Birlasoft Q2 Results Review - Long Term Growth Story Remains Intact: IDBI Capital

IDBI Capital Report

Birlasoft Ltd. reported a topline of $ 163.3 million, in-line with our estimates. Deferred deals (Q1) ramping up, vendor consolidated deal wins, broad-based growth across verticals led 2.2% constant currency QoQ revenue growth.

Among the verticals, growth was driven by manufacturing/energy and utility/BFSI (up 4.7%/4.7%/1.4% QoQ) and America grew by 6.7% QoQ among geos. Despite the revenue growth, margins contracted by 260 bps to 12.1% (Ebitda margin) on the back of higher onshore (up 19% QoQ), vendor consolidation deals which are margin dilutive and lower pass through revenue in nature.

Management stated that Q3 will be soft due to seasonality (furloughs) and margins will get further impacted by ~150 bps due to wage hike.

Birlasoft is confident about the revenue growth path from Q4 onwards on the back of new deals pipeline/ consolidation deals and improvement in demand environment (post US elections).

Owing to long term growth, we assume the coverage of the stock with a Buy with a target price of Rs 690 (~25 times earnings per share FY26E).

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