Yesterday’s Market Performance

Nifty: 16705.20  I 68.30 (0.41%)
FII Sell Net: 778.75 CR
DAX: 15,851.75 I 58.13 (0.37%)

Sensex: 56124.72 I 175.62 (0.31%)
DII Buy Net: 1646.19  CR
FTSE: 7,148.01 I 23.03 (0.32%)

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In today’s issue, we discuss;

• Indian IT firms’ growth momentum is poised to continue with the consistent surge in demand for emerging technologies.
• It’s showtime: Sports streaming is one real big thing for OTT players to accelerate their subscribers count.
• Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!

Computer Age Management Services Ltd: 3435.05 | +191.75 (+5.91)

• The stock jumped almost 6% after the company got the nod to set up an office at GIFT city to provide asset management support (AMS) services to financial institutions.

Wockhardt Ltd: 396.20 | -18.85 (-4.54%)

• The stock price was down over 4% after promoter Themisto Trustee Company pledged 22.27 lakh shares of the company. With this, the quantum of the pledged shares rose to 26.92 percent

IT Stocks have known only one direction (more or less?) post-pandemic; A review on what’s been up and what’s in store for the future 🧐

• IT companies improved their QoQ revenue growth trajectory, with Tier 1 (Think: TCS, Infy, HCL Tech, Wipro) delivering 0.9-12.2% growth in CC (constant currency) terms, and Tier-2  (think: LTI, Mphasis, TechM, Mindtree, Coforge, Persistent, Birlasoft) companies clocking 0.7 – 15.6% growth in CC terms

• IT spending is poised to pick up (see image below) for companies globally, with a consistent surge in demand for services across the cloud, data analytics, digital transformation, cybersecurity, and Artificial Intelligence

• Sectorally, BFSI (the usual suspect), Travel & Tourism (expected to bounce back, nice!), Retail & Consumer are poised to be big spenders across IT services, building on the digital transformation partially started because of the pandemic (more on this below)

• The deal wins & momentum (new wins for long term contracts, define revenue expectation for the year) remained robust in Q1FY22 (albeit lesser in comparison to Q4FY21), driven by an uptick in digital transformation, cloud adoption, and automation deals (helping to increase the ticket size & length of the contracts)

Digital transformation & customer experience initiatives are driving spends across sectors 

• Management commentary across sectors is a good indication of future technology initiatives, giving us a sense on deal & revenue pipeline for major Indian IT players –

BFSI 

• JP Morgan indicated a 10% yoy growth in their active mobile user count, with digital transactions per engaged customer up 12%

• Bank of America reported increase digital transaction usage, with >70% of consumer households using some part of their digital offering

Retail & Consumer

• Nike indicated their digital revenue is 35% of Total Revenue, with expectations that half their revenue by FY25 will come through the digital medium

• Target reported a 50% YoY growth in their digital sales and this is after recording a huge 147% yoy growth the previous year

• Home Depot (large scale home solutions store) said digital sales (fulfilled through their physical stores) increased 27%

• Unilever recorded a massive 50% growth in their e-commerce business, which now contributes 11% of their total turnover (hugee)

Interesting! What about margins? And hiring? 🤔

• Margins are under pressure; Tier 1 companies posted a 0.8 to 3.2% dip in their EBITDA due to wage hikes & increased visa costs, with a similar trend observed in Tier 2 companies (0.2 – 2.9% drop in margins)

• Attrition inched up sequentially as demand for talent across IT majors intensified, Infosys reported >3% jump in attrition (qoq), with similar numbers for Tier 2 companies

• Similarly, the pace of hiring across companies is unprecedented; TCS added 20,409 employees during the quarter (wt*) which is the highest ever for a single company in the quarter; overall IT services companies added 182,500 employees during the quarter

• IT companies are expected to hire 200,000 employees in FY22, taking into consideration utilization rates, attrition, training period for freshers (which will be the highest ever for a single year ever)

• Wage hikes, normalization of travel & other costs, increased hiring costs, and expenses related to retaining talent amid pent-up demand are bound to impact margins for the foreseeable future

Damn! Nice! Okay, so give me names? (for sure my man) 😄

• Tier 2 Companies (think: LTI, Mphasis, TechM, Mindtree, Coforge, Persistent, Birlasoft) outperformed Tier 1 Companies (think: TCS, Infosys, HCL Tech, Wipro) in terms of revenue growth (agility in business, coupled with scale)

• Tier 1 companies managed their margin profile better in comparison, with supply side pressures like to persist for the next 2-4 quarters, with easing once hiring & training of fresher segment is managed

• IT companies are poised for growth, with almost all of them re-jigging their guidance (see image below)

• Growth against valuation, taking into consideration return ratios for the foreseeable future should provide guidance on which names are bound to stand-out

Sports a big draw for OTT platform subscribers 🤩

• India’s OTT market is expected to touch USD 12.5 Billion by 2030, growing at a CAGR of >30% over the next 4 years

• Driven by the major players (think: Disney+ Hotstar, Amazon Prime, Sony Liv, Netflix & Zee5), the market has expanded, and now also includes a wide plethora of regional & local content through platforms like Voot, Alt Balaji, MX Player

• On the India OTT subscriber chart, Disney+ Hotstar is a clear first, with upwards of 25+ Million subscribers, followed by Amazon Prime (17 Million), Sony Liv (7 Million), Netflix (4.8 Million) and Zee5 (4 Million)

• Covid-19 has played its rule (duh!), with the pandemic accelerating the adoption of these platforms (what else was there to do man!!), although with limited fresh content available (for obvious reasons), sporting events (worldwide) have expanded the reach for platforms, on-boarding users from Tier 2 and beyond

• Case in point is the duopoly for all things sport between Sony Liv & Disney+ Hotstar, with both platforms combining a mix of TV & Online to deliver ~90% of worldwide sporting content to Indians viewers

What else caught our eye? 👀

World’s largest semiconductor chip maker to raise prices, making electronics costlier 

• Taiwan Semiconductor Manufacturing (TSMC) is expected to raise prices (supply constraint-induced) by ~20% as per news reports (most advanced chips, used in electronics by 10% and semi-advanced for automobiles by 20%)

• Apple is one the largest customers of the company, with the new prices expected to come into effect later this year; automobile manufacturers has suffered (well-documented), Toyota & GM publicly shutting factories due to chip shortage

• The objective to raise prices is two-fold, playing first on the demand in-elasticity of the product (Apple is unlikely to stop production and will instead either pass on costs or let go of some profit %) and secondly from a purely capitalist perspective (more revenue, more profits)

Pharmeasy plans to file IPO papers by October 

• Coming at a time when their discussion with Softbank for a record round have fallen through, India’s largest (and only) online pharmacy is poised to list in early 2022 (if all goes to plan)

• Valued at USD 4.2 Billion in June 2021, the company is still in the process of raising USD 200 – 300 Million at a valuation of USD 5.6 Billion

• Recently in the news for its acquisition of Thyrocare Diagnostic chain, the company has on-boarded investors Naspers, B Capital, TPG and others, raising USD 650 million to fund the acquisition and for other business purposes (we’ve lost track as well)

Telecom sector Average Gross Revenue (AGR) up 2%

• Data from Telecom Regulatory Authority of India (TRAI) showed a sequential increase for Airtel, while both Vodafone Idea & Reliance Jio recording declines

• Helped by strong customer additions, amidst increased business aggression by both Airtel & Jio, aimed at grabbing market share from the struggling Vi

• TRAI’s report on telecom industry also reported an increase (up 2%) in monthly average revenue per user (ARPU) on qoq basis

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