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Wednesday, July 8, 2009

Hero Honda Motors Ltd,Nestle India and Wipro Ltd:-What to be done with them?

1)Scripscan:Hero Honda Motors Ltd
Traded in:Nse-bse

Story:Any potential weakness in the stock as a particularly attractive buying opportunity. Despite higher marketing spend, Q4 margin at 16%, exceeded estimates of 15.7%. I expect continuing benefit of the ramp-up at Haridwar facility, and operating leverage to aid improved margin outlook. I expect the company to hold on to its market share over the next 12 months, following: (1) success of self-start Passion Pro (100cc bike), and (2) weak franchise of competitors. Honda''s entry into the commuter segment in FY11, will impact Bajaj Auto more than Hero Honda, on likely positioning of the product. hero honda may deliver aroun d 9.5% growth in FY10 and 7.5% in FY11 and raises EBITDA forecasts by 5% in FY10 and 7.3% in FY11. Now it estimates 17.7% EBITDA and 24.7% EPS CAGR over the forecast period.A bonus may be in the offing too.A great buy at dips.

2)Scripscan:Nestle India Ltd
Traded in:Nse-bse

Story:The 23.4% revenue growth in ‘08 was driven by volume growth (60% contribution), which is the single biggest positive from the annual report. Average price increase was moderate at ~9% which is to drop to ~6% in 2009. Volume growth in culinary products was a staggering 30%. Over the period of the last three years, culinary products'' volumes have nearly doubled to 128,000 tonnes. While it may appear counter intuitive, Nestle''s average input cost inflation in 2008 at ~12% was lower than ~14% seen in 2007. 2009 will only offer a gradual easing of input price inflation as against the other FMCG companies (which may witness deflation) as its key inputs milk and SMP prices are still up at about 2-6% y-o-y. Hence, deflation is not a big concern for Nestle and competition from smaller/regional players remains below average, offering further comfort on the projected revenue growth of 19% in CY09. The company''s RoE has improved by 15 percentage points during CY08 as the capacity utilisation was ramped up at the new unit.A good safe bet for long term investors.

3)Scripscan:Wipro Ltd
Traded in:Nse-bse

Story:Wipro reported IT services revenue of $1,046 million, down 3.8% in constant currency and 5.6% in organic terms. The 5.6% decline was driven by a 1.6% pricing decline and 4% volume decline. This is in line with the other sector bellwethers: Infosys and TCS. The decline in Wipro''s global IT services was offset by strong growth in IMS (Infrastructure Management Services) and BPO, which remain resilient in the current environment. I am positive about the growth potential of IMS, where Wipro''s pipeline increased multi-fold. The company improved EBIT margin by about 200 basis points q-o-q, driven by sustainable operational cost-cutting initiatives such as travel and sub-contracting costs. I beleive the margin gains were also driven by improvement in capacity utilisation in info-crossing, and are sustainable through FY10.After the recent strength, the stock still falls into `Neutral'' valuation band but I would suggest accumulation on dips.

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