Birlasoft share price setting eye on new peaks, Anand Rathi gives detailed insights, cites key risks

Birlasoft share price today made new highs of Rs 421.35. Birlasoft share price is Rs 397, up Rs 20 or 5.3%. The 52-week low on the stock is Rs 77.35 and the stock has multiplied over 5 times in last 1 year. Investors of Birlasoft are extremely delighted with the returns they have received so far. Anand Rathi and Sharekhan highlights their view for Investors.  

Anand Rathi expects double-digit growth in FY22 for Birlasoft and is looking to keep its EBITDA margins at 15%+. The payout in the next few years is likely to rise gradually. Birlasoft is looking for M&A opportunities with revenue size of $150m-200m (33% of FY22 AR revenue estimate). 

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Anand Rathi raises their target multiple to 20x FY23e EPS (from 18x), reflecting steady execution and strong deal wins in Q4. There is also an expectation of pent-up demand for its services in the manufacturing and healthcare verticals. The stock trades at 15x FY23e, which is attractive at current valuations.

Sharekhan says that Birlasoft impressed by delivering USD revenue growth of 3.4% y-o-y, margin expansion of 300 bps y-o-y and net profit growth of 43% y-o-y in a year hit by the pandemic. Annuity revenue increased to over 70% in FY2021 from 61% at the beginning of FY2021 and 51% in Q3FY2020. In addition, Birlasoft reported record high large deal win TCVs of $888 million (up 32.7% y-o-y), robust deal pipeline (2x y-o-y to $1.2 billion), strong 107% y-o-y growth in free cash flow (FCF) and strong growth in top accounts in FY2021. Revenue from the top 5, top 10, and top 20 clients grew by 21.1%, 19.8%, and 19.2%, respectively, in FY2021. Sharekhan maintain a Buy rating on Birlasoft with a revised price target of Rs 450.

Birlasoft management remains optimistic on strong double-digit revenue growth in FY2022E because of large deal wins, rising deal sizes, a strong deal pipeline, favourable demand across verticals and strong growth in top 20 accounts. It expects manufacturing (largest revenue contributor) and life sciences verticals would lead growth in FY2022, explains Sharekhan.

In addition, Birlasoft management would focus on deploying the earlier success of its micro vertical strategy in certain verticals across all verticals and deepening relationships with top 30 accounts to drive revenue growth going ahead. Birlasoft management aims to reach $1 billion revenue mark ($480 million in FY2021) in the next four years, implying a revenue growth CAGR of 20%. The company sees EBITDA margin sustaining at 15% with an upward bias in FY2022 as the headwinds such as wage revision, investments in capabilities and increased hiring would be partly offset by strong revenue growth, higher offshoring, and other efficiencies.

Birlasoft Key Risks:

(1)    Deterioration in demand for IT services in the wake of second wave of COVID-19
(2)    loss of any large clients
(3)    stiff competition in the market.