Analysts' picks: Info Edge, Raymond, Mphasis

Info Edge
Target price: Rs 1,300
CMP: Rs 990

Citigroup Global Markets has upgraded its rating on Info Edge to buy and raised its price target to Rs 1,300 from Rs 875, saying the risk reward ratio was now favourable. “Shares are off 40% the Nov ‘07 peak, mainly due to concern over softening demand from Indian IT services (~40% of Info Edge’s revenues) which was impacted by rupee appreciation and slowing US economy. online recruitment demand from non-IT sectors has stayed robust, partly offsetting slowing growth in IT,” the Citigroup note said.“Growth outlook going into H2 (September-March) FY09/10 looks strong, as Indian IT benefits from outsourcing as the US economy weakens,” the note added. Its losses in non-recruitment initiatives like Jeevansathi and 99acres are expected to rise in absolute terms, but will be lower as a percentage of total revenues.

Raymond
Target price: NA
CMP: Rs 272

Merrill Lynch has maintained its sell rating on Raymond, citing poor earnings visibility - especially in its denim business - and rich valuations, and sees Rs 200 per share as the fair value. “We expect the rebound in sales growth for the worsted division to sustain infuture driven by growth in both volumes and realizations led by higher income levels and consumers up-trading to higher-end fabrics. However, we remain concerned about high wool prices, which is likely to sustain the pressure on the margins,” the Merrill note to clients said.“The denim market is unlikely to see a turnaround in the near term. Cotton prices are likely to rise further in FY09,” it added. The branded apparel business posted strong growth in the January-March quarter, but profitability was hit by high gestation costs for new stores.

Mphasis
Target price: NA
CMP: Rs 224.95

ICICI Securities has maintained its buy rating on Mphasis despite the company’s subdued earnings performance for the January-March quarter. “Mphasis posted lower-than-estimated revenue growth with consolidated revenues increasing 4% QoQ versus 5.5% estimated, mainly due to 0.2% decline in application (Apps) business revenues. However, the BPO business grew 10.4% despite the continuing ramp-down from some clients for Mphasis standalone,” the ICICI Securities note said. “The management expects slower growth in Apps to continue in Q1FY09, guidance for Q1FY09 given by various large cap peers indicates that US slowdown will likely result in muted quarter. In spite of short-term challenges (resulting in limited stock price upside), we continue to remain positive on MphasiS in the long term as upside from EDS’ best-shore/offshore strategy will be huge,” the note added.