02 Aug

Wage hikes impacted margins in Q1FY22 – Tech Mahindra

Update on the Indian Equity Market:

On Monday, NIFTY ended higher at 15,885 (+0.8%) as it closed near the intraday high level of 15,983. Among the sectoral indices, REALTY (+4.8%), AUTO (+1.4%), and IT (+1.1%) ended higher, and there were no sectoral losers. Among the stocks, TITAN (+3.6%), SHREECEM (+3.5%), and BPCL (+3.1%) led the gainers while UPL (-2.3%), TATASTEEL (-1.5%), and BAJAJFINSV (-0.6%) led the losers. 

Excerpts of an interview with Mr. CP Gurnani, MD&CEO, and Mr. Milind Kulkarni, CFO of Tech Mahindra (TECHM) with CNBC TV18 on 30th July 2021:

  • A few of the things that worked well for TECHM over 1QFY22 were that the company focused on bringing in large deals that help in bringing order backlog and predictability in the operations. 
  • All of the company’s capital allocation is towards cloud and artificial intelligence (AI). TECHM has also made 5G investments in software-defined networks and cloud-based networks. The company usually looks forward to deal wins of US$ 800-1,000 mn every quarter and has signed one of its largest deals in healthcare in 1QFY22.
  • The company did better in a seasonally weak quarter and was able to maintain margins of 15%. There could be tailwinds coming from operating leverage and headwinds coming in terms of a higher cost of the employee addition and retention. Yet, the company is confident of maintaining the EBITDA margin.
  • Speaking of the company’s costs, there have been two increases. One is the salary increments, second is that the company had to employ a higher number of onsite contractors due to Covid restrictions. The company recovered from the impact partly through operational efficiency with improved utilisation of 60 bps and through increased offshoring.
  • Inorganic growth is going to continue to be the company’s differentiator. The company has improved a lot of synergy goal delivery, and integration capability. The company is also getting a lot of management talent through its acquisitions.
  • The company had planned for 16-18% attrition as the overall demand is not only for Tech Mahindra. The management has repurposed the company to look at tier 2 cities like Nagpur, Trivandrum, Chandigarh, Bhubaneshwar, and Kolkata for hiring. But the management may give another salary hike if the market moves in that direction.

Asset Multiplier Comments

  • As the country recovers from the second covid wave, the strong demand for the entire IT sector augurs well for the company in the mid to long term.
  • With strong deal wins, robust pipeline, margin levers like automation, offshoring, and cost optimization by centralising the back offices of newly acquired entities, TECM is confident of delivering 15%+ EBIT Margins. We believe this confidence is justified. 

Consensus Estimate: (Source: market screener website)

  • The closing price of TECHM was ₹ 1,206/- as on 2-August-2021.  It traded at 19x/18x/16x the consensus earnings estimate of ₹ 63/69/77 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,210/- implies a PE multiple of 16x on FY24E EPS of ₹ 77/-.

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 Tech M , 0 Comments Read more...
01 Aug

This week in a nutshell (July 26th to July 30th)

This week in a nutshell (July 26thto July 30th)

Technical talks

NIFTY opened the week on 26thJulyat 15,849and closed on 30th July at 15,763, a decline of 0.5%.NIFTY has been getting strong resistance around the 20 DMA of 15,788 throughout the week. This remains the crucial level to watch out foras it’s capping Nifty’s upward movement.

Weekly highlights

·         FIIs were net sellers each day of the week with a net total outflow of Rs 108,250 m. DIIs continued to give support to the market through daily net buying. DIIs pumped in Rs 82,550 mn in the market this week.

·         The US equities kept up with all time high levels through the week. Strong quarterly results and Fed rates retained at near zero levels aided the positive sentiments.

·         An increase in regulatory crackdown on Chinese tech companies led to a selloffin Chinese equities. Whether this remains a long term concern and other Asian markets will see the benefit of higher allocation remains to be seen.

·         International Monetary Fund (IMF) has cut India’s FY22E GDP forecast to 9.5% due to setback from the second wave of Covid-19.

Things to watch out for next week

·         July 2021 monthly auto sales data will be released in the coming week. This data would be crucial to understand the demand trend post easing of lockdowns.

·         RBI’s Monetary Policy Committee (MPC) is scheduled to meet between August 4th to 6th. MPC’s comments on inflation, economy growth will be something to watch out for.

·         The quarterly result season continues with companies such as HDFC, Bharti Airtel, and Dabur reporting earnings next week. Management commentary on consumer demand post easing of lockdowns and near term outlook will be critical.

 

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29 Jul

Over 50% of slippages from the MSME sector: Canara Bank

Update on the Indian Equity Market:

On Thursday, NIFTY closed at 15,779 (+0.4%). Top gainers in NIFTY50 were Hindalco (+10.1%), Tata Steel (+6.8%), and SBI (+4.1%). The top losers were Maruti (-2.3%), Power Grid (-2.1%), and Bajaj Auto (-1.6%). The top sectoral gainers were METAL (+5.0%), PSU BANK (+3.2%), and REALTY (+1.6%) and the sectoral losers were FMCG (-1.0%), AUTO (-0.4%), and PHARMA (-0.3%).

Excerpts of an interview with Mr LV Prabhakar, MD, Canara Bank (CANBK) with ET Now dated 28th July 2021:

  • As far as slippages are concerned, they had given the guidance earlier in the quarter that their slippages will be around Rs 40bn. They worked on those lines.
  • As far as the retail is concerned, their NPA is only 1.5%. One thing is timely assistance to these people, retail as well as MSME, and the second one is restructuring also helped a lot in assessing these people, at the same time controlling the NPAs.
  • Out of Rs 42.5 bn slippages, about 55% to 58% is from MSME and 18% to 20% is it from retail. The rest is from other sectors.
  • The lockdown led to the closure of business and cash flows were not there for MSME borrowers, as well as other people. It was a challenge in the month of April and May.
  • In June, their collection efficiency increased to 91%. RBI resolution framework has helped a lot in assessing these people and in controlling the NPAs by restructuring the loans, wherever it is required.
  • The best part of this restructuring, as far as their bank is concerned, is under MSME. They have restructured about Rs 33 bn and retail about Rs 76 bn and the total amount are over Rs 132 bn.
  • After restructuring the people have started paying the instalments and already out of this, they have recovered about Rs 640 bn, out of which Rs 350 mn is an advance payment.
  • They are going to have about 12% of their share in the equity and they are working on the accounts which can be transferred to this ARC with the approval of the board.
  • In the last five quarters, every quarter, QoQ, the bank is strengthening the balance sheet. They are controlling the expenses. They are increasing the fee-based income because of which today their operating profit is at Rs 57 bn YoY; there is a growth of 34%.
  • As far as loan book is concerned, corporate is about 45% and in the next couple of quarters, they do not see any stress as far as infrastructure and NBFC accounts are concerned because accounts have already passed through the stage. Now they are out of that impact of COVID.
  • As far as provisions are concerned, as of date, all the accounts are amply provided. The provision coverage ratio is 81.18%. The bank is in a better position today compared to one year earlier when the provision coverage ratio was only 70%.
  • Bank feels that subsidiaries have a lot of potentials and going forward this potential is going to increase significantly.
  • Canara Bank stands 6th among 44 banks in the digital banking area. Going forward they are encouraging their customers to do more and more transactions through digital mode and they are encouraging their staff to handhold the customers to use the digital mode. Especially mobile banking, internet banking and also the debit cards and the credit cards to a larger extent, in which they have achieved significant success.

Asset Multiplier comments:

  • The future of banking will be driven by major technological changes and will keep transforming. 
  • The future of banking is ‘Digital’.  since most banks have already undergone their digital transformation, it will help in further stabilizing the Indian Banks.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of CANBK was ₹ 150/- as of 29-July-2021.  It traded at 0.5x/ 0.4x/ 0.4x the consensus book value of ₹ 319/ 347/ 426 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 160/- which trades at 0.4x the book value for FY24E of ₹ 426/-

 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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28 Jul

Growth visible across segments, pricing pressure in US a concern – Alembic Pharma

Update on the Indian Equity Market:

The market witnessed the continuation of the bearish movement due to acute turmoil in Chinese stock markets. Nifty was down 37 points or 0.24% at 15,709.

Among the sectoral indices, METAL (+1.22%) AND IT (+0.21%) were gainers while PSU BANK(-1.88%), AUTO (-0.93%) and REALTY (-0.79%) were top losers. Among the stocks, BHARTIARTL (+5.04%), TATASTEEL (+2.81%), and SBILIFE (+2.16%) were the top gainers while KOTAKBANK (-2.59%), DRREDDY (2.55%) and TATAMOTORS (-2.2%) were the top losers.

Alembic Pharma sees growth across segments; says pricing pressure in the US a concern

Edited excerpts of an interview with Mr Pranav Amin, Managing Director at Alembic Pharmaceutical with CNBCTV18 on 28th July 2021:

Alembic Pharma posted its Q1FY22 earnings. EBITDA, margins and profit have all come in below street estimates, the US generics business has seen a steep fall as well. Pranav Amin

  • Street estimates of EBITDA Margin for 1QFY22 were ~23-24% for the quarter v/s actual reported margin of 18%. The market was disappointed with the performance and stock tanked ~11% post results. Mr Amin explained the reason for the margin decline. He said that US business since the last five years has had a CAGR of about 25 per cent. Part of the growth in the US business was due to the Sartan opportunity, where the company did well.
  • Also there have been a lot of disruptions in the market. Since November or December, disruptions were seen and there was a lot of supply in the market, which has led to pricing pressure in the US market. So that is what has broadly caused the dip in the margins for this quarter.
  • US business declined by 38% YoY reason being the price erosion. Volumes were flat but pricing pressure was seen in other products as well other than the sartans in US business which led to the decline in US business.
  • Guidance on US business – In the last 5-6 quarters the average US revenue has been ~$70mn because of the sartans. Moving forward, the company has withdrawn all guidance. As far as the business is concerned, very robust growth is seen in the Indian market and the company expects it to continue.
  • API business grew by 6% YoY in 1QFY22, last year there were a lot of disruptions in API business because of COVID especially from China. The European business also grew very well, last year, had a growth of 13 per cent. So by and large, all the other businesses are doing okay. It’s just the US that is facing pricing pressure.
  • The company has withdrawn the EPS guidance for FY22 because
    • the markets have been quite dynamic, as is seen on some of the pricing in the Sartans and some of the other products.
    • There’s still no clarity on the FDA inspection of new facilities.
    • Competition is witnessed in some of the other larger products of the company.
  • India Business – India Business does not have a COVID-19 related portfolio. COVID-19 has been tougher for Alembic as most of the portfolio was not used for COVID-19 treatment. Speciality and Acute portfolios have shown good growth. The company expects to grow faster than the market.
  • The company has guided investors to launching 15 products in the US and management wants to stick to it. Strategically company is working on cost optimization, renovating portfolio and seeing where volumes can be maximized for some of the products to remain competitive in US markets. The filing and launches are on track.

 Asset Multiplier Comments

  • The near-term outlook remains muted due to significant erosion in US sales which would also weigh on margin. Further, inspections at new plants have been delayed due to COVID-19 which has led to delay in the launches of complex generics
  • The company’s plan to launch 15 products in the US and consistent performance in Indian branded formulations will help Alembic to perform going forward.

Consensus Estimate (Source: tikr. com and market screener websites)

  •  The closing price of Alembic Pharma was ₹ 796/- as of 28-Jul-21. It traded at 21.5x/17.2x/14.6x the consensus EPS estimate of ₹ 37.6/47/55.5 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 965/- implies a PE multiple of 17x on FY24E EPS of ₹ 55.5/-.

 

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.”

 

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27 Jul

Recovery seen in June, growth momentum ahead – SBI Cards

Update on Indian Equity Market:

On Tuesday, markets ended lower with Nifty closing at 15,746 (-0.5%). HINDALCO (+4.3%), SBILIFE (+3.2%), and TATASTEEL (+2.7%) were the top gainers on the index while DRREDDY (-10.3%), CIPLA (-3.5%) and AXISBANK (-3.3%) were the top losers for the day. Among the sectoral indices, METAL (+1.5%) and PSU BANK (+0.4%) were the gainers, while PHARMA (-4.3%), PRIVATE BANK (-0.9%) and REALTY (-0.7%) were the top losers.

 

Excerpts of an interview with Mr. Rama Mohan Rao Amara, MD & CEO, SBI Cards on CNBCTV18 dated 26th July 2021:

 

  • The Company suffered stress from the 3rd week of April till mid-June. Reduction of lockdown restrictions provided the push for the company to ramp up sales and sourcing, and July shows further signs of progress.
  • The company’s New Account Acquisition in the first quarter was lower due to the lockdown effect, however, the company has achieved its run rate of 3,00,000 card issuance per month.
  • Consumer sentiment and discretionary spending are coming back to pre-pandemic levels. The company is optimistic about further growth in sourcing, which is mostly done through bankers, which was affected due to lockdown.
  • Average monthly spending per card was at Rs 11,000 but it’s slowly inching up to indicate increased levels of discretionary spending and rebounding of economic activity in July. The company expects it to grow to Rs 13,000-13,500 levels barring any major disruptions.
  • Recovery is seen in both distribution channels- Bankers and Open Market distributions. With the opening up of the economy further, the company expects to grow from its minimum run rate of 3,00,000 card issues per month by leveraging multi-channel partnerships that the company has developed.
  • 52-53% of FY21 sourcing was done through banker channels which leverages its presence in tier 3, tier 4 towns, and rural areas, indicative of an increased digital penetration in rural areas.
  • Expansion of E-commerce and other online platforms into rural areas has seen a shift to digital transactions across rural areas, which has helped the company tap into its existing banking customer base, which also helps the company keep a track of its delinquencies.
  • The impact of the entire Mastercard ban accounts for less than 2% of monthly sourcing for the company, so the company has little risk. Even so, the company is proactively negotiating with its partners to mitigate the effects.

Asset Multiplier Comments:

  • Credit Cards Industry in India, is in its nascent stages of penetration, and there’s tremendous growth potential with digital penetration in Indian Rural Markets a thrust area for everyone.
  • SBI Cards can leverage the SBI Brand and its penetration across India to unlock growth potential that can rarely be done so easily by any other of its competitors.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of SBI Cards was ₹ 1,017/- as of 27-July-2021.  It traded at 54x/38x the EPS estimate of ₹19/₹ 27 for FY22E/23E.
  • The consensus price target of ₹ 1,184/- implies a 44x PE multiple for FY23E EPS of ₹ 27/-.

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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26 Jul

Expect Rs 35bn topline in FY22 – Wockhardt

Update on the Indian Equity Market:

The Indian indices started the week on a negative note dragged by selling in financials and auto stocks. Nifty closed at 15,824 (-0.2%), dragged by JSWSTEEL (-1.8%), WIPRO (-1.5%), and RELIANCE (-1.5%), The top gainers on the index were SBILIFE (+4.0%), BAJAJFINSV (2.4%), and HINDALCO (+1.9%). Among the sectoral indices, METAL (+0.6%), PHARMA (+0.4%), and MEDIA (+0.3%) led the gainers. REALTY (-1.0%), PSU BANK (-0.8%), and AUTO (-0.6%) were the laggards.

Excerpts of an interview with Mr. Habil Khorakiwala, Chairman, Wockhardt with CNBC TV-18 on 26 July 2021:

  • Wockhardt recently posted 1QFY22 earnings. The Company reported a consolidated net loss of ~ Rs 66mn vs a net profit of ~Rs 7598mn in 1QFY21.
  • The India business has grown due to its strategy of divesting the acute portfolio vs the chronic portfolio. With a presence in the therapy areas like diabetes, nephrology, and neurosciences. The differentiated strategy for diabetes- affordability, accessibility, and availability has helped them. On a QoQ basis, India business revenue improved from ~Rs 1,200mn to ~Rs 1,520mn.
  • There was a YoY growth of 69% in the UK business, and it’s a sustainable business. The UK government is manufacturing the AstraZeneca vaccine at the UK plant of Wockhardt. The vaccine business is expected to be sustainable for the next 1 year and this fill-and-finish business is a highly profitable one.
  • The Company’s UK plant received a visit from the UK Prime Minister, the Prince of Wales, and some other ministers. This is because Wockhardt is the only supplier and ~50% of all the UK vaccination has taken place from this facility.
  • The Company is in talks with 2 other vaccine manufacturers for fill-and-finish agreements. The Company is also expanding its capacities which are expected to commission early CY22. This business is expected to expand in the years to come.
  • Wockhardt would be filing the H14 form for its India facility and inviting the US FDA to visit for an inspection.
  • Wockhardt expects to achieve Rs 35bn in terms of topline and maintain the EBITDA margins from the 1QFY22 levels.

Asset Multiplier Comments

  • We believe that the company’s strategic plan is to shift from acute therapeutic areas to more chronic businesses like anti-diabetes, CNS (central nervous system), etc., and also to its niche antibiotic portfolio of NCEs (new chemical entities).
  • This research focus will likely increase the time to deliver returns to shareholders and also make them unpredictable. The vaccine business could be the savior in the medium term as the volumes may increase shortly.

Consensus Estimate: (Source: NSE)

  • The closing price of Wockhardt was ₹ 553/- as of 26-July-2021. The Company reported a loss of ₹ 35.4 per share for the year ended 31st March 2021.
  • The consensus earnings estimate and price target are not available.

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 Pharmaceuticals, Wockhardt 0 Comments Read more...
25 Jul

This Week in a nutshell (July 19th to July 23rd)

Technical Talks

NIFTY opened the week on 19th July at 15,754 and closed on 23rd July at 15,851, it made a small weekly gain of 0.6%. The index is trading below its upper Bollinger band level of 15,952, which might act as a resistance. On the downside, 20 DMA of 15,788 might act as a support. The index might trade in the range of the above-mentioned levels before making a strong move on either side.

Weekly highlights

  • After two sessions of losses and Wednesday being a holiday, the Market recovered for the last 2 days of the week as Nifty ended below 15,900, led by gains in most of the sectoral indices including Realty, Bank, Pvt bank, etc.
  • Among the sectoral indices, NIFTY Private Bank was the top loser (-2.26%) this week followed by Nifty Auto (-2.18%) and NIFTY IT was the top gainer (+1.68%) as most of the IT companies came up with strong numbers and positive outlook. 
  • The Nifty Private Banks sector was impacted by the result of HDFC Bank where the earnings growth in the June quarter was the lowest seen in many years. The disruption caused by the second wave of COVID-19 impacted profitability as the bank shored up provisions. HDFC Bank was down by 5.2% this week. On monthly basis, the defensive sectors are again at the forefront. Pharma and IT are up by 4.5% and 2.9% respectively.
  • Zomato made a stellar debut on bourses on Friday, listing at Rs 116 apiece on the NSE, garnering a 53 percent premium over its issue price of Rs 76 per share. The valuation of the company soared to Rs 910 bn.
  • India continued to attract strong foreign direct investment inflows in the first two months of FY22.  Gross FDI inflows more than doubled to $18.3 billion in April-May this year compared to $8.5 billion in the same period a year ago, according to RBI data. Nearly a third of the inflows are in the form of acquisition of shares rather than investing in new projects.
  • Oil prices trimmed gains on Friday but were poised to end the week largely steady after rebounding from a sharp drop, underpinned by expectations supply will remain tight as demand recovers. Brent crude futures fell 7 cents, or 0.1%, to $73.72 a barrel at 0147 GMT, after jumping 2.2% on Thursday. For the week, Brent was headed for a 0.1% gain.
  • Foreign Institutional Investors (FIIs) continued to be net sellers in Indian equity of Rs 54,460 mn, and the quantum of outflows increased from the previous week of Rs 15,350 mn. Conversely, Domestic Institutional Investors (DIIs) continued to be net buyers with an increased net outflow of Rs 50,520 mn vs the previous week’s Rs 12,000 mn. 

                                                                       Things to watch out

  • With results season picking up, quarterly numbers are to be watched out.
  • With Covid third wave concerns hovering around, government restrictions & policies regarding full or partial lockdowns are to be watched out for.
By #WeekInANutshell 0 Comments Read more...
22 Jul

Confident of double-digit growth in FY22 – HCL Tech

Update on the Indian Equity Market:

On Thursday, NIFTY ended higher at 15,824 (+1.2%) as it closed near the intraday high level of 15,835. METAL (+3.0%), IT (+1.8%), and REALTY (+1.75%) led the sectoral gainers and there were no sectoral losers. Among the stocks, JSWSTEEL (+5.9%), TECHM (+5.4%), and BAJFINANCE (+4.2%) led the gainers while HINDUNILVR (-2.3%), ASIANPAINT (-1.8%), and BAJAJ-AUTO (-1.2%) led the losers.

Excerpts of an interview with Mr. C Vijayakumar, CEO & MD, and Mr. Prateek Aggarwal, CFO of HCL Technologies (HCLTECH) published with CNBC TV18 on 20th July 2021:

  • The company has seen a second consecutive quarter of revenue miss due to execution capabilities getting hit by the second Covid wave, and the company has a lot of concentration in NCR. As the revenue will recover in Q2FY22, the company is confident of the full year’s double-digit growth performance.
  • Speaking on segments, the products and platform segment has been disappointing for the last two quarters. The company expects a low single-digit growth for this segment, as around 25% of the products are either declining in nature or are being discontinued. IT services had a muted quarter, due to some executions and transitions in Europe that are taking longer than expected.
  • The company is expanding in new markets (geographically) categorized as Focus countries and New Frontier countries. The company has a reasonable presence in the countries under the Focus category and the growth rate will be higher than the company growth rate. New frontier countries are mid to long-term bets. These markets have to be built and are expected to give good outcomes in a couple of years.
  • The deals that the company has won are organic in nature, and a lot of them require to be built by hiring more talent, and onboarding them. The hiring of freshers could be more than the current guidance of 20,000-22,000. Speaking on salary hikes, the salaries are currently the same at entry-level, but the company expects to see a salary hike percentage in the next couple of years to be more than the rest of the company.
  • The company has accomplished a very good quality order book in the last 2 quarters, a lot of it being good long-term programs having annuity revenues, and are good capacity programs for digital transformation.

Asset Multiplier Comments

  • As the country recovers from execution capability-related issues caused by the second covid wave, the revenues can be expected to recover in FY22.
  • A strong order book that contributes to annuity revenues will position the company better in the mid to long term.

Consensus Estimate: (Source: market screener website)

  • The closing price of HCLTECH was ₹ 979/- as of 22-July-2021. It traded at 20x/17x/16x the consensus earnings estimate of ₹ 50/57/62 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 975/- implies a PE multiple of 16x on FY24E EPS of ₹ 62/-.

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 HCL Technologies , 0 Comments Read more...
20 Jul

Focus on Technology aided Market Share Growth – SBI

Update on Indian Equity Market:
On Tuesday, markets ended lower with Nifty closing 120 points down at 15,632. ASIANPAINT (+5.4%), ULTRACEMCO (+1.8%), HINDUNILVR (+1.0%) were the top gainers on the index while HINDALCO (-3.7%), INDUSINDBK (-3.2%) and TATASTEEL (-2.7%) were the top losers for the day. Among the sectoral indices, FMCG (+0.1%) was the sole gainer, while MEDIA (-2.6%), REALTY (-2.5%) and METAL (-2.3%) were top losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman of SBI with ET NOW on 16th July 2021:

  • SBI’s growth is directly linked with India’s growth story. The Bank expects its loan book to grow across both working capital and term loan segments at 8% if the Indian economy grows around the same rate.
    The 2nd wave impact has been reduced now. The activities are recovering to March-21 i.e pre- 2nd wave levels due to a dip in cases and increased vaccination exposure, the commodity cycle and consumer demand are now back to March-21 levels.
  • The Bank was not caught off guard during the 2nd wave as it was during the first wave. It was well prepared and did not face headwinds during the second wave.
  • RBI’s timely intervention to address resolutions of NPAs has helped the bank manage its asset quality with regards to exposure to the MSME sector and has provided much-needed relief for the sector.
    SBI is a proxy for the Indian economy.
  • The NPA cycle, both net and gross, has reached a 5 year low, so the growth in the Indian Economy in the longer term and the bank’s capabilities to manage its loan book indicate a similar trajectory going ahead.
  • Listing of SBI MF is on the cards, the discussion is ongoing with the JV Partner. They are awaiting a unanimous decision and expect some movement in the upcoming quarters.
  • Fintech Space dominated by Paytm is demonstrating attractiveness to premium valuations, however, the Bank wants to focus its fintech segment SBI YONO to create long-term value for its stakeholders and doesn’t plan to list it for an IPO.
  • Fintech players operate in a niche segment, who don’t offer full-scale banking operations, so it’s an excellent opportunity for the bank to collaborate with such players to expand its growth drivers.
  • The Flight to Safety approach in uncertain times has helped large banks grow their liabilities and by extension, their loan book during the pandemic, the bank expects further consolidation of market share among top players.
  • The Capex and Credit Cycle recovery is evidential in the Cement, Iron and Steel, and the FMCG sectors with some capacity expansion on the cards.

Asset Multiplier Comments:

  • SBI, India’s largest bank is a proxy to India’s growth story. The bank is well-positioned to take benefit of all the disruptions and growth possibilities offered by the pandemic.
  • SBI has separated itself from other PSU banks that are riddled with operational inefficiencies and rigid cost structures, making it an attractive proposition in the banking sector.

Consensus Estimates (Source: market screener website):

  • The closing price of SBI was ₹ 421/- as of 20-July-2021. It traded at 1.4x/1.2x/1x the Book Value per Share (BVPS) estimate of ₹ 309/ ₹ 354/ ₹ 397 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 515/- which trades at 1.3x the BVPS estimate for FY24E of ₹ 397/-

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 Bank, SBI 0 Comments Read more...
19 Jul

Combined proposition with CAPCO is a game changer – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY closed 1.1% down at 15,752. Top gainers in NIFTY50 were NTPC (+2.0%), BPCL(+1.6%), and DIVISLAB (+1.0%). The top losers were HDFCBANK (-3.3%), INDUSINDBK (-2.8%), and HDFCLIFE (-2.7%). The only sectors to gain wereREALTY (+0.4%), and PHARMA (+0.2%) while the top sectoral losers were PRIVATE BANK(-2.0%), FINANCIAL SERVICES (-1.9%), and BANK (-1.9%).

Combined proposition with CAPCO is a game changer – WIPRO

Excerpts of an interview with the Management (CEO, CFO, and Chief Human Resources Officer) of Wipro, aired on CNBC TV18 dated 16th July 2021:

  • WIPRO has guided to an annual revenue run rate of US$ 10 bn.
  • Management said they will focus on driving consistent progression for growth and take a quarterly view. For 2QFY22, management has guided to a sequential growth of 5%-7%.
  • WIPRO has taken some steps in the last 12 months in terms of a simpler operating model, greater focus on growth, more focused strategy, focus on talent acquisition and development. The company has executed on these streams and customers and partner ecosystems have started responding to these improvements.
  • Management has created a buzz by saying that they would make a significant announcement in relation to their Cloud business over the next few weeks. Without giving any further details, the management has only said that the announcement would set their ambition in the cloud space more clearly.
  • WIPRO saw margin pressure in 1QFY22. Management has reiterated that capturing the growth momentum remains their priority, so they will continue to undertake investments.
  • Management had earlier guided for the margins to be in the band of 17% to 17.5%. 1QFY22 margins were well ahead of that at 18.8%.
  • 2QFY22 will also have some margin headwinds as the company will continue making investments to recapture demand, focus on talent retention by way of salary increase, and full quarter integration impact of CAPCO deal. However, the management remains optimistic regarding the quality of operating leverage that company can create in the growth phase going ahead.
  • WIPRO’s attrition in 1QFY22 was higher than industry levels. The management is confident that the supply chain processes have been finetuned to ensure demand servicing so they won’t face any issues.
  • Management is tackling the high attrition issue by focusing on fresher intake, salary hikes, quality of work, rescaling, and engagement. As a result of all these interventions, attrition will come to a much more manageable number moving forward.
  • As an update on the CAPCOdeal, management said that while these are still early days of the integration, the partnership is moving in the right direction. The way the two teams are connecting and complementing each other is good. Management has identified severalclients where they are offering the combined proposition. The level of response from clients is also very good and the teams have had several deal wins together.

 

Asset Multiplier comments:

  • Companies across the IT industry have been facing a talent supply crunch. While this is a good sign as the supply is chasing the higher demand, it is not without its drawbacks.
  • Lower talent availability leads to higher demand, better opportunities, and hence higher attrition. Attrition beyond control may put a roadblock in deal ramp-ups as there is a time lag that goes into new hire training. In addition, talent retention begins to cost more, thus limiting the operating margins.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of WIPRO was ₹ 575/- as of 18-July-2021.  It traded at 26x/ 23x/ 21x the consensus earnings estimate of ₹ 22.0/ 24.5/ 27.2for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 545/- which trades at 20x the earnings estimate for FY24E of ₹ 27.2/-

 

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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