How Soon Can Birlasoft Become A Billion-Dollar Revenue Enterprise?

Birlasoft Ltd. is headed towards industry-leading growth in the medium term, so much so that a billion dollars in annual revenue seems to be only a matter of intent on the part of the company.

The Pune-based IT services firm is well-positioned to capture the incoming demand, thanks in no small measure to the new leadership at the company, according to Nomura.

“Under new CEO Angan Guha, Birlasoft is embarking on a significant organisation-wide transformation,” Nomura analysts Krish Beniwal and Abhishek Bhandari said in an Aug. 24 research report. “We expect Birlasoft to head towards industry-leading growth in the medium term and initiate coverage with a 'Buy' rating and a target price of Rs 610.”

That implies a 31% upside to current market price.

For years, Birlasoft has lagged peers in revenue growth due to weak deal win-to-revenue transition and low annuity revenue. Guha aims to change that. Since his appointment as chief executive officer in December 2022, the Wipro veteran has brought about a slew of changes to simplify the operating structure, rejuvenate growth and enhance accountability. 

That's now showing in the company's financials.

Revenue of the Pune-based IT services firm rose 2.96% over the previous three months to Rs 1,262.8 crore in the quarter ended June 30, according to an exchange filing on July 27.

Birlasoft Q1 FY24 Key Highlights (Quarter-on-Quarter)

• Revenue up 2.96% at Rs 1,262.8 crore.

• Net profit up 22.62% at Rs 137.8 crore.

• Ebit up 17.63% at Rs 171.7 crore.

• Ebit margin up 179 basis points at Rs 13.60%.

For the fiscal ended March 31, 2023, the company clocked an annual revenue of Rs 4,794.8 crore. Nomura now expects that top line to increase to Rs 5,917.8 crore in FY24 and Rs 6,834.1 crore in FY26.

So, how soon will Birlasoft achieve that billion-dollar annual revenue run rate? Nomura expects clarity on that front from the company soon.

“With significant changes in both delivery and sales units through onboarding of experienced leaders from Tier-1 companies, we see Birlasoft preparing itself for capitalising on demand revival in the medium term,” Nomura said in its research report.

The brokerage expects Birlasoft to deliver dollar revenue growth of 14.1% and Ebit margin expansion of 140 basis points over FY24-26, with weak deal wins leading to a weaker revenue conversion and slow margin expansion as a key overhang.

“Birlasoft has avenues to improve margins through optimisation of delivery costs, higher offshoring and enhanced rationalisation of tail accounts,” Nomura said. “Sufficient cash balance ($160 million) and multiple margin tailwinds give Birlasoft enough levers to invest in capability building in the medium term, in our view.”