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Equity Research

HSBC Bullish on HCL-Technologies

April 20, 20071 min read

HCL Technologies is now being re-rated by several research houses. HSBC upgraded the stock to BUY with a price target of Rs 350.

HCLT reported a better than expected Mar2007 quarter. HSBC raised revenue estimates for FY07-09, performance at EBIT level has been largely in line with estimates for 9mFY2007. Higher other income due to Fx gains drives better than expected net income in Mar2007 quarter.

Mar07 results: Revenues at INR15.7bn (+7.6%q-o-q, +40.6%y-o-y) were higher than expected. EBIT was at INR2.8bn (+15.3%q-o-q, +51% y-o-y) with EBIT margins at 17.9% (+119bps q-o-q,+ 126bps y-o-y). Higher other income due to Fx gains helped net profits at INR3.1bn (+16.3%q-o-q,+71.4%y-o-y) adjusting for the charge on stock grants to employees. HCLT has a forward cover of over USD900m (at INR44-45), which is the highest as a proportion of its revenues in the industry.

HSBC expects HCL Tech to grow revenues and profits at CAGRs of 27% and 20% for FY2007-09 with Infrastructure and BPO business growing faster than the company average. Though margins for HCLT have recovered, it continues to grow slower than large companies with significantly lower profitability despite its smaller revenue base.

India IPO Reviews and Updates

Avoid Fortis HealthCare Issue

April 19, 20071 min read

Logn Term and investors without an appetite for Risk can blindly avoid the IPO of Fortis Healthcare. Our IPO Analysts had recommended an Avoid on Cairn Energy and had also told to BUY around Rs 100[It made a Low of Rs 110].

Fortis healthcare is a Ranbaxy promoter group company. Ranbaxu is facing one setback after the other and current management is not as strong as it used to be under late Dr. Parvinder Singh. Fortis is a recent entrant and is using acquisition and heavy investment to expand. This is a capital intensive business and hence the promoters decision for an IPO. Their have been some Pre-IPO PE Fund investments but small retail investors don’t have the appetite as PE Funds do 🙂

Fortis has been in Red since its operations. Fortis’ acquisition of Escorts is also in controversy and this is the major revenue contributor to Fortis’ bottomline. Fortis’ healthcares patient occupancy rates are also low [around 75% of capacity]. Overall not a worthy issue at an offer price between Rs 92 to Rs 110. You will get it below offer price after listing.

Economy, Markets and Macro Views

Indian Pharm Acquistions – Cadila, Stride Acrolab

April 19, 20071 min read

Cadila Healthcare has acquired Japan’s Nippon Universal. The Japanese acquisition will provide critical access to a ready manufacturing and marketing base as well as a strong distribution reach. The Japanese generics market, valued at $3 billion, has tremendous growth potential as it currently stands at just 5% of the total pharma market in the east Asian country in value terms, and 17% by volume, Cadila informed. The Indian drug maker said it will be looking at leveraging upon Nippon’s strong relationship with key wholesalers, which spans over three decades.

The present takeover marks Cadila’s second overseas acquisition, the first being Alpharma France in 2003. Cadila Healthcare had recently acquired Mumbai-based Liva Healthcare, a mid-sized Indian pharma company with a dermatology-focused product portfolio.

Strides Arcolab has decided to invest Rs 100 crore for acquiring Grandix Pharmaceuticals and will hold an EGM to seek shareholder approval. It is also alloting 56 lakh convertible warrants to promoters on preferential basis.

Breaking Corporate India Earnings News

DishTV India does Private Placement

April 19, 20071 min read

Essel Group sources just a while ago informed us that they have raised Rs 445 crore to help fund expansions of group companies Dish TV India and Wire and Wireless India.

The company has placed 3.84 crore shares (9%) of newly-listed direct-to-home broadcaster Dish TV with institutional investors. Dish TV had listed at Rs 120 on debut on Wednesday, closing trade at Rs 102.55, after it was spun off from top listed media firm Zee Entertainment Enterprises.

Equity Research

Infosys Technologies – Outperformer says ICICI

April 19, 20071 min read

ICICI Research has put an outperform rating on Infosys Technologies. Infy reported a 3.2% growth in top line to Rs 3,772 (our estimates: Rs 3,860 crore) and a 16.4% growth in bottom line to Rs 1144 crore (Rs 1,005 crore) as compared to the previous quarter. The fourth quarter has historically been a sluggish for Infosys. This time the company was impacted by a strong rupee (173bps impact during the quarter) and compensated by higher other income (no gain from hedges during current quarter: higher income from dividend and mutual funds).

The larger growth in bottom line was on account of a write-back of tax provisions to the extent of Rs 124 crore and higher other income at Rs 119 crore. However, the management reiterated its view of a strong business environment highlighting a 16.31% growth of the top 5 clients during the quarter. The company’s dollar guidance for FY08 revenues was also quite positive indicating a 28% to 30% year-on-year growth. ICICI maintains OUTPERFORMER rating on the stock with a price target to Rs 2,718 over a 15-18 month. Read the report here.

Economy, Markets and Macro Views

Rayban Sun Optics India Open Offer Revised

April 18, 20072 min read

The revised open offer will now open on 25 April 2007, and close on 14 May 2007. The open offer price is fixed at Rs 185.25 per share (Including interest of Rs 80.95 per share only for shareholders who were holding shares on 27 August 1999 and still continue to hold them).

Luxottica gained control over 44% stake in Rayban through a 1999 takeover of Bausch & Lomb, US. However, the group did not follow up the takeover with an open offer. The Italy-based eyewear giant, Luxottica, is a global leader in premium eyeglass frames and owns several well-known brands such as Giorgio Armani, Ferragamo and Vogue.

In late-February, Rayban informed BSE that its board of directors had received a proposal from Luxottica Group, Italy, (Luxottica) indicating their intention to set up wholly-owned subsidiaries in India for wholesale distribution of various luxury & fashion brands in the eyewear industry, including the distribution of spectacle frames and sunglasses. Luxottica Group S.p.A, seeks a no-objection certificate from the company for this purpose.

For Q4 December 2006, Rayban Sun Optics India registered an 8.30% fall in net profit to Rs 3.33 crore compared to Rs 3.63 crore in Q4 December 2005. Net sales for the quarter ended December 2006 rose 18.30% to Rs 17.21 crore (Rs 14.55 crore).

However, for FY ended December 2006, Rayban’s net profit rose 17.60% to Rs 11.94 crore compared to Rs 10.15 crore during FY ended December 2005. Net sales for FY-2006 rose 29.30% to Rs 62.98 crore (Rs 48.71 crore).

Ray-Ban commands nearly 50% of the Rs 150 crore eyecare market in India.

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