Stock Views on TCS, United Spirits, Bharti Airtel

IDFC-SSKI Securities on TCS

Broking house IDFC-SSKI Securities has rated TCS as an ‘outperformer’ with a price target of Rs 630. “TCS is expected to be a key beneficiary of the accelerating trend in offshoring as clients lever-age low-cost geographies to contain IT services spend. TCS has, in the last few years, increasingly derisked its business model by expanding into newer geographies (Continental Europe, China and Latin America) as well as through long-term contracts,” the IDFC-SSKI note to clients said. “TCS derives approximately 30% of its revenues from non-US and non-UK geographies. We expect 8% revenue (US dollar) compounded annual growth and 4% EPS CAGR for TCS over FY09-11,” the note added.

Citigroup Global Markets on United Spirits

Citigroup Global Markets has reaffirmed its ‘sell’ rating on United Spirits, with a price target of Rs 454. “The recent sharp deterioration in profitability and the sequential volatility in operating profits have highlighted that USL’s business is far more cyclical than earlier envisaged. Around 90% of the promoter stake being pledged remains an overhang and a significant concern,” the Citi note to clients said. “Stake sale in USL would be a positive, though the timing and the pricing remain uncertain,” it added.

HSBC Securities on Bharti Airtel

HSBC Securities (India) has retained its ‘overweight’rating on Bharti Airtel with a price target of Rs 786. “The current market favours companies with strong balance sheets, low leverage, large scale, and high RoE (return on equity). What’s more, after the Satyam issue, companies with records of strong corporate governance command a premium,” the HSBC note to clients said. “Bharti is in a stronger financial position than its peers,” the note added.

Stock Views on LANCO INFRATECH, SATYAM COMPUTER, UNITECH, HERO HONDA

ICICI Securities on LANCO INFRATECH - TARGET PRICE: RS 564


BROKERAGE house ICICI Securities has maintained its ‘buy’ recommendation on Lanco Infratech with a price target of Rs 343, but has lowered earnings estimates for FY09 and FY10 by 34% and 42%, respectively, citing slowdown in the infrastructure space.


“Slowdown in realty has led to 15-20% downgrade in selling prices across projects and increased the cost of equity, cost of debt and cap rates 200 bps each, implying 43% downgrade in real estate NAV to Rs 22 billion or Rs 100/share,” said the ICICI Securities note to clients. “As per our funding analysis on Lanco (both debt and equity), we expect no funding risk for its upcoming power and realestate projects. Despite earnings downgrade, Lanco enjoys healthy growth in construction orderbook, discounted valuations of power portfolio, strong earnings momentum and robust business model,” the note added.


CLSA on SATYAM COMPUTER - TARGET PRICE: RS 430


BROKERAGE house CLSA has reaffirmed its ‘underperform’ rating on Satyam saying it does not expect any spectacular financial performance by the IT services major. “We continue to be surprised by the lack of any positive commentary or data points on demand even into mid-August, with only three months left before the next budgeting cycle,” the CLSA note to clients said.


According to CLSA, Satyam commented that in April, its “stretch target” for growth in FY09 would have been 30% year-on-year (guidance of 24-26% Y-o-Y). “But after the 1Q disappointment and continued demand uncertainty, this margin of safety has somewhat shrunk. Our revenue growth forecast is currently 27%. With no breakout performance (relative to peers) indicated by financials, we expect the stock to reflect sector sentiment hereon,” the note added.



HSBC Securities on UNITECH - TARGET PRICE: RS 158


HSBC Securities has retained its ‘underweight’ rating on Unitech with a price target of Rs 158, as it feels further returns from current levels could be limited in the absence of any catalysts. The brokerage feels property prices will have to come down if demand has to pick up. “Residential segment occupies around 79% of the total saleable area and roughly 46% of the gross asset value. Within the residential space, a few cities hold a large exposure, exposing Unitech to absorption and price risk in these markets,” the HSBC note to clients said.


“Agra and Varanasi would contribute around 35% of Unitech’s total retail development. Since these cities are currently too small to absorb such a large supply of retail space, we remain sceptical on the company’s retail plans in these two cities, the note added.


INDIA Infoline on HERO HONDA - TARGET PRICE: RS 785.10


INDIA Infoline has recommended a ‘sell’ on Hero Honda, as it feels high interest rates could affect the company’s sales. “Although, Hero Honda (HHL) has been outperforming in the past 4-5 months, as Bajaj Auto pulled out of the 100-cc segment and TVS delayed the launch of kFlamem, we expect the industry concerns to catch up with HHL too, in near to medium term,” the brokerage said in a note to clients. In order to improve asset quality and address problem of rising delinquencies, some key banks have discontinued or slowed down their auto loan business at the dealer end. With 60% of two-wheeler sales being financed, this move has seriously impacted industry fortunes.