Wipro’s Stellar Growth – Revenue Grew 12.2% QoQ 🚀
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Howdy Toasters!
In today’s issue, we discuss;
- Wipro IT Services’ stellar growth- revenue grew by 12.2% QoQ to USD 2.4Bn. A fairly strong performance we say.
- Mastercard has been banned by RBI from issuing new cards in India.
- Angel Broking’s performance, other important financial news, and an educative concept to help you keep learning. Read along!
Angel Broking: 1272.15 | 212.00 (20.00%)
- The stock price surged 20% hitting a record high on July 16 after the company reported a 19% increase in consolidated net profit at Rs 121.37 crore in Q1 FY22
Bandhan Bank: 309.15 | -10.55 (-3.30%)
- The share shed 3% after the private lender said its loan book and deposits declined in the June quarter
Note: Above are not owned by the authors of the newsletter and are neither recommendations to buy the stocks; not our style at FinLearn.
Wipro dropped its numbers, which clearly reflected the positive impact new CEO Thierry Delaporte has had in the last year 🤩
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Wipro’s IT Services revenue grew 12.2% QoQ (12% Constant Currency terms; 4.9% organic) to USD 2.4Bn in Q1FY22, beating street estimates (nice!!)
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The company guided IT service revenue in the range of USD 2.53 Bn to USD 2.58 Bn, implying 5-8% CC QoQ growth, with the management quite confident of achieving double digit organic growth in FY22
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Similar to TCS, revenue was ahead both organically and Capco (recent acquisition) based, with broad-based growth delivering strong numbers; led by BFSI (22.4% QoQ CC), Consumer (14.1%), Communications (12.8%) and ENU (11.1%)
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The company signed 8 large deals with a combined value of USD 715 Mn, with Healthcare, BFSI & Consumer leading the deal flow; the management indicated that the deal pipeline remained robust across markets, with small & large deals driving wins and a decent (ish) revenue visibility increasing confidence
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Revenue from Top 10 customers grew 13.9% QoQ, partly boosted by Capco Integration
Nice! What about margins? How’s that shaping up to be? 🤔
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IT Services EBITM declined by 320 Bps to 17.8% QoQ on the back of wage hikes (mid to senior level), Capco Integration (low margin business division) and investments in senior leadership hiring
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The company indicated the second round of salary hikes (covering ~80% of employees) is expected in the second quarter, and with promotions, expected fresh hiring and investments in front end sales, some pressure can be expected on margins (expectation is around a similar range of 17-17.5%)
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Attrition inched up to 15.5% (last quarter was 12.1%) and is expected to stay elevated on account of the high demand environment (possible explanation of regular salary hikes/promotions)
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Revenue momentum, automation, employee pyramid rationalisation (we’re curious to know more as well) and offshoring would help in maintaining margins
Okay! And valuations? Wipro’s run up quite a bit right? 🙄
- It’s expensive (we’ll keep it short for this, promise); Low single-digit valuation discount to Infosys despite ~5% lower earnings CAGR expectations over FY21-24E and ~10% lower ROE
- But the company is making a comeback – after years of trying to find the right management fit, Wipro has had a strong year
Disclaimer- Authors of this newsletter don’t own/recommend any of the above names.
RBI bans MasterCard from issuing fresh cards in India; what does that mean for listed banking / non-banking companies? 🧐
- Following new IT rules issued in 2018, the Government of India declared that all customer transaction data, especially for global players (think: Amazon, Walmart owned FlipKart, Mastercard, Visa) had to be stored in servers that were maintained on Indian soil
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Well, it looks like MasterCard had different plans; RBI has reprimanded MasterCard for failing to comply with this rule, with the company and subsequently, Indian lenders no longer able to issue new cards in India until they (MasterCard) is in acceptance
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Data localization is a serious issue, and in April of this year, RBI had also banned American Express & Diner’s Club from issuing new cards
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MasterCard has ~35-40% market share, and a ban is bound to hurt Indian lenders; players like HDFC Bank (have a ban on issuing cards to new customers), Citi Bank (was once a leader in the cards space), RBL Bank (has announced a partnership with VISA, more on that below), Bajaj Finance are likely to suffer more given their dependence on MasterCard
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Other card issuers in the market include VISA (~50% market share) & RuPay (smaller, more focused on debit cards, dominant in the PSU space), although at this point little is known about VISA’s data localization efforts (one would imagine a storm if VISA is banned as well)
Damn! Tell me more? 🤔
- RBL Bank issued a statement post the ban, announcing a tie-up with VISA to issue fresh cards; huge disclaimer here – process to consummate this relationship will take 8-10 weeks; to put that into perspective, RBL Bank issues ~1Lac cards per month, and would therefore be unable to issue ~2.5-3 Lac cards during this period; also, card activation & usage is time-consuming, so near term impact for banks (who are wholly dependent on MasterCard) is likely to persist
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Bajaj Finance (100% dependence), Yes Bank, ICICI Bank & Axis Bank would all face similar issues, albeit at a lesser level, with their dependence in the range of 50-60%
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Of another concern (not for Banks) is the decreasing reliance on card payments and subsequent rise of UPI as the preferred option, especially in the last 18 months (the way things have changed right)
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UPI Payments have grown from INR 20.64 Trillion retail payments in FY20 to INR 40.1 Trillion in FY21; during the same period, card payments have decreased from INR 13.9 Trillion to INR 12.9 Trillion, clearly showing a preference (albeit accentuated by the pandemic, with the whole no-touch scenario)
What else caught our eye? 👀
Kya chal raha hai? Fogg; Deo Maker closes USD 625 Mn secondary deal with KKR
- KKR announced the closure of their transaction, buying ~55% of Vini Cosmetics from the promoters & Sequoia Capital for an estimated USD 625 Million, valuing the company at ~USD 1.1 Bn
- Following the transaction, the promoters continue to hold significant stakes in the company, as well as taking up positions on the board (Chairman & Vice-Chairman)
- The company manufactures, markets & distributes branded deodorants, cosmetics and toiletries; owning one of the largest distribution networks in the country, the company also supplies to over 50 countries with a strong base in the Middle East & South Asia
Reliance Retail completes acquisition of JustDial (Damn, there’s no stopping Reliance right?)
- Reliance Retail Ventures Limited (RRVL) is acquiring a majority stake of 67% in JustDial (remember those days?), for INR 5222.8 Crore (a far cry from the days when the company was valued at over USD 2 Billion in 2007)
- RRVL has agreed to acquire ~15.6% in a secondary deal from the promoter VSS Mani, while JustDial has agreed to a preferential allotment (amounting to ~25% of the company) to RRVL, infusing INR 2164.8 crores into the company, thereby triggering an open offer of ~26% of the company
- Post-acquisition shareholding would include ~67% for RRVL and ~10% for the promoter VSS Mani (who will also continue to drive the business as Managing Director & CEO)
- The capital infused will help drive the deeper expansion of JustDial into a comprehensive local listing and commerce platform (Tier 2 and beyond has always been JustDial’s strength)
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