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Research Team,
Kotak Securities Ltd.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We understand research plays an important role in making well informed and timely decisions. Given the recent correction, we at Kotak Securities believe that certain stocks are available at attractive valuations. These stocks are recommended with a 6-12 month holding period and can be accumulated at lower levels.
Stock name
|
Closing price as on
11th February 2011 |
Target price
|
Larsen & Toubro
|
Rs. 1556.10
|
Rs. 2,030
|
Infosys Technologies Ltd.
|
Rs. 3040.85
|
Rs. 3,620
|
HDFC Bank
|
Rs. 2059.30
|
Rs. 2,400
|
Cairn India Ltd.
|
Rs. 325.85
|
Rs. 378
|
TCS Ltd.
|
Rs. 1089.60
|
Rs. 1,255
|
Research Team,
Kotak Securities Ltd.
LARSEN & TOUBRO
INFOSYS TECHNOLOGIES
INVESTMENT RATIONALE
Management has indicated that CY11 may be a normal year for the
t industry with growth in mid – high teens. We expect Infosys to grow a
above-industry rates in FY12E.
We are encouraged by the fact that, client budgets have almost been
r e likely to be either flat or highe finalized (before time) and that they ar
YoY.
A shift in client focus from cost control to efficiency increases augers well
for the transformational and consulting services of Infosys, we opine.
Infosys is benefiting from the positive change in client sentiments and the
presence of various margin levers, we opine.
Infosys’ long term strategy is geared towards providing services through
new engagement models. Infosys has increased the share of revenues
from new engagement models to 8%.
We remain optimistic on the company’s future prospects, led by a strong
management team and maintain BUY, purely based on FY12E earnings..
RISKS & CONCERNS
t A sharp appreciation in the rupee against various currencies will impac
our earnings estimates.
Delay in the economic recovery of major user economies will likely impact
future revenue growth of the company.
HDFC BANK
INVESTMENT RATIONALE
Consistency in its earning growth (grown around 30% YoY in past 34
quarters)
One of the highest CASA mix (50.5% at the end of Q3FY11) in the
Industry.
NIM at 4.2%, one of the highest in the Industry; expect to remain at 4.0-
4.3% levels, going forward.
r Loan growth is picking up: advances grew 33.1% YoY (6.1% QoQ afte
adjusting for one-off item) in Q3FY11.
Improving asset quality: Gross NPA and Net NPA improved to 1.11% and
0.20% at the end of Q2FY11.
Superior return profile (FY12E: RoA: 1.7%; RoE: 19.8%) justifies
premium valuation.
RISKS & CONCERNS
Sustaining current business performance in increased competitive
environment.
Further monetary tightening by the central bank may impact its margin.
Slowdown in economic activities might affect the asset quality negatively
CAIRN INDIA LTD
INVESTMENT RATIONALE
Cairn India Ltd (CIL) is one of the biggest private exploration and
production companies in India.
MBA have recoverable oil reserves and resources of nearly 1 billion
barrels, which includes proven plus probable (2P) gross reserves and
r resources of 685 million barrels of oil equivalent (Mn boe) with a furthe
t 300 Mn boe or more of enhanced oil recovery (EOR) potential. At projec
level, the block is valued at ~$14 bn. This is 25-30 years of production.
Cairn is a private E&P company so not liable to share under-recoveries
like ONGC, OIL.
CIL has made discovery in Nagayalanka-1z, KG-ONN-2003/1 block. It
has started further exploration and appraisal. Any major commercial
discovery will improve the future growth prospects of the Company.
Cairn India is actively exploring for hydrocarbons in basins throughout
India and has identified and acquired interest in some of those blocks.
Not only this, the Company is seeking out new exploration opportunities
through organic growth, acquisition opportunities and by participating in
New Exploration Licensing Policy (NELP) rounds. In the medium term,
we expect some positive news from KG basin and Sri Lanka block which
leaves substantial upside for the investors.
RISKS & CONCERNS
Any delays and cost overruns; though cost recoverable, could impact
NAV of the project.
Any major decline in crude oil prices due to fall in global oil demand, will
have a corresponding impact on CIL’s realizations.
TATA CONSULTANCY SERVICES
INVESTMENT RATIONALE
f Management commentary reflects greater optimism, likely on the back o
strong pipeline and better deal flow.
Management has seen continued revival in discretionary spends as well
as in cost efficiency initiatives, which is encouraging.
Rate increases may continue, if demand sustains, we opine.
We have accorded valuations which are similar to Infosys, noting the
improved demand scenario, out-performance on revenue growth and the
company’s ability to restrict impact on margins.
This leads us to a price target of Rs.1255 based on FY12E earnings.
(Rs.1152 earlier).
At our target price, our FY12E earnings will be discounted by about 24x.
We maintain our BUY rating on the stock.
RISKS & CONCERNS
A delay in recovery of major user economies may impact our projections.
t A sharp appreciation of rupee beyond our assumed levels may impac
our earnings estimates for the company.
INVESTMENT RATIONALE
L&T came out with numbers that were ahead of our expectations on the
revenue front as the company exhibited robust project execution.
Order backlog for L&T is up 41.4% yoy to Rs 1154 bn, equivalent to
revenue visibility of 36 months based on trailing four quarters revenues.
t Order intake has been sluggish in Q2 FY11. The managemen
highlighted that public sector orders have been slow to take-off.
Nevertheless, the company is in a good position to meet its order intake
target for current fiscal
Management has indicated that it does not anticipate major execution
r related issues in the foreseeable future and is well positioned to delive
its guidance of 20% growth in revenues in FY11.
Valuations are at a significant premium to domestic engineering and
construction companies. Expect the stock to remain move in line with
broad markets. Maintain Accumulate with a target price of Rs 2100 (Rs
2022 earlier). Recommend investors to utilize declines to buy into the
stock.
INVESTMENT RATIONALE
Management has indicated that CY11 may be a normal year for the
t industry with growth in mid – high teens. We expect Infosys to grow a
above-industry rates in FY12E.
We are encouraged by the fact that, client budgets have almost been
r e likely to be either flat or highe finalized (before time) and that they ar
YoY.
A shift in client focus from cost control to efficiency increases augers well
for the transformational and consulting services of Infosys, we opine.
Infosys is benefiting from the positive change in client sentiments and the
presence of various margin levers, we opine.
Infosys’ long term strategy is geared towards providing services through
new engagement models. Infosys has increased the share of revenues
from new engagement models to 8%.
We remain optimistic on the company’s future prospects, led by a strong
management team and maintain BUY, purely based on FY12E earnings..
RISKS & CONCERNS
t A sharp appreciation in the rupee against various currencies will impac
our earnings estimates.
Delay in the economic recovery of major user economies will likely impact
future revenue growth of the company.
HDFC BANK
INVESTMENT RATIONALE
Consistency in its earning growth (grown around 30% YoY in past 34
quarters)
One of the highest CASA mix (50.5% at the end of Q3FY11) in the
Industry.
NIM at 4.2%, one of the highest in the Industry; expect to remain at 4.0-
4.3% levels, going forward.
r Loan growth is picking up: advances grew 33.1% YoY (6.1% QoQ afte
adjusting for one-off item) in Q3FY11.
Improving asset quality: Gross NPA and Net NPA improved to 1.11% and
0.20% at the end of Q2FY11.
Superior return profile (FY12E: RoA: 1.7%; RoE: 19.8%) justifies
premium valuation.
RISKS & CONCERNS
Sustaining current business performance in increased competitive
environment.
Further monetary tightening by the central bank may impact its margin.
Slowdown in economic activities might affect the asset quality negatively
CAIRN INDIA LTD
INVESTMENT RATIONALE
Cairn India Ltd (CIL) is one of the biggest private exploration and
production companies in India.
MBA have recoverable oil reserves and resources of nearly 1 billion
barrels, which includes proven plus probable (2P) gross reserves and
r resources of 685 million barrels of oil equivalent (Mn boe) with a furthe
t 300 Mn boe or more of enhanced oil recovery (EOR) potential. At projec
level, the block is valued at ~$14 bn. This is 25-30 years of production.
Cairn is a private E&P company so not liable to share under-recoveries
like ONGC, OIL.
CIL has made discovery in Nagayalanka-1z, KG-ONN-2003/1 block. It
has started further exploration and appraisal. Any major commercial
discovery will improve the future growth prospects of the Company.
Cairn India is actively exploring for hydrocarbons in basins throughout
India and has identified and acquired interest in some of those blocks.
Not only this, the Company is seeking out new exploration opportunities
through organic growth, acquisition opportunities and by participating in
New Exploration Licensing Policy (NELP) rounds. In the medium term,
we expect some positive news from KG basin and Sri Lanka block which
leaves substantial upside for the investors.
RISKS & CONCERNS
Any delays and cost overruns; though cost recoverable, could impact
NAV of the project.
Any major decline in crude oil prices due to fall in global oil demand, will
have a corresponding impact on CIL’s realizations.
TATA CONSULTANCY SERVICES
INVESTMENT RATIONALE
f Management commentary reflects greater optimism, likely on the back o
strong pipeline and better deal flow.
Management has seen continued revival in discretionary spends as well
as in cost efficiency initiatives, which is encouraging.
Rate increases may continue, if demand sustains, we opine.
We have accorded valuations which are similar to Infosys, noting the
improved demand scenario, out-performance on revenue growth and the
company’s ability to restrict impact on margins.
This leads us to a price target of Rs.1255 based on FY12E earnings.
(Rs.1152 earlier).
At our target price, our FY12E earnings will be discounted by about 24x.
We maintain our BUY rating on the stock.
RISKS & CONCERNS
A delay in recovery of major user economies may impact our projections.
t A sharp appreciation of rupee beyond our assumed levels may impac
our earnings estimates for the company.
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