No sparkle this time from Infosys
Infosys results may have been more or less in line with expectations and their guidance. While some foreign brokerages lightened their positions on the Infosys counter ahead of the results, Morgan Stanley and Citigroup are positive on the counter. Infosys announced its results for the fiscal third-quarter ended Dec 31, 2006. The Bangalore-based IT major declared a net profit of Rs9.83bn for the October-December quarter of the current fiscal year as against Rs9.30bn in the second quarter, representing a sequential growth of 5.8%. The company posted a 5.9% quarter-on-quarter growth in revenues for the reporting quarter at Rs36.55bn compared to Rs34.51bn in the quarter ended Sept 30, 2006. EPS for the third quarter of FY07 increased to Rs17.64 from Rs16.75 in the July-Sept quarter.
Morgan Stanley in a post result note stated that Infosys’ numbers were "reasonably strong, especially in the backdrop of the 3.8% rupee appreciation against the US$...While the element of positive surprise has been a lot lower than that in the prior two quarters (and which was in a way expected as well), we think that the stock and the sector continue to be well placed for 2007." The brokerage, which has an "Over Weight" rating on Infosys, added that "overall fundamentals remain strong for offshore outsourcing and any improvement in pricing could be a strong driver of consensus earnings, as well as the stock price."
Citigroup in its note post the results stated "Infosys had their third consecutive quarter of double digit $ term growth with revenues growing by 10.1% qoq – as against our expectation of 9%. In rupee terms, revenue growth was 5.9% qoq." Citigroup added that the biggest positive was that offshore pricing improved 1.7% sequentially while onsite pricing improved 1.9% sequentially (partially on the back of service mix change). Citigroup has reiterated a BUY/Low Risk on the stock stating that Infosys trades at 25.7x FY08E and continues to report industry leading growth rates.
Street abuzz with big-ticket deals
India Inc. continues to scout for inorganic growth in the overseas markets in 2007 after a bumper year of Mergers and Acquisitions (M&As) last year. Domestic pharma major Ranbaxy Laboratories Ltd. said it was interested in buying the generic business of Germany's Merck KGaA. But, it won't be easy for Ranbaxy as global biggies like Teva, Sandoz and Sanofi-Aventis as well as some private equity majors such as KKR and Blackstone were also eyeing the big-ticket deal, reportedly valued at up to US$5bn. Texas Pacific Group, Cinven and Permira Advisers may also bid for the generic-drug division of Merck.
In another development, media reports stated the Reliance Industries Ltd. could enter the race to buy the plastics business of General Electric (GE). There was no independent confirmation of the same. GE's underperforming plastics business is estimated to be valued at about US$10bn. Global newspapers reported that GE was planning to sell the plastics business and that a few private equity players, including Blackstone and Kohlberg Kravis Roberts (KKR), were interested. Dow Chemical, BASF and Dupont could also be interested in acquiring the company, if it was up for sale, analysts said.
Meanwhile, Alcan Inc. denied media reports that it was selling its US business for US$8bn to US$10bn to Hindalco Industries Ltd. Dow Jones Newswire on Thursday quoted India's business news channel CNBC-TV18 as saying that Hindalco would bid for Alcan in the next few weeks. ONGC said that ONGC Videsh, its overseas arm, was invited by Maersk Oil to participate in the bidding for buying a 30% stake in two Caspian Sea blocks. OVL has been short listed for further negotiations. The agreements are likely to be signed in the near future, subject to the approval by the host Government. Denmark-based Maersk Oil holds an 80% stake in blocks 11