Sell R Systems International - Kotak

We recommend SELL and terminate coverage on the stock In line with the continuing quarterly volatility, R Systems reported a 7% growth in volumes in 4QCY12 following a 4% de-growth in 3Q. The predominantly project-based nature of revenues has been a concern for us. EBIDTA margins fell sharply due to bonus provisioning and a one-time write off of Rs.44mn. Excluding the write-off, margins improved by 180bps.

The macro scene continues to be uncertain and that remains a concern for the company, in our view. Earnings per share stand at Rs.21.2 for CY13E. The DCF-based price target stands at Rs.182 (Rs.159) based on CY13E earnings.

We recommend SELL and terminate coverage on the stock. We maintain that, only higher consistency in revenue will lead to better margins and attract higher valuations for the stock. The high amount of (net) cash in the balance - sheet of about Rs.65 per share may act as cushion, though. A delayed recovery in developed economies and a sharper-than-expected appreciation in rupee v/s major currencies can pose risks to our estimates.

Source : Equity Bulls

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