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IEA-Equity
Strategy

India Equity Analytics

28th Feb, 2014

Daily Fundamental Report on Indian Equities

IT Industry: 3QFY14 results review : "Clear acceleration in growth"

Edition : 215
28th Feb 2014

For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted by seasonality and furloughs impact. However, most of
companies expressed its sanguine view for industry outlook and demand discretionary environment ahead. Post earnings, almost all companies
management have expressed for better earnings outlook in near term . .................................................. ( Page : 2-7)

Public Sector Banks Result Review 3QFY14

26th Feb 2014

Most of PSBs profitability were declined due to higher operating cost, surge in provisions and contingencies and creation of DTL special reserve.
But declining profitability and deteriorating asset quality is not a concern but structure damage of balance sheet. Going forward banks with
higher CASA base and healthy growth in deposits would able to protect margin and hence profitability. Post result we like SBI, Union Bank and
UCO
Bank
due
to
their
structural
improvement
in
balance
sheet,
operating
and
financial
metrics.
............................................................................ ( Page : 8-9)

SHREE CEMENT.

"BOOK PROFIT "

25th Feb 2014

The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market scenario the price is fare enough to trade.But looking at
future capex plans and sluggish demand we belive the earnings and profitability of Shree cement may fall for the next two consecutive
quarters.The profitability may fall due to incrising depriciation.Till now the company's depriciation level is stable but it may surprise further.so
we recommend its a better pic to book profit. ................................................................. ( Page : 10-12)

"BOOK PART
PROFIT "

AXIS BANK :

25th Feb 2014

We advice our investor to book part profit in Axis Bank as bank has achieve our target price level of Rs.1217. We still stick to our valuation on
account of bank’s uncomfortable earnings and asset quality stress. Bank’s profitability was up by 19% YoY on the back of right back of
investment depreciation provisions. Exposure to risky sector remained high which would keep asset quality under stress. These factors compel
us to value bank at 1.5 times of FY14E’s book value......................................................... ( Page : 13-17)

Nestle India :"The nest becomes weaker"

"Neutral"

24th Feb 2014

For 4QCY13, Nestle Ind reported below numbers than street expectations in all counts, sales grew by 4.7%(YoY) led by 3.7% domestic growth
and 20.9% export growth. Its domestic sales contribute 94% and exports 6% of sales. While, PAT marginally declined by 0.7% on YoY basis. At a
CMP of Rs 5043, stock trades at 15.9x P/BV of CY14E. We have a “Neutral” view on stock. .................................................................. ( Page : 1820)

Vardhman Textiles :

"BUY"

24th Feb 2014

Considering the favourable export scenario and completion of capacity expansions, we remain positive on FY14. We, hereby, initiate our
coverage with Vardhman Textiles to BUY with a target price of Rs.412 . Currently the stock is trading at 0.8x p/b , we cut our Earning parameter
for FY15 and cut p/b to 0.7x for FY15 . Looking at the current earning growth and environment the stock is looking very good but due to lack of
trigeers in FY15 we are really conservative for FY15 . ................................................. ( Page : 21-23)

DENA BANK :

"Neutral"

24th Feb 2014

Bank’s performance was lower than our expectation in all fronts and reported very weak set of numbers. Operating as well as financials metrics
were remained muted. Profitability was declined by 67% YoY despite of tax reversal owing to muted growth in NII and higher operating
expenses. We are pessimist about the growth parameters. We have neutral view on the stock. .............................................................. ( Page :
24- 28 )
Narnolia Securities Ltd,
IT Industry: 3QFY14 results review
"Clear acceleration in growth"
Price performance of our coverage:

Mix performance and margin sustainability, future outlook appears positive;
For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted
by seasonality and furloughs impact. However, most of companies expressed its
sanguine view for industry outlook and demand discretionary environment ahead. The
Top-4 companies responded a decent set of performance despite seasonally weak
quarter with aggregate revenue of 2.8% in USD term (QoQ).
Comparing with street expectation, Infosys and HCL Tech beat the street, while TCS and
Wipro reported inline set of numbers. On margin front, they surprised positively with
back-to-back quarters of margin improvement led by operational efficiencies and cost
rationalization.
Post earnings, almost all companies management have expressed for better earnings
outlook in near term and they were confident to see stronger FY15E than FY14E on
healthy growth prospect and a secular improvement in demand trend.

(Source: Eastwind)

Index Performance:

▲ 43%

(Source: Eastwind)
▲ 9.4%

(Source: Eastwind)

Key takeaways from 3QFY14 earnings:
USD revenue was marginally inline and Positive FY15E outlook: Reported USD revenues
were in line or very marginally below our estimate during the seasonally weak quarter
across the top tier. A part of this, companies management have given better outlook with
margin expansion for FY15E, even NASSCOM aired the earning guidance of 13-15% for
FY15E, better than FY14E and FY13.
Margin ramped up across the Tier-1 and most of mid cap space: Despite flattish currency
benefit, companies have been efficient to maintain its margin because of reinvested
higher growth and efficient strategy to improve utilization. With macro improving and
positive growth outlook, the operating advantage from investment is likely beginning to
play out.
SMAC and Digital were subject to discussion: Emerging verticals SMAC (Social, Mobility,
Analytics and Cloud) and Digital transformation are expected to bring next generation of
growth in IT Industry. A number of IT companies, especially tier-1 IT companies have
expressed its priority area and strategy to pan-out growth opportunities on these
emerging verticals. Current uptrend in discretionary spend is being driven by the same.
Deal Pipeline remains healthy: During the quarter, weak seasonality marginally impacted
order inflow. For near term, deal pipeline remains healthy and somehow, Pricing will be
marginally under pressure in the traditional IT segment, Application Development and
Management segment. While, we do not see any pressure on new emerging segments like
SMAC, Digital, Infra, etc.
Earning Performance v/s Estimates;

INFY
HCLTECH
TECHM
ZENSARTECH
TATA ELXSI
Outperform

TCS
WIPRO
CMC
MINDTREE
HEXAWARE
NIITTECH
PERSISTENT
ECLERX
Inline

KPIT
Underperform

(Source: Eastwind)

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

2
IT Industry: 3QFY14 results review

Companies Specific Earnings Review
Company
TCS
INFY*
WIPRO
HCLTECH#
TECHM
CMC
MINDTREE
HEXAWARE$
NIITTECH
KPIT
PERSISTENT
ZENSARTECH
ECLERX
TATA ELXSI

3QFY13
16069.9
10424.0
9587.5
6273.8
3523.7
493.0
590.1
507.5
514.4
563.3
333.0
525.5
170.8
156.7

Sales,cr
2QFY14 3QFY14E
20977.2 21606.6
12965.0 13069.1
10990.7 11342.4
7961.0 8160.0
4771.5 4819.2
560.8
566.4
769.5
792.2
621.1
629.2
587.3
593.5
702.8
722.0
432.4
436.1
599.7
590.6
214.6
218.5
190.0
195.5

EBITDA,cr
3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14
21294.0 4660.5 6633.0 6300.3
6686.8
13026.0 2677.0 2837.0 3424.1
3258.9
11327.4 2050.2 2503.8 2552.0
2652.7
8184.0 1416.6 2093.0 2080.8
2125.0
4898.6
756.9
1110.9 1084.3
1136.3
561.0
83.2
88.4
87.8
90.8
790.6
120.4
159.8
153.9
154.1
620.0
109.0
147.7
147.9
139.4
587.3
81.3
88.6
86.1
95.1
677.9
87.9
108.1
115.5
103.5
432.8
82.4
100.8
104.7
104.3
594.1
70.1
102.5
87.5
87.3
219.5
66.8
92.8
90.5
88.8
200.1
16.5
32.4
40.4
43.6

*Infosys (net profit for 2QFY14 includes the one-time visa charge of Rs219 crore).

3QFY13
3549.6
2369.0
1598.1
974.3
455.9
61.1
87.7
66.2
56.6
59.9
49.5
48.7
49.8
8.8

PAT,cr
2QFY14 3QFY14E 3QFY14
4633.3
5096.7
5333.4
2407.0
2695.8
2874.9
1932.0
1984.2
2014.7
1416.0
1472.6
1495.0
718.2
754.1
1009.8
67.3
65.6
70.6
113.0
98.6
114.0
98.7
103.6
103.3
60.4
57.4
52.5
66.7
69.4
60.8
60.8
66.9
64.2
70.6
50.4
50.8
67.2
61.4
62.3
19.9
20.5
21.6
(Source: Company/Eastwind)

# HCL Technologies (June year ending). $ Hexaware (Follow Callendar year)

Growth and Margin Performance-%
Company
TCS
INFY
WIPRO
HCLTECH
TECHM
CMC
MINDTREE
HEXAWARE
NIITTECH
KPIT
PERSISTENT
ZENSARTECH
ECLERX
TATA ELXSI

Growth (QoQ)-%
Sales
EBITDA
PAT
1.5%
0.8%
15.1%
0.5%
14.9%
19.4%
3.1%
5.9%
4.3%
2.8%
1.5%
5.6%
2.7%
2.3%
40.6%
0.0%
2.7%
4.8%
2.7%
-3.6%
0.9%
-0.2%
-5.7%
4.7%
0.0%
7.3%
-13.1%
-3.5%
-4.3%
-8.8%
0.1%
3.5%
5.6%
-0.9%
-14.9%
-28.0%
2.3%
-4.3%
-7.2%
5.3%
34.6%
8.5%

Growth (YoY)-%
Sales
EBITDA
PAT
32.5%
43.5%
50.3%
25.0%
21.7%
21.4%
18.1%
29.4%
26.1%
30.4%
50.0%
53.4%
39.0%
50.1%
121.5%
13.8%
9.1%
15.5%
34.0%
28.0%
30.0%
22.2%
27.9%
56.0%
14.2%
17.0%
-7.2%
20.3%
17.7%
1.5%
30.0%
26.6%
29.7%
13.1%
24.5%
4.3%
28.5%
32.9%
25.2%
27.7%
164.4%
146.9%

Margin-%
EBITDA
PAT
31.4%
25.0%
25.0%
22.1%
23.4%
17.8%
26.0%
18.3%
23.2%
20.6%
16.2%
12.6%
19.5%
14.4%
22.5%
16.7%
16.2%
8.9%
15.3%
9.0%
24.1%
14.8%
14.7%
8.6%
40.5%
28.4%
21.8%
10.8%

Margin Change,(QoQ)
EBITDA
PAT
(20bps)
290bps
310bps
350bps
60bps
20bps
(30bps)
50bps
(10bps)
560bps
40bps
60bps%
(130bps)
(30bps)
(130bps)
80bps
110bps
(130bps)
(10bps)
(50bps)
80bps
80bps
(240bps)
(320bps)
(280bps)
(290bps)
470bps
30bps

(Source: Company/Eastwind)

Tier-1 ; The top four IT companies delivered a decent performance in a seasonally soft quarter with an aggregate revenue growth of
2.8% QoQ. INFY and HCL Tech beat the street on growth and margin front, while TCS and Wipro reported inline set of numbers.
Mid cap/Niche (Tier-2)-TECHM and Persistent outmatch peers; TECHM’s broad based revenue growth and deal signing was robust.
Persistent system surprised positively on margin front for the second consecutive quarter led by higher utilization. Apart of this,
Zensar Tech also reported good margin ramp up during the quarter. As a backbencher, KPIT, NIITTECH and Hexaware reported flat to
below expected numbers.

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

3
IT Industry: 3QFY14 results review

Operating Metrics across Tier-1 IT space
Sales mix- Geogrpahy wise

Discretionary spends continue to gain
momentum in America and in specific
pockets in Europe.

(Source: Company/Eastwind)

Sales mix- Segment wise

During the quarter, manufacturing
segment reported attractive growth.
Whilea
mong
service
offerings,
Infrastructure Management Services
(IMS) will be a key growth driver.
(Source: Company/Eastwind)

Utilization Rate-%

Employee Addition;

TCS
INFY WIPRO HCLTECH
Total Employee 290713 158404 146402 88332
Gross Addition 14663 6,682 -814 7593

(Source: Company/Eastwind)

Attirition rate-%

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

(Source: Company/Eastwind)
4
IT Industry: 3QFY14 results review

Key Takeaways from Conference Call;
(1) TCS
- Confident of beating NASSCOM's FY15 growth guidance of 13-15%,
-FY15E will be better than the current fiscal,
-Expect Europe to perform better than the US,
-Chasing 20-25 large transformational deals,
-Seeing an uptick in discretionary spends,
- Lateral hiring 50000-55000 in FY15E,
(2) INFOSYS
-Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%.
-They are seeing confidence coming back from client’s metrics.
-The Company is looking to bring in about maximum 6,000 off-campus offers.
(3) WIPRO
-4QFY14: Revenues from IT Services business to be in the range of $ 1,712 million to
$1,745 million* including the revenues from acquisition.
-Expect better FY15E than FY14.
-Hiring target for FY15E would be like FY14, will focus on onsite hiring.
-Wage hike by 1st June ,2014.
(4) HCLTECH:
-The company is expecting to catch up more deal from US and Europe because of better
demand environment ahead.
-The company expects to see margin at a range of 21-22% in near term.
-The wage hike is spread over two quarters or rather more than two quarters. Q3 and Q4
margin could be impact be 30bps.
(5) TECHM
-The Company aspires revenues of USD 5 billion by 2015. This expects to be through
organic and inorganic initiatives (looking for USD 0.5 billion to 0.8 billion as acquisition
targets) going forward.
-Year 2014 would be better year than FY13, demand environment and Order pipeline is
looking good.
-Despite salary hike in 4Q, margin would be on place. Wage hike in 4Q could impact
200bps in margin front, but management is confident to mitigate.
-Expecting utilisation rate to 77% from 75%(3QFY14) in near term.
-The tax rate expected to be 26% for the FY'14.
(6) CMC
-CMC continues to target growth ahead of the overall IT industry; the company expects to
grow faster than that in the current financial year.
-Expects operating Profit margin at 16 percent for FY14E,
-The company expects to maintatin its tax regime at 20-20.5% for coming quarter. For
next year tax rate could be stand at a range of 20-21%.
-Company’s hiring Plan; a net addition of 400-500 this year.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

5
IT Industry: 3QFY14 results review

(7) PERSISTENT SYS
- Persistent is confident of doing more than 15% revenue ($) growth forFY14E.
-They expect to maintain margin at 24-25% for FY14E.
-Expects 20-21% growth in the next year from IP led business, which in turn will help
improve margins going forward.
-The Company’s focus on newer technologies like cloud, analytics, mobility and digital
transformation are gaining traction.
-The company is optimistic to see more deals on SMACS and IP led business.
(8) NIITTECH
-Company expects FY14 to be better than FY13 with respect to both revenue growth and
EBIT margin.
-Managent is very confident to maintain attrition at 12-13% and utilization at 77-80% in
near to medium term.
-It expects the growth momentum will sustain with holding the margins going forward.

(9) ZENSARTECH
- It expects double-digit growth in the Enterprise Services business for the FY15 on the
back of healthy pipeline.
- It anticipates good growth from the IMS for the FY'15.
-Management has expressed its margin at a range of 16-17%
(10) ECLERX
-The billing rates expected to be flat to slight uptick for the FY15E.
-Expect to see similar set of environment in FY 15E than FY14.
-On margins, it indicated that it will continue to operate in the mid 30% (30-31%) going
forward.
-Tax rate is expected to see at 23% mark in FY15E.
-It continues to look at inorganic opportunities.
- Expects to maintain 51% of payout ratio.
(11) MINDTREE
-Management expects the strong traction in top 10/20 clients to continue.
-Expects 4QFY14E revenue performance to be better than both 4QFY13 revenue
performance (+2.8% QoQ) as well as 3QFY14 revenue growth (+2.5% QoQ).
-Company expects to maintain operating margins at current levels in the near/medium
term
(12) KPIT
-Management expects to see better revenue growth in 4QFY14E than 3QFY14.
-The company is making significant changes in organization structure.
-Margins are expected to improve going forward as the one off during the quarter will be
absent.
-Utilization will also go up as revenue growth is realized on the back two deals won this
quarter which have a duration of 12 months.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

6
IT Industry: 3QFY14 results review

Industry Outlook:

For FY15E, NASSCOM expects IT exports
to grow by 13-15% and domestic market
to grow by 9-12% based on broad
feedback loop from companies and
captives.

We have seen a significant increase in global technology spending this year, creating
opportunities for the Indian software services sector to post double-digit growth again in
export as well as in the domestic markets. FY15E promises to be bigger and stronger than
the last 3 years, which were marked by bloodbath in global markets due to Euro-zone
crisis and falling consumer confidence in the US. Demand is set to pick up in sectors like
BFSI, healthcare, retail and transportation globally in the year ahead.
For FY15E, We expect that strong fundamentals should help to sustain earning
momentum in FY15E. Foray into niche verticals and executions of large deal would play an
important factor for better earning visibility in near future. There is a window of
opportunity for competent large caps and midcaps to displace incumbents and gain some
incremental business. In the past 4 quarters, large caps (four companies) have grown at
3.4% CQGR, while midcaps (five companies) at 3.2%which is comparable to larger peers.

Concerns:
US Immigration Bill to remain an
overhang in short-to-medium term,

However, hardening of regulatory related to visa approval in USA, Canada and Australia
could spoil the party. Even, the approval of Immigration Bill attached with higher visa fee,
wage requirements and enhanced audit by US agencies could turn the growth story of
Indian IT players adversely. If passed in its current form, the Bill could hurt the margins of
the Indian IT export sector, which derives almost 55-60% of its revenues from USA.

Our top picks:
TCS and HCLT are growing the fastest
and
with
tremendous
margin
performance. Infy is accelerating growth
…

While all companies are accelerating its revenue growth and shaping up its margin
because of favorable demand and supply environment. Across the tier-1 IT space, TCS,
INFY and HCL TECH remain our best picks in order of our preference. These companies
are very much optimistic to improve margin as well as operational efficiencies with
healthy deal pipeline across emerging verticals as well as traditional IT Space under
positive demand scenario.
Hence, with strong medium term earnings visibility, better demand environment and
optimistic management comments, we maintain our positive stance on (In order of
preference) TECHM, PERSISTENT, ZENSARTECH, ECLERX and KPIT under mid cap space.

View and valuation:
Company
TCS
INFOSYS
HCLTECH
WIPRO
TECHM
CMC
NIITTECH
KPIT
HEXAWARE
PERSISTENT
eCLERX
TATAELXSI
ZENSARTECH
MINDTREE

CMP
(26.02.14)
2182.4
3803.85
1572.9
603.35
1821.65
1450.4
446.4
174.9
165.85
1119.25
1341.05
518.65
387.2
1632.7

View

Target

BUY
BUY
HOLD
NEUTRAL
BUY
NEUTRAL
HOLD
BUY
NEUTRAL
HOLD
BUY
NEUTRAL
BUY
NEUTRAL

2510
3910
1560
2130
443
177
1065
1358
440
-

Upside
%
15.0%
2.8%
-0.8%
16.9%
-0.8%
1.2%
-4.8%
1.3%
13.6%
-

FY13
71.82
164.2
58.10
25.0
123.97
75.3
36.28
10.8
13.90
46.1
64.25
10.6
40.03
89.7

EPS-Rs
FY14E
95.00

188.0
79.36

31.1
155.37

86.0
43.33

12.6
15.04

61.4
71.61

24.0
52.70

100.9

FY15E
109.31
218.2
98.11
33.5
175.50
92.4
54.18
16.8
16.01
79.1
83.65
28.4
68.97
114.9

FY13
30.39
23.16
27.07
24.09
14.69
19.27
12.30
16.19
11.93
24.27
20.87
48.79
9.67
18.20

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

P/E-x
FY14E
22.97
20.24
19.82
19.42
11.72
16.86
10.30
13.85
11.02
18.22
18.73
21.59
7.35
16.18

FY15E
19.97
17.44
16.03
18.01
10.38
15.70
8.24
10.40
10.36
14.15
16.03
18.29
5.61
14.21

FY13
36.4%
24.8%
30.7%
21.7%
34.8%
24.1%
20.0%
20.1%
27.4%
18.1%
43.8%
16.9%
23.2%
28.4%

RoE-%
FY14E
37.5%
23.7%
31.5%
22.7%
30.7%
22.8%
19.4%
19.3%
24.9%
20.3%
37.9%
29.7%
24.5%
25.6%

FY15E
34.4%
22.9%
29.4%
20.8%
26.0%
20.7%
19.6%
20.7%
22.5%
21.4%
34.4%
27.4%
25.2%
23.6%

7
Public Sector Banks Result Review 3QFY14

Moderate NII growth in the system due to muted loan growth
Net interest income of our universe grew by 10.4% YoY on the back of margin
expansion on YoY basis along with moderate to healthy loan growth. In our coverage
universe, Bank of India and UCO Bank were reported healthy NII growth whereas
Andhra Bank reported 10.6% YoY declined in NII. SBI reported NII growth of 13 YoY
largely due to loan growth of 17% while margin was declined by 12 bps and flat at
QoQ basis.
Lower operating profit on account of higher wage settlement provisions and
cost related to branch expenses
Operating profit of our universe was declined by 1.5% YoY on the back of higher
cost against employee provisions, operating cost and non supportive other income.
Most of PSBs were reported negative growth in their other income led by lower
corporate fee income. In our universe ALBK, Bank of India and UCO bank reported
healthy operating profit. But we have not seen improvement of operating metrics in
these banks. Operating leverage of PSBs bank has been increasing led higher wage
provisions and branch expansion.
Profitability declined led by higher operating expenses, higher provisions and

Nifty Vs Bank Nifty during Year

Loan (Rs tn) and YoY Gr(%)

creation of DTL special reserve
Earnings growth of Public Sector Banks (PSBs) are remained weak largely due to
higher operating expenses led by employee provisions and surged in provisions and
contingencies and higher tax provision for DTL special reserve as per RBI’s
suggestion. In our banking coverage universe, profitability declined by 27% YoY and
11.5% QoQ. UCO Bank reported 208% YoY growth while Andhra Bank de-grew by
82% YoY.
Asset quality deterioration sequentially on account of tight liquidity condition
and rising interest rate
Most of PSBs reported 10 to 20% deterioration in asset quality sequentially while
United Bank’s GNPA and net NPA were 11% and 7.5% of gross advance and net
advance respectively and fresh slippages were 16% (annualized). On slippage front
some banks like PNB, Bank of Baroda, Union Bank and UCO bank showed some
strength. But in tight economy condition and rising interest rate scenario, asset
quality pressure would continue. Banks with higher coverage ratio would be
protected. PNB and Bank of Baroda are in better place and their management
commentaries reflect some confidence on asset quality issue.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

8
Public Sector Banks Result Review 3QFY14
Worry about the structure damage of balance sheet, declined profit is not matter
We are not worried about the declining trend of PSBs profitability but to worry about the
structural damage of balance sheet. Most of PSBs were reported moderate to healthy
loan growth but their deposits and CASA growth were absent. In rising interest rate
scenario, banks with higher low cost deposits would be able to report healthy NII growth
on the back of margin expansion and would absorb operating cost. In our sense, PSBs
would either have to improve their cost structure or improve deposits franchise to report
growth at operating profit level. On cost structure front, we are pessimist as PSBs have
higher numbers of unproductive employee than private banks and their salary at lower to
middle level management are no means less than private sector banks. So banks with
higher deposits growth and strong CASA would be able to report healthy growth going
forward. We have buy rating on SBI on the back of its high CASA base and reasonable
valuation despite of bank’s profitability was declined by 34% YoY.
Outlook
Most of PSBs are trading at lower range of valuation multiple owing to absence of core
earnings, operating leverage, deteriorating asset quality and higher amount of restructure
assets that are in pipeline. Most of banking stocks reported moderate revenue and profit
growth owing to multiple headwinds. In near term we are not seeing improvement in
economic condition and asset quality pressure are expected to remain in the system due
to tight liquidity situation and rising interest rate. Post result we like SBI, Union Bank and
UCO Bank due to their structural improvement in balance sheet, operating and financial
metrics.
Result Snapshot

PSU BANKS
ALBK
ANDHRABANK
BANKBARODA
BANKINDIA
CANBK
DENABANK
IOB
ORIENTBANK
PNB
SBIN
SYNDIBANK
UCOBANK
UNIONBANK
VIJAYABANK
Total

NII
1336
868
3057
2719
2191
661
1398
1230
4221
12641
1359
1566
1964
495
34369

3QFY14
PPP Net Profit
1008
325
522
46
2197
1048
2144
586
1425
626
371
68
961
75
858
224
2702
755
7618
2235
806
380
1137
315
1262
349
168
11
22170
6717

NII
1309
1045
2895
2527
2191
107
1452
1281
4016
12251
1411
1569
1954
705
33404

2QFY14
PPP Net Profit
1154
276
643
71
2125
1168
2102
622
1425
626
369
625
791
133
825
251
2535
505
6312
2375
811
470
1166
400
1225
208
273
136
20601
7590

NII
1330
971
2841
2308
1988
615
1382
1204
3733
11154
1400
1177
1891
456
31120

3QFY13
PPP Net Profit
860
311
712
257
2256
1012
1856
803
1516
714
443
206
1017
116
926
326
2682
1306
7791
3396
864
508
831
102
1358
302
261
127
22513
9175

YoY Growth
NII
PPP Net Profit
0.4
17.2
4.7
-10.6
-26.8
-82.3
7.6
-2.6
3.6
17.8
15.5
-27.0
10.2
-6.0
-12.3
7.5
-16.3
-67.1
1.2
-5.5
-35.3
2.2
-7.3
-31.2
13.1
0.8
-42.2
13.3
-2.2
-34.2
-3.0
-6.8
-25.2
33.0
36.8
208.4
3.8
-7.1
15.5
8.5
-35.7
-91.0
10.4
-1.5
-26.8

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

QoQ Growth
NII
PPP Net Profit
2.0
-12.6
18.0
-16.9
-18.9
-35.5
5.6
3.4
-10.3
7.6
2.0
-5.8
0.0
0.0
0.0
517.7
0.5
-89.2
-3.7
21.5
-43.6
-3.9
4.0
-10.6
5.1
6.6
49.6
3.2
20.7
-5.9
-3.7
-0.7
-19.2
-0.2
-2.5
-21.4
0.5
3.0
67.8
-29.8
-38.6
-91.6
2.9
7.6
-11.5
9
SHREE CEMENT.
Update

Book Profit

CMP
Target Price
Previous Target Price
Upside
Change from Previous

4772
4791
4791
0%
NA

Market Data
BSE Code
NSE Symbol

500387
SHREECEM

52wk Range H/L
Mkt Capital (Rs Crores)
Average Daily Volume (Nos.)
Nifty

5210/3413
16572
4143
6186

Stock Performance-%
1M
8.2
9.5

Absolute
Rel. to Nifty

1yr
9.5
3.8

YTD
8.1
4.0

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

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

"Book Profit"
25th Feb' 14

Profitability and Earning drag may surprise for the next cosecutive quarters.
The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market
scenario the price is fare enough to trade.But looking at future capex plans and sluggish
demand we belive the earnings and profitability of Shree cement may fall for the next
two consecutive quarters.The profitability may fall due to incrising depriciation.Till now
the company's depriciation level is stable but it may surprise further.so we recommend
its a better pic to book profit.
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.
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
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.
The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market
scenario the price is fare enough to trade.But looking at future capex plans and
sluggish demand we belive the earnings and profitability of Shree cement may fall for
the next two consecutive quarters.The profitability may fall due to incrising
depriciation.Till now the company's depriciation level is stable but it may surprise
further.so we recommend its a better pic to book profit.
we recommend book profit at a 11% high,and stay out from the stock for medium
term,till the triggers hit.
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 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
5409
Other Income
203
163
188
197
Total Income
3656
6061
5779
5550
Power and fuel
905
1500
1513
1409
Freight and forwarding
602
1006
915
1090
Expenditure
2569
4252
4029
4318
EBITDA
885
1646
1561
1091
Depriciation
676
873
436
562
Interest Cost
98
235
193
138
Net tax expense / (benefit)
-99
69
115
54
PAT
365
619
1004
478
ROE%
20.8
23.1
26.1
11.0
Narnolia Securities Ltd,

30

1300

20

1250

10

1200

0

1150

-10

1100

-20

Source - Comapany/EastWind Research
EBIDTA
450
400

INTEREST SERVICE COVERAGE
RATIO

10

350

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
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
"BOOK PART
PROFIT "

AXIS BANK

25th Feb, 2014

Company Updated
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Average Daily Volume
Nifty
Stock Performance
1M
Absolute
-2.2
Rel.to Nifty
0.8

BOOK PART
PROFIT

1237
1217
1147
-2
6

532215
AXISBANK
1549/764
55229
3.14 lakh
6186

1yr
-17.4
-21.0

YTD
-17.4
-21.0

Share Holding Pattern-%
Current 4QFY13 3QFY1
3
Promoters
33.9
33.9
33.9
FII
43.2
43.4
40.7
DII
9.7
4.9
8.8
Others
13.2
17.8
16.6
Axis Bank Vs Nifty

Axis Bank is now trading at Rs.1237/share which met our target price of
Rs.1217. This price implies P/BV multiple of 1.5 times which is quite
reasonable as per our view. We advice our investor to book part profit from
this stock as we neither see improvement of asset quality nor revival in
economy in near term. In 3QFY14’s result, bank’s profitability was up by 19%
largely due to reversal of investment depreciation otherwise operating profit
was just up by 10.7% YoY. Bank’s exposure to risky sector (Power +
Infrastructure) remained high at 12.87% as against 12.64% in previous quarter.
However, fresh slippage was marginally softened to Rs.589 cr versus Rs.618
on sequential basis. Impairment of assets (GNPA+ Restructure Assets)
remained stable at 3.7% of net advance which was higher among peers.
Lower multiple on account of uncomfortable earnings and lower corporate
loan demand
We have lower valuation multiple of bank in compare to its peers on account of
uncomfortable earnings and asset quality stress. Operating performance of bank
was remained under pressure as bank’s core operating revenue (NII + Other
Income) grew by 12.6 YoY owing to lower fee income led by muted corporate and
retail fee income. Corporate loan segment which constituted 46% of total loan grew
by 3% YoY while retail segment loan grew by 44% YoY which constituted 33% of
total loan. Incremental loan growth came from retail segment implying that bank has
to maintain retail growth trajectory for industry average loan growth of 15%. Demand
of corporate loan remained weak due to prevailing economy scenario. So loan
growth for FY14 is likely to be line with system credit growth due to weakness in
corporate loan demand and moderation in retail loan.
Asset quality pressure persist; exposure to risky sector remained high
Asset quality pressure remained persist during the quarter with GNPA and net NPA
increased by 10% and 20% YoY respectively in absolute term. Fresh slippage inch
up improved to Rs.589 cr as against Rs.618 cr in previous quarter. In percentage
term GNPA and net NPA stood at 1.42% and 0.47% as against 1.36% and 0.42%
respectively in previous quarter. Provision coverage ratio without technical write off
declined by 270 bps QoQ led by lower provisions made on sequential basis.
Impairment of assets (GNPA + Restructure Assets) for the quarter remained stable
at 3.7% which was higher among peers. Moreover bank’s exposure to risky sector
(Power + Infrastructure) was remained high at 12.87% of net advance where
slippage risks are relatively high.

Financials
NII
Total Income
PPP
Net Profit
EPS

2011
6566
11238
6377
3340
81.4

Narnolia Securities Ltd,

2012
8026
13513
7413
4224
102.2

Rs, Cr
2013
2014E
2015E
9666
12224
14775
16217
19146
21697
9303
11206
12367
5179
5826
6934
110.7
124.2
148.2
(Source: Company/Eastwind)
13
AXIS BANK
Moderate growth in profit & loss
Bank’s profitability was up by 19% due to reversal of investment depreciation. Overall
provisions and contingencies were lower by 71% QoQ which led PBT growth of 22%
YoY. At operating profit level, bank grew by 10.7% YoY which was lower among peers
(HDFC Bank 29 YoY, ICICI bank 28.6%). Bank’s NII grew by 19.6% YoY largely due to
margin expansion of 14 bps YoY which was supported by low cost deposits franchise.
Core operating revenue (NII+ other income) grew 12.6% owing to muted other income
growth of 1.8% YoY.
Valuation & View
We value bank at Rs.1217/share implying 1.5 times of FY14E’s book value which is quite
reasonable as per our view. We have given this multiple on account of uncomfortable
earning and asset quality stress. Bank’s profitability was up due to reversal of investment
depreciation otherwise growth at operating profit level was remained lower as compare to
its peers. Asset quality increased at moderate pace with high exposure in risky sector
where fresh slippage risks are remaining high.
Valuation Band
1 Yr forward P/BV

1 Yr forward P/E

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

14
AXIS BANK
Fundamenatl throught graph

NII growth led by healthy CD ratio and
margin expansion on YoY basis

Lower other income and higher CI ratio led
muted PPP growth

Profit growth was higher than expectation on
the back of lower provisions

Source: Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

15
AXIS BANK
Quarterly Result

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

3QFY14
5557
2110
49
73
7789
1644
4628
4805
2984
1644
4628
655
1358
2013
2615
202
2413
808
1604

2QFY14
5394
2143
35
37
7609
1766
4703
4672
2937
1766
4703
644
1309
1953
2750
687
2062
700
1362

Balance Sheet Date
Net Worth
Deposits
Loan

37649 36224 27027
262398 255365 244501
211467 201303 179504

Asset qualtiy( Rs Cr)
GNPA
NPA
%GNPA
%NPA

3008
1003
1.4
0.5

2734
838
1.4
0.4

3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation
4907
13.3
3.0
5748
3.4
2014
4.8
-1.5
2235
5.9
25
97.7
39.4
35
-29.2
19
277.1
95.6
38
-47.4
6965
11.8
2.4
8056
3.4
1615
1.8
-6.9
1774
7.9
4110
12.6
-1.6
4780
3.3
4470
7.5
2.8
5049
5.1
2495
19.6
1.6
3006
0.8
1615
1.8
-6.9
1774
7.9
4110
12.6
-1.6
4780
3.3
615
6.5
1.7
0
1134
19.8
3.8
0
1749
15.1
3.1
2008
-0.3
2362
10.7
-4.9
2772
6.0
387
-47.7
-70.5
752
271.4
1975
22.2
17.0
2020 -16.3
628
28.8
15.5
687
-15.0
1347
19.1
17.7
1333 -16.9

2275
679
1.3
0.4

39.3

3.9

7.3

2.8

17.8

5.0

32.2

10.0

47.8

19.7

37558
272935
214892

-0.2
4.0
1.6

-

Source: Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

16
AXIS BANK
FINANCIALS & ASSUPTION

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 (%)

15155
8589
6566
31.2
4671
11238
25.3
4860
6377
22.4
3033
3345
3340
34.8

21995
13969
8026
22.2
5487
13513
20.2
6100
7413
16.2
3189
4224
4224
26.5

27183
17516
9666
20.4
6551
16217
20.0
6914
9303
25.5
4124
5179
5179
22.6

31198
18974
12224
26.5
6922
19146
18.1
7940
11206
20.5
2402
8804
5826
12.5

38490
23716
14775
20.9
6922
21697
13.3
9330
12367
10.4
2461
9906
6934
19.0

189166
34
77758
18
26268
71788
142408
36

219988
16
91412
18
34072
92921
169760
19

252614
15
112100
23
43951
113738
196966
16

290506
15
124917
11
51266
129873
228481
16

334081
15
143655
15
58956
149354
265037
16

460
1404
3.1

549
1146
2.1

708
1304
1.8

813
1174
1.4

942
1174
1.2

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

Valuation
Book Value
CMP
P/BV

Source: Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

17
Nestle India

"NEUTRAL"
24th Feb' 14

"The nest becomes weaker"
Result update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

NEUTRAL
5043
-

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

500790
NESTLEIND
5865/4410
48593
21590
6091

Stock Performance
1M
Absolute
-3.7
Rel. to Nifty
-1.0

1yr
10.7
7.4

YTD
3.4
1.8

Share Holding Pattern-%
Current

Promoters
FII
DII
Others
1 yr Forward P/B

62.8
13.1
5.9
18.2

3QCY13 2QCY13

62.8
12.6
6.3
18.3

62.8
12.6
6.2
18.5

Weak numbers and showing up margin as well…,
For 4QCY13, Nestle Ind reported below numbers than street expectations in all counts,
sales grew by 4.7%(YoY) led by 3.7% domestic growth and 20.9% export growth. Its
domestic sales contribute 94% and exports 6% of sales. While, PAT marginally declined
by 0.7% on YoY basis. The company does not share volume growth numbers, but its
statement did mention that sales rose mainly because of higher prices and product
mix.
For CY13, Company posted 9.2% sales growth, hugely impacted by weak consumer
demand and high competitive intensity environment, PAT up by 6%.
Management will continue to focus on reinforcing the fundamentals of growth drivers.
Further, improve operational efficiencies, and keep rationalizing its SKUs. They are
very confident of strategy to deliver long-term sustainable profitable growth, despite
the short-term challenges.
Margin dip: During the quarter, company has been efficient to maintain its mark of
margin above than 20%. However, Margin ramp down by 210bps(YOY) to 21.1% because
of inflationary pressure on raw material. There was improvement in raw material cost by
110 bps to 46.1% of adjusted net sales. PAT margin inched down by 70bps(YOY) to
12.7%. For CY13, EBITDA Margin and PAT margin were flat at 22.2% and 13%.
Mix impact on RM Cost: Its top 3 inputs by value are milk and milk products, flour, and
palm oil, which together account for two-thirds of its material cost. Milk and wheat flour
have both seen prices increase, while a weak rupee has affected palm oil prices.
However, other inputs such as green coffee and sugar have seen softer price trends.
Jerk on Potential Market share: Nestle has been enjoying its leadership position (No.1)
in all categories except soups and its positioning in Chocolates, noodles, Coffee has
dominantly been unchallenged. Despite all facts, company has been facing many
challenges over the past one and half years from Cadbury's and Ferrero Rocher in
Chocolate, from HUL and ITC in noodles and from HUL in Coffee (Bru).
Nestlé’s more focus on margin stability could sacrifice its volume. Company’s cash cow
portfolio baby foods becoming weaker because of low ad spend. Now, Mead Jhonson
and Danone are dominating in same segment.
View and Valuation: Company’s less aggression on volume growth and the excessive
focus on Margin expansion make us cautious on the stock. At same time, company
believes on expansion of new plant set up by ignoring the dividend payout to
investors. Consistently, its RoE is on downward direction. At a CMP of Rs 5043, stock
trades at 15.9x P/BV of CY14E. We have a “Neutral” view on stock.
Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

4QCY13
2262.97
478.3
287.1
21.1%
12.7%

3QCY13
2360
503.9
289.6
21.4%
12.3%

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

Rs, Cr
(QoQ)-%
4QCY12
(YoY)-%
-4.1%
2161.1
4.7%
-5.1%
504.1
-5.1%
-0.9%
289.2
-0.7%
(30bps)
23.3%
(210bps)
40bps
13.4%
(70bps)
(Source: Company/Eastwind)
18
Nestle India
Sales and Sales Growth(%)

Sales growth led by 4.7% (YoY) India
growth, contributed by net realization
and volume growth in certain product
categories

(Source: Company/Eastwind)

Margin-%

RM inflation outlook appears adverse
and that could impact margins to hold
out.

(Source: Company/Eastwind)
Domestic and Export sales-(% of Sales)

Domestic revenue growth continues to
be very weak

(Source: Company/Eastwind)
Catalysts and Concerns;

Catalysts: Nestle plays on “Urban consumption theme” and now urban consumption and
demand are stagnant. Thus, we see steady growth in near term, while we maintain that
Nestle is a great long-term story with excellent quality management, strong leadership
across several categories in the food segment and with brand portfolio, there are several
headwinds, which will keep volume growth muted.
Concerns: (1)Continued input cost pressure could impacts its margin, (2) Competitive
intensity impacting its market share adversely, (3) Any adverse impact of inflation on
consumer demand would significantly impact sales and earnings growth assumptions.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

19
Nestle India
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

CY10
6284.7
2560.1
578.4
(83)
433.4
302.6
1213.0
5004.7
1280.1
127.8
12.7
1165.0
1.1
1163.9
326.5
837.5

CY11
7526.6
2933.4
704.2
(48)
546.5
327.6
1474.2
5937.6
1589.0
153.3
15.1
1450.8
5.1
1445.7
426.4
1019.3

CY12
8334.5
3756.9
111.5
(92)
663.4
355.9
1680.9
6476.5
1858.0
277.2
31.0
1611.9
26.6
1585.3
484.7
1100.6

CY13
9101.1
3907.0
110.0
105
741.5
391.3
1826.3
7081.5
2019.6
330.0
83.1
1772.7
36.5
1736.2
560.9
1175.3

CY13E
9218.0
3871.6
110.62
175
760
488.6
1797.51
7203.9
2014.1
342.9
73.7
1744.9
36.0
1708.9
564.0
1145.0

CY14E
9904.9
4308.6
118.86
99
792.39
435.8
1931.45
7686.19
2218.69
402.0
49.5
1866.23
59.7
1806.5
578.1
1228.45

CY15E
10942.2
4814.6
142.25
131
875.38
492.4
2133.73
8589.64
2352.58
474.0
87.5
1966.08
83.7
1882.4
611.8
1270.62

21.9%
20.5%
27.9%

19.8%
24.1%
21.7%

10.7%
16.9%
8.0%

9.2%
8.7%
6.8%

10.6%
8.4%
4.0%

8.8%
9.9%
4.5%

10.5%
6.0%
3.4%

40.7%
4.8%
6.9%
19.3%
28.0%

39.0%
4.4%
7.3%
19.6%
29.5%

45.1%
4.3%
8.0%
20.2%
30.6%

42.9%
4.3%
8.1%
24.4%
32.3%

42.0%
5.3%
8.3%
19.5%
33.0%

43.5%
4.4%
8.0%
19.5%
32.0%

44.0%
4.5%
8.0%
19.5%
32.5%

20.4%
18.5%
13.3%

21.1%
19.3%
13.5%

22.3%
19.3%
13.2%

22.2%
19.5%
12.9%

21.9%
18.9%
12.4%

22.4%
18.8%
12.4%

21.5%
18.0%
11.6%

3795.2
9.6
855.4
86.9
88.7
97.9%
42.8
43.7

4569.3
9.6
1274.0
105.7
132.2
80.0%
34.6
43.2

4592.0
9.6
1798.4
114.2
186.6
61.2%
24.6
40.2

5189.0
9.6
2368.8
121.9
245.7
49.6%
21.1
42.6

5189.0
9.6
2369.6
119.3
246.8
48.3%
21.0
43.5

5043.0
9.64
3050.2
127.43
316.4
40.3%
15.9
39.57

5043.0
9.64
3773.9
131.81
391.5
33.7%
12.9
38.26

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

(Source: Company/Eastwind)
20
Vardhman Textiles

"Buy"
24th Feb' 14

On a Strong earning foot..
Initial Coverage
CMP
Target Price
Previous Target Price
Upside
Change from Previous

341
412
NA
21%
NA

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
Average Daily Volume (Nos.)
Nifty

502986
VTL
410/241
2170
868
6155

VTL with its largest domestic capacity in terms of spindles, drives a significant por-tion of
its revenue from spinning segment. Company is one of the largest cotton yarn exporters
from India. Significant presence in Indian market and has emerged as a well known
supplier of the global market. Past few quarters were the turnaround for the company .
Company has strategic tie-ups with Japanese and Korean companies. Consistent
expansion and technological up-gradation has given a global status to the company. VTL
is the supplier of fabrics to the world’s leading brands such as Tommy Hil-figer, Esprit,
Gap, Louis Philippe, Arrow, etc
Profitability at the pick to serve
Vardhman Textiles Ltd (VTL), India’s leading textile player, reported a significant revenue
growth of 30.7% to Rs. 1431 Cr during Q3-FY14 over corresponding period previous year
on the back of 45.8% YoY increase in fabric business to Rs.522 Cr, which constitutes 3540% of the overall revenue. While yarn segment, which is the highest contributor of the
revenue, reported YoY growth of 30.5% to Rs.1182 Cr.

Stock Performance-%
1M
-3.8
-0.5

Absolute
Rel. to Nifty

1yr
22.6
20.1

YTD
29.5
26.2

Share Holding Pattern-%
Promoters
FII
DII
Others

3QFY14
61.9
6.6
17.2
14.4

2QFY14 1QFY14
61.7
61.6
5.7
5.3
18.2
18.9
14.4
14.2

1 yr Forward P/B

Source - Comapany/EastWind Research

Operating profit of the company recorded substantial growth of 70.9% to Rs.274 Cr
during Q3FY14 yoy and outpaced the revenue growth due to significant control over
material cost, employee expenses and fuel charges. Material cost, which constitutes 60%
of the total expenses, grew at YoY rate of 22.9% to Rs.660 Cr. As a result, EBITDA and
operating profit margin re-ported a considerable improvement of 358bps and 455bps
during Q3FY14 yoy respectively. PAT reported the YoY growth of 109.6%, while PAT margin improved by 466bps.
VTL reported consistent and strong YoY growth in past several quarters with the average
growth rate of more than 20%. Company reported compounded quarterly growth of 3.5%
in past 10 quarters
Despite expansion and heavy CAPEX for capacity enhancement, VTL managed to reduce
its debt to equity on the back of significant expansion in reserves & surplus due to
phenomenal improvement in profit-ability in past several quarters.

Company operates at EBITDA and net margin of 24.9% and 12.2% respectively, which
provides sufficient financial cushion against operating cost and financial expenses. With
liquidity being excellent and cash flows positive, current ratio at 2.58 and cash ratio at
0.47 offer no worries.
Financials :
Q3FY14
Y-o-Y %
Q-o-Q %
Q3FY13
Q2FY14
Net Revenue
1431
30.9
10.9
1093
1290
EBITDA
346
53.1
0.0
346
226
Depriciation
72
10.8
1.4
71
65
Interest Cost
31
-22.5
-11.4
35
40
Tax
68
83.8
9.7
62
37
PAT
175
108.3
-1.7
84
178
(In Crs)

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

21
Vardhman Textiles
Advantage India remains for most of FY14E
Chinese players imported yarn from India owing to the high cotton prices. This led to
the strong performance of Vardhman over the last three quarters. There is no clarity yet
on the policy to be followed by China. If the current scenario continues, Indian spinners
will continue to gain. However, if Chinese players are able to procure cotton at lower
prices, it will have a negative impact on the demand for Indian yarn. We, thereby,
remain conservative about our FY15 estimates.
Business and its strategies
VTL with its largest domestic capacity in terms of spindles drives a significant portion of
its revenue from spinning segment. Company is one of the largest cotton yarn exporters
from India. Significant presence in Indian market and has emerged as a well-known
supplier of the global market. Past few quarters were the turnaround for the company.
Company has strategic tie-ups with Japanese and Korean companies. Consistent
expansion and technological up-gradation has given a global status to the company. VTL
is the supplier of fabrics to the world’s leading brands such as Tommy Hilfiger, Esprit,
Gap, Louis Philippe, Arrow, etc
Views and Valuation
Vardhman is geared to report a record profit in FY14. Despite weak macro-economic
scenario and recent expansion, VTL managed to report significant improvement in its
key metrics.Considering the favourable export scenario and completion of capacity
expansions, we remain positive on FY14. We, hereby, initiate our coverage with
Vardhman Textiles to BUY with a target price of Rs.412 . Currently the stock is trading at
0.8x p/b , we cut our Earning parameter for FY15 and cut p/b to 0.7x for FY15 . Looking
at the current earning growth and environment the stock is looking very good but due
to lack of trigeers in FY15 we are really conservative for FY15 .

P/L PERFORMANCE
Net Revenue from Operation
Cost Of Projects & Contractual
Power and fuel
Other expences
Employee benefit Expence
Expenditure
EBITDA
Depriciation
Interest Cost
Tax
PAT
ROE%

FY12
4641
2651
460
386
292
4025
616
274
174
66
141
6

FY13
4972
2316
559
486
349
3997
975
295
177
168
356
14

FY14E
6245
2741
647
887
433
4709
1536
343
160
336
720
23

Narnolia Securities Ltd,

FY15E
6682
3007
702
1002
520
5231
1451
397
160
296
628
17

Source - Comapany/EastWind Research
22
Vardhman Textiles
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

57
1548
1604
2346
297
3
87
26
5077
0
2553
45
77
1297
476
262
272
5077
FY10
1.0
45.3
14.2
2.6
3.9

63
2202
2264
2925
20
3
123
30
6103
0
2534
156
111
1933
667
71
395
6103
FY11
0.7
82.5
15.1
2.8
4.4

63
2144
2207
2044
505
5
116
48
5967
18
2557
185
92
1535
630
84
326
5967
FY12
0.6
22.2
13.6
2.5
3.3

63
2444
2506
2100
778
6
84
64
6789
22
2679
213
147
1784
746
65
475
6789
FY13
0.7
56.0
15.0
1.7
3.6

CASH FLOWS
Cash from Operation
Changes In Working Capital
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year

FY10
640
-629
11
-132
10
-111

FY11
933
-902
31
-456
234
-192

FY12
576
444
1020
-647
-355
18

FY13
843
-510
333
-517
165
-19

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Trading At :

Narnolia Securities Ltd,

23
DENA BANK

"NEUTRAL"
24th Feb, 2014

ANNUAL REPORT UPDATE

Result update
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market Data
BSE Code
NSE Symbol

NEUTRAL
51.55
57
55
11
-

Bank’s performance was lower than street expectation and disappointed in
most of operating metrics. GNPA remain high at 2.96% while net NPA were
1.97%. Provision coverage ratio (without technical write off) improved slightly
on sequential basis. Valuation wise, stock is trading at 0.4 times of one year
forward book which is quite reasonable. But looking at growth and operating
metrics, we believe bank would be trade in the range of 0.3 to 0.4 times of one
year forward book. We have neutral view on the stock with price target of
Rs.57.

532121
DENABANK

NII grew at moderate pace owing to margin compression on Y-o-Y
Dena bank reported very weak set of numbers during quarter with NII grew by 7.5%
YoY to Rs.661 cr largely due to margin compression in year on year basis led by
higher cost of fund than fund yield. Higher cost of fund was due to 208 bps declined
in low cost franchise deposits. Other income was lower at 10.7% YoY to Rs.129 cr

52wk Range H/L
Mkt Capital (Rs Cr)
Average Daily Volume
Nifty

Stock Performance
1M
Absolute
-13.6
Rel.to Nifty
-10.7

103/42
1809
1.16 lakh
6155

1yr
-50.3
-53.9

YTD
-50.3
-53.9

Share Holding Pattern-%
Current 4QFY13 3QFY1
3
Promoters
66.6
55.2
55.2
FII
7.9
8.6
16.5
DII
4.9
7.3
8.1
Others
20.7
28.9
20.2
DENA Bank Vs Nifty

versus Rs.144 cr in previous quarter. Total income was moderate at 4% YoY growth.
Higher operating expenses led negative growth in PPP
Operating expenses during quarter was higher at 32.5% YoY which escalated cost
income ratio to 63.4% versus 51.4% in last year. Bank’s employee cost and other
operating expenses both surged to 33% and 32% YoY respectively. This had make
down operating profit to Rs.371 cr (down by 16.3% YoY) versus Rs.443 cr in last
quarter and Rs.371 cr in previous quarter.
Provision and contingencies were up on the back of deteriorating asset quality
Provisions and contingencies were up by 44% QoQ on the back of deteriorating
asset quality. In absolute term gross NPA and net NPA both increased by 5% YoY
each. In percentage term GNPA and net NPA stood at 2.96% and 1.97 versus
3.04% and 2.02% in previous quarter. Cumulative provision was up by 4.7% which
slightly improved provisions coverage ratio without technical write off to 33.4% from
33.5% in 2QFY14. Dena Bank's Capital Adequacy Ratio as per Basel III norms stood
at 10.61% as against 10.21% in previous quarter.

Financials
NII
Total Income
PPP
Net Profit
EPS

2011
1763
2297
1224
612
18.3

2012
2101
2683
1528
803
22.9

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

Rs, Cr
2013
2014E
2015E
2383
2551
3538
3039
3410
4397
1739
1808
1627
810
445
502
23.2
9.5
10.7
(Source: Company/Eastwind)
24
DENA BANK
Profitability declined despite of tax reversal
Profitability declined by 67% YoY due to reversal of tax to the tune of Rs. 79 cr as against
reversal of Rs.73 cr in previous quarter. At PBT level, bank was negative at Rs.12 cr
which was highly discouraging. This was basically due to moderate NII growth, higher
operating expenses and higher provisions.
Sequentially margin improved on the back of stable loan yield and slightly
increased of cost of deposits
NIM improved by 10 bps sequentially on the back of higher yield on advance than cost of
deposits. During quarter, bank’s yield on advances remained flat at 11.6% while yield on
investment improved by 4 bps QoQ to 7.6%. Cost of deposits increased by 5 bps QoQ to
7.6%. Going forward, management guided NIM at the range of 2.75% to 3%.
Deposits growth faster than loan growth
On balance sheet growth front, bank’s deposits grew by 13.2% YoY led by term deposits
which grew by 17% YoY. Current account deposits de-grew by 5% YoY while saving
account deposits grew by 9% YoY. Overall CASA ratio de-grew by 208 bps to 29%.
Bank’s loan grew by 11% YoY aided by agriculture and MSME segment which was grown
by 30.7% and 25.4% YoY respectively. Retail advance grew by moderate at 14.4% YoY.
Management guided loan growth of 15-17% for FY14. We model 15% loan growth and
6% deposits growth for FY14.
Valuation & View
Bank’s performance was lower than street expectation and disappointed in most of
operating metrics. GNPA remain high at 2.96% while net NPA were 1.97%. Provision
coverage ratio (without technical write off) improved slightly on sequential basis.
Valuation wise, stock is trading at 0.4 times of one year forward book which is quite
reasonable. But looking at growth and operating metrics, we believe bank would be trade
in the range of 0.3 to 0.4 times of one year forward book. We have neutral view on the
stock with price target of Rs.57.

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

25
DENA BANK

NII grew by 7.5% YoY to Rs.661 cr largely due
to margin compression in year on year basis
led by higher cost of fund than fund yield.

Higher operating expenses led negative
growth in PPP

Profitability declined by 67% YoY due to
reversal of tax to the tune of Rs. 79 cr as
against reversal of Rs.73 cr in previous
quarter.

Source: Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

26
DENA BANK
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( Incl. tax provision)
PBT
Tax
Net Profit

3QFY14
1848
654
3
30
2534
129
2663
1873
661
129
790
255
164
419
371
382
-12
-79
68

2QFY14
1790
644
9
7
2450
150
2600
1825
625
150
775
251
154
406
369
335
34
-73
107

3QFY13
1742
519
3
0
2264
144
2408
1649
615
144
759
192
124
316
443
157
286
80
206

Balance Sheet Data (Rs Cr)
Deposits
Saving Accounts
Current Accounts
Loan

96081
21983
5786
69895

93669
21476
5695
64785

84882
20216
6083
63040

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

2066
1375
2.96
1.97
33

1968
1309
3.04
2.02
34

% YoY Gr % QoQ Gr 3QFY14E ariation(%)
V
6.1
3.2
1931
-4.3
26.0
1.4
666
-1.9
-1.5
-70.1
9
-72.2
7541.0
303.8
4
707.6
11.9
3.4
2610
-2.9
-10.7
-13.9
150
-14.0
10.6
2.4
2760
-3.5
13.6
2.6
1926
-2.8
7.5
5.7
684
-3.3
-10.7
-13.9
150
-14.0
4.0
1.9
834
-5.3
32.8
1.6
225
13.4
32.1
6.1
150
9.2
32.5
3.3
375
11.7
-16.3
0.4
458
-19.1
144.2
14.1
351
8.9
-104.1
-134.2
107
-110.9
-199.3
8.6
21
-470.0
-67.2
-36.9
86
-21.1

1317
817
2.09
1.30
38
Source: Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

27
DENA BANK
P/L
Interest/discount on advances / bills
Income on investments
Interest on balances with Reserve Bank of India
Others
Total Interest Income
Others Income
Total Income
Interest on deposits
Interest on RBI/Inter bank borrowings
Others
Interest Expended
NII
NII Growth(%)
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
Net Profit

2011

2012

3820
1193
16
4
5034
534
5567
3117
8
145
3270
1763
60.3
534
2297
688
385
1073
1224
612
612

5161
1544
38
51
6794
582
7376
4528
18
147
4693
2101
19.1
582
2683
715
440
1155
1528
725
803

2013 2014E
6819
2019
31
30
8899
655
9555
6234
59
223
6516
2383
13.4
655
3039
792
508
1300
1739
706
810

7421
2536
28
50
10035
859
10894
6583
0
228
7484
2551
7.1
859
3410
978
625
1603
1808
1308
445

2015E
8737
2307
28
50
11122
859
11981
7242
0
342
7583
3538
38.7
859
4397
1690
1080
2770
1627
1000
502

64210
25.1
1692
8.3
44828
26.4
18769
19.6

77167
20.2
3881
129.4
56693
26.5
23028
22.7

97207
26.0
8414
116.8
65781
16.0
34343
49.1

102068
5.0
6515
-22.6
72359
10.0
34203
-0.4

112274
10.0
9763
49.9
83213
15.0
38442
12.4

8.5
6.4
7.4
4.9
9.0
5.0

9.1
6.7
8.0
5.9
4.2
5.8

10.4
5.9
8.1
6.4
3.4
6.2

10.5
7.4
9.4
6.5
3.4
6.9

10.5
6.0
9.1
6.5
3.5
6.2

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

Eastwind Calculation
Yield on Advances
Yield on Investments
Yield on Funds
Cost of deposits
Cost of Borrowings
Cost of fund

Source: Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

28
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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India Equity Analytics :IT Industry 3QFY14 results review

  • 1. IEA-Equity Strategy India Equity Analytics 28th Feb, 2014 Daily Fundamental Report on Indian Equities IT Industry: 3QFY14 results review : "Clear acceleration in growth" Edition : 215 28th Feb 2014 For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted by seasonality and furloughs impact. However, most of companies expressed its sanguine view for industry outlook and demand discretionary environment ahead. Post earnings, almost all companies management have expressed for better earnings outlook in near term . .................................................. ( Page : 2-7) Public Sector Banks Result Review 3QFY14 26th Feb 2014 Most of PSBs profitability were declined due to higher operating cost, surge in provisions and contingencies and creation of DTL special reserve. But declining profitability and deteriorating asset quality is not a concern but structure damage of balance sheet. Going forward banks with higher CASA base and healthy growth in deposits would able to protect margin and hence profitability. Post result we like SBI, Union Bank and UCO Bank due to their structural improvement in balance sheet, operating and financial metrics. ............................................................................ ( Page : 8-9) SHREE CEMENT. "BOOK PROFIT " 25th Feb 2014 The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market scenario the price is fare enough to trade.But looking at future capex plans and sluggish demand we belive the earnings and profitability of Shree cement may fall for the next two consecutive quarters.The profitability may fall due to incrising depriciation.Till now the company's depriciation level is stable but it may surprise further.so we recommend its a better pic to book profit. ................................................................. ( Page : 10-12) "BOOK PART PROFIT " AXIS BANK : 25th Feb 2014 We advice our investor to book part profit in Axis Bank as bank has achieve our target price level of Rs.1217. We still stick to our valuation on account of bank’s uncomfortable earnings and asset quality stress. Bank’s profitability was up by 19% YoY on the back of right back of investment depreciation provisions. Exposure to risky sector remained high which would keep asset quality under stress. These factors compel us to value bank at 1.5 times of FY14E’s book value......................................................... ( Page : 13-17) Nestle India :"The nest becomes weaker" "Neutral" 24th Feb 2014 For 4QCY13, Nestle Ind reported below numbers than street expectations in all counts, sales grew by 4.7%(YoY) led by 3.7% domestic growth and 20.9% export growth. Its domestic sales contribute 94% and exports 6% of sales. While, PAT marginally declined by 0.7% on YoY basis. At a CMP of Rs 5043, stock trades at 15.9x P/BV of CY14E. We have a “Neutral” view on stock. .................................................................. ( Page : 1820) Vardhman Textiles : "BUY" 24th Feb 2014 Considering the favourable export scenario and completion of capacity expansions, we remain positive on FY14. We, hereby, initiate our coverage with Vardhman Textiles to BUY with a target price of Rs.412 . Currently the stock is trading at 0.8x p/b , we cut our Earning parameter for FY15 and cut p/b to 0.7x for FY15 . Looking at the current earning growth and environment the stock is looking very good but due to lack of trigeers in FY15 we are really conservative for FY15 . ................................................. ( Page : 21-23) DENA BANK : "Neutral" 24th Feb 2014 Bank’s performance was lower than our expectation in all fronts and reported very weak set of numbers. Operating as well as financials metrics were remained muted. Profitability was declined by 67% YoY despite of tax reversal owing to muted growth in NII and higher operating expenses. We are pessimist about the growth parameters. We have neutral view on the stock. .............................................................. ( Page : 24- 28 ) Narnolia Securities Ltd,
  • 2. IT Industry: 3QFY14 results review "Clear acceleration in growth" Price performance of our coverage: Mix performance and margin sustainability, future outlook appears positive; For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted by seasonality and furloughs impact. However, most of companies expressed its sanguine view for industry outlook and demand discretionary environment ahead. The Top-4 companies responded a decent set of performance despite seasonally weak quarter with aggregate revenue of 2.8% in USD term (QoQ). Comparing with street expectation, Infosys and HCL Tech beat the street, while TCS and Wipro reported inline set of numbers. On margin front, they surprised positively with back-to-back quarters of margin improvement led by operational efficiencies and cost rationalization. Post earnings, almost all companies management have expressed for better earnings outlook in near term and they were confident to see stronger FY15E than FY14E on healthy growth prospect and a secular improvement in demand trend. (Source: Eastwind) Index Performance: ▲ 43% (Source: Eastwind) ▲ 9.4% (Source: Eastwind) Key takeaways from 3QFY14 earnings: USD revenue was marginally inline and Positive FY15E outlook: Reported USD revenues were in line or very marginally below our estimate during the seasonally weak quarter across the top tier. A part of this, companies management have given better outlook with margin expansion for FY15E, even NASSCOM aired the earning guidance of 13-15% for FY15E, better than FY14E and FY13. Margin ramped up across the Tier-1 and most of mid cap space: Despite flattish currency benefit, companies have been efficient to maintain its margin because of reinvested higher growth and efficient strategy to improve utilization. With macro improving and positive growth outlook, the operating advantage from investment is likely beginning to play out. SMAC and Digital were subject to discussion: Emerging verticals SMAC (Social, Mobility, Analytics and Cloud) and Digital transformation are expected to bring next generation of growth in IT Industry. A number of IT companies, especially tier-1 IT companies have expressed its priority area and strategy to pan-out growth opportunities on these emerging verticals. Current uptrend in discretionary spend is being driven by the same. Deal Pipeline remains healthy: During the quarter, weak seasonality marginally impacted order inflow. For near term, deal pipeline remains healthy and somehow, Pricing will be marginally under pressure in the traditional IT segment, Application Development and Management segment. While, we do not see any pressure on new emerging segments like SMAC, Digital, Infra, etc. Earning Performance v/s Estimates; INFY HCLTECH TECHM ZENSARTECH TATA ELXSI Outperform TCS WIPRO CMC MINDTREE HEXAWARE NIITTECH PERSISTENT ECLERX Inline KPIT Underperform (Source: Eastwind) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 2
  • 3. IT Industry: 3QFY14 results review Companies Specific Earnings Review Company TCS INFY* WIPRO HCLTECH# TECHM CMC MINDTREE HEXAWARE$ NIITTECH KPIT PERSISTENT ZENSARTECH ECLERX TATA ELXSI 3QFY13 16069.9 10424.0 9587.5 6273.8 3523.7 493.0 590.1 507.5 514.4 563.3 333.0 525.5 170.8 156.7 Sales,cr 2QFY14 3QFY14E 20977.2 21606.6 12965.0 13069.1 10990.7 11342.4 7961.0 8160.0 4771.5 4819.2 560.8 566.4 769.5 792.2 621.1 629.2 587.3 593.5 702.8 722.0 432.4 436.1 599.7 590.6 214.6 218.5 190.0 195.5 EBITDA,cr 3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14 21294.0 4660.5 6633.0 6300.3 6686.8 13026.0 2677.0 2837.0 3424.1 3258.9 11327.4 2050.2 2503.8 2552.0 2652.7 8184.0 1416.6 2093.0 2080.8 2125.0 4898.6 756.9 1110.9 1084.3 1136.3 561.0 83.2 88.4 87.8 90.8 790.6 120.4 159.8 153.9 154.1 620.0 109.0 147.7 147.9 139.4 587.3 81.3 88.6 86.1 95.1 677.9 87.9 108.1 115.5 103.5 432.8 82.4 100.8 104.7 104.3 594.1 70.1 102.5 87.5 87.3 219.5 66.8 92.8 90.5 88.8 200.1 16.5 32.4 40.4 43.6 *Infosys (net profit for 2QFY14 includes the one-time visa charge of Rs219 crore). 3QFY13 3549.6 2369.0 1598.1 974.3 455.9 61.1 87.7 66.2 56.6 59.9 49.5 48.7 49.8 8.8 PAT,cr 2QFY14 3QFY14E 3QFY14 4633.3 5096.7 5333.4 2407.0 2695.8 2874.9 1932.0 1984.2 2014.7 1416.0 1472.6 1495.0 718.2 754.1 1009.8 67.3 65.6 70.6 113.0 98.6 114.0 98.7 103.6 103.3 60.4 57.4 52.5 66.7 69.4 60.8 60.8 66.9 64.2 70.6 50.4 50.8 67.2 61.4 62.3 19.9 20.5 21.6 (Source: Company/Eastwind) # HCL Technologies (June year ending). $ Hexaware (Follow Callendar year) Growth and Margin Performance-% Company TCS INFY WIPRO HCLTECH TECHM CMC MINDTREE HEXAWARE NIITTECH KPIT PERSISTENT ZENSARTECH ECLERX TATA ELXSI Growth (QoQ)-% Sales EBITDA PAT 1.5% 0.8% 15.1% 0.5% 14.9% 19.4% 3.1% 5.9% 4.3% 2.8% 1.5% 5.6% 2.7% 2.3% 40.6% 0.0% 2.7% 4.8% 2.7% -3.6% 0.9% -0.2% -5.7% 4.7% 0.0% 7.3% -13.1% -3.5% -4.3% -8.8% 0.1% 3.5% 5.6% -0.9% -14.9% -28.0% 2.3% -4.3% -7.2% 5.3% 34.6% 8.5% Growth (YoY)-% Sales EBITDA PAT 32.5% 43.5% 50.3% 25.0% 21.7% 21.4% 18.1% 29.4% 26.1% 30.4% 50.0% 53.4% 39.0% 50.1% 121.5% 13.8% 9.1% 15.5% 34.0% 28.0% 30.0% 22.2% 27.9% 56.0% 14.2% 17.0% -7.2% 20.3% 17.7% 1.5% 30.0% 26.6% 29.7% 13.1% 24.5% 4.3% 28.5% 32.9% 25.2% 27.7% 164.4% 146.9% Margin-% EBITDA PAT 31.4% 25.0% 25.0% 22.1% 23.4% 17.8% 26.0% 18.3% 23.2% 20.6% 16.2% 12.6% 19.5% 14.4% 22.5% 16.7% 16.2% 8.9% 15.3% 9.0% 24.1% 14.8% 14.7% 8.6% 40.5% 28.4% 21.8% 10.8% Margin Change,(QoQ) EBITDA PAT (20bps) 290bps 310bps 350bps 60bps 20bps (30bps) 50bps (10bps) 560bps 40bps 60bps% (130bps) (30bps) (130bps) 80bps 110bps (130bps) (10bps) (50bps) 80bps 80bps (240bps) (320bps) (280bps) (290bps) 470bps 30bps (Source: Company/Eastwind) Tier-1 ; The top four IT companies delivered a decent performance in a seasonally soft quarter with an aggregate revenue growth of 2.8% QoQ. INFY and HCL Tech beat the street on growth and margin front, while TCS and Wipro reported inline set of numbers. Mid cap/Niche (Tier-2)-TECHM and Persistent outmatch peers; TECHM’s broad based revenue growth and deal signing was robust. Persistent system surprised positively on margin front for the second consecutive quarter led by higher utilization. Apart of this, Zensar Tech also reported good margin ramp up during the quarter. As a backbencher, KPIT, NIITTECH and Hexaware reported flat to below expected numbers. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 3
  • 4. IT Industry: 3QFY14 results review Operating Metrics across Tier-1 IT space Sales mix- Geogrpahy wise Discretionary spends continue to gain momentum in America and in specific pockets in Europe. (Source: Company/Eastwind) Sales mix- Segment wise During the quarter, manufacturing segment reported attractive growth. Whilea mong service offerings, Infrastructure Management Services (IMS) will be a key growth driver. (Source: Company/Eastwind) Utilization Rate-% Employee Addition; TCS INFY WIPRO HCLTECH Total Employee 290713 158404 146402 88332 Gross Addition 14663 6,682 -814 7593 (Source: Company/Eastwind) Attirition rate-% Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. (Source: Company/Eastwind) 4
  • 5. IT Industry: 3QFY14 results review Key Takeaways from Conference Call; (1) TCS - Confident of beating NASSCOM's FY15 growth guidance of 13-15%, -FY15E will be better than the current fiscal, -Expect Europe to perform better than the US, -Chasing 20-25 large transformational deals, -Seeing an uptick in discretionary spends, - Lateral hiring 50000-55000 in FY15E, (2) INFOSYS -Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%. -They are seeing confidence coming back from client’s metrics. -The Company is looking to bring in about maximum 6,000 off-campus offers. (3) WIPRO -4QFY14: Revenues from IT Services business to be in the range of $ 1,712 million to $1,745 million* including the revenues from acquisition. -Expect better FY15E than FY14. -Hiring target for FY15E would be like FY14, will focus on onsite hiring. -Wage hike by 1st June ,2014. (4) HCLTECH: -The company is expecting to catch up more deal from US and Europe because of better demand environment ahead. -The company expects to see margin at a range of 21-22% in near term. -The wage hike is spread over two quarters or rather more than two quarters. Q3 and Q4 margin could be impact be 30bps. (5) TECHM -The Company aspires revenues of USD 5 billion by 2015. This expects to be through organic and inorganic initiatives (looking for USD 0.5 billion to 0.8 billion as acquisition targets) going forward. -Year 2014 would be better year than FY13, demand environment and Order pipeline is looking good. -Despite salary hike in 4Q, margin would be on place. Wage hike in 4Q could impact 200bps in margin front, but management is confident to mitigate. -Expecting utilisation rate to 77% from 75%(3QFY14) in near term. -The tax rate expected to be 26% for the FY'14. (6) CMC -CMC continues to target growth ahead of the overall IT industry; the company expects to grow faster than that in the current financial year. -Expects operating Profit margin at 16 percent for FY14E, -The company expects to maintatin its tax regime at 20-20.5% for coming quarter. For next year tax rate could be stand at a range of 20-21%. -Company’s hiring Plan; a net addition of 400-500 this year. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 5
  • 6. IT Industry: 3QFY14 results review (7) PERSISTENT SYS - Persistent is confident of doing more than 15% revenue ($) growth forFY14E. -They expect to maintain margin at 24-25% for FY14E. -Expects 20-21% growth in the next year from IP led business, which in turn will help improve margins going forward. -The Company’s focus on newer technologies like cloud, analytics, mobility and digital transformation are gaining traction. -The company is optimistic to see more deals on SMACS and IP led business. (8) NIITTECH -Company expects FY14 to be better than FY13 with respect to both revenue growth and EBIT margin. -Managent is very confident to maintain attrition at 12-13% and utilization at 77-80% in near to medium term. -It expects the growth momentum will sustain with holding the margins going forward. (9) ZENSARTECH - It expects double-digit growth in the Enterprise Services business for the FY15 on the back of healthy pipeline. - It anticipates good growth from the IMS for the FY'15. -Management has expressed its margin at a range of 16-17% (10) ECLERX -The billing rates expected to be flat to slight uptick for the FY15E. -Expect to see similar set of environment in FY 15E than FY14. -On margins, it indicated that it will continue to operate in the mid 30% (30-31%) going forward. -Tax rate is expected to see at 23% mark in FY15E. -It continues to look at inorganic opportunities. - Expects to maintain 51% of payout ratio. (11) MINDTREE -Management expects the strong traction in top 10/20 clients to continue. -Expects 4QFY14E revenue performance to be better than both 4QFY13 revenue performance (+2.8% QoQ) as well as 3QFY14 revenue growth (+2.5% QoQ). -Company expects to maintain operating margins at current levels in the near/medium term (12) KPIT -Management expects to see better revenue growth in 4QFY14E than 3QFY14. -The company is making significant changes in organization structure. -Margins are expected to improve going forward as the one off during the quarter will be absent. -Utilization will also go up as revenue growth is realized on the back two deals won this quarter which have a duration of 12 months. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 6
  • 7. IT Industry: 3QFY14 results review Industry Outlook: For FY15E, NASSCOM expects IT exports to grow by 13-15% and domestic market to grow by 9-12% based on broad feedback loop from companies and captives. We have seen a significant increase in global technology spending this year, creating opportunities for the Indian software services sector to post double-digit growth again in export as well as in the domestic markets. FY15E promises to be bigger and stronger than the last 3 years, which were marked by bloodbath in global markets due to Euro-zone crisis and falling consumer confidence in the US. Demand is set to pick up in sectors like BFSI, healthcare, retail and transportation globally in the year ahead. For FY15E, We expect that strong fundamentals should help to sustain earning momentum in FY15E. Foray into niche verticals and executions of large deal would play an important factor for better earning visibility in near future. There is a window of opportunity for competent large caps and midcaps to displace incumbents and gain some incremental business. In the past 4 quarters, large caps (four companies) have grown at 3.4% CQGR, while midcaps (five companies) at 3.2%which is comparable to larger peers. Concerns: US Immigration Bill to remain an overhang in short-to-medium term, However, hardening of regulatory related to visa approval in USA, Canada and Australia could spoil the party. Even, the approval of Immigration Bill attached with higher visa fee, wage requirements and enhanced audit by US agencies could turn the growth story of Indian IT players adversely. If passed in its current form, the Bill could hurt the margins of the Indian IT export sector, which derives almost 55-60% of its revenues from USA. Our top picks: TCS and HCLT are growing the fastest and with tremendous margin performance. Infy is accelerating growth … While all companies are accelerating its revenue growth and shaping up its margin because of favorable demand and supply environment. Across the tier-1 IT space, TCS, INFY and HCL TECH remain our best picks in order of our preference. These companies are very much optimistic to improve margin as well as operational efficiencies with healthy deal pipeline across emerging verticals as well as traditional IT Space under positive demand scenario. Hence, with strong medium term earnings visibility, better demand environment and optimistic management comments, we maintain our positive stance on (In order of preference) TECHM, PERSISTENT, ZENSARTECH, ECLERX and KPIT under mid cap space. View and valuation: Company TCS INFOSYS HCLTECH WIPRO TECHM CMC NIITTECH KPIT HEXAWARE PERSISTENT eCLERX TATAELXSI ZENSARTECH MINDTREE CMP (26.02.14) 2182.4 3803.85 1572.9 603.35 1821.65 1450.4 446.4 174.9 165.85 1119.25 1341.05 518.65 387.2 1632.7 View Target BUY BUY HOLD NEUTRAL BUY NEUTRAL HOLD BUY NEUTRAL HOLD BUY NEUTRAL BUY NEUTRAL 2510 3910 1560 2130 443 177 1065 1358 440 - Upside % 15.0% 2.8% -0.8% 16.9% -0.8% 1.2% -4.8% 1.3% 13.6% - FY13 71.82 164.2 58.10 25.0 123.97 75.3 36.28 10.8 13.90 46.1 64.25 10.6 40.03 89.7 EPS-Rs FY14E 95.00 188.0 79.36 31.1 155.37 86.0 43.33 12.6 15.04 61.4 71.61 24.0 52.70 100.9 FY15E 109.31 218.2 98.11 33.5 175.50 92.4 54.18 16.8 16.01 79.1 83.65 28.4 68.97 114.9 FY13 30.39 23.16 27.07 24.09 14.69 19.27 12.30 16.19 11.93 24.27 20.87 48.79 9.67 18.20 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. P/E-x FY14E 22.97 20.24 19.82 19.42 11.72 16.86 10.30 13.85 11.02 18.22 18.73 21.59 7.35 16.18 FY15E 19.97 17.44 16.03 18.01 10.38 15.70 8.24 10.40 10.36 14.15 16.03 18.29 5.61 14.21 FY13 36.4% 24.8% 30.7% 21.7% 34.8% 24.1% 20.0% 20.1% 27.4% 18.1% 43.8% 16.9% 23.2% 28.4% RoE-% FY14E 37.5% 23.7% 31.5% 22.7% 30.7% 22.8% 19.4% 19.3% 24.9% 20.3% 37.9% 29.7% 24.5% 25.6% FY15E 34.4% 22.9% 29.4% 20.8% 26.0% 20.7% 19.6% 20.7% 22.5% 21.4% 34.4% 27.4% 25.2% 23.6% 7
  • 8. Public Sector Banks Result Review 3QFY14 Moderate NII growth in the system due to muted loan growth Net interest income of our universe grew by 10.4% YoY on the back of margin expansion on YoY basis along with moderate to healthy loan growth. In our coverage universe, Bank of India and UCO Bank were reported healthy NII growth whereas Andhra Bank reported 10.6% YoY declined in NII. SBI reported NII growth of 13 YoY largely due to loan growth of 17% while margin was declined by 12 bps and flat at QoQ basis. Lower operating profit on account of higher wage settlement provisions and cost related to branch expenses Operating profit of our universe was declined by 1.5% YoY on the back of higher cost against employee provisions, operating cost and non supportive other income. Most of PSBs were reported negative growth in their other income led by lower corporate fee income. In our universe ALBK, Bank of India and UCO bank reported healthy operating profit. But we have not seen improvement of operating metrics in these banks. Operating leverage of PSBs bank has been increasing led higher wage provisions and branch expansion. Profitability declined led by higher operating expenses, higher provisions and Nifty Vs Bank Nifty during Year Loan (Rs tn) and YoY Gr(%) creation of DTL special reserve Earnings growth of Public Sector Banks (PSBs) are remained weak largely due to higher operating expenses led by employee provisions and surged in provisions and contingencies and higher tax provision for DTL special reserve as per RBI’s suggestion. In our banking coverage universe, profitability declined by 27% YoY and 11.5% QoQ. UCO Bank reported 208% YoY growth while Andhra Bank de-grew by 82% YoY. Asset quality deterioration sequentially on account of tight liquidity condition and rising interest rate Most of PSBs reported 10 to 20% deterioration in asset quality sequentially while United Bank’s GNPA and net NPA were 11% and 7.5% of gross advance and net advance respectively and fresh slippages were 16% (annualized). On slippage front some banks like PNB, Bank of Baroda, Union Bank and UCO bank showed some strength. But in tight economy condition and rising interest rate scenario, asset quality pressure would continue. Banks with higher coverage ratio would be protected. PNB and Bank of Baroda are in better place and their management commentaries reflect some confidence on asset quality issue. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 8
  • 9. Public Sector Banks Result Review 3QFY14 Worry about the structure damage of balance sheet, declined profit is not matter We are not worried about the declining trend of PSBs profitability but to worry about the structural damage of balance sheet. Most of PSBs were reported moderate to healthy loan growth but their deposits and CASA growth were absent. In rising interest rate scenario, banks with higher low cost deposits would be able to report healthy NII growth on the back of margin expansion and would absorb operating cost. In our sense, PSBs would either have to improve their cost structure or improve deposits franchise to report growth at operating profit level. On cost structure front, we are pessimist as PSBs have higher numbers of unproductive employee than private banks and their salary at lower to middle level management are no means less than private sector banks. So banks with higher deposits growth and strong CASA would be able to report healthy growth going forward. We have buy rating on SBI on the back of its high CASA base and reasonable valuation despite of bank’s profitability was declined by 34% YoY. Outlook Most of PSBs are trading at lower range of valuation multiple owing to absence of core earnings, operating leverage, deteriorating asset quality and higher amount of restructure assets that are in pipeline. Most of banking stocks reported moderate revenue and profit growth owing to multiple headwinds. In near term we are not seeing improvement in economic condition and asset quality pressure are expected to remain in the system due to tight liquidity situation and rising interest rate. Post result we like SBI, Union Bank and UCO Bank due to their structural improvement in balance sheet, operating and financial metrics. Result Snapshot PSU BANKS ALBK ANDHRABANK BANKBARODA BANKINDIA CANBK DENABANK IOB ORIENTBANK PNB SBIN SYNDIBANK UCOBANK UNIONBANK VIJAYABANK Total NII 1336 868 3057 2719 2191 661 1398 1230 4221 12641 1359 1566 1964 495 34369 3QFY14 PPP Net Profit 1008 325 522 46 2197 1048 2144 586 1425 626 371 68 961 75 858 224 2702 755 7618 2235 806 380 1137 315 1262 349 168 11 22170 6717 NII 1309 1045 2895 2527 2191 107 1452 1281 4016 12251 1411 1569 1954 705 33404 2QFY14 PPP Net Profit 1154 276 643 71 2125 1168 2102 622 1425 626 369 625 791 133 825 251 2535 505 6312 2375 811 470 1166 400 1225 208 273 136 20601 7590 NII 1330 971 2841 2308 1988 615 1382 1204 3733 11154 1400 1177 1891 456 31120 3QFY13 PPP Net Profit 860 311 712 257 2256 1012 1856 803 1516 714 443 206 1017 116 926 326 2682 1306 7791 3396 864 508 831 102 1358 302 261 127 22513 9175 YoY Growth NII PPP Net Profit 0.4 17.2 4.7 -10.6 -26.8 -82.3 7.6 -2.6 3.6 17.8 15.5 -27.0 10.2 -6.0 -12.3 7.5 -16.3 -67.1 1.2 -5.5 -35.3 2.2 -7.3 -31.2 13.1 0.8 -42.2 13.3 -2.2 -34.2 -3.0 -6.8 -25.2 33.0 36.8 208.4 3.8 -7.1 15.5 8.5 -35.7 -91.0 10.4 -1.5 -26.8 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. QoQ Growth NII PPP Net Profit 2.0 -12.6 18.0 -16.9 -18.9 -35.5 5.6 3.4 -10.3 7.6 2.0 -5.8 0.0 0.0 0.0 517.7 0.5 -89.2 -3.7 21.5 -43.6 -3.9 4.0 -10.6 5.1 6.6 49.6 3.2 20.7 -5.9 -3.7 -0.7 -19.2 -0.2 -2.5 -21.4 0.5 3.0 67.8 -29.8 -38.6 -91.6 2.9 7.6 -11.5 9
  • 10. SHREE CEMENT. Update Book Profit CMP Target Price Previous Target Price Upside Change from Previous 4772 4791 4791 0% NA Market Data BSE Code NSE Symbol 500387 SHREECEM 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 5210/3413 16572 4143 6186 Stock Performance-% 1M 8.2 9.5 Absolute Rel. to Nifty 1yr 9.5 3.8 YTD 8.1 4.0 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 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 "Book Profit" 25th Feb' 14 Profitability and Earning drag may surprise for the next cosecutive quarters. The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market scenario the price is fare enough to trade.But looking at future capex plans and sluggish demand we belive the earnings and profitability of Shree cement may fall for the next two consecutive quarters.The profitability may fall due to incrising depriciation.Till now the company's depriciation level is stable but it may surprise further.so we recommend its a better pic to book profit. 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. 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. 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. The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market scenario the price is fare enough to trade.But looking at future capex plans and sluggish demand we belive the earnings and profitability of Shree cement may fall for the next two consecutive quarters.The profitability may fall due to incrising depriciation.Till now the company's depriciation level is stable but it may surprise further.so we recommend its a better pic to book profit. we recommend book profit at a 11% high,and stay out from the stock for medium term,till the triggers hit. 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 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 5409 Other Income 203 163 188 197 Total Income 3656 6061 5779 5550 Power and fuel 905 1500 1513 1409 Freight and forwarding 602 1006 915 1090 Expenditure 2569 4252 4029 4318 EBITDA 885 1646 1561 1091 Depriciation 676 873 436 562 Interest Cost 98 235 193 138 Net tax expense / (benefit) -99 69 115 54 PAT 365 619 1004 478 ROE% 20.8 23.1 26.1 11.0 Narnolia Securities Ltd, 30 1300 20 1250 10 1200 0 1150 -10 1100 -20 Source - Comapany/EastWind Research EBIDTA 450 400 INTEREST SERVICE COVERAGE RATIO 10 350 300 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. 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. "BOOK PART PROFIT " AXIS BANK 25th Feb, 2014 Company Updated CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance 1M Absolute -2.2 Rel.to Nifty 0.8 BOOK PART PROFIT 1237 1217 1147 -2 6 532215 AXISBANK 1549/764 55229 3.14 lakh 6186 1yr -17.4 -21.0 YTD -17.4 -21.0 Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 33.9 33.9 33.9 FII 43.2 43.4 40.7 DII 9.7 4.9 8.8 Others 13.2 17.8 16.6 Axis Bank Vs Nifty Axis Bank is now trading at Rs.1237/share which met our target price of Rs.1217. This price implies P/BV multiple of 1.5 times which is quite reasonable as per our view. We advice our investor to book part profit from this stock as we neither see improvement of asset quality nor revival in economy in near term. In 3QFY14’s result, bank’s profitability was up by 19% largely due to reversal of investment depreciation otherwise operating profit was just up by 10.7% YoY. Bank’s exposure to risky sector (Power + Infrastructure) remained high at 12.87% as against 12.64% in previous quarter. However, fresh slippage was marginally softened to Rs.589 cr versus Rs.618 on sequential basis. Impairment of assets (GNPA+ Restructure Assets) remained stable at 3.7% of net advance which was higher among peers. Lower multiple on account of uncomfortable earnings and lower corporate loan demand We have lower valuation multiple of bank in compare to its peers on account of uncomfortable earnings and asset quality stress. Operating performance of bank was remained under pressure as bank’s core operating revenue (NII + Other Income) grew by 12.6 YoY owing to lower fee income led by muted corporate and retail fee income. Corporate loan segment which constituted 46% of total loan grew by 3% YoY while retail segment loan grew by 44% YoY which constituted 33% of total loan. Incremental loan growth came from retail segment implying that bank has to maintain retail growth trajectory for industry average loan growth of 15%. Demand of corporate loan remained weak due to prevailing economy scenario. So loan growth for FY14 is likely to be line with system credit growth due to weakness in corporate loan demand and moderation in retail loan. Asset quality pressure persist; exposure to risky sector remained high Asset quality pressure remained persist during the quarter with GNPA and net NPA increased by 10% and 20% YoY respectively in absolute term. Fresh slippage inch up improved to Rs.589 cr as against Rs.618 cr in previous quarter. In percentage term GNPA and net NPA stood at 1.42% and 0.47% as against 1.36% and 0.42% respectively in previous quarter. Provision coverage ratio without technical write off declined by 270 bps QoQ led by lower provisions made on sequential basis. Impairment of assets (GNPA + Restructure Assets) for the quarter remained stable at 3.7% which was higher among peers. Moreover bank’s exposure to risky sector (Power + Infrastructure) was remained high at 12.87% of net advance where slippage risks are relatively high. Financials NII Total Income PPP Net Profit EPS 2011 6566 11238 6377 3340 81.4 Narnolia Securities Ltd, 2012 8026 13513 7413 4224 102.2 Rs, Cr 2013 2014E 2015E 9666 12224 14775 16217 19146 21697 9303 11206 12367 5179 5826 6934 110.7 124.2 148.2 (Source: Company/Eastwind) 13
  • 14. AXIS BANK Moderate growth in profit & loss Bank’s profitability was up by 19% due to reversal of investment depreciation. Overall provisions and contingencies were lower by 71% QoQ which led PBT growth of 22% YoY. At operating profit level, bank grew by 10.7% YoY which was lower among peers (HDFC Bank 29 YoY, ICICI bank 28.6%). Bank’s NII grew by 19.6% YoY largely due to margin expansion of 14 bps YoY which was supported by low cost deposits franchise. Core operating revenue (NII+ other income) grew 12.6% owing to muted other income growth of 1.8% YoY. Valuation & View We value bank at Rs.1217/share implying 1.5 times of FY14E’s book value which is quite reasonable as per our view. We have given this multiple on account of uncomfortable earning and asset quality stress. Bank’s profitability was up due to reversal of investment depreciation otherwise growth at operating profit level was remained lower as compare to its peers. Asset quality increased at moderate pace with high exposure in risky sector where fresh slippage risks are remaining high. Valuation Band 1 Yr forward P/BV 1 Yr forward P/E Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 14
  • 15. AXIS BANK Fundamenatl throught graph NII growth led by healthy CD ratio and margin expansion on YoY basis Lower other income and higher CI ratio led muted PPP growth Profit growth was higher than expectation on the back of lower provisions Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 15
  • 16. AXIS BANK Quarterly Result Quarterly Result Interest/discount on advances / bills Income on investments Interest on balances with Reserve Bank of India Others Total Interest Income Others Income Total Income Interest Expended NII Other Income Total Income Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions PBT Tax Net Profit 3QFY14 5557 2110 49 73 7789 1644 4628 4805 2984 1644 4628 655 1358 2013 2615 202 2413 808 1604 2QFY14 5394 2143 35 37 7609 1766 4703 4672 2937 1766 4703 644 1309 1953 2750 687 2062 700 1362 Balance Sheet Date Net Worth Deposits Loan 37649 36224 27027 262398 255365 244501 211467 201303 179504 Asset qualtiy( Rs Cr) GNPA NPA %GNPA %NPA 3008 1003 1.4 0.5 2734 838 1.4 0.4 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation 4907 13.3 3.0 5748 3.4 2014 4.8 -1.5 2235 5.9 25 97.7 39.4 35 -29.2 19 277.1 95.6 38 -47.4 6965 11.8 2.4 8056 3.4 1615 1.8 -6.9 1774 7.9 4110 12.6 -1.6 4780 3.3 4470 7.5 2.8 5049 5.1 2495 19.6 1.6 3006 0.8 1615 1.8 -6.9 1774 7.9 4110 12.6 -1.6 4780 3.3 615 6.5 1.7 0 1134 19.8 3.8 0 1749 15.1 3.1 2008 -0.3 2362 10.7 -4.9 2772 6.0 387 -47.7 -70.5 752 271.4 1975 22.2 17.0 2020 -16.3 628 28.8 15.5 687 -15.0 1347 19.1 17.7 1333 -16.9 2275 679 1.3 0.4 39.3 3.9 7.3 2.8 17.8 5.0 32.2 10.0 47.8 19.7 37558 272935 214892 -0.2 4.0 1.6 - Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 16
  • 17. AXIS BANK FINANCIALS & ASSUPTION 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 (%) 15155 8589 6566 31.2 4671 11238 25.3 4860 6377 22.4 3033 3345 3340 34.8 21995 13969 8026 22.2 5487 13513 20.2 6100 7413 16.2 3189 4224 4224 26.5 27183 17516 9666 20.4 6551 16217 20.0 6914 9303 25.5 4124 5179 5179 22.6 31198 18974 12224 26.5 6922 19146 18.1 7940 11206 20.5 2402 8804 5826 12.5 38490 23716 14775 20.9 6922 21697 13.3 9330 12367 10.4 2461 9906 6934 19.0 189166 34 77758 18 26268 71788 142408 36 219988 16 91412 18 34072 92921 169760 19 252614 15 112100 23 43951 113738 196966 16 290506 15 124917 11 51266 129873 228481 16 334081 15 143655 15 58956 149354 265037 16 460 1404 3.1 549 1146 2.1 708 1304 1.8 813 1174 1.4 942 1174 1.2 Balance Sheet Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%) Valuation Book Value CMP P/BV Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 17
  • 18. Nestle India "NEUTRAL" 24th Feb' 14 "The nest becomes weaker" Result update CMP Target Price Previous Target Price Upside Change from Previous NEUTRAL 5043 - Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty 500790 NESTLEIND 5865/4410 48593 21590 6091 Stock Performance 1M Absolute -3.7 Rel. to Nifty -1.0 1yr 10.7 7.4 YTD 3.4 1.8 Share Holding Pattern-% Current Promoters FII DII Others 1 yr Forward P/B 62.8 13.1 5.9 18.2 3QCY13 2QCY13 62.8 12.6 6.3 18.3 62.8 12.6 6.2 18.5 Weak numbers and showing up margin as well…, For 4QCY13, Nestle Ind reported below numbers than street expectations in all counts, sales grew by 4.7%(YoY) led by 3.7% domestic growth and 20.9% export growth. Its domestic sales contribute 94% and exports 6% of sales. While, PAT marginally declined by 0.7% on YoY basis. The company does not share volume growth numbers, but its statement did mention that sales rose mainly because of higher prices and product mix. For CY13, Company posted 9.2% sales growth, hugely impacted by weak consumer demand and high competitive intensity environment, PAT up by 6%. Management will continue to focus on reinforcing the fundamentals of growth drivers. Further, improve operational efficiencies, and keep rationalizing its SKUs. They are very confident of strategy to deliver long-term sustainable profitable growth, despite the short-term challenges. Margin dip: During the quarter, company has been efficient to maintain its mark of margin above than 20%. However, Margin ramp down by 210bps(YOY) to 21.1% because of inflationary pressure on raw material. There was improvement in raw material cost by 110 bps to 46.1% of adjusted net sales. PAT margin inched down by 70bps(YOY) to 12.7%. For CY13, EBITDA Margin and PAT margin were flat at 22.2% and 13%. Mix impact on RM Cost: Its top 3 inputs by value are milk and milk products, flour, and palm oil, which together account for two-thirds of its material cost. Milk and wheat flour have both seen prices increase, while a weak rupee has affected palm oil prices. However, other inputs such as green coffee and sugar have seen softer price trends. Jerk on Potential Market share: Nestle has been enjoying its leadership position (No.1) in all categories except soups and its positioning in Chocolates, noodles, Coffee has dominantly been unchallenged. Despite all facts, company has been facing many challenges over the past one and half years from Cadbury's and Ferrero Rocher in Chocolate, from HUL and ITC in noodles and from HUL in Coffee (Bru). Nestlé’s more focus on margin stability could sacrifice its volume. Company’s cash cow portfolio baby foods becoming weaker because of low ad spend. Now, Mead Jhonson and Danone are dominating in same segment. View and Valuation: Company’s less aggression on volume growth and the excessive focus on Margin expansion make us cautious on the stock. At same time, company believes on expansion of new plant set up by ignoring the dividend payout to investors. Consistently, its RoE is on downward direction. At a CMP of Rs 5043, stock trades at 15.9x P/BV of CY14E. We have a “Neutral” view on stock. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 4QCY13 2262.97 478.3 287.1 21.1% 12.7% 3QCY13 2360 503.9 289.6 21.4% 12.3% Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. Rs, Cr (QoQ)-% 4QCY12 (YoY)-% -4.1% 2161.1 4.7% -5.1% 504.1 -5.1% -0.9% 289.2 -0.7% (30bps) 23.3% (210bps) 40bps 13.4% (70bps) (Source: Company/Eastwind) 18
  • 19. Nestle India Sales and Sales Growth(%) Sales growth led by 4.7% (YoY) India growth, contributed by net realization and volume growth in certain product categories (Source: Company/Eastwind) Margin-% RM inflation outlook appears adverse and that could impact margins to hold out. (Source: Company/Eastwind) Domestic and Export sales-(% of Sales) Domestic revenue growth continues to be very weak (Source: Company/Eastwind) Catalysts and Concerns; Catalysts: Nestle plays on “Urban consumption theme” and now urban consumption and demand are stagnant. Thus, we see steady growth in near term, while we maintain that Nestle is a great long-term story with excellent quality management, strong leadership across several categories in the food segment and with brand portfolio, there are several headwinds, which will keep volume growth muted. Concerns: (1)Continued input cost pressure could impacts its margin, (2) Competitive intensity impacting its market share adversely, (3) Any adverse impact of inflation on consumer demand would significantly impact sales and earnings growth assumptions. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 19
  • 20. Nestle India 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 CY10 6284.7 2560.1 578.4 (83) 433.4 302.6 1213.0 5004.7 1280.1 127.8 12.7 1165.0 1.1 1163.9 326.5 837.5 CY11 7526.6 2933.4 704.2 (48) 546.5 327.6 1474.2 5937.6 1589.0 153.3 15.1 1450.8 5.1 1445.7 426.4 1019.3 CY12 8334.5 3756.9 111.5 (92) 663.4 355.9 1680.9 6476.5 1858.0 277.2 31.0 1611.9 26.6 1585.3 484.7 1100.6 CY13 9101.1 3907.0 110.0 105 741.5 391.3 1826.3 7081.5 2019.6 330.0 83.1 1772.7 36.5 1736.2 560.9 1175.3 CY13E 9218.0 3871.6 110.62 175 760 488.6 1797.51 7203.9 2014.1 342.9 73.7 1744.9 36.0 1708.9 564.0 1145.0 CY14E 9904.9 4308.6 118.86 99 792.39 435.8 1931.45 7686.19 2218.69 402.0 49.5 1866.23 59.7 1806.5 578.1 1228.45 CY15E 10942.2 4814.6 142.25 131 875.38 492.4 2133.73 8589.64 2352.58 474.0 87.5 1966.08 83.7 1882.4 611.8 1270.62 21.9% 20.5% 27.9% 19.8% 24.1% 21.7% 10.7% 16.9% 8.0% 9.2% 8.7% 6.8% 10.6% 8.4% 4.0% 8.8% 9.9% 4.5% 10.5% 6.0% 3.4% 40.7% 4.8% 6.9% 19.3% 28.0% 39.0% 4.4% 7.3% 19.6% 29.5% 45.1% 4.3% 8.0% 20.2% 30.6% 42.9% 4.3% 8.1% 24.4% 32.3% 42.0% 5.3% 8.3% 19.5% 33.0% 43.5% 4.4% 8.0% 19.5% 32.0% 44.0% 4.5% 8.0% 19.5% 32.5% 20.4% 18.5% 13.3% 21.1% 19.3% 13.5% 22.3% 19.3% 13.2% 22.2% 19.5% 12.9% 21.9% 18.9% 12.4% 22.4% 18.8% 12.4% 21.5% 18.0% 11.6% 3795.2 9.6 855.4 86.9 88.7 97.9% 42.8 43.7 4569.3 9.6 1274.0 105.7 132.2 80.0% 34.6 43.2 4592.0 9.6 1798.4 114.2 186.6 61.2% 24.6 40.2 5189.0 9.6 2368.8 121.9 245.7 49.6% 21.1 42.6 5189.0 9.6 2369.6 119.3 246.8 48.3% 21.0 43.5 5043.0 9.64 3050.2 127.43 316.4 40.3% 15.9 39.57 5043.0 9.64 3773.9 131.81 391.5 33.7% 12.9 38.26 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. (Source: Company/Eastwind) 20
  • 21. Vardhman Textiles "Buy" 24th Feb' 14 On a Strong earning foot.. Initial Coverage CMP Target Price Previous Target Price Upside Change from Previous 341 412 NA 21% NA Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 502986 VTL 410/241 2170 868 6155 VTL with its largest domestic capacity in terms of spindles, drives a significant por-tion of its revenue from spinning segment. Company is one of the largest cotton yarn exporters from India. Significant presence in Indian market and has emerged as a well known supplier of the global market. Past few quarters were the turnaround for the company . Company has strategic tie-ups with Japanese and Korean companies. Consistent expansion and technological up-gradation has given a global status to the company. VTL is the supplier of fabrics to the world’s leading brands such as Tommy Hil-figer, Esprit, Gap, Louis Philippe, Arrow, etc Profitability at the pick to serve Vardhman Textiles Ltd (VTL), India’s leading textile player, reported a significant revenue growth of 30.7% to Rs. 1431 Cr during Q3-FY14 over corresponding period previous year on the back of 45.8% YoY increase in fabric business to Rs.522 Cr, which constitutes 3540% of the overall revenue. While yarn segment, which is the highest contributor of the revenue, reported YoY growth of 30.5% to Rs.1182 Cr. Stock Performance-% 1M -3.8 -0.5 Absolute Rel. to Nifty 1yr 22.6 20.1 YTD 29.5 26.2 Share Holding Pattern-% Promoters FII DII Others 3QFY14 61.9 6.6 17.2 14.4 2QFY14 1QFY14 61.7 61.6 5.7 5.3 18.2 18.9 14.4 14.2 1 yr Forward P/B Source - Comapany/EastWind Research Operating profit of the company recorded substantial growth of 70.9% to Rs.274 Cr during Q3FY14 yoy and outpaced the revenue growth due to significant control over material cost, employee expenses and fuel charges. Material cost, which constitutes 60% of the total expenses, grew at YoY rate of 22.9% to Rs.660 Cr. As a result, EBITDA and operating profit margin re-ported a considerable improvement of 358bps and 455bps during Q3FY14 yoy respectively. PAT reported the YoY growth of 109.6%, while PAT margin improved by 466bps. VTL reported consistent and strong YoY growth in past several quarters with the average growth rate of more than 20%. Company reported compounded quarterly growth of 3.5% in past 10 quarters Despite expansion and heavy CAPEX for capacity enhancement, VTL managed to reduce its debt to equity on the back of significant expansion in reserves & surplus due to phenomenal improvement in profit-ability in past several quarters. Company operates at EBITDA and net margin of 24.9% and 12.2% respectively, which provides sufficient financial cushion against operating cost and financial expenses. With liquidity being excellent and cash flows positive, current ratio at 2.58 and cash ratio at 0.47 offer no worries. Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14 Net Revenue 1431 30.9 10.9 1093 1290 EBITDA 346 53.1 0.0 346 226 Depriciation 72 10.8 1.4 71 65 Interest Cost 31 -22.5 -11.4 35 40 Tax 68 83.8 9.7 62 37 PAT 175 108.3 -1.7 84 178 (In Crs) Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 21
  • 22. Vardhman Textiles Advantage India remains for most of FY14E Chinese players imported yarn from India owing to the high cotton prices. This led to the strong performance of Vardhman over the last three quarters. There is no clarity yet on the policy to be followed by China. If the current scenario continues, Indian spinners will continue to gain. However, if Chinese players are able to procure cotton at lower prices, it will have a negative impact on the demand for Indian yarn. We, thereby, remain conservative about our FY15 estimates. Business and its strategies VTL with its largest domestic capacity in terms of spindles drives a significant portion of its revenue from spinning segment. Company is one of the largest cotton yarn exporters from India. Significant presence in Indian market and has emerged as a well-known supplier of the global market. Past few quarters were the turnaround for the company. Company has strategic tie-ups with Japanese and Korean companies. Consistent expansion and technological up-gradation has given a global status to the company. VTL is the supplier of fabrics to the world’s leading brands such as Tommy Hilfiger, Esprit, Gap, Louis Philippe, Arrow, etc Views and Valuation Vardhman is geared to report a record profit in FY14. Despite weak macro-economic scenario and recent expansion, VTL managed to report significant improvement in its key metrics.Considering the favourable export scenario and completion of capacity expansions, we remain positive on FY14. We, hereby, initiate our coverage with Vardhman Textiles to BUY with a target price of Rs.412 . Currently the stock is trading at 0.8x p/b , we cut our Earning parameter for FY15 and cut p/b to 0.7x for FY15 . Looking at the current earning growth and environment the stock is looking very good but due to lack of trigeers in FY15 we are really conservative for FY15 . P/L PERFORMANCE Net Revenue from Operation Cost Of Projects & Contractual Power and fuel Other expences Employee benefit Expence Expenditure EBITDA Depriciation Interest Cost Tax PAT ROE% FY12 4641 2651 460 386 292 4025 616 274 174 66 141 6 FY13 4972 2316 559 486 349 3997 975 295 177 168 356 14 FY14E 6245 2741 647 887 433 4709 1536 343 160 336 720 23 Narnolia Securities Ltd, FY15E 6682 3007 702 1002 520 5231 1451 397 160 296 628 17 Source - Comapany/EastWind Research 22
  • 23. Vardhman Textiles 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 57 1548 1604 2346 297 3 87 26 5077 0 2553 45 77 1297 476 262 272 5077 FY10 1.0 45.3 14.2 2.6 3.9 63 2202 2264 2925 20 3 123 30 6103 0 2534 156 111 1933 667 71 395 6103 FY11 0.7 82.5 15.1 2.8 4.4 63 2144 2207 2044 505 5 116 48 5967 18 2557 185 92 1535 630 84 326 5967 FY12 0.6 22.2 13.6 2.5 3.3 63 2444 2506 2100 778 6 84 64 6789 22 2679 213 147 1784 746 65 475 6789 FY13 0.7 56.0 15.0 1.7 3.6 CASH FLOWS Cash from Operation Changes In Working Capital Net Cash From Operation Cash From Investment Cash from Finance Net Cash Flow during year FY10 640 -629 11 -132 10 -111 FY11 933 -902 31 -456 234 -192 FY12 576 444 1020 -647 -355 18 FY13 843 -510 333 -517 165 -19 Source - Comapany/EastWind Research Source - Comapany/EastWind Research Trading At : Narnolia Securities Ltd, 23
  • 24. DENA BANK "NEUTRAL" 24th Feb, 2014 ANNUAL REPORT UPDATE Result update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol NEUTRAL 51.55 57 55 11 - Bank’s performance was lower than street expectation and disappointed in most of operating metrics. GNPA remain high at 2.96% while net NPA were 1.97%. Provision coverage ratio (without technical write off) improved slightly on sequential basis. Valuation wise, stock is trading at 0.4 times of one year forward book which is quite reasonable. But looking at growth and operating metrics, we believe bank would be trade in the range of 0.3 to 0.4 times of one year forward book. We have neutral view on the stock with price target of Rs.57. 532121 DENABANK NII grew at moderate pace owing to margin compression on Y-o-Y Dena bank reported very weak set of numbers during quarter with NII grew by 7.5% YoY to Rs.661 cr largely due to margin compression in year on year basis led by higher cost of fund than fund yield. Higher cost of fund was due to 208 bps declined in low cost franchise deposits. Other income was lower at 10.7% YoY to Rs.129 cr 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance 1M Absolute -13.6 Rel.to Nifty -10.7 103/42 1809 1.16 lakh 6155 1yr -50.3 -53.9 YTD -50.3 -53.9 Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 66.6 55.2 55.2 FII 7.9 8.6 16.5 DII 4.9 7.3 8.1 Others 20.7 28.9 20.2 DENA Bank Vs Nifty versus Rs.144 cr in previous quarter. Total income was moderate at 4% YoY growth. Higher operating expenses led negative growth in PPP Operating expenses during quarter was higher at 32.5% YoY which escalated cost income ratio to 63.4% versus 51.4% in last year. Bank’s employee cost and other operating expenses both surged to 33% and 32% YoY respectively. This had make down operating profit to Rs.371 cr (down by 16.3% YoY) versus Rs.443 cr in last quarter and Rs.371 cr in previous quarter. Provision and contingencies were up on the back of deteriorating asset quality Provisions and contingencies were up by 44% QoQ on the back of deteriorating asset quality. In absolute term gross NPA and net NPA both increased by 5% YoY each. In percentage term GNPA and net NPA stood at 2.96% and 1.97 versus 3.04% and 2.02% in previous quarter. Cumulative provision was up by 4.7% which slightly improved provisions coverage ratio without technical write off to 33.4% from 33.5% in 2QFY14. Dena Bank's Capital Adequacy Ratio as per Basel III norms stood at 10.61% as against 10.21% in previous quarter. Financials NII Total Income PPP Net Profit EPS 2011 1763 2297 1224 612 18.3 2012 2101 2683 1528 803 22.9 Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. Rs, Cr 2013 2014E 2015E 2383 2551 3538 3039 3410 4397 1739 1808 1627 810 445 502 23.2 9.5 10.7 (Source: Company/Eastwind) 24
  • 25. DENA BANK Profitability declined despite of tax reversal Profitability declined by 67% YoY due to reversal of tax to the tune of Rs. 79 cr as against reversal of Rs.73 cr in previous quarter. At PBT level, bank was negative at Rs.12 cr which was highly discouraging. This was basically due to moderate NII growth, higher operating expenses and higher provisions. Sequentially margin improved on the back of stable loan yield and slightly increased of cost of deposits NIM improved by 10 bps sequentially on the back of higher yield on advance than cost of deposits. During quarter, bank’s yield on advances remained flat at 11.6% while yield on investment improved by 4 bps QoQ to 7.6%. Cost of deposits increased by 5 bps QoQ to 7.6%. Going forward, management guided NIM at the range of 2.75% to 3%. Deposits growth faster than loan growth On balance sheet growth front, bank’s deposits grew by 13.2% YoY led by term deposits which grew by 17% YoY. Current account deposits de-grew by 5% YoY while saving account deposits grew by 9% YoY. Overall CASA ratio de-grew by 208 bps to 29%. Bank’s loan grew by 11% YoY aided by agriculture and MSME segment which was grown by 30.7% and 25.4% YoY respectively. Retail advance grew by moderate at 14.4% YoY. Management guided loan growth of 15-17% for FY14. We model 15% loan growth and 6% deposits growth for FY14. Valuation & View Bank’s performance was lower than street expectation and disappointed in most of operating metrics. GNPA remain high at 2.96% while net NPA were 1.97%. Provision coverage ratio (without technical write off) improved slightly on sequential basis. Valuation wise, stock is trading at 0.4 times of one year forward book which is quite reasonable. But looking at growth and operating metrics, we believe bank would be trade in the range of 0.3 to 0.4 times of one year forward book. We have neutral view on the stock with price target of Rs.57. Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 25
  • 26. DENA BANK NII grew by 7.5% YoY to Rs.661 cr largely due to margin compression in year on year basis led by higher cost of fund than fund yield. Higher operating expenses led negative growth in PPP Profitability declined by 67% YoY due to reversal of tax to the tune of Rs. 79 cr as against reversal of Rs.73 cr in previous quarter. Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 26
  • 27. DENA BANK 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( Incl. tax provision) PBT Tax Net Profit 3QFY14 1848 654 3 30 2534 129 2663 1873 661 129 790 255 164 419 371 382 -12 -79 68 2QFY14 1790 644 9 7 2450 150 2600 1825 625 150 775 251 154 406 369 335 34 -73 107 3QFY13 1742 519 3 0 2264 144 2408 1649 615 144 759 192 124 316 443 157 286 80 206 Balance Sheet Data (Rs Cr) Deposits Saving Accounts Current Accounts Loan 96081 21983 5786 69895 93669 21476 5695 64785 84882 20216 6083 63040 Asset Quality GNPA (Rs Cr) NPA (Rs Cr) GNPA(%) NPA(%) PCR(%) (Without technical writeoff) 2066 1375 2.96 1.97 33 1968 1309 3.04 2.02 34 % YoY Gr % QoQ Gr 3QFY14E ariation(%) V 6.1 3.2 1931 -4.3 26.0 1.4 666 -1.9 -1.5 -70.1 9 -72.2 7541.0 303.8 4 707.6 11.9 3.4 2610 -2.9 -10.7 -13.9 150 -14.0 10.6 2.4 2760 -3.5 13.6 2.6 1926 -2.8 7.5 5.7 684 -3.3 -10.7 -13.9 150 -14.0 4.0 1.9 834 -5.3 32.8 1.6 225 13.4 32.1 6.1 150 9.2 32.5 3.3 375 11.7 -16.3 0.4 458 -19.1 144.2 14.1 351 8.9 -104.1 -134.2 107 -110.9 -199.3 8.6 21 -470.0 -67.2 -36.9 86 -21.1 1317 817 2.09 1.30 38 Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 27
  • 28. DENA BANK P/L Interest/discount on advances / bills Income on investments Interest on balances with Reserve Bank of India Others Total Interest Income Others Income Total Income Interest on deposits Interest on RBI/Inter bank borrowings Others Interest Expended NII NII Growth(%) Other Income Total Income Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions Net Profit 2011 2012 3820 1193 16 4 5034 534 5567 3117 8 145 3270 1763 60.3 534 2297 688 385 1073 1224 612 612 5161 1544 38 51 6794 582 7376 4528 18 147 4693 2101 19.1 582 2683 715 440 1155 1528 725 803 2013 2014E 6819 2019 31 30 8899 655 9555 6234 59 223 6516 2383 13.4 655 3039 792 508 1300 1739 706 810 7421 2536 28 50 10035 859 10894 6583 0 228 7484 2551 7.1 859 3410 978 625 1603 1808 1308 445 2015E 8737 2307 28 50 11122 859 11981 7242 0 342 7583 3538 38.7 859 4397 1690 1080 2770 1627 1000 502 64210 25.1 1692 8.3 44828 26.4 18769 19.6 77167 20.2 3881 129.4 56693 26.5 23028 22.7 97207 26.0 8414 116.8 65781 16.0 34343 49.1 102068 5.0 6515 -22.6 72359 10.0 34203 -0.4 112274 10.0 9763 49.9 83213 15.0 38442 12.4 8.5 6.4 7.4 4.9 9.0 5.0 9.1 6.7 8.0 5.9 4.2 5.8 10.4 5.9 8.1 6.4 3.4 6.2 10.5 7.4 9.4 6.5 3.4 6.9 10.5 6.0 9.1 6.5 3.5 6.2 Key Balance sheet data Deposits Deposits Growth(%) Borrowings Borrowings Growth(%) Loan Loan Growth(%) Investments Investments Growth(%) Eastwind Calculation Yield on Advances Yield on Investments Yield on Funds Cost of deposits Cost of Borrowings Cost of fund Source: Eastwind/Company Narnolia Securities Ltd, Please refer to the Disclaimers at the end of this Report. 28
  • 29. 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.