Share Analysis Today: Buy Stock of Bank of Baroda’s with Target Price Rs.634/share

IEA-Equity
Strategy

India Equity Analytics

21th Feb, 2014

Daily Fundamental Report on Indian Equities

BANKBARODA :

"BUY"

Edition : 211
21th Feb 2014

Bank of Baroda’s profitability was up by 3.6% YoY due to right back of depreciation provisions. Bank’s operating and financials metrics were
remained muted except healthy loan growth. Margin compressed sequentially but management guided domestic NIM of 3% from present of
2.95% which seems achievable if we look at balance sheet structure. We value bank at Rs.634/share which implies 0.75 times of FY14E’s book
value. ......................................................................... ( Page : 2- 7)

J&K BANK :

"BUY"

20th Feb 2014

J&K Bank’s profitability increased by 11% YoY on account of reversal of provisions against NPA and investments, further on account of lower tax
rate profits inflated. Operating profit was flat at 1.4% YoY led by moderate NII growth which further led to margin compression. We lower our
price target to Rs.1525 from earlier of Rs.1578 which implies 1.3 times of FY14E book and 6 times of price earning.
.................................................................................... ( Page : 8- 12)

Britannia Inds :"Decent quarter"

"BUY"

19th Feb 2014

Once again, Britannia Industries revealed better earning performance than street expectation. Its consolidated revenue grew by 10.7% (YoY) led
by 4-5% volume growth during the quarter.The company's margins are also likely to expand due to higher proportion of premium products and
easing input costs. We have "BUY" view on the stock with a target price of Rs 1065. At a CMP of Rs915, stock trades at 9.3x FY15E P/BV.
................................................. ( Page : 13-15)

eClerx Services :"Consistent Performer"

"BUY"

18th Feb 2014

eClerx Services witnessed inline set of growth with 2.3 %(QoQ) sales growth in INR term and 4.7%(QoQ) in USD term (4% in CC term) led by
some preponement of volume of work from Q4 into Q3 which has resulted into the slightly higher sequential growth. Company’s high RoE and
dividend payout ratio make attractive to invest on the stock. ........................................................ ( Page : 16-18)

State Bank of India :

"BUY"

17th Feb 2014

SBIN’s profitability was declined by 34% YoY largely due to higher provisions and contingencies led by deterioration in asset quality and higher
tax in order to create DTL special reserve as per suggestion by RBI. Bank’s NII grew by 13.3% YoY led by higher loan growth and stable NIM.
Asset quality slightly deteriorated with GNPA stood at 5.9% versus 5.8% in previous quarter and net NPA further worsen to 3.2% against 2.9%
sequentially due to lower loan loss provisions made. We value bank at Rs.1779/share which is 1.1 times of FY14E book value.
.............................................................................................. ( Page : 19-23)

SUNPHARMA :Robust Performance

"NEUTRAL"

17th Feb 2014

Sun Pharmaceuticals Industries limited posted 3QFY14 results above street expectations with total revenues including other operating income
at Rs 4312 Cr up 50.5 % YoY led by robust growth in US formulations and Taro business. The stellar performance of company was supported
well from domestic operations. The US formulation business grew by more 56 % YoY to USD 434 Mn
.................................................................................................. ( Page : 24-25)

CIPLA :

"BUY"

14th Feb 2014

Cipla Limited posted its 3QFY14 results with its standalone net revenues at Rs 2282 up 10 % YoY led by healthy growth in export business with
well support from India operations to. The revenues from export business including formulations and API grew by 36 % to 1509 Cr for the
quarter while domestic business grew by 9% YoY to 1044 Cr. ................................................ ( Page : 26-27)
Narnolia Securities Ltd,

BANKBARODA

"BUY"
21h Feb. 2014

ANNUAL REPORT UPDATE

Result 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
513
624
22

532134
BANKBARODA
773/429
21627
18.25 Cr
6091

During quarter bank’s most of operating as well as financials was muted
except loan growth of 18% YoY. Asset quality was better among peers but in
tight liquidity situation it would remain challenging. Margin was compressed
slightly in sequential basis but management continued to guided domestic
NIM at 3% level from present of 2.95%. We value bank at Rs.634/share which is
0.75 times of FY14E’s book value.
Moderate NII growth despite of healthy loan growth and stable CD ratio
Bank’s NII growth moderate at 7.8% YoY to Rs. 3057 cr despite of healthy loan
growth and stable CD ratio. This was due to margin compression of 28 bps YoY led
by lower loan yield than cost of fund. However bank has taken several steps to
reduce the cost as share of bulk deposits declined to 73.8% from 79.3% in last year
and liability franchise increased by increased by 556 bps YoY. Other income (11%
YoY) was supportively help to growth revenue by 8.4% YoY to Rs.3989 cr.

Stock Performance
1M
Absolute
-18.8
Rel.to Nifty
-15.3

1yr
-32.4
-35.7

YTD
-32.4
-35.7

Share Holding Pattern-%
Current 4QFY13 3QFY1
3
Promoters
55.4
55.4
55.4
FII
15.5
15.5
15.3
DII
19.6
19.6
19.0
Others
9.5
9.5
10.3

Higher operating expenses led de-growth in operating profit
Operating expenses increased by 25.7% in which employee cost increased higher by
32.3% YoY followed by 17.3% other operating expenses. This was result of
escalating cost to income ratio to 45% from 39% in last year. Higher cost income
ratio and moderate income growth led operating profit de-growth by 2.6% YoY to
Rs.2197 cr.
Provisions lower on account of right back of investment depreciation
Provisions and contingencies declined by 12% QoQ largely due to reversal of
provisions against investment depreciation to the tune of Rs.120 cr as against Rs.93
cr in previous quarter. Loan loss provision was by and large same as in previous

BANKBARODA Vs Nifty

quarter and stood at Rs.819 cr versus Rs. 838 cr. With the reversal of provisions,
PBT increased by 17% YoY and 14% QoQ to Rs.1436 cr.
Profitability increased due to lower provisions
Profitability increased by 3.6% YoY to Rs.1048 cr on account of higher tax provision
made by bank led by DTL special reserve as per suggestion by RBI. In 9MFY14,
total effective tax rate altogether came to 17%. Management guided tax rate for full
year would be 20-22%.

Financials
NII
Total Income
PPP
Net Profit
EPS

2011
8802
11611
6982
4242
108.3

2012
10317
13739
8581
5007
121.8

Please refer to the Disclaimers at the end of this Report.

Rs, Cr
2013
2014E
2015E
11315
12218
14122
14946
16400
18304
8999
9206
10067
4481
4444
4819
106.4
105.5
114.4
(Source: Company/Eastwind)
2

BANKBARODA
Asset quality by and large stable, PCR increased
On asset quality front, bank’s gross NPA increased by 10% YoY and net NPA
deteriorated by 5% in absolute term led by higher provision in balance sheet. In
percentage term, GNPA and net NPA stood at 3.4% and 1.9% versus 3.2% and 1.9% in
previous quarter. Provisions coverage ratio without technical write off was improved by
246 bps QoQ to 44.5%. Bank’s asset quality was better than among peers under our
coverage universe.
Margin compression on account of higher cost of fund than fund yield
NIM compressed by 5 bps QoQ to 2.37% due to stable loan yield while cost of fund
increased marginally by 10 bps to 5.4%. Bank has taken several steps to curtail cost by
reducing share of bulk deposits and increasing CASA ratio. Domestic NIM improved to
2.95% versus 2.85% in previous quarter whereas oversea NIM remained flat at 1.18% as
against 1.19%. Domestic NIM improvement was on account of higher investment yield to
7.98% from 7.9% on sequential basis.
Loan growth healthy led by SME and retail
Overall deposits de-grew by 4% YoY led by 10% declined of term deposits on year on
year basis. Current account and saving account deposits registered growth of 19% and
13% YoY respectively. This was the result of CASA ratio increased by 556 bps YoY to
26.2%. Loan grew by 18% YoY led by SME growth of 39.2% YoY followed by 21% YoY
growth retail. Corporate loan growth remained intact as bank’s has caution outlook
towards corporate exposure in tight economy scenario.
Valuation & View
During quarter bank’s most of operating as well as financials was muted except loan
growth of 18% YoY. Asset quality was better among peers but in tight liquidity situation it
would remain challenging. Margin was compressed slightly in sequential basis but
management continued to guided domestic NIM at 3% level from present of 2.95%. We
value bank at Rs.634/share which is 0.75 times of FY14E’s book value.


3

BANKBARODA

Bank’s NII growth moderate at 7.8% YoY to Rs.
3057 cr despite of healthy loan growth and
stable CD ratio. This was due to margin
compression of 28 bps YoY led by lower loan
yield than cost of fund

Higher operating expenses led de-growth in
operating profit

Profitability increased due to lower provisions

Source: eastwind/Company

4

BANKBARODA
Quarterly Result (Rs Cr)
Interest/discount on advances / bills
Income on investments
Interest on balances with Reserve Bank of India
Others
Total Interest Income
Others Income
Total Income
Interest Expended
NII
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
Exceptional Items
PBT
Tax
Net Profit

3QFY14
7061
2175
245
209
9691
932
10623
6634
3057
932
3989
1056
736
1792
2197
762
16
1436
372
1048

2QFY14
6832
2220
281
140
9473
974
10447
6579
2895
974
3869
1030
714
1744
2125
861
16
1264
80
1168

3QFY13 % YoY Gr
6485
8.9
1898
14.6
403
-39.2
58
258.2
8845
9.6
841
10.9
9686
9.7
6004
10.5
2841
7.6
841
10.9
3681
8.4
798
32.3
627
17.3
1426
25.7
2256
-2.6
1029
-26.0
12
25.0
1227
17.0
203
83.7
1012
3.6

Balance Sheet Date( Rs Cr)
Equity Capital
Reserve & Surplus
Net Worth
Total Deposits
Borrowings
Other liabilities and provisions
Total Liability
Cash in hand
Cash and balances with RBI
Total Investment
Advances
Fixed Assets
Others Assets
Total Assets

423
35232
35654
503772
29304
18638
587368
16742
87599
115210
352446
2562
12809
587368

423
35127
35549
484931
28558
13995
563033
15681
79980
111840
339855
2498
13179
563033

412
30966
31379
414733
27899
14552
488563
17147
58295
101848
299318
2399
9557
488563

11926
6624
3.4
1.9
44.5

10888
6316
3.2
1.9
42.0

7321
3363
2.4
1.1
54.1

Asset Quality
GNPA( Rs Cr)
NPA(Rs Cr)
% GNPA
% NPA
% PCR (without technical writeoff)

% QoQ Gr 3QFY14E
3.3
7173
-2.0
2350
-12.8
397
50.1
173
2.3
10092
-4.3
1102
1.7
11194
0.8
6792
5.6
3300
-4.3
1102
3.1
4402
2.5
1189
3.1
792
2.7
1981
3.4
2421
-11.5
897
0.0
0
13.6
1524
364.7
457
-10.3
1067

2.5

0.0

13.8

0.3

13.6

0.3

21.5

3.9

5.0

2.6

28.1

33.2

20.2

4.3

-2.4

6.8

50.3

9.5

13.1

3.0

17.7

3.7

6.8

2.6

34.0

-2.8

20.2

4.3

Source: Eastwind/Company

6

BANKBARODA
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 (%)

21886
13084
8802
48.2
2809
11611
32.8
4630
6982
41.5
1331
5650
4242
38.7

29674
19357
10317
17.2
3422
13739
18.3
5159
8581
22.9
2555
6026
5007
18.0

35197
23881
11315
9.7
3631
14946
8.8
5947
8999
4.9
4168
4831
4481
-10.5

39065
26847
12218
8.0
4182
16400
9.7
7194
9206
2.3
3559
5647
4444
-0.8

45206
31084
14122
15.6
4182
18304
11.6
8237
10067
9.4
4043
6024
4819
8.4

305439
27
87589
23
22308
71261
228676
31

384871
26
103524
18
23573
83209
287377
26

473883
23
119981
16
26579
121394
328186
14

521272
10
135531
13
33273
122000
367568
12

573399
10
149084
10
36600
134200
404325
10

Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost of Deposit
Avg. Cost of Borrowings

8.0
7.0
4.3
5.5

8.7
7.8
5.1
6.7

8.4
6.4
5.2
5.4

8.6
7.3
5.2
5.5

9.3
8
5.4
5.5

Valuation
Book Value
CMP
P/BV

536
963
1.8

668
794
1.2

759
652
0.9

846
513
0.61

929
513
0.6

Balance Sheet
Deposits( Rs Cr)
Change (%)
of which CASA Dep
Change (%)
Borrowings( Rs Cr)
Investments( Rs Cr)
Loans( Rs Cr)
Change (%)

Ratio


7

J&K BANK
Company Update
CMP
Target Price
Upside

BUY
1329
1525
1578
15
-3

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Nifty

532209
J&KBANK
1496/995
6419
22.54lakh
6153

Stock Performance
Absolute
Rel.to Nifty

1M
-4.6
-1.8

1yr
2.1
-1.8

YTD
2.1
-1.8

3
Promoters
53.2
53.2
53.2
FII
28.2
27.1
24.8
DII
4.5
4.3
5.0
Others
14.1
15.4
17.1
J&k Bank Vs Nifty

"BUY"
20th Feb, 2014

We are disappointed with the growth parameters of bank and accordingly
reduce our target price from Rs.1578 to Rs.1525 due to lower growth in
balance sheet especially within state of Jammu & Kashmir. Bank’ profitability
was up by 11% due to reversal of provisions towards NPA and investment
depreciation while tax rate reduce to 28% versus 30% in last year. Bank’s
management continued to guide loan growth of 20% in FY14 but we lower our
loan growth assumption to 15% for FY14. We value bank at Rs.1525/share
which implies that 1.3 times of FY14E book value and 6 times of price
earnings.
Moderate growth in deposits; CASA remained flat
Bank’s deposits grew by 11% YoY in which 12% growth within state of J&K while
deposits grew by 7% YoY in outside of state. CASA in absolute term reported growth
of 9% YoY while share to total deposits declined by 65 bps YoY 38.8%. Saving
deposits and current deposits registered growth of 5% and 10% YoY respectively
whereas term deposits reported growth of 12% YoY. Despite of lower growth in
CASA bank’s cost of deposits remain stable at 6.6% while cost of fund increased by
16 bps YoY.
Loan grew handsomely led by corporate loan growth
Loan grew by 21.5% YoY led by loan growth in J&K state by 25% YoY and 19% YoY
growth in outside state. Incremental loan came from corporate loan book which grew
by 23.4% YoY followed by agriculture (21.2% YoY) and SME (21% YoY). Corporate
loan constituted 83% in outside J&K sate, mostly infrastructure segment which has
high risk of restructure. Bank’s management guided loan growth of 20% in FY14
which means bank has to achieve 9% QoQ growth in loan as against quarterly run
rate of 5%.We lower our loan growth assumption from 20% to 15% in FY14E. Credit
deposits ratio improved by 611 bps YoY largely due to lower deposits growth as
against loan.
Margin compression on account of higher cost of fund than deposits
Bank’s margin compressed by 36 bps QoQ to 3.97% due to 41 bps QoQ declined of
loan yield to 11.7% while deposits cost increased by 47 bps to 6.6%. Investment
yield improved by 55 bps to 7.7%. Overall cost of fund increased to 6.6% from 6.2%
in previous quarter whereas yield on fund improved slightly from 9.8% to 9.9% which
compressed margin by 36 bps sequentially.
Rs, Cr
Financials
2011
2012
2013
2014E
2015E
NII
1544
1838
2316
2724
3356
Total Income
1908
2172
2800
3097
3728
PPP
1149
1370
1811
1952
2349
Net Profit
615
803
1055
1271
1535
EPS
105.7
126.9
165.7
217.6
262.2
8

J&K BANK
Stable asset quality; PCR highest in industry
On asset quality front, bank’s GNPA increased by 2% QoQ in absolute basis while in
percentage to gross advance, it slightly improved from 1.72% to 1.67% sequentially.
During quarter, bank lowered its provisions by 1% which was the result of increased of
net NPA by 25% QoQ in absolute term. However in percentage to net advance, it stood
at 0.22% as against 0.19% in previous quarter. Fresh slippage ratio was at 1.4 %(
annualized) during quarter which was lower from previous quarter of 1.9%. Provisions
coverage ratio remained high at 86.6% (without technical write off) which was best in
industry in our coverage universe.
Moderate growth in NII despite of healthy loan growth
Bank’s NII grew by 8.8% to Rs.647 cr despite of healthy loan growth and improvement in
CD ratio led by margin compression. Other income was also lower to Rs.87 cr versus
Rs.91 cr in last quarter and Rs.99 cr in previous quarter. With the lower support from
other income, total revenue grew by 7.2% YoY to Rs.734 cr.
Higher operating expenses led flat growth in operating profit
Operating expenses increased by 17% YoY in which employee cost and other operating
cost increased by 15% and 22% YoY respectively. Consequently CI ratio increased by
340 bps to 40%. Moderate loan growth, lower other income and higher operating cost led
pre provisioning growth of 1.4% YoY.
Profitability increased on account of reversal of provisions and lower tax rate
Profitability increased by 11% YoY to Rs.321 cr despite of flat operating profit growth was
due to reversal of provisions towards NPA and depreciation. Bank’s provisions and
contingencies declined by 121% YoY due to Rs. 13 cr reverse from NPA provision and
Rs.5 cr reverse from investment depreciation provision. Tax rate was also lower to 28%
versus 31% in previous quarter and 30% in last quarter. We are disappointed with growth
parameters of profit and loss account. Bank’s balance sheet within J&K state especially
in deposits growth sense remained muted while credit growth grew handsomely. Overall
we found mixed growth trend which discourage us to reduce price target.
Valuation & View
We are disappointed with the growth parameters of bank and accordingly reduce our
target price from Rs.1578 to Rs.1525 due to lower growth in balance sheet especially
within state of Jammu & Kashmir. Bank’ profitability was up by 11% due to reversal of
provisions towards NPA and investment depreciation while tax rate reduce to 28% versus
30% in last year. Bank’s management continued to guide loan growth of 20% in FY14 but
we lower our loan growth assumption to 15% for FY14. We value bank at Rs.1525/share
which implies that 1.3 times of FY14E book value and 6 times of price earnings.

9

J&K BANK

Moderate growth in NII despite of healthy
loan growth

Higher operating expenses led flat growth in
operating profit

Profitability increased on account of reversal
of provisions and lower tax rate


10

J&K BANK
Quaterly Result (Rs. Cr)
Others
Others Income
Total Income
Interest Expended
NII
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
PBT
Tax
Net Profit

Balance Sheet Data ( Rs Cr)
Net Worth
Deposits
Borrowings
Advances
Investment

Asset Qaulity ( Rs Cr)
GNPA
NNPA
GNPA(%)
NNPA(%)
PCR(%)

3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation(%)
1266
1244
1090
16.2
1.7
1322
-4.3
434
396
421
3.2
9.7
423
2.6
16
10
23 -31.4
60.2
13
16.6
0
0
0
0
1716
1650
1533
11.9
4.0
1759
-2.5
87
99
91
-3.4
-12.1
96
-8.8
1803
1749
1624
11.0
3.1
1855
-2.8
1069
968
939
13.8
10.4
1022
4.6
647
682
594
8.8
-5.2
738
-12.3
87
99
91
-3.4
-12.1
96
-8.8
734
781
685
7.2
-6.0
834
-11.9
188
177
164
14.7
6.3
180
4.3
105
108
86
22.3
-2.5
120
-12.2
293
285
250
17.3
2.9
300
-2.3
441
496
435
1.4
-11.2
533
-17.4
-5
56
22 -120.6
-108.3
48
-109.5
445
441
412
8.0
1.1
485
-8.2
124
138
123
0.9
-10.1
145
-14.7
321
303
289
11.0
6.2
339
-5.4

5797
63157
1150
43318
22714

5475
61171
1346
41121
22316

4898
57075
801
35658
22681

18.3

5.9

10.7

3.2

43.6

-14.6

21.5

5.3

0.1

1.8

725
97
1.67
0.22
87

709
78
1.72
0.19
89

582
50
1.63
0.14
91

24.7

2.3

95.7

5815
65907
1579
44081
24200

24.9

-0.3
-4.2
-27.2
-1.7
-6.1


11

J&K BANK
P/L
Others Income
Total Income
Interest on deposits
Interest on RBI/Inter bank borrowings
Others
Interest Expended
NII
NII Growth(%)
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
Net Profit
Net Profit Grwoth(%)

2010

2011

2012

2013

2014E

2015E

2342
705
11
3057
416
3473
1841
83
14
1938
1119

2630
1066
17
3713
365
4078
2069
46
54
2169
1544
37.9
365
1908
524
235
759
1149
534
615
20.1

3394
1403
39
4836
334
5170
2902
41
54
2997
1838
19.1
334
2172
521
281
802
1370
567
803
30.6

4318
1723
97
6137
484
6621
3741
26
54
3821
2316
26.0
484
2800
652
337
989
1811
756
1055
31.4

5046
1713
56
6816
372
7188
3987
101
0
4092
2724
17.6
372
3097
675
469
1144
1952
137
1271
20.5

5703
1983
56
7742
372
8114
4386
139
0
4386
3356
23.2
372
3728
814
566
1379
2349
156
1535
20.8

44676
20.0
1105
0.4
26194
13.6
19696
41.1

53347
19.4
1241
12.3
33077
26.3
21624
9.8

64221
20.4
1075
-13.4
39200
18.5
25741
19.0

66789
4.0
1363
26.8
45080
15.0
24535
-4.7

73468
10.0
1884
38.2
51843
15.0
21099
-14.0

10.2
5.0
7.7
4.9
8.8
5.1

10.0
5.4
7.5
4.6
9.1
4.7

10.3
6.5
8.3
5.4
7.7
5.5

11.0
9.4
8.9
5.8
7.4
5.9

11.2
7.0
9.8
6.1
7.4
6.0

11.0
9.4
10.6
6.0
7.4
5.8

621
1.1
6.4

718
1.2
6.9

844
1.1
5.5

1003
1.3
5.9

1146
1.2
5.1

1412
0.9
4.2

416
1536
366
211
577
958
446
512

Key Balance sheet data
Deposits
Deposits Growth(%)
Borrowings
Borrowings Growth(%)
Loan
Loan Growth(%)
Investments
Investments Growth(%)

37237
1100
23057
13956

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


12

Britannia Inds

"BUY"
19th Feb' 14

"Decent quarter"
Result update

BUY

Consistency on witnessing better numbers with Margin expansion:

CMP
Target Price
Upside

915
1065
16%
-

Once again, Britannia Industries revealed better earning performance than street
expectation. Its consolidated revenue grew by 10.7% (YoY) led by 4-5% volume growth
during the quarter. Even, company has hiked the prices of some of its brands during
the quarter. PAT grew by 61% (YoY) because of its effective cost rationalization efforts.

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
Nifty

500825
BRITANNIA
973/478
10967
248428
6127

Stock Performance
1M
1.7
3.8

Absolute
Rel. to Nifty

1yr
86.9
82.8

YTD
34.57
18.27

Promoters
FII
DII
Others

Current
50.75
20.11
8.77
20.38

1 year forward P/BV

2QFY14 1QFY14
50.8
50.85
19.11
19.48
9.59
9.89
20.5
19.78

The management expects the biscuit business to grow by 10-11% in FY14E, whereas
the non-biscuit business to grow at a faster rate by 20-25% in FY14E. Over the last few
quarter, company has more focused on its product portfolio expansion. We expect
that new products expansion is likely to increase going forward. By judicious mix of
cost rationalization and high value added biscuits, we expect its margin expansion
gradually over next couple of quarters.
Margin Pickup: EBITDA Margin improved by 250 bps to 8.9%. The operating profit has
increased by 54% mainly due to decline in raw material cost by 420 bps to 54.7% and
purchase of stock in trade by 100 bps to 7.3% of adjusted net sales. The company also
expects to track margin expansion ahead by judicious mix of cost rationalization and
increasing supply chain efficiency.
No pressure on RM cost: High food price inflation remains a concern for the company.
Thankfully, Britannia doesn’t import much raw materials from abroad and is thus not
affected by rupee fluctuations. Its strategy of focusing on premium brands has not only
allowed the company to hike prices but also improve its product mix as well.
Pricing and Promotion: During the quarter, company initiated its price hike of some of
its brand. The full benefit of these prices hikes will be seen in the March quarter. Its
strategy of focusing on premium brands has not only allowed the company to hike prices
but also improve its product mix as well.
Healthy distribution reach: The Company is also taking initiative to increase its rural
distribution reach for benefitting the opportunity of increasing consumption of food
products in rural markets. The company plans to increase its overall distribution
coverage by around 7-8% every year and rural coverage by around 10% every year.
View and Valuation: Management also believes that volume growth will recover
gradually over the next few quarters, driven by higher brand spends and portfolio
expansion. The company's margins are also likely to expand due to higher proportion of
premium products and easing input costs. We have "BUY" on the stock with a target
price of Rs 1065. At a CMP of Rs915, stock trades at 9.3x FY15E P/BV.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
1771.94
159.7
99.8
9.0%
5.6%

2QFY14
1755.27
160.4
97.1
9.1%
5.5%

(QoQ)-%
0.9
(0.4)
2.8
(10bps)
10bps

3QFY13
1620.4
103.5
62
6.4%
3.8%

Rs, Crore
(YoY)-%
9.4
54.3
61.0
260bps
180bps



13

Britannia Inds.
Sales and Sales growth-%(YoY)

Entry into new categories like cereals will
also help drive growth. Consequently, the
company's earnings are expected to grow
20% over the next 2 years.


Margin-%

The company's margins are also likely to
expand due to higher proportion of
premium products and easing input costs.


Expenses on Sales-%

volatility on key input (wheat, sugar, palm
oil) would prices directly impact its
margin picture,


Sale of Land in Chennai and Banglore could result in Value unlocking: The company
plans to sell off its 8.60 acres industrial land in Chennai,which is located at Madras
Thiruvallur High (MTH) Road, Padi, Chennai. We expect the company to realize around
Rs120 crores to Rs150 crores from this land sale when it happens. Further the company
has another 5.0 acres prime real estate land in Bangalore at old airport road which can
fetch around Rs 350 crores.


14

Britannia Inds.
Financials
Rs in Cr,
Net Sales
Other Operating Income
Total income from operations (net)
Raw Materials Cost
Purchases of stock-in-trade
WIP
Employee Cost
Advertisement and Publicity
Other expenses
Total expenses
EBITDA
Depreciation
Other Income
EBIT
Interest Cost
Profit (+)/Loss (-) Before Taxes
Provision for Taxes
Net Profit (+)/Loss (-)

FY10
3770.84
63.53
3834.37
2416.78
0
0
157.9
300.96
728.57
3604.21
230.16
58.23
0
171.93
23.46
148.47
5.58
142.89

FY11
4589.73
19.65
4609.38
2714.38
328.91
-15.68
177.49
332.84
834.76
4372.7
236.68
64.91
59.01
230.78
43.63
187.15
52.94
134.21

FY12
5460.75
24.62
5485.37
3109.12
437.68
-14.03
211.15
419.6
1010.98
5174.5
310.87
61.83
59.14
308.18
41.6
266.58
66.85
199.73

FY13
6135.91
49.5
6185.41
3350.51
518.51
-7.57
226.75
534.28
1142.39
5764.87
420.54
73.15
52.24
399.63
41.3
358.33
98.55
259.78

FY14E
6869.15
68.69
6937.84
3722.15
520.34
-76.32
270.58
610.53
1255.75
6303.03
634.81
84.12
27.75
578.44
8.88
569.57
176.57
393.00

FY15E
7693.45
76.93
7770.38
4196.01
543.93
-77.70
310.82
660.48
1398.67
7032.20
738.19
100.50
38.85
676.54
4.10
672.45
208.46
463.99

Growth-% (YoY)
Sales
EBITDA
PAT

10.2%
-16.8%
-0.3%

21.7%
2.8%
-6.1%

19.0%
31.3%
48.8%

12.4%
35.3%
30.1%

12.0%
51.0%
51.3%

12.0%
16.3%
18.1%

63.0%
8.0%
4.1%
19.3%
3.8%

58.9%
7.3%
3.9%
18.2%
28.3%

56.7%
7.7%
3.8%
18.5%
25.1%

54.2%
8.7%
3.7%
18.6%
27.5%

53.7%
8.9%
3.9%
18.3%
31.0%

54.0%
8.6%
4.0%
18.2%
31.0%

6.0%
4.5%
3.7%

5.1%
5.0%
2.9%

5.7%
5.6%
3.6%

6.8%
6.5%
4.2%

9.2%
8.3%
5.7%

9.5%
8.7%
6.0%

504.7
11.95258
555.58
21.73
46.48
46.8%
45.5%
10.9
23.2

915.0
11.97
829.55
32.83
69.30
47.4%
30.3%
13.2
27.9

915.0
11.97
1174.50
38.76
98.12
39.5%
25.7%
9.3
23.6

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-%
Dividend payout-%
P/BV
P/E

1599.5
2.39
282.8
59.79
118.33
50.5%
126.4%
13.5
26.8

382.6
459.9
11.95
11.95
326.04
409.17
11.23
16.71
27.28
34.24
41.2%
48.8%
51.8%
45.1%
14.0
13.4
34.1
27.5



15

eClerx Services

"BUY"
18th Feb' 14

"Consistent Performer"
Result update

Buy

CMP
Target Price
Upside

1212
1074
881
-11%
22%

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
Nifty

532755
ECLERX
1255/599
3701
18894
6048

Stock Performance
Absolute
Rel. to Nifty

1M
20.4
14.6

1yr
26.3
20.5

YTD
30.6
16.3

Promoters
FII
DII
Others

Current
52.95
26.21
11.27
9.57

1 year forward P/E

2QFY14
52.88
22.37
14.72
10.03

1QFY14
53.13
21.38
14.80
10.69

Inline numbers , and expects to report better than NASSCOM guidance(FY14E);
eClerx Services witnessed inline set of growth with 2.3 %(QoQ) sales growth in INR
term and 4.7%(QoQ) in USD term (4% in CC term) led by some preponement of volume
of work from Q4 into Q3 which has resulted into the slightly higher sequential growth .
It expects some impact of this on Q4 growth. While, PAT decline by 7.2%, sequentially.
On demand environment, it indicated that there is no significant change and expects
to grow same pace of 10-15% in USD terms in the medium term. On margins, it
indicated that it will continue to operate in the mid 30% going forward. It continues to
look at inorganic opportunities.
Margin declined and expects to maintain stablity on demand: The OPM fell by 310 bps
QoQ to 37% on the back of rise in Selling and Distribution costs due to increase in onsite
headcount, bonus and commission and travel. Accordingly, PAT margin down by 270bps
to 28.6%, sequentially. Management is very confident to maintain its PAT margin at 3031% in near term.
Good growth from Financial Services: The Cable business grew faster on the low base,
Financial Services also grew fast during the quarter. In the Cable business, there is lot of
demand for its services. The digital and digital market has lot of demand and is another
key area.
Growth from Emerging revenue: It added 2 clients during the quarter. The Revenue
growth from Top 5 grew by 8% YoY and Emerging grew by 35% QoQ respectively during
the quarter. The Emerging revenue has continued to outpace growth in strategic clients
in line with firm strategy.
Approval on SEZ: The SEZ approval received for new floor in Airoli and planned go live
on April 2014 (600 Seats). It is discussing additional floors in Airoli to consolidate
Mumbai facilities, subject to regulatory approval. During the quarter, the Final payment
is done for Agilyst acquisition (for the total acquisition cost ~ $21 million) during the
quarter.
View and Valuation: We expect that company’s organic revenue growth remains soft in
near term, and company is very focussed on inorganic growth and expect to see growth
from cable business . Furthermore, stable billing rate will support to maintain margin.
Company’s high RoE and dividend payout ratio make attractive to invest on the stock.
At a CMP of Rs 1212, stock trades at 12.5x FY15E earnings, we recommend ”BUY”
view on the stock with a target price of Rs 1410 (revised from Rs 1350) .

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
219.5
88.81
62.33
40.5%
28.4%

2QFY14
214.6
92.8
67.91
43.2%
31.6%

(QoQ)-%
2.3
(4.3)
(8.2)
(270bps)
(320bps)

3QFY13
170.8
66.8
49
39.1%
28.7%

Rs, Crore
(YoY)-%
28.5
32.9
27.2
140bps
(30bps)



16

eClerx Services.
Sales (USD) and Sales growth-%(QoQ)

On $term, Sales growth was up by 4.7%
(QoQ) and 2.3% on INR term,


Margin-%


Employee Metrics-%

Attrition decreased from 36% (2QFY14) to
31.8% .


Key Facts from Cnference Call
(1) The billing rates expected to be flat to slight uptick for the FY15E.
(2) Expect to see similar set of environment in FY 15E than FY14.
(3) On margins, it indicated that it will continue to operate in the mid 30% (30-31%) going
forward.
(4) Tax rate is expected to see at 23% mark in FY15E.
(5) It continues to look at inorganic opportunities.
(6) Expects to maintain 51% of payout ratio.

17

eClerx Services.
Operating Metrics;
Sales Mix-Geography
North America
Europe
RoW

Client Concentration
Top-5
Client addition
Total Clients
DSO,days

Billing Mix
FTE
SEZ Revenue

Employee Metrics
Employee Utilization
Attrition
Total Employee
Employee Cost

3QFY12
70%
24%
6%

4QFY12
70%
23%
7%

1QFY13 2QFY13 3QFY13 4QFY13
71%
75%
75%
74%
20%
19%
18%
21%
9%
6%
7%
5%

1QFY14
74%
21%
5%

2QFY14
74%
21%
5%

3QFY14
74%
21%
5%

3QFY12
86%
8
53
52

4QFY12
87%
10
55
29

80%
79%
78%
78%
8
4
7
6
54
54
60
73
30
41
31
33

1QFY14
76%
5
61
35

2QFY14
75%
5
65
41

3QFY14
74%
2
65
33

3QFY12
94%
67%

4QFY12
95%
72%

93%
93%
92%
91%
62%
58%
59%
60%

1QFY14
94%
60%

2QFY14
95%
60%

3QFY14
95%
60%

3QFY12
72%
39%

4QFY12
72%
30.9%
4405
45.1%

68%
68%
69%
69%
23.2%
30.2%
26.5%
27.3%
5545
5760
5837
5954
42.4%
46.0%
45.0%
45.2%

1QFY14
66%
25.2%
6389
44.1%

2QFY14
65.0%
36.4%
6543
42.2%

3QFY14
66%
31.8%
6620
43.6%

Financials;
Rs, Cr
Sales
Empolyee Cost
Other expenses
EBITDA
Dep
EBIT
INT
Other Income
PBT
Tax
PAT
Growth-%
Sales-%
PAT-%
Margin-%
EBITDA
EBIT
PAT
Expense on Sales-%
Employee cost-%
Other expenses-%
Tax Rate%
Valuations
CMP
OS.Cr
EPS
NW
BVPS
P/E (x)
P/BV (x)
RoE-%

FY11
366.12
147.65
59.87
158.6
9.13
149.47
0
0
149.47
16.76
132.71

FY12
495.19
203.87
79.28
212.04
12.89
199.15
0
0
199.15
39.47
159.68

FY13A
660.58
295.28
108.47
256.83
25.53
231.3
0
0
231.3
39.34
191.96

FY14E
852.54
370.00
130.44
352.10
33.10
319.00
0.00
28.99
347.98
83.52
264.47

FY15E
1020.87
449.18
158.24
413.45
43.10
370.35
0.00
10.21
380.56
91.33
289.22

39.5%
80.5%

35.3%
20.3%

33.4%
20.2%

29.1%
37.8%

19.7%
9.4%

43.3%
40.8%
36.2%

42.8%
40.2%
32.2%

38.9%
35.0%
29.1%

41.3%
37.4%
31.0%

40.5%
36.3%
28.3%

40.3%
16.4%
11.2%

41.2%
16.0%
19.8%

44.7%
16.4%
17.0%

43.4%
15.3%
24.0%

44.0%
15.5%
24.0%

783.95
2.9
45.76207
238.32
82.17931
17.131
9.54
55.7%

625
2.958
53.9824
342.92
115.93
11.5778
5.39
46.6%

650
2.9875
64.2544
438.32
146.718
10.116
4.43
43.8%

1212
2.99
88.52
615.20
205.93
13.69
5.89
43.0%

1212
2.99
96.81
816.84
273.42
12.52
4.43
35.4%



18

State Bank of India

"BUY"
17th Feb, 2014

Result update
CMP
Target Price
Upside

BUY
1473
1779
1776
21
-

During quarter SBI’s profitability declined by 34% largely due to higher
provisions and contingencies led by deteriorating asset quality and higher tax
in order to create DTL special reserve as per suggestion by RBI. However,
bank has seen growth in loan and deposits which translated into growth in
profit loss to some extent. Due to higher operating expenses, operating profit
growth was negative despite of 14% growth in revenue. We value bank at
Rs.1779/share which would be 1.1 times of FY14E’s book value.

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Nifty

500112
SBIN
2469/1452
110126
9.44 lakh
6048

Moderate NII growth led by lower growth in interest earnings assets than
interest bearing liabilities
Bank reported NII growth of 13.4% YoY to Rs.12641 cr lower than our expectation of
Rs. 12959 cr largely due to lower interest income from advances than higher
deposits and borrowing cost. Total income was grown by 13.7% YoY to Rs.16831 cr
supported by other income growth of 15% YoY to Rs.4190 cr. Other income growth
was led by exchange and commission income gain of Rs.2971 cr and forex income
Rs.643 cr.

Stock Performance
1M
Absolute
-10.2
Rel.to Nifty
-5.9

1yr
-35.8
-37.9

YTD
-35.8
-37.9

3
Promoters
62.3
62.3
62.3
FII
8.8
8.9
9.8
DII
17.9
17.7
16.7
Others
10.9
11.1
11.2
SBIN Vs Nifty

Operating profit reported negative growth due to higher operating expenses
led by employee benefit provisions
Operating expenses increased by 31.4% YoY to Rs.9212 cr in which employee cost
and other operating cost increased by 35% and 25.7% respectively. Employee cost
was led by higher provision for pension and gratuity to the tune of Rs. 1355 cr as
against Rs.743 cr in 3QFY13 and Rs.1283 cr in 2QFY14. Adjusting the same,
employee cost increased by 8% YoY. Operating profit was declined by 2.2% YoY to
Rs.7618 cr. Cost income ratio increased by 735 bps YoY to 54.7% from 47.4% in
3QFY13.
Moderate NII growth, higher operating expenses and higher provision and tax
rate led profit de growth of 34% YoY
SBI’s profitability was declined by 34% YoY largely due to higher provisions and
contingencies led by deterioration in asset quality and higher tax rate in order to
create DTL special reserve as per suggestion by RBI.

Financials
NII
Total Income
PPP
Net Profit
EPS

2011
32526
48351
25336
8265
130.2

2012
43291
57643
31574
11707
174.5


Rs, Cr
2013
2014E
2015E
44331
49365
58302
60366
65288
74225
31081
29105
33401
14105
10241
11765
206.2
149.7
172.0
19

State Bank of India
Continue to report week trend of asset quality
During quarter bank increased provisions and contingencies by 37% QoQ to Rs. 4150 cr
due to deteriorating asset quality. In absolute term GNPA and net NPA increased by 6%
and 16% sequentially. In absolute term, GNPA and net NPA stood at 5.9% and 3.2%
versus 5.8% and 2.9% in 2QFY14 respectively. During quarter bank’s loan loss provision
increased by 29.6% sequentially and stood at Rs.23429 cr. Standard asset provisions
and depreciation provisions were Rs.196 cr and Rs.621531 cr respectively. Net
provisions were declined by 4% sequentially which resulted 16% rise in net NPA in
absolute term. Consequently provision coverage ratio without technical writ off was
declined by 475 bps QoQ to 45.2% from 50% in previous quarter.
Strong traction in loan and deposits growth
Loan grew by 17.4% YoY led by across the sectors. Loan to large corporate grew by 17%
YoY, mid corporate grew by 19%, SME grew by 14% and retail loan grew by 19%. Strong
traction in auto loan (21.2% YoY) and house loan (19.4% YoY) led retail loan growth.
Deposits grew by 17% YoY largely supported by 20% YoY growth in term deposits
followed by saving deposits and demand deposits which grew by 8% and 13%
respectively. Overall CASA ratio was declined by 153 bps YoY to 41%.
NIM declined on account of higher deposits cost and lower yield
SBI’s net interest margin was flat at 3.19% versus 3.18% in previous year. Domestic NIM
declined by 2 bps to 3.49% while oversea NIM declined by 1 bps sequentially to 1.49%.
Cost of deposits increased to 6.25% from 6.22% sequentially while yield on advances
inch up to 10.4% from 10.3% in previous quarter. Credit deposits ratio marginally
declined from 85.3% to 85.1%.
Valuation & View
During quarter SBI’s profitability declined by 34% largely due to higher provisions and
contingencies led by deteriorating asset quality and higher tax in order to create DTL
special reserve as per suggestion by RBI. However, bank has seen growth in loan and
deposits which translated into growth in profit loss to some extent. Due to higher
operating expenses, operating profit growth was negative despite of 14% growth in
revenue. We value bank at Rs.1779/share which would be 1.1 times of FY14E’s book
value.


20

State Bank of India

Moderate NII growth led by lower growth in
interest earnings assets than interest bearing
liabilities

Operating profit reported negative growth due
to higher operating expenses led by employee
benefit provisions

Moderate NII growth, higher operating
expenses and higher provision and tax rate led
profit de growth of 34% YoY

Source: Esatwind/Company

21

State Bank of India
Quarterly Performance
Others
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
26310
8228
92
241
34870
4190
39061
22230
12641
4190
16831
5867
3345
9212
7618
4150
3469
1234
2235

2QFY14
25379
8137
106
300
33922
3278
37200
21671
12251
3278
15529
5819
3399
9218
6312
3029
3283
908
2375

3QFY13
22800
7072
110
362
30344
3648
33992
19189
11154
3648
14803
4351
2661
7012
7791
2668
5123
1727
3396

Balance Sheet (Rs Cr)
Deposits
Borrowings
Investments
Loan

1349940
189969
426728
1148901

1292456
188937
398536
1103090

Asset Quality
GNPA
NPA
% GNPA
% NPA
PCR(%)(w/o technical write-off)

67799
37167
5.9
3.2
45.2

64206
32151
5.8
2.9
49.9

% YoY

-34.2

% QoQ 3QFY14E Variation(%)
3.7
25937
1.4
1.1
8303
-0.9
-13.0
109
-15.9
-19.7
349
-30.9
2.8
34699
0.5
27.8
3876
8.1
5.0
38575
1.3
2.6
21739
2.3
3.2
12959
-2.5
27.8
3876
8.1
8.4
16835
0.0
0.8
6364
-7.8
-1.6
3737
-10.5
-0.1
10101
-8.8
20.7
6734
13.1
37.0
3112
33.3
5.7
3622
-4.2
36.0
1087
13.6
-5.9
2535
-11.9

1156691
148374
359959
978115

16.7

4.4

28.0

0.5

18.5

7.1

17.5

4.2

53458
25370
5.5
2.6
52.5

26.8

5.6

46.5

15.6

15.4
16.3
-16.1
-33.3
14.9
14.9
14.9
15.8
13.3
14.9
13.7
34.8
25.7
31.4
-2.2
55.5
-32.3
-28.5

1337803
202402
415135
1152774

0.9
-6.1
2.8
-0.3


22

State Bank of India
Income Statement

2011

2012

2013

2014E

2015E

Others
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

59976
19826
236
1356
81394
15825
97219
43235
2562
3071
48868
32526
15825
48351
15212
7804
23015
25336
17071
8265
0
8265

81078
23949
350
1144
106521
14351
120873
55644
3886
3700
63230
43291
14351
57643
16974
9095
26069
31574
13090
18483
6776
11707

90537
27200
545
1374
119657
16035
135691
67465
4124
3737
75326
44331
16035
60366
18381
10904
29284
31081
11131
19950
5846
14105

102590
32037
415
1253
136294
15923
152217
61066
10146
0
86929
49365
15923
65288
22795
13388
36183
29105
14253
14852
4611
10241

120306
39720
415
1253
161693
15923
177616
70226
11668
0
103391
58302
15923
74225
25719
15105
40824
33401
16594
16808
5042
11765

933933
16.1
461521
49
119569
295601
756719

1043647
11.7
467607
45
127006
312198
867579

1202740
15.2
539063
45
169183
350927
1045617

1383151
15.0
580923
42
215867
32037
1202459

1590623
15.0
668062
42
248248
39720
1382828

7.9
6.9
7.0
4.6
4.7
4.6

9.3
7.9
8.4
5.3
6.0
5.4

8.7
8.0
8.0
5.6
4.6
5.5

8.5
7.4
0.0
6.3
4.7
5.4

8.7
8.0
0.0
6.5
4.7
5.6

12.7
1023
2.7

13.9
1251
1.7

14.3
1446
1.4

9.3
1617
0.9

9.8
1617
0.9

Net Profit

Deposits
Change (%)
of which CASA Dep
Change (%)
Borrowings
Investments
Loans

Ratio
Yield on Advances
Yield on Investments
Yield on Funds
Cost of deposits
Cost of Borrowings
Cost of fund

Valuation
ROE(%)
Book Value
P/BV


23

SUNPHARMA

"NEUTRAL"
17th Feb' 14

Robust Performance
Result Update

NEUTRAL

CMP
Target Price
Upside

609
650
7%

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs, Cr)
Nifty

524715
SUNPHARMA
650/385
126,119
535293
6048

Stock Performance-%
Absolute
Rel. to Nifty

1M
1.1
4.7

1yr
57.1
55.2

YTD
82.9
70

Promoters
FII
DII
Others

4
63.7
63.7
63.7
22.5
22.8
22.9
5.7
3.2
3.1
8.1
10.4
10.4

One Year Price vs Nifty

Sun Pharmaceuticals Industries limited posted 3QFY14 results above street expectations
with total revenues including other operating income at Rs 4312 Cr up 50.5 % YoY led by
robust growth in US formulations and Taro business. The stellar performance of company
was supported well from domestic operations as well. The US formulation business grew
by more 56 % YoY to USD 434 Mn while International formulation sales outside US grew
by 16 % YoY to USD 84 Mn. Overall international revenues accounted for more than 75%
of total revenues for the quarter. The Sales of branded prescription formulations in India
was Rs. 947 Cr up by 20% Yoy from Q3FY13 last year. The API business for the quarter
witness some decline with sales falls to Rs 174 Cr translating decline of 17 % YoY.
The operating EBITDA for the quarter came at Rs 1975 Cr grew by 57 % YoY and OPM
stands at 46 %.There is improvement in OPM by 200 bps during the quarter owing to
stronger operating metrics. The RM cost as percentage of sales was 14 % versus 15 % for
the same corresponding period last fiscal. The employ cost as percentage of sales was 12
% in current quarter verses 14% for 3QFY13.The company managed to control its other
expenses during the 3QFY14 and has dropped by 100 bps at 24 % of the sales.
The net profit for the quarter came at Rs 1531 Cr compared to Rs. 881Cr for Q3 last year,
up 74% YoY. The NPM for the 3QFY14 came at 36%.The other income for the 3QFY4 was
Rs 134 Cr and Tax rate was at 12 %.
The company on its R&D said that in the 3QFY14, ANDA for 5 products were filed. After
counting these, and adjusting for filings that were dropped, cumulatively ANDAs for 468
products have been filed with the USFDA (as on December 31, 2013). ANDAs for 4
products received approvals in the third quarter, taking the total number of approvals to 337
(as on December 31, 2013). ANDAs for 131 products now await USFDA approval, including
14 tentative approvals.
The management of the company after 3QFY14 results has revised its FY14E revenue
guidance to 29 % from 25 % earlier. Guidance is at constant exchange rate. The company
further said that capex for the FY14 would be on higher side of earlier guidance. The tax
rate for the full year would be 15 % and R&D expected to be in the range of 6-8% of the
Sales for the FY'14.
View & Valuation
The stock at its CMP of Rs 609 is trading at 22.1x of one year forward FY14E EPS of 27.60
and company has posted very strong 3QFY14 results however on account stretched
valuations we do not see much upside to stock and therefore we turn neutral with TP
650.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
4312
2000
1531
46.4%
35.5%

2QFY14
4207
1843
1362
43.8%
32.4%

(QoQ)-%
2.5
8.5
12.4
260bps
310bps

3QFY13
2865
1275
881
44.5%
30.8%

Rs, Crore
(YoY)-%
50.5
56.9
73.8
190bps
480bps



24

SUNPHARMA
Sales and PAT Trend (Rs)

Total revenues including other operating
income came at Rs 4312 Cr up 50.5 % YoY led
by robust growth in US formulations and
Taro business.


OPM %

There is improvement in OPM by 200 bps
during the owing to stronger operating
metrics.


NPM %

The NPM for the 3QFY14 came at 36%.The
other income for the 3QFY4 was Rs 134 Cr



25

"BUY"

CIPLA
Result Update

BUY

CMP
Target Price
Upside

381
440
15%

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs, Cr)
Nifty

500087
CIPLA
450/354
30,591
617290
6,001

Stock Performance-%
Absolute
Rel. to Nifty

1M
-4.5
-1.7

1yr
-3
-4.3

YTD
-2
-14

Promoters
FII
DII
Others

4
36.8
36.8
36.8
23.8
23.8
23.1
10.6
10.9
10.8
28.8
28.5
29.3

One Year Price vs Nifty

14th Feb' 14

Cipla Limited posted its 3QFY14 results with its standalone net revenues at Rs 2282 up 10
% YoY led by healthy growth in export business with well support from India operations to.
The revenues from export business including formulations and API grew by 36 % to 1509
Cr for the quarter while domestic business grew by 9% YoY to 1044 Cr. The growth in
export revenues was primarily due to growth in anti-retroviral, anti-cancer, anti-allergic and
anti-biotic segments.
The operating EBITDA for the quarter under review came Rs 403 Cr and OPM at 17.88
%.The OPM declines by more than 600 bps YoY due to the increase in the R&D and the
ramp up in the Staff cost during the quarter. The employ cost as percentage of sales stands
at 14 % while it was 12 % for the same time last fiscal. The other expenses as percentage
of sales were 27% for the 3QFY14 versus 25 % in 3QFY13.The other expenditure
increased largely due to rise in R&D expenses and rise in the cost owing to filings and
setting up of the front end during the quarter. The R&D expenses 4.5% of Sales during the
quarter.
The net profits for the quarter came at Rs 261 Cr and NPM stands at 11.43 %. The Rs 40
Cr Forex gain is included in the other income during the quarter. The tax rate for the quarter
was nearly at same rate as in corresponding last quarter at 25 %.
The Company filed 10 ANDA's in the last nine months and got 6 approvals for the same
period. It has 35 ANDA's under approval as on 31st December 2013. The few of the
approval products are commercialized. Cipla Medpro formed as acquisition of
Medpro,South Africa last year added 500 Cr to top line and 50 Cr to the operating profits
during the quarter.
The management of the company after the results said that the Global respiratory unit
expects some of launches in the next year. It has set up new global respiratory team during
the quarter. The Combination inhalers planned to launch in FY'15.Company expects to be
more than 5% of Sales on the back of ramp up filings for the FY'15.The Capex is 90 Cr
during the quarter and expects to be Rs 400 Cr FY'14. The Rollover Capex of previous year
is Rs 150 Cr during the year.
View & Valuation
The stock at its CMP of Rs 381 is trading at 19.58 x of one year forward FY14E EPS of Rs
19.40.The stock has reacted negatively after 3QFY14 results however we don’t see any
downside risks to our estimates. We further believe that Cipla-Medpro would be earning
accretive in medium to long term horizons and we view the recent correction a good entry
point for the stock. We maintain our view BUY for the stock with Target Price of Rs
440.

Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
2282
403
261
17.7%
11.4%

2QFY14
2347
533
376
22.7%
16.0%

(QoQ)-%
(2.8)
(24.4)
(30.6)
(500bps)
(460bps)

3QFY13
2070
492
338
23.8%
16.3%

(YoY)-%
10.2
-18.1
-22.8
(610bps)
(490bps)



26

CIPLA
Business Trend

The revenues from export business including
formulations and API grew by 36 % to 1509
Cr for the quarter while domestic business
grew by 9% YoY to 1044 Cr.


Revenue Trend %

Net revenues at Rs 2282 up 10 % YoY led by
healthy growth in export business with well
support from India operations to.


OPM & NPM Trend %

The OPM declines by more than 600 bps YoY
due to the increase in the R&D and the ramp
up in the Staff cost during the quarter.



27

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
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consider reliable, but we do not represent that it is accurate or complete and we do not
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without notice. The recipients of this report should rely on their own investigations,
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