IEA-Equity
Strategy

India Equity Analytics

30th Jan, 2014

Daily Fundamental Report on Indian Equities

Hindustan Unilev...
Hindustan Unilever

"NEUTRAL"
30th Jan' 14

"wait for triggers"
Result update
CMP
Target Price
Previous Target Price
Upsid...
Hindustan Unilever
Volume and Pricing growth -%(YoY)

Volume growth for the quarter was at 4%,
which is slightly lower tha...
Hindustan Unilever
Key facts from HUL Con-call (attended on 28th Jan, 2014)
(1)The mgmt stated that FMCG market growth con...
Escorts Ltd.

V-

"Buy"
30th Jan' 14

"Out Performer……."
Result update

Buy

CMP
Target Price
Previous
Target Price
Upside...
Escorts Ltd.
Penetration to high HP Tractors
Escorts management aims to improve tractor margins from the current ~10% to 1...
Escorts Ltd.
Graphical representations :
Revenue from operation :

(Source: Eastwind Research)

(Figures in crore)

Operat...
SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES
Industry Overview:
India's automobile sales continued to remain on sluggish traje...
SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES
Continued…
Scooter sales growth has taken-off since FY10 and has consistently
out...
SHREE CEMENT.
Result Update

Buy

CMP
Target Price
Previous Target Price
Upside
Change from Previous

4325
4791
4791
11%
0...
SHREE CEMENT.
Management Corner : From mid-January there is a big change in demand scenario
because of the Indian calendar...
SHREE CEMENT.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long...
ALLAHABAD BANK
Company UPDATE
CMP
Target Price
Previous Target Price
Upside
Change from Previous

BUY
80
92
121
16
31.5

M...
ALLAHABAD BANK
Lower business growth target due to absence of corporate loan
Allahabad Bank’s total deposits grew by 10% Y...
ALLAHABAD BANK
Fundamant Through Graph

NII growth muted on account of lower loan
growth and loan yield

With the support ...
ALLAHABAD BANK
Quarterly Performance (Rs Cr)
Interest/discount on advances / bills
Income on investments
Interest on balan...
ALLAHABAD BANK
Financials & Assumption

Income Statement

2011

2012

2013

2014E

2015E

Interest Income
Interest Expense...
Persistent System.

"BUY"
28th Jan' 14

"Persistently innovating.."
Results update
CMP
Target Price
Previous Target Price
...
Persistent System.
Sales (INR) and Sales growth-%(QoQ)

On $term, Sales growth was up by 2.2%
(QoQ) and 0.8% on INR term,
...
Persistent System.
Operating Metrics
2QFY12
Client Concentration
Top1
Top 5
Top 10
Billing Rate-USD/ppm
Onsite - Linear
Of...
UCO BANK
Company Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market Data
BSE Code
NSE Symbol...
UCO BANK
Loan and deposits reported higher growth than industry average
On balance sheet growth front, bank’s advance grew...
UCO BANK
Fundamental Through Graph

NII growth of 33% YoY led by higher than
industry loan growth and high CD ratio

Healt...
UCO BANK
Quarterly Performance

Quarterly Result
Interest/discount on advances / bills
Income on investments
Interest on b...
UCO BANK
Income Statement

2011

2012

2013

2014E

2015E

Interest Income
Interest Expense
NII
Change (%)
Non Interest In...
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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Investment Funds Advisory Today- Buy Stock of Escorts Ltd and Neutral View on Hindustan Unilever

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Narnolia Securities Limited positive to buy stocks of Escorts Ltd in current level with Revised price target of Rs. 175. For more information about stock market tips, contact here http://www.narnolia.com/index.php/contact-us/

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Investment Funds Advisory Today- Buy Stock of Escorts Ltd and Neutral View on Hindustan Unilever

  1. 1. IEA-Equity Strategy India Equity Analytics 30th Jan, 2014 Daily Fundamental Report on Indian Equities Hindustan Unilever :"wait for triggers" "NEUTRAL" Edition : 195 30th Jan 2014 Delivered stable set of numbers, still expecting key challenges ahead;For 3QFY14, despite slow discretionary demand HUL reported inline set of numbers with 8.5% (YoY) sales growth led by 4% (YOY) volume growth. PAT grew by 19%(YoY). We do not see any sign of improvement in volume growth in near future. However, revival in macro economy and resultant improvement in consumer sentiment would play a key triggers for improvement in the volume growth in near term. ............................................ ( Page :2-4) Escorts Ltd :"Out Performer……." "BUY" 30th Jan 2014 Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-tomedium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175 .................................................................( Page :5-7) SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES 29th Jan 2014 India's auto mobile sales continued to remain on sluggish trajectory as most of the companies reported a decline in sales number due to slowdown in economic activity and increasing fuel prices. However, two-wheeler segments continued to grow at a healthy rate, led by strong rural demand ........................................... ( Page : 8-9) SHREE CEMENT : "BUY" 28th Jan 2014 Shree Cement Ltd has reported a 47% fall in its December quarter net profit on lower sales as well as 5% degrowth in realization. PAT impacted due to lower other income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41% YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. After a good monsoon and election ahead management expecting a good performance from shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/- . ............................................ ( Page :10-12) ALLAHABAD BANK : "BUY" 28th Jan 2014 Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII growth and deteriorated asset quality. Bank’s operating expenses were stable in absoluter term but as cost income ratio increased drastically on account of lower revenue growth. Asset quality has deteriorated sequentially. Due to lower corporate demand, loan growth remain muted and bank’s lower its total business (Loan + Deposits) guidance to Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s book value. We are not impression with bank’s fundament but current price provide 15% upside from our target price. ........................................................... ( Page : 13-17) Persistent System: "Persistently innovating.." "BUY" 28th Jan 2014 Delivered inline set of numbers but better on all aspects than its peers did: For 3QFY14, Persistent System’s sales was almost flat (QoQ) in INR term, while grew 2.2% (QoQ) in USD term impacted by seasonality and furloughs impacts. Considering the company’s ability to achieve scale and growth, we upgrade our target price from Rs 960 to Rs 1070 with “BUY” view on the stock. ................................................................ ( Page : 18 - 20) UCO BANK : "BUY" 27th Jan 2014 UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII along with higher than industry average loan growth. Bank’s asset quality improved sequentially despite of challenging macro environment. However bank’s CASA growth has declined marginally in sequential basis but still at comfortable level. UCO Bank’s operating as well as financials metrics has been improving continuously. We value bank at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s earning. ............................................................ ( Page :21-25) Narnolia Securities Ltd,
  2. 2. Hindustan Unilever "NEUTRAL" 30th Jan' 14 "wait for triggers" Result update CMP Target Price Previous Target Price Upside Change from Previous NEUTRAL 570 - Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 500696 HINDUNILVR 725/432 123161 2006314 6153 Stock Performance-% 1M Absolute 0.23 Rel. to Nifty 3.2 1yr 21.18 20.33 YTD 21.63 19.85 Share Holding Pattern-% Current Promoters FII DII Others 67.25 14.83 3.35 14.57 2QFY14 1QFY14 67.25 15.33 3.03 14.39 52.5 20.23 7.13 20.16 Delivered stable set of numbers, still expecting key challenges ahead; For 3QFY14, despite slow discretionary demand HUL reported inline set of numbers with 8.5% (YoY) sales growth led by 4% (YOY) volume growth. PAT grew by 19%(YoY). Increasing competitive intensity, slow consumer demand and expectation of hike in input cost in near term could be major concern for HUL. We expect that these concerns could play out over the next couple of quarters. We do not see any sign of improvement in volume growth in near future. However, revival in macro economy and resultant improvement in consumer sentiment would play a key triggers for improvement in the volume growth in near term. Steady margin growth: During the quarter, EBITDA margin inched up by 50bps(YoY) to 17% because of stable INR movement against the USD and stable set of RM cost than same quarter previous year. PAT margin also improved slightly to 17.4% on YoY. During the quarter, company has been efficient to manage cost inflation through judicious pricing and unwinding of promotions. Volume growth: Volume growth for the quarter was at 4%, which is slightly lower than the 5% registered in previous several quarters due to further deterioration in market growth rates and higher component of price versus volume in its core soaps and detergents category. Segment-wise performance: (a)Soaps and Detergents delivered a healthy performance. The company witnessed a price led growth in this segment during the quarter. Wheel was re-launched with superior formulation at quarter end. It has grown well compared to preceding last 2 quarters. (b)Household Care delivered another strong quarter with both Vim and Domex growing in double digits. (3)On Personal Products, Skin Care performing well with a revenue growth in mid teens in a slowing market and in spite of the delay in the onset of the winter season. P/BV (x) -1year forward Product Strategy: The company has launched premium range of hair care products Toni and Guy. This brands are sold through select top end outlets. However, its operating metrics was challenging given the volatile cost environment, led by the INR depreciation, and heightened competitive intensity during the quarter. View and Valuation: To continue to deliver strong growth, HUL is likely to continue with aggressive marketing and offer discounts/price cuts, especially in soaps, detergents and personal products and the company fights off competition rivals domestic as well as multi-national. we are confident of the medium to long-term growth prospects of the FMCG sector. At a CMP of Rs 570, stock trades at 29x FY15E P/BV. We have a NEUTRAL view on the stock. Financials Rs, Crore 3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-% Revenue 7037.78 6747.2 4.3 6433.89 9.4 EBITDA 1226.8 1085.31 13.0 1088.99 12.7 PAT 1043.7 888.3 17.5 877.08 19.0 EBITDA Margin 17.4% 16.1% 130bps 16.9% 50bps PAT Margin 14.8% 13.2% 160bps 13.6% 120bps (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 2
  3. 3. Hindustan Unilever Volume and Pricing growth -%(YoY) Volume growth for the quarter was at 4%, which is slightly lower than the 5% registered in previous several quarters (Source: Company/Eastwind) Sales (cr) and Growth(YoY)-% (Source: Company/Eastwind) Seg Segments Soaps & Detergents Personal Products Beverages Packaged Foods Others % of Sales 47.0% 31.9% 11.8% 5.2% 3.8% Revenue Growth-% 3QFY13 2QFY14 3QFY14 19.9% 6.4% 7.1% 8.5% 11.8% 12.4% 18.2% 16.1% 7.2% 7.7% 8.7% 12.9% -33.4% 5.7% -4.7% 3QFY13 12.4% 28.3% 17.7% -0.7% -6.4% Margin-% 2QFY14 3QFY14 14.0% 13.3% 22.8% 28.6% 17.0% 16.2% 3.3% -3.6% 1.5% -4.9% EBITDA Margin up by 90bps to 13.3% from Soap and Detergent, flat margin growth on Personal Products. (Source: Company/Eastwind) Margin-% EBITDA margin inched up by 50bps(YoY) to 17% because of stable INR movement against the USD and stable set of RM cost than same quarter previous year. (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 3
  4. 4. Hindustan Unilever Key facts from HUL Con-call (attended on 28th Jan, 2014) (1)The mgmt stated that FMCG market growth continues to remain soft across the categories, with high competitive intensity and uncertain media environment. While, for medium to long term the mgmt is positive on FMCG sector. (2)The management expects to see some cost burden on promotion through media because of 12 minutes advertisement cap. (3)Rural growth continues to outpace urban growth by 200 bps and there is no clear-cut sign of uptick in urban demand as per available data from Nielsen. (4)Personal products and packaged foods both segments have headroom for growth and will remain focus area. (5)Tax rate is expected to rise by 300-400 bps for FY15. 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) 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 18025.6 6762.8 2173.1 75.7 970.9 2423.0 2783.2 15188.7 2836.9 191.9 82.7 2727.6 7.5 2720.2 615.3 2104.9 FY11 20022.6 7796.9 2692.8 -307.6 1014.9 2797.1 3317.4 17311.3 2711.2 207.5 255.2 2758.9 1.0 2757.9 650.3 2107.6 FY12 23436.3 9487.0 2919.5 95.2 1200.9 2697.0 3553.2 19952.8 3483.6 211.9 259.6 3531.3 1.7 3529.7 821.5 2708.1 FY13 27004.0 10987.8 3125.3 -26.0 1412.7 3290.0 4008.9 22798.7 4205.3 251.3 532.0 4486.0 25.7 4460.3 1226.7 3233.7 FY14E 28959.1 11873.2 3185.5 -27.9 1515.0 3619.9 4054.3 24219.9 4739.1 270.4 579.2 5047.9 25.7 5022.2 1406.2 3616.0 FY15E 31506.3 13075.1 3465.7 -30.3 1648.2 3938.3 4568.4 26665.4 4840.9 294.2 630.1 5176.9 27.0 5149.9 1442.0 3707.9 -13.4% -4.9% -16.1% 11.1% -4.4% 0.1% 17.0% 28.5% 28.5% 15.2% 20.7% 19.4% 7.2% 12.7% 11.8% 8.8% 2.1% 2.5% 37.5% 13.4% 5.4% 15.4% 22.6% 38.9% 14.0% 5.1% 16.6% 23.6% 40.5% 11.5% 5.1% 15.2% 23.3% 40.7% 12.2% 5.2% 14.8% 27.5% 41.0% 12.5% 5.2% 14.0% 28.0% 41.5% 12.5% 5.2% 14.5% 28.0% 15.7% 15.1% 11.7% 13.5% 13.8% 10.5% 14.9% 15.1% 11.6% 15.6% 16.6% 12.0% 16.4% 17.4% 12.5% 15.4% 16.4% 11.8% 238.7 218.2 2668.9 9.6 12.2 78.9% 19.5 24.7 284.6 215.9 2735.0 9.8 12.7 77.1% 22.5 29.2 419.0 218.2 3681.1 12.4 16.9 73.6% 24.8 33.8 483.3 216.2 2864.8 15.0 13.3 112.9% 36.5 32.3 570.00 216.26 3571.24 16.72 16.51 101.3% 34.52 34.09 570.00 216.26 4243.13 17.15 19.62 87.4% 29.05 33.24 (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 4
  5. 5. Escorts Ltd. V- "Buy" 30th Jan' 14 "Out Performer……." Result update Buy CMP Target Price Previous Target Price Upside Change from Previous 125 175 105 40% 67% Market Data BSE Code NSE Symbol 52wk Range H/L Capital Mkt (Rs Crores) Average Daily Volume Nifty 500495 ESCORTS 48/96 1,505 225,953 6,120 Stock Performance-% Absolute Rel. to Nifty 1M (11.3) (8.2) 1yr 62.7 61.0 YTD 147.9 140.2 Share Holding Pattern-% Promoter's FII's DII's Others's 3QFY14 42.0 9.4 2.1 46.5 2QFY14 1QFY14 42.0 42.0 12.3 12.1 4.7 5.4 41.0 40.6 In 5QFY13 the company saw revenue growth of 12.8% to Rs 1159.6 crore. This result was mirrors the pent-up demand for tractor business, partly driven by improved crop cultivation and production and revival in farm equipment segment. In current quarter 84% of Escorts’ revenues come from the sale of tractors, and it saw volumes growth of 11.3% to 19047 in its tractor sales. Company construction equipment business witnessed a flattish of 1.4% to Rs. 130.9 crore and stands at 11% of company total revenue during this quarter. Lower inventory levels typical of this quarter, where sales are better than in the preceding quarter, translated into a 6.1% operating margin, up 100 basis points from the year-ago period. Further, A marginal price hike in the latter part of the December quarter also propped up realizations. More importantly, the improved financial position in the farm segment eased cash flows and working capital cycles, which in turn trimmed interest costs. Industry players expects the year 2013-14 to end with volume growth of around 15% After an all time high sales in Oct 2013, where the industry saw a volume growth of 28.8% YoY, Nov'13 volume growth was expected on lower side. While in Dec'13, the industry came back strongly with a 21.1% growth. In April-Dec'13 period, the industry saw a healthy 23.8% growth in volume. So while high growth is expected to tilt down in lean season, overall, the industry as a whole is still expected to end the year with a volume growth of about 15% for 2013-14. Key markets that supported the growth in FY'14 are Andhra Pradesh, Madhya Pradesh, Rajasthan and Chhattisgarh. Some of these markets grew by more than 30% YoY. All macroeconomic factors such as crop prices, productivity, soil moisture, government focus on rural spending etc are favoring the farm equipment business. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 5
  6. 6. Escorts Ltd. Penetration to high HP Tractors Escorts management aims to improve tractor margins from the current ~10% to 15% over the next 1-2 years led by change in focus to higher HP tractors and by cost rationalization measures. Higher tractor margins would take Escorts' company level EBITDA margins from ~6% to ~10%, as tractor segment contributes 80% to the company's overall sales. Moreover, the management's strategy to focus on higher HP tractors and increase presence in Southern markets will lead to faster-than-market growth. Outlook on Industry Despite being an agricultural nation, Tractors penetration in India is about 5% of total cultivable land. Going forward, we expect deeper penetration of Tractors to happen which will continue to drive strong demand for the sector. The growth in farm incomes will fuel the need for further mechanization, which will tend to accelerate as social welfare programs, urbanization and alternative occupations move farm labor to other sectors. So the demand for higher HP tractors will be the future growth within the sector. The proportion of higher power (greater than 50 HP+) segment has shown increase in total industry volume share by 380 bps from 12.6% in FY'08 to about 18% in FY'13. For tractor industry more than festive season it is the monsoons that matters a lot. The onset of positive sentiments because of monsoons, the reservoirs are full, the kharif crop sowing is more than 1,000 lakh hectors which is almost 6 percent up vis-à-vis last year. The prices of the crops declared by the government are pretty good and on top of it there are host of financiers who are financing the tractors and funds are available to prospective buyers and that is also leading to growth. Company Outlook The stock is currently trading at 6.5x FY14E EPS with a negative bias in case of construction equipment segment due to adverse macroeconomic conditions . At current price of Rs. 117, the stock is trading at P/E of 7.1 x for FY13E and 6.5 x the FY14E. Escorts could post EPS of Rs. 12.13 for FY14E and Rs. 12.98 for FY15E. An increase in volumes is an indication of healthy demand. Tractor sales revival has enabled the company to register strong result. Escorts’ EBITDA margin and bottom-line exceeded our expectations. Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-tomedium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 6
  7. 7. Escorts Ltd. Graphical representations : Revenue from operation : (Source: Eastwind Research) (Figures in crore) Operating profit : (Source: Eastwind Research) (Figures in crore) Net Profit : (Source: Eastwind Research) (Figures in crore) Trailling ROE % & Trailling Asset T/O : (Source: Eastwind Research) (Figures in crore) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 7
  8. 8. SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES Industry Overview: India's automobile sales continued to remain on sluggish trajectory as most of the companies reported a decline in sales number due to slowdown in economic activity and increasing fuel prices. However, two-wheeler segments continued to grow at a healthy rate, led by strong rural demand.The contribution of various segment for the 9MFY14 automobiles sales stands as under : The graph clearly indicates that of total automobiles sold for 9MFY14 the contribution of two wheelers stand at maximum. This trend shows that slow down in consumer discretionary expenses. The differential pricing makes people to spend more towards two wheelers more over people look for option which gives them more mileage for every unit of fuel. As stated earlier there is growth in rural economy and trend is clearly visible from the sales made by two wheelers in total automobiles sold for the period. (Source: Company/Eastwind) Two Wheelers For December 2013, overall auto industry volumes were led by the two-wheeler industry (4% YoY growth). Two Wheelers segment contribution has increased to 80.2% of the total auto volume, during first nine months of FY14 from 77% in FY 13.The cumulative volume for 9MFY14 for 2 Wheelers stands at 12489192 units up 5.3% YoY. Better monsoon benefitted rural demand, while urban sales remained lackluster, which was higher than offsetting the rural growth. With the festive season ending early in November 2013 this year, the positive momentum seen October 2013 has cooled off with retail sales largely lagging wholesales. The two-wheeler segment has again managed to keep its head over water even as all other segments have shown an annual decline with last years' festive season ending later. Sub Segment Motorcycle The analysis of previous year’s sales indicates that the three major players viz Heromoto Corp, Bajaj-Auto,TVS Motors have shown declining performance along with market share loss to both HMSI and Yamaha. The strong rural demand helps to boost the sales of commuter sub segment (100-125 CC) of motorcycles. The following table shows yearly performance of some of major motorcycle players Companies Hero MotoCorp Bajaj Auto TVS Motors HMSI Yamaha FY12-13 46% 31% 6% 11% 4% FY11-12 48% 32% 7% 7% 4% FY10-11 48% 32% 8% 7% 3% Companies Hero MotoCorp Bajaj Auto TVS Motors HMSI Yamaha FY12-13 5499245 3757094 749806 1291688 437998 FY11-12 5779621 3834405 843338 864183 484891 FY10-11 5040971 3387043 836831 748488 366770 Year Wise Motorcycle Market Share Year Wise Motorcycle Sales Sub Segment Scooter The scooter sub segment grew well led by new launches from Honda (New Activa), Hero (Maestro), TVS (Jupiter) and Suzuki (Swish), the scooter segment grew at a faster clip of 19% YoY for Apr-Dec'13 period against a flattish (3%) growth in the motorcycle segment. The faster volume growth of the scooter segment led to a 220bps improvement to 21.2% in its share of the two-wheeler market during this period. The main drivers for this growth are (a) growing acceptability of gearless scooters, particularly by women, (b) rising urbanization and increasing proportion of working women and (d) new launches. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 8
  9. 9. SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES Continued… Scooter sales growth has taken-off since FY10 and has consistently outgrown that for the motorcycle segment. An increasing population of working women, mainly in urban markets, has led to rapid sales-volume growth in this segment. On a longer term perspective, scooter industry volumes are expected to grow at ~20% CAGR over FY14-20, twice the growth rate for motorcycles. Overall two wheeler industry volumes are likely to grow at 12% CAGR during this period. The shares of scooters are expected to increase to 37% by 2020, with annual sales of 10.7m units (equal to the current market size of the domestic motorcycle industry). Three Wheelers (Source: Company/Eastwind) In three wheelers universe for the December 2013 Industry domestic volumes were down 21% to 35249 units led by 27% drop in the passenger segment. There was a 7% rise in the goods carrier segment in Dec 13. Exports registered 11% rise to 33,044 units. This segment for 9MFY14 registered domestic sales was 364669 units down by 9 % YoY for the same period last fiscal. The exports have done fairly well for the period with 11 % growth YoY to 33044 units. The three wheeler segment remains flat on YoY to 626749 units for 9MFY14. The three Wheelers demand largely driven by exports, while domestic sales remained weak. Bajaj-Auto with 55% market share is the market leader in 3 Wheeler sales in the country. Q1FY14 Domestic 3W sales accounted for 38% of the company's total 3W sales. Of the total 3W sales, 15-20% came from new permits, while replacement accounts for the rest. On the domestic 3W front, the outlook remains positive with 20000 permits opening up in Hyderabad (5k already utilized in June-July 2013) and 3000 permits opening up in Maharashtra in Sept-Oct 2013. Also, its plan to launch a renewed range of 3W (RE Compact) promises to drive replacement demand. For TVS, 3W sales stood up by 36.8% YoY to 6,137 units with most of it coming from the overseas markets; 3W share to total sales forms 3.8% in December and 3.9% YTD, 150bp higher YoY. The Company is expected to benefit from this as 3W forms a high margin product.On the other hand, Mahindra & Mahindra's 3w sales were up 7.6% to 5.6k units. Sales were down 5% on a MoM basis. The YTD performance of Three wheelers for FY14 is tabulated as under: Month April May June July August September October November December YTD Future Outlook 9MFY14 Sales (Volume) 69562 61089 71889 66335 67141 80549 76874 65017 68293 626749 9MFY13 Sales (Volume) 61772 55184 54274 65352 72122 78097 86072 80325 74596 627794 Change % 12.6% 10.7% 32.5% 1.5% -6.9% 3.1% -10.7% -19.1% -8.4% -0.2% (Source: Company/Eastwind) Given its low ticket size and high rural share, this segment of the auto industry is sure to pick up momentum in the coming months. With urbanization, rise in women riders, higher fuel efficiency and improving per capita income, the penetration of scooters will continue to increase and at a pace faster than motorcycles. 2/3 wheeler companies which are the direct beneficiaries of the rural consumption are expected to remain strong given the buoyant prices for food items, strong monsoon and additional benefits of government doll outs and largesse. Conclusion While the macro-economic environment remains challenging, OEMs have pinned hopes on the bevy of launches that might trigger a response from customers. Also, the recent cut in the price of petrol might just prove to be a good thing for companies. Additionally, better crop realization due to a good monsoon and hike in MSP is expected to boost the rural income leading to a sales recovery. Over the long term, easing macro headwinds in terms of lower interest rates and higher economic growth would be the key driver for volume growth and profitability. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 9
  10. 10. SHREE CEMENT. Result Update Buy CMP Target Price Previous Target Price Upside Change from Previous 4325 4791 4791 11% 0% Market Data BSE Code NSE Symbol 500387 SHREECEM 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 5210/3413 15502 3875 6136 Stock Performance-% 1M 0.1 0.0 Absolute Rel. to Nifty 1yr -4.8 -8.0 YTD -5.1 -9.2 Share Holding Pattern-% 2QFY14 64.8 8.2 5.9 21.2 Promoters FII DII Others 1QFY14 4QFY13 64.8 64.8 8.2 8.1 5.7 5.9 21.3 21.2 "BUY" 28th Jan' 14 Volumes grew by18 % but prices came down by 5%. So the EBITDA margin has hit badly:Shree Cement Ltd has reported a 47% fall in its December quarter net profit on lower sales as well as 5% degrowth in realization. PAT impacted due to lower other income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41% YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. Net profit decreased by 47% yoy from Rs.217.44 crore (Rs.62.42 per share) in 2Q13 to Rs.115.49 crore (Rs.33.15 per share) in 2Q14.Total net income from operations stood at Rs.1318.13 crore in 2Q14, a 6% fall yoy from Rs.1401.23 crore in 2Q13.Other income decreased from Rs.30.2 crore in 2Q13 to Rs.9.9 crore in 2Q14.In the mean time company declares a Rs.10 as interim dividend/share. Power Segment: Realization Down By 15% : For power generation the net realization has come down from Rs 383 to Rs 334 compared to last year same quarter and in the first quarter it was still better at Rs 397.So the power realization is down by 13 percent and hence sales also have come down by 35 percent to Rs.290 Cr. At the same time 14% increase in its profitability from power segment to Rs112.56 crore while its cement segment reported 79% fall in its profitability to Rs37.65 crore. MAT Credit support the buttom line : During the Quarter Company got MAT (minimum alternative tax) credit entitlement of Rs9.25 crore and deferred tax of Rs1.79 crore. This reduced total tax payable amount to Rs15.27 crore from Rs26.31 crore. Company’s EBIDTA/ton decreased 6% to Rs.712 (vs Rs.756 in previous quarter), at the same time the Expenditure also decreased 9% to Rs.2757 (vs Rs.3025 in Q1).Hence we believe that company will outperform among its peers ,once Realization get improve.The exceptional weakness is there in the cement prices. Volumes have grown by about 18 percent but the prices have come down by 5 percent and naturally the cost increase is there. So the EBITDA margin has been badly hit . 1 yr Forward P/B 6000 PRICE 2x 3x 4x 5000 1.5x 2.5x 3.5x 4.5x 4000 3000 2000 1000 Apr-13 Nov-13 Sep-12 Jul-11 Feb-12 Dec-10 Oct-09 May-10 Mar-09 Jan-08 Aug-08 Jun-07 Apr-06 Nov-06 Sep-05 Jul-04 Feb-05 Dec-03 Oct-02 May-03 Mar-02 0 Source - Comapany/EastWind Research On the expansion front : The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun’13.Line X of similar capacity along with 25MW of WHRS (at the same location) is expected by Jun’14.Two grinding units of 2m tons each, at Ras and in Bihar,are being constructed and expected by Jun’14.We expect Shree to be a 21.5m-tpa company by Jun’15.It plans to foray into high demanding eastern.Total capex for these expansion is Rs.3,000 crore which is spread over next 2 years. Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14 Revenue 1318 -7.7 5.6 1428 1248 EBIDTA 271 -24.7 8.8 360 249 Net Profit 115 -46.9 -32.9 217 172 EPS 33 -46.9 -32.9 62 49 EBIDTA% 21 -18.4 3.1 25 20 NPM% 9 -42.5 -36.5 15 14 (In Crs) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 10
  11. 11. SHREE CEMENT. Management Corner : From mid-January there is a big change in demand scenario because of the Indian calendar, the prices have improved, the demand has also improved and they think that January to June some impact of elections will be there pre-election demand and other things. So margins should be better than 21 percent. 1500 60 Revenue 1450 50 Growth 1400 40 1350 Outlook : From the view company Operations in the high utilisation North and Central markets, capacity expansions underway, low gearing and strong RoE are fundamental positives. We believe although, near term challenges in terms of a slowdown in demand for cement would remain, strong balance sheet and better efficiency in terms of cost remains a key positive for this company to overcome challenges.Company Management is bull for the rest two quarters of FY2014 as according to them demand has already buttom out.We are positive on the stock as it always beats its peers group with lower operational cost.Shree cement follows a multi brand strategy and sells cement under the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together enjoy the largest market share in high value markets of Rajasthan, Delhi and Haryana. After a good monsoon and election ahead we are expecting a good performance from shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/- 30 1300 20 1250 10 1200 0 1150 -10 1100 -20 Source - Comapany/EastWind Research EBIDTA 450 400 INTEREST SERVICE COVERAGE RATIO 10 350 Company Description : Shree Cement (SCL) is a cement producer operating in the two segments cement and power. As of June 30, 2012, the company had a cement capacity of 13.5 million tonnes per annum (MTPA) and power capacity of 560 MW. The company's waste heat recovery power plants have a total capacity of 46 MW. The company’s brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It has manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units at Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in Uttarakhand. P/L PERFORMANCE FY11 FY12 FY13 FY14E Net Revenue from Operation 3454 5898 5590 5798 Other Income 203 163 188 217 Total Income 3656 6061 5779 6015 Power and fuel 905 1500 1513 1409 Freight and forwarding 602 1006 915 1090 Expenditure 2569 4252 4029 4275 EBITDA 885 1646 1561 1523 Depriciation 676 873 436 470 Interest Cost 98 235 193 145 Net tax expense / (benefit) -99 69 115 118 PAT 365 619 1004 1007 ROE% 20.8 23.1 26.1 21.1 Narnolia Securities Ltd, 300 8 250 6 200 150 4 100 2 50 0 0 Source - Comapany/EastWind Research 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 - 12 NPM % OPM % EBITDA % 11
  12. 12. SHREE 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% FY10 FY11 FY12 FY13 35 1798 1833 1789 318 28 171 472 4906 0 752 967 299 358 82 416 415 4906 FY10 4.4 212.3 2.3 4.7 1.0 35 1951 1986 1472 217 16 185 267 4940 0 1167 729 308 404 108 499 429 4940 FY11 3.6 118.6 3.1 5.3 1.2 35 2699 2734 818 143 17 584 178 5973 0 1521 97 205 503 181 459 363 5973 FY12 3.8 177.5 3.1 9.9 0.9 35 3809 3844 443 534 18 81 87 6160 0 1782 133 378 530 315 369 326 6160 FY13 4.2 288.2 5.6 1.4 0.9 Trading At : Source - Comapany/EastWind Research Narnolia Securities Ltd, 12
  13. 13. ALLAHABAD BANK Company UPDATE CMP Target Price Previous Target Price Upside Change from Previous BUY 80 92 121 16 31.5 Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 532480 ALBK 176/65 3975 8.26 LAKH 6136 Stock Performance 1M Absolute -14.9 Rel.to Nifty -12.5 1yr -55.2 -56.6 YTD -55.2 -56.6 Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 58.9 55.2 55.2 FII 8.7 8.0 8.1 DII 18.5 21.1 22.0 Others 13.9 15.6 14.7 Allahabad Bank Vs Nifty "BUY" 28th Jan, 2014 Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII growth and deteriorated asset quality. Bank’s operating expenses were stable in absoluter term but as cost income ratio increased drastically on account of lower revenue growth. Asset quality has deteriorated sequentially. Due to lower corporate demand, loan growth remain muted and bank’s lower its total business (Loan + Deposits) guidance to Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s book value. We are not impression with bank’s fundament but current price provide 15% upside from our target price. NII growth muted on account of lower loan growth and loan yield Allahabad bank’s NII grew by 0.4% YoY to Rs.1336 cr versus our expectation of Rs.1422 cr largely due to lower interest income led by lower than expected loan growth and loan yield as well. Bank’s deposits growth was also lower than expected but cost of deposits was almost same in previous quarter. Therefore interest income was lower than interest expenses which cause muted NII growth. During quarter, bank’s other income was Rs.542 cr as against Rs.341 cr in last quarter which helped to report revenue growth of 11% YoY. CI ratio up drastically in sequential basis but in absolute term it remain comfortable Cost to income ratio was higher at 46.3% versus 42.5% in previous quarter largely due to lower revenue growth. In absolute term operating expenses increased by 2.2% QoQ and 7.3% YoY on which employee cost and other operating expenses increased by 1% and 22% YoY respectively. With lower operating cost and high support from other income, operating profit grew by 17.2% YoY to Rs.1008 cr. Worsen asset quality led by macro environment During this quarter bank’s asset quality worsen with gross NPA further deteriorated by 14% QoQ in absolute term while as a percentage to gross advance, this ratio stood at 5.5% versus 5% in previous quarter. Provisions had increased by 19% on sequential basis which led net NPA deterioration to 12% QoQ. In percentage term, net NPA to net advance stood at 4.1% versus 3.8% in previous quarter. Provision coverage ratio (w/o technical write-off) marginally improved to 24.8% from 23.7% in 2QFY14. During this quarter, bank’s sold Rs.389 cr of non- performing assets to asset reconstruction companies. Total outstanding restructure at the end of stood at Rs.12624 cr which is 9.2% of net advance. Rs, Cr Financials 2011 2012 2013 2014E 2015E NII 4022 5163 4866 5426 6715 Total Income 5393 6461 6343 7745 9034 PPP 3055 3770 3385 4361 5150 Net Profit 1423 1867 1185 1290 1522 EPS 29.9 39.2 23.7 23.7 27.9 (Source: Company/Eastwind) 13 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report.
  14. 14. ALLAHABAD BANK Lower business growth target due to absence of corporate loan Allahabad Bank’s total deposits grew by 10% YoY and advance grew by 13% YoY to Rs.1875 bn and Rs.1373 bn respectively. Muted growth in loan was on account of lower borrowing from corporate segment whereas bank reported retail, MSME and priority sector registered handsome growth. CASA for the quarter stood at 30.8% versus 31.2% in previous quarter. Bank management lower its FY14’s total business guidance to 340,000 cr from Rs.360,000 cr earlier. Accordingly we lower our loan and deposits growth to 12% and 9% from earlier of 15% each. Credit deposits ratio was stable at 73.2%. Lower profit growth because of muted NII growth and deteriorating asset quality Net profit of Allahabad bank’s grew by 4.7% YoY to Rs.325 cr largely due to muted NII growth and high provision led by deteriorating asset quality. Due to lower demand from corporate borrowing, banks reduce its business growth target by 5.5% for FY14. Asset quality pressure would likely to persist in FY14 which would result of lower valuation multiple. We lower our book value estimate to Rs. 229.3 from earlier of Rs.254 primarily due to equity dilution and lower profit expectation in FY14E. Valuation & View Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII growth and deteriorated asset quality. Bank’s operating expenses were stable in absoluter term but as cost income ratio increased drastically on account of lower revenue growth. Asset quality has deteriorated sequentially. Due to lower corporate demand, loan growth remain muted and bank’s lower its total business (Loan + Deposits) guidance to Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s book value. We are not impression with bank’s fundament but current price provide 15% upside from our target price. Source:Company/Eastwind Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 14
  15. 15. ALLAHABAD BANK Fundamant Through Graph NII growth muted on account of lower loan growth and loan yield With the support from other income and lower operating expenses, PP grew by 17.2% YoY Lower profit growth because of muted NII growth and deteriorating asset quality Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 15
  16. 16. ALLAHABAD BANK Quarterly Performance (Rs Cr) Interest/discount on advances / bills Income on investments Interest on balances with Reserve Bank of India Others Total Interest Income Others Income Total Income Interest Expended NII Other Income Total Income Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions PBT Tax Net Profit 3QFY14 3533 1161 27 42 4762 542 5305 3427 1336 542 1878 569 301 870 1008 555 453 128 325 2QFY14 3422 1131 28 25 4607 696 5303 3298 1309 696 2005 550 301 852 1154 742 411 136 276 3QFY13 3234 1161 29 21 4445 341 4785 3114 1330 341 1671 563 247 811 860 432 428 117 311 % YoY Balance Sheet ( Rs Cr) Net Worth Deposits Loans 12410 187478 137300 12085 180396 131896 11572 170649 121555 7.2 2.7 9.9 3.9 13.0 4.1 7,512 5651 5.5 4.1 24.8 6,613 5048 5.0 3.8 23.7 3,532 2478 2.9 2.0 29.8 112.7 13.6 128.1 11.9 73.2 46.3 73.1 42.5 0.0 48.5 Asset Quality GNPA( Rs Cr) NPA( Rs Cr) %GNPA %NPA PCR(w/o technical write-off)(%) Operating Metrics Credit-Deposits Ratio(%) Cost-Income Ratio(%) 9.2 0.0 -7.9 102.9 7.1 59.2 10.9 10.0 0.4 59.2 12.4 1.0 21.7 7.3 17.2 28.3 5.9 9.2 4.7 % QoQ 3QFY14E Variation 3.2 3669 -3.7 2.6 1199 -3.2 -5.1 33 -18.5 67.8 43 -2.6 3.4 4944 -3.7 -22.1 599 -9.4 0.0 5542 -4.3 3.9 3522 -2.7 2.0 1422 -6.1 -22.1 599 -9.4 -6.3 2021 -7.1 3.4 301 89.3 0.0 558 -46.1 2.2 859 1.3 -12.6 1162 -13.3 -25.2 699 -20.6 10.1 463 -2.2 -5.9 139 -8.2 18.0 324 0.4 12409 192974 139757 6,997 5320 0.0 -2.8 -1.8 7.4 6.2 Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 16
  17. 17. ALLAHABAD BANK Financials & Assumption Income Statement 2011 2012 2013 2014E 2015E Interest Income Interest Expense NII Change (%) Non Interest Income Total Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions PBT PAT Change (%) 11015 6992 4022 51.8 1370 5393 29.4 2338 3055 19.9 1112 1943 1423 18.0 15523 10361 5163 28.3 1299 6461 19.8 2691 3770 23.4 1602 2167 1867 31.2 17436 12569 4866 -5.7 1477 6343 -1.8 2958 3385 -10.2 1865 1520 1185 -36.5 18958 13532 5426 11.5 2319 7745 22.1 3384 4361 28.8 2527 1835 1290 8.8 22529 15814 6715 23.8 2319 9034 16.6 3885 5150 18.1 2976 2174 1522 17.9 131887 24 44156 21 6918 43247 93625 31 159593 21 48668 10 9094 54283 111145 19 178742 12 54930 13 10098 58306 129490 17 194828 9 60397 10 13544 60428 145028 12 222104 14 68852 14 15440 71263 165332 14 8.8 6.2 4.9 7.1 10.5 6.8 6.1 6.8 9.8 7.7 6.7 5.2 9.7 7.5 9.2 7.1 10.0 8.0 9.5 7.1 Balance Sheet Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%) Ratio Avg. Yield on loans Avg. Yield on Investments Avg. Cost of Deposit Avg. Cost of Borrowimgs Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 17
  18. 18. Persistent System. "BUY" 28th Jan' 14 "Persistently innovating.." Results update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty BUY 994 1070 960 8% 11% 533179 PERSISTENT 1058/477 3974 12139 6136 Stock Performance Absolute Rel. to Nifty 1M 1.1 3.4 1yr 76.8 75.8 YTD 85.7 82.3 Share Holding Pattern-% Current Promoters FII DII Others 38.96 18.26 18.78 24 1 year forward P/E-x 2QFY14 1QFY14 38.96 15.28 21.23 24.53 38.96 14.84 19.31 26.89 Delivered inline set of numbers but better on all aspects than its peers did : For 3QFY14, Persistent System’s sales was almost flat (QoQ) in INR term, while grew 2.2% (QoQ) in USD term impacted by seasonality and furloughs impacts. During the quarter, volume growth from Offshore increased by 3.8% and Onsite volume growth was flat, sequentially. PAT grew by 5.5% (QoQ) The management remains confident of FY14 with deal pipeline being strong and remains focused on increasing the share of IP-led revenues in its portfolio. The management expects to see more than 15% dollar revenue growth, more than NASSCOM guidance of 12-14 % for FY14E. Margin ramp up: During the quarter, Its EBITDA margin improved by 80bps to 24.1% because of cost rationalization. PAT margin up by 70bps to 14.83%. However, management expects to maintain margin at 24-25% for FY14E. On segmental front: The Company’s cash cow segment Infrastructure and System, which contributes 69% on sales, was flat than previous quarter and Telecom (18% contribution on sales) was up by 2% sequentially. While, Life Science space (13% contribution on sales) down marginally by 1% (QoQ). Geography wise revenue: Because of weak seasonality and furloughs impact, North America and APAC regions were marginally down by 1-2%(QoQ). The company’s earning potential from US is 83% and APAC is 11%. While Europe contributes 6% of sales and has seen tremendous set of growth at 36% (QoQ) led by a large account execution during the quarter. Clients Metrics: During the quarter, company added 2 clients(Total 34) under medium category( >$1mn to $3mn) and no client addition (Total) 16 from large ( > $ 3Mn) . Revenue contribution from top-1 client declined from 22.5% (2QFY14) to 19.8% and contribution from top-5 and Top-10 marginally down. DSO at 63days, almost 12 quarters low. Persistent management suggests that deal pipeline are looking strong and seeing good activity and traction in the market across the board. Its focus on some of newer technologies like cloud, analytics and mobility, M2M, digital transformation are gaining a lot of traction because of pickup in demand environment. Because of actively investment in these themes, management is very confident to see healthy growth. View and Valuation: The company’s focus is shifting greater proportion to IP led services and company has marquee clientele in cutting-edge technologies around cloud, mobility, collaboration and analytics; witnessing faster growth. Considering the company’s ability to achieve scale and growth, we upgrade our target price from Rs 960 to Rs 1070 with “BUY” view on the stock. Recently we had advised to book profit on the stock at a target price of Rs 960. Post 3rd quarter earnings, we upgrade our EPS for FY15E from Rs 76.9 to Rs 79.1. At a CMP of Rs 994, stock trades at 12.6x FY15E earnings. Financials Rs, Crore 3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-% Revenue 432.75 432.37 0.1 332.98 30.0 EBITDA 104.3 100.8 3.5 82.4 26.6 PAT 64.2 60.8 5.6 49.5 29.7 EBITDA Margin 24.1% 23.3% 80bps 24.7% (60bps) PAT Margin 14.8% 14.1% 70bps 14.9% (10bps) (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 18
  19. 19. Persistent System. Sales (INR) and Sales growth-%(QoQ) On $term, Sales growth was up by 2.2% (QoQ) and 0.8% on INR term, (Source: Company/Eastwind) Segmental Revenue-% Persistent's exposure on Infr and System has increased to 69%, growth in Infra space indicates more visibility of deal intake in near future, (Source: Company/Eastwind) Margin-% Its EBITDA margin improved by 80bps to 24.1% because of cost rationalization. (Source: Company/Eastwind) Key facts from Concall (attended on 27th Jan,2014) ■Persistent is confident of doing more than 15% revenue growth in$ terms(FY14E). ■They expect to maintain margin at 24-25% for FY14E ■The Company’s focus on newer technologies like cloud, analytics, mobility and digital transformation are gaining traction. ■ Expects 20-21% growth in the next year from IP led business, which in turn will help improve margins going forward. ■ The company is optimistic to see more deals on SMACS and IP led business. ■ Services business can continue to keep the growth momentum. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 19
  20. 20. Persistent System. Operating Metrics 2QFY12 Client Concentration Top1 Top 5 Top 10 Billing Rate-USD/ppm Onsite - Linear Offshore - Linear Yeild per Employee(excld- Trainee) Employee Metrics Total Employee Attrition Utilization rate %(xclude IP Led ) 3QFY12 4QFY13 1QFY13 QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 16.0% 38.6% 49.4% 15.9% 37.0% 48.3% 17.2% 36.6% 48.8% 17.8% 33.5% 45.3% 20.7% 36.3% 47.0% 21.1% 37.3% 49.4% 12665 3803 3208 12387 3778 3247 12603 3895 3350 12789 3898 3345 12863 3978 3746 12772 4032 3817 6900 17.7% 73.8% 6706 17.4% 74.1% 6628 18.3% 71.7% 6536 18.9% 74.1% 6370 16.9% 75.2% 6719 16.0% 77.3% 21.6% 36.7% 47.9% 21.2% 34.7% 46.0% 22.5% 36.4% 47.3% 19.8% 36.9% 46.9% 14014 4143 3769 14567 4111 3602 14283 4109 3919 14510 4179 3934 6970 14.4% 72.5% 7144 14.2% 70.0% 7457 14.0% 71.7% 7602 13.2% 72.9% Financials Rs in Cr, Sales Employee Cost Cost of technical professionals Other expenses Total expenses EBITDA Depreciation Other Income EBIT Interest Cost Profit (+)/Loss (-) Before Taxes Provision for Taxes Net Profit (+)/Loss (-) Growth-% (YoY) Sales EBITDA PAT Expenses on Sales-% Employee Cost Other expenses Tax rate Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% P/BV P/E FY10 601.16 368.74 0 86.05 454.79 146.37 33.52 11.23 112.85 0 124.08 9.05 115.03 FY11 775.84 481.62 30.67 105.24 617.53 158.31 42.39 34.44 115.92 0 150.36 10.62 139.74 FY12 1000.3 599.05 41.68 135.2 775.93 224.37 61.1 34.44 163.27 0.00 197.71 55.09 142.62 FY13 1294.5 719 54 218 990.78 303.72 78 34.44 225.44 0.03 259.851 75.37 184.481 FY14E 1666.59 899.96 91.66 291.65 1283.28 383.32 100.55 55.00 282.76 0.05 337.71 92.03 245.69 FY15E 2061.72 1123.64 113.39 366.99 1604.02 457.70 93.54 72.16 364.16 0.05 436.28 119.98 316.30 1.2% 60.2% 74.1% 29.1% 8.2% 21.5% 28.9% 41.7% 2.1% 29.4% 35.4% 29.4% 28.7% 26.2% 33.2% 23.7% 19.4% 28.7% 61.3% 14.3% 7.3% 62.1% 13.6% 7.1% 59.9% 13.5% 27.9% 55.5% 16.9% 29.0% 54.0% 17.5% 27.3% 54.5% 17.8% 27.5% 24.3% 18.8% 19.1% 20.4% 14.9% 18.0% 22.4% 16.3% 14.3% 23.5% 17.4% 14.3% 23.0% 17.0% 14.7% 22.2% 17.7% 15.3% 310 4 639.0 28.8 159.7 18.0% 1.9 10.8 366.7 4 747.1 34.9 186.8 18.7% 2.0 10.5 409.2 4 840.5 35.7 210.1 17.0% 1.9 11.5 541 4 1018.3 46.1 254.6 18.1% 2.1 11.7 994 4 1212.5 61.4 303.1 20.3% 3.3 16.2 994 4 1477.3 79.1 369.3 21.4% 2.7 12.6 (Source: Company/Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 20
  21. 21. UCO BANK 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 BUY 84 82 ##### 532205 UCOBANK 86.65/46 5561 2960821 6154 Stock Performance Absolute Rel.to Nifty 1M -0.7 -0.6 1yr -5.4 -9.0 YTD -5.4 -9.0 Share Holding Pattern-% Current 1QFY14 4QFY1 3 Promoters 69.3 69.3 69.3 FII 4.2 3.9 3.2 DII 12.4 12.5 13.0 Others 14.2 14.3 14.6 "BUY" 27h Jan, 2014 UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII along with higher than industry average loan growth. Bank’s asset quality improved sequentially despite of challenging macro environment. However bank’s CASA growth has declined marginally in sequential basis but still at comfortable level. UCO Bank’s operating as well as financials metrics has been improving continuously. We value bank at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s earning. NII growth of 33% YoY led by higher than industry loan growth and high CD ratio During quarter, bank reported NII growth of 33% YoY to Rs.1566 cr below of our expectation of Rs. 1642 cr largely due to higher cost of fund than anticipated which led by sequentially declined of low cost deposits(CASA). NII growth of 33% YoY was much higher than its peers which have delivered result so far. Other income was Rs.190 cr versus Rs.209 cr in 2QFY14 and Rs.190 cr in 3QFY14. With the lower support from other income, total revenue growth was 28.5% YoY to Rs.1756 cr. Healthy NII growth and controlled cost income ratio led operating profit growth Operating expenses increased by 15.5% YoY in which employee cost and other operating expenses increased by 12.7% and 21% YoY respectively. Cost income ratio declined from 39.2% in 3QFY13 to 35.3% inn3QFY14. With the support from healthy NII growth and lower cost income ratio, bank’s operating profit grew by 37% YoY to Rs.1137 cr. Stable asset quality in sequential basis despite of challenging environment On delinquencies front, bank reported very stable asset quality in sequential basis UCO Bank Vs Nifty with GNPA deteriorated by 0.3% to Rs.7353 cr versus Rs.7376 cr in challenging macro environment. In percentage term GPA improved by 25 bps to 5.2% versus 5.5% in previous quarter. Provisions in absolute term declined by 0.7% in sequential basis which led net NPA improve to 0.3%. In percentage of gross NPA to gross advance, it stood at 5.2% versus 5.5% in 2QFY14 while net NPA in percentage term was improved to 3% from 3.1% in previous quarter. Provisions coverage ratio (without technical write-off), was 46.4% as against 46.6% in previous quarter. Rs, Cr Financials 2011 2012 2013 2014E 2015E NII 3845 3902 4582 6186 6289 Total Income 4770 4868 5534 7335 7438 PPP 2695 2811 3357 4850 5132 Net Profit 907 1109 618 1585 2101 EPS 16.5 17.7 9.3 23.8 31.6 (Source: Company/Eastwind) 21 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report.
  22. 22. UCO BANK Loan and deposits reported higher growth than industry average On balance sheet growth front, bank’s advance grew by 16.5% YoY while deposits grew by 13.4% YoY led by CASA growth of 23% YoY in absolute term. CASA in percentage of total deposits improved to 30.5% versus 19.2% in 3QFY13. Saving deposits and current deposits increased by 13% and 38% YoY respectively. But in sequential basis, CASA deposits declined to 30.5% from 31.8% and 32.1% in 1QFY14. Credit deposits ratio for quarter stood at 73.5% as against 71.6% in 3QFY14 and 71.4% in previous quarter. Total business (Deposits +Advance) grew by 14.7% YoY to Rs.3.34 lakh Cr versus Rs.2.91 lakh Cr. Marginal expansion of NIM on account of declined loan yield than cost of fund NIM improved by 60 bps YoY to 3.06% from 2.42% largely due to lower cost of deposits which was lead by low cost franchise network. Cost of deposits stood at 6.27% versus 6.92% in 3QFY14. Yield on advance (EW calculation) declined from 10.5% to 10% which has restricted limited NIM growth. Profit tripled on account of healthy NII growth, lower CI ratio and stable asset quality UCO Bank reported net profit growth of 207% YoY to Rs.315 cr as against our expectation of Rs.338 cr largely due to robust growth in NII, lower cost income ratio, improving asset quality which led lower provisions and high credit deposits ratio. Valuation & View UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII along with higher than industry average loan growth. Bank’s asset quality improved sequentially despite of challenging macro environment. However bank’s CASA growth has declined marginally in sequential basis but still at comfortable level. UCO Bank’s operating as well as financials metrics has been improving continuously. We value bank at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s earning. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 22
  23. 23. UCO BANK Fundamental Through Graph NII growth of 33% YoY led by higher than industry loan growth and high CD ratio Healthy NII growth and controlled cost income ratio led operating profit growth Profit tripled on account of healthy NII growth, lower CI ratio and stable asset quality Source:Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 23
  24. 24. UCO BANK Quarterly Performance 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 3543 1138 29 19 4729 190 4919 3163 1566 190 1756 395 225 620 1137 812 325 10 315 2QFY14 3396 1026 8 14 4444 209 4653 2875 1569 209 1779 382 230 612 1166 759 408 7 400 3QFY13 3197 923 30 21 4171 190 4361 2994 1177 190 1367 351 186 536 831 728 103 1 102 % YoY % QoQ 10.8 4.3 23.3 11.0 -2.7 243.2 -13.7 31.7 13.4 6.4 0.4 -9.0 12.8 5.7 5.6 10.0 33.0 -0.2 0.4 -9.0 28.5 -1.3 12.7 3.3 20.9 -2.4 15.5 1.2 36.8 -2.5 11.5 7.0 215.1 -20.3 1536.5 40.7 206.9 -21.4 Balance Sheet Net Worth Deposits Total Liabilities Advances Total Assets 11085 192406 203491 141457 141457 10770 188779 212416 135233 212416 9399 169711 179110 121455 121455 17.9 2.9 13.4 1.9 13.6 -4.2 16.5 4.6 16.5 -33.4 7,353 4217 5.2 3.0 46.4 7,376 4228 5.5 3.1 46.6 6,711 3927 5.5 3.2 41.5 9.6 -0.3 7.4 -0.3 Asset Quality GNPA NPA % GNPA % NPA % PCR(Without technical writeoff) Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 24
  25. 25. UCO BANK Income Statement 2011 2012 2013 2014E 2015E Interest Income Interest Expense NII Change (%) Non Interest Income Total Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions PBT PAT Change (%) 11371 7526 3845 65.4 925 4770 45.0 2075 2695 58.0 1788 907 907 -10.4 14632 10730 3902 1.5 966 4868 2.0 2056 2811 4.3 1661 1150 1109 22.3 16752 12170 4582 17.4 952 5534 13.7 2177 3357 19.4 2710 647 618 -44.2 18346 12160 6186 35.0 1149 7335 32.5 2485 4850 44.5 3217 1634 1585 156.4 22476 16186 6289 1.7 1149 7438 1.4 2306 5132 5.8 2798 2334 2101 32.5 99071 32031 6 5475 42927 99071 20 115540 17 34403 7 12901 45771 115540 17 128283 11 55733 62 9492 52245 128283 11 153939 20 67707 21 12315 62692 153939 20 184727 20 81249 20 14777 75231 184727 20 Avg. Yield on loans Avg. Yield on Investments Avg. Cost of Deposit Avg. Cost of Borrowimgs 8.6 6.6 4.7 12.5 9.9 7.1 6.5 6.1 10.0 7.1 6.6 7.0 9.0 6.8 7.0 6.0 9.0 7.5 6.4 6.0 Valuation Book Value CMP P/BV 135 107 0.8 137 79 0.6 146 50.1 0.3 173 75.25 0.4 185 75.25 0.4 Balance Sheet Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%) Ratio Source: Company/Eastwind Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 25
  26. 26. 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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