IT

23 Mar

 Organic revenue growth guidance of 20% for the medium term: Happiest Minds

Update on the Indian Equity Market:

On Wednesday, Nifty closed lower at 17,246 (-0.4%)in the highly volatile session. METAL (+1.2%), OIL AND GAS (+0.4%) and PHARMA (+0.4%) were the top sectoral gainers.AUTO (-1.0%), FINANCIAL SERVICES (-0.9%) and BANK (-0.6%) were top losing sectors.

The top losers were KOTAKBANK (-2.6%), HDFC (-2.4%), and BRITANNIA (-2.1%) while DIVISLAB (+2.5%), HINDALCO (+2.5%) and TATASTEEL (+2.0%) were the top gainers.

Edited Excerpts of an interview with Joseph Anantharaju, Executive VC& Chief Executive Officer-Product Engineering Services, and Venkatraman Narayanan, MD and CFO, Happiest Minds with CNBC-TV18 on 22nd March, 2022:

  • The IT industry is facing two concerns i.e. higher attrition and margin pressure. On margins, the MD commented that the company has been outperforming its guidance of 22-24%(EBITDAM) for the last four quarters. This is largely on account of Work From Home (WFH)scenario and other cost saving factors.
  • For FY23E,the MD stated that demand seems to be robust and the company would be working on maintaining the EBITDA Margins at 24-25%. The pressure would be from wage hikes to retain the talent as the attrition rates are high. The new recruitment would cost higher. This increase in cost is expected to be compensated through rate increases to the customers. The favourable exchange rate is also helping to maintain the margins.
  • MD’s Comment on the Russia-Ukraine conflict: There is flow of work continuing to India. Earlier it was because of entire digitalization move, which was applying pressure on supply side. Now he expects this conflict to add to this pressure. According to him, demand would not be an issue, but meeting the demand and requirements of the customers and attracting talent would be a challenge.
  • The bill rates of services rendered from Eastern Europe are higher than services rendered from India. There is a headroom to cover for the increased cost by negotiating for higher rates without impacting the quality of deliverables. This is the upside for the Indian Tech Industry.
  • On the company’s organic revenue growth guidance of 20%, the MD clarified that it is for a period of time spanning five years. He expects the revenue growth range to be around 32% YoY for FY22E.
  • On high attrition rate problem, VC commented that the company expects the number to trend down a bit. It has taken a few measures, upcoming high increments and increased level of engagement, learning and development training to attract people is expected to maintain or reduce the current attrition levels. With current campus batch coming in and supply increasing,the company expects the attrition rates to taper down and to release some pressure on margins going forward.
  • The contribution of BFSI segment have been reducing in past couple of quarters. BFSI sector for the company have not been a traditional segment. Consulting, leasing and payroll service providers are the type of clients of the company. BFSI sector have been highly penetrated by the earlier entrants and large IT companies. Happiest Minds have been entering BFSI sector in adjacent areas rather than the traditional/old ones.
  • The marginal drop in BFSI segment is because of the recalibrations and reallocation in the verticals. Edutech is growing faster than BFSI in last two quarters. The recent merger and acquisition has lead to faster growth in Consumer Packaged Goods (COG) segment.
  • There is openness from existing and new customers with regards to considering the rate adjustments due to inflation and wage increases.

Asset Multiplier Comments

  • We think the strong deal momentum across verticals, emphasis on digital business and client centric approach may help the company to achieve its medium-term guidance of 20%+ revenue growth.
  • The ongoing talent crunch may keep margins under check in the near term, but the initiatives taken by the company may help to maintain the EBITDA Margins stable at 24-25%.

Consensus Estimate (Source: market screener website)

  • The closing price of Happiest Minds was ₹ 1,145/- as of 23-March-2022. It traded at 76x/ 68x the consensus earnings per share estimate of ₹15/ 17 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,510/- implies a PE Multiple of 89x on FY24E EPS estimate of ₹ 17/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

 

 

 

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22 Mar

Acquisitions to lower EBIT by 45-50bps in 1st year – PERSISTENT

Update on the Indian Equity Market:

After a volatile session on Tuesday, NIFTY settled at 17316 (+1.2%) near the day’s high of 17,334. IT (+2.0%), OIL & GAS (+1.9%), and AUTO (+1.2%) were the top sectoral gainers. REALTY (-1.0%), CONSUMER DURABLES (-0.7%), and PHARMA (-0.3%) led the sectoral losers. Among the NIFTY50 components, TECHM (+4.2%), BPCL (+3.0%), and TATAMOTORS (+3.0%) led the gainers. HINDUNILVR (-2.9%), NESTLEIND (-2.7%), and BRITANNIA (-2.2%) led the losers.

Excerpts of an interview with Mr. Sandeep Kalra, CEO and ED, Persistent Systems (PERSISTENT) with The Economic Times on 21st March 2022:

  • PERSISTENT recently acquired MediaAgility, which is recognised as a Google premier partner which is the highest level of partnership in the Google ecosystem. MediaAgility comes with seven different Google cloud specialisations, ranging from migration cloud, NetApp development, modernisation, security, etc. In terms of the industry verticals, MediaAgility has a presence in BFSI, healthcare, life sciences, media entertainment, and gaming.
  • Explaining the rationale behind the recently concluded acquisitions, the CEO suggested the enterprises had already started their digital transformation journey before the pandemic. These transformation journeys sped dramatically during COVID, and hyperscalers have taken notice. They’ve been releasing more services, including vertical-specific offers, at an increased rate nearly every month.
  • The hyperscalers – IBM, Google, AWS – are expected to play an incrementally bigger role in the enterprise journey. PERSISTENT is already present in these segments, with revenues over USD 100mn. The recent acquisition of Data Glove added to PERSISTENT’s capabilities on the Microsoft Azure cloud technology.
  • With the MediaAgility acquisition, the Company intends to increase its presence on the Google Cloud Platform. Each of the platforms has their own niches and own customer base and PERSISTENT is trying to be the Uber of the cloud services for its customers.
  • Whenever an acquisition is done, there is a cost of doing it, and the Company expects a 45-50bps hit on the EBIT in the first year. The Company is confident of the acquisition being margin accretive once the integration process is complete.
  • PERSISTENT has established its footprint in BFSI, and healthcare life sciences and has 35plus enterprise customers across the US, India, and the UK. MediaAgility has a delivery centre in Mexico which complements PERSISTENT’s footprint in Guadalajara, Mexico. The acquisition will add over 500 cloud engineers with significant Google-certified capabilities.
  • The Company is following a strategy of bolt-on or tuck-in acquisitions and these would be in areas where it wants to expand its capabilities or expand its geographical footprint.
  • The overall demand environment is continuing to be healthy and over the last 12 months, PERSISTENT has announced deal wins in terms of an ACV of USD 882 mn and in excess of USD 1.1 bn in TCV terms. This Is a fairly healthy run rate in terms of the order book. The overall demand environment is good and PERSISTENT is building a capability that will last irrespective of the demand environment.
  • The revenue growth is expected to be healthy due to strong order bookings. The EBITDA margin is expected to be in the 16-17% range. The Company is looking to grow its capabilities and acquire market share.
  • In terms of long-term aspirations, the Company intends to improve its margin by about 2-3 percent over the next two to three years.
  • Attrition is one of the headwinds to the Indian IT sector. The Russia-Ukraine crisis is expected to increase the pressure on Indian talent.
  • In terms of tailwinds, IT services have a better pricing power compared to commoditised services. PERSISTENT being a specialised technology services company has a little better pricing power.
  • The Company has done multiple acquisitions in the last 12 months, with a capital commitment of over USD 220mn over the next few years. For now, it will take a little pause and focus on integrating the acquired companies. Should there be an opportunity in Eastern Europe, the Company would pursue it over the next 9 – 12 months.

Asset Multiplier Comments

  • PERSISTENT has completed 4 acquisitions in FY22 to strengthen domain capabilities in IBM Cloud, Microsoft Azure, Google Cloud. These acquisitions have helped increase the Company’s presence in verticals like High Tech, BFSI, and Healthcare and bolster near-shore and on-shore presence in North America.
  • IBM has been PERSISTENT’s partner for over 25 years, contributing over 25% to the total revenues in FY21. Alongside addition in domain capabilities, these acquisitions have helped reduce the concentration risk.

Consensus Estimate: (Source: market screener website)

  • The closing price of PERSISTENT was ₹ 4,532/- as of 22-March-2022. It traded at 41x/ 34x the consensus earnings estimate of ₹ 110/ 132/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,682/- implies a P/E Multiple of 35x on FY24E EPS estimate of ₹ 132/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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16 Mar

No direct impact of Russia-Ukraine conflict on IT sector– Tech Mahindra

Update on the Indian Equity Market:

On Wednesday, NIFTY50 closed 312 points higher at 16,975 (+1.87%). All the sectoral indices closed in the green with REALTY (+3.6%), METAL (+2.6%), and PRIVATE BANK (+2.4%) being the top gainers. Among the individual stocks, ULTRACEMCO (+4.6%), AXISBANK (+3.5%), and BAJAJ-AUTO (+3.3%) were the top gainers while CIPLA (-1.3%), SUNPHARMA (-0.4%), and TATACONSUM (-0.1%) were the top losers.

Excerpts of an interview with Mr. C.P. Gurnani, MD & CEO, Tech Mahindra, published in Mint on 15th March 2022:

  • The main demand drivers are 5G and digital transformation, the legacy businesses preferring to move towards cloud; high demand for electric vehicles; increasing needs for cybersecurity; and sustainability.
  • Keeping that in mind, Tech Mahindra is betting big on opportunities in 5G and digital transformation. With the recent launch of TechMVerse, it has forayed into the metaverse space. For the first year, the company is planning to hire 1,000 people dedicated to TechMVerse. The operations will be spread across four hubs – Dallas, Hyderabad, London, and Pune.
  • Along with that, expanding the global reach by opening up new centers in tier-2, tier-3 cities like Latvia, Romania, and Costa Rica is creating more requirements for new hires. The company is targeting to hire from tier-2 cities like Bhubaneshwar, Chandigarh, Kolkata, Indore, and Coimbatore, as the level of skills is extremely good and attrition rates are much lower.
  • Although metaverse is a key differentiator, being a new technology, it will be initially incubated in a smaller group and then shared with the clients. Initially, the metaverse offerings including DealerVerse – metaverse-based car dealership; Middlemist – an NFT marketplace; or Meta Bank – a virtual bank, will be run as a separate unit. Eventually, will work together with various other verticals. The early adopters of metaverse are the gaming, healthcare, retail, and banking sectors.
  • The company has made 8 acquisitions in FY22 to build capability, de-risking the portfolio, and for geographic expansion.
  • Concerning the ongoing Russia-Ukraine conflict, the company will have no direct impact as the Indian IT sector is not dependent on either of the two countries.

Asset Multiplier Comments:

  • The intensity of tech spending is expected to increase as clients are willing to spend on IT via Capex and Opex. Cloud spend is a minimum 3- 4 years opportunity for the IT sector. The second round of IT spend is on artificial intelligence, augmented reality, virtual reality, data analytics, and IoT.
  • We believe Tech M is well positioned to capture a fair share of 5G network services spends and strong growth in communication will continue in FY23E. Spreading talent base to Tier 2 cities in India and Nearshore centres will help reduce employee cost by ~15% and also lower attrition rate. We expect increase in utilization rate and gradual reduction of sub-con costs (on the back of reducing attrition rate) will lead to margin expansion in FY23E.

 Consensus Estimate: (Source: Marketscreener & TIKR website)

  • The closing price of Tech Mahindra was ₹1,488/- as of 16-March-2022. It traded at 21x/ 18x the consensus earnings per share estimate of ₹72/₹81.5 for FY23E/FY24E respectively.
  • The consensus target price of ₹1,787/- implies a P/E multiple of 22x on FY24E EPS estimate of ₹81.5/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Tech M , 0 Comments Read more...
16 Feb

Deal closures in the USD 700mn- 1bn band expected to continue – Tech Mahindra

Update on the Indian Equity Market:

On Wednesday, NIFTY50 ended the volatile session in the red at 17,322 (-0.2%). Among the sectoral indices, REALTY (+1.1%), CONSUMER DURABLES (+0.8%), and PHARMA (+0.5%) were the few gainers. PSU BANK (-1.2%), MEDIA (-0.6%), and METAL (-0.6%) led the laggards.

Among the NIFTY50 constituents, DIVISLAB (+3.1%), ONGC (+2.7%), and ADANIPORTS (+2.3%) led the gainers. SBIN (-1.9%), ICICIBANK (-1.7%), and NTPC (-1.7%) led the laggards.

Edited excerpts of an interview with Mr. Milind Kulkarni, CFO, Tech Mahindra (Tech M) published in Financial Express on 16th February 2022:

  • Due to furloughs, Q3 was a slow quarter. In 3QFY22 the communication, media, and entertainment (CME) vertical grew faster than the enterprise vertical for Tech M.
  • There are supply-side pressures for which the company has various offset actions. It has increased its presence in tier-II and tier-III cities. The company expects to mitigate the supply side pressure over the next few months and be on the path articulated in the past.
  • Attrition has been reduced by 300bps in 3QFY22 on the LTM (last 12 months) basis. This is a reversion of the trend witnessed in previous quarters.
  • The new deals were worth USD 704mn in 3QFY22. This was an increase from the average order book of USD 400mn. The deal pipeline in the last 8 quarters has gone up. The deal closures in the USD 700mn- 1bn range are expected to continue.
  • The company has hired 10,000 freshers in 9MFY22 and plans to hire 15,000 freshers in FY23. The intention is to get freshers, train them, put them on the right project early, and benefit from the structural change. This is the opposite of doing just lateral hiring.
  • Tech M will continue to hire in the business process services segment, and IT as there is a continuous demand for transformation projects- artificial intelligence, metaverse, etc.
  • Tech M is getting into more tier-II cities such as Coimbatore, Vijayawada, Nagpur, Indore, Bhubaneshwar, and Chandigarh to get access to talent and help in containing attrition. It is also expanding existing centers such as Pune, Bengaluru, and Hyderabad. The company is developing virtual centers in Mexico, Costa Rica, Romania, and Latvia.
  • The BFSI vertical was separated into two separate revenue streams as insurance is a prominent vertical that requires different skill sets. This followed the recent acquisition of European IT solutions provider Com Tec Co. As the company has another large insurance company as a customer, it has made a separate vertical for insurance.
  • The M&A strategy is to fill up niche capability gaps, and certain verticals it wants to scale up. The specific verticals are manufacturing, digital engineering, and BFSI. The focus is on areas such as cloud capability, where it will grow organically.
  • On the 5G front, IT firms will be providing support to service providers and for Tech M, it will boost the CME vertical. It will be playing a bigger role to boost demand for services and application in the telecom sector.

Asset Multiplier Comments

  • The entire IT sector faced supply-side pressures in FY22 due to a sudden spurt in demand. With WFH (work-from-home) settling down, in FY23 the focus is likely to be on reducing attrition and improving utilization levels.
  • Tech M has been investing in the areas of 5G, customer experience, data analytics, AI, IoT, and Cloud capabilities through organic or inorganic routes over the past few years. These investments are yielding results in terms of higher deal TCVs.
  • 5G has been a focus area for Tech M for the past few years. With 5G activity gradually picking up among the Indian telecom companies, Tech M’s investments into this vertical will start yielding results in terms of higher revenue growth.

Consensus Estimate (Source: market screener website)

  •  The closing price of Tech Mahindra was ₹ 1,440/- as of 16-February-2022. It traded at 23x/ 20x/ 18x the consensus earnings estimates of ₹ 63/ 72/ 82/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,791/- implies a P/E Multiple of 22x on FY24E EPS estimate of ₹ 82/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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02 Feb

Margin pressure due to the increased marketing spending – Info Edge

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the green at 17,780 (+1.2%). Among the sectoral indices, PSU BANK (+3.4%), PRIVATE BANK (+2.3%), and BANK (+2.1) were the top gainers. There were no sectorial losers for the day. BAJAJFINSV (+5.0%), INDUSINDBK (+5.0%), and HCLTECH (+3.5%) were the top gainers. TECHM (-1.4%), ULTRACEMCO (-1%), and BRITANNIA (-0.9%) were among the top losers.

Excerpts from an interview of Mr. Chintan Thakkar, Wholetime Director and CFO at Info Edge with CNBC TV18 dated 31st January 2022:

  • The real way to look at the numbers is to look at the billing as well as cash EBITDA. The revenue is coming from the billings that happened in the 2QFY22, the billings are almost collected, and it’s an all-cash collection.
  • The overall margins are impacted due to an increase in spending on marketing and advertising expenses. The company is investing in its platforms, Jeevansathi, and in 99 acres. In 3QFY22, the Company’s EBITDA margin and PBT were impacted due to the increased spending in marketing and advertisement expenses in Jeevansathi and 99 acres.
  • The biggest growth driver for the company is recruitment solutions. There it has not increased its marketing spend in absolute numbers and the increase is marginal.
  • 3QFY22 was a strong quarter from a margins standpoint, particularly from the recruitment side. The strong momentum started from 3QFY21 has continued to do well. The increase in momentum is with the building up in the recruitment business and the company expects upside trend over there.
  • The overall paid listing has gone up on 99 acres. Increasing paid listing rather than the free listing is a part of the company’s overall strategy .
  • Info Edge started reinvesting in the real estate segment which was affected in FY21 due to the pandemic and the company expects the uptrend in the real estate business and has increased its spending as compared to last year.
  • On startup investment he said, the startup ecosystem is very vibrant and Info Edge also invests in the startups ecosystem as the company knows how the mechanism works there.
  • Info Edge continues to innovate and improve and is also investing in their products for the future growth of the company.
  • The company is focused on efficient growth on the top line as well as on the margins front. Other than that, the company invests in some of the startups and takes stake over there for the future growth of the company which is part of their overall strategy. The Company is balancing between current growth as well as the future growth of the company.
  • The company is seeing continued momentum and the company has not seen any major impact of omicron on the business and expects the 4QFY22 to also be a good quarter.

Asset Multiplier comments:

  • We believe that as the economic activities recover, the real estate sector will grow at a significant rate as well the robust hiring activities would support the revenue growth and positive operating leverage should support margins in the near term.
  • We expect the company’s investments in the startups to scale up in the near term and start contributing to the company’s valuation.

Consensus Estimate: (Source: TIKR website)

  • The closing price of Info Edge was ₹ 5,114/- as of 2-February-2022.  It traded at 143x/129x/125x the consensus Earnings per share estimate of ₹ 35.8/39.6 /40.9/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 5,648/- which implies a PE multiple of 138x on FY24E EPS of 40.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Internet Companies, IT 0 Comments Read more...
20 Jan

CTC acquisition enables to scale up in insurance sector – Tech Mahindra

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,757 (-1%). Among the sectoral indices, METAL (+0.5%) and REALTY (+0.2%) were the only gainers while PHARMA (-1.7%), IT (1.66%), and HEALTHCARE (-1.3%) closed in the red. POWERGRID (+4.8%), BHARTIARTL (+2.2%), and GRASIM (+1.7%) were the top gainers. BAJAJFINSV (-4.6%), BAJAJ-AUTO (-3.7%), and DIVIS (-2.9%) were among the top losers.

Tech Mahindra recently announced the acquisition of Com Tec Co IT (CTC), an East-European IT Services company with a presence in the digital engineering and outsourced product development space, for EUR 310m.

Excerpts from an interview of Mr. Vivek Agarwal, President, BFSI, HLS, and Corporate Development, Tech Mahindra with ET NOW dated 18th January 2022:

  • Tech Mahindra is optimistic about the insurance industry in digital transformation and the industry itself is going through a significant transformation largely due to disruptive technologies.
  • Mr. Agarwal said CTC brings deep domain competence and a successful track record, in the long run, to serve insurers for transforming their journey.
  • Mr. Agarwal further added, the basic capability set that Tech Mahindra gets from CTC is digital engineering talent as a service line and as a capability, it’s a very high growth segment as enterprises transform for the future. Tech Mahindra expects this capability adds more value to existing customers of the company as well as new customers.
  • As Europe is becoming a big talent hub Tech Mahindra established a presence in Latvia and Belarus through CTC acquisition. The talent quality coming from that region is exceptional and the company expects to grow on the talent base in that region.
  • Tech Mahindra’s acquisitions are driven by close integration and driving synergies. From the CTC acquisition, Tech Mahindra stands to gain vertical synergy in the insurance sector. The company expects that it can directly sell services to the client base of CTC.
  • Tech Mahindra is looking to work on and exploit the service line synergy around digital engineering and clients also want the top-class capability to help them to transform, with the combination of Tech Mahindra and CTC company will be able to offer those capabilities to their clients.
  • The insurance and reinsurance industry has a huge presence in Europe but the company not only focuses on Europe it serves a global client base. From the financial metrics perspective, Mr. Agarwal expects the business to generate industry-leading EBIT margins and this would reflect in the EPS and free cash flow.
  • Tech Mahindra is looking for those sectors which has high growth opportunity and the insurance sector is one of those. The insurance industry has a mile in terms of digital transformation and some of the peers of Tech Mahindra have a strong presence in that sector and the company expects that they will perform higher than the industry average rate.
  • CTC is going to be an integral part of Tech Mahindra’s business and does not consider a subcontracting base. This will become a more important base for Tech Mahindra to expand its talent supply pool.

Asset Multiplier comments:

  • We think the CTC acquisition enable Tech Mahindra to expand its footprint in the insurance sector and expand its Eastern European presence.
  • It will provide Tech Mahindra with tech talent having differentiated capabilities in end-to-end digital engineering which can be scaled up across different industries.

Consensus Estimate: (Source: Market screener website)

  • The closing price of Tech Mahindra was ₹ 1,669/- as of 20-January-2022.  It traded at 26x/23x/20x the consensus Earnings per share estimate of ₹ 64.2/ 73.9/ 82.6/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,864/- which implies a PE multiple of 23x on FY24E EPS of 82.6/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By IT, Tech M 0 Comments Read more...
19 Jan

Datawrkz’s products will help optimise user acquisition cost – Nazara Technologies

Update on the Indian Equity Market:

On Wednesday, NIFTY ended at 17,938 (-0.1%) as it closed near the intraday low of 17,885. Among the sectoral indices, PSU BANK (+2.2%), MEDIA (+1.0%), and METAL (+0.8%) ended higher, whereas IT (-2.1%), FINANCIAL SERVICES 25/50 (-1.1%), and FINANCIAL SERVICES (-1.1%) led the losers. Among the stocks, ONGC (+3.5%), TATAMOTORS (+1.9%), and UPL (+1.9%) led the gainers while INFY (-2.9%), SHREECEM (-2.8%), and ASIANPAINT (-2.7%) led the losers.

Excerpts of an interview with Mr. Nitish Mittersain, founder and MD of Nazara Technologies (NAZARA) with Economic Times on 19th January 2022:

  • The company has discussed an issue of preferential shares, with its board. This issue is for funding the acquisition of a company called Datawrkz which is an AdTech platform based in Bangalore. Datawrkz earns 70% of its revenues from the US.
  • Datawrkz focuses on optimizing customer acquisition costs, especially on mobile. It has a product called Primus that generates higher revenues for publishers. When customers are monetizing through ads, its products and tools help them optimize the yield that they are getting on the ads.
  • NAZARA has a large user acquisition cost that comprises almost 20% or more of its revenues. Therefore, the company plans to deploy Datawrkz’s products and technologies to optimise its user acquisition cost. It also plans to use Primus to optimize the yields from its ads that may help it to increase its revenues.
  • The company has valued Datawrkz at Rs 2,250 mn. Initially, the company plans to take a 33% stake for Rs 600 mn, out of which Rs 350 mn will be paid in cash and the balance Rs 250 mn will be paid in cash or through shares and the balance will be decided based on their performance in CY2023.
  • In India, Datawrkz will be able to scale up using NAZARA’s network, and Datawrkz will be helpful for NAZARA to scale up its revenues in the US.
  • In CY2021, Datawrkz posted revenue of 900mn with about a 12% EBITDA margin. Though Datawrkz is generating positive cash flow, NAZARA’s focus will be to grow in terms of revenue and strategic initiatives, and not focus very strongly on margins as it believes that the business can scale significantly.

 

Asset Multiplier Comments

  • We believe that Nazara Tech’s acquisition of the stake in Datawrkz will benefit it in the reduction of user acquisition costs, and the use of Primus will help in increasing revenues for its e-sports, gamified learning, and other segments.
  • Datawrkz’s presence in multiple geographies including US and Singapore will turn out to be beneficial for Nazara to scale its presence in those markets.

Consensus Estimate: (Source: market screener website)

  • The closing price of NAZARA was ₹ 2,494/- as of 19-January-2022. It traded at 167x/ 105x/ 68x the consensus earnings estimates are ₹ 14.2/22.7/35.2 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,598/- implies a P/E Multiple of 74x on FY24E EPS estimate of ₹ 35.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By IT, Nazara Tech 0 Comments Read more...
18 Jan

Expect higher demand for application modernization, cloud transformation, and digital engineering – HCL Tech

Update on the Indian Equity Market:

On Tuesday, Nifty closed lower at 18,113 (-1.1%) led by REALTY (-2.6%), AUTO (-2.4%), and METALS (-2.2%) were the top losers while there were no gainers.The top losers were MARUTI (-4.1%), TATACONSUM (-3.9%), and ULTRACEMCO (-3.8%) while AXISBANK (+1.8%), ICICIBANK (+0.5%), and HDFCBANK (+0.4%) were the top gainers.

Edited excerpts of an interview with Mr. Vijayakumar, MD & CEO, and Mr. Prateek Aggarwal, CFO, HCL Tech with CNBC TV18 on 17th January 2021:

  • The company’s order pipeline is healthy, with transaction wins increasing by 64% YoY in 3QFY22. Application modernization and cloud computing were driving the growth.
  • Hiring has grown to around 10,500 employees in the 3QFY22E. The management expects greater demand visibility for application modernization, cloud transformation, and digital engineering.
  • The management expects a strong 4QFY22E due to increased booking and order visibility as a result of the services segment’s hiring of over 10,000 individuals. Even if the firm has a flat 4QFY22E, management anticipates the company will expand at a rate of 12.6-12.7 percent in FY22E.
  • The company’s margins were five basis points (bps) higher in 3QFY22 QoQ, while services were a little weaker on the margin. Due to expenditures associated with growth, such as knowledge transfer fees, the IT services margin was lower. The management also highlighted that wage hikes in 3QFY22 and attrition levels, both of which have expenses, had an impact on margins. Management believes that attrition levels have reached a peak and that attrition should begin to decline. The management expects the margin to return to typical levels of approximately 20% by 2QFY23E to 3QFY23E.
  • In terms of fresher recruiting, the company plans to hire 20,000-22,000 freshers for FY22E.
  • The company’s recent acquisition of Hungary-based data engineering services provider Starschema Ltd for $ 42.5 mn is expected to help scale the company’s Eastern European footprint, particularly in Hungary. This is a data engineering consulting organization that offers front-end consulting, which can be a good trigger for a lot of downstream work. In Hungary, the corporation has solid mindshare attracting top personnel. As a result, the firm will be able to develop its Eastern European footprint more quickly, particularly in Hungary. The company will continue to seek assets that can enhance its capabilities, particularly in a high-demand market.
  • When it comes to the products and platforms business, management expects it to increase in the low single digits. The management anticipates that this will be a long-term play that is still getting modernized.
  • In terms of deal wins, the net new TCV in 3QFY22 was $2140 mn, a 64 percent increase from the previous year. The high TCV was due to 8 significant transactions on the services side, another 8 deals on the products and platforms side, and a large number of smaller deals.

 

Asset Multiplier Comments

  • We believe HCL Tech has a solid business model and a track record of successful execution. The company plans to hire at least 20,000 additional freshers by FY22E (with 15,000 already on board) and double the amount by FY23E. This reflects management’s confidence in future deal wins.
  • We believe the company will likely be at the lower end of the 19-21 percent EBIT guidance band in 4QFY22E, but the long-term growth narrative remains intact, bolstered by greater growth in cloud, ER&D, and data modernization.

Consensus Estimate (Source: market screener website)

 

  • The closing price of HCL Tech was ₹ 1,220/- as of 18-January-2022. It traded at 25x/22 x/ 19x the consensus earnings estimates of ₹ 49/ 56/ 63 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,460 /- implies a P/E Multiple of 23x on FY24E EPS estimate of ₹ 63/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

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17 Jan

The attrition situation won’t change for the next few quarters – Mindtree

Update on the Indian Equity Market:

On Monday, Nifty closed higher at 18,308 (+0.3%). AUTO (+2.1%), REALTY (+1.3%), and CONSUMER DURABLES (+0.5%) were the top gainers while HEALTHCARE (-0.9%), PHARMA (-0.7%), and BANK (-0.4%) were top losing sectors.

The top losers were HCLTECH (-5.7%), HDFCBANK (-1.4%), and CIPLA (-1.3%) while HEROMOTOCO (+5.1%), GRASIM (+3.5%), and ONGC (+3.2%) were the top gainers.

 Edited excerpts of an interview with Mr. Debashis Chatterjee, Managing Director, and Chief Executive Officer, Mindtree with Economic Times on 14th January 2021:

  • A lot of transformation deals are happening as the clients are looking at maximising their revenues. Clients are also looking at cost optimisation and there is a lot of effort in terms of workplace modernisation, and workforce transformation for every client.
  • Most of the deals are digital and cloud led which are short cycle deals. The short cycle deals over some time develop into larger strategic relationships.
  • From an overall TCV standpoint, Mindtree has YTD USD 1.2 bn deal wins, which is 21% up YoY. The pipeline is robust and the company is confident of the deals to flow through in the coming quarters.
  • The deal pipeline is a mix of both large and transformation deals. At present, the short cycle deals are more and the company expects it to eventually get translated into multiyear initiatives.
  • The company is focused on taking the margins to healthy levels. It is satisfied with a 20% EBITDA margin on yearly basis. It has put processes to track the margins and various levers which are working well for the company.
  • The travel transport and hospitality portfolio has reached the pre-pandemic levels (USD 200 mn run rate in 3QFY22).
  • The company has diversified its travel transport and hospitality portfolio beyond airlines and hospitality. It has ventured into food and beverage, surface transformation, and cruise liners making the portfolio more resilient to the virus. The company expects this portfolio to get less impacted by the omicron variant.
  • Mindtree has been looking at Merger and Acquisition (M&A) and will be open to looking at inorganic M&As as well. It has done one inorganic in the past and is seeing good results.
  • At least for the next couple of quarters, Mr. Chatterjee doesn’t think the attrition scenario to change. The management has organized themselves to deal with and manage the talent in a more nimble and agile manner.

Asset Multiplier Comments

  • We think Mindtree has a resilient business model and has a proven track record of strong execution capabilities. The company’s plan to hire at least 1,500 freshers per quarter displays management’s confidence in winning deals going ahead.
  • We believe robust deal wins, sustainable growth, focus on multiyear engagements and margin expansion will aid topline and bottom-line growth.

Consensus Estimate (Source: market screener website)

  •  The closing price of Mindtree was ₹ 4,510/- as of 17-January-2022. It traded at 47x/ 41x/ 36x the consensus earnings estimates of ₹ 96/ 111/ 128 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,570/- implies a P/E Multiple of 36x on FY24E EPS estimate of ₹ 128/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

 

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13 Jan

EBIT margin of 17-17.5% sustainable – Wipro

 

 

 

 

 

 

 

 

 

 

 

Update on the Indian Equity Market:

On Thursday, after a volatile session the benchmark index NIFTY50 ended at 18,258 (+0.3%). Among the sectoral indices, METAL (+3.5%), PHARMA (+1.6%), and PSU BANK (+0.6%) led the gainers while REALTY (-0.7%), BANK (-0.7%), and PRIVATE BANK (-0.6%) led the laggards.

Among the NIFTY50 components, TATASTEEL (+6.3%), JSWSTEEL (+4.3%), and SUNPHARMA (+3.6%) led the gainers. WIPRO (-6.0%), ASIANPAINT (-2.4%), and HCLTECH (-1.9%) were the top losers.

Wipro recently announced 3QFY22 earnings, which were lower than street estimates. But the fourth-quarter guidance seems to provide some relief to investors.

The top management, MD & CEO Mr. Thierry Delaporte, CFO Mr. Jatin Dalal, and President and CHRO, Mr. Saurabh Govil discussed the highlights of 3QFY22 and their outlook for the upcoming quarters with CNBC-TV 18 on 13th January 2021. Following are the excerpts:

  • Wipro had guided for 2-4% sequential revenue growth in constant currency term for 3Q. The company delivered 3% QoQ revenue growth. There weren’t any one-offs or client loss or massive delivery issues. This is the normal volume of business.
  • The 3% sequential revenue growth is 28% YoY growth. The 3QFY22 revenue growth is the continuation of the growth seen over the last 5 quarters.
  • The CEO does not expect a significant contribution to revenues from the recently concluded acquisitions of Edgile and LeanSwift.
  • The reported EBIT margin was 17.6%, ahead of the guidance of 17-17.5%. The margin delivery has been despite 2 months of salary increment to 80% of its employees. The utilisation is such that there is some headroom for subsequent quarters.
  • The EBIT margin band of 17-17.5% is sustainable for the company in the long term.
  • The attrition for LTM was 22.7% in 3QFY22 and remains a concern industry-wide. It has taken certain measures to cope with higher levels of attrition. First, the company onboarded 10,000 plus employees every quarter and continues to onboard new people. Wipro has increased campus hiring by 70% in FY22. The company is looking at 30,000plus hiring in FY23E. Second, the company continues to laterally hire all skill sets across the globe based on demand. Some of the high-demand areas are cyber security, data, cloud, and newer areas like Salesforce. The company believes the attrition has peaked and expects to see moderate attrition going forward.
  • The company closed the biggest quarter in terms of bookings in 3QFY22. It reflects Wipro’s ability to win in the market. It has the biggest pipeline it ever had as it begins 4QFY22. It has a better win rate compared to previous quarters.
  • The CEO believes the clients’ budgets across industries will continue to increase. The win rate has improved by 300bps over the previous two years.
  • Improvement in price realisation is seen due to the move to high-value services such as cyber security, cloud, and digital. Wipro had made investments in certain skill sets and improved visibility, for which clients are willing to invest.

Asset Multiplier Comments

  • We believe revenue growth will be driven by strong demand, strong pipeline, and order book. The company’s order pipeline has a mix of small, medium, and large deals with the company seeing expansion in mid-sized deals.
  • There is a massive opportunity in the cloud business over the next five years. The Company has been making investments in cloud technology. Cloud opportunity, higher offshoring, and synergies from acquired business are expected to drive profitability for Wipro in the near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of Wipro was ₹ 650/- as of 13-January-2022. It traded at 30x/ 25x/ 22x the consensus earnings estimates of ₹ 22/ 26/ 29/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 703/- implies a P/E Multiple of 24x on FY24E EPS estimate of ₹ 29/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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