Sugar mills seek nod for 8 million tonne exports under OGL in next season Sugar mills have urged the government to allow exports of 8 million tonne (MT) of the sweetener under the open general licence (OGL) in the next season which commences on October 1. This, according to the Indian Sugar Mills Association (Isma), will help the sugar mills enter into future exports contracts well in advance prior to commencement of the season. Stating that it is time to review the current sugar export policy for next year since the current global prices are firm, a recent communication by Aditya Jhunjhunwala, president, Isma to commerce minister Piyush Goyal said advance exports contracts would result in better cash flows and payment to farmers in the next season. According to a food ministry statement last month, while the country’s sugar production in 2021-22 season is estimated at 35.5 MT after discounting 3.5 MT used for ethanol production. Out of 9 MT of sugar exports contracted, around 8.2 MT has been shipped. However, Isma has stated sugar mills had applied for additional 1.7 MT of exports, out of which orders were issued for only 800,000 tonne. “Almost 600,000-700,000 tonne of raw sugar is surplus and would lie idle with the mills or at ports if it is not exported. The mills now have no option to process it nor sell in the market. Export is the only viable option in the current situation,” Isma has stated. Stating that there is no possibility of spike in domestic sugar prices, Jhunjhunwala said that despite a record exports of more than 8.6 MT till end of May 2022, the all-India ex-mill average domestic sugar prices have hovered around Rs 33-35 per kg. Meanwhile, the directorate of sugar and vegetables oils under the food ministry has asked exporters to furnish details about those sugar consignments which were lifted from mills prior to May 31, 2022 and had not been shipped. In case of those consignments for which export release orders have been issued, exporters have to inform to the food ministry by Thursday. In sugar seasons 2017-18, 2018-19 and 2019-20, about 600,000 tonne, 3.8 MT and 5.9 MT of sugar was exported. The exports stood at 7 MT in 2020-021.
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.
Also read: MSME listing: How to migrate from NSE SME platform to main board? Check revised criteria
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.