HCL Technologies
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs670
Current market price: Rs602
Price target revised to Rs670
Overall, HCL Technologies appears to be well poised for the vast opportunity in the large outsourcing deals that are due for renewal over the next couple of years. The innovative offerings and its ability to generate large outsourcing deals from the mid-market segments is also encouraging. The move towards value-based pricing seems to be the right strategy going forward. But this will test the company's ability to deal with the higher risk involved in such a strategy. In the near term, the company is expected to show a robust performance in the second half of the current fiscal, on the back of a healthy order book and the ramp-up in the BPO business.
We maintain our Buy recommendation on the stock with the revised one-year target price of Rs670, which is 17x its FY2008 estimated earnings. This amounts to an appreciation of 11.3% from the current level.
Satyam Computer Services
Cluster: Apple Green
Recommendation: Buy
Price target: Rs900
Current market price: Rs753
Price target revised to Rs900
Satyam Computer Services (Satyam) has shown a consistent performance in the past few quarters. It has also taken inorganic initiatives to built capabilities in niche areas and expand into newer geographies. Though the Satyam scrip has been re-rated on the back of its improved performance, there are triggers for further re-rating of the stock. The two key potential triggers are the ability to catch up with its peers in terms of bagging large-sized outsourcing deals and the possible turnaround in the performance of its subsidiaries.
JM Financial
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs516
Current market price: Rs435
JMSPL merger impact
We attended the extraordinary general meeting (EOGM) of JM Financial (JMFL) with respect to the merger of JM Securities Private Limited (JMSPL) with JMFL. We present here the key takeaways from the meeting.
Cipla
Cluster: Cannonball
Recommendation: Buy
Price target: Rs600
Current market price: Rs543
Cipla benefits from bird-flu
Tamiflu could provide a good positive for Cipla. We will wait for more visibility about the market size and revenues generated from Tamiflu before we factor the incremental revenues in our estimates.
For Cipla we estimate a net profit of Rs847 crore for FY2008. At the current market price of Rs543, the stock is trading at 19.2x its FY2008 earnings estimate. Considering the company's strong growth prospects and the de-risked business model, we are basing our price target on our FY2008 estimates. We believe that due to the partnership model that Cipla uses, it can benefit from the future generic approvals of its partners and this is the hidden potential for the company. Hence we believe that Cipla should command a FY2008 multiple of 21x. Keeping in mind the huge growth potential of the company we reiterate our Buy recommendation on Cipla with the price target of Rs600.
SECTOR UPDATE
Information Technology
Improved growth visibility
A combination of internal and external factors has considerably improved the growth visibility of the domestic front-line companies. Over the past couple of years, the domestic companies have not only enhanced their range of service offerings, but also attained a critical scale of operations and maturity in some of the new offerings like consulting, remote infrastructure management and business process outsourcing (BPO). Thereby making them well poised to exploit the vast emerging opportunities in large-sized multi-year outsourcing deals that will be renewed over the next couple of years. Moreover, the growth guidance recently declared by Cognizant has also set a reasonably healthy benchmark for growth over the next four quarters.