Infosys Technologies
Reco price: Rs 1,225
Current market price: Rs 1,202.6
Target Price: Rs 1,426
Upside: 18.58%
Brokerage: Religare Hichens, Harrison & Co
Infosys Technologies just about managed to meet the lower end of its Q2 FY09 dollar revenue guidance. Rupee revenue and net profit for the quarter grew by 11.5 per cent and 10.8 per cent quarter-on-quarter (q-o-q), respectively. The management has reduced its dollar guidance for FY09 by 4.8 per cent, for both revenue and EPS, to factor in the dollar appreciation against global currencies and weakening macro-economic conditions in the US. The dollar-denominated revenue guidance by the management for Q3 FY09 points towards negative to flat growth. Blended billing rates declined marginally by 0.4 per cent q-o-q. The management has indicated that it expects pricing to remain stable.
Infosys has made it clear that it will not engage in a bid war with HCL Technologies for the acquisition of Axon Group, citing possible expensive valuations. Taking into consideration challenges in the demand environment, the brokerage has reduced Infosys’ revenue estimates for FY09 and FY10 by 3.6 per cent and 2.9 per cent respectively, while the EPS estimates for these two years stand revised downwards by 3.9 per cent and 3.8 per cent, respectively. At Rs 1,225, the stock trades at 12.4x FY09E and 11.2x FY10E earnings, respectively. Maintain Accumulate.
Axis Bank Reco price: Rs 660 Current market price: Rs 619.30 Target price: Rs 910 Upside: 46.94% Brokerage: India Infoline
Axis Bank’s Q2 FY09 results were better than expected, with net profit surging by 77 per cent year-on-year (y-o-y) to Rs 402.9 crore, driven by robust loan growth, net interest margin (NIM) expansion, strong fee income growth and most importantly, without any material rise in non-performing loans (NPL).
Loan growth was impressive at 54 per cent y-o-y in Q2 FY09, driven by retail (55 per cent), SMEs (68 per cent) and large/mid-sized corporates (49 per cent). NIMs expanded by 16 basis points q-o-q to 3.51 per cent; it was 3.47 per cent in FY08.
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Fee income grew by a stellar 91 per cent y-o-y, driven by all segments including retail banking, large and mid-sized corporates, treasury and capital markets. Retail banking remains the largest fee contributor with one-third of the total. This growth rate should decelerate in H2 FY09, with expected slowdown in retail (primarily wealth management products) and capital market fees. NPLs rose by only 11 per cent q-o-q, after the scare caused by 29 per cent q-o-q jump in Q1 FY09 NPLs.
The NPL concerns are primarily concentrated in the SME and unsecured retail loans, which constitute 25 per cent of the loan book. Capital adequacy remains comfortable at 12.2 per cent, including Tier-I of 9.2 per cent. The stock is trading at a P/BV of 2.4x and P/E of 15.8x on FY09E earnings. Maintain Buy.
Procter & Gamble Hygiene & Health Care Recommended Price: Rs 678 Current market price: Rs 675.55 Target Price: Rs 1,114 Upside: 64.9% Brokerage: SBICAP Securities
Procter & Gamble Hygiene & Health Care (P&G) is a leader in the healthcare (over-the-counter cough and cold medicine) and feminine hygiene categories through its Vicks and Whisper brands, respectively.
In the feminine hygiene category, the company occupies 50 per cent market share. This segment is fast growing due to increase in the number of working women, rising urbanisation, higher affordability and increasing literacy leading to hygiene awareness.
Going forward, the company will increase its product base through further brand variants/extensions. All the products manufactured by the company remain relatively immune from the current inflationary situation, perceived to slow down demand for consumer goods.
The brokerage maintains a Buy rating on the stock due to a robust outlook for its products, leadership position, strong balance sheet and healthy return on capital. The stock appears to be a defensive bet and the current decline in market price of the scrip offers a good entry point to the investors. At Rs 678, the scrip trades at 12.4x FY10E EPS of Rs 54.7.
Larsen & Toubro
Reco price: Rs 893
Current market price: Rs 799.40
Target Price: Rs 1,209
Upside: 51.23%
Brokerage: Kotak Securities
Larsen & Toubro’s (L&T) net sales displayed a record strong growth of 40 per cent y-o-y in Q2 FY09 on the back of 41 per cent rise in the engineering and construction (E&C) business (which contributes 76 per cent to the total revenues).
The electrical segment has been observing lower off-take with revenue growth of 13 per cent. The revenues from the machinery and industrial products division grew by 16 per cent due to healthy demand for construction equipment and rubber making machinery.
The operating margins were under pressure with the increase in construction material costs, staff costs, costs pertaining to new initiatives of building its railways and power generation equipment business. With 70 per cent of its projects protected by price variation clause, the company’s margins are protected to a large extent.
Other income also grew on the back of treasury income gains and greater dividend payout by joint ventures and associates. Management expects to maintain the growth momentum of 30 per cent in revenues and order inflows in FY09. L&T is currently trading at 18.4x and 15.4x FY09E and FY10E consolidated earnings, respectively. Maintain Buy.
Orbit Corporation
Reco price: Rs 91
Current market price: Rs 90.10
Target Price: N.A.
Brokerage: Edelweiss Securities
Orbit Corporation (Orbit) reported revenues of Rs 73.8 crore, down 9.8 per cent q-o-q and 24.3 per cent y-o-y, for Q2 FY09. The sequential decline was due to lower completion percentage at Orbit WTC and Orbit Eternia. Net profit for the quarter stood at Rs 13.7 crore, as against Rs 39.9 crore in Q2 FY08 and Rs 18.2 crore in Q1 FY09, a decline of 65.6 per cent and 24.8 per cent, respectively.
Three of Orbit’s projects are nearing completion and the company expects Rs 160 crore from customers of these projects by the end of CY08. This amount will be sufficient to fund its construction cost of Rs 100 crore for the year. Further, the company has six projects under construction aggregating 1.06 million square feet of saleable area.
These projects are highly monetisable, albeit at a right price and part sale at few of these projects can generate enough funds for the company to service its debt of Rs 180 crore, including interest cost of Rs 30 crore. The current property environment is adverse and prices are expected to drop, accompanied with lower volumes.
Consequently, the brokerage has revised down its revenue estimates to arrive at an average EPS of Rs 23.1 for FY09 and FY10. At Rs 91, the stock appears attractively priced at 0.5x FY10E book value. Maintain Buy.
Current market price as on October 17, 2008.