Infosys Technologies
Reco price: Rs 1,304
Current market price: Rs 1,268.25
Target price: Rs 980
Downside: 22.7%
Brokerage: Ambit Capital
During Q3 FY09, Infosys Technologies (Infosys) in rupee terms reported a revenue growth of 6.8 per cent quarter-on-quarter (q-o-q), driven by volume growth of 2.5 per cent along with rupee depreciation of around 10 per cent. The growth in revenues would have been higher, but for a 2 per cent decline in billing rates. The Q3 FY09 revenues were $1,171 million, below the lower end of the quarterly guidance of $1,175 million. Infosys’ recorded a 200 basis point q-o-q rise in EBITDA (earnings before interest, tax, depreciation and amortisation) margins due to weaker Rupee and lower selling, and administration expenses. The impact of expansion in EBITDA margins was mirrored in Infosys’ net profits that grew 14.6 per cent q-o-q to Rs 1,641 crore.
Infosys has reduced its annual dollar-based revenue guidance from $4.72–4.81 billion to $4.67-4.71 billion for FY09. Infosys reported a q-o-q price decline of 5.83 per cent and 4.61 per cent in onsite and offshore billing rates, respectively. Infosys is trading at 12.5x its FY10E diluted EPS of Rs 97.7. The brokerage maintains a sell as revenues from BFSI, telecom, and manufacturing verticals in the US and Europe are expected to deteriorate further and also significantly higher price cuts demanded by clients would lead to revenue decline in FY10 along with significant margin pressures.
Sintex Industries
Reco price: Rs 160
Current market price: Rs 148.80
Target price: Rs 230
Upside: 54.6%
Brokerage: Angel Broking
Sintex Industries (Sintex) net sales grew by 30.3 per cent to Rs 798.6 crore in Q3 FY09 y-o-y (year-on-year) driven by a 39 per cent growth in the sales in the plastics segment. An increase in the contribution from low-margin plastics business and inventory losses incurred during the quarter has led to a subdued growth in operating profits, resulting in operating margins declining from 16.6 per cent to 13.2 per cent y-o-y. During Q3, the company’s profit after tax grew by 21.9 per cent to Rs 71.7 crore, primarily on account of higher other income. The company expects to finish FY09 with Rs 300 crore as capex. Considering cash of Rs 1,500 crore in its books, it is well placed to fund its capex and acquisitions
Sintex stated that there is a possibility that the Geiger deal for which the company has paid $10 million might go through. Going ahead, the company’s business would be primarily driven by plastics segment with the building construction segment being the principal contributor to the growth. The stock is trading at 5x FY10E EPS and 1x FY2010E book value (BV). Maintain Buy
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Idea cellular
Reco price: Rs 45
Current market price: Rs 43.95
Target price: Rs 71
Upside: 61.5%
Brokerage: Centrum Broking
As per the brokerage, Idea Cellular’s (Idea) subscriber market share is set to spike by 150 bps to 12.5 per cent by FY12; subscriber base to about 70 million. This will primarily be driven by rapid network expansion and rollout of new circles. Idea, by its entry into 11 new circles, would widen its geographical spread. Idea’s expansion into nine new circles would be value-accretive and the new circles are likely to achieve EBITDA break-even by FY11E. The Spice deal is also a great fit for Idea, given that it gives the latter ready access to high ARPU circles of Punjab and Karnataka and increased operational benefits. The operational synergies would also boost Spice’s EBITDA margin.
Idea is in an investment phase with front-ended capex of Rs 15,000 crore over FY09-10E. This includes investments for organic and inorganic growth. Post this investment phase, Idea is expected to become free cash flow positive by FY11E. Idea’s revenue and EBITDA are expected to surge by 35 per cent and 23.3 per cent respectively, over FY08-12E. The fair value of Idea’s is Rs 71 per share, based on 7.5x FY10E EV/EBITDA. The valuation does not capture a separate value for Idea’s stake in Indus Tower.
Pantaloon Retail India
Reco price: Rs 190
Current market price: Rs 167.20
Target price: Rs 232
Upside: 38.8%
Brokerage: Enam Securities
Pantaloon Retail is faced with its biggest challenge in the interim term; namely weak same store sales. However, with consumption expenditure likely to remain strong at around 12 per cent in nominal terms, given the fall in interest rates, an increase in government spending, pay hikes and indirect tax cuts, there still remains structural opportunity for organised retail to thrive.
For Pantaloon, although value retailing segment (72 per cent of standalone sales) has been fairly insulated, the home improvements and lifestyle segments witnessed initial signs of slowdown in off take. Overall EBITDA margin would remain at around 9.2 per cent due to rationalisation of employee costs and renegotiations of existing/new rental contracts. While there is limited scope in fashion segment, the foods business has immense opportunity for driving owned brands across the FMCG landscape. Management expects breakeven of operations in FY09E and reported profits by FY10E.
The earnings in the next 2-3 quarters would continue to remain weak in view of near-term concerns, but provides an investment opportunity in the long-term. The brokerage has reduced its sum-of-the-parts based target price from Rs 282 to Rs 232 due to cut in earnings for standalone retail operations and valuation of subsidiaries.
HDFC Bank
Reco price: Rs 976
Current market price: Rs 936.60
Target price: Rs 1,102
Upside: 17.7%
Brokerage: India Infoline
Even with a decline in loan-deposit ratio by over 800 basis points (bps; 100 bps is equal to one percentage point) q-o-q in Q3 FY09 and CASA ratio reducing by over 400 bps q-o-q, HDFC Bank’s net interest margins increased to 4.3 per cent (from 4.2 per cent in Q2). Loans grew 38 per cent y-o-y, but declined by 3.4 per cent q-o-q. This seems to be a prudent step to de-risk the balance-sheet with an expected full year loan growth of 59 per cent y-o-y. Cost-to-income ratio (CIR) declined to 50 per cent in Q3 FY09 as compared to 55 per cent in Q2. The CIR reached its pre-merger level, indicating that there was no significant cost overrun due to the merger.
The gross non-performing loan ratio stood at 1.9 per cent in Q3 (1.6 per cent in Q2). Retail NPLs are likely to peak over the next 1-2 quarters, as interest rates have started to ease. HDFC Bank’s net profits grew by 45 per cent y-o-y and adjusted for CBOP merger, the net profits grew by 30 per cent. EPS growth is expected to be higher at 29 per cent CAGR over FY09-11, since dilution due to conversion of HDFC’s warrants may not happen. The stock is trading at 2.5x FY10E BV. Maintain Add.
Current market price as on January 16, 2009