Current price :Rs 780 Target Price :Rs 1022
Potential upside :31% Time Frame :12 months
OUTPERFORMER
Potential upside :31% Time Frame :12 months
OUTPERFORMER
Higher input cost impacts operating profit …
ACC’s sales for the quarter ended Dec 31, 2007 (Q4CY07) increased 10.8% to Rs 1763.73 crore against Rs 1592.33 in the corresponding quarter the previous year. The improvement was on account higher sales volumes and improved realizations. Realizations improved from Rs 155 per bag (50 kg) to Rs 179.5 per bag during the quarter on strong demand growth. For the full year, the company’s sales were 19.97 million tonnes, 6.1% higher than the previous year.
PAT up 28.3% Profit after tax was up by 28.3% at Rs.431 crore against Rs.335.9 crore for the corresponding period the previous year. The improvements in realization was offset by a substantial increase in input costs. Raw material cost increase from Rs 17.85 per bag to Rs 22.25 per bag during the quarter. Power and fuel cost increased from Rs 27.20 per bag to Rs 31.75 per bag during the quarter.
Valuation
At the current price of Rs 780, the stock trades at $142 per tonne of its installed capacity of 20 million tonnes. We expect cement sector would enjoy premium in the near term as the commissioning of new capacity is expected to be delayed. This coupled with low inflation rates would help producers maintain pricing power. On a P/E basis, the stock is trading at 9.28x its CY08E EPS of Rs 84, which is at lower end of its historical average P/E. We are upgrading out rating to outperformer.
Other developments
• The grinding augmentation projects at Tikaria of 0.31 million tonnes went into commercial
production in Q1CY07. The project for expansion of capacity at Lakheri by 0.90 million tonnes
along with a new 25-MW captive power plant and the augmentation of grinding capacity at
Kymore by 0.50 million tonnes went into commercial production during the second quarter.
• The project for expansion of Bargarh plant to 2.24 million tonnes together with a 30 MW captive
power plant is progressing well and scheduled to be completed by the end of 2008. Similarly, the
project for augmentation at Madukkarai by 0.22 million tonnes is also expected to materialize by
this year end.
ACC’s sales for the quarter ended Dec 31, 2007 (Q4CY07) increased 10.8% to Rs 1763.73 crore against Rs 1592.33 in the corresponding quarter the previous year. The improvement was on account higher sales volumes and improved realizations. Realizations improved from Rs 155 per bag (50 kg) to Rs 179.5 per bag during the quarter on strong demand growth. For the full year, the company’s sales were 19.97 million tonnes, 6.1% higher than the previous year.
PAT up 28.3% Profit after tax was up by 28.3% at Rs.431 crore against Rs.335.9 crore for the corresponding period the previous year. The improvements in realization was offset by a substantial increase in input costs. Raw material cost increase from Rs 17.85 per bag to Rs 22.25 per bag during the quarter. Power and fuel cost increased from Rs 27.20 per bag to Rs 31.75 per bag during the quarter.
Valuation
At the current price of Rs 780, the stock trades at $142 per tonne of its installed capacity of 20 million tonnes. We expect cement sector would enjoy premium in the near term as the commissioning of new capacity is expected to be delayed. This coupled with low inflation rates would help producers maintain pricing power. On a P/E basis, the stock is trading at 9.28x its CY08E EPS of Rs 84, which is at lower end of its historical average P/E. We are upgrading out rating to outperformer.
Other developments
• The grinding augmentation projects at Tikaria of 0.31 million tonnes went into commercial
production in Q1CY07. The project for expansion of capacity at Lakheri by 0.90 million tonnes
along with a new 25-MW captive power plant and the augmentation of grinding capacity at
Kymore by 0.50 million tonnes went into commercial production during the second quarter.
• The project for expansion of Bargarh plant to 2.24 million tonnes together with a 30 MW captive
power plant is progressing well and scheduled to be completed by the end of 2008. Similarly, the
project for augmentation at Madukkarai by 0.22 million tonnes is also expected to materialize by
this year end.
I-FLEX SOLUTIONS (INR 1,111 )
Margins improve, but concerns persist (ACCUMULATE)
Margins improve, but concerns persist (ACCUMULATE)
Reuters : IFLX.BO / Bloomberg : IFLEX IN
Market Data
52-week range (INR) : 2,630 / 900 / Share in issue (mn) : 83.7
M cap (INR bn/USD mn) : 94.2 / 2,362.6 Avg. Daily Vol. BSE/NSE (‘000) : 64.0
Share Holding Pattern (%)
Promoters : 80.6 MFs, FIs & Banks : 1.9
Market Data
52-week range (INR) : 2,630 / 900 / Share in issue (mn) : 83.7
M cap (INR bn/USD mn) : 94.2 / 2,362.6 Avg. Daily Vol. BSE/NSE (‘000) : 64.0
Share Holding Pattern (%)
Promoters : 80.6 MFs, FIs & Banks : 1.9
FIIs : 0.4 Others : 17.1
i-flex Solutions’ (i-flex) Q3FY08 results were below expectations. Revenues, at INR 6.2 bn,
were up 7.6% Q-o-Q and 11.2% Y-o-Y, while net profits, at INR 1.07 bn, were up 22.1%
Q-o-Q and down 4.1% Y-o-Y. The products business, at INR 3.6 bn, grew 10% Q-o-Q, in
line with expectations, with major contribution (75%) from implementation and AMC fees;
license fees accounted for only 24% of product revenues, showing a moderate growth
trend. The lower proportion of high margin license fee contribution resulted in significantly
lower net profits for the quarter than our expectation. The license fees tank is about USD
81.2 mn, almost flattish from USD 80 mn in the previous quarter. The services business
has underperformed in Q3FY08 with revenues from this segment growing a modest 6% Qo-
Q. While EBITDA margins improved by 490bps to 21.5% vis-à-vis 16.6% in the previous
quarter, they still lag 22.6% posted in the corresponding quarter of the previous year.
i-flex’s services business is an under performer with margins being a concern and volatile.
Though Q3FY08 EBITDA margins have improved, we believe consistency coupled with
more sustainable growth across business lines is still missing, while KPO business, with
negative EBITDA, is yet to bear fruits.
The company saw superior growth in FY07 on the back of products catering to regulations
such as Sarbens Oxley (SOX), Basel II, and Anti-Money Laundering. We believe growth
has moderated as most of the big financial institutions and banks are in a matured phase
of implementing these solutions. Added to this, sub-prime and credit related issues in the
BFS segment in the US throw an uncertainty dimension in terms of new license sales.
Adjusting for the much weaker-than-expected product sales on back of U.S subprime
concerns and EBITDA volatility, we have revised our EPS estimates marginally for FY08E
and FY09E downwards ~3% to INR 45.05 and 5% % to INR 50.9, respectively based on
Indian GAAP.
i-flex’s cost management has been unimpressive; S,G&A costs still remain high at >25%
of revenues and EBITDA margins are volatile even on an expanding revenue base. The
topline growth has not translated into a sustainable bottom line growth, as the latter grew
at just half the rate of 36% CAGR during 2004-07.
At CMP of INR 1,095, the stock is trading at P/E of 24x and 21.5x on our FY08E and
FY09E earnings, respectively. We are maintaining our ‘ACCUMULATE’ recommendation
on the stock for the above given reasons. The only positive trigger we see at current levels
for the stock is open purchase offer by Oracle.
Key highlights
Revenues, at INR 6.2 bn, were up 7.6% Q-o-Q and 11.2% Y-o-Y. Net profit, at INR 1.07
bn, was up 22% Q-o-Q and down 4% Y-o-Y.
i-flex’s consolidated EBITDA margins increased by 490bps on account of a 1000bps
improvement in EBITDA margins of the services business. The expansion in services
margins was mainly driven by the benefits accrued to the company from economies of
scale, higher proportion of offshore revenues, and higher utilisation levels. Product margins,
in contrast, increased only 10bps despite a 38.0% increase in license fee revenues Q-o-Q.
The company added 14 new customers, including 9 for products business line.
DSO improved to 102 days from 110 days in the previous quarter.
During Q3FY08, i-flex’s revenues from the products business increased 10% sequentially,
driven by a 38.0% Q-o-Q increase in license revenues.
The share of license fees in total product revenues increased from 18.9% in Q2FY08 to
23.7% in Q3FY08.
The company signed USD 23.3 mn of new licenses in Q3FY08.
Its tank size increased only marginally from USD 80 mn to USD 81.2 mn.
Margins improve, but lack consistency i-flex‘s EBIDTA margins have been very erratic, both across product and services segments. While product line margins are trending towards the 27-30% range, services business margins have been in the downward mode since the past four quarters. We expect them to trend up in the 14-15% range in the near term. This should result in overall EBITDA margins of 20-22% for FY08E.
Outlook and valuations: concerns still persist; maintain ‘ACCUMULATE’
At CMP of INR 1,095, the stock is trading at PE of 24x and 21.5x on our FY08E and FY09E
revised earnings, respectively. The stock is trading at a forward PEG of over 1x, given our
CAGR earnings growth estimate of nearly 15% over FY07-10. We maintain our ‘ACCUMULATE’
recommendation, but we note that current valuations factor in i-flex’s continued leadership in
i-flex Solutions’ (i-flex) Q3FY08 results were below expectations. Revenues, at INR 6.2 bn,
were up 7.6% Q-o-Q and 11.2% Y-o-Y, while net profits, at INR 1.07 bn, were up 22.1%
Q-o-Q and down 4.1% Y-o-Y. The products business, at INR 3.6 bn, grew 10% Q-o-Q, in
line with expectations, with major contribution (75%) from implementation and AMC fees;
license fees accounted for only 24% of product revenues, showing a moderate growth
trend. The lower proportion of high margin license fee contribution resulted in significantly
lower net profits for the quarter than our expectation. The license fees tank is about USD
81.2 mn, almost flattish from USD 80 mn in the previous quarter. The services business
has underperformed in Q3FY08 with revenues from this segment growing a modest 6% Qo-
Q. While EBITDA margins improved by 490bps to 21.5% vis-à-vis 16.6% in the previous
quarter, they still lag 22.6% posted in the corresponding quarter of the previous year.
i-flex’s services business is an under performer with margins being a concern and volatile.
Though Q3FY08 EBITDA margins have improved, we believe consistency coupled with
more sustainable growth across business lines is still missing, while KPO business, with
negative EBITDA, is yet to bear fruits.
The company saw superior growth in FY07 on the back of products catering to regulations
such as Sarbens Oxley (SOX), Basel II, and Anti-Money Laundering. We believe growth
has moderated as most of the big financial institutions and banks are in a matured phase
of implementing these solutions. Added to this, sub-prime and credit related issues in the
BFS segment in the US throw an uncertainty dimension in terms of new license sales.
Adjusting for the much weaker-than-expected product sales on back of U.S subprime
concerns and EBITDA volatility, we have revised our EPS estimates marginally for FY08E
and FY09E downwards ~3% to INR 45.05 and 5% % to INR 50.9, respectively based on
Indian GAAP.
i-flex’s cost management has been unimpressive; S,G&A costs still remain high at >25%
of revenues and EBITDA margins are volatile even on an expanding revenue base. The
topline growth has not translated into a sustainable bottom line growth, as the latter grew
at just half the rate of 36% CAGR during 2004-07.
At CMP of INR 1,095, the stock is trading at P/E of 24x and 21.5x on our FY08E and
FY09E earnings, respectively. We are maintaining our ‘ACCUMULATE’ recommendation
on the stock for the above given reasons. The only positive trigger we see at current levels
for the stock is open purchase offer by Oracle.
Key highlights
Revenues, at INR 6.2 bn, were up 7.6% Q-o-Q and 11.2% Y-o-Y. Net profit, at INR 1.07
bn, was up 22% Q-o-Q and down 4% Y-o-Y.
i-flex’s consolidated EBITDA margins increased by 490bps on account of a 1000bps
improvement in EBITDA margins of the services business. The expansion in services
margins was mainly driven by the benefits accrued to the company from economies of
scale, higher proportion of offshore revenues, and higher utilisation levels. Product margins,
in contrast, increased only 10bps despite a 38.0% increase in license fee revenues Q-o-Q.
The company added 14 new customers, including 9 for products business line.
DSO improved to 102 days from 110 days in the previous quarter.
During Q3FY08, i-flex’s revenues from the products business increased 10% sequentially,
driven by a 38.0% Q-o-Q increase in license revenues.
The share of license fees in total product revenues increased from 18.9% in Q2FY08 to
23.7% in Q3FY08.
The company signed USD 23.3 mn of new licenses in Q3FY08.
Its tank size increased only marginally from USD 80 mn to USD 81.2 mn.
Margins improve, but lack consistency i-flex‘s EBIDTA margins have been very erratic, both across product and services segments. While product line margins are trending towards the 27-30% range, services business margins have been in the downward mode since the past four quarters. We expect them to trend up in the 14-15% range in the near term. This should result in overall EBITDA margins of 20-22% for FY08E.
Outlook and valuations: concerns still persist; maintain ‘ACCUMULATE’
At CMP of INR 1,095, the stock is trading at PE of 24x and 21.5x on our FY08E and FY09E
revised earnings, respectively. The stock is trading at a forward PEG of over 1x, given our
CAGR earnings growth estimate of nearly 15% over FY07-10. We maintain our ‘ACCUMULATE’
recommendation, but we note that current valuations factor in i-flex’s continued leadership in
the packaged banking products space.
Company Description
i-flex is a leading software vendor for the banking and financial services vertical. It provides
technology products, custom applications and services, consulting services, IT infrastructure
services, and KPO services focused specifically on the financial industry. The company’s product
suite comprises FLEXCUBE, DAYBREAK, Reveleus, CASTEK, and recently acquired Mantas’
behavior detection platform. Its core banking product, FLEXCUBE has been ranked world's No.1
selling core banking solution for four years in a row since 2002 by the UK-based International
Banking Systems (IBS). i-flex’s services business, focused on BFSI segment, has also grown rapidly and currently contributes ~42% to the total revenues. The company employs over 11,000 people and its revenues for the past12 months(TTM) stood at INR17. bn(USD 433 mn).
Investment Theme
i-flex is a clear leader in the Indian financial services space. Its strong product portfolio has an
extremely comprehensive range of solutions for the financial services industry. Besides developing a strong product suite, the company has been constantly expanding its capabilities through organic and inorganic routes. However the company has shown consistent lackluster performance on the operational side especially in S, G & A costs management.
Key Risks
Key risks to our investment theme include: (a) Open purchase offer by Oracle corp., (b) sustained slowdown in the US’ BFSI segment,, and (c) significant appreciation of rupee against US dollar, Euro, and GBP.
Company Description
i-flex is a leading software vendor for the banking and financial services vertical. It provides
technology products, custom applications and services, consulting services, IT infrastructure
services, and KPO services focused specifically on the financial industry. The company’s product
suite comprises FLEXCUBE, DAYBREAK, Reveleus, CASTEK, and recently acquired Mantas’
behavior detection platform. Its core banking product, FLEXCUBE has been ranked world's No.1
selling core banking solution for four years in a row since 2002 by the UK-based International
Banking Systems (IBS). i-flex’s services business, focused on BFSI segment, has also grown rapidly and currently contributes ~42% to the total revenues. The company employs over 11,000 people and its revenues for the past12 months(TTM) stood at INR17. bn(USD 433 mn).
Investment Theme
i-flex is a clear leader in the Indian financial services space. Its strong product portfolio has an
extremely comprehensive range of solutions for the financial services industry. Besides developing a strong product suite, the company has been constantly expanding its capabilities through organic and inorganic routes. However the company has shown consistent lackluster performance on the operational side especially in S, G & A costs management.
Key Risks
Key risks to our investment theme include: (a) Open purchase offer by Oracle corp., (b) sustained slowdown in the US’ BFSI segment,, and (c) significant appreciation of rupee against US dollar, Euro, and GBP.
Posts
No comments:
Post a Comment