- 3 years ago
BQ Prime's Hiral Dadia helps us decode #Infosys Q2 earnings as well as put the spotlight on stocks to keep on radar as we go into trade. #BQLive
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00:00 Hello and welcome to BQ Prime. A very good morning to all the viewers. I am Eeral Ghadia
00:05 and you're watching Trade Talk. It's going to be an interesting day of trade with two
00:10 IT majors that have reported numbers in Forces as well as HCL Tech. Clearly, Nifty IT did
00:18 underperform in yesterday's session as well, with all constituents barring one ending lower.
00:24 In fact, it was in Forces that actually pulled the IT index lower as well. And if you see
00:30 the way the ADR has been performing, that has been under pressure down nearly 6% as
00:36 we speak. With that, you had TCS earnings also which disappointed the street with Q2
00:41 revenues missing street estimates. Now, taking that into consideration, if you see the kind
00:47 of impact in terms of markets, the earnings season, as we said, has kicked off and the
00:53 markets are seeing a choppy trade with the way the IT numbers have panned out. Clearly,
00:59 a 120-point range is what we are seeing Nifty trade within, and pretty much it was unchanged
01:05 in yesterday's session. It's interesting to see how the broader markets have been outperforming
01:09 the benchmark indices. In fact, the small-cap index actually ended with gains of around
01:15 0.04%, and that probably is telling you that there is some bit of positive sentiment that
01:21 is actually present in terms of where markets are concerned. In fact, yesterday was weekly
01:28 expiry and we ended on a flattish note down almost 17 points, little below the 19,800
01:35 mark. 19,794 was the close. Now, in terms of sectors, media emerged as the top gainer
01:42 as well. And there is a possibility with the IT being the top loser, selling pressure in
01:48 IT is likely to continue in today's session as well. In fact, Infosys and TCS, both of
01:55 these counters actually saw some short development in trade yesterday. But let's see what gift
02:01 Nifty is also indicating. Clearly, the numbers do tell you that it is a negative opening
02:06 that is expected. And you have HDFC Life Insurance that will be announcing its Q2 FY20 phone
02:13 numbers. But let's shift focus to IT as a whole because that's going to be where the
02:19 wave of the market is going to be, and it's going to tell you where the markets are going
02:24 to go. Tushar, who tracks IT pretty closely, is joining us to discuss with us as to what's
02:30 the trend that is emerging. Tushar, good morning. A couple of points that we need to discuss
02:38 over here in terms of IT, specifically Infosys and HCL Tech. Infosys is of major focus. Firstly,
02:45 both of them have gone ahead and lowered the guidance. Let's start off with that and we
02:50 will continue the chat with other points as well. What does that actually tell you? Good
02:56 morning, Hiral. Both the companies, the second largest Infosys and the third largest HCL
03:01 Tech have reduced their guidance. Infosys for a second time consecutively. So now it
03:07 expects to grow at 1 to 2.5% as compared to 1 to 3.5% estimated at the end of Q1. That
03:14 too was a revision from 4 to 7% that the company had pegged at the end of the previous fiscal.
03:20 HCL Tech, with all the blockbuster dealmaking that it has had, a $2 billion Verizon deal
03:26 in Q2, it still reduced its guidance to 5 to 6% from 6 to 8% earlier. What is happening
03:34 is that the large deals are coming in, but these are spread over several years. What
03:39 these companies need, what gives them those quick returns, are the discretionary spending,
03:45 which is not happening because of the macro overhang in the US. So the pain point is very
03:49 evident now. And it is, according to these two companies, it's going to persist for the
03:54 rest of the fiscal as well. Right. So, Tushar, overall, you know, you're talking about from
03:59 the guidance perspective and what could transpire. Now, clearly, it's giving you an indication
04:05 that the kind of deal wins that we've seen, that's not really translating into the revenues
04:10 that it should have. Is this an impact of the lower, you know, discretionary spend that
04:18 we're seeing in the US markets as well? Exactly, totally. So what is happening is that because
04:25 there is a macro overhang in the US, there is high inflation, there is high interest
04:31 rates. So enterprises are not willing to spend so much on technology. They're taking a cautious
04:36 approach towards their spending. They're waiting for this overhang to lift, which is why the
04:41 discretionary spending is not coming in. Yes, for example, for companies like Verizon, who
04:47 have to do the technology business, they are giving those deals, which are large, which
04:52 is about $2 billion, say, for example, in the case of HCL Tech and Verizon, those are
04:57 coming in, but they pan out over several years. So their impact on a quarter is minuscule,
05:03 so to speak. Whereas the small discretionary spending, maybe your $5 to $10 million deals
05:09 or up to $50 million deals, those are not coming in, which will give you a bit share,
05:15 which get done quickly, and they give snap returns. So if that is not there, you don't
05:21 see the impact of those blockbuster dealmaking in the books of the companies.
05:25 Right. And Tushar, with that, the last question or the last point I want to discuss with you
05:32 is that yesterday, IT was the top sectoral loser, but there was some bit of resilience
05:37 in terms of the quantum of fall. And specifically with regards to TCS, you know, probably it's
05:43 the buyback that did come to the rescue to support the stock price. Now, you're already
05:48 seeing Infosys ADR, which is trading under pressure, we're seeing cuts of almost 6% there.
05:55 Is there an expectation in the market that the cuts could be deeper, number one? And
05:59 number two, the trend from here on whether the discretionary spends will pick up from
06:07 the first quarter of calendar year '24 in the US, that is something that we will have
06:12 to eye. Yeah. So two things here. The first one, let's
06:17 talk about discretionary spending first. You asked me later, but let's talk about discretionary
06:21 spending first. Now, the third quarter, or that is your October to December is traditionally
06:26 the weakest because there are furloughs and there are holidays in this quarter in the
06:31 US. Second part, the latest FOMC minutes have shown that the likelihood of a shallow recession
06:38 in the US is still minimized. The US is going towards 2% inflation targets. The country
06:47 may not see any more rate hikes. So that raises the likelihood of deals coming back in the
06:57 early part of 2024. Now, these companies have already guided for a smaller revenue growth
07:04 in for the rest of the fiscal. So effectively, if there's no shallow recession, if some discretionary
07:10 spending starts coming in, if some confidence starts coming in the clients, then some impact
07:15 will start seeing in FY25, not before that. In terms of the buyback, there is likely to
07:23 be more deeper cuts because TCS may have been supported by the buybacks. But say, for example,
07:28 of Infosys and Avipro have already affected such tools or use such tools to shore up their
07:33 stocks so far. Right. Thank you so much, Krishan, for giving
07:39 us the details. And this is going to be an interesting one to watch out for as well.
07:44 The pressure, as per what analysts are saying, is expected to continue in terms of IT as
07:49 a sector today overall. However, we speak to the management of Infosys. Now, on the
07:56 dichotomy of record deal wins amid a muted revenue guidance, Infosys MD and CEO Salil
08:03 Parekh says that the clients are continuously trying to cut or stop discretionary work.
08:10 Let's listen in to what he had to say in detail. On the digital programs and on the discretionary
08:17 work, there is a continuous attention by clients to reduce or to stop them. So, that's where
08:26 we see the impact on one side of the revenue. On the other side, there is a tremendous interest
08:34 in cost efficiency automation, where we happen to have a huge advantage in the market, where
08:41 we believe we are gaining market share by winning so many of these large and mega deals.
08:49 Many of these deals have time as they start to ramp up, the way that they are structured,
08:57 the way the transitions happen. We see those ramp ups, those scaling up of the large and
09:04 mega deals more out into the future, back end of the year, and as some of the new deals
09:11 are coming on, beyond that. So, those are the two dynamics that we see. And then we
09:17 combine that. We were fortunate and we executed a very strong quarter, as you rightly point
09:23 out, and we will continue to execute. But we are also aware and we want to make sure
09:29 that we communicate that, what the environment looks like. And things in that environment
09:35 change in a dynamic basis. So, we want to make sure that that gives the range of what
09:42 our guidance communicates. That's the management of Infosys. Now, let's
09:48 see what transpires with regards to where markets open in the next couple of minutes
09:52 as well. But moving on, apart from IT, you have pharma as a sector that will continue
09:57 to remain in focus. Probably we will term it as the pharma. And the ITD as well, taking
10:02 into consideration the kind of news flow that has come in, in a lot of stocks. Monal is
10:06 tracking the same pretty closely. Monal, good morning. Which of the stocks that will be
10:10 in focus, which could see some bit of a reaction in trade today?
10:14 Morning, Hiral. Yes, a lot of action on the pharma stocks and we could see quite some
10:19 reaction, especially with Glenmark Pharma. So, last evening, the company said that its
10:24 only owned biotechnology subsidiary in the US, Eiknos Sciences, has entered into an agreement
10:32 with Astra Pharmaceuticals for commercialization of its OX40, antagonist monoclonal antibody
10:41 portfolio, which is essentially used for treating atopic dermatitis. So, the idea is that it
10:50 has licensed both its assets under the portfolio, which are for inflammatory and immunological
10:55 diseases. And Astra will assume full cost and responsibility for the global development
11:01 and commercialization. Now, for this Eiknos, which is Glenmark's subsidiary, will receive
11:07 up to $320 million, which is close to 2700 crore rupees in upfront and development and
11:14 sales milestone basis. And this is in addition to a low double digit royalty, quite a huge
11:23 amount that now that we look at it. Also, if you remember recently, that's just in September,
11:28 it had Glenmark Pharma sold 75% of its stake turning into a net cash company from a net
11:34 debt company. And this is another big news for the company. So, we're hoping for a turnaround
11:40 and some stock reaction on that front. The other news here is that USFTA has inspected
11:48 two facilities. One is Dr. Reddy's Biologics Manufacturing Facility in Bajapalli, Hyderabad.
11:54 This was a pre-approval inspection and was concluded with nine observations. Now, usually
12:00 a pre-approval inspection does not have any impact on the existing revenues, but it could
12:05 potentially impact the launch pipeline. However, details on the launch pipeline from the facility
12:09 are not clearly available. Then we have Panacea Biotech, which was also inspected by the USFTA
12:17 and the inspection was concluded again with nine observations. This facility is wholly
12:24 owned subsidiary's facility in Baddi, Himachal Pradesh. And the company said that these nine
12:30 observations are related to improvements in existing procedures and are addressable. We
12:36 also have a couple of approvals and tentative approvals, one which Lupin has received for
12:40 its oral solid drug. And one, there's some improvement in terms of the clinical stage
12:46 trials by Sun Pharma. So, quite a bit of news on the pharma front. Hiral.
12:51 Thanks, Mona, for getting us the details. So, yes, Dr. Reddy's as well as Panacea, both
12:58 of these will be closely eyed in terms of what the kind of pressure it could put in
13:02 terms of markets for the others could see some bit of a positive reaction as well. So,
13:06 pretty mixed bag is what we are going to see in terms of pharma as a sector. And to be
13:11 noted that with regards to that Dr. Reddy's as well, as Mona was mentioning, you know,
13:16 the plan is not known yet, but clearly, you know, I mean, the company will be given 15
13:22 days time to submit its response to the USFDA as well to explain what steps it will take
13:28 to resolve the observations that have been made. So, there will be further developments
13:33 that could come in as well in terms of one of these names as we speak. Clearly, if you
13:40 go to see interesting space to watch out for. Moving on, a lot of other news items that
13:45 will be in focus, a couple of earnings that have come in as well in terms of, you know,
13:51 the mid cap and the small cap companies. Let me get in to get us more. Mika, good morning.
13:56 Firstly, let's break it up into two parts. The first part talking about which are the
14:00 key earnings that will be in focus in today's session or, you know, what stocks could be
14:06 reacting. Good morning. So, first we have Angel One on the earnings front for the quarter
14:13 to all the numbers past the Bloomberg estimates. Revenue was up 40.6 percent and 1047.9 crores
14:22 and the net profit was up 42.62 percent to 304.5 crores. Then we have Kesaram Industries.
14:30 Revenues are up 12 percent to 953.8 crores. EBITDA was up 32.54 percent and margins also
14:38 improved to 7.2 percent versus 6.16 a year ago. They did report a net loss of 58.37,
14:47 which is slightly lesser than the net loss last year of 59 crores. They also reported
14:53 that savings volumes were up 16.9 percent to 300 to 3.73 million tons for the half year
14:59 of FY24. And EBITDA was up 57 percent at 216 crores. Then we have Anand Rathi Wealth. Revenue
15:08 is up 34 percent to 182 crores. Net profit was also up 34.29 percent at 57 crores. And
15:18 their assets under management grew 33.8 percent to 47,957 crores. So, that's what we have
15:25 on the earnings round. Right. So, clearly, a 34 percent rise in terms of Anand Rathi,
15:31 a good one to look out for, as well as Angel One, who is now going to offer unsecured loans
15:36 soon as well, and a good surge in terms of profitability is what we are going to see.
15:40 So, some positive reaction on both these things can be expected. But, Meeka, apart from these,
15:44 you have been tracking a couple of other counters as well. We did have an ITBI that is in focus
15:50 on the BQ Prime exclusive news that we have picked up. To start off with that, let us
15:55 know what is the news and which are the other stocks.
16:00 Okay. So, in terms of the BQ exclusive, Prem, WhatsApp, FedFax, which is Kotak Mahindra
16:06 Bank and Avenue Capital are among the preferred bidders for IDBI Bank. The bilateral meetings
16:12 with potential biddings have been ongoing for several months now, and the government
16:18 looks very closely to IDBI Bank sale process by the fiscal end. IDBI has also hiked the
16:25 2 to 3-year MCLR by 10 basis points and overnight to 1-year MCLR by 15 basis points. In terms
16:34 of the rate hikes, we also have Bank of Maharashtra, which revised its 1-year MCLR upwards to 8.7
16:41 percent from 8.6 percent previously.
16:45 Coming to the other stocks, first we have the aviation sector. The DGCA reported in
16:50 September 2023 report, air passenger traffic was up 18.3 percent to 1.22 crore for the
16:56 month. Indigo maintained its position with the highest market share of 63.4 percent,
17:03 which is up 0.1 percent month on month, while Vistara stood second in terms of the highest
17:08 market share at 10 percent. The highest passenger carried was also by Indigo at 77.70 lakhs
17:15 in the month of September. The overall cancellation rate for September stood at 0.92 percent,
17:20 and Delhi airport was the most punctual airport, while Mumbai was the least among the top four
17:26 airports.
17:27 Then we have JMR airport infrastructure. The September passenger traffic was up 23 percent
17:31 year on year, and air movements were up 14 percent year on year. In terms of passenger
17:36 traffic growth, the Philippines airport reported the highest growth of 57 percent, followed
17:41 by Hyderabad at 21 percent and Delhi up at 14 percent. Then we have Zagil prepaid ocean
17:47 services, which entered into a 20 million dollar growth agreement with Visa Worldwide.
17:52 The agreement is for the next five years, and it aims to further their alliance in support
17:57 of the issuance of the Forex Co brand cards. The company will leverage its existing users
18:04 and offer these Forex cards to the employees.
18:07 Then we have IRB infrastructure developers. The company-wired subsidiary IRBI Infrastructure
18:12 Trust has executed definitive agreements with affiliates of the Singaporean sovereign wealth
18:18 fund GIC as financial investors and the SPV Samikhayali tollway to implement a 2,092 crore
18:27 Samakhayali Santlapur BOT project, which is a tollway project in Gurshahat. The trust
18:33 will acquire 99.96 percent in STPL for a total consideration of 116.2 crores.
18:40 Then we have Angel One. They also reported that a total orders rose 36.1 percent quarter
18:46 on quarter for the second quarter of FY24. The company added 2.1 million clients in quarter
18:53 two, which is the highest in any quarter. And the board also recommended an interim
18:57 dividend of 12.7 rupees per share. Then we have SJBN. The SJBN Green Energy got an LOA
19:06 from Rajasthan Urja Vikas Nigam for the development of a 100 megawatt solar power project. The
19:12 project is worth 600 crore rupees and is to be executed over the next 18 months. And the
19:17 project will be developed on a build, own and operate a basis.
19:21 Then we have Aditya Birla Fashion and Retail. The company will invest an additional 75 crores
19:27 in its subsidiary Aditya Birla Digital Fashion Ventures via partly paid equity and preference
19:32 shares. The board has approved a limit of 50 crores for the equity share issuance and
19:38 a limit of 25 crores for the preference share issuance. And last, we did have a bulk deal
19:43 in 36.1 WAM. Norges Bank bought 32.76 lakh shares, which is equivalent to 0.91 percent
19:51 stake in the company for 511.2 rupees per share. And Morgan Stanley sold 24.42 lakh
20:00 shares, which is equivalent to 0.68 percent for a share price of 511.2 rupees per share.
20:09 Thanks, Meeka, for getting us the details. In fact, lots to watch out for in terms of
20:14 stock specific action in today's day of trade in two sectors that we will have our eyes
20:19 on is IT as well as pharma. Pharma could be a mixed bag, but IT clearly could see a good
20:25 amount of selling pressure in today's session as well. Very lastly, a couple of earnings
20:31 that will be in focus today. You have the likes of Den Networks, HDFC Life, Tata Steel
20:36 Long Products, Side Silks, Soam Distilleries, all of these names that will be reporting
20:41 numbers. So please stay tuned to BQ Prime on our website. You will keep getting updates
20:46 on a regular basis. Completely out of time. That's all that we have in this session. Up
20:51 next, we will get you Omkar Tatsale to discuss about how the stocks could open in trade and
20:58 what could be expected going ahead from Infosys, HCL Tech, as well as the sector as a whole.
21:04 You're watching BQ Prime.
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21:13 [END]
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