Summary
of Contents
STOCK UPDATE
Infosys
Technologies Cluster:
Evergreen Recommendation: Buy Price target:
Rs2,430 Current market price: Rs1,981
Far ahead of
street expectations
Result
highlights
-
Infosys
Technologies has reported an impressive revenue growth of 14.5%
quarter on quarter (qoq) and of 50.4% year on year (yoy) to
Rs3,451 crore for the second quarter ended September 2006. The
sequential growth in the revenues was driven largely by an 11.2%
growth in the volume in the information technology (IT) service
business. The uptick in the blended billing rate (up 1.2%) and
depreciation of the rupee (1.3%) also aided the sequential growth
in the revenues.
-
But the
highlight of the performance was the smart improvement of 260
basis points in the operating profit margin (OPM) on a sequential
basis. The margin improvement was possible due to the cumulative
impact of a lower visa cost (1.1%), the positive impact of foreign
exchange (forex) fluctuation (0.9%) and savings in the selling,
general and administration (SG&A) expenses (0.6%) as a
percentage of sales.
-
Consequently,
the earnings grew 17.1% qoq and 58.5% yoy to Rs929 crore, despite
the substantial reduction in the other income to Rs66 crore (as
compared with Rs128 crore in Q1). The rupee depreciation resulted
in a net positive impact of Rs11 crore (reflected in the other
income component) as compared with Rs52 crore in Q1.
-
In addition to
announcing a robust performance in Q2, the management revised
upward its growth guidance once again. The consolidated revenues
are now guided to grow in the range of 45.5-46% to Rs13,400-13,899
crore (up from Rs13,350-13,400 crore revised guidance given with
the Q1 results). The earnings are guided to grow by 46.6% to Rs66
per share (up from Rs62.25-62.85 given with the Q1
results).
-
In terms of
the guidance for Q3, the revenues and earnings (in rupee terms)
are guided to grow sequentially by 4.4-5% and 0.5% respectively.
The management expects appreciation of the rupee and relatively
lesser number of working days to not only limit the growth in the
revenues but also adversely affect the margins in Q3.
-
At the current
market price the scrip trades at 29x FY2007 and 22x its FY2008
estimated earnings. We maintain our Buy call on the stock with a
revised price target of Rs2,430 (27x FY2008E earnings).
BASF India Cluster: Ugly
Duckling Recommendation: Buy Price target:
Rs300 Current market price: Rs231
Unexciting
quarter
Result
highlights
-
BASF India
(BASF) reported unexciting results for Q2FY2007, as the net profit
for the quarter grew by 19.8% year on year (yoy) aided by lower
depreciation, higher other income and stable tax rate.
-
The net sales
for the quarter under review grew by 14.2% yoy to Rs218.5 crore on
the back of a strong growth (23.9%) in the sales of performance
products.
-
The operating
profit grew by a slower 7.1% as the operating profit margin (OPM)
declined by 100 basis points to 15.5%. The steep rise in the other
expenses led to contraction in margins. The raw material cost
remained stable during the quarter.
-
The lower
depreciation led to a stronger growth in the profit before
interest and tax (PBIT) at 17.2% to Rs31.6 crore.
-
With a flat
interest outgo and a stable tax rate, the net profit grew by 19.8%
to Rs20.4 crore.
-
At the current
market price of Rs231, the stock is quoting at 8.3x its FY2008E
earnings per share (EPS) and 4.7x its FY2008E enterprise value
(EV)/earnings before interest, depreciation, tax and amortisation
(EBIDTA). We believe that the stock is trading at attractive
valuations, given the bright outlook for the company's business
over the next two years. We reiterate our Buy recommendation on
BASF with a price target of Rs300.
VIEWPOINT
Dr Reddy's
Laboratories
Migraine drug
adds to profitability Dr Reddy's
Laboratories has settled a patent litigation with GlaxoSmithKline
(GSK) in relation to GSK's anti-migraine drug Imitrex. Under the
terms of the settlement, Dr Reddy's will be permitted to launch the
authorised generic version of Imitrex (in the 25mg, 50mg and 100mg
strengths) in the USA in the fourth quarter of CY2008. The launch of
the product will be ahead of the expiry of the paediatric
exclusivity on Glaxo's patent number 5037845 for Imitrex on February
6, 2009. However, the terms of the settlement are subject to review
by US federal agencies.
MUTUAL FUNDS: WHAT�S IN�WHAT�S OUT
Fund
Analysis: October 2006
An analysis has
been undertaken on equity and mid-cap funds� portfolios, indicating
the favourite picks of fund managers for the month of September
2006. Equity funds comprise of all diversified, index, sector and
tax planning funds, whereas mid-cap funds include a universe of 17
funds such as Reliance Growth, Franklin India Prima Fund, HDFC
Capital Builder, Birla Mid-cap Fund
etc. |