state trading corporation...nmdc cmp (`) 125 price target (`) 160 oil india cmp (`) ... valuation...

Sunidhi Research | 1

Sunidhi’s Super Seven-II

Investment Ideas

Sunidhi’s Super Seven-I outperformed the broader index by 9% Amidst concerns over macro recovery, our super seven stocks (Report dated August 12, 2013) outperformed the broader index by 9%, vindicates our confidence on our theme of Quality Investing with key stock selection parameters such as strong earnings visibility over the medium term, compelling valuations, strong cashflows and no corporate governance issues. We do highlight the fact that in contrast to street- we had showed reliance on the 7 stocks in our universe, which have delivered an average return of 18% since our last recommendation against Nifty return of 8% and CNX500 return of 9% during the same period. Sunidhi’s Super Seven-II is expected to deliver superior return Post bolstered performance of our first edition of Sunidhi’s Super Seven, we are introducing second edition of Sunidhi’s Super Seven. In the second edition of super seven we are adding Dhanuka Agritech Ltd and Oil India Ltd, while removing Berger paints and GMDC. We are removing Berger paints from Sunidhi’s Super Seven due to its strong price performance and trading near to our fair value target and GMDC due to continuous non delivery of the company on volume growth front. Our addition of above mentioned stocks is based on our rigorous stock selection process and fits in our broader theme of Quality Investing. Performance of first edition of Sunidhi’s Super Seven

Company Name Reco. Price Price as on 27-Nov-13 Div/per share Total Return

Berger Paints 203 230 -- 13%

Cadila 708 735 -- 4%

Federal bank 63.6 78 -- 22%

GMDC 95 100 3 9%

NMDC 102 125 7 30%

Unichem Lab 150 185 -- 24%

Yes bank 287 356 -- 24%

Average Return

18%

Nifty 5612 6057

8%

CNX500 4293 4680

9% Source: Sunidhi Research

November 28, 2013

Sunidhi Super Seven II- Investment Ideas


Cadila Healthcare Financials (`mn) Revenues EBIDTA Net Profit EPS (`) P/E (x) EV/ EBIDTA(x) ROAE (%)

FY12 52627 11238 7685 37.5 19.8 13.6 32.4 FY13 63577 11251 6960 34.0 21.8 13.6 25.2 FY14E 70373 11602 7252 35.4 21.0 13.2 22.6

FY15E 81364 14507 9282 45.3 16.4 10.5 24.5

Dhanuka Agritech

Financials (`mn) Revenues EBIDTA APAT EPS (`) P/E (x) EV/ EBIDTA(x) ROAE (%)

FY12 5,292 794 571 11.4 13.6 9.8 29.7 FY13P 5,823 819 644 12.9 12.1 9.5 27.0 FY14E 7,744 1,239 873 17.4 8.9 6.3 29.3

FY15E 9,097 1,503 1,062 21.2 7.3 5.1 28.3

Federal Bank

Financials (`mn) NII PAT ABV (`) P/E (x) P/ABV (x) ROAA (%) ROAE (%)

FY12 19534 7768 64.4 8.5 1.2 1.4 14.4 FY13 19747 8382 69.4 7.9 1.1 1.3 13.9 FY14E 23293 8894 77.1 7.5 1.0 1.2 13.3

FY15E 26522 10059 85.4 6.6 0.9 1.1 13.5

NMDC

Financials (`mn) Revenues EBIDTA Adj NP Adj. EPS(`) P.E (x) EV/EBIDTA (x) ROAE (%)

FY12 112619 89259 72654 18.5 6.8 3.3 33 FY13P 107043 73752 63405 16.0 7.8 3.9 24 FY14E 116667 77531 65167 16.4 7.6 3.6 22

FY15E 122337 80483 67815 17.1 7.3 3.5 21

Oil India

Financials (`mn) Revenues EBIDTA Adj NP Adj. EPS(`) P.E (x) EV/EBIDTA (x) ROAE (%)

FY12 98,632 45,798 34,469 57.3 8.3 3.8 20.7 FY13P 99,476 46,147 35,893 59.7 7.9 3.8 19.4 FY14E 103,746 45,993 34,133 56.8 8.3 3.2 16.9

FY15E 126,096 62,524 44,300 73.7 6.4 2.0 19.6

Unichem Laboratories

Financials (`mn) Revenues EBIDTA PAT EPS (`) P/E (x) EV/EBIDTA(x) ROAE (%)

FY12 8755 1183 664 7.4 25.7 14.8 11.1 FY13E 10808 1743 1132 12.5 15.1 10.0 16.3 FY14E 12200 2085 1335 14.8 12.8 8.4 17.3

FY15E 13736 2486 1611 17.8 10.6 7.0 18.5

Yes Bank

Financials (`mn) NII PAT ABV P/E (x) P/ABV (x) ROA (%) ROAE (%)

FY12 16156 9770 132.0 13.1 2.8 1.5 23.1

FY13 22188 13007 161.8 10.0 2.2 1.5 24.8

FY14E 26808 14819 196.0 8.8 1.9 1.3 23.1

FY15E 33947 18334 241.4 7.1 1.5 1.4 23.4

Cadila Healthcare CMP (`) 735

Price Target (`) 860

Dhanuka Agritech

CMP (`) 156


Federal Bank

CMP (`) 78


NMDC

CMP (`) 125


Oil India

CMP (`) 473


Unichem Laboratories

CMP (`) 185


Yes Bank CMP (`) 356

Price Target (`) 410 Note: CMP as on 27

thNov, 2013


Cadila Healthcare Ltd Multiple triggers ahead; Maintain Outperform

Domestic formulations to recover from FY15 Domestic formulations faced hurdles during H1FY14 on account of inventory adjustment due to pricing policy and trade related concerns but growth will be normalized from Q3FY14. Its key segments like GI, Gynaec, respiratory & Derma continues to do well while it needs to focus on CVS & CNS segments. We expect company’s domestic formulation segment to get impacted in FY14E but to recover in FY15E and show around 12% CAGR over FY13-15E.

Expect strong growth in Wellness segment Company posted modest growth in Wellness segment in HFY14 due to stiff competition in its Nutralite & Everyuth brand. We believe growth will be back on track in FY15 with double digit growth on account of huge promotional spending. Company maintains its leadership position in Sugarfree (92% mkt share) & revamped entire everyuth brand version. We expect Wellness segment to show 12% CAGR over FY13-15E.

US business to see traction from FY15 backed by niche pipeline Cadila is the fastest growing company in US which showed 39% CAGR over FY08-13. However growth slowed down in FY14 with just 18% growth in H1FY14 due to delay in new approvals & price erosion in existing products. However shortfall in FY14 will be covered in FY15 where we will see traction in business as the company has strong pipeline in US. Management has guided for 20 approvals in US market in 12-15 months. Cumulatively ANDA filings stand at 179 out of which 78 are approved. Total filings include 4 topicals, 5 nasal sprays & 28 injectables (19- through patners & 9-owned) out of which 8 injectables (7 through patners & 1 owned) are approved with 6 launches (5 through partners & 1owned). Launch of Divalproex will also benefit the company in coming quarters. Cadila has also started filing for transdermals (4 filed) & expecting approval in FY15 which will be the next long term growth driver for the US market. Total filings will be around 7 for transdermals by FY15. Nesher acquisition will also prove beneficial in the long run as it is in a niche segment of controlled substances. Till date it has launched 3 products & expecting one approval in Q1FY15. We expect revenue CAGR of 21% over FY13-15E.

Emerging markets to continue to show momentum Company has filed cumulatively 102 dossiers in Brazil out of which 40 are approved. Company has filed 6 dossiers with regulatory authority in Mexico taking cumulative filings to 20. We expect Cadila to post steady growth in emerging markets like South Africa, Brazil & Asia Pacific.

Retain Outperform rating with the target price of `860

At CMP of `735 the stock is trading at 21xFY14E & 16xFY15E EPS. Going ahead, we believe US business to drive growth on back of niche launches. We continue to remain positive on stock & maintain Outperform rating with the target price of `860 at 19XFY15E of `45.3.

maintain capacity utilization in the range of ~ 60-65% & delivering a topline CACR growth of 18.4% over FY13-15E.

Aggressive Marketing Initiatives to develop Brand Image – To drive Sales In order to develop a better brand image & penetrate the premium emulsion paints market, Berger Paints has initiated marketing & advertising spends to promote it top brands like “Silk”, “Bison” and “Weathercoat”.

13.1% 13.6%

19.7%

15.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Revenue EBIDTA PBT Adj. PAT

CAGR Growth (FY2013-15E)

Recommendation Outperform

CMP (`) 735


Upside (%) 17%

52 Week H / L ` 925/631

BSE 30 20420

Key Data

No. of Shares, Mn. 205

Map, ` Mn 151917

Mcap,USD Mn @ `60 2532.0

2 W Avg Qty (BSE+NSE) Mn 0.1

Share holding, Sept'13

Promoters 74.8

FII 5.7

DII 9.0

Public & Others 10.5

Performance 1 M 3 M 6 M 12 M

Stock Return % 10.8 12.1 -6.8 -10.3

Relative Return % 12.2 -2.4 -6.3 -16.0

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Cadila healthcare NIFTY

Rashmi Sancheti [email protected]

Phone: +91-22-66318633

Pharmaceuticals

Sector Outlook - Positive

Financials Revenues EBIDTA APAT EPS P/E EV/EBIDTA ROAE

`mn `mn `mn ` x x %

FY11 46207 10167 6934 33.9 21.9 15.1 36.5

FY12 52627 11238 7685 37.5 19.8 13.6 32.4 FY13P 63577 11251 6960 34.0 21.8 13.6 25.2 FY14E 70373 11602 7252 35.4 21.0 13.2 22.6 FY15E 81364 14507 9282 45.3 16.4 10.5 24.5 Source: Company, Sunidhi Research

Cadila Healthcare Ltd


Valuations Summary

Balance Sheet (` mn) Year End-March FY11 FY12 FY13P FY14E FY15E Year End-March FY11 FY12 FY13P FY14E FY15E

Per share (`)

Equity Share Capital 1024 1024 1024 1024 1024

EPS 33.9 37.5 34.0 35.4 45.3 Reserves & Surplus 20691 24712 28459 33590 40157

CEPS 40.1 45.2 43.0 44.9 55.9

Total Shareholders Fund 21715 25736 29483 34614 41181

BVPS 106.0 125.7 144.0 169.0 201.1 Minority Interest 669 904 1193 1648 2218

DPS 6.3 7.5 7.5 8.9 11.3

Non- current liabilities 10252 18389 18727 19220 18065

Payout (%) 18.5 20.0 22.1 25.0 25.0

Long term Borrowings 8318 16022 16607 17100 15945

Valuation (x)

Deferred tax liabilities 1127 1185 1005 1005 1005

P/E 21.9 19.8 21.8 21.0 16.4

Other LT liabilities & prov 807 1182 1115 1115 1115

P/BV 7.0 5.9 5.2 4.4 3.7

Current Liabilities 13470 18732 24357 26553 29524

EV/EBITDA 15.1 13.6 13.6 13.2 10.5

Short-term borrowings 2598 6871 12571 11572 11485

Dividend Yield (%) 0.8 1.0 1.0 1.2 1.5

Trade payables 5706 5455 6568 7890 8975

Return ratio (%) 5166 6406 6504 8905 5218

EBIDTA Margin 22.0 21.4 17.7 16.5 17.8

Total Liabilities 46106 63761 73760 82035 90988

PAT Margin 15.0 14.6 10.9 10.3 11.4

Assets

ROAE 36.5 32.4 25.2 22.6 24.5

Non- current Assets 24853 36161 41805 41007 45143

ROACE 28.8 20.7 16.4 15.8 18.5

Fixed assets 22636 33318 37612 36803 40929

Leverage Ratios (x)

Non-current investments 207 212 212 223 234

Long Term D/E 0.4 0.6 0.6 0.5 0.4

Long-term loans & adv 2010 2631 3981 3981 3981

Net Debt/Equity 0.4 0.7 0.8 0.5 0.4

Other non-current assets - - 0 0 0

Debt/EBITDA 1.1 2.0 2.6 2.5 1.9

Current assets 21253 27631 31917 40990 45806

Interest Coverage 11.4 8.9 7.5 7.4 9.2

Current investments 0 30 933 980 1029

Current ratio 2.0 2.3 2.6 2.7 2.5

Trade receivables 7652 8863 9551 10298 11951

Growth Ratios (%)

Inventories 8119 10905 12136 13111 15158

Income growth 25.3 13.9 20.8 10.7 15.6

Cash & bank balances 2952 4666 5838 11833 12241

EBITDA growth 21.2 10.5 0.1 3.1 25.0

Short-term loans & adv 2062 2746 2790 4100 4759

PAT growth 28.1 10.8 -9.4 4.2 28.0

Other current assets 468 421 669 669 669

Turnover Ratios

Foreign Curr Monetary Item Translation Diff A/c - - 38 38 38

F.A Turnover x 1.6 1.3 1.5 1.4 1.5

Total Assets 46106 63761 73760 82035 90988

Inventory Days 62 66 66 65 63

Cash flow Statement

Debtors Days 49 57 53 51 50

Year End-March FY11 FY12 FY13P FY14E FY15E

Payable days 63 49 42 45 46 PBT 8425 7942 8087 8859 11590

Income Statement(` mn)

Depreciation 1269 1579 1828 1804 1847


Interest Exp 586 1702 1615 1302 1346

Revenues 46207 52627 63577 70373 81364

Others 229 -72 -448 0 0

Op. Expenses 36040 41389 52326 58771 66857

CF before W.cap 10509 11151 11101 12102 15111

EBITDA 10167 11238 11251 11602 14507

Inc/dec in W.cap -1753 -4217 -1996 163 -1301

Other Income 131 532 370 500 604

Op CF after W.cap 8756 6934 9105 12265 13810

Depreciation 1269 1579 1847 1941 2175

Less Taxes -1525 -1435 -2720 -1152 -1738

EBIT 9029 10191 9774 10161 12936

Others -405 -480 -476 0 0

Interest 780 1090 1262 1302 1346

Net CF From Operations 6826 5019 5909 11114 12072

PBT 8425 7942 8087 8859 11590

Inc/(dec) in F.A + CWIP -4792 -12273 -7031 -1132 -6300

Tax 1064 1130 1317 1152 1738

(Pur)/sale of Investments -5 25 -880 -57 -60

PAT 7361 6812 6899 7708 9851

others 137 345 316 0 0

Minority 251 286 364 455 569

CF from Invst Activities -4660 -11903 -7595 -1189 -6360

Sh. of Associates - - 0 0 0

Loan Raised/(repaid) -499 10351 4648 -1808 -2588

Ex. ordinary -176 1159 425 0 0

Equity Raised - - 0 0 0

Adj Pat 6934 7685 6960 7252 9282

Dividend -1222 -1753 -1790 -2121 -2715

Source: Company, Sunidhi Research

CF from Fin Activities -1721 8598 2061 -5446 -5644

Net inc /(dec) in cash 445 1714 1172 5995 408

Op. bal of cash 2507 2952 4666 5838 11833

Cl. balance of cash 2952 4666 5838 11833 12241


Dhanuka Agritech Ltd

Strong growth potential, attractive valuations; Buy

Backed by good monsoons across geographies, Dhanuka reported stellar H1FY14 performance with 33.6% YoY jump in top-line, EBITDA margin expansion by 170bps at 16.4% and 41.6% jump in bottom-line at `494mn. Revenue jump was primarily backed by volumes with 5-6% jump in prices. Management has guided for over 25-30% jump in revenues for H2FY14E with YoY EBITDA margin expansion (FY13 EBITDA margin at 14.1%). To cater the incremental demand, the company has earmarked `500mn capex at its upcoming facility in Keshwana, Rajasthan. Construction work has already been started and the facility is likely to be commissioned by Q3FY15E. Apart from new products, the company is likely to transfer products from its Gurgaon facility to Keshwana over the next 2-3 years (and monetization of Gurgaon land). We believe that with new product additions the company is likely to exhibit consistently better performance going ahead with margin expansion. We remain optimistic on the growth prospects of the company and hence recommend ‘Buy’ with a price target of `212.

Stellar H1FY14 performance depicts growth story: Dhanuka reported 33.6% YoY jump in H1FY14 revenues at `4.2bn which was backed primarily by volumes. The company has been focusing on high margin products and cost rationalisation which led to 170bps YoY expansion in EBITDA margins at 16.4%. With higher cash flows the company repaid part of its debt in Q2FY14 thus containing its interest outgo. Volume growth, margin expansion and lower interest outgo led to 41.6% YoY jump in H1FY14 bottom-line at `494mn.

New facility to commence operations by Q3FY15E: Dhanuka has started work on its

new facility in Keshwana, Rajasthan which is likely to be commissioned by Q3FY15E.

Company is expected to spend over `500mn on this facility which would be funded

entirely through internal accruals. The new facility would enhance company’s

production capabilities for newer products. Gurgaon facility would eventually be

shifted to the new location and the land would be monetized after about 2-3 years.

New product introductions to drive future growth: Dhanuka launched 4 new products in FY13 and 3 this year and is expected to launch about 2 products p.a. going ahead. These high margin products are expected to contribute to the overall performance over the next 2-3 years. Out of the existing portfolio, couple of products has the potential to become next Targa Super (over `1.0bn in sales).

Scope for margin expansion, attractive valuations: Outlook for H2FY14E remains positive with industry growth pegged at about 25-30% (equally in terms of volume and price increases). To boost sales, the company has roped in Amitabh Bachchan as a brand ambassador, the effect of which would be felt in medium term. New facility at Keshwana would further enhance production capabilities of the company. We like Dhanuka due to its free cash flows, sustainable high return ratios, margin expansion, low debt and progressive introduction of new products. We expect 25.0% and 28.4% CAGR in revenues and earnings respectively over FY13-15E. The stock is available at attractive valuations of 8.9x and 7.3x FY14E and FY15E EPS of `17.4 and `21.2 respectively. We have assigned 10x multiple for the company and recommend ‘Buy’ with a price target of `212.

Agrochemicals Sector Outlook- Positive

25.0%

35.5%33.3%

28.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Revenue EBIDTA PBT APAT


Stock Recommendation Buy

CMP (`) 156


Upside 36%

52 Week H / L ` 166/112

BSE 30 20420

Key Data

No.of Shares, Mn. 50.0

Mcap, ` Mn 7801.6

Mcap,USD Mn @ `60 147.2

2 W Avg Qty (BSE+NSE) 82349


Promoters 75.0

FII 8.3

DII 0.8



Stock Return % 12.9 16.4 21.5 24.7

Relative Return % 14.3 1.9 21.9 19.0

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Dhanuka Agritech NIFTY

Rohit Nagraj [email protected]

Phone: +91-022-61131320

Financials Revenues EBIDTA APAT EPS P/E EV/EBIDTA ROAE

`mn `mn `mn ` x x %

FY11 4,910 759 511 10.2 15.3 10.4 38.2

FY12 5,292 794 571 11.4 13.6 9.8 29.7

FY13 5,823 819 644 12.9 12.1 9.5 27.0

FY14E 7,744 1,239 873 17.4 8.9 6.3 29.3

FY15E 9,097 1,503 1,062 21.2 7.3 5.1 28.3 Source: Company, Sunidhi Research

Dhanuka Agritech Ltd


Valuations Summary

Balance Sheet (` mn)

Year End-March FY11 FY12 FY13 FY14E FY15E Year End-March FY11 FY12 FY13 FY14E FY15E

Per share (`) Equity and Liabilities

EPS 10.2 11.4 12.9 17.4 21.2 Share Capital 100 100 100 100 100

CEPS 11.2 12.3 13.8 18.5 22.5 Reserves and Surplus 1,605 2,046 2,528 3,225 4,082

BVPS 34.1 42.9 52.5 66.5 83.6 Total Shareholders funds 1,705 2,146 2,628 3,325 4,182

DPS 2.0 2.2 2.8 3.0 3.5 Minority Interest 0 0 0 0 0

Payout (%) 22.8 22.4 25.3 20.1 19.3 Non-Current Liability

Valuation (x) Long Term Borrowings 174 57 0 0 0

P/E 15.3 13.6 12.1 8.9 7.3 Deferred Tax Liabilities (Net) 28 26 28 28 28

P/BV 4.6 3.6 3.0 2.3 1.9 Long Term Liab/ Provisions 115 133 133 133 133

EV/EBITDA 10.4 9.8 9.5 6.3 5.1 Current Liabilities

Dividend Yield (%) 1.3 1.4 1.8 1.9 2.2 Short Term Borrowings 402 338 330 330 330

Return ratio (%) Trade Payables 522 543 450 628 732

EBIDTA Margin 15.5 15.0 14.1 16.0 16.5 Other Current Liabilities 496 564 531 531 531

PAT Margin 10.4 10.8 10.9 11.2 11.6 Short Term Provisions 136 150 105 204 234

ROAE 38.2 29.7 27.0 29.3 28.3 Grand Total 3,576 3,956 4,205 5,180 6,171

ROACE 36.7 30.7 27.9 35.6 35.0 Assets

Leverage Ratios (x) Non Current Assets

Long term D/E 0.1 0.0 0.0 0.0 0.0 Fixed Assets 388 390 632 830 1,016

Net Debt/Equity 0.3 0.1 0.1 0.1 0.1 Intangible assets 2 3 6 8 10

Interest Coverage 11.0 13.6 21.9 28.6 34.0 Deferred Tax Assets 0 0 0 0 0

Current ratio 2.5 2.6 2.9 2.9 3.2 Non-Current Investments 0 0 0 0 0

Growth Ratios (%) Long Term Loans & Advances 128 182 180 180 180

Income growth 20.3 7.8 10.0 33.0 17.5 Other non-current assets 0 0 3 3 3

EBITDA growth 30.2 4.6 3.1 51.3 21.3 Current Assets PAT growth 40.7 11.8 12.8 35.4 21.7 Current Investments 0 153 82 82 82

Turnover Ratios Inventories 1,419 1,388 1,599 1,955 2,360

F.A Turnover x 12.6 13.5 9.1 9.2 8.9 Trade Receivables 1,377 1,512 1,507 1,936 2,274

Inventory Days 156.7 145.8 151.0 140.0 145.0 Cash and Cash Equivalents 50 87 54 44 104

Debtors Days 101.0 102.9 93.2 90.0 90.0 Short Term Loans & Advances 212 242 141 141 141

Payable days 57.6 57.0 42.5 45.0 45.0 Other Current Assets 0 0 0 0 0

Income Statement(` mn) Grand Total 3,576 3,956 4,205 5,180 6,171

Year End-March FY11 FY12 FY13 FY14E FY15E Cash flow Statement

Revenues 4,910 5,292 5,823 7,744 9,097 Year End-March FY11 FY12 FY13 FY14E FY15E

Op. Expenses 4,151 4,498 5,004 6,505 7,595 PBT 673 700 808 1,179 1,436

EBITDA 759 794 819 1,239 1,503 Depreciation 49 45 45 53 65

Other Income 26 6 69 34 40 Interest Exp 65 55 35 41 42

Depreciation 49 45 45 53 65 Others (26) (6) (69) (34) (40)

EBIT 737 755 843 1,221 1,478 CF before W.cap 759 794 819 1,239 1,503

Interest 65 55 35 41 42 Inc/dec in W.cap (710) (217) (209) (507) (610)

Prov., Write offs 0 0 0 0 0 Op CF after W.cap 49 577 610 732 893

PBT 673 700 808 1,179 1,436 Less Taxes 150 131 161 307 373

Tax 161 129 163 307 373 Excp. & Prior Period Adj 0 0 0 0 0

PAT 511 571 644 873 1,062 Net CF From Operations (101) 446 450 426 520

Minority 0 0 0 0 0 Inc/(dec) in F.A + CWIP (43) (33) (269) (253) (253)

Prior Period Adj 0 0 0 0 0 Others 27 6 69 34 40

Sh. of Associates 0 0 0 0 0 CF from Invst Activities (17) (27) (200) (218) (213)

Ex. ordinary 0 0 0 0 0 Loan Raised/(repaid) (96) (117) (57) 0 0

Adj PAT 511 571 644 873 1,062 Equity Raised 0 0 0 0 0

Source: Company, Sunidhi Research Dividend (117) (128) (151) (176) (205)

Others 359 (136) (77) (41) (42)

CF from Fin Activities 147 (381) (284) (217) (247)

Net inc /(dec) in cash 29 38 (34) (10) 60

Op. bal of cash 20 50 87 54 44



Federal Bank Ltd

Decent growth at attractive valuation

With the RBI looking at issuing new bank licenses, competition in the banking industry is expected to heat up. In such a situation the future of old private banks which are smaller in size and geographically concentrated appears uncertain. In our opinion one of two scenarios are likely to play out 1) old private banks especially those with poor profitability and asset quality concerns could become takeover targets for new private sector banks and 2) larger old private banks could scale up operations and re-engineer business processes to bridge the gap between themselves and new private banks. This in turn could lead to a re-rating in the stock price of these banks. Given its large size and proactive management, we believe that Federal bank is amongst the best placed old private sector banks to make the transformation into a new generation bank. NIM likely to improve to 3.4% in FY15 Federal Bank reported calculated NIM of 3.2% for Q2FY14, which improved sequentially by 24 bps. The NIM improvement came on the back of a reduction in bulk business, lower interest reversals and an improvement in the CASA ratio. Also, the YoA too improved by 48 bps qoq. Going ahead we expect Federal Bank’s NIM to improve further as the bank continues to focus on reducing bulk deposits and improving CASA. Non-interest income to pick up going ahead Federal bank’s initiatives such as tying up with foreign banks for raising LC’s, installing CRM solutions to identify cross selling opportunities, leveraging on NRI clientele to increase other income etc would lead to a pick up in fee based income going ahead. We expect fee based income to grow by a CAGR of 18% from FY13-15. SME, Agri and Retail slippages are in check Federal Bank revamped its processes to improve asset quality. Some of the measures undertaken by the bank included – separation between loan sourcing and sanctions, improving loan appraisal systems and focus on credit monitoring and collection. Post the revamp, the bank has managed to keep in check slippages in the SME, Agri and retail segments. However volatile corporate slippages have impacted asset quality. Once the economy stabilizes, corporate slippages are likely to stabilize. Additionally the bank has a strong provision coverage ratio of 72% including technical write offs. This will act as a buffer in case of asset quality deterioration. Adequately capitalized The bank is adequately capitalized with a capital adequacy ratio of 15% almost entirely comprised of Tier 1 capital. As the bank leverages on its capital, return on equity is likely to improve going ahead.

Maintain Buy with a revised price target of `105 At the current market price, the bank trades at 1.0x its FY14E ABV and 0.9x its FY15E ABV. We believe the worst in terms of NIMs compression, asset quality and return ratios is behind us and focus on strong and profitable growth, prudent lending and likely improvement in asset quality will drive earnings growth going forward. Thus we

maintain our Buy rating on the stock with a price target of `105 (1.3x FY15E adjusted for slippages from restructuring). we have a Buy rating on the stock with a price target of `547 (1.5x FY14E ABV adjusted for slippages from restructuring).

18.1%

15.7% 15.9%15.1%

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

NII Net total income

PPP Net Profit

Federal Bank Growth CAGR (FY13-15E)

Recommendation Buy

CMP (`) 78


Upside 35%

52 Week H / L ` 110/44

BSE 30 20420

Key Data


Mcap, ` Bn 13.3

Mcap,USD Bn @ `60 0.2

2 W Avg Qty, (BSE+NSE) Mn 1.9

Share holding, Sept’13

Promoters --

FII 44.1

DII 20.6



Stock Return % -3.0 45.7 -14.7 -15.8

Relative Return % -1.6 31.1 -14.2 -21.6

-60.0%

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Federal Bank NIFTY

Amit Jain [email protected]

Phone: +91-022-6113 1355

Kanika Thacker [email protected]

Phone: +91-022-66318632

Banking Sector Outlook - Neutral

Financials NII PAT ABV P/E P/ABV ROAA ROAE

`mn `mn ` x X % %

FY11 17468 5872.7 287.5 9.3 1.1 1.2 12.0 FY12 19534 7768 64.4 8.5 1.2 1.4 14.4 FY13 19747 8382 69.4 7.9 1.1 1.3 13.9 FY14E 23293 8894 77.1 7.5 1.0 1.2 13.3 FY15E 26522 10059 85.4 6.6 0.9 1.1 13.5


Federal Bank


Financials (Standalone)

Profit & Loss Account (` Mn) 2011 2012 2013 2014E 2015E

Interest Earned 40522.2 55583.9 61675.7 71097.0 81162.0

Interest expended 23054.5 36049.9 41929.1 47804.4 54640.2

Net interest income 17467.7 19534.0 19746.6 23292.5 26521.8

Non-interest income 5168.1 5323.4 6644.4 7126.0 7826.5

Net total income 22635.8 24857.4 26391.0 30418.6 34348.4

Operating expenses 8361.4 9792.7 11795.4 13798.4 15723.4

Pre- provisioning profit (PPP) 14274.4 15064.7 14595.6 16620.2 18624.9

Provision & Contingency 5254.4 3369.7 2658.0 3913.8 4255.5

PBT 9020.0 11695.0 11937.6 12706.4 14369.5

Tax 3147.3 3927.1 3555.9 3811.9 4310.8

PAT 5872.7 7767.9 8381.7 8894.5 10058.6

Balance Sheet (` Mn) 2011 2012 2013 2014E 2015E

Liabilities Equity Capital 1,710 1,710 1,710 1,710 1,710

Reserves 49,376 55,353 61,936 68,930 77,087

Networth 51,086 57,063 63,646 70,640 78,797

Deposits 430,148 489,371 576,149 661,451 773,897

Borrowings 18,884 42,410 51,870 62,708 62,708

Other Liabilities & Provisions 14,446 17,423 18,831 20,116 22,600

Total Liabilities 514,563 606,268 710,495 814,914 938,002

Assets Cash & Balances with RBI 29,351 24,241 27,425 31,854 36,944

Balances with Banks & money at Call 8,133 11,084 9,775 24,531 12,740

Investments 145,377 174,025 211,546 220,495 245,214

Advances 319,532 377,560 440,967 515,931 619,118

Fixed Assets 2,898 3,261 3,975 4,227 4,587

Other Assets 9,273 16,096 16,808 17,875 19,399

Total Assets 514,564 606,268 710,495 814,914 938,002

Growth matrix P&L 2011 2012 2013 2014E 2015E

Interest Earned 10.3% 37.2% 11.0% 15.3% 14.2%

Interest expended 1.9% 56.4% 16.3% 14.0% 14.3%

Net interest income 23.8% 11.8% 1.1% 18.0% 13.9%

Non-interest income -2.7% 3.0% 24.8% 7.2% 9.8%

Net total income 16.6% 9.8% 6.2% 15.3% 12.9%

Operating expenses 23.5% 17.1% 20.5% 17.0% 14.0%

Pre- provisioning profit (PPP) 12.9% 5.5% -3.1% 13.9% 12.1%

Provision & Contingency 29.6% -35.9% -21.1% 47.2% 8.7%

PBT 4.9% 29.7% 2.1% 6.4% 13.1%

Tax -20.3% 24.8% -9.5% 7.2% 13.1%

PAT 26.4% 32.3% 7.9% 6.1% 13.1%

Asset quality 2011 2012 2013 2014E 2015E

GNPA (%) 3.5% 3.3% 3.1% 2.9% 2.7%

NNPA (%) 0.6% 0.5% 1.0% 0.9% 0.9%

Slippage Ratio (%) 3.2% 2.2% 2.1% 2.0% 2.0%

NPA accrual net of reduction exl w/off (%) 54% 27% 30% 23% 69%

PCR (ex tech write offs) (%) 83.4% 84.7% 69.1% 68.7% 66.9%

Credit Costs (%) 1.7% 0.6% 0.5% 0.6% 0.6%

Provisioning / avg assets (%) 1.1% 0.6% 0.4% 0.5% 0.5%

Provisioning / NPA additions (%) 55.8% 31.9% 23.5% 32.9% 31.3%

Reductions in provisions / NPA reductions (%) 42.1% 20.1% 26.5% 45.9% 31.0%

Federal Bank


Other operating indicators 2011 2012 2013 2014E 2015E

NIM (%) 4.0% 3.8% 3.2% 3.3% 3.2%

Cost to income (%) 36.9% 39.4% 44.7% 45.4% 45.8%

Business per branch (` mn) 1009.0 912.6 922.1 1003.7 1094.3

Business per employee (` mn) 87.8 79.4 80.2 87.3 95.2

Profit per branch (` mn) 7.9 8.2 7.6 7.6 7.9

Profit per employee (` mn) 0.7 0.7 0.7 0.7 0.7

CASA per branch (` mn) 15.4 14.2 14.1 17.2 18.9

CASA ratio (%) 26.5% 27.5% 26.9% 30.4% 31.1%

Other income / Total income 22.8% 21.4% 25.2% 23.4% 22.8%

CEB / Other income 22.1% 47.3% 45.9% 50.4% 54.4%

CEB / average advances 0.4% 0.7% 0.7% 0.8% 0.8%

Capital Adequacy ratios 2011 2012 2013 2014E 2015E

CAR (%) 16.8% 16.6% 14.7% 15.0% 14.6%

Tier 1 (%) 15.6% 15.9% 14.1% 14.4% 14.0%

Tier 2 (%) 1.2% 0.8% 0.6% 0.6% 0.6%

Leverage (x) 10.1 10.6 11.2 11.5 11.9

Risk weighted assets / Total Assets (%) 63.2% 58.3% 61.3% 58.3% 58.3%

Valuation Table 2011 2012 2013 2014E 2015E

Net profit (` mn) 5872.7 7767.9 8381.7 8894.5 10058.6

Shares in issue (mn) 855.2 855.2 855.2 855.2 855.2

EPS (`) 6.9 9.1 9.8 10.4 11.8

EPS growth (%) 26.4% 32.3% 7.9% 6.1% 13.1%

PE (x) 11.3 8.5 7.9 7.5 6.6

P/PPP (x) 4.6 4.4 4.5 4.0 3.6

Book value (`/share) 59.7 66.7 74.4 82.6 92.1

P/BV (x) 1.3 1.2 1.0 0.9 0.8

Adj book value (`/share) 57.5 64.4 69.4 77.1 85.4

P/ABV (x) 1.3 1.2 1.1 1.0 0.9

ROAA (%) 1.2% 1.4% 1.3% 1.2% 1.1%

ROAE (%) 12.0% 14.4% 13.9% 13.2% 13.5%

ROAE (adj for reval reserve) (%) 12.0% 14.4% 13.9% 13.3% 13.5%

Dividend Yield (%) 2.2% 2.3% 2.3% 2.5% 2.5%

Du pont Decomposition 2011 2012 2013 2014E 2015E

Yield on Assets 8.5% 9.9% 9.4% 9.3% 9.3%

Less: Cost of Assets 4.8% 6.4% 6.4% 6.3% 6.2%

Net Interest Income 3.7% 3.5% 3.0% 3.1% 3.0%

Other Income 1.1% 0.9% 1.0% 0.9% 0.9%

Less: Operating Exp 1.8% 1.7% 1.8% 1.8% 1.8%

Less: Provisions 1.1% 0.6% 0.4% 0.5% 0.5%

Less: Tax 0.7% 0.7% 0.5% 0.5% 0.5%

ROAA 1.2% 1.4% 1.3% 1.2% 1.1%

Leverage 9.7 10.4 10.9 11.4 11.7

ROAE 12.0% 14.4% 13.9% 13.2% 13.5% Source: Company, Sunidhi Research


NMDC Ltd Strong balance sheet at compelling valuations

After subdued production growth in the past (CAGR of -1.8% in FY08-13), we expect

iron ore production to perk up going forward on the back of impressive capacity

expansion and relatively firm domestic demand. Going forward, we anticipate

production and sales will grow at a CAGR of 5% and 6.5%, respectively, in FY13-15E.

We believe that iron ore supply is getting tighter in India, which will help NMDC in

maintaining strong margins. We believe, iron ore sales volume pick-up, inexpensive

valuations keep the risk-reward trade-off favorable for NMDC.

Pricing concerns remain but would fade eventually

The pricing concerns have somewhat eased over last few months and the company has

been able to take minor price hike recently. The favorable exchange rate has

prompted several Odhisa players to look at export market as it yields better realization

than domestic sales. Though pricing uncertainty still persists due to pricing gap

between Odhisa players and NMDC but we believe the same would fade away

eventually once clarity emerges over illegal mining in Odhisa and will prompt genuine

players to quote market rates. Improving global demand scenario also augurs well for

the sector and the company per say.

Capacity expansion on track to aim a gain in market share

The company has undertaken a capacity addition programme wherein it is on track to

exit FY15 with a mining capacity of 48 MT from 32 MT in FY13. The plan includes

increasing the existing capacity of Bacheli Complex in Chhattisgarh from 15 MT to 17

MT, a new mining block in Kirandul complex, Chhattisgarh (capacity :7 MT) and a new

mining block in Kumaraswamy, Karnataka (capacity :7 MT). It has also been working on

a plan to augment its excavation capacity by increasing the rake loading capacity.

NMDC is also mulling over a dedicated slurry pipeline with its major customers that

will provide further fillip to its sales volume.

Other ventures like pellet plant in offing…

The company is also setting up a pellet plant with a capacity of 1.2 MT in Donimalai,

Karnataka. We believe pellet sales will drive incremental EBITDA for the company on

the back of optimal and captive raw material feed. The company proposes to use only

40% of its fines produce as the raw material feed for its pellet plant and intends to use

the idle slimes lying at its mining complex in Karnataka as the remainder of raw

material feed.

Valuation and Recommendation

We maintain our positive stance on the company and continue to believe its dominant position in iron supply especially in restricted iron ore supply market. NMDC has robust balance sheet with a healthy liquidity position (cash as of FY13 end at 210bn). We have valued the stock at 5x FY15E EV/EBITDA thus arriving at a target price of 160. Possession of superior quality iron ore reserves, the company’s position in the lower quartile of the iron ore cost curve & dominance in domestic market reiterate our faith on the company.

Metals & Mining-Ore Sector Outlook - Positive

Financials Revenues EBIDTA Adj NP Adj. EPS P/E EV/EBIDTA ROE

` mn

` x x %

FY11 113689 86462 64992 16.4 7.6 3.7 39

FY12 112619 89259 72654 18.5 6.8 3.3 33

FY13P 107043 73752 63405 16.0 7.8 3.9 24

FY14E 116667 77531 65167 16.4 7.6 3.6 22

FY15E 122337 80483 67815 17.1 7.3 3.5 21


6.9%

4.5%

2.7%

3.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Revenue EBITDA PBT PAT

CAGR (FY13-15E)

Recommendation Neutral BUY

CMP (`) 125 102

Price Target (`) 160 150

Upside (%) 28% 17%

52 Week H / L ` 171/93 201/93

BSE 30 20420 18798

Key Data


Mcap, ` Bn 495.6

Mcap,USD Bn @ `60 8.3



Promoters 80.0

FII 5.3

DII 10.7

Public & Others 4.0


Stock Return % -7.4 11.0 6.0 -21.7

Relative Return % -6.0 -3.6 6.4 -27.4

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NMDC NIFTY

Chintan J.Mehta

[email protected] Phone: +91-022-66106838

NMDC Ltd


Valuations Summary


Year End-March FY11 FY12 FY13P FY14E FY15E Year End-March FY11 FY12 FY13P FY14E FY15E

Per share (`)

Sources of Funds

EPS 16.4 18.5 16.0 16.4 17.1 Equity Share Capital 3965 3965 3965 3965 3965

CEPS

Reserves & Surplus 188181 240099 271145 303980 334843

BVPS 48.4 61.5 69.4 77.7 85.4 Net Worth 192145 244064 275110 307944 338808

DPS 3.3 4.5 7.0 7 8

Loan Funds 0 0 0 0 0

Payout (%) 20% 24% 44% 43% 47%

Deferred Tax Liability 1029 1001 1045 1045 1045

Valuation (x)

Capital Employed 193174 245065 276155 308989 339853

P/E 7.6 6.8 7.8 7.6 7.3

Application of Funds

P/BV 2.6 2.0 1.8 1.6 1.5

Gross Block 22728 23882 25820 40530 43530

EV/EBITDA 3.7 3.3 3.9 3.6 3.5

Less: Depreciation 11736 11994 13173 14997 17309

Dividend Yield (%) 3% 4% 6% 6% 6%

Net Block 10993 11888 12647 25532 26220

Return ratio (%)

WIP 6772 14942 32361 57651 99536

EBIDTA Margin 76% 79% 69% 66% 66%

Net Fixed Assets 17764 26830 45008 83183 125757

PAT Margin 57% 65% 59% 56% 55%

Investments 1357 2478 2496 2496 2496

ROAE 39% 33% 24% 22% 21%

Current Assets 191716 237111 261385 269936 262932

ROACE 39% 33% 24% 22% 21%

Debtors 4854 7370 10822 11022 11775

Leverage Ratios (x)

Inventory 4154 4589 6375 6948 7285

Total D/E 0.0 0.0 0.0 0.0 0.0

Cash 172281 202646 210258 218036 209940

Net Debt/Equity -0.9 -0.8 -0.8 -0.7 -0.6

Others 10427 22506 33931 33931 33931

Interest Coverage - - - - -


Current ratio 10.8 11.1 8.0 5.8 5.1

Creditors 4037 1658 1608 1718 1801

Growth Ratios (%)

Provisions 13770 19762 31181 44962 49585

Income growth 82% -1% -5% 9% 5%

Net Current Asset 173908 215691 228597 223256 211546

EBITDA growth 95% 3% -17% 5% 4%

Misc Expenses 145 66 54 54 54

PAT growth 89% 12% -13% 3% 4%

Total 193174 245065 276154 308989 339852

Turnover Ratios

Cash flow Statement

F.A Turnover x 10.3 9.5 8.5 4.6 4.7


Inventory Days 11.4 12.6 17.5 19.0 20.0

PBT 97272 107595 94624 98737 99727

Debtors Days 13.3 20.2 29.6 30.2 32.3

Depreciation 1255 1878 1446 1825 2312

Income Statement (` mn)

Interest Exp -11075 -19643 -22029 -20731 -18964

Year End-March FY11 FY12 FY13P FY14E FY15E Others -392 45 -36 13782 4622

Revenues 113689 112619 107043 116667 122337

CF before W.cap 87060 89875 74023 91692 85492

Op. Expenses 27227 23360 33291 39137 41854

Inc/dec in W.cap -5249 -8908 -2312 -662 -1008

EBITDA 86462 89259 73752 77531 80483

Op CF after W.cap 81811 80967 71711 91029 84485

Other Income 12057 20165 22389 23031 21556

Less Taxes -33195 -35021 -41000 -33571 -31913

Depreciation 1215 1302 1385 1825 2312


EBIT 85247 87958 72367 75706 78171

Inc/(dec) in F.A + CWIP -5163 -15088 -19774 -40000 -44885

Interest 0 15 132 0 0

(Pur)/sale of Investments -869 -1042 -19 0 0

PBT 97272 107595 94624 98737 99727

others 11090 19658 22010 22652 21169

Tax 32151 34941 31219 33571 31913

CF from Invst Activities 5057 3528 2216 -17348 -23717

PAT 64992 72654 63405 65167 67815

Loan Raised/(repaid) 0 0 0 0 0


Dividend -9942 -19109 -23094 -23094 -23094

CF from Fin Activities -9942 -19109 -25343 -32332 -36951

Net inc /(dec) in cash 43731 30365 7612 7778 -8096

Op. bal of cash 128549 172281 202646 210258 218036



Oil India Ltd FY15E a game changer, Outperform

We believe that FY15E to be a game changer year for Oil India (OIL) with over 30% jump in YoY earnings benefitted from higher natural gas prices and volume growth expected in both crude oil and natural gas. This substantial earnings growth is

expected even after considering 4% YoY jump in subsidy sharing at `88.9bn. We believe the production of oil and gas at its Assam blocks to return to normalcy which has been affected due to Bandhs and Blockades since past several quarters. The company is making progress in its international ventures with production ramp-up in Carabobo, Venezuela, discovery in Gabon and ongoing production in its shale gas asset in the US. We believe these investments in overseas projects would yield

value in future. With cash pile of over `125bn OIL is well placed to propel inorganic growth through acquisitions of producing/non-producing assets overseas. Available at attractive valuations and with multiple triggers in FY15E, we remain optimistic on the company’s earnings growth and hence recommend ‘Outperform’ with a price target of `590. Natural gas price hike – an earnings kicker for FY15E: The government has decided to almost double the APM natural gas prices from current US$4.2/mmbtu (to about US$8.4/mmbtu) which would benefit earnings of the company. However, we remain skeptical on the entire benefit of natural gas price hike to OIL and hence assumed US$6.8/mmbtu realisations for OIL in FY15E. US$1.0/mmbtu increase/ decrease in natural gas realisations would impact OIL’s earnings by about 7%. Good domestic and international asset base with consistently high reserve replacement ratio (RRR): OIL boasts of 62 domestic and 14 overseas oil and gas blocks. Although the company has increased its natural gas production capacity, currently production is depressed due to lower off take from consumers. Additionally, the crude and natural gas production has been affected by Bandhs and Blockades in Assam. However, the situation is improving which would benefit FY15E production performance. The company has maintained consistently higher RRR over the past 5+ years with FY13 RRR at 1.6x. Overseas assets to contribute going ahead: Currently the overseas assets are largely in investment phases which shall start contributing to the overall performance going ahead. Carabobo, Venezuela is procuring oil albeit at lower rates along with marginal gas production from the US shale gas asset. Although, the company has been scouting

for overseas producing assets since a long time (and with a war chest of over `125bn) a sizable acquisition in medium term cannot be ruled out. FY15E game changer for OIL: OIL’s operational performance has been affected by external factors i.e. unrest in Assam which should normalize in FY15E thus benefitting the overall production. Company’s exploration success has been consistent over the past few years with 1.0x+ RRR. OIL’s overseas ventures are expected to add value going ahead with ramp up in Carabobo, Venezuela production, successful discovery in Gabon and ongoing production in the US shale gas asset. With expected natural gas price hike from FY15E onwards, OIL’s earnings are likely to jump substantially. We believe the stock is available at attractive valuations of 8.3x and 6.4x FY14E EPS of `56.8 and FY15E EPS of `73.7. We have valued OIL at 8.0x and have arrived at a price target of `590. Maintain ‘Outperform’.

Financials Revenues EBIDTA Adj NP Adj. EPS P.E EV/EBIDTA ROE

` mn

` x x %

FY11 83,206 42,721 28,877 48.0 9.9 4.1 19.7

FY12 98,632 45,798 34,469 57.3 8.3 3.8 20.7

FY13P 99,476 46,147 35,893 59.7 7.9 3.8 19.4

FY14E 103,746 45,993 34,133 56.8 8.3 3.2 16.9

FY15E 126,096 62,524 44,300 73.7 6.4 2.0 19.6 Source: Company, Sunidhi Research

12.6%

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12.7%

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0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%


CAGR Groth (FY2013-15E)

Recommendation Outperform

CMP (`) 473


Upside (%) 25%

52 Week H / L ` 630/415

BSE 30 20420

Key Data


Mcap, ` Bn 284334.5

Mcap,USD Bn @ `60 4738.9



Promoters 68.4

FII 10.2

DII 6.6



Stock Return % 4.1 6.8 -19.6 3.2

Relative Return % 5.5 -7.8 -19.1 -2.6

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Oil India NIFTY

Rohit Nagraj [email protected]

Phone: +91-022-61131320

Oil and Gas Sector Outlook - Neutral

Oil India Ltd


Valuations Summary



Per share (`) Equity and Liabilities

EPS 48.0 57.3 59.7 56.8 73.7 Share Capital 2,405 2,405 6,011 6,011 6,011

CEPS 139.9 164.6 69.1 66.7 84.3 Reserves and Surplus 153,614 174,809 186,103 206,170 234,645

BVPS 259.5 294.8 319.6 353.0 400.3 Total Shareholders’ funds 156,019 177,213 192,115 212,181 240,657

DPS 15.0 19.0 30.0 20.0 22.5 Minority Interest 0 0 0 0 0

Payout (%) 31.2 33.1 50.2 35.2 30.5 Non-Current Liability

Valuation (x) Long Term Borrowings 88 0 0 0 0

P/E 9.9 8.3 7.9 8.3 6.4 Deferred Tax Liabilities (Net) 11,491 10,767 12,186 12,186 12,186

P/BV 1.8 1.6 1.5 1.3 1.2 Long Term Liab./ Provisions 3,251 4,038 4,481 4,481 4,481

EV/EBITDA 4.1 3.8 3.8 3.2 2.0 Current Liabilities

Dividend Yield (%) 3.2 4.0 6.3 4.2 4.8 Short Term Borrowings 10,055 101 10,578 27,500 22,000

Return ratio (%) Trade Payables 3,435 3,469 2,925 3,175 3,425

EBIDTA Margin 51.3 46.4 46.4 44.3 49.6 Other Current Liabilities 18,049 19,682 14,161 14,661 15,161

PAT Margin 34.7 34.9 36.1 32.9 35.1 Short Term Provisions 9,924 11,543 15,363 24,756 26,764

ROAE 19.7 20.7 19.4 16.9 19.6 Grand Total 212,311 226,813 251,809 298,941 324,674

ROACE 21.2 20.2 18.7 15.8 19.9 Assets Leverage Ratios (x) Non Current Assets Long term D/E 0.0 0.0 0.0 0.0 0.0 Fixed Assets 13,323 15,690 21,316 23,441 25,391

Net Debt/Equity (0.7) (0.6) (0.6) (0.6) (0.7) Net producing properties 32,586 34,352 35,843 35,534 35,250

Interest Coverage 262.9 394.3 1,452.7 26.8 23.9 Expl./ dev. wells-in-prog. (Net) 8,757 6,209 10,480 14,723 21,216

Current ratio 4.4 4.2 4.8 4.6 4.7 Deferred Tax Assets 0 0 0 0 0

Growth Ratios (%) Non-Current Investments 6,304 7,831 8,579 8,579 8,579

Income growth 5.0 18.5 0.9 4.3 21.5 Long Term Loans & Adv. 3,595 3,110 5,269 5,269 5,269

EBITDA growth 14.5 7.2 0.8 (0.3) 35.9 Other non-current assets 194 137 1,039 1,039 1,039

PAT growth 10.6 19.4 4.1 (4.9) 29.8 Current Assets

Turnover Ratios Current Investments 2,600 18,311 9,992 9,992 9,992

F.A Turnover x 1.5 1.8 1.5 1.4 1.5 Inventories 5,004 5,333 6,443 6,340 7,706

Inventory Days 21.6 19.5 23.3 22.0 22.0 Trade Receivables 9,322 10,518 9,027 7,205 8,757

Debtors Days 40.9 38.9 33.1 25.3 25.3 Cash and Cash Equivalents 117,675 109,355 121,329 164,328 178,985

Payable days 15.1 12.8 10.7 11.2 9.9 Short Term Loans & Adv. 8,203 8,949 13,587 13,587 13,587

Income Statement(` mn) Other Current Assets 4,751 7,019 8,905 8,905 8,905

Year End-March FY11 FY12 FY13 FY14E FY15E Grand Total 212,311 226,813 251,809 298,941 324,674

Revenues 83,206 98,632 99,476 103,746 126,096 Cash flow Statement

Op. Expenses 40,485 52,834 53,329 57,752 63,573 Year End-March FY15E FY15E FY15E FY15E FY15E

EBITDA 42,721 45,798 46,147 45,993 62,524 PBT 43,132 51,019 52,832 51,717 67,122

Other Income 8,739 14,167 15,088 16,219 16,819 Depreciation 4,790 5,142 5,671 6,041 6,441

Depreciation 8,197 8,852 8,376 9,120 10,021 Interest Exp 131 94 26 1,375 2,200

EBIT 43,263 51,112 52,858 53,092 69,322 Others (8,739) (14,167) (15,088) (16,219) (16,819)

Interest 131 94 26 1,375 2,200 CF before W.cap 39,314 42,088 43,442 42,914 58,944

Prov., Write offs 0 0 0 0 0 Inc/dec. in W.cap 16,540 746 (5,438) 12,069 (160)

PBT 43,132 51,019 52,832 51,717 67,122 Op CF after W.cap 55,855 42,833 38,005 54,983 58,784

Tax 14,255 16,549 16,939 17,584 22,821 Less Taxes 12,973 17,273 15,520 17,584 22,821

PAT 28,877 34,469 35,893 34,133 44,300 Exceptional & Prior Period Adj. 0 0 0 0 0

Minority 0 0 0 0 0 Net CF From Operations 42,882 25,561 22,485 37,399 35,963

Prior Period Adj. 0 0 0 0 0 Inc/(dec.) in F.A + CWIP (9,889) (3,307) (12,753) (12,100) (14,600)

Sh. of Associates 0 0 0 0 0 others 11,029 12,640 14,339 16,219 16,819

Ex. ordinary 0 0 0 0 0 CF from Invst. Activities 1,140 9,333 1,587 4,119 2,219

Adj. PAT 28,877 34,469 35,893 34,133 44,300 Loan Raised/(repaid) 9,768 (10,042) 10,477 16,922 (5,500)

Source: Company, Sunidhi Research Equity Raised 0 0 0 0 0

Dividend (10,497) (13,275) (20,992) (14,067) (15,825)

Others (11,047) (19,897) (1,582) (1,375) (2,200)

CF from Fin Activities (11,776) (43,214) (12,097) 1,480 (23,525)

Net inc /(dec.) in cash 32,245 (8,320) 11,975 42,998 14,657

Op. bal of cash 85,429 117,675 109,355 121,329 164,328

Cl. balance of cash 117,675 109,355 121,329 164,328 178,985


Unichem Labs

Poised for strong growth; Maintain Buy

Domestic growth to be back on track backed by focused promotional strategy Domestic formulation business faced hurdles in the market during H1FY14 mainly on account of inventory adjustment in domestic market due to implementation of drug pricing policy, trade margin related issues & lower industry growth. After implementation of NLEM, domestic portfolio under coverage will be around 20%. Pricing policy impact would be around `200mn. We believe domestic business growth will be back on track gradually as the company has already strengthened its field force domestically is now looking to improve its productivity (currently 2.9mn). Among top 10 brands Losar, Ampoxin Tg-Tor & Trika are continuously struggling in market which the management attributes to matured basket. Company is trying to improve growth in its matured brands through focused promotional strategy on general physicians & also focusing on other high growth brands like Unienzyme & Telsar group to improve its overall domestic growth. Company is also planning to introduce 6 new products in acute segment & 9 products in chronic segment. We expect growth to remain flat in FY14 impacted by drug pricing policy but will be back to double digit growth in FY15 through increased sales force & marketing strategies taken by the management.

Contract manufacturing business slowed down but expect momentum in US & EMs Export formulation business is impacted due to pressures in contract manufacturing business (contri-65%) on account of price erosion seen in existing products supplied by the company. However Emerging markets & US markets will continue to do well and show around 30-35% growth. Company’s total ANDA filings in US stands at 29 and received 15 approvals out of which 10 products have been commercialized till date. Management has identified 10 molecules to be filed in FY14-15 mainly from CNS, CVS & pain management & 10-15 oral prefilled syringes to be filed beyond FY15. Company sold its Indore SEZ unit to Mylan for `1600mn & proceeds will be used for capex plan at its formulation, API plants & pilot plant in bioscience segment. Company has excess capacity due to delay in ANDA approvals & foresees a long gestation period for SEZ project to effectively contribute to its topline & profits. On the contrary company intends to expand its Goa facility as it is already approved which could be done at a lower cost & lower gestation period which in turn will improve margins.

Expect operating margin to improve by 200bps & return ratios to remain healthy Despite single digit revenue growth in past years, company was able to deliver 18% plus margins largely driven by change in product mix in domestic market & high focus on chronic segment. Revenues & margins impacted in FY12 on account of domestic restructuring which got over in FY13 & the company started reaping the benefits from it as a result company delivered 23% revenue growth & 16% margins in FY13. We expect revenues to show 13% CAGR over FY13-15E and operating margins to increase by 200bps from FY13 to FY15E as now the company is focusing more on C&F agents, sales productivity,& promotional strategies undertaken by management. Also, the lower growth in exports will be compensated by the domestic business. Turnaround in its subsidiary, Niche Generics which started contributing profits in FY13 will also help margins to expand.

Unichem had strong financial ratios in the past which got impacted at the end of FY12 due to restructuring in domestic business. However, return ratios is back on track in FY13 post restructuring and will improve in FY14E & FY15E through focus on domestic business, US & EMs.

Retain Buy rating with the target price of `214 We believe domestic growth to be impacted in FY14 on back of NLEM implementation and trade margin issues but will be back on track in FY15 on account of improved productivity through increased field force & introduction of new products. Overall Margins are expected to improve by 200bps in FY15E from FY13 on back of positive turnaround in UK subsidiary and focus on US & emerging markets. We maintain our Buy rating with the target price of `214 based on 12xFY15E EPS of `17.8.

12.7%

19.4% 19.7% 19.3%

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Stock Recommendation Buy

CMP (`) 185


Upside 16%

52 Week H / L ` 217/138

BSE 30 20420

Key Data


Mcap, ` Mn 17099

Mcap,USD Mn @ `60 285



Promoters 50.2

FII 3.7

DII 10.8



Stock Return % 8.9 25.1 9.4 3.2

Relative Return % 10.3 10.6 9.8 -2.5

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Unichem Lab NIFTY

Rashmi Sancheti [email protected]

Phone: +91-22-66318633

Pharmaceuticals Sector Outlook - Positive

Financials Revenues EBIDTA PAT EPS P/E EV/EBIDTA ROAE

`mn `mn `mn ` x x %

FY11 8240 1501 940 10.4 18.1 11.6 16.1

FY12 8755 1183 664 7.4 25.7 14.8 11.1

FY13 10808 1743 1132 12.5 15.1 10.0 16.3

FY14E 12200 2085 1335 14.8 12.8 8.4 17.3

FY15E 13736 2486 1611 17.8 10.6 7.0 18.5


Unichem Labs


Valuations Summary (Conso.)



Per share (`)

Equity Share Capital 180 181 181 181 181

EPS 10.4 7.4 12.5 14.8 17.8 Reserves & Surplus 5997 6425 7090 7949 9083

CEPS 13.7 10.7 16.8 19.6 23.2

Total Shareholders Fund 6177 6606 7271 8130 9264

BVPS 68.5 73.1 80.4 89.9 102.4 Minority Interest 0 0 0 0 0

DPS 4.0 3.0 4.5 4.5 4.5

Non- current liabilties 874 927 943 932 962

Payout (%) 38.4 40.9 36.0 30.5 25.3

Long term Borrowings 417 440 461 450 480

Valuation (x)

Deferred tax liabilities 378 385 390 390 390

P/E 18.1 25.7 15.1 12.8 10.6

Other LT liabilties & prov 79 102 92 92 92

P/BV 2.8 2.6 2.4 2.1 1.8


EV/EBITDA 11.6 14.8 10.0 8.4 7.0

Short-term borrowings 90 254 62 100 120

Dividend Yield (%) 2.1 1.6 2.4 2.4 2.4

Trade payables 1100 1403 1566 1663 1695

Return ratio (%) 571 676 571 676 883

EBIDTA Margin 18.2 13.5 16.1 17.1 18.1

Total Liabilities 8813 9866 10725 11692 13072

PAT Margin 11.4 7.6 10.5 10.9 11.7

Assets

ROAE 16.1 11.1 16.3 17.3 18.5

Non- current Assets 4565 5472 5941 6310 6929

ROACE 18.8 12.3 18.6 20.3 21.8

Fixed assets 4402 5212 5800 6169 6788

Leverage Ratios (x)

Non-current investments 0 0 57 57 57

Long Term D/E 0.1 0.1 0.1 0.1 0.1

Long-term loans & adv 163 260 84 84 84

Net Debt/Equity 0.1 0.1 0.0 0.0 0.0

Other non-current assets 0 0 0 0 0

Debt/EBITDA 0.3 0.6 0.3 0.3 0.2

Current assets 4248 4393 4784 5382 6143

Interest Coverage 129.3 29.4 41.3 46.0 51.3

Current investments 213 145 331 331 331

Current ratio 2.4 2.0 1.8 2.0 2.1

Trade receivables 1851 1833 2070 2340 2634

Growth Ratios (%)

Inventories 1503 1580 1430 1671 2070

Income growth 10.3 6.2 23.5 12.9 12.6

Cash & bank balances 152 232 246 231 202

EBITDA growth -13.3 -21.1 47.3 19.7 19.2

Short-term loans & adv 500 560 667 769 866

PAT growth -25.0 -29.4 70.6 17.9 20.6

Other current assets 30 44 41 41 41

Turnover Ratios

Total Assets 8813 9866 10725 11692 13072

F.A Turnover x 1.5 1.5 1.6 1.5 1.6

Cash flow Statement

Inventory Days 57.5 64.3 50.8 46.4 49.7

Year End-March FY11 FY12 FY13 FY14E FY15E

Debtors Days 78.0 76.8 65.9 66.0 66.1

PBT 1267 940 1461 1734 2092

Payable days 65.4 60.3 59.8 58.3 54.5 Depreciation 292 304 383 440 484

Income Statement(` mn)

Interest Exp 24 41 24 41 33

Year End-March FY11 FY12 FY13 FY14E FY15E

Others -41 49 55 0 0

Revenues 8240 8755 10808 12200 13736

CF before W.cap 1542 1334 1932 2210 2616

Op. Expenses 6740 7571 9065 10115 11251

Inc/dec in W.cap -548 135 131 -532 -594

EBITDA 1501 1183 1743 2085 2486

Op CF after W.cap 994 1469 2063 1678 2021

Other Income 59 42 134 125 130

Less Taxes -308 -228 -350 -399 -481

Depreciation 292 304 383 440 484


EBIT 1267 922 1494 1770 2131

Inc/(dec) in F.A + CWIP -895 -1114 -972 -810 -1103

Interest 9 30 33 36 39

(Pur)/sale of Investments 404 79 -217 0 0

PBT 1268 940 1461 1734 2092

others 15 16 4 0 0

Tax 316 228 328 399 481

CF from Invst Activities -476 -1018 -1184 -810 -1103

PAT 952 713 1132 1335 1611

Loan Raised/(repaid) 119 145 -203 -9 11

Minority 2 0 0 0 0

Equity Raised 3 4 6 0 0

Sh. of Associates 0 0 0 0 0

Dividend -417 -292 -316 -476 -476

Ex. ordinary -10 -49 0 0 0

CF from Fin Activities -295 -142 -514 -485 -465

Adj Pat 940 664 1132 1335 1611

Net inc /(dec) in cash -85 81 14 -16 -28


Op. bal of cash 236 152 232 184 236



Yes Bank Growth concerns overdone

Yes bank is one of the newest private sector banks in the country. Set up in 2004 by Dr Rana Kapoor, the bank rapidly expanded its balance sheet. The bank today, has a total asset base of `1008 bn and a branch network of 475 branches. Despite the disadvantages of being a new bank, such as a small branch network and low CASA base, Yes Bank has consistently managed to maintain its ROA within a narrow band across business cycles.

Stable NIM though slowdown in business and tight liquidity Yes Bank’s NIM was stable around 2.9% in H1FY14 despite slowdown in business and tight liquidity. This is due to the consistent improvement in the bank’s CASA ratio on deregulation of savings deposit rates. Strong traction is visible in CASA deposit which grew at 52.5% yoy resulting in CASA ratio improving to 20.4% in Q2FY14 (20.2% in Q1FY14). Additionally the bank has a high proportion of floating rate advances at ~ 90%. As a result, advances re-price almost immediately while deposits re-price as and when they reach maturity which will protect its NIM. Management has also clarified that bulk deposits do not pose significant threat of repricing as 86% of its deposits are contributed by less than 0.2% of total deposit base individually and cost pressures would be mitigated through judicious monitoring and lending rate hikes.

Asset quality appears comfortable Yes bank has the best asset quality amongst its peers with %GNPAs at 0.28% and NNPAs at negligible levels. The banks slippage rate stood at 0.6% in FY13. The banks knowledge banking approach has helped keep asset quality issues at bay. Going ahead we do not expect asset quality to deteriorate significantly as the bank has a well diversified loan book with limited exposure to risky segments. Additionally the bank has a strong provision coverage ratio of 88.5% which would act as a buffer in case of asset quality deterioration. Total standard Restructured Advances stand too is negligible at `1.25 bn (0.26% of advances) lower than Q1FY14 with no fresh restructuring during the Q2FY14.

Loan book to grow at a CAGR of 22% from FY13-15 Due to its small size the bank, has managed to grow its loan book at a rapid pace, well above that of the industry. Loan book grew at a CAGR of 38% from FY08-13. Going ahead we expect the bank to continue growing at a pace faster than that of the industry. We have factored in a loan book CAGR of 22% from FY13-15E.

Lower RWA as a proportion of total assets to free up capital Yes bank has managed to bring down its total risk weighted assets to total assets from 67.8% in FY13 from 80.6% in FY09. Going ahead we expect this ratio to improve further to ~ 62% in FY15. Lower risk weighted assets as a proportion of total assets would help free up capital for the bank and reduce the additional capital requirement for the bank.

Hold with a target price of `410

At the CMP, the bank trades at 1.9x its FY14E ABV and 1.5x its FY15E ABV. Due to expected pressure on margins and visible stress on asset quality, we have hold rating on the bank with a price target of Rs 410 (1.7x its FY15E ABV) though the bank is best placed to reap the benefits of easing liquidity in the system.

Financials NII PAT ABV P/E P/ABV ROAA ROAE

`mn `mn ` x X % %

FY11 12469 7271 109.0 17.3 3.3 1.5% 21.1%

FY12 16156 9770 132.0 13.1 2.8 1.5% 23.1%

FY13E 22188 13007 161.8 10.0 2.2 1.5% 24.8%

FY14E 26808 14819 196.0 8.8 1.9 1.3% 23.1%

FY15E 33947 18334 241.4 7.1 1.5 1.4% 23.4%


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PPP PAT

Yes Bank CAGR (FY13-15E)

Recommendation Hold

CMP (`) 356


Upside (%) 15%

52 Week H / L ` 547/216

BSE 30 20420

Key Data


Mcap, ` bn 103.2

Mcap,USD bn @ `60 1.7

2 W Avg Qty, (BSE+NSE) Mn 13.0


Promoters 25.6

FII 35.1

DII 19.4



Stock Return % 0.1 51.0 -31.4 -18.1

Relative Return % 1.6 36.4 -30.9 -23.8

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Yes Bank NIFTY

Amit Jain [email protected]

Phone: +91-022-6113 1355

Kanika Thacker [email protected]

Phone: +91-022-66318632

Banking Sector Outlook - Neutral

Yes Bank


Financials (Standalone)

Profit & Loss Account (` Mn) 2011 2012 2013 2014E 2015E

Interest Earned 40417.5 63073.5 82940.0 100835.9 118683.9

Interest expended 27948.2 46917.2 60752.1 74027.5 84736.8

Net interest income 12469.3 16156.3 22187.9 26808.4 33947.2

Non-interest income 6232.7 8571.2 12574.3 13641.0 16516.7

Net total income 18702.0 24727.5 34762.2 40449.4 50463.8

Operating expenses 6798.1 9325.3 13345.4 15168.5 19176.3

Pre- provisioning profit (PPP) 11903.9 15402.2 21416.8 25280.9 31287.6

Provision & Contingency 982.1 902.1 2159.5 3340.5 4143.7

PBT 10921.8 14500.1 19257.3 21940.4 27143.9

Tax 3650.4 4730.2 6250.5 7121.4 8810.3

PAT 7271.4 9769.9 13006.8 14819.0 18333.6

Balance Sheet (` Mn) 2011 2012 2013 2014E 2015E

Liabilities Equity Capital 3,471 3,530 3,586 3,586 3,586

Reserves 34,469 43,237 54,491 66,809 82,641

Networth 37,941 46,766 58,077 70,395 86,228

Deposits 459,389 491,517 669,556 772,596 958,019

Borrowings 66,909 141,565 209,222 247,142 271,661

Other Liabilities & Provisions 25,831 56,773 54,187 117,978 160,810

Total Liabilities 590,070 736,621 991,041 1,208,110 1,476,718

Assets Cash & Balances with RBI 30,760 23,325 33,388 41,470 49,765

Balances with Banks & money at Call 4,200 12,530 7,270 9,030 10,836

Investments 188,289 277,574 429,760 527,626 632,938

Advances 343,636 379,886 469,996 563,995 699,354

Fixed Assets 1,295 1,771 2,296 3,608 4,583

Other Assets 21,861 41,535 48,332 62,382 79,242

Total Assets 590,070 736,621 991,041 1,208,110 1,476,718

Growth matrix P&L 2011 2012 2013 2014E 2015E

Interest Earned 71% 56% 31% 22% 18%

Interest expended 77% 68% 29% 22% 14%

Net interest income 58% 30% 37% 21% 27%

Non-interest income 8% 38% 47% 8% 21%

Net total income 37% 32% 41% 16% 25%

Operating expenses 36% 37% 43% 14% 26%

Pre- provisioning profit (PPP) 38% 29% 39% 18% 24%

Provision & Contingency -28% -8% 139% 55% 24%

PBT 50% 33% 33% 14% 24%

Tax 47% 30% 32% 14% 24%

PAT 52% 34% 33% 14% 24%

Asset quality 2011 2012 2013 2014E 2015E

GNPA (%) 0.23% 0.22% 0.20% 0.45% 0.54% NNPA (%) 0.03% 0.05% 0.01% 0.02% -0.05% Slippage Ratio (%) 0.22% 0.19% 0.64% 0.70% 0.75% NPA reduction rate (%) 49.0% 75.8% 278.2% 178.3% 116.8% PCR (ex tech write offs) (%) 88.6% 79.2% 92.6% 95.9% 109.3% Credit Costs (%) 0.4% 0.2% 0.5% 0.5% 0.6% Provisioning / avg assets (%) 0.2% 0.1% 0.2% 0.3% 0.3% Provisioning / NPA additions (%) 69.9% 62.6% 179.8% 130.0% 100.0% Reductions in provisions / NPA reductions (%) 53.0% 79.0% 209.7% 80.0% 60.0%

Yes Bank


Other operating indicators 2011 2012 2013 2014E 2015E

NIM (%) 2.9% 2.7% 2.8% 2.7% 2.8%

Cost to income (%) 36.3% 37.7% 38.4% 37.5% 38.0%

Business per branch (` mn) 3752.5 2447.8 2650.1 2408.3 2350.9

Business per employee (` mn) 204.4 154.4 162.2 147.4 143.9

Profit per branch (` mn) 34.0 27.4 30.2 26.7 26.0

Profit per employee (` mn) 1.9 1.7 1.9 1.6 1.6

CASA per branch (` mn) 222.0 207.6 295.1 278.4 285.4

CASA ratio (%) 10.3% 15.0% 18.9% 20.0% 21.0%

Other income / Total income 33.3% 34.7% 36.2% 33.7% 32.7%

CEB / Other income 94.2% 89.6% 85.6% 96.0% 96.9%

CEB / average advances 2.1% 2.1% 2.5% 2.5% 2.5%

Capital Adequacy ratios 2011 2012 2013 2014E 2015E

CAR (%) 16.5% 17.9% 18.3% 17.9% 16.0%

Tier 1 (%) 9.7% 9.9% 9.5% 10.0% 9.7%

Tier 2 (%) 6.8% 8.0% 8.8% 7.8% 6.3%

Leverage (x) 15.6 15.8 17.1 17.2 17.1

Risk weighted assets / Total Assets (%) 73.1% 70.7% 67.8% 62.8% 64.3%

Valuation Table 2011 2012 2013 2014E 2015E

Net profit (` mn) 7271.4 9769.9 13006.8 14819.0 18333.6

Shares in issue (mn) 347.1 353.0 358.6 358.6 358.6

EPS (`) 20.9 27.7 36.3 41.3 51.1

EPS growth (%) 48.9% 32.1% 31.0% 13.9% 23.7%

PE (x) 17.3 13.1 10.0 8.8 7.1

P/PPP (x) 10.6 8.3 6.1 5.1 4.2

Book value (`/share) 109.3 132.5 161.9 196.3 240.4

P/BV (x) 3.3 2.7 2.2 1.8 1.5

Adj book value (`/share) 109.0 132.0 161.8 196.0 241.4

P/ABV (x) 3.3 2.8 2.2 1.9 1.5

ROAA (%) 1.5% 1.5% 1.5% 1.3% 1.4%

ROE (%) 21.1% 23.1% 24.8% 23.1% 23.4%

ROE (adj for reval reserve) (%) 21.1% 23.1% 24.8% 23.1% 23.4%

Dividend Yield (%) 0.7% 1.1% 1.7% 1.7% 1.7%

Du pont Decomposition 2011 2012 2013 2014E 2015E

Yield on Assets 8.5% 9.5% 9.6% 9.2% 8.8%

Less: Cost of Assets 5.9% 7.1% 7.0% 6.7% 6.3%

Net Interest Income 2.6% 2.4% 2.6% 2.4% 2.5%

Other Income 1.3% 1.3% 1.5% 1.2% 1.2%

Less: Operating Exp 1.4% 1.4% 1.5% 1.4% 1.4%

Less: Provisions 0.2% 0.1% 0.2% 0.3% 0.3%

Less: Tax 0.8% 0.7% 0.7% 0.6% 0.7%

RoA 1.5% 1.5% 1.5% 1.3% 1.4%

Leverage 13.9 15.7 16.5 17.1 17.1

RoE 21.1% 23.1% 24.8% 23.1% 23.4% Source: Company, Sunidhi Research

Yes Bank


Sunidhi’s Rating Rationale The price target for a large cap stock represents the value the analyst expects the stock to reach over next 12 months. For a stock to be classified as Outperform, the expected return must exceed the local risk free return by at least 5% over the next 12 months. For a stock to be classified as Underperform, the stock return must be below the local risk free return by at least 5% over the next 12 months. Stocks between these bands are classified as Neutral.

(For Mid & Small cap stocks from 12 months perspective)

BUY Absolute Return >20%

ACCUMULATE Absolute Return Between 10-20%

HOLD Absolute Return Between 0-10%

REDUCE Absolute Return 0 To Negative 10%

SELL Absolute Return > Negative 10%

Apart from Absolute returns our rating for a stock would also include subjective factors like macro environment, outlook of the industry in which the company is operating, growth expectations from the company vis a vis its peers, scope for P/E re-rating/de-rating for the broader market and the company in specific.

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