Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Birlasoft Ltd (BOM:532400, Financial) reported a year-on-year revenue growth of 5.1% in rupee terms and 3.8% in constant currency terms.
- Profit after tax grew by 9.2% year-on-year in rupee terms and 7.6% in dollar terms.
- Total contract value booking increased by 10% year-on-year, reaching $160 million for the quarter.
- Net new total contract value (TCV) rose by 17% year-on-year.
- Strong cash flow generation resulted in cash and cash equivalents rising by 46% year-on-year to INR1,914 crores.
Negative Points
- Quarter-on-quarter revenue saw a decline of 2.7% in constant currency terms and 2.6% in rupee terms.
- EBITDA margin fell to 14.7%, reflecting costs associated with delayed projects and lower utilization levels.
- The ERP business experienced a quarter-on-quarter decline, impacting the manufacturing vertical significantly.
- Profit after tax decreased by 15.6% quarter-on-quarter.
- The company faced challenges due to sluggish customer discretionary spend and deferment of new project ramp-ups.
Q & A Highlights
Q: Given the sharp fall in revenues this quarter, do you see any change in client behavior versus the previous quarter? How much of the fall do we expect to recover in Q2? Also, can you quantify the large pass-through element in revenue and its future outlook?
A: The subdued quarter came after five consecutive quarters of sequential growth. Some projects expected to start in Q1 were delayed. However, some of these projects have already resumed in July, indicating a stronger Q2. The pass-through element is due to the changing business mix, particularly in the infrastructure segment, where turnkey projects include services, licenses, and products.
Q: With the annual salary increment cycle ahead, how should we think about full-year margins? How do you plan to maintain margins in a narrow band?
A: The quarter-on-quarter EBITDA decline is acknowledged, but year-on-year PAT has grown. Margin recovery in Q2 will depend on revenue growth. Investments will continue, focusing on long-term business building. The goal is to deliver quarter-on-quarter revenue growth, which will positively impact margins.
Q: Can you provide insights into the deal wins and pipeline? Are you satisfied with the current level of deal wins?
A: Deal wins were higher than the same quarter last year, with $160 million in TCV compared to $145 million. While the pipeline continues to grow, decision-making is delayed. Q2 is expected to be better than Q1 in terms of deal wins.
Q: How do you view the business mix in terms of annuity versus project-oriented work, especially in BFSI?
A: BFSI has been a strong performer for the last seven quarters and will continue to grow, albeit at a moderated pace. The business mix in BFSI is more project-oriented, focusing on transformation engagements. The company is also winning long-term contracts in financial services.
Q: What is the outlook for the manufacturing vertical and the impact of project deferrals?
A: The manufacturing vertical experienced a decline due to project deferrals, but there are positive signs with some projects resuming in July. The company remains confident in the manufacturing vertical's ability to bounce back.
Q: Can you elaborate on the impact of cost of equipment on margins and other expenses?
A: The cost of equipment is related to turnkey projects in the infrastructure business, which includes services, licenses, and products. The decline in other expenses is due to reduced subcontractor costs and consulting services, which will adjust as revenue grows.
Q: What is the strategic focus on digital and data investments?
A: Investments are being made in digital and data capabilities, including hiring new salespeople, architects, and domain experts. The company is building strong partnerships with Microsoft, ServiceNow, SAP, and Oracle to drive growth in these areas.
Q: How is the company addressing the demand environment and project delays?
A: The demand environment remains cautiously optimistic. The company is focused on converting its strong pipeline into orders and executing well to deliver a better Q2. The project delays were primarily in the manufacturing vertical, but there are positive signs of recovery.
Q: What is the outlook for the BFSI vertical and its growth potential?
A: The BFSI vertical has shown strong growth for the last eight quarters and will continue to grow, although at a moderated pace. The company expects BFSI to remain a growth leader, with other verticals also contributing to overall growth.
Q: How does the company view its long-term growth and strategic investments?
A: The company is focused on long-term sustainability and growth, continuing to invest in capabilities and infrastructure. The goal is to build a balanced revenue stream with a mix of digital, data, ERP, and infrastructure services.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
