Birlasoft Ltd

Birlasoft reported a consolidated revenue of $160.8 million for Q3 FY25, reflecting a constant currency degrowth of 0.1% year-on-year and 1.1% quarter-on-quarter. In rupee terms, revenue was ₹13,627 million, showing a 1.5% YoY growth but a slight QoQ decline of 0.4%. The EBITDA margin stood at 12%, nearly flat sequentially, despite absorbing the impact of compensation hikes effective from October 1, 2024. PAT for the quarter was $13.8 million, a 9.3% QoQ decrease primarily due to lower other income.

The quarter's performance was significantly impacted by higher-than-usual furloughs, which extended into January 2025, leading to a softer revenue outcome. Management noted that the Q4 furlough impact is expected to be half of Q3's. Additionally, some project ramp-downs were observed in healthcare and manufacturing verticals, contributing to near-term revenue pressure. These factors, combined with an unchanged demand environment, posed challenges to growth.

Despite the organization-wide wage increase effective October 1, 2024, Birlasoft successfully maintained its EBITDA margin at 12%. This resilience was attributed to exchange rate benefits from a strong dollar and operational savings. Management expressed commitment to sustaining and improving its margin profile, although the path to achieving higher aspirations might be slower due to ongoing Q4 headwinds.

The company demonstrated robust cash generation, with cash and balances reaching $240 million by the end of Q3, an increase of 8.2% QoQ and 18.3% YoY. Operating cash flow for the quarter was $29.9 million, representing 155% of EBITDA. The Days Sales Outstanding (DSO) improved to 53 days, which is among the best in the industry, highlighting efficient collections and a healthy balance sheet.

Birlasoft reported strong deal signings in Q3 FY25, securing $226 million in Total Contract Value (TCV), marking it the best quarter for deal signings in the current fiscal year. While a significant portion came from renewals, net new deals were also observed. The company anticipates good TCV performance in Q4, driven by ongoing client conversations and the potential closure of a 'reasonable sized' deal with a new logo in Europe, particularly in the manufacturing space.

The BFSI vertical showed resilience with a 1.8% QoQ growth, and the Digital & Data business grew 2.4% QoQ, contributing 57% to overall revenues. However, the ERP business declined 5.7% QoQ and has underperformed for two consecutive quarters, prompting new leadership appointments. Healthcare (Life Sciences) has been impacted by client-specific headwinds for four quarters, but management is strengthening the team and expects a comeback. E&U is projected to pick up, while Manufacturing is expected to remain soft for another couple of quarters.

Birlasoft continues to invest in bridging capability gaps and scaling existing strengths, particularly in AI/GenAI, AI-driven quality assurance, Data, and Product & App Engineering. The company's GenAI Centre of Excellence and proprietary platform, Cogito, are accelerating GenAI-based solutions. New in-house applications like B-Hive (conversational bot) and Solución (ServiceNow integrated solution) are aimed at enhancing competitive advantage and capitalizing on improved demand conditions.

Management acknowledged that predictability has suffered in FY25 due to external factors like client performance and late furloughs. To address this, the company is focusing on expanding its client base with new logos, deepening engagement with top 20-25 clients, and leveraging past capability investments. While the current order book is insufficient for double-digit growth, management is confident that these corrective actions will improve predictability and lead to a better growth trajectory in FY26.