From a Rs 57-odd level in March 2020 to a record high of Rs 585.85 this January, Birlasoft rallied a solid 928% in less than two years. Since then, the scrip has lost over half of its market capitalisation. Currently, the stock is trading at a market price of Rs 270 apiece.
Given the elongated decision-making cycle by clients and the potential impact of furloughs and lower working days in Q3FY23, the brokerage believes it will be difficult to achieve double-digit growth in FY23.
“We model 9% YoY growth in FY23E for Birlasoft,” ICICI Securities said while suggesting a target of Rs 284 on the stock.
The brokerage further said that the management of Birlasoft re-iterated its aspiration of double-digit revenue growth in FY23 led by some significant wins in Q2FY23 and previous quarters which are expected to ramp up now. Also, now that attrition is tapering down, it will ease off supply-side issues and support revenue growth, as per the management, it added.
Birlasoft reported an EBIT margin of 13.1%, +5bps, above our estimate of 12.3% as the 200 bps impact of the wage hike was offset by operating levers such as higher offshore revenue (52%, +310 bps QoQ), lower travel costs and productivity improvement, the brokerage said in a report.
In Q3FY23, potential margin headwinds are 100 bps impact of wage hikes and furloughs, as per the management. We expect margins to improve slowly and model 13.2%/13.5% EBIT margin for FY23/24E, respectively, the brokerage said.
“Birlasoft is currently trading at 15x / 13x on FY23E / FY24E EPS of Rs17.9 / Rs20.3, respectively. We value the stock at 14x FY24E EPS to arrive at a revised target price of Rs284,” ICICI Securities said.
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