Birlasoft Navigates Challenging Macro Environment with Robust Q2 FY26 Performance

Birlasoft Limited, a global technology company under the CKA Birla Group, has reported a resilient performance for the second quarter of fiscal year 2025-26, ending September 30, 2025. Despite a challenging macroeconomic backdrop marked by customer spend optimization and lengthening decision cycles, the company demonstrated strong operational efficiencies and significant margin expansion. Consolidated revenue from operations for Q2 FY26 stood at ₹1,328.9 crore, marking a 3.4% sequential growth in rupee terms. A standout achievement was the substantial 34.3% quarter-on-quarter increase in EBITDA, which reached ₹213.3 crore, with EBITDA margins expanding impressively to 16.0%. Profit After Tax (PAT) for the quarter was ₹116.1 crore, while Adjusted PAT, excluding one-time incremental tax, was ₹147.7 crore.

Operational Excellence and Strategic Shifts Drive Profitability

The robust margin expansion in Q2 FY26 was primarily a result of improved operational efficiencies, favorable exchange rate tailwinds, and some one-off benefits. Management indicated that approximately 250 basis points of the margin expansion were attributable to these factors, with a sustainable EBITDA margin target of 14% going forward. This disciplined approach to cost management and efficiency is a testament to the company's focus on profitability. Furthermore, Birlasoft showcased strong cash flow generation, with cash and cash equivalents rising by 26.1% year-on-year to ₹2,343.4 crore. The company's Days Sales Outstanding (DSO) also improved significantly to 55 days from 58 days in the previous quarter, a metric highlighted by management as among the best in the industry, underscoring efficient collections.

Birlasoft's strategic initiatives are clearly geared towards future growth and enhancing its service offerings. The company is making significant investments in advanced AI-led capabilities, including Agentic AI, and has already seen success with a solution delivered for a P&C carrier in the U.S., yielding tangible efficiency gains. The induction of Mr. Komal Jain as the new CEO for Americas is a pivotal move aimed at accelerating growth and strengthening client partnerships across North and South America. This leadership addition is expected to drive the innovation agenda and unlock new business opportunities in these key regions.

Segmental Performance and Future Outlook

From a segmental perspective, the Lifesciences & Services (LSS) and BFSI verticals were key drivers of growth in Q2 FY26, offsetting some weakness observed in the Manufacturing vertical. The Infrastructure service offering also saw an 11.2% quarter-on-quarter growth. However, the Manufacturing and ERP segments remain areas of focus, with management acknowledging them as a drag for Q3 and Q4 FY26. The company is undertaking structural changes and a leadership refresh within the ERP business to revitalize these segments, with an expectation for Manufacturing to return to growth by FY27.

Birlasoft's revenue mix by service offerings highlights its strong position in digital transformation. Digital and Data contributed 58.3% of the revenue, followed by ERP at 31.1% and Infra at 10.6% for Q2 FY26. The company's strategic shift towards outcome-based and managed services deals is intended to create stickier revenue streams and deliver higher value to clients, moving away from purely staff-augmentation models.

Management has expressed confidence in delivering sequential revenue growth in both Q3 and Q4 FY26, anticipating the second half of the fiscal year to outperform the first half in terms of both revenue and order book. This optimism is partly fueled by deals signed in Q4 of the previous year that have now completed their transition phases and will begin contributing to revenue. While Q2 TCV signings were softer at $107 million, management noted that approximately$60-65 million worth of committed deals slipped into Q3, which will bolster future order book figures. The company's endeavor is to achieve a higher order book in FY26 compared to FY25.

Navigating Tax and Capital Allocation

One significant point of discussion was the Effective Tax Rate (ETR), which is projected to be between 42% and 43% for the full FY26, with H2 FY26 hovering around 44% to 45%. This elevated rate is attributed to incremental U.S. federal tax liability provisions and higher state tax slabs. Birlasoft is proactively realigning its contracting models to mitigate this impact, with an expectation for the ETR to normalize to 28-30% on a run-rate basis in FY27. The Board also recommended an interim dividend of ₹2.50 per share, reflecting a balanced approach to rewarding shareholders while retaining capital for future growth investments and operational efficiencies. This demonstrates a commitment to disciplined capital allocation and shareholder value creation.

Birlasoft's Q2 FY26 performance underscores its ability to drive operational efficiencies and generate strong cash flows amidst a challenging macro environment. With strategic leadership additions, a strong focus on AI-led capabilities, and a clear intent to improve revenue quality through outcome-based deals, the company is positioning itself for sustained growth and enhanced market leadership. The transparent communication from management regarding both achievements and challenges reinforces investor confidence in Birlasoft's strategic direction and execution capabilities.