With key services markets including the US and Europe opening up post Covid-induced lockdowns, Birlasoft , the IT arm of CK Birla Group, is witnessing a rise in new deals — mostly mid-sized ones in the range of $5- 10 million.

Apart from existing clients renewing contracts at higher values (with more add-on requirements), the company has also bagged annuity-based long-term deals from new clients in these markets. Most of the deals are for an average of two-three years.

The US and European markets together account from over 85 per cent of its turnover.

The Pune-based IT services company saw a 32.7 per cent jump in deals in FY21 at $888 million; while in FY22, the deal pipeline is to the tune of $1.2 billion. In the first quarter of FY22 (April to June), its contract pipeline is expected to be “closer to $200 million”.

Revenue churners

Manufacturing and life sciences continue to be the primary revenue churners, accounting for 65 per cent of the topline; while BFSI (banking, financial services and insurance) and energy and utilities account for the remaining 35 per cent.

Revenues for the fiscal stood at $480 million (₹3,356 crore) while profit after tax was at $ 43.4 million (₹321 crore ). According to Dharmender Kapoor, CEO and MD, Birlasoft, post reopening of US and Europe markets, there is an increase in demand. Companies are “treading cautiously” as they break down large contracts into smaller ones and of shorter durations.

For instance, a $40-million project of one year, previously executed by one IT service company could now be done in a phase-wise manner by two services companies, or by breaking it down into smaller durations of six months.

Birlasoft has also pushed its cross selling strategy as new contracts and higher value renewals from existing clients come in.

The company restructured its sales strategy, setting up new channel sales unit to push Platforms as a service (PaaS) business. It entered into partnerships with Microsoft, AWS, Salesforce.com, Google and others.

The PaaS refers to development and deployment of enterprise solutions in the Cloud. Companies buy the resources from a cloud service producer on a pay-as-you-go basis.

“While deals and renewals market in the USA and Europe is up since clients are not putting all eggs in one basket. Long term contracts are now down to three years instead of five; large projects are truncated into multiple smaller ones and with multiple service companies executing them so that disruptions (including Covid-induced delays) are less, and so on. For us, we have been able to cross sell to our existing clients because of which renewal sizes are up; while truncating of larger contracts into smaller ones have helped us bag some new deals,” he told BusinessLine .

Acquisitions

According to Kapoor, the objective is to grow in European markets, which should “account for 15 per cent” Birlasoft’s topline in the next “three to four quarters”. There is headroom for growth and “acquisitions are also on the cards”. European operations came into focus two years back, after which the pandemic led to a slowdown.

“We have initiated discussions. A right fit company would be of the size of $100 million. Since it's one acquisition we are looking at, it may take time to happen. Maybe a year or two keeping in line with the target of European operations accounting for 20 per cent of our revenues over the next 18 months,” he said.

Birlasoft, currently has a cash in bank of $153 million (₹1,119 crore), is debt free. So raising funds, if required, will not be an issue, says Kapoor.

In India, the focus is on digital transformation projects (apart from annuity based contracts) as more companies adopt digitization. Moreover, the BFSI segment is now witnessing traction, with new contracts happening, after some pandemic-led slowdown.

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