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Mindtree's sublime performance operationally (relative to peers) in FY21 is largely sustainable and management guided EBITDA margin >20%. Our target price is INR 2,200, valued at 24x Mar-23E EPS (14% CAGR over FY21-23E following >70% growth in FY21). Mindtree: We maintain ADD on Mindtree, following a strong 4Q (in-line), strong operational efficiency, and broad-based growth momentum. Mindtrees growth trajectory has improved recently with a balanced profile (vs. skewed historically), led by interventions to drive larger/annuity deals and recent wins such as Knauf and Nordex are validation. Although FY21 TCV is higher by ~12%, robust pipeline (at an all-time high) and expectation of strong closures in 1HFY22 will support 16% growth in FY22. The growth acceleration is expected to be led by Europe geography as well as uptick in non-T1 account (17% CAGR over FY21-23E vs. 4% CAGR over FY16-21) even as T1 is expected to grow at 10% CAGR on a high base.
We increase our FY22/23E EPS by +4.4/4.7% to factor in better growth visibility for FY22E. Our target price of INR 475 is based on 20x FY23E EPS (~20% discount to INFY). The stock is trading at 20.3/18.2x FY22/23E EPS. Wipro: We maintain ADD on Wipro, following a strong revenue performance and better than expected margin performance. Revenue growth of 3.0% QoQ CC was broad-based and 1QFY22 guidance of +2-4% QoQ growth indicates a continuation of strong momentum. The deal pipeline remains robust and the company won 12 large deals (Telefonica) with a net-new TCV of USD 1.4bn. Wipro clocked a total TCV of USD 7.1bn (USD 2.6bn net new) for 2HFY21, which is impressive and provides growth visibility (~4% YoY growth from new deals). Wipro under the new structure is focusing on revving the growth engine led by large deal wins, leveraging partner ecosystem and higher investments in talent. Key positives include (1) strong guidance, (2) pick-up in deal wins, (3) robust cash generation (OCF of ~137% of net income), and, (4) margin decline of only 64bps QoQ despite wage hike.
Steady performance; New CEO seen delivering early Wipro delivered QoQ CC revenue growth (3%) and margin (21%), which were tad higher than our expectations. This is the best growth it has delivered in 10 years in the 4Q and third successive quarter of good growth under the new CEO, Thierry Delaporte. The revenue growth guidance for 1QFY22 is relatively strong at 2-4% QoQ in CC terms, which will translate into 1113% YoY CC growth - a first in many years (or possibly the last decade). This is without including Capco and Ampion acquisitions, which should get consummated sometime during 1QFY22. At Wipro's recent analyst meet (Meet), the new CEO talked about an obsession with growth' while maintaining respectable margins. Without giving out specific numerical targets,...
Wipro (WPRO) reported an in line 4QFY21 revenue growth of 3% QoQ in CC terms in IT Services, near the higher end of its guidance band (1.5-3.5%). EBIT margin dipped 70bp to 21% due to a partial wage hike, but was ahead of our expectation of 20.4% on better cost control. It reported 12 large deals (over USD30m) and a TCV of USD1.4b in 4QFY21, including one large deal of over USD0.5bn in Americas (expandable to...
Wipro has seen strong deal wins (US$7.1 billion of which US$2.6 billion are large deals in H2FY21) and healthy traction in digital technologies like cloud, customer experience and cyber securities in Q4FY21. This, coupled with the restructuring of organisation, client mining (as seen in this quarter, which witnessed healthy client addition in US$100 million (mn), US$75 mn & US$50 mn buckets) and aspiration to win one large deal every quarter will lead to sustained revenue growth in the longer run. We believe Wipro's strong full services capabilities across applications, infra, BPS and...
Infosys' 4QFY21 results were a tad disappointing, especially due to elevated expectations. The guidance for FY22, both on revenue growth (12-14% CC) and EBIT margin (22-24%) was broadly in line with consensus expectations. The attrition spike by 500bps QoQ was a key negative surprise. With the street building in mid-teen or higher revenue growth number for Infosys in FY22 and an EBIT margin that is only slightly lower than FY21, there is little room for disappointment in 1HFY22. With demand likely to get back to its normal seasonality, the street is likely building in strong numbers for 1QFY22 and 2QFY22 on QoQ revenue growth. The very large net new number of FY21 total TCV of US$14.1bn (66% net new, 2.9x FY20) has...
The rising disposable income will lead to a shift in consumer preferences towards premier products. There will be a shift in consumption from commoditised products towards premier products across all industries. Imports meet a large part of the domestic demand for speciality and downstream chemicals, offering much headroom for growth in local production We hosted a Chemical Investor Forum-2021, and invited senior management of six listed chemical companies. Despite economic challenges that caused GDP growth rate to drop to negative and it is still lower than pre-COVID level, the long-term outlook is that it will be in the higher single digit. This bodes well for the Indian chemical industry and we expect it to grow at the rate of 1.5x GDP growth rate. The catalyst for this is rising income, China Plus One Policy of MNCs and government policy of Aatma Nirbhar Bharat.
The rising disposable income will lead to a shift in consumer preferences towards premier products. There will be a shift in consumption from commoditised products towards premier products across all industries. Imports meet a large part of the domestic demand for speciality and downstream chemicals, offering much headroom for growth in local production We hosted a Chemical Investor Forum-2021, and invited senior management of six listed chemical companies. Despite economic challenges that caused GDP growth rate to drop to negative and it is still lower than pre-COVID level, the long-term outlook is that it will be in the higher single digit. This bodes well for the Indian chemical industry and we expect it to grow at the rate of 1.5x GDP growth rate. The catalyst for this is rising income, China Plus One Policy of MNCs and government policy of Aatma Nirbhar Bharat.
Our target price of INR 3,470 is based on 28x Mar-23E EPS with EPS CAGR at 17% over FY21-23E. Tata Consultancy Services: We maintain ADD on TCS, following a strong 4Q performance, robust growth indicators, and positive commentary (3-5 years structural growth drivers). The near-term growth visibility is high, supported by strong bookings (4Q book-to-bill higher than FY20 and 9MFY21 book-to-bill) and higher mix of smaller deals. We believe TCS calibrated focus on upstream/consulting business will increase its addressable market. The industry-leading execution continues with markers such as decline in attrition (though uptick in sub-con), reversion to normal wage cycle, and investments in up-skilling (enabling partnerships, solution expertise). TCS commentary on supply-side (no concerns) was a contrast to Accentures commentary (reversion of attrition to pre-COVID level), and we believe that the uptick in demand will increase the attrition differential within the sector. Core verticals look healthy with strong bookings in BFSI and Retail & CPG (both in value and volume terms).
TCS delivered a strong 4.2% QoQ CC revenue growth and EBIT margin of 26.8% in 4QFY21 though they were a tad below our expectations of 4.5% and 27.1%, respectively. This performance was driven by work connected with core transformation, market share gains and execution of some of the large deals won earlier. Just like 3QFY21, 4QFY21 growth seems a 9-year best and is more or less broad-based, both vertically and geographically. The strong exit along with the highest TCV ever recorded in history (US$9.2bn in 4QFY21) and a robust pipeline sets up TCS to deliver midteen USD revenue growth in FY22, in our view, which should be among the highest in the Tier-1 set. As indicated in our 4QFY21 preview, TCS did not give out any specific guidance on both revenue and margin. On the latter, it allayed recent fears surrounding supply-side pressures affecting...
Tata Consultancy Services (TCS) reported revenue growth of 4.2% QoQ CC in 4QFY21 (v/s our estimate of 3.4%), delivering its third consecutive quarter of broad based (over 4% QoQ) growth. It marginally improved its EBIT margin to 26.8% (+20bp QoQ/+170bp YoY). The same was below our estimate (27.2%) on ramp up of large deals. Deal wins in 4QFY21 stood at USD9.2b, the highest in its history, with a book-to-bill ratio of 1.5x. A good 4Q helped it report sales (USD)/EBIT/PAT growth of 0.6%/10%/0.4% in FY21. Strong recovery from TCS, post the initial phases of the COVID-19 pandemic,...
SLK is a business process transformation enterprise, offering BPM and digital solutions for the financial services industry. It has deep domain expertise in the banking and insurance segments in North America, enjoying multiple long-standing and scalable relationships with marquee clients, including with Fifth Third Bank, which in addition to being the largest customer is also a significant minority shareholder. The acquired entity derives its revenues from North America with delivery centres and offices in India (Pune, Kolhapur, Bangalore), the US and the Philippines. The...
The recent spike in COVID-19 cases in India weighs heavily on the Aviation sector, with flyers confidence tanking, leading to further delays in the recovery of demand. Daily passenger demand dropped by ~13% to ~246,600 passengers in the last week of Mar'21 (v/s the last week of Feb'21 when the peak was recorded), resulting in no MoM improvement in traffic (still down ~37% to pre-COVID levels)....
We are upgrading TTAN from Hold to Accumulate post robust performance Change in Estimates | Target | Reco in 4Q led by 1) 60% growth in Jewellery led by weddings 2) 90% recovery with flat sales in watches 3) 20% growth in Eyewear and 4) 80% growth in new...
Amid the rising second wave of COVID cases, Maharashtra has imposed stringent restrictions from 5th to 30th Apr'21. Accordingly, restaurant players have been directed to stop dine-ins, though deliveries are permitted 24x7....
Based on our sensitivity analysis of Hero Motocorp, if we assume lower growth rates from the second stage onwards, the impact on the stock values will be between 15-25%. With the growing acceptance of Electric Vehicles, we deliberate the longer term impact on the Enterprise Value of conventional auto OEMs. We believe that as EVs become mainstream, the terminal growth assumptions for passenger car OEMs will be at risk. Based on the sensitivity to changes in the terminal values for Maruti Suzuki, the impact on the DCF will be between 10-20%. For two-wheelers, the threat from EVs is more near term (over the next 3-5 years). Thus, the second stage DCF assumptions will be at risk for the incumbents.
The recent INR8b QIP may keep the liquidity situation manageable and avoid any further dilution, though leverage at 0.8x (FY21E D/E) could rise further. The continued restrictions on Cinema operations is certainly fuelling the OTT market, which could put pressure on occupancies. At FY22E EV/EBITDA, the stock trades 10% lower to pre-COVID historical valuations,...
