Birlasoft Is In Revamp Mode For Growth Amid IT Slowdown, Says CEO Angan Guha

Birlasoft Ltd. plans to appoint two CEOs to lead operations in its biggest market as well as for the rest of the world, as part of an organisational restructuring that's aimed at capturing growth amid a slowdown afflicting India's $245-billion IT services industry.

“We believe now is the time to continue to invest in our business because once the cycle turns, we want to get back to industry-leading growth,” Angan Guha, chief executive officer at Birlasoft, told BQ Prime during a post-earnings interaction on Tuesday. 

“From that perspective, we have restructured our organisation.”

The Pune-based IT services firm recently hired Kamini Shah as chief financial officer, and plans are in place to bring in a new chief growth officer and chief operating officer in the next three to four months.

The reorganisation is visible outside the corner office as well.

According to Guha, Birlasoft has identified 60 growth leaders in the middle management—consider them as lieutenants in charge of driving performance in the bullpen. About half of these leaders were groomed internally, while the rest are external hires. “So, it's a mix of promoting internal leaders as well as getting external talent,” Guha said.

The biggest change, however, will be in how Birlasoft operates—from vertically stacked to geography-focused. The U.S. business, which brings in about 85% of the IT company's total revenue, will be split into four verticals—financial services, manufacturing, healthcare, and energy and utilities—and their leaders will report to a North America CEO.

“For the Rest of World CEO, we may decide to either go the vertical way or we may decide to go the country way,” Guha said. “That decision we will take when the new leader comes in.”

Still, while there have been promotions within the ranks, the attrition rate remains high—at least higher than that of peers. Guha, however, is not concerned. He takes comfort in the fact that it has eased 340 basis points sequentially to 22.1% in the March quarter.

“Again, the attrition that you are seeing is on a trailing 12-month basis, but if you only look at Q4, our original attrition rate is down to 17% already,” Guha said.

What about hiring in the current fiscal? 

The company will of course hire, but will also rotate talent internally to build the bench as well as the pyramid, Guha said. “We will hire on both sides of the spectrum—experienced as well as freshers—so that we can get the pyramid right.”

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Earnings Review

The organisational restructuring—coupled with a strong order book and abating attrition—will be a key growth enabler for Birlasoft, brokerages said after the company's quarterly results.

The Pune-based IT services firm has swung back to profit, and even beat estimates, after a quarter of loss stemming from the bankruptcy of Invacare Corp.—one of its biggest clients. Revenue growth, however, was flat.

Birlasoft Q4 Results FY23: Key Highlights (QoQ) 

• Revenue up 0.36% at Rs 1,226.38 crore, as against an estimate of Rs 1,217 crore.

• Net profit at Rs 112.16 crore vs net loss of Rs 16.36 crore. Analysts had estimated it at Rs 109 crore. 

• EBIT at Rs 146 crore vs Q3 EBIT loss of Rs 136 crore. 

• Q4 EBIT margin at 11.90%.

In the near term, the company will not be immune to the global macroeconomic headwinds, but the medium- to long-term growth prospects remain intact, Religare Broking said in a note.

IDBI Capital is seeing “green shoots of recovery”, and expects Birlasoft to exit FY24 with margins at 16%, as the Invacare episode is now a thing of the past.

Guha, however, was circumspect in his outlook for the company and the industry.

“It is really hard to predict the future, given the tremendous amount of headwinds in the industry. Nobody really knows how the industry will shape up,” he said. “So, we are essentially taking it quarter-on-quarter, with the focus on investing in the business.”

Dealmaking, while healthy at $286 million in the March quarter, is another pain point. 

“Our pipeline is growing—in fact, it's at the highest ever—but we don't know whether clients will sign orders,” Guha said. “The key measure for us, going forward, would be to convert the pipeline into orders.”