On Mid Quarter Analyst Meet, TCS commented on weak revenue growth momentum for 4QFY14E due to weak seasonality. Growth in 4QFY14E would be lower than the preceding quarter and margin would decline 40-50 basis points on cross currency movement and higher investments. However, sigh of relief was seen on FY15E outlook and comments on overall demand environment. .................................................................. ( Page : 13-15 ) Hindalco Industries Ltd: "BUY" 25th Mar 2014 Sesa Sterlite's 22 days smelting shut will help rival producer Hindalco Industries raise sales.With greater comfort on sustainability and visibility of ramp up in UAIL operations, we raise our FY15E volume and consolidated EBITDA by ~2%. Currently the stock is trading at 0.7x in 1yr Forward P/B and we believe with the changing political climate and improving auto mobile demand the stock will accumulate to 0.8x P/B. Hence at CMP Rs.121.5 we are bullish on the stock to a medium term target price of Rs.140 which is a 15% upside addition. ................................................................ ( Page : 2-4) We cover Persistent System as one of the few companies in the tier-II with potential to grow revenue at a range of 18-20%, specially focused on emerging business and relationship building with marquee clients. Despite better predictability of growth and attractive visibility of its expansion in new emerging verticals, we advice to book profit on the stock because of its premium valuation. ............................................................... (Page : 11-12) "BOOK PROFIT" TCS : " Strong Fundamentals" "BUY" 20th Mar 2014 IEA-Equity Strategy 25th Mar, 2014 Edition : 231 KPIT Tech: "On billion dollar journey" "BUY" 19th Mar 2014 Impressive organic growth despite inorganic thrust (acquired 10 companies in the last 10 yrs), Potential option value from success of its hybrid engine venture Revolo (on trial). KPIT has targeted to reach $1bn sales by 2017. Its differentiated positioning and competitive edge in its focus areas, imperatives to the success of smaller-sized IT vendors impress to investors. ........................................................................ ( Page : 19- 20) HDFC Bank : "HOLD" 20th Mar 2014 Profitability of bank is likely to report better in next few quarters on the back of mobilization of FCNR deposits which would reflect better NII growth for being a low cost carry, RBI allowed banks to use counter cycle buffer for making specific provisions against bad loans, declining share of priority sector lending but still met regulatory requirement and exempted foreign deposits with tenure more than 3 years from SLR, CRR and PSL. Now the economy is witnessing some sign of revival and market sentiment boost up on account of exit poll result. We raised our price target to Rs.760/share which is upper side of our valuation band. . ................... ( Page : 16-18) Persistent System : "Persistently innovating.." 21th Mar 2014 PNB : "BUY" 24th Mar 2014 We upgrade PNB from neutral to add rating on account of external factors like better than expected GDP growth and CAD numbers which showing some improvement along with softening inflation numbers. Recently market sentiments are also booted on account of opinion poll result which revealed that BJP led NDA would close to formation of Government in coming general election. We raised our price target to Rs.700 from Rs.600 earlier. ............................................................. ( Page : 8- 10) Jindal steel & Power : Challenging Fundamentals "NEUTRAL" 24th Mar 2014 The Company has embarked on expansion projects of US$9bn in steel and power, backed by resource availability and steady cash flows. Improving free-cash-flows and volumes would be visible from end-FY15. Profitability is geared to iron ore and coal, which, against the present backdrop of improving iron-ore prices and higher coal consumption, would drive a re-rating. The stock quotes at 1.1x FY14e P/B. We initiate our coverage on this stock with a target of Rs.285/share on the basis of improving steel business, and Recommend Neutral. .................................................................. ( Page : 5-7) Narnolia Securities Ltd, India Equity Analytics Daily Fundamental Report on Indian Equities
21
Embed
India Equity Analytics Today: Buy Stock of Hindalco Industries Ltd
Hindalco Industries Ltd greater comfort on sustainability and visibility of ramp up in UAIL operations, we raise our FY16E volume and consolidated EBITDA by ~2%. Narnolia Securities Limited continue to see Hindalco benefiting over next three years from volume growth in Novelis and Indian operations. We recommeded buy stock with targated price of Rs.140 which is a 15% upside addition.
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On Mid Quarter Analyst Meet, TCS commented on weak revenue growth momentum for 4QFY14E due to weak seasonality. Growth in 4QFY14E
would be lower than the preceding quarter and margin would decline 40-50 basis points on cross currency movement and higher investments.
However, sigh of relief was seen on FY15E outlook and comments on overall demand environment. .................................................................. (
Page : 13-15 )
Hindalco Industries Ltd: "BUY" 25th Mar 2014
Sesa Sterlite's 22 days smelting shut will help rival producer Hindalco Industries raise sales.With greater comfort on sustainability and visibility of
ramp up in UAIL operations, we raise our FY15E volume and consolidated EBITDA by ~2%. Currently the stock is trading at 0.7x in 1yr Forward
P/B and we believe with the changing political climate and improving auto mobile demand the stock will accumulate to 0.8x P/B. Hence at CMP
Rs.121.5 we are bullish on the stock to a medium term target price of Rs.140 which is a 15% upside addition.
We cover Persistent System as one of the few companies in the tier-II with potential to grow revenue at a range of 18-20%, specially focused on
emerging business and relationship building with marquee clients. Despite better predictability of growth and attractive visibility of its expansion
in new emerging verticals, we advice to book profit on the stock because of its premium valuation. ...............................................................
(Page : 11-12)
"BOOK PROFIT"
TCS : " Strong Fundamentals" "BUY" 20th Mar 2014
IEA-Equity
Strategy
25th Mar, 2014
Edition : 231
KPIT Tech: "On billion dollar journey" "BUY" 19th Mar 2014
Impressive organic growth despite inorganic thrust (acquired 10 companies in the last 10 yrs), Potential option value from success of its hybrid
engine venture Revolo (on trial). KPIT has targeted to reach $1bn sales by 2017. Its differentiated positioning and competitive edge in its focus
areas, imperatives to the success of smaller-sized IT vendors impress to investors. ........................................................................ ( Page : 19-
20)
HDFC Bank : "HOLD" 20th Mar 2014
Profitability of bank is likely to report better in next few quarters on the back of mobilization of FCNR deposits which would reflect better NII
growth for being a low cost carry, RBI allowed banks to use counter cycle buffer for making specific provisions against bad loans, declining share
of priority sector lending but still met regulatory requirement and exempted foreign deposits with tenure more than 3 years from SLR, CRR and
PSL. Now the economy is witnessing some sign of revival and market sentiment boost up on account of exit poll result. We raised our price
target to Rs.760/share which is upper side of our valuation band. .................... ( Page : 16-18)
Persistent System : "Persistently innovating.." 21th Mar 2014
PNB : "BUY" 24th Mar 2014
We upgrade PNB from neutral to add rating on account of external factors like better than expected GDP growth and CAD numbers which
showing some improvement along with softening inflation numbers. Recently market sentiments are also booted on account of opinion poll
result which revealed that BJP led NDA would close to formation of Government in coming general election. We raised our price target to
Rs.700 from Rs.600 earlier. ............................................................. ( Page : 8- 10)
Jindal steel & Power : Challenging Fundamentals "NEUTRAL" 24th Mar 2014
The Company has embarked on expansion projects of US$9bn in steel and power, backed by resource availability and steady cash flows.
Improving free-cash-flows and volumes would be visible from end-FY15. Profitability is geared to iron ore and coal, which, against the present
backdrop of improving iron-ore prices and higher coal consumption, would drive a re-rating. The stock quotes at 1.1x FY14e P/B. We initiate our
coverage on this stock with a target of Rs.285/share on the basis of improving steel business, and Recommend Neutral.
India Equity AnalyticsDaily Fundamental Report on Indian Equities
Hindalco Industries Ltd.
122 1-
140
132
15%
NA
2-
500440
25497
17848
6284
1M 1yr YTD A. Captive bauxite is only 21km away from the refineryAbsolute 24.7 38.1 30.6 B. Low reactive silica content which reduces caustic soda consumptionRel. to Nifty 18.3 21.2 16.1 C.
D.
3QFY14 2QFY14 1QFY14
Promoters 37.0 37.0 37.0
FII 26.9 24.9 24.8
DII 13.3 14.4 14.3
Others 22.9 23.7 23.9
Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14
Net Revenue 7273 5.8 15.4 6872 6305
EBITDA 629 8.1 16.5 582 540
PAT 344 -20.6 -3.7 434 357
EBIDTA % 9% 2.1 1.0 8% 9%
NPM % 5% -25.0 -16.5 6% 6%. (In Crs)
2
Expansions ready to deliver…
With the change in political climate, we believe there will be demand from domestic
aluminium and copper consumer. Currently copper is going through a three month
low,we expect it to be better after election.
Key reasons for this low cost UAIL plant include:
Novelis Business:
Copper producer Sesa Sterlite Ltd will shut its smelter for 22 days starting April 26, for
maintenance purpose. It produces 30,000 tons of refined copper per month and exports
half of that to China. It will help rival producer Hindalco Industries raise sales. And also
for Hindalco the copper realization is stable with the previous quarter, so it will be
additional sales if orders executes.
Ongoing Positive thrusts:
The Q3FY14 financial results still do not include Mahan, Utkal and Aditya projects. All
three projects have started production under trial run. UAIL’s commercial production
started in December 2013. Management guided for FY15E and FY16E volumes of over
1mt and 1.5mt (full capacity), respectively. Integration of Aluminium smelters (a) Newly
commissioned aluminium smelters (UP and Odisha) to ramp up volumes going forward
and (b) Cost benefit of cheap alumina for its existing smelters with high quality,
proximate and captive bauxite mine, whose production is currently running at ~4mtpa
run-rate. We are expecting a good amount profit addition from these plants in H1FY15.
Source - Comapany/EastWind Research
Political sentiment:
High trihydrate alumina content (40%) i.e., it is gibbsite form of bauxite with only 2%
bohemite (low quality bauxite)
Bauxite properties are such that process is carried out at relatively low temperature and
pressure leading to savings in energy cost.
Novelis’ business has started to improve with the benefit and strong demand from
automobiles. However, the pricing pressure is impacting margin. Novelis is one of the
world’s leading aluminium rolling and recycling companies supplying premium products
in the markets of North America, Europe, Asia and South America. The company is the
largest single producer of aluminium rolled products with an estimated share of 14% of
the world’s supply. Novelis’ sales volumes are expected to grow at a CAGR of 5.7% in
FY13-16E. On the back of increasing share of the automobile segment in the overall sales
mix, we expect the EBITDA/ton to improve.
Company UpdateCMP
Target Price
Previous Target Price
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
1 yr Forward P/B
Nifty
Average Daily Volume (Nos.)
Upside
Change from Previous
Market DataBSE Code
HINDALCONSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
137/83
"Buy"25th March' 14
Narnolia Securities Ltd,
3
Concerns:
View & Valuations:
Hindalco is a metal major with business interests in copper smelting & aluminium
manufacturing domestically. It is also a leading aluminum converter globally through
subsidiary Novelis. On the domestic aluminium business front, the company is
undergoing an ambitious capacity expansion wherein its aluminium (primary metal)
production capacity will increase from 560 KT currently to 1278 KT by FY15E. The
planned capacity expansion is backed by corresponding alumina refinery with captive
bauxite linkage. Bauxite conveyor expected to start in December 2014.
Trading At :
Hindalco Industries Ltd.
With greater comfort on sustainability and visibility of ramp up in UAIL operations, we
raise our FY16E volume and consolidated EBITDA by ~2%. We continue to see Hindalco
benefiting over next three years from volume growth in Novelis and Indian operations.
Although Hindalco has expanded its aluminium capacity recently, low aluminium prices,
sticky costs and delay in commencement of mining from captive blocks have resulted in
decline in profitability over the past few quarters. In the near-term, its profitability is
likely to be muted due to higher costs at Mahan smelter and low aluminium prices.
Currently the stock is trading at 0.7x in 1yr Forward P/B and we believe with the
changing political climate and improving aluminium demand the stock will accumulate
to 0.8x P/B. Hence at CMP Rs.121.5 we are bullish on the stock to a medium term target
price of Rs.140 which is a 15% upside addition.
The company has received stage-2 forest clearance for its Mahan coal block subject to
certain conditions. The next important step would be signing of liming lease with the
state government and subsequent mine development, which is likely to take ~18-24
months. High debt on the books continues to weigh on valuations.
About The Company:
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Narnolia Securities Ltd,
FY11 FY12 FY13 FY14E
72078 80821 80193 81139
431 783 1012 1360
72509 81604 81205 82499
64102 72856 72395 72681
7976 7965 7798 8457
2725 2645 2822 3076
1839 1758 2079 2600
964 786 886 1201
366 211 -20 -
57 -50 16 -
2456 3397 3027 2940
8.5 10.6 8.4 7.8
FY10 FY11 FY12 FY13
191 191 191 191
21346 28824 31179 34597
21545 29023 31911 35330
10763 13736 37127 49857
13236 13956 3731 6442
3901 4138 5289 5691
9742 12980 11052 9613
1016 1077 1377 1610
69235 84376 101402 120590
7876 12272 15429 16435
21124 20133 19871 21490
5801 13131 22798 33831
1983 2035 3774 3170
11275 14096 13246 14332
6544 8000 8017 8952
2195 2556 3296 3770
1134 1164 2159 3257
69235 84376 101402 120590
FY10 FY11 FY12 FY13
1.6 1.4 0.8 0.5
20.5 12.8 17.7 15.8
10.8 11.1 9.9 11.2
16.0 18.0 13.7 12.0
FY10 FY11 FY12 FY13
5542 6929 8534 6852
4944 6226 7602 2978
-5448 -6710 -13220 -13765
428 825 6237 10278
-76 341 619 -510
4
Share in Profit/(Loss) of Associates
PAT
Expenditure
EBITDA
Depriciation
Interest Cost
Tax
Minority Interest
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
P/L PERFORMANCE
Source - Comapany/EastWind Research
ROE%
Net Revenue from Operation
Other Income
Total Income
Debtor to Turnover%
Creditors to Turnover%
CASH FLOWS
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Net Cash From Operation
Cash From Investment
Long-term borrowings
Cash from Finance
Net Cash Flow during year
Source - Comapany/EastWind Research
Cash from Operation
Short-term loans and advances
Total Assets
RATIOS
P/B
EPS
Long-term provisionsSource - Comapany/EastWind Research
Tangible assets
Capital work-in-progress
Trade payables
Short-term provisions
Total liabilities
Intangibles
Hindalco Industries Ltd.
Source - Comapany/EastWind Research
Short-term borrowings
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Narnolia Securities Ltd,
Jindal steel & Power
265
285
NA
8%
NA
532286
24796
11158
6495
1M 1yr YTD
Absolute 6.9 -21.7 -27.9
Rel. to Nifty 0.5 -36.3 -37.6
3QFY14 2QFY14 1QFY13
Promoters 59.7 59.1 59.1
FII 21.9 21.3 20.8
DII 4.7 6.2 6.7
Others 13.7 13.3 13.4
Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14
Revenue 5377 12.0 7.9 4802 4984
EBIDTA 1701 -5.0 16.7 1790 1457
Net Profit 562 -35.2 24.3 867 452
EBIDTA% 32 -15.1 8.2 37 29
NPM% 10 -42.1 15.2 18 9(In Crs)
5
Market Data
Challenging Fundamentals
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
362/181
The Company has embarked on expansion projects of US$9bn in steel and power,
backed by resource availability and steady cash flows. Improving free-cash-flows and
volumes would be visible from end-FY15. Profitability is geared to iron ore and coal,
which, against the present backdrop of improving iron-ore prices and higher coal
consumption, would drive a re-rating. The stock quotes at 1.1x FY14e P/B. We initiate
our coverage on this stock with a target of Rs.285/share on the basis of improving steel
business, and Recommend Neutral.
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
1 yr Forward P/B
Source - Comapany/EastWind Research
Nifty
Balance sheet at inflection point: In the past three years, 3bn dollar has been spent on
expansion, and a further 6bn will be expended in the next three years. The expansion has
been supported by the strong business cash flows. However, the net-debt-to-EBITDA
level has hit 3.7x due to delayed cash flows, though the leverage ratio is likely to have
peaked.
Steel segment improving : Steel sales volumes of Jindal Steel and Power are likely to
have improved in 3QFY14, to 0.75m tons. On the changing business and client mix, prices
are likely to have been better. Export opportunities in the quarter due to favorable
currency could have offset the impact of iron ore realizations and would have improved
EBITDA, aided by stable costs. The Shadeed Oman HBI business, iron ore and coking coal
mine are likely to have been stable.Management expects the company’s total steel
capacity, both in India and overseas, to increase around 8 million ton as compared to
current 3 million ton by the end of the fiscal.
The consolidated turnover was up by 12% to Rs.5377 Cr against Rs. 4683 Cr in previous
year period. Net Profit is after tax for the quarter is Rs. 562Cr (Rs. 867 Cr in Q3FY13). The
steel business in volume and value terms grew by 11% and 7% respectively compared to
the previous quarter.
JSPL achieved a spectacular growth in its export volumes which in volume and value
terms grew by 32% and 104% for the same period last year. The Company has received
Rail order from DFCC for the prestigious Delhi – Kolkata corridor and export order from
Ferrotech Alloys, UK.
JSPL’s retail segment has been very successful and the sale during Q3 FY14. Jindal Power
Ltd., a subsidiary of JSPL sales grew by 17.7% while PBT and PAT increased by 16.9% and
15.7% respectively in Q3 this year compared to Q3FY13.Net Sales of the company is
expected to grow at a CAGR of 6% over 2012 to 2015E respectively.
Average Daily Volume (Nos.)
BSE Code
JINDALSTEL
Initial Coverage Neutral
Upside
Change from Previous
CMP
Target Price
Previous Target Price
"Neutral"24th March' 14
Narnolia Securities Ltd,
Coverage :
Products
• Mining
Plants Locations
• Jindal Industrial Park (Chhattisgarh)
• Raipur Division (Chhattisgarh)
• Tamnar (Odisha)
• Angul (Odisha) • Zambia
• Barbil (Odisha) • Tanzania
• Tensa - (Jharkhand)
• Patratu (Jharkhand) • Australia
6
Jindal steel & Power
• Fabricated Sections
• Angels & Channels
• TMT Re-bars
• Wire Rods
• Oman (Middle East)
EBIDTA & Margin
Debt Structure
Stabilizing Power segment: With a steady performance and power sales to Rs.1130 Cr
in 3QFY14 (Rs.1068Cr in 3QFY13), the PLF in 3QFY14 would have held at ~100%, helping
maintain realizations. Capped realizations and the power-surplus situation would have
posed downside risks to earnings.
Jindal Steel and Power Limited (JSPL) is one of India’s major steel producers with a
significant presence in sectors like Steel, Mining, Power Generation and Infrastructure.
With an annual turnover of over US$ 3.6 billion, JSPL is a part of the over US$ 18 billion
diversified O. P. Jindal Group. In the recent past, JSPL has expanded its steel, power and
mining businesses to various parts of the world particularly in Asia, Africa and Australia.
The company has committed investments exceeding US$ 30 billion in the future and has
several business initiatives running simultaneously across continents. The company
produces economical and efficient steel and power through backward and forward
integration.
• Rails
• Parallel Flange Beams
• Plates & Coils
• Madagascar
Jindal Steel and Power Limited started as a steel manufacturing company, enhanced the
company position as a major steel producer and diversified into various other sectors
such as:
• Petroleum
• Cement and Infrastructure.• Power Generation & Trading
Global Presence
Earning Ratios
Earning Ratios
Revenue & Growth
EBIDTA & Margin
• Mozambique
• South America
Business Areas
• Semi-Finished Products
• Power
• Ferro Chrome
• Silico Manganese
• Sponge Iron
Narnolia Securities Ltd,
FY10 FY11 FY12 FY13
11092 13112 18209 19807
60 82 142 136
11152 13194 18351 19943
4197 5078 5311 6151
273 415 591 641
774 1303 5513 7020
5244 6795 11415 13812
5848 6317 6793 5994
997 1151 1386 1539
358 260 360 758
4553 4988 5189 3833
919 1184 1186 922
3573 3754 3965 2910
34 27 22 14
6.3 4.6 2.8 1.5
FY10 FY11 FY12 FY13
93 93 93 93
10324 14017 18018 21159
10417 14110 18111 21252
5330 5549 11180 15402
3274 8428 4569 8247
17 25 34 33
2266 2573 1251 1398
2036 3081 4111 4884
25122 36091 45008 57073
14 20 31 20
9883 14824 16463 19255
7947 10041 92 19230
1090 1527 2181 2421
1431 2773 3580 4524
753 1154 1307 1954
113 480 149 200
3464 4852 6927 8079
25122 36091 45008 57073
FY10 FY11 FY12 FY13
6.3 4.6 2.8 1.5
32.0 28.5 21.6 14.6
52.4 47.9 37.0 30.1
17.8 12.8 11.2 6.1
4.2 1.9 2.3 3.2
#N/A #N/A #N/A #N/A
7
Short-term provisions
Interest Cost
ROE%
P/B
Short-term borrowings
Long-term provisions
Trade payables
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Trade receivables
Short-term loans and advances
Total Assets
P/B
Total liabilities
Cash and bank balances
Intangibles
Tangible assets
PBT
Net tax expense / (benefit)
PAT
Weighted Average Cost of Debt %
Debt/Equity (debt/debt+networth or
EBITDA %
ROCE%
RATIOS
NPM %
Capital work-in-progress
Long-term loans and advances
Inventories
Jindal steel & Power
P/L PERFORMANCE
Cost Of Projects & Contractual
Employee benefit Expence
Net Revenue from Operation
Other Income
Total Income
Other Expenses
Expenditure
EBITDA
Depriciation
Narnolia Securities Ltd,
641
700
600
9
17
1M 1yr YTD
Absolute 18.9 -19.7 -19.7
Rel.to Nifty 14.0 -30.2 -30.2
Current 4QFY13 3QFY1
3Promoters 58.9 57.9 57.9
FII 17.5 17.9 18.0
DII 18.5 18.4 19.1
Others 5.1 5.9 5.1
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 11807 13414 14857 16536 17691
Total Income 15420 17617 19072 20775 21930
PPP 9056 10614 10907 11155 12500
Net Profit 4433 4884 4748 3408 5209
EPS 140.6 144.0 134.3 94.1 143.9
8
PNB
Market Data
Upside
890/400
BSE Code 532461
NSE Symbol PNB
Company update ADD Over the last one month, PNB has outperform Nifty by 14% and Bank Nifty by
5.7% largely on account of external factor like economy and fiscal deficit
showing some positive trend, softening of inflation from its peak level. Market
sentiment are also boosted by recent opinion poll result which revealed BJP
led NDA would come to power and economy would revived. Although we like
Bank of Baroda over PNB but former is trading close to our target price. We
value PNB at Rs.600 to Rs.775 per share implying 0.6 to 0.75 times of one year
forward book depending upon current economy scenario and banks own
fundamental. Looking at current fundamental and market sentiments we
believe bank would trade in the range of Rs.600 to Rs.700.
In the subsequent section we will discuss two positive fronts that bank has
witnessed in last quarter result (a) asset quality improvement especially in
fresh slippage side, (b) margin expansion. We will discuss the possibility
valuation contraction from current level.
CMP
Target Price
Previous Target Price
Average Daily Volume
19646
Change from Previous
PNB Vs Nifty
Share Holding Pattern-%
7.4 cr
Nifty 6495
(Source: Company/Eastwind)
Stock Performance
52wk Range H/L
During the last quarter PNB experienced improvement of asset quality especially in
fresh slippage front. Fresh addition in GNPA was declined by 52% sequential to Rs.
1142 cr as against average run rate in last ten quarter was Rs.2124cr. In percentage
to gross advances, slippage ratio came down to 1.4% versus 3% in 2Q and 4.7% in
1Q. Cash recoveries were better which drag net NPA to 2.8% from 3.1% in previous
quarter. Further bank restructure Rs. 2115 cr in 3QFY14 mainly come from power
sector which was offset by similar amount of bond received from SEBs. Bank
management has not indicated restructure pipeline in near term which means stable
to improving asset quality trend could be seen.
Margin expansion on the back of shifting concentration of portfolio mix and
CASA growth
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
Creation of fresh slippage lower, impaired asset high but showing
improvement
During the last quarter bank’s margin expanded by 10 bps QoQ despite of moderate
loan growth. Bank witnessed 9.7% YoY loan growth led by SME growth of 21.6%
and retail segment growth of 17.5%. Retail and SME segment are high yield in
nature. Further bank’s low cost deposits CASA increased by 13% in absolute term in
which saving account supported with 14% growth current account 7% YoY. But
overall deposits declined by 20% led by 33% declined of term deposits which inflated
CASA ratio to 38.3% from 27%. Sequentially cost of fund declined by 25 bps while
yield on loan declined by 11 bps on account of creation of low deposits franchise and
shifting of portfolio.
"ADD"24th March2014
Narnolia Securities Ltd,
9
Management guided stable NIM, more focus on liability rather than asset yield
According to bank management, PNB is focusing more on liability side rather than yield.
Bank has reduced high cost bulk deposits from Rs.880 bn in Sept.2012 to Rs.220 bn in
Dec.2013 and certificate of deposits came down to Rs.110 bn from Rs.240 bn in
3QFY13. Share of low cost deposits improved to 40% which would help bank to maintain
NIM at 3.5% according to management.
Valuation & View
We upgrade PNB from neutral to add rating on account of improving sign of economy led
by CAD number and softening of inflation. Recently market sentiments are also boosted
up due to exit poll result which revealed that BJP led NDA government would be close to
government formation in coming general election. In our valuation matrix, we value in the
range of 0.6 times to 0.75 times of F14E book depending upon bank’s fundamental and
market sentiment. Looking at current market sentiment and fundamental, we value bank
in the range of Rs.600 to Rs.770 per share. We have added rating on the stock with
current price target of Rs.700.
Current Valuation Range
PNB
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
10
PNB
Financial & Assuption
Source : Eastwind/ Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2011 2012 2013 2014E 2015EInterest Income 26986 36476 41893 43513 49565
Interest Expense 15179 23062 27037 26977 31875
NII 11807 13414 14857 16536 17691
Change (%) 39.3 13.6 10.8 11.3 7.0
Non Interest Income 3613 4203 4216 4240 4240
Total Income 15420 17617 19072 20775 21930
Change (%) 27.6 14.2 8.3 8.9 5.6
Operating Expenses 6364 7003 8165 9621 9430
Pre Provision Profits 9056 10614 10907 11155 12500