How stock market darling Coforge went from laggard to industry-beating growth

In 2017, when Sudhir Singh joined NIIT Technologies, the first thing he did as CEO was to change the entire top leadership—lock, stock and barrel. His logic for replacing all his 14 direct reports was simple; “The only thing the old team proved was that they can’t grow,” he told Mint. Barring one departure, the new leadership team is still in place at the company, now rebranded Coforge, and it has overseen a transformation that is the stuff of business podcasts.

Despite global economic uncertainties and pandemic-driven headwinds, Coforge’s revenues tripled, its market cap went up 16.5x, and it made at least three acquisitions. During this time it changed ownership twice—the NIIT promoters exited in 2019, and in 2023, Baring Private Equity Asia, which had picked up NIIT’s stake, also exited. That last exit turned Coforge into a board-run company, a unique model in the IT services landscape.

For the second quarter this fiscal year (FY25), the IT services company reported a 17% increase in net profit over the year-ago period to ₹212 crore. Revenue rose by about a third over the same period to ₹3,062 crore. On current form, Coforge is on track to close this fiscal year at around $1.4 billion or ₹11,000 crore.

In October, it also completed the integration with Cigniti Technologies, which it had acquired in May. Cigniti, an engineering services and software testing company, is the company’s fourth acquisition in the last seven years. The others include SLK Global, a business process management company; Whishworks, to enhance its Salesforce business and RuleTek, a US-based digital integration firm

The company is eyeing $2 billion in revenue by FY27 and hopes to keep up the momentum it has built over the years to become a market darling. The stock price has zoomed around 400% in the last five years. In November 2019 it was trading at around ₹1,450 a share and on 27 November, it closed at ₹8,684.90.

Following the strong Q2, brokerages have raised their target on the Coforge stock. Nuvama Equities raised it to ₹8,650 per share from ₹7,500 earlier. Motilal Oswal is the most bullish, with a target of ₹10,000, an upside of about 16% from its current levels.

A harder playing field

Coforge achieved what NIIT Technologies could not: grow at a fast clip and scale up. But will the company be able to sustain its fairytale run?

The rapid growth and accomplishments, while commendable, have come on the modest base that NIIT had built. And while Singh and his team have demonstrated that they are a force to reckon with in niche plays, as they eye bigger deals, and expansion in key verticals, they will face competition from much larger players.

To put its size in context, the $1.4 billion revenue that Coforge hopes to close with this fiscal year is just a drop for TCS, India’s biggest IT services company, which closed FY24 with a top line of $29 billion. Infosys, No. 2 in the pecking order, was at $18.6 billion. Even LTI Mindtree, a mid-tier contender, which is itching to break into the big league (something Mint had written about in September), is around 3.5x times bigger than Coforge, with revenues of $4.3 billion in the last fiscal year.

Size does matter. As Gaurav Vasu, CEO of UnearthInsight, a Bengaluru-based consultancy, put it, “While banking and financial services are Coforge’s strength, at $1.1 billion-plus, it faces challenges competing with larger IT firms for mega-deals.”

Echoing that view, Joel Martin, executive research leader of global business research consultancy HFS Research, said, “As a mid-sized firm, Coforge’s leadership will need to constantly navigate challenges in scaling operations compared to its larger competitors, who have more resources.”

The heavy reliance on BFSI, travel and insurance for revenue also exposes it to sector-specific slowdowns. “Coforge has built a strong foundation to sustain growth, but executing a balanced strategy that blends niche expertize with scalable operations will be critical to its success,” said Vasu.

Moreover, as Coforge grows in regional markets, it will face other contenders. “Apart from competition from Indian services providers, it faces competition from global players as well,” Martin explained. “Other challengers, like Softtek, Encora and Globant (all mid-tier IT companies), which offer near-shore services and engineering capability centres, will likely be primary competitors in the mid market.” To take on them, he said, Coforge will need to balance its off-shore capabilities with high-touch nearshore services.

Singh, however, insists the company’s approach will not change. “We don’t go out and say, ‘We will drive transformation’. We walk in and say, ‘We are a specialized player in the sector you operate in’,” said Singh. “We are expanding, but our strategy remains the same.”

Contrarian bets

Singh began his career with Hindustan Lever (HLL) in sales and marketing. Back in the 1990s, he ran one of the largest sales units at HLL. Later, he joined Infosys, when the bellwether company was worth just $180 million, around Y2K. In 2010, he joined Genpact, which had been spun out of GE.

In the four years before Singh took over, the company grew at a compound annual growth rate (CAGR) of 3.1%; since he began helming it, Coforge has grown at a CAGR of 16%.

That transformation has been due to a careful transition, avoiding the pitfalls that mid-tier companies are typically caught in. According to Singh, it was due to a series of “contrarian bets” that paid off.

For instance, none of the 14 new leaders were hired from other midcaps. Talent used to rotate from one small firm to another—from Birlasoft to Hexaware to NIIT and so on. Coforge steered clear of this. The new team was roped in from Infosys, TCS, Accenture and the like.

The 14 included Mark Holden, Gautam Samanta, Madan Mohan, Vic Gupta and Anurag Chauhan, all from the top tier. Chauhan is the only one who has left. These were leaders who had seen big deals and growth with their previous employers.

The second contrarian bet Coforge took was to change the centre of gravity of the leadership. Earlier, 11 out of the 14 were based in India; Singh moved the top tier closer to client markets. He himself is based in New Jersey, with the US accounting for half of the company’s business. About one-third comes from Europe and the rest from the Middle East and Asia Pacific. The US is the largest market for the $260 billion Indian IT services sector, with the top tier getting close to 70% of its business from the country.

The third thing that Coforge focused on was not following the herd. All technology services providers end up offering similar services as the top tier and then struggle for growth as they can’t build the capability of larger companies. “We couldn’t pretend to offer the same services with the same depth as the large companies. It wasn’t working,” said Singh. The company identified sub-segments within banking and insurance and focused on building capabilities in those. These were Pega and Duck Creek. The former is a workflow automation platform, with greater applicability on the banking side, while the latter is an insurance software platform with a focus on the property and casualty insurance businesses.

Coforge’s Pega business has scaled up from $7 million to $110 million, while Duck Creek grew from $5 million to $70 million over seven years.

The company also changed its rewards and recognition system. Inspired by his stint at HLL, Singh quadrupled sales incentives, realizing that pushing people is not enough. So, the commission on bagging new deals went up 4x, motivating employees to do more. This turned the also-ran into a player to be reckoned with.

The Coforge transition

The company was set up in 1992 as the software services division of NIIT, an early mover in the computer learning space. In 2004, promoter Rajendra Pawar and others spun out the software arm into a separate unit, called NIIT Technologies, with a focus on travel, hospitality, banking and other services.

However, given the promoters’ focus on the core business of education, the services company saw only glacial growth.

In April 2019, Baring Private Equity Asia acquired a 30.6% stake from NIIT for approximately ₹2,627 crore, later increasing its share to about 70% through an open offer to public shareholders for ₹3,045 crore. The promoters made a full exit.

“Coforge has done well since being spun out from NIIT Technologies in 2020, after Baring acquired a controlling stake in the company,” said Pranati Dave, practice director at Everest Group, a provider of research insights in technology services.

Baring and the new management rebranded NIIT Technologies as Coforge in 2020. “This transition marked a strategic shift for Coforge, allowing it to focus on its IT services and solutions without the constraints of its former parent company,” Dave added.

“Baring, to their credit, did not make a single change in the executive leadership, which is different from how PE players handle a team. They found a team that was already hungry as hell,” said Singh, an engineering graduate from IT BHU, with an MBA from IIM Calcutta.

Baring did help hone some of the HR practices, by introducing two ideas, ‘talent to value’ and ‘time to value’. The latter focuses on the importance of getting things done within a particular timeframe. And the former is about rewarding good talent—that’s how the reward system was changed.

Last year, Baring sold its entire stake in Coforge. The company is now looking to continue its growth momentum, scale up and break into the big league.

As a mid-tier company, Coforge’s bets on specific areas have paid off. It has also built relationships with cloud services major Amazon Web Services (AWS), customer relationship management platform Salesforce, and cloud-based business automation services provider ServiceNow, mirroring the approach of large caps.

With a market cap now around $6 billion compared to $370 million six years back, it no longer operates in sub-segments (banking, insurance, travel and government are its four key verticals). But going beyond niche segments has also meant competing with a broader spectrum of companies, from LTI Mindtree and Tech Mahindra to Infosys and Wipro.

Coforge is banking on the Cigniti acquisition, made early this year, to make some headway in its pursuit of growth. The acquisition gave it access to a client portfolio that was primarily exposed to software testing. The company is also looking at expanding work in BFSI beyond niche services, while simultaneously growing in new verticals such as healthcare, retail and hi-tech.

The company wants to expand business in the US market, which brought in around 50% of its $1.1 billion business in FY24. “North America is where we want to grow and this is a market where Cigniti has a strong client portfolio,” said Singh.

It will also need to improve margins to keep the Street interested. As it gets to $2 billion by FY27, Singh expects Ebitda to expand by 150 bps to 250 bps. He believes that with smaller deals, the onsite footprint is bigger and margins are lower; with bigger deals, margins tend to improve. “It’s more about the right execution,’’ said Singh.

But analysts like Vasu of UnearthInsight believe margins could be under pressure as Coforge invests in talent and new capabilities to build differentiation from its Tier I and II competitors.

A board-run company

A bigger worry is the absence of a promoter—Coforge is a board-run company. The six-person board comprises Singh, Gautam Samanta, who is also president and head of the banking and financial services vertical, and four independent directors.

According to Vasu, “while its growth continues to beat the industry, and in the first half of this fiscal its revenue grew 10.4%, the absence of a promoter or a PE sponsor could influence strategic agility, as decisions now hinge on board consensus and market trends.”

However, Mukesh Ranjan, vice president of Everest Group, believes that “being a fully board-governed company without any promoter influence will help it attract more institutional investors and enhance investor confidence.”

Singh himself believes this is likely to be one of the models that will become more prevalent in the future. Quoting Baring PE Asia founder Jean Eric Salata, he said, “The Indian tech industry will have to start moving out of founder-led firms.”

Coforge is currently on a high, thanks to its past contrarian bets paying off and putting it on a growth trajectory. But as it aims to rise up the pecking order in the IT services league, it won’t be able to lean on past bets alone.