billion. According to Motilal Oswal’s analysis, the deal, if completed, transforms Coforge into a roughly $2.5 billion revenue group and supports a target price of Rs2,500, implying about 49% upside from the stock’s cited level of Rs1,673.

According to a Coforge press release, Encora brings a reported FY25 revenue base of $516 million and some 9,300 engineers, with management projecting Encora to reach about $600 million in FY26 and an adjusted EBITDA margin near 19%. The company said the combination would create a leading AI‑driven engineering franchise, with AI‑led engineering, cloud and data services alone expected to generate roughly $2 billion by FY27. Motilal Oswal highlights that the transaction immediately strengthens Coforge’s Hi‑Tech and Healthcare verticals, each cited as running at about $170 million post‑close.

Deal structure and funding
The transaction is being marketed as an all‑share swap that issues equity consideration of roughly $1.89 billion: Encora shareholders are expected to hold around 20–21% of the enlarged Coforge share capital on completion. Reports from Business Standard, ICICI Direct and others note a potential bridge loan or QIP of up to $550 million to retire Encora’s term debt, and Coforge has indicated the deal remains subject to customary regulatory and shareholder approvals with closing envisaged in four to six months.

Motilal Oswal’s modelling assumes a 21.25% dilution and provides a proforma view: combined FY26 revenue of about $600 million for the enlarged entity, an adjusted EBITDA margin near 19% and a proforma EBIT after intangible amortisation of roughly 14%. The research house projects EPS accretion from inception and models a path to higher revenues and margins through FY28, with consolidated revenue and profit numbers that underpin its Rs2,500 target.

Valuation and financial impact
Motilal Oswal places the implied valuation at around 4.5x FY25 EV/sales for Encora, above some prior scaled engineering transactions, and argues the premium is justified by Encora’s higher revenue per employee (cited at approximately $74,000 versus Coforge’s $69,000) and its nearshore delivery mix. The note projects a FY28 multiple of about 32x on FY28E EPS to justify the target; proforma metrics shown by the broker included a projected RoE of about 24.8% by FY28 and an EV/EBITDA of roughly 11x that year.

Industry coverage of the deal corroborates several of these assumptions: multiple outlets report Encora’s stronger billing metrics, its Fortune‑1000 client relationships (including 11 clients contributing north of $10 million annually) and an enlarged North American footprint that could lift Coforge’s North America revenue by about 50% to more than $1.4 billion. Analysts cited by Indian media also note Coforge’s intention to fund the equity portion via preferential allotment and to potentially raise proceeds through a QIP to refinance Encora debt.

Synergies, risks and execution
Motilal Oswal and other commentators point to cross‑sell opportunities, improved access to West‑ and Mid‑West US accounts, and Latin American nearshore scale as structural benefits that could drive a mid‑teens EBIT margin post‑amortisation. The broker flags potential general‑and‑administrative savings of 1–2% and client mining as further upside not fully baked into base valuations.

At the same time, all sources stress execution risks. Integration of 9,300 engineers across geographies, retention of key talent, realising projected cross‑sell synergies and managing intangible amortisation charges (reported in Motilal Oswal’s work as roughly $37–38 million annually over 13–14 years) are material near‑term challenges. Business Today and New Indian Express reports note differences in how the deal may be funded in practice, some pieces emphasise a preferential equity issue while others mention a greater role for bridge debt, and these mechanics will matter for near‑term leverage and dilution outcomes.

Market implications and investor guidance
Motilal Oswal’s technical commentary offers tactical levels, a defended base near Rs1,600, resistance at Rs1,800 and an intermediate target path to Rs2,100 en route to its Rs2,500 objective, while presenting a conservative Rs2,200 and optimistic Rs2,800 scenario depending on synergy realisation. The research house frames the acquisition as a strategic move into an accelerating vendor‑consolidation cycle in digital engineering and AI services, where mid‑tier firms with scale and AI capabilities can command premium multiples.

Taken together, company statements and independent coverage portray the Encora takeover as a transformational but complex combination: it markedly increases Coforge’s scale, enhances its AI‑native engineering credentials and expands its North American reach, while posing integration and funding execution tests that investors will monitor closely as regulatory clearances and the financing plan crystallise.

Source: Noah Wire Services