Yesterday’s Market Performance

Nifty: 15689.80 I 38.10 (0.24%)
FII Sell Net: 1124.66 CR
DAX: 15,687.93 I 267.29 (1.73%)

Sensex: 52386.19 I 182.75 (0.35%)
DII Buy Net: 106.55 CR
FTSE: 7,121.88 I 91.22 (1.30%)

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Howdy Toasters!

In today’s issue, we discuss;

• TCS kickstarted the latest earnings season (guessed it right?)
• National Restaurants Association of India to soon launch a new food delivery app (during Zomato’s IPO?? Woah!)
• Equitas Small Finance Bank’s performance, other important financial news, and an educative concept to help you keep learning. Read along!

Equitas Small Finance Bank: 757.90 | 36.05 (4.99%)

• The stock hit 5% upper circuit after Punjab National Bank asked its housing finance arm to restructure Rs 4,000-crore capital infusion deal with Carlyle

Natco Pharma: 1788.55 | 18.25  (1.03%)

• The share price jumped 1% as the company is going to consider a proposal for sub-division of the equity shares

Note: Above are not owned by the authors of the newsletter and are neither recommendations to buy the stocks; not our style at FinLearn

TCS drops its strongest deal intake (quarterly) for a while, building on the post-pandemic demand that has made IT players the talk of the town  🤩

• TCS kickstarted the latest earnings season (as always), with numbers (depending on what side you’re on) that had a bit of everything (revenue growth / struggles, margin issues, strong deal intake, robust deal pipeline, and decentish management of attrition)

• Q1FY22 revenue grew 2.4% QoQ in Constant Currency (CC) terms, and were below expectations, primarily due to a decline in regional (India) business (-14.1%) on account of the second covid wave; revenue growth (ex of India) was at 4.1% QoQ in CC terms, with a volume growth of 4.4% QoQ

• Barring the second wave, the company delivered strong numbers (ex. India & regional markets), driven by a strong demand in growth & transformational services; Revenue growth was broad-based, driven by Life Sciences & Healthcare (7.3%), Technology & Services (5.0%), Manufacturing (4.8%), Retail & CPG (4.4%) and BFSI (3.1%), decreasing concentration risk (a previous concern)

• TCS signed deals worth USD 1.8 Bn in this quarter (up 17% YoY) and now has a book to bill ratio of 1.3x (augurs well); largest deal in Q1 was to the tune of USD 0.4 Bn, with the management indicating that the deal intake continues to be well balanced

Nice! So, how much did all this cost? What’s the bottom line?  🤔

• Margins were under pressure in Q1, due to wage hikes (to manage attrition, inched up to 8.6% from 7.2%, which was an all time low) with high demand of skilled workforce (we highlighted this in an earlier issue) driving this; the company also hired 20,409 employees in the quarter, the highest ever for the company and is now one of the largest employers in the country (500,000 employees)

• EBITM margins were impacted, down to 25.6% because of wage hikes, partly offset because of a weakening rupee, with the company indicating that a return to pre-pandemic habits would see discretionary (travel, marketing) spending increase

• TCS is the most richly valued amongst it’s Indian peers (rightly so?), so a revenue miss (on expectations) will weigh on the stock, although the longer term growth remains intact, and the India revenue miss can be categorised as transitory in nature
• Revenue miss is likely going to impact EPS estimates for following years, although underlying business, especially post pandemic demand can be expected to continue

While Zomato’s poised to launch their IPO in the next week, what’s restaurant body NRAI been up to? 🧐

Woah! are you Serious? 🙄

• Zomato & Swiggy revolutionized food delivery (to say the least) and provided economies of scale, but at a cost? Since the lockdown, restaurants have been entirely dependent on deliveries to drive business, and therefore have been at the mercy of food aggregators
• Commissions have increased (18-30% cost to be listed on these platforms), discounts have decreased (As per Zomato DRHP), tremendously helping aggregators in decreasing costs, at the expense of restaurants who have been unable to execute similar tactics
• NRAI has reached out to the Competition Commission of India to negotiate a truce (although prima facie one would imagine food aggregators will continue to hold all the power)

What else caught our eye? 👀

Ola raises USD 500 Mn before going for an IPO (Yes!!) 

• Ola has now crossed Series J in it’s financing rounds (seriously, we’re not joking here)
• Temasek (Singapore sovereign wealth fund), Warburg Pincus and Ola Founder Bhavesh Aggarwal are investing USD 500 million in the ‘start-up’ (for lack of a better word)
• This round is pegged as a pre-IPO round (we’re all eyes for what’s going down in the IPO)

Reliance Communications Telco License to be terminated by the Telecom Department?

• Earlier owned by Anil Ambani, RCOM owns a pan-India spectrum license and holds airways in the 850 MHz band in 14 of India’s 22 circles

• Deloitte (resolution professional for the matter in NCLT) has informed the court that the Department of Telecom (DoT) does not plan on extending the license, which expires in the coming weeks

• This spells doom for the company’s 53 lenders, with a non-renewal meaning RCOM would be required to submit it’s spectrum license and therefore be void of any core assets for an asset reconstruction company to build on (severely limiting any scope of recovery for the lenders)

ICICI Bank limits customer’s ability to trade cryptos through LRS Scheme 

• Cryptocurrency traders, shutout from trading in the highly volatile (?) asset class in India, are now finding it harder to trade the asset in overseas markets

• Utilising the RBI’s Liberalised Remittance Scheme (LRS) to remit funds abroad to invest in cryptocurrencies has now become harder; ICICI Bank, which ran one of the highest volume books of this kind, is now asking customers to categorically sign declarations that prohibits them from using these funds towards trading cryptos (tough)

• It’s intriguing to see this, given the Supreme Court ruling, practically allowing trading to continue in bitcoin & other cryptocurrencies

Delta