Alembic Pharmaceuticals – 2QFY2015 Result Review

Results marginally below expectations

Stock up 3.4%

Alembic Pharma (CMP: `387/ TP:/ Upside :)

For the quarter, the company posted sales and profit, below expectations. The sales and net profit came in at `539cr V/s `568cr expected and `84cr V/s   `88cr expected respectively, thus posting a yoy growth of 11.7% yoy and 31.7% respectively. The growth in the sales was lead by the domestic formulation business, which posted a yoy growth of 18.0%. Other segment, which did well, was API, which posted a yoy growth of 20.0%. The international generic posted a growth of 9% yoy, while Indian generics de-grew by 12% yoy. The international branded segment posted flat sales. On the operating front, the gross margins came in at 64.8% V/s 60.8% in 2QFY2014; consequently taking the operating margins to 21.2% V/s 19.6% in 2QFY2014. This along with the lower interest expenditure, which dipped by 31.9% yoy, aided the PAT to come in at `84.1cr V/s `63.8cr in 2QFY2014, a growth of 31.7%. We maintain our neutral rating on the stock.

Indoco Remedies – 2QFY2015 Result Review

Results below expectations, on sales and net profit front, margins robust

Stock marginally up

Indoco Remedies (CMP: `287/ TP:/ Upside :)

For the quarter, the company posted results much below expectations on the net sales and profit front. The sales came in at `226cr V/s `257cr expected, posting a yoy growth of 16.1%. The sales growth was mainly driven by the exports, which rose by 21.1% yoy, while domestic sales rose only by 13.3% yoy. The domestic formulations grew by 13.9% yoy, while formulation exports grew by 21.2% yoy. On the operating front, the gross margin came in at 64.8% V/s 61.2% in 2QFY2014; consequently taking the operating margins to 20.6% V/s 13.2% in 2QFY2014. This along with the lower interest expenditure, which dipped by 49.0% yoy, aided the PBT, to register a yoy of 148.3%. However, a 148.3% yoy rise in the tax expense during the quarter, lead the net profit to come in at`20cr V/s `30cr expected, a yoy growth of 23.7%. We maintain our neutral rating on the stock.

UPL – 2QFY2015 Result Review

Results, robust on top line

Stock dips marginally

United Phosphorus (CMP: `331/ TP:424/ Upside :28%)

United Phosphorus Limited (UPL), posted a good set of numbers. For the quarter, the company posted sales of `2618cr V/s `2,269cr in 2QFY2014, registering a yoy growth of 15.4%. On the operating front, the company posted OPM’s of 16.7% V/s 16.0% in 2QFY2014, mainly driven by the GPM’s of 50.5% V/s 48.7% in 2QFY2014. The expansion in the OPM was lower than expansion in the GPM, on back of the 24.4% rise in other expenditure. This along with the lower other income during the period, which dipped by 32.2% yoy, lead the Adj. net profit to come in at `178cr V/s `171cr in 2QFY2014, a yoy growth of 4.3%. The reported net profit during the quarter was `166cr V/s `155, a yoy growth of 7.1%.We maintain our buy with a target price of `424.

Weekend Highlights –18 October, 2014

Indian Railways Freight Loading up by 4.20 per cent during April-September 2014
Indian Railways carried 532.44 million tonnes of revenue earning freight traffic during 1st April- 30th September 2014. The freight carried shows an increase of 21.44 million tonnes over the freight traffic of 511.00 million tonnes actually carried during the corresponding period last year, registering an increase of 4.20 per cent.During the month of September 2014, the revenue earning freight traffic carried by Indian Railways was 86.71 million tonnes. There is an increase of 1.85 million tonnes over the actual freight traffic of 84.86 million tonnes carried by the Indian Railways during the same period last year, showing an increase of 2.18 per cent.

Government IT Spending in India Forecast to Reach US$ 7.2 Billion in 2015: Gartner
Government IT spending in India will total US$ 7.2 billion in 2015, a 5% increase over 2014, according to Gartner Inc. Government IT spending is on pace to total US$ 6.6 billion in 2014.This forecast includes spending by the government sector (government is composed of state and regional government and central government agencies.) on internal IT (including personnel), hardware, software, external IT services and telecommunications.

Anurag Gupta, research director at Gartner says, IT services, which includes consulting, implementation, IT outsourcing and business process outsourcing, will be the largest overall IT government spending category through 2018. IT services are expected to grow 10.9% in 2014 to reach US$ 1.8 billion in 2015, up from US$ 1.6 billion in 2014 – with the business process outsourcing segment growing 22% during 2014.

Internal services will achieve a growth rate of 9.9% in 2014. Internal services refer to salaries and benefits paid to the information services staff of an organization. The information services staff includes all company employees that plan, develop, implement and maintain information systems. The software MARKET will achieve the highest growth rate within spending categories.

Government spending on software will total US$ 788 million in 2014, and it will grow to US$ 910 million in 2015. Software spending will be led by growth in vertical specific software (software applications that are unique to a vertical industry. These are stand-alone applications that are not modules or extensions of horizontal applications).

Anurag Gupta, research director at Gartner said, India has a new government in power with the underlying promise of Less Government & More Governance. The delivery of a citizen-centric and transparent government is only possible through the extensive use of technology and by leveraging digital government. We expect a focus on expanding broadband penetration, accelerating digitization of core government processes, leveraging mobility to engage the citizens, cloud initiatives and public private partnership. India has ambitious plans to build several smart cities, and this will create new opportunities.

ADB, 13 Banks Sign $288 Million B-Loan for Wastewater Reuse in PRC
The Asian Development Bank (ADB) has signed a ground-breaking agreement in partnership with 13 banks to support Beijing Enterprises Water Group Company (BEWG) to promote high standard wastewater treatment and reuse in the Peoples Republic of China (PRC).The $288 million B-loan agreement, signed today, is the largest such loan arranged by ADB. The B-loan is part of ADBs financing package to the project, which includes an ADB-financed loan of $120 million signed last November, and up-scaled to $408million. Through the B-loan structure, ADB acts as the lender of record for commercial banksn++allowing them to SHARE ADBs preferred creditor status.

n++A prime objective of the B-loan is to perpetuate our development mission with partner banks to promote reuse of treated wastewater as a strategic option for sustainable water management. We are pleased to work with 13 leading banks to address the PRCs water challenge,n++ said Hisaka Kimura, ADB Head of Private Sector Infrastructure Finance, East Asia Unit.

The PRCs increasing demand for water highlights water scarcity. Per capita freshwater resources are low and annual per capita water endowments have been declining alarmingly. Pollution exacerbates water scarcity, especially in upstream areas where it can degrade sanitation in local communities which depend on local sources for water supply.

Under the project, BEWG will upgrade and operate wastewater treatment plants across the country to meet grade 1A standard, the most stringent wastewater treatment standard in the PRC. The treated wastewater can then be reused for both industry and urban environment needs, including machine cooling, boiler operation, and cleaning at construction sites.

The 13 banks are Australia and New Zealand Banking Group, the Bank of Tokyo-Mitsubishi UFJ, BPI Capital Corporation, Industrial and Commercial Bank of China (Asia), Rabobank International, OCBC Wing Hang Bank, Kookmin Bank, Aozora Asia Pacific Finance Limited, State Bank of India, Chang Hwa Commercial Bank, KEB Asia Finance, Shinhan Asia, Taiwan Cooperative Bank, and ADB as the lender of record.

TCS- 2QFY2015 Result Review

Results below expected on net profit levels

Stock down ~7.0%

TCS (CMP: `2,700/ TP:/ Upside:)

TCS announced its 2QFY2015 results. While the dollar revenue was much higher than expected on sales front, the net profit came in lower than expected, on back of lower than expected EBDITA margins. On the sales front, the company posted a 6.4% sequential growth in USD revenues to US$3,929mn V/s US $3,859mn expected, with volume growth of 6.1% qoq. On constant currency (CC) terms the company posted a 7.4% qoq growth, of which organic growth during the period was 4.6% qoq on constant currency. In rupee terms, revenues came in at `23,816cr V/s `23,495cr, up 7.7% qoq.

The growth in the INR sales was equally driven by the key geographies, USA (5.3% qoq), Europe (3.8% qoq) and India and Asia Pacific, which grew by 9.0% qoq and 43.2% qoq respectively. In terms of verticals, the BFSI (4.3% qoq), Telecom (1.7% qoq), Retail & Distribution (5.9% qoq) and Manufacturing ( 26.7% qoq).

EBITDA margin came in at 28.5%, lower than expected 30.2% and a dip of ~29bps qoq. Consequently, PAT came in at `5,288cr V/s `5,414cr expected, an up-tick of 4.6% qoq. On the operational front, the company had the highest utilizations, which stood at 86.2% (ex-trainee), while including the trainee it was 81.3%. As per outlook, the company expects to post a growth higher than the NASSCOM growth target of 13-15%.

In terms of development, the TCS announced its merger with CMC wherein in the shareholders of CMC will receive 79 equity shares of Rs.1 each of TCS for every 100 equity shares of Rs.10 each of CMC held by them. The appointed date for the proposed scheme is 1 April 2015. We maintain our neutral rating on the stock.

HCL Tech -1QFY2015 Result Review

Results better than expected on EBIT and net profit front

Stock down ~6.0%

HCL Tech (CMP: `1,656/ TP: `1,968/ Upside:18.8%)

HCL Tech during the quarter posted revenue marginally below, expectations, while EBIT and net profit came in higher than expected. The sales came in at US $1,433mn V/s US$1,469mn expected, a qoq growth of 1.9%.In Constant Currency (CC) terms, the sales grew by 3.2% qoq. In rupee terms, revenues came in at `8735cr V/s `8,945cr expected, up 3.7% qoq.

In terms of geography, the USA posted a 5.7% qoq on CC basis, Europe grew by 2.7% qoq on CC basis, while ROW de-grew by 6.4% qoq basis. In terms of verticals Financials Services grew by 3.0% qoq on CC, Manufacturing ( grew by 5.3% qoq on CC basis) , while Life Sciences & Healthcare along with the Public services de-grew by 1.7% and 5.6% qoq on CC basis respectively. The vertical which posted, highest growth was Retail & CPG which grew by 15.8% qoq on CC basis.

On the operating front, the EBIT margins came in at 23.9% a decline of ~32bps qoq V/s expected 22.0%. The utilization levels dipped to 82.7% ( including trainees) V/s 84.5% in 4QFY2014.Consequently, PAT came in at `1,873cr V/s `1,591cr expected, a growth of 2.1% qoq. In terms of order flow, the HCL has signed 15 Transformational engagements with more than US$ 1bn of Total Contract Value in this quarter, led by Global Infrastructure Services, Engineering and R&D Services, Application Services and the Digitalization suite across Software Product and Platform Engineering. Manufacturing and Consumer Services led the wins in verticals and US in geographies. We maintain our buy rating on the stock with price target of `1,968.

Ranbaxy- Settles litigation with State of Texas

Ranbaxy- Settles litigation with State of Texas : Ranbaxy has settled the litigation concerning its participation in the Texas Medicaid Program. Under the settlement agreement, Ranbaxy will make payments to the State of Texas totaling US $39.8mn in a series of tranches through August 2015. The claims at issue related exclusively to the manner in which the Ranbaxy has historically reported pricing data to Texas Medicaid for certain of its drugs. As has been widely reported, the State of Texas has brought nearly identical claims against virtually every other major pharmaceutical manufacturer in the United States. Ranbaxy believes that it fully complied with all relevant laws; however the Company settled the matter to avoid any further distraction and uncertainty of continued litigation with the State of Texas. The said liability will not a major impact on the company’s financials and hence maintain our neutral on the rating on the stock.

Infosys- 2QFY2015 Result Review

Results above expectations on operating front

Stock up by ~5.8%

Infosys (CMP: `3,646/ TP: `4,700/Upside: 28.9%)

Infosys announced its 2QFY2015 results today. The company posted a 3.1% sequential growth in USD revenues to US$ 2,201mn V/s US$2,193mn expected. In rupee terms, revenues came in at `13,342cr V/s `13,279cr expected, up 4.5% qoq.  On constant currency (CC) terms, the company posted a strong 3.9% qoq growth V/s 1.5% qoq in 1QFY2015. The key geography that grew well was Europe which grew by 6.5% qoq on CC terms, while USA grew by 3.2% qoq on CC terms. Other regions like India and ROW posted a 4.0% qoq CC decline and growth of 4.2% qoq CC respectively. In terms of domain, the FSI ( Financial Services Industry ) grew by 2.0%qoq on CC terms, Manufacturing grew by 4.5% qoq in CC. The domain that posted the highest growth during the period was ECS (Electricity, Communications and Services ), which posted a CC qoq growth of 8.8%. On the operating front, the EBIT margins came in at 26.1% V/s 24.6% expected ( 25.1% in 1QFY2015) on account of improved productivity. Consequently, PAT came in at `3,096cr V/s `2,948.9cr expected, a rise of 7.3% qoq.

The utilization levels improved to 75.2% V/s 74.8% in 1QFY2015, while excluding the trainees, the utilization levels, improved to 82.3% V/s 80.1% in 1QFY2015.Going forward, the company has maintained its future USD revenue growth guidance for FY2015 at 7-9% and EBIT margins to be sustained at these levels in a narrow band. On valuation front, the stock is cheap at current valuations of 15.5xFY2016E earnings, at a 30% discount to its peer like TCS, which we believe can narrow down once the growth pick-ups. Thus , we maintain our buy rating on the stock with a target price of `4,700.

Weekend Highlights –11 October, 2014

Moodys: Asian Liquidity Stress Index declines to 21.3% in September
Moodys Investors Service says that its Asian Liquidity Stress Index declined to 21.3% in September from 22.3% in August, the lowest level since December 2013.The decline, the fourth in as many months, came as the net number of rated high-yield companies with Moodys weakest speculative-grade liquidity score (SGL-4) decreased to 26 from 27 and the number of rated high-yield companies increased by one to 122.

The index — which increases when speculative-grade liquidity appears to decrease — remains well below the record high of 37.0% reached during the fourth quarter of 2008 amid the global financial crisis, says Annalisa Di Chiara, a Moodys Vice President and Senior Analyst.

It is a bit above the indexs long-term rolling average of 20.2% but still slightly below the trailing 12-month average of 21.9%, adds Di Chiara.

The liquidity sub-index for Chinese speculative-grade companies declined slightly to 20.0% in September from 20.3% in August.

And the number of high-yield Chinese companies increased to 65 from 64. Meanwhile, the number with an SGL-4 score remained unchanged at 13.

Chinas high-yield property sub-index rose, to 15.4% from 12.8% while the Chinese high-yield industrial sub-index declined to 26.9% from 32.0%.

The Indonesian sub-index remained unchanged at 12.0% as the number of Indonesian companies with an SGL-4 score remained at three and the total number of high-yield Indonesian companies remained at 25.

Moodys downgraded the CFRs of three companies in September and upgraded six. The downgrade/upgrade ratio of 0.5 in September does not necessarily reflect a positive shift in overall credit quality and environment, but rather company specific events that have improved their credit quality and liquidity. Indeed, downgrades exceeded upgrades for the fifth consecutive quarter.

Railways revenue rises 12.02% in April-September 2014
The total approximate revenue of Indian Railways on originating basis showed an increase of 12.02% to Rs 73403.67 crore in April-September 2014 compared with Rs 65525.85 crore in the same period last year.The total approximate revenue from goods moved up 10.44% to Rs 48771.58 crore in April-September 2014 compared with Rs 44162.15 crore in the same period last year.

The total approximate revenue from passengers jumped 16.46% to Rs 21079.09 crore in April-September 2014 compared with Rs 18099.80 crore in the same period last year.

The approximate revenue earnings from other coaching amounted to Rs 1979.91 crore in April-September 2014 compared with Rs 1850.17 crore in the same period last year, registering an increase of 7.01%.

The total approximate numbers of passengers booked were 4253.32 million in April-September 2014 compared with 4255.81 million in the same period last year, showing a decline of 0.06%.

Revenue growth to decelerate in Q2FY15: CRISIL
CRISIL Research expects India Inc. to report a revenue growth of 9-10% year-on-year (y-o-y) in the September 2014 quarter (Q2FY2015), lower than 13% growth reported in the June 2014 quarter, due to slower growth in export-oriented sectors and the continued weak performance of investment-linked sectors. This forecast is based on an analysis of 600 companies (excluding financial services and oil companies), representing 71% of the overall market capitalization of India Inc.Export-oriented sectors have been performing extremely well in the past 5 quarters, reporting strong y-o-y growth due to a slight rebound in demand in key markets and currency tailwinds. However, in Q2FY2015, the rupee appreciated by 3% against the USD on a y-o-y basis; so no gains will be reported on the currency front.

Cipla ties up with Teva Pharmaceutical affiliate to sell products in South Africa

Cipla ties up with Teva Pharmaceutical affiliate to sell products in South Africa: Medpro Pharmaceutica (Pty) Ltd., a subsidiary company of Cipla Medpro, the third largest pharmaceutical company in South Africa, announced collaboration with Teva Pharmaceuticals (Pty) Ltd., an affiliate of Teva Pharmaceutical Industries Ltd. (Teva), the largest generic pharmaceutical manufacturer in the world. The collaboration is a sales and distribution arrangement whereby Cipla Medpro will exclusively market Teva’s broad pharmaceutical product portfolio in South Africa, with focus on therapeutic areas, such as oncology, central nervous system, women’s health, cardiovascular, ophthalmology and other specialty products. This tie-up with further strengthen the company’s position in the South Africa. However, on back of the valuations, we remain neutral on the stocks.

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