Arvind Mills to Restructure. Job Cuts Planned
Friday, August 31, 2007
Arvind Mills will undertake a major restructuring exercise. The group will merge its strategic business units (SBUs) into two main divisions: apparels and textiles. The move entails job cuts and cost cutting of up to 30%, an initiative to address the rupee crisis.Reportedly, the strategic business units in the fabrics division, including denims, shirting, khakis, knitwear and voiles, will now be merged and controlled by one business head. Similarly, the businesses in the apparel division, including brands and retail, will be merged as well. This will lead to proper integration among different businesses, focused and joint initiatives and streamlined operations.
Published by DalalStreet Business @ 2:40 PM
Buy Ahmednagar Forgings + Ratnamani Metals - Reliance Money
Reliance Money has initiated coverage on Ahmednagar Forgings, a Amtek group company and Ratnmani Metals and Tubes with a BUY rating.Ahmednagar Forgings Ltd: [AFL]
Amtek Auto Limited holds 51% equity stake in AFL thereby making it a subsidiary. AFL manufactures various forged products like connecting rods, gear blanks, shafts, transmission components, flanges, hubs and is a Tier 1 vendor to OEMs in all major segments i.e. two wheeler, passenger cars, tractors and commercial vehicles. It earns around 80% of total revenue from auto business and 20% from non-auto business.
AFL's net sales went up by 60% YoY to Rs.6,002mn backed by strong domestic and exports growth. For FY07, AFL reported export revenue to the tune of Rs.2bn, up by almost 10x. AFL's EBITDA soared by 68% YoY to Rs.1,191mn and its EBITDAmargins grew by a whopping 193bps YoY to 21% from 19% in Q4FY06. It's noteworthy that AFL's margins went up despite raw material costs as a percentage of net sales went up by 411bps YoY. For FY07 AFL's EBITDA jumped by 69% YoY to Rs.1,234mn and its EBITDA margins went up by 108bps YoY to 20.6%.
AFL is expected to report strong net sales and net profit growth at a CAGR of 37% and 36% respectively during FY07-09E.AFL stock currently trades at 12x FY07E and 8x FY08E which is attractive. Reliance is positive on the long term prospects of the company and recommend investors a BUY with a target price of Rs. 337.
Ratnamani Metals and Tubes Ltd: [RMTL]
RMTL is a Tier I supplier of project pipes which have applications mainly in petrochemicals, oil refineries, power plants, sugar refineries, water projects, fertilizer industry, and core engineering industries.
RMTL reported Net sales for Q1FY08 grew by 116% YoY to Rs.1,900mn backed by partial execution of healthy order book and higher capital expenditures incurred in oil & gas industry. The impressive jump in sales in Q1FY08 was mainly because of strong growth in exports from Kutch SEZ which reported export revenue to the tune of Rs.793mn. The net sales growth was driven by both the segments, stainless steel pipes and carbon steel pipes reported strong growth of 142% YoY to Rs.1135mn and 93% YoY to Rs836mn. RMTL is currently sitting on an order book of around Rs.4.31bn (65% -stainless steel pipes and 35% - carbon steel pipes) which will be executed within next 6-8 months. RMTL continue to get healthy order book in FY08E and FY09E as well mainly because of big capex plans announced by oil and gas industry players.
RMTL's EBITDA grew by 123% YoY to Rs423mn and its EBITDA margins improved by 72bps YoY to 22.3%. RMTL would be able to maintain its EBITDA margins in the range of 21-22% in FY08E & FY09E as well. RMTL stock currently trades at 9x FY08E and 7x FY09E which is attractive. RMTL stock has good potential upside from this level and recommend a BUY with target price of Rs 1361 based on DCF approach. At target price the stock would trade at a P/E multiple of 10x on FY09E earnings.
Published by DalalStreet Business @ 9:19 AM
Edelweiss bullish on Rolta and Infotech Enterprises
Thursday, August 30, 2007
Edelweiss Equity Research is Bullish on the prospects of Rolta India and Infotech Enterprises both Midcap software companies.Rolta India Ltd:
All-time high order book and pipeline bids. Order book stands at INR 8.4 bn. All business segments witnessing strong traction. A pleasing guidance issued for the first time in the company's corporate history guiding towards a 33-35% growth in revenues and 33-36% growth in net profits for FY08 over FY07 (both in INR terms).
Rolta, revenues and net profits to grow at a CAGR of 38.6% and 40.2% over FY07-09E, respectively. At a CMP of INR 470, the stock currently trades at a P/E of 15.6x and 11.2x on our FY08E EPS of INR 30.7 and FY09E EPS of INR 41.9, respectively. The stock has progressively moved to a higher P-E band in the last one year from the 10x-12x range to the 14x-16x. Investors can look at meaningful returns of ~ 35%-40% over the next one year.
Infotech Enterprises India Ltd:
Both engineering and GIS segments are on track to achieve the growth (engineering which accounts for 60% of revenues will likely grow in excess of 40% in FY08 in USD terms. The company has also strengthened its hedge position providing it insulation from forex fluctuation. Therefore, we do not expect to see forex losses in Q2FY08 as in Q1FY08. This factor alone is likely to significantly drive up profits q-o-q. Exposure to the US is relatively low at 47%. Europe is as significant as the US. Recently, the company has raised money to the tune of INR 3.0 bn (USD 75 mn, 20% of market cap), which it plans to utilise for acquisitions.
Infotech's revenues and net profits are expected to grow at a CAGR of 29.7% and 29.4%, respectively. The stock has corrected more than 25% post the Q1 results, which is overdone. At a CMP of INR 270, the stock trades at a P/E of 15x and 10.6x our FY08E and FY09E earnings - Rs 18 and Rs 25.3, respectively. The stock can return at least 30% returns to the investor within 12 months.
Update:
Kotak Securities just a while ago upgraded Infotech Enterprises from Hold to BUY with a price target of Rs 388.
Labels: Infotech-Enterprises, Rolta
Published by DalalStreet Business @ 12:16 PM
Buy ABB + Nicholas Piramal India - Citigroup
Wednesday, August 29, 2007
Citigroup Research which had a BUY recommendation on ABB has revised its target price upwards to Rs 1,266. Current market Price is Post Stock Split from Face Value Rs 10 to Rs 2.Citi expects earnings CAGR of 49% (from 42% earlier) over CY06-09E with RoEs at the ~37% level, driven by sales CAGR of 42%. Target price is based on a P/E of 30x FY09E at a ~30% premium to BHEL given: 1] EPS CAGR of 49%; 2] RoEs of ~37%; 3] Access to parent technology; and 4] ABB India's importance in the ABB Group.
ABB China grew sales at a CAGR of 33% over a 7-year period between CY98 to CY05. ABB India may find it possible to repeat this feat in India given India is the fastest growing T&D market in the world, a fact corroborated by both ABB an Areva. India is not only a promising domestic market, where ABB is well-positioned as a market leader in power and automation technologies but also a global sourcing hub; global R&D centre; and regional excellence centre.
Citi has also recommended a BUY on Nicholas Piramal India as the stock will unlock the value from proposed demerger of R&D unit - NCE Research. NPIL's focus on NCE R&D has been rising and it is working on 13 NCEs (3 in the clinic). R&D/sales was up from 1.2% in FY03 to 5.2% in FY07 (66% CAGR) and is set to rise to 5.7% in FY08E.
First-cut calculations indicate that a demerger would raise FY09E and FY10E EPS 12-16% and 11-15% respectively. Besides, the street has treated NPIL's NCE R&D as a cost, thereby reducing the company's overall valuation. On demerger, if the NewCo is listed, expect the Street to assign some value to this as well, thus unlocking value for shareholders. Citi sets a target price of Rs 345 on Nicholas Piramal India.
In a separate Research report, Sharekhan securities has set a Target price of Rs 326 on Nicholas Piramal India Ltd.
Published by DalalStreet Business @ 12:15 PM
Buy Man Industries - ICICI Direct
Tuesday, August 28, 2007
ICICI Direct Research has put a BUY recommendation on Man Industries with a price target of Rs 306 within a time frame of 3-6 months.
Man Industries (India) Ltd, the flagship company of the Man Group, UK, manufactures steel line pipes for high and medium pressure applications such as oil and gas, petrochemical and water transportation, anti-corrosion coating systems and aluminum extrusion products.
Demand for SAW pipes is likely to remain firm in next five years due to burgeoning crude prices and depleting oil reserves. Global demand is expected to be in the range of 67 million tonnes with around 66% flowing in from Middle East, Asia & US, the key markets for the Indian players. While demand in Europe and Russia would be met by internal supplies, demand in Middle East and US is likely to be met through imports. This high demand, coupled with supply constraints, would keep prices firm at for least two years through CY08 and 09, escalating to mid 2010, where after it may start softening.
Man Industries is in capex mode and post expansion, its capacity of 1 million tonnes would be more than 2x the existing capacity, equally distributed between LSAW and HSAW pipes. This would reduce the risk and increase the size of addressable market. With a robust order book position of Rs 2,400 crore, the top line is expected to grow at a CAGR of 51% over FY07-09E and net profit by 67%. Capacity utilization should be at about at 40% in FY09E.
Man Industries is set to capitalize on the rising global demand for pipelines. At the current price of Rs 255, the stock is trading at 4.42x the FY09E EPS.
Published by DalalStreet Business @ 12:04 AM
Buy IDFC - Citigroup
Friday, August 24, 2007
Citigroup Research in a detailed research report released just a while ago has initiated coverage on India's premier and best Infrastructure Financial institution - Infrastructure Development and Finance Corporation - IDFC. Citi has recommended a BUY with a Target Price of Rs 140 from current levels of Rs 110.IDFC is the most levered and broad-based infrastructure play in the Indian financial sector. IDFC brings to the table,
- Integrated offering as a lender, advisor and investor,
- Management - track record, defined strategy and pedigree
- A broadening business model - trending towards more annuity and risk-linked fees,
- Risk management systems - proven asset quality record, and
- Capital - to leverage and invest.
Citi recommends a BUY on IDFC with Rs140 target price implying a 27% expected total return from current price levels. Target price is based on a sum-of-parts methodology with the core lending business valued at 2.5x FY09E PBV or Rs113 per share. The asset management business is valued at Rs17 per share based on DCF analysis. Finally, the unrealized investment gains at Rs10 including NSE and SSKI stakes.
DalalStreet Analyst Views:
Yes, you can take exposure to this stock at Rs 110 level and blindly add more when it falls. IDFC is backed by Deepak Parekh who indirectly had told Citigroup executives to sell their stake in HDFC if they were not happy with HDFC's performance. [The issue was just Citi wanted HDFC to be little bit more aggressive but then Deepak Parkeh may have misunderstood and reacted sharply].
Comments, Suggestions & Requests for entire Research report maybe sent to feedback @ DalalStreet.Biz
Published by DalalStreet Business @ 8:29 PM
Accept Holcim's offer for Ambuja Cements - Citi
Citigroup research in a report released just a while ago advises investors to accept Holcim's open offer at Rs154/share for Ambuja Cements Ltd [ACL].
Citi rates ACL Sell/Medium Risk (3M) with a target price of Rs103. Although ACL is likely to trade at a premium to domestic peers, due to higher EBITDA margins, the stock is expensive given: (1) limited visibility on cement pricing moving up as a result of uncertainties arising from unfavorable government measures in CY07; (2) a 20% yoy expected decline in CY08E earnings as large capacities are expected domestically, particularly in North India; and (3) the risk to exports, as substantial new cement capacity is coming up in the Middle East, which would convert the current deficit in that region into a surplus.
Dalal Street Analyst Note:
Kindly note that shares tendered in Open Offer are liable for Long Term Capital Gains Income Tax because you are not paying the STT [Security Transaction Tax] when submitting through open offer. So decide if you want to SELL in the market or accept the open offer.
Published by DalalStreet Business @ 1:22 PM
Sun TV an Underperformer - Kotak Securities
Wednesday, August 22, 2007
Maran family controlled Sun TV Networks stock has been rated as an under performer by Kotak Securities. The stock has collapsed over the past few weeks and is now trading below 12-month DCF-based target price of Rs310.Expecting more clarity on the emerging competitive environment especially the performance of Kalaignar TV, the channel promoted by the family of the chief minister of Tamil Nadu. Also, Sun TV's revenues and profitability, which may be at risk from increased competition. [Read Outlook Magazine Dynasty at War May-2007] The Marans of Sun TV had substantial income directly /indirectly from Karunanidhi, CM of Tamilnadu with whom they have badly messed up.
Sun TV will be able to retain its current high market shares in all its key markets. However, this remains to be seen in light of emerging competition, particularly in Sun's key Tamil market where Sun has a dominant market share. Sun TV is expected to report an EPS of Rs 10 for FY08 and Rs 13.5 for FY09. Kotak rates the stock as an underperfomer.
Dalal Street Analyst:
We recommend investors to watch for more clarity on how the company will be managed aftermath family feud. We certainly do not recommend a BUY even though it is quoting below its DCF based target price.
Published by DalalStreet Business @ 10:36 AM
Sub-Prime impact on Indian IT Sector
Tuesday, August 21, 2007
With limited client exposure to sub-prime space, we do not see any near-term impact on the earnings of Indian IT players. Longer-term impact will depend on how events unfold - however, prior experience suggests that cost pressures on US/global corporate have led to higher offshoring. Most Indian IT services companies have significant exposure to BFSI - however exposure to mortgage processing or subprime is limited. The chart below shows IT companies exposure to BFSI.
FIIs have reduced positions to Indian IT stocks after the sub-prime crisis. F&O positions in Infosys Technologies are down significantly. HDFC Fund manager was the first to SELL IT stocks last month.As data suggests, Wipro, Satyam and HCL Tech are relatively less exposed to the financial services. Tech Mahindra has Zero exposure to the BFSI. We expect some downgrades in the IT sector very soon but continue to remain upbeat on Large Cap IT Consulting companies.
Published by DalalStreet Business @ 10:10 AM
Indian Fertilizer Stocks Sky Rocket
Monday, August 20, 2007
Fertilizer stocks soared on media reports that the government, for the first time, had issued fertilizer bonds worth Rs 7,500 crore to part-finance the additional subsidy burden on the fertilizer companies due to rising price of imported feedstock and fertilizer.As per reports, these bonds will be freely tradable in the market. The move came as the recoveries made by the government were not enough to pay for the additional subsidy.
The issue of fertilizer bonds was included in the supplementary Budget for 2007-08, under which the government sanctioned Rs 15,000 crore for the fertilizer ministry, comprising the bonds, Rs 6,550 crore as net cash outgo and Rs 950 crore as recoveries under crop husbandry.
At 15:00 IST, Chambal Fertilisers & Chemicals had moved up 19.39% to Rs 44.75, Coromandel Fertilisers was up 12.14% to Rs 94.60, Gujarat State Fertilisers & Chemicals up 13.03% to Rs 228, Mangalore Chemicals & Fertilisers was up 9.98% to Rs 29.75, National Fertilizers was up 13.54% to Rs 36, Rashtriya Chemicals & Fertilisers moved up 16.57% to Rs 52 and Tata Chemicals went up 7.33% to Rs 251.
Published by DalalStreet Business @ 3:17 PM
Free Fall in Asian Markets
Friday, August 17, 2007
American mortgage crisis has led to carnage in Asian markets. Hang Seng and Nikkei refused to recover - HangSeng is down 680 points and Nikkei is down 875 points.Continuing its downward trend, the 30 share BSE SENSEX is down 500 points breaching all supports [Pity Technical analysts]. Infosys and Satyam from IT stable along with Bharti Airtel, RCOM, Tata Steel, NTPC and Maruti Udyog are all pulling the SENSEx down by more than 5%.
CNBC TV-18 polled some brokerage houses and just 25% of them dared to BUY at current levels [13,900].
IndiaBulls, Kotak Mahindra Bank, India Infoline and GE Shipping are all down by 10%. Amongst the real estate stocks, IndiaBulls Real Estate and Orbit Corp are the major losers.
The Indian rupee is now trading at Rs 41.50 against USD and inflation for the week is down to 4.05%. Dow Jones futures is down 154 points. London and Luxembourg indices are moving sideways.
Update at 3:30 PM
Indian markets recover from the days low but still close 225 points down at 14,131. Hang Seng recovered too but still closed down 285 points while Japanese stocks closed at their lowest, down 875 points.
Fund Managers are staying away from Realty and Metal stocks. ICICI's Nilesh Shah advises that HNIs can start shopping stocks which are fundamentally good and are come off of their highs.
Published by DalalStreet Business @ 12:29 PM
Bears Take Control of Dalal Street
Thursday, August 16, 2007
Bears took immediate control of Dalal Street by pulling the BSE-Sensex down 550 points just seconds after trading began for the day. The SENSEX was down by 637 points but marginally recovered and is still bleeding with a fall of 574 points at 14,427.
Banking, Metals and Real Estate Stocks are the major losers in Today's Trade. Tata Steel, ICICI Bank, Reliance Capital, Union Bank, Axis Bank are all down over 7%. Bharti Airtel, SBI and BHEL are amongst the top losers in BSE-SENSEX.
- C. Jayram of Kotak Mahindra Bank expects the SELL-Off to continue for few more sessions. Crisis spreads to commercial paper.
- Marc Faber advises extreme caution on the Indian Markets.
- IVR Prime Urban Developer lists at 20% discount
- Indian Banks may not cut interest rates, says Bimal Jalan
- Yen hits 4 month high against USD. Indian Rupee weakens against USD. [Rs 41.03 / $]
- Merill Lynch downgraded Countrywide Financial in the US from BUY to SELL. Countrywide is weighing options to file for Bankruptcy.
Published by DalalStreet Business @ 1:49 PM
Buy Reliance Industries - Deutsche Bank
Wednesday, August 15, 2007
As India celebrates her 60th independence day, Deutsche Bank [DB] equity research has upgraded Reliance Industries from Hold to BUY with a price target of Rs 2130. DB is far more bullish on the prospects RIL's refining business.RIL is on the cusp of strong growth in refining and E&P. Timely expansion through its export-oriented refining subsidiary, Reliance Petroleum (RPL), should help RIL capitalize on the capacity crunch and demand for upgraded fuels, which we view as positive for RIL's refining operating rates and margins.
RIL's earnings should get a boost from production start-ups in KG D-6 gas and RPL’s new highly complex refinery, which should support higher GRMs. DB expects RIL's refining business (including RPL) to get re-rated, as did Indian cement stocks over the past 4 years. Potential growth in oil and gas reserves in its large E&P portfolio, and visibility in cash flows from Reliance Retail which is capitalizing on India's booming consumer-spending theme. Reliance Retail is also positive for RIL's longterm ratings as it can sustain long-term growth and mitigate the cyclical risk in RIL's current portfolio.
The Sum of Parts Valuation of Reliance Industries Ltd is as below,
RIL Petchem Rs 441
IPCL Petchem (post merger) Rs 126
RIL Refining Rs 651
RPL Refining Rs 296
KG D6 (based on DCF) Rs 161
Miscellaneous E&P portfolio Rs 79
Reliance Retail Rs 108
Miscellaneous [Less Debt etc]
Dalal Street Analyst Note:
It is never too late to BUY Reliance. Keep adding in small quantities as and when you get an opportunity. Here is an earlier coverage of Reliance Industries by Goldman Sachs.
Published by DalalStreet Business @ 10:25 AM
Buy ICICI Bank - Enam Securities
Tuesday, August 14, 2007
Enam Securities Research has recommended a BUY on ICICI Bank with a price target of Rs 1260, potential upside of 42%.ICICI Bank's stock has recently underperformed the banking sector, largely due to the huge equity offering along-with a relatively weak Q1 results. Higher Gross NPAs, pressure on NIMs, low ROE, impending risk of a slowdown in credit growth are other dampeners on the stock price.
NIM has likely bottomed out, fee-income growth remains on track and asset growth of 25-30% is achievable. New premiums in Life Insurance are likely to show better growth in coming months with base effect tapering off from Q2 onwards.
ENAM arrives at a stock price of Rs 1260 based on the Sum of Parts Valuation of ICICI Bank which is as follows,
ICICI Bank 833
Mutual Fund Business 19
Life Insurance 225
General Insurance 31
I-Sec (Group) 27
Overseas Banking subsidiaries 77
Other investments 48 - ICICI Venture/ NSE/ FirstSource
Also read value of insurance subsidiaries in Bajaj Auto and HDFC .
Comments and Suggestions maybe sent to "feedback @ DalalStreet.Biz"
Published by DalalStreet Business @ 2:14 PM
MindTree to Undeperform - SSKI Research
Monday, August 13, 2007
India's over hyped IT consulting firm MindTree consulting will under perform the IT sector performance according to research initiated by SSKI. They have set a target price of Rs 510, potential downside of 12% from current levels.Kindly read about MindTree's Management and Business Operations in our coverage during IPO. MindTree experienced slow revenue growth of 31.5% yoy in FY07 against and 82% in FY06, 89% in FY05 and 58% in FY04. MindTree has the lowest billed employees per client at just 15 while Satyam and Wipro have the highest at 51. MindTree's EBITDA margins, at 18.6% in FY07, appear quite low compared to those of peers. At 65% of revenues in FY07, the share of development revenues is high for MindTree compared to peers.
At 65% of revenues in FY07, the share of development revenues is high for MindTree compared to peers. A high share of development services leads to lower utilization. A 100-people team, working on creating IP, is not billed. IP licensing revenues constituted only 1.2% of the overall revenues in FY07.
Due to lower margins and a higher tax rate, the strong revenue growth would result in only 15% CAGR in net profit. The management to cut its original net profit guidance of $25.1m-25.2m (25.9-26.4% yoy growth) to $22.5m-22.6m, a growth of just 14%. MindTree revised its EPS guidance to Rs 24.5 for FY08.
Tech Mahindra is expected to post net profit CAGR of 43% over FY07-09 while MindTree would post an 11% CAGR (for better comparison, taking into account Bloomberg estimates for MindTree as well). However, MindTree trades at 17.4x FY09E earnings compared to 13.5x for Tech Mahindra (superior growth prospects). SSKI recommends an Underperform rating on MindTree with a target price of Rs 510.
Published by DalalStreet Business @ 1:06 PM
Sensex + Nifty Tumble on US Sub-Prime Woes
Friday, August 10, 2007
The US Sub-Prime Woes is having Ripple effect on the Indian Stock Market. BSE-SENSEX is down 390 points. Major losers in the Sensex are - Bharti Airtel Ltd, HDFC, ICICI Bank, NTPC and State Bank of India.Adding to market woes is the Indian inflation which shot to 4.45%.
Asian stocks tumbled across the board, following a rout in global markets as credit jitters flared up, after France's biggest listed bank BNP Paribas froze three funds that invested in US subprime mortgages.
The French bank’s move on Thursday, 9 August 2007, spooked global financial markets and prompted action from major central banks to calm markets, with the European Central Bank injecting record amounts of cash to prevent a financial system seizure.
In a newsflash, The Bank of Japan added 1 trillion yen ($8.5 billion) to the financial system and the Reserve Bank of Australia lent the most in more than three years, joining U.S. and European central banks in responding to a credit crunch.
Indian Economic Data:
INDIA JUNE INDUSTRIAL GORWTH AT 9.8% VS 9.7% YOY
INFLATION FOR THE WEEK AT 4.45% VS 4.36%
Tags: Invest India, Global Markets, Stock Market, Indian Inflation
Published by DalalStreet Business @ 12:24 PM
Hexaware+Sasken + KPIT Cummins Downgraded
Thursday, August 09, 2007
Citigroup Research has downgraded Hexaware Technologies Ltd [Formerly Aptech], Sasken Communications and KPIT Cummins Ltd.Hexaware Technologies:
Company reported 2Q07 results - revenue of Rs.2.62b (-1% qoq) and net profit of Rs.261 m (-26% qoq) - was disappointing and significantly below our expectations on net profit.
Company clearly lacks margin levers especially when it had triple whammy – a) Strong INR, b) wage hikes (higher than usual) and c) tepid sales outlook due to client specific issues. Revise estimates now factor weak 2Q, cloudy outlook from a few clients and integration issues at FocusFrame - we cut our earning estimates by 11-18% for CY07-09. With lower earnings CAGR, Hexaware is now valued at 15x CY09E EPS (against 17x earlier) - thus, new target price is Rs.155 from Rs.214 earlier.
Sasken Communications Limited:
Sasken's 1QFY08 numbers came in below street expectations. Services revenues grew only 2% qoq ($ terms) while margins declined sharply by ~800bp sequentially. Product business had an inline quarter - revenues ($2m) were in line with expectations.
Management cut the guidance for services revenues - 20-25% growth in $ terms as against the 30-35% guidance earlier. This implies $132 - 137m of revenues (against $100m in FY07). EBITDA margin outlook was reduced to 15-17% from the earlier 20-23%.
The disappointing 1Q results, weakness in telecom services and higher than expected INR impact has resulted in a 24% and 12% cut in FY08 and FY09 estimates. Revised target price is Rs.505 (from Rs.643) as the services business is now valued at 10x EV/EBITDA (against 11x earlier) to reflect lower earnings growth and deteriorating comparable valuations for mid-cap Indian IT.
KPIT Cummins Limited:
Company reported 1Q08 results - revenue of Rs.1.35b (+3.8% qoq) and net profit of Rs.127 m (-10% qoq) - was broadly in-line with expectations. Recognizing revenue at hedged rate, inflates revenue figure and EBITDA line in appreciating quarter.
KPIT Cummins recognizes revenue at hedged rate (against spot rate done by several other Indian IT companies) - this recognizes hedging gains/losses with revenue. lower our earnings estimates by ~7-10% for the delayed currency impact and amortisation of upfront payment.
New target price of Rs.154 (earlier Rs 180) is based on 15x FY09E EPS (against 16x earlier) to factor in lower earnings growth. Stock trading at 17x FY08E and 12x FY09E earnings.
Published by DalalStreet Business @ 9:51 AM
Impact of new ECB Norms on Indian Banks
Wednesday, August 08, 2007
Indian companies can now borrow only $20m offshore for use onshore; overall company cap at $500m remains but only for expenditure offshore. The RBI/government's objective - stem $s into the market.
Higher loan demand, lesser liquidity, stable rates - 1] there should be some shift of loan demand from offshore to the domestic market; and 2] deposit growth should slow - we believe some offshore borrowing was being arbitraged into deposits. Both these developments should translate into 3] lesser surplus liquidity in the system, and a bias toward firmer rates - do not see them going up, but should arrest falling deposit rates and segment-specific lending rates.
This is probably a positive in the near term - higher loan growth, better liquidity balance and lesser offshore competition. Structurally however, it probably is a negative that the market is getting closed rather than opened up. Bank specific - the domestic-only banks - both private sector and Government, as relative beneficiaries. Banks with relatively large offshore operations - which are likely large investors in offshore Indian corporate players - ICICI, SBI and BOI, relatively disadvantaged in their international operations.
Published by DalalStreet Business @ 8:28 AM
Wipro's acquisition of Infocrossing - Insight
Tuesday, August 07, 2007
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.
Published by DalalStreet Business @ 10:12 AM
Amtek Auto Results - Insight
Monday, August 06, 2007
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%.
Published by DalalStreet Business @ 12:43 PM
Indian Markets Down Again
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.
Published by DalalStreet Business @ 9:58 AM
Purvankara Lowers IPO Price- Extends Closing Date
Friday, August 03, 2007
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.
Published by DalalStreet Business @ 4:17 PM
Reduce - Unitech, Parsvnath and Ansal Properties
Wednesday, August 01, 2007
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.
Published by DalalStreet Business @ 12:16 PM
