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The Morning Meeting Notes as on 18th February, 2010.
Contents
n Research Views
First Thoughts post attending Hexaware Analyst Meet
Q1CY10 guidance surely a dampener, but co expects better performance after Q1
We (as well as the street) were negatively surprised by the co's revenue guidance for March'10 quarter at US$ 48-50 mn, which implies a 11%-7.5% QoQ decline in revenues.Our discussions with co management indicate that it has suffered from some abrupt project cancellations at one of the top clients. This combined with slower than expected ramp ups on some of the recent deal wins has contributed to the muted revenue guidance.
Margins could fall further in H1CY10
Hexaware's EBITDA margins during the quarter fell by ~ 580 bps QoQ to 17.9% on a/c of absence of one time income and currency appreciation.
Estimate CY10/11 earnings of Rs 7.6/Rs 11.1 respectively
We estimate earnings of Rs 7.6/Rs 11.1 for CY10/11 respectively which bakes in (1)CY10/11 revenues of US$ 219.5 mn (+2.3% YoY) and US$ 256 mn (+16.6% YoY) (note that CY11 revenues growth stands out mainly on a/c of CY10 exit rate) , (2) US$/INR exchange rate of Rs 45/$ for CY10/11 and (3) tax rates of 12%/22% for CY10/11 respectively. Also note that we build in forex losses of ~Rs 2.3/share in our CY10 estimates.
Valuations attractive, growth surge still some time away
At CMP of Rs 73, Hexaware trades at ~9.6x CY10E/6.6x CY11E earnings of Rs 7.6/11.1 respectively. With ~Rs 29/share of cash ( ~50% of CY09 Book value of Rs 58.6),we believe that downside in the stock is limited (stock's down by ~20% over past 1month) and valuations attractive, albeit revenue growth remains elusive for now. We are of the view that Hexaware is going through a transition with the shift in company's strategy to a vertical focussed organisation (V/s a horizontal focussed company earlier) which is driven by a revamped management team (as company continues to bring in top notch talent from Tier 1 competition)
We do not have a rating on the stock currently.
n Research Update Included
MAGFIL - Initiating Coverage ; Midas Touch ; BUY ; Target: Rs 900
Manappuram General Leasing and Finance (MAGFIL) is
With robust risk management systems in place (3-stage appraisals, strong vaults and limiting the loan sizes to 15-20k), we expect MAGFIL to achieve this growth without compromising on the asset quality. We expect MAGFIL's net NPAs to move down from 1.4% to 0.2% of advances over FY09-12E.
We expect MAGFIL to report RoAs of 5%+ and RoEs of 35%+ over FY09-12E. The stock valuations at 2.3x FY12E ABV are quite attractive. As has happened with many other NBFCs, we expect MAGFIL's valuations to track its balance sheet growth. We recommend BUY with a TP of Rs900, valuing it at 3x FY12E ABV.
4952 The next barrier:
With support from positive cues across the globe, Nifty started the day on a positive note. Going further, bulls managed to keep the ball in their court till the end with a close above 4900 on good volumes, which is a boost in the favor the bulls. The current scenario indicates that if Nifty manages to clear 4930 and above that 4952 then the bounce can extend up to 5070 level. Additionally, both hourly and daily cycles are currently standing in the support of the bulls, so the extension of the bounce up to 5070 level is quite possible.
BSE Metal:
BSE Metal continued its upside journey and broke the resistance of 16203 and finally closed above that at 16435 with a gain of 3.24%.On the daily chart as this index closed above the 21DEMA, thus we may witness some recovery in this index on account of which it can heighten upto 16636 levels.
BSE Bankex :
Buying was witness in the BSE Bankex and it broke the 21DEMA and finally closed above that at 9605 with a gain of 1.75%. Going forward now this index has resistance at 9729 and in the coming days if this index starts trading above this level then we will witness further upside.
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Regards,
Emkay Research
Emkay Global Financial Services Ltd.
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Worli, Mumbai - 400 013.
Tel: 6612 1212
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