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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ƒ In Focus
HEXW FY10 EPS of Rs5.7 was 25% above estimate, Upgrade to BUY from HOLD
Hexaware’s (HEXW) Q4FY10 earnings of Rs396m were above estimate as quarterly
net margin increased 730bp to 13.6% on low employee cost and absence of FX loss in
Q4. We upgrade our FY11F EPS by 15% on the back of new contracts (Rs9bn) secured
last year. We now expect revenue growth of 30% and EPS growth of 80%. For FY11,
we expect net margin will to by 150bp to 11.5% given absence of FX loss from old FX
contracts (HEXW has new hedges worth US$130m at Rs48/US$). We increase our
target PER to 12x FY12F (from 10x earlier) and upgrade our TP by 35% to Rs130/sh.
Our new PER is in line with mid‐cap software peers. We are positive on software
sector this year as we believe FY12F earnings growth would exceed investor
expectations on strong volume growth from the US and increased market share of
Indian companies in Europe. HEXW is a preferred mid‐cap pick.
ƒ Earnings Review
HEXW: Q4 EPS of Rs2.7, +137% Q/Q and +10% Y/Y, Upgrade to BUY from HOLD
HEXW reported better‐than‐expected Q4 earnings on net margin expansion.
• Revenue of Rs2.2bn, +6% Q/Q and +19% Y/Y on large contacts received in Q3
• GM of 32.5%, +100bp Q/Q on increased employee utilization
• Net profit of Rs396m (EPS of Rs2.7), +137% Q/Q and 10% Y/Y
• Addition of 11 new customers (7% of client base)
• Net cash of US$103m (Rs32/sh)
• 1:1 bonus and Rs1.4/sh final dividend – a positive surprise
• FX loss of Rs248m in FY10
• FY10 non‐recurring income of Rs224m on asset sale in Q3
ƒ Earnings Review
PPC: Q3 EPS of Rs185/sh, + 489% Q/Q, slightly above expectation, Maintain BUY
• Revenue of Rs7.2bn, + 132% Y/Y, 21% Q/Q
• Recurring EPS of Rs51.9, +34% Q/Q
• 1 time gain of Rs4.2bn on sale of shares in Polyplex , Thailand
• Cash spread up at US$2.1k/ton from US$1.5k/ton in Q2
• To set up new plants in US and Brazil, CAPEX figure not disclosed
Comment: For Polyplex (PPC), 9M EPS accounts for 69% of our FY11F EPS of Rs147.
We are confident that strong demand will help PPC achieve the balance 31%
earnings in Q4 despite the slight moderation in price and margin. PPC’s share price
is subdued in recent past due to fear of collapse in earnings on account of use of
plastic films in gutka products in India. We believe PPC has negligible impact from
the ban because only 1/3
rd
of its earnings are from India. Due to its focus on selling
high value added coated films we expect PPC’s Q4 recurring EPS to be healthy at
Rs48.3 in Q4. PPC is trading at a PER of 1.8x FY11F. We maintain BUY with a share
TP of Rs645 based on PER of 4x FY11F.
ƒ News and Comments
SESA: Iron ore benchmark price up 12% in Q4, Maintain BUY
This increase in iron price if sustained for the next 1.5 months will increase Sesa
Goa (SESA) average selling price to US$120/ton in Q4 (after netting off discounts,
insurance and freight costs) compared to our expected US$92.5/ton. The entire
increase of US$28/ton will add Rs11bn more to the earnings this year and raise our
FY11F EPS of Rs51 by 20% to Rs61. Investors have ignored the steep rise in iron ore
price for SESA reflected in its cheap PER of 6x FY11F. Our share TP of Rs428 is based
on ‘sum‐of‐the‐parts’ valuation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ƒ In Focus
HEXW FY10 EPS of Rs5.7 was 25% above estimate, Upgrade to BUY from HOLD
Hexaware’s (HEXW) Q4FY10 earnings of Rs396m were above estimate as quarterly
net margin increased 730bp to 13.6% on low employee cost and absence of FX loss in
Q4. We upgrade our FY11F EPS by 15% on the back of new contracts (Rs9bn) secured
last year. We now expect revenue growth of 30% and EPS growth of 80%. For FY11,
we expect net margin will to by 150bp to 11.5% given absence of FX loss from old FX
contracts (HEXW has new hedges worth US$130m at Rs48/US$). We increase our
target PER to 12x FY12F (from 10x earlier) and upgrade our TP by 35% to Rs130/sh.
Our new PER is in line with mid‐cap software peers. We are positive on software
sector this year as we believe FY12F earnings growth would exceed investor
expectations on strong volume growth from the US and increased market share of
Indian companies in Europe. HEXW is a preferred mid‐cap pick.
ƒ Earnings Review
HEXW: Q4 EPS of Rs2.7, +137% Q/Q and +10% Y/Y, Upgrade to BUY from HOLD
HEXW reported better‐than‐expected Q4 earnings on net margin expansion.
• Revenue of Rs2.2bn, +6% Q/Q and +19% Y/Y on large contacts received in Q3
• GM of 32.5%, +100bp Q/Q on increased employee utilization
• Net profit of Rs396m (EPS of Rs2.7), +137% Q/Q and 10% Y/Y
• Addition of 11 new customers (7% of client base)
• Net cash of US$103m (Rs32/sh)
• 1:1 bonus and Rs1.4/sh final dividend – a positive surprise
• FX loss of Rs248m in FY10
• FY10 non‐recurring income of Rs224m on asset sale in Q3
ƒ Earnings Review
PPC: Q3 EPS of Rs185/sh, + 489% Q/Q, slightly above expectation, Maintain BUY
• Revenue of Rs7.2bn, + 132% Y/Y, 21% Q/Q
• Recurring EPS of Rs51.9, +34% Q/Q
• 1 time gain of Rs4.2bn on sale of shares in Polyplex , Thailand
• Cash spread up at US$2.1k/ton from US$1.5k/ton in Q2
• To set up new plants in US and Brazil, CAPEX figure not disclosed
Comment: For Polyplex (PPC), 9M EPS accounts for 69% of our FY11F EPS of Rs147.
We are confident that strong demand will help PPC achieve the balance 31%
earnings in Q4 despite the slight moderation in price and margin. PPC’s share price
is subdued in recent past due to fear of collapse in earnings on account of use of
plastic films in gutka products in India. We believe PPC has negligible impact from
the ban because only 1/3
rd
of its earnings are from India. Due to its focus on selling
high value added coated films we expect PPC’s Q4 recurring EPS to be healthy at
Rs48.3 in Q4. PPC is trading at a PER of 1.8x FY11F. We maintain BUY with a share
TP of Rs645 based on PER of 4x FY11F.
ƒ News and Comments
SESA: Iron ore benchmark price up 12% in Q4, Maintain BUY
This increase in iron price if sustained for the next 1.5 months will increase Sesa
Goa (SESA) average selling price to US$120/ton in Q4 (after netting off discounts,
insurance and freight costs) compared to our expected US$92.5/ton. The entire
increase of US$28/ton will add Rs11bn more to the earnings this year and raise our
FY11F EPS of Rs51 by 20% to Rs61. Investors have ignored the steep rise in iron ore
price for SESA reflected in its cheap PER of 6x FY11F. Our share TP of Rs428 is based
on ‘sum‐of‐the‐parts’ valuation.
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