public sector banks result preview 3qfy14e in india equity analytics today | narnolia securities...

Larsen & Toubro Ltd: "On Track of Revival………" "NEUTRAL" 24th Jan 2014

As per the management, the quarterly margins differ for every quarter as the project completion cycle is different and hence it is difficult to

capture the EBITDA movement every quarter. Though we agree with the management’s comment, we still believe that there would be some

amount of pressure on the margins on a yearly basis due to risks related to competition, inflation, adverse mix and a slowdown. As regards the

results we are of the opinion that, despite the gloomy scenario the results have been good. Consistent order inflow is a major positive factor.

We expect the sector to witness revival in coming quarters, whereas we see a near term earnings growth muted and look for a better entry

point. Currently we have a neutral view on a stock ......................... ( Page :2)

"HOLD" 24th Jan 2014

We believe that during the election period, the power supply could remain better (with political interest), consequently lowering the UPS

demand. Hence, it could take a couple of quarters to witness a reversal in the trend, if any. On this backdrop, we have lowered our revenues

estimates by 9% in FY2014 and 13% in FY2015. Consequently, we have revised down our EPS estimates by 21% in FY2014 and 16% in FY2015

......................................................... ( Page : 3-5)

24th Jan, 2014

Edition : 191

IEA-Equity

Strategy

Public Sector Banks Result Preview 3QFY14E 24th Jan 2014

Ultratech Cement : Moderated but Not outdated "HOLD" 24th Jan 2014

Ultratech's Q3FY14 was in line to our estimates.The white cement Volume Growth and capacity expansions are positive in terms of

fundamentals. We see the uptick of EBIDTA margin and volume growth for FY15. Currently the stock valuing at 3x in 1yr forward P/B, and we cut

our stance for FY15 to 2.7x. Hence we maintain our positive stance on Ultratech Cement with Target price of Rs.1846/- . As from the current

level the upside is very limited(7%), we recommend “Hold” Ultratech and Buy at Dips to get handsome return.

............................................................ ( Page : 9-11)

Dabur India Ltd : "Confident tone for growth" "BUY" 24th Jan 2014

Dabur delivered inline set of numbers;During 3QFY14, Dabur reported 16.7% (YoY) sales growth led by 9% overall volume growth because of

discretionary demand ramp up in rural area and price hikes by around 4-5% . PAT grew by 16%(YoY).Post earning, company’s management

stated that they would focus on pursuing aggressive and profitable growth strategy with brand building by judicious mix of price hike and

product launch in near future. ............................................( Page :6-8)

V-Guard: "Lower FY14 Sales growth guidence to 11-12%"

Zensar Tech : "Better growth trajectory ahead" "BUY" 23th Jan 2014

Earning numbers below expectation, management confident for growth ahead:For 3QFY14, Zensar Tech reported lower growth than

expectations, Sales declined by 1%(QoQ) because of seasonal and furloughs impacts.Considering healthy order pipeline and its earning visibility

in near future, we maintain “BUY” view on the stock with a target price of Rs 440. At a CMP of Rs 386, stock trades at 5.6x FY15E EPS

................................................................... ( Page : 19-21)

HDFC LTD : "NEUTRAL" 23th Jan 2014

HDFC profit growth of 12.1% YoY was inline with street expectation. NBFC reported stable asset quality on sequential basis as well as registered

healthy loan growth. HDFC ltd has well above CAR which would support growth going forward. At the current price of Rs.840, stock is trading at

4.3 tines one year forward book and 26 times of FY14E’s earnings. We value HDFC at Rs.875/ share which is 4.5 times of FY14E’s book and P/E

multiple of 27 times of full year EPS. .......................................................... ( Page : 16-18)

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. High inflation would be risk for the economy going forward. Any rise in inflation

would result of rise in interest rate by RBI in its third quarter monetary policy review on 28th Jan.2014 which would be negative for banking

industry. Most of banking stocks are expected to report moderate revenue and profit growth owing to multiple headwinds. In PSBs universe we

like Canara Bank, UCO Bank, Union Bank. .............................................. ( Page : 12-15)

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

V- Larsen & Toubro Ltd.

CMP 1033

Target Price NA

Previous

Target Price

NA

Upside NA

Change from

Previous

NA

BSE Code 500510

NSE Symbol LT

52wk Range

H/L

861/114

6Mkt Capital

(Rs Crores)

80,145

Average Daily

VolumeNifty 6,346

1M 1yr YTD

Absolute (2.7) 0.8 13.5

Rel. to Nifty 1.1 4.6 11.6

3QFY14 2QFY14 1QFY14

Promoters 0.0 0.0 0.0

FII 17.9 15.3 16.1

DII 36.6 37.4 36.9

Others 45.5 47.4 47.2

Financials Rs, Crore

3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%

Revenue 14387.5 12308.4 16.9% 12869.3 11.8%

EBITDA 1674.8 1185.7 41.3% 1258.3 33.1%

PAT 1240.7 864.6 43.5% 1013.2 22.4%

EBITDA Margin 11.6% 9.6% 200 bps 9.8% 180 bps

PAT Margin 8.4% 6.8% 160 bps 7.5% 90 bps

2

(Standalone)

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

(Source: Company/ Eastwind Research)

Price Performance V/s NIFTY

Outlook

We have a Neutral on L&T as we think it will be difficult rate L&T from today’s level without

earnings upgrade and/or uncertanity across sector. Downside risks are project delays, weaker

margins and stronger Rupee. Upside risks are higher than expected order inflow and higher

operating margins a head.

Contribution margin expansion came as a surprise and in our recent meeting the management

attributed it to quarterly skews rather than improvement in project-level profitability. We build

slightly higher margins for FY2014E at 10.9% (versus 10% earlier). However, we believe margins

face downward trajectory over FY2014-16E (build EBITDA margin of 10.5% in FY2015E and 10.3%

in FY2016E) due to risks related to competition, inflation, adverse mix and a slowdown. L&T

maintained its revenue growth guidance of 15% yoy for FY2014 (9% posted in 9MFY14). We build

lower revenue growth of 12% in FY2014 implying 16% growth requirement in 4QFY14. L&T also

maintained its inflow guidance of 15-20% in FY2014 (strong 23% growth in 9MFY14; but is a bit

wary about maintaining this traction on delayed decision making by customers).

Share Holding Pattern-%

"On Track of Revival………"

95,662

NeutralResult update

Market Data

Stock Performance-%

Construction & engineering major, L&T posted a surprisingly set of numbers for the quarter

ended Dec, 13. The company's net sales grew by a mere 11.8% on a yearly basis to Rs

14387.5crore. The company recurring bottom line witnessing a upstik of 12.15% , and came in

at Rs. 1136.3 crore. the results have been adjusted for the quarter as it transferred

hydrocarbon business to its subsidiary L&T Hydrocarbon Engineering with effect from April 1,

2013. Accordingly, the company restated suitably its earnings for the previous quarter ended

September 2013 and numbers relating to previous periods. However, if we If we consider the

exceptional gains on dilution of part stake in a subsidiary company, the overall PAT grew by

22.1 % during the quarter. While the operational performance has been good, the company

has witnessed good traction in its order book also. Order inflow for the quarter stood at Rs

21722 crore showing a growth of 21% on Y-o-Y basis. The total order book as on December

31st 2013 stood at Rs 171184 crore showing an increase of 13 % on Y-o-Y basis. EBITDA

margins for the Dec 2013 quarter expanded by 180 bps to 11.6% against 9.8% last year.

However, as per the management, the quarterly margins differ for every quarter as the project

completion cycle is different and hence it is difficult to capture the EBITDA movement every

quarter. Though we agree with the management’s comment, we still believe that there would

be some amount of pressure on the margins on a yearly basis due to risks related to

competition, inflation, adverse mix and a slowdown. As regards the results we are of the

opinion that, despite the gloomy scenario the results have been good. Consistent order inflow

is a major positive factor. We expect the sector to witness revival in coming quarters, whereas

we see a near term earnings growth muted and look for a better entry point. Currently we

Why neutral…???

"Neutral"24th Jan' 14


V- V-Guard Industries Ltd.

CMP 450

Target Price 475

Previous

Target Price

525

Upside 5%

Change from

Previous

-11%

BSE Code 532953

NSE Symbol

1,374

59,460

Nifty 6,344

1M 1yr YTD

Absolute (4.5) (9.0) 5.0

Rel. to Nifty (5.6) (13.6) (6.7)


Promoters 65.5 65.5 65.5

FII 18.5 17.4 14.5

DII 2.2 2.5 3.5

Others 13.8 14.5 16.4

Financials Rs, Crore

Consolidated 3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%

Revenue 352.9 334.0 5.7% 349.0 1.1%

EBITDA 29.1 27.1 7.7% 25.7 13.3%

PAT 17.5 14.5 -21.0% 15.4 14.2%

EBITDA Margin 8.1% 8.1% 0 bps 7.3% 80 bps

PAT Margin 4.9% 4.3% 60 bps 4.4% 50 bps

3

Market Data


For the quarter ended Dec 2013, V-Guard reported a top line of Rs. 352.9 crore, compared to

Rs. 349.0 crore in 3QFY13, marking a marginal YoY growth of 1.1%. EBITDA margins for the

quarter were significantly improved to 8.2% (up 89 bps YoY) due to lower ad spends. Interest

expense for the quarter were up by 10.0% YoY to Rs. 5.4 crore and after giving effect

depreciation and taxes, the company’s PAT stood at Rs. 17.5 crore (up 14.2% YoY). On

conference call, the management of V-Guard lowered their top-line guidance to 11-12% from

the earlier 18-20% in FY2014. However, they expect to achieve EBITDA margin of around 8.5%

for FY2014. We believe that during the election period, the power supply could remain better

(with political interest), consequently lowering the UPS demand. Hence, it could take a couple

of quarters to witness a reversal in the trend, if any. On this backdrop, we have lowered our

revenues estimates by 9% in FY2014 and 13% in FY2015. Consequently, we have revised down

our EPS estimates by 21% in FY2014 and 16% in FY2015.

Strong Balance Sheet

As expected, the company’s contribution to revenue has improved from its non south market as

compared to its incumbent southern market. All in all we observe this result as significantly

below our estimates. Although company has reported increase in EBITDA margin in 3QFY14 by 80

bps, but it still below our full year expectaion of 9%. We believe that during the election period,

the power supply could remain better (with political interest), consequently lowering the UPS

demand. Hence, it could take a couple of quarters to witness a reversal in the trend, if any. On

this backdrop, we have lowered our revenues estimates by 9% in FY2014 and 13% in FY2015.

Consequently, we have revised down our EPS estimates by 21% in FY2014 and 16% in FY2015.

However we belive company strong balance sheet, a wide range of products and a strong hold

over its existing market, all of which give it an edge over its rivals. At the current CMP of Rs.

457, the stock is trading at a PE of 18.3x and 13.8x of FY14E and FY15E. The company can post

RoE of 23.2% and 24.1% & EPS of Rs. 25.2 and Rs. 33.2 FY14E and FY15E. We belive that the

current level is not attractive to make position in this stock, one should wait further correction

from current level, however one who already own the stock can hold it with the revised price

target of Rs. 475.

"Lower FY14 Sales growth guidence to 11-12%……..."

HoldResult update

Mkt Capital (Rs Crores)

52wk Range H/L 390/570

•Total Debt has been reduced significantly as on 3Q FY14 to Rs. 117.7 crore, compared to Rs. 157

crore as on 3Q FY13. Working capital loan reduced to Rs. 77.1 vrore from 134.0 crore and

whereas term loan icreased to Rs. 40.6 crore from 22.9 crore.

• Working capital cycle on a TTM basis improves by 9 days to 76 days. Mainly Led by 15 days

reduction in debtors. Management has also guided for improvement in net working capital cycle

by 5- 10 days every year going forward. This will further improve its ROCE and ROE going

forward.

• Strong cash generation in 9M. FY14 Cash from operations at Rs. 90 crore in 9M FY14 as

compared to Rs. 14.5 crore for full year FY13

Outlook

1 yr Forward P/B

V-GUARD

Standalone



Average Daily Volume

Stock Performance-%

"Hold"24th Jan' 14


4

V-Guard Industries Ltd.

Confrence Call Highlights


• Non South market sales in Q3 FY'14 stood about 30% of total sales and grew by about 30% as

well. The South market which constitutes about 70% degrew by about 8-9% in value terms and by

about 13-15% in volume terms. Overall, thus company ended up with flattish kind of sales growth

in Q3 FY'14. For Q4 FY'14, management expects about 10-12% sales growth.

• In Q3 FY'14, the company was able to improve its gross margin by 100 bps which was largely due

to lower Advertisement expenditure YoY. Going forward Ad expenditure will be around 3.5-4% of

sales.

• The Electronics segment, which constitute stabilizers and UPS, which contribute about 24% of

total sales in Q3 FY'14, degrew by 18% YoY, Electrical which includes pumps, house wiring cable,

electric water heater, fans and others, and contribute about 72% of total sales, grew by about 8%,

with electric water heater and house wiring cables delivered a healthy growth, while the solar

water heater which constitute about 4% of total sales, grew by about 30%. The premium variant of

the electric water heater segment launched in FY'14 continues to get good response.

• As per the management, better power supply in States of Tamil Nadu and Andhra Pradesh

together with lower sale of consumer durable products due to weak consumer sentiment, affected

the growth of the company. Also due to sand mining ban in many parts of the country,

construction activities were also slow leading to lower sale of wire business.

• As per the management, the power situation in South India should be temporary phenomena

largely due to elections. Also extended monsoon also delayed some of the product sale and

affected the demand.

• Total market of electric wires will be about Rs 7500 crore of which company has share of about

6%. By year end the company should be able to report about Rs 450-475 crore of electric wires.

Polycab has highest market share of 20% followed by Finolex cables of about 12%.

• Raw material prices of cooper and other metals were steady and more on downward side.

Management expects raw material prices to slightly inch up from March'14 onwards which is

general seasonally trend.

• The new products introduced last year namely Induction Cooker, Mixer Grinder and Switchgears

did well and are expected to post revenue of about Rs 50 crore totally in FY'14.

• Lower tax rate during the quarter was as a result of a 200% weightage deduction on R&D and on

capital expenditure which the company received the approval from this year and going forward

also the deduction will continue.

• Overall, management expects about 11-12% growth in FY'14 with Ebidta margin of about 8.5-9%.

The management lowered its earlier guidance of about 20% growth in FY'14 largely due to current

economic and environmental challenges.


5


Key financials

V-Guard Industries Ltd.



PARTICULAR 2010A 2011A 2012A 2013A 2014E 2015E

Performance

Revenue 454 727 994 1360 1510 1736Other Income 1 2 2 4 5 6Total Income 456 728 996 1364 1515 1742EBITDA 50 73 94 110 131 156EBIT 43 65 84 99 119 141DEPRICIATION 7 8 10 11 12 15INTREST COST 5 11 17 20 21 15PBT 40 55 69 82 102 132TAX 14 16 18 19 27 33Extra Oridiniary Items NA NA NA NA NA NAReported PAT 25 39 51 63 75 99Dividend (INR) 10 12 12 12 12 12DPS 3.5 4.1 4.1 4.1 4.1 4.0EPS 8.5 13.1 17.0 21.1 25.2 33.2

Yeild %

EBITDA % 11.1% 10.1% 9.4% 8.1% 8.7% 9.0%NPM % 5.6% 5.4% 5.1% 4.6% 5.0% 5.7%Earning Yeild % 9.6% 7.8% 9.2% 4.8% 5.5% 7.2%Dividend Yeild % 4.0% 2.4% 2.2% 0.9% 0.9% 0.9%ROE % 18.0% 22.7% 24.1% 24.1% 23.2% 24.1%ROCE% 13.8% 16.2% 21.2% 19.4% 21.4% 21.7%

Position

Net Worth 141 172 211 261 324 412Total Debt 81 139 109 165 125 115Capital Employed 222 311 320 427 449 527No of Share (Adj) 3 3 3 3 3 3CMP 89 168 186 435 460 460

Valuation

Book Value 47.4 57.6 70.6 87.6 108.7 137.9P/B 1.9 2.9 2.6 5.0 4.2 3.3Int/Coverage 8.4 5.7 4.9 4.9 5.6 9.4P/E 10.4 12.9 10.9 20.7 18.3 13.8

Dabur India Ltd.

BUY

1M 1yr YTD

Absolute 3.3% 25% 24.0%

Rel. to Nifty 2.20% 20% 12.8%

Current 2QFY14 1QFY14

Promoters 68.64 68.66 68.66

FII 19.94 20.71 20.4

DII 4.47 3.96 3.97

Others 6.95 6.7 7

Financials

3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%

Revenue 1904.28 1748.81 8.9 1635.98 16.4

EBITDA 297.59 329.24 (9.6) 274.51 8.4

PAT 243.5 249.83 (2.5) 209.87 16.0

EBITDA Margin 15.6% 18.8% 220bps 16.8% 120bps

PAT Margin 12.8% 14.3% 150bps 12.8% -

6

Margin ramp down: During the quarter, EBITDA margin declined by 120 bps to 15.6%

due to rise in A&P cost by 130 bps to 15.72% and employee cost by 60 bps to 8.58% of

adjusted net sales. PAT margin flat at 12.8% on YoY basis.

Volume growth in single digit: Because better discretionary demand environment in

rural area and judicious pricing strategy overall volume growth increased by 9% (YoY) in

3QFY14 with 4-5% (YoY) pricing growth.For FY15E, management stated to hike its

product prices by 4-5% to maintain its margin.

View and Valuation: Despite signs of weak discretionary demand and increased

competitive intensity in the market, Dabur India has reported comparatively better

volume growth in its key categories. On all operating parameters, its performance was

satisfactory. Still, management is cautious for margin ramp up due to high inflation in

India.The strong momentum in relatively low competition in the core categories with

diversified portfolio, Dabur gets a better place than other peers and its rural

distribution expansion should boost sales volumes. We retain our “Buy” view on the

stock with a target price of Rs206. At a CMP of Rs 162 stock trades at 8.5x FY15E P/BV.

Recent updates: (a)Introduced a host of new products and variants, including the new

Fem Fairness Naturals facial bleach range and Vatika Hibiscus hair care range.(b)Dabur

Tunisie, a wholly owned subsidiary, incorporated in Tunisia on Dec. 2013 with the object

of buying, selling and manufacturing consumer care products, having meagre asset base

at present.

Growth on all Categories: The Health Supplements business was a key driver of growth

during the quarter, reporting a strong 19.5% surge. The Air Freshener business under

the brand Odonil, continued to surge ahead with an over 27% growth. The Foods

business also reported a robust near 18% growth. The Shampoo business grew by 25%.

The Toothpaste business grew by over 14% while the Skin Care category reported an

over 13% growth.

During 3QFY14, Dabur reported 16.7% (YoY) sales growth led by 9% overall volume

growth because of discretionary demand ramp up in rural area and price hikes by

around 4-5% . PAT grew by 16%(YoY).

Dabur delivered inline set of numbers ;

The International Business grew by 26%. Organic business grew by 29% with 14%

constant currency growth rate led by strong performance in GCC, Egypt and Nigeria.

The GCC business reported a 21% growth, while sales in Egypt and Nigeria both grew

by 16%. Domestic FMCG business grew by 14%.

Post earning, company’s management stated that they would focus on pursuing

aggressive and profitable growth strategy with brand building by judicious mix of price

hike and product launch in near future.

Previous Target Price -

Upside 27%

Change from Previous -

"Confident tone for growth"

Result update

CMP 162

Target Price 206


NSE Symbol DABUR

28197

Average Daily Volume 908049

52wk Range H/L 185/125

Mkt Capital (Rs Cr)

Market Data

BSE Code 500096

P/BV(x)-1year forward

Rs, Crore

(Source: Company/Eastwind)


Stock Performance

Nifty 6346

"BUY"24th Jan' 14


7

Margin-%



Expenses on sales-%


RM cost (on sales) decreased from 37.6% to

36.3% and AD spend down from 14.4% to

12%, historicaly low ad spend.

EBITDA margin declined by 120 bps to 15.6%

due to rise in A&P cost by 130 bps to 15.72%

and employee cost by 60 bps to 8.58% of

adjusted net sales.

The company has been looking to maintain 8-

12% volume growth in the near term.



Dabur India Ltd.

Sales and Sales Growth(%) -

Consolidated Volume Growth-%


8

Financials

■ The company may hike prices by 4-5% in FY15E and focus will be on pursuing an

aggressive and profitable growth strategy.

■ Ad expenses to be within the range of 13-15 percent at the consolidated level for

FY15E.

■ Expanding rural distribution networks as a part of project double and new products as

hair serums and professional hair care products were launched.

■ There has been a softening of demand generally speaking in urban India. Overall much

higher level of growth is coming from rural as compared to urban.



Key facts from Management Commentary:

Dabur India Ltd.


Rs in Cr, FY10 FY11 FY12 FY13E FY14E FY15E

Sales 3391.4 4104.5 5305.4 6178.9 7070.30 8203.32

RM Cost 811.0 1806.8 2278.8 2422.1 2757.42 3240.31

Purchases of stock-in-trade 750 252 509 599 742.38 820.33

WIP (10) (122) (103) (2) (71) (41)

Employee Cost 285 309 387 471 608.05 738.30

Ad Spend 493.5 534.6 659.5 837.0 996.91 1132.06

Other expenses 438.4 524.1 683.1 819.10 908.53 1066.43

Total expenses 2767.3 3304.8 4415.2 5146.6 5942.59 6956.42

EBITDA 624.1 799.7 890.2 1032.2 1127.71 1246.90

Depreciation and Amortisation 50.0 95.2 103.4 112.7 111.09 133.15

Other Income 39.4 32.2 57.4 92.0 141.41 164.07

EBIT 613.5 736.6 844.2 1011.5 1158.03 1277.82

Interest 12.3 29.1 53.8 58.9 54.69 51.95

PBT 601.2 707.5 790.4 952.6 1103.34 1225.87

Tax Exp 100.5 139.0 146.4 182.62 212.39 232.91

PAT 500.7 568.5 644.0 770.0 890.95 992.95

Growth-% (YoY)

Volume 9.5% 10.5%

Pricing 4.5% 5.0%

Sales 20.9% 21.0% 29.3% 16.5% 14.4% 16.0%

EBITDA 33.9% 28.1% 11.3% 16.0% 9.3% 10.6%

PAT 28.1% 13.5% 13.3% 19.6% 15.7% 11.4%

Expenses on Sales-%

RM Cost 23.9% 44.0% 43.0% 39.2% 39.0% 39.5%

Ad Spend 14.6% 13.0% 12.4% 13.5% 14.1% 13.8%

Employee Cost 8.4% 7.5% 7.3% 7.6% 8.6% 9.0%

Other expenses 12.9% 12.8% 12.9% 13.3% 12.9% 13.0%

Tax rate 16.7% 19.6% 18.5% 19.2% 19.3% 19.0%

Margin-%

EBITDA 18.4% 19.5% 16.8% 16.7% 16.0% 15.2%

EBIT 18.1% 17.9% 15.9% 16.4% 16.4% 15.6%

PAT 14.8% 13.9% 12.1% 12.5% 12.6% 12.1%

Valuation:

CMP 158.6 96.1 103.2 131.0 162.0 162.0

No of Share 86.8 174.1 174.2 174.3 174.3 174.3

NW 935.4 1391.1 1716.9 2124.4 2689.1 3335.4

EPS 5.8 3.3 3.7 4.4 5.1 5.7

BVPS 10.8 8.0 9.9 12.2 15.4 19.1

RoE-% 53.5% 40.9% 37.5% 36.2% 33.1% 29.8%

P/BV 14.7 12.0 10.5 10.7 10.5 8.5

P/E 27.5 29.4 27.9 29.7 31.7 28.4

Ultratech Cement.

1719

1846

1846

7%

0%

532538

46885

18754

6346

1M 1yr YTD

Absolute -7.3 -14.8 -10.2

Rel. to Nifty -9.0 -19.9 -14.3


Promoters 62.0 62.0 62.0

FII 21.0 20.7 20.7

DII 4.6 4.8 4.6

Others 12.4 12.6 12.7

Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY13

Net Revenue 4818 -1.3 6.5 4883 4522

EBITDA 796 -24.2 17.1 1050 679

Depriciation 264 10.7 0.0 239 264

Interest Cost 90 73.6 1.9 52 89

Tax 139 -45.2 30.0 254 107

PAT 370 -38.5 41.6 601 261(In Crs)

9

Moderated but Not outdated

Market Data

Average Daily Volume (Nos.)

BSE Code

ULTRACEMCONSE Symbol

52wk Range H/L


1405/2067

Source - Comapany/EastWind Research

Expansion Updates :In Jul’13 it commissioned a 3.3m-ton clinker plant in Karnataka,

adding to its earlier commissioning (Mar’13) of similar capacity in Chhattisgarh. In Oct’13

it commissioned a 1.6m-ton grinding unit in Jharsuguda, Orissa, adding to its earlier

commissioning (Mar’13) of similar capacity in Hotgi, Maharashtra. The balance five

associated grinding units will be set up in 4QFY14 and FY15.

Acquisition. During 2Q, Ultratech acquired JPA’s 4.8m-ton unit in Gujarat, lifting its

capacity to 59m tons, while ongoing expansions would further that to 70m tons by

Mar’15. The transaction, at an EV of 38bn (US$125 a ton) is expected to be completed

only by 1QFY15 given multiple approvals required.

Depreciation rose 11% yoy due to the commissioning of clinker capacity in Chhattisgarh,

Karnataka, and grinding units in Maharashtra, Gujarat and Orissa. Other income too fell,

18% yoy, leading to a further crunch in PAT.

Investment concerns :Key drivers of long-term growth would continue to be housing and

infrastructure development.Revival in cement demand would be key catalyst for the

stock performance.cement prices and demand are expected to pick-up post election.High

operating leverage, especially post commissioning of new capacities in 1QFY14, could

result in volatile earnings.Cement Makers may rise cement prices due to increase in

variable input costs.

CMP

Target Price

Previous Target Price

Result Update Hold


Stock Performance-%


1 yr Forward P/B

Nifty

Lower Realization and higher Operating Cost Impact PAT: UltraTech’s 3QFY14 Sales,

EBITDA & PAT declined 1%, 24% and 39% YoY respectively to Rs4818Cr, Rs796Cr and

Rs370Cr respectively. On QoQ basis, Sales, EBITDA & PAT rose 7%, 17% and 40%. While

EBITDA margin contracted ~499 bps YoY it expanded 149 bps QoQ to 16.5%. EBITDA per

MT at Rs788 down 24% YoY and up 10% QoQ.

At Rs.788 /Ton Average Realization Down 1% YOY : The benefit of lower coal prices (net

of rupee devaluation) and optimization of the fuel mix led to an 6.5% yoy dip in power &

fuel costs a ton. A 23.5% yoy drop in EBITDA and a 75.4% yoy rise in interest led to a

37.8% yoy fall in PAT.

Despite of Weak Realization Ultratech has delivered QOQ margin Expansion :Despite

24%,7%,8% YOY increase in Rawmaterial cost, freight cost and other expenses

respectively, Ultratech’s variable input cost increased 6%YOY and -2%QOQ . Through

better cost efficiency which has been one of the key factors resulting in UltraTech’s

results outperforming its large cap peer group over the last 4‐5 quarters. Thus We believe

UItraTech will deliver QoQ margin expansion despite marginally weak realization .

Upside

Change from Previous

"Hold"24th Jan' 14


0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Au

g-0

4

May

-05

Feb

-06

No

v-0

6

Au

g-0

7

May

-08

Feb

-09

No

v-0

9

Au

g-1

0

May

-11

Feb

-12

No

v-1

2

Au

g-1

3

Price 1x2x 3x4x 5x6x 7x8x

OUTLOOK :

Vew & Valuation :

FY11 FY12 FY13 FY14E

13798 19232 21319 20797

154 371 304 346

13952 19603 21623 21143

3280 4639 4646 4315

2881 3741 4243 4461

11102 15039 16480 16957

2696 4194 4839 3840

813 963 1023 1110

292 256 252 325

384 948 1179 759

1367 2403 2678 1982

12.8 18.7 17.6 11.7

10

Depriciation

Interest Cost

Net Tax

PAT

ROE%

Power and fuel

Freight and forwarding

Expenditure

EBITDA

Ultratech Cement.

P/L PERFORMANCE

Net Revenue from Operation

Other Income

Total Income

We are expecting Demand Growth for the rest FY14 will be 4% - 5% and for FY15 it will

be in the range of 8% - 12%.Demand already revived after the monsoon ,hence it

reported a 4% realization growth in Q3FY14.The Ultratech's expansion plans are ramp

up to become 70 mnTon cement producer in India by FY15 . Its waste heat recovery

plants and efficient fuel mix (usage of petcock for energy instead of coal) moderates the

Cost pressure, so to make Ultratech cost efficient among large cap peers. Govt

initiatives to expedite large infrastructure projects have yielded little so far and this is

putting pressure in the cement makers, especially those with debt that has become

expensive to service due to high interest rates. We expect lower other income to revive

after the settlement of volatile interest rates by Govt in coming quarters. At present

ultratech is running at 79% of its capacity utilization. The utilization level may decline

due to stabilization of supply from new capacities, owing to insufficient demand in

Domestic Market. Ultratech is planning to strengthen its logistic infrastructures and

increase its captive power plants capacity, which will help to reduce its Operational

cost.

Ultratech's Q3FY14 was in line to our estimates.The white cement Volume Growth and

capacity expansions are positive in terms of fundamentals. We see the uptick of EBIDTA

margin and volume growth for FY15. Currently the stock valuing at 3x in 1yr forward

P/B, and we cut our stance for FY15 to 2.7x. Hence we maintain our positive stance on

Ultratech Cement with Target price of Rs.1846/- . As from the current level the upside is

very limited(7%), we recommend “Hold” Ultratech and Buy at Dips to get handsome

return.





FY10 FY11 FY12 FY13

124 274 274 274

4495 10373 12550 14955

4620 10647 12824 15230

857 3295 4843 5169

750 727 705 1227

32 113 121 135

683 1830 2207 2338

133 473 709 949

8375 21630 24904 29590

6 39 40 62

4953 12265 12729 14254

260 760 1940 3601

146 583 1544 1066

827 2094 2198 2541

210 825 1089 1376

112 190 214 185

219 873 1041 1048

8375 21630 24904 29590

FY10 FY11 FY12 FY13

3.1 2.9 3.2 3.4

88.1 49.9 87.7 97.7

2.9 6.0 5.7 6.5

9.5 13.3 11.5 11.0

1.2 1.5 1.1 1.2

15890 34903 46634 57428

13.1 22.7 17.2 19.1

7.9 12.9 11.1 11.9

0.5 0.5 0.5 0.5

15.4 8.2 11.8 11.3

0.3 0.4 0.4 0.4

2.3 1.5 1.6 1.4

1673 2195 3482 4122

(843) (2240) (3050) (4407)

(740) 248 (353) 715

11

Debt/Equity

Current Ratio

Cash from Operation

Cash From Investment

Cash from Finance

Inventories to Turnover%

Short-term loans and advances

Total Assets

P/B

EPS

Debtor to Turnover%

B/S PERFORMANCE

P/E

EV/EBIDTA

Dividend Yield%

ROCE%

Cash and bank balances

Trade receivables

Inventories

Long-term loans and advances

Capital work-in-progress

Long-term provisions

Trade payables

Short-term provisions

Total liabilities

Intangibles

Tangible assets

Ultratech Cement.

Share capital

Reserve & Surplus

Total equity

Long-term borrowings

Short-term borrowings



RATIOS

EV

Creditors to Turnover%


12

We expect performance of Public Sector Banks (PSBs) to remain muted on the back

of slower pace of loan growth and deteriorating asset quality led by ongoing

restructure assets and stress in economy. We expect PSBs in our coverage universe

to report NII growth of 17.2% YoY led by moderate loan growth of 18% YoY by the

system and restructure assets which would likely to remain at elevated level as per

most of bank management. Provision for loan loss would be elevated level owing to

deteriorating asset quality and larger sum of restructure assets are in pipeline. Most

of PSBs are expected to reported higher slippage of restructure asset as per

management.

During quarter the banking system experience loan growth of 15% YoY as on 13th

Dec.2013 (as per RBI data) as against 18% YoY loan growth in 2QFY14. Second

quarter witnessed higher loan growth because of transfer of CD/CP borrowings to

loan but during this quarter revival of bond yield and lower demand of corporate loan

led slowdown in economy restricted moderate loan growth in the system. We expect

loan growth of 10-15% in our coverage universe. Bank of Baroda, Canara Bank,

UCO bank and Union bank are expected to reported loan growth of >15% while PNB

and SBIN would report <10% of loan growth.

Deposits growth lead by flow of FCNR deposits

Indian banks registered deposits growth of 17% YoY as on 13th Dec2014 according

to RBI data preliminary due to flow of FCRN deposits through RBI’s special

concession window to the tune of Rs. $14 bn. Union Bank is likely to get more

benefit from this route as per management. According to bank’s top official, bank

raised more FCNR deposits than repo borrowing. Bond yield during this quarter

soften to 7.5% as against 9.5% in second quarter and FCNR deposits are generally

low cost of deposits. This would lead the margin expansion of more than 1%. Margin

expansion would be seen in case of Union Bank. Cost of deposits of most of banks

is expected to remain same but we expect actual benefit would come from 4QFY14E

and onwards.

Asset quality pressure likely to remain at elevated level

Asset quality pressure is likely to persist due to ongoing slowdown in economy, high

interest rate and continuous rising inflation. Gross slippages of banks are expected

to remain at elevated level and most of bankers are guided higher amount of

restructure assets in pipeline. We expect Andhra bank would hit more as their

impairment of asset would be more than 18% of asset means 100% of liability has to

service 82% of asset which would be tough itself for bank. We expect GNPA and net

NPA for PSBs would be in the range of 3.5%-4% and 2 to 2.5% respectively in

3QFY14.

Stock Performance During Quarter

Nifty Vs Bank Nifty during Quarter

Loan (Rs tn) and YoY Gr(%)

Revenue growth tepid on account of moderate loan growth and high cost of

fund


Public Sector Banks Result Preview

3QFY14E

Muted loan growth reported by system


13

Public Sector Banks Result Preview 3QFY14E

Profitability of PSBs are expected to declined by 19.5% in our coverage universe in

absence of core earnings, higher operating leverage due to wage revisions and high

provision against loan loss due to deteriorating asset quality. Union Bank, Canara Bank

and UCO Bank are expected to report healthy profit in our coverage because of healthy

loan growth and margin expansion. Although these banks would not be free from

impairment of asset and high operating leverage but would have comfortable profit due to

healthy core earnings as per our view.

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. High inflation would be risk for the economy going forward.

Any rise in inflation would result of rise in interest rate by RBI in its third quarter monetary

policy review on 28th Jan.2014 which would be negative for banking industry. Most of

banking stocks are expected to report moderate revenue and profit growth owing to

multiple headwinds. In PSBs universe we like Canara Bank, UCO Bank, Union Bank.

ALBK


Outlook

Profitability likely to declined due to absence of core earnings, high operating

leverage and deteriorating asset quality

We expect bank to report profit growth of 4.2% YoY on the back of high operating

leverage and high provisions. Higher operating leverage is expected due to higher

employee provision and higher provisions on account of deteriorating asset quality as

bank witnessed sequentially increased of gross NPA.

Andhra Bank

We expect bank to report loan growth and deposits growth of 14% and 18% respectively.

Profit is expected to report negative growth on YoY basis largely due to high base and

expected muted performance during the quarter. Asset quality during quarter is expected

to report high deteriorating due to large chunk of restructure assets.


Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth

NII 1169 1309 1330 -12.1 -10.7

PPP 750 1154 860 -12.7 -34.9

Net Profit 182 276 311 -41.4 -34.0

ALBK


NII 1169 1045 971 20.4 11.9

PPP 750 643 712 5.4 16.7

Net Profit 166 71 257 -35.4 135.0

ANDHRABANK

14

Bank of India

We expect loan and deposits growth of 23% and 29% YoY respectively. Profit is lower by

25% YoY largely due to higher provisions. Bank is expected to report higher slippage as

management guided restructure pipeline of Rs.10-15 bn. NIM is expected to improve by

20 bps YoY due to international NIM.

Canara Bank

Canara Bank is expected to report 30%+loan growth largely due to lower base. We

expect loan to grow by 34% YoY and flat deposits growth. Asset quality of bank is

expected to improve on sequential basis largely due to expected lower slippage. AT PBT

level , we expect bank to grow by 12.5% but we assume tax rate of 25% versus 16% in

2QFY14 and 19% in 1QFY14 which lead profit growth of 8.5% YoY. Gross slippage and

tax rate will be monitor able.

Punjab National Bank

PNB is expected to report loan growth of less than 10% as bank is more focus on

consolidating its balance sheet than growth. Asset quality is expected to remain at

elevated level as bank’s slippage not concentrated in particular industry. NIM is expected

to report in the range of 3.5-3.7%. Profit is expected to be dented on account of higher

provisions.



Bank of Baroda

We expect profit growth of 5.5% YoY largely due to tax rate of 30% versus 6.3% in

2QFY14 and 17.5% YoY in 1QFY14. As per our expectation NII would be grew by 24%

largely due loan growth of 20% YoY. Asset quality of bank is expected to remain high as

management guided restructure pipeline is Rs.20bn.



NII 3515 2895 2841 23.7 21.4

PPP 2539 2125 2256 12.6 19.5

Net Profit 1067 1168 1012 5.5 -8.7

BANKBARODA


NII 2683 2527 2308 16.2 6.2

PPP 2218 2102 1856 19.5 5.5

Net Profit 602 622 803 -25.1 -3.3

BANKINDIA


NII 2606 2191 1988 31.1 18.9

PPP 1734 1425 1516 14.4 21.7

Net Profit 775 626 714 8.5 23.8

CANBK


NII 4201 4016 3733 12.5 4.6

PPP 2874 2535 2682 7.2 13.4

Net Profit 607 505 1306 -53.5 20.2

PNB

15

Result Preview ; at a glance


State Bank of India


We expect SBIN loan and deposits growth of 17% and 16% YoY respectively. NIN is

expected to report in the range of 3.5-4% as bank has increased base rate during the

quarter. Operating leverage and asset quality is expected to dent profit by 25% YoY. We

remain have concern about bank’s deteriorating asset quality and continuous fall of PCR.

Gross slippage and provisions make by bank is key monitor able as per our view.

UCO Bank

UCO bank is expected to report profit growth of 200%+ largely due to robust expected NII

growth which is lead by low of fund. UCO Bank’s CASA grew exponential in past few

quarter but after sanction of western countries in Iran, low cost deposits are likely to be

stagnant. But bank is expected to get benefit of same in FY14. Key monitor able would

be CASA trend and asset quality.

Union Bank

We expect Union bank’s profit to grow by 32% YoY largely due to margin expansion and

flow of FCNR deposits. Cost of fund is likely to soften this quarter as bank borrowed

more money on repo and less MSF. Bond yield settled at 8.75% during quarter as

against 9.5% in previous quarter. We expect loan and deposits growth of 17% and 18%

YoY. Asset quality is likely to persist. Improvement in CASA and margin expansion would

be key monitor able.


NII 12959 12251 11154 16.2 5.8

PPP 6734 6312 7791 -13.6 6.7

Net Profit 2535 2375 3396 -25.4 6.7

SBIN


NII 1642 1569 1177 39.5 4.7

PPP 1285 1166 831 54.6 10.2

Net Profit 338 400 102 231.4 -15.5

UCOBANK


NII 2015 1954 1891 6.6 3.1

PPP 1484 1225 1358 9.3 21.1

Net Profit 400 208 302 32.5 92.3

UNIONBANK

PSU BANKS NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit

ALBK 1382 1139 324 1309 1154 276 1330 860 311 3.9 32.4 4.2 5.6 -1.3 17.5

ANDHRABANK 1169 750 182 1045 643 71 971 712 257 20.4 5.4 -29.2 11.9 16.7 157.6

BANKBARODA 3515 2539 1067 2895 2125 1168 2841 2256 1012 23.7 12.6 5.5 21.4 19.5 -8.7

BANKINDIA 2683 2218 602 2527 2102 622 2308 1856 803 16.2 19.5 -25.1 6.2 5.5 -3.3

CANBK 2606 1734 775 2191 1425 626 1988 1516 714 31.1 14.4 8.5 18.9 21.7 23.8

DENABANK 684 458 107.4 107 369 625 615 443 206 11.2 3.4 -47.9 539.3 24.1 -82.8

IOB 1467 972 120 1452 791 133 1382 1017 116 6.2 -4.4 3.4 1.0 22.9 -9.8

ORIENTBANK 1395 965 269 1281 825 251 1204 926 326 15.9 4.2 -17.5 8.9 17.0 7.2

PNB 4201 2874 607 4016 2535 505 3733 2682 1306 12.5 7.2 -53.5 4.6 13.4 20.2

SBIN 12959 6734 2535 12251 6312 2375 11154 7791 3396 16.2 -13.6 -25.4 5.8 6.7 6.7

SYNDIBANK 1480 847 319 1411 811 470 1400 864 508 5.7 -2.0 -37.2 4.9 4.4 -32.1

UCOBANK 1642 1285 338 1569 1166 400 1177 831 102 39.5 54.6 231.4 4.7 10.2 -15.5

UNIONBANK 2015 1484 400 1954 1225 208 1891 1358 302 6.6 9.3 32.5 3.1 21.1 92.3

VIJAYABANK 660 385 127 705 273 136 456 261 127 44.7 47.5 0.0 -6.4 41.0 -6.6

Total 36476 23245 7448 33404 20601 7590 31120 22513 9175 17.2 3.3 -18.8 9.2 12.8 -1.9

YoY Growth QoQ Growth3QFY14E 3QFY132QFY14


HDFC LTD

840.5

875

-

4

-

1M 1yr YTD

Absolute 6.6 2.4 2.4

Rel.to Nifty 5.7 -2.1 -2.1


3Promoters - - -

FII 74.3 73.1 73.6

DII 12.9 13.8 13.0

Others 12.9 13.1 13.3

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 4483 5212 6179 7053 8193

Total Income 5558 6198 7257 8131 9271

PPP 3890 5746 6718 7562 8530

Net Profit 3535 4123 4848 5438 6194

EPS 24.1 27.9 31.4 35.2 40.1

16

Margin compression, spread would declined going forward

Net interest margin for the quarter stood at 4% despite of 25 bps reduced home loan

for retail customers during the quarter as against 4.06% in 2QFY14. Spread which is

the difference of interest income and interest expenses, maintained at 2.25%. Going

forward, there would be some pressure in spread as NBFC’s balance sheet keeps

increasing with the support of borrow fund. In rising interest rate and inflationary

pressure era, we expect to come down to 2% in next couple of quarters.

Stable operating cost led operating growth at 12.5% YoY

Other income was Rs.46 cr versus Rs.105 cr in last quarter and Rs.95 cr in previous

quarter. Due to lower support from other income, total revenue grew by 13% YoY to

Rs.1951 cr. Operating expenses increased to Rs.168 cr ( Up by 17% YoY) led

operating profit growth of 12.5% YoY to Rs.1783 cr.

Stable asset quality and balance sheet keep growing

On asset quality side, NBFC’s gross non performing asset stood at 0.77% of loan of

loan portfolio versus 0.79% in previous quarter and in absolute term in amounted to

Rs.1478 cr. Loan book of the company corpus increased by 19.2% YoY to

Rs.192266 cr as on December 2013. The total assets increased to Rs 218286 cr as

against Rs 183770 cr as at December, 2012 registering an increase of 19 per cent.

CMP

Target Price

HDFC's profit growth of 12.1% YoY was inline with street expectation. NBFC

reported stable asset quality on sequential basis as well as registered healthy

loan growth. HDFC ltd has well above CAR against requirement which would

support growth going forward. At the current price of Rs.840, stock is trading

at 4.3 tines one year forward book and 26 times of FY14E’s earnings. We value

HDFC at Rs.875/ share which is 4.5 times of FY14E’s book and P/E multiple of

27 times of full year EPS.


Upside

HDFC Ltd’s 3QFY14 result was in line with street expectation as profit grew by 12%

YoY to Rs.1278 cr on standalone basis. Profit of the NBFC grew by 13.4% YoY on

consolidated basis to Rs.1935 cr versus Rs.1706 cr in last quarter. NII grew by

12.8% YoY to Rs.1940 with inclusion of investment sale. Adjusted the same, NII

grew by 17% YoY to Rs.1905 cr versus Rs.1624 cr last quarter corresponding year.

131340

Result Updated NEUTRAL

Market Data

931/632

BSE Code 500010

NSE Symbol HDFC

52wk Range H/L

Profit growth in line with street expectation


HDFC Vs Nifty


1.16

Nifty 6338

Mkt Capital (Rs Cr)


Stock Performance

Average Daily Volume

"NEUTRAL "23th Jan, 2014


17

Quarterly Result

HDFC LTD

Source: Eastwind/Company


NII grew on the back of healthy loan growth

and stable spread

Operating cost stable led PPP growth at 12.5%

YoY

Net profit of Rs.1278 cr was in line with

expectation.


18

HDFC LTD

HDFC Performance vs Nifty with base re-adjustment

Source: Eastwind/Company


Quarterly Performance


Rs Cr 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr

Income from Operations 5985 5859 5146 16.3 2.2

Profit on Sale of Investments 35 87 96 -64.1 -60.1

Total Income 6020 5946 5242 14.8 1.2

Interest and Other Charges 4080 4046 3521 15.9 0.8

Staff Expenses 71 67 64 10.3 5.4

Provision for Contingencies 25 15 40 -37.5 66.7

Other Expenses 89 95 74 21.1 -6.3

Depreciation 8 9 6 41.8 -12.0

Total Expenditure 4273 4233 3705 15.3 1.0

Profit from Operations before Other Income 1747 1713 1537 13.7 1.9

Other Income 11 8 8 32.8 38.4

Profit Before Tax 1758 1721 1545 13.8 2.1

Tax Expense 480 455 405 18.5 5.5

Net Profit After Tax 1278 1266 1140 12.1 0.9

Zensar Tech

1M 1yr YTD

Absolute 13 32.6 16.5

Rel. to Nifty 12 28.4 12.8


Promoters 48.27 48.35 48.36

FII 11.99 11.68 10.75

DII 0.96 1.26 1.28

Others 38.78 38.71 39.61

Financials3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%

Revenue 592.01 599.7 (1.3) 525.5 12.7

EBITDA 87.26 102.54 (14.9) 70.1 24.5

PAT 50.8 70.6 (28.0) 48.7 4.3

EBITDA Margin 14.7% 17.1% (240bps) 13.3% 140bps

PAT Margin 8.6% 11.8% (320bps) 9.3% (70bps)

19

Mix geographical footing: During the quarter, revenue growth from Europe region was

impressive with 10%(QoQ), while USA and ROW, both were down by 1% impacted by

seasonal impact.Given the order book Enterprise, business expects to grow robustly

going forward.

504067

NSE Symbol ZENSARTECH

BSE Code


"Better growth trajectory ahead"

CMP 386

Target Price 440

Result update Buy Earning numbers below expectation, management confident for growth ahead:

For 3QFY14, Zensar Tech reported lower growth than expectations, Sales declined by

1%(QoQ) because of seasonal and furloughs impacts. PAT was down by 28%(QoQ),

the profit growth has been impacted due to currency fluctuations during the period to

the extent of Rs 19.06 Cr on a YoY basis and Rs 23.02 Cr on a QoQ basis. Upside 14%

400

Stock Performance


Average Daily Volume 20884


Market Data


Nifty 6339

1691

430/181

1 year forward P/E

Rs, Crore


10%

52wk Range H/L


Healthy order Pipeline: The Quarter has been upbeat with several new client additions,

with the company’s focus on cloud, security and multi-vendor services reaping results.

Recent Management comments also revealed favourable scenario of order booking.

Management expects good growth starting from 4QFY14E with its Infrastructure

Management (IM) business gaining momentum. The deal booking and pipeline is good

and expects to perform well going forward. It expects double-digit growth in the

Enterprise Services business for the FY15 on the back of healthy pipeline. In addition, it

anticipates good growth from the IMS for the FY'15.

On Margin front; During the Quarter, its EBITDA margin declined by 240bps to

14.7%and PAT margin down by 320bps to 8.6%. Post earning, management has

expressed its margin at a range of 16-17% and PAT margin could be seen at a double

figure for only organic business.

View and Valuation: The deal booking and pipeline is good and expects to perform well

going forward. It expects double digit growth in the Enterprise Services business for the

FY15E on the back of healthy pipeline. Also, it anticipates good growth from the IMS for

the FY'15E.

Order pipeline continues to be stable at $ 200 mn mainly on the back of good demand

seen in Mobility, Cloud Computing and social networking side. Considering healthy

order pipeline and its earning visibility in near future, we maintain “BUY” view on the

stock with a target price of Rs 440. At a CMP of Rs 386, stock trades at 5.6x FY15E EPS.

On segmental growth; The Infrastructure Management(IM) business of the company,

which has been restructured over the last few quarters, has shown a sharp increase in

dollar revenues of over 12% on a sequential quarter basis. The company reported 12

new customer wins in the quarter including over USD27 mn of new business in IM. In

INR term, Application Management Services (contributes 65% of Sales) declined by

4.5%(QoQ) and IM grew by 0.5% (QoQ). While, Products and License business jumped

from Rs50cr (2QFY14) to 70cr.

"BUY"23rd Jan' 14


20

Zensar Tech


Sales and Sales Growth-%

Margin-%




Sales and Sales Growth-%



Revenue Mix-Geographies 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY142

USA 72% 71% 72% 74% 76% 75% 75%

Europe 9% 9% 9% 9% 8% 9% 10%

Africa 8% 9% 9% 9% 9% 10% 9%

Row 11% 11% 10% 8% 7% 6% 6%

Application Management Services 64% 66% 68% 64% 65% 68% 65%

Infrastructure Magt Services 21% 22% 21% 24% 23% 23% 23%

Products and License 15% 12% 11% 12% 12% 9% 12%

Fixed Price 33% 30% 31% 34% 37% 37% 35%

Time & Materials 35% 40% 40% 36% 33% 36% 36%

Support Services 17% 18% 17% 18% 18% 18% 17%

Product Sales 15% 12% 12% 12% 12% 9% 12%

Manufacturing , Retail & Distribution 52% 53% 54% 54% 61% 63% 61%

Insurance, Banking & Finance 20% 21% 20% 19% 20% 20% 21%

Govt , healthcare & Utilities * 7% 11% 11% 10% 2% 2% 2%

Alliance & Others 21% 15% 15% 17% 15% 17% 16%

Revenue Mix-Service Type

Revenue Mix-Project Type

Revenue Mix-Vertical

21



Zensar Tech

Clients/Headcounts Metrics;

Financials;


Revenue Mix-Geographies 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY142

$1mn+ 47 43 41 40 49 47 49

$5mn+ 6 7 7 8 6 6 6

$10mn+ 1 2 2 2 1 1 2

$20mn+ 1 1 1 1 1 1 1

top 5 clients 35% 35% 35% 35% 37% 39% 36%

top 10 clients 40% 42% 42% 43% 43% 46% 43%

DSO 69 59 56 55 66 61 59

Onsite 69% 72% 70% 69% 68% 67% 69%

Offshore 31% 28% 30% 31% 32% 33% 31%

Utilization (Including Trainees) 81% 82% 83% 82% 81% 80% 79%

Headcount 7286 6825 6504 6508 6519 6657 6741

Number of million dollar

Effort & Utilization

Client Contribution to Business

Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E

Net Sales 497.08 562.56 700.15 2114.52 2330.91 3014.78

Other Operating Income 0.00 15.03 12.57 13.95 18.65 24.12

Total income from operations (net) 497.08 577.59 712.72 2128.47 2349.56 3038.90

Purchases of stock-in-trade 0.00 0.00 0.00 236.86 223.21 303.89

Employee Cost 393.17 343.12 411.36 1177.83 1268.76 1641.01

Other expenses 0.00 135.71 165.98 418.73 505.16 653.36

Total Expenses 393.17 478.83 577.34 1833.42 1997.13 2598.26

EBITDA 103.91 98.76 135.38 295.05 352.43 440.64

Depreciation 24.92 25.88 25.05 33.16 39.67 51.31

Other Income 8.15 14.20 27.91 8.66 46.99 75.97

Extra Ordinery Items 0.00 0.00 0.00 0.00 0.00 0.00

EBIT 78.99 72.88 110.33 261.89 312.76 389.33

Interest Cost 0.55 0.85 1.03 9.95 10.81 8.65

PBT 86.59 86.23 137.21 260.60 348.94 456.65

Tax 2.43 -2.24 42.67 86.07 118.64 155.26

PAT 84.16 88.47 94.54 174.53 230.30 301.39

Growth-%

Sales 17.8% 13.2% 24.5% 202.0% 10.2% 29.3%

EBITDA 28.7% -5.0% 37.1% 117.9% 19.4% 25.0%

PAT 38.9% 5.1% 6.9% 84.6% 32.0% 30.9%

Margin -%

EBITDA 20.9% 17.6% 19.3% 14.0% 15.1% 14.6%

EBIT 15.9% 13.0% 15.8% 12.4% 13.4% 12.9%

PAT 16.9% 15.7% 13.5% 8.3% 9.9% 10.0%

Expenses on Sales-%

Employee Cost 79.1% 59.4% 57.7% 55.3% 54.4% 54.4%

Other expenses 0.0% 23.5% 23.3% 19.7% 9.6% 10.1%

Tax rate 2.8% -2.6% 31.1% 33.0% 34.0% 34.0%

Valuation

CMP 272.10 157.85 180.00 248.58 386.00 386.00

No of Share 2.16 4.34 4.34 4.36 4.37 4.37

NW 293.93 366.96 417.42 751.69 938.54 1193.91

EPS 38.96 20.38 21.78 40.03 52.70 68.97

BVPS 136.08 84.55 96.18 172.41 214.77 273.21

RoE-% 28.6% 24.1% 22.6% 23.2% 24.5% 25.2%

Dividen Payout ratio 16.4% 19.9% 37.3% 21.9% 18.9% 15.3%

P/BV 2.00 1.87 1.87 1.44 1.80 1.41

P/E 6.98 7.74 8.26 6.21 7.32 5.60

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