The stock rallied six times, or 500 per cent, in last 11 months, but some selling pressure has set in over the past few days following the December quarter earnings.
The IT firm reported a 70 per cent YoY drop in deal wins in what proved to be an otherwise strong quarter for the IT industry, making investors wonder if the optimism on the counter is worth it. Post Q3 results, the stock has lost 7 per cent in three days. But most brokerages say ‘all is well’ with the stock.
They said cash on the company’s balance sheet stood at Rs 1,011 crore, 13 per cent of the stock’s market capitalisation. Besides free cash flow generation by the company remains strong. They expect the deal momentum to pick up going ahead.
Deal momentum
The IT firm, which aims to be a billion dollar revenue company in the next few years, reported $109 million in deal wins for December quarter, way below $273.90 million worth of deals that it had secured in the September quarter and $180 million in June quarter.
Lower deal wins in December quarter were owing to fewer number of working days, higher-than-expected furloughs in the manufacturing sector and lower new deal wins owing to virtual selling, said Sharekhan, which estimates the revenue growth momentum to continue in the March quarter.
Emkay Global advised investors to look at deal bookings in the first three quarters of FY21, which stood at $563 million, including net new total contract value (TCV) of $265 million. “The deal wins enhanced revenue visibility and gives confidence on sustainable revenue growth acceleration in the coming quarters,” it said.
“We expect the company to sustain revenue acceleration through FY23, with the help of its client mining strategy and sustained margin expansion. Improving earnings predictability in the business and strong earnings trajectory support higher valuations. However, a 117 per cent rally in the stock in the last six months leaves limited scope for upside,” the brokerage said and set a price target of Rs 290 for the stock based on 16 times March 2023 EPS estimate.
Sharekhan sees the stock at Rs 320, while ICICI Securities has a target of Rs 310.
The positives
The IT firm reported a 32.60 per cent YoY rise in net profit at Rs 96.40 crore for the December quarter. Sequentially, the profit grew 39.4 per cent while revenues rose 5.7 per cent YoY (2.7 per cent QoQ) to Rs 880.80 crore.
The IT firm reported a 3.3 per cent sequential dollar revenue growth following a 4.6 per cent QoQ drop in September quarter and a 3.4 per cent QoQ drop in June quarter dollar revenues.
Ebitda margin for the quarter came in at 16.8 per cent, compared with 13.3 per cent for September quarter and 12.2 per cent for the year-ago period.
Analysts said Birlasoft’s December quarter dollar revenue was in line on dollar terms, while Ebitda margin beat estimates and crossed the company’s own target of 15 per cent by June quarter, two quarters earlier than expected.
Billion dollar dream
Chief Executive Officer and Managing Director Dharmender Kapoor told ETMarkets.com that his company wishes to become a billion dollar enterprise by 2025 by focusing on growth within micro verticals that cater to specific industry sectors like manufacturing, life sciences and BFSI.
Kapoor said platform-based digital initiatives, cloud adoption and aggressive automation have been key drivers of growth for Birlasoft and the growing relationships and partnership with platform providers are helping it bring in a transformational structure and multi-services long-term deals.
“We are confident that we will continue with the momentum that we have seen over the past two years and drive value for our customers. With significant deals coming our way and the market opening up, we are poised for revenue growth in Q4 and in the coming financial year,” he told ETMarkets.com.
The management estimates that the company’s Ebitda margin would remain above 15 per cent in the coming quarters despite a wage hike and investments for enhancement of capabilities.
ICICIdirect said that acceleration in digital technologies, healthy deal pipeline, focus on multi-year client mining, healthy order book and expansion in Europe & APAC region bode well for long-term revenue growth of the firm.
It is positive on the company’s focus on niche verticals and cross-selling opportunities and believes the company’s cost rationalisation drive would improve margins.
Ace investors stay put
Shareholding data showed Ashish Dhawan held 3.61 per cent, or 1,00,00,000 shares, in the company as of December 31, 2020, the same as September 30, 2020. Ashish Kacholia owned 2.35 per cent, or 64,99,879 shares, in the company as on December 31. He also did not tinker with his holding during the quarter. Mukul Mahavir Agrawal’s 1.08 per cent, or 30,00,000 shares, in the company also remained unchanged.
