NSE/BSE STOCK MARKET TIPS

Analysts' picks:Future Cap Holdings, HCL Infosystems, HCL Infosystems, Vishal Retail, Wipro
13 Aug, 2008,

Future Cap Holdings
cmp: Rs 360.50
target price: NA

Edelweiss has initiated coverage on Future Capital Holdings with an ‘accumulate’ rating as it feels that the company with its vertically-integrated model is likely to capture value across the chain in the high-growth consumption space.

“The company is building a vertically integrated capital-cum-agency business model through its investment advisory, financing and financial products distribution businesses,” says the report. The company is a focused investment advisor with $1.5 billion funds under advice in consumption-related sectors, it adds.

The brokerage expects its assets under management to grow to $5 billion by FY11E. It also expects the “company’s net revenues to grow seven-fold to Rs 7.7 billion in FY10E and profit after tax to grow to Rs 1.8 billion in FY10E”. The stock is trading at 12.6 times FY10E earnings and 2.5 times FY10E book, says the report. Edelweiss recommends investors to accumulate the stock at current levels from a long-term perspective (2-3 years).

HCL Infosystems
cmp: Rs 121.80
target price: Rs 155

CLSA has maintained an ‘outperform’ rating on HCL Infosystems while lowering the target price from Rs 230 to Rs 155 due to the further slowing down of PC sales. “HCL Infosystems’ sales are slowing down further and we now expect flat to negative year-on-year revenue growth in the segment in the June’08 quarter,” says the brokerage.

Around 30% of the company’s PC sales go to the retail segment, where the slowdown observed since late CY2007 has deepened, it says. Lower computer systems revenue assumptions are driving around 4-11% further cut in EPS estimates for FY08-10, it goes on to add.

According to CLSA, the demand of PC seems to be waning due to “cost-led 5-7% price hikes passed on by vendors, plus the lower financing options available (higher interest rates plus cut back in new loans from financiers)”. A 6.4% dividend yield provides some buffers to the stock, but upsides seem limited as a weak quarter looms, it adds.

Vishal Retail
cmp: Rs 415.90
target price: Rs 485

Kotak Institutional Equities has initiated coverage on Vishal Retail with a ‘add’ rating as it feels that the company would benefit from its ‘value’ model that has national scalability, thereby offering economies of scale.

“The company’s transformation to an integrated retailer dilutes its dependence on apparel while its emphasis on private labels is likely to support margins,” says the report.

It goes on to add that the company’s product mix is likely to under go significant changes in the near future, with negative margin impact of FMCG sales offset by higher share of private labels. The brokerage, however, feels that the “proposed rollout is aggressive” and that it would be “tempered by funding constraints”.

“We expect the total retail space to grow at 48% CAGR to 7 million sq ft by FY2011E, which is 30% lower than management estimates, after factoring in funding constraints,” says the report. Inflation and economic slowdown are concerns given the company’s concentration on lower income categories, it adds.

Wipro
cmp: Rs 433.30
target price: NA

ICICI Securities has maintained a ‘buy’ rating on Wipro even while viewing that the risk-reward is unfavourable at current valuations owing to deteriorating earnings visibility. The brokerage believes that Wipro’s upswing in the past weeks and the resulting par-valuations with Infosys is unjustified in the short term and expects profit booking at current levels.

“With FY09E and FY10E PE at 17.2 times and 14.1 times (versus 17 times and 14.9 times for Infosys), we believe Wipro will witness profit booking in the short term given lower earnings visibility and similar EPS CAGR through FY08-11E,” says the report.

As against a historically strong second quarter, Wipro’s Q2FY09 dollar-denominated revenue growth guidance indicates that the company is witnessing client-specific ramp downs in Q2FY09, it adds. ICICI Securities, however, believes that client-specific issues in material accounts (GM, Nokia-Siemens, Alcatel-Lucent) are likely to lead to a bounceback in revenue growth only post Q2FY09.