Buy stocks of CMC; target Rs 1050

“CMC reported Q1FY13 results touch ahead of our/consensus expectation at top-line. However, the strong performance at the bottom-line was led by a margin surprise, higher other income and lower tax rate. The strong growth in SI is also aided by the currency; moreover, the weakness in ITES remains a matter of concern. The margin profile continues to be volatile due to continued investment in the business. We reiterate our ‘Accumulate’ rating, with a revised target price of Rs1,050 (from Rs1,140) as we cut our multiple due to growing uncertainty around demand.”

“CMC reported revenue growth of 10.3% QoQ to Rs4.5bn (PLe: Rs4.5bn, Cons: Rs4.2bn). However, excluding SEZ, top-line grew by 9.1% QoQ to Rs4.4bn. EBITDA margins expanded by 198bps QoQ to 16.6% (PLe: 15.6%, Cons: 14.3%), due to currency depreciation & cost optimization. PAT grew 36% QoQ to Rs584m (PLe: Rs463m, Cons: Rs428m), due to other income of Rs57.1m (PLe: Rs25.4m) and tax-rate of 22.6% (PLe: 29%). We expect the revenue momentum to stay in the mid-twenties, with stable margin profile. We reiterate ‘Accumulate’, with a target price of Rs1,050, 14x FY13E earnings estimates,” says Prabhudas Lilladher research report.