BirlaSoft Ltd.: Should you invest?

About the company:

Incorporated in 1990, Birlasoft Limited (formerly KPIT Technologies Ltd) combines the power of a domain, enterprise, and digital technologies to reimagine business processes for customers and their ecosystem.
The CK Birla Group Company has unique, industry-leading capabilities from the Enterprise Product and Cloud solutions domain such as SAP, Oracle, JD Edwards, Salesforce.com, Service Now, etc.
Birlasoft also possesses significant ‘Digital’ capability in Analytics, RPA (Robotic Process Automation), Digital portals, User Experience, and Digital advisory services.
The company is a service company primarily engaged in providing information technology and related services.
The company caters to sectors like Banking, Manufacturing, Capital Market, Insurance, Media, Energy, Life Science, Healthcare, etc.
In 2019, Birlasoft and KPIT Technologies merged together to create a $700-million company, which then split into two specialized IT publicly-traded companies in a complex procedure.

Headquarter	Pune, Maharashtra
Sector	IT – Software
CEO & MD	Dharmender Kapoor (June 2019 – Present)
Chairman	Amita Birla

Board of Committees:

Parent Company:

CK Birla Group:

The CK Birla Group is a growing conglomerate that has a history of enduring relationships with renowned global companies. The Group’s businesses are present across five continents and operate across six industries: Automotive, Technology, Home and Building, Infrastructure, Healthcare, and Education. Some prominent companies under this group are Orient Electric, Orient Cement, Avtech, Birla Institute of technology, etc.

Subsidiaries:

As of March 31, 2021, the company has 15 subsidiaries including step-down subsidiaries. Some of them are:
Birlasoft Solutions France
Birlasoft Solutions Inc.
Birlasoft Computer Corporation
Birlasoft Consulting Inc.
Birlasoft Solutions Ltda.
Birlasoft Technologies Canada, etc.

Competitors:

Happiest Mind Technologies Ltd (Market Cap of Rs 15,736 cr.)
Tata Consultancy Services Ltd (Market Cap of Rs 1,338,909 cr.)

Shareholding Pattern:

Top Shareholdings:

National Engineering Industries Limited – 38.70%
Abu Dhabi Investment Authority – Behave – 2.27%
ICICI Prudential Long Term Equity Fund Tax Savings – 3.29%
Axis Mutual Fund Trustee Limited A/C Axis Mutual Fund A/C Axis Small Cap Fund – 3.28%

Industry Overview:

The global sourcing market in India continues to grow at a higher pace compared to the IT-BPM industry. India is the leading sourcing destination across the world, accounting for approximately 55% market share of the US$ 200-250 billion global services sourcing business in 2019-20.
The IT industry accounted for 8% of India’s GDP in 2020. According to STPI (Software Technology Park of India), software exports by the IT companies connected to it stood at Rs. 1.20 lakh crore (US$ 16.29 billion) in the first quarter of FY22.
India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India.
Indian IT & business services industry is expected to grow to US$ 19.93 billion by 2025.

Profit and Loss Statement:

Consolidated P&L (in Rs. Crores)

	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20	Mar-21
Revenue from Operations	3,224	3,320	2,250	2,551	3,291	3,556
Expenses	2,790	2,971	1,967	2,244	2,899	3,026
Operating Profit	435	349	283	306	392	529
Profit before tax	365	299	322	346	336	455
Net Profit	281	239	253	289	224	321
EPS in Rs	14.22	12.08	12.80	10.56	8.11	11.57

Key Pointers:

Expenses of the company majorly include 60% Employee cost and 20% Manufacturing cost.
The company is registering a slow revenue growth rate through their expenses growth rate is comparatively good.
Weak profit margins compared to its peers.
Negative EPS Growth in the past 5 years.

Balance Sheet:

Standalone Balance Sheet (in Rs. Crores)

	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20	Mar-21
Equity Capital	38	38	38	55	55	55
Reserves	1,348	1,545	1,779	1,659	1,837	2,124
Borrowings	250	387	310	38	145	128
Trade Payables	118	131	159	215	190	132
Total Liabilities	2,183	2,528	2,733	2,498	2,687	2,994
Fixed Assets	630	671	829	588	751	698
Investments	12	79	129	191	33	55
Other Assets	1,505	1,641	1,743	1,719	1,901	2,234
Cash Equivalents	395	390	505	377	630	1,043
Loans n Advances	268	285	307	542	443	611
Total Assets	2,183	2,528	2,733	2,498	2,687	2,994

Key Pointers:

A decrease in borrowing is because of a reduction in lease liabilities.
Made huge investments in different mutual fund schemes.
The rise in the cash equivalent is because of increased bank balance due to unclaimed dividends.

Cash Flow:

Standalone Cash Flow (in Rs. Crores):

	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20	Mar-21
Cash from Operating Activity	410	163	407	-72	310	558
Profit from operations	487	335	479	503	481	540
Payables	-11	-4	31	306	-27	-55
Receivables	2	-82	-83	-539	-22	159
Working capital changes	5	-105	-13	-537	-91	84
Direct taxes	-82	-67	-59	-38	-80	-67
Cash from Investing Activity	-146	-150	-193	123	-42	-444
Fixed assets purchased	-124	-189	-116	-90	-54	-25
Investment Purchases	0	-66	-52	0	0	-22
Other Investing Items	-66	95	-43	4	-159	-414
Cash from Financing Activity	-307	80	-128	-116	-180	-97
Dividends Paid	-26	-50	-50	-55	-100	-55
Financial Liabilities	0	0	0	0	-39	-39
Repayment of borrowings	-2	-1	0	-45	-38	0
Net Cash Flow	-42	93	86	-64	88	17

Financial Ratios:

Stock Price:

1. Current Price	₹ 453.00
2. Market Cap	₹ 12,656 Cr
3. Yearly fluctuation	₹ 215 – 585

Ratios:

	P/E	ROCE	ROE	Op. Margin	Rev Growth
BirlaSoft Ltd	21.86	22.98%	15.76%	15.42%	8.04%
Happiest Mind Technologies Ltd	47.16	36.55%	42.37%	27.89%	10.77%
Tata Consultancy Services Ltd	36.25	52.56%	38.55%	30.26%	4.61%

Strength:

The company is part of a growing conglomerate with a strong area of operation. MF houses are showing strong interest. Increased their investment in the last PY by majorly investing in different mutual fund schemes. Healthy dividend payout.

Weakness:

Negative EPS Growth in the past 5years. Decent revenue growth trend line. Negative growth in Net Cash Flow. The overall financials seems decent with negatives dominating over positives.

Opportunity:

India is the topmost offshoring destination for IT companies across the world and the industry is expected to grow to US$ 19.93 billion by 2025. With the kind of business portfolio and management team, the future seems healthy and growth-oriented.

Threat:

There are too many big and small players which makes this segment a highly-competitive market. Financial ratios are on the much lower side when compared to their peers.