Market Highlights

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April 21, 2023

• ⚠️BREAKING:
• *U.S. FIVE YEAR CREDIT DEFAULT SWAPS RISE BY 1BPS FROM WEDNESDAY CLOSE TO 49BPS AMID DEBT CEILING DEBATE, HIGHEST SINCE 2011
• *ICICI Pru Life Review*
• *CLSA*
• O-P, TP raised to Rs 520
• 4Q strong as Mar 2023 insurance sales were aided by budget tax change-related pre-buying that led to +27% APE in 4QFY23 & margin remaining high at 32%.
• FY24CL will be tough given a high base
• *Macquarie*
• O-P, TP Rs 580
• Strong metrics as expected on all counts
• Share of ICICI Bk channel is down to 9% in 4Q & probably has bottomed out
• Management remained confident of delivering strong VNB growth
• *MS*
• OW, TP Rs 600
• VNB 14% ahead of est. due to much stronger APE growth in non-linked segment owing to changes in Union Budget
• A more durable +ve was stronger pick up in retail protection
• VNB margin was lower
• Trim VNB forecasts for F2024-25
• *JPM*
• neutral, TP Rs 480K
• Delivered a large beat in 4Q on (VNB +36%) Leveraging industry wide momentum in non-linked savings ahead of higher tax starting Apr’23
• Key +ve was that beat came without contribution from ICICI Bk
• Management upbeat on FY24
• *HCL Tech Review*
• *Nomura*
• Neutral, TP cut to Rs 1100
• 4Q broadly in line
• FY24 guidance reflects challenging macro
• Lower FY24-25F EPS by 4%, driven by expectations of lower revenue & margin & higher tax rates
• *Macquarie*
• O-P, TP Rs 1580
• Growth leader vs peers going by guidance
• Management reiterates medium-term EBIT margin target of 19-20%
• Given rev guidance of 6.5-8.5% for services over FY24 implies rev growth higher than peer Infosys, think a re-rating is likely
• *JPM*
• UW, TP cut to Rs 880
• Miss in Services biz led by discretionary spend cuts that also led it to miss its FY23 CC guide of 16-16.5% by 45bps set 90 days ago
• Telecom, Manufacturing & Hitech were stressed
• Cut rev by 1% & margins by 20/30bps
• *MS*
• OW, TP cut to Rs 1160
• Core services performance (revenue growth and margins) in 4Q missed expectations.
• FY24 revenue guidance appears aggressive, given macro conditions as well as weak ACV growth in FY23.
• Lowering EPS estimates by 2-3%
• *Jefferies*
• Hold, TP Rs 1125
• 4Q results did not spring any major negative surprises.
• While a decline in ER&D revenues disappointed, growth in BFSI and North America surprised positively.
• FY24 guidance of 6-8% for growth & 18-19% margins was in line
• *CLSA*
• O-P, TP Rs 1200
• Broadly in-line 4Q23 print & FY24 guidance, & a healthy dividend yield
• Deal wins were steady with a ‘near all-time high’ pipeline that is skewed towards US$500m+ deals.
• Growth in service biz could stay ahead of peers in FY24CL
• *JPM on IT*
• Downgrade Tech Mah to UW, TP cut to Rs 900
• Downgrade Mphasis to UW, TP cut to Rs 1550
• Cut TechM’s FY24/25E rev by 3%/5% & margins by 40bps/60bps, driving 7%/10% cuts to EPS
• Cut Mphasis’ FY24/25E rev by 6%/8% & margins by 40bps/30bps, driving 8%/9% EPS cuts
• 4Q prints of TCS, Infosys & HCLT have highlighted weakness & challenges in BFSI, Telecom, Hitech, Manufacturing & retail verticals as clients ramp down, cancel &defer projects
• See TechM & Mphasis getting massively impacted from this trend
• *Kotak Inst Eqt on Tata Com*
• Add, TP Rs 1300
• 4Q a mixed bag, with a 3rd successive qtr of double-digit data rev growth yoy, but margins (22.6%) contracted below management guidance of 23-25% Management expects EBITDA margins to remain at lower end of 23-25% guidance in FY2024E
• *CLSA On Tata Com*
• Buy, TP cut to Rs 1550
• Data biz rev up 11% YoY but Ebitda miss with jump in staff costs
• Management’s focus on data biz has led to sustained double-digit data rev growth.
• Also, FY23 cash generation at Rs25.4bn was up 16% YoY
• Val reasonable at 8.6x FY24CL EV/Ebitda
• *MS on Life Insurance*
• March Was Much Stronger Than Expectations
• March RWRP Grew 38% YoY For Industry & 56% For Pvt Sector
• HDFC Life & ICICI Pru Reported Robust Growth At 95% & 59% Respectively
• SBI Life Reported 12% Growth On A YoY Basis