Companies & Sectors
FY15 to be better than FY14 on revenue growth for Tata Consultancy Services

Unless there is much volatility in the rupee, margins can be maintained within its guided range of 26%-28% for Tata Consultancy Services, according to Nomura in its research note

Tata Consultancy Services (TCS) was the biggest loser today, falling 3.84% to close at Rs2,040.95. TCS said that the March quarter is typically slower for them than the Dec quarter due to seasonality and fewer days.


FY15 will however, be better than FY14 on revenue growth for TCS. The company should report USD revenue growth of 16% in FY14F. Nomura in its research note forecasts that there will be better growth outlook for smaller verticals, while larger verticals like BFSI/retail are likely to grow closer to the company average. Telecom vertical growth will likely be driven by better penetration in Europe, rather than a structural improvement in demand.


Nomura, in its research note, adds that the company has not seen any cancellations or ramp-downs or any deterioration in the outlook lately.


The company is looking for a margin decline of 40-50bps, largely on account of investments in new geographies and it believes that unless there is much volatility in rupee, margins can be maintained within its guided range of 26%-28%. 3QFY14 EBIT margins were at 29.7%.


Nomura continues to see strong USD revenue CAGR of 16% and EPS CAGR of18% over FY14-16F at TCS. The research note concludes by saying that it continues to prefer TCS over Infosys within its ‘Buy’ rating stocks.


Acute shortage of iron ore fines

With more steel capacity coming on stream, the iron ore shortage will only increase. CARE Ratings suggest a control on iron ore exports

With the curb on illegal mining in two major iron ore producing states (Karnataka and Goa accounting for more than 35% share of the domestic production), India witnessed a significant decline in its iron ore production from the peak of about 218 million tonnes per annum (mtpa) in FY10 to about 135 mtpa in FY13. In line with the fall in iron ore production and with no new development of mines, availability of lumps in the domestic market also declined. Exports also plummeted to a decadal low of about 18 mtpa in FY13, as compared to the peak of about 117 mtpa achieved in FY10. Despite having ample resources, the scarcity situation has led to a vibrant debate on the government’s policy regarding iron ore exports and the distribution and allotment of existing and new mining assets. Both, the steel makers (for banning exports) and the private miners (against exports ban) hold a completely contrarian view regarding iron ore exports.


Overall, there is a shortage of iron ore and mining industry can do a lot better both with domestic steel manufacturers and export opportunities, points out CARE Research in a research note.


Gauging the need for utilising fines, steelmakers in the last 3-4 years have taken corrective steps to make themselves capable of using the low grade iron ore fines. These players are in the process of significantly increasing their sintering and pelletisation capacity, observes the research note.


According to CARE Research, sintering and pelletisation not only helps steelmakers in utilising the inferior grade fines, but also helps them in improving the quality of steel as well. Further pelletisation also helps steelmakers in transferring low grade iron ore fines in a much cleaner and efficient manner. Going ahead CARE Research expects significant pellets and sintering capacity addition. Sintering and pelletisation capacity is likely to increase from about 60 and 54 mtpa as recorded in FY13 to about 80 and 92 mtpa respectively during the next 3-4 years.


CARE Research believes these beneficiation plants are already facing acute shortage of iron ore fines for optimum utilisation of their existing capacity. Going ahead, with further increase in steel making capacity, the demand–supply gap for iron ore is only likely to widen, which additionally supports the argument to curtail iron ore exports.


New product launches coming up in 2015 for Mahindra and Mahindra

If you look beyond CY14F, Mahindra and Mahindra looks attractive, forecasts Nomura

Mahindra and Mahindra expects 8%-10% volume growth for both UVs (utility vehicles) and tractors in FY15. For autos, while the new launch cycle will begin in 2015, some major refreshes are planned in 2014. There is also better visibility on the improved performance of Ssangyong and two wheelers. The truck business will be more dependent on the commercial vehicle cycle.


The company management sees the non-tractor agri business growing at 30%-35% in FY14 and FY15. It is still small but could go on to become the next growth driver in a few years. This is according to a research note prepared by Nomura.


The company will launch two compact SUV platforms in 2015. One will target the rural SUV segment and the other will target the urban SUV segment – competing with cars.


The R&D spend has increased to 2.5% of sales in FY13-14. It should remain around 2.5%-3% going ahead as well, according to management. M&M has lower new product development cost due to frugal engineering, but the company does not cut corners.


For trucks market segment of the company, the breakeven point earlier was around 10,000 LCVs (light commercial vehicles) and 10,000 MHCVs (medium and heavy commercial vehicles). The company has brought this down from around 12,000-13,000 units but cost reduction is not visible due to the weak CV cycle.


In the trucks segment, Nomura forecasts that it may take a few years to reach targets. If the company does not deliver even after the revival of the CV cycle, a call will need to be taken to curtail investments.


The Nomura research notes concludes that with new product launches coming up in

2015, there is attractive value on the table for investors looking beyond CY14F. Nomura maintains its ‘Buy’ rating for the company’s share in the stock market and TP (target price) of Rs1,261 with 25% upside potential.


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