PULSE TRACK
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July 2006 trade deficit gives positive surprise
STOCK UPDATE
HCL
Technologies
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs670
Current market price: Rs585
Results ahead of expectations
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HCL Technologies has reported a robust revenue
growth of 11.8% quarter on quarter (qoq) and 35.2% year on year
(yoy) to Rs1,253.8 crore for the fourth quarter ended June 2006.
The sequential growth was driven by an 11.4% increase in the
revenues of the software service business and a growth of 19.7% in
the infrastructure management service (IMS) business. The business
process outsourcing (BPO) business grew at a relatively lower rate
of 6.9% on a sequential basis.
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The earnings before interest, tax, depreciation
and amortisation (EBITDA) improved marginally to 22.4% on a
sequential basis. The margins in the software service business
declined by 30 basis points sequentially but the decline was
compensated by an improvement in the EBITDA margin of the BPO (up
130 basis points) and the IMS (up 200 basis points) businesses.
The operating profit grew 12.7% qoq and 33% yoy to Rs281.5 crore.
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The company suffered a foreign exchange (forex)
fluctuation loss of Rs16.6 crore. The other income (excluding the
forex impact) was also lower by 17.2% on a sequential basis.
However, the adverse impact of the same was mitigated by the
$4.5-million one-time write-back in the tax provisions (including
$3 million of provision for the fringe benefit tax taken in the
direct cost as per US GAAP and other tax write-back of $1.5
million). Consequently, the earnings grew at a robust rate of
20.8% qoq and 43.8% yoy to Rs233 crore, ahead of our expectations
of Rs222.5 crore.
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On the full year basis, revenues grew 30.5% to
Rs4,388.3 crore. The EBITDA margin was lower by 50 basis points at
22.2% and the earnings grew 27.1% to Rs773.9 crore.
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In terms of operational highlights, the company
added 2,678 employees during the quarter, one of the highest in
the past eight quarters. The revenues from the top 20 clients grew
at a robust rate of 13.6% on a sequential basis. The company would
provide the annual salary hike with effect from July (with the
increments for the middle and senior management effective from
October).
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At the current market price the stock trades at
19.2x FY2007 and 15.4x FY2008 estimated earnings. We maintain our
Buy recommendation on the stock.
Television Eighteen
India
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs704
Current
market price: Rs659
Value of unlocking starts
Global
Broadcast News (GBN) has filed a draft red herring prospectus (DRHP)
to raise Rs105 crore through an initial public offering (IPO). GBN
is a Television Eighteen India (TV18) group company. Under the
scheme of arrangement for the restructuring of the TV18 group (see
our note "Revising price target to Rs704"), the ownership of GBN is
to be transferred to TV18 and Network 18 India.
SECTOR UPDATE
Textile
Book out of textile stocks
Given
the unfavourable scenario of a further slowdown in the demand
globally, cost pressures from the expected firming up of the cotton
prices and higher incremental cost from the commissioning of
additional capacities, the earning of the domestic textile companies
would continue to remain under severe pressure. We advise booking
out of the textile stocks under our coverage: Alok Industries,
Aarvee Denim and Exports, and Welspun India.
Automobile
Monsoon, floods affect two-wheeler
sales
The months of July and August are generally lean months
for the automobile sector. Our channel checks reveal the same,
except for some players, which have been witnessing a considerable
bigger quantum of slowdown in the sales. The sales have been
impacted more than normal due to the recent flooding in some parts
of the country, particularly in Maharashtra, Gujarat and Andhra
Pradesh.
