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Summary
of Contents
PULSE TRACK
STOCK UPDATE
Infosys Technologies
Cluster:
Evergreen
Recommendation: Buy
Price target: Rs2,520
Current
market price: Rs2,088
Chinks in the
armour
Result
highlight
-
For the fourth
quarter of FY2007, the consolidated revenue of Infosys
Technologies (Infosys) grew at a tepid rate of 3.2% quarter on
quarter (qoq) and 43.8% year on year (yoy) to Rs3,772 crore. The
company has not been able to meet the consensus estimate of a 5-6%
sequential growth in the revenue and, for the first time, it could
not achieve even the lower end of its own guidance. This
essentially means that the company, known for its conservatism,
couldn't manage even an unexpected 0.8% higher appreciation in the
rupee (an average realisation of Rs43.75 against an assumption of
Rs44.11).
-
The sequential
decline of 100 basis points in its operating profit margin (OPM)
to 31.7% has been largely contributed by the adverse impact of the
appreciation in the rupee, higher selling, general and
administration (SG&A) expenses and the sequential decline in
the utilisation rate. On the other hand, the 1.7% sequential
improvement in the billing rates positively affected the
margins.
-
The other
income more than doubled to Rs119 core (up from Rs59 crore in
Q3FY2007) due to significantly higher yield on investments during
the quarter. The translation loss was also limited to just Rs5
crore which is quite commendable given the 1.8% appreciation in
the rupee and sundry debtors in excess of $500
million.
-
Consequently,
the consolidated earnings grew at a relatively higher rate of 3.8%
to Rs1,020 crore (excluding the tax write-back of Rs124 crore
related to overseas locations in earlier years). This is again
lower than street expectation of around Rs1,040
crore.
-
On the full
year basis, the revenue and earnings grew by 45.9% and 51.6%
respectively. The OPM declined by 90 basis points to 31.6% in
FY2007. However, the jump of 167.6% in the other income component
boosted the overall growth in the earnings and resulted in a
100-basis-point improvement in the net margin to 26.8% (excluding
one-time items).
-
In terms of
the FY2008 guidance, the company has been able to meet the street
expectations for the growth in dollar terms. It has guided for
consolidated revenue of $3.95-4.02 billion (a growth of 28-30%)
and an earnings per share (EPS) growth in the range of 25.7-27.7%.
However, given the rupee appreciation, the consolidated revenue in
rupee terms is guided to grow at a relatively much lower rate of
22.6-24.6% (Rs17,038-17,308 crore). The EPS growth in rupee terms
is guided in the range of 20-22% (Rs80.3-81.6) which factors in
the adverse impact of the exchange rate fluctuations and around 3%
dilution in the equity base during the fourth quarter. The EPS
growth guidance is lower than the street
expectations.
-
The guidance
for Q1FY2008 is all the more muted with the earnings guided to
remain flat and EPS guided to decline by 1.4% (due to dilution of
equity). The consolidated revenues are guided to grow in the range
of 3.3-3.7% sequentially.
-
We have
revised downwards the earnings estimate for FY2008 by around 7% to
factor in the dilution of the equity capital and appreciation of
the rupee. We maintain the Buy call on the stock with a revised
price target of Rs2,520 (24x its FY2009 earnings estimate of Rs105
per share).
ITC
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs200
Current
market price: Rs154
ITC ties up
with Starwood
The
speculation over the state of alliance between ITC-Welcomgroup and
its international partner Starwood Hotels & Resorts has ended.
The two companies have announced a tie-up under which Starwood
Hotels & Resorts will bring its premium brand Luxury Collection
to India. This new alliance will help ITC to climb up the value
chain. |
