Tag - IT

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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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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27 Apr

Expanding hiring of freshers based on demand – HCL Tech

Update on Indian Equity Markets:

Markets continued their upward momentum on Tuesday as Nifty closed the day 174 points higher at 14,659. Within the index, HINDALCO (5.1%), TATASTEEL (3.9%) and DIVISLAB (3.5%) were the highest gainers while HDFCLIFE (-3.6%), SBILIFE (-1.4%) and MARUTI (-0.9%) were few of the losers. All the sectoral indices closed in green with METAL (2.8%), PSUBANK (2.5%) and MEDIA (1.8%) leading the pack. 

Excerpts of an interview with Mr C Vijaykumar, CEO and Prateek Aggarwal, CFO, HCL Technologies Ltd (HCLTECH) with CNBC -TV18 dated 26th April 2021:

  • During the Mar-21 quarter, bookings stood at $3.1bn, led by 19 large deal wins. These deals are spread across geographies and industries. Most deals are spread across 3-5 years, of which four are integrated across service lines.
  • The Company has prepared a list of seven countries i.e. Germany, Canada, Japan, Spain, Portugal, Mexico and Brazil. These are countries witnessing a large and growing IT market where the Company is currently not present. Setting up offices in new countries is a one-time exercise.
  • The Company is also expanding hiring in the freshers space, considering the demand for the next few years. The hiring also involves certain cost elements.
  • The Company has launched HCL Now, which is the Cloud version of its acquired products. This is strengthening partnerships of HCLTECH with hyperscalers.
  • The Company is expected to deliver double-digit growth in constant currency. The management highlighted that they have provided floor price on revenue growth for next year. 
  • The products and platforms business had an impairment charge of $16mn, leading to a 60 bps impact on margins.   

Asset Multiplier Comments:

  • Backed by deal wins in both small and big pockets and continued momentum in cloud and data, the company looks set to achieve its target of double-digit growth over FY22E.
  • Setting up offices in new countries to expand the geographical presence is expected to create a revenue stream and diversify the revenue base for the Company in the long run.

Consensus Estimates (Source: market screener website):

  • The closing price of HCLTECH was ₹ 928/- as of 27-April-2021.  It traded at 18x/ 16x the consensus EPS estimate of ₹ 51.0/ 57.4 for 22E/23E respectively.
  • The consensus price target is ₹ 1,119/- which trades at 19x the EPS estimate for FY23E of ₹ 57.4/-

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 Apr

Looking to maintain double-digit growth over FY23-24E – TCS

Update on the Indian Equity Market:

After a mid-week break, markets continued to remain volatile as Nifty started the day lower but managed to close 0.5% higher at 14,581. Within the index, TCS (4.0%), WIPRO (3.5%) and CIPLA (3.3%) charged the index higher while GRASIM (-3.1%), EICHERMOT (-3.0%) and MARUTI (-2.5%) led the losers. Among the sectoral indices, PHARMA (1.4%), METAL (1.4%), and FIN SERVICES (1.2%) were some of the winners while PSU BANK (-1.3%), AUTO (-1.3%), and MEDIA (-0.7%) closed in the red. 

Excerpts of an interview with Mr. Rajesh Gopinathan, MD & CEO, NG Subramaniyam, COO, V Ramakrishnan, CFO, and Milind Lakkad, Executive VP of Tata Consultancy Ltd (TCS) with CNBC -TV18 dated 13th April 2021:

  • During the Mar-21 quarter, almost all the markets and verticals reported sequential growth. The hospitality and travel areas are still under stress. In response, the company is coming up with new ways of investments and then preparing for the post-pandemic era. 
  • The technology shift is moving as per the expected trajectory. The industry is witnessing overall growth in the transformation agenda.
  • With the deal momentum of US$ 9.2bn, a mixture of smaller and big deals, and an improving economic outlook, the company has set the target of maintaining double-digit growth in revenues over FY23-24E.
  • As per the full-year plans for TCS, the company completed 19,400 hires. The number includes hiring for FY22E as well. Additionally, the company has made investments for taking business from consulting.
  • The margin profile for large deals is eroding due to competition. From here on, innovative solutions will drive the sustainability of margins.
  • The company expects a positive trend in both emerging and developed markets. There are lots of opportunities in manufacturing, telecom, retail, and media.

Asset Multiplier Comments:

  • Backed by deal wins in both small and big pockets and continued momentum in cloud and data, the company looks set to achieve its target of double-digit growth over FY23-24E.
  • Record employee addition of 19,400 hirings along with record low attrition of 7.2% strengthens the growth opportunity prospects over the next two years. 

Consensus Estimates (Source: market screener website):

  • The closing price of TCS was ₹ 3223/- as of 15-April-2021.  It traded at 30x/ 27x the consensus EPS estimate of ₹ 108/ 119 for FY22E/23E respectively.
  • The consensus price target is ₹ 3,401/- which trades at 29x the EPS estimate for FY23E of ₹ 119/-

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 Feb

Actively looking for acquisitions – Happiest Minds

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,315. Among the sectoral indices, Bank (+3.3%), Private Bank (+3.3%), and Financial Services (+2.9%) closed higher. Metal (-0.5%), IT (-0.4%) and Pharma (-0.3%) closed in the red. Axis Bank (+6.2%), ICICI Bank (+4.2%), and SBI (+4.0%) closed on a positive note. SBI Life (-2.3%), HDFC Life (-2.1%), and DR Reddy (-1.8%) were among the top losers.

Excerpts from an interview of Mr. Joseph Anantharaju, Executive Vice Chairman & CEO of Product Engineering Services, and Venkatraman Narayanan, MD and CFO, Happiest Minds with CNBC-TV18 dated 12th February 2021:

  • The company guided for a 20% revenue growth rate. The demand has panned out well.
  • The company won 6 new deal wins in 3QFY21.
  • Speaking about verticals, Mr. Joseph said edutech was doing well. The company received new requests and projects.
  • The industrial, B2B, and logistical space seem to be having new initiatives, which are leading to higher demand.
  • On operating margins, he said for the last 3 quarters the company is delivering margins in the range of 21-23%.
  • The company has guided for a profit margin of 22%-24% in FY22E.
  • On revenue growth, the company will maintain long term growth at 20%.
  • The company witnessed some efficiencies in the past 3 quarters, the plan is to retain some of those going forward.
  • The company recently completed an acquisition of PGS for 8.25 mn$. The company is actively looking for acquisitions.
  • On dividend, the company has not yet declared but the board will look after it.

 

Asset Multiplier comments:

  • The improvement in new deals signed and increased focus on IT budgets by clients has been mentioned by most of the IT Companies during the December quarter earnings call.
  • In 3QFY21, most of the IT companies have significantly expanded their operating margins, which was a result of continuing control on costs and improved sales.
  • It would be interesting to watch the performance of IT companies in the next couple of quarters, as companies have guided for lower margins but if cost control continues (led by on-off shore mix, WFH) then the margins might sustain these high levels.

 

Consensus Estimate: (Source: TIKR website)

  • The closing price of Happiest Minds was ₹ 401 as of 15-February-2021.  It traded at 36x/35.8x the consensus Earnings per share estimate of ₹ 11/11.2 for FY21E/FY22E/ respectively.
  • The consensus average target price is ₹ 385/- which implies a PE multiple of 34x on FY22E EPS of 11.2/-.

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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27 Oct

Prioritizing growth over margin expansion– Mphasis

Update on the Indian Equity Market:

On Monday, Nifty closed 1.4% lower at 11,768. Within NIFTY50, HDFCLIFE (+3.2%), NSETLEIND (+2.6%), and KOTAKBANK (+2.0%) were the only gainers, while HEROMOTOCO (-6.7%), BAJAJ-AUTO (-6.0%), and HINDALCO (-5.3%) were the top losing stocks. All the sectoral indices closed with losses led by METAL (-3.5%), AUTO (-3.2%), and MEDIA (-2.7%).

Prioritizing growth over margin expansion– Mphasis

Excerpts of an interview with Mr. Nitin Rakesh, MD & CEO, Mphasis, aired on CNBC-TV19 on 23rdOctober 2020:
● Mphasis delivered a strong growth in Direct Core segment in 2QFY21. The growth has been broad based and there are several drivers of this growth:
1. 2QFY21 was the 3rd consecutive quarter of $ 200mn+ net TCV deal wins. 2QFY21had highest ever TCV deal wins of $ 360mn. The momentum of deal wins is translating in good growth for the direct core channel.
2. Mphasis has seen good growth in existing strategic accounts as well as from new clients. Growth from new clients was 30% YoY in 2QFY21.
3. Mphasis has also been enjoying strong growth for the past 6 quarters from their European business. European business revenue growth was ~27%-28% YoY for 2QFY21.
● Mphasis has already crossed the pre-pandemic peak revenue in 2QFY21 itself. Mr Rakesh expects that the current growth trajectory should continue and Mphasis can deliver mid to high single digit revenue growth for FY21E.
● Mphasis’s MRC (Minimum Revenue Commitment) from strategic account of DXC expires in Sep-21. They still have $ 200 mn to be consumed in next 4 quarters. Post that, DXC channel will become like any other client for Mphasis and management is not worried about retaining the clients.
● Mphasis has stuck to their EBIT margin guidance band of 15.5%-16.5%. Management’s philosophy going into FY21 has been to maximize the growth potential in the market considering a lot of Mphasis’ digital capabilities are in high demand. Mphasis has prioritized growth over margin expansion, at the same time held margins steady.
● Mphasis istaking the margin operating efficiencies and re-investing it back into competency building, sales expansion, and investingin ramp up of recent deal wins.

Consensus Estimate (Source: market screener website)
● The closing price of MPHASIS was ₹ 1,356/- as of 26-October-2020. It traded at 20.7x/ 17.9x/ 15.8x the consensus EPS estimate of ₹ 65.6/75.8/85.7 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 1,483/- implies a PE multiple of 17.3x on FY23E EPS of ₹85.7/-.

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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11 May

Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

Update on the Indian Equity Market:

On Friday, NIFTY ended up 53 pts (+0.57%) at 9251 level.

Among the sectoral indices, PHARMA (2.13%), FMCG (1.9%) and IT (0.83%) were among the top gainers while PSU BANK (-1.9%), AUTO (-1.29%) and PVT BANK (-0.7%) were the losers. HINDUNILVR (4.3%), SUNPHARMA (+3.9%) and DRREDDY (+3.7%) were the top gainers. NTPC (-3.7%), M&M (-3.7%) and AXISBANK (-3.6%) were the top losers.

 

Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

 

Edited excerpts of an interview with Mr C Vijayakumar, Chief Executive Officer (CEO) of HCL Technologies:

 

  • Digital transformations at global companies, expected over the next two to three years, will now hasten in crisis-mode due to the Covid-19 pandemic. Mr Vijayakumar said sectors or companies that were not looking at outsourcing will do so now to save costs.

 

  • When asked between the United States and Europe, where does he expect growth to pick up, he said that the US and Europe are not going to be very different, because in Europe, some geographies are already opening up. Around 23 states in the US have also already relaxed some guidelines and there is some hope that things will stabilize quickly, but customer behavior may not change immediately.
  • His views on traditional and digital services in coming fiscal years: Traditional services also have some very strong propositions, like digital workplace, engineering services. Some of the demand is intact and it is only getting accelerated. So, barring the short-term challenge, HCL Technologies will have good growth momentum. Mr. Vijaykumar thinks there could be a hit in the first quarter for sure. Industrial, auto, and aero have been impacted significantly, and non-grocery retail is also quite seriously impacted. But, almost 12% of revenue comes from Life Sciences and close to 20% of revenue comes from tech services. Both are strong verticals.
  • When asked about the kind of projects and wins expected after the recovery, he replied that Digital spends will (only) accelerate. Whatever transformation was expected to happen over the next two to three years, it’s almost going to get done in crisis mode, because for all the businesses, digital is the most viable channel to engage. He sees acceleration in cloud adoption, digital transformation, spend on digital workplace and cybersecurity. He believes the hospitals of the future will only have operation theatres and ICUs, everything else will be done through telemedicine.
  • He further informed that since work from home has been implemented, the productivity is much higher. They have tools to track productivity of every individual. Currently, there is a lockdown so obviously everybody is glued on to work, but how a large-scale work from home stacks up in a non-lockdown scenario needs to be seen in future.
  • He stated that HCL Technologies is very open to look into the opportunities to acquire companies, products, platforms or capabilities if there are attractive assets available. They have not only been acquisitive, but have made the acquisitions work.

 

Consensus Estimate: (Source: market screener)

  • The closing price of HCL Technologies was ₹ 519/- as of 8–May-20. It traded at 13x/ 11.5x the consensus EPS estimate of ₹ 40.2/45.1 for FY20E/ FY21E respectively.
  • Consensus target price of ₹ 580/- implies a PE multiple of 13x on FY21E EPS of ₹ 45.1/-

 

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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28 Apr

Current situation not comparable with 2008 financial crisis- Mr Salil Parekh

Excerpts from an interview of Mr.Salil Parekh,CEO, Infosys with ET Now on 27th April 2020:

Update on the Indian Equity Market:

On Monday Nifty closed 1.4% higher at 9,282. Among the sectoral indices PVT bank (3.0%), IT(2.4%), FIN Services (2.1%) closed higher. None of the sectors close negatively. Britannia (+7.0%), Indusind Bank (+6.6%) and Bajaj Finserv (+6.2%)closed on a positive note. NTPC (-1.1%), HDFC Bank (-0.9%) and M&M (-0.8%) were among the top losers.

  • The company doesn’t see any clients in this situation to go bankrupt as there is tremendous amount of fiscal support in the US market.
  • There will be some near-term challenges as there are some requests for price cuts and credit extensions. Due to this reason the company has suspended revenue guidance.
  • The US government’s massive $2-trillion stimulus is expected to provide liquidity to companies, including banking and financial services that are the biggest outsourcers of IT.
  • Infosys gets 31% of its revenue from banking, financial services and insurance (BFSI). Infosys admitted in its recent earnings call that the vertical would be impacted negatively due to lower interest rates, deferred loan payments and low premiums.
  • While comparing the current situation with 2008 global financial crisis, he said the current situation has affected everyone every geography, every sector at the same time and in a way nothing from recent experience is equivalent with current situation.
  • Speaking on whether clients would look to reduce their dependence on India, particularly for BPM, given the disruptions in these operations because of lockdowns, he said even if there is any impact it will be on the smaller players.
  • On-shore 98% of employees are working from home and In India it is 93%, including BPM. Due to the strength which the company has demonstrated many large clients are going to focus on Infosys and some of the smaller players will lose out on that.
  • Clients are seeing Infosys as a stable partner with a very strong financial position and with $3.6 billion in cash reserve the company in a stable position.
  • He said the company is having discussions with clients on vendor consolidation, on how they want to look at some captives, a lot of discussions in the cloud, movement on virtualization, workforce transformation.
  • Speaking about the whistleblower allegations made against the company in October 2019, he said the company is extremely transparent and the management is committed to keep focus on clients, shareholders and employees.

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

  • The closing price of Infosys was ₹ 665/- as of 27-April-2020.  It traded at 17.7 x/ 15.6x/ 14.3x the consensus earnings per share estimate of ₹ 37.4/42.6/46.3 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price forInfosys is ₹ 725/- which implies a PE multiple of 15.6x on FY22E EPS of ₹46.3/-.

 

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 Apr

IT industry adopting new methods to tackle the crisis: C P Gurnani Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra

Update on the Indian Equity Market:

On Friday, NIFTY ended up 170 pts down (-2.06%) at below 8,100 level as ratings downgrade for the banking sector, due to the impact of the crisis and ensuing stressed asset concerns, impacted the financial stocks.

Among the sectoral indices, PHARMA (4.8%), and FMCG (0.7%) were the only gainers while PVT BANK (-5.5%), BANK (-5.3%) and FIN SERVICE (-4.3%) were the top losers. SUNPHARMA (+9.6%), CIPLA (+8.3%) and ITC (+6.7%) were the top gainers. AXISBANK (-8.9%), INDUSINDBANK (-8.3%) and ICICIBANK (-7.4%) were the top losers.

IT industry adopting new methods to tackle the crisis: C P Gurnani

Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra

India has spent only 0.3 per cent (of the GDP) and the World Bank has suggested the countries to spend up to 6-7 per cent said Mr Gurnani.

The world is heading towards a ‘new normal’ due to the current crisis, by almost forcing businesses to work from home, the IT industry has learnt a lot from this event.

Edited excerpts of an interview C P Gurnani, Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra; dated 31st March 2020:

His views on the current crisis and its impact on IT industry – He is of the opinion that India has been very lucky. Even today, only ~ 1,100 cases though it’s true that India’s testing infrastructure is not as strong as the US. Everyone is also praying that with rising temperature, the propagation of the virus will be reduced. So, he is not expecting further lockdown but probably a new normal will be kicked in. The new normal is, people will keep safe distance and they will be a lot more hygienic than ever before.

When asked what the industry as a whole has learnt, he divided this into three chapters. The first one is the period ‘before the crisis’, second is ‘during the crisis’ and third is ‘after the crisis’. He said that everyone knew that they have to become healthy, but had been ignoring it. Everyone knew that they have to reduce pollution. During the pandemic, many things have become reality. It was an opportunity for Tech Mahindra and others to take those decisions, which were never taken before. Tech M have now introduced many collaborative tools and launched workstation as a service, remote diagnostics networks, content delivery platforms and omni-channel retail experiences and so on. Many of these platforms were ready but were not launched yet, but now it is becoming a reality.

When asked about the challenges in the ‘post crisis’ environment he stated that the reality is the government agencies have now officially declared recession. India has spent only 0.3 per cent (of the GDP) and the World Bank has suggested the countries to spend up to 6-7 per cent. He thinks there is headroom to kick-start the economy. Consumers’ confidence comes back very fast. Infrastructure spending will increase the cash flow. Though the B2B businesses will take little longer (to come back to shape), he thinks the doomsayers are being very negative. It is less than a year cycle of recovery.

His comments on hospitality, travel and aviation sector: Hospitality sector is not a big one for Tech M as it contributes less than 3 per cent of the total revenue. Travel and hospitality have also seen these challenges in the past. Besides, this sector has always been the first one to get impacted. But the sector also bounces back.

When asked about the benefit to Tech M from the Telecom Vertical as the company has a good exposure to this sector, he said that he is not denying it but everyone is in crisis. Keeping the human capital intact and lights on are important themes.

He was asked about the sales team performance, whether they are still chasing for deals on ground or stopped. He replied that everyone is talking to everybody. No conversation has stopped. In fact, the number has increased. However, we need to remember that the sales team are not talking to organizations, but only to individuals. Clients are not having their board meetings or committee meeting now. Everyone is on a fire-fighting mode. Overall, he is proud of the associates for the way they have rallied. Offices in the Philippines and India are not working, but none of Tech M’s customers has been impacted.

He also added that almost 90 per cent or their employees are working from home. The remaining go to office because of the data security norms. So, the density is less than 6 per cent in the offices. Work from home has actually helped in enhancing the overall productivity. They are using various tools to measure the productivity.

His views on laying off staff to withstand the business losses in IT industry: Each company has its own strategy. What Tech M have conveyed to their people is that the company would rather offer advances to their employees who earn less than ₹ 35,000 per month. They will offer this to temporary or even sub-contract workers, as Tech M understands they require their support a lot more.

With regards to buy back, he said that looking at the current scenario he feels it will be unfair at this point to take advantage and he won’t recommend it to the board.

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

The closing price of Tech M was ₹ 524/- as of 3-April-20. It traded at 10.4x/ 9.6x/ 8.6x the consensus EPS estimate of ₹ 49/ 53/ 59 for FY20E/ FY21E/ FY22E respectively.

Consensus target price of ₹ 793/- implies a PE multiple of 13.4x on FY22E EPS of ₹ 59/-

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22 Jan

BFSI and retail will drive growth in the medium and long term: TCS

Update on the Indian Equity Market:

The markets continued the downward trajectory on Tuesday with the Nifty falling 55 points to close at 12,170. Monday’s fall was on the back of a combination of selling pressure from the DII and muted participation by FIIs. Within the index, some of the stock movements were a reaction to the quarterly results declared by the company. Within the sectoral indices, only Media (2.2%) closed the day in green while REALTY (-1.5%), AUTO (-1.4%) and METAL (-1.4%) led the laggards. Within the index stocks, INFRATEL (8.6%), ZEEL (4.5%) and BPCL (1.4%) were the top gainers whereas TATASTEEL (-3.3%), M&M (-2.9%) and TATAMOTORS (-2.4%) were the top stocks that ended in the negative.

Excerpts from an interview with Mr Rajesh Gopinathan, CEO – TCS. The interview aired on CNBC-TV18 on 20th January 2020.

  • TCS declared 3QFY20 results with a YoY increase of 0.2% in consolidated net profit at ₹ 81,180 mn. In this interview, he discussed the third quarter performance and the outlook in detail.
  • He is hopeful of sustaining margins at around 25 percent going forward on back of their strong delivery model. The company has been investing continuously in the organic talent building capability and over time, the investment into the group of 5-12 year old people has been significant. This has been going for on for last five- six years. He believes that the pool is now very strong and there is an opportunity to expand the base.
  • The company is aspiring to achieve margins of 26%. To achieve the target, the combination of operational elements and the currency needs to be supportive. Both the things came together in the 3QFY20. The currency will remain volatile. However, he believes that the way things are moving, probably that will also be supportive of the medium-term.
  • He said that the medium to long term growth trends will be based on BFSI and retail because the rest of the verticals are firing all cylinders. They are all well into the double digit space. In BFSI & retail, the company is observing very diverse performance across geographies and sub-segments. The weakness can be isolated down to the large banks and the large retailers in US and UK. The company is not losing wallet share in these geographies but it is the sub-segment that forms large part of the base business.
  • In terms of addition to headcount, he said that it is 23,500 this year, same as last year. The hiring was front-loaded during the current year.
  • In the retail space, more traditional retailers seem to be finding their groove. In the US, the players like Best Buy and Walmart are doing significantly better and standing up to the pure online players very well. He believes that the company will revert back to double digit growth in the retail segment.

Consensus Estimate (Source: market screener website)

  • The closing price of TCS ₹ 2,170/- as of 21-January-2020. It traded at 25x / 23x / 21x the consensus EPS for FY20E / 21E / 22E of ₹ 88.0/ 96.1/ 104.0 respectively.
  • Consensus target price of TCS ₹ 2,108/- implies a PE multiple of 20x on FY22E EPS of ₹ 104.0.
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