Accumulate CMC; target Rs 1350: P Lilladher

Prabhudas Lilladher is bullish on CMC and has recommended accumulate rating on the stock with a target price of Rs 1,350 in its January 11, 2013 research report.

"CMC reported Q3FY13 results exceeding our/consensus expectation. The revenue growth has been consistently supported by SI (CQGR of ~9% over the last three quarters), while ITES remained relatively muted in Q3FY13. The margin profile continues to be stable as reiterated by the management. Revenue beats expectations, margins in stable zone: CMC reported revenue growth of 7.5% QoQ to Rs4,926.8m (PLe: Rs4,720m, Cons: Rs4,812m). However, excluding SEZ, top-line grew by 8% QoQ to Rs4,824.9m. EBITDA margins improved by 19bps at 16.8% (PLe: 17%, Cons: 16.6%), on account of better volume growth accompanied with operational efficiency and productivity. PAT improved by 23.6% QoQ to Rs610.6m (PLe: Rs562m, Cons: Rs570m), on account of lower tax (Q3FY13: 23.7%, Q2FY13: 31.5%) & higher other income.

Offshore leverage to be pushed to FY14: The management is confident of maintaining EBITDA margin in 15-17% range despite rupee appreciation. We expect offshore leverage to kick in from Q1FY14 which will aid margin expansion (Q3FY13 Offshore share: 23% of International business).

Conference call highlights: 1) TCS' contribution at ~58% (Q2FY13: 56%) 2) CMC Americas grew 14% QoQ & 36% YoY in USD terms 3) CMC International business (~68% of revenue) grew 11% QoQ & 38% YoY 4) 26 new clients added in Q3FY13 (Q2FY13: 15) 5) Forex gain in Q3FY13 at Rs34m 6) DSO - 81 days (Q2FY13: 83) 7) Cash & Cash equivalents: Rs 2,180m (Investments: Rs1,130m) 8) Employee count: 11,224 (Permanent: 4,743) 9) 10) Capex: Rs220m (9MFY13: Rs670m) 11) Experiencing good traction in SI, Embedded & real time systems, focus on emerging trends i.e. big data, analytics, cloud etc.

Valuation & Recommendation: We expect the revenue momentum to stay in the mid-twenties, with a stable margin profile. We reiterate our Accumulate' rating, with a revised target price of Rs 1,350 (from Rs 1,270) as we revise our estimates up for better growth and margin expectation (Exhibit 2)," says Prabhudas Lilladher research report.

Public holding more than 90% in Indian cos

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