TCS

Research: Macquarie

Rating: Outperform

CMP: Rs 1,275 (Face Value Rs 1)

12-Month price target: Rs 1,672

TCS' products business is relatively lesser known in the industry, but it is comparable to the banking products of Infosys and i-flex. In FY06,

With over 200 clients and the world's largest core banking deployment (Bank of China), the segment's contribution to TCS' global revenue is expected to rise to 5% by FY10. TCS is expected to effectively cushion the impact of salary hikes on margins, largely maintaining margins at the current level of 25% till FY11, and then falling to 20% by FY13.

Macquarie expects the tailwinds from various margin levers to cancel the headwinds from salary hikes and recommends an 'outperform' on TCS, given its better-than-peer performance on historical PAT growth, its lower projected price to earnings ratio (PER) for FY08 and almost zero debt. TCS can deliver higher PAT growth (CAGR of 42%) in the three fiscal years through FY09E.

Tata Power

Research: UTI Securities

Rating: Market performer

CMP: Rs 573 (Face value Rs 10)

12-Month price target: Rs 643

Tata Power is set to treble its size over the next six years with 4,690 mw of projects under construction, including the Mundhra UMPP, expansion in Mumbai licence area, as well as ramping up of captive power capacities for Tata Steel at Jojobera and Haldia.

In the past, due to limited scope in the power industry, TPC diversified into other businesses and invested in Tata group's telecom entities. With the emergence of investment options in the electricity industry, the company will unlock value from these investments to fund its power capex.

The Mumbai licence area, comprising the bulk of its present generation business, operates at RoE level of 14%. After commercialisation of these projects, the overall RoE will be 12.2% in FY14, against FY06 adjusted RoE of 7.8%. UTI Securities initiates coverage with a 'market performer' rating and a price target of Rs 643.

HLL

Research: SSKI

Rating: Neutral

CMP: Rs 187 (Face value Rs 1)

12-Month price target: NA

HLL reported a disappointing set of numbers, with Q4 CY06 revenue growth of 6.1% to Rs 3,160 crore and PAT growth of 10% to Rs 480 crore. While the soaps and detergents business grew 10% during Q4 CY06, the personal products portfolio posted an abysmally poor growth of 2.5% (marred by a delayed winter and no growth in the hair care category).

As low-margin soaps, detergents and foods operations surpass growth in personal products, EBITDA margins in Q4 CY06 dipped by 36 bps to 15.84%. Market share sustenance is at a high cost. HLL's advertising and sales promotion spends grew 27%.

While the management believes this is brand investment, it indicates increasing competitive pressure and dilution of brand equity. Going forward, growth within the existing business is bound to come at a high price, thereby defeating the hypothesis of profitable growth. In a bid to reach out to small niches in existing categories, HLL is missing out on the larger market pie.

Clutch Auto

Research: Angel Broking

Rating: Buy

CMP: Rs 147 (Face value Rs 10)

12-Month price target: Rs 181

Clutch Auto (CAL) is a strong player in the domestic replacement CV and tractor clutch segment, with a market share of around 60%. Replacement demand is expected to drive growth in the domestic market, where the replacement market's revenue contribution to total sales is higher than OEM contribution.

In FY06, the company reported a growth of 104.5% in export revenues. CAL is also targeting the overseas market with an export turnover of Rs 100 crore by FY08. CAL's export revenue is set to grow at a CAGR of around 40% between FY06 and FY09 from Rs 48.2 crore to Rs 133.1 crore.

Robust topline growth with increase in the share of exports is expected to result in substantial growth in bottomlines for the next 2-3 years. At the current market price, the stock is trading at a P/E of 9.2x FY08E earnings and 7.7x FY09E earnings. It appears attractive at EV/EBIDTA of 5.2x FY08E.

Voltas

Research: Anand Rathi

Rating: Buy

CMP: Rs 94 (Face value Rs 1)

12-Month price target: Rs 135

Voltas is set to benefit from the Indian growth story by offering its electro-mechanical products and services (EMPS) for commercial premises of various industries, including IT and ITES, retail, infrastructure and media.

The current order book position of Voltas in the EMPS space is around Rs 2,430 crore, mainly on account of strong order flows from the Middle East. The domestic order book is around Rs 600 crore, executable within 6-9 months, while the remaining orders of Rs 1,830 crore are from international operations with an average execution cycle of 24 months.

The company has 2-3 acres of land in Mumbai and another 32 acres in Hyderabad near the airport. Any commercial exploitation of this land bank will unlock value for the company.

OPMs are expected to improve from 5.7% in FY06 to 6.7%, driven by easing of raw material prices for the unitary cooling products segment and higher margins for EPMS. At current market price, the stock is trading at a P/E of 34.8x and 23.0x and EV/EBITDA of 19.9x and 13.6x FY07 and FY08 earnings estimates, respectively.

Hexaware

Research: EMKAY

Rating: Buy

CMP: Rs 162 (Face Value Rs 2)

12-Month price target: Rs 226

Hexaware posted sequential revenue growth of 6.8% to Rs 240 crore, slightly below the expectations of Rs 249 crore. Organic revenue growth in rupee terms was subdued at 3% QoQ, the balance being contributed by consolidation of FocusFrame with effect from November 28, '06, to the tune of Rs 9 crore.

EBITDA margins fell by 110 bps to 14.9%, driven by rupee appreciation, higher SGA expenses and one-time expense of $0.25 million due to consolidation of FocusFrame. EBITDA was down by 1% QoQ to Rs 35.7 crore, below expectations of Rs 39.9 crore. PAT was down by 2.7% QoQ to Rs 33.7 crore, below the company's guidance of Rs 35.7 crore, as well as the expectations of Rs 37.8 crore.

This will translate into annual revenues of Rs 848 crore (25% growth YoY), EBITDA of Rs 132 crore (21% growth YoY) and net profit of Rs 124 crore (36% growth YoY). Forward EPS works out to Rs 9.1 for CY06, below expectations of Rs 9.3.

Disclaimer: Investor's Guide does not accept responsibility for consequences of financial decisions taken by readers on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us.