Author - Tanmay Gadre

Plan to become USD 500 mn company by 2026 – Cigniti Tech

Update on the Indian Equity Market:

On Monday, NIFTY ended at 16,302 (-0.7 %) as it closed near the day’s opening level of 16,228. Among the sectoral indices, IT (+0.1%), was the only gainer, whereas MEDIA (-2.7%), PSU BANK (-2.3%), and OIL&GAS (-2.1%) led the losers. Among the stocks, POWERGRID (+3.1%), HCL TECH (+3.1%), and INFY (+2%) led the gainers, while RELIANCE (-4.3%), NESTLEIND (-2.9%), and HEROMOTOCO (-2.8%) led the losers.

Excerpts of an interview with Mr. Shrikanth Chakkilam, CEO & Non-Executive Director of Cigniti Technologies (CIGNITITEC) with The Economic Times on 8th May 2022:

  • The company’s 75% revenues come from five sectors: Banking, Financial Services and Insurance BFSI (20%), Travel and Hospitality TTH (16%), Retail and Ecommerce (15%), Healthcare and Life sciences HCLS (13%), and independent software vending ISV (12%). The management believes that these sectors support Cigniti’s revenue growth and will continue to do so during the digital transformation in these sectors in the coming years.
  • Attrition in FY22 was at an all-time high of 30%. The revenue per employee in US dollar terms is USD 45,378. The current job market has become highly volatile and more complicated than usual.
  • The high attrition has increased the cost of hiring, and also the cost of training new employees, direct and indirect costs for advertising available positions, performing background checks, paying out referral bonuses, etc.
  • Intangible costs to the company include management’s time spent reviewing resumes, making calls, and conducting interviews, as well as the time spent by dedicated recruiting staff and the HR department.
  • To deal with these challenges, the company is increasing freshers’ hiring, increasing re-skilling programs through online learning, and ensuring engagement initiatives.
  • The plan is to become USD 500 mn company by 2026, effective from 2021. The company increased its investment in building capabilities, sales, marketing infrastructure, and investment in employee retention and rehiring. These investments reduced the company’s margins which it expects to neutralize in FY23.
  • The company’s 85% of revenues come from North America, yet Mr. Chakkilam believes that the dollar variation is not a concern. He considers inflation as a nominal worry which is constant across businesses.
  • The company’s recently approved acquisition of Aparaa Digital (RoundSqr), a specialist in AI/ML, data, and blockchain engineering services would help strengthen its digital ambitions and help offer digital engineering services to its clients. The company is confident of retaining a high teen growth rate in FY23.

Asset Multiplier Comments

  • Though the management doesn’t consider dollar variation a concern for the company, a strengthening dollar, and its adverse rate movements may hamper the earnings of the company.
  • We expect the margins to remain impacted in the medium term due to the sectoral headwinds.
  • The company may not be impacted by commodity inflation as it provides software services. But as the employees start coming back to offices, its transport and commuting costs will go up thereby increasing its other expenses, which will also end up impacting its margins.

Consensus Estimates:

  • The closing price of Cigniti was ₹ 412/- as of 09-May-2022. The consensus price target estimate for Cigniti’s stock is unavailable. It traded at 17x the earnings of ₹ 33 for FY22.

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.”

Mutual fund to contribute 75% of the revenues in coming years – Nippon AMC

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,245 (+1.2%) as it closed above the day’s opening level of 17,190. Among the sectoral indices, FMCG (+2.2%), OIL&GAS (+1.2%), and Bank (+1.1%) led the gainers, whereas MEDIA (-3.2%) was the only loser. Among the stocks, HDFCLIFE (+4.3%), HINDUNILVR (+4.3%), and SBILIFE (+3.7%) led the gainers, while BAJAJ-AUTO (-2.0%), BHARTIARTL (-0.9%), and HINDALCO (-0.8%) led the losers.

Excerpts of an interview with Mr. Prateek Jain, CFO of Nippon Life India Asset Management (NAM-INDIA) with The Economic Times on 27th April 2022:

  • The company’s mutual fund AUM market share has gone up from 7.1% in FY21 to ~7.4% in FY22, with a growth of 26 bps.
  • Its 8-10 equity schemes are in the top quartiles and 10-14 fixed income schemes are in the top two quartiles. The management expects higher growth to come from these schemes in the upcoming quarters.
  • In FY22, the company saw the addition of almost 32 mn folio in the industry. The company added around 7 mn folios.
  • Jain believes that the company has created a moat in terms of its physical and digital presence which attracts retail clients. Due to this, he believes that one in every three people invest with Nippon India Mutual Fund.
  • People have started investing through mutual funds once they started going back to work, post lockdown. This is happening as more people are opting for direct investment.
  • With increased digital penetration and investors systematically investing in mutual funds, new investors will get added and equity assets through retail participation will keep increasing.
  • In the last 10 years, the industry has grown from AUM Rs 6,600 bn in 2012 to around Rs 38,000 bn. Mr. Jain believes that the industry is still underpenetrated with AUM to GDP ratio of 18%, whereas in matured markets, AUM to GDP ratio is around 80. He believes that the industry may see 5 times AUM growth in the coming decade.
  • Considering SIP as one of the measurement scales for the industry growth, the SIP was about Rs 70,000 mn 2 years ago during the covid lockdown. It has increased to Rs 120,000 mn today.
  • The company expects the alternatives, ETF, and other advisory opportunity businesses together to contribute to 25% of the revenue. Rest 75% of revenue will come from the mutual fund business.
  • The company saw 58% of its purchases happening digitally and it has well-placed digital assets and has partnered with all the key aggregators and market players.

 

Asset Multiplier Comments

  • Nippon AMC has been steadily gaining market share on the back of expansion of ETF and SIP segments, its penetration in B-30 Cities gives it an edge over its competitors as major expansion is expected to be driven from non-Metro cities.
  • The SIP segment is sticky, because the inflows are impacted the least and major outflows don’t happen due to the discipline of investors, rising share of SIP AUM bodes well for the company as it insulates the company from sudden market corrections and shocks.

Consensus Estimate: (Source: market screener website)

  • The closing price of Nippon AMC was ₹ 321/- as of 28-Apr-2022. It traded at 23x/22x the consensus earnings estimate of ₹ 14/15 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 427/- implies a P/E Multiple of 28x on the FY24E EPS estimate of ₹ 15/-

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.”

Aspiring for double-digit revenue growth in FY23 – TCS

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 17,530 (-0.8 %) as it closed near the day’s opening level of 17,585. Among the sectoral indices, PRIVATE BANK (+0.5%), and BANK (+0.4%) were the gainers, whereas REALTY (-2.8%), METAL (-2.7%), and OIL&GAS (-2.4%) led the losers. Among the stocks, AXISBANK (+1.6%), KOTAKBANK (+1.2%), and POWERGRID (+0.8%) led the gainers, while HINDALCO (-5.8%), COALINDIA (-5.0%), and GRASIM (-3.7%) led the losers.

Excerpts of an interview with Mr. Rajesh Gopinathan, MD & CEO, Mr. Samir Seksaria, CFO, and Mr. N Ganapathy Subramaniam, COO & ED of Tata Consultancy Services (TCS) with CNBC TV18 on the 12th April 2022:

  • The company’s deal wins of USD 11.3 bn comprise large deals and even spread deals of all sizes. The regular pipeline is strong, with the third-largest deal worth around USD 250mn. The management is focused to keep on moving up the median level of the deals.
  • The company’s average quarterly deal wins used to be in the range of USD 6-7 bn, and are now between the USD 8-9 bn range. The management feels that this number will keep on increasing due to the demand visibility that it can see.
  • The company believes that its employee cost is stabilizing. The attrition rate is reaching a higher level and in the next 6-8 months it will stabilize. In the last 2.5 years, the company has invested heavily in building its talent pool and upskilling it. The management believes that it will help the company in improving its operational performance to the 26-28% margins range.
  • The management believes that the pricing and realization will be key levers for improving the company’s margins. The better realization will be achieved by 3 things- 1) Incremental pricing for renewals and new deals, 2) Better realization through a better portfolio mix, and 3) Improving realization per FTE (full-time equivalent employee) basis.
  • The company aspires to grow its revenues with a double-digit growth rate in FY23. The management believes that the industry is still far away from the peak of the digital investment cycle. They believe that they are still in the early to mid-stage of their clients’ migration to hyper scaler space and the leveraging of native technologies.
  • Speaking of its big-size deal wins, the company is looking toward cloud transformation deals as the biggest opportunity in almost every industry. The company used technologies like metaverse and augmented reality features for one of its telecom retail clients in North America so that its customers could feel the retail stores and products. All of this comes at a decent price point for the company due to the technologies that it employs

Asset Multiplier Comments

  • TCS’ size and capabilities have positioned it well to benefit from the technological upcycle, cloud migration, and digital transformation that the IT industry has entered into.
  • We also believe that the continued strong deal wins with a suitable portfolio mix will help the management retain its double-digit revenue growth even in FY23.

Consensus Estimate: (Source: market screener website)

  • The closing price of TCS was ₹ 3,686/- as of 12-Apr-2022. It traded at 31x/28x the consensus earnings estimate of ₹ 118/134 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,041/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 134/-

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.”

This week in a nutshell (28th March- 1st April)

Technical talks

NIFTY opened the week on 28th March at 17,182 and closed on 1st April at 17,670. It made a gain of 2.8% during the week. The index is trading below the upper Bollinger Band level of 17,937 which might act as a resistance. On the downside, the 17,324 level might act as a support. The RSI (63), and MACD turning upward suggests a further possible upside.

Among the sectoral indices, REALTY (+5.7%), FINANCIAL SERVICES (+5.1%), and BANK (+4.9%) led the gainers during the week. PHARMA (-0.2%) was the week’s only loser. 

Weekly highlights

  • The US indices closed the week with marginal gains as concerns regarding the continuing conflict between Russia and Ukraine persisted with its inflationary effect on prices. S&P 500 was up by 0.1%, Nasdaq 100 by 0.7%, and Dow Jones was down by 0.1%.
  • The US president Joe Biden has announced that the U.S. will release 1 million barrels of oil per day from its strategic reserves. The announcement came as the White House looked forward to combat a spike in energy prices caused by Russia’s invasion of Ukraine. 
  • Russia has offered crude oil to India at a discount of USD 35 per barrel on pre-war prices. Russia has offered Rupee-Ruble-denominated payments using Russia’s messaging system SPFS (System for Transfer of Financial Messages). The direct purchase is expected to involve Russia’s Rosneft PJSC and the Asian nation’s biggest processor Indian Oil Corp., which have an optional term contract. A final decision is yet to be made.
  • Axis Bank has bought Citigroup’s consumer banking business in India for up to Rs 123 bn and it expects the transaction to get completed in 9-12 months. Around 3,600 Citi employees will be transferred to Axis Bank, and Citi expects the release of about USD $800 mn of allocated tangible common equity after the deal.
  • The board of directors of PVR Limited (PVR) and INOX Leisure Limited (INOX) on Sunday approved an all-stock amalgamation of INOX with PVR at their respective meetings. Post-merger, PVR’s Promoters will have a 10.6% stake while INOX’s Promoters will have a 16.7% stake in the combined entity. Inox shareholders will receive three shares in PVR for 10 shares of Inox.
  • Emami on Friday said it has acquired the ‘Dermicool’ brand from Reckitt Benckiser (India) Ltd for a total consideration of Rs 4,320 mn. It is a brand popular for providing respite from prickly heat caused during the summer season. The acquisition is funded through internal accruals.
  • Adani Total Gas has forayed into electric mobility by launching its first electric vehicle charging station (EVCS) in Ahmedabad. The company aims to expand its network by setting up 1,500 EVCS across the country and has kept an expansion plan ready once the demand for EV ecosystem picks up in India. 
  • FII (Foreign Institutional Investors) and DII (Domestic Institutional Investors) were net buyers this week. There was a net inflow of Rs 55900 mn from the FII while DII invested Rs 50525 mn.

Things to watch out for next week

  • We expect the next week to remain less volatile. Market will await the results for the quarter ending March-22. News flow from Ukraine is the only potential source of volatility in the global markets. 
  • The release of data from the US Purchasing Managers’ Index (PMI) and Fed Reserve’s minutes will give investors additional insights into current economic conditions. 

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.”

Capex of Rs 5500 mn to expand room air conditioner manufacturing capacity– Blue Star

Update on the Indian Equity Market:

On Monday, NIFTY ended at 17,118 (-1.0%) as it closed near the intraday low level of 17,096. Among the sectoral indices, METAL (+1.5%), MEDIA (+0.5%), and PHARMA (+0.0%) were the gainers, whereas FMCG (-1.7%), FINANCIAL SERVICES 25/50 (-1.4%) and AUTO (-1.2%) led the losers. Among the stocks, COALINDIA (+3.3%), HINDALCO (+2.2%), and UPL (+1.8%) led the gainers, while BRITANNIA (-3.5%), GRASIM (-3.1%), and TATACONSUM (-3.1%) led the losers.

Excerpts of an interview with Mr. B Thiagarajan, MD of Blue Star (BLUESTARCO) with The Economic Times on 17th March 2022:

  • The company expects a very positive summer season after two consecutive poor summer seasons. The company will attempt to grow its sales 25-30% faster than the industry.
  • BLUESTARCO has stocked its inventory till June-22 and it will hold the current prices till May-22. Two developments might affect the product prices- 1) The ongoing Russia-Ukraine war may sharply increase the commodity prices post May-22, 2) The company may exhaust its stock by May and may have to review the prices by mid-April.
  • The company is expanding its room air conditioners manufacturing capacity, with a third factory coming up in Sri City. The company is making a total investment of Rs 5,500 mn in three phases, Rs 2,200 mn being invested in the first phase. The factory may get commissioned in the 3QFY23E.
  • The company has applied for the PLI scheme under which it may receive Rs 730 mn for its investment in the factory.
  • The company is expanding the manufacturing capacity for commercial refrigeration and deep freezer units by around 250,000 units. This factory located in Wada will get commissioned in the first week of April-2022.
  • The CEO expects the semiconductor supply issue to stabilise during the 3-4 months before the Diwali-festival season. The company is betting on the fact that the penetration of room air conditions in India is 7% and will improve.

Asset Multiplier Comments

  • We expect the demand for the room ACs to remain robust due to hybrid working models, online schooling, and low penetration in the Indian market.
  • The upcoming deep freezer factory in Wada will help in substituting imports thereby reducing imports of some SKUs.
  • The company has launched a comprehensive range of affordable ACs and is eyeing a market share of 14% in 2022. (Blue Star’s press release)

Consensus Estimate: (Source: market screener website)

  • The closing price of Blue Star was ₹ 972/- as of 21-March-2022. It traded at 36x/28x the consensus earnings estimate of ₹ 27/35 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,092/- implies a P/E Multiple of 31x on FY24E EPS estimate of ₹ 35/-

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.”

To produce 60% of energy from non-carbon sources in next five years– Tata Power

Update on the Indian Equity Market:

On Monday, NIFTY ended at 15,863 (-2.4%) as it closed near the day’s open level of 15,868. Among the sectoral indices, METAL (+2.1%) was the only gainer, whereas REALTY (-5.5%), PRIVATE BANK (-4.8%), and PSU BANK (-4.6%) led the losers. Among the stocks, ONGC (+13.2%), HINDALCO (+6.3%), and COALINDIA (+4.2%) led the gainers while INDUSINDBK (-8.1%), MARUTI (-6.5%), and AXISBANK (-6.4%) led the losers.

Excerpts of an interview with Mr. Praveer Sinha, CEO and MD of Tata Power (TATAPOWER) with The Economic Times on 4th March 2022:

  • Coal needs to be looked at from two perspectives, domestic coal, and international coal. The domestic coal availability is very good. India doesn’t import much Russian coal and it will stay insulated as its price is expected to increase as the Russia-Ukraine war continues.
  • For domestic coal, the cost of diesel will go up and the mining cost of coal will also go up. It will have an impact but not a very large impact. In India, nearly 600 million tons of coal are supplied by domestic coal companies.
  • Merchant tariff rates will remain distressed. Normally 190-gigawatt consumption is seen in peak summer which may go up to 220 gigawatts. The line-up of coal inventory needs to be done so that the company doesn’t have the situation of zero coal stocks in its plants.
  • The company has a long-term arrangement with Indonesian coal companies through which it keeps on receiving its required coal every month. It gets coal at the price defined by the local government from Indonesia.
  • From producing 15% of its energy from non-carbon sources four years ago, to nearly 30% now, Tata Power plans on producing nearly 60% of its energy from non-carbon sources in the next five years.
  • The company says that the coal prices have been high for the last year and will continue to remain in this range. It expected the prices to come down near $100 in the later part of CY-2022, but the prices will now remain upward of $150.
  • No capacity addition is happening in thermal and all the old plants will get decommissioned once completely used. There is a trend that all future investments will happen in renewable energy such as solar, wind, and hybrid solutions of solar, wind, hydro.

Asset Multiplier Comments

  • Tata Power’s long-term arrangements with Indonesian coal companies for buying coal give it a cushion against the rising coal prices in the short to mid-term.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Power was ₹ 217/- as of 07-March-2022. It traded at 28x/24x the consensus earnings estimate of ₹ 7.9/9.4 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 206 /- implies a P/E multiple of 22x on FY24E EPS estimate of ₹ 9.4/-

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.”

Plan to open 18-20 hotels in a year – Indian Hotels

Update on the Indian Equity Market:

On Thursday, Nifty closed at 16,248 (-4.8%) near the intraday low of 16,203. All the sectoral indices were losers led by PSU BANK (-8.3%), REALTY (-7.2%), and MEDIA (-7.0%). Among the NIFTY 50 stocks, all the stocks were losers led by TATAMOTORS (-10.7%), INDUSINDBK (-8.5%), and UPL (-8.3%).

Edited excerpts of an interview with Mr. Puneet Chhatwal, MD and CEO, Indian Hotels, with CNBC TV18 on 23rd February 2022:

  • The company is seeing a very strong pickup in occupancies on the domestic front from February 2022. Everything is currently dependent on the domestic business as the international traffic is still shut. Business in cities like Mumbai, Delhi, and Bangalore will be benefitted as air travel opens up.
  • Leisure business has been performing better than pre-covid times. The company is seeing performance between 120%-150% of its pre-covid levels in this segment.
  • The business coming from corporate travel is lagging behind the pre-covid levels. The occupancy on the corporate and typical business destinations is reaching near the pre-covid levels. The occupancy is near 90%.
  • The rates, though lagging has increased due to a low base effect, and are double the rates of August-September 2021. If the rates increase by another 30-40%, the company will cross the pre-covid high of 2019-2020, in terms of corporate rates.
  • The geopolitical factors like the Russia-Ukraine war might cause volatility in the industry and might delay the bounce-back of the industry, but won’t derail it.
  • The Revenue per available room (RevPAR), which is a multiplicator of the average rate and occupancy is getting close to 90 percent on the domestic front.
  • Regarding costs, Mr. Chhatwal has mentioned the following factors- i) the industry had once in a 100-year opportunity to adjust its cost base. ii) the company had the 2nd best Q3 quarter in the last 10 years due to the adjustment of the cost base. iii) the company is keeping a tab on the costs increase caused by inflation.
  • The thought of ‘less is more’ helps the company with reducing its costs as people have begun expecting fewer amenities post covid. The company is also catering to a new segment of car drive-in to the destination which has developed post covid.
  • The company has restructured its capital to support its traditional and new businesses which include HomeStay of Ama, Home delivery and QSR of Qmin, and reimagined Ginger. The company is planning to open at least 1.5 hotels a month which takes it to 18-20 openings projected for this year across all of its brands.

Asset Multiplier Comments

  • The Russia-Ukraine war might impact the hotel and the travel industry in the short to mid-term. Demand for rooms at the Indian hotels might remain impacted as travel-related fear among people may stay for a while.
  • Given the strong brand value of Indian Hotels, revenue generation from new segments, and its new businesses, the long-term growth story of the company remains intact.

Consensus Estimate (Source: market screener website)

  • The closing price of Indian Hotels was ₹ 194 /- as of 24-February-2022. It traded at 69x/ 40x the consensus EPS estimates of ₹ 3/₹ 5 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 237 /- implies a P/E Multiple of 47x on FY24E EPS estimate of ₹ 5/-.

 

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.”

Growth to be driven by entering new geographies– Granules India

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,606 (+0.8%) as it closed near the intraday high of 17,639. Among the sectoral indices, MEDIA (+1.7%), METAL (+1.2%), and FINANCIAL SERVICES (+1.2%) ended higher, whereas AUTO (-0.1%), and PSU BANK (-0.1%) were the losers. Among the stocks, ONGC (+3.6%), TATASTEEL (+2.0%), and INFY (+2.0%) led the gainers while MARUTI (-1.7%), IOC (-0.9%), and SHREECEM (-0.7%) led the losers.

Granules released its 3QFY22 results on 8th February. Following aren the excerpts of an interview with Mr. Krishna Prasad Chigurupati, Chairman and MD of Granules India (GRANULES) with CNBC TV18 on 9th February 2022:

  • The company has been operating at 60% of its production capacity for Paracetamol due to raw material shortages. It sells only APIs (active pharmaceutical ingredients) in India. All of its FDs (finished dosages) are sold in Europe and the US.
  • The company’s FD segment is more profitable than its other segments. The share of FDs as a part of revenues fell by 3-4%. This fall is due to inventory rationalisation by its customers in US. The company states this as one of the reasons that the margins couldn’t improve. The management sees some uptick in FD sales going forward.
  • Paracetamol’s prices have been increased to pass on the raw material price increases to the customers.
  • The freight cost is an important component for the company and the costs haven’t improved in the last 6 months. The freight costs can go as high as 4-5% of the company’s revenues.
  • In FY23, the company will be crossing EBITDA margins of around 20-21%, but it is not confident of achieving the margins of 23%. The company expects to achieve a minimum of 12% growth in revenues by FY23 end.
  • The company received 3 ANDA approvals in the US in 3QFY22. The company expects the market size for their aggregate to be around USD 400-500 mn. The company doesn’t expect any growth in revenues from these products.
  • The company plans to enter new geographical markets such as the Canadian, and South African markets. The company expects its new markets to account for 35-40% of its revenues, instead of 25-30% of total revenue as of now.

 Asset Multiplier Comments

  • The raw material prices for the company’s molecules (core and non-core) and freight costs are likely to stay high for the next 2 quarters. Therefore, we expect the EBITDA margin to be under pressure during this period.
  • As the company’s supplier for Paracetamol-related raw materials is about to start its plant by 15th Feb 2022, we expect the situation of raw material shortage to reduce from March.

Consensus Estimate: (Source: market screener website)

  • The closing price of GRANULES was ₹ 312/- as of 10-February-2022. It traded at 18x/13x/11x the consensus earnings estimates of ₹17/24.2/27.9 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 359 /- implies a P/E Multiple of 13x on FY24E EPS estimate of ₹ 27.9/-

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.”

This week in a nutshell (31st January- 4th February)

Technical talks

NIFTY opened the week on 31st January at 17,301 and closed on 4th February at 17,516. It made a gain of 1.2% during the week. The index is trading below its 100DMA of 17,649 which might act as a resistance. On the downside, the 17,438 level might act as a support. The RSI (48), and MACD turning downward suggests a further possible decline.

Weekly highlights

  • The US indices closed the week in green as US state employment data was released which showed a drop in claims for unemployment benefits. During the week, the stocks buying picked up again. S&P 500 was up by 6%, Nasdaq 100 by 1.7%, and Dow Jones by 1.1%.
  • Adani Total Gas Ltd (ATGL), the joint venture between Adani Group and Total Energies of France, said that it will invest Rs 200 bn in setting up city gas infrastructure across the country over the next 8 years, with 60 percent of the money being used towards 14 licenses it won recently. With the addition of 14 geographical areas, it won in the latest bid round for city gas distribution (CGD) licences, Adani Total Gas now has a footprint in 95 districts spread across 12 states, catering to more than 9 mn households.
  • Bengaluru-based electric vehicle company Ather Energy will set up 1,000 fast charging stations for electric two-wheelers across Karnataka. The company plans to keep charging at these stations to be free of cost for everyone for first 1 or 2 years.
  • Meta’s (Facebook’s parent company) stock price fell by 26 percent on 3rd February after the company issued a weak forecast, citing Apple’s privacy changes and increased competition. The huge drop erased over $200 bn from Meta’s market capitalisation.
  • According to the commerce ministry, India’s eight core infrastructure sectors grew by 3.8 % in Dec-21, compared to 3.4 % in Nov-21. Natural gas and Cement were the largest contributors to an increased output in Dec-21 with 19.5% and 12.9% increase respectively.
  • The Centre’s fiscal deficit rose to 50.4% of the FY22 target in April-December 2021, with a huge increase seen in tax collections as well as capital expenditure for the month of December 2021, data released by the Controller General of Accounts showed. The Economic Survey for FY22, tabled on 31st January, said the Centre was well on track to meet its fiscal deficit target of 6.8 % of the Gross Domestic Product (GDP).
  • The ADP National Employment report showed that the private payrolls decreased by 301,000 jobs in Jan-22 after increasing by 776,000 in Dec-21. This was the first drop in private payrolls since Dec-20. The initial claims for state unemployment benefits dropped 23,000 to 238,000, suggesting that the slowdown in job growth in January was likely temporary.
  • FII (Foreign Institutional Investors) were net sellers of shares worth Rs 76,953 mn and DII (Domestic Institutional Investors) were net buyers of shares worth Rs 59,237 mn in this week.

Things to watch out for next week

  • As the budget 2022 announcement is behind us, we expect the budget-related volatility in the stock market to reduce in the next week.
  • With the announcement of government’s increased borrowing, and rising inflation, the monetary policy committee (MPC) meeting of RBI will be a key event to watch for the market next week.

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.”

Datawrkz’s products will help optimise user acquisition cost – Nazara Technologies

Update on the Indian Equity Market:

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Excerpts of an interview with Mr. Nitish Mittersain, founder and MD of Nazara Technologies (NAZARA) with Economic Times on 19th January 2022:

  • The company has discussed an issue of preferential shares, with its board. This issue is for funding the acquisition of a company called Datawrkz which is an AdTech platform based in Bangalore. Datawrkz earns 70% of its revenues from the US.
  • Datawrkz focuses on optimizing customer acquisition costs, especially on mobile. It has a product called Primus that generates higher revenues for publishers. When customers are monetizing through ads, its products and tools help them optimize the yield that they are getting on the ads.
  • NAZARA has a large user acquisition cost that comprises almost 20% or more of its revenues. Therefore, the company plans to deploy Datawrkz’s products and technologies to optimise its user acquisition cost. It also plans to use Primus to optimize the yields from its ads that may help it to increase its revenues.
  • The company has valued Datawrkz at Rs 2,250 mn. Initially, the company plans to take a 33% stake for Rs 600 mn, out of which Rs 350 mn will be paid in cash and the balance Rs 250 mn will be paid in cash or through shares and the balance will be decided based on their performance in CY2023.
  • In India, Datawrkz will be able to scale up using NAZARA’s network, and Datawrkz will be helpful for NAZARA to scale up its revenues in the US.
  • In CY2021, Datawrkz posted revenue of 900mn with about a 12% EBITDA margin. Though Datawrkz is generating positive cash flow, NAZARA’s focus will be to grow in terms of revenue and strategic initiatives, and not focus very strongly on margins as it believes that the business can scale significantly.

 

Asset Multiplier Comments

  • We believe that Nazara Tech’s acquisition of the stake in Datawrkz will benefit it in the reduction of user acquisition costs, and the use of Primus will help in increasing revenues for its e-sports, gamified learning, and other segments.
  • Datawrkz’s presence in multiple geographies including US and Singapore will turn out to be beneficial for Nazara to scale its presence in those markets.

Consensus Estimate: (Source: market screener website)

  • The closing price of NAZARA was ₹ 2,494/- as of 19-January-2022. It traded at 167x/ 105x/ 68x the consensus earnings estimates are ₹ 14.2/22.7/35.2 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,598/- implies a P/E Multiple of 74x on FY24E EPS estimate of ₹ 35.

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