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Birlasoft Faces Target Price Cut Amidst Market Dip: What's Next for Investors?
Tanushree Jaiswal
30th April 2024 - 03:57 pm
Birlasoft share price fell in early trading on Tuesday following the company's announcement of slight sequential top-line growth, prompting brokerages to revise their expectations downward. The price of Birlasoft shares dropped by 1.66% to ₹663.5 during Tuesday morning's trading session.
As of 9:17 a.m. IST, Birlasoft stock price had dropped to ₹665.5 on the NSE, a decrease of 1.4% from its previous close. The company reported quarterly revenue of ₹1,362.54 crore, a modest rise of 1.45% from the previous quarter, and net profit increased by 11.81% to ₹180.8 crore. Despite strong revenue gains from its top five clients, the total count of active clients fell to 259 due to ongoing initiatives in client mining and purging.
Nomura forecasts a sustained decline in discretionary and transformation demand due to the project-based nature of the work, and a weak total contract value (TCV) that may curb short-term revenue growth. The international brokerage has reduced its target price (TP) for Birlasoft from ₹950 to ₹860. Nomura acknowledges that the slowdown in discretionary spending could impact short-term growth, yet maintains a buy rating based on the medium-term strategic outlook. While optimistic about the company's long-term prospects, particularly in the ERP and healthcare sectors, Nomura views the current risk-reward balance as unfavorable in the near term.
EBIT margins reached 14.7%, an increase of 30 basis points from the previous quarter, as operational efficiency improvements helped counterbalance challenges from decreased utilization and reduced offshoring, according to Nuvama Institutional Equities. The brokerage has downgraded Birlasoft to 'Reduce' and lowered its price target from ₹810 to ₹610 per share.
"Birlasoft delivered a better-than-expected growth and margin performance in FY24. However, flat TCV and no margin expansion shall keep earnings growth subdued in near term, which makes current valuations appear expensive," said Nuvama. However, the brokerage is positive on the company’s long-term potential, driven by its strong capabilities in ERP and healthcare segments, but in the near-term, the risk-reward ratio looks unfavourable.
HDFC Securities, on the other hand, maintained its ‘Add’ rating for the stock but cut the price target to ₹800 from ₹815. The brokerage said that the IT company’s results aligned with its revenue and margin estimates.
InCred Equities retained a ‘Hold’ rating on the stock and gave the target price of ₹675 apiece. "Although strong cash generation, net cash of ₹60/share, and a healthy payout ratio provide cushion to the share price, the entry valuation is not still attractive and is not factoring in any margin of safety for potential client-specific challenges," the report added.
Ganesh Dongre, Senior Manager, Technical Research Analyst, Anand Rathi Shares and Stock Brokers says, "On the weekly chart, the stock has seen a short-term reversal pattern; on the technical front, a short-term bearish engulfing chart pattern has been formed, which is bearish in nature, so traders can book profit in this stock at the current market price. Short-term weekly support stands at 570–580 and resistance stands at 750."
"While our near-term outlook is likely to reflect the impact of shifts in customer priorities that affect both transformational and discretionary spending, we continue to invest in our capabilities such as Generative AI where we have been early adopters," said Birlasoft CEO and MD Angan Guha.
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