Wednesday, December 29, 2010

Analysts' corner
Infosys Technologies, eClerx, JK Lakshmi Cement & Kandagiri Spinning Mills
SI Team / Mumbai December 29, 2010, 0:27 IST

Reco Price: Rs 3,369,
Target Price: Rs 3,667
Infosys plans to move into next orbit by ramping up its Consulting/PI and transformational offerings. Focus on new engagement models (NEMs) is bearing fruit and is expected to contribute one-third to the topline. CY11 budgets are expected to be flat-to-marginally positive and robust traction from BFSI and retail is expected to drive growth in the near-term. While the company continues to capture demand through aggressive hiring, a strategic acquisition cannot be ruled out. Infosys revenue growth is estimated at 25-30 per cent in 2011-12. While retail is focusing more on driving revenues, manufacturing is focused on cost-efficiency measures. Smart pick-up in telecom sector is expected following the current cycle of capex done by telco clients. Drive towards 40:40:20 revenues from US, Europe and RoW will de-risk the revenue profile materially. Maintain market performer.

— India Infoline

Reco price: Rs 730,
Target Price: Rs 670
eClerx is on track to achieve brokerages’ 2010-11 revenue estimates of $75 million (up 35 per cent y-o-y). Company expects sales and marketing support business to grow faster than the capital market business driven by new client wins in the recent past and pick-up in prospects after a relatively sedate 2009-10 for the digital media segment. In terms of demand from the capital market segment, company does see regulatory resolutions impacting volumes. However, it sees this as a future opportunity in the form of transformational/consulting projects. Brokerages currently model in 8 per cent sequential growth in revenues for Dec’10 quarter at $19.4 million with margins flat margins at 36.2 per cent. Current valuations appear reasonable after a 70 per cent plus upmove in the past six months. Maintain accumulate.

— Emkay Research

Reco price: Rs 55,
Target Price: Rs 81
JK Lakshmi Cement has annual cement capacity of around 4.75 million tonnes. The Northern region accounts for 52 per cent of total sales of the company, while the West accounts for the rest. The extended monsoon adversely affected demand for cement in northern and western regions whereas heavy fog and cold weather is expected to delay cement consumption further. As a result, since April, prices in the North fell by 8-10 per cent. However, analysts believe from next quarter, demand is expected to pick-up in northern and western regions as it is a busy period for construction. Historically, the March quarter has seen higher-than-average cement consumption, boosting cement prices. Prices in the West have risen by 5-7 per cent since October. This increase in prices will lead to better realisations, and, hence, better margins for the company.

— Reliance Securities

Fair Value: Rs 124,
Current Price: Rs 107
Crisil Equities has assigned a fundamental grade of 2/5 to Kandagiri Spinning Mills Ltd. (Kandagiri) indicating ‘moderate’ fundamentals. Kandagiri is well placed to cater to increased demand following the execution of a modernisation plan, which is expected to improve its utilisation rates. Kandagiri is present only in the cotton yarn segment, exposing it to any downturn in the cotton yarn industry. Additionally, the company’s margins are susceptible to volatile cotton prices. Crisil Equities expects Kandagiri’s revenues to grow at a three-year compound annual growth rate of 15 per cent to Rs 170 crore in 2012-13, while EPS is expected to increase from Rs 8.4 in 2009-10 to Rs 22.0 in 2012-13.

— Crisil Equities    

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