Tata Power Company
Reco price: Rs 1,120
Current market price: Rs 1,144
Target price: Rs 1,351
Upside: 18%
Brokerage: Edelweiss Research
Tata Power Company (TPC) raised Rs 1,700 crore via global depository receipts (GDR) at an average issue price of Rs 1,090 per share. The proceeds of the issue will be used to fund the equity requirements of projects under construction (Mundra UMPP-4,000 MW and Maithon thermal project-1,050 MW). The GDR issue will take care of the company’s equity requirements for the next 18 months.
With funding issues getting largely addressed, the management’s efforts will be targeted more towards the 6,000 MW of projects in the pipeline. Of these, 2,400 MW is likely to be tied up for sale to Maharashtra government and the balance is likely to be captive/independent power projects to be sold on competitive bidding.
The Maithon project, investments in the Mumbai licence area over the next three years and full commissioning of the Mundra UMPP, should help scale up earnings from power projects from Rs 800 crore currently to Rs 1,800 crore over the next three-four years.
With the issues for under construction projects getting addressed and increasing visibility on earnings from the coal mining business, the key concerns have been taken care of. Due to the greater visibility of power earnings and potential value unlocking from investments, the stock is upgraded to a buy.
JSW Steel
Reco price: Rs 606
Current market price: Rs 619.8
Target price: Rs 635
Upside: 2.5%
Brokerage: Motilal Oswal Securities
Standalone adjusted PAT of JSW Steel declined 54 per cent y-o-y to Rs 170 crore. The reported PAT stood at Rs 340 crore, out of which Rs 240 crore was on account of forex gain. Consolidated PAT was Rs 230 crore. Net sales increased 18 per cent q-o-q to Rs 3,900 crore.
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Crude steel production for the month of June was 0.5 million ton and in line to achieve the 2009-10 target of 5.8 million tons due to stronger domestic demand. The product mix will change in favour of long products from 8 per cent share in 2008-09 to 24 per cent in 2009-10 due to addition of the new bar and wire rod mill.
The brokerage believes that JSW Steel is on track to achieve strong volume growth in 2009-10. Margins to likely to improve in subsequent quarters due to reduction in coking coal costs. However, there could be some increase in iron ore costs due to rise in spot prices. The FY10E EPS is cut to Rs 67.5 from Rs 74.5 due to lower than expected numbers for Q1 FY10 and downward revision of estimates for US operations. The stock trades at an EV of 6.4x FY10E EBITDA Maintain buy.
Wipro
Reco price: Rs 451
Current market price: Rs 456.25
Target price: Rs 487
Upside: 7%
Brokerage: Angel broking
For the June quarter 2009-10, Wipro recorded a 1.7 per cent q-o-q decline in top-line. IT services revenues clocked a 2.2 per cent q-o-q decline and a dip of 1.3 per cent in dollar terms (ahead of estimates). Volumes (pure IT Services) increased 1.2 per cent q-o-q with offshore volumes increasing, while a decrease was seen on the pricing front. Quarterly numbers include that of Citi Technology Services which was acquired last year. Segment-wise, Wipro’s IT Services business clocked a 2.2 per cent q-o-q decline, IT Products declined 12.6 per cent, and Wipro Consumer Care grew 5.8 per cent.
On margins, Wipro recorded a 1.47 per cent q-o-q expansion during Q1 2009-10. In spite of margin expansion, Wipro recorded just 0.5 per cent q-o-q growth in bottom-line owing to lower other income due to forex losses.
The brokerage expects Wipro to record 6.9 per cent CAGRs in both revenues and net profits for FY2009-11E. The stock is trading at 14.8 times FY2011 estimated earnings. Valuations are not too demanding and given an expected recovery in the global economic environment from H2 FY10, it is expected that the Indian IT sector and companies such as Wipro will benefit. Accumulate.
HDFC
Reco price: Rs 2,410
Current market price: Rs 2,452
Target price: Rs 2,517
Upside: 3%
Brokerage: Sharekhan
HDFC’s 20.6 per cent q-o-q increase in net profit to Rs 564.9 crore in the June quarter FY2010 was below expectations. The net interest income growth was muted at Rs 668.6 crore. Revenues were weaker primarily due to a sharper than expected contraction in HDFC’s net interest margin (NIM).
The calculated NIM stood at 2.75 per cent, indicating a contraction of 39 basis points y-o-y. The other operating income stood at Rs 161.5 crore and helped the cost-to-income ratio to improve to 10.2 per cent. Nevertheless, driven by the corporate segment the approvals and disbursals grew by 20.6 per cent and 25.6 per cent y-o-y respectively in the June quarter of FY10, better than the growth during the March quarter FY09.
However, the asset quality during the June quarter FY2010 witnessed some deterioration on a sequential basis at 0.98 per cent compared to 0.81 per cent in the previous quarter.
The demand environment for residential mortgage space has witnessed some improvement recently, though a conclusive recovery remains elusive. Besides the demand side challenges, HDFC continues to face stiff competition from public sector banks in the residential mortgage space. At Rs 2,410, the stock trades at 21.3x FY2011E earnings and 4.1x FY2011E book, implying that the anticipated improvement in the demand environment is largely priced in. Maintain hold.
Tata Consultancy Services
Reco price: Rs 433.6
Current market price: Rs 475
Target price: Rs 675
Upside: 42%
Brokerage: Macquarie Research
TCS delivered Q1 revenues of Rs 7,200 crore (up 0.5 per cent q-o-q), EBITDA of Rs 1,960 crore (4.4 per cent q-o-q) and PAT of Rs 1,520 crore (15.8 per cent q-o-q). The results were ahead of expectations. TCS reported a 3.54 per cent q-o-q growth in volume, while pricing remained stable.
Management noted that it has yet to see recovery in three key business verticals – manufacturing, telecom and hi-tech. It also noted that it has yet to witness a rebound in discretionary IT spending.
TCS’ offshore revenue mix is 50.4 per cent in Q1. The company is deriving increased revenue from fixed-price, fixed-time contracts. The number of active clients declined to 933, the fall can be attributed to one-time projects undertaken by them in previous quarters.
Despite delivering robust growth, the management maintained a cautious outlook and mentioned that it would like to see a stable Q2 before turning optimistic on growth in 2H FY3/10E. TCS’s FY3/10E EPS may witness 10-12 per cent upgrades by the Street.
Prices as on July 23, 2009