Buy TCS, HDFC Bank, FEDERAL BANK, DB CORP and ITC Stock. Narnolia Securities Limited India Equity...
-
Upload
narnolia-securities-limited -
Category
Economy & Finance
-
view
122 -
download
0
description
Transcript of Buy TCS, HDFC Bank, FEDERAL BANK, DB CORP and ITC Stock. Narnolia Securities Limited India Equity...
"BUY" 20th Jan 2014
HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters growth trajectory that it had witnessed but remain very impressive in
challenging macro environment. Bank is well poised in most of operating parameters like CASA ratio of 45%+, higher than industry credit
growth, best asset quality among peers, better utilization of cash in form of higher CAR ratio for further growth, consistent delivered margin
above of 4%. We continue to believe bank would enjoy valuation premium. We value bank at Rs.760/share which is 4 times of one year FY14E’s
book value ...................................... ( Page : 5-9)
TCS :" Strong Fundamentals" "BUY" 20th Jan 2014
TCS witnessed inline set of numbers with 1.5%(QoQ)of consolidated sales growth led by 1.8% volume growth.We continue to believe that TCS
will be star performer in growth sense than other peers. Hence, we are maintaining 18% revenue growth in dollar term for FY14E because of
improved demand environment, while NASSCOM expects 12-14% for the Industry.We maintain" BUY" view on the stock and we revised our
target price from Rs 2360 to Rs 2510. ...................................... ( Page : 2-4)
ITC : " Accessing the growth" "BUY" 20th Jan 2014
Strong set of numbers, sales grew by 13.1% (YoY) led by robust sales across its FMCG and Paper and Packaging divisions. Cigarette volume
declined by 2%(YoY) because of price hike by 18% in premium brand. PAT up by 16.3%, YoY. ITC offers the best earnings visibility in the sector
especially when sector peers are confronting multiple challenges. The premium valuations enjoyed by ITC, at the CMP of Rs 325, the stock trades
at 8.2x FY15E P/BV seems justified from a growth point of view. We maintain ” BUY” with a price target of Rs 380.
........................................................................... ( Page : 18-20)
20th Jan, 2014
Edition : 187
IEA-Equity
Strategy
DB CORP : "On Strong Footing" "BUY" 20th Jan 2014
Considering its long-term growth story with favorable earning scenario and leadership position in key market, we are positive on the stock. We
maintain “BUY” view on the stock with the target price of Rs 340. At a CMP of Rs 301, stock trades at 4.1x of FY15E P/BV.
.............................................................. ( Page : 15-17)
FEDERAL BANK : "BUY" 20th Jan 2014
Federal bank’s profitability grew by 9.2% YoY on the back of lower provisions led by improving asset quality and comfortable high provision
coverage ratio. But bank’s operating and financials metrics remained muted, this has resulted of negative growth at operating profit level. We
slightly tweak our book value estimate to Rs.82.2 from earlier of Rs.78. We value bank at Rs.98/share which is 1.2 times of FY14E’s book value
and 8.5 times of forward earnings........................................... ( Page : 10-14 )
HDFC Bank
BAJAJ-AUTO LTD: Inline Performance but Market Share lost. "Neutral" 17th Jan 2014
Bajaj Auto posted its 3QFY14 results with net sales at Rs 5025 Cr down by 6 % YoY. The decline in the net sales came on the back of lower
volume in the quarter under review. The company during the 3QFY14 manage to sell 993,690 units of vehicles down by 11 % YoY.
...................................................................... ( Page : 24-25)
HCLTECH : "Retain confidence" "BUY" 17th Jan 2014
HCL tech beats expectations with a sustained momentum in volumes and proved its consistency to maintain its margin at 26% mark; Sales grew
by 2.8% (QoQ) in INR term and 4% (QoQ) in USD term led by 4.6% of growth from Infrastructure services and BPO services. Considering the
increasing discretionary spends across the geographies like US and Europe, we expect healthy earnings performance ahead. At a CMP of Rs
1392, stock trades at 17.5x of FY14E earnings, We retain BUY on the stock and revised our target price from Rs 1194 to Rs1560.
............................................... ( Page : 21-23)
Narnolia Securities Ltd,
India Equity AnalyticsDaliy Fundamental Report on Indian Equities
TCS
1M 1yr YTD
Absolute 9.8 64.4 67.2
Rel. to Nifty 8.1 60.1 57.1
Current 2QFY14 1QFY14
Promoters 73.9 73.96 73.96
FII 16.33 16.09 15.67
DII 5.26 5.58 5.90
Others 4.51 4.37 4.47
Financials3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 21294 20977.2 1.5 16069.93 32.5
EBITDA 6686.76 6633.0 0.8 4660.49 43.5
PAT 5333.43 4633.3 15.1 3549.61 50.3
EBITDA Margin 31.4% 31.6% (20bps) 29.0% 240bps
PAT Margin 25.0% 22.1% 290bps 22.1% 290bps
Share Holding Pattern-%
Nifty 6262
Stock Performance
1 year forward P/E
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
▪ Growth across the geographies: Among growth markets, Latin America, APAC and
MEA registered strong growth. India business suffered from volatility and declined
sequentially. Further, US grew by 2.6%, Europe by 2.6% and RoW by 7.1% QoQ. USA
contributes 55%, Europe 29.1% and RoW 15.9% of its revenue.
View and Valuation: We continue to remain positive on demand outlook and margin
profile, the management expects for robust deal pipeline going forward and also expects
to materialize its emerging space like Digital as well as Cloud, Mobility, Analytics and Big
data. Based on initial discussions with customers, Management believes for stronger
2014 than 2013. We continue to be positive on demand environment and company’s
strength of efficient deal execution. We advise that TCS now seem to be trading ahead
of fundamentals; At a price of Rs 2216, it is trading at 20.3x FY15E earnings, We
maintain" BUY" view on the stock and we revised our target price from Rs 2360 to Rs
2510.
Street stunned with inline set of number, management is confident to see better
growth in near future;
TCS witnessed inline set of numbers with 1.5%(QoQ)of consolidated sales growth led
by 1.8% volume growth and1.2% pricing growth. This volume growth dampened
because of holidays and furlough effects. PAT grew by 15.1% (QoQ).
" Strong Fundamentals"
CMP 2216
Target Price 2510
Results update Buy
52wk Range H/L 2384/1300
Mkt Capital (Rs Crores) 433985
Previous Target Price 2360
Upside 13%
Market DataBSE Code 532540
NSE Symbol TCS
We continue to believe that TCS will be star performer in growth sense than other
peers. Hence, we are maintaining 18% revenue growth in dollar term for FY14E
because of improved demand environment, while NASSCOM expects 12-14% for the
Industry. We continue to be positive on demand prospect for TCS.
In US dollar terms, revenue was $3438mn compared with USD 3337 mn in Q2FY14. Net
profit was at USD 858 mn, compared with USD 748 mn in Q2FY14.
▪ Strong growth across segments: On segmental front, Manufacturing grew by 6.1%
(QoQ), and Telecom (including media and entertainment) by 5.1% (QoQ), while, BFSI
and Retail (including consumer-packaged goods) reported strong below 1% growth,
sequentially. Even, the telecom sector posted excellent quarter than before but still wait
to change view on the sector.
▪Steady Margin growth: On margin front, EBITDA down by 20bps and EBIT 30bps on QoQ
basis to 31.4% and 29.8%, during the quarter. The company attributed this fall to
reinvestment of gains from margin into the business. Management is very confident to
maintain EBITDA margin at a range of 26-28% ahead.
▪ Lower volume and stable pricing growth: The volume growth of 1.8% was lower than
expectations and what the company has been delivering over the last few quarters. The
company attributed this fall to de-growth in India business. The third quarter is generally
slow due to holidays, and furloughs. The pricing is expected to be stable overall but
expects variability across the quarters going forward.
Average Daily Volume 1011877
Change from Previous 6%
"BUY"20th Jan' 14
Narnolia Securities Ltd,
3
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
(4) The company has maintained hiring target of 55,000 gross employees for FY14,
(5) Demand environment from Domestic market for next 2Qtrs will be adversly impacted
because of fortcong general election.
The outlook on margins, it indicated that
is comfortable in the current level and
will be in the range of 26-28% range
going forward.
(Source: Company/Eastwind)
Key Facts from Conference Call (attended on 16th Jan,2014):
(1)TCS, which does not provide detailed revenue forecasts, The Company remains
confident to clock better growth in FY14 than FY13 and aims to exceed upper end of
industry body NASSCOM’s guidance at 12-14% in FY14. And continued to reiterate its
stand that FY15 will be a better year than FY14.
(2) The management stated that pricing would be stable for next 12 months. Realization
seeing minor fluctuations, but (3) The outlook on margins, it indicated that is comfortable in the current level and will be
in the range of 26-28% range going forward.
The volumes were strong across the
board during the quarter. The pricing is
expected to be stable overall but expects
variability across the quarters going
forward.The volume growth could be
improve further because of better
demand environment across all
geogrpahies and space.
TCS.
Revenue and growth in INR term-(QoQ)
Margin-%
Volume and Pricing Growth (QoQ)-%
(Source: Company/Eastwind)
The Company remains confident to clock
better growth in FY14 than FY13 and
aims to exceed upper end of industry
body NASSCOM’s guidance at 12-14% in
FY14. We expect better revenue growth
than its peer like Infy
Narnolia Securities Ltd,
4
Attrition is low in the Industry – Expects to improve Utilizations to 85% and beyond:: At
the end of 3QFY14, TCS continued its uptick in hiring and upped the numbers to 55,000
from its earlier stated 50,000. This is reflective of the demand environment. The
utilization rate (excluding trainees) was at 84.3% and that including trainees was 77.5 %.
The attrition rate in IT was at 10.3 %, while BPS attrition fell to 13.4 %. The attrition rate
(LTM) was stable at 10.9% including BPS.
Sound clients metrics: TCS sees a robust demand pipeline across markets and a unique
opportunity to strategically partner and participate with clients. TCS' USD added total 8
large clients(net).
Please refer to the Disclaimers at the end of this Report.
TCS.
(Source: Company/Eastwind)
Financials
Narnolia Securities Ltd,
Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E
Net Sales-USD 6339.0 8187.0 10171.0 11569.0 13660.8 16393.8
Net Sales 30029.0 37325.1 48894.3 62989.5 81964.9 97543.1
Employee Cost 10879.6 13850.5 18571.9 24040.0 30327.0 36578.7
Overseas business expenses 4570.1 5497.7 6800.5 8701.9 11680.0 14143.7
Services rendered by business associates and others 1262.0 1743.7 2391.3 3763.7 4917.9 6340.3
Operation and other expenses 4622.8 5054.3 6694.8 8443.9 10655.4 12680.6
Total Expenses 21334.4 26146.2 34458.5 44949.6 57580.4 69743.3
EBITDA 8694.6 11178.9 14435.8 18040.0 24384.6 27799.8
Depreciation 601.8 686.2 860.9 1016.3 1282.9 1526.7
Amortisation 59.1 49.1 57.1 63.7 57.5 76.7
Other Income 272.0 604.0 428.2 1178.2 1434.4 1950.9
EBIT 8033.7 10443.6 13517.9 16960.1 23101.7 26273.1
Interest Cost 16.1 26.5 22.2 48.5 35.9 33.8
PBT 8289.6 11021.2 13923.8 18089.8 24500.2 28190.2
Tax 1197.0 1830.8 3399.9 4014.0 5880.0 6765.6
PAT 7092.7 9190.3 10524.0 14075.7 18620.2 21424.5
PAT ((Reported PAT)) 7000.6 9068.6 10414.0 13917.4 18620.2 21424.5
Growth-%
Sales-USD 29.2% 24.2% 13.7% 18.1% 20.0%
Sales 8.0% 24.3% 31.0% 28.8% 30.1% 19.0%
EBITDA 21.3% 28.6% 29.1% 25.0% 35.2% 14.0%
PAT 31.8% 29.6% 14.5% 33.7% 32.3% 15.1%
Margin -%
EBITDA 29.0% 30.0% 29.5% 28.6% 29.8% 28.5%
EBIT 26.8% 28.0% 27.6% 26.9% 28.2% 26.9%
PAT 23.6% 24.6% 21.5% 22.3% 22.7% 22.0%
Expenses on Sales-%
Employee Cost 36.2% 37.1% 38.0% 38.2% 37.0% 37.5%
Overseas business expenses 15.2% 14.7% 13.9% 13.8% 14.3% 14.5%
Services rendered by business associates and others 4.2% 4.7% 4.9% 6.0% 6.0% 6.5%
Operation and other expenses 15.4% 13.5% 13.7% 13.4% 13.0% 13.0%
Tax rate 14.4% 16.6% 24.4% 22.2% 24.0% 24.0%
Valuation
CMP 780.8 1182.5 1322.0 1563.0 2216.0 2216.0
No of Share 195.7 195.7 195.7 196.0 196.0 196.0
NW 18466.7 24504.8 29579.2 38645.7 49594.4 62192.0
EPS 36.2 47.0 53.8 71.8 95.0 109.3
BVPS 94.4 125.2 151.1 197.2 253.0 317.3
RoE-% 38.4% 37.5% 35.6% 36.4% 37.5% 34.4%
Dividen Payout ratio 28.1% 50.8% 37.5% 41.2% 41.2% 41.2%
P/BV 8.3 9.4 8.7 7.9 8.8 7.0
P/E 21.5 25.2 24.6 21.8 23.3 20.3
HDFC Bank
668
760
720
14
6
1M 1yr YTD
Absolute 0.1 0.0 0.0
Rel.to Nifty -0.6 -3.4 -3.4
Current 4QFY13 3QFY1
3Promoters 22.7 22.7 22.7
FII 34.9 33.6 34.9
DII 9.3 9.8 6.6
Others 33.1 33.8 34.2
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 10543 12885 15811 18713 22944
Total Income 14878 18668 22664 26604 30835
PPP 7725 9391 11428 14516 15572
Net Profit 3926 5167 6726 8453 9119
EPS 84.4 22.0 28.7 36.0 38.9
5
Profit growth of 25% YoY, quite impressive in present economy scenario
Average Daily Volume
HDFC bank’s profitability grew by 25% YoY to Rs.2326 cr against our expectation of
Rs.2289 cr. Growth in profit was due to higher growth in revenue, lower cost income
ratio and stable asset quality. But growth trajectory of the bank was lower if we
compare it from past as bank has been witnessing 30% growth previously. In
previous quarter bank reported 27% YoY growth in profit and this quarter reported
lower from previous quarter. We believe to maintain 30%+ growth would be tough in
present challenging macro environment.
Healthy NII growth on the back of stable margin and higher CD ratio
HDFC Bank reported another good set of numbers with NII grew by 22% YoY to
Rs.4635 cr better than our expectation due to healthy loan growth, stable margin,
higher credit deposits ratio and controlled cost of deposits. Total revenue of the bank
grew by 21.2% YoY to Rs.6783 cr. Non- interest income registered growth of 19.4%
YoY to Rs.2148 cr. Other income comprises fees & commissions of Rs 1,575.0 cr
(Rs 1,413.5 cr in 3QFY13), foreign exchange & derivatives revenue of Rs.333.2 cr
(Rs 258 cr in 3QFY13), gain on revaluation / sale of investments of Rs 50.9 cr (gain
of Rs. 135.8 cr in 3QFY13) and miscellaneous income including recoveries of Rs
189.1 cr (Rs 120.4 cr in 3QFY13).
Declined CI ratio along with healthy revenue growth led operating profit growth
Market Data
Upside
727/528
BSE Code 500180
NSE Symbol HDFCBANK
Result update BUY
CMP
Target Price
HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters
growth trajectory that it had witnessed but remain very impressive in
challenging macro environment. Bank is well poised in most of operating
parameters like CASA ratio of 45%+, higher than industry credit growth, best
asset quality among peers, better utilization of cash in form of higher CAR
ratio for further growth, consistent delivered margin above of 4%. We continue
to believe bank would enjoy valuation premium. We value bank at
Rs.760/share which is 4 times of one year FY14E’s book value.
Previous Target Price
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
52wk Range H/L
Cost to income ratio declined to 42.7% from 46% in 3QFY14 largely due to employee
expenses. In 3QFY14, employee cost was declined by 3.1% YoY due to hiring soften
strategy taken by bank. At the end of quarter, bank has total 68200 employees as
against 69700 employees in last quarter. Other operating cost increased by 12.5%
YoY largely due to addition of new branches and ATMs. At the end of December
quarter, bank’s added 274 branches taking total network to 3336 branches against
2776 branches in 3QFY13. With the support of healthy NII growth, non interest
income and control cost measurement; bank’s operating profit grew by 28.6% YoY.
160030
Change from Previous
HDFC Bank Vs Nifty
Share Holding Pattern-%
4.17 lakhs
Nifty 6261
"BUY "20th Jan.,2014
Narnolia Securities Ltd,
6
Valuation & View
HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters growth
trajectory that it had witnessed but remain very impressive in challenging macro
environment. Bank is well poised in most of operating parameters like CASA ratio of
45%+, higher than industry credit growth, best asset quality among peers, better
utilization of cash in form of higher CAR ratio for further growth, consistent delivered
margin above of 4%. We continue to believe bank would enjoy valuation premium. We
value bank at Rs.760/share which is 4 times of one year FY14E’s book value.
HDFC BANK
Please refer to the Disclaimers at the end of this Report.
Sequentially stable asset quality despite of challenging macro environment
Despite of challenging macro environment, bank reported stable asset quality with GNPA
in absolute term grew by mere 3% on sequential basis. As a percentage to gross
advance, GNPA stood at 1.02% versus 1.1% in previous quarter. Loan loss provisions
were Rs.389 cr versus Rs.386 cr in previous quarter. Consequently net NPA increased
by 4% QoQ and in percentage to net advance, it stood at 0.27% versus 0.29%. Provision
coverage ratio with technical write-off was stable on sequential basis to 73.8%.
Valuation Band
Advance grew by 23% YoY and deposits grew by 23% led by FCNR deposits
Total advance increased by 23% to Rs.2967 bn. Loan growth was driven by 13.6% YoY
increased of retail loan and 22.1%YoY increased of corporate loan. Composition of retail
and corporate loan stood at 54:46 ratios. Deposits increased by 23% to Rs.3492 bn in
which saving deposits increased by 16% and current deposits grew by 23% taking overall
CASA ratio of 43.7%. Deposits growth of 23% included US$3.4 bn of FCNR deposits
raised through RBI’s special window. Adjusted with same, deposits grew by 15.5% YoY.
Credit deposits ratio during quarter stood at 85% which was by and large same in both
quarter on quarter and year on year basis.
Narnolia Securities Ltd,
7
HDFC BANK
Source: Eastwind/ Company
Please refer to the Disclaimers at the end of this Report.
Fundamental Through Graph
NII growth of 22% led by healthy loan
growth, stable margin, higher credit deposits
ratio and controlled cost of deposits
Declined CI ratio along with healthy revenue
growth led operating profit growth
Profit growth of 25% YoY due to higher
growth in revenue, lower cost income ratio
and stable asset quality
Narnolia Securities Ltd,
8
Source: Eastwind/ Company
Please refer to the Disclaimers at the end of this Report.
HDFC BANK
Quarterly Performance
Narnolia Securities Ltd,
Quarterly Performance 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation
Interest/discount on advances / bills 8183 7692 6722 21.7 6.4 8524 4.2
Income on investments 2309 2292 1893 22.0 0.8 2354 1.9
Interest on balances with Reserve Bank of India 85 84 68 25.7 1.2 97 14.2
Others 13 25 25 -48.3 -48.4 18 35.7
Total Interest Income 10591 10093 8708 21.6 4.9 10993 3.8
Others Income 2148 1844 1799 19.4 16.5 1885 -12.3
Total Income 12739 11938 10507 21.2 6.7 12878 1.1
Interest Expended 5956 5617 4909 21.3 6.0 5798 -2.7
NII 4635 4477 3799 22.0 3.5 5195 12.1
Other Income 2148 1844 1799 19.4 16.5 1885 -12.3
Total Income 6783 6321 5598 21.2 7.3 7080 4.4
Employee 973 1036 1004 -3.1 -6.1 1115 14.6
Other Expenses 1922 1899 1570 22.4 1.2 2071 7.7
Operating Expenses 2895 2934 2574 12.5 -1.3 3186 10.0
PPP( Rs Cr) 3888 3387 3024 28.6 14.8 3894 0.2
Provisions 389 386 307 26.6 0.8 426 9.6
PBT 3499 3001 2716 28.8 16.6 3468 -0.9
Tax 1173 1018 857 36.9 15.2 1179 0.5
Net Profit 2326 1982 1859 25.1 17.3 2289 -1.6
Balance Sheet( Rs Cr)
Net Worth 42891 40485 35436 21.0 5.9 42774 -0.3
Deposits 349215 313011 284119 22.9 11.6 331291 -5.1
Borrowings 43848 39340 31585 38.8 11.5 44639 1.8
Investment 110616 101850 95979 15.3 8.6 108215 -2.2
Loan 296742 268617 241493 22.9 10.5 284134 -4.2
Asset Quality
GNPA( Rs Cr) 3017.84 2941.71 2432.2 24.1 2.6
NPA(Rs Cr) 797 767 496 60.8 3.9
GNPA(%) 1.0 1.1 1.0
NPA(%) 0.3 0.3 0.2
PCR(w/o tech write-off)(%) 74 74 80
9
HDFC BANK
Financials
Source: Eastwind/ Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 15085 21124 26822 32002 40213
Income on investments 4675 6505 7820 9311 10952
Interest on balances with Reserve Bank of India 148 137 282 373 373
Others 20 108 141 65 65
Total Interest Income 19928 27874 35065 41751 51603
Others Income 4335 5784 6853 7891 7891
Total Income 24263 33658 41917 49642 59494
Interest on deposits 8028 12690 16321 20281 24337
Interest on RBI/Inter bank borrowings 1336 2253 2889 4571 4278
Others 20 47 44 44 44
Interest Expended 9385 14990 19254 23038 28659
NII 10543 12885 15811 18713 22944
NII Growth(%) 25.7 22.2 22.7 18.4 22.6
Other Income 4335 5784 6853 7891 7891
Total Income 14878 18668 22664 26604 30835
Total Income Growth(%) 20.3 25.5 21.4 17.4 15.9
Employee 2836 3400 3965 4231 5342
Other Expenses 4317 5878 7271 7857 9921
Operating Expenses 7153 9278 11236 12087 15263
PPP( Rs Cr) 7725 9391 11428 14516 15572
Provisions( Incl tax provision) 3799 4224 4701 1751 6453
Net Profit 3926 5167 6726 8453 9119
Net Profit Growth(%) 33.2 31.6 30.2 25.7 7.9
Key Balance Sheet DataDeposits 208586 246706 296247 355496 426596
Deposits Growth(%) 24.6 18.3 20.1 20 20
Borrowings 14394 23847 33007 50785 47529
Borrowings Growth(%) 11.4 65.7 38.4 54 -6
Loan 159983 195420 239721 299651 365574
Loan Growth(%) 27.1 22.2 22.7 25 22
Investment 70929 97483 111614 114580 156461
Investment Growth(%) 21.0 37.4 14.5 3 37
Eastwind CalculationYield on Advances 9.4 10.8 11.2 10.7 11.0
Yield on Investments 6.6 6.7 7.0 8.1 7.0
Yield on Funds 7.7 8.9 9.3 10.1 9.9
Cost of deposits 4.3 5.6 6.0 6.5 6.2
Cost of Borrowings 9.4 9.6 8.9 9.0 9.0
Cost of fund 4.2 5.5 5.8 5.7 6.0
ValuationBook Value 545.5 127.5 154.3 189.4 222.3
P/BV 4.3 4.1 4.1 3.5 3.0
P/E 27.8 23.6 21.8 18.7 17.3
FEDERAL BANK
80
98
87
23
13
1M 1yr YTD
Absolute -0.6 -24.3 -24.3
Rel.to Nifty -1.3 -27.7 -27.7
Current 1QFY14 4QFY1
3Promoters - - -
FII 42.4 44.1 44.4
DII 21.6 20.6 20.8
Others 36.1 35.3 34.8
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 1747 1953 1975 2206 2543
Total Income 2263 2486 2639 2893 3230
PPP 1427 1506 1460 1520 1777
Net Profit 902 734 803 799 1012
EPS 6.5 8.6 9.4 9.3 11.8
10
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
Bank reported net profit growth of 9.2% YoY largely due to lower provision led
by improving asset quality. Making lower provision in order to inflate profit is
not too bad in our sense as bank has high provision coverage ratio and
sequentially improved gross NPA. However at operating profit level, bank
reported negative growth of 9.7% due to muted performance all around. We
revised our book value estimate to Rs.82.2 from earlier of Rs.78. We believe
bank to trade at 1.2 times of book value of FY14E. We value bank at
Rs.98/share which is 1.2 times of FY14E’s book value and 8.5 times of full year
earnings
Result update BUY
Change from Previous( Rs)
FEDERAL Bank Vs Nifty
Share Holding Pattern-%
9.78 lakh
Nifty 6261
Previous Target Price
Market Data
Upside
Profit growth on the back of lower provision led by improving asset quality
CMP
Target Price
Stock Performance
52wk Range H/L 104.75/44.25
BSE Code 500469
NSE Symbol FEDERALBNK
Average Daily Volume
6792
(Source: Company/Eastwind)
Flat revenue growth because of negative growth in other income
During this quarter bank’s NII grew by 9.7% on account of muted loan growth along
with continuous fall in credit deposits ratio. However bank able to maintain cost of
deposits under control. Other income de-grew by 23.4% YoY taking flat revenue
growth on year on year basis and quarterly basis.
Operating profit de-growth by 9.7% YoY led by flat revenue growth and high CI
ratio
Cost Income ratio increased by 550 bps YoY to 49.3% but operating leverage
(operating cost to total assets) remain flat at 0.45%, indicating comfortable cost
management. Employee cost and other operating cost increased by 8.1% and 17.7%
respectively. During quarter bank opened 18 new branches and 47 ATMs. Operating
profit de-grew by 9.7% YoY on account of muted NII growth and lower other income.
Federal bank continued to deliver moderate growth in net profit on the back of muted
growth in operating as well as financial metrics. During quarter bank’s net growth
grew by 9.2% YoY largely due to lower provisions led by improving asset quality. This
quarter bank reported improvement in asset quality when most of banks reported
deteriorating or stable stress in assets which surprise us positively. Despite of lower
loan loss provisions, bank’s provision coverage ratio remained high against
regulatory requirement. Therefore we take it positive as bank’s strategy to make
lower provision in order to inflate profit. But muted growths in balance sheet remain
a cause of concern.
"BUY"20th Jan, 2014
Narnolia Securities Ltd,
11
Loan & deposit grew by moderate pace
Federal Bank’s balance sheet grew by 15% YoY in which loan grew by 5.4% YoY. SME
and retail loan registered growth of 38.4% and 11.5% YoY respectively but corporate
loan de-grew by 14.4% YoY. Share of corporate loan declined to 33% from 40% in
3QFY14 whereas share of SME and retail loan increased to 24% and 32% from 18% and
30% respectively. Despite of reported higher growth in SME and retail loan, overall loan
grew by 5.4% YoY. Deposits witnessed growth of 12% YoY led by CASA growth of 15%
YoY while term deposits de-grew by 10% YoY. In percentage term CASA improved by 90
bps YoY to 30.4%.
Valuation & View
Provision lower to Rs.7 cr but PCR remain high
Bank reported net profit growth of 9.2% YoY largely due to lower provision led by
improving asset quality. Making lower provision in order to inflate profit is not too bad in
our sense as bank has high provision coverage ratio and sequentially improved gross
NPA. However at operating profit level, bank reported negative growth of 9.7% due to
muted performance all around. We revised our book value estimate to Rs.82.2 from
earlier of Rs.78. We believe bank to trade at 1.2 times of book value of FY14E. We value
bank at Rs.98/share which is 1.2 times of FY14E’s book value and 8.5 times of full year
earnings
In 3QFY14, Federal bank made total provisions of Rs.7 cr versus Rs.11 cr in previous
quarter and Rs.74 cr in last quarter. Lower provision was due to improving asset quality.
Gross NPA improved by 18% QoQ to Rs.1201 cr in absolute term whereas as a
percentage to total advance, it stood at 2.88% versus 3.47% in previous quarter. Loan
loss provisions were lower by 20% QoQ, taking PCR ratio to 70.3% (without technical
write-off). This has resulted net NPA declined to 0.9% versus 1% in previous quarter.
FEDERAL BANK
Please refer to the Disclaimers at the end of this Report.
NIM declined sequentially due to higher cost of fund than deposits
NIM on sequential basis declined by 6 bps to 3.24% due to higher cost of fund (in
absolute term) than yield on loan (in absolute term). Higher cost of fund largely came
from cost of borrowing than deposits. Borrowings as a percentage of NDTL, sequentially
increased to 9.2% from 8.1% taking overall interest expenses up in absolute term. Loan
yield improved by 18 bps QoQ to 12.2% from 12% but muted growth in loan, increased
interest income by 0.1% QoQ whereas interest expenses increased by 2.4% QoQ.
Despite of lower increased in cost of fund (6 bps QoQ), NIM declined sequentially.
Narnolia Securities Ltd,
12
Fundamental Through Graph
FEDERAL BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Valuation Band
Narnolia Securities Ltd,
13
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
FEDERAL BANK
Quarterly Result
Narnolia Securities Ltd,
Quarterly Performance(Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation
Interest/discount on advances / bills 1266 1265 1151 10.0 0.1 1348 6.4
Income on investments 461 438 358 28.7 5.3 434 -6.0
Interest on balances with Reserve Bank of India 11 11 11 -8.2 -5.2 12 15.6
Others 2 1 1 48.7 151.5 -100.0
Total Interest Income 1740 1714 1522 14.3 1.5 1793 3.1
Others Income 156 143 204 -23.4 9.0 180 14.9
Total Income 1896 1858 1726 9.9 2.0 1973 4.1
Interest Expended 1194 1166 1024 16.6 2.4 1184 -0.8
NII 546 548 497 9.7 -0.5 609 11.6
Other Income 156 143 204 -23.4 9.0 180 14.9
Total Income 702 692 701 0.1 1.5 789 12.4
Employee 177 170 163 8.1 3.7 189 7.0
Other Expenses 169 167 144 17.7 1.1 182 7.3
Operating Expenses 346 338 307 12.6 2.4 371 7.1
PPP( Rs Cr) 356 354 394 -9.7 0.6 418 17.4
Provisions 7 11 74 -90.2 -33.6 90 1132.4
PBT 349 343 320 9.1 1.7 328 -5.9
Tax 118 117 109 8.9 1.2 98 -16.9
Net Profit 230 226 211 9.2 1.9 230 -0.2
Balance Sheet(Rs Cr)
Net Worth 6872 6696 6323 8.7 2.6 6926 0.8
Deposits 57737 56794 51607 11.9 1.7 59221 2.6
Borrowings 5850 5033 3562 64.2 16.2 5197 -11.2
Investment 25028 22794 19433 28.8 9.8 23124 -7.6
Loan 41640 42220 39494 5.4 -1.4 44922 7.9
Asset Quality
GNPA(Rs Cr) 1201 1466 1564 -23.2 -18.1 -
NPA(Rs Cr) 356 411 363 -1.9 -13.4 -
GNPA(%) 2.9 3.5 4.0 -
NPA(%) 0.9 1.0 0.9 -
PCR(w/o tech write-off)(%) 70 72 77 -
14
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
FEDERAL BANK
Financials & View
Narnolia Securities Ltd,
Income Statement 2011 2012 2013 2014E 2015EInterest Income 4052 5558 6168 6989 7707
Interest Expense 2305 3605 4193 4783 5164
NII 1747 1953 1975 2206 2543
Change (%) 23.8 11.8 1.1 11.7 15.3
Non Interest Income 517 532 664 687 687
Total Income 2263 2486 2639 2893 3230
Change (%) 16.6 9.8 6.2 9.6 11.7
Operating Expenses 836 979 1180 1372 1454
Pre Provision Profits 1427 1506 1460 1520 1777
Change (%) 12.8 5.6 -3.1 4.2 16.9
Provisions 525 335 297 335 331
PBT 902 1172 1162 1186 1445
PAT 902 734 803 799 1012
Change (%) 94.1 -18.6 9.4 -0.5 26.7
Balance SheetDeposits( Rs Cr) 43015 48937 57615 66257 76196
Change (%) 19 14 18 15 15
of which CASA Dep 11554 13476 15652 19111 22360
Change (%) 22 17 16 22 17
Borrowings( Rs Cr) 1888 4241 5187 5361 6272
Investments( Rs Cr) 14538 17402 21155 23453 26656
Loans( Rs Cr) 31953 37756 44097 47624 55244
Change (%) 19 18 17 8 16
RatioAvg. Yield on loans 9.9 11.1 10.5 10.9 10.5
Avg. Yield on Investments 6.0 7.6 6.9 7.4 6.9
Avg. Cost of Deposit 5.0 6.8 6.7 6.6 6.6
Avg. Cost of Borrowimgs 7.6 6.5 6.9 7.0 7.0
Valuation
Book Value 60 67 74 83 85
CMP 84 85 96 80 80
P/BV 1.4 1.3 1.3 1.0 0.9
DB CORP
1M 1yr YTD
Absolute 10 28.74 -0.003
Rel. to Nifty 8 25.06 -0.002
Current 2QFY14 1QFY14
Promoters 74.96 74.97 74.98
FII 17.73 16.46 14.66
DII 2.95 4.00 5.34
Others 4.36 4.57 5.02
Financials3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 518.2 438 18.3 438.9 18.1
EBITDA 153.8 112.5 36.7 122.8 25.2
PAT 93.57 63.2 48.0 73.2 27.9
EBITDA Margin 29.7% 25.7% 400bps 28.0% 170bps
PAT Margin 18.1% 14.4% 370bps 16.7% 140bps
15
During the quarter, company has seen 18.2% revenue growth from its advertisement,
14% from circulation and 25% from Radio business on YoY basis. Management
expressed its interest regarding inorganic expansion in near future to maintain its
healthy growth across all segments.
Segmental Performance:
Management Commentary:
25750
Share Holding Pattern-%
Nifty 6261.65
Stock Performance
Buy
Stock Performace with Nifty
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
According to management, Company will maintain a pragmatic approach towards
operational controls and higher efficiency. DBCORP will continue to capitalize its
consumption potential of Tier 2 and 3 cities. And they are studying on marketing
strategies of niche brands in Tier 2 and 3 cities. Company is expected to launch its Bihar
edition on 19 Jan, 2014, and we expect to see some part of additional revenue from
Bihar edition by 4QFY14E and also expect to see breakeven in 3 to 4 years.
View and Valuation:
In view of upcoming general election, we expect government ad spending to go up
substantially. Provision of TRAI’s 12 minutes ad cap would provide revenue visibility to
print media players, being one of the largest players DB Corp will be strong beneficiary
in near future. Company’s continuous efforts towards yield improvement and cutting
discounts will lead to margin improvement in future. Considering its long-term growth
story with favorable earning scenario and leadership position in key market, we are
positive on the stock. We maintain “BUY” view on the stock with the target price of Rs
340. At a CMP of Rs 301, stock trades at 4.1x of FY15E P/BV.
Average Daily Volume
Company witnessed impressive ramp up in margin front because of cost controlling
efforts, EBITDA margin up by 170bps (YoY) to 29.67% and PAT margin improved by
140bps (YoY) to 18.1%. Management stated to maintain its margin going forward and
clearly indicated for thrust on yield improvement. For few quarters company has been
consciously working on improvement of yield and cutting discount.
Robust Margin:
"On Strong Footing"
DBCORP beats the street with 18% (YoY) revenue growth led by healthy Ad- revenue
positively impacted by festive and election season during the quarter. PAT (excluding
EOI) grew by 28 %(YoY) because of growth in other Income. Consistency on earning performance led by regional growth and strategy on judicious
mix of price and promotion energize its strong visibility in near future. Management is
also committed for cost control and yield improvement, it will continue its strong
market positioning in all aspect.
CMP 301
Target Price 340
Result update
DBCORP
Previous Target Price -
Upside 13%
Change from Previous
52wk Range H/L 321.50/210
5521Mkt Capital (Rs Crores)
Market DataBSE Code 533151
NSE Symbol
"BUY"20th Jan' 14
Narnolia Securities Ltd,
16
(Source: Company/Eastwind)
Sales and Sales growth(%)(yoy)
(Source: Company/Eastwind)
PAT and PAT growth(%)(yoy)
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
DB CORP
Margin-%
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Margin Change
3QFY14 2QFY14 3QFY13 (YoY)-% (QoQ)-% YoY QoQ
Printing & Publishing newspaper 488.63 416.17 416.83 17% 17% 28% 200bps 500bps
Radio 23.82 17.09 19.08 25% 39% 36% 1200bps 2100bps
Event 1.12 1.76 0.89 26% -36% -66% (3500bps) (7900bps)
Sales GrowthMargin-%Segments
17
Revenue Segments
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Financials;
DB CORP
Revenue Geography-wise
Narnolia Securities Ltd,
Rs,cr FY10 FY11 FY12 FY13 FY14E FY15E
Sales 1062.1 1265.18 1451.51 1592.32 1861.91 2176.94
RM Cost 327.87 383.91 508.04 544.54 623.74 740.16
WIP -0.0016 -0.06 -0.04 0.03 -1.86 -2.18
Employee Cost 131.81 184.56 242.93 279.5 307.21 380.97
Ad Spend 12.98 12.52 15.04 17.21 22.34 23.95
Other expenses 161.24 185.2 216.06 234.07 260.67 315.66
Total expenses 720.03 862.13 1105.03 1210.25 1371.5 1656.7
EBITDA 342.07 403.05 346.48 382.07 490.5 520.3
Depreciation and Amortisation 37.83 43.28 50.57 58.06 64.5 75.4
Other Income 11.15 14.18 24.02 21.34 27.9 28.3
EBIT 304.24 359.77 295.91 324.01 426.0 444.9
Interest 35.69 15.3 9.23 7.99 8.0 5.1
PBT 279.70 358.65 310.7 337.36 445.9 468.1
Tax Exp 105.72 99.97 98.32 113.18 156.1 163.8
PAT 173.98 258.68 212.38 224.18 289.8 304.3
Growth-% (YoY)
Sales 10.5% 19.1% 14.7% 9.7% 16.9% 16.9%
EBITDA 132.2% 17.8% -14.0% 10.3% 28.4% 6.1%
PAT 265.4% 48.7% -17.9% 5.6% 29.3% 5.0%
Expenses on Sales-%
RM Cost 30.9% 30.3% 35.0% 34.2% 32.0% 34.3%
Employee Cost 12.4% 14.6% 16.7% 17.6% 16.6% 17.0%
Ad Spend 1.2% 1.0% 1.0% 1.1% 1.2% 1.1%
Event Expenses 1.1% 1.3% 1.0% 0.8% 0.8% 1.0%
consumption of store & spare 4.8% 4.6% 5.8% 6.0% 6.0% 6.2%
Distribution expenses 2.1% 1.7% 1.7% 1.8% 1.8% 1.9%
Other expenses 15.2% 14.6% 14.9% 14.7% 14.0% 14.5%
Tax rate 10.0% 7.9% 6.8% 7.1% 8.4% 7.5%
Margin-%
EBITDA 32.2% 31.9% 23.9% 24.0% 26.3% 23.9%
EBIT 28.6% 28.4% 20.4% 20.3% 22.9% 20.4%
PAT 16.4% 20.4% 14.6% 14.1% 15.6% 14.0%
Valuation:
CMP 239 246 219 212.1 301 301
No of Share 18 18 18 18.33 18.33 18.33
NW 649 829 927 1029 1180 1344
EPS 9.6 14.1 11.6 12.2 15.8 16.6
BVPS 36 45 51 56 64 73
RoE-% 27% 31% 23% 22% 25% 23%
P/BV 6.7 5.4 4.3 3.8 4.7 4.1
P/E 24.9 17.4 18.9 17.3 19.0 18.1
ITC
325
380
320
17%
19%
1M 1yr YTD
Absolute 3.7 14.5 13.8
Rel. to Nifty 2.0 10.2 9.3
Current 2QFY14 1QFY14
Promoters - - -
FII 19.3 19.3 19.6
DII 34.3 34.3 33.8
Others 46.4 46.1 46.6
Financials Rs, Cr
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 8623.11 7775.79 10.9% 7627 13.1%
EBITDA 3284.3 3173.3 3.5% 2857.7 14.9%
PAT 2385.3 2227.98 7.1% 2051.8 16.3%
EBITDA Margin 38.1% 40.8% (270bps) 37.5% 60bps
PAT Margin 27.7% 28.7% (100bps) 26.9% 80bs18
ITC posted better growth ahead of street expectations, Cigarette business on a strong
footing, long-term growth outlook remains strong;
Strong set of numbers, sales grew by 13.1% (YoY) led by robust sales across its FMCG
and Paper and Packaging divisions. Cigarette volume declined by 2%(YoY) because of
price hike by 18% in premium brand. PAT up by 16.3%, YoY.
Previous Target Price
Stock Performance
Further, with ITC being the market leader in cigarettes, higher pricing power in
Cigarette would continue to maintain higher margins. However, volume growth on
cigarette would be on the way of recovery position, previously impacted by price hike
on cigarette (king and 74mm size). Price rises in the cigarettes business drove margin,
revenue and profit growth.
" Accessing the growth "
CMP
Market Data
Upside
Target Price
Result update BUY
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
Average Daily Volume
257784
Margin status: The Company’s EBITDA Margin inched up by 50bps to 37.6% on YoY basis.
On segment wise, FMCG margin was positive to 0.5%, Cigarette Margin (EBIT) improved
to 64.4% from 61.1% (3QFY13), Hotel business margin up by 170bps to 19.7% and Agri-
Business up by 90bps to 11.5% on YoY basis. While Paper & Paper Product Business
margin down by 310bps to 18.4%, and Agri Business margin remains on negative
respectively.
Win- win performance across all Segments: Cigarettes (47.7% of Sales) up by 12.6% ,
FMCG-others (24.1% of sales up by 16.1%, Hotels (3.7% of sales) up by 2%, Agri
business (20.7% of sales) up by 10% and Paper and packaging (15% of sales) up by 19%.
FMCG business outside of cigarettes has broken even operationally despite consumers
slowing their discretionary spending.
View and Valuation: ITC’s cigarette volume decline to arrest towards Q4FY14 and
recover in FY15E, while non-cigarette business to report EBIT breakeven in FY14E. We
are positive on long-term demand growth in cigarette business due to rising affordability
and huge demand potential in small towns and rural areas. ITC offers the best earnings
visibility in the sector especially when sector peers are confronting multiple
challenges. The premium valuations enjoyed by ITC, at the CMP of Rs 325, the stock
trades at 8.2x FY15E P/BV seems justified from a growth point of view. We maintain ”
BUY” with a price target of Rs 380.
Change from Previous
1 yr Forward P/B
Share Holding Pattern-%
3497040
Nifty 6262
Volume growth: This was the third consecutive quarter when the company’s cigarettes
volume fell. Because of increased prices of cigarette, and volume growth declined by 2%
YoY. We expect, Volumes will retain its growth by next quarter, but the latest hike would
ensure better margins for the company.
Sound response from new launches: Its newer launches Sunfeast Delishus gourmet
cookies and Candyman confectionery during the quarter grew rapidly.
Products strategy: ITC continues to enjoy dominant market share in cigarette while ban
on Gutkha by most of state govt- has provided a strong demand. FMCG business is
expected to maintain momentum led by distribution linked growth, expected the price
hikes to aid cigarettes revenue.
380/281
BSE Code 500875
NSE Symbol ITC
52wk Range H/L
"BUY"20th Jan' 14
Narnolia Securities Ltd,
19
ITC
These cost pressures were, however,
mitigated through a combination of
improvements in product and process
efficiencies, smart sourcing and supply
chain initiatives.
ITC clocks 2% volume decline in
cigarettes,
Margin-%
(Source: Company/Eastwind)
RM Cost improved by 130bps because
of higher prices of Cigarette leaves and
imported paper products
Cigarette sales have grown by 13%
YoY. However, ITC attributed its
performance to the strategy of creating
multiple drivers of growth.
Please refer to the Disclaimers at the end of this Report.
Sales and its Growth(%)
(Source: Company/Eastwind)
(Source: Company/Eastwind)
(Source: Company/Eastwind)
Cigarette Volume Growth-%
Narnolia Securities Ltd,
20
ITC
Segment-wise Performance-%
Double digit growth in Cigarette, FMCG,
Agri and Paper & Packaging, but
single digit growthon Hotel business
Financials
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Segments Sales Contribution Sales Gr-YoY EBIT Margin Margin Change(YoY)
Cigarettes 47.7% 12.6% 64.4% 330bps
FMCG - Others 24.1% 16.6% 0.5% 180bps
Hotels 3.7% 1.9% 19.7% 180bps
Agri business 20.7% 9.7% 11.5% 90bps
Paper and packaging 14.6% 18.5% 18.4% (310bps)
Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E
Sales 19302.1 22575.0 26552.2 31627.5 35368.9 40349.1
RM Cost 6045.5 7136.9 7810.5 9069.8 10433.8 11903.0
Purchases of stock-in-trade 826.0 1296.8 1921.2 3305.2 2829.5 3227.9
WIP 100.5 -272.7 -86.4 -256.8 -247.6 -322.8
Employee Cost 1464.0 1708.5 1944.3 2145.6 2475.8 3026.2
Ad Spend 544.9 654.6 710.1 834.2 919.6 1089.4
Other expenses 3830.9 4381.9 5042.4 5355.1 6647.6 7583.6
Total expenses 12811.8 14905.9 17342.0 20453.2 23058.8 26507.3
EBITDA 6490.3 7669.1 9210.1 11174.3 12310.2 13841.8
Depreciation and Amortisation 643.9 699.1 745.5 859.1 943.2 968.4
Other Income 452.7 536.1 784.3 877.6 1061.1 1210.5
EBIT 6299.1 7506.1 9249.0 11192.8 12428.1 14083.9
Interest 53.4 70.9 80.5 87.2 12.9 17.9
PBT 6245.7 7435.2 9168.5 11105.7 12415.1 14065.9
Tax Exp 2034.9 2365.5 2845.8 3412.1 3910.8 4430.8
PAT 4210.8 5069.7 6322.7 7693.6 8504.4 9635.2
Growth-% (YoY)
Sales 15.7% 17.0% 17.6% 19.1% 11.8% 14.1%
EBITDA 24.7% 18.2% 20.1% 21.3% 10.2% 12.4%
PAT 25.4% 20.4% 24.7% 21.7% 10.5% 13.3%
Expenses on Sales-%
RM Cost 31.3% 31.6% 29.4% 28.7% 29.5% 29.5%
Ad Spend 2.8% 2.9% 2.7% 2.6% 2.6% 2.7%
Employee Cost 7.6% 7.6% 7.3% 6.8% 7.0% 7.5%
Other expenses 19.8% 19.4% 19.0% 16.9% 18.8% 18.8%
Tax rate 32.6% 31.8% 31.0% 30.7% 31.5% 31.5%
Margin-%
EBITDA 33.6% 34.0% 34.7% 35.3% 34.8% 34.3%
EBIT 32.6% 33.2% 34.8% 35.4% 35.1% 34.9%
PAT 21.8% 22.5% 23.8% 24.3% 24.0% 23.9%
Valuation:
CMP 263.2 181.5 256.5 335.0 325.0 325.0
No of Share 381.8 773.8 779.6 790.2 790.2 790.2
NW 14458.3 16489.9 19458.6 23157.9 26808.9 31128.5
EPS 11.0 6.6 8.1 9.7 10.8 12.2
BVPS 37.9 21.3 25.0 29.3 33.9 39.4
RoE-% 29.1% 30.7% 32.5% 33.2% 31.7% 31.0%
P/BV 6.9 8.5 10.3 11.4 9.6 8.2
P/E 23.9 27.7 31.6 34.4 30.2 26.7
HCLTECH
1M 1yr YTD
Absolute 17.8 109.4 149.1
Rel. to Nifty 15.4 105.1 131
Current 4QFY13 3QFY13
Promoters 61.84 61.92 61.99
FII 26.01 24.45 24.32
DII 5.70 6.49 6.56
Others 6.45 7.14 7.13
Financials2QFY14 1QFY14 (QoQ)-% 1QFY13 (YoY)-%
Revenue 8184 7961 2.8 6273.8 30.4
EBITDA 2125 2093 1.5 1417 50.0
PAT 1495 1416 5.6 965 54.9
EBITDA Margin 26.0% 26.3% (30bps) 22.6% 340bps
PAT Margin 18.3% 17.8% 50bps 15.4% 290bps
21
97287Mkt Capital (Rs Crores)
Market DataBSE Code 532281
NSE Symbol HCLTECH
30.7%
52wk Range H/L 1398/653
"Retain confidence"
CMP 1392
Target Price 1560
Result update Buy
1 year forward P/E
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
View and Valuation: HCL tech’s decent level of utilization, focused on cost control and
utilization of new market opportunities through vendor’s consolidation would provide a
new shape to the company in near future. On performance front, it continues to be
bullish on the rebid market and bullish on short-term to medium term, momentum on
deals pipeline also looking robust. Considering the increasing discretionary spends
across the geographies like US and Europe, we expect healthy earnings performance
ahead. At a CMP of Rs 1392, stock trades at 17.5x of FY14E earnings, We retain BUY on
the stock and revised our target price from Rs 1194 to Rs1560.
Average Daily Volume 1193062
Previous Target Price 1194
Upside 12%
HCL tech beats expectations with a sustained momentum in volumes and proved its
consistency to maintain its margin at 26% mark;
Change from Previous
Share Holding Pattern-%
Nifty 6319
Stock Performance
Segmental Performance: Infrastructure Services (contributes 34% of sales) continued to
lead with growth at 4.6%, and BPO services (contributes 5% of sales) grew by
10%(QoQ)followed by Enterprise Application at 1.6%, Custom Application Services at
1.4% and Engineering/ R&D Services at 1%, respectively.
Stable Margin: During the quarter, its EBITDA Margin was almost flat at 26% and good
thing is, company has been able to maintain its range of 25-26% for its margin. PAT
margin improved by 50bps to 18.3%, sequentially.
Following the successive 10th quarter, again company witnessed healthy growth in
2QFY14 than street expectation. Sales grew by 2.8% (QoQ) in INR term and 4% (QoQ)
in USD term led by 4.6% of growth from Infrastructure services and BPO services.
During the quarter, the company has crossed the landmark of USD5bn. PAT grew by
5.6 %(QoQ) in INR term and 7.1% (QoQ) in USD term.
Mixed performance across verticals: The Company contributed strong growth in the
Retal and manufacturing verticals. Retail & CPG and Manufacturing’s revenue growth up
by 6.5% and 3.7% respectively and Financial Services up by 2.4%. While growth from
Healthcare and Other services declined by 5.2% and 16.1% respectively.
Healthy deal pipeline: During the quarter, HCL Tech reported an addition of 15
transformational deals in the US and Europe for the December quarter. These wins have
been in the momentum markets of manufacturing and Financial Services as well as the
emerging momentum markets of life sciences & Healthcare and Public Services. Across
the geographies, USA and Europe remain best to drive deal wins during the quarter
because of healthy scenario of demand environment.
The company continues to lead the industry in profitable growth, with 11 successive
quarters of net income margin expansion, having reported 55% growth in Net Income
on Yearly basis. Management is confident to focus on vendor consolidation and cost
control activities to maintain its growth story.
"BUY"17th Jan' 14
Narnolia Securities Ltd,
22
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
HCLTECH
Sales(USD term) and Sales growth-%(QoQ)
Margin-%
Utilization rate
(Source: Company/Eastwind)
(Source: Company/Eastwind)
Utilization down from 84.9% to 84.1%.
Further, it's Utilization are at decent
levels, indicated can still derive more
efficiency .
In dollar terms, the revenues grew by
4% QoQ (cc terms 3.1%) to USD 1321mn
and net profit grew by 7.1% QoQ to
USD 241.6mn.
Tha company expects to maintain EBIT
margin at 18.5-19.5% in FY14
Clients Metrics
Employee Metrics
Narnolia Securities Ltd,
. 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
Top 5 Clients 15.3% 15.8% 16.0% 16.4% 16.2% 15.7% 15.4% 15.4% 15.1% 14.8%
Top 10 Clients 24.1% 24.2% 24.3% 24.7% 24.5% 24.2% 24.0% 23.8% 23.8% 23.8%
Top 20 Clients 34.2% 33.9% 33.9% 34.1% 33.6% 33.3% 32.8% 33.0% 33.2% 33.6%
Clients Contribution
. 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
No of Employee 70321 72055 72474 74675 75621 75226 74226 74912 87196 88332
Gross Addition 6927 4931 3303 5274 4479 3291 2933 4316 8061 7593
Attrition 15.9% 15.7% 15.0% 14.0% 13.6% 13.6% 14.2% 14.9% 16.10% 16.6%
23
(Source: Company/Eastwind)
Financials;
HCLTECH
Key facts from Con-CallThe company is expecting to catch up more deal from US and Europe because of better
demand environment ahead. Clients are looking vendor’s consolidation, and company will
try to turn this opportunity into deal.
The company expects to see margin at a range of 21-22% in near term. The wage hike is
spread over two quarters or rather more than two quarters. Q3 and Q4 margin could be
impact be 30bps.
The infrastructure business is largely under penetrated globally, less than 5% from an
Indian (vendor's) standpoint. They expect to see significant growth over there, in that
business and expect to raise infrastructure services margins by supporting customers
migrating to cloud computing.
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E
Net Sales-USD 2704.6 3545.3 4151.5 4686.5 5379.7 6492.2
Net Sales 12136.3 15730.3 20830.6 25581.1 32278.2 38628.3
Raw Materials Cost 443.6 522.1 612.0 959.3 968.3 1158.8
Employee Cost 6253.7 8589.6 11104.6 12574.2 16139.1 19507.3
Operation and other expenses 3498.5 4163.2 5418.8 6386.4 7101.2 8691.4
Total Expenses 10195.7 13274.9 17135.3 19919.9 24208.6 29357.5
EBITDA 1940.6 2455.4 3695.2 5661.2 8069.5 9270.8
Depreciation 418.1 459.7 549.2 636.8 748.6 903.4
Other Income 154.1 299.7 206.5 306.6 511.6 645.6
Extra Ordinery Items 0.0 0.0 0.0 44.5 -484.2 77.3
EBIT 1522.5 1995.7 3146.0 5024.4 7320.9 8367.3
Interest Cost 204.1 142.6 142.6 105.6 79.2 59.4
PBT 1472.4 2152.8 3209.8 5269.9 7269.1 9030.8
Tax 213.4 488.5 782.7 1225.3 1744.6 2212.5
PAT 1259.0 1664.3 2427.1 4044.6 5524.5 6818.2
Sales-USD 24.1% 31.1% 17.1% 12.9% 14.8% 20.7%
Sales 18.6% 29.6% 32.4% 22.8% 26.2% 19.7%
EBITDA 5.9% 26.5% 50.5% 53.2% 42.5% 14.9%
PAT -4.6% 32.2% 45.8% 66.6% 36.6% 23.4%
Margin -%
EBITDA 16.0% 15.6% 17.7% 22.1% 25.0% 24.0%
EBIT 12.5% 12.7% 15.1% 19.6% 22.7% 21.7%
PAT 10.4% 10.6% 11.7% 15.8% 17.1% 17.7%
Expenses on Sales-%
Employee Cost 51.5% 54.6% 53.3% 49.2% 50.0% 50.5%
RM Cost 3.7% 3.3% 2.9% 3.8% 3.0% 3.0%
Operation and other expenses 28.8% 26.5% 26.0% 25.0% 22.0% 22.5%
Tax rate 14.5% 22.7% 24.4% 23.3% 24.0% 24.5%
Valuation
CMP 364.9 493.5 490.0 759.5 1392.0 1392.0
No of Share 67.9 68.9 69.3 69.6 69.6 69.6
NW 6288.8 7653.0 9837.9 13164.0 17548.4 23226.5
EPS 18.5 24.2 35.0 58.1 79.4 97.9
BVPS 92.6 111.1 141.9 189.1 252.1 333.7
RoE-% 20.0% 21.7% 24.7% 30.7% 31.5% 29.4%
Dividend Payout ratio 25.0% 31.5% 33.1% 24.2% 20.6% 16.7%
P/BV 3.94 4.44 3.45 4.02 5.52 4.17
P/E 19.68 20.43 13.99 13.07 17.54 14.21
Growth-%
1M 1yr YTD
Absolute 0.2 -9.0 13.0
Rel. to Nifty -1.8 -14.0 -5.0
Current 2QFY14 1QFY1
4Promoters 50.0 50.0 50.0
FII 18.7 17.8 17.4
DII 6.9 7.8 7.7
Others 24.4 24.4 24.8
Financials Rs, Crore
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 5131 5175 (0.9) 5413 -5.2
EBITDA 1135 1132 0.3 1012 12.2
PAT 905 837 8.1 819 10.5
EBITDA Margin 22.1% 21.9% 20bps 18.7% 340bps
PAT Margin 17.6% 16.2% 150bps 15.1% 250bps
24
BAJAJ-AUTO LTD.
Please refer to the Disclaimers at the end of this Report.
52wk Range H/L 2193/1657
-
Market Data
BSE Code 532977
BAJAJ-AUTO
Stock Performance-%
Share Holding Pattern-%
Mkt Capital (Rs, Cr)
NSE Symbol
Change from Previous
One Yr Price Movement
(Source: Company/Eastwind)
55,208
Average Daily Volume 197712
Nifty 6318
Upside
Target Price 1870
Previous Target Price -
The net profits of the company for 3QFY14 came at Rs 905 Cr and NPM at 17.6 %.The
other income for the quarter came at Rs 222 Cr and Tax Rate was 31 %.
Bajaj Auto posted its 3QFY14 results with net sales at Rs 5025 Cr down by 6 % YoY. The
decline in the net sales came on the back of lower volume in the quarter under review. The
company during the 3QFY14 manage to sell 993,690 units of vehicles down by 11 % YoY.
The total number of 2W sold during the quarter was 887,671 units down by 10 %YoY. The
company during the quarter sold 106,019 units of 3W down by 25 % YoY. The company
during 3QFY14 also have lost 3% market share.
Declined Sales Growth ; Loss in Market Share ; Maintained EBITDA Margin; Not so
Optimistic guidance..
The operating EBITDA during the quarter came at Rs 1135 Cr and OPM was 22.1 %
however the company have gained Rs 95 Cr towards time value of foreign exchange
contracts. Therefore adjusted OPM stands at 21 %.The company during the quarter
managed to hold its prices across its models which helps to maintain its OPM levels at early
twenties range. The realization of dollar for the quarter was at Rs 62.
-
Inline Performance but Market Share lost.
Result Update Neutral
CMP 1908
The stock is trading at Rs 1908 and it has achieved our previous target price of Rs 2100, we
have turned to neutral for the stock post our target price achievement .The 3QFY14 results
are not much strong to make a convincing thought more over the management of company
has not hinted relatively stronger business outlook going forward. Post analysis of 3QFY14
results and management commentary does not make any strong conviction and maintain
our NEUTRAL view for the stock with Target Price of Rs 1870.
View & Valuation
The management of the company after results said that they donot look significant change in
industry outlook going forward. The management stated that though they have lost nearly 3
% of market share during the quarter however are hopeful to regain it on the back of 125 cc
discover bike (Launched way back in Nov 2013) and another forthcoming launch in March
2014.The company further said that they donot see OPM to cross 21% levels in near term.
The company reiterated that they will not foray in scooter segments.
Management Commentary
The realization per vehicle for the quarter was at Rs 50567 and it was Rs 47060 for the
same time last fiscal.
"NEUTRAL"17th Jan' 14.
Narnolia Securities Ltd,
25
BAJAJ-AUTO LTD.
OPM & NPM TREND
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Volume Trend
(Source: Company/Eastwind)
The total number of 2W sold during the
quarter was 887,671 units down by 10 %YoY.
The company during the quarter sold
106,019 units of 3W down by 25 % YoY.
(Source: Company/Eastwind)
SALES & PAT TREND
The decline in the net sales in the quarter
came on the back of lower volume sales.
The company during the quarter managed to
hold its prices across its models which helps
to maintain its OPM levels at early twenties
range
Narnolia Securities Ltd,
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
otherwise in the recommended/mentioned securities/mutual funds/ model funds and
other investment products which may be added or disposed including & other mentioned
in this report/message.