first call april 18, 2013-edel - business...

1 Edelweiss Securities Limited

CONTENTS

Latest Research

• HCL Technologies - Raring to grow; Buy

• Tata Consultancy Services - Delivering on expectations; Hold

• Yes Bank - Core income steady; bond gains used to shore asset cover; Buy

• Cement Channel Check - Low demand stings prices; monthly update

• Factor Analyser (FA) Apr-13

• Bond Vector - Gilts resume forward march

Regular Features

• Sales Trader’s Commentary

• Insider Trades & Bulk Deals

• Technical Updates

• Eye Catchers

FIRST CALL

DAILY

India Equity Research

April 18, 2013

Sectoral Movements % Change

Ticker 18-Apr-13 1 D 1 M 3 M 1 Y

Banking 13,715 0.9 1.8 (5.7) 13.2

IT 6,236 (1.0) (13.4) (8.3) 7.2

Pharmaceuticals 8,436 1.1 4.4 4.6 24.5

Oil 8,535 (2.1) (2.8) (10.8) 5.4

Power 1,681 (0.2) (4.1) (16.0) (21.6)

Auto 10,189 1.2 (2.7) (9.8) (3.2)

Metals 8,479 1.3 (6.3) (21.3) (24.7)

Real Estate 1,862 0.9 (8.0) (19.4) 3.1

FMCG 6,072 1.3 3.1 5.5 27.7

Capital Goods 9,216 (0.0) (5.8) (12.3) (9.2)

India Change in %

17-A pr-13 1-d 1-mo 3-mo

Nifty 5,689 (0.0) (2.5) (6.2)

Sensex 18,731 (0.1) (2.9) (6.5)

CNX 500 4,462 0.1 (2.4) (7.9)

Global Indices

17-A pr-13 1-d 1-mo 3-mo

DJIA 14,619 (0.9) 1.2 7.1

NASDAQ 3,205 (1.8) (1.0) 2.2

Hang Seng 21,611 0.2 (2.1) (8.4)

Nikkei 225 13,284 (0.7) 8.7 21.7

Net Inv (INR Bn)

15-A pr-13 B uy Sell N et

FII Cash 30.9 24.5 6.4

FII F&O 295.1 288.6 6.5

M F Cash 3.5 4.5 (1.0)

Value Traded - India (INR Bn) Change in %

17-A pr-13 1-d 1-mo 3-mo

BSE Cash 22.8 20.5 0.5 (9.1)

NSE Cash 131.2 22.5 (15.9) (3.8)

NSE F&O 2,003.4 (30.5)

Forex/M oney M arket Change in %

17-A pr-13 1-d 1-mo 3-mo

INR/USD 54.2 (0.1) (0.1) 0.3

USD/EUR 1.3 0.1 0.7 (2.1)

USD/YEN 0.0 0.0 3.1 8.9

10 Yr G-Sec 7.9 - (1.0) (0.6)

Commodities (USD/M t ton) Change in %

17-A pr-13 1-d 1-mo 3-mo

Copper 8,382 (3.0) (8.8) (12.2)

A luminium 2,702 (0.9) (3.0) (7.3)

*Go ld 1,357.8 (1.4) (15.4) (19.4)

*Silver 23.0 (1.6) (20.5) (28.0)

**NYM EX 87 (2.3) (7.2) (9.2)

*USD/Troy Ounce **USD/bbl

Agri Commodities (INR/QT) Change in %

17-A pr-13 1-d 1-mo 3-mo

Sugar 3,349.0 0.1 0.2 (2.8)

^INR/M aund ^^INR/KG

Open Interest ( IN R mn)

Vo lume 17-A pr-13 16-A pr-13 % C hange

Futures 445,357 439,032 1.4

Call 529,412 527,993 0.3

Put 531,627 521,122 2.0

Total 1,506,395 1,488,146 1.2

P ut C all R at io s

Vo lume 17-A pr-13 16-A pr-13 % C hange

PCR 1.04 1.00 3.9

WPCR 0.74 0.65 13.7

OI PCR 0.96 0.95 1.5

Total OI/ Volume 0.75 0.76 (1.4)

Nifty IVs at 15 - 17% levels.

FII Activity* (INR M n) (16-Apr)


First Call

STOCKS IN NEWS

Tata Tele to give up bulk of excess CDMA waves (ET)

US court nod for Lupin’s generic contraceptive (ET)

CCI rejects charges of market abuse against BPCL (ET)

Rel Infra, Tata Power differ over SC’s admission of plea on cross subsidy (ET)

CIL to supply power cos full contracted coal (ET)

Govt may announce sops for exporters, SEZ today (ET)

GMR airports to go public to facilitate PE firm’s exit; co looks to raise INR 20bn from stake sale

this fiscal year (ET)

CIpla launches India’s first biosimilar drug (MINT)

Stride Arcolab unit, Pfenex enter JV (MINT)


First Call

SALES TRADERS COMMENTARY

Indian equities ended a volatile session on a flat note on Wednesday. Metal, FMCG,

healthcare and auto stocks traded higher while oil & gas and IT stocks fell the most.

The BSE Sensex ended 14 points down at 18731 and Nifty down 01 points to 5688.

Major gainers were Sterlite Industries (4.05%), Mahindra & Mahindra (3.91%), Sun

Pharmaceutical Industries (3.01%), State Bank of India (2.87%), ICICI Bank (1.70%) and ITC

(1.59%).

Major losers were Reliance Industries (3.78%), Wipro (1.77%), TCS (1.73%), HDFC 1.57%)

and Tata Power (1.56%).

The Metal index jumped 1.27%. Major gainers were SAIL (6.33%), JSW Steel (5.76%), Sterlite

Industries (4.10%), Sesa Goa (4.05%), Hindustan Zinc (1.85%) and Coal India (0.56%).

The FMCG index gained 1.25%. Major gainers were United Spirits (6.07%), ITC (1.59%),Tata

Global (2.62%), Nestle India (0.96%) JUBLFOOD (0.87%) and Colgate Palmolive (0.80%).

The Auto index was up 1.16%. Major gainers were Mahindra & Mahindra (3.91%), Bajaj

Auto (1.01%), Maruti Suzuki (0.82%), Hero MotoCorp (0.25%), Tata Motors (0.25%) and

Cummins India (0.03%).

The Oil & gas index was down 2.12%. Major losers were Reliance Industries (3.78%), HPCL

(2.37%), BPCL (1.25%), ONGC (0.80%) and Indian Oil Corp (0.64%).

Globally, Asia ended mixed—Nikkei ended 161 points higher at 13382 and Hang Seng

slipped 120 points to 21569. European indices were trading in the red.

RESULTS FOR THE DAY

Name of company Q4FY13E Q4FY12 Y-o-Y Q3FY13 Q-o-Q

Essar Ports 953 676 40.8 904 5.4

IndusInd Bank 2,911 2,234 30.3 2,673 8.9

PAT

Company Date Time Venue Topic

IndusInd Bank 18-Apr-13 3.45 PM IST Regal Room, The Trident,

Nariman Point, Mumbai

Financial Results

ANALYST MEETS

Edelweiss Research is also available on www.edelresearch.com,

Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

Edelweiss Securities Limited

HCL Technologies’ (HCLT) USD1,191mn revenue in Q3FY13 was in line

with our estimate. EBITDA margin, at 22.4%, surpassed Street’s 21.9%

estimate, driven by utilisation (largely due to cut in head count) and

higher fixed-price projects. IMS continued to spur growth (up 8.6% QoQ).

We expect HCLT’s revenue growth momentum to continue over the next

couple of years as it ramps up deals won over the past 18 months. This,

along with an improved EBIT margin trajectory (19% plus) over the past

four quarters is a testimony of its robust execution. We expect margin to

remain in the 18-19% plus (excluding currency) range as it executes the

new deals. We maintain our ~15% revenue growth assumption for FY14

and FY15 each and ‘BUY’ with a target price of INR903.

Utilisation supports margin; IMS continues to lead growth

HCLT reported USD revenue growth of 3.2%. EBIDTA margin, at 22.4%, dipped 20bps

bucking the Street’s expectation of a 70bps decline. This was primarily due to reduction

in head count (791 on overall basis and 1,638 in core software (CS) segment), which

improved blended utilisation 190bps to 83.8% in CS. While CS grew a muted 1%, IMS

surged a robust 8.6% QoQ. Enterprise application services grew 3.2% QoQ.

Ramp up of deals in kitty to aid margin sustenance

The company posted a robust EBIT margin (19% plus) over past four quarters as it

ramped up deals won in FY12. HCLT has bagged deals with a total contract value of

USD2bn over the past two quarters, which will be ramped up in FY14. This along with

rising IMS contribution (590bps over Q3FY12-Q3FY13) lends margin comfort as it will

enable higher fresher intake in the future, which will sustain margin. We expect EBIT

margin to remain in the 18-19% plus range (excl. currency) over FY13E-15E.

Outlook and valuations: On growth path; maintain ‘BUY’

We maintain our positive stance on HCLT based on significant traction in renewal

market, which, in our view, will enable it to post USD revenue growth of 15% in FY14E

and FY15E each. This surge will be driven by IMS, which has been the key growth driver

for the past five quarters. However, we believe increasing reliance on IMS and almost

zero bench can pose headwinds going forward. We maintain ‘BUY/SO’ with a TP of

INR903 (15x FY15E EPS of INR60.2).

RESULT UPDATE

HCL TECHNOLOGIES Raring to grow

EDELWEISS 4D RATINGS

Absolute Rating BUY

Rating Relative to Sector Outperformer

Risk Rating Relative to Sector High

Sector Relative to Market Overweight

MARKET DATA (R: HCLT.BO, B: HCLT IN)

CMP : INR 751

Target Price : INR 903

52-week range (INR) : 810 / 453

Share in issue (mn) : 696.1

M cap (INR bn/USD mn) : 523/ 9,648

Avg. Daily Vol.BSE/NSE(‘000) : 1,392.6

SHARE HOLDING PATTERN (%)

Current Q2FY13 Q1FY13

Promoters *

62.0 62.2 62.2

MF's, FI's & BK’s 6.6 9.3 9.5

FII's 24.3 20.3 20.0

Others 7.1 8.2 8.3

* Promoters pledged shares

(% of share in issue)

: NIL

PRICE PERFORMANCE (%)

Stock Nifty

EW

Technology

Index

1 month (3.7) (3.1) (4.8)

3 months 13.2 (5.2) 13.9

12 months 57.3 8.9 25.3

Sandip Agarwal

+91 22 6623 3474

[email protected]

Omkar Hadkar

+91 22 6620 3147

[email protected]

India Equity Research| IT

April 17, 2013

Financials

Year to June Q3FY13 Q2FY13 Growth % Q3FY12 Growth % FY12 FY13E FY14E

Revenue (INR mn) 64,247 62,737 2.4 52,156 23.2 210,312 255,522 294,151

EBITDA (INR mn) 14,394 14,165 1.6 9,592 50.1 40,252 56,580 60,629

Net profit (INR mn) 10,192 9,444 7.9 5,820 75.1 24,474 37,896 40,050

Diluted EPS (INR) 14.4 13.4 7.7 8.3 73.8 34.8 53.6 56.7

Diluted P/E (x) 21.6 14.0 13.3

EV/EBITDA (x) 12.9 8.8 7.7

EV/Revenues (x) 2.5 2.0 1.6

IT


Key highlights

• Consolidated revenue at USD1,191mn rose 3.2% QoQ, marginally below our USD1,194mn

estimate. In constant currency, QoQ revenue grew 3.8%. In INR terms, revenue at

INR64.3bn increased 2.4% QoQ and 23.2% YoY.

• Gross profit stood at INR23.1bn, up 2.9% QoQ and 36.2% YoY. Gross margin at 36.0%

surged 20bps QoQ due to improvement in utilization. EBITDA stood at INR14.4bn and

EBITDA margin at 22.4% was down 20bps QoQ, above our estimate of 22.0%.

• HCLT’s net profit at INR10.2bn was up 7.9% QoQ. Net margin, at 15.9%, rose 80bps

QoQ due to higher operating profit, other incomes and forex gains.

• Net employees in IT services reduced by 1,000, while the BPO headcount rose by 209.

Segmental performance

• IT services: IT services (contributes over 95% to total revenue) rose 14.1% YoY (up 3.3%

QoQ) to USD1,140mn against USD1,104mn in the previous quarter. Volume growth in

core software came in at 0.4%. Operating margin was flat at 20.5%.

Core software: Revenue, at USD783mn, was up 1.0% QoQ and 4.8% YoY. While

offshore and onsite volume grew 0.4% and 0.3% respectively. Operating margin (EBIT)

at 21.2% was down 20bps sequentially.

IMS: Revenue rose 8.6% QoQ (10.6% QoQ in previous quarter) to USD356mn. EBIT

margin jumped 50bps to 18.9%.

• BPO reports operating profit for five consecutive quarter: BPO revenue, at

USD51.3mn, was up sequentially by 0.6%. It reported an operating profit (EBIT) of

USD3.0mn during the quarter.

Table 1: EBIT margin (%) across three segments

Source: Company, Edelweiss research

Client addition continues to be impressive: HCLT added 37 new clients in the quarter.

Total active clientele is now at 547 (544 in previous quarter). It signed deals with a TCV

of USD1bn during the quarter which it expects to ramp up in FY14.

Number of clients contributing USD1mn and USD5mn plus stood at 422 (418 in

Q2FY13) and 187 (increase of nine from previous quarter), respectively. HCLT added

one client to the USD20mn plus category (50 in the previous quarter).

• Infrastructure services (IS), enterprise application services (EAS) drives growth: IS and

BPO posted sequential growth of 8.6% and 0.8%, respectively, in USD terms. EAS grew

3.2% QoQ (1.1% decline in previous quarter).

Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13

Core software 17.3 17.1 21.0 21.1 21.4 21.2

IMS 16.0 14.5 17.9 17.9 18.4 18.9

BPO (7.6) 0.5 1.8 2.1 5.7 5.8

HCL Technologies


Chart 1: IS, EAS spur growth


Geo split: While Europe grew 4.6% QoQ on back of 5.9% growth in Q2FY13, America

reported 3.5% sequential growth. APAC saw a decline of 1.1% QoQ (0.2% growth in

Q2FY13).

Chart 2: Europe and America lead growth during the quarter


• Manufacturing, energy & utilities and telecom drive growth: Manufacturing, energy &

utilities and telecom sequential growth of 7.7%, 13.5% and 3.2% respectively. BFSI was

sequentially flat.

• Attrition: Attrition in software services increased to 14.3% (LTM basis) from 13.6%

while IMS increased marginally to 14.0% from 13.8% in the previous quarter. Attrition

in BPO increased to 7.9% from 8.7% in the previous quarter.

(3.0)

0.0

3.0

6.0

9.0

12.0

Infrastructure

Services

BPO

Services

Custom

Application

Engineering &

R&D Services

Enterprise

Application

Services

(%)

Q3FY13 Q2FY13

(2.0)

0.0

2.0

4.0

6.0

8.0

Europe US ROW

(%)

Q3FY13 Q2FY13

IT


• Utilisation inches up: Offshore utilisation (including trainees) rose from 75.6% to

79.0%; excluding trainees, it stood at 80.0% versus 77.6% in the previous quarter. On a

blended basis utilisation stood at 83.8% up 190bps QoQ. Onsite utilisation at 97% was

marginally below previous quarter of 97.3%.

• Hedging: HCLT has hedges worth USD1.6bn as on March 2013, of which less than a year

hedges are at exchange rate of 54.27.

• DSO stood at 53 days during the quarter.

HCL Technologies


Financial snapshot (INR mn)

Year to June Q3FY13 Q2FY13 % Change Q3FY12 % Change YTD13 FY13E FY14E

Net revenues 64,247 62,737 2.4 52,156 23.2 187,894 255,522 294,151

Direct costs 41,129 40,262 2.2 35,179 16.9 120,849 164,624 193,936

Gross profit 23,118 22,475 2.9 16,977 36.2 67,045 90,898 100,215

SG&A 8,724 8,310 5.0 7,385 18.1 24,977 34,318 39,587

EBITDA 14,394 14,165 1.6 9,592 50.1 42,068 56,580 60,629

Depreciation 1,634 1,722 (5.1) 1,412 15.7 5,048 6,777 8,613

EBIT 12,760 12,443 2.5 8,180 56.0 37,020 49,803 52,015

Other income 657 279 135.5 227 189.4 1,292 1,489 1,844

Foreign exc. gain / (loss) 231 (125) (284.8) (363) (163.6) (503) (553) -

Profit before tax 13,648 12,597 8.3 8,044 69.7 37,809 50,739 53,859

Provision for taxes 3,249 2,951 10.1 2,016 61.2 8,918 12,021 12,926

Core profit 10,399 9,646 7.8 6,028 72.5 28,891 38,718 40,933

Minority interest

Profit after tax and min. int. 10,399 9,646 7.8 6,028 72.5 28,891 38,718 40,933

Stock based sales incentives 207 202 2.5 208 (0.5) 615 822 882

Net profit 10,192 9,444 7.9 5,820 75.1 28,276 37,896 40,050

Diluted EPS (INR) 14.4 13.4 7.7 8.3 73.8 40.1 53.6 56.7

As % of net revenues

Gross profit 36.0 35.8 32.6 35.7 35.6 34.1

SG&A 13.6 13.2 14.2 13.3 13.4 13.5

EBITDA 22.4 22.6 18.4 22.4 22.1 20.6

EBIT 19.9 19.8 15.7 19.7 19.5 17.7

Reported net profit 15.9 15.1 11.2 15.0 14.8 13.6

Tax rate 23.8 23.4 25.1 23.6 23.7 24.0

IT


Company Description HCLT is India’s fourth-largest IT services company. It provides software-led IT solutions,

remote infrastructure management, and BPO services, focused mainly on transformational

outsourcing. The company leverages its extensive offshore infrastructure and global

network of offices in 26 countries to deliver solutions across select verticals, including

financial services, retail and consumer, life sciences aerospace, automotive, semiconductors,

telecom and media publishing, and entertainment. The company’s employee force stands at

85,194 and its revenues for the past twelve months stood at INR247.1bn (USD4.5bn).

Investment Theme

Industry revenues are forecasted to grow 12.2% over FY12-15E, and as a scale player HCLT is

expected to gradually increase its share of the total pie largely through its rapidly growing

infrastructure management practice. HCLT has been aggressively pursuing large deals in the

past few quarters. Some of the largest deals announced recently by HCLT in the Indian IT

space are Xerox, Sony Corporation, Nokia Corporation, Dr Pepper Snapple Group, The Linde

Group, Agilent Technologies, which provides long-term revenue visibility. Its well-

established infrastructure management practice, combined with its EAS practice, provides

significant cross-selling opportunity, which could help HCLT win some of the large size deals.

Although we believe it will post better growth versus Infosys and Wipro.

Key Risks

Key risks to our investment theme include: (a) sustained slowdown in the US; (b) failure in

maintaining margins at current levels, while pursuing large deals; (c) higher wage inflation

and other costs resulting in significant margin dilution and (d) appreciation of the INR

against the USD, EUR and GBP.


HCL Technologies

Financial Statements

Income statement (INR mn)

Year to June FY12 FY13E FY14E FY15E

Net revenue 210,312 255,522 294,151 329,338

Cost of revenues 140,559 164,624 193,936 220,648

Gross profit 69,753 90,898 100,215 108,689

Total SG&A expenses 29,501 34,318 39,587 44,722

EBITDA 40,252 56,580 60,629 63,967

Depreciation & Amortization 5,639 6,777 8,613 9,649

EBIT 34,613 49,803 52,015 54,318

Other income 706 1,489 1,844 2,997

Foreign exchange gain/(loss) (1,876) (553) - -

Profit before tax 33,443 50,739 53,859 57,316

Provision for tax 8,180 12,021 12,926 13,756

Net profit 25,263 38,718 40,933 43,560

Profit After Tax 25,263 38,718 40,933 43,560

Minority int. and others - 789 822 882 988

Profit after minority interest 24,474 37,896 40,050 42,572

Basic EPS (INR) 34.8 53.6 56.7 60.2

Shares outstanding (mn) 703 707 707 708

Diluted EPS (INR) 34.8 53.6 56.7 60.2

Dividend per share (INR) 10.0 11.0 12.0 12.0

Dividend payout (%) 28.7 20.5 21.2 19.9

Common size metrics


Cost of revenues 66.8 64.4 65.9 67.0

Gross margin 33.2 35.6 34.1 33.0

SG&A expenses 14.0 13.4 13.5 13.6

EBITDA margins 19.1 22.1 20.6 19.4

EBIT margins 16.5 19.5 17.7 16.5

Net profit margins 11.6 14.8 13.6 12.9

Growth ratios (%)


Revenues 31.2 21.5 15.1 12.0

EBITDA 46.4 40.6 7.2 5.5

EBIT 53.7 43.9 4.4 4.4

PBT 52.3 51.7 6.1 6.4

Net profit 51.1 54.8 5.7 6.3

EPS 49.7 54.0 5.7 6.1

Key assumptions

FY12 FY13 FY14E FY15E

Macro - GDP(Y-o-Y %) 6.5 5.0 6.5 7.0

Inflation (Avg) 8.8 7.8 6.0 6.0

Repo rate (exit rate) 8.5 7.5 6.8 6.0

USD/INR (Avg) 47.9 54.5 55.0 53.0

Company

Gross addition (nos)

IT services 14,194 9,000 14,500 14,500

BPO 8,385 7,000 5,500 5,500

IMS 6,241 8,500 11,500 15,000

IT SERVICES

Efforts (as % of total efforts)

Onsite 26.8 25.8 26.0 26.0

Offshore 73.2 74.2 74.0 74.0

Not billed 18.6 17.2 13.0 13.0

Trainee 6.1 2.3 2.5 2.5

Implied Utilization (%) 79.1 86.4 86.0 86.0

Attrition (%) 14.8 13.8 13.0 12.0

Change in pricing

Onsite (%) 1.6 (1.1) 0.5 0.0

Offshore (%) 0.8 1.0 0.5 0.0

Blended (%)

Salary Hikes (%)

Onsite salary (USD) 4.9 3.3 4.1 2.0

Offshore salary 13.7 5.2 6.6 6.0

Cost assumptions (% of revenue)

SG&A 15.0 14.8 15.0 15.5

Depreciation 2.3 2.2 2.7 2.7

BPO

Revenue growth (in USD) (2.7) 7.9 8.4 12.1

Pricing growth (%) 5.1 9.6 (1.6) 0.0


Employee Costs 74.8 67.4 65.3 65.0

SG&A 22.8 21.3 21.6 21.5


Infrastructure services

Revenue growth (in USD) 21.5 36.1 25.5 20.3

Gross addition 6,241 8,500 11,500 15,000


Employee Costs 71.3 68.4 67.5 67.2

SG&A 9.6 9.2 9.3 9.0


Financial assumptions

Yield on cash & cash equivalents (%) 3.0 6.0 6.0 5.0

Tax rate as % of PBT 24.5 23.7 24.0 24.0

Capex (INR mn) 15,775 6,751 8,710 9,659

Receivable (days) 76 79 74 72


IT

Peer comparison valuation

Market cap Diluted PE (X) EV/EBITDA (X) ROAE (%)

Name (USD mn) FY13E FY14E FY13E FY14E FY13E FY14E

HCL Technologies 9,670 14.0 13.3 8.8 7.7 31.0 26.3

CMC 769 18.3 12.6 12.5 9.0 26.7 31.7

ECLERX SERVICES 359 11.4 8.9 6.3 5.1 43.7 44.2

Hexaware Technologies 489 8.1 7.6 5.1 4.2 30.0 27.9

Info Edge 717 30.6 22.7 23.9 16.5 21.7 23.6

Infosys 24,249 13.9 13.1 9.2 7.9 25.7 23.0

Infotech Enterprises 345 8.2 7.7 3.4 2.9 18.3 17.0

Persistent Systems 403 11.8 9.4 4.8 3.7 20.2 21.3

Tata Consultancy Services 52,716 20.4 18.6 15.0 12.9 38.8 34.5

Wipro 17,057 14.4 12.6 10.2 8.9 20.7 20.4

Median - 13.9 12.6 9.0 7.8 26.2 25.0

AVERAGE - 15.1 12.6 9.9 7.9 27.7 27.0

Source: Edelweiss research

Operating ratios


Total asset turnover 0.5 0.5 0.4 0.4

Fixed asset turnover 3.0 3.4 4.0 4.4

Equity turnover 2.2 2.1 1.9 1.8

Valuation parameters


Diluted EPS (INR) 34.8 53.6 56.7 60.2

Y-o-Y growth (%) 49.7 54.0 5.7 6.1

CEPS (INR) 42.8 63.2 68.9 73.8

Diluted PE (x) 21.6 14.0 13.3 12.5

Price/BV (x) 4.9 3.9 3.2 2.7

EV/Sales (x) 2.5 2.0 1.6 1.3

EV/EBITDA (x) 12.9 8.8 7.7 6.9

EV/EBITDA (x)+1 yr forward 9.2 8.2 7.3 -

Dividend yield (%) 1.3 1.5 1.6 1.6

Balance sheet (INR mn)

As on 30th June FY12 FY13E FY14E FY15E

Equity capital 1,386 1,390 1,392 1,393

Reserves & surplus 105,928 135,729 165,851 198,494

Shareholders funds 107,314 137,119 167,242 199,886

Minority interest (BS) - - - 1

Borrowings 19,222 13,774 12,774 11,774

Sources of funds 126,536 150,893 180,016 211,661

Net block 24,775 28,199 28,296 28,306

Goodwill 49,404 45,954 45,954 45,954

Investments 21,720 32,601 32,601 32,601

Cash and equivalents 6,673 12,835 41,411 72,344

Sundry debtors 53,440 57,613 61,813 68,364

Other current assets 33,264 40,053 42,072 45,222

Total current assets (ex cash) 86,704 97,666 103,885 113,586

Total current liabilities & 62,740 66,362 72,131 81,129

Net current assets (ex cash) 23,964 31,304 31,754 32,456

Uses of funds 126,536 150,893 180,016 211,661

Book value per share (INR) 152.7 194.1 236.7 282.5

Profitability & efficiency ratios


ROAE (%) 25.5 31.0 26.3 23.2

ROACE (%) 36.4 44.6 39.2 33.3

Debtors days 76 79 74 72

Current ratio 1.5 1.7 2.0 2.3


HCL Technologies

Holding - Top10

Perc. Holding Perc. Holding

Life Insurance Corp Of India 4.35 HSBC Global Inv Mauritius 2.09

First State Investments 1.30 Commonwealth Bank Of Australia 1.30

Vanguard Group Inc 0.80 Reliance Capital Trustee Co Ltd 0.65

Blackrock 0.53 Capital International Inc 0.35

UTI AMC 0.32 Guardian Investor Services Llc 0.29

*as per last available data

Insider Trades Reporting Data Acquired / Seller B/S Qty Traded

02 May 2012 HCL Holdings Pvt Ltd Sell 189175.00

09 May 2012 Slocum Investments (Delhi) Pvt. Ltd. Sell 10000000.00

12 Jun 2012 Vineet Nayar Sell 2700000.00

06 Sep 2012 HSBC Global Investment Funds Sell 838000.00

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

04 May 2012 The Rbos Plc As Dep Of First St Ap Le Fd A S Fd Of Fi St Inicvc Buy 8119140 500.00

04 May 2012 Slocum Investments (Delhi) Pvt Limted Sell 10000000 500.15


Additional Data

Directors Data

Mr.Shiv Nadar Chairman & Chief Strategy Officer Mr.Vineet Nayar Vice Chairman & CEO

Ms. Robin Abrams Non- Executive Director Mr. Subroto Bhattacharya Non- Executive Director

Mr. Amal Ganguli Non- Executive Director Mr. R. Srinivasan Non- Executive Director

Mr. Sudhindar Krishan Khanna Non- Executive Director Mr. Drikant Madhav Datar Non- Executive Director

Mr. Sosale Shankara Sastry Non- Executive Director

Auditors - S.R.Batliboi & Co., Chartered Accountants

*as per last annual report


Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

CMC BUY SO L ECLERX SERVICES BUY SO M

HCL Technologies BUY SO H Hexaware Technologies BUY SO M

Info Edge REDUCE SU M Infosys BUY SP L

Infotech Enterprises BUY SO H Tata Consultancy Services HOLD SP L

Persistent Systems BUY SO L Wipro BUY SO L

Tech Mahindra BUY SO M

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe

within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return




Tata Consultancy Services’ (TCS) Q4FY13 revenue of USD3,040mn, up

3.1% QoQ, was in line with Street estimate (USD3,036mn), driven by 4.4%

volume surge. EBIT margin, at 26.5%, dipped 80bps, largely due to

settlement-related cost of INR1.6bn. Management reiterated its positive

outlook on account of robust pipeline and uptick in discretionary

spending. We believe TCS will continue to post robust growth as it reaps

benefits of sustained investments in new initiatives along with continued

investments in sales and marketing. However, we deem current

valuations provide limited upside hereon. Hence, we maintain ‘HOLD’

with a target price of INR1,588.

Volume growth surprises; India spurs growth

TCS’s robust volume of 4.4% QoQ was way ahead of our 3.0% estimate. EBIT margin

decline of 80bps to 26.5% was largely due to settlement cost of INR1.6bn; excluding this,

margin would have been 27.5%, up 20bps QoQ. Growth during Q4FY13 was led by the

India business (9% of revenue), which surged a robust 19% QoQ. Deal traction continued

to be strong as it won 11 deals during the quarter and several short term deals in the

digital (new technologies) space, although these are smaller in size. Utilisation (ex

trainees) improved 30bps sequentially to 82.0%.

Robust pipeline, spending uptick underpin positive outlook

Management has reiterated its positive outlook underpinned by the strong pipeline,

uptick in discretionary spending and improved traction in large verticals like BFSI and

telecom. It expects BFSI to grow in line with company growth rate and anticipates

recovery in telecom in FY14. We believe, this, along with its investments in new

technologies like cloud computing, analytics and big data, will lead to robust revenue

growth over the next two years. We have built in 18.2%/13.7% revenue growth for

FY14/FY15.

Outlook and valuations: Rich; maintain ‘HOLD’

While we expect TCS to be the key beneficiary of the uptick in demand and favour it

owing to strong execution, we believe current valuations of 18.1x and 16.5x FY14E and

FY15E earnings, respectively, provide limited upside from the current level. Hence, we

maintain ‘HOLD/Sector Performer’ with target price of INR1,588 (18x FY15E EPS).

RESULT UPDATE

TATA CONSULTANCY SERVICES Delivering on expectations


Absolute Rating HOLD

Rating Relative to Sector Performer

Risk Rating Relative to Sector Low

Sector Relative to Market Overweight

MARKET DATA (R: TCS.BO, B: TCS IN)

CMP : INR 1,457

Target Price : INR 1,588

52-week range (INR) : 1,598 / 1,040

Share in issue (mn) : 1,957.2

M cap (INR bn/USD mn) : 2,851/ 52,596




Promoters *

74.0 74.0 74.0

MF's, FI's & BK’s 6.5 6.5 6.7

FII's 15.0 14.8 14.6

Others 4.6 4.7 4.7



: 11.3


Stock Nifty

EW

Technology

Index

1 month (7.2) (3.1) (4.8)

3 months 6.9 (5.8) 13.9

12 months 34.4 7.5 25.3

Sandip Agarwal

+91 22 6623 3474

[email protected]

Omkar Hadkar

+91 22 6620 3147

[email protected]

India Equity Research| IT

April 17, 2013

Financials (INR mn)

Year to March Q4FY13 Q3FY13 Growth % Q4FY12 Growth % FY13 FY14E FY15E

Revenue 164,301 160,699 2.2 132,593 23.9 629,895 752,249 824,416

EBITDA 46,599 46,540 0.1 39,117 19.1 180,871 209,645 225,213

Net profit 35,969 35,518 1.3 29,324 22.7 139,415 157,636 172,666

Diluted EPS (INR) 18.4 18.1 1.3 15.0 22.7 71.2 80.5 88.2

Diluted P/E (x) 20.4 18.1 16.5

EV/EBITDA (x) 14.9 12.5 11.2

EV/Revenues (x) 4.3 3.5 3.1

IT


Key highlights

• In USD terms, revenue grew 3.1% QoQ to USD3,040mn, marginally above our estimate

of USD3,035mn. Volume growth came in at 4.4% QoQ. In INR terms, revenue at

INR164.3bn was up 2.2% QoQ and 23.9% YoY.

Table 1: Split of revenue growth in INR terms for Q4FY13

Source: Company

• Gross profit for the quarter stood at INR78.5bn, up 3.1% QoQ. Gross margin was 47.8%,

up 40bps QoQ.

• Operating margin: TCS’ operating margin (EBIT) dipped 80bps QoQ to 26.5% due to

settlement cost of USD29mn (one-off) during this quarter. Excluding this, EBIT margin

would have expanded 20bps QoQ to 27.5%.

Table 2: Factors contributing to decline in operating margin

Source: Company

• Net income: TCS reported net income of INR36bn, up 1.3% QoQ. Net profit margin

dipped 20bps to 21.9%.

• Client addition: 52 clients were added during the quarter (31 in Q3FY13). Active

clientele stood at 1,065 versus 1,051 in the previous quarter. The number of USD1mn

clients increased by 5 to 551; there was an increase in USD5mn (4), USD10mn (11),

USD20mn (1) and USD50mn (1) client brackets over the previous quarter. USD100mn

clients remained flat. Deal traction continued to be strong as it won 11 deals during the

quarter and several small deals in the digital (new technologies) space, although these

are smaller in size.

• Geography split: North America, Continental Europe and India reported sequential

growth of 2.1%, 6.5% and 19.4% QoQ, respectively. UK (17% of revenue) declined by

1.0%, whereas APAC grew 0.4%.

Revenue growth break-up (%)

Volumes 4.4

Constant currency realisation 0.0

Currency benefit (1.8)

Offshore shift (0.4)

Q-o-Q impact 2.2

EBIT margin break-up (bps)

Currency (64)

Productivity shift 94

SG&A efficiency (5)

US settlement (98)

Q-o-Q impact (73)

Tata Consultancy Services


Chart 1: Geography growth QoQ in USD terms


• All verticals except transportation post growth: BFSI led growth by surging 4.3% QoQ.

Manufacturing, retail and energy & utilities posted grew 3.1% each. Transportation

declined 2.6% QoQ.

Chart 2: BFSI, manufacturing, retail and energy & utilities drive growth


• Infra services and assurance services spur growth: Growth during the quarter was

driven by infrastructure services and assurance services, which surged 6.7% and 4.5%

QoQ, respectively. ADM grew 3.1% while enterprise solutions and business intelligence

grew 5.9%. BPO and asset leveraged solutions declined 0.2% and 7.9% QoQ,

respectively.

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IT


Chart 3: Infra services, enterprise solutions and assurance services lead growth


• Hiring momentum continues: Gross addition stood at 20,098 on back of 17,145 in the

previous quarter, while net addition was 12,559. Total headcount stands at 276,196.

Attrition (LTM) in IT services declined to 9.4% from 9.8% in the previous quarter. It

plans to hire 45,000 freshers next year. 25,000 offers have already been given.

• Utilisation inches up: Utilisation rate (excluding trainees) inched up 30bps QoQ to

82.0%; including trainees, it was up 10bps QoQ to 72.2%.

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Year to March Q4FY13 Q3FY13 % Change Q4FY12 % Change FY13 FY14E FY15E

Net revenues 164,301 160,699 2.2 132,593 23.9 629,895 752,249 824,416

Cost of revenue 85,773 84,528 1.5 69,237 23.9 332,544 406,208 449,291

Gross profit 78,528 76,171 3.1 63,356 23.9 297,351 346,042 375,126

SG&A 31,929 29,631 7.8 24,239 31.7 116,480 136,397 149,913

EBITDA 46,599 46,540 0.1 39,117 19.1 180,871 209,645 225,213

Depreciation & amortization 3,015 2,731 10.4 2,398 25.7 10,792 12,784 14,011

EBIT 43,584 43,809 (0.5) 36,719 18.7 170,079 196,861 211,203

Other income 4,185 2,133 96.2 1,077 288.5 11,174 12,560 17,995


Tax 11,419 10,025 13.9 8,174 39.7 40,344 50,261 55,007

Core profit 36,350 35,917 1.2 29,622 22.7 140,909 159,160 174,190

Minority interest 381 399 (4.5) 298 27.9 1,494 1,524 1,524

Net profit 35,969 35,518 1.3 29,324 22.7 139,415 157,636 172,666

Diluted EPS (INR) 18.4 18.1 1.3 15.0 22.7 71.2 80.5 88.2

As % of net revenues

Gross profit 47.8 47.4 47.8 47.2 46.0 45.5

SG&A 19.4 18.4 18.3 18.5 18.1 18.2

EBITDA 28.4 29.0 29.5 28.7 27.9 27.3

Adjusted net profit 22.1 22.4 22.3 22.4 21.2 21.1

Reported net profit 21.9 22.1 22.1 22.1 21.0 20.9

Tax rate 23.9 21.8 21.6 22.3 24.0 24.0

IT


Company Description

TCS is India's largest and one of its oldest IT companies. It commenced operations in 1968

and provides a comprehensive range of IT services to industries such as banking and

financial services, insurance, manufacturing, telecommunications, retail, and transportation.

With a presence in 42 countries, TCS is positioned to deliver its services seamlessly. TCS has

a large diversified client base (1051 active clients), TCS’ employee force stands at 276,196

(including subsidiaries) and its revenues for the last twelve months (TTM) stood at INR630bn

(USD11.6bn).

Investment Theme

As India's largest and most-experienced IT services firm, TCS is well-positioned to benefit

from the growing demand for offshore IT services. It is a serious contender for winning large

deals, as it has more experience than peers in implementing large, complex, and mission-

critical projects. TCS has multiple margin levers at its disposal, which we believe, will sustain

its margins, shielding it from continued pressures on account of wage increases across the

industry. End-to-end full services offerings, traction in emerging markets, ability to roll up

large acquisitions, improving sales and marketing prowess and willingness to take multiple

big bets (different go-to-market models) are among the key rationales for TCS to sustain its

long term hi-growth trajectory. We believe current rich valuations build in a robust revenue

and earnings growth and leave a limited potential upside from current levels.

Key Risks

Key risks to our investment theme include – (1) double dip recession in major market US and

prolonged slowdown in Europe, (2) sharp cross currency movements and appreciation of

rupee against USD, Euro and GBP, (3) pricing pressure and (4) a reduction in margins.





Year to March FY12 FY13 FY14E FY15E

Net revenue 488,938 629,895 752,249 824,416

Cost of revenues 258,773 332,544 406,208 449,291

Gross profit 230,165 297,351 346,042 375,126

Total SG&A expenses 85,988 116,480 136,397 149,913

EBITDA 144,177 180,871 209,645 225,213

Depreciation & Amortization 9,036 10,792 12,784 14,011

EBIT 135,141 170,079 196,861 211,203

Other income 4,041 11,174 12,560 17,995



Net profit 107,494 140,909 159,160 174,190

Profit After Tax 107,494 140,909 159,160 174,190

Minority int. and others - 1,110 1,494 1,524 1,524

Profit after minority interest 106,384 139,415 157,636 172,666

Shares outstanding (mn) 1,957 1,957 1,957 1,957

Diluted EPS (INR) 54.4 71.2 80.5 88.2


Common size metrics


Cost of revenues 52.9 52.8 54.0 54.5

Gross margin 47.1 47.2 46.0 45.5

SG&A expenses 17.6 18.5 18.1 18.2

EBITDA margins 29.5 28.7 27.9 27.3

EBIT margins 27.6 27.0 26.2 25.6

Net profit margins 22.0 22.4 21.2 21.1

Growth ratios (%)


Revenues 31.0 28.8 19.4 9.6

EBITDA 28.7 25.5 15.9 7.4

EBIT 29.0 25.9 15.7 7.3

PBT 26.4 30.2 15.5 9.4

Net profit 21.7 31.1 13.0 9.4

EPS 22.1 31.0 13.1 9.5

Key Assumptions


Macro

GDP(Y-o-Y %) 6.5 5.0 6.5 7.0

Inflation (Avg) 8.8 7.8 6.0 6.0


USD/INR (Avg) 47.9 54.5 55.0 53.0

Company

Employee Addition (nos)

Gross additions 70,400 69,728 80,187 88,206

Lateral hires (% of Gross Addition) 56.0 44.6 55.0 45.0

Average attrition 14.2 12.7 10.9 11.0

Efforts

Onsite (%) 25.0 25.1 26.1 25.0

Offshore (%) 75.0 74.9 73.9 75.0

Utilisation

Onsite (%) 93.0 93.0 93.0 93.0

Offshore (%) 79.0 78.5 77.5 77.3

Blended (%) 82.2 81.7 81.5 81.2

Pricing change

Onsite (%) (1.2) (1.5) (1.6) -

Offshore (%) 2.2 (4.4) (0.1) -

Cost of sales

Employees cost 38.4 38.4 39.7 40.8

Travelling cost 1.4 1.4 1.5 1.4

Other costs 14.3 14.4 13.9 13.3

SGA cost

Employees cost 12.2 12.7 13.2 13.6

Other cost 6.1 6.3 5.6 5.3

Financial assumptions


Yield on cash & cash equivalents (%) 7.7 18.8 9.4 8.2

Tax rate as % of PBT 22.8 21.8 24.0 24.0

Capex (INR mn) 19,906 25,921 40,170 42,082

Debtor days 74 74 74 79

Payable days 51 50 52 58

Cash conversion cycle (days) 23 24 22 21


IT


Market cap Diluted PE (X) EV/EBITDA (X) ROAE (%)


Tata Consultancy Services 52,716 18.1 16.5 12.5 11.2 34.1 30.2

CMC 769 12.6 10.8 9.0 7.6 31.7 30.0

ECLERX SERVICES 359 8.9 8.3 5.1 4.6 44.2 38.1

HCL Technologies 9,670 13.3 12.5 7.7 6.9 26.3 23.2

Hexaware Technologies 489 7.6 7.2 4.2 3.9 27.9 25.8

Info Edge 717 22.7 19.6 16.5 13.2 23.6 22.2

Infosys 24,249 13.1 11.7 7.9 7.1 23.0 22.0

Infotech Enterprises 345 7.7 7.4 2.9 2.6 17.0 15.6

Persistent Systems 403 9.4 8.7 3.7 3.1 21.3 19.3

Wipro 17,057 12.6 11.4 8.9 7.8 20.4 19.3

Median - 12.6 11.1 7.8 7.0 25.0 22.7

AVERAGE - 12.6 11.4 7.8 6.8 27.0 24.6


Cash flow metrics


Operating cash flow 75,440 123,260 156,332 168,290

Investing cash flow (29,496) (68,535) (94,640) (91,118)

Financing cash flow (41,528) (56,710) (54,480) (59,380)

Net cash flow 4,417 (1,985) 7,212 17,792

Capex (19,906) (25,921) (40,170) (42,082)

Dividends paid (38,978) (57,024) (54,480) (59,380)

Profitability & efficiency ratios


ROAE (%) 36.7 37.9 34.1 30.2

ROACE (%) 64.8 72.2 78.0 71.6

Debtors days 74 74 74 79

Payable days 51 50 52 58

Cash conversion cycle (days) 23 24 22 21

Current ratio 2.4 2.1 2.0 2.0

Operating ratios


Total asset turnover 1.7 1.8 1.7 1.5

Fixed asset turnover 8.1 8.4 7.8 6.6

Equity turnover 1.7 1.7 1.6 1.4



Diluted EPS (INR) 54.4 71.2 80.5 88.2

Y-o-Y growth (%) 22.1 31.0 13.1 9.5

CEPS (INR) 59.0 76.7 87.1 95.4

Diluted PE (x) 26.8 20.4 18.1 16.5

Price/BV (x) 8.8 7.0 5.5 4.5

EV/Sales (x) 5.6 4.3 3.5 3.1

EV/EBITDA (x) 19.1 14.9 12.5 11.2

EV/EBITDA (x)+1 yr forward 15.2 12.8 11.6 -

Dividend yield (%) 1.2 1.5 1.6 1.7


As on 31st March FY12 FY13 FY14E FY15E

Equity capital 1,957 1,957 1,957 1,957


Shareholders funds 325,233 409,560 514,240 629,050

Minority interest (BS) 5,276 6,561 6,561 6,561

Borrowings 1,266 2,323 2,323 2,323

Deferred tax liability (13,147) (35,176) (35,176) (35,176)

Sources of funds 318,628 383,267 487,947 602,757

Net block 66,284 83,371 110,756 138,828

Goodwill 33,193 33,636 33,636 33,636

Investments 80,839 149,631 216,662 283,693


Sundry debtors 114,992 140,766 165,160 190,334

Unbilled revenue 22,478 31,601 31,601 31,601

Prepaid & other current assets 25,045 16,560 16,560 16,560

Total current assets 182,351 207,358 238,964 281,931

Total current liabilities & 75,718 97,311 118,653 141,912

Net current assets 106,633 110,047 120,311 140,019

Uses of funds 318,628 383,267 487,947 602,757

Book value per share (INR) 166.2 209.3 262.7 321.4

Free cash flow (INR mn)


Net profit 106,384 139,415 157,636 172,666

Depreciation 9,036 10,792 12,784 14,011

Others (7,377) (9,163) 599 6,649

Gross cash flow 108,043 141,044 171,019 193,326

Less: Changes in WC 32,603 17,785 14,686 25,036

Operating cash flow 75,440 123,260 156,332 168,290

Less: Capex 19,906 25,921 40,170 42,082

Free cash flow 55,534 97,339 116,163 126,208



Holding - Top10

Perc. Holding Perc. Holding

Life Insurance Corp. of India 3.01 Franklin Resources 2.18

Aberdeen 0.82 Vanguard Group Inc 0.62

Oppenheimerfunds Incorporated 0.57 Lazard Asset Management 0.45

Blackrock Fund Advisors 0.37 Templeton Investment Management 0.31

UTI Asset Management Co Ltd 0.27 HDFC Asset Management Co Ltd 0.25



04 May 2012 Tata AIG Life Insurance Compan Buy 30000.00

08 May 2012 Tata AIG Life Insurance Compan Buy 28995.00

10 Sep 2012 Tata Global Beverages Limited Sell 200000.00

11 Sep 2012 Tata Global Beverages Ltd Sell 200000.00

*in last one year


No Data Available


Additional Data

Directors Data

R N Tata Chairman S Ramadorai Vice Chairman

N Chandrasekaran CEO and MD Aman Mehta Director

V Thyagarajan Director Prof. Clayton M Christensen Director

Dr. Ron Sommer Director Laura M Cha Director

S Mahalingam CFO and Executive Director Phiroz Vandrevala Director

Dr. Vijay Kelkar Director Ishaat Hussain Director

O. P. Bhatt Director Cyrus Mistry Director

Auditors - Deloitte Haskins & Sells



Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

CMC BUY SO L ECLERX SERVICES BUY SO M

HCL Technologies BUY SO H Hexaware Technologies BUY SO M

Info Edge REDUCE SU M Infosys BUY SP L

Infotech Enterprises BUY SO H Tata Consultancy Services HOLD SP L

Persistent Systems BUY SO L Wipro BUY SO L

Tech Mahindra BUY SO M


ABSOLUTE RATING


Buy More than 15%




Ratings Criteria






within the sector


Ratings Criteria





SECTOR RATING

Ratings Criteria








Yes Bank’s Q4FY13 PAT at INR3.62bn (up 33.2% YoY) surpassed our

estimate. Key positives were: (1) slippages at a minuscule INR350mn

(0.32% of advances) with no major restructuring pipeline; (2) treasury

gains used to build up counter cyclical buffer (CCB) with provision

coverage ratio (PCR) shoring up to 92.6%; (3) saving bank balances surged

23% QoQ to propel CASA to 18.9% (10.3% in FY11); and (4) despite

expansion phase cost/income ratio maintained at 37.7%, lower-end of

peer group. Although on right track granularity traction in loan book was

slower than expected. We remain confident of the bank’s ability to

execute Version II strategy (30% CASA by FY15E) and consequently tread

the path of re-rating. Maintain ‘BUY’.

This report also contains Q4FY13/Q3FY13 earnings call highlights

Prudent risk management led to higher provisions

Yes Bank’s provisions during the quarter surged to INR975mn (up 72% QoQ) riding

INR250mn provisions towards building up CCB-aided by monetisation of bond

portfolio. PCR now stands at to 92.6%, one of the best among peers. The continued risk

mitigation practices coupled with management’s execution capability infuses us with

confidence that Yes Bank will successfully navigate unscathed through the current

cyclical slowdown. The bank has guided for total credit cost of 50-60bps for FY14.

CASA: Success story continues; on track to achieve Version II

In line with its Version II strategy, Yes Bank has been aggressive in garnering saving

account (SA) balances, post the interest rate deregulation, by offering 6-7%. CASA rose

from 18.3% to 18.9% QoQ, largely contributed by traction in SA, up 23% QoQ. While SA

at ~9.0% is currently tiny to make any significant dent in cost of funds, it is a step in the

right direction as the bank targets high profile clients who can be tapped for cross sell.

Outlook and valuations: Improving profitability; maintain ‘BUY’

We expect Yes Bank to grow well above the system, with a well entrenched fee income

platform, improving CASA and lower credit costs, delivering superior earnings (~25%

CAGR over FY13-15E) and best-in-class RoA/RoE of 1.6%/25% by FY15E. The stock is

trading at 1.9x FY15E adj. BV. Maintain ‘BUY/ SO’ with TP of INR615 (2.5x FY15E adj. BV).

RESULT UPDATE

YES BANK Core income steady; bond gains used to shore asset cover


Absolute Rating BUY

Rating Relative to Sector Outperformer

Risk Rating Relative to Sector Medium

Sector Relative to Market Equalweight

MARKET DATA (R: YESB.BO, B: YES IN)

CMP : INR 479

Target Price : INR 615

52-week range (INR) : 545 / 285

Share in issue (mn) : 358.6

M cap (INR bn/USD mn) : 172/ 3,172




Promoters *

25.8 25.9 26.1

MF's, FI's & BK’s 14.7 15.5 15.3

FII's 48.3 46.4 41.7

Others 11.2 12.3 16.9



: 1.0


Stock Nifty

EW Banks and

Financial

Services Index

1 month 1.2 (3.1) (7.7)

3 months (8.5) (5.8) (12.3)

12 months 29.1 7.5 9.6

Nilesh Parikh

+91 22 4063 5470

[email protected]

Kunal Shah

+91 22 4040 7579

[email protected]

Prakhar Agarwal

+91 22 6620 3076

[email protected]

India Equity Research| Banking and Financial Services

April 17, 2013

Financials (INR mn)

Year to March Q4FY13 Q4FY12 Growth % Q3FY13 Growth % FY13 FY14E FY15E

Net int. inc. 6,381 4,482 42.4 5,843 9.2 22,188 28,554 35,594

Net profit 3,622 2,718 33.2 3,423 5.8 13,007 16,473 20,342

Adj.B/V / share (INR) 162 200 247

Diluted EPS (INR) 9.9 7.6 31.0 9.4 5.3 36.3 45.9 56.7

Price / Adj. book (x) 3.0 2.4 1.9

Price/ PPOP (x) 8.1 6.4 5.2

Diluted P/E (x) 13.2 10.4 8.4

Banking and Financial Services


Zero net exposure towards Deccan

Yes Bank had exposure of INR1.6bn to Deccan, of which it recovered INR400mn and

provided about INR450mn in Q2FY13 and another INR450mn in Q3FY13. Against the net

book value of INR300mn it sold the exposure to an Asset Reconstruction Company (ARC) for

which it received Security Receipts (SRs) of ~INR510mn and cash of INR32.5mn. So,

effectively, the bank does not have any P&L impact due to Deccan.

Customer asset growth impressive; granularity to be key focus

During Q4FY13, Yes Bank’s credit (advances + credit substitutes) grew 30.9% YoY to

INR603.6bn. Within this, advances accounted for 68.1% (~89% a year ago), suggesting faster

traction in credit substitute segment—after muted Q3FY13. Advance growth was largely

contributed by the retail banking segment and the large corporate segment offsetting some

moderation in the commercial banking segment. Although granularity in loan book

continues to gain traction with retail banking comprising 18% of loans against a mere 5% in

FY10, the growth path is slower than expected. We are building in loan book growth of 24%

over FY13-15E.

Asset quality pristine: Moving towards zero net NPLs

In line with its guidance, the bank’s headline numbers continued to impress with GNPA

coming in at 0.20%, although a tad higher than 0.17% in Q3FY13. NNPL improved further to

stay at negligible level of 0.01% (0.04% in Q3FY13). Slippages during the quarter came in at

miniscule level of INR350mn riding on 3-4 accounts. With no major additions in the

restructured pool during the quarter, Yes Bank’s outstanding restructured assets stand at a

mere 0.31% of advances (down from peak of 0.53%). With weak assets of INR2.4bn

(reported gross NPAs + standard asset restructuring) (~60bps), we believe the bank is well

positioned to steer the asset quality out of pressures compared to peers.

Strong fee income supported by diversified streams

Fee income came in strong at INR31.9bn, up 21.1% QoQ, contributed by a robust

performance in financial markets (up 82% QoQ, predominantly debt capital and forex

segments)-riding on bond gains of INR450mn during the quarter. Financial advisory fees

once again came in healthy at 62% YoY .Revenue from the core fee segment–transaction

banking–is starting to show predictability, coming in at INR931mn (up 15.7% QoQ), riding on

enhanced cross selling of products to customers. Retail banking segment has seen a healthy

ramp up over the quarter, up 57% QoQ (forming > 10% of total fees), in line with its strategy

of building in granularity in fee income.

Margin stable led by tight leash on cost; positive guidance

NIMs remained stable at 3% (flat QoQ), given benefits of lower COF (down 10bps QoQ to

8.4%) due to the move to seek lower cost borrowing and healthy traction in SA. While

advance yields have improved 10bps and cost of funds are down 10bps, NIMs are still flat

QoQ as it has lost 9bps due to change in mix in favour of low yield investments and 5bps

due to leverage. We are building in average NIMs(calc.) of 2.8% by FY15E as the increasing

CASA and decline in wholesale rates will lower cost of funds. Management has guided for

margin pick up of 15-20bps .

Yes Bank


Maintaining best-in-class cost-to-income

Despite being in expansion phase (adding another 18 branches during the quarter), Yes

Bank’s cost-to-income ratio for Q4FY13 was steady at 37.7% QoQ, at the lower end of the

private sector bank peer group, led by strong revenue traction. Even as Yes Bank expands its

footprint, with focus on scaling up branch banking business, CASA pool and revenue traction

to keep cost-income ratio around 40% mark.

Capital raising in CY13

Yes Bank has renewed approval to raise USD500mn capital. However, it believes, in the

interim, current capital along with internal accruals are sufficient to sail through. Given its

track record, we expect the bank to raise capital at an attractive valuation, limiting earnings

dilution and providing a significant boost to book value. Tier 1 currently stands at 9.5%.

Other highlights

• Version 2.0 strategy update: Balance sheet size on track or ahead; slightly behind on

loan growth considering challenging environment; CASA target was 30% (from 10% and

is already half-way at 20%).

• Retail strategy: In terms of rolling out is going pretty well. In the retail segment, now it

has all products on the shelf except housing and credit cards. Current growth driven by

CV, LAPs. Has started cross-selling retail products to branch banking customers.

Table 1: Customer assets (advances + Credit substitutes) grew at 30.9% YoY; advance grew 23.7% YoY

Table 2: Aimimg towards bringing granularity in business– Retail (branch banking) standing at 18% of customer assets

Note: Q413 mix is as a proportion of customer assets

Table 3: Financial markets–key growth driver of fee income

Source: Company

Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413

Advances (INR mn) 343,636 331,042 341,941 358,678 379,886 385,339 420,193 438,568 469,996

Advances growth Q-o-Q (%) 10.4 (3.7) 3.3 4.9 5.9 1.4 9.0 4.4 7.2

Advances growth Y-o-Y (%) 54.8 26.1 12.7 15.2 10.5 16.4 22.9 22.3 23.7

Deposits (INR mn) 459,389 435,759 440,759 469,291 491,517 502,081 522,900 564,005 669,556

Deposit growth Q-o-Q (%) 16.4 (5.1) 1.1 6.5 4.7 2.1 4.1 7.9 18.7

Deposit growth Y-o-Y (%) 71.4 44.1 10.2 18.9 7.0 15.2 18.6 20.2 36.2

CD ratio (%) 74.8 76.0 77.6 76.4 77.3 76.7 80.4 77.8 70.2

CASA (%) 10.3 10.9 11.0 12.6 15.0 16.3 17.3 18.3 18.9

(%) Q4FY11 Q1FY12 Q2FY12 Q312 Q412 Q113 Q213 Q313 Q413

Corporate and institutional 65 63 61 63 60 64 67 66 65

Commercial 23 24 24 21 22 20 18 21 17

Retail (Branch banking) 12 12 15 15 18 16 15 14 18


Financial markets 12.9 14.9 19.2 22.8 25.8 32.8 17.0 12.5 18.9

Financial advisory 41.3 50.2 45.7 38.1 38.3 35.6 43.2 51.9 43.7

Retail banking fees and others 10.8 9.5 6.7 8.8 9.6 7.5 11.1 9.9 12.9

Transaction banking 35.0 25.4 28.5 30.2 26.3 24.1 28.8 25.7 24.5

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0



Table 4: Non-fund income contributed to 37% of Net revenues for the quarter

Table 5: NIMs stable as cost benefit is offset by decline in investment yields

Table 6: Tier I ratio at 9.5%

Chart 1: Given healthy traction on SA, it is targeting 30% CASA by FY15E

Chart 2: Ratio of corporate investments/customer assets have peaked

Source: Company


Fees income growth Q-o-Q 15.5 (11.5) 29.5 (1.2) 26.0 8.2 (3.9) 13.2 21.1

Non fund income/Net revenue 34.9 31.8 35.7 33.1 37.3 37.9 34.6 34.9 37.3


Spreads 2.9 3.1 3.6 3.5 3.5 3.4 3.7 3.8 4.0

NIM 2.8 2.8 2.9 2.8 2.8 2.8 2.9 3.0 3.0

COF 7.8 8.5 8.6 8.9 9.0 9.0 8.7 8.5 8.4

YoA 10.7 11.6 12.2 12.4 12.5 12.4 12.4 12.3 12.4


Tier-I 9.7 9.6 9.4 9.2 9.9 9.2 9.5 9.5 9.5

Tier-II 6.8 6.6 6.6 6.9 8.0 7.3 8.0 8.5 8.8

0.0

2.6

5.2

7.8

10.4

13.0

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13

(%)

Average SA Average CA

4.0

8.6

13.2

17.8

22.4

27.0

210

287

363

440

516

593

Q2

FY

11

Q3

FY

11

Q4

FY

11

Q1

FY

12

Q2

FY

12

Q3

FY

12

Q4

FY

12

Q1

FY

13

Q2

FY

13

Q3

FY

13

Q4

FY

13

(%)

(IN

R b

n)

Customer assets Advances Corp. Inv. as a % of customer assets (RHS)

Yes Bank



Year to March Q4FY13 Q4FY12 % change Q3FY13 % change FY13 FY14E FY15E

Interest on advances 14,653 11,962 22.5 13,936 5.1 53,971 61,531 72,201

Interest on investments 8,144 5,782 40.8 7,257 12.2 28,595 37,420 45,250

Interest on other resources 27 63 (57.3) 43 (37.2) 375 404 476

Interest income 22,877 17,851 28.2 21,336 7.2 82,940 99,355 117,927

Interest exp 16,495 13,369 23.4 15,493 6.5 60,752 70,802 82,333

Net int. inc. (INR mn) 6,381 4,482 42.4 5,843 9.2 22,188 28,554 35,594

Fee income 3,794 2,664 42.4 3,132 21.1 12,274 15,422 19,404

Other income 3,794 2,664 42.4 3,132 21.1 12,574 15,722 19,704

Operating expenses 3,836 2,842 35.0 3,341 14.8 13,345 17,185 21,820

Staff expense 1,742 1,337 30.3 1,620 7.5 6,555 8,240 10,614

Other opex 2,095 1,505 39.2 1,721 21.7 6,790 8,944 11,206

Pre prov op profit (ppop) 6,339 4,304 47.3 5,635 12.5 21,117 26,791 33,178

Provisions 975 285 242.5 567 72.1 2,160 2,866 3,563


Provision for taxes 1,742 1,301 33.9 1,645 5.9 6,251 7,752 9,573

PAT 3,622 2,718 33.2 3,423 5.8 13,007 16,473 20,342

Diluted EPS (INR) 9.9 7.5 31.0 9.4 5.3 36.3 45.9 56.7

Ratios

NII/GII (%) 27.9 25.1 27.4 26.8 28.7 30.2

Cost/income (%) 37.7 39.8 37.2 38.4 38.8 39.5

Provisions / PPOP 15.4 6.6 10.1 10.2 10.7 10.7

Tax rate (%) 32.5 32.4 32.5 32.5 32.0 32.0

Balance sheet data (INR bn)

Advances 470 380 23.7 439 7.2 470 564 705

Deposits 670 492 36.2 564 18.7 670 806 978

Investments 70 77 (9.2) 78 (9.7) 70 70 72

CASA ratio (%) 18.9 15.0 18.3 18.9 23.0 26.5

Capital adequacy (%) 18.3 17.9 18.0 17.9 15.2 15.0

NIMs(%) 3.0 2.8 3.0 2.7 2.8 2.8

CD ratio (%) 70.2 77.3 77.8 90.1 91.5 95.2

Asset quality

Gross NPA 943 839 12.5 762 23.7 943 2,355 4,050

Gross NPA (%) 0.2 0.2 0.2 0.2 0.4 0.6

Net NPA 70 175 (60.0) 156 (55.1) 70 146 236

Provision coverage (%) 92.6 79.2 79.6 92.6 93.8 94.2



Yes Bank – Q4FY13 earnings concall key takeaways

• In terms of mix, retail banking (including MSME) seems to have witnessed a sharp jump

in Q4FY14 as they have regrouped credit substitutes as well while giving out proportion

of retail, commercial and corporate banking.

• PSL targets at broader level have been largely achieved (marginal miss); but in direct

agri there was a shortfall of INR 8-9 bn

• For full year FY13, Slippages INR 2.43 bn (INR 350 mn in Q4FY13), recoveries INR 1.08

bn (INR 100-150 mn in Q4FY13) and write-off INR 1.08 bn

• Provisioning has been higher: stepped up provisioning of INR 250 mn towards adversely

labeled assets (not NPLs); catch up of provisioning coverage (INR 250 mn); 120 mn of

general loan loss provisioning; INR 120 mn of non-credit provisioning.

• While advance yields have improved 10 bps and cost of funds are down 10 bps NIMs

are still flat QoQ as it has lost 9 bps due to investment yield and 5 bps due to leverage.

• Restructured book has come down from peak of 53 bps to 31 bps

• Retail strategy –in terms of rolling out is going pretty well. In retail segment, now it has

all products on the shelf except for housing & credit card. Current growth driven by CV,

LAPs. Have started cross-selling retail products to branch banking customers.

• Version 2.0 strategy update: balance sheet size on track or ahead; slightly behind on

loan growth considering challenging environment; CASA target was 30% (from 10% and

is already half-way at 20%)

• Sell downs will be 2-4% of the loan book – risk management, exposure management etc

• Exposure to gold loan companies will be 60-70 bps of loan book (short term loans).

Outlook

• Customer asset (including credit substitute) to grow at 25-30%

• Expects 15-20 bps NIM improvement by end of FY14

• Credit cost (as % of loans) to be within 50-60 bps for FY14.

o After taking into account increase in NPLs which the bank anticipates considering

the economy is not at its best (though its getting more worse)

o FY14 should be very good year for monetization on bond gains which will aid

stepping up countercyclical provisions.

o Also takes into account general provisioning on incremental loan book

• In Q1FY14, cost/income will be higher as payroll increase kicks in while on income front

Q1 is not seasonally not that strong. On a full year basis, can afford 30-40% growth in

opex given strong run-rate in NII & fee income.

• Restructuring pipeline is not even in double digit.

• Financial advisory: confident on pipeline visibility; Financial markets on account of

bonds will do better; retail will do better due to increasing penetration for the bank

• Will add 150-175 branches and 1400-1600 employees in FY14.

Yes Bank


Datapoints

• RWA: INR 660 bn

• CASA and retail TD touched 35.5% vis-à-vis ~32% in FY12.

• Monetization from bond portfolio (duration adjustment) – INR 450 mn.

• Excess SLR of INR 30-40 bn of INR 230 bn

• Adversely labeled assets ~1% of assets and it carries countercyclical provisioning of

less than 20% on the same.



Yes Bank – Q3FY13 earnings concall key takeaways

• Deccan Chronicle: 80% of the exposure at INR900mn has been provided on the same.

The bank is hopeful of recovering ~20% from this account and another 15-20% can be

recovered by taking legal recourse over the next 2 quarters. However, Deccan

Chronicle is still technically not an NPA till Dec 31, 2012

• For Financial Advisory Income robust due to 5-6 deal closures. Cost to income in this

business will ne 20-25%. For some small ticket deals the commission can be as high as

5%. Provision to be one stop shop for all the client requirements is the advantage

offered by the bank.

• Received highest number of urban and metro branch approvals from RBI at 146

branches (vis-à-vis 56 for the prior year)

• Buying RBS’s retail assets will definitely send out strong signals on retail assets build

up intention. However, even without this buyout the bank can build up the business

on its own

• Blended cost of SA will be a little short of 7%

• Yield on credit substitutes is 10-10.25%

• More than 80% of the investment book is rated AA and above

• 20-22% growth possible from internal accruals itself. May be 300-400mn USD in 2013

• The bank has hit an inflexion point similar to what HDFC Bank was in 2003-2004

• Internal rating of accounts by banks is taken into consideration for proactive

provisioning. While RBI mandates provisioning when a loan is rated 10 (as per the

banks’ scale) the bank starts providing the moment the account touches 8 (at 7.5-10%)

and by the time it touches 9 upto 15-20%

• Sale of corporate debt can be booked under both Financial Markets and Corporate

Finance. However, corporate finance will come into the picture in case of loan

syndication

• Blended cost of deposits will be ~8.9%

• Over the past one year 15bps of NIM improvement can be attributed to CASA

improvement

• No major project in the restructuring pipeline

• Employee/branch will increase in line with peers as the intensity of retail banking

increases

Outlook

• NIM will further benefit if repo rate cuts happen and liquidity remains benign

• CASA and retail TD likely to touch 55-60% over the next two years from the current

~38%

• Fee income from retail banking to become one of the biggest fee income contributor by

the next two-three years


Yes Bank

• Minimum RoE of 20% will be maintained even post equity raising and that means the

bank can support 8-10% dilution

• 30% CASA by next 3 years, 30% in retail and SME assets in next three years and 3.5% on

NIMs

• Cost-income will unlikely cross the 40% mark

Datapoints

• SLR stands at INR194bn

• Breakup of provisions: Predominantly on account of credit costs of which INR200mn is

general and the rest is contingent (on account of Deccan Chronicle)

• RWA at INR600bn. Credit substitutes rated AA attract 30% RW but another hit on

account of market risk also needs to be taken

• Retail assets will be broadly INR10bn



Company Description

YES BANK is a private Indian bank promoted by Rana Kapoor and Ashok Kapur with financial

support from Rabobank Nederland, and global institutional private equity investors –AIF

Capital, and ChrysCapital. It is operational since November 2004 and is the only greenfield

bank approved by RBI in last decade. It has market cap of INR 172 bn and balance sheet of

~INR 991 bn. It has branch network of 430 at the end of Q4FY13 and a CASA ratio of >17%.

Corporate lending forms 65% of customer assets, commercial 17% and retail 18%.

Investment Theme

YES BANK is one of the few private sector banks with product depth, sustainable

competitive edge, and strong growth. Given the underlying credit demand and small asset

book, the loan book is expected to grow at more than 24% for the next two years. The

bank’s high proportion of fee income enables high return on assets (of 1.5%+) and indicates

its potential of generating higher than presently reported RoE (25%+), once the capital

ratios normalise. Considering the bank’s strong fundamentals reflected in its product width,

adept management, and technological prowess, we find it to be the perfect acquisition

candidate for a foreign player, once the regulations ease.

Key Risks

Lower CASA can be a negative for the bank at this point of time when most banks are

banking on their franchise network.

In the event of demand for credit dying down as in the current scenario, lack of pricing

power can impact its margins adversely (due to nascent deposit franchise).


Yes Bank



Year to March FY12 FY13E FY14E FY15E

Interest income 63,074 82,940 99,355 117,927

Interest expended 46,917 60,752 70,802 82,333

Net interest income 16,156 22,188 28,554 35,594

Non interest income 8,586 12,574 15,722 19,704

- Fee & forex income 7,945 11,883 14,930 18,785

- Misc. income 262 392 492 619

- Investment profits 379 300 300 300

Net revenue 24,742 34,762 44,276 55,298

Operating expense 9,325 13,345 17,185 21,820

- Employee exp 4,752 6,555 8,240 10,614

- Other opex 4,574 6,790 8,944 11,206

Preprovision profit 15,417 21,417 27,091 33,478

Provisions 902 2,160 2,866 3,563

Loan loss provisions 523 2,160 2,866 3,563

Investment depreciation 160 - - -

Other provisions 219 - - -



Profit After Tax 9,783 13,007 16,473 20,342

Reported PAT 9,783 13,007 16,473 20,342

Diluted EPS (INR) 27.7 36.3 45.9 56.7


Dividend payout (%) 20.8 19.1 17.6 16.3

Growth ratios (%)


NII growth 29.6 37.3 28.7 24.7

Fees growth 21.2 49.6 25.6 25.8

Opex growth 37.2 43.1 28.8 27.0

PPOP growth 21.6 40.4 26.9 23.8

PPP growth 29.5 38.9 26.5 23.6

Provisions growth (8.1) 313.1 32.7 24.3

Net profit 34.5 33.0 26.6 23.5

Operating ratios


Yield on advances 12.2 12.7 11.9 11.4

Yield on investments 7.9 8.1 8.0 7.9

Yield on assets 10.0 10.2 9.7 9.4

Net interest margins 2.6 2.7 2.8 2.8

Cost of funds 7.6 7.5 7.0 6.6

Cost of deposits 8.1 7.9 7.0 6.6

Cost of borrowings 8.1 8.4 8.4 8.3

Spread 2.5 2.7 2.7 2.8

Cost-income 37.7 38.4 38.8 39.5

Tax rate 32.6 32.5 32.0 32.0

Key Assumptions


Macro

GDP(Y-o-Y %) 6.5 5.0 6.5 7.0

Inflation (Avg) 8.8 7.8 6.0 6.0


USD/INR (Avg) 47.9 54.5 55.0 53.0

Sector

Credit growth 17.1 14.7 15.0 16.0

Deposit growth 13.4 13.5 15.0 16.0

CRR 4.8 4.3 4.0 4.0

SLR 24.0 23.0 23.0 23.0

G-sec yield 8.5 7.8 7.6 7.5

Company

Yield on advances 12.2 12.7 11.9 11.4

Yield on investments 7.9 8.1 8.0 7.9

Yield on asset 10.0 10.2 9.7 9.4

Net interest margins 2.6 2.7 2.8 2.8

Cost of funds 7.6 7.5 7.0 6.6

Cost of deposits 8.1 7.9 7.0 6.6

Cost of borrowings 8.1 8.4 8.4 8.3

Spread 2.5 2.7 2.7 2.8

Tax rate (%) 32.6 32.5 32.0 32.0

Credit growth 18.4 32.8 22.2 26.2

Deposit growth 7.0 36.2 20.4 21.3

SLR ratio 27.7 28.0 27.0 26.5

Low-cost deposits 15.0 18.9 23.0 26.5

Gross NPA ratio 0.2 0.2 0.4 0.6

Provision coverage 79.2 92.6 93.8 94.2

Incremental slippage 0.2 0.5 0.6 0.6

Net NPA / Equity 0.4 0.1 0.2 0.3

Capital adequacy 17.9 15.2 15.0 14.7




Market cap Diluted PE (X) Price/ Adj. BV (X) ROAE (%)


Yes Bank 3,179 10.4 8.5 2.4 1.9 25.4 25.4

Allahabad Bank 1,255 3.3 2.6 0.6 0.5 17.5 19.4

Axis Bank 11,916 10.0 8.1 1.7 1.5 18.0 19.0

Bank of Baroda 5,262 4.6 3.9 0.9 0.7 18.3 18.5

Federal Bank 1,380 7.5 6.3 1.1 1.0 14.8 15.5

HDFC Bank 29,051 18.5 14.8 3.8 3.1 21.7 22.8

ICICI Bank 23,413 14.2 12.5 2.1 1.9 12.8 13.1

Indian Overseas Bank 1,100 4.2 3.6 0.6 0.5 10.5 11.4

IndusInd Bank 4,055 16.4 12.8 2.6 2.2 16.6 18.2

ING Vysya 1,596 11.0 8.7 1.7 1.4 16.1 17.5

Karnataka Bank 503 6.5 5.3 1.0 0.9 14.0 15.4

Oriental Bank Of Commerce 1,376 3.8 3.3 0.6 0.5 15.0 15.5

Punjab National Bank 4,886 4.3 3.8 0.9 0.7 17.7 17.5

South Indian Bank 580 0.5 0.4 0.1 0.1 25.2 25.2

State Bank of India 28,397 9.5 7.9 1.6 1.4 15.4 16.2

Union Bank Of India 2,553 6.1 5.3 0.9 0.8 16.3 16.6

Median - 7.0 5.8 1.0 0.9 16.4 17.5

AVERAGE - 8.2 6.7 1.4 1.2 17.2 17.9


RoE decomposition (%)


Net interest income/assets 2.6 2.7 2.8 2.8

Fees/Assets 1.3 1.5 1.5 1.5

Investment profits/Assets 0.1 - - -

Net revenues/assets 3.9 4.3 4.3 4.4

Operating expense/assets (1.5) (1.6) (1.7) (1.7)

Provisions/assets (0.1) (0.3) (0.3) (0.3)

Taxes/assets (0.8) (0.8) (0.8) (0.8)

Total costs/assets (2.4) (2.7) (2.7) (2.8)

ROA 1.6 1.6 1.6 1.6

Equity/assets 6.7 6.4 6.3 6.4

ROAE (%) 23.1 24.8 25.4 25.4



Diluted EPS (INR) 27.7 36.3 45.9 56.7

Y-o-Y growth (%) 32.3 30.9 26.6 23.5

Book value per share (INR) 133 162 200 247

Adjusted book value per share 132 162 200 247

Diluted PE (x) 17.3 13.2 10.4 8.5

Price/ Adj. BV (x) 3.6 3.0 2.4 1.9

Dividend yield (%) 1.0 1.3 1.5 1.7

Price to income (x) 13.2 9.0 7.1 5.6


As on 31st March FY12 FY13E FY14E FY15E

Equity capital 3,530 3,586 3,586 3,586


Net worth 46,766 58,077 71,651 88,681

Sub bonds/pref cap 48,133 64,875 74,875 94,875

Deposits 491,517 669,556 805,875 977,634

Borrowings 93,432 144,347 164,347 239,347

Other liabilities 56,773 54,187 58,108 63,275

Total liabilities 736,621 991,041 1,174,857 1,463,812

Loans 379,886 469,996 563,995 704,994


Gilts 161,784 236,931 261,960 322,500

Others 115,789 192,830 247,587 318,038

Fixed assets 1,771 2,296 2,296 2,325

Other Assets 41,535 48,332 58,052 70,786

Total assets 736,621 991,041 1,174,857 1,463,812

Credit growth 18.4 32.8 22.2 26.2

Deposit growth 7.0 36.2 20.4 21.3

EA growth 22.3 35.6 18.5 24.8

SLR ratio 27.7 28.0 27.0 26.5

C-D ratio 92.5 90.1 91.5 95.2

Low-cost deposits 15.0 18.9 23.0 26.5

Gross NPA ratio 0.2 0.2 0.4 0.6

Net NPA ratio - - - -

Provision coverage 79.2 92.6 93.8 94.2

Incremental slippage 0.2 0.5 0.6 0.6

Net NPA / Equity 0.4 0.1 0.2 0.3

Capital adequacy 17.9 15.2 15.0 14.7

- Tier 1 9.9 9.5 9.1 8.8


Yes Bank


*in last one year


26 Apr 2012 Rabobank International Holding B.V Sell 12691564 357.03

26 Apr 2012 Citigroup Global Markets Mauritius Pvt Ltd Buy 2200000 357.00

26 Apr 2012 Bajaj Allianz Life Insurance Company Ltd Buy 2521000 357.00

28 Jun 2012 Hsbc Iris Investments Mauritius Ltd Sell 16792999 324.77

16 Oct 2012 Credit Suisse (Singapore) Ltd Sell 4985913 378.00

16 Oct 2012 Clsa (Mauritius) Ltd Sell 6358087 378.77


Holding – Top10 Perc. Holding Perc. Holding

Life Insurance Corp. 5.07 American Funds Ins 4.59

Wasatch Advisors Inc 2.95 T Rowe Price 1.95

Merril Lynch Capital 1.63 Morgan Stanley 1.32

Goldman Sachs Invest. 1.29 JP Morgan 1.28

DB International 1.15 Bajaj Alliance Life 1.13


Additional Data

Directors Data

Rana Kapoor Managing Director & CEO S L Kapur Director

Ajay Vohra Director Radha Singh Director

Arun K Mago Director

Auditors - BSR & Co



Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Allahabad Bank BUY SP M Axis Bank BUY SO M

Bank of Baroda BUY SP M Federal Bank BUY SO L

HDFC HOLD SP L HDFC Bank HOLD SP L

ICICI Bank BUY SO L Indian Overseas Bank HOLD SU M

IndusInd Bank BUY SP L IDFC BUY SO L

ING Vysya BUY SO L Karnataka Bank BUY SO M

Kotak Mahindra Bank REDUCE SU M LIC Housing Finance BUY SO M

Mahindra & Mahindra Financial Services BUY SO M Manappuram General Finance UNDER REVIEW UNDER

REVIEW

None

Multi Commodity Exchange of India BUY SO M Muthoot Finance BUY SO M

Oriental Bank Of Commerce BUY SO L Power Finance Corp BUY SO M

Punjab National Bank HOLD SU M Reliance Capital BUY SO M

Rural Electrification Corporation BUY SO M Shriram City Union Finance BUY SO M

South Indian Bank HOLD SP M State Bank of India BUY SO L

Union Bank Of India BUY SO M Yes Bank BUY SO M


ABSOLUTE RATING


Buy More than 15%




Ratings Criteria






within the sector


Ratings Criteria





SECTOR RATING

Ratings Criteria






Contrary to our expectation of increase in cement prices (on rise in railway

freight), prices dropped in April and that too across regions on back of low

demand. The current all India average price is down ~3.3% compared to

March with corrections of ~4% in each of Central, South and West regions.

Prices in North and East dipped ~1.5% each over the month. With bleak

chances of sharp hikes in cement price in Q1FY14 and a seasonally weak

monsoon quarter thereafter, we are cautious on the sector in the near term

even as the long term fundamentals (primarily reducing pace of capacity

additions) remain positive.

February industry production up just 3.9% YoY

As per IIP data (index of eight core industries), cement production in February

increased 3.9% YoY, taking YTD FY13 growth to 5.5% YoY. March production is also

expected to grow in lower single digits as per data released by a few companies and

feedback from channel checks.

Regional prices: Poor demand spoils the party

Owing to low demand, prices in April dipped across regions (~4% in Central, West and

South each and ~1.5% in North and East each). Prices have dropped below INR200/bag

for some brands in Andhra Pradesh (down ~INR20/bag over the month) while the

highest price is in Patna and Kolkata of INR370/bag for leading brands post correction

of ~INR5/bag.

Chart 1: Region-wise price trend—Prices decline on muted demand


150

190

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270

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350

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g-1

1

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t-1

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2

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(IN

R/5

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)

North East Central West South

Navin Sahadeo

+91-22-6623 3473

[email protected]

Prasad Baji

+91 22 4040 7415

[email protected]

April 17, 2013


Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

CEMENT

Low demand stings prices

MONTHLY UPDATE

India Equity Research | Cement

Click to edit Master title style

Factor Analyser (FA)Analyst on Radar

1Factor AnalyserSource: Edelweiss research, Bloomberg

Click to edit Master title styleFactor Analyser (FA)

Consensus Estimate Revision

Earning Revision

Price Target Revision

Rating Revision

Valuation Screen

Sector Popularity Vs Dividend Yield

Factor Analyser: Factor Returns

Nifty Earnings (FY13E‐14E) ‐ Sectoral earning decomposition

India Valuation Dispersion Indicator


Click to edit Master title styleWhat’s in…Market valuations dispersion indicator is trading at (0.2) SD levels Vs (0.1) SD levels last month. Nifty has closed in the redlosing ~3.5% in last 1 month. Broader markets were in‐line with mid‐cap and small‐cap indices losing ~4% and ~5% respectivelyin last one month.

MMFS saw 1m EPS upgrade (consensus estimates) of ~18% while price has declined by ~5% BPCL saw 1m EPS upgrade of ~7%MMFS saw 1m EPS upgrade (consensus estimates) of ~18% while price has declined by ~5%. BPCL saw 1m EPS upgrade of ~7%while price has remained flattish.

TTMT saw 1m EPS upgrade of ~5% with 1m prices correcting by ~11%. JLR global retail sales for the month of Feb‐13 stands at26.9k units (up 3.1% Y‐o‐Y, down 23% M‐o‐M). ONGC saw 1m EPS upgrade of ~6% while price has remained flattish.

Realty names such as UT & HDIL saw 1m EPS downgrade of ~24% & ~12% with price correction of ~17% & ~31% respectively.

TCS & HCLT saw 1m price target upgrade of ~4% & 3% respectively with prices declining by ~5% & ~4% respectively. RCOM saw1m price target upgrade of 3% along with price jump of 25%.1m price target upgrade of 3% along with price jump of 25%.

INFO saw 1m price target downgrade of ~11% with price depreciation of ~20%. Q4FY13 revenues grew a mere 1.4% Q‐o‐Q vs.estimate of 3.4% along with FY14 revenue growth guidance of 6%‐10% Y‐o‐Y.

SHRS saw 1m price target downgrade of 6% along with price reduction of 6% STER saw 1m price target downgrade of 6% andSHRS saw 1m price target downgrade of 6% along with price reduction of 6%. STER saw 1m price target downgrade of 6% andthe prices have corrected by 14%.

RCOM saw 1m price target upgrade of ~16% with price appreciation of ~25%. BHEL saw 1m upward stock rating revision of~11% with price correction of ~8%.

MGFL witnessed 1m downward stock rating revision of ~10% with price correction of ~54%. HDIL witnessed 1m downwardstock rating revision of ~8% with price depreciation of ~25%.

Factors that have worked well in March month were ROE, 12 months momentum / beta, and 12 months momentum.


/

Click to edit Master title styleFactor Analyser: Estimates Revisions

• Analyst estimates across the broking industry play an important role in the performance of stocks.

• Upward and downward revisions by the analyst community on stock’s EPS, price target and rating provide a valuable insight.

• Tables below display the estimates revised by the sell side analyst community• Tables below display the estimates revised by the sell side analyst community.

• The universe contains companies with minimum 6‐8 analyst coverage and the recommendation that have been revisited over past

1‐3 months.

EPS Revisions

Top deciles Bottom deciles Note: 1 month price change as on 16‐Apr‐13

1m Change 3m ChangeUnitech ‐24 71 ‐17 2.5Reliance Capital ‐20 ‐35 ‐12 4.5Coromandel International ‐20 ‐20 ‐7 4.2Housing Development & Inf ‐12 ‐17 ‐31 2 9

Company name Bloom EPS Revision(%) 1m Price Change (%)

Analyst Rating (out of 5)1m Change 3m Change

Mahindra & Mahindra Finan 18 16 ‐5 4.1Bharat Petroleum Corp 7 15 ‐1 4.0JSW Energy 6 65 ‐4 2.7Oil & Natural Gas Corp 6 5 0 4 2

Analyst Rating (out of 5)

Bloom EPS Revision(%)Company name 1m Price Change (%)

Housing Development & Inf ‐12 ‐17 ‐31 2.9Tata Power Co ‐11 ‐2 ‐7 3.3Cadila Healthcare ‐11 ‐11 ‐3 3.6Ashok Leyland ‐11 ‐36 ‐3 3.6Manappuram Finance ‐10 ‐22 ‐49 3.8Aditya Birla Nuvo ‐9 ‐18 ‐10 4.7Bh F 8 21 6 3 2

Oil & Natural Gas Corp 6 5 0 4.2Financial Technologies India 5 ‐19 ‐11 4.5Tata Motors 5 ‐36 ‐11 4.1Neyveli Lignite Corp 5 ‐6 ‐6 4.0Tata Global Beverages 4 ‐9 ‐2 3.5Jindal Steel & Power 4 22 ‐8 3.8JSW S l 4 7 6 2 7 Bharat Forge ‐8 ‐21 ‐6 3.2

Indian Overseas Bank ‐7 ‐19 ‐10 2.5CESC ‐5 ‐7 ‐10 4.1DLF ‐5 ‐37 ‐15 4.0Infosys ‐5 ‐4 ‐19 3.4ABB/India ‐4 ‐21 ‐19 1.4

JSW Steel 4 7 ‐6 2.7Chambal Fertilizers & Chem 3 3 ‐7 4.1Sintex Industries 3 5 ‐21 4.2Kotak Mahindra Bank 3 10 ‐3 3.1GAIL India 3 6 ‐5 4.0Oracle Financial Services So 2 ‐14 ‐7 3.1


Note: 5 suggests buy rating while 1 suggests sell rating

Click to edit Master title styleFactor Analyser: Estimates Revisions (cont…)i i iPrice Target Revisions Top deciles Bottom deciles Note: 1 month price change as on 16‐Apr‐13

1 Mth Change 3 Mth ChangeBajaj Finserv 8 4 ‐4 3.3Bhushan Steel 4 6 ‐1 2.8GMR Infrastructure 4 1 10 3 8

Bloom price target revision(%) Analyst Rating (out of 5)

Company Name1m Price

Change (%) 1 Mth Change 3 Mth ChangeManappuram Finance ‐23 ‐37 ‐54 3.8Housing Development & Inf ‐15 ‐23 ‐25 2.9Financial Technologies 13 13 6 4 5

1m Price Change (%)

Company NameBloom price target revision(%) Analyst Rating

(out of 5)

GMR Infrastructure 4 1 10 3.8Tata Consultancy Services 4 8 ‐5 3.5HCL Technologies 3 5 ‐4 4.4Sintex Industries 3 1 ‐17 4.2Indraprastha Gas 3 6 13 4.1Reliance Communications 3 14 25 2.4Strides Arcolab 2 15 ‐8 3.5

Financial Technologies ‐13 ‐13 ‐6 4.5Opto Circuits India ‐12 ‐46 5 4.3Infosys ‐11 ‐8 ‐20 3.4IVRCL ‐9 ‐29 ‐18 3.0Shree Renuka Sugars ‐6 ‐5 ‐6 3.0Sterlite Industries India ‐6 ‐4 ‐14 3.8Multi Commodity Exchange ‐6 ‐14 ‐2 4.2Strides Arcolab 2 15 8 3.5

Essar Oil 2 16 ‐4 3.4Tech Mahindra 2 8 ‐12 4.1Satyam Computer Services 2 12 ‐15 4.3IRB Infrastructure 2 5 ‐2 4.5Pidilite Industries 2 12 1 3.9United Spirits 2 14 4 4.3

Multi Commodity Exchange 6 14 2 4.2Jaiprakash Associates ‐6 ‐12 0 4.0Bharat Heavy Electricals ‐5 ‐4 ‐8 2.3Dena Bank ‐5 ‐2 ‐1 4.3Reliance Capital ‐5 12 ‐8 4.5Hindalco Industries ‐4 ‐7 ‐3 3.4Jaiprakash Power Ventures ‐4 ‐10 ‐8 4.2

Stock Ratings Revisions Top deciles Bottom deciles

1 Mth Change 3 Mth ChangeReliance Communications 16 24 25 2.4


1m Price Change (%)

Bloom stock reco revision(%)Company Name

1 Mth Change 3 Mth ChangeManappuram Finance ‐10 ‐17 ‐54 3.8


Company NameBloom stock reco revision(%) 1m Price

Change (%)Reliance Communications 16 24 25 2.4Indian Overseas Bank 13 5 ‐8 2.5Bharat Heavy Electricals 11 9 ‐8 2.3National Aluminium Co 9 30 ‐17 2.7JSW Energy 8 8 1 2.7Punj Lloyd 7 17 9 2.1Steel Authority of India 7 11 ‐15 2.9

Manappuram Finance 10 17 54 3.8Reliance Capital ‐9 ‐2 ‐8 4.5Infosys ‐8 ‐7 ‐20 3.4Housing Development & Inf ‐8 ‐7 ‐25 2.9Pidilite Industries ‐6 ‐4 1 3.9Asian Paints ‐6 ‐9 ‐6 3.4Shree Renuka Sugars ‐5 0 ‐6 3.0

Neyveli Lignite Corp 7 12 0 4.0United Spirits 6 6 4 4.3Cairn India 6 7 ‐2 4.6Kotak Mahindra Bank 6 15 ‐2 3.1Hero Motocorp 5 12 ‐12 2.9Sintex Industries 5 8 ‐17 4.2C t G 5 20 7 2 8

Oracle Financial Services ‐5 ‐10 ‐6 3.1Strides Arcolab ‐5 5 ‐8 3.5Nestle India ‐5 5 ‐2 2.6Godrej Consumer Products ‐4 ‐7 3 3.5GlaxoSmithKline Consumer ‐4 ‐27 ‐7 3.1Jubilant Foodworks ‐4 3 ‐17 2.9Bh t F 3 10 1 3 2


Note: 5 suggests buy rating while 1 suggests sell rating

Crompton Greaves 5 20 ‐7 2.8Bajaj Auto 5 2 ‐5 3.6

Bharat Forge ‐3 ‐10 ‐1 3.2Opto Circuits India ‐3 ‐7 5 4.3

Click to edit Master title styleFactor Analyser: Sector Popularity Vs. Valuations

A different approach to look at sector popularity and valuation.

For e.g., on the below matrix, sectors in the top right quadrant are analyst favourite and having high dividend yield, whereas sectors in the

bottom left quadrant are giving low dividend yield and analyst hold negative view on the sector.

70

Overowned & High Div YieldOverowned & Low Div Yield

UtilitiesFinancials

Health Care Energy

I f ti T h l

60

65

atio

ns

(%)

Industrials

Materials

FinancialsConsumer Discretionary Information Technology

50

55

Rec

omm

enda

Telecommunication Services

Consumer Staples

40

45

Sell-

Sid

e B

uy

30

35

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0

S

Underowned & Low Div Yield Underowned & High Div Yield


Div.Yield (%)

Underowned & Low Div Yield Underowned & High Div Yield

Click to edit Master title styleFactor Analyser: Factor Returns

In March 2013, ROE, 12 months momentum / beta, and 12 months momentum have worked well.

Factor returns matrix (%)*

(20) (15) (10) (5) 5 10 15 20 (20) (15) (10) (5) - 5 10 15 20

Please refer report Edelweiss Style Analysis‐What's hot – Apr‐2013 for detail analysis.

Last 6 Month Last 3 Month Last Month* Benchmark = NIFTY (for illustration only)


Please refer report Edelweiss Style Analysis What s hot Apr 2013 for detail analysis.

Click to edit Master title styleFactor Analyser: Nifty Earnings (FY13E-14E)

The chart below shows the consensus earnings expectation for FY13 and FY14 decomposed into sector wise contribution

towards over all Nifty growth.

Strong contributors (FY14E) – Financials MaterialsStrong contributors (FY14E) Financials, Materials

Weak contributors (FY14E) – Industrials, Health Care

Decomposition of forward earnings by

4.2614

12.00

16.00

3

4

5

Ni%

)

2.161.65

0.63

1.20

0.540.98

0 19

0.89

1.63

7 8.001

2

3 ifty In

dex (%

)Contr

ibution (

0.19

4.00

-1

0

)C

0.00-2

Financi

als

Mate

rials

Energ

y

ons

Sta

ple

s IT

Health C

are

Cons

Dis

c

Indust

rials

Tele

com

Utilit

ies


Co H

FY13E over FY12E FY14E over FY13E

Click to edit Master title styleFactor Analyser: India Valuation Dispersion Indicator

Market valuations dispersion indicator is trading at (0.2) SD levels Vs (0.1) SD levels last month. Nifty has closed in the red losing ~5.7% in last 1

month. Broader markets were in‐line with mid‐cap and small‐cap indices losing ~5% and ~5.4% respectively in last one month.

10000

2.0

3.0 Valuation Dispersion

(1.0)

0.0

1.0 Log sca

le

1000(3.0)

(2.0)

( )

02

02 03

03 04

04 05

05 06

06 07

07 08

08 09

09 10

10 11

11 12

12 13

Valuation dispersion calculation methodology: PE & PB factors across the universe ( BSE‐200 stocks) are ranked individually The difference

Apr-

Oct

-0

Apr-

Oct

-0

Apr-

Oct

-0

Apr-

Oct

-0

Apr-

Oct

-0

Apr-

Oct

-0

Apr-

Oct

-0

Apr-

Oct

-0

Apr-

Oct

-

Apr-

Oct

-

Apr-

Oct

-

Apr-

NIFTY (RHS) Valuation factor Dispersion ( Z-score)

Valuation dispersion calculation methodology: PE & PB factors across the universe ( BSE 200 stocks) are ranked individually. The difference

between the top and bottom deciles medians provides the factor dispersion for each factor. Then a composite valuation dispersion based on an

equal weighted average PE and PB dispersion is derived. Valuation dispersions are expressed in z‐scores terms (i.e., number of standard deviation

away from the 1 year rolling mean).


Click to edit Master title styleDisclaimer

Thank You

Yogesh Radke +91 (22) 6620 3199

For further information please visit www.edelresearch.com

Yogesh Radke +91 (22) 6620 3199 Gaurav S Mehta +91 (22) 6623 3312

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10Factor AnalyserSource: Edelweiss research, Bloomberg10

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Gilts resume forward march

• Position building gained the upper hand once again as the market turns increasingly

confident about aggressive monetary easing by the RBI. Rate action is yet to be priced in

at current levels given the recent lean phase for bond yields and there are not many

negative triggers on the horizon.

• The positive sentiment is expected to reflect in sustained strong demand at tomorrow’s

auction and as a result the usual air of caution seems to be absent. The markets are likely

to build on the gains following the auction.

• The 10-Y benchmark opened with a negative bias on the back of profit booking. The G-Sec

was in the red for the first couple of hours before buying momentum kicked in and took

yields to 7.79% - it closed the day at 7.80% vs 7.82%. Average traded volume in G-Secs

has been above INR 450bn in April when the benchmark has rallied from the 8% level.

• The 1-Y OIS ended the day at 7.25-7.31% vs 7.29-7.35%, while the 5-Y OIS ended the day

at 6.98-7.04% vs 7.05-7.11%.

Non-SLR Market

IOCL placed 2M CP worth INR 3.5bn @ 8.06%. Tata Motors Limited placed Sept maturity CP

worth INR 2bn @ 8.60%. Bank of Maharashtra placed 3M CD worth INR 1bn @ 8.31%.

Indian Bank placed 3M CD worth INR 1bn @ 8.31%.

Money Market

The LAF deficit which has been dropping for 5 sessions in a row ticked up to INR 767bn – the

impact of the auction and reserve requirements might push this higher. The call rates were

largely unchanged with the call borrowing WAR at 7.56% vs 7.55%.

India Yield Curve – G-Sec & OIS

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

1-Y 2-Y 5-Y 10-Y 30-Y

(%)

G-Sec (T) G-Sec (T-10)OIS (T) OIS (T-10)Source: Edelweiss research, CCIL, Bloomberg

Liquidity Situation – LAF borrowing at INR 767bn

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

19-Mar 26-Mar 2-Apr 9-Apr 16-Apr

(Cu

mu

lati

ve

LA

F U

sa

ge

-IN

R b

n)

LAF Injection RBI Comfort LevelSource: Edelweiss research, Bloomberg, RBI

BOND VECTOR Fixed Income Daily

17-Apr 16-Apr Change*

Govt. Bonds

8.19% 2020 7.71% 7.77% -5

8.15% 2022 7.80% 7.82% -2

9.15% 2024 7.95% 7.98% -3

8.33% 2026 7.85% 7.88% -3

Corp. Bond

5 yrs 8.64% 8.68% -4

10 yrs 8.64% 8.68% -4

Corp. Bond (Non-PSU)

2 yrs 9.06% 9.06% 0

5 yrs 8.99% 9.01% -2

10 yrs 8.95% 8.98% -3

C D

3 mth 8.35% 8.35% 0

6 mth 8.45% 8.45% 0

1 yr 8.55% 8.52% 3

C P

3 mth 8.80% 8.80% 0

6 mth 9.00% 9.00% 0

1 yr 9.15% 9.15% 0

Swap

1 Yr 7.28% 7.33% -5

2 Yr 7.01% 7.08% -7

5 Yr 7.01% 7.08% -7

* Change in bas is points

Other Indicators* 17-Apr 16-Apr Change

Crude (USD/bbl) 98.9 99.9 -1.1%

Gold (USD/Oz) 1375 1368 0.5%

USDINR 54.21 54.15 -0.1%

1Y INR NDF Prem. 6.36% 6.50% -0.14%

Dollar Index 82.22 81.75 0.6%

Nifty 5689 5689 0.0%

MIBOR (o/n) 7.55% 7.55% 0.00%

LIBOR (1mth) 0.20% 0.20% 0.00%

* Figures as on 17:30 hrs IST

Source: Edelweiss research, Bloomberg, CCIL

Yield Curve

India Fixed Income Research

Jagdeep Kannarath

+91 22 6620 3083

[email protected]

April 17, 2013

Bond Vector


CBLO 7.47% 7.46%

Repo 7.54% 7.53%

Cal l 7.56% 7.55%

17-AprWAR 16-Apr

Volume

(INR bn)

CBLO 807.0 839.4

Repo 330.3 274.4

Ca l l 209.9 206.1

17-Apr 16-Apr

G-Sec Activity

0

100

200

300

400

500

600

700

17-Apr16-Apr15-Apr12-Apr10-Apr9-Apr8-Apr5-Apr

( D

aily

Vo

lum

e -

INR

bn

)

GSec Total Vol 8.15 2022 8.33 2026Source: Edelweiss research, CCIL

Overnight Money Market Yields

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17

-Ap

r

15

-Ap

r

10

-Ap

r

8-A

pr

4-A

pr

2-A

pr

26

-Ma

r

22

-Ma

r

20

-Ma

r

18

-Ma

r

14

-Ma

r

12

-Ma

r

8-M

ar

6-M

ar

(%)

Call Repo CBLOSource: Edelweiss research, CCIL

Overnight Money Market Activity

0

100

200

300

400

500

600

700

800

900

1,000


( D

aily

Vo

lum

e -

INR

bn

)

Call Repo CBLOSource: Edelweiss research, CCIL

Bond Vector


Tenor AAA AA+ AA

1Y 74 120 142

5Y 75 113 139

10Y 65 123 151

*AA+ and AA spread as per Bloomberg As per previous session yields

17-Apr 16-Apr

3.50 5.00

7.00 6.00

6.50 16.75

17.00 27.75

Volume (INR bn)

CD Primary

CD Secondary

CP Tota l

Total

INR bn 15-Apr 12-Apr MTD

FII -12.49 -1.51 -47

MF 33.53 45.41 521

5Y Corporate Bond Spreads

0

20

40

60

80

100

120

140

160

16

-Ap

r

12

-Ap

r

9-A

pr

5-A

pr

3-A

pr

28

-Ma

r

25

-Ma

r

21

-Ma

r

19

-Ma

r

15

-Ma

r

13

-Ma

r

11

-Ma

r

7-M

ar

5-M

ar

(bp

s)

5Y AAA 5Y AA+ 5Y AASource: Edelweiss research, Bloomberg

Short-term Debt Activity – CDs & CPs

0

5

10

15

20

25

30

35

40


( D

aily

Vo

lum

e -

INR

bn

)

CD Primary CD Secondary CP TotalSource: Edelweiss research

Net Debt Flows – FII + MF

(100)

0

100

200

300

400

500

600

700

800

Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13

(IN

R b

n)

FII MFSource: Edelweiss research, Bloomberg

Bond Vector


Event Calendar – India & Global

Events & Updates Expected Actual Prior

15-Apr IN - WPI (YoY) MAR 6.27% 5.96% 6.84%

16-Apr US - CPI (YoY) MAR 1.60% 1.50% 2.00%

US - Industrial Production MAR 0.20% 0.40% 0.70%

EU - CPI (YoY) MAR 1.70% 1.70% 1.70%

18-Apr US - Initial Jobless Claims 350K - 346K


First Call

INSIDER TRADES

Company Name Acquirer/Seller B/S Qty Traded

Andhra Petrochemicals Dr B B Ramaiah Buy 57060

HCL Infosystems HCL Corporation Buy 1048821

ISMT Mr. O P Kakkar Buy 88704

Kohinoor Foods Gurnam Arora Buy 55143

Master Trust Prime Industries Buy 300000 off market

Rolta India M/s Rolta Shares & Stocks Buy 25000

Shree Renuka Sugars Sidram Kaluti Buy 25000

Take Solutions Shriram Ventures Buy 136410


First Call

BULK DEALS

Date Company Name Acquirer/Seller B/S Qty Traded Price

17-Apr-13 Aurionpro Solutions Paresh Chandulal Zaveri Buy 100000 75

17-Apr-13 Autoline Industries Olympia Builders Buy 262063 105

17-Apr-13 Brescon Corporate Advisors Alok Finance Sell 34258 161

17-Apr-13 Brescon Corporate Advisors Black Fox Financial Buy 19020 162

17-Apr-13 Confidence Trading Company Asha Jhaverilal Dedhia Sell 55900 320

17-Apr-13 Euro Finmart Garima Agarwal Sell 35887 76

17-Apr-13 Focus Ind Nanon Distributors Buy 71050 63

17-Apr-13 IVRCL Infrastructures & Projects Ambit Securities Broking Sell 203353 21

17-Apr-13 Jalgaon Re-Rolling Industries Shaan Leisure Sell 150000 18

17-Apr-13 Jaysynth Dyestuff (India) Jyoti Shivonkar Maheshwari Buy 100000 25

17-Apr-13 Jaysynth Dyestuff (India) Preeti Shrikant Kothari Sell 100000 25

17-Apr-13 KAVITA FAB Sanjoyog Trade-Link Buy 102000 40

17-Apr-13 KAVITA FAB Zawar Sales Sell 108000 40

17-Apr-13 Le Waterina Resorts & Hotels Anand Jyoti Kothari Buy 1450000 1

17-Apr-13 Le Waterina Resorts & Hotels Arisonassociates Sell 1450000 1

17-Apr-13 Lok Housing & Constructions Lgnc Sell 450000 15

17-Apr-13 Samrudhi Relty Hem Sec Buy 80000 15

17-Apr-13 Samrudhi Relty Surendra Prakash Shrimali Sell 70000 15

17-Apr-13 Sawaca Business Machines Kanan Ajitkumar Shah Buy 135000 27

17-Apr-13 Sawaca Business Machines Shaan Leisure Sell 135000 27

17-Apr-13 Taksheel Solutions Infoedge Capital Services Sell 250000 8

17-Apr-13 Taksheel Solutions Offerlink Infraprojects Sell 285132 8

17-Apr-13 Vision Technology India Srinivas Karrothi Buy 187386 10


First Call

TECHNICAL UPDATES

After a large rally witnessed on Tuesday, the markets traded on a lackluster note

yesterday as the Nifty oscillated in a range of 63 points throughout the day and ended

dead flat. Nonetheless, it did climb up earlier to re-test the H&S neckline at 5721 where

selling pressure was expected. Volumes climbed up significantly yesterday despite the

restricted price action and the breadth ended neutral as well. Near-term momentum

oscillators have entered an over-bought state and the short-term indicators are in a

bullish state suggesting a bullish undertone. However price action remains critically

poised and could possibly result in a downward reversal from resistance levels. We

prefer to retrain our negative stance on the index and look for an eventual decline to

5447 / 5260 levels with a strict stop-and-reverse pivot of 5720 on a daily closing basis.

Among the notable sectoral performances for the day, gains were seen in shares from

Metals (+1.27%), FMCG (+1.25%) and Auto (+1.16%) indices; whereas losses were

logged in Oil & Gas (-2.12%), IT (-1.14%) and Power (-0.17%) indexes. Broader markets

marginally outperformed their frontline peer with gains of 0.18% for the Mid-cap index

and 0.30% for the Small-cap index,

Bullish Setups: BPCL, JPA, DITV, UNSP, STLT, ITC

Bearish Setups: BHARTI, TTMT, COAL, IIB, MCLR, PFC

Nifty Index Indicator Outlook Points*

Candlestick Positive 1

Stochastic Positive 1

Moving Avg Negative (1)

RSI Neutral 0

ADX Neutral 0

MACD Neutral 0

Aggregate Positive 1

10 17

September

24 1 8

October

15 22 29 5 12 19

November

26 3 10 17

December

24 31 7

2013

14 21 28 4 11

February

18 25 4 11

March

18 25 8

April

15 22 29 6

May

13

-50

0

50

100

50000100000150000200000250000300000

x1000

4800

4850

4900

4950

5000

5050

5100

5150

5200

5250

5300

5350

5400

5450

5500

5550

5600

5650

5700

5750

5800

5850

5900

5950

6000

6050

6100

6150

6200

5732

5477 / 5447

'bul l i sh gap'

5659 (200 DMA)

Bloomberg Code NIFTY Index

Spot Price 5,688

Res istance 1 5,732

Res istance 2 5,750

Support 1 5,650

Support 2 5,617

Ni fty 20 SDMA 5,631



Adv : Dec [NSE] 676 : 675

Turnover Rs Crs . 15,395

BSE+NSE cas h


First Call

EYE CATCHERS

Futures Snapshot

Top OI Rises

Scrip % OI Chg OI % Price

Chg

% Future

Vol Chg

Shriram Transport Fin Co 132 1,454 1.2 1,099

Ambuja Cements 30 8,190 3.7 51

CESC Ltd 24 846 (2.8) 1

HCL Tech 19 3,301 (1.5) 592

Tata Motors 15 21,993 0.1 43

TCS 14 4,173 (1.8) 117

MCLEOD Russel India 14 3,461 (7.6) 449

Bank Nifty 10 1,905 0.9 18

Top OI Falls

Scrip% OI

ChgOI

% Price

Chg

% Future

Vol Chg

SAIL (12) 17,320 6.4 49

Union Bank (11) 3,222 (0.7) 10

Future Retail Ltd (10) 3,334 (9.1) (48)

Apollo Tyre (9) 4,132 0.2 (15)

Sterlite Ind. (7) 30,024 4.2 14

JSW Steel (7) 7,201 5.7 114

Federal Bank (6) 1,154 (0.5) 50

Adani Enterprise (6) 5,008 (1.9) 26


First Call

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.

Board: (91-22) 4009 4400, Email: [email protected]

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