Wipro
Reco price: Rs 279
Current market price: Rs 235.15
Target price: Rs 288
Upside: 22.5%
Brokerage: India Infoline
Wipro’s IT services revenues in dollar terms were $1.11 billion in Q2
FY09, a growth of 5.6 per cent quarter-on-quarter (q-o-q). Aided by 3.7 per cent depreciation of the rupee for company, IT services revenues in rupee terms grew by 7.8 per cent q-o-q. IT product revenues growth was very strong at 34 per cent q-o-q while the consumer care business grew by modest 2.8 per cent q-o-q. Overall, the revenues increased by 7.8 per cent q-o-q. OPM declined by 80 basis points q-o-q to 19.7 per cent in Q2 FY09 on account of offshore salary hike. Other income was higher 50 per cent sequentially despite a forex loss of Rs 82 crore, driven by significant growth in the treasury income. Net profit increased 7.8 per cent q-o-q.
In terms of geography, India and Middle East regions grew strongly by 14.2 per cent q-o-q. Revenues from the top 5-10 clients declined by 2.6 per cent q-o-q. Wipro has issued muted 1 per cent growth guidance for IT services revenues in Q3 FY09. Employee addition remained weak with the company adding 1,877 employees (IT services: 910 and BPO: 967) in Q2 FY09. H1 FY09 employee addition is lower by 82 per cent y-o-y. The brokerage remains negative on Wipro, relative to the sector and expects the stock to underperform in the near-term.
Indian Hotels Company
Reco price: Rs 60
Current market price: Rs 49
Target price: Rs 113
Upside: 130.6%
Brokerage: Kotak Securities
Indian Hotels Company’s (IHCL) standalone revenues during Q2 FY09 grew by 8 per cent year-on-year (y-o-y) to Rs 368 crore. The EBIDTA margin declined 460 basis points y-o-y to 24.4 per cent, due to expenses related to the launch of Gateway brand, higher staff costs and renovation expenditure. During the quarter, IHCL has provided Rs 9.4 crore towards forex mark-to-market translation loss on outstanding foreign currency debt. Standalone net profit after exceptional items declined 4.8 per cent y-o-y to Rs 50.7 crore in Q2 FY08.
During the quarter, IHCL unveiled its new brand "The Gateway Hotel" to target upscale segment and fill the gap between premium and budget segment. Currently, 18 properties are operational under The Gateway brand and 11 properties are under construction. During the quarter, IHCL has commissioned a new hotel, Taj Residency at Trivandrum and two new Ginger hotels at Delhi and Goa. IHCL will launch two luxury hotels namely ITPL, Bangalore and Taj Mount Road, Chennai in Q3 FY09.
The stock’s correction due to the concerns over expected earnings slowdown in hotel industry led by economic slowdown and huge anticipated supply in key markets, has been over played. At Rs 60, the stock is trading at 9.6x FY09E and 8x FY10E earnings. The brokerage has revised its target price to Rs 113 (earlier Rs 171), attaching a 15x P/E multiple to FY10E earnings. Maintain buy.
HT Media
Reco price: Rs 82
Current market price: Rs 73
Target price: 99
Upside: 35.6%
Brokerage: Angel Broking
HT Media (HTML) reported a modest topline growth of 17.7 per cent y-o-y to Rs 331 crore during Q2 FY09, which was aided by 10 per cent value growth and 8 per cent volume growth in advertisement revenues. EBITDA margins witnessed sharp contraction of 629 basis points on account of 405 basis points increase in raw material prices and 257 basis points increase in advertising and sales promotion expenses.
HTML’s earnings for the quarter witnessed a steep slump of 49 per cent y-o-y to Rs 16.3 crore largely owing to sharp margin contraction, 1,123 basis points jump in tax rate (due to low base) and 64 per cent increase in interest cost due to higher debt on the books (to the tune of Rs 300 crore) raised to fund expansion in existing and new businesses. The company’s two new printing facilities at Meerut and Allahabad are expected to commence operations in Q3 FY09.
Over FY08-10E, HTML is expected to post CAGR of 15.9 per cent in revenues. However, margin pressures on account of weakening rupee (leading to higher imported newsprint costs), higher selling, general and administration expenses, and possible slowdown in ad revenues will result in earnings CAGR of mere 3.3 per cent over FY08-10E. At Rs 82, the stock is trading at 12.4x FY10E earnings. Maintain buy, with a revised target price of Rs 99 (Rs 140 earlier).
Ultratech Cement
Reco price: Rs 365
Current market price: Rs 325
Target price: 470
Upside: 44.6%
Brokerage: Religare Hichens, Harrison & Co
Ultratech Cement's net sales grew by 19.6 per cent y-o-y to Rs 1,396.2 crore during Q2 FY09. Average net realisations for cement and clinker rose on the back of price hikes that were effected following the lifting of the price freeze on the sector. The company's total volumes grew by 13.1 per cent y-o-y in Q2 FY09, owing to higher clinker exports of 0.6 million tonne, which reported a growth of 141 per cent y-o-y.
However, cement dispatch volumes grew by mere 3 per cent y-o-y due to limited production at its expanded brownfield unit in Tadipatri. The operating margins were lower at 21.3 per cent (710 basis drop y-o-y) on account of a sharp rise in power, fuel and raw material expenses. Subsequently, net profit fell by 11.7 per cent y-o-y to Rs 164.2 crore.
The brokerage has revised its estimates for Ultratech due to the slowdown in economic growth, construction and housing activity. The company’s net sales is expected to grow by 9.5 per cent to Rs 6,030.1 crore in FY09 and by 1.9 per cent to Rs 6,143.4 crore in FY10. The target price has accordingly been revised to Rs 470 from Rs 728, considering the two-year forward EPS of Rs 62.6. Maintain buy.
Bank of India
Reco price: Rs 270
Current market price: Rs 227.85
Target price: Rs 365
Upside: 60.2%
Brokerage: Sharekhan
Bank of India (BoI) has reported a net profit growth of 79.9 per cent y-o-y to Rs 762.9 crore during Q2 FY09. The net interest margin for the quarter stood at 3.2 per cent on the back of an increase in its lending rates, although the cost of funds remained stable. The gross advances witnessed a robust growth of 35 per cent y-o-y and stood at Rs 1,29,314 crore driven by strong growth in the corporate, agricultural and SME segments.
The net interest income grew by 38.3 per cent y-o-y to Rs 1,363.1 crore due to a robust growth in the advances coupled with a healthy expansion in the margins. The non-interest income rose by 23 per cent y-o-y to Rs 649.5 crore as there was a significant jump in the recoveries, foreign exchange income and ‘commissions, exchanges and brokerage’ segments. The cost to income ratio also improved to 39.6 per cent from 44.6 per cent y-o-y as the bank was able to contain its operating expenses in the quarter. The gross NPAs remained flat with a 0.3 per cent decline y-o-y to Rs 1,978.1 crore, due to the debt waiver implementation. At Rs 270, BoI trades at 5.5x FY09E earnings and 1.3x its FY09E book value.
Current market price as on October 24, 2008
