Gladiator Stocks: Series 5.0 Infosys Ltd (INFTEC) (CMP- | 3810.00)

Gladiator Stocks
October 10, 2014
Time frame: 6 months
Key Technical Data
Recommended Price
3810-3750
Price Target
4490.00
Stoploss
3490.00
52 Week High
3892.95
52 Week Low
2880.00
50 days EMA
3605.00
200 days EMA
3282.00
52 Week EMA
3236.00
*Recommendation given on i-click to gain on October 10,
2014 at 09:33
Stock price movement vs. BSE IT
10,700
3,750
10,200
3,550
9,700
Infosys
Oct-14
Sep-14
Aug-14
Jul-14
Mar-14
Jun-14
8,200
Apr-14
8,700
2,950
May-14
9,200
3,150
Feb-14
3,350
BSEIT
Price performance over last five years
30%
32%
55%
-20%
-16%
2011
2012
19%
-50%
2010
Year
2013
YTD
2014
Gladiator Stocks: Series 5.0
Infosys Ltd (INFTEC)
(CMP- | 3810.00)
Technical view
Strategy: Buy Infosys Ltd in the range of | 3810.00–3750.00 for a target price of | 4490.00 with a stop loss below
| 3490.00 on a closing basis
The share price of Infosys remains in a well defined up trend on the long term chart and emerged as a key performer
over the past few quarters against benchmarks and even within the IT pack. The share price got a further shot in the
arm after it came out with better-than-expected earnings on Friday triggering the next leg of the overall up trend.
Key technical observations
¾ The share price zoomed to new life-time highs on Friday signalling the end of the short-term corrective phase and
resumption of the next up leg within the primary up trend offering a fresh entry opportunity
¾ While long term charts clearly exhibit a structural bull market for the stock, a closer look reveals that since May
2014 lows, the rallies are getting bigger and faster while corrections have been shallow and time consuming
affairs. Such price/time behaviour depicts a positive price structure and highlights the underlying bullish trend
¾ Recently, after the July – August rally of (| 3188-3795) consuming 32 trading sessions, the short-term correction
consumed 21 sessions retracing the rally by only 38.2% validating the positive structure. More importantly, the
entire correction panned out above the key retracement, which coincided with its March 2014 peak, which has
reversed its role from a resistance to a support exhibiting the change of polarity principle
¾ The volume behaviour is supportive of the bull market phenomenon as volumes during the current week doubled
their 10-week average of 50 lakh shares supporting sustainability of the up trend
¾ Among oscillators, the 14-week RSI is trending above the bullish threshold of 40. It is seen diverging from its nine
period average highlighting the bullish momentum in the stock price from a medium-term perspective
Conclusion: Based on the various technical observations listed above, we believe the stock is set for its next up leg
towards our target area of | 4500 being the 161.8% extension of the previous up move from | 3188.00 - | 3795.00 as
projected from the recent higher bottom of | 3570.00
ICICI Securities Ltd. | Retail Equity Research
Exhibit 1: Infosys Ltd – Weekly Bar Chart
161.8% extension @ 4554
The share price is in a secular up trend and has recently resolved higher from
short term corrective phase. The stock price is expected to rally towards
4500 mark being 161.8% extension of July-August rally
3795
3548
38.2% retracement
@ 3570
3188
Analyst
2764
Dharmesh Shah
[email protected]
Nitin Kunte, CMT
nitin.kunte@ icicisecurities.com
52-week EMA
1953
Weekly volumes doubled the 10 week average of 50 lac shares during current week
highlighting massive participation in an up trend and boosts sustainability of the trend
Weekly RSI is trending up within positive territory and diverging from its
9 period average indicating bullish momentum from medium term
Source: Bloomberg, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 2
Stock Data
Bloomberg/Reuters Code
Sensex
INFO in Equity/Infy.NS
26,945
Average Volumes (yearly)
Market cap (| crore)
104,541
| 222851 crore
52 week H/L (|)
Equity capital
Fundamental view
•
Q2 marked the first earnings address of Dr Sikka who impressively laid the road ahead for building Infosys into
a next generation services company. The company aspires to regain the bellwether status by achieving
consistent profitable growth through the use of innovation, newer technologies, automation and employee reskilling. The company also plans to renew each and every services currently being offered and augment them
with new services along new technologies such as big data and analytics. From an FY15E perspective, though
Infosys maintained its 7-9% YoY growth guidance, we believe it has its work cut out in achieving the same.
The rationale is with 2.3% growth in Q1 and 3.1% in Q2, Infosys now needs 2.6% CQGR in H2 to achieve the
mid-point of its guidance vs. 3.2%, had it delivered 2.5% QoQ growth in Q2, in line with our estimate. Though
Q3 and Q4 are seasonally soft, the management noted that the large deal wins and client additions could aid
revenue growth
•
At 26.1%, Q2FY15 EBIT margins were ahead of 25.5% led by operational efficiency (offshoring and utilisation
benefit). Infosys highlighted that the margin could range in the narrow band of 25% +/- 1% as it would
reinvest efficiency gains into rebuilding sales efforts and building capabilities for newer technologies. Recall,
during FY09-14, EBIT margins declined 564 bps to 24% vs. 29.7% in FY09 primarily led by deterioration in
operational metrics such as utilisation ex-trainees, which declined 510 bps YoY to 77.4% in FY14 and attrition,
which rose 760 bps to 18.7% in FY14 vs. 11.1% in FY09. Utilisation continues to improve 220 bps QoQ to
82.3%, above its FY09-14 average of 74.1%. LTM attrition continues to remain at elevated levels and rose 60
bps to 20.1%. However, the management highlighted that employee engagement initiatives including
promotions, 100% of variable payment and re-skilling to adapt to newer technologies has moderated attrition
on an MoM basis during the quarter. We expect FY15E margins to improve 150 bps YoY to 25.5%
•
We estimate Infosys will report revenue, EPS CAGR of 8%, 12% over FY14-16E (with average 25.7% EBIT
margins in FY15-16E), slower than 18.2%, 12.2% reported during FY09-14 along with average 28.1% margins,
led by improving operating metrics, focus on client mining and a healthy deal pipeline
3893 / 2880
| 286 crore
Promoter Stake (%)
FII Holding (%)
15.9
41.6
DII Holding (%)
14.1
Financial Highlights
| crores
FY13
FY14
FY15E
FY16E
Net Sales
40,352
50,133
53,940
58,876
EBITDA
11,551
13,415
14,734
16,275
Net Profit
9,421
10,648
11,939
13,314
EPS (|)
164.9
186.4
209.0
233.0
Source: Company, ICICIdirect.com Research
Valuation summary
FY13
FY14
FY15E
FY16E
P/E
23.7
20.9
18.7
16.7
EV / EBITDA
16.4
14.1
12.8
11.6
5.6
4.7
4.1
3.5
RoNW (%)
25.7
24.4
23.4
22.7
RoCE (%)
28.5
27.6
26.9
25.9
P/BV
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 3
Simplex Infra (SIMCON)
Time frame: 6 months
Key Technical Data
Recommended Price
257-251
Price Target
310.00
Stoploss
224.00
52 Week High
392.25
52 Week Low
49.65
50 days EMA
264.00
200 days EMA
219.00
52 Week EMA
207.00
*Recommendation given on i-click to gain on 10th October
2014 at 09:58
Stock price movement vs. BSE Small cap Index
380
11,000
330
10,000
280
9,000
230
Simplex Infra
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
6,000
Apr-14
7,000
80
Mar-14
8,000
130
Feb-14
180
BSE Smallcap
Price performance over last five years
201%
150%
70%
-10%
-26%
-56%
2010
2011
43%
-66%
(CMP- | 257.00)
Technical view
Strategy: Buy Simplex Infra in the range of | 257.00–251.00 for a target price of | 310.00 with a stop loss below
| 224.00 on a closing basis
Key technical observations
¾ The share price of Simplex Infra made a sharp rebound from the key supports placed at ~| 205 during the
current week. In the process, it pierced through the short-term down trend resistance (placed at ~ | 256), thereby
signalling the end of the medium-term correction and resumption of the next uptrend led within the well
established uptrend. This offers a fresh opportunity to enter the stock with a favourable risk-reward set-up
¾ Earlier, the stock price retraced its February-July advance (80-391) by 61.8% over the past 13 weeks and is seen
finding buying support near the key support of | 200. The significant support of ~ | 200 was formed by the
confluence of the key Fibonacci retracement (at | 200) along with rising 52-week EMA (placed at | 207) and rising
trend line drawn off September 2013 lows and running through November 2013 and February 2014 lows
(currently placed at | 210). During the current week, the price action validated the support and made a sharp rally
resulting in a Bullish Key reversal Bar on a weekly time frame
¾ The volume behaviour is in line with the bull market assumption where rallies are supported by volumes. During
the current week, volumes surpassed their 50-week average of 2.15 lakh shares by 150% while the corrective
decline of the past 13 weeks witnessed subdued participation
¾ Among oscillators, the 14-week RSI is seen bouncing off its own support near reading of 40 validating the bullish
momentum from a medium-term perspective
Conclusion: Based on the various technical observations listed above, we believe the stock is set for its next up leg
and is likely to head towards the August 2014 swing highs placed at | 318 offering a favourable risk-reward set-up to
ride the bull trend.
-90%
2012
Year
2013
YTD
2014
ICICI Securities Ltd. | Retail Equity Research
Page 4
Exhibit 2: Simplex Infra – Weekly Bar Chart (Log scale)
391
The stock price seen taking support at key support
and breached short term resistance signalling
resumption of up trend
Stock price is expected to rally towards August
2014 high of 318 in the near term
318
61.8% @ 200
Bullish Key reversal
at key support
80
11
While corrective phases witness low volume activity, rallies have been on
the back of far greater participation highlighting bull market phenomenon
Weekly RSI is seen bouncing off its support at reading of 40
Which have generated significant rallies in the past
Source: Bloomberg, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 5
Fundamental View
Stock Data
Particular
Market Capitalization
Total Debt
Cash
EV
52 week H/L (|)
Equity capital
Face value
FII Holding (%)
DII Holding (%)
Amount
| 1276 Crore
| 2928 Crore
| 31 Crore
| 4173 Crore
392 / 50
| 9.9 Crore
|2
11.6
18.9
•
Simplex Infrastructure (SIL) is one of the leading and oldest companies in the construction space, with
expertise in specialised work such as piling, urban utilities, etc. SIL has an excellent track record of successful
project implementation across a wide range of projects ranging from housing & building to power, ports,
railways and roads. The company also has a very well known clientele and gets repeat orders from its clients.
Unlike other construction players, we also like SIL given its focused approach on the cash contract in the
construction space rather than committing huge equity towards the BOT project portfolio
•
SIL currently has a strong and well diversfied order book of | 16,128 crore, 3.0x book to bill providing strong
revenue visiblity over the next few years. In terms of segments, buildings & housing constitutes ~ 40%
followed by roads, railways and bridges (~27%) and power (~12%). SIL had an order inflow of ~ | 2,200 crore
in Q1FY15, which bodes well for execution, going ahead. We also highlight that SIL will be a key beneficiary
from the anticipated recovery in the investment cycle given its higher exposure towards the private sector
(~52% of the order book). The company indicated that it expects the topline growth of ~10% and order intake
of ~| 7000-8000 crore in FY15, which again would depend on how the macroeconomic recovery shapes up
•
SIL has a BOT road portfolio of three projects where its equity commitement is very low compared to other
construction players. We highlight that SIL has only invested ~| 100 crore among BOT projects, which is only
~6% of its net worth, significantly lower than that of its peers. In terms of BOT project details, Bhubaneswar
Chandikol is complete (invested equity of | 65 crore) and is currently tolling at | 25 lakh/day. The company
indicated it has applied for the completion of a bridge, post which the toll/day would rise to | 35/day. For the
remaining projects (Mahulia Kharagpur & Jowai Meghalia), the company had not yet received land and other
clearances. Consequently, it has served a notice for amicable termination of project. Hence, we derive comfort
from this stand of SIL, as it ensures no equity commitment towards the BOT projects portfolio, ahead
•
In terms of financials, we anticipate SIL’s revenues will grow at a CAGR of 14.2% to | 7189 crore during FY1416E on the back of a strong order book and a pick-up in execution given the anticipated recovery in the
investment cycle. This coupled with stable margins and leverage, lends us comfort that its net profit will grow
at 49.7% CAGR to | 135.8 crore during FY14-16E
•
At the CMP, the stock is trading at 9.5x FY16 PE, 0.8x FY16 P/BV and 5.5x FY16 EV/ EBITDA. Considering its
strong well diversified order book and relatively better quality of management and execution capabilities
ensuring 49.7% CAGR in earning during FY14-16E, we believe SIL’s current valuation is very attractive
Stock return (%)
Return (%)
Simplex Infra
Supreme Infra
NBCC
1M
(10.6)
(10.6)
35.6
3M
(25.1)
(24.5)
75.2
6M
60.6
38.7
274.0
12M
389.0
85.7
525.0
FY11
10.4
8.7
1.2
12.0
12.7
FY12
14.3
7.9
1.1
7.8
11.4
FY13
22.8
7.8
1.0
4.8
9.3
FY14
21.1
7.1
0.9
4.5
9.3
FY12
5,897.6
527.7
89.2
18.0
FY13
5,820.8
538.1
59.8
11.3
FY14
5,513.0
589.8
60.6
12.2
Exhibit 1: Key metrics
(x)
P/E
EV / EBITDA
P/BV
RoNW (%)
RoCE (%)
FY10
10.4
9.6
1.3
13.1
12.8
Exhibit 2: Financial highlights
(| Crore)
Net Sales
EBITDA
Net Profit
EPS (|)
FY10
4,443.5
433.7
122.6
24.7
FY11
4,691.2
478.2
123.2
24.8
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 6
Strategy Follow up
Date
Scrip
19-Sep
19-Sep
16-Sep
16-Sep
8-Sep
8-Sep
9-Jun
9-Jun
9-Jun
9-Jun
9-Jun
9-Jun
9-Jun
9-Jun
9-Jun
9-Jun
9-Jun
UltraTech CementCash
Heidelberg CemenCash
KPR Mill
Cash
Repro
Cash
EPC Industries Cash
Phoenix lamp
Cash
SKF
Cash
Aban
Cash
BEL
Cash
SBI
Cash
Federal Bank
Cash
Essel Propack
Cash
India Cements Cash
Cummins
Cash
Ingersoll
Cash
KSB Pumps
Cash
EIH Hotels
Cash
ICICI Securities Ltd. | Retail Equity Research
Product
Strategy
RP
Target
SL
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
2630.00
78.50
305.00
290.00
196.00
144.00
980.00
720.00
1835.00
2710.00
122.00
95.00
112.00
636.00
669.00
500.00
94.00
3100.00
98.00
375.00
355.00
255.00
180.00
1425.00
1050.00
2350.00
3515.00
165.00
155.00
160.00
860.00
995.00
790.00
150.00
2435.00
69.00
267.00
261.00
167.00
125.00
780.00
575.00
1490.00
2350.00
97.00
64.00
87.00
545.00
528.00
390.00
74.00
Gain/Loss %
30.00
10.00
-10.00
20.00
20.00
19.00
25.00
31.00
Comment
Open
Target achieved
Book profit at 336.5
Stoploss triggered
Book profit at 235
Open
Book 50% profit at 1180
Book profit at 853
Book profit at 2290
Open
Open
Book 50% profit at 124
Open
Open
Open
Open
Open
Page 7
NOTES:
•
It is recommended to enter in a staggered manner within the prescribed range provided in the report
•
Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on
closing basis
•
The recommendations are valid for three to six months and in case we intend to carry forward the position,
it will be communicated through separate mail.
Trading Portfolio allocation
•
It is recommended to spread out the trading corpus in a proportionate manner between the various
technical research products
•
Please avoid allocating the entire trading corpus to a single stock or a single product segment
•
Within each product segment it is advisable to allocate equal amount to each recommendation
•
For example: The ‘Daily Calls’ product carries 3 to 4 intraday recommendations. It is advisable to allocate
equal amount to each recommendation
ICICI Securities Ltd. | Retail Equity Research
Page 8
Recommended product wise trading portfolio allocation
Products
Allocations
Product wise
Max allocation
allocation
in 1 stock
Return Objective
Number of Calls
Frontline Stocks
Mid-cap stocks
Duration
Daily Calls
8%
2-3%
3-4 Stocks
0.50-1%
2-3%
Intraday
Short term Delivery
6%
3-5%
7-10 p.m
4-5%
7-10%
Opportunity based
Weekly Calls
8%
3-5%
1-2 Stocks
5-7%
7-10%
1 Week
Weekly Technical
8%
3-5%
1-2 Stocks
5-7%
7-10%
1 Week
Monthly Call
15%
5%
2-3 Stocks
7-10%
10-15%
1 Month
Monthly Technical
15%
2-4%
5-8 Stocks
7-10%
10-15%
1 Month
Techno Funda
15%
5-10%
1-2 Stocks
10% and above
15% and above
6 Months
Technical Breakout
15%
5-10%
1-2 Stocks
10% and above
15% and above
3-6 Months
Cash in Hand
10%
-
-
-
-
-
100%
ICICI Securities Ltd. | Retail Equity Research
Page 9
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC
Andheri (East)
Mumbai – 400 093
[email protected]
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ICICI Securities Ltd. | Retail Equity Research
Page 10