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Stock Advisory for Today -  Natural View on the Stock JSW Steel LTD, Marico and Buy HEROMOTOCO
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Stock Advisory for Today - Natural View on the Stock JSW Steel LTD, Marico and Buy HEROMOTOCO

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Narnolia Securities Limited natural view on the JSW Steel’s and Marico. Also we recommend BUY for the HEROMOTOCO stock with Target Price Rs 2100.

Narnolia Securities Limited natural view on the JSW Steel’s and Marico. Also we recommend BUY for the HEROMOTOCO stock with Target Price Rs 2100.

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  • 1. IEA-Equity Strategy India Equity Analytics 3th Feb, 2014 Daily Fundamental Report on Indian Equities HEROMOTOCO: Average Sales with Flat Profits Growth.. "BUY" Edition : 197 3th Feb 2014 The company registered its 3QFY14 net sales at Rs 6846 Cr up by 11.3% YoY led by healthy volume growth of 7% for the period under review. The company during 3QFY14 sold 1680940 units including exports. The volume performance was led by a strong 7.8% YoY growth in the domestic segment. ..................................................................... ( Page : 2-3) Marico : " Volume slows…" "NEUTRAL" 3th Feb 2014 Beats the street on profitability and Margin front with poor volume growth;Marico witnessed better numbers than expectation with 10% sales growth (excluding Kaya Sales) led by 3% volume growth on YoY basis. We believe that slower volume growth could not easily turned out in next 1-2 quarters because of poor discretionary demand environment. Therefore, we downgrade our view from "BUY" to "NEUTRAL". ....................................................................... ( Page : 4-6) JSW STEEL LTD : "NEUTRAL" 3th Feb 2014 JSW Steel’s third quarter performance was good and ahead of expectation by a huge margin. Consolidated net sales at Rs 13,383 crore , while Ebitda at Rs 2,409 crore. While net profit at Rs 466 crore came in below expectations of Rs 583 crore, it was largely due to adjustments on account of merger with JSW Ispat.Crude steel production-wise, there is a 52% growth, to the tune of 3.17 million tonnes of steel. ...................................................................... ( Page : 7-10) BANK OF INDIA : "BUY" 31th Jan 2014 Bank of India reported profit de-growth of 27% YoY largely due to higher loan loss provision. At operating profit level, bank reported 15.5% YoY growth but higher provisions against loan loss (almost double from last quarter) drag profit downward. Bank’s loan and deposits grew handsomely and asset qualities were also improved sequentially. Restructure loan was at Rs 1146 cr (0.3% loan) which is not alarming. We have not found any stress at operating profit level. The stock is corrected almost 10% likely due to profit de-growth. We believe buffer up provision would be temporally phenomena. The stock could reshape its valuation multiple. We have buy rating on the stock with price target of Rs.217 ...................................................... ( Page : 11-15) Maruti Suzuki India Limited : "NEUTRAL" 31th Jan 2014 The company for 3QFY14 has registered net sales of Rs 10620 Cr down by 2.7% YoY led by 4.5 % volume decline to 288151 units for the period under review. The decline in the volume came majorly due to weaker performance on export business front. Export sales volumes were down 38.6% YoY ......................................................... ( Page : 16-17) Crompton Greaves Ltd : "Rebounds begains…….." "BUY" 31th Jan 2014 We have rolled forward our valuation to FY16E earnings and maintained our Accumulated rating on CGL with a revised target price of Rs130 (Rs105 earlier) based on 14xFY16E EPS, driven by likely turnaround in international operations and a better earnings growth trajectory. We believe that a record backlog, better/leaner cost structure, good & increasing product basket, improved reach in terms of geography will drive earnings & intrest coverage ratio over the next few years. ................................................ ( Page : 18-19) ICICI BANK : "BUY" 31th Jan 2014 Bank’s profit growth of 12.6% YoY despite of 21.6% YoY growth in NII and 28.6% growth in operating profit was largely due to higher tax provisions made of bank (32.4% of PBT versus 27.9% of PBT in 2QFY14). During quarter, bank has created special reserve for deferred tax liability to the tune of Rs.215 Cr as per recent RBI guideline dated 20th December 2013. Adjusting the same, profit grew by 22% YoY which was quite impressive. But bank’s cost of fund increased higher than loan yield which would restrict margin expansion. We lower our book value estimates to Rs.643 from earlier of Rs.657. Accordingly we reduce our target price to Rs.1094 from earlier of Rs.1118. ............................................................... ( Page : 20-24) Narnolia Securities Ltd,
  • 2. HEROMOTOCO "BUY" 3rd Feb' 14. Average Sales with Flat Profits Growth.. Result Update BUY CMP Target Price Previous Target Price Upside Change from Previous 1979 2100 6% - Market Data BSE Code 500182 NSE Symbol 52wk Range H/L Mkt Capital (Rs, Cr) Average Daily Volume Nifty HEROMOTOCO 2215 1,434 245841 6089 Stock Performance-% Absolute Rel. to Nifty 1M -5.0 -1.6 1yr 9.5 8.9 YTD 9.3 -4.4 Share Holding Pattern-% Promoters FII DII Others Current 2QFY14 1QFY1 4 39.9 39.9 39.9 30.6 30.4 29.9 8.5 8.8 9.3 21.0 20.9 8.7 One Yr Price Vs NIFTY The company registered its 3QFY14 net sales at Rs 6846 Cr up by 11.3% YoY led by healthy volume growth of 7% for the period under review. The company during 3QFY14 sold 1680940 units including exports. The volume performance was led by a strong 7.8% YoY growth in the domestic segment, while export volumes posted a decline of 26.5% YoY, mainly due to a weak demand environment in major exporting nations. Scooters sales maintained strong momentum, led by the success of Maestro. The average realization for the quarter moved up and came around at Rs 41000 verses Rs 39100 for the same time last fiscal. The net average realization for the quarter was driven by price increases, which were undertaken in April and October 2013. The operating EBITDA for the 3QFY14 came at Rs 898 Cr and OPM stands at 13.06 %.There is yearly rise in the OPM by nearly 40 bps however on sequential basis it had shrunk by 150 bps due to led by increase in raw-material costs and significantly higher other expenditure. Raw material cost as a percentage of sales increased 120bp QoQ due to the currency impact on indirect imports, which comes with a quarter’s lag. The other expenses in the quarter rose significantly very high because of higher advertisement expenses due to festival season and also due to the launch of new products/ refreshes and higher royalty payments on the back of rising share of new products. Additionally, the ongoing cost reduction initiatives from the company led to a savings of Rs45 Cr during the quarter. The net profits for the stands at Rs 525 Cr for the quarter grew by only 7.5% yoy as the tax rate increased to nearly 27% from 16% earlier due to expiry of tax benefits at the Haridwar facility. Post the 3QFY14 result management said that Industry motorcycle sales should be in the range of 5 % and it will be in that level for the year and HMC will be at par with that. Company has maintained its ad spend guidance at 2-2.5 % of sales and R&D spends at nearly 0.75% of sales. The capital expenditure guidance for FY2014 stands at Rs1100 Cr to Rs1200 Crr.For FY2015 the company has guided for Rs 1,500 Cr to Rs1,800 Cr. The Management indicated that the current dividend policy of 35-45% payout will continue in future. The total installed capacity of the company currently stands at 6.9mn units. Post the commissioning of the Neemrana plant, scheduled by end of March 2014, the installed capacity is expected to increase to 7.65mn units. View & Valuation The stock at its CMP of Rs 1979 which is 17.9x of one year forward FY14E EPS of Rs 110 and upcoming capacity expansion, Rising trend of volume growth of scooter business, Improvement in operational efficiency are few factors which make us positive for the stock. We recommend BUY for the stock with Target Price Rs 2100. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 6846 898 525 13.1% 7.7% 2QFY14 5696 833 482 14.6% 8.5% (QoQ)-% 20.2 7.8 8.9 (150bps) (80bps) 3QFY13 6151 779 489 12.7% 7.9% Rs, Crore (YoY)-% 11.3 15.3 7.4 50bps (30bps) (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 2
  • 3. HEROMOTOCO SALES & PAT TREND Company registered its 3QFY14 net sales at Rs 6846 Cr up by 11.3% YoY led by healthy volume growth of 7%. (Source: Company/Eastwind) OPM & NPM TREND Rise in the OPM by nearly 40 bps however on sequential basis it had shrunk by 150 bps due to led by increase in raw-material costs and significantly higher other expenditure. (Source: Company/Eastwind) Realization Trend Profits for the grew by only 7.5% yoy as the tax rate increased to nearly 27% from 16% earlier due to expiry of tax benefits at the Haridwar facility. (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 3
  • 4. Marico "NEUTRAL" 3rd Feb' 14 " Volume slows…" Result update CMP Target Price Previous Target Price Upside Change from Previous Neutral 214 - Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 531642 MARICO 248/188 13829 126142 6090 Stock Performance 1M Absolute -3.6 Rel. to Nifty -10.8 1yr 2.4 -7.9 YTD 0.5 -9.1 Share Holding Pattern-% Beats the street on profitability and Margin front with poor volume growth; Marico witnessed better numbers than expectation with 10% sales growth (excluding Kaya Sales) led by 3% volume growth on YoY basis. PAT grew by 31% (YoY) because of cost rationalization across various head of expenses like Ad Spend, employee cost etc. However, the profits of Q3FY14 are not strictly comparable to Q3FY13 due to the change in the method of depreciation from WDV to SLM carried out in Q4FY13 and demerger of Kaya business. The Company maintained its market share across the portfolio, reflecting strong equity of its brands, even though the rates of category growth have decelerated over the past few quarters. We believe that slower volume growth could not easily turned out in next 1-2 quarters because of poor discretionary demand. Margin ramp up: During the quarter, its EBITDA margin of the India FMCG business during Q3FY14 was 18.7% and PAT margin was at 11.3%. The Company believes that an operating margin in the band of 17% to 18% is sustainable in the medium term. On YoY basis margin growth could not computed because of Kaya consolidation in same quarter previous year. Poor volume growth: Because of weak demand discretionary environment and socio political instability in some regions, its volume growth of various segments have come down during the quarter. The volume growth in India was marginally above 3% for the quarter, reflecting continued soft consumption trends. Post earning, management stated that the trend of volume decline has bottomed out based on hypothesis. Current 2QFY14 1QFY14 Promoters FII DII Others 59.69 27.58 5.72 7.01 1 year forward P/BV-X 59.69 27.6 5.88 6.83 59.72 27.96 5.19 7.13 Mix segmental growth: India FMCG business grew by 10%(YoY). Parachute’s rigid portfolio (packs in blue bottles), recorded a volume growth of about 2% during Q3FY14 over Q3FY13. Parachute along with Nihar marginally improved its market share over the same period last year to 56%. The Saffola refined edible oils franchise grew by about 9% in volume terms during Q3FY14. During the quarter, Saffola average price hiked by 4-5% to manage its RM cost and Packaging materials. Marico’s hair oil brands (Parachute Advansed, Nihar Naturals and Hair & Care) grew by 8% (YoY) in volume terms during Q3FY14. View and Valuation: The company expects demand scenario to remain challenging especially in urban areas in India and some of its international market like Bangladesh, Egypt and MENA. Based on hypothesis, management is expecting regarding the bottom out of volume decline but they are not ignoring the threat of demand environment challenges for near future. We believe that slower volume growth could not easily turned out in next 1-2 quarters because of poor discretionary demand environment. Therefore, we downgrade our view from BUY to NEUTRAL on the stock, at a price of Rs 214, stock trades at 4.9x FY15E P/BV. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 1089.29 201.81 135.4 18.5% 12.4% 2QFY14 1115.36 168.51 105.9 15.1% 9.5% Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. Rs, Crore (QoQ)-% 2QFY13 (YoY)-% (2.3) 1155.89 -5.8 19.8 165.8 21.7 27.9 102.3 32.4 340bps 14.3% 290bps 8.9% (Source: Company/Eastwind) 4
  • 5. Marico Sales (cr) and Growth (%) - For 2QFY14, Marico reported 4% (YoY) decline in sales growth because of sluggish volume growth impacted by weaker demand in urban area. (Source: Company/Eastwind) Margin-% Because of cost control in ad spend by 200bps and Raw material about 190bps, its margin gone up by 210 bps to 15.1% on YoY basis. (Source: Company/Eastwind) Expenses on Sales -% The demerger of Kaya is on the way, and new demerged entity would expected to get listed by November or December. (Source: Company/Eastwind) Geographical challenges: International market recorded a growth of 15%. Because of political uncertainty, Bangladesh sales declined by 14%(YoY). While, the MENA business on an average grew by 10% CC basis. The business in Egypt grew by 22% mainly led by strong volume growth in Haircode and Fiancée. The business in GCC continued to report a decline. Political environment in Egypt seems to have bettered for the time being with no major report of violence, however the uncertainty continues. South Africa reported a topline growth of 5%. The business in South East Asia of which Vietnam comprises a significant portion grew by 24% in constant currency terms. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 5
  • 6. Marico Key facts from Management guidance; (1) Management believes that the decline trend of volume growth has turned out, while the economic environment is still challenging and there will be gradual recovery. (2) Immediate future could see volume growth rates of 7%- 8%. With the price increases already in market place the overall sales growth could still be in the region of 12%-14%. This is expected to improve from early/mid FY15. (3) Operating Margin could sustain at a range of 17-18% in the medium term. (4) The Youth brands portfolio is expected to grow by about 20% to 25%. (5) In near term, Company does not expect to see any price hike decision. Financials Rs in Cr, Sales Other Operating Income Total income from operations RM Cost Purchases of stock-in-trade WIP Employee Cost Ad Spend Other expenses Total expenses EBITDA Depreciation and Amortisation Other Income Exceptional Item EBIT Interest PBT Tax Exp PAT Growth-% (YoY) 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 2500.09 160.67 2660.76 1265.48 12.47 -16.35 190.13 351.12 482.76 2285.61 375.15 60.06 18.26 -9.79 323.56 25.69 297.87 64.33 233.54 FY11 3134.99 19.06 3154.05 1712.66 20.36 -115.43 229.98 345.95 523.36 2716.88 437.17 70.80 2.16 48.91 417.44 41.01 376.43 84.98 291.45 FY12 4008.28 30.90 4039.18 2132.04 17.44 -50.78 307.29 448.99 668.90 3523.88 515.30 72.52 1.67 -1.75 442.70 42.39 400.31 78.25 322.06 FY13 4259.53 12.51 4596.86 2212.27 116.59 -127.47 380.56 597.94 791.07 3970.96 625.90 86.62 37.52 33.20 610.00 57.43 552.57 146.18 406.39 FY14E 4740.86 14.22 4755.08 2228.20 48.53 -98.72 380.41 618.16 808.36 3984.94 770.14 145.44 19.17 33.29 677.15 57.43 619.72 163.95 455.78 FY15E 5344.65 16.03 5360.68 2672.32 54.71 -111.29 428.85 643.28 911.32 4599.19 761.49 133.80 21.61 37.52 686.82 57.43 629.39 166.50 462.89 11.4% 29.2% 33.5% 18.5% 16.5% 24.8% 28.1% 17.9% 10.5% 13.8% 21.5% 26.2% 3.4% 23.0% 12.2% 12.7% -1.1% 1.6% 47.6% 13.2% 7.1% 18.1% 21.6% 54.3% 11.0% 7.3% 16.6% 22.6% 52.8% 11.1% 7.6% 16.6% 19.5% 48.1% 13.0% 8.3% 17.2% 26.5% 46.9% 13.0% 8.0% 17.0% 26.5% 49.9% 12.0% 8.0% 17.0% 26.5% 14.1% 12.2% 8.8% 13.9% 13.2% 9.2% 12.8% 11.0% 8.0% 13.6% 13.3% 8.8% 16.2% 14.2% 9.6% 14.2% 12.8% 8.6% 108.55 60.90 653.96 3.83 10.74 35.7% 10.11 28.31 138.75 61.40 915.44 4.75 14.91 31.8% 9.31 29.23 206.00 61.40 1143.01 5.25 18.62 28.2% 11.07 39.27 216.95 64.48 1981.52 6.30 30.73 20.5% 7.06 34.42 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 214.00 214.00 64.48 64.48 2399.58 2824.75 7.07 7.18 37.21 43.81 19.0% 16.4% 5.75 4.88 30.28 29.81 (Source: Company/Eastwind) 6
  • 7. JSW STEEL LTD. Initial Coverage Neutral CMP Target Price Previous Target Price Upside Change from Previous 917 797 NA -13% NA Market Data BSE Code NSE Symbol 500228 JSWSTEEL 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 1046/451 22175 11087 6089 Stock Performance-% 1M -9.1 -6.3 Absolute Rel. to Nifty 1yr 5.5 4.0 YTD 7.0 5.7 Share Holding Pattern-% 2QFY14 37.3 18.6 4.9 39.2 Promoters FII DII Others 1QFY14 4QFY13 36.3 35.8 17.2 18.0 6.3 6.1 40.3 40.1 1 yr Forward P/B PRICE 0.5x 1x 3000 1.5x 2500 2000 1500 1000 500 Nov-13 Mar-13 Jul-12 Nov-11 Mar-11 Jul-10 Nov-09 Mar-09 Jul-08 Nov-07 Mar-07 0 Source - Comapany/EastWind Research "Neutral" 3rd Feb' 14 A steely performance JSW Steel’s third quarter performance was good and ahead of expectation by a huge margin. Consolidated net sales at Rs 13,383 crore , while Ebitda at Rs 2,409 crore. While net profit at Rs 466 crore came in below expectations of Rs 583 crore, it was largely due to adjustments on account of merger with JSW Ispat.Crude steel production-wise, there is a 52% growth, to the tune of 3.17 million tonnes of steel. Also,reduced inventories by 17,000 tonnes and sold 3.08 million tonnes of steel in this quarter, showing a growth of 42% in terms of volume. Therefore, the volume of production and sales have contributed to the bottom line.Secondly, the operational efficiencies which were brought in are clearly visible in the results. EBITDA per tonne improved and the EBITDA margin is 19.3% as against 15.8% in the corresponding quarter of last year, showing a significant improvement of 3.5%. JSL also reported higher incidence of tax amounting to 374 crore with an effective tax rate at 45% in Q3FY14. The iron ore situation has improved in Karnataka but is below the company’s comfort levels. We have a cautious view on the stock due to elevated debt levels and stretched valuations. Operational Efficiencies This performance is remarkable looking at the fact that JSW’s operations are not backward integrated in terms of basic raw material like coal and iron ore. While it is dependent on imported coal to meet its energy requirements, the company has been grappling with iron ore availability issues in Karnataka for quite a while due to mining curbs. However, the company’s ability to export a substantial portion of its steel output has acted as a natural hedge as well as boosted its overall revenues and profitability. Exports boost JSW’s exports touched one-million-tonne (mt) mark, which was 60 per cent of India’s overall steel exports and accounted for 32.4 per cent of the company’s steel sales of 3.08 mt (up 42 per cent year-on-year). Management of JSW Steel, said they are looking at increasing exports, especially the value-added products to developed markets to boost profitability. The operating margins are under pressure due to the high cost of raw materials. company is operating only at 80 per cent of the capacity at Vijayanagar in Bellary district. The company is sourcing ore from Odisha, Jharkhand and Chhattisgarh besides importing ore for its Dolvi and Salem plants. It is, however, left with little option to source the raw material for its Karnataka plant. Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY13 Net Revenue 13623 53 5 8888 12984 EBITDA 2409 81 3 1331 2348 Depriciation 806 43 0 563 803 Tax 374 -2300 214 -17 119 PAT 466 -733 -504 -74 -116 (In Crs) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 7
  • 8. JSW STEEL LTD. Iron ore availability remains still challenging The work on turning around JSW Ispat’s operations is on and its Dolvi unit (currently operating at 87-88 per cent utilisation) will become more profitable after the pallet and coke oven plants are commissioned.JSW’s largest unit at Vijaynagar in Karnataka, however, is running at 83 per cent capacity utilisation. The iron ore availability situation in Karnataka still remains challenging. While the overall availability in the state has improved to 18 mt, steel industries’ requirement in the state is close to 30 mt. JSW, to meet its requirement, still depends on supplies from outside the state to the extent of 20-25 per cent. Landed blended coal costs for JSW are about $160-165 a tonne and likely to remain at similar levels during the March quarter, too, believes the management. Project Updates During the quarter, the company commissioned a waste heat recovery system for BF-4 stove heating process. The pickling cum coupled tandem cold rolling mill (PLTCM) facility, which is part of phase 1 of CRM2 project has commenced commercial production at Vijayanagar from December 1, 2013. Steel Demand Healthy Outlook The company remains upbeat on steel demand scenario, especially from emerging markets. While Rao said that with Chinese steel production declining, exports from emerging markets should pick up during FY15.JSW Steel, also increased prices by up to Rs 1,200 a tonne, or up to two per cent, across the board for February, its second increase in a month, which should support profitability. Going ahead, the company expects its profit margin to improve with the commissioning of coke oven and pallet plants at its Dolvi unit in Maharashtra. Besides, the availability of iron ore in Karnataka is set to improve with the Supreme Court directing the State and Central governments to submit an action plan to improve supply. We value the stock,and we are Neutral on the stock at a Target price Rs.797. The management has maintained its earlier annual guidance of saleable steel sales volume of 11.55 MT. However, based on 9MFY14 reported volume of 8.76 MT we believe JSL will exceed its sales volume target. We have modelled sales volume of 11.75 MT for both FY14E and FY15E. Capex Guidiance The management has front ended its capex programme (10500 crore in FY14-16) with a capex guidance of 5500 crore for FY14 as against 4000 crore guided in Q2FY14. For FY15, the company has maintained the guidance of 4000 crore with the balance to be incurred in FY16E. About The Company. JSW Steel is India’s leading private sector steel producer and among the world’s most illustrious steel companies.JSW Energy Ltd., a power utility arm of Sajjan Jindal-led JSW group,was incorporated in 1994. Currently, it owns 3.1GW of operationalpower plants, with another 7GW under various stages of development.It came up with an IPO in 2009 at Rs100/share. Around 50% of thecurrent operational capacity is on merchant. Narnolia Securities Ltd, 8
  • 9. JSW STEEL LTD. All India Steel Imports & Exports India turns into a net exporter; exports surge on the back of improving demand in developed markets and INR depreciation enhancing export competitiveness P/L PERFORMANCE Net Revenue from Operation Cost Of Projects & Contractual Employee benefit Expence Power Fuel Other expences Expenditure EBITDA Depriciation Depriciation Interest Cost PBT Net tax expense / (benefit) PAT WITHOUT EXCEPTIONAL ITEMS ROE% EPS FY12 34368 21879 846 1752 2041 28266 6102 1933 1933 1427 2818 500 2318 14 24.1 FY13 38210 24158 980 2041 2284 31706 6504 2237 2237 1967 2369 845 1523 9 43.2 FY14E 49817 29440 1301 3879 3228 40937 8880 3179 3179 3076 2730 710 2020 12 15.0 Narnolia Securities Ltd, FY15E 49000 28518 1299 4043 2989 39984 9016 3280 3280 3200 2686 537 2149 11 88.8 9
  • 10. JSW STEEL 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% NPM % OPM % EBITDA % P/E EV/EBIDTA ROCE% Weighted Average Cost of Debt % Debt/Equity FY10 527 8730 9257 13454 2719 35 1706 230 35686 254 21198 6956 927 2867 696 303 677 35686 FY10 2.5 85.4 3.7 9.0 1.5 8.0 14.2 20.9 14.5 9.6 5.8 6.8 1.7 FY11 563 15966 16529 12173 4302 53 2487 347 46167 376 25435 6508 1246 4410 933 2048 910 46167 FY11 1.2 78.6 3.9 10.4 1.8 6.9 12.8 19.3 11.7 7.5 4.9 5.7 1.0 FY12 563 16186 16750 12889 1376 35 9714 231 54238 39 32529 2832 2818 5789 1462 3047 2058 54238 FY12 1.0 24.1 4.3 28.3 1.7 6.7 12.1 17.7 29.9 4.5 1.5 10.0 0.9 FY13 563 16781 17344 17393 1653 41 10251 308 57728 55 33348 5898 3342 5495 2106 1653 2535 57728 FY13 0.9 43.2 5.5 26.8 1.4 4.0 11.1 17.0 15.5 5.0 2.4 10.3 1.1 ROCE VS Weighted Avg Cost to Debt Source - Comapany/EastWind Research Source - Comapany/EastWind Research Source - Comapany/EastWind Research Trading At : 130 NIFTY JSWSTEEL 110 90 70 50 Source - Comapany/EastWind Research Narnolia Securities Ltd, 10
  • 11. BANK OF INDIA Company Update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance 1M Absolute -21.6 Rel.to Nifty -17.9 BUY 187 217 235 16 532149 BANKINDIA 393/126 12260 2271804 6074 31th Jan, 2014 Bank of India reported profit de-growth of 27% YoY largely due to higher loan loss provision. At operating profit level, bank reported 15.5% YoY growth but higher provisions against loan loss (almost double from last quarter) drag profit downward. Bank’s loan and deposits grew handsomely and asset qualities were also improved sequentially. Restructure loan was at Rs 1146 cr (0.3% loan) which is not alarming. We have not found any stress at operating profit level. The stock is corrected almost 10% likely due to profit de-growth. We believe buffer up provision would be temporally phenomena. The stock could reshape its valuation multiple. We have buy rating on the stock with price target of Rs.217. NII growth on the back of higher loan growth and margin expansion During quarter, Bank India reported NII growth of 17.8% YoY to Rs.2719 cr versus our expectation of Rs.2683 largely due to higher than expected loan growth, improvement in credit deposits ratio and margin expansion. Bank reported other 1yr -47.5 -47.5 YTD -18.1 -18.1 Share Holding Pattern-% Current 1QFY14 4QFY1 3 Promoters 64.1 64.1 64.1 FII 13.2 13.6 13.5 DII 15.3 15.6 16.3 Others 7.4 6.7 6.0 BANKINDIA Vs Nifty "BUY" income of Rs.1097 cr versus Rs.937 cr in last quarter and Rs.1097 cr in previous quarter. Total revenue grew by 17.6% YoY to Rs.3816 cr. Operating leverage remained stable Bank’s operating leverage remained stable at 0.3% which is quite impressive. In absolute term, operating expenses increased by 20.3% YoY in which employee cost and other operating expenses increased by 18.7% and 22.8% respectively. Healthy NII growth and higher operating cost led pre provisioning profit growth of 15.5% YoY. Loan loss provisions were almost double from last quarter, but asset quality improved Provisions and contingencies increased by 53.3% which includes loan loss provision of Rs.1173 cr which was double from last quarter. But in absolute term, GNPA marginally increased by 1.4% on sequential basis while in percentage to gross advance, it improved by 12.5 bps to 2.8% from 3%. Provisions were little higher by 4% in sequential basis taking almost flat improvement in net NPA. In percentage term, NPA improved to 1.7% from 1.9% in previous quarter. Provision coverage ratio without technical write-off was 38.7% and with technical write off, it stood at 63.8%. Slippage during the quarter was at Rs.1747 cr (2% of advance) versus Rs.1469 cr (1.8% of advance). Rs, Cr Financials 2011 2012 2013 2014E 2015E NII 7878 8313 9024 10578 10869 Total Income 10519 11635 12790 15082 15373 PPP 5398 6694 7458 8701 8917 Net Profit 2542 2678 2749 2776 3170 EPS 46.5 46.7 47.9 43.2 49.4 (Source: Company/Eastwind) 11 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report.
  • 12. BANK OF INDIA Balance sheet growth impressive We are impressed with bank’s balance sheet growth trajectory during the quarter as bank reported deposits growth of 30% YoY higher than peers (result so far announced) led by term deposits growth of 35% YoY. Current deposits and saving deposits reported growth of 24% and 14% respectively taking overall CASA deposits growth of 16%. In percentage to total deposits, CASA ratio declined to 22.5% from 24.6% in 3QFY13 largely due to higher growth in term deposits than CASA deposits. Loan grew by 27.2% YoY which is highest so far result announced. Credit deposits ratio for the quarter stood at 77.4% as against 76.8% in previous quarter and 79.2% in last quarter. Margin expansion led by imrprovement in investment yield NIM for the quarter was 2.89%, an improvement of 50 bps YoY due to improvement of investment yield. However fund yield and cost of fund both were declined marginally in sequential but investment yield improved to 8.2% from 7.9% in previous quarter. Profit declined on account of higher loan loss provisions Bank of India (Bank India) profit was declined by 27.1% YoY to Rs.586 cr as against our expectation of Rs.602 cr. Profit growth was lower on account of 98% YoY rise in loan loss provisions. Overall provisions were increased by 53.3% YoY which drag PBT to 21.3% YoY de-growth. Tax rate were 21% versus 28.5% of PBT in previous quarter and 14.5 of PBT in 3QFY13. Total provisions for the quarter stood at 0.4% of net advances higher than 0.28% in 3QFY13. Valuation & View Bank of India reported profit de-growth of 27% YoY largely due to higher loan loss provision. At operating profit level, bank reported 15.5% YoY growth but higher provisions against loan loss (almost double from last quarter) drag profit downward. Bank’s loan and deposits grew handsomely and asset qualities were also improved sequentially. Restructure loan was at Rs 1146 cr (0.3% loan) which is not alarming. We have not found any stress at operating profit level. The stock is corrected almost 10% likely due to profit de-growth. We believe buffer up provision would be temporally phenomena. The stock could reshape its valuation multiple. We have buy rating on the stock with price target of Rs.217. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 12
  • 13. BANK OF INDIA Fundamental Through Graph NII growth on the back of higher loan growth and margin expansion Loan loss provisions were almost double from last quarter, but asset quality improved Profit declined on account of higher loan loss provisions Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 13
  • 14. BANK OF INDIA Quarterly Result Interest/discount on advances / bills Income on investments Interest on balances with Reserve Bank of India Total Interest Income Others Income Total Income Interest Expended NII Other Income Total Income Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions Net Profit 3QFY14 7017 2207 546 9769 1097 10866 7050 2719 1097 3816 989 684 1672 2144 1404 586 2QFY14 6631 2129 479 9239 1100 10340 6712 2527 1100 3627 897 628 1525 2102 1232 622 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation 5791 21.2 5.8 6910 -1.5 1809 22.0 3.7 2261 2.5 298 83.4 14.0 472 -13.5 8023 21.8 5.7 9644 -1.3 937 17.1 -0.3 1141 4.0 8960 21.3 5.1 10784 -0.8 5714 23.4 5.0 6960 -1.3 2308 17.8 7.6 2683 -1.3 937 17.1 -0.3 1141 4.0 3246 17.6 5.2 3824 0.2 833 18.7 10.2 931 -5.8 557 22.8 8.8 674 -1.3 1390 20.3 9.7 1606 -4.0 1856 15.5 2.0 2218 3.4 916 53.3 13.9 1382 -1.5 803 -27.1 -5.8 602 2.7 Balance Sheet Data Equity Capital Reserve & Surplus Deposits Borrowings Other liabilities and provisions Total Liability Cash in hand Cash and balances with reserve bank of india Investment Advance Fixed Assets Others Assets Total Assets 643 26,672 454,140 40,545 14,492 536,492 21,406 39,662 108,253 351,725 2,975 12,470 536,492 597 25,686 432,282 41,751 12,727 513,042 24,621 34,658 107,413 332,190 2,957 11,203 513,042 575 22,698 349,117 28,686 14,890 415,966 17,940 22,580 86,083 276,486 2,853 10,024 415,966 11.9 9881 6156 3.0 1.9 37.7 8765 5947.3 3.0 2.0 32.1 8898 5,228 3.5 2.0 41.2 Asset Quality GNPA NPA GNPA(%) NPA(%) PCR(%) Without technical write off 41.3 597 3.8 27,243 5.1 449,063 -2.9 42,513 -2.7 13.9 17.5 30.1 7.8 -7.2 2.1 -1.1 4.9 29.0 4.6 -100.0 19.3 -13.1 -100.0 75.7 14.4 -100.0 25.8 0.8 27.2 2,261 5.9 345,503 4.3 11.3 29.0 4.6 11.0 12.7 17.7 -1.8 0.6 24.4 -97.9 3.5 Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 14
  • 15. BANK OF INDIA Financials & Assuption Interest/discount on advances / bills Income on investments Interest on balances with Reserve Bank of India Others Total Interest Income Others Income Total Income Interest on deposits Interest on RBI/Inter bank borrowings Others Interest Expended NII Other Income Total Income Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions Net Profit 2011 2012 2013 2014E 2015E 15570 5195 798 295 21858 2642 24500 12218 813 950 13981 7878 2642 10519 3492 1629 5121 5398 2909 2542 46.0 20241 7142 834 264 28481 3321 31802 17957 1145 1065 20167 8313 3321 11635 3069 1871 4941 6694 4016 2678 5.3 23139 7261 1257 251 31909 3766 35675 20238 1489 1158 22885 9024 3766 12790 3131 2201 5332 7458 4709 2749 2.7 27015 8562 1987 1 37565 4504 42069 29922 1419 1281 26987 10578 4504 15082 0 0 6381 8701 4766 2776 1.0 31171 10773 1987 1 43932 4504 48436 30362 1419 1281 33063 10869 4504 15373 3810 3656 6457 8917 5045 3170 14.2 299559 30 22021 -2 213708 26 86677 27 318216 6 32114 46 248833 16 86754 0 381840 20 35368 10 289367 16 94613 9 465844 22 43275 22 358816 24 117097 24 535721 15 49766 15 366720 2 134662 15 7.3 6.3 6.5 4.1 8.0 4.3 8.1 8.7 7.8 5.6 6.9 5.8 8.0 7.1 7.7 5.2 6.8 5.3 7.5 7.3 7.5 6.4 7.5 5.3 8.5 8.0 8.4 5.7 7.5 6.2 322.7 1.5 10.3 365.3 1.0 7.7 416.9 0.7 6.3 434.0 0.6 5.6 0.0 0.5 4.9 Key Balance Sheet Data Deposits Deposits Growth(%) Borrowings Borrowings Growth(%) Loan Loan Growth(%) Investment Investment Growth(%) Eastwind Calculation Yield on Advances Yield on Investments Yield on Funds Cost of deposits Cost of Borrowings Cost of fund Valuation Book Value P/BV P/E Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 15
  • 16. Maruti Suzuki India Limited Result Update NEUTRAL CMP Target Price Previous Target Price Upside Change from Previous 1638 1700 4% - Market Data BSE Code NSE Symbol 52wk Range H/L Market Cap (Rs/Cr) Average Daily Volume Nifty 532500 MARUTI 1864/1217 22,266 423015 6073 Stock Performance-% Absolute Rel. to Nifty 1M -7.1 -3.4 1yr 2.9 2.5 YTD 35.0 22.0 Share Holding Pattern-% Promoters FII DII Others Current 2QFY14 1QFY1 4 56.2 56.2 56.2 21.5 19.7 22.0 14.0 15.4 13.1 8.3 8.8 8.7 One Year Price Vs NIFTY "NEUTRAL" 31st Jan' 14 Result Analysis: The company for 3QFY14 has registered net sales of Rs 10620 Cr down by 2.7% YoY led by 4.5 % volume decline to 288151 units for the period under review. The decline in the volume came majorly due to weaker performance on export business front. Export sales volumes were down 38.6% YoY and 41.3% QoQ to 19,966 units. EBITDA for MSIL is up 52% YoY to Rs.1,355 Cr and EBITDA margin was up 448 bps YoY to 12.3%. However results are not comparable on yearly basis as 3QFY13 does not include impact of SPIL merger. Raw material cost as % of net sales is down 671 bps YoY.Employee cost as % of net sales is up 62 bps YoY but down 82 bps QoQ to 2.8%.Royalty payments for Q3 FY14 were around levels of H1 FY14. The net profits for the company during 3QFY14 came at Rs 681 Cr and NPM at 6.25 %.Effective tax rate is around 23.1%. On realization front, the Net realization for company is up 1.4% YoY to Rs.368547 however there is sequential decrease in net realization mainly due weak product mix, lower export sales number and higher contribution of Mini Segments. Discounts in 3QFY14 is at all time high to Rs.19412/unit vs. 17,500/unit QoQ. Recent Event : MSIL has announced that the proposed capacity expansion (1.5 Million units per annum) in Gujarat would be through a 100% Suzuki (parent) owned subsidiary. The subsidiary would be fully dedicated to Maruti. How we see the deal : 1.The near term effect of the deal on PAT is neutral, as this Greenfield facility at Gujrat will take 2 -3 year to get commissioned and another 1 year to get its full capacity utilization, this translates period FY17 onwards. 2.The MSIL is getting cars at cost of manufacturing plus portion of incremental capex which means MSIL will lose manufacturing margins and will getting only the trading margin. The newly formed company will be 100 % subsidiary of Suzuki Motors Limited. 3.The profit sharing from the upcoming Gujrat facility would depend on the stake of Suzuki Motor in MSIL. 4..In any case Suzuki Motor will make profit equal to its stake in MSIL whether it makes its own capex as in this case or MSIL made capex then why did Suzuki made this huge capex. View & Valuation: At CMP Rs 1638 the stock is trading at highest 5 year historical P/E multiple and in current scenario we donot see much upsides from hereon. Therefore we are Neutral for the stock with target price Rs 1700.The CMP seems to factored almost all the upsides including improving operational efficiency and volume growth. The stock may see some upward movement from current price on buzz that Suzuki may increase its stake in MSIL. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 10894 1355 681 12.4% 6.3% 2QFY14 10468 1321 669 12.6% 6.4% (QoQ)-% 4.1 2.6 1.8 (20bps) (10bps) 3QFY13 11200 891 501 8.0% 4.5% Rs, Crore (YoY)-% -2.7 52.0 35.9 450bps 180bps (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 16
  • 17. Maruti Suzuki India Limited Graphical Represenation SALES & PAT TREND Net sales of Rs 10620 Cr down by 2.7% YoY led by 4.5 % volume decline to 288151 units for the period under review. (Source: Company/Eastwind) OPM & NPM TREND Raw material cost as % of net sales is down 671 bps YoY. Employee cost as % of net sales is up 62 bps YoY but down 82 bps QoQ to 2.8%. (Source: Company/Eastwind) REALIZATION PER VEHICLE Net realization for company is up 1.4% YoY to Rs.368547 however there is sequential decrease in net realization mainly due weak product mix, lower export sales number and higher contribution of Mini Segments (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 17
  • 18. Crompton Greaves Ltd. V- "Accumulate" 31th Jan' 14 "Rebounds begains…….." Result update Accumulate CMP Target Price Previous Target Price Upside 110 130 120 15% 8% Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 500093 CROMPGREAV 72/137 4,251 775,133 6,074 Stock Absolute Rel. to Nifty 1M (14.2) (10.6) 1yr 2.3 2.3 YTD 17.9 11.0 Share Promoters FII DII Others 3QFY14 42.5 18.5 23.8 15.2 1 yr Forward P/B 2QFY14 42.5 16.6 24.5 16.5 1QFY14 41.7 15.2 23.7 19.4 Crompton consolidated net sales rose 12.8% on yearly basis to Rs 3351.9 crore during the quarter, which were inline with street expectations. Consolidated earnings before interest, tax, depreciation & amortisation (EBITDA) stands to Rs 169.3 crore and EBITDA margin at 4.9 percent. Power systems revenues increased 17.3 percent on yearly basis to Rs 2132.2 crore during Dec quarter FY14, and earnings before interest & tax (EBIT) from power segment during the quarter were Rs 53.3 crore. Meanwhile, its consumer products and industrial systems divisions posted single digit growth in topline during the quarter and it gone by 7.3% to Rs 651 crore. EBIT of consumer products rose to Rs 75.9 crore up by 19.9% and industrial systems' EBIT decreased by 42.7% to Rs 29.5 crore. Other income jumped 33.0% yoy to Rs 40.4 crore while finance cost climbed to Rs 26.7 crore up by 25.6% yoy. At the current level of INR 110, we maintain 'ACCUMULATE' at the Stock as Power sector has shown sign of revival by posting an EBIT of Rs 53.3 crore VS Loss of Rs 104.6 crore qoq and also performance of Consumer division was satisfactory with a sales growth of 7.25% yoy and EBIT Growth of 19.9%. Margin to improve further : Domestic power systems and consumer products segment were key margin drivers as they sustained healthy operating margins of 9.4% and 11.7%, respectively. Collectively, both segments constitute 41% of total consolidated revenue. Consumer products segment continued its market share expansion following higher distribution reach in categories like lighting (up 17% yoy and fans up 13% yoy. Order scenerio : Consolidated order book at the quarter ended Dec'14 was Rs. 10074 crore, up 9.12% yoy. Consolidated order inflow for the quarter was Rs. 2624 crore up 15.7% yoy. Crompton expects a robust order intake in high value-added segments like UHV/EHV in Asia, Automation/smart grid in the power segment, Motors in EMEA market, Railway transportation and electronic drives in the industrial segment. Valuations : We have rolled forward our valuation to FY16E earnings and maintained our Accumulated rating on CGL with a revised target price of Rs130 (Rs105 earlier) based on 14xFY16E EPS, driven by likely turnaround in international operations and a better earnings growth trajectory. We believe that a record backlog, better/leaner cost structure, good & increasing product basket, improved reach in terms of geography will drive earnings & intrest coverage ratio over the next few years. It has assumed break even EBIT level for international subsidiaries in FY14. Further, In our view, the stock's performance would largely be driven by an improvement in overseas business, though standalone performance would protect downsides. Financials Consolidated Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 3351.9 169.3 59.5 5.1% 1.8% 2QFY13 3204.9 161.3 57.8 5.0% 1.8% (Source: Company/ Eastwind Research) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. (QoQ)-% 4.6% 5.0% 3.0% 10 bps 0 bps 3QFY13 2971.8 2.0 -69.0 0.1% -6.3% Rs, Crore (YoY)-% 12.8% 8322.4% 186.2% 500 bps 810 bps (Consolidated) 18
  • 19. Crompton Greaves Ltd. Key financials PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 8737 74 8811 996 874 122 81 867 305 0 563 75 1.2 8.8 9141 110 9251 1278 1122 155 43 1190 365 35 860 82 1.3 13.4 10005 113 10118 1344 1150 194 34 1229 310 -38 881 82 1.3 13.7 11249 63 11311 804 544 260 57 550 182 0 368 52 0.8 5.7 12094 75 12170 383 180 203 71 185 101 -121 -37 30 0.5 -0.6 13304 110 13414 665 412 253 90 432 137 0 295 52 0.8 4.6 14634 110 14744 922 669 253 100 679 215 0 464 52 0.8 7.2 16098 110 16208 1014 736 278 110 736 233 0 502 52 0.8 7.8 11.4% 6.4% 13.0% 1.7% 30.7% 25.2% 14.0% 9.4% 5.2% 0.5% 34.3% 30.0% 13.4% 8.8% 5.1% 0.5% 26.9% 24.9% 7.1% 3.3% 4.1% 0.6% 10.2% 9.2% 3.2% -0.3% -0.6% 0.5% -1.0% 0.6% 5.0% 2.2% 4.2% 0.7% 8.4% 7.5% 6.0% 3.0% 6.6% 0.7% 11.8% 11.3% 6.0% 3.0% 7.1% 0.7% 11.4% 11.5% 1831 718 2549 64 68 2504 501 3005 64 256 3275 395 3670 64 268 3611 985 4596 64 138 3562 1851 5413 64 94 3529 2000 5529 64 110 3941 2000 5941 64 110 4391 2000 6391 64 110 28.5 2.4 10.8 8 39.0 6.6 26.2 19 51.0 5.3 33.5 20 56.3 2.5 9.6 24 55.5 1.7 2.5 55.0 2.0 4.6 24 61.4 1.8 6.7 15 68.4 1.6 6.7 14 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. 19
  • 20. ICICI BANK Result update ACCUMULATE CMP 981 Target Price 1094 Previous Target Price 1118 Upside 12 Change from Previous -2.147 Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 532174 ICICIBANK 358/127 11104 19.54 lakhs 6073 Stock Performance Absolute Rel.to Nifty 1M -11.3 -7.6 1yr -18.1 -18.1 YTD -18.1 -18.1 Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 66.7 64.1 64.1 FII 11.0 13.2 13.6 DII Others 15.4 6.9 ICICI Bank Vs Nifty 15.3 7.4 15.6 6.7 "ACCUMULATE" 31th Jan, 2013 Bank’s profit growth of 12.6% YoY despite of 21.6% YoY growth in NII and 28.6% growth in operating profit was largely due to higher tax provisions made of bank (32.4% of PBT versus 27.9% of PBT in 2QFY14). During quarter, bank has created special reserve for deferred tax liability to the tune of Rs.215 Cr as per recent RBI guideline dated 20th December 2013. Adjusting the same, profit grew by 22% YoY which was quite impressive. But bank’s cost of fund increased higher than loan yield which would restrict margin expansion. We lower our book value estimates to Rs.643 from earlier of Rs.657. Accordingly we reduce our target price to Rs.1094 from earlier of Rs.1118. Healthy NII growth on the back of higher loan growth and margin expansion During quarter, bank reported NII growth of 21.6% YoY to Rs.4256 cr on the back of higher than expected loan growth and loan yield led by credit deposits ratio and expansion NIM. Other income registered growth of 26.5% YoY to Rs.2801 cr versus Rs.2166 cr in previous quarter and Rs.2215 Cr in last quarter in corresponding quarter. Healthy NII along with higher support from other income, revenue of the bank grew by 23.5% YoY to Rs.7057 Cr. Stable operating leverage led healthy operating profit growth Operating leverage (opex to total assets) was remained very impressive and was stable at 0.46% versus 0.43% in 3QFY13. Cost to income ratio of the bank improved by 250 bps YoY to 37.4% as against 39.6%. Operating expenses increased by 15.7% YoY in which employee cost and other operating expenses increased by 6% and 23% YoY respectively. Healthy revenue growth and controlled operating expenses led operating profit growth of 28.6% YoY to Rs.4440 cr. Asset quality by and large stable sequentially but provision declined Bank reported deterioration in asset quality (GNPA) in sequential basis by 3.7% in absoluter term. In percentage to gross advance, GNPA stood at 3.07% versus 3.1% in previous quarter (marginally improved). Provisions were declined by 0.6% QoQ taking net NPA increased by 15.3% QoQ. In percentage to net advance, this ratio stood at 0.94% versus 0.85% in previous quarter. Lower provisions made PCR to 70.1% versus 73.1% in previous quarter. Financials NII Total Income PPP Net Profit EPS 2011 10739 42252 10950 6093 52.9 2012 10734 18237 10386 6465 56.0 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. Rs, Cr 2013 2014E 2015E 13866 17734 21111 22212 27035 30413 13199 16762 18856 8325 10658 11955 72.2 92.3 103.6 (Source: Company/Eastwind) 20
  • 21. ICICI BANK Lower growth in deposits led by muted growth in term deposits In balance sheet front, bank’s deposits grew by 11% YoY lower than expectation largely due to lower growth in term deposits. Demand deposits and saving deposits grew by 9.3% and 11.8% YoY taking overall CASA deposits growth to 16% YoY. In percentage to total deposits, CASA stood at 42.9% versus 40.9% in last quarter. But in sequential basis, bank reported 40 bps declined in CASA and borrowing also increased by 4%. Overall cost of fund was increased by 32 bps in sequential basis which restricted margin expansion despite of improvement in loan yield. Higher loan growth led by retail loan followed by overseas and corporate loan Loan grew by 16% YoY higher than expectation. Incremental loan growth came from retail advances which grew by 22% YoY followed by oversea and corporate loan. Retail loan now constituted 39% of total loan versus 37% in last quarter. Retail loans are generally high yield in nature and higher loan constitute would result of margin sustaining at current level. We are susceptible about the margin improvement because of higher cost of fund as bank reported lower CASA and higher borrowing as a percentage to NDTL in sequential basis. Margin expansion marginally on account of higher cost of fund than deposits NIM improved marginally from previous quarter to 3.32% from 3.31% largely due to higher cost of fund than loan yield. Sequentially, cost of fund increased to 9.1% from 8.8% in previous quarter due to higher borrowing cost along with lower CASA ratio. Loan yield improved to 9.9% from 9.7% in previous quarter. We believe NIM of the bank would be highest as increasing cost of fund would cushion loan yield improvement. Valuation & View Bank’s profit growth of 12.6% YoY despite of 21.6% YoY growth in NII and 28.6% growth in operating profit largely due to higher tax provisions made of bank (32.4% of PBT versus 27.9% of PBT in 2QFY14). During quarter, bank has created special reserve for deferred tax liability to the tune of Rs.215 Cr as per recent RBI guideline dated 20th December 2013. Adjusting the same, profit grew by 22% YoY which was quite impressive. But bank’s cost of fund increased higher than loan yield would restrict margin expansion. We lower our book value estimates to Rs.643 from earlier of Rs.657. Accordingly we reduce our target price to Rs.1094 from earlier of Rs.1118. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 21
  • 22. ICICI BANK Chart Focus NII growth on account of higher than expected loan growth and margin expansion Healthy revenue growth and impressive operating leverage led operating profit Despite of higher revenue grwoth and operating profit growth, net profit muted because of higher tax provisions against DTL Source: Company/Eastwind Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 22
  • 23. ICICI BANK Quarterly Result Quarterly Result Interest/discount on advances / bills Income on investments Interest on balances with Reserve Bank of India Others Total Interest Income Others Income Total Income Interest Expended NII Other Income Total Income Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions PBT Tax Net Profit 3QFY14 8224 2923 34 275 11456 2801 14257 7200 4256 2801 7057 997 1620 2617 4440 695 3745 1212 2533 2QFY14 7737 2839 47 190 10813 2166 12980 6770 4044 2166 6210 872 1451 2322 3888 625 3263 911 2352 3QFY13 7066 2742 136 194 10138 2215 12353 6639 3499 2215 5714 941 1321 2261 3452 369 3084 834 2250 % YoY Balance Sheet Net Worth Deposits Borrowings Investment Loan 74057 316970 150940 171985 332632 73103 309046 145356 168829 317786 67119 286418 147149 166842 286766 10.3 1.3 10.7 2.6 2.6 3.8 3.1 1.9 16.0 4.7 10448 3121 3.1 0.9 70.1 10078 2707 3.1 0.9 73.1 9803 2185 3.4 0.8 77.7 Asset Quality GNPA (Rs Cr) NPA (Rs Cr) % GNPA % NPA PCR(w/o technical write-off)(%) 16.4 6.6 -75.3 42.1 13.0 26.5 15.4 8.4 21.6 26.5 23.5 6.0 22.7 15.7 28.6 88.4 21.4 45.4 12.6 % QoQ 3QFY14E Variation 6.3 7971 -3.1 2.9 3012 3.0 -28.5 52 55.8 44.7 236 -14.1 5.9 11271 -1.6 29.3 2325 -17.0 9.8 13597 -4.6 6.4 6766 -6.0 5.2 4505 5.9 29.3 2325 -17.0 13.6 6831 -3.2 14.4 0 -100.0 11.7 0 -100.0 12.7 2596 -0.8 14.2 4235 -4.6 11.2 657 -5.4 14.8 3578 -4.5 33.1 1073 -11.5 7.7 2504 -1.1 6.6 2.1 0.4 1.6 -98.2 -1.2 3.7 42.8 75608 318387 153387 3012 328689 15.3 Source: Company/Eastwind Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 23
  • 24. ICICI BANK Financials & Assuption Quarterly Result Interest/discount on advances / bills Income on investments Interest on balances with Reserve Bank of India Others Total Interest Income Others Income Total Income Interest on deposits Interest on RBI/Inter bank borrowings Others Interest Expended NII Other Income Total Income Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions PBT Tax Net Profit Balance Sheet DEPOSITS Deposits Growth Borrowings Borrowings Growth(%) Investment Growth(%) Advances Growth(%) 2011 2012 2013 2014E 2015E 19098 9181 469 1334 30081 31513 61595 11315 1683 6345 19343 10739 31513 42252 4393 26910 31302 10950 4631 0 0 6093 22130 9684 491 1238 33543 7503 41045 14304 1469 7035 22808 10734 7503 18237 3515 4335 7850 10386 1583 8803 2338 6465 27341 11009 543 1182 40076 8346 48421 16889 2087 7234 26209 13866 8346 22212 3893 5120 9013 13199 1803 11397 3071 8325 31646 11785 184 946 44561 9302 53863 18217 0 10146 27812 16749 9302 26051 4451 5441 9892 16159 2592 13567 4071 9496 34992 13220 184 946 49342 9302 58644 20402 0 11364 28840 20502 9302 29804 5096 6229 11325 18478 2853 15626 4688 10938 259106 7.3 125839 8.8 209653 12.5 256019 13.4 255500 -1.4 140165 11.4 159560 -23.9 253728 -0.9 292,614 14.5 145,341 3.7 171,394 7.4 290,249 14.4 321,875 10.0 158,535 9.1 187,360 9.3 339,592 17.0 360,500 12.0 177,560 12.0 209,843 12.0 380,343 12.0 7.5 4.7 4.4 6.4 5.0 8.7 6.4 5.6 6.1 5.8 9.4 6.7 5.8 6.4 6.0 9.3 6.3 5.7 6.4 0.0 9.2 6.3 8.0 6.4 5.9 480 2.3 5.5 524 1.7 7.3 578 1.5 9.4 643 1.6 9.2 682 1.5 10.6 Eastwind Calculation Yield on Advances Yield on Investments Cost of deposits Cost of Borrowings Cost of fund Valuation Book Value P/BV P/E Source: Company/Eastwind 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.