IT Stock To Buy That Has Potential For Good Returns

Broking firm Sharekhan has recommended buying the stock of IT firm Birlasoft in its latest report. The firm sees an upside to levels of Rs 580 on the stock.

Enterprise solution growth to accelerate in FY2023E

According to Sharkhan, given strong digital capability and alliances with hyperscalers and platform companies, the company is well placed to capture opportunities across upgradations, implementation and transformation.

"The management hopes growth in the enterprise solutions in FY2023 would be better as compared to FY2022, on the back of recovery in SAP business, steady growth in the remaining integrated enterprise solutions business and strong deal pipeline in transformation and implementation areas. We forecast growth in the enterprise solutions business to accelerate to 10% in FY2023E from a flattish growth in FY2022," the brokerage has said.

Expect decent growth in Q4

Sharekhan expects overall growth to accelerate in FY2023E. "Birlasoft has delivered a revenue growth at a CQGR of 4.7% over Q3FY2021-Q3FY2022, led by strong broad-based demand across segments, ramp-up of deals and recovery in enterprise solutions segment. Strong deal TCVs (16% q-o-q in Q3FY22), recent deal wins (including a deal with Google Cloud and a medical device company) and strong traction in its CMT micro-vertical will help the company report decent revenue growth in Q4FY2022," the brokerage has said.

Financial expectations from Sharekhan (Rs Crores)

	FY 21-22	FY 22-23
Revenue	4,149.90	5,004.10
OPM %	15.3	16
Adjusted EPS (Rs.)	15.8	19.5
P/B (x)	5.3	4.7
RONW	19.3	20.9

Valuations and view

At current market price, the stock trades at 23x/19x its FY2023E/ FY2024E earnings. The stock price of Birlasoft has corrected around 30% from its peak, which offers a good investment opportunity for long-term investors.

"We remain positive on the stock considering strong net cash position, increasing net new deal wins, robust demand from enterprise customers, improving relationship with hyperscalers and strong FCF generation. Hence, we maintain a Buy rating on Birlasoft with price target of Rs. 580," the brokerage has said in its report.

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.