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Wednesday, July 1, 2009

Hexaware Technologies Ltd and Marico Ltd:-Future growth prospects and outlook

)1)Scripscan:Hexaware Technologies Ltd
Traded in:Nse-bse

Story:Though results were in line, I got surprised by a very sharp revenue decline guided for 1Q at a negative 16% q-o-q with outlook being the weakest announced so far. This likely reflects high exposure to discretionary spends such as ERP (~29% revenue, -18% q-o-q).Estimates are cut by 5% to factor in a 17% cut in US dollar revenues as reflected by weak 1Q revenue guidance and offset by higher margins due to rupee depreciation. Management highlighted that macro environment has worsened in 4Q; with clients across board rationalising IT spends.I expect margins to decline by at least 600 bps during 1Q. Also MTM losses in balance sheet increased to Rs 120 crore from Rs 100 crore q-o-q and are likely to impact CY09/10E profits if a weak rupee persists. Revenue grew 4% q-o-q to $64.4 million in constant currency terms in line with its guidance. Profit growth of 49% q-o-q was lower than expected and was impacted by higher forex loss during the quarter. Stock appreciated 170% from lows on high valuations.I expect 8% CAGR over next two years. With 1Q results too likely to disappoint and a poor revenue outlook, stock could correct.

2)Scripscan:Marico Ltd
Traded in:Nse-bse

Story:Marico generates 75% of its revenue from domestic FMCG, which has been largely unaffected by the current slowdown.I expect strong volume growth with margin expansion to drive an EPS growth of 22% in FY09-11. Marico''s "Parachute" brand has maintained market share over the past two years, with volume growth of 11-12% pa driven by the consumer shift from loose unbranded oil to branded oil. The positioning of "Saffola" edible oil has been successfully transformed from a ''curative'' product to a ''preventive'' measure, thus driving increased penetration. Although premium skin care is discretionary spending and likely to slow in the current environment, it provides Marico with a strong long-term growth avenue. BNP expect Kaya clinics to grow to 8% by FY11 from 5% of revenue in FY08 on aggressive new clinic additions, and contribute 7% of net profit versus almost 0% in FY09. Marico is also exploiting the power of its two key brands by extending them to new products/variants, although my estimate do not include any revenue from these new products. The target price based on 20x FY10 EPS, based on a PEG (price earning to growth ratio) of 0.9x, is in line with the historical 4-year average.A great safe and steady bet for the long term investors.

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