Accumulate CMC; target of Rs 1360: P Lilladher
Brokerage house Prabhudas Lilladher is bullish on CMC and has recommended 'Accumulate' rating on the stock with a price target of Rs 1,360 in its research report dated July 15, 2013.
July 17, 2013 / 14:46 IST
Prabhudas Lilladher's report on CMC
"CMC reported Q1FY14 results well below our/consensus expectation. The result disappointed on both revenue & PAT due to the weak performance of the domestic business. The performance was ahead of expectation in System Integration & ITES. We reiterate our 'Accumulate' rating, with a revised target price of Rs1,360 (from Rs1,430) as we revise our estimates downwards for weaker growth expectation (Exhibit 2). In-line with our expectation the turnkey project that got over in Q4FY13 had bearing on the earning in Q1FY14.""CMC reported revenue de-growth of 7.1 percent QoQ to Rs4,866m (PLe: Rs5,449m, Cons: Rs5,428m). However, EBITDA margins expanded by 22bps at 15.8 percent (PLe: 16 percent, Cons: 16.2 percent) despite an uptick in sub-contracting costs due to declining contribution from the low margin CS business. PAT de-grew by 13.4 percent to Rs531.3m (PLe: Rs675m, Cons: Rs674m) due to higher than expected ETR of 34 percent (Q4FY13: 22 percent).""CMC would have to clock a quarterly growth of ~7 percent to achieve the lower end of the guidance which in our opinion is an uphill task considering the current volatile business environment.""CMC witnessed completion of turnkey project in Q4FY13, hence, revenue in Customer Service declined by 38 percent QoQ to Rs967mn. The lumpy nature of CS business resulted in decline in CMC Standalone (predominantly India business) by 18.8 percent QoQ to Rs2,725mn.Worth exploring?: 1) Reason for decline in SEZ revenue? 2) How is our endeavour to push Offshore is progressing? 3) Status of ramp-ups?Valuation & Recommendation: "We expect the revenue momentum to stay in the mid-teens (in rupee term), with a stable margin profile. We reiterate
'Accumulate', with a target price of Rs 1,360, 14x FY14E earnings estimates," says Prabhudas Lilladher research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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