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Credit Lyonnais puts "buy" on Wipro, HCL Tech

NetScribes/Salil Panchal

Foreign institutional brokerage firm Credit Lyonnais Securities Asia (CLSA) has, in a detailed India research report dated January 22, revised some ratings for infotech companies like Wipro and HCL Technologies, recommending a 'buy' for both.

CLSA states Wipro can achieve earnings forecasts in the coming quarters based on a 90 per cent repeat business and strong client relationship. "High revenue contribution from dedicated offshore centres and a well-diversified revenue mix will help Wipro weather the US slowdown," the report states.

An increase in the weightage for Wipro in the Morgan Stanley Capital International (MSCI) index has largely determined this recommendation. Marketmen feel that with the Wipro ADR virtually trading at par with the domestic stock, the premium for ADRs of most Indian companies should stabilise 20-30 per cent above their underlying share price.

At $ 63.13, the Wipro ADR is trading at a 0.4 per cent premium to the underlying share price of Rs 2,813 on the Bombay Stock Exchange. CLSA has set a price target of Rs 3,100 for the domestic stock.

CLSA is also optimistic about Wipro's R&D outsourcing business, which has grown 92 per cent year-on-year and 16 per cent quarter-on-quarter. "The outsourcing budgets for some of Wipro's large clients like Cisco, Lucent, Nortel are in excess of $2 billion collectively. The growth in outsourcing will continue, catalysed by competitive pressures which R&D-intensive business models face,'' the report states.

The report also highlights some macroeconomic factors which, it feels, are a cause for concern. Two significant factors - the rabi output and petroleum products sales - have impacted the economy. The foodgrain output of the 2000 kharif crop is estimated to have declined to 98.9 million tonnes against 104 million tonnes last year.

Petro products sales have also declined during April-December 2000 to 67.05 million tonnes against 67.08 million tonnes in the year ago period.

While recommending a higher investment grade for some stocks including Satyam, Ranbaxy, Grasim and Infosys, it has recommended a sell for scrips like Zee, ICICI, Himachal Futuristic and Telco.

According to marketmen, CLSA, on behalf of its FII clients, has been involved in selling stocks like GE Shipping, Himachal and Reliance Petroleum and some FMCG majors including HLL.

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