Coforge Limited (COFORGE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Coforge Limited conference call. [Operator Instructions] Please note, this call is being recorded. I now hand the call to Mr. Sudhir Singh. Thank you, and over to you, sir.

Thank you very much, And -- thank you, ladies and gentlemen, for joining the call today. We understand that you're taking out time today in India on a holiday for us. And we want you to know that we are very grateful for that. At the outset, all of us at Coforge would like to wish you a very Happy Ganesh Chaturthi. We have organized this call today, ladies and gentlemen, to discuss the recent resignations of two of our directors. We thought, as a Board, that it was appropriate to organize a forum where the entire Coforge Board, all 7 directors can come together today on this platform to address you, and to answer any questions that you might have. Consequently, I'm very pleased to share that the entire Board of Coforge is on the call today to reiterate our joint commitment to the highest standards of both governance and performance. There are two other things that I wish to table at the outset. The first is this. All seven of us who are directors on the Coforge Board wish to state that the issues under consideration are not personal. All of us hold our two transition directors who are no longer on the board in high regard, and we wish them the very best. The second is as follows. After this call, it is our intent to go back to doing what we do best, run a very high performance business underlayed with exceptionally robust covenants and to continue to work in the best interests of you, our shareholders. As we proceed with the call, ladies and gentlemen, we shall introduce our independent directors individually in advance of their remarks. And in line with that, let me start off with Mr. Vivek Sharma. As you're aware, Mr. Vivek Sharma has been nominated as the interim chairperson of the firm till January 31, 2027. I would like to introduce Mr. Sharma before I invite him to share his comments. Mr. Vivek Sharma builds and grows businesses with AI and quantum technologies as a founder CEO, Fortune 500 operator and Public Company Directors. Vivek is the CEO and Co-Founder of which is redefining biosensing with quantum technology invented and patented at the California Institute of Technology. Previously, he was the CEO and Co-Founder of a Los Angeles-based education technology company, which was recognized on Fortune's inaugural Global Impact '20. Vivek serves and the Boards of Kaiser Pampermanentec, JetBlue Airways and Coforge. He is the author of two books, and and published multiple articles for Business Review and the National Association of Corporate Directors on how boats and executives should navigate AI. These articles have included its time for boards to take AI seriously, which skills will survive the AI on slot, six ways AI could disrupt your business. He is also a member of the Wall Street Journal Board of Directors Council and the World 50 Board Excellence Group and its Fortune 500 operating roles, Vivek spent 6 years at the World Disney Company as Senior Vice President of Digital Guest Experience and e-commerce, and he oversaw a $10 billion online business. Before that, he held leadership roles at Yahoo! for 4 years serving as General Manager of Yahoo! Mail and Messenger, and Vice President of Yahoo! Search. He spent 8 years as an associate partner at McKinsey & Company before that. Vivek graduated from IIT Delhi, and he holds an MBA from France. Vivek, it's all yours.

Thank you, Sudhir. Good morning, Namaste and Happy Ganesh Chaturthi to everyone. I'm Vivek Sharma, Independent Director and Interim Chairperson of the Board. As Sudhir stated at the start of this call, all seven of us who are directors on the Coforge Board hold our two transition directors who are no longer on the Board in highest regard, and we wish them the very best. As board members, we are duty bound fiduciaries of the firm to act upon observations shared with us by the internal auditor. All communications exchanged with our two ex directors with regard to the observations made by the internal auditor, have been done with the sole aim of discharging of our obligations as fiduciaries and that with the sole intent of keeping the trust of Coforge first. All seven of us on the board today take our governance obligations extremely seriously, and we will always discharge them faithfully as the custodians of the firm on behalf of our shareholders. As my fellow Board members will provide more details today, we do hope that the investor community appreciates that our recent actions as Board demonstrate the integrity of our governance approach and the strength of our internal audit process. I will spend the next few minutes talking about my immediate priorities in the role of Interim Chairperson until January 31, 2027. And then hand over to John Speight to recap our recent exchange filings. After that, Anil Chanana will talk about internal audit plan and financials followed by Beth Boucher, who will talk about Board and Management dynamics. As disclosed in our exchange filing dated 11th September, as a member of the NRC, I will lead the search process to identify and appoint two additional independent directors to the Board. I am pleased to inform you that we have already engaged Egon Zander, a leading global executive search firm to support us in the process. In fact, the past weekend has been a very active weekend for all members of the NRC as the process of additional independent director identification and appointment has already started in full honest. The search will be global in scope and will focus on recruiting two independent directors who have the governance experience, professional expertise and strategic perspectives that will further strengthen the Board as well as support Coforge's long-term growth and strategic priorities. In parallel, I will also oversee the process for erecting the new Chairperson of the Board. This also will be a comprehensive process and will consider both existing directors and any new directors appointed to the ongoing process. To observe full objectivity and full credibility in the chair election process, I have made clear to the Board that I personally would not be a candidate for the Permanent Chair role, and we will also communicate that upfront to prospective candidates as part of the search. The process will be undertaken in a structured and considered manner in accordance with the company's governance framework and applicable regulatory requirements. We will make the appropriate disclosures once the processes have progressed and the relevant decisions have been taken. It is my opinion, and I also believe also the entire Board's opinion that the board is working very well together. I have served on the boards of many listed companies in India and United States. And while I've been on the Coforge Board only for the past few months, I very strongly believe that all seven board members are acting as true fiduciaries and take the responsibilities very seriously. Working together as a team, the Board is primed to support the creation of long-term shareholder value. We remain committed as a Board to provide the highest standards of governance and enable the highest level of business performance. With that, I shall now hand over to John Speight to recap our recent exchange filings. John, over to you.

Thank you, Vivek. I shall quickly summarize our recent exchange filings for context. The internal audit plan for the current financial year was finalized in March, April 2026 by the Audit Committee. This annual plan included a plan to audit the accuracy of Board reporting in Q2. As per that plan, after our Q1 results on July 27, 2026, the internal auditors commenced the planned review in the first week of August. The internal auditor reviewed the video recordings and minutes of the relevant NRC and Board meetings, then went through the actual Board evaluation report document. In the third week of August 2026, the auditors sought clarifications relating to differences observed between what was presented at the NRC and Board meetings against the information contained in the actual Board evaluation report. The internal auditor made the observations that the relevant reports were available only to the NRC Chair and the Chairman of the Board. Departing from best practices, they were not made available to other members of the Board, including the independent directors. They observed that the manner in which the evaluation findings were presented without sharing copies of the report by the Chairman of the Board and the NRC Chair did not cover all relevant aspects and findings. In particular, while the Chairman's performance category received the lowest rating in the reports, this finding was not disclosed or discussed before the NRC or the Board by the NRC Chair and the Chairman of the Board. Basis these observations, the seven remaining members of the Board who are on the call today sought explanations from the two transition directors, the then Chairman of the Board and then NRC Chair. The transition directors offered a response and the Board responded in turn. During this process, the ex-Chairman and the ex-NRC Chair tendered their resignations on September 8, 2026, and September 10, 2026, respectively. It is important to clarify that the Chairman and NRC Chair's resignations followed the concerns identified in the internal audit review and the subsequent process undertaken by the Board to seek and consider their explanation in relation to these concerns. With this, I will hand back to Sudhir.

Thank you very much, John, for those comments. And Vivek, we will continue with our independent directors. Ladies gentlemen, basis our interactions with some investors. There have been questions around the internal audit plan and the timing of the governance audit. I will request Mr. Anil Chanana, who is a familiar figure to a lot of you, given his very extensive experience in the tech services industry, to share details around these. I would like to share a brief introduction of Mr. Chanana before he addresses this group. Anil -- and we call him Anil because we all know him so well. Many of you know him from his years as CFO of HCL Technologies and his long-standing interactions with capital markets. Anil serves on our Board as an independent director and the Chairperson of the Audit Committee. Anil brings more than 4 decades of experience across corporate governance, finance and risk management. He currently serves on the boards of a number of listed and private companies and has considerable experience chairing audit and risk committees and serving on nomination and remuneration committees. Given the focus of today's discussion on corporate governance, we felt that it would be useful for you to hear directly from the Chairperson of the Audit Committee, a gentleman who all of us across the tech services industry know and capital markets know, Mr. Anil Chanana. Anil, over to you, please.

Thank you, Sudhir. Hello, everyone. My name is Anil Chanana, and I'm an Independent Director on the Board of Coforge Limited. I chair the Audit Committee. The internal audit function in Coforge is outsourced to big four firms. Currently, it is KPMG, which is doing this audit. Typically at the beginning of the year or before the beginning of the financial year, they come up with a plan for the next year after discussing with the management. So this year, they came up with their plan, which includes the -- lot of areas, including the process audits and governance audit. Their scope of governance audit covered only two areas. One was the -- one was concerning the mechanism, and second concern the insider trading. However, I decided that this scope should be widened. And I asked them to go back and work on it because we at the Board get to sort of hear what the management tells us, we don't get to look at what is the underlying saying or whether all the visa grower companies are coming to the board or all the regulatory or other issues are getting highlighted to the Board. So I them the input and asked them to come back to me as audit committee are with what exactly they should be covering. They presented something, I made some tweaks into it and then took this whole plan to the audit committee -- the audit plan for FY '27 to my fellow members on the Audit Committee. Incidentally, both the members, the chairperson as well as the chairperson of the NRC are the members of the Audit Committee as well. So it was presented -- The KPMG presented that in the meeting, and it was -- it was adopted unanimously by the Audit committee. So the -- to give you a sense of the readout some rail and tastes out of that scope. It covered the completeness, accuracy and consistency of matters reported to the board and its committees across regulatory financial strategic risk, ESG, BSR, CSR, Investors whistleblower and internal control areas. As also to -- we also sought assess the alignment and consistency of Board reporting with the underlying management MIS, committee papers and external disclosures. Examine the documentation, quality and decision traceability, including how the Board decisions, directives and action items are recorded, supported tracked and reported back. And finally, the review the digital governance controls over the Board reporting. These are -- I have just picked up the main items here. This topic, as John mentioned, was picked up by the internal auditors, together with another process called Hire-to-Retire process for quarter 2, which is July, September 30 of this financial year. Typically, the way the internal auditors operate is they pick up the sample for testing. So they pick a few meetings, a few meetings, they've started focusing on. And they come up with their observations. Typically, these observations are presented to the management, which provides the responses. And finally, after considering the responses, they come back to the audit committee. So in this particular case, the matter concern the board evaluation process, the internal auditors raised their observations with the Company Secretary and the CFO. The CFO and the Company Secretary immediately approves the members of the Board, and whatever information was available with the company was provided to the internal auditors, who then issued their findings. Given the sensitivity and the seriousness of this matter, we from the -- we the members of the Board sought an explanation from the concerned directors being the Chairperson of the port as well as the Chairperson of the NRC regarding this matter. So what followed there on is already in the public domain. So I would also like to emphasize that in seeking this explanation from the concerned directors, the members of the board acted in their fiduciary incapacity. The Board is committed to ensuring the highest standards of corporate governance. I would also like to highlight that these matters have got nothing to do or has no impact on the company's operations and its financials. I will be happy to take on any questions later on. I'd like to reiterate that I'm privileged to be a member of this Board and thankful to you, the shareholders for this confidence. Thank you.

Thank you so much, Anil. I think I speak for all of us in the Board when I say that we are privileged to have you as a member of the Board. Thank you for your comments. The commitment that we see from you as a board member, the artwork and the detailed approach to handling your mandates, I believe is a an example for all of us on the board. Thank you. With that, ladies and gentlemen, it is my privilege now to introduce our third Independent Director and the most tenured Independent Director on the Board, Ms. Beth Boucher. Beth joined our board in May 2022 and was recently appointed the Nomination and Remuneration Committee Chair. Beth is an internationally certified independent director and a recent graduate of the Howard Business School Corporate Director Certificate Program. Beth is a global CIO and a transformation officer with more than 25 years, leading strategic change across top-tier consulting, IT VP of outsourcing. And she's done this both as a service provider and as an enterprise client. She's overseen global M&A integrations. She has handled cybersecurity issues concerns and strategy and digital transformation, spanning multiple industries, including insurance, financial services and life sciences. Beth is currently a partner at 4DM Partners, a ZRG company. Beth also servers as a Non-Executive Director at Hiscox, which is listed on the London Stock Exchange. It is my privilege to invite Beth to the Beth, all yours, please.

Thank you, Sudhir. Good morning, good afternoon, and good evening, everyone. I'm Beth Boucher, I am an independent director on the Board of Coforge Limited and the Chair of the NRC, the risk management and the CSR committees. Since 2024, as Coforge transition from private ownership to a company with no promoter, the Board has worked productively with a high degree of alignment. Key strategic and governance decisions have been approved unanimously, including the acquisition of the divestment of Advantage Go and the SABRE contract engagement. During this period, Coforge has delivered exceptional growth and created significant shareholder value despite the challenging industry conditions. We've strengthened our global scale and capabilities. And as we discussed at Investor Day, we continue to build a more integrated AI-led business around the industries that we know very well. This combination of our technology capabilities and deep industry expertise is central to where we believe Coforge continue to differentiate and grow. The recent developments do not change our strategy or priorities in any way, they do reinforce the importance of strong independent oversight and rigorous governance. As NRC Chair and the longest tenured independent director, my immediate priority is to ensure our governance and board processes match the scale and the global ambition of Coforge today. That means strong independence, complete and timely information for directors, rigorous board evaluation and a robust process for Board refresh and share succession. We have an exceptional management team with an impeccable record of execution, a very clear strategy and a business that is performing extremely well. As a Board, it's our responsibility and pleasure to ensure that Coforge has equally strong governance and board leadership to support that performance and to create sustainable long-term value for all shareholders. With those remarks, I'll turn it back to you, Sudhir.

Thank you so much, Beth, it's been an absolute honor to work alongside you over the almost 4.5 years that we work together. Thank you for the commitment. Thank you for your comments. With that, ladies and gentlemen, I shall now request our Chief Financial Officer, Mr. Saurabh Goel, to provide an update on the status of the business outlook that we had shared with you in our last investor call at the beginning of the quarter. Saurabh, on yours, please?

Yes. Thank you, Sudhir. I would like to reiterate that matters discussed today have no bearing on the company's financial reporting, business operations, performance or outlook. Our near-term, medium-term and long-term outlook remains unchanged and our FY '27 guidance remains intact. We continue to expect a consolidated EBITDA margin of 20.5% to 21% for FY '27, a consolidated EBIT margin of at least 15.5% and a free cash flow conversion of above 100% of PAT in the current financial year. The 5-year -- the 4-year guidance of close to $5 billion, again remains intact. There is no impact on no change in any outlook that we have set so far. The management team remains fully focused on execution with no disruption to our business or client engagements. With that, I will hand it back to Sudhir.

Thank you very much, Saurabh. And I think Saurabh said it well, many talked about the fact that quarter 2 fiscal year '27, the years beyond fiscal year '27, the outlook is robust. And if we were to characterize it, actually extremely robust and getting better all the time. There's another element to what we talked about at the beginning of this quarter in the investor call. We had said that quarter 2 was likely to be the quarter in which Coforge signed the highest number of large deals in its history. Ladies and gentlemen, we would like to inform you that there's nothing that's changed in that front. That ambition is now nearing fruition, given that they're just 2 weeks left for the quarter. We have said in the investor call at the beginning of the quarter that we might end up signing as many large deals in the current quarter as we had signed in the full year, just 2 to 3 years back. And we -- and the quarter has progressed as sort of as indicated as planned. So plans on all fronts, all fans are on track. The second thing that we just like to remind you before we close our prepared remarks, you're aware of the fact that we had scheduled for 3 weeks back a global investor analyst seminar on the 17th. And today is -- I mean, this week itself, we would really urge you to join us there because there are 4 or 5 areas that we think you will find Coforge present what is uniquely as. We will give you grounded real market-based examples of how we are leveraging Neuron, which is our AI operating system. We wish to talk about Momentum Blue, which is the forward deployed engineer Academy that we've started and is now the tip of the spear, the AI industrialization engine of Coforge. We shall offer you live examples of -- the Coforge the entailment hybrids in play and how that's becoming a differentiator. And finally, this is going to be the first call in which we will talk about our open weight, open source practice. You've always heard me say this, AI is creating new demand pools. The newer they are, the more supply constrained there and the more they need interventions from focused, nimble sharp firms. We've always thought we were one of them. And I know that you always thought we were 1 of them. We look forward to engaging with all of you once again on the 17th, as planned earlier and talking about neuron, momentum low the FDA academy that we have, the open way open source models. And also -- and I missed this, the cloud engineering factors that is doing exceptionally well. Do join us. And with that, I'd like to once again thank all our directors who are on the call, continue to be on the call with us right now, particularly the three independent directors who've been traveling and we've been able to get them on the call together, and I've addressed all of us. We're all very eager to hear your questions, address concerns, take your comments. With that, we're open for questions and comments. All yours, ladies and gentlemen, and thank you once again.

[Operator Instructions] The first question is from Vibhor Singhal of Nuvama Equities.

My question is to the independent directors of the Board. So as we understand, I think understand the entire presentation that has been laid by you. And of course, the press release made by the company very comprehensive in nature. So as we understand here, I think the matter was related to the gaps between the Board evaluation report and the way it was presented. And from what the findings that we have is the other report was presented by the Chairman of the Board and the Chairman of the NRC, and both of them were questions regarding these -- the discrepancies between the two, and they are the two ones which are, as of now, the resignation. So just wanted to understand how this process goes forward? As the audit of the is now deemed complete or will that report be submitted in the coming weeks, are there any other people who were questioned regarding the process. So I mean, it's not, then we can be sure that there are hopefully no more surprises that we expect in the coming weeks. So what is the -- so basically an update on what is the process of VR audit and how we take it forward. If you can answer that, please, I will have that question and then maybe one more follow-up question on that.

Vibhor, I'm going to take a first stab and then request Mr. Chanana also or Audit Committee also to step in. The questions opposed only to our two departed transition directors, who are no longer with the firm. Those are the facts. I'm going to request Mr. Chanana also to talk about the audit process, please.

Sure. Sure, Sudhir. So since this is a very specific matter relating to the evaluation -- board evaluation process, this has been fully covered by the KPMG, which is the internal auditor. So there has not been any other observation so far as this part of the audit is concerned. However, they are still so far as the remaining audit areas are concerned, they are still in the process of doing their audit. But none of that should be concerning the Board members. So that's what my response is here.

Thank you, Anil. Thanks a lot. And Vibhor, as we said at the outset, the questions were only post to the two directors who have transitioned out to the firm currently.

Got it. Got it. I just have one more follow-up question, Anil sir or anybody else on the Board could take it. So given that this has -- given what has transpired in the past week, you would basically understand that a lot of concerns have crept in the investors and analyst community regarding the overall basically board functioning, which you have addressed quite adequately, I would say. So I think there are a few questions which are there in the mind of investors and all regarding the basically board composition, the independent directors how really independent they are. Some questions were also raised about elevation if they are any way connected to any other, let's say, shareholding company and the shareholder in the company. Any clarity or any comments on that would be really helpful.

Vibhor, I think the best person to answer that question from our side would be the person who's been on the NRC for more than 4 years. Beth, would you be comfortable answering that question around independence

Yes, of course. Thank you for your question. Mr. Sharma's appointment followed a rigorous 11-month search, which was led by a global board search firm under a mandate that specifically include independents, and the process was overseen by the NRC. As part of that process, 21 candidates were considered and 8 were shortlisted. Mr. Sharma emerged as our preferred candidate following that process. At the time, he was also serving as an independent Director of another publicly listed Indian company. Importantly, the NRC considered the relevant independence requirements as part of its assessment and concluded that Mr. Sharma met those requirements. His appointment was subsequently put to shareholders who elected him as an independent director with more than 83% support against the required 50% threshold. We recognize that investors consider both independents under the applicable requirements and the perception of independents. As an NRC chair, I take both of those very seriously. For me, independence is not just a regulatory classification, it's fundamental to effective board oversight. And it will continue to be a central consideration to every Board appointment and succession decision we make.

Thanks so much, Beth. We're good for the next question, please, folks.

We'll take the next question from Abhishek Pathak of Motilal Oswal.

I had a couple of questions. The first one was directed towards Vivek. Vivek, what's the fallback if we can't find a replacement, let's say, in the next 4 months, does the term extend? And what are the contingencies around that? And the second question I had was to maybe Beth and Anil, who've been on the Board for a considerable amount of time. What are the key debates that the Board and the management have had over the last few years in terms of direction, et cetera? And how was it resolved? And -- then I understand the exceptional case that's panned out because I'm sure there's been healthy debates around the board with the management. So how have they handled in the past? Any ratio on that would be very helpful. And lastly, on the independent directors' appointments, what are the profiles we are considering, I mean, in terms of alignment with the company? Are they more tech-oriented or rather more experienced towards, let's say, industries or just a criteria around looking for the next sort of batch of IDs?

Sudhir, I can take the first and the third part. Thank you for your question. As I shared in my opening remarks, we are looking for two independent directors, and we will consider for the share selection, both internal and external candidates. We have already engaged Egon Center, one of the leading global executive search firms and we have started the process. We started to process over the weekend. I can already tell you, obviously, I cannot tell you candidate details that we have significant interest both within India and from candidates across the globe. Coforge is an extraordinary company. We have delivered extraordinary results. We are on the right side of the AI transformation, if you look at all the tech services companies, and I'm very, very confident that we will be able to complete the process both for recruiting the two independent directors as well as the selection of the Chairperson for which, as I shared in my opening remarks. To ensure objectivity, I have excluded myself from consideration. We will have some internal candidates that we'll consider as well as the new directors that we will have. As regard the profile of the candidates, at this stage, I'm not prepared to share the specific details of what the profile is. But I will tell you that at the end of the day, what's the Board. Our Board is a team appointed by shareholders, by you, to protect the long-term interest in alignment with the law of the land and to the best of their judgment. So we're looking for extraordinary candidates with deep professional expertise with governance experience, and areas that we believe that they can further augment the Board capabilities. So we will share the candidates as we are prepared to -- as we confirm them, and we have done all the background check. But at this stage, I will reassure you that there's a lot of interest in being on the board of your company. And we're very excited by the initial outreach. Thank you.

Beth, would you like to -- Beth and Anil, would you like to address the other question around key debates across the board and management over the years?

Thank you very much. I'll start and then Anil perhaps you build on. Thank you for your question. I would say we have many debates and rigorous debate. And I think that is that the work of governance and of the Board that process is, as you would expect for an effective governance function, which is to say we rely on the facts, the experience and solicit input from everyone at the table. And ultimately, as I mentioned earlier, we have come to many strategic decisions with unanimous alignment at the end of the day. A good example is, again, our core the AdvantageGo divestiture or the Sabre engagement. Anil, anything you'd like to add?

Yes, sure. I think -- I mean, we look at the direction of the company. We look at the investments in terms of AI. There has been debate around the same. There has been a debate around the India business. There has been a debate around data center witness. So there are a number of areas which get debated. And how we can enhance and create more shareholder value and how we can improve the return, the cash flow conversion as well as the return on equity. I think with the financial objectives in mind, I mean there are a lot of debates on the strategy and direction of the company as well as on the management side, the succession planning, for example. So there has been very constructive debate, I would say, between the independent at the board level.

Thanks so much. Thank you, Anil. Thank you, Beth. Thank you for that.

We'll move to our next question. That's from Sandeep Shah of Equirus Securities.

The first question is in terms of selection of the Chairman, is it fair to assume it would be independent rather than executing any thought on this will help.

Thank you. Sudhir, I can take that question. So once again, as I said, for the selection of the Chairperson of the Board, we will consider both external candidates, the candidates we are recruiting as well as internal candidates. And yes, to your question for the internal candidates, we will only consider the independent directors, which excludes me, so it would be my other two colleagues who are on this call. Thank you.

And just to build on that and just for the sake of clarity, the Executive Directors, as Vivek has indicated, have no intention of standing up for it. We will only consider the independents as internal candidates. And John and I clearly are not going to put our hat in the ring. We just want to let you know.

I just want to reassure once again. From within the Board, only the independent directors other than me will be considered. Thank you.

Thanks so much. Thanks.