The acquisition of a controlling investment in Cigniti Technologies by Coforge is anticipated to increase the business’s North American revenues by 33%, according to CEO Sudhir Singh, who spoke with FE about the announcement. This represents a critical geographic market growth for the company. At the moment, North American revenue accounts for 34% of Coforge’s overall top line.
As announced on Thursday, Coforge plans to buy up to 7.162 million equity shares, or up to a 54% ownership, in Cigniti Technologies for Rs 1,415 per share. The business anticipates that this purchase will help it reach its $2 billion valuation by FY27 and boost its operating margins by 150–200 basis points.
In addition, he said, “We plan to work quickly to obtain operating control and aim to close a QIP within a month.”
According to Singh, the acquisition had three main advantages. The service portfolio of Coforge is greatly expanded by the introduction of three new verticals. “Shortly after the merger, the combined company will have two verticals operating at roughly $50 million plus each in healthcare and technology, and a retail vertical valued at about $100 million.”
The acquisition additionally broadens Coforge’s geographic reach throughout North America, with a focus on the West, Southwest, and Midwest areas. “Our North America revenues increased by nearly 33% as soon as the merger and acquisition were finalized,” he continued, citing the clientele in the West, Southwest, and Midwest regions of the US.
Accompanying the company’s strategic focus on AI-first activities, the third advantage is strengthening Coforge’s AI assurance capabilities. Plus, the company we’re discussing is AI-first. As Singh pointed out, Cigniti is an expert in areas like model validation, model performance testing, output validation, and preventing AI hallucinations, which are becoming more and more crucial.
On Friday, however, Coforge’s shares dropped 10% as numerous brokerage houses decreased their target price for the stock, citing worries about guidance and the additional layer of execution risk brought about by the acquisition of Cigniti.
According to Singh, the company’s healthy order intake and the forecasted income for the future indicate sustained growth. As compared to the previous year, our order executable at the beginning of FY25 is much greater, which should result in steady revenue growth. Starting in FY25, we have an executable order that is 17.3% higher. Additionally, we have stated that our margins will increase by 50 basis points for the year and have provided clear advice on the matter.
The company’s order book increased 17.3% year over year to $1,019 million in the 2024 fiscal year.
Singh stressed a strategic move towards more selective participation in terms of customer management. “We are choosing to be more selective about who joins the club moving forward, but we are not abandoning clients that we have already secured. He declared, “We won’t sign new logos unless they can grow to be $10 million relationships in two to three years.”
Across its portfolio geographies—the Americas, EMEA, and the rest of the world—the company added 29 new clients in FY24, compared to 44 in FY23.
Furthermore, the company has formally launched Gen AI as its tenth service line, which is a big step toward integrating advanced AI capabilities into all aspects of the business. “AI is now a service line, where the profit and loss is determined,” he declared.
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