Birlasoft Ltd — Q1 FY26 earnings call

Call held 7 Aug 2025

Management summary

Birlasoft reported a challenging Q1 FY26 with revenue declining 1% sequentially to $150.7 million, primarily due to a 4% degrowth in the Manufacturing vertical. Despite sequential growth in several other verticals and a robust balance sheet, overall performance was impacted by macroeconomic headwinds and client insourcing. The company's EBITDA margin stood at 12.4%, and the effective tax rate increased to 35.9%. Management is focused on achieving sequential growth in Q2, improving the order book, and driving operational efficiencies amidst a difficult demand environment.

Highlights

  • BFSI, Life Sciences & Services, and Energy & Utilities delivered sequential growth in dollar terms.

  • Digital & Data business registered a growth of 2.6% QoQ.

  • Robust balance sheet with cash and cash equivalents at $266.6 million, up 16% YoY and 2.8% QoQ.

  • Secured marquee deal wins in emerging areas like GenAI, including a partnership with a US energy sector player and an engagement with a global technology leader.

Concerns

  • Revenue for Q1 sequentially lower by 1% in dollar terms, at $150.7 million.

  • Manufacturing vertical registered a 4% QoQ degrowth due to project completions, ramp-downs, and insourcing.

  • EBIDTA margin at 12.4% for the quarter, impacted by the absence of Q4 one-off benefits.

  • Effective tax rate (ETR) rose to 35.9% due to a provision for higher tax.

  • TCV deal wins in Q1 at $141 million, lower than Q4, with one deal right-shifted to Q2.

  • DSO at 58 days, higher than normal due to delayed collections.

Key financials

  1. Revenue 150.7 Mn -1%QoQ
  2. EBITDA Margin 12.4%
  3. PAT (Adjusted) 14.4 Mn
  4. Basic EPS (Adjusted) ₹4.39
  5. Cash and Cash Equivalents 266.6 Mn +16%YoY
  6. DSO 58 days
  7. Effective Tax Rate 35.9%

What they filed

Q1 FY27: revenue up 7.3%, net profit up 51.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,368 1,363 1,317 1,285 1,329 −3%1,348 −1%1,349 +2%1,379 +7%
EBITDA165 163 174 159 213 +29%245 +50%249 +43%223 +40%
Net profit128 117 122 106 116 −9%120 +3%176 +44%161 +52%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Energy & Utilities
    1.9% Growth
  • BFSI
    — Growth
  • Life Sciences & Services
    1.4% Growth
  • Manufacturing
    -4% Degrowth
  • Digital & Data
    2.6% Growth
  • ERP
    — Decline
  • Infra
    — Degrowth

Order book

high confidence

Inflow this quarter

$141 Mn

Pipeline

deal pipeline tcv

Two large deals in the range of $30-50 million, Q3-Q4 decisions.

Cancellations & deferrals

  • deferred: One deal slipped into Q2 from Q1.
Order book focus is critical for future revenue growth, with Q3 and Q4 being renewals-heavy. One deal slipped to Q2, and two large deals are Q3-Q4 decisions.

Source: Prepared remarks

Capital allocation

high confidence
  • Debt Debt disclosed
    We have done a lot in building a solid organization per se. As you know we have zero debt, we're generating positive cash flows, and from that perspective I think we are world class.
  • Liquidity Cash $266.6 Mn Cash and cash equivalents at the end of Q1 stood at $266.6 million, up by about 16% year-on-year and 2.8% quarter-on-quarter.
    Our cash and cash equivalents at the end of Q1 stood at $266.6 million. This is up by about 16% year-on-year and 2.8% quarter-on-quarter.

Guidance & targets

Revenue

  • Q2 Sequential Revenue Growth Revenue · Q2 FY26 · Medium confidence some positive growth
    Look, we are working towards a sequential growth in Q2, and our focus currently is Q2. We are working with our teams and with our clients to see how we can deliver sequential growth in Q2.

    — Angan Guha

  • Q3 Sequential Revenue Growth Revenue · Q3 FY26 · Medium confidence grow
    Operationally, I can tell you, I will grow in Q3. But the problem is, how much hit will I take because of furloughs is too early to comment.

    — Angan Guha

Profitability

  • FY26 EBITDA Margin Profitability · FY26 · Medium confidence around 12.4%
    Our endeavour is at least to keep the margins at that level. Now, I don't know whether we'll be exactly 13% or 12.8% or 12.6% or 13.1%. I don't know, but it will be in that range. Our endeavour will be to keep the margins in that range.

    — Angan Guha

Tax

  • Effective Tax Rate (ETR) Tax · FY26 · High confidence 35.9%
    So our current assessment is that this impact is going to be for this financial year and then going forward we expect the ETR to come back to our historical levels.

    — Kamini Shah

  • Effective Tax Rate (ETR) Tax · post-FY26 · High confidence 25-26%

    — Kamini Shah

Order Book

  • FY26 Order Book Order Book · FY26 · Medium confidence upwards of $850 million
    if I can deliver this, what I just said, focus on quarter-on-quarter, and deliver above 850 million of order book, then at least next year, I can commit to a solid growth year.

    — Angan Guha

What to watch in Q2 FY26

Q2 Sequential Revenue Growth

next quarter
Current -1% QoQ
Target Positive sequential growth

Why it matters

Management's primary focus to regain growth momentum and a key indicator of demand environment improvement.

Look, we are working towards a sequential growth in Q2, and our focus currently is Q2.

Risks & concerns

  • Macroeconomic Environment & Discretionary Spending Cuts

    high

    Customers are focused on cost optimization, cutting back on discretionary spending, and maintaining a 'hold and wait' approach for large transformational programs.

    Management acknowledged

  • Manufacturing Vertical Softness

    high

    The largest vertical registered a 4% QoQ degrowth due to project completions, ramp-downs, and insourcing.

    Management acknowledged

  • Pricing Pressure

    high

    Significant pricing pressure on new deals and efforts required to maintain current pricing on renewals.

    Management acknowledged

  • Delayed Collections

    medium

    DSO rose to 58 days due to delayed collections that came in early July.

    Management acknowledged

  • Furloughs

    medium

    Potential impact on Q3 growth, with the quantum of furloughs being an unknown variable.

    Management acknowledged

  • Effective Tax Rate (ETR) Increase

    medium

    ETR rose to 35.9% in Q1 due to a provision for higher tax, expected to impact FY26.

    Management acknowledged

Q&A highlights

6 direct
QoQ Growth Trajectory Partial
It's hard for me to say whether Q3 will really be a growth quarter today, because of the uncertainty that we are facing, but our job is going to be to focus on order book and deliver higher order book which will make sure that the revenue growth comes in subsequent quarters.

Management indicated Q2 focus for growth, but Q3 growth is uncertain due to macro and potential furloughs, shifting focus to order book for future quarters.

Asked by Girish Pai

Salary Hikes Direct
We have not taken a decision on salary hikes just yet. I mean we've just started the year... so it's just been about a quarter. So we've not taken a decision on that yet.

Clarified that general salary hikes are not yet decided for the current fiscal year, impacting future margin expectations.

Asked by Girish Pai

Acquisition Strategy Direct
An acquisition currently, at least to my mind, is going to be a distraction. We will not look at an acquisition today. We need at least 3 or 4 quarters of sustained quarterly growth performance and then look at something.

Management explicitly stated no M&A plans in the near term, prioritizing organic growth and operational stability.

Asked by Priyank Chheda

Capital Allocation Partial
It's a request from a minority shareholder, to focus better on capital allocation for this year, maybe. I'm not talking for a permanent change, but in this year we can think of a better dividend payout or a buyback, so that our return on equity and the return ratios become much more attractive.

Analyst raised the possibility of increased shareholder returns (dividend/buyback) given the strong balance sheet, which management acknowledged as a consideration for the current year.

Asked by Priyank Chheda

Effective Tax Rate (ETR) Increase Direct
So our current assessment is that this impact is going to be for this financial year and then going forward we expect the ETR to come back to our historical levels.

Management confirmed the higher ETR of 35.9% is expected for FY26 due to a provision, but anticipates a return to historical levels (25-26%) thereafter, impacting current year PAT.

Asked by Dipesh Mehta

Manufacturing & ERP Outlook Direct
I'm of the opinion that our med devices business is now turning around, that will continue to show positive momentum. Our discrete manufacturing is going to be under pressure, which is why that has an effect on our ERP business because the ERP and Manufacturing businesses go hand-in-hand.

Provided a nuanced view on the Manufacturing vertical, distinguishing between a positive outlook for med devices and continued pressure on discrete manufacturing and its correlated ERP business.

Asked by Dipesh Mehta

Client Insourcing Direct
Girish, you must not look at in-sourcing from a rate perspective. It's not about rate. It is more about standing up their GCCs and getting that off the guard. It could also be some amount of work, which are more regulatory in nature, which needs to be within their four walls.

Clarified that client insourcing is driven by strategic reasons (GCCs, regulatory) rather than pricing, affecting 2-3 clients and contributing to revenue headwinds.

Asked by Girish Pai

Intangible Assets Increase Direct
So, Sandeep, it's actually, if you could recollect, we had mentioned about our own in-house transformation program that we had been doing a couple of quarters back, Optimus. As we are building it up, it's really the cost associated to it.

Explained the increase in intangible assets as a result of investment in the internal transformation program 'Optimus', indicating ongoing efforts in operational efficiency.

Asked by Sandeep Shah

2 min read 6 chapters

Detailed narrative

Q1 FY26 Performance Overview and Headwinds

Birlasoft reported a challenging Q1 FY26 with revenue sequentially lower by 1% in dollar terms, reaching $150.7 million. This was primarily driven by a 4% QoQ degrowth in the Manufacturing vertical, which is the company's largest. The macroeconomic environment, characterized by client cost optimization, discretionary spending cuts, and a 'hold and wait' approach for large transformational programs, significantly impacted overall performance. The EBITDA margin for the quarter stood at 12.4%, affected by the absence of one-off benefits seen in Q4 FY25.

Order Book Dynamics and Future Growth Drivers

TCV deal wins in Q1 FY26 amounted to $141 million, which was lower than Q4 FY25, partly due to one deal being right-shifted to Q2. Management noted that Q3 and Q4 are typically renewals-heavy quarters. The company is actively pursuing two large deals in the $30-50 million range, with decisions expected in Q3-Q4. The strategic focus is on building a stronger order book, aiming for upwards of $850 million in FY26, to ensure future revenue growth.

Vertical and Service Line Performance

While the Manufacturing vertical experienced a 4% degrowth, other key verticals showed positive momentum. BFSI, Life Sciences & Services, and Energy & Utilities delivered sequential growth in dollar terms, with Energy & Utilities growing 1.9% and Life Sciences & Services growing 1.4%. In terms of service lines, the Digital & Data business registered a healthy 2.6% QoQ growth, driven by new engagements and incremental revenue from existing accounts. ERP and Infra businesses saw sequential declines, correlated with the Manufacturing vertical and project completions, respectively.

Margin and Effective Tax Rate Trajectory

The EBITDA margin for Q1 FY26 was 12.4%, with management expressing an endeavor to maintain margins around this level for the full year. The effective tax rate (ETR) saw a significant rise to 35.9% in Q1, attributed to a provision made for higher tax. The company is engaging with tax experts to realign contract terms and expects the ETR to return to historical levels of 25-26% after FY26, with the current impact limited to the current financial year.

Capital Allocation and Strategic Priorities

Birlasoft maintains a robust balance sheet with zero debt and cash and cash equivalents of $266.6 million at the end of Q1, representing a 16% YoY and 2.8% QoQ increase. Management is not currently pursuing acquisitions, preferring to achieve 3-4 quarters of sustained growth first. Strategic priorities include enhancing tech capabilities in emerging areas like GenAI, with marquee deal wins demonstrating progress, and focusing on domain-oriented hiring and cost management.

Client Insourcing and Pricing Environment

Client insourcing was identified as a factor impacting revenue, driven by clients establishing Global Capability Centers (GCCs) or regulatory requirements, rather than pricing. This affected 2-3 clients. The company also acknowledged significant pricing pressure in the market, particularly for new deals, and is making efforts to maintain current pricing levels for renewals.

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