25 July 2020
1QFY21 Results Update | Sector: Technology
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TP: INR 1,174 (+5%)
Deal wins and outlook surprise!
Expect one of the best performances in FY21
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
EPS Gr. (%)
Div Yield (%)
208.7 / 2.4
Revenue decline of 4.6% (QoQ, CC) was in-line as weakness in the DXC
channel was overshadowed by largely stable performance in Direct. Deal
wins (USD259m) during the quarter were the strongest ever at 66% YoY.
Guidance on the ability to defend margins, a strong order book, and a robust
deal pipeline even after a couple of large deal wins is encouraging. This
should translate into one of the best performances in the industry in FY21.
We upgrade our FY21/FY22E EPS by ~4%/2%, largely driven by: (a) recent
large deal wins and (b) an optimistic outlook. Maintain
Largely in-line revenue and margins
In 1QFY21, revenue (USD) / EBIT (INR) / PAT increased by 3%/12%/4% YoY
v/s our expectation of 2%/8%/7% YoY.
Overall revenue declined 4.6% QoQ (CC) in line with our expectations. Direct
International (DI) revenues were largely stable, while DXC revenue
witnessed sharp decline (16% QoQ, CC).
Barring Banking and Capital Markets (BCM), all the other verticals reported
sharp sequential revenue decline.
While revenue from the Top client declined ~11% QoQ, the Top 2–5 clients
reported healthy growth of 3% QoQ.
The EBIT margin contracted ~60bp QoQ and came in ~50bp ahead of our
estimates. EBIT margin contraction was largely led by a sharp fall in
utilization (300–400bp QoQ).
While S&M expenses remained stable (as % of revenue), pressure at the
gross margin level was partially offset by G&A rationalization (~150bp QoQ).
1Q witnessed the strongest order bookings ever, with deal wins of USD259m
in the Direct channel; of this, 79% are in new-generation offerings.
1173 / 612
Key highlights from management commentary
Shareholding pattern (%)
Jun-20 Mar-20 Jun-19
FII Includes depository receipts
1QFY21 revenue was impacted as enterprises reprioritized IT spends and cut
down on discretionary spends.
Management indicated that the worst is behind, and revenue should grow
sequentially. A couple of large deal wins (USD100–200m+ TCV), a healthy
order book, and a robust pipeline drive this confidence.
The company expects the EBIT margin to remain stable, in the range of
15.5–16.5% in FY21, despite large deal ramp-ups over the next few quarters.
Large deal wins and new client additions were led by Direct International.
The Banking and Capital Markets, Insurance, and Logistics/Transportation
verticals are expected to do well going forward.
While MRC of USD250m (up to Sep’21) is still due, management expects the
DXC business to remain under pressure.
The Blackstone portfolio now contributes 4–5% to overall revenues and is
expected to double over three years.
Sudheer Guntupalli – Research analyst
Research analyst: Mohit Sharma
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.