Indian Equity Research and Investment Strategy
Nitin Fire Protection Industries has announced that Nitin Cylinders, a wholly owned subsidiary of the company has signed a MOU for the supply CNG gas cylinders to IRAN worth Rs 650 million. The execution of the order shall be done within this current financial year.
Further the plant of the company at Himachal Pradesh has started operation for manufacturing of fire protection equipments.
Wipro the IT company built on the model of differential wage is finding it hard to maintain margins post debacle of Dollar against the Indian Rupee. Growth is important and it is using its cash to acquire companies in FMCG space to IT and Business Consulting. Infocrossing has 900 employees in the US. [Will Wipro cut some staff or use them for different on site projects ? Currently Wipro, Infosys and MindTree have stopped Hiring and Training freshers for bench, which used to be the case earlier, indicating likely slowdown in Orders]
Kotak Research says, Wipro has announced an all cash acquisition of Infocrossing for US$600 mn (US$115 mn net debt and US$485 mn of equity). Infocrossing is a promising player in the IT data center and managed services operations. The acquisition is extremely expensive, the company has been valued at 2.6x ttm revenues and 14.5x EBITDA because of organic revenue growth of only 10-12% guided for CY2007 and single digit net margin.
The acquisition will likely dilute FY2008 EPS by 0.5% and FY2009 EPS by 0.8% on a non- GAAP basis. On a GAAP basis the FY2009 EPS dilution could be as high as 6%. Maintain Outperform but reduce FY2009 end DCF based target price to Rs 620/ share.
Update from Citigroup:
Citigroup in its research report after studying the impact of Wirpo’s acquisition has retained a BUY on Wipro with a target price of Rs 625.
Why it makes sense for Wipro to acquire Infocrossing ?
(1) Adds scale to IMS practice (~US$500 mn combined run rate for FY07); (2) Enhances Wipro’s offering in the total outsourcing space; (3) Adds to Wipro’s infrastructure in US with 5 data centers (~$250m of assets as per management estimate – $1000/sq ft); (4) Adds proprietary platform for integrated IT+BPO offering in healthcare segment.
Infocrossing adds to Wipro’s presence in IMS and enhances Wipro’s offering in the fast-growing Total outsourcing space. Visibility of telecom revenues is the key to the stock’s performance. Citi expects Wipro to report an EPS of Rs 23.37 and Rs 28.75 for Fy08 and FY09 respectively.
Here is the list of stocks Kotak Research has recommended in the past and they have followed up on the same. We are not comfortable with the entire list for variety of reasons – Management, Growth etc or our analyst may have not thoroughly studied the stock. The filtered list of stocks with Target price quoted by Kotak is as follows.
Buy small quantities of PNB, if you don’t have any, for really long term [5 years] and HOLD them tight.
Power Trading Corporation – PTC was recommended by ICICI Securities Research. In a follow up report they have reiterated a BUY with a price Target of Rs 96 within 3-4 months.
We had recommended Mphasis last month. Citigroup in a report released just a while ago has recommended a BUY on the stock with a price target of Rs 400.
Mphasis reported consolidated numbers (Mphasis + EDS India) after the merger with EDS India. Revenue at Rs.5.32b was up 6% qoq (up 14% in US$ terms) while net profit was Rs.513m (-19% qoq) – negative swing of ~Rs.145 qoq in forex line. Mphasis (ex EDS) reported revenues and net profits of Rs.3.55b and Rs.410m as against our expectation of Rs.3.54b and Rs.297m.
Target price of Rs400 is based on 24x FY09E EPS. We believe P/E remains the most appropriate valuation measure given Mphasis’ profitable record and high earnings visibility.
HDFC Securities in a Research Report has put a BUY recommendation on Wockhardt with a price target of Rs 570. Last week, we had reported that Citigroup also had a BUY recommendation on Wockhardt with a Price Target of Rs 530.
HDFC Securities is bullish on Wockahrdt’s prospects, especially in the European market where it is the largest Indian company. Currently, the company derives more than 50% of its revenue from the European market. It has also ramped up its US business by introducing a number of generic products here. Last year, its US business grew by more than 50% and is expected to perform extremely well in the next two years on the back of strong New Drug Applications which are in pipeline.
Wockhardt is also active in New Chemical Entity research. Its proprietary molecule, WCK 771 is currently in phase II. The company has started capitalizing on the opportunity offered by CRAMS (Contract Research And Manufacturing).
Wockhardt is expected to report an EPS of Rs. 35.1 for CY07 and Rs 43.9 for CY08. The stock currently trades at a forward PE of 10.6x and 8.5x respectively. The stock is trading at a steep discount to its peers. HDFC Securities recommends a BUY, with a price target of Rs 570 based on a PE of 13x on the CY08 expected EPS of Rs 43.9
Punj Lloyd has secured a Rs 590 crore contract for building a sulphur block at Bina Refinery of Bharat Oman Refineries at Bina, Madhya Pradesh. The lump-sum turnkey contract entails engineering, procurement, construction and commissioning assistance (EPCC) services and has been bagged amidst stiff International competitive bidding. Order Book of Punj Lloyd now stands at Rs 16,400 crore.
GMR Infrastructure announced during market hours today, 6 August 2007, that it had entered into a memorandum of understanding (MOU) with Tamil Nadu Industrial Development Corporation (TIDCO) for the development of a multi product special economic zone (SEZ) in the Krishnagiri District, Tamil Nadu. GMR Infrastructure reported a net profit of Rs 0.73 crore on sales of Rs 7.07 crore in Q1 June 2007. The current market price of Rs 816 discounts its Q1 June 2007 annualised EPS of Rs 0.09, by a PE multiple of 9066. We recommend a SELL on GMR Infrastructure.