Birlasoft shares surge 13% as Q2 revenue growth beats estimates; check target prices

Its wage increments impacted margins by approximately 170 basis points sequentially. "The 2QFY27 EBITDA margin at 15.2% (down 95bp/84bp QoQ/YoY) was impacted by wage hikes and continued investments in sales and capabilities, partly offset by operational efficiency, productivity improvement and better revenue quality. While rising AI engagements are margin-accretive, continued investments in sales to support topline growth are likely to keep margins around 15% in 2HFY27F.

Consequently, we see limited scope for margin expansion in FY28F and FY29F," said InCred Equities. "We now model 1.6% (2.3% earlier) US$ revenue CAGR over FY26-29F and 10.7% (12.1%) PAT (Rs) over the same period. We maintain HOLD rating on Birlasoft and value it at 13x FY28F EPS, with a discount warranted by the relatively high share of cash and investments at 48%, to arrive at a lower target price of Rs 306 (Rs 439 earlier).

Upside risks: Strong execution and M&A-led growth providing earnings cushion. Downside risks: Macroeconomic uncertainty and client-specific challenges," the domestic brokerage said. At 12 pm on October 29, Birlasoft shares were trading 13.5% higher at four-month high of Rs 347.2 apiece. Global brokerage Nomura gave a 'Neutral' rating for the stock with target price of Rs 330. Nomura highlighted that the key challenge for the company in the financial year 2024-25 (Arp-Mar) and FY26 was weak deal wins.

The company's efforts to revamp its sales team and focus on large accounts to secure growth will take time to reflect, the brokerage said. The timely closure of large deals is important to improve the company's revenue growth outlook, the brokerage added. "Q2 revenue and EBITDA are slightly above estimates. Focus on deal wins and improving pipeline is imperative to improve growth rates," said Nomura.

"Management said order book fell short of its own expectations, as several deals slipped into 3Q and 4Q. Management noted that its aim is to hold EBITDA margins at or above about 15%, with possible seasonal swings. Expect FY27F/28F EBITDA margins at 15.6%/15.7% (vs 16.3% in FY26)," it added.