Birlasoft - Ambitious, or super normal?

Our coverage of the midcap IT stories here at Valuepickr has missed Birlasoft, and I thought it’s time we keep a record of the investment thesis, and it’s development for posterity.

What’s the play?

Giant IT services companies like TCS and Infosys are the middlemen between customers that want to adopt modern solutions to cut costs, and pure tech companies such as Microsoft, Google, etc. that form their backbone.

We’ve seen the following trends in the last few years:

  1. Having modern digital solutions to legacy problems are often an avenue to improve productivity and improve margins for companies. Covid has accelerated this spend, and will be a key driver of growth going forward.

  2. Smaller IT companies have realised they can’t compete with giant incumbents and have healthy margins at the same time. The emerging solution seen across the pack is that they pick a few verticals and become the best solutions provider in their own niche.

Goal is to carve a niche in our verticals where we are better than the big players. We can’t solve every problem, but what we choose to solve, we can do much better than anyone else. - Dharmender Kapoor, interview with BQ, June 2021.

Okay, what are their verticals?

They have four main verticals. From the 2021 annual report:

Birlasoft helps customers in manufacturing to accelerate their Industry 4.0 adoption.

  1. BFSI - to leverage open APIs and automate both front-office and back-office transformation;
  2. Energy and Utilities - to enhance field collaboration and real-time service excellence, optimize operations and improve asset performance;
  3. Life Sciences - to automate drug discovery and pharmacovigilance processes.

Here’s how the revenue mix has changed over the years:

Why now? What has the journey been in the last few years?

The story becomes interesting after 2015, when Birlasoft brought in Anjan Lahiri, and he worked on the company until 2019 when two things happened. They merged with KPIT Technologies and became the digital enterprise company of today, and Anjan Lahiri stepped down due to urgent personal reasons.

After this, they revamped the board, with Mr. Dharmender Kapoor taking over as MD, and in the last two years have onboarded senior talent. Their current CFO has been on the IBM senior management for 20 years, and this trend has continued if one looks at their hiring on Linkedin.

How has their business model evolved?

  1. They’ve started focusing on their top clients and have trimmed tail accounts. Furthermore, they’ve started selling more to their top clients across their verticals. This is seen through three data points in FY21:
  • Lower $1 million deal wins, more $5 million deal wins.
  • 97% of new deals are from existing clients.
  • Increasing TCV trend in deal wins, FY21 was their best year.
  • Annuity has improved from 60% in FY20 to 70% in FY21.
  • Deals are now multi service rather than single service. New deals don’t necessarily fall into one vertical.

  1. They are constantly working on internal efficiency to improve operational metrics. The key metric management mentions repeatedly is the Days Sales Outstanding, and Utilisation rate:

Revenue per headcount across the quarters:

Q1FY22 Q4FY21 Q3FY21 Q2FY21 Q1FY21
Operating Profit (lakhs) 15100 15200 14400 11900 11300
Technical Employees 10445 9994 9416 8992 8865
Profit/Employee 1.44 1.52 1.52 1.32 1.27

This has been steadily improving, with a drop in the latest quarter. Management commentary on the same:

We lost $1 million of bottomline due to covid. Employees in India took leave when the second wave hit, and we didn’t dock their pay. Without this, the quarter would have been even stronger.

Accounting for this, the profit/employee for this quarter would be 1.52 as well.

The last data point is important while considering the difference in wage costs between India and the US.

From the latest earnings call on the onshore/offshore mix (paraphrased):

We usually hire locals (onshore) if there is a crunch, as the hiring lead time is a lot quicker than in India where there is a 3 month lead time. When we hire offshore, we replace onshore subcontractors. Clients are also on the same page with starting projects on site and finishing it offshore. We improve our margins, they get comfortable with deal structure.

Okay, numbers are improving. Do they have ambition?

Paraphrasing what Mr. Kapoor said in June’s interview with BloombergQuint:

By 2025, we want to have 7500 Cr. of revenues (3500 Cr. today, implies ~18% CAGR). We will do this by:

  • Growing top 30 accounts by > 20%;
  • Platform strategy: partnership with Azure / AWS to offer solutions across the value chain;
  • New channel for sales; good partnerships already in place.

Expecting profit CAGR to be much higher than revenue CAGR in the next 4 years. Profitability will grow. 3-4 quarters ago, this target of billion dollars was a dream. 2 quarters ago it became aspirational. Today, I’m far more optimistic and it’s looking like it can be a reality.

Absolutely no doubt that I and other top management will continue to work at Birlasoft until this goal is met. They’re motivated, excited, and handsomely incentivised to stay. We have our plans set in place for the next 3/4 years.

Financials and Cash Flows

  • Are currently debt free and have 1100 Cr. of cash in hand.


  1. The vision is entirely dependent on Mr. Kapoor and his close circle. If they leave in the next few years, big questions to ask.

  2. Dependent on their partnerships with SAP, Microsoft, AWS. Currently a Microsoft gold partner, which gives them benefits to companies searching for solutions providers.

  3. Execution - Reliant on better deal wins and client mining to meet their 7500Cr. target.

When we acquired KPIT, used to think 75 million dollar deal wins were a great target for a quarter. Today, 200 million dollars should be the average every quarter.

However, Q1FY22’s deal wins have fallen short of their own metrics.

  1. Their target of 1 billion dollars is a nice headline, but it implies a mid teen CAGR going forward. This is something we have heard from other midcap IT companies like FirstSource. Hence, is their target super normal?

Disclosure: Invested from lower levels, no recent transactions.

With current valuations, it’s becoming increasingly difficult to find low hanging value fruit. This post isn’t necessarily to offer a slam dunk investment opportunity, but to track a company here that may become more attractive/unattractive going forward.

Two amazing sources of information on the company:

From our very own board member:

Finally, to those with a BQ Blue membership, the BQ Edge series with White Oak is a lovely window into the smaller IT companies.

Will write further posts on management commentary, and takeaways from the earnings call.


Many big guys are holding it too ( Ashish Kacholia 1.2% and Ashish Dhawan 2.9%)
But Im only skeptical because they did sell some of their holdings (0.6% and 0.8% respectively.)

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We shouldn’t analyse businesses and make decisions based on big investor churn. There are any number of reasons to sell a business, we don’t know what their strategy is for portfolio allocation, and what they want to do with the money.

Institutions also vary from underweight to overweight depending on valuations and the market cycle. Also the Sharpe ratio for each of their entry levels is different.

IDFC Sterling Value Fund averaged down until March 2020, and decided to trim their position as the stock price moved up. They would have decided for Birlasoft, we want to hold X% in our portfolio this quarter and have sized accordingly.

Lots of new entrants in June, from Tata Digital India to Aditya Birla Sun Life.

This is only one of many things to think about with the business, but I don’t think one can be skeptical purely based on this movement.


Highlights from the Q1FY22 earnings call, and my takeaways from the BQ management interview. Posting takeaways from both, as similar themes were addressed.

  1. Was the quarter disappointing by your own standards?

No, Q4 is usually the strongest quarter for IT companies in India, as Q1 in the US is when they take on their new initiatives. If we look at FY21, the biggest revenue driver was the cross selling. We didn’t have
new accounts as there was a travel ban. We didn’t travel and meet new clients. This has resumed and is looking strong going ahead.

Our EBITDA is in line with the market’s impact due to covid. Attrition and Covid has had an effect on everyone. No surprises here.
Q2 will have a wage hike for most of the IT companies, but we’re fully prepared and have looked at recovering wage hike effects through
different segments. Confident to beat margin expectations, will see this effect in Q3 and Q4.

  1. Large client wins have increased. Tell us the nature of the deal wins

There was a key trend in the last 10-15 years for IT sector, where we saw some really huge deals. Now, clients prefer smaller deals and for a shorter period of time. Companies want to be more agile, and want to see results every year in real time. The cumulative TCV may be
as large as we saw in the last decade, but we’ll only see that through multiple renewed contracts rather than in one go.

This year will be even better, as there is significant focus on mining our largest clients. We put a huge amount of focus on our platinum and gold accounts, and those are doing really well. We will see them moving from one basket of revenue to the higher basket of revenue. There are quite a few customers moving in this direction. Cross selling is already happening.

Demand has been really strong, and supply side is where we have constraints. This has come after many years in the IT industry, and is
very welcome. What’s also important is the work culture, because we see hybrid work culture sustaining for a very long time. Processes
and procedures on hiring will be very different going forward, and we’re adapting to a model that will bring us a great edge in the long
term. The high demand teaches us many things that we need to do.

  1. On attrition

Key personnel are stable. Attrition is in junior levels, where talent move across different companies. This is a part of the industry. Despite the attrition, we’ve added on 500 employees. This isn’t a quarter/quarter story but a multi year story. When we hire from colleges, we train and upskill them so our pyramid stays intact. We should also focus on upskilling and offshore/onshore mix as much as the attrition.

  • Tax rate for Q1 is 24.9%. This is due to a new regime, and will be 26-27% going forward.

  • Spent 1.5 million dollars on Capex this quarter.

  • Expect travel expenses to come back in H2FY22.

  • Expecting 14-17% growth this year with top accounts.

  • Digital services saw significant growth. Key point → developing relationship with our OEMs. For client → we will remain technology agnostic. On the backend → work on building all relationships to have freedom to choose best solution for client.

  • With Microsoft, progress is very good. It began at one type of solution on the cloud, now we go and sell across the board. This partnership
    is scaling up very well for us.

  • By the end of this quarter, we’ll know more about wave 3 and we can be more confident of guidance. I would rather underpromise and

  • Pipeline is 15% higher than Q4. Quarters will improve.


Thanks for introducing a nice company to this forum, an excellent post.
Am reminded of Prof. Sanjay Bakshi’s analogy of honey pot and the flies. If focused verticals are giving an edge over competition, wouldn’t others follow the same strategy
Disc: Invested 2 percent


Birlasoft Named as a Leader in SAP S/4HANA System by Information Services Group (ISG), a leading global technology research and advisory firm.


How much % of the revenues is digital?

Is there a way to segrate digital vs non digital? Can anyone explain?

Strategic partnership with an “In the spotlight” SaaS Company - Freshworks and yet still no movement in Birlasoft.

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Off late, their order wins QoQ have been little lumpy to the comfort of street to win best valuations. I think once the order win and pipeline becomes more consistent and stabilizes, there can be rerating to valuation levels of other top midcap IT.
Disc: Small tracking position, I maybe wrong in my assessment


is ownership title clear between lodhas & birlas ??
some court cases were going on since last few years

@Chins , thanks for the nice write up, much appreciated. They have in excess of 1000 crores cash on books, is there any talk about inorganic acquisition they are aiming for ? (Mastek also on the similar path where they have money but tech valuations are super hot )

I understand BFSI domain better but not much on Industrial, can you please point me to content to understand on this domain (what kind of solutions IT involved in the industrial value chain )

Also did you do any comparison on

Labor cost % comparison vs peers
Average Revenue per Employee ?
EBIDTA margins vs peers
Are they spending anything on product development ?
Do they have any revenue (recurring ) ? (This is applicable if they are selling anything as service )


Hi @Rafi_Syed, thanks for the comments; always nice seeing your posts in various pharma threads!

Paraphrasing from the Bloomberg Q4FY21 concall with Mr. Kapoor:

  • We want 20% of this billion dollar goal to come from inorganic acquisitions, but we aren’t going to do it for the sake of it. We aren’t a big company that can afford 10-15 failed ventures.
  • Interested in a larger acquisition rather than a small distressed one. Company should add a lot of value to Birlasoft and vice versa. Will wait for the right candidate to come along.

I’ve compared this in the title post, attaching it again here:

I’ve found it hard to exactly call a company a peer since they have their own competencies and cloud partnerships(and it’s outside my circle of competence), but the entire midcap IT pack (FSL, Persistent, etc) have gone through margin expansion from 14-15% to 16-17% in the last few years. We’re expecting some more margin expansion in Birlasoft to the early 20s if the bull case pans out.

Definitely! They call it annuity, and from the title post, 70% of their business is recurring, and 97% of new deal wins are from existing clients:

  • Annuity has improved from 60% in FY20 to 70% in FY21.

I haven’t compared labour cost across the pack, please do share if you find useful data.

Cheers :slight_smile:


One thing that I have noted is their strong focus on the Enterprise Solutions segment - which includes typical ERPs meant for large scale organizations and spans across multiple functions like Finance, Sales & Distribution. Supply Chain, HR etc. They have partnership with SAP, Oracle, JD Edwards for example in this segment and hiring is also very active in last couple years. Manufacturing, Industrials etc. are very common large scale SAP/Oracle adopters in ES. (What a BFSI focused product does for Banks & Insurance firms, SAP/Oracle does for the rest)

Now, according to me, this can be a good thing also and not so good as well. Not so good because - All major leaders of Indian IT like Accenture, TCS etc have been focused on ERPs since decades and now they are doubling down to other newer technologies which are the true essence of digital - Cloud, SAS, IoT, Blockchain, Artificial intelligence, OTT, Platforms etc. Maybe Birlasoft is a decade too late here in this realization.

Now, why this can be good - The ERPs have been silently turning a leaf in last few years. This new chapter is the beginning of HANA for SAP and FUSION for Oracle. These are the new age - what they call ERPs with digital offerings and capabilities like cloud, mobility, IoT capabilities etc. It could be Birlasoft’s realization to capture this new multi decadal shift of ERP upgrades and implementations.

However, at best - with strong equal focus on this segment by the likes of Accenture, Capgemini, TCS and few strong midcap players as well - this can turn out to be a moderate growth capability. If earlier it was 4-6%, now it maybe max 8-10% (I maybe wrong) but this certainly cannot be the super charged growth driver.

Having said above, it maybe significant for Birlasoft till it gains scale, but beyond that - it needs capabilities in other high growth digital segments - Which I am not sure if they have (They very well may have or growing).

Disc: Have tracking position. Minor additions in last 1 Week. I would track its growth in non-ERP segments as I already appreciate their focus in new age ERPs but feel that is not sufficient to become a 50,000 Cr mcap and beyond


My guess is this quarter there will be margin suppression.

It is mad out there in terms of offers for a new joiners, one who is drawing 5 lakhs salary went on attending multiple interviews managed to secure an offer for 20 Lakhs.

One inside source in Wipro , team of 18 offshore and 2 onsite, in 18 months time entire offshore team left and replaced with new faces. I am sure the same is the case everywhere.

Since travel started again that is going to have some impact on the margins.

As highlighted by @Investor_No_1 we have to see what are those next generation technologies Birlasoft going to adopt and offer services.

If we draw parallels between Birlasoft (ERP) vertical against eVosys ( Mastek) more or less both have same capability. If we track the recent Birlasoft disclosures they are strengthening their base on ERP vertical.

I am yet to listen to concalls and do a deep dive into AR but one thing I have noticed IS in Mastek case they are very focused on building talent pool ( this is the claim by them in recent B&K interview) , this is very very important. They appears to be focused on training on technologies that are high in demand.

@Chins , regarding Annuity, it can be recurring revenue from application regular maintenance (post production / change requests on already deployed solutions ) as well ? My question IS more on - do they have any SAAS based products ( like Intellect Design ) ? . From their site I can see below but we have to dig deep to understand what is their market position.



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Conference Call Takeaways
 Demand is robust. Order bookings and the pipeline are good
 Annuity revenue at 70% would improve ahead; project-based revenue at 30%.
 The margin contracted due to subcontracting costs, hiring, wage hikes and strategic investments. Cross-currency headwinds of 47bps
 The key focus is on margins as management is confident of growth
 Attrition at 24.2% should soften in 1-2 quarters. During 1H 430 freshers were added
 The company is trying to avoid the furlough impact in Q3
 With the salary hike behind, the Aug and Sep wage-hike impact was seen in the Q2 results. No second wage hike across the board; talented employees to be retained via long-term incentives

Business Outlook
 Management reiterated its goal of a $1bn (revenue) and touching an 18% EBITDA margin by 2025.
 Management guided to at least 15% growth for FY22
 The company aims to return to 15% EBIT margins.