A total of 52 companies including Wipro, One97 Communications (Paytm), Adani Ports, Zomato, FSN E-Commerce Ventures (Nykaa) and Tata Power, among others, talked about their growth prospects at Kotak Chasing Growth - 2023 Conference, which saw participation from 736 institutional investors. Here are the key takeaways from a handful companies:
Adani Ports & SEZ
Break up of capex: Adani Ports highlighted the overall capex plan of Rs 23,000 crore over a 3-4 year period, comprising Rs 19,000 crore of port-related components and Rs 4,000 crore of logistics-related component. Of this, the largest annual component is FY2023 at Rs 8,600 crore. FY2024 capex would be half of FY2023 level at Rs 4,500 crore or so, largely comprising port-level capex. These capex numbers exclude inorganic endeavors of Karaikal at Rs 1,500 crore in FY2024 and Haifa Port+IOTL in Q4FY23.
Soft guidance for FY2024: While maintaining revenue and growth guidance for FY2023, the company hinted at missing the volume guidance of 350 million tonnes. It expects 335 million tonnes or 8 per cent comparable YoY growth. The company hinted at the potential of doing closer to 400 million tonnes in FY2024 on the back of a higher than 8 per cent organic growth and inorganic/addd-on growth support. It expects the Haifa Port acquisition to have a positive impact on its leverage levels, given a large Rs 5,000 crore of cash levels that it would consolidate. From a leverage perspective, the company also hinted at prospects of an increase in payables and static receivable levels.
Longer-term growth guidance: The company expects crude to be a growth segment for it in the next decade. It is coal where the company expects an insignificant level of growth of the longer term on the premise of it being a limited beneficiary of coal India ramping up domestic coal production. The key constraint to coastal shipping for Adani Ports is the lack of connecting infrastructure.
Enough lines of liquidity if required. Adani Ports shared Rs 2,000 crore of undrawn lines of credit, another Rs 6,000 crore of potential NCD issuances and scope of securitizing up to 80 per cent of its fixed asset base, should the need arise to repay/prepay its existing debt commitments.
Wipro
Client budgets: Wipro will get a better sense of client budgets by the end of February.
Pockets of demand weakness: Hi-tech, mortgages and US retail are sub-segments of demand slowdown. Investment banking is under some pressure while other segments within capital markets are doing well. Wipro is facing delays in new project kick-offs and slowdown in discretionary spends.
Pipeline and bookings outlook is good: The deal pipeline and bookings in Q4FY23 will be healthy. Wipro is winning cost optimization-focused deals. The tenure of deal cycle is significantly larger.
Margin levers: Utilisation can improve by 300-400 bps. Wipro will onboard 4,000-5,000 freshers in 4QFY23. Supply-side pressures have eased. Time from offer to joining has significantly declined compared to last year, which aids just-in-time hiring.
Growth aspiration: Wipro aspires to grow at industry leading rates. Matching industry growth is the bare minimum aspiration. A slowdown in cloud hyperscalers is not expected to have a significant impact on growth. Wipro said it will benefit from clients’ commitments to cloud consumption. The company will also benefit from cost takeout in cloud programs.
Capital allocation policy: No change to earlier policy of 45-50 per cent payout over a rolling 3-year period.
Demand slowdown in consulting: Consulting is now 13-14 per cent of revenue. Once the sentiments improve, consulting should pick up.
Europe is holding up: Revenue growth trend in Europe is a positive surprise. Local leaders in Europe are helping in incremental deal closures, Germany and France investments are being held up for next year. APMEA market share is sub-1 percent. Targeting ANZ and ME markets with outcome-based delivery by leveraging technology.
Investments in GAE will aid growth: Global account executive (GAE) structure has undergone a change. GAEs now have higher seniority within the hierarchy. Wipro has increased senior leaders among GAEs. Wipro has also brought in local leadership who understand the market better.
Growth differential with peers decreased: Win rates in the market improved over the past year. Growth has moderated across players and Wipro’s growth lag differential is not significant as compare to the past
One97 Communications (Paytm)
Payments business: For consumers, the bank focuses on UPI P2P as a product, but not as a GMV driver. On UPI P2M, the bank’s share is neck and neck with PhonePe. Contribution margin has improved on the back of better payments margin, primarily driven by subscription fees from device merchants. The company started its business from the long tail of offline merchants (where it competes with the likes of PhonePe, Google Pay, Amazon Pay and BharatPe) and has gradually expanded into online enterprise merchant segment (where it competes with the likes of Razorpay).
Soundbox has been a big success: The Soundbox product has been a success for the company and it solves for the problem of trust and reconciliation. The software stack for Soundbox has been developed indigenously by the Paytm team and the product has been manufactured in India, unlike the products offered by some peers. Paytm’s Soundbox product has a very low latency and allows the company to build features on top. Latency is key in the target merchant segment.
Paytm wallet v/s UPI Lite: The management is of the view that Paytm wallet will continue to be a superior product (than UPI Lite) because of the high transaction success rate, ability to load money through credit cards and other linked use cases like Fastag.
Lending business: The company is very selective when selecting customers for the loan product because the company has to be sure about collectability of those loans.
Commerce and cloud: The company started off by helping a credit card company advertise. But today it operates as a co-brand credit card partner. It has so far issued 0.5 mn activated credit cards which is growing at 50,000 per month. Paytm said it is helping merchants by improving their online presence and allowing them to create offers online. It is an upsell of the payments business and generates very high margin, because the company does not have to acquire customers separately.
Costs: Direct expenses includes payment processing charges, cashback and other direct expenses (like SMS) and collection cost in lending business. Sixty per cent of indirect expenses is people-related costs (mainly sales and tech employees, but also includes business/growth) and the rest is marketing costs (not cashback, but brand or performance marketing), cloud expenses (like AWS) and other general and administrative expenses. Indirect expenses have been flat in the past three quarters because the bank had already completed one round of investments earlier.
Business outlook: The management is confident that revenues can grow 40 per cent YoY over the medium term. Further, contribution mix can improve further driven by higher share of lending in revenue mix.
Regulations: The management indicated that net payments margin will not be impacted meaningfully even if the government introduces a cap on MDR because the company is paid for its role as a technology provider. The management indicated that the company has been on the right side of RBI’s digital lending guidelines.
FSN E-Commerce Ventures (Nykaa)
Opportunity: Indians are extremely aspirational and they have underinvested in themselves in the past. Nykaa wants to delight the consumer with a massive assortment of brands and great buying experience. Newer cohorts don’t necessarily trail older cohorts in terms of LTV-CAC. There are still plenty of customers that Nykaa can target without diluting profitability. Proportion of consumers who buy 10+ products in the country is still very low signifying that there is still a reasonable TAM that Nykaa can target in the future. In the case of Nykaa Man, the company still wants to achieve proof of concept and while men have better purchasing power, the market is small and niche for the time being.
Q3FY23 performance: Nykaa Fashion GM declined because of adverse mix of own brands. Own brands on third party platforms grew much faster and the related adverse mix impacted GM. There is also seasonality in the business and 9MFY23 margins aren’t different from 9MFY22 margins.
Fashion segment: The company is investing in building a differentiated proposition, with curation of hidden gems, global store, and private labels. Per the management, Myntra does well because private label forms a decent part of GMV; product-market positioning also helps Myntra get customer loyalty. ‘House of brands’ portfolio expansion is a step in that direction for Nykaa as well. Nearly 50 per cent of own brand portfolio is being sold in third party portals. The company wants to get the right product at right price point with JIT inventory model. ‘Nykd’ lingerie brand has done well. Nykaa’s Pink sale was a success on both platforms. Upper funnel focus is more important in fashion vs BPC as the customer base is higher.
FY2023 catch-up. FY2022 witnessed lower capex and ad-spends. A lot of catch-up of customer acquisition spends as well as capex such as that on warehousing and office spaces have been incurred in FY2023 and these are unlikely to recur in the near term. Conversions for Nykaa are up to 1 per cent from 0.8 per cent and this is a key indicator of platform success. Tech will be deployed more aggressively to drive up customer retention, personalization and lower returns.
ONDC: The company highlighted that Nykaa owns the consumer and it is unlikely that this consumer is lost to ONDC. Joining ONDC is optional and Nykaa is still evaluating whether it would join ONDC.
Tata Power
Coal: The management highlighted that Tata Power saw strong contribution from its coal companies owing to elevated coal prices, with Q3FY23 revenue, Ebitda and PAT of Rs 5200 crore (up 45 per cent YoY), Rs 1,100 crore (down 25 per cent YoY) and Rs 950 crore (up 59 per cent YoY), respectively. Consequently, the share of profit from associates increased to Rs 1,000 crore in Q3FY23 from Rs 660 crore in Q3FY22, but lower than Rs 1,200 crore in Q2FY23. However, prices of imported coal have dropped to $232 per tonne in Q3FY23 from $320 per tonne in Q2FY23.
Maithon: The management highlighted that Maithon reported revenues of Rs8.1 bn in 3QFY23. It stated that the increase of 21 per cent YoY was primarily due to the +16 per cent YoY rise in unit sales during the quarter, with 4 per cent growth in realizations. Margins improved to 25.5 per cent.
Tata Power Solar: Tata Power Solar’s revenues rose 26 per cent YoY to Rs 1,430 crore, but declined 8 per cent QoQ, with the Ebitda margin declining to 7 per cent (versus 10 per cent in 3QFY22 and 11 per cent in 2QFY23). Tata Power’s solar rooftop revenues were robust at Rs 530 crore (up 41 per cent YoY, down 7 per cent QoQ). It currently has a capacity of 1 GW (~4.5 GW total market size). Management stated that the company currently has an order book of Rs14 bn, and plans to increase revenues from its solar rooftop segment to Rs 10,000 crore (from the Rs 2500 crore annual run-rate now) by FY2027, as it reaches a capacity of 2.5-3.0 GW.
Renewables: Tata Power highlighted that PLFs for its solar plants were stable at 23 per cent, whereas PLFs for wind plants weakened. Management stated that the installed capacity increased marginally to 2.85 GW in Q3FY23, with solar capacity standing at 2.07 GW and wind capacity at 0.78 GW.
Mundra: The company stated that it is yet to reach any agreement with the states on the Mundra power plant, which is currently operating at very low capacity (10-15 per cent PLF, as of January 2023). However, it believes that the Section 11 order (from last year) could be implemented again, as the power demand increases in the summer season.
Long-term guidance: The management expects renewables, thermal power and T&D to contribute 50 per cent, 15 per cent and 35 per cent of profits over the next 4-5 years (versus FY2022 contribution of 22 per cent, 50 per cent and 28 per cent, respectively). Accordingly, 80 per cent of its ongoing capex is toward renewable power generation. Tata Power’s AT&C losses have declined to ~26 per cent levels from ~45 per cent earlier, better than its own expectations and largely in line with the government’s target. It has reduced its net debt-to-Ebitda level to 3 times from 6 times over the last few years, and would target to keep it below 3.5 times going forward.
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