Indian Equity Research and Investment Strategy
ZIL [Zuari Industries Ltd] has been trading in a narrow range for the last 3 weeks and is showing signs of breaking out of the range. Further the short and medium term moving averages have converged around the current price and are moving up.
Current Price : Rs169
Target Price : Rs201
Upside : 19%
Here are the excerpts from TCS Analysts Meet. No slowdown in BFSI; Robust demand environment. TCS management reiterated its view on the pricing uptick being on track – new clients are coming at 5-10% higher price point. TCS indicated that deal flow remains strong and lot of smaller deals (US$20-50 mn) were being awarded by existing clients.
TCS is expected to report an EPS of Rs 53, Rs 63 and Rs 74 for FY08, FY09 and FY10 respectively. With dollar under severe pressure from Indian Rupee, we maintain a BUY target on TCS but with a lower price target of Rs 1550. 21% upside from current levels.
Tech Mahindra’s consolidated net profit (excluding exceptional items) surged 120% to Rs 196.1 crore compared with Rs 89.1 crore in the corresponding quarter of the previous financial year. Revenue surged 108% to Rs 874.5 crore compared with Rs 421.2 crore in the fourth quarter of the previous year.
The company incurred a one-time exceptional charge towards an upfront payment of Rs 524.9 crore to a customer and reported a net loss of Rs 328.9 crore in Q4 March 2007.
For the year ended 31 March 2007 (FY 2007), Tech Mahindra’s consolidated net profit, excluding exceptional and prior period items, at Rs 612.6 crore, registered an increase of 160% over the last financial year. Its consolidated revenues grew 136% and stood at Rs 2929 crore.
We expect Tech Mahindra to join the bigger league of IT companies this year and grow higher than Infosys and Satyam.
Merill Lynch [ML] is adding Firstsource to top mid-cap picks. ML forecast a 38% EPS
CAGR growth (post IPO dilution) over next 2 years led by a 44% CAGR revenue growth which has high visibility given the annuity nature of BPO. ML is correspondingly removing Sasken which is likely to see poor stock performance till key product shipments start in 2HFY08.
ML forecast 50% PAT growth and 38% EPS CAGR over the next two years. 44% revenue growth driven by mining of existing clients as well as inorganic moves like the partnership with US banking tech major Metavante and the recent BPM Inc. acquisition in Jan 07. Q1FY08 is likely to be seasonally weak given wage hike and continued ramp costs of Hutch / Vodafone, a 4000 person account.
FirstSource is trading at 25x FY08 PE and 17x FY09 PE which we believe is reasonable given the high 50% PAT CAGR over FY07-09. Moreover, BPO is a more nascent business with high growth potential and operating leverage and is a sticky and annuity business model.
Other top Midcap picks from Merill Lynch are IVRCL, Welspun India, Biocon and Panacea Biotech.
HDFC Ltd 4Q beat JP Morgan [JPM] estimates; Profit was 7% higher, mainly from better fee growth and a lower cost-to-income ratio. JPM raised May08 price target is Rs1,824, which implies 9% upside from the current price. JPM retained OW rating given firm business dynamics and defensive nature of the stock.
Subsidiaries add 30% to sum of parts: 56% of subs value from HDFC Bank, 31% from the life company, and 10% from the mutual fund. Stock catalysts are likely to be continued market share increases at the expense of competitors, as well as value unlocking in ICICI’s insurance holding company.
HDFC is expected to report an EPS of Rs 74 and Rs 90 for FY08 and FY09.
DalalStreet. Biz recommend a Blind BUY on this stock whenever their is a market correction. You can expect 25-30% returns YoY.
HSBC in a report released jus ta while ago is overweight on Hindustan Construction Company. They have set a price Target of Rs 125.
HCC declared their full year number with sales growth of 19% to INR23.6bn (vs HSBC
estimate of INR24.3bn). The PBT was up 20% yoy, however, higher tax rate (additional
INR220mn due to removal of 80IA benefit) has resulted in decline in a profit to
INR793mn (vs HSBC estimates of INR857mn). The lower sales growth has been due to
the excessive snowfall and rain at some of its project sites resulting in project execution delay. The net profit growth was impacted by higher staff cost (up 59%), higher interest (50%), and depreciation cost (up 52%, capex of INR3.8bn)
HSBC has reduced FY08e and FY09e profit by 11% and 7% to INR1.18bn and INR1.56bn respectively. HSBC reduced FY08e sales by 4% to INR30.7bn, while increasing the sales of FY09e marginally. HCC’s EPS is expected to be around INR4.6 and INR6.1 for FY08e and FY09e.