Birlasoft share price targets see revisions post Q4 miss; should you buy, hold or sell this multibagger stock?

Birlasoft share price today: Multibagger Birlasoft has came out with a soft set of quarterly results, with revenue and margins slightly missing analyst  estimates. Discretionary slowdown and weak order book could limit near-term growth, marketmen said while cutting their earnings projections for Birlasoft by up to 10 per cent for FY25-26. For now, analysts are mixed on Birlasoft shares. The IT firm's cash reserves are seen as positive but the less-than-expected order book may limit Birlasoft's ability to deliver double-digit revenue growth in FY25, analysts warned.

"What remains a concern for us is the weak TCV numbers for Birlasoft, as the industry has been showing strong deal wins and TCV numbers, despite weak revenue performance. Birlasoft needs to have strong TCV to achieve industry leading growth," said Nirmal Bang.

Birlasoft delivered 143 per cent return in the past one year but its stock performance has been tepid in 2024 so far. The stock is down 4 per cent year-to-date against a 3 per cent rise in the BSE IT index during the same period.

Nomura India reduced its FY25-26 EPS by 4-9 per cent driven by lower growth and margin estimates given the continued weak discretionary outlook. Its target of Rs 860 is based on 28 times FY26F EPS. "We believe sufficient cash balance ($210 million) gives Birlasoft enough levers to invest in capability (organic and inorganic) building. Birlasoft aspires to grow above industry average in FY25E. The stock trades at 22x FY26," it said.

The new organization structure at Birlasoft from April 2023 focused on driving operational efficiency under project Optimus. It has led to Ebitda  margin expansion of 230 bps (from FY23 adjusted margin base of 14 per cent).

With most of the senior leadership additions behind, the company intends to invest incremental margins for growth and in developing service lines and offerings, and expanding its presence in ROW. Nomura expects the EBIT margin to improve to 14.6-15.3 per cent in FY25-26F from 14.2 per cent in FY24. 

"We believe lower-than-expected TCV shall limit Birlasoft’s ability to deliver double-digit growth in FY25 while no margin improvement over next two years (as per management guidance), shall keep earnings growth subdued. We cut FY25E/26E EPS by 4 per cent/8.3 per cent (on lower growth and margins) and target multiple to 22x from 27x. We downgrade Birlasoft to ‘REDUCE’ with target price of Rs 610 (earlier Rs 810)," said Nuvama.           

Post 4QFY24, Nirmal Bang has broadly kept our EPS estimates constant and retained its  ‘SELL’ call on the stock with a target price of Rs 578 based on a target PE multiple of 20.1 (15 per cent discount to TCS) on March’26 EPS.

"We believe the multiple is reflective of the promise under the new management and also the vulnerabilities on growth and margins ahead as it aims for the $1 billion revenue mark," it said.