Coforge reports that AI has improved margins, while competitors are experiencing 'AI deflation'.

      Coforge announced on Monday that its revenue for the first quarter was $592.2 million. This marks a 33% increase in dollar terms year-on-year, and a 21.1% rise compared to the previous quarter. When expressed in rupees, the annual growth is reported at 49%. The profit after tax amounted to $55.6 million.

      These figures emerge amid a sector bracing for contraction. HCL Technologies has cautioned about "AI deflation". Its CEO, C. Vijayakumar, indicated that revenue is anticipated to decline by three to five percent in the upcoming year, The Register reported in April. Analysts predict that the top six Indian IT firms will achieve a constant currency growth of 2.8% this financial year.

      Coforge's growth exceeded this projection by approximately twelve times, and the company attributes its success to the technology that competitors criticize.

      “The combination of our signed order book for the next twelve months, totaling $2.23 billion, a robust pipeline of large deals, and our distinct capabilities—with 86% of our revenue coming from AI-led engineering, data, and cloud services—positions us to be the industry growth leader for the third consecutive year,” stated Sudhir Singh, CEO and executive director.

      Operating margins saw a significant increase, with the EBIT margin hitting 16.0%, a rise of 414 basis points year-on-year, while the EBITDA margin reached 20.3%, up 285 basis points. Singh attributed the margin growth to “the effect of large-scale AI implementation in client service and internal processes”. He also noted that the quarter surpassed the company’s own targets, emphasizing that “consolidated Q1 margins exceeded our annual margin guidance”.

      This assertion counters the deflation narrative. Traditionally, Indian IT services have charged clients based on manpower, so a reduction in delivery costs would typically compress revenue rather than enhance margins.

      Staffing figures reflect this trend as well. The attrition rate over the past twelve months dropped to 10.4%, down from 10.8% the previous quarter.

      One significant detail missing from the report is Coforge's acquisition of Encora during this period. The deal, valued at $2.35 billion, was conducted through shares, and Singh mentioned that the business is now “fully operationally integrated”. The owners of Encora, Advent International and Warburg Pincus, received about 20% of Coforge in return.

      The results announcement did not provide an organic growth figure or earnings per share. Both omissions are noteworthy. While profit increased by 110% in rupees, the total share count also grew, meaning the actual gain for each existing shareholder may not be as substantial as the headline implies.

      Every key figure is presented in both currencies, with three of the four sets exhibiting consistent behavior. Revenue, EBITDA, and EBIT suggest that the rupee depreciated by around 12% against the dollar over the year, but this is not the case for the profit figure. The 110% growth in rupees alongside 46% in dollars indicates a movement closer to 44%. The report did not clarify this discrepancy.

      Looking ahead, the indicators are promising. Coforge secured $691 million in total contract value during the quarter from four large deals across North America, Europe, and Latin America. Its executable order book for the next twelve months stands at $2.23 billion, reflecting a 27% increase quarter-on-quarter and a 44% rise year-on-year. The company also announced a five-year contract in Europe worth over $230 million last week. An order book consists of signed commitments rather than realized revenue, indicating genuine demand.

      Coforge describes its workforce as having “specialized FDEs in hybrid pod-based delivery units”. These forward-deployed engineers work directly with clients. This model is rapidly gaining traction; TCS has also been hiring forward-deployed AI engineers, and AWS has invested $1 billion in a similar approach, making this role one of the pivotal new AI positions.

      The notion that AI enhances margins is not unique to Coforge. JPMorgan has communicated a comparable narrative to its investors. Investment in India continues unabated, with Amazon pledging an additional $13 billion towards cloud and AI by 2030.

      Coforge launched three products in the quarter: Nuuron, described as an AI operating system; NEXA, aimed at insurers; and Aeronova.AI, which aids airlines in transitioning from outdated booking systems. The board has proposed an interim dividend of four rupees per share. The release also details a registration statement on Form F-1 submitted to the US Securities and Exchange Commission, which has yet to take effect.

      As time progresses, comparisons will become clearer. Until Encora figures into both current and prior year's data, the growth rate and AI margin claims will remain indistinct.