Buy Mahindra Lifespaces Ltd For Target Rs.480Mahindra Lifespaces (MLIFE) reported 4QFY13 standalone results below our estimate, while consolidated numbers surprised positively.
* MLIFE's standalone revenue for 4QFY13 stood at INR1b (-27% YoY, v/s est. of INR981m), while EBITDA declined 46% YoY to INR172m (est. of INR227m). EBITDA margin improved 2.1pp QoQ to 16.8%, but fell below our estimate due to weaker progress in Splendor II . PAT declined 28% YoY to INR232m (est. of INR290m), further impacted by lower other income, but offset by lower
effective tax rate as well.
* 4QFY13 consolidated revenue stood at INR3.3b, +25% YoY, while PAT (pre minority) was at INR925m, +166% YoY. FY13 consolidated revenue stood at INR7.4b (+5% YoY, v/s est. of INR6.1b), EBITDA at INR2.4b (+26% YoY, v/s est. of INR1.5b) and PAT at INR1.4b (+19% YoY, v/s est of INR929m).
* Sharp increase in consolidated revenue in 4QFY13 is attributable to (1) multiple projects crossing 25% threshold: (a) three phases of Bloomdale (Nagpur), (b) Iris 2/3 (Chennai) and (c) Ashvita (Hyderabad, in standalone entity), and (2) uptick in new leasing at MWC Jaipur: leased out 73 acres (~INR1b) in 4QFY13, of a total 75 acres in FY13.
* MLIFE sold 0.38msf (INR1.5b) in 4QFY13, a stable run-rate against (0.39msf) INR1.5b in 3QFY13 and 0.2msf (INR0.5b) in 4QFY12. FY13 pre-sales stood at 1.1msf (INR4.4b) v/s our estimate of 1.3msf (INR4.8b) and FY12 sales of 1.2msf (INR5.9b). 4QFY13 pre-sales were driven by (1) Ashvita (Hyderabad) - 0.21msf and (2) MWC Chennai projects (Iris and Aqualily) 0.14msf. Incremental presales have been weak in Aura (Gurgaon) and phase I/II of Bloomdale (Nagpur).
* It acquired five projects (~2msf, with guided revenue potential of INR10b) in FY13, along with one more affordable housing project in Boisar, Mumbai (0.55msf) in Apr-13. 4QFY13 acquisitions include (1) a premium project in Andheri (0.37msf) and (2) Bangalore (0.67msf). Consolidated net debt increased by INR3.2b QoQ to INR7.1b (net DER of 0.55x).
* The stock trades at 1x FY15E BV, 10.2x FY15E EPS and 27% discount to our FY15E SOTP value of INR520/share. Maintain Buy with a target price of INR480
Buy Mahindra & Mahindra Financial Services Ltd For Target Rs.250MMFS reported PAT of Rs3.34bn, ~higher than consensus post adjustment of one‐ off gains, driven by higher margins and lower credit costs. Growth momentum continues to surprise (~35% growth) and though a moderation is expected, management commentary was very positive. With rate cycle in it’s favour, we expect MMFS to report strongest FY14 PPOP growth (~30%) and this, coupled with reducing asset quality risk (low waiver chances + positive start to monsoon outlook), would be key stock catalysts. We maintain ‘BUY’ with PT of Rs250
* Growth outcomes better than street expectations: The key Q4FY13 highlight was the resilience in AUM growth (~35% YoY growth) driven by all segments except for some slowdown seen in non-M&M cars evident from slowing OEM sales. Despite the challenging macro, management highlighted growing importance of MMFS in increasing rural penetration of most OEMs and this is likely to continue to aid loan growth. We see limited risk to our ~22% growth expectations for FY14.
* Stable asset quality; Positive outlook on margins: Asset quality trends have been stable and with MHCVs forming <20% of MMFS’s CV book, management does not see any risk to their CV book. Moreover, MMFS has prudently started building a provisioning buffer (Rs350m) from the stake sale gains of their insurance subsidiary. Margins held up better than expectations, with cost of funds moderating QoQ and with a 100% fixed rate book, rate cycle is very likely to have a positive impact on MMFS’s margins in FY14 (we expect ~30bps improvement).
* High PPOP resilience in FY14; Maintain BUY: With a better-than-industry outcome on growth and improving margins, we expect MMFS to report best-inclass PPOP growth of ~30% in FY14 and should be a key stock catalyst. With the possibility of a debt waiver receding (low fiscal flexibility) and positive forecasts on monsoons, asset quality risks have reduced.
Buy MindTree Ltd For Target Rs.976Operational performance in-line: MindTree (MTCL) reported in-line operational performance for 4QFY13. Revenue was USD113m, up 2.9% QoQ (v/s our estimate of 2.8% QoQ). EBITDA margin declined 140bp QoQ to 19% (v/s our estimate of 19.2%) on drop in utilization, investments in the front end, and higher people intake. PAT was INR789m, down 20% QoQ and below our estimate of INR856m, primarily due to forex loss of INR153m.
* 4QFY13 deal signings lend visibility to FY14 revenue: MTCL's total deal signings of USD165m in 4QFY13 lend visibility of higher revenue growth in FY14. The company expects PES to return to growth in FY14, after 4% decline in FY13, and IT Services to improve upon its FY13 USD revenue growth rate of 14.6%.
* Outlook for 1QFY14: In 1QFY14, MTCL expects to grow better than in 4QFY13, with acceleration seen in both IT Services and PES. Margins, however, should see some decline, as freshers join the company at a healthy rate.
* Growth in both IT Services and PES in 4QFY13: Both IT Services and PES grew during the quarter, with IT Services growing at 3% QoQ and PES at 2.3%. Growth in IT Services was driven by Manufacturing & Retail (+8.3% QoQ), IMS (+8.3% QoQ) and RoW (+22.6% QoQ).
* Revising USD revenue estimates upwards: We have revised our USD revenue estimates for FY14/FY15 upwards by 0.7%/1.8%, following deal wins worth USD165m, which substantiate the management's outlook for growth acceleration in FY14. However, we are cautious on profitability and model 118bp YoY decline in FY14 EBIT margin.
* Maintain Buy: MTCL is one of the few companies in the mid-tier IT space, with some visibility of growth acceleration in FY14. The company's payout ratio in FY13 was ~15% and may improve, going forward. Our target price of INR976 discounts FY15E EPS by 10x, and implies 15% upside. Buy.
Buy Zensar Technologies Ltd For Target Rs.272.00Zensar Technologies Ltd (Zensar) is a globally renowned software services company that specializes in providing a complete range of Software Services and Solutions.
* The company expects to achieve 4-6% sequential revenue growth for Q1 FY14 with an excellent new order booking of over $110 million of multimillion dollar deals in the last 6 months.
* Zensar Technologies has entered into a fiveyear agreement with Assurant Health. The Company is estimating revenue generation up to Rs. 269 crores over next five years period from this engagement.
* During the quarter, the growth of Net Sales is increased by 2.11% to Rs. 5109.50 million.
* Zensar Technologies has recommended a Final Dividend of Rs. 4.50 per Equity Share of Rs. 10/- each for the year 2012-13.
* Zensar Technologies has rebranding with Akibia, Inc.
* The Company has reported 16 wins this quarter, some of which are large annuity contracts in core areas of application
development & infrastructure management
* Net Sales & PAT of the company are expected to grow at a CAGR of 14% & 7% over 2012 to 2015E respectively.
Investment Highlights
Results updates- Q4 FY13
The company’s net profit decreased to Rs.391.00 million against Rs.392.90 million in the corresponding quarter ending of previous year, a decrease of 0.48%. Revenue for the quarter rose 2.11% to Rs.5109.50 million from Rs.5003.90 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.8.97 a share during the quarter. Profit before interest, depreciation and tax is Rs.682.10 millions as against Rs.688.10 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.247.00, the stock P/E ratio is at 5.78 x FY14E and 5.46 x FY15E respectively.
* Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.42.70 and Rs.45.24 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 7% over 2012 to 2015E respectively.
* On the basis of EV/EBITDA, the stock trades at 3.23 x for FY14E and 3.01 x for FY15E.
* Price to Book Value of the stock is expected to be at 1.15 x and 0.98 x respectively for FY14E and FY15E.
* With excellent new order booking of over $110 Mn of multimillion dollar deals in the last 6 months, the company expects to achieve 4-6% sequential revenue growth for Q1 FY14.
* We recommend ‘HOLD’ in this particular scrip with a target price of Rs.272.00 for Medium to Long term investment.
Buy Axis Bank Ltd For Target Rs.1,650Axis reported PAT of Rs15.5bn, higher than consensus, driven by better non‐ interest income, both on core fees and treasury/recovery. Slowdown in corporate growth is evident and retail segment continues to cushion both B/S and core fee growth. Hence, outcomes on PPOP growth has been better v/s other corporate B/S‐linked banks and we expect the trend to continue. Stable asset quality trend for 3‐4 quarters as well as low gas power exposure are also comforting and hence, we maintain our ‘BUY’ rating with a PT of Rs1,650/share.
* Good show on NIMs and Fees: Axis reported a ~15bps QoQ improvement of margins largely due to the dilution impact, adjusted for which, NIMs at 3.5% was also better than expected. Other income was aided by treasury/recoveries but core fee growth at 22% YoY surprised, with retail fee growth momentum continuing (37% YoY growth) and is likely to drive fee growth in FY14.
* Growth coming off, especially on the corporate book: Overall loan growth was lower-than-expected at ~16% YoY, with a sharp slowdown in large corporate book (8% YoY) and slower seasonal pick-up in their Agri book. Retail momentum (~44% YoY) continues across segments and is likely to remain the driver in FY14.
* Asset quality stable; Buffering up on provisions a positive: Gross slippages at <1% was below trend, leading to lower NPA provisions (Rs1.5bn v/s Rs3.5bn expected) and provided significant room for a build-up in contingent provisions which is a positive trend. Restructuring inched up to Rs8bn in Q4 largely from Engineering/Infra/Metals space. However, upgrades + RBI dispensation aided to keep the net restructuring at <2% of loans.
* Maintain ‘BUY’ with PT of Rs1,650/share: With focus on retail growth continuing, we expect better PPOP trends from Axis v/s other corporate B/Slinked banks to remain in line with management guidance and low gas power exposure is also comforting. We, thus, maintain our ‘BUY’ rating with a PT of Rs1,650/share (1.9x Sep-14 book).
Buy Persistent Systems Ltd For Target Rs.586.00Persistent Systems Ltd, established in 1990 is a global company specializing in software product and technology innovation.
* During the third quarter ended the robust growth in the Net Profit of the company and it is rose by 25.88% to Rs. 518.85 mn.
* Persistent Systems recommended a final dividend of Rs. 3 per share for FY 2012-13.
* Persistent Systems has entered into a strategic agreement with HP to license its
* HP Client Automation (HPCA) software. Persistent Systems Limited launches Persistent Ventures as a division.
* Persistent Systems launches PaxPharma, Compliance-based Design to Print Automation for Pharmaceutical Industry.
* Persistent Systems recognized by IDG’s Computerworld Honors Program as a “2013 Computerworld Honors Laureate” in the Emerging Technology category.
* MUHS, UoP, UoM, Dr. BAMU and Persistent Systems announce a National Strategic Initiative to promote Inclusive Innovations
in India.
* Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 21% over 2012 to 2015E respectively.
Investment Highlights
Results updates- Q4 FY13,
The company’s net profit jumps to Rs.518.85 million against Rs.412.17 million in the corresponding quarter ending of previous year, an increase of 25.88%. Revenue for the quarter increase 23.40% to Rs.3339.59 million from Rs.2706.24 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.12.97 a share during the quarter, registering 25.88% increase over previous year period. Profit before interest, depreciation and tax is Rs.933.15 millions as against Rs.738.49 millions in the corresponding period of the previous year.
Outlook and Conclusion
* At the current market price of Rs.540.00, the stock P/E ratio is at 9.85 x FY14E and 8.69 x FY15E respectively.
* Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.54.84 and Rs.62.12 respectively.
* Net Sales and PAT of the company are expected to grow at a CAGR of 22% and 21% over 2012 to 2015E respectively.
* On the basis of EV/EBITDA, the stock trades at 5.28 x for FY14E and 4.59 x for FY15E.
* Price to Book Value of the stock is expected to be at 1.75 x and 1.45 x respectively for FY14E and FY15E.
* 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.586.00 for Medium to Long term investment.
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