Strong September quarter results and outlook led to an upward revision of FY21 revenue growth and margin guidance. With new deal wins at record highs and the pipeline strong, brokerages expect revenue outperformance to continue in coming quarters. While digital transformation projects will help Infosys outperform peers on revenues, cost optimisation measures should drive the margin further. The best-in-class execution and strong earnings growth should help the stock bridge the 10-15 per cent valuation gap with market leader TCS.
The sharp improvement in engineering & construction revenues sequentially in the September quarter was led by improving manpower availability and easing of supply chain issues. The performance is expected to improve sharply during H2FY21. Strong project pipeline of Rs 6.1 trillion spread domestically (Rs 4.8 trillion) and internationally (Rs 1.3 trillion) should start materialising in the coming quarters. While the domestic market contributes to the majority of order inflow and backlog, L&T is diversifying in regions beyond West Asia. Improved collections from the government resulted in improving operational cash flows during the September quarter.
The sharp uptick in the margin performance in the September quarter to multi-quarter highs was led by lower operating expenses and this trend should sustain. Sequential recovery in new contracts and a stronger deal pipeline are positive amid strong execution. Tech Mahindra is the biggest beneficiary of an uptick in 5G spends as telecom companies
start to roll out their networks globally. Robust medium-term growth prospects, coupled with the attractive valuation of 15x its FY22 earnings estimates, should support the stock.
The two-wheeler leader gained a 300-basis point market share year-to-date on the back of high rural demand and a strong distribution network. Its premium portfolio has got a boost after the recent agreement to manufacture and sell Harley Davidson motorcycles. Given its market dominance in the economy and executive segments, downtrading, and rural bias, market share gains in the festival season are expected to continue. Preference for personal transport, improved finance penetration, and uptake in the urban segment should aid its position.
Tariff hikes last year and a better customer mix helped improve its average revenue per user (ARPU) for four consecutive quarters. Further gains on the ARPU front are expected, both on account of strong subscriber additions and potential price hike. The telecom operator is looking at new revenue streams in the enterprise segment in areas, such as cloud communications. Improving margins, lower capex intensity, adequate cash on the books and reasonable valuations are positive from the returns perspective.
The transformation from a corporate-focused to a retail bank in five years has led to a significant moderation in gross slippages, and improved deposits mix and profitability. Its focus on portfolio quality and the strengthening of underwriting credit processes can restore the prudent growth path and result in better long-term value creation. The high adequacy ratio of 19.3 per cent acts as a cushion against further asset quality shocks. It is also better placed than peers to deal with anticipated stress due to the pandemic, given its Covid provision buffer at 1.3 per cent of loans.
The foods major is least impacted by Covid-19, given 90 per cent of its products fall under the essential category. The rising demand for in-home consumption and ready-to-cook products should help the company in a post-Covid environment. It's the leader in over 80 per cent of the product portfolio, and expected to see further gains in market share given brand stickiness and the distribution network. Large capex, new product launches, and the ability to pass on higher input costs should aid in revenue growth and margins.
The company has emerged as the largest private life insurer with about 20 per cent market share. Continued focus on business growth and improvement in product mix remain its core strength. The compound annual growth rate of 27% in new business premium in the past four years is the best among private players. Strong distribution reach (including SBI's branch network and tie-ups with other banks), diversified product profile, and improving digital footprint are propelling the business. Competitive product pricing and push from the VNB margin should drive 14 per cent annual growth in embedded value in FY21-22.
Stronger-than-expected demand rebound, improving volumes, and pricing remain favourable for India’s largest cement maker. UltraTech, with expanded capacities in place and strong pan-Indian presence, is also the preferred supplier for key infrastructure projects. With a strong retail presence, it remains well placed to tap both retail and institutional demand. The 30 per cent improvement in per tonne operating profit in Q2, ahead of peers, instils further confidence. Analysts, too, have further upgraded their Ebitda estimates by up to 11 per cent for FY21 and FY22.