Birlasoft Limited (Birlasoft) reported yet another quarter of strong revenue growth led by robust growth in manufacturing and energy & utilities (E&U) verticals, a pick-up in enterprise solutions and continued client mining, while EBITDA margin lagged our estimates as backfill attrition drove up expenses. Constant currency (CC) revenue grew by 5% q-o-q in Q3FY22. US Dollar revenues grew by 4.7% q-o-q to $143.4 million, inline with our estimates of $143.5 million. Net new deal TCVs increased by 20% y-o-yfor 9MFY22, while the deal pipeline grew by 50% y-o-y to $1.2 billion. Strong deal intake, robust deal pipeline, good client mining, pickup in enterprises solution revenue and strong demand would help the company to accelerate its revenue growth in FY2023E. The management expects to maintain EBITDA margins with an upward bias in subsequent quarters despite supply-side challenges and investments in strategic areas, aided by healthy operating leverage, pyramid management, higher fixed price contract and operational efficiencies.
The company’s enterprise solutions business is expected to grow at a faster rate in FY2023E compared to FY2022 on the back of strong demand in enterprise business andhigher spends on legacy modernisation by clients. Further, prices are getting revised on the back COLA adjustments (3-4%) and new demand (5-10%). We forecast that the company would register a 16% and 21% CAGR, respectively, in revenue and earnings over FY2022-FY2024.At CMP, the stock trades at 23x/19x its FY2023E/FY2024E earnings. We remain positive on the stock considering strong net cash position of Rs. 1,135 crore (9% of market capitalisation), strong partnership with hyperscalers, increasing net new deal wins, robust demand from enterprise customers and strong FCF generation. Hence, we maintain a Buy rating on Birlasoft with price target (PT) of Rs. 580.
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