Birlasoft Ltd Management Discussions

Economic Review Global Economy

The global economy continued to face headwinds during the period under review, reflecting both a volatile geopolitical environment as well as inflationary conditions resulting in elevated interest rates. As per the International Monetary Fund (IMF), global economic growth is estimated to be 3.1% in the Calendar Year (CY) 2023, a deceleration from 3.5% in 2022. Despite several major economies demonstrating remarkable resilience, underlying risks and vulnerabilities persist due to escalating geopolitical conflicts, volatility in energy and food markets, and higher-for-longer interest rates, which continue to put pressure on discretionary spending and private capex. Furthermore, the disruptions in the Red Sea route pose a risk of intensifying fears of a global supply chain crisis. Amid these challenges, there is a silver lining as global inflation appears to be receding faster than expected, declining from 8.7% in 2022 to 6.8% in 2023. It is expected to further decrease to 5.8% in 2024 and 4.4% in 2025. Core inflation also appears to be on a downward trend.

The US economy has experienced the strongest recovery among major economies and its GDP growth rate increased from 1.9% in 2022 to 2.5% in 2023. The resilience of the US economy and swift containment of a looming banking crisis have contributed to this recovery. The European Union (EU) has also shown fortitude in navigating through unprecedented shocks arising from the prolonged Russia-Ukraine war. Although its GDP growth rate contracted from 3.6% in 2022 to 0.6% in 2023, the EU managed to avoid a recession in 2023. Several Emerging Markets and Developing Economies (EMDEs) have outperformed initial projections in 2023. The IMF has estimated a growth rate of 4.7% for Asia in 2023, with India and China playing a major role. In China, higher spending on disaster recovery and resilience initiatives supported growth, while in India, robust domestic demand led to an upward revision in the growth estimate.

The global economy is expected to sustain its resilience in 2024. The IMF forecasts a global growth of 3.1% in 2024, with a slight uptick to 3.2% in 2025. Advanced Economies (AEs) are projected to slightly decelerate from 1.6% in 2023 to 1.5% in 2024, while EMDEs are expected to maintain a growth rate of 4.1% in 2024. Asia is expected to again contribute significantly to global growth in 2024, echoing its impact in 2023.

At the same time, major economies and markets where Birlasoft derives much of its revenues from, such as the US and the UK, are heading towards general elections. Such events, combined with the prevalent macro-economic conditions, add to the atmosphere of uncertainty. This is likely to have some medium-term effect on business sentiment and demand trajectory.

Indian Economy

In the midst of a volatile global economic environment, India stands as a symbol of optimism, maintaining its position as the worlds fifth-largest economy and expected to continue leading as the fastest-growing major economy. As per the Second Advance Estimates of National Income FY 2023-24, Indias GDP growth remained strong at 7.6% in FY 2024 as against 7.0% in FY 2023, supported by buoyant domestic demand, moderate inflation, a stable interest rate environment, and strong foreign exchange reserves. The Index of Industrial Production (IIP) shows that the output of Indias industry grew by 6.1% in the first three quarters of FY 2024 compared to 5.5% in the corresponding period of last year.

CPI inflation is on a downward trajectory and eased to 5.09% in February 2024 from 5.69% in December 2023 and 6.44% in February 2023. Headline inflation is expected to gradually decline to the target although it remains volatile due to repetitive food price shocks. The Reserve Bank of India maintained the policy repo rate at 6.50% and has retained CPI inflation forecast at 5.4% for FY 2024.

Indias economic outlook remains positive, supported by stronger consumer demand, increased capital expenditure, and enhancements in both physical and digital infrastructure. Private and government investments are expected to be the primary drivers of economic growth during the current year, backed by improving prospects of rural consumption due to the easing of inflation, increased spending in an election year, and proactive government policy measures. The Interim Budget 2024-25 reflects the governments continued focus on infrastructure development, economic stability, sector-specific developments, environmental sustainability and strategic global positioning. It sets the foundation for the vision of a Viksit Bharat (Developed India) by 2047.

Industry Review

Indian IT Services Industry

Indias technology industry is at the forefront of economic progress, leading digital transformation in the country as well as globally. The industry remained resilient in the face of macro uncertainty as enterprise software and IT services demand sustained, driven by large-scale cost optimisation and automation deals. According to NASSCOM, the Indian technology industrys revenue (including hardware) is estimated to have reached $ 254 billion in FY 2023-24, registering 3.8% year-on-year (y-o-y) growth. India remains a preferred destination for global outsourcing of technology services, with its share in global sourcing estimated to be ~57-58%. It is poised to maintain its strong position in global sourcing of IT services, supported by its robust talent pool, dynamic ecosystem, and mature IT environment. Technology exports are poised to achieve a milestone of $ 200 billion, marking a 3.3% y-o-y growth. The domestic technology sector is estimated to have surpassed $ 54 billion, demonstrating a y-o-y growth of 5.9%. Manufacturing, Retail, and Healthcare emerged as the key growth markets for the industry.

NASSCOM Annual Enterprise & Tech Services CXO Survey 2024 indicates growth momentum for 2024, particularly in sectors such as BFSI, telecom, media and entertainment, and hi-tech, which are leading digital spending. Technology providers anticipate continued growth in FY 2025, supported by increased tech spending. Export of software products are estimated to have grown by 1.8% y-o-y in FY 2023-24 as customer enterprises

AI market size forecast in India (2023-2027) continue their investments in communication and collaboration, cybersecurity, and content management solutions. As per NASSCOM Strategic Review 2024, the export of IT services is estimated at 2% in FY 2023-24 y-o-y driven by the growing need for infrastructure management and networking services in distributed environments, cloud-based software testing services, and consulting services. While this is more reflective of larger firms, some mid-sized firms are likely to perform better on the growth front.

Generative AI (GenAI) remains a key priority for most organisations with data summarisation, assisted problem solving, code generation and translation being some of the focus application areas. The global AI market is expected to reach $ 320-380 billion by 2027 with GenAI expected to contribute ~33%. The financial sector will continue to be the highest contributing sector followed by media & entertainment. Indias AI market is projected to expand in line with the global market, with a focus on the financial sector as the primary investor. The technology sector is also expected to increase spending in India in the coming years. Birlasoft has been an early-adopter of GenAI and the Company has already developed multiple used cases and solutions across clients as well as fourth generation capability and multimodal solutions.

Consequently, demand for AI talent in India is expected to grow at 15% CAGR by 2027 to serve the AI market. The Indian technology industry is expected to add 60,000 employees to its vast talent reservoir, bringing the total employee base to 5.43 million in FY 2023-24. With an annual influx of 2.5 million Science, Technology, Engineering, and Mathematics (STEM) graduates, Indias rich talent pool in software engineering is attracting enterprises to outsource IT services to the region.

Favourable demographic trends and the imperative for India to craft a compelling global brand narrative for its IT capabilities are among the key markers shaping its trajectory. Leveraging its Information Technology prowess, capacity to supply talent on a large scale, and enhanced service offerings, India is strategically positioned to seize a significant share of the global IT services sourcing market in the coming years. Furthermore, the governments focus on infrastructure and policy support to build an ecosystem fostering innovation and emphasis on skill development and research through various initiatives and budgetary allocations in the Interim Budget 2024-25, should aid the growth of the Indian IT service industry. The governments flagship programme ‘Digital India, with the vision of transforming India into a digitally empowered society and a knowledge-based economy, plays a key role in transforming India into a ‘Global Digital Talent Hub. In February 2024, the Indian government launched ‘Digital India FutureLABS. Focusing on key growth areas such as Computer, Communication, Automotive & Mobility, Strategic Electronics, and Industrial IoT, the FutureLABS initiative will play a critical role in harnessing futuristic technologies, such as AI, Big Data, and Quantum Computing, heralding a transformative era in Indian research and development.

Company Overview

Incorporated in 1990, Birlasoft Limited ("Birlasoft or ‘the Company) is a leading global IT services and solutions provider. It has established itself as a reliable partner for facilitating the business and digital transformation of its customers across diverse sectors globally. Leveraging a blend of domain expertise, enterprise capabilities, and emerging technologies, the Company reimagines business processes for customers and their ecosystem. Birlasoft has service capabilities across industry verticals, including Manufacturing, Energy & Utilities (E&U), Banking, Financial Services & Insurance (BFSI), and Lifesciences & Services. It distinguishes itself from other industry players by providing unparalleled comprehensive end-to-end solutions and services to its clients on the back of its capabilities across the key service lines of Digital & Cloud, Data & Analytics, ERP, and Infrastructure Management Services (IMS) including Cloud technology.

Birlasoft is a part of the CK Birla Group, a diversified $ 3 billion conglomerate boasting a global workforce of over 35,000 employees and operating 52 manufacturing facilities worldwide. The Group operates across diverse sectors, including technology, automotive, home and building, healthcare and education. The CK Birla Group companies are bolstered by shared guiding principles emphasising long-term value creation, establishing trust-based partnerships, and contributing to the welfare of society. Each business is evolving to leverage the collective strength and synergies of the Groups extensive scale and reach.

Birlasoft has successfully positioned itself as a leading player in the Indian IT Services and Solutions industry, with an extensive array of offerings and capabilities. With a presence spanning the United States, Europe, Asia-Pacific, and India, the Company has a structured approach to global delivery, leveraging a wide range of innovative solutions and service frameworks. In a dynamic market environment, the Company remains attentive to evolving customer requirements and acts promptly to deliver ever-increasing value to its clientele.

The Companys strategies revolve around fostering growth through expanded and tailored domain-focused tech capabilities, emphasis on specific industry verticals, and service offerings, and nurturing an organisational culture that prioritises innovation and exceptional service delivery to customers. By capitalising on its expertise in platforms and processes such as SAP, Oracle, J.D. Edwards, Microsoft, Amazon Web Services (AWS), Google Cloud, Salesforce.com, and ServiceNow, among others, the Company has successfully created a client base that includes some of the largest corporations in their segments. At the same time, Birlasoft has also taken measures to rationalise its customer base and focus on high-potential scalable accounts. The Companys active Client Count was 259 at the end of FY 2023-24, reflecting sustained rationalisation of its client base. The Company has also enhanced its capabilities in emerging technologies such as Robotic Process Automation (RPA), Machine Learning and GenAI. Its delivery capabilities and ability to stay abreast of emerging technologies enabled it to maintain longstanding relationships with several marquee clients.

Operational Highlights: Focused on Execution, Investing for Long Term Growth

During the year under review, Birlasoft made significant progress on its growth agenda and priorities. This includes building a team that excels at execution, fostering a culture that drives greater accountability and swifter action, and expanding its operating margin while maintaining its superior DSO that drive better cash flows. It also entails creating or scaling up capabilities that will drive future growth. An example of that is, Birlasofts early adoption of emerging technologies like GenAI. The Company is using its specialised domain expertise within each of its verticals and sub-verticals and, together with its tech capabilities, it is creating offerings that are very relevant for its global customers.

During FY24, Birlasoft established a Generative AI Centre of Excellence in collaboration with Microsoft. The Company has had a long-standing partnership with Microsoft which has been further strengthened over the course of the year under review. The strategic initiative aims to accelerate value creation and foster innovation in the adoption of GenAI, to deliver cutting-edge enterprise solutions across industries.

Birlasoft also launched its GenAI Platform Cogito during the year under review. Birlasoft Cogito has been strategically crafted to empower enterprises to revolutionize their businesses through GenAI capabilities. With accelerators tailored for every stage of the enterprise GenAI journey, from exploration to implementation and scale, Birlasoft Cogito streamlines and expedites the development and implementation of GenAI solutions for enterprises through pre-built tools, libraries, and frameworks. The introduction of this new comprehensive GenAI platform builds upon the establishment of the Companys Generative AI Centre of Excellence in collaboration with Microsoft, with most of its consultants now trained on GenAI.

As it enhances its already robust Cloud capabilities, the Company launched bCloud+, an end-to-end solution during FY24 to help enterprises migrate on-premises Oracle JD Edwards instances to Oracle Cloud Infrastructure (OCI). Birlasofts bCloud+ services offering architecture has been engineered to ensure smooth adoption of JD Edwards on OCI with minimal business disruption and ongoing maintenance of the JD Edwards instance. The bCloud+ services help enterprises drive agility and reduce their IT spends through a simplified and predictable flat fee pricing structure, leading to reduced Total Cost of Ownership (TCO), while guaranteeing 99.9% cloud infrastructure uptime.

Among other partnerships during the year, Birlasoft joined hands with Cisco to drive network transformation for its customers.

In May 2024, the Company attained Amazon Web Services (AWS) Migration Consulting status. As an AWS Advanced Tier Services Partner, Birlasoft has demonstrated extensive technical proficiency and professional services excellence in guiding businesses through every stage of migration on AWS, from initial discovery and planning to migration and ongoing operations. This most recent AWS Migration Consulting Competency status underscores Birlasofts expertise in helping enterprise customers migrate applications and legacy infrastructure to AWS, evident through several successful client solutions across diverse industries.

The Company has also undertaken initiatives to strengthen its front-end market-oriented team as well as the operational team driving its delivery and practice lines. As a result, Birlasoft now has a significantly reinforced leadership bandwidth through the induction of several new leaders during the year under review. This includes the onboarding of a CEO for the Rest Of the World (ROW) region, who is responsible for all business and strategic growth initiatives in the ROW region, encompassing all regions outside of the Americas, and the induction of a Chief Operating Officer (COO), who will oversee Global Delivery and Operations, Service Lines, the CTO/CISO functions, Managed Services, and Business Excellence. The Company also inducted a new Chief Financial Officer, who comes with a proven track record of driving financial transformation and profitability at scale, to further strengthen its financial operations. These leaders have extensive experience at Tier-1 IT services firms and bring a wealth of expertise and a global perspective. The revamped team along with a restructured organisational structure is expected to facilitate greater synergies, efficiencies, predictability, and enhanced customer-centricity.

Birlasofts robust operating performance through the financial year under review also reflects its sustained execution of multiple sales and efficiency initiatives. One such initiative, Optimus, is an internal technology transformation program that was rolled out across Birlasoft during FY24 and will continue to run over the course of the next couple of years. The Company has undertaken this initiative to scale itself profitably as it pursues next-gen organisation capabilities. This strategic business transformation programme is centred on the Companys next phase of profitable growth, aiming to streamline and expand its operations through analytical AI and GenAI. It will simplify and scale the Companys processes, with automation at the core. Moreover, this initiative is expected to enable Birlasoft to industrialise its delivery processes, emerge as the preferred partner in emerging technologies, enrich employee experiences, and cultivate a best-in-class talent pool.

Financial Overview

FY24 has been a year of robust operating performance for Birlasoft, characterized by strong revenue growth and increase in bottom-line.

The Companys financial performance during the year reflects the discontinuation of revenue contribution from the last quarter of the preceding financial year from Invacare Corporation (Invacare), a US-based customer that had to file a petition for relief under Chapter 11 of Bankruptcy Code in the US Bankruptcy Court. As a consequence of that, the Company had to make a one-time provision in FY23 amounting to about 1,510 million against the outstanding receivables and contract assets pertaining to that customer. During the year under review, the Companys consolidated financials reflect (1) the receipt of $ 2 million for Disengagement Services ending on May 31, 2023 in line with the Settlement and Mutual Release Agreement that the Companys wholly-owned subsidiary Birlasoft Solutions Inc. had entered into with Invacare in the first quarter of FY24, and (2) the receipt of $ 2 million relating to an insurance claim that was made with regard to the erstwhile Invacare engagement.

Financial Performance FY 2023-24

(in million)

Particulars	Year ended March 31, 2024	Year ended March 31, 2023
Revenue from Operations	52,781	47,948
Employee benefits expense	30,483	28,131
Other expenses	13,936	14,612
Total expenses	44,419	42,743
Earnings before interest, tax, depreciation & amortization (EBITDA)	8,362	5,205
Depreciation and amortization expense	850	823
Earnings before interest & tax	7,512	4,382
Other income (Net)	1,035	228
Finance costs	199	186
Profit Before Tax (PBT) from continuing operations	8,348	4,424
Tax expense	2,110	1,108
Profit After Tax (PAT)	6,238	3,316

For the year under review, the Company has reported consolidated revenues of 52,781 million, representing a growth of 10.1% over the preceding financial year. In dollar terms, consolidated revenue increased to $ 637.2 million, which is a growth of about 7.1%. However, if the contribution from Invacare in FY23 is excluded, then the revenue growth for the year under review would be much better at about 12.7% in rupee terms and 9.5% in dollar terms. This growth was driven by a combination of new deal ramp ups as well as better existing account mining. Top 5, 10 and 20 customers now contribute 35.4%, 52.1% and 64.8% respectively to overall consolidated revenue.

Consolidated EBITDA for the year increased 60.7% y-o-y to

8,362 million, implying an EBITDA margin of 15.8%. Even after excluding, that is adding back, the afore-mentioned one-time Invacare related provision made in FY23, the Company registered a strong growth of 24.5% in EBITDA during FY24. As a result, Birlasoft has reported 88.1% rise over the preceding year in Profit After Taxes (PAT) for the year under review to 6,238 million.

Growth during the year was broad-based, with most verticals and service lines registering a y-o-y increase, led by Banking, Financial Services and Insurance (BFSI) among verticals and Digital & Cloud among service lines. In dollar terms, the BFSI vertical grew by 15.6% during the year under review, while Manufacturing grew 8.0% and Energy & Utilities grew 7.2%. The Lifesciences vertical witnessed some decline, mainly reflecting the discontinuation of revenues from the erstwhile Invacare engagement. Among service lines, the Companys Digital & Cloud business recorded a growth of 20.4% over the preceding financial year, while Data & Analytics de-grew 1.4% and the Infra and ERP businesses grew by 7.6% and 2.3% respectively.

Birlasofts balance sheet remains strong, and it continued to enjoy among the best Days of Sales Outstanding (DSO) metrics in the industry at 55 days during the year, which reflects its ability to consistently generate strong cash flows. For FY24, the Companys operating cash flow has been about 86% of EBITDA. Consequently, consolidated cash & cash equivalents rose to 17,447 million by the end of FY24, an increase of almost 55% y-o-y.

Analysis of the Consolidated Profit and Loss Statement Revenue

The Companys consolidated revenue for the financial year under review (FY 2023-24) stood at 52,781 million as against

47,948 million in the preceding year, registering a growth of 10.1%. This growth demonstrates the Companys ability to mine existing accounts, win incremental business, and execute on them. The Companys Other income (net) grew from 228 million in FY 2022-23 to 1,035 million in FY 2023-24. This increase in Other Income is due to receipt of insurance claims pertaining to the erstwhile Invacare engagement and higher income from investments.

Expenses

Total expenses of the Company increased by 7.7%, from 41,233 million (excl. Invacare) in FY 2022-23 to 44,419 million in FY 2023-24. This was driven by higher employee benefit expenses, reflecting compensation revisions and promotions rolled out to employees both in India as well as other global locations.

Employee benefit expenses increased by 8.4% during the year, rising from 28,131 million in the previous year to 30,483 million in FY 2023-24. Other expenses grew from 13,102 million in FY 2022-23 to 13,936 million in FY 2023-24, an increase of 6.4%.

Tax Expenses

The Companys Tax Expenses for FY 2023-24 increased to

2,110 million which formed 25% of the Profit Before Tax (PBT), compared to 1,108 million in FY 2023-24. The effective tax rate has been stable y-o-y.

Analysis of the Balance Sheet Sources of Funds

The Companys balance sheet size stood at 39,256 million on March 31, 2024, compared to 31,873 million on March 31, 2023. The net worth of the Company increased from 24,483 million as on March 31, 2023 to 30,441 million as on March 31, 2024. The equity share capital of the Company comprising 275,937,421 equity shares of 2 each, increased from 550 million at the end of FY 2022-23 to 552 million by the end of FY 2023-24 on account of allotment of shares under the Companys employee stock option plans.

The Company has no borrowings and is debt-free as on March 31, 2024. Other financial liabilities increased by 54.4% y-o-y, from

1,371 million in the previous year to 2,117 million in FY 2023-24 due to higher accrued employee costs.

Application of funds

The Companys Property, Plant and Equipment (including capital work in progress) decreased to 1,164 million in FY 2023-24 from

1,488 million at the end of FY 2022-23.

Working Capital Management

The Companys Current Investments increased from 4,908 million as on March 31, 2023 to 10,336 million as on March 31, 2024. Trade receivables (billed) were up by 4.9% from 7,316 million as on March 31, 2023 to 7,677 million as on March 31, 2024. Billed DSO were slightly up from 53 days in FY 2022-23 to 55 days in FY 2023-24, which is still among the best in the industry and reflects continued strong collections.

Other balances and deposits with banks decreased from 5,567 million as on March 31, 2023 to 4,249 million as on March 31, 2024 as a major portion of deposits with banks moved from current investment to the non-current investment category. Other financial current assets of the Company increased from

11 million as on March 31, 2023 to 29 million as on March 31, 2024, on account of higher security deposits as well as the presence of forward contracts designated as cash flow hedges. The Companys Other Current Assets were up by 25.8% from 2,141 million as on March 31, 2023 to 2,695 million as on March 31, 2024 due to an increase in contract assets.

From FY 2023-24 onwards, the Company has started aligning reporting of its verticals and service lines with how it is driving its business. Figures pertaining to the verticals or service lines mix for the preceding year have also been accordingly made comparable.

Among the verticals, BFSI has delivered the highest growth, up by 15.6%, led by improved account mining and ramp up of some deals. Manufacturing and Energy & Utilities (E&U) have also demonstrated growth. There was a 0.9% decline in the Lifesciences

& Services segment, mainly attributable to the discontinuation of revenues from the erstwhile Invacare engagement.

Among service lines, growth was largely driven by Digital & Cloud, which recorded a growth of 20.4%. The Infrastructure business also witnessed a growth of 7.6%, due to some new deals secured during the year. The ERP service line sustained its growth trajectory with a 2.3% increase, while Data & Analytics registered a 1.4% de-growth due to some project completions.

Among geographies, the Americas continued to lead, and saw its contribution rise from 84.5% in FY 2022-23 to 85.5% in FY 2023-24. The ROW region witnessed a decline from 15.5% to 14.5%, as it grew slower than the Americas. There is now a new leadership and front-end team in place to drive growth in the ROW region, which should enable progressive performance in that geography going forward.

Key Financial Ratios

Particulars	FY 2023-24	FY 2022-23
EBITDA Margin (%)	15.8%	10.9%
Operating/EBIT Margin (%)	14.2%	9.1%
Net Profit Margin (%)	11.8%	6.9%
Return on Equity (ROE) (%)	22.2%	13.5%
Return on Capital Employed	25.7%	16.9%
(ROCE) (%)
Days Sales Outstanding - Billed	55	53

Business Outlook

Birlasoft has been able to deliver a growth performance along with improvement in profitability during the year under review. This was achieved in the face of a challenging demand environment due to a confluence of factors, including elevated interest rates and shifts in customer priorities. These factors continue to be in play as the new financial year begins. The demand situation is therefore unlikely to change and the IT Services industry will probably see continued impact of the prevalent macro conditions for a good part of the new financial year. Events such as general elections planned in multiple geographies where the Company has a significant presence, including the US and the UK, are likely to add to medium-term uncertainty. However, organisations across the world will continue to spend on technology. IT services players who are able to offer solutions and expertise relevant to customer needs should be able to outperform the industry. Accordingly, Birlasoft has been making the investments necessary to build and enhance its tech capabilities, reinforce its leadership team at both the front end and the back end, and sharpen its go-to-market approach with an increased emphasis on creating domain specialisation. The Company has been able to acquire new customers while rationalising the tail, win new large deals, and expand its deal pipeline on the back of its renewed focus on execution, improved differentiation, and augmented capabilities. The Company intends to stay focused on execution and will keep investing in its business to be able to serve its customers better, which in turn is expected to drive overall growth.

Risks and Opportunities Risk Management

The Company is exposed to various risks and volatility in the external operating environment. It operates in a highly competitive environment and is also subject to both favourable and adverse macroeconomic conditions. It faces challenges such as limited pricing flexibility due to stiff competition from prominent players in the global IT industry. Additionally, factors like foreign currency fluctuations, talent acquisition and retention issues, and macroeconomic headwinds in key markets such as the US and Europe pose ongoing challenges. The heightened interest rates and prolonged decision-making cycles of customers further add to the complexities. Moreover, any significant regulatory challenges may impact the Companys operations.

Birlasoft acknowledges that effective management of risks is crucial for attaining its strategic objectives and constitutes a fundamental aspect of business operations. It employs a structured and coherent approach to risk assessment and mitigation, in accordance with standard Governance, Risks, and Compliance (GRC) guidelines. The Company utilises analytical methodologies on a regular basis to evaluate and manage risks across various levels within the organisation, encompassing business units, geographic regions, delivery functions, and supporting activities. The Company maintains an unwavering commitment to transparency with stakeholders, evident through its disclosure of major risks and corresponding mitigation strategies.

Please refer to the section on Enterprise Risk Management for a discussion of Risks and Mitigation Plan.

Opportunities

Technology-led transformation of traditional services:

Embracing technology and harnessing its potential has become imperative for companies to build business resilience and stay ahead of the competition. Technology-led transformation is driving portfolio shifts across the industry towards Robotic Process Automation (RPA), digital analytics, application modernisation, intelligent automation, and data engineering. These shifts are directing client spending towards emerging technology areas in IT modernisation, including cloud, DevOps, data analytics, AI, IoT, and security.

AI-driven services transformation: AI became ubiquitous during the CY 2023 that witnessed a remarkable growth in AI activity, with a majority of AI-related activity stemming from industry collaborations and partnerships, product/service launches, and announcements of enterprise GenAI strategies. The AI software and services market is already at ~$ 100 billion and is expected to reach over $ 300 billion by 2027. Investments in AI are also increasing worldwide, with Data & Analytics and GenAI emerging as dominant themes. India has a large talent pool of AI skills. This abundance of AI talent positions India uniquely, providing a competitive advantage in offering AI-driven solutions and services to global clients.

Rapid adoption of DeepTech: Robotics Process Automation (RPA), Blockchain and IoT, are the key technologies fuelling the adoption of DeepTech, which has steadily increased among enterprises over the years, with a sixfold increase in DeepTech intensity recorded post-COVID.

India as the preferred destination for IT services: India retains its top position in the AT Kearney Global Services Location Index in 2023. This is attributed to its significant cost advantage, abundant talent pool, and robust IT capabilities. As the world shifts its attention towards an Inevitable India as a key player in shaping global transformation, the pivotal role of Indias technology industry in igniting this momentum has become more crucial.

Growth in Indias domestic market: Domestic tech industry is estimated to have grown by ~6% in FY 2023-24, primarily driven by Indian enterprises making substantial investments in digital initiatives and technology transformation. The burgeoning consumer market, fuelled by the rising purchasing power of middle-income groups, coupled with the increasing adoption of Digital Public Infrastructure (DPI) to develop India-centric solutions, further enhances the growth story.

Internal Control Systems

Birlasoft has established a robust internal control system, tailored to the size and scope of its business operations. These controls were designed to offer a reasonable level of assurance regarding the accurate recording and provision of financial and operational data, compliance with applicable laws, safeguarding assets from unauthorised use, execution of transactions with appropriate authorisation, and adherence to corporate policies. The Company utilises a state-of-the-art ERP system to record data for accounting, consolidation, and Management Information System (MIS) purposes, seamlessly integrating all aspects of the Company. The Company maintains well-defined authority thresholds for approving contracts, operational budgets, and capital expenditures. The management assesses the effectiveness of internal controls concerning financial reporting within the organisation.

Birlasoft has appointed PricewaterhouseCoopers Private Limited (PwC) to oversee and conduct internal audits of its operations. The audit is conducted in accordance with an internal audit plan approved by the audit committee and subject to annual review. The internal audit team periodically conducts audits across the organisation, including assessments of the operational efficiency of internal controls. Additionally, external consultants are hired by the Company when specific audits or reviews are deemed necessary.

The audited consolidated financial statements have been prepared in accordance with the Indian Accounting Standards ("IndAS") as specified under Section 133 of the Companies Act, 2013, Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and the Companies (Indian Accounting Standards) Amendment Rules, 2016 and provisions of the Companies Act, 2013. The statutory auditors of the Company have audited the financial statements of the Company for the year ended March 31, 2024. They published an unaltered and unmodified perspective on the subject.

Human Resources

Birlasoft regards its employees as the foundation of its success and the Companys strength lies in nurturing its talent pool and fostering a culture where innovation and collaboration thrives. It has a set of Human Resources (HR) policies that enables a synergetic, harmonious, and transparent work environment aligned to meritocracy. The Company consistently implements initiatives aimed at unlocking the full potential of its workforce. It is focused on cultivating a value driven culture and prioritises aligning individual goals with those of the organisation. It conducts regular training and engagement programmes to enhance the knowledge, skills, and capabilities of its employees. Moreover, the Company is leveraging its Generative AI Centre of Excellence, set up during FY24 in collaboration with Microsoft, to train all of its employees on emerging technologies such as GenAI.

As on March 31, 2024, the Company had over 12,500 employees. The employee attrition rate improved significantly to 12.4% in FY24 from 22.1% a year earlier. While this improvement has been consistent with trends seen industry-wide, implying an abatement in supply side pressures, it is also reflective of a re-invigorated organisation as well as continued employee engagement initiatives and emphasis on enabling a positive work environment that ensures fairness and equal opportunities for all employees. The Company attributes its progressive performance during the period under review to the capabilities of its talented workforce, on the back of several employee-centric initiatives that cultivate a sense of belonging.

The Companys HR initiatives are designed to drive growth, enhance stakeholder value, and cultivate an inspired workforce. In this, cohesive leadership is at the forefront, emphasizing a purpose-driven approach to unify efforts towards realizing the organizations vision. A robust culture framework reinforces behaviours aligned with the organizational ethos. Embracing sustainability and diversity drives change, supplemented by CSR initiatives across education, empowerment, environment, and community development.

Innovation and excellence are pursued through structured paradigms and productivity enhancements. A bottom-up and top-down approach strengthens an innovation mindset, with initiatives like the Innovation Fund co-opted with clients. Continuous learning is encouraged through upskilling and cross skilling initiatives, bolstered by domain-centric offerings and technology solutions.

During the year under review, the Company set in motion a culture transformation journey aligned to our strategy. Concurrently, the Companys technology transformation program "Optimus" that was rolled out during the same period ensures that it stays at the forefront of advancements, leveraging cutting-edge tools to drive efficiency and competitiveness through simplified processes, touchless operations, persona-driven dashboards, data insights, and decision intelligence. Complementing all of this is the Companys sustained measures to drive Diversity and Inclusion, which are integral to its ethos. Birlasoft has multiple initiatives aimed at increasing representation from various backgrounds through focused hiring and community projects such as "e-vidya" and sensitization workshops and dedicated networks to promote inclusivity with a commitment to enhancing gender diversity.

Birlasofts commitment towards creating an engaged workforce and building a sustainable organization led to the Company getting recertified during the year under review as a ‘Great Place to Work? by the Great Place to Work Institute for the third consecutive year.

Cautionary Statement

The Management Discussion and Analysis contains statements describing the Companys financial and growth estimates as well as declarations of its objectives, plans, strategies, and beliefs which may be ‘forward-looking statements within the meaning of applicable laws and regulations and are based on informed judgements and estimates. These assertions are based on information currently accessible, and the Company disclaims any obligation to update them as events or circumstances warrant. Actual results may differ materially from those expressed or implied due to risks and uncertainties, including but not limited to, the level of demand in the market for the Companys services, the intense competition in the market for the types of services that it offers, market conditions that could cause the customers to lower their spending for its services, the Companys ability to create, acquire and build new businesses and to grow its existing businesses, its ability to attract and retain qualified personnel, currency fluctuations and market conditions in India and elsewhere around the world, and other risks not specifically mentioned herein but those that are prevalent in the industry.

Enterprise Risk Management

Preamble

To maintain competitiveness in an ecosystem of change and disruption, it is necessary for an organizations risk management system to be agile and resilient. The vast advancements/ innovations in technologies, changing global landscape of macro-economic, changing customer preferences and strategic shifts, closer regulatory scrutiny bring with them increasing complexities that organizations need to navigate to achieve their strategic imperatives.

In this backdrop, it is vital that our risk management evolve seamlessly to facilitate business-focused insights that balance management of risks with pursual of strategy, to deliver value to our stakeholders. In compliance with regulatory requirements and global standards (COSO framework), Birlasoft has implemented a robust Enterprise Risk Management process duly benchmarked with industry standards.

The Company identifies risks that have an impact on the enterprise, basis interviews with the key business stakeholders, leveraging internal repositories and industry benchmark data; and thereafter prioritizes, and monitors key business risks. Risks are assessed and managed at various levels and at regular intervals with a top-down and bottom-up approach covering the whole enterprise i.e., business units, geographies, delivery and enabling functions.

The Risk Management Committee ("RMC"), a sub-committee of the Board guides the implementation of the Risk Management Policy, reviews the effectiveness of the risk management system, and provides necessary guidance accordingly. The Board of Directors are updated on the enterprise risk profile and mitigations for identified risks.

Birlasoft believes in complete transparency with stakeholders and in line with these high standards of transparency, we are herewith sharing a summary of key risks that were identified as having an impact on Birlasofts strategic objectives, and accordingly appropriate mitigation strategies have been designed and implemented.

Risk Event 1 # Cyber & Information Security and Data Privacy Risks

Risk Owner: CISO Description:

As companies are embracing new technologies such as mobile computing, internet of things, cloud computing, artificial intelligence, etc., cyber security emerges as a critical risk. With the dynamic threat landscape of highly technical nature, there are possibilities of sophisticated targeted attacks, increasing ransomware threats, malware, data leakage and other security failures. Absence of robust security culture, governance model and effective security operations may lead to undetected breaches or significant organizational impact. Cybersecurity threats, vulnerabilities and incidents could lead to business disruptions, impact to client service delivery, or unauthorized disclosure of sensitive information, potentially resulting in regulatory penalties.

Privacy and protection of personal data have become a growing global concern. Legislations like GDPR in Europe, CCPA in US and DPDPA in India impose severe consequences for non compliance or breaches. The risk of disclosure of confidential personal data underscores the critical importance of ensuring data protection through every stage of information life cycle (collection, storage, processing, retention, and disposal). Non-compliance to contractual and regulatory data privacy requirements could impact our operations or result in significant regulatory penalties, and loss of reputation.

Mitigation Plan:

Our unwavering commitment to safeguarding our digital assets remains at the forefront of our strategic priorities. Within this context, the Company has diligently developed and maintains a robust Information Security Management System ("ISMS"). This system is fortified by a comprehensive suite of policies, streamlined processes, and effective controls, all aimed at mitigating cybersecurity risks effectively.

The governance and management of security compliance and risk is reviewed periodically; evident in the sustained ISO 27001:2013 certification. Additionally, our adherence to NIST Cyber Security framework and SSAE 18 SOC 2 Type II report, further demonstrate our commitment to stringent security standards, validated by external third-party assessments.

While we continue to mature our intrusion prevention systems, data loss prevention, vulnerability and exposure management, application security, security operations, threat management and incident management programs through continuous measurement and testing, we also focus on adopting modern approaches to security. Our comprehensive zero-trust approach to security extends across all the pillars and we continue to invest in people, process, and technology towards achieving that goal. The Security Operations Centre is enabled with cutting edge SIEM and XDR that are integrated with other tools, and continues to track, monitor, and ensure that all the wheels in this cyber framework turn smoothly. Additionally, our partnership with a Third-party Red Teaming service provider enables periodic vulnerability assessments across our environment. Moreover, our Third-Party Risk Management compliance is at 100%, with annual assessments conducted on all third-party entities connected to our environment to evaluate their information security controls.

In summary, our unwavering commitment to cybersecurity transcends mere compliance. By integrating advanced technologies, fostering a security-centric culture, creating cyber aware workforce, and collaborating with external experts, we strive to strengthen our defenses against the dynamic and evolving threat landscape.

The Company maintains a robust and comprehensive privacy framework, encompassing coherent policies and procedures to address diverse privacy requirements across the geographies in which we operate. Our governance mechanisms diligently evaluate the effectiveness of our privacy program through regular metrics and monitoring activities. We proactively embrace privacy-by-design principles, ensuring that privacy considerations are ingrained within our operational practices. Rigorous data security controls, including measures such as PII Repositories, Privacy Impact Assessments, Incident Management Procedures, and Breach Notification Management, are firmly established. Our data privacy controls undergo annual assessments by external experts to ensure compliance with global privacy regulations. Furthermore, we nurture an organizational culture that proactively addresses evolving privacy risks posed by emerging technologies, while also promoting awareness among our employees through training and communication initiatives. Our ISO/IEC 27701:2019 certification across functions and client delivery projects underscores our unwavering commitment to upholding global data protection requirements.

Risk Event 2 # Strategic Risks pertaining to Business Concentration, Technology Disruption and Strategic Alliances & Partnerships

Risk Owner: CEO (Americas) + CEO (Rest Of the World) + COO Description: a. Concentration of business in Customer/Geography

The Companys strategy is to focus on a select number of industry verticals, geography, customers, and service offerings, with a possibility of business being concentrated in a particular area with consequential volatility.

Given the dynamic nature of the IT Service Industry in which the Company operates, it faces stiff competition from other organizations in similar businesses which are targeting the same set of customers, making it challenging to acquire new client, as well as to retain its existing clients. In this environment, failure to distinguish our offerings and to effectively address customer expectations could lead to customer dissatisfaction and have financial implications.

Given that the Company has dependence on a specific region for a significant portion of its revenue, any negative developments affecting that region could pose a risk to the Company.

b. Technological Disruption and Strategic Alliances and

Partnerships Risks

Rapid transformation in technologies like artificial intelligence, robotics, cognitive technologies, machine learning, cloud, digital etc., has significantly impacted business models. Delay in defining a framework and approach to anticipate, identify, invest in, and adapt to new technology services and offerings to cater to evolving client demands, and market dynamics could have an adverse impact on our value proposition, future growth of the business, cost management and in maintaining healthy growth in revenues. Furthermore, if we do not effectively capitalize on the business opportunities arising from our strategic partnerships and alliances to enhance our service offerings for customers, it could lead to a potential loss of business.

Mitigation plan:

The Company mitigates this risk by maintaining a varied portfolio across industry verticals, customers segments, geographies, and service offerings. It prioritizes the growth of emerging businesses while ensuring a steadfast focus on core objectives. It maintains a diversified range of service lines, ensuring a balanced revenue stream, with digital services contributing significantly to its overall revenue generation. Our focus is to maintain a strategic focus on investing in initiatives to increase our revenue, particularly in support and maintenance. Partnerships with established ERP product companies and industry hyperscalers have broadened the customer base and offerings, assisting in new customer acquisitions and expansion of business. We are also a Microsoft strategic cloud alliance partner, AWS advanced tier consulting partner and Google alliance partner. These partnerships are further going to help strengthen and expand our business.

The Company is focusing on accelerating growth in Europe and APAC. The organization structure has been re-aligned to provide more focus in growing the Americas as well as to increase its footprint in the rest of the world.

The Company continues to invest in building functional capabilities (Digital, Cloud, Data Analytics, Platforms etc.) with swiftness and agility. The focus on building functional capabilities in desired verticals, horizontals and focused industries continues. In addition, the Company continues to invest in innovative technologies relevant to customers to enhance capability and to provide platforms for driving initiatives related to customer retention, mining, and new customer acquisition. Simultaneously, we look out for strategic partnerships, tie-up/merger opportunities to assist in quick adaptation of emerging technologies and to enhance our footprint into new geographies. Moreover, the Company will assess potential partnerships with start-up technology companies which provide niche solutions aligning with our relevant service lines.

The Company is elevating the Proof of Concept ("POC") documents, solutions frameworks, accelerators around emerging trends/tools/ technology (Cloud, GenAI, etc.) and is enabling pilot projects for select customers, fostering innovation and strategic partnerships.

We are developing innovative business models (outcome-based models, success fee models, KPI based models, co-revenue models, etc.) to enhance customer engagements.

The Company regularly participates in industry conferences and seminars, leveraging these platforms to demonstrate our expertise and capabilities in the emerging technologies.

We continue to focus on upskilling our talent in niche skills and sectoral skills to ensure relevance for our customers. Our trainings and certifications plans, in collaboration with strategic partners, are extended to both our practice and delivery teams. Further, we have realigned our sales and delivery team structures to align with our Go-to-Market ("GTM") strategy.

Risk Event 3 # Resourcing with reference to employee retention, succession, development, and training

Risk Owner: CPO Description:

The IT services industry necessitates the recruitment and retention of professionals possessing the necessary skill sets aligned with the Companys long-term business strategy. Failure to secure proficient resources or encountering delays in their availability may lead to missed business opportunities and customer delivery escalations.

Mitigation plan:

Birlasoft continues to demonstrate its commitment to excellence in talent acquisition and development, aligning with our long-term business strategy. Our focus remains on maintaining a robust internal fulfillment process, bolstered by significant investments in skill taxonomy framework development and enhancements to our search and match engine. These initiatives have significantly improved our internal deployment process, ensuring efficient utilization of our talent pool.

Recognizing that our Talent Supply is integral to our business model, we are consistently innovating to enhance its effectiveness and efficiency. Diversifying our talent pool is ingrained in our cultural DNA, and to fortify this commitment, we engage dedicated hiring partners who play a pivotal role in achieving this imperative.

We have implemented cutting-edge tools & AI-enabled technology to streamline & augment our hiring processes. At the core of our approach is ensuring a positive candidate experience where a dedicated team remains connected, promptly addressing queries to guarantee a seamless joining experience.

The Talent Supply Chain ("TSC") team collaborates closely with business leadership to strategize hiring for upcoming projects, employing a robust selection process leveraging technology for enhanced sourcing and selection. Our in-house certification program equips our interviewers & hiring managers with the necessary skills to conduct objective, inclusive, & fair assessments, leveraging tools like Competency-Based Interviewing. We have introduced coding challenges in our hiring process to select "geeks" from premiere IT colleges to infuse innovation in our talent pool.

Our internal fulfillment process is designed to repurpose individuals exiting projects and to rotate personnel within existing and new engagements. The implementation of a skill taxonomy framework has enhanced fulfillment efficiency and effectiveness, facilitating improved access to internal talent through skill profiling and data accuracy. Moreover, investments in our search and match engine have further streamlined our internal deployment process.

Our learning and development strategy emphasizes continuous skill enhancement and competency development, catering to both general and project-specific skilling needs. Significant investments have been directed towards creating a robust learning and development ecosystem, promoting cross and upskilling to ensure our workforce remains equipped with the latest skills and knowledge to meet evolving demands.

Additionally, maintaining a healthy bench remains a priority to ensure resource availability for new projects, ensuring delivery teams have access to appropriately skilled resources. We place a premium on talent retention, implementing various employee engagement and development programs across all levels.

We have put in place a robust framework to identify critical roles that are imperative to business success. Additionally, to mitigate risks and ensure business continuity, we conduct structured talent reviews to identify development opportunities, facilitating role enhancement, career movements and succession for these critical roles.

Birlasofts commitment to talent acquisition, development, and retention underscores our dedication to delivering quality services to our customers. Our continued focus on talent supply chain and capability development position us for sustained success in the dynamic IT services landscape.

Risk Event 4 # Service Delivery related Risks

Risk Owner: COO Description:

Birlasoft acknowledges the risks involved in the Companys inability to meet contractual obligations entered with its clients, which includes fulfilling contractual commitments and adhering to Service Level Agreements ("SLAs"). The Company confronts various operational, contractual, and financial risks during execution of its customers projects, which could potentially impact its reputation, revenue, and profitability, and potentially lead to legal disputes.

Mitigation plan:

There is a continuous intelligence around risks pertaining to new and existing customers. The Company has an effective Project Risk Assessment framework to evaluate the risk rating associated with customers and projects. Additionally, regular leadership and operational reviews are conducted for major projects undertaken by the Company. The delivery parameters and contractual obligations are reviewed and monitored through digitized governance process.

The Company has established a comprehensive contractual risk library through a Contract Lifecycle Management ("CLM") tool. This library outlines contractual risks, including their probability, impact, detectability, triggers, preventive measures, and contingency plans, for all projects within the Company.

We conduct regular credit rating assessment of all major customers. We ensure that our receivables from customers whose credit rating is comparatively lower are adequately insured. Additionally, our strong emphasis on receivables collection has led to a significant year-on-year improvement in our Days Sales Outstanding ("DSO").

Risk Event 5 # Third Party/Supplier Risks

Risk Owner: COO Description:

Ineffective control mechanisms or governance over suppliers, contractors, or service partners with access to privileged information may lead to various risks, including contractual, regulatory, and financial uncertainties, as well as potential service quality concerns and disruptions in business operations.

Mitigation plan:

The Company prioritizes a comprehensive evaluation process for all its major suppliers, contractors, or service partners, covering technical, financial, and regulatory compliance parameters before they are on-boarded. Additionally, the vendor on-boarding process incorporates an Information Security assessment for all vendors.

A due diligence process is in place for assessing the extended enterprise prior to onboarding and throughout continuing relationships.

Suppliers conduct guidelines have been established. All vendors are mandated to sign a Non-Disclosure Agreement ("NDA") which prohibits them from any sharing any unauthorized or sensitive Company information. The Company conducts regular compliance and performance assessment of vendors before contract renewals.

Risk Event 6 # Brand Positioning Risk

Risk Owner: CEO (Americas) + CEO (Rest Of the World)

Description:

A robust brand positioning plays a pivotal role in attracting new customers, expanding market reach, and attracting top talent, setting us apart from competitors. Any negative media coverage could adversely impact the Companys reputation, potentially leading to a loss of business opportunities and talent to competitors.

Mitigation plan:

The Company is in the process of developing a comprehensive brand marketing strategy, that would be aligned with the evolving market dynamics, encompassing therein all service offerings and in line with overall business goals. The Company is working to further enhance its market positioning and increase its brand awareness aimed at strengthening client relationships, fostering retention, and nurturing long term partnerships.

Risk Event 7 # Environment, Social and Governance ("ESG") Risk

Risk Owner: CPO Description:

The emergence of ESG risk has risen rapidly to become the global interconnected and all-powerful set of challenges to a Companys standing with every stakeholder. Adapting to evolving sustainability standards and meeting stakeholder expectations concerning ESG practices is imperative. Failure to effectively manage ESG risk can lead to reputational damage, loss of business opportunities and potential regulatory non-compliances.

Mitigation plan:

At Birlasoft, the ESG Committee plays a pivotal role in mitigating risks related to ESG factors. The ESG Committee identifies and assesses ESG risks across the organization and develops a comprehensive ESG strategy and framework aligned with Birlasofts business objectives. This framework guides decision-making, risk assessment, and goal setting.

At Birlasoft, we adhere to sustainable business practices, driven by an inclusive ESG framework that outlines our goals, milestones, and commitment to achieving strategic business imperatives. Birlasofts ESG risk mitigation strategy includes regular assessments to identify compliance gaps, alignment with industry standards, and commitment to ESG program goals. Transparency is ensured through strict adherence to frameworks like Business Responsibility and Sustainability Reporting ("BRSR"), while a culture of sustainability is promoted through training and awareness initiatives throughout the organization.

We have implemented policies and procedures to reduce our water consumption, energy consumption, waste generation and Greenhouse Gas ("GHG") emissions.

We regularly monitor our ESG quantitative key performance indicators such as waste, water, energy, and GHG emissions. It ensures environmental compliance and risk management by identifying potential risks and enabling timely corrective actions. Tracking resource consumption (water and energy) leads to resource efficiency and cost savings. Transparent sustainability reporting builds trust with stakeholders and performance benchmarking against industry standards informs goal setting.

We take an integrated approach to sustainability, implementing focused measures to help us reach our ESG goals and commitments:

Birlasoft has prioritized optimizing water consumption throughout our activities, applying effective management methods, recycling, and preserving water resources. We are also implementing circular methods to reduce waste generation and optimize reuse and recycling of the generated waste within our premises, with a steadfast dedication to Zero Waste to Landfill.

To promote more environment friendly and cleaner modes of transportation, Birlasoft supports the use of electric cars in our fleet and has set up infrastructure for EV charging to provide our staff with sustainable means to get to work. To enhance our energy mix, we proactively seek Power Purchase Agreements (PPAs) and procure power from solar parks, thus expanding our portfolio of renewable energy sources. We drive our commitment to responsible procurement practices by ensuring that our suppliers adhere to our Supplier Code of Conduct.

Diversity, Equity, and Inclusion ("DEI") are an organizations effort, policies, and practices that ensure different groups or individuals of different backgrounds are culturally and socially accepted and integrated into the workplace. At Birlasoft, we have a DEI charter with focus on affirmative hiring, sensitization, and development. To ensure the culture of diversity, equity, and inclusion we have various sensitization platforms for propagating our focus on DEI. By FY 2025, we aim to have all employees trained and sensitized to the issue of unconscious bias in the workplace, ensuring fairness and inclusivity.

Emphasizing our employees health and well-being, we conduct extensive health programs and projects that address mental, emotional, social, physical, and financial domains. As part of wellness initiatives there is an addition of Roundglass Living app which can help employees to tailor their wellness journey based on their specific goals, whether its mitigating stress, achieving restful sleep, cultivating healthy eating habits, or enhancing daily energy and focus. Consistent with our commitment to ongoing education, we also allocated an average of 40 hours per employee during FY 23–24 towards employee engagement and growth. .