Articles by Vivek Ananth

RateGain Travel Technologies Ltd.    
07 Dec 2021, 08:22AM
RateGain’s IPO is about to take off, even as travel restrictions return

By Vivek Ananth

Even in a volatile stock market, the IPO juggernaut is still going strong. This time we take a look at a service provider in the travel sector, which opens for subscription on December 7th. Omicron will have the management of this travel industry company worried about the timing of its …

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ICICI Securities Limited released a IPO Note report for RateGain Travel Technologies Ltd. on 07 Dec, 2021.
Rakesh Jhunjhunwala-backed Star Health IPO is a pricey proposition

By Vivek Ananth

The IPO season is chugging along, and we have another initial public offering on our plate in Star Health and Allied Insurance Co, backed by Superstar investor Rakesh Jhunjhunwala. The company is a retail-focused health insurance company and the largest private-sector pure-play health insurance firm in …

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Ashika Research released a IPO Subscribe report for Star Health and Allied Insurance Company Ltd. on 30 Nov, 2021.
Go Fashion (India) Ltd.    
17 Nov 2021
1177.85
-2.49%
Go Fashion wants to ride the IPO wave, but its business got battered by the pandemic

By Vivek Ananth

There is an initial public offering almost every week nowadays. That is what a bull market can do. This time it’s a women’s clothing company—Go Fashion (India). This is a little different from the new-age companies that went public over the past few weeks like fintech companies …

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1 Comment
18 Nov 2021
No SMAs available
One97 Communications Ltd.    
06 Nov 2021
1553.40
-1.53%
Paytm’s mega IPO hopes to make waves

By Vivek Ananth

Initial public offerings of Indian new-age tech companies are coming thick and fast. This time it’s Paytm’s Rs 18,300 crore IPO, the largest ever in India to date which will hit the street after Diwali. The offer consists of a Rs 8,300 crore fresh issue of shares and an offer …

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1 Comment
08 Nov 2021, 07:54PM
No SMAs available
PB Fintech Ltd.    
30 Oct 2021
1187.65
-0.25%
PB Fintech is valued higher than some insurers, but offline pivot remains key

By Vivek Ananth

PB Fintech (Policybazaar and Paisabazaar) is hitting the capital markets with an IPO, and is currently at a crossroads. After growing for nearly 13 years as an online insurance policy and loan aggregator, the company received its insurance broker’s licence from the Insurance Regulatory and Development Authority of …

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No SMAs available
Tata Motors Ltd.    
20 Oct 2021
493.90
2.51%
Tata Motors steps into the limelight with the TPG investment

By Vivek Ananth

The Tata Motors stock has been on an interesting journey over the past 18 months. After being down by double digits, the company’s stock rose to over five-fold in the past few trading sessions after seeing a brief period over Rs 500. This is despite India’s homegrown car …

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Tata Motors Ltd. has gained 171.67% in the last 1 Year
3626.90
1.18%
Street sulks on TCS’ Q2 performance, but the firm is humming along

By Vivek Ananth

Tata Consultancy Services is the IT sector’s bellwether, and this week the market watched its Q2FY22 earnings announcement closely. In anticipation of TCS’ results on Friday, most IT services companies’ stocks were trading higher, but stocks dropped as news trickled in that TCS’ dollar sequential dollar revenue growth was less than 3% for the second consecutive quarter.

Investors made their disappointment clear, and the Nifty IT index fell nearly 4.2% in the next two trading sessions. But on Wednesday, ahead of Infosys’ and Wipro’s results, the index was trading in the green.

TCS’ stock however is down nearly 8% from Friday’s close, and this must make investors wonder what was in the numbers that left the street miffed. Is it really as bad as it seems?

A decent quarter, but Europe revenues slow

Although the company’s management and the press release focused on the strong YoY revenue growth in Q2FY22, analysts and investors pointed out in the company’s earnings conference call that Q2FY22 was a weak quarter which resulted in a low base. Consequently, the year-on-year revenue growth looks impressive.

One of the primary reasons TCS’ dollar revenues grew at the same pace in Q2FY22 as Q1FY22 was because of slow revenue growth in Europe. This was due to the offshoring of certain projects, which led to lower revenue from the region. There was also a large project that ended during the quarter, which led to lower revenues, the management said.

Apart from Europe, the Asia Pacific region saw revenues fall marginally, while all the other regions saw higher revenues sequentially. India, which was impacted by lockdowns across many states during Q1FY22, grew 14% QoQ in dollar terms.

However, revenues grew across all of TCS’ verticals with demand seen from varied clients across various industries. The retail & CPG and technology and services verticals grew the fastest in Q2FY22 at 4.3% and 5.3% QoQ, respectively.

Employee attrition and higher salaries hit margins and profits

What could be worrying investors is the company’s costs, especially employee and subcontracting costs going up. In Q2FY22, employee costs rose 2.9% QoQ to Rs 26,649 crore, while subcontracting costs rose 7.4% to Rs 4,190 crore. This hemmed in TCS’ profits in the quarter. However, despite this impact, the company was within touching distance of Rs 10,000 crore quarterly profit.

A concern for TCS is the huge spike in attrition, which on a trailing twelve-month basis is nearly 12%. This is the first time in four quarters that TCS’ employee attrition was reported in double digits. The higher employee costs are going to bite due to a shortage in employees with the right skills across the technology space. This is often referred to as “supply-side” constraints, which is essentially a company having to pay more than it normally would to hire talent laterally. This has impacted margins.

To serve its various projects the company has hired many people laterally and has already hired 43,000 freshers in FY22. The company says that it will continue to invest in talent to build a pipeline of staff that can be deployed as and when projects get underway. This way, it can continue to serve the demand surge it has seen over the past few quarters across various industries and geographies, including Europe.

Apart from the large migration to cloud services that the company’s customers need in order to survive post-pandemic, there are many clients who are now investing in upgrading their processes to transform into a digital business. This is coming from all sectors like healthcare, lifesciences, utilities, and manufacturing companies, among others.

Deal wins have left the street wanting more

Being TCS, the company sets the expectation for the rest of the IT services industry. In Q1FY21, the company bagged deals with a total contract value of $8.6 billion, which included a very large deal. Excluding this, the TCV rose around 25% in YoY terms.

What dampened investors’ exuberance, however, was the sequentially lower deal win from Q1FY22. The company said there are enough deals in the pipeline, which is a result of a robust demand environment for technology services.

But H2 of any financial year is usually a weak period. Last year the company and the industry turned this truism on their head by posting $12.1 billion in revenues in H2FY21. The management said that this ensured the company would be almost at the same level in revenues as H2FY21. In FY22, TCS has already posted revenues of $12.5 billion. Even if the company posts flat revenue growth in H2FY22, it will still grow at a little over 12%. This would lead it to post revenues of $25 billion in FY22.

It is quite possible that the company posts higher growth in H2FY22. Even at $25 billion, at nearly 20% net margin, this would mean a $5 billion net profits for FY22. If the company is able to manage its “supply-side” issues and ramp-up projects, with operating leverage, this profit number can only go higher.

Whether the street agrees or not, this is more than just a probability. For investors though, it will be interesting to see if the management’s decision to invest ahead of demand coming on stream will pay off. When growth picks up, the expectation is that profits and cash flows will also grow. But the unknown factor here is employee costs. There is a huge rush to snap up talent with the right skills. This is leading to a rise in costs across the industry. And TCS is no longer immune to this phenomenon, at least for the next three quarters.

1 Comment
18 Oct 2021
Tata Consultancy Services Ltd. has gained 29.66% in the last 1 Year
Home First Finance Company India Ltd.    
08 Oct 2021, 05:08PM
863.45
-2.07%
Home First Finance is riding the affordable housing gravy train

By Vivek Ananth

Affordable housing finance is a fragmented market with many large housing finance, non-banking finance companies and banks battling it out with pure-play affordable housing finance companies like Aavas Financiers and Home First Finance. With record low-interest rates available right now, apart from the real estate …

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Home First Finance Company India Ltd. is trading above all available SMAs
582.50
0.95%
Aditya Birla AMC’s IPO is priced to perfection, but threat of new entrants remains

By Vivek Ananth

The long game is a strategy with big payoffs in a developing economy like India, where many sectors are under-penetrated. This is true, for example, in the capital markets space. Until recently, there were few companies here that worked as a proxy for the increasing financialisation of India’s savings. …

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Aditya Birla Sun Life AMC Ltd. is trading below all available SMAs
Metal and Mining    
SECTOR | 17 Sep 2021
The Indian steel industry hopes that the current cycle is a super one

By Vivek Ananth

This time it’s different.

That is what steel makers like Tata Steel and JSW Steel are telling investors and the general public. They are, to use the overused phrase in corporate-speak—cautiously optimistic. Steel manufacturers believe that we are currently under a commodity supercycle. While Tata Steel feels this …

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1 Comment
17 Sep 2021
BOB Capital Markets Ltd. released a Sector Update report for Metal and Mining on 23 Nov, 2021.