Adani Power shares jump 3% as GQG Partners, others invest $1.1 billion for 8.1% stake in Gautam Adani-led firm The share price of Adani Power jumped 3.08% in trade to trade at Rs 288.5 apiece on Thursday as GQG Partners and other investors bought an 8.1% stake in the firm for a total consideration of $1.1 billion on Wednesday. In the largest capital market equity transactions with GQG, 31.2 crore shares changed hands for a consideration of Rs 279.17 per share. The two Adani family entities that offloaded their shares were Worldwide Emerging Market Holding and Afro Asia Trade and Investments. Adani Power shares closed at Rs 279.30 on Wednesday, dropping more than 2% from Monday’s closing price, resulting in a total market capitalization surpassing 1.07 lakh crore. From its 52-week low, the stock has seen an increase of over 100%. Previously in June, GQG Partners undertook their third tranche of investment in the group, investing around $1 billion in Adani Enterprises and Adani Green Energy. GQG first committed Rs 15,446 crore in March for stakes in four group companies – Adani Ports and Special Economic Zone, Adani Green Energy, Adani Transmission, and Adani Enterprises. This was done shortly after the Hindenburg Research report was released, when the market capitalization of the companies was hovering near 52-week lows. The sale reflects the fundraising attempts to trim the promoters’ debts, especially after the Adani Enterprises follow-on public offer was called off in February. Paying off their debts will release the promoter share pledges, leading to lower leverage and additional capacity to acquire funding to fuel the conglomerate’s growth, expansion and capex plans.
Services miss estimates; Software better than expected: Services business grew 0.6% q-o-q cc and missed HCLT’s Q3FY23 guidance, mainly due to a 3.8% q-o-q cc decline in the ER&D segment. Growth in the IT&BS segment moderated slightly to 1.6% q-o-qcc but was in line with estimates. BFSI and Life Sciences were the key growth drivers, while communications were the drag among verticals. Growth was led by the Americas region, while Europe and ROW posted declines.
Decline in bookings reflects delays in decision-making: HCLT won 10 large deals in services and three large deals in Software with net-new deal TCV of $2.1bn, down 8% y-o-y. Deal wins were driven by the services portfolio, were centered on cost optimisation and vendor consolidation and came mainly from BFSI, manufacturing and Life Sciences verticals. Management highlighted a ramp-down in discretionary spending in Hitech and communications verticals but pointed to a strong deal pipeline.
FY24 guidance in line with expectations: HCLT has guided for 6-8% y-o-y growth for overall business and 6.5-8.5% y-o-y cc growth in services segment and 18-19% margins in FY24—all in line with our assumptions. We maintain our FY24-25 cc revenue growth and margin estimates and expect HCLT to deliver 6.5% cc revenue growth and 18.4% margins in FY24. However, we lower our earnings forecasts by 2% to factor the higher tax rate indicated by the management.
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Raise PT: HCLT has fared better in Q4, particularly in North America and BFSI, unlike its peers. However, rising demand uncertainty as a US recession nears remains a concern. HCLT’s stock at CMP trades at 17x PE and offers a 5% yield, which in our view should limit downsides and derating. Hence, we raise our target PE to 17x (16x earlier) and raise our PT to Rs 1,125, offering 8% potential upside.