Birlasoft – Ambitious, or super normal?

FY25Q1 Concal Summary:-

• Subdued quarter, far below managements expectation. Business mix is changing from digital (very strong business for them) to Infra business due to customers spend pattern moving from transformation engagements to a more cost-based engagement.
• Some projects, particularly in the ERP segment, were expected to start in Q1 but got delayed, leading to a q-o-q decline in the ERP business and the manufacturing vertical.
• Decline in revenue and margins, mainly due to the delayed projects (in ERP) and the associated costs without corresponding revenues. Adjusted EBIDTA post Rs 222 million of write-back is ~13% from the reported 14.7%
• Q-o-Q revenue de-grew but y-o-y it was up. Some projects are coming back so expect a stronger Q2 (including deal wins).
• Company has realigned it’s service line for better reflection of business drivers- Digital & Data, ERP, Infra. Infra grew the most for them. They had the biggest miss in the Data Analytics business.
• BFSI grew while LifeScience was soft due to delay in project completion. Major pain coming from Manufacturing.
• The infrastructure business includes turnkey contracts, which involve pass-through elements like services, licenses, and products, so the equipment they buy is to serve the customers. The shift towards infrastructure investments is intentional, aiming to build a more homogeneous revenue stream over time. It can be lumpy in the medium term, but is expected to provide annuity revenue in the long term.
• BFSI will be a growth leader for them for the fiscal year. However, the growth will moderate going forward. They don’t expect 8% q-o-q growth even in the BFSI business.
• There’s a shift towards offshore projects due to customer price pressure, might last for 1-2 quarters until the discretionary spending improves.
• Some of the equipment costs are reflected in the revenue line when the equipment is used to deliver services to customers. Management acknowledged lumpy nature of turnkey projects.
• Q1 was a “blip” and management admitted that the company could have performed better, also, deal signings have not been as strong as desired. Management stressed on measuring y-o-y performance than q-o-q.
• Do not have presence in core banking area of bank. The focus has been on serving payment companies, mortgage companies, and asset management companies; the periphery systems surrounding core banking rather than the core.
• Digital business, linked with Microsoft, is performing well, their Microsoft linked business is showing over 20% year-on-year growth.
• The company had onboarded personnel in anticipation of project kick-offs, but delays in project starts led to a mismatch between costs and revenue.

Feedbacks will be appreciated.