HCL Tech: retain our 2 (Outperform) rating post Sept 2010 qtr results; Daiwa

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HCL Technologies (HCLT IN) Rating:2
Double-digit sequential US-dollar revenue growth for three out of seven sectors



What has changed?
• HCL Technologies (HCLT) announced a 9% QoQ rise in its US-dollar revenue to
US$804m for 1Q FY11, 2.7% higher than our forecast. IT-services revenue (72%
of the company’s 1Q FY11 revenue) rose by 9.3% QoQ.
Impact
• Growth in HCLT’s US-dollar revenue remained strong sequentially, with an
increase exceeding 9% QoQ for the second successive quarter. Revenue from
infrastructure services (22% of 1Q FY11 revenue) was strong too, rising by 8.9%
QoQ. The sequential decline in business process outsourcing (BPO) revenue was
reversed from prior periods to an increase of 5.7% QoQ for 1Q FY11.
• The 9.3% YoY rise in US-dollar IT-services revenue was aided by an increase of
7.9% QoQ in volume, with prices up by 1.4% QoQ. Though the Rupee’s average
exchange rate versus the US dollar depreciated by 1.6% QoQ for 1Q FY11, HCLT
adopted the rate prevailing on the last day of the quarter for translation purposes.
• As a result, revenue in Rupees rose by just 5.4% QoQ to Rs36.1bn, slightly
lower than our forecast of Rs36.5bn. As indicated previously, the company
implemented a wage hike from January 2010, and as a result the EBITDA
margin contracted by 2.3 percentage points QoQ to 16.3% for 1Q FY11. We
expect this sequential contraction to be reversed from 2Q FY11.
• The other profit-and-loss items were in line with our expectations, but the net
profit was Rs360m lower than our forecast, as we had expected lower wage
increases than those that were implemented. We have revised up our revenue
forecasts for FY11, FY12 and FY13 by 3.4%, 3.5% and 3.6%, respectively, on
the back of improving demand and the reversal of the BPO revenue decline.
However, we have revised down our FY11 EPS forecast by 4.4%, as the wage
increases were much higher than those factored into our previous forecast.
Valuation

• We maintain our six-month target price of Rs490, based on a target PER of 14x on
our FY12 EPS forecast, and retain our 2 (Outperform) rating on HCLT.
Catalysts and action
• For 1Q FY11, three out of HCLT’s seven sectors recorded double-digit sequential
revenue growth, with revenue from Europe up by 14% QoQ. We believe the BPO
business would have to record a net profit for FY11 to prompt a re-rating of HCLT.

BGR Energy Systems:Management Conference Call Takeaways : Citi

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BGR Energy Systems: Management Conference Call Takeaways
 Order update — In the fray for two 2X660MW EPC orders in Rajasthan of ~
Rs65bn each with only 2 bidders in the fray BHEL/ BGRL. Bids for both are yet to
be opened. Technical qualification is going on right now. Also in the fray for a
2X660MW IPP BOP order of Rs20bn expected to be decided in next 1-2 months.
Also in the fray for the 11X660MW NTPC-DVC boiler rebid. Targetting Rs80-100bn
of orders in 3QFY11E and Rs120-150bn of orders in FY11E (CIRA - Rs90bn)
 Should do > Rs48bn in sales in FY11E — Based on last year end backlog BGRL is
confident of doing Rs48bn of sales in FY11E (CIRA – Rs47bn) and it is possible to
surpass this number if the above mentioned orders materialize on time.
 Execution is on track — At both Mettur and Jhalawar. At Mettur the company has
achieved significant milestones like drum lifting/ condenser fabrication. Boiler
hydro test/boiler light up due in Nov10/Mar11. Coal handling and ash handling
system to be completed in Apr11 and plant will be synchronized in May11. BGRL
has received 80-85% of BTG equipment from Dongfang and balance to be got
next month. BGRL has also started working on the transmission network and has
received equipment for the 400kV and 220 kV GIS from Areva T&D.
 Strong growth in 2QFY11E — We expect BGRL to report Rs9.5bn of sales in
2QFY11E up 104% YoY. EBITDA margins could contract 178bps to 10.5% and we
expect the company to deliver PAT of Rs579mn up 89% YoY
 Maintain Buy: Target price increased to Rs934 — BGRL has underperformed the
BSE Sensex by 13% over last 3 months and trades at in-expensive valuations of
14.3x FY12E, despite robust 1QFY11 PAT growth of 199% YoY on account of a
dry order inflow spell. Inflows in this sector tend to lumpy in nature and recent
underperformance might be a good time to buy the stock. Raising our target price
to Rs934 as we roll forward our target P/E multiple to Mar12E.

Piramal Healthcare, Fair Value is Rs 664: Emkay,

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Valuation of Pirmal Healthcare by Emkay

Fair Value arrived at is Rs 664

Piramal Healthcare has announced buy-back of 20% equity (41.8mn share) @Rs600 per
share which entails a cash outflow of Rs25.08bn. Promoters will tender the share in
proportionate thus limiting the acceptance ratio at 20% level. Piramal has received upfront
cash of Rs105.3bn from Abbott and Super Religare (Rs3bn), out of which company has
paid Rs35.7bn as tax, Rs3.5bn as non-competing fees to promoters and Rs6.5bn as debt.
Adjusting to cash outflow on buy-back, company will have net cash of Rs34.5bn
(Rs206/share on 167.2mn shares). This amount will be used to fund the growth of existing
businesses (US$45-50mn annual capex) as well as to scout for opportunities in other
sectors. The cash per share of future cash works out to be Rs347 per share, taking total
cash value per share to Rs554 on reduced equity. Value per share of residual business on
FY10 numbers is Rs110 per share. This takes the fair value of Piramal Healthcare to Rs664
per share.

Piramal Healthcare Q2FY11 Result Update; Await further clarity; Emkay

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Piramal Healthcare

Await further clarity; maintain Hold

HOLD

CMP: Rs 515                                       Target Price: Rs 531

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n     Piramal’s Q2FY11 performance was disappointing with a) Revenue of Rs7.5bn (down 25%), and b) EBIDTA loss of Rs128mn

n     Poor performance was driven by de-growth in the formulations, CRAMS and the critical care business

n     Company has announced the buyback of 20% equity @Rs600 per share

n     Utilization of cash will remain a key; maintain Hold

Disappointing quarter; company will revise earnings guidance downward
going forward

Piramal’s revenue for the quarter de-grew by 25% to Rs7.5bn. Management has
iterated that concentration of focus on completing the transaction with Abbott and Super
Religare Labs led to de-focus on the business areas. This accounted for the subdued
performance during the quarter. Key factors that led to overall de-growth in revenues
are a) Domestic formulation business (contributed 54% to the overall revenues) de-grew
by 22% to Rs4.1bn, b) CRAMS business (contributed 28%) de-grew by 28% to
Rs2.1bn, c) Critical Care business (contributed 9%) de-grew 28% to Rs640mn and, d)
Diagnostics business (contributed 4%) de-grew 39% to Rs334mn. The CRAMS
business declined on account of ~41% YoY de-growth in assets in India and ~15% YoY
de-growth in assets outside India.

Management has indicated that they will prune down their guidance in the coming
quarters. Earlier the management has guided for a 10-15% growth in the CRAMS
business. We believe, the performance of residual business will improve on account of
gradual up tick in CRAMS business coupled with improvement in the global critical care
business. In the GCC business incremental growth from Sevoflurane and monetization
of Minrad products in emerging markets will drive growth. We expect management to
give further clarity on its residual business post Q3FY11E.

Announced buyback of 20% equity @Rs600per share through tender offer
Piramal Healthcare has announced buy-back of 20% equity (41.8mn share) @Rs600 per
share which entails a cash outflow of Rs25.08bn. Promoters will tender the share in
proportionate thus limiting the acceptance ratio at 20% level. Piramal has received upfront
cash of Rs105.3bn from Abbott and Super Religare (Rs3bn), out of which company has
paid Rs35.7bn as tax, Rs3.5bn as non-competing fees to promoters and Rs6.5bn as debt.
Adjusting to cash outflow on buy-back, company will have net cash of Rs34.5bn
(Rs206/share on 167.2mn shares). This amount will be used to fund the growth of existing
businesses (US$45-50mn annual capex) as well as to scout for opportunities in other
sectors. The cash per share of future cash works out to be Rs347 per share, taking total
cash value per share to Rs554 on reduced equity. Value per share of residual business on
FY10 numbers is Rs110 per share. This takes the fair value of Piramal Healthcare to Rs664
per share. Maintain buy with a target price of Rs336

Utilization of cash will remain a key for stock performance; maintain Hold
Deployment of cash still remains an unanswered question for Piramal Healthcare and a big
overhang on the stock performance. Management has indicated that they are studying
various business proposals and it will take more than 6 months to from a decision.
However, they have stated very clearly that they do not see enough opportunities in the
healthcare space to deploy such a large amount and are looking non-healthcare segments
(no real estate investment in this company). In fact, Management has stated that the
business profile of this company (Piramal Healthcare) will change significantly in next two
years.
Owing to lack of clarity on the utilization of cash; we continue to retain our Hold rating on
the stock with a price target of Rs531. We will revisit our rating once the company
announces concrete plans to deploy cash from the deal.

JPMorgan: HCL tech: Encouraging revenue growth ; retain OW

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HCL tech -Encouraging revenue growth trend keeps pace with
industry leaders; margins need watching; retain OW





• Good revenue performance in 1QFY11 but margin performance could
have been better given revenue growth. HCL Technologies (HCLT) declared
1QFY11 results that confirm that its revenue growth engine chugs just as well
as the top-tier peers such as Infosys and TCS. Revenues at USD 804 mn came
in at 9% growth Q/Q - well ahead of our and consensus expectations. In our
view, it is on the margin side that HCLT needs to work harder.
• Well-rounded revenue growth. HCLT's revenue growth over the past 12-18
months was infra-management led, an area in which HCLT has developed good
positioning and capability. In this quarter, software services (ex-infra) grew at
9.3% Q/Q (notably, customer applications 15% up Q/Q).
• From a geography perspective, ROW (mainly Asia) led growth at 20% Q/Q
while on verticals retail & healthcare grew at double digit (%) Q/Q. This
demonstrates that HCLT scores well in registering new business from
developing markets and less penetrated verticals. BPO, the laggard, also revived
growing at 5.7% Q/Q (to USD 48 mn revenues) accompanied by significant
improvement in gross margins to 18.1% (from 12.5% in 4QFY10). We see the
BPO turnaround as a sign of management's ability to address ailing businesses.
• Balance sheet metrics will improve. While we believe HCLT does well in
driving topline growth, we note that free cash flow was negative in this quarter
at USD 27mn- mainly due to an increase in other assets. Operating cash flows
stood at USD 7.7 mn (< 1% of revenues). We see this as temporary and expect
it to improve in coming quarters as these assets are largely pre-paid in nature.
• Margin performance needs monitoring; EBITDA margins at 13.7% is an
all-time low since 2000. Some part of the sequential decrease in EBIT margins
owes to SG&A investments (over and above the expected wage hikes in this
quarter) which we find pleasing. But in our view, margins need to recover
significantly to hold the current 12-month forward P/E valuation discount (25-
30%) to larger peers. This might be difficult if the Rupee stays strong.
• Investment view. Maintain OW with Sep-11 PT of Rs 490. We roll forward
our Mar-11 PT of Rs 440 to Sep-11 (12 month) and raise our price target to Rs
490. The increase in our price target is due to the time roll-over. Our Sep-11 PT
assumes 15x forward trading multiple, about a 25% discount to TCS/Infosys
which incorporates noticeable margin improvement hereon.

FII DERIVATIVES STATISTICS FOR 22-Oct-2010

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FII DERIVATIVES STATISTICS FOR 22-Oct-2010
	BUY		SELL		OPEN INTEREST AT THE END OF THE DAY
	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores	No. of contracts	Amt in Crores
INDEX FUTURES	68163	2081.84	63150	1932.16	501441	15261.01	149.68
INDEX OPTIONS	208926	6308.16	182291	5534.63	2118642	64259.60	773.53
STOCK FUTURES	162071	4702.11	172650	5094.25	1492287	45145.25	-392.14
STOCK OPTIONS	10805	368.89	11050	380.43	43397	1422.04	-11.54
						Total	519.53

results to be declared from 23rd to 31st Oct

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Symbol	Company Name	Meeting Date	Purpose
ADORWELD	ADOR WELDING LIMITED	23-Oct-10	Un-audited Financial Results
AVANTI	AVANTI FEEDS LIMITED	23-Oct-10	Un-audited Financial Results
AXIS-IT&T	AXIS-IT&T LIMITED	23-Oct-10	Un-audited Financial Results
BHARATFORG	BHARAT FORGE LIMITED	23-Oct-10	Un-audited Financial Results

22/10/2010: Gray Market Premium for Indian IPOs; Coal India, Gyscoal, Prestige and BS Transcomm

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Company Name	Offer Price	Premium
	(Rs.)	(Rs.)
B S Trans	248 (Lower band)	DISCOUNT
Prestige Estates	183 (Upper Band)	DISCOUNT
Gyscoal Alloys	71 (Upper Band)	12 to 14
Coal India	225 to 245	24 to 26 +  5% discount for retail

Emkay: Wipro Ltd A ‘below par’ show, retain REDUCE

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Wipro Ltd

A ‘below par’ show, retain REDUCE

REDUCE

CMP: Rs 450                                       Target Price: Rs 420

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n     Revenues at US$ 1,273 mn (+5.8% QoQ) missed expectations (closer to lower end of co’s revenue guidance), pales in comparision to strong revenue show from Tier 1 peers

n     Wipro’s credible margin show in the recent past also face pressure both on a/c of lower growth and supply strains (attrition at 23.5% is the highest amongst peers)

n      Wipro’s below par revenue performance in our view on a/c of Wipro’s inherent client mining woes( refer section/table below) despite attempts for course correction here

n     Cut FY11E/FY12E EPS by 2%/1% to Rs 21.1/23.1 as we tweak US$ revenues marginally/reset currency assumptions. Retain REDUCE with an unchanged price target of Rs 420

FII and DII trading activity on NSE and BSE on Capital Market Segment (22nd October 2010)

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FII trading activity on NSE and BSE on Capital Market Segment

The following is combined FII trading data across NSE and BSE collated on the basis of trades executed by FIIs on 22-Oct-2010.

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) Category Date Buy Value Sell Value Net Value FII 22-Oct-2010 3166.2 2582.19 584.01

Domestic Institutional Investors trading activity on NSE and BSE on Capital Market Segment

The following is combined Domestic Institutional Investors trading data across NSE and BSE collated on the basis of trades executed by Banks, DFIs, Insurance, MFs and New Pension System on 22-Oct-2010.

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores) Category Date Buy Value Sell Value Net Value DII 22-Oct-2010 1715.12 1388.06 327.06

The data is provisional in nature and is subject to changes, inter alia, on account of custodial confirmation process, modifications etc.