Page 1
"BUY" 14th Jan 2014
In view of upcoming general election, we expect government ad spending to go up substantially. Being one of the biggest player, company will
benefit from this. Considering its long-term growth story with favorable earning scenario and leadership position in key market, we are positive
on the stock. We initiate “BUY” view on the stock with the target price of Rs 340. At a CMP of Rs 305, stock trades at 4.3x of FY15E P/BV
............................................... ( Page : 5-6)
UltraTech Cement Ltd : "BUY" 14th Jan 2014
We are expecting 8%-15% Sales growth with ~19% ROE in FY15E.We expect cement demand to pick up from 2HFY14 onwards driven by
governments pre-election spending as well as on account of rural demand pick post the good monsoon witnessed this year. UTCL is a largest
cement player in India and we expect it to maintain or increase the same through timely commissioning of capacities, which are expect to come
on stream by FY15E.We value the stock and arrive at the target price of Rs 1846. As from the current level the upside is very limited (10%), so we
recommend investors to "Buy" the stock at lower level dips to get a decent returns over a time horizon of 12-18 months
................................................. ( Page :2-4)
Zensar Tech :"Better growth trajectory" "BUY" 14th Jan 2014
The deal booking and pipeline is good and expects to perform well going forward. It expects double digit growth in the Enterprise Services
business for the FY15E on the back of healthy pipeline. Also, it anticipates good growth from the IMS for the FY'15E. Considering healthy order
pipeline and its earning visibility in near future, we maintain “BUY” view on the stock and we revise our target price from Rs 400 to Rs 440. At a
CMP of Rs 412, stock trades at 7.2x FY14E EPS .............................................. ( Page : 7-8)
14th Jan, 2014
Edition : 183
IEA-Equity
Strategy
GAIL : "Neutral" 10th Jan 2014
INDUSIND BANK "Neutral" 13th Jan 2014
Despite of reported higher than expected profit we have neutral view on the stock owing to shifting of loan mix from consumer finance to
corporate loan which will lead to margin compression and deterioration in asset quality as per our view. Corporate loans generally are big ticket
size in nature and with slowing of economy there are higher chances of these loan slip into NPA than other loan. Moreover retail loans are high
yield in nature than corporate loan. At current price, we have neutral view on the stock due to trading almost near to our valuation multiple and
anticipating margin compression and higher slippage. ........................ ( Page : 13-18)
Infosys : "On the way of excitement" "BUY" 13th Jan 2014
Infosys largely reported inline set of sales numbers and beats the street on margin front, In USD term, Sales grew by 1.65%(QoQ) and 0.5%(QoQ)
in INR term, led by 0.7% (QoQ) volume growth and 0.7%(QoQ) pricing growth. At a CMP of Rs 3549, it trades at 16.3x FY15E At a CMP of Rs
3549, it trades at 16.3x FY15E earnings. We retain our “BUY” view on the stock with a target price of target price of Rs 3910 (revised from 3620).
....................................... ( Page : 9-12)
DB Corp :"On strong footing"
Company registered a turnover of Rs. 26902.25 Cr, up by 19% in H1FY14 compared to corresponding previous year period. There was fall of
10% in operating profits of the company to Rs 2971.72 Cr for H1FY14. The Other income was down 8% to Rs 279.6 Cr while Interest cost grew
99% to Rs 169.36 Cr. .......................................... ( Page : 22-24)
Private Bank Result Preview 3QFY14 : 13th Jan 2014
Broadly banking indices outperform Nifty by 6% in third quarter and most of banking stocks are trading at attractive valuation. Despite of, we
have caution view on account of slowdown in economy, high interest rate and inflationary pressure. High inflation would be risk for the
economy going forward. Any rise in inflation would result of rise in interest rate by RBI in its third quarter monetary policy review on 28th
Jan.2014 which would be negative for banking industry. Most of banking stocks are expected to report moderate revenue and profit growth
owing to multiple headwinds. In private sector banking universe we like HDFC Bank, ICICI bank and DCB.............................................. ( Page :
19-21)
Narnolia Securities Ltd,
India Equity AnalyticsDaliy Fundamental Report on Indian Equities
Page 2
UltraTech Cement Ltd.
1675
1846
1875
10%
-2%
532538
45942
18377
6272
1M 1yr YTD
Absolute -7.3 -14.8 -10.2
Rel. to Nifty -9.0 -19.9 -14.3
2QFY14 1QFY14 4QFY13
Promoters 62.0 62.0 62.0
FII 20.7 20.7 20.6
DII 4.8 4.6 4.6
Others 12.6 12.7 12.7
Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14
Net Revenue 4522 -4.3 -9.2 4727 4980
EBITDA 679 -34.4 -36.7 1035 1072
Depriciation 257 10.8 2.0 232 252
Interest Cost 89 48.3 34.8 60 66
Tax 107 -54.1 -56.7 233 247
PAT 264 -52.0 -60.8 550 673(In Crs)
2
Upside
Change from Previous
CMP
Struggle for beter Manufacturing : Financial performance impacted by lower selling price and
subdued demand. The demand remained sluggish due to prolonged monsoon across the country,
resulted in reduced offtake by infrastructure and real estate companies. During the quarter
,benefit of lower imported coal prices was get cancelled due to sharp depreciation of the rupee
against the dollar. Logistics and raw material costs continued to rise given the high diesel prices.
However, optimisation of fuel mix i.e use of pet coke helped to lower power and fuel costs to an
extent.
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
Capacity Addition : Meanwhile, UltraTech Cement agreed to purchase debt-laden Jaiprakash
Associates' Gujarat cement unit having a capacity of 4.8 million tonnes for Rs 3,800 crore. Gujarat
cement unit comprises of an integrated cement unit at Sewagram and grinding unit at Wankbori.
With this acquisition of 4.8 million tonnes per annum, the company's current capacity increases to
59 million tonnes per annum. The transaction implies a valuation of $124 per tonne of cement,
which is lower than the existing benchmark of around $140 per tonne, and is a positive for
UltraTech.Currently, UltraTech’s debt is around Rs.4,500 crore. After the transaction is completed,
the company’s net debt-to-equity ratio will increase to around 0.45 from 0.27. Debt will increase
to 2 times EBIDTA. With projects underway it will stand raised to 70 million tonnes by 2015.
Target Price
Previous Target Price
Company Update Buy
Market Data
The outlook continues to remain challenging. Demand growth in FY14 is likely to be around 5 %,
though in the long term growth is likely to be over 8 % - 15% . Government initiatives to
expedite large infrastructure projects have yielded little so far and this is putting pressure on
cement makers, especially those with debt that has become expensive to service due to high
interest rates.We believe that UltraTech will maintain its healthy debt protection metrics ,
supported by its earnings and cash flows.At present Ultratech is running at 79% of its capacity
utilization.The utilization levels will decline due to stabilization of supply from new capacities,
owing to insufficient demand in the domestic market. UltraTech plans to strengthen its logistics
infrastructure and increase its captive power plant capacity, which will help to reduce its
operational cost.We value the stock at the target price of Rs 1846. From the current level the
upside is very limited (10%), so we recommend investors to "Buy" the stock at dips to get a
decent returns.
Average Daily Volume (Nos.)
BSE Code
ULTRACEMCONSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
2066/1404 Q2FY14 Update : Ultratech Cement reported a 52 per cent dip in net profit for the July-September
quarter at Rs 264. Net sales were down 4 per cent at Rs 4,502 crore .Cement and clinker sales
remained unchanged compared with last year at 9.1 million tonnes while white cement and wall-
care putty sales were up 15 per cent at 2.75 lakh tonnes (2.39 lakh tonnes). Despite flat cement
sales, overall cost increased 4 per cent to Rs 4,100 crore (Rs 3,927 crore) on the back of high
logistics cost.Overal realisation during the quarter was down 5 per cent at Rs 239 per 50 kg bag
compared with Rs 252 in last year.The company’s long-term borrowings stood lower at Rs 3,841
crore (Rs 3,893 crore), while deferred tax liabilities increased 9 per cent to Rs 2,073 crore (Rs
1,906 crore). EBITDA slipped 34.3 percent on yearly basis to Rs 660 crore and operating profit
margin declined 670 basis points Y-o-Y to 14.7 percent in the quarter.
Nifty
"BUY"14th Jan' 14
Narnolia Securities Ltd,
Au
g-0
4
Mar
-05
Oct
-05
May
-06
De
c-0
6
Jul-
07
Feb
-08
Sep
-08
Ap
r-0
9
No
v-0
9
Jun
-10
Jan
-11
Au
g-1
1
Mar
-12
Oct
-12
May
-13
Price 1x2x 3x4x 5x6x 7x
Page 3
OUT LOOK :
FY11 FY12 FY13 FY14E
13798 19232 21319 21267
154 371 304 363
13952 19603 21623 21630
3280 4639 4646 4607
2881 3741 4243 4586
2696 4194 4839 3791
813 963 1023 1110
292 256 252 325
384 948 1179 775
1367 2403 2678 1934
13 19 18 11
2.9 3.2 3.4 2.9
3
Source - Comapany/EastWind Research
UltraTech Cement Ltd.
P/L PERFORMANCE
Net Revenue from Operation
Other Income
Ultratech's EBIDTA growth has been consistently beats the industry average as well as its peers
ACC and Abuja cements. In last few years it also led the industry and its peers on PAT growth .It
beats its peers on account of cement realization and volume sales. Additionally Ultratech has
also been increasing the usage of low cost pet coke in its fuel mix there by moderating its cost
pressure. Strong Brand premium and operational efficiency drives its industry leading
profitability . With the overall slow down in demand, Ultratech will continue to loose its market
share in FY14E on capacity delay. Hence, We are expecting 8%-15% Sales growth with ~19% ROE
in FY15E.We expect cement demand to pick up from 2HFY14 onwards driven by governments
pre-election spending as well as on account of rural demand pick post the good monsoon
witnessed this year. UTCL is a largest cement player in India and we expect it to maintain or
increase the same through timely commissioning of capacities, which are expect to come on
stream by FY15E.We value the stock and arrive at the target price of Rs 1846. As from the
current level the upside is very limited (10%), so we recommend investors to "Buy" the stock
at lower level dips to get a decent returns over a time horizon of 12-18 months.
Total Income
Company Description :UltraTech had an estimated market share of around 18 per cent, with presence across regions -
north being the largest, contributing 33 per cent to its sales, followed by west (31 per cent),
south (20 per cent), and east (16 per cent) - thereby insulating it from downtrends in any single
region. The company has a strong focus on improving operating efficiencies; it has 529
megawatts (MW) of captive power generation capacity, which meets 80 per cent of its power
requirement and also maintains power consumption norms in line with the other players in the
industry.
On The Expansion Front : Setting up a cement plant with 5.5 MMTPA cement and a 75 mega
watt (MW) captive power plant, with an investment of Rs 2,500 crore. The company has
received approval from Expert Appraisal Committee (EAC), under the Ministry of Environment,
for the proposed facility. The cement plant will be based on the dry process technology for
cement manufacturing with pre-heater and pre-calciner technology and the coal requirement for
the project will be met by importing it from Indonesia and South Africa, as an interim basis.
Petcoke will be procured from Reliance Industries Limited, Jamnagar.
Source - Comapany/EastWind Research
PAT
ROE%
P/B
Power and fuel
Freight and forwarding
EBITDA
Depriciation
Interest Cost
Tax
Narnolia Securities Ltd,
(20.0)
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
-
1,000
2,000
3,000
4,000
5,000
6,000
Q1
FY1
1
Q2
FY1
1
Q3
FY1
1
Q4
FY1
1
Q1
FY1
2
Q2
FY1
2
Q3
FY1
2
Q4
FY1
2
Q1
FY1
3
Q2
FY1
3
Q3
FY1
3
Q4
FY1
3
Q1
FY1
4
Q2
FY1
4
Q3
FY1
4E
Q4
FY1
4E
Net Revenue from Operation
Sales Growth
60
65
70
75
80
85
0
10
20
30
40
50
60
FY09 FY10 FY11 FY12 FY13
Capacity Of Cement Production (in MT)
Cement Production
Cement Capacity Utilisation in %
14 15
10
12 12
19
22
13
16 18
24
27
19 21
22
-
5
10
15
20
25
30
FY09 FY10 FY11 FY12 FY13
NPM % OPM % EBITDA %
Page 4
FY10 FY11 FY12 FY13
124 274 274 274
4495 10373 12550 14955
4620 10647 12824 15230
857 3295 4843 5169
750 727 705 1227
32 113 121 135
683 1830 2207 2338
133 473 709 949
8375 21630 24904 29590
6 39 40 62
4953 12265 12729 14254
260 760 1940 3601
146 583 1544 1066
827 2094 2198 2541
210 825 1089 1376
112 190 214 185
219 873 1041 1048
8375 21630 24904 29590
FY10 FY11 FY12 FY13
3.1 2.9 3.2 3.4
88.1 49.9 87.7 97.7
2.9 6.0 5.7 6.5
9.5 13.3 11.5 11.0
1.2 1.5 1.1 1.2
FY10 FY11 FY12 FY13
1673 2195 3482 4122
-79 -197 -96 -481
1593 1998 3385 3641
-843 -2240 -3050 -4407
-740 248 -353 715
10 6 -18 -51
4
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year
Cash from Operation
Changes In Working Capital
B/S PERFORMANCE
Trading At :
RATIOS
CASH FLOWS
Capital work-in-progress
Trade payables
Short-term provisions
Total liabilities
Intangibles
Tangible assets
Source - Comapany/EastWind Research
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
UltraTech Cement Ltd.
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Creditors to Turnover%
Inventories to Turnover%
Short-term loans and advances
Total Assets
P/B
EPS
Debtor to Turnover%
Narnolia Securities Ltd,
0
500
1000
1500
2000
2500
0
1000
2000
3000
4000
5000
6000
7000
NIFTY ULTRACEMCO
Page 5
DB Corp
302
340
-
13%
-
1M 1yr YTD
Absolute 11.5 25.0 -
Rel. to Nift 14.0 21.6 -
Current 2QFY14 1QFY14
Promoters 74.96 74.97 75.0
FII 17.7 16.5 14.7
DII 2.95 4.00 5.34
Others 4.36 4.57 5.02
Financials Rs, Cr
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 437.98 449.4 -2.5% 378.37 15.8%
EBITDA 112.45 135.38 -17% 81.36 38%
PAT 63.24 77.71 -19% 45.41 39%
EBITDA Margin 25.7% 30.1% (440 bps) 21.5% 420 bps
PAT Margin 14.4% 17.3% (290 bps) 12.00% 220 bps
5
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
52wk Range H/L
Change from Previous
Stock Performace with Nifty
Share Holding Pattern-%
25750
Nifty 6273
Recently, Print media companies decided to hike its cover prices selectively in its
mature market to maintain its margin due to increase in news print cost. Going
forward, improving ad revenue, cost control measures and expanding into new area
would energize its revenue visibility in near future.
About the Company: DB Corp, the publisher of Dainik Bhaskar, is a leading publishing
house with its highest readership in the country. It publishes 8 newspapers, 65
newspaper editions and around 200 sub-editions in 4 languages (Hindi, Gujarati, English
and most recently Marathi) in 13 Indian states.
Earning Preview (3QFY14E): DB Corp is like to report 19% (YoY) revenue growth to Rs
366cr led by 18% of revenue growth and 15% of subscription revenue. PAT is expected
to grow by 17% (YoY) to Rs 85Cr. We expect to see EBITDA margin up by 100-150bps
(YoY) to 28-28.5% because of benign RM cost.
Key facts to watch out: Commentary on response of new editions (Patna, Akola and
Amravati), new expansion plan, trend of ad revenue from 4 states poll and from
governments.
Fit well on strong footing: Management is very confident of achieving 17% to 20%
growth rate in upcoming quarter. The Company is following principle of launching at
least 2 editions in a year and enter into at least one 1 market in every 2 years. Company
launched Akola edition in July and Amravati edition in August. Recently company has
launched its Patna edition. According to the company, the initial response in Bihar is
quite encouraging and as per booking, record of new subscription makes it no.1 in the
first day of its launch.
Expanding into new exposure: The company has interest in radio under the MY FM
brand (94.3), operating in 17 FM radio stations across mini metros and small towns. The
company also has exposure to new media with internet and short messaging service
(SMS) portals.
View and Valuation: In view of upcoming general election, we expect government ad
spending to go up substantially. Being one of the biggest player, company will benefit
from this. Considering its long-term growth story with favorable earning scenario and
leadership position in key market, we are positive on the stock. We initiate “BUY” view
on the stock with the target price of Rs 340. At a CMP of Rs 305, stock trades at 4.3x of
FY15E P/BV.
"On strong footing"
CMP
Upside
Company update BUY
Target Price
Festive season coupled with the recently held state assembly elections in 4 states
(Rajasthan, M.P, Chhattisgarh, and Delhi) will likely drive revenue growth for print
media companies. Across the print media players, DB Corp will be one of the strong
beneficiaries for prospect of revenue generation. These 4 states contribute almost 60%
of its revenue.
Average Daily Volume
5502
Previous Target Price
Market Data
318.65/210
BSE Code 533151
NSE Symbol DBCORP
Mkt Capital (Rs Cr)
"BUY"14th Jan' 14
Narnolia Securities Ltd,
Page 6
6
DB Corp
Please refer to the Disclaimers at the end of this Report.
Financials
(Source: Company/Eastwind)
Revenue Geography-wise Revenue Segments
Narnolia Securities Ltd,
Rs,cr FY10 FY11 FY12 FY13 FY14E FY15E
Sales 1062.1 1265.18 1451.51 1592.32 1865.97 2182.15
RM Cost 327.87 383.91 508.04 544.54 653.09 763.75
WIP -0.0016 -0.06 -0.04 0.03 0.04 0.04
Employee Cost 131.81 184.56 242.93 279.5 335.88 403.70
Ad Spend 12.98 12.52 15.04 17.21 22.39 28.37
Event Expenses 11.83 16.02 15.04 12.08 18.66 21.82
consumption of store & spare 51.49 58.7 83.62 94.81 115.69 150.57
Distribution expenses 22.81 21.28 24.34 28.01 33.59 41.46
Other expenses 161.24 185.2 216.06 234.07 279.90 329.51
Total expenses 720.0284 862.13 1105.03 1210.25 1459.2 1739.2
EBITDA 342.0716 403.05 346.48 382.07 406.7 442.9
Depreciation and Amortisation 37.83 43.28 50.57 58.06 64.6 75.6
Other Income 11.15 14.18 24.02 21.34 24.3 28.4
EBIT 304.2416 359.77 295.91 324.01 342.1 367.4
Interest 35.69 15.3 9.23 7.99 8.0 5.1
PBT 279.7016 358.65 310.7 337.36 358.4 390.7
Tax Exp 105.72 99.97 98.32 113.18 120.2 131.1
PAT 173.9816 258.68 212.38 224.18 238.2 259.6
Growth-% (YoY)
Sales 10.5% 19.1% 14.7% 9.7% 17.2% 16.9%
EBITDA 132.2% 17.8% -14.0% 10.3% 6.5% 8.9%
PAT 265.4% 48.7% -17.9% 5.6% 6.2% 9.0%
Expenses on Sales-%
RM Cost 30.9% 30.3% 35.0% 34.2% 32.0% 34.3%
Employee Cost 12.4% 14.6% 16.7% 17.6% 16.6% 17.0%
Other expenses 15.2% 14.6% 14.9% 14.7% 15.0% 15.1%
Tax rate 10.0% 7.9% 6.8% 7.1% 6.4% 6.0%
Margin-%
EBITDA 32.2% 31.9% 23.9% 24.0% 21.8% 20.3%
EBIT 28.6% 28.4% 20.4% 20.3% 18.3% 16.8%
PAT 16.4% 20.4% 14.6% 14.1% 12.8% 11.9%
Valuation:
CMP 239.15 246.25 219.45 212.1 302.0 302.0
No of Share 18.15 18.3 18.3 18.33 18.3 18.3
NW 648.7 828.87 927.08 1029.15 1160.1 1301.7
EPS 9.59 14.14 11.61 12.23 12.99 14.16
BVPS 35.74 45.29 50.66 56.15 63.29 71.02
RoE-% 26.8% 31.2% 22.9% 21.8% 20.5% 19.9%
P/BV 6.7 5.4 4.3 3.8 4.8 4.3
P/E 24.9 17.4 18.9 17.3 23.2 21.3
Page 7
Zensar Tech
1M 1yr YTD Key FactsAbsolute 29.1 49 23.99
Rel. to Nifty 28.5 43.6 21.42
Current 1QFY14 4QFY13
Promoters 48.27 48.35 48.36
FII 11.99 11.68 10.75
DII 0.96 1.26 1.28
Others 38.78 38.71 39.61
Financials2QFY14 1QFY13 (QoQ)-% 2QFY13 (YoY)-%
Revenue 599.7 533.5 12.4 545.05 10.0
EBITDA 102.54 74.1 38.4 81.05 26.5
PAT 70.6 60.9 15.9 32.17 119.5
EBITDA Margin 17.1% 13.9% 320bps 14.9% 220bps
PAT Margin 11.8% 11.4% 40bps 5.9% 590bps
7
Zensar is on the way to shut down few if its data centre in on site business, and
entering into new emerging space in Social networking, Mobility, Analytics and Cloud
because of good demand. We expect that order pipeline could be healthier on the
back of good demand seen in these emerging areas.
3QFY14E earnings preview: Zensar Tech is likely to report 5-6% (QoQ) sales growth led
by healthy growth across all geographies and PAT growth could be seen at 4-5% (QoQ).
We expect that EBITDA margin could be down by 100-150bps (QoQ) to 16%.
Key things to watch: Updates on new deal win, revenue traction from all geographies &
inorganic initiatives.
424/181
BSE Code 504067
NSE Symbol ZENSARTECH
Market Data
Change from Previous
Average Daily Volume 20884
Mkt Capital (Rs Crores)
Nifty 6273
1800
1 year forward P/E
Rs, Crore
Please refer to the Disclaimers at the end of this Report.
10%
52wk Range H/L
Stock Performance
CMP 412
Target Price 440
Company update Buy Management expects good growth starting from 4QFY14E with its Infrastructure
Management (IM) business gaining momentum. The deal booking and pipeline is good
and expects to perform well going forward. It expects double-digit growth in the
Enterprise Services business for the FY15 on the back of healthy pipeline. In addition, it
anticipates good growth from the IMS for the FY'15.
Previous Target Price
(Source: Company/Eastwind)
Strong geographical footing: Given the order book Enterprise, business expects to grow
robustly going forward. It consciously slowed down in the Japan market as it is not
profitable and closed one account in Singapore as well. The Chosen markets to perform
are the Middle East, China and Africa going forward.
Healthy order Pipeline: We are positive on the future prospects on back of the order
bookings and pipeline. The recent measures like lean execution, improved efficiencies,
and best practices are targeted at improving the profitability profile of the company in
FY14E. Recent Management comments also revealed favourable scenario of order
booking.
Inspirational revenue level of $1bn by FY16: The management has detailed the 4 focus
areas, which are expected to take Zensar to an inspirational revenue level of $1bn by
FY16. They will expect to grow its existing US relationships and growing the RIMS
business in European nation like UK, Germany and Benelux.
400
Upside 7%
View and Valuation: The deal booking and pipeline is good and expects to perform well
going forward. It expects double digit growth in the Enterprise Services business for the
FY15E on the back of healthy pipeline. Also, it anticipates good growth from the IMS for
the FY'15E.
Order pipeline continues to be stable at $ 200 mn mainly on the back of good demand
seen in Mobility, Cloud Computing and social networking side. Considering healthy
order pipeline and its earning visibility in near future, we maintain “BUY” view on the
stock and we revise our target price from Rs 400 to Rs 440. At a CMP of Rs 412, stock
trades at 7.2x FY14E EPS.
Share Holding Pattern-%
"BUY"14th Jan' 14
Narnolia Securities Ltd,
Page 8
8
Please refer to the Disclaimers at the end of this Report.
Financials;
Zensar Tech
Clients/Headcounts Metrics;
(Source: Company/Eastwind)
Narnolia Securities Ltd,
$1mn+ 47 43 41 40 49 47
$5mn+ 6 7 7 8 6 6
$10mn+ 1 2 2 2 1 1
$20mn+ 1 1 1 1 1 1
top 5 clients 35% 35% 35% 35% 37% 39%
top 10 clients 40% 42% 42% 43% 43% 46%
DSO 69 59 56 55 66 61
Onsite 69% 72% 70% 69% 68% 67%
Offshore 31% 28% 30% 31% 32% 33%
Utilization (Including Trainees) 81% 82% 83% 82% 81% 80%
Headcount 7286 6825 6504 6508 6519 6657
Number of million dollar
Client Contribution to Business
Effort & Utilization
Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E
Net Sales 497.08 562.56 700.15 2114.52 2403.19 3205.99
Other Operating Income 0.00 15.03 12.57 13.95 16.82 22.44
Total income from operations (net) 497.08 577.59 712.72 2128.47 2420.01 3228.44
Purchases of stock-in-trade 0.00 0.00 0.00 236.86 269.30 359.27
Employee Cost 393.17 343.12 411.36 1177.83 1258.40 1678.79
Other expenses 0.00 135.71 165.98 418.73 532.40 710.26
Total Expenses 393.17 478.83 577.34 1833.42 2060.11 2748.31
EBITDA 103.91 98.76 135.38 295.05 359.90 480.13
Depreciation 24.92 25.88 25.05 33.16 38.59 51.48
Other Income 8.15 14.20 27.91 8.66 72.60 80.71
Extra Ordinery Items 0.00 0.00 0.00 0.00 0.00 0.00
EBIT 78.99 72.88 110.33 261.89 321.31 428.65
Interest Cost 0.55 0.85 1.03 9.95 9.61 7.69
PBT 86.59 86.23 137.21 260.60 384.30 501.67
Tax 2.43 -2.24 42.67 86.07 134.50 175.58
PAT 84.16 88.47 94.54 174.53 249.79 326.08
Growth-%
Sales 17.8% 13.2% 24.5% 202.0% 13.7% 33.4%
EBITDA 28.7% -5.0% 37.1% 117.9% 22.0% 33.4%
PAT 38.9% 5.1% 6.9% 84.6% 43.1% 30.5%
Margin -%
EBITDA 20.9% 17.6% 19.3% 14.0% 15.0% 15.0%
EBIT 15.9% 13.0% 15.8% 12.4% 13.4% 13.4%
PAT 16.9% 15.7% 13.5% 8.3% 10.4% 10.2%
Expenses on Sales-%
Employee Cost 79.1% 59.4% 57.7% 55.3% 52.4% 52.4%
Other expenses 0.0% 23.5% 23.3% 19.7% 11.2% 11.2%
Tax rate 2.8% -2.6% 31.1% 33.0% 35.0% 35.0%
Valuation
CMP 272.10 157.85 180.00 248.58 412.00 412.00
No of Share 2.16 4.34 4.34 4.36 4.37 4.37
NW 293.93 366.96 417.42 751.69 958.03 1238.10
EPS 38.96 20.38 21.78 40.03 57.16 74.62
BVPS 136.08 84.55 96.18 172.41 219.23 283.32
RoE-% 28.6% 24.1% 22.6% 23.2% 26.1% 26.3%
Dividen Payout ratio 16.4% 19.9% 37.3% 21.9% 17.4% 14.1%
P/BV 2.00 1.87 1.87 1.44 1.88 1.45
P/E 6.98 7.74 8.26 6.21 7.21 5.52
Page 9
Infosys
1M 1yr YTD
Absolute 6.3 52.4 53.1
Rel. to Nifty 3.3 49.1 49.4
Current 1QFY14 4QFY13
Promoters 15.94 16.04 16.04
FII 39.93 39.55 40.52
DII 16.16 18.28 17.51
Others 27.97 26.13 25.93
Financials3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 13026 12965 0.47 10424 25.0
EBITDA 3258.9 2836.9 14.88 2677 21.7
PAT 2874.9 2406.9 19.44 2369 21.4
EBITDA Margin 25.0% 21.9% 310bps 25.7% (70bps)
PAT Margin 22.1% 18.6% 350bps 22.7% (60bps)
9
Market Data
View and Valuation: Infosys seems to be on its way to rediscovering its past mojo with
revenue momentum kicking, and the NRN invisible hand in play. Further
announcement of strategic acquisitions, better utilization of cash balances, better deal
win, consistent client traction and revenue momentum would help the company to
bridge the gap with rivals such as TCS.
Considering the revised guidance by management and its growth priority than margin
inching up strategy, we upgraded our EPS from Rs 181/208 to Rs 188/218 for
FY14E/15E. At a CMP of Rs 3549, it trades at 16.3x FY15E At a CMP of Rs 3549, it trades
at 16.3x FY15E earnings. We retain our “BUY” view on the stock with a target price of
target price of Rs 3910 (revised from 3620).
On an ongoing basis, Infosys will retain its revenue acceleration and margin expansion,
also operating metrics will turn into greenery from hay. Upgradation of earning
guidance by management hinted to join the party to enjoy with 12-14% earnings
growth for FY14E like its bellwether.
Considering the strategy to build clients relation, execution of growth oriented policy
and combination of reduced onsite costs and higher utilization would be an optimistic
growth story despite recent hiccups of top management exit.
Healthy Margin growth: During the quarter, its EBIT margin expanded by 310 bps (QoQ)
to 25%. The company's cost cutting measures are yielding the expected gains. This again
is in line with what the market was expecting. During the December quarter, Infosys
selling and marketing expenses declined by 13.3% compared to the second quarter.
Administrative expenses too have declined by 18.4% in dollar terms. Both these have
helped improve operating margins.
Steady volume growth: The volume growth in the quarter was weak, 0.7% (QoQ)
growth with stable pricing growth of 0.7%(QoQ), but it is also weak for the group and for
Infosys. we expect it to be improve in the coming quarters.
Healthy deal pipeline: Overall, the company continues to show signs of recovery at the
operational level. The company has added 54 new clients in the quarter and added 15
clients where the deal size is over $100 million. This implies that client confidence is
returning.
1 year forward P/E
Rs, Crore
Please refer to the Disclaimers at the end of this Report.
BSE Code 500209
NSE Symbol INFY
Share Holding Pattern-%
Earning Guidance: Infosys upgrades its earning guidance from 6-10% to 9-10% to 11.5-
12% for FY14E, now nearest to NASSCOM guidance (12-14%). Management is very
confident to achieve the guidance figure and stated much focused on creating superior
financial performance ahead.
1240448
Nifty 6171
52wk Range H/L 35810/2190
Mkt Capital (Rs Crores)
Stock Performance
Average Daily Volume
203790
"On the way of excitement"
CMP 3549
Target Price 3910
Inline sales and beats the street on margin front, upgraded earning guidance;Result update BUY
Infosys largely reported inline set of sales numbers and beats the street on margin
front, In USD term, Sales grew by 1.65%(QoQ) and 0.5%(QoQ) in INR term, led by 0.7%
(QoQ) volume growth and 0.7%(QoQ) pricing growth. However, the good news is that
the PAT grew by 21% because of cost rationalization, sequentially.
Previous Target Price 3620
Upside 10%
Change from Previous 8%
"BUY"13th Jan' 14
Narnolia Securities Ltd,
Page 10
Margin-%
On segmental front: Infosys has reported teen set of growth in all segments;
10
(Source: Company/Eastwind)
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
With 0.7% pricing growth, volume
growth was reported by 0.7%
growth(QoQ), impacted by seasonal
wave.
On QoQ, Company’s margin improved in
entire segments .
Volume and Pricing Growth (QoQ)-%
(Source: Company/Eastwind)
(Source: Company/Eastwind)
In USD term, Sales grew by 1.65%(QoQ)
in USD term and 0.5%(QoQ) in INR term,
led by 0.7% volume growth and
0.7%(QoQ) pricing growth. Mgt revised
revenue growth to 11.5%-12% for FY14E.
EBIT margin expanded by 310 bps (QoQ)
to 25%. Mgt expects to see margin
growth in near term.
Segmental Performance:
Infosys.
Revenue growth in USD term-(QoQ)
Narnolia Securities Ltd,
QoQ YoY QoQ YoY
BFSI 33.5% 0.8% 24.2% 29.9% 340bps 80bps
Manufacturing 22.8% -1.3% 31.3% 24.2% 340bps (50bps)
Energy&Utilities 19.1% -0.1% 16.4% 28.8% 30bps (130bps)
Retail, Logis-&Life sc- 24.6% 2.1% 27.6% 27.52% 560bps (230bps)
Margin-%Sales contribution-%Segments
Sales Growth-%Margin-%
Page 11
Utilization:
11
(Source: Company/Eastwind)
The Company's Utilization is likely to keep inching up, which could lead to margin
expansion for a couple of quarters and that is going to be a huge positive for Infosys as a
company.
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
We expect that Infy’s improving
utilization despite higher attrition
compare to its nearest bellwethers is
good sign for its future growth story.
Headcount Metrics: Its attrition increased to 18% from
17.3%(2QFY14) on LTM basis, however
on sequentially basis they have been able
to control its attrition. we hope that the
further salary hikes across the board will
bring down the attrition levels going
forward.
Clients Concentration:
Total Clients and Clients Addition:
Infosys.
Geography wise revenue contribution-
we expect that growth from Euro as well
as Europe would prove a milestone for
the company ahead because of healthy
demand environment and optimistic
tempo of clients expanding.
(Source: Company/Eastwind)
On geographical front: During the quarter, company has reported 4% revenue growth
from Euro and RoW each, which contributes 25% and 13% of sales. While revenue from
US declined by 2%, it contributes 60% of Sales.
Clients Metrics
The company has added 54 new clients in
the quarter and added 15 clients where
the deal size is over $100 million. This
implies that client confidence is
returning.
Narnolia Securities Ltd,
Clients Category 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
Top clients 4.1% 4% 3.60% 3.6% 3.9% 4% 3.70%
Top 5 clients 16.2% 16% 15% 14.7% 14.9% 15% 14%
Top 10 clients 25.3% 25.40% 23.90% 24.0% 24.0% 24.5% 23.5%
Clients, number 3QFY13 4QFY13 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
Active clients,nos 665 694 711 715 776 798 836 873 888
New clients 49 52 51 39 89 56 66 68 54
Employee's 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
Total Employees (Cons-) 151,151 153,761 155,629 156,688 157,263 160,227 158404
Net additions 1,157 2,610 1,868 1,059 575 2,964 -1823
Laterals hired 5,233 3,656 4,351 3,545 3,008 3,806 3,333
LTM Attrition (Stand-) 14.9% 15.0% 15.1% 16% 16.9% 17.3% 18.10%
Page 12
12
Infosys.
Key facts from Management Interview;
■ Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%. This
guidnace means the company only has to achieve flat growth in the fourth quarter to
meet the projection.
Please refer to the Disclaimers at the end of this Report.
■ With 85% of the company’s revenues coming from clients based in US and Europe, the
company should hope the current economic recovery in developed countries would help
its revenues.
■They are seeing confidence coming back from client’s metrics. However, they expect
[their] budgets only remain stable from last year. Clients are still focused on cost.
■ The Company is looking to bring in about maximum 6,000 off-campus offers starting
late January early February, so there is a lot of activity going on that is bringing people in,
engaging and developing.
Financials
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E
Sales, INR 22742 27501 33734 40352 50330 59631
Employee Cost 12085 14856 18340 22565 28185 33691
Other expenses 2792 3677 4671 6254 8556 10734
Total Expenses 14877 18533 23011 28819 36741 44425
EBITDA 7865 8968 10723 11533 13589 15206
Depreciation 905 854 928 1099 1371 1624
Other Income 982 1211 1904 2365 2567 3578
EBIT 7942 9325 11699 12799 14785 17160
Interest Cost 0 0 0 0 0 0
PBT 7942 9325 11699 12799 14785 17160
Tax 1681 2490 3367 3370 3992 4633
PAT 6261 6835 8332 9429 10793 12527
Growth-%
Sales 4.8% 20.9% 22.7% 19.6% 24.7% 18.5%
EBITDA 9.3% 14.0% 19.6% 7.6% 17.8% 11.9%
PAT 4.6% 9.2% 21.9% 13.2% 14.5% 16.1%
Margin -%
EBITDA 34.6% 32.6% 31.8% 28.6% 27.0% 25.5%
EBIT 34.9% 33.9% 34.7% 31.7% 29.4% 28.8%
PAT 27.5% 24.9% 24.7% 23.4% 21.4% 21.0%
Expenses on Sales-%
Employee Cost 53.1% 54.0% 54.4% 55.9% 56.0% 56.5%
Other expenses 12.3% 13.4% 13.8% 15.5% 17.0% 18.0%
Tax rate 21.2% 26.7% 28.8% 26.3% 27.0% 27.0%
Valuation
CMP 2615 2765 2865 2400 3549 3549
No of Share 57.4 57.4 57.4 57.4 57.4 57.4
NW 23049.0 25976.0 31332.0 37994.0 45629.8 54797.5
EPS 109.1 119.0 145.1 164.2 188.0 218.2
BVPS 401.7 452.4 545.6 661.7 794.7 954.3
RoE-% 27.2% 26.3% 26.6% 24.8% 23.7% 22.9%
Dividen Payout ratio 25.1% 45.9% 24.0% 45.1% 23.0% 19.8%
P/BV 6.5 6.1 5.3 3.6 4.5 3.7
P/E 24.0 23.2 19.7 14.6 18.9 16.3
Page 13
INDUSIND BANK
402
428
-
6
-
1M 1yr YTD
Absolute -9.2 -6.9 -6.9
Rel.to Nifty -7.0 -9.7 -9.7
Current 24QFY1
4
3QFY1
3Promoters 15.2 15.2 15.3
FII 41.1 39.9 42.3
DII 7.2 7.4 7.0
Others 36.4 37.5 35.4
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 1376 1704 2233 2787 4053
Total Income 2090 2716 3596 4562 5827
PPP 1082 1373 1839 2452 2972
Net Profit 577 803 1061 1320 1633
EPS 12.4 17.2 20.3 25.3 31.1
13
Change from Previous( Rs)
INDUSIND Bank Vs Nifty
Share Holding Pattern-%
7.88
Nifty 6171
Please refer to the Disclaimers at the end of this Report.
Despite of higher profit we remain have neutral view on the stock owing to
shifting of loan mix from retail loan to corporate banking. We anticipate two
things-(a) margin compression, (b) higher slippage. Retail loan generally have
higher yield in nature than corporate loans. Corporate loan has big ticket size
loans and in slowdown of economy, corporate loan emerges as biggest
slippage risk than other loans. At the current price of Rs.405, stock is trading
at 2.4 times of one year forward book. We value bank at Rs.428/share which
would be 2.5 times of FY14E’s book value.
Better than expected earnings led by higher loan growth and margin
Result update
Upside
During quarter Indusind bank reported better than expected earnings largely due to
higher loan growth and margin expansion. In 3QF14, bank reported NII growth of
26.4% YoY supported higher yield on asset to 13.7% and margin expansion of 20
bps YoY. Other income grew by 35% YoY to Rs. 480 cr in which fee income
registered growth of 30% and trading, forex and other reported 101% growth in YoY
due to low base.
Declined cost to income ratio boost PPP growth
NEUTRAL
CMP
Previous Target Price
Market Data
Asset quality witnessed deterioration in sequential basis
During quarter bank witnessed deterioration in asset quality with GNPA and net NPA
in absolute term deteriorated by 14.7% QoQ and 51% QoQ respectively. Fresh
slippages were 1.4% (annualized) as against 1.1% in last quarter. Bank made lower
provisions against loan loss, as the result net NPA as the percentage of net loan
reached to 0.3% as against 0.2% in 2QFY14. Provision coverage ratio (without
technical write off) declined to 73.6% from 80% in 2QFY14 but still above of
regulatory requirement of 70%.
(Source: Company/Eastwind)
Target Price
Stock Performance
52wk Range H/L 561/318
BSE Code 532187
NSE Symbol
Operating leverage (Operating expenses to total asset) remained at elevated level
but cost to income ratio declined on both front i.e. on sequential and yearly basis as
well. During quarter bank reported employee cost growth of 22% and operating cost
growth of 22% YoY to Rs.206 cr and Rs.563 cr respectively. Cost to income ratio
improved by 80 bps sequentially and 280 bps yearly to 46.5%. This led pre
provisioning profit growth of 37% YoY.
INDUSINDBK
Average Daily Volume
22400Mkt Capital (Rs Cr)
"NEUTRAL"13th Jan, 2014
Narnolia Securities Ltd,
Page 14
14
Please refer to the Disclaimers at the end of this Report.
Better than expected profit on the back of healthy core earnings, lower CI ratio and
lower provision
With the support of healthy core earnings, improvement in cost income ratio and lower
provisions, net profit grew by 30% YoY to Rs. 347 cr as against our expectation of
Rs.303 cr largely due to higher than expected loan growth and operating leverage.
Healthy profit led ROA and ROE to 1.74% and 16.8% respectively.
Margin expansion of 10 bps YoY to 3.7%
Bank reported NIM expansion of 20 bps YoY to 3.7% largely due to improvement in loan
yield whereas cost of deposits remained flat. Going forward margin would be
compressed due to bank’s strategy to shift loan mix from consumer to corporate. Loan on
yield during quarter was 13.7% versus 13.5% in last quarter while cost of fund by and
large stable at 10%.
Moderate deposits growth due to muted current and term deposits growth
In balance sheet front, bank reported moderate growth 10% YoY in deposits largely due
to stagnant growth in current account and term deposits. Demand deposits grew by 4%
YoY whereas saving deposits grew by 50% YoY. As a percentage of total deposits
demand deposits and saving deport were 15.7% and 16.5% versus 16.6% and 12.1% in
3QFY13 respectively. CASA ratio was remained flat at 29.6% from 31.4% in 2QFY14 and
28.7% in 3QFY13. Term deposited reported growth of 4.7% YoY to Rs.382 bn.
Loan growth higher than industry average and shifting of loan mix
Loan reported 27.4% YoY growth above industry average of 20% despite of slowdown in
economy. During quarter bank witnessed shifting of loan composition from consumer
finance division to corporate finance which would be result of margin compression and
deterioration asset quality. Consumer loan (which is generally high yielding in nature)
composition has changed to 47% of loan advance from 52% in 3QFY13 whereas
corporate banking division constitute 53% of loan. Corporate loans are generally in high
ticket size and in slowdown of economy; there is high chances of such loan slip into NPA.
But this quarter we note that bank is able to improve it yield in both front. Corporate yield
improved to 11.9% from 11.5% and retail loan improved to 15.6% from 15.5% in
sequential basis.
INDUSIND BANK
Narnolia Securities Ltd,
Page 15
15
Fundamenatl Through Graph
INDUSIND BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
NII profit led by higher loan growth and
margin expansion
Sequentail and yearly improvement of CI
ratio boosted PPP
Higher core earnings, improvement in CI ratio
and lower provisions support profit growth
higher than expecattion
Narnolia Securities Ltd,
Page 16
16
Valuation Band (1yr forward book value)
Loan growth higher than industry average
and moderate growth in deposits led by
muted current deposits and term deposits
Margin expansion of 10 bps on account of
increased in loan yiled and stable cost of fund
Trading at 1.5 times of one year forward
book which we believe fair looking at indsury
headwinds and economy
Please refer to the Disclaimers at the end of this Report.
INDUSIND BANK
Fundamenatl Through Graph
Source: Eastwind/Company
Narnolia Securities Ltd,
Page 17
17
Please refer to the Disclaimers at the end of this Report.
INDUSIND BANK
Quarterly Performance
Source: Eastwind/Company
Narnolia Securities Ltd,
Quarterly Result( Rs. Cr) 3QFY14 2QFY14 3QFY13 % YoY % QoQ
Interest/discount on advances / bills 1739 1611 1455 19.5 7.9
Income on investments 368 365 325 13.5 0.8
Interest on balances with Reserve Bank of India 36 42 21 71.9 -12.9
Others 0 0 0 333.3 -13.3
Total Interest Income 2143 2019 1800 19.1 6.2
Others Income 480 417 356 35.0 15.2
Total Income 2624 2435 2156 21.7 7.7
Interest Expended 1413 1319 1223 15.6 7.2
NII 730 700 578 26.4 4.3
Other Income 480 417 356 35.0 15.2
Total Income 1210 1117 934 29.6 8.4
Employee 206 202 168 22.1 1.9
Other Expenses 357 327 293 21.9 9.3
Operating Expenses 563 529 461 22.0 6.5
PPP( Rs Cr) 647 588 472 37.1 10.1
Provisions 126 89 79 60.3 42.0
PBT 521 499 393 32.5 4.4
Tax 174 169 126 38.1 3.2
Net Profit 347 330 267 29.8 5.0
Balance Sheet data( Rs. Bn)
Net Worth 8664 8313 7495 15.6 4.2
Deposits 56247 53058 51098 10.1 6.0
Borrowings 14771 13995 6567 124.9 5.5
Total Liabilities 81799 77422 67896 20.5 5.7
Investments 20134 19413 17594 14.4 3.7
Advances 52469 48968 42426 23.7 7.1
Total Assets 81799 77422 67896 20.5 5.7
Asset Quality
GNPA 626 546 422 48.3 14.7
NPA 165 109 125 32.0 51.0
% GNPA 1.2 1.1 1.0
% NPA 0.3 0.2 0.3
Page 18
18
INDUSIND BANK
Financials & Assuptions
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2011 2012 2013 2014E 2015Interest Income 3589 5359 6983 8308 10419
Interest Expense 2213 3655 4750 5521 6367
NII 1376 1704 2233 2787 4053
Change (%)
Non Interest Income 714 1012 1363 1775 1775
Total Income 2090 2716 3596 4562 5827
Change (%)
Operating Expenses 1008 1343 1756 2110 2855
Pre Provision Profits 1082 1373 1839 2452 2972
Change (%)
Provisions 504 180 263 455 535
PBT 577 1193 1576 1997 2437
PAT 577 803 1061 1320 1633
Change (%)
Balance Sheet 2011 2012 2013 2014E 2015EDeposits( Rs Cr) 34365 42362 54117 62234 74681
Change (%) 23 28 15 20
of which CASA Dep 9331 11563 15867 20537 22404
Change (%) 24 37 29 9
Borrowings( Rs Cr) 5525 8682 9460 15559 18670
Investments( Rs Cr) 13551 14572 19654 23338 28005
Loans( Rs Cr) 26166 35064 44321 54071 67589
Change (%) 34 26 22 25
Ratio 2011 2012 2013 2014E 2015EAvg. Yield on loans 10.8 12.0 12.7 0.0 12.5
Avg. Yield on Investments 5.4 7.4 6.5 6.6 6.5
Avg. Cost of Deposit 5.3 7.3 8.8 8.9 8.5
Avg. Cost of Borrowimgs 7.0 6.7 7.6 7.5 7.5
Valuation 2011 2012 2013 2014E 2015EBook Value 87 101 146 171 195
CMP 264 321 405 405 405
P/BV 3.0 3.2 2.8 2.4 2.1
Page 19
19
Private Bank Result Preview 3QFY14
Revenue growth would be moderate owing to tepid loan growth
Performance of banking sector is likely to remain modest in 3QFY14E as most of
private sector banks in our coverage are expected to reported muted net interest
income owing to tepid loan growth and stress in asset quality. However private sector
banks are expected to report stable asset quality on sequential basis as compare to
PSBs. Loan loss provision are expected to remain high due to higher restructure
assets are in pipeline as per some of key bank management. We expect impairment
of asset in private sector banks are less and slippages are expected to remain same
as in 2QFY14. We expect NII to grow by 23.6% YoY in our private banking
coverage universe. HDFC Bank and DCB are expected to report 34% and 22% YoY
in 3QFY14E led by higher than industry loan growth and stable NIM.
Stock Performance During Quarter
Operating leverage high provision dent net profit
Profitability of private sector banks are expected to report 11% YoY on the back of
loan loss provisions, MTM provisions, cost income ratio and lower core earnings.
HDFC bank and DCB are expected to report 23% YoY and 26% YoY growth in their
3QFY14E while most of large and mid cap banks are expected to report muted profit
growth. With the flow of FCNR deposits, we expect deposits cost to come down from
present level but most likely the bank get benefit from 4QFY14 and onwards.
Please refer to the Disclaimers at the end of this Report.
Asset quality pressure continue to persist
Asset quality pressure is likely to remain in 3QFY14E due to rising interest rate, high
inflation and slower pace of economic growth. Gross slippages are expected to be
elevated as per most of banker. We expect restructure asset in private sector bank
would be less as compare to PSBs. With the implementation of FRP (route through
which loans lead to investment book), banks are expected to report lower less
restructure asset as against previous queerer. In worsen macroeconomic
environment, we expect asset quality to remain at the level of 2QFY14.
Nifty Vs Bank Nifty during Quarter
Loan (Rs tn) and YoY Gr(%)
Muted loan growth reported by system
In 2QFY14 banking industry experience loan growth of 18% YoY led by transfer of
CP/CD borrowings to bank loans while in 3QFY14 loan growth has moderated to
15% YoY (as on 13th Dec.2013) due to revival of bond and lower demand of
corporate loan led by slowdown in economy. We expect loan growth of 15-20% YoY
growth in private sector while DCB and HDFC bank are expected to grow by
20%+YoY loan growth.
Deposits growth lead by flow of FCNR deposits
Deposits growth in the system registered 17% YoY growth as per RBI date (as on
13th Dec.2013) due to flow of FCNR deposits through RBI’s special concession
window. As per RBI data total fund inflow through FCNR is the tune of US$ 26 bn
which would help bank to keep cost of deposits low. But we expect bank would get
benefit from 4QFY14 and onwards. We expect lower cost of deposits of deposits in
private sector banks largely due to strong franchise base network. HDFC bank and
ICICI bank which have CASA of 40%+ would be benefited more than other banks in
term of low cost of fund. Through FCNR deposits we expect Yes Bank would be
leader but actual benefit would come from next quarter.
Narnolia Securities Ltd,
Page 20
20
Outlook
We expect Axis Bank to report 20% YoY loan growth and 12% YoY deposits growth.
Cost Income ratio is expected to be 42% while loan loss provision was remain same at
sequential basis. Profitability of bank would be muted on account of non improvement of
loan yield.
DCB
We expect loan and deposits growth of DCB would be higher than industry average.
Profitability would be grown on account of stable asset quality. We expect Cost to Income
ratio at 66% and NIM are expected to compression by >10 bps on sequential basis. Key
monitor able would be CI ratio.
HDFC Bank
We expect bank to report loan and deposits growth of 21% and 14% respectively. Asset
quality would be remained under control and profitability are expected to grow on account
of comfortable core earnings and stable asset quality. Operating leverage is expected to
be in better position.
Broadly banking indices outperform Nifty by 6% in third quarter and most of banking
stocks are trading at attractive valuation. Despite of, we have caution view on account of
slowdown in economy, high interest rate and inflationary pressure. High inflation would be
risk for the economy going forward. Any rise in inflation would result of rise in interest
rate by RBI in its third quarter monetary policy review on 28th Jan.2014 which would be
negative for banking industry. Most of banking stocks are expected to report moderate
revenue and profit growth owing to multiple headwinds. In private sector banking
universe we like HDFC Bank, ICICI bank and DCB.
Axis Bank
Private Bank Result Preview 3QFY14
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 3006 2937 2495 20.5 2.3
PPP 2772 2750 2311 19.9 0.8
Net Profit 1333 1362 1296 2.9 -2.1
Axis Bank
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 88 91 72 22.2 -3.3
PPP 42 40 32 31.3 5.0
Net Profit 34 33 27 25.9 3.0
DCB
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 5087 4477 3799 33.9 13.6
PPP 3695 3387 3024 22.2 9.1
Net Profit 2289 1982 1859 23.1 15.5
HDFC Bank
Page 21
21
YES Bank
We expect Yes bank to report muted earnings on account of high credit cost and
restructure assets. Loan growth and deposits growth are expected to be line with industry
average. We expect NIM compression on account higher cost of fund and lower loan
yield. NIM is key monitorable for the quarter.
Result Preview ; at a glance
Private Bank Result Preview 3QFY14
Please refer to the Disclaimers at the end of this Report.
ICICI BANK
We expect loan and deposits growth of 15% and 11% YoY for 3QFY14E respectively.
Revenue growth was due to hike of lending rate and asset quality is expected to be
stable on sequential basis. Operating leverage and cost of fund would be key
monitorable.
J&K BANK
J&K bank is expected to report 17.5% YoY profit growth on account of 20%+loan growth
and stable asset quality. We expect little bit higher of gross slippage during the quarter as
bank reported higher slippage in previous quarter. NIM would be expanded <10 bps
QoQ due to high loan yield and lower cost of fund likely to get benefit from CASA
deposits.
Narnolia Securities Ltd,
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 4505 4044 3499 28.8 11.4
PPP 4235 3888 3452 22.7 8.9
Net Profit 2504 2352 2250 11.3 6.5
ICICI BANK
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 679 682 594 14.3 -0.4
PPP 496 496 435 14.0 0.0
Net Profit 339 303 289 17.5 12.0
J&K BANK
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 578 672 584 -1.0 -14.0
PPP 664 713 563 17.9 -6.9
Net Profit 358 371 342 4.7 -3.5
YES Bank
NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit
AXISBANK 3006 2772 1333 2937 2750 1362 2495 2311 1296 20.5 19.9 2.9 2.3 0.8 -2.1
CUB 207 152 71 190 141 84 163 131 85 27.0 16.0 -16.5 8.9 7.8 -15.5
DCB 88 42 34 91 40 33 72 32 27 22.2 31.3 25.9 -3.3 5.0 3.0
DHANBANK 96 22 0.72 82 18 -1.85 74 14 4 29.7 57.1 82.0 17.1 22.2 -138.9
FEDERALBNK 609 418 230 548 354 226 497 394 211 22.5 6.1 9.0 11.1 18.1 1.8
HDFCBANK 5087 3695 2289 4477 3387 1982 3799 3024 1859 33.9 22.2 23.1 13.6 9.1 15.5
ICICIBANK 4505 4235 2504 4044 3888 2352 3499 3452 2250 28.8 22.7 11.3 11.4 8.9 6.5
INDUSINDBK 657 561 303 700 588 330 578 472 267 13.7 18.9 13.5 -6.1 -4.6 -8.2
INGVYSYABANK 397 275 173 440 276 176 403 263 162 -1.5 4.6 6.8 -9.8 -0.4 -1.7
J&KBANK 679 496 339 682 496 303 594 435 289 14.3 14.0 17.5 -0.4 0.0 12.0
KARURVYSYA 308 186 41.5 298 157 83 308 212 113 0.0 -12.3 -63.3 3.4 18.5 -50.0
SOUTHBANK 374 255 131 364 212 127 353 235 128 5.9 8.5 2.3 2.7 20.3 3.1
YESBANK 578 664 358 672 713 371 584 563 342 -1.0 17.9 4.7 -14.0 -6.9 -3.5
Total 16591 13773 7808 15525 13020 7427 13419 11538 7033 23.6 19.4 11.0 6.9 5.8 5.1
PRIVATE BANK
YoY Growth QoQ Growth3QFY14E 2QFY14 3QFY13
Page 22
GAIL
1M 1yr YTD
Absolute 0.6 -5.6 -5.0
Rel. to Nifty 1.7 -8.7 -20.0
Current 1QFY14 4QFY13
Promoters 57.3 57.3 57.3
FII 17 16.7 16.3
DII 21.6 22 22.2
Others 3.9 3.9 4
Financials
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 13944.6 12855.6 8.5 11361.2 22.7
EBITDA 1405.5 1136.7 23.6 1380.3 1.8
PAT 915.7 606.5 51.0 985.4 -7.1
EBITDA Margin 10.1% 8.8% 120bps 12.1% (200bps)
PAT Margin 6.6% 4.7% 180bps 8.7% (210bps)
22
1HFY14 Financial Highlights :
Nifty
GAIL (India) Limited is a gas utility company. The Company is engaged in transport
through pipeline; manufacture of basic chemicals, fertilizer and nitrogen compounds,
plastics and synthetic rubber in primary forms; extraction of crude petroleum; extraction of
natural gas and electric power generation, transmission and distribution. The company
operates in five segments viz Gas Transmission Business ,LPG Transmission Business,
Gas Trading Business, Petrochemical Business and LPG and Liquid Hydrocarbon
Business.
Company registered a turnover of Rs. 26902.25 Cr, up by 19% in H1FY14 compared to
corresponding previous year period. There was fall of 10% in operating profits of the
company to Rs 2971.72 Cr for H1FY14. The Other income was down 8% to Rs 279.6 Cr
while Interest cost grew 99% to Rs 169.36 Cr, The net profits for H1FY14 was Rs
1723.84 Cr down by 19 %in comparison to 2HFY13.
The company during the first half of the current financial year, earned the revenues of Rs.
23,437 Cr from Natural Gas Trading up 24% YoY as compared to corresponding period
of the last year. The revenues from Natural Gas Transmission increased by 9% YoY to
Rs. 2,066 Cr for H1FY14. The net sales from LPG and Liquid Hydrocarbons business
increased by 11% YoY to Rs. 2,043 Cr as against Rs. 1,842 Cr for the same period of
last year. The net sales from Petrochemicals business increased by 54% to Rs 2,237 Cr
for 1HFY14. The revenues from LPG transmission increased by 72% to Rs. 189 Cr in
1HFY14.
Market Data
BSE Code 532155
NSE Symbol GAIL
52wk Range H/L 395/273
Previous Target Price
Change from Previous
6168
Mkt Cap (Rs Crores)
Company Update Neutral
Upside
CMP 348
Target Price
About The Company
44,047
Average Daily Volume 399457
Share Holding Pattern-%
→Ministry of Petroleum and Natural gas has capped subsidy burden of Gail (India) at Rs
1400 Cr for FY'14.
→The company has commissioned Kochi pipeline on 25th August 2013.
→Company has shared Rs 698.68 Cr towards LPG subsidy in the quarter ended
September 2013 compared to Rs 785.67 Cr in the corresponding previous year period.
The LPG transmission was 1,428 TMT. The Natural Gas transmission was 97.25
MMSCMD, against 107.72 MMSCMD. The Natural Gas stood at 80.33 MMSCMD in
1HFY14 as against 81.92 MMSCMD in 1HFY3.
Highlights of Conference Call:
During 1HFY14, Petrochemical Production was 231 TMT, up by 20 % YoY it was 193
TMT in 1HFY13.The Petrochemical Sales were 229 TMT, up by 37 % against 167 TMT in
the corresponding period in the previous year. The LPG and Other Liquid Hydrocarbon
production were 685 TMT, against 684 TMT in 1HFY13.
1HFY14 Production Highlights :
Stock Performance
1 yr Price Movement Vs Nifty
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
→Capex incurred during H1FY'13 was Rs 2525 Cr as Rs 1500 Cr on Petrochemical, Rs
400 Cr on pipeline expansion, Rs 270 Cr on E&P and Rs 360 Cr towards equity
contribution.
"NEUTRAL"
10th Jan' 14
Narnolia Securities Ltd,
Page 23
23
GAIL
Continued → Projected Capex for FY'14 is Rs 5000 Cr and Rs 3500 Cr in FY'15.
→GAIL has shared Rs 698.68 Cr towards LPG subsidy in the quarter ended September 2013
compared to Rs 785.67 crore in the corresponding previous year period
Recent EventsGAIL management indicated that, MoPNG has in-principle agreed to provisionally cap GAIL’s
FY14 subsidy at INR14b, implying 2HFY14 subsidy to be nil. As per our view the final decision
will be post Finance Ministry consent.
Uncertainty on under recovery sharing
Risk & Concern
(Source: Company/Eastwind)
Graphical Dipiction
2QFY14 SEGMENTAL SALES TURNOVER
→ The company has borrowed Rs 585 Cr during Q2FY'14.
→ Total borrowings stood at Rs 10632 Cr at the end of September 2013 quarter-out of which
56% loan is foreign currency loan. Almost 90% of foreign currency loan is financially or
naturally hedged.
→ The company anticipates increase in gas availability in near future. It expects around 20-25
mmscmd of gas over a period of 3-4 years including 11-12 mmscmd of gas from domestic
sources and 10-15 mmscmd from LNG.
View and Valuation :
Please refer to the Disclaimers at the end of this Report.
Near-term gas supply visibility which may lead to under-utilization of new pipelines
The stock is currently trading at Rs 346 and business outlook going forward ,management
guidance does not provide us with much convincing thought .We donot see much upsides
attached with the stock in current business scenario. We therefore recommend NEUTRAL
view on the stock.
Narnolia Securities Ltd,
Page 24
24
Please refer to the Disclaimers at the end of this Report.
EBITDA & OPM%
(Source: Company/Eastwind)
GAIL
SALES TREND
Sales increased by 22% YoY driven by higher
revenues from the natural gas
trading and petrochemical segments
Higher Depcreciation owing to capitalization
of assets with respect to new
pipelines and higher interest cost resulted in
a NPM decline
(Source: Company/Eastwind)
Adj PAT & NPM %
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Page 25
Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4000
email: [email protected] ,
website : www.narnolia.com
Risk Disclosure & Disclaimer: This report/message is for the personal information of
the authorized recipient and does not construe to be any investment, legal or taxation
advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any
action based upon it. This report/message is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or
redistributed to any other person in any from. The report/message is based upon publicly
available information, findings of our research wing “East wind” & information that we
consider reliable, but we do not represent that it is accurate or complete and we do not
provide any express or implied warranty of any kind, and also these are subject to change
without notice. The recipients of this report should rely on their own investigations,
should use their own judgment for taking any investment decisions keeping in mind that
past performance is not necessarily a guide to future performance & that the the value of
any investment or income are subject to market and other risks. Further it will be safe to
assume that NSL and /or its Group or associate Companies, their Directors, affiliates
and/or employees may have interests/ positions, financial or otherwise, individually or
otherwise in the recommended/mentioned securities/mutual funds/ model funds and
other investment products which may be added or disposed including & other mentioned
in this report/message.