IEA-Equity
Strategy

India Equity Analytics

16th Jan, 2014

Daliy Fundamental Report on Indian Equities

NIIT Tech :"Focu...
NIIT Tech

"BUY"
16th Jan' 14

"Focused on growth story"
Result update

Buy

Below than street expectations, but confident...
NIIT Tech
Sales and PAT growth-%(QoQ)
Company expects FY14 to be better
than FY13 with respect to both revenue
growth and ...
NIIT Tech
Operating Metrics;
.
Banking and Finacial Services
Insurance
Transport
Manufacturing
Government
Others
Sales Mix...
YES BANK
Result update
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market Data
BSE Code
NSE Symbol
...
YES BANK
Deposits growth moderate sequentially but advance reported handsome growth
On balance sheet front, bank’s advance...
YES BANK
Quarterly Result

Quarterly Result
Interest/discount on advances / bills
Income on investments
Interest on balanc...
YES BANK
Financials & Assuption

Income Statement

2011

2012

2013

2014E

2015E

Interest Income
Interest Expense
NII
Ch...
CMC

"Neutral"
15th Jan' 14

"Nothing for excitement"
Results update

Neutral

CMP
Target Price
Previous Target Price
Upsi...
CMC
Sales and Sales growth-%(QoQ)
Second half of FY14 will be better than
the first half. And expects to sees
opportunitie...
CMC
Key facts from Concall (attended on 16th Oct, 2013)
►CMC continues to target growth ahead of the overall IT industry; ...
Coal India LTD.
Company Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

289
334
310
16%
NA

Mar...
Coal India LTD.
E-auction prices remain under pressure: E-auction prices for Nov’13 were at Rs 2,117/t
(-15% YoY/-8% MoM)....
Coal India LTD.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Lo...
UltraTech Cement Ltd.
Company Update

Buy

CMP
Target Price
Previous Target Price
Upside
Change from Previous

1675
1846
1...
UltraTech Cement Ltd.

On The Expansion Front : Setting up a cement plant with 5.5 MMTPA cement and a 75 mega
watt (MW) ca...
UltraTech Cement Ltd.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowi...
DB Corp

"BUY"
14th Jan' 14

"On strong footing"
Company update
CMP
Target Price
Previous Target Price
Upside
Change from ...
DB Corp
Revenue Segments

Revenue Geography-wise

Financials
Rs,cr
Sales
RM Cost
WIP
Employee Cost
Ad Spend
Event Expenses...
Zensar Tech
Company update

Buy

CMP
Target Price
Previous Target Price
Upside
Change from Previous

412
440
400
7%
10%

M...
Zensar Tech
Clients/Headcounts Metrics;
Number of million dollar

$1mn+
$5mn+
$10mn+
$20mn+

47
6
1
1

43
7
2
1

41
7
2
1
...
N arnolia Securities Ltd
402, 4th floor 7/ 1, Lord s Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4...
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India Equity Analytics for today - Neutral rating on YES BANK, CMC and buy NIIT Tech

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Yes Bank profit growth was higher than expectation due and CMC remains a strong with excellent earning visibility led by joint effort of market strategy by TCS in its product and solutions. We recommend Neutral rating on both and buy stock of NIIT Tech which expect good growth from Travel & Tourism vertical in FY'14

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India Equity Analytics for today - Neutral rating on YES BANK, CMC and buy NIIT Tech

  1. 1. IEA-Equity Strategy India Equity Analytics 16th Jan, 2014 Daliy Fundamental Report on Indian Equities NIIT Tech :"Focused on growth story" "BUY" Edition : 185 16th Jan 2014 For 3QFY14, NIITTECH reported marginally below numbers than street estimates, sales was unchanged at Rs587.3cr because of reduced purchase for resale (PFR) in domestic Government business while revenues from services grew 4.3% sequentially. Company’s Order wins in the recent quarters have been healthy, lending visibility on revenue growth. At a CMP of Rs 376, trades at 6.9x FY15E earnings. We retain “ buy” view on the stock with a price target of Rs 440 (revised from Rs360) ........................... ( Page :2-4) YES BANK : "Neutral" 16th Jan 2014 Yes Bank profit growth was higher than expectation due to lower provisions made of bank despite of reporting higher delinquencies. Balance sheet growth on sequential basis declined led by lower incremental deposits (other than CASA) whereas advance grew handsomely. Leverage ratio (Total asset to Net worth) has been declining from past four quarters indicating no surplus liquidity in balance sheet. Moreover bank need additional borrowings to fund its growth trajectory, this would result of higher cost of fund and margin compression. We remain have neutral view on the stock and reduce our target price to Rs.388 from Rs.443.................... ( Page :5-8) CMC : "Nothing for excitement" "Neutral" 16th Jan 2014 we expect that its earning visibility and order from government side in coming 2 quarter could be impacted because of general election schedule in India (earns 41% revenue from India). For a near to medium -term prospect, we are not much excited on the stock taking its earning visibility in near term. We had already advised to book profit on 9th Jan 2014 at a target price of Rs 1690, now we have a “Neutral” view on the stock. At a CMP of Rs 1527, stock trades at 16.5X FY15E earnings ................................... ( Page : 9-11) Coal India LTD : "BUY" 15th Jan 2014 A Rs 1800-crore fine could possibly mean less profits for the company and less dividend income for its owners. But as the main owner, the government, will pocket this amount in the form of a fine, it will not be poorer in any way.Recently Coalindia after a long discussion with govt declared Rs29/share intrim dividend .which recovers our ROE estimate for FY14 to 40% from 33%.which is up 4% YOY.we revised our EPS estimate for FY14 to 28.4 which is 3.4% YOY (including 2100 CR realization Gain).Hence we Upgrade coal india to a target price of RS.334/(previously 310)................................................ ( Page : 12- 14) 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 :15- 17) DB Corp :"On strong footing" "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 : 18-19) 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 : 20-21) Narnolia Securities Ltd,
  2. 2. NIIT Tech "BUY" 16th Jan' 14 "Focused on growth story" Result update Buy Below than street expectations, but confident on future growth; CMP Target Price Previous Target Price Upside Change from Previous 376 440 360 17% 22% For 3QFY14, NIITTECH reported marginally below numbers than street estimates, sales was unchanged at Rs587.3cr because of reduced purchase for resale (PFR) in domestic Government business while revenues from services grew 4.3% sequentially. During the quarter, company has been able to maintain healthy order book and eyeing on strong order pipeline. Post earning, management is gearing up for its paradigm shift in growth strategy for the future and set an aspirational target to grow revenues to USD 1 bn in the next 5yrs. They stated that, margins will start seeing improvement from Q4FY14, led by the improvement in the margin from the Geographic Information Systems (GIS) business and the Morris joint venture. PAT declined by 12%(QoQ) impacted by a loss in other income as a result of revaluation of foreign currency assets and liabilities due to period end exchange difference. Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 532541 NIITTECH 399/234 2281 20884 6321 Stock Performance 1M 12.7 10.2 Absolute Rel. to Nifty 1yr 36.3 31.4 YTD 43.3 38.5 Share Holding Pattern-% Promoters FII DII Others Current 31.08 32.35 17.34 19.23 1 year forward P/E 2QFY14 31.19 29.21 19.94 19.66 1QFY14 31.23 29.04 19.67 20.06 Steady margin: EBITDA Margin improved by 120bps (QoQ) to 16.2% on the back of reduction Employee cost by 3.5%, sequentially. Healthy growth traction from US and Europe: The contribution to the total revenues from the U.S. increased to 44% from 41% (up 7%,QoQ) and EMEA stood at 38% from 36%( up 6%, QoQ). The revenue share from rest of the world declined from 23% to 18% (down 22% QoQ). Post result management stated that the demand environment is clearly showing positive signs in the US with the debt issue being the only overhang. Slow deal execution in Government and Insurance projects: Among industry segments, Travel and Transportation contributed to 37% (up by 3%, QoQ), BFS was 17% (up by 21%, QoQ), Government projects declined from 10% to 6% (down by 40%, QoQ) to the revenue mix. Healthy order addition: During the quarter, the company secured a USD 300 million vendor consolidation deal from a top BFSI client for a period of 10 years. It has secured fresh order of USD 377mn versus USD 84mn in 2QFY14. However, in 3Q FY14, order has primarily been in the international market. During the quarter, NIIT Tech forayed into Latin America through its partnership with GRU Aeroporto Internacional de São Paulo (Sao Paolo International Airport), to implement and transform the cargo handling system at the airport. View and Valuation: We expect good growth from Travel & Tourism vertical in FY'14 and the BFSI expected to be softer. However, the MFG and Govt verticals expected to improve going forward. Company’s Order wins in the recent quarters have been healthy, lending visibility on revenue growth. At a CMP of Rs 376, trades at 6.9x FY15E earnings. We retain “ buy” view on the stock with a price target of Rs 440 (revised from Rs360). Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 587.3 95.1 52.5 16.2% 8.9% 2QFY14 587.3 88.6 60.4 15.1% 10.3% (QoQ)-% 0.0 7.3 (13.1) 110bps (120bps) 3QFY13 500.1 81.3 56.6 16.3% 11.3% Rs, Crore (YoY)-% 17.4 17.0 -7.2 (10bps) (140bps) (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 2
  3. 3. NIIT Tech Sales and PAT growth-%(QoQ) Company expects FY14 to be better than FY13 with respect to both revenue growth and EBIT margin. And also expects stronger growth in the US and Asian markets compared with Europe. Management also expects to see demand environmrnt ahead. (Source: Company/Eastwind) Margin-% It expects the growth momentum will sustain with holding the margins going forward. (Source: Company/Eastwind) Clients Metrics The 3QFY14 witnessed sustained hiring and attrition improved from 12.44% to 13.40% on LTM basis. Managent is very confident to maintain attrition at 12-13% and utilization at 77-80%. (Source: Company/Eastwind) Clients Metrics: During the quarter, Company added 4 new clients, each in BFSI, travel and transportation, manufacturing, and government segment. Employee Metrics: Total headcount increased from 8017 from 8,160 at the end of the quarter. Utilzation declined to 78.4% from 80.3%(2QFY14) because of weak quarter and still, company is good to maintain attrition at a mark of 12-13%, which is better than its peers. Higher DSO: The DSO days were 98 (2QFY14 – 100) during the quarter.In general, the DSO days are typically used to be at 80 days. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 3
  4. 4. NIIT Tech Operating Metrics; . Banking and Finacial Services Insurance Transport Manufacturing Government Others Sales Mix-Geography Americas EMEA RoW Revenue Concentration % DSO-days Top-5 Top-10 Headcounts No of Headcounts 1QFY13 13% 21% 40% 7% 8% 11% 2QFY13 13% 20% 42% 6% 5% 14% 3QFY13 12% 19% 42% 6% 8% 13% 4QFY13 12% 19% 37% 6% 11% 15% 1QFY14 12% 18% 36% 7% 13% 14% 2QFY14 14% 19% 37% 6% 10% 14% 3QFY14 17% 18% 38% 7% 6% 14% 36% 39% 25% 38% 39% 23% 37% 40% 23% 38% 37% 25% 38% 37% 26% 41% 36% 23% 44% 38% 18% 84 30% 43% 75 32% 47% 76 34% 48% 82 32% 47% 98 31% 46% 100 36% 49% 96 37% 49% 7444 7617 7882 8158 8207 8017 8160 Financials; Rs in Cr, Sales Employee Cost 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 913.7 503.71 239.75 743.46 170.24 35.81 7.64 134.43 0 142.07 14.42 127.65 FY11 1232.25 601.36 393.1 994.46 237.79 31.46 13.6 206.33 2.22 217.71 32.3 185.41 FY12 1576.48 891.12 415.26 1306.38 270.1 36.42 30.37 233.68 3.84 260.21 63.75 196.46 FY13 2021.36 1115.1 576.96 1692.06 329.3 56.69 22.75 272.61 1.91 293.45 75.05 218.4 FY14E 2341.54 1334.68 620.51 1955.19 386.35 65.73 46.83 320.62 2.59 364.86 103.99 260.88 FY15E 2814.74 1562.18 774.05 2336.24 478.51 73.49 56.29 405.02 1.94 459.37 133.22 326.15 -6.8% 2.3% 9.6% 34.9% 39.7% 45.2% 27.9% 13.6% 6.0% 28.2% 21.9% 11.2% 15.8% 17.3% 19.4% 20.2% 23.9% 25.0% 55.1% 26.2% 10.1% 48.8% 31.9% 14.8% 56.5% 26.3% 24.5% 55.2% 28.5% 25.6% 57.0% 26.5% 28.5% 55.5% 27.5% 29.0% 18.6% 14.7% 14.0% 19.3% 16.7% 15.0% 17.1% 14.8% 12.5% 16.3% 13.5% 10.8% 16.5% 13.7% 11.1% 17.0% 14.4% 11.6% 170.25 5.88 579.78 21.71 98.60 22.0% 1.73 7.84 184.65 5.93 752.11 31.27 126.83 24.7% 1.46 5.91 270.90 5.96 922.20 32.96 154.73 21.3% 1.75 8.22 262.35 6.02 1094.12 36.28 181.75 20.0% 1.44 7.23 376.00 6.02 1346.30 43.33 223.64 19.4% 1.68 8.68 376.00 6.02 1663.24 54.18 276.29 19.6% 1.36 6.94 (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 4
  5. 5. YES BANK Result update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol Neutral 353 388 443 10 14 532648 YESBANK 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 547/216 12729 18.04 6320 "NEUTRAL" 16th Jan, 2014 Yes bank reported better than expected profit largely due to lower provision despite of reported higher delinquencies. This has resulted of lower provision coverage ratio but still it is above of regulatory requirement. Incremental deposits (other than CASA) were remained muted whereas advance reported handsomely. Bank would face liquidity problem or would have to dependent on additional borrowings to maintain its growth trajectory. This would result of higher cost of fund and margin compression in our view. Leverage ratio (total asset to net worth) has been declining from past four quarters indicated no surplus liquidity in balance sheet. In the absence of comfortable earnings we remain have neutral view. Also, we reduce our target price from Rs.443 to Rs.388. NII growth of 14% YoY led by advance growth and stable cost of fund Bank’s NII grew by 14% YoY to Rs.665 cr largely due to stable margin and other income. In 3QFY14, bank reported other income of Rs.388 cr up by 24% YoY whereas margin was stable at 2.9% declined mere by 10 bps YoY. Credit deposits Stock Performance 1M Absolute -2.7 1yr -29.2 YTD -29.2 deposits base. We observed that bank’s cost of deposits (Calculated) remain at Rel.to Nifty -35.4 -35.4 improved handsomely to 13.3% from 12.7% in 3QFY13. -5.4 ratio was improved by 330 bps QOQ but was declined by 400 bps YoY due to lower Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 25.6 25.6 25.7 FII 35.1 46.0 49.0 DII 19.4 15.7 13.2 Others 20.0 12.7 12.1 1 Yr P/BV elevated level despite of relatively have higher CASA base whereas yield on loan Muted PPP growth due to higher CI ratio Cost to Income ratio was highest ever to 41.6% because of bank’s strategy to increase market share of CASA. During quarter bank hire 647 employee and opened 17branches and 36 ATMs. As the result employee cost and operating cost were increased by 20% and 42% respectively. Due to higher operating cost, pre provisioning profit increased by 9% YoY despite of healthy NII and other income. Operating leverage increased to 0.41% from 0.39% in 3QFY14. We expect this ratio to remain high because of bank would continue to increase its CASA franchise base by opening new branches and hiring. Stable margin on sequential basis despite of lower lending yield and marginal increased of cost of fund On sequential basis NIM of bank remained flat at 2.9% but declined 10 bps on YoY basis. Lending yield declined sharply to 13.3% from 13.6% due to increased share of low yield Corporate and Institutional banking. Cost of deposits increased to 10.9% from 10.8% on QoQ basis. Despite of lower lending yield and higher cost of fund, margin stable on sequential basis was probably due to lower earnings asset growth as we get evidence from negative growth of balance sheet on QoQ basis. Financials NII Total Income PPP Net Profit EPS 2011 1247 1870 1190 727 20.9 2012 1616 2473 1540 977 27.7 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. Rs, Cr 2013 2014E 2015E 2219 2440 2374 3476 4217 4150 2142 2328 2614 1301 1778 1098 36.3 49.4 35.6 (Source: Company/Eastwind) 5
  6. 6. YES BANK Deposits growth moderate sequentially but advance reported handsome growth On balance sheet front, bank’s advance grew by 14.7% YoY led by retail banking growth followed by corporate and institutional banking. Retail loan registered growth of 47% YoY whereas corporate banking reported 18% YoY growth. Deposits grew by 20.7% YoY led by CASA deposits growth of 38% YoY followed by term deposits (17% YoY). We observed that bank’s incremental deposits (other than CASA) were remained muted at Rs.24 cr as against Rs.1708 cr in second quarter. Bank would have to depend on additional borrowings to maintain its growth trajectory if the present trend continued which would be the result of higher cost of fund and margin compression. Sequentially credit deposits ratio was higher at 73.9% from 70.6% on account of lower deposits base especially of term deposits. Valuation & View Yes bank reported better than expected profit largely due to lower provision despite of reported higher delinquencies. This has resulted of lower provision coverage but it is still above of regulatory requirement. Incremental deposits (other than CASA) were remained muted whereas advance increased handsomely. Bank would face liquidity problem or would have to dependent on additional borrowings to maintain its growth trajectory. This would result of higher cost of fund and margin compression in our view. Leverage ratio (total asset to net worth) has been declining from past four quarters indicated no surplus liquidity in balance sheet. In the absence of comfortable earnings we reduce our target price to Rs.388 from Rs.443. Valuation Band ( 1 yr forward P/BV) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 6
  7. 7. YES BANK Quarterly Result Quarterly Result 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 Advances Shareholders’ Funds Deposits Asset Quality GNPA NPA % GNPA % NPA PCR(%) 3QFY14E 1666 840 8 0 2514 388 2902 1849 665 388 1053 194 245 439 615 13 601 186 416 2QFY14 1618 875 8 0 2501 446 2947 1829 672 446 1118 185 220 405 713 179 534 163 371 3QFY13 %YoY Gr %QoQ Gr 1394 19.5 3.0 726 15.8 -4.0 4 82.6 -7.5 10 -96.4 20.0 2134 17.8 0.5 313 23.8 -13.1 2447 18.6 -1.5 1549 19.3 1.1 584 13.9 -1.0 313 23.8 -13.1 898 17.4 -5.8 162 19.8 4.7 172 42.1 11.2 334 31.3 8.2 563 9.1 -13.8 57 -76.6 -92.6 507 18.7 12.7 164 13.0 14.2 342 21.4 12.0 50,293 6,610 68,060 47717 6610 67575 43,857 5,679 56,401 14.7 5.4 16.4 0.0 20.7 0.7 195.8 42.3 0.39 0.08 78.4 132.1 19.36 0.28 0.04 85.3 76.2 15.6 0.17 0.04 79.5 157.0 48.3 171.2 118.5 Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 7
  8. 8. YES BANK Financials & Assuption Income Statement 2011 2012 2013 2014E 2015E Interest Income Interest Expense NII Change (%) Non Interest Income Total Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions( Incl tax) PAT Change (%) 4042 2795 1247 6307 4692 1616 8294 6075 2219 11985 9544 2440 11213 8840 2374 58.2 29.6 37.3 10.0 -2.7 623 1870 857 2473 1257 3476 1776 4217 1776 4150 37.2 32.2 40.6 21.3 -1.6 680 1190 933 1540 1335 2142 1889 2328 1535 2614 37.9 29.4 39.1 8.7 12.3 463 727 563 977 841 1301 604 1778 1046 1098 52.2 34.4 33.1 36.7 -38.2 Balance Sheet 2011 2012 2013 2014E 2015E Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%) 45939 49152 66956 80347 96416 Ratio 71.4 7.0 36.2 20.0 20.0 4751 7392 12688 20087 28925 68.6 55.6 71.6 58.3 44.0 6691 18829 34364 14156 27757 37989 20922 42976 47000 21358 49835 54050 30447 62163 62157 54.8 10.5 23.7 15.0 15.0 2011 2012 2013 2014E 2015E 8.7 5.5 5.0 7.5 11.7 6.7 7.8 6.0 11.5 6.7 9.1 7.2 15.2 7.6 11.9 7.5 11.5 6.5 9.2 7.5 Valuation 2011 2012 2013 2014E 2015E Book Value CMP P/BV 109.3 310 2.8 132.5 367 2.8 161.9 367.3 2.3 193.1 350.35 1.8 223.7 350.35 1.6 Avg. Yield on loans Avg. Yield on Investments Avg. Cost of Deposit Avg. Cost of Borrowimgs Souce: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 8
  9. 9. CMC "Neutral" 15th Jan' 14 "Nothing for excitement" Results update Neutral CMP Target Price Previous Target Price Upside Change from Previous 1527 - Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 517326 CMC 1780/1107 4736 20884 6189.35 Stock Performance Absolute Rel. to Nifty 1M 17.12 15.93 1yr 15.4 10.52 YTD 27.37 22 Share Holding Pattern-% Promoters FII DII Others Current 51.12 22.63 18.26 7.99 1 year forward P/E 1QFY14 4QFY13 51.12 51.12 23.32 21.84 17.83 19.05 7.73 7.99 Witnessed inline Sales and PAT numbers; CMC Ltd Witnessed inline set of numbers with flat sales growth than previous quarter led by 2% sales decline in System Integration (contributes 64% of Sales) and 14% decline in IT enabled Services (contributes 13% of Sales). PAT grew by 4.9% on sequential basis. Usually, third quarter is not a growth quarter in the international markets. We believe, CMC will continue with its efforts to enhance revenue contribution of high margin System Integration and ITES segments. Further, its high focus on education space will also add margin in near term. Steady Margin: Steady Margin: During the quarter EBITDA Margin inched up by 40bps (QoQ) to 16.1%. However, Management is still confident to maintain the margin in a range of 15-16%. Mix growth response from segmental front: Sales from System Integration (65% of total sales) down by 2%, IT enabled Services (15% of total sales) down by 13.6%. While the Customer services business (18.4% of total sales) and Education and Training seen double digit growth by 15.9% and 17.6 %(QoQ)– SEZ Sales was flat sequentially. The company expects to see good growth traction in ITeS and System Integration. Deal pipeline: The deal pipeline is in line with the last year. It indicated that pursuing good number of deals in the Developed and as well emerging markets. Considering current sound demand environment across geographies (like US and Europe) and verticals Company is more optimistic for clients acquisition and deal executions ahead. Now, CMC is focusing on new emerging segments like IMS (Infrastructure Management Services), Cloud, Big data, Mobility and Analytics. Considering its impressive client as well as market response, company is expecting to quantify into revenue. Its new and emerging projects like Mining Management System, GPS System and Port & Cargo Management System would play a major role for generating revenue. View and Valuation: CMC expects the growth momentum to improve in the 2HFY14E than 1HFY14. The Company remains a strong with excellent earning visibility led by joint effort of market strategy by TCS (contributes 59% of sales) in its product and solutions. However, we expect that its earning visibility and order from government side in coming 2 quarter could be impacted because of general election schedule in India (earns 41% revenue from India). For a near to medium -term prospect, we are not much excited on the stock taking its earning visibility in near term. We had already advised to book profit on 9th Jan 2014 at a target price of Rs 1690, now we have a “Neutral” view on the stock. At a CMP of Rs 1527, stock trades at 16.5X FY15E earnings. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 560.96 90.81 70.55 16.2% 12.6% 2QFY14 560.75 88.41 67.3 15.8% 12.0% (QoQ)-% 0.0 2.7 4.8 40bps 60bps 3QFY13 492.97 83.2 61.07 16.9% 12.4% Rs, Crore (YoY)-% 13.8 9.1 15.5 (70bps) 20bps (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 9
  10. 10. CMC Sales and Sales growth-%(QoQ) Second half of FY14 will be better than the first half. And expects to sees opportunities in the international markets in FY15E (Source: Company/Eastwind) Margin-% The management expects operating Profit margin between 15 percent and 16 percent . (Source: Company/Eastwind) Clients Metrics Despite salary hike during the quarter, company's employee cost on sales increased from 25.1% (2QFY14) to 25.6%. (Source: Company/Eastwind) Employee Metrics: The total headcount for the quarter stood at 10,890 employees out of which 4,555were on company payrolls while the remaining 6,235 were subcontractors. Clients Metrics: The Company added 14 clients during the quarter out of which 10 from India and the 4 from the USA. In FY13, the company added 80 clients. During the quarter, its DSO increased from 79days to 83days. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 10
  11. 11. CMC Key facts from Concall (attended on 16th Oct, 2013) ►CMC continues to target growth ahead of the overall IT industry; the company expects to grow faster than that in the current financial year ►Expects operating Profit margin at 16 percent for FY14E, ►The company expects to maintatin its tax regime at 20-20.5% for coming quarter. For next year tax rate could be stand at a range of 20-21%. ►Company’s hiring Plan; a net addition of 400-500 this year ► Notably, it targets revenues of Rs 250-300 crore from Education and Training business in next two 3-4 years timeline. Financials; Rs, Cr Net Sales Purchases of stock-in-trade Employee Cost Subcontracting and outsourcing 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 Subcontracting Cost Tax rate Valuation CMP No of Share NW EPS BVPS RoE-% Dividen Payout ratio P/BV P/E FY10 870.73 99.35 276.16 173.56 159.94 709.01 161.72 9.85 18.75 151.87 3.17 167.45 24.23 143.22 FY11 1084.40 99.28 345.13 262.35 170.17 876.93 207.47 10.46 11.80 197.01 0.22 208.59 32.42 176.17 FY12 1469.34 145.40 440.22 446.11 213.63 1245.36 223.98 21.37 17.46 202.61 0.02 220.05 68.59 151.46 FY13 1927.87 188.56 521.65 679.73 222.88 1612.82 315.05 23.20 13.17 291.85 0.18 304.84 76.76 228.08 FY14E 2155.00 193.95 560.30 818.90 215.50 1788.65 366.35 25.73 21.55 340.62 0.1 362.07 101.38 260.69 FY15E 2415.28 217.37 640.05 917.81 253.60 2028.83 386.44 37.23 24.15 349.21 0.25 373.11 93.28 279.84 -7.4% 27.7% 23.3% 24.5% 28.3% 23.0% 35.5% 8.0% -14.0% 31.2% 40.7% 50.6% 11.8% 16.3% 14.3% 12.1% 5.5% 7.3% 18.6% 17.4% 16.4% 19.1% 18.2% 16.2% 15.2% 13.8% 10.3% 16.3% 15.1% 11.8% 17.0% 15.8% 12.1% 16.0% 14.5% 11.6% 31.7% 19.9% 14.5% 31.8% 24.2% 15.5% 30.0% 30.4% 31.2% 27.1% 35.3% 25.2% 26.0% 38.0% 28.0% 26.5% 38.0% 25.0% 1340.00 1.50 510.68 95.48 340.45 28.0% 18.6% 3.94 14.03 2079.55 1.50 654.02 117.45 436.01 26.9% 19.9% 4.77 17.71 994.80 3.00 772.19 50.49 257.40 19.6% 23.2% 3.86 19.70 1410.00 3.03 946.26 75.27 312.30 24.1% 19.4% 4.51 18.73 1527 3.03 1145.07 86.04 377.91 22.8% 23.7% 4.04 17.75 1527 3.03 1354.19 92.35 446.93 20.7% 25.3% 3.42 16.53 (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 11
  12. 12. Coal India LTD. Company Update CMP Target Price Previous Target Price Upside Change from Previous 289 334 310 16% NA Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 533278 COALINDIA 372/238 176226 17622 6308 Stock Performance-% 1M -1.3 2.8 Absolute Rel. to Nifty 1yr -21.2 8.8 YTD -21.4 8.6 "Buy" 15th Jan' 14 Cash Deployment : Dividend at Rs 29/- per share Competition Appellate Tribunal stays Rs 1,773 crore fine on CIL , and will decide on the matter on next hearing feb 11 2014. We believe , A Rs 1800-crore fine could possibly mean less profits for the company and less dividend income for its owners. But as the main owner, the government, will pocket this amount in the form of a fine, it will not be poorer in any way.Recently Coalindia after a long discussion with govt declared Rs29/share intrim dividend .which recovers our ROE estimate for FY14 to 40% from 33%.which is up 4% YOY.we revised our EPS estimate for FY14 to 28.4 which is 3.4% YOY (including 2100 CR realization Gain).Hence we Upgrade coal india to a target price of RS.334/- (previously 310). Coal India to get Rs 2,119 cr extra on coal price revision : Coal India Ltd is likely to get additional revenue of Rs 2,119 cr in this fiscal on account of revision in dry fuel prices.CIL (Coal India Ltd) has revised and rationalized the basic notified prices of all the grades of non-coking coal except GI, G2 and G5.The estimated additional revenue due to revision of basic notified price for the current financial year is Rs 2,119 cr.CIL had revised the prices of all grades of coal, barring three, for all its eight producing subsidiaries with effect from May 28 this year. Mahanadi Coalfields which is expected to contribute Rs 686 crore, followed by Rs 664 crore from Northern Coalfields and Rs 495 crore from South Eastern Coalfields. Share Holding Pattern-% Promoters FII DII Others 2QFY14 90.0 5.5 5.3 2.2 1QFY14 4QFY13 90.0 90.0 5.4 5.4 2.3 2.0 2.4 2.6 1 yr Forward P/B Source - Comapany/EastWind Research Q2FY14 : The company’s net sales grew 5.8% yoy to 15,411cr (above our estimate of 15,083cr). Sales volumes stood at 109mn ton in 2QFY2014 compared to 102mn ton in 2QFY2013. The blended realizations declined by 1.4% yoy to 1,414/ton (despite price hike) due to lower realization on FSA coal.Despite 5.8% yoy growth in top-line, EBITDA decreased by 8.2% yoy to 3,176cr due to higher raw material costs (18.1% yoy to 2,251cr) and contractual expenses (27.6% yoy to 1,394cr). The depreciation expenses increased by 27.8% yoy to 495cr; hence, adjusted net profit was flat yoy at 3,043cr . Management Corner : Management is confident about their coal production target and coal off take target for FY2014E, which is 482 mmt and 492 mmt respectively. Till now in the H1FY14 the company cpmpleted 400 mmt production and 424 mmt offtake. The company is not sure about the production target but very sure abot the offtake . Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14 Net Revenue 15411 5.8 -6.4 14573 16472 EBITDA 2794 -2.4 -29.4 2862 3958 Depriciation 495 27.8 4.1 387 476 Interest Cost 8 -22.2 7.0 10 7 Tax 1412 -4.2 -27.9 1475 1958 PAT 3052 -0.8 -18.2 3078 3731 (In Crs) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 12
  13. 13. Coal India LTD. E-auction prices remain under pressure: E-auction prices for Nov’13 were at Rs 2,117/t (-15% YoY/-8% MoM). YTD, weighted average e-auction prices were at Rs 2,238/t, lower 16% YoY. Weakness in sponge iron and cement industry, the two key end-users of eauction coal, has impacted E-auction realisations. CIL’s e-auction realizations have declined over the past one year on account of decline in international coal price coupled with weak domestic demand. Going forward, we expect CIL’s profitability to be affected due to lower e-auction realizations, sticky staff costs and other expenses. Moreover, given the price hike taken during 4QFY2013, we do not expect CIL to undertake any further price hikes in the near-term. OUTLOOK: We expect modest increase in sales volumes growth during FY2013-15 on account of poor offtake capabilities of CIL. Also, we expect CIL’s margins to decline during FY2014 due to lower e-auction realizations and higher staff costs/other expenses.Recently Coalindia after a long discussion with govt declared Rs29/share intrim dividend .which recovers our ROE estimate for FY14 to 40% from 33%.which is up 4% YOY.we revised our EPS estimate for FY14 to 28.4 which is 3.4% YOY (including 2100 CR realization Gain).Hence we Upgrade coal india to a target price of RS.334/- (previously 310).From the CMP the target price is up by ~15% . OPERATING MATRIX Coal Production in MT Coal Offtake in MT Revenue Generation From unit Ton Avg Man Power (in numbers) Productivity Per Man FY10 431 416 1073 404744 1066 FY11 431 425 1183 390243 1105 FY12 436 433 1441 377447 1155 Source - Comapany/EastWind Research FY13 452 465 1468 364736 1240 Source - Comapany/EastWind Research P/L PERFORMANCE Net Revenue from Operation Cost Of Projects & Contractual Power and fuel contractual expenses Employee benefit Expence Expenditure EBITDA Depriciation Interest Cost Tax PAT ROE % FY11 50234 7573 1755 4580 20481 40390 9843 1673 79 5595 10868 33 FY12 62415 5123 2013 4901 26705 40857 21558 1969 54 6484 20588 51 FY13 68303 6556 2333 5802 27943 50219 18084 1813 45 7623 17356 36 Narnolia Securities Ltd, FY14E 69960 8372 2591 6049 28943 53705 16255 1860 34 7310 17921 40 13
  14. 14. Coal India 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% CASH FLOWS Cash from Operation Changes In Working Capital Net Cash From Operation Cash From Investment Cash from Finance Net Cash Flow during year Trading At : FY10 6316 20956 27273 343 1620 2545 772 1404 5443 0 12035 2211 610 4402 2169 39078 8066 17921 FY10 0.0 0.0 4.9 1.7 1.0 FY11 6316 26998 33314 1334 33 22461 645 12387 8490 779 12065 2057 845 5586 3419 45806 11180 21646 FY11 5.7 17.3 22.8 4.3 3.7 FY12 6316 34137 40453 1305 0 28271 829 15595 9785 759 12681 1848 1017 6071 5663 58203 13478 24688 FY12 5.5 32.6 29.2 4.3 3.1 FY13 6316 42156 48472 1078 0 31144 837 20447 12385 712 12754 3496 1181 5618 10480 62236 16189 25479 FY13 4.0 27.5 52.7 4.2 2.8 FY10 FY11 FY12 10727 12819 16323 -131 -3822 3565 10596 8997 19888 950 697 -10410 2163 2911 -7382 13708 12606 2095 Down 21% from its 52week High Up 14% from its 52 week Low FY13 15948 -6839 9109 -1833 -7852 -575 Narnolia Securities Ltd, Source - Comapany/EastWind Research 14
  15. 15. UltraTech Cement Ltd. Company Update Buy CMP Target Price Previous Target Price Upside Change from Previous 1675 1846 1875 10% -2% Market Data BSE Code NSE Symbol 532538 ULTRACEMCO 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 2066/1404 45942 18377 6272 Stock Performance-% 1M -7.3 -9.0 Absolute Rel. to Nifty 1yr -14.8 -19.9 YTD -10.2 -14.3 Share Holding Pattern-% Promoters FII DII Others 2QFY14 62.0 20.7 4.8 12.6 1QFY14 4QFY13 62.0 62.0 20.7 20.6 4.6 4.6 12.7 12.7 1 yr Forward P/B 1x 3x 5x 7x Aug-04 Mar-05 Oct-05 May-06 Dec-06 Jul-07 Feb-08 Sep-08 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Price 2x 4x 6x Source - Comapany/EastWind Research "BUY" 14th Jan' 14 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. : Ultratech Cement reported a 52 per cent dip in net profit for the July-September Q2FY14 Update 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 wallcare 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. 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. 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. Financials : Net Revenue EBITDA Depriciation Interest Cost Tax PAT Q2FY14 4522 679 257 89 107 264 Y-o-Y % -4.3 -34.4 10.8 48.3 -54.1 -52.0 Q-o-Q % -9.2 -36.7 2.0 34.8 -56.7 -60.8 Q2FY13 4727 1035 232 60 233 550 Q1FY14 4980 1072 252 66 247 673 (In Crs) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 15
  16. 16. UltraTech Cement Ltd. 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. 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. P/L PERFORMANCE Net Revenue from Operation Other Income Total Income Power and fuel Freight and forwarding EBITDA Depriciation Interest Cost Tax PAT ROE% P/B FY11 13798 154 13952 3280 2881 2696 813 292 384 1367 13 2.9 FY12 19232 371 19603 4639 3741 4194 963 256 948 2403 19 3.2 FY13 21319 304 21623 4646 4243 4839 1023 252 1179 2678 18 3.4 Narnolia Securities Ltd, FY14E 21267 363 21630 4607 4586 3791 1110 325 775 1934 11 2.9 Net Revenue from Operation 6,000 Sales Growth 160.0 140.0 5,000 120.0 4,000 100.0 80.0 3,000 60.0 2,000 40.0 20.0 1,000 (20.0) Q4FY14E Q2FY14 Q3FY14E Q1FY14 Q4FY13 Q3FY13 Q2FY13 Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 Q4FY11 Q3FY11 - Q2FY11 Q1FY11 OUT LOOK : 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. Source - Comapany/EastWind Research 60 50 Capacity Of Cement Production (in MT) 85 Cement Production Cement Capacity Utilisation in % 80 40 75 30 70 20 65 10 0 60 FY09 FY10 FY11 FY12 FY13 Source - Comapany/EastWind Research 30 NPM % OPM % EBITDA % 27 25 24 22 20 21 19 19 15 16 15 14 13 10 12 22 18 12 10 5 FY09 FY10 FY11 FY12 FY13 16
  17. 17. UltraTech Cement 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% 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 124 4495 4620 857 750 32 683 133 8375 6 4953 260 146 827 210 112 219 8375 FY10 3.1 88.1 2.9 9.5 1.2 FY10 1673 -79 1593 -843 -740 10 FY11 274 10373 10647 3295 727 113 1830 473 21630 39 12265 760 583 2094 825 190 873 21630 FY11 2.9 49.9 6.0 13.3 1.5 FY11 2195 -197 1998 -2240 248 6 FY12 274 12550 12824 4843 705 121 2207 709 24904 40 12729 1940 1544 2198 1089 214 1041 24904 FY12 3.2 87.7 5.7 11.5 1.1 FY12 3482 -96 3385 -3050 -353 -18 FY13 274 14955 15230 5169 1227 135 2338 949 29590 62 14254 3601 1066 2541 1376 185 1048 29590 FY13 3.4 97.7 6.5 11.0 1.2 FY13 4122 -481 3641 -4407 715 -51 Trading At : 7000 6000 5000 4000 3000 2000 1000 0 2500 2000 1500 1000 NIFTY ULTRACEMCO 500 0 Narnolia Securities Ltd, Source - Comapany/EastWind Research 17
  18. 18. DB Corp "BUY" 14th Jan' 14 "On strong footing" Company update CMP Target Price Previous Target Price Upside Change from Previous BUY 302 340 13% - Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 533151 DBCORP 318.65/210 5502 25750 6273 Stock Performance 1M Absolute 11.5 Rel. to Nift 14.0 1yr 25.0 21.6 YTD - Share Holding Pattern-% Current Promoters FII DII Others 74.96 17.7 2.95 4.36 2QFY14 1QFY14 74.97 16.5 4.00 4.57 Stock Performace with Nifty 75.0 14.7 5.34 5.02 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. 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. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 2QFY14 437.98 112.45 63.24 25.7% 14.4% 1QFY14 449.4 135.38 77.71 30.1% 17.3% Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. Rs, Cr (QoQ)-% 2QFY13 (YoY)-% -2.5% 378.37 15.8% -17% 81.36 38% -19% 45.41 39% (440 bps) 21.5% 420 bps (290 bps) 12.00% 220 bps (Source: Company/Eastwind) 18
  19. 19. DB Corp Revenue Segments Revenue Geography-wise Financials Rs,cr Sales RM Cost WIP Employee Cost Ad Spend Event Expenses consumption of store & spare Distribution expenses Other expenses Total expenses EBITDA Depreciation and Amortisation Other Income EBIT Interest PBT Tax Exp PAT Growth-% (YoY) Sales EBITDA PAT Expenses on Sales-% RM Cost Employee Cost Other expenses Tax rate Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% P/BV P/E FY10 1062.1 327.87 -0.0016 131.81 12.98 11.83 51.49 22.81 161.24 720.0284 342.0716 37.83 11.15 304.2416 35.69 279.7016 105.72 173.9816 FY11 1265.18 383.91 -0.06 184.56 12.52 16.02 58.7 21.28 185.2 862.13 403.05 43.28 14.18 359.77 15.3 358.65 99.97 258.68 FY12 1451.51 508.04 -0.04 242.93 15.04 15.04 83.62 24.34 216.06 1105.03 346.48 50.57 24.02 295.91 9.23 310.7 98.32 212.38 FY13 1592.32 544.54 0.03 279.5 17.21 12.08 94.81 28.01 234.07 1210.25 382.07 58.06 21.34 324.01 7.99 337.36 113.18 224.18 FY14E 1865.97 653.09 0.04 335.88 22.39 18.66 115.69 33.59 279.90 1459.2 406.7 64.6 24.3 342.1 8.0 358.4 120.2 238.2 FY15E 2182.15 763.75 0.04 403.70 28.37 21.82 150.57 41.46 329.51 1739.2 442.9 75.6 28.4 367.4 5.1 390.7 131.1 259.6 10.5% 132.2% 265.4% 19.1% 17.8% 48.7% 14.7% -14.0% -17.9% 9.7% 10.3% 5.6% 17.2% 6.5% 6.2% 16.9% 8.9% 9.0% 30.9% 12.4% 15.2% 10.0% 30.3% 14.6% 14.6% 7.9% 35.0% 16.7% 14.9% 6.8% 34.2% 17.6% 14.7% 7.1% 32.0% 16.6% 15.0% 6.4% 34.3% 17.0% 15.1% 6.0% 32.2% 28.6% 16.4% 31.9% 28.4% 20.4% 23.9% 20.4% 14.6% 24.0% 20.3% 14.1% 21.8% 18.3% 12.8% 20.3% 16.8% 11.9% 239.15 18.15 648.7 9.59 35.74 26.8% 6.7 24.9 246.25 18.3 828.87 14.14 45.29 31.2% 5.4 17.4 219.45 18.3 927.08 11.61 50.66 22.9% 4.3 18.9 212.1 18.33 1029.15 12.23 56.15 21.8% 3.8 17.3 302.0 18.3 1160.1 12.99 63.29 20.5% 4.8 23.2 302.0 18.3 1301.7 14.16 71.02 19.9% 4.3 21.3 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. (Source: Company/Eastwind) 19
  20. 20. Zensar Tech Company update Buy CMP Target Price Previous Target Price Upside Change from Previous 412 440 400 7% 10% Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 504067 ZENSARTECH 424/181 1800 20884 6273 Stock Performance 1M 29.1 28.5 Absolute Rel. to Nifty 1yr 49 43.6 YTD 23.99 21.42 Share Holding Pattern-% Current Promoters FII DII Others 1QFY14 48.27 11.99 0.96 38.78 48.35 11.68 1.26 38.71 1 year forward P/E 4QFY13 48.36 10.75 1.28 39.61 "BUY" 14th Jan' 14 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. 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. Key Facts 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. 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. Rs, Crore Financials 2QFY14 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 (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 20
  21. 21. Zensar Tech Clients/Headcounts Metrics; Number of million dollar $1mn+ $5mn+ $10mn+ $20mn+ 47 6 1 1 43 7 2 1 41 7 2 1 40 8 2 1 49 6 1 1 47 6 1 1 35% 40% 69 35% 42% 59 35% 42% 56 35% 43% 55 37% 43% 66 39% 46% 61 69% 31% 81% 7286 72% 28% 82% 6825 70% 30% 83% 6504 69% 31% 82% 6508 68% 32% 81% 6519 67% 33% 80% 6657 FY10 497.08 0.00 497.08 0.00 393.17 0.00 393.17 103.91 24.92 8.15 0.00 78.99 0.55 86.59 2.43 84.16 FY11 562.56 15.03 577.59 0.00 343.12 135.71 478.83 98.76 25.88 14.20 0.00 72.88 0.85 86.23 -2.24 88.47 FY12 700.15 12.57 712.72 0.00 411.36 165.98 577.34 135.38 25.05 27.91 0.00 110.33 1.03 137.21 42.67 94.54 FY13 2114.52 13.95 2128.47 236.86 1177.83 418.73 1833.42 295.05 33.16 8.66 0.00 261.89 9.95 260.60 86.07 174.53 FY14E 2403.19 16.82 2420.01 269.30 1258.40 532.40 2060.11 359.90 38.59 72.60 0.00 321.31 9.61 384.30 134.50 249.79 FY15E 3205.99 22.44 3228.44 359.27 1678.79 710.26 2748.31 480.13 51.48 80.71 0.00 428.65 7.69 501.67 175.58 326.08 17.8% 28.7% 38.9% 13.2% -5.0% 5.1% 24.5% 37.1% 6.9% 202.0% 117.9% 84.6% 13.7% 22.0% 43.1% 33.4% 33.4% 30.5% 20.9% 15.9% 16.9% 17.6% 13.0% 15.7% 19.3% 15.8% 13.5% 14.0% 12.4% 8.3% 15.0% 13.4% 10.4% 15.0% 13.4% 10.2% 79.1% 0.0% 2.8% 59.4% 23.5% -2.6% 57.7% 23.3% 31.1% 55.3% 19.7% 33.0% 52.4% 11.2% 35.0% 52.4% 11.2% 35.0% 272.10 2.16 293.93 38.96 136.08 28.6% 16.4% 2.00 6.98 157.85 4.34 366.96 20.38 84.55 24.1% 19.9% 1.87 7.74 180.00 4.34 417.42 21.78 96.18 22.6% 37.3% 1.87 8.26 248.58 4.36 751.69 40.03 172.41 23.2% 21.9% 1.44 6.21 412.00 4.37 958.03 57.16 219.23 26.1% 17.4% 1.88 7.21 412.00 4.37 1238.10 74.62 283.32 26.3% 14.1% 1.45 5.52 Client Contribution to Business top 5 clients top 10 clients DSO Effort & Utilization Onsite Offshore Utilization (Including Trainees) Headcount Financials; Rs, Cr Net Sales Other Operating Income Total income from operations (net) Purchases of stock-in-trade Employee Cost Other expenses Total Expenses EBITDA Depreciation Other Income Extra Ordinery Items 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 (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 21
  22. 22. N arnolia Securities Ltd 402, 4th floor 7/ 1, Lord s Sinha Road Kolkata 700071, Ph 033-32011233 Toll Free no : 1-800-345-4000 em ail: research@narnolia.com , w ebsite : w w w .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.

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