Birlasoft CEO says perfect storm of uncertainty in IT sector; FY25 to mirror FY24

Birlasoft

Mid-cap information technology (IT) company Birlasoft said a “perfect storm” of uncertainty has made it difficult for both the industry as a whole and the company itself to reasonably forecast growth outlook.

The combined effect of economic uncertainty, varying GDP growth rates across nations, and geopolitical conflicts have created an unpredictable demand environment. “Most customers are waiting and watching in terms of how things shape up, which is why… FY25 will be as good or as bad as FY24,” Birlasoft CEO, Angan Guha, told Moneycontrol.

Most other IT firms, too, have said that demand continues to remain subdued because of macroeconomic uncertainty. In January-March, the software player reported revenue of Rs 1,362.54 crore, up 1.45 percent sequentially, while net profit was up almost 12 percent at Rs 180.8 crore.

As a result of uncertain demand, the forthcoming fiscal year could potentially be even more challenging than FY24. "But the worst-case situation, FY25 could actually be worse than FY24, so we don't know that yet," Guha said.

Nonetheless, Guha is confident that clients of Birlasoft are fairly “okay."

Anticipating deals focussed on cost optimisation, Guha remained optimistic about the company’s prospects. "I feel with everything that's going on, a lot of deals will come on the cost side which we will participate in."

The CK Birla group company signed deals with a total contract value (TCV) of $240 million during January-March, with new deal wins worth $107 million and renewals amounting to $133 million. Of the new deal wins, TCV reduced to $107 million from $115 million on a year-on-year basis. Sequentially, the metric increased from $94 million.

Guha said he’s satisfied that revenues have grown along with $875 million worth of TCV that the company signed this year, which is roughly the same as last year. "Am I personally happy with our TCV performance? I'm not, but the good news is we've not lost any deals."

Moreover, he sees signs of progress in the company's pipeline. "All I can tell you is our FY25 TCV will be better than FY24 TCV when it comes to signings."

In February, Guha had said that allocating resources from smaller accounts to larger ones would not only compensate for any revenue loss in the former, but also yield significant gains in the latter.

Birlasoft’s number of active clients also declined to 259 in the March quarter from 272 in the previous quarter. This was also a further reduction from 288 clients that the company had in the fourth quarter of FY23.

This is in line with the company’s stated policy of actively reducing the number of customers that are not generating significant revenue. “We will continue to rationalise, a company of our size, an ideal number to serve would be about 220-230,” he said.

The “Americas” region contributes over 86 percent to the total share of revenue. Birlasoft believes it can diversify and generate more revenue from the European region. To do that, the company hired Manjunath Kygonahally as the CEO for the “Rest of the World” region in January.

Kygonahally is a Cognizant veteran with over 25 years of experience, having worked as the consulting head in his last role.

“So we will focus on select countries, we'll focus on the United Kingdom, Germany, maybe Switzerland and India, and we will start growing there,” Guha said.

Also read: Brokerages cut target price on Birlasoft, weak discretionary demand to impact near-term growth