IT

11 Oct

This quarter is all about consolidation of growth momentum – TCS

Update on the Indian Equity Market:

On Monday, NIFTY ended higher at 17,946 (+0.3%) as it closed near the intraday high level of 18,041. All the sectoral indices were gainers, led by AUTO (+3%), REALTY (+1.7%), and METAL (+1.5%) except IT which was down by (-3.3%). Among the stocks, TATAMOTORS (+9.1%), COALINDIA (+4.4%), and MARUTI (+3.4%) led the gainers while TCS (-6.3%), TECHM (-2.7%), and INFY (-1.8%) led the losers. 

Excerpts of an interview with Mr. Rajesh Gopinathan, CEO and MD, of TCS  with Business Standard on 11th October 2021:

  • TCS believes that this is one of the best quarters they have had. The growth was broad-based. From a deal win standpoint, every vertical has come back strongly.
  • Large verticals like retail and manufacturing have all done well.
  • Growth has been driven by three aspects: increased outsourcing, building a digital core, and growth and transformation agenda of clients.
  • This growth is evident in customer metrics as the numbers are above pre-pandemic baselines and each layer of the customer pyramid has grown.
  • This growth momentum is expected to continue as the demand is strong but there could be seasonality of demand and operations which are specific to industries and regions. How this seasonality pans out remains to be seen.
  • Two years ago, TCS experimented by taking in 32,000-35,000 freshers in the first two quarters and this model proved to be successful. They plan to do this in FY22 as well, as their approach to providing fresher training is modified.
  • Fresher training is no longer looked at as a standalone activity. Rather, it is deeply integrated into business units themselves. The training is more aligned to where demand is and the focus of the curriculum is in tune with the business units.
  • By participating in G&T (Growth and Transformation) projects, TCS has been trying to be aware of which part of the customer agenda they were partnering with. Creating awareness and articulating what TCS does, both internally and externally are the key part.
  • What matters is that TCS is relevant to its customer base. They have over 1,000 customers and 98% of its business is repeat business’s relevance to customers should continue and increase.

Asset Multiplier Comments

  • TCS like the entirety of the IT Industry has been facing the brunt of attrition-related margin pressures. Strong brand building and employee satisfaction have helped it keep attrition at an industry low.
  • We expect these input pressures to sustain over the next 2-3 quarters post which TCS’ long-term growth levers would kick in and help the company venture into the next phase of growth.

 Consensus Estimate: (Source: market screener website)

  • The closing price of TCS was ₹ 3,686/- as of 11-Oct-2021. It traded at 38x/33x/30x the consensus earnings per share estimate of ₹ 105/119/132 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,978/- implies a PE multiple of 30x on FY24E EPS 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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27 Sep

Growth of the Indian gaming market to come in the next 4-5 years – Nazara Tech

Update on the Indian Equity Market:

On Monday, NIFTY closed flat at 17,855. The top gainers in NIFTY50 were MARUTI (+6.4%), M&M (+4.3%), and TATAMOTORS (+4.1%). The top losers were HCLTECH (-4.4%), TECHM (-3.3%), and WIPRO(-3.2%).

The top gaining sectors were AUTO (+3.2%), REALTY (+3.0%), and MEDIA (+1.6%), while the top sectoral losers were IT (-2.9%), HEALTHCARE (-1.3%), and PHARMA (-0.9%).  

Growth of the Indian gaming market to come in the next 4-5 years – Nazara Tech

Edited excerpts of an interview with Mr. Manish Agarwal, Chief Executive Officer, Nazara Technologies (Nazara) with ETNow on 23rd September 2021:

  • Nazara categorizes its consumers based on the age group and all their acquisitions fit in these cohorts. One is 2-12-year-old young kids, 14-25-year-old male sports fans, and then above 25 gamers.
  • Nazara is present in emerging markets like India, South Asia, South Africa, and the Middle East which are seeing a strong tailwind across gaming and adjacencies to gaming.
  • The company’s last acquisition Publishme allows the company to build gaming IPs in the Middle East.
  • Having an on-the-ground understanding of what the consumer needs and how it would pan out in terms of retention engagement, consumer acquisition, and community building are important aspects for the company to succeed.
  • Nazara three years back took a call that gaming is a talent-driven business and that talent is passionate about what they create and you need to work with that talent to grow those companies.
  • Nazara’s telco business which is 15 years old, contributes around 13-14% to the company’s overall portfolio and its acquired IPs are in their growing phase like kiddopia, Nodwins, Sportskeeda, and the World Cricket Championship.
  • The company’s strategy has been to build all the friends of Nazara as a concept and then continue to build value with those founders at subsidiary levels.
  • Gaming as a secular trend was in a very advanced stage even before COVID due to two key reasons i.e launch of Jio and UPI transactions.
  • Pre-pandemic, the company was growing around 48-50% YoY. The combination of acquisition and organic growth helped the company to grow ~87% and continues to see the same momentum of growth in different businesses.
  • India is still 2-4 years old in e-gaming and esports. India’s gaming is still a very small market and is limited to mobile as an access device. The growth of this market is expected to come in the next 3-5 years.
  • It is always important as an industry to look into the markets which are far ahead (seven-eight years ahead) and then work with stakeholders today to ensure creating and evangelising the benefits of gaming.
  • Looking at the risk of gaming, it is predominantly limited to skill-based real money gaming where people are waging their money to win a large part of the money. The non-real money gaming part which is free to play mobile gaming, e-sports, or gamified learning does not fall into this bracket.
  • Clarity regarding the difference between games of chance and games of skill will help to bring clarity to the policy.
  • The company expects National E-sport Championship in the coming time to create a positive perception about gaming. This will take time and can only change through large ticket items like Olympics plus constant engagements with the stakeholders.

Asset Multiplier Comments

  • We believe rising gaming culture, evolving E-sports, improvement in digital payment and tech infrastructure, favorable macro-economic, and demographic drivers in India provide an opportunity for the growth of the company.
  • Nazara has created the entire network through selective acquisitions. This will help to explore the gaming sector boom in India.

 

Consensus Estimate (Source: market screener websites)

  •  The closing price of Nazara Technologies was ₹ 2,280/- as of 27-Sep-21. It traded at 146x/90x/61x the consensus EPS estimate of ₹ 14.7/23.6/35 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,060/- implies a PE multiple of 59x on FY24E EPS 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.”

 

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20 Sep

Expect attrition rate to get a little worse before improving – Happiest Minds Technologies

Update on Indian Equity Market:

On Monday, NIFTY ended at 17,397 (-1.07%). Among the sectoral indices, FMCG (+0.9%) was the only sector that ended higher, whereas Metal (-6.6%), PSU Bank (-4.2%), and Realty (-2.10%) ended lower. Among the stocks HUL (+2.9%), Bajaj Finserv (+1.1%), and ITC (+0.8%) led the gainers while Tata Steel (-10%), JSW Steel (-7.7%), and Hindalco (-6.1%) led the losers.

Excerpts of an interview with Mr. Venkatraman Narayanan (MD & CFO) and Mr. Joseph Anantharaju (Executive VC) with CNBC TV18 on 17th September 2021:

  • The demand scenario has only got better from where they are at the end of the first quarter. Things are looking very well for customer additions and the growth of existing customers. So, demand is looking good.
  • On the supply side they said, the supply situation is not as good, but they are managing to hold on with employee net additions of about 300 in the first quarter. They are trying to keep similar numbers for the next three to four quarters.
  • Most verticals that they are operating in seem to be showing strong demand growth with customers initiating or implementing digital transformation initiatives. A few of them should be a little ahead or having spent more, like edutech which continues to be strong for them. In high tech and retail they are seeing a good spend with the whole e-commerce move. They are seeing some initiatives in digital media as well.
  • They further said, in terms of technologies, the cloud is almost a done deal now. Most of their clients are operating on the cloud, and a lot of work is happening around leveraging artificial intelligence and analytics.
  • One thing they have noticed in the last few months is that more clients are looking at more automation. They have seen a strong uptick in automation as well, from a technology angle.
  • On attrition, they said things are going to get a little bit worse and then start improving. As there is always a slow build-up when it comes to attrition. People move out looking for new opportunities but the company keeps adding and backfilling the opened positions.
  • So demand was increasing but along with supply-side affected due to high attrition rate that’s why it is likely to get worse. The attrition rate was 15% in last quarter it will increase and then they will stabilise it over some time.
  • On margins, they said the sustainable margins should be in the range of about 22% to 24%.

 

Asset Multiplier Comments

  • The IT sector is witnessing a high attrition and there is a talent war among the competitors, which might affect the margins. The companies are trying to decrease the attrition rates which might help in margin expansion in the medium term.
  • Happiest Minds is seeing healthy demand and is targeting industry leading growth in the medium to long term.
  • The company also has a strong demand growth in verticals that they are operating.

Consensus Estimate: (Source: market screener website)

  • The closing price of Happiest Minds was ₹ 1,491/- as on 20-Sept-2021. It traded at 113x/ 90x/ 78x the consensus EPS estimate of ₹ 13.2/ ₹16.5/ ₹19.1 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,155/- implies a PE multiple of 60x on FY24E EPS of ₹19.1/-

 

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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14 Sep

Large sized deal ramp-up due to Evosys acquisition – MASTEK

Update on the Indian Equity Market:

On Tuesday, the benchmark Nifty 50 index ended at a record closing of 17,383 (+0.2%). The top gainers on the index were INDUSINDBK (+4.0%), HCLTECH (+2.5%), and HEROMOTOCO (+2.2%). The laggards were led by ULTRACEMCO (-1.1%), HDFC (-1.1%), and BPCL (-1.1%). Among the sectoral indices, MEDIA (+14.4%), PRIVATE BANK (+1.1%), and CONSUMER DURABLES (+0.9%) led the gainers while METAL (-0.4%), FMCG (-0.3%), and FINANCIAL SERVICES (-0.1%) led the losers.

Excerpts of an interview with Mr. Hiral Chandrana, Global CEO, Mastek with Economic Times on 13th September 2021:

  • The Company has a strong business in the UK and is working with the leading public sector institutions. MASTEK has a healthy business and is not going to reduce its UK exposure. They expect to continue the run in many areas including the private sector.
  • 1QFY22 was a good quarter in terms of the order book. The company is witnessing a good momentum in 2QFY22 along with an increase in deal size. The acquisition of Evosys (cloud business) is helping MASTEK get involved in larger-sized deals.
  • There are delays in some deals due to their large size and higher competition.
  • While the talent market remains challenging, MASTEK has taken a lot of steps in terms of salary hikes and skill transformation. They are looking at various elements of how training and reskilling are done.
  • 12-15 months back, the company was operating in the 13-14% EBITDA margin range. Now, they are comfortable in the 20plus percentage EBITDA margin. While there could be some margin fluctuation on a QoQ basis, the CEO believes they have good leverage in terms of fixed cost to achieve margins in the 20% plus range.
  • In some of their cloud implementation business, which was acquired through Evosys, the work is delivered through business outcomes. There are elements of pricing and realisation that can be leveraged based on the outcome delivered.
  • In cases where skills-based work is in high demand, customers realise they need to pay more. There are certain skills for which the company can command higher prices.
  • Customers are going through digital adoption and they are changing business models. They are changing their supply chains. It is a huge transformation and technology is a big enabler. Mr. Chandrana believes this trend will continue at least for the next one and a half or two years.
  • There is a huge opportunity for automation and digital adoption. Cloud has taken off in a big way, and MASTEK is investing heavily in that space for the next 18-24 months.

Asset Multiplier Comments

  • MASTEK’s presence in the local government has been established through the Evosys acquisition. There could be new business opportunities for the company with the UK government as a result of Brexit.
  • A strong order book, ramp-up of large deal wins, revival of the UK and US businesses are indicative of the revenue growth for MASTEK in the near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of MASTEK was ₹ 2,899/- as on 14-September-2021. It traded at 31x/ 25x the consensus earnings estimate of ₹ 94/ 114 for FY22E/ 23E.
  • The consensus target price of ₹ 2,890/- implies a PE multiple of 25x on FY23E EPS of ₹ 114/-.

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 Aug

Wage hikes impacted margins in Q1FY22 – Tech Mahindra

Update on the Indian Equity Market:

On Monday, NIFTY ended higher at 15,885 (+0.8%) as it closed near the intraday high level of 15,983. Among the sectoral indices, REALTY (+4.8%), AUTO (+1.4%), and IT (+1.1%) ended higher, and there were no sectoral losers. Among the stocks, TITAN (+3.6%), SHREECEM (+3.5%), and BPCL (+3.1%) led the gainers while UPL (-2.3%), TATASTEEL (-1.5%), and BAJAJFINSV (-0.6%) led the losers. 

Excerpts of an interview with Mr. CP Gurnani, MD&CEO, and Mr. Milind Kulkarni, CFO of Tech Mahindra (TECHM) with CNBC TV18 on 30th July 2021:

  • A few of the things that worked well for TECHM over 1QFY22 were that the company focused on bringing in large deals that help in bringing order backlog and predictability in the operations. 
  • All of the company’s capital allocation is towards cloud and artificial intelligence (AI). TECHM has also made 5G investments in software-defined networks and cloud-based networks. The company usually looks forward to deal wins of US$ 800-1,000 mn every quarter and has signed one of its largest deals in healthcare in 1QFY22.
  • The company did better in a seasonally weak quarter and was able to maintain margins of 15%. There could be tailwinds coming from operating leverage and headwinds coming in terms of a higher cost of the employee addition and retention. Yet, the company is confident of maintaining the EBITDA margin.
  • Speaking of the company’s costs, there have been two increases. One is the salary increments, second is that the company had to employ a higher number of onsite contractors due to Covid restrictions. The company recovered from the impact partly through operational efficiency with improved utilisation of 60 bps and through increased offshoring.
  • Inorganic growth is going to continue to be the company’s differentiator. The company has improved a lot of synergy goal delivery, and integration capability. The company is also getting a lot of management talent through its acquisitions.
  • The company had planned for 16-18% attrition as the overall demand is not only for Tech Mahindra. The management has repurposed the company to look at tier 2 cities like Nagpur, Trivandrum, Chandigarh, Bhubaneshwar, and Kolkata for hiring. But the management may give another salary hike if the market moves in that direction.

Asset Multiplier Comments

  • As the country recovers from the second covid wave, the strong demand for the entire IT sector augurs well for the company in the mid to long term.
  • With strong deal wins, robust pipeline, margin levers like automation, offshoring, and cost optimization by centralising the back offices of newly acquired entities, TECM is confident of delivering 15%+ EBIT Margins. We believe this confidence is justified. 

Consensus Estimate: (Source: market screener website)

  • The closing price of TECHM was ₹ 1,206/- as on 2-August-2021.  It traded at 19x/18x/16x the consensus earnings estimate of ₹ 63/69/77 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,210/- implies a PE multiple of 16x on FY24E EPS of ₹ 77/-.

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...
22 Jul

Confident of double-digit growth in FY22 – HCL Tech

Update on the Indian Equity Market:

On Thursday, NIFTY ended higher at 15,824 (+1.2%) as it closed near the intraday high level of 15,835. METAL (+3.0%), IT (+1.8%), and REALTY (+1.75%) led the sectoral gainers and there were no sectoral losers. Among the stocks, JSWSTEEL (+5.9%), TECHM (+5.4%), and BAJFINANCE (+4.2%) led the gainers while HINDUNILVR (-2.3%), ASIANPAINT (-1.8%), and BAJAJ-AUTO (-1.2%) led the losers.

Excerpts of an interview with Mr. C Vijayakumar, CEO & MD, and Mr. Prateek Aggarwal, CFO of HCL Technologies (HCLTECH) published with CNBC TV18 on 20th July 2021:

  • The company has seen a second consecutive quarter of revenue miss due to execution capabilities getting hit by the second Covid wave, and the company has a lot of concentration in NCR. As the revenue will recover in Q2FY22, the company is confident of the full year’s double-digit growth performance.
  • Speaking on segments, the products and platform segment has been disappointing for the last two quarters. The company expects a low single-digit growth for this segment, as around 25% of the products are either declining in nature or are being discontinued. IT services had a muted quarter, due to some executions and transitions in Europe that are taking longer than expected.
  • The company is expanding in new markets (geographically) categorized as Focus countries and New Frontier countries. The company has a reasonable presence in the countries under the Focus category and the growth rate will be higher than the company growth rate. New frontier countries are mid to long-term bets. These markets have to be built and are expected to give good outcomes in a couple of years.
  • The deals that the company has won are organic in nature, and a lot of them require to be built by hiring more talent, and onboarding them. The hiring of freshers could be more than the current guidance of 20,000-22,000. Speaking on salary hikes, the salaries are currently the same at entry-level, but the company expects to see a salary hike percentage in the next couple of years to be more than the rest of the company.
  • The company has accomplished a very good quality order book in the last 2 quarters, a lot of it being good long-term programs having annuity revenues, and are good capacity programs for digital transformation.

Asset Multiplier Comments

  • As the country recovers from execution capability-related issues caused by the second covid wave, the revenues can be expected to recover in FY22.
  • A strong order book that contributes to annuity revenues will position the company better in the mid to long term.

Consensus Estimate: (Source: market screener website)

  • The closing price of HCLTECH was ₹ 979/- as of 22-July-2021. It traded at 20x/17x/16x the consensus earnings estimate of ₹ 50/57/62 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 975/- implies a PE multiple of 16x on FY24E EPS of ₹ 62/-.

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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19 Jul

Combined proposition with CAPCO is a game changer – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY closed 1.1% down at 15,752. Top gainers in NIFTY50 were NTPC (+2.0%), BPCL(+1.6%), and DIVISLAB (+1.0%). The top losers were HDFCBANK (-3.3%), INDUSINDBK (-2.8%), and HDFCLIFE (-2.7%). The only sectors to gain wereREALTY (+0.4%), and PHARMA (+0.2%) while the top sectoral losers were PRIVATE BANK(-2.0%), FINANCIAL SERVICES (-1.9%), and BANK (-1.9%).

Combined proposition with CAPCO is a game changer – WIPRO

Excerpts of an interview with the Management (CEO, CFO, and Chief Human Resources Officer) of Wipro, aired on CNBC TV18 dated 16th July 2021:

  • WIPRO has guided to an annual revenue run rate of US$ 10 bn.
  • Management said they will focus on driving consistent progression for growth and take a quarterly view. For 2QFY22, management has guided to a sequential growth of 5%-7%.
  • WIPRO has taken some steps in the last 12 months in terms of a simpler operating model, greater focus on growth, more focused strategy, focus on talent acquisition and development. The company has executed on these streams and customers and partner ecosystems have started responding to these improvements.
  • Management has created a buzz by saying that they would make a significant announcement in relation to their Cloud business over the next few weeks. Without giving any further details, the management has only said that the announcement would set their ambition in the cloud space more clearly.
  • WIPRO saw margin pressure in 1QFY22. Management has reiterated that capturing the growth momentum remains their priority, so they will continue to undertake investments.
  • Management had earlier guided for the margins to be in the band of 17% to 17.5%. 1QFY22 margins were well ahead of that at 18.8%.
  • 2QFY22 will also have some margin headwinds as the company will continue making investments to recapture demand, focus on talent retention by way of salary increase, and full quarter integration impact of CAPCO deal. However, the management remains optimistic regarding the quality of operating leverage that company can create in the growth phase going ahead.
  • WIPRO’s attrition in 1QFY22 was higher than industry levels. The management is confident that the supply chain processes have been finetuned to ensure demand servicing so they won’t face any issues.
  • Management is tackling the high attrition issue by focusing on fresher intake, salary hikes, quality of work, rescaling, and engagement. As a result of all these interventions, attrition will come to a much more manageable number moving forward.
  • As an update on the CAPCOdeal, management said that while these are still early days of the integration, the partnership is moving in the right direction. The way the two teams are connecting and complementing each other is good. Management has identified severalclients where they are offering the combined proposition. The level of response from clients is also very good and the teams have had several deal wins together.

 

Asset Multiplier comments:

  • Companies across the IT industry have been facing a talent supply crunch. While this is a good sign as the supply is chasing the higher demand, it is not without its drawbacks.
  • Lower talent availability leads to higher demand, better opportunities, and hence higher attrition. Attrition beyond control may put a roadblock in deal ramp-ups as there is a time lag that goes into new hire training. In addition, talent retention begins to cost more, thus limiting the operating margins.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of WIPRO was ₹ 575/- as of 18-July-2021.  It traded at 26x/ 23x/ 21x the consensus earnings estimate of ₹ 22.0/ 24.5/ 27.2for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 545/- which trades at 20x the earnings estimate for FY24E of ₹ 27.2/-

 

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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15 Jul

Double-Digit revenue growth expected in FY22 – Mindtree

Update on Indian Equity Market:

On Thursday, markets ended higher with Nifty closing 70 points to close at 15,924. HCLTECH (+5.0%), L&T (+3.7%), WIPRO (+3.0%) were the top gainers on the index while ONGC (-3.0%), EICHERMOT (-1.3%) and BHARTIARTL (-0.9%) were the top losers for the day. Among the sectoral indices,  REALTY (+4.2%), IT (+1.3%), and BANK (+0.7%) were top gainers, while AUTO (-0.4%), MEDIA (-0.4%), and PSUBANK (-0.3%) were the losers.

Excerpts of an interview with Debashis Chatterjee, MD, and CEO of Mindtree on CNBCTV18 dated 14th July 2021:

  • Robust Deal Pipeline and order book growth was seen and more renewals led to an increase in the scope of the value of the deals and the new deal wins have been characterised by multi-year long-term deals and not just project-based deals.
  • The company’s strategy of 4x4x4 across 4 of its major service lines is helping the company cross-sell and upsell a lot of the services in the existing deals in its 4 service lines of Customer Service, Data Analytics, Cloud Management, and Enterprise IT.
  • The company has guided for double-digit revenue growth of around 20% and improved EBIT margins in FY22. It hopes to achieve this as a result of the foundational changes in cost efficiencies it has done over the last 2-3 years.
  • Quarter specific and client specific headwinds may occur on the margins front. With the opening up of client businesses and increase in revenue growth aided discretionary spending, the company expects a topline growth as well.
  • The company is rolling a subsequent wage hike in Q2FY22 to deal with high levels of attrition currently faced by the industry. The company plans to undertake significant outreach programs with its personnel to manage attrition.
  • BFSI is seeing significant revival and the company expects its client base and deal wins to grow over the next few quarters after covid-induced consolidations. As far as the Travel Sector is concerned the effects of the pandemic are still looming. Full recovery may take some quarters, new contactless business models may help the company with new deal wins as the clients reimagine their business models.

Asset Multiplier Comments:

  • All Indian IT companies are enjoying the tailwinds arising out of the pandemic. Mindtree is well poised to grow further due to growth in upcoming technologies.
  • The Company is making efforts to deal with the issue of rising attrition. The rising attrition is a result of a talent war in the Indian IT Industry due to the low supply of skilled professionals.

Consensus Estimates (Source: market screener website): 

  • The closing price of Mindtree was ₹ 2,732/- as of 15-July-2021.  It traded at 33x/30x/25x the EPS estimate of ₹ 84/ ₹ 92/ ₹ 108 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 2,830/- which trades at 26x the EPS estimate for FY24E 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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30 Jun

Technological disruption accelerated in the past quarters – LTTS

Update on the Indian Equity Market:

Indian indices ended in the red for the 3rd consecutive day after profit booking by investors. The Nifty 50 ended at 15,722 (-0.2%), dragged by the MEDIA (-0.8%), BANK (-0.7%), and FINANCIAL SERVICES (-0.6%). IT (+0.6%) was the only sector which ended with gains. Among the Nifty 50 stocks, COALINDIA (+1.3%), RELIANCE (+1.2%), and DIVISLAB (+1.1%) ended with gains while SHREECEM (-1.9%), BAJAJFINSV (-1.8%), and POWERGRID (-1.5%) ended with losses.

Excerpts of an interview with Mr. Amit Chadha, CEO & MD, L&T Technology Services (LTTS) published in the Financial Express on 30th June 2021:

  • LTTS’s domestic market comprises plant engineering and product design related business, both for Indian conglomerates and MNCs. On the product design side, LTTS works with various global engineering centres or captive centres in the transportation, industrial products, medical and telecom segments. In the plant engineering segment, they help FMCG and chemical companies with the engineering support domain.
  • Over the past one year, LTTS has pushed the boundaries of virtual development by securing remote access to its labs and developing a Home Lab environment for select clients where engineers have high computer equipment replicated at their homes.
  • Engineering and the R&D (ER&D) services involve a suite of services- from ideation, conceptualisation, design, product development, testing and after-market launch, to support and enhance existing products.
  • In the current scenario, a lot of the work has evolved from physical to the secured virtual space- through simulation, high-end systems, and servers. This work can be done anywhere and can be accessed from anywhere.
  • Unlike other industries, the ER&D segment necessitates a part of the work to be executed and experienced upon in labs and requires the physical presence of the workforce in design centres.
  • A major trend LTTS is observing is the pace at which change is taking place. The acceleration of technological change and disruption that has been affecting processes, products, robotic automation in business functioning in the past few quarters has been different from that in the last 10 years.
  • The second megatrend observed is that companies are partnering with start-ups who have point solutions and are creating a technology ecosystem along with them. Enterprises are relying on bringing all the specialised capabilities and integrating them from start to finish. With the travel disruptions under the new normal, customers are comfortable with this nature of work being done out of offshore delivery centres.
  • The biggest change in technology trends is seen in the areas of electric autonomous connected vehicles, 5G technology, digital healthcare and digital manufacturing.
  • As an ER&D destination, India has gained prominence as a strategic R&D hub focused on innovation and disruptive technology. Clients seeking technology partners or India captive centres are no longer offshoring just for cost benefits, but to achieve flexibility and availability of talent, time to market, and localised products for developing and developed markets. This is where LTTS’ engineering domain expertise will help it stay ahead of its competition.
  • In the plant engineering segment, there has been a push from the Government with its ‘Invest in India’ initiative and promotion on setting up manufacturing facilities in India.

Asset Multiplier Comments

  • LTTS is a key beneficiary of the increasing tech adoption in ER&D. With 50% of its revenues coming from digital, LTTS will likely witness revenue growth from a growth in ER&D spends by Companies.

Consensus Estimate: (Source: market screener website)

  • The closing price of LTTS was ₹ 2,886/- as of 30-June-2021. It traded at 34x/ 29x/ 26x the consensus earnings estimate of ₹ 85.1/ 101/ 110 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,573/- implies a PE multiple of 23x on FY24E EPS of ₹ 110/-.

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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06 May

Net margins to remain around 14%: L&T Infotech

Update on Indian Equity Markets:

The upward momentum in Indian markets supported by RBI announcements continued on Thursday as Nifty closed the day 107 points higher at 14,725. Within the index, HINDALCO (5.7%), HEROMOTO (4.7%), and WIPRO (4.4%) were the highest gainers while UPL (-1.4%), BAJAJFINSV (-1.0%) and POWERGRID (-1.0%) were few of the losers. Within the sectoral indices, METAL (2.5%), IT (1.8%), and AUTO (1.8%) led the gainers while PSU BANK (-1.2%), PHARMA (-0.2%), and PVT BANK (-0.1%) were the only losers..

Excerpts of an interview with Mr. Sanjay Jalona, CEO, L&T Infotech (LTI) with CNBC -TV18 dated 5th May 2021:

  • The Company will focus on investing for growth and localization in FY22E. The management is confident of achieving growth in the leaders quadrant for FY22E. 
  • The energy sector has been underperforming given the shift to renewable energy. The Company is expected to witness new avenues for growth in the segment. The management also believes that the ability for insurance companies to spend on discretionary has gone down.
  • The Company reported a 320 bps YoY improvement in EBIT margin with the help of cost rationalization efforts. He highlighted that the Company is expected to produce net margins in the narrow band of around 14 percent.
  • The Company gave FY21 wage hikes in January and has advanced the FY22 wage hike cycle to April from earlier norms of July. He said that the war for talent and attrition is going up in the Information Technology space.
  • The Company witnessed lower exit velocity, record hiring, and improved customer sentiment. The attrition rate is going up for the industry and by offering early wage hikes, Company is trying to stay ahead of the industry curve.

Asset Multiplier Comments:

  • The lower attrition rates and earlier wage hikes will help Company to retain the top talent to deliver growth for the Company. Hence the Company is confident of growth in the leaders quadrant for FY22E.
  • Tailwinds of work from home and other cost rationalizations are expected to help the Company to achieve net margins target of around 14%.

Consensus Estimates (Source: market screener website):

  • The closing price of LTI was ₹ 3,814/- as of 6-May-2021.  It traded at 30x/ 26x the consensus EPS estimate of ₹ 126.2/ 144.8 for 22E/23E respectively.
  • The consensus price target is ₹ 3,960/- which trades at 27x the EPS estimate for FY23E of ₹ 144.8/-

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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