India's growth trajectory has attracted the attention of investors all over the world. The following are my best ideas and analysis from the subcontinent on a growth and competitive positioning basis.
Tata Motors Limited (TTM) is predominantly a car manufacturer. Its shares trade around $24 and have a year high of $29.06 and a year low of $14.33. It has a price earnings ratio of 7:75 and earnings per share of $2.89. Its dividend yield is 1.4%. Results for the quarter ended September 2011 (second quarter of fiscal 2012) showed an increase in net revenue of 26.9% over the same period in the prior year and an increased profit of 27.5% from the same period in the prior year. Audited results for the same period show an increase in net revenues of 15.2% and a negative profit of (24.4%). This deficiency is accounted for by higher marketing expenditures in the passenger car business and increased commodity costs. Devaluation of the U.S. dollar brought an 11% loss on currency exchange borrowings.
Tata is domestically experiencing some slowdown in commercial vehicles used in mining and bus markets, but performance in the large commercial truck segments has seen a 63% increase in market share from the same period in the previous year. It also showed strong growth in family and pickup trucks resulting in a market share of 59.7%. It experienced a slowdown in domestic passenger vehicle sales and passenger car sales in India as a result of interest rates, fuel price hikes, inflationary pressures and intense competition. It expects robust growth in Sri Lanka and Bhutan as well as strong demand for vehicles and good potential for buses and pickups and small consumer vehicles in Africa. The stock has bounced well off its year low and I believe remains strong in the current market environment.
Wipro Limited (WIT) is an IT consulting and R&D outsourcing operation that trades around $11. It has a year high of $15.39 and a year low of $8.63. It has a price earnings ratio of 24:54 and earnings per share of $0.44. Its dividend yield is 1.7%. An IT services company, it excels in providing services for corporate India as well as providing services for global corporations in the Asia Pacific region and the Middle East. In addition it has a profitable presence in niche market segments of consumer products and lighting. This sector is served well by the housing market in India which has been strong for almost a decade.
Results for the quarter ended September 30, 2011 showed and increase in IT services revenue of 4.6% from the previous quarter and 15.7% for the year. Revenues from all segments showed a yearly increase of 18%. IT services segment provided 75% of the total revenue and 92% of operating income for this quarter. Wipro is beginning to see traction with new clients on cloud business model offerings. Its application maintenance and support services to clients who provide global financial services, communications services providers and retailer infrastructure continue to drive the company's growth. Like the shares of many companies, August 2011 was a brutal month. The stock has acquired some traction since November and will remain strong at these levels, in my opinion.
Lionbridge Technologies (LIOX) is a language translation software company that gears itself towards editing and real-time translating for businesses. Shares trade around $2.7 and have a year high of $4.13 and a year low of $1.94. No price earnings ratio information is available. It has negative earnings per share of ($0.06). It does not pay a dividend. It is a provider of development, translation and testing solutions to a broad range of industry sectors. The company also provides web page assessors through a series of independent contractors globally. Lionbridge is contracted by a search engine company to provide these services to measure effectiveness. The market for its services are very fragmented and the company has many competitors. It operates in India, the U.S., the U.K. and Europe.
Third quarter results for September 2011 indicate revenues of $107.6 million an increase in revenues on the quarter of 8% from the same quarter in 2010. These results were largely due to currency issues which saw the U.S. dollar retreat against the euro. Lionbridge has a strong presence in Europe and revenues recorded in U.S. dollars increased, but the actual revenue did not. This coupled with restructuring charges and work force reductions caused a mass exodus from the stock in November when these results were released. The company continues to secure new clients for its services in real time translation technology. They have made investments in sales and marketing across end markets that are beginning to show benefits to the company.
Lionbridge sustains and expands existing client relationships by providing new offerings and is securing new client programs across industry sectors. The company provided guidance on fourth quarter results indicating and 8%-11% year on year growth for the quarter. Revenue growth for 2012 is expected to be between 5.5% to 10%. The stock price is between its year high and low, is performing well at these levels. The company has put its bad news behind it. Lionbridge appears to be a good bet.
Infosys Limited (INFY) is a management consulting and IT consulting operation that started on a shoestring budget of $250. It trades around $55 and has a year high of $74.25 and a year low of $46.12. It has a price earnings ratio of 18:54 and earnings per share of $2.89. Dividend yield is 1.10%. Results for the quarter ended December 31, 2011 showed that revenue increased by 13.9% on the year and 3.4% on the quarter. Net income was up 11.4% on the quarter and 15.4% on the year. at 1.66.
Infosys relies heavily on access to human capital in India, with its corporate web site indicating access to 2.5 million English speaking graduates and 500,000 engineering graduates annually. The company issued guidance for its March 31, 2012 year end revenue growth in the range of 12.7 - 13% for the quarter and 16.4% for the year. Earnings are expected to be $0.81 or 15.7% on the quarter and 14.5% for the year. The company has morphed itself from its inception in 1981 as an application development and maintenance concern to a technology and enterprise solutions company in the 90's to an early IT outsourcing infrastructure management company in the early 2000's to a business process management and consulting practice in the present. It has consistently changed to meet consumer needs and is the recipient of many industry awards that attest to its ability to change with the times to meet consumer needs. Infosys shares are trading off their year lows achieved in the August capital markets correction and continues to gather strength.
ICIC Bank (IBN), a predominantly India-focused full-service bank, ICIC trades around $36 and has a year high of $51.50 and a year low of $24.14. It has a price earnings ratio of 16:73 and earnings per share of $2.13. The dividend yield is 1.8%. ICIC is India's largest consumer bank. It is well positioned to provide services to the burgeoning middle class in India by providing loans, mortgages and credit cards. ICIC embarked on an austerity program in 2008 which saw the bank through any residual backlash from the 2008 capital markets meltdown and slowdown in the world economy. Its CEO is very well regarded, seen as an great innovator able to achieve expansion and great results despite cutting costs. The bank currently has no competition as foreign-owned banks are not allowed to operate in India. The stock is trading up from its year lows in November and is showing strength at current levels.
While forecasters and investors alike are cautious of the potential for slower growth and inflationary pressures in India, these companies seem likely to continue to perform well despite any residual problems stemming from interest rate hikes, currency differentials and the effects of a European recession on other economies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.