>INFOSYS TECHNOLOGIES (JP MORGAN)

Beats 1QFy10 by a significant margin reinforcing our positive thesis; Guidance remains conservative; Remain positive

• Infosys reported good 1QFY10 results beating consensus and our estimates by a good margin. Revenues at Rs 54.7 billion, were down 3% Q/Q but 3% ahead of consensus. EBITDA margins jumped 50 bps Q/Q against expectations of 200 bps+ decline leading to EBITDA beat of 11% and EPS at Rs 26.7/share was 12% ahead of consensus. British Telecom (BT, largest client) continues to decline with top client US$ revenues down 20% Q/Q, volumes would have grown ex-BT in our view. With BT now contributing <5%> BT going forward.

• It is noteworthy that both volumes and pricing were better than expected - volumes were down just 1% Q/Q and reported US$ pricing was up 1% Q/Q (we believe constant currency prices were down ~1% Q/Q, ahead of consensus and indicating that price declines are largely behind us). Other Metrics were largely stable with a slight decline of ~945 people in the quarter, attrition flat, utilization down 1% Q/Q and industry segments largely inline.

• US$ FY10 guidance was kept unchanged (though lower end was moved up) but Rupee revenue/EPS guidance was lowered by 1%/5% driven by currency moves. It is interesting to note that guidance implies flat US$/Rupee revenues for the remaining 3 quarters of FY10. On EPS,
guidance implies down 10% for 2QFY10 followed by 4%/4% decline in 3Q/4QFY10. New FY10 EPS guidance is Rs 94.6-96.0.

• Implications: Infosys 1QFY10 performance reinforces our thesis that worst is behind us and business for offshore players is stabilizing. We expect similar performances from other large Indian IT players. Further, we believe that Infosys FY10 guidance is highly conservative largely due to tough macro environment and first ever guidance downgrade in FY09.

• Investment view: We remain positive on the sector and Infosys and expect significant consensus upgrades as business accelerated in 2H2009. We keep our FY10E EPS 10%+ above guidance and would advise investors to be Overweight the sector on a 6-9 month view.

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>INDIA EQUITY STRATEGY (CITI)

1QFY10 Earnings Preview—Negative Again, Third Quarter Running

■ Sensex profits to dip -7% yoy, and -6% qoq; metals the primary strain — The pain should continue – we expect India’s Sensex companies (ex-oil) to fall 7% yoy – this would be the third straight quarter of negative growth (-5%, -4% in 3Q09 and 4Q09). It’s a similar story with a wider universe—CIRA universe (138 companies.) would also see profits dip by 4.5% (-10% in Mar'09). If we include oil companies, which we exclude because of inconsistent/varying accounting treatment, it would look even weaker: -14% growth for Sensex and -11% for CIRA universe. Metals are a primary contributor to profit pressure (ex metals, profit growth at -2% for Sensex and +3.8% for CIRA universe).

■ The primary problem is sales growth (demand?), margins only a partial offset — 12 months ago, Sensex companies were generating sales growth of 35%yoy – this has slipped consistently but will now likely touch a pace of 2.8% (CIRA universe a slightly healthier 8%) and flat to negative qoq. Margins provide some support; rising qoq (falling yoy), on the back of some commodity and cost-cutting support, but not enough. Ex-metals, sales growth at 4.2%, and margins up 81bps yoy.

■ Leaders and Laggards — Banks (34%+) and Cement (23%) lead the pack with strong profit expectations while the long tail comprises Real estate (-87%), Metals (-39%) and Auto’s (-8.7%). More sectors will see earnings fall (10) than rise (6), reflecting broad-based pressures rather than concentrated ones.

■ Is this the earnings bottom? — The relative robust Sensex suggests so. And our revised FY10 expectations, +1.7% growth, would also suggest a nadir with backended growth in the current year. Let's wait for the results – an acceleration in earnings de-growth over three quarters is usually fairly challenging to reverse.

To see full report: INDIA EQUITY STRATEGY

>ASIA: RECOVERY DASHBOARD (DBS)

• It’s payback time. The V-shaped recovery in industrial production and exports in Asia over the past few months will show up in double-digit GDP growth in most of Asia in 2Q09, starting this week with China and Singapore

• China will report sequential GDP growth of 16%-17% (QoQ, saar). Singapore should report growth of 15%-16%

• Korea and Taiwan will report 2Q growth of 10%-15%; Thailand should grow by 12%. Indonesia’s growth will return to about 4%.

• With this, Asia’s output will take a big step back toward pre-crisis levels

• China’s June trade data show another 10% (MoM, sa) rise in import demand between May and June. Asia-8 exports to China grew by 8%

• Asia’s exports to the US are no longer falling, China and the US are now pulling Asia in the same direction

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>AVENTIS PHARMA LIMITED (PPFAS)

■ Aventis Pharma Ltd. (APL) is the Indian subsidiary of the global pharmaceutical giant Sanofi-Aventis S.A. The parent ranks amongst the top 3 pharmaceutical companies of the world & holds about 50% in Aventis Pharma Ltd. Sanofi-Aventis lends strong support to Aventis Pharma, in terms of new product introductions in the Indian domestic markets from its product basket & easy access to its strong & rich product pipeline. The parent has also looked at increasing its stake in the Indian subsidiary.

■ APL has transformed itself into a company catering to the chronic & critical-care therapeutic segments. It has several products that are market leaders within their respective segments & have grown at double digits over the years. APL is also achieving better results on the exports front year after year. We believe these products to continue their growth momentum & help the company to achieve higher profitability going forward.

■ With consistently growing brands in its product basket & new product launches every year, the company generates huge cash flows. As of December 2008, APL has net cash balance of Rs. 4,973.7 Mn. on its Balance Sheet, translating to Rs. 216.0 per share. This free cash can be used by the company for suitable acquisitions within the Indian pharma space. Over the years, APL has maintained a constant dividend payout in the range of 20-25%.

Valuations
We expect the company to achieve 8 - 10% CAGR growth in its top-line & bottom-line over the next couple of years. Besides, cash rich & debt free status adds to the defensive nature of the stock. At CMP of Rs. 1,110.0, the scrip trades at 14.3x CY09E & 12.9x CY10E earnings. We initiate coverage on the stock with an ACCUMULATE rating.

To see full report: AVENTIS PHARMA LIMITED