Dalal Street

Despite the ongoing sluggishness in American corporate profits (BFSI segment), overall US IT spending remained robust in 1Q08. Most Indian IT services companies have acknowledged delays/slowdown in ramps especially for Financial Services customers in 1H08, but expect a recovery in 2H08.

Indian IT players continued their market share gains in the global arena with 35% YoY revenue growth in Q1-2008. Offshoring is likely to be the mega-trend for IT Services and expect Indian IT players to continue to gain market share.

Technology spending as a percentage of profits peaked in Q1-2000 and has constantly declined since then and is currently holding at 25-30% levels.

Yesterday we reported about the hike in petroleum products and excise duties. Post-hike, the Wholesale Price Index is expected to rise by 55 bps only on account of the hike in these 3 products.

The hikes also meant increase in consumer’s burden by Rs211 bn (US$4.9 bn or 0.39% of GDP) and the government will bear tax losses amounting to Rs226.6 bn (US$5.3bn or 0.42% of GDP) in F2009 (12 months ended March 2009).

The combined central plus state deficit including the off-budget expenditure items is expected to be about 8.9% of GDP in F2009 (from 9.3% earlier).

TRF’s Q4FY2008 results were mixed bag – (1) revenue below estimates at Rs1.7 bn and 20% yoy growth and (2) net profit in line with estimates at Rs154 mn and 54% yoy growth. For FY2008, TRF reported net profit growth at 59% yoy to Rs322 mn and earnings of Rs58.4/Share, ahead of estimates. TRF is comfortably placed with Rs10 bn order backlog executable in next 24-30 Months. But, the quality of above order backlog is worrisome with presence of fixed price contracts.

Despite a below expected revenue growth, EBIDTA growth at 47% yoy to Rs228 mn was in line with estimates. We attribute this to 150 bps expansion in EBIDTA margins to 13.5% in the current quarter. This is largely driven by change in revenue mix with high margin Products Division contributing 25% of revenues in Q4FY2008 against 20% in Q4FY2007.

TRF has outstanding order backlog of Rs10 bn as on 31st March 2008.

VIP Industries declared its FY2007-08 numbers. Sales and PAT are 12% and 8% below consensus estimate. EBITDA margin stood at 9.9% as compared to estimates of 10.2%.

Total standalone sales for Q4FY08 stood at Rs1.1bn, while consolidated sales for FY08 were at Rs5.7bn an growth of 9% YoY. EBITDA margin for the quarter were at 8.3% compared to 10.3% on standalone level. Consolidated EBITDA margin were at 9.9% Vs 8.5% meaning that integration of Aristocrat Luggage has started yielding results. Consolidated PAT before extra-ordinary item (VRS Account a drag here) stood at Rs 285mn(18% YoY), while post extra-ordinary item it was at Rs216mn (48% YoY).

We estimate VIP to report an earnings of Rs 7.45 for FY2009. VIP Industries retail venture planned to add 100 exclusive outlets and the company commanded ~50% market share in organized retailing of luggage merchandise.