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Infosys turnaround continues as Q2 sales beat expectations, FY14 revenue guidance raised

India’s second largest software services exporter Infosys reported a better-than-expected revenue growth for the second quarter and also raised the lower end of its revenue guidance for the full year, signs that turnaround at the once bellwether that has lost ground to its rivals in recent years is clearly gaining momentum.

The Bangalore-based company has faltered in recent years. It took its foot of the revenue accelerator as it focused more on its margins, in turn allowing rivals like Tata Consultancy Services to race quite ahead.

In the last several months,however, the company has given ample signs that it is now more flexible when its comes to dealing with clients on pricing.

In the July-September quarter, Infosys’ net profit rose near 2 percent year-on-year (1.4 percent sequentially) to Rs 2,407 crore. Its revenue was up 32 percent from a year ago (15 percent quarter-on-quarter) to Rs 12,965 crore.

In US Dollar terms, however, its net profit was down 11 percent YoY (-8 percent QoQ) to USD 383 million, due to visa related charges.

Its revenue was up 15 percent YoY (4 percent sequentially) to USD 2,066 million.

This was the first full quarterly results since founder Narayana Murthy returned to the company as executive chairman.

Software services exporters have been boosted by a pickup in the US market (largest revenue geography for firms like Infosys) and the recent depreciation in the Rupee.

Infosys raised its lower end of what some may argue conservative guidance on Friday. It now expects its full year (FY14) revenue to rise 9-10 percent, compared with its 6-10 percent it had forecast earlier. Industry body NASSCOM has forecast 12-14 percent growth for the full year.

“During the quarter we witnessed broad-based volume growth, robust client additions, five large deal wins and increased sales momentum of our big data and cloud offerings. This growth is a result of our focus on execution, which helps our clients achieve their objectives. We will continue with planned investments and initiatives to explore new avenues of growth. We remain watchful of the sustainability of improving global economic fundamentals,” said SD Shibulal, CEO and MD.

Infosys and its subsidiaries added 68 clients in the quarter. 2,964 employees were added on a net basis in Q2 and as of Sept 30th it had 1,60,227 employees. 

The street cheered the results with the stock closing up 4.7 percent to Rs 3,274.50 on NSE. The shares hit a 52-week high of Rs 3,338 earlier in the session.

Here’s a quick view of how some analysts viewed Infosys’ second quarter performance.

“Infosys reported better than expected results. Operating cash flow improved to 123 percent of EBIT (earnings before interest, taxes) that is one of the highest in recent years (was 79 percent of EBIT in Q1 FY13). We believe the strength and continued improvement in cash flows is one of the best indicators of the underlying momentum and strength of business for Infosys. Maintain Overweight as the stock remains significantly undervalued in our view.” – Morgan Stanley.

“We believe that the guidance is conservative and strong growth metrics this quarter raise the probability of beating the guidance at top end. We remain positive on the stock given improving growth trajectory and reasonable valuations. Maintain Buy.” – Religare.

“We do not believe that investors must read anything amiss into growth implications for the coming two quarters due to the unchanged USD revenue guidance (at the upper-end). It’s all about the significant revenue beat, which will please investors, in our view.” – JP Morgan.

“The results demonstrate that the company is on the mend. An improved demand environment has also helped overall numbers. Performance is the best way to assuage concerns on reorganisation and senior management exits. That the company has done it for the second consecutive quarter is creditable.” – Kotak.

 

 

 

 

 

 

 

 

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Will Infosys cheer the markets on Friday?

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Infosys was once the IT bellwether. reporting its quarterly results before its rivals and guiding of how things were likely to shape up for the entire industry. Its still reports ahead of its peers, but its no more the benchmark. A string of poor results over the last many quarters had raised many questions.

The company reported good results in the April-June quarter. And investors will be hoping the arrival of Narayana Murthy back at its helm, continued recovery in the US market (its biggest revenue geography) and the rupee depreciation will help the company report another good performance in the July-September quarter.

But, there have also been several top executive exits, Ashok Vemuri, the head of Americas, for instance. Vemuri is now the CEO of US-based IGate Corp. Similarly, Infosys’ global sales head Basab Pradhan too put in his papers earlier.

With the founder Narayana Murthy at the head and his son Rohan Murty likely to be named Vice President, investors will hoping for a smooth drive ahead.

Here’s a snapshot of what analysts are expecting from Infosys when it announces its Q2 results on Friday.

Dollar revenues could grow 2.6 percent quarter-on-quarter to USD 2,043 million led by timely ramp ups in large deals while rupee revenues could grow 12.6 percent sequentially. EBIT margins may improve 61bps led by rupee tailwinds but offset by wage hikes – ICICI Direct.

Sequential Dollar revenue growth could be 3.0-3.5 percent, which would be largely volume driven. Pricing is expected to remain flat. The revenue growth would be led by timely ramp ups in large deals. In Rupee terms, revenue growth is likely to be higher at 14.0-14.5 percent on the back of an average 11 percent depreciation in the Rupee. Infosys could raise its US Dollar revenue guidance to 9-12 percent from 6-10 percent due to improvement in demand. The Rupee EPS guidance is also likely to be raised, helped by currency tailwinds – HDFC Securities.

Expect Infosys to give a modest second half outlook. Its commentary on better margins in H2 could lead to EPS upgrades for the street – Morgan Stanley.

Sequentially, we expect 2 percent Dollar revenue growth. Infosys indicated 300 bps headwinds due to wage hikes, which would be offset by the currency benefits. So expect margins to be flattish – Citigroup.

Watch out for the Bangalore-based company’s margins in the second quarter, management commentary on the overall demand environment and its guidance for the rest of the year. Any update on Rohan Murty’s future role will also be closely watched.

 

 

Posted in Automotive News & Views

Two-Wheeler sales in India get a festive boost

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Society of Indian Automobile Manufacturers reported their sales figures for September earlier on Tuesday and there was not much to cheer about, but for the two-wheeler sector.

While passenger car sales did show some signs of improvement, gaining about 0.7 percent, two-wheeler sales, which had also hit the slow lane over the last several months, accelerated over 18 percent year-on-year in September. With a good monsoon this year, experts had predicted a pickup in demand, especially in the rural areas, and two-wheeler companies seem to be witnessing just that.

Put together, 12.65 lakh two-wheelers were sold last month, compared with 10.69 lakh units sold in September 2012. Navratri has begun, Ganesh festival is behind us and Diwali will come soon. Most two-wheeler firms would have been shipping scooters and motorcycles to the dealers in huge numbers.

Hero MotoCorp had reported earlier this month that the largest two-wheeler maker in India sold near 4.7 lakh units in September, up 16 percent from a year ago. Its rival and former partner Honda Motorcycle and Scooter India’s sales surged 35 percent to 3.29 lakh units.

Scooty maker TVS Motor’s sales in September also rose 16 percent and sports bike maker Yamaha’s sales jumped more than 40 percent.

Scooters, in particular, are seeing robust growth. The scooter market in India is dominated with Honda with its Activa, Dio, Aviator and Activa-i scooters. Hero too has seen good demand for its Maestro and Pleasure scooters.

TVS, which sells the Scooty and Wego scooters, recently launched the Jupiter scooter, which should also see good festive sales.

Bajaj Auto, in contrast, has seen its sales grow just 2 percent in September. Rajiv Bajaj, the company’s MD, recently told Economic Times that while its rivals would have been stockpiling dealerships, Bajaj has been reducing inventories for the last few months, essentially to make way for several new models it is launching in the festive season.

With Diwali up ahead, expect two wheeler companies to continue clocking good growth. Car sales should also pickup a little by then, but with interest rates on loans remaining high and the overall inflation also high, don’t expect a surge in car demand.

Posted in Automotive News & Views

Mixed Bag: Maruti Suzuki, Ford, Honda Sept. sales rise, Hyundai, Tata Motors, M&M struggle

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September brought cheer for some passenger car makers in India. Maruti Suzuki, India’s largest car maker, reported a 12 percent rise in total sales last month. Others like Ford India and Honda too saw sales accelerate driven by recent new launches like the Ford Ecosport and Honda Amaze.

Honda’s domestic sales in September jumped 88 percent, while Ford saw total sales surge 51 percent.

But for many others there were no celebrations on cards as the road remained bumpy. Mahindra & Mahindra’s total sales were down 10 percent, as SUV sales remained in the slow lane. India’s second largest car maker Hyundai too saw sales slip 4 percent.

Toyota Kirloskar’s sales gained 10 percent, although domestic sales were marginally down. Another multinational General Motors reported a near 5 percent drop in sales, which can be partly attributed to the temporary stoppage of the production of its Tavera utility vehicle.

Homegrown Tata Motors continues to struggle, with car sales plunging 40 percent. Its CV sales have also remained under pressure, given the continued gloom in the overall economy. 

September is typically a month where companies sell or dispatch more cars to their dealers to meet the Dassera and Diwali festive demand. Yet the September sales figures released by companies suggests the overall sentiment still remains weak. 

New model launches have indeed helped some car makers boost their sales. But otherwise sales are more or less lackluster. Even in Maruti Suzuki’s case, the 12 percent rise in dispatches last month is mainly due to a surge in exports. Domestic sales were only up 2 percent.

Petrol prices were cut on Monday night, but they still remain high. Also, oil marketing companies have continued to increase diesel prices by 50 paise each month, which coupled with the higher tax on SUVs has hurt demand. Furthermore, with interest rates  on loans unlikely to come down any time soon, will customers splurge this festive season is still a big question.    

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Can 15 new models, new Karizma bike help mkt leader Hero race ahead further?

The festive season is around the corner and the two-wheeler market leader Hero MotoCorp is gearing up to launch a slew of new models and refreshes to boost its position in the market (currently sells as much as half of total bikes sold in the domestic market), given that its erstwhile Japanese partner Honda has launched an onslaught in recent times.

According to PTI, the company showcased as much as 15 new products at its annual global sales conference in Macau, earlier this month. Some of the new products include a new Splendor and new Karizma motorcycle.

Karizma, Hero’s sole sports bike offering, has not had much success, when one compares it with rival Bajaj Auto’s Pulsar range. Just like Hero’s Splendor has been a run-away success in India’s commuter bike segment, Bajaj’s Pulsar has been the most successful sports bike brand here.

With US-based sports bike maker EBR (Erik Buell Racing) on board, Hero now wants to accelerate in the sports bike territory.

The new Karizma is being redesigned and will sport a more powerful engine, helped by EBR.

There will also be a new Splendor, apparently called Splendor iSmart, according to an Economic Times report.

Motorcycle sales across the sector have been some what slow in the last few months. But monsoon has been good this year and that should prop up rural demand. Splendor, helped by company’s marketing and in lot of cases just word of mouth is a big seller in small towns and villages. So indeed sales during the festive season should be brisk. Although, must remember, Honda with the Dream series and Bajaj with the Discover series too will be upping their game.

Hero will over the next couple of years discontinue its existing and proven Honda technology and shift to its own helped by its partners AVL of Austria and Italy’s Engines Engineering, apart from EBR. Making it work and convincing people that its still the best will be a task, although it has a big brand loyalty.

The new Karizma, it seems will be the first such offering. Lets see if it can, powered by the EBR, gain some traction amid a range of sports bikes that are now available in the country.

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No end in sight for Ranbaxy’s regulatory woes

Ranbaxy’s troubles in the US market continue. The US Food and Drug Administration issued a fresh import alert on the drug maker’s products sending its stock tumbling down more than 30 percent on Monday.

The new import alert was published on the US drug regulator’s website on Friday and is related to the import of products from Ranbaxy’s plant at Mohali in India’s Punjab state.

The US FDA usually issues import alerts after inspecting foreign manufacturing plants of companies. An import alert can lead to detention of products without physical examination when an FDA inspection has revealed that a firm is not confirming to current good manufacturing practices.

Ranbaxy, which is now owned by Japan’s Daiichi Sankyo, had already pleaded guilty to felony charges in the US earlier this year. That case was related to drug safety related issues at its two other plants — Dewas (Madhya Pradesh) and Paonta Saheb (HImachal Pradesh) and the company had agreed to pay USD 500 million in fines.

The Mohali plant and US-based Ohm Labs are Ranbaxy’s two formulations facilities approved by the US FDA. 

Brokerage HSBC downgraded its rating on Ranbaxy’s shares to “underweight” from “overweight” on Monday, saying the latest import alert was not in-line with expectations.

While HSBC Is not expecting any financial impact from the import alert at this point, it feels “delay in new product approvals will hit long-term road to recovery.”

Another brokerage also felt that the import alert on its Mohali plant was a “significant negative” for the stock.

“With the import alert on Mohali, there is limited visibility on the resolution of US FDA issues. There is only one product which is approved from Mohali (cholesterol lowering drug Atorvastatin) but the import alert will delay the approval for pending filings from this facility (the company had stated there are 34 filings pending approval from the Mohali and Ohm labs facilities),” it said.

Ranbaxy’s shares have taken a beating in the wake of the regulatory hurdles. So far this calendar year the stock is down more than 9 percent. In comparison, the wider Nifty index is down just about 1 percent, while the CNX pharma index has gained more than 20 percent.