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Aiming to reach US$1 bn revenues by FY25

About the stock: Birlasoft Ltd (Birlasoft) has strength in non-ERP digital businesses like CRM, B & data analytics, app development & enterprise solution.

* The company caters to manufacturing, BFSI, energy & utility and lifescience

* Debt free and healthy double digit return ratio (with RoCE of >19%)

Q2FY22 Results: Birlasoft reported Q2FY22 results.

* Dollar revenues increased 6.7% QoQ to US$136.9 million

* EBITDA margin declined 98 bps QoQ to 15%

* Deal wins were at US$140 million (of which net new were US$104 million)

What should investors do? Birlasoft’s share price has grown by ~3.5x since it demerger (from ~| 114 in February 2019 to ~| 406 levels in October 2021).

* We continue to remain positive and retain our BUY rating on the stock.

Target Price and Valuation: We value Birlasoft at | 475 i.e. 23x P/E on FY23E EPS.

Key triggers for future price performance:

* Revenue growth is expected to be achieved via client mining, cross sell, multi-year deals, expansion in Europe & APAC and focus on niche verticals

* Expect dollar revenues to grow at 16.5% CAGR

* Margin expansion of 230 bps to 17.2% over FY21-23E

Alternate Stock Idea: Apart from Birlasoft, in our IT coverage we also like Mastek.

* Growth in new logo acquisition, increasing deal size, expansion of sales & marketing and market share gains to drive revenues

* BUY with target price of | 3,065

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