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Wednesday, September 17, 2008

Analyst's Stocks-INFOSYS, Alembic, ITC, Axis Bank

INFOSYS TECHNOLOGIES
CMP: RS 1564.25

TARGET PRICE: RS 2027
Kotak Securities has maintained its ‘buy’ recommendation on Infosys Technologies, and also its price and earnings forecast. The brokerage cautions that cross currency fluctuations may impact the company’s reported US GAAP revenue numbers, but that would be more of an accounting issue. “Infosys management has indicated that there may be an impact on the reported United States dollar numbers for the quarter (and the fiscal) in case the exchange rate between USD and Great Britain pound/euro remains at current levels,” the note said. “The shortfall in USD revenues vs the USD guidance (if any) will be purely due to accounting issues,” the note added. According to Kotak, the company is on track to meet the volume growth guidance for the quarter and also the fiscal. “The billing rates are stable and the com-pany has not seen a large number of price renegotiations. We main-tain our FY09 earnings estimates at Rs.96.6.”

ALEMBIC
CMP: RS 41

TARGET PRICE: RS NA
Brics Securities has recommended a ‘sell’ on the stock saying it is not convinced about the company’s overall business strategy and growth prospects. “We have a cautious view on its ability to achieve profitable growth going forward,” the brokerage said in a note to its clients. Ac-cording to Brics, Alembic’s largest revenue grosser business segment, domestic formulation, is weakening due to excessive reliance on low-growth acute therapy segment and dwindling market share and profit-ability. Also, the note adds, its CRAMS business is dragging down profitability due to highly commoditised nature of its products. At the current price, says Brics, the stock trades at P/E (price to earning ) of 8.1 times FY09E (estimated) and 6.4 times FY10E earnings. “Though the valuation looks cheap, the discount is only 15% compared with other midcap pharma companies (average FY09 P/E of 9.6times), the note said. “Muted growth in the domestic formulation business, de-clining profitability, ability to scale up CRAMS (contract, research and manufacturing) business profitably and exposure to forex derivatives remain areas of concern for the company,” the note added.

ITC
CMP: RS 194.25

TARGET PRICE: RS 210
Edelweiss Securities has maintained its ‘accumulate’ rating on the stock. The brokerage believes that hereon the cigarettes volumes per-formance and magnitude of FMCG-losses will be the key determinants of stock behaviour. “As cigarettes contribute around 80% to ITC’s op-erating profit, the key risk is a possibility of decline in cigarette volumes on the back of high prices hikes. The entry and scaling up of foreign players such as Philip Morris and Japan Tobacco could stunt the phenomenal volume growth witnessed in cigarettes currently,” the note said. According to the brokerage, ITC expects its branded packaged business (68% of FMCG-others) to grow at around 35% y-o-y (year-on-year) this year on a higher base. “We have modelled for 28% growth in FY09E (estimated). We forecast FMCG others losses of Rs 4.25 billion for FY09E,” the note added. At the current market price, says Edelweiss, the stock is trading at 20.8x and 17.5x and EV/EBITDA of 13.6x and 11.3 times of FY09E and FY10E estimates.

AXIS BANK
CMP: RS 696.55

TARGET PRICE: RS 1,010
Goldman Sacs has retained its ‘buy’ rating on Axis Bank, expecting the bank’s earnings per share of grow at a compounded annual rate of 33% between FY07 and FY10. The growth, says Goldman Sachs, would be driven by improvement in cost competitiveness, rising con-tribution from fee income and higher productivity arising from economies of scale.

Also Read: MultiBagger Stock:Axis Bank

“We believe Axis’ current valuation does not cap-ture the upside potential from its rapid growth in franchise value. In-vestors appear to be concerned about rapid growth witnessed by the bank in the past, and hence, the potential for increase in credit losses impacting the bank’s earnings growth prospects adversely in our view. We believe the bank’s credit portfolio is concentrated in the large cor-porate segment, which is less vulnerable to rapid deterioration in credit quality. As such, we believe increase in credit costs is unlikely to impair earnings growth expectations materially,” the note said.

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