Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>On 6th May 2022, <a href="https://www.smartkarma.com/entities/larsen-toubro-ltd" target="_blank" data-smartkarma-citation="entities:2499:1" rel="noopener">Larsen &amp; Toubro (LT IN)</a>'s publicly-listed subsidiaries <a href="https://www.smartkarma.com/entities/mindtree-ltd" target="_blank" data-smartkarma-citation="entities:7297:1" rel="noopener">Mindtree Ltd (MTCL IN)</a> and <a href="https://www.smartkarma.com/entities/larsen-toubro-infotech-ltd" target="_blank" data-smartkarma-citation="entities:22778:1" rel="noopener">Larsen &amp; Toubro Infotech (LTI IN)</a> announced plans to merge.</li>
<li>I discussed this situation previously in <a href="https://www.smartkarma.com/insights/mindtree-lti-a-potential-us-20bn-indian-tech-merger-mindtree-could-outperform-lti" target="_blank" data-smartkarma-citation="insights:68634" rel="noopener">Mindtree-LTI: A Potential US$20bn+ Indian Tech Merger; Mindtree Could Outperform LTI</a> when the ratio was 0.66, expecting a scrip ratio north of 0.70.  </li>
<li>Below is a closer look at the details of the transaction and the outlook for the combined entity.</li>
</ul>


On 6th May 2022, Larsen &amp; Toubro (LT IN)'s publicly-listed subsidiaries Mindtree Ltd (MTCL IN) and Larsen &amp; Toubro Infotech (LTI IN) announced plans to merge.
I discussed this situation previously in Mindtree-LTI: A Potential US$20bn+ Indian Tech Merger; Mindtree Could Outperform LTI when the ratio was 0.66, expecting a scrip ratio north of 0.70.  
Below is a closer look at the details of the transaction and the outlook for the combined entity.


Mindtree-LTI: Merger Announced to Form India's 5th Largest IT Services Player

External broker reports(aggregated public sources), Motilal Oswal Financial Services Limited

Motilal Oswal

External broker reports(aggregated public sources)

Motilal Oswal Financial Services Limited

Motilal Oswal Financial Services Limited is an Indian diversified financial services firm offering a range of financial products and services. 

Content available is external broker reports authored by a third party outside the Smartkarma network and has been aggregated by an online aggregator through publicly available sources and is displayed by Smartkarma in this format for user's convenience and general informational purposes only. Content does not constitute investment or financial advice and Smartkarma makes no representation or warranty regarding its accuracy or contents. Original third party author retains all copyright and other proprietary rights in the content. Access or use of third party links not controlled by Smartkarma are at the user's own risk.

Equity Bottom-Up

<div><ul><li>Consulting acquisitions adversely impact capital allocation - <span style="font-size: var(--content-font-size);">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.</span></li></ul><div><ul><li>4QFY22 below expectation, 1QFY23 guidance weak - <span style="font-size: var(--content-font-size);">In 4QFY22, IT Services revenue in CC grew 3.1% QoQ, INR EBIT rose 2.7% YoY, and INR PAT was up 4% YoY.</span></li></ul><div><ul><li>Key highlights from the management commentary - <span style="font-size: var(--content-font-size);">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.</span></li></ul></div></div></div><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

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.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Wipro - Weak Growth and Margin Guidance to Cap Upside

External broker reports(aggregated public sources), Nirmal Bang

Nirmal Bang

A Relationship Beyond Broking

Nirmal Bang, one of the leading stock broking companies in India, caters to retail and institutional clients by offering them a range of financial products and services, including equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS.

Nirmal Bang is drawn from a diversity of professional backgrounds, and blend of experience, skill and dedication is shared with its clients. Nirmal Bang emphasizes adequate, thorough research local and world-wide developments, balancing these with the astute discovery of intrinsic values, synergies and growth. The aim is simply to help the investors to maximize their returns.

<div><ul><li>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.</li></ul><div><ul><li>EBIT margin for IT Services at 17% was in line. <span style="font-size: var(--content-font-size);">The large deal TCV for FY22 was US$2.3bn, which is lower than for 2HFY21.</span></li></ul><div><div><div><div><ul><li>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.</li></ul></div></div></div></div></div></div><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

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.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Index Rebalance

<ul>
<li>Today is the last day of the review period for the June review of the <a href="https://www.smartkarma.com/entities/s-p-bse-sensex-index" target="_blank" data-smartkarma-citation="entities:31494:1" rel="noopener">S&amp;P BSE SENSEX Index (SENSEX INDEX)</a>. Changes become effective at the close on 17 June. </li>
<li>We see <a href="https://www.smartkarma.com/entities/tata-motors-ltd" target="_blank" data-smartkarma-citation="entities:216:1" rel="noopener">Tata Motors Ltd (TTMT IN)</a> and <a href="https://www.smartkarma.com/entities/tata-motors-ltd-a-dvr" target="_blank" data-smartkarma-citation="entities:349:1" rel="noopener">Tata Motors DVR (TTMT/A IN)</a> replacing <a href="https://www.smartkarma.com/entities/dr-reddy-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:16406:1" rel="noopener">Dr. Reddy's Laboratories (DRRD IN)</a>. <a href="https://www.smartkarma.com/entities/hindalco-industries-ltd" target="_blank" data-smartkarma-citation="entities:18490:1" rel="noopener">Hindalco Industries (HNDL IN)</a> is a close add on sector balance.</li>
<li>The impact on <a href="https://www.smartkarma.com/entities/dr-reddy-s-laboratories-ltd" target="_blank" data-smartkarma-citation="entities:16406:1" rel="noopener">DRRD IN</a> will be higher than on <a href="https://www.smartkarma.com/entities/tata-motors-ltd" target="_blank" data-smartkarma-citation="entities:216:1" rel="noopener">TTMT IN</a>, in terms of days of ADV to trade and days of delivery volume that needs to change hands.</li>
</ul>


Today is the last day of the review period for the June review of the S&amp;P BSE SENSEX Index (SENSEX INDEX). Changes become effective at the close on 17 June. 
We see Tata Motors Ltd (TTMT IN) and Tata Motors DVR (TTMT/A IN) replacing Dr. Reddy's Laboratories (DRRD IN). Hindalco Industries (HNDL IN) is a close add on sector balance.
The impact on DRRD IN will be higher than on TTMT IN, in terms of days of ADV to trade and days of delivery volume that needs to change hands.


SENSEX Index Rebalance Preview: Tata Motors Should Replace Dr. Reddy; Hindalco Is Close

External broker reports(aggregated public sources), Emkay Global Financial Services Limited

Emkay

Emkay Global Financial Services Limited

Emkay Global Financial Services Ltd. is a leader in the financial services sector, actively creating wealth for our clients for over two decades. 

Content available is external broker reports authored by a third party outside the Smartkarma network and has been aggregated by an online aggregator through publicly available sources and is displayed by Smartkarma in this format for user's convenience and general informational purposes only. Content does not constitute investment or financial advice and Smartkarma makes no representation or warranty regarding its accuracy or contents. Original third party author retains all copyright and other proprietary rights in the content. Access or use of third party links not controlled by Smartkarma are at the user's own risk.

<div><div><div><div><ul><li>Deal rationale - The acquisition will enable Wipro to: 1) strengthen its SAP consulting capabilities; 2) leverage Rizing’s long-tenured relationship with SAP, strong GTM, co-run leads and customer referrals to drive revenue growth; 3) enhance its end-to-end capabilities in SAP EAM (SAP Enterprise Asset Management), HCM (Human Capital Management) and SAP for CI (Consumer Industries) through Rizing’s complementary services; 4) strengthen Wipro SAP focus industries of Retail &amp; Consumer Goods, Energy and Utilities; 5) expand its local presence in Australia, Canada, Germany and the US; and 6) expand presence in existing key accounts and access to F2000 clients by bringing deep consulting capabilities.</li><li>Deal structure and timelines- Under the deal, Wipro will acquire a 100% stake in Rizing for USD540mn in cash. The deal is expected to be completed by Q1FY23-end, subject to anti-trust and other regulatory approvals.</li><li>A brief profile of Rizing - Rizing, head-quartered in CT, USA, was founded in 2018 and is the holding company of Rizing Group.</li></ul><ul style="list-style-type: none;"><li><div><div><div><div><ul style="list-style-type: none;"><li> </li></ul></div></div></div></div></li></ul></div></div></div></div><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

Deal rationale - The acquisition will enable Wipro to: 1) strengthen its SAP consulting capabilities; 2) leverage Rizing’s long-tenured relationship with SAP, strong GTM, co-run leads and customer referrals to drive revenue growth; 3) enhance its end-to-end capabilities in SAP EAM (SAP Enterprise Asset Management), HCM (Human Capital Management) and SAP for CI (Consumer Industries) through Rizing’s complementary services; 4) strengthen Wipro SAP focus industries of Retail &amp; Consumer Goods, Energy and Utilities; 5) expand its local presence in Australia, Canada, Germany and the US; and 6) expand presence in existing key accounts and access to F2000 clients by bringing deep consulting capabilities.Deal structure and timelines- Under the deal, Wipro will acquire a 100% stake in Rizing for USD540mn in cash. The deal is expected to be completed by Q1FY23-end, subject to anti-trust and other regulatory approvals.A brief profile of Rizing - Rizing, head-quartered in CT, USA, was founded in 2018 and is the holding company of Rizing Group. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Wipro - Rizing Acquisition to Strengthen Wipro’s SAP Consulting Capabilities

India

Wipro Limited is an Indian multinational technology company that provides information technology, consulting, and business process services. Its offerings include digital strategy, cloud transformation, cybersecurity, data analytics, and artificial intelligence solutions across various industries. The company is headquartered in Bengaluru, India, and was founded on December 29, 1945.

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Wipro (WIT US)

Mindtree-LTI: Merger Announced to Form India's 5th Largest IT Services Player

Larsen & Toubro (LT IN)'s public-listed subsidiaries Mindtree Ltd (MTCL IN) and Larsen & Toubro Infotech (LTI IN) announced plans to merge. The...

Janaghan Jeyakumar, CFA

Wipro - Weak Growth and Margin Guidance to Cap Upside

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

Motilal Oswal

Wipro - Rerating in a Limbo?

In the last 2 years Wipro saw the highest PE rerating among Indian Tier-1 IT players under Thierry Delaporte, who became CEO amidst the pandemic,...

Nirmal Bang

SENSEX Index Rebalance Preview: Tata Motors Should Replace Dr. Reddy; Hindalco Is Close

Tata Motors should replace Dr Reddy at the June rebalance. Hindalco is an alternate add on sector balance. Passives will need to trade 4-7 days of...

Brian Freitas

Wipro - Rizing Acquisition to Strengthen Wipro’s SAP Consulting Capabilities

Wipro has agreed to acquire a 100% stake in Rizing Intermediate Holdings Inc. (Rizing), a global SAP consulting firm, for a cash consideration of...

Emkay

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