You have announced your largest ever acquisition, which is going to add about 20% to your top line, but the Street is worried that you have bitten more than you can chew with the execution risk. Help us understand the strategic rationale behind this buy.
Sudhir Singh: We think this acquisition is fundamentally a game changer for Coforge going forward. This acquisition does three important things for us. Number one, it will allow us to stand up three new industry verticals. The retail vertical of the merged entity is going to be operating almost immediately at about $100 million per annum. The healthcare and the high-tech verticals of the merged entity from day one will be operating at about 50 million US dollars, in some cases more than that as well, so that is number one. The second thing that this acquisition does for us is it fills in the geographical blind spots that we have had across North America. Cigniti has a significant presence across the Southwest, the Midwest, and the Western US. Coforge has traditionally been very East Coast-centric. This allows us to fill in the geo-based gap areas that Coforge had. It also, of course, brings in 28 Fortune 500 new customers to us and the intent there is to make sure that not only do we sell digital assurance and digital engineering that the Cigniti team has been doing, but we also sell in the other nine service lines that we have.
Finally, number three, this acquisition will allow Coforge to address the AI-driven imperatives around assurance services.Can you confirm? Is it EPS accretive from day one?
Sudhir Singh: It will be EPS accretive from day one and therefore year one, absolutely.For funding the acquisition, you will be doing a QIP. Could you help us with the quantum and the timeline of the same?
Sudhir Singh: The QIP process is going to be triggered immediately. We would like to, if the market supports it, close the QIP within a month itself. Our intent is to raise roughly about $250 million and we will acquire between 51% and 54% of the promoter stake through the QIP. The rest is going to be effected through a share swap post the QIP closure and the 51% to 54% tranche being picked up.
The other thing I wanted to understand about the margin front as well, because there has been a bit of a disappointment there in Q4 and given Cigniti integration, it might stay under pressure. What do you have to say about that?
Sudhir Singh: The Cigniti PAT is actually slightly higher than the Coforge PAT. If you look at the FY24 results, their PAT came in higher than us. Their EBITDA is lower than ours. We believe that the merger synergies and both teams have spent significant time through the due diligence process to think through that will allow us to materially enhance the Cigniti EBITDA as well. We believe year one itself, which is FY25 from our vantage, post-merger Cigniti EBITDA also should start getting fairly close to the Coforge operating EBITDA.
You have not given guidance for FY25. Is it fair to say that it will be at least in single digit?
Sudhir Singh: Well, last year, when you look at the forecast that we did provide, we ended up being one of the only, if not the only, tech services firm which gave a very definite revenue guidance range at the beginning of the year and delivered on it, which is why we have delivered 13.3% CC. This year, and not just this year, if you look at our track record over the last seven years the order executable number, which is the next 12-month signed order book number that we call out every quarter and not everyone does, the seven-year history of the movement of that number shows a very tight correlation with the actual revenue realised over the subsequent 12 months.
From a market perspective, the fact that we will continue to call out that number every quarter is a better surrogate for where the firm is going than just giving an annual revenue number at the beginning of the year. Last year, when FY24 started, we walked into the year with an order executable that was 20.7% higher YoY, and we delivered a 13.3% revenue number. This year, as we get into FY25, we are walking in with the order executable 17.3% YoY higher and we will keep reporting on that number every quarter.The other that I wanted to understand was about execution risks that you foresee for the Cigniti acquisition.
Sudhir Singh: If you look at our history, Coforge has done three acquisitions over the last seven years. We have never failed on any one of those acquisitions and we set a very high bar for ourselves when we call something out as a success. Seven years back, we acquired a $13 million Pega asset, that is a $100 million plus business for us today.
Five years back, we acquired a $22 million MuleSoft asset. The Salesforce practice today for us is more than $70 million. Three years back, we acquired a BPS asset, $73 million, in the mortgage servicing space, which is a space that has seen significant demand headwinds and yet, that business today is $110 million. We have always said this, we are in the business of delivering results, not excuses.
As far as Cigniti is concerned, we walk in to this acquisition with tremendous confidence, not just in Coforge, but also in the Cigniti team that we have interacted with and we have interacted with level one, level two, level three management folks and we feel really-really good about the calibre of that team, the commitment of that team, and the passion of that team to create a horizontal AI services platform, more importantly, to mine all the existing client relationships that they have.