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India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334
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India Equity Today Tips - Buy Stocks of Coal India LTD with target price of RS.334

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Coal India LTD expect modest increase in sales volumes growth during FY2013-15 on account of poor offtake capabilities of CIL. We are positive to buy stocks with Target Price Rs.334.

Coal India LTD expect modest increase in sales volumes growth during FY2013-15 on account of poor offtake capabilities of CIL. We are positive to buy stocks with Target Price Rs.334.

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  • 1. IEA-Equity Strategy India Equity Analytics 15th Jan, 2014 Daliy Fundamental Report on Indian Equities Coal India LTD : "BUY" Edition : 184 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 : 2-4) 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 :5-7) 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 : 8-9) 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 : 10-11) Infosys : "On the way of excitement" "BUY" 13th Jan 2014 Infosys largely reported inline set of sales numbers and beats the street on margin front, In USD term, Sales grew by 1.65%(QoQ) and 0.5%(QoQ) in INR term, led by 0.7% (QoQ) volume growth and 0.7%(QoQ) pricing growth. At a CMP of Rs 3549, it trades at 16.3x FY15E At a CMP of Rs 3549, it trades at 16.3x FY15E earnings. We retain our “BUY” view on the stock with a target price of target price of Rs 3910 (revised from 3620). ....................................... ( Page : 12 -15) INDUSIND BANK "Neutral" 13th Jan 2014 Despite of reported higher than expected profit we have neutral view on the stock owing to shifting of loan mix from consumer finance to corporate loan which will lead to margin compression and deterioration in asset quality as per our view. Corporate loans generally are big ticket size in nature and with slowing of economy there are higher chances of these loan slip into NPA than other loan. Moreover retail loans are high yield in nature than corporate loan. At current price, we have neutral view on the stock due to trading almost near to our valuation multiple and anticipating margin compression and higher slippage. ........................ ( Page : 16-21) Private Bank Result Preview 3QFY14 : 13th Jan 2014 Broadly banking indices outperform Nifty by 6% in third quarter and most of banking stocks are trading at attractive valuation. Despite of, we have caution view on account of slowdown in economy, high interest rate and inflationary pressure. High inflation would be risk for the economy going forward. Any rise in inflation would result of rise in interest rate by RBI in its third quarter monetary policy review on 28th Jan.2014 which would be negative for banking industry. Most of banking stocks are expected to report moderate revenue and profit growth owing to multiple headwinds. In private sector banking universe we like HDFC Bank, ICICI bank and DCB.............................................. ( Page : 22-24) Narnolia Securities Ltd,
  • 2. 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. 2
  • 3. 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 3
  • 4. 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 4
  • 5. 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. 5
  • 6. 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 6
  • 7. 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 7
  • 8. 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) 8
  • 9. 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) 9
  • 10. 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. 10
  • 11. 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. 11
  • 12. Infosys "BUY" 13th Jan' 14 "On the way of excitement" Result update BUY Inline sales and beats the street on margin front, upgraded earning guidance; CMP Target Price Previous Target Price Upside Change from Previous 3549 3910 3620 10% 8% Infosys largely reported inline set of sales numbers and beats the street on margin front, In USD term, Sales grew by 1.65%(QoQ) and 0.5%(QoQ) in INR term, led by 0.7% (QoQ) volume growth and 0.7%(QoQ) pricing growth. However, the good news is that the PAT grew by 21% because of cost rationalization, sequentially. Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 500209 INFY 35810/2190 203790 1240448 6171 Stock Performance Absolute Rel. to Nifty 1M 6.3 3.3 1yr 52.4 49.1 YTD 53.1 49.4 Share Holding Pattern-% Promoters FII DII Others Current 15.94 39.93 16.16 27.97 1 year forward P/E 1QFY14 4QFY13 16.04 16.04 39.55 40.52 18.28 17.51 26.13 25.93 On an ongoing basis, Infosys will retain its revenue acceleration and margin expansion, also operating metrics will turn into greenery from hay. Upgradation of earning guidance by management hinted to join the party to enjoy with 12-14% earnings growth for FY14E like its bellwether. Considering the strategy to build clients relation, execution of growth oriented policy and combination of reduced onsite costs and higher utilization would be an optimistic growth story despite recent hiccups of top management exit. Healthy Margin growth: During the quarter, its EBIT margin expanded by 310 bps (QoQ) to 25%. The company's cost cutting measures are yielding the expected gains. This again is in line with what the market was expecting. During the December quarter, Infosys selling and marketing expenses declined by 13.3% compared to the second quarter. Administrative expenses too have declined by 18.4% in dollar terms. Both these have helped improve operating margins. Steady volume growth: The volume growth in the quarter was weak, 0.7% (QoQ) growth with stable pricing growth of 0.7%(QoQ), but it is also weak for the group and for Infosys. we expect it to be improve in the coming quarters. Healthy deal pipeline: Overall, the company continues to show signs of recovery at the operational level. The company has added 54 new clients in the quarter and added 15 clients where the deal size is over $100 million. This implies that client confidence is returning. Earning Guidance: Infosys upgrades its earning guidance from 6-10% to 9-10% to 11.512% for FY14E, now nearest to NASSCOM guidance (12-14%). Management is very confident to achieve the guidance figure and stated much focused on creating superior financial performance ahead. View and Valuation: Infosys seems to be on its way to rediscovering its past mojo with revenue momentum kicking, and the NRN invisible hand in play. Further announcement of strategic acquisitions, better utilization of cash balances, better deal win, consistent client traction and revenue momentum would help the company to bridge the gap with rivals such as TCS. Considering the revised guidance by management and its growth priority than margin inching up strategy, we upgraded our EPS from Rs 181/208 to Rs 188/218 for FY14E/15E. At a CMP of Rs 3549, it trades at 16.3x FY15E At a CMP of Rs 3549, it trades at 16.3x FY15E earnings. We retain our “BUY” view on the stock with a target price of target price of Rs 3910 (revised from 3620). Rs, Crore Financials 3QFY14 2QFY14 3QFY13 (YoY)-% (QoQ)-% Revenue 13026 12965 10424 25.0 0.47 EBITDA 3258.9 2836.9 2677 21.7 14.88 PAT 2874.9 2406.9 2369 21.4 19.44 EBITDA Margin 25.0% 21.9% 310bps 25.7% (70bps) PAT Margin 22.1% 18.6% 350bps 22.7% (60bps) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 12
  • 13. Infosys. Revenue growth in USD term-(QoQ) In USD term, Sales grew by 1.65%(QoQ) in USD term and 0.5%(QoQ) in INR term, led by 0.7% volume growth and 0.7%(QoQ) pricing growth. Mgt revised revenue growth to 11.5%-12% for FY14E. (Source: Company/Eastwind) Margin-% EBIT margin expanded by 310 bps (QoQ) to 25%. Mgt expects to see margin growth in near term. (Source: Company/Eastwind) Segmental Performance: On segmental front: Infosys has reported teen set of growth in all segments; Sales Growth-% Margin-% Segments Sales contribution-% Margin-% QoQ YoY QoQ YoY BFSI 33.5% 0.8% 24.2% 29.9% 340bps 80bps Manufacturing 22.8% -1.3% 31.3% 24.2% 340bps (50bps) Energy&Utilities 19.1% -0.1% 16.4% 28.8% 30bps (130bps) Retail, Logis-&Life sc24.6% 2.1% 27.6% 27.52% 560bps (230bps) On QoQ, Company’s margin improved in entire segments . (Source: Company/Eastwind) Volume and Pricing Growth (QoQ)-% With 0.7% pricing growth, volume growth was reported by 0.7% growth(QoQ), impacted by seasonal wave. (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 13
  • 14. Infosys. Geography wise revenue contribution- we expect that growth from Euro as well as Europe would prove a milestone for the company ahead because of healthy demand environment and optimistic tempo of clients expanding. (Source: Company/Eastwind) On geographical front: During the quarter, company has reported 4% revenue growth from Euro and RoW each, which contributes 25% and 13% of sales. While revenue from US declined by 2%, it contributes 60% of Sales. Clients Metrics Clients Concentration: Clients Category 1QFY13 2QFY13 3QFY13 Top clients 4.1% 4% 3.60% Top 5 clients 16.2% 16% 15% Top 10 clients 25.3% 25.40% 23.90% Total Clients and Clients Addition: 4QFY13 3.6% 14.7% 24.0% 1QFY14 2QFY14 3.9% 4% 14.9% 15% 24.0% 24.5% 3QFY14 3.70% 14% 23.5% The company has added 54 new clients in the quarter and added 15 clients where the deal size is over $100 million. This implies that client confidence is returning. Clients, number 3QFY13 4QFY13 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 Active clients,nos 665 694 711 715 776 798 836 873 888 New clients 49 52 51 39 89 56 66 68 54 (Source: Company/Eastwind) Headcount Metrics: Employee's Total Employees (Cons-) Net additions Laterals hired LTM Attrition (Stand-) 1QFY13 151,151 1,157 5,233 14.9% 2QFY13 153,761 2,610 3,656 15.0% 3QFY13 155,629 1,868 4,351 15.1% 4QFY13 1QFY14 156,688 157,263 1,059 575 3,545 3,008 16% 16.9% 2QFY14 3QFY14 160,227 158404 2,964 -1823 3,806 3,333 17.3% 18.10% Its attrition increased to 18% from 17.3%(2QFY14) on LTM basis, however on sequentially basis they have been able to control its attrition. we hope that the further salary hikes across the board will bring down the attrition levels going forward. Utilization: We expect that Infy’s improving utilization despite higher attrition compare to its nearest bellwethers is good sign for its future growth story. (Source: Company/Eastwind) The Company's Utilization is likely to keep inching up, which could lead to margin expansion for a couple of quarters and that is going to be a huge positive for Infosys as a company. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 14
  • 15. Infosys. Key facts from Management Interview; ■ Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%. This guidnace means the company only has to achieve flat growth in the fourth quarter to meet the projection. ■ With 85% of the company’s revenues coming from clients based in US and Europe, the company should hope the current economic recovery in developed countries would help its revenues. ■They are seeing confidence coming back from client’s metrics. However, they expect [their] budgets only remain stable from last year. Clients are still focused on cost. ■ The Company is looking to bring in about maximum 6,000 off-campus offers starting late January early February, so there is a lot of activity going on that is bringing people in, engaging and developing. Financials 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 22742 12085 2792 14877 7865 905 982 7942 0 7942 1681 6261 FY11 27501 14856 3677 18533 8968 854 1211 9325 0 9325 2490 6835 FY12 33734 18340 4671 23011 10723 928 1904 11699 0 11699 3367 8332 FY13 40352 22565 6254 28819 11533 1099 2365 12799 0 12799 3370 9429 FY14E 50330 28185 8556 36741 13589 1371 2567 14785 0 14785 3992 10793 FY15E 59631 33691 10734 44425 15206 1624 3578 17160 0 17160 4633 12527 4.8% 9.3% 4.6% 20.9% 14.0% 9.2% 22.7% 19.6% 21.9% 19.6% 7.6% 13.2% 24.7% 17.8% 14.5% 18.5% 11.9% 16.1% 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% 29.4% 21.4% 25.5% 28.8% 21.0% 53.1% 12.3% 21.2% 54.0% 13.4% 26.7% 54.4% 13.8% 28.8% 55.9% 15.5% 26.3% 56.0% 17.0% 27.0% 56.5% 18.0% 27.0% 2615 57.4 23049.0 109.1 401.7 27.2% 25.1% 6.5 24.0 2765 57.4 25976.0 119.0 452.4 26.3% 45.9% 6.1 23.2 2865 57.4 31332.0 145.1 545.6 26.6% 24.0% 5.3 19.7 2400 57.4 37994.0 164.2 661.7 24.8% 45.1% 3.6 14.6 3549 57.4 45629.8 188.0 794.7 23.7% 23.0% 4.5 18.9 3549 57.4 54797.5 218.2 954.3 22.9% 19.8% 3.7 16.3 (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 15
  • 16. INDUSIND BANK Result update NEUTRAL CMP 402 Target Price 428 Previous Target Price Upside 6 Change from Previous( Rs) Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 532187 INDUSINDBK 561/318 22400 7.88 6171 Stock Performance Absolute Rel.to Nifty 1M -9.2 -7.0 1yr -6.9 -9.7 YTD -6.9 -9.7 Share Holding Pattern-% Current 24QFY1 3QFY1 4 3 Promoters 15.2 15.2 15.3 FII 41.1 39.9 42.3 DII 7.2 7.4 7.0 Others 36.4 37.5 35.4 INDUSIND Bank Vs Nifty "NEUTRAL" 13th Jan, 2014 Despite of higher profit we remain have neutral view on the stock owing to shifting of loan mix from retail loan to corporate banking. We anticipate two things-(a) margin compression, (b) higher slippage. Retail loan generally have higher yield in nature than corporate loans. Corporate loan has big ticket size loans and in slowdown of economy, corporate loan emerges as biggest slippage risk than other loans. At the current price of Rs.405, stock is trading at 2.4 times of one year forward book. We value bank at Rs.428/share which would be 2.5 times of FY14E’s book value. Better than expected earnings led by higher loan growth and margin During quarter Indusind bank reported better than expected earnings largely due to higher loan growth and margin expansion. In 3QF14, bank reported NII growth of 26.4% YoY supported higher yield on asset to 13.7% and margin expansion of 20 bps YoY. Other income grew by 35% YoY to Rs. 480 cr in which fee income registered growth of 30% and trading, forex and other reported 101% growth in YoY due to low base. Declined cost to income ratio boost PPP growth Operating leverage (Operating expenses to total asset) remained at elevated level but cost to income ratio declined on both front i.e. on sequential and yearly basis as well. During quarter bank reported employee cost growth of 22% and operating cost growth of 22% YoY to Rs.206 cr and Rs.563 cr respectively. Cost to income ratio improved by 80 bps sequentially and 280 bps yearly to 46.5%. This led pre provisioning profit growth of 37% YoY. Asset quality witnessed deterioration in sequential basis During quarter bank witnessed deterioration in asset quality with GNPA and net NPA in absolute term deteriorated by 14.7% QoQ and 51% QoQ respectively. Fresh slippages were 1.4% (annualized) as against 1.1% in last quarter. Bank made lower provisions against loan loss, as the result net NPA as the percentage of net loan reached to 0.3% as against 0.2% in 2QFY14. Provision coverage ratio (without technical write off) declined to 73.6% from 80% in 2QFY14 but still above of regulatory requirement of 70%. Financials NII Total Income PPP Net Profit EPS 2011 1376 2090 1082 577 12.4 2012 1704 2716 1373 803 17.2 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. Rs, Cr 2013 2014E 2015E 2233 2787 4053 3596 4562 5827 1839 2452 2972 1061 1320 1633 20.3 25.3 31.1 (Source: Company/Eastwind) 16
  • 17. INDUSIND BANK Better than expected profit on the back of healthy core earnings, lower CI ratio and lower provision With the support of healthy core earnings, improvement in cost income ratio and lower provisions, net profit grew by 30% YoY to Rs. 347 cr as against our expectation of Rs.303 cr largely due to higher than expected loan growth and operating leverage. Healthy profit led ROA and ROE to 1.74% and 16.8% respectively. Margin expansion of 10 bps YoY to 3.7% Bank reported NIM expansion of 20 bps YoY to 3.7% largely due to improvement in loan yield whereas cost of deposits remained flat. Going forward margin would be compressed due to bank’s strategy to shift loan mix from consumer to corporate. Loan on yield during quarter was 13.7% versus 13.5% in last quarter while cost of fund by and large stable at 10%. Moderate deposits growth due to muted current and term deposits growth In balance sheet front, bank reported moderate growth 10% YoY in deposits largely due to stagnant growth in current account and term deposits. Demand deposits grew by 4% YoY whereas saving deposits grew by 50% YoY. As a percentage of total deposits demand deposits and saving deport were 15.7% and 16.5% versus 16.6% and 12.1% in 3QFY13 respectively. CASA ratio was remained flat at 29.6% from 31.4% in 2QFY14 and 28.7% in 3QFY13. Term deposited reported growth of 4.7% YoY to Rs.382 bn. Loan growth higher than industry average and shifting of loan mix Loan reported 27.4% YoY growth above industry average of 20% despite of slowdown in economy. During quarter bank witnessed shifting of loan composition from consumer finance division to corporate finance which would be result of margin compression and deterioration asset quality. Consumer loan (which is generally high yielding in nature) composition has changed to 47% of loan advance from 52% in 3QFY13 whereas corporate banking division constitute 53% of loan. Corporate loans are generally in high ticket size and in slowdown of economy; there is high chances of such loan slip into NPA. But this quarter we note that bank is able to improve it yield in both front. Corporate yield improved to 11.9% from 11.5% and retail loan improved to 15.6% from 15.5% in sequential basis. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 17
  • 18. INDUSIND BANK Fundamenatl Through Graph NII profit led by higher loan growth and margin expansion Sequentail and yearly improvement of CI ratio boosted PPP Higher core earnings, improvement in CI ratio and lower provisions support profit growth higher than expecattion Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 18
  • 19. INDUSIND BANK Fundamenatl Through Graph Loan growth higher than industry average and moderate growth in deposits led by muted current deposits and term deposits Margin expansion of 10 bps on account of increased in loan yiled and stable cost of fund Valuation Band (1yr forward book value) Trading at 1.5 times of one year forward book which we believe fair looking at indsury headwinds and economy Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 19
  • 20. INDUSIND BANK Quarterly Performance 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 Balance Sheet data( Rs. Bn) Net Worth Deposits Borrowings Total Liabilities Investments Advances Total Assets Asset Quality GNPA NPA % GNPA % NPA 3QFY14 1739 368 36 0 2143 480 2624 1413 730 480 1210 206 357 563 647 126 521 174 347 2QFY14 1611 365 42 0 2019 417 2435 1319 700 417 1117 202 327 529 588 89 499 169 330 3QFY13 1455 325 21 0 1800 356 2156 1223 578 356 934 168 293 461 472 79 393 126 267 % YoY % QoQ 19.5 7.9 13.5 0.8 8664 56247 14771 81799 20134 52469 81799 8313 53058 13995 77422 19413 48968 77422 7495 51098 6567 67896 17594 42426 67896 626 165 1.2 0.3 546 109 1.1 0.2 422 125 1.0 0.3 71.9 -12.9 333.3 -13.3 19.1 6.2 35.0 15.2 21.7 7.7 15.6 7.2 26.4 4.3 35.0 15.2 29.6 8.4 22.1 1.9 21.9 9.3 22.0 6.5 37.1 10.1 60.3 42.0 32.5 4.4 38.1 3.2 29.8 5.0 15.6 4.2 10.1 6.0 124.9 5.5 20.5 5.7 14.4 3.7 23.7 7.1 20.5 5.7 48.3 14.7 32.0 51.0 Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 20
  • 21. INDUSIND BANK Financials & Assuptions Income Statement 2011 2012 2013 2014E 2015 Interest Income Interest Expense NII Change (%) Non Interest Income Total Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions PBT PAT Change (%) 3589 2213 1376 5359 3655 1704 6983 4750 2233 8308 5521 2787 10419 6367 4053 714 2090 1012 2716 1363 3596 1775 4562 1775 5827 1008 1082 1343 1373 1756 1839 2110 2452 2855 2972 504 577 577 180 1193 803 263 1576 1061 455 1997 1320 535 2437 1633 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 (%) 34365 42362 23 11563 24 8682 14572 35064 34 54117 28 15867 37 9460 19654 44321 26 62234 15 20537 29 15559 23338 54071 22 74681 20 22404 9 18670 28005 67589 25 Ratio 2011 2012 2013 2014E 2015E 10.8 5.4 5.3 7.0 12.0 7.4 7.3 6.7 12.7 6.5 8.8 7.6 0.0 6.6 8.9 7.5 12.5 6.5 8.5 7.5 Valuation 2011 2012 2013 2014E 2015E Book Value CMP P/BV 87 264 3.0 101 321 3.2 146 405 2.8 171 405 2.4 195 405 2.1 Avg. Yield on loans Avg. Yield on Investments Avg. Cost of Deposit Avg. Cost of Borrowimgs 9331 5525 13551 26166 Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 21
  • 22. Private Bank Result Preview 3QFY14 Stock Performance During Quarter Revenue growth would be moderate owing to tepid loan growth Performance of banking sector is likely to remain modest in 3QFY14E as most of private sector banks in our coverage are expected to reported muted net interest income owing to tepid loan growth and stress in asset quality. However private sector banks are expected to report stable asset quality on sequential basis as compare to PSBs. Loan loss provision are expected to remain high due to higher restructure assets are in pipeline as per some of key bank management. We expect impairment of asset in private sector banks are less and slippages are expected to remain same as in 2QFY14. We expect NII to grow by 23.6% YoY in our private banking coverage universe. HDFC Bank and DCB are expected to report 34% and 22% YoY in 3QFY14E led by higher than industry loan growth and stable NIM. Operating leverage high provision dent net profit Profitability of private sector banks are expected to report 11% YoY on the back of loan loss provisions, MTM provisions, cost income ratio and lower core earnings. HDFC bank and DCB are expected to report 23% YoY and 26% YoY growth in their 3QFY14E while most of large and mid cap banks are expected to report muted profit growth. With the flow of FCNR deposits, we expect deposits cost to come down from present level but most likely the bank get benefit from 4QFY14 and onwards. Nifty Vs Bank Nifty during Quarter Muted loan growth reported by system In 2QFY14 banking industry experience loan growth of 18% YoY led by transfer of CP/CD borrowings to bank loans while in 3QFY14 loan growth has moderated to 15% YoY (as on 13th Dec.2013) due to revival of bond and lower demand of corporate loan led by slowdown in economy. We expect loan growth of 15-20% YoY growth in private sector while DCB and HDFC bank are expected to grow by 20%+YoY loan growth. Loan (Rs tn) and YoY Gr(%) Deposits growth lead by flow of FCNR deposits Deposits growth in the system registered 17% YoY growth as per RBI date (as on 13th Dec.2013) due to flow of FCNR deposits through RBI’s special concession window. As per RBI data total fund inflow through FCNR is the tune of US$ 26 bn which would help bank to keep cost of deposits low. But we expect bank would get benefit from 4QFY14 and onwards. We expect lower cost of deposits of deposits in private sector banks largely due to strong franchise base network. HDFC bank and ICICI bank which have CASA of 40%+ would be benefited more than other banks in term of low cost of fund. Through FCNR deposits we expect Yes Bank would be leader but actual benefit would come from next quarter. Asset quality pressure continue to persist Asset quality pressure is likely to remain in 3QFY14E due to rising interest rate, high inflation and slower pace of economic growth. Gross slippages are expected to be elevated as per most of banker. We expect restructure asset in private sector bank would be less as compare to PSBs. With the implementation of FRP (route through which loans lead to investment book), banks are expected to report lower less restructure asset as against previous queerer. In worsen macroeconomic environment, we expect asset quality to remain at the level of 2QFY14. 22 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report.
  • 23. Private Bank Result Preview 3QFY14 Outlook Broadly banking indices outperform Nifty by 6% in third quarter and most of banking stocks are trading at attractive valuation. Despite of, we have caution view on account of slowdown in economy, high interest rate and inflationary pressure. High inflation would be risk for the economy going forward. Any rise in inflation would result of rise in interest rate by RBI in its third quarter monetary policy review on 28th Jan.2014 which would be negative for banking industry. Most of banking stocks are expected to report moderate revenue and profit growth owing to multiple headwinds. In private sector banking universe we like HDFC Bank, ICICI bank and DCB. Axis Bank Axis Bank Rs Cr NII PPP Net Profit 3QFY14E 3006 2772 1333 2QFY14 2937 2750 1362 3QFY13 2495 2311 1296 % YoY Growth 20.5 19.9 2.9 % QoQ Growth 2.3 0.8 -2.1 We expect Axis Bank to report 20% YoY loan growth and 12% YoY deposits growth. Cost Income ratio is expected to be 42% while loan loss provision was remain same at sequential basis. Profitability of bank would be muted on account of non improvement of loan yield. DCB DCB Rs Cr NII PPP Net Profit 3QFY14E 88 42 34 2QFY14 91 40 33 3QFY13 72 32 27 % YoY Growth 22.2 31.3 25.9 % QoQ Growth -3.3 5.0 3.0 We expect loan and deposits growth of DCB would be higher than industry average. Profitability would be grown on account of stable asset quality. We expect Cost to Income ratio at 66% and NIM are expected to compression by >10 bps on sequential basis. Key monitor able would be CI ratio. HDFC Bank HDFC Bank Rs Cr 3QFY14E NII 5087 PPP 3695 Net Profit 2289 2QFY14 4477 3387 1982 3QFY13 3799 3024 1859 % YoY Growth 33.9 22.2 23.1 % QoQ Growth 13.6 9.1 15.5 We expect bank to report loan and deposits growth of 21% and 14% respectively. Asset quality would be remained under control and profitability are expected to grow on account of comfortable core earnings and stable asset quality. Operating leverage is expected to be in better position. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 23
  • 24. Private Bank Result Preview 3QFY14 ICICI BANK ICICI BANK Rs Cr 3QFY14E NII 4505 PPP 4235 Net Profit 2504 2QFY14 4044 3888 2352 3QFY13 3499 3452 2250 % YoY Growth 28.8 22.7 11.3 % QoQ Growth 11.4 8.9 6.5 We expect loan and deposits growth of 15% and 11% YoY for 3QFY14E respectively. Revenue growth was due to hike of lending rate and asset quality is expected to be stable on sequential basis. Operating leverage and cost of fund would be key monitorable. J&K BANK J&K BANK Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth NII 679 682 594 14.3 -0.4 PPP 496 496 435 14.0 0.0 Net Profit 339 303 289 17.5 12.0 J&K bank is expected to report 17.5% YoY profit growth on account of 20%+loan growth and stable asset quality. We expect little bit higher of gross slippage during the quarter as bank reported higher slippage in previous quarter. NIM would be expanded <10 bps QoQ due to high loan yield and lower cost of fund likely to get benefit from CASA deposits. YES Bank YES Bank Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth NII 578 672 584 -1.0 -14.0 PPP 664 713 563 17.9 -6.9 Net Profit 358 371 342 4.7 -3.5 We expect Yes bank to report muted earnings on account of high credit cost and restructure assets. Loan growth and deposits growth are expected to be line with industry average. We expect NIM compression on account higher cost of fund and lower loan yield. NIM is key monitorable for the quarter. Result Preview ; at a glance PRIVATE BANK AXISBANK CUB DCB DHANBANK FEDERALBNK HDFCBANK ICICIBANK INDUSINDBK INGVYSYABANK J&KBANK KARURVYSYA SOUTHBANK YESBANK Total NII 3006 207 88 96 609 5087 4505 657 397 679 308 374 578 16591 3QFY14E PPP Net Profit 2772 1333 152 71 42 34 22 0.72 418 230 3695 2289 4235 2504 561 303 275 173 496 339 186 41.5 255 131 664 358 13773 7808 NII 2937 190 91 82 548 4477 4044 700 440 682 298 364 672 15525 2QFY14 PPP Net Profit 2750 1362 141 84 40 33 18 -1.85 354 226 3387 1982 3888 2352 588 330 276 176 496 303 157 83 212 127 713 371 13020 7427 NII 2495 163 72 74 497 3799 3499 578 403 594 308 353 584 13419 3QFY13 PPP Net Profit 2311 1296 131 85 32 27 14 4 394 211 3024 1859 3452 2250 472 267 263 162 435 289 212 113 235 128 563 342 11538 7033 YoY Growth NII PPP Net Profit QoQ Growth NII PPP Net Profit 20.5 27.0 19.9 16.0 2.9 -16.5 2.3 8.9 0.8 7.8 -2.1 -15.5 22.2 31.3 25.9 -3.3 5.0 3.0 29.7 57.1 82.0 17.1 22.2 -138.9 22.5 6.1 9.0 11.1 18.1 1.8 33.9 28.8 22.2 22.7 23.1 11.3 13.6 11.4 9.1 8.9 15.5 6.5 13.7 18.9 13.5 -6.1 -4.6 -8.2 -1.5 4.6 6.8 -9.8 -0.4 -1.7 14.3 14.0 17.5 -0.4 0.0 12.0 0.0 -12.3 -63.3 3.4 18.5 -50.0 5.9 -1.0 23.6 8.5 17.9 19.4 2.3 4.7 11.0 2.7 -14.0 6.9 20.3 -6.9 5.8 3.1 -3.5 5.1 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 24
  • 25. 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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