Investor's Eye: Update - Bajaj Auto, Tata Consultancy Services, HCL Technologies, Axis Bank

 

Investor's Eye [January 16, 2014]  Sharekhan www.sharekhan.com

Summary of Contents   STOCK UPDATE Bajaj Auto Recommendation: Buy Price target: Rs2,284 Current market price: Rs1,908 Q3FY2014 results-First cut analysis Key points Despite the adverse impact of an unfavourable revenue mix on its blended realisation, Bajaj Auto Ltd (BAL) reported a strong operating performance for Q3FY2014 due to a marked-to-market (MTM) gain on the foreign exchange hedges taken against exports (the margin improved by 340 basis points year on year [YoY] and 20 basis points on a sequential basis). In the near term the demand environment remains challenging but BAL expects to regain its share in the domestic motorcycle market on the back of new launches in the executive segment.  We currently have a Buy rating on the stock with a price target of Rs2,284 and would come out with a detailed note post-interaction with the company's management.    Tata Consultancy Services Recommendation: Buy Price target: Rs2,600 Current market price: Rs2,351 Gearing up for a much stronger FY2015 Tata Consultancy Services (TCS)' revenue growth of 3% sequentially was largely driven by a 3.8% sequential growth in the international business, on the other hand the Indian business declined sequentially by 6% QoQ in Q3FY2014. The strong growth in earnings was aided by a jump in the other income (foreign exchange [forex] gains of Rs363.8 crore as compared to a loss in Q2); the margin declined marginally to 29.7% sequentially. The management remains confident about the growth in FY2015. It has hiked its hiring target to 55,000 employees in FY2014 and signed eight large deals in Q3.  The management's confidence, strong deal wins and healthy client budget/spends reconfirms that FY2015E is expected to be better than FY2014E. We maintain our Buy rating on TCS with a price target of Rs2,600.       HCL Technologies Recommendation: Buy Price target: Rs1,640 Current market price: Rs1,392 Buy maintained, price target revised to Rs1,640 HCL Technologies (HCL Tech) reported a broad-based growth across its business segments; the information technology (IT) services and the business process outsourcing (BPO) segments grew by 2.5% and 11% respectively in Q2FY2014, on the other hand the infrastructure management services (IMS) segment delivered a 5.9% quarter-on-quarter (Q-o-Q) growth. It surprised us positively on the margin front as it reported a stable EBIT margin at 23.7% in spite of partial salary hikes.  The deal wins continue to remain strong, as the company signed 15 transformational deals and a total contract value (TCV) of $1 billion for the quarter (a cumulative TCV of $3 billion in last three quarters).  We broadly maintain our earnings estimates for FY2015 and FY2016. From the last several quarters HCL Tech is consistently delivering on our expectations and is well poised to reap the benefits of an improvement in the demand environment. We maintain our Buy rating on the stock with a price target of Rs1,640 (14.5x FY2016 earnings).    Axis Bank Recommendation: Buy Price target: Rs1,450 Current market price: Rs1,177 Strong NII growth, provision write-back drives earnings growth The net interest income (NII) growth remains healthy (up 19.6% year on year [YoY]), though a reversal of investment provisions (Rs173 crore in Q3FY2014) boosted the earnings. A sequential decline in the net interest margin (NIM) was on expected lines. The asset quality was largely held up and the management expects to contain the formation of stressed loans within the guided levels (ie Rs6,000 crore). The loan growth is expected to track the industry average.  We expect the bank to manage an earnings compound annual growth rate (CAGR) of 12% (FY2013-16) and return on assets (RoAs) of over 1.5%. The key positives include a comfortable asset quality, a higher capital adequacy ratio (CAR) and an improved deposit base. We maintain our buy rating with a price target of Rs1,450 (1.6x FY2015E book value). Key risk: the weakening of the economy could spike the non-performing assets (NPAs). Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards, The Sharekhan Research Team

 

This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records. This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records.