Birlasoft Ltd Q1 FY26 Conference Call Highlights

Birlasoft Limited is a leading global digital and IT services company, part of the CK Birla Group. Headquartered in Pune, it provides solutions across ERP, digital transformation, cloud, data, and AI-driven platforms. The company serves clients across key industries such as manufacturing, BFSI, life sciences, and energy & utilities. With strong domain expertise, strategic partnerships, and focus on next-gen technologies, Birlasoft enables enterprises to drive innovation, efficiency, and sustainable growth.

Management Commentary (Detailed)

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CEO – Mr. Angan Guha

• Leadership Change
  Acknowledged the transition of CFO role from Ms. Kamini Shah (stepping down for personal reasons) to Mr. Chandrasekar Thyagarajan, who has prior experience as Birlasoft’s CFO (2020–2023).
• Revenue Performance
  Q1 FY26 revenue stood at $150.7 million, a 1% sequential decline in USD terms.
  • Growth was recorded in BFSI, Life Sciences & Services, and Energy & Utilities.
  • Manufacturing vertical, the largest, remained weak due to project completions, ramp-downs, and insourcing.
• Margins
  EBITDA margin came in at 12.4%, slightly lower due to absence of one-off gains enjoyed in Q4 FY25. Despite headwinds, margin contraction was contained.
• Deal Wins
  • Q1 TCV deal wins: $141 million (lower than Q4 because Q3 & Q4 are seasonally heavy on renewals).
  • One large deal slipped to Q2.
  • Marquee wins in GenAI/Agentic AI:
    • Partnership with a US energy player to deploy Agentic AI in supply chain automation.
    • Engagement with a global tech leader for enterprise-wide quality engineering transformation using Agentic AI.
• Market Outlook
  • Customer spending remains cautious, with delays in large transformation projects.
  • Pipeline remains strong but conversion is slow.
  • Sequential growth expected in Q2, though FY26 overall will be challenging.
  • Focus remains on expanding order book and adopting AI-led solutions.

CFO – Ms. Kamini Shah

• Revenue Breakdown by Vertical
  • Energy & Utilities: +1.9% QoQ
  • Life Sciences & Services: +1.4% QoQ (back to growth)
  • BFSI: Marginal growth
  • Manufacturing: -4% QoQ decline
• Service Line Performance
  • ERP: Declined, reflecting Manufacturing weakness.
  • Infra: Declined due to project completion.
  • Digital & Data: Grew 2.6% QoQ, driven by new engagements.
• Margins & Profitability
  • EBITDA margin at 12.4%, slightly lower due to Q4 one-offs.
  • Effective Tax Rate (ETR) jumped to 35.9% (vs. historical 25–26%) due to provisioning.
  • Adjusted PAT (without tax impact) would have been $14.4 million; EPS at ₹4.39.
• Balance Sheet & Cash
  • Cash & equivalents at $266.6 million (+16% YoY, +2.8% QoQ).
  • DSO stood at 58 days (would have been 53 days if delayed collections came in June).
• Outlook
  • Expect ETR normalization from FY27 after restructuring contracts.
  • Continue focus on cash generation, operational efficiency, and prudent investments.

Question and Answer Session Highlights

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Q1: Will growth seen in Q2 continue into Q3 and Q4?
A (CEO): Working towards sequential growth in Q2, depending on order book. Q3 growth uncertain due to furloughs, but strong order wins will support momentum.

Q2: Progress on reducing exposure to discretionary business?
A (CEO): Renewals are expected at current margins or slightly higher. New large deals ($30–50M) may come at lower margins but winning them is critical.

Q3: Salary hikes timing and impact?
A (CEO & CFO): No decision yet; last year hikes were given in Q3. Senior leadership hikes already done in Jan 2025.

Q4: Impact of possible changes in H1B visa process?
A (CEO): Too early to assess. Company already has H1B resources ready and is localizing workforce.

Q5: Key learnings from last 12 challenging months?
A (CEO):

• Order book weakness highlighted need for stronger pipeline.
• Shift to domain-oriented hiring.
• Focus on Agentic AI-led delivery.
• Company-wide transformation in customer service, capability building, and cost optimization.

Q6: Growth outlook for FY26 – single digit or more?
A (CEO): Too early to guide. Focus is on sequential growth in Q2 and building order book. Large wins will influence FY27 growth prospects.

Q7: Plans for acquisitions or capital allocation?
A (CEO): No acquisitions planned now; focus on organic growth. Capital allocation (dividend/buyback) will be reviewed.

Q8: Manufacturing & ERP recovery outlook?
A (CEO): Manufacturing (esp. discrete) remains pressured due to tariffs and decision delays. Med devices are improving. ERP linked to Manufacturing, so recovery uncertain.

Q9: Reason for high tax rate (ETR at 35.9%)?
A (CFO): Due to provisions and transition of contract terms. Impact limited to FY26, ETR expected back to 25–26% thereafter.

Q10: Why turnaround efforts are still ongoing after 2.5 years?
A (CEO): Two main issues – slowdown in top 40 clients & ERP/Manufacturing weakness. Focus is on mining top accounts, adding new logos, and reviving ERP with SAP/Oracle partnerships.

Q11: Life Sciences & BFSI outlook?
A (CEO): Med devices business improving; selected as preferred vendor by a large conglomerate. BFSI (mainly asset managers & payments) to see growth, insurance remains small.

Q12: Decline in sales/support headcount – cutting sales force?
A (CEO & CFO): No; sales investments continue but focused on specialized talent. Support headcount reduced via automation.

Q13: Progress on hiring CEO-Americas?
A (CEO): Under consideration; update will follow later.

Q14: Vendor consolidation deals – is Birlasoft gaining share?
A (CEO): Yes, some recent wins include consolidation deals, alongside AI-led transformation deals.

Q15: Will ROW (Rest of World) decline continue?
A (CEO): ROW decline is linked to Manufacturing clients; outside Manufacturing, ROW has done reasonably well.

Q16: Should Q3 also see growth, barring furloughs?
A (CEO): If Q2 order book crosses $160–165M, then yes, Q3 should grow too, but furloughs in Manufacturing pose risk.

Q17: New hunting & mining team – when will they contribute?
A (CEO): Typically 3–6 months for new deals; 6–12 months for new accounts with MSA before revenue ramps up.

Q18: Why clients are insourcing?
A (CEO): Not due to pricing; mainly for regulatory reasons or GCC expansion. Affects only 2–3 clients.

Q19: Pricing trends in market?
A (CEO): Renewals stable at current pricing, but new deals face pricing pressure. Strategy is cost optimization and selective competitive pricing.

Q20: Rise in intangible assets – reason?
A (CFO): Due to investment in in-house transformation platform “Optimus”.

Q21: What caused revenue slowdown after earlier recovery?
A (CEO): Combination of client insourcing, project completions (mainly in 3–4 clients), and Manufacturing/ERP slowdown. Fundamentals remain strong; focus is on growth revival.

Q22: How long will higher tax rate persist?
A (CFO): Entire FY26 will see higher tax (~35%), normalization expected in FY27.