Investor's Eye: Update - Infosys, CMC

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Investor's Eye [April 15, 2014]  Sharekhan www.sharekhan.com

Summary of Contents STOCK UPDATE   Infosys Recommendation: Buy Price target: Rs3,900 Current market price: Rs3,260   Delivered on modest expectations; retain Buy   Result highlights In Q4FY2014 the revenues of Infosys stood at $2,092 million, down 0.4% sequentially. The EBITDA margin improved by 50BPS QoQ to 28.3% (a positive surprise), led by cost optimisation. In addition, the earnings were boosted by a higher other income (a forex gain of Rs183 crore) which resulted in a growth of 4.1% QoQ to Rs2,992 crore.  During the quarter the company signed four large deals with total contract value(TCV)of $700 million, taking the TCV signed in FY2014 to $2250 million. The company has guided for a 7-9% growth in the revenues for FY2015 which is broadly in line with expectations. It has maintained H1FY2015 would remain soft. Infosys has increased its dividend pay-out to 40% of the net income from 30% earlier. At the end of Q4FY2014 the total cash and cash equivalents of the company stood at Rs30,250 crore.  We have broadly maintained our earnings estimates for FY2015 and FY2016; we expect the earnings to grow at 11% CAGR over FY2014-16. Given the soft growth outlook of Infosys and investors' modest expectations for FY2015, the room for positive surprises has improved considerably. Thus, we maintain our positive stance on Infosys and retain our Buy rating with a price target of Rs3,900.      CMC Recommendation: Buy Price target: Rs1,700 Current market price: Rs1,521   Strong operating performance, maintain Buy   Result highlights Even after excluding the one-off benefits pertaining to the winning of a legal case against Kuwait Stock Exchange during the quarter, CMC has delivered a strong operating performance for Q4FY2014 with a 7.7% growth QoQ in revenues to Rs604.2 crore and a 60-BPS improvement QoQ in the EBITDA margin to 16.8%. Including the one-off items booked in the various line items totaling to Rs31.7 crore and a one-time dividend of Rs5.9 crore received from the US subsidiary, the net profit for the quarter was higher by 26.8% QoQ to Rs89.4 crore.  In terms of the operating metrics, the international revenues grew by 4.9% QoQ to Rs386.6 crore (accounting for 64% of the total revenues), led by a strong growth in CMC Americas. The revenues of the services business rose by 6% QoQ whereas the revenues of the equipment business grew by 23.6% QoQ. In terms of business segments, the revenues of the SI, ITES and CS segments increased by 5.9%, 6.8% and 16% QoQ respectively.  After the general election in 2014, CMC would be among the prime beneficiaries of the pent-up demand in the e-governance projects in the domestic market. Besides, the improving traction in the developed markets would add to the growth visibility of the company in FY2015 an FY2016. We remain constructive on CMC's growth prospects and earnings predictability. We maintain our Buy rating on the stock with a 12-month price target of Rs1,700.  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

 

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