Escorts Ltd :"Out Performer……." "BUY" 30th Jan 2014 Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-to- medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175 .................................................................( Page :5-7) Hindustan Unilever :"wait for triggers" "NEUTRAL" 30th Jan 2014 Delivered stable set of numbers, still expecting key challenges ahead;For 3QFY14, despite slow discretionary demand HUL reported inline set of numbers with 8.5% (YoY) sales growth led by 4% (YOY) volume growth. PAT grew by 19%(YoY). We do not see any sign of improvement in volume growth in near future. However, revival in macro economy and resultant improvement in consumer sentiment would play a key triggers for improvement in the volume growth in near term. ............................................ ( Page :2-4) 28th Jan 2014 Delivered inline set of numbers but better on all aspects than its peers did: For 3QFY14, Persistent System’s sales was almost flat (QoQ) in INR term, while grew 2.2% (QoQ) in USD term impacted by seasonality and furloughs impacts. Considering the company’s ability to achieve scale and growth, we upgrade our target price from Rs 960 to Rs 1070 with “BUY” view on the stock. ................................................................ ( Page : 18 - 20) ALLAHABAD BANK : "BUY" 28th Jan 2014 Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII growth and deteriorated asset quality. Bank’s operating expenses were stable in absoluter term but as cost income ratio increased drastically on account of lower revenue growth. Asset quality has deteriorated sequentially. Due to lower corporate demand, loan growth remain muted and bank’s lower its total business (Loan + Deposits) guidance to Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s book value. We are not impression with bank’s fundament but current price provide 15% upside from our target price. ........................................................... ( Page : 13-17) 30th Jan, 2014 Edition : 195 IEA-Equity Strategy UCO BANK : "BUY" 27th Jan 2014 UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII along with higher than industry average loan growth. Bank’s asset quality improved sequentially despite of challenging macro environment. However bank’s CASA growth has declined marginally in sequential basis but still at comfortable level. UCO Bank’s operating as well as financials metrics has been improving continuously. We value bank at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s earning. ............................................................ ( Page :21-25) SHREE CEMENT : "BUY" 28th Jan 2014 Persistent System: "Persistently innovating.." "BUY" SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES 29th Jan 2014 India's auto mobile sales continued to remain on sluggish trajectory as most of the companies reported a decline in sales number due to slowdown in economic activity and increasing fuel prices. However, two-wheeler segments continued to grow at a healthy rate, led by strong rural demand ........................................... ( Page : 8-9) Shree Cement Ltd has reported a 47% fall in its December quarter net profit on lower sales as well as 5% degrowth in realization. PAT impacted due to lower other income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41% YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. After a good monsoon and election ahead management expecting a good performance from shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/- . ............................................ ( Page :10-12) Narnolia Securities Ltd, India Equity Analytics Daily Fundamental Report on Indian Equities
26
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Investment Funds Advisory Today- Buy Stock of Escorts Ltd and Neutral View on Hindustan Unilever
Narnolia Securities Limited positive to buy stocks of Escorts Ltd in current level with Revised price target of Rs. 175. For more information about stock market tips, contact here http://www.narnolia.com/index.php/contact-us/
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Escorts Ltd :"Out Performer……." "BUY" 30th Jan 2014
Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in
FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-to-
medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on
the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175
Hindustan Unilever :"wait for triggers" "NEUTRAL" 30th Jan 2014
Delivered stable set of numbers, still expecting key challenges ahead;For 3QFY14, despite slow discretionary demand HUL reported inline set of
numbers with 8.5% (YoY) sales growth led by 4% (YOY) volume growth. PAT grew by 19%(YoY). We do not see any sign of improvement in
volume growth in near future. However, revival in macro economy and resultant improvement in consumer sentiment would play a key triggers
for improvement in the volume growth in near term. ............................................ ( Page :2-4)
28th Jan 2014
Delivered inline set of numbers but better on all aspects than its peers did: For 3QFY14, Persistent System’s sales was almost flat (QoQ) in INR
term, while grew 2.2% (QoQ) in USD term impacted by seasonality and furloughs impacts. Considering the company’s ability to achieve scale and
growth, we upgrade our target price from Rs 960 to Rs 1070 with “BUY” view on the stock. ................................................................ ( Page : 18
- 20)
ALLAHABAD BANK : "BUY" 28th Jan 2014
Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII growth and deteriorated asset quality. Bank’s operating
expenses were stable in absoluter term but as cost income ratio increased drastically on account of lower revenue growth. Asset quality has
deteriorated sequentially. Due to lower corporate demand, loan growth remain muted and bank’s lower its total business (Loan + Deposits)
guidance to Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s book value. We are not
impression with bank’s fundament but current price provide 15% upside from our target price. ........................................................... ( Page :
13-17)
30th Jan, 2014
Edition : 195
IEA-Equity
Strategy
UCO BANK : "BUY" 27th Jan 2014
UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII along with higher than industry average loan growth.
Bank’s asset quality improved sequentially despite of challenging macro environment. However bank’s CASA growth has declined marginally in
sequential basis but still at comfortable level. UCO Bank’s operating as well as financials metrics has been improving continuously. We value
bank at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s earning. ............................................................ (
Ad Spend 2423.0 2797.1 2697.0 3290.0 3619.9 3938.3
Other expenses 2783.2 3317.4 3553.2 4008.9 4054.3 4568.4
Total expenses 15188.7 17311.3 19952.8 22798.7 24219.9 26665.4
EBITDA 2836.9 2711.2 3483.6 4205.3 4739.1 4840.9
Depreciation and Amortisation 191.9 207.5 211.9 251.3 270.4 294.2
Other Income 82.7 255.2 259.6 532.0 579.2 630.1
EBIT 2727.6 2758.9 3531.3 4486.0 5047.9 5176.9
Interest 7.5 1.0 1.7 25.7 25.7 27.0
PBT 2720.2 2757.9 3529.7 4460.3 5022.2 5149.9
Tax Exp 615.3 650.3 821.5 1226.7 1406.2 1442.0
PAT 2104.9 2107.6 2708.1 3233.7 3616.0 3707.9
Growth-% (YoY)
Sales -13.4% 11.1% 17.0% 15.2% 7.2% 8.8%
EBITDA -4.9% -4.4% 28.5% 20.7% 12.7% 2.1%
PAT -16.1% 0.1% 28.5% 19.4% 11.8% 2.5%
Expenses on Sales-%
RM Cost 37.5% 38.9% 40.5% 40.7% 41.0% 41.5%
Ad Spend 13.4% 14.0% 11.5% 12.2% 12.5% 12.5%
Employee Cost 5.4% 5.1% 5.1% 5.2% 5.2% 5.2%
Other expenses 15.4% 16.6% 15.2% 14.8% 14.0% 14.5%
Tax rate 22.6% 23.6% 23.3% 27.5% 28.0% 28.0%
Margin-%
EBITDA 15.7% 13.5% 14.9% 15.6% 16.4% 15.4%
EBIT 15.1% 13.8% 15.1% 16.6% 17.4% 16.4%
PAT 11.7% 10.5% 11.6% 12.0% 12.5% 11.8%
Valuation:
CMP 238.7 284.6 419.0 483.3 570.00 570.00
No of Share 218.2 215.9 218.2 216.2 216.26 216.26
NW 2668.9 2735.0 3681.1 2864.8 3571.24 4243.13
EPS 9.6 9.8 12.4 15.0 16.72 17.15
BVPS 12.2 12.7 16.9 13.3 16.51 19.62
RoE-% 78.9% 77.1% 73.6% 112.9% 101.3% 87.4%
P/BV 19.5 22.5 24.8 36.5 34.52 29.05
P/E 24.7 29.2 33.8 32.3 34.09 33.24
V- Escorts Ltd.
CMP 125
Target Price 175
Previous
Target Price
105
Upside 40%
Change from
Previous
67%
BSE Code 500495
NSE Symbol
52wk Range
H/L
48/96
Mkt Capital
(Rs Crores)
1,505
Average Daily
Volume
225,953
Nifty 6,120
1M 1yr YTD
Absolute (11.3) 62.7 147.9
Rel. to Nifty (8.2) 61.0 140.2
3QFY14 2QFY14 1QFY14
Promoter's 42.0 42.0 42.0
FII's 9.4 12.3 12.1
DII's 2.1 4.7 5.4
Others's 46.5 41.0 40.6
5
Result update
Market Data
In 5QFY13 the company saw revenue growth of 12.8% to Rs 1159.6 crore. This result was
mirrors the pent-up demand for tractor business, partly driven by improved crop cultivation
and production and revival in farm equipment segment. In current quarter 84% of Escorts’
revenues come from the sale of tractors, and it saw volumes growth of 11.3% to 19047 in its
tractor sales. Company construction equipment business witnessed a flattish of 1.4% to Rs.
130.9 crore and stands at 11% of company total revenue during this quarter. Lower inventory
levels typical of this quarter, where sales are better than in the preceding quarter, translated
into a 6.1% operating margin, up 100 basis points from the year-ago period. Further, A
marginal price hike in the latter part of the December quarter also propped up realizations.
More importantly, the improved financial position in the farm segment eased cash flows and
working capital cycles, which in turn trimmed interest costs.
Buy
Industry players expects the year 2013-14 to end with volume growth of around 15%
After an all time high sales in Oct 2013, where the industry saw a volume growth of 28.8% YoY,
Nov'13 volume growth was expected on lower side. While in Dec'13, the industry came back
strongly with a 21.1% growth. In April-Dec'13 period, the industry saw a healthy 23.8% growth in
volume. So while high growth is expected to tilt down in lean season, overall, the industry as a
whole is still expected to end the year with a volume growth of about 15% for 2013-14. Key
markets that supported the growth in FY'14 are Andhra Pradesh, Madhya Pradesh, Rajasthan and
Chhattisgarh. Some of these markets grew by more than 30% YoY. All macroeconomic factors
such as crop prices, productivity, soil moisture, government focus on rural spending etc are
favoring the farm equipment business.
Please refer to the Disclaimers at the end of this Report.
"Out Performer……."
ESCORTS
Share Holding Pattern-%
Stock Performance-%
"Buy"30th Jan' 14
Narnolia Securities Ltd,
Penetration to high HP Tractors
Company Outlook
6
The stock is currently trading at 6.5x FY14E EPS with a negative bias in case of construction equipment
segment due to adverse macroeconomic conditions . At current price of Rs. 117, the stock is trading at
P/E of 7.1 x for FY13E and 6.5 x the FY14E. Escorts could post EPS of Rs. 12.13 for FY14E and Rs. 12.98
for FY15E. An increase in volumes is an indication of healthy demand. Tractor sales revival has enabled
the company to register strong result. Escorts’ EBITDA margin and bottom-line exceeded our
expectations. Going forward, we remain positive on the company’s growth prospects particularly in
AMP segment. We expect demand to improve further in FY2014E with the economic recovery.
However, we remain cautious with regards to growth in Construction Equipment segment in near-to-
medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume
performance. We therefore revised our rating on the stock from "Reduce" to "Buy" and advised to
our investors to enter at current level with Revised price target of Rs. 175
Escorts Ltd.
Please refer to the Disclaimers at the end of this Report.
Escorts management aims to improve tractor margins from the current ~10% to 15% over the next 1-2
years led by change in focus to higher HP tractors and by cost rationalization measures. Higher tractor
margins would take Escorts' company level EBITDA margins from ~6% to ~10%, as tractor segment
contributes 80% to the company's overall sales. Moreover, the management's strategy to focus on
higher HP tractors and increase presence in Southern markets will lead to faster-than-market growth.
Outlook on Industry
Despite being an agricultural nation, Tractors penetration in India is about 5% of total cultivable
land. Going forward, we expect deeper penetration of Tractors to happen which will continue to
drive strong demand for the sector. The growth in farm incomes will fuel the need for further
mechanization, which will tend to accelerate as social welfare programs, urbanization and
alternative occupations move farm labor to other sectors. So the demand for higher HP tractors
will be the future growth within the sector. The proportion of higher power (greater than 50 HP+)
segment has shown increase in total industry volume share by 380 bps from 12.6% in FY'08 to
about 18% in FY'13. For tractor industry more than festive season it is the monsoons that matters
a lot. The onset of positive sentiments because of monsoons, the reservoirs are full, the kharif crop
sowing is more than 1,000 lakh hectors which is almost 6 percent up vis-à-vis last year. The prices
of the crops declared by the government are pretty good and on top of it there are host of
financiers who are financing the tractors and funds are available to prospective buyers and that is
also leading to growth.
Narnolia Securities Ltd,
7
Graphical representations :
Operating profit :
Net Profit :
Trailling ROE % & Trailling Asset T/O :
(Source: Eastwind Research) (Figures in crore)
(Source: Eastwind Research) (Figures in crore)
(Source: Eastwind Research) (Figures in crore)
Please refer to the Disclaimers at the end of this Report.
Escorts Ltd.
Revenue from operation :
(Source: Eastwind Research) (Figures in crore)
Narnolia Securities Ltd,
SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES
8
Industry Overview:India's automobile sales continued to remain on sluggish trajectory as most of the companies reported a decline in sales number due to
slowdown in economic activity and increasing fuel prices. However, two-wheeler segments continued to grow at a healthy rate, led by
strong rural demand.The contribution of various segment for the 9MFY14 automobiles sales stands as under :
Two Wheelers For December 2013, overall auto industry volumes were led by the two-wheeler industry (4% YoY growth). Two Wheelers segment
contribution has increased to 80.2% of the total auto volume, during first nine months of FY14 from 77% in FY 13.The cumulative volume
for 9MFY14 for 2 Wheelers stands at 12489192 units up 5.3% YoY.
Better monsoon benefitted rural demand, while urban sales remained lackluster, which was higher than offsetting the rural growth. With
the festive season ending early in November 2013 this year, the positive momentum seen October 2013 has cooled off with retail sales
largely lagging wholesales. The two-wheeler segment has again managed to keep its head over water even as all other segments have
shown an annual decline with last years' festive season ending later.
Sub Segment Motorcycle
The analysis of previous year’s sales indicates that the three major players viz Heromoto Corp, Bajaj-Auto,TVS Motors have shown
declining performance along with market share loss to both HMSI and Yamaha. The strong rural demand helps to boost the sales of
commuter sub segment (100-125 CC) of motorcycles. The following table shows yearly performance of some of major motorcycle
players
(Source: Company/Eastwind)
The graph clearly indicates that of total automobiles sold for 9MFY14
the contribution of two wheelers stand at maximum. This trend shows
that slow down in consumer discretionary expenses. The differential
pricing makes people to spend more towards two wheelers more over
people look for option which gives them more mileage for every unit of
fuel. As stated earlier there is growth in rural economy and trend is
clearly visible from the sales made by two wheelers in total
automobiles sold for the period.
Sub Segment Scooter
Year Wise Motorcycle SalesYear Wise Motorcycle Market Share
Please refer to the Disclaimers at the end of this Report.
The scooter sub segment grew well led by new launches from Honda (New Activa), Hero (Maestro), TVS (Jupiter) and Suzuki (Swish),
the scooter segment grew at a faster clip of 19% YoY for Apr-Dec'13 period against a flattish (3%) growth in the motorcycle segment.
The faster volume growth of the scooter segment led to a 220bps improvement to 21.2% in its share of the two-wheeler market during
this period. The main drivers for this growth are (a) growing acceptability of gearless scooters, particularly by women, (b) rising
urbanization and increasing proportion of working women and (d) new launches.
Narnolia Securities Ltd,
Companies FY12-13 FY11-12 FY10-11
Hero MotoCorp 46% 48% 48%
Bajaj Auto 31% 32% 32%
TVS Motors 6% 7% 8%
HMSI 11% 7% 7%
Yamaha 4% 4% 3%
Companies FY12-13 FY11-12 FY10-11
Hero MotoCorp 5499245 5779621 5040971
Bajaj Auto 3757094 3834405 3387043
TVS Motors 749806 843338 836831
HMSI 1291688 864183 748488
Yamaha 437998 484891 366770
SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES
9
Please refer to the Disclaimers at the end of this Report.
In three wheelers universe for the December 2013 Industry domestic volumes were down 21% to 35249 units led by 27% drop in the
passenger segment. There was a 7% rise in the goods carrier segment in Dec 13. Exports registered 11% rise to 33,044 units. This segment
for 9MFY14 registered domestic sales was 364669 units down by 9 % YoY for the same period last fiscal. The exports have done fairly well
for the period with 11 % growth YoY to 33044 units. The three wheeler segment remains flat on YoY to 626749 units for 9MFY14. The three
Wheelers demand largely driven by exports, while domestic sales remained weak.
Bajaj-Auto with 55% market share is the market leader in 3 Wheeler sales in the country. Q1FY14 Domestic 3W sales accounted for 38% of
the company's total 3W sales. Of the total 3W sales, 15-20% came from new permits, while replacement accounts for the rest. On the
domestic 3W front, the outlook remains positive with 20000 permits opening up in Hyderabad (5k already utilized in June-July 2013) and
3000 permits opening up in Maharashtra in Sept-Oct 2013. Also, its plan to launch a renewed range of 3W (RE Compact) promises to drive
replacement demand.
For TVS, 3W sales stood up by 36.8% YoY to 6,137 units with most of it coming from the overseas markets; 3W share to total sales forms
3.8% in December and 3.9% YTD, 150bp higher YoY. The Company is expected to benefit from this as 3W forms a high margin product.On
the other hand, Mahindra & Mahindra's 3w sales were up 7.6% to 5.6k units. Sales were down 5% on a MoM basis.
The YTD performance of Three wheelers for FY14 is tabulated as under:
While the macro-economic environment remains challenging, OEMs have pinned hopes on the bevy of launches that might trigger a
response from customers. Also, the recent cut in the price of petrol might just prove to be a good thing for companies. Additionally, better
crop realization due to a good monsoon and hike in MSP is expected to boost the rural income leading to a sales recovery. Over the long
term, easing macro headwinds in terms of lower interest rates and higher economic growth would be the key driver for volume growth and
profitability.
Conclusion
Given its low ticket size and high rural share, this segment of the auto industry is sure to pick up momentum in the coming months. With
urbanization, rise in women riders, higher fuel efficiency and improving per capita income, the penetration of scooters will continue to
increase and at a pace faster than motorcycles. 2/3 wheeler companies which are the direct beneficiaries of the rural consumption are
expected to remain strong given the buoyant prices for food items, strong monsoon and additional benefits of government doll outs and
largesse.
Future Outlook (Source: Company/Eastwind)
Continued…Scooter sales growth has taken-off since FY10 and has consistently
outgrown that for the motorcycle segment. An increasing population of
working women, mainly in urban markets, has led to rapid sales-volume
growth in this segment. On a longer term perspective, scooter industry
volumes are expected to grow at ~20% CAGR over FY14-20, twice the
growth rate for motorcycles. Overall two wheeler industry volumes are likely
to grow at 12% CAGR during this period. The shares of scooters are
expected to increase to 37% by 2020, with annual sales of 10.7m units
(equal to the current market size of the domestic motorcycle industry).