Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.
Coforge Ltd (NSE: COFORGE) Q4 2026 Earnings Call dated May. 05, 2026
Corporate Participants:
Sudhir Singh — Chief Executive Officer
Saurabh Goel — Chief Financial Officer
Lalit Wadhwa — Chief Technology Officer
Vic Gupta — Head of AI Practice
John Robert Speight — Executive Director
Analysts:
Abhishek Pathak — Analyst
Sulabh Govila — Analyst
Vibhor Singhal — Analyst
Dipesh Mehta — Analyst
Ravi Menon — Analyst
Sandeep Shah — Analyst
Kawaljeet Saluja — Analyst
Presentation:
Operator
Good day ladies and gentlemen and welcome to the Coforge Limited Q4FY26 earnings conference call. All participants will be in the listen only mode. We will open the floor for questions pose the management’s opening comments. Please note that this conference is being recorded. Joining us today from the Coforge leadership team are Mr. Sudhir Singh, CEO, Mr. John Spait, President and Executive Director, Mrs. Saurabh Goyal, CFO Mr. Lalit Wadhwa, CTO and Mr. Vic Gupta, Head of AI Practice. Before we begin, please note that some of the statements made in today’s discussion relating to the future should be construed as forward looking statement and may involve risks and uncertainties.
Please refer to the disclaimer to this effect in the company’s Q4 FY 2026 earnings press release. With that, I now hand the call to Mrs. Sudhir Singh. Over to you sir.
Sudhir Singh — Chief Executive Officer
Thank you. Ember. Good evening and thank you for joining us today. Please allow me to start the call off today with a quick reflection. This month marks the beginning of my 10th year at Coforge. It will also mark the 10th year since John Saurabh, Madan, Vic and I started the turnaround of Coforge. We were a $400 million firm when we started nine years back. We hope to close this the 10th year of our turnaround story with the firm having grown almost seven times in just 10 years. The turnaround of Coforge has been driven by an execution intensity that is uniquely our own and also by an insatiable hunger for to make a mark on the industry today.
As we look at fiscal year 27 and beyond that execution intensity remains undimmed. Our hunger for growth remains unquenched. Our margins are poised to take a big step up starting fiscal year 27 and we believe that our growth story is not even half done. During these last nine years we have as a team delivered a revenue CAGR over nine years of 21.7%, an EBIT CAGR of 24.6%, a PAT CAGR of 24.1%, an EPS CAGR of 22% and a free cash flow CAGR of 19% that is over nine years. There is no firm in our industry that can present metrics at that level for the extended nine year period that we have during these nine years.
There were periods when we made contrarian contrarian bets and shared positive contrarian growth outlook even when the macros were bleak. On calls like these we have proved each one of those contrarian bets and backed each one of our guidance statements and made sure they came true on the basis of our subsequent performance. Illustratively, five years back when Covid struck, we shared that despite our material exposure to the travel vertical, we would grow smartly in that year itself at a time when our peers were projecting declines on account of COVID And we did grow, and handsomely at that.
Again, two years back on a call like this, when we acquired Signity, there were concerns that a publicly listed testing services firm with a 12% EBITDA would kill the Co Forge growth story. However, two years later, today that portfolio operates at a 19% EBITDA and the growth of the constituent clients that came into coforce from Signity has exploded on the back of very effective cross sell, the top two clients of Signity that offered USD 25 to 30 million revenue per year when we acquired them two years back have scaled up to $75 million per year collectively.
I say this because as you hear our commentary today, and as you reflect on what we share by way of our expected performance trajectory going ahead, we would urge you to please remember that we are the team that has delivered unfailingly for nine years on all plans that we have, we have shared with you. We have every intention of coming true on all outlook commentary that we shared today with you on this call. With that preamble, I shall now cover our performance for quarter four and fiscal year 26.
Last quarter, during our quarter three results call, I had shared that we believed we were on course to close a very successful fiscal year 26 and that we were headed for an exceptional fiscal year 27. We are pleased to report that fiscal year 26 has panned out as indicated and equally Importantly, fiscal year 27 too is poised to deliver on that promise of exceptional performance. Moving on to the annual Performance review, I am pleased to share that FY26 was a very successful year for the firm.
The firm grew 29.2% in US dollar terms. We signed 21 large deals through the year with 11 of them coming through in the second half of the year. The quality of our growth was remarkable in that all our key industry units grew strongly through the year and the growth was led by our top 10 and top 20 client relationships. The reported EBIT of the Firm grew by 370bps in FY26 over FY25. Beyond these immediate metrics, the real highlight of fiscal year 26 has been the quiet yet vital work that was done at our backend to truly automate and AI enable our backend processes and functions and to reshape and right size our delivery and GNA organizations.
That quiet effort, unshared till now, has now structurally reset the margin profile of Coforge for fiscal year 27 and beyond. Coforge was always an industry leader on the revenue growth front, yet our EBITDA and EBIT numbers were middle of the pack starting in FY27 that is this year itself. We believe we will, along with retaining revenue growth leadership, emerge as one of the highest EBITDA and EBIT performers across the mid cap segment. Moving on to the Quarterly Performance Review, the quarterly sequential CC growth revenue growth of 2% in Q4 followed the sequential CC growth of 8%, 5.9% and 4.4% that we recorded between Q1 and Q3.
The quarter four year on year growth rate was 21.2% in US dollar terms. Free cash flow to PAT for the quarter came in at 110%, significantly ahead of our guidance of around 70% FCF on a sustained basis. I would like to draw your attention to the fact that Q4 FY26 EBIT of the firm is 16.6% while it was 12.3% in the same quarter a year back. More detailed revenue commentary is as follows. In Q4FY26 the firm registered a sequential revenue growth of 2% in CC terms, 1.7% in US dollar terms and 5.2% in INR terms.
For the year as noted earlier, we have grown 29.2% in dollar terms. Our ability to grow at this rate in a very challenging environment is driven by our ability to increase wallet share particularly across our key accounts. An exceptional market based industry solution, solutioning and AI specialist Carter drives this by staying laser focused on continually crafting business solution led proactive deals and solutions. 21 large deals in FY26 is reflective of the success of that engine and that carder.
In FY26 US dollar terms, the healthcare and the high tech vertical grew by 98%, the travel vertical grew 62%, the BFS vertical grew 12%, government outside India grew 17.5% and other emerging verticals which include retail and manufacturing grew 27%. Our key accounts drove significant growth this fiscal outpacing the broader business. The top five accounts of the firm grew 45.8% year on year in US dollar terms and accounts ranked six through ten grew at 30%. Collectively these ten accounts contributed 30.8% of the total revenue and they grew at 40.4%.
We would like you to note that the top ten clients are spread across industries. Five are BFS clients, three are travel clients, one is an insurance client and one is a public sector client on an annual basis and this is information that we are sharing starting this quarter. Coforge now has one client with revenue greater than $100 million, three clients with revenues between 50 to $100 million, nine clients with revenues between 20 to $50 million, 23 clients with revenues between 10 and $20 million, 42 clients with revenue between 5 to 10 million and 167 with revenue between 1 to $5 million.
This client said the addressable wallet is going to expand now that encore indication is complete. Order intake Q4 was a very strong quarter both from an order intake and a large deal closure perspective. During the quarter we signed five large deals. The total order intake during the quarter was US$648 million. The executable order book, which reflects the total value of locked orders over the next 12 months, stands at a record 1.75 billion USD. This number is 16.4% higher than at the same time last year.
This number does not include the impact of framework agreements that we have already signed and are nearly assured revenue streams for FY27 and beyond. We expect revenue realized in FY27 from those signed framework agreements not accounted for in the signed order book to also be material on the people front. Our total headcount at the end of Q4 stood at 35,777. We saw net people addition of 436 during the quarter. Utilization during the quarter stood at 82 and a half percent and last 12 month attrition for the quarter remains one of the lowest in the industry at 10.8%.
We remain, as always, one of the lowest attrition firms across the industry. With those remarks, I shall now hand over the call to our CFO, Mr. Saurabh Goya.
Saurabh Goel — Chief Financial Officer
Thank you Sudhir. I would like to begin with two accounting matters that had impact on the financials in the current quarter. Effective FY26 realized gains and losses on cash flow hedges are reported under other income expense within forex gain loss. Earlier they were adjusted to revenue. The change aligns our presentation with prior practice and isolates revenue and EBIT margin from currency fluctuation. Profit before tax and profit after tax are unchanged. All comparatives have been restated and reported revenue and EBIT margins reflect this change.
The second accounting matter is related to reversal of deferred tax liability due to signity merger following the effective implementation of the Signity Amalgamation Scheme. In FY26, deferred tax balances on the merged entity were remeasured. A deferred tax liability of approximately 181 crores has been reversed and credit to provision for tax in Q4 FY26. This adjustment has resulted in an ETR which is effective tax rate for the quarter of negative 7%. Normalized effective tax rate for the quarter is 22%.
Reported effective tax rate for the year is 13% while the normalized effective tax rate for the year is 23%. This is a non cash one time benefit. Cash taxes paid in quarter four remains unchanged. Steady state effective tax rate guidance for FY27 is between 23 and 24%. Moving to margins in FY26 EBITDA expanded to INR34.64 million up 77% versus previous year. EBITDA margins came in at 18.6% compared to 14.3% a year ago. EBIT margins expanded to ebit expanded to 23,645 million rupees up 83% versus previous year.
EBIT margin came in at 14.4% as compared to 10.7% a year ago. More important to note is Q4 exit rate of EBIT margins. EBIT margin came in at a record 16.6% up 23531 basis point quarter on quarter driven by falling tailwinds SGNA leverage contributing 100 basis point, foreign exchange fluctuation adding 80bps direct cost reduction due to third party cost added 50 basis point, lower marketing spend added 40 basis point and lower ESOP cost added 20 basis point in the quarter. This is partially offset by the headwind related to provisions we made on account of certain doubtful debts which is to the extent of 60 basis points.
Moving to cash flows, FY26FCF of USD $135 million experienced a 68% y and y increase in FY25. This metric was USD 80 million. Please note that quarterly phasing of free cash flow was negative $21 million in quarter one to $37.5 million in quarter two followed by $45.7 million and $73.7 million. The Q4FCF of $73.7 million marked the highest quarterly FCF in any quarter in the past. Net cash improved to USD $117 million from from $93 million year on year despite a $36million reduction in our working capital line and paying dividends of $61 million.
Quarter 4 FCF to PAT ratio incorporates impact of DTL reversal resulting from the signity merger on normalized basis, Q4FCF to PAT is actually 156%. Looking ahead, we anticipate free cash flow to PAT to be maintained at 100% from fiscal year 27 onwards in contrast to our earlier guidance of 70 to 80%. In summary, fiscal year 2026 witnessed significant improvements in all the financial parameters. Revenue grew 36% in INR terms, EBITKA grew 77%, EBIT 83% and PAT grew 92% NSCF 68% resulting in structural profitability and cash flow enhancements.
With Q4FY26, EBITDA margins at 20 and a half percent and EBIT margins at 16.6%, we are confident of achieving EBITDA margins of 20.5% to 21% in FY27 on consolidated basis which is including Encore and ebit margins of 16.5% to 17% on a standalone basis that is excluding encora and 15.5% on consolidated basis which is including Encore. This increase is coming largely on account of falling factor factors Adoption of AI at scale not just in delivery but in functions resulting in cap capping of GNA in absolute terms.
GNA synergies of 20 to 25% in the combined business coming because of INCORA acquisition and a planned closure of $20 million low margin portfolio of India business. With this I would like to hand over the call to Sudeer Singh.
Sudhir Singh — Chief Executive Officer
Thank you Saurabh Mr. Lalit Wadhwa, Chief Technology Officer, Coforge who has joined us as part of the Encore merger and I shall now share our plans around what we are doing to address the AI imperative. These are exciting times indeed in our industry. Labor as a default has been disrupted and is being replaced by AI native process redesign and domain specialized agents. We are moving from a world of IT delivery to one of business orchestration and as this happens, firms who are engineering outcomes for customers are compounding while firms who continue to bill ours are getting left behind.
Just like the advent of cloud created downstream opportunities for tech services, AI too is creating its own set of new value pools. As agentic systems rise, there is a growing need for tech firms who can help clients address the following asks at scale 1. A need for AI ready data pipelines 2. Agent lifecycle management and three recurring high margin managed services to monitor models and govern agents. We believe there are six modes that will define the model winning firms who will capture this massive fast growing AI opportunity.
Coforge has not Just identified the moats but also built proprietary assets and differentiators to back each one of them. Moat number one is deep domain expertise as firms upskill that staff on AI. The horizontal AI skills will commoditize quickly in a world where everyone has access to Claude or GPT. 5. Where does the value sit? We believe it sits in the domain. Generic AI is a commodity. Applied AI is a clear differentiator. We are driving deep specific knowledge of business context, workflows, regulations and operating reality.
With more than 150 scaled AI engagements completed across BFS, insurance, travel and healthcare delivering production grade outcomes, this is an agenda we are pushing. The second moat is strong client intimacy. AI will never commoditize relationships. Trust, context and proximity to decision makers still shape demand. Clients value firms that understand their business and that takes time to develop. And there is no better example. We think of a firm that is closer to its clients than coforges. Mode number three Reinvented delivery models are needed that orchestrate and monetize humans along with AI agents to deliver faster and more powerful outcomes.
Our hybrid AI mod squads that we announced earlier. Our unique delivery units comprising of AI agents and senior AI specialists driving 40 to 50% faster time to market for clients. Mode number four agility at scale which means being built for agility with AI first offerings. It warrants internal adoption of agentic AI and a lean talent pool to adapt to each stage of AI evolution. Mode number 5 scalable AI platform with purpose built agents Enterprise grade governance in this context, Coforge’s one AI platform is a composable enterprise grade agentic AI platform with 100 plus domain specific solutions and 75 plus horizontal capabilities.
And finally moat number six an AI enabled workforce with specialized engineers, forward deployed engineers and an agile management team. We have more than 30,000 AI enabled trained workforce members. More than 11,000 data and AI practitioners. More than 600 plus advanced AI practitioners all created using significant investments in AI upskilling. These assets have enabled us to move quickly to capture emerging opportunities across five growth vectors or value pools. Opportunity number one Mod Square squad monetization.
It helps redefine how clients buy from us. These are hybrid delivery pods that are priced on outcomes, not ours. Opportunity number two Upstream advisory Part of this is helping clients enterprises plan multimodal AI strategy across LLM providers and AI tools without a vendor lock in. Opportunity number three Brownfield modernization Accelerating legacy modernization via proprietary platforms such as Coforges, Code Insight AI that are delivering more than $40 million plus in client savings as we speak.
Opportunity number four is AI led engineering transformation. This warrants improving productivity and quality while lowering costs and in our case is backed by Coforge’s multi layer knowledge graphs, pre built agents and enterprise grade governance. And finally opportunity number five is the agentic AI platform related opportunity. Out here we’re redeploying engineers from routine work to agentic AI orchestration. This is the highest margin and the most strategically valuable work. Finally, we are eating our own cooking by embedding AI across both the SDLC and our internal operations.
On the SDLC front, AI is deeply embedded into how we build and deliver. We are driving 25 to 35% productivity uplift in development, 40 to 60% in code generation and up to 10 times faster modernization timelines, internal operations and Saurabh talked about this. We are always client zero for our AI interventions. We are using AI to drive 40 to 60% lower effort spent on financial analysis and 30 to 40% lower screening cost per recruitment. The market is clearly recognizing our momentum on AI. We have received over 25 AI recognitions from leading analyst firms including seven leader positions from firms such as Everest, HFS, Constellation Research, ISG and Avasant.
With that I will now hand over to our CTO, Mr. Lalit Wadhwa to provide further nuances of how we understand and are approaching the AI opportunity.
Lalit Wadhwa — Chief Technology Officer
Sudhir, thank you very much. Most enterprise AI pilots never reach production. The gap is not just the model, it is the surrounding architecture and the way the work gets delivered. Pilots run in controlled conditions that mask the structural issues production really exposes. We have closed this gap with two things built together. Number one a reference architecture designed for production grade behavior and number two delivery model that leads with business outcomes. Our reference architecture enforces deterministic guardrails around probabilistic LLM outputs, solving the two failure modes that trap clients in pilots, hallucinated domain logic and lost agent coherence in long running processes.
This architecture, the reference architecture has three layers. The top layer is called the business architecture layer and it consists of business goals, high impact use cases and organizational change management or the OCM LED operating model redesign. The middle layer is the decisioning engine or the decisioning atlas which is a differentiated proprietary asset that enforces domain specific reasoning chains with ontologies including business entities, a knowledge graph mapping cross system compliance hierarchies and a temporal context that maintains state coherence across multi step agentic workflows.
Then finally, the bottom layer is a composable AI backbone swappable with hyperscalers, compute or a sovereign AI cloud or any model provider. It also contains an AI gateway used for model routing, model context protocol that’s called as MCP gateway token ops and the ability to do canary releases in AI deployments. We have operationalized this reference architecture with our proprietary AI mod squads and the forward deployed engineers also called as the FTEs. In mod squads we implement agent harnesses for long running durable agents.
The harness or the scaffolding has a RALPH loop with planner generator and evaluator agents all tied together with warrants or contracts and anti leniency or adversarial patterns by design. To ensure that agents do not go off the rails, a governance protocol for human in the loop checkpoints is implemented with templates, registration, versioning and lifecycle management of the 11 sorry 110 agent archetypes that we have now. Let me contextualize the above two key ingredients with brief case studies of systems A in production number one for a large tier one bank we executed an AI led cobol to Java 21 quarkus modernization of a module with 11,000 lines of mainframe COBOL code which also had copybooks, VSAM and the similar dependencies in half the time that the client gave us.
Our highly specialized decomposition agents reverse engineered legacy structure, legacy logic and the intent directly from the source artifacts. Our forward deployed engineer bot which consisted of one senior FDE and two junior consultants along with the coding agents generated production grade code into a hexagonal architecture with non blocking reactive IO, JWT authentication, open telemetry, distributed tracing and container native deployment. In the second example, a large group insurance benefits provider deployed architecture on Azure with trust AI enforcing responsible AI guardrails at inference time model garden abstracting, multi LLM routing and enterprise retrieval Augmented generation or RAG services orchestrating retrieval across multiple vector databases using a combination of DiEM25 algorithm and the semantic search.
The platform enforces governance as code, automated security policies, token level finops and operational kill switches across LLM access agent orchestration vector databases and CI CD pipelines. Combination of FinOps governance and increased throughput resulted in productivity benefits of 40% and velocity gains of 50%. So to summarize, the path from pilot to production runs through architecture and delivery, not through model selection. The three layer reference architecture and the mod squad delivery model that you just heard of are the two key ingredients that close the pilot to the production gap and both of now are now proven in production at enterprise scale.
With that, back to you Sudhir.
Sudhir Singh — Chief Executive Officer
Thank you Lalit. And the final section, the Outlook section. Ladies, gentlemen, and before we do that, before we Share our outlook we would like to offer our views around the recent commentary around our industry. We believe that the true cost of AI code is an important concept to be understood in the context of the evolving AI landscape. The deflationary argument assumes code generation is the entire job. It is not AI generated Code is cheap to build, but it is expensive to own, it is expensive to secure and it is expensive to maintain.
Just like cloud migration agent, I will create a massive managed services layer and once these systems are in production, someone has to monitor the models, retrain the agents and ensure governance. That is a recurring high margin revenue stream for firms that can seize it for coforge. The demand tailwind is structural and pure. We were built for agility. We have no bloated delivery pyramid to manage. Every AI advancement accelerates our growth. We are positioned for the near term modernization search, we are positioned for the medium term agentic deployment wave and finally for the long term expansion of the global technology market.
All three phases, ladies gentlemen, play to our strengths. We shall lean on our exceptional record of creating value through acquisitions, which in turn rides on an execution intensity that is uniquely our own. SLK is an example, SIGNITY is an example. ENCORA will be the defining example. We plan to compound on our success, focusing on four key priorities. Number one building pipeline momentum in AI transformations across our top verticals. Number two expanding our AI client base rapidly through both hunting and farming.
Number three scaling vertical agent workflows in verticals like banking, insurance and airlines. And number finally, number four, continuing to invest in talent, growing our specialized pool of FDs while upskilling 100% of our workforce in AI. To conclude, fiscal year 27 is shaping up to be an exceptional year for Coforge. Despite the significant AI driven flux, we believe revenue growth will be robust. We are confident of achieving an EBITDA margin of 20.5% to 21% in fiscal year 27 on a consolidated basis.
EBIT margins are expected to be in the range of 16.5 to 17% on a standalone basis and 15.5% on a consolidated basis. We believe FCF to PAT metrics going Forward will be 100% plus. That concludes our prepared remarks.
Questions and Answers:
Operator
Thank you very much sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may click on the Raise hand icon from the Participant tab on your screen. We request participants to restrict to two questions and return to the queue for more questions. To rejoin the queue, you may click on the Raise hand icon again. We will wait for A moment. While the question queue assembles we take the first question from Abhishek Pathak of Motilal. Usual Please go ahead.
Abhishek Pathak
Hi team, am I audible?
Operator
Yes sir.
Abhishek Pathak
Yeah, hi Sudhir Saurabh and team. Congrats on a good quarter. So a couple of questions. Firstly, if I apply a conservative revenue conversion Multiple to your 12 month forward order book it does point to a very kind of punchy FY27 growth guidance to start with. On top of that you’ve mentioned that there’s still a few sort of deals that are kind of waiting to be incorporated into it. So just trying to understand does the previous conversion relationship hold and how does that play with the current geopolitical market or sort of the whole AI anxiety around it and can we build in that growth rate which kind of implies almost 19% organic growth ramp for FY27.
Now that’s the first question. The second question is Abhishek,
Saurabh Goel
Abhishek can you hear us?
Abhishek Pathak
Yeah, yeah, yeah.
Saurabh Goel
Abhishek, why don’t you repeat your question where there’s some issue with the Internet so we were not able to hear you.
Abhishek Pathak
Okay, am I audible now?
Saurabh Goel
Yeah, yeah you are. Yeah,
Abhishek Pathak
Yeah, yeah. So I was saying if I were to apply a conservative, you know, revenue conversion Multiple to your 12 month forward executable order book I arrive at a very, very punchy FY27 growth number of almost 18, 19%. So trying to understand sort of, you know, does that, does the previous sort of, you know, 1.3, 1.4 multiple to your 12 month order book still hold? Should we assume a higher conversion rate, lower conversion rate depending on the global macros or the AI deflation, et cetera, et cetera.
So that’s the first question. The second question is sort of, you know, how much of the EBIT margin sort of upgrade is kind of down to sort of you know, AI usage internally and how much of it is down to let’s say pricing and sort of you know, getting into more identified solutions that can lead to better pricing so to speak. And lastly, you know, very curious despite sort of you know, on the hedge front, on the hedge book reclassification side sort of what prompted that change and you know, any sort of, you know, guidance and that will be helpful.
Thank you.
Sudhir Singh
All right, thank you for the question Abhishek. I’m going to request Saurabh to take the hedge question towards the end as far as revenue is concerned. Abhishek, last year when we started off the year we, we had indicated that we would deliver robust growth. The intent always is to grow as much as possible and that’s how we landed up at 29.2% USD growth this year. Again, the intent is to deliver a robust growth but the intent is equally not to classify that or to offer hard numbers around it which you will know.
The environment is challenging and yet the confidence is high that we should be able to deliver industry leading growth. And I’ll leave it there. As far as the EBIT is concerned, we believe the EBIT reset in quarter four has been a structural reset. It has come off the back of the automation and AI led interventions. Second, it has come largely off the back of a deeply held conviction that in an AI infused era our GNA costs have in absolute terms to be held constant and it is AI based interventions that are allowing us to do it.
Saurabh number three
Saurabh Goel
Yep. So Abhishek, on the hedge front we were anyways working with our auditors. I think we thought it is better to do it towards the year end wherein you look at this change and so that at least the reporting gets aligned more to market peers and it was more around that rather than anything else. And just to mention that the if you add back the hedge losses against to revenue in the current quarter the margins were 15.2% as against our guide of 15. So we did better off than even even if the hedge losses were being reported where they were being reported earlier.
So the improvement that has come on the margins in the current quarter is operational and that’s why we believe that going forward we’ll be able to not only sustain but a kind of improve on in FY27.
Abhishek Pathak
Very clear. Thank you so much and all the best.
Operator
Thank you. We take the next question from Sulab Govila of Morgan Stanley. Please go ahead.
Sulabh Govila
Hi. Am I audible?
Saurabh Goel
Yeah,
Sulabh Govila
Yeah. Thanks for taking my question and thanks for the detailed presentation. So I I just had a couple of questions. So first on the revenue growth. So last year, when we entered the last year we had a tailwind of the mega deal which we had won in the month of March and this year, given that we do not have a tailwind of that level, how should we expect the growth to pan out? Particularly from a perspective of the cadence given that 1h was quite strong last year versus the 2 edge. So, so how do you think about not from a number perspective, from a cadence perspective, how do you expect the 1H versus 2H in this year?
And if you could also provide some color on the framework agreements that you talked about Are they different versus the usual? And then I have a second question after that.
Sudhir Singh
Right. You’re absolutely right about your observation around the fact that we had the $1.56 billion tailwind that we had this year. We believe the tailwind comes from framework agreements that we have signed and not recognized under the order executable that we’ve shared with you. These are agreements where the MSA does not spell out a specific amount and hence we do not add that to the order executable number. We’ve already signed a material framework engagement. We think we will in reasonably short order sign bigger framework agreements.
The pipeline closure there is in its near final stages. So that’s, that’s how we see this. A lot of our confidence around revenue growth also comes not just from order executable, but how balanced the portfolio is at this point in time. Whether it is travel, whether it is healthcare, whether it is banking, insurance. We feel good about all of them. So we’re not hitching our wagon to one, I mean to one star. The entire constellation seems to be moving in the right direction from our point of view.
Any other questions?
Sulabh Govila
Understood. Thanks. Just second question for Saurabh on the free cash flow. So sort of just trying to understand this change of 60 to 70% going to 100. What are the specific drivers to that? I’m sorry if I missed that earlier.
Saurabh Goel
No. So see we had earlier last year mentioned that we’ll start and this was starting end of quarter one or beginning of quarter two when we said we’ll maintain 70 to 80% FCF to PAT. But I guess the rigor that we brought in within the organization in terms of the way collections are being followed, the way payables are being managed and the way contracts are being structured, we believe that 100% is the bare minimum FCF to PAT will deliver in FY27 along with the significant step up in the profitability that we mentioned in our prepared remarks.
Sulabh Govila
Okay. Okay, understood. Thanks Aurabh and thanks for taking my question.
Operator
Thank you. We take our next question from Vibor Singhal of Novama Equities. Please go ahead.
Vibhor Singhal
Yeah. Hi. Thanks for taking my question and congrats Sudhir Saurabh and team for the solid performance. Again, couple of questions from my side, Sudhir, on the entire AI opportunity. You mentioned about the fact that while the AI code might be easy, might be cheaper to write, but it is much more expensive to maintain and implement and basically overall integrate into the system of the existing companies. So from a broader industry point of view. I know KFORGE has been the growth leader and will probably continue to be.
But from an industry perspective, do you believe that this AI opportunity will actually lead to an overall expansion for the industry also? So let’s say the Indian IT industry today is around $250 billion. Will we actually see this much bigger than what 250 billion today is, let’s say two or three or four years down the line. And a related question to that is if you go back to the last cycle which was the digital and the cloud cycle, large part of that was of that opportunity was initially captured by the tier one players because the tier two players were quite small at that point of time.
Do you believe that in this cycle because those mid tier players in which we basically classify ourselves and our peers as well, because we now reach the size and the capabilities and all, do you believe the winners or let’s say the beneficiaries of the this cycle would actually be different than what they were in the last cycle?
Sudhir Singh
So the AI opportunity that we see is multifold and I’m going to request the head of our AI practice Mr. Vic to Gupta also to add on to what I chime in with. As we’ve said, we are seeing immediately a very very significant near term modernization surge using AI technologies that is real, that is. Now there is one that is building up very strongly which is the whole agent deployment wave. Firms that ride those waves are firms that will continue to do well. It’s difficult for me to talk about whether the Indian IT industry will do well or not but the tech services industry performs has to do well.
There is a clear need for AI ready data pipelines. There is clear need for service providers that can do agent lifecycle management. There is a clear need for service players that can do recurring high managed, high margin managed services to monitor models and to govern agents. Rick, would you like to add more color to AI demand?
Vic Gupta
Sure. Thanks Sudeep. I think if we look at the ecosystem we find at least in our client base there’s a lot of application entanglement, a lot of opportunities around Brown field migrations of the applications to modernize systems and to Agentix systems. I think no Fortune 1000 company has no integration problems. Every one of them has an integration problem. They need to identify their workflows but they need to integrate with their existing systems, existing system of records, systems of engagement and systems of interaction.
We also feel that responsible or governance of AI is a non negotiable for regulated industries which we operate in. Each one of them offers us a value pool that brings us closer to our clients and delivers value to them. We feel for us we are faster to execute, nimble to change and as mentioned earlier, client intimacy is an important aspect for our mode. With that we feel that there’s great opportunities around the brownfield, modernization and migration and agentic areas. Back to you Sudhir,
Sudhir Singh
Thank you for the question. Do you have anything else for us?
Vibhor Singhal
Yeah, just one more question from you and then I’ll probably have one Couple of bookkeeping for Saurabh from a near term perspective. Just wanted to pick your brain that travel vertical has been a very strong force for us and given the Gulf war that is going on right now, given where crude is, do you foresee a headwind in that vertical in the immediate future? Have any client conversations started around that that the airline specifically have started? A couple started talking about pulling, temporarily pulling back their tech spends or anything on that.
Any color on that would be really helpful
Sudhir Singh
At this point in time we were from our perspective the travel vertical continues even in the short term to do really well. We saw a press report yesterday which talked about the impact of Spirit airlines on Coforge. We just want to reiterate the impact is negligible to none. The budgeted revenue from that airline was about 10bps for fiscal year 27. So that near term the travel business is on the up and up. Saurabh talked about earlier in his commentary about the fact that there is a low margin portfolio in India that we will discontinue immediately and the negative impact of that will flow into Q1.
Despite that, that’s a significant portfolio. We expect to be flattish in Q1 and to be on a very fast growth trajectory from Q2 onwards. But travel, healthcare, banking, insurance
John Robert Speight
Sector,
Sudhir Singh
Public sector and even high tech, the new vertical we’ve started should do extremely well in FY27.
Vibhor Singhal
Got it, got it. Just one or two bookkeeping questions for sort of, sort of. Since Sudhir mentioned about that basically discontinuing the India business operation, could you quantify what would be the basically amount of that business which we are intending to discontinue from Q1?
Saurabh Goel
So it should have a impact of roughly 15 to $20 million in pass through in quarter one itself.
Vibhor Singhal
Got it, got it. So our revenue for Q1 from whatever we’re expecting should be down by 15 $20 million because of this discontinuation of business operations because of
Saurabh Goel
India business and but the other deals that we had signed in the current year and the order book that we have will still make up for it and probably nullify the impact of this downfall.
Vibhor Singhal
Got it. But net net. We are expecting a flattish quarter next next quarter. Is that.
Saurabh Goel
Yes. On a Q1Q
Vibhor Singhal
Basis.
Saurabh Goel
On a Q1Q basis. On a reported. On a reported front.
Vibhor Singhal
On a reported. Just last question from my side you. There’s a 150 basis point of margin gap that we are talking about in FY27 between our standalone and our console margin. Yes. That I would assume will be because of the amortization of the.
Saurabh Goel
You’re absolutely right. It’s because of amortization. Otherwise we feel very good about hitting maybe 16 and a half to 17 odd percent a bit margins if there was no amortization.
Vibhor Singhal
And what is the amortization that we are looking at on an annual basis in terms of absolute dollar or Ruby amount?
Saurabh Goel
Roughly $40 million a year.
Vibhor Singhal
Roughly $40 million. Great. Thank you so much for taking my questions and wish you all the best.
Saurabh Goel
Thanks.
Operator
Thank you. We take the next question from Dipesh Mehta of MK Global. Please go ahead.
Dipesh Mehta
Thanks for the opportunity. A couple of questions. First just want to understand what would be the hedge losses cities in oci considering the way we now change the accounting practice. If you can provide some sense on it. What would be the OCI number?
Saurabh Goel
So
Dipesh Mehta
Second. Yeah, sorry.
Saurabh Goel
So. So number one, the OCI won’t change. I think it’s just that the hedge loss in the other income will be 164 crores which is already there as part of fact sheet.
Dipesh Mehta
No, I understand. But what is the number? I understand it will. 164 crores.
Saurabh Goel
164 crores. Sorry, 164 crores for the year, 70 crores for the quarter.
Dipesh Mehta
No, my question is what is the balance sheet number considering the whatever hedge position we might be having at the end of the quarter.
Saurabh Goel
I’ll come back to you on that. I’ll come back to you on that.
Dipesh Mehta
Okay. The second question which I want the framework agreement how one should understand that to convert into order book in coming quarters. Whether it will be very gradual conversion which will not have much impact on order book or you expect some of it to be relatively large deal kind of thing. If you can give some sense how it is different than usual and whether this is something different than let’s say 12, 18 months kind of the way deal used to get structured because I’m not very clear on that part.
And second question on the BFS BFS relatively remain softer than let’s say company average in 26 even in quarter four it is relatively softer. If you can provide some sense how one should expect BFS growth trajectory and what are the puts and take in terms of some of the demand driver playing out there.
Sudhir Singh
I’m going to request our President Mr. John Spade to address the framework question because that demand comes from the UK public sector and that’s a business at east efforts. Thank
John Robert Speight
You Sadh yes, it’s not your atypical framework deal in the neutral state. This is a typical way that the UK public sector business works. You’ll have seen the press that we were awarded in Q4 150 plus million dollar deal in the UK public sector. It’s in the press that was a sole award to Coforge structured over five years and the expected run rate as a base is sort of 4 to 5 million per quarter and it’s basically what happens during the quarter is its multiple TSRs or SOWs against that award purely to codeforge.
Sudhir Singh
As far as the BFS question is concerned Dipesh, we see structural demand drivers ahead of us. BFS in our case came in at 12%. In relative terms it was low but I guess by in absolute terms that was still a solid performance. In a year like this we expect performance around BFS to improve in FY27 or FY26.
Operator
Thank you. We move to our next question from Ravi Menon of Access Capital. Please go ahead.
Ravi Menon
Hi, thanks for the opportunity questions. So you know while appreciate the long term bullish commentary on AI demand and thanks for the really detailed remarks on that to understand if there’ll be some near term headwinds especially in the product engineering side, probably more with encoder than for the Coforge portfolio but there are some of the smaller, let’s say SaaS companies perhaps would we see some revenue headwind near term even if being really early to the game in adopting AI for coding we will build market share that offsets it longer term.
But near term could we see some pressures?
Sudhir Singh
Ravi, thanks for the question. The answer is no. The high tech business of Encore that we’ve taken over is under under a new leader based out of the out of a new office that we were planning for and have already established and is functioning. We expect the high tech business which is where this was most likely to starting Q1 itself start growing and grow handsomely through the fiscal year 27.
Ravi Menon
Great, thanks so much for that Saurabh. The FCF conversion, you know rough math indicates that EBITDA to EBITDA conversion would be about 60% or north of that given you’re saying more than 100 conversion. That’s, that’s pretty good, but still a little lower than I’d say, you know, the best in class. Right. What do you think we need to do to move towards best in class?
Saurabh Goel
So Ravi, I think it’s a step up that we are doing from where we were, whether it is margins or free cash flow and I guess it’s the investments that we have been making in our client relationships and in our business because of which in the past, whatever investments we made, one can see results in whether it’s profitability and cash flow. I think another couple of more years and then you can see that this will start moving towards 110, 120 odd percent. But I guess it’s a gradual move that we’re making from not focusing on FCF to PAD, to giving a guidance of 70, 80, delivering onto that to moving to 100%.
And then we look at how next year goes by and probably then start upping it up.
Ravi Menon
Thanks so much. And one more question on the ESOP side. How much should that be next year as a proportion of overall compensation or as a proportion of revenue?
Saurabh Goel
I. It will stay where it is. I mean 0.8, 0.9% is where it will stay. It’s not, it’s not going to go up or it’s not significantly going to go down. I think ESOP course we’d already mentioned that when we signed up, when we, when the new plan was rolled out, we were close to 2 odd percent and it’s come down gradually and will stay where it is. 7.8 odd percent.
Ravi Menon
Right. So you’re not envisaging that to move up even with new leaders from Ankara being on? No,
Saurabh Goel
We’re not expecting that to work. Oh,
Ravi Menon
Thanks.
Sudhir Singh
Thank you, Ravi.
Operator
Thank you. Next question is from Sandeep Shah of ES Securities. Please go ahead.
Sandeep Shah
Thanks. Thanks for the opportunity and congrats on a good execution. Just Sudhir wanted to understand relating to workflow deal framework deal from the UK government. So is it fair to assume the potential which we may consider in our budget being 150 million TCV with 5 year what John Spade has disclosed and that 4 to 6 million additional revenue may start flowing from 1Q itself?
Sudhir Singh
Yeah, the revenue as John said, is going to start flowing from quarter one itself. We believe the potential. The 150 million deal is already signed. Yeah, that’s awarded. But John, John has strong conviction and I’ll let you speak about the future as well. More deals in the pipeline.
John Robert Speight
Yeah, I Mean we’re very well placed in the UK public sector space. We’ve had significant successes in engagements. You’ve seen one in Scotland not long ago. It’s been in the press about the rollout for the 111 services there. So our reputation across the public sector is very high and we have a number of opportunities at the moment, many of them in the 10 to 100 million size.
Sudhir Singh
So that’s only one. So that 150 million is signed and there are others that we think are locked and loaded and we will be awarded those as well in addition to what’s signed.
Sandeep Shah
Yeah. And this would be again in UK public sector? Yes, I
Sudhir Singh
Mean as I said earlier John as John is confirmed in UK public sector plus the momentum across every vertical at this point in time. Healthcare which as you saw grew 98% travel where the secular tailwinds around one order one offer airport reconstruction as retail malls are secular tailwinds they will not fade away despite what is happening. Banking insurance is very, very strong.
Sandeep Shah
Are you trying to say framework deal would be not just restricted to UK it could be in other sectors also?
Sudhir Singh
No, framework deals only come from UK public sector in our case.
Sandeep Shah
Oh okay. And just some clarity there is this is for Saurabh the capex looks like there is a inflow in the cash flow statement. What has led to that? And Second, the discontinued business 15 to 20 million run rate is on the quarterly basis or on a yearly basis.
Saurabh Goel
So two parts. So one, the, the cash flow positive inflow that you’ve seen is because of the part of the assets which were pertaining to the AI led data center that we had built up in quarter one. So part of those assets have been sold, they’ve been bought back by the client. So because of which there is an immediate inflow that has come to us during the quarter. I didn’t get the second part of the question.
Sandeep Shah
The India discontinued business 15, 20 million, is it a quarterly run rate or a yearly run rate?
Saurabh Goel
So it, it was the, it was the quarterly run rate for last couple of quarters and we’re now going to close that and not sign up such deals and which this business had generated 40, 45 million dollars last year out of which 40 million came in over last two quarters
Sudhir Singh
And we can afford to do that just to make sure that we offer further color on this. We can afford to do that given the confidence that we have in our revenue pipeline right now and second the fact that we think we will structurally and permanently reset the margin to the levels that Saurabh talked about if we were stressed on revenues, if we were not confident of the materiality and if we weren’t convinced around revenue pipeline we could not have pulled the trigger. But we have. Because every business is firing.
We feel very good about revenue growth in FY27. And also because this would be another lever to make sure that a business that delivered 14.4% reported EBIT in FY26 will on a standalone basis jump to 16 and a half to 17%.
Sandeep Shah
Yeah. Yeah. And just the last question, Saurabh. On the minority interest in this quarter there is a quantum decline. Is it fair to assume we have already taken 100% stake effective FY26 end on the minority while charge on the P L still reflects a bigger charge. So is it fair to assume this entry could have happened at the end of the financial year which is 31st March 2026.
Saurabh Goel
So going forward you will see that minority interest will come down from 5354 crore in a. In. In one quarter to almost like 9 odd crores. So the. The reduction in minority interest is yet to happen. It will happen from quarter one onwards because the share allotment is happening. The record date of for the share allotment is 16th of May. And hence the the minority interest is being carried in the P L up till that time.
Sandeep Shah
Okay. But in 31st March it shows 143crore versus 31st December 2025 shows upwards of 2000cr.
Saurabh Goel
We are looking at that in the balance sheet. If you look at the P L The minority interest is 539 because the DTL reversal has happened. Because of the deferred tax liability reversal has happened. If you look at the P L the minority interest is 54 crores in quarter four which will come down to 9 odd crores which will give upside from a profit after tax perspective. But the number of shares will also go up when the allotment of shares to signity shareholders will happen. But that will still give you an upside on the EPS front.
That is more to come in next quarter.
Sandeep Shah
Okay. So effective merger entry will happen from 1Q.
Saurabh Goel
Yeah.
Sandeep Shah
Okay. Thanks. All the best.
Operator
Thank you. We take our next question from Kavaljit Saluja of Kotak Securities. Please go ahead.
Kawaljeet Saluja
Hi. You know great to see the margin focus and the free cash flow guidance. Just a few questions. Just two to three questions. The first question is for Sudhir. When I look at the banking vertical the revenues of that vertical are stuck in that 120 to 123 million dollar range now for five quarters. Now anecdotally from the market, we keep on hearing about some of the clients in that banking set expanding their captives. So anything that is kind of hurting that, you know, portfolio of business, which in fact used to be quite a big growth road driver for you,
Sudhir Singh
What’s slowed down our growth to only 12% for the current year, Kavaljeet, was a fact that one of our top three banking clients did not grow this year. That client account has now been transferred over to John’s personal stewardship and we feel far more positive about it. It has nothing in our mind to do with the GCC movement. It’s more to do with a client specific issue that we had and we believe we’ve addressed. But John, would you like to address growth prospects of that client?
John Robert Speight
Thank you. We’ve completely refactored how we’re that client, how we’re engaging. We’ve got a brand new team and what we’re also recognizing is that we have to disrupt in that, in, in that account was we’ve got a large footprint and we’re actually using our AI capabilities to actually completely transform how we engage, how we run. And on the back of that we expect significant growth.
Sudhir Singh
Single large client specific issue, Kavalji. It’s reversed. So next year, FY27 banking, you should see better numbers.
Kawaljeet Saluja
Not that that’s encouraging to hear. The second question is on durability of marketing margins. So it’s great to see consolidated a bit margin going up to 15 and a half percent. Any thoughts on durability of it? And the context of this is when I look at the numbers, let’s say certain numbers like sales and marketing headcount, those dipped sharply. So I’m just trying to think through that, you know, is this guidance for FY27 or there’s a greater Runway that you have in mind?
Sudhir Singh
We should be able to improve FY28 over FY27. Obviously not by this quantum, but at least incrementally. Kavalji, the threshold that we’ve shared for FY27 will be the minimum that should be expected from US starting FY28 onwards.
Kawaljeet Saluja
Got that? The third question is for sort of, sort of, I see a big decline in hedges for the quarter, you know, on a sequential basis. I think it’s down materially. So anything, you know, in terms of a policy change that you have been able to push through?
Saurabh Goel
Yeah. So we have taken a dollar loan of 550 million dollar Kamaljeet and it gives us natural hedge and that loan has been taken in India. So it is just to make sure that the cash flows and the balance sheet is aligned to the liability that we have in the balance sheet. And we’re moving towards the balance sheet hedges and that is why you see a decline in the cash flow hedges.
Kawaljeet Saluja
Okay, I couldn’t fully get that. Maybe I’ll ask you separately. But you know, sort of just on that, let’s say loan point in itself, US$550million of loans is actually good. The headline interest rate is 4.5%. But do you intend to hedge that given that rupee has been on a depreciation spree and without that it might end up causing some burn on your PNL in the process.
Saurabh Goel
So currently that’s where we get the natural hedge because our receivables are in dollars in India
Kawaljeet Saluja
And that’s
Saurabh Goel
Why the number of hedges have gone down because of a natural hedge. Because receivables are in dollars, the payable is in dollars and that’s why the number of hedges have gone down purely because of a natural hedge that we’ve got.
Kawaljeet Saluja
Right. And final question for yourself. When I look at your PNL or when I look at the cash the hedges again, the average rate is 90 for $300 million. Just back of calculation at the current spot rate means that you are having a hedge is also around 140 to 150 crores at the spot. Is that a correct assessment right now? That
Saurabh Goel
Is the correct assessment. That’s the correct. That’s the mark to market and I guess one or more, one or two quarters more there’ll be losses and then I think third quarters, it starts tapering off and that’s where we are. Yeah, you’re right.
Kawaljeet Saluja
Okay, cool. Thanks. All the best.
Saurabh Goel
Thanks.
Operator
Thank you. We take that as the last question for today. I now hand the call back to Mr. Sudhir Singh for closing comments.
Sudhir Singh
Thank you Emba. Thank you ladies, gentlemen, for your time, for your interest and for the insights that you shared with us. As we said at the outset, these are exciting times, these are heady times and we look forward to staying in touch and to delivering on the outlook that we’ve shared with you today. Thank you once again.
Operator
Thank you members of the management, on behalf of Perforce Limited. That concludes today’s call. Thank you for joining us. You may now click on the leave icon to exit the meeting. Thank you for your participation. Goodbye.