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IT Services Outlook 2011: Small deals ring bigger opportunities [Aniruddha
Bhosale]
We believe the Street is underestimating potential demand from newer avenues
such as cloud computing and continental Europe and the positive impact of
smaller average deal sizes. The financial services sector continues to drive
demand and hence we prefer Infosys and TCS. With an earnings CAGR of 21-25%
over FY11-13E, strong balance sheets and high FCF yield of 4-5%, Infosys and
TCS are our top picks within the sector. Amongst midcaps we like Tech Mahindra,
which will likely show better growth momentum in 2HCY11E. Sell Mindtree.
HDFC Bank: Premier positioning both on assets & liabilities [Dipankar
Choudhury]
We maintain Buy on HDFC Bank with target price lowered to INR2,525 from
INR2,715 due to overall sector headwinds. Inherent strengths of HDFC Bank –
high CASA (low-cost deposit) ratio and pricing power in the segments to which it
lends – should enable the bank to grow at a healthy pace and yet largely protect its
NIM. With the peak of retail NPLs probably behind us, credit costs are likely to
remain low. FY12E P/E of ~18x is also attractive for a bank that has demonstrated
ability to grow earnings at ~30% CAGR.
JSW Steel: 3Q operating results in line; 4Q to be significantly better [Abhay
Laijawala]
JSW Steel’s 3Q’FY11 consolidated EBITDA came broadly in line with our
estimates. The headline numbers were adversely impacted on account of lower
than expected ‘Other income’ and came in ~12% below our expectations. JSW
Steel was able to improve its EBITDA/tonne by 3% QoQ despite flat realizations
and a marginal sequential increase in raw material cost/tonne. Volume growth
continues to be the key earnings driver for JSW Steel and the company remains
on track to deliver a volume growth of ~24% over FY11-13. Maintain Buy.
Idea Cellular Limited: Defending its turf creditably; maintaining Hold
[Srinivas Rao]
We are raising our TP to Rs70 to reflect an expected fall in competitive intensity
and lower-than-forecast impact of competition on Idea’s revenue share, network
traffic and margins. The company’s operating performance has been creditable as
it has managed to temper the impact of competition and contain losses in its
newer markets. Idea also looks well placed to extract the value of 3G as those
markets account for c.75% and 90% of its current revenues and EBITDA. At the
current price, the risk-reward looks fair; we retain our Hold.
Marico Limited: In-line earnings; Copra price the key trigger now – Buy
The high copra price was the key dampener in an otherwise strong business
performance. We believe copra prices are almost at their peak cycle and should
fall as the best produce hits the market in February. Although price increases of
24% YoY in Parachute should provide a cushion to margins, a weakening copra
price will likely help recover lost margins in 4QFY11. We maintain a Buy rating on
Marico with a target price of INR150.
The Investigator: The rise of the West (and Japan) [Ajay Kapur]
India’s RBI still has a lot more wood to chop than the PBoC. No country allocation
changes this month. O/W: Hong Kong, Korea, Philippines and Thailand; U/W: India
and Taiwan tech. We are O/W cyclical sectors like autos, retailing, capital goods
and transportation and U/W tech, staples, utilities, and select telcos.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
IT Services Outlook 2011: Small deals ring bigger opportunities [Aniruddha
Bhosale]
We believe the Street is underestimating potential demand from newer avenues
such as cloud computing and continental Europe and the positive impact of
smaller average deal sizes. The financial services sector continues to drive
demand and hence we prefer Infosys and TCS. With an earnings CAGR of 21-25%
over FY11-13E, strong balance sheets and high FCF yield of 4-5%, Infosys and
TCS are our top picks within the sector. Amongst midcaps we like Tech Mahindra,
which will likely show better growth momentum in 2HCY11E. Sell Mindtree.
HDFC Bank: Premier positioning both on assets & liabilities [Dipankar
Choudhury]
We maintain Buy on HDFC Bank with target price lowered to INR2,525 from
INR2,715 due to overall sector headwinds. Inherent strengths of HDFC Bank –
high CASA (low-cost deposit) ratio and pricing power in the segments to which it
lends – should enable the bank to grow at a healthy pace and yet largely protect its
NIM. With the peak of retail NPLs probably behind us, credit costs are likely to
remain low. FY12E P/E of ~18x is also attractive for a bank that has demonstrated
ability to grow earnings at ~30% CAGR.
JSW Steel: 3Q operating results in line; 4Q to be significantly better [Abhay
Laijawala]
JSW Steel’s 3Q’FY11 consolidated EBITDA came broadly in line with our
estimates. The headline numbers were adversely impacted on account of lower
than expected ‘Other income’ and came in ~12% below our expectations. JSW
Steel was able to improve its EBITDA/tonne by 3% QoQ despite flat realizations
and a marginal sequential increase in raw material cost/tonne. Volume growth
continues to be the key earnings driver for JSW Steel and the company remains
on track to deliver a volume growth of ~24% over FY11-13. Maintain Buy.
Idea Cellular Limited: Defending its turf creditably; maintaining Hold
[Srinivas Rao]
We are raising our TP to Rs70 to reflect an expected fall in competitive intensity
and lower-than-forecast impact of competition on Idea’s revenue share, network
traffic and margins. The company’s operating performance has been creditable as
it has managed to temper the impact of competition and contain losses in its
newer markets. Idea also looks well placed to extract the value of 3G as those
markets account for c.75% and 90% of its current revenues and EBITDA. At the
current price, the risk-reward looks fair; we retain our Hold.
Marico Limited: In-line earnings; Copra price the key trigger now – Buy
The high copra price was the key dampener in an otherwise strong business
performance. We believe copra prices are almost at their peak cycle and should
fall as the best produce hits the market in February. Although price increases of
24% YoY in Parachute should provide a cushion to margins, a weakening copra
price will likely help recover lost margins in 4QFY11. We maintain a Buy rating on
Marico with a target price of INR150.
The Investigator: The rise of the West (and Japan) [Ajay Kapur]
India’s RBI still has a lot more wood to chop than the PBoC. No country allocation
changes this month. O/W: Hong Kong, Korea, Philippines and Thailand; U/W: India
and Taiwan tech. We are O/W cyclical sectors like autos, retailing, capital goods
and transportation and U/W tech, staples, utilities, and select telcos.
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