Company Analysis #1 - Birlasoft
A mid-tier key player in the Indian ITeS Industry that has the potential to be one of the larger player in the industry.
About Company:
Birlasoft is part of the larger CK Birla Group that is a $2.9 billion Indian multinational conglomerate. It is a mid-tier IT services company that provide technology and domain expertise in the field of Cloud, AI and Digital Technologies. The company was established in 1995 and is currently chaired by Mrs. Amita Birla and hires over 12,000 professionals. The company has a global presence, with business operations across Asia, the Middle East, Europe, and the Americas. Birlasoft is headquartered in Pune, Maharashtra, India.
Price Chart:
Company Market Profile:
Customer Profile:
Birlasoft operates in four different industry verticals i.e. Manufacturing, BFSI, Life sciences and Energies & Utilities. While Manufacturing is their biggest industry vertical amassing 44% of their revenues. Rest three industry verticals have revenue distributed between 14-20%.
Most of Birlasoft’s revenue is concentrated in Americas making 85% of revenues. Customers from Europe contribute about 9% of revenues and the rest is from Asia. This makes the company very vulnerable to overall macro conditions in the U.S. The company has shifted its focus to expand its business in Europe and APAC, but we are yet to see results. Important thing to note is that sales cycle in this industry can tend to be quite long (6-9 months), so it would be a few quarters before we see any impact in the revenue structure.
Product Offerings:
In terms of technology services, Birlasoft’s offerings can be divided into four major categories:
Digital & Cloud (32% of Revenue): Cloud technology is no longer just a tech differentiator; it's now an essential driver of growth, agility, and outstanding experiences throughout the value chain. Birlasoft offers a comprehensive array of cutting-edge cloud services, powered by intelligent automation and robust partnerships, tailored to meet precise business goals.
Data Analytics Transformation Services (DATS) (26% of Revenue): Birlasoft's Data Analytics Transformation Services (DATS) empower enterprises to extract invaluable insights from their data, igniting business transformation. Proficient in cutting-edge analytics technologies such as machine learning, artificial intelligence, data mining, and predictive modeling, Birlasoft aids clients in making informed decisions, streamlining operations, discovering untapped prospects, and fostering growth and profitability.
Enterprise Resource Planning (ERP) (33% of Revenue): Through strategic foresight and extensive global partnerships with leading technology providers, Birlasoft is primed to spearhead meaningful transformations in crucial business contexts. The company's holistic enterprise services focus on optimizing various operational facets including process execution, product management, marketing, and distribution/supply chain, unlocking unparalleled value.
Infrastructure and Cloud Technology Services (8% of Revenue): Birlasoft provides an all-encompassing range of solutions, encompassing cloud consulting, migration, development, and managed services, empowering customers to embrace future opportunities.
To offer these services, Birlasoft has partnered with leading technology vendors such as SAP, Microsoft, Salesforce, Infor and provide value added services on top of their technology layer.
Corporate Governance:
Recent changes in Corporate Governance include appointment of Mr. Angan Guha as the CEO and MD of the company in FY23.
Angan brings vast experience in spearheading large-scale transformational projects, enhancing brand presence, fostering robust customer engagement, and building highly effective global teams. His previous leadership roles have set a standard for cultivating a purpose-driven culture and an unwavering commitment to customer satisfaction. With extensive oversight across diverse sectors including financial services, manufacturing, energy & utilities, and hi-tech, Angan has demonstrated his proficiency in operations management. Before joining Birlasoft, he served as the CEO-Americas at Wipro, where he also held positions on its Executive Board and Group Executive Council.
Chandrasekar Thyagarajan, ex-CFO of Birlasoft resigned in January 2023 citing personal reasons. As his replacement, Kamini Shah was hired as the CFO w.e.f April 2023. With 25 years of experience spanning Fortune 500 companies, Kamini possesses extensive expertise in financial management, performance evaluation, accounting, and process optimization. Before joining Birlasoft, Kamini served as the Chief Financial Officer of Wipro Americas.
It would be important to note that both CEO and CFO are new to the company as well as the position. They have extensive experience in this industry, but would be important to keep a view on how their addition would be shaping the company.
Key Company Risks:
There are many risks that are generally shared amongst the Indian ITes Companies. But, one risk that is quite critical for Birlasoft is its concentration of business in Americas. As per the Q3FY24 data, nearly 86% of their business is coming from the Americas region. This exposes the company to the following risks:
Federal Reserve does not cut rates as anticipated in 2024/2025: High level of interest rates discourage discretionary IT spending. The recent hotter than expected inflation data has drawn cloud on rate cuts this year. The current street estimates is 75bps cut which is much much lower than the earlier anticipated 150-175bps cut.
High possibility of Trump being elected in November 2024: Recent polls show that there is a good chance of Trump being elected in the elections. Trump has a history of not being immigration friendly. Considering the reliance of Indian IT companies on hiring foreign workers, it would clout the future business prospects.
Financial Summary:
Shareholding pattern:
Birlasoft’s Promoters shareholding pattern has been quite stable in the past few years hovering around 40%. FIIs used to hold the lion share up until 2018 where we see they sold quite a bit reducing their holdings by upto 80% in March 2023. Between March and December 23, we see FII buying the stock again. According to a report by Nirmal Bang, this might not be idiosyncratic to the company or even the IT Sector. 2023 saw an above average inflow into small and mid-cap indexes and hence the increase in shareholding pattern might be entirely attributable to that.
Revenue and Profit Analysis:
Birlasoft’s 10 year Revenue CAGR stands at 5.93% and 5 year CAGR is 13.45%. We have seen company growing at a good pace past couple of years owing to the Digital Transformation boom post covid. Operating margin has been on the rise as well with 5 year CAGR being around 11.22% and 10 year CAGR is 3.28%.
Ratio Analysis:
Recent Deal Wins
Awarded business for an AMS deal in Digital for a Financial Services organisation
Won a CRM Development deal and mandate to manage Global Program & Project Management Services for a med-tech major’s technology projects across the value chain in the US & RoW, under Lifesciences vertical.
Secured a Digital deal to complement the existing efforts of a key BFSI customer in North America.
Signed a JDE development deal with a new customer in Europe.
Received a renewal for continuation as a preferred partner of an Aerosapce organization for a product life cycle and engineering applications engagement