BULL'S EYE

TATA CONSULTANCY  RESEARCH: CLSA  RATING: OUTPERFORM  CMP: RS 532  TCS' 40%+ exposure to financial services clients impacted its financial performance through FY09. However, the flexibility TCS showed with its financials clients in FY09 is likely to payback in FY10. Traction in a few large North American retailers is also expected to drive a double-digit growth in TCS' retail vertical. Gains made in the BP consolidation deal should further boost revenue visibility. Telecom and manufacturing (auto and auto ancillaries) remain impacted and recovery is likely a FY11 story here. TCS had qualitatively indicated a flattish q-o-q dollar revenue growth in the September quarter. CLSA checks indicate that these numbers will be proven low, compared to the ramp-up beginning among TCS' customer base. A higher revenue throughput could also drive upside margin surprises. CLSA expects flattish q-o-q margins. TCS has been a relatively modest performer in the last one month compared to other Indian IT stocks, after having held up better through H12009.  STERLITE INDUSTRIES  RESEARCH: MORGAN STANLEY  RATING: OVERWEIGHT  CMP: RS 670  Morgan Stanley remains `Overweight' on Sterlite due to its strong volume growth prospects, high chances to purchase the remaining stakes in Hindustan Zinc and Balco, and likelihood of higher valuations as Morgan Stanley comes close to the commissioning of its power plant. The bankruptcy court's decision in the Asarco ownership case favouring Grupo Mexico is positive for Sterlite stock as: 1) This removes the confusion surrounding Asarco, 2) The optimism regarding possible gains for Sterlite from the "Fraudulent Asset Transfer Case" may be put to rest; and 3) Based on current assumptions, an acquisition would have been value dilutive by ~1.5% to 3.5% for Sterlite. Further, a possible case against Sterlite to hold it liable for its original bid of $2.6b may be weakened now as the winning bid is just $100m short of the amount. Note that the base case estimates for Sterlite does not include Asarco. Sterlite should be better off without the Asarco assets than having bought them at a price higher than $2.2bn.  TECH MAHINDRA  RESEARCH: BNP PARIBAS  RATING: BUY  CMP: RS 952  BNP Paribas initiates coverage on Tech Mahindra with a `Buy' rating. They believe that TECHM's share price neither fully reflects the value of its core business nor the potential upside from its 42.7% stake in Satyam. The core business trades at 9.1x FY10E P/E compared to the sector average of Infosys, TCS, and Wipro, of a 19.7x. The valuation discount will narrow when stability in the demand returns and Satyam's earnings improve post its operational restructuring. Satyam's acquisition could be a game changer. The acquisition is already a successful investment, with the current market value 103% higher than what TECHM paid for it. Also, given the inexpensive deal valuation, BNP calculates that Satyam would be accretive to TECHM's earnings. The target price implies an 11.6x FY11E P/E and is still below the large cap average of 18.7x and mid-cap average of 12.4x. TITAN INDUSTRIES  RESEARCH: JP MORGAN  RATING: UNDERWEIGHT  CMP: RS 1238  JP Morgan maintains `Underweight' rating on Titan Industries. High gold prices keep consumers on sidelines as they refrain from fresh purchases. Price resistance remains high despite gold prices being stable for the past five months and it appears consumers may take more time to adjust to these levels. Volume decline (y-o-y) is likely in Q2FY10 and management is hopeful that the festival season (October-November) may see demand revival. Weak sales growth and high lease rates will keep margins under pressure. The watch exchange promotional offer has seen good response so far. However, the management maintained that it would be important to watch the demand trends in coming months to assess the sustainability of this growth. For jewellery, the focus shifts to large format Tanishq stores with better profitability metrics. Eye+ format is to add 15-20 new stores in FY10. JP Morgan expects weak Q2FY10 driven by volume drop (in jewellery) and margin decline on a high base.  HERO HONDA  RESEARCH: CITIGROUP  RATING: BUY  CMP: RS 1609  August '09 volume growth was strong - about 36%+ y-o-y - but in the midpoint of the 'whisper estimates' of 410-425,000 units. Of this demand, around 60-70k units is pipeline stocking in anticipation of the festive season from end-September/October. Retail demand figures are yet unavailable, but the management expects they would have been slightly ahead of July's retail sales of 340,000 units with the FY10 guidance marginally revised upwards—to the 10-12% range, from 8-10% earlier. Citigroup expects it to fine-tune its guidance over the next month and into the festive season. Hero Honda is to launch a slew of products—mainly upgrades of the existing models over 3/4Q. Competitive intensity remains muted in the motorcycle industry. Management stated that there are virtually no discounts in the marketplace, and it doesn't expect discounts to revive in the festive season, which augurs well for the overall profitability.