Accumulate CMC; target of Rs 1720: P Lilladher

Brokerage house Prabhudas Lilladher is bullish on CMC and has recommended 'Accumulate' rating on the stock with a price target of Rs 1,720 in its research report dated January 13, 2014.

January 20, 2014 / 16:13 IST

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Prabhudas Lilladher's report on CMC

"CMC reported Q3FY14 results below our & consensus expectation. The company reported revenue below our expectation; however, the margin was in-line with our expectation. The performance was led by Customer Service and Education & Training. We reiterate our ‘Accumulate’ rating, with a revised target price of Rs1,720 (from Rs1,710) as we tweak our estimates. The company reported 14 new client additions, but international business declined by 3.5 percent QoQ."

"CMC reported a flat revenue growth QoQ to Rs 5,609m (PLe: Rs5,767m, Cons: Rs5,826m). EBITDA margin expanded by 42bp to 16.2 percent (PLe: 16.2 percent, Cons: 15.8 percent) led by margin improvement in Customer Services and Education & Training. PAT grew by 4.9 percent to Rs706m (PLe: Rs711m, Cons: Rs 682m) due to lower ETR of 19.1 percent (Q2FY14: 20.1 percent, Q1FY14: 34.4 percent)."

"Sub-contracting cost declined 7.3 percent QoQ due to decline in ITES and international business. The weakness in international market has been attributed to seasonality. The client addition (49 clients) has been strong over the past three quarters. We expect the project ramp-ups would push the sub-contracting cost up. We see the margin expansion driven by offshore drive continues to remain elusive."

"CMC reported weak System Integration (-1.5 percent QoQ) and IT Enabled Services (-13.6 percent QoQ). CMC has delivered revenue decline of 3.5 percent QoQ international business."