| STOCK UPDATE Reliance Industries
Recommendation: Buy
Price target: Rs1,060
Current market price: Rs959 Steady quarter; better times ahead (price target revised to Rs1,060) Result highlights - Reliance Industries Ltd (RIL) has reported a sales growth of 13% YoY to Rs95,193 crore for Q4FY2014. The sales growth was largely driven by the petchem (a 10% Y-o-Y growth) and refining (a 12.5% Y-o-Y growth) segments which benefited from the depreciation in the rupee. Though the growth of 6.5% in the operating profit was ahead of expectations, but a lower other income resulted in a flat PAT of Rs5,631 crore during the quarter.
- The key positives of the Q4 results are a healthy refining margin of $9.3/bbl and ramp-up in the production volume of the US-based shale gas operations. On the negative side, the demand in the petchem business remained weak and there was a delay in expansion projects in the petchem segment.
- Though there is uncertainty regarding gas price revision and ramp-up in the production from the KG-D6 block, but the improvement in the production volume of the US-based shale gas operations is positive for the upstream business. Moreover, the expansion in the petchem business ($12 billion capex) would drive the growth and improve the integrated petchem margins. Thus, we retain our Buy rating on RIL. We also introduce our FY2016 estimate and roll over our valuation multiple to arrive at a revised (SOTP-based) price target of Rs1,060 (earlier Rs1,010).
Persistent Systems
Recommendation: Buy
Price target: Rs1,200
Current market price: Rs1,059 Impressive growth outlook, retain Buy Result highlights - Persistent Systems Ltd (PSL) revenues for Q4FY2014 were reported at $72.6 million which grew by 3.9% sequentially led by an impressive 14% sequential rise in the revenues of the intellectual property business. The revenues of the IT services business grew by a modest 1.6% QoQ because of an 11.7% sequential decline in the telecom vertical due to a sudden ramp-down by a client. The blended volume fell by 1.1% QoQ whereas the realisation rose by 2.7% QoQ in Q4FY2014.
- PSL has delivered yet another quarter of strong execution on the margin front, with an EBITDA margin of 27% (which was down by 66BPS QoQ, a positive surprise). The net income for the quarter rose by 4.7% QoQ to Rs67 crore. For the quarter, the revenues from the top client and the top five clients grew by 10.7% and 10.9% QoQ respectively. PSL added 255 employees during the quarter and plans to add another 800 employees in FY2015.
- For FY2014 PSL has delivered a 15.2% Y-o-Y growth in the revenues (among the top quadrant in the IT sector) coupled with an impressive exit rate of EBITDA margin at 27%. The company continues to be our top mid-cap IT pick, given its distinctive advantage of a SMAC-oriented business model and superior margin profile. We continue to remain confident about PSL's earnings visibility and margin performance in FY2015 and FY2016. We maintain our Buy rating on the stock with a price target of Rs1,200.
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