Results better than expected on sales and net profit front, ` guidance maintained
Stock down 2.9%
Infosys (CMP: `1,168/ TP: `1,306/Upside: 11.8%)
The company posted results better than expected on top-line and net profit, whereas the EBIT margins came in just in line with expectations.
The company posted a 6.0% sequential growth in USD revenues to US$ 2,392mn V/s US$ 2,339mn expected. In Constant Currency (CC) terms, the company posted a 6.9% qoq growth. The volume growth during the quarter came in at 3.7% qoq. In rupee terms, revenues came in at INR 15,635cr V/s INR 15,204cr expected, up 8.9% qoq. EBITDA margin came in 27.8% V/s 27.6% expected, an expansion of ~165bp qoq. The EBIT came in at 25.5% just in line with expectations, expansion of ~152bps. Consequently, PAT came in at INR 3,399cr V/s INR 3,345cr expected, a rise of 12.2% qoq.
In terms of geography, USA grew by 6.2% qoq CC, Europe grew by 8.3% qoq CC, India grew by 12.1% qoq CC and ROW grew by 7.1% qoq CC. In terms of domain, the FSI ( Banking & Financial Services) grew by 6.4% qoq CC, MFG (Manufacturing) grew by 5.8% qoq CC, RCL ( Retail and Life Sciences) grew by 8.2% qoq CC and ECS ( Energy, Utilities, Communication and Services) grew by 7.8% qoq CC.
On the operating matrix, the utilization rate excluding trainee was 81.3% V/s 80.2% in 1QFY2016, while including trainee was 75.4% V/s 75.7% in 1QFY2016. The attrition rates were 19.9% V/s 19.2% in 1QFY2016. Client additions during the quarter were 82. During the quarter, the company added 5 large deals with TVC of US$ 983mn.
In terms guidance for FY2016, on CC terms has been unchanged at 10-12% and dollar guidance has been revised downwards to 6.4-8.4% V/s 7.2-9.2% earlier. The revision in the US$, is mainly on the outlook of the company on the currency front. The company has also mentioned that it expects 2HFY2016 is weaker than 1HFY2016, and also that it is witnessing headwinds in some client accounts. We maintain our ACCUMULATE rating on the stock with a target price of INR 1,306.
Railway revenues rebound 4.3% in September 2015
|The Indian Railway (IR) has posted 4.3% rise in revenues to Rs 12259.13 crore in September 2015 over September 2014, while snapping only decline in revenues of 2.3% recorded in August 2015 since we have data for last ten years. However, the revenue earnings continued to be below budget estimate of Rs 13812.14 crore for September 2015.The passenger earnings improved 7.9% to Rs 3622.25 crore, while the earnings from other coaching moved up 8.7% to Rs 344.01 crore in September 2015. The goods revenue, accounting for 64.9% of the total revenue, rose at subdued pace of 3.3% to Rs 7958.26 crore. The revenue from sundry activities dipped 11% to Rs 334.61 crore in September 2015.
In April-September 2015, the revenue earnings of IR has increased 9% to Rs 78950.65 crore driven by 10% rise in goods revenue to Rs 52541.85 crore. The passenger revenue moved up 8.5% to Rs 22479.2 crore, while other coaching increased 5.1% to Rs 2058.39 crore. However, the sundry earnings dipped 6.9% to Rs 1871.21 crore in April-September 2015.
Sun Pharmaceuticals announces Absorica patent litigation settlement: Sun Pharmaceutical Industries today announced that Ranbaxy Pharmaceuticals Inc. (Ranbaxy), a wholly-owned subsidiary, along with its partners, Cipher Pharmaceuticals Inc. (Cipher) and Galephar Pharmaceutical Research, Inc. (Galephar) have entered into a Settlement Agreement with Actavis Group (Actavis) that dismisses the patent litigation suit relating to Actavis’ Abbreviated New Drug Application (ANDA) for a generic version of Absorica® (isotretinoin capsules).
As part of the Settlement Agreement, Ranbaxy, Cipher, and Galephar have entered into a non-exclusive license agreement with Actavis under which Actavis may begin selling its generic version of Absorica® in the U.S. on December 27, 2020 (approximately nine months prior to the expiration of the patents in September 2021) or earlier under certain circumstances. The other terms of the agreement are confidential. The Settlement Agreement is subject to review by the U.S. Federal Trade Commission and the U.S. Department of Justice.
The US market size in 2015 is estimated to be around US$120mn for the said drug. Agreement will disallow generic competition till 2020. The company could in future do similar deals with other generic companies. We maintain our accumulate with a target price of `950.
Govt launches Green Highways Policy
|Union Minister of Road Transport & Highways and Shipping Nitin Gadkari launched the Green Highways (Plantation, Transplantation, Beautification & Maintenance) Policy, 2015 at a function organized in New Delhi on 29 September 2015. The aim of the policy is to promote greening of Highway corridors with participation of the community, farmers, private sector, NGOs, and government institutions.Speaking on the occasion, the Minister said that 1% of the total project cost of all highways projects will be kept aside for the highway plantation and its maintenance. He said that about Rs. 1000 crore per year will be available for plantation purpose. He also said that this policy will generate employment opportunities for about five lakh people from rural areas. He added that there will be strong monitoring mechanism in place by using ISROs Bhuvan and GAGAN satellite systems. Every planted tree will be counted and auditing will be done. The agencies performing good will be awarded. He called for suggestions from people for smooth implementation of the policy. He also asked the state governments to start programmes on similar lines.
Nitin Gadkari said that 1200 road side amenities will also be established. The Green Highway Policy will help in making India pollution free, the minister added. It will also help in curtailing the number of road accidents in India. He said that the vision of the policy is to provide dignified employment to local people and communities.
Addressing the conference, Minister of State for Road Transport & Highways and Shipping Pon. Radhakrishnan said that it is a historic occasion and a noble initiative that depicts the Governments concern for conservation of environment. He said the present Government has taken various initiatives to cut pollution by promoting bio-fuel and e-rickshaws, and now the Green Highways Policy has been launched for roadside plantation in this respect.+
BIS to develop standards for 43 products under Make in India programme
Bureau of Indian Standards (BIS) has taken up development of standards for 43 products identified by Department of Industrial Policy & Promotion (DIPP) for manufacturing quality products in the country under Make in India programme. It has also decided to develop or upgrade standards for basic consumer services like potable water and waste collection & disposal besides revising National Building Code to promote safe and environment friendly construction in the country.
This was informed during the meeting of Governing Body of BIS chaired by Ram Vilas Paswan, Minister of Consumer Affairs, Food and Public Distribution, here today. The meeting was attended by Members of Parliament, representatives of various central ministries and technical experts from different sectors.
Reviewing the performance of BIS, Ram Vilas Paswan directed that labs of the Bureau in each state should be upgraded on priority basis and facilities for testing of more products should be arranged. He also asked the BIS to develop or revise standards regarding street food and products of day to day. Mass awareness campaign should also be launched to make people quality conscious, he stressed.
Government IT Spending in India to Reach $6.88 Billion in 2015: Gartner
The government in India will spend $6.88 billion US Dollars (USD) on IT products and services in 2015, an increase of 5.2% over 2014, according to Gartner, Inc. This forecast includes spending on internal services, software, IT services, data center, devices and telecom services. Government comprises state and local governments and national government.
IT services (which includes consulting, implementation, IT outsourcing and business process outsourcing) is expected to grow 10% in 2015 to reach $1.6 billion USD – with the business process outsourcing sub-segment growing by 21%.
Telecom services will also be a $1.6 billion USD market, with the mobile network services sub-segment recording fastest growth of 3% in 2015 to reach$787 million USD.
Reservoirs water storage rises to 60% of total capacity as on 23 September 2015
|The water storage available in 91 major reservoirs of the country as on 23 September 2015 was 95.313 billion cubic meters (BCM), which is 60% of total storage capacity of these reservoirs. This storage is 75% of the storage of corresponding period of last year and 77% of storage of average of last ten years.The total storage capacity of these 91 reservoirs is 157.799 BCM which is about 62% of the total storage capacity of 253.388 BCM which is estimated to have been created in the country.|
Lupin has taken price rise in Fortamet: Lupin has been reported to have taken 200% price increase in Fortamet. This has come after, a huge price hike in competing product Glumetza. After the hike also, Fortamet is still 75% cheaper than Glumetza. Though the sustenance of price hike can’t be predicted as other Fortamet is genericised & can see additional competition. The product should have an estimated market size of around US$100-130mn and Lupin sales according to our estimates should be around US$43mn, with a price hike the product should be grossing sales of US$70-80mn. Even after the hike the product contribution to the overall sales would be around ~3% of the overall sales in FY2017E. However given the huge price hike, the OPM’s could see an expansion of 225bps and result in the EPS expansion of 13% and 12% in FY2016E and FY2017E respectively. However, even after the upgrade, if the earnings growth sustains, the valuations are too rich for any upgrades, thus maintaining our neutral stance on the stock.
CPI inflation flat at 3.7% in August 2015
|The all-India general CPI inflation was nearly flat 3.66% in August 2015 (new base 2012=100), compared with 3.69% (revised) reading in July 2015. The corresponding provisional inflation rate for rural area was 4.5% and urban area 2.7% in August 2015 as against 4.4% and 2.9% in July 2015. The core CPI inflation declined to 3.8% in August 2015 from 4% in July 2015.Among the CPI components, the inflation for food and beverages rose to 2.9% in August 2015 from 2.8% in July 2015. Within the food items, the inflation moved up for vegetables to (-) 6.4%, pulses & products 25.8%, cereals & products 1.2%, and oils & fats 3.1%. On the other hand, inflation eased for milk & products to 5.3%, meat and fish 5.8%, spices 8.4% and prepared meals, snacks, sweets etc. to 7.3% in August 2015.
The inflation of the pan, tobacco & intoxicants group declined to 9.3%, while inflation for clothing and footwear also declined slightly to 5.8% in August 2015.
The inflation for miscellaneous items dipped to 3.1% in August 2015 from 3.4% in July 2015, driven by fall in inflation for transport & communication to (-) 1%, education 6.1%, education 6.1%, health 5.4% and personal care 2.2% in July 2015.
However, the housing inflation rose to 4.7%, while the CPI inflation for fuel and light also moved up to 5.7% in August 2015.
The cumulative CPI inflation eased to 4.5% in April-August 2015 compared with 7.6% in April-August 2014. Core CPI inflation has declined to 4.2% in April-April 2015 from 7.1% reading in the corresponding period last year.
Real economy to guide growth in times of market volatility
|ZyFin Research, a leading financial research and analytics company, today announced its Business Cycle Indicator (BCI) for the month of September 2015. The index, which is a lead indicator to the Index of Industrial Production (IIP) trend stood at 8.6 during September as compared to 7.9 during August. The index had scored 8.1 during same period previous year. The IIP is expected to rise marginally during November, the official data for which will be available in January, 2016.The marginal uptick in the index affirms a better placed real economy vis-n++-vis market volatility. However, growth of the real economy is constrained by ambiguity in policy decisions and legislations, irrational tax structures and weak demand in domestic markets. Also, efforts to propagate private investments are restrained by underutilized capacity in the wake of sluggish demand prospects globally.
Giving his views on Business Cycle Indicator (BCI) for the month of September 2015, Debopam Chaudhuri, Chief Economist, ZyFin Research, said, n++The overall weakness in BCI since early FY 15-16 presents a case for the need to cut interest rates. Consumer and investment sentiment need a shot in the arm to ensure the economy continues to strengthen in the near term.n++
The ZyFin Business Cycle Indicator is a forward looking composite indicator of the Indian business cycle with a one month lead on the Index of Industrial Production (IIP). In current scenario, when world growth remains uncertain, lead indicators like the BCI can provide timely signals regarding the future course of local economies. The journey from the bottom of a business cycle to its peak has two parts, recovery and growth. In case of the BCI, a score between 5 till 12 is a reflection of a recovering cycle while growth cycle can be identified once the score breaches 12. Data analysts usually take a three month moving average of the BCI scores to comment on evolving trends.
The growth of the BCI was confined by dim growth in bank credit, slowing exports, weaker than expected monsoons and price instability. Although India demonstrates slow growth prospects in the near term; the economy is better placed in the medium term. A large consumption base backed by purchasing power, inherent natural resources and rich human resource augur well for the Indian economy. Also, slackening prices of coal, cement and steel shall back creation of infrastructure thereby generating growth.
Infosys Cleared of Visa Violation Charges in US: The US government has found no visa violations by IT major Infosys. The US had initiated the investigation against Infosys and its rival Tata Consultancy Services for possible violations of H1-B visa rules in June 2015. The investigation came on the back of a complaint by two US Senators, who alleged that the two companies used a US visa programme to “replace hundreds of American workers” at a power company. Indian outsourcers are among the biggest recipients H-1B visas, which are intended for highly skilled workers. We maintain our buy with a price target of `1306 and remain positive on the IT space.
CEA: Overall, Economic Growth is Moving in the Right Direction, Although its Pace is Still Below What the Economy Needs
|The Chief Economic Adviser Dr Arvind Subramanian in a Statement with regard to recently released First Quarter GDP Data of the Current Financial Year 2015-16 said that:n++At a time of sharp declines in the price of oil, which led to sharp changes in Indirect Tax Collections and subsidy payments, national income data have to be interpreted with care.
There are two measures of aggregate economic activity: gross value added at basic prices (GVA) and gross domestic product at market prices (GDP). Essentially, GDP at market prices is the value of goods and services that are paid for by consumers which is allocated between: (i) the factors of production (measured by GVA); and (ii) government. Hence the basic national income identity: GDP = GVA + net indirect taxes (NIT), which is equal to indirect taxes less subsidies.
The issue that arises is how to derive estimates of NIT at constant prices given that the data are collected at current prices. The procedure followed by the Central Statistics Office (CSO), which is entirely consistent with recommended international practice for quarterly estimates, can be intuitively understood as follows. Under this procedure, indirect taxes are assumed to grow in line with the relevant tax base, which consists of the value of imports, manufacturing, and services. (In the case of subsidies, the CSO uses the GDP deflator to arrive at constant price estimates.)