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IEA-Equity
Strategy
27th Dec, 2013
CMC : "On track to deliver" "BUY" 20th Dec 2013
Considering recent healthy demand environment across the IT space with favorable supply side scenario, we remain confident on the stock for
better earning visibility and stable margin picture. Still, we reiterate our positive stance on the long-term story of CMC due to its focus on high
margin SI and ITES businesses.At a CMP of Rs 1510, stock trades at 14.9X FY14E earnings. We have "BUY" view on the stock and we revise our
target price from Rs1490 to Rs1690.............................. (Page : 14-15)
Tech Mahindra : "On a stronger footing.." "BUY" 23rd Dec 2013
Post merger with Satyam, strong demand traction in Telecom (Non BT) has improved and company's attractive deal win ratios make us
optimistic view on the stock. At a CMP of Rs 1691, relatively the stock is trading at a fair valuation, 12.8x of FY14E earnings (at USD of
Rs60/59.5 for FY14E/FY15E). We maintain “BUY” on the stock with a price target of Rs 2330 (revised from Rs 1875)..................... ( Page : 12-13)
Persistent System : "Persistently innovating.." "REDUCED" 23rd Dec 2013
We had initiated this stock at a CMP of Rs 526(on 16th Feb 2013) and now, it achieved its target of Rs 960. Despite better predictability of
growth and attractive visibility of its expansion in new emerging verticals, we advice to book profit on the stock because of its premium
valuation. However, sentiment could take a knock in the short run, since investors may prefer paying a premium for stocks with better earnings
visibility. Our view could be change with management guidance and post earnings of coming quarter................................................... ( Page : 10-
11)
Infosys : Bala exit; a pros and cons? "BUY" 26th Dec , 2013
Last week, V Balakrishnan a former CFO and member of Board director resigned from the company to turn entrepreneur of Private Equity
space. Currently, he is the head of Infosys business process outsourcing unit, the company's core banking software Finacle, its India business
and chairman of Infosys Lodestone. This was now the 8th senior and top level departure after the taking charges by Company founder Narayana
Murthy. At a CMP of Rs 3486, it trades at 19.2x FY14E and 16.7x FY15E earnings. We retain our “BUY” view on the stock with a target price of
target price of Rs 3620............................... ( Page : 5-6)
DCB : "REDUCE" 27th Dec 2013
DCB is currently trading at 1.3 times of one year forward book which is almost upper side of valuation band. We value the bank at Rs.62/share
which is 1.4 times of one year forward book and 15 times of FY14E earnings. Valuation multiple is justified at present fundamental in our view
but has potential to expand the multiple once visibility of ROE improvement clearly come to on the floor after 1-2 quarters.
......................................................... ( Page : 2-4)
email: [email protected], website : www.narnolia.com
Narnolia Securities Ltd,
402, 4th floor 7/1, Lords Sinha Road Kolkata 700071, Ph 033-32011233 Toll Free no : 1-800-345-4000
HINDALCO : "BUY" 24th Dec 2013
Hindalco has expanded its aluminium capacity recently, low aluminium prices, sticky costs, delay in commencement of mining from captive
blocks and higher interest and depreciation costs may hit its profitability. In the near-term, there is lack of clarity over production from the
Mahan coal block for its Mahan smelter. Without captive coal block, the Mahan smelter is expected to face cost pressures, resulting in lower
return ratios over FY2013-15.So Clearance of Mahan coal block will be most awaited trigger for Hindalco. Mean While on the Positive Side We
can expect 7% growth on the Stock with a Target Price of Rs.132.............. ( Page:7-9)
DIVISLAB : Good Growth Ahead "BUY" 19th Dec 2013
The company posted strong 2QFY4 results with net sales growing to Rs 566 Cr up by 19.7% YoY on the back of good growth coming from all
business segments. The generic API grew by 18% YoY to Rs 261 Cr for the quarter and CRAMS business segment grew by 20% YoY to Rs 271
Cr............................................. ( Page : 16-18)
India Equity Analytics
57.25
62
62
8
-
1M 1yr YTD
Absolute 19.2 20.4 20.4
Rel.to Nifty 15.6 13.1 13.1
Current 4QFY13 3QFY1
3Promoters 18.5 18.5 18.5
FII 11.4 11.4 11.1
DII 14.1 12.5 13.0
Others 56.1 57.7 57.5
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 189 228 284 127 190
Total Income 301 328 401 272 334
PPP 86 84 126 95 127
Net Profit 21 55 102 95 127
EPS 1.1 2.3 4.1 3.8 5.1
2
DCB
Change from Previous
DCB Vs Nifty
Share Holding Pattern-%
2158026
Nifty 6279
Development Credit Bank (DCB) currently trading at 1.3 times of one year
forward book which is now almost of higher side of our valuation range. We
value the bank at Rs.62/share at the higher side which is 1.4 times of one year
forward book and 15 times of FY14E’s earnings. Present valuation multiple
justified on account of DCB’s consistent improvement in its return ratio and
management guided similar trend of growth in FY14,however bank cited
margin could be compressed by 25-30 bps. We can’t rule out the valuation
multiple expansions but there is need to watch 1-2 quarters more as per our
view
Average Daily Volume
1437
Previous Target Price
Market Data
Upside
Well capitalized and stable asset quality
Bank is well capitalized with tier 1 ratio of 13% means no need to raise money in
short term. Bank’s management guided loan and deposits growth of 25-27% and 30-
32% in FY14 which seen possible looking at present scenario. Management is also
very focus on low ticket size loan (prefer less than 30 mn) on account of avoiding
large slippage. At the 2QFY14, bank reported slippage of Rs.21 cr which was 1.3%
in annualized basis. Fresh slippage ratio remains in the range of 1.1-1.5 times in last
few quarters, so we believe bank would maintain similar trend in term of fresh
slippage which restrict GNPA out of control. Provision coverage ratio at the end of
2QFY14 stood at 84% (without technical write off) and management reiterate PCR to
maintain above of 80%.
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Company Update Book Profit
CMP
Target Price
Potential to expand valuation multiple, need to watch growth trajectory 1-2
quarters more
On valuation front, DCB valuation could be expanded if visibility of ROE
improvement is clearly seen. ROE improvement could be possible in two front- first
reducing cost income ratio which will boost the profit and second loan growth
specially in high yield segment like SME and MSME. We observed that bank’s Cost-
Income ratio was higher at 66.2% at the end of 2QFY14. Cost income ratio would
reduce to less than 65% in FY14 and would further reduce to 60% in FY15 according
to management. To reduce the cost, bank initiated to invest high yield segment,
planning to maintain CASA at 30% in long run while in short term does not expect
below of 27% and escalating branch network. In FY13 bank opened 10 branches but
in 1HFY14, DCB opened 9 branches and will go upto 120-125 branches in FY14.
54.85/38
BSE Code 532772
NSE Symbol DCB
52wk Range H/L
Stock Performance
"Book Profit"27th Dec,2013
Narnolia Securities Ltd,
3
DCB
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Result( Rs Cr) 2QFY14 1QFY14 2QFY13 % YoY % QoQ
Interest/discount on advances / bills 205.2 201.5 170.9 20.1 1.8
Income on investments 57.9 56.7 47.6 21.8 2.1
Interest on balances with Reserve Bank of India 5.5 2.3 1.1 378.2 142.4
Others 0.2 0.2 0.4 -45.6 -9.7
Total Interest Income 268.8 260.7 219.9 22.2 3.1
Others Income 27.3 45.1 27.5 -0.9 -39.5
Total Income 296.1 305.8 247.5 19.6 -3.2
Interest Expended 177.6 177.6 153.0 16.1 0.0
NII 91.3 83.1 67.0 36.3 9.8
Other Income 27.3 45.1 27.5 -0.9 -39.5
Total Income 118.5 128.2 94.5 25.5 -7.6
Employee 38.8 37.7 34.1 13.9 2.9
Other Expenses 39.6 39.2 33.9 16.8 1.1
Operating Expenses 78.4 76.9 68.0 15.4 2.0
PPP( Rs Cr) 40.1 51.3 26.5 51.4 -21.8
Provisions 7.0 8.5 4.4 60.8 -17.4
PBT 33.1 42.8 22.1 49.5 -22.7
Tax 0.0 0.0 0.0
Net Profit 33.1 42.8 22.1 49.5 -22.7
Balance Sheet (Rs Cr)
Net Worth 1079 1046 902 19.6 3.2
Deposits 8788 8320 7137 23.1 5.6
Loan 6677 6472 5671 17.7 3.2
Asset quality (Rs Cr)
GNPA 235 226 226 4.0 4.0
NPA 57 54 38 50.0 5.6
% GNPA 3.5 3.5 4
% NPA 0.9 0.8 0.7
4
DCB
Source: Eastwind/ Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2010 2011 2012 2013 2014E 2015EInterest Income 459 536 717 916 1090 1279
Interest Expense 317 347 489 632 963 1089
NII 142 189 228 284 127 190
Change (%) -28.2 33.6 20.4 24.9 -55.3 49.1
Non Interest Income 107 112 100 117 145 145
Total Income 249 301 328 401 272 334
Change (%) -21.6 21.2 8.9 22.4 -32.3 23.0
Operating Expenses 201 215 244 275 177 207
Pre Provision Profits 48 86 84 126 95 127
Change (%) -36.5 79.9 -2.6 50.5 -24.5 33.5
Provisions 121 57 29 24 0 0
PBT -73 29 55 102 95 127
PAT -79 21 55 102 95 127
Change (%) -10.1 -127.2 157.1 85.3 -6.7 33.5
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 2597 1825
Change (%) 17 17 3 12 14 -30
Borrowings( Rs Cr) 504 861 1123 1526 1697 1952
Investments( Rs Cr) 2018 2295 2518 3359 2886 3318
Loans( Rs Cr) 3460 4271 5284 6586 7903 9484
Change (%) 6 23 24 25 20 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 44 49
CMP 32.2 45.9 45 45 57.3 57.3
P/BV 1.1 1.5 1.3 1.1 1.3 1.2
Infosys
How do we see the impacts of this buzz?
1M 1yr YTD
Absolute 4.1 52.1 27.2
Rel. to Nifty -0.3 44.9 23.3
Current 4QFY13 3QFY13
Promoters 16.04 16.04 16.04
FII 40.52 40.55 39.42
DII 17.51 18.7 18.33
Others 25.93 24.71 26.21
Financials2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 12965 11267 15.07 9858 31.5
EBITDA 2836.9 2664 6.49 2597 9.2
PAT 2406.9 2374 1.39 2369 1.6
EBITDA Margin 21.9% 23.6% (170bps) 26.3% (440bps)
PAT Margin 18.6% 21.1% (250bps) 24.0% (540bps)
5
(b) V Balakrsihnan’s resignation is not one night decision and not an affect of internal
hiccups. Post declaration of his resignation V Balakrishnan stated to media “it was my
long term plan and we were waiting for SEBI approval for my new Private Equity firm”.
Even, he sold 1,00,000 shares in the company for Rs 33 crore in the open market on 9th
Nov 2013 (50,000 shares each held by his daughters), it indicates its earlier decision.
Therefore, we think Bala’s exit is a part of an ongoing strategy to reshuffle the top
management at Infosys.
(c) The top management conundrum has not been new to Infosys. Even, as Infosys’s
hyper-growth story played out over the course of three decades, powered by not just its
seven cofounders but also several talented employees that came on later on. Even, most
of company founders have churned out and company has been working for growth story
and committing for strategy 3.0.
Share Holding Pattern-%
1 year forward P/E
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
(d) Post Narayana Murthy, company has committed for future transformational changes
and next generation growth plan. Recently, the company has undertaken a clear shift in
direction where it has been focusing on higher-margin businesses, a strategy that rival
TCS that has successfully implemented.
For near term, there could be some small sort of rally on the stock because of this knee
jerk and as the December quarter is generally expected to be a bit tepid for the
technology sector. Although, the street will forget all things after a good quarter
earnings or a strong commentary on the business outlook. For long term, we do not
see any major pressure because of co’s poster boy exit.
Bala exit; a pros and cons?
CMP 3486
Target Price 3622
Company update BUY Does Balakrishnan departure from Infosys would affect the company’s bread and
butter?
Last week, V Balakrishnan a former CFO and member of Board director resigned from
the company to turn entrepreneur of Private Equity space. Currently, he is the head of
Infosys business process outsourcing unit, the company's core banking software
Finacle, its India business and chairman of Infosys Lodestone. This was now the 8th
senior and top level departure after the taking charges by Company founder Narayana
Murthy. Market Data
Stock Performance
160944
(a) We think, there would not be any major impact on qualitative and quantitative sense
and company would not see any major gap between sales executives and clients. Yes,
the magnitude of the exits could create a leadership vacuum. However, very soon
company will try to turn into smoothie organization structure.
Previous Target Price 3390
Upside 4%
BSE Code 500209
Mkt Capital (Rs Crores)
Average Daily Volume 1240448
Nifty 6268
NSE Symbol INFY
Change from Previous 7%
Behind the top-level departure, only one cause reflects on the picture that is the tussle
of CEO post. Current CEO Shibulal is going to complete its tenure by next years.
Among the front-runner of this post, Balakrishnan was strong contender for the post
of CEO race.
52wk Range H/L 3570/2190
"BUY"26th Dec' 13
Narnolia Securities Ltd,
6
Considering the revised guidance by management and its growth priority than margin
inching up strategy, we are positive on the stock. At a CMP of Rs 3486, it trades at 19.2x
FY14E and 16.7x FY15E earnings. We retain our “BUY” view on the stock with a target
price of target price of Rs 3622.
Infosys.
View and Valuation: Infosys seems to be on its way to rediscovering its past mojo with revenue momentum
kicking, its past strategy of under-promising and over delivering - remember present
guidance now factors flat gorwth in next 2 qtrs, and the NRN invisible hand in play.
Further announcement of strategic acquisitions, better utilization of cash balances, ramp-
up in sales investment ,better deal win, consistent client traction and revenue
momentum would help the company to bridge the gap with rivals such as TCS and HCL
Tech.
Please refer to the Disclaimers at the end of this Report.
Financials
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E
Sales, INR 22742 27501 33734 40352 48659.6 55939.5
Employee Cost 12085 14856 18340 22565 27736.0 32165.2
Other expenses 2792 3677 4671 6254 7785.5 9230.0
Total Expenses 14877 18533 23011 28819 35521.5 41395.2
EBITDA 7865 8968 10723 11533 13138.1 14544.3
Depreciation 905 854 928 1099 1325.3 1523.5
Other Income 982 1211 1904 2365 2433.0 3356.4
EBIT 7942 9325 11699 12799 14245.8 16377.1
Interest Cost 0 0 0 0 0.0 0.0
PBT 7942 9325 11699 12799 14245.8 16377.1
Tax 1681 2490 3367 3370 3846.4 4421.8
PAT 6261 6835 8332 9429 10399.4 11955.3
Growth-%
Sales 4.8% 20.9% 22.7% 19.6% 20.6% 15.0%
EBITDA 9.3% 14.0% 19.6% 7.6% 13.9% 10.7%
PAT 4.6% 9.2% 21.9% 13.2% 10.3% 15.0%
Margin -%
EBITDA 34.6% 32.6% 31.8% 28.6% 27.0% 26.0%
EBIT 34.9% 33.9% 34.7% 31.7% 29.3% 29.3%
PAT 27.5% 24.9% 24.7% 23.4% 21.4% 21.4%
Expenses on Sales-%
Employee Cost 53.1% 54.0% 54.4% 55.9% 57.0% 57.5%
Other expenses 12.3% 13.4% 13.8% 15.5% 16.0% 16.5%
Tax rate 21.2% 26.7% 28.8% 26.3% 27.0% 27.0%
Valuation
CMP 2615.1 2765.1 2865.0 2400.0 3486 3486
No of Share 57.4 57.4 57.4 57.4 57.4 57.4
NW 23049.0 25976.0 31332.0 37994.0 45236.1 53832.6
EPS 109.1 119.0 145.1 164.2 181.1 208.2
BVPS 401.7 452.4 545.6 661.7 787.8 937.5
RoE-% 27.2% 26.3% 26.6% 24.8% 23.0% 22.2%
Dividen Payout ratio 25.1% 45.9% 24.0% 45.1% 23.8% 20.7%
P/BV 6.5 6.1 5.3 3.6 4.4 3.7
P/E 24.0 23.2 19.7 14.6 19.2 16.7
Hindalco Industries Ltd.
124
132
NA
7%
NA
500440
25497
17848
6284
1M 1yr YTD
Absolute -1.3 11.3 8.7
Rel. to Nifty -2.7 0.5 0.0
2QFY14 1QFY14 4QFY13
Promoters 37.0 37.0 32.1
FII 24.9 24.8 24.5
DII 14.4 14.3 15.5
Others 23.7 23.9 28.0
Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14
Net Revenue 6585 4.6 5.1 6296 6266
EBITDA 540 4.8 12.8 515 478
Depriciation 196 13.7 7.3 173 183
Tax 83 -5.9 -17.4 88 101
PAT 357 -0.5 -24.7 359 474(In Crs)
7
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
1 yr Forward P/B
Source - Comapany/EastWind Research
Hindalco Industries, the world's largest Aluminium rolling company, disappointed with
the second quarter net profit declining marginally to Rs 357Cr from Rs 358.9Cr y-o-y,
dented by higher finance cost. Bottom line was largely supported by other income;
otherwise profit would have much lower than currently reported. Other income, which
included Rs61 Cr non-recurring income and dividend of Rs 100 Cr from subsidiaries, more
than doubled to Rs 280Cr in three-month period ended September 2013 from Rs 132.4Cr
in a year ago period. Net sales increased over 2 percent year-on-year to Rs 6245Cr during
September quarter. EBITDA climbed 3 percent Y-o-Y to Rs 481Cr while operating profit
margin improved marginally to 7.7 percent from 7.63 percent during the same period on
higher inventory. Finance cost surged 6.5 times on a yearly basis to Rs 183Cr in the
quarter gone by, given higher average borrowing. Revenue from Aluminium business
grew 11 percent y-o-y to Rs 2,342.6Cr, driven by higher volumes, but EBIT margin of the
same business declined to 7.1 percent during 2QFY14
During the same period, total metal production increased to 1,32,000 ton (excluding
Mahan production) from 1,28,000 ton while alumina production (excluding Utkal alumina
production) rose to 3,34,000 ton from 3,28,000 ton y-o-y, but sequentially it was down
from 3,48,000 ton due to a planned ramp down at one of refineries. In case of copper
business, revenue slipped 2.2 percent Y-o-Y to Rs 3,974Cr in the quarter gone by, but its
EBIT margin expanded to 6 percent. Cathode production declined to 77,000 ton from
78,000 ton y-o-y.
Nifty
Upside
Change from Previous
Company UpdateCMP
Target Price
Previous Target Price
Novelis, leader in aluminum rolling and recycling completed $400 millionexpansion
program in South Korea. The expansion of its Yeongju and Ulsan plants increases the
company's production capacity in the region by more than 50 percent to approximately
one million metric tons of aluminum sheet per year.Hindalco has expanded its smelting
capacity by 359kt via Mahan greenfield project.Aruna Sundarajan is back and set to
take charge as Industries new additional chief secretary and looks forward
optimistically for a better industrial climate focusing on young entrepreneurship.
Average Daily Volume (Nos.)
The PM's Project Monitoring Group has sorted out issues with regards to Hindalco's 7000
Cr rupees Utkal Alumina refinery among others. On a medium-term view we would still
be positive on Hindalco Industries. As the improvement happens across economies
whether it is US, Europe, to an extent in China also we think Hindalco is very well
positioned.
Market DataBSE Code
HINDALCONSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
137/83
"Buy"24 Dec' 13
Narnolia Securities Ltd,
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
100
200
300
400
500
600
700
800
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
PRICE BV 1x 2x
3x 4x P/BV
LME Price/Ton
LME Price/Ton
FY10 FY11 FY12 FY13
6761 7965 9041 8779
11752 15902 17575 17305
1963 2004 1822 930
599 602 802 768
138254 74799 178990 225246
FY11 FY12 FY13 FY14E
72078 80821 80193 86000
431 783 1012 1360
72509 81604 81205 87360
64102 72856 72395 78572
7976 7965 7798 7428
2725 2645 2822 2700
1839 1758 2079 2500
964 786 886 825
366 211 -20 0
57 -50 16 0
2456 3397 3027 2763
8.5 10.6 8.6 7.3
8
Source - Comapany/EastWind Research
Minority Interest
Share in Profit/(Loss) of Associates
PAT
ROE%
Tax
Out Look : Although Hindalco has expanded its aluminium capacity recently, low
aluminium prices, sticky costs, delay in commencement of mining from captive blocks
and higher interest and depreciation costs may hit its profitability. In the near-term,
there is lack of clarity over production from the Mahan coal block for its Mahan smelter.
Without captive coal block, the Mahan smelter is expected to face cost pressures,
resulting in lower return ratios over FY2013-15.So Clearance of Mahan coal block will be
most awaited trigger for Hindalco. Mean While on the Positive Side We can expect 7%
growth on the Stock with a Target Price of Rs.132.
Expenditure
EBITDA
Depriciation
Copper Revenue
Net Revenue from Operation
Other Income
Total Income
Interest Cost
Hindalco Industries Ltd.
OPERATING MATRIX
Aluminium Revenue
P/L PERFORMANCE
Aluminium Results
Copper Results
Capital Employed
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Narnolia Securities Ltd,
90000
95000
100000
105000
110000
115000
120000
Jan
-13
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Ma
y-1
3
Jun
-13
Jul-
13
Au
g-1
3
Se
p-1
3
Oct
-13
No
v-1
3
De
c-1
3
Primary Aluminium
340000
360000
380000
400000
420000
440000
460000
480000
Jan
-13
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Ma
y-1
3
Jun
-13
Jul-
13
Au
g-1
3
Se
p-1
3
Oct
-13
No
v-1
3
De
c-1
3
Copper
FY10 FY11 FY12 FY13
191 191 191 191
21346 28824 31179 34597
21545 29023 31911 35330
10763 13736 37127 49857
13236 13956 3731 6442
3901 4138 5289 5691
9742 12980 11052 9613
1016 1077 1377 1610
69235 84376 101402 120590
7876 12272 15429 16435
21124 20133 19871 21490
5801 13131 22798 33831
1983 2035 3774 3170
11275 14096 13246 14332
6544 8000 8017 8952
2195 2556 3296 3770
1134 1164 2159 3257
69235 84376 101402 120590
FY10 FY11 FY12 FY13
1.6 1.4 0.8 0.5
20.5 12.8 17.7 15.8
10.8 11.1 9.9 11.2
16.0 18.0 13.7 12.0
1.9 2.0 1.6 1.8
FY10 FY11 FY12 FY13
5542 6929 8534 6852
-598 -703 -932 -3874
4944 6226 7602 2978
-5448 -6710 -13220 -13765
428 825 6237 10278
-76 341 619 -510
9
Trading At :
Changes In Working Capital
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%
Source - Comapany/EastWind Research
CASH FLOWS
Source - Comapany/EastWind Research
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Cash from Operation
Short-term loans and advances
Total Assets
RATIOS
P/B
EPS
Hindalco Industries Ltd.
Source - Comapany/EastWind Research
Trade payables
Short-term provisions
Total liabilities
Intangibles
Cash and bank balances
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Narnolia Securities Ltd,
0
20
40
60
80
100
120
140
160
0
1000
2000
3000
4000
5000
6000
7000
NIFTY HINDALCO
Persistent System.
-
1M 1yr YTD
Absolute 24.1 105.2 91.2
Rel. to Nifty 23 99.4 84.6
Current 1QFY14 4QFY13
Promoters 38.96 38.96 38.96
FII 15.28 14.84 12.39
DII 21.23 19.31 21.59
Others 24.53 26.89 27.06
Financials
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 432.37 357.29 21.0 326.86 32.3
EBITDA 100.8 76.8 31.3 89.06 13.2
PAT 60.8 57.1 6.5 44.71 36.0
EBITDA Margin 23.3% 21.5% 180bps 27.2% (390bps)
PAT Margin 14.1% 16.0% (190bps) 13.7% 40bps
10
BSE Code 533179
Market Data
Previous Target Price 890
Upside -
Recently , Persistent System reported superlative set of numbers during the 2QFY14
with 21%(QoQ) sales growth in INR term and 8.6%(QoQ) growth in USD term led by
38%(QOQ) growth on the intellectual property (IP) revenues. PAT growth was at 6.5%
(QoQ).
With the potential revenue growth, strong deal pipeline and multi-year relationships
with marquee clientele in the Infrastructure vertical, we expect for better earning
visibility across niche IT players.
Nifty
Share Holding Pattern-%
6274
Stock Performance
NSE Symbol PERSISTENT
Mkt Capital (Rs Crores)
"Persistently innovating.."
CMP 1007
Target Price 960
Company update Book Profit We had initiated this stock at a CMP of Rs 526(on 16th
Feb 2013) and now, it achieved
its target of Rs 960. Despite better predictability of growth and attractive visibility of
its expansion in new emerging verticals, we advice to book profit on the stock because
of its premium valuation. However, sentiment could take a knock in the short run,
since investors may prefer paying a premium for stocks with better earnings visibility.Change from Previous
Persistent Sytem’s management remains confident of FY14 with deal pipeline being
strong and remains focused on increasing the share of IP-led revenues in its portfolio.
They expect to see more than 15% USD revenue growth for FY14E.
1 year forward P/E-x
Rs, Crore
(Source: Company/Eastwind)
View and Valuation: The company’s focus is shifting greater proportion to IP led services
and company has marquee clientele in cutting-edge technologies around cloud,
mobility, collaboration and analytics; witnessing faster growth. Considering the
company’s premium valuation, we advice “Book Profit” on the stock. At a CMP of Rs
1007, stock trades at 15.9x FY14E earnings. Our view could be change with
management guidance and post earnings of coming quarter.
Persistent's management suggests that deal pipeline are looking strong and seeing
good activity and traction in the market across the board. Its focus on some of newer
technologies like cloud, analytics and mobility are gaining a lot of traction because of
pickup in demand environment. The emerging themes, (CAMB) Cloud, Analytics,
Mobility, and Big data could also see strong demand traction ahead. Because of
actively investment in these themes, management is very confident to see healthy
growth and also they expressed their confidence to beat the NASSCOM guidance (12-
14% revenue growth for FY14E).
52wk Range H/L 1023/477
Please refer to the Disclaimers at the end of this Report.
Clients Metrics: During the quarter, company added 2 clients at 32 under medium
category( >$1mn to $3mn) and 1 client at 16 from large ( > $ 3Mn) . Revenue from top-1
client was improved from 21.2% (1QFY14) to 22.5% . DSO at 62days, almost 12
quarters low.
4029
Average Daily Volume 12139
Margin ramp up: During the quarter, Its EBITDA margin improved by 180bps to 23.3%,
positively impacted by currency gain(270bps), while during the quarter company wage
hike to its off shore employee at a range of 8-9% was impacted margin by 310 bps
adversely. However, management expects to maintain margin at a range of 24-25% for
FY14E.
"Book Profit"23rd Dec' 13
Narnolia Securities Ltd,
11
Persistent System.
(Source: Company/Eastwind)
Financials
(Source: Company/Eastwind)
Rating and Price Target Chart Updation Detail
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Rs, in Cr. FY10 FY11 FY12 FY13 FY14E FY15E
Sales 601.16 775.84 1000.3 1294.5 1657.54 2053.93
Employee Cost 368.74 481.62 599.05 719 895.07 1119.39
Cost of technical professionals 0 30.67 41.68 54 82.88 102.70
Other expenses 86.05 105.24 135.2 218 290.07 379.98
Total expenses 454.79 617.53 775.93 990.78 1268.02 1602.06
EBITDA 146.37 158.31 224.37 303.72 389.52 451.86
Depreciation 33.52 42.39 61.1 78 93.54 84.18
Other Income 11.23 34.44 34.44 34.44 66.30 71.89
EBIT 112.85 115.92 163.27 225.44 295.98 367.68
Interest Cost 0 0 0.00 0.03 0.00 0.00
Profit (+)/Loss (-) Before Taxes 124.08 150.36 197.71 259.851 362.29 439.57
Provision for Taxes 9.05 10.62 55.09 75.37 108.69 131.87
Net Profit (+)/Loss (-) 115.03 139.74 142.62 184.481 253.60 307.70
Growth-% (YoY)
Sales 1.2% 29.1% 28.9% 29.4% 28.0% 23.9%
EBITDA 60.2% 8.2% 41.7% 35.4% 28.3% 16.0%
PAT 74.1% 21.5% 2.1% 29.4% 37.5% 21.3%
Expenses on Sales-%
Employee Cost 61.3% 62.1% 59.9% 55.5% 54.0% 54.5%
Other expenses 14.3% 13.6% 13.5% 16.9% 17.5% 18.5%
Tax rate 7.3% 7.1% 27.9% 29.0% 30.0% 30.0%
Margin-%
EBITDA 24.3% 20.4% 22.4% 23.5% 23.5% 22.0%
EBIT 18.8% 14.9% 16.3% 17.4% 17.9% 17.9%
PAT 19.1% 18.0% 14.3% 14.3% 15.3% 15.0%
Valuation:
CMP 310 366.7 409.2 541 1007 1007
No of Share 4 4 4 4 4.00 4.00
NW 639.0 747.1 840.5 1018.3 1234.4 1504.7
EPS 28.8 34.9 35.7 46.1 63.4 76.9
BVPS 159.7 186.8 210.1 254.6 308.6 376.2
RoE-% 18.0% 18.7% 17.0% 18.1% 20.5% 20.4%
P/BV 1.9 2.0 1.9 2.1 3.3 2.7
P/E 10.8 10.5 11.5 11.7 15.9 13.1
Date Update Detail CMP View Target Price
16-Feb-13 Initiation 526 BUY 580
25-Jun-13 Company Update 499 BUY 580
7-May-13 Result Update 514 BUY 580
31-Jul-13 Result Update 522 BUY 580
18-Sep-13 Company Update 573 BUY 642
26-Sep-13 Company Update 623 BUY 834
9-Oct-13 Company Update 682 BUY 834
22-Oct-13 Result Update 739 BUY 890
13-Dec-13 Company Update 876 BUY 960
23-Dec-13 Company Update 1007 Book Profit
Tech Mahindra
BUY
24%
1M 1yr YTD
Absolute 9.3 99 39.2
Rel. to Nifty 6.8 93 32.7
Current 1QFY14 4QFY13
Promoters 36.46 47.17 47.41
FII 32.59 26.79 27.34
DII 15.13 15.83 16
Others 15.82 10.21 9.25
Financials
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 4771.5 4103.2 16.3 3523.7 35.4
EBITDA 1110.85 864.5 28.5 756.9 46.8
PAT 718.2 686.3 4.6 455.9 57.5
EBITDA Margin 23.3% 21.1% 220bps 21.5% 150bps
PAT Margin 15.1% 16.7% (160bps) 12.9% 220bps
12
Green flag on Margin front: EBITDA margin expanded 222 basis points sequentially to
23.3% aided by a weaker rupee. Despite sweet flavor on margin front, management is
still cautious for coming quarter due to Furloughs .
Recently, following the footsteps of other larger giants such as TCS and Infy, Tech
Mahindra revealed its earning story better than street expectations for 2QFY14. Sales
grew by 16.3% (QoQ) in INR term led by healthy growth across all segments, verticals
and geographies. In USD term, sales grew 4.7% (QoQ) better than all nearest peers
barring TCS. PAT was up by 4.7% (QoQ) adversely impacted by lower other income and
forex loss of Rs 26 Cr during the quarter. The company had forex gains of Rs 134 Cr in
the June quarter.
BSE Code 532755
NSE Symbol TECHM
52wk Range H/L 1872/895
Nifty
Change from Previous
Upside 26%
Average Daily Volume 191827
Market Data
6274
Mkt Capital (Rs Crores) 42991
"On a stronger footing.."
Company update
CMP 1844
Target Price 2330
Broad-based performance with positive outlook, positive view retained;
The company remains confident on demand and expects client budgets to remain at
the same levels in FY15E. It announced 2 large deals in the enterprise solutions
(previously Mahindra Satyam) and has a healthy deal pipeline.Previous Target Price 1875
Win- Win on all geographies: During the 2QFY14, winning trio was seen across
geographies. US (contributes 33% on sales) grew by 8%, RoW (23% on sales) by 9.4%
(QoQ). While Europe (contributes 44% on sales) was marginally up by 2.4%(QoQ) in USD
term. Post earning management quoted for better outlook in Europe with greater
traction in Australia and Africa in near term.
All-rounder across all verticals: During the quarter, company reported 2.5% growth in
Telecom, 4.7% growth in manufacturing, media including entertainment, BFSI and
others each in USD term. While Retail, Transport and Logistic snapped a larger growth
figure of 22% sequentially. The company is focusing on BFSI, manufacturing and
telecom.
BT on Slide: The management said revenues from British Telecom (BT) continued to
slide. Those were 12% of consolidated revenues in the June quarter. It believes revenues
from BT will be under pressure.
1 year forward P/E-x
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Post merger with Satyam, strong demand traction in Telecom (Non BT) has improved
and company's attractive deal win ratios make us optimistic view on the stock. At a
CMP of Rs 1691, relatively the stock is trading at a fair valuation, 12.8x of FY14E
earnings (at USD of Rs60/59.5 for FY14E/FY15E). We maintain “BUY” on the stock with
a price target of Rs 2330 (revised from Rs 1875).
Share Holding Pattern-%
Stock Performance
View and Valuation: Recently, company’s management explained its 6-pillar strategy
i.e., selling 6 service lines of IT, infr- management, network management, security
services, value added services and services such as analytics to telcos. Currently, non-IT
services contribute 33% of telecom revenues for the company. Further, it is focusing on
segments that are growing faster such as platforms, enterprise, mobility and NMACS
(networks, mobility, analytics, cloud and security).
"BUY"23rd Dec' 13
Narnolia Securities Ltd,
13
Tech Mahindra.
(Source: Company/Eastwind)
Operating Metrics
Financials
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Client contribution to revenue-% 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
Customer Active 484.00 475.00 475.00 516.00 567.00 576.00
Top 10 clients 50.0% 51.0% 50.0% 50.0% 49.0% 48.0%
Top 5 clients 40.0% 41.0% 39.0% 37.0% 37.0% 36.0%
Top client 17.0% 14.0% 15.0% 13.0% 12.0% 12.0%
Revenue mix - onsite/offshore (%)
Onsite 48.0% 48.0% 48.0% 48.0% 51.0% 51.0%
Offshore 52.0% 52.0% 52.0% 52.0% 49.0% 49.0%
Employee Metrics
Utilisation % 75.0% 74.0% 76.0% 77.0% 76.0% 75.0%
Attrition % 17.0% 16.0% 16.0% 16.0% 15.0% 16.0%
Rs, Cr FY12 FY13 FY14E FY15E FY16E
Net Sales(mn)-USD 1157 2633 3124.01 3592.61 4023.73
Net Sales 11702.4 14332.0 18744.06 21376.04 24343.54
Employee Cost 6591.9 8099.5 10309.24 11756.82 13388.95
Operation and other expenses 2210.1 2287.3 3373.93 3847.69 4381.84
Subcontracting Cost 948.6 882.0 1405.80 1603.20 1947.48
Total Expenses 9750.6 11268.8 13683.17 15604.51 17770.79
EBITDA 1951.8 3063.2 5060.90 5771.53 6572.76
Depreciation 319.0 389.6 509.54 581.08 661.75
Other Income 501.3 212.2 281.16 213.76 243.44
Extra Ordinery Items 36.9 -160.1 -209.39 -238.79 -121.72
EBIT 1632.80 2673.60 4551.36 5190.45 5911.00
Interest Cost 107.3 92.1 98.04 91.37 86.93
PBT 2063.7 2633.6 4525.09 5074.05 5945.79
Tax 228.9 647.9 1176.5 1319.3 1545.9
PAT 1834.8 1985.7 3348.6 3754.8 4399.9
Growth-%
Sales-USD 2.7% 127.6% 18.6% 15.0% 12.0%
Sales 13.8% 22.5% 30.8% 14.0% 13.9%
EBITDA 11.9% 56.9% 65.2% 14.0% 13.9%
PAT 11.9% 8.2% 68.6% 12.1% 17.2%
Margin -%
EBITDA 16.7% 21.4% 27.0% 27.0% 27.0%
EBIT 14.0% 18.7% 24.3% 24.3% 24.3%
PAT 15.7% 13.9% 17.9% 17.6% 18.1%
Expenses on Sales-%
Employee Cost 56.3% 56.5% 55.0% 55.0% 55.0%
Subcontracting Cost 8.1% 6.2% 7.5% 7.5% 8.0%
Operation and other expenses 18.9% 16.0% 18.0% 18.0% 18.0%
Tax rate 11.1% 24.6% 26.0% 26.0% 26.0%
Valuation
CMP 652.5 1081.7 1844 1844 1844
No of Share 23.2 23.2 23.2 23.2 23.2
NW 4815.8 5529.1 8741.77 12360.68 16624.68
EPS 79.0 85.5 144.1 161.6 189.4
BVPS 207.3 238.0 376.31 532.10 715.66
RoE-% 38.1% 35.9% 38.3% 30.4% 26.5%
Dividen Payout-% 3.2% 3.0% 4.1% 3.6% 3.1%
P/BV 3.1 4.5 4.9 3.5 2.6
P/E 8.3 12.7 12.79 11.41 9.74
CMC
1M 1yr YTD
Absolute 15.0 29.2 54.5
Rel. to Nifty 15.4 24.6 37.1
Current 4QFY13 3QFY13
Promoters 51.12 51.12 51.12
FII 23.32 21.84 19.87
DII 17.83 19.05 20.46
Others 7.73 7.99 8.55
Financials2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 560.75 486.61 15.2 458.64 22.3
EBITDA 88.41 77.04 14.8 76.59 15.4
PAT 67.3 53.12 26.7 49.4 36.2
EBITDA Margin 15.8% 15.8% - 16.7% (90bps)
PAT Margin 12.0% 10.9% 110bps 10.8% (120bps)
14
"On track to deliver"
CMP 1510
Target Price 1690
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.
Company update Buy
Mkt Capital (Rs Crores)
Share Holding Pattern-%
Average Daily Volume 20884
Stock Performance
Nifty
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 quarters
ahead and the revenue growth to be higher than the NASSCOM guidance in FY14. 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. For a long-term
prospect, we remain positive on the stock, taking its earning visibility and healthy
earnings among the mid-cap IT space (over 25% CAGR in earnings over FY2013-15E). At
a CMP of Rs 1510, stock trades at 14.9X FY14E earnings. We have "BUY" view on the
stock and we revise our target price from Rs1490 to Rs1690.
Steady Margin: During the quarter, EBITDA margin was almost unchanged at 15.8% due
to wage hikes (70 bps), but also has positive impact from currency gain (170 bps) which
were reinvested into the business. However, Management is still confident to maintain
the margin in a range of 15-16%.
6167
4575
1 year forward P/E
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Considering recent healthy demand environment across the IT space with favorable
supply side scenario, we remain confident on the stock for better earning visibility and
stable margin picture. Still, we reiterate our positive stance on the long-term story of
CMC due to its focus on high margin SI and ITES businesses.
For 2QFY14E earnings, CMC witnessed better Sales and PAT growth with 15% sales
growth driven by the strong growth from the System Integration (29%) coupled with the
good growth from the System Integration (24%) and ITES business (16%) sequentially.
PAT grew by 27%(QoQ) because lower effective tax rate (from 34%, 1QFY14) to 20% of
earning before tax) .
517326
CMC
13.4%
Market Data
52wk Range H/L 1560/1107
BSE Code
Previous Target Price 1490
Upside 12%
NSE Symbol
Change from Previous
"BUY"20th Dec' 13
Narnolia Securities Ltd,
15
CMC
Key facts from recent Concall ►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 between 15 percent and 16 percent for FY14E,
►The Capex expected to be Rs 190 crore (planned is around Rs 230 crore) for FY'14.The
capex will be financed by internal accruals.
►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.
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Financials;
Narnolia Securities Ltd,
Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E
Net Sales 870.73 1084.40 1469.34 1927.87 2239.31 2600.41
Purchases of stock-in-trade 99.35 99.28 145.40 188.56 201.54 234.04
Employee Cost 276.16 345.13 440.22 521.65 593.42 702.11
Subcontracting and outsourcing cost 173.56 262.35 446.11 679.73 794.96 923.15
Other expenses 159.94 170.17 213.63 222.88 235.13 273.04
Total Expenses 709.01 876.93 1245.36 1612.82 1825.04 2132.34
EBITDA 161.72 207.47 223.98 315.05 414.27 468.07
Depreciation 9.85 10.46 21.37 23.20 41.95 60.69
Other Income 18.75 11.80 17.46 13.17 22.39 26.00
EBIT 151.87 197.01 202.61 291.85 372.33 407.38
Interest Cost 3.17 0.22 0.02 0.18 0.2 0.25
PBT 167.45 208.59 220.05 304.84 394.52 433.14
Tax 24.23 32.42 68.59 76.76 86.79 99.62
PAT 143.22 176.17 151.46 228.08 307.73 333.52
Growth-%
Sales -7.4% 24.5% 35.5% 31.2% 16.2% 16.1%
EBITDA 27.7% 28.3% 8.0% 40.7% 31.5% 13.0%
PAT 23.3% 23.0% -14.0% 50.6% 34.9% 8.4%
Margin -%
EBITDA 18.6% 19.1% 15.2% 16.3% 18.5% 18.0%
EBIT 17.4% 18.2% 13.8% 15.1% 16.6% 15.7%
PAT 16.4% 16.2% 10.3% 11.8% 13.7% 12.8%
Expenses on Sales-%
Employee Cost 31.7% 31.8% 30.0% 27.1% 26.5% 27.0%
Subcontracting Cost 19.9% 24.2% 30.4% 35.3% 35.5% 35.5%
Tax rate 14.5% 15.5% 31.2% 25.2% 22.0% 23.0%
Valuation
CMP 1340.0 2079.6 994.8 1410.0 1510 1510
No of Share 1.50 1.50 3.00 3.03 3.03 3.03
NW 510.68 654.02 772.19 946.26 1192.11 1454.91
EPS 95.48 117.45 50.49 75.27 101.56 110.07
BVPS 340.45 436.01 257.40 312.30 393.44 480.17
RoE-% 28.0% 26.9% 19.6% 24.1% 25.8% 22.9%
Dividen Payout ratio 18.6% 19.9% 23.2% 19.4% 20.1% 21.2%
P/BV 3.94 4.77 3.86 4.51 3.84 2.78
P/E 14.03 17.71 19.70 18.73 14.87 13.72
BUY
1M 1yr YTD
Absolute 2.8 4.4 1.4
Rel. to Nifty 0.1 -1.3 -14.6
Current 1QFY14 4QFY1
3Promoters 52.1 52.2 52.2
FII 15.8 14.9 14.0
DII 12.5 12.5 13.3
Others 19.5 20.5 20.5
Financials Rs, Crore
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 567 517 9.7 474 19.6
EBITDA 249 197 26.4 165 50.9
PAT 205 174 17.8 117 75.2
EBITDA Margin 43.9% 38.1% 580bps 34.8% 910bps
PAT Margin 36.2% 33.7% 250bps 24.7% 1150bps
16
Change from Previous -
NSE Symbol
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
Mkt Capital (Rs, Cr)
Nifty 6217
The company have one more business segment ‘Nutraceuticals’ relatively smaller and
newer as compared to other business segment can act as growth driver going forward. The
management of the company is quite optimistic for this business segment and has guided
that this business at 40-50% CAGR (albeit on a low base) over the next 2-3 years.
2QFY14 Results Update.The company posted strong 2QFY4 results with net sales growing to Rs 566 Cr up by
19.7% YoY on the back of good growth coming from all business segments. The generic
API grew by 18% YoY to Rs 261 Cr for the quarter and CRAMS business segment grew by
20% YoY to Rs 271 Cr. The company derives almost 45-50% of revenues each from
CRAMS and generic API business while rest comes from ‘Nutraceuticals’.One Year Price vs Nifty
(Source: Company/Eastwind)
15631
Average Daily Volume 5.43
The operating EBITDA for the quarter came at Rs 250 Cr and OPM at 43.9 %. Company’s
2QFY14 EBITDA margins were higher than 34.8% reported in Q2FY13 on account of
higher gross margins, lower power cost and forex loss in Q2FY13.The RM cost as % of net
sales stands at 50% for the 2QFY14 while employee cost as % of net sales was 10 %.
Company is one of the few CRAMS (Contract Research and Manufacturing Services)
players with a superior business mix comprising high-margin custom synthesis of APIs
(Active Pharma Ingredients) and intermediates for innovator companies. The company
collaborates with innovators throughout the product development cycle. Post
commercialization, company is usually the key supplier of APIs and intermediates for these
products to the innovators. In 2012-13, the company added six products to its custom
synthesis portfolio.The CRAMS business which contributes nearly 45%- 50% of the total revenues have from
Rs 560 Cr in 2009 to Rs 1000 Cr translating CAGR of 15 %.The Generic API business
which contributes another 45-50 % to the total revenues is also well track after witness
some pressure in FY10.As on FY13 this segment contributed Rs 1029 Cr to the total
revenues and this segment to more revenues to the company in the light of upcoming
patent cliff of US and new launches .
52wk Range H/L 1189/905
DIVISLAB
Market Data
BSE Code 532488
14%Upside
DIVISLABGood Growth Ahead
Target Price 1350
Previous Target Price -
Result Update
CMP 1186
About The Company :Divi’s Laboratories Limited is an India-based manufacturer of Active Pharmaceutical
Ingredients (APIs) and Intermediates. Divi is engaged in manufacture of generic APIs,
custom synthesis of active ingredients for innovator companies and other specialty
chemicals like peptides and nutraceuticals.
Investment Rationale :
"BUY"19th Dec' 13
Narnolia Securities Ltd,
17
Please refer to the Disclaimers at the end of this Report.
DIVISLAB
Continued…The net profits for the 2QFY14 came at Rs 205 Cr and NPM came at 36.2%.The net profits
also include forex gain of Rs 31 Cr. The company reports its forex gain under other
income headings and forex loss under its other expenditure head. The tax rate for the
quarter stands at 22%.
Graphical Depiction
Revenue Break Up: 2QFY14
(Source: Company/Eastwind)
Company has capitalized Fixed assets to the tune of Rs120 Cr for H1 FY14. The company
will commercialize DSN SEZ by the end of the year and the FDA inspection post that. The
new DSN SEZ contribution will start in Q1 FY15E and full benefits will fructify only from Q2
FY15E.The existing DSN blocks contributed Rs125 Cr revenues in Q2 FY14 as against
Rs70.8 Cr in Q1 FY14.
Management GuidanceThe management of the company after strong 2QFY14results expects that revenue to
grow by 15-20 % (15% guided earlier), with FY15E growth expected above 20%. The
management further indicated that this high level of OPM is not sustainable but reiterated
that 38% levels OPM is quite reachable . On Power shortage ,which declined the OPM in
1QFY14 has been solved and will aid margin expansion going forward. The capex
guidance stands at INR500-600m (apart from INR2b addition from CWIP) and tax rate
guidance remains between 23-24%.
View & ValuationThe company is not only the most profitable company in the CRAMS space, but also
features among the most profitable companies in the Indian healthcare sector with EBIDTA
margin of 35-40% backed by its strong chemistry skills and custom synthesis presence.The
stock is currently trading at CMP of Rs 1186, strong 2QFY14 results ,optimistic
management guidance and better business model in comparison to its peers makes us
confident for the stock. We are positive for the stock and recommend BUY with
target price of Rs 1350.
Narnolia Securities Ltd,
18
DIVISLAB
Sales and PAT Trend (Rs)
(Source: Company/Eastwind)
Net sales growing to Rs 566 Cr up by 19.7%
YoY on the back of good growth coming from
all business segments.
2QFY14 EBITDA margins were higher than
34.8% reported in Q2FY13 on account of
higher gross margins, lower power cost and
forex loss in Q2FY13.
OPM %
(Source: Company/Eastwind)
NPM %
The 2QFY14 PAT also include forex gain of Rs
31 Cr. The company reports its forex gain
under other income headings and forex loss
under its other expenditure head.
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
19
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.