UPL Ltd New Avatar ::IDFC Sec

UPL’s shift of focus from revenue growth to profitability, emphasis on organic
growth, higher return ratios and distribution of free cash to shareholders
underpin its new growth strategy. The shift addresses key investor concerns. The
improvement in operating performance has also been driven by successful
integration of DVA Brazil, and strong growth in India and RoW. We expect 17%
CAGR in UPL’s EPS over FY13-16E with ~500bp expansion in RoCE to 20% and
net gearing of 0.3x by FY16E. We introduce our FY16 estimates and roll forward
our target multiple to FY15. Reiterate Outperformer with a revised price target of
Rs282 (12x FY15E EPS). UPL is one of our top mid-cap picks.
Shifting growth gears: Having acquired critical scale (US$1.8bn revenues by
FY14E), UPL now seeks to transition from a generics entity to more of a branded
player by leveraging its R&D capabilities and distribution reach. This should lead
to higher gross and operating margins. The management aims to improve EBITDA
margins by 100bp pa over the next 2-3 years (our estimate at 170bp by FY16).
Balance sheet repair – the new imperative: Free cash generation (limiting net
working capital to 100-110 days and prioritizing organic growth), and distribution
through higher dividends and buybacks are the new mantra at UPL. This, along
with planned lowering of cash levels towards reducing gross debt, should drive a
marked improvement in return ratios over the next few years.
A re-rating candidate; Outperformer: With global scale and diversified presence,
UPL is a play on global agricultural cycle. Volatile earnings and >600bp dip in RoE
over FY08-12 led to de-rating, but we see a turnaround ahead with improving
profitability and free cash distribution. At 8.8x FY15E earnings, valuations are
compelling. Disappointment on margins and free cash generation are key risks.

2Q Earnings Preview - IDFC Sec

We expect Q2FY13 Sensex earnings growth of 15% yoy (ex-Oil & Gas) as against 19% yoy in Q1FY13. Including Oil & Gas, earnings growth is likely to be muted at 6.4% vs14.5% in Q1FY13, mainly due to assumption of NIL oil subsidy from government in Q2FY13 (lower earnings for ONGC due to higher share of contribution). While non-commodities are expected to report strong earnings growth (18%yoy) led by Financials and IT, earnings of commodities would likely contract by 15.4% yoy. Our Sensex EPS stands at Rs1,196 (9% yoy) for FY13 and Rs1,349 (13% yoy) for FY14. Notably, continued cost pressures are likely to compress margins of Sensex companies by ~110bp yoy to 19%. Top-line growth of Sensex companies is expected to moderate to 13.4% yoy from 17% in the previous quarter. Earnings of the broader IDFC universe (ex-Oil & Gas) are likely to be at 16.5% yoy.

IDFC resesrch- Top buys – Mid cap & small cap

Tech Mahindra
􀀹 Merger with Mahindra Satyam would create an entity with US$2.6bn in sales and 75,000 employees, put it on the global map for large
deals and improve growth prospects.
􀀹 Core competencies of the two firms complement each other (enterprise services of Satyam and TechM’s mobility expertise), creating
a formidable player in the fast-growing enterprise mobility business, a key area of investment for Fortune 500 companies.
􀀹 Valuations of ~10.8x FY13E EPS on pro forma earnings do not completely capture the improved growth prospects of the company.
Eicher Motors
􀀹 Best play on CVs; company poised to gain market share, driven by AB Volvo-validated products and frugal cost structure (efficiency
close to that of 2W names!!!)
􀀹 Offers superior growth visibility in a cyclical industry due to rising HCV market share (up in a weak market), resilient LMD and exports/
outsourcing.
􀀹 CY13/ CY14 to be blow-out years as MDEP project goes live, RE expands capacity, new CV platform hits market and new EM brand is
launched.
Petronet LNG
􀀹 Company to expand capacity 2x over the next two years (Dahej +5m tpa from 10m tpa currently; Kochi +5m tpa) and 2.5x in four
years (Gangavaram +5m tpa).
􀀹 Domestic gas volumes remain muted; demand to keep growing in double digits over the next decade (volumes to grow from ~11m
tpa currently to ~15m tpa by FY15 and ~18m tpa by FY17E).
􀀹 Pricing remains an issue, but with newer tranches of domestic supply coming in at higher prices, acceptability of higher prices would
rise. Slowing Japanese demand and global capacity additions could drive some moderation in spot LNG prices in the next five years.

IDFC: Top buys – Large cap

Bajaj Auto
􀀹 Structurally well-placed; presence in 40 countries with 2W, 3W and, very soon, 4Ws. Poised to benefit the most from uptrading, with
brands like Pulsar and Kawasaki in its stable.
􀀹 Better placed to handle competition. Derives 20% of volumes from the domestic 100cc executive segment; robust launches planned in
key brands to tackle competition.
􀀹 Potential of RE60 not captured in estimates; could be replacement for 3Ws as it caters to demands of both regulators and customers.
Exports to start in 3QFY13.
M&M
􀀹 UVs drive growth while tractors take a pause. XUV and Bolero drive growth in a weak market and mitigate impact of weak tractor demand.
􀀹 Recent recovery of monsoon reduces risk of a tractor collapse.
􀀹 Recent turnaround of Tech Mahindra positive for consolidated financials.
JPA
􀀹 Capex has peaked, gearing expected to reduce.
􀀹 Expect strong cash flows in power (JPVL) due to robust generation at hydro plants and progress of projects under construction. Yamuna
Expressway commissioned; to pave way for real estate launches in new locations along the expressway.
L&T
􀀹 Diversified skill-sets for a range of industries; vendor of choice for large and complex projects.
􀀹 Large and diversified order book.
􀀹 Captures maximum value from most orders due to broad presence in the value chain (e.g., power EPC solutions include manufacturing of
both BTG and BoP components).

Thematic report - IF I WERE - IDFC Sec

If I Were

·         FMCG companies cannot succeed in services!! The servicing model requires a different orientation and companies have lost (HUL), are losing (Dabur, Marico, HUL, ITC) and will continue to lose until they EXIT these businesses!!

·         ITC is not and will not be relevant in FMCG in spite of Rs45bn invested UNLESS it gets its focus right and leverages on its inherent strength… FOODS, FOODS, FOODS!!!

·         PRINT is a business that is structurally de-rating.  It will not generate shareholder returns. Indian companies should DE-LIST!!

·         It is time for PANTALOON to stop thinking like WALMART and think more like SHOPPERS STOP!!!

Earnings Preview (April - June 2012) IDFC Sec

Sensex earnings growth is expected to come in at 11.5% yoy in Q1FY13, as against 16.7% in the previous quarter. Growth would be a more tepid ~7.1% yoy ex SBI (higher earnings due to a low base). Non-commodities are expected to report strong numbers, led by IT Services (45% yoy), Pharma (25% yoy) and Financials (48% yoy). Earnings of commodities are likely to contract by 20% yoy. Companies expected to clock strong bottom-line growth are Tata Motors (37% yoy), Infosys Technologies (49% yoy), TCS (41% yoy), ICICI Bank (31% yoy) and SBI (133% yoy). Top-line growth of Sensex companies is expected to moderate to 14% yoy from 18% in the previous quarter. However, top-line growth of Sensex companies ex commodities would be stronger, at 22% yoy, though lower than 26% in Q4FY12. Continued raw material price pressure is likely to compress margins of Sensex companies by ~135bp yoy (down ~40bp qoq) to 19.3%. Earnings of the broader IDFC universe ex Autos and Oil & Gas are likely to be a muted 8.5% yoy.

Bata India -Transformation delivering results! :IDFC research

We interacted with the senior management of Bata India (Bata). The company is the largest footwear retailer in India
with 1340 stores across the country. From being a predominantly lower-end/ men’s footwear retailer, Bata has
transformed itself to cater to a wider consumer set in terms of gender (increasing revenue share of women and
children’s footwear) and income group (expanding the premium range). This shift in strategy has led to accelerated
growth and sharp improvement in profitability (margins doubled in the past four years). Bata’s increasing scale, focus
on enhancing the premium portfolio and aggressive store expansion as also refurbishment plans point to a promising
growth outlook. Over 60% of the Rs200bn Indian footwear market is unorganized, with rural India accounting for 75% of
the consumption. This implies huge potential in terms of conversion from unorganized to organized segment and
premiumisation. With its unmatched scale and reach, Bata is likely to be the biggest beneficiary of this opportunity
provided it remains relevant to an increasingly younger consumer profile. The stock trades at 23x CY11 earnings.

Report GDP (January - March, 2012) - IDFC Sec

India Wireless Policy 2012 - IDFC Sec

ENIL (ENIL IN) Not ‘hot’::IDFC research,

State Bank of India (SBI IN) Robust, led by lower delinquencies :IDFC cap

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Q4FY12 result highlights
Quarterly performance: State Bank of India (SBI) reported PAT of Rs40.5bn (vs. Rs209m in Q4FY11; up 24% qoq), in line
with our estimate. While the bottom-line was strong, the quality of earnings was robust due to a decline in fresh
delinquencies, a 17bp qoq drop in gross NPA ratio (a decline of Rs4.2bn in absolute terms), lower NPA provisions, and also
a rise in coverage ratio. At Rs116bn (up 44% yoy), NII was lower than our estimate of Rs122bn on the back of a ~15bp qoq
decline in margins and sluggish loan growth.
Key positives: Notably, slippages came in lower than in the previous quarters (Rs43.8bn; annualized 2% of advances),
leading to a decline in NPA provisions made by the bank. The SME and agriculture segments saw a decline in slippages,
while retail remained resilient. As a result, provisions came in lower, at Rs31.4bn (vs Rs42bn in Q4FY11). NPA provisions
came off to Rs28.4bn from Rs30bn in Q3 and Rs32.6bn in Q4FY11. Despite the lower provisions, the coverage ratio
(including write-offs) increased by 560bp qoq to 68.1%. Incremental restructuring stood at Rs51bn (0.6% of loans; lower
than peers), with the outstanding restructured portfolio increasing to Rs372bn (4.2% of loans).
Key negatives: Reported NIMs contracted by ~15bp qoq to 3.9%. Advances growth was sluggish at 3% qoq and 15% yoy.
Impact on financials
With the bank’s strong focus on asset quality and profitability, we expect core performance to sustain its momentum.
Drawing comfort from the past aggressive NPA recognition and comfortable provision coverage ratio, we expect
provisioning costs to taper off gradually over next 12 months. We introduce our FY14 earnings estimates and expect the
bank to deliver a robust 25% CAGR in earnings over FY12-14, with RoA expanding to 1.1% from 0.9% in FY12.
Valuations & view
Affected by persistent asset quality pressures, the stock has corrected by 18% over past 12 months. However, we expect a
gradual alleviation of asset-quality concerns and a turn in the interest rate cycle to drive stock performance over the next 12
months. In light of this, we reiterate our bullish stance on the stock, with a current valuation of 1.1x FY13E P/BV and 12-
month price target of Rs3,000 (corresponding to 1.6x FY13E adjusted book; including Rs188 value for subsidiaries).

Power T&D Channel checks – transmission line players better placed: IDFC Sec

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


We recently met Indian, Chinese and Korean vendors in the T&D space to get a sense of ordering activity (especially
PGCIL) and competitive intensity in the T&D space. Ordering seems to be peaking, with awards from PGCIL likely to
remain largely flat in the next 2-3 years and awards from SEBs/ industry slowing. Competitive intensity aggravated in
FY12, particularly in the 765kva transformer, reactor, and substation segments. PGCIL data reveals that incumbents like
Crompton and ABB have lost market share in the transformer and reactor space as also in substations over the past
two years. Moreover, the Chinese are setting up capacity in India, while players like Transformers & Reactors India
(TRIL) are increasing capacity to enter the 765kva segment. With the overall ordering activity expected to be largely flat,
we see competitive pressure rising and utilization levels under pressure. On the other hand, competitive intensity in the
transmission-line space has reduced since February 2011 with PGCIL having rejected bids by many players for nonperformance
(17% of the bids in FY12 rejected). Consequently, we like transmission line/ tower players as they face
little competition from international companies and possess a diversified geographical mix of revenues (~50% from
international markets). So, we reiterate Outperformer on KEC (7.4x FY13E earnings), Kalpataru (7.2x FY13E earnings)
and Jyoti Structures (3.9x FY13E earnings). However, given rich valuations and risk to earnings of transformer players,
we reiterate Crompton (13.5x FY13E earnings) and ABB (52.5x CY13E earnings) as Underperformer and EMCO (21.9x
FY13E earnings) as Neutral.

IIP – February 2012 Data ‘revision’ or data ‘confusion’? :: IDFC Sec

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


IIP came in at 4.1% yoy in February 2012, significantly lower than our estimate of 7%. More importantly, the number for
the previous month has been revised downwards to 1.1% yoy from the provisional data of 6.8% yoy reported earlier.
This raises questions on the quality of IIP data and, in turn, the efficacy of these high-frequency indicators in
determining short-term growth trends. With the revised numbers, IIP growth has shrunk by 1.7% mom (without
adjusting for seasonality) in February 2012 as against a contraction of 1.2% last month due to tepid growth in consumer
goods (down 0.2% yoy). Growth of the mining segment recovered marginally to 2.1% yoy after contracting for the last
six months. Manufacturing growth came in at 4% yoy (1.4% yoy last month), with almost 18 of the 22 industry groups
clocking positive growth. Electricity growth was strong, at 8% yoy, in line with the Core 8 industries data. With growing
skepticism on the quality of IIP data, we expect the central bank to use it in conjunction with other monthly indicators
like Core 8 industries data, PMI indices, export growth, etc. While other indicators are suggesting a marginal
improvement in economic growth momentum in Q4FY12, PMI indices suggest that growth is again beginning to falter
(HSBC Manufacturing PMI in March 2012 was lower, at 54.7, as against 56.6 in February 2012). We maintain that
downside risks to FY13 GDP growth remain and hence expect the policy stance of the RBI to become more
accommodative hereon. So, we expect the central bank to embark on a monetary-easing cycle with a 25bp rate cut in
April 2012.
Event:
IIP growth for February 2012 came in at 4.1% yoy, below our expectation due to tepid growth in consumer goods.
Growth in consumer goods contracted by 0.2% yoy due to 6.7% yoy contraction in consumer durables. Further, growth
in consumer non-durables moderated to 5.1% yoy as against 11% yoy (revised downwards from 42% yoy reported
earlier) in January 2012. On other use-based indices, while growth of basic goods came in at a robust 7.5% yoy, the
trend in intermediate goods (down 0.6% yoy) suggests further weakness in IIP growth going ahead. Capital goods grew
by 10.6% yoy as against a contraction of 1.7% yoy in January 2012 due to a favorable base.
Growth of mining segment came in at 2.1% yoy in February 2012 after contracting for the last six months.
Manufacturing growth came in at 4% yoy (1.4% yoy last month), with almost 18 of the 22 industry groups clocking
positive growth. Electricity growth continues to be strong, at 8% yoy, in line with the Core 8 industries data.
IIP growth for January 2012 was revised downwards to 1.1% yoy from 6.8% yoy reported earlier. The revision was
attributed to a correction in the production data of sugar (revised to 5.8m tonnes from 13.4m tonnes reported earlier).

IDFC Sterling Equity: Invest ::Business Line

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

IDFC Imperial Equity - HOLD ::Business Line

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Union Budget FY13 Expectatio​ns: IDFC Securities

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

 “We didn't actually overspend our budget. The allocation simply fell short of our expenditure.”

Indian government is scheduled to present the Union budget on 16^th March 2012. With fiscal slippage expected to be ~1.2% of GDP (Fiscal deficit at 5.8% as against budgeted estimate of 4.6% in FY12) and GDP growth expected to be below 7% in FY12, the finance minister has to do a balancing act between fiscal consolidation and reviving economic growth. Our sense is that the finance minister has very little room for an expansionary budget and focus would be clearly on measures to reduce the non-plan expenditure (read subsidies). Further, with the RBI clearly signaling the need for concrete steps towards fiscal consolidation before embarking on the path of monetary easing, plausible measures from the central government in this regard would be keenly watched out for. While the finance minister has various options in his arsenal to achieve the desired end, measures taken to kick-start private investment growth and moderate non-plan expenditure would be critical in our view.

Given the current state of affairs, we highlight some of the options available to the finance minister to rein in fiscal deficit without any material impact on economic growth.

·         The finance minister could revive tax collections by increasing union excise duties and service tax rates to pre-crisis levels. Further, introduction of a ‘negative list’ of services instead of the currently followed ‘positive list’ would bring more services under the service tax net, thereby boosting service tax collections.

·         Concrete measures to reduce fuel and fertilizer subsidy burden in FY13, we believe, would be the main focus area in this year’s budget. While a full-fledged deregulation of tariffs could be still a while away, the finance minister could hike retail prices of fuel and fertilizers to reduce the under-recovery burden. Also, steps towards focused distribution of subsidies through direct cash transfers using UID would be a positive.

·         Clear thrust on reviving private investment spends with measures towards faster clearance of projects and resolving issues pertaining to fuel availability would be critical. Further, measures could be taken to improve availability of long term financing to infrastructure sector through focus on programs such as Infra Debt Fund, IIFCL’s Credit Enhancement Scheme, Takeout financing.

·         While non-tax revenue was muted in FY12 due to absence of any one-off income, the government could re-auction the spectrum obtained from cancellation of 2G licenses to mop-up ~Rs230bn in FY13.

·         Also, while weak capital markets impacted disinvestment mop-up in FY12 (at ~Rs100bn as against budgeted estimate of Rs400bn!), improving equity market sentiments and utilization of auction route for disinvestment could prop up revenues in FY13.

Indian IT Services Decent revenues; INR weakness to boost margins::IDFC Cap

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


We expect the top4 IT Services companies to report 2-4% qoq USD revenue growth – volume growth of 4-5% would be
offset by 1-2% decline in realization (cross-currency impact). We believe this is reasonable especially given that the
Oct-Dec quarter has lower billing days due to holidays (Diwali, Christmas), which typically impacts T&M projects. We
expect commentary on the environment from all players to be incrementally cautious and see Infosys further lowering
guidance for FY12 USD revenue growth to 17-18% (from 17-19%). Even the smaller players are expected to report
decent revenue growth of 2-6% and also a sharp improvement in margins. Rupee depreciation of ~11% (on periodaverage
basis) should aid EBIT margins by 330-390bp, though the actual increase may be lower due to cross-currency
headwinds (50-70bp) and re-investment of gains back into the business. We also incorporate rupee estimates of Rs51/
USD for H2FY12 and Rs49/ USD for FY13. With the continued macroeconomic uncertainty we expect 2012 IT budgets
to be largely flat, adversely affecting FY13 revenue growth. We reiterate our underweight stance on the sector and
believe larger names like Infosys and TCS are better placed in the uncertain macroeconomic environment.
We expect decent revenue growth amid weak seasonality
We expect the top4 companies to report 2-4% USD revenue growth (vs. 6-8% in Q3FY11), which we believe is
reasonable given the seasonal weakness (holidays) associated with the quarter. We expect 4-5% qoq volume growth
and a 1-2% decline in blended realization (cross-currency impact). Tier2 companies are likely to deliver 2-6% qoq
revenue growth, with a few companies benefiting from a lower base. Key observation: We expect similar USD revenue
growth rates (~4% qoq) from TCS and Infosys despite divergent commentaries during the quarter.
Rupee depreciation of ~11% to boost margins
The recent sharp depreciation of the INR will be a key margin lever for our coverage universe. We estimate 3.3-3.9%
INR-related tailwinds and 50-70bp cross-currency headwinds for operating margins. EBIT margins would improve by
~200bp for Infosys/ TCS and ~120bp for Wipro-IT/ HCL Tech. Tier2 companies are expected to benefit more from the
weak rupee and see margin expansion of 100-450bp. Key exceptions: Mahindra Satyam – ~70bp margin decline due
to negative impact of wage hikes; eClerx – 600bp margin improvement due to higher offshore mix/ wage seasonality.
Incorporating weak INR into our forecasts
We have applied revised INR/USD forecasts of Rs51/Rs49 for H2FY12/FY13 across our coverage universe now, after
having revised estimates for top4 companies, Mphasis and Persistent in Dec 2011. This raises our FY12/13 earnings
estimates for the rest of the companies by 3-15%. (Please refer to exhibit 7 for details)
Expect mixed commentary; maintain cautious stance; stick to Tier1 stocks
We expect the companies to maintain a cautiously optimistic stance on CY12 IT spend and FY13 revenue growth. We
expect Infosys to cut its FY12 USD revenue growth guidance to 17-18% yoy, but raise its INR earnings guidance
factoring in a weaker rupee. We maintain our cautious stance on the sector as we expect the business headwinds to
persist despite a benign currency helping margins/ earnings. Infosys and TCS remain our key picks (Outperformerrated);
Wipro, HCL Tech and Mphasis are Neutral and the rest Underperformers

Indian IT Services - Lackluster showing; we remain underweight:: IDFC Sec

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

The CNX IT index has recently recovered, but we believe the rally will be short-lived. The recovery was largely driven by the sharp INR decline and relatively positive commentary by Infosys management and not due to easing of the macro concerns. In fact, business performance of IT services companies has been lackluster in Q2FY12 – indicating slowing demand. For the quarter, while Infosys met estimates and surprised on outlook revision, TCS and HCL Tech disappointed and Wipro posted mixed performance. At ~5% qoq, overall volume growth was weak despite it being a seasonally strong quarter. With the exception of Infosys, management commentaries have been incrementally cautious across the board. While most have ruled out any project cancellations/ ramp-downs, many cited delayed decision-making by clients. For global tech majors too, though they reported healthy quarterly results, guidance has been largely conservative in the wake of economic concerns. We believe the uncertainty could weigh on IT spending/ budgets in CY12. As tech demand reacts to economic activity with a lag of a few quarters, IT services companies may be affected from the upcoming December or March quarter, which implies pressure on growth in FY13. Macro data over the next few months remain a key monitorable. In this backdrop, we remain Underweight on the sector and recommend sticking to the top tier (TCS and Infosys).

Indian Financials - NHB guidelines for HFCs by IDFC Sec

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

National Housing Board (regulator for Housing Finance Companies) has instructed HFCs to:

·         Charge the same floating rate of interest to old and new customers on home loans; and

·         Not to levy penalty on pre-closure of floating rate home loans even if pre-payment is made through borrowed funds. But for fixed rate housing loans the pre-payment charge will be waived only if the loan is pre-closed out of borrower’s own sources.

Impact

Regulatory arbitrage between banks & HFCs – not likely to sustain

o        Currently these norms apply to only HFCs and not banks. RBI had earlier suggested but not mandated these terms for banks. However, we expect RBI to also follow suit and introduce similar guidelines for banks to ensure level playing field for banks and HFCs

Could it be end of teaser rate schemes?

o        Most of the financiers offer a lower rate for new home loans (vs. old borrowers) to attract new business. Prima-facie financiers would have to increase the interest rates for new loans more (by 100-150bp). However, they could establish a credit profile of customers to mitigate the impact offering some flexibility in pricing.  

o        Also, our conversation with the managements reveals that select financiers offer an option to existing customers to re-finance their loans at prevailing lower rates for a fee. Hence, internal balance transfers through this have led to convergence of interest rates on existing loans into a narrow band for such players.

o        So, we expect new home loan rates to rise from the current levels and settle somewhere between the prevailing new and old home loan rates.

o        With the price of a new home loan going up, the growth in new home sales and mortgage portfolios would be impacted negatively in the current high interest rate scenario.

Waiver of pre-payment charges – a surge in re-finance?

o        The prepayment charges form a very small part of financiers’ income (~Rs260m in H1FY12 for HDFC).  However, waiver of these increases borrowers’ ability to refinance their existing loans. This could place players with a stronger liability franchise in an advantageous position vis-à-vis less competitive players.

Our view

Await more clarity; efficient players to gain

o        Prima-facie these norms appear to place HFCs in a weaker competitive position vis-à-vis banks, we would wait for further clarity to emerge on modalities of implementation and any similar regulations for banks.

o        Moreover, we believe that HFCs with low expense ratios and better customer service would be able to sustain their market share as also profitability levels.

Infosys -Q2FY12 result highlights ::IDFC research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Infosys (CMP: Rs2679)            

Mkt Cap: Rs1.5tr; US$31.4bn       Bloomberg code (INFO IN)

Q2FY12 result highlights

Quarterly performance: Operating performance was largely in line with expectations. USD revenues grew by 4.5% qoq and 17% yoy to US$1,746m (IDFC exp: US$1,757m). Revenue growth was driven by volume growth of 4.4% qoq and 1% blended pricing improvement (CC/ constant currency terms) while cross-currency headwinds impact was 0.5%. In CC terms, onsite pricing was down 1.2% qoq and offshore pricing was up 3.5% qoq. Driven by the weak rupee, INR revenues grew ~8% qoq and ~17% yoy to Rs81bn. EBIT margins expanded by ~210bp due to rupee depreciation and higher utilization. Net profit was up ~11% qoq and ~10% yoy to Rs19.1bn (~2% ahead of our expectation).

Key positives: FY12 USD revenue growth guidance was reduced by just 90bp to 17.1-19.1%; INR EPS guidance was increased by ~12% (ahead of Street and our expectations). Forty-five clients were added in Q2, with 19 wins in investment areas. Hiring plans remain robust at ~45,000 gross for FY12 and planned ~23,000 campus offers for FY13.

Key negatives: Volume growth of 4.5% during the quarter was below our expectation of 6%.

Impact on financials

Despite the in-line quarter, we raise FY12/ 13E EPS estimates by ~6% to account for weaker rupee in 2HFY12/ FY13. We are now assuming an exchange rate of Rs48/USD for H2FY12 and Rs47/USD for FY13 – 6-10% lower than our previous assumptions. For FY12, we are building in ~19% USD revenue growth and ~100bp EBIT margin decline, leading to ~19% INR EPS growth, which iscloser to the lower end of guidance as we build Rs48/USD for H2FY12 (vs guidance of Rs49/USD). We are also introducing FY14 forecasts.

Valuations & view

While Infosys management was confident of near term revenues, we believe the macro uncertainty is likely to impact IT spend as also Indian IT industry growth rates from the Dec/ Mar quarter. We maintain our underweight stance on IT Services and recommend sticking to Tier1 names like Infosys. We reiterateOutperformer on the stock as the company is relatively well placed than peers amid the uncertain environment. Trading at ~19x FY12E and ~16x FY13E EPS, we value Infosys at a 12-month price target of Rs2,950 (from Rs2,800 earlier) based on 18x FY13E EPS.