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| Analysts' corner |
| S I Team / Mumbai Apr 27, 2009, 00:10 IST |
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HCL Technologies
Reco price: Rs 125
Current market price: Rs 126.75
Target price: Rs 124
Downside: 22%2.2%
Brokerage: Emkay Global
HCL Technologies (HCLT) reported revenues of $565 million (up 18.2 per cent q-o-q) or Rs 2,860 crore (up 15.9 per cent q-o-q) in rupee terms. The reported operating margins declined by around 40 basis points (bps) q-o-q on account of a change in hedge accounting. Net profits at Rs 1,960 crore came in marginally below estimates marred by forex hedge losses. BPO revenues have declined by around 11 per cent, while IMS revenues were up 1.1 per cent sequentially. A negative surprise came in by a further cut in quarterly dividend to Re 1 per share.
HCLT admitted that it faces revenue challenges despite the large deals it had won over the past few quarters. However, HCLT’s weaker positioning in the offshore IT services space and more horizontal focused service offerings continue to pose organic revenue growth challenges. Axon could turn out to be a game changer for HCLT in the longer run, but it will be facing near-term growth issues with cuts in SAP license sales and lower discretionary spending by clients. For FY09 and FY10, revenue growth is expected at 15 per cent and 12.9 per cent (compared to 17.7 per cent and 16.6 per cent earlier), respectively. At target price of Rs 124 (Rs 139 earlier), the stock trades at 8x its FY11E earnings. Maintain hold.
Ipca Laboratories
Reco price: Rs 390
Current market price: Rs 400
Target price: Rs 505
Upside: 26.3%
Brokerage: Angel Broking
Ipca Laboratories has grown at a steady pace in the past posting a CAGR of 15.7 per cent and 24.1 per cent in net sales and net profit respectively over FY05-08, primarily driven by domestic formulations. Ipca has been able to change its business focus from the low-margin anti-malarial segment to the high-margin chronic and lifestyle segments. However, the next leg of growth is set to come from the export segment, as the company leverages its API capabilities to create a sturdy business in the regulated and emerging formulations market. In emerging markets, Ipca is expected to post a CAGR of 32.6 per cent over FY2008-10E on the back of expansion into new geographies and launch of new products. In the US, the company has filed 11 ANDAs till-date and expects to generate $10 million of revenues in FY10. Ipca's net sales and net profits would grow at a CAGR of 17.4 per cent and 15.6 per cent, respectively over FY08-10E. Ipca is through with its expansion plans after the completion of Indore SEZ (capex of Rs 203 crore). Thus, the debt-equity ratio is set to improve from 0.6x in FY08 to 0.5x in FY10. At Rs 390, the stock is trading at 9.1x FY09E and 6.2x FY10E earnings. Maintain buy.
Power Finance Corporation
Reco price: Rs 154.25
Current market price: Rs 157.50
Target price: Rs 186
Upside: 18.1%
Brokerage: Macquarie Research
Power Finance’s Q4 FY09 profit after tax (PAT) grew by 32 per cent to Rs 390 crore, 14 per cent ahead of expectations. Its Q4 disbursements grew by 7 per cent y-o-y to Rs 6,950 crore. Annual disbursement growth was 30 per cent, beating the forecast of 10 per cent. However, disbursement forecasts are being raised by 10 per cent for FY10, which has led to an 11 per cent upgrade in loan forecasts. The loans are expected to grow at a CAGR of 23 per cent between FY09–FY11, as the outstanding sanctions book is large. The net interest margin (NIM) spiked by 23 bps in Q4, driven by an Rs 53 crore upside from rate resets on some existing loans. Going forward, expect a decline in annual NIM in FY10E as there is a slight duration mismatch in the balance sheet.
The 4 per cent depreciation in the rupee drove a further Rs 40.7 crore loss on the company’s unhedged forex loans of $245 million. The brokerage has increased its FY10 and FY11 EPS estimates by 9 per cent and 13 per cent, respectively, driven by higher loan growth partially offset by lower margins. The target price is raised by 13 per cent to Rs 186. Maintain outperform.
Wipro
Reco price: Rs 282
Current market price: Rs 311.90
Target price: Rs 250
Upside: 19.9%
Brokerage: Motilal Oswal Securities
Wipro reported a 4.9 per cent q-o-q decline in dollar revenue to $1.05 billion. Constant currency revenue at $1.06 billion beat guidance of $1.05 billion. In rupee terms, revenue grew 1.1 per cent q-o-q to Rs 5,920 crore. The earnings before interest and tax (EBIT) margin expanded 170 bps q-o-q to 17.5 per cent. And, selling, general and administration (SG&A) expenses declined 120 bps q-o-q to 12.2 per cent, providing support to EBIT margin. The company posted forex loss of Rs 73.6 crore in Q4 FY09 (Rs 15 crore forex gains in Q3). The PAT grew 1 per cent q-o-q to Rs 907 crore.
Wipro guided revenues of $1.01-1.03 billion for Q1 FY10, implying q-o-q decline of 2-3.5 per cent. The guidance factors in volume as well as realisation decline. But, the guided revenue decline is lower than Infosys’ and also sounded more optimistic on FY10 outlook compared to Infosys and TCS. However, the brokerage is cautious on pick-up in IT services demand and anticipates a recovery beyond Q2 FY10. It expects IT services revenues (in dollar terms) to decline by 4.7 per cent and models a realisation decline of 5.3 per cent in FY10; EPS of Rs 23 (decline of 1.8 per cent) in FY10. At Rs 250, the stock trades at 11x its FY10E earnings. The brokerage has downgraded the stock to neutral.
Yes Bank
Reco price: Rs 77
Current market price: Rs 76.45
Target price: NA
Brokerage: Edelweiss Securities
Yes Bank’s earnings were ahead of estimates driven by strong net interest income (NII) and lower operating expenses. Lower than expected fee income and higher provisions dragged profit growth to 24 per cent y-o-y to Rs 80.1 crore. NII grew by 45 per cent y-o-y to Rs 160 crore; advances grew by 32 per cent to Rs 12,400 crore, while deposits grew by 22 per cent to Rs 16,200 crore. Asset quality for Q4 slipped due to deteriorating environment.
For Q4, NIM improved by 45 bps sequentially to 2.9 per cent driven by improved yield on investments. The margin outlook remains healthy considering a high reliance on wholesale funding works in its favour in a declining interest rate environment. With healthy capital ratios, growth outlook remains healthy. The fee income is expected to increase by 14 per cent considering slowdown in advisory and distribution income, offset by growth in transactional banking and financial market revenues.
The stock trades at 1.2x adjusted book and 6x earnings. Maintain buy.
Current market price as on April 24, 2009
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