Recommendation: Buy
CMP = Rs 2,835
Price target: Rs 3,057
- Infosys Technologies' consolidated revenue growth of 10.4% quarter on quarter (qoq) to Rs 2,532 crore is in line with our expectations. The improvement of 200 basis points (bps) in its operating profit margin (OPM) qoq to 34% was largely driven by the steep depreciation of the rupee.
- However, the other income component slipped to a negative Rs 5 crore as compared with a positive Rs 44 crore reported in Q2FY2005. The decline could be attributed to the huge mark-to-market losses incurred on the forward foreign exchange (forex) contracts.
- Consequently, the earnings grew by 7.1% qoq to Rs 649 crore as compared with the consensus estimates of around Rs 660-665 crore.
- At the current price, the stock trades at 23.7x its FY2007 estimated earnings.
- I maintain Buy call with the one-year price target of Rs 3,057.
Recommendation: Buy
CMP = Rs 355
Price target: Rs 450
- The revenues of International Combustion India Ltd (ICIL) grew by a robust 29.3% year on year (yoy) to Rs 16.3 crore in Q3FY2006 on the back of the strong performance of the heavy engineering division (HED).
- The operating profit margin (OPM) of the company improved by 620 basis points yoy to 16.9% in Q3FY2006 mainly on account of the lower material cost and the leverage effect coming into play.
- The robust performance on the operating profit front was reflected in the bottom line as the net profit grew 110.4% yoy to Rs 1.4 crore. The earnings for the quarter stood at Rs 6.5 per share, in line with our estimates.
- The HED continued with its growth momentum in the quarter registering a strong revenue growth of 41.2% yoy to Rs 12.9 crore. But the PBIT margins saw a marginal fall of 170 basis points yoy to 26.1% primarily on account of the change in the product mix.
- ICIL has a healthy order book of Rs 50 crore which is 1.1x its FY2005 revenues, thus imparting a strong visibility to its earnings. The order book grew by 56.0% on a quarter-on-quarter (q-o-q) basis.
- I expect the company to report earnings of Rs 22.9 per share in FY2006E and of Rs42.5 per share in FY2007E. ICIL is currently trading at a PER of 8.3x its FY2007E earnings and 4.9x its FY2007E enterprise value/earnings before interest, depreciation, tax and amortisation (EV/EBIDTA). I am tempted to maintain Buy recommendation on the stock with a price target of Rs450.
Recommendation: Buy
CMP = Rs 152
Price target: Rs 170
- ITC's net revenues grew by a robust 42.4% year on year (yoy) in Q3FY2006 to Rs 2,556 crore, powered by a strong growth in all the business segments.
- All the businesses reported a high double-digit growth for Q3FY2006 with the main business of cigarettes growing at 19%, the highest growth ever in the last fifteen quarters.
- The adjusted operating profit grew at a slower pace of 30% yoy to Rs 878.3 crore for Q3FY2006 as the operating profit margin (OPM) fell by 330 basis points yoy to 34.3%. The margin dropped on account of a margin contraction in the agri business.
- ITC's adjusted profit after tax (PAT) increased by 26.3% to Rs 567.1 crore.
To take into account the splendid performance of Q3FY2006, we have upgraded our numbers for FY2006 and consequently for FY2007. At the current market price of Rs 152, the stock is attractively quoting at 21.7x its FY2007E earnings. I maintain Buy recommendation on ITC with a price target of Rs 170.
