Investrading

TCS Results update.TCS’ 1QFY10 performance exceeded consensus expectations on all counts. Revenues at US$1480 mn grew 3.3% qoq and were 3.6% higher than we expected. Volumes grew 3.5% qoq while pricing dipped 0.25%. Revenue growth was led by strong gains in the BFSI vertical, which grew 5.1% qoq. TCS management has cited BFSI, retail, utilities and life sciences verticals as the potential growth drivers.


Some number crunching:

EBIT margin increased 113 bps qoq to 24.8% led by 1) strong shift in revenues offshore contributing 95 bps to margins; (2) SG&A expenses declined 93 bps qoq. Benefit of the above factors was somewhat offset by weaker pricing (34 bps) and currency (41 bps).

Receivables collection cycle reduced further to 93 days versus 95 in 4QFY09 and 105 in 1QFY09. TCS had placed special emphasis in reducing credit cycle to weaker clients. TCS’ receivables days are still higher than peers like Infosys, Wipro and Cognizant.

FY2010E EPS is expected to inrcrease by 13% to Rs30.5 a…

Infosys Technologies - Results update.
Infosys reported strong performance for the June 2009 quarter, exceeding market expectations and that of consensus in terms of revenue, EBITDA and net income.

Infosys'FY2010E EPS guidance reduced to Rs96 from Rs101.2 earlier (Re/US$ now 47.9
Infosys has reduced FY2010E EPS guidance to Rs94.6-96, versus Rs96.7-101.2 earlier. This decline is lead by (1) revision in Re/US$ rate to Rs47.9 versus Rs50.72 earlier and (2) increase in tax rate assumption to 19-20% versus 16.5-17% earlier— the company is attributing this to slower-than-expected ramp up from SEZs.

The FY2010E guidance given by the company is excessively conservative and leaves room for significant outperformance. Improvement in decision making, lower project cancellations, and new deal wins will drive growth and positive surprises over the next 12-month. Long term investors can buy Infosys on declines with a price target of Rs.1750.

ASARCO sale entering the last lap: The ASARCO bidding process is entering the final round of hearning which is scheduled for on August 10, 2009. As per the latest filings by ASARCO, creditors have to approve one of the following 3 plans i.e. (1) the parent (Grupo Mexico) (2) the debtors (Sterlite) and (3) Harbinger Capital.

The Parent (Grupo Mexico) plan.
According to the re-organizaiton plan proposed by the Parent (Grupo Mexico) it would contribute US$1.46 bn to the claimants and would also use the US$1.4 bn cash in the books of ASARCO. However, it differs from other plans in its assessment of claims against Sterlite for breach of its initial agreement to acquire ASARCO for US$2.6 bn and has assessed the claim to be worth atleast US$400 mn to US$ 1bn compared to the Debtors’ Plan assessment of claim value at US$100 mn.

The Debtors’ (ASARCO with Sterlite) plan.
The debtors’ plan calls for initial payment of US$1.1 bn by Sterlite and deferred payment of US$770 mn for which the present valu…

Voltamp Transforms - Results update.

Unlike most other transformer makers, Voltamp is mainly focused on the industrial transformers including power and distribution and dry-type transformers. It was expected that the company's dependence on industrial customers would severely impact company's volumes in FY09 given that industrial capex was badly hit in FY09 due to high interest rates and liquidity crunch. Despite this, VTL managed to report 29% rise in transformer sales in volume terms.

VTL's margins have been on an uptrend in the past few years from 13.6% in FY06 to 23.3% in FY09. Consistent uptrend in operating margins was on account of favourable product mix and attractive pricing of product. VTL's cash and equivalent has increased from Rs 628 mn in FY08 to Rs 1.4 bn in FY09. The company is debt-free.

Valuations.
Free cash flow per share is forecast at Rs 43 per share. Considering better than expected working capital cycle resulting in robust cash generation earnings…

Reliance Capital is focused on businesses across the spectrum of financial servces, including life insurance, asset management, retail broking and distribution.Its strong parentage and large capital base will help it achieve a substantial market share over time.

Reliance Life insurance (Rs453) and asset management businesses (Rs199) account for 74% of target price of Rs.875,though once can expect the fair value of other businesses to appreciate over time. Focus on wide reach, superior pricing strategy across businesses Reliance Capital's market position in asset management and life insurance has remained strong despite the slowdown in the industry during FY2009. After setting up a large network for broking and distribution, RCAP has begun to focus on asset reconstruction, private equity and institutional equities.

Despite its late entry into most segments, it can become a sizeable player over time given its (1) focus on expanding beyond metros, (2)technology support and (3) superior…

Novelis reports steady earnings.

Novelis reported EBITDA of US$252 mn and an adjusted EBITDA of US$54 mn despite a sharp 20% yoy drop in volumes. The drop in qoq EBITDA is just from US$100 mn to US$72 mn qoq if further adjusted for non-cash exhange variations. Management has guided for strong earnings in the coming quarters due to restructing initiatives, increase in volumes in Asia etc.

Steady earnings in a weak market.
Volumes in 4QFY2009 were sharply lower by 20% compared to last year due to sharp demand contraction in the auto, construction and other markets. However, can volumes were stable and have largely contributed to the profitability during the quarter.

Strong EBITDA improvement guidance for 1QFY2010.

Outlook for 1QFY2010 expected to improve significantly due to the following:
1) benefits from restructuring initiatives undertaken in 3QFY2009 and 4QFY2009 to start flowing through 2) non metal commodity price deflation 3) strong recovery in Asian shipments driven by China.

Valuati…