CP | Dalal Street

Infosys from Technologies to a BPO Company

July 25, 20071 min read

Infosys Technologies Ltd has signed a multi-million dollar outsourcing contract with Royal Philips Electronics of Netherlands. As part of the agreement, Philips will enter into a multi-year contract with Infosys BPO to provide finance & accounting (F&A) services and the processing of purchasing orders.

The company will also acquire three shared service centers located in India, Poland and Thailand from Philips. The contract is amongst the largest finance & accounting BPO engagements from India and will expand the company’s global network, particularly strengthening its European operations.

The deal extends the company’s global network with new centers in India, Poland and Thailand. The company will gain approximately 1,400 Philips professionals who will add to the company’s BPO team a wide range of valuable skills and abilities, which include diverse language capabilities, technical expertise and domain knowledge.

Infosys is desperate to do any business now. LOL. Why can’t they expand high margin Infosys Consulting [Min. $100+ / Hour / Consultant] rather than doing stupid BPO deals.

Economy, Markets and Macro Views

Indian Hotels + Leela Venture – BUY

July 25, 20073 min read

In an exclusive report released just few minutes ago by Citigroup analysts on the Indian Hotels Sector, they continue to be bullish on Indian Hotels [Taj] and Hotel Leela Ventures and a HOLD on EIH India Ltd[Oberoi Hotels].

Indian Hotels Company Ltd [Taj]:
Indian Hotel (IHC) is the top pick with target price of Rs187 based on 21x Sept ’08E P/E (vs. 22x FY08E P/E) to factor in risk of increased room supply; but given scale, stronger earnings growth visibility, IHC’s pan-India presence, it is expected to trade at premium to the sector (16x).

Expansion Plans:
Plans to add six hotels (1,656 rooms) to the portfolio over FY08-10E – key being in Bangalore, Mumbai and Hyderabad. Besides this, IHC plans to increase number of ‘Ginger’ hotels to 30 by FY09-10E, up from eight now. Further tied up for management contracts in domestic (2,055 rooms) and international markets (584 rooms); all should be operational by FY08-11E.

Hotel Leela Ventures Ltd:
Stock Upgraded to BUY with 1M Rating [Medium Risk]
65% earnings growth, vs. 38% for the sector, in FY08E with additional rooms operational in Mumbai and Bangalore (ahead of supply in mid-2008); and 2) the stock’s 22% underperformance vs. the Sensex over the last three months. Our lower target price of Rs62 is set at 18x Sept 08 P/E, and offers 23% upside potential.

Expansion Plans:
Leela has capex of Rs19.5bn for building hotels over FY08E-11E, key locations being: Udaipur, Chennai, Pune, Hyderabad and South Delhi (recently acquired three acres at Rs6.1bn, this is a concern for ROCE, in our view).

The stock is currently trading at 15x Sept 08E P/E, at discount to sector’s 16x. With strong earnings growth momentum and the stock trading at lower end of its two-year historical P/E band of 16-25x.

EIH India Ltd [Oberoi Hotels]
Citi downgraded EIH to a Hold/Low Risk (2L). While earnings growth is still strong for FY08E, with stock up 13% over last 4-months, upside appears limited at 11% even at a price target of Rs.115 based on lower target multiple of 19x Sept’08E P/E, at 19% premium to sector valuations.

With the stock already trading at 17.5x Sept’08E P/E, at a premium to sector valuations of 16x, much of the 33% earnings growth of FY08E is priced in.

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Equity Research

Buy Electrochem – HDFC Sec

July 25, 20072 min read

HDFC Securities Research team has put a BUY Recommendation on Electrochem India with a potential upside of 50% in 15-18 months.

The core business of Electrotherm India Ltd (EIL) includes manufacturing induction furnaces required by the steel & forging industry (employing electric furnace route and not blast furnace route) and project engineering. EIL has taken initiatives to integrate forward by manufacturing major categories of steel including construction, structure/ alloy and stainless steel. EIL has set up a sponge iron unit in Kutch as a part of its backward integration measure to manufacture steel of all grades. To reduce its power cost, EIL has also setup a 30MW power unit in Kutch. The company had implemented a show case steel plant in Kutch, Gujarat.

Valuation and Recommendation:
EIL’s sales to grow at a CAGR of 41.4% over the next two-year period. The EBIDTA margins are likely to remain in the range of 14-15%. The EPS growth could be of 37% CAGR over the next two periods. We have assigned combined valuation of engineering and steel industry to EIL and expect it to command an P/E ratio of 9.5x in FY09 (E). The stock is currently available at a P/E ratio of 5.5x FY09 (E) earnings of Rs 89.2. HDFC recommends Electrochm India Limited as a compelling BUY with a price target of Rs 847 in the next 12-15 months.

Breaking Corporate India Earnings News

Mindtree posts weak results

July 25, 20071 min read

MindTree Consulting Ltd just a while ago announced its results. PAT is down QoQ from Rs 24.5 crore for quarter ended March-07 to Rs 20.6 crore for the quarter ended June-07. Revenues were also disappointing and were marginally higher to 161.5 crore.

The stock is facing heavy selling pressure and is down 4% to Rs 702 on the NSE.

India IPO Reviews and Updates

IVR Prime Urban Developers – Dangerous Issue.

July 24, 20072 min read

We have carefully analyzed the Public Issue offering of IVR Prime Urban Developers and recommend value investors to AVOID the issue.

IVR has just completed one Residential project in Hyderabad. Cushman & Wakefield had valued projects using net present value of the projects in the range of Rs 4998.4 crore and Rs 5524.6 crore after deducting the developers margin, the net present value of the land reserves was between Rs 2889.8 crore and Rs 3194 crore. The per share value after deducting the developers margin works out to Rs 450-Rs 498 per share.

Consolidated FY 2007 EPS on post-issue equity works out to Rs 3.3. At the offer price band of Rs 510 – 600, the P/E range is 155-182.4, respectively. Comparable listed player according to size Ansal Properties and Infra is currently trading at 24.7 times its consolidated recurring FY 2007 earning. Nearest location-wise comparable company Sobha Developers is trading at 41.6 times its FY 2007 earning.

We recommend VALUE Investors to BLINDLY AVOID the IPO of IVR Prime. Fundamentals of the market will return and this Bull Market and Party won’t last forever. Don’t commit your hard earned money to worthless promoters and fly by night operators. Please don’t be tempted by Listing Gains or whatever stories your broker tells you. Stick to Fundamentals and Stick to Diversified Folio. You will make lot of money in the long run.

India IPO Reviews and Updates

Zylog Systems – Review and Recommendation

July 24, 20071 min read

Zylog Systems is promoted by first generation entrepreneurs Sudarshan Venkatraman and Ramanujam Sesharathnam. It is a global services provider with major focus on application development and integration including web application, web services, application integration, business Intelligence, data warehousing and mobile and wireless applications; enterprise infrastructure management and quality assurance & testing.

Zylog is a very small company 1/15th the size of Infosys. The company has business concentrations in the same verticals as Infosys does.

Current Offer:
36,00,000 Equity shares within the price band of Rs 330 to Rs 350 aggregating mere Rs 126 crore.
Fully Diluted Equity Post IPO = 1.65 Crore Equity Shares of Rs 10 each.

Valuations:
At the price band of Rs 330 – Rs 350, FY 2007 EPS (on post-issue equity) of Rs 33.2 is discounted 9.9-10.5 times.

The stock looks reasonably valued and leaves good scope for appreciation. Since the issue is very small, Investors who are lucky and have chances of allotment can blindly subscribe to the IPO. Even the fate of Rs 100,000 application will be decided by lottery. The stock will be easily listed upwards of Rs 525 as the Grey Market Premium is upwards of Rs 150.
Good Luck!!!

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