Artificial intelligence is not the future. It is present.
Yes, AI has taken over reality, and its applications have grown to such an extent that now everyone across the world,
from students to working professionals, from housewives to CEOs, are using AI in their daily lives.
Do you use AI tools often? And for whom do they do it? Tell us in the comments.
Let's see how much craze our audience has about AI.
AI tools in particular have come into prominence in 2023 such as ChatGPT, Google Bard, Microsoft Bing AI, Midjourney, and DAL-E2.
All these tools have become an important part of our life, but due to these tools, people are also afraid of losing their jobs.
Well, that is a separate debate, which I will do some other day.
All I have to say is that Artificial Intelligence or AI is a reality that we cannot deny now.
Millions and billions of dollars are being invested in AI worldwide.
And in such a situation, the companies which are in front of this space will benefit the most.
Take American software and GPU chips designer Nvidia.
Many powerful artificial intelligence algorithms are powered by their high-performance chips,
and as the AI boom began, NVIDIA's stock was the most obvious choice for investors to take advantage of the opportunity.
And what was the result? NVIDIA stock is down 200% since the start of 2023.
This is what happens when the whole world becomes bullish about an industry or a theme.
Companies operating in the US space also automatically attract interest.
So today I will tell you 5 such Indian stocks which are working in the AI domain in one way or the other.
Of course, there are no pure AI product-based companies in the Indian listed space.
But our team has tried to identify companies that either provide AI services or apply AI in their products.
We have selected only those stocks.
We will cover the last company which has given the highest returns in the last 6 months.
We have considered the closing prices of 26 June 2023 for 6 months' returns and the rest of the financials.
So let's start today's list.
Tata Elxsi is an ER&D ie Engineering Research and Development company.
It provides its design and technology services in sectors such as Automotive, Broadcast & Communications, and Healthcare.
Tata Elxsi's share price has gained 16.77% in the last 6 months.
The company operates in two segments a) Software Development & Services, and b) System Integration & Support.
You can further divide the software development and services segment into two segments.
EPD stands for Embedded Product Design and IDV stands for Industrial Design and Visualization.
In this, the company provides technology consultancy, new product design, development, and testing services to clients in sectors.
Through the IDV segment, the company provides services such as consumer research and strategy, branding, and graphics,
product design, service design, user experience design, transportation design, 3D prototyping, and visualization to its clients.
Tata Elxsi is working on driver behavioral insights using AI and analytics.
Their TataElxsi Driver Intelligence Service is a smart, scalable, and lightweight solution through which they provide this service.
All the OEMs in the auto segment i.e. Original Equipment Manufacturers are also showing a lot of interest in it.
In addition, the company provides AI-based video analytics services to the broadcast and media industry.
In the financial condition, the company's revenue compounded by 17% in the last 10 years and the profit compounded by 32% CAGR.
And on a TTM basis i.e. in the last 12 months, Tata Elxsi's sales and profits have grown by 30% and 41% respectively.
Herein lies the beauty of an ER&D business.
The EV revolution, self-driving cars, etc. are underway in the automobile sector, benefitting all the players associated with this industry.
Coming to the risk side, here too the majority of the company's revenue comes from the western markets.
India has generated only around 17% of its revenue.
Another watchable aspect of the company is the revenue concentration of its top customers.
Their top 5 and top 10 customers contributed 39.5% and 48.1% of their revenue.
If the company loses any of its top customers, its revenue and profits can be affected.
Now we will discuss the financial ratios of Tata Elxsi with the third stock as that company also serves in the automobile industry.
That's why we will analyze both numbers together.
The next company is Persistent Systems Limited.
Founded in 1990, it is a global software solution and tech innovation company that helps its clients technologically transform and modernize its operations.
Over the last 33 years, Persistent Systems has established its brand in the field of Digital Engineering and Enterprise Modernization.
Persistent System's share price has gained 25.38% in the last 6 months.
It has pre-built software and frameworks through which the integration process into the clients' systems becomes very quick.
The company caters to high-profile and influential clients in sectors such as tech, banking, healthcare, and life sciences.
The company has partnered with major IT giants such as AWS, IBM, Salesforce, Microsoft, and Google.
The company primarily operates in 3 segments:
The company provides highly customizable and powerful solutions to its clients by leveraging its industry-leading AI capabilities.
In addition, their conversational AI platform also helps in increasing customer engagement through chatbots.
These chatbots provide personalized communication, by deploying Natural Language Processing and Machine Learning techniques
in real-time across multiple languages and channels.
Persistent Systems has consistently increased its profits and sales over the years.
In the last 10 years, the company has grown its sales at 20% CAGR, while profits have grown at 17% CAGR.
And in the short term, Persistent's growth is even more rapid, with a 3-year sales CAGR of over 33% and profit CAGR of 41%.
In addition, the company has also reduced the concentration of its customers in a few quarters.
This has probably been possible because they have got a chance to increase the number of their customers.
Large customers are those customers that contribute more than $5 million to Persistent Systems' annual revenue.
Now, the more large customers you add, the company's revenue will grow relatively more,
this will not only reduce dependence on a few of your top customers but also reduce revenue concentration.
However, a major risk for Persistent Systems is the high geographic concentration of any IT company.
78% of the company's target revenue comes from North America and Central America.
If the economic slowdown there continues to intensify, it could continue to adversely affect business.
Let us now look at some key financial numbers of Persistent Systems, and compare them with its listed peers Mphasis and L&T Technology Services Ltd.
In terms of valuations, Persistent Systems is trading at a premium to Emphasis and L&T Technology Services.
Only three companies are giving close competition to each other in terms of ROE.
Persistent has an ROE of 25.32, Mphasis has an ROE of 22.02 and LTTS has an ROE of 25.67.
In terms of stock market returns, Persistent has beaten its peers in both 1-year and 5-year periods.
Now let's talk about today's next stock name KPIT Technologies Limited.
The last decade has seen many advancements in the automotive industry such as Advanced Driver Assistance Systems (ADAS) and Autonomous Driving Solutions (ADS).
Advanced driver assistance systems sense the environment around the car using sensors and cameras,
and use the USS information, automate tasks, then relay instructions to the driver for relevant action.
And when this action happens without any human intervention, they are called autonomous driving solutions.
And rapid advances in artificial intelligence have played an important role. We can also call autonomous vehicles AI in action.
KPIT offers exactly these services to its customers.
From Autonomous Driving and ADAS to Vehicle Diagnostics, AutoSAR, Vehicle Engineering & Design,
and Digital Connected Solutions, KPIT provides digital and AI-based solutions to automobile OEMs.
The KPIT share price has gained 54.50% in the last 6 months.
KPIT enables its clients to accelerate the implementation of next-generation mobility technologies
and holds expertise in Embedded Software, Artificial Intelligence, and Digital Solutions.
KPIT has development centers in Europe, the USA, Japan, China, Thailand, Brazil, and India.
KPIT is a technology-intensive company where Research & Development plays the most important role in their business.
And that is why it has strategically set up its subsidiary KPIT GmbH in Germany – the hub of auto OEM giants,
to promote the best of innovations and technologies in the futuristic mobility space from there.
KPIT's distinctive offerings and strong relationships with top global automotive OEMs have been instrumental in building its healthy operational profile.
As you can see, KPIT has achieved 11 consecutive quarters of steady revenue and operating profit growth.
In challenges, technological dynamism, and dependence on niche customers have exposed the company to revenue concentration risk
In FY23, KPIT generated 82.5% of its revenue from its top 21 clients.
A slowdown in the auto segment or a decline in technology spending by KPIT's customers is impacting the company's revenue.
Also, due to the increase in the working capital of KPIT in Q4FY23, their net cash has decreased as compared to Q3 FY23.
And this can be risky for a stock trading at high valuations like KPIT.
I am saying this because the valuation of any company is linked to its cash flow.
When working capital increases, the business has less free cash flow.
And when free cash flow is low, the market tends to use it negatively, especially in stocks with high growth and premium valuations.
Some of the components of working capital are
and all of these are combined to increase the cash flow of a business.
Let us now compare the financial position of KPIT and Tata Elxsi.
While both companies are trading at premium valuations, KPIT is trading at a premium to Tata Elxsi in relative terms.
In terms of ROE, Tata Elxsi is getting beaten by KPIT by a pretty good margin.
While Tata Elxsi has an ROE of 41.07, KPIT has an ROE of 25.87.
Now let's talk about today's fourth AI stock whose name is Zensar Technologies Limited.
Zensar Technologies is a part of RPG Enterprises Group.
Zensar today has an 11,500-employee-strong workforce
spread across 30+ global locations including Milpitas, Seattle, Princeton, Cape Town, London, and Singapore.
Zensar Technologies' share price has gained 76.66% in the last 6 months. Zensar had bet on AI in 2019 itself.
The company offers its AI-based services in the insurance sector.
Zensar provides FNOL (First Information Loss) and a self-service app based on AI.
Zensar has integrated this app with functionalities using AI providing risk assessment and seamless claim settlement service within minutes.
This significantly reduces the turnaround time in the overall claims cycle.
Zensar provides a broad range of services,
like digital engineering, application management, application transformation services, and offerings such as AI and machine learning.
Zensar caters to the hi-tech and manufacturing industries, BFSI ie Banking and Financial Services, Insurance, and Retail and Consumer Services sectors.
Hi-tech and manufacturing industries contributed 39.2% to the combined company's revenue in FY23,
followed by banking 18.2%, insurance 16.5%, consumer services segment 17.8%, and emerging services 8.1%.
A positive for the company is its growing order book.
The company had an order book value of 174.9M in Q4FY23, which grew by 34% QoQ.
As you can see, the company has bagged some significant orders in Q4FY23.
In challenges and risks, there is, of course, geographic concentration, with more than 70% of revenue coming from the US
Moreover, the company is yet to take its business into a strong growth phase.
Their sales and profit growth numbers have remained in the single digits for the past several years.
Zensar's financials will discuss with the next company only.
Let's move towards today's 5th and last company whose name is Cyient Limited.
Cyient Ltd. is an Indian multinational technology company, providing services related to-
An interesting point about its business is that it provides its specialized product and process engineering services in sectors
such as aerospace and defense (A&D), communications, transportation, and semiconductors.
The share price has gained 78.68% in the last 6 months.
Applications of AI are happening today that we cannot even imagine.
Just imagine regulatory bodies and companies with so many people who have to double-check the documents of other companies.
And Cyient, with its CyARC solution, makes regulatory operations simpler and faster by using AI technology and robust algorithms.
With the help of CyARC, the company automates much of what it offers to its customers, reducing their costs by almost 40%.
Not only this, there is a 40% saving in their execution time as well.
Costs Decreased, Efficiency Increased, and Time Saved!
In addition, the company's CyFAST is a framework that helps test multiplatform apps, simulators, and embedded devices.
It has a cognitive engine that automatically analyzes changes and helps in automatically selecting test cases and makes test plans
This also helps in reducing execution time and cost savings for the company's customers.
Cyient Ltd. recently acquired IPO Cyient DLM,
This will allow it to expand its systems integration and prototyping capabilities to engineering services
and provide its customers with an end-to-end solution from design to production.
For these reasons, Cyient Ltd. maintains strong relationships with industry leaders
such as Raytheon Technologies Corp., Bombardier Inc., The Boeing Company, British Telecommunications Plc., and TeleAtlas.
And we see this reflected in the company's order book as well, where 90% of their orders are repeat orders from their existing customers.
A key monitorable aspect for the company is its revenue concentration.
And that's not just in terms of geography, but also in terms of their end-user industry.
Geographically, 49.2% of the company's revenue comes from the US.
And by industry, 29.9% of the company's revenue in FY23 came from the transportation segment, and 28.7% from connectivity businesses.
Now any dynamic change or disruption in these industries or sectors can impact the revenue of the customers.
Let us now look at some key financial numbers of Cyient and Zensar.
On the valuation front, Cyient is trading at a premium to Zensar.
However, in terms of ROE, Cyient is doing much better than Zensar.
While Cyient has an ROE of 16.63, Zensar has an ROE of 11.57.
Looking at the stock market returns, Cyient Ltd has outperformed Zensar Technologies in both the periods for 1 year and 5 years.
With this, let's end today's video here.
Have you bought shares of any of these companies? Tell us in the comments.
Yes then according to you which are the other Indian companies that are working very fast in the space of AI?
If you want a detailed analysis of them too, then comment on their names.
Let me remind you that these videos are for educational purposes only, and are not a recommendation to anyone to buy or sell.
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