New CEO’s strategy working for Birlasoft: Analysts

New CEO’s strategy working for Birlasoft: Analysts

Birlasoft’s new CEO, Angan Guha, has garnered a positive reception from analysts due to his effective leadership in stabilizing and rejuvenating the company in a relatively short time frame, approximately eleven months since he assumed the role.

When Angan Guha took the reins as CEO, Birlasoft was facing challenges, as evidenced by a net loss of Rs 16.4 crore in the December quarter of FY23. However, under his leadership, the company has shown significant improvement, with IT analysts describing its recent financial performance as “solid.”

This positive transformation reflects Guha’s ability to steer the company in the right direction, implement effective strategies, and potentially reposition Birlasoft for sustainable growth. Analysts’ bullish outlook on his leadership suggests that his tenure has been marked by successful efforts to overcome obstacles and propel the company forward.

Guha’s achievements at Birlasoft demonstrate the importance of effective leadership in navigating challenges and charting a course for a brighter future. His ability to provide momentum and deliver positive results in a relatively short period is seen as a promising sign for the company’s prospects under his guidance.

Angan Guha’s tenure as CEO of Birlasoft faced an initial challenge with the bankruptcy filing of a significant US customer, Invacare Corporation. This customer had historically contributed 3% of Birlasoft’s revenue, and its financial troubles added pressure to the company’s financial outlook. During this period, analysts may have expressed caution and skepticism about Birlasoft’s prospects.

However, despite this challenging start, Guha’s leadership and strategic initiatives appear to have yielded positive results, as evidenced by the subsequent improvement in the company’s performance. His ability to navigate through difficult circumstances and steer the company toward a more favorable trajectory has likely contributed to the renewed optimism and positive assessment by analysts.

This scenario underscores the importance of effective leadership in managing crises and uncertainties, as well as the potential for a turnaround when the right strategies and leadership are in place. Guha’s tenure at Birlasoft demonstrates his capability to overcome challenges and drive positive outcomes for the organization.

The turnaround and positive transformation led by CEO Angan Guha at Birlasoft have received recognition and support from analysts. Following the company’s Q2 FY24 earnings report, Nomura released a note that highlighted the significant improvements attributed to the organization-wide transformation under Guha’s leadership. The note acknowledged both margin stability and robust deal wins, instilling confidence in the company’s growth prospects.

Nomura raised its earnings per share (EPS) estimates for FY24-26 by 2-3% based on improved growth and margin expectations. Notably, their EPS estimates for FY25-26 are approximately 8% ahead of consensus projections. In light of these positive developments, Nomura reaffirmed its “Buy” recommendation for Birlasoft and revised its target price (TP) higher to Rs 630, implying a valuation of 22 times the 1HFY26F EPS.

The analysts’ note emphasized that Birlasoft has maintained its EBITDA margin aspirations for FY24 and medium-to-longer term targets while intending to reinvest incremental margins to support growth initiatives. The company has introduced a new organizational structure, leading to EBITDA margin expansion, and is actively expanding its senior leadership team. Additionally, Birlasoft is committed to investing in the development of service lines and offerings, further solidifying its strategic vision under the new CEO’s leadership.

This endorsement from analysts underscores the effectiveness of Angan Guha’s strategic direction and the positive impact it has had on Birlasoft’s performance and outlook. It reflects the company’s commitment to sustainable growth, margin stability, and enhancing its competitive position in the market.

The positive sentiments surrounding Birlasoft’s performance and growth trajectory continue to be echoed by various analysts and research firms:

1. HDFC Securities: In their note, HDFC Securities acknowledged Birlasoft’s strong Q2 performance, emphasizing both revenue growth and margins. They highlighted the company’s potential for a return on investment, driven by its accelerating earnings growth trajectory, multiple rerating, resilient and scalable service portfolio, strong relative positioning, and recent leadership enhancements.
2. Emkay Global: Emkay Global’s analysts noted that Birlasoft’s revenue exceeded their estimates, showcasing the company’s robust performance. They highlighted that revenue growth was primarily driven by digital and cloud service offerings, which witnessed significant growth of 11.9% quarter-on-quarter (QoQ). Additionally, they mentioned the appointment of Selvakumaran Manappan as COO, responsible for overseeing global delivery and operations, service lines, business excellence, and CTO/CISO functions.

These assessments underscore the favorable outlook for Birlasoft, driven by its strong financial performance, focus on digital and cloud services, and strategic leadership appointments. The company’s ability to adapt and thrive in a rapidly evolving technology landscape positions it for sustained growth and resilience in the market.

Birlasoft reported a robust financial performance for the second quarter of FY24, with notable highlights:

1. Net Profit Growth: The company’s net profit increased by 5.5% quarter-on-quarter (QoQ), reaching Rs 145 crore in the second quarter. In the previous quarter, Birlasoft’s net profit stood at Rs 137 crore. On a year-on-year (YoY) basis, the company’s net profit demonstrated substantial growth, rising by 26.1%.
2. Revenue Growth: Birlasoft’s revenue for the second quarter amounted to Rs 1,310 crore, marking a 3.7% increase from the preceding quarter (June-ending). This growth reflects the company’s ability to generate higher revenue in a competitive market.
3. Client Base: While Birlasoft’s revenue and profitability improved, the number of active clients decreased from 285 in the June quarter to 278 in the September-ending quarter. The company attributed this decline to a “sustained rationalization of the tail,” suggesting a strategic focus on key clients and projects.
4. Employee Count and Attrition: Birlasoft’s employee headcount increased slightly by 85, reaching a total of 12,322 employees at the end of Q2. The attrition rate declined from 18.8% in Q1 to 15% in Q2, indicating improved employee retention. Additionally, the utilization ratio improved from 84.9% in the June quarter to 86.5% in the September-ending quarter, reflecting efficient workforce management.

Overall, Birlasoft’s Q2 performance showcased a combination of revenue growth, improved profitability, and prudent workforce management. The company’s ability to increase net profit and reduce attrition while optimizing its client base demonstrates its strategic approach to sustaining growth and competitiveness in the IT industry.