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Mphasis Q4FY10 Result Update; No Negative Surprise is a positive surprise; HOLD; Target: Rs.630
n Marginally ahead of estimated revenues at $ 290 mn (+7% QoQ) mainly driven by recoveries of revenues forgone in Q3 in Asia Pac Region
n EBITDA mgns were at 23.8%, down by ~90 bps QoQ on reported basis (we estimated flat margins) while were down by ~110 bps to 22.3% (ex hedging contribution)
n Overall headcount addition was flat driven by reduction in BPO Headcount by 1,141 and increase by 300/836 in Apps/ITO (Total Headcount at 39,962). Pricing was nearly flat
n Current Valuations at 10.7x/10.2x based on E EPS Rs 52.3/55 for Oct11/Oct12 with HOLD rating and target price of Rs 630, will be reviewed post the call scheduled at 11.30 a.m. today
Fertiliser Policy Update; Lower subsidy - Negative for complex fertiliser players
n Government of India (GoI) has negatively surprised by reducing subsidy rates on complex fertilisers by ~20% under Nutrient Based Subsidy (NBS) scheme w.e.f. 1st Apr ’2011
n Although, the policies indicate GoI moving towards complete decontrol of the fertiliser industry, they are likely to have negative impact on complex fertiliser players in the near term
n Impact on earnings will mainly depend on 1) company’s ability to negotiate lower prices with global raw material suppliers and 2) price increase to the farmers
n We estimate FY12E earnings downgrade by 15-20% for Coromandel and GSFC while Tata Chemicals, Chambal, GNFC and Deepak Fertilisers are unlikely be affected
Bharati Shipyard Event Update; Tebma acquisition – No near term benefits; REDUCE; Target: Rs 196
n Bharati Shipyard plans to acquire controlling 51% stake in Tebma Shipyard at an investment of Rs757.5 mn
n Tebma (an offshore vessel manufacturer) has order book of Rs7.5 bn. In FY10, it posted loss of Rs1.9bn, had a networth of Rs(-)0.5 bn and debt of Rs4.3 bn
n Expect no positives from the above deal in near-to-medium term in view of (1) un-conducive business environment and (2) deteriorating financial health and (3) strained cash flows
n Retain ‘Reduce’ rating for BSL with target of Rs196/Share (Core shipbuilding: Rs117 + Great Offshore Stake: Rs79); Only caveat is meaningful subsidy disbursement
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