homemarket Newsstocks NewsBirlasoft shares fall most in nearly a year after key client files for bankruptcy
Birlasoft shares fall most in nearly a year after key client files for bankruptcy
Birlasoft in October 2019 had announced that it signed a $240 million multi-year deal with Invacare to provide IT services.
Shares of global IT services provider Birlasoft tanked nearly 9 percent in trade on Thursday after reports emerged that one of its key clients - the United State-based medical devices manufacturer, Invacare has filed for bankruptcy protection.
NYSE-listed Invacare Corporation, which is a leading manufacturer and distributor of medical equipment used in non-acute care settings, has announced that the company and two of its subsidiaries have filed for bankruptcy protection and restructuring.
According to a Wall Street Journal report, Invacare Corp. filed for bankruptcy after a deal with its lenders and bondholders that it will cut down on $240 million in debt and emerge from the bankruptcy chapter 11 within four months.
So why does this concern Birlasoft?
Birlasoft in October 2019 had announced that it signed a $240 million multi-year deal with Invacare to provide IT services to the manufacturer of wheelchairs, bariatric equipment, disability scooters and respiratory products. The deal was expected to be spread over a period of 10 years.
A 10-year timeline would mean that Birlasoft would earn annual sales worth $25 million from Invacare. The filing of bankruptcy puts the potential six to seven years of annual sales at risk. However, these are just estimates based on the deal win contours.
Therefore, further clarity is awaited on the quantum of the sum which is at risk for Birlasoft. A greater worry for analysts though is whether there are any pending receivables or money stuck with Invacare as payments are usually delayed for the work done.
Birlasoft, a part of $2.4 billion CK Birla group, provides enterprise and digital services such as data analytics, cloud, domain, blockchain and CRM and supply chain management.
Shares of Birlasoft have been under pressure recently, having nearly halved from their 52-week high of Rs 501.60. An additional worry is the fact that its CEO Dharmendra Kapoor and CFO also stepped down.
A key question that remains is, with a key client gone, how will Birlasoft manage to achieve its $1 billion revenue aspiration by financial year 2025. The company will report its December quarter results today.
Shares of Birlasoft are trading 7.6 percent lower at Rs 273.50.
(Edited by : Rukmani Krishna)
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