Observations while doing work to address the above points:
- All players are debt free as they make lot of operating cash with ‘Cash Conversion Cycle’ of around 2 months. Hence, good dividend payout is a norm.
- In the last 3Yrs, double digit sales/profit growth was norm. Profits growth was higher than the sales growth.Profitability with ROE of ~20% was common.
- ‘Employee Cost’ is the largest cost under expenses.
- Most of the players are scaling their capabilities by acquiring companies in their areas of interest. Hence, ‘Intangible Assets’ are considerable part of the Fixed Assets.
- Valuations are rich for all industry players on the fundamental parameters [P/S, EV/EBITDA, PE etc.].
For Tata Tech and KPIT, below point (rephrased) from Q4FY23 conf call of KPIT is pertinent:
What’s the genesis of this growth? Basic transformation undergoing in the mobility industry, especially in the automotive sector due to change in technology (electrification), business model change (one-time sale to stream of revenues coming from the vehicle sale) and the degree of electrification (consolidation of multiple ECUs in the vehicles). And the anticipation is that the OEMs will spend almost $40 billion every year, over the next five to seven years to make this transformation.
Data snapshot FYR:
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