Best performing stock to buy today - Jyothy Lab and Union bank

During quarter (3QFY14) Andhra Bank’s stock performance was ahead of fundamental in our view as there are multiple headwinds associated

with bank like earnings quality, impairment of asset, deposits cost etc. Asset quality of bank remained high at 5% and expected to remain at

elevated level along with higher restructure asset. According to bank’s management, restructure and non performing asset would consists 18%

of total asset in FY14 means 82% of assets has to service 100% of liability which itself challenging especially when bank with average earnings,

high cost of fund and downward trajectory of provision coverage ratio. ...................................... ( Page : 14-16)

IT Industry; from 2013 to 2014:"a year of innovation and transformation" 1st Jan 2014

ORIENTAL BANK "Neutral"

Year 2014 promises to be bigger and stronger than the last two years, which were marked by bloodbath in global markets due to Euro-zone

crisis and falling consumer confidence in the US. Demand is set to pick up in sectors like BFSI, healthcare, retail and transportation globally in the

year ahead. FY 15E is going to be better that FY14E, which was better than FY13. It will be good for us as well as the

industry............................................ ( Page : 17-18)

Emami Ltd : "The niche advantage" "BUY" 3rd Jan 2014

Considering Emami’s focus on increasing rural penetration, favorable monsoon, continuous strengthening of its brand equity and new product

funnel strongly in next 2- 3 years, we are positive on the stock. We recommend “Buy” on the stock with a target price of Rs 635. At a CMP of Rs

481 , the stock is trading at P/BV of 10.3x and 7.8x on FY14E and FY15E, respectively. .................... ( Page : 12-13)

ANDHRABANK: "REDUCE" 2nd Jan 2014

Net interest margin of the bank is likely to expand on the back of RBI’s decision to leave policy rate (repo) unchanged and softening bond yield

to 8.75%. This would result of reducing cost of fund and fair amount of portfolio gain. Bank borrowed higher amount of repo than MSF during

the quarter. Moreover bank is getting deposits from FCNR which would give margin of one percent plus to the bank. We value bank at

Rs.163/share which would be 0.5 times of one year forward book and 5.4 times of one year forward earning .................................. ( Page : 5-7)

6th Jan, 2014

Edition : 177

IEA-Equity

Strategy

6th Jan 2013

We have now neutral rating on the stock led by trading closer to our target price of Rs.221. At this price stock would trade at 0.5 times of one

year forward book and 6.5 times of earning. In the absence of comfort earning and non visibility of ROE improvement, make us compel to value

bank in the range of 0.4-0.5 times forward book. Impairment of asset and high operating leverage would remain high according to the

management. On both front we would be getting more clarity after the quarterly result. ................... ( Page : 2-4)

UNION BANK : "BUY" 6th Jan 2013

The automobiles companies come up with December 2013 sales volumes with no big surprises. The industry followed the same declining trend

as in November 2013 with Scooter and Tractors sales showing some upward traction. Indian automobile OEMs continue to be negatively

impacted by the overall economic slowdown, firm interest rates, inflationary headwinds and high fuel prices .......................................... ( Page :

11)

Jyothy Lab: "Efforts for stability" "BUY" 6th Jan 2013

Recent management commentary reveals that the company is planning for inorganic growth with Rs 250 Cr of bank balance (post repayment of

its debt) and especially looking at regionally strong brands. We expect that company’s new management and new strategy of product reach

would energize its growth story in near future. Hence, the management has maintained its guidance of achieving around 22% - 25% revenue

growth and OPM of 14% - 15% for FY14E. We maintain "BUY" view on the stock with a target price of Rs 260, at a CMP of Rs195, stock trades at

3.6x FY15E P/BV ............................................ ( Page : 8-10)

AUTO SALES DASHBOARD : DECEMBER 2013:Another Month of Tepid Performance 6th Jan 2013

Narnolia Securities Ltd,

India Equity Analytics

216.5

221

-

2

-

1M 1yr YTD

Absolute 15.2 -36.8 -53.8

Rel.to Nifty 14.9 -42.2 -59.2

Current 1QFY14 4QFY1

3Promoters 58.0 58.0 58.0

FII 10.0 10.1 9.6

DII 24.0 24.6 25.2

Others 8.1 7.3 7.2

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 4178 4216 4701 5719 6710

Total Income 5138 5456 6356 7419 8410

PPP 3245 3141 3691 2968 3364

Net Profit 1503 1142 1328 1032 1165

EPS 51.5 39.1 45.5 35.4 39.9

2

Change from Previous

ORIENT BANK Vs Nifty

Share Holding Pattern-%

1.98 lac

Nifty 6211

(Source: Company/Eastwind)

Stock Performance

52wk Range H/L

BSE Code 500315

NSE Symbol

ORIENTAL BANK

ORIENTBANK

Average Daily Volume

6329

Company Update

365/121

Mkt Capital (Rs Cr)

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

We have now neutral rating on Orient Bank largely due to trading closer to our

target price Rs.221. At this price stock would trade at 0.5 times of one year

forward book and 6.5 times of forward earning. We haven’t revised the

multiple on account of non visibility of ROE improvement in near to medium

term. Asset quality and operating leverage is likely to remain at elevated level

in FY14. Provision coverage ratio at the end of 2Q was 30% implying very little

cushion to its future earnings. Balance sheet size is likely to grow at below of

industry average. Despite of comfortable Tier-1, capital infusion of Rs.150 cr

would be book value dilutive. Inability to increase CASA and expected higher

operating leverage in 2HFY14 restrict valuation multiple to move in the range

of 0.4 to 0.5 times of one year forward book in our view.

Asset quality pressure likely to persist but guided better recovery in

agriculture portfolio

Bank management is caution about impairment of asset and taken tight

measurement in lending norm especially in large corporate. Recently large ticket size

fresh slippage emerges from large corporate. Bank management has taken caution

outlook towards the corporate loan and tighten sanction and disbursement norm.

As the result corporate loan grew by 7% YoY in 2QFY14. We observe that corporate

loan constituted about 70% of total credit and rest came from retail loan. With lower

growth in corporate segment, overall credit growth is likely to be muted in full year

and would be below of industry average.

During the last quarter Orient Bank reported flesh slippage at 3.2% (annualized

basis) and asset impairment of 11.1% which would be likely to be flat in full year

according to management. However management expects better recovery in

agriculture portfolio in 2HFY14 led by better harvest. At the end of September bank

has total restructure portfolio of Rs.9421 cr in which most came from infrastructure

segment (about 49%). Power sector contributed 18% of total infrastructure standard

restructure. But as per management most of power sector exposures are from

government sector where chances of fresh slippage are very low. In line with

management guidance we model 3.3% of GNPA for FY14 and 3.4% in FY15E

keeping view of better recovery and controlled fresh slippage.

Balance sheet size likely to grow below of Industry average

Market Data

Upside

NEUTRAL

CMP

Target Price

Previous Target Price

"NEUTRAL"6th Jan 2014


3

Source:Eastwind/Company

We note that bank’s CASA ratio stick to 24.5% from FY10 to 2QFY14 which undoubtedly

escalate cost of deposits from 5.8% in FY10 to present of 7.8%. We donot expect

interest rate would be come down in surging inflation imperil. Inability to increase CASA

and rising interest rate would keep NIM under pressure. However management guided

NIM at 2.85 -2.87% in FY14. Lower visibility of comfort earnings and book value dilution

on account of capital infusion, we expect ROE would be 7-10% in near term which will

attract valuation multiple of 0.4 to 0.5 times book.


Capital infusion of Rs.150 cr despite of 8.9% of Tier-1 capital

Operating leverage would be remain at high led higher retirement expenses

Operating expenses to total asset of the bank is much higher than its peers group largely

due to higher expenses towards retirement. Cost-Income (CI) ratio of the bank remained

high at 60% as against industry average of 45%. Bank is likely to provide higher

employee provision in 2HFY14 as indicated by management. We factor CI ratio of 60%

in full year but we understand that ratio may go higher than anticipated. We will get more

clarity after the third quarter result and post conference call.

According to basel-111 norm, Tier-1 capital was 8.9% which was comfortable for required

business growth in our view but recent capital infusion of Rs.150 diluted our estimated

ROE by 10 bps. Bank may use the additional fund in credit growth without adequate

support of deposits.

Low cost deposits stick to 24.5% from last few quarters; exert pressure in

expanding NIM and ROE

Valuation Band

ORIENTAL BANK


4

ORIENTAL BANK

Source: Company/Eastwind


Financials & Assuption


P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 8954 12075 13758 16609 19101

Income on investments 2774 3671 3854 4865 5457

Interest on balances with Reserve Bank of India 335 34 31 78 78

Others 25 35 61 14 14

Total Interest Income 12088 15815 17705 21568 24651

Others Income 960 1240 1655 1700 1700

Total Income 13048 17055 19359 23267 26351

Interest on deposits 7474 11213 12553 15254 17251

Interest on RBI/Inter bank borrowings 23 38 111 149 172

Others 413 348 340 446 517

Interest Expended 7910 11599 13004 15849 17941

NII 4178 4216 4701 5719 6710

NII Growth(%) 43.7 0.9 11.5 21.7 17.3

Other Income 960 1240 1655 1700 1700

Total Income 5138 5456 6356 7419 8410

Employee 1048 1357 1576 2626 2977

Other Expenses 844 959 1089 1825 2069

Operating Expenses 1892 2315 2665 4451 5046

PPP( Rs Cr) 3245 3141 3691 2968 3364

Provisions 1742 1999 2363 1678 1907

Net Profit 1503 1142 1328 1032 1165

Net Profit Growth(%) 32.4 -24.0 16.3 -22.3 12.9

Key Balance sheet dataDeposits 139024 155965 175898 196963 220598

Deposits Growth(%) 15.6 12.2 12.8 12.0 12.0

Borrowings 5639 5259 7679 8498 9854

Borrowings Growth(%) 15.4 -6.7 46.0 10.7 16.0

Loan 95908 111978 128955 148298 170543

Loan Growth(%) 14.9 16.8 15.2 15.0 15.0

Investments 42075 52101 58555 65747 73745

Investments Growth(%) 17.6 23.8 12.4 12.3 12.2

Eastwind CalculationYield on Advances 9.3 10.8 10.7 11.2 11.2

Yield on Investments 6.6 7.0 6.6 7.4 7.4

Yield on Funds 7.8 9.2 9.0 10.1 10.1

Cost of deposits 5.4 7.2 7.1 7.7 7.8

Cost of Borrowings 7.7 7.3 5.9 5.9 7.0

Cost of fund 5.5 7.2 7.1 7.7 7.8

ValuationBook Value 380 409 403 435 464

P/BV 1.0 0.6 0.6 0.4 0.4

P/E 7.5 6.4 5.5 5.1 4.5

128.9

163

26.5

-

-

1M 1yr YTD

Absolute 6.3 -53.8 -53.8

Rel.to Nifty 6.0 -59.2 -59.2


3Promoters 57.9 57.9 57.9

FII 10.2 11.7 10.6

DII 17.8 17.7 18.0

Others 14.2 12.8 13.5

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 6216 6793 7543 7654 8602

Total Income 8255 9241 10095 10389 11337

PPP 4305 5254 5583 5298 5782

Net Profit 2082 1787 2158 1851 1967

EPS 39.7 29.9 36.2 31.0 33.0

5

Target Price

Union Bank is trading at 0.4 times of one year forward book and 4.2 times of

one year forward earning which we believe attractive for entry. We are looking

margin expansion on the back of RBI’s decision not hiking the policy rate

(repo rate) and bond yield settle at 8.75% which was much lower as compare

to April-June quarter. Bank borrowed more money on the repo and less on

MSF and bond yield softened to 8.75% which would result on fair amount of

portfolio gain. Moreover bank has taken more money through FCNR (Foreign

currency Non-Resident) which is less costlier than deposits and would help to

reduce the cost of fund and hence margin accretive. We value bank at

Rs.163/share which would be 0.5 times of one year forward book and 5 times

of one year forward earning.

Stable asset quality on sequentially but restructure pipeline still high

At the end of 2QFY14, bank has impairment assets (GNPA+ restructure) at 8.7% of

total advance which is lower as compare to its peers. Fresh addition to restructure

loans were at 2.8% of loans at Rs.1534 cr higher from 2.2% of loans at Rs.1068 cr in

1QFY14. Management guided another Rs.3000 cr of loans are in pipeline led mostly

from SEB. Fresh slippage reported by bank was stable at 3.1% as against 3% in first

quarter. Out of total fresh slippage, 50% came from 4 corporate accounts (Power,

manufacture, Iron & Steel and services). Bank made lower provisions as compare to

growth in GNPA as the result provision coverage ratio declined by 320 bps to 42.1%

from 45.3% on sequential basis.

Margin declined by 10 bps in 2QFY14 but expect to expand in 2HFY14


3231


Market Data

UNION BANK

Company Update BUY

CMP

Upside

281.6/97.1

BSE Code 532477

NSE Symbol UNIONBANK

52wk Range H/L


UNION Bank Vs Nifty


6.87LAC

Nifty 6211

Margin declined by 10 bps to 2.54% largely due to increase of cost of fund. Yield on

advance was stable at 10.6% QoQ despite to tight liquidity environment whereas

cost of fund increased by 10 bps QoQ. With the recent RBI decision not to hike repo

rate along with higher FCNR deposits, bank’s margin would be expanded in 2HFY14.

Union bank has borrowed fewer amounts for repo than MSF and during quarter bond

yield settle at 8.75% which would result on fair amount of portfolio gain and reduce

the cost of fund.

Mkt Capital (Rs Cr)



Stock Performance

"BUY"6th Jan, 2014


6

Source:Eastwind/Company

UNION BANK


Comfortable earnings and ROE improvement would be possible

Stable yield on loan sequentially indicated that bank is able to deliver comfort earning on

the back of shifting low yield mix loans to borrowing other market instrument. Although

bank has stable CASA ratio but would be getting benefit from FCNR deposits and

unchanged repo rate along with MSF. So cost of fund would be lesser as compare to

previous quarter in our view. This would help bank to expand margin and ROE

improvement. Balance sheet is expected to grow at 16-17% in FY14 as per management.

View & Valuation

Union Bank is trading at 0.4 times of one year forward book and 4.2 times of one year

forward earning which we believe attractive entry point. We are looking at margin

expansion on the back of RBI’s decision not hiking the policy rate (repo rate) and bond

yield settle at 8.75% which was much lower as compare to April-June quarter. Bank

borrowed more money on the repo and less on MSF and bond yield softened on 8.75%

which would result on fair amount of portfolio gain. Moreover bank has taken more

money through FCNR (Foreign currency Non-Resident) which is less costlier than

deposits and would help to reduce the cost of fund and hence margin accretive. We

value bank at Rs.163/share which would be 0.5 times of one year forward book and 5

times of one year forward earning.

Valuation Band


7

UNION BANK

Source: Company/Eastwind



P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 12031 16027 19140 21539 24769

Income on investments 4003 4570 5671 6797 7884

Interest on balances with Reserve Bank of India 161 331 199 205 205

Others 258 101 115 177 177

Total Interest Income 16453 21028 25125 28717 33035

Others Income 2039 2448 2552 2735 2735

Total Income 18491 23477 27677 31452 35770

Interest on deposits 9538 13406 16551 19872 23052

Interest on RBI/Inter bank borrowings 113 141 274 1191 1381

Others 585 689 756 0 0

Interest Expended 10236 14235 17582 21063 24433

NII 6216 6793 7543 7654 8602

NII Growth(%) 48.3 9.3 11.0 1.5 12.4

Other Income 2039 2448 2552 2735 2735

Total Income 8255 9241 10095 10389 11337

Employee 2600 2479 2755 3105 3389

Other Expenses 1350 1508 1757 1985 2166


PPP( Rs Cr) 4305 5254 5583 5298 5782

Provisions 2223 3467 3425 3447 3815

Net Profit 2082 1787 2158 1851 1967

0.3 -14.2 20.7 -14.2 6.2

Key Balance sheet dataDeposits 202461 222869 263762 305963 354918

Deposits Growth(%) 19.1 10.1 18.3 16.0 16.0

Borrowings 13316 17909 23797 27694 32124

Borrowings Growth(%) 44.5 34.5 32.9 16.4 16.0

Loan 150986 177882 208102 239318 275215

Loan Growth(%) 26.5 17.8 17.0 15.0 15.0

Investments 58399 62364 80830 97094 112629

Investments Growth(%) 7.3 6.8 29.6 20.1 16.0

Eastwind CalculationYield on Advances 8.0 9.0 9.2 9.0 9.0

Yield on Investments 6.9 7.3 7.0 7.0 7.0

Yield on Funds 7.2 8.3 8.3 8.5 8.5

Cost of deposits 4.7 6.0 6.3 6.5 6.5

Cost of Borrowings 5.2 4.6 4.3 4.3 4.3

Cost of fund 4.7 5.9 6.1 6.3 6.3

ValuationBook Value 243 245 290 313 337

P/BV 1.4 1.0 0.7 0.4 0.4

P/E 8.7 7.8 5.8 4.2 3.9

Jyothy Lab

195

260

-

33%

-

1M 1yr YTD

Absolute 4.4 16.0 3.2

Rel. to Nift 4.5 12.6 3.1


Promoters 63.7 63.7 65.6

FII 16.0 17.0 16.5

DII 9.8 9.1 9.6

Others 10.5 10.2 8.4

Financials Rs, Cr

2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%

Revenue 306.1 319.2 -4.1% 230.14 33.0%

EBITDA 42.7 48.6 -12% 21.4 100%

PAT 20.9 28.7 -27% 1.4 1393%

EBITDA Margin 13.9% 15.2% (130bps) 9.3% 460bps

PAT Margin 6.83% 8.99% (230bps) 0.61% 620bps

8


1 yr Forward P/B


51716

Nifty 6211



Stock Performance

52wk Range H/L

For 2QFY14, Jyothy Lab witnessed better numbers with 22% sales growth (standalone)

led by 25% volume growth and 8% price/mix led growth. Apart from detergents

business which grew slower versus other categories due to intense price/promotion

war between top-2 players, all other power brands continue to post strong growth

which has grown by 36%. PAT growth was over the head to Rs 21cr from Rs

1.4cr(2QFY13).

View and Valuation: The Company’s products are available through 2.9 mn outlets in

India and have direct reach of 1 mn outlets. Though the company expects the sub-

stockist will increase by 20% from the current 2000 to 2400 by the end of FY14E. We

believe the distribution restructuring would lead to generate sales and company’s

presence in highly demanding categories would help to manage high margins and

volume growth simultaneously. We maintain "BUY" view on the stock with a target

price of Rs 260, at a CMP of Rs195, stock trades at 3.6x FY15E P/BV.

Going forward, the company will focus on brand building with extension of current

brands and continue to adapt to the continuous changes of consumers. Management

is confident that these efforts will further strengthen brands and establish better

consumer connect.

Segments/ Brandwise Performance: In its bread and butter business detergent & soap

segment, it has reported a 35% yoy growth led by a strong 77% growth in the Ujala

whitener revenues, a 24% growth in dishwash portfolio and 18% - 20% growth in

Henko. Home care revenues was up 37%, driven by strong growth in Maxo as well as

the other smaller brands in this segment. Maxo revenues grew 33% on YoY basis.

"Efforts for stability"

CMP

Upside

Company update BUY

Target Price

Recent management commentary reveals that the company is planning for inorganic

growth with Rs 250 Cr of bank balance (post repayment of its debt) and especially

looking at regionally strong brands. We expect that company’s new management and

new strategy of product reach would energize its growth story in near future. Hence,

the management has maintained its guidance of achieving around 22% - 25% revenue

growth and OPM of 14% - 15% for FY14.

Last month, Jyothy Lab raised around Rs 262.5 Cr by issuing shares to Promoters

group (Sahyadri Agencies) on preferential basis and Rs400cr of Negotiable Certificate

of Deposits (NCD) coupon payable after 3 years. Now inflow of Rs 662 would be

utilized to pay its outstanding debt of Rs 548cr as on 30th Sept 2013.

Healthy margin rampup: The EBITDA Margin expanded by 466 bps to 13.9%. In an

inflationary environment there was an impact of 2% of higher freight charges on the

OPM which would have been absent in a normal business environment.


3522


Market Data

211/140

BSE Code 532926

NSE Symbol JYOTHYLAB

Mkt Capital (Rs Cr)

"BUY"6th Jan' 13


9

Jyothy Lab

►The company's products are available through 2.9 mn outlets in India and have direct

reach of 1 mn outlets. Now, company does not expects to increase from the current level,

it expects the sub-stockist will increase by 20% from the current 2000 to 2400 by the end

of FY14.

Take away from management guidance:►The management is confident of achieving its target of 22% - 25% revenue growth and

OPM of 14% - 15% for FY14E.

►The mgmt said that its dishwash brand Pril has seen its market-share taken away by

Dettol's newly launch dishwash product. The company is going to double its ad-spend on

Pril in FY14.

► The management is confident of maintaining the strong growth rate in Ujala fabric

whitener.


Financials

(Source: Company/Eastwind)Narnolia Securities Ltd,

Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E

Sales 596.32 626.39 912.99 1105.96 1349.27 1646.11

Raw Materials Cost 317.19 320.27 502.99 584.35 688.13 855.98

Employee Cost 75.38 81.31 113.67 130.48 148.42 172.84

Advertisement and Publicity 26.62 33.99 41.79 95.54 134.93 148.15

Other expenses 85.31 111.52 170.46 165.92 175.41 230.46

Total expenses 504.5 547.09 828.91 976.29 1146.88 1407.42

EBITDA 91.82 79.3 84.08 129.67 202.39 238.69

Depreciation 12.36 13.03 24.65 22.43 26.10 31.84

Other Income 17.8 16.91 22.73 5.202 53.97 65.84

EBIT 79.46 66.27 59.43 107.24 176.29 206.84

Interest Cost 1.7 1.99 23.83 68.22 63.25 49.25

Profit (+)/Loss (-) Before Taxes 95.56 81.19 58.33 44.222 167.01 223.44

Provision for Taxes 21.48 15.43 19.94 -14.87 31.73 42.45

Net Profit (+)/Loss (-) 74.08 65.76 38.39 59.092 135.28 180.99

Growth-% (YoY)

Sales 65.3% 5.0% 45.8% 21.1% 22.0% 22.0%

EBITDA 88.3% -13.6% 6.0% 54.2% 56.1% 17.9%

PAT 93.0% -11.2% -41.6% 53.9% 128.9% 33.8%

Expenses on Sales-%

RM Cost 53.2% 51.1% 55.1% 52.8% 51.0% 52.0%

Employee Cost 12.6% 13.0% 12.5% 11.8% 11.0% 10.5%

Ad spend 4.5% 5.4% 4.6% 8.6% 10.0% 9.0%

Other expenses 14.3% 17.8% 18.7% 15.0% 13.0% 14.0%

Tax rate 22.5% 19.0% 34.2% -33.6% 19.0% 19.0%

Margin-%

EBITDA 15.4% 12.7% 9.2% 11.7% 15.0% 14.5%

EBIT 13.3% 10.6% 6.5% 9.7% 13.1% 12.6%

PAT 12.4% 10.5% 4.2% 5.3% 10.0% 11.0%

Valuation:

CMP 169.85 219.80 155.00 175.00 195.00 195.00

No of Share 7.30 8.10 16.10 16.00 16.00 16.00

NW 387.76 631.10 612.42 638.56 726.69 860.53

EPS 10.15 8.12 2.38 3.69 8.46 11.31

BVPS 53.12 77.91 38.04 39.91 45.42 53.78

RoE-% 19.1% 10.4% 6.3% 9.3% 18.6% 21.0%

P/BV 3.20 2.82 4.07 4.38 4.29 3.63

P/E 16.74 27.07 65.00 47.38 23.06 17.24

Hero Motocorp

10

The current scenario does not provide with any quick turnaround and one can expect only slow and gradual progress in the industry. On

the whole, in the light streched valuation and business outlook we will continue to maintain our previous recommendation and will tracking

for any event in the sector and its consequent impact on our coverage universe.

The currency movement benefit which was realized in 2QFY14 for some of the auto

companies seems not to doing much of action in this quarter owing more stable INR-Dollar

movement.

Maruti Suzuki

Domestic sales (up 5.5% YoY) posted a strong show, led by the mini segment, which

posted robust 17% YoY growth. The mini segment a on YTD basis too is up nearly 8% YoY,

indicating a slow return of first-time buyers in the entry-level petrol segment.

Mahindra & Mahindra

Pickups and 3W growth stood at a moderate 5.0% YoY and 7.6% YoY, respectively. The

aforesaid trend is in line with overall LCV segment growth, which is on a moderating path.

Tractor share on a YTD basis inched up to 36% from 30% during the same period last year.

Tata Motors

Tata Motors posted yet another month of a muted set of numbers with total sales

contraction at 42.3% YoY to 37,852 units. However,with JLR accounting for most of the

company’s profitability, the struggling domestic business is unlikely to affect consoliadted

performance.

AUTO SALES DASHBOARD : DECEMBER 2013Another Month of Tepid Performance

The automobiles companies come up with December 2013 sales volumes with no big

surprises. The industry followed the same declining trend as in November 2013 with

Scooter and Tractors sales showing some upward traction. Indian automobile OEMs

continue to be negatively impacted by the overall economic slowdown, firm interest rates,

inflationary headwinds and high fuel prices.

The first look on the 3QFY14 volumes for most of the companies is not encouraging in

any way even the export business which did fairly better in 2QFY14 lost its momentum in

the quarter under review. Our first analysis on the quarter volumes of the OEMs shows that

except for Heromotocorp remaining all the companies have declining performance on

volume front.


Amidst a tough market, Hero Motocorp has outperformed by posting marginally higher-than

expected volume of 524990 units in December 2013, down 3.1% YoY.

Bajaj Auto

Total sales for the month stood at 297776 units, down 13.4% YoY, driven by contraction of

32.5% YoY in domestic and 19.6% YoY in exports. With most of the Discover and Pulsar

series launches out of the way,company has little to offer in terms of new products to

protect its rapidly falling domestic business market share.



Company Dec-13 Nov-13 Dec-12 MoM (% Change) YoY(% Change)

HEROMOTOCO 524990 530530 541000 -1.0% -3.0%

BAJAJ-AUTO 297776 310591 343946 -4.1% -13.4%

MARUTI 90924 92140 95145 -1.3% -4.4%

M&M 39611 39255 45297 0.9% -12.6%

TATAMOTORS 37852 40863 65582 -7.4% -42.3%

ASHOKLEY 6275 5375 7299 16.7% -14.0%

TVSMOTORS 159495 161908 156221 -1.5% 2.1%

Sales Volume (Units)

AUTO SALES DASHBOARD : DECEMBER 2013 PERFORMANCE CHART

Emami Ltd

BUY

Key facts:

1M 1yr YTD

Absolute -3.3 20.3 50.6

Rel. to Nifty -4 15.8 33


Promoters 72.74 72.74 72.74

FII 16.68 15.46 14.46

DII 2.18 3.27 3.45

Others 8.4 8.53 9.35

Financials Rs, Cr

2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%

Revenue 406.7 383.7 6.0% 360.7 12.8%

EBITDA 87.4 59.2 47.6% 64.1 36.3%

PAT 80 60.7 31.8% 59.2 35.1%

EBITDA Margin 21.5% 15.4% 610bps 17.8% 370bps

PAT Margin 19.7% 15.8% 390bps 16.4% 330bps

11

Stable Ad spend: The ad spends in Q2FY14 have declined by 125bps YoY to 16.6% as a

percentage of sales. The ad spends, as a percentage of sales, are expected to be in the

range of 16-17% in FY14 and FY15.

Nifty 6221

1 yr Forward P/B



View and Valuation: Considering Emami’s focus on increasing rural penetration,

favorable monsoon, continuous strengthening of its brand equity and new product

funnel strongly in next 2- 3 years, we are positive on the stock. We recommend “Buy”

on the stock with a target price of Rs 635. At a CMP of Rs 481 , the stock is trading at

P/BV of 10.3x and 7.8x on FY14E and FY15E, respectively.

Strong distribution reach: Although rural continues to grow ahead of urban markets, the

growth for Emami has tapered off in both urban and rural areas. While urban markets

grew 8%, rural markets by 11% growth. Direct rural business was up by 17%. The

company's direct outlet reach is 6 lakh. The company has added 20000 outlets in Q2 and

expects to add 75000 – 100000 in FY14.

Product expansion: The company has launched Boroplus face-wash last month and

there will be new launches in Q4 also. The mgmt said that for next 2 – 3 years it has

strong pipeline of products to be launch.

Capex plan: For FY14 & FY15, they plan to spend INR700-750mn per year. It is setting up

a new factory in Guwahati at an investment of INR500-600mn.


531162

Average Daily Volume 37072 Favorable rural discretionary demand: Recently, rural discretionary demand has

increased because of favorable monsoon and per capita rural growth. During the

2QFY14, its revenue from urban markets grew 8%, rural markets by 11%. Direct rural

business was up by 17%.Stock Performance

The Company’s major raw material Menthol Prices declined by 34% (YoY), as the

company has already forward contracted menthol for the year, menthol prices

continue to trend lower and price hikes for the year have been taken. Therefore,

margin expansion visibility remains high.

We expect better revenue growth in 2HFY14 as the weather related headwinds for

cooling oils is behind us and pricing on balms stabilize. Visibility of margin expansion

remains high because of benign cost of Menthol.52wk Range H/L 539/368

Mkt Capital (Rs Crores) 10912

NSE Symbol EMAMI

Upside 32%

Change from Previous 27%

Market DataBSE Code

"The niche advantage."

Company updateCMP 481

Target Price 635

Usually, Emami reports good earnings growth for third quarter every year. For

3QFY14E, we expect 20-22% sales growth led by strong rural demand and 22-25% PAT

growth on YoY Basis. In addition, we expect to improve margin by 150-200bps (YoY) to

26% because of softening raw material prices.Previous Target Price 500

"BUY"3rd Jan' 14


12

▪ The company has already taken price hikes and no further hikes are expected in FY14E.

Total annualized price hike for FY14 is 4% YoY.

Emami Ltd

Key facts from recent Conference Call

▪ The management has lowered its annual revenue growth guidance from 16% - 18% to

13% - 15% while PAT guidance continues to stand at 18% - 20% aided by strong gross

margin expansion on the back of lower Mentha Oil prices.

▪ Contribution from power brands is ~65%. The company plans to grow these brands by

15-16% in FY14.

▪ The mgmt has guided for a capex of Rs 70 – 75 crore each during FY14 and FY15. ASP for

FY14 will be 16% - 17%.

▪ Emami has a good cash balance of Rs3bn which it expects to utilize for acquisition.



Financials


Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales 1037.98 1247.08 1453.51 1699.09 1936.23 2211.18

Raw Materials Cost 380.53 346.76 415.12 539.83 580.87 685.47

Purchases of stock-in-trade 0 204.9 189.13 182.14 203.30 221.12

WIP 0 -28.48 22.17 -6.52 -7.37 -8.42

Employee Cost 57.91 72.87 92.31 115.55 135.54 165.84

Advertisement and Publicity 194.42 219.41 228.99 279 319.48 353.79

Other expenses 158.66 178.17 209.02 241.82 281.65 321.64

Total expenses 791.52 993.63 1156.74 1351.82 1513.46 1739.44

EBITDA 246.46 253.45 296.77 347.27 422.76 471.74

Depreciation and Amortisation 117.52 116.09 120.89 124 131.63 150.32

Other Income 7 33.1 54.12 56 58.09 66.34

Exceptional Items 89.97 113.9 84.15 96 109.82 125.41

EBIT 128.94 137.36 175.88 223.2 291.14 321.42

Interest 20.98 15.23 15.21 6.6 6.86 5.14

PBT 204.93 269.13 298.94 368.69 452.18 508.03

Tax Exp 35.21 40.41 40.12 54 66.24 74.42

PAT 169.72 228.72 258.82 314.68 385.94 433.61

Growth-% (YoY)

Sales 35.5% 20.1% 16.6% 16.9% 14.0% 14.2%

EBITDA 91.0% 2.8% 17.1% 17.0% 21.7% 11.6%

PAT 85.0% 34.8% 13.2% 21.6% 22.6% 12.4%

Expenses on Sales-%

RM Cost 36.7% 27.8% 28.6% 31.8% 30.0% 31.0%

Ad Spend 18.7% 17.6% 15.8% 16.4% 16.5% 16.0%

Employee Cost 5.6% 5.8% 6.4% 6.8% 7.0% 7.5%

Other expenses 15.3% 14.3% 14.4% 14.2% 14.5% 14.5%

Margin-%

EBITDA 23.7% 20.3% 20.4% 20.4% 21.8% 21.3%

EBIT 12.4% 11.0% 12.1% 13.1% 15.0% 14.5%

PAT 16.4% 18.3% 17.8% 18.5% 19.9% 19.6%

Valuation:

CMP 197.7 249.4 260.8 397.4 481 481

No of Share 15.1 15.1 15.1 15.1 22.7 22.7

NW 625.4 689.9 706.6 777.5 1070.5 1397.9

EPS 11.2 15.1 17.1 20.8 17.0 19.1

BVPS 41.3 45.6 46.7 51.4 47.2 61.6

RoE-% 27.1% 33.2% 36.6% 40.5% 36.1% 31.0%

Dividend payout-% 23.4% 23.2% 23.8% 44.6% 24.1% 24.5%

P/BV 4.8 5.5 5.6 7.7 10.2 7.8

P/E 17.6 16.5 15.2 19.1 28.3 25.2

64

66

-

4

-

1M 1yr YTD

Absolute 0.5 -46.2 -46.2

Rel.to Nifty -1.4 -52.7 -52.7


3Promoters 58.0 58.0 58.0

FII 13.3 13.3 13.0

DII 12.4 14.6 15.2

Others 16.4 14.1 13.8

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 2195 3759 3757 4143 4694

Total Income 3159 4619 4804 5529 6081

PPP 1810 2815 2767 2765 3344

Net Profit 1046 1345 1289 1131 1433

EPS 22.6 24.0 23.0 19.2 24.3

13

Company UPDATE REDUCE


ANDHRABANK

High impairment asset with downward trajectory of PCR

1473

Market Data

Upside

CMP

Target Price

During quarter (3QFY14) Andhra Bank’s performance was ahead of

fundamental in our view as there are multiple headwinds associated with bank

like earnings quality, impairment of asset, deposits cost etc. At the end of

2QFY14, bank’s restructure account consists of 10.6% of total asset which will

go up 13% of total asset in full year along with 5% of NPA according to the

management. This implies that 82% of total asset has to service 100% of

liability which would be real challenges for the bank as per our view. In the

regards, we analyze trend of impairment asset, earning quality and cost of

deposits and tweak our earnings estimate and value bank at 0.4 times of book.

Bank’s valuation may come down to 0.3 times (historical low) looking at

bank’s own stress and fundamental. We have reduced rating on the stock with

price target of Rs.66. 130/47.15


BSE Code 532418

NSE Symbol ANDHRABANK

We observed that bank’s deterioration in asset quality was much ahead of peers

group in term of fresh slippage and restructure assets. Bank’s GNPA and net NPA

during the last quarter was 5.3% and 3.5% much above of industry average of 3.5%

and 2.5% respectively. Asset quality trend is likely to remain at elevated level as per

management. Total restructure asset consist of 10.6% of total asset and another

Rs.3000 cr are in the pipeline means around 13% of total asset will go for restructure

and about 50% of fresh restructure slip into non performing asset. If the trend

continued then GNPA would be 5.5% which would itself alarming specially for the

bank because its provision coverage ratio without technical write off was low at 33%.

Bank has been continuous downward trajectory of PCR which implying very little

cushion for its future earnings.

Average quality of earnings asset and stress in other segment keep NIM at low

During 2QFY14, bank’s advance grew by 15% YoY and yield on advance declined to

11.4% as against average run rate of 12%. We model 15% of advance growth with

11% of loan yield for FY14E and FY15E largely due to challenging economic

environment and present running trend. Earnings asset especially with loan and

investment yield have nothing extraordinary as far as we observed and are likely to

remain at average quality. With average quality of earnings asset and stress in other

segment would keep NIM at low.

Stock Performance

52wk Range H/L


Andhra Bank Vs Nifty


1.09lac

Nifty 6304


Mkt Capital (Rs Cr)


"REDUCE"2nd Jan, 2014


14

ANDHRABANK

Source:Company/Eastwind


CASA trend declined; high cost of deposits

Bank’s low cost of deposits (CASA) trend has been declining from 35% in FY07 to 24%

in 2QFY14. We observed that bank’s CASA ratio remained stick to 24% in last 7-8

quarters. In rising interest rate scenario, cost of deposits could not be sustained at 7.5 to

8% without adequate support of CASA. In term of deposits cost, Andhra bank’s cost of

deposits remain high at 7.7 %( 2QFY14) as compare to peers average of 7%. However

we model 7.5% of cost of deposits and 24% of CASA for FY14E and FY15E in line with

present trend.

View & Valuation

Andhra Bank’s stock performance during the quarter (3QFY14) was ahead of

fundamental in our view. There are multiple headwinds regarding the earnings and asset

quality which would erode the book value in FY14. At the end of 2QFY14, bank’s

restructure account consists of 10.6% of total asset which will go up 13% of total asset in

full year along with 5% of NPA according to the management. This implies that 82% of

total asset has to service 100% of liability which would be real challenges for the bank as

per our view. In the regards, we analyze trend of impairment asset, earning quality and

cost of deposits and tweak our earnings estimate and value bank at 0.4 times of book.

Bank’s valuation may come down to 0.3 times (historical low) looking at bank’s own

stress and fundamental. We have reduced rating on the stock with price target of Rs.66.

Valuation Band


15

ANDHRABANK

Source: Eastwind/Company



Income Statement 2011 2012 2013 2014E 2015EInterest Income 6373 11339 12910 15555 17818

Interest Expense 4178 7579 9153 11412 13124

NII 2195 3759 3757 4143 4694

Change (%) 34.9 71.3 -0.1 10.3 13.3

Non Interest Income 965 860 1047 1387 1387

Total Income 3159 4619 4804 5529 6081

Change (%) 32.1 46.2 4.0 15.1 10.0


Pre Provision Profits 1810 2815 2767 2765 3344

Change (%) 40.5 55.5 -1.7 -0.1 21.0

Provisions 374 991 996 1215 1382

PBT 1436 1824 1771 1549 1963

PAT 1046 1345 1289 1131 1433

Change (%) 60.2 28.6 -4.1 -12.3 26.7

Balance SheetDeposits( Rs Cr) 77688 105851 123796 142365 163720

Change (%) 31 36 17 15 15

of which CASA Dep 22864 27947 31759 34168 39293

Change (%) 23 22 14 8 15

Borrowings( Rs Cr) 5852 8241 11119 13225 15209

Investments( Rs Cr) 20881 29629 37632 43565 50100

Loans( Rs Cr) 56114 83223 98373 113129 130099

Change (%) 27 48 18 15 15

RatioAvg. Yield on loans 9.2 11.1 10.5 11.0 11.0

Avg. Yield on Investments 5.7 6.7 6.6 7.0 7.0

Avg. Cost of Deposit 4.9 6.6 6.9 7.51 7.51

Avg. Cost of Borrowimgs 6.4 7.7 5.4 5.5 5.5

Valuation

Book Value 91 134 151 166 190

CMP 108 119 95 63.6 63.6

P/BV 1.2 0.9 0.6 0.4 0.3

IT Industry; from 2013 to 2014

Favorable supply side scenario:

SMAC as new emerging opportunity:

16

INR/USD&CNX IT Performance(2013);

SMAC (social, mobile, analytics and cloud ) is throwing up huge opportunities as firms

want to optimise investments in current technology and drive growth by using digital

technologies and platforms. The digital forces of SMAC will reach mainstream status in

2014 and create requirements, drive new purchasing and establish new competitive

realities.



2013 has been a year of innovation and

transformation

The Indian IT governing body NASSCOM is expecting to clock 12-14% revenue growth in

USD term for FY14E, while Industry had reported 10-12% range of growth in FY13E.

Now, we expect higher growth with stable margin trajectory for FY 15E than previous

years led by healthy demand scenario and offering new delivery platform like analytics,

mobility, cloud, social media and emerging verticals such as healthcare and medical

devices.

NASSCOM on positive mood:

The Indian Rupee (INR) has depreciated against USD roughly by around 13-14% since Jan

1, 2013. The INR depreciation is favorable for all exporters and IT companies. As a

thumb rule, a 1% change in value of the rupee against the US dollar has an impact of 30-

40 bps on the operating margins of a company. During the 2QFY14, across the IT space,

companies reported healthy ramp up in operating margin.

With its top 4 bellwethers TCS, Infosys, Wipro and HCL- have been consolidated its

presence in software service sector. Now, new players with expertise in new emerging

services have entered into the marathon race and performing well in all aspects.

Indian IT Industry has been successful to maintain double-digit growth again in export

as well as in the domestic markets.

INR Depreciation: Factors behind the success story of IT Industry in 2013:

Euro zone was a pleasant surprise in 2013 with no bad news surfacing from that part of

the world. But that does not mean the sovereign debt problems have been solved

permanent. The attractiveness of Europe as a market is being reflected in the acquisition

activity within Tier-I IT (Valuesource, Equinox and C1 Group by Cognizant, Alti by TCS and

Infosys' acquisition of Lodestone).

Though attrition remained higher than last year, especially among the bellwethers,

campus hiring and fresh offers declined during the year. However, utilization rate

especially on onsite and offshore are on increasing mode, it indicates favorable supply

side scenario for the industry.Pleasant surprise from Euro zone:


Nifty and CNX IT Performance(2013); IT Industry with perception "I can do it better"

The year 2013 has proved a year of innovation and transformation for IT industry

across all verticals and geographies led by healthy demand environment and positive

factors for Industry, Indian IT Industry came to track with positive surprise and

opportunities. The resilient of $120bn plus IT Industry returned to higher growth

trajectory in 2013 and expecting to retain its momentum in the ensuring year for a

greater share of global multi-billion dollar IT Industry.

"a year of innovation and transformation"


59.5%

6.8%

59.5%

13%

- Govt mulls fresh incentives for IT companies,

-Software exports to grow 12-14% to clock $84-87 billion in FY14E,

-Domestic market to also grow 14% to $185 billion in FY14E,

-N.R. Narayana Murthy returns to Infosys as chairman,

-8 top executives quit Infosys in 6 months,

-Wipro hives off non-IT business as separate enterprise,

-Industry diversifies into offering new services & products,

-Campus hiring and fresh offers dip despite higher attrition,

-Thrust on providing IP-led solutions on multiple platforms,

17

IT Industry; from 2013 to 2014


Year 2014 promises to be bigger and stronger than the last two years, which were marked

by bloodbath in global markets due to Euro-zone crisis and falling consumer confidence in

the US. Demand is set to pick up in sectors like BFSI, healthcare, retail and transportation

globally in the year ahead.

View and Valuation;

We have seen a significant increase in global technology spending this year, creating

opportunities for the Indian software services sector to post double digit growth again in

export as well as in the domestic markets.

FY 15E is going to be better that FY14E,

which was better than FY13. It will be

good for us as well as the industry


Highlights of 2013: Performance of Our IT Coverage

Concerns:

However, hardening of regulatory related to visa approval in USA, Canada and Australia

could spoil the party. Even, the approval of Immigration Bill attached with higher visa fee,

wage requirements and enhanced audit by US agencies could turn the growth story of

Indian IT players adversely. If passed in its current form, the Bill could hurt the margins

of the Indian IT export sector, which derives almost 55-60% of its revenues from USA.

2014 and IT Industry: Another year of flawless ride

Thanks to playing a pivotal role of technology across transforming delivery of diverse

services in the government and private sector, the domestic market is also maturing and

is one of the fastest in the developing countries.



CMP Upside

(31.12.13) % FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

TCS 2170.95 BUY 2369.1 9.1% 71.82 90.74 102.37 30.23 23.92 21.21 36.42% 36.22% 32.95%

INFOSYS 3485.5 BUY 3982.7 14.3% 164.2 181.1 208.2 21.23 19.25 16.74 24.8% 23.0% 22.2%

HCLTECH 1263.1 BUY 1415.5 12.1% 58.10 71.87 83.49 21.74 17.57 15.13 30.72% 29.10% 26.39%

WIPRO 559.05 NEUTRAL 469.97 25.0 25.15 27.4 22.32 22.23 20.40 21.7% 18.9% 17.8%

TECHM 1838.05 BUY 2329.5 26.7% 85.48 144.15 161.64 21.50 12.75 11.37 35.91% 38.31% 30.38%

CMC 1632 BUY 1692.5 3.7% 75.27 101.56 110.07 21.68 16.07 14.83 24.10% 25.81% 22.92%

NIITTECH 360.5 BUY 408.32 13.3% 36.28 44.03 53.38 9.94 8.19 6.75 20.0% 19.6% 19.3%

KPIT 171.55 BUY 177.33 3.4% 10.80 13.07 15.95 15.88 13.13 10.75 20.10% 19.80% 19.75%

HEXAWARE 131.75 BUY 140.59 6.7% 11.1 13.1 14.3 11.87 10.09 9.21 27.2% 27.0% 26%

PERSISTENT 980.05 REDUCE 960.51 46.12 63.40 76.92 21.25 15.46 12.74 18.1% 20.5% 20.4%

eCLERX 1068.5 BUY 1357.9 27.1% 64.25 71.61 83.65 16.63 14.92 12.77 43.8% 37.9% 34.4%

TATAELXSI 415.65 REDUCE 236.85 10.63 17.53 19.76 39.10 23.72 21.03 16.94% 23.55% 22.37%

ZENSARTECH 355.85 BUY 439.43 23.5% 40.03 57.16 74.62 8.89 6.23 4.77 23.22% 26.07% 26.34%

RoE-%Company View Target

EPS-Rs P/E-x

Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph

033-32011233 Toll Free no : 1-800-345-4000

email: [email protected],

website : www.narnolia.com

Risk Disclosure & Disclaimer: This report/message is for the personal information of

the authorized recipient and does not construe to be any investment, legal or taxation

advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any

action based upon it. This report/message is not for public distribution and has been

furnished to you solely for your information and should not be reproduced or

redistributed to any other person in any from. The report/message is based upon publicly

available information, findings of our research wing “East wind” & information that we

consider reliable, but we do not represent that it is accurate or complete and we do not

provide any express or implied warranty of any kind, and also these are subject to change

without notice. The recipients of this report should rely on their own investigations,

should use their own judgment for taking any investment decisions keeping in mind that

past performance is not necessarily a guide to future performance & that the the value of

any investment or income are subject to market and other risks. Further it will be safe to

assume that NSL and /or its Group or associate Companies, their Directors, affiliates

and/or employees may have interests/ positions, financial or otherwise, individually or

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