| |
| Summary of Contents
STOCK UPDATE Tata Consultancy Services
Recommendation: Buy
Price target: Rs2,500
Current market price: Rs2,041 Weak Q4 to impact sentiment, FY2015 looks strong as before Key points -
In its quarterly interaction with analysts, the management of Tata Consultancy Services (TCS) indicated that the sequential growth in its revenues would be soft in Q4FY2014 (we expect a 2.5% Q-o-Q growth in the quarter which is lower than the earlier consensus estimate of 3-3.5%). The growth, it said, would be affected by: (a) a further decline in the Indian revenues owing to the general election this year (in the previous quarter the India revenues had fallen 6% QoQ); and (b) a slower growth in the international revenues owing to seasonal weakness. The management expects the margin to decline by 40-50BPS in Q4FY2014 on account of re-investment into the business. But the management remains confident of a strong growth in FY2015 (better than in FY2014). -
We have tweaked our earnings estimates for FY2014, FY2015 and FY2016 to factor in the marginal decline in our revenue and margin estimates. Consequently, we have reduced our price target to Rs2,500. But we retain our Buy rating on the stock. At the CMP of Rs2,041, the stock trades at 17.8x and 15.5x FY2015 and FY2016 estimates. -
In the last three odd months, TCS has corrected by close to 15% from its recent high of Rs2,370. In the near term, investors' preference for high beta stocks and a potential appreciation in the rupee against the dollar (though the currency is not expected to go below Rs60) could restrict any meaningful outperformance by the IT stocks. However, given TCS' best earnings profile and earnings predictability compared with its peers, we advise using every weakness to buy into the stock for healthy absolute returns. Especially since among the index companies, TCS is likely to post one of the best earnings performances in FY2015.
VIEWPOINT JK Lakshmi Cement
Current market price: Rs97 Capacity expansion with favourable macro environment to drive earnings Key points -
JK Lakshmi Cement is well placed to ride the improving demand (and price) environment in the northern and western regions of the country with the commissioning of additional capacity of close to 1.6 million tonne, taking its operational cement capacity to 6.9 million tonne. -
With the additional capacity in place, in Q4 the company would not only sustain the healthy double-digit volume growth seen in Q3 but also get a boost from the recent hike of Rs20-25 per bag of cement in its key markets (especially in the north). Thus, we expect a considerable improvement in its performance in Q4FY2014. With a revival expected in the economy, we estimate the earnings of the company would grow at a compounded annual growth rate (CAGR) of 33% over FY2014-16. -
The company is trading at 4.8x EV/EBITDA and $46 EV/tonne on FY2016 estimates which is higher than its one-year historical average multiple of 4x EV/EBITDA and $43 EV/tonne. Given the recent rally in cement stocks, it would be advisable to accumulate JK Lakshmi Cement on declines with a medium-term price target of Rs110.
MUTUAL GAINS Debt Mutual Fund Picks Bond / Debt market round up - Bond yields remained volatile during the month and closed higher on concerns over tight cash condition at the end of the financial year. Initially, bond yields fell following robust demand at the Government Securities weekly debt auction and a sharp fall in U.S. Treasury yields. Strong demand at the 2G spectrum auction also boosted investor sentiments. Bond yields fell further after the Government announced slightly lower-than-expected borrowing target for the financial year 2014-15. However, the trend reversed and bond yields rose on possible liquidity concerns at the end of the financial year.
- After moving in the range of 8.68% to 8.92%, the 10-year benchmark bond yield closed 9 basis points (bps) higher at 8.86% compared to the previous month's close of 8.77%.
Bond / Debt Outlook - Bond market may remain volatile due to uncertainty over political direction and stability of the new Government after the upcoming general elections. Moreover, liquidity in the banking system is expected to remain tighten due to excise, service and advance tax outflows at the end of the financial year. To address this, the RBI will conduct term repo auctions of appropriate amount and tenure during March 2014 to address the possible liquidity crunch, which may provide some relief to the bond market. Any positive macroeconomic data will continue to be positive for the bond market. The movement of the rupee and the activities of foreign investors will also remain in focus.
| | | 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.
No comments:
Post a Comment