Broker’s Call: Coforge (Reduce)

Target: ₹6,750

CMP: ₹9,834.75

Coforge has approved the scheme of amalgamation of Cigniti, by way of share-swap – Cigniti shareholders will be issued one equity share of Coforge for every five equity shares of Cigniti held by them. The transaction is in line with the company’s stated intention of merger through share swap at the time of acquisition.

The merged entity will create three new scaled-up verticals – Retail, Technology and Healthcare. The merged firm’s retail vertical will entail a size of about $100 million per annum, whereas the size of the hi-tech and healthcare verticals will burgeon to about $50 million per annum immediately postmerger. Coforge derived 48 per cent of its global revenue from North America in FY24, as its presence has largely been East Coast-centric in the US.

The merger supports its intention of establishing a significant beachhead in the crucial West, South-West and Mid-West markets, along with expansion in North America. Coforge stock has rallied about 90 per cent since the announcement of the Cigniti acquisition, while Cigniti stock is up about 35 per cent. This divergence in stock price performance of both companies would be beneficial for Coforge’s shareholders as it leads to lower potential dilution.

The share-swap ratio concurs with the current share price of both the companies (Cigniti trading at a marginal 2 per cent discount). We retain REDUCE on Coforge and TP of ₹6,750.