HSBC on TCS

HSBC values TCS at a P/E of 21x the calendarised ‘11 EPS and maintains its 12-month target price of Rs 890. HSBC remains confident of 20% US dollar revenue growth in FY11, with margins little changed. It expects growth in telecom, ERP (enterprise resource planning) and remote/infrastructure management services (RMS) to accelerate in FY11. IT spend in the telecom sector is likely to be driven by strong capex by telecom service providers, while ERP (SAP) market recovery should be led by upgrades and new mega ERP deals. Growth in manufacturing should be driven by a revival in the SAP market and further traction in remote management services. Banking (BFSI) is likely to remain strong as banks continue to spend on new engagement models for customers and offshore to cut costs further. The management is confident of maintaining margins in FY11. HSBC sees margin headwind of 120-150 bps in FY11, assuming a 10% average wage increase for employees with more than three years of experience. Offsetting this margin pressure, the broadening of the employee pyramid and the increase in offshore revenues provide estimated margin benefits of 60+ bps and about 75+ bps respectively. TCS is trading at a modest 9% discount to Infosys on FY11E EPS.

Stock views on Bajaj Auto, Unity Infra, CMC

Sharekhan on Bajaj Auto - Target Rs 1695

Sharekhan is bullish on Bajaj Auto and has recommended buy rating on the stock with a target of Rs 1695, in its research report.

"Bajaj Auto recently launched the new Pulsar 135 cc bike to further strengthen its position in the 125+cc segment. The new Pulsar 135 LS, powered with a four-valve DTS-i engine, is competitively priced at Rs51,000 (ex-showroom Delhi) and has a mileage of 68 kilometre per litre (kmpl; as certified by the Automotive Research Association of India), which is good considering the engine capacity of 135cc. With the increase in our volume estimates for the motorcycle segment, our overall volume growth estimates for FY2010 and FY2011 stand revised to 27.2% and 14.2% respectively. In line with this, we have revised upwards our earnings per share (EPS) estimates for FY2010 and FY2011 from Rs108.9 and Rs114.3 earlier to Rs114.8 and Rs127.1 respectively. However, a probable increase in the excise duty in the forthcoming budget and a sharper than expected increase in raw material prices remain the key risk to our estimates."

"At the current market price, the stock is trading at 13.3x its FY2011E earnings of Rs127.1 and enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) of 8.1x. On the back of the upgrade in our earnings estimates, our price target stands revised to Rs1,907 (15x FY2011E EPS) and considering the significant upside from the current market price of Rs 1,695, we upgrade our recommendation to Buy from Hold earlier."


Sharekhan on Unity Infra - Target Rs 569

Sharekhan is bullish on Unity Infraprojects and has recommended buy rating on the stock with a target of Rs 569.

"Unity Infraprojects (Unity) has raised Rs 73 crore by private placement of 14.5 lakh shares with qualified institutional buyers at the price of Rs506 per share. The proceeds from the qualified institutional placement (QIP) is expected to be utilised by the company to partly fund its capital expenditure (capex) and to meet its working capital requirement."

"Given the strong order intake in M9FY2010 and expected lower interest cost, we are upgrading our order book estimates and hence PAT estimates for FY2010 and FY2011 by 5% and 18% respectively. Further the lower than expected earnings dilution will result in our revised EPS getting upgraded by 7% for FY2011. Hence, we are increasing our price target to Rs 569 and maintain our Buy recommendation, as we feel the stock is attractively valued. At current market price of Rs 506, the stock trades at 8.9x and 7.1x its FY2010 and FY2011 diluted earnings respectively."


Fairwealth Securities on CMC - Target Rs 1530

Fairwealth Securities has recommended buy rating on CMC with a target of Rs 1530, in its research report.

“CMC synergistic relationship with TCS, CMC is gearing itself in IT industry. In embedded systems, the Company is seeing growth in US, UK and Europe. In Government segment, the Company is seeing traction in treasury management, HRMS systems for various states, energy sector (APDRP, billing), GST related migration. In private sector, the Company is expecting growth from Insurance and Financial sector (depository product), banks. The Company has a good base in Insurance space with 80% of market. The Company would be focusing on the transportation vertical, in e-Governance space with TCS and in Defense space. In the private space it is looking at cross-selling solutions & services. The Company is seeing new services like video surveillance, identity management and large corporate are going for offshore. The company would be re-looking at its franchisee business in E&T SBU. The Company is seeing growth in corporate training business. The Company is focusing on value added services and cost effective niche solutions as CMC already has a rich portfolio of industry specific assets.”

“Phase I of the SEZ has been completed. Phase II would be completed by June 2011 with a capex of Rs 155 crore over 2 years. The Company won defense contract in Q2FY2010 which will improve margins in future as these contracts are all long term contracts. The average deal size is Rs 5 – 10 crore with engagement of 2-3 years. SI with 41.43% PBIT margin in Q1FY10, we see scope of tremendous growth in this SBU which going forward will improve margins for company. Its Egovernance business has a huge potential for growth. Company expects operating profit margin to grow to 20% in next 6-12 months. Presently its stands at 18%, highest ever for the company,” says Fairwealth Securities research report.

Stock views on Bank of India, Gillette India, Wipro

KRChoksey on Bank of India - Target Rs 390

KRChoksey has recommended a buy rating on Bank of India with a price target of Rs 390, in its report. "We reiterate our Buy on Bank of India and increase our price target to Rs 390. We believe the recent underperformance of the stock provides an attractive entry point for investors given our expectation of earnings rebound in FY11 on back of pickup in net interest margins, higher fee income and lower credit costs," says KRChoksey's report.

HDFC Securities on Gillette India - Target Rs 1036-1080

HDFC Securities has recommended a buy rating on Gillette India with a a price target of Rs 1,036-1,080 in its research report.

"Looking at its future growth potential we feel, GIL could also trade at 24-25x FY June 10E EPS, which gives us a price target of Rs. 1,036-1,080. Hence we recommend investors to buy this scrip at the current price & average it on dips in the price band of Rs. 800-860 for the above mentioned price target over the next two to three quarters," says HDFC Securities' report.


IIFL on Wipro - Target Rs 600

IIFL has recommended a buy rating on Wipro with a target price of Rs 600 in research report.

"Wipro has outperformed TCS and Infosys in the past one month as well as YTD. Wipro’s continued outperformance over its peers reflects improved operational performance, cost optimisation efforts yielding results, and recent order wins translating into better revenue visibility. Wipro has won a number of new deals from BPO, Fosters, GE, Unitech Wireless, Lavasa etc. These deals address investor concerns on revenues from technology and telecom divisions. We expect Wipro to trade on a par with Infosys, implying a further 5-10% outperformance. BUY, target of Rs 600," says IIFL's research report.

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.

Motilal Oswal Views on Tata Consultancy Services, IVRCL Infrastructure, Reliance Infra

Motilal Oswal on Reliance Infra - Target of Rs 1785

Motilal Oswal has maintained its buy rating on Reliance Infrastructure with a target price of Rs 1785 in its research report.

"We expect Reliance Infrastructure to report net profit of Rs 10.5 billion (up 58.9% YoY) in FY09, Rs 9.9 billion in FY10 (down 5.4% YoY) and Rs 10 billion in FY11 (up 1.9% YoY). The stock quotes at PER of 10.5x FY09E, 11.1x FY10E and 10.9x FY11E. We arrive at a target price of Rs 785/share, comprising of: Power business Rs 90/share, Delhi business Rs 34/share, EPC business Rs 49/share, Cash and cash equivalent Rs 251/share and holding in Reliance Power Rs 361/share (20% holding company discount). Maintain Buy," says Motilal Oswal's research report.


Motilal Oswal on TCS - Target of Rs 750


Motilal Oswal has maintained its buy rating on Tata Consultancy Services with a target price of Rs 750 in its research report.

"We have revised our estimates to factor in project cancellations, adverse cross currency impact and revised INR/USD assumptions. Our INR/USD assumptions for FY10 have changed from Rs 45.6 to Rs 49.6. We model 3% volume growth and 6% pricing decline for TCS in FY10. USD revenues including CGSL are expected to rise 0.7% in FY10 (down 2.4% ex-CGSL). We cut our FY10 EPS by 6.3% to Rs 52.9 (from Rs 56.5 earlier). Stock trades at 9x FY10E earnings. Maintain 'Buy' with a target price of Rs 550 (upside of 16%)," says Motilal Oswal's research report.


Motilal Oswal on IVRCL Infrastructure - Target of Rs 184


Motilal Oswal has maintained its buy rating on IVRCL Infrastructure and Projects with a price target of Rs 184 in its research report.

"We expect IVRCL to report net profit of Rs 2.2 billion in FY09 (up 6% YoY) and Rs 2.5 billion in FY10 (up 16% YoY). The stock is trading at 7x FY09 and 6x FY10E. Maintain Buy with a price target of Rs 154/share (36.3% upside). We have valued the core business at Rs 123/share (7xFY10 earnings, 15% discount to industry average, to factor in lower tax rates due to 80IA benefits being considered), BOT projects at Rs 20/share (book value) and other subsidiaries at Rs 11/share (based on the CMP)," says Motilal Oswal's research report.

Motilal Oswal views on TCS, Marico, United Spirits

TCS - Target Rs 760

Motilal Oswal has maintained its buy rating on Tata Consultancy Services (TCS) with a target of Rs 760 in its October 22, 2008 research report. "TCS reported USD revenue growth of 3.2% QoQ and 11.2% YoY at USD 1574 m (v/s our est. of USD 1,600 million). PAT at Rs 12.6 billion grew 1.4% QoQ (1.2% YoY), significantly below our estimates (Rs 14.1 billion) due to forex losses of Rs 2.6 billion. We are revising our FY10 USD revenue growth estimates downward by 470bp from 19% to 14.3%, on account of client specific issues with respect to TCS and overall demand uncertainty."

"Our FY09 EPS stands revised to Rs 58.1 from Rs 60.4 while we have lowered our FY10 EPS to Rs 63.3 from Rs 69.1. We are assuming an average rate of Rs 45.2/USD for FY09 and Rs44/USD for FY10 against our earlier estimate of Rs 43/USD for FY09 and Rs 42/USD for FY10. We expect FY08-FY10 revenue CAGR of 19% and EPS CAGR of 11%. The stock is trading at 8.6x FY10E earnings. We revise our target price to Rs 760 (12x FY10 EPS), implying 39% upside. Maintain Buy," says Motilal Oswal's research report.

Marico - Target Rs 65

Motilal Oswal has maintained its buy rating on Marico with a target of Rs 65 in its October 22, 2008 research report. "Marico posted in-line net sales of Rs 6 billion, a growth of 30% YoY. Adjusted net profit grew 11.6% YoY to Rs 471 million against our estimate of Rs 495 million."
"The management has given a cautious outlook on volume growth for 3QFY09. Prices of copra are likely to retreat in line with other edible oils in the coming weeks, which would be margin accretive for Marico. We expect adjusted PAT growth to remain under pressure in FY09 (16.5%); margin expansion of 90bp would result in 20% PAT growth in FY10. The stock is trading at 17.7x FY09E EPS of Rs 3 and 14.9x FY10E EPS of Rs 3 .6. We maintain Buy, target of Rs 65," says Motilal Oswal's research report.

United Spirits - Target Rs 1351

Motilal Oswal has maintained its buy rating on United Spirits with a target of Rs 1351 in its October 22, 2008 research report. "Revenues at Rs 9 billion (est. of Rs 9.2 billion) were up 20%. PAT at Rs 939 million (est. of Rs 1.05 billion) was up 17%. Gross margin declined 610bp due to sharp increase in raw material and packaging cost. EBIDTA margin improved 20bp due to sharp decline in advertising spend (down 340bp) and staff cost (down 240bp). EBIDTA is Rs 1.8 billion v/s est. of Rs 1.9 billion, up 21% YoY."

"We believe the growth story in United Spirits is intact. Volumes are expected to grow at 12% CAGR in the long term and the outlook from the regulatory changes continues to be positive. We are downgrading FY09 and FY10 EPS (excluding treasury stock) estimates from Rs 56.6 and Rs 77.6 to Rs 47.6 and Rs 67.6. The stock is trading at 16.3x FY09 EPS of Rs 47.6 and 11.5x FY10 EPS of Rs 67.6. Maintain Buy,target of Rs 1351" says Motilal Oswal's research report.

SMC Global Views on Large Cap IT Stocks - Infosys, TCS

Infosys

Infosys is the leading software company in India and is held in high esteem by clients and competitors alike. The company has a global footprint with over 40 offices and development centres in India, China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. The company's stock quotes below 15 times trailing FY08 EPS hence offer margin of safety for long-term investor. The company is virtually debt-free hence insensitive to rising interest rates. Funding won't be problem for Infosys due to under leveraged balance sheets and positive free cash flow generation capacities, which is evident from Infosys' cash offer for buying AXON Group Plc, for a consideration of $753 mn. The appreciation of Dollar against Indian Rupee is a very healthy sign for the IT sector in the current environment. The company is on track to meet the volume growth guidance for the fiscal.

TCS

At current levels, the company generate positive free cash flow for an investor. We believe in these testing times, Tata Consultancy Services can widen their product portfolio through inorganic route. For instance, TCS acquired Citigroup captive catering to banking, financial services and insurance (BFSI) clients for Rs 2,272 crore. TCS had guided for gross employee additions of 30,000-35,000 employees for FY2009 at the end of FY2008. It has maintained this target, signifying confidence in its ability to win more deals and drive growth. The unchanged hiring target is an encouraging sign. Further, TCS is expected to incur minimum losses on account of forex due to conservative hedging practices. It is an attractive bet as the current valuations factor in the worst and downside from the current stock price is limited.

Top IT Stock Picks

Dollor is back at Rs 44, so whihc are the top IT picks??

Large Cap

• Infosys


• TCS

Mid Cap

• Rolta


• Mastek

Small Cap

• Tanla Solutions


• Bartronics