Fw: Company Reports - Exide Industries and Persistent Systems

 

Exide Industries: Fully charged - BUY CMP Rs127, Target Rs155, Upside 22.0% Exide Industries (Exide) has underperformed Amara Raja Batteries over the past three months by 17%. This has been on the back of slowdown in OEM sales where Exide has a larger market share. Weak industrial activity, slow pickup in replacement demand and depreciating rupee have added to the woes. We believe that markets have over reacted to some of these concerns. Battery replacement demand for passenger cars will see a strong growth in the near future as the strong growth in car sales during FY09-12 (CAGR of 18.2%) and replacement cycle of 30-36 months will start entering the markets. The two-wheeler replacement market has already seen a lot of traction in Q1 FY14 with a 22% growth. We believe this momentum would be sustained as proportion of switch-start 2-wheelers in the domestic sales has increased considerably. With regards to OEM sales, while FY14 will continues to be muted FY15 could see modest revival if the consumer sentiment improves and interest rates are cut by 50-100bps over the next 12 months. Nevertheless, weak OEM sales are margin accretive as OEM sales command substantially lower margins when compared to replacement and industrial segments. The concern over rupee and lead prices has been abated with recent appreciation in rupee and the price hikes implemented over the past few months. We expect the company to maintain its gross margins in the medium term. Given the strong performance in FY13, where margins achieved some stability, return ratios improved and investment in expansion was made, we expect the financial performance to improve from here on. Sale of stake in insurance business could be an additional trigger. With earnings FY13-15E CAGR of 22.6%, we find the valuations of 13.5x FY15E P/E attractive. Retain BUY with a revised 9-month target price of Rs155.

Click here for the detailed report on the same.

Persistent Systems: Deserves Rerating! - BUY CMP Rs590, Target Rs680, Upside 15.3% Platforms and IP to boost revenues; PE services sees stable growth The core product engineering (PE) services and platforms segment of Persistent Systems has shown steady improvement in revenue traction over past couple of quarters driven by higher spending of Independent Software vendors (ISVs) and enterprises. Our recent conversation with the management suggests this traction should continue especially considering robust growth from Platform solutions. The IP business (Intellectual Property) too should show strong growth owing to the pushed out HP Client automation (HPCA) product revenues and traditional back-ended growth in rest of the IP portfolio. Operating margin to improve seq. on higher IP and cost leverage Integration related expenses, strong hiring, sales function re-organisation, wage hikes and delay in the revenue accretion from the HPCA product (despite costs being booked) resulted in correction in margin over past 3-4 quarters. We believe, the improving traction in Products and platform business, robust growth expectation in IP revenues should result in strong cost leverage implying a steady improvement in margin. Overall, the key headwinds of wage inflation, fresher hiring and sustained S&M should be offset to a large extent by the improving business momentum in H2 FY14 resulting in margin improving 300bps over next three quarters. Valuation is cheap at 8.7x FY15E; Maintain BUY Persistent has continued to leverage on its niche expertise in the offshore product development space and its marquee clientele. This is seen in the sustained traction for its sell-with business, PE services as well as strong growth in IP portfolio. Improving spending momentum in its key US market, rejigged sales organization and broadened services/client portfolio due to acquisitions should continue to support revenue traction. On the back of this stronger momentum, we increase our estimates and expect dollar revenue/INR earnings to witness 15.8%/19.6% CAGR over FY13-15E (versus 13.6%/16.3% earlier). Maintain BUY

Click here for the detailed report on the same.

Warm Regards, Amar Ambani