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Revenue in-line with expectations: Birlasoft reported healthy Q2FY24 revenue wherein rupee revenue came in at Rs 1,309.9cr, up by 9.9% YoY and 3.7% QoQ while revenue in dollar grew by 6.4% YoY and 3.1% QoQ to USD 158.3Mn. Constant currency revenue stood at USD 159Mn, up by 5.7% YoY and 3.1% QoQ. Overall growth was largely driven by the American region and segments such as manufacturing & BFSI along with a ramp up of order book.

Robust margin improvement: The company’s EBITDA grew by 17.5% YoY and 7.2% QoQ to Rs 207.1cr while margin improved by 102bps YoY and 52bps QoQ to 15.8% because operating efficiency is driving the performance. Further, PAT grew by 26%/5.5% YoY/ QoQ to Rs 145cr with margin at 11.1% an increase of 142bps/2bps YoY/QoQ.

Order Book continues to be healthy: Deals win continues to be strong and the company has signed deals worth USD 271Mn as compared to USD 146Mn in Q1FY24. For Q2FY24, it signed renewal deals of USD 105Mn and TCV new deal win was USD 167Mn and as compared to new deals of USD 80Mn/ USD 138 Mn in Q1FY24/Q2FY23. Going ahead management remains positive on the strong order inflow and signing of large deals.

Moderation in attrition continues: Attrition continued to moderate 15% in Q2FY24 as compared to 18.8% in Q1FY24 (decline of 380bps) and 27.4% in Q2FY23 (decline of 1,240bps).

The American region along with the Manufacturing and BFSI segment led the revenue growth: Birlasoft revenue grew healthy driven largely by decent growth from the American region as well as the majority of the segments participated but manufacturing & BFSI segments lead the growth. Amongst geographies, American region (~85.8% of revenue) grew by 12.1% YoY and 6.0% QoQ to Rs 1,123.9cr and so the rest of the world (6% of revenue) grew by 4.6%/3.7% YoY/QoQ while Europe region (8.2% of revenue) growth was muted and it de-grew by 6.1%/14.9% YoY/QoQ to Rs 107.4cr. Additionally, amongst segments, manufacturing (41.1% of revenue) grew by 8.0%/4.7% YoY/QoQ to Rs 538cr, BFSI (21.1% of revenue) grew strong by 21.4%/5.7% YoY/QoQ to Rs 276cr and Life-sciences (~24% of revenue) reported revenue of Rs 314.4cr, up by 5.5%/2.0% YoY/QoQ while mixed sentiment was seen in Energy (13.7% of revenue) segment which grew by 6.8% YoY but declined by 0.6% QoQ to Rs 179.5cr.

Outlook & Valuation: We believe Birlasoft posted a strong set of numbers for Q2FY24, despite macro concerns impacting other IT players. Further, management remains positive on the demand, continuous flow of order book and upskilling of employees will lead to growth. Besides, they have plans to diversify into Europe and the rest of the world as well hire a senior level manager which would add to its revenue growth. Additionally, we remain optimistic on Birlasoft as the company is strengthening its leadership team, has a strong order pipeline, easing attrition and improving financials will continue to aid growth. On the financial front, we expect its revenue/EBITDA to grow by 15.5%/44% CAGR over FY23-25E and revise our rating to Buy and target price upwards to Rs 651.

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