Birlasoft Ltd

Birlasoft reported a healthy operating quarter with a strong margin performance. Revenue for Q2 FY26 grew 0.1% quarter-over-quarter in dollar terms to $150.7 million, and 3.4% QoQ in rupee terms to Rs. 13,289 million. This growth was achieved despite a challenging macroeconomic environment, with BFSI and Life Sciences & Services verticals offsetting weakness in Manufacturing. The company also announced the appointment of Komal Jain as the new CEO for Americas, focusing on accelerating growth and strengthening client partnerships in the region.

EBITDA performance was strong, with EBITDA increasing 34.3% QoQ in rupee terms to Rs. 2,133 million, and 29.9% QoQ in dollar terms to $24.2 million. Consequently, the EBITDA margin expanded by 369 basis points QoQ to 16%. This robust expansion was attributed to better operational efficiency, rationalization of low-profitability tail accounts, exchange rate tailwinds, and one-off^📎 benefits. Approximately 250 basis points of the margin expansion were due to one-off^📎s (150 bps from excess provisioning reversals) and forex benefits (100 bps), implying a steady-state EBITDA margin of around 13.5% without these factors.

The company reported a signed Total Contract Value (TCV) of $107 million for Q2 FY26. However, this figure was optically lower as two committed deals, estimated to be worth $60-65 million, could not be signed by the quarter-end and have slipped into Q3. Management expressed confidence in sequential growth for Q3 and Q4, partly due to these slipped deals and the transition of deals won in Q4 of the previous year. The overall endeavor for FY26 TCV is to exceed FY25 and aim for $850 million, with H1 signings at $247-250 million.

BFSI continues to be a growth leader for Birlasoft, with steady performance expected to be flattish in Q3 due to furloughs but resuming growth from Q4 onwards. Life Sciences & Services (LSS) and Energy & Utilities (E&U) verticals are also showing growth. The Manufacturing vertical, however, remains under pressure and is expected to be a drag in Q3 and Q4, with recovery anticipated from next year. Management is implementing measures to revive the Manufacturing business, including leadership refresh.

The Effective Tax Rate (ETR) for Q2 FY26 reflected incremental U.S. federal tax liability provisions and higher state tax slabs. Without these additional federal tax impacts, the normalized ETR for Q2 would have been 29.7%. For the full year FY26, the ETR is projected to be between 42% and 43%, with H2 FY26 hovering around 44% to 45%. However, management expects the ETR to settle down to a more sustainable 28% to 30% on a run-rate basis for FY27, with no spillover of the exceptional tax from FY26.

The Board recommended an interim dividend of Rs. 2.50 per share, demonstrating the company's intention to reward shareholders while balancing capital allocation requirements. Cash flows and cash balances improved significantly, with collections up 11.4% QoQ to $166.7 million and cash and cash equivalents increasing to Rs. 23,434 million by quarter-end, up 3% QoQ and 26% YoY. The Days Sales Outstanding (DSO) improved to 55 days, which is considered among the best in the industry.

The ERP business has seen a significant decline, with revenue falling from a peak of $62 million to $46-47 million quarterly. This decline is closely tied to the weakness in the Manufacturing vertical. Management acknowledges a pipeline issue but emphasizes investments in ERP capabilities, including leadership refresh, and sees opportunities in the mid-tier market, particularly with JDE which is expected to remain on-premise until 2030. The company is also leveraging its Agentic AI platform for new deal wins.

Birlasoft welcomed Komal Jain as the new CEO for Americas, bringing over two decades of leadership experience in IT services. Komal will focus on accelerating growth and strengthening client partnerships in the US, Canada, and Latin America. Management stated that the overall organizational structure is stable, but they will continue to drive performance metrics and replace leaders who do not perform, ensuring a strong and effective leadership team for future growth.