Birlasoft (BSOFT) Q4 05/06 earnings summary

Executive summary

• FY06 consolidated revenue rose 26.05% YoY to Rs 3,182.15M; net profit rose 15.96% to Rs 325.64M, below the prior three-year growth pace.

• Revenue and profit exceeded revised guidance after customer IT-spend deferrals forced cuts from initial targets; operating margin improved while net margin fell on higher facilities costs, depreciation, interest and taxes.

• FY06 priorities shifted toward consolidation, acquisitions, global reach, niche technology offerings and improved profitability; management described FY07 as the year to reach $100M revenue.

Financial highlights

• Consolidated sales and income were Rs 3,182.15M versus Rs 2,524.53M in FY05; PAT was Rs 325.64M versus Rs 280.83M before extraordinary items.

• Consolidated PBDIT rose to Rs 461.92M from Rs 332.37M; PBT was Rs 358.65M versus Rs 293.74M.

• FY06 basic EPS was Rs 22.71 versus Rs 22.14; diluted EPS was Rs 18.28 versus Rs 17.09.

• Export revenue was 98.5% of consolidated sales and included Rs 46.16M of foreign-exchange gains.

• Operating cash flow was negative Rs 169.72M, primarily reflecting increases in receivables and other advances; cash and equivalents fell to Rs 411.35M from Rs 546.20M.

Outlook and guidance

• FY07 guidance: revenue of $98M-$102M and net profit of $11.25M-$12M, implying stated growth of 34%-40% in revenue and 51%-61% in profit.

• Management targeted a 150-200 bps profitability improvement through offshore mix, utilization, billing rates, productivity, Six Sigma and scale efficiencies.

• The $100M revenue mission was supported by acquisitions, new France and Germany presence, stronger sales and delivery teams, and a Poland nearshore center.

• SDC-II was expected to be ready by August 2006; further depreciation and interest costs were expected as the facility entered service and the remaining IFC loan was drawn.