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Birlasoft’s Q4 performance was a mixed bag, with revenue missing expectations yet again and margin beating estimates. Revenue fell 5.3% CC QoQ due to continued weakness in discretionary spending, furloughs extending in January, projects ramp-down and closure, and insourcing at a few clients. EBITM expanded by 110bps QoQ to 11.5% on the back of rupee depreciation (impact of 50bps), certain one-offs like reduction in variable pay, and leave encashment provisions. The management expects a muted Q1, sequential revenue growth to return from Q2, and aspires to deliver FY26 revenue and EBITDAM closer to the FY25 level. Deal intake stood at USD236mn in Q4, with book-to-bill at 1.6x. We cut FY26E/27E EPS by 6.3/5.8%, considering the Q4 revenue miss. We roll forward our TP to Jun-26E. The company disappointed on revenue growth performance in the last few quarters; near-term growth outlook remains weak, although given the undemanding valuation (cash as a % of market cap at ~19%; ~5% FCF yield) and hope of growth recovery, we retain ADD on the stock with unchanged TP of Rs450, at 18x Jun-27E EPS.

Results summary

Revenue declined 5.4% QoQ (by 5.3% CC) to USD152.2mn, missing our estimate of USD157.4mn. Among verticals, Lifesciences, Manufacturing, BFSI declined 7.2%, 6.8%, 5.7% QoQ, while E&U grew 1.8% QoQ. Within services, ERP and Digital & Data declined 7.0 % and 5.8% QoQ, while Infra grew 5.1% QoQ. EBITDAM expanded by ~120bps QoQ, to 13.2%, beating our estimate of 12.3%, largely on lower variable pay, leave encashment, and currency benefits. Deal-win TCV was USD236mn in Q4 (book-to-bill: 1.6x). New-deal TCV was USD112mn vs USD64mn in Q3. Total headcount fell 1.6% QoQ to 11,930. Attrition inched up, to 12.8% from 12.7% in Q3. Birlasoft has proposed a final dividend of Rs4/sh. What we liked: Strong new deal TCV, healthy cash generation (88% OCF/EBITDA in Q4). What we did not like: Revenue miss, broad-based weakness.

Earnings Call KTAs 1)

The mgmt expects a muted Q1, considering continued impact from insourcing, and projects ramp-down and closures. It expects sequential revenue growth to return from Q2. 2) Q4 margin included certain one-off gains amounting to ~200bps. The mgmt expects half of these benefits to reverse in Q1, though it targets negating this partially via operating efficiencies. 3) BFSI segment performance does not reflect the uptick seen in spending by large banks in recent quarters, as the company derives bulk of its revenue from cards-and-payments and asset-management clients. It expects growth to return in a couple of quarters. 4) Life Sciences is largely Medtech-focused and is expected to return back to growth over the next two quarters. 5) It derives over USD300mn revenue from the Manufacturing and MedTech segments, which are vulnerable to tariffs. 6) Projectbased business roughly contributes to 70% of the revenue. The mgmt aims to bring it down to 50%. 7) The mgmt expects to close two large deals (a USD30-40mn TCV deal with US Hi-tech, and a USD25-30mn TCV deal with Europe BFSI) in Q1.

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