Investment opportunities in power utility, equipment companies
Overall market sentiment is likely positive this week with participants expecting a light Budget. The government has already announced a lot of policy measures through the ordinance route and we expect slight correction in the indices post the event. Corporate earnings season will end in a day or two. There has been a lot of pessimism with regards to infrastructure as a whole but some of the road companies reported good numbers. Similarly, ports are another infrastructure segment that reported good numbers in terms of volume as well as overall topline profitability growth. So the numbers indicate growth and investment opportunity into select infra space. The sector that is expected to be in focus is power and within that – power utility and power equipment manufacturers where some companies like Triveni Turbine, Techono Power have reported good numbers.
Centrum Wealth Management
Momentum will be maintained
Lupin’s net sales and profit increased smartly during the latest third quarter. The company’s formulation sales within India as well in export markets are healthy and growing as per our estimations. Although sales of active pharmaceutical ingredient (API) division dipped slightly overall performance is on the right track. The company’s research pipeline is evolving well and it expects significant developments in the dermatology and inhalation space in the quarters to come. With a strong product pipeline in the US, we expect the company to maintain the same growth in future also. Hence, we recommend ‘BUY’ rating for medium to long term investment.
Banks to clock 21% rise in earnings
Banks are expected to clock in 21.8 per cent (year-on-year) increase in earnings in 2014-15 with private sector banks outperforming PSU counterparts. Trading gains from bond yields, strong mark-up in investments and improving operating environment are some of the factors working in favour of banks in 2015. Yields on government securities have declined 66 basis points from 8.51 per cent in second quarter to 7.86 per cent in third quarter 2014-15. Trading gains from bond yields and strong rally in equity markets have positively impacted earnings in the second quarter of the year and in the third quarter also. Operating business environment for banks has improved significantly on the back of rate easing by the RBI. Select banks have cut lending and deposits rates indicating the starting of a rate easing cycle, better credit growth and windfall treasury gains. We believe that private banks will continue to deliver better earnings growth due to higher profitability. Earnings for PSU banks will occur from windfall gains on treasury book, containment in operating expenses, lower credit costs and higher net interest income. On the valuation front, the NIFTY sectoral index for banks has increased by 21 per cent in last quarter leaving banking stocks closer to their fair value.
K R Choksey
Healthy top line and margins
Hinduja Global Solutions (HGSL) revenues and profits grew better than our estimates due to one-off impact of lower taxes. Valuations are cheap and on the back of sustained growth it means that the company is heading for upward re-rating. The company’s revenues grew 11.5 per cent on the back of satisfactory performance in healthcare verticals although performance in telecom and consumer divisions was somewhat muted. HGSL lost a client in the telecom vertical but gained a new one in healthcare. The last quarter of the year is traditionally better for the company. We expect profit margins to improve in fourth quarter 2014-15 which is seasonally strong and escalated costs can be absorbed. Valuations at 5.9x 2015-16E are attractive, and we expect higher operating margins to drive a multiple re-rating.