Indian Markets are expected to open in the green taking cues from the SGX Nifty and Asian markets which are trading higher in the opening trade. The US Markets edged up higher on Tuesday buoyed by a report from the Conference Board showing a substantial improvement in consumer confidence in the month of February. The strong consumer confidence numbers for February over shadowed the 4% drop in consumer durables orders for the month of January. US markets were also boosted by optimism about the impact of the European Central Bank's long term refinancing operation announcement which is due today. Dow Jones closed higher than 13,000 for the first time since May 2008. The major European markets which saw some volatility during the course of the day, ended the day on the upside.
Indian markets closed positively on Tuesday after snapping the four day losing streak. The markets would be tracking the GDP figures for 3QFY2012 due to be released today.
Markets Today
The trend deciding level for the day is 17,679 / 5,358 levels. If NIFTY trades above this level during the first half-an-hour of trade then we may witness a further rally up to 17,828 – 17,926 / 5,409 – 5,442 levels. However, if NIFTY trades below 17,679 / 5,358 levels for the first half-an-hour of trade then it may correct up to 17,582 – 17,433 / 5,324 – 5,273 levels.
Nedgroup Insurance selects TCS BaNCS Insurance for policy administration
TCS announced that its universal financial services platform, TCS BaNCS, has been selected by Nedgroup Insurance Company, a South Africa-based short-term insurer specializing in homeowner’s cover, personal accident, vehicle-related covers and other value-added insurance products. TCS BaNCS Insurance, part of TCS BaNCS, will serve as the new policy administration system for Nedgropup’s short-term insurance services. TCS BaNCS serves the top banks in Africa through banking and capital markets suite of solutions; this will be TCS BaNCS’ first insurance customer in Africa. We maintain our Accumulate recommendation on the stock.
JSW Steel reports January production numbers
JSW Steel’s January 2012 crude steel production grew by 39% yoy and 5% qoq to 0.8mn tonnes. The company has iron ore inventory, which could last for another 4-5 months. The company is awaiting the Supreme Court’s decision to lift/partially lift the mining ban in Karnataka. We maintain our Neutral view on the stock.
Infotech Enterprises – Analyst meet update
We recently attended the analyst meet of Infotech Enterprises (Infotech) held at Hyderabad. The meet focused on giving investors an idea about the company’s systems and processes through presentation by various business heads, subvertical heads and demo of a range of company’s projects. The major take away from the meet was that the company is on the right track in terms of making investments to strengthen its product portfolio and is taking initiatives to improve its financial metrics. Infotech’s performance over the past six quarters has been mixed, with operational margins being the major disappointment, which the company is now focusing to improve.
Focus on systems and process to provide scalability: During the meet, Mr. BVR Mohan Reddy, Infotech’s Chairman and Managing Director, highlighted that the company is now focusing on strengthening its leadership along with improving its systems and processes and making them scalable. Further, the company will take in SAP integration, as currently three of the company’s subsidiaries are operating independently. Along with integrating processes, Infotech is trying to expand its footprint in other addressable markets with existing clients.
Healthy market opportunity: As per Zinnov Consulting, a leading IT consulting firm, the engineering market is expected to reach US$40bn by 2020 from US$10.4bn currently (led by industries such as aerospace, automotive, consumer electronics and telecom). Infotech, being a leader in the aerospace and telecom engineering spaces, has strong relationships with clients in these areas and, hence, can capitalize on this opportunity.
Focus on improving client mining: Infotech’s management is currently focusing on adding and increasing its wallet share from ‘must have’ accounts across its target verticals. The company is doing this by changing the incentive structure of customer-facing roles and is investing considerably to improve client mining and account management skills.
Outlook and valuation: Infotech has been witnessing a 5.2% CQGR in its USD revenue over 2QFY2011–3QFY2012 because of inorganic growth due to the acquisition of Daxcon and Wellsco. Further, the company has witnessed price increases from some of its selective clients, which instills confidence in the company’s performance going ahead. Thus, over FY2011-13E, we expect the company to post a USD and INR revenue CAGR of 17.6% and 23.2%, respectively.
Infotech has been consistently underperforming on the operating margin front, which the company is now focused to address by levers such as improving utilization level, rationalizing SG&A expenses and shifting more work offshore. This year, management expects the company’s operating margin to exit at ~17%, which can be easily achieved now, given the sharp INR depreciation. We expect EBITDA and PAT CAGR to be at 30.0% and 16.6% (lower due to tax rate moving to 33% from 17% in FY2011), respectively, over FY2011-13E.
At the CMP of Rs.144, Infotech is trading at 8.4x FY2013E EPS of Rs.17.1. We maintain our Accumulate recommendation on the stock with a revised target price of Rs.162.
Result Review – 4QCY2011
Bosch
For 4QCY2011, Bosch registered a strong 33.5% yoy jump in net profit to Rs.281cr driven by significant increase in other income and lower than expected depreciation expense. Top-line grew by an healthy 8.3% yoy to Rs.2,040cr.The company’s EBITDA margin witnessed a 109bp yoy expansion to 17.5% led by decline in staff cost and other expenditure due to which operating profit jumped 15.6% yoy to Rs.357cr. The stock rating in currently under review.
Abbott India
For 4QCY2011, Abbott India Ltd. (AIL) reported a ~6% qoq decline in its revenue to Rs.386cr, 10% below our estimate of Rs.424cr. For CY2011, the company's top line came in at Rs.1,477cr, marginally lower than our estimate of Rs.1,516cr. The company's results are not comparable to the previous year’s results on account of its amalgamation with Solvay Pharma India Ltd. (SPIL) during the year.
During the quarter, EBITDA margin came in at 11.9%, 106bp lower than our estimate of 13% on account of higher other income, which includes integration and amalgamation expenses; and stamp duty. Net profit stood at Rs.120cr, 11% below our expectation of Rs.135cr. We have slightly revised our earnings estimate downwards and expect the company's net profit to post a CAGR of ~30% over CY2011-13E.
We maintain our Buy rating on the stock with a revised target price of Rs.1,721, based on a target PE of 18x its CY2013E earnings.
Economic and Political News
- Higher import duty will hurt sector: Private power companies to PM
- January infra output reduces to 0.5% yoy
- Rising crude oil prices disturbing: Finance Minister
Corporate News
- ONGC, GAIL may offer Rs.9,800cr for Cove
- IOC gets state permit to draw river water for refinery
- GMR Infra in talks to sell US$200mn in road assets
- Essar Oil loses Rs.302cr insurance claim
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