Category: Equity Research

UTI Bank posted better than expected results during Q4 of FY07. UTI Bank’s 4QFY07 net income grew 40%yoy to Rs2.1bn, higher than estimates, led by strong operating profit growth (+63%yoy). Top line grew 48%yoy as loan growth sustained at +65%yoy led by corporate credit demand. Key highlights of results were a) margin expansion of 6bps qoq to 3.06% driven by increasing share of CASA and b) 59%yoy growth in fee income led by both retail (distribution of life insurance products, credit cards and rising client base) and corporate fees.

Merill Lynch forecasts earnings growth at 30% CAGR through FY09 (changed by <1%). Hence one year from now it could trade at 3.3x FY09E adj book, underpinning our PO of Rs600.

Fully Diluted EPS estimates for FY2008 and FY2009 are Rs 31.16 and Rs 39.90.

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.

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.

iGate Global reported a flat topline at Rs 210.1 crore as compared to the previous quarter on account of financial closures in the US market coupled with a 210 bps Rupee impact and higher offshoring. However EBIDTA margins were a big positive surprise expanding by 268 bps as compared to the previous quarter (15.3% vs our estimates of 13.9% for the current quarter) on account of higher offshoring (onshore : offshore effort at 25:75 in Q4 vs 27:73 in Q3), lower direct costs and SG&A (Selling, General & Administration expenses).

The company’s ITES business accounting for 10% of its revenues was hit by the slowdown in the sub-prime mortgage market in the US (ITES witnessed a 5.3% decline in revenues during the quarter), and the management indicated a possibility of sluggishness in revenues during the first quarter of FY08E. This is a temporary aberration that could rebound during the second quarter of FY08E and continue to be bullish on the stock going forward with the margin expansion story intact. ICICI reiterates a BUY with a price target of Rs 610 achievable over the next 15 to 18 months. Download the report here.

A Shekhar Bajaj group (promoter stake 70%) company, Hercules Hoists produces chain-pulley block, electric hoists, trolleys and cranes in technical tie-up with Heinrich De Fries, GmbH, Germany. Hercules Hoists’s manufacturing facility is equipped with CNC, gear cutting and broaching machines. The combined installed capacity is 29,250 numbers per annum. The company is also developing a new range of wire-rope electric hoists jointly with Bull S.r.l., Italy. It holds a 40% market share in the chain-pulley-block market, 20% market share in wire-rope electric hoists, and a massive 90% in CEM.

The enviable set of customers include automobile manufacturers Tata Motors, Mahindra & Mahindra, Maruti Udyog, New Holland, Escorts, Premier Auto, Bajaj Auto, Kinetic, Ford India, Daewoo Motors, Ashok Leyland and Punjab Tractors. In the steel industry, the company caters to Tata Steel, Bokaro Steel Plant, Rourkela Steel Plant, Sail, Mukund, and Jindal. In the cement sector, the users are Ultratech, Ambuja Cements, ACC and Birla Cement. The state electricity boards include MPEB, RSEB, MSEB and BSES.

Hercules Hoist has invested Rs 12.50 crore to produce 2.5-MW wind energy, a new business. The company further invested Rs 6.25 crore in a 1.25-MW windmill in FY 2006 and started producing from the expanded capacity in March, 2006. It put in another Rs 6.25 crore for another 1.25-MW wind mill in FY 2007.

Net sales of Hercules Hoists registered a solid rise of 24% to Rs 22.31 crore and net profit 61% to Rs 4.12 crore in the December 2006 quarter,.

Sales rose 40% to Rs 62.32 crore, and profit after tax (PAT) shot up by 107% to Rs 12.90 crore in the nine months ended December 2006.

The handsome increase in revenue was due to the introduction of a range of higher capacity hoists in various models. Another reason for the rise in sales was market demand, aggressive marketing, wider product range, competitive product prices, and faster deliveries. Cost cutting and various operational restructuring have resulted in improved profitability.

Pick-up in capital expenditure across various industries including speciality steel, mining, power and automobile, and investment in infrastructure have lifted the demand for material-handling equipment. To cope with the rising demand, Hercules Hoists has planned an investment of Rs 5 crore in a new factory to enhance capacity. Approximately six acres of land have been purchased to put up the new factory in Village Dhamani at Khopoli, in district Raigad of Maharashtra.

Interestingly, Hercules Hoists has 83,694 shares of Bajaj Auto bought at Rs 73 lakh — a purchase price of just Rs 87 per share. At current rates, these shares are valued at a huge Rs 21.04 crore — a potential cash per share of Rs 131.5 of Hercules Hoists.

Hercules Hoists is expected to register sales of Rs 84.24 crore in the FY 2007. Net profit can be projected at Rs 16.77 crore. On an equity of Rs 1.60 crore and face value of Rs 10 per share, EPS works out to Rs 104.8. Book value can touch Rs 280. The company can register EPS of Rs 129.8 in FY 2008. The share trades at Rs 1320. This discounts our FY 2008 projected EPS only 10 times.

Merill Lynch is bullish on the state owned PSU giant, BHEL. In a research report published today, ML reiterated BUY with a price target of Rs 2,760. Merill expects BHEL to report an EPS of Rs 115.35 for FY08 and Rs 142.22 for FY09.

ML analysts met the management of BHEL and raised FY08E & FY09E earnings estimates by 4.2% & 14.6% respectively, as they are double sure of continued strong order pipeline. Following a series of orders from NTPC & SEBs to BHEL, ML expects a historic order intake Rs310bn +64%YoY & backlog of ~Rs500bn +35%YoY in FY07. This announcement on April 3rd should reassure market, which has been worried on new orders due to competition. Our view is that in power market which is likely to more than double in FY08-12E, BHEL would grow volumes at mid/high teens, while it may lose a few basis points of share to cheaper supplies (China/Russia).