Prabhudas Lilladher calls a ‘Buy’ on Infosys
CMP: Rs. 2471 Target Rs. 2940
We met Mr. Abraham Matthews (Head Finance, Infosys BPO) to understand the demand environment for both, BPO and Infosys. The management is confident of achieving guidance despite the cross-currency impact. Moreover, the currency benefit has given them a scope for wage hike. The increased likelihood of inorganic growth and low expectation gives the comfort for a “BUY” rating.
BPO likely to outpace overall growth in FY13: The management was confident of delivering growth stronger than overall growth of (8-10%), excluding ~US$30m contribution from the acquisition. BPO (FY12: US$ 384m, 5.5%) is seeing good traction from BFSI, Retail-CPG and Healthcare. Few deals involve rebadging of clients’ employees; hence, margin benefit due to currency depreciation would be lower-than-expected. Portland acquisition resulted in one up-selling opportunity.
Unlikely to spring negative surprise on guidance: Due to cross-currency headwind, the performance in Q1FY13 will be in-line with the guidance. The management could calibrate guidance (by 0-1% downward) to adjust the cross-currency movement. However, our discussion with the management didn’t hint for the same.
Currency depreciation gives room for the wage hike: The currency movement has been supportive for margins despite headwind from cross-currency. The management is likely to give a wage hike, which was due in Q1FY13. But, the currency movement will give impetus to the margin. As highlighted (“Time toBUY” April 24, 2012), the consensus is overlooking margin levers; hence, expect 5-7% upgrade in EPS, post Q1FY13 result.
Inorganic growth: Time is more appropriate now: Management cited urgency for inorganic route to build non-linear momentum. The size of acquisition is likely to be at US$100-200m.
Valuation and Recommendation: BUY with target price of Rs 2,940: The management continues to maintain their back-ended growth commentary inline with global tech majors. The valuation comfort and low expectation leaves little room for a negative surprise; hence, retain “BUY”.
Aditya Birla Money calls a ‘Buy’ on LIC Housing Finance
CMP: Rs. 253 Target Rs. 285
LIC Housing Finance announced its unaudited results for Q4FY12. The top-line as well as bottom-line came below our expectations on the back of lower NIMs.
Key Highlights: Net Interest Income (NII) registered a decline during the quarter by 11.8% YoY from Rs 4203.5 mn in Q4FY11 to Rs 3707.7 mn in the current quarter on the back of lower NIMs. However on QoQ basis margins improved by 17 bps resulting in 13.8% jump in NII. The decline in NIMs on YoY basis was on the back of higher cost of funds and slower disbursement growth in high yielding developer loan portfolio. However, sequentially NCD issue in January and preferential capital allotment to LIC has brought down the overall cost of funds resulting in higher NIMs. The management expects NIMs to improve going forward in FY13 (guidance of 2.7-3.0% in FY13) led by higher disbursement in developers portfolio (target of 10% of the total loan portfolio currently at 5.0%) coupled with repricing of fixed rate loans (Fix-o-Floaty). The company’s teaser rate home loan portfolio under Fixed-o-Floaty scheme worth Rs 120 bn would get re-priced in the current fiscal.
Sharp decline in NIMs and subdued growth other income has resulted in 19.4% decline in Net Profit during Q4FY12 despite provision write back of Rs 23.9 mn in the current quarter. Sequentially net profit registered a decline of 17.0% despite higher NIMs mainly on the back of higher write back of provision in Q3FY12 (Rs796.9 mn as against Rs23.9 mn in the current quarter).
Asset quality improved during the quarter with gross NPA registering a decline of 5 bps and 21 bps on YoY and QoQ basis respectively. However the net NPA increased by 6 bps on YoY basis. The management is confident to continue to keep asset quality under check going forward.
Outlook and Valuations: We believe the margins to rebound going forward on the back of repricing of fixed rate loans and higher disbursements to high yielding developers portfolio. We expect margins to improve by 22 bps in FY13E. Added to this release of provisions on teaser portfolio (that will come for repricing) is likely to keep the provisioning expenses low going forward. With stable asset quality we estimate LICHF to report an EPS CAGR of 35.1% over FY12-FY14E. ABV is estimated to grow at 19.0% CAGR during the same period. Going forward, we expect the company to deliver healthy net interest income growth (CAGR 29.2% FY12-14E) and earnings growth (CAGR 35.1% FY12-14E). We have slightly increased our target price to Rs 285.1 from Rs 266.6 earlier, giving an upside potential of 14.1% from current levels, thus changing the rating from Neutral to Accumulate.