IT

28 Dec

CP Gurnani’s plan for Tech Mahindra amid Covid-19 uncertainty

Update on the Indian Equity Market:

On Tuesday, the benchmark index NIFTY 50 closed at 17,233 (+0.9%), 147 points higher. Among the sectoral indices, CONSUMER DURABLES (+1.4%), AUTO (+1.3%), and PSU BANK (+1%) led the gainers and there were no losers today. Among the NIFTY50 components, SUNPHARMA (+3.1%), ASIANPAINT (+2.8%), and M&M (+2.6%) were the top gainers while POWERGRID (-0.34%) and INDUSINDBK (-0.27%) led the laggards.

Excerpts of an interview with Tech Mahindra’s CEO and Managing Director CP Gurnani with Business Standard on 25th December 2021:

  • 50% of revenues for TECHM come from telecom service providers and the telecom ecosystem. The 3 factors that would really help telecom grow are; the first one being network up-gradation to 5G, second- newer platforms that will drive consumption of telecom and the third one which is the most dominant according to Mr. Gurnani is that the more work from home happens the more everyone would appreciate the importance of network service providers.
  • TECHM has not abandoned the ORAN (Open Radio Access Network), it is just that the number of players in this space has increased. Other than Rakuten, Microsoft, VMware, and Mavenir have come up with their own ORAN ecosystems. TECHM is definitely committed but to remain neutral, it was important for them to not be seen as execution partner to one. So, their strategy is to not be a product company but execute with some of the leading players.
  • There is a new way of managing networks which has become a theme for telcos. All the players in the telecom sector are trying to find viable alternate proofs of concept at a certain scale and volume and Mr. Gurnani believes that they are execution partner to every player including Airtel and Jio.
  • Talent is an industry-wide issue at this point as consumption from IT service providers, global technology and start-ups have increased. There is definitely a talent war going on.
  • TECHM anticipated the talent issue and opened offices in Tier 2 cities in Coimbatore, Vizag, Thiruvananthapuram, Indore, Nagpur, Calcutta, and Bhuvneshwar. So, the focus is on people’s preferences to work from their home locations.
  • TECHM has now opened offices in Vietnam, Bangladesh, and in the Eastern European block. As a strategy they are trying to catch young talent, train them and participate in their career development.
  • Work from the office is voluntary at Tech M till December-end due to safety reasons. A survey of TECHM’s employees showed that those below the age of 35 want to come to the office, 35-50 age group is leaning towards a hybrid model and 50 and above prefer working from home. TECHM’s work policy will be formed taking into account their client and employee needs.
  • TECHM will continue to try and be among the top 3 IT services companies in India.

Asset Multiplier Comments

  • We think Healthy deal wins, traction in the communication segment led by legacy modernization, 5G, customer care, automation, network, and cloud will help drive revenues.
  • Higher offshoring, synergies in portfolio companies, automation & operating leverage to help margin expansion going forward.

Consensus Estimate: (Source: market screener and Tikr website)

  • The closing price of Tech Mahindra was ₹ 1,806/- as of 28-December-2021. It traded at 28x/25x/22x the EPS estimates of ₹ 64/73/81/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,794/- implies a P/E Multiple of 22 on FY24 EPS estimate of ₹ 81/-

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...
27 Dec

Company confident of delivering 60-70% CAGR over next 3 years: Dixon Tech

Update on the Indian Equity Market:

On Monday, Benchmark indices erased previous session losses and ended higher with Nifty closing at 17,086 (+0.49%).

PHARMA (+1.62%), HEALTHCARE (+1.42%) and FINANCIAL SERVICES (+0.91%) were the top gainers and MEDIA (-1.06%), FMCG (-0.08%) and METAL (-0.06%) were top losing sectors.

The top losers were HINDALCO (-3.7%), BRITANNIA (-3.36%), and ONCG (-3.27%) while TECHM (+3.44%), CIPLA (+2.26%) and  DRREDDY (+2.06%) were the top gainers.

 Company confident of delivering 60-70% CAGR over next 3 years: Dixon Tech

Edited Excerpts of an interview with Atul Lall, Managing Director, Dixon Tech with CNBCTV18 on 24th Dec, 2021:

  • According to broker report the company is expected to deliver 60-70% sales CAGR over the next 3 years. Mr Lall stated that the company is confident of delivering these numbers.
  • The company has grown from Rs 44 bn in FY20 to Rs 64 bn in revenues in FY21. The company is targeting to reach Rs 110 bn in FY22E even after Jun-21 quarter being weak due to Covid-19. It expects revenue to be in the range of Rs 170 bn in FY23E. He is confident of this aggressive growth and to be in the lead position in its sector.
  • On the margin front, FY22E has been extremely difficult year for Dixon, particularly for Original Design Manufacturing business. Softening of commodity prices has been seen both in polymer and metal side over the past few weeks. A decline in the freight cost is also been witnessed recently and is relatively stable at present.
  • In B2B (Business to Business) there is a lag in passing off the cost increases to the customers. Company expects to pass on the price increases by next (Mar-22E) quarter but in the Dec-21 quarter the margins are expected to be under pressure.
  • The chip shortage situation has improved slightly but the situation is not fully under control. Most of the companies including Dixon have aligned their forecasting, have started building more inventories and are well aware of the longer lead times. The production situation is much better but the chip shortage problem has not been resolved yet.
  • There was a Directorate of Revenue Intelligence (DRI) survey in Tirupati plant and corporate office pertaining to Television vertical. The issues raised by DRI were interpretational in nature. The company extended all the possible support to the officers and the company is committed to defend its stand in front of DRI.
  • Focus of FY22E – Dixon has got into Mobile vertical and it is expected to be the growth driver going forward and to contribute significantly to the total revenue of the company.
  • Dixon has got into a Joint Venture with Bharti and have got the approval under the telecom verdict to manufacture consumer premises devices. It is expected to start manufacturing from Mar-22E quarter for Airtel. In FY23E a huge ramp up is expected by the company from Mobile vertical.
  • Dixon have tied up with some major customers for manufacturing IT products, a ramp up in its production is expected.
  • Dixon have launched fully automatic top loading machines which is expected to contribute to the growth from FY23E.
  • Dixon is also rolling out Refrigerator products, the production of the same is expected to start from 4QFY22E. A reasonably good growth is expected to be seen from the existing verticals.
  • Under the PLI scheme: The company have started production and investment on IT hardware side, telecom Side and white boards. Backward integration for lighting products under PLI scheme is under process. Company expects to start the production of components of lighting products from 1QFY23E.

 

Asset Multiplier Comments

  • We think Dixon is one of the largest beneficiaries of the government’s PLI scheme and new segments such as electronics/IT products, telecom products and LED lights & AC component will help the company to achieve its target of 60% CAGR for over next 3 years.
  • Domestic mobile production is set to grow under PLI scheme. We believe Dixon is one of the main beneficiaries which will drive future revenue for Dixon.

 

Consensus Estimate (Source: market screener and investing.com websites)

 

  • The closing price of Dixon Tech Ltd was ₹ 5,617/- as of 27-Dec-21. It traded at 127x/72x/52x the consensus EPS estimate of ₹ 44.2/77.7/108 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 5,079/- implies a PE multiple of 47x on FY24E EPS of ₹ 108/-.

 

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 Dec

Demand is robust but supply-side constraints due to new variant – Sonata Software

Update on the Indian Equity Market:

On Wednesday, the benchmark index NIFTY 50 closed at 16,955 (+1.1%), 185 points higher. Among the sectoral indices, REALTY (+3.0%), PHARMA (+2.0%), and METAL (+1.8%) led the gainers. None of the sectoral indices ended with losses. Among the NIFTY50 components, HINDALCO (+4%), TATAMOTORS (+3.7%), and DIVISLAB (+3.5%) were the top gainers while SBILIFE (-1%), WIPRO (-0.7%), and GRASIM (-0.4%) led the laggards.

Excerpts of an interview with Mr. Jagannathan Chakravarthi, CFO of Sonata Software with CNBC-TV18 on 20th December 2021:

  • Chakravarthi said they did not see any impact on demand due to the omicron variant and they also don’t expect any impact. Due to omicron, they expect there will be some supply-side constraints but the company has taken initiatives to mitigate the risk like diversified delivery centers in various locations globally. The pipeline is very strong and company expects the demand continues for the next 8 to 12 quarters.
  • On working from the office Mr. Chakravarthi said, they are not very clear about working from the office. The large players have started the process but Sonata exploring and evaluating possibilities of how much workforce will work from home for now and they said the company is not going back to an earlier stage of 100% work from home. The industry is in the wait and watch kind of situation and the company will decide after some clarity comes on omicron and its impact.
  • In the shorter term, there will be some cost pressure. The salary increases, retention bonus, and salary increment cycle are likely to put pressure on cost. 3QFY22 is expected to be a little moderate in terms of attrition for the overall industry but the company will look at how 4QFY22 and 1QFY23E are coming out in terms of attrition and cost pressure. The impact of cost increases is expected for one or two quarters and margins will not substantially be affected because of that.
  • On client addition, he said there is no pressure on new client addition. Company qualifying the clients according to their qualifying mechanism and prioritizing the clients because the demand is huge. The company is at high levels of utilization and it has to match up with supply-side also.
  • Sonata Software is at EBITDA levels of 27% to 28% which is an industry-leading margin. The company expects if the changes happen in the business for the medium term they will continue to maintain a 23% to 25% EBITDA level for a longer run.
  • The company expects demand to continue to be robust and the company will be at an industry-leading growth rate. It’s hiring has been strong for the last 2 quarters and the company is now well prepared for omicron compared to the delta variant.

Asset Multiplier Comments

  • We think Sonata Software will be able to add more clients as they have strong hiring plans and are investing in senior talent to meet the strong demand momentum. This is likely to drive the growth of the company in the longer run. The hiring also controls the attrition rate and utilization levels.
  • Share of digital revenue has been continuously improving from the last few quarters in International IT Services (IITS). We think a higher share from digital revenue drives the higher margins in IITS. Healthy traction in Retail, Commodity and travel segment we expect strong revenue growth in going forward.

Consensus Estimate: (Source: market screener website)

  • The closing price of Sonata software was ₹ 814/- as of 22-December-2021. It traded at 25x/20x/18x the EPS estimates of ₹ 32.4/41.5/46.5/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 964/- implies a P/E Multiple of 23x on FY23 EPS estimate of ₹ 41.5/-.

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.”

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07 Dec

Acquired biz segment seeing steep growth – Tech Mahindra

Update on the Indian Equity Market:

On Tuesday, Nifty ended in the green amid weak global cues. It ended at 17,176 (+1.6%) after making a high of 17,251. METAL (+3.1%), PRIVATE BANK (+2.5%), and BANK (+2.5%) were the top sectoral gainers and there were no sectoral losers. Among the NIFTY50 stocks, HINDALCO (+5.1%), TATASTEEL (+4.0%), and AXISBANK (+3.6%) were the top gainers while BRITANNIA (-0.6%), CIPLA (-0.6%), and DIVISLAB (-0.4%) were the top losers.

Edited excerpts of an interview with Mr. Vivek Agarwal, President-BFSI and Corporate Development at Tech Mahindra (TECHM) with CNBCTV18 on 6th December 2021:

  • The last couple of years have opened a new segment of WFH, this acquisition helps TECHM service their customers with a new channel and takes. It takes away a lot of dependency on physical infrastructure and helps provide services from anywhere.
  • The entire WFH segment has been witnessing explosive growth over the last couple of years. From a long-term perspective, 55% of customer experience workers are expected to work from home or from anywhere by 2024. This represents huge a addressable market space for TECHM.
  • From a synergies viewpoint, the company will be taking these capabilities to their existing customers and Activus Connect has its customer base as well which represents a significant cross-sell opportunity for TECHM.
  • TECHM expects this explosive growth to continue over the next 3-4 years.
  • The acquired company has industry-standard margins and on the growth front, the business’ organic growth is been exceptional. From a long-term perspective of its core business, TECHM expects to generate 30-40% additional revenues through synergies and take these capabilities to the existing customers.
  • The acquired company has a unique technology platform that lets one apply all the good practices around data, security, and performance management for remote workers.
  • TECHM expects the business to have industry-leading growth on its own and is excited about the synergies that will be created out of this acquisition in the knowledge segment space.
  • The margins of this company are expected to be at par with what TECHM does which is their objective in every acquisition they do.
  • While certain capabilities are specific to particular sectors, the offering per se is sector agnostic.
  • Return to the office for TECHM employees is largely voluntary. Some of them are returning in hybrid mode and this work model is expected to continue. However, 15-20% of their workforce has started coming to the office which mainly comprises of the top management of the company.

Asset Multiplier Comments

  • TECHM has grown organically & inorganically (dollar revenue CAGR FY17-21 of 4%). The company will continue to acquire for scale, synergies, cross-sell benefits, and upselling.
  • We expect healthy deal wins, traction in the communication segment led by legacy modernization, 5G, customer care, automation, network, and cloud to drive revenues.
  • Higher offshoring, synergies in portfolio companies, automation, & operating leverage is expected to help margin expansion.

Consensus Estimate (Source: market screener and Tikr websites)

  • The closing price of TECHM was ₹ 1,575/- as of 07-December-21. It traded at 25x/22x/19x the consensus EPS estimate of ₹ 64/73/81 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,783/- implies a PE multiple of 22x on FY24E EPS of ₹ 81/-.

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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29 Nov

Betting on a healthy orderbook – Dixon Tech

Update on the Indian Equity Market:

On Monday, NIFTY ended flat at 17,054 (-0.01%) as it closed near the opening level of 17,056. Among the sectoral indices, IT (+0.8%), CONSUMER DURABLES (+0.2%), and FINANCIAL SERVICES (+0.1%) ended higher, whereas MEDIA (-2.2%), PSU BANK (-2.0%) and REALTY (-1.7%) led the losers. Among the stocks, KOTAKBANK (+2.4%), HCLTECH (+2.2%), and HDFCLIFE (+1.7%) led the gainers while BPCL (-2.6%), SUNPHARMA (-2.3%), and ADANIPORTS (-2.1%) led the losers.

Excerpts of an interview with Mr. Atul Lall, MD of Dixon Tech India (DIXON) with CNBC TV18 on 26th November 2021:

  • DIXON is a beneficiary of PLI scheme for IT hardware and it has tied up with Acer, a Taiwanese IT hardware firm for manufacturing laptops. The company has already started manufacturing laptops in its in-house facility for Acer.
  • From the laptop segment, the company expects to achieve a minimum targeted revenue of Rs 500 mn in the 1st year of manufacturing. From 2nd year onward, the company expects to achieve a PLI scheme upward revenue ceiling of Rs 6bn, Rs 16bn, and Rs 24bn respectively.
  • DIXON’s laptop segment being a prescriptive business (DIXON work based on Acer’s laptop designs), the operating margins will be in around of 4%.
  • The company’s capex for FY22 is expected to be Rs 4,500 mn, out of which the capex for laptop segment will be Rs 200 mn. In FY23, the capex is expected to increase to Rs 2500 mn.
  • Speaking of its segments, the company has a healthy order book for mobiles. It is also planning to enter in a JV with Bharti Airtel to provide telecom related products, IoT (Internet of Things) devices. The company is also launching LED monitors in the 4QFY22. The company’s revenue target for FY23E is around Rs 170 – Rs 175 bn.
  • Company’s ODM (old design machines) business is facing commodity price increase pressure and there’s a lag in passing on the price increase to its customers. The company is seeing some softening in prices. It expects margin pressures to remain in the short term, but later it will be able to pass it on to the customers.
  • 90% of the company’s own design revenues come from the lighting segment. Due to its large scale in this segment, the company is able to benefit from operating leverage. The margin pressure easing is happening in the segment.

 

Asset Multiplier Comments

  • The laptop segment revenue estimates seem to increase exponentially. As it’s a prescriptive business, with low operating margins, it may take several quarters for the company to meaningfully benefit for the segment.
  • The markets for laptops, mobiles, and IoT devices are quite competitive. Therefore, we may have to see how company’s plans for its new segments pan out.
  • As the world is concerned with fear of Omicron Covid-19 variant spread, it may lead to stricter sanitation rules within the country, and may also result in lockdowns if the conditions worsen. This may affect the manufacturing and planned executions of new product launches of DIXON.

Consensus Estimate: (Source: market screener website)

  • The closing price of DIXON was ₹ 5,005/- as on 29-Nov-2021. It traded at 114x/65x/47x the consensus earnings estimate of ₹ 45/78/108 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 4986/- implies a PE multiple of 46x on FY24E EPS of ₹ 108/-.

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 Dixon technologies, IT 0 Comments Read more...
27 Oct

Best Demand Environment in a Decade – Tech Mahindra

Update on the Indian Equity Market:

On Wednesday, NIFTY closed lower at 18,211 (-0.3%) dragged by MEDIA (-2.0%), METAL (-1.5%) and PRIVATEBANK (-1.4%). PSU BANK (+2.1%), IT (+1.0%) and PHARMA (+0.9%) were the gaining sectors. The top gainers in NIFTY50 were ASIANPAINT (+4.1%), UPL (+3.8%), and DIVISLAB (+2.3%). The top losers were AXISBANK (-6.5%), BAJFINANCE (-4.8%), and ONGC (-3.5%).

Edited excerpts of an interview with Mr. C P Gurnani, MD, and CEO of Tech Mahindra with CNBCTV18 on 26th Oct 2021:

  • The company is committed to the high growth trajectory over the full year of FY22, which resulted in its highest ever sequential growth in a decade. Every business segment has reported sequential growth in Q2FY22.
  • The Company has a best-in-class geographic mix with North America contributing less than 50%, Europe contributing 25%, and the Rest of the World Contributing 25%, with a geographical presence in 90 Countries. The company is well diversified in terms of geography.
  • The Company increased its guidance of around 500-600 Mn USD in Deal wins to 750 Mn to 1 Bn USD over the next few quarters, on the back of a robust deal pipeline and sustained growth in the demand environment.
  • The Company plans to improve its margins by keeping control on sub-contracting costs which are at historically high levels. Utilisation has reduced due to fresher intake in the last quarter, which the company expects to improve over time.
  • Cloud Migration and 5G are the biggest drivers of growth in new deal wins. There’s a huge movement in the legacy to digital business which is expected to continue over the next few quarters.
  • The company made two acquisitions during the quarter- Loadstone and WeMake website. Loadstone has revenue of about 35 Mn USD and is EPS accretive, the other acquisition was IP Driven and is insignificant to the topline.
  • Current levels of attrition are hurting the demand fulfillment of the company and the company plans to reduce attrition by shifting to tier-2 cities and new HR Policies.

 Asset Multiplier Comments

  • The management commentary of continued strength in end demand aided by significant deal wins, and healthy deal pipelines driven by 5G and cloud will help the company sustain its revenue growth guidance.
  • Attrition and supply-side issues are the biggest headwinds for IT Companies. The company’s bottom-line can only see sustained growth if these challenges are dealt with in the upcoming quarters.

Consensus Estimate (Source: market screener website)

  • The closing price of Tech Mahindra was ₹ 1,568/- as of 26-October-21. It traded at 25x/22x/19x the consensus EPS estimate of ₹ 64/73/81 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,703/- implies a PE multiple of 21x on FY24E EPS of ₹ 81/-.

 

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...
21 Oct

Increased revenue guidance due to robust demand environment – Larsen & Toubro Technology services

Update on the Indian Equity Market: 

On Thursday, NIFTY closed lower at 18,178 (-0.5%) led by IT (-2.5%), CONSUMER DURABLES (-1.8%), and METAL (-1.8%). PSU BANK (+2.7%), BANK (+1.3%), and FINANCIAL SERVICES (+1.2%)  were the gaining sectors. Top gainers in NIFTY50 were KOTAKBANK(+6.9%), TATAMOTORS (+4.5%), and GRASIM (+3.5%). The top losers were ASIAN PAINTS (-4.9%), HINDALCO (-3.8%), and INFOSYS(-2.5%). 

Edited excerpts of an interview with Amit Chadha, MD, and CEO of L&T Tech Services  with CNBCTV18 on 20th October 2021: 

  • The company has increased its FY22 revenue guidance for the second consecutive quarter to 19-20 percent from the previous 15-17 percent owing to the strong demand and robust supply chain. 
  • Earlier the company had anticipated a USD 1 bn runrate between Q2FY23E and Q3FY23E, which could be met sooner than expected. 
  • The company took on board about 1,200 freshers in the last six months and plans to hire about 2,000 in 3QFY22E and 4QFY22E. 
  • On the margin front, the company has delivered EBITDA margins in the 18% range despite the wage hikes and the overhead costs in FY21, going forward the company expects them to stay in the 18 percent range. 
  • With the robust market environment and the company’s order pipeline improvement to about 18% over 1QFY22, the company’s overall aim is to reach a USD 1.5 billion run rate by FY25.
  • The company expects the demand for CY22 and CY23 to remain at the current level.
  • The average deal size in the engineering business is between USD 10 million and USD 25 million. The firm has landed a number of transactions ranging from USD 10 to USD 25 million. They are also looking for agreements worth more than USD 50 million.
  • The offshoring revenue has increased by 100 bps. The company expects the offshoring revenue percentages to stabilize and improve further on account of the optimistic demand environment from its clients in the United States and Europe, in CY22.
  • On the acquisition front, the company is looking for a US or European-based company in the ISV segment or transportation segment, or in the medical technologies segment. The company is currently assessing different companies for the purpose and is in various stages of conversation with different companies.  The company has an appetite for acquiring a company with a revenue of 50 million dollars as well, given the company’s strong balance sheet and cash flow.

 Asset Multiplier Comments 

  • The management commentary of continued strength in end demand aided by significant deal wins, and healthy deal pipelines suggest growth could significantly exceed the upper end of the revised guidance.
  • The aggressive recruiting and re-skilling initiatives, will assist the business to overcome supply-side limitations.

Consensus Estimate (Source: market screener websites) 

  • The closing price of Larsen & Toubro Technology services was ₹ 4726/- as of 21-Oct-21. It traded at 54x/46x/39x the consensus EPS estimate of ₹ 88/102/121 for FY22E/ FY23E/FY24E respectively. 
  • The consensus target price of ₹ 3,965/- implies a PE multiple of 32x on FY24E EPS of ₹ 125/-. 

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, LTTS 0 Comments Read more...
20 Oct

Cyber Security and ESG emerging as new pockets of growth – Larsen & Toubro Infotech

Update on the Indian Equity Market:

On Wednesday, NIFTY closed lower at 18,266 (-0.83%) led by CONSUMER DURABLES (-2.91%), REALTY (-2.16%) and METAL (-2.06%). PSU BANK (+1.54%) and MEDIA (+1.03%) were the only gaining sectors.

Top gainers in NIFTY50 were BHARTIARTL (+3.96%), SBIN (+2.66%) and TATAMOTORS (+1.62%). The top losers were HINDALCO (-3.94%), BPCL (-2.66%), and TITAN (-2.61%).

Edited excerpts of an interview with Mr. Sanjay Jalona, Chief Executive Officer and Managing Director, Larsen & Toubro Infotech with CNBCTV18 on 19th Oct 2021:

  • The company is seeing three key drivers of revenue growth
    • Restructuring: Every industry is reimagining its processes to deal with the new normal. All industrial manufacturing companies, which typically have been business-to-business (B2B) companies, are spending to transform from B2B to business-to-consumer (B2C) and that creates a lot of opportunities for the company in the tech world.
    • Cyber Security and environmental, social, and governance (ESG) are emerging as new pockets of growth. Work from home culture requires information security which is a big area of growth. ESG is another area having potential as every company has a goal on carbon neutrality and sustainability. So, ESG creates a lot of data opportunities for the industry, unlike in the past.
    • Great Resignation: Companies are currently seeing a double-digit attrition rate which they are not used to.
  • There has been a change in the way, format, and size of the deals. There are a lot of deals for the transformation journeys of the customers.
  • Large deals typically are consolidation deals that have taken a back seat in their (customers) priorities as customers are focusing on their digital transformation journey. The bulk of investment, time, and efforts are going into the digital transformation journey.
  • Overall, the deal pipeline will be stronger for the company. The large deal pipeline will continue to be strong for at least the next two to three years.
  • Even after giving 2 consecutive wage hikes, the attrition rate for 3QFY22 stands at ~19.6% (up 470 bps QoQ). The reason for such a high attrition rate is that the talent market is very hot currently as every company is hiring tech talent. The overall demand is high and will continue to be high for the next 2-3 years. The need for automating is creating a further gap in the skill set that is required.
  • To cope up with the high attrition rate:
    • The company have increased the freshers hiring target to 5,500 v/s 4,500 for FY22E,
    • Plans to hire additional 1000 employees on Hired Trained Deployed (HTD) basis,
    • It is also ramping up the skilling and upskilling program for the company’s talent, and
    • Evaluating ways to hire non-tech (non-engineers) bright talents across India who desire to enter the computer field to create a talent pool.
  •  The company has given guidance to cross Rs 2 bn in revenues.

 Asset Multiplier Comments

  • The company has been performing consistently well with robust and broad-based growth – across verticals, geographies, and service lines.
  • We believe that the large deal wins, strong large deal pipeline, and aggressive hiring/re-skilling plans, which would help overcome the supply-side constraints will help the company to drive profitable and sustainable growth in the medium term.

Consensus Estimate (Source: market screener websites)

  • The closing price of Larsen & Toubro Infotech was ₹ 6,960/- as of 20-Oct-21. It traded at 52x/44x/38x the consensus EPS estimate of ₹ 131/156/179 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 6,090/- implies a PE multiple of 34x on FY24E EPS of ₹ 179/-.

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, L&T Infotech 0 Comments Read more...
19 Oct

Organic growth to sustain as guided, no big bang acquisitions planned– HCLTECH

Update on the Indian Equity Market:

On Tuesday, NIFTY50 ended its 7-day winning streak to close at 18,419 (-0.3%), dragged down by REALTY (-4.7%), PSUBANK (-3.7%), and FMCG (-3.2%). The sectoral gainers were IT (2.2%), and FINANCIAL SERVICES (0.2%). Among the stocks, TECHM (+4.3%), LT (+3.3%), and INFY (+1.8%) led the gainers while ITC (-6.3%), TATAMOTORS (-4.9%), and EICHERMOT (-4.5%) were the top laggards.

HCLTECH missed the street estimates in the declared earnings for the quarter ended 30th September 2021. Mr. C Vijayakumar, Chief Executive Officer, and Mr. Prateek Aggarwal, Chief Financial Officer at HCL Technologies discussed the quarter gone by and reaffirmed its annual FY22 guidance in an interview with CNBC-TV18 on 18th October 2021:

  • The Products and Platforms business has been a laggard in FY22, with quarterly slippages affecting the guidance of the segment but the impact is immaterial to the top-line growth, where the company has reaffirmed its EBIT margin guidance of 19-21%.
  • Q2FY22 was the best quarter for the company with unprecedented growth in client mining, large deal wins, and total headcount. The company has introduced a formal dividend pay-out policy on the back of its commitment to rationalise capital allocation.
  • The Company has rolled out the first tranche of wage hikes in Q2FY22 and expects the second tranche to be rolled out in Q3FY22. It expects the slippages in the Products and Platforms business to be recovered in the upcoming quarter.
  • The company had a track record of a high dividend pay-out until FY20. With a significant outflow due to an acquisition, the pay-outs were subdued over the past few quarters. With a recovery in free cash flows and demand from investors, the company has decided to come up with a formal dividend policy with higher pay-outs.
  • The current demand environment has established momentum in the organic business. The company plans to focus on executing current demands rather than go all-in after a major acquisition. The company may add small tuck-ins to expand capabilities or geographies.
  • In Q2Fy22, the company had a strong deal win rate. The pipeline in Q1FY22 was at the highest level ever, it slightly moderated because the company closed a lot of deals.
  • The pipeline has a good mix of mid-size and large deals. There is also a lot of momentum in existing accounts, where customers are ramping up on several digital initiatives, with smaller ticket transformational projects are being taken up by the company.
  • The company expects to exceed its initial guidance on hiring 20,000-22,000 freshers on the back of robust demand and backfilling attrition in the recent quarters.
  • Momentum is seen across all verticals with BFSI and Manufacturing being the leaders. The manufacturing vertical is seeing an uptick in engineering services with various transformational deals and projects being undertaken.

 

Asset Multiplier Comments

  • COVID-19 pandemic has unmistakably created a paradigm shift in the ITES Industry, with a strong focus on digitisation around the world across both size and verticals will result in a high growth period for the industry.
  • HCL Tech like its peers will also continue to face supply-side crunch and attrition problems. The situation is expected to improve over the next few quarters which will help to reduce the margin pressures.

Consensus Estimate: (Source: market screener website)

  • The closing price of HCLTECH was ₹ 1,232/- as of 19-October-2021. It traded at 25x/ 22x/20x the consensus earnings estimate of ₹ 49/ 56/ 63. for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1360/- implies a PE multiple of 22x on FY24E EPS 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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18 Oct

Expect 30% YoY constant currency revenue growth in 3QFY22 – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY50 rose for the seventh consecutive session to close at 18,477 (+0.8%), led by PSU BANK (+4.0%), METAL (+3.9%), and IT (+1.6%). The sectoral losers were PHARMA (-0.9%), and MEDIA (-0.7%). Among the stocks, HINDALCO (+5.2%), INFY (+4.8%), and TECHM (+3.7%) led the gainers while M&M (-2.2%), HCLTECH (-2.1%), and DRREDDY (-1.8%) led the laggards.

Wipro recently declared earnings for the quarter ended 30th September 2021, which beat street estimates. Mr. Thierry Delaporte, CEO, Wipro discussed the quarter gone by and his plans for the upcoming quarters with The Economic Times on 18th October 2021:

  • Mr. Delaporte took charge as the CEO of the company during the Covid pandemic. During that time, the company moved into execution mode and it has been fast at defining the people who are going to drive the organisation forward.
  • During the last year, the company has taken bold steps and changed about 30% of the top 200 leaders. It has been an unprecedented change and a lot of talent has also been brought in from outside. Wipro made its biggest acquisition, Capco which is delivering great results.
  • The CEO’s responsibility was to ensure the company remains driven by a sense of purpose and pays attention to the world around it.
  • What needed to change was assertiveness about strategy, running operations, making decisions, and sticking to it. The second thing he wanted to change was raising the bar in terms of ambition, and the third is a ruthless focus on accountability and outcome.
  • Wipro will deliver ~30% year-on-year constant currency revenue growth in 3QFY22E. He expects the growth to continue in FY23E as well, as the company is firing on all cylinders. Wipro will continue to do more acquisitions and possibly a big one.
  • The best performing company in the IT industry is the one with the best talent in terms of quality – people who understand the business and how technology can be leveraged to transform. These are the people Wipro is hiring. The talent is also in terms of quantity because of the increased demand and higher attrition levels.
  • Wipro plans to integrate a lot more freshers. In FY22E, Wipro plans to hire about 16,000-17,000 and 25,000-30,000 in FY23E.
  • He expects higher attrition to continue for the next 3-4 quarters. In 2QFY22, Wipro’s attrition was 20.5% and he expects it to worsen. There’s always seasonality, in the last quarter of the year and people tend to stick around, according to Mr. Delaporte.
  • Wipro would be investing more in 5G and artificial intelligence than in quantum computing right now. He is betting big on engineering services.

 Asset Multiplier Comments

  • The IT sector has been a beneficiary of the increased investment in technologies due to shifting to work from anywhere post the pandemic. While revenue growth is expected for the quarters to come, the sector was also a beneficiary of lower operating costs.
  • As people return to the office for work, some of these costs are expected to come back. The increased pace of vaccinations around the world will likely increase people traveling for work. The talent war has already led to companies rolling out 2-3 wage hikes in a year. With the costs increasing, Wipro like all other IT companies may face margin pressures in the near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of WIPRO was ₹ 711/- as of 18-October-2021. It traded at 32x/ 28x/ 25x the consensus earnings estimate of ₹ 22/ 25/ 28 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 676/- implies a PE multiple of 24x on FY24E EPS of ₹ 28/-.

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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