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Emkay Global Financial Services Ltd. January 06, 2010 | 1

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Result UpdateYour success is our success

Contents

Equity Advisory February 1, 2013

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Your success is our success

Emkay

Res

ultUpdate

Emkay Global Financial Services Ltd. 1

Financial Snapshot (Standalone) (Rs mn)

YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

FY12A 23,674 3,540 15.0 2,151 12.6 45.2 29.3 24.8 14.7 6.5

FY13E 29,942 4,780 16.0 3,104 18.2 44.3 32.6 17.2 11.2 4.9

FY14E 35,556 5,693 16.0 3,457 20.2 11.4 28.3 15.4 9.5 3.9

FY15E 43,307 6,920 16.0 4,315 25.3 24.8 27.9 12.4 7.7 3.1

Amara Raja Batteries

Consistent performance, Maintain BUY

January 31, 2013

Rating

Buy

Previous Reco

Buy

CMP

Rs313

Target Price

Rs380

EPS Chg FY13E/FY14E (%) 3.5/(5.7)

Target Price change (%) 19

Nifty 6,056

Sensex 20,005

Price Performance

(%) 1M 3M 6M 12M

Absolute 29 42 111 206

Rel. to Nifty 26 31 81 158

Source: Bloomberg

Relative price chart

100

145

190

235

280

325

Feb-12 Apr-12 Jun-12 Jul-12 Sep-12 Nov-12 Jan-13

Rs

0

30

60

90

120

150%

Amara Raja Batteries (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details

Sector Auto AncillariesBloomberg AMRJ IB

Equity Capital (Rs mn) 171

Face Value(Rs) 1

No of shares o/s (mn) 171

52 Week H/L 328/ 101

Market Cap (Rs bn/USD mn) 53/ 1,000

Daily Avg Volume (No of sh) 465,021

Daily Avg Turnover (US$mn) 2.4

Shareholding Pattern (%)

Dec'12 Sep'12 Jun'12

Promoters 52.1 52.1 52.1

FII/NRI 6.8 6.3 6.4

Institutions 17.6 18.6 19.4

Private Corp 3.4 3.2 3.0

Public 20.1 19.8 19.1

Source: Bloomberg

n Q3FY13 results surprised positively with EBITDA margins at

16% and beat our profit est by ~14%; lag effect of lead prices

protected margins despite 13% higher avg. lead prices

n Mgmt expects replacement demand to grow at 16-18%; price

hike of ~4% in replacement and pass-through in other

segments should help retain margins above the 15% mark

n Capacity constraints being addressed with a higher than

expected capex plan of Rs 7.5bn - we cut FY14/15 EPS

marginally by 6%/1% on higher capex assumptions

n Remain fundamentally positive - case for valuation re-rating

has been supported by markets quicker than anticipated

n Maintain BUY and revise our TP to Rs 380 based on 15x FY15

EPS (vs 12.5x earlier). Stock currently trading at 15.4x/12.4xFY14/FY15 est

Good operating performance

AMRJ reported Q3FY13 results which were above our and street estimates. Net sales at

Rs 7.6 bn (+23.8% YoY, +5.6% QoQ) was ~3% above estimates. EBITDA at Rs 1.2 bn

(+14.6% YoY, +3.3% QoQ) was ~10% above est. EBITDA margins surprised positively

at 16% (-130 bps YoY, -40 bps QoQ) vs est. of 15%. Key positive was only 30 bps QoQ

increase in RM/sales at 66% despite ~13% QoQ increase in global lead prices

management comments suggest that the impact of higher lead prices was with a two

month lag therefore not impacting the quarters margins. However the pass-through in

OEM/industrial segment would ensure that the margin impact is not as high as in the

case for Exide. Net profits at Rs 809 mn (+22.7% YoY, +5.6% QoQ) was ~14% above

estimates. Lower than anticipated tax rates at ~30% (vs est. of 31%) and better

operating performance led to the beat.

Outlook remains bright

AMRJ has taken a price hike of ~4% in the replacement segment and higher lead prices

have luckily been passed on timely in the OEM/industrial segment. This should help

sustain margins northwards of 15%. It is expected to start 2W OEM supplies from

Q1FY14 onwards to Honda and talks are on for supplies to Hero/Bajaj. Conscious focus

on replacement demand is here to stay; however, the company could be grappling under

capacity constraints in FY14 to address which it has already announced a capex plan of

Rs 7.5bn.

Remain positive; Maintain BUYWe cut FY14/15 EPS marginally by 5.7%/1.3% on higher capex assumptions (higher

depreciation and lower other income) however we remain fundamentally positive on

AMRJ. We have always been advocating that AMRJ deserves to re-rate given its

consistent performance, strengthening brand equity and quasi consumption nature of

business. We further increase our target price to Rs 380, as we raise our target multiple

to 15xFY15E EPS - a zero discount to Exide Industries.

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Amara Raja Batteries Result Update

Emkay Research January 31, 2013 2

Exhibit 1: Quarterly financial summary

Rs mn Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%) YTDFY13 YTDFY12 YoY (%)

Revenue 6,131 6,711 6,938 7,187 7,592 23.8 5.6 21,717 16,990 27.8

Expenditure 5,068 5,757 5,743 6,008 6,373 25.7 6.1 18,123 14,367 26.1

as % of sales 82.7 85.8 82.8 83.6 84.0 83.5 84.6

Consumption of RM 4,067 4,436 4,628 4,720 5,009 23.2 6.1 14,357 11,511 24.7

as % of sales 66.3 66.1 66.7 65.7 66.0 66.1 67.8

Employee Cost 215 243 292 302 320 49.0 6.1 914 633 44.3

as % of sales 3.5 3.6 4.2 4.2 4.2 4.2 3.7

Other expenditure 787 1,078 822 986 1,045 32.7 6.0 2,852 2,222 28.3

as % of sales 12.8 16.1 11.8 13.7 13.8 13.1 13.1

EBITDA 1,063 954 1,195 1,180 1,218 14.6 3.3 3,593 2,623 37.0

Depreciation 120 122 129 132 132 10.4 0.1 394 342 14.9

EBIT 943 832 1,066 1,048 1,086 15.2 3.7 3,200 2,280 40.3

Other Income 52 36 59 70 71 35.2 0.8 199 75 164.3

Interest 15 2 1 7 2 (89.8) (76.2) 9 28 (66.6)

PBT 980 866 1,123 1,111 1,155 17.9 4.0 3,390 2,328 45.6

Total Tax 321 283 362 345 346 7.8 0.4 1,053 760 38.5Adjusted PAT after MI 659 583 761 766 809 22.7 5.6 2,337 1,568 49.0

Extra ordinary items Loss/(Gain) 0 0 0 65 0 65 0

Reported PAT 659 583 761 701 809 22.7 15.4 2,271 1,568 44.9

Adjusted EPS 3.9 3.4 4.5 4.5 4.7 22.7 5.6 13.7 9.2 49.0

Margins (%) (bps) (bps) (bps)

EBIDTA 17.3 14.2 17.2 16.4 16.0 (129) (37) 16.5 15.4 111

EBIT 15.4 12.4 15.4 14.6 14.3 (108) (27) 14.7 13.4 131

EBT 16.0 12.9 16.2 15.5 15.2 (77) (24) 15.6 13.7 191

PAT 10.8 8.7 11.0 10.7 10.7 (9) (1) 10.8 9.2 153

Effective Tax rate 32.7 32.7 32.3 31.0 30.0 (278) (107) 31.1 32.7 (159)

Source: Company, Emkay Research

Exhibit 2: Actual vs estimated performance

Rs mn Actual Estimated % Variance Consensus Variance

Net sales 7,592 7,358 3.2 7,517 1.0

EBITDA 1,218 1,103 10.5 1,188 2.5

EBITDA margin (%) 16.0 15.0 106 15.8 24

Adj net income 809 707 14.4 764 5.9

FDEPS (Rs) 4.7 4.1 14.4 4.5 5.9

Source: Emkay Research, Bloomberg

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Key takeaways from management discussion

Q3 margins were better than anticipated given the two months lag the company sawon the lead prices

It has taken a price hike of ~4% recently in the replacement segment and timelypass through of higher lead prices in the OEM/industrial space could save from

severe margin impact of higher lead prices.

AMRJ targets to maintain EBITDA margins at 14-16% depending upon lead prices

AMRJ has been consciously focusing on the replacement demand. It achieved amarket share of ~36% in 4W replacement and ~25% in 2W replacement segments.

It expects replacement demand to grow 15-18% in the next 2 years.

Currently, OEM demand has been very weak. AMRJ has a 28-29% market share inthe 4W OEM segment

AMRJ is witnessing strong growth in the entry level diesel segment where it hadentered two years back

Telecom: Expect 6-8% growth driven by resilient replacement demand. Plans to

enhance capacity as utilisation levels are at 90%+. EBITDA margins in this segment

are at ~12%

UPS: Expect growth of 12-14%. AMRJ has increased its market share to 30% (vs~6% - 5 years back) and sees potential of increasing it further. It is investing USD

30 mn in new capacities which would come on-stream from H2FY14. EBITDA

margin stands at 13-14% for this segment. Competition from organised Chinese

players remains significant (~10-15% of the segment). However, these are more

rational players and price their products competitively

AMRJ is in the process of near doubling its 2W capacity to ~8.4 mn and ramping up4w capacity to 8.5 units with a total capex of Rs 7.45bn spread over FY13-FY14.

2W battery sales are growing at strong double digits (40-50%) on a low base. Bigvolume growth area would be to supply to OEMs in FY14, as AMRJ is likely to startsupplying to Hondas new plant in Karnataka from Q1FY14, albeit at lower margins,

Also looking to enter the home inverter segment in the near future. Currently, ittrades these batteries through the private label program so as to prevent dealers to

start stocking other brand batteries

Exhibit 3: Earnings revision: Marginal cut in estimates as higher capex assumptions lead tohigher depreciation and lower other income

FY13E FY14E FY15E

Old New % Chng Old New % Chng Est. % YoY

Net Sales 29,449 29,942 1.7 35,292 35,556 0.7 43,307 21.8

EBITDA 4,701 4,780 1.7 5,651 5,693 0.7 6,920 21.6Margin (%) 16.0 16.0 0 bps 16.0 16.0 0 bps 16.0 -

APAT 2,998 3,104 3.5 3,668 3,457 (5.7) 4,315 24.8

EPS 17.6 18.2 3.5 21.5 20.2 (5.7) 25.3 24.8

Source: Emkay Research

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Consistent performance leads to sharp re-rating

Exhibit 4: PE (1 yr fwd) band chart

-30

20

70

120

170

220

270

320

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

4x

8x

12x

16x

Source: Bloomberg, Emkay Research

Exhibit 5: AMRJ: Discount with EXID has narrowed considerably

-80

-60

-40

-20

0

20

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

(%) AMRJ PE Prem /(Disc) vs EXID


Exhibit 6: AMRJ looks attractive on P/B vs ROE metrics

Berger PaintsVIP

Havell

Asian Paints

Akzo Nobel

Kansai

Nerolac

Britannia

Bajaj ElectricalExide

Amara Raja

-

5

10

15

20

25

30

35

40

45

- 2 4 6 8 10 12 14

P/BV vs ROE


Exhibit 7: Despite inline returns vs peers, valuations look cheap

PEG

-

0.5

1.0

1.5

2.0

2.5

Asian

Paints

Berger

Paints

Akzo

Nobel

Kansai

Nerolac

Britannia Havell Bajaj

Electrical

EXID AMRJ


Exhibit 8: P/BV and ROE trend for select consumer stocks

P/BV ROE

P/B FY11 FY12 FY13 FY14 FY11 FY12 FY13 FY14

Asian Paints 19.6 15.6 12.4 10.4 43 40 38 36

Berger Paints 8.6 7.5 6.3 5.4 23 24 24 24

Akzo Nobel 3.0 2.7 3.1 2.9 14 15 15 17

Kansai Nerolac 5.5 4.7 4.8 4.1 23 22 19 20

Britannia 12.2 11.3 9.8 7.6 33 42 40 40

Havell 12.5 8.5 5.8 4.7 58 46 34 30

Bajaj Electrical 3.0 2.6 2.3 2.0 26 19 20 21

Exide 3.5 3.1 2.8 2.4 24 16 16 18

Amara Raja 8.2 6.4 4.9 3.9 25 29 33 28Source: Bloomberg, Emkay Research

Exhibit 9: Valuation ratios of select consumer and battery stocks

P/E EV-EBITDA

P/E FY11 FY12 FY13 FY14 FY11 FY12 FY13 FY14

Asian Paints 50.9 43.4 36.1 31.1 31.7 27.5 23.0 19.3

Berger Paints 39.6 33.0 28.5 24.7 24.3 19.7 17.6 14.9

Akzo Nobel 21.7 18.5 20.3 17.3 18.7 22.5 19.7 15.3

Kansai Nerolac 23.2 22.7 26.0 21.8 16.4 13.9 16.1 13.4

Britannia 41.7 29.0 27.6 21.2 27.7 19.4 17.6 14.0

Havell 26.6 22.1 20.6 17.3 16.1 13.0 12.2 10.2

Bajaj Electrical 12.5 14.1 12.4 9.9 9.4 9.5 8.5 6.9Exide 15.8 20.6 18.1 14.7 9.3 11.8 9.8 7.9

Amara Raja 36.0 24.8 17.2 15.4 20.9 14.7 11.2 9.5


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Key Financials (Standalone)

Income Statement

Y/E Mar (Rsmn) FY12A FY13E FY14E FY15E

Net Sales 23,674 29,942 35,556 43,307

Growth (%) 34.4 26.5 18.8 21.8

Expenditure 20,134 25,162 29,863 36,386Raw Materials 15,955 19,802 23,285 28,461

Employee Cost 1,003 1,198 1,493 1,776

Other Exp 3,176 4,162 5,085 6,150

EBITDA 3,540 4,780 5,693 6,920

Growth (%) 37.5 35.0 19.1 21.6

EBITDA margin (%) 15.0 16.0 16.0 16.0

Depreciation 465 533 820 1,012

EBIT 3,075 4,247 4,873 5,908

EBIT margin (%) 13.0 14.2 13.7 13.6

Other Income 152 270 155 364

Interest expenses 41 18 18 18

PBT 3,186 4,499 5,010 6,254Tax 1,036 1,395 1,553 1,939

Effective tax rate (%) 32.5 31.0 31.0 31.0

Adjusted PAT 2,151 3,104 3,457 4,315

Growth (%) 45.2 44.3 11.4 24.8

Net Margin (%) 9.1 10.4 9.7 10.0

(Profit)/loss from JVs/Ass/MI 0 0 0 0

Adj. PAT After JVs/Ass/MI 2,151 3,104 3,457 4,315

E/O items 0 0 0 0

Reported PAT 2,151 3,104 3,457 4,315

PAT after MI 2,151 3,104 3,457 4,315

Growth (%) 45.2 44.3 11.4 24.8

Balance Sheet


Equity share capital 171 171 171 171

Reserves & surplus 8,064 10,630 13,488 17,056

Net worth 8,235 10,801 13,659 17,227Minority Interest 0 0 0 0

Secured Loans 56 100 100 100

Unsecured Loans 785 785 785 785

Loan Funds 841 885 885 885

Net deferred tax liability 220 220 220 220

Total Liabilities 9,295 11,905 14,763 18,331

Gross Block 6,212 9,712 13,712 15,212

Less: Depreciation 2,667 3,200 4,020 5,033

Net block 3,546 6,512 9,692 10,180

Capital work in progress 315 315 315 315

Investment 161 1,661 1,161 3,661

Current Assets 9,493 8,604 9,463 11,215Inventories 2,666 2,984 3,381 3,899

Sundry debtors 3,197 3,609 3,897 4,390

Cash & bank balance 2,292 510 459 941

Loans & advances 1,306 1,501 1,727 1,986

Other current assets 33 0 0 0

Current lia & Prov 4,220 5,187 5,868 7,040

Current liabilities 2,013 2,461 2,922 3,559

Provisions 2,207 2,726 2,946 3,480

Net current assets 5,274 3,417 3,595 4,175

Misc. exp 0 0 0 0

Total Assets 9,295 11,905 14,763 18,331

Cash Flow


PBT (Ex-Other income) 3,035 4,229 4,855 5,890

Depreciation 465 533 820 1,012

Interest Provided 41 18 18 18

Other Non-Cash items 0 0 0 0

Chg in working cap 461 74 -229 -99

Tax paid -1,036 -1,395 -1,553 -1,939

Operating Cashflow 2,963 3,459 3,911 4,883

Capital expenditure -765 -3,500 -4,000 -1,500

Free Cash Flow 2,198 -41 -89 3,383

Other income 152 270 155 364Investments 0 -1,500 500 -2,500

Investing Cashflow -696 -4,730 -3,345 -3,636

Equity Capital Raised 0 0 0 0

Loans Taken / (Repaid) -60 44 0 0

Interest Paid -41 -18 -18 -18

Dividend paid (incl tax) -375 -538 -599 -748

Income from investments 0 0 0 0

Others -29 0 0 0

Financing Cashflow -505 -512 -617 -765

Net chg in cash 1,762 -1,783 -51 482

Opening cash position 451 2,292 510 459

Closing cash position 2,213 510 459 941

Key Ratios

Y/E Mar FY12A FY13E FY14E FY15E

Profitability (%)

EBITDA Margin 15.0 16.0 16.0 16.0

Net Margin 9.1 10.4 9.7 10.0

ROCE 38.3 42.6 37.7 37.9

ROE 29.3 32.6 28.3 27.9

RoIC 46.9 53.3 43.8 45.0

Per Share Data (Rs)

EPS 12.6 18.2 20.2 25.3

CEPS 15.3 21.3 25.0 31.2

BVPS 48.2 63.2 80.0 100.9DPS 1.9 2.7 3.0 3.8

Valuations (x)

PER 24.8 17.2 15.4 12.4

P/CEPS 20.4 14.7 12.5 10.0

P/BV 6.5 4.9 3.9 3.1

EV / Sales 2.2 1.8 1.5 1.2

EV / EBITDA 14.7 11.2 9.5 7.7

Dividend Yield (%) 0.6 0.9 1.0 1.2

Gearing Ratio (x)

Net Debt/ Equity -0.2 0.0 0.0 0.0

Net Debt/EBIDTA -0.4 0.1 0.1 0.0

Working Cap Cycle (days) 46.0 35.4 32.2 27.3

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Emkay

Res

ultUpdate


Financial Snapshot (Consolidated) (Rsmn)



FY12A 17,893 2,367 13.2 1,302 5.3 -16.6 23.1 15.4 8.0 3.2

FY13E 19,266 2,532 13.1 1,538 6.3 18.2 22.9 13.1 6.9 2.8

FY14E 21,744 2,948 13.6 1,793 7.3 16.6 23.2 11.2 5.6 2.4

FY15E 24,554 3,337 13.6 2,059 8.4 14.9 23.2 9.8 4.6 2.1

Greaves Cotton

All revved up, Reiterate Buy

January 31, 2013

Rating

Buy

Previous Reco

Buy

CMP

Rs82

Target Price

Rs100

EPS Chg FY13E/FY14E (%) +5/+4


Nifty 6,035

Sensex 19,895

Price Performance

(%) 1M 3M 6M 12M

Absolute 1 6 28 -4

Rel. to Nifty -1 -1 11 -17

Source: Bloomberg


60

66

72

78

84

90

Feb-12 Apr-12 Jun-12 Aug-12 Sep-12 Nov-12 Jan-13

Rs

-30

-22

-14

-6

2

10%

Greaves Co tton (LHS) Rel to Ni ft y (RHS) Source: Bloomberg

Stock Details

Sector Engineering & Capital GoodsBloomberg GRV IB


Face Value(Rs) 2


52 Week H/L 99/ 60

Market Cap (Rs bn/USD mn) 20/ 378





Promoters 51.6 51.6 51.6

FII/NRI 8.4 7.9 7.6



Public 9.6 9.9 9.4

Source: Bloomberg

n Stellar performance Revenue up 11% yoy to Rs, EBITDA

margins expand 150 bps yoy to 13.9% and APAT up 42% yoy

to Rs486 mn above estimates

n Key highlight Revenue growth driven by volume pick-up in

both 3-W and 4-W segment addressing key concern.

Further, GCL has favourable base in 3W for next 3-4 quarters

n Upgrade earnings by 5% for FY13E & by 4% for FY14E.

Robust return ratios at +30% levels and 8% FCF yield.

Reiterate Buy with price target of Rs100

Stellar performance Driven by volume growth and margin expansion

Greaves Cotton (GCL) Q3FY13 performance beat estimates by a wide margin with net

profit growth at 42% yoy to Rs486 mn. Strong performance was driven by (1) 11% yoy

revenue growth (comes after 3 quarters of muted growth) to Rs5.2 bn led by stronggrowth in 4-W segment and selective prise rise (2) 150 bps yoy expansion in gross

margins attributed to improved revenue mix, selective price rise and lower material

cost (3) EBITDA up 24% yoy to Rs718 mn (4) High other income at Rs69 mn Vs Rs4

mn in Q3FY12 (includes gain on sale of property). Reported net profit at Rs344 mn due

to provision for diminution in value of investment in Greaves Farymann Diesel GmbH.

Key highlight - Volume growth in both 4-W & 3-W segment

Improved Q3FY13 performance was driven by pick-up in volumes in both 3-W and 4-W

After declining for 10 months, the 3-W industry witnessed volume growth in Q3FY13(Oct-Dec12). 3-W growth for GCL stood at 2% in Q3FY13 to 93,000 units.

Sustained ramp-up in volumes with Tata Motors monthly run rate improved from6,000 units in Q2FY13 to 7,300 units per month in Q3FY13. Q3FY13 volume growthstood at 65% yoy to 22,000 units.

Strong growth also witnessed in diesel & industrial gensets sold 1200 sets Vs 900sets in Q3FY12, led by gains in market share in the 60-120kVa range.

Farm equipments continued to decline though decline for GCL was partially offsetby increase in market share.

Future growth drivers Increasing customer penetration

Piaggio is planning to launch new 4-W goods carrier (0.5 ton) in FY14E fitted withGraves Cotton Engine

GCL will also be supplying engines for CNG version of Tata Motors Ace Zip model most likely to be introduced in FY14E.

Retain Buy rating with price target of Rs95

We expect GCL to continue to benefit from pick-up in 3-W industry and steady ramp-up

with Tata Motors. Further, GCL has favourable base effect for next 4 quarters expect

continued earnings growth. With attractive return ratios at +30% levels (though lower

then historical levels) and FCF yield of 8% on FY14E cashflow, we retain our Buy rating

with target price of Rs100/Share (@12X FY15E earnings).

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Greaves Cotton Result Update


Exhibit 1: Quarterly Table - Standalone

Y/E, Mar (Rs. mn) Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%) YTD'13 YTD'12 Gr (%)

Revenue 4,651 4,454 4,116 4,501 5,158 10.9 14.6 13,775 13,066 5.4

Expenditure 4,074 3,858 3,619 3,925 4,440 9.0 13.1 11,984 11,288 6.2


as % of sales 71.8 68.3 69.7 69.9 70.2 70.0 71.0

Employee Cost 344 342 366 359 377 9.7 5.0 1,102 933 18.1as % of sales 7.4 7.7 8.9 8.0 7.3 8.0 7.1

Other expenditure 393 471 383 421 441 12.3 4.7 1,246 1,073 16.1

as % of sales 8.4 10.6 9.3 9.4 8.6 9.0 8.2

EBITDA 577 597 497 577 718 24.4 24.5 1,791 1,778 0.8

Depreciation 83 88 89 94 100 20.6 6.0 283 230 23.0

EBIT 495 509 408 483 618 25.1 28.2 1,509 1,548 -2.5

Other Income 4 34 29 20 69 1495.3 236.3 118 40 193.8

Interest 11 14 3 2 2 -80.8 35.9 7 45 -84.7

PBT 488 530 434 501 685 40.5 36.6 1,620 1,543 5.0

Total Tax 146 185 129 131 199 36.6 51.7 460 466 -1.2

Adjusted PAT 342 345 305 370 486 42.1 31.3 1,160 1,078 7.7

Extra ordinary items 0 433 11 -34 -142 NA 313.4 -165 0 -Reported PAT 342 777 316 336 344 0.6 2.4 995 1,078 -7.7

Adjusted EPS 1.4 3.2 1.3 1.4 1.4 0.6 2.4 4.1 4.4 -7.7


EBIDTA 12.4 13.4 12.1 12.8 13.9 150 110 13.0 13.6 -60

EBIT 10.6 11.4 9.9 10.7 12.0 140 130 11.0 11.8 -90

PBT 10.5 11.9 10.5 11.1 13.3 280 210 11.8 11.8 0

PAT 7.3 7.7 7.4 8.2 9.4 210 120 8.4 8.2 20

Effective Tax rate 29.9 35.0 29.8 26.2 29.1 -80 290 28.4 30.2 -180


Engines Benefits from pick-up in 3W & sustained ramp-up in 4W

Engines segment revenues grew by 12% yoy to Rs4.6 bn (ahead estimates) on the back

growth in both 3W & 4W segments as well as selective price rise. Segment EBIT margins

also improved by 30 bps yoy to 17.0% (ahead estimates) while EBIT increased by 19% yoy

to Rs4755 mn.

Infrastructure 18% yoy revenue growth, Reduction in EBIT loss

Infrastructure reported improved performance led by (1) introduction of new products in

concreting segment and (2) improvement in underlying demand in road making

equipments. Though overall demand for concreting equipment continues to remain muted.

Segment revenues grew by 18% yoy to Rs430 mn while EBIT loss fell down to Rs11 mn

(Vs loss of Rs30 mn in Q2FY13 and Rs28 mn in Q3FY12).

Upsides to earnings estimates exist Upsides to revenue (1) 3-W segment - has favourable base effect for the next 3

quarters. Already witnessed initial glimpse of pick-up in demand momentum in

Q3FY13. (2) 4-W segment - Sustained ramp-up have achieved monthly run rate of

7300 units Vs 6000 units in Mar12.

Upsides to EBITDA GCL has indicated benefits of cost (raw material) optimisationmeasures to sustain in the ensuing quarters - witnessed initial glimpse in Q3FY13.

Besides higher revenue contribution from 3-W to also positively impact margins.

Turnaround of Infrastructure division GCL has highlighted improvement indemand in road making equipments. Besides revenue growth in FY14E to be driven by

introduction of new products in FY14E (1) Stationary concrete pump S1 market

growth at 18-20% (2) Boom pump market growth at +20%. Pick-up in revenue

growth will trigger benefits from operating leverage (incurred EBIT loss of Rs58 mn in

9MFY13)

Emkay estimates We have factored 3-W volume growth at 7% in FY14E andvolumes of 0.1 mn units for 4-W (Tata Motors).

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Upgrade earnings by 4-5%

We have revised upwards our consolidated earnings estimates for FY13E by 5% to Rs6.3

and by 4% to Rs7.3 for FY14E to factor (1) strong Q3FY13 performance and (2) higher

volumes in 4-W segment. We introduce FY15E consolidated earnings at Rs8.3 per share.

Exhibit 2: Revision in Consolidated Earning Estimates

FY13E FY14E

Y/E, Mar (Rs. mn) Earlier Revised % Change Earlier Revised % Change

Revenues 19,124 19,266 0.7 21,489 21,744 1.2

EBITDA 2,469 2,533 2.6 2,863 2,949 3.0

EBITDA Margin (%) 12.9 13.2 20 bps 13.3 13.6 20 bps

APAT 1,462 1,538 5.2 1,709 1,793 4.9

EPS (Rs) 6.0 6.3 5.2 7.0 7.3 4.9

Source: Emkay Research

Exhibit 3: Segmental Performance

Y/E, Mar (Rs. mn) Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%) YTD'13 YTD'12 Gr (%)

Segment Revenues

Engines 4,094 3,947 3,623 4,083 4,578 11.8 12.1 12,284 11,364 8.1

Infrastructure 364 383 355 319 430 18.3 34.9 1,104 1,188 -7.1

Others 195 126 141 111 164 -15.8 48.5 416 516 -19.3

Less: Intersegment Revenues 9 2 4 11 14 - - 0 0 -

Total 4,644 4,454 4,116 4,501 5,158 11.1 14.6 13,775 13,058 5.5

Segment Results

Engines 684 733 584 664 778 13.8 17.2 2,025 1,926 5.2

Infrastructure -28 -42 -16 -30 -11 -59.6 -62.0 -58 -37 57.1

Others 6 -2 11 25 30 401.7 19.8 65 78 -16.5

Total 662 689 578 658 796 20.4 20.9 2,033 1,967 3.3

Add- Unall Income / (Exp) 163 146 141 156 109 - - 405 378 -

Less- Interest Exp 11 14 3 2 2 -80.8 35.9 7 45 -84.7PBT 488 97 424 536 827 69.6 54.3 1,620 1,543 5.0

Segment Capital Employed

Engines 4,007 3,807 4,144 4,228 4,755 18.6 12.4 4,755 4,007 18.6

Infrastructure 1,303 1,154 1,149 1,125 1,101 -15.5 -2.1 1,101 1,303 -15.5

Others -50 4 -9 -8 -14 -72.2 64.3 -14 -50 -72.2

Unallocated 850 1,529 1,526 1,715 1,448 70.3 -15.6 1,448 850 70.3

Total 6,110 6,494 6,809 7,059 7,289 19.3 3.3 7,289 6,110 19.3

Segment Margins (%) (bps) (bps) (bps)

Engines 16.7 18.6 16.1 16.3 17.0 30 70 16.5 16.9 -50

Infrastructure (7.8) (10.9) (4.6) (9.4) (2.6) 510 680 (5.2) (3.1) -210

Others 3.0 (1.3) 7.6 22.3 18.0 1500 -430 15.6 15.1 50Average 14.2 15.5 14.0 14.6 15.4 120 80 14.7 15.1 -30


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Key Financials (Consolidated)

Income Statement


Net Sales 17,893 19,266 21,744 24,554

Growth (%) 4.8 7.7 12.9 12.9


Employee Cost 1,426 1,640 1,835 2,056

Other Exp 1,572 1,680 1,830 1,988

EBITDA 2,367 2,532 2,948 3,337

Growth (%) -8.8 7.0 16.4 13.2

EBITDA margin (%) 13.2 13.1 13.6 13.6

Depreciation 416 434 500 552

EBIT 1,951 2,098 2,447 2,785

EBIT margin (%) 10.9 10.9 11.3 11.3

Other Income 48 130 147 194


PBT 1,961 2,217 2,584 2,968Tax 660 679 791 909


Adjusted PAT 1,302 1,538 1,793 2,059

Growth (%) -16.6 18.2 16.6 14.9

Net Margin (%) 7.3 8.0 8.2 8.4



E/O items 588 0 0 0

Reported PAT 1,889 1,538 1,793 2,059

PAT after MI 1,302 1,538 1,793 2,059

Growth (%) -16.6 18.2 16.6 14.9

Balance Sheet







Loan Funds 330 330 330 330

Net deferred tax liability 301 301 301 301


Gross Block 5,525 6,125 6,725 7,325


Net block 3,307 3,472 3,572 3,621

Capital work in progress 203 103 3 -97

Investment 937 937 937 937


Sundry debtors 2,567 2,709 3,057 3,452

Cash & bank balance 715 2,322 3,238 4,367

Loans & advances 1,351 1,214 1,370 1,547


Current lia & Prov 3,978 4,928 5,535 6,248


Provisions 1,175 1,370 1,539 1,737


Misc. exp 0 0 0 0

Total Assets 6,941 7,860 8,931 10,161

Cash Flow





Other Non-Cash items -795 0 0 0

Chg in working cap -310 755 -156 -153

Tax paid -656 -679 -791 -909


Capital expenditure -1,059 -500 -500 -500

Free Cash Flow 839 2,109 1,501 1,776

Other income 48 130 147 194Investments -405 0 0 0

Investing Cashflow -1,416 -370 -353 -306


Loans Taken / (Repaid) 196 0 0 0

Interest Paid -37 -11 -11 -11



Others 0 0 0 0

Financing Cashflow -380 -631 -733 -841

Net chg in cash 102 1,608 915 1,129

Opening cash position 612 715 2,322 3,238

Closing cash position 715 2,322 3,238 4,367

Key Ratios


Profitability (%)

EBITDA Margin 13.2 13.1 13.6 13.6

Net Margin 7.3 8.0 8.2 8.4

ROCE 32.5 30.3 31.1 31.3

ROE 23.1 22.9 23.2 23.2

RoIC 42.4 44.2 53.4 57.9

Per Share Data (Rs)

EPS 5.3 6.3 7.3 8.4

CEPS 7.0 8.1 9.4 10.7

BVPS 25.7 29.4 33.8 38.9DPS 2.2 2.2 2.6 3.0

Valuations (x)

PER 15.4 13.1 11.2 9.8

P/CEPS 11.7 10.2 8.8 7.7

P/BV 3.2 2.8 2.4 2.1

EV / Sales 1.1 0.9 0.8 0.6

EV / EBITDA 8.0 6.9 5.6 4.6

Dividend Yield (%) 2.7 2.7 3.1 3.6

Gearing Ratio (x)

Net Debt/ Equity -0.2 -0.4 -0.4 -0.5

Net Debt/EBIDTA -0.5 -1.1 -1.2 -1.4


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Emkay

Res

ultUpdate





FY11A 58,320 11,911 20.4 8,625 19.3 22.4 29.5 31.3 23.3 8.2

FY12A 70,830 14,448 20.4 9,479 21.2 9.9 23.9 28.4 19.1 6.8

FY13E 89,382 20,053 22.4 12,650 28.4 33.4 27.9 21.3 13.6 5.3

FY14E 106,058 23,823 22.5 15,780 35.4 24.7 27.3 17.1 11.2 4.2

Lupin

Rocking results Maintain buy

January 31, 2013

Rating

Buy

Previous Reco

Buy

CMP

Rs604

Target Price

Rs708

EPS Chg FY13E/FY14E (%) 9/12


Nifty 6,035

Sensex 19,895

Price Performance

(%) 1M 3M 6M 12M

Absolute -2 7 1 27

Rel. to Nifty -4 -1 -13 10

Source: Bloomberg


450

490

530

570

610

650


Rs

-10

-2

6

14

22

30%

Lupin (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details

Sector PharmaceuticalsBloomberg LPC IB


Face Value(Rs) 2


52 Week H/L 632/ 412






Promoters 46.9 46.9 46.9

FII/NRI 27.8 28.0 27.9



Public 8.7 9.0 8.4

Source: Bloomberg

n Lupin Q3FY13 Results, above expectations a) Revenue up

by 38% YoY to Rs25bn, b) EBIDTA up by 62% YoY to Rs6bn

and c) RPAT up by 43% YoY to Rs3.4bn

n US business grew 54% YoY to US$193mn on back of Tricor

which contributed $30-35mn. India grew 14% YoY and Japan

grew 48%

n Going forward, Lupin will launch 3 products in Q413 and 20

products in FY14 which includes, Solodyn, Yasmin,

Symbalta, Asacol and Cipro OS among others in US

n On back of strong outlook we have upgraded Lupins

earnings by 9%/12% for FY13/14. Maintain Buy with a revised

target price of Rs708 (20x FY14E EPS of Rs35.4)

All round performance

US business (contr. 35%) grew 54% YoY to USD193mn on back of launch of Tricor,Kurvelo, Avapro and Seasonale in the quarter. Tricor contributed approx. $35

million with 35% Market share and 40% price erosion.

India formulations (contr. 27%) grew by 14% Japan biz (contr. 15%) grew 43% in yen term and 48% in INR term led by Irom

acquisition & on back of 2 new products launched last quarter and 7 launched in

first quarter.

EBITDA margins expanded 365bps YoY and 176bps QoQ to 24.2%. PAT increasedby 43% YoY to Rs3.4bn and EPS stood at Rs7.1 for Q2FY13 & Rs20.4 for 9M FY13

Going forward Strong growth outlook in US & India In the US, Lupin has re-iterated its guidance of 20 ANDA launches in FY13

including 10 OCs and 120 products over the next 3 years addressing USD48bn

market

High profile products launches like Tricor, Seasonale, Solodyn, Ambien CR,Yasmin, Cymbalta, Asacol and Cipro OS will lead to 29% CAGR in US business

over FY12-14

There are 100 Para IVs addressing market size of USD30bn and 25 FTFs (marketsize of USD11bn) including 9 exclusivities (USD830mn)

Domestic business is expected to grow at 18-20% CAGR over FY12-FY14E

Valuations

We expect Lupin to report 27% revenue growth in FY13E and 19% growth in FY14E.

EBIDTA margins are expected to move from 20.4% in FY12 to 22.4% in FY14E.

Earnings will grow by 29% CAGR over FY12-14E. We maintain Buy rating on the stock

with a revised target price of Rs708. At CMP, the stock trades at 21xFY13E and

17xFY14E EPS.

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Lupin Result Update


Exhibit 1: Quarterly Financials

Rs mn Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%) 9M FY13 9MFY12 YoY (%)

Revenue 18,189 19,237 22,537 23,007 25,009 37.5 8.7 70,553 51,591 36.8

Expenditure 14,454 15,510 17,961 17,847 18,959 31.2 6.2 54,767 40,871 34.0

as % of sales 79.5 80.6 79.7 77.6 75.8 (5) (2) 233.1 237.9


as % of sales 34.4 39.7 36.3 38.7 37.4 9 (3) 112.4 107.5

Employee Cost 2,524 2,702 3,014 3,000 3,165 25.4 5.5 9,179 6,992 31.3

as % of sales 13.9 14.0 13.4 13.0 12.7 (9) (3) 39.1 40.7

Other expenditure 5,671 5,176 6,760 5,949 6,439 13.6 8.2 19,148 15,472 23.8

as % of sales 31.2 26.9 30.0 25.9 25.7 (17) (0) 81.6 89.7

EBITDA 3,736 3,727 4,576 5,160 6,050 62.0 17.3 15,786 9,740 62.1

Depreciation 576 706 654 690 688 19.4 (0.3) 2,032 1,569 29.5

EBIT 3,160 3,021 3,923 4,470 5,362 69.7 20.0 13,755 8,171 68.3

Other Income 33 82 236 43 265 700.6 513.4 544 61 790.0

Interest 86 145 101 100 76 (11.2) (24.0) 277 210 31.9

PBT 3,107 2,958 4,058 4,413 5,551 78.7 25.8 14,022 9,002 55.8

Total Tax 701 1,348 1,208 1,438 2,116 201.9 47.1 4,762 1,738 174.0Adjusted PAT 2,406 1,610 2,850 2,975 3,435 42.8 15.5 9,260 7,264 27.5

(Profit)/loss from JV's/Ass/MI 54.9 -77.3 46.2 69.0 81.5 48.5 18.1 196.7 552.5 (64.4)

APAT after MI 2,351 1,688 2,804 2,906 3,354 42.6 15.4 9,063 6,711 35.0

Extra ordinary items 0 -133 0 0 0 0.0 409

Reported PAT 2,351 1,555 2,804 2,906 3,354 42.6 15.4 9,063 7,121 27.3

FD EPS 5.3 3.5 6.3 6.5 7.5 42.6 15.4 20.4 16.0 27.3


EBIDTA 20.5 19.4 20.3 22.4 24.2 365 176 22.4 18.9 350

EBIT 17.4 15.7 17.4 19.4 21.4 407 201 19.5 15.8 366

EBT 17.1 15.4 18.0 19.2 22.2 511 302 19.9 17.4 243

PAT 12.9 8.8 12.4 12.6 13.4 48 78 12.8 13.0 -16

Effective Tax rate 22.6 45.6 29.8 32.6 38.1 1556 553 34.0 19.3 1465


Exhibit 2: Sales & Margins Trend

18189 19237 22537 23007 25009

12.9%

8.8%

12.4% 12.6% 13.4%

24.2%22.4%

20.3%19.4%20.5%

05000

10000

15000

20000

25000

30000

Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13

0%

8%

16%

24%

32%

40%

Revenue (Rs mn) EBIDTA PAT


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Lupin Result Update


Lupins Domestic Metrics

Exhibit 3: Therapeutic growth

Therapies % ContributionMAT

Dec'12

MAT

Dec'11

YoY

Gr. %

Cardiac 22.7% 454 397 14.3%Anti-infectives 18.3% 366 326 12.3%

Respiratory 9.7% 194 185 5.4%

Gastro 7.1% 142 120 18.5%

Anti Diabetic 5.9% 118 100 18.4%

Anti-diabetic 8.4% 169 139 21.4%

CNS 5.7% 114 94 20.7%

Vitamins/miner

als 4.6% 92 81 14.0%

Gynaecology 4.1% 83 69 20.0%

Others 13.6% 272 279 -2.6%

Acute 52.3% 1048 956 9.6%

Chronic 47.7% 956 833 14.7%Total Sales 100.0% 2004 1789 12.0%

Source: IMS, Emkay Research

Exhibit 4: Field force productivity

4.03.6

4.64.9

4.7

4.1

3.7

0

1000

2000

3000

4000

5000

6000

FY06 FY07 FY08 FY09 FY10 FY11 FY12

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Field force Productivity


Exhibit 5: Growth drivers - Volume/ Price/ New launches

2

6.0

5.2

7.2

4.2

-1.2Lupin IndustryVol Gr. Price Gr. New launches

Total Gr. 12%

Total Gr. 11.4%


Exhibit 6: Top 10 brand performance

Rs Cr TherapyMAT

Aug'12

MAT

Aug'11

YoY

Gr.

Tonact CVS 69 61 11.7%

Gluconorm-G Anti-Diab 61 45 37.2%

Budamate Resp 40 36 12.8%

Ramistar CVS 38 35 8.0%

Gluconorm-PG Anti-Diab 34 27 24.7%

R-CINEX Anti-Infective 33 31 4.7%

L-CIN Anti-Infective 31 31 0.9%

Cefaxone Gastro 31 19 65.0%

RABLET CVS 30 28 9.4%

MEROTROL Resp 29 24 21.7%

Total 396 337 17.7%


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Lupin Result Update


Exhibit 7: Financial Snapshot

(Rs mn) FY11 YoY % FY12 YoY % FY13E YoY % FY14E YoY %

Formulations 49069 19.7% 61526 25.4% 79990 30.0% 96300 20.4%

Domestic 15509 14.9% 19059 22.9% 22496 18.0% 26545 18.0%

US 20798 23.7% 25303 21.7% 34181 35.1% 42641 24.7%

Europe 1809 -16.8% 1975 9.2% 2116 7.1% 2257 6.7%

Japan 6212 16.3% 8607 38.6% 13298 54.5% 15380 15.6%SRM 4741 49.3% 6582 38.8% 7898 20.0% 9478 20.0%

API's 8589 10.5% 8491 -1.1% 9232 8.7% 9694 5.0%

Domestic API 2431 10.0% 2164 -11.0% 2272 5.0% 2385 5.0%

Export API 6158 10.7% 6327 2.8% 6960 10.0% 7308 5.0%

Other operating income 1252 - 1232 - 1053 - 1124 -

Total Sales 58910 20.8% 71250 20.9% 90274 26.7% 107118 18.7%

FTF Sales 0 - 1010 - 1440 - 1289 -

Base Sales 58910 20.8% 70239 19.2% 88834 26.5% 105829 19.1%

EBITDA 11,911 22.4% 14,448 21.3% 20,053 38.8% 23,823 18.8%

EBITDA % 20.2% 20.3% 22.4% 22.5%

FTF EBITDA 0 - 707 - 1,008 - 902 -

Base EBITDA 0 - 13,740 - 19,045 - 22,920 20.3%

PAT 8,625 26.0% 9,479 9.9% 12,650 33.5% 15,780 24.7%

PAT % 14.6% 13.3% 14.0% 14.7%

FTF PAT 0 - 0 - 469 - 730 -

Base - PAT 8625 - 9479 9.9% 12181 28.5% 15050 23.5%

EPS 19.3 25.6% 21.2 9.9% 28.4 33.5% 35.4 24.7%

FTF EPS 0.0 - 0.0 - 1.1 - 1.6 -

Base EPS 19.3 - 21.2 - 27.3 - 33.7 -

PE - 21.2 - 17.0 -


Exhibit 8: Revised Financials

Rs mn Old Financials New Financials % Change

FY13E FY14E FY13E FY14E FY13E FY14E

Sales 89555 103142 90,274 10,7118 0.8 3.8

EBITDA 19,028 21,928 20,053 23,823 5.3 8.6

PAT 11,588 14,056 12,650 15,780 9.1 12.2

EPS 26.0 31.5 28.4 35.4 9.1 12.2

Rating Buy Buy


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Lupin Result Update


Conference Call Highlights

US

US business grew 54% in $ terms and 68% in rupee terms to USD 193 millioncompared to USD 125 million in Q2FY13 This is on back of launch of Tricor,

Kurvelo, Avapro and Seasonale in the quarter.

16 ANDAs withdrawn from US FDA on cost benefit consideration after GDUFA feesapplicable. Total ANDAs filing is 168. Out of this Para-IVs 100 and FTF-25

Company expects 2-3 products in current quarter and 20 products launch in FY14 Branded Portfolio -

Branded generic sale is USD 48 million in Q3 FY13

Suprax grew by 48% in the current quarter, best season in the last 10 years

Suprax drops will be launched in 4QFY13 and will replace part of sale of

suspension and tablet. Suspension contributes 2/3rd and tablet 1/3rd of suprax

sales.

After launch of Tricor, there is 25% decline in total fenofibrate market. There is

no impact on Antara sale. In this quarter, prescriptions were flat for Antara.

Oral Contraceptives(OCs) Total ANDA filed in OCs are 31 and till date launched six only i.e. Nor QD, Lo-

Seasonique, Femcon, Kurvelo, Seasonale and Yasmin. Last 3 are launched in

Q3FY13

Yazmin still to be launched in the market. Company is still weighing the risks.

There is a liability claims of USD 750 million in this product

OC market in US is 5 billion in US

Tricor: Lupin MS - 35%, 25% Price erosion. Valiant MS 15%. Mylan also got theapproval but still to launch the product. Company dont expect any more competition

for next one year.

Diovan Company launch to happen only after 180 daysAsacol Lupin is AG. Moment Roxane will come, Lupin wil l also come. Expected in

Q1 2014

Renegal Company has exclusivity in certain strenghts

Domestic formulations grew at 14%

Company expects 18-20% growth in domestic market in FY13 and FY14 Company recasted Rs. 200mn sale in domestic market in Q3FY13, otherwise

growth was only 10%

Japan and Europe Japanese business grew by 43% in yen term and 48% in INR term Growth was on back of 2 new products launched last quarter and 7 launched in first

quarter.

Europe declined by 7% in the quarter on back strong growth of 36% in last quarter

Financial Highlights

Tax rate has gone up on back of dispatch of inventory from India to US subsidiarywhich has not been sold in the market. This can be in tune of USD 50 million

Tax rate for the quarter was 38% company guided for 28-29% in FY13 Forex gains and losses Net forex loss of Rs.350million in various line items

Rs230mn forex gain is in other operating income

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Lupin Result Update



Income Statement

Y/E Mar (Rsmn) FY11A FY12A FY13E FY14E

Net Sales 57,068 69,597 88,329 104,934

Growth (%) 20.4 22.0 26.9 18.8


Employee Cost 7,677 9,695 11,483 13,641

Other Exp 0 5,916 7,508 8,919

EBITDA 11,911 14,448 20,053 23,823

Growth (%) 22.4 21.3 38.8 18.8

EBITDA margin (%) 20.4 20.4 22.4 22.5

Depreciation 1,712 2,275 2,455 2,597

EBIT 10,199 12,172 17,598 21,226

EBIT margin (%) 17.5 17.2 19.7 20.0



PBT 9,963 11,970 17,928 21,759Tax 1,169 3,086 5,020 5,657


Adjusted PAT 8,794 8,885 12,908 16,102

Growth (%) 25.2 1.0 45.3 24.7

Net Margin (%) 15.1 12.5 14.4 15.2



E/O items 0 0 0 0

Reported PAT 8,625 8,686 12,650 15,780

PAT after MI 8,625 8,686 12,650 15,780

Growth (%) 22.8 0.7 45.6 24.7

Balance Sheet




Net worth 32,811 39,845 50,842 64,970Minority Interest 515 714 925 1,247

Secured Loans 3,348 2,848 2,348 2,348

Unsecured Loans 8,277 7,277 5,777 5,277

Loan Funds 11,624 10,124 8,124 7,624

Net deferred tax liability 1,411 1,411 1,458 1,458


Gross Block 29,643 34,143 39,143 45,143


Net block 20,568 23,103 25,648 29,051

Capital work in progress 5,312 5,312 5,312 5,312

Investment 32 676 676 676


Sundry debtors 12,558 18,931 24,026 29,382

Cash & bank balance 4,201 4,025 5,053 10,640

Loans & advances 0 0 0 0

Other current assets 6,208 6,612 7,596 10,493

Current lia & Prov 14,518 23,832 29,309 37,537


Provisions 2,718 4,344 4,577 5,008


Misc. exp 0 0 0 0

Total Assets 46,361 52,094 61,350 75,299

Cash Flow



Depreciation 1,712 2,275 2,455 2,597



Chg in working cap -2,425 -2,729 -5,637 -4,960

Tax paid 0 0 0 0


Capital expenditure -4,952 -4,810 -5,000 -6,000

Free Cash Flow 4,534 6,909 9,416 12,863

Other income 89 153 601 801Investments 233 -645 0 0

Investing Cashflow -4,630 -5,302 -4,399 -5,199


Loans Taken / (Repaid) 226 -1,500 -2,000 -500

Interest Paid -325 -355 -270 -267

Dividend paid (incl tax) 0 0 0 0


Others -693 698 -1,984 -737

Financing Cashflow -654 -1,157 -4,254 -1,504

Net chg in cash 4,201 5,259 5,763 12,159

Opening cash position 2,015 4,201 4,025 5,053

Closing cash position 4,201 4,025 5,053 10,640

Key Ratios

Y/E Mar FY11A FY12A FY13E FY14E

Profitability (%)

EBITDA Margin 20.4 20.4 22.4 22.5

Net Margin 15.1 12.5 14.4 15.2

ROCE 24.2 25.0 32.1 32.2

ROE 29.5 23.9 27.9 27.3

RoIC 29.3 30.9 38.1 39.0

Per Share Data (Rs)

EPS 19.3 21.2 28.4 35.4

CEPS 23.2 24.6 33.9 41.2

BVPS 73.5 89.3 113.9 145.6DPS 3.2 3.2 3.2 3.2

Valuations (x)

PER 31.3 28.4 21.3 17.1

P/CEPS 26.1 24.6 17.9 14.7

P/BV 8.2 6.8 5.3 4.2

EV / Sales 4.9 4.0 3.1 2.5

EV / EBITDA 23.3 19.1 13.6 11.2

Dividend Yield (%) 0.5 0.5 0.5 0.5

Gearing Ratio (x)

Net Debt/ Equity 0.2 0.2 0.1 0.0

Net Debt/EBIDTA 0.6 0.4 0.2 -0.1


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Emkay

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ultUpdate





FY11A 13,945 3,600 25.8 1,813 18.5 35.2 10.2 23.2 15.1 2.3

FY12A 14,079 4,665 33.1 2,059 21.0 13.6 10.7 20.4 11.5 2.1

FY13E 18,338 5,777 31.5 2,364 24.1 14.8 11.3 17.8 9.7 1.9

FY14E 25,386 7,683 30.3 3,517 35.9 48.8 15.1 12.0 7.1 1.7

Sobha Developers

Reiterate bullish outlook

January 31, 2013

Rating

Accumulate

Previous Reco

Accumulate

CMP

Rs429

Target Price

Rs484

EPS Chg FY13E/FY14E (%) -7.8 / 17

Target Price change (%) NA

Nifty 6,035

Sensex 19,895

Price Performance

(%) 1M 3M 6M 12M

Absolute 13 20 23 64

Rel. to Nifty 10 11 7 42

Source: Bloomberg


250

290

330

370

410

450


Rs

-10

0

10

20

30

40%

Sobha Developers (LHS) Rel to Nif ty (RHS) Source: Bloomberg

Stock Details

Sector Real EstateBloomberg SOBHA IB


Face Value(Rs) 10


52 Week H/L 447/ 250

Market Cap (Rs bn/USD mn) 42/ 791





Promoters 60.6 60.6 60.6

FII/NRI 31.8 32.8 33.0



Public 2.5 2.7 2.9

Source: Bloomberg

n SDL sells 0.9msf for Rs 5.3bn in Q3FY13. Mgmt. is quite

confident of attaining highest quarterly sales booking in Q4

and crossing the target of Rs 20bn for FY13

n Generates cash surplus of ~Rs 0.5bn in the Q3FY13 which is

utilized towards payments for new JD projects. Capex of Rs

230mn leads to increase in gross debt by Rs 244mn QoQ

n SDL to inch up its housing space scalability in FY14 - to

enter new markets viz. Kochi & Kozikhode, penetrate

Chennai and look for opportunities in Noida & Hyderabad

n Maintain Accumulate rating with TP of Rs 484. Mgmt.

reiterates our recent report on Bangalore housing markets,

wherein demand and pricing both look strong

Reported P&L marginally below estimates; cashflows improvessignificantly QoQ as expected

SDL reports topline of Rs 4.3bn, up 3.6% QoQ and 11% below estimates.. EBITDA

stood at Rs 1.37bn, up 6.9% QoQ and in-line with our estimates. EBITDA margin stood

at 32%, up 99bps QoQ. PAT at Rs 526mn is up 5% QoQ and 4% below estimates.

Company generated operating cashflows of Rs 893mn in the quarter and post payment

of Rs 473mn towards interest, the cash available for equity shareholders stood at Rs

419mn. The same for 9MFY13 stood at minus (-) Rs 185mn. Post capex of Rs 291mn

and land payments of Rs 1.7bn, the cash generation from operations is at minus (-) Rs

2.14bn in 9MFY13. This gap was financed by debt borrowings of Rs 2.5bn since FY12.

Gross debt for the quarter increases by Rs 244mn to Rs 14.5bn. Mgmt. guides capex

spend of Rs 200-250mn per quarter till FY14.

Launch pipeline for next 4 quarters is increased by 1.8msf mainly due to

new acquisitions done in new cities

At end of Q2FY13, SDL had launch pipeline of 6.04msf across 3 cities. The same is

increased to 8.8msf with addition of 2 new cities and penetration of Chennai. This

increase will inch up the potential to sell more considering new cities are been added.

With another 2 new cities viz. Noida & Hyderabad considered, this launch pipeline would

be further enhanced adding to the higher potential of sales bookings in FY14. In

Q4FY13, SDL expects to launch 2.3msf across 5 projects.

Mgmt. reiterates our bullish outlook on the Bangalore housing markets

(our recent report), wherein housing demand and pricing both look strong

SDL mgmt did state that demand for housing space looks considerably strong inBangalore despite of 5-7% hike in pricing seen in some of their projects. Also, the

demand from NRIs continues to be healthy with nearly 24% of sales booking contributed

by them in the quarter. In our recently released report we have attributed to Bangalore

housing market entering a spiral wherein higher demand leads to higher pricing leading

to higher speculation which is again leading to higher demand. We believe this spiral to

continue for 3-4 quarters and only deterrent to it is further fragmentation of the

Bangalore market leading to higher supply and INR appreciation leading to lower

demand.

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Sobha Developers Result Update


Although SDL would do well in Bangalore, its large project in Gurgaon can

face threat from DLFs launches

DLF is planning to launch a premium project in Gurgaon Phase V at a similar ticket size at

which SDL sells its villas in Gurgaon. Considering DLF is launching after long time and

most of the Gurgaon housing market is driven by investors, the launch can affect SDLs

sales booking at Sobha International City (SIC). Currently SIC contributes 20-25% of SDLs

sales booking in value terms and more so in collections. Hence, any depletion in salesbooking from SIC would affect SDLs cashflows significantly. We are not building in this

threat in our numbers as of now considering that different formats (villas v/s condominiums)

may lead to SDL unaffected.

Exhibit 1: Sales Booking Trend

0.0

0.2

0.4

0.6

0.8

1.0

Q111 Q211 Q311 Q411 Q112 Q212 Q312

0

1200

2400

3600

4800

6000

Sales Bookings Avg. Realisation (RHS) Source: Company, Emkay Research

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Exhibit 2: Quarterly Summary (Consolidated)

Rs mn Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%) YTD FY13 YTD FY12 YoY (%)

Revenue 3,032 5,230 4,332 4,148 4,298 41.8 3.6 12,778 9,154 39.6

Expenditure 2,084 3,247 3,134 2,863 2,924 40.3 2.1 8,921 6,628 34.6

as % of sales 68.7 62.1 72.3 69.0 68.0 100.0 100.0

Cost of Sales 1,380 2,427 2,239 1,987 2,086 6,312 4,414 43.0

as % of sales 45.5 46.4 51.7 47.9 48.5 70.8 66.6

Employee Cost 303 342 412 404 397 31.0 (1.7) 1,213 925 31.1

as % of sales 10.0 6.5 9.5 9.7 9.2 13.6 14.0

Other expenditure 401 478 483 472 441 10.0 (6.6) 1,396 1,289 8.3

as % of sales 13.2 9.1 11.1 11.4 10.3 15.6 19.4

EBITDA 948 1,983 1,198 1,285 1,374 44.9 6.9 3,857 2,526 52.7

Depreciation 106 117 140 141 153 44.3 8.5 434 271 60.1

EBIT 842 1,866 1,058 1,144 1,221 45.0 6.7 3,423 2,255 51.8

Other Income 21 13 16 14 15 (28.6) 7.1 45 54 (16.7)

Interest 286 406 377 443 439 53.5 (0.9) 1,259 728 72.9

PBT 577 1,473 697 715 797 38.1 11.5 2,209 1,581 39.7

Total Tax 176 497 247 214 271 732 517Adjusted PAT 401 976 450 501 526 31.2 5.0 1,477 1,064 38.8

(Profit)/loss from JV's/Ass/MI 0 0 0 0 0 0 15

APAT after MI 401 976 450 501 526 31.2 5.0 1,477 1,049 40.8

Extra ordinary items 0 0 0 0 0 0 0

Reported PAT 401 976 450 501 526 31.2 5.0 1,477 1,049 40.8

Reported EPS 4.1 10.0 4.6 5.1 5.4 15.1 10.7


EBIDTA 31.3 37.9 27.7 31.0 32.0 70 99 43.2 38.1 512

EBIT 27.8 35.7 24.4 27.6 28.4 64 83 38.4 34.0 435

EBT 19.0 28.2 16.1 17.2 18.5 (49) 131 24.8 23.9 91

PAT 13.2 18.7 10.4 12.1 12.2 (99) 16 16.6 16.1 50

Effective Tax rate 30.5 33.7 35.4 29.9 34.0 350 407 33 33 44

Operating Cashflows 2003 1320 730 544 1113

Land Monetisation Value 0 1360 957 64 0

Gross Debt 13364 12031 12307 14246 14490

Net Debt 12743 11443 11806 12922 13100

Sales Bookings (msf) 0.82 0.86 0.84 0.95 0.90

Sales Bookings (Rs mn) 4483 4644 4794 5275 5335

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Income Statement


Net Sales 13,945 14,079 18,338 25,386

Growth (%) 23.4 1.0 30.3 38.4

Expenditure 10,345 9,414 12,562 17,703Raw Materials 0 0 0 0

Employee Cost 1,035 1,268 1,584 1,743

Other Exp 9,310 8,146 10,977 15,961

EBITDA 3,600 4,665 5,777 7,683

Growth (%) 46.2 29.6 23.8 33.0

EBITDA margin (%) 25.8 33.1 31.5 30.3


EBIT 3,322 4,278 5,299 7,168

EBIT margin (%) 23.8 30.4 28.9 28.2


Interest expenses 860 1,165 1,644 1,716

PBT 2,514 3,177 3,715 5,452Tax 669 1,077 1,301 1,885


Adjusted PAT 1,845 2,100 2,414 3,567

Growth (%) 33.4 13.8 14.9 47.8

Net Margin (%) 13.2 14.9 13.2 14.1

(Profit)/loss from JVs/Ass/MI -33 -41 -50 -50


E/O items 0 0 0 0

Reported PAT 1,813 2,059 2,364 3,517

PAT after MI 1,813 2,059 2,364 3,517

Growth (%) 35.2 13.6 14.8 48.8

Balance Sheet





Secured Loans 12,332 12,338 14,548 13,498


Loan Funds 12,416 12,408 14,648 13,598

Net deferred tax liability -74 330 461 599


Gross Block 3,148 4,998 5,476 5,790


Net block 1,373 2,840 2,840 2,640

Capital work in progress 647 13 50 1,100

Investment 37 0 500 500


Sundry debtors 4,252 3,803 5,024 6,955

Cash & bank balance 288 690 904 1,252

Loans & advances 21,592 18,268 18,868 18,868


Current lia & Prov 7,699 9,282 8,526 10,516


Provisions 942 1,386 1,299 1,591


Misc. exp 0 0 0 0

Total Assets 31,174 33,091 37,302 39,383

Cash Flow




Interest Provided 860 1,165 1,644 1,716


Chg in working cap 253 -316 -3,328 -746

Tax paid -669 -1,077 -1,301 -1,885


Capital expenditure -236 -1,221 -515 -1,364

Free Cash Flow 2,949 2,052 632 3,687

Other income 51 65 60 0Investments -10 37 -500 0

Investing Cashflow -195 -1,119 -955 -1,364


Loans Taken / (Repaid) -2,325 -8 2,240 -1,050

Interest Paid -860 -1,165 -1,644 -1,716



Others 0 -10 0 0

Financing Cashflow -3,527 -1,757 23 -3,339

Net chg in cash -537 397 215 348

Opening cash position 826 288 690 904

Closing cash position 288 685 905 1,252

Key Ratios

Y/E Mar FY11A FY12A FY13E FY14E

Profitability (%)

EBITDA Margin 25.8 33.1 31.5 30.3

Net Margin 13.2 14.9 13.2 14.1

ROCE 10.7 13.5 15.2 18.7

ROE 10.2 10.7 11.3 15.1

RoIC 10.9 13.7 15.5 19.8

Per Share Data (Rs)

EPS 18.5 21.0 24.1 35.9

CEPS 21.3 25.0 29.0 41.1

BVPS 188.7 203.9 222.2 252.2DPS 3.0 5.0 5.0 5.0

Valuations (x)

PER 23.2 20.4 17.8 12.0

P/CEPS 20.1 17.2 14.8 10.4

P/BV 2.3 2.1 1.9 1.7

EV / Sales 3.9 3.8 3.0 2.1

EV / EBITDA 15.1 11.5 9.7 7.1

Dividend Yield (%) 0.7 1.2 1.2 1.2

Gearing Ratio (x)

Net Debt/ Equity 0.7 0.6 0.6 0.5

Net Debt/EBIDTA 3.4 2.5 2.4 1.6


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FY12A 63,956 10,240 16.0 11,967 10.1 142.3 26.0 11.8 12.2 3.1

FY13E 77,602 16,624 21.4 13,161 11.2 10.0 25.1 10.8 7.0 2.4

FY14E 81,943 15,978 19.5 12,909 10.9 -1.9 19.7 11.0 6.5 2.0

FY15E 91,689 17,427 19.0 14,273 12.1 10.6 24.3 9.9 5.2 3.1

Mahindra Satyam

Inline operating performance

January 31, 2013

Rating

Accumulate

Previous Reco

Accumulate

CMP

Rs120

Target Price

Rs125

EPS Chg FY13E/FY14E (%) 7/0

Target Price change (%) NA

Nifty 6,035

Sensex 19,895

Price Performance

(%) 1M 3M 6M 12M

Absolute 12 10 46 63

Rel. to Nifty 9 2 27 41

Source: Bloomberg


60

73

86

99

112

125


Rs

-20

-6

8

22

36

50%

Mahindra Satyam (LHS) Rel to Ni fty (RHS) Source: Bloomberg

Stock Details

Sector IT ServicesBloomberg SCS IB

Equity Capital (Rs mn) 2,354

Face Value(Rs) 2

No of shares o/s (mn) 1,177

52 Week H/L 125/ 65


Daily Avg Volume (No of sh) 3,767,703


Shareholding Pattern (%)Dec12 Sep12 Jun12

Promoters 42.6 42.6 42.6

FII/NRI 27.8 26.0 22.3



Public 18.7 19.8 23.0

Source: Bloomberg

n Inline operating performance with revenues at US$ 356 mn

(+0.5% QoQ) and a better margin performance (21.6%, flat

QoQ) aided by provision reversals(1.7% of revenues)

n Europe drives growth with a 9.6% sequential increase. Top

client metrics remain tardy with non 10 clients driving rev

performance after strong client mining through recent qtrs

n Management hopeful of pickup in revenue growth in FY14

aided by new logo wins and deal wins in Manufacturing,

Retail and Healthcare

n See pause to outperformance ahead with Dec12 qtr breaking

the trend of strong beat on operational performance through

FY12-H1FY13. Retain ACCUMULATE, TP Rs 125

Inline operational performance, profit beat driven by forex gainsMahindra Satyam reported revenues at US$ 356 mn (+0.5% QoQ), a tad lower than

expectations however EBITDA margins came in at 21.6% (up ~10 bps sequentially),

higher than Emkay est( we estimated a 70 bps QoQ decline) but were aided largely by

reversal of provisions of ~Rs 335 mn (1.7% of revenues). Profits (ex one off write-off of

costs related to Aberdeen settlement) came in at Rs 3.7 bn (+35% QoQ), significantly

ahead of Emkay estimates but was aided by forex gains of ~Rs 336 mn (V/s est of ~Rs

167 mn of losses). Net headcount addition remained muted with co adding ~169 people

during the quarter after relatively stronger additions through recent quarters. Growth was

largely led by Non top 10 clients (revenues grew by ~8.5% sequentially) with top clients

revenue performance relatively tardy after several quarters of decent client mining.

Amongst geographies, European revenues grew by ~9.5% QoQ with US revenues down

by 3.3% QoQ

Better FY14 ahead, Fortune 500 logo wins support confidence

Mahindra Satyam indicated that it sees better revenue growth in FY14 aided both by

decent logo wins (company indicated that it has won 2 Fortune 500 logos during the

current quarter) as well as deal wins in Manufacturing, Retail and Healthcare. While top

clients rev performance was tardy in the current qtr (a slight disappointment given

that cos rev growth through the past 4-6 qtrs has been led by top client mining),

management indicated that it was impacted adversely by seasonal weakness in a

couple of large Technology clients and expects improvement going forward.

Raise FY13E earnings higher by 7%, retain ACCUMULATE, TP Rs 125

We raise our FY13E EPS higher by 7% while leaving our FY14E EPS unchanged.

After several quarters of strong operational performance which drove earnings

upgrade across the street and a 60%+ upmove in the stock price in the past 12

months, we see near term pause to out performance ahead. We would be reviewing

our ratings/TP post TechMs results on Feb 62013. We continue to retain our

ACCUMULATE rating and TP of Rs 125, based on a share swap ratio of 8.5:1 and TP of

Rs 1,050 for Tech Mahindra.

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Mahindra Satyam Result Update


Exhibit 1: Quarterly Performance at a glance

Rs mn Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 QoQ (%) YoY % FYTD'13 FYTD'12 YoY %

Revenues(US$ mn) 320 330 325 332 342 354 356 0.5 9.4 1,052 975 7.9

Revenue 14,339 15,777 17,181 16,658 18,799 19,384 19,395 0.1 12.9 57,578 47,297 21.7

Operating Expenditure 12,206 13,360 14,400 13,750 14,720 15,210 15,210 0.0 5.6 45,140 39,966 12.9

Cost of revenues 10,033 10,502 11,449 11,140 12,160 12,310 12,130 (1.5) 5.9 36,600 31,984 14.4

as % of sales 70.0 66.6 66.6 66.9 64.7 63.5 62.5 63.6 67.6

SG&A expenses 2,173 2,858 2,951 2,610 2,560 2,900 3,080 6.2 4.4 8,540 7,982 7.0

as % of sales 15.2 18.1 17.2 15.7 13.6 15.0 15.9 14.8 16.9

EBITDA 2,133 2,417 2,781 2,908 4,079 4,174 4,185 0.3 50.5 12,438 7,331 69.7

Depreciation 380 396 385 415 494 428 361 1,283 1,162 10.4

EBIT 1,753 2,021 2,396 2,493 3,585 3,746 3,824 2.1 59.6 11,155 6,170 80.8

Other Income 937 947 1,486 701 1,308 (26) 1,078 2,360 3,370 (30.0)

PBT 2,690 2,968 3,881 3,195 4,893 3,720 4,902 31.8 26.3 13,515 9,539 41.7

Total Tax 426 578 790 (943) 1,326 925 1,123 3,374 1,794 88.1

Adjusted PAT 2,264 2,390 3,091 4,137 3,567 2,795 3,779 35.2 22.3 10,141 7,745 30.9

(Profit)/loss from JV's/Ass/MI 5.5 7.1 7.0 (104.0) 40.1 14.6 38.0 93 20

APAT after MI 2,259 2,383 3,084 4,241 3,527 2,780 3,741 34.6 21.3 10,048 7,726 30.1Extra ordinary items 0 0 0 -1094 0 0 -2940 -2,940 0

Reported PAT 2,259 2,383 3,084 3,147 3,527 2,780 801 -71.2 -74.0 7,107 7,726 (8.0)

Reported EPS 1.9 2.0 2.6 4.5 3.0 2.4 0.7 -71.2 -74.0 6.0 6.6 (7.9)


EBIDTA 14.9 15.3 16.2 17.5 21.7 21.5 21.6 5 539 21.6 15.5 610

EBIT 12.2 12.8 13.9 15.0 19.1 19.3 19.7 39 577 19.4 13.0 633

EBT 18.8 18.8 22.6 19.2 26.0 19.2 25.3 608 268 23.5 20.2 330

PAT 15.8 15.1 18.0 18.9 18.8 14.3 4.1 (1,021) (1,382) 17.5 16.3 112

Effective Tax rate 15.8 19.5 20.4 (29.5) 27.1 24.9 22.9 (197) 255 25.0 18.8 616.1


Exhibit 2: Changes in earnings estimates

(All fig in Rs mn FY13E FY14E FY15E

except EPS) Old New % Chg Old New % Chg New % growth

Revenues(US$ mn) 1,436 1,416 -1.4% 1,608 1,576 -2.0% 1,763 11.9%

Revenues 77,396 77,602 0.3% 83,630 81,943 -2.0% 91,689 11.9%

EBITDA 16,271 16,624 2.2% 16,253 15,978 -1.7% 17,427 9.1%

EBITDA margins, % 21.0 21.4 19.4 19.5 19.0

Net profits 12,337 13,161 6.7% 12,949 12,909 -0.3% 14,273 10.6%

EPS 10.5 11.2 6.7% 11.0 10.9 -0.3% 12.1 10.6%


Exhibit 3: Dec12 qtr margins came in flat QoQ aided by provision reversals

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

June'10 Sep'10 Dec'10 Mar'11 Jun'11 Sep'11 Dec'11 Mar'12 Jun'12 Sep'12 Dec'12

Satyam's EBITDA margins


Dec12 quarters show doesnt

continue the strong beat on

operational performance that

has aided earnings upgrades

and a 60%+ upmove in the past

12 months

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Mahindra Satyam Result Update



Income Statement


Net Sales 63,956 77,602 81,943 91,689

Growth (%) 24.3 21.3 5.6 11.9

Expenditure 53,716 60,979 65,965 74,262Raw Materials 0 0 0 0

Employee Cost 43,124 49,335 53,673 60,509

Other Exp 10,592 11,644 12,291 13,753

EBITDA 10,240 16,624 15,978 17,427

Growth (%) 125.0 62.3 -3.9 9.1

EBITDA margin (%) 16.0 21.4 19.5 19.0

Depreciation 1,577 1,697 1,818 2,025

EBIT 8,663 14,926 14,160 15,402

EBIT margin (%) 13.5 19.2 17.3 16.8

Other Income 4,071 2,850 3,265 3,842


PBT 12,734 17,776 17,425 19,244Tax 852 4,482 4,356 4,811


Adjusted PAT 11,882 13,294 13,069 14,433

Growth (%) 139.0 11.9 -1.7 10.4

Net Margin (%) 18.6 17.1 15.9 15.7

(Profit)/loss from JVs/Ass/MI 84 -133 -160 -160


E/O items 0 0 0 0

Reported PAT 11,967 13,161 12,909 14,273

PAT after MI 11,967 13,161 12,909 14,273

Growth (%) 142.3 10.0 -1.9 10.6

Balance Sheet


Equity share capital 2,354 2,354 2,354 2,354




Unsecured Loans 12,304 12,304 12,304 12,305

Loan Funds 12,538 12,538 12,538 12,539

Net deferred tax liability -1,681 -1,681 -1,681 -1,681


Gross Block 21,674 23,174 24,974 26,774


Net block 8,089 7,892 7,874 7,649

Capital work in progress 2,006 2,006 2,006 2,006

Investment 972 972 972 972

Current Assets 68,778 87,140 101,636 119,660Inventories 146 146 146 146

Sundry debtors 14,018 17,221 18,185 20,348

Cash & bank balance 28,519 36,435 49,441 63,166

Loans & advances 24,580 26,534 27,129 28,464

Other current assets 1,515 6,803 6,735 7,536

Current lia & Prov 27,063 32,954 34,798 38,937


Provisions 13,079 15,946 16,838 18,840


Misc. exp 0 0 0 0

Total Assets 52,782 65,055 77,690 91,351

Cash Flow



Depreciation 1,577 1,697 1,818 2,025



Chg in working cap -6 -4,555 354 -160

Tax paid -852 -4,482 -4,356 -4,811


Capital expenditure -1,037 -1,500 -1,800 -1,800

Free Cash Flow 50 6,086 10,176 10,656

Other income 4,071 2,850 3,265 3,842Investments 3,376 0 0 0

Investing Cashflow 6,410 1,350 1,465 2,042


Loans Taken / (Repaid) 14 0 0 1

Interest Paid 0 0 0 0

Dividend paid (incl tax) 0 0 0 0


Others -6,556 -1,021 -434 -774

Financing Cashflow -6,431 -1,021 -434 -773

Net chg in cash 1,067 7,916 13,006 13,725

Opening cash position 27,452 28,519 36,435 49,441

Closing cash position 28,519 36,435 49,441 63,166

Key Ratios


Profitability (%)

EBITDA Margin 16.0 21.4 19.5 19.0

Net Margin 18.6 17.1 15.9 15.7

ROCE 22.0 28.1 22.8 27.6

ROE 26.0 25.1 19.7 24.3

RoIC 40.3 63.6 55.6 61.0

Per Share Data (Rs)

EPS 10.1 11.2 10.9 12.1

CEPS 11.5 12.6 12.5 13.8

BVPS 38.8 49.9 60.9 38.8DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 11.8 10.8 11.0 9.9

P/CEPS 10.5 9.5 9.6 8.7

P/BV 3.1 2.4 2.0 3.1

EV / Sales 1.9 1.5 1.3 1.0

EV / EBITDA 12.2 7.0 6.5 5.2

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)

Net Debt/ Equity -0.4 -0.4 -0.5 -1.1

Net Debt/EBIDTA -1.7 -1.5 -2.4 -3.0


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Financial Snapshot (Standalone) (Rsmn)

Y/E Net Net EPS ABV RoA RoE PE P/ABV

Mar Income Profit (Rs) (Rs) (%) (%) (x) (x)

FY11A 53,929 14,231 29.9 145.0 1.0 18.7 5.7 1.1FY12A 64,613 18,668 37.3 171.1 1.1 19.6 4.4 1.0

FY13A 66,064 14,632 29.3 162.7 0.8 13.2 5.6 1.0

FY14E 76,264 17,465 34.9 190.7 0.8 14.2 4.7 0.9

Allahabad Bank

Additions to stressed assets continues to decline

January 31, 2013

Rating

Hold

Previous Reco

Hold

CMP

Rs164

Target Price

Rs170

EPS Chg FY13E/FY14E (%) -6/-20


Nifty 6,035

Sensex 19,895

Price Performance

(%) 1M 3M 6M 12M

Absolute -4 20 22 1

Rel. to Nifty -6 12 6 -13

Source: Bloomberg


100

125

150

175

200

225


Rs

-40

-28

-16

-4

8

20%

Allahabad Bank (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details

Sector Banking & Financial ServicesBloomberg ALBK IB

Equity Capital (Rs mn) 5,000

Face Value(Rs) 10


52 Week H/L 211/ 103


Daily Avg Volume (No of sh) 2,525,594




Promoters 55.2 55.2 55.2

FII/NRI 9.6 11.5 11.9



Public 10.9 11.2 10.4

Source: Bloomberg

n ALBKs Q3FY13 NII/PAT at Rs13.3bn/3.1bn in line with

estimates. Enthused by consecutive decline in addition to

stress assets Rs18bn vs. Rs37bn in Q2 and Rs54bn in Q1

n Loan growth jumps back to 19% yoy with 8.5% qoq growth.

ALBK confident of 18% growth for FY13 implying 9% qoq

growth in Q4FY13 even as we remain unsure of the same

n Slippages at Rs10bn (3.3% annualized), ALBK confident of

Rs7-8bn slippage in Q4FY13. CDR pipeline at Rs4.3bn only.

As with other PSU banks, recoveries remain strong

n Cutting our FY13/14E estimates by 6%/20% for wage revision

and higher NPA provisions. Retain HOLD rating with TP of

Rs170

Results inline; stable PCR at 61% levels provides comfort

Allahabad Bank (ALBK) Q3FY13 NII at Rs13.3bn grew +13% qoq (-4% yoy) as expected

and was on back of healthy 22bps qoq expansion in NIM (reported) to 3% and 9% qoq

growth in loan portfolio. Non-interest income at Rs3.4bn was up +13% qoq and offset

the steep rise in operating expense (+20% qoq driven by Rs400mn of wage provisions

for expected hikes), thereby resulting in moderate 7% qoq growth in operating profit to

Rs8.6bn. While GNPA at Rs35bn and NNPA at Rs25bn were +6% qoq each, we

continue to drive comfort from the fact that a) PCR (including tech-w/off) still

remains high at 61% b) addition to stress asset addition (ie fresh slippages +

restructuring) has eased to Rs17.8bn (1.5% of loans) vs Rs37.4bn in Q2FY13 and

Rs54bn in Q1FY13 and c) recovery / up-gradation stands at 65% of Op NPA.Fresh

slippages during the quarter stood at Rs10bn (3.3% of loans) and included one large

account of Rs1bn. Restructuring for the quarter was at Rs7.9bn (0.7% of loans) and waswitnessed in segments of steel (one account of Rs3.7bn) and textile (Rs1.1bn)

On the balance sheet front: Loan portfolio expanded 20% yoy / 9% qoq against 17.4%

yoy / 5.4% qoq growth in deposits. Resultant, LDR at 70.5% expanded 200bps qoq.

CASA ratio stood at 30.2% with growth in CASA deposits at 16% yoy / 5% qoq. The

share of high cost deposits stands reduced to sub-10% now.

Exhibit 1: Yield analysis

YoY QoQ% Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13

(bps) (bps)

Yield on advances* 11.9 11.6 11.9 11.2 11.2 -74 3

Yield on investments* 7.4 7.9 7.9 8.2 7.8 39 -41

Yield on assets* 9.4 9.5 9.8 9.3 9.3 -15 -7Cost of funds* 6.1 6.6 7.0 6.8 6.5 40 -28

NIM* 3.3 2.9 2.9 2.6 2.8 -55 21

Yield on advances # 12.2 12.0 12.4 11.5 11.4 -78 -10

Yield on assets # 10.5 10.5 10.8 10.2 10.1 -41 -9

Cost of Deposit # 6.8 7.3 7.8 7.6 7.4 59 -17

Cost of funds # 6.8 7.2 7.7 7.4 7.2 42 -18

NIM # 3.7 3.2 3.2 2.8 3.0 -71 22

Source: Company, Emkay Research Note:* Calculated on basis of average quarterly balances # Reported

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Allahabad Bank Result Update


Exhibit 2: Quarterly results

Rs mn Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%) YTD' 13 YTD' 12 YoY (%)

Net Interest Income 13,805 12,882 13,062 11,743 13,303 -3.6 13.3 38,107 38,743 -1.6

Other Income 3,484 3,551 3,096 3,021 3,407 -2.2 12.8 9,524 9,435 0.9

Fee Income 2,130 2,360 2,070 1,730 2,170 1.9 25.4 5,970 6,175 -3.3

Net Income 17,289 16,433 16,157 14,764 16,709 -3.4 13.2 47,631 48,178 -1.1

Total Operating Expenses 6,990 7,424 6,598 6,741 8,109 16.0 20.3 21,448 19,490 10.0

As % Of Net Income 40.4 45.2 40.8 45.7 48.5 45.0 40.5

Employee Expenses 4,898 4,950 4,356 4,418 5,635 15.0 27.5 14,410 13,395 7.6

As % Of Net Income 28.3 30.1 27.0 29.9 33.7 30.3 27.8

Other Expenses 2,092 2,474 2,242 2,323 2,474 18.3 6.5 7,039 6,095 15.5

As % Of Net Income 12.1 15.1 13.9 15.7 14.8 14.8 12.7

Operating Profit 10,300 9,009 9,559 8,023 8,601 -16.5 7.2 26,183 28,689 -8.7

As % Of Net Income 59.6 54.8 59.2 54.3 51.5 55.0 59.5

Provisions 4,212 4,550 3,132 4,645 4,324 2.7 -6.9 12,101 11,526 5.0

Prov for NPA 3,057 4,110 2,700 3,550 3,435 12.4 -3.2 9,685 7,728 25.3

PBT 6,087 4,459 6,428 3,378 4,277 -29.7 26.6 14,082 17,163 -17.9

Total Tax 483 447 1,284 1,036 1,168 141.8 12.7 3,488 2,497 39.7Adjusted PAT 5,604 4,012 5,143 2,342 3,109 -44.5 32.7 10,594 14,666 -27.8

Extra Ordinary Items 0 0 0 0 0 0 0

Reported PAT 5,604 4,012 5,143 2,342 3,109 -44.5 32.7 10,594 14,666 -27.8

Reported EPS 11.8 8.0 10.3 4.7 6.2 -47.2 32.7 21.2 30.8 -31.2


Key highlights:

Addition to stress asset has eased materially: Q3FY13 saw substantial reduction inaddition to stress asset at Rs17.8bn (1.5% of loans). This compares against Rs37.4bn

(3.4% of loans) in Q2FY13 and Rs54bn (4.9% of loans) in Q1FY13.

Even after adjusting for one-offs (Q2FY13 adjusted slippages at Rs10bn andQ1FY13 restructuring adjusted for SEB at Rs25.5bn), stress addition remains

lower.

Recovery / up-gradation for M9FY13 have improved to 65% of opening NPA.

PCR ratio (including tech-w/off) too remains higher at 61% (albeit declined from

78% in Q3FY12).

Restructuring during the quarter stood at Rs7.9bn (0.7% of loans) and was

broadly in segments of steel and textile. Slippages from restructured portfolio too

remain comfortable at 12% of opening restructured loans.

Guides to further lower additions in Q4FY13: ALBK has guided that the slippagesduring Q4FY13 may remain Rs7-8bn from larger accounts. However, we are building

Rs12bn of slippages for Q4FY13 to take into account the low value accounts. The total

pipeline of CDR cases is Rs4.3bn as of now.Thus, total stressed assets additions

under our numbers would still remain at Rs16bn, in line with Q3FY13. ALBK has

guided to GNPAs at 2.8% (vs. 2.9%) and NNPAs at 1.9% (vs. 2.1%) for FY13E

even as it looks to sell Rs5.4bn assets to ARCs.

Loan growth remained broad based: Q3FY13 loan growth at 20% yoy was broadbased across all segments agri (+27% yoy / 1% qoq), large corporate (+20% yoy /

13% qoq), SME (+17% yoy / 5% qoq) and retail (+14% yoy / 4% qoq). Amongst retail,

growth was witnessed in pockets of CV (+18% yoy), trade loans (+49% yoy).

Margin expansion led by declining share of bulk deposits: Margins (reported)at3% expanded 22bps qoq and were on back of healthy 16% yoy growth in CASA

deposits, decline in share of high cost bulk deposits (CDs account for 9% of deposits

vs 13% in Q3FY12) and relatively higher 15% yoy / 5% qoq growth in high yieldingsegments of retail and MSME.

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Non-interest income surprises on upside and offsets higher Opex: Non-interestincome at Rs3.4bn (+13% qoq) was marginally ahead of our estimates and aided by

healthy 25% qoq growth in fee income and 13% qoq growth in trading income.

However, with 16% yoy (20% qoq) growth in operating expenses, operating profit at

Rs8.6bn grew by mere 7% qoq.

Cost/income ratio had inched to multi-quarter high of 49% and was primarily due

to Rs400mn of provisions of expected wage hike (implies 13-14% expected hike)and Rs750mn of extra AS-15 due to change in wage increase assumptions.

Capital adequacy comfortable; likely to get capital from govt in Q1FY14: ALBKstier I CAR (excluding M9FY13 profits) stood at comfortable 8.8%. ALBK has guided

that the central government has agreed to sanction capital of Rs15bn for ALBK in

Q1FY14. However, we havent built that in our numbers.

Valuations and view

Allahabad Bank Q3FY13 results provide comfort in terms of a) limited addition to stress

addition (1.5% of loans), b) Recovery / up-grades at 65% of opening NPA YTD and c)

improving operating matrix in form of 22bps qoq rise in margins to 3%, CASA at 30% and

declining share of bulk deposits. However, we have still cut our earning estimates for

FY13E/14E to take into account wage provisions for expected hike and slightly higher NPAprovisions. While PCR at 61% was stable qoq, problem loans at 13% of loans will warrant

higher provisioning. We are factoring 100bps of credit cost over FY12-14E. We retain

HOLD rating on the stock with TP of Rs170, valuing the stock at 0.9x FY14E ABV vs.

average of FY13/14E earlier.

Exhibit 3: Earnings revision

Rs mn FY13E FY14E

New Old % chg New Old % chg

NII 52,876 52,847 0.1 61,868 63,206 -2.1

PAT 14,632 15,640 -6.4 17,465 21,926 -20.3

EPS (Rs) 29 31 -6.4 35 44 -20.3

ABV (Rs) 163 167 -2.5 191 196 -2.9

Source: Company

Exhibit 4: Loan mix

Rs bn Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%)

Retail 144 151 153 157 164 14.0 4.3

Agriculture 134 166 162 168 170 26.8 1.1

SME 161 184 182 179 188 16.7 5.2

Others 566 610 608 605 681 20.4 12.6

Total 1,004 1,111 1,105 1,108 1,203 19.7 8.5


Exhibit 5: Deposit profileRs bn Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%)

Current Deposits 76 95 79 88 90 19.1 2.0

Savings Deposits 369 391 386 402 425 15.2 5.7

CASA 445 487 465 491 515 15.8 5.0

Term deposits 1,008 1,109 1,104 1,129 1,191 18.2 5.5

Total Deposits 1,453 1,596 1,569 1,620 1,706 17.4 5.4

CASA (%) 30.6 30.5 29.6 30.3 30.2 -42 -9


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Exhibit 6: Other income


Fee/Commission income 2,130 2,360 2,070 1,730 2,170 1.9 25.4 5,970 6,175 -3.3

Trading gains/(losses) 210 590 550 470 530 152.4 12.8 1,550 541 186.3

Forex gains/(losses) 300 410 320 320 0 -100.0 -100.0 640 890 -28.1

Other non int income 844 191 156 501 707 -16.3 41.0 1,364 1,829 -25.4

Total 3,484 3,551 3,096 3,021 3,407 -2.2 12.8 9,524 9,435 0.9


Exhibit 7: Asset quality

Rs mn Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 YoY (%) QoQ (%)

Gross NPA 18,870 20,590 21,622 33,114 35,316 87.2 6.7

Net NPA 7,960 10,917 11,910 23,306 24,775 211.3 6.3

Gross NPA (%) 1.9 1.8 2.0 3.0 2.9

Net NPA (%) 0.8 1.0 1.1 2.1 2.1

Net NPLs/Net worth (%) 8.0 11.3 11.7 20.7 21.4

Provision cover (%) 57.8 47.0 44.9 29.6 29.8

Provision cover (incl tech w/off) 78.0 74.0 73.6 60.8 61.0


Exhibit 8: Provision breakdown


On NPL 3,057 4,110 2,700 3,550 3,435 12.4 -3.2 9,685 7,728 25.3

As % of advances 0.30 0.37 0.24 0.32 0.29 0.8 0.8

On Standard Assets 272 710 622 260 1,325 386.6 409.7 2,207 734 200.6

Investment Depreciation 633 -380 -960 -390 -723 NA 85.3 -2,072 2,586 -180.1

Others 251 110 769 1,225 287 14.4 -76.6 2,281 478 377.3

Total 4,212 4,550 3,132 4,645 4,324 2.7 -6.9 12,101 11,526 5.0


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Key Financials

Income Statement

Y/E Mar (Rsmn) FY11A FY12A FY13A FY14E

Net interest income 40,225 51,627 52,876 61,868

Other income 13,704 12,987 13,188 14,396

Net income 53,929 64,613 66,064 76,264Operating expenses 23,383 26,914 29,552 36,195

Pre provision profit 30,546 37,699 36,512 40,069

PPP excl treasury 0 0 0 0

Provisions 11,239 16,074 17,003 14,758

Profit before tax 19,307 21,626 19,509 25,312

Tax 5,076 2,958 4,877 7,847

Tax rate 26.3 13.7 25.0 31.0

Profit after tax 14,231 18,668 14,632 17,465

Balance Sheet

Y/E Mar (Rsmn) FY11A FY12A FY13A FY14E

Liabilities

Equity 4,762 5,000 5,000 5,000

Reserves 80,312 100,066 111,480 125,143Net worth 85,074 105,066 116,480 130,143

Deposits 1,318,872 1,595,931 1,737,593 2,016,442

Borrowing & Others 108,965 128,579 150,677 173,866

Total liabilities 1,512,911 1,829,576 2,004,750 2,320,451

Assets

Cash and bank 110,274 140,252 155,714 180,696

Investme

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