Good Morning Toasters!

In today’s issue of the Morning Toast, we discuss:

• Accenture (ACN) revenue performance guides for continued IT Demand
• Zomato announces launch of newest offering
• News around the world
• An educational concept to keep you learning every day 🙂

Market Watch

Nifty: 17,117.60 | -169.45 (-0.98%)
FII Net Sold: INR 2,962.12 crore

Sensex: 57,292.49 | -571.44 (-0.99%)
DII Net Bought: INR 252.91 crore

Industry Update

Accenture (ACN) revenue performance guides for continued IT Demand; what’s up and what do you need to know?

Business Performance

• Revenues rose ~25% YoY to USD 15.05 Bn in Q2, well ahead of the guided range of USD 14.3 Bn – 14.75 Bn, indicative of continued strong broad-based demand, across industries, services & geographies
• India’s goto Tech player (for guidance 😝) posted strong double digit growth in Cloud, Industry X, Security & Interactive across all three services lines, including Strategy & Consulting, Technology and Operations
• New bookings were at a record high of USD 19.6 Bn, up 22% YoY; operating margins for the company remained flat, albeit with attrition inching up to 18% (from 17%)
• The digital transformation journey (first seen during the start of the pandemic), is sustainable & maintaining strength, with clients moving to the cloud, embedding security across the enterprise and adopting new technologies

Nice! Going forward?

• ACN upgraded its FY22 revenue growth guidance to 24-26% from 19-22% guided earlier (nice!), guided on the back of sustained demand in Q2 and secular demand trends
• The company continues to gain market share (growing at ~3x market growth); ACN spent ~USD 1.8 Bn on 28 acquisitions during the first half of the year, and retained its plans to invest USD 4 Bn in M&A in FY22
• Operating margins were flat, even with an increase in attrition & staff costs on the back of a periodic price hike undertaken by the company; ACN expects similar movements in price going forward

And finally, pass through for India players? (Yesss bro)

• Accenture’s strong revenue beat, coupled with upward revision (again) of growth guidance indicate maintenance of a strong demand environment; while the company is facing labour challenges, being able to partly manage via price hikes is encouraging (keep a track?)
• Broad-based healthy demand, strong revenue growth (20%+ YoY) and healthy order booking in outsourcing (12.5% YoY in H1, on the back of 21% in FY21) augurs extremely well for Indian IT players (think: Big 4 Tech)
• The Nifty IT Index has been volatile in the recent past (much like all indices), up 2.9% in the last 1M, down 2.7% in the last 3M and up ~36% in the last 12M vs 0.1% / 1.8% / 18.7% growth in the Nifty50 during the same period
• Sustainability of a strong demand environment, maintenance in the acceleration of revenue growth, margin support from weaker rupee, and robust order booking will likely drive stock performance in the interim, on the back of heavy valuations (🤭)
• A change/slowdown in the demand environment, coupled with heavy margin pressure (labour or currency) will result in the IT sector cracking first (we believe)

Around the World 🌎

• China’s never ending housing crisis – Government statistics say that the market has cooled from its massive gains in the past years and that the average new home price rose 1.7% YoY in Jan and 1.2% in Feb. But every other stakeholder has a much different story – there has been a steep drop in contract sales with many debt-burdened developers selling apartments at throwaway prices just to get some cash in the door. The government imposed curbs on their extravagant borrowing have put developers under a lot of pressure making it also very difficult for them to raise more money
• The ultimate green revolution – About 1200 ‘green’ startups raised a cumulative of $45 billion last year but are now being pushed to show some results with investors demanding better batteries, more sustainable materials and zippy electric cars. Many are hopeful that the scale of the new cash boom will prevent a bust like the previous one with the money coming in as a major game changer for many companies
• Aramco goes big – 2021 was a good year for Saudi’s Aramco as profit doubled to $110 billion (up 124% from last year’s profit of benefitting majorly from the skyrocketing oil prices (Brent oil settled at $107 a barrel last week, and went as high as $103 a barrel this month). This new cash will be used for investment opportunities domestically and abroad

Tech News

Zomato announces launch of newest offering; what’s up and what do you need to know?

Announcement

• According to the Founder, a 30 minute average delivery time is too slow, and will likely become obsolete in the near future; to be first to the market, and to revolutionise food delivery, India’s Numero UNO food delivery start-up plans to launch 10 minute food delivery (yess you read that right)
• According to the release, the success of this proposition relies on dense finishing station networks, which will be located in high-demand customer neighbourhoods
• The company indicated that they will depend heavily on dish-level demand prediction algorithms and in-station robotics to ensure the food is sterile, hot and fresh at the time of pick-up by delivery agents
• The start-up (?) will house bestseller items, some 20-30 dishes across its finishing stations from the partner restaurants based on predictability

Tell me more? (Are you sure?😝)

• One of the major claims (and something which will likely impact unit economics more) is following a 10-minute model will likely reduce the price of items (at the customer’s end)
• Primarily due to demand predictability at a hyper local level, average ticket size per order will reduce, while absolute margin/income at restaurant ‘ delivery partners is expected to remain the same (🤷🏼)
• Branded as Zomato Instant, is expected to pilot in 4 locations in Gurugram (HQ) and comes at a time when the company recently announced a USD 5 Mn investment in a food robotics company that automates food preparation

Recent activity

• The company just finalised an all-stock merger with Blinkit, which followed an initial equity round, and a subsequent debt round; Blinkit operates in the ultra-competitive hyper-local delivery space
• Prior to that, Zomato invested in an ad-tech firm and a B2B software platform, as a part of its larger plan to deploy its USD 1 Bn war-chest (raised from capital markets at the time of IPO) across related startups in the ecosystem

Finally?

• Zomato unit economics are sketchy (we covered them in a past issue), and with an offering in which the Average Ticket Size drops further, the likely pressure on their expected profitability will sustain
• By building up a strong war chest, and accessing the markets at the opportune time, the company has allowed itself room to experiment and deploy capital at relative ease
• The situation will get tricker when capital is in short supply, and unit economics don’t sustain?

What else caught our eye? 👀

GoI wants to make money off crypto too

• The GoI is considering the classification of crypto under the GST law in a way that would allow them to collect tax (in the possible interest rate of 0.1-1%) on the whole value of the transaction
• Currently, only 18% of tax is levied on services provided by crypto exchanges which are categorised as financial services
• GST office believes crypto to be similar to casinos, gambling etc. which attract a tax rate of 28%

Bulk economics reversed

• Indian buyers who buy diesel in bulk are now snapping up diesel from retail outlets as pump prices are 25 rupees ($0.33) a litre cheaper than their bulk contract prices
• State-run fuel retailers have raised prices of direct sales for industrial clients (and not for pump prices) after the surge in global oil and fuel prices
• Many buyers have advanced their purchases in anticipation of a price hike putting pressure on the country’s logistics and supply infrastructure

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Educational Topic of the day

Durability Bias

Durability bias is the subconscious inclination to forecast past events or occurrences forward to the future. In other words, durability is a type of cognitive bias with the assumption that past trends will continue into the future. The term durability bias is commonly used in behavioural finance and forecasting.