| Summary of Contents
| STOCK UPDATE Unity Infraprojects
Cluster: Vulture's Pick
Recommendation: Buy
Price target: Rs107
Current market price: Rs52 Highest order inflow in FY2012 Key points -
FY2012 records the highest order inflow ever: In FY2012 Unity Infraprojects (Unity) bagged fresh orders worth about Rs3,000 crore, the highest order inflow recorded in Unity's history. Of this nearly Rs1,300 crore came in Q4FY2012 wherein the company bagged two road build-operate-transfer (BOT) projects worth Rs840 crore. The company is also the lowest bidder (L1) in orders worth Rs770 crore that are likely to be announced over the next two to three months. The current order book stands at about Rs4,650 crore, 2.5x its FY2012E revenue. The management has further set a target of winning orders worth Rs5,000-5,500 crore for FY2013. -
Wins 3 BOT projects in its maiden year: Unity marked its entry into the road BOT segment in FY2012 itself by bagging a project for two-laning of the Chomu to Mahla in Rajasthan in Q1FY2012. The project is worth Rs198 crore and has been awarded by the Public Works Department (PWD), Rajasthan on a toll basis. Last week Unity also won two more road BOT (toll-based) projects. The first is the four-laning of Punjab/Haryana border to Jind section of NH-71, for a concession period of 27 years from the National Highways Authority of India. The order is worth Rs510 crore. The second is a project to develop and operate the Suratgarh-Sriganganagar section of NH-15 in Rajasthan for a concession period of 11 years from PWD, Rajasthan. The order is valued at Rs330 crore. This takes the road BOT portfolio of Unity to three projects, which are together worth Rs1,040 crore. Of these, two are in Rajasthan and one is in Punjab. Over the next two years, these three projects will add substantially to the engineering, procurement and construction revenues of Unity after which these will start generating toll revenues. Of the three projects the Chomu-Mahla project is expected to get financial closure in one to two months. -
Bangalore and Nagpur likely to get launched in Q1FY2013: The company is awaiting approvals for the Bangalore real estate project, which is expected to be launched in this quarter. With regards to the Nagpur project, it is awaiting the final shareholder agreement and the operation and management agreement with one hotel operator. So both the projects are in the pipeline and will hopefully be announced in Q1FY2013. -
Strong order inflow strengthens the management guidance: The robust order inflow during FY2012 has strengthened Unity's order book to ~Rs4,650 crore, which is to be executed over 20-30 months. Such a strong order book strengthens the management's FY2013 guidance for a 20-25% growth in the top line. The management has further reiterated its aim of maintaining the operating profit margin at 13.5-14%. -
Attractive valuations, maintain Buy: We continue to like the company, given the strong momentum in its order inflow and its healthy lowest bidder position despite an adverse macro-economic environment. Such robust order wins will translate into a strong revenue growth over the next two years. We expect a 20% compounded annual growth rate in its revenue over FY2012-14. Hence, we maintain our Buy recommendation on the stock with a price target of Rs107. We have not considered the road BOT projects and the real estate projects in our valuation; these would provide further upside. We would include the real estate projects in our valuation once these get launched as their launch has been delayed substantially so far. We would include the BOT projects in our valuation once these are financially closed. At the current market price the stock is trading at a price/earnings multiple of 2.9x FY2013E earnings and at a price/book value of 0.2x FY2013E book value.
SHAREKHAN SPECIAL Q4FY2012 Banking earnings preview Key points -
Earnings growth to trend down: We expect banks in our coverage universe to report an earnings growth of 11.3% year on year (YoY; ex State Bank of India [SBI]) compared with the 12.6% growth in Q3FY2012 and the 15.3% increase in Q2FY2012. On a quarter-on-quarter (Q-o-Q) basis the earnings are expected to grow 6% compared with the 10% Q-o-Q growth in Q3FY2012. This would be on account of a sequential drop in the margin and a higher provisioning. -
NII growth steady but could drop in the coming quarters: The net interest income (NII) of the banks under our coverage is expected to grow at 22% YoY (13.4% YoY ex SBI) compared with the 17.1% growth in Q3FY2012 and the 19.4% growth in Q2FY2012. The advances growth would be better on a sequential basis but remain sluggish for FY2012. The net interest margin (NIM) could decline by 5-15 basis points quarter on quarter (QoQ) and affect the NII growth. -
Asset quality pressure to continue: The asset quality pressure will continue due to slippages from agriculture, small and medium enterprise (SME) and certain corporate accounts. Further, the additional restructuring carried out during Q4FY2012 will keep the provisioning at elevated levels. -
Prefer exposure to private sector banks and select PSBs: We expect the private sector banks to report a relatively better performance (an NII growth of 19% YoY and a net profit growth of 19.3%) with lesser asset quality strain. We prefer ICICI Bank, Axis Bank and Allahabad Bank (as play on Q4 results). Valuations and outlook: The operating performance of banks remains reasonably healthy as higher NIM compensated for a slower growth in advances. However, the earnings will be subdued due to the rise in the credit cost and a sluggish growth in the non-interest income. The margins of banks may come off by 5-15 basis points driven by a rise in the cost of funds which could affect the growth in the NII in the coming quarters. The banking stocks have appreciated from the lows of Q3FY2012 and are trading at a marginal discount of their five-year mean valuations. Going ahead, the timing and magnitude of the RBI's rate cuts will be the key driver of valuations. We prefer private sector banks like ICICI Bank and Axis Bank, and Allahabad Bank (as play on the Q4 results) among the PSBs. Q4FY2012 IT earnings preview Key points -
Weak volume growth: The March quarter is the period when the information technology (IT) budgets for the calendar year are finalised. The quarter also has the benefit of a higher number of working days compared with the December quarter. However, this time round, the March quarter saw the impact of a delay in decision making on discretionary spends that led to lower volumes. Therefore, we expect the top four IT companies to report another weak performance in terms of revenues for the quarter ended March 2012. However, on the back of an improving demand environment, as indicated by the recent Accenture and Oracle results, we expect the volumes to pick up in the June 2012 quarter. For the March 2012 quarter, we expect the average sequential revenue growth in dollar terms to be 1.7% against 2.6% in the previous quarter led by a weak volume performance. The adverse impact of the cross-currency movement would be marginal at 25-50 basis points. The rupee that had been the savior in the December 2011 quarter appreciated in the March 2012 quarter. On an average, the rupee appreciated by 2% quarter on quarter (QoQ) against the dollar. In Indian Rupee (INR) terms, we expect the sequential revenue growth to be flat on an average against the 13.3% quarter-on-quarter (Q-o-Q) growth in the previous quarter. Under our mid-cap coverage, Polaris Financial Technology (Polaris) and NIIT Technologies (NIIT Tech) are likely to report flat revenues and a growth of around 9.7% QoQ respectively in dollar terms for the March quarter. Polaris had the benefit of a large licence revenue in the previous quarter which would not be there in the quarter under review. -
Margins likely to fall: The operating profit margin (OPM) in the December 2011 quarter had seen a benefit of 150-200 basis points due to the rupee's depreciation. This benefit would not be there in the current quarter. Also, the weak volumes would affect the margins in the March 2012 quarter. We expect Infosys and Tata Consultancy Services (TCS) to witness a larger fall in their margins. We expect TCS to report a 200-basis-point sequential drop in its margins followed by Infosys whose margin should contract by 167 basis points. Wipro and HCL Technologies (HCL Tech) are expected to report a fall of 81 basis points and 85 basis points in their margins respectively. On the other hand, we expect the marked-to-market (MTM) losses on foreign exchange (forex) covers to be lower in this quarter due to the rupee's appreciation in this period. On the net profit front, we expect Infosys and TCS to report a sequential fall whereas HCL Tech is expected to report a flat performance. Wipro is likely to report a sequential growth mainly on the back of higher other income. -
Infosys' guidance and management commentary remain the key: The Infosys guidance for FY2013 and the management commentary on the demand environment and the spend/budget ratio remain the key. TCS has hinted at an improvement in decision making towards the end of the quarter. The recent Accenture and Oracle results have also indicated at an improving demand environment. We expect Infosys' initial revenue growth guidance for FY2013 to be at lower double digits in line with the National Association of Software and Services Companies (Nasscom)' expectation of an 11-14% growth in IT services exports for FY2013. Further, comments on the overall pricing environment and hiring plans (campus and lateral mix) would be the key monitorables. -
Valuations: Over the last three months, the BSE IT Index has underperformed the BSE Sensex with a return of 6.3% against the Sensex' return of 13.9% as the rupee has been volatile with an appreciating trend. There are still some fears of slow decision making and watchful outlook on the demand environment. However, the recent Accenture and Oracle results have indicated the demand environment is improving indicating the return of volume growth in the June 2012 quarter. We believe that in the upcoming earnings season management commentaries (as against the quarterly numbers) will provide a clear direction to the market. We remain cautiously optimistic on the IT sector and our top IT picks remain TCS in the large-cap space and NIIT Tech in the mid-cap space.
MUTUAL GAINS Sharekhan's top SIP fund picks | Large-cap funds | Multi-cap funds | | Franklin India Bluechip | ICICI Prudential Discovery Fund - IP | | DSP BlackRock Top 100 Equity Fund | Tata Dividend Yield Fund | | Birla Sun Life Top 100 Fund | Birla Sun Life Dividend Yield Plus | | Tata Pure Equity Fund | UTI Opportunities Fund | | UTI Top 100 Fund | Quantum Long-Term Equity Fund | | BSE Sensex | BSE 500 | | Mid-cap funds | Tax saving funds | | SBI Magnum Sector Funds Umbrella - Emerg Buss Fund | Franklin India Taxshield | | IDFC Premier Equity Fund - Plan A | Reliance Tax Saver (ELSS) Fund | | DSP BlackRock Small and Midcap Fund | ICICI Prudential Taxplan | | Kotak Midcap Fund | HDFC Long Term Advantage Fund | | Franklin India Prima Fund | HDFC Taxsaver | | BSE Midcap | S&P Nifty | Fund focus
Click here to read report: Investor's Eye
| | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. | | | | |
No comments:
Post a Comment