Patni Computer: Shifting away from GE

ANALYSTS' CORNER

Edelweiss Securities reiterates its value buy rating on Patni. The report highlights that during the June quarter, revenue diversification continued on course with GE contribution decreasing from 33 per cent a year ago to 23 per cent this quarter.

Strong growth in million dollar clients coupled with strong revenue growth across emerging verticals are being seen as reasons for better revenue sustainability. The results were largely in line with analysts' expectations, though the expected margin contraction happened on a higher side.

Revenues at Rs 480 crore (up by nine per cent quarter on quarter) is a positive sign and came from diverse sources. PAT at Rs 63 crore (down seven per cent quarter on quarter) was affected by salary increases and unusually high visa filing expenses.

Patni, for the first time provided guidance for CY2005 revenues at $440-445 million and for PAT at $64-65 million. It also guided for the operating margins for the year at 16-17 per cent compared with 14.1 per cent, as expected.

Rico Auto: Top pick

Edelweiss Securities maintains its value buy recommendation on Rico Auto and considers it to be among its top picks in the sector. The report attributes the company's June quarter performance to lower sales to Hero Honda and HMSI, two of its major domestic customers.

The company's June quarter profits at Rs 9.4 crore are in line with analysts' expectations, although buoyed by tax write back of Rs 1.5 crore. Sales and EBITDA grew by 21 per cent each, respectively. EBITDA margin at 12.6 per cent was below the expectations.

Moreover, this quarter also saw the first of the eight quarterly payments to Ford. Exports grew 271 per cent year on year and Rico is on track to achieve exports of over Rs 100 crore during FY06.

The report believes that the recent termination of the technical agreement with Ford will likely lead to further export order signings from Ford, which had temporarily halted in the last six months. Rico will be among the biggest beneficiaries of the auto component outsourcing from India over the next 3-5 years, according to the report. The stock trades at P/E of 12.4 on FY07E consolidated EPS of Rs 6.2.

Shringar Cinemas: Expansion booster

Angel Broking recommends a buy on Shringar Cinemas (SCL) at Rs 71. The report states that the company has lined up expansion of its exhibition business from 18 screens to 42 by the end of FY07 at a cost of Rs 34 crore.

Its subsidiary, Shringar Films Pvt Ltd, achieved break even in FY05, which is following the strategy of going slow and selective on distribution.

Moreover, the report believes that SCL would be favourably placed as a distributor due to its recent foray into exhibition business as it would provide synergy in revenue sharing model. SCL has also sealed a tie up with United Pictures International. The stock trades at 13x its FY07E earnings of Rs 5.5.

Wockhardt: Dramatic bounce back

Khandwala Securities recommends a buy on Wockhardt at Rs 422. The report states that the company has posted a dramatic bounce back on the topline front in June quarter as compared to corresponding previous quarter, with a 29 per cent growth.

The report adds, "But value addition has not been very enthusing. Despite a single digit growth in sales in previous quarter, there was a 50 bps reduction in cost of goods sold. It has just managed to retain its advantage despite its appreciable growth."

However, growth in staff expenses was nearly 40 per cent lower than topline growth. R&D expenses grew at merely 50 per cent of the topline. The above two factors are being seen as instrumental in clocking a 180 bps improvement in operating margins.

That was 60 bps above the analysts' expectations. The report attributes the spurt in net profit by 48.5 per cent to significantly lower tax outgo.

The sale of formulations in the Indian and European markets, which together accounted for 70 per cent of the total, is being looked at as the scene stealer of the month. The stock at trading at 15.5x at an EPS of Rs 27.3.