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Wednesday, April 18, 2007
Market may exhibit caution
The market may exhibit cautious trend after taking a dip in yesterday's trades. Also the strengthening rupee against dollar may dampen the market sprit. On the positive side, FII have turned net buyers in the equities in the last few sessions and Asian indices are trading higher in current trades. Among the local indices, the Nifty has a support at 3945 and on the break below 3945 the next support is at 3920, while on the upside the Nifty could move towards the 4055-4075 range. The Sensex has a likely support at 13400 and may face resistance at 13855.
Among US indices Dow closed just below the record high on Tuesday as investors welcomed lower oil prices and strong earnings numbers from Coca-Cola and Johnson & Johnson. While the Dow Jones gained by 53 points to close at 12773, the Nasdaq ended a point lower at 2517.
Indian ADR losers pipped gainers on the US bourses. Patni fell sharply and tumbled over 3% while Satyam, Tata Motors, MTNL, and VSNL declined over 1-2% each, while Infosys and ICICI bank ended with steady gains.
The Nymex light crude oil for May delivery slipped by 51 cents to close at $63.10. In the commodity space, the Comex gold for June series declined $2 to settle at $692.50 a troy ounce.
Intra-day Stock Ideas
NIFTY (3984.95) SUP 3967 RES 4004
BUY CANBK (206)
SL 202 T 214, 216
BUY GAMMONIND (338.8)
SL 334 T 348, 350
BUY SCI (173.5)
SL 169 T 181, 183
SELL COLGATE (348)
@ 352 SL 356 T 342, 340
SELL ROLTA (351.8)
@ 355, 359 T 341, 339
STRATEGY INPUTS FOR THE DAY
Encouragement for bulls, but bear in mind profit booking
There are high spots in all of our lives and most of them have come about through encouragement from someone else.
Things are looking encouraging for the bulls as the results so far have been fairly good though the IT companies' earnings have lacked the usual spark. That may well have something to do with the rupee's remarkable appreciation against the dollar. Still, the numbers from software firms are not bad by any means. The outlook also appears to be strong despite currency fluctuations and the US slowdown. Talking about IT results, HCL Tech has surprised the market with much improved show in the third quarter. The stock may see some action on the up side.
Meanwhile, the rupee closed at 41.97 to the dollar yesterday after touching an intra-day high of 41.62. It may gain some more ground before the central bank steps in to check the rally. Some experts feel the Indian currency will eventually slide to 43 in the medium term. Right now though, exporters are feeling the heat while importers are rejoicing.
On to the markets now. We expect a higher opening, buoyed by the gains in the US blue chips overnight and firm trend in the Asian markets. But, as the bulls found out to their dismay, there could be selling pressure at higher levels. Apart from the barrage of corporate results, the market is awaiting the outcome of the RBI's policy meeting on April 24 as well as the weekly inflation data.
The IPO of Bhagwati Banquets & Hotels Ltd. opens today. Hilton Metal Forgings is entering capital market with an IPO of 54.5 lakh equity shares of Rs 10 each at a price Rs 70 per equity share. The IPO of Fortis Healthcare has been subscribed by just 0.7 times. The issue closed on April 20.
Shares of Dish TV, the DTH arm of Zee Entertainment will get listed on the bourses today. Watch out for TV Today as well as Reliance Capital has made an open offer for an additional 20% in the company at Rs30 per share. TV Today closed at Rs140 yesterday. Pritish Nandy too may attract some attention amid reports that it is looking to offload a part of its stake to PE funds.
There is a buzz in the market that Idea Cellular may be targeting BPL Mobile, which operates in the lucrative Mumbai circle. Pioneer Embroideries may get a large order from retail giant Wal-Mart, according to market grapevine. Tata Steel will also be in focus after announcing the funding mix for the acquisition of Corus. CESC is another stock to keep an eye on as it has declared a share swap ratio for the merger with Spencer's Retail parent.
Alfa Laval is expected to be in the limelight amid news that its Swedish parent could hike the open offer price, though Alfa Laval AB has denied such a move. Praj Industries will announce a bonus issue and results today.
FIIs were net buyers of Rs3.05bn (provisional) in the cash segment yesterday while the domestic institutional investors (including Mutual Funds) offloaded stocks worth Rs3.1bn, according to the NSE. The data is provisional in nature and is subject to changes. In the F&O space, FIIs pumped in Rs6.56bn yesterday. As per SEBI data, FIIs were net buyers of Rs7.88bn on Monday. Mutual Funds poured in Rs2.05bn on the same day.
US stocks closed mixed on Tuesday. The Dow Jones Industrial Average almost made a new record, spurred by better-than-expected economic and earnings reports. The Standard & Poor's 500 Index closed at the highest level since September 2000.
The Dow gained 52.58, or 0.4%, to 12,773.04. The blue chip benchmark rose as high as 12,790.02, above its all- time closing high of 12,786.64 on Feb. 20. Yesterday, the Dow erased losses spurred by the Feb. 27 sell-off in global equities, one day after the S&P 500 did the same.
The S&P 500 climbed 3.01, or 0.2%, to 1471.48, bringing its advance this month to 3.6%. The Nasdaq Composite Index fell 1.38, or 0.1%, to 2516.95.
Treasury prices rose, lowering the corresponding yields. The dollar fell versus the euro, yen and sterling - which hit a 15-year record versus the greenback. Oil prices slipped.
European shares held steady. The pan-European Dow Jones Stoxx 600 index finished a fraction of a percentage point higher at 387.86.
The UK's FTSE 100 was down 0.3% at 6,497.80 as the pound rose by over $2 for the first time in 15 years against the greenback after stronger-than-expected inflation data, potentially forcing the Bank of England's hand on interest rates.
The German DAX Xetra 30 rose 0.2% to 7,348.83, while the French CAC-40 lost 0.1% to 5,858.14.
Mexican and Brazilian stocks closed lower. Mexico's IPC index fell 120 points, or 0.4%, to 29,598.99. In Sao Paulo, the Bovespa, which also climbed earlier in the session, fell 166 points, or 0.3%, to end at 48,755.73.
Asian markets are mixed. The Nikkei in Tokyo was up 79 points at 17,606 while the Hang Seng in Hong Kong declined by 27 points to 20,761. The Kospi in Seoul rose 6 points to 1535 and the Straits Times in Singapore shed 3 points to 3411.
HOW MARKET FARED
Bulls take a pause
Bulls took a breather after rallying in previous couple of trading sessions. After opening in green markets immediately pared its gains as profit booking was witnessed all over the bourses; except for Banking and Oil & Gas index all the key sectoral indices lost ground. The Technology index was the major loser other like Metal and FMCG index followed suit. Even Mid-Cap and the small cap index fell over 0.5% each dragging the NSE Nifty below the 4000mark.
Satyam Computer, SAIL and Tata Motors were the major losers, however HPCL, BPCL and ACC were the major gainers among the 50-scrip’s of NSE Nifty. Finally, the 30-share benchmark Sensex fell 88 points to close at 13607. NSE Nifty was down 28 points to close at 3984.
UTI Bank edged lower by 0.9% to Rs465. The Company announced its Q4 result with net profit at Rs2.12bn (up 39%) and revenue at Rs16.68bn (up 57%) and would pay Rs4.5 per share as dividend. The scrip touched an intra-day high of Rs475 and a low of Rs463 and recorded volumes of over 16,00,000 shares on NSE.
Petronet LNG fell 1.2% to Rs45. The company announced yearly result with net income at Rs3.13bn (up 60%) and Sales at RsRs55.45bn (up 44%). The scrip touched an intra-day high of Rs49 and a low of Rs45 and recorded volumes of over 51,00,000 shares on NSE.
JSW Steel slipped by 3.3% to Rs559. The company announced that they have restarted Furnace on April 12, it had shutdown Furnace after fire for almost 2 months. The scrip touched an intra-day high of Rs584 and a low of Rs555 and recorded volumes of over 7,00,000 shares on NSE.
Newly listed scrip ICRA was the show stopper the scrip witnessed huge intra-day gyrations. The scrip dropped by to a low of Rs880 after rallying over 17% hitting an intra-day high of Rs1135 and recorded volumes of over 1,00,00,000 shares on NSE.
Sunil Hitech gained 1.6% to Rs98 after the company secured orders worth Rs8.2bn. The scrip touched an intra-day high of Rs102 and a low of Rs92 and recorded volumes of over 2,00,000 shares on NSE.
Technology stocks were the worst hit sector as rupee strengthened against the dollar. Satyam Computer declined by over 5% to Rs455, Wipro was down by over 2% to Rs573 and Infosys dropped 2.4% to Rs2082. Polaris, Moser Baer and NIIT Ltd were the major losers among the Midp-Cap stocks.
Metal stocks lost their shine on back of profit booking. SAIL slipped by 3.2% to Rs123, Sterlite Industries dropped by 3.5% to Rs507, Tata Steel fell 1.2% to Rs527 and Hindustan Zinc was down 3.2% to Rs639.
Pharma stocks also ended on the receiving end. Cipla slipped 2.5% to Rs229, Cadila down 1.3% to Rs336, Lupin lost 1.5% to Rs657 and Wockhardt dropped 2% to Rs415.
Cement stocks continued its upward trend. ACC advanced by 2.8% to Rs807, Gujarat Ambuja gained by 1.4% to Rs113 and Mangalam Cement added 0.4% to Rs148.
Insider Trades:
XL Telecom Limited: Mr. Dinesh Kumar, Managing Director has purchased from open market 29610 equity shares of XL Telecom Limited on 5th April, 2007.
Titan Industries Ltd: Mr. Rakesh Jhunjhunwala and persons acting in concert with him has purchased from open market 50000 equity shares of Titan Industries Ltd on 12th April, 2007.
Market Volumes:
The turnover on NSE was up by 7.3% to Rs96.11bn. BSE Technology index was the major loser and lost 1.88%. BSE Metal index (down 1.29%), BSE Consumer Durable index (down 1.15%), BSE FMCG index (down 1.10%) and BSE Capital Good index (down 0.58%) were among the other major losers.
Volume Toppers:
SAIL, Satyam Computer, Dabur Pharma, Idea, Petronet LNG, RNRL, Bank of India, IDFC, India Cement, Orbit Corp, R Com, Reliance Industries, Essar Oil, PFC, Ashok Leyland and Ashok Leyland.
Lower Circuit:
Dhanlakshmi Bank, KEW Industries, Mefcom Agro, Godrej Industries and BF Utilities.
Results Today:
Praj Industries, Plethico Pharma, Genus Overseas, Greaves Cotton, Infotech Enterprises, Prithvi Information Solutions, Sujana Metal and South East Asia Marine.
Delivery Delight:
Alfa-Laval, ACC, Bharat Forge, Bharati Shipyard, Bombay Dyeing, Dabur India, Glenmark Pharmaceuticals, Gujarat Ambuja Cements, HDFC Bank, HCC, ICICI Bank, Punj Lloyd and Reliance Industries.
Abnormal Delivery:
Colgate, Steel Authority of India Ltd, Dr Reddys Laboratories Ltd, Indian Petrochemicals Corporation Ltd, Andhra Bank and Thermax Ltd.
Stock Futures with Largest Increases in OI:
UTI Bank, Bank of India, Satyam Comp, Cummins, Bombay Dyeing, Bajaj Hind, Ultra Tech Cement, GE Ship, PFC and Chennai Petroleum.
Stock Futures with Largest Decreases in OI:
IFCI, Sun TV, Divis Labs, Syndicate Bank, Guj Ambuja Cement, GMR Infra, IOB, Punj Lloyd and Bajaj Auto.
Brokers Recommendation:
TCS – Overweight from JP Morgan with target of Rs1650.
Long Term investment:
Patel Engineering
Results Corner:
BEL full year Profit at Rs7.1bn (up 22%) and sales at Rs39.6bn (up 12%)
HCL Tech Q4 profit at Rs2.39bn (up 77%), net sales at Rs9.59bn (up 35%)
UTI Bank Q4 profit at Rs2.12bn (up 39%), total income at Rs16.68bn (up 57%) and to pay Rs4.5 per share as dividend
Major News Headlines:
Tata Steel make a rights offer at Rs300 each; to sell 1 share for every 5 shares held to fund Corus acquisition
CESC to merge with holding company of Spencer’s retail; to give 1 share for every 1.98 shares of Spencer’s Retail
JSW Steel restarts furnace on April 12; it had shutdown the furnace after fire for almost 2 months
Sunil Hitech gets orders worth Rs8.2bn
Gemini Communication bags order worth Rs576mn
Alfa-Laval won't increase Offer Price for Indian unit's shares, buyback offer opens on April 19 and ends on May 8.
Uptrend may resume on strong FII inflow
Firm global markets, and strong FII inflow may trigger recovery on the bourses after Tuesday’s slide. After trading hours on Tuesday (17 April), HCL Tech reported strong Q3 March 2007 results. There is no big ticket Q4 result today.
Stock specific activity is likely to rule the roost on the bourses in the near term as the earnings reporting season has just begun.
FII inflow has picked after Infosys gave strong guidance for FY 2008 in dollar terms putting to rest concerns of the impact of a slowdown in the US on India's IT sector. FIIs were net buyers to the tune of Rs 788.30 crore on Monday 16 April, the day when Sensex had surged 312 points in global rally. FII inflow by the first few days of April 2007 reached Rs 3155.80 crore (till 16 April).
As per provisional data, FIIs were net buyers to the tune of Rs 305 crore on Tuesday 17 April, the day when Sensex had lost 89 points due to fall in IT stocks caused by rupee’s surge. The provisional data also showed that domestic institutional investors were net sellers to the tune of Rs 310 crore on that day.
Asia-Pacific stocks were mostly in the green on Wednesday (18 February) following favourable US economic data. Key benchmark indices in Japan, Australia, South Korea and Taiwan were up by between 0.34% to 1%.
Wall Street traded mostly higher Tuesday, briefly pushing the Dow Jones industrials into record territory after a rise in home construction and a mild reading on consumer inflation encouraged investors to buy. The Dow traded as high as 12,790.02, passing its closing high of 12,786.64 set Feb. 20, and approached its trading high of 12,795.93, reached the same day. It settled 52.58, or 0.41 percent up at 12,773.04. Broader stock indicators were mixed. The Standard & Poor's 500 index rose 3.01, or 0.20 percent, to 1,471.48, while the Nasdaq composite index fell 1.38, or 0.05 percent, to 2,516.95.
US March housing starts rose 0.8 percent -- a feeble rise compared with February's 7.6 percent advance, but much better than the drop investors expected. Building permits also rose. US stocks have had many tumultuous weeks this year due to worries about the financial troubles of the subprime lending sector spilling into the already sluggish housing market.
The Labor Department's core consumer price index rose 0.1 percent in March, less than expected, and alleviating some anxiety about the Federal Reserve's need to raise interest rates to curb costs. The overall consumer price index, which takes into account energy and food, rose 0.6 percent in March -- the largest increase in 11 months -- and was in line with expectations.
Stocks across the globe have surged over the past few weeks amid growing confidence that the benign backdrop of solid global economic growth and moderate inflation will continue.
Anand Rathi - Daily Technical Note & Anand Rathi Daily Strategist & Anagram Daily Call
Nifty and Sensex have exhibited a downward bar reversal.
Technically, one may use the level of 3920 (Nifty) and 13475 (Sensex) as the stop loss level.
Nifty faces resistance at 4050 and Sensex at 13700.
BSE Smallcap and BSE Midcap exhibited a bearish candlestick.
CNX IT has lost ground.
In the Punter's zone we have a BUY in Crompton Greaves & SELL in State Bank and TCS.
In the Technical call section, we have a BUY in Glenmark Pharma & SELL in Tata Motors and Tata Steel.
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The NIFTY futures saw a increase in OI 3.40% with prices closing down indicating that lot of shorts positions were built. The discount in nifty futures decreased indicating that bears aggressively covered & the bulls got them cornered , but at the higher end the market could not hold its weight and tumbled as profits were taken .We feel that till the market sustains above 3925 levels we shall see aggressive short covering and fresh money coming in the market .The FIIs were buyers in futures to the tune of 656 crores of which they bought nifty futures alone to the tune of 398 crs and options worth 362 crs , while they sold stock futures to the tune of 106 crores .The PCR is in a range of 1.12 indicating the trend in the market. .The volatility has remained in the range of 23.90 levels indicating the feel in the market.
Among the Big guns, ONGC saw a loss of 1.01 OI with prices going down by 0.73% indicating that fresh shorts being built in the counter along with fresh genuine profit booking while RELIANCE lost OI and the price was moving up indicating short covering at the historical high in the counter.
On the TECH front, INFOSYSTCH, SATYAM, TCS & WIPRO saw decrease in prices showing weakness in the markets, and forced long positions to sell with some fresh shorts formed there. This meant that TCS results were already taken into account by players.
On the other hand the BANKING counters we saw open interest gaining with loss in value in P.S.U majors. Also we saw the genuine selling coming in P.S.U banks like S.B.I & P.N.B and across the board prices loosing value in the sector .The rest like ICICI BANK & HDFC BANK saw short positions being cut and prices remaining positive.
In the METALS there across the board selling or profit booking be it TATA STEEL , HINDALCO , NALCO , JSW STEEL OR STERLITE after the sector had a massive positive run over the last couple of days.
Considering the market data, it suggests the most awaited expected trend has been curtailed by profit booking today and finally set the decorum in the week for the settlement of un-certainty, for the same it is advisable to traders to have strict stop losses.
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Q4FY2007 Capital Goods earnings preview: Sharekhan Special dated April 17, 2007
Q4FY2007 Capital Goods earnings preview
The Working Group on Power for the 11th Five-Year Plan has envisaged an addition of around 69,000 megawatt (MW) of power generation capacity during the plan period (FY2007-12) and an additional capacity of 86,500MW during the 12th Five-Year Plan. Looking at the current status of the 10th Five-Year Plan's (FY2002-07) capacity addition programme, these targets looks quite aggressive since the government had planned a capacity addition of 41,110MW during the 10th Plan period whereas the actual achievement is likely to be around 25,000MW (only 61% of the target). Out of this about 17,995MW of capacity had already been commissioned till December 31, 2006. However the fact that a total of 31,345MW of capacity is already under construction gives the panel's plan a lot of credibility.
Looking at the huge power generation capacity addition programme of the government (totaling to around 155,000MW in the next ten years), the order flow momentum for the capital goods companies engaged in the power sector, such as Bharat Heavy Electricals Ltd (BHEL), Crompton Greaves, Bharat Bijlee, Indo Tech Transformers, KEI Industries and Genus Overseas, is expected to be robust. Going by the recently announced provisional results of BHEL, wherein its order flow for the full year ended March 2007 registered an increase of 88% to Rs35,633 crore and the order backlog stood at an all-time high of Rs55,000 crore, the time ahead for power ancillary companies appears even more promising.
Q4FY2007 Capital Goods earnings preview: Sharekhan Special dated April 17, 2007
Sharekhan Investor's Eye dated April 17, 2007
SHAREKHAN SPECIAL
Q4FY2007 Capital Goods earnings preview
The Working Group on Power for the 11th Five-Year Plan has envisaged an addition of around 69,000 megawatt (MW) of power generation capacity during the plan period (FY2007-12) and an additional capacity of 86,500MW during the 12th Five-Year Plan. Looking at the current status of the 10th Five-Year Plan’s (FY2002-07) capacity addition programme, these targets looks quite aggressive since the government had planned a capacity addition of 41,110MW during the 10th Plan period whereas the actual achievement is likely to be around 25,000MW (only 61% of the target). Out of this about 17,995MW of capacity had already been commissioned till December 31, 2006. However the fact that a total of 31,345MW of capacity is already under construction gives the panel's plan a lot of credibility.
Looking at the huge power generation capacity addition programme of the government (totaling to around 155,000MW in the next ten years), the order flow momentum for the capital goods companies engaged in the power sector, such as Bharat Heavy Electricals Ltd (BHEL), Crompton Greaves, Bharat Bijlee, Indo Tech Transformers, KEI Industries and Genus Overseas, is expected to be robust. Going by the recently announced provisional results of BHEL, wherein its order flow for the full year ended March 2007 registered an increase of 88% to Rs35,633 crore and the order backlog stood at an all-time high of Rs55,000 crore, the time ahead for power ancillary companies appears even more promising.
STOCK UPDATE
Tata Consultancy Services
Cluster: Evergreen
Recommendation: Buy
Price target: Rs1,508
Current market price: Rs1,250
Disappointing performance
Result highlights
- Tata Consultancy Services (TCS) has reported a growth of 5.9% quarter on quarter (qoq) and 38.2% year on year (yoy) in its consolidated revenues to Rs5,146.4 crore during Q4FY2007. The sequential revenue growth was largely driven by a 6.42% growth in the volumes and a cummulative growth of 1.33% in the billing rates (0.89%) and employee productivity (0.44%). On the other hand, the appreciation of the rupee adversely affected the revenue growth by 1.87% sequentially.
- The earnings before interest and tax (EBIT) margin declined by 47 basis points to 25.6% sequentially, largely due to the adverse impact of the rupee's appreciation.
- The other income stood at Rs89.8 crore and included a one-time extraordinary income of Rs66.3 crore from the sale of the stake in Sitel. Excluding the one-time income (adjusted for tax), the consolidated earnings have grown at a disappointing rate of 1.1% qoq to Rs1,116.8 crore, which is much lower than the consensus estimate of around Rs1,185 crore.
- In terms of the outlook, the company doesn't give any specific growth guidance. However, it has indicated that the demand environment continues to be robust and the gross employee addition would be higher than 32,462 reported in FY2007 (12,000 campus offers have been made). The TCS management also expects to maintain the margins around the level of 25% reported in FY2007, in spite of the aggressive salary hikes in FY2008 (13-15% for the offshore employees and 3-5% for the onsite employees).
- The key operational highlights for Q4 are: an addition of 43 clients; a healthy sequential growth of 9.3% in revenues from the Top 10 clients; the attrition rate in the information technology service sector at a comfortable level of 10.6%; closure of two large deals worth over $50 million each and one deal of $35 million; and a healthy pipeline of large deals. On the flip side, there has been a slowdown in the sequential growth of revenues from the banking, financial services and insurance (BFSI) and manufacturing industry verticals.
- Given the lower than expected performance and the steep appreciation in the rupee, we have revised down our FY2008 earnings estimate by 0.5% and have also introduced the FY2009 estimates. We maintain the Buy call on the stock with a price target of Rs1,508 (around 23x FY2009 earnings per share).
UTI Bank
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs575
Current market price: Rs465
Robust growth continues
Result highlights
- UTI Bank’s Q4FY2007 profit after tax (PAT) was better than our expectations at Rs211.9 crore, up 39.6% year on year (yoy) compared to our estimate of Rs186.2 crore mainly due to a higher than expected net income and lower operating expenses during the quarter.
- The net interest income (NII) was up by 48.4% to Rs464.2 crore compared to our estimate of Rs435.9 crore. UTI Bank's reported net interest margins (NIMs) expanded by 10 basis points yoy and by 6 basis points quarter on quarter (qoq). However the same included a one-time cash reserve ratio (CRR) interest of around Rs22 crore received during the quarter otherwise the NIMs would have had a downward bias on a quarter-on-quarter (q-o-q) basis.
- The non-interest income was up 32% yoy and 8% qoq to Rs301.1 crore and the fee income growth remained robust at 58.8% yoy and 29% qoq. However the treasury income declined by 34.3% yoy and 46% qoq.
- The operating expenses grew in line with the overall business growth; however the provisions were up 56.3% yoy and 40% qoq mainly due to the increased provisioning requirement on the standard assets for Rs68.1 crore, which is a one-off item.
- Although UTI Bank has grown at a robust pace in the last couple of years there are no visible signs in the deterioration of its asset quality yet. The net non-performing asset (NPA) level (as a percentage of its net customer assets) improved to 0.61% from 0.68% in Q3FY2007.
- Currently the bank’s capital adequacy ratio (CAR) is at 11.57% with Tier-I at 6.42%. The bank has also aggressively raised its hybrid capital and has left itself very little headroom to grow its balance sheet. The bank plans to come out with a follow-on offer in FY2008 to boost its CAR. We have factored in an equity dilution of 3.6 crore shares (12.8%) of the pre-issue equity capital at an issue price of Rs500 per share.
- The bank opened 80 new branches during the quarter. Its deposits grew by 46.5% to Rs58,785.6 crore of which savings and current deposits grew by 50.3% and 41.8% respectively. The current and savings account (CASA) ratio remained stable on a year-on-year (y-o-y) basis but improved on a q-o-q basis to 40% from 37.1% reported in Q3FY2007 mainly due to an increase in the current account deposits, which as a proportion of deposits increased from 16.6% in Q3FY2007 to 19.2% in Q4FY2007. Advances reported a strong growth of 65.3% to Rs36,876 crore of which the retail advances were up by 37.6% to Rs8,928 crore. However on a q-o-q basis the retail advances have declined by 2.7% mainly due to a sell down in the personal loan portfolio.
- The actual PAT for FY2007 was 4% above our estimates at Rs659 crore and we have upgraded our FY2008 numbers by 4.8% to Rs851.1 crore mainly on account of lower operating expenses estimated for FY2008. At the current market price of Rs465 the stock is quoting at 17.4x its FY2008E earnings per share (EPS), 8.5x its FY2008E pre-provisioning profits (PPP) and 2.5x its FY2008E book value (BV). We feel the dilution would be book value accretive and maintain our Buy recommendation on the stock with a price target of Rs575.
HCL Technologies
Cluster: Apple Green
Recommendation: Buy
Price target: Rs410
Current market price: Rs301
Q3FY2007—first cut analysis
Result highlights
- HCL Technologies has reported a revenue growth of 7.6% quarter on quarter (qoq) and 39% year on year (yoy) to Rs1,577.1 crore for the third quarter ended March 2007. This is the third consecutive quarter of close to double-digit sequential growth in the revenues (in dollar terms) and far ahead of the street expectations. The sequential growth was contributed by a 16.4% growth in the business process outsourcing (BPO) revenues. On the other hand, the infrastructure management service (IMS) and software services businesses grew at a relatively lower rate of 6.4% and 6.5% respectively, on a sequential basis.
- The earnings before interest, tax, depreciation and amortisation (EBITDA) margins improved by 115 basis points to 23.3% on a sequential basis, despite the adverse impact of the steep appreciation of the rupee (1.6% appreciation in the average realised exchange rate against the US dollar). The sequential improvement in the margins was largely aided by the cumulative impact of better realisations (including non-effort-based gains from the output-based priced projects), higher utilisation (especially in the BPO business) and a 70-basis-point saving in the selling, general and administration (SG&A) cost as a percentage of sales.
- In terms of the segments, the EBITDA margins of all the three business lines improved on a sequential basis. The BPO business reported a second consecutive quarter of robust improvement in its margins, up by 360 basis points to 26.5%. The software services and IMS businesses reported an 85-basis-point and a 13-basis-point improvement respectively.
- The earnings grew at a robust rate of 15.9% qoq and 72.1% yoy to Rs331.8 crore (ahead of our expectations of Rs290 crore and the consensus estimates of a flat or negative growth sequentially, especially after the higher base resulting from the robust performance in the previous two quarters). The growth in the earnings was also aided by the foreign exchange (forex) gains of Rs41.8 crore on the open forward contracts, up from Rs34.7 crore reported in Q2FY2007.
- In terms of the operational highlights, the ramp-up in the large deals is beginning to make a material impact on the overall performance. Moreover, the company continues to bag new multi-million, multi-year, multi-services deals and has announced six new deals in Q3--five in the range of $25-50 million each and one over $50 million.
- Given the company's higher-than-expected performance for the past three consecutive quarters and the continued traction in the intake of large deals, we would upgrade our estimates for FY2007 and FY2008 and introduce FY2009 estimates in the detailed result analysis report. At the current market price the stock trades at 18x FY2007 and 14.5x FY2008 estimated earnings. We maintain our Buy recommendation on the stock with a price target of Rs410.
MUTUAL FUND: INDUSTRY UPDATE
Equity AUMs rise in line with market movement
The AUM for equity funds rose by 1.3% to Rs139,147 crore in March 2007. The rise in the AUM was more or less in line with the market movement of 1%.
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