Tag - margin stability

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03 Nov

Revenue growth across segments expected to continue– Laurus Labs

Update on the Indian Equity Market:

On Monday, Nifty closed 0.2% higher at 11,669. Within NIFTY50, INDUSINDBK (+6.5%), ICICIBANK (+6.0%), and AXISBANK (+6.0%) were the top gainers, while RELIANCE (-8.7%), DIVISLAB (-2.8%), and EICHERMOT (-2.5%) were the top losing stocks. Among the sectoral indices, PRIVATE BANK (+4.2%), BANK (+4.2%) and FINANCIAL SERVICES (+3.9%) were the top gainerswhileIT (-0.9%), PHARMA (-0.6%), and AUTO (-0.3%) were the top losing sectors.

Revenue growth across segments expected to continue– Laurus Labs

Excerpts of an interview with Mr. Satyanarayana Chava, Founder & CEO, Laurus Labs, aired on CNBC-TV19 on 30th October 2020:
● In 2QFY21, LAURUSLAB’s revenue growth came from all three divisions and management expects that trend to continue.
● Management has very good visibility of revenue growth going forward.
● Management also expects to maintaingross margins and EBITDA margin. The EBITDA margin is expected to be maintained within the 1HFY21 band of 29%-33%. However, Management refrained from giving any numerical guidance.
● LAURUSLAB’s net debt as of 30th September 2020 is Rs 20,000 mn. Management does not want to bring down the net debt beyond this level as there is a large capacity expansion plan on cards.
● Based on the revenue visibility and order book level, investment in additional capacity is required. Over the next 24 months, management expects a capital outlay of Rs 12,000 to 15,000 mn. The capacity expansion will be done using internal accruals and no external funds will be raised.
● LAURUSLABS has an annualized net debt to equity ratio of 0.85x so they are not highly leveraged. So,the decision to not reduce the net debt levels will not hurt the company.
● Recently the rules have been relaxed in the production linked incentives (PLI) scheme for Active Pharmaceutical Ingredients (APIs), drug intermediaries, and medical devices. LAURUSLABS has some products where they could get benefit from the modified norms of the PLI scheme, but it will not be very significant.

Consensus Estimate (Source: market screener website)
● The closing price of LAURUSLABS was ₹ 301/- as of 2-November-2020. It traded at 18.1x/ 20.6 x/ 13.1x the consensus EPS estimate of ₹ 16.6/14.6/22.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 309/- implies a PE multiple of 13.5x on FY23E EPS of ₹22.9/-.

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

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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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