!!SAI PARSADAM!!
"BIG BOSS"
VIKAS PARSHURAM SAMWATSARE
* ~3% negative impact due to lower working days and furloughs:
According to the management, the quarter will be impacted by lower working days (1 day) and furloughs (~1.5 days).
1) Q3 generally witnesses furloughs from Hi-tech, manufacturing and telecom clients.
2) BFSI also witnesses furloughs in the quarter. However, the furloughs are not an indication of any budget cuts.
3) Lower growth in Europe due to weakness in telecom vertical
4) North America likely to deliver positive volume growth despite usual headwinds including Sandy
5) In terms of service line, the growth is likely to be evenly poised.
6) There is no pricing pressure, but didn’t rule out volume discount.
* Gross addition likely to be lower, but fresher addition strong:
The company is will have weak laterals additions but strong fresher additions. The management does not expect any spill-over in fresher addition to FY14. Moreover, guidance for FY14 fresher addition of 25k is retained. Also, the supply-side constraint will continue pushing subcontracting cost but at a slower pace.
* Margin decline to continue, but strict vigil on 27% operating margin guidance:
The management expects decline in margin due to lower working days, higher fresher intakes and forex movement. However, they reiterated their goal of 27% EBIT margin. The management was confident of recouping margin in Q4FY13. Q2FY13 & Q1FY13 operating margins were 26.8% and 27.5%, respectively.
* Tax rate stable, forex loss due to premium charged for option:
The hedging loss for Q3FY13 is likely to be Rs340-350m, compared to gain of Rs130m in Q2FY13. There will be positive asset translation impact in the quarter due to currency movement. Tax rate for the quarter is likely to be stable.
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Buy Pfizer Ltd For Target 1300.00
During the first quarter ended the robust growth in the Net Profit of the company and it is rose by 11.26% to Rs. 522.80 million.
Pfizer has launched 26 Branded Value Offerings (BVOs) during the year mainly in anti infective, analgesic, CNS, CVS & diabetes segment.
Pfizer made clinical research investments of US$ 1.18 million in pharmaceutical R&D is one of the highest spenders in India.
Pfizer has approved the sale of its wholly owned subsidiary Pfizer Animal Pharma Pvt Ltd to Pfizer Animal Health India Ltd, a 100 percent indirect subsidiary of Pfizer Inc, USA for Rs 471.60 crore.
Pfizer entered into chronic segments such as neuroscience which is one of the fastest growing markets in addition to new products in India.
Pfizer Ltd (India) has a turnover of US$ 184.96 million (March 2012).
Outlook and Conclusion
At the current market price of Rs.1150.00, the stock P/E ratio is at 15.10 x FY13E and 13.70 x FY14E respectively.
Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.76.14 and Rs.83.95 respectively.
On the basis of EV/EBITDA, the stock trades at 6.71 x for FY13E and 5.57 x for FY14E.
Price to Book Value of the stock is expected to be at 2.24 x and 1.93 x respectively for FY13E and FY14E.
We expect that the company surplus scenario is likely to continue for the next years, will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.1300.00 for Medium to Long term investment.
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Buy RCF- Good Bet In Urea Segment For Target Rs.62.00
Rashtriya Chemicals and Fertilizers Ltd (RCF) is a leading urea player in the fertilizer industry. Urea alone contributes 46% of the top line. The company also manufactures and markets other fertilizers such as Complex Fertilizers, DAP, MOP, and SSP as well as industrial chemicals such as Methanol, Ammonia, Ammonium Nitrate Melt, Methylamines, and Ammonium bi-carbonate. Rubber, chemical, pharmaceutical, dyes, leather and real estate industries are the key customers for the industrial products.
Investment Rationale
* Capacity expansion to boost top-line growth- The ammonia and urea capacity expansion in Q1FY13 is likely to boost the company’s top-line growth FY13 onwards. In addition to that, RCF has huge capacity expansion plans in urea, ammonia, nitric acid, SSP, ammonium nitrate at Thal and Talcher, which will be funded with the combination of debt and equity.
* Government divestment is likely to improve performance as well as liquidity in the stock.
* RCF is planning to do long term contract for one of the key raw material named rock phosphate to ensure uninterrupted supply, which is likely to improve margins.
* The expected urea investment policy is likely to encourage capital investment in the urea segment. This could reduce dependency on import that may decrease Govt expenditure too some extent.
* RCF has entered into Joint Venture with FACT in FY13 for manufacturing of plaster wall and panel which are sold mainly to the builders.
Valuation
At the CMP of `52.4, the stock discounts it’s FY13E and FY14E EPS of `5.43 and `6.92 by 9.65x and 7.57x. Due to the expected urea investment policy, Govt divestment, capacity expansion plans and looking out for long term raw material contract, we are bullish on the company, but being a PSU company and its presence in the Govt regulated industry, the implementation of projects might get delayed. Hence, keeping in view the above factors, we have assigned a P/E multiple of 11.42x to arrive at the target price of `62 for the stock. Any positive move in divestment and urea policy may change our target price in the upward direction.
Risk
* Volatility in the price of Rock Phosphate, Muriate of Potash, Mono-ammonium phosphate and natural gas and foreign currency fluctuation may impact profitability
* Irregularity of monsoon is likely to impact the top-line of the company.
* The highly regulated industry may face risk in policy front and its implementation.
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Buy Cholamandalam Investment & Finance For Target Rs.298
Cholamandalam Investment & Finance Company (CIFC), a part of the southbased Murugappa Group, operates as a pure asset finance player (AFC) offering vehicle finance, home equity loans and business finance. It has a network of 484 branches across India with an AUM of Rs 15,631 cr as on September 2012. The company has built a scalable and sustainable business model with attractive NIMs, strong loan growth, control over asset quality and widespread reach.
Management aims to maintain growth but does not wish to compromise on the asset quality front for the sake of growth. Adopting a pro active approach management has avoided the gold loan portfolio considering lots of regulatory hurdles with RBI. Moreover, the company has been focusing more on the high yielding Used CVs and LCVs segment which will ensure that the company continues to witness the growth momentum going forward. With most of the branch network expansion in place, CIFC now intends to focus on improving the productivity of these branches which will lower the cost to income ratio.
We believe that the above initiatives with a revamped business model will lead 1to a sustainable and profitable growth in CIFC’s business. We expect earnings to grow at a CAGR of 46.7% over FY12-FY14E. We expect the company to report an improvement in its RoE from 14.0% in FY12 to 19.9% in FY14E and RoA (post tax) to improve from 1.5% in FY12 to 1.9% in FY14E. At CMP the stock is trading at 1.9x FY13E and 1.54x FY14E ABV and 11.08x FY13E and 8.22x FY14E EPS. Based on our estimated BV of Rs.149 per share for FY14E and P/ABV target multiple of 2.0x we arrive at a target price of Rs.298. We recommend BUY on the stock indicating a potential upside of 25.3%.
* CIFC is well positioned to deliver 30% CAGR growth in AUM over FY12-FY14E driven by the growth in vehicle finance segment. In the Vehicle Finance segment particularly the company’s strategy to target high growth business segments like Used CVs, less cyclical LCV segment and entering into new tractor financing will lead to sustainable growth going forward.
* We believe that CIFC will continue to maintain its growth momentum aided by the new products launched, increasing market share in high yielding segments and benefit of network expansion. We expect disbursements to witness a CAGR growth of 30.3% over FY12-FY14E.
* The significant branch expansion made by the company in the last 2-3 years will start yielding results and CIFC will witness improvement in overall productivity of the branches leading to lower cost to income ratio leading to improvement in the company’s bottom line. We expect C/I ratio to improve from 56.1% in FY12 to 51.5% in FY14E.
* CIFC has managed to reduce its gross NPA from historic high of 5.5% in FY10 resulting from its personal loan portfolio to nearly 0.8% in FY12 which suggest strong command of the management to keep a check on the rising concern over NPAs. Going forward although we expect NPA to slightly increase from current levels to 1.1% in FY13E it will still be well under control.
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