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Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

India I Equities Country

Daily

6 January 2014

India Morning Bell

All the latest research and data

India Technology. Growth trends intact. We expect the top-four Indian IT companies to post 3.1% qoq, and 12.8% yoy, growth in US$ revenue in 3QFY14. The growth would be driven by volumes as the pricing environment is still flattish. Once again, TCS is expected to steal the show with 3.4% sequential growth, while Wipro is expected to report 2.5% sequential growth, the lowest of the top-four. Despite frequent senior-level exits and management mentioning the possibility of choppy revenue growth for two more quarters, we expect Infosys to deliver 3.1% sequential revenue growth, next only to TCS. HCLTech should continue to deliver on growth (AR est. 2.9% qoq for 2QFY14) on its strong IMS revenue growth.

Bajaj Auto - Domestic sales at bottom, slow recovery hereon; Buy. For 4QFY14, the demand outlook remains unexciting (residual growth estimate 3.5%). Dec ‘13 performance indicates that motorcycle market share loss persisted (423bps lower in Apr-Nov ’13). However, we believe that the worse performance is now factored in the estimates and stock price. The key positives are sustained better export realisations yoy and a higher share of exports in the product mix. Recovery in three-wheeler sales ahead would be an added positive. Hence, we upgrade our recommendation on the stock to a Buy. At our price target, the stock would trade at PE of 15.8x FY15e.

Sensex: 20851

Nifty: 6211

Gross fiscal deficit of GoI: Actual vs. announced

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Gross Fiscal Deficit (% of GDP) - announced in Budget Gross Fiscal Deficit (% of GDP) - actual

(%)

Source: RBI

Ch

art

of

the

da

y

Markets 3 Jan ’14 1 Day YTD Sensex 20851 0.0% -1.5%Nifty 6211 -0.2% -1.5%Dow Jones 16470 0.2% -0.6%S & P 500 1831 0.0% -0.9%FTSE 6731 0.2% -0.3%Nikkei* 15934 -2.1% -2.2%Hang Seng* 22642 -0.8% -2.9%

Volumes (US$m) 3 Jan ’14 1 Day Avg '14Cash BSE 352 -16.8% 336Cash NSE 979 -28.1% 979Derivatives (NSE) 22,378 313.2% 5,438

Flows (US$m) 3 Jan ’14* MTD YTD FII – Cash Buy 302 724 724Sell 305 617 617Net -3 107 107FII - Derivatives Buy 3,027 6,783 6,783Sell 3,003 6,635 6,635Net 24 148 148DII – Cash Buy 149 354 354Sell 194 466 466Net -45 -111 -111

Others 3 Jan ’14 1 Day YTD Oil Brent (US$/bbl)* 107.0 0.1% -3.4%Gold (US$/oz)* 1,242.9 0.5% 3.1%Steel (US$/MT) 585.0 0.0% 0.0%`/US$ 62.16 0.0% -0.6%US$/Euro* 1.36 0.0% 1.2%Yen/US$* 104.35 0.5% 0.9%Call Rate 7.80% 15.bps -95.bps10-year G-Secs 8.84% -.3bps 1.2bpsEMBI spreads 335.64 -3.3bps 1.4bps@7:30am *Provisional Source: BSE, Bloomberg

6 January 2014 India Morning Bell

Anand Rathi Research India Equities

Market Data

Price Performance Price Performance Price Performance Top-5 gainers Top-5 gainers Top-5 gainersCompany CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%)

JUST DIAL LTD 1442 9.9 18.0 TVS MOTOR CO LTD 76 16.5 38.7 GITANJALI GEMS L 72 25.7 35.2

KANSAI NEROLAC P 1170 8.3 11.2 BAJAJ ELECTRICAL 224 14.0 33.4 OPTO CIRCUITS 28 24.3 30.6

APOLLO HOSPITALS 946 8.2 13.5 EIH LTD 63 12.2 17.7 ACCELYA KALE SOL 759 22.3 20.8

VEDANTA RESOURCE 957 7.7 6.0 LANCO INFRATECH 8 11.7 29.7 RUCHI SOYA INDUS 38 21.1 26.3

NEYVELI LIGNITE 64 6.2 6.6 BALKRISHNA INDS 341 10.0 19.3 C MAHENDRA EXP L 229 21.0 10.0

Top-5 losers Top-5 losers Top-5 losersCompany CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%)

MOTHERSON SUMI 183 (4.3) (3.3) INDIAN INFOTECH 25 (10.4) (22.0) INDIA TOURISM 101 (7.7) (34.3)

BAJAJ AUTO LTD 1911 (4.0) (3.2) SKS MICROFINANCE 190 (8.1) 11.4 SITI CABLE NETWO 17 (7.6) (1.7)

CROMPTON GREAVES 129 (3.8) 3.0 DEWAN HOUSING 213 (4.3) 25.4 ISGEC HEAVY ENGI 865 (6.5) (1.3)

BHARAT FORGE CO 328 (3.2) 10.0 JM FINANCIAL LTD 29 (4.3) 1.0 SUVEN LIFE SCIEN 72 (6.4) 3.9

RANBAXY LABS LTD 453 (3.0) 7.4 THOMAS COOK LTD 84 (4.2) 7.3 MARKSANS PHARMA 18 (6.4) 43.7

Volume Volume VolumeVolume spurts Volume spurts Volume spurtsCompany CMP (INR) 1 wk avg 1/4 wk (%) Company CMP (INR) 1 wk avg 1/4 wk (%) Company CMP (INR) 1 wk avg 1/4 wk (%)

BOSCH LTD 10,068 50,276 183.2 PINE ANIMATION L 93 59,016 299.8 ASIAN STAR CO 609 30 300.0

SANOFI INDIA LTD 2,749 15,804 181.0 KSK ENERGY VENTU 67 264,879 239.9 CLARIS LIFESC 193 8,026,202 298.6

APOLLO HOSPITALS 946 734,445 150.2 RUPA & CO LTD 220 154 190.6 TD POWER SYSTEMS 237 95,201 278.8

NEYVELI LIGNITE 64 685,932 108.2 FRESENIUS KABI O 132 360,525 183.5 GREENPLY INDUS 370 58,784 267.9

ING VYSYA BANK 612 210,722 85.2 HMT LTD 29 553,477 171.2 DHANUKA AGRITECH 204 525,491 237.9

Technicals Technicals Technicals Above 200 DMA Above 200 DMA Above 200 DMACompany CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%)

AUROBINDO PHARMA 393 211 86.0 VAIBHAV GLOBAL L 663 231 186.9 PARAG SHILPA INV 263 78 242.0

TATA COMMUNICATI 309 213 44.5 # BF UTILITIES LTD 523 240 117.9 DHANLEELA INVEST 207 68 207.6

TECH MAHINDRA LT 1,838 1,280 43.4 # TVS MOTOR CO LTD 76 40 89.6 KELVIN FINCAP LT 380 158 141.1

MINDTREE LTD 1,529 1,068 42.9 # OUT OF CITY TRAV 291 161 81.3 CEAT LTD 321 150 115.0

BIOCON LTD 463 326 41.9 INFOTECH ENT 341.4 205.5 66.0 MARKSANS PHARMA 18 8 113.0

Below 200 DMA Below 200 DMA Below 200 DMACompany CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%)

UNION BANK INDIA 130 159 (18.2) STRIDES ARCOLAB 360 838 (57.0) INDIA TOURISM 101 696 (85.2)

ESSAR OIL LTD 54 63 (14.3) MMTC LTD 53 106 (50.2) GITANJALI GEMS L 72 240 (70.2)

CENTRAL BK INDIA 51 59 (13.3) WOCKHARDT LTD 453 877 (48.9) FINANCIAL TECHNO 185 438 (57.4)

BHARAT ELECTRON 1,029 1,161 (11.2) JET AIRWAYS IND 292 402 (27.6) JAYBHARAT TEXTIL 35 52 (33.5)

INDIAN OIL CORP 214 235 (8.9) RAJESH EXPORTS 77 106 (26.8) NCL RESEARCH & F 1,140 1,694 (32.5)

Small Caps(US$100m-250m)

Large Caps(>US$1bn)

Mid Caps(US$250m-1bn)

Source: Bloomberg


India I Equities

Technology

Result Preview `

Rating: Hold Target Price: `2,300 Share Price: `2,223

Key data TCS IN / TCS.BO52-week high / low `2258 / `1255Sensex / Nifty 20851 / 62113-m average volume US$49.9m Market cap `4352bn / US$70bnShares outstanding 1959m

Shareholding pattern (%) Sep ’13 Jun ’13 Mar ’13

Promoters 73.96 73.96 73.96 - of which, Pledged 2.43 3.11 4.78Free Float 26.04 26.04 26.04 - Foreign Institutions 16.09 15.67 16.14 - Domestic Institutions 5.58 5.9 5.44 - Public 4.37 4.47 4.46

6 January 2014

Tata Consultancy Services

Furloughs and India business volatility to restrict growth: Hold

Key takeaways

3.4% qoq growth in US$ revenue. We expect Tata Consultancy Services to report slightly moderate growth sequentially, 3.4% (compared to 5.4% in 2QFY14 and 3.3% in 3QFY13). This is primarily on account of seasonal factors in 3Q when projects are typically designed to end. We project marginally better growth than in 3QFY13 on the better business outlook, though the impact would be offset by weak India business.

Management cited furloughs and weak India business. In the analyst briefing of 16 Dec’13, management alluded to seasonal factors such as furloughs and the weak India business in the run-up to the general elections as factors constraining growth in 3QFY14. There were no unusual furloughs in 3QFY14 compared to 3QFY13, ensuring no impact on year-over-year growth rates, barring volatility in its India business (which brought in 6.9% of revenue in 2QFY14).

Expect positive commentary on demand outlook for 2014. Management commentary continues to be positive, with discretionary spending in technology increasing in the last few quarters. Management believes that the budget process this year is in a more positive environment, and should be reflected in a better budget for 2014.

Margin to be flat, qoq. We expect a 30.1% EBIT margin in 3QFY14, similar to the 30.2% of 2QFY14. This reflects our assumptions of the flattish pricing environment, hiring to build capacity for 2014 and better utilization offset by investments in S&M.

Key monitorables. Demand outlook and budget expectations, hiring plans for 2014 and pricing and margin outlook.

Our take. The stock trades at 20.5x FY15e PE and 14.4x FY15e EV/EBITDA. We retain our Hold recommendation on the rich valuations.

Financials (YE Mar) FY14e FY15e

Sales (US$m) 13,495 15,474

Sales (`m) 821,082 951,650

Net profit (`m) 189,560 212,891

EPS (`) 97 109

Growth (%) 36% 12%

PE (x) 23.0 20.5

PBV (x) 8.9 7.0

RoE (%) 42% 38%

RoCE (%) after tax 39% 35%

Dividend yield (%) 2% 2%

Source: Anand Rathi Research

Quarterly results (YE: Mar) 3QFY14e % qoq % yoy 9MFY14 9MFY13 % yoy

Sales (US$ m) 3,451 3.4 17.1 9,953 8,529 16.7

Sales (`m) 213,609 1.8 32.9 603,252 465,594 29.6

EBITDA (`m) 67,601 1.8 45.3 185,523 134,271 38.2

EBITDA margin (%) 32 0 bps 269 bps 31 29 192 bps

EBIT (`m) 64,289 1.6 46.7 176,211 126,495 39.3

EBIT margin (%) 30 -8 bps 284 bps 29 27 204 bps

PBT (`m) 69,169 10.0 50.6 183,181 133,483 37.2

Tax (`m) (16,477) 5.9 64.4 (44,352) (28,925) 53.3

Tax rate (%) (24) 93 bps -200 bps (24) (22) -254 bps

Net Income (`m) 52,692 11.4 46.7 138,829 104,558 32.8

Source: Company

6 January 2014 Tata Consultancy Services – Furloughs and India business volatility to restrict growth: Hold

Anand Rathi Research 2

Quick Glance – Financials and ValuationsFig 1 – Income statement (`m)

Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Revenues (US$mn) 10,171 11,569 13,495 15,474 17,675 growth (%) 24% 14% 17% 15% 14%Revenues (`m) 488,938 629,895 821,082 951,650 1,087,016 growth (%) 31% 29% 30% 16% 14%Effective USD:INR 48.1 54.4 60.8 61.5 61.5 Cost of Revenues (320,263) (416,015) (525,590) (614,493) (704,621)SG&A (24,470) (33,010) (39,475) (47,271) (51,856)EBITDA 144,205 180,870 256,018 289,886 330,540 EBITDA margins (%) 29.5% 28.7% 31.2% 30.5% 30.4%D&A (9,036) (10,791) (12,888) (16,717) (20,625)EBIT 135,169 170,079 243,129 273,169 309,914 EBIT margins (%) 27.6% 27.0% 29.6% 28.7% 28.5%Other income 4,044 11,172 10,384 16,217 21,258 Tax (31,585) (40,345) (62,222) (75,348) (89,554)ETR (%) -23% -22% -25% -26% -27%Minority Interest (1,110) (1,493) (1,731) (1,148) (1,148)Net Profit 106,518 139,413 189,560 212,891 240,470 Net margins (%) 21.8% 22.1% 23.1% 22.4% 22.1%EPS (`) 54 71 97 109 123 EPS growth (%) 22% 31% 36% 12% 13%Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (`m) Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Cash from Operations PBT 139,213 181,251 253,513 289,387 331,172 Operating Profit before WC 148,249 192,042 266,401 306,104 351,797 Chg in Trade Receivables (27,236) (23,894) (44,417) (25,854) (24,698)Chg in Other CA (13,951) (16,038) (12,910) (13,297) (15,891)Chg in Trade Payables 2,856 10,101 11,497 9,580 9,384 Chg in Other CL 5,182 9,239 9,171 10,134 11,832 Others including taxes (41,412) (48,228) (63,213) (76,488) (90,865)Net Cash from Operations 73,689 123,222 166,528 210,180 241,558 Cash from Investments Capex (20,103) (26,018) (33,915) (39,308) (44,900)Acquisitions - (1,626) - - -Investments & Others (9,297) (40,907) (22,446) (82,600) (38,202)Net Cash from Investing (29,400) (68,552) (56,361) (121,908) (83,102)Cash from Financing Equity Issuance - - - - -Change in Borrowings 518 1,057 - - -Dividends including DDT (38,670) (56,776) (108,239) (85,156) (153,901)Others (3,240) (937) (1,000) - -Net Cash from Financing (41,393) (56,656) (109,239) (85,156) (153,901)Source: Company, Anand Rathi Research

Fig 5 – Key Metrics Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Employees (EoP) 238,583 276,196 304,503 332,150 358,363Rev/Employee(US$) 42,631 41,887 44,318 46,587 49,322 EBITDA/Employee(Rs) 604,423 654,861 840,773 872,757 922,360 Source: Company, Anand Rathi Research

Fig 2 – Balance sheet Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Sources of Funds 344,093 433,041 515,094 643,976 731,694 Share capital 1,957 1,957 1,957 1,957 1,957 Reserves & Surplus 323,490 407,524 488,845 616,580 703,149 S/Hs Equity 325,447 409,481 490,802 618,537 705,106 Minority Interest 5,275 6,561 8,292 9,440 10,588 Total Debt 1,266 2,323 2,323 2,323 2,323 Other LT Liabilities 12,105 14,677 13,677 13,677 13,677 Application of Funds 344,093 433,041 515,094 643,976 731,694 Net Fixed Assets 64,548 81,944 102,971 125,562 149,837 Intangible/Goodwill 34,973 35,063 35,063 35,063 35,063 Other LT Assets 37,865 46,590 47,582 48,722 50,033 Current Assets 274,022 356,942 437,643 562,509 645,856 Accounts Receivable 115,023 140,766 185,182 211,036 235,734 Unbilled Revenues 22,478 31,601 39,501 49,376 61,720 Cash & Investments 124,898 168,069 191,443 277,158 319,916 Other CAs 11,623 16,507 21,517 24,939 28,487 Current Liabilities 67,316 87,497 108,165 127,880 149,095 Accounts Payable 32,515 44,487 55,983 65,564 74,947 Unearned revenue 8,230 9,663 11,595 13,914 16,697 Other CLs 26,571 33,348 40,586 48,402 57,451 Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `2,223 Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Return Ratios RoCE % (Post Tax) 34% 34% 39% 35% 33%RoIC % (Post Tax) 55% 55% 62% 59% 58%RoE % 37% 38% 42% 38% 36%Cash Ratios CFO:Sales 15% 20% 20% 22% 22%AR days (incl. unbilled) 103 100 100 100 100 AP days 34 36 36 36 36 Dupont Analysis RoE % 37% 38% 42% 38% 36%EBIT margin % 28% 27% 30% 29% 29%PBT/EBIT % 103% 107% 104% 106% 107%PAT/PBT % 77% 77% 75% 74% 73%Total Asset turnover 159% 162% 173% 164% 158%Assets/Equity % 106% 106% 105% 104% 104%Valuation ratios P/E (x) 40.9 31.2 23.0 20.5 18.1 P/B (x) 13.4 10.6 8.9 7.0 6.2 EV/EBITDA (x) 29.0 23.1 16.3 14.4 12.6 EV / Operating CF (x) 56.7 33.9 25.1 19.9 17.3 Source: Company, Anand Rathi Research

Fig 6 – Assumptions Year-end: Mar FY14e FY15e FY16e

Chg in Realization % 0% 1% 3%Gross Utilization (EoP) % 76% 78% 80%USD:INR 60.8 61.5 61.5 Source: Company, Anand Rathi Research


India I Equities

Technology

Result Preview `

Rating: Buy Target Price: `4,100 Share Price: `3,565

Key data INFO IN / INFY.BO52-week high / low `3575 / `2190Sensex / Nifty 20851 / 62113-m average volume US$63.5m Market cap `2047bn / US$33bnShares outstanding 571m

Shareholding pattern (%) Sep ’13 Jun’13 Mar ’13

Promoters 15.94 16.04 16.04 - of which, Pledged - - -Free Float 84.06 83.96 83.96 - Foreign Institutions 39.93 39.55 40.52 - Domestic Institutions 16.16 18.28 17.51 - Public 27.97 26.13 25.93

6 January 2014

Infosys

Guidance revision holds the key: Buy

Key takeaways

Expect 3.1% qoq growth in US$ revenue. Infosys highlighted sometime unpredictable furloughs, concerns over holiday spending and the government shutdown as major factors capping the guidance at 10%. Furloughs, this year, seem similar to those last year, as observed by new jobless claims in the US. In the US (till Nov’13), retail sales have been resilient. Consequently, we expect Infosys’ growth momentum to continue unabated. The reason for a seeming lower yoy growth in 3QFY14 is an exceptionally strong 3QFY13 when, excluding Lodestone, over 4.2% qoq growth was reported.

Key personnel exits and frequent restructurings heighten risks. Many high-profile exits have occurred; V Bala’s being the seventh since Sep’12. While some have perhaps been the outcome of the restructurings or for alternative careers such as start-ups and venture funding, we believe that three exits could have been avoided. On Friday, the executive council was dissolved w.e.f. 1Apr’14 and B.G. Srinivas and U.B. Pravin Rao promoted to president positions, reporting to the CEO.

Expect guidance to be raised to 12%. Infosys could revise the upper limit of its FY14 US$ revenue guidance to 12% (from 10% as of 2QFY14) if it succeeds in capitalizing on the mounting demand for technology services. Our revenue-growth estimates currently peg it s US$ revenue growth rate for FY14 at 13%.

Margin to improve, qoq. We expect the 3QFY14 EBIT margin to expand 110bps qoq (excluding the impact of visa-related charges in 2QFY14) to reach 24.7%, driven by operational and cost efficiencies.

Key monitorables. Demand outlook and guidance revision; clarity regarding succession planning.

Our take. The stock trades at 16.2x FY15e PE and 11.0x FY15e EV/EBITDA. We maintain our positive stance on the company. Recommend Buy.


Sales (US$m) 8,377 9,675

Sales (`m) 508,845 595,043

Net profit (`m) 107,333 126,378

EPS (`) 188 221

Growth (%) 14% 18%

PE (x) 19.1 16.2

PBV (x) 4.4 3.8

RoE (%) 25 25

RoCE (%) after tax 21 21

Dividend yield (%) 2 2



Sales (US$m) 2,130 3.1 11.5 6,187 5,460 13.3

Sales (`m) 131,840 1.7 26.5 374,160 298,980 25.1

EBITDA (`m) 35,885 5.9 20.8 99,605 87,880 13.3

EBITDA margin (%) 27 108 bps -127bps 27 29 -277bps

EBIT (`m) 32,555 6.5 21.6 89,755 79,670 12.7

EBIT margin (%) 25 112 bps -99 bps 24 27 -266 bps

PBT (`m) 38,615 15.4 21.4 104,495 96,520 8.3

Tax (`m) (10,234) 8.9 26.2 (28,304) (26,250) 7.8

Tax rate (%) (27) 158 bps -100bps (27) (27) 11bps

Net Income (`m) 28,381 17.9 19.8 76,191 70,270 8.4

Source: Company

6 January 2014 Infosys – Guidance revision holds the key: Buy




Revenues (US$mn) 6,994 7,398 8,377 9,675 11,218 growth (%) 16% 6% 13% 16% 16%Revenues (`m) 337,340 403,520 508,845 595,043 689,922 growth (%) 23% 20% 26% 17% 16%Effective USD:INR 48.2 54.5 60.7 61.5 61.5 Cost of Revenues (196,140) (249,580) (322,072) (377,848) (435,698)SG&A (34,040) (38,360) (47,426) (54,891) (61,809)EBITDA 107,160 115,580 139,347 162,305 192,415 EBITDA margins (%) 31.8% 28.6% 27.4% 27.3% 27.9%D&A (9,370) (11,290) (13,180) (15,070) (18,318)EBIT 97,790 104,290 126,167 147,234 174,097 EBIT margins (%) 29.0% 25.8% 24.8% 24.7% 25.2%Other income 19,040 23,590 20,700 25,682 29,625 Tax (33,670) (33,670) (39,534) (46,538) (54,832)ETR (%) -29% -26% -27% -27% -27%Minority Interest 0 0 0 0 0 Net Profit 83,160 94,210 107,333 126,378 148,889 Net margins (%) 24.7% 23.3% 21.1% 21.2% 21.6%EPS (`) 146 165 188 221 261 EPS growth (%) 22% 13% 14% 18% 18%Source: Company, Anand Rathi Research


Cash from Operations PBT 116,830 127,880 146,867 172,917 203,721 Operating Profit before WC 126,200 139,170 160,047 187,987 222,039 Chg in Trade Receivables (11,810) (9,890) (18,756) (12,723) (12,868)Chg in Other CA (6,880) (9,280) (11,892) (12,360) (14,741)Chg in Trade Payables (240) 1,240 535 415 425 Chg in Other CL 6,060 8,170 10,138 11,354 13,389 Others including taxes (31,210) (34,630) (39,592) (46,590) (54,873)Net Cash from Operations 82,120 94,780 100,480 128,084 153,372 Cash from Investments Capex (14,420) (19,280) (24,312) (28,431) (32,964)Acquisitions (2,890) (13,190) - - -Investments & Others (3,300) (18,040) (3,200) (11,774) (5,446)Net Cash from Investing (20,610) (50,510) (27,512) (40,205) (38,410)Cash from Financing Equity Issuance 60 10 - - -Change in Borrowings - (890) - - -Dividends including DDT (23,270) (31,230) (39,176) (50,551) (59,556)Others - - - - -Net Cash from Financing (23,210) (32,110) (39,176) (50,551) (59,556)Source: Company, Anand Rathi Research


Employees (EoP) 149,994 156,688 166,393 182,022 200,147Rev/Employee(US$) 46,629 47,215 50,344 53,156 56,050 EBITDA/Employee(`) 714,429 737,644 837,458 891,677 961,367 Source: Company, Anand Rathi Research


Sources of Funds 346,360 413,940 482,394 558,579 648,342 Share capital 2,860 2,860 2,860 2,860 2,860 Reserves & Surplus 331,750 395,110 463,266 539,093 628,427 S/Hs Equity 334,610 397,970 466,126 541,953 631,287 Minority Interest 0 0 0 0 0 Total Debt 0 0 0 0 0 Other LT Liabilities 11,750 15,970 16,268 16,626 17,055 Application of Funds 346,360 413,940 482,394 558,579 648,342 Net Fixed Assets 54,090 64,680 75,812 89,173 103,819 Intangible/Goodwill 11,660 23,440 23,440 23,440 23,440 Other LT Assets 15,150 18,320 18,676 19,084 19,554 Current Assets 302,580 357,070 424,710 498,894 587,354 Accounts Receivable 58,820 70,830 89,586 102,309 115,176 Unbilled Revenues 18,730 24,350 30,438 38,047 47,559 Cash & Investments 209,800 239,650 276,641 325,743 386,594 Other CAs 15,230 22,240 28,045 32,796 38,025 Current Liabilities 37,120 49,570 60,243 72,012 85,826 Accounts Payable 230 1,890 2,425 2,840 3,266 Unearned revenue 5,600 8,590 10,308 12,370 14,844 Other CLs 31,290 39,090 47,510 56,802 67,717 Source: Company, Anand Rathi Research


Return Ratios RoCE % (Post Tax) 22 20 21 21 21

RoIC % (Post Tax) 55 49 49 49 51

RoE % 27 26 25 25 25

Cash Ratios CFO:Sales 24 23 20 22 22

AR days (incl. unbilled) 84 86 86 86 86

AP days 0 2 2 2 2

Dupont Analysis RoE % 27 26 25 25 25

EBIT margin % 29 26 25 25 25

PBT/EBIT % 119 123 116 117 117

PAT/PBT % 71 74 73 73 73

Total Asset turnover 107 106 114 114 114

Assets/Equity % 104 104 104 103 103

Valuation ratios P/E (x) 24.6 21.7 19.1 16.2 13.8

P/B (x) 6.1 5.1 4.4 3.8 3.2

EV/EBITDA (x) 16.7 15.5 12.8 11.0 9.3

EV / Operating CF (x) 21.8 18.9 17.8 14.0 11.7 Source: Company, Anand Rathi Research


Chg in Realization % -1% 3% 4%Gross Utilization (EoP) % 75% 76% 77%US$:` 60.7 61.5 61.5 Source: Company, Anand Rathi Research


India I Equities

Technology

Result Preview `

Rating: Sell Target Price: `530 Share Price: `557

Key data WPRO IN /WPRO.BO52-week high / low `562 / `315Sensex / Nifty 20851 / 62113-m average volume US$24.7m Market cap `1374bn / US$22bnShares outstanding 2465m



6 January 2014

Wipro

4QFY14 revenue outlook will set the tone for FY15: Sell

Key takeaways

Expect 2.5% qoq growth in IT-services’ US$ revenue. Wipro is likely to end the quarter closer to the midpoint of the revenue-growth guidance of 1.8% to 3.6% sequentially. We expect growth to be broad-based but led by the life sciences and the energy & utilities verticals. For 3QFY14, the growth trends in BFSI and in manufacturing would be the key factors to watch.

Business outlook will set the tone for FY15 growth expectations. Wipro is trying to return to industry growth rates by FY15. Therefore, the exit rate of FY14 will play an important role in determining its growth momentum in FY15. In our opinion, the sequential growth outlook of more than 2% should be seen as an indicator of the company’s return to generally healthy growth in FY15.

Margins to be stable, qoq. We expect Wipro to report an EBIT margin (excluding forex gains/losses) of 19.3% in 3QFY14 compared to 18.8% in 2QFY14. This includes workforce rationalization/automation benefits being partially offset by increased S&M investments. Mr Kurien mentioned during the 2QFY14 earnings call that there are sales-capability gaps in areas of new-client acquisition. These need to be plugged.

Key monitorables: Business outlook for 4QFY14, management commentary on demand outlook for 2014 and attrition (involuntary).

Our take. In the past month, the stock has outperformed its larger peers and now quotes at 16.5x FY15e PE and 11.9x FY15e EV/EBITDA. We prefer to wait for 3QFY14 earnings before turning more constructive concerning the stock. We retain our target price of `530 though the rating change reflects the stock price run-up in the recent past.


Sales (US$m) 6,600 7,325

Sales (`m) 430,722 483,040

Net profit (`m) 77,152 84,698

EPS (`) 31 34

Growth (%) 14% 10%

PE (x) 18.1 16.5

PBV (x) 4.1 3.6

RoE (%) 25% 23%





Sales (US$ m) - IT 1,671 2.5 6.0 4,891 4,633 5.6

Sales (`m) - Consol 111,609 3.6 1.9 316,630 292,517 8.2

EBITDA (`m) 24,178 5.8 12.9 67,174 59,414 13.1

EBITDA margin (%) 22 46 bps 210 bps 21 20 90 bps

EBIT (`m) 21,510 6.3 15.0 59,389 51,689 14.9

EBIT margin (%) 19 49 bps 219 bps 19 18 109 bps

PBT (`m) 24,868 (1.2) 12.5 70,614 60,423 16.9

Tax (`m) (5,703) (0.9) 17.6 (15,708) (13,316) 18.0

Tax rate (%) (23) -8 bps -100 bps (22) (22) -21 bps

Net Income (`m) 19,062 (1.3) 11.1 54,616 49,072 11.3

Source: Company

6 January 2014 Wipro – 4QFY14 revenue outlook will set the tone for FY15: Sell




Revenues (US$mn)-IT 5,921 6,218 6,600 7,325 8,202 growth (%) 13% 5% 6% 11% 12%Revenues (`m)-IT 284,313 338,431 398,642 450,461 504,442 growth (%) 21% 19% 18% 13% 12%Effective USD:INR 48.0 54.4 60.4 61.5 61.5 Revenues (`m) 358,354 388,595 430,722 483,040 539,952 Cost of Revenues (254,804) (271,909) (292,788) (328,347) (367,652)SG&A (34,043) (37,776) (43,384) (49,256) (54,656)EBITDA 69,507 78,910 94,551 105,437 117,644 EBITDA margins (%) 19.4% 20.3% 22.0% 21.8% 21.8%D&A (9,882) (10,154) (10,507) (11,728) (13,200)EBIT 59,625 68,756 84,044 93,708 104,444 EBIT margins (%) 16.6% 17.7% 19.5% 19.4% 19.3%Other income 10,065 12,386 15,623 17,197 22,541 Tax (13,551) (17,289) (22,122) (25,795) (30,337)ETR (%) -20% -22% -22% -24% -24%Net Profit 55,883 63,516 77,152 84,698 96,236 Net margins (%) 15.6% 16.3% 17.9% 17.5% 17.8%EPS (`) 23 27 31 33.8 38.5 EPS growth (%) 5% 19% 14% 10% 14%Source: Company, Anand Rathi Research


Cash from Operations PBT 68,722 80,234 98,577 109,593 125,565 Operating Profit before WC 78,604 90,388 109,084 121,321 138,765 Chg in Trade Receivables (17,470) (3,168) (3,779) (4,628) (3,413)Chg in Other CA (10,239) (4,126) (11,022) (13,753) (16,582)Chg in Trade Payables 4,289 6,789 4,111 6,431 6,939 Chg in Other CL 3,938 3,327 4,421 5,199 6,211 Others including taxes (11,036) (14,773) (23,740) (27,656) (32,477)Net Cash from Operations 48,086 78,437 79,076 86,914 99,443 Cash from Investments Capex (12,977) (10,616) (13,682) (14,270) (16,552)Acquisitions (7,920) (11,480) (4,613) - -Investments & Others 4,831 (39,329) (31,452) (44,033) (46,235)Net Cash from Investing (16,066) (61,425) (49,747) (58,304) (62,787)Cash from Financing Equity Issuance 22 9 - - -Change in Borrowings 712 11,394 - - -Dividends including DDT (17,229) (17,080) (26,622) (30,853) (35,082)Others (902) (1,044) - - -Net Cash from Financing (17,397) (6,721) (26,622) (30,853) (35,082)Source: Company, Anand Rathi Research


Employees (EoP) 135,920 145,812 147,788 151,891 163,167Rev/Employee(US$) 43,563 42,643 44,661 48,223 50,269 EBITDA/Employee(Rs) 511,382 541,176 639,773 694,160 721,001 Source: Company, Anand Rathi Research


Sources of Funds 361,996 368,178 418,012 470,957 531,103 Share capital 4,917 4,926 4,926 4,926 4,926 Reserves & Surplus 280,397 278,886 328,327 380,860 440,594 S/Hs Equity 285,314 283,812 333,253 385,786 445,520 Minority Interest 849 1,171 1,564 1,976 2,388 Total Debt 58,958 63,816 63,816 63,816 63,816 Other LT Liabilities 16,875 19,379 19,379 19,379 19,379 Application of Funds 361,996 368,178 418,012 470,957 531,103 Net Fixed Assets 58,988 50,525 55,315 57,857 61,208 Intangible/Goodwill 72,166 56,470 59,468 59,468 59,468 Other LT Assets 36,994 32,740 34,358 36,219 38,360 Current Assets 267,853 299,995 348,955 409,127 476,931 Accounts Receivable 80,328 76,635 80,414 85,042 88,455 Unbilled Revenues 30,025 31,988 39,985 49,981 62,477 Cash & Investments 128,037 163,469 197,628 239,419 287,229 Other CAs 29,463 27,903 30,928 34,685 38,771 Current Liabilities 74,005 71,552 80,085 91,714 104,865 Accounts Payable 47,258 48,067 52,178 58,609 65,548 Unearned revenue 9,569 10,347 12,416 14,900 17,880 Other CLs 17,178 13,138 15,490 18,206 21,438 Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `557 Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Return Ratios RoCE % (Post Tax) 14% 15% 17% 16% 16%RoIC % (Post Tax) 22% 25% 31% 32% 33%RoE % 21% 23% 25% 23% 23%Cash Ratios CFO:Sales 13% 20% 18% 18% 18%AR days (incl. unbilled) 112 102 102 102 102 AP days 60 57 57 57 57 Dupont Analysis RoE % 21% 23% 25% 23% 23%EBIT margin % 17% 18% 20% 19% 19%PBT/EBIT % 115% 117% 117% 117% 120%PAT/PBT % 81% 83% 77% 76% 76%Total Asset turnover 106% 106% 110% 109% 108%Assets/Equity % 128% 128% 127% 124% 121%Valuation ratios P/E (x) 24.6 20.7 18.1 16.5 14.5 P/B (x) 4.8 4.8 4.1 3.6 3.1 EV/EBITDA (x) 18.1 15.9 13.3 11.9 10.7 EV / Operating CF (x) 26.1 16.0 15.9 14.5 12.6 Source: Company, Anand Rathi Research


Chg in Realization % 1% 2% 3%Gross Utilization (EoP) % 68% 72% 73%USD:INR 60.4 61.5 61.5 Source: Company, Anand Rathi Research


India I Equities

Technology

Result Preview `

Rating: Hold Target Price: `1,400 Share Price: `1,261

Key data HCLT IN / HCLT.BO52-week high / low `1270 / `624Sensex / Nifty 20851 / 62113-m average volume US$24.3m Market cap `881bn / US$14bnShares outstanding 697m



6 January 2014

HCL Technologies

IMS to continue driving growth: Hold

Key takeaways

Expect 2.9% qoq growth in US$ revenues. Following strong growth in IMS (our estimate over 37% yoy, over 7% qoq), HCLTech should register growth in line with its larger competitors. With all its other service lines seeing low to mid single-digit growth rates year over year, we expect growth to have come a little broader this quarter.

Utilization to be flat, qoq. We expect 84.9% utilization, similar to that reported in 2QFY14. In the 2QFY14 earnings call management maintained that utilization is running ahead of the comfort range of 84%. However, the larger proportion of fixed-price/outcome-based revenue-billing model offers it the flexibility to run at higher utilization levels unlike in a typical T&M billing project.

Margins to be hit by wage hikes. HCLTech hikes wages at different times in a year for different groups of employees. For some, wage hikes occur w.e.f. 1st July, which then reflects in 1QFY14 earnings. For others, wages are hiked w.e.f. 1st October, reflected in 2QFY14 earnings. Because of this management has guided to a 120-bp impact on the margin. We expect a 22.2% EBIT margin, compared to 23.8% in 1QFY14, largely reflecting currency and utilization movements apart from the effects of the wage hikes.

Key monitorables: Management comments on broader growth, dividend payouts and margin outlook.

Our take. The stock quotes at 14.3x FY15e PE and 9.4x FY15e EV/EBITDA. The valuation is in the comfort range, given that the size of the IMS opportunity is huge and HCLTech is gaining market share. We look forward to cues from the management in the earnings call regarding the payout ratio. Our Hold rating reflects the recent run-up in the stock price.

Financials (YE Jun) FY14e FY15e

Sales (US$m) 5,306 6,094

Sales (`m) 328,353 374,771

Net profit (`m) 58,116 61,831

EPS (`) 83 89

Growth (%) 42% 6%

PE (x) 15.2 14.3

PBV (x) 4.8 3.9

RoE (%) 35% 30%




Quarterly results (YE: Jun) 2QFY14e % qoq % yoy 1HFY14 1HFY13 % yoy

Sales (US$m) 1,308 2.9 13.3 2,578 2,268 13.7

Sales (`m) 80,948 1.7 29.0 160,558 123,648 29.9

EBITDA (`m) 19,943 (4.7) 40.8 40,873 27,676 47.7

EBITDA margin (%) 25 -165 bps 206 bps 25 22 307 bps

EBIT (`m) 17,943 (5.3) 44.2 36,894 24,262 52.1

EBIT margin (%) 22 -164 bps 233 bps 23 20 336 bps

PBT (`m) 18,407 3.7 46.1 36,158 24,163 49.6

Tax (`m) (4,588) 27.8 55.5 (8,178) (5,669) 44.3

Tax rate (%) (25) -470 bps -150 bps (23) (23) 84 bps

Net Income (`m) 13,819 (2.4) 43.3 27,980 18,494 51.3

Source: Company

6 January 2014 HCL Technologies – IMS to continue driving growth: Hold



Year-end: Jun FY12 FY13 FY14e FY15e FY16e

Revenues (US$m) 4,152 4,687 5,306 6,094 6,988 growth (%) 24% 13% 13% 15% 15%Revenues (`m) 210,312 257,336 328,353 374,771 429,762 growth (%) 31% 22% 28% 14% 15%Effective USD:INR 50.7 54.9 61.9 61.5 61.5 Cost of Revenues (140,558) (164,779) (201,165) (233,498) (270,532)SG&A (29,503) (34,201) (43,432) (53,306) (64,084)EBITDA 40,251 58,356 83,756 87,968 95,146 EBITDA margins (%) 19.1% 22.7% 25.5% 23.5% 22.1%D&A (5,641) (6,726) (8,161) (9,838) (12,122)EBIT 34,610 51,630 75,595 78,130 83,025 EBIT margins (%) 16.5% 20.1% 23.0% 20.8% 19.3%Other income (1,170) 1,571 263 3,172 5,594 Tax (8,180) (12,217) (17,742) (19,470) (21,218)ETR (%) -24% -23% -23% -24% -24%Minority Interest (2) 0 0 0 0 Net Profit 25,258 40,984 58,116 61,831 67,401 Net margins (%) 12.0% 15.9% 17.7% 16.5% 15.7%EPS (`) 36 59 83 89 97 EPS growth (%) 47% 61% 42% 6% 9%Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (`m) Year-end: Jun FY12 FY13 FY14e FY15e FY16e

Cash from Operations PBT 33,440 53,201 75,858 81,302 88,619 Operating Profit before WC 39,081 59,927 84,019 91,140 100,741 Chg in Trade Receivables (9,461) (8,463) (12,764) (8,315) (10,738)Chg in Other CA (9,335) (5,832) (9,545) (7,294) (7,865)Chg in Trade Payables 1,924 798 1,259 1,165 1,320 Chg in Other CL 8,562 11,412 12,051 11,536 13,389 Others including taxes (3,256) (8,211) (20,120) (22,204) (24,362)Net Cash from Operations 27,515 49,631 54,901 66,028 72,485 Cash from Investments Capex (9,094) (6,301) (13,134) (14,991) (17,190)Acquisitions (1,006) (113) - - -Investments & Others (2,143) (20,211) (21,496) (22,570) (30,470)Net Cash from Investing (12,244) (26,626) (34,630) (37,561) (47,660)Cash from Financing Equity Issuance 391 362 - - -Change in Borrowings (4,571) (12,262) - - -Dividends including DDT (8,031) (8,736) (16,331) (20,466) (22,310)Others (177) (931) (2) - -Net Cash from Financing (12,388) (21,567) (16,333) (20,466) (22,310)Source: Company, Anand Rathi Research

Fig 5 – Key Metrics Year-end: Jun FY12 FY13 FY14e FY15e FY16e

Employees (EoP) 84,319 85,505 94,027 103,050 113,334Rev/Employee(US$) 49,237 54,810 56,435 59,135 61,659 EBITDA/Employee(`) 477,366 682,486 890,774 853,639 839,525 Source: Company, Anand Rathi Research

Fig 2 – Balance sheet Year-end: Jun FY12 FY13 FY14e FY15e FY16e

Sources of Funds 139,882 165,057 206,841 248,206 293,298Share capital 1,387 1,387 1,387 1,387 1,387Reserves & Surplus 105,927 141,558 183,344 224,709 269,800S/Hs Equity 107,314 142,945 184,730 226,096 271,187Minority Interest 0 0 0 0 0Total Debt 19,222 6,960 6,960 6,960 6,960Other LT Liabilities 13,346 15,151 15,151 15,151 15,151Application of Funds 139,882 165,057 206,841 248,206 293,298Net Fixed Assets 24,775 27,283 32,256 37,409 42,478Intangible/Goodwill 49,404 49,582 49,582 49,582 49,582Other LT Assets 18,449 22,466 24,844 27,578 30,722Current Assets 96,648 131,150 178,893 225,072 276,659Accounts Receivable 38,359 44,640 57,404 65,719 76,457Unbilled Revenues 15,081 17,127 21,409 25,262 29,052Cash & Investments 27,996 50,312 75,746 106,317 139,301Other CAs 15,212 19,071 24,334 27,774 31,849Current Liabilities 49,394 65,423 78,734 91,434 106,143Accounts Payable 4,694 5,493 6,752 7,917 9,237Unearned revenue 7,485 8,982 10,778 12,934 15,521Other CLs 37,215 50,948 61,203 70,583 81,386Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `1,261 Year-end: Jun FY12 FY13 FY14e FY15e FY16e

Return Ratios RoCE % (Post Tax) 21% 26% 31% 26% 23%RoIC % (Post Tax) 26% 35% 47% 44% 43%RoE % 26% 33% 35% 30% 27%Cash Ratios CFO:Sales 13% 19% 17% 18% 17%AR days (incl. unbilled) 93 88 88 89 90AP days 10 10 10 10 10Dupont Analysis RoE % 26% 33% 35% 30% 27% EBIT margin % 16% 20% 23% 21% 19%PBT/EBIT % 97% 103% 100% 104% 107%PAT/PBT % 76% 77% 77% 76% 76%Total Asset turnover 167% 169% 177% 165% 159%Assets/Equity % 132% 122% 113% 111% 109%Valuation ratios P/E (x) 34.9 21.5 15.2 14.3 13.1P/B (x) 8.2 6.2 4.8 3.9 3.2EV/EBITDA (x) 20.5 14.1 9.9 9.4 8.7EV / Operating CF (x) 30.0 16.6 15.0 12.5 11.4Source: Company, Anand Rathi Research

Fig 6 – Assumptions Year-end: Jun FY14e FY15e FY16e

Chg in Realization % 4% 4% 4%Gross Utilization (EoP) % 83% 84% 84%US$:` 60.8 61.5 61.5Source: Company, Anand Rathi Research

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Autos

Company Update India I Equities

Volume data – December ’13 (units) Dec-13 yoy chg (%) mom chg (%) ytd FY14 yoy chg (%)

Motorcycles 260,645 -12.6 -6.5 2,597,112 -10.4

Three-wheelers 37,131 -18.6 16.4 337,383 -5.9

Total volumes 297,776 -13.4 -4.1 2,934,495 -9.9

Motorcycles (% of total) 87.5 79 -220 88.5 -49

Three-wheelers (% of total) 12.5 -79 220 11.5 49

Geographical split

Exports 150,753 19.6 12.7 1,186,099 0.3

Domestic 147,023 -32.5 -16.9 1,748,396 -15.7

Exports (% of total) 50.6 1399bps 757bps 40.4 411bps

Domestic (% of total) 49.4 -1399bps -757bps 59.6 -411bps

Source: Company

`

Rating: Buy Target Price: `2,144 Share Price: `1,899

Key data BJAUT IN / BAJA.BO52-week high / low `2,229/ `1,658 Sensex / Nifty 20851 / 62213-m average volume US$16.1m Market cap `549.5bn / US$8.86bn Shares outstanding 289m


Promoters 50.02 50.02 50.02 - of which, Pledged 0.06 0.06 0.10Free Float 49.98 49.98 49.98 - Foreign Institutions 17.81 17.43 18.20 - Domestic Institutions 7.79 7.78 7.26 - Public 24.38 24.77 24.52

6 January 2014

Bajaj Auto

Domestic sales at bottom, slow recovery hereon; Buy

Key takeaways

Sluggish motorcycle sales. Bajaj Auto’s (BAL) reported sales, of 297,776 units in Dec ’13 (down 13.4% yoy and 4.1% mom), was largely on the expected lines. Motorcycles sales, however, slid 6.5% mom, the lowest for December over November since Dec ’04. Yoy, sales were lower 12.6%. Our residual growth estimate for two wheelers stands at 4.3%. Three wheelers better qoq. While despatches in three wheelers remained subdued (lower 18.6% yoy), after falling sharply for two consecutive months, mom sales improved 16.4%. This corresponds with the company’s guidance last month of three-wheeler volumes hovering around the 40,000 unit mark. Our residual decline expectation for this segment is 2.4%. Exports surpass domestic sales. December normally witnesses higher exports, as domestic sales in this month are normally sluggish. Nevertheless, exports in Dec’13 rose exceptionally higher, up a huge 19.6% yoy and 12.7% mom. Domestic sales, on the other hand, were 32.5% lower yoy. In a significant product mix alteration, BAL’s exports surpassed its domestic sales for the first time ever. Our take. For 4QFY14, the demand outlook remains unexciting (residual growth estimate 3.5%). Dec ‘13 performance indicates that motorcycle market share loss persisted (423bps lower in Apr-Nov ’13). However, we believe that the worse performance is now factored in the estimates and stock price. The key positives are sustained better export realisations yoy and a higher share of exports in the product mix. Recovery in three-wheeler sales ahead would be an added positive. Hence, we upgrade our recommendation on the stock to a Buy. At our price target, the stock would trade at PE of 15.8x FY15e. Risks. Later-than-expected demand recovery, problems in export destinations, unfavourable forex movements, and higher commodity prices.


Sales (`m) 208,113 238,745

Net profit (`m) 34,835 39,366

EPS (`) 120.4 136.0

Growth (%) 14.6 13.0

PE (x) 15.8 14.0

PBV (x) 5.6 4.5

RoE (%) 35.4 32.3

RoCE (%) 49.9 45.7

Dividend yield (%) 2.6 2.9

Net gearing (%) 18.8 15.7


Estimates revision (%) FY14e FY15e

Sales -3.4 0.3

EBITDA -1.9 2.0

EPS -1.7 1.9

Change in Estimates Target Reco

6 January 2014 Bajaj Auto – Domestic sales at bottom, slow recovery likely hereon; Buy




Net revenues 195,290 199,973 208,113 238,745 274,609Revenue growth (%) 19.1 2.4 4.1 14.7 15.0- Op. expenses 158,090 163,140 162,995 187,566 217,861EBIDTA 37,200 36,833 45,118 51,179 56,747EBITDA margin (%) 19.0 18.4 21.7 21.4 20.7- Interest expenses 222 5 4 4 4- Depreciation 1,456 1,640 1,873 2,012 2,144+ Other income 6,080 7,435 6,871 7,479 8,517- Extraordinary items 1,340 -40 1,354 0 0- Tax 10,221 12,227 14,871 17,276 19,250Effective tax rate (%) 25.4 28.7 30.5 30.5 30.5Reported Profit 30,041 30,436 33,887 39,366 43,866Adjusted Profit 31,046 30,408 34,835 39,366 43,866Adj. Profit growth (%) 18.7 -2.1 14.6 13.0 11.4Adj. FDEPS (`/share) 107.3 105.1 120.4 136.0 151.6Adj. FDEPS growth (%) 18.7 -2.1 14.6 13.0 11.4Source: Company, Anand Rathi Research


Reported Profit 30,041 30,436 33,887 39,366 43,866+ Depreciation 1,456 1,640 1,873 2,012 2,144Cash profit 31,497 32,075 35,760 41,378 46,010- Incr./(decr.) in WC -6,344 8,637 -1,380 2,585 2,443Operating cash-flow 37,841 23,439 37,140 38,793 43,567- Capex -237 6,847 3,000 3,000 3,000Free cash-flow 38,078 16,592 34,140 35,793 40,567- Dividend 15,134 15,235 16,927 18,620 20,313+ Equity raised 0 0 0 0 0+ Debt raised -2,236 -366 0 0 0- Investments 1,609 15,477 20,000 17,000 19,000- Misc. items 4,848 -3,535 -2,459 -2,705 -2,951Net cash-flow 14,251 -10,950 -328 2,877 4,205+ Op. cash & bank bal. 2,288 16,538 5,589 5,260 8,137Cl. cash & bank bal. 16,539 5,588 5,260 8,137 12,342Source: Company, Anand Rathi Research

Fig 5 – PE band

Bajaj Auto

4x

7x

10x

13x

16x

19x

200

600

1,000

1,400

1,800

2,200

2,600

Apr-0

9

Aug-

09

Dec

-09

Apr-1

0

Aug-

10

Dec

-10

Apr-1

1

Aug-

11

Dec

-11

Apr-1

2

Aug-

12

Dec

-12

Apr-1

3

Aug-

13

Dec

-13

Source: Bloomberg, Anand Rathi Research

Fig 2 – Balance sheet (`m) Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Share capital 2,894 2,894 2,894 2,894 2,894Reserves & surplus 57,517 76,126 95,545 118,995 145,499Net worth 60,411 79,020 98,438 121,889 148,392Total debt 1,250 884 884 884 884Def. tax liab. (net) 484 1,151 1,151 1,151 1,151Capital employed 62,145 81,055 100,474 123,924 150,428Net fixed assets 15,234 20,980 22,107 23,095 23,951Investments 48,828 64,305 84,305 101,305 120,305Net working capital -18,455 -9,818 -11,198 -8,613 -6,170Cash and bank balance 16,538 5,589 5,260 8,137 12,342Capital deployed 62,145 81,055 100,474 123,924 150,428No. of shares (m) 289 289 289 289 289Net debt -64,116 -69,009 -88,681 -108,558 -131,762Net debt / Equity -1.1 -0.9 -0.9 -0.9 -0.9WC turn days -17 -11 -11 -11 -11Book value (`/sh) 208.8 273.1 340.2 421.2 512.8Source: Company, Anand Rathi Research


P/E (x) 17.7 18.1 15.8 14.0 12.5P/B (x) 9.1 7.0 5.6 4.5 3.7EV/EBITDA (x) 13.0 13.0 10.2 8.6 7.4RoE (%) 51.4 38.5 35.4 32.3 29.6RoCE (%) 67.3 52.6 49.9 45.7 42.0Dividend yield (%) 2.4 2.4 2.6 2.9 3.2Dividend payout (%) 49.8 49.2 49.1 46.5 45.5Debt to equity (%) 0.0 0.0 0.0 0.0 0.0Core P/E (x) 20.0 20.0 17.6 15.0 13.6Cash P/E 16.9 17.1 15.0 13.3 11.9EV/sales 2.6 2.5 2.3 1.9 1.5Inventory days 13 12 12 12 12Receivables days 8 14 14 14 14Payables days 38 37 37 37 37Asset Turnover 3.0 2.4 2.0 1.9 1.8Source: Company, Anand Rathi Research

Fig 6 – Product mix

0

250,000

500,000

750,000

1,000,000

1,250,000

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

Two-wheelers Three-wheelers

Source: Company



Subdued performance

For Dec ‘13, BAL’s sales in its home market came at 147,023 units (down 32.5% yoy and 16.9% mom), less than we expected. This was its lowest domestic sales in October since July ‘09, as BAL registered a seventh consecutive month of yoy decline.

Exports though, were better, growing a robust 19.6% yoy and 12.7% mom. Ytd total sales were down 3.3% yoy and our residual growth estimate is 3.5%.

Ytd motorcycle sales are down 10.4%; our residual growth expectation is 4.3%. Management expects growth ahead to be driven by new models launched on the Discover platform.

Three-wheeler sales, which had been doing well on a lower base in 1Q, registered another muted month, as sales were 18.6% lower yoy. This led the ytd decline to 5.9%. Our residual growth expectation for this segment now stands at 2.4%.

Fig 7 – Yoy sales dip again MoM sales also lower

250,000

290,000

330,000

370,000

410,000

Apr-1

1

Aug-

11

Dec

-11

Apr-1

2

Aug-

12

Dec

-12

Apr-1

3

Aug-

13

Dec

-13

(Units)

-20

-5

10

25

40

(%)

Volume yoy growth (RHS)

Source: Company

250,000

290,000

330,000

370,000

410,000

Apr-1

1

Aug-

11

Dec

-11

Apr-1

2

Aug-

12

Dec

-12

Apr-1

3

Aug-

13

Dec

-13

(Units)

-20

-10

0

10

20

(%)

Volume mom growth (RHS) Source: Company

Fig 8 – Three wheelers better mom

25,000

30,000

35,000

40,000

45,000

50,000

55,000

Apr-1

1

Aug-

11

Dec

-11

Apr-1

2

Aug-

12

Dec

-12

Apr-1

3

Aug-

13

Dec

-13

(Units)

-40

-20

0

20

40

60

80

(%)

Three-wheelers yoy growth (RHS)

Source: Company

Fig 9 – Motorcycles lower

220,000

260,000

300,000

340,000

380,000

Apr-1

1

Aug-

11

Dec

-11

Apr-1

2

Aug-

12

Dec

-12

Apr-1

3

Aug-

13

Dec

-13

(Units)

-25

-10

5

20

35

(%)

Motocycles yoy growth (RHS) Source: Company



Valuation

For 4QFY14, the demand outlook remains unexciting (residual growth estimate is 3.5%). Dec ‘13 performance indicates that motorcycle market share loss persisted (423bps lower in Apr-Nov ’13).

However, we believe that the worse performance is now factored in the estimates and stock price. Key positives are sustained better export realisations yoy and a higher share of exports in the product mix. Recovery in three-wheeler sales ahead would be an added positive. Therefore, we upgrade to Buy. At our price target, the stock would trade at PE of 15.8x FY15e. The stock is also trading lower to its past three-year average EV/EBITDA multiple

Risks. Later-than-expected demand recovery, problems in export destinations, unfavourable forex movements, and higher commodity prices.

Fig 10 – EV/EBITDA band

+1SD

+2SD

Mean

-1SD

-2SD

8

9

10

11

12

13

14

Apr-1

0

Jul-1

0

Oct

-10

Jan-

11

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Source: Company, Anand Rathi Research

Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 6 January 2014)

Bajaj Auto19

1

2

3

4

56

78

910

1112

13

14

15

1617

18

150350

550750950

1,1501,350

1,5501,7501,950

2,1502,350

May

-08

Sep-

08

Jan-

09

May

-09

Oct

-09

Feb-

10

Jun-

10

Oct

-10

Feb-

11

Jun-

11

Oct

-11

Feb-

12

Jun-

12

Oct

-12

Feb-

13

Jun-

13

Oct

-13

Date Rating TP (`)

Share Price (`)

1 25-Feb-09 Buy 305 250 2 29-Mar-09 Buy 357 308 3 14-Apr-09 Buy 358 306 4 22-May-09 Hold 494 467 5 2-Jul-09 Hold 552 504 6 17-Jul-09 Hold 634 574 7 16-Oct-09 Hold 828 777 8 21-Dec-09 Buy 1,060 830 9 15-Jan-10 Buy 1,087 853

10 13-May-10 Buy 1,299 1,073 11 20-Oct-10 Buy 1,846 1,502 12 9-Apr-12 Buy 1,939 1,654 13 8-Oct-12 Buy 2,028 1,750 14 2-Jan-13 Buy 2,304 2,137 15 20-May-13 Buy 2,131 1,833 16 3-Jul-13 Sell 1,721 1,923 17 9-Oct-13 Sell 1,853 2,119 18 17-Oct-13 Sell 1,900 2,121 19 7-Nov-13 Sell 1,990 2,060

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.



Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5%

Anand Rathi Research Ratings Distribution (as of 2 Jan 2014) Buy Hold Sell Anand Rathi Research stock coverage (179) 61% 29% 9% % who are investment banking clients 5% 0% 0% Other Disclosures This report has been issued by ARSSBL which is a SEBI regulated entity, and which is in full compliance with all rules and regulations as are applicable to its functioning and governance. The investors should note that ARSSBL is one of the companies comprising within ANAND RATHI group, and ANAND RATHI as a group consists of various companies which may include (but is not limited to) its subsidiaries, its affiliates, its group companies who may hold positions, views, stakes and may service the companies covered in this report independent of ARSSBL. Investors are cautioned to be aware that there could arise a potential conflict of interest in the views held by ARSSBL and other companies of Anand Rathi who maybe affiliated, connected or catering to the companies mentioned in the Research Report; even though, ARSSBL and Anand Rathi are fully complaint with all procedural and operational regulatory requirements. Thus, investors should not use this as a sole basis for making their investment decision and should consider the recommendations mentioned in the Research Report bearing in mind the aforementioned.



Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.



Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5% Anand Rathi Research Ratings Distribution (as of 2 Jan 2014) Buy Hold Sell Anand Rathi Research stock coverage (179) 61% 29% 9% % who are investment banking clients 5% 0% 0% Other Disclosures This report has been issued by ARSSBL which is a SEBI regulated entity, and which is in full compliance with all rules and regulations as are applicable to its functioning and governance. The investors should note that ARSSBL is one of the companies comprising within ANAND RATHI group, and ANAND RATHI as a group consists of various companies which may include (but is not limited to) its subsidiaries, its affiliates, its group companies who may hold positions, views, stakes and may service the companies covered in this report independent of ARSSBL. Investors are cautioned to be aware that there could arise a potential conflict of interest in the views held by ARSSBL and other companies of Anand Rathi who maybe affiliated, connected or catering to the companies mentioned in the Research Report; even though, ARSSBL and Anand Rathi are fully complaint with all procedural and operational regulatory requirements. Thus, investors should not use this as a sole basis for making their investment decision and should consider the recommendations mentioned in the Research Report bearing in mind the aforementioned.














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