TCS, Infosys, Angel One

RAJARSHI SHOME

19 Apr 202411:20

Summary

TLDRThe 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.

Outlines

00:00

📈 Growth and Challenges in IT Companies

The speaker discusses the financial results of two major IT companies, TCS and Infosys, focusing on the importance of growth in sales and revenue for stock performance. They highlight the challenges faced by large IT companies in maintaining significant growth rates due to their size. The speaker also critiques the companies' guidance, expressing skepticism about their ability to deliver on promised growth, especially when historical growth numbers are underwhelming. The summary emphasizes the need for investors to look beyond just cost-cutting measures and consider the overall growth potential of a company.

05:01

🚀 Angel One's Growth Strategy and Market Share

The speaker analyzes Angel One's business model and growth strategy, focusing on its sales growth, order volume, and client acquisition. They discuss the company's approach to expanding its market share through aggressive marketing and the use of technology platforms. The discussion includes the company's financial performance, particularly its profit after tax and how it compares to sales growth. The speaker also touches on the importance of operating leverage and how Angel One's strategy lacks this, which could impact its long-term profitability. The summary also mentions the company's recent capital raise and its implications for future growth and market share.

10:01

💼 Insights on Company Growth and Stock Recommendations

In the final paragraph, the speaker provides insights on company growth, emphasizing that investors should avoid companies that are not growing their sales. They use Angel One as an example of a company with good growth potential but also highlight the high costs associated with their growth strategy. The speaker compares Angel One's performance with TCS and Infosys, stating a preference for companies with proven growth records. They conclude by reiterating the importance of sales growth for stock performance and caution against investing in companies that are merely cost-cutting without a clear growth strategy.

Mindmap

Keywords

💡Growth

Growth in the context of the video refers to the expansion of a company's sales, revenue, or market share. It's a critical factor for investors as it indicates the potential for a company's stock price to rise. The video emphasizes that without growth, it's challenging for a company's stock to perform well. For instance, the speaker mentions that companies like TCS and Infosys have flat sales growth, which is a concern for investors looking for companies with expanding business.

💡Margins

Margins in the video pertain to the profit margins of a company, which is the difference between revenue and the cost of goods sold. The speaker discusses how companies like TCS and Infosys are expanding their margins despite flat sales growth, possibly by cutting costs. However, the video suggests that this strategy might not be sustainable in the long run as it could lead to a decrease in employee satisfaction or productivity.

💡Cost Cutting

Cost cutting is a strategy where companies reduce their expenses to increase profitability. The video mentions that companies that are not growing their sales might resort to cost cutting to show improved earnings per share (EPS) to shareholders. However, the speaker warns that this approach might not be beneficial in the long term as it could lead to a decrease in the quality of products or services and employee morale.

💡Operating Leverage

Operating leverage in the video refers to the ability of a company to use fixed costs to its advantage as sales increase. The more fixed costs a company has, the more leverage it has because a small increase in sales can lead to a significant increase in profits. The video contrasts companies with high operating leverage, like TCS and Infosys, with those that are growing rapidly and have less control over their costs.

💡Brokerage Business

The brokerage business discussed in the video is a type of financial service where brokers facilitate trades and investments for clients. The video explains that the success of a brokerage firm like Angel One is tied to the volume of trades, which is a volume-led business. The more trades, the more revenue the brokerage generates through commissions.

💡Client Acquisition

Client acquisition in the video refers to the process of attracting new customers to a company's products or services. The speaker highlights how Angel One is focusing on client acquisition by promoting its app and trading services, especially targeting the younger cohort. The company's growth strategy includes expanding its customer base, which is essential for increasing its market share and revenue.

💡Market Share

Market share in the video is the portion of the market that a company captures with its products or services. The video discusses how Angel One is aiming to increase its market share in the discount brokerage segment by targeting a younger demographic and offering digital trading platforms. The company's strategy to grow its market share is through aggressive client acquisition and expansion of its trading volumes.

💡Volume Growth

Volume growth in the context of the video refers to the increase in the number of trades or transactions a brokerage firm processes. The video mentions that Angel One has seen a significant volume growth, which directly impacts its revenue. The speaker explains that for a brokerage business, volume growth is crucial as it translates into more trades and higher revenue from commissions.

💡Profit After Tax

Profit after tax is the net income of a company after all expenses, including taxes, have been deducted. The video discusses how companies like TCS and Infosys show growth in their profit after tax, but this growth is not accompanied by sales growth, which raises questions about the sustainability of such profit growth.

💡Grandfather Stocks

Grandfather stocks, as mentioned in the video, are established companies that have been around for a long time and may not have the same growth potential as newer companies. The speaker suggests that while these stocks might be suitable for older investors looking for stable income, younger investors should look for companies with higher growth prospects.

💡Earnings Per Share (EPS)

Earnings per share (EPS) is a financial metric that represents a company's profit allocated to each outstanding share of common stock. The video discusses how companies might show an increase in EPS, even if their sales growth is flat, by cutting costs or improving operational efficiency. However, the speaker cautions that this might not be a sustainable growth strategy.

Highlights

Discussion about the Q4 results of two major IT companies and a brokerage company.

Emphasis on the importance of understanding business analysis and growth for investors.

Explanation of the concept that market money is made when companies show growth.

Analysis of the flat sales growth of TCS and Infosys, indicating a potential issue for large companies.

Historical growth numbers of TCS and Infosys compared to their Q4 results.

Concerns about the confidence in growth guidance provided by TCS and Infosys.

Discussion on the challenges of achieving significant growth for large, established companies.

Comparison of the growth and margin expansion of Infosys and TCS.

Critique of companies that show profit growth without sales growth, suggesting unsustainable practices.

The importance of sales growth for a company's stock performance.

Introduction of Angel One as a brokerage company with a strong Q4 sales growth.

Analysis of Angel One's business model focusing on volume-led growth in the brokerage sector.

Discussion on the importance of order volume growth and client acquisition for Angel One's business.

Angel One's strategy to penetrate the market by targeting young cohorts and digital engagement.

Financial analysis of Angel One's revenue streams, including trading volumes and interest income from margin trading.

Angel One's approach to client acquisition and the cost implications of their aggressive expansion strategy.

The potential for Angel One to capture market share and increase its trading volume, despite high costs.

Critique of companies that do not invest in growth areas or adequately compensate their employees.

Recommendation to avoid investing in companies that are not growing their sales.

Final thoughts on the results of Angel One, TCS, and Infosys, and a personal investment stance.