Release Date: October 23, 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 sequential revenue growth of 3.1% in rupee terms and 2.6% in dollar terms for Q2 FY25, indicating a rebound in revenue performance.
- The company experienced strong growth in its manufacturing and ENU verticals, with both sectors growing by 4.7% quarter-on-quarter.
- Birlasoft Ltd (BOM:532400) continues to generate strong cash flow, with a cash and bank balance of $221.8 million at the end of Q2, reflecting a 27.8% increase.
- The company's digital and data business registered a strong rebound, growing 6.6% quarter-on-quarter.
- The proactive deal pipeline remains healthy, with 50% of deals coming from either existing new or net new clients, indicating potential for future growth.
Negative Points
- The company's EBITA margin dropped to 12.1% in Q2 FY25 from 14.7% in the previous quarter, partly due to pricing flexibility and increased on-site work.
- Birlasoft Ltd (BOM:532400) faces challenges in its life sciences vertical, which has been underperforming and is expected to remain soft for a couple more quarters.
- The demand environment remains challenging, with client budgets on hold and uncertainty due to the upcoming US elections.
- The company anticipates a muted Q3 due to seasonal furloughs and a planned salary hike, which will impact margins further.
- Despite a healthy pipeline, customer decision-making delays have affected the company's TCV performance, with a need to improve deal flow in the coming quarters.
Q & A Highlights
Q: Could you talk about the increase in on-site revenue and the decline in offshore revenue?
A: Mrs. Kamini Shah, CFO: The shift in the on-site ratio to almost 51% is due to consolidation deals, which are largely on-site centric. This has impacted margins, but over time, we expect this to shift offshore.
Q: What is the outlook for deal wins, given the current demand situation?
A: Mr. Angan Guha, CEO & MD: We delivered about $300 million worth of signings in the first half, which is lower than last year. However, our pipeline is improving, and we expect better deal flow in Q3 and Q4. Our focus is on improving deal flow and margins.
Q: Can you explain the margin drop and the impact of pricing flexibility?
A: Mr. Angan Guha, CEO & MD: The margin drop is due to a shift to more on-site revenue and pricing flexibility in new deals. We expect margins to improve as engagements mature and more work shifts offshore. However, Q3 will be muted due to salary hikes.
Q: How are you addressing the challenges in the life sciences vertical?
A: Mr. Angan Guha, CEO & MD: The life sciences business has been soft, but we expect it to return to growth in a couple of quarters. We are focusing on improving our capabilities and winning more deals in this space.
Q: What is the strategy for vendor consolidation deals, and how do they impact margins?
A: Mr. Angan Guha, CEO & MD: Vendor consolidation deals provide revenue certainty but come with initial pricing pressures. Over time, as work shifts offshore, margins will improve. We aim to balance these deals with transformational projects to maintain healthy margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
