Summary
of Contents
STOCK UPDATE
-
Inflation spurts
above 6%
STOCK UPDATE
Wipro
Cluster:
Apple Green
Recommendation: Buy
Price target: Rs708
Current
market price: Rs580
Price target
revised to Rs708
Result
highlights
-
Wipro's global
information technology (IT) service business reported a growth of
5.1% quarter on quarter (qoq) and 32.6% year on year (yoy) to
Rs3,035.7 crore (under US GAAP) for Q4FY2007. The numbers are
largely in line with our expectations. In dollar terms, the
revenues grew at a reasonably healthy rate of 7.8% sequentially to
$690.7 million, which was contributed by a 7.4% growth in the IT
service business and an 11.3% growth in the business process
outsourcing (BPO) business. The sequential growth in the IT
service business was driven by a volume growth of 5.4% and an
improvement of 2% in the average realisations. On the other hand,
the sequential growth in the BPO business was purely driven by a
13.9% improvement in the average realisation with a decline of
1.4% in the volumes.
-
In terms of
its operating profit margin (OPM), the adverse impact of wage
hikes (a 3-4% hike to the onsite employees with effect from
January 2007; a net impact of 60 basis points) and the rupee
appreciation (a negative impact of 80 basis points) was partially
mitigated by the smart improvement in realisation (in both the IT
service and BPO businesses), an improvement in employee
utilisation, lower losses in the acquired entities and other cost
efficiencies. This resulted in a net impact of 20-basis-point
sequential decline in the OPM (to 23.5%) of the global IT service
business.
-
On the flip
side, the revenue growth guidance of $711 million implies a muted
sequential growth below 3% in the revenues of the global IT
service business during Q1. In fact, given the appreciation of the
rupee, the growth in rupee terms could be flat or even negative
during Q1FY2008. However, the first quarter tends to be generally
slow for the company and doesn't reflect the robust demand
environment and strong visibility of its revenue
growth.
-
In addition to
a decent growth in the global IT service business, the robust
sequential growth of 15.8% in the Indian IT service business
enabled the company to report a healthy growth of 9.3% qoq and 42%
yoy in its consolidated revenues to Rs4,334.5 crore. The OPM
declined by 50 basis points to 18.9% largely due to higher sales,
general and administrative (SG&A) expenses, resulting in a
relatively lower growth of 6.2% qoq in its consolidated earnings
to Rs791.4 crore (after adjusting for the tax write-back of Rs70
crore) during the quarter.
-
We have
slightly revised down the FY2008 earnings estimates to factor in
the lower exchange rate and introduced the FY2009 earnings
estimates. At the current market price the scrip trades at 23.5x
FY2008 and 18.8x FY2009 estimated earnings. We maintain our Buy
call on the stock with a price target of Rs708 (23x FY2009E
earnings).
Satyam Computer Services
Cluster:
Apple Green
Recommendation: Buy
Price target: Rs550
Current
market price: Rs473
Q4FY2007—first cut
analysis
Result
highlights
-
Satyam
Computer Services (Satyam) reported a revenue growth of 7.1%
quarter on quarter (qoq) and 35.4% year on year (yoy) to Rs1,779
crore during the fourth quarter. The revenue growth was higher
than expectations and was driven by a healthy volume growth of
9.5% on a sequential basis. On the other hand, the 1.7%
appreciation in the rupee limited the sequential growth in the
revenue during the quarter.
-
The operating
profit margin (OPM) declined by 162 basis points to 23.1% on a
sequential basis, largely due to the adverse impact of the charges
related to restricted stock units (RSU; 91 basis points) and
higher personnel cost (135 basis points). It was partly mitigated
by a 64-basis-point saving in the selling, general and
administrative (SG&A) expenses as a percentage of sales. Thus,
the operating profit was flat on a sequential basis.
-
However, the
earnings growth was boosted by the steep increase in the other
income component to Rs70.4 crore (up from Rs10.1 crore in Q3) as
the company accrued better yield on investments and reported
foreign exchange (forex) gains of Rs3.8 crore as against a forex
fluctuation loss of Rs35.5 crore in Q3FY2007. Consequently, the
consolidated earnings grew by 16.7% qoq and 38.3% yoy to Rs393.6
crore, which is much ahead of the consensus estimate of around
Rs358 crore.
-
On the full
year basis, the consolidated revenues and earnings grew by 35.3%
to Rs6,485 crore and 43.1% to Rs1,404.8 crore respectively. The
OPM declined by 60 basis points to 23.7% in line with the revised
guidance of the company.
-
In terms of
the guidance for FY2008, the consolidated revenues and earnings
are guided to grow in a healthy range of 28-30% and 27-29%
respectively. The growth in the rupee terms would be dented by the
600-basis-point appreciation in the rupee (exchange rate of Rs42.3
per US dollar assumed in guidance), resulting in the revenue and
earnings growth guidance of 20-22% and 18-20% respectively. The
margin is expected to remain flat in FY2008 as the cumulative
adverse impact of around 6.2-6.5% from the rupee appreciation,
wage inflation and RSU charges (around $20 million) are expected
to be nullified by better realisation (200-300 basis points),
better performance of its subsidiaries and other cost efficiencies
(like offshore shift, lower SG&A as a percentage of sales,
broadening of the employee pyramid and better management of the
fixed priced projects). On the flip side, the earnings growth
guidance for Q1FY2008 is quite subdued (flat or marginally
negative).
-
We would
review the FY2008 earning and introduce the FY2009 estimates in
the detailed note. At the current price the stock trades at 18x
FY2008 estimated earnings (including the non-cash charges for the
stock options). We maintain our Buy call on the stock.
ACC
Cluster: Apple
Green
Recommendation: Buy
Price target: Rs880
Current
market price: Rs791
Price target
revised to Rs880
Result
highlights
-
ACC's
pre-extraordinary net profit for the first quarter of CY2007 grew
by 39% year on year (yoy) to Rs344 crore, in line with our
expectations.
-
The net sales
grew by 26.7% yoy to Rs1,674 crore of which Rs1,619 crore came
from selling cement. Even though cement volumes dipped by 3.8% yoy
on account of maintenance and shut-downs during the quarter, the
drop was more than offset by higher realisations (a growth of 30%
yoy).
-
The
expenditure grew by 15% yoy but remained flat on a quarterly basis
at Rs1,167 crore. On account of a higher realisation growth, the
operating profit grew by 60.9% yoy. The operating profit margin
(OPM) expanded by 650 basis points on a yearly basis and by 140
basis points on a sequential basis.
-
The earnings
before interest, tax, depreciation and amortisation (EBITDA) per
tonne for the quarter stood at Rs1,040, clocking a year-on-year
(y-o-y) growth of 67% and a quarter-on-quarter (q-o-q) growth of
6.7%.
-
The interest
cost stood at Rs4 crore whereas the depreciation provision dropped
to Rs62 crore.
-
To enhance its
focus on the ready-made concrete (RMC) business, the company's
board approved the transfer of the RMC business to a 100%
subsidiary called ACC Concrete.
-
Cushioned by
an other income component of Rs28 crore, the profit after tax
(PAT) grew by 39% yoy to Rs344 crore. Considering an extraordinary
income of Rs19 crore on account of the sale of ACC's residual
stake in Everest Industries, the net profit stood at Rs363
crore.
-
In order to
boost its volume growth in future, the company is carrying out a
slew of measures that will result in higher capacity in each of
the next three years. By the end of the current year, the
company's total capacity will expand by 4 million metric tonne
(MMT) on account of de-bottlenecking at its various plants.
-
Taking
cognisance of the price freeze for the next one year and expecting
the fresh capacities to start kicking in by the second half of the
next financial year, we have assumed a realisation growth of 6%
for CY2007 and no growth for CY2008. Thus, we are downgrading our
CY2008 earnings per share (EPS) estimate by 16% to Rs66. But
considering the lower depreciation provided by the company in the
quarter, we are marginally upgrading our CY2007 EPS estimate to
Rs71.4.
-
At the current
market price of Rs791 per share, ACC is trading at 11.0x its
CY2007E earnings and 12.0x its CY2008E earnings. On an enterprise
value (EV) per tonne basis, the stock currently trades at USD127
per tonne on CY2008E capacity. The last three months have been
tumultuous for the cement industry on account of uncertainties
over prices due to excise duty hikes, price freeze etc. It may be
recalled that we had mentioned in our previous note that we would
be reviewing our price target. Now considering the revised
earnings estimates for CY2007 and CY2008, we are downgrading our
price target to Rs880 per
share. | |
