Category: Economy, Markets and Macro Views

Wipro the IT company built on the model of differential wage is finding it hard to maintain margins post debacle of Dollar against the Indian Rupee. Growth is important and it is using its cash to acquire companies in FMCG space to IT and Business Consulting. Infocrossing has 900 employees in the US. [Will Wipro cut some staff or use them for different on site projects ? Currently Wipro, Infosys and MindTree have stopped Hiring and Training freshers for bench, which used to be the case earlier, indicating likely slowdown in Orders]

Kotak Research says, Wipro has announced an all cash acquisition of Infocrossing for US$600 mn (US$115 mn net debt and US$485 mn of equity). Infocrossing is a promising player in the IT data center and managed services operations. The acquisition is extremely expensive, the company has been valued at 2.6x ttm revenues and 14.5x EBITDA because of organic revenue growth of only 10-12% guided for CY2007 and single digit net margin.

The acquisition will likely dilute FY2008 EPS by 0.5% and FY2009 EPS by 0.8% on a non- GAAP basis. On a GAAP basis the FY2009 EPS dilution could be as high as 6%. Maintain Outperform but reduce FY2009 end DCF based target price to Rs 620/ share.

Update from Citigroup:
Citigroup in its research report after studying the impact of Wirpo’s acquisition has retained a BUY on Wipro with a target price of Rs 625.

Why it makes sense for Wipro to acquire Infocrossing ?
(1) Adds scale to IMS practice (~US$500 mn combined run rate for FY07); (2) Enhances Wipro’s offering in the total outsourcing space; (3) Adds to Wipro’s infrastructure in US with 5 data centers (~$250m of assets as per management estimate – $1000/sq ft); (4) Adds proprietary platform for integrated IT+BPO offering in healthcare segment.

Infocrossing adds to Wipro’s presence in IMS and enhances Wipro’s offering in the fast-growing Total outsourcing space. Visibility of telecom revenues is the key to the stock’s performance. Citi expects Wipro to report an EPS of Rs 23.37 and Rs 28.75 for Fy08 and FY09 respectively.

We at Dalal Street Business had first recommended Amtek Auto a year ago. Citigroup had recommended Amtek last month. Amtek’s results were above the street expectations.

Adjusted consolidated PAT (excluding derivative trading gains of Rs215m), rose 35% Y/Y, driven by robust top-line growth (+48% y/y), supported by c30% growth in the parent’s revenues. The result also reflects the impact of consolidation of Benda Amtek and Amtek Siccardi in this quarter. Consolidated EBITDA margins at 17.4% Y/Y, (-10bps Y/Y, -100 bps Q/Q) were affected by input cost pressures.

Stand-alone PAT after excluding derivative gains rose 21% y/y, due to strong growth in revenues. Subsidiary performance has improved substantially QoQ (YoY is irrelevant, given that the consolidation impact of Benda Amtek and Amtek Siccardi was from 1QFY07) – while revenues rose c3% QoQ, EBITDA rose 10% QoQ, driven by a margin expansion of 200bps)

Market Crashes are the best opportunity to BUY this stock. Even today when the entire market is down, Amtek is up 0.5%.

The American Home crisis has gripped the Asian Markets this morning. Hang Seng Index is down 530 points while NIKKEI is down 190 points.

Dalal Street opened down 400 points and is currently down 362 points at 14,775. Major losers in the BSE-SENSEX are ACC, ICICI bank, Bajaj Auto, Hindalco and Reliance Energy. None of the SENSEX stocks are trading in positive category. The ratio of Put to Call Ratio is 1.3 in favour of the Puts.

Long Term Investors can pick in very small quantities of companies with sound management, business and cash flow [More Downside expected]. Do read our Research Section to see what Brokerage Houses have recommended and do not just blindly BUY. Convince yourself with EPS and the growth the company has to offer.

Ravi Purvankara, promoter of Purvankara Projects who wanted to rip off Investors by pricing his Realty company stocks at absurd prices has suffered a severe setback as the issue was not even subscribed 0.38 times at 16:00 Hours on August 3rd, an hour before the IPO would close.

Loser, Ravi Purvankara is now saying fragile global market conditions as the reason for the debacle of his IPO. The issue will be now priced between Rs 400 and Rs 450, down from Rs 500 and Rs 525. The IPO will now close on August-8th. Losers!!!!

SEBI should investigate the matter of abnormal pricing of Real Estate IPOs. The days will be back when Value Investing will be the order of the day kicking out speculators and shell company promoters out of the market. Stay tuned for our IPO Analyst to evaluate the IPO of this Loser, Mr. Ravi Purvankara.

Results of Unitech, Parsvnath Developers and Ansal properties and Infrastructure have been below Dalal Street expectations. Here is recommendation from Citi research.

Unitech Ltd:
Unitech’s standalone 1Q FY08 revenue and earnings recorded strong growth in 1Q, with volumes pre-sold at higher price realizations early on, now recognized in 1Q FY08. On a consolidated basis revenues and earnings were higher, but 10% lower than estimates. New residential project launches in Kolkatta, Gr.Noida, where price realizations are lower, we believe margins will decline to ~50% by FY08-09E.

Pre-sale volumes are down significantly, particularly in Delhi/NCR. Primary sale prices are stagnating, but secondary-market prices are down 15-20% across markets; and potential supply risk remains.

While Unitech’s scale, low-risk/high return model deserves 10% premium, with stock already trading at 37% premium to NAV of Rs391, upside looks priced in. Valuations do not leave any margin for error from potential execution delays; as a result risk/reward looks unfavorable. Reduce Unitech as estimated Target price is Rs 430.

Parsvnath Developers Ltd:
Parsvnath reported a strong 1QFY08 with stand-alone revenues growing 40% YoY to Rs3462m, EBITDA growing 104% YoY to Rs1138m and net profit growing 131% YoY to Rs845m. Consolidated revenue of Rs4035m and PAT of Rs1022m were, however, below estimates.

Key risks include, concentration in Tier II and III cities, with high exposure to the NCR region and high share of plotted development that lacks pricing power.

Sell with the stock currently trading at an 8% premium to our NAV estimate of Rs 328 per share.

Ansal Properties and Infrastructure Ltd:
Ansal Properties reported mixed results with stand-alone revenues declining 2% YoY but EBITDA and net profit growing 17% and 15% YoY respectively. The company reported consolidated revenues of Rs1827m, EBITDA of Rs532m and net profit of Rs325m, but no comparables available.

Key Concerns include concentration in NCR and Tier III cities in the North, where the risk of prices softening is high; high dependence on plotted development and risk of delays in large township projects, particularly Dadri (27% of our NAV value), is high as land is still being acquired. Ansal API is already trading below its fair value / NAV of Rs 300.

In a separate development, S&P has said that Indian Realty Stocks are the Most Expensive in the World.

The Reserve Bank of India has done it again. They have hiked the CRR rate by 0.5% taking it to 7%. Most company CFOs were not expecting the same and this has come as a surprise. Reacting to this hike, the 30 share Sensitive Index of Bombay Stock Exchange fell by 150 points from the day’s high.

RBI has left other rates unchanged. India’s central bank withdraws cap of Rs 3,000 crore (Rs 30 billion) on daily reverse repo (overnight borrowing) transaction from August 6.