Stock Investment Tips Recommendation 17-01-2014

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 : 5-6)

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 : 2-4)

DCB : "BUY" 17th Jan 2014

DCB reported healthy profit growth on the back of higher growth in NII and other income. Bank reported improvement in asset quality in

sequential basis despite of challenging macro environment. During quarter bank strengthen its balance sheet and witnessed improvement of

operating and financial metrics. We have revised our target price to Rs.65 from earlier of Rs.61 and according change our rating from neutral to

buy ............................................ ( page :12-16)

Axis Bank’s profit was better than expectation largely due to lower provisions made by bank. At PBT level bank reported moderate growth of

10.7% YoY despite of healthy NII growth on account of flat other income and higher CI ratio. Margin at sequential basis was compressed by 8

bps due to higher growth in cost of fund than yield on loan. Exposure to risky sector remained high among peers. We revised our target price to

Rs.1217 from earlier of 1147. We remain have neutral view on the stock owing to uncomfortable profit, lower growth in deposits than loan,

sticky gross slippage ratio and impaired asset higher than peers. ............................... ( Page :7-11)

17th Jan, 2014

Edition : 186

IEA-Equity

Strategy

AXIS BANK : "Neutral" 17th Jan 2014

CMC : "Nothing for excitement" "Neutral" 16th Jan 2014

we expect that its earning visibility and order from government side in coming 2 quarter could be impacted because of general election

schedule in India (earns 41% revenue from India). For a near to medium -term prospect, we are not much excited on the stock taking its earning

visibility in near term. We had already advised to book profit on 9th Jan 2014 at a target price of Rs 1690, now we have a “Neutral” view on the

stock. At a CMP of Rs 1527, stock trades at 16.5X FY15E earnings ................................... ( Page : 24-26)

YES BANK : "Neutral" 16th Jan 2014

Yes Bank profit growth was higher than expectation due to lower provisions made of bank despite of reporting higher delinquencies. Balance

sheet growth on sequential basis declined led by lower incremental deposits (other than CASA) whereas advance grew handsomely. Leverage

ratio (Total asset to Net worth) has been declining from past four quarters indicating no surplus liquidity in balance sheet. Moreover bank need

additional borrowings to fund its growth trajectory, this would result of higher cost of fund and margin compression. We remain have neutral

view on the stock and reduce our target price to Rs.388 from Rs.443.................... ( Page :20-23)

"BUY" 16th Jan 2014

For 3QFY14, NIITTECH reported marginally below numbers than street estimates, sales was unchanged at Rs587.3cr because of reduced

purchase for resale (PFR) in domestic Government business while revenues from services grew 4.3% sequentially. Company’s Order wins in the

recent quarters have been healthy, lending visibility on revenue growth. At a CMP of Rs 376, trades at 6.9x FY15E earnings. We retain “ buy”

view on the stock with a price target of Rs 440 (revised from Rs360) ........................... ( Page :17-19)

NIIT Tech :"Focused on growth story"

Narnolia Securities Ltd,

India Equity AnalyticsDaliy Fundamental Report on Indian Equities

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

2

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.

Share Holding Pattern-%

Nifty 6319

Stock Performance

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;

"Retain confidence"

CMP 1392

Target Price 1560

Change from Previous 30.7%

52wk Range H/L 1398/653

97287Mkt Capital (Rs Crores)

Market DataBSE Code 532281

NSE Symbol HCLTECH

"BUY"17th Jan' 14


3

Utilization rate



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



HCLTECH

Sales(USD term) and Sales growth-%(QoQ)

Margin-%


. 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%

4

The 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.



Financials;

HCLTECH

Key facts from Con-Call


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


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


5

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.

Inline Performance but Market Share lost.

Result Update Neutral

CMP 1908

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.

-

Upside

Target Price 1870

Previous Target Price -

Nifty 6318


Mkt Capital (Rs, Cr)

NSE Symbol

Change from Previous

One Yr Price Movement


55,208


BAJAJ-AUTO LTD.


52wk Range H/L 2193/1657

-

Market Data

BSE Code 532977

BAJAJ-AUTO

Stock Performance-%

"NEUTRAL"17th Jan' 14.


6

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.


SALES & PAT TREND

The decline in the net sales in the quarter

came on the back of lower volume sales.


Volume Trend


BAJAJ-AUTO LTD.

OPM & NPM TREND


The company during the quarter managed to

hold its prices across its models which helps

to maintain its OPM levels at early twenties

range


AXIS BANK

1173

1217

1147

4

6

1M 1yr YTD

Absolute -6.3 -15.1 -15.1

Rel.to Nifty -9.2 -20.0 -20.0


3Promoters 33.9 33.9 33.9

FII 43.2 43.4 40.7

DII 9.7 4.9 8.8

Others 13.2 17.8 16.6

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 6566 8026 9666 12224 14775

Total Income 11238 13513 16217 19146 21697

PPP 6377 7413 9303 11206 12367

Net Profit 3340 4224 5179 5826 6934

EPS 81.4 102.2 110.7 124.2 148.2

7

Mkt Capital (Rs Cr)


Stock Performance

Average Daily Volume


Axis Bank Vs Nifty


5.19 lakh

Nifty 6318

Result Updated NEUTRAL

CMP

Target Price

Bank’s profitability was better than expectation largely due to lower

provisions. At operating profit level bank registered moderate growth of 10.7%

YoY led higher Cost Income ratio and flat other income despite of healthy NII

growth. Bank’s exposure to risky sector (Power+ Infrastructure) remained at

12.87% higher among peers. However retail growth in advance would help

bank to keep NIM at high but lower growth in deposits especially in CA and

term deposits remain a cause of worry. We revised our target price to Rs.1217

from earlier of 1147. We remain have neutral view on the stock owing to

uncomfortable profit, lower growth in deposits than loan, sticky gross

slippage ratio and impaired asset higher than peers.

55229

Previous Target Price

Market Data

Upside

1549/764

BSE Code 532215

NSE Symbol AXISBANK

52wk Range H/L

Inch up deterioration in asset quality

During quarter bank reported inch up deterioration in asset quality with GNPA in

absolute term increased by 10% QoQ to Rs.3008 cr whereas as provisions (loan

loss) increased by 6% QoQ basis. As the result net NPA in absolute term increased

by 20% QoQ. In percentage term GNPA and net NPA stood at 0.47% and 0.9%

against 0.42% and 0.9% in 2QFY14. Gross slippage ratio for the quarter was 1.1%.

Bank reported recoveries were Rs.122 cr write-off were Rs.193 cr. Outstanding

restructure assets at the end of quarter was Rs.4900 cr which was 2.32% of net

advance, higher among peers.

Healthy NII growth on the back of higher CD ratio and margin expansion on

YoY basis

Bank reported NII growth of 19.6% YoY to Rs.2984 cr versus expectation of Rs.3006

cr due to lower than expected loan growth and lower loan yield. NIM margin

expansion on year to year basis along with higher credit deposits ratio helped bank

to report fairly stable interest income. Cost of deposits was by and large stable at

7.3% led by CASA deposits growth. Other income grew by 2% YoY taking revenue

growth of 12.6% YoY despite of healthy growth in NII.

CI ratio marginally increased but still comfortable

Cost Income ratio increased marginally to 43.5% from 42.5% in 3QFY13 but

remained comfortable as operating leverage stable at 0.55%. Employee cost and

other operating cost increased by 6.5% and 20% respectively. Higher growth in other

operating cost was on account of 96 branches and 532 ATMs added during the third

quarter. In the absence of healthy other income and higher CI ratio, operating profit

grew by 10.7% YoY to Rs.2615 cr.

"NEUTRAL "16th Jan, 2014


8

Bank’s profitability was better than expectation largely due to lower provisions. At

operating profit level bank registered moderate growth of 10.7% YoY led higher Cost

Income ratio and flat other income despite of healthy NII growth. Bank’s exposure to risky

sector (Power+ Infrastructure) remained at 12.87% higher among peers. However retail

growth in advance would help bank to keep NIM at high but lower growth in deposits

especially in CA and term deposits remain a cause of worry. We revised our target price

to Rs.1217 from earlier of 1147. We remain have neutral view on the stock owing to

uncomfortable profit, lower growth in deposits than loan, sticky gross slippage ratio and

impaired asset higher than peers.

AXIS BANK


Loan growth higher than deposits growth; CASA remain healthy

On balance sheet front, bank’s advance grew by 18% YoY as against our expectation of

20% led retail advance growth of 44% YoY followed by SME (25% YoY) and agriculture

(15% YoY) growth. Deposits grew by 7% YoY versus expectation of 16%. Lower deposits

growth was primarily due to muted growth in current account and term deposits which

were reported 5% and 3% YoY growth respectively. Saving deposits grew by 23% YoY

taking overall deposits growth to 7%. CASA deposits registered growth of 250 bps YoY to

42.6%. A credit deposit for the quarter was high at 80.6% implying some dependency on

other than deposits. Borrowings as a percentage of NDTL (net demand time liability)

increased to 15.6% from 13.7% in 3QFY13 but still at comfortable level (above of HDFC

bank and below of ICICI bank). Bank is able to maintain its cost of fund under control

basically from high base of CASA deposits.

Margin compression on sequential basis due to declined loan yield as compare to

cost of fund

Sequentially NIM was declined by 8 bps to 3.71% from 3.79% due to declined of loan

yield as compare to cost of fund. Loan yield was 10.5% versus 10.7% in previous quarter

whereas cost of fund remains stable at 6.3%. Deposits cost (EW Calculation) other than

borrowing increased marginally to 6.18% from 6.16% on sequential basis. We do not

see margin compression >10 bps in next couple of quarters because of low cost

deposits (CASA) support and increasing share of high yield retail advance.

Valuation & View


9

AXIS BANK

Source: Eastwind/Company


Fundamenatl throught graph

NII growth led by healthy CD ratio and

margin expansion on YoY basis

Lower other income and higher CI ratio led

muted PPP growth

Profit growth was higher than expectation on

the back of lower provisions


10

Quarterly Result

AXIS BANK




Quarterly Result 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation

Interest/discount on advances / bills 5557 5394 4907 13.3 3.0 5748 3.4

Income on investments 2110 2143 2014 4.8 -1.5 2235 5.9

Interest on balances with Reserve Bank of India 49 35 25 97.7 39.4 35 -29.2

Others 73 37 19 277.1 95.6 38 -47.4

Total Interest Income 7789 7609 6965 11.8 2.4 8056 3.4

Others Income 1644 1766 1615 1.8 -6.9 1774 7.9

Total Income 4628 4703 4110 12.6 -1.6 4780 3.3

Interest Expended 4805 4672 4470 7.5 2.8 5049 5.1

NII 2984 2937 2495 19.6 1.6 3006 0.8

Other Income 1644 1766 1615 1.8 -6.9 1774 7.9

Total Income 4628 4703 4110 12.6 -1.6 4780 3.3

Employee 655 644 615 6.5 1.7 0

Other Expenses 1358 1309 1134 19.8 3.8 0

Operating Expenses 2013 1953 1749 15.1 3.1 2008 -0.3

PPP( Rs Cr) 2615 2750 2362 10.7 -4.9 2772 6.0

Provisions 202 687 387 -47.7 -70.5 752 271.4

PBT 2413 2062 1975 22.2 17.0 2020 -16.3

Tax 808 700 628 28.8 15.5 687 -15.0

Net Profit 1604 1362 1347 19.1 17.7 1333 -16.9

Balance Sheet Date

Net Worth 37649 36224 27027 39.3 3.9 37558 -0.2

Deposits 262398 255365 244501 7.3 2.8 272935 4.0

Loan 211467 201303 179504 17.8 5.0 214892 1.6

Asset qualtiy( Rs Cr)

GNPA 3008 2734 2275 32.2 10.0 -

NPA 1003 838 679 47.8 19.7 -

%GNPA 1.4 1.4 1.3 -

%NPA 0.5 0.4 0.4 -

11

AXIS BANK

FINANCIALS & ASSUPTION




Income Statement 2011 2012 2013 2014E 2015EInterest Income 15155 21995 27183 31198 38490

Interest Expense 8589 13969 17516 18974 23716

NII 6566 8026 9666 12224 14775

Change (%) 31.2 22.2 20.4 26.5 20.9

Non Interest Income 4671 5487 6551 6922 6922

Total Income 11238 13513 16217 19146 21697

Change (%) 25.3 20.2 20.0 18.1 13.3

Operating Expenses 4860 6100 6914 7940 9330

Pre Provision Profits 6377 7413 9303 11206 12367

Change (%) 22.4 16.2 25.5 20.5 10.4

Provisions 3033 3189 4124 2402 2461

PBT 3345 4224 5179 8804 9906

PAT 3340 4224 5179 5826 6934

Change (%) 34.8 26.5 22.6 12.5 19.0

Balance SheetDeposits( Rs Cr) 189166 219988 252614 290506 334081

Change (%) 34 16 15 15 15

of which CASA Dep 77758 91412 112100 124917 143655

Change (%) 18 18 23 11 15

Borrowings( Rs Cr) 26268 34072 43951 51266 58956

Investments( Rs Cr) 71788 92921 113738 129873 149354

Loans( Rs Cr) 142408 169760 196966 228481 265037

Change (%) 36 19 16 16 16

Valuation

Book Value 460 549 708 813 942

CMP 1404 1146 1304 1174 1174

P/BV 3.1 2.1 1.8 1.4 1.2

59

65

62

10

5

1M 1yr YTD

Absolute 17.1 15.9 -15.1

Rel.to Nifty 14.2 11.0 -20.0


3Promoters 18.5 18.5 18.5

FII 11.9 11.4 11.4

DII 15.0 14.1 12.5

Others 54.6 56.1 57.7

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 189 228 284 369 364

Total Income 301 328 401 509 505

PPP 86 84 126 188 192

Net Profit 21 55 102 153 157

EPS 1.1 2.3 4.1 6.1 6.3

12

52wk Range H/L


1475

Asset quality improved despite of tight macro environment

During this quarter, bank made total provision (includes loan loss, investment

depreciation, standard asset, restructure assets etc) of Rs.10 cr versus Rs.7 cr in

previous quarter and Rs.5 cr in last quarter. On sequential basis gross NPA

improved by 12% to 208 cr from Rs.235 cr. In percentage of gross advance GNPA

for the quarter improved to 2.8% from 3.5% in 2QFY14. Bank made lower loan loss

provision to the tune of Rs.151 cr versus Rs.178 cr in previous quarter. As the result

provision coverage ratio was declined from 76% to 72.6% sequentially. Net NPA in

absolute term stable with Rs.57 cr and improved to 0.8% from 0.9% of net advances

on quarter to quarter basis.

Registered healthy loan and deposits growth, balance sheet consolidated

DCB reported higher than expected loan growth of 23.4% YoY to Rs.7362 cr against

our expectation of Rs.7125 cr. Deposits grew by 27% YoY led by term deposits

growth of 34% YoY. CASA reported growth of 9% YoY but in percentage term, it

stood at 24.8% as against 28.9% in 3QFY13. Credit deposits ratio stable at

sequential basis at 76.7% versus 76% in previous quarter and 78.9% in 3QFY14.

Higher CD ratio during the last quarter was on account of higher dependence on

borrowing rather than deposits. Borrowing as a percentage of NDTL (net demand

time liability) reduced to 24.8% in 3QFY14 from 28.9% in 3QFY13. Declining share

of CASA ratio little disappointed us but bank was able to keep cost of fund under

control. We do not see larger impact on NIM due to declined of CASA.

Stock Performance

60.55/38.05

BSE Code 532772

NSE Symbol DCB

CMP

Target Price

DCB reported healthy profit growth with the support of robust NII along with

other income. We note that bank’s operating as well as financial metrics has

been improving continuously. Although on CASA front, we disappointed little

bit but continuous decreasing dependency on addition fund (borrowing as a

percentage of net demand time liability) would keep NIM at current level.

Improvement of asset quality along with comfortable PCR would provide

cushion to its earnings. We have revised our target price from Rs.61 to Rs.65

and recommend buy.

Mkt Capital (Rs Cr)



Result Updated


Market Data

Upside

BUY

DCB


DCB Vs Nifty


13.76 lakh

Nifty 6318

"BUY"17th Jan,2014


13

Cost to Income ratio was declined to 63.4% from 68.5% in 3QFY13 and 66.2% in

2QFY14 which surprise us positively. We assumed 66% of CI ratio for the quarter but

looking at bank’s strategy to keep operating leverage under control we tweak our

assumption to 63.2% for FY14. Employee cost and other operating cost increased by

12.7% and 20% YoY respectively. Healthy core earnings, higher other income and lower

CI ratio led operating profit growth of 46% YoY.

DCB

Source: Company/Eastwind


Robust growth in NII on the back of healthy NII growth and supportive other

income

DCB in its quarter result reported revenue growth of 25.6% YoY to Rs.125 cr in line with

our expectation of Rs.127 cr. Growth in NII was come from sequentially improvement of

credit deposits ratio, margin expansion led by higher loan yield in compare to cost of

fund. During quarter bank reported NII growth of 30% YoY to Rs.94 against our

expectation of Rs.88 cr. Bank reported other income of Rs.328 cr versus Rs.289 cr in last

quarter in which commission income was 267 cr registered growth of 20% YoY. Bank has

been continuous strengthen its core earnings contribution to total earnings as the ratio of

other income to total income has been declining from 20% in 1QFY11 to 10% in 3QFY14.

Declining share of other income in total income

Cost to Income declined sequentially led operating profit growth of 46% YoY


Rs. Cr 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Other Income(A) 30 27 26 29 23 23 26 28 28 28 29 33 45 27 33

Total Income(B) 150 155 166 177 185 202 210 221 241 247 258 286 306 296 324

%(A/B) 20 17 16 16 13 11 13 13 11 11 11 12 15 9 10

14

Valuation & View

Compression of NIM on account of higher cost of fund rather than growth of loan

yield

NIM declined 13 bps QoQ to 3.55% from 3.68% largely due to higher growth came in

cost of fund than yield on loan. Sequentially cost of fund increased to 7.86% against

7.56% whereas yield on loan increased to 12.96% from 12.73%. Higher cost fund was

account of declining share of low cost CASA franchise in total deposits.

DCB reported healthy profit growth with the support of robust NII along with other income.

We note that bank’s operating as well as financial metrics has been improving

continuously. Although on CASA front, we disappointed little bit but continuous

decreasing dependency on addition fund (borrowing as a percentage of net demand time

liability) would keep NIM at current level. Improvement of asset quality along with

comfortable PCR would provide cushion to its earnings. We have revised our target price

from Rs.61 to Rs.65 and rate buy from neutral.

DCB

Source: Eastwind/ Company


Higher profit growth led by healthy revenue growth, sequential improvement of CI

ratio and improvement in asset quality

With the support of healthy core income, higher other income, sequentially improvement

of CI ratio and improving asset quality led net profit growth of 35% YoY to Rs.36 cr as

against our expectation of Rs.34. In our earlier note dated 13th Dec.2014 (Private sector

banking result preview), we highlighted that DCB, HDFC bank and ICICI bank would

report better result.


15

DCB




Quarterly Result( Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY % QoQ 3QFY14E Variation

Interest/discount on advances / bills 222 205 181 23.0 8.3 214 -3.8

Income on investments 63 58 48 32.7 9.6 62 -2.8

Interest on balances with Reserve Bank of India 5 5 1 736.4 -11.7 4 -20.0

Others 0 0 0 -26.8 -5.9 0

Total Interest Income 291 269 229 26.8 8.2 279 -3.9

Others Income 33 27 29 13.6 20.4 36 10.2

Total Income 324 296 258 25.3 9.3 316 -2.5

Interest Expended 197 178 157 25.1 10.9 191 -3.0

NII 94 91 72 30.5 3.0 88 -5.9

Other Income 33 27 29 13.6 20.4 36 10.2

Total Income 127 119 101 25.6 7.0 125 -1.8

Employee 39 39 35 12.7 1.8 0

Other Expenses 41 40 34 20.0 3.4 0

Operating Expenses 80 78 69 16.3 2.6 82 2.2

PPP( Rs Cr) 46 40 32 45.9 15.6 42 -8.6

Provisions 10 7 5 105.5 42.2 9 -14.4

PBT 36 33 27 35.1 9.9 34 -7.0

Tax 0 0 0 0

Net Profit 36 33 27 35.1 9.9 34 -7.0

Balance Sheet (Rs Cr)

Net Worth 1115 1079 969 15.1 3.4 1113 -0.2

Deposits 9592 8788 7558 26.9 9.1 9203 -4.1

Loan 7362 6677 5964 23.4 10.3 7125 -3.2

Asset quality (Rs Cr)

GNPA 208 235 234 -11.1 -11.6 -

NPA 57 57 44 31.1 -0.2 -

% GNPA 2.8 3.5 3.9 -

% NPA 0.8 0.9 0.7 -

16

DCB




Income Statement 2010 2011 2012 2013 2014E 2015EInterest Income 459 536 717 916 1121 1241

Interest Expense 317 347 489 632 753 1088

NII 142 189 228 284 369 153

Change (%) -28.2 33.6 20.4 24.9 29.6 -58.5

Non Interest Income 107 112 100 117 140 140

Total Income 249 301 328 401 509 293

Change (%) -21.6 21.2 8.9 22.4 26.8 -42.4

Operating Expenses 201 215 244 275 322 182

Pre Provision Profits 48 86 84 126 188 111

Change (%) -36.5 79.9 -2.6 50.5 48.7 -40.5

Provisions 121 57 29 24 35 0

PBT -73 29 55 102 153 111

PAT -79 21 55 102 153 111

Change (%) -10.1 -127.2 157.1 85.3 49.7 -27.0

Balance SheetDeposits( Rs Cr) 4787 5610 6336 8364 9618 11061

Change (%) 3 17 13 32 15 15

of which CASA Dep 1693 1975 2035 2272 2710 1904

Change (%) 17 17 3 12 19 -30

Borrowings( Rs Cr) 504 861 1123 1526 814 1282

Investments( Rs Cr) 2018 2295 2518 3359 3689 3270

Loans( Rs Cr) 3460 4271 5284 6586 7640 9168

Change (%) 6 23 24 25 16 20

RatioAvg. Yield on loans 10.4 9.4 10.1 10.8 9.7 9.7

Avg. Yield on Investments 4.7 5.8 6.9 5.8 6.8 6.8

Avg. Cost of Deposit 5.9 5.2 6.4 6.4 5.9 5.9

Avg. Cost of Borrowimgs 6.8 6.4 7.2 6.4 6.0 6.0

Valuation

Book Value 30 31 36 40 46 51

CMP 32.2 45.9 45 45 57 57

P/BV 1.1 1.5 1.3 1.1 1.2 1.1

NIIT Tech

1M 1yr YTD

Absolute 12.7 36.3 43.3

Rel. to Nifty 10.2 31.4 38.5


Promoters 31.08 31.19 31.23

FII 32.35 29.21 29.04

DII 17.34 19.94 19.67

Others 19.23 19.66 20.06


Revenue 587.3 587.3 0.0 500.1 17.4

EBITDA 95.1 88.6 7.3 81.3 17.0

PAT 52.5 60.4 (13.1) 56.6 -7.2

EBITDA Margin 16.2% 15.1% 110bps 16.3% (10bps)

PAT Margin 8.9% 10.3% (120bps) 11.3% (140bps)

17

"Focused on growth story"

CMP 376

Target Price 440

Below than street expectations, but confident on future growth; Result update Buy

For 3QFY14, NIITTECH reported marginally below numbers than street estimates, sales

was unchanged at Rs587.3cr because of reduced purchase for resale (PFR) in domestic

Government business while revenues from services grew 4.3% sequentially. During the

quarter, company has been able to maintain healthy order book and eyeing on strong

order pipeline.

1 year forward P/E

Rs, Crore



View and Valuation: We expect good growth from Travel & Tourism vertical in FY'14

and the BFSI expected to be softer. However, the MFG and Govt verticals expected to

improve going forward. Company’s Order wins in the recent quarters have been healthy,

lending visibility on revenue growth. At a CMP of Rs 376, trades at 6.9x FY15E earnings.

We retain “ buy” view on the stock with a price target of Rs 440 (revised from Rs360).

Healthy order addition: During the quarter, the company secured a USD 300 million

vendor consolidation deal from a top BFSI client for a period of 10 years. It has secured

fresh order of USD 377mn versus USD 84mn in 2QFY14. However, in 3Q FY14, order has

primarily been in the international market. During the quarter, NIIT Tech forayed into

Latin America through its partnership with GRU Aeroporto Internacional de São Paulo

(Sao Paolo International Airport), to implement and transform the cargo handling

system at the airport.


Previous Target Price 360

Upside 17%

Change from Previous 22%

Market DataBSE Code 532541

NSE Symbol NIITTECH

Slow deal execution in Government and Insurance projects: Among industry segments,

Travel and Transportation contributed to 37% (up by 3%, QoQ), BFS was 17% (up by

21%, QoQ), Government projects declined from 10% to 6% (down by 40%, QoQ) to the

revenue mix.

Steady margin: EBITDA Margin improved by 120bps (QoQ) to 16.2% on the back of

reduction Employee cost by 3.5%, sequentially.

PAT declined by 12%(QoQ) impacted by a loss in other income as a result of revaluation

of foreign currency assets and liabilities due to period end exchange difference.

Post earning, management is gearing up for its paradigm shift in growth strategy for the

future and set an aspirational target to grow revenues to USD 1 bn in the next 5yrs. They

stated that, margins will start seeing improvement from Q4FY14, led by the

improvement in the margin from the Geographic Information Systems (GIS) business

and the Morris joint venture.

Stock Performance

52wk Range H/L 399/234


Healthy growth traction from US and Europe: The contribution to the total revenues

from the U.S. increased to 44% from 41% (up 7%,QoQ) and EMEA stood at 38% from

36%( up 6%, QoQ). The revenue share from rest of the world declined from 23% to 18%

(down 22% QoQ). Post result management stated that the demand environment is

clearly showing positive signs in the US with the debt issue being the only overhang.

Mkt Capital (Rs Crores)

Nifty 6321

2281

"BUY"16th Jan' 14


18

The 3QFY14 witnessed sustained hiring

and attrition improved from 12.44% to

13.40% on LTM basis. Managent is very

confident to maintain attrition at 12-13%

and utilization at 77-80%.

It expects the growth momentum will

sustain with holding the margins going

forward.

Clients Metrics



Higher DSO: The DSO days were 98 (2QFY14 – 100) during the quarter.In general, the DSO

days are typically used to be at 80 days.

NIIT Tech

Sales and PAT growth-%(QoQ)

Employee Metrics: Total headcount increased from 8017 from 8,160 at the end of the

quarter. Utilzation declined to 78.4% from 80.3%(2QFY14) because of weak quarter and

still, company is good to maintain attrition at a mark of 12-13%, which is better than its

peers.

Clients Metrics: During the quarter, Company added 4 new clients, each in BFSI, travel

and transportation, manufacturing, and government segment.

Margin-%



Company expects FY14 to be better

than FY13 with respect to both revenue

growth and EBIT margin. And also

expects stronger growth in the US and

Asian markets compared with Europe.

Management also expects to see

demand environmrnt ahead.


19

NIIT Tech

Operating Metrics;



Financials;


. 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Banking and Finacial Services 13% 13% 12% 12% 12% 14% 17%

Insurance 21% 20% 19% 19% 18% 19% 18%

Transport 40% 42% 42% 37% 36% 37% 38%

Manufacturing 7% 6% 6% 6% 7% 6% 7%

Government 8% 5% 8% 11% 13% 10% 6%

Others 11% 14% 13% 15% 14% 14% 14%

Americas 36% 38% 37% 38% 38% 41% 44%

EMEA 39% 39% 40% 37% 37% 36% 38%

RoW 25% 23% 23% 25% 26% 23% 18%

DSO-days 84 75 76 82 98 100 96

Top-5 30% 32% 34% 32% 31% 36% 37%

Top-10 43% 47% 48% 47% 46% 49% 49%

No of Headcounts 7444 7617 7882 8158 8207 8017 8160

Sales Mix-Geography

Revenue Concentration %

Headcounts

Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales 913.7 1232.25 1576.48 2021.36 2341.54 2814.74

Employee Cost 503.71 601.36 891.12 1115.1 1334.68 1562.18

Other expenses 239.75 393.1 415.26 576.96 620.51 774.05

Total expenses 743.46 994.46 1306.38 1692.06 1955.19 2336.24

EBITDA 170.24 237.79 270.1 329.3 386.35 478.51

Depreciation 35.81 31.46 36.42 56.69 65.73 73.49

Other Income 7.64 13.6 30.37 22.75 46.83 56.29

EBIT 134.43 206.33 233.68 272.61 320.62 405.02

Interest Cost 0 2.22 3.84 1.91 2.59 1.94

Profit (+)/Loss (-) Before Taxes 142.07 217.71 260.21 293.45 364.86 459.37

Provision for Taxes 14.42 32.3 63.75 75.05 103.99 133.22

Net Profit (+)/Loss (-) 127.65 185.41 196.46 218.4 260.88 326.15

Growth-% (YoY)

Sales -6.8% 34.9% 27.9% 28.2% 15.8% 20.2%

EBITDA 2.3% 39.7% 13.6% 21.9% 17.3% 23.9%

PAT 9.6% 45.2% 6.0% 11.2% 19.4% 25.0%

Expenses on Sales-%

Employee Cost 55.1% 48.8% 56.5% 55.2% 57.0% 55.5%

Other expenses 26.2% 31.9% 26.3% 28.5% 26.5% 27.5%

Tax rate 10.1% 14.8% 24.5% 25.6% 28.5% 29.0%

Margin-%

EBITDA 18.6% 19.3% 17.1% 16.3% 16.5% 17.0%

EBIT 14.7% 16.7% 14.8% 13.5% 13.7% 14.4%

PAT 14.0% 15.0% 12.5% 10.8% 11.1% 11.6%

Valuation:

CMP 170.25 184.65 270.90 262.35 376.00 376.00

No of Share 5.88 5.93 5.96 6.02 6.02 6.02

NW 579.78 752.11 922.20 1094.12 1346.30 1663.24

EPS 21.71 31.27 32.96 36.28 43.33 54.18

BVPS 98.60 126.83 154.73 181.75 223.64 276.29

RoE-% 22.0% 24.7% 21.3% 20.0% 19.4% 19.6%

P/BV 1.73 1.46 1.75 1.44 1.68 1.36

P/E 7.84 5.91 8.22 7.23 8.68 6.94

353

388

443

10

14

1M 1yr YTD

Absolute -2.7 -29.2 -29.2

Rel.to Nifty -5.4 -35.4 -35.4


3Promoters 25.6 25.6 25.7

FII 35.1 46.0 49.0

DII 19.4 15.7 13.2

Others 20.0 12.7 12.1

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1247 1616 2219 2440 2374

Total Income 1870 2473 3476 4217 4150

PPP 1190 1540 2142 2328 2614

Net Profit 727 977 1301 1778 1098

EPS 20.9 27.7 36.3 49.4 35.6

20

547/216

BSE Code 532648

NSE Symbol

YES BANK

Yes bank reported better than expected profit largely due to lower provision

despite of reported higher delinquencies. This has resulted of lower provision

coverage ratio but still it is above of regulatory requirement. Incremental

deposits (other than CASA) were remained muted whereas advance reported

handsomely. Bank would face liquidity problem or would have to dependent

on additional borrowings to maintain its growth trajectory. This would result of

higher cost of fund and margin compression in our view. Leverage ratio (total

asset to net worth) has been declining from past four quarters indicated no

surplus liquidity in balance sheet. In the absence of comfortable earnings we

remain have neutral view. Also, we reduce our target price from Rs.443 to

Rs.388.YESBANK

Result update Neutral

CMP

Target Price


Upside

52wk Range H/L


1 Yr P/BV


18.04

Nifty 6320

On sequential basis NIM of bank remained flat at 2.9% but declined 10 bps on YoY

basis. Lending yield declined sharply to 13.3% from 13.6% due to increased share of

low yield Corporate and Institutional banking. Cost of deposits increased to 10.9%

from 10.8% on QoQ basis. Despite of lower lending yield and higher cost of fund,

margin stable on sequential basis was probably due to lower earnings asset growth

as we get evidence from negative growth of balance sheet on QoQ basis.

Cost to Income ratio was highest ever to 41.6% because of bank’s strategy to

increase market share of CASA. During quarter bank hire 647 employee and opened

17branches and 36 ATMs. As the result employee cost and operating cost were

increased by 20% and 42% respectively. Due to higher operating cost, pre

provisioning profit increased by 9% YoY despite of healthy NII and other income.

Operating leverage increased to 0.41% from 0.39% in 3QFY14. We expect this ratio

to remain high because of bank would continue to increase its CASA franchise base

by opening new branches and hiring.


12729

Market Data

Mkt Capital (Rs Cr)



Stock Performance

NII growth of 14% YoY led by advance growth and stable cost of fund

Bank’s NII grew by 14% YoY to Rs.665 cr largely due to stable margin and other

income. In 3QFY14, bank reported other income of Rs.388 cr up by 24% YoY

whereas margin was stable at 2.9% declined mere by 10 bps YoY. Credit deposits

ratio was improved by 330 bps QOQ but was declined by 400 bps YoY due to lower

deposits base. We observed that bank’s cost of deposits (Calculated) remain at

elevated level despite of relatively have higher CASA base whereas yield on loan

improved handsomely to 13.3% from 12.7% in 3QFY13.

Muted PPP growth due to higher CI ratio

Stable margin on sequential basis despite of lower lending yield and marginal

increased of cost of fund

"NEUTRAL"16th Jan, 2014


21

YES BANK


Deposits growth moderate sequentially but advance reported handsome growth

On balance sheet front, bank’s advance grew by 14.7% YoY led by retail banking growth

followed by corporate and institutional banking. Retail loan registered growth of 47% YoY

whereas corporate banking reported 18% YoY growth. Deposits grew by 20.7% YoY led

by CASA deposits growth of 38% YoY followed by term deposits (17% YoY). We

observed that bank’s incremental deposits (other than CASA) were remained muted at

Rs.24 cr as against Rs.1708 cr in second quarter. Bank would have to depend on

additional borrowings to maintain its growth trajectory if the present trend continued which

would be the result of higher cost of fund and margin compression. Sequentially credit

deposits ratio was higher at 73.9% from 70.6% on account of lower deposits base

especially of term deposits.

Valuation & View

Yes bank reported better than expected profit largely due to lower provision despite of

reported higher delinquencies. This has resulted of lower provision coverage but it is still

above of regulatory requirement. Incremental deposits (other than CASA) were remained

muted whereas advance increased handsomely. Bank would face liquidity problem or

would have to dependent on additional borrowings to maintain its growth trajectory. This

would result of higher cost of fund and margin compression in our view. Leverage ratio

(total asset to net worth) has been declining from past four quarters indicated no surplus

liquidity in balance sheet. In the absence of comfortable earnings we reduce our target

price to Rs.388 from Rs.443.

Valuation Band ( 1 yr forward P/BV)


22

YES BANK



Quarterly Result


Quarterly Result 3QFY14E 2QFY14 3QFY13 %YoY Gr %QoQ Gr

Interest/discount on advances / bills 1666 1618 1394 19.5 3.0

Income on investments 840 875 726 15.8 -4.0

Interest on balances with Reserve Bank of India 8 8 4 82.6 -7.5

Others 0 0 10 -96.4 20.0

Total Interest Income 2514 2501 2134 17.8 0.5

Others Income 388 446 313 23.8 -13.1

Total Income 2902 2947 2447 18.6 -1.5

Interest Expended 1849 1829 1549 19.3 1.1

NII 665 672 584 13.9 -1.0

Other Income 388 446 313 23.8 -13.1

Total Income 1053 1118 898 17.4 -5.8

Employee 194 185 162 19.8 4.7

Other Expenses 245 220 172 42.1 11.2

Operating Expenses 439 405 334 31.3 8.2

PPP( Rs Cr) 615 713 563 9.1 -13.8

Provisions 13 179 57 -76.6 -92.6

PBT 601 534 507 18.7 12.7

Tax 186 163 164 13.0 14.2

Net Profit 416 371 342 21.4 12.0

Balance Sheet Data

Advances 50,293 47717 43,857 14.7 5.4

Shareholders’ Funds 6,610 6610 5,679 16.4 0.0

Deposits 68,060 67575 56,401 20.7 0.7

Asset Quality

GNPA 195.8 132.1 76.2 157.0 48.3

NPA 42.3 19.36 15.6 171.2 118.5

% GNPA 0.39 0.28 0.17

% NPA 0.08 0.04 0.04

PCR(%) 78.4 85.3 79.5

23

YES BANK

Souce: Eastwind/Company


Financials & Assuption


Income Statement 2011 2012 2013 2014E 2015EInterest Income 4042 6307 8294 11985 11213

Interest Expense 2795 4692 6075 9544 8840

NII 1247 1616 2219 2440 2374

Change (%) 58.2 29.6 37.3 10.0 -2.7

Non Interest Income 623 857 1257 1776 1776

Total Income 1870 2473 3476 4217 4150

Change (%) 37.2 32.2 40.6 21.3 -1.6

Operating Expenses 680 933 1335 1889 1535

Pre Provision Profits 1190 1540 2142 2328 2614

Change (%) 37.9 29.4 39.1 8.7 12.3

Provisions( Incl tax) 463 563 841 604 1046

PAT 727 977 1301 1778 1098

Change (%) 52.2 34.4 33.1 36.7 -38.2

Balance Sheet 2011 2012 2013 2014E 2015EDeposits( Rs Cr) 45939 49152 66956 80347 96416

Change (%) 71.4 7.0 36.2 20.0 20.0

of which CASA Dep 4751 7392 12688 20087 28925

Change (%) 68.6 55.6 71.6 58.3 44.0

Borrowings( Rs Cr) 6691 14156 20922 21358 30447

Investments( Rs Cr) 18829 27757 42976 49835 62163

Loans( Rs Cr) 34364 37989 47000 54050 62157

Change (%) 54.8 10.5 23.7 15.0 15.0

Ratio 2011 2012 2013 2014E 2015EAvg. Yield on loans 8.7 11.7 11.5 15.2 11.5

Avg. Yield on Investments 5.5 6.7 6.7 7.6 6.5

Avg. Cost of Deposit 5.0 7.8 9.1 11.9 9.2

Avg. Cost of Borrowimgs 7.5 6.0 7.2 7.5 7.5

Valuation 2011 2012 2013 2014E 2015EBook Value 109.3 132.5 161.9 193.1 223.7

CMP 310 367 367.3 350.35 350.35

P/BV 2.8 2.8 2.3 1.8 1.6

CMC

1M 1yr YTD

Absolute 17.12 15.4 27.37

Rel. to Nifty 15.93 10.52 22


Promoters 51.12 51.12 51.12

FII 22.63 23.32 21.84

DII 18.26 17.83 19.05

Others 7.99 7.73 7.99


Revenue 560.96 560.75 0.0 492.97 13.8

EBITDA 90.81 88.41 2.7 83.2 9.1

PAT 70.55 67.3 4.8 61.07 15.5

EBITDA Margin 16.2% 15.8% 40bps 16.9% (70bps)


24

Steady Margin: Steady Margin: During the quarter EBITDA Margin inched up by 40bps

(QoQ) to 16.1%. However, Management is still confident to maintain the margin in a

range of 15-16%.

Mix growth response from segmental front: Sales from System Integration (65% of total

sales) down by 2%, IT enabled Services (15% of total sales) down by 13.6%. While the

Customer services business (18.4% of total sales) and Education and Training seen

double digit growth by 15.9% and 17.6 %(QoQ)– SEZ Sales was flat sequentially. The

company expects to see good growth traction in ITeS and System Integration.

BSE Code 517326

NSE Symbol CMC


4736Mkt Capital (Rs Crores)

Nifty 6189.35

52wk Range H/L 1780/1107

1 year forward P/E

Rs, Crore




Deal pipeline: The deal pipeline is in line with the last year. It indicated that pursuing

good number of deals in the Developed and as well emerging markets. Considering

current sound demand environment across geographies (like US and Europe) and

verticals Company is more optimistic for clients acquisition and deal executions ahead.

Now, CMC is focusing on new emerging segments like IMS (Infrastructure

Management Services), Cloud, Big data, Mobility and Analytics. Considering its

impressive client as well as market response, company is expecting to quantify into

revenue. Its new and emerging projects like Mining Management System, GPS System

and Port & Cargo Management System would play a major role for generating

revenue.

View and Valuation: CMC expects the growth momentum to improve in the 2HFY14E

than 1HFY14. The Company remains a strong with excellent earning visibility led by joint

effort of market strategy by TCS (contributes 59% of sales) in its product and solutions.

However, we expect that its earning visibility and order from government side in

coming 2 quarter could be impacted because of general election schedule in India (earns

41% revenue from India). For a near to medium -term prospect, we are not much

excited on the stock taking its earning visibility in near term. We had already advised to

book profit on 9th Jan 2014 at a target price of Rs 1690, now we have a “Neutral” view

on the stock. At a CMP of Rs 1527, stock trades at 16.5X FY15E earnings.

We believe, CMC will continue with its efforts to enhance revenue contribution of high

margin System Integration and ITES segments. Further, its high focus on education

space will also add margin in near term.

Market Data

Stock Performance

"Nothing for excitement"

CMP 1527

Target Price -

Witnessed inline Sales and PAT numbers;Results update Neutral

CMC Ltd Witnessed inline set of numbers with flat sales growth than previous quarter

led by 2% sales decline in System Integration (contributes 64% of Sales) and 14%

decline in IT enabled Services (contributes 13% of Sales). PAT grew by 4.9% on

sequential basis. Usually, third quarter is not a growth quarter in the international

markets.

Previous Target Price -

Upside -

Change from Previous -

"Neutral"15th Jan' 14


25

Clients Metrics: The Company added 14 clients during the quarter out of which 10 from

India and the 4 from the USA. In FY13, the company added 80 clients. During the quarter,

its DSO increased from 79days to 83days.


Employee Metrics: The total headcount for the quarter stood at 10,890 employees out of

which 4,555were on company payrolls while the remaining 6,235 were subcontractors.

CMC

Sales and Sales growth-%(QoQ)

Margin-%



Second half of FY14 will be better than

the first half. And expects to sees

opportunities in the international

markets in FY15E

Despite salary hike during the quarter,

company's employee cost on sales

increased from 25.1% (2QFY14) to

25.6%.

The management expects operating

Profit margin between 15 percent and

16 percent .

Clients Metrics



26



Financials;

CMC

Key facts from Concall (attended on 16th Oct, 2013)►CMC continues to target growth ahead of the overall IT industry; the company expects

to grow faster than that in the current financial year

►Expects operating Profit margin at 16 percent for FY14E,

►The company expects to maintatin its tax regime at 20-20.5% for coming quarter. For

next year tax rate could be stand at a range of 20-21%.

►Company’s hiring Plan; a net addition of 400-500 this year

► Notably, it targets revenues of Rs 250-300 crore from Education and Training business

in next two 3-4 years timeline.


Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E

Net Sales 870.73 1084.40 1469.34 1927.87 2155.00 2415.28

Purchases of stock-in-trade 99.35 99.28 145.40 188.56 193.95 217.37

Employee Cost 276.16 345.13 440.22 521.65 560.30 640.05

Subcontracting and outsourcing cost 173.56 262.35 446.11 679.73 818.90 917.81

Other expenses 159.94 170.17 213.63 222.88 215.50 253.60

Total Expenses 709.01 876.93 1245.36 1612.82 1788.65 2028.83

EBITDA 161.72 207.47 223.98 315.05 366.35 386.44

Depreciation 9.85 10.46 21.37 23.20 25.73 37.23

Other Income 18.75 11.80 17.46 13.17 21.55 24.15

EBIT 151.87 197.01 202.61 291.85 340.62 349.21

Interest Cost 3.17 0.22 0.02 0.18 0.1 0.25

PBT 167.45 208.59 220.05 304.84 362.07 373.11

Tax 24.23 32.42 68.59 76.76 101.38 93.28

PAT 143.22 176.17 151.46 228.08 260.69 279.84

Growth-%

Sales -7.4% 24.5% 35.5% 31.2% 11.8% 12.1%

EBITDA 27.7% 28.3% 8.0% 40.7% 16.3% 5.5%

PAT 23.3% 23.0% -14.0% 50.6% 14.3% 7.3%

Margin -%

EBITDA 18.6% 19.1% 15.2% 16.3% 17.0% 16.0%

EBIT 17.4% 18.2% 13.8% 15.1% 15.8% 14.5%

PAT 16.4% 16.2% 10.3% 11.8% 12.1% 11.6%

Expenses on Sales-%

Employee Cost 31.7% 31.8% 30.0% 27.1% 26.0% 26.5%

Subcontracting Cost 19.9% 24.2% 30.4% 35.3% 38.0% 38.0%

Tax rate 14.5% 15.5% 31.2% 25.2% 28.0% 25.0%

Valuation

CMP 1340.00 2079.55 994.80 1410.00 1527 1527

No of Share 1.50 1.50 3.00 3.03 3.03 3.03

NW 510.68 654.02 772.19 946.26 1145.07 1354.19

EPS 95.48 117.45 50.49 75.27 86.04 92.35

BVPS 340.45 436.01 257.40 312.30 377.91 446.93

RoE-% 28.0% 26.9% 19.6% 24.1% 22.8% 20.7%

Dividen Payout ratio 18.6% 19.9% 23.2% 19.4% 23.7% 25.3%

P/BV 3.94 4.77 3.86 4.51 4.04 3.42

P/E 14.03 17.71 19.70 18.73 17.75 16.53

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Stock Investment Tips Recommendation 17-01-2014

Economy & Finance

Transcript of Stock Investment Tips Recommendation 17-01-2014