Guidance

Infosys’ management has given a cautious guidance for the next financial year (FY 2012-13). For FY13, the management expects sales to grow by 13.9%-16.0% YoY and EPS to grow by 9.1%-10.9% YoY. In US dollar terms, the company expects just 8%-10% YoY growth in revenues for FY13.

Dividend

A final dividend of Rs 32 per share has been proposed including a special dividend of Rs 10 per share.

What can we expect from now on?

At the current price of around Rs.2400 the stock is trading at a multiple of 14 times our estimated FY14 earnings. The quarter witnessed declined in sales across most verticals due to delays in deal finalizatons. Management sees a flat growth going forwards due to global uncertainities and the pace of budget allocations and spending by its major clients. With regards to pricing, the management expects the same to remain stable during FY13. The management has reiterated that they would be looking at high quality revenue growth with focus on increasing non-linearity in business. For that the management would continue to concentrate on ‘Products, Platforms and Solutions’ and ‘Consulting and System Integration’ business.

Management stated that it will recruit 35,000 people during the next year and targeting a utilization rate of aroun 67% to 80%. Currently employee utilization stands at 73% due to project delays and capacity building for future.

However, keeping the short-term headwinds aside Infosys is bound to perform good in long term of 2 to 3 years. One can buy Infosys at current price to reap good returns in long term.

The Nifty closed up 1.05% for the sixth week in a row. The NSE benchmark gave a ‘doji’ pattern last week, which signifies a pause in the market - a place where bulls are a little unsure of a further upmove.

Meanwhile, on the daily chart, Nifty is in a range of 5300-5400 and a few sideways days will be good for the market to develop a higher base.

For long-term investors, this is the right time to get into stocks as a fresh cycle of rate cuts and, hopefully, earnings upgrades, are beginning.

Anant Raj

• Recommendation: Buy
• Stop Loss: Rs 63
• Last Close: Rs 70
• Target: Rs 77

DCHL

• Recommendation: Buy
• Stop Loss: Rs 44
• Last Close: 49
• Target: Rs 53

PTC

• Recommendation: Buy
• Stop Loss: Rs 49
• Last Close: Rs 55
• Target: Rs 62

CESC

• Recommendation: Buy
• Stop Loss: Rs 258
• Last Close: Rs 279
• Target: Rs 297

Infosys Ltd

• Recommendation: Buy
• Market price: Rs 2776
• Target price: Rs 3225
• Most profitable amongst frontline Indian IT cos. Key positives in Q3 are a 0.8% increase in revenue productivity in constant currency, five large deal wins.

Sintex Industries Ltd

• Recommendation: Buy
• Market price: Rs 100
• Target price: Rs 112
• The long-term growth story is intact with government’s spending on low-cost housing and social infrastructure. Continuous innovations to drive next phase of growth.

ICICI Bank Ltd

• Recommendation: Buy
• Market price: Rs 928
• Target price: Rs 1100
• After a period of consolidation over the past two years, focus has shifted to loan growth with corporate and secured retail loans being key drivers.

ITC Ltd

• Recommendation: Buy
• Market price: Rs 203
• Target price: Rs 230
• We are positive on long-term demand growth in cigarette business due to rising affordability. Non-cigarette businesses can fund their own growth.

Hero MotoCorp Ltd

• Recommendation: Buy
• Market price: Rs 1961
• Target price: Rs 2253
• Leader in domestic market. Volume growth to remain stable, driven by recovery in urban markets and increasing penetration of its product in rural markets.

• Recommendation: Buy
• Stop Loss: Rs 130
• Last Close: Rs 141
• Target: Rs 158
• On daily chart, given a downward sloping trend line breakout at 136. Managed to close above ‘20-week EMA’, a sign of strength.

National Aluminium Company Ltd

• Recommendation: Buy
• Stop Loss: Rs 55
• Last Close: Rs 62
• Target: Rs 79
• On weekly chart, given a breakout from ‘Inverse Head & Shoulder’ pattern at 62. Momentum oscillators on positively poised.

Hindustan Unilever Ltd

• Recommendation: Buy
• Stop Loss: Rs 388
• Last Close: Rs 387
• Target: Rs 424
• On daily chart, given a trend line breakout at 396. Placement of moving averages & momentum oscillators suggests up-move.

ONGC Ltd

• Recommendation: Buy
• Stop Loss: Rs 275
• Last Close: Rs 283
• Target: Rs 300
• A positive crossover in ‘RSI - Smoothened’ momentum oscillator on the monthly chart indicates strength.

Bombay Dyeing & Manufacturing Company LtdRecommendation: Buy

• Stop Loss: Rs 420
• Last Close: Rs 431
• Target: Rs 460
• Taken a support near 61.8% retracement of the rise from Jan 7 to Jan 20, with a Japanese candle stick pattern called ‘Piercing Line’.

Biocon’s focus has been on both branded products as well as biosimilars. With respect to the branded biopharma products, the company has been investing heavily in R&D. Biocon’s research ability is now globally recognized after it entered into tie-ups with innovator like Pfizer. At the same time, the company has been capitalising on opportunities in the biosimilars space too. Biosimilars are the generic version of biotech drugs. The company has been selling biosimilars in India and the semi-regulated markets globally. And the big opportunity for the company is when the big regulated markets of US and Europe open up, which is expected in the next few years. Biocon’s strong presence in the biopharma space can be credited to the ability and quality of its management to specialize in the biopharma space. With management focused on long term investments with the aim of strengthening the overall business model, we believe that if bought at the current price or lower, the stock of Biocon has the potential to deliver compounded annual returns of around 24% over the next 3 years.

While the company has been selling biosimilars in India and the semi-regulated markets, there is huge opportunity once the regulated markets notably the US and Europe open up. The company’s strong tie-ups and partnerships, especially the one with Pfizer is expected to contribute significantly to overall growth in the longer term. Further, Biocon had sold its stake in Axicorp in FY11 after it allied globally with Pfizer to commercialise biosimilar insulin products. While Axicorp had been able contribute to Biocon’s topline, the margins of the company were quite poor and had weighed heavy on Biocon’s overall margins as well. Thus, after the sale, while the pace of growth in the topline will be lower, we expect operating margins to significantly ramp up.

As far as India is concerned, the branded formulations business has been growing at a stupendous rate, albeit on a lower base and is expected to continue its stellar growth in the future too. Delay in the biosimilar pathway panning out especially in the US and delay in product approvals are the key challenges that Biocon faces.

At the current price of Rs 274, the stock is trading at a multiple of 12.5 times our estimated FY14 earnings. We, thus, recommend a ‘BUY’ on the stock with a target price of Rs 438, which implies compounded returns of 24% for the next 3 years.

Buy the stock from a 3 year perspective.

• Revenues grow by 17% YoY during the quarter led by an 11% increase in sales volumes. The company sells over 1.5 m units during the quarter (around 1.4 m during 3QFY11).
• Operating margins increase by 4.4% YoY to 15.6%, on the back of lower raw material costs and significant reduction in other expenditure. Operating profits grow by 63.5% YoY during 3QFY12.
• Net profit growth (excluding extraordinary items) at 21% YoY is lower than the growth in operating profits on account of a surge in depreciation charges.

At the current price of Rs 1,892, the stock is trading a multiple of 10 times of estimated FY14 cash flow per share. We believe that on account of its strong cash flow generating ability, the company will not have any major problems in paying the royalty to the outgoing partner, Honda Motors. Despite headwinds in the auto industry in the form of higher interest rates and fuel prices, the company has managed to perform well during the quarter and a strong rural demand has been one of the factors that has bolstered growth in sales. Plus, the fact that two-wheelers are less expensive and more fuel efficient than passenger vehicles has also led to good growth.

Verdict: You can BUY Hero Motocorp at current levels with 3 years perspective to get around 18% annual returns.

Results Summary

• Standalone net sales grow by 22.8% YoY during 3QFY12.
• Operating margins fall to 9.6% YoY in 3QFY12. However, operating profits increase 9.5% YoY during the quarter.
• Net profits increase by 18% YoY during the quarter.
• The company registered an order inflow of Rs 17,130 Cr during the quarter, taking the total order book to Rs 1,45,760 Cr as of 3QFY12.

Results Summary

• Income from operations fall by 42% YoY in 9mFY12 on the back of an over 90% YoY fall in profit booked on the sale of investments.
• Net profit decreased by 46% YoY for 9mFY12. For 3QFY12, profits fall by 85% YoY on lower profits booked on sale of investments.

What to Expect?

The dismal performance of BHIL is mainly due to the  negative performance of the broader markets. As BHIL is an investment company it has not got many opportunities for profit booking on its investments. However, BHIL’s investment book has continued to appreciate nicely as per the latest available data, the portfolio of investments has appreciated 4.6 times over cost. Judging by the performance of the Benchmark index so far this year, as well as the encouraging economic data the company’s prospects going forward seems to be positive. The potential of valuations catching up with earnings growth and stability in economic growth helps present lucrative opportunities in the long term for companies like BHIL.

HOLD the stock with a 3 year target price of Rs 1050.

Results Analysis:

• Net sales grew by 13.5% QoQ in 3QFY12, mainly due to depreciation of rupee as the growth in volumes was 3.2% QoQ during the quarter.
  
• Sales grew by 31.2% Year-on-Year (YoY) for the nine months ended December 2011 (9MFY12)
• Operating margins expanded by 2.1% QoQ to 29.2% against 27.1% in the previous quarter.
  
• Net profits grew by 18.4% QoQ. For 9MFY12, net income increased by 21.6% YoY.
• Close to 12,000 net employees have been added during the quarter. Attrition rate stands at 12.8%.
• Added 40 new clients during the quarter. Have more than 1000 active clients currently.
• Proposed an interim dividend of Rs 3 per share for this quarter.

What to expect from TCS Stock?

• At the current price of Rs 1,080, the stock is trading at a multiple of around 16 times the estimated FY14 earnings.
• TCS witnessed growth across all major business segments and geographies. As per the management, pricing was stable during the quarter.

  Management of TCS stated that a majority of its clients has indicated to keep IT budget flat or higher despite the global headwinds. The deal pipeline is healthy as well.

• As per the management pricing is expected to be stable in the near term and operating margin is going to stay around 27%.
• TCS recruited around 51,000 during the past nine months and has a plan to add15,000 more during the last quarter of the current financial year.
  
• Considering the healthy growth prospects and its deal pipeline TCS is going to perform well despite the global uncertainties. BUY the stock with 3 to 4 years perspective to have around 18% annual returns.
  

Results Summary

• HDFC reported a 39% YoY growth in Interest income in the first 9 months of FY12 on the back of 21% YoY growth in advances.
• Net Interest Margin (NIM) stands at 4.3% in 9 months of FY12 against 4.4% in the same period last financial year.
• Other income falls by 14% YoY in 9mFY12 mainly due to lower gains booked on sale of investments.
• Net profit grows by 17% YoY for 9mFY12. Profits grew only by 10% YoY during 3QFY12 due to lower other income and higher costs of funds.
• CAR (Capital Adequacy Ratio) stands at a healthy 13.9% at the end of 3QFY12.
• Gross Non-performing assets (NPAs) stand at 0.8% at the end of 3QFY12.

Stock Analysis:

The stock is trading at 3.6 times of estimated FY14 consolidated adjusted book value at the current price of Rs 675. In the current interest rate scenario and on a higher base of individual home loans, growth for HDFC is unlikely to come in at a sharp rate going forward. HDFC was able to maintain its margins at 4.3% in the first 9 months, but can still see some pressure on its net interest income (NII) on higher costs of funds. However, with the RBI expected to cut rates over the next few months, HDFC should soon be able to capitalize on the same.

Though the company is doing good, it is better to stay away from this stock on account of expensive valuations.