Debasis Mohapatra
Bengaluru, 27 December 2024
Mid-tier IT services company, Birlasoft is expecting its operating margin to improve from fourth quarter (Q4 of FY25) onwards as consolidation deals mature.
During the post Q2 conference call with analysts, management of Birlasoft indicated that margin dip during the July-September period was owing to the pricing pressure coming from consolidation (cost takeout) deals.
As the company would roll out salary hikes during Q3 of ongoing financial year (October-December), margins were unlikely to improve, management had indicated.
“While the growth is now back, we expect to continue the growth momentum in the coming quarter. The coming quarter, ……is a soft quarter, thanks to furloughs. But, we hope that the growth momentum will continue. It will take a couple of quarters for us to get the margin back on track. In the coming quarter, because we will be giving a salary hike, there will be a little bit of dent in terms of how we deliver margins or we look at margins for Q3. For we are very confident that starting Q4, you will see the margin improving. And over the next subsequent quarters, every quarter, you will see margin improvement going forward,” Angan Guha, CEO of Birlasoft has said during the analyst call.
Birlasoft reported an absolute EBITDA of Rs 165.3 crore with EBITDA margins coming at 12.1%, which was down 2.6% QoQ (quarter on quarter) primarily due to increase in its onshore revenues, ramp up in deals which were delayed earlier in the ERP vertical and pricing pressures in certain projects which were in the nature of vendor consolidation deals, brokerage firm- ICICI Direct wrote in a note.
“TCV (total contract value) is projected to improve in H2 of FY versus H1, with a focus on annuity and transformational deals to drive sustainable margin recovery through improved utilization, offshoring, and pricing. Despite the weak TCV, management indicated a robust pipeline and reiterated its aspirational 15% margin target, though achieving it by FY25 appears challenging,” the brokerage wrote in the note.
