Tag - Deal wins

Large sized deal ramp-up due to Evosys acquisition – MASTEK

Update on the Indian Equity Market:

On Tuesday, the benchmark Nifty 50 index ended at a record closing of 17,383 (+0.2%). The top gainers on the index were INDUSINDBK (+4.0%), HCLTECH (+2.5%), and HEROMOTOCO (+2.2%). The laggards were led by ULTRACEMCO (-1.1%), HDFC (-1.1%), and BPCL (-1.1%). Among the sectoral indices, MEDIA (+14.4%), PRIVATE BANK (+1.1%), and CONSUMER DURABLES (+0.9%) led the gainers while METAL (-0.4%), FMCG (-0.3%), and FINANCIAL SERVICES (-0.1%) led the losers.

Excerpts of an interview with Mr. Hiral Chandrana, Global CEO, Mastek with Economic Times on 13th September 2021:

  • The Company has a strong business in the UK and is working with the leading public sector institutions. MASTEK has a healthy business and is not going to reduce its UK exposure. They expect to continue the run in many areas including the private sector.
  • 1QFY22 was a good quarter in terms of the order book. The company is witnessing a good momentum in 2QFY22 along with an increase in deal size. The acquisition of Evosys (cloud business) is helping MASTEK get involved in larger-sized deals.
  • There are delays in some deals due to their large size and higher competition.
  • While the talent market remains challenging, MASTEK has taken a lot of steps in terms of salary hikes and skill transformation. They are looking at various elements of how training and reskilling are done.
  • 12-15 months back, the company was operating in the 13-14% EBITDA margin range. Now, they are comfortable in the 20plus percentage EBITDA margin. While there could be some margin fluctuation on a QoQ basis, the CEO believes they have good leverage in terms of fixed cost to achieve margins in the 20% plus range.
  • In some of their cloud implementation business, which was acquired through Evosys, the work is delivered through business outcomes. There are elements of pricing and realisation that can be leveraged based on the outcome delivered.
  • In cases where skills-based work is in high demand, customers realise they need to pay more. There are certain skills for which the company can command higher prices.
  • Customers are going through digital adoption and they are changing business models. They are changing their supply chains. It is a huge transformation and technology is a big enabler. Mr. Chandrana believes this trend will continue at least for the next one and a half or two years.
  • There is a huge opportunity for automation and digital adoption. Cloud has taken off in a big way, and MASTEK is investing heavily in that space for the next 18-24 months.

Asset Multiplier Comments

  • MASTEK’s presence in the local government has been established through the Evosys acquisition. There could be new business opportunities for the company with the UK government as a result of Brexit.
  • A strong order book, ramp-up of large deal wins, revival of the UK and US businesses are indicative of the revenue growth for MASTEK in the near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of MASTEK was ₹ 2,899/- as on 14-September-2021. It traded at 31x/ 25x the consensus earnings estimate of ₹ 94/ 114 for FY22E/ 23E.
  • The consensus target price of ₹ 2,890/- implies a PE multiple of 25x on FY23E EPS of ₹ 114/-.

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.”

Expect 20 percent plus EBITDA margins to continue – Mindtree

Update on the Indian Equity Market:

The Indian Equity market indices gained after the Indian government announced that all citizens over the age of 18 can have Covid-19 vaccinations from May 1.  The markets pared morning gains as investors were worried due to the increasing Covid-19 cases in the second wave. Nifty 50 ended at 14,296 (-0.4%).  Among the stocks, DRREDDY (+3.6%), BAJAJFINSV (+3.5%), and HDFCLIFE (+3.0%) ended with gains while ULTRACEMCO (-4.9%), HCLTECH (-3.4%), and HDFC (-3.3%) led the losers. Among the sectoral indices, MEDIA (+3.0%), PHARMA (+1.3%), and AUTO (+1.0%) led the gainers while IT (-1.4%), FMCG (-0.6%), and FINANCIAL SERVICES (-0.6%) led the losers.

Excerpts of an interview with Mr. Debashis Chatterjee, MD & CEO, Mindtree aired on CNBC TV-18 on 19th April 2021:

  • Mindtree reported 4QFY21 quarterly results, with the consolidated net profit reporting a ~54% YoY growth to Rs 3,174 mn due to strong operational efficiency.
  • Two successive quarters of 5percent plus growth instills confidence in the Company in terms of momentum generated by deal closures.
  • The order book stood at USD 1.4 bn as of 31-March-21. The order book was 12% more than the previous year. The pipeline has never been stronger and with the changes done in terms of the 4*4*4 strategy- the execution is going well.
  • They have focused on some of the strategic accounts and focusing on cross-selling and up-selling as a part of their strategy. Considering these factors, they remain confident of delivering double-digit growth in FY22E and maintaining the margins at 20 percent plus.
  • They have added net 1600 employees in 4QFY21. Owing to a strong pipeline and a high demand, Mr. Chatterjee expects hiring to be robust in the next couple of quarters.
  • The war for talent has aggravated in the last couple of quarters. With a focus on cross-skilling of employees, they have been able to contain the attrition.
  • There has been a delay in BFSI deal closures, which are expected to happen in 1QFY22. Given the interest rate regimes, there have been some in-sourcing trends in the banking clients. Post the deal closures in 1QFY22, there is some recovery expected in the BFSI vertical.

Asset Multiplier Comments

  • The commentary on deal signings, consistent margin improvement, and the ability to sustain these improved margins are key positives for the Company.
  • The pandemic accelerated clients’ interest in Data, Cloud migration, and other disruptive technologies, across IT services companies. This is expected to benefit IT services companies for the foreseeable future.

Consensus Estimate: (Source: market screener website)

  • The closing price of MINDTREE was ₹ 2,033/- as of 20-April-2021. It traded at 25x/ 24x the consensus earnings estimate of ₹ 80.1/ 86.1 per share for FY22E/FY23E respectively.
  • The consensus target price of ₹ 1,857 implies a PE multiple of 22x on FY23E EPS of ₹ 86.1/-.

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.”

Looking to maintain double-digit growth over FY23-24E – TCS

Update on the Indian Equity Market:

After a mid-week break, markets continued to remain volatile as Nifty started the day lower but managed to close 0.5% higher at 14,581. Within the index, TCS (4.0%), WIPRO (3.5%) and CIPLA (3.3%) charged the index higher while GRASIM (-3.1%), EICHERMOT (-3.0%) and MARUTI (-2.5%) led the losers. Among the sectoral indices, PHARMA (1.4%), METAL (1.4%), and FIN SERVICES (1.2%) were some of the winners while PSU BANK (-1.3%), AUTO (-1.3%), and MEDIA (-0.7%) closed in the red. 

Excerpts of an interview with Mr. Rajesh Gopinathan, MD & CEO, NG Subramaniyam, COO, V Ramakrishnan, CFO, and Milind Lakkad, Executive VP of Tata Consultancy Ltd (TCS) with CNBC -TV18 dated 13th April 2021:

  • During the Mar-21 quarter, almost all the markets and verticals reported sequential growth. The hospitality and travel areas are still under stress. In response, the company is coming up with new ways of investments and then preparing for the post-pandemic era. 
  • The technology shift is moving as per the expected trajectory. The industry is witnessing overall growth in the transformation agenda.
  • With the deal momentum of US$ 9.2bn, a mixture of smaller and big deals, and an improving economic outlook, the company has set the target of maintaining double-digit growth in revenues over FY23-24E.
  • As per the full-year plans for TCS, the company completed 19,400 hires. The number includes hiring for FY22E as well. Additionally, the company has made investments for taking business from consulting.
  • The margin profile for large deals is eroding due to competition. From here on, innovative solutions will drive the sustainability of margins.
  • The company expects a positive trend in both emerging and developed markets. There are lots of opportunities in manufacturing, telecom, retail, and media.

Asset Multiplier Comments:

  • Backed by deal wins in both small and big pockets and continued momentum in cloud and data, the company looks set to achieve its target of double-digit growth over FY23-24E.
  • Record employee addition of 19,400 hirings along with record low attrition of 7.2% strengthens the growth opportunity prospects over the next two years. 

Consensus Estimates (Source: market screener website):

  • The closing price of TCS was ₹ 3223/- as of 15-April-2021.  It traded at 30x/ 27x the consensus EPS estimate of ₹ 108/ 119 for FY22E/23E respectively.
  • The consensus price target is ₹ 3,401/- which trades at 29x the EPS estimate for FY23E of ₹ 119/-

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.”