Tag - IT

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.”

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.”

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.”

 

Double-Digit revenue growth expected in FY22 – Mindtree

Update on Indian Equity Market:

On Thursday, markets ended higher with Nifty closing 70 points to close at 15,924. HCLTECH (+5.0%), L&T (+3.7%), WIPRO (+3.0%) were the top gainers on the index while ONGC (-3.0%), EICHERMOT (-1.3%) and BHARTIARTL (-0.9%) were the top losers for the day. Among the sectoral indices,  REALTY (+4.2%), IT (+1.3%), and BANK (+0.7%) were top gainers, while AUTO (-0.4%), MEDIA (-0.4%), and PSUBANK (-0.3%) were the losers.

Excerpts of an interview with Debashis Chatterjee, MD, and CEO of Mindtree on CNBCTV18 dated 14th July 2021:

  • Robust Deal Pipeline and order book growth was seen and more renewals led to an increase in the scope of the value of the deals and the new deal wins have been characterised by multi-year long-term deals and not just project-based deals.
  • The company’s strategy of 4x4x4 across 4 of its major service lines is helping the company cross-sell and upsell a lot of the services in the existing deals in its 4 service lines of Customer Service, Data Analytics, Cloud Management, and Enterprise IT.
  • The company has guided for double-digit revenue growth of around 20% and improved EBIT margins in FY22. It hopes to achieve this as a result of the foundational changes in cost efficiencies it has done over the last 2-3 years.
  • Quarter specific and client specific headwinds may occur on the margins front. With the opening up of client businesses and increase in revenue growth aided discretionary spending, the company expects a topline growth as well.
  • The company is rolling a subsequent wage hike in Q2FY22 to deal with high levels of attrition currently faced by the industry. The company plans to undertake significant outreach programs with its personnel to manage attrition.
  • BFSI is seeing significant revival and the company expects its client base and deal wins to grow over the next few quarters after covid-induced consolidations. As far as the Travel Sector is concerned the effects of the pandemic are still looming. Full recovery may take some quarters, new contactless business models may help the company with new deal wins as the clients reimagine their business models.

Asset Multiplier Comments:

  • All Indian IT companies are enjoying the tailwinds arising out of the pandemic. Mindtree is well poised to grow further due to growth in upcoming technologies.
  • The Company is making efforts to deal with the issue of rising attrition. The rising attrition is a result of a talent war in the Indian IT Industry due to the low supply of skilled professionals.

Consensus Estimates (Source: market screener website): 

  • The closing price of Mindtree was ₹ 2,732/- as of 15-July-2021.  It traded at 33x/30x/25x the EPS estimate of ₹ 84/ ₹ 92/ ₹ 108 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 2,830/- which trades at 26x the EPS estimate for FY24E of ₹ 108/-

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.”

Net margins to remain around 14%: L&T Infotech

Update on Indian Equity Markets:

The upward momentum in Indian markets supported by RBI announcements continued on Thursday as Nifty closed the day 107 points higher at 14,725. Within the index, HINDALCO (5.7%), HEROMOTO (4.7%), and WIPRO (4.4%) were the highest gainers while UPL (-1.4%), BAJAJFINSV (-1.0%) and POWERGRID (-1.0%) were few of the losers. Within the sectoral indices, METAL (2.5%), IT (1.8%), and AUTO (1.8%) led the gainers while PSU BANK (-1.2%), PHARMA (-0.2%), and PVT BANK (-0.1%) were the only losers..

Excerpts of an interview with Mr. Sanjay Jalona, CEO, L&T Infotech (LTI) with CNBC -TV18 dated 5th May 2021:

  • The Company will focus on investing for growth and localization in FY22E. The management is confident of achieving growth in the leaders quadrant for FY22E. 
  • The energy sector has been underperforming given the shift to renewable energy. The Company is expected to witness new avenues for growth in the segment. The management also believes that the ability for insurance companies to spend on discretionary has gone down.
  • The Company reported a 320 bps YoY improvement in EBIT margin with the help of cost rationalization efforts. He highlighted that the Company is expected to produce net margins in the narrow band of around 14 percent.
  • The Company gave FY21 wage hikes in January and has advanced the FY22 wage hike cycle to April from earlier norms of July. He said that the war for talent and attrition is going up in the Information Technology space.
  • The Company witnessed lower exit velocity, record hiring, and improved customer sentiment. The attrition rate is going up for the industry and by offering early wage hikes, Company is trying to stay ahead of the industry curve.

Asset Multiplier Comments:

  • The lower attrition rates and earlier wage hikes will help Company to retain the top talent to deliver growth for the Company. Hence the Company is confident of growth in the leaders quadrant for FY22E.
  • Tailwinds of work from home and other cost rationalizations are expected to help the Company to achieve net margins target of around 14%.

Consensus Estimates (Source: market screener website):

  • The closing price of LTI was ₹ 3,814/- as of 6-May-2021.  It traded at 30x/ 26x the consensus EPS estimate of ₹ 126.2/ 144.8 for 22E/23E respectively.
  • The consensus price target is ₹ 3,960/- which trades at 27x the EPS estimate for FY23E of ₹ 144.8/-

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.”

 

Expanding hiring of freshers based on demand – HCL Tech

Update on Indian Equity Markets:

Markets continued their upward momentum on Tuesday as Nifty closed the day 174 points higher at 14,659. Within the index, HINDALCO (5.1%), TATASTEEL (3.9%) and DIVISLAB (3.5%) were the highest gainers while HDFCLIFE (-3.6%), SBILIFE (-1.4%) and MARUTI (-0.9%) were few of the losers. All the sectoral indices closed in green with METAL (2.8%), PSUBANK (2.5%) and MEDIA (1.8%) leading the pack. 

Excerpts of an interview with Mr C Vijaykumar, CEO and Prateek Aggarwal, CFO, HCL Technologies Ltd (HCLTECH) with CNBC -TV18 dated 26th April 2021:

  • During the Mar-21 quarter, bookings stood at $3.1bn, led by 19 large deal wins. These deals are spread across geographies and industries. Most deals are spread across 3-5 years, of which four are integrated across service lines.
  • The Company has prepared a list of seven countries i.e. Germany, Canada, Japan, Spain, Portugal, Mexico and Brazil. These are countries witnessing a large and growing IT market where the Company is currently not present. Setting up offices in new countries is a one-time exercise.
  • The Company is also expanding hiring in the freshers space, considering the demand for the next few years. The hiring also involves certain cost elements.
  • The Company has launched HCL Now, which is the Cloud version of its acquired products. This is strengthening partnerships of HCLTECH with hyperscalers.
  • The Company is expected to deliver double-digit growth in constant currency. The management highlighted that they have provided floor price on revenue growth for next year. 
  • The products and platforms business had an impairment charge of $16mn, leading to a 60 bps impact on margins.   

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 FY22E.
  • Setting up offices in new countries to expand the geographical presence is expected to create a revenue stream and diversify the revenue base for the Company in the long run.

Consensus Estimates (Source: market screener website):

  • The closing price of HCLTECH was ₹ 928/- as of 27-April-2021.  It traded at 18x/ 16x the consensus EPS estimate of ₹ 51.0/ 57.4 for 22E/23E respectively.
  • The consensus price target is ₹ 1,119/- which trades at 19x the EPS estimate for FY23E of ₹ 57.4/-

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.”

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.”

 

Actively looking for acquisitions – Happiest Minds

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,315. Among the sectoral indices, Bank (+3.3%), Private Bank (+3.3%), and Financial Services (+2.9%) closed higher. Metal (-0.5%), IT (-0.4%) and Pharma (-0.3%) closed in the red. Axis Bank (+6.2%), ICICI Bank (+4.2%), and SBI (+4.0%) closed on a positive note. SBI Life (-2.3%), HDFC Life (-2.1%), and DR Reddy (-1.8%) were among the top losers.

Excerpts from an interview of Mr. Joseph Anantharaju, Executive Vice Chairman & CEO of Product Engineering Services, and Venkatraman Narayanan, MD and CFO, Happiest Minds with CNBC-TV18 dated 12th February 2021:

  • The company guided for a 20% revenue growth rate. The demand has panned out well.
  • The company won 6 new deal wins in 3QFY21.
  • Speaking about verticals, Mr. Joseph said edutech was doing well. The company received new requests and projects.
  • The industrial, B2B, and logistical space seem to be having new initiatives, which are leading to higher demand.
  • On operating margins, he said for the last 3 quarters the company is delivering margins in the range of 21-23%.
  • The company has guided for a profit margin of 22%-24% in FY22E.
  • On revenue growth, the company will maintain long term growth at 20%.
  • The company witnessed some efficiencies in the past 3 quarters, the plan is to retain some of those going forward.
  • The company recently completed an acquisition of PGS for 8.25 mn$. The company is actively looking for acquisitions.
  • On dividend, the company has not yet declared but the board will look after it.

 

Asset Multiplier comments:

  • The improvement in new deals signed and increased focus on IT budgets by clients has been mentioned by most of the IT Companies during the December quarter earnings call.
  • In 3QFY21, most of the IT companies have significantly expanded their operating margins, which was a result of continuing control on costs and improved sales.
  • It would be interesting to watch the performance of IT companies in the next couple of quarters, as companies have guided for lower margins but if cost control continues (led by on-off shore mix, WFH) then the margins might sustain these high levels.

 

Consensus Estimate: (Source: TIKR website)

  • The closing price of Happiest Minds was ₹ 401 as of 15-February-2021.  It traded at 36x/35.8x the consensus Earnings per share estimate of ₹ 11/11.2 for FY21E/FY22E/ respectively.
  • The consensus average target price is ₹ 385/- which implies a PE multiple of 34x on FY22E EPS of 11.2/-.

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.”

Prioritizing growth over margin expansion– Mphasis

Update on the Indian Equity Market:

On Monday, Nifty closed 1.4% lower at 11,768. Within NIFTY50, HDFCLIFE (+3.2%), NSETLEIND (+2.6%), and KOTAKBANK (+2.0%) were the only gainers, while HEROMOTOCO (-6.7%), BAJAJ-AUTO (-6.0%), and HINDALCO (-5.3%) were the top losing stocks. All the sectoral indices closed with losses led by METAL (-3.5%), AUTO (-3.2%), and MEDIA (-2.7%).

Prioritizing growth over margin expansion– Mphasis

Excerpts of an interview with Mr. Nitin Rakesh, MD & CEO, Mphasis, aired on CNBC-TV19 on 23rdOctober 2020:
● Mphasis delivered a strong growth in Direct Core segment in 2QFY21. The growth has been broad based and there are several drivers of this growth:
1. 2QFY21 was the 3rd consecutive quarter of $ 200mn+ net TCV deal wins. 2QFY21had highest ever TCV deal wins of $ 360mn. The momentum of deal wins is translating in good growth for the direct core channel.
2. Mphasis has seen good growth in existing strategic accounts as well as from new clients. Growth from new clients was 30% YoY in 2QFY21.
3. Mphasis has also been enjoying strong growth for the past 6 quarters from their European business. European business revenue growth was ~27%-28% YoY for 2QFY21.
● Mphasis has already crossed the pre-pandemic peak revenue in 2QFY21 itself. Mr Rakesh expects that the current growth trajectory should continue and Mphasis can deliver mid to high single digit revenue growth for FY21E.
● Mphasis’s MRC (Minimum Revenue Commitment) from strategic account of DXC expires in Sep-21. They still have $ 200 mn to be consumed in next 4 quarters. Post that, DXC channel will become like any other client for Mphasis and management is not worried about retaining the clients.
● Mphasis has stuck to their EBIT margin guidance band of 15.5%-16.5%. Management’s philosophy going into FY21 has been to maximize the growth potential in the market considering a lot of Mphasis’ digital capabilities are in high demand. Mphasis has prioritized growth over margin expansion, at the same time held margins steady.
● Mphasis istaking the margin operating efficiencies and re-investing it back into competency building, sales expansion, and investingin ramp up of recent deal wins.

Consensus Estimate (Source: market screener website)
● The closing price of MPHASIS was ₹ 1,356/- as of 26-October-2020. It traded at 20.7x/ 17.9x/ 15.8x the consensus EPS estimate of ₹ 65.6/75.8/85.7 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 1,483/- implies a PE multiple of 17.3x on FY23E EPS of ₹85.7/-.

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.”

Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

Update on the Indian Equity Market:

On Friday, NIFTY ended up 53 pts (+0.57%) at 9251 level.

Among the sectoral indices, PHARMA (2.13%), FMCG (1.9%) and IT (0.83%) were among the top gainers while PSU BANK (-1.9%), AUTO (-1.29%) and PVT BANK (-0.7%) were the losers. HINDUNILVR (4.3%), SUNPHARMA (+3.9%) and DRREDDY (+3.7%) were the top gainers. NTPC (-3.7%), M&M (-3.7%) and AXISBANK (-3.6%) were the top losers.

 

Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

 

Edited excerpts of an interview with Mr C Vijayakumar, Chief Executive Officer (CEO) of HCL Technologies:

 

  • Digital transformations at global companies, expected over the next two to three years, will now hasten in crisis-mode due to the Covid-19 pandemic. Mr Vijayakumar said sectors or companies that were not looking at outsourcing will do so now to save costs.

 

  • When asked between the United States and Europe, where does he expect growth to pick up, he said that the US and Europe are not going to be very different, because in Europe, some geographies are already opening up. Around 23 states in the US have also already relaxed some guidelines and there is some hope that things will stabilize quickly, but customer behavior may not change immediately.
  • His views on traditional and digital services in coming fiscal years: Traditional services also have some very strong propositions, like digital workplace, engineering services. Some of the demand is intact and it is only getting accelerated. So, barring the short-term challenge, HCL Technologies will have good growth momentum. Mr. Vijaykumar thinks there could be a hit in the first quarter for sure. Industrial, auto, and aero have been impacted significantly, and non-grocery retail is also quite seriously impacted. But, almost 12% of revenue comes from Life Sciences and close to 20% of revenue comes from tech services. Both are strong verticals.
  • When asked about the kind of projects and wins expected after the recovery, he replied that Digital spends will (only) accelerate. Whatever transformation was expected to happen over the next two to three years, it’s almost going to get done in crisis mode, because for all the businesses, digital is the most viable channel to engage. He sees acceleration in cloud adoption, digital transformation, spend on digital workplace and cybersecurity. He believes the hospitals of the future will only have operation theatres and ICUs, everything else will be done through telemedicine.
  • He further informed that since work from home has been implemented, the productivity is much higher. They have tools to track productivity of every individual. Currently, there is a lockdown so obviously everybody is glued on to work, but how a large-scale work from home stacks up in a non-lockdown scenario needs to be seen in future.
  • He stated that HCL Technologies is very open to look into the opportunities to acquire companies, products, platforms or capabilities if there are attractive assets available. They have not only been acquisitive, but have made the acquisitions work.

 

Consensus Estimate: (Source: market screener)

  • The closing price of HCL Technologies was ₹ 519/- as of 8May-20. It traded at 13x/ 11.5x the consensus EPS estimate of ₹ 40.2/45.1 for FY20E/ FY21E respectively.
  • Consensus target price of ₹ 580/- implies a PE multiple of 13x on FY21E EPS of ₹ 45.1/-

 

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