28 HCL Technologies has expanded its strategic transformation partnership with ams OSRAM... | iCommunity ICICIdirect

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ICICIdirect Research Posted on 09:33am 21-Jan-2022

HCL Technologies has expanded its strategic transformation partnership with ams OSRAM...

* Market Outlook

Indian markets are likely to open lower on the back of negative global cues with concerns on inflation and worries about imminent interest rate hikes. Reliance Industries, JSW Steel, HDFC Life Insurance among others are due to report financial results today.

 

*  Markets Yesterday

• Domestic markets ended lower tracking losses across BFSI, IT, pharma and FMCG stocks amid concerns surrounding inflation and Fed rate hikes.

• US markets ended lower amid rising bond yields and interest rates concern.

 

* Key Developments

• RIL's consolidated EBITDA is estimated to grow 40.5% YoY to | 30310.5 crore as all segments are expected to report healthy growth YoY. On a QoQ basis, it is expected to grow 16.5% led by growth in the retail and O2C segments. Jio EBITDA (standalone), at | 9333 crore, is likely to grow 3.8% QoQ. Overall retail revenues are expected to increase 39% YoY to | 52599 crore. On account of judicious cost saving initiatives and positive operating leverage, we expect retail EBITDA margins to improve ~70 bps YoY to 6.8% (excluding other income on investments). Recovery in refining as well as petchem margins is expected to lead to growth of 14.5% QoQ (and 49.3% YoY) in O2C EBITDA to | 14569.7 crore. E&P EBITDA is expected to improve 46.1% QoQ to | 1564.8 crore as realisation for gas output from KG basin is expected to increase 69%.

• For Q3FY22E, we expect JSW Steel's standalone sales volume to come in at 3.9 MT, up 3% QoQ but flattish YoY. For the quarter, we expect JSW Steel to report a consolidated topline of | 33358 crore, up 53% YoY, 3% QoQ. Consolidated EBITDA is likely to come in at | 9270 crore, up 56% YoY but down 11% QoQ. For Q3FY22E, for standalone operations JSW Steel is likely to report an EBITDA/tonne of |18000/tonne. During Q3FY22E, on the cost front, higher coking coal costs and start-up cost at Dolvi is likely to weigh in. Consolidated EBITDA margin for Q3FY22E is likely to come in at 27.8%. The ensuing consolidated PAT for Q3FY22E is likely to come in at | 5440 crore.

• Reliance Jio to report its Q3FY22 results today. We expect Jio to continue to lead subscriber addition with net subscriber addition of ~8 mn. The monthly ARPU, like peers, will witness growth, driven by tariff hike, at ~4% QoQ at | 149. The lower ARPU growth for Jio is owing to lag between tariff hike vs. peers and larger share of long duration renewals. The overall revenue is expected to grow 3.5% QoQ at | 19387 crore. EBITDA at | 9333 crore, is likely to grow 3.8% QoQ. Overall EBITDA margins are expected at 48.1% (up 10 bps QoQ). Key monitorable: Commentary on ARPU trajectory, Jio Fiber.

• PVR to report its Q3 FY22 results today. We bake in overall footfall of 13 mn, ~4.1x QoQ, at ~50% of pre-Covid levels and SPH of | 122, with ad revenues still marginal (~25% of pre Covid levels). Consequently, we expect overall revenues of | 491 crore in Q3. We expect no cash burn given improved performance. EBITDA (ex-IndAS) is expected at | 44 crore, margins of ~9%. Key Monitorable: Omicron led content deferral and screen closures.

• Vodafone Idea to report its Q3 FY22 results today. VIL is also expected to witness tariff led ARPU hike benefits in Q3FY22 partially. We build in monthly ARPU growth of ~6% QoQ at | 116, largely driven by tariff hike. We expect churn for Vodafone Idea to continue, albeit in controlled levels with ~2 million customer exits likely in Q3. We expect overall revenues to grow 4.6% QoQ at | 9835 crore. EBITDA at | 4096 crore, is expected to grow 6% QoQ. Reported margins are expected at 41.6%, up 50 bps QoQ, aided by higher ARPU. The company is expected to post a net loss of | 6993 crore. Key monitorable: Fund raising plans and ARPU trajectory commentary ahead.

• Inox Leisure to report its Q3 FY22 results today. We bake in overall footfall of 9 mn, ~5x QoQ, at ~53% of preCovid levels and SPH of |96, up ~4% QoQ with ad revenues still marginal (~34% of pre Covid levels). Consequently, we expect overall revenues of | 284 crore in Q3. We expect no cash burn given improved performance. EBITDA (ex-Ind-AS) is expected at | 37 crore, margins of ~13%. Key Monitorable: Omicron led content deferral and screen closures.

• Kajaria Ceramics to report its Q3 FY22 results today. We expect tiles sales volumes to witness healthy growth of ~10% YoY. We expect overall revenues to grow ~18% YoY to | 989.2 crore, also aided by 7% YoY realisations growth on account of price hikes taken. We expect EBITDA margins of 17.5% (down 418bps YoY) owing to higher gas prices. Overall, we expect the bottomline at | 105.5 crore, (down ~11.3% YoY). Key Monitorables: Management commentary on demand outlook and commentary on gas pricing.

• For HDFC Life, continued traction in individual non participating business and new group business is seen keeping premium growth at 21% YoY to | 6596 crore. Non-participating individual business including annuity product & incremental credit protect business is expected to lead to traction in premium accretion. Opex ratio is expected to remain broadly steady. Claims are expected to remain higher than normal run rate owing to second wave but moderation in infection rate and provision buffer is expected to safeguard earnings. Thus, earning is expected to increase 10% YoY to | 292 crore, led by surplus at | 242 crore. Commentary on premium hike & building of any buffer owing to recent increase in number of infection remain monitorables.

• For SBI Life, focus on individual business including unit linked and annuity products coupled with jump in group business is seen keeping new business premium (NBP) momentum robust at 55% YoY to | 8423 crore. Elevated accretion in single group business is expected to keep annualized premium equivalent (APE) growth at 30% YoY to | 4537 crore. The pace still remains healthy. Pick-up in regular premium and gradual improvement in persistency are expected to keep overall premium growth at 21% YoY. Claims are expected to remain higher than normal run rate owing to second wave but moderation in infection rate and provision buffer is expected to keep surplus healthy at | 272 crore. Subsequently, earning is expected at | 277 crore, up 19% YoY. Management commentary on premium hike & building of any buffer owing to recent increase in number of infection remains a monitorable.

• For Bandhan Bank, asset quality performance from key state of West Bengal & Assam needs to be keenly monitored. NII is projected to rise by 9.3% YoY at | 2265 crore, driven by margins of ~7.8%. Increased business activity should lead to higher operating cost but with better revenues overall C/I ratio is projected to remain largely steady. Elevated provision marred earnings in Q2FY22 but moderation in slippages and accordingly credit cost is seen leading PAT to | 362 crore in Q3FY22. Loan growth was reported at ~ 11% YoY to | 89213 crore while deposits jumped 19% YoY to | 84500 crore, as per provisional data. Led by moderation in stress accretion and recovery, GNPA ratio is seen declining to 9.35%.

• For CSB Bank, gold loans form a meaningful part of its portfolio at ~36%, which has shown sluggish growth while overall loan growth is at 11.5% YoY to | 14645 crore. Deposits increased 7.3% YoY with improvement in CASA ratio. Increased business activity should lead to higher operating cost but with better revenues, overall C/I ratio is projected to remain largely steady. Previous quarter had provision write-back but we expect normalisation of credit cost in Q3FY22. Thus, PAT is estimated at | 87 crore. GNPA is expected to decline ~15 bps QoQ led by better recoveries.

• Persistent reported strong numbers for Q3. The company reported 9.2% QoQ dollar revenue growth to USD199mn while rupee revenues came in at |1,492 crore, a growth of 10.4% QoQ. This is the third consecutive quarter of ~10% QoQ growth. In terms of geographies, the growth was aided by North America market ( 79% mix) which reported 9.9% QoQ while India market ( 11% mix) reported 13.4% QoQ growth. In terms of verticals, the growth was aided by BFSI (32% mix) which grew by 14.6% QoQ, while Technology (47% mix) grew by 7% QoQ. EBITDA /EBIT margins improved by 20bps/10bps. The company added 1,110 employees during the quarter, while TTM attrition increased by 330bps QoQ to 26.9%.

• Mphasis reported 8.9% QoQ revenue growth for the quarter to 3,124 crores (our calculation suggests 6.6% QoQ organic growth, rest by its recent acquisition i.e. Blink, it is first quarter of its full consolidation ). In Dollar terms revenues grew by 7.5% QoQ to USD414mn. Direct revenues (92% mix) grew by 8.6% while DXC declined by 10% QoQ. In terms geographic growth, the growth was aided by US markets (80% of the mix) which grew by 12% QoQ. in terms of verticals, growth was aided by BFSI ( 55% of the mix) which grew by 10.2% QoQ ( third consecutive quarter of 9%+ QoQ growth) . However strong revenue growth doesn’t flow into margins as employee costs and other expenses continue to rise (grew by 7.5%/14% QoQ), resulted into flattish QoQ EBIT margins at 15.1%.

• Cyient reported 5.9% QoQ growth in CC terms while in rupee terms it reported growth of 6.5% QoQ to |1183.4 crore. In dollar terms revenues were up 5.2% QoQ to USD157.9mn (organic growth was 3.6% QoQ, while DLM grew by 12.9% QoQ). In terms of geographies, growth was aided by North America (54% of the mix) which grew by 6.4% QoQ, followed by Europe which grew by 5.9% while RoW region declined by 6.4% QoQ. Overall EBIT margins were flat QoQ to 13.9%, Services business reported highest ever EBIT margin of 15.6% while DLM margins were at 6%. The company maintained double digit revenue guidance for FY22 in services business, while DLM revenue guidance has been revised downward to low single digit (vs. 20% earlier) due to supply side challenges.

• Power Finance Corp (PFC) and REC Ltd are considering bidding for stressed power assets to prevent large haircuts on their loans during resolutions. Another official said the companies are considering partnering with other central power sector entities for technical know-how to run the acquired projects.

• Fluence, a global market leader in energy storage products, services, and digital applications for renewables and storage, and ReNew Power, India's leading renewable energy company, today announced an agreement to form a new company to meet the needs of local customers across India that will address the fast-developing energy storage market in India. ReNew Power and Fluence's 50:50 JV will cater to a market projected to reach 27GW/108GWh by 2030, according to India's Central Electricity Authority.

• HCL Technologies has expanded its strategic transformation partnership with ams OSRAM to digitize one of the optical solutions leader’s key business processes and drive enterprise resource planning. HCL will also continue to lead IT infrastructure operations integration for the client.

• Mphasis announced its partnership with CrossTower, one of the world’s leading crypto exchanges. In the partnership, Mphasis will build a Center of Excellence (CoE) focused on Web 3.0 and a series of block-chain based products that will be launched and traded on the CrossTower platform.

• Glenmark Pharmaceuticals has entered into an exclusive licensing agreement with Lotus Pharmaceutical for commercializing its innovative nasal spray Ryaltris in Singapore, Hong Kong and Vietnam. Glenmark will receive an upfront payment as well as regulatory and sales based milestone payments from Lotus.

• Cadila has received USFDA final approval to market Vigabatrin Tablets (USRLD: Sabril Tablets). Vigabatrin is an anticonvulsant and is indicated to treat one month to 2 years old with infantile spasms and seizure disorders (epilepsy). The drug will be manufactured at the group’s formulation manufacturing facility at the SEZ, Ahmedabad.

• Natco Pharma has signed a non-exclusive licenses agreement with the Medicines Patent Pool (MPP), Switzerland. Natco with this license agreement can manufacture and sell molnupiravir Capsules 200mg in 105 countries in generic name. MSD, Ridgeback Biotherapeutics and Emory University will not receive royalties for sales of molnupiravir under this agreement for as long as COVID-19 remains classified as a Public Health Emergency of International Concern by WHO.

• As per The Economic Times, The Reserve Bank of India has approved the appointment of Vinod Rai, former Comptroller and Auditor General (CAG) of India as independent chairman of Unity Small Finance Bank Limited (Unity Bank), jointly owned by Centrum and Bharat Pe that will take over the failed Punjab and Maharashtra Cooperative Bank.

• As per The Economic Times, insurance industry has sought cut in GST, increase in 80C investment limit in Budget 2022. The surge in claims and the attendant payouts that both life and medical insurance companies faced this fiscal has led to a steep 30% rise in premiums as reinsurers look to recover their losses.

• ICRA has revised the assets under management (AUM) growth outlook of retail non-banking finance companies (excluding housing finance companies) for the current fiscal to 5-7% from 8-10% in view of the muted first-half performance. The rating agency cautioned that the growth outlook would be exposed to the downside risk in case of significant disruptions caused by the new wave of Omicron infections in Q4FY22.

• Bank of Maharashtra’s net profit soared 111% YoY to ₹325 crore in the Q3 against ₹154 crore in the year-ago period on the back of healthy growth in net interest income and lower tax expenses. While bank’s net interest income was up 17% YoY to ₹1,527 crore (₹1,306 crore in the year-ago quarter). Tax expenses were sharply down at ₹86 crore (₹250 crore). Other income, comprising fee-based income, treasury income and miscellaneous income, was up 6% YoY at ₹611 crore. The GNPA position improved to 4.73% of gross advances in the reporting quarter against 5.56% in the preceding quarter. The Net NPA position also improved to 1.24% of net advances against 1.73%. BoM is expecting 17-20% growth in advances and 10-12% growth in deposits in FY22.

• As per media reports, a commodity conglomerate is planning to create a US$10 billion fund to bid for assets including the Indian government's stake in BPCL.

 

*  Today's Highlight

Results: RIL, HDFC Life, Polycab, JSW Steel, Kajaria Ceramics, CSB Bank, SBI Life, Inox, PVR, Vodafone Idea, Jyothy Labs, Bandhan Bank, Gokaldas Exports.