BULL'S EYE

MINDTREE  RESEARCH: HSBC  RATING: OVERWEIGHT  CMP: RS 607  Mindtree appears to be in favourable spot in the R&D offshore market (45% of company revenues) and cyclical IT services market. With its strong client references, experienced workforce and robust service mix, MindTree is well positioned to outperform its peers. HSBC estimates 23% compounded growth during '09-12 in R&D offshore market due to higher offshoring and growing preference for third-party vendors over 'captives'. The IT services market is likely to pick up in '10 and cyclical services should lead this recovery. HSBC expects utilisation to be 69% in FY11, which provides EBITDA margin cushion of 320 bps and offsets margin pressures due to potential wage increments in '10. HSBC values MindTree at a PE of 14 times the FY11E EPS, and 35% discount to Infosys.  TULIP TELECOM  RESEARCH: EDELWEISS  RATING: BUY  CMP: RS 909  Edelweiss rates Tulip Telecom (TTSL) as a 'Sector Outperformer' on a relative return basis. TTSL's Q2FY10 operating performance was above expectations, led by continued traction in the IP VPN segment that drove operating leverage and margin expansion. Revenues jumped 11% q-oq, led by 13% growth in IP VPN revenues, while EBITDA margin improved 140 bps to 25.9%. Revenues from the fibre business have commenced this quarter, and have contributed to higher realisation. However, despite strong 17% EBITDA growth, higher taxes dampened net profit growth. During the quarter, TTSL repurchased FCCBs of face value $12 million at a discount, resulting in gain of Rs 7.36 crore; FCCBs worth $97 million are outstanding. However, higher depreciation and taxes have neutralised the earnings impact and the earnings estimates, therefore, remain relatively unchanged. With a wide network footprint, Edelweiss sees continued traction in the IP VPN business, particularly with the recent fibre roll-out which is likely to enhance TTSL's addressable market. At Rs 906, the stock is trading at a P/E of 9.5x and 9x and EV/EBITDA of 6.7x and 5.5x for FY10E and FY11E, respectively.  NTPC  RESEARCH:CLSA RATING:UNDERPERFORM CMP:RS 210  NTPC hinted that it might miss its target of adding 22 GW capacity in the 11th five-year plan (FY08-12). NTPC has added 3.2 GW capacity in the 11th plan so far and has another 17.9 GW currently under construction. The company is, however, confident to have 75 GW generation capacity by FY17 and is planning to reduce its coal-based portfolio from current 82% to 70% by then. NTPC through its JV company is also looking at opportunities to acquire stake in coal mines in Indonesia and Mozambique. The new tariff order (FY10-14) approved by CERC (central regulator) is positive for the company with an increase in base RoE from 14% to 15.5% (to be grossed up by tax rate) and has a better incentive structure. NTPC mentioned that improved availability of gas under the APM (administered pricing mechanism) regime and purchases from spot market of re-gassified LNG have resulted in higher utilisation of gas-based power plants. A joint venture company, International Coal Ventures has been formed for overseas acquisitions/operations of coal mines or blocks. The company is currently exploring opportunities for acquisition of stakes in coal mines in Indonesia and Mozambique.  JINDAL STEEL & POWER  RESEARCH:GOLDMAN SACHS RATING:NETRAL CMP:RS 657  Goldman Sachs is downgrading Jindal Steel to `Neutral' from `Buy', with a revised target price of Rs 625. It still likes the long-term structural growth story unfolding at JSPL. The stock is trading at 3.5X FY11E P/B with an FY11E ROE of 36%. We would look for more attractive entry levels to gain meaningful exposure to the stock. Goldman Sachs believes JSPL has superior fundamentals given its first mover and least cost advantage relative to peers in the power sector, especially the newer entrants most of which are at a project execution stage. However, they find it difficult to justify current valuations on an absolute basis, and relative to the returns and growth that they expect over FY09-12E. JSPL reported Q2FY10 consolidated net income of Rs 810 crore. While the power subsidiary reported robust earnings on the back of firm merchant power tariffs (Rs 5.15 per unit), steel volumes surprised on the downside, which were down 12% sequentially. Goldman Sachs are lowering their FY10E-12E EPS by 4 to 16% on lower steel volumes and revised cost assumptions.  FEDERAL BANK  RESEARCH: CITIGROUP RATING: BUY CMP:RS 228  Citigroup maintains `Buy' rating on Federal Bank. Federal's Q2FY10 profits were 20% below estimates largely due to asset delinquencies and higher loan-loss charges. Fundamentally, it was a mixed quarter with the gains offset by its continued high asset deterioration. Federal's increasing loan losses overshadowed an otherwise good P&L - NIMs expanded 38 bps q-o-q and fee growth appeared to revive with a 20% q-o-q rise. Pre-provisioning profits increased 24% q-o-q. Federal's loan growth increased sharply and management targets 25-30% for FY10E — well above industry levels. Federal's slippages have increased sharply and meaningfully increases its leverage to the macro outlook given its mid-market focused loan book. High coverage levels (83%) however, provide some downside cushion. Citigroup expects the stock to remain weak in the near term - however, the downsides will be limited given Federal's: a) Large capital base (17% Tier 1 ratio); b) Niche positioning; and c) Relatively inexpensive valuations (0.7x 1-year fwd P/BV) - the cheapest amongst Indian banks.  PATNI COMPUTERS  RESEARCH:MORGAN STANLEY RATING:EQUAL-WEIGHTCMP:RS 501 Morgan Stanley maintains `Equal Weight'rating on the stock at the revised price target of Rs 425.Overall revenue growth at Patni remains muted despite the small base.The management indicated that the environment remains challenging, but sounded optimistic on the call that tough conditions could ease over the coming quarters.Patni reported revenues in line with the estimates.Adjusting for gains of $11.4m due to prior period items, net income at $24.3m (-15% q-o-q, flat y-o-y) was marginally ahead of expectations.Q4 revenue guidance of $168-169 million is in line with expectations.Net profit is expected to be in the range of $24-25 million excluding forex gains of $1-1.5 million.Utilisation levels, at ~77% in the September '09 quarter, are likely to be ~75%.Morgan Stanley is revising the CY09-CY11E estimates by 3-8% to factor in marginally higher revenue growth rates and lower than expected forex losses for Patni.Patni currently trades at 13x CY10E EPS and it is unlikely to be re-rated further in the absence of predictable revenue growth.