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ICICI Securities Report
‘Cloudification’ and ‘Digitalisation’ had almost become synonymous with Covid-19.
Expectations of a material and permanent increase in growth/profitability of the industry factor-in aggressive assumptions around -
1. incremental monetizability of these technologies and 2. irreversible change in human behaviour.
Prior hyper-disruptive events (e.g. Spanish Flu, SARS, demonetisation) and current mobility trends present a contrasting evidence.
Hype aside, our analysis suggests Covid-19 can at best drive approximately 150 basis points growth acceleration over FY22-FY23.
If work-from-home is perpetuated, consensus expects material margin tailwinds.
But, we believe otherwise given our concerns around possible proliferation of talent as a service model.
For bottom-up investors, the sector presents interesting opportunities of growth/profitability improvement led by micro factors.
Fair valuations should be at least approximately 40% higher (versus pre-Covid-19) as investors rethink discount rates, growth horizons and terminal growth.
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