investment funds advisory for today: buy stock of powergrid and ifgl refractories ltd
DESCRIPTION
See Private Sector Banks Result Review 3QFY14. Powergrid strong growth visibility and minimal operational risks. We valued stock for a 12 month period at a target price of Rs.118 also We rate a BUY rating on the stock with an 12 months price target price of Rs 80.0 at 4.1x FY15E earnings of IFGL Refractories Ltd stock.TRANSCRIPT
Powergrid : "BUY"
Most of PSBs profitability were declined due to higher operating cost, surge in provisions and contingencies and creation of DTL special reserve.
But declining profitability and deteriorating asset quality is not a concern but structure damage of balance sheet. Going forward banks with
higher CASA base and healthy growth in deposits would able to protect margin and hence profitability. Post result we like SBI, Union Bank and
UCO Bank due to their structural improvement in balance sheet, operating and financial metrics.
............................................................................ ( Page : 13-14)
AXIS BANK : "BOOK PART
PROFIT "25th Feb 2014
We advice our investor to book part profit in Axis Bank as bank has achieve our target price level of Rs.1217. We still stick to our valuation on
account of bank’s uncomfortable earnings and asset quality stress. Bank’s profitability was up by 19% YoY on the back of right back of
investment depreciation provisions. Exposure to risky sector remained high which would keep asset quality under stress. These factors compel
us to value bank at 1.5 times of FY14E’s book value......................................................... ( Page : 18-22)
SHREE CEMENT. "BOOK PROFIT " 25th Feb 2014
The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market scenario the price is fare enough to trade.But looking at
future capex plans and sluggish demand we belive the earnings and profitability of Shree cement may fall for the next two consecutive
quarters.The profitability may fall due to incrising depriciation.Till now the company's depriciation level is stable but it may surprise further.so
we recommend its a better pic to book profit. ................................................................. ( Page : 15-17)
3th March, 2014
Edition : 216
Public Sector Banks Result Review 3QFY14 26th Feb 2014
28th Feb 2014
For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted by seasonality and furloughs impact. However, most of
companies expressed its sanguine view for industry outlook and demand discretionary environment ahead. Post earnings, almost all companies
management have expressed for better earnings outlook in near term . .................................................. ( Page : 7-12)
IT Industry: 3QFY14 results review : "Clear acceleration in growth"
IEA-Equity
Strategy
Private Sector Banks Result Review 3QFY14 3th Mar 2014
Private Banks are trading at significantly lower or reasonable valuation when compare to their historical trend due to possible deterioration in
asset quality earnings pressure and political un-clarity. We prefer private banks over PSBs largely due to their capability to report healthy
earnings, higher capital adequacy ratio and lower or stable asset quality. Our top picks in sector are HDFC Bank, ICICI Bank, Indusind Bank and
DCB. ............................................................................ ( Page : 5-6)
3th Mar 2014
IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing Continuous Casting Refractories and Special grade
Refractories which find applications in steel industry. IFGL has grown as an Indian multinational with manufacturing facilities located in Brazil,
China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a subsidiary of world’s second largest steel maker
NipponSteel Corporation holding about 15 % stake in IFGL. We expect IFGL will report its best ever performance in this full year. Considering
industry’s improving prospects, stabilization of production from its newly built plant at Kandla SEZ and out performance of company in its
financials, We don’t expect any scope for deep correction, hence recommending a BUY. ................................................................................... (
Page : 3-4)
3th Mar 2014
The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x BVPS. Valuation is very reasonable for a business
model with RoE (16%), strong growth visibility and minimal operational risks. We valued stock for a 12 month period at a target price of
Rs.118.With equity dilution overhang on the stock is removed, so we expect the stock price will drive by purely on its fundamentals, on our
estimates we maintain a positive fundamental outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of further
equity dilution is reduced . ............................................................ (Page : 2)
IFGL Refractories Ltd :"Strong Fundamentals…..." "BUY"
Narnolia Securities Ltd,
India Equity AnalyticsDaily Fundamental Report on Indian Equities
Powergrid..
95
118
NA
25%
NA
532898
49490
22270
6277
1M 1yr YTD
Absolute 8.2 9.5 8.1
Rel. to Nifty 9.5 3.8 4.0
3QFY14 2QFY14 1QFY14
Promoters 57.9 57.9 69.4
FII 25.4 19.4 14.7
DII 8.6 8.8 7.6
Others 8.2 13.9 8.3
View & Recommendation
Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14
Revenue 3685 9.4 -7.9 3369 3999
EBIDTA 3105 6.0 -8.4 2930 3389
Net Profit 988 -8.5 -16.9 1080 1189
EBIDTA% 84 -3.1 -0.6 87 85
NPM% 27 -16.3 -9.8 32 30(In Crs)
2
CMP
Target Price
Previous Target Price
Nifty
Update BUY
Market Data
Average Daily Volume (Nos.)
With equity dilution overhang on the stock is removed, so we expect the stock price will
drive by purely on its fundamentals, on our estimates we maintain a positive fundamental
outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of
further equity dilution is reduced
Capitalisation of assets remains on track. Till Jan end the company has capitalised Rs
118bn of assets which is 70% of our full year estimate. Since last two months of the year
usually account for the bulk of yearly commissioning we are confident that the co. will meet
our estimate of Rs 170bn for FY14.
Strong Capitalization : Power Grid’s adjusted PAT increased 4.3% YoY to Rs. 1,043 crore
in Q3FY14 While asset capitalisation was below estimate Rs. 3050 crore, PGCIL
commissioned another Rs. 3450 crore in January 2014 taking overall capitalisation to Rs.
13000 crore YTDFY14.
Overall revenues increased 9.6% YoY to Rs.3685 crore due to lower than anticipated
capitalisation (Rs.3050 crore) in Q3FY14 . Income increased 6.5%, 10.0% and 121.9% YoY
in transmission, telecom and consultancy income, respectively. Other income declined
9.7% YoY to Rs.116 crore as cash was deployed across various upcoming projects.
Margins declined 336 bps YoY to 87.4% due to 55.7% YoY rise in transmission & other
expenses to Rs.333 crore. Tax expenses increased 7.5% YoY to Rs. 399 crore. Q3FY13
included a one-time income of Rs.167 crore as wage revision benefit. Adjusting the same,
PAT increased 4.3% YoY to Rs.1,043 crore.
Upside
Change from Previous
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
1 yr Forward P/B
Source - Comapany/EastWind Research
The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x
BVPS. Valuation is very reasonable for a business model with RoE (16%), strong growth
visibility and minimal operational risks. We valued stock for a 12 month period at a target
price of Rs.118.
Power Grid's Raichur-Solapur line has been connected to national grid. Management Says
there were four trippings in the first week. Two were to increase reliability and were
done intentionally, and the other two were because of a few glitches. For the last month
there has been no tripping.
The Central Electricity Regulatory Commission (CERC) issued the final tariff regulations for
the period FY15-19 – these regulations form the basis of Power Grid’s earnings (regulated
returns) from its core transmission business over the next five years.The Key take aways
of these Regulations are Normative TAF (NATAF) for incentives lowered; no incentive for
TAF >99.75% .Normative O&M charges raised (vs. draft), but still below FY14 levels.
BSE Code
POWERGRIDNSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
116/87
"Buy"3rd march' 14
Narnolia Securities Ltd,
V- IFGL Refractories Ltd.
CMP 62
Target Price 80
Previous
Target Price
NA
Upside 29%
Change from
Previous
0%
BSE Code 532133
NSE Symbol
52wk Range
H/L
24/68
Mkt Capital
(Rs Crores)
214
Average Daily
Volume
6,366
Nifty 6,277
1M 1yr YTD
Absolute (0.5) 75.7 100.2
Rel. to Nifty (3.6) 68.5 89.7
3QFY14 2QFY14 1QFY14
Promoters 71.3 71.3 71.3
FII 0.0 0.0 0.0
DII 2.2 2.2 2.2
Others 26.5 26.5 26.5
Financials Rs, Crore
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 194.7 201.4 -3.3% 169.0 15.3%
EBITDA 27.2 29.9 -8.8% 18.3 48.5%
PAT 14.3 19.1 -25.2% 9.5 50.3%
EBITDA Margin 14.0% 14.8% (80) bps 10.9% 310 bps
PAT Margin 7.4% 9.7% (230) bps 5.1% 230 bps
3
IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing
Continuous Casting Refractories and Special grade Refractories which find applications in steel
industry. IFGL has grown as an Indian multinational with manufacturing facilities located in
Brazil, China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a
subsidiary of world’s second largest steel maker NipponSteel Corporation holding about 15 %
stake in IFGL. The company has a lot of subsidiaries with the ones in US and Germany
seemingly doing well. For the latest December quarter,on a consolidated basis company
reported a Sales of Rs. 195.7 Cr v/s Rs. 168.9 Cr. Net profit improved sharply from Rs. 9.5 Cr to
Rs. 14.3 Cr. For 9 Month period EPS is Rs. 13.9 which is more than the full year figure of Rs. 7.3
of last year. We expect IFGL will report its best ever performance in this full year. Considering
industry’s improving prospects, stabilization of production from its newly built plant at Kandla
SEZ and out performance of company in its financials, We don’t expect any scope for deep
correction, hence recommending a BUY.
"Strong Fundamentals…..."
Result update
1 yr Forward P/B
Share Holding Pattern-%
Stock Performance-%
Market Data
IFGLREFRAC
Buy
Industry revival to spur growth :
Fate of refractory companies closely related with the growth of steel industry. Now steel industry
world around showing some earlier signs of revival.As a global player ,IFGL is expected to get
immense benefit from this revival.Its technical collaboration and equity participation with one of
the world leaders also helping the company to adopt latest technology in manufacturing process.
A major portion of company’s income is from exports and the currency valuation of currency is
also positive for it. Steel industry in the US and in Europe is coming out of pro-longed recession
and demand in India is also expected to pick up on account of major projects getting started.
Increase in capital expenditure for capacity expansion by major steel producers both within India
and internationally augurs well for the refractory industry
Valuation :
Low leverage balance sheet and attractive valuations augurs well :
IFGL reported debt equity ratio of 0.35x in Sep FY13, even after the series of acquisitions, and we
expect it to gradually reduce over time to 0.28x in FY15E.Company having an uninterrupted
dividend paying record for the past four years. Promoters holding more than 70 % stake (NIL
pledged) in the company and another 7 % is held by large investors. At a time the steel industry
is showing revival, We expect IFGL will report its best ever performance in this full year.
Considering industry’s improving prospects, stabilization of production from its newly built plant
at Kandla SEZ and out performance of company in its financials, We don’t expect any scope for
deep correction, hence recommending a BUY.
(Standalone)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/ Eastwind Research)
At CMP of INR 62, IFGL is trading at P/E of 3.7x and 3.2x its FY14E and FY15E earnings. Company
can post the EPS of Rs 16.8/18.6 in FY14/15E and RoE% of 20.3%/19.2% in FY14/15E . We rate a
BUY rating on the stock with an 12 months price target price of Rs 80.0 at 4.1x FY15E earnings.
"Buy"3rd Mar' 14
Narnolia Securities Ltd,
4
Please refer to the Disclaimers at the end of this Report.
Finolex Cables Ltd.
Key financials :
(Source: Company/ Eastwind Research)
Narnolia Securities Ltd,
PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E
Performance
Revenue 398 415 471 604 671 772 888
Other Income 2 3 5 3 4 3 3
Total Income 401 419 476 607 676 776 891
EBITDA 27 58 43 75 58 106 120
EBIT 20 50 34 62 45 89 103
Depriciation 7 8 9 13 13 17 17
Intrest Cost 10 5 6 7 8 7 7
PBT 13 49 33 58 41 85 99
TAX 7 15 8 18 16 27 31
Derrivative Loss 0 0 0 0 0 0 0
Reported PAT 6 34 24 40 25 58 68
Dividend 2 2 0 1 2 2 2
EPS 1.8 9.7 7.0 11.5 7.3 16.8 19.6
DPS 0.7 0.6 0.0 0.2 0.6 0.6 0.6
Yeild %
EBITDA % 6.9% 13.9% 9.1% 12.3% 8.7% 13.7% 13.5%
NPM % 1.5% 8.0% 5.1% 6.6% 3.8% 7.5% 7.6%
Earning Yeild % 9.7% 17.6% 22.9% 29.2% 23.7% 27.2% 31.6%
Dividend Yeild % 3.7% 1.1% 0.0% 0.5% 1.9% 1.0% 1.0%
ROE % 5.3% 24.6% 15.0% 19.2% 11.0% 20.3% 19.2%
ROCE% 2.8% 15.6% 8.3% 11.9% 7.1% 14.6% 15.0%
Position
Net Worth 114 137 161 207 231 287 353
Total Debt 100 79 129 127 129 110 100
Capital Employed 214 216 290 335 360 397 453
No of Share 3 3 3 3 3 3 3
CMP 18 55 31 39 31 62 62
Valuation
Book Value 32.8 39.6 46.6 59.9 66.7 83.0 101.9
P/B 0.5 1.4 0.7 0.7 0.5 0.7 0.6
Int/Coverage 2.1 11.1 5.7 9.1 5.6 12.2 14.1
P/E 10.3 5.7 4.4 3.4 4.2 3.7 3.2
5
Better than expected NII on the back of margin expansion and loan growth
Private sector banks delivered better when compare to PSBs in term of asset quality
at sequential basis. Sequentially banks reported stable asset quality with high
coverage ratio which provided cushion to their earnings. But in our sense, asset
quality pressure continues to persist because economy growth is likely to be tepid
and it will take some time for recovery in domestic industrial activity and corporate
balance sheet’s leverage to decline. According to S&P, with the uptick in economy,
bank will have take some time for revival as banks have to struggle for capital base
too for further growth but private banks have adequate capital base and healthy tier-
1 capital. Outlook of asset quality in system is not positive and it would remain
challenge for banks in FY14.
Nifty Vs Bank Nifty during Year
Well structure balance sheet led healthy growth at operating profit level
Operating expenses in our coverage universe remained stable on sequential basis
and on very positive note; they delivered on an average basis growth of 19.8% YoY
at operating profit level. This was due to healthy NII growth, stable fee income and
controlled operating leverage. We have highlighted above that banks with healthy
operating profit would do better going forward as strong performance at operating
profit level would be possible only in case of well structure balance sheet growth.
Economic growth and stress in asset quality issue would be resolve with the passage
of time. Although we have not seen any revival in economy nor improvement in asset
quality in near term but private sector banks are trading significant discount as
against their historical valuation due to possible fear of deterioration in assets.
Profitability increased due to healthy NII growth, controlled CI ratio and stable
asset quality
Most of banking stocks are trading at lower side of valuation band due to earnings
pressure, higher operating leverage and asset quality. In our coverage universe,
bank reported profit growth of 16.6% YoY higher than our expectation led by margin
expansion, controlled operating leverage and stable asset quality. Although we saw
some earnings pressure in many large and mid cap banks on which Axis bank’s
profitability was boost up by right back of investment depreciation and Yes Bank’s
provisions and contingencies was almost down by 100% which inflated profit growth
by 21.4% YoY.
Private Sector Banks Result Review 3QFY14
Please refer to the Disclaimers at the end of this Report.
In our coverage universe, banks NII grew by 15.7% YoY largely due to stable margin
and loan growth. Private sector banks are getting benefit from their high base CASA
franchise and low share of high cost wholesale bulk deposit. HDFC Bank, ICICI
Bank, Indusind Bank and DCB were continued to report 20%+ NII growth whereas
Federal Bank, INGVYSYA Bank, J&K Bank saw some stress in their earnings.
Asset quality continues to persist and would take time despite of uptick in
economy
Narnolia Securities Ltd,
6
Private Sector Banks Result Review 3QFY14
We like those banks which did well at operating profit level, keeping in mind that with
slower pace of economy growth and rising interest rate scenario, asset quality pressure
would persist. Provision and contingencies are already expected to remain high. Most of
bank’s profitability was down owing to higher provisions against loan loss. With the
recovery in economy loan growth and asset quality would improve with the passage of
time but operating leverage and margin expansion are permanent structure of balance
sheet. Banks with strong CASA base and adequate deposits growth that could support
loan growth easily without depending upon external fund would do better in going
forward. Outlook
Private Banks are trading at significantly lower to their historical valuation or reasonable
valuation due to their possible earnings pressure and asset quality issue. This is on
account of sluggish economic growth and political un-clarity. Some banks in our universe
are capable to generate high level of profit, have high capital adequacy ratio and lower
level of stress. In our sense these banks would do better in current economy macro
situation. Out top picks are HDFC Bank, ICICI Bank, Indusind Bank and DCB.
Please refer to the Disclaimers at the end of this Report.
Well structure balance sheet growth and high CASA base would help to keep
profitability up
Result Snapshot
Narnolia Securities Ltd,
NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit
AXISBANK 2984 2615 1604 2937 2750 1362 2495 2311 1296 19.6 13.2 23.8 1.6 -4.9 17.8
CUB 198 135 89 190 141 84 163 131 85 21.2 2.8 4.8 4.0 -4.5 6.1
DCB 94 46 36 91 40 33 72 32 27 30.5 44.9 34.7 3.3 15.9 10.2
DHANBANK 57 -8 -119 82 18 -1.85 74 14 4 -23.6 -154.4 -3084.3 -31.1 -142.3 6352.4
FEDERALBNK 546 356 230 548 354 226 497 394 211 9.8 -9.7 9.1 -0.4 0.5 1.8
HDFCBANK 4635 3888 2326 4477 3387 1982 3799 3024 1859 22.0 28.6 25.1 3.5 14.8 17.3
ICICIBANK 4256 4440 2533 4044 3888 2352 3499 3452 2250 21.6 28.6 12.6 5.2 14.2 7.7
INDUSINDBK 730 647 347 700 588 330 578 472 267 26.3 37.2 29.9 4.3 10.1 5.1
INGVYSYABANK 416 274 167 440 276 176 403 263 162 3.3 4.3 3.3 -5.4 -0.6 -4.9
J&KBANK 647 441 321 682 496 303 594 435 289 8.9 1.3 11.2 -5.2 -11.1 6.0
KARURVYSYA 305 153 107 298 157 83 308 212 113 -0.9 -27.8 -5.5 2.4 -2.6 28.7
SOUTHBANK 350 216 141 364 212 127 353 235 128 -0.7 -8.1 10.4 -3.7 1.8 11.3
YESBANK 665 615 416 672 713 371 584 563 342 13.9 9.2 21.5 -1.0 -13.8 12.0
Total 15882 13818 8198 15525 13020 7427 13419 11538 7033 18.4 19.8 16.6 2.3 6.1 10.4
QoQ Growth
PRIVATE BANK
3QFY14E 2QFY14 3QFY13 YoY Growth
IT Industry: 3QFY14 results review
Key takeaways from 3QFY14 earnings:
7
"Clear acceleration in growth"
(Source: Eastwind)
Please refer to the Disclaimers at the end of this Report.
Post earnings, almost all companies management have expressed for better earnings
outlook in near term and they were confident to see stronger FY15E than FY14E on
healthy growth prospect and a secular improvement in demand trend.
Margin ramped up across the Tier-1 and most of mid cap space: Despite flattish currency
benefit, companies have been efficient to maintain its margin because of reinvested
higher growth and efficient strategy to improve utilization. With macro improving and
positive growth outlook, the operating advantage from investment is likely beginning to
play out.
SMAC and Digital were subject to discussion: Emerging verticals SMAC (Social, Mobility,
Analytics and Cloud) and Digital transformation are expected to bring next generation of
growth in IT Industry. A number of IT companies, especially tier-1 IT companies have
expressed its priority area and strategy to pan-out growth opportunities on these
emerging verticals. Current uptrend in discretionary spend is being driven by the same.
Deal Pipeline remains healthy: During the quarter, weak seasonality marginally impacted
order inflow. For near term, deal pipeline remains healthy and somehow, Pricing will be
marginally under pressure in the traditional IT segment, Application Development and
Management segment. While, we do not see any pressure on new emerging segments like
SMAC, Digital, Infra, etc.
Earning Performance v/s Estimates;
Mix performance and margin sustainability, future outlook appears positive;Price performance of our coverage:
(Source: Eastwind)
For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted
by seasonality and furloughs impact. However, most of companies expressed its
sanguine view for industry outlook and demand discretionary environment ahead. The
Top-4 companies responded a decent set of performance despite seasonally weak
quarter with aggregate revenue of 2.8% in USD term (QoQ).
Comparing with street expectation, Infosys and HCL Tech beat the street, while TCS and
Wipro reported inline set of numbers. On margin front, they surprised positively with
back-to-back quarters of margin improvement led by operational efficiencies and cost
rationalization.
USD revenue was marginally inline and Positive FY15E outlook: Reported USD revenues
were in line or very marginally below our estimate during the seasonally weak quarter
across the top tier. A part of this, companies management have given better outlook with
margin expansion for FY15E, even NASSCOM aired the earning guidance of 13-15% for
FY15E, better than FY14E and FY13.
(Source: Eastwind)
Index Performance:
(Source: Eastwind)
Narnolia Securities Ltd,
TCS
WIPRO
CMC
INFY MINDTREE
HCLTECH HEXAWARE
TECHM NIITTECH
ZENSARTECH PERSISTENT
TATA ELXSI ECLERX KPIT
Outperform Inline Underperform
▲ 9.4%
▲ 43%
IT Industry: 3QFY14 results review
8Please refer to the Disclaimers at the end of this Report.
Companies Specific Earnings Review
Tier-1 ; The top four IT companies delivered a decent performance in a seasonally soft quarter with an aggregate revenue growth of
2.8% QoQ. INFY and HCL Tech beat the street on growth and margin front, while TCS and Wipro reported inline set of numbers.
Mid cap/Niche (Tier-2)-TECHM and Persistent outmatch peers; TECHM’s broad based revenue growth and deal signing was robust.
Persistent system surprised positively on margin front for the second consecutive quarter led by higher utilization. Apart of this,
Zensar Tech also reported good margin ramp up during the quarter. As a backbencher, KPIT, NIITTECH and Hexaware reported flat to
below expected numbers.
Growth and Margin Performance-%
(Source: Company/Eastwind)
*Infosys (net profit for 2QFY14 includes the one-time visa charge of Rs219 crore).
# HCL Technologies (June year ending). $ Hexaware (Follow Callendar year)
(Source: Company/Eastwind)
Narnolia Securities Ltd,
3QFY13 2QFY14 3QFY14E 3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14
TCS 16069.9 20977.2 21606.6 21294.0 4660.5 6633.0 6300.3 6686.8 3549.6 4633.3 5096.7 5333.4
INFY* 10424.0 12965.0 13069.1 13026.0 2677.0 2837.0 3424.1 3258.9 2369.0 2407.0 2695.8 2874.9
WIPRO 9587.5 10990.7 11342.4 11327.4 2050.2 2503.8 2552.0 2652.7 1598.1 1932.0 1984.2 2014.7
HCLTECH# 6273.8 7961.0 8160.0 8184.0 1416.6 2093.0 2080.8 2125.0 974.3 1416.0 1472.6 1495.0
TECHM 3523.7 4771.5 4819.2 4898.6 756.9 1110.9 1084.3 1136.3 455.9 718.2 754.1 1009.8
CMC 493.0 560.8 566.4 561.0 83.2 88.4 87.8 90.8 61.1 67.3 65.6 70.6
MINDTREE 590.1 769.5 792.2 790.6 120.4 159.8 153.9 154.1 87.7 113.0 98.6 114.0
HEXAWARE$ 507.5 621.1 629.2 620.0 109.0 147.7 147.9 139.4 66.2 98.7 103.6 103.3
NIITTECH 514.4 587.3 593.5 587.3 81.3 88.6 86.1 95.1 56.6 60.4 57.4 52.5
KPIT 563.3 702.8 722.0 677.9 87.9 108.1 115.5 103.5 59.9 66.7 69.4 60.8
PERSISTENT 333.0 432.4 436.1 432.8 82.4 100.8 104.7 104.3 49.5 60.8 66.9 64.2
ZENSARTECH 525.5 599.7 590.6 594.1 70.1 102.5 87.5 87.3 48.7 70.6 50.4 50.8
ECLERX 170.8 214.6 218.5 219.5 66.8 92.8 90.5 88.8 49.8 67.2 61.4 62.3
TATA ELXSI 156.7 190.0 195.5 200.1 16.5 32.4 40.4 43.6 8.8 19.9 20.5 21.6
CompanySales,cr EBITDA,cr PAT,cr
Sales EBITDA PAT Sales EBITDA PAT EBITDA PAT EBITDA PAT
TCS 1.5% 0.8% 15.1% 32.5% 43.5% 50.3% 31.4% 25.0% (20bps) 290bps
INFY 0.5% 14.9% 19.4% 25.0% 21.7% 21.4% 25.0% 22.1% 310bps 350bps
WIPRO 3.1% 5.9% 4.3% 18.1% 29.4% 26.1% 23.4% 17.8% 60bps 20bps
HCLTECH 2.8% 1.5% 5.6% 30.4% 50.0% 53.4% 26.0% 18.3% (30bps) 50bps
TECHM 2.7% 2.3% 40.6% 39.0% 50.1% 121.5% 23.2% 20.6% (10bps) 560bps
CMC 0.0% 2.7% 4.8% 13.8% 9.1% 15.5% 16.2% 12.6% 40bps 60bps%
MINDTREE 2.7% -3.6% 0.9% 34.0% 28.0% 30.0% 19.5% 14.4% (130bps) (30bps)
HEXAWARE -0.2% -5.7% 4.7% 22.2% 27.9% 56.0% 22.5% 16.7% (130bps) 80bps
NIITTECH 0.0% 7.3% -13.1% 14.2% 17.0% -7.2% 16.2% 8.9% 110bps (130bps)
KPIT -3.5% -4.3% -8.8% 20.3% 17.7% 1.5% 15.3% 9.0% (10bps) (50bps)
PERSISTENT 0.1% 3.5% 5.6% 30.0% 26.6% 29.7% 24.1% 14.8% 80bps 80bps
ZENSARTECH -0.9% -14.9% -28.0% 13.1% 24.5% 4.3% 14.7% 8.6% (240bps) (320bps)
ECLERX 2.3% -4.3% -7.2% 28.5% 32.9% 25.2% 40.5% 28.4% (280bps) (290bps)
TATA ELXSI 5.3% 34.6% 8.5% 27.7% 164.4% 146.9% 21.8% 10.8% 470bps 30bps
Margin Change,(QoQ)Company
Growth (QoQ)-% Margin-%Growth (YoY)-%
IT Industry: 3QFY14 results review
9Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
(Source: Company/Eastwind)
Utilization Rate-%
(Source: Company/Eastwind)
(Source: Company/Eastwind)
Attirition rate-%
Employee Addition;
Sales mix- Segment wise
During the quarter, manufacturing
segment reported attractive growth.
Whilea mong service offerings,
Infrastructure Management Services
(IMS) will be a key growth driver.
Operating Metrics across Tier-1 IT space
Sales mix- Geogrpahy wise
Discretionary spends continue to gain
momentum in America and in specific
pockets in Europe.
Narnolia Securities Ltd,
TCS INFY WIPRO HCLTECH
Total Employee 290713 158404 146402 88332
Gross Addition 14663 6,682 -814 7593
IT Industry: 3QFY14 results review
10Please refer to the Disclaimers at the end of this Report.
-Despite salary hike in 4Q, margin would be on place. Wage hike in 4Q could impact
200bps in margin front, but management is confident to mitigate.
-The company expects to maintatin its tax regime at 20-20.5% for coming quarter. For
next year tax rate could be stand at a range of 20-21%.
-Company’s hiring Plan; a net addition of 400-500 this year.
Key Takeaways from Conference Call;
(1) TCS
- Confident of beating NASSCOM's FY15 growth guidance of 13-15%,
-FY15E will be better than the current fiscal,
-Expect Europe to perform better than the US,
-Chasing 20-25 large transformational deals,
-Seeing an uptick in discretionary spends,
(3) WIPRO
-Expect better FY15E than FY14.
-4QFY14: Revenues from IT Services business to be in the range of $ 1,712 million to
$1,745 million* including the revenues from acquisition.
- Lateral hiring 50000-55000 in FY15E,
(2) INFOSYS
-Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%.
-They are seeing confidence coming back from client’s metrics.
-The Company is looking to bring in about maximum 6,000 off-campus offers.
-The company expects to see margin at a range of 21-22% in near term.
-The company is expecting to catch up more deal from US and Europe because of better
demand environment ahead.
-The wage hike is spread over two quarters or rather more than two quarters. Q3 and Q4
margin could be impact be 30bps.
-Hiring target for FY15E would be like FY14, will focus on onsite hiring.
-Wage hike by 1st June ,2014.
(4) HCLTECH:
(6) CMC
-CMC continues to target growth ahead of the overall IT industry; the company expects to
grow faster than that in the current financial year.
-Expects operating Profit margin at 16 percent for FY14E,
(5) TECHM
-The Company aspires revenues of USD 5 billion by 2015. This expects to be through
organic and inorganic initiatives (looking for USD 0.5 billion to 0.8 billion as acquisition
targets) going forward.
-Expecting utilisation rate to 77% from 75%(3QFY14) in near term.
-The tax rate expected to be 26% for the FY'14.
-Year 2014 would be better year than FY13, demand environment and Order pipeline is
looking good.
Narnolia Securities Ltd,
IT Industry: 3QFY14 results review
-Expect to see similar set of environment in FY 15E than FY14.
-Tax rate is expected to see at 23% mark in FY15E.
-It continues to look at inorganic opportunities.
- Expects to maintain 51% of payout ratio.
-Management expects the strong traction in top 10/20 clients to continue.
-Management expects to see better revenue growth in 4QFY14E than 3QFY14.
-The company is making significant changes in organization structure.
11Please refer to the Disclaimers at the end of this Report.
-It expects the growth momentum will sustain with holding the margins going forward.
(9) ZENSARTECH
-Expects 4QFY14E revenue performance to be better than both 4QFY13 revenue
performance (+2.8% QoQ) as well as 3QFY14 revenue growth (+2.5% QoQ).
-The company is optimistic to see more deals on SMACS and IP led business.
-Company expects FY14 to be better than FY13 with respect to both revenue growth and
EBIT margin.
(10) ECLERX
-Managent is very confident to maintain attrition at 12-13% and utilization at 77-80% in
near to medium term.
(8) NIITTECH
-The Company’s focus on newer technologies like cloud, analytics, mobility and digital
transformation are gaining traction.
- It expects double-digit growth in the Enterprise Services business for the FY15 on the
back of healthy pipeline.
- It anticipates good growth from the IMS for the FY'15.
-Management has expressed its margin at a range of 16-17%
(7) PERSISTENT SYS
- Persistent is confident of doing more than 15% revenue ($) growth forFY14E.
-They expect to maintain margin at 24-25% for FY14E.
-Expects 20-21% growth in the next year from IP led business, which in turn will help
improve margins going forward.
-The billing rates expected to be flat to slight uptick for the FY15E.
(12) KPIT
-Margins are expected to improve going forward as the one off during the quarter will be
absent.
-Utilization will also go up as revenue growth is realized on the back two deals won this
quarter which have a duration of 12 months.
-On margins, it indicated that it will continue to operate in the mid 30% (30-31%) going
forward.
(11) MINDTREE
-Company expects to maintain operating margins at current levels in the near/medium
term
Narnolia Securities Ltd,
IT Industry: 3QFY14 results review
View and valuation:
12Please refer to the Disclaimers at the end of this Report.
Hence, with strong medium term earnings visibility, better demand environment and
optimistic management comments, we maintain our positive stance on (In order of
preference) TECHM, PERSISTENT, ZENSARTECH, ECLERX and KPIT under mid cap space.
For FY15E, NASSCOM expects IT exports
to grow by 13-15% and domestic market
to grow by 9-12% based on broad
feedback loop from companies and
captives.
Industry Outlook:We have seen a significant increase in global technology spending this year, creating
opportunities for the Indian software services sector to post double-digit growth again in
export as well as in the domestic markets. FY15E promises to be bigger and stronger than
the last 3 years, which were marked by bloodbath in global markets due to Euro-zone
crisis and falling consumer confidence in the US. Demand is set to pick up in sectors like
BFSI, healthcare, retail and transportation globally in the year ahead.
For FY15E, We expect that strong fundamentals should help to sustain earning
momentum in FY15E. Foray into niche verticals and executions of large deal would play an
important factor for better earning visibility in near future. There is a window of
opportunity for competent large caps and midcaps to displace incumbents and gain some
incremental business. In the past 4 quarters, large caps (four companies) have grown at
3.4% CQGR, while midcaps (five companies) at 3.2%which is comparable to larger peers.
US Immigration Bill to remain an
overhang in short-to-medium term,
TCS and HCLT are growing the fastest
and with tremendous margin
performance. Infy is accelerating growth
…
Our top picks:
Concerns:However, hardening of regulatory related to visa approval in USA, Canada and Australia
could spoil the party. Even, the approval of Immigration Bill attached with higher visa fee,
wage requirements and enhanced audit by US agencies could turn the growth story of
Indian IT players adversely. If passed in its current form, the Bill could hurt the margins of
the Indian IT export sector, which derives almost 55-60% of its revenues from USA.
While all companies are accelerating its revenue growth and shaping up its margin
because of favorable demand and supply environment. Across the tier-1 IT space, TCS,
INFY and HCL TECH remain our best picks in order of our preference. These companies
are very much optimistic to improve margin as well as operational efficiencies with
healthy deal pipeline across emerging verticals as well as traditional IT Space under
positive demand scenario.
Narnolia Securities Ltd,
CMP Upside
(26.02.14) % FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E
TCS 2182.4 BUY 2510 15.0% 71.82 95.00 109.31 30.39 22.97 19.97 36.4% 37.5% 34.4%
INFOSYS 3803.85 BUY 3910 2.8% 164.2 188.0 218.2 23.16 20.24 17.44 24.8% 23.7% 22.9%
HCLTECH 1572.9 HOLD 1560 -0.8% 58.10 79.36 98.11 27.07 19.82 16.03 30.7% 31.5% 29.4%
WIPRO 603.35 NEUTRAL - - 25.0 31.1 33.5 24.09 19.42 18.01 21.7% 22.7% 20.8%
TECHM 1821.65 BUY 2130 16.9% 123.97 155.37 175.50 14.69 11.72 10.38 34.8% 30.7% 26.0%
CMC 1450.4 NEUTRAL - - 75.3 86.0 92.4 19.27 16.86 15.70 24.1% 22.8% 20.7%
NIITTECH 446.4 HOLD 443 -0.8% 36.28 43.33 54.18 12.30 10.30 8.24 20.0% 19.4% 19.6%
KPIT 174.9 BUY 177 1.2% 10.8 12.6 16.8 16.19 13.85 10.40 20.1% 19.3% 20.7%
HEXAWARE 165.85 NEUTRAL - - 13.90 15.04 16.01 11.93 11.02 10.36 27.4% 24.9% 22.5%
PERSISTENT 1119.25 HOLD 1065 -4.8% 46.1 61.4 79.1 24.27 18.22 14.15 18.1% 20.3% 21.4%
eCLERX 1341.05 BUY 1358 1.3% 64.25 71.61 83.65 20.87 18.73 16.03 43.8% 37.9% 34.4%
TATAELXSI 518.65 NEUTRAL - - 10.6 24.0 28.4 48.79 21.59 18.29 16.9% 29.7% 27.4%
ZENSARTECH 387.2 BUY 440 13.6% 40.03 52.70 68.97 9.67 7.35 5.61 23.2% 24.5% 25.2%
MINDTREE 1632.7 NEUTRAL - - 89.7 100.9 114.9 18.20 16.18 14.21 28.4% 25.6% 23.6%
RoE-%Company View Target
EPS-Rs P/E-x
13
Please refer to the Disclaimers at the end of this Report.
Net interest income of our universe grew by 10.4% YoY on the back of margin
expansion on YoY basis along with moderate to healthy loan growth. In our coverage
universe, Bank of India and UCO Bank were reported healthy NII growth whereas
Andhra Bank reported 10.6% YoY declined in NII. SBI reported NII growth of 13 YoY
largely due to loan growth of 17% while margin was declined by 12 bps and flat at
QoQ basis.
Public Sector Banks Result Review 3QFY14
Moderate NII growth in the system due to muted loan growth
Operating profit of our universe was declined by 1.5% YoY on the back of higher
cost against employee provisions, operating cost and non supportive other income.
Most of PSBs were reported negative growth in their other income led by lower
corporate fee income. In our universe ALBK, Bank of India and UCO bank reported
healthy operating profit. But we have not seen improvement of operating metrics in
these banks. Operating leverage of PSBs bank has been increasing led higher wage
provisions and branch expansion.
Lower operating profit on account of higher wage settlement provisions and
cost related to branch expenses
Profitability declined led by higher operating expenses, higher provisions and
creation of DTL special reserve
Earnings growth of Public Sector Banks (PSBs) are remained weak largely due to
higher operating expenses led by employee provisions and surged in provisions and
contingencies and higher tax provision for DTL special reserve as per RBI’s
suggestion. In our banking coverage universe, profitability declined by 27% YoY and
11.5% QoQ. UCO Bank reported 208% YoY growth while Andhra Bank de-grew by
82% YoY.
Nifty Vs Bank Nifty during Year
Loan (Rs tn) and YoY Gr(%)
Asset quality deterioration sequentially on account of tight liquidity condition
and rising interest rate
Most of PSBs reported 10 to 20% deterioration in asset quality sequentially while
United Bank’s GNPA and net NPA were 11% and 7.5% of gross advance and net
advance respectively and fresh slippages were 16% (annualized). On slippage front
some banks like PNB, Bank of Baroda, Union Bank and UCO bank showed some
strength. But in tight economy condition and rising interest rate scenario, asset
quality pressure would continue. Banks with higher coverage ratio would be
protected. PNB and Bank of Baroda are in better place and their management
commentaries reflect some confidence on asset quality issue.
Narnolia Securities Ltd,
14
Public Sector Banks Result Review 3QFY14
Please refer to the Disclaimers at the end of this Report.
Worry about the structure damage of balance sheet, declined profit is not matter
Outlook
Most of PSBs are trading at lower range of valuation multiple owing to absence of core
earnings, operating leverage, deteriorating asset quality and higher amount of restructure
assets that are in pipeline. Most of banking stocks reported moderate revenue and profit
growth owing to multiple headwinds. In near term we are not seeing improvement in
economic condition and asset quality pressure are expected to remain in the system due
to tight liquidity situation and rising interest rate. Post result we like SBI, Union Bank and
UCO Bank due to their structural improvement in balance sheet, operating and financial
metrics.
Result Snapshot
We are not worried about the declining trend of PSBs profitability but to worry about the
structural damage of balance sheet. Most of PSBs were reported moderate to healthy
loan growth but their deposits and CASA growth were absent. In rising interest rate
scenario, banks with higher low cost deposits would be able to report healthy NII growth
on the back of margin expansion and would absorb operating cost. In our sense, PSBs
would either have to improve their cost structure or improve deposits franchise to report
growth at operating profit level. On cost structure front, we are pessimist as PSBs have
higher numbers of unproductive employee than private banks and their salary at lower to
middle level management are no means less than private sector banks. So banks with
higher deposits growth and strong CASA would be able to report healthy growth going
forward. We have buy rating on SBI on the back of its high CASA base and reasonable
valuation despite of bank’s profitability was declined by 34% YoY.
Narnolia Securities Ltd,
PSU BANKS NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit
ALBK 1336 1008 325 1309 1154 276 1330 860 311 0.4 17.2 4.7 2.0 -12.6 18.0
ANDHRABANK 868 522 46 1045 643 71 971 712 257 -10.6 -26.8 -82.3 -16.9 -18.9 -35.5
BANKBARODA 3057 2197 1048 2895 2125 1168 2841 2256 1012 7.6 -2.6 3.6 5.6 3.4 -10.3
BANKINDIA 2719 2144 586 2527 2102 622 2308 1856 803 17.8 15.5 -27.0 7.6 2.0 -5.8
CANBK 2191 1425 626 2191 1425 626 1988 1516 714 10.2 -6.0 -12.3 0.0 0.0 0.0
DENABANK 661 371 68 107 369 625 615 443 206 7.5 -16.3 -67.1 517.7 0.5 -89.2
IOB 1398 961 75 1452 791 133 1382 1017 116 1.2 -5.5 -35.3 -3.7 21.5 -43.6
ORIENTBANK 1230 858 224 1281 825 251 1204 926 326 2.2 -7.3 -31.2 -3.9 4.0 -10.6
PNB 4221 2702 755 4016 2535 505 3733 2682 1306 13.1 0.8 -42.2 5.1 6.6 49.6
SBIN 12641 7618 2235 12251 6312 2375 11154 7791 3396 13.3 -2.2 -34.2 3.2 20.7 -5.9
SYNDIBANK 1359 806 380 1411 811 470 1400 864 508 -3.0 -6.8 -25.2 -3.7 -0.7 -19.2
UCOBANK 1566 1137 315 1569 1166 400 1177 831 102 33.0 36.8 208.4 -0.2 -2.5 -21.4
UNIONBANK 1964 1262 349 1954 1225 208 1891 1358 302 3.8 -7.1 15.5 0.5 3.0 67.8
VIJAYABANK 495 168 11 705 273 136 456 261 127 8.5 -35.7 -91.0 -29.8 -38.6 -91.6
Total 34369 22170 6717 33404 20601 7590 31120 22513 9175 10.4 -1.5 -26.8 2.9 7.6 -11.5
3QFY14 2QFY14 3QFY13 YoY Growth QoQ Growth
SHREE CEMENT.
Profitability and Earning drag may surprise for the next cosecutive quarters.4772
4791
4791
0%
NA
500387
16572
4143
6186
1M 1yr YTD
Absolute 8.2 9.5 8.1
Rel. to Nifty 9.5 3.8 4.0
2QFY14 1QFY14 4QFY13
Promoters 64.8 64.8 64.8
FII 8.2 8.2 8.1
DII 5.9 5.7 5.9 MAT Credit support the buttom line :Others 21.2 21.3 21.2
Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14
Revenue 1318 -7.7 5.6 1428 1248
EBIDTA 271 -24.7 8.8 360 249
Net Profit 115 -46.9 -32.9 217 172
EPS 33 -46.9 -32.9 62 49
EBIDTA% 21 -18.4 3.1 25 20
NPM% 9 -42.5 -36.5 15 14(In Crs)
15
Upside
Change from Previous
CMP
Target Price
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
1 yr Forward P/B
Source - Comapany/EastWind Research
On the expansion front :
During the Quarter Company got MAT (minimum alternative tax) credit entitlement of
Rs9.25 crore and deferred tax of Rs1.79 crore. This reduced total tax payable amount to
Rs15.27 crore from Rs26.31 crore.
Volumes grew by18 % but prices came down by 5%. So the EBITDA margin has hit
badly:Shree Cement Ltd has reported a 47% fall in its December quarter net profit on
lower sales as well as 5% degrowth in realization. PAT impacted due to lower other
income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41%
YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. Net profit decreased by
47% yoy from Rs.217.44 crore (Rs.62.42 per share) in 2Q13 to Rs.115.49 crore (Rs.33.15
per share) in 2Q14.Total net income from operations stood at Rs.1318.13 crore in 2Q14,
a 6% fall yoy from Rs.1401.23 crore in 2Q13.Other income decreased from Rs.30.2 crore
in 2Q13 to Rs.9.9 crore in 2Q14.In the mean time company declares a Rs.10 as interim
dividend/share.
Power Segment: Realization Down By 15% : For power generation the net realization has
come down from Rs 383 to Rs 334 compared to last year same quarter and in the first
quarter it was still better at Rs 397.So the power realization is down by 13 percent and
hence sales also have come down by 35 percent to Rs.290 Cr. At the same time 14%
increase in its profitability from power segment to Rs112.56 crore while its cement
segment reported 79% fall in its profitability to Rs37.65 crore.
Market Data
Average Daily Volume (Nos.)
The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun’13.Line X of
similar capacity along with 25MW of WHRS (at the same location) is expected by
Jun’14.Two grinding units of 2m tons each, at Ras and in Bihar,are being constructed and
expected by Jun’14.We expect Shree to be a 21.5m-tpa company by Jun’15.It plans to
foray into high demanding eastern.Total capex for these expansion is Rs.3,000 crore
which is spread over next 2 years.
The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market
scenario the price is fare enough to trade.But looking at future capex plans and sluggish
demand we belive the earnings and profitability of Shree cement may fall for the next
two consecutive quarters.The profitability may fall due to incrising depriciation.Till now
the company's depriciation level is stable but it may surprise further.so we recommend
its a better pic to book profit.
BSE Code
SHREECEMNSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
5210/3413
Previous Target Price
Nifty
Update Book Profit
"Book Profit"25th Feb' 14
Narnolia Securities Ltd,
0
1000
2000
3000
4000
5000
6000
Ma
r-0
2
Oct-
02
Ma
y-0
3
De
c-0
3
Jul-
04
Fe
b-0
5
Se
p-0
5
Ap
r-0
6
No
v-0
6
Jun
-07
Jan
-08
Au
g-0
8
Ma
r-0
9
Oct-
09
Ma
y-1
0
De
c-1
0
Jul-
11
Fe
b-1
2
Se
p-1
2
Ap
r-1
3
No
v-1
3
PRICE 1.5x2x 2.5x3x 3.5x4x 4.5x
Outlook :
FY11 FY12 FY13 FY14E
3454 5898 5590 5409
203 163 188 197
3656 6061 5779 5550
905 1500 1513 1409
602 1006 915 1090
2569 4252 4029 4318
885 1646 1561 1091
676 873 436 562
98 235 193 138
-99 69 115 54
365 619 1004 478
20.8 23.1 26.1 11.0
16
SHREE CEMENT.
P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income
Management Corner : From mid-January there is a big change in demand scenario
because of the Indian calendar, the prices have improved, the demand has also
improved and they think that January to June some impact of elections will be there -
pre-election demand and other things. So margins should be better than 21 percent.
Net tax expense / (benefit)
PAT
ROE%
Power and fuel
Freight and forwarding
Expenditure
EBITDA
Depriciation
Interest Cost
From the view company Operations in the high utilisation North and Central markets,
capacity expansions underway, low gearing and strong RoE are fundamental positives.
We believe although, near term challenges in terms of a slowdown in demand for
cement would remain, strong balance sheet and better efficiency in terms of cost
remains a key positive for this company to overcome challenges.Company Management
is bull for the rest two quarters of FY2014 as according to them demand has already
buttom out.We are positive on the stock as it always beats its peers group with lower
operational cost.
The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market
scenario the price is fare enough to trade.But looking at future capex plans and
sluggish demand we belive the earnings and profitability of Shree cement may fall for
the next two consecutive quarters.The profitability may fall due to incrising
depriciation.Till now the company's depriciation level is stable but it may surprise
further.so we recommend its a better pic to book profit.
we recommend book profit at a 11% high,and stay out from the stock for medium
term,till the triggers hit.
Company Description : Shree Cement (SCL) is a cement producer operating in the two
segments cement and power. As of June 30, 2012, the company had a cement capacity
of 13.5 million tonnes per annum (MTPA) and power capacity of 560 MW. The
company’s brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It has
manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units
at Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in
Uttarakhand.
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Narnolia Securities Ltd,
-20
-10
0
10
20
30
40
50
60
1100
1150
1200
1250
1300
1350
1400
1450
1500
Revenue
Growth
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0 NPM % OPM % EBITDA %
0
2
4
6
8
10
12
0
50
100
150
200
250
300
350
400
450
EBIDTA
INTEREST SERVICE COVERAGERATIO
FY10 FY11 FY12 FY13
35 35 35 35
1798 1951 2699 3809
1833 1986 2734 3844
1789 1472 818 443
318 217 143 534
28 16 17 18
171 185 584 81
472 267 178 87
4906 4940 5973 6160
0 0 0 0
752 1167 1521 1782
967 729 97 133
299 308 205 378
358 404 503 530
82 108 181 315
416 499 459 369
415 429 363 326
4906 4940 5973 6160
FY10 FY11 FY12 FY13
4.4 3.6 3.8 4.2
212.3 118.6 177.5 288.2
2.3 3.1 3.1 5.6
4.7 5.3 9.9 1.4
1.0 1.2 0.9 0.9
17
B/S PERFORMANCE
Trading At :
RATIOS
Capital work-in-progress
Source - Comapany/EastWind Research
Intangibles
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
SHREE CEMENT.
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Trade payables
Short-term provisions
Total liabilities
Tangible assets
Inventories to Turnover%
Short-term loans and advances
Total Assets
P/B
EPS
Debtor to Turnover%
Creditors to Turnover%
Narnolia Securities Ltd,
AXIS BANK
1237
1217
1147
-2
6
1M 1yr YTD
Absolute -2.2 -17.4 -17.4
Rel.to Nifty 0.8 -21.0 -21.0
Current 4QFY13 3QFY1
3Promoters 33.9 33.9 33.9
FII 43.2 43.4 40.7
DII 9.7 4.9 8.8
Others 13.2 17.8 16.6
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 6566 8026 9666 12224 14775
Total Income 11238 13513 16217 19146 21697
PPP 6377 7413 9303 11206 12367
Net Profit 3340 4224 5179 5826 6934
EPS 81.4 102.2 110.7 124.2 148.2
18
Company Updated BOOK PART
PROFITCMP
Target Price
Axis Bank is now trading at Rs.1237/share which met our target price of
Rs.1217. This price implies P/BV multiple of 1.5 times which is quite
reasonable as per our view. We advice our investor to book part profit from
this stock as we neither see improvement of asset quality nor revival in
economy in near term. In 3QFY14’s result, bank’s profitability was up by 19%
largely due to reversal of investment depreciation otherwise operating profit
was just up by 10.7% YoY. Bank’s exposure to risky sector (Power +
Infrastructure) remained high at 12.87% as against 12.64% in previous quarter.
However, fresh slippage was marginally softened to Rs.589 cr versus Rs.618
on sequential basis. Impairment of assets (GNPA+ Restructure Assets)
remained stable at 3.7% of net advance which was higher among peers.
Previous Target Price
AXISBANK
52wk Range H/L
Upside
1549/764
BSE Code 532215
NSE Symbol
Change from Previous
Axis Bank Vs Nifty
Share Holding Pattern-%
3.14 lakh
Nifty 6186
Market Data
55229Mkt Capital (Rs Cr)
(Source: Company/Eastwind)
Stock Performance
Average Daily Volume
Asset quality pressure remained persist during the quarter with GNPA and net NPA
increased by 10% and 20% YoY respectively in absolute term. Fresh slippage inch
up improved to Rs.589 cr as against Rs.618 cr in previous quarter. In percentage
term GNPA and net NPA stood at 1.42% and 0.47% as against 1.36% and 0.42%
respectively in previous quarter. Provision coverage ratio without technical write off
declined by 270 bps QoQ led by lower provisions made on sequential basis.
Impairment of assets (GNPA + Restructure Assets) for the quarter remained stable
at 3.7% which was higher among peers. Moreover bank’s exposure to risky sector
(Power + Infrastructure) was remained high at 12.87% of net advance where
slippage risks are relatively high.
Lower multiple on account of uncomfortable earnings and lower corporate
loan demand
We have lower valuation multiple of bank in compare to its peers on account of
uncomfortable earnings and asset quality stress. Operating performance of bank
was remained under pressure as bank’s core operating revenue (NII + Other
Income) grew by 12.6 YoY owing to lower fee income led by muted corporate and
retail fee income. Corporate loan segment which constituted 46% of total loan grew
by 3% YoY while retail segment loan grew by 44% YoY which constituted 33% of
total loan. Incremental loan growth came from retail segment implying that bank has
to maintain retail growth trajectory for industry average loan growth of 15%. Demand
of corporate loan remained weak due to prevailing economy scenario. So loan
growth for FY14 is likely to be line with system credit growth due to weakness in
corporate loan demand and moderation in retail loan.
Asset quality pressure persist; exposure to risky sector remained high
"BOOK PART PROFIT "
25th Feb, 2014
Narnolia Securities Ltd,
19
Moderate growth in profit & loss
AXIS BANK
Please refer to the Disclaimers at the end of this Report.
Bank’s profitability was up by 19% due to reversal of investment depreciation. Overall
provisions and contingencies were lower by 71% QoQ which led PBT growth of 22%
YoY. At operating profit level, bank grew by 10.7% YoY which was lower among peers
(HDFC Bank 29 YoY, ICICI bank 28.6%). Bank’s NII grew by 19.6% YoY largely due to
margin expansion of 14 bps YoY which was supported by low cost deposits franchise.
Core operating revenue (NII+ other income) grew 12.6% owing to muted other income
growth of 1.8% YoY.
Valuation & View
We value bank at Rs.1217/share implying 1.5 times of FY14E’s book value which is quite
reasonable as per our view. We have given this multiple on account of uncomfortable
earning and asset quality stress. Bank’s profitability was up due to reversal of investment
depreciation otherwise growth at operating profit level was remained lower as compare to
its peers. Asset quality increased at moderate pace with high exposure in risky sector
where fresh slippage risks are remaining high.
1 Yr forward P/BV
Valuation Band
1 Yr forward P/E
Narnolia Securities Ltd,
20
AXIS BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Fundamenatl throught graph
NII growth led by healthy CD ratio and
margin expansion on YoY basis
Lower other income and higher CI ratio led
muted PPP growth
Profit growth was higher than expectation on
the back of lower provisions
Narnolia Securities Ltd,
21
Quarterly Result
AXIS BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Result 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation
Interest/discount on advances / bills 5557 5394 4907 13.3 3.0 5748 3.4
Income on investments 2110 2143 2014 4.8 -1.5 2235 5.9
Interest on balances with Reserve Bank of India 49 35 25 97.7 39.4 35 -29.2
Others 73 37 19 277.1 95.6 38 -47.4
Total Interest Income 7789 7609 6965 11.8 2.4 8056 3.4
Others Income 1644 1766 1615 1.8 -6.9 1774 7.9
Total Income 4628 4703 4110 12.6 -1.6 4780 3.3
Interest Expended 4805 4672 4470 7.5 2.8 5049 5.1
NII 2984 2937 2495 19.6 1.6 3006 0.8
Other Income 1644 1766 1615 1.8 -6.9 1774 7.9
Total Income 4628 4703 4110 12.6 -1.6 4780 3.3
Employee 655 644 615 6.5 1.7 0
Other Expenses 1358 1309 1134 19.8 3.8 0
Operating Expenses 2013 1953 1749 15.1 3.1 2008 -0.3
PPP( Rs Cr) 2615 2750 2362 10.7 -4.9 2772 6.0
Provisions 202 687 387 -47.7 -70.5 752 271.4
PBT 2413 2062 1975 22.2 17.0 2020 -16.3
Tax 808 700 628 28.8 15.5 687 -15.0
Net Profit 1604 1362 1347 19.1 17.7 1333 -16.9
Balance Sheet Date
Net Worth 37649 36224 27027 39.3 3.9 37558 -0.2
Deposits 262398 255365 244501 7.3 2.8 272935 4.0
Loan 211467 201303 179504 17.8 5.0 214892 1.6
Asset qualtiy( Rs Cr)
GNPA 3008 2734 2275 32.2 10.0 -
NPA 1003 838 679 47.8 19.7 -
%GNPA 1.4 1.4 1.3 -
%NPA 0.5 0.4 0.4 -
22
AXIS BANK
FINANCIALS & ASSUPTION
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2011 2012 2013 2014E 2015EInterest Income 15155 21995 27183 31198 38490
Interest Expense 8589 13969 17516 18974 23716
NII 6566 8026 9666 12224 14775
Change (%) 31.2 22.2 20.4 26.5 20.9
Non Interest Income 4671 5487 6551 6922 6922
Total Income 11238 13513 16217 19146 21697
Change (%) 25.3 20.2 20.0 18.1 13.3
Operating Expenses 4860 6100 6914 7940 9330
Pre Provision Profits 6377 7413 9303 11206 12367
Change (%) 22.4 16.2 25.5 20.5 10.4
Provisions 3033 3189 4124 2402 2461
PBT 3345 4224 5179 8804 9906
PAT 3340 4224 5179 5826 6934
Change (%) 34.8 26.5 22.6 12.5 19.0
Balance SheetDeposits( Rs Cr) 189166 219988 252614 290506 334081
Change (%) 34 16 15 15 15
of which CASA Dep 77758 91412 112100 124917 143655
Change (%) 18 18 23 11 15
Borrowings( Rs Cr) 26268 34072 43951 51266 58956
Investments( Rs Cr) 71788 92921 113738 129873 149354
Loans( Rs Cr) 142408 169760 196966 228481 265037
Change (%) 36 19 16 16 16
Valuation
Book Value 460 549 708 813 942
CMP 1404 1146 1304 1174 1174
P/BV 3.1 2.1 1.8 1.4 1.2
Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4000
email: [email protected],
website : www.narnolia.com
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the authorized recipient and does not construe to be any investment, legal or taxation
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without notice. The recipients of this report should rely on their own investigations,
should use their own judgment for taking any investment decisions keeping in mind that
past performance is not necessarily a guide to future performance & that the the value of
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assume that NSL and /or its Group or associate Companies, their Directors, affiliates
and/or employees may have interests/ positions, financial or otherwise, individually or
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