Coforge is in advanced negotiations to acquire Encora, a prominent digital engineering and modernization services firm, in a transaction now valued at $2 billion according to sources. The deal represents a significant increase from earlier reports that pegged the valuation at over $1 billion, highlighting the strategic importance of this potential acquisition.

Updated Deal Parameters

The acquisition discussions have progressed with a substantially higher valuation for Encora, which is currently owned by private equity firm Advent International. The target company provides clients with tailored innovation software through services across AI, data and cloud technologies.

Board Meeting and Fund Raising Plans

Coforge's board is scheduled to meet today to consider a fund raising proposal, followed by an analyst call this evening. This timing suggests the company is preparing to secure the necessary capital for the potential acquisition.

Previous Acquisition Experience

Coforge has demonstrated its acquisition capabilities through its recent purchase of Cigniti Technologies in 2024, valued at over ₹2,000.00 crore. The company successfully raised funds through a Qualified Institutional Placement (QIP) process to complete that transaction, issuing shares at ₹4,600.00 per share, which adjusts to ₹920.00 per share after the 1:5 stock split.

Market Response

Shares of Coforge have declined 7% over the last two trading sessions since the board meeting announcement, reflecting market uncertainty around the potential large-scale acquisition and associated fund raising requirements. The stock currently trades significantly higher than the previous QIP issue price levels.

This potential acquisition would represent one of the larger deals in the Indian IT services sector, positioning Coforge to significantly enhance its digital transformation and engineering capabilities in high-demand areas such as artificial intelligence, data analytics, and cloud services.

Coforge Ltd. shares are drawing significant attention as the IT services company prepares for a crucial board meeting on Friday, December 26, to deliberate on a fund raising proposal. The announcement, made to stock exchanges on Tuesday, December 23, has already impacted the stock's performance, with shares declining 7% over the subsequent two trading sessions.

Fund Raising Details and Market Impact

The company has scheduled both the board meeting and an analyst meet for Friday evening, indicating the significance of the proposed fund raising initiative. Market sentiment has turned cautious since the announcement, reflecting investor concerns about potential equity dilution.

Previous Fund Raising History

This marks the second fund raising attempt by Coforge within the last 18 months. The company previously raised ₹2,240.00 crore through a qualified institutional placement (QIP) to eligible institutional buyers, specifically to fund the acquisition of Cigniti Technologies.

Note: The previous issue price is not adjusted for the stock split conducted earlier this year.

Financial Position and Growth Targets

Coforge currently maintains negligible cash reserves on its balance sheet while pursuing ambitious growth targets. The company is working toward achieving a $2 billion revenue run-rate over the next few quarters. During its previous analyst meeting, management assured stakeholders that no additional data center investments would be included in the current offering.

Investor Concerns and Market Challenges

Several factors are contributing to the stock's underperformance and investor apprehension:

• Dilution Risk: Potential further equity dilution from the new fund raise
• Cash Conversion: The company's cash conversion guidance remains the weakest among industry peers
• Free Cash Flow Concerns: Questions surrounding the sustainability of the 70% free cash flow to PAT guidance

Stock Performance Overview

The stock's year-to-date performance shows a decline of 9.80%, reflecting broader market concerns about the company's financial strategy and growth funding requirements. The upcoming board meeting and analyst interaction will likely provide crucial insights into the company's capital allocation strategy and future growth plans.