Birlasoft Ltd

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.

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.

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.

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.

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 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.