Multibagger Tracker: After 600% rally, this IT midcap in no mood to slow down
iStock
Synopsis
Among the key triggers for the stock would be strong revenue growth, said ICICIdirect, which is expected to be achieved via client mining, multi-year deals, expansion in Europe & APAC and focus on niche verticals.
By Amit Mudgill, ETMarkets.com
NEW DELHI: Birlasoft's 600 per cent rally in the last 18 months made even seasoned investors take note and trim their stakes in the IT major in the last couple of months. But post a solid September quarter show, analysts believe the scrip has more steam left, with price targets on the counter suggesting up to 39 per cent potential upside.
Birlasoft said its net profit jumped 49.2 per cent year-on-year (YoY) to Rs 103.1 crore for the September quarter compared with Rs 69.1 crore in the same quarter last year. Revenue from operations increased by 18 per cent YoY to Rs 1,011.7 crore from Rs 857.5 crore. The company signed deals of TCV $140 million in Q2, including net new TCV of $104 million.
Ebitda margin came in at 15 per cent, down 98 basis points sequentially but up 107 bps YoY. The sequential fall in margin was due to wage hikes, higher sub-contractor costs and investments amid a significant pickup in attrition across the industry. Analysts said it was partially offset by tailwinds from improvement in utilisation.
"Birlasoft missed its flattish Q2 margin guidance slightly as attrition spiked to 24 per cent and travel restrictions continued, leading to higher subcontracting costs (16 per cent of revenue)," said Anand Rathi. The brokerage, however, added that the net headcount addition was steady for the last three quarters, averaging 555.
Among the key triggers for the stock would be strong revenue growth, said ICICIdirect, which is expected to be achieved via client mining, multi-year deals, expansion in Europe & APAC and focus on niche verticals. The brokerage expects dollar revenues to grow at 16.5 per cent compounded annually. It also sees a margin expansion of 230 basis points to 17.2 per cent over FY21-23.
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Edelweiss finds the stock to rise to Rs 568. Anand Rathi Financial Services sees it at Rs 550. Emkay Global has a target of Rs 520 on the stock while ICICIdirect of Rs 475. The targets suggest up to 39 per cent upside over Friday's stock price of Rs 410.Birlasoft said its net profit jumped 49.2 per cent year-on-year (YoY) to Rs 103.1 crore for the September quarter compared with Rs 69.1 crore in the same quarter last year. Revenue from operations increased by 18 per cent YoY to Rs 1,011.7 crore from Rs 857.5 crore. The company signed deals of TCV $140 million in Q2, including net new TCV of $104 million.
Ebitda margin came in at 15 per cent, down 98 basis points sequentially but up 107 bps YoY. The sequential fall in margin was due to wage hikes, higher sub-contractor costs and investments amid a significant pickup in attrition across the industry. Analysts said it was partially offset by tailwinds from improvement in utilisation.
"Birlasoft missed its flattish Q2 margin guidance slightly as attrition spiked to 24 per cent and travel restrictions continued, leading to higher subcontracting costs (16 per cent of revenue)," said Anand Rathi. The brokerage, however, added that the net headcount addition was steady for the last three quarters, averaging 555.
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Birlasoft has strength in non-ERP digital businesses like CRM, data analytics, app development and enterprise solutions. It mainly caters to manufacturing, BFSI, energy & utility and life science. The company is debt-free and has a healthy double-digit return ratio, with a RoCE of 19 per cent.
