Month: October 2007

TCS reported good 2QFY08 results – revenues grew 10.8% qoq to $1.42b (our exp: $1.38b) and EBITDA margins at 26.3% (exp: +26.1%) were up 80bp qoq. Net profit for Q2 was Rs12.15b (exp: Rs12b). Volumes in the international business were up 9% qoq.

TCS reported another quarter of pricing increase – realizations improved by ~85 bp qoq. Offshore proportion of revenues increased by ~190bp qoq. Pricing increase and higher offshore proportion resulted in margin expansion despite INR appreciation.

Management remains confident of strong deal flows and improved client mining over the next few quarters. Pricing trend continues to remain positive with 5-8% hikes in new deals and 3-5% hikes in renewals.

Kotak Research expects EPS growth of 22% YoY for FY08 at Rs.51.5. FY09 EPS has been
estimated at Rs.60. The rupee is assumed to be at Rs.38.50 per US dollar by FY09 end. BUY TCS with a price target of Rs.1297, implying a P/E of about 22x on FY09 estimates.

Citigroup Researach estimates a fully diluted EPS of Rs 51.55, 62.65 for FY08 and FY09 respectively. Target price of Rs1,460 is based on a P/E of 24x FY09E EPS, derived from a 4% discount to our target 25x FY09E EPS for Infosys.

Motilal Oswal revised EPS estimate of Rs51 and Rs61.8, the stock trades at a P/E of 21x FY08E and 17.4x FY09E respectively. Valuations at 17.4x FY09E earnings offers room for upside. Maintain Buy with a target price of Rs1,360.

CLSA expect underperformance to continue for some more time. Current 16-18% EPS Cagr for FY07-10 remains the key drag on the stock. CLSA has set a price target of Rs 1,135 for the stock.

DSP Merill Lynch says the stock is attractively valued and has a Price Objective of Rs1360 to Rs 1480 is at a rolling forward multiple of 20x 12 months earnings ended Sep 09 at a 10% discount to Infy’s median PE or an implied FY09e target multiple of 21x.

Monnet Ispat and Energy’s (MIEL) Q2FY08 results were better than expectations due to greater-than-anticipated increase in ferro alloy sales volume and realisation. Sales volume of ferro alloys increased 70% Y-o-Y and 10% Q-o-Q. Net revenue, EBITDA, and net profit grew 92%, 45%, and 36% Y-o-Y, respectively, led by higher sales volume in sponge iron and ferro alloys and improved sales realizations across all products (sponge iron, steel, and ferro alloys).

Key disappointments were in terms of: (i) lower-than-expected sponge iron production, which at 118,081 MT was 14% below our expectation; and (ii) the second captive power plant not commencing in September 2007.

At CMP of INR 390, the stock is trading at an EV/EBITDA of 8.0x FY08E and 5.6x FY09E, and P/E of 9.5x FY08E [Rs 41 EPS] and 6.8x FY09E [Rs 57 EPS] on a fully diluted basis.

The strong infrastructure spending will boost demand for steel, which will lead to higher sponge iron demand in the near future. The surge in demand for sponge iron led to a rise in prices by 50% over the last two years. Expect demand in India to witness 12-14% CAGR over the next five years and prices are likely to rule firm.

TSIL in FY07, increased its sponge iron capacity to 0.39mn tons with the addition of a third kiln of 0.15mn tons. Improving capacity utilization should lead to higher production by 18% and 10% in FY08 and FY09 respectively. Expect it to expand its operating margin to 23.4% and further to 26.1% in FY08 and FY09 respectively. TSIL’s strategic tie up with Tata Steel secures its future iron ore requirement. 100% of TSIL’s iron ore demand is met by ore mined from Tata Steel’s Khondbond Mine, Orissa.

TSIL should post revenue and profit CAGR of 36.4% and 78.6% over FY07-09E respectively. At the current price it trades at 7.3x and 5.6x FY08E and FY09E EPS of Rs33.8 and Rs44 respectively. Indiainfoline Research recommends a BUY with a price target of Rs286.