IEA-Equity
Strategy

India Equity Analytics

24th Jan, 2014

Daily Fundamental Report on Indian Equities

Larsen & Toubro ...
Larsen & Toubro Ltd.

V-

"Neutral"
24th Jan' 14

"On Track of Revival………"
Result update

Neutral

CMP
Target Price
Previo...
V-Guard Industries Ltd.

V-

"Hold"
24th Jan' 14

"Lower FY14 Sales growth guidence to 11-12%……..."
Result update

Hold

C...
V-Guard Industries Ltd.
Confrence Call Highlights
• Non South market sales in Q3 FY'14 stood about 30% of total sales and ...
V-Guard Industries Ltd.
Key financials
PARTICULAR

2010A

2011A

2012A

2013A

2014E

2015E

454
1
456
50
43
7
5
40
14
NA
...
Dabur India Ltd.

"BUY"
24th Jan' 14

"Confident tone for growth"
Result update
CMP
Target Price
Previous Target Price
Ups...
Dabur India Ltd.
Sales and Sales Growth(%) -

(Source: Company/Eastwind)

Consolidated Volume Growth-%

The company has be...
Dabur India Ltd.
Key facts from Management Commentary:
■ The company may hike prices by 4-5% in FY15E and focus will be on...
Ultratech Cement.

"Hold"
24th Jan' 14

Moderated but Not outdated
Result Update

Hold

CMP
Target Price
Previous Target P...
Ultratech Cement.
OUTLOOK :
We are expecting Demand Growth for the rest FY14 will be 4% - 5% and for FY15 it will
be in th...
Ultratech Cement.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
...
Public Sector Banks Result Preview
3QFY14E
Stock Performance During Quarter

Revenue growth tepid on account of moderate l...
Public Sector Banks Result Preview 3QFY14E
Profitability likely to declined due to absence of core earnings, high operatin...
Public Sector Banks Result Preview 3QFY14E
Bank of Baroda
BANKBARODA
Rs Cr
3QFY14E
NII
3515
PPP
2539
Net Profit
1067

2QFY...
Public Sector Banks Result Preview 3QFY14E
State Bank of India
SBIN
Rs Cr
3QFY14E
NII
12959
PPP
6734
Net Profit
2535

2QFY...
HDFC LTD
Result Updated
CMP
Target Price
Previous Target Price
Upside
Change from Previous

NEUTRAL
840.5
875
4
-

Market ...
HDFC LTD
Quarterly Result

NII grew on the back of healthy loan growth
and stable spread

Operating cost stable led PPP gr...
HDFC LTD
HDFC Performance vs Nifty with base re-adjustment

Quarterly Performance

Rs Cr
Income from Operations
Profit on ...
Zensar Tech

"BUY"
23rd Jan' 14

"Better growth trajectory ahead"
Result update

Buy

CMP
Target Price
Previous Target Pri...
Zensar Tech
Sales and Sales Growth-%

(Source: Company/Eastwind)

Margin-%

(Source: Company/Eastwind)

Sales and Sales Gr...
Zensar Tech
Clients/Headcounts Metrics;
Revenue Mix-Geographies

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY142

...
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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Public Sector Banks Result Preview 3QFY14E in India Equity Analytics Today | Narnolia Securities Limited

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Narnolia Securities Limited expect performance Public Sector Banks (PSBs) to remain muted on the back of slower pace of loan growth and deteriorating asset quality led by ongoing restructure assets and stress in economy. For more information contact us on http://www.narnolia.com/index.php/contact-us/

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Public Sector Banks Result Preview 3QFY14E in India Equity Analytics Today | Narnolia Securities Limited

  1. 1. IEA-Equity Strategy India Equity Analytics 24th Jan, 2014 Daily Fundamental Report on Indian Equities Larsen & Toubro Ltd: "On Track of Revival………" "NEUTRAL" Edition : 191 24th Jan 2014 As per the management, the quarterly margins differ for every quarter as the project completion cycle is different and hence it is difficult to capture the EBITDA movement every quarter. Though we agree with the management’s comment, we still believe that there would be some amount of pressure on the margins on a yearly basis due to risks related to competition, inflation, adverse mix and a slowdown. As regards the results we are of the opinion that, despite the gloomy scenario the results have been good. Consistent order inflow is a major positive factor. We expect the sector to witness revival in coming quarters, whereas we see a near term earnings growth muted and look for a better entry point. Currently we have a neutral view on a stock ......................... ( Page :2) V-Guard: "Lower FY14 Sales growth guidence to 11-12%" "HOLD" 24th Jan 2014 We believe that during the election period, the power supply could remain better (with political interest), consequently lowering the UPS demand. Hence, it could take a couple of quarters to witness a reversal in the trend, if any. On this backdrop, we have lowered our revenues estimates by 9% in FY2014 and 13% in FY2015. Consequently, we have revised down our EPS estimates by 21% in FY2014 and 16% in FY2015 ......................................................... ( Page : 3-5) Dabur India Ltd : "Confident tone for growth" "BUY" 24th Jan 2014 Dabur delivered inline set of numbers;During 3QFY14, Dabur reported 16.7% (YoY) sales growth led by 9% overall volume growth because of discretionary demand ramp up in rural area and price hikes by around 4-5% . PAT grew by 16%(YoY).Post earning, company’s management stated that they would focus on pursuing aggressive and profitable growth strategy with brand building by judicious mix of price hike and product launch in near future. ............................................( Page :6-8) Ultratech Cement : Moderated but Not outdated "HOLD" 24th Jan 2014 Ultratech's Q3FY14 was in line to our estimates.The white cement Volume Growth and capacity expansions are positive in terms of fundamentals. We see the uptick of EBIDTA margin and volume growth for FY15. Currently the stock valuing at 3x in 1yr forward P/B, and we cut our stance for FY15 to 2.7x. Hence we maintain our positive stance on Ultratech Cement with Target price of Rs.1846/- . As from the current level the upside is very limited(7%), we recommend “Hold” Ultratech and Buy at Dips to get handsome return. ............................................................ ( Page : 9-11) Public Sector Banks Result Preview 3QFY14E 24th Jan 2014 Most of PSBs are trading at lower range of valuation multiple owing to absence of core earnings, operating leverage, deteriorating asset quality and higher amount of restructure assets that are in pipeline. 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 PSBs universe we like Canara Bank, UCO Bank, Union Bank. .............................................. ( Page : 12-15) HDFC LTD : "NEUTRAL" 23th Jan 2014 HDFC profit growth of 12.1% YoY was inline with street expectation. NBFC reported stable asset quality on sequential basis as well as registered healthy loan growth. HDFC ltd has well above CAR which would support growth going forward. At the current price of Rs.840, stock is trading at 4.3 tines one year forward book and 26 times of FY14E’s earnings. We value HDFC at Rs.875/ share which is 4.5 times of FY14E’s book and P/E multiple of 27 times of full year EPS. .......................................................... ( Page : 16-18) Zensar Tech : "Better growth trajectory ahead" "BUY" 23th Jan 2014 Earning numbers below expectation, management confident for growth ahead:For 3QFY14, Zensar Tech reported lower growth than expectations, Sales declined by 1%(QoQ) because of seasonal and furloughs impacts.Considering healthy order pipeline and its earning visibility in near future, we maintain “BUY” view on the stock with a target price of Rs 440. At a CMP of Rs 386, stock trades at 5.6x FY15E EPS ................................................................... ( Page : 19-21) Narnolia Securities Ltd,
  2. 2. Larsen & Toubro Ltd. V- "Neutral" 24th Jan' 14 "On Track of Revival………" Result update Neutral CMP Target Price Previous Target Price Upside Change from Previous 1033 NA NA NA NA Market Data BSE Code NSE Symbol 52wk Range H/L Capital Mkt (Rs Crores) Average Daily Volume Nifty 500510 LT 861/114 6 80,145 95,662 6,346 Stock Performance-% Absolute Rel. to Nifty 1M (2.7) 1.1 1yr 0.8 4.6 YTD 13.5 11.6 Share Holding Pattern-% Promoters FII DII Others 3QFY14 0.0 17.9 36.6 45.5 2QFY14 1QFY14 0.0 0.0 15.3 16.1 37.4 36.9 47.4 47.2 Price Performance V/s NIFTY Construction & engineering major, L&T posted a surprisingly set of numbers for the quarter ended Dec, 13. The company's net sales grew by a mere 11.8% on a yearly basis to Rs 14387.5crore. The company recurring bottom line witnessing a upstik of 12.15% , and came in at Rs. 1136.3 crore. the results have been adjusted for the quarter as it transferred hydrocarbon business to its subsidiary L&T Hydrocarbon Engineering with effect from April 1, 2013. Accordingly, the company restated suitably its earnings for the previous quarter ended September 2013 and numbers relating to previous periods. However, if we If we consider the exceptional gains on dilution of part stake in a subsidiary company, the overall PAT grew by 22.1 % during the quarter. While the operational performance has been good, the company has witnessed good traction in its order book also. Order inflow for the quarter stood at Rs 21722 crore showing a growth of 21% on Y-o-Y basis. The total order book as on December 31st 2013 stood at Rs 171184 crore showing an increase of 13 % on Y-o-Y basis. EBITDA margins for the Dec 2013 quarter expanded by 180 bps to 11.6% against 9.8% last year. However, as per the management, the quarterly margins differ for every quarter as the project completion cycle is different and hence it is difficult to capture the EBITDA movement every quarter. Though we agree with the management’s comment, we still believe that there would be some amount of pressure on the margins on a yearly basis due to risks related to competition, inflation, adverse mix and a slowdown. As regards the results we are of the opinion that, despite the gloomy scenario the results have been good. Consistent order inflow is a major positive factor. We expect the sector to witness revival in coming quarters, whereas we see a near term earnings growth muted and look for a better entry point. Currently we Why neutral…??? Contribution margin expansion came as a surprise and in our recent meeting the management attributed it to quarterly skews rather than improvement in project-level profitability. We build slightly higher margins for FY2014E at 10.9% (versus 10% earlier). However, we believe margins face downward trajectory over FY2014-16E (build EBITDA margin of 10.5% in FY2015E and 10.3% in FY2016E) due to risks related to competition, inflation, adverse mix and a slowdown. L&T maintained its revenue growth guidance of 15% yoy for FY2014 (9% posted in 9MFY14). We build lower revenue growth of 12% in FY2014 implying 16% growth requirement in 4QFY14. L&T also maintained its inflow guidance of 15-20% in FY2014 (strong 23% growth in 9MFY14; but is a bit wary about maintaining this traction on delayed decision making by customers). Outlook We have a Neutral on L&T as we think it will be difficult rate L&T from today’s level without earnings upgrade and/or uncertanity across sector. Downside risks are project delays, weaker margins and stronger Rupee. Upside risks are higher than expected order inflow and higher operating margins a head. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 14387.5 1674.8 1240.7 11.6% 8.4% 2QFY14 12308.4 1185.7 864.6 9.6% 6.8% (Source: Company/ Eastwind Research) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. (QoQ)-% 16.9% 41.3% 43.5% 200 bps 160 bps 3QFY13 12869.3 1258.3 1013.2 9.8% 7.5% Rs, Crore (YoY)-% 11.8% 33.1% 22.4% 180 bps 90 bps (Standalone) 2
  3. 3. V-Guard Industries Ltd. V- "Hold" 24th Jan' 14 "Lower FY14 Sales growth guidence to 11-12%……..." Result update Hold CMP Target Price Previous Target Price Upside 450 475 525 5% -11% Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 532953 V-GUARD 390/570 1,374 59,460 6,344 Stock Performance-% Absolute Rel. to Nifty 1M (4.5) (5.6) 1yr (9.0) (13.6) YTD 5.0 (6.7) 2QFY14 65.5 17.4 2.5 14.5 1QFY14 65.5 14.5 3.5 16.4 For the quarter ended Dec 2013, V-Guard reported a top line of Rs. 352.9 crore, compared to Rs. 349.0 crore in 3QFY13, marking a marginal YoY growth of 1.1%. EBITDA margins for the quarter were significantly improved to 8.2% (up 89 bps YoY) due to lower ad spends. Interest expense for the quarter were up by 10.0% YoY to Rs. 5.4 crore and after giving effect depreciation and taxes, the company’s PAT stood at Rs. 17.5 crore (up 14.2% YoY). On conference call, the management of V-Guard lowered their top-line guidance to 11-12% from the earlier 18-20% in FY2014. However, they expect to achieve EBITDA margin of around 8.5% for FY2014. We believe that during the election period, the power supply could remain better (with political interest), consequently lowering the UPS demand. Hence, it could take a couple of quarters to witness a reversal in the trend, if any. On this backdrop, we have lowered our revenues estimates by 9% in FY2014 and 13% in FY2015. Consequently, we have revised down our EPS estimates by 21% in FY2014 and 16% in FY2015. Strong Balance Sheet •Total Debt has been reduced significantly as on 3Q FY14 to Rs. 117.7 crore, compared to Rs. 157 crore as on 3Q FY13. Working capital loan reduced to Rs. 77.1 vrore from 134.0 crore and whereas term loan icreased to Rs. 40.6 crore from 22.9 crore. • Working capital cycle on a TTM basis improves by 9 days to 76 days. Mainly Led by 15 days reduction in debtors. Management has also guided for improvement in net working capital cycle by 5- 10 days every year going forward. This will further improve its ROCE and ROE going forward. • Strong cash generation in 9M. FY14 Cash from operations at Rs. 90 crore in 9M FY14 as compared to Rs. 14.5 crore for full year FY13 Share Holding Pattern-% Promoters FII DII Others 3QFY14 65.5 18.5 2.2 13.8 1 yr Forward P/B Outlook As expected, the company’s contribution to revenue has improved from its non south market as compared to its incumbent southern market. All in all we observe this result as significantly below our estimates. Although company has reported increase in EBITDA margin in 3QFY14 by 80 bps, but it still below our full year expectaion of 9%. We believe that during the election period, the power supply could remain better (with political interest), consequently lowering the UPS demand. Hence, it could take a couple of quarters to witness a reversal in the trend, if any. On this backdrop, we have lowered our revenues estimates by 9% in FY2014 and 13% in FY2015. Consequently, we have revised down our EPS estimates by 21% in FY2014 and 16% in FY2015. However we belive company strong balance sheet, a wide range of products and a strong hold over its existing market, all of which give it an edge over its rivals. At the current CMP of Rs. 457, the stock is trading at a PE of 18.3x and 13.8x of FY14E and FY15E. The company can post RoE of 23.2% and 24.1% & EPS of Rs. 25.2 and Rs. 33.2 FY14E and FY15E. We belive that the current level is not attractive to make position in this stock, one should wait further correction from current level, however one who already own the stock can hold it with the revised price target of Rs. 475. Financials Consolidated Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 352.9 29.1 17.5 8.1% 4.9% 2QFY14 334.0 27.1 14.5 8.1% 4.3% (Source: Company/ Eastwind Research) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. (QoQ)-% 5.7% 7.7% -21.0% 0 bps 60 bps 3QFY13 349.0 25.7 15.4 7.3% 4.4% Rs, Crore (YoY)-% 1.1% 13.3% 14.2% 80 bps 50 bps Standalone 3
  4. 4. V-Guard Industries Ltd. Confrence Call Highlights • Non South market sales in Q3 FY'14 stood about 30% of total sales and grew by about 30% as well. The South market which constitutes about 70% degrew by about 8-9% in value terms and by about 13-15% in volume terms. Overall, thus company ended up with flattish kind of sales growth in Q3 FY'14. For Q4 FY'14, management expects about 10-12% sales growth. • In Q3 FY'14, the company was able to improve its gross margin by 100 bps which was largely due to lower Advertisement expenditure YoY. Going forward Ad expenditure will be around 3.5-4% of sales. • The Electronics segment, which constitute stabilizers and UPS, which contribute about 24% of total sales in Q3 FY'14, degrew by 18% YoY, Electrical which includes pumps, house wiring cable, electric water heater, fans and others, and contribute about 72% of total sales, grew by about 8%, with electric water heater and house wiring cables delivered a healthy growth, while the solar water heater which constitute about 4% of total sales, grew by about 30%. The premium variant of the electric water heater segment launched in FY'14 continues to get good response. • As per the management, better power supply in States of Tamil Nadu and Andhra Pradesh together with lower sale of consumer durable products due to weak consumer sentiment, affected the growth of the company. Also due to sand mining ban in many parts of the country, construction activities were also slow leading to lower sale of wire business. • As per the management, the power situation in South India should be temporary phenomena largely due to elections. Also extended monsoon also delayed some of the product sale and affected the demand. • Total market of electric wires will be about Rs 7500 crore of which company has share of about 6%. By year end the company should be able to report about Rs 450-475 crore of electric wires. Polycab has highest market share of 20% followed by Finolex cables of about 12%. • Raw material prices of cooper and other metals were steady and more on downward side. Management expects raw material prices to slightly inch up from March'14 onwards which is general seasonally trend. • The new products introduced last year namely Induction Cooker, Mixer Grinder and Switchgears did well and are expected to post revenue of about Rs 50 crore totally in FY'14. • Lower tax rate during the quarter was as a result of a 200% weightage deduction on R&D and on capital expenditure which the company received the approval from this year and going forward also the deduction will continue. • Overall, management expects about 11-12% growth in FY'14 with Ebidta margin of about 8.5-9%. The management lowered its earlier guidance of about 20% growth in FY'14 largely due to current economic and environmental challenges. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 4
  5. 5. V-Guard Industries Ltd. Key financials PARTICULAR 2010A 2011A 2012A 2013A 2014E 2015E 454 1 456 50 43 7 5 40 14 NA 25 10 3.5 8.5 727 2 728 73 65 8 11 55 16 NA 39 12 4.1 13.1 994 2 996 94 84 10 17 69 18 NA 51 12 4.1 17.0 1360 4 1364 110 99 11 20 82 19 NA 63 12 4.1 21.1 1510 5 1515 131 119 12 21 102 27 NA 75 12 4.1 25.2 1736 6 1742 156 141 15 15 132 33 NA 99 12 4.0 33.2 11.1% 5.6% 9.6% 4.0% 18.0% 13.8% 10.1% 5.4% 7.8% 2.4% 22.7% 16.2% 9.4% 5.1% 9.2% 2.2% 24.1% 21.2% 8.1% 4.6% 4.8% 0.9% 24.1% 19.4% 8.7% 5.0% 5.5% 0.9% 23.2% 21.4% 9.0% 5.7% 7.2% 0.9% 24.1% 21.7% 141 81 222 3 89 172 139 311 3 168 211 109 320 3 186 261 165 427 3 435 324 125 449 3 460 412 115 527 3 460 47.4 1.9 8.4 10.4 57.6 2.9 5.7 12.9 70.6 2.6 4.9 10.9 87.6 5.0 4.9 20.7 108.7 4.2 5.6 18.3 137.9 3.3 9.4 13.8 Performance Revenue Other Income Total Income EBITDA EBIT DEPRICIATION INTREST COST PBT TAX Extra Oridiniary Items Reported PAT Dividend (INR) DPS EPS Yeild % EBITDA % NPM % Earning Yeild % Dividend Yeild % ROE % ROCE% Position Net Worth Total Debt Capital Employed No of Share (Adj) CMP Valuation Book Value P/B Int/Coverage P/E (Source: Company/ Eastwind Research) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 5
  6. 6. Dabur India Ltd. "BUY" 24th Jan' 14 "Confident tone for growth" Result update CMP Target Price Previous Target Price Upside Change from Previous BUY 162 206 27% - Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 500096 DABUR 185/125 28197 908049 6346 Stock Performance 1M Absolute 3.3% Rel. to Nifty 2.20% 1yr 25% 20% YTD 24.0% 12.8% Share Holding Pattern-% Current Promoters FII DII Others 68.64 19.94 4.47 6.95 P/BV(x)-1year forward 2QFY14 1QFY14 68.66 20.71 3.96 6.7 68.66 20.4 3.97 7 Dabur delivered inline set of numbers ; During 3QFY14, Dabur reported 16.7% (YoY) sales growth led by 9% overall volume growth because of discretionary demand ramp up in rural area and price hikes by around 4-5% . PAT grew by 16%(YoY). The International Business grew by 26%. Organic business grew by 29% with 14% constant currency growth rate led by strong performance in GCC, Egypt and Nigeria. The GCC business reported a 21% growth, while sales in Egypt and Nigeria both grew by 16%. Domestic FMCG business grew by 14%. Post earning, company’s management stated that they would focus on pursuing aggressive and profitable growth strategy with brand building by judicious mix of price hike and product launch in near future. Margin ramp down: During the quarter, EBITDA margin declined by 120 bps to 15.6% due to rise in A&P cost by 130 bps to 15.72% and employee cost by 60 bps to 8.58% of adjusted net sales. PAT margin flat at 12.8% on YoY basis. Volume growth in single digit: Because better discretionary demand environment in rural area and judicious pricing strategy overall volume growth increased by 9% (YoY) in 3QFY14 with 4-5% (YoY) pricing growth.For FY15E, management stated to hike its product prices by 4-5% to maintain its margin. Growth on all Categories: The Health Supplements business was a key driver of growth during the quarter, reporting a strong 19.5% surge. The Air Freshener business under the brand Odonil, continued to surge ahead with an over 27% growth. The Foods business also reported a robust near 18% growth. The Shampoo business grew by 25%. The Toothpaste business grew by over 14% while the Skin Care category reported an over 13% growth. Recent updates: (a)Introduced a host of new products and variants, including the new Fem Fairness Naturals facial bleach range and Vatika Hibiscus hair care range.(b)Dabur Tunisie, a wholly owned subsidiary, incorporated in Tunisia on Dec. 2013 with the object of buying, selling and manufacturing consumer care products, having meagre asset base at present. View and Valuation: Despite signs of weak discretionary demand and increased competitive intensity in the market, Dabur India has reported comparatively better volume growth in its key categories. On all operating parameters, its performance was satisfactory. Still, management is cautious for margin ramp up due to high inflation in India. The strong momentum in relatively low competition in the core categories with diversified portfolio, Dabur gets a better place than other peers and its rural distribution expansion should boost sales volumes. We retain our “Buy” view on the stock with a target price of Rs206. At a CMP of Rs 162 stock trades at 8.5x FY15E P/BV. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 1904.28 297.59 243.5 15.6% 12.8% 2QFY14 1748.81 329.24 249.83 18.8% 14.3% (QoQ)-% 8.9 (9.6) (2.5) 220bps 150bps 3QFY13 1635.98 274.51 209.87 16.8% 12.8% Rs, Crore (YoY)-% 16.4 8.4 16.0 120bps - (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 6
  7. 7. Dabur India Ltd. Sales and Sales Growth(%) - (Source: Company/Eastwind) Consolidated Volume Growth-% The company has been looking to maintain 812% volume growth in the near term. (Source: Company/Eastwind) Margin-% EBITDA margin declined by 120 bps to 15.6% due to rise in A&P cost by 130 bps to 15.72% and employee cost by 60 bps to 8.58% of adjusted net sales. (Source: Company/Eastwind) Expenses on sales-% RM cost (on sales) decreased from 37.6% to 36.3% and AD spend down from 14.4% to 12%, historicaly low ad spend. (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 7
  8. 8. Dabur India Ltd. Key facts from Management Commentary: ■ The company may hike prices by 4-5% in FY15E and focus will be on pursuing an aggressive and profitable growth strategy. ■ Ad expenses to be within the range of 13-15 percent at the consolidated level for FY15E. ■ Expanding rural distribution networks as a part of project double and new products as hair serums and professional hair care products were launched. ■ There has been a softening of demand generally speaking in urban India. Overall much higher level of growth is coming from rural as compared to urban. Financials Rs in Cr, Sales RM Cost Purchases of stock-in-trade WIP Employee Cost Ad Spend Other expenses Total expenses EBITDA Depreciation and Amortisation Other Income EBIT Interest PBT Tax Exp PAT Growth-% (YoY) Volume Pricing Sales EBITDA PAT Expenses on Sales-% RM Cost Ad Spend Employee Cost Other expenses Tax rate Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% P/BV P/E FY10 3391.4 811.0 750 (10) 285 493.5 438.4 2767.3 624.1 50.0 39.4 613.5 12.3 601.2 100.5 500.7 FY11 4104.5 1806.8 252 (122) 309 534.6 524.1 3304.8 799.7 95.2 32.2 736.6 29.1 707.5 139.0 568.5 FY12 5305.4 2278.8 509 (103) 387 659.5 683.1 4415.2 890.2 103.4 57.4 844.2 53.8 790.4 146.4 644.0 FY13E 6178.9 2422.1 599 (2) 471 837.0 819.10 5146.6 1032.2 112.7 92.0 1011.5 58.9 952.6 182.62 770.0 FY14E 7070.30 2757.42 742.38 (71) 608.05 996.91 908.53 5942.59 1127.71 111.09 141.41 1158.03 54.69 1103.34 212.39 890.95 FY15E 8203.32 3240.31 820.33 (41) 738.30 1132.06 1066.43 6956.42 1246.90 133.15 164.07 1277.82 51.95 1225.87 232.91 992.95 10.5% 5.0% 16.0% 10.6% 11.4% 20.9% 33.9% 28.1% 21.0% 28.1% 13.5% 29.3% 11.3% 13.3% 16.5% 16.0% 19.6% 9.5% 4.5% 14.4% 9.3% 15.7% 23.9% 14.6% 8.4% 12.9% 16.7% 44.0% 13.0% 7.5% 12.8% 19.6% 43.0% 12.4% 7.3% 12.9% 18.5% 39.2% 13.5% 7.6% 13.3% 19.2% 39.0% 14.1% 8.6% 12.9% 19.3% 39.5% 13.8% 9.0% 13.0% 19.0% 18.4% 18.1% 14.8% 19.5% 17.9% 13.9% 16.8% 15.9% 12.1% 16.7% 16.4% 12.5% 16.0% 16.4% 12.6% 15.2% 15.6% 12.1% 158.6 86.8 935.4 5.8 10.8 53.5% 14.7 27.5 96.1 174.1 1391.1 3.3 8.0 40.9% 12.0 29.4 103.2 174.2 1716.9 3.7 9.9 37.5% 10.5 27.9 131.0 174.3 2124.4 4.4 12.2 36.2% 10.7 29.7 162.0 174.3 2689.1 5.1 15.4 33.1% 10.5 31.7 162.0 174.3 3335.4 5.7 19.1 29.8% 8.5 28.4 (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 8
  9. 9. Ultratech Cement. "Hold" 24th Jan' 14 Moderated but Not outdated Result Update Hold CMP Target Price Previous Target Price Upside Change from Previous 1719 1846 1846 7% 0% Market Data BSE Code NSE Symbol 532538 ULTRACEMCO 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 1405/2067 46885 18754 6346 Lower Realization and higher Operating Cost Impact PAT: UltraTech’s 3QFY14 Sales, EBITDA & PAT declined 1%, 24% and 39% YoY respectively to Rs4818Cr, Rs796Cr and Rs370Cr respectively. On QoQ basis, Sales, EBITDA & PAT rose 7%, 17% and 40%. While EBITDA margin contracted ~499 bps YoY it expanded 149 bps QoQ to 16.5%. EBITDA per MT at Rs788 down 24% YoY and up 10% QoQ. At Rs.788 /Ton Average Realization Down 1% YOY : The benefit of lower coal prices (net of rupee devaluation) and optimization of the fuel mix led to an 6.5% yoy dip in power & fuel costs a ton. A 23.5% yoy drop in EBITDA and a 75.4% yoy rise in interest led to a 37.8% yoy fall in PAT. Despite of Weak Realization Ultratech has delivered QOQ margin Expansion :Despite 24%,7%,8% YOY increase in Rawmaterial cost, freight cost and other expenses respectively, Ultratech’s variable input cost increased 6%YOY and -2%QOQ . Through better cost efficiency which has been one of the key factors resulting in UltraTech’s results outperforming its large cap peer group over the last 4‐5 quarters. Thus We believe UItraTech will deliver QoQ margin expansion despite marginally weak realization . Stock Performance-% 1M -7.3 -9.0 Absolute Rel. to Nifty 1yr -14.8 -19.9 YTD -10.2 -14.3 Share Holding Pattern-% 3QFY14 Promoters FII DII Others 2QFY14 1QFY14 62.0 21.0 4.6 12.4 62.0 20.7 4.8 12.6 62.0 20.7 4.6 12.7 1 yr Forward P/B 5000 Price 2x 4x 6x 8x 4500 4000 3500 1x 3x 5x 7x 3000 2500 2000 1500 1000 500 Aug-13 Feb-12 Nov-12 Aug-10 May-11 Feb-09 Nov-09 Aug-07 May-08 Feb-06 Nov-06 May-05 Aug-04 0 Source - Comapany/EastWind Research Expansion Updates :In Jul’13 it commissioned a 3.3m-ton clinker plant in Karnataka, adding to its earlier commissioning (Mar’13) of similar capacity in Chhattisgarh. In Oct’13 it commissioned a 1.6m-ton grinding unit in Jharsuguda, Orissa, adding to its earlier commissioning (Mar’13) of similar capacity in Hotgi, Maharashtra. The balance five associated grinding units will be set up in 4QFY14 and FY15. Acquisition. During 2Q, Ultratech acquired JPA’s 4.8m-ton unit in Gujarat, lifting its capacity to 59m tons, while ongoing expansions would further that to 70m tons by Mar’15. The transaction, at an EV of 38bn (US$125 a ton) is expected to be completed only by 1QFY15 given multiple approvals required. Depreciation rose 11% yoy due to the commissioning of clinker capacity in Chhattisgarh, Karnataka, and grinding units in Maharashtra, Gujarat and Orissa. Other income too fell, 18% yoy, leading to a further crunch in PAT. Investment concerns :Key drivers of long-term growth would continue to be housing and infrastructure development.Revival in cement demand would be key catalyst for the stock performance.cement prices and demand are expected to pick-up post election.High operating leverage, especially post commissioning of new capacities in 1QFY14, could result in volatile earnings.Cement Makers may rise cement prices due to increase in variable input costs. Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY13 Net Revenue 4818 -1.3 6.5 4883 4522 EBITDA 796 -24.2 17.1 1050 679 Depriciation 264 10.7 0.0 239 264 Interest Cost 90 73.6 1.9 52 89 Tax 139 -45.2 30.0 254 107 PAT 370 -38.5 41.6 601 261 (In Crs) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 9
  10. 10. Ultratech Cement. OUTLOOK : We are expecting Demand Growth for the rest FY14 will be 4% - 5% and for FY15 it will be in the range of 8% - 12%.Demand already revived after the monsoon ,hence it reported a 4% realization growth in Q3FY14.The Ultratech's expansion plans are ramp up to become 70 mnTon cement producer in India by FY15 . Its waste heat recovery plants and efficient fuel mix (usage of petcock for energy instead of coal) moderates the Cost pressure, so to make Ultratech cost efficient among large cap peers. Govt initiatives to expedite large infrastructure projects have yielded little so far and this is putting pressure in the cement makers, especially those with debt that has become expensive to service due to high interest rates. We expect lower other income to revive after the settlement of volatile interest rates by Govt in coming quarters. At present ultratech is running at 79% of its capacity utilization. The utilization level may decline due to stabilization of supply from new capacities, owing to insufficient demand in Domestic Market. Ultratech is planning to strengthen its logistic infrastructures and increase its captive power plants capacity, which will help to reduce its Operational cost. Vew & Valuation : Ultratech's Q3FY14 was in line to our estimates.The white cement Volume Growth and capacity expansions are positive in terms of fundamentals. We see the uptick of EBIDTA margin and volume growth for FY15. Currently the stock valuing at 3x in 1yr forward P/B, and we cut our stance for FY15 to 2.7x. Hence we maintain our positive stance on Ultratech Cement with Target price of Rs.1846/- . As from the current level the upside is very limited(7%), we recommend “Hold” Ultratech and Buy at Dips to get handsome return. P/L PERFORMANCE Net Revenue from Operation Other Income Total Income Power and fuel Freight and forwarding Expenditure EBITDA Depriciation Interest Cost Net Tax PAT ROE% FY11 13798 154 13952 3280 2881 11102 2696 813 292 384 1367 12.8 FY12 19232 371 19603 4639 3741 15039 4194 963 256 948 2403 18.7 FY13 21319 304 21623 4646 4243 16480 4839 1023 252 1179 2678 17.6 Narnolia Securities Ltd, FY14E 20797 346 21143 4315 4461 16957 3840 1110 325 759 1982 11.7 Source - Comapany/EastWind Research Source - Comapany/EastWind Research Source - Comapany/EastWind Research 10
  11. 11. Ultratech Cement. 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% EV P/E EV/EBIDTA Dividend Yield% ROCE% Debt/Equity Current Ratio Cash from Operation Cash From Investment Cash from Finance 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 15890 13.1 7.9 0.5 15.4 0.3 2.3 1673 (843) (740) 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 34903 22.7 12.9 0.5 8.2 0.4 1.5 2195 (2240) 248 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 46634 17.2 11.1 0.5 11.8 0.4 1.6 3482 (3050) (353) 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 57428 19.1 11.9 0.5 11.3 0.4 1.4 4122 (4407) 715 Source - Comapany/EastWind Research Source - Comapany/EastWind Research Narnolia Securities Ltd, 11
  12. 12. Public Sector Banks Result Preview 3QFY14E Stock Performance During Quarter Revenue growth tepid on account of moderate loan growth and high cost of fund We expect performance of Public Sector Banks (PSBs) to remain muted on the back of slower pace of loan growth and deteriorating asset quality led by ongoing restructure assets and stress in economy. We expect PSBs in our coverage universe to report NII growth of 17.2% YoY led by moderate loan growth of 18% YoY by the system and restructure assets which would likely to remain at elevated level as per most of bank management. Provision for loan loss would be elevated level owing to deteriorating asset quality and larger sum of restructure assets are in pipeline. Most of PSBs are expected to reported higher slippage of restructure asset as per management. Muted loan growth reported by system During quarter the banking system experience loan growth of 15% YoY as on 13th Dec.2013 (as per RBI data) as against 18% YoY loan growth in 2QFY14. Second quarter witnessed higher loan growth because of transfer of CD/CP borrowings to loan but during this quarter revival of bond yield and lower demand of corporate loan led slowdown in economy restricted moderate loan growth in the system. We expect loan growth of 10-15% in our coverage universe. Bank of Baroda, Canara Bank, Nifty Vs Bank Nifty during Quarter UCO bank and Union bank are expected to reported loan growth of >15% while PNB and SBIN would report <10% of loan growth. Deposits growth lead by flow of FCNR deposits Indian banks registered deposits growth of 17% YoY as on 13th Dec2014 according to RBI data preliminary due to flow of FCRN deposits through RBI’s special concession window to the tune of Rs. $14 bn. Union Bank is likely to get more benefit from this route as per management. According to bank’s top official, bank raised more FCNR deposits than repo borrowing. Bond yield during this quarter soften to 7.5% as against 9.5% in second quarter and FCNR deposits are generally low cost of deposits. This would lead the margin expansion of more than 1%. Margin expansion would be seen in case of Union Bank. Cost of deposits of most of banks is expected to remain same but we expect actual benefit would come from 4QFY14E and onwards. Loan (Rs tn) and YoY Gr(%) Asset quality pressure likely to remain at elevated level Asset quality pressure is likely to persist due to ongoing slowdown in economy, high interest rate and continuous rising inflation. Gross slippages of banks are expected to remain at elevated level and most of bankers are guided higher amount of restructure assets in pipeline. We expect Andhra bank would hit more as their impairment of asset would be more than 18% of asset means 100% of liability has to service 82% of asset which would be tough itself for bank. We expect GNPA and net NPA for PSBs would be in the range of 3.5%-4% and 2 to 2.5% respectively in 3QFY14. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 12
  13. 13. Public Sector Banks Result Preview 3QFY14E Profitability likely to declined due to absence of core earnings, high operating leverage and deteriorating asset quality Profitability of PSBs are expected to declined by 19.5% in our coverage universe in absence of core earnings, higher operating leverage due to wage revisions and high provision against loan loss due to deteriorating asset quality. Union Bank, Canara Bank and UCO Bank are expected to report healthy profit in our coverage because of healthy loan growth and margin expansion. Although these banks would not be free from impairment of asset and high operating leverage but would have comfortable profit due to healthy core earnings as per our view. Outlook Most of PSBs are trading at lower range of valuation multiple owing to absence of core earnings, operating leverage, deteriorating asset quality and higher amount of restructure assets that are in pipeline. 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 PSBs universe we like Canara Bank, UCO Bank, Union Bank. ALBK ALBK Rs Cr NII PPP Net Profit 3QFY14E 1169 750 182 2QFY14 1309 1154 276 3QFY13 % YoY Growth % QoQ Growth 1330 -12.1 -10.7 860 -12.7 -34.9 311 -41.4 -34.0 We expect bank to report profit growth of 4.2% YoY on the back of high operating leverage and high provisions. Higher operating leverage is expected due to higher employee provision and higher provisions on account of deteriorating asset quality as bank witnessed sequentially increased of gross NPA. Andhra Bank ANDHRABANK Rs Cr 3QFY14E NII 1169 PPP 750 Net Profit 166 2QFY14 1045 643 71 3QFY13 971 712 257 % YoY Growth 20.4 5.4 -35.4 % QoQ Growth 11.9 16.7 135.0 We expect bank to report loan growth and deposits growth of 14% and 18% respectively. Profit is expected to report negative growth on YoY basis largely due to high base and expected muted performance during the quarter. Asset quality during quarter is expected to report high deteriorating due to large chunk of restructure assets. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 13
  14. 14. Public Sector Banks Result Preview 3QFY14E Bank of Baroda BANKBARODA Rs Cr 3QFY14E NII 3515 PPP 2539 Net Profit 1067 2QFY14 2895 2125 1168 3QFY13 2841 2256 1012 % YoY Growth 23.7 12.6 5.5 % QoQ Growth 21.4 19.5 -8.7 We expect profit growth of 5.5% YoY largely due to tax rate of 30% versus 6.3% in 2QFY14 and 17.5% YoY in 1QFY14. As per our expectation NII would be grew by 24% largely due loan growth of 20% YoY. Asset quality of bank is expected to remain high as management guided restructure pipeline is Rs.20bn. Bank of India BANKINDIA Rs Cr NII PPP Net Profit 3QFY14E 2683 2218 602 2QFY14 2527 2102 622 3QFY13 % YoY Growth % QoQ Growth 2308 16.2 6.2 1856 19.5 5.5 803 -25.1 -3.3 We expect loan and deposits growth of 23% and 29% YoY respectively. Profit is lower by 25% YoY largely due to higher provisions. Bank is expected to report higher slippage as management guided restructure pipeline of Rs.10-15 bn. NIM is expected to improve by 20 bps YoY due to international NIM. Canara Bank CANBK Rs Cr NII PPP Net Profit 3QFY14E 2606 1734 775 2QFY14 2191 1425 626 3QFY13 % YoY Growth 1988 31.1 1516 14.4 714 8.5 % QoQ Growth 18.9 21.7 23.8 Canara Bank is expected to report 30%+loan growth largely due to lower base. We expect loan to grow by 34% YoY and flat deposits growth. Asset quality of bank is expected to improve on sequential basis largely due to expected lower slippage. AT PBT level , we expect bank to grow by 12.5% but we assume tax rate of 25% versus 16% in 2QFY14 and 19% in 1QFY14 which lead profit growth of 8.5% YoY. Gross slippage and tax rate will be monitor able. Punjab National Bank PNB Rs Cr NII PPP Net Profit 3QFY14E 4201 2874 607 2QFY14 4016 2535 505 3QFY13 3733 2682 1306 % YoY Growth 12.5 7.2 -53.5 % QoQ Growth 4.6 13.4 20.2 PNB is expected to report loan growth of less than 10% as bank is more focus on consolidating its balance sheet than growth. Asset quality is expected to remain at elevated level as bank’s slippage not concentrated in particular industry. NIM is expected to report in the range of 3.5-3.7%. Profit is expected to be dented on account of higher provisions. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 14
  15. 15. Public Sector Banks Result Preview 3QFY14E State Bank of India SBIN Rs Cr 3QFY14E NII 12959 PPP 6734 Net Profit 2535 2QFY14 12251 6312 2375 3QFY13 11154 7791 3396 % YoY Growth 16.2 -13.6 -25.4 % QoQ Growth 5.8 6.7 6.7 We expect SBIN loan and deposits growth of 17% and 16% YoY respectively. NIN is expected to report in the range of 3.5-4% as bank has increased base rate during the quarter. Operating leverage and asset quality is expected to dent profit by 25% YoY. We remain have concern about bank’s deteriorating asset quality and continuous fall of PCR. Gross slippage and provisions make by bank is key monitor able as per our view. UCO Bank UCOBANK Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth NII 1642 1569 1177 39.5 4.7 PPP 1285 1166 831 54.6 10.2 Net Profit 338 400 102 231.4 -15.5 UCO bank is expected to report profit growth of 200%+ largely due to robust expected NII growth which is lead by low of fund. UCO Bank’s CASA grew exponential in past few quarter but after sanction of western countries in Iran, low cost deposits are likely to be stagnant. But bank is expected to get benefit of same in FY14. Key monitor able would be CASA trend and asset quality. Union Bank UNIONBANK Rs Cr NII PPP Net Profit 3QFY14E 2015 1484 400 2QFY14 1954 1225 208 3QFY13 1891 1358 302 % YoY Growth 6.6 9.3 32.5 % QoQ Growth 3.1 21.1 92.3 We expect Union bank’s profit to grow by 32% YoY largely due to margin expansion and flow of FCNR deposits. Cost of fund is likely to soften this quarter as bank borrowed more money on repo and less MSF. Bond yield settled at 8.75% during quarter as against 9.5% in previous quarter. We expect loan and deposits growth of 17% and 18% YoY. Asset quality is likely to persist. Improvement in CASA and margin expansion would be key monitor able. Result Preview ; at a glance PSU BANKS ALBK ANDHRABANK BANKBARODA BANKINDIA CANBK DENABANK IOB ORIENTBANK PNB SBIN SYNDIBANK UCOBANK UNIONBANK VIJAYABANK Total NII 1382 1169 3515 2683 2606 684 1467 1395 4201 12959 1480 1642 2015 660 36476 3QFY14E PPP Net Profit 1139 324 750 182 2539 1067 2218 602 1734 775 458 107.4 972 120 965 269 2874 607 6734 2535 847 319 1285 338 1484 400 385 127 23245 7448 NII 1309 1045 2895 2527 2191 107 1452 1281 4016 12251 1411 1569 1954 705 33404 2QFY14 PPP Net Profit 1154 276 643 71 2125 1168 2102 622 1425 626 369 625 791 133 825 251 2535 505 6312 2375 811 470 1166 400 1225 208 273 136 20601 7590 NII 1330 971 2841 2308 1988 615 1382 1204 3733 11154 1400 1177 1891 456 31120 3QFY13 PPP Net Profit 860 311 712 257 2256 1012 1856 803 1516 714 443 206 1017 116 926 326 2682 1306 7791 3396 864 508 831 102 1358 302 261 127 22513 9175 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. NII 3.9 20.4 23.7 16.2 31.1 11.2 6.2 15.9 12.5 16.2 5.7 39.5 6.6 44.7 17.2 YoY Growth PPP Net Profit 32.4 4.2 5.4 -29.2 12.6 5.5 19.5 -25.1 14.4 8.5 3.4 -47.9 -4.4 3.4 4.2 -17.5 7.2 -53.5 -13.6 -25.4 -2.0 -37.2 54.6 231.4 9.3 32.5 47.5 0.0 3.3 -18.8 QoQ Growth NII PPP Net Profit 5.6 -1.3 17.5 11.9 16.7 157.6 21.4 19.5 -8.7 6.2 5.5 -3.3 18.9 21.7 23.8 539.3 24.1 -82.8 1.0 22.9 -9.8 8.9 17.0 7.2 4.6 13.4 20.2 5.8 6.7 6.7 4.9 4.4 -32.1 4.7 10.2 -15.5 3.1 21.1 92.3 -6.4 41.0 -6.6 9.2 12.8 -1.9 15
  16. 16. HDFC LTD Result Updated CMP Target Price Previous Target Price Upside Change from Previous NEUTRAL 840.5 875 4 - Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 500010 HDFC 931/632 131340 1.16 6338 Stock Performance 1M Absolute 6.6 Rel.to Nifty 5.7 1yr 2.4 -2.1 YTD 2.4 -2.1 Share Holding Pattern-% Current 4QFY13 3QFY1 Promoters - 3 FII 74.3 73.1 73.6 DII 12.9 13.8 13.0 Others 12.9 13.1 13.3 "NEUTRAL " 23th Jan, 2014 HDFC's profit growth of 12.1% YoY was inline with street expectation. NBFC reported stable asset quality on sequential basis as well as registered healthy loan growth. HDFC ltd has well above CAR against requirement which would support growth going forward. At the current price of Rs.840, stock is trading at 4.3 tines one year forward book and 26 times of FY14E’s earnings. We value HDFC at Rs.875/ share which is 4.5 times of FY14E’s book and P/E multiple of 27 times of full year EPS. Profit growth in line with street expectation HDFC Ltd’s 3QFY14 result was in line with street expectation as profit grew by 12% YoY to Rs.1278 cr on standalone basis. Profit of the NBFC grew by 13.4% YoY on consolidated basis to Rs.1935 cr versus Rs.1706 cr in last quarter. NII grew by 12.8% YoY to Rs.1940 with inclusion of investment sale. Adjusted the same, NII grew by 17% YoY to Rs.1905 cr versus Rs.1624 cr last quarter corresponding year. Stable operating cost led operating growth at 12.5% YoY Other income was Rs.46 cr versus Rs.105 cr in last quarter and Rs.95 cr in previous quarter. Due to lower support from other income, total revenue grew by 13% YoY to Rs.1951 cr. Operating expenses increased to Rs.168 cr ( Up by 17% YoY) led operating profit growth of 12.5% YoY to Rs.1783 cr. Stable asset quality and balance sheet keep growing On asset quality side, NBFC’s gross non performing asset stood at 0.77% of loan of loan portfolio versus 0.79% in previous quarter and in absolute term in amounted to Rs.1478 cr. Loan book of the company corpus increased by 19.2% YoY to Rs.192266 cr as on December 2013. The total assets increased to Rs 218286 cr as HDFC Vs Nifty against Rs 183770 cr as at December, 2012 registering an increase of 19 per cent. Margin compression, spread would declined going forward Net interest margin for the quarter stood at 4% despite of 25 bps reduced home loan for retail customers during the quarter as against 4.06% in 2QFY14. Spread which is the difference of interest income and interest expenses, maintained at 2.25%. Going forward, there would be some pressure in spread as NBFC’s balance sheet keeps increasing with the support of borrow fund. In rising interest rate and inflationary pressure era, we expect to come down to 2% in next couple of quarters. Financials NII Total Income PPP Net Profit EPS 2011 4483 5558 3890 3535 24.1 Narnolia Securities Ltd, 2012 5212 6198 5746 4123 27.9 Rs, Cr 2013 2014E 2015E 6179 7053 8193 7257 8131 9271 6718 7562 8530 4848 5438 6194 31.4 35.2 40.1 (Source: Company/Eastwind) 16
  17. 17. HDFC LTD Quarterly Result NII grew on the back of healthy loan growth and stable spread Operating cost stable led PPP growth at 12.5% YoY Net profit of Rs.1278 cr was in line with expectation. Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 17
  18. 18. HDFC LTD HDFC Performance vs Nifty with base re-adjustment Quarterly Performance Rs Cr Income from Operations Profit on Sale of Investments Total Income Interest and Other Charges Staff Expenses Provision for Contingencies Other Expenses Depreciation Total Expenditure Profit from Operations before Other Income Other Income Profit Before Tax Tax Expense Net Profit After Tax 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 5985 5859 5146 16.3 2.2 35 87 96 -64.1 -60.1 6020 5946 5242 14.8 1.2 4080 4046 3521 15.9 0.8 71 67 64 10.3 5.4 25 15 40 -37.5 66.7 89 95 74 21.1 -6.3 8 9 6 41.8 -12.0 4273 4233 3705 15.3 1.0 1747 1713 1537 13.7 1.9 11 8 8 32.8 38.4 1758 1721 1545 13.8 2.1 480 455 405 18.5 5.5 1278 1266 1140 12.1 0.9 Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 18
  19. 19. Zensar Tech "BUY" 23rd Jan' 14 "Better growth trajectory ahead" Result update Buy CMP Target Price Previous Target Price Upside Change from Previous 386 440 400 14% 10% Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 504067 ZENSARTECH 430/181 1691 20884 6339 Stock Performance 1M 13 12 Absolute Rel. to Nifty 1yr 32.6 28.4 YTD 16.5 12.8 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 Earning numbers below expectation, management confident for growth ahead: For 3QFY14, Zensar Tech reported lower growth than expectations, Sales declined by 1%(QoQ) because of seasonal and furloughs impacts. PAT was down by 28%(QoQ), the profit growth has been impacted due to currency fluctuations during the period to the extent of Rs 19.06 Cr on a YoY basis and Rs 23.02 Cr on a QoQ basis. 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. On Margin front; During the Quarter, its EBITDA margin declined by 240bps to 14.7%and PAT margin down by 320bps to 8.6%. Post earning, management has expressed its margin at a range of 16-17% and PAT margin could be seen at a double figure for only organic business. On segmental growth; The Infrastructure Management(IM) business of the company, which has been restructured over the last few quarters, has shown a sharp increase in dollar revenues of over 12% on a sequential quarter basis. The company reported 12 new customer wins in the quarter including over USD27 mn of new business in IM. In INR term, Application Management Services (contributes 65% of Sales) declined by 4.5%(QoQ) and IM grew by 0.5% (QoQ). While, Products and License business jumped from Rs50cr (2QFY14) to 70cr. Mix geographical footing: During the quarter, revenue growth from Europe region was impressive with 10%(QoQ), while USA and ROW, both were down by 1% impacted by seasonal impact.Given the order book Enterprise, business expects to grow robustly going forward. Healthy order Pipeline: The Quarter has been upbeat with several new client additions, with the company’s focus on cloud, security and multi-vendor services reaping results. Recent Management comments also revealed favourable scenario of order booking. 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 with a target price of Rs 440. At a CMP of Rs 386, stock trades at 5.6x FY15E EPS. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 592.01 87.26 50.8 14.7% 8.6% 2QFY14 599.7 102.54 70.6 17.1% 11.8% (QoQ)-% (1.3) (14.9) (28.0) (240bps) (320bps) 3QFY13 525.5 70.1 48.7 13.3% 9.3% Rs, Crore (YoY)-% 12.7 24.5 4.3 140bps (70bps) (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 19
  20. 20. Zensar Tech Sales and Sales Growth-% (Source: Company/Eastwind) Margin-% (Source: Company/Eastwind) Sales and Sales Growth-% Revenue Mix-Geographies USA Europe Africa Row 1QFY13 72% 9% 8% 11% 2QFY13 71% 9% 9% 11% 3QFY13 72% 9% 9% 10% 4QFY13 74% 9% 9% 8% 1QFY14 76% 8% 9% 7% 2QFY14 75% 9% 10% 6% 3QFY142 75% 10% 9% 6% 64% 21% 15% 66% 22% 12% 68% 21% 11% 64% 24% 12% 65% 23% 12% 68% 23% 9% 65% 23% 12% 33% 35% 17% 15% 30% 31% 34% 40% 40% 36% (Source: Company/Eastwind) 18% 17% 18% 12% 12% 12% 37% 33% 18% 12% 37% 36% 18% 9% 35% 36% 17% 12% 52% 20% 7% 21% 53% 21% 11% 15% 61% 20% 2% 15% 63% 20% 2% 17% 61% 21% 2% 16% Revenue Mix-Service Type Application Management Services Infrastructure Magt Services Products and License Revenue Mix-Project Type Fixed Price Time & Materials Support Services Product Sales Revenue Mix-Vertical Manufacturing , Retail & Distribution Insurance, Banking & Finance Govt , healthcare & Utilities * Alliance & Others 54% 20% 11% 15% 54% 19% 10% 17% (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; Revenue Mix-Geographies 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY142 47 6 1 1 43 7 2 1 41 7 2 1 40 8 2 1 49 6 1 1 47 6 1 1 49 6 2 1 35% 40% 69 35% 42% 59 35% 42% 56 35% 43% 55 37% 43% 66 39% 46% 61 36% 43% 59 69% 31% 81% 7286 72% 28% 82% 6825 70% 30% 83% 6504 69% 31% 82% 6508 68% 32% 81% 6519 67% 33% 80% 6657 69% 31% 79% 6741 Number of million dollar $1mn+ $5mn+ $10mn+ $20mn+ 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 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 2330.91 18.65 2349.56 223.21 1268.76 505.16 1997.13 352.43 39.67 46.99 0.00 312.76 10.81 348.94 118.64 230.30 FY15E 3014.78 24.12 3038.90 303.89 1641.01 653.36 2598.26 440.64 51.31 75.97 0.00 389.33 8.65 456.65 155.26 301.39 17.8% 28.7% 38.9% 13.2% -5.0% 5.1% 24.5% 37.1% 6.9% 202.0% 117.9% 84.6% 10.2% 19.4% 32.0% 29.3% 25.0% 30.9% 20.9% 15.9% 16.9% 17.6% 13.0% 15.7% 19.3% 15.8% 13.5% 14.0% 12.4% 8.3% 15.1% 13.4% 9.9% 14.6% 12.9% 10.0% 79.1% 0.0% 2.8% 59.4% 23.5% -2.6% 57.7% 23.3% 31.1% 55.3% 19.7% 33.0% 54.4% 9.6% 34.0% 54.4% 10.1% 34.0% 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 6.21 386.00 386.00 4.37 4.37 938.54 1193.91 52.70 68.97 214.77 273.21 24.5% 25.2% 18.9% 15.3% 1.80 1.41 7.32 5.60 (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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