Tag - cloud

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.”

 

 

By HCL Technologies , , 0 Comments Read more...
30 Dec

Expect 2021 tech spend growth to be in mid-single digits – Mphasis

Update on the Indian Equity Market:
On Tuesday, Nifty 50 ended at an all-time high of 13,933 (+0.4%), as gains in the banking, IT, and Technology sectors propelled the index higher. Among the stocks, INDUSINDBK (+5.7%), TECHM (+2.2%), and AXISBANK (+2.1%) led the gainers while HINDALCO (-2.1%), NESTLEIND (-1.8%), and COALINDIA (-1.7%) led the laggards. PRIVATE BANK (+1.6%), BANK (+1.4%), and FINANCIAL SERVICES (+1.0%) led the sector gainers. MEDIA (-1.5%), METAL (-1.1%), and REALTY (-0.3%) led the sectoral losers.

Excerpts of an interview of Mr. Nitin Rakesh, CEO & Executive Director, Mphasis with CNBC TV18 on 29th December 2020:
• Mphasis has witnessed a good expansion of deal pipeline in the last 3-4 quarters but the type of deals is different. The conversation has been about transformation deals, and acceleration of the work done for clients, such as the adoption of application transformation, and moving work to the cloud.
• Their guidance for a pretty strong year in the direct business remains on track. There were 87% (in terms of Total Contract Value (TCV)) more deals done in 1HFY21 compared to 1HFY20. This is expected to translate nicely to the overall revenue momentum.
• The pipeline is pretty strong in terms of the size of deals, the number of deals, and the nature of deals are very encouraging.
• They are expanding their business in Europe, which was resilient to lockdowns in certain areas. Mr. Rakesh feels the impact of these lockdowns needs to be seen on the sales pipeline. In the short to medium term, he believes they are good to sustain through the lockdowns.
• The growth in the business has been broad-based. Hi-tech, banking, logistics – these segments have done well.
• He believes the recovery post the Covid-19 crisis will be different compared to the recoveries from the Y2K crisis and the global financial crisis. This is primarily due to shifting in consumption patterns from a technological standpoint, which will change the importance of technology in every business. Second, the type of competency and capability required is going to be different.
• The market opportunity will exist over the next 3 years. The total tech spend will go up probably higher than it has been in the last 3-5 years. The tech spends are expected to grow in mid-single digits in CY21.
• He believes Mphasis will see above-market growth.
• Mphasis has a pretty robust investment plan. There has been investment in two new tribes in the last six months- Experience and Everything as a platform. They are also investing ahead of the curve in areas such as Quantum Computing.
• The entire value chain that involves all things cloud, AI and machine learning will the areas where Mphasis will keep investing.

Consensus Estimate: (Source: market screener website)
• The closing price of Mphasis was ₹ 1,555/- as of 29-December-2020. It traded at 24x/ 20x/ 18x the consensus earnings estimate of ₹ 66/ 77 /87 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1,569 implies a PE multiple of 18x on FY23E EPS of ₹ 87/-.

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, Mphasis , , 0 Comments Read more...