Hindustan Zinc LTD have strong visibility over production growth of zinc, lead and silver over FY2013-15, Narnolia Securities Limited are positive on HZL. We recommend Neutral rating on HZL with a target price of Rs.143 for FY14.For more information visit our website http://www.narnolia.com/

1. IEA-Equity
Strategy
India Equity Analytics
Hindustan Zinc LTD :
'Neutral"
31th Dec, 2013
31th Dec 2013
With a cash-rich balance sheet and strong visibility over production growth of zinc, lead and silver over FY2013-15, we are positive on HZL.The
Rampura Agucha underground mine project is operational via ramps (tunnel driven downward from the surface) and commercial production
will ramp up in Q3 and Q4 of FY14. The Kayad mine project will also commence commercial production in the current fiscal year. A cash-rich
balance sheet, low cost of production and inexpensive valuations make HZL an attractive bet at the current price levels. But looking at the lower
LME prices for silver and lead we are neutral for this financial year.we Valuing the stock at this level, we recommend Neutral rating on HZL with
a target price of Rs.143 for FY14........................ ( Page : 2-4)
RELIANCE : Good Growth Ahead
"BUY"
30th Dec 2013
Reliance Industries Limited registered a turnover of Rs 197112 Cr for the half year ended 30th September 2013, up 4.7% YoY while it had
made turnover of Rs 188,193 Cr in 1HFY13. The exports were higher by 19.3% YoY to Rs 134455 Cr for 1HFY14……………….. ( Page : 5-7)
J&K BANK :
"HOLD"
30th Dec 2013
J&K Bank is one of our prefer bank in mid cap private sector banking space. Currently bank is trading at 1 times of one year forward book and
4.6 times of one forward earnings which we believe bank is still trading at attractive valuation post recent rally. We advice our investor to hold
the stock as bank is trading at lower valuation in comparison to private sector banks despite of having sound fundamental. We value bank at
Rs.1578/share which is 1.1 times of FY15’s book and 5.2 times of FY15’s earnings. ..... ( Page : 8-10)
DCB :
"REDUCE"
27th Dec 2013
DCB is currently trading at 1.3 times of one year forward book which is almost upper side of valuation band. We value the bank at Rs.62/share
which is 1.4 times of one year forward book and 15 times of FY14E earnings. Valuation multiple is justified at present fundamental in our view
but has potential to expand the multiple once visibility of ROE improvement clearly come to on the floor after 1-2 quarters.
......................................................... ( Page : 11-13)
Infosys : Bala exit; a pros and cons?
"BUY"
26th Dec , 2013
Last week, V Balakrishnan a former CFO and member of Board director resigned from the company to turn entrepreneur of Private Equity
space. Currently, he is the head of Infosys business process outsourcing unit, the company's core banking software Finacle, its India business
and chairman of Infosys Lodestone. This was now the 8th senior and top level departure after the taking charges by Company founder Narayana
Murthy. At a CMP of Rs 3486, it trades at 19.2x FY14E and 16.7x FY15E earnings. We retain our “BUY” view on the stock with a target price of
target price of Rs 3620............................... ( Page : 14-15)
HINDALCO :
"BUY"
24th Dec 2013
Hindalco has expanded its aluminium capacity recently, low aluminium prices, sticky costs, delay in commencement of mining from captive
blocks and higher interest and depreciation costs may hit its profitability. In the near-term, there is lack of clarity over production from the
Mahan coal block for its Mahan smelter. Without captive coal block, the Mahan smelter is expected to face cost pressures, resulting in lower
return ratios over FY2013-15.So Clearance of Mahan coal block will be most awaited trigger for Hindalco. Mean While on the Positive Side We
can expect 7% growth on the Stock with a Target Price of Rs.132.............. ( Page:16-18)
Persistent System : "Persistently innovating.."
"REDUCED" 23rd Dec 2013
We had initiated this stock at a CMP of Rs 526(on 16th Feb 2013) and now, it achieved its target of Rs 960. 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. However, sentiment could take a knock in the short run, since investors may prefer paying a premium for stocks with better earnings
visibility. Our view could be change with management guidance and post earnings of coming quarter................................................... ( Page : 1920)
Narnolia Securities Ltd,
402, 4th floor 7/1, Lords Sinha Road Kolkata 700071, Ph 033-32011233 Toll Free no : 1-800-345-4000
email: research@narnolia.com, website : www.narnolia.com

2. Hindustan Zinc LTD.
Company Update
Neutral
CMP
Target Price
Previous Target Price
Upside
Change from Previous
133
143
NA
8%
NA
"Neutral"
31st Dec' 13
Mined metal production in Q2FY14 was 221k tonnes against 190k tonnes YoY basis a
growth of 8.5% and 238k tonnes in Q1 FY14. The increase is due to higher production at
Rampura Agucha and restarting of Zawar mines. Integrated Refined Zinc production was
at 195k tonnes in Q2FY14 against 153k tonnes in Q2FY13 increase of 28%. Integrated
Lead Production was at 29k tonnes against 22k tonnes growth of 31% YoY basis. Silver
production was at 83 tonnes in Q2FY14 against 77 tonnes YoY basis. The increase in
Production of Zinc and lead was on account of improved utilization of smelter capacity.
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
Average Daily Volume (Nos.)
Nifty
500188
HINDZINC
143/94
56133
5613
6291
Stock Performance-%
1M
4.3
0.0
Absolute
Rel. to Nifty
1yr
-1.7
9.2
YTD
-3.4
11.3
Share Holding Pattern-%
2QFY14
64.9
1.8
31.4
1.8
Promoters
FII
DII
Others
1QFY14 4QFY13
64.9
64.9
1.5
1.5
31.5
2.0
2.1
31.6
1 yr Forward P/B
450
400
350
300
250
200
150
100
50
Jul-13
Jan-14
Jul-12
Jan-13
Jul-11
Jan-12
Jul-10
Jan-11
Jul-09
Jan-10
Jul-08
Jan-09
Jul-07
Jan-08
Jan-07
0
Source - Comapany/EastWind Research
Revenue increased due to Depreciation in Rupee
Hind Zinc reported net sales of Rs3559 Cr up by 24% YoY and 19% QoQ. The growth was
mainly due to higher sales volume and improvement in realisation per tonne. The net
realsation per tonne of zinc increased by 15% on YoY basis and 9% QoQ at Rs.131794. The
net realization per tonne of Lead remained almost flat on YoY basis and increased by 5%
in QoQ basis. The increase in net realization per tone is due to depreciation in rupee.
Zinc’s cost of production before royalty during the quarter was Rs.50522 , 8% higher in
Rupee and 3% lower in USD terms on YoY basis.
The cost of production benefited from higher production volume and operational
efficiencies, which were more than offset by rupee depreciation and over Rs 3000/MT
decline in by-product credits On YoY basis. The Net Realization per tonne of Silver
slumped by 24% on YoY basis. This fall in realization was due to fall in price of silver in
LME as company adopts the import parity price. The Company’s EBIDTA zoomed by 28%
YoY basis at Rs 1,883 Cr and 30% QoQ basis. Net profit was up 7% to Rs. 1,640 Cr in Q2
The positive impact of higher EBITDA was partly offset by lower other income due to
mark-to-market losses on investments during the quarter.
Investment Concern
HZL’s revenues are directly linked with the global market for products essentially, Zinc
and Lead which are priced with reference to LME prices and Silver to LBMA (London
Bullion Metal Association) prices.
Disruptions in mining due to equipment failures, unexpected maintenance problems ,
non-availability of raw materials of appropriate price, quantity and quality for our energy
requirements, disruptions to or increased cost of transport services or strikes and
industrial actions or disputes.Lower than expected demand by galvanizing industries for
zinc and industrial batteries, car batteries industries for lead would affect the company
estimates.
Financials :
Q2FY14
Y-o-Y %
Q-o-Q %
Q2FY13
Q1FY14
Net Revenue
3826
13.0
6.2
3387
3604
EBITDA
1883
28.2
25.3
1469
1503
Depriciation
186
6.3
1.1
175
184
Tax
254
-6.3
-4.9
271
267
PAT
1640
6.5
-1.2
1540
1660
(In Crs)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
2

3. Hindustan Zinc LTD.
Silver(rs/ounce)
Nov-13
Dec-13
Nov-13
Dec-13
Nov-13
Dec-13
Oct-13
Sep-13
Jul-13
Aug-13
Jun-13
Apr-13
May-13
Feb-13
Mar-13
1800
1600
1400
1200
1000
800
600
400
200
0
Jan-13
Source - Comapany/EastWind Research
LME Price/Ton
Lead
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
Mar-13
160000
140000
120000
100000
80000
60000
40000
20000
0
Feb-13
From the Management Corner :
Volatile Desel Price and high Sulphuric acid price affecting the company,s PAT
adversly.Company is tracking on 95% capacity utilization.Captive plants enjoy the lower
Tax rate and company enjoys zero tax from tax free geographycal areas. Smelting Plants
are improvised and management is confident that the smelting plants will maintain
their stance for the coming quarters also.
Outlook and valuation:
With a cash-rich balance sheet and strong visibility over production growth of zinc, lead
and silver over FY2013-15, we are positive on HZL.The Rampura Agucha underground
mine project is operational via ramps (tunnel driven downward from the surface) and
commercial production will ramp up in Q3 and Q4 of FY14. The Kayad mine project will
also commence commercial production in the current fiscal year. A cash-rich balance
sheet, low cost of production and inexpensive valuations make HZL an attractive bet at
the current price levels. But looking at the lower LME prices for silver and lead we are
neutral for this financial year.we Valuing the stock at this level, we recommend Neutral
rating on HZL with a target price of Rs.143 for FY14.
LME Price/Ton
Jan-13
Lower other income mutes PAT growth:
The other income declined by 48.7% yoy to 267cr due to mark to market losses booked
by the company during the quarter while depreciation expenses also increased by 6.8%
yoy to 186cr. Consequently the adjusted net profit growth was muted at 10.5% yoy to
1,701cr (in-line with our estimate of 1,722cr).
Source - Comapany/EastWind Research
LME Price/Ton
Zinc
Narnolia Securities Ltd,
Oct-13
Sep-13
Aug-13
Jul-13
Jun-13
125000
120000
115000
110000
105000
100000
95000
90000
May-13
FY14E
13577
1787
15364
1291
707
6484
7093
718
37
1097
6967
18.5
Apr-13
FY13
12700
2032
14732
1070
696
6218
6482
647
29
921
6899
21.4
Mar-13
FY12
11405
1543
12948
1228
568
5336
6069
611
14
1419
5526
20.7
Feb-13
FY11
9912
979
10891
1023
492
4417
5496
475
19
1059
4900
21.8
Jan-13
P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income
Power, fuel & water
Repairs
Expenditure
EBITDA
Depriciation
Interest Cost
Net tax expense / (benefit)
PAT
ROE%
Source - Comapany/EastWind Research
3

4. Hindustan Zinc LTD.
B/S PERFORMANCE
Share
Reserve &
Total equity
Long-term
Short-term
Long-term
Trade
Short-term
Total
Intangibles
Tangible
Capital
Long-term
Inventories
Trade
Cash and
Short-term
Total
RATIOS
P/B
EPS
Debtor to
Creditors to
Inventories
FY10
423
17701
18124
0
60
0
478
340
20238
109
6071
1113
361
452
152
928
96
20238
FY10
3.2
95.6
1.9
6.0
0.6
FY11
845
21688
22533
0
0
0
475
567
25053
109
7145
875
594
762
209
5633
158
25053
FY11
2.2
11.6
2.1
4.8
0.8
FY12
845
26036
26881
0
0
0
410
504
29485
47
8466
445
876
798
332
5255
233
29485
FY12
2.1
13.1
2.9
3.6
0.7
FY13
845
31431
32276
0
0
0
484
825
35465
10
8474
1082
1898
1111
403
6942
373
35465
FY13
1.7
16.3
3.2
3.8
0.9
Source - Comapany/EastWind Research
ZinC Productions:
Source - Comapany/EastWind Research
CASH FLOWS
Cash from
Changes In
Net Cash
Cash From
Cash from
Net Cash
FY10
4001
77
4077
-3881
-187
8
FY11
4483
-212
4272
-3658
-363
250
FY12
4553
-61
4492
-3499
-1242
-248
FY13
4935
-183
4752
-3234
-1257
262
EBIDTA & Margin :
Trading At :
7000
NIFTY
HINDZINC
160
6000
140
5000
120
100
4000
80
3000
60
2000
40
1000
20
0
0
Source - Comapany/EastWind Research
Narnolia Securities Ltd,
4

5. RELIANCE
"BUY"
30th
Dec' 13
Good Growth Ahead
Company Update
BUY
CMP
Target Price
Previous Target Price
Upside
Change from Previous
878
1040
18%
-
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs, Cr)
Average Daily Volume
Nifty
500325
RELIANCE
954/765
283929
52019
6313
About the Company
Reliance Industries Limited (RIL) is a conglomerate with business in the energy and
materials value chain. The Company operates in three segments: petrochemicals, refining
and oil & gas.
Half Yearly Business Performance
OIL AND GAS (EXPLORATION & PRODUCTION) BUSINESS:
Company for half year ended earned Rs 2918 Cr from this business segment down by
38.7% YoY mainly due to Fall in production from KG-D6 owing to geological complexity
and natural decline in the fields.The EBIT margin for the segment in 1HFY14 was 24.3% .
REFINING & MARKETING BUSINESS
Revenue from Refining and Marketing segment during 1HFY14 increased by 5.7% YoY to
Rs 178,914 Cr, while EBIT was up 8.3% YoY at Rs 6,125 Cr. GRMs averaged $ 8.0/bbl
during 1H FY14 and the refineries achieved an average utilization rate of 112%. 1H FY14
export of refined products was at 22.1 MMT as compared to 19.2 MMT in 1H FY13.
Stock Performance-%
Absolute
Rel. to Nifty
YTD
11
-7
PETROCHEMICALS BUSINESS
1HFY14 revenue from the Petrochemicals segment increased by 6.7% YoY to Rs 46,842
Cr. Higher prices accounted for 7.4% growth in revenue. EBIT margin improved to 9.4% in
1H FY14 as compared to 8.0% a year ago. The production during 1HFY14 was 11 Mn
Tones verses 11.1 Mn Tonnes in 1HFY13.
Current 1QFY14 4QFY1
3
45.3
45.3
45.3
17.7
17.4
17.8
11.8
11.6
11.0
25.2
25.7
25.9
Half Yearly Financial Performance
Reliance Industries Limited registered a turnover of Rs 197112 Cr for the half year ended
30th September 2013, up 4.7% YoY while it had made turnover of Rs 188,193 Cr in
1HFY13.The exports were higher by 19.3% YoY to Rs 134455 Cr for 1HFY14.
1M
4
0.5
1yr
6
-1
Share Holding Pattern-%
Promoters
FII
DII
Others
1 Yr Price Movement Vs Nifty
The operating EBITDA during 1HFY14 was Rs 14924 Cr up 2.3 % YoY on the back of
higher margins in refining and petrochemicals business. The cost RM increased by 3 % to
Rs 162,094 from Rs 156,975 Cr due to higher crude prices. The employee cost for 1HFY14
was Rs 1707 Cr largely flat on yearly basis. The other expenditure increased by 13.6% YoY
to Rs 13,101 Cr primarily due to higher expenses on account of power & fuel consumption
and higher selling expenses on account of higher exports.
The profit after tax was higher by 9.4% at Rs 10,842 Cr as against Rs 9,912 Cr in the
corresponding period of the previous year. The other income for 1HFY14 stands Rs 4595 Cr
up 14 % YoY mainly due to higher investment income.
Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin
2QFY14
103758
9909
5490
9.6%
5.3%
1QFY14
90336
9610
5352
10.6%
5.9%
(QoQ)-%
14.9
3.1
2.6
(110bps)
(60bps)
2QFY13
87645
9818
5409
11.2%
6.2%
Rs, Crore
(YoY)-%
18.4
0.9
1.5
(170bps)
(90bps)
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
5

6. RELIANCE
Continued….
The net addition to fixed assets for the half year ended 30th September 2013 was Rs
20,154 Cr including exchange rate difference capitalization. Capital expenditure was
principally on account of ongoing expansions projects in the petrochemicals and refining
business at Jamnagar, Dahej, Silvassa and Hazira.
The Outstanding debt as on 30th September 2013 was Rs 83,982 Cr compared to Rs
72,427 Cr as on 31st March 2013. The company had cash and cash equivalents of Rs
90,540 Cr. These were in bank deposits, mutual funds, CDs and Government securities /
bonds. RIL is debt free on a net basis as at 30th September 2013.
Management Commentary
The management of the company on their half yearly performance said that diversified and
integrated petrochemicals business captured margins across segments and delivered nearrecord profit levels even as the domestic economy slowed. The management further said
that optimal utilization of best-in-class refinery assets and inherent flexibility in sourcing,
product delivery contributed to healthy operating profits from our refining business .
View and Valuation
The stock is trading at Rs 878 and in light of half yearly performance, business outlook and
management commentary we recommend BUY for the stock with Target Price Rs
1040.
Graphical Depiction
2QFY14 SEGMENTAL REVENUE BREAK UP
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
6

7. RELIANCE
Sales Trend (Rs/Bn)
A better realisation with a weaker rupee and
improved volume were the key drivers of the
sales growth of both petchem and refinery
businesses.
(Source: Company/Eastwind)
EBITDA & OPM %
Despite a healthy revenue growth, OPM
remain flat due to a lower margin in the
refining and exploration segments
(Source: Company/Eastwind)
PAT & NPM %
The improved margin and higher volume of
the petrochemical (petchem) business were
the major drivers of the profit in Q2FY2014.
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
7

8. J&K BANK
Company Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous
HOLD
1411
1578
1420
12
11
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Average Daily Volume
Nifty
532209
J&KBANK
1695/1130
6841
21053
6314
Stock Performance
1M
Absolute
3.6
Rel.to Nifty
-12.9
30th Dec, 2013
Jammu and Kashmir Bank (J&K Bank) is one of our prefer bank in mid cap
private sector banking space. Currently bank is trading at 1times of one year
forward book and 4.6 times of one forward earnings which we believe bank is
still trading at attractive valuation despite of recent rally. We advice our
investor to hold the stock as bank is trading at lower valuation premium in
comparison to peers despite of having sound fundamental. We value bank at
Rs.1578/share which is 1.1 times of FY15’s book and 5.2 times of FY15’s
earnings. Looking at bank’s metrics like Tier1 capital of 13.2%, GNPA of 1.7%,
PCR at 92% make it strong for trading at premium valuation as compare to
peers group.
Strong balance sheet growth continued with margin expansion
J&K bank aggressively expanding its loan growth outside of the state and witnessed
20.3% growth whereas within state loan grew by 26.4% in 2QFY14. Management
guided loan growth of 20-25% in FY14 premium of industry average of 15%.
Deposits growth would be 17-18% in FY14 according to management. Bank’s CASA
1yr
7.8
-0.8
YTD
7.8
-0.8
Share Holding Pattern-%
Current 4QFY13 3QFY1
3
Promoters
53.2
53.2
53.2
FII
24.8
24.5
24.3
DII
5.0
4.9
4.9
Others
17.1
17.4
17.7
J&k Bank Vs Nifty
"HOLD"
ratio at the end of 2Q stood at 39% which keep cost of deposits at 6% of level, one
of the lowest in industry. Low cost and high yield asset helped bank to maintain NIM
at 4.33%. Bank’s management guided NIM 4%+ level in FY14.
Sustainable high return ratio makes a strong case to trade at premium
valuation
J&K bank has sustainable high return ratio like ROE of 23%+ and ROA of 1.5%+
which help bank to maintain high valuation premium. Operating leverage (operating
cost to total asset) of the bank remains at 1.4 to 1.6 times in last few quarters which
restrict cost income escalate beyond 36%. Capital adequacy ratio of 13.2%
according to basel-II helps bank to maintain high growth trajectory with raising capital
in next few years.
Stable asset quality with lowest restructure asset comparison to peers
At the end of 2QFY14, bank reported GNPA of 1.7% and in absolute basis, GNPA
grew by mere 4% QoQ despite of current phase of economy cycle. Restructure loans
declined by 70 bps to 3.6% of loans whereas fresh restructure was low at 70 bps of
loan. Provision coverage ratio declined by 250 bps QoQ to 89% (without technical
write-off) made net NPA to 0.2% from 0.1% in 1QFY14.
Financials
NII
Total Income
PPP
Net Profit
EPS
2011
1544
1908
1149
615
126.9
2012
1838
2172
1370
803
165.7
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
Rs, Cr
2013
2014E
2015E
2316
2595
3091
2800
2979
3817
1811
1906
2443
1055
1128
1478
217.6
232.6
304.9
(Source: Company/Eastwind)
8

9. J&K BANK
Quaterly Result (Rs. Cr)
Interest/discount on advances / bills
Income on investments
Interest on balances with Reserve Bank of India
Others
Total Interest Income
Others Income
Total Income
Interest Expended
NII
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
PBT
Tax
Net Profit
Balance Sheet Data ( Rs Cr)
Net Worth
Deposits
Borrowings
Advances
Investment
Asset Qaulity ( Rs Cr)
GNPA
NNPA
GNPA(%)
NNPA(%)
PCR(%)
2QFY14
1244
396
10
0
1650
99
1749
968
682
99
781
177
108
285
496
56
441
138
303
1QFY14
1184
423
17
0
1624
92
1716
969
655
92
747
176
90
266
481
36
445
137
308
2QFY13
1061
417
23
0
1501
91
1592
948
553
91
644
143
78
221
423
33
390
120
270
% YoY Gr
% QoQ Gr
17.3
5.0
-5.0
-6.3
-57.4
-42.8
9.9
1.6
9.4
7.9
9.9
1.9
2.1
-0.1
23.4
4.1
9.4
7.9
21.4
4.6
23.6
0.6
38.7
19.4
28.9
7.0
17.5
3.2
69.7
53.7
13.1
-0.9
14.8
1.0
12.3
-1.7
5475
61171
1346
41121
22316
5173
58601
758
39282
21734
4609
54927
922
34272
22521
18.8
5.9
11.4
4.4
45.9
77.7
20.0
4.7
-0.9
2.7
709
78
1.7
0.2
89
665
56
1.7
0.1
92
709
78
2.1
0.2
89
0.0
6.5
0.0
38.2
Source: Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
9

10. J&K BANK
P/L
Interest/discount on advances / bills
Income on investments
Interest on balances with Reserve Bank of India
Others
Total Interest Income
Others Income
Total Income
Interest on deposits
Interest on RBI/Inter bank borrowings
Others
Interest Expended
NII
NII Growth(%)
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
Net Profit
Net Profit Grwoth(%)
2010
2011
2012
2013
2014E
2015E
2342
705
11
0
3057
416
3473
1841
83
14
1938
1119
2630
1066
17
0
3713
365
4078
2069
46
54
2169
1544
37.9
365
1908
524
235
759
1149
534
615
20.1
3394
1403
39
0
4836
334
5170
2902
41
54
2997
1838
19.1
334
2172
521
281
802
1370
567
803
30.6
4318
1723
97
0
6137
484
6621
3741
26
54
3821
2316
26.0
484
2800
652
337
989
1811
756
1055
31.4
4959
1892
53
0
6904
383
7287
4217
91
0
4308
2595
12.1
383
2979
633
440
1072
1906
779
1128
6.9
5703
2085
53
0
7841
727
8568
4639
111
0
4750
3091
19.1
727
3817
811
563
1374
2443
965
1478
31.1
44676
20.0
1105
0.4
26194
13.6
19696
41.1
53347
19.4
1241
12.3
33077
26.3
21624
9.8
64221
20.4
1075
-13.4
39200
18.5
25741
19.0
70643
10.0
1230
14.4
45080
15.0
20124
-21.8
77707
10.0
1500
22.0
51843
15.0
22178
10.2
10.2
5.0
7.7
4.9
8.8
5.1
10.0
5.4
7.5
4.6
9.1
4.7
10.3
6.5
8.3
5.4
7.7
5.5
11.0
9.4
8.9
5.8
7.4
5.9
11.0
9.4
10.6
6.0
7.4
6.0
11.0
9.4
10.6
6.0
7.4
6.0
621
1.1
6.4
718
1.2
6.9
844
1.1
5.5
1003
1.3
5.9
1186
1.2
6.1
1441
1.0
4.6
416
1536
366
211
577
958
446
512
Key Balance sheet data
Deposits
Deposits Growth(%)
Borrowings
Borrowings Growth(%)
Loan
Loan Growth(%)
Investments
Investments Growth(%)
37237
1100
23057
13956
Eastwind Calculation
Yield on Advances
Yield on Investments
Yield on Funds
Cost of deposits
Cost of Borrowings
Cost of fund
Valuation
Book Value
P/BV
P/E
Source: eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
10

11. DCB
Company Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Book Profit
57.25
62
62
8
-
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Average Daily Volume
Nifty
532772
DCB
54.85/38
1437
2158026
6279
Stock Performance
1M
Absolute
19.2
Rel.to Nifty
15.6
1yr
20.4
13.1
YTD
20.4
13.1
Share Holding Pattern-%
Current 4QFY13 3QFY1
3
Promoters
18.5
18.5
18.5
FII
11.4
11.4
11.1
DII
14.1
12.5
13.0
Others
56.1
57.7
57.5
DCB Vs Nifty
"Book Profit"
27th Dec,2013
Development Credit Bank (DCB) currently trading at 1.3 times of one year
forward book which is now almost of higher side of our valuation range. We
value the bank at Rs.62/share at the higher side which is 1.4 times of one year
forward book and 15 times of FY14E’s earnings. Present valuation multiple
justified on account of DCB’s consistent improvement in its return ratio and
management guided similar trend of growth in FY14,however bank cited
margin could be compressed by 25-30 bps. We can’t rule out the valuation
multiple expansions but there is need to watch 1-2 quarters more as per our
view
Well capitalized and stable asset quality
Bank is well capitalized with tier 1 ratio of 13% means no need to raise money in
short term. Bank’s management guided loan and deposits growth of 25-27% and 3032% in FY14 which seen possible looking at present scenario. Management is also
very focus on low ticket size loan (prefer less than 30 mn) on account of avoiding
large slippage. At the 2QFY14, bank reported slippage of Rs.21 cr which was 1.3%
in annualized basis. Fresh slippage ratio remains in the range of 1.1-1.5 times in last
few quarters, so we believe bank would maintain similar trend in term of fresh
slippage which restrict GNPA out of control. Provision coverage ratio at the end of
2QFY14 stood at 84% (without technical write off) and management reiterate PCR to
maintain above of 80%.
Potential to expand valuation multiple, need to watch growth trajectory 1-2
quarters more
On valuation front, DCB valuation could be expanded if visibility of ROE
improvement is clearly seen. ROE improvement could be possible in two front- first
reducing cost income ratio which will boost the profit and second loan growth
specially in high yield segment like SME and MSME. We observed that bank’s CostIncome ratio was higher at 66.2% at the end of 2QFY14. Cost income ratio would
reduce to less than 65% in FY14 and would further reduce to 60% in FY15 according
to management. To reduce the cost, bank initiated to invest high yield segment,
planning to maintain CASA at 30% in long run while in short term does not expect
below of 27% and escalating branch network. In FY13 bank opened 10 branches but
in 1HFY14, DCB opened 9 branches and will go upto 120-125 branches in FY14.
Financials
NII
Total Income
PPP
Net Profit
EPS
2011
189
301
86
21
1.1
2012
228
328
84
55
2.3
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
Rs, Cr
2013
2014E
2015E
284
127
190
401
272
334
126
95
127
102
95
127
4.1
3.8
5.1
(Source: Company/Eastwind)
11

12. DCB
Quarterly Result( Rs Cr)
Interest/discount on advances / bills
Income on investments
Interest on balances with Reserve Bank of India
Others
Total Interest Income
Others Income
Total Income
Interest Expended
NII
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
PBT
Tax
Net Profit
2QFY14 1QFY14 2QFY13 % YoY % QoQ
205.2
201.5
170.9
20.1
1.8
57.9
56.7
47.6
21.8
2.1
5.5
2.3
1.1
378.2
142.4
0.2
0.2
0.4
-45.6
-9.7
268.8
260.7
219.9
22.2
3.1
27.3
45.1
27.5
-0.9
-39.5
296.1
305.8
247.5
19.6
-3.2
177.6
177.6
153.0
16.1
0.0
91.3
83.1
67.0
36.3
9.8
27.3
45.1
27.5
-0.9
-39.5
118.5
128.2
94.5
25.5
-7.6
38.8
37.7
34.1
13.9
2.9
39.6
39.2
33.9
16.8
1.1
78.4
76.9
68.0
15.4
2.0
40.1
51.3
26.5
51.4
-21.8
7.0
8.5
4.4
60.8
-17.4
33.1
42.8
22.1
49.5
-22.7
0.0
0.0
0.0
33.1
42.8
22.1
49.5
-22.7
Balance Sheet (Rs Cr)
Net Worth
Deposits
Loan
1079
8788
6677
1046
8320
6472
902
7137
5671
19.6
3.2
23.1
5.6
17.7
3.2
Asset quality (Rs Cr)
GNPA
NPA
% GNPA
% NPA
235
57
3.5
0.9
226
54
3.5
0.8
226
38
4
0.7
4.0
4.0
50.0
5.6
Source: Company/Eastwind
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
12

13. DCB
Income Statement
2010
2011
2012
2013
2014E
2015E
Interest Income
Interest Expense
NII
Change (%)
Non Interest Income
Total Income
Change (%)
Operating Expenses
Pre Provision Profits
Change (%)
Provisions
PBT
PAT
Change (%)
459
317
142
-28.2
107
249
-21.6
201
48
-36.5
121
-73
-79
-10.1
536
347
189
33.6
112
301
21.2
215
86
79.9
57
29
21
-127.2
717
489
228
20.4
100
328
8.9
244
84
-2.6
29
55
55
157.1
916
632
284
24.9
117
401
22.4
275
126
50.5
24
102
102
85.3
1090
963
127
-55.3
145
272
-32.3
177
95
-24.5
0
95
95
-6.7
1279
1089
190
49.1
145
334
23.0
207
127
33.5
0
127
127
33.5
4787
3
1693
17
504
2018
3460
6
5610
17
1975
17
861
2295
4271
23
6336
13
2035
3
1123
2518
5284
24
8364
32
2272
12
1526
3359
6586
25
9618
15
2597
14
1697
2886
7903
20
11061
15
1825
-30
1952
3318
9484
20
Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost of Deposit
Avg. Cost of Borrowimgs
10.4
4.7
5.9
6.8
9.4
5.8
5.2
6.4
10.1
6.9
6.4
7.2
10.8
5.8
6.4
6.4
9.7
6.8
5.9
6.0
9.7
6.8
5.9
6.0
Valuation
Book Value
CMP
P/BV
30
32.2
1.1
31
45.9
1.5
36
45
1.3
40
45
1.1
44
57.3
1.3
49
57.3
1.2
Balance Sheet
Deposits( Rs Cr)
Change (%)
of which CASA Dep
Change (%)
Borrowings( Rs Cr)
Investments( Rs Cr)
Loans( Rs Cr)
Change (%)
Ratio
Source: Eastwind/ Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
13

14. Infosys
"BUY"
26th Dec' 13
Bala exit; a pros and cons?
Company update
BUY
CMP
Target Price
Previous Target Price
Upside
Change from Previous
3486
3622
3390
4%
7%
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
Average Daily Volume
Nifty
500209
INFY
3570/2190
160944
1240448
6268
Stock Performance
Absolute
Rel. to Nifty
1M
4.1
-0.3
1yr
52.1
44.9
YTD
27.2
23.3
Share Holding Pattern-%
Promoters
FII
DII
Others
Current
16.04
40.52
17.51
25.93
1 year forward P/E
4QFY13 3QFY13
16.04
16.04
40.55
39.42
18.7
18.33
24.71
26.21
Does Balakrishnan departure from Infosys would affect the company’s bread and
butter?
Last week, V Balakrishnan a former CFO and member of Board director resigned from
the company to turn entrepreneur of Private Equity space. Currently, he is the head of
Infosys business process outsourcing unit, the company's core banking software
th
Finacle, its India business and chairman of Infosys Lodestone. This was now the 8
senior and top level departure after the taking charges by Company founder Narayana
Murthy.
Behind the top-level departure, only one cause reflects on the picture that is the tussle
of CEO post. Current CEO Shibulal is going to complete its tenure by next years.
Among the front-runner of this post, Balakrishnan was strong contender for the post
of CEO race.
How do we see the impacts of this buzz?
(a) We think, there would not be any major impact on qualitative and quantitative sense
and company would not see any major gap between sales executives and clients. Yes,
the magnitude of the exits could create a leadership vacuum. However, very soon
company will try to turn into smoothie organization structure.
(b) V Balakrsihnan’s resignation is not one night decision and not an affect of internal
hiccups. Post declaration of his resignation V Balakrishnan stated to media “it was my
long term plan and we were waiting for SEBI approval for my new Private Equity firm”.
th
Even, he sold 1,00,000 shares in the company for Rs 33 crore in the open market on 9
Nov 2013 (50,000 shares each held by his daughters), it indicates its earlier decision.
Therefore, we think Bala’s exit is a part of an ongoing strategy to reshuffle the top
management at Infosys.
(c) The top management conundrum has not been new to Infosys. Even, as Infosys’s
hyper-growth story played out over the course of three decades, powered by not just its
seven cofounders but also several talented employees that came on later on. Even, most
of company founders have churned out and company has been working for growth story
and committing for strategy 3.0.
(d) Post Narayana Murthy, company has committed for future transformational changes
and next generation growth plan. Recently, the company has undertaken a clear shift in
direction where it has been focusing on higher-margin businesses, a strategy that rival
TCS that has successfully implemented.
For near term, there could be some small sort of rally on the stock because of this knee
jerk and as the December quarter is generally expected to be a bit tepid for the
technology sector. Although, the street will forget all things after a good quarter
earnings or a strong commentary on the business outlook. For long term, we do not
see any major pressure because of co’s poster boy exit.
Rs, Crore
Financials
2QFY14
1QFY14
2QFY13
(YoY)-%
(QoQ)-%
Revenue
12965
11267
9858
31.5
15.07
EBITDA
2836.9
2664
2597
9.2
6.49
PAT
2406.9
2374
2369
1.6
1.39
EBITDA Margin
21.9%
23.6%
(170bps)
26.3%
(440bps)
PAT Margin
18.6%
21.1%
(250bps)
24.0%
(540bps)
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
14

15. Infosys.
View and Valuation:
Infosys seems to be on its way to rediscovering its past mojo with revenue momentum
kicking, its past strategy of under-promising and over delivering - remember present
guidance now factors flat gorwth in next 2 qtrs, and the NRN invisible hand in play.
Further announcement of strategic acquisitions, better utilization of cash balances, rampup in sales investment ,better deal win, consistent client traction and revenue
momentum would help the company to bridge the gap with rivals such as TCS and HCL
Tech.
Considering the revised guidance by management and its growth priority than margin
inching up strategy, we are positive on the stock. At a CMP of Rs 3486, it trades at 19.2x
FY14E and 16.7x FY15E earnings. We retain our “BUY” view on the stock with a target
price of target price of Rs 3622.
Financials
Rs in Cr,
Sales, INR
Employee Cost
Other expenses
Total Expenses
EBITDA
Depreciation
Other Income
EBIT
Interest Cost
PBT
Tax
PAT
Growth-%
Sales
EBITDA
PAT
Margin -%
EBITDA
EBIT
PAT
Expenses on Sales-%
Employee Cost
Other expenses
Tax rate
Valuation
CMP
No of Share
NW
EPS
BVPS
RoE-%
Dividen Payout ratio
P/BV
P/E
FY10
FY11
FY12
FY13
FY14E
FY15E
22742
12085
2792
14877
7865
905
982
7942
0
7942
1681
6261
27501
14856
3677
18533
8968
854
1211
9325
0
9325
2490
6835
33734
18340
4671
23011
10723
928
1904
11699
0
11699
3367
8332
40352
22565
6254
28819
11533
1099
2365
12799
0
12799
3370
9429
48659.6
27736.0
7785.5
35521.5
13138.1
1325.3
2433.0
14245.8
0.0
14245.8
3846.4
10399.4
55939.5
32165.2
9230.0
41395.2
14544.3
1523.5
3356.4
16377.1
0.0
16377.1
4421.8
11955.3
4.8%
9.3%
4.6%
20.9%
14.0%
9.2%
22.7%
19.6%
21.9%
19.6%
7.6%
13.2%
20.6%
13.9%
10.3%
15.0%
10.7%
15.0%
34.6%
34.9%
27.5%
32.6%
33.9%
24.9%
31.8%
34.7%
24.7%
28.6%
31.7%
23.4%
27.0%
29.3%
21.4%
26.0%
29.3%
21.4%
53.1%
12.3%
21.2%
54.0%
13.4%
26.7%
54.4%
13.8%
28.8%
55.9%
15.5%
26.3%
57.0%
16.0%
27.0%
57.5%
16.5%
27.0%
2615.1
57.4
23049.0
109.1
401.7
27.2%
25.1%
6.5
24.0
2765.1
57.4
25976.0
119.0
452.4
26.3%
45.9%
6.1
23.2
2865.0
57.4
31332.0
145.1
545.6
26.6%
24.0%
5.3
19.7
2400.0
57.4
37994.0
164.2
661.7
24.8%
45.1%
3.6
14.6
3486
57.4
45236.1
181.1
787.8
23.0%
23.8%
4.4
19.2
3486
57.4
53832.6
208.2
937.5
22.2%
20.7%
3.7
16.7
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
15

16. Hindalco Industries Ltd.
Company Update
"Buy"
24 Dec' 13
124
132
NA
7%
NA
Novelis, leader in aluminum rolling and recycling completed $400 millionexpansion
program in South Korea. The expansion of its Yeongju and Ulsan plants increases the
company's production capacity in the region by more than 50 percent to approximately
one million metric tons of aluminum sheet per year.Hindalco has expanded its smelting
capacity by 359kt via Mahan greenfield project.Aruna Sundarajan is back and set to
take charge as Industries new additional chief secretary and looks forward
optimistically for a better industrial climate focusing on young entrepreneurship.
500440
HINDALCO
137/83
25497
17848
6284
The PM's Project Monitoring Group has sorted out issues with regards to Hindalco's 7000
Cr rupees Utkal Alumina refinery among others. On a medium-term view we would still
be positive on Hindalco Industries. As the improvement happens across economies
whether it is US, Europe, to an extent in China also we think Hindalco is very well
positioned.
Hindalco Industries, the world's largest Aluminium rolling company, disappointed with
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
Average Daily Volume (Nos.)
Nifty
the second quarter net profit declining marginally to Rs 357Cr from Rs 358.9Cr y-o-y,
Stock Performance-%
1M
-1.3
-2.7
Absolute
Rel. to Nifty
1yr
11.3
0.5
YTD
8.7
0.0
dented by higher finance cost. Bottom line was largely supported by other income;
otherwise profit would have much lower than currently reported. Other income, which
included Rs61 Cr non-recurring income and dividend of Rs 100 Cr from subsidiaries, more
than doubled to Rs 280Cr in three-month period ended September 2013 from Rs 132.4Cr
Share Holding Pattern-%
2QFY14
37.0
24.9
14.4
23.7
Promoters
FII
DII
Others
1QFY14 4QFY13
37.0
32.1
24.8
24.5
14.3
15.5
23.9
28.0
PRICE
3x
700
BV
4x
1x
P/BV
2x
3.0
2.5
600
2.0
500
400
1.5
300
1.0
200
0.5
100
Sep-13
Sep-12
Mar-13
Sep-11
Mar-12
Sep-10
Mar-11
Sep-09
Mar-10
Sep-08
Mar-09
Sep-07
Mar-08
Sep-06
0.0
Mar-07
0
Mar-06
September quarter. EBITDA climbed 3 percent Y-o-Y to Rs 481Cr while operating profit
margin improved marginally to 7.7 percent from 7.63 percent during the same period on
higher inventory. Finance cost surged 6.5 times on a yearly basis to Rs 183Cr in the
quarter gone by, given higher average borrowing. Revenue from Aluminium business
grew 11 percent y-o-y to Rs 2,342.6Cr, driven by higher volumes, but EBIT margin of the
1 yr Forward P/B
800
in a year ago period. Net sales increased over 2 percent year-on-year to Rs 6245Cr during
Source - Comapany/EastWind Research
same business declined to 7.1 percent during 2QFY14
During the same period, total metal production increased to 1,32,000 ton (excluding
Mahan production) from 1,28,000 ton while alumina production (excluding Utkal alumina
production) rose to 3,34,000 ton from 3,28,000 ton y-o-y, but sequentially it was down
from 3,48,000 ton due to a planned ramp down at one of refineries. In case of copper
business, revenue slipped 2.2 percent Y-o-Y to Rs 3,974Cr in the quarter gone by, but its
EBIT margin expanded to 6 percent. Cathode production declined to 77,000 ton from
78,000 ton y-o-y.
Financials :
Q2FY14
Y-o-Y %
Q-o-Q %
Q2FY13
Q1FY14
Net Revenue
6585
4.6
5.1
6296
6266
EBITDA
540
4.8
12.8
515
478
Depriciation
196
13.7
7.3
173
183
Tax
83
-5.9
-17.4
88
101
PAT
357
-0.5
-24.7
359
474
(In Crs)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
16

17. Hindalco Industries Ltd.
Out Look : Although Hindalco has expanded its aluminium capacity recently, low
aluminium prices, sticky costs, delay in commencement of mining from captive blocks
and higher interest and depreciation costs may hit its profitability. In the near-term,
there is lack of clarity over production from the Mahan coal block for its Mahan smelter.
Without captive coal block, the Mahan smelter is expected to face cost pressures,
resulting in lower return ratios over FY2013-15.So Clearance of Mahan coal block will be
most awaited trigger for Hindalco. Mean While on the Positive Side We can expect 7%
growth on the Stock with a Target Price of Rs.132.
LME Price/Ton
Primary Aluminium
120000
115000
110000
105000
100000
95000
Dec-13
Dec-13
Oct-13
Nov-13
Nov-13
Sep-13
Jul-13
Aug-13
Jun-13
May-13
Apr-13
Feb-13
Mar-13
Jan-13
90000
Source - Comapany/EastWind Research
LME Price/Ton
Copper
FY14E
86000
1360
87360
78572
7428
2700
2500
825
0
0
2763
7.3
Narnolia Securities Ltd,
Oct-13
FY13
80193
1012
81205
72395
7798
2822
2079
886
-20
16
3027
8.6
Sep-13
FY12
80821
783
81604
72856
7965
2645
1758
786
211
-50
3397
10.6
Jul-13
FY11
72078
431
72509
64102
7976
2725
1839
964
366
57
2456
8.5
Aug-13
P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income
Expenditure
EBITDA
Depriciation
Interest Cost
Tax
Minority Interest
Share in Profit/(Loss) of Associates
PAT
ROE%
Jun-13
FY13
8779
17305
930
768
225246
May-13
FY12
9041
17575
1822
802
178990
Apr-13
FY11
7965
15902
2004
602
74799
Mar-13
FY10
6761
11752
1963
599
138254
Feb-13
OPERATING MATRIX
Aluminium Revenue
Copper Revenue
Aluminium Results
Copper Results
Capital Employed
Jan-13
480000
460000
440000
420000
400000
380000
360000
340000
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
17

18. Hindalco Industries Ltd.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Trade payables
Short-term provisions
Total liabilities
Intangibles
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
Short-term loans and advances
Total Assets
RATIOS
P/B
EPS
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%
FY10
191
21346
21545
10763
13236
3901
9742
1016
69235
7876
21124
5801
1983
11275
6544
2195
1134
69235
FY10
1.6
20.5
10.8
16.0
1.9
FY11
191
28824
29023
13736
13956
4138
12980
1077
84376
12272
20133
13131
2035
14096
8000
2556
1164
84376
FY11
1.4
12.8
11.1
18.0
2.0
FY12
191
31179
31911
37127
3731
5289
11052
1377
101402
15429
19871
22798
3774
13246
8017
3296
2159
101402
FY12
0.8
17.7
9.9
13.7
1.6
FY13
191
34597
35330
49857
6442
5691
9613
1610
120590
16435
21490
33831
3170
14332
8952
3770
3257
120590
FY13
0.5
15.8
11.2
12.0
1.8
CASH FLOWS
Cash from Operation
Changes In Working Capital
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year
FY10
5542
-598
4944
-5448
428
-76
FY11
6929
-703
6226
-6710
825
341
FY12
8534
-932
7602
-13220
6237
619
FY13
6852
-3874
2978
-13765
10278
-510
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Trading At :
7000
6000
5000
4000
3000
2000
1000
0
NIFTY
HINDALCO
160
140
120
100
80
60
40
20
0
Source - Comapany/EastWind Research
Narnolia Securities Ltd,
18

19. Persistent System.
"Book Profit"
23rd Dec' 13
"Persistently innovating.."
Company update
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
Average Daily Volume
Nifty
Book Profit
1007
960
890
-
533179
PERSISTENT
1023/477
4029
12139
6274
Stock Performance
Absolute
Rel. to Nifty
1M
24.1
23
1yr
105.2
99.4
YTD
91.2
84.6
Share Holding Pattern-%
Current
Promoters
FII
DII
Others
38.96
15.28
21.23
24.53
1 year forward P/E-x
1QFY14 4QFY13
38.96
14.84
19.31
26.89
38.96
12.39
21.59
27.06
th
We had initiated this stock at a CMP of Rs 526(on 16 Feb 2013) and now, it achieved
its target of Rs 960. 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. However, sentiment could take a knock in the short run,
since investors may prefer paying a premium for stocks with better earnings visibility.
Persistent Sytem’s management remains confident of FY14 with deal pipeline being
strong and remains focused on increasing the share of IP-led revenues in its portfolio.
They expect to see more than 15% USD revenue growth for FY14E.
With the potential revenue growth, strong deal pipeline and multi-year relationships
with marquee clientele in the Infrastructure vertical, we expect for better earning
visibility across niche IT players.
Recently , Persistent System reported superlative set of numbers during the 2QFY14
with 21%(QoQ) sales growth in INR term and 8.6%(QoQ) growth in USD term led by
38%(QOQ) growth on the intellectual property (IP) revenues. PAT growth was at 6.5%
(QoQ).
Margin ramp up: During the quarter, Its EBITDA margin improved by 180bps to 23.3%,
positively impacted by currency gain(270bps), while during the quarter company wage
hike to its off shore employee at a range of 8-9% was impacted margin by 310 bps
adversely. However, management expects to maintain margin at a range of 24-25% for
FY14E.
Clients Metrics: During the quarter, company added 2 clients at 32 under medium
category( >$1mn to $3mn) and 1 client at 16 from large ( > $ 3Mn) . Revenue from top-1
client was improved from 21.2% (1QFY14) to 22.5% . DSO at 62days, almost 12
quarters low.
Persistent's management suggests that deal pipeline are looking strong and seeing
good activity and traction in the market across the board. Its focus on some of newer
technologies like cloud, analytics and mobility are gaining a lot of traction because of
pickup in demand environment. The emerging themes, (CAMB) Cloud, Analytics,
Mobility, and Big data could also see strong demand traction ahead. Because of
actively investment in these themes, management is very confident to see healthy
growth and also they expressed their confidence to beat the NASSCOM guidance (1214% revenue growth for FY14E).
View and Valuation: The company’s focus is shifting greater proportion to IP led services
and company has marquee clientele in cutting-edge technologies around cloud,
mobility, collaboration and analytics; witnessing faster growth. Considering the
company’s premium valuation, we advice “Book Profit” on the stock. At a CMP of Rs
1007, stock trades at 15.9x FY14E earnings. Our view could be change with
management guidance and post earnings of coming quarter.
Financials
Rs, Crore
2QFY14
1QFY14
(QoQ)-%
2QFY13
(YoY)-%
Revenue
432.37
357.29
21.0
326.86
32.3
EBITDA
100.8
76.8
31.3
89.06
13.2
PAT
60.8
57.1
6.5
44.71
36.0
EBITDA Margin
23.3%
21.5%
180bps
27.2%
(390bps)
PAT Margin
14.1%
16.0%
(190bps)
13.7%
40bps
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
19

20. Persistent System.
Financials
Rs, in Cr.
Sales
Employee Cost
Cost of technical professionals
Other expenses
Total expenses
EBITDA
Depreciation
Other Income
EBIT
Interest Cost
Profit (+)/Loss (-) Before Taxes
Provision for Taxes
Net Profit (+)/Loss (-)
Growth-% (YoY)
Sales
EBITDA
PAT
Expenses on Sales-%
Employee Cost
Other expenses
Tax rate
Margin-%
EBITDA
EBIT
PAT
Valuation:
CMP
No of Share
NW
EPS
BVPS
RoE-%
P/BV
P/E
FY10
601.16
368.74
0
86.05
454.79
146.37
33.52
11.23
112.85
0
124.08
9.05
115.03
FY11
775.84
481.62
30.67
105.24
617.53
158.31
42.39
34.44
115.92
0
150.36
10.62
139.74
FY12
1000.3
599.05
41.68
135.2
775.93
224.37
61.1
34.44
163.27
0.00
197.71
55.09
142.62
FY13
1294.5
719
54
218
990.78
303.72
78
34.44
225.44
0.03
259.851
75.37
184.481
FY14E
1657.54
895.07
82.88
290.07
1268.02
389.52
93.54
66.30
295.98
0.00
362.29
108.69
253.60
FY15E
2053.93
1119.39
102.70
379.98
1602.06
451.86
84.18
71.89
367.68
0.00
439.57
131.87
307.70
1.2%
60.2%
74.1%
29.1%
8.2%
21.5%
28.9%
41.7%
2.1%
29.4%
35.4%
29.4%
28.0%
28.3%
37.5%
23.9%
16.0%
21.3%
61.3%
14.3%
7.3%
62.1%
13.6%
7.1%
59.9%
13.5%
27.9%
55.5%
16.9%
29.0%
54.0%
17.5%
30.0%
54.5%
18.5%
30.0%
24.3%
18.8%
19.1%
20.4%
14.9%
18.0%
22.4%
16.3%
14.3%
23.5%
17.4%
14.3%
23.5%
17.9%
15.3%
22.0%
17.9%
15.0%
310
4
639.0
28.8
159.7
18.0%
1.9
10.8
366.7
4
747.1
34.9
186.8
18.7%
2.0
10.5
409.2
4
840.5
35.7
210.1
17.0%
1.9
11.5
541
4
1018.3
46.1
254.6
18.1%
2.1
11.7
1007
4.00
1234.4
63.4
308.6
20.5%
3.3
15.9
1007
4.00
1504.7
76.9
376.2
20.4%
2.7
13.1
(Source: Company/Eastwind)
Rating and Price Target Chart
Updation Detail
Date
16-Feb-13
25-Jun-13
7-May-13
31-Jul-13
18-Sep-13
26-Sep-13
9-Oct-13
22-Oct-13
13-Dec-13
23-Dec-13
Update Detail
Initiation
Company Update
Result Update
Result Update
Company Update
Company Update
Company Update
Result Update
Company Update
Company Update
CMP
526
499
514
522
573
623
682
739
876
1007
View Target Price
BUY
580
BUY
580
BUY
580
BUY
580
BUY
642
BUY
834
BUY
834
BUY
890
BUY
960
Book Profit
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
20

21. 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.
21