Strong order book and multiple margin drivers indicating sustainable profitability
The company reported impressive order book growth, with its next 12-month order book up by over 19% YoY, at USD 1,070 million. This is the tenth consecutive quarter where the firm has reported an order intake of more than USD 300 million. This robust order book growth rate improves revenue visibility and highlights solid growth potential. Additionally, the company gave guidance of a 50 bps expansion of adjusted EBITDA for FY25, which will likely be driven by lower SG&A costs and higher offshoring, while lower ESOP costs will improve margins further.
Strategic AI positioning and vertical expansion signalling promising growth prospects
The company is positioning itself for robust growth through its dual focus on Gen AI and strategic vertical expansion via the Cigniti acquisition. The company is actively partnering with clients to implement real-life AI programs. Simultaneously, the Cigniti acquisition goes beyond expanding testing capabilities and establishes footholds in healthcare, retail, and hi-tech verticals. Such dual focus positions Coforge to capitalize on the growing AI market while diversifying its revenue streams.
HDFC BANK LTD.
Business productivity improves; leveraging the power of branch banking
HDFC Bank has been focusing on improving its branch productivity by leveraging technology. The bank’s business per branch improved to Rs. 5.6 billion in FY24 from Rs. 4.4 billion in FY23. The business per employee also improved to Rs. 228 million in FY24. Further, deposits per branch improved to Rs. 2,723 million in FY24 v/s Rs. 2,408 million in FY23, indicating higher productivity and operational efficiency at the branch level. However, CASA/branch saw a moderation to Rs. 1,040 million in FY24. On an average, branches mature in 18-24 months, and we thus believe that new branches will start to contribute more in the coming years. This would aid the overall productivity and support in garnering incremental business, thereby resulting in improved operational efficiency.
Asset quality stable; strong contingency buffer provides comfort
HDFC Bank has significantly reduced its borrowings over the last two quarters, with a drop of Rs. 750 billion in March and another Rs. 600 billion in June. This reduction includes repaying Rs. 150 billion of maturing commercial papers and other high-cost borrowings, a part of the bank’s strategy to deleverage its balance sheet. Additionally, over the next three years, approximately 15% of HDFC Ltd.’s borrowings are expected to mature each year, with Rs. 250 billion already repaid in Q1FY25. The bank plans to replace these maturing high-cost borrowings with lower-cost deposits, boosting liquidity and improving profitability.
LTIMINDTREE LTD
Strong AI presence aids in scaling up relationships with clients
The company has a strong presence in providing AI solutions to its clients, giving it a distinct advantage in partnering with its customers on their scaling journey. The company is currently assisting the majority of its clients in AI-related areas. The company systematically invests in various projects with leading players, ensuring a distinct advantage. The partnership ranges from Semiconductors to AI governance, ensuring comprehensive scaling.
Strategic wins and expanding market reach ensure healthy growth
The company has secured significant multi-year contracts across the financial services, insurance, and energy sectors, highlighting its robust capabilities. Its strategic partnerships with tech giants and innovative initiatives, like the Gen AI and Digital Hub, position it for substantial growth. The joint venture with Aramco Digital expands its reach in the Saudi Arabian market, enhancing its growth potential. Also, with the US rates easing out, we expect an increase in discretionary spending, further improving its revenue visibility.
MAHINDRA AND MAHINDRA LTD.
Strategic expansion plans to drive healthy EV penetration
Given the current policy dynamism, the company is focusing on driving growth in EV penetration. The company aims to quickly penetrate the EV market and address districts with negligible EV penetration. This focus is further supported by the company’s good cost structure and reducing cell costs. To materialize the plans, the company aims to deploy Rs. 1,2000 crores in the next three years.
Strong market position and healthy capex plans ensure sustainable growth and profitability
The company maintains its leadership position in the UV segment, providing a solid foundation for growth and sustainable profitability. Owing to the aggressive capex done in the last four years, the company has increased its capacity by 3x, further aiding the company with operational leverage, helping in terms of margins, and ensuring sustainable profits. In addition, the company plans to invest Rs. 14,000 crores in the next three years, ensuring a robust pipeline. The company is also committed to making strategic decisions that ensure sustainable growth in volumes and margins.
ONE 97 COMMUNICATIONS LTD.
Large and engaged customer base to generate stable business performance
Paytm’s business model is built on a large and active customer base of 7.8 million monthly transacting users as of June 2024. These users primarily use the app for UPI-based payments, bill payments, etc. It also supports Paytm’s commerce business, which includes tickets for movies, air travel, sports events, and other services. This diverse customer base is instrumental in establishing Paytm’s consumer loan origination portfolio. Unlike many of its competitors who are primarily focused on point-of-sale and payment gateway services with little direct interaction with customers, Paytm has a significant presence among both consumers and merchants. This wide reach enables it to generate revenue from both merchants and consumers, and allows for cross-selling opportunities, providing a stable business model that can better withstand regulatory and technological changes.
Revenue and profitability to improve going forward
Paytm’s performance during the quarter aligned with expectations and it focused on increasing the merchant and consumer base for cross-selling financial services. The company is also confident of meaningful improvement from Q2FY25, as the company restarted certain paused products and achieved steady growth in operating metrics. We believe constant improvement in operating leverage will continue to drive its profitability. As we advance, we expect revenue and profitability to improve, driven by growth in operating parameters such as GMV, an expanding merchant base, recovery in loan distribution business and continued focus on cost optimization
SIEMENS LTD.
A strong order uptick may help revive a weak backlog
Siemens reported strong growth in order inflows during the quarter, driven by a strong print in the Smart Infrastructure, Mobility and Energy segments and sustained weakness in the Digital Industries segment. However, the order backlog in the previous few quarters has seen limited annual growth, excluding the long-gestation railway order. As we advance, the company is optimistic about the growth prospects from higher spending by the Government on infrastructure, which will continue to support demand for its products and solutions.
Expanding addressable market to benefit going ahead
Siemens is well-positioned to benefit from the rapid expansion of its addressable market across various segments like Smart Infrastructure, Mobility and Energy. Despite weak execution in the current quarter, Siemens is expected to benefit from strong growth in fast-growing sectors, such as energy transmission and data centres. Along with this, continued focus on renewable energy transition in the global market should also help Siemens to participate in opportunities with its upcoming new facilities. The company is expanding facilities across GIS, metro, and transformers to cater to domestic and export demand.
THE INDIAN HOTELS COMPANY LTD
Strategic positioning in India's hospitality market
Indian Hotels Company Ltd. (IHCL), part of the Tata group, is a key player in India’s hospitality sector, boasting a well-diversified portfolio of 310 hotels under brands like Taj and Ginger, covering mid-scale to luxury segments. The company’s focus on asset-light expansion through management contracts, along with its diversified ancillary services such as Amã Stays and Qmin, enhances its revenue streams. With India’s hospitality market expected to grow at a 10-11% CAGR during FY2024-27 period, IHCL’s strategic positioning in key markets and premium offerings are set to benefit from a supply-demand imbalance, supporting robust occupancy rates and average room rates (ARR).
Strong performance amidst hotel industry upcycle
The company is thriving in the current hotel industry upcycle, with occupancy rates and Average Room Rates (ARR) exceeding pre-COVID levels and reflecting trends seen during FY2004-08 period. This success is driven by demand outpacing supply, a shift towards domestic leisure travel, increasing disposable incomes, and supportive government initiatives. Despite impact from extreme heat waves and elections in Q1FY25, IHCL reported an ARR of Rs. 9,900, 70% occupancy, and a RevPAR of Rs. 6,900. The company also outperformed the industry with a 60% premium in domestic same-store RevPAR and saw Rs. 1,620 million in revenue from new business ventures. The rollout of the “Gateway” brand is set for Q2FY25.
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