BIRLASOFT LTD

Current Market Price-: 420 Rs

BirlaSoft is an almost debt free company, part of CK Birla Group which has a rich heritage of 158-year of building sustainable communities. BirlaSoft is engaged in enterprise solution and digital technologies which includes Computer programming, consultancy and related activities. As of the latest balance sheet financials and the recent management comments the company is hungry for growth and is armed with cash and equivalents of 630 crores ripe for stellar growth in the coming period.

This report is in continuation to the Birlasoft’s Older research report. Therefore new users can check the same by reading older report for more information about the company. (CLICK HERE FOR OLDER REPORT.)

In 2020 company has won several awards such as being recognized as India’s most admired and valuable power brand company in 2020, to winning the Aegis Graham Bell Award for its entirely open solution that company built very-very quickly during the pandemic year and were able to start earning revenue by selling it to some of its key clients.

Company got SABERA 2020 Award for Manufacturing Leadership Partner Award for its community benefit initiatives in the Project Shodhan to be featured in the Global ISG Index across category for three times.

Going forward, our priorities will be as follows: #1, our focus on platform-based digital initiatives, cloud adoption and aggressive automation will be our key growth levers

Management is very confident of making the company 1 billion $ revenue company in the company period. For that management has also clearly given its intent where they are looking for possible Mergers and Acquisition in order to grow via inorganic expansion. For M&A management wants to be very clear with its strategy, the strategy that is in place.

Management is not very keen on just going and acquiring anything for the purpose of just showing the growth alone because they are looking for a significant growth coming in an organic way first.

With the M&A, company is looking at an opportunity, where they want such a candidate which will be able to provide company at least two key features out of the three and management is not going to narrate those three features for now. However management is in a no hurry for acquisition.

In order to achieve 1 billion $ revenue inorganic growth as part of the billion dollars should be anything from $150 million to $200 million in revenue and that is something management is exploring in M&A candidates for future expansion.

Financials

For Q4 Fy 2020

Q4 revenue was at $123.3 million, this was Rs. 902.9 crores and this represented a growth of 3.2% on a quarter-on-quarter basis.
Q4 had a cross-currency benefit of about 20 basis points and hence the constant currency revenue growth was at 3%.
Q4 EBITDA was at $20.8 million and that’s Rs.152.4 crores versus $19.6 million in Q3 and this represents a growth of 6.2% quarter-to-quarter and 28.8% on a year-to-year basis.
The year-to-year improvement in rupee terms was 30.5%.
EBITDA margin stood at 16.9% and which is an improvement of about 48 basis points in a quarter-to- quarter basis and 401 bps year-to-year.
Q4 EBITDA margin improved despite the full impact of wage hikes that we had given effective 1st of January 2021. Company’s improvement in EBITDA margin was aided by revenue growth primarily about 0.8%, lower bad debt provisions in Q4 about 1%.
Profit after tax for Q4 was at $13.5 million, Rs. 99 crores roughly versus $13.1 million in Q3 which represents the growth of 3.4% quarter-on-quarter and 2.7% in rupee terms.
And on a year-to-year basis the growth was 41.4%.

For the year Ended March 2021

The revenue was at $ 479.6 million, Rs. 3,556 crores and this means a growth of 3.4% year-to-year and in rupee terms, that was 8% year-to-year.
FY’21 had a rupee depreciation of about 4.5% against the US dollar which is why the rupee growth can be seen is higher than the growth in dollar terms.
The full year EBITDA was at $71.5 million versus $55.3 million, which means a growth of 29.4% year-to-year, 35% in rupee terms.
Margin saw an improvement of 300 basis points during the year.
FY’21 PAT was at $43.4 million which is Rs.321 crores approximately and was up by 37.1% year- on-year, in rupee terms that was 43% year-on-year.
Considering a healthy cash balance despite the COVID crisis, the board has announced a final dividend of Rs.2.50 per share, over and above the interim dividend of Rs.1 per share which company had announced back in second quarter of FY’21. The total dividend for the year therefore was Rs.3.50 per share for FY’21 and that makes up the payout ratio at 30.2% versus 27.2% in FY’20.
CAPEX spends in FY’21 was about $3.5 million .
Free cash flow for the year was at $80.5 million which was 185% of net income.
For the upcoming yer that is FY 22 company is expecting EBITDA Margins around 16% with a revenue growth of 15% thus inching close towards achieving $1 billion revenue mark.

For Q1 fy 2022

Revenue stands at $128.4 million versus $120.3 million in quarter four of the previous financial year an increase of 4.1% quarter-on-quarter growth and 5.9% year-on-year growth.
EBITDA margin for quarter one is down marginally at 16% versus 16.9%. However, in absolute terms, it is flat quarter-on-quarter and up by 37% year-on-year.
PAT stood at $15.4 million, which is up 14% from the previous quarter and 107% from the same quarter the previous year.
Company signed TCV deal wins of $153 million in quarter one.
New business TCV wins were at $94 million in quarter one versus $89 million in the previous year.
Company has seen some quick uptick in the new business and the wins for the quarter include many ERP implementation/ upgrade deals across verticals. The exciting part of the deal wins for quarter one is that net new wins and growth are back, at $19.1 million, 13% of the total wins. This change must create a good base for continuous growth for subsequent quarters.
Company’s DSO, which is an indicator of collections and receivables, saw a further improvement of two days quarter- on-quarter on the back of robust collections in the past quarter. It stood at 54 days versus 56 days in Q4.
Cash and cash equivalence stood at $154 million, Rs. 1,144 crores as of June 30; this is marginally above $153.1 million as of March 31.
Company has started investing in AAA-rated bonds from this quarter onwards, apart from investments that company has already made in liquid mutual funds, deposits, and corporate deposits of very high quality. These investments are improving liquidity and liquidity safety, and yield at the same time.
Company spent about $1.5 million in CAPEX in the past quarter.
Return on equity on a quarterly annualized basis stood 19.7% in the first quarter versus 14.7% in FY 2021.

Managements Comments

Company believes that it will grow with the top 5, top 10, and top 20 customers the same way it grew last year. Last year company grew about 14% to 20% with these clients, and it is expected to see similar growth this year.
In the upcoming period company see’s enterprise digital model shaping up that is because it has been in company’s position and there is a lot of discussion around the enterprise solutions or ERPs if we look carefully, the ERPs are also becoming digital because the software-as-a-service business is really picking up very well which is also the reason as well as company has reorganized its business into the enterprise solutions, business and technology transformation, and the cloud with the base services. So these are the three elements in which company has done that so that its customers can really draw the benefit of enterprise digital. So to say enterprise with digital is now getting to a good level of maturity for the company.
Company has also upgraded its partnership with Aws as well as on the Google side, there are ongoing discussions.
Company’s focus remains in achieving its goal for the growth that is to go above the mid-teens growth for the financial year and management expects to give shareholders much better news at the end of quarter two and going forward.
Total Contract Value (TCV) is close to $94 million for the company in this quarter.

Conclusion

Birlasoft a part of $2.4 billion CK BIRLA Group being completely deft free makes is a very unique IT Company. The management is very confident of achieving 15% EBIT margins In the coming period and further maintaining those margins. Additionally management is also aiming for a billion dollar company in terms of revenues in the coming 4-5 years which compared with the current revenues is more than double . Going by the rough numbers and taking into account the management’s comments this translates into operating profit of $152 million up from $53.26 million which is 186% flat growth or about 23% CAGR over 5 years period. Additionally company has cash balance of Rs 1040+ crores which can be used for inorganic expansion via takeovers as well as management as also shown its intent where they are looking for potential candidates for M&A. Additionally many mutual funds have recently added BirlaSoft to their portfolios as well as older ones have increased their shareholdings. Thus this is what makes it worth Exploring for long term.

Birlasoft was previously suggested 28th February 2021 when the stock was trading at Rs227 and since then it has delivered 90% returns.

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