>NIIT TECHNOLOGIES LIMITED: Result Update Q1FY11

NIIT Tech reported a good first quarter. The YoY topline Growth is 33% and QoQ growth is 21%. The spike is on account of BSF order being included. Excluding the order the growth is still at a YoY level of 21%.

The company has bagged a good chunk of domestic business. They are also participating in the R-APDRP program just like other IT players, as a System Integrator. Overall 9% of revenue contribution is through the Govt Segment. The longer term implication of this would be a slightly reduced margin since Govt contracts are price competitive. Also, there would be a general increase in the average number of receivable days.

The company is clocking really good capacity utilization of about 82% consistently. This might be because of strictly controlled hiring in order to maintain the margin.

Cash position of the company stands at Rs. 217.9 crores as of June 2010. The company does have an exposure to the European market, and has shown a decline of ~3% this quarter. How it impacts the longer term revenue from EU is to be seen.

Valuation:
There has been no change in the assumptions so far and the business is being valued at less than 2 times sales, which seems to be fair at CMP Rs. 193.0. The business isn't ridiculously priced to merit a sell call either. We recommend to keep holding on to it.

Although Mphasis still looks good at CMP Rs. 607.0

To read the full report: NIIT TECHNOLOGIES

>CRISIL: RESULT UPDATE Q2CY10 (PPFAS)

CRISIL Limited has reported a flat financial performance by reporting 11% rise in consolidated total income for the quarter ended June 2010 to Rs. 1,506Mn. from Rs. 1,357Mn. in June 2009. Margins have declined on account of increased headcount and rental costs. Currently the valuations are steep at 24x CY10E earnings. We maintain our REDUCE rating on the scrip.

Performance Highlights:
Revenues from rating services have improved by 17% Y-Y to Rs. 710Mn. for the quarter ended Q2CY10 as against Rs. 608Mn. for the quarter ended Q2CY09, driven by Bank Loan ratings (BLR) & Small & Medium Enterprise ratings (SME). The company announced its 4000th BLR during the quarter.

Research services segment, recorded a 16% Y-Y growth to Rs. 666Mn. in the current quarter v/s Rs. 572Mn. for the corresponding quarter of last year. On the other hand, revenues from advisory services recorded a de-growth of 26% Y-Y at Rs. 131Mn for Q2CY10 as against Rs. 176Mn. for Q2CY09.

CRISIL has added ~10-11% employees on roll, resulting in a sharp increase in staff costs. Rental costs have also increased on account of shifting to a new rented place. As a % of sales, staff and rental costs have risen by 365bps and 209bps respectively. As a result, operating margins (OPM) have been hit by 664bps to 31% for the quarter ended June 2010 as against 38% for the quarter ended June 2009.

Reported net profit declined by 13% Y-Y to Rs. 333Mn. for Q2CY10 v/s Rs. 383Mn. for Q2CY09. This was on account of forex loss of Rs. 6.4Mn. and gratuity expense of Rs. 36Mn. After adjusting for the same, PAT declined by 6% Y-Y to Rs. 370Mn.

Valuations:
At CMP of Rs. 5,845.6/-, CRISIL is quoting at 24x CY10E and 22x CY11E earnings. We have kept our estimates unchanged for CY10 and CY11 and believe that the valuations are stretched. Hence, we maintain our REDUCE rating on the scrip.

To read the full report: CRISIL

>EXIDE INDUSTRIES LIMITED (PPFAS)

Improving OE and Replacement Sales to sustain the growth momentum
Exide Industries Ltd. (EIL) has clocked a 92% Y-Y bottom line growth to Rs. 1,497Mn for Q2FY10 v/s Rs. 778.4Mn for Q2FY09, on the back of falling raw material costs. The company's top line growth was flat at 5.5% Y-Y to Rs. 9,503Mn (Rs. 9,004Mn), which came ahead of our expectations. Improving growth in OE and Replacement sales aided EIL's Auto Battery segment in clocking better growth during the quarter, this was also supported by the robust growth in its Industrial Battery segment.

The strong growth in profits was attributed to a 1,142bps fall in raw material to sales ratio owing to a huge decline in lead prices and an exchange gain of Rs. 20.4Mn for Q210 as against a loss of Rs. 29.7Mn for Q209. The fall in raw material costs pulled up the operating margins to 26% for Q210 v/s 16.5% for the corresponding previous quarter.

Other Highlights:
■ Operating Profit was up by 66.5% to Rs. 2,471Mn for Q210 v/s Rs. 1,484Mn for Q209

■ Margin Increase was also on account of lower imports and growing backward integration, i.e., captive sourcing of lead and lead alloys from Tandon Metals and Leadage Alloys India which EILhas acquired during the year

■ This acquisition will augment availability of indigenous raw materials and also facilitate the company in recycling scrap batteries

■ Further on, Exide plans to increase its Automotive and Industrial battery capacity by 50%, at an investment of Rs. 4,500-5,000Mn over the next 10-12months.

Outlook and Valuation:
The unprecedented growth reported in the past, huge upcoming capex signaling volume growth in the business and focus on new products catering to different industries will ensure improved performance by the company. The backward integration and expansion will also support the growth in business.

We upgrade our EPS estimates of Exide to Rs. 5.5/- (earlier Rs. 4.4/-) and to Rs. 6.2/- (earlier Rs. 5.3/-) for FY10E and FY11E respectively. At the CMPof Rs. 106.9/-, the stock is trading at 17.3x FY11E earnings (net of insurance value). We recommend HOLD on the scrip with a SOTP based revised target price of Rs. 126.8/- (19x FY11E earnings + Rs. 9.3/- value of Exide's investment in ING Vysya Life Insurance).

To see the full report: EXIDE INDUSTRIES LIMITED

>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

>Fulford (India) Limited (PPFAS)

Steady Operating Performance
Fulford (India) Ltd. has been a steady performer in terms of top-line & bottom-line growth, over the past several years. The company has consistently achieved growth in the range of 10 - 13% CAGR over CY04-CY08 period. Going forward, we expect the company to maintain similar growth rates of 10.3% & 14.4% CAGR in top-line & bottom-line respectively, over CY08CY10E period.

Strong & Committed Parent
Fulford is a 54% subsidiary of Schering-Plogh Corporation, USA, a research-based company operating worldwide. The parent company is committed to the growth of its Indian subsidiary, which can be seen from:

- The new product launches almost every year

- Increasing its stake through prefential allotment of shares, followed by an open offer.

Expectation of an Open Offer
Fulford's parent company - Schering-Plough is getting merged with Merck & Co. Inc. USA. Fulford is a 54% listed Indian subsidiary of Schering-Plough, whereas Merck has a wholly owned unlisted subsidiary - MSD Pharmaceuticals Private Ltd. After the successful completion of the merger, there are chances of Merck coming up with an open offer for shares of the listed entity Fulford (India) Ltd. That would be a very positive trigger for the stock.

Valuations
We expect Fulford (India) Ltd. to achieve a growth of 10 - 13% CAGR over CY08-CY10E period, both in terms of its top-line & bottom line. Besides, the company is cash-rich & completely debt-free. We expect the company to have approximately Rs. 280 per share as Cash & cash equivalents on its Balance Sheet as of December 2008. At CMP of Rs. 365, the script trades at 6.1x CY09 & 5.5x CY10E earnings. We initiate coverage with a BUY on the stock.

To see full report: FULFORD