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| Summary of Contents STOCK UPDATE UPL
Recommendation: Buy
Price target: Rs238
Current market price: Rs193 Sipcam stake sale a sound strategy Key points - UPL plans to sell its 50% stake in Sipcam UPL Brasil S.A as part of a strategy to consolidate its assets (acquired inorganically) in the key geographies. The stake sale in Sipcam would release resources and enable the company to focus more on DVA Agro Brazil (a new product launch and reduction in working capital cycle) in which UPL holds a controlling stake (a 73% stake).
- From the transaction UPL will get a gross consideration of around Rs351 crore ($58.5 million) which is nearly double of what the company had paid to acquire the stake in the company in 2011. UPL had acquired the stake in April 2011 for close to EUR20 million (around Rs170 crore) and had invested Rs30-35 crore more in the company. Thus, the stake sale should result in gains for the company.
- Though we expect a double-digit growth in UPL's revenues in Q4FY2014, but the margin could get affected by a harsh winter in the USA and Europe (along with the adverse impact of the rupee's appreciation against the dollar). However, we are positive on the company due to its focus on improving cash flows (working capital cycle reduction), buy-back of shares using the free cash on books and new product launches that shall improve the growth outlook. We maintain our Buy rating on the stock with a price target of Rs238.
SHAREKHAN SPECIAL Q4FY2014 IT earnings preview Key points - For the March 2014 quarter, we expect to see a mixed performance from the top four IT companies. TCS is expected to see a soft growth owing to weakness in the Indian business' revenues whereas owing to company specific issues Infosys is likely to report a muted sequential growth. Wipro and HCL Tech are expected to deliver a decent top line growth. From our mid-cap coverage universe, Persistent Systems is expected to report a strong sequential growth of 4.4% in revenues.
- The key monitorables for the quarter will be: (1) management commentary on the FY2015 outlook (likely to remain positive across companies); (2) the initial revenue guidance for FY2014-15 by Infosys (likely to be in a broad range of 6-10% given the uncertainties it is facing); (3) IT companies' outlook on margins in view of the recent appreciation in the rupee against the dollar; and (4) deal wins and deal pipeline.
- We continue to maintain our positive stance on the IT sector for the next 12 months in view of the improving business visibility. Also, after the recent correction in IT stocks (the CNX IT Index has fallen by 10% in the last month) owing to the rupee's appreciation and portfolio churn to high-beta counters, the risk-reward ratio has become favourable. Investors can use the weakness in the IT stocks to accumulate the quality names for a decent absolute return in the next 12 months. We maintain our preference for TCS and HCL Technologies in the top tier, and Persistent Systems and Firstsource Solutions in the mid-cap space.
| | | 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 |
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