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Strong revenue growth: Birlasoft reported strong revenue growth wherein rupee revenue was up by 3% QoQ and 9.4% YoY to Rs 1,263cr while revenue in dollar stood at USD 153.6Mn, higher by 3% QoQ and 3.4% YoY. Revenue in constant currency grew by 2.7% QoQ and 3.6% YoY. Amongst geographies, Europe drove the growth followed by US markets (both ~94-95% of revenue) while Life science and BFSI posted decent growth in verticals. This quarter the company provided details of services offerings wherein its digital & cloud ERP as well as Infra technology (ICTS) performed well on QoQ basis.

Steady margins: EBITDA grew by 15.7% QoQ and 13.8% YoY to Rs 193.2cr while margins came in at 15.3%, an improvement of 168bps QoQ and 59bps YoY. Further, PAT came in higher by 22.6% QoQ and 14.0% YoY to Rs 137.6cr and a margin of 10.9%, an increase of 19bps QoQ and 44bps YoY.

Attrition continue to moderate: For the fifth consecutive quarter, attrition continues to see ease and is now at 18.8%, a decline of 330bps in Q4FY23 at 22.1% and decline of 910bps in Q1FY23 at 27.9%.

Deals to catch up in 2HFY24: In Q1FY24, the company signed total deals i.e. TCV worth USD 146Mn as compared to USD 286Mn in Q4FY23. Renewal deals were at USD 66Mn while new deal wins stood at USD 80Mn which is down by 30% QoQ (USD 114Mn) and 29% YoY (USD 112Mn). Management believes there was delay in signing deals for this quarter however there are many deals lined up which will get reflected in 2HFY24.

Concall highlights: 1) More clarity will come if the numbers are compared QoQ. 2) Digital & cloud revenue up 16.4% YoY. 3) In terms of guidance, the management plan is to grow ahead of the sector and reach 15% in EBITDA margin for FY24. 4) Revenue and earnings during Q1FY24 reflect the receipt of USD2Mn for Disengagement Services ending on May 31, 2023 in line with one time settlement with Invacare group. 5) Announced collaboration with Microsoft for establishing a Generative AI Centre of Excellence.

Outlook & Valuation: Despite macro concerns, Birlasoft has posted better than expected results for this quarter. Further, management believes that there seems demand across verticals and geographies but order wins has been delayed by 1-2 quarters as clients defer on their spending. Going ahead, the management plan is to focus on growth and also bringing in solutions for newer technologies like AI, etc. On financial front, we expect its revenue/EBITDA to grow strong at 15.5%/35.8% CAGR over FY23-25E but stock price has seen decent run-up as well as valuation seems expensive (10 year avg P/E at 15x) as it is near to its large peer which is better placed. Hence, we revised our rating to Hold and a target price to Rs 452.

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