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Summary
of Contents
STOCK UPDATE
Tata Consultancy
Services
Cluster:
Evergreen
Recommendation: Buy
Price target:
Rs2,190
Current market price: Rs1,758
A strong revenue growth
Result highlights
-
For Q1FY2007 Tata Consultancy Services (TCS)
has reported a growth of 11.3% quarter on quarter (qoq) and of
42.3% year on year (yoy) in its consolidated revenues to Rs4,144
crore. The sequential revenue growth was driven by an 8.1% growth
in the volumes (7.1% organic and 1% inorganic) with another 3.2%
growth coming from the depreciation of the rupee. The billing
rates were stable during the quarter.
-
The operating profit margin (OPM) declined by
220 basis points to 24.2% on a sequential basis, largely due to
the cumulative impact of the integration cost, the ramp-up in
large deals and the annual salary hikes (15% on an average for the
offshore employees) given in Q1FY2007. The operating profit grew
by 1.9% qoq to Rs1,001.6 crore.
-
However, the decline in the depreciation
charges as a percentage of revenues and the healthy jump in the
other income component to Rs66.8 crore (driven by the positive net
foreign exchange [forex] impact of Rs40 crore) boosted the
consolidated earnings growth by 8.4% qoq to Rs862.6 crore (higher
than our estimate of Rs853.9 crore).
-
In terms of outlook, the company does not
provide any specific growth guidance. However, the management
re-iterated that the demand environment is quite favourable. The
management indicated that for the full year it aims to maintain
the OPM at around the 25.8% level reported in FY2006. However, it
appears to be a difficult task as the guidance implies a
considerable improvement in the OPM over the coming quarters. We
expect the OPM to decline by 90-100 basis points to around 24.8%
during the current year.
-
The company has announced an interim dividend
of Rs3 per share.
-
At the current market price the stock trades at
22.4x FY2007 and 17.8x FY2008 revised earning estimates. We
maintain our Buy call on the stock with the price target of
Rs2,190.
New Delhi
Television
Cluster: Emerging
Star
Recommendation: Buy
Price target: Rs270
Current
market price: Rs146
Strong quarter but cost pressures rise again
Result highlights
-
The revenues of New Delhi Television (NDTV)
grew by a strong 57% year on year (yoy) in Q1FY2007 to Rs63.7
crore. The growth in the revenues was backed by a strong growth in
all the channels.
-
The operating profit margin (OPM) for the
quarter expanded by 420 basis points to 12.2% backed by a stable
employee cost. As a result the operating profit grew by 141% yoy
to Rs7.8 crore.
-
The net profit for Q1FY2007 grew ten-fold over
the last year to Rs2.7 crore.
-
In our last note on NDTV, "Takeaways from
management meeting" dated June 22, 2006, we had mentioned that the
intensifying competition could put pressure on the production and
marketing costs of the company.
-
During Q1FY2007, the pressure on the marketing
and distribution (M&D) cost was visible as the same jumped up
from 10.6% of sales in Q1FY2006 to nearly 14.6% in Q1FY2007.
-
We have revised our earnings estimates for
FY2007 and FY2008 downwards by 11% and 7% respectively to take
into account the additional M&D costs.
-
At the current market price of Rs146, the stock
is quoting at 12.5x its FY2008E earnings per share (EPS) and 7.4x
FY2008E enterprise value (EV)/earnings before interest,
depreciation, tax and amortisation (EBIDTA). We reiterate our Buy
recommendation on the stock with a revised price target of
Rs270.
ICI
India
Cluster: Ugly
Duckling
Recommendation: Buy
Price target:
Rs420
Current market price: Rs293
ICI announces buy-back
ICI India has announced a buy-back of its shares
through market operations. ICI intends to utilise up to Rs125 crore
on the buy-back exercise. The buy-back exercise will be through
market operations, which means that the company will be acquiring
the shares through the stock exchanges as and when it deems the
stock price is prudent.
The maximum price limit has
been fixed at Rs350 per share for the buy-back of shares. The
company will have to obtain the shareholders' approval through a
special resolution. We expect the process of the buy-back to start
from September 2006 and under the guidelines issued by the
securities and exchange board of India, the shareholders' approval
will be valid for one year, ie, till September 2007.
Crompton
Greaves
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,144
Current market price: Rs910
Powerful performance
Result highlights
-
Crompton Greaves� (Crompton) revenues grew by
an impressive 42.5% year on year (yoy) in Q1FY2007 to Rs740.6
crore. The operating profit margin (OPM) improved by 100 basis
points yoy in the quarter to 9.7%, driven by strong order booking
and better cost management. Consequently, the operating profit
grew by 58.7% yoy to Rs72.2 crore. The results on the operational
front are ahead of our expectations.
-
Although all its three divisions reported
strong performances, the power systems division was the pick of
the lot with a growth of 66.4% yoy to Rs346.9 crore. The consumer
products division grew by 27.8% yoy to Rs265.8 crore and the
industrial systems division grew by 26.8% yoy to Rs189.5 crore.
-
The growth in the net profit during the quarter
was slower at 16.4% yoy (in comparison with the growth in the
revenue and operating profit), but was still in line with our
expectations. The slower growth was attributable to a higher tax
rate of 41% (including deferred tax) in the quarter, as the
company no longer falls under the minimum alternative tax (MAT)
regime, as was the case last year.
-
Crompton had a stand-alone order backlog of
Rs1,789 crore as on June 30, 2006. The order backlog grew by 32%
quarter on quarter (qoq) and by 47.8% yoy. An order book to
revenues of 0.9x FY2006 (excluding the consumer products business)
renders a strong visibility to the company�s earnings.
-
Its Belgium subsidiary, Pauwels reported good
numbers. The revenue grew impressively by 25% yoy to Rs488.0 crore
and the profit before tax stood at Rs18.3 crore. It had an
operating profit margin of 6.5% versus 5.3% in FY2006, a jump of
120 basis points. The performance is in line with our estimates.
-
In the annual general meeting (AGM), the
management reiterated the positive outlook for the company and is
optimistic about the growth prospects (a stand-alone revenue
growth guidance of 25% for FY2007 is maintained). Further, the
management aims to replicate the success of its inorganic growth
in transformers (through Pauwels) in its switchgears business.
-
At the current market price of Rs910, Crompton
is trading at price-earnings ratio (PER) of 13.7x its FY2008E
consolidated earnings and enterprise value (EV)/earnings before
interest, depreciation, tax and amortisation (EBIDTA) of 7.7x
FY2008E. We maintain a Buy on the stock with a price target of
Rs1,144, discounting its FY2008E consolidated earnings by 18x.
Wipro
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs552
Current
market price: Rs458
Integration pangs
Result highlights
-
Wipro reported a 2.5% quarter-on-quarter
(q-o-q) and a 36.9% year-on-year (y-o-y) growth in its
consolidated revenues to Rs3,131 crore.
-
The operating margins slid by 20 basis points
to 20.8%, largely due to an increase of 160 basis points in
selling, general and administration (SG&A) cost to 11.6% of
sales. The company invested in its sales and marketing
infrastructure and added 44 members to the existing sales team of
213 employees in global information technology (IT) services at
the beginning of the quarter.
-
The other income stood at Rs50.7 crore, up from
Rs21.4 crore in Q1FY2006 and from Rs40 crore in Q4FY2006.
Consequently, the consolidated earnings grew by 2.8% quarter on
quarter (qoq) and by 43.9% year on year (yoy) to Rs614.2 crore.
-
In terms of the performance of the global IT
services business, the revenue grew by 7.1% qoq and by 40.6% yoy
to Rs2,451.3 crore. The revenues from the IT services segment
(including acquisitions) grew by 7.7% qoq (organic revenue growth
of 7.1%) whereas the revenues from the business process
outsourcing (BPO) segment grew at a tepid rate of 1% on a
sequential basis. Despite the positive impact of the depreciation
in the rupee, the operating margins declined by 60 basis points
primarily due to the operating loss of Rs12.9 crore reported by
the acquired entities during the quarter.
-
In Q2, the revenues from the global IT services
business are expected to grow at a sequential rate of 7% to $577
million according to the guidance given by the company. The
guidance includes around $10-11 million incremental revenues from
the full impact of the acquisitions that were concluded in
Q1FY2007. Thus, according to the guidance the existing business is
expected to grow by only 5.1% on a sequential basis.
-
At the current market price the scrip trades at
25.2x FY2007 and 19.9x FY2008 estimated earnings. We maintain our
Buy call on the stock with a target price of Rs552.
Associated Cement
Companies
Cluster: Apple
Green
Recommendation: Buy
Price target:
Rs1,050
Current market price: Rs780
Q2CY2006 results�first cut analysis
Result highlights
-
ACC's Q2CY2006 pre-exceptional net profit at
Rs259 crore is above our expectations primarily because of the
higher-than-expected improvement in the cement realisations.
-
The net sales for the quarter grew by a healthy
32%, to Rs1,462 crore driven by the volumes growth of 5.7% and the
realisations growth of a whopping 31% year on year (yoy).
-
The company's operating profit margin (OPM) for
the quarter improved by a staggering 1,190 basis points to 31.2%,
primarily driven by a sharp improvement in the cement
realisations, which brought the operating leverage into play.
-
With a 32% growth in the revenues and a
1,190-basis-point improvement in the OPMs, the operating profit
for the quarter jumped by a steep 113.6% to Rs455 crore.
-
On the cost front, despite a 33.5% increase in
the staff cost, an 11.6% increase in the freight cost and a 9.4%
increase in the power and fuel costs, the total cost per tonne
increased by only 6.5%.
-
With a lower debt burden and the conversion of
the foreign currency convertible bonds (FCCBs) into equity shares,
the interest cost declined by 33% in the quarter. The
pre-exceptionl net profit for the quarter jumped by a handsome
98.4% to Rs259 crore. The reported net profit, which includes the
gain from the sale of the land and the Mancherial unit (which we
have treated as extraordinary items) stood at Rs405 crore, up
191%.
MONSOON
WATCH
Monsoon enters a
crucial phase
For the period June 1-July
12, 2006 the monsoon is 10% below normal. The sowing of
kharif crops (barring bajra and soy bean) has not been
affected as yet. The total crop sowing area up to July 12 has
increased by 12% to 27.2 million hectare over the corresponding
period last year. To assess the impact of the monsoon one needs to
measure its deficiency in the rain dependent area as it covers 72%
of the total crop area in the country of nearly 186 million hectare.
The impact of a deficient monsoon will be limited in the areas that
are well irrigated as well as that receive ample rainfall. Up to
July 12, the rainfall was deficient for 21% of the 135 million
hectare of the crop area that is rain dependent. The states of
Madhya Pradesh and Chattisgarh have received a deficient rainfall
leading to lower sowing of the soy bean crop. Although the sowing of
rice is lagging behind a bit in Punjab, a revival in the rainfall
activity will be sufficient to take care of the shortfall, as Punjab
is one of the well-irrigated
states. |
