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YoY revenue growth intact: Birlasoft reported revenue growth of 3.5% YoY and decline of 0.3% QoQ to $ 148.4mn, while its revenue in rupee was at Rs 1,221.9cr, up by 14% YoY and 2.5% QoQ. The growth was mainly driven by strong demand for technology transformation and cloud services businesses while muted performance was seen in its enterprise solution business which impacted the growth

Subdued operating performance: The Company’s EBITDA was down by 95.5% YoY and 95.8% QoQ to Rs 7.4cr, due to rise in other expense by 59.6% YoY and 49.9% QoQ as well as rise in employee expense by 20.6% YoY and 5.5% QoQ. Also, EBITDA margin came at 0.6% as it declined by 1,458 bps YoY and 1,419bps QoQ. Further, at the bottom-line the company reported a loss of Rs 16.4cr.

Other highlights: 1) Revenue/Operating performance and profits were impacted asone of its major clients Invacare has filed for bankruptcy and the company has created provision for ~Rs 151cr and further they are not expecting any revenue in next quarter. 2) Contract value of deals saw moderation of 26% YoY and 16% QoQ and stood at $102mn for Q3FY23. 3) Attrition level too moderated by 180bps YoY and 190bps QoQ to 25.5% which  is positive sign.

Outlook & Valuation: In the near term, management believes the performance will remain impacted due to bankruptcy filed by one of its clients and macro headwinds. However, going ahead the revenue growth is expected to be driven by improvement in deal pipeline for cloud and technology business, continued momentum in BFSI and pickup in demand from manufacturing and also uptick in deals from Europe and America region as well as focus on managing cost will aid in improving operating performance. On the financial front, we incorporated Q3 provisions made by the company as well as there are near term challenges however long term growth outlook may improve. Thus, we would revise our target price downwards to Rs 341, valuing the company at 14x PE multiple on FY25E EPS basis.

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