Stock views on SAIL, CROMPTON GREAVES, PERSISTENT SYSTEMS

PERSISTENT SYSTEMS

HSBC initiates `Overweight' rating on Persistent Systems with a target price of Rs 500, based on 13 times PE FY12E EPS. Persistent, a recently listed company focussed on offshore product development (OPD), is well positioned to benefit from the expected growth in next-generation technologies such as cloud computing, enterprise mobility and collaboration tools. The company has delivered industry-leading top line growth over the last five years and HSBC conservatively assumes 23% annual sales growth over the next three years. Persistent's clients include 37 companies with revenues in excess of $1 billion. HSBC expects Persistent's market share of the Indian OPD market to grow from about 13% in '09 to about 15% by''13. The outlook is also bright for its startup clients, judging by the upbeat mood of the US venture capital market. HSBC forecasts FY11-13 CAGR of 23% for revenue, 26% for EBIT and 18% for EPS. As earnings growth continues to surprise, HSBC believes the stock should re-rate and trade at a premium to its peers.

CROMPTON GREAVES


CLSA maintains `Outperform' rating on Crompton Greaves. Crompton's Q4 adjusted net profit at Rs 270 crore, up 39% Y-o-Y, is significantly higher than the estimates. The revenue growth at 2% was however below the estimates. Crompton has made two acquisitions in the last two months, which would complement its existing business. Domestic business continues to do well. Crompton's Q4 standalone revenue registered a growth of 19% Y-o-Y which was in-line with the expectations. The rupee's appreciation against the Euro would have also amplified the decline in revenues. Crompton has made two acquisitions over the last two months: Power Technology Solutions (March) and three small businesses of Nelco on a slump sale basis. Both these acquisitions are aimed at improving its automation and services offering. Crompton continues to be the best performing stock in India's power T&D (transmission and distribution) space. It still trades at a 40-45% discount to its competitors, ABB and Areva, on FY12 PE basis. With its superior operating performance and improved product and services offering, CLSA expects the valuation gap to narrow.

SAIL


Citigroup upgrades the rating of Steel Authority of India to `Hold' with a target price of Rs 234. SAIL has risen 75% in the past 12 months but has underperformed Tata Steel/JSW Steel. SAIL has 100% captive iron ore, but only 5% coking coal. Based on flat steel prices, rising trend in coal prices, and SAIL's sluggish volume growth until FY12, Citigroup does not expect Sensex outperformance. SAIL has the advantage of a largely Indian exposure. The new target multiple is higher than SAIL's 3-year average but lower than the highs of 7-9x. At a targer price of Rs234, it would trade 11.9x June11 PE. Citigroup is raising PAT by 2-36% for FY10-12. The rise in estimates is largely due to a revision in HR coil dollar price estimates by 10-29%, domestic price trends and 2-4% increase in volumes versus earlier. The government has approved a 20% equity sale in two tranches of 10% each. Each time, 5% will be through FPO and 5% through sale of government holding. On completion, share capital will rise to Rs 4,540 crore and government stake will fall to 69% from 86%.