7 India Stocks With Upside

NEW YORK (TheStreet) --- Patni Computers (PTI), ICICI Bank (IBN), HDFC Bank (HDB), iGate (IGTE), Dr. Reddy's Laboratories (RDY), Sterlite Industries (SLT) and Infosys Technologies (INFY) are stocks from India with 14% to 49% upside potential, based on analysts' average 12-month price targets. These stocks have a buy rating of 57%, as polled by Bloomberg.

7. Infosys Technologies ( INFY) is a global technology services company offering products and end-to-end business solutions.

Revenue grew 1.1% quarter-over-quarter to $1,602 million in the March quarter, led by pricing increase of 2.5% and volume decline of 1.4%. Operating margin stood at 29%, narrowing 120 bps quarter-over-quarter. The company observed strong gross additions in terms of head count but utilization declined. Client additions stood at 34 during the March quarter.

Infosys' BFSI segment reported a flat quarter, while the telecom vertical was a laggard. The proportion of U.S. sales to total sales declined to 63.7% from 66.1% a year ago. However, India's sales outperformed to 2.7%, vs. 1.4% in the 2010 March quarter. Higher other income supported net income, which grew 2.1% sequentially.

Infosys plans to hire 45,000 employees in fiscal 2012, with 26,000 on-campus recruitment. The growth outlook remains robust and management guided an 18% to 20% year-over-year revenue growth. The stock is estimated to deliver an upside of 14% in the next one year.

6. Sterlite Industries ( SLT) is India's largest non-ferrous metals and mining company.

Results for the March quarter were impressive with net revenue up 39% from the year-ago quarter and net profit rising 39% year-over-year.

EBITDA increased 40% year-over-year and 55% sequentially. EBITDA contribution from Sterlite's copper segment was the highest sequentially, followed by its aluminum and zinc businesses.

The company's expansion plans across its business verticals are on track. Subsidiary BALCO's 1,200 MW power plant will be commissioned early second half of fiscal 2012, an associated coalmine in Sept. 2011, and a lead smelter in 2012 first quarter. The company's international zinc business could boost profitability in 2012 and 2013.

Strong volumes in its zinc, silver and power businesses could drive earnings in 2012 and 2013. The stock is expected to deliver an upside of 23% in the next one year.

5. Dr. Reddy's Laboratories ( RDY) is an integrated pharmaceutical company and operates in business segments such as global generics, active ingredients and proprietary products.

Dr Reddy's March quarter results were higher-than-estimated with revenue growing 22.8% year-over-year, driven by robust growth of 67.6% in U.S. generics and 25.7% in Russia and CIS. The launch of generic fexofenadine pseudoephedrine during the quarter lifted U.S. growth. However, Indian formulations grew only 5.1% year-over-year.

Adjusted net profit rose 46.6% year-over-year as EBITDA margin improved 80 bps to 21.6%. during the quarter.

Going ahead, the U.S., India and Russia generic formulations are expected to drive earnings. Analysts expect the stock to deliver 26% over the next one year.

4. HDFC Bank ( HDB) is an India-based bank operating in the retail, wholesale and treasury segments.

During the March quarter, net profit was up 33% year-over-year, driven by robust net interest income, fee income and lower provisions.

Credit growth rose 27.1% year-over-year, topping the industry average of 21% boosted by corporate and retail loans. Net interest margin stood at 4.2%, while the share of lower-cost deposits stood at 53% -- the best among peers.

Gross non-performing assets declined 4.9% sequentially, with coverage improving 106 bps to 82.5%. Strong loan growth and lower credit costs are driving the bank's earnings. Analysts' consensus estimate pegs average gains at around 26% over the next one year.

3. iGate ( IGTE) is a provider of information technology (IT) and IT-enabled operations, offering services across a gamut of verticals like financial services and healthcare.

Revenue for the first quarter of 2011 stood at $75.8 million, up 52.6% from the same period last year. Gross margin improved to 40.9% from 40.1% during the prior-year quarter. Net income rose to $17.9 million from $11.6 million from the same period last year.

Reviewing the first quarter results, the company's CEO Phaneesh Murthy said, "Delays in clients' budgets created softness in the market which was further exacerbated by our focus on the Patni acquisition creating a sequentially weak quarter for iGATE."

Commenting on Patni's acquisition, Sujit Sircar, iGate's COO, says, "The process of acquiring Patni Computer Systems is on track and we expect the transaction to be completed shortly. We have raised $770 million through a bond issue to fund the acquisition. From calendar Q2, we will be reporting consolidated financials for iGATE."

The stock is trading at 18 times its 2011 earnings with a potential to deliver up to 33% in the next one year.

2. ICICI Bank ( IBN) is the largest private bank in India offering a range of banking and financial services, including retail banking and treasury operations.

Business grew 15.3% year-over-year during the March quarter, the highest in the last 12 quarters. The bank's profits grew 44% vs. the same quarter last year, led by healthy net interest income and lower provisions.

Net interest margin improved 10 bps sequentially to 2.6%, with low-cost deposit share improving to 45.1%. Management expects 20% year-over-year credit growth in fiscal 2012, led by corporate, SME and retail secured loans.

Gross on-performing assets declined 1.5% sequentially, with coverage rising to 76% in March 2011, vs. 71.8% in the previous quarter. Stable asset quality and lower credit costs could aid profitability. The bank's capital adequacy was 19.5% with Tier-1 capital at 13.2%, which should boost business growth momentum in 2012 fiscal.

The stock has analysts' buy rating of 50% and is likely to deliver 34% in the next one year.

1. Patni Computers ( PTI) is a provider of IT services from its globally integrated delivery centers in India and abroad.

Revenue during the first quarter of 2011 was $190 million, up 4% sequentially, and in line with analysts' estimate. Strong volume growth of 3.6% led to higher earnings in the quarter. Patni clinched four deals valued $30 million each during the quarter. The company has $379 million in cash. Lower general and administrative costs improved operating margin 16 basis points sequentially, although higher-than-expected tax expenses reduced profit.

Geographically, growth in Patni's Europe, Middle East and Africa markets topped at 33.6% followed by Asia-Pacific at 10.9%, while the Americas de-grow during the quarter. Patni's BPO posted a strong 7.6% quarter-over-quarter growth, while the media & utilities vertical was up 28.9% during the March quarter.

Patni added 14 clients during the quarter, widening the active client list to 299. Higher dependence on the U.S. market and integration with iGate are key challenges, going forward. The stock is trading at 10.5 times its fiscal 2012 earnings, and is estimated to provide an upside of 20% over the next one year.

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