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CTSH Sep’10 Results: Read through for Indian offshore techs
CTSH follows up with another solid performance raises full year outlook to ‘atleast 39%’
Cognizant (CTSH) reported revenues at US$ 1,217 mn (+10.1% QoQ, +42% YoY) , significantly ahead of consensus expectations of US$ 1,180 mn and above co guidance of ‘atleast US$ 1,175 mn’. EBITDA margins came in at 20.9%, up ~10 bps sequentially. Cognizant’s Sep’10 sequential revenue growth is in line with peers Infosys (+10.2% QoQ) and TCS(+11.7% QoQ) and ahead of Wipro(+5.8% sequentially). Growth was broad based across geographies (North America/Europe revenues up 8.9%/15% QoQ) while revenues from application development (+14.6% QoQ) grew faster than maintenance revenues (+6% QoQ) for the 3rd quarter in a row.
Cognizant also raised it’s CY10 revenue guidance to ‘atleast US$ 4,550 mn’, implying ~39% YoY revenue growth V/s ~25% at the upper end for Infosys. Cognizant’s Dec’10 revenue guidance of’ atleast US$ 1,270 mn’ (+4.4% QoQ) is in line compares with 3.4-4.4% sequential growth guidance by Infosys and 4.5-5.5% QoQ growth outlook by Wipro.
Positive commentary on demand, pricing
Cognizant management remained positive about demand (expects CY11 IT spending budgets to be up YoY despite concerns on macro environment), sees some uptick on pricing as client much more open to discussions). Co indicated during the call that although it expected M&A related spend to taper down in Q4CY10 now (V/s earlier expectations of Q3CY10), it was seeing continuations on spend on transformational projects/compliance related spends at financial services clients.
CTSH results validate the positive demand momentum for offshore IT
We believe that CTSH results reaffirm the positive demand momentum for Indian techs as reflected from the revenue growth seen at Tier 1’s as well as pick up on revenue growth for mid tier players in general. Cognizant has used the downturn to it’s advantage to close out revenue gap V/s Indian Tier I peers (revenue share gains in financial services names with some benefit from aggressive SG&A spends) however we see opportunity for Indian techs to catch up on revenue growth with Cognizant as we see higher growth in the areas of IMS, BPO and Enterprise Applications (India listed Tier 1’s on a stronger footing in these areas vis-a-vis Cognizant)
Maruti Q2FY11 Result Update; Yen depreciation/price hike the key, downgrade to HOLD; Target Price: Rs 1,600
n Results marginally below est. due to lower sales and higher tax rate. APAT at Rs 6.2bn (est. Rs 6.4bn). Adj EBIDT at Rs 9.9bn (es. -Rs 10.3bn), margins at 10.8% (est. 11.0%)
n Yen depreciation/price hike crucial for margin upgrades/stock performance. Lower JPY/Re est. for FY12 to 1.85 (from 1.9). 2HFY11 margins to be lower by 70 bps due to currency
n Upgrade FY11E/FY12E volumes est. by. 2.6% to 1.26mn/1.44mn units. Lower FY11E/FY12E EPS by 3.5% to Rs 85.7/Rs 98.Price hike not assumed, due to lack of intent
n Downgrade rating to HOLD, however raise TP to Rs 1600 (up 10%) due to valuation upgrade (8.5x EV/EBIDTA) due to strong volume outlook and higher return ratios
Jaiprakash Associates Q2FY11 Result Update; Construction rebounds sharply-Numbers in line; ACCUMULATE; Target Price: Rs 150
n JPA Q2FY11 numbers ahead of estimates at EBITDA level, 3X increase in deferred tax leads to in line PAT. Topline growth of 62.3% - construction up 73%, cement up 43%
n Construction segment rebounds sharply with 83% growth in EBIT, margins at ~21% (v/s ~7.3% in Q1FY11). Realty segment delivers a whopping 356% growth in EBIT
n JPA is on strong growth path across all its segments- plans to reach a cement capacity of 37 mtpa by end FY12. Expect significant order accretion from New HPPs like lower Siang
n Stock trades at 22.6X its FY12 standalone earnings and 7.6X EBIDTA. Maintain our earnings, ACCUMULATE rating and price target
Grasim Industries Q2FY11 Result Update; Net profit above estimates- EBIDTA disappoints; ACCUMULATE; Target Price: Rs 2,600
n Grasims’s Q2FY11 net profit at Rs2.79bn (-5.2%yoy) ahead of estimates (led by high other income earned through dividends from subsidiaries). Core VSF EBIDTA below estimates
n Revenue decline 1.3%qoq due to 1.2% fall in VSF realization and lower volumes due to plant shutdowns. EBITDA for the quarter at Rs2.64bn declined 22.1%yoy and 12.4%qoq
n Expect VSF performance to improve in subsequent quarter driven by better realisations & pick up in volumes. Introducing earnings post de-merger of cement business
n Upgrade price target to Rs2600 driven by upgrade in Ultratech’s Target price and growing VSF demand. Stock implying 44% holding co discount-Maintain ACCUMULATE
Voltamp Transformers Q2FY11 Result Update; Margins go down further; HOLD; Target Price: Rs 840
n Competition led significant hit (780 bps yoy) in the EBITDA margins to 10.1%, resulted in PAT decline of 46% yoy
n Pricing visibility not there, margins to remain under pressure; annual report MDA hints towards much lower margins
n Downgrade earnings by 21/19% for FY11E/12E driven by lower margin (-250bps) assumption (12/13% in FY11E/12E)
n Valuations (EV) not cheap at 6.7x FY12E EBITDA (30% premium to peers); Maintain Hold, Reduce target to Rs839
Jagran Prakashan Q2FY11 Result Update; Slightly below estimates, Reiterate BUY; Target Price: Rs 155
n PAT up 10.4% YoY to Rs555mn, below our estimate of Rs599mn due to lower than expected ad-revenue growth during the quarter
n Advertisement revenue growth was at just 12.7% yoy impacted by floods, Ayodhya verdict and shift of festive season to Q3 in FY11 v/s Q2 in FY10
n Ad-revenue growth fully led by realization growth - mix of yield improvement and rate hike
n Retain EPS estimate of Rs 7.0 and Rs 8.6 for FY11E and FY12E respectively. Retain BUY rating with target Rs 155
Century Plyboards (India) Q2FY11 Result Update; Results above estimates. Maintain BUY; Target Price: Rs 80
n Q2FY11 PAT at Rs420 mn ahead of expectations (Rs276 mn) - led by better than expected profitability of cement & Plywood division
n Revenue (Rs3.41 bn) growth of +20.2%- aided by 36.1% growth in plywood & laminates (P&L) segment and 262% growth in Ferro alloys segment. Cement declines 5% yoy
n CPL commissions new CFS at Kolkata. 3X expansion in cement capacity by Q3FY12. Kick-start of volume led growth in cement and CFS in FY12 to drive 23% earnings CAGR
n Management examining proposal of de-merger of CPL into three entities-Valuations at PER of 7.4X FY12E earnings remain attractive. Maintain BUY with a target of Rs80
Godrej Consumer Products Q2FY11 Result Update; Led By Consolidation, Maintain Accumulate; Target Price: Rs 447
n Godrej Consumer Products (GCPL) Q2FY11 performance exceeds expectation – APAT growth of 40% yoy to Rs1.3 bn
n New drivers like GHPL and Megasari reported strong traction, erstwhile drivers Africa, UK and Standalone operations witness pressures
n Upgrade growth assumptions for GHPL and Megasari, Downgrade growth assumptions for Keyline
n Upgrade earnings by 7% for FY11E (Rs19.5/Share) and FY12E (Rs20.3/Share) – Maintain ‘ACCUMULATE’ rating with revised target price of Rs447/Share
