Coforge Limited (COFORGE.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Coforge Limited conference call with analysts and institutional investors. [Operator Instructions] This conference is being recorded. We have today with us from the management team, Mr. Sudhir Singh, CEO; Mr. Saurabh Goel, CFO; and Mr. Manish Hemrajani, Head of IR. We will begin the call with opening remarks from the management team and post that, we will open the floor for questions. With that, I now hand over the call to Mr. Manish Hemrajani. Over to you, sir.

Thank you, Swapnil. Good afternoon to everyone on the call, and thank you for joining us today to discuss Coforge's acquisition of Encora. Please note that we'll only be talking about the acquisition on this call and don't plan to take other questions on business. Before we begin, a reminder that today's discussion may include forward-looking statements, which involve risks and uncertainties. Actual results may differ materially, and Coforge assumes no obligation to update these statements. With that, I'll now hand the call over to our CEO, Mr. Sudhir Singh.

Thank you, Manish, and we apologize for the poor audio quality in the opening remarks that Manish put in. He was offering the standard safe harbor statements. And with that context, ladies and gentlemen, it is our absolute pleasure and a great privilege to welcome you to what we believe is a very important announcement, and dare I say, a very thrilling one. I trust that during the call today, the choice of words and the tone that you hear, Saurabh and me use, will be a testament to the excitement that we see and we feel today and to the immense possibilities that we think that this development [indiscernible] Coforge. With that, let's kick this off with the prepared context. Ladies and gentlemen, the current leadership of Coforge came together 8.5 years back. Over the last 8 years, the firm has delivered one of the highest growth rates of any mid or large cap tech services firm in the industry. This sustained, robust, profitable industry-leading growth has been achieved on the back of an execution intensity that is uniquely our own. It was aided by the hyper specialization on select industries and exceptional capability depth in emerging technologies. While most of the growth has been organic, it is important to note that every one of the acquisitions that we've done over the last 8 years, and I mean every one, has been very successful. Over the last 8.5 years, the revenue run rate of Coforge has gone up almost 5x, and the market cap of Coforge has increased almost 20x. It is our intent to ensure that the next 8 years see us maintain and improve upon the sustained business performance of the previous 8 years that I just shared. We hope to continue to be the industry leaders when it comes to revenue growth with increasing margins and in investor value creation. As we pursue the same, we recognize that a new era of enterprise tech is emerging, one where AI driven by cloud and data is becoming the engine of enterprise reinvention. The next-gen enterprise will have its business capabilities defined and executed via a combination of humans and AI agents, underpinned by an enterprise data core and a cloud foundation that is purpose-built for AI. In that context, Coforge believes that the acquisition of Encora is a defining moment for our organization, and I mean a defining moment. It establishes a scaled AI-led engineering, data and cloud services-based capability moat for the firm. This, allied with Coforge's hyperspecialized industry expertise and execution intensity, is likely to further accelerate our industrial-leading growth. It also sets us up as the tech services firm that is likely to be the first to deliver upon the promise of the AI-infused future that lies ahead of our industry. You will note that this transaction is an all-stock deal, where the sellers, including Advent International and Warburg Pincus are rolling over into Coforge and not taking any consideration as cash. This reflects the confidence that the incoming shareholders have in the prospects of the expanded firm. Let me move very quickly to an overview of Encora. Born in the Silicon Valley, California, Encora is one of the select technology services firms with an AI-native DNA that provides software engineering services for digital native companies and Fortune 1000 enterprises. Encora works with the convergence of AI, cloud, data with service offerings that span intelligent process design, agent native product engineering, core modernization, AI foundation, data readiness and AIOps. Encora has created one of the industry's first composable AI platforms, it's called AIVA, to deliver integrated Agentic orchestration and software engineering services. With composability at its core, AIVA lets organizations compose their own intelligent workflows across engineering and business functions. Key attributes, and I will talk about five that are unique to Encora and position it as a transformative AI-led engineering disruptor include: One, it already has a core AI native asset, an internal Agentic platform. The AIVA AI platform is not a slideware accelerator, it is a composable Agentic platform. Two, unlike most AI-native startups, this firm already operates inside Fortune 500 enterprises and has institutional memory inside accounts with multiyear tenured engineers and very high advocacy. Three, its delivery model is already human plus agent with significant internal adoption of Agentic tooling and a road map to transition from horizontal agents to verticalized agents. Fourth, it has a talent composition that matches AI-native winners, not legacy SIs. It is not a labor arbitrage play but is a compound engineering asset, which is a prerequisite for AI-native firms. With significant presence of onshore and nearshore LatAm-based SMEs, it is one of the firm's closest to making the forward deployed engineers paradigm real in the distributed tech services model. And finally, five, this platform can become a service as software moat that is increasingly identified as the winning archetype in our changing industry. So with that introduction to Encora, let me talk about the five principal reasons, which underlie the acquisition rationale. Coforge's acquisition of Encora will create an approximately $2.5 billion tech services powerhouse with both the scale and capability across AI-led engineering, cloud and data services, to drive enterprise-grade AI solutions. This acquisition is highly synergistic and I will again call out five reasons that drive the synergies and five reasons that excite us immensely. Number one, AI-led engineering, plus data plus cloud services alone are likely to deliver $2 billion revenue in fiscal year '27. AI-led product engineering business for the firm is likely to be a USD 1.25 billion plus business in FY '27. Cloud services, a $500 million business and data engineering, a quarter of a billion, USD 250 million business. The second reason, HiTech and healthcare industry verticals of Coforge are expected to reach material scale immediately post acquisition. The HiTech vertical will be $170 million run rate business with several $10 million-plus relationships post acquisition. The healthcare vertical of the combined firm will be again a $170 million run rate business. Encora substantially expands Coforge's healthcare presence in pharma, in Medtech and in HealthTech and brings new AI-led solutions such as AI-Biomed research assistant, AI-enabled Patient Guardian, multiomics data ingestion and AI foundation for clinical trials. Number three, this will reposition Coforge as a player with scale up near shore delivery capability in LatAm with an exceptional engineering and AI talent-based servicing U.S. clients. Encora has a large and widespread nearshore delivery capability with more than 3,100 delivery team strength in its LatAm delivery centers. Number four, it will significantly expand the West and the Midwest U.S. client footprint of Coforge. Pre-acquisition, as you know, only 25% of Coforge's North America geo unit revenue came from the U.S. West and Midwest. This acquisition will provide a fillip to Coforge's North America growth plans. Coforge's North America business is expected to jump by around 50% to $1.4 billion post acquisition. Finally, and reason #5 is that the combined firm will now have 45, $10 million plus highly scalable relationships. Encora adds 11, $10 million-plus tenured client relations with its top 10 client relationship tenures averaging more than 10 years. Ladies and gentlemen, you know this, Coforge has an exceptional track record of growing acquired client relationships by effective cross-selling and upselling. The most recent evidence of this was the Cigniti acquisition, where all the $10 million-plus relationships have experienced strong, dare I say, very strong growth post acquisition. So those were the five reasons around the acquisition rationale. I'm going to request our CFO, Mr. Goel, to talk about the transaction details.

Thank you, Sudhir. So Coforge has signed a definitive agreement to acquire 100% shares of Encora from Advent International, Warburg Pincus and other minority shareholders. The enterprise value of the transaction is $2.35 billion, which will be financed as follows: Equity value of $1.89 billion paid in the form of equity shares through preferential allotment by Coforge. This will result in shareholders of Encora holding approximately 20% to 21% on a fully diluted basis, assuming the Cigniti merger will go through and shares will get allotted and number of shares will increase. We've also -- we are also looking at a bridge loan or a term loan or a QIP of $550 million to retire the term loan, which is in Encora. The pricing of the QIP will be determined by SEBI regulations at the time of the transaction. As noted earlier, this transaction is an all-stock deal with the sellers, including Advent International and Warburg Pincus are rolling over into Coforge and are not taking any consideration as cash. This reflects the confidence that the incoming shareholders have in the prospects of the expanded firm. QIP is one of the many funded options being considered only to retire the debt. If we do decide to do a QIP, it will only happen around closing, which is around 6 months away. We shall also explore other funding options other than QIP, and hence, there is a possibility that the QIP may never get triggered. The consideration has been agreed at a share price of INR 1815 per share, which is at a premium of 8.5% of today's close. The process and timelines for closing is as outlined below: Shareholders' approval will be secured within 30 days. We'll be launching the postal ballot today. Regulatory approvals are expected to take 4 to 6 months and Coforge to assume a debt in overseas geo to retire existing term loan in Encora on the date of closing, which is expected to be within, again, 4 to 6 months from signing and Coforge to evaluate launch of QIP, if required at that point in time. From a financial perspective, the consolidated turnover of Encora Group for financial year '26, the estimated number, and they follow April to March financial year, so estimated number for financial year '26, revenues are around $600 million and adjusted EBITDA of the firm is 19%. In FY '24 and FY '25, the consolidated turnover of the business was $481 million and $516 million, respectively. With Encora's current margin profile, and the anticipated synergies that we see in the business, the combined business is expected to operate at an EBIT margin of 14% post amortization of intangibles that will be created as part of the purchase price allocation for this acquisition. Despite the primary infusion, the deal is not expected to be EPS dilutive on a consolidated basis, because of the strong margin profile of Encora and expected synergies from the two businesses, that is Coforge and Encora coming together. With this, I will hand over the call back to Sudhir for his concluding remarks.

Thank you, Saurabh. As noted at the outset, the Encora acquisition is a defining moment for our organization. Over the last 8 years, Coforge has established a reputation for execution intensity, hyper-specialized industry expertise, a perfect track record of making every acquisition very successful and of course, of being one of the leaders when it comes to industry-leading growth. The new $2.5 billion firm with a $2 billion enterprise score of AI-led engineering, data and cloud services, we believe, will set the benchmark for making the promise of AI real for enterprises. In turn, this AI-infused core led growth is likely to move Coforge's already exceptional growth numbers to the next higher orbit. With that, and with those remarks, ladies and gentlemen, both Saurabh and I conclude our prepared remarks, and we both look forward to your questions.

Just before you start the Q&A, just one housekeeping remark. Please limit your questions to the acquisition only. We will not take questions on the business. Thank you.

[Operator Instructions] We'll take our first question from Abhishek Pathak of Motilal Oswal.

Am I audible?

Yes.

So a couple of questions from my side. Firstly, how should we or rather where should we place Encora's capabilities on the spectrum of, let's say, the higher value engineering services companies, which are listed in the U.S. versus a lot of sort of Indian peers that we compete against? So where does Encora compete with over there? That's the first one. Secondly, on the leadership sort of transition or rather, how are you sort of considering where would the leadership be sort of placed post 6 months of integration? And thirdly, sort of where does the key talent sort of for Encora sit? Is it in the U.S.? Is it in India? And how do you expect that to sort of move once you go ahead with the acquisition? And I'll get back in the queue for further questions.

Thank you, Abhishek. Encora ranks, as we said, it was -- it's an asset that was born in the Silicon Valley. It provides software engineering services for digital native companies. It ranks, we believe, and we've spent a lot of time working with the Encora team, at the highest level on the global pedestal when it comes to AI-led engineering offerings across the world. If you were to reflect on some of the services that they offer, these include agent native product engineering. They include AI foundation build. They include data readiness validation and creation, they run the entire gamut of services across AIOps. In terms of capability, this is once again just to reiterate, a firm born in the Silicon Valley, servicing some of the cutting-edge, leading HiTechs across the world, which would rank and stack up as one of the best, if not the best, in this space with the peer set anywhere around the world. Second, as far as the leadership transition is concerned, we will continue to follow the proven acquisition template that we have developed over the last 8 years as a consequence of which every one, with no exception, of our acquisitions has been successful. Changes to the op structure, reporting structure will only get finalized once we have effective control, post all regulatory approvals coming in. We shall communicate those changes over a period of time once we get the necessary regulatory approvals.

We'll take our next question from Vibhor Singhal of Nuvama Equities.

Am I audible?

Yes, please.

Congrats on this milestone acquisition. Two questions from my side. Sudhir, this acquisition definitely appears to be taking us into this direction of product engineering and design services, one of the maybe the white spaces that we were always looking to. But just -- if you could just maybe give us a bit of more color on basically how I think this acquisition is going to help us? The other two drivers that we had mentioned in the analyst meet regarding enhancing our presence on the West Coast and the Midwest in the U.S. and also in terms of diversifying our portfolio into other domains that we are looking at in terms of growth expansion. And second question for maybe both you and Saurabh is we've always maintained that our acquisitions will be EPS accretive from day 1. Do you foresee that in this case as well? And basically, if some financial details can be shared or are available in terms of how the numbers will flow from the margins to the PAT level in terms of the overall EPS accretiveness of the acquisition?

Saurabh, why don't you reassure the folks on the call about the EPS accretion and the margins, and then I'll come to the first question?

So Vibhor, thank you for your question. So, Vibhor, as part of the prepared remarks, the first thing we looked at while evaluating the firm, I mentioned that the firm will be EPS accretive. So they operate -- so their revenue is roughly $600 million in the current financial year. Obviously, we'll start consolidating from next financial year. Their margins around are 19-odd percent. I'm still not betting on how much synergies we would be able to get but there are significant synergies that will come out because -- purely because of the size of the 2 organizations coming together. And when we look at their depreciation and amortization, without the intangibles that are getting created, are almost 1%, 1.5% of EBITDA. So plus if we just do the math and look at the amortization of intangibles, it just gives us an EPS which is including the new shares that we get allotted. Because, as I mentioned, $1.89 billion of -- worth of equity is getting allotted. And if you look at the Regulation 30 that has been disclosed, it has been done at INR 1815 per share, which is at INR 88.77 or INR 89.77 is the dollar to INR conversion. So if you just do the math, you will get to know how many shares are getting allotted, which is close to 93 million shares and with $600 million of revenue, 19% EBITDA plus the synergy minus the current depreciation of 1%, 1.5%, minus the amortization and the tax will take you to EPS accretion.

Coming to the first question, Vibhor, the first question that you had around the capabilities, the reasons, see the way we look at it is this, if you look at us, we have an organic growth engine that's doing extremely well. The sales engine has proven not recently, but over 8 years. The execution intensity is best-in-class for 8 years. and the hyper specialization on domain is something that we take great pride in. When we add this asset and we look at what the firm becomes, we become a $2.5 billion tech services firm with a core $2 billion out of that $2.5 billion coming from AI-led engineering, data and cloud services alone. That's the first thing from a differentiation and the growth that it will drive for us perspective that we feel very confident about. The second thing, and we talked about this in earlier investor calls is, this -- the coming together of the two organizations stands up two scaled up industry verticals from the get-go. HiTech where we never had much of a presence and healthcare that we have been growing at a steady clip, both of them at about $170-odd million in terms of size are material, and we believe will really scale up. Third, and we've said this again in the past, we believe that our presence in North America, especially the U.S., has been very lopsided towards the east and the south. Having been born in the Silicon Valley, Encora has a preponderance of clients in the Midwest and the West. There is great geographic complementarity that comes in. Fourth, we have, as you know, been attempting to scale up LatAm for ourselves, but the Encora acquisition gives us more than 3,100 outstanding SMEs in the nearshore area, who are held in very high regard for their AI-led engineering capabilities. And finally, something that you've always heard us say. We said this when the Cigniti acquisition also happened. Post the acquisition, we as a firm will have 45 clients more than $10 million, and most of these are tenured relationships. Our track record, forget our confidence, our track record on acquisitions and scaling up clients has we believe, been exceptional. We think that's going to create a runway for growth. So when we look at Coforge and Encora coming together, it's not one of two new runways for growth that we see getting created, we see multiple getting created, and that's where the excitement stems from. That's where the confidence also stems from. Did I answer your question, Vibhor? Is Vibhor around?

Yes, we do have Vibhor here.

Okay, great. Let -- we can go to the next question, please.

Yes, sorry. I think the operator had put me on mute. I just -- can you hear me?

I can. I can. I was just checking if we had answered your question.

No issues, definitely, I think this is perfectly -- thanks for answering my question in that detail. Just one follow-up, if I have a small follow-up, if I can squeeze in. This type of an acquisition, Sudhir, I think at the enterprise value that we have, they tend to basically come slightly -- basically, I would say, slightly higher multiples. So any reason that you would say that the promoters of the entity wanted to exit? And why were they selling out if they were also kind of seeing a similar kind of runway of growth that we are able to? Or is it just that we were able to -- we will be able to complement their business much better than they could have individually done so? Just your color on that would be really helpful.

So Vibhor maybe let me take that. So see the sellers have not exited. They've actually rolled over. And I think there was not a process that was running on. So I think it's just that when the conversation started, the upside that was visible to the incoming shareholders who are actually -- eventually the sellers they saw that both the businesses coming together can create more value, and that was the confidence they had in both the businesses coming together and hence, this deal was stitched. So it's not that they were looking at cashing out, and that's why, as I said, not a single consideration has been paid in cash. It is an all-stock deal. And the only cash that will be used will be to retire debt, which is there in the company. Did we answer your question, Vibhor?

Okay, I think we again put him on mute.

Yes. Now, I'm back on mute. Just a bit of misunderstanding but yes, definitely.

We'll take our next question from the line of Kawaljeet Saluja of Kotak Securities.

Can you hear me?

Yes, please.

Congratulations on this massive transaction. My question is for Saurabh. Can you just walk me through the EPS accretion map rather math actually? Because if you look at this transaction, let's say it's $2.35 billion. You assume, let's say, 20% of that would go into intangibles. So that will be like $500-odd million, which if you amortize period of 7, 8 years, will give you a annual amortization charge of $70 million, $80 million a year. Now unless and until, you assume massive margin expansion, I'm just wondering as to how do you get to that EPS accretion map -- math, and I presume you're talking about GAAP numbers here.

Yes. So Kawaljeet, a couple of things. One, the valuation will be -- so the intangible will be around 20-odd percent. See but the life of the customer relationships will not be 7, 8 years, it will be anywhere between 12 to 14 years because of the 25-year tenure of the relationships that they have today, so keeping that in mind, depending upon -- now again, this is -- these are all off-the-cuff mathematics that we're doing because $2.35 billion also has a liability that is coming in. So the equity value is less. So when we assign customer relationships, maybe it was close to 20%, maybe 19%. But because the life of customer relationships will not be 7, 8, will be close to more towards 13, 14, because of that, the amortization would be again anywhere around $37 million, $38 million, $39 million. And with 25% [ETR] we should be able to get the same number that I was referring to. And I mentioned 19% is the current EBITDA. As I mentioned, there are significant synergies that are there, both on the G&A, S&M and operations side even if you assign a percentage or two plus the growth that we've been delivering in the past will get you the EPS that I was referring to.

Saurabh, is there a tax shield available on intangible amortization?

There are tax losses which are sitting in the balance sheet that we are acquiring, so that synergy is over and above.

Okay. The second question is just is that Encora has grown also. I mean they have used acquisitions strategically over the last few years. So can you detail what their organic growth rate would have been in FY '24 and FY '25?

So we will share that numbers later, but I think they've grown at a rate of 7% to 10% over the last two years. And before that, the growth rate was -- organic growth rate was close to 15%, 16%.

Okay. So how do you square off the valuation for the transaction? Because when I look at Coforge, I mean, it's a remarkable growth engine growing at 20% and in the implied valuation, you are assigning the same multiple to the revenues of, let's say, Encora, which has grown at, let's say, 10% versus let's say Coforge which seems to have a better growth engine working here?

So Kawaljeet, two parts to it again. One, we not only looked at revenue multiple, we have looked back to EBITDA multiple as well. And EBITDA multiples that has been assigned to Encora has been lower than what Coforge is today trading at, number one. Number two, we haven't assigned any benefit of the synergies that will come in because of either the cross-sell or the cost synergies that are anticipated, like we have seen in the past and after that, the valuation was done. So I agree, the revenue multiple is high or closer to Coforge, but the EBITDA multiple is lower because the profitability, the profile of the profitability of the firm is higher than Coforge.

Got that. Just if I can ask one more question. What is the total number of associates, which will come on board after this transaction?

9,200. 9,200 and yes, the other metric at 9,200 also gives us, Kawaljeet, is the revenue per employee also is significantly higher than Coforge. Our revenue per employee on tech services is higher than most of our peers but the Encora revenue per employee is, again, materially higher than even our revenue, RPE.

Got that. And Sudhir, just a final question for you. I remember at the Analyst Day, you did highlight that when you look at acquisition, you focused a lot on the customer profile that you can get on board. So when you looked at Encora what was the bigger weightage, the capability or the customer profile? If you can just shed some light on it, that would be great here.

Kawaljeet, Encora has been one of those very unusual assets that we've evaluated and had an opportunity to sit and have a conversation with things around where we found both the runways were very significant. The capability, of course, is cutting edge, and we think it's truly cutting edge. It's evidenced by the revenue per employee metric that we were just discussing. It's evidenced by the client roster that they have. It's evidenced by just the genesis of that firm, where it started off and who it works with. So that clearly is -- was a given for us, and that's the key metric that we looked at, capability. Client, of course, has been exciting, not just because 11 $10 million clients are getting added, it's also because of the tenure of these clients. The average tenure of the top 10 clients is more than 10 years. So again, just to summarize, one of those very few assets where we found both runways in play, normally, one has to pick an asset, choosing one of them. In this case, both of these were the capability and the client portfolio, both of it is extremely attractive.

We have our next question coming in from Manik Taneja of Axis Capital.

I hope I'm audible.

Yes. Please go ahead.

Congratulations to Coforge team for a bold acquisition. I had one clarifying question around data point. First of all, you mentioned that the EBITDA margin profile is about 19% currently. If you could talk about how their margins have trended over the course of last 3 years? That's question number one. The second question was basically while the incoming shareholders have rolled the stake into Coforge, is there a lock-in for them in terms of the stake that they hold at Coforge? And finally, your third question, while you did allude to the 11 USD 10 million plus customer base. If you could talk about between healthcare and HiTech, which is the industry segment that you are more excited about on a go-forward basis? Those were my questions.

So I'll take the margin question first. So their adjusted EBITDA margins historically has been in the range of 17% to 19%. They're actually hovering towards 19.5% now, 19% is for the year margin that they would achieve. And that margin, as I mentioned, was being delivered with or without any acquisition or anyone coming in. So that is on the EBITDA margin front. On, I think, the rollover of equity, maybe Sudhir, if you want to take that up?

So Manik, as Saurabh said earlier, the sellers, including Advent International, including Warburg Pincus are rolling over into Coforge and they are not taking any consideration as cash. As we said, this reflects the confidence that they themselves along with us have in the prospects of the expanded firm. In response to the earlier question, as I said, the growth runways that are created -- getting created as a consequence of the firms coming together, it's not one or two new access. It is multiple access, right? One is what you're referring to, healthcare and HiTech will be great prongs for growth. Second, LatAm having that talent pool will help us move forward. Third, the $10 million-plus relationships. Fourth, the geographic footprint expansion across the Midwest and the West. So that's answer to question number two. Answer to question #3, it's difficult to say whether it's healthcare, that excites us more or HiTech. Healthcare, as you know, we've been at it for the last 2 years, a $170 million business with very deep AI underlaid capabilities, we think will really ramp up with great speed. HiTech is an absolutely new vertical that is coming to us. It's again $170-odd million. It is underlaid by exceptional engineering capabilities and very tenured client relationships because this firm was born in the Silicon Valley and is headquartered there. Did we answer your questions, Manik?

Sure. No, that's quite helpful. The last one from my end, just a clarifying question in terms of -- Encora also has a deep leadership team in terms of how you're thinking about the org structure as the business merges into Coforge?

We've spent a lot of time, Manik, as you can imagine, given the size of the transaction and the excitement that we feel around what it does to our growth numbers and profitability numbers going forward. We have point of views. We've been working with them. The first conversation that we had with the sellers was almost 13 months back. So we've had a lot of time to reflect back, to examine, to spend time with the management team. Plans, if any, we would like to share once we have regulatory approvals. And while we do have, we like to think, a very good understanding of the strengths, and we are very excited about the SMEs and the leaders who are coming here, we will not be able to get into specifics at the current point in time until all regulatory approvals are in.

Our next question is coming in from the line of Rishi Jhunjhunwala of IIFL.

Sudhir two, three things here. Firstly, given such a large acquisition, are the -- while the existing investors are coming on board, is there any kind of consideration which is linked to future performance of the asset, if at all, in terms of either revenue retention versus what the existing client base is or revenue and margin targets that the asset needs to achieve? That is one. Second, can you give us some color in terms of what are we doing for the key leadership retention in Encora? And how does that play out? And thirdly, I'm not sure if you answered this earlier, but the investors who are coming in, are there any applicable lock-ins for their 20%, 21% stake?

So when it comes to the size of the acquisition, Rishi, you might recall that when we were a 12,000 people organization, we had acquired SLK, which was a 7,000 people organization. Of course, today, we are a 35,000 people organization acquiring a firm, which has 9,200 people. So in terms of relative sizes, from just a relative basis perspective, this is a smaller acquisition, and the SLK acquisition, as you know, had gone off exceptionally. From a leadership retention perspective, we will follow the same playbook that we've used in the past, which has been very successful. We have a point of view, and we will continue to work both with the sellers and the management team to make sure that the that the retention structures, including stocks and retention bonuses that we put in play are structures that are effective from our point of view, right? Saurabh, would you like to add anything to this?

No, I think, Sudhir, so you've answered it. So I think there are no -- the shareholding is already agreed. There's nothing to be done. Lock-in is beyond statutory lock-in and all the other details are actually part of the Regulation 30 and will be there in the postal ballot that is going out tonight because it will be coming up for shareholders' approval.

Rishi, did we answer your question?

Yes, yes. Thank you, if you can hear me.

Our next question is coming in from the line of Sandeep Shah of Equirus Securities.

Yes, can you hear me?

Yes.

My questions are slightly similar to what Kawaljeet has asked. If I look at the revenue CAGR over the last 3 years, it has been at 13%. Despite the company is more into AI-led new generation kind of practices. So in that scenario, don't you believe the growth could be better at their scale and that too new gen kind of services, which has a higher demand? And if I'm not wrong, there are some acquisitions they have also done in the past. Example, DMI in the February of 2025. So can you break down this 13% CAGR into organic and inorganic?

So as I mentioned that the organic growth over the last two years, just two years, was around 7%, 8%, and the reported numbers were higher. And even this year, FY '26 is an estimated number. The number that they have -- they will deliver or they've at least shared with us, they will deliver is higher than this. We have just taken a run rate of H1. The reported number of FY '26 will be whenever the FY '26 gets over. So that is point number one. And maybe on growth, Sudhir?

So Sandeep, when we look at the capability that this organization has and when we look at the client portfolio that they have, both in terms of size and in terms of tenure, when -- and we've looked at this for a while, we feel very confident that when you put the Coforge sales processes and execution intensity side-by-side with the capability that this team has, and it's a very strong team. and the clients that they have exceptional trust with, growth numbers should really see significant acceleration given the smaller scale of the asset also.

And just to add to that, as part of the diligence process, when we looked at the business, we looked at the client profile, top 30 clients over the last few years and the reason why there was either an upsell or a downsell. Because they had very -- even at $600 million, they were very sharply focused on AI-led engineering, data and cloud, nothing more than that. And now -- and because of which, maybe the growth in certain cases was muted because whenever the vendor consolidation was happening, they were not able to either participate in the larger RFP because they didn't have incremental services or additional capabilities that Coforge has. So I think everyone talks about cross-sell. As a firm, we have kind of delivered in the past. We have walked the talk. So I think we've done the analysis around how the cross-sell will play out both at the front end, at the back end after the closing is done, and that's why we believe that the growth rate will only accelerate rather than decelerate.

And very significantly accelerate is our conviction, not just a minor acceleration, we think very significantly accelerate.

Okay. Okay. And just the follow-up. Can you hear me?

Yes, yes, we can hear you.

Saurabh, just wanted to understand when you call out adjusted EBITDA, what is the GAAP EBITDA of that company? And amortization per annum at a gross level without tax, you've spoken about [37%, 38%]. So if I do the backward calculation, this company for your expectation of 14% consolidated EBIT margin need to do closer to 21%, 22% kind of EBITDA margin after the intangible amortization versus current being 19%?

So two parts to it. One, the adjusted EBITDA actually has only adjustments related to the initiatives they had taken, which -- because of which there were onetime costs that had come. For example, either to do with the transaction diligence or the acquisition that they do or any integration-related costs that had to happen. So adjusted EBITDA includes that. And as I mentioned, that historically, when you looked at whether we acquired SLK, whether we acquired Cigniti, the margin accretion that has happened on the EBITDA side has been very, very significant. Over here, we are only looking at maybe a couple of percentage points to be improved. And you can imagine if two organizations of this size, I mean, $600 million and $1.9 billion are coming together, there are significant synergies that will be played out, played out between -- both on the G&A front and at the front end. So at least keeping all of that in mind, we believe that at least 14% EBIT is not out of sight. And because they don't have any -- because they don't have debt, they have cash and the debt is more -- was more to do with leverage buyout. Operational, there is no debt. They don't have a working capital line. That is why we believe that at least the margins, the EPS will be accretive. So I think that's where we're coming from. Don't want to bet on beyond whether the amortization will be $37 million, $35 million or $38 million. And -- but whatever that number will be, will be -- but it will be within that [indiscernible]. I'm not even betting on the benefit that we will get on the accumulated amortization of the losses that we have in certain geos, which are profitable for us and the synergies on that front. So there are enough synergies, both on the front end, back end and the balance sheet that we are taking over, which gives us confidence that at least EPS accretion will be there.

Yes. Just last couple of few questions. So Saurabh sir, you are talking about intangible amortization could be in the range of $35 million to $40 million, which you say you finalized and let us know earlier -- after some time. And the second thing is I'm slightly confused if they have a debt and we also want to raise the equity, why not continue with that debt? Is it higher cost in terms of the debt in the books of the acquired company?

Yes. So that's a debt that is there wherein the current shareholders, it was a leveraged buyout. So there is a debt that is sitting there, which is very expensive. And we will have to retire that debt for sure. We are -- anyways, we are not saying that we will do QIP for sure. We are looking at funding options in the overseas geos. And that's why we mentioned and as part of my prepared remarks, we had mentioned that we are looking at both the options, taking debt overseas, depending upon at what cost it comes in. And we'll also look at options of -- other options of funding the retirement of debt that is there, but we will not continue with the debt that is currently there because it is not an operational debt. It was more of a structural debt in the business.

So if you do QIP, there will be further dilution and that, as of now, we are not calculating in our EPS accretive calculations as and when it happens...

So I have included if there is dilution. Only thing is, right now, not betting on whether -- see, because either we take interest cost or we take dilution. Right now, we don't know at what rate we will do QIP and what would it not? But even if I assume that the QIP is done at the current rate of INR 1815 and not below that, the EPS accretion will be there. The EPS will not be diluted.

We have our next question coming in from Sumeet Jain of CLSA.

Am I audible?

Yes, please.

Sudhir, if I look at your previous two acquisitions, SLK Global and Cigniti, I guess both of them, you mentioned were semi-distressed assets. And then you have a lot of synergies to turn them around. Whereas this time around it's a pretty high-quality asset with decent kind of a growth and very good margin profile. So can you just explain more deeper into the synergies what you are trying to create, both on the revenue side as well as on the cost side? I know you guys have mentioned around the geography card, the vertical card, the tenure of the clients but can you talk about the services beyond AI-led engineering, cloud and data, what they already have, what additional can you offer to those tenured clients, which can actually take up the growth of this asset from 7%, 8% of the last two years to probably mid-teens what Coforge has been delivering?

Sumeet, thanks for the question. As I said at the outset, we're not just confident of incremental growth, over organic growth over what Encora has recorded, we are confident of very significant growth. In the case of -- you're right, in your initial remarks about the fact that in the past, SLK and Cignity, the play that we had was largely focused on making sure that we mine the client portfolio, and we also had a certain play when it came to increasing the EBITDA profile of those firms, both of which in both instances, we did very successfully. In this case, when it comes to Encora, we are extremely excited about the client portfolio that they have, particularly the 11 $10 million plus clients, Coforge has 11 technology service lines. AI-led engineering is only one of them. As we've had conversations with leaders of the top accounts of Encora, it's very apparent to us that they have lost or walked away from a lot of business just because they did not have scale when it came to BPS, when it came to the AI-led [indiscernible], when it came in some cases to enterprise platforms, especially cloud-based ERP platforms, and in some cases, when it came to data and cloud-based operations as well. So a firm that's largely been focused on AI-led engineering and has had inched into data and cloud will now approach the market and the same 11, $10 million plus clients and the significant number of $5 million-plus plans they have with 11 technology service lines going in. Finally, when it comes to this asset, the point that Saurabh made earlier is we see significant revenue synergies, Coforge going together into existing Encora accounts. And also AI-led engineering capabilities now being crossed led very aggressively into the current Coforge existing clients. So there are revenue synergies and there are very, very significant cost synergies that we see because these are two scaled organizations coming together, both revenue and cost synergies should be very strong. Saurabh, would you like to add to that?

Yes. So on the margin front, yes, I totally agree. I mean, see, one, SLK Global was not a distressed asset. When we acquired, they were already operating at 18%, 19% margins. And when we took over them, there was a headwind that came in the business. It was a $70 million asset because of mortgage rates going up, it came down to $50 million And then not a single quarter, we came back and said that we have not grown because we have taken a hit in the BFS business of theirs in the mortgage side because of interest rates going up. So we were able to bring in front-end synergies and Sudhir has already elaborated. In Cignity, the margin profile of the business from 11% went up to 18.5% because obviously, the business was a distressed asset or was not operating at optimal level. Over here, we're only pegging around two odd percentage points, and that is just because of the G&A and a bit on the capability side, organizations coming together and synergies playing out because of leadership team, which is there, and because of the G&A functions, because of facility overheads, because of other overheads around -- investments around licenses and all of those. So just putting all of that together, just 2 percentage point is what we're talking about synergies to play out. The revenue synergies will be over and above, and it would be exponential. I'm not even betting on that right now. And that is why we get confidence that we'll be able to get synergies. We are not pegging 6%, 7% like we have done in the past, we are only pegging 2%. To your point, it's already an asset which is operating at a decent level.

Got it. No, that's very helpful. And secondly, just if you can comment around the changes to your Board. I guess, a couple of Board members will be appointed from Advent and Warburg Pincus. So what kind of changes are you expecting and how it will help to shape the direction of Coforge ahead?

We expect two members from -- two leaders from Advent to join our Board. Our Board is very excited to welcome these leaders. We expect them, of course, to bring the entire breadth of Advent's experience to bear as they work with the other six Board members to guide the Board. The second thing, of course, and we haven't talked about this is we will possibly be one of the largest, if not the largest, Advent investment in tech services, and we will explore working with Advent very closely and with Warburg as well. The opportunity to start radiating across their portfolio companies. You will recall that we -- since we don't have a promoter, since we don't have a large industry house behind us, most of the growth that has come our way is growth at the enterprise sales engine of Coforge has created. Now with Advent and Warburg -- two leaders from Advent on the Board, we will work with them to make sure that we go across all Advent portfolio firms and try to sell aggressively and expand our footprint there.

We'll take our next question from the line of Devesh Mehta of Invesco India.

I just want some context on who would be the -- or what is the sort of the top 10 clients, which Encora has? What's the concentration, which areas are they present in, just for some context?

Sure. So the top 10 client spread would be largely in line with the spread of their revenue mix by industry, which is heavily weighted towards HiTech, towards healthcare and towards bank.

Is it possible to clarify if it would be the hyperscaler, semiconductor companies or just to narrow it down a bit more? And what would be the contribution of top 5, top 10?

See, when it comes -- let me just bring it down first to HiTech. We did talk about the fact that when it comes to healthcare, there's significant presence across medtech, pharma. When it comes to HiTech, roughly about 30% of the revenue is coming from what the Encora leadership calls, the H1 firms, which are digital natives, 70% is the switch that's happened towards enterprise IT players in the HiTech space. Banking, of course, is spread more or less in line with the Coforge banking spread when it comes to clients. Did we answer your question, Devesh?

Yes, fair. And the client concentration, how that stacks up?

So client concentration is in line with probably around with Coforge. And if you look at their top 5 clients won't be contributing more than 19% to 20%. So it's -- that does not have a high concentration. It's pretty much diversified. And that's why we look at almost 11 accounts, more than $10 million coming into the mix. So not -- the concentration is almost mirroring Coforge right now.

Okay. And the revenue per employee, which they have and we have, I think if you take into the account that this asset is more on-site based, isn't this still a bit lower just if you try to compare it revenue per employee for them versus you, even if they are more on-site based then that number should be higher?

Yes. So their current revenue per employee is close to $74,000 per employee. And Coforge has a concentration towards U.S., U.K., Australia. Their concentration is near shore. So that is why the nearshore bill rates are not as high as U.S. or U.K. or Europe. And that is why when we look at the $74,000 per employee -- revenue per employee, that is -- and that is what leads to also higher margins that they have. I mean Sudhir, you want to add to it?

So Devesh, I just want to be clear. They don't have a very -- they don't have a predominant onshore delivery model. I just wish to be very clear. Their onshore percentage, delivery headcount distribution is more or less on par with what the Coforge headcount is. So they're not weighted there. Their non-on-site presence is split largely across India, which is where we operate from and from countries in the South American continent. So we just wish to be clear. And as we say, when you look at Coforge, our revenue per employee has jumped by about 17% over the last 12 months and on the technology side is $69,000 per employee. They are at $74,000. And that's why we made the earlier assertion that, that is a testament to the quality of the services and the pricing power that they have.

This is very helpful. Just one last question. If there is any ESOP pool for the -- if there is any ESOP pool for them, that will be from the existing or there has to be something fresh, which has to be created?

So as of now, I guess, we have enough in the pool to offer the leadership team.

[Operator Instructions] Ladies and gentlemen, due to a paucity of time, we will take that as a last question for today. I now hand over the call to management team for their closing remarks. Over to you.

Thank you very much for your interest and for your time, ladies, gentlemen. Saurabh, Manish and I will be in Mumbai and in Singapore on Monday and Tuesday. We shall endeavor to make sure that we offer more time to address any questions, any remaining pending questions that you might have. As we said, at the outset, this is, we believe, a defining moment for the organization. We look back to great satisfaction at what Coforge has accomplished over the last 8 years. We think this is the move that will ensure that the next 8 years are as, if not more, exciting than the last 8 years have been. Thank you very, very much once again for your time, for your interest. We look forward to seeing you in Mumbai on Monday and in Singapore on Tuesday as well. Thank you.

Thank you, members of the management. Ladies and gentlemen, on behalf of Coforge Limited, that concludes today's conference. Thank you for joining us.