In today’s briefing:
- CSI300 Index Rebalance Preview: 30 Potential Changes as Sector Rotation Continues
- Is Samsung in Trouble or Just in Another Downcycle?
- Initial Thoughts on the LG CNS IPO
- KPIT Tech: Robust Earnings and Strong Guidance
- Wipro – Weak Growth and Margin Guidance to Cap Upside
- Indiamart Intermesh Ltd – Robust Revenue Growth; Margins Decline
- Wipro – Rerating in a Limbo?
- IndiaMART – Strong Customer Additions; Growth to Bump up in FY23E
CSI300 Index Rebalance Preview: 30 Potential Changes as Sector Rotation Continues
- We expect the maximum permitted 30 changes at a single review to take place at the June rebalance. Most changes are high probability.
- We estimate a one-way turnover of 4.25% at the rebalance leading to a one-way trade of CNY 10.677bn.
- Industrials, Information Technology and Materials sectors are expected to have the most net inclusions, while Health Care and Financials are expected to have the most net deletions.
Is Samsung in Trouble or Just in Another Downcycle?
- Samsung Electronics (005930 KS)’s underperformance to SK Hynix (000660 KS) just part of the cycle or company specific?
- Does the supply constraint issue help or hurt Samsung? Who is better off?
- Key points to focus on to see where Samsung is vs. their blueprint of technology roadmap
Initial Thoughts on the LG CNS IPO
- LG CNS is getting ready to complete its IPO in 2023. LG CNS is one of the largest system integration (SI) companies in Korea.
- LG Corp owns 49.95% stake in LG CNS. Local media mentioned the LG CNS value could reach about 4 trillion won to 5 trillion won after it completes its IPO.
- If LG CNS is valued at 5 trillion won, a 50% stake would be valued at 2.5 trillion won which is more than 12x book value on its balance sheet.
KPIT Tech: Robust Earnings and Strong Guidance
- KPIT Tech reported strong Q4FY22 revenue growth (5%+ QoQ in constant currency [CC] terms). It also reported margin improvement, despite supply-side headwinds; with EBITDA margin at 18.6% vs 18.5% QoQ.
- FY23 guidance came in optimistic with revenue growth expected to be in 18-21% range in CC terms and EBITDA margin projected to remain stable in the 18-19% range.
- Demand environment continues to be robust with high visibility for growth. Q4FY22 total deal win was healthy at USD 200mm; including a large deal of Euro 70mm value.
Wipro – Weak Growth and Margin Guidance to Cap Upside
- Consulting acquisitions adversely impact capital allocation – Wipro (WPRO) reported 4QFY22 IT Services revenue of USD2.72b (+3.1% QoQ) in constant currency (CC), missing our estimate of +3.5% QoQ CC.
- 4QFY22 below expectation, 1QFY23 guidance weak – In 4QFY22, IT Services revenue in CC grew 3.1% QoQ, INR EBIT rose 2.7% YoY, and INR PAT was up 4% YoY.
- Key highlights from the management commentary – The management continues to see good momentum with CapCo. Over the last year, WPRO has been able to close 60 strategic deals with CapCo and it remains positive on the business with very strong order book and strongest ever bookings.
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Indiamart Intermesh Ltd – Robust Revenue Growth; Margins Decline
- Indiamart have reported consistent growth in registered buyers, registerd buyers grew to 149 Mn showed a growth of 4.2% QoQ.
- Indiamart has also expanded its foothold on the number of the products live on the platform, total products live on the platform stood at 83mn grew 3.75% QoQ.
- Total business enquiries delivered stood at 120 Mn demostrated a growth of 2.6% QoQ. Annualised ARPU for Q4 FY22 declind to Rs. 47,400 but likely to improve with better offering mix.
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Wipro – Rerating in a Limbo?
- 4QFY23 performance in line; balance sheet deterioration seen: Wipro’s QoQ CC IT Services revenue growth in 4QFY22 at 3.1% (6th successive quarter of 3%+ growth) was in line.
- EBIT margin for IT Services at 17% was in line. The large deal TCV for FY22 was US$2.3bn, which is lower than for 2HFY21.
- However, ACV grew by 30% in FY22, likely due to a large number of short-cycle deals. There was deterioration in unbilled revenue in 4QFY22, leading to it becoming 7.7% of FY22 revenue against 4.4% in FY21.
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IndiaMART – Strong Customer Additions; Growth to Bump up in FY23E
- Margin to drop on elevated investments; business fundamentals intact
- Good topline growth but large miss on margins – Revenue stood at INR2.0b (1.8% above our estimates), +12.1% YoY and +7.1% QoQ.
- Highlights from the management commentary – The company added the highest ever paid customers at 13k and plans to add customers in the range of 8-9k per quarter going forward.
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