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Steady revenue growth: Birlasoft posted steady Q3FY24 numbers with revenue in rupee at Rs 1,343cr, up by 9.9% YoY/2.5% QoQ and dollar revenue growth of 8.7% YoY/1.9% QoQ to USD 161.3mn. In constant currency revenue grew by 7.9% YoY/1.8% QoQ. The overall topline grew because of strong numbers from the American region as well as verticals life science, energy and BFSI too performed well.

Strong margin expansion: Birlasoft’s operating performance remained healthy as compared to the last year same quarter due to one off and higher other expenses in Q3FY23. In current quarter Q3FY24, it reported EBITDA of Rs 214.3cr, up from Rs 7.4cr YoY and higher by 3.4% QoQ and EBITDA margin was at 16%, up by 14bps QoQ. Despite the furlough in the quarter and wage hike taken from September, the company managed to expand margin due to improved utilization and efficiency. PAT came in at Rs 161.1cr as against the loss of Rs 16.4cr in Q3FY23 and sequentially it witnessed a growth of 11% and PAT margin was at 12%, higher by 8bps QoQ.

Deal wins remains soft: The company continued to win orders worth USD 218mn for Q3FY24 which includes new deals worth USD 94mn and renewals of USD 124mn. For 9MFY24, the order book won was USD 635mn, higher by 9.1% as compared to 9MFY23 which is a steady growth. Going ahead, the management expects short term deals to continue as well as focus on gaining long term deals which would specifically focus on particular domain, and also verticals as well as its expertise.

Attrition continued to moderate further: Like other IT majors, Birlasoft too witnessed moderation in the attrition which stood at 12.6% in Q3FY24, easing by 240bps QoQ (15% in Q2FY24) and 1,290bps YoY (25.5% in Q3FY23).

American region led the growth and almost all the verticals and services segment performed well: Amongst the geographies, American region (85.7% of the revenue) led the growth with revenue at Rs 1,151cr, up by 12.5% YoY and 2.4% QoQ. However, the rest of the world (14.3% of the revenue) which includes Europe, India and other countries de-grew by 3.6% YoY to Rs 192cr but increased by 3.2% QoQ. Amongst verticals, life-science segment (23.8% of revenue) grew the highest at 31.4% YoY to Rs 319.6cr, followed by Energy (14.5% of revenue) with growth of 14.7% to Rs 194.7cr and BFSI (20.6% of revenue) with growth of 12.6% YoY to Rs 276.6cr while manufacturing (41.1% of revenue) de-grew marginally by 2% YoY to Rs 552cr. Amongst services, digital & cloud (34.2% of revenue) grew by 22.4% YoY to Rs 459cr, followed by ERP segment (31.9% of revenue) to Rs 428cr, up by 10.3% YoY and Infrastructure (8.5% of revenue) grew by 0.5% YoY to Rs 114cr while data & analytics (25.4% of revenue) was marginally down by 1% YoY to Rs 341cr.

Outlook & Valuation: We believe Birlasoft posted decent numbers for Q3FY24, despite macro concerns and furlough still hovering. Going ahead, the management plan is to remain focused on demand, specific domain and verticals driving growth as well as continue to bring in efficiency and improve utilization as it would aid in both topline and margin growth. Along with strengthening its leadership team, they would invest behind its capabilities and remain focused on execution. On the financial front, we expect its revenue/EBITDA/PAT to grow by 14.2%/34.2%/38% CAGR over FY23-26E however given the strong run-up in the stock price, its valuation seems to be stretched. So, assigning a P/E of 29x on FY26E, we revise our rating to Accumulate (from Buy earlier) and target price to Rs 920.

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