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Last Updated : Jan 23, 2013 01:55 PM IST | Source: CNBC-TV18

IIFL's hits & misses: Mindtree a hit; Exide, Hero a miss

In an interview to CNBC-TV18, Amar Ambani, head of research, IIFL shared is reading and outlook on earnings reported by various companies. He spoke about some hits and misses from the earnings calendar so far.


In an interview to CNBC-TV18, Amar Ambani, head of research, IIFL shared is reading and outlook on earnings reported by various companies. He spoke about some hits and misses from the earnings calendar so far.


He expects Exide Industries to under perform for two more quarters and advises investment in the stock only for the long-term. “At 14 times FY14, the price target for Exide is at Rs 145 per share,” he adds.


He does not expect any kind of outperformance from Hero MotoCorp. The margins will stay low on back of lower margins from their new launches, heavy ad spends and also slowing down of two-wheeler sales for the entire industry, he explains.


He further adds, that results from MindTree were a hit and one can look at the stock from an investment point of view


Below is the edited transcript of his interview on CNBC-TV18


Q: Exide Industries has disappointed yet again. Have you put serious downgrades against that name?


A: The results were clearly disappointing. Although the revenue growth was inline with expectation but all the disappointment was on the margin front.  In terms of prices, they could not raise prices and they don’t have that pricing power with Original Equipment Manufacturers (OEMs) currently. Lead prices have risen.


Margins were also affected because of the adverse movement of currency. Going forward too, I don’t think there is a chance on the margin front that the company can do too well.  I don’t think there is any new trigger for this stock maybe in the next quarter or two quarters. However, from a long-term point, given the kind of price correction that has happened, if it falls another Rs 10 or Rs 15 then you are almost at the 52-week low or so. On a valuation point of view, you can bet on this company, if you are holding for atleast more than one and half to two years.


However, if you are just looking for a six-month or one year view then there is a downgrade on this stock in terms of earnings per share (EPS) and you can’t hope to make much return from hereon.


From a long-term point of view, Exide in the past has delivered good numbers and if you see a major price correction, then it could be a good chance to enter for longer term investors.


Q: So, do you have a price target for Exide?


A: Exide is currently trading at around 12 odd times or so, and the market price is around Rs 125 or so. At 14 times FY14, we are looking at Rs 145 or so kind of price target for this stock.


Q: Hero MotoCorp, the numbers disappointed and there also seems to be a lingering labour issue. How would you approach this stock now and what did you make of the numbers?


A: Results were a miss. Since two-wheeler sales have been slowing down for the entire industry, we did expect a muted number on the top-line front from Hero. However, there too margins surprised negatively, falling as much as 200-basis point (bps). Even for their new launches, the gross margins are pretty low. They spent heavily on advertising, and all this impacted their margins. I don’t think that is going to change in the coming quarters, so margins will stay low.


Overall, the fortunes of the two-wheeler industry also don’t look that great. We have seen month-after-month slowing of numbers, at the same time the competitive intensity is pretty high.


Hero MotoCorp and Bajaj Auto have a lot to lose against Honda, where in the 125cc also it is gaining momentum. At the same time Honda has a presence in scooters also, which is picking up and both Bajaj Auto and Hero MotoCorp are missing on that front. Then you also have the news about labour issues in Hero MotoCorp. While on the valuation front it is around 12 odd times or so, but I don’t think one can really look at this stock and any kind of outperformance in the coming months.


Q: How would you compare numbers of Polaris to MindTree, were MindTree number better in your book?


A: We don’t track Polaris but I just heard the management on your channel. The reason why most of us don’t track it is because you usually have two good quarters and two bad quarters from them and so one can’t make anything out of these numbers. One does'nt know which direction the company is going.


With regards to other IT companies, we started the result season with Infosys, which delivered surprisingly good numbers and MindTree too has not let markets down.


For MindTree, it was a seasonally weak quarter for the product engineering business, where you had shut downs etc, which degrew. Although that was expected, the company still grew at 2.5 percent revenue growth quarter-on-quarter (QoQ).


The IT services business for them grew at 4.5 percent or so, whcih more than made up for the seasonally weak performance in the product engineering services. There was also some contraction in the margins. According to my analyst it is more on the currency front, and on Selling, General & Administrative (SG&A) expenses going up. Otherwise, the core earnings before interest, tax, depreciation, and amortisation (EBITDA) of the company is still very much intact.

Going forward as well, if you look at the management guidance then you can expect a better quarter for product engineering services in second half. Generally, H2 of FY13 can be much better for this company compared to H1. Even FY14, as per the management guidance based on the momentum in deal pipelines, will be a good one for the company compared to this year. The results of MindTree were a hit and one can look at this stock for investment as well.

First Published on Jan 23, 2013 11:58 am
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