Coforge shares rebound 4.5% from early lows on Encora deal; analysts remain skeptical

Shares of Coforge witnessed volatility on Monday as investors reacted to the company’s proposed acquisition of U.S.-based IT services firm Encora, announced after market hours on Friday. The Noida headquartered IT mid-cap firm has entered into a deal to acquire 100% stake in California-based digital product and engineering firm Encora for $2.35 billion. 

Reacting to the announcement, the IT stock swung between gains and losses during the session, touching a high of ₹1,715 and a low of ₹1,638 within the first hour of trade on the BSE. Coforge shares opened 1.7% higher at ₹1,702 against the previous close of ₹1,673.25, but soon pared gains and slipped more than 2% to hit the intraday low of ₹1,638.

At the time of reporting, Coforge shares were trading 1.05% higher at ₹1,690.90, valuing the company at a market capitalisation of about ₹56,220 crore. From the day’s low, the stock rebounded as much as 4.5% to touch the intraday high of ₹1,715.

At the current level, Coforge shares are down over 16% from their 52-week high of ₹2,003.59 recorded on December 30, 2024, while they have gained 42% from the 52-week low of ₹1,190.84 hit on April 7, 2025.

To acquire 100% stake in Encora for $2.35 bn

The volatility followed Coforge’s announcement that it will acquire 100% of Encora for an enterprise value of $2.35 billion through an all-equity share-swap arrangement. Under the deal structure, Coforge will issue preferential equity shares worth $1.89 billion to Encora’s investors, including Advent, Warburg Pincus, and other minority shareholders. The remaining amount will be used to retire Encora’s existing debt through a bridge loan and/or a potential qualified institutional placement (QIP).

The acquisition is expected to close within six months of signing, subject to regulatory approvals. Following completion of the transaction, Encora shareholders will receive about 21.25% of Coforge’s post-issue equity.

The company clarified that the acquisition will not result in a change in control, although Encora investors will have the right to nominate two directors to Coforge’s board.

Analysts divided on Coforge-Encora deal

Brokerages offered mixed reactions to Coforge’s proposed acquisition of Encora, with most acknowledging the strategic rationale but flagging execution risks, valuation concerns, and near-term stock overhang given the size of the transaction.

Motilal Oswal said the scale of the deal makes execution critical, with integration, leadership retention, margin management, and amortisation emerging as key monitorables. While the brokerage highlighted Coforge’s strong order book and resilient client spending as positives for the core business, it has not yet factored Encora’s numbers into its valuation.

The brokerage reiterated a ‘Buy’ rating, valuing the stock at 32x FY28E EPS with a target price of ₹2,500, implying nearly 49% upside, even after factoring in potential dilution. “We continue to view Coforge as a structurally strong mid-tier player well-placed to benefit from vendor consolidation/cost-takeout deals and digital transformation. We value Coforge at 32x (considering a potential dilution) FY28E EPS with a TP of ₹2,500, implying a 49% potential upside”

Elara Securities, however, struck a more cautious tone and downgraded the stock to ‘Reduce’ from ‘Accumulate’, cutting its target price to ₹1,720. The agency flagged the large equity issuance—93.8 million shares at ₹1,815.91 each, resulting in 21.25% dilution—and highlighted concerns around balance sheet strategy, execution, and integration. While the brokerage acknowledged that the deal strengthens Coforge’s US presence, particularly in the West and Midwest regions, and expands Hi-Tech and Healthcare verticals, it remains wary of near-term risks.

Nuvama remained constructive on the acquisition, calling it Coforge’s largest and most ambitious bet yet. The brokerage believes Encora will accelerate growth, diversify revenues, and strengthen nearshore delivery through its LATAM workforce. It also highlighted the confidence shown by private equity investors opting for a share-swap structure. It maintained a ‘Buy’ rating, noting that the stock trades at 26x FY28E earnings, and expects the combined entity to generate around $2.5 billion in revenue by FY27, with EBIT margins of about 14% post amortisation.

Emkay Global described the acquisition as strategically positive but valuation-heavy, given Encora’s high single-digit organic growth in recent years. While acknowledging Coforge’s strong execution track record, Emkay expects near-term pressure on the stock due to the scale of integration—Encora accounts for over 30% of Coforge’s revenue and more than 25% of its employee base—and the possibility of further equity dilution. The brokerage retained an ‘Add’ rating with a target price of ₹2,000.

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