23 Jan

This Week in a nutshell (17- 21 Jan)

Technical talks

NIFTY opened the week on 17th Jan at 18,240 and closed on 21st Jan at 17,617. During the week, NIFTY declined by 3% and formed a doji candle on the daily chart on Friday, indicating indecision between buyers and sellers. At the current juncture, on the weekly chart, the index has breached the 20-weekly moving average while the RSI is at 47.  Going ahead 17,505 and 17,776 would be the next support and resistance levels, respectively.

All the sectoral indices declined in the week with IT (-7.4%), Pharma (-5.2%), and Media (-3.8%) leading the losers.

Weekly highlights

  • Equity markets in India witnessed volatility during the week ended Jan 21, 2022 due to the ongoing results season and mixed budget expectations.
  • Companies in the auto and consumer sectors are facing margin pressures due to the on-going commodity inflation. Companies expect muted demand as affordability of consumers has become uncertain and they have signaled potential price hikes to pass on higher input costs.
  • The RBI has announced two consecutive auctions to infuse funds of Rs 7,50,000 mn and Rs 5,00,000 mn into the banking system as the inter-bank rates rose.
  • The RBI on January 20 permitted all existing non-deposit-taking NBFC-Investment and Credit Companies with asset size of Rs 10,000 mn and above to undertake factoring business subject to satisfaction of certain conditions.
  • India Ratings and Research expects the India’s economy to grow at 7.6 percent YoY in FY23.
  • Turkey opened a crucial crude pipeline that runs from Iraq after it blew up by an explosion. The explosion happened after a pylon fell on a pipeline due to bad weather, causing fire. Supply disruptions complemented by the shutdown risked tightening the energy markets. The sharp rise in the crude oil price dented investor sentiments in the last week
  • China has lowered a set of key policy rates and lending benchmarks to boost its slowing economy.
  • The U.S. Treasury Secretary Janet Yellen delivered a positive outlook for the US economy of substantial inflation slowdown and signaled a potential for long-term growth of the US economy.
  • The U.S. stocks tumbled amid weak company earnings and prospects for higher U.S. interest rates. U.S. stocks closed in the red on Friday and all three major indices suffered weekly losses as the prospect of rising interest rates and shaky company earnings cast doubt on the strength of the recovery from the COVID-19 pandemic.
  • The NASDAQ 100 tumbled 7.5% as result of aggressive sell-off on the back of disappointing results from Netflix and other tech companies. Investors have been anxious about tech’s growth as the economy recovers.
  • The foreign institutional investors (FII) continued to be sellers and sold equities worth Rs 126,400 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 5,080 mn.

Things to watch out for next week

  • The Federal Reserve’s meeting next week will be watched carefully, as investors’ hope for more guidance on the central bank’s plan to raise interest rates. The pace at which Fed tightens the monetary policy could be key. A steeper than expected trajectory of rate increases may hurt economic growth.
  • The domestic market is expected to remain volatile next week ahead of the budget announcement on 1st February.
  • Companies such as Axis bank, L&T, Marico, Cipla, Maruti Suzuki, Dr Reddy’s Labs, and Kotak Mahindra Bank are set to report earnings next week. Management commentary on provisioning, loan book growth will be key for banks while commentary on raw material inflation, rural demand will be key for consumer companies.
  • Earnings release, risks in the global economy, expected rise in US interest rates, Budget and Geo-political events will continue to influence the market mood. Rising COVID-19 cases and threats to further curb movement and businesses and rising inflation might also set the direction of the markets.

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.”

By #WeekInANutshell , , 0 Comments Read more...
20 Jan

Don’t cut it too fine!!

Intelligent investing rests on three tenets- Anand Sridharan reminds investors that intrinsic business value, Margin of safety and Mr Market are three tenets that matter. If we truly understand the essence of Ben Graham’s three tenets, we’re done. There’s nothing else to sensible investing. View stock as a business. Roughly gauge what it’s worth. Since world is all messy, don’t cut it too fine. Keep some cushion. View nutty counterparties as entertainment, unless they offer something actionable based on the above.

Two tenets – intrinsic business value & margin of safety – are inseparable. It wouldn’t even occur to Mr Sridharan to ask the question “What’s the value of this business?”. The actual question that he asks is “Around what buy-price am I fairly sure that I’m getting a decent deal?”. The second question blends intrinsic business value and margin of safety to help me reach an actionable decision. My guesstimate of business value will have wide error bars. The range maybe 100 to 150. Whatever be that number, I never do an artificial separation of value and safety margin. At all times, prudent investors don’t fuss about intrinsic business value, apart from being cognizant of a broad range that’s reasonable for a particular business.

This is why simple works better than sophisticated. In any real-world, reliable sense, DCF is nonsense. It is a sophisticated tool for impostors to delude themselves and others. We suck at forecasting and have no way to reduce risk to a number. A mental model that integrates margin of safety and intrinsic business value nudges us to focus on being roughly right, not precisely wrong. It is why the best investors spend a lot of time ensuring that businesses are predictable, and little time making actual predictions. Simple valuation methods suffice for businesses where cashflows and risks are relatively knowable.

Ongoing charade is even more flawed than it seems – What’s helpful to practitioners is a buy-price that offers reasonable certainty of getting more than what we pay for. This goal is achieved through a mindset that views value and safety in unison. Investors get habituated to methods that yield neither value nor safety without such a mindset.

Source- Buggy Humans in a Messy world by Anand Sridharan

AM Comments: –

  • It is tough to establish the true value of a firm. Each investor has their own method of estimating value, which may or may not be reliable. Because intrinsic worth is subjective, it should be assigned a range rather than a single figure. An approximate estimate, say within 10% of the actual value, should be enough. This gives the investor the opportunity to investigate the more subjective components of the valuation process.
  • Investing is done after a thorough examination of the firm and its cashflows, assuring a healthy margin of safety and a reasonable return. Investors don’t have to aim for perfection all of the time. Because we cannot precisely forecast the worth of a firm in the future and discount it at a suitable discount rate, investors must be comfortable with their purchase price.
  • Market frenzy is characterized by heightened emotions. Prices are at an all-time high. As a result, recalling Mr. Howard Marks, one should resist the temptation of participating in a market frenzy.

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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20 Jan

CTC acquisition enables to scale up in insurance sector – Tech Mahindra

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,757 (-1%). Among the sectoral indices, METAL (+0.5%) and REALTY (+0.2%) were the only gainers while PHARMA (-1.7%), IT (1.66%), and HEALTHCARE (-1.3%) closed in the red. POWERGRID (+4.8%), BHARTIARTL (+2.2%), and GRASIM (+1.7%) were the top gainers. BAJAJFINSV (-4.6%), BAJAJ-AUTO (-3.7%), and DIVIS (-2.9%) were among the top losers.

Tech Mahindra recently announced the acquisition of Com Tec Co IT (CTC), an East-European IT Services company with a presence in the digital engineering and outsourced product development space, for EUR 310m.

Excerpts from an interview of Mr. Vivek Agarwal, President, BFSI, HLS, and Corporate Development, Tech Mahindra with ET NOW dated 18th January 2022:

  • Tech Mahindra is optimistic about the insurance industry in digital transformation and the industry itself is going through a significant transformation largely due to disruptive technologies.
  • Mr. Agarwal said CTC brings deep domain competence and a successful track record, in the long run, to serve insurers for transforming their journey.
  • Mr. Agarwal further added, the basic capability set that Tech Mahindra gets from CTC is digital engineering talent as a service line and as a capability, it’s a very high growth segment as enterprises transform for the future. Tech Mahindra expects this capability adds more value to existing customers of the company as well as new customers.
  • As Europe is becoming a big talent hub Tech Mahindra established a presence in Latvia and Belarus through CTC acquisition. The talent quality coming from that region is exceptional and the company expects to grow on the talent base in that region.
  • Tech Mahindra’s acquisitions are driven by close integration and driving synergies. From the CTC acquisition, Tech Mahindra stands to gain vertical synergy in the insurance sector. The company expects that it can directly sell services to the client base of CTC.
  • Tech Mahindra is looking to work on and exploit the service line synergy around digital engineering and clients also want the top-class capability to help them to transform, with the combination of Tech Mahindra and CTC company will be able to offer those capabilities to their clients.
  • The insurance and reinsurance industry has a huge presence in Europe but the company not only focuses on Europe it serves a global client base. From the financial metrics perspective, Mr. Agarwal expects the business to generate industry-leading EBIT margins and this would reflect in the EPS and free cash flow.
  • Tech Mahindra is looking for those sectors which has high growth opportunity and the insurance sector is one of those. The insurance industry has a mile in terms of digital transformation and some of the peers of Tech Mahindra have a strong presence in that sector and the company expects that they will perform higher than the industry average rate.
  • CTC is going to be an integral part of Tech Mahindra’s business and does not consider a subcontracting base. This will become a more important base for Tech Mahindra to expand its talent supply pool.

Asset Multiplier comments:

  • We think the CTC acquisition enable Tech Mahindra to expand its footprint in the insurance sector and expand its Eastern European presence.
  • It will provide Tech Mahindra with tech talent having differentiated capabilities in end-to-end digital engineering which can be scaled up across different industries.

Consensus Estimate: (Source: Market screener website)

  • The closing price of Tech Mahindra was ₹ 1,669/- as of 20-January-2022.  It traded at 26x/23x/20x the consensus Earnings per share estimate of ₹ 64.2/ 73.9/ 82.6/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,864/- which implies a PE multiple of 23x on FY24E EPS of 82.6/-.

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.”

By IT, Tech M 0 Comments Read more...
19 Jan

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

Update on the Indian Equity Market:

On Wednesday, NIFTY ended at 17,938 (-0.1%) as it closed near the intraday low of 17,885. Among the sectoral indices, PSU BANK (+2.2%), MEDIA (+1.0%), and METAL (+0.8%) ended higher, whereas IT (-2.1%), FINANCIAL SERVICES 25/50 (-1.1%), and FINANCIAL SERVICES (-1.1%) led the losers. Among the stocks, ONGC (+3.5%), TATAMOTORS (+1.9%), and UPL (+1.9%) led the gainers while INFY (-2.9%), SHREECEM (-2.8%), and ASIANPAINT (-2.7%) led the losers.

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.

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.”

By IT, Nazara Tech 0 Comments Read more...
18 Jan

Expect higher demand for application modernization, cloud transformation, and digital engineering – HCL Tech

Update on the Indian Equity Market:

On Tuesday, Nifty closed lower at 18,113 (-1.1%) led by REALTY (-2.6%), AUTO (-2.4%), and METALS (-2.2%) were the top losers while there were no gainers.The top losers were MARUTI (-4.1%), TATACONSUM (-3.9%), and ULTRACEMCO (-3.8%) while AXISBANK (+1.8%), ICICIBANK (+0.5%), and HDFCBANK (+0.4%) were the top gainers.

Edited excerpts of an interview with Mr. Vijayakumar, MD & CEO, and Mr. Prateek Aggarwal, CFO, HCL Tech with CNBC TV18 on 17th January 2021:

  • The company’s order pipeline is healthy, with transaction wins increasing by 64% YoY in 3QFY22. Application modernization and cloud computing were driving the growth.
  • Hiring has grown to around 10,500 employees in the 3QFY22E. The management expects greater demand visibility for application modernization, cloud transformation, and digital engineering.
  • The management expects a strong 4QFY22E due to increased booking and order visibility as a result of the services segment’s hiring of over 10,000 individuals. Even if the firm has a flat 4QFY22E, management anticipates the company will expand at a rate of 12.6-12.7 percent in FY22E.
  • The company’s margins were five basis points (bps) higher in 3QFY22 QoQ, while services were a little weaker on the margin. Due to expenditures associated with growth, such as knowledge transfer fees, the IT services margin was lower. The management also highlighted that wage hikes in 3QFY22 and attrition levels, both of which have expenses, had an impact on margins. Management believes that attrition levels have reached a peak and that attrition should begin to decline. The management expects the margin to return to typical levels of approximately 20% by 2QFY23E to 3QFY23E.
  • In terms of fresher recruiting, the company plans to hire 20,000-22,000 freshers for FY22E.
  • The company’s recent acquisition of Hungary-based data engineering services provider Starschema Ltd for $ 42.5 mn is expected to help scale the company’s Eastern European footprint, particularly in Hungary. This is a data engineering consulting organization that offers front-end consulting, which can be a good trigger for a lot of downstream work. In Hungary, the corporation has solid mindshare attracting top personnel. As a result, the firm will be able to develop its Eastern European footprint more quickly, particularly in Hungary. The company will continue to seek assets that can enhance its capabilities, particularly in a high-demand market.
  • When it comes to the products and platforms business, management expects it to increase in the low single digits. The management anticipates that this will be a long-term play that is still getting modernized.
  • In terms of deal wins, the net new TCV in 3QFY22 was $2140 mn, a 64 percent increase from the previous year. The high TCV was due to 8 significant transactions on the services side, another 8 deals on the products and platforms side, and a large number of smaller deals.

 

Asset Multiplier Comments

  • We believe HCL Tech has a solid business model and a track record of successful execution. The company plans to hire at least 20,000 additional freshers by FY22E (with 15,000 already on board) and double the amount by FY23E. This reflects management’s confidence in future deal wins.
  • We believe the company will likely be at the lower end of the 19-21 percent EBIT guidance band in 4QFY22E, but the long-term growth narrative remains intact, bolstered by greater growth in cloud, ER&D, and data modernization.

Consensus Estimate (Source: market screener website)

 

  • The closing price of HCL Tech was ₹ 1,220/- as of 18-January-2022. It traded at 25x/22 x/ 19x the consensus earnings estimates of ₹ 49/ 56/ 63 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,460 /- implies a P/E Multiple of 23x on FY24E EPS estimate of ₹ 63/-.

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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17 Jan

The attrition situation won’t change for the next few quarters – Mindtree

Update on the Indian Equity Market:

On Monday, Nifty closed higher at 18,308 (+0.3%). AUTO (+2.1%), REALTY (+1.3%), and CONSUMER DURABLES (+0.5%) were the top gainers while HEALTHCARE (-0.9%), PHARMA (-0.7%), and BANK (-0.4%) were top losing sectors.

The top losers were HCLTECH (-5.7%), HDFCBANK (-1.4%), and CIPLA (-1.3%) while HEROMOTOCO (+5.1%), GRASIM (+3.5%), and ONGC (+3.2%) were the top gainers.

 Edited excerpts of an interview with Mr. Debashis Chatterjee, Managing Director, and Chief Executive Officer, Mindtree with Economic Times on 14th January 2021:

  • A lot of transformation deals are happening as the clients are looking at maximising their revenues. Clients are also looking at cost optimisation and there is a lot of effort in terms of workplace modernisation, and workforce transformation for every client.
  • Most of the deals are digital and cloud led which are short cycle deals. The short cycle deals over some time develop into larger strategic relationships.
  • From an overall TCV standpoint, Mindtree has YTD USD 1.2 bn deal wins, which is 21% up YoY. The pipeline is robust and the company is confident of the deals to flow through in the coming quarters.
  • The deal pipeline is a mix of both large and transformation deals. At present, the short cycle deals are more and the company expects it to eventually get translated into multiyear initiatives.
  • The company is focused on taking the margins to healthy levels. It is satisfied with a 20% EBITDA margin on yearly basis. It has put processes to track the margins and various levers which are working well for the company.
  • The travel transport and hospitality portfolio has reached the pre-pandemic levels (USD 200 mn run rate in 3QFY22).
  • The company has diversified its travel transport and hospitality portfolio beyond airlines and hospitality. It has ventured into food and beverage, surface transformation, and cruise liners making the portfolio more resilient to the virus. The company expects this portfolio to get less impacted by the omicron variant.
  • Mindtree has been looking at Merger and Acquisition (M&A) and will be open to looking at inorganic M&As as well. It has done one inorganic in the past and is seeing good results.
  • At least for the next couple of quarters, Mr. Chatterjee doesn’t think the attrition scenario to change. The management has organized themselves to deal with and manage the talent in a more nimble and agile manner.

Asset Multiplier Comments

  • We think Mindtree has a resilient business model and has a proven track record of strong execution capabilities. The company’s plan to hire at least 1,500 freshers per quarter displays management’s confidence in winning deals going ahead.
  • We believe robust deal wins, sustainable growth, focus on multiyear engagements and margin expansion will aid topline and bottom-line growth.

Consensus Estimate (Source: market screener website)

  •  The closing price of Mindtree was ₹ 4,510/- as of 17-January-2022. It traded at 47x/ 41x/ 36x the consensus earnings estimates of ₹ 96/ 111/ 128 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,570/- implies a P/E Multiple of 36x on FY24E EPS estimate of ₹ 128/-.

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.”

 

 

By IT, Mindtree 0 Comments Read more...
15 Jan

This Week in a nutshell (10-14 Jan)


Technical talks

NIFTY opened the week on 10th Jan at 17,913 and closed on 14th Jan at 18,255. During the week, NIFTY added another 2.5% and ended up with a decent bullish candle on the weekly chart, suggesting the bulls are in no mood to give up. At the current juncture, on the weekly chart, the index has breached the 20-weekly moving average while the RSI is at 64.  Going ahead, for the bulls, 18,375-18,400 would be the immediate hurdle and on the flip side, 18,150 would be the support level. If the index succeeds to close below the same, the Nifty50 could retest 18,050-18,000 levels.

Among sectoral indices, Realty (+4.9%), PSU Banks (+4.1%), and Media (+3.3%) were the top gainers while this week while FMCG (-0.13%) was the only loser.

Weekly highlights

  • The Indian Indices opened high as India Inc started the earnings season with a bang giving hopes to investors that the numbers will surprise positively.
  • Amid weak global markets and rising COVID-19 cases, the domestic market displayed strong momentum on expectations of a healthy start to the earnings season. However, rising inflation and a worsening pandemic soured the mood on Dalal Street by the end of the week.
  • The World Bank projected India’s GDP growth at 8.3% for FY22E and 8.7% for FY23E.
  • The National Statistical Office released inflation data during the week. India’s headline retail inflation jumped to 5.59 percent in Dec-21. The latest Consumer Price Index (CPI) inflation print is 68 basis points higher than the Nov-21 level of 4.91 percent. It is the highest inflation has been since Jul-21 when it had also come in at 5.59 percent.
  • Globally, bourses were muted at the start of the week as reports of record-high Eurozone inflation at 5% kept investors on edge. However, Fed’s testimony to Congress uplifted the sentiments of the investors going ahead.
  • Fed Chair Jerome Powell acknowledged on Tuesday that high inflation has emerged as a serious threat to the Federal Reserve’s goal of helping put more Americans back to work and that the Fed will raise rates more than it now plans if needed to stem the surging prices.
  • The U.S. stock indexes rose as the week progressed after data showed that while U.S. inflation was at its highest in decades.
  • The consumer price index rose 0.5% in Dec-21 after advancing 0.8% in Nov-21. In addition to higher rents, consumers also paid more for food. Prices paid by U.S. consumers jumped 7 percent YoY in Dec-21. This shows that rising costs for food, rent, and other necessities are heightening the financial pressures on America’s households.
  • The weekly jobless claims report from the Labor Department was published on Thursday showing the number of Americans filing new claims for unemployment benefits increased to an eight-week high in the first week of January amid raging COVID-19 infections.
  • However, U.S. stocks closed mixed on Friday, but all three major indexes suffered weekly losses as the prospect of rising interest rates and weaker economic data cast some doubt on the strength of the recovery from the COVID-19 pandemic.
  • The foreign institutional investors (FII) sold equities worth Rs 40,029 mn, while domestic institutional investors (DIIs) bought equities worth Rs 36,293 mn.

Things to watch out for next week

  • Markets will react to the results of two heavyweights- HCL Technologies and HDFC Bank in early trade on Monday.
  • Earnings will continue to influence the market mood. Rising COVID-19 cases and threats to further curb movement and businesses and rising inflation might also set the direction of the markets.

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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13 Jan

EBIT margin of 17-17.5% sustainable – Wipro

 

 

 

 

 

 

 

 

 

 

 

Update on the Indian Equity Market:

On Thursday, after a volatile session the benchmark index NIFTY50 ended at 18,258 (+0.3%). Among the sectoral indices, METAL (+3.5%), PHARMA (+1.6%), and PSU BANK (+0.6%) led the gainers while REALTY (-0.7%), BANK (-0.7%), and PRIVATE BANK (-0.6%) led the laggards.

Among the NIFTY50 components, TATASTEEL (+6.3%), JSWSTEEL (+4.3%), and SUNPHARMA (+3.6%) led the gainers. WIPRO (-6.0%), ASIANPAINT (-2.4%), and HCLTECH (-1.9%) were the top losers.

Wipro recently announced 3QFY22 earnings, which were lower than street estimates. But the fourth-quarter guidance seems to provide some relief to investors.

The top management, MD & CEO Mr. Thierry Delaporte, CFO Mr. Jatin Dalal, and President and CHRO, Mr. Saurabh Govil discussed the highlights of 3QFY22 and their outlook for the upcoming quarters with CNBC-TV 18 on 13th January 2021. Following are the excerpts:

  • Wipro had guided for 2-4% sequential revenue growth in constant currency term for 3Q. The company delivered 3% QoQ revenue growth. There weren’t any one-offs or client loss or massive delivery issues. This is the normal volume of business.
  • The 3% sequential revenue growth is 28% YoY growth. The 3QFY22 revenue growth is the continuation of the growth seen over the last 5 quarters.
  • The CEO does not expect a significant contribution to revenues from the recently concluded acquisitions of Edgile and LeanSwift.
  • The reported EBIT margin was 17.6%, ahead of the guidance of 17-17.5%. The margin delivery has been despite 2 months of salary increment to 80% of its employees. The utilisation is such that there is some headroom for subsequent quarters.
  • The EBIT margin band of 17-17.5% is sustainable for the company in the long term.
  • The attrition for LTM was 22.7% in 3QFY22 and remains a concern industry-wide. It has taken certain measures to cope with higher levels of attrition. First, the company onboarded 10,000 plus employees every quarter and continues to onboard new people. Wipro has increased campus hiring by 70% in FY22. The company is looking at 30,000plus hiring in FY23E. Second, the company continues to laterally hire all skill sets across the globe based on demand. Some of the high-demand areas are cyber security, data, cloud, and newer areas like Salesforce. The company believes the attrition has peaked and expects to see moderate attrition going forward.
  • The company closed the biggest quarter in terms of bookings in 3QFY22. It reflects Wipro’s ability to win in the market. It has the biggest pipeline it ever had as it begins 4QFY22. It has a better win rate compared to previous quarters.
  • The CEO believes the clients’ budgets across industries will continue to increase. The win rate has improved by 300bps over the previous two years.
  • Improvement in price realisation is seen due to the move to high-value services such as cyber security, cloud, and digital. Wipro had made investments in certain skill sets and improved visibility, for which clients are willing to invest.

Asset Multiplier Comments

  • We believe revenue growth will be driven by strong demand, strong pipeline, and order book. The company’s order pipeline has a mix of small, medium, and large deals with the company seeing expansion in mid-sized deals.
  • There is a massive opportunity in the cloud business over the next five years. The Company has been making investments in cloud technology. Cloud opportunity, higher offshoring, and synergies from acquired business are expected to drive profitability for Wipro in the near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of Wipro was ₹ 650/- as of 13-January-2022. It traded at 30x/ 25x/ 22x the consensus earnings estimates of ₹ 22/ 26/ 29/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 703/- implies a P/E Multiple of 24x on FY24E EPS estimate of ₹ 29/-.

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.”

By IT, Wipro , , 0 Comments Read more...
12 Jan

#Truths about investing 103- Think differently

This is taken from a presentation by Howard Marks Co-Founder of Oaktree Capital. This is the third article in a series. Mr. Marks makes concise and incisive comments about the art of investing that can help amateur and professional investors alike.

You have to think in a way that departs from the consensus; you have to think differently and better. The price of a security at a given point in time reflects the consensus of investors regarding its value. The big gains arise when the consensus turns out to have underestimated reality. To be able to take advantage of such divergences, you have to think in a way that departs from the consensus; you have to think differently and better. Any time you think you know something others don’t, you should examine the basis for that belief. Ask Questions like- “Does everyone know that?” or “Why should I be privy to exceptional information or insight?”

It isn’t the inability to see the future that cripples most efforts at investment. More often it’s emotion. Investors swing like a pendulum – between greed and fear, euphoria and depression, credulousness and skepticism, and risk tolerance and risk aversion. Usually, they swing in the wrong direction, warming to things after they rise and shunning them after they fall. Technology now enables them to become distracted by returns daily. Thus, one way to gain an advantage is by ignoring the noise created by the manic swings of others and focusing on the things that matter in the long term.

To be a successful investor, you have to have a philosophy and process you believe in and can stick to, even under pressure.

Since no approach will allow you to profit from all types of opportunities or in all environments, you have to be willing to not participate in everything that goes up, only the things that fit your approach. To be a disciplined investor, you have to be able to stand by and watch as other people make money in things you passed on. Every investment approach – even if skillfully applied – will run into environments for which it is ill-suited. That means even the best of investors will have periods of poor performance. Even if you’re correct in identifying a divergence of popular opinion from eventual reality, it can take a long time for the price to converge with value, and it can require something that serves as a catalyst. To be able to stick with an approach or decision until it proves out, investors have to be able to weather periods when the results are embarrassing.

Source- Truth’s about investing by Howard Marks

Asset Multiplier Comments:

  • Investors with a longer time horizon are less likely to make emotional judgments. A properly allocated portfolio has the appropriate mix of equity and fixed-income asset classes to provide an investor with the highest chance of success. This means retiring comfortably without running out of money.
  • A sound investment philosophy is founded on a thorough knowledge of markets. Determine the return you require, the income you will need for your retirement expenses, and the degree of portfolio appreciation you need to achieve that. Selecting a plan and adhering to it is also part of your investment philosophy. Passive investing might just be your investment philosophy.
  • Adhering to your philosophy entails avoiding emotion-driven buy-and-sell choices and sticking to your intended allocation regardless of market movements. The whole objective of allocating according to a strategy is to prevent hopping in and out of assets on the spur of the moment.

 

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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12 Jan

Demand momentum robust, seen steady growth in the order book – Blue Star


 

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the green at 18,212 (+0.9%). Among the sectoral indices, REALTY (+1.9%), OIL & GAS (+1.5%), and AUTO (+1.5%), closed higher while  PHARMA (-0.2%)  and HEALTHCARE (-0.2%) closed in the red. M&M (+4.5%), BHARTIARTL (+3.7%), and INDUSINDBK (+2.8%) were the top gainers. TITAN (-1.6%), TATASTEEL (-1.5%), and SHREECEM (-1.1%) were among the top losers.

Excerpts from an interview of Mr. B Thiagarajan, MD, Blue Star with Economic Times dated 6th January 2022:

  • Right from August onwards, the company has had a good festival season, the demand held up till the New Year sale in quite a few markets. Building up to Sankranti, the sales are good, however, the spike in COVID cases can have some impact on the retail movement, and the company doesn’t expect much loss of sales as it is peak winter season.
  • The company had taken 3 price hikes in CY21 and it has no plans of further price hikes on the back of stabilising commodity prices, improved product portfolio, and efficient supply chain. The company expects commodity prices to be stable over the summer season.
  • The company has improved its supply chain efficiency with regards to insulating itself from shocks by ordering semiconductors till FY23 in advance, blocking raw material inventory for 6 months instead of its usual policy of 3 months. The supply chain challenges continue but it has somewhat eased and the company is fully secured for the summer season.
  • The company has seen robust demand in the room air conditioner industry owing to excellent momentum from tier-3, tier-4, and tier-5 towns. The penetration in the middle class is fast improving.
  • PLI has become an important enabler to create a huge component ecosystem. To earn the PLI, the industry has to improve its revenue which means the competition will be intense and prices will come down while the scale builds up. It is a question of maintaining profitability by building scale.
  • IT, ITES workforce are returning to offices and therefore air conditioning demand is coming. The biggest demand is from the manufacturing sector. Huge expansions are taking place thanks to the PLI in various sectors the government has offered. Capacity expansion is leading to new factories coming up, thus the company expects a huge demand for industrial cooling.
  • There are many social infrastructure projects like the metro railways or water-related projects and the resulting order book is at a record high at this point. It is very encouraging as far as the B2B segment is concerned and the cash flow is also good indicating encouraging signs for the segment.
  • Once in two years, energy labels are getting changed and therefore people will have to buy higher energy efficiency products. But the demand for five-star ACs is not going up significantly because the consumers are predominately first-time, middle-class buyers, who are more price-driven.
  • However in the B2B segment, the real hot selling products are highly energy-efficient like VRB (Vanadium redox battery) or the VFD (Variable Frequency Drive) driven, as manufacturers are more focused on setting up green buildings, platinum rated, and gold rated factories.

Asset Multiplier comments:

  • We think the healthy order book, expansion of business in the B2C segment, and PLI Investments will be the key positives for Bluestar but the supply chain and increased commodity prices may impact profitability.
  • Healthy growth opportunities in Industrial Manufacturing induced Capex and the government’s boost for social infrastructure will drive growth for Bluestar.

Consensus Estimate: (Source: Market screener website)

  • The closing price of Bluestar was ₹ 1,006/- as of 12-January-2022.  It traded at 60x/37x/30x the consensus Earnings per share estimate of ₹ 17/27/33/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,025/- which implies a PE multiple of 31x on FY24E EPS of ₹ 33/-.

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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