BSOFTNSEQ4 & FY'22May 31, 2022

BIRLASOFT LIMITED

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91turns

11analyst exchanges

6executives

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Management on call

Dharmender Kapoor

CHIEF EXECUTIVE OFFICER, BIRLASOFT LIMITED

Chandrasekar Thyagarajan

CHIEF FINANCIAL OFFICER, BIRLASOFT LIMITED

Roop Singh

CHIEF BUSINESS OFFICER

Shreeranganath Kulkarni

CHIEF DELIVERY OFFICER

Arun Rao

CHIEF PEOPLE OFFICER

Vikas Jadhav

HEAD, INVESTOR RELATIONS

Key numbers — 40 extracted

15%

as CEO of the merged entity about three years back, I had been mentioning that our first goal was 15% growth and 15% margin. And that had been the first strategy on which we started to put the organi

555.2 million

inancial year, which went by. Coming to the financial year 2022 specifics, Birlasoft revenue was $555.2 million, a growth of 15.8%. In rupee terms, the annual revenue was at Rs 14,304 million and grew by 16.2%

15.8%

Coming to the financial year 2022 specifics, Birlasoft revenue was $555.2 million, a growth of 15.8%. In rupee terms, the annual revenue was at Rs 14,304 million and grew by 16.2%. EBITDA was at $ 8

Rs 14,304 million

irlasoft revenue was $555.2 million, a growth of 15.8%. In rupee terms, the annual revenue was at Rs 14,304 million and grew by 16.2%. EBITDA was at $ 86 million and EBITDA margin was at 15.5% versus 14.9% in the

16.2%

llion, a growth of 15.8%. In rupee terms, the annual revenue was at Rs 14,304 million and grew by 16.2%. EBITDA was at $ 86 million and EBITDA margin was at 15.5% versus 14.9% in the previous financial

86 million

%. In rupee terms, the annual revenue was at Rs 14,304 million and grew by 16.2%. EBITDA was at $ 86 million and EBITDA margin was at 15.5% versus 14.9% in the previous financial year, showing an improvemen

15.5%

e was at Rs 14,304 million and grew by 16.2%. EBITDA was at $ 86 million and EBITDA margin was at 15.5% versus 14.9% in the previous financial year, showing an improvement of 60 bps and a growth of 20.

14.9%

4,304 million and grew by 16.2%. EBITDA was at $ 86 million and EBITDA margin was at 15.5% versus 14.9% in the previous financial year, showing an improvement of 60 bps and a growth of 20.4% year-on-ye

60 bps

EBITDA margin was at 15.5% versus 14.9% in the previous financial year, showing an improvement of 60 bps and a growth of 20.4% year-on-year. The profit after tax was at $ 62.3 million, registering a gro

20.4%

.5% versus 14.9% in the previous financial year, showing an improvement of 60 bps and a growth of 20.4% year-on-year. The profit after tax was at $ 62.3 million, registering a growth of 43.6% year-on-y

62.3 million

howing an improvement of 60 bps and a growth of 20.4% year-on-year. The profit after tax was at $ 62.3 million, registering a growth of 43.6% year-on-year. We continue to witness strong deal wins and ended th

43.6%

growth of 20.4% year-on-year. The profit after tax was at $ 62.3 million, registering a growth of 43.6% year-on-year. We continue to witness strong deal wins and ended the year with TCV wins of $696 mi

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Guidance — 20 items

Vikas Jadhav

opening

“Please note that Birlasoft does not provide any profit or revenue guidance.”

Dharmender Kapoor

opening

“And that had been the first strategy on which we started to put the organization together, which many of you would be aware of, and which meant a goal to see that we will grow by 15% and we will deliver a margin of 15%.”

Dharmender Kapoor

opening

“And that's the way we want to continue our growth journey going forward.”

C. Thyagarajan

opening

“We expect DSO to remain below the 60-day level going forward.”

C. Thyagarajan

opening

“The buyback will be undertaken through a tender offer in accordance with SEBI buyback regulations and is subject to shareholder approval.”

C. Thyagarajan

opening

“Including a buyback of shares which are worth Rs.390 crores excluding taxes, the payout will be approximately 111% of FY'22 PAT.”

Mihir Manohar

“Do we still maintain that $1 billion kind of a target that we have for FY'25?”

Mihir Manohar

“So, how should we see the wage hikes going forward in this particular year FY'23 and consequently, the margins per se, I mean?”

Mihir Manohar

“What will be the quantum of wage hikes for FY'23 and when one should budget for it?”

Dharmender Kapoor

“So, there will be always that kind of quarter once in a while and I think Q4 was off that type.”

Risks & concerns — 15 flagged

Q4 had some cross currency headwind of 10 basis points.

— C. Thyagarajan

But if you look at the last 12 months, it remains in that range, which is definitely a concern for the industry, as well as for Birlasoft.

— Dharmender Kapoor

At the same time, I'm sure that as the time fly by, probably, the work from office will also continue, though slowly, but that also may address the attrition issue because when people are working from home, a lot of times it is very difficult to continue to connect with them and build the relationship.

— Dharmender Kapoor

So, anything to call out in terms of 4Q in terms of growth headwind and is it lower than your own expectation at the start of the quarter?

— Sandeep Shah

There has always been a little bit of impact of the supply side as well as an issue on the growth side.

— Dharmender Kapoor

But I would not say that it is a major concern because we were able to add resources and we continued Classification: Public to attract the talent that is required.

— Dharmender Kapoor

So, it is definitely a concern here just like it is in the industry.

— Dharmender Kapoor

So, it's a sizable decline and it continues to remain volatile year-after-year.

— Sandeep Shah

So, whether that aspiration continues to remain good or you believe the macro headwinds makes us slightly cautious and watchful?

— Sandeep Shah

But otherwise, as the question came up earlier on the demand environment and the recession, that headwind we have not experienced so far.

— Dharmender Kapoor

Is this not a sign of any slowdown of demand environment?

— Sameer Dosani

If I look at the way our sales pipeline is today, I don't see that there is a slowdown in the demand.

— Dharmender Kapoor

But IT industry is a very interesting industry because a lot of time when our clients are under pressure.

— Dharmender Kapoor

So somewhere you think the translation into wins from pipeline is weak, at least it looks from the numbers?

— Hiten Jain

And even now, given that, the mid-size IT companies all of them have reported better growth than 2% sequential, so somewhere, it looks like there is some slowdown in the numbers that you have reported this quarter in growth?

— Hiten Jain

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Q&A — 11 exchanges

I wanted to get an outlook on the demand environment per se. DK, how are you seeing the demand environment as of now? And you know extending this to the situation that if US enters into recession, at least the bond yields models are saying, how do we see ourselves. Do we still maintain that $1 billion kind of a target that we have for FY'25?

Dharmender Kapoor

I think you're right that there is a discussion about recession that is there. Some of the articles have started appearing in the media. But, as far as we're concerned, I have not yet experienced that demand is going down. I'm in US and I have been meeting our clients over the last two, three weeks also. I continue to see that they are continuing with their programs and with their projects. There is no discussion that has happened from their side in terms of reducing their budgets. So, from that perspective, I do think there are clear visible signs in the eyes of our customers that the demand

DK, last quarter, we had shared we are winning many small size deals with a smaller tenure which will lead to a faster conversion of deal wins into growth as a whole. But if we look at the Q4 growth, it looks softer than most of the peers versus your own earlier quarters as well. So, anything to call out in terms of 4Q in terms of growth headwind and is it lower than your own expectation at the start of the quarter?

Dharmender Kapoor

There are a few things that we have to look at. One has to look at what part of the portfolio is getting normalized with respect to the revenue. So, there will always be one of those quarters where the revenue normalization will happen because the transformation programs will finish and it will look like that the normalization happen on the revenue front. So, there will be always that kind of quarter once in a while and I think Q4 was off that type. At the same time, we also started looking at how do we not really dilute our focus on the margin side, and how do we go after the deals that are g

Just one clarification on one answer that you gave. We have announced a buyback and dividend which we'll use around Rs.500, Rs 520 crores of cash from the Rs.1,250 crores of cash we have, right. To fund our aspirations of $150-200 million organic revenue part, we will need at least one- time sales of around Rs.1,250 crores of cash. Will we miss out on the opportunity when we are using this amount of cash for buyback and dividend? And how do you see that happening for Birlasoft? Classification: Public

Dharmender Kapoor

So, if you look at as of March 31, we had accumulated cash and short term investments in excess of Rs.1,200 crores which is higher than the comparable IT services companies as a percentage of market capitalization. The return of lot of that surplus cash will not affect the company's ability to grow organically or inorganically. Birlasoft can continue to consider acquisition up to $300 million or I would say that about Rs.1,200 to Rs.1,300 crores, that level of acquisition we can go for our, with leverage if required in future. So, I don't think that is going to impact our inorganic aspirations

Sir, you said the deal pipeline is quite strong given that the demand environment is also quite healthy. But somewhere, are you disappointed in terms of translation of those deals in the pipeline to actual wins, because as the earlier participant was also checking, FY'22 new deal wins is up just 3% over FY'21. So somewhere you think the translation into wins from pipeline is weak, at least it looks from the numbers?

Dharmender Kapoor

I don't think so and I don't think that I am disappointed with that because we have to look at one thing that historically and traditionally everyone has been focused on the TCV wins so far. We also continue to report the same way, but the model is changing from TCV in the traditional terms, because earlier the deals used to be long term and the deals used to be larger. But as we progress, these are becoming smaller and of shorter tenure. With that the TCV value will not look high, because there is absolutely no other way by which we can explain that the TCV deals are going down, whereas the q

Just wanted to check on when is our salary hike cycles and you did indicate that attrition number for this quarter has come down. Is it possibly to quantify the annual attrition number for this quarter versus last quarter?

Dharmender Kapoor

So, I believe that quarter-on-quarter, the attrition number will be down. We still are into the middle of the quarter, and we are seeing the indicators, that show the attrition is going down. But will it be significantly different? I doubt because, we still have one more month to go. And as I said earlier that it is the too soon to start celebrating because our quarter four was better than quarter three. But we want to continue to initiate and upscale our activity of connecting with the people so that we want to continue and from that perspective, I think it is helping us and now that the cycl

There are two questions. One is that will the promoter participate in the buy back. And your BFSI growth is softer than manufacturing in ENU. So, is there any normalization in that segment too?

Dharmender Kapoor

I will answer your first question now and will ask you to repeat the second question later. So for the first question, the answer is that whatever information is available so far that we had declared is where we do not know which all shareholders will participate or not. I think at some point of time we will know that and then we will really put that declaration also. And every shareholder has the right to participate or not participate. And I think in the due course of time we are going to take their decisions and make it public. Classification: Public Okay, thanks. And if we see YoY growth o

Just one thing, what we are seeing is that utilization levels are at a very high level right now. Do you think that will normalize? That is one thing. And second also on the margin front, right? With wage hikes coming in and utilization levels settling, normalizing, what are the levers that you think that will help you do better margins in FY23 than FY22? Thanks.

Dharmender Kapoor

So, let me take the first question on utilization. Utilization is absolutely normalized for us, and it is flattened because if you look at in the last 3-4 quarters, we are in the range of about 85% or 86% utilization. And this is the healthy level that we want to continue to maintain. That is the first piece. So, it is all in a good balance right now. Now, when it comes to the margin, there are multiple ways by which we have to look at. You are right that there are going to be headwinds such as the wage hike and other factors that are going to come into the play or the cost of resources that i

Most of my questions have been answered, but just one on the M&A side, if you can qualitatively give us a feel for what you are looking at and are the valuations coming down and what kind of areas are you looking to acquire in?

Dharmender Kapoor

So, the strategy, I think once or twice I have talked about, and the idea was that how do we use the funnel approach to continue to look at and zero down on what kind of company and what kind of skills that we will go after. As I earlier said that I will always continue to look at three parameters. One, what kind of industry that customer is in and is there any significant amount of revenue that comes from one industry of our interest. Second is that is there any niche that they have. And third is that do they have few clients where they have a significant revenue, and it is not that we end up

I have only one question. Most of my questions have been answered. So, if I see the last 2 quarters' performance, there's a very clear indication that ERP has kind of picked up for us and kind of reporting a growth of 8% to 9% Y-o-Y. Whereas the other part of the business is continuing to report anywhere between 28% to 32% growth. So, I just wanted to understand, as you remain pretty confident on deal pipelines and growth trajectories, and ERP kind of picking up, what resists us to tell that in FY '23 growth numbers would be far higher than 15%, 16%, it would be in the territory of 18% to 20%?

Dharmender Kapoor

So, I would absolutely like to have that kind of status when we're talking at the same time next year that the growth was much higher than the previous year and that's the goal. But as you know that we have to continue to look at how market responds because there is definitely a clear preference that our clients have towards the deal, which are transformational deals in the digital and cloud area or customer experience area, okay? So, that is where there are better margins. That is where there are more number of deals that are happening. And we are also continuing to experience the same thing

Sir, my first question is from a vertical perspective, I mean, I think you spoke about this in the last quarter as well. Life Sciences is one vertical that has underperformed the company growth in this year. Now you had alluded that the projects have gotten completed and hence, there is a delay before the next set of projects start. Other than that, is there any off-shoring also that is happening there and that is leading to a slower growth that is visible for us, per say? And how to think of this vertical firing? And that is the first question from a vertical perspective. Secondly, Energy & U

Dharmender Kapoor

So, a good question. You would have seen that we have shown better growth in the Energy & Utilities than the Life Sciences because of the revenue normalization and all that. But if I look at my optimism, my optimism comes more from the Life Sciences because it is far more stable vertical or industry than the Energy & Utilities because Energy & Utilities is one sector which is always in news for one reason or another. And right now, because of the energy-related crisis that is happening because of geopolitical situation, there could be something that may emerge which we may have not foreseen. S

Once again, thank you, everyone, for joining the call at this time. As I said earlier, we always wanted to be a predictable and sustainable company. And going forward, we are just adding confidence into it. So, we want to be predictable, sustainable and confident company. And I think our growth for the financial year is a good indicator of that. I'm sure that we'll continue to deliver better than the expectations in the upcoming year also. So, thank you very much for all of your support. Looking forward to talking to you again in the next quarter.

Management

Speaking time

Dharmender Kapoor

Moderator

Shradha

Sameer Dosani

Sandeep Shah

C. Thyagarajan

Mihir Manohar

Hiten Jain

Devang Bhatt

Shyam Sundar Sriram

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Opening remarks

Vikas Jadhav

Hey, thanks Neerav. Good evening, everybody. Thank you for joining us. I am Vikas from Investor Relations and today we have the whole Birlasoft team with us, comprising of Mr. Dharmender Kapoor (DK) who is our CEO; Mr. Chandrasekar Thyagarajan, Chandru as we call him, he is our CFO; Mr. Roop Singh, our Chief Business Officer; Mr. Shreeranganath Kulkarni or SK as we call him, he is our Chief Delivery Officer; and Mr. Arun Rao, who is our Chief People Officer. We will begin the call with an Overview of the Company's Performance from DK, followed by Chandru. Post that, we will move to the Q&A Session. Please note that Birlasoft does not provide any profit or revenue guidance. , I mean, as we see on this call and refers to the company's outlook for the future is a forward-looking statement and must be read in conjunction with the disclaimer which were mentioned in our Q4 investor update which has been uploaded on the website and also shared with the exchanges. With this, I now handover the

Dharmender Kapoor

Thank you, Vikas. Good morning, and good evening to all of you. Thanks for joining us for the Q4 and Financial Year 2022 Earning Call. Ever since I took over as CEO of the merged entity about three years back, I had been mentioning that our first goal was 15% growth and 15% margin. And that had been the first strategy on which we started to put the organization together, which many of you would be aware of, and which meant a goal to see that we will grow by 15% and we will deliver a margin of 15%. I'm very pleased to report that we have ended this year with over 15% revenue growth and over 15% margin. From a negative annual revenue growth and single digit EBITDA margin back then, we have made a significant progress. This is despite the odds of merger and integration challenges in the first year of my tenure., the COVID-19 crisis in the second year and significant supply side challenges in the financial year, which went by. Coming to the financial year 2022 specifics, Birlasoft revenue

C. Thyagarajan

Thank you, DK. I wish you all a good day, good evening, and I hope you're all doing well. Let me take you through some financial highlights for the fourth quarter of FY'22 and then for the full year of FY'22. Our Q4 revenue was at $146.4 million, representing a growth of 2.1% sequentially and 18.8% year- on-year. In rupee terms, the revenue was at Rs.1,101 crores, a sequential growth of 2.8%, year-on- year growth of 22%. Q4 had some cross currency headwind of 10 basis points. Therefore, the constant currency revenue growth was at 2.2% and Q4 year-on-year constant currency growth was at 19.6%. EBITDA for Q4 was at $23.2 million versus 21.8 million in the third quarter. And that means a growth of 6.5%, as DK said, and a year-on-year growth of 11.5%. EBITDA margin stood at 15.8%, which is an improvement of 60 basis points quarter-on-quarter. Margin improvement was aided by revenue growth, reduction in our subcontractor cost and in improved pricing. We did have some impact on account of th

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