FY20 Seen Better Than FY19, But Not Good Enough To Drive A Re-rating Wipro IT services delivered (adjusted for divestitures and carve outs) YoY growth of 5.4% in FY19, which has been the best in four years. Wipro has not been able to deliver smoother and at-parwith-industry growth because of sector, client and restructuring-related problems during a large part of this decade. FY19 probably marks the first year when it has been able to get its act together somewhat on growth and on margins. Its margin improvement has been the positive surprise of FY19. Wipro is hinting at improving growth and margins a bit more in FY20. We believe its performance could still fall short of that of peers like TCS, Infosys and HCLT. Unlike its other three peers, Wipro has somehow not been able to balance profitable growth with the continual...

Sharp Growth Deceleration In FY20 Not Factored In The Price Mindtree's (MTCL) has given guidance of a sharp deceleration in revenue growth from 18% in US dollar in FY19 to a low-teen level in FY20. This may lead to a downward revision by part of the street which was expecting a mid-teen kind of number (we had been in the high single-digit camp). MTCL also indicated a 100bps-120bps improvement in EBITDA margin driven by tightening of operations (delivery mix, employee utilisation, employee pyramid, better pricing in digital, etc). The margin uptick, we believe, is broadly expected by the street but would be under the scanner as sharp INR depreciation-related benefits seen in FY19 are likely to be absent in FY20. Despite having the largest...

Inline operating performance; FY20 outlook no surprise Mindtree (MTCL) posted above-estimated revenue growth but below-par EBITDA margins in Q4FY19, making for an in-line operating performance. Q4 deal wins were soft. Management is targeting growth in the low teens and 100-120bps margin expansion in FY20 (vs. 13.3% CC growth and +80bps estimated). We trim FY20E/FY21E EPS by ~2% on lower other income and cut our rating from ADD to REDUCE on risks of operational performance slippage amid L&T;'s unsolicited...

Mindtree (MTCL) posted above-estimated revenue growth but below-par EBITDA margins in Q4FY19, making for an in-line operating performance. Q4 deal wins were soft. Management is targeting growth in the low teens and 100120bps margin expansion in FY20 (vs. 13.3% CC growth and +80bps estimated). We trim FY20E/FY21E EPS by ~2% on lower other income and cut our rating from ADD to REDUCE on risks of operational performance slippage amid L&T;'s unsolicited bid. Rolling valuations over, we have a Mar'20 target of Rs 990 (vs. Rs 1000)....

Q1FY20 guidance of IT services revenue growth of -1.4% to +0.6% is a miss. However, share buyback of Rs105 bn for 323.1mn shares (5.4% of equity capital) is positive and especially the buyback extremely attractive. We factor weak EBIT margin in Q4FY19 and muted guidance for Q1FY20. However, it would be more than offset by benefit of share buyback, resulting in a 2.9% increase in our FY20E EPS. We introduce FY21E financials. We forecast IT services revenue (in US$) and EPS CAGR of 6.1% and 4.9% respectively over FY19-21E. We roll-over to FY21E and...

Wipro has grown the slowest (2.9% YoY in FY19) in the Tier-1 IT pack. The key revenue driver for FY19 (BFSI) is easing. Challenges in Communications (client specific) and Healthcare (HPS) seem sticky. The soft guidance for 1QFY20 tells us that the lag is entrenched. Margin recovery and buyback drove recent outperformance (+16% vs NIFTY IT +8% in 6m). We downgrade WIPRO to SELL (from Neutral), post the insipid 4QFY19 show and weak guidance. Revenue growth remains challenged and margins are peaking. The recent security breach raises questions about clients data security and is a setback to Wipros reputation. The much awaited buyback (5.4% of equity at Rs 325/sh, 16% premium to CMP) kicks up FY21E EPS by ~2%. At 14x FY21E EPS, our TP is Rs 250 (~11% downside from CMP).

Wipro (WPRO) reported a largely in-line operating performance in Q4FY19 with 1% QoQ CC revenue growth and 19.2% EBIT margins in IT services. But Jun'19 quarter guidance was subdued and implies a slow start to the financial year. Likely moderation in BFSI growth (32% of revenue) and a soft outlook for the healthcare and manufacturing verticals (together 21% of revenue) pose the risk of another slow-growth year. We tweak estimates to bake in the share buyback and Q4...

P/E Discount Reduction Trade With TCS Will Stall Near Term We believe the 7.5%-9.5% constant currency (CC) revenue growth guidance for FY20 (inclusive of inorganic elements) of Infosys looks a bit conservative with: (1) total large deal TCV in FY19 at >2x that of FY18 and new deal TCV at 3.4x and that too spread across multiple verticals. (2) Double-digit exit revenue growth (YoY) in 4QFY19. But 4QFY19 exit EBIT margin (21.4%), 70bps below our estimate of 22.1%, does open up possibility of it landing at bottom end of the guided range (21%-23%) for FY20 considering likely lack of support from INR depreciation (at 210bps in FY19) and with more monetary interventions required to curb the...

In-line 4QFY19: FY20 Growth And Margin Picture Not Yet Settled TCS' 4QFY19 performance was broadly in line with a positive surprise coming from the BFSI vertical, which after nine quarters, delivered double-digit (DD) growth. This was out of line with commentary given by TCS a month ago (see our note here). TCS hopes to sustain its DD constant currency (CC) revenue growth shown in FY19 going into FY20 and also deliver EBIT margin close to its aspirational target of 26%-28%. TCS emphasised the strong 4Q exit growth rate along with its broad nature as reasons for its hope. We believe only a 3% plus growth (QoQ) in each of 1Q and 2Q of FY20 would help settle the issue. The reason we question DD growth sustenance in FY20 is because FY19 did not witness large deals like...

View: Margin concern continues; downgrade to SELL We believe that higher sub-contracting cost, higher attrition, implied investment and localisation in the medium term will lead to margin pressure in FY20 for INFY. We expect INFY to report margins towards the mid-point of its guidance in FY20. We downgrade our earnings estimates by 12%/11.5% for FY20/FY21, primarily because of rupee appreciation and margin headwinds going ahead. We change our rupee assumption to ` 70 for FY20/FY21 as compared to ` 74/` 76 earlier which led to major...

We met the management of Maharashtra Natural Gas (MNGL), where Indraprastha Gas (IGL) owns 50% stake. Key takeaways: Surge in volumes from existing areas of operations: MNGL's volumes from existing areas (primarily Pune city/Chakan) are currently trending at ~0.85mmscmd (+40% YoY), dominated by CNG (63% of total volumes). MNGL has commissioned ~20 new CNG stations in FY19 (taking the count to 72), and plans to ramp up the station count to 100 by FY22 in existing areas. Similarly, domestic PNG volumes have ample scope for expansion. MNGL sees...

Exim volumes underperform: Container Corporation of India (CCRI) posted 2.5% YoY growth in EXIM volumes in Q4FY19, below our estimate of 9.6% YoY. This represents the second consecutive quarter of muted growth, after a subdued Q3FY19 (+6.3% YoY). We believe this underperformance stems from tepid EXIM cargo movement, soft growth in Indian Railways' container traffic (+6.7% YoY during Jan-Feb'19) and a high base of Q4FY18 (EXIM volume...

Royal Enfield volumes suffered a 10% yoy decline over Nov'18-Feb'19 despite the absence of negative one-off factors such as production losses due to labor strikes. Volume performance is expected to remain subdued due to the steep but inevitable price...

ICICI Securities Ltd | Retail Equity Research The demand situation in the domestic auto space has got aggravated post the recent muted festive season (Dussehra, Diwali 2018) with inventory levels in the system showing no signs of abatement. Consumer sentiment is muted primarily tracking higher penetration of connected mobility (ride sharing), higher insurance costs incidence, etc. As per recent FADA release, total passenger vehicles retail sales domestically are down 8.25% YoY in February 2019 with inventory in this segment at 50-60 days vs. the...

The only relevant question for a normal financial investor in this hostile takeover attempt by Larsen & Toubro (L&T;) of Mindtree (MTCL) is whether to buy/hold the stock. We had a Sell rating on MTCL ever since initiation of coverage (Market Is Giving It The Benefit Of Doubt) and we maintain that view. It has been our long-held view that the quality of MTCL's business is nowhere close to that of Tier-1 players like Tata Consultancy Services (TCS) and Infosys and therefore deserves to trade at a much lower P/E multiple. While we hold a cautious view on the entire Indian IT sector because of what we believe is going to be the onset of a cyclical slowdown in 2020, we are extra cautious on mid-sized players vis-a-vis Tier-1 players....

The MHCV industry volumes are expected to remain weak in the near term due to high base, surplus capacity with fleet operators, deferred purchases during elections and rising cost of ownership, according to our channel checks. North/West regions are witnessing steep declines, while the South is seeing positive growth. Volume growth is expected to recover in FY20, led by pre-buying before the transition to BS6 emission norms. After the transition, volumes are likely to decline due to high base...

Hints At Momentum For Double-digit Growth In FY20, But BFSI Is Flatlining SELL We had a meeting with the management of Tata Consultancy Services (TCS) recently. We came away from the meeting a tad bit more positive on its FY20 revenue outlook. While it stated that the current momentum in most verticals would take TCS to double-digit growth in FY20, we still believe it may fall a tad shy off double digit. We understand that about 200bps-250bps of FY19 revenue growth came from major orders that it won in 2HFY18 connected with its insurance platform. We have not seen announcement of similar kind of deals so far in 4QFY19. We therefore expect growth in FY20 to be a tad slower than in FY19. Some of the other key takeaways from the meeting include the following: (1) After a...

We reinstate coverage with a SELL and have a target price of Rs 21,000 based on SOTP. Multiple factors are likely to impact the growth outlook at Eicher. After witnessing robust growth over CY12-FY18, when earnings grew at 46% CAGR, we believe earnings growth will moderate to 10% CAGR over FY19-21E as lifestyle segment growth normalizes in India, competition steps in and export initiatives take time to pay off.

Announces Rs 2.6bn buyback a transient trigger Event: eClerx (ECLX) has announced a buyback worth Rs 2.6bn through the tender offer route at a maximum price of Rs 1,600/sh (39.6% premium over...

USFDA issued four observations (including sartan productions) post inspection of Roorkee plant in August CY18. While the plant contributes US$50m in revenues, we expect a bigger impact will come from lack of...