>Hinduja Global Solutions Ltd: Positive outlook about IT-BPO

Nasscom expects export revenues from IT-BPO industry to grow at a CAGR of 13-15% and the domestic business to grow at CAGR of 15-17%. It is expected that Indian IT-BPO to generate the revenue of $ 73.1bn in FY2010, with the IT software and service industry for $ 63.7bn of
revenues. Also US president Obama’s $871 bn healthcare reform bill could also indirectly benefit the Indian IT-BPO providers which are focused in Insurance and claims processing domains. HGSL being the larger player in this Industry is likely to be beneficial with this robust growth in the sector.

■ Healthy Cashflow
The company has a cash balance of r 6.42bn, of which r 5.8bn is from the stake sale of its telecom company in FY07 and the balance from company’s internal generation. Company is also planning to increase its capacity and also planning to grow inorganically with the help of this surplus cash. Any acquisition by the company will lead to rerate the stock upwards.

■ HGSL pure-play BPO
HGSL derives about 75% of its revenue from voice services. Of this, 90- 95% is earned from inbound calls, making it more flexible business model at the time of weakness in the global economy.

■ Strong revenue visibility
The company currently has 15,936 seats across its global operations as on March 31, 2010. HGSL plans to add 1800 to 2100 seats by FY2011. This increase of capacity by the company is due to large demand in ITBPO. This includes plans to open a centre in Durgapur and moving into
an SEZ facility based out of Bangalore. This continuous growth in headcounts and increase in capacity gives strong revenue visibility going ahead.

Outlook
HGSL as on 31st march 2010 has cash worth r 312 per share on books. The stock at r 425 is currently trading at an attractive valuations of 7.3x and 6.8x FY11E and FY12E EPS of r 59.8 and r 63.08 respectively. Considering diversified business model, healthy cash flow and strong
revenue visibility we advise investors to buy the stock at cmp of r 428 with the target price of r 485 which is upside of 13% from current level. We expect company to grow at a CAGR of 12-14% for the next three years on the back of robust IT spending going ahead. We have projected the revenue of r 11,666mn in FY12 which is without taking consideration of any sort of acquisition; any news on acquisition will rerate the stock upwards. We expect the margins to be under pressure for the next 2 quarters due to salary hike and pricing pressure in domestic market.

To read the full report: HGSL

>ICICI BANK: Return to growth; Buy

■ Management meeting re-affirms our positive stance; Buy We hosted Ms. Chanda Kochhar, MD & CEO of ICICI Bk, in Hong Kong over the last two days. The bank has successfully delivered on the 4Cs strategy and is now seeking to leverage capital for growth. We believe the “return to growth” from 2HFY10 and a sustained focus on costs and profitability could see ROA expanding from <1.1%>

■ Key highlights from mgmt. meetings
A) While domestic loan growth for ICICI Bk should be at par with sector growth (20%), overseas growth is at +8-9%, vs. flat for FY11. Domestic loan growth may exceed sector loan growth in FY12, as pricing power emerges.

B) CASA to sustain at +40% vs. +34-35%, driven by recently added distribution.

C) Margins will definitely be stable, with an upward bias driven by rising share of deposits, higher share of CASA and rising overseas spreads.

D) NPL accretion to be low; minimal re-lapse on restructuring expected.

■ Better positioned for growth; est. +30% in FY11-12
We have tweaked our earnings by <1-3%>

To read the full report: ICICI BANK

>GSPL: 1QFY2011 Result Update

GSPL reported marginally lower-than-expected set of numbers for 1QFY2011 due to lower-than-expected transmission tariffs and volumes during the quarter. Bottom-line increased 30.6% yoy to Rs105.1cr (Rs80.5cr), which was below our expectation of Rs110cr. However, given the company’s strong growth potential and attractive valuations, we recommend an Accumulate rating on the stock.

Transmission volume surges, realisation dips: In 1QFY2011, GSPL recorded a 19.4% yoy jump in revenues to Rs252cr (Rs211cr), lower than our estimate of Rs266cr. Transmission volume, which surged 43.4% yoy to 36.3mmscmd (25.3mmscmd), came in below our expectation of 38mmscmd. Average transmission realisation decreased 16.7% yoy to Rs762/’000scm (Rs915/’000scm) and was below our expectation of Rs770/’000scm.

Outlook and Valuation: GSPL is a leveraged play on the increasing gas demand in the country’s hydrocarbon capital, Gujarat. Given the advantage of its location, GSPL is likely to be the key beneficiary of improving gas supplies in the country due to the rise in domestic production and LNG imports. We estimate GSPL’s volume growth to continue on favourable spot gas dynamics and ramp up of gas production from the KG-basin. We estimate GSPL's transmission volume to post
22.9% CAGR over FY2010-12E, from 32mmscmd to 48.3mmscmd. Our DCF-based target price stands at Rs120 in a base case scenario, where we have not assumed 30% PBT sharing with the Gujarat Government. In case GSPL starts contributing to GSEDS, our target price will be reduced to Rs84.

To read the full report: GSPL