Will this FII-favorite IT company continue its upward trajectory?

adminJune 19, 2024

Birlasoft: Birlasoft, a leading provider of enterprise digital information technology services, has recently seen a significant increase in foreign institutional investors (FIIs) inflows. The increase in FII interest demonstrates the company’s consistent financial performance, strong financial ratios and positive market trends. In this article, we will look at the factors driving FII shareholding growth and the potential implications for investors considering Birlasoft stock.

Birlasoft’s Industry Overview

Information technology plays an important role in contributing to the Indian economy and securing its rightful place in the global market. India’s information technology revenue grew 3.8% in FY23, and the export value of IT software and services will reach $193 billion in FY23.

The Indian IT and BPM market is estimated at USD 254 billion in FY24 and is expected to grow to USD 421.59 in the next five years. The contribution of the IT industry to GDP in 2023 was 7.5%. It is expected to contribute 10% to the Indian economy by 2025. The IT market recorded a CAGR of 9.04%.

Birlasoft company profile

Birlasoft Limited A global enterprise digital and IT services company. With over 30 years of experience and a workforce of over 14,000 professionals, Birlasoft operates in three major regions: the Americas, Europe and Asia Pacific. The company offers a comprehensive portfolio of services encompassing digital transformation solutions, ERP services, custom application services, infrastructure management, data analytics and cybersecurity solutions.

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Birlasoft has deep industry expertise across industries such as BFSI, Healthcare & Life Sciences, Manufacturing, Energy & Utilities, and Retail. The company is focused on leveraging next-generation technologies such as AI/ML, blockchain, IoT, and generative AI to create value for its customers. The company is headquartered in Pune, India and is part of the CK Birla Group.

Segment Analysis by Birlasoft

Birlasoft covers manufacturing & communications, media & technology, energy & utilities, life sciences & healthcare, banking, capital market, and insurance. The manufacturing sector saw growth of 3.6%, energy and utilities grew vertically by 4%, and digital services recorded significant growth of 20% year-on-year.

Banking, financial services and insurance grew 4.4%, driven by efficient account management, timely transaction completion and new customer acquisition. ERP services grew 7.6%, benefiting from the growing shift to cloud-based systems of record. Infrastructure services continued to grow at a solid 6.1%, influenced by network upgrades, AIOps, and cloud infrastructure services.

Birlasoft’s Financial Analysis

The company’s sales have increased year-on-year for the past four years. It has maintained a compound annual growth rate (CAGR) of 12.53% over the past four years. Revenue increased by 10.08% from ₹4,794.77 in FY23 to ₹5,278.10 in FY24.

The company’s net profit increased through FY22. In FY23, the company’s net profit declined by 28.48% from ₹463.64 to ₹331.58 due to a significant increase of 22.22% in total cost, including 18.75% employee cost and 30.31% other cost. However, the net profit in FY24 has almost doubled from ₹331.58 in FY23 to ₹623.80 in FY24, and while revenue has increased significantly by 10.08%, total expenses have increased by 88.13% due to an increase of 7.73%.

The company’s operating profit improved from 9.61% to 16.19% in 2024. Net profit margin also increased from 6.91% to 11.81% in FY24. Due to the improvement in net profit, the company’s financial indicators improved, with return on equity and return on employed capital recording 20.49% and 26.49%, respectively. Birlasoft is a company with virtually no debt.

Why are FIIs increasing their stake in Birlasoft?

Birlasoft reported the following shareholding pattern: 40.92% promoters, 23.48% FII holdings, 8.62% DII holdings and 16.99% public. What is interesting is that foreign institutional investors’ stake increases from 11.31% in the first quarter of FY23-24 to 23.48% in the fourth quarter of FY23-24. The stake has doubled compared to the start of the 2023-24 financial year. Last quarter, FIIs increased their stake in Birlasoft by 2.23%.

This may be due to the company’s revenue growth of 10.08% in the fiscal year 2023-24. However, net profit soared by 88.13%. Birlasoft’s revenue and net profit have continued to grow over the past four quarters. Therefore, this will demonstrate the strong financial performance of Birlasoft. Promoters do not offer shares as collateral to lend money. The company improved this. age, ROE and profit margin. It will encourage FIIs to invest money in Birlasoft.

What does the future hold for Birlasoft?

Anand Rathi Issued at a marked price of Rs. 810. According to the company, Birlasoft is delivering impressive financial performance, with fourth-quarter EBITDA margins reaching 16.3%, up 265 bps year-over-year, and management is targeting industry-leading growth in FY25.

IDB Capital The target stock price was suggested at 50 million won. 780. The company has strong long-term potential to grow its investment pipeline from $1.8 billion to $2.4 billion, and margins remain strong.

Sharekan The target stock price was suggested at 50 million won. 820. That’s because of revenue growth, EBITDA margins and deal wins. TCV is strong at $240 million.