Birlasoft: Birlasoft is a leading provider of enterprise digital information technology services, has recently seen a significant increase in foreign institutional investor (FII) inflows. This increase in FII interest demonstrates the company’s consistent financial performance, strong financial ratios, and positive market trends. In this article, we will look at the factors that are driving the increase in FII stakes as well as the potential implications for investors considering Birlasoft stock.

Industry Overview Of Birlasoft

Information technology has a significant role to play in contributing to the Indian economy and earning an appropriate place in the global market. Indian information technology revenue increased by 3.8% in FY23, and the export value of IT software and services is to be $193 billion in FY23.

The India IT and BPM market is estimated at $254 billion in FY24 and is forecast to grow in the next 5 years to $421.59. The IT industry’s contribution to GDP in FY23 was 7.5%. and it is expected to contribute 10% to the Indian economy by 2025. The IT market registered a CAGR of 9.04%.

Company Overview Of Birlasoft

Birlasoft Limited is a global enterprise digital and IT services company. With over 30 years of experience and a workforce of over 14,000 professionals, Birlasoft operates in 3 major geographies – Americas, Europe, and Asia Pacific. The company offers a comprehensive portfolio of services spanning digital transformation solutions, ERP services, custom application services, infrastructure management, data analytics, and cybersecurity solutions. 

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Birlasoft has deep industry expertise across verticals like BFSI, healthcare & life sciences, manufacturing, energy & utilities, and retail. The company focuses on leveraging next-gen technologies like AI/ML, blockchain, IoT and generative AI to create value for clients. The company is headquartered in Pune, India and is a part of the CK Birla Group.

Segment Analysis Of Birlasoft

Birlasoft operates across various business segments, including manufacturing and communications, media and technology, energy and utilities, life sciences and healthcare, as well as banking, capital markets, and insurance. The manufacturing sector saw a growth of 3.6%, energy and utilities grew by 4% vertically, and digital services experienced a significant 20% year-over-year growth.

Banking, financial services, and insurance expanded by 4.4%, driven by efficient account management, timely deal completions, and the acquisition of new clients. ERP services benefited from the increasing shift to cloud-based systems of record, resulting in a growth of 7.6%. Infrastructure services were influenced by network upgrades, AIOps, and cloud infrastructure services, leading to a solid growth of 6.1%.

Financial Analysis Of Birlasoft

FY24FY23FY22FY21FY20
Revenue (in crores)₹5,278.10₹4,794.77₹4,130.35₹3,555.72₹3,290.97
Net Profit (in crores)₹623.80₹331.58₹463.64₹320.83₹224.35
ROE (%)20.4913.5417.9414.7111.85
ROCE (%)26.8717.9823.1219.8216.97
Debt/Equity0.030.040.050.070.05
Operating Profit Margin (%)16.199.6115.2413.1510.7
Net Profit Margin (%)11.816.9111.229.026.81

The revenue of the company has increased YOY from the last 4 years. It maintained a compound annual growth rate (CAGR) of 12.53% over the last 4 years. Revenue has been boosted by 10.08%, from ₹4,794.77 in FY23 to ₹5,278.10 in FY24. 

The net profit of the company increased until FY22. In FY23, the company’s net profit decreased by 28.48% from ₹463.64 to ₹331.58 due to the total expenses being increased massively by 22.22%, including employee costs by 18.75% and other expenses by 30.31%. However in FY24, the net profit almost doubled from ₹331.58 in FY23 to ₹623.80 in FY24 and grew by 88.13% because revenue increased massively by 10.08% but total expenses increased by 7.73%

The company’s operating profit improved from 9.61% to 16.19% in FY24. The net profit margin has also increased from 6.91% to 11.81% in FY24. The return on equity and return on capital employed are 20.49% and 26.49%, respectively, due to improvements in the net profit, so the financial metrics of the company have improved. Birlasoft is almost a debt-free company.

Why is the FII increasing its stake in Birlasoft?

YearJun 23Sep 23Dec 23Mar 24
Promoters41.03%40.97%40.95%40.92%
FlI Holding 11.31%17.57%21.25%23.48%
DII Holding 23.55%21.47%19.28%18.62%
Public24.11%19.99%18.53%16.99%

Birlasoft has reported a shareholding pattern such as promoters at 40.92%, FII holdings at 23.48%, DII holdings at 8.62%, and public at 16.99%. The interesting facts will be the increasing stake of foreign institutional investors, from 11.31% in the Q1 of FY23-24 to 23.48% in Q4 of FY23-24. It was double the stake compared to the start of fiscal year 2023-24. In the last quarter, the FII increased its stake in Birlasoft by 2.23%.

Quarterly Reports of Birlasoft 2023-24
Jun 23Sep 23Dec 23Mar 24
Net Sales ( in crores)1262.771309.881342.951362.55
Net Profit ( in crores)137.54145.08161.06180.08

The reason will be that the company’s revenue has increased by 10.08% in the financial year 2023-24. But the net profit has surged massively by 88.13%. Birlasoft’s revenue and net profit have increased consistently in the last four quarters. So this will show the strong financial performance of Birlasoft. The promoter does not pledge any stock to lend money. The company has improved its ROCE, ROE and profit margins. It will attract the FII to invest money in Birlasoft.

What lies ahead for Birlasoft?

Anand Rathi has issued a marked price of Rs. 810. According to the firm, Birlasoft has impressive financial performance and the Q4 EBITDA margin expanded 265 bps YOY to 16.3% and Management aims to delivering industry-leading growth in FY25

IDBI Capital has provided a target price of Rs. 780. The company has strong long-term potential to increase its investing pipeline from $1.8 billion to $2.4 billion, and margins remain strong.

Sharekhan has offered a target price of Rs. 820. The reason is revenue growth, EBITDA margin and deal wins TCV are strong at $240 million.

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Future plans & advantages of Investing in Birlasoft

  • Birlasoft has signed a large deal with existing clients of banking, financial services and insurance, which includes 70% of renewal and 30% of new parts.
  • The company is improving its order book and growing the deals in the pipeline. The current pipeline stands at $1.8 billion.
  • Birlasoft plans to modernize its application environments by leveraging the latest technologies, including AI, IoT, and containerization, to ensure scalability, security, and alignment with future technological advances.
  • Birlasoft has begun implementing SD-WAN technology to enhance network scalability, performance, and flexibility in order to support the evolving demands of their business and remote workforce.
  • Birlasoft is expanding its business and digital transformation by focusing on digital services and cloud migration, which will help to enhance developer productivity, simplify operations, and improve security and compliance​​.
  • The company will continue to focus on executing capabilities, account mining, and adding new clients across key verticals such as BFSI and healthcare.
  • The business is expanding beyond the Americas, specifically in countries like India, the UK, Switzerland, and Germany. These markets will be the primary focus of the company’s new leader for the Rest of the World division.
  • Birlasoft has secured a new JDE rollout engagement in the ERP service line for a major customer in the US life sciences industry.  
  • Birlasoft has been chosen by a Fortune 500 client in the Communications sector in North America to integrate, improve, and maintain its accounting platform.

Financial Metrics Of Birlasoft

Some of the key financial metrics are given below

ParticularsAmountParticularsAmount
CMP₹695.45Market Cap (Cr.)₹18,541
EPS (TTM)₹22.59Stock P/E (TTM)29.73
ROE (TTM)20.49%ROCE (TTM)27.18%
ROA (TTM)15.89%P/B Ratio7.81
Debt to Equity0.03Current Ratio3.9
Promoter Holding (%)40.92%FII Holding (%)23.48%
Operating Profit Margin16.19%Net Profit Margin11.81%

Conclusion


In conclusion, Birlasoft has consistent financial performance of revenue and net profit and strong financial ratios, including ROE and ROCE, EPS and profit margin. The company’s revenue and net profit increased by 10.08% and 88.13%, respectively, and continued to increase in the last four quarters as well.

The FII increased its stake in the company by 2.23% in the last quarter of the financial year 2023-24 making it an attractive investment opportunity. This increase in FII holdings is a clear indication of morale in the Birlasoft’s future prospects.

Written by Nikhil Naik

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