TCS, Infosys, Angel One

Summary

The video discusses the Q4 results of two major IT companies, TCS and Infosys, highlighting the importance of sales growth for stock performance. It critiques their flat sales and suggests investors avoid stocks without growth potential. The video then analyzes Angel One, a brokerage firm with impressive Q4 sales growth, discussing its business model centered around volume-led growth and the challenges of scaling without operating leverage. It concludes by advising viewers to invest in companies with proven sales growth, steering clear of those that merely offer value or increasing EPS without growth.

Takeaways

• 📈 The speaker emphasizes the importance of growth, particularly sales growth, for a company's stock performance.
• 🚀 The discussion highlights two large IT companies, TCS and Infosys, with flat sales growth, which is a concern for investors looking for expansion.
• 🌐 The speaker points out the challenge for large companies like TCS, which operates in 150 countries with over 5 lakh employees, to maintain significant growth rates.
• 📉 Historical growth numbers for these companies are mentioned, indicating a decline from previous quarters, which is a negative signal for investors.
• 🔍 The analysis suggests that companies with no sales growth might resort to cost-cutting measures, which is not a sustainable strategy for long-term growth.
• 💡 The speaker introduces Angel One as a brokerage company with a strong sales growth of 63% year-over-year, targeting the youth cohort and operating digitally.
• 📊 Angel One's business model is volume-led, meaning its revenue growth is tied to the volume of trades, making client acquisition and order volume crucial metrics.
• 📈 The company's strategy includes going village-to-village to acquire clients and promote its app for trading, which has resulted in significant client acquisition and order volume growth.
• 💼 The speaker critiques the lack of operating leverage in companies like TCS and Infosys, suggesting that without sales growth, their profitability cannot grow at the same rate as their costs.
• 💰 Angel One's results are praised for their growth, in contrast to TCS and Infosys, which the speaker vows never to touch due to their lack of growth potential.

Q & A

What is the main focus of the video discussion?

The main focus of the video discussion is to analyze the quarter four results of certain companies, specifically two IT companies and a brokerage firm, and discuss their growth prospects and financial performance.

What is the significance of sales growth for a company's stock performance?

Sales growth is significant for a company's stock performance because it indicates the company's revenue growth. Without growth in sales or revenue, it becomes difficult for the stock price to rise, as investors look for growth opportunities.

Why is growth important for large companies like TCS and Infosys?

Growth is important for large companies like TCS and Infosys because achieving significant growth rates becomes increasingly difficult as they already have a large base. Their size makes it challenging to maintain high growth rates, which can affect their stock prices and investor interest.

What does the term 'operating leverage' mean in the context of the video?

In the context of the video, 'operating leverage' refers to a company's ability to increase its profit margins as sales grow, given that a significant portion of its costs are fixed. Companies with high operating leverage can see their profits grow disproportionately faster than sales.

What is the issue with companies that are not showing sales growth?

Companies that are not showing sales growth may resort to cost-cutting measures to maintain or increase their profit margins. This can lead to a decrease in employee salaries or other expenses, which might not be sustainable in the long term and can harm the company's growth potential.

How does the brokerage business model of Angel One differ from traditional models?

Angel One's brokerage business model is volume-led, focusing on acquiring customers through their app and promoting trading activities. They aim to grow their business by increasing the number of clients and trading volumes, rather than charging high fees for services.

What are the key metrics to analyze when evaluating the performance of a brokerage firm like Angel One?

Key metrics to analyze when evaluating a brokerage firm like Angel One include order volume growth, client acquisition, and client turnover. Additionally, the company's ability to control costs while growing its market share and client base is crucial.

Why did Angel One recently go for an IPO, and what was the strategy behind it?

Angel One went for an IPO to raise capital for growth and expansion. The strategy behind it includes increasing their market share, enhancing their technology platform, and capturing more clients, which is evident from their focus on client acquisition and trading volume growth.

What is the importance of the 'mind share' in the context of Angel One's business strategy?

In the context of Angel One's business strategy, 'mind share' refers to the brand recognition and preference among potential customers. It is important because a strong mind share can lead to increased client acquisition and retention, which are key for the growth of a brokerage firm.

How does the video analyst view the future prospects of TCS and Infosys based on their recent results?

The video analyst is cautious about the future prospects of TCS and Infosys due to their flat sales growth and historical growth numbers. They suggest that investors should be wary of investing in companies that are not showing significant sales growth.