Moving to Blockbuster

IEA-Equity
Strategy

India Equity Analytics

5th March, 2014

Daily Fundamental Report on Indian Equities

EROSMEDIA :"Moving to Blockbuster"

"BUY"

Edition : 218
5th Mar 2014

Healthy movies pipeline for FY15E; Company is expecting to release more than 8 big budget movies across Hindi and regional languages.
Likewise, company is going to release much awaited Rajnikanth’s movie Kochadaiiyaan on 11 April, 2014. Its well positioned to monetize rich
content of library ensures annuity and regular set of revenue. .......................................... ( Page :2-4)

Escorts Ltd: "Volume Growth Remains The Key;Retain Buy"

"BUY"

5th Mar 2014

Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in
FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-tomedium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on
the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175
........................................................................ ( Page : 5-6)

Infosys : "Meritocracy to growth"

"BUY"

4th Mar 2014

In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level exits from the company. In near term, non-performers in
Infosys could be asked to leave or may hand over layoff notices. Infosys will retain its revenue acceleration and margin expansion, also operating
metrics will turn into greenery from hay. At a CMP of Rs 3793, it trades at 17.4x FY15E earnings. We retain our “BUY” view on the stock with a
target price of target price of Rs 3910 . ............................................................... ( Page : 7-9)

Powergrid :

"BUY"

3th Mar 2014

The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x BVPS. Valuation is very reasonable for a business
model with RoE (16%), strong growth visibility and minimal operational risks. We valued stock for a 12 month period at a target price of
Rs.118.With equity dilution overhang on the stock is removed, so we expect the stock price will drive by purely on its fundamentals, on our
estimates we maintain a positive fundamental outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of further
equity dilution is reduced . ............................................................ (Page : 10)

IFGL Refractories Ltd :"Strong Fundamentals…..."

"BUY"

3th Mar 2014

IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing Continuous Casting Refractories and Special grade
Refractories which find applications in steel industry. IFGL has grown as an Indian multinational with manufacturing facilities located in Brazil,
China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a subsidiary of world’s second largest steel maker
NipponSteel Corporation holding about 15 % stake in IFGL. We expect IFGL will report its best ever performance in this full year. Considering
industry’s improving prospects, stabilization of production from its newly built plant at Kandla SEZ and out performance of company in its
financials, We don’t expect any scope for deep correction, hence recommending a BUY. ................................................................................... (
Page : 11-12)

Private Sector Banks Result Review 3QFY14

3th Mar 2014

Private Banks are trading at significantly lower or reasonable valuation when compare to their historical trend due to possible deterioration in
asset quality earnings pressure and political un-clarity. We prefer private banks over PSBs largely due to their capability to report healthy
earnings, higher capital adequacy ratio and lower or stable asset quality. Our top picks in sector are HDFC Bank, ICICI Bank, Indusind Bank and
DCB. ............................................................................ ( Page : 13-14)

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

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 : 15-20)

Narnolia Securities Ltd,

EROSMEDIA

"BUY"
5th March' 14

"Moving to Blockbuster"
Initiating Report

Buy

CMP

160

Target Price
Previous Target Price
Upside
Change from Previous

200
25%

Market Data
BSE Code
NSE Symbol

533261
EROSMEDIA

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

195/107

1467
26241
6298

Stock Performance
1M
Absolute
Rel. to Nifty

1yr

YTD

13.1
8.2

-7.3
-17.4

-

Share Holding Pattern-%
Promoters
FII
DII
Others

Current
74.88

2QFY14
74.88

12.45
1.56
11.11

12.16
1.87
11.09

P/BV-1 year forward

1QFY14
74.88
11.35
2.95
10.82

Healthy movies pipeline for FY15E; Company is expecting to release more than
8 big budget movies across Hindi and regional languages. Likewise, company is
going to release much awaited Rajnikanth’s movie Kochadaiiyaan on 11 April,
2014. Apart from this, company is expected to release Dishkiyaaoon, Shadi Ke
Side Effect, Action Jackson, Tanu weds Manu season 2, Sarkar3, Chalo China,
NH-10, Dekho Magar Pyaar Se, Happy Ending and Rana in FY15E.
It has largest Indian content library of films with 1100+ films and digital rights
to an additional 700 films. Its well positioned to monetize rich content of
library ensures annuity and regular set of revenue.
Considering diversified and sustainable Business Model along with well
positioned to monetize rich content of its library and block buster success ratio
of movies (out of the top 10 grossing films in recent years, 3 are from Eros.)
make us positive view on the stock.
About Company: Eros International Media (EROS) is one of the largest films coproduction and distribution company in India and overseas, engage with presales of overseas rights, music rights and broadcasting rights. It recovers 35-40%
of its costs by selling movie rights to channels, recovers another 35-40% from
selling its overseas rights to overseas entities. Similarly, it gets 10-15% of the
cost of movies by selling music rights .
Robust 3QFY14 Result: Company reported better numbers with sales growth of
17% (YoY) led by huge spurt in catalogue monetization, which increase by approx75% (YoY). Its PAT grew by 41%(YoY).
During the quarter, Its EBITDA margin improved by 680bps (YoY) to 31.3%
because of reduction in operational expenses and employee expenses.
Management expects to see EBITDA margin at 25% in FY14E and FY15E than 2022% range of margin in previous 4 years.
Recent initiatives: Eros has struck new deals during the period with MSM
Satellite Singapore private ltd for broadcast of films on Sony as well as with
Viacom18 media for broadcast films on colours.
Recently Eros International media has launched two new movie channels HBO
DEFINED and HBO HITS, which will reduce its dependence on highly
unpredictable revenue streams going forward.
View and Valuation: Management is very excited to invest into different
medium like internet and launching channels to generate revenue. Company’s
optimistic stance towards maintaining margins, strong movies slate and very low
valuation makes attractive. At a CMP of Rs 160, stock trades at 1.1 P/BVx FY15.
We initiate “BUY” with a target price of Rs 200.
Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
432.68
135.6
92.0
31.3%
21.3%

2QFY14
201
51.2
37.0
25.4%
18.4%

(QoQ)-%
115.2
165.0
148.8
590bps
290bps

3QFY13
369.3
90.6
65.2
24.5%
17.7%

Rs, Crore
(YoY)-%
17.2
49.6
41.1
680bps
360bps

(Source: Company/Eastwind)

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

2

EROSMEDIA
Sales and Sales growth(%)(yoy)
Key Concerns:
1. Piracy is the key concern for the

company. Indian film industry loses
approx. Rs.2000 cr. every year due to
piracy (source: FICCI-KPMG report 2009).
2. Lower consumer discretionary demand.

3. Difficult to predict fate of films.

Margin-%


Upcoming Movies:
Date of Release
Q4FY14E
28-Feb-14
21-Mar-14
28-Mar-14

Upcoming movies

Director

Starcast

Shaadi Ke Side Effects
Dishkiyaaoon
Happy Ending

Saket Chaudhary
Sanmjit Singh Talwar
Raj and DK

Farhan Akhtar,Vidya Balan
Sunny Deol, Harman Baweja
Saif Ali Khan, Ileana D'Cruz

Q1FY15
11-Apr-14
6-Jun-14

Kochadaiiyaan
Action Jackson

Soundarya Ashwin
Prabhu Deva

Rajnikanth, Deepika Padukone
Ajay Devgn, Sonakshi Sinha

Q2FY15
12-Sep-14

NH-10

Navdeep singh

Anushka sharma,Neil bhoopalam

Tanu Weds Manu Season 2
R. Balki Untitled
Aankheen 2
Illuminati Untitled
Dekh Tamasha Dekh
Purani Jeans
Chalo china

Anand Rai
R.Balki
Apoorva Lakhia
Arif Ali
Feroz Abbas Khan
Tanushree Basu
Shashank Ghosh

R.Madhavan,Kangana Ranaut
Amitabh Bachchan, Dhanush
Abhishek Bachchan
Armaan Jain
Satish Kaushik and Others
Aditya Seal
Vinay Pathak, Lara Dutta

FY15E



3

EROSMEDIA
Management Guidance:
1.
2.
3.
4.
5.
6

Catalogue monetization will continue to grow strong in the upcoming quarters.
Company will monetize entire portfolio across different platforms
Catalogue monetization will increase from 13%-14% to 20-25% of overall revenue in coming 3 to 4 years.
Management is looking for more and more free cash flows going forward.
Q4 will be very positive and going forward FY15E will also be very positive for the company.
Management is very confident about its performance going forward and expects EBITDA margin to be around 25% in
FY14E and FY15E.

Financials;
Rs,cr
Sales
RM Cost(Operatinal expenses)
WIP
Employee Cost
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
Employee Cost
Other expenses
Tax rate
Margin-%
EBITDA
EBIT
PAT
Valuation:
CMP
No of Share
NW
EPS
BVPS
RoE-%
P/BV
P/E

FY10
640.88
480.33
0
19.7
27.81
527.84
113.04
4.39
12.62
108.65
9.02
112.25
29.63
82.62

FY11
706.97
495.13
0.84
25.28
29.57
550.82
156.15
3.82
8.95
152.33
9.39
151.89
33.67
118.22

FY12
943.88
665.45
-2.92
22.55
42.96
728.04
215.84
6
19.3
209.84
13.44
215.7
63.14
152.56

FY13
1067.95
765.78
-2.55
27.29
47.47
837.99
229.96
6.45
6.4
223.51
9.22
220.69
61.19
159.5

FY14E
1110.8
766.5
-2.7
29.4
29.4
822.7
288.1
7.7
11.1
280.4
25.4
266.2
77.7
188.5

FY15E
1229.9
860.9
-2.9
36.9
36.9
931.8
298.1
9.2
12.3
288.9
26.0
275.2
80.4
194.8

16.9%
52.8%
72.1%

10.3%
38.1%
43.1%

33.5%
38.2%
29.0%

13.1%
6.5%
4.5%

4.0%
25.3%
18.2%

10.7%
3.5%
3.4%

74.9%
3.1%
4.3%
4.6%

70.0%
3.6%
4.2%
4.8%

70.5%
2.4%
4.6%
6.7%

71.7%
2.6%
4.4%
5.7%

69.0%
2.7%
2.7%
7.0%

70.0%
3.0%
3.0%
6.5%

17.6%
17.0%
12.9%

22.1%
21.5%
16.7%

22.9%
22.2%
16.2%

21.5%
20.9%
14.9%

25.9%
25.2%
17.0%

24.2%
23.5%
15.8%

138.9
9.14
237.55
9.0
26.0
35%
5.3
15.4

138.9
9.14
670.48
12.9
73.4
17.6%
1.9
10.7

181.15
9.17
834.61
16.6
91.0
18.3%
2.0
10.9

180.53
9.19
986.5
17.4
107.3
16.2%
1.7
10.4

160.0
9.2
1158.6
20.5
126.1
16.3%
1.3
7.8

160.0
9.2
1337.0
21.2
145.5
14.6%
1.1
7.5



4

Escorts Ltd.

V-

"Buy"
5th Mar' 14

"Volume Growth Remains The Key; Retain Buy……."
Company update

Buy

CMP
Target Price
Previous
Target Price
Upside
Change from
Previous

115
175
95
52%
84%

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

500495
ESCORTS
48/96
1,402
225,953
6,298

In February month company witnessed a good tractor volume number. In February 2014
company sold 4,627 tractors, growth of 7.5% against 4,305 tractors in February month of 2013.
Domestic sales in February 2014 up by 6.8% stood at 4,581 tractors as against 4,288 tractors in
February 2013. Export for the month of February 2014 stood at 46 tractors as that of 17
tractors in February 2013. Also during the last 17 months tractor sales grossed at 94553 units
as against 86337 units sold during corresponding period of 15 months last year. Going forward
management indicated that volume growth is to be in double digit and at arround 14%. The
management further indicated that margins should improve from the current level on the back
of improvement in the product mix, taking hikes in the prices, controlling inflation, rid of
inflation, as well as cutting down on the other costs.
Tractor Volume

Stock Performance-%
Absolute
Rel. to Nifty

1M
(7.5)
(10.9)

1yr
86.6
77.3

YTD
131.4
121.9

Promoter's
FII's
DII's
Others's

3QFY14
42.0
9.4
2.1
46.5

2QFY14 1QFY14
42.0
42.0
12.3
12.1
4.7
5.4
41.0
40.6

(Source: Company/Eastwind Research)

Outlook
An increase in volumes is an indication of healthy demand. The rise in volumes for this quarter
can be attributed to a good monsoon. Tractor sales seem to have improved across all players,
indicating an overall improvement in demand. We believe that this segment will continue to
support the growth of the company. The adverse macroeconomic conditions, however, will see
the performance of its construction equipment segment and auto ancillary segment remaining
subdued. For these businesses, the firm is looking at premium product positioning and to deliver
a better than expected customer experience. In addition, it is looking at the export market as a
window of opportunity especially in the auto ancillary business.
Valuation
The stock is currently trading at 6.5x FY14E EPS with a negative bias in case of construction
equipment segment due to adverse macroeconomic conditions . At current price of Rs. 117, the
stock is trading at P/E of 7.1 x for FY13E and 6.5 x the FY14E. Escorts could post EPS of Rs. 12.13
for FY14E and Rs. 12.98 for FY15E. An increase in volumes is an indication of healthy demand.
Tractor sales revival has enabled the company to register strong result. Escorts’ EBITDA margin
and bottom-line exceeded our expectations. Going forward, we remain positive on the
company’s growth prospects particularly in AMP segment. Going forward, we remain positive on
the company’s growth prospects particularly in AMP segment. We expect demand to improve
further in FY2014E with the economic recovery. However, we remain cautious with regards to
growth in Construction Equipment segment in near-to-medium. Thus, We revise our estimates
upwards to factor in the strong CY13 tractor volume performance. We therefore revised our
rating on the stock from "Reduce" to "Buy" and advised to our investors to enter at current
level with Revised price target of Rs. 175

5

Escorts Ltd.
Key financials :
PARTICULAR

2009A

2010A

2011A

2012A

2014E 18
Months

2015E

2016E

2600
53
2653
160
100
60
67
86
29
57
11
6.3
1.2

3353
27
3380
220
172
48
18
181
49
132
11
12.5
1.0

4101
56
4157
168
120
48
71
104
-15
119
13
11.3
1.2

4049
48
4098
190
139
50
97
90
19
71
13
6.7
1.2

7424
75
7499
438
346
92
135
285
77
208
13
19.7
1.2

6186
60
6246
402
332
70
65
326
88
238
20
22.6
1.9

7424
72
7496
557
473
84
65
479
129
350
20
33.1
1.9

6.2%
3.2%
2.2%
5.7%
1.1%
4.0%
3.1%

6.6%
5.4%
3.9%
5.8%
0.5%
7.8%
6.3%

4.1%
2.5%
2.9%
15.9%
1.7%
6.7%
5.3%

4.7%
2.2%
1.7%
10.6%
1.9%
4.3%
3.2%

5.9%
3.8%
2.8%
17.3%
1.1%
11.4%
9.4%

6.5%
5.2%
3.8%
19.8%
1.7%
11.6%
9.8%

7.5%
6.4%
4.7%
29.1%
1.7%
14.7%
12.7%

1425
402
1827
9
110

1686
405
2091
11
216

1784
486
2270
11
71

1645
554
2199
11
64

1834
390
2224
11
114

2052
375
2427
11
114

2382
375
2757
11
114

157.1
0.7
1.5
17.5
1.4
1.8

159.6
1.4
9.5
17.3
1.6
2.0

168.9
0.4
1.7
6.3
1.8
2.3

155.8
0.4
1.4
9.5
1.8
2.5

173.6
0.7
2.6
5.8
3.3
4.0

194.3
0.6
5.1
5.1
2.5
3.0

225.5
0.5
7.3
3.4
2.7
3.1

Performance
Revenue
Other Income
Total Income
EBITDA
EBIT
DEPRICIATION
INTREST COST
PBT
TAX
Reported PAT
Dividend
EPS
DPS
Yeild %
EBITDA %
PBT %
NPM %
Earning Yeild %
Dividend Yeild %
ROE %
ROCE%
Position
Net Worth
Total Debt
Capital Employed
No of Share
CMP
Valuation
Book Value
P/B
Int/Coverage
P/E
Net Sales/CE
Net Sales/Equity

(Source: Company/Eastwind Research)

(Figures In crore)


6

Infosys

"BUY"
4th March' 14

"Meritocracy to growth"
Company update

BUY

Focus on meritocracy for client satisfaction as well as margin expansion;

CMP
Target Price
Upside

3793
3910
3620
3%
8%

In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level
exits from the company. In near term, non-performers in Infosys could be asked to
leave or may hand over layoff notices. Despite high salaries, some identified
employees are not contributing so much to improve productivity and efficiency of
operations. Already, the restructuring initiatives has taken place at the top of the
pyramid and now shifted to mid level of pyramid. Hence, its pink slip strategy indicates
to regain its growth and margin in near term.
Considering the strategy to build clients relation, execution of growth oriented policy
and combination of reduced onsite costs and higher utilization would be an optimistic
growth story despite recent hiccups of top management exit.
Key takeaways from recent webcast;
Restructuring at middle management: Mr. Murthy has taken initiatives to improve
cost efficiency and effective delivery system. The management has rewarded the top
performers and has given an opportunity to mediocre performers. Its PIP (performance
Improvement Program) followed by exam, and appraisal would dictate the level of
efficiency for mediocre, and the situation of involuntary attrition.

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Average Daily Volume
Nifty

500209
INFY
3847/2190
217810
1240448
6221

Stock Performance
Absolute
Rel. to Nifty

1M
4.5
0.8

1yr
30.4
21.6

YTD
53.1
49.4

Promoters
FII
DII
Others

Current
15.94
40.65
15.35
28.06

1 year forward P/E

2QFY14 1QFY14
15.94
16.04
39.93
39.55
16.16
18.28
27.97
26.13

Cost Rationalization: Company’s employee costs have ballooned very rapidly in the last
2-3 years. For example, on-site compensation was 36% of the overall revenue in FY11
and it went up to 46.3% in FY13, Overall employee cost on sales increased from
52%(FY09) to 56% (FY13). Company has hired a number of employees at higher salaries
outside India and employees are not adding efficient growth in productivity.
Improving utilization level: Comparing with other peers, its utilization level (excluding
trainees) declined from 80% in FY11 to 74% in FY13. Post NRN entry, company had
hiked offshore wage at the rate of 8% and overseas at 3%. We expect that company’s
management could decide for wage hike across onsite as well as offshore to enhance its
utilization rate in near term.
View and Valuation: Infosys seems to be on its way to rediscovering its past mojo with
revenue momentum kicking, and the NRN invisible hand in play. Further announcement
of strategic acquisitions, better utilization of cash balances, better deal win, consistent
client traction and revenue momentum would help the company to bridge the gap with
rivals such as TCS.
On an ongoing basis, Infosys will retain its revenue acceleration and margin expansion,
also operating metrics will turn into greenery from hay. Upgradation of earning
guidance by management hinted to join the party to enjoy with 12-14% earnings
growth for FY14E like other top bellwether. At a CMP of Rs 3793, it trades at 17.4x
FY15E earnings. We retain our “BUY” view on the stock with a target price of target
price of Rs 3910 .
Rs, Crore
Financials
3QFY14
2QFY14
3QFY13
(YoY)-%
(QoQ)-%
Revenue
13026
12965
10424
25.0
0.47
EBITDA
3258.9
2836.9
2677
21.7
14.88
PAT
2874.9
2406.9
2369
21.4
19.44
EBITDA Margin
25.0%
21.9%
310bps
25.7%
(70bps)
PAT Margin
22.1%
18.6%
350bps
22.7%
(60bps)

7

Infosys.
Employee cost on sales-%

Employee cost on sales at all time high


Total Employee and additions,

Looking to bring in about maximum 6,000
off-campus offers, Infosys will hire up to
16,000 engineers next year.


Headcount Metrics:

Its attrition increased to 18% from
17.3%(2QFY14) on LTM basis, however
on sequentially basis they have been able
to control its attrition. we hope that the
further salary hikes across the board will
bring down the attrition levels going
forward.


Utilization:

The Company's Utilization is likely to
keep inching up, which could lead to
margin expansion for a couple of
quarters and that is going to be a huge
positive for Infosys as a company.



8

Infosys.
Key facts from Management Interview;
■ Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%. This
guidnace means the company only has to achieve flat growth in the fourth quarter to
meet the projection.
■ With 85% of the company’s revenues coming from clients based in US and Europe, the
company should hope the current economic recovery in developed countries would help
its revenues.
■They are seeing confidence coming back from client’s metrics. However, they expect
[their] budgets only remain stable from last year. Clients are still focused on cost.
■ The Company is looking to bring in about maximum 6,000 off-campus offers starting
late January early February, so there is a lot of activity going on that is bringing people in,
engaging and developing.

Financials
Rs in Cr,
Sales, INR
Employee Cost
Other expenses
Total Expenses
EBITDA
Depreciation
Other Income
EBIT
Interest Cost
PBT
Tax
PAT
Growth-%
Sales
EBITDA
PAT
Margin -%
EBITDA
EBIT
PAT
Expenses on Sales-%
Employee Cost
Other expenses
Tax rate
Valuation
CMP
No of Share
NW
EPS
BVPS
RoE-%
Dividen Payout ratio
P/BV
P/E

FY10
22742
12085
2792
14877
7865
905
982
7942
0
7942
1681
6261

FY11
27501
14856
3677
18533
8968
854
1211
9325
0
9325
2490
6835

FY12
33734
18340
4671
23011
10723
928
1904
11699
0
11699
3367
8332

FY13
40352
22565
6254
28819
11533
1099
2365
12799
0
12799
3370
9429

FY14E
50330
28185
8556
36741
13589
1371
2567
14785
0
14785
3992
10793

FY15E
59631
33691
10734
44425
15206
1624
3578
17160
0
17160
4633
12527

4.8%
9.3%
4.6%

20.9%
14.0%
9.2%

22.7%
19.6%
21.9%

19.6%
7.6%
13.2%

24.7%
17.8%
14.5%

18.5%
11.9%
16.1%

34.6%
34.9%
27.5%

32.6%
33.9%
24.9%

31.8%
34.7%
24.7%

28.6%
31.7%
23.4%

27.0%
29.4%
21.4%

25.5%
28.8%
21.0%

53.1%
12.3%
21.2%

54.0%
13.4%
26.7%

54.4%
13.8%
28.8%

55.9%
15.5%
26.3%

56.0%
17.0%
27.0%

56.5%
18.0%
27.0%

2615
57.4
23049.0
109.1
401.7
27.2%
25.1%
6.5
24.0

2765
57.4
25976.0
119.0
452.4
26.3%
45.9%
6.1
23.2

2865
57.4
31332.0
145.1
545.6
26.6%
24.0%
5.3
19.7

2400
57.4
37994.0
164.2
661.7
24.8%
45.1%
3.6
14.6

3793
57.4
45629.8
188.0
794.7
23.7%
23.0%
4.8
20.2

3793
57.4
54797.5
218.2
954.3
22.9%
19.8%
4.0
17.4



9

Powergrid..
Update

BUY

CMP
Target Price
Upside

95
118
NA
25%
NA

Market Data
BSE Code
NSE Symbol

532898
POWERGRID

1yr
9.5
3.8

YTD
8.1
4.0

Strong Capitalization : Power Grid’s adjusted PAT increased 4.3% YoY to Rs. 1,043 crore
in Q3FY14 While asset capitalisation was below estimate Rs. 3050 crore, PGCIL
commissioned another Rs. 3450 crore in January 2014 taking overall capitalisation to Rs.
13000 crore YTDFY14.

Promoters
FII
DII
Others

3QFY14
57.9
25.4
8.6
8.2

Overall revenues increased 9.6% YoY to Rs.3685 crore due to lower than anticipated
capitalisation (Rs.3050 crore) in Q3FY14 . Income increased 6.5%, 10.0% and 121.9% YoY
in transmission, telecom and consultancy income, respectively. Other income declined
9.7% YoY to Rs.116 crore as cash was deployed across various upcoming projects.
Margins declined 336 bps YoY to 87.4% due to 55.7% YoY rise in transmission & other
expenses to Rs.333 crore. Tax expenses increased 7.5% YoY to Rs. 399 crore. Q3FY13
included a one-time income of Rs.167 crore as wage revision benefit. Adjusting the same,
PAT increased 4.3% YoY to Rs.1,043 crore.
The Central Electricity Regulatory Commission (CERC) issued the final tariff regulations for
the period FY15-19 – these regulations form the basis of Power Grid’s earnings (regulated
returns) from its core transmission business over the next five years.The Key take aways
of these Regulations are Normative TAF (NATAF) for incentives lowered; no incentive for
TAF >99.75% .Normative O&M charges raised (vs. draft), but still below FY14 levels.

Stock Performance-%
Absolute
Rel. to Nifty

3rd march' 14

116/87
49490
22270
6277

52wk Range H/L
Average Daily Volume (Nos.)
Nifty

1M
8.2
9.5

"Buy"

2QFY14 1QFY14
57.9
69.4
19.4
14.7
8.8
7.6
13.9
8.3

1 yr Forward P/B

Capitalisation of assets remains on track. Till Jan end the company has capitalised Rs
118bn of assets which is 70% of our full year estimate. Since last two months of the year
usually account for the bulk of yearly commissioning we are confident that the co. will meet
our estimate of Rs 170bn for FY14.

Power Grid's Raichur-Solapur line has been connected to national grid. Management Says
there were four trippings in the first week. Two were to increase reliability and were
done intentionally, and the other two were because of a few glitches. For the last month
there has been no tripping.
View & Recommendation
With equity dilution overhang on the stock is removed, so we expect the stock price will
drive by purely on its fundamentals, on our estimates we maintain a positive fundamental
outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of
further equity dilution is reduced
The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x
BVPS. Valuation is very reasonable for a business model with RoE (16%), strong growth
visibility and minimal operational risks. We valued stock for a 12 month period at a target
price of Rs.118.

Source - Comapany/EastWind Research

Financials :
Revenue
EBIDTA
Net Profit
EBIDTA%
NPM%

Q3FY14
3685
3105
988
84
27

Y-o-Y %
9.4
6.0
-8.5
-3.1
-16.3

Q-o-Q %
-7.9
-8.4
-16.9
-0.6
-9.8

Q3FY13
3369
2930
1080
87
32

Q2FY14
3999
3389
1189
85
30
(In Crs)


10

IFGL Refractories Ltd.

V-

"Buy"
3rd Mar' 14

"Strong Fundamentals…..."
Buy
62
80
NA
29%
0%

Result update
CMP
Target Price
Previous
Target Price
Upside
Change from
Previous

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

532133
IFGLREFRAC
24/68
214
6,366
6,277

Stock Performance-%
1M
(0.5)
(3.6)

Absolute
Rel. to Nifty

1yr
75.7
68.5

YTD
100.2
89.7

Promoters
FII
DII
Others

3QFY14
71.3
0.0
2.2
26.5

1 yr Forward P/B

2QFY14 1QFY14
71.3
71.3
0.0
0.0
2.2
2.2
26.5
26.5

IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing
Continuous Casting Refractories and Special grade Refractories which find applications in steel
industry. IFGL has grown as an Indian multinational with manufacturing facilities located in
Brazil, China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a
subsidiary of world’s second largest steel maker NipponSteel Corporation holding about 15 %
stake in IFGL. The company has a lot of subsidiaries with the ones in US and Germany
seemingly doing well. For the latest December quarter,on a consolidated basis company
reported a Sales of Rs. 195.7 Cr v/s Rs. 168.9 Cr. Net profit improved sharply from Rs. 9.5 Cr to
Rs. 14.3 Cr. For 9 Month period EPS is Rs. 13.9 which is more than the full year figure of Rs. 7.3
of last year. We expect IFGL will report its best ever performance in this full year. Considering
industry’s improving prospects, stabilization of production from its newly built plant at Kandla
SEZ and out performance of company in its financials, We don’t expect any scope for deep
correction, hence recommending a BUY.
Industry revival to spur growth :
Fate of refractory companies closely related with the growth of steel industry. Now steel industry
world around showing some earlier signs of revival.As a global player ,IFGL is expected to get
immense benefit from this revival.Its technical collaboration and equity participation with one of
the world leaders also helping the company to adopt latest technology in manufacturing process.
A major portion of company’s income is from exports and the currency valuation of currency is
also positive for it. Steel industry in the US and in Europe is coming out of pro-longed recession
and demand in India is also expected to pick up on account of major projects getting started.
Increase in capital expenditure for capacity expansion by major steel producers both within India
and internationally augurs well for the refractory industry
Low leverage balance sheet and attractive valuations augurs well :
IFGL reported debt equity ratio of 0.35x in Sep FY13, even after the series of acquisitions, and we
expect it to gradually reduce over time to 0.28x in FY15E.Company having an uninterrupted
dividend paying record for the past four years. Promoters holding more than 70 % stake (NIL
pledged) in the company and another 7 % is held by large investors. At a time the steel industry
is showing revival, We expect IFGL will report its best ever performance in this full year.
Considering industry’s improving prospects, stabilization of production from its newly built plant
at Kandla SEZ and out performance of company in its financials, We don’t expect any scope for
deep correction, hence recommending a BUY.
Valuation :
At CMP of INR 62, IFGL is trading at P/E of 3.7x and 3.2x its FY14E and FY15E earnings. Company
can post the EPS of Rs 16.8/18.6 in FY14/15E and RoE% of 20.3%/19.2% in FY14/15E . We rate a
BUY rating on the stock with an 12 months price target price of Rs 80.0 at 4.1x FY15E earnings.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
194.7
27.2
14.3
14.0%
7.4%

2QFY14
201.4
29.9
19.1
14.8%
9.7%

(Source: Company/ Eastwind Research)


(QoQ)-%
-3.3%
-8.8%
-25.2%
(80) bps
(230) bps

3QFY13
169.0
18.3
9.5
10.9%
5.1%

Rs, Crore
(YoY)-%
15.3%
48.5%
50.3%
310 bps
230 bps
(Standalone)

11

IFGL Refractories Ltd.
Key financials :
PARTICULAR

2009A

2010A

2011A

2012A

2013A

2014E

2015E

398
2
401
27
20
7
10
13
7
0
6
2
1.8
0.7

415
3
419
58
50
8
5
49
15
0
34
2
9.7
0.6

471
5
476
43
34
9
6
33
8
0
24
0
7.0
0.0

604
3
607
75
62
13
7
58
18
0
40
1
11.5
0.2

671
4
676
58
45
13
8
41
16
0
25
2
7.3
0.6

772
3
776
106
89
17
7
85
27
0
58
2
16.8
0.6

888
3
891
120
103
17
7
99
31
0
68
2
19.6
0.6

6.9%
1.5%
9.7%
3.7%
5.3%
2.8%

13.9%
8.0%
17.6%
1.1%
24.6%
15.6%

9.1%
5.1%
22.9%
0.0%
15.0%
8.3%

12.3%
6.6%
29.2%
0.5%
19.2%
11.9%

8.7%
3.8%
23.7%
1.9%
11.0%
7.1%

13.7%
7.5%
27.2%
1.0%
20.3%
14.6%

13.5%
7.6%
31.6%
1.0%
19.2%
15.0%

114
100
214
3
18

137
79
216
3
55

161
129
290
3
31

207
127
335
3
39

231
129
360
3
31

287
110
397
3
62

353
100
453
3
62

32.8
0.5
2.1
10.3

39.6
1.4
11.1
5.7

46.6
0.7
5.7
4.4

59.9
0.7
9.1
3.4

66.7
0.5
5.6
4.2

83.0
0.7
12.2
3.7

101.9
0.6
14.1
3.2

Performance
Revenue
Other Income
Total Income
EBITDA
EBIT
Depriciation
Intrest Cost
PBT
TAX
Derrivative Loss
Reported PAT
Dividend
EPS
DPS
Yeild %
EBITDA %
NPM %
Earning Yeild %
Dividend Yeild %
ROE %
ROCE%
Position
Net Worth
Total Debt
Capital Employed
No of Share
CMP
Valuation
Book Value
P/B
Int/Coverage
P/E

(Source: Company/ Eastwind Research)


12


Better than expected NII on the back of margin expansion and loan growth
In our coverage universe, banks NII grew by 15.7% YoY largely due to stable margin
and loan growth. Private sector banks are getting benefit from their high base CASA
franchise and low share of high cost wholesale bulk deposit. HDFC Bank, ICICI
Bank, Indusind Bank and DCB were continued to report 20%+ NII growth whereas
Federal Bank, INGVYSYA Bank, J&K Bank saw some stress in their earnings.
Well structure balance sheet led healthy growth at operating profit level
Operating expenses in our coverage universe remained stable on sequential basis
and on very positive note; they delivered on an average basis growth of 19.8% YoY
at operating profit level. This was due to healthy NII growth, stable fee income and
controlled operating leverage. We have highlighted above that banks with healthy
operating profit would do better going forward as strong performance at operating
profit level would be possible only in case of well structure balance sheet growth.
Economic growth and stress in asset quality issue would be resolve with the passage
of time. Although we have not seen any revival in economy nor improvement in asset
quality in near term but private sector banks are trading significant discount as
against their historical valuation due to possible fear of deterioration in assets.
Profitability increased due to healthy NII growth, controlled CI ratio and stable
asset quality
Most of banking stocks are trading at lower side of valuation band due to earnings
pressure, higher operating leverage and asset quality. In our coverage universe,
bank reported profit growth of 16.6% YoY higher than our expectation led by margin

Nifty Vs Bank Nifty during Year

expansion, controlled operating leverage and stable asset quality. Although we saw
some earnings pressure in many large and mid cap banks on which Axis bank’s
profitability was boost up by right back of investment depreciation and Yes Bank’s
provisions and contingencies was almost down by 100% which inflated profit growth
by 21.4% YoY.
Asset quality continues to persist and would take time despite of uptick in
economy
Private sector banks delivered better when compare to PSBs in term of asset quality
at sequential basis. Sequentially banks reported stable asset quality with high
coverage ratio which provided cushion to their earnings. But in our sense, asset
quality pressure continues to persist because economy growth is likely to be tepid
and it will take some time for recovery in domestic industrial activity and corporate
balance sheet’s leverage to decline. According to S&P, with the uptick in economy,
bank will have take some time for revival as banks have to struggle for capital base
too for further growth but private banks have adequate capital base and healthy tier1 capital. Outlook of asset quality in system is not positive and it would remain
challenge for banks in FY14.


13

Well structure balance sheet growth and high CASA base would help to keep
profitability up
We like those banks which did well at operating profit level, keeping in mind that with
slower pace of economy growth and rising interest rate scenario, asset quality pressure
would persist. Provision and contingencies are already expected to remain high. Most of
bank’s profitability was down owing to higher provisions against loan loss. With the
recovery in economy loan growth and asset quality would improve with the passage of
time but operating leverage and margin expansion are permanent structure of balance
sheet. Banks with strong CASA base and adequate deposits growth that could support
loan growth easily without depending upon external fund would do better in going
forward.
Outlook
Private Banks are trading at significantly lower to their historical valuation or reasonable
valuation due to their possible earnings pressure and asset quality issue. This is on
account of sluggish economic growth and political un-clarity. Some banks in our universe
are capable to generate high level of profit, have high capital adequacy ratio and lower
level of stress. In our sense these banks would do better in current economy macro
situation. Out top picks are HDFC Bank, ICICI Bank, Indusind Bank and DCB.
Result Snapshot

PRIVATE BANK
AXISBANK
CUB
DCB
DHANBANK
FEDERALBNK
HDFCBANK
ICICIBANK
INDUSINDBK
INGVYSYABANK
J&KBANK
KARURVYSYA
SOUTHBANK
YESBANK
Total

NII
2984
198
94
57
546
4635
4256
730
416
647
305
350
665
15882

3QFY14E
PPP Net Profit
2615 1604
135
89
46
36
-8
-119
356
230
3888 2326
4440 2533
647
347
274
167
441
321
153
107
216
141
615
416
13818 8198

NII
2937
190
91
82
548
4477
4044
700
440
682
298
364
672
15525

2QFY14
PPP Net Profit
2750 1362
141
84
40
33
18 -1.85
354
226
3387 1982
3888 2352
588
330
276
176
496
303
157
83
212
127
713
371
13020 7427

NII
2495
163
72
74
497
3799
3499
578
403
594
308
353
584
13419

3QFY13
PPP Net Profit
2311 1296
131
85
32
27
14
4
394
211
3024 1859
3452 2250
472
267
263
162
435
289
212
113
235
128
563
342
11538 7033

YoY Growth
NII
PPP Net Profit

QoQ Growth
NII
PPP Net Profit

19.6
21.2

13.2
2.8

23.8
4.8

1.6
4.0

-4.9
-4.5

17.8
6.1

30.5

44.9

34.7

3.3

15.9

10.2

-23.6
9.8

-154.4
-9.7

-3084.3
9.1

-31.1
-0.4

-142.3
0.5

6352.4
1.8

22.0
21.6

28.6
28.6

25.1
12.6

3.5
5.2

14.8
14.2

17.3
7.7

26.3

37.2

29.9

4.3

10.1

5.1

3.3
8.9

4.3
1.3

3.3
11.2

-5.4
-5.2

-0.6
-11.1

-4.9
6.0

-0.9

-27.8

-5.5

2.4

-2.6

28.7

-0.7
13.9
18.4

-8.1
9.2
19.8

10.4
21.5
16.6

-3.7
-1.0
2.3

1.8
-13.8
6.1

11.3
12.0
10.4


14

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)


15


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

# 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


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.


16


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.


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.

Utilization Rate-%

Employee Addition;

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


Attirition rate-%


17


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.

18


(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.

19


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


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%

20

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
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