Shares of IT firm Birlasoft are on investors’ sell radar, having fallen 17 per cent fall in just three trading days. The scrip tanked 8 per cent in Friday’s trade to hit a low of Rs 250.35 on BSE. At this price, the Birlasoft stock was down 17 per cent over January 31 closing of Rs 301.80. While the news of a key client filing bankruptcy weighed on the stock earlier, December quarter results, the IT firm came out post market hours of Thursday, added to the disappointment.
What analysts liked in Birlasoft’s December quarter results was a healthy deal intake, strong cash conversion and moderating attrition. What they did not like was weak operating performance, MSA termination by Invacare, and weakness in E&U and manufacturing segments.
Nuvama Institutional Equities said Invacare, one of a top clients that accounts for 3 per cent of revenue filed for bankruptcy in the US. It noted that Birlasoft had signed a $240 million 10-year deal with Invacare in 2019. This will not only impact future growth, but also cash flows, as the company is unlikely to fully recover receivables, Nuvama said.
“This adds to the already existing concerns of management transition. The recommendation is now ‘HOLD’ with a target price of Rs 260 at 14 times FY24E P/E,” it said.
Emkay Global said it has cut EPS estimates by 13-34 per cent for FY23E-25E, factoring in Q3 performance and client-specific issue.
“The stock’s valuation remains undemanding; however, the stock’s performance hinges on clarity on the impact of Invacare, revenue growth acceleration, and margin recovery in the coming quarters. We maintain BUY with a target of Rs 325 at 16 times December 2024 EPS (earlier Rs 380), considering reasonable valuation (>6% FCF yield) and anticipated turnaround in operating performance,” it said.
Excluding the impact of Invacare, the Birlasoft management expects revenue growth to bounce back due to absence of furloughs and ramp-up in deal-wins. It also expect Ebitda margin to inch back to 15 per cent level by March quarer.
Arihant Capital Markets said the company delivered weak results because of one-time provisioning related to the bankruptcy of one of its clients.
“We like Birlasoft at current levels post the correction of 18 per cent. We believe one can accumulate the stock at current levels,” it said.
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