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Escorts Ltd :"Out Performer……." "BUY" 30th Jan 2014
Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in
FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-to-
medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on
the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175
.................................................................( Page :5-7)
Hindustan Unilever :"wait for triggers" "NEUTRAL" 30th Jan 2014
Delivered stable set of numbers, still expecting key challenges ahead;For 3QFY14, despite slow discretionary demand HUL reported inline set of
numbers with 8.5% (YoY) sales growth led by 4% (YOY) volume growth. PAT grew by 19%(YoY). We do not see any sign of improvement in
volume growth in near future. However, revival in macro economy and resultant improvement in consumer sentiment would play a key triggers
for improvement in the volume growth in near term. ............................................ ( Page :2-4)
28th Jan 2014
Delivered inline set of numbers but better on all aspects than its peers did: For 3QFY14, Persistent System’s sales was almost flat (QoQ) in INR
term, while grew 2.2% (QoQ) in USD term impacted by seasonality and furloughs impacts. Considering the company’s ability to achieve scale and
growth, we upgrade our target price from Rs 960 to Rs 1070 with “BUY” view on the stock. ................................................................ ( Page : 18
- 20)
ALLAHABAD BANK : "BUY" 28th Jan 2014
Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII growth and deteriorated asset quality. Bank’s operating
expenses were stable in absoluter term but as cost income ratio increased drastically on account of lower revenue growth. Asset quality has
deteriorated sequentially. Due to lower corporate demand, loan growth remain muted and bank’s lower its total business (Loan + Deposits)
guidance to Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s book value. We are not
impression with bank’s fundament but current price provide 15% upside from our target price. ........................................................... ( Page :
13-17)
30th Jan, 2014
Edition : 195
IEA-Equity
Strategy
UCO BANK : "BUY" 27th Jan 2014
UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII along with higher than industry average loan growth.
Bank’s asset quality improved sequentially despite of challenging macro environment. However bank’s CASA growth has declined marginally in
sequential basis but still at comfortable level. UCO Bank’s operating as well as financials metrics has been improving continuously. We value
bank at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s earning. ............................................................ (
Page :21-25)
SHREE CEMENT : "BUY" 28th Jan 2014
Persistent System: "Persistently innovating.." "BUY"
SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES 29th Jan 2014
India's auto mobile sales continued to remain on sluggish trajectory as most of the companies reported a decline in sales number due to
slowdown in economic activity and increasing fuel prices. However, two-wheeler segments continued to grow at a healthy rate, led by strong
rural demand ........................................... ( Page : 8-9)
Shree Cement Ltd has reported a 47% fall in its December quarter net profit on lower sales as well as 5% degrowth in realization. PAT impacted
due to lower other income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41% YOY). Volumes grew by18 %
to3.8mn ton from 3.3mn ton QOQ. After a good monsoon and election ahead management expecting a good performance from shree cement
for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/- . ............................................ ( Page :10-12)
Narnolia Securities Ltd,
India Equity AnalyticsDaily Fundamental Report on Indian Equities
Hindustan Unilever
1M 1yr YTD
Absolute 0.23 21.18 21.63
Rel. to Nifty 3.2 20.33 19.85
Current 2QFY14 1QFY14
Promoters 67.25 67.25 52.5
FII 14.83 15.33 20.23
DII 3.35 3.03 7.13
Others 14.57 14.39 20.16
Financials
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 7037.78 6747.2 4.3 6433.89 9.4
EBITDA 1226.8 1085.31 13.0 1088.99 12.7
PAT 1043.7 888.3 17.5 877.08 19.0
EBITDA Margin 17.4% 16.1% 130bps 16.9% 50bps
PAT Margin 14.8% 13.2% 160bps 13.6% 120bps
2
500696
Share Holding Pattern-%
Increasing competitive intensity, slow consumer demand and expectation of hike in
input cost in near term could be major concern for HUL. We expect that these concerns
could play out over the next couple of quarters.
Volume growth: Volume growth for the quarter was at 4%, which is slightly lower than
the 5% registered in previous several quarters due to further deterioration in market
growth rates and higher component of price versus volume in its core soaps and
detergents category.
Segment-wise performance: (a)Soaps and Detergents delivered a healthy performance.
The company witnessed a price led growth in this segment during the quarter. Wheel
was re-launched with superior formulation at quarter end. It has grown well compared
to preceding last 2 quarters. (b)Household Care delivered another strong quarter with
both Vim and Domex growing in double digits. (3)On Personal Products, Skin Care
performing well with a revenue growth in mid teens in a slowing market and in spite of
the delay in the onset of the winter season.
52wk Range H/L 725/432
NSE Symbol HINDUNILVR
Market Data
BSE Code
"wait for triggers"
CMP 570
Target Price -
Delivered stable set of numbers, still expecting key challenges ahead;
For 3QFY14, despite slow discretionary demand HUL reported inline set of numbers
with 8.5% (YoY) sales growth led by 4% (YOY) volume growth. PAT grew by 19%(YoY).
Upside -
Result update NEUTRAL
Previous Target Price -
Change from Previous -
Stock Performance-%
123161
Average Daily Volume 2006314
Nifty 6153
We do not see any sign of improvement in volume growth in near future. However,
revival in macro economy and resultant improvement in consumer sentiment would
play a key triggers for improvement in the volume growth in near term.
P/BV (x) -1year forward
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
View and Valuation: To continue to deliver strong growth, HUL is likely to continue with
aggressive marketing and offer discounts/price cuts, especially in soaps, detergents and
personal products and the company fights off competition rivals domestic as well as
multi-national. we are confident of the medium to long-term growth prospects of the
FMCG sector. At a CMP of Rs 570, stock trades at 29x FY15E P/BV. We have a NEUTRAL
view on the stock.
Product Strategy: The company has launched premium range of hair care products -
Toni and Guy. This brands are sold through select top end outlets. However, its
operating metrics was challenging given the volatile cost environment, led by the INR
depreciation, and heightened competitive intensity during the quarter.
Mkt Capital (Rs Cr) Steady margin growth: During the quarter, EBITDA margin inched up by 50bps(YoY) to
17% because of stable INR movement against the USD and stable set of RM cost than
same quarter previous year. PAT margin also improved slightly to 17.4% on YoY. During
the quarter, company has been efficient to manage cost inflation through judicious
pricing and unwinding of promotions.
"NEUTRAL"30th Jan' 14
Narnolia Securities Ltd,
3
Margin-%
Seg
(Source: Company/Eastwind)
Volume growth for the quarter was at 4%,
which is slightly lower than the 5% registered
in previous several quarters
EBITDA margin inched up by 50bps(YoY) to
17% because of stable INR movement against
the USD and stable set of RM cost than same
quarter previous year.
EBITDA Margin up by 90bps to 13.3% from
Soap and Detergent, flat margin growth on
Personal Products.
(Source: Company/Eastwind)
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Hindustan Unilever
Volume and Pricing growth -%(YoY)
(Source: Company/Eastwind)
Sales (cr) and Growth(YoY)-%
Narnolia Securities Ltd,
3QFY13 2QFY14 3QFY14 3QFY13 2QFY14 3QFY14
Soaps & Detergents 47.0% 19.9% 6.4% 7.1% 12.4% 14.0% 13.3%
Personal Products 31.9% 8.5% 11.8% 12.4% 28.3% 22.8% 28.6%
Beverages 11.8% 18.2% 16.1% 7.2% 17.7% 17.0% 16.2%
Packaged Foods 5.2% 7.7% 8.7% 12.9% -0.7% 3.3% -3.6%
Others 3.8% -33.4% 5.7% -4.7% -6.4% 1.5% -4.9%
Margin-%Revenue Growth-%% of SalesSegments
4
(5)Tax rate is expected to rise by 300-400 bps for FY15.
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Financials
(2)The management expects to see some cost burden on promotion through media
because of 12 minutes advertisement cap.
(3)Rural growth continues to outpace urban growth by 200 bps and there is no clear-cut
sign of uptick in urban demand as per available data from Nielsen.
(4)Personal products and packaged foods both segments have headroom for growth and
will remain focus area.
Hindustan Unilever
Key facts from HUL Con-call (attended on 28th Jan, 2014)
(1)The mgmt stated that FMCG market growth continues to remain soft across the
categories, with high competitive intensity and uncertain media environment. While, for
medium to long term the mgmt is positive on FMCG sector.
Narnolia Securities Ltd,
Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E
Sales 18025.6 20022.6 23436.3 27004.0 28959.1 31506.3
RM Cost 6762.8 7796.9 9487.0 10987.8 11873.2 13075.1
Purchases of stock-in-trade 2173.1 2692.8 2919.5 3125.3 3185.5 3465.7
WIP 75.7 -307.6 95.2 -26.0 -27.9 -30.3
Employee Cost 970.9 1014.9 1200.9 1412.7 1515.0 1648.2
Ad Spend 2423.0 2797.1 2697.0 3290.0 3619.9 3938.3
Other expenses 2783.2 3317.4 3553.2 4008.9 4054.3 4568.4
Total expenses 15188.7 17311.3 19952.8 22798.7 24219.9 26665.4
EBITDA 2836.9 2711.2 3483.6 4205.3 4739.1 4840.9
Depreciation and Amortisation 191.9 207.5 211.9 251.3 270.4 294.2
Other Income 82.7 255.2 259.6 532.0 579.2 630.1
EBIT 2727.6 2758.9 3531.3 4486.0 5047.9 5176.9
Interest 7.5 1.0 1.7 25.7 25.7 27.0
PBT 2720.2 2757.9 3529.7 4460.3 5022.2 5149.9
Tax Exp 615.3 650.3 821.5 1226.7 1406.2 1442.0
PAT 2104.9 2107.6 2708.1 3233.7 3616.0 3707.9
Growth-% (YoY)
Sales -13.4% 11.1% 17.0% 15.2% 7.2% 8.8%
EBITDA -4.9% -4.4% 28.5% 20.7% 12.7% 2.1%
PAT -16.1% 0.1% 28.5% 19.4% 11.8% 2.5%
Expenses on Sales-%
RM Cost 37.5% 38.9% 40.5% 40.7% 41.0% 41.5%
Ad Spend 13.4% 14.0% 11.5% 12.2% 12.5% 12.5%
Employee Cost 5.4% 5.1% 5.1% 5.2% 5.2% 5.2%
Other expenses 15.4% 16.6% 15.2% 14.8% 14.0% 14.5%
Tax rate 22.6% 23.6% 23.3% 27.5% 28.0% 28.0%
Margin-%
EBITDA 15.7% 13.5% 14.9% 15.6% 16.4% 15.4%
EBIT 15.1% 13.8% 15.1% 16.6% 17.4% 16.4%
PAT 11.7% 10.5% 11.6% 12.0% 12.5% 11.8%
Valuation:
CMP 238.7 284.6 419.0 483.3 570.00 570.00
No of Share 218.2 215.9 218.2 216.2 216.26 216.26
NW 2668.9 2735.0 3681.1 2864.8 3571.24 4243.13
EPS 9.6 9.8 12.4 15.0 16.72 17.15
BVPS 12.2 12.7 16.9 13.3 16.51 19.62
RoE-% 78.9% 77.1% 73.6% 112.9% 101.3% 87.4%
P/BV 19.5 22.5 24.8 36.5 34.52 29.05
P/E 24.7 29.2 33.8 32.3 34.09 33.24
V- Escorts Ltd.
CMP 125
Target Price 175
Previous
Target Price
105
Upside 40%
Change from
Previous
67%
BSE Code 500495
NSE Symbol
52wk Range
H/L
48/96
Mkt Capital
(Rs Crores)
1,505
Average Daily
Volume
225,953
Nifty 6,120
1M 1yr YTD
Absolute (11.3) 62.7 147.9
Rel. to Nifty (8.2) 61.0 140.2
3QFY14 2QFY14 1QFY14
Promoter's 42.0 42.0 42.0
FII's 9.4 12.3 12.1
DII's 2.1 4.7 5.4
Others's 46.5 41.0 40.6
5
Result update
Market Data
In 5QFY13 the company saw revenue growth of 12.8% to Rs 1159.6 crore. This result was
mirrors the pent-up demand for tractor business, partly driven by improved crop cultivation
and production and revival in farm equipment segment. In current quarter 84% of Escorts’
revenues come from the sale of tractors, and it saw volumes growth of 11.3% to 19047 in its
tractor sales. Company construction equipment business witnessed a flattish of 1.4% to Rs.
130.9 crore and stands at 11% of company total revenue during this quarter. Lower inventory
levels typical of this quarter, where sales are better than in the preceding quarter, translated
into a 6.1% operating margin, up 100 basis points from the year-ago period. Further, A
marginal price hike in the latter part of the December quarter also propped up realizations.
More importantly, the improved financial position in the farm segment eased cash flows and
working capital cycles, which in turn trimmed interest costs.
Buy
Industry players expects the year 2013-14 to end with volume growth of around 15%
After an all time high sales in Oct 2013, where the industry saw a volume growth of 28.8% YoY,
Nov'13 volume growth was expected on lower side. While in Dec'13, the industry came back
strongly with a 21.1% growth. In April-Dec'13 period, the industry saw a healthy 23.8% growth in
volume. So while high growth is expected to tilt down in lean season, overall, the industry as a
whole is still expected to end the year with a volume growth of about 15% for 2013-14. Key
markets that supported the growth in FY'14 are Andhra Pradesh, Madhya Pradesh, Rajasthan and
Chhattisgarh. Some of these markets grew by more than 30% YoY. All macroeconomic factors
such as crop prices, productivity, soil moisture, government focus on rural spending etc are
favoring the farm equipment business.
Please refer to the Disclaimers at the end of this Report.
"Out Performer……."
ESCORTS
Share Holding Pattern-%
Stock Performance-%
"Buy"30th Jan' 14
Narnolia Securities Ltd,
Penetration to high HP Tractors
Company Outlook
6
The stock is currently trading at 6.5x FY14E EPS with a negative bias in case of construction equipment
segment due to adverse macroeconomic conditions . At current price of Rs. 117, the stock is trading at
P/E of 7.1 x for FY13E and 6.5 x the FY14E. Escorts could post EPS of Rs. 12.13 for FY14E and Rs. 12.98
for FY15E. An increase in volumes is an indication of healthy demand. Tractor sales revival has enabled
the company to register strong result. Escorts’ EBITDA margin and bottom-line exceeded our
expectations. Going forward, we remain positive on the company’s growth prospects particularly in
AMP segment. We expect demand to improve further in FY2014E with the economic recovery.
However, we remain cautious with regards to growth in Construction Equipment segment in near-to-
medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume
performance. We therefore revised our rating on the stock from "Reduce" to "Buy" and advised to
our investors to enter at current level with Revised price target of Rs. 175
Escorts Ltd.
Please refer to the Disclaimers at the end of this Report.
Escorts management aims to improve tractor margins from the current ~10% to 15% over the next 1-2
years led by change in focus to higher HP tractors and by cost rationalization measures. Higher tractor
margins would take Escorts' company level EBITDA margins from ~6% to ~10%, as tractor segment
contributes 80% to the company's overall sales. Moreover, the management's strategy to focus on
higher HP tractors and increase presence in Southern markets will lead to faster-than-market growth.
Outlook on Industry
Despite being an agricultural nation, Tractors penetration in India is about 5% of total cultivable
land. Going forward, we expect deeper penetration of Tractors to happen which will continue to
drive strong demand for the sector. The growth in farm incomes will fuel the need for further
mechanization, which will tend to accelerate as social welfare programs, urbanization and
alternative occupations move farm labor to other sectors. So the demand for higher HP tractors
will be the future growth within the sector. The proportion of higher power (greater than 50 HP+)
segment has shown increase in total industry volume share by 380 bps from 12.6% in FY'08 to
about 18% in FY'13. For tractor industry more than festive season it is the monsoons that matters
a lot. The onset of positive sentiments because of monsoons, the reservoirs are full, the kharif crop
sowing is more than 1,000 lakh hectors which is almost 6 percent up vis-à-vis last year. The prices
of the crops declared by the government are pretty good and on top of it there are host of
financiers who are financing the tractors and funds are available to prospective buyers and that is
also leading to growth.
Narnolia Securities Ltd,
7
Graphical representations :
Operating profit :
Net Profit :
Trailling ROE % & Trailling Asset T/O :
(Source: Eastwind Research) (Figures in crore)
(Source: Eastwind Research) (Figures in crore)
(Source: Eastwind Research) (Figures in crore)
Please refer to the Disclaimers at the end of this Report.
Escorts Ltd.
Revenue from operation :
(Source: Eastwind Research) (Figures in crore)
Narnolia Securities Ltd,
SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES
8
Industry Overview:India's automobile sales continued to remain on sluggish trajectory as most of the companies reported a decline in sales number due to
slowdown in economic activity and increasing fuel prices. However, two-wheeler segments continued to grow at a healthy rate, led by
strong rural demand.The contribution of various segment for the 9MFY14 automobiles sales stands as under :
Two Wheelers For December 2013, overall auto industry volumes were led by the two-wheeler industry (4% YoY growth). Two Wheelers segment
contribution has increased to 80.2% of the total auto volume, during first nine months of FY14 from 77% in FY 13.The cumulative volume
for 9MFY14 for 2 Wheelers stands at 12489192 units up 5.3% YoY.
Better monsoon benefitted rural demand, while urban sales remained lackluster, which was higher than offsetting the rural growth. With
the festive season ending early in November 2013 this year, the positive momentum seen October 2013 has cooled off with retail sales
largely lagging wholesales. The two-wheeler segment has again managed to keep its head over water even as all other segments have
shown an annual decline with last years' festive season ending later.
Sub Segment Motorcycle
The analysis of previous year’s sales indicates that the three major players viz Heromoto Corp, Bajaj-Auto,TVS Motors have shown
declining performance along with market share loss to both HMSI and Yamaha. The strong rural demand helps to boost the sales of
commuter sub segment (100-125 CC) of motorcycles. The following table shows yearly performance of some of major motorcycle
players
(Source: Company/Eastwind)
The graph clearly indicates that of total automobiles sold for 9MFY14
the contribution of two wheelers stand at maximum. This trend shows
that slow down in consumer discretionary expenses. The differential
pricing makes people to spend more towards two wheelers more over
people look for option which gives them more mileage for every unit of
fuel. As stated earlier there is growth in rural economy and trend is
clearly visible from the sales made by two wheelers in total
automobiles sold for the period.
Sub Segment Scooter
Year Wise Motorcycle SalesYear Wise Motorcycle Market Share
Please refer to the Disclaimers at the end of this Report.
The scooter sub segment grew well led by new launches from Honda (New Activa), Hero (Maestro), TVS (Jupiter) and Suzuki (Swish),
the scooter segment grew at a faster clip of 19% YoY for Apr-Dec'13 period against a flattish (3%) growth in the motorcycle segment.
The faster volume growth of the scooter segment led to a 220bps improvement to 21.2% in its share of the two-wheeler market during
this period. The main drivers for this growth are (a) growing acceptability of gearless scooters, particularly by women, (b) rising
urbanization and increasing proportion of working women and (d) new launches.
Narnolia Securities Ltd,
Companies FY12-13 FY11-12 FY10-11
Hero MotoCorp 46% 48% 48%
Bajaj Auto 31% 32% 32%
TVS Motors 6% 7% 8%
HMSI 11% 7% 7%
Yamaha 4% 4% 3%
Companies FY12-13 FY11-12 FY10-11
Hero MotoCorp 5499245 5779621 5040971
Bajaj Auto 3757094 3834405 3387043
TVS Motors 749806 843338 836831
HMSI 1291688 864183 748488
Yamaha 437998 484891 366770
SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES
9
Please refer to the Disclaimers at the end of this Report.
In three wheelers universe for the December 2013 Industry domestic volumes were down 21% to 35249 units led by 27% drop in the
passenger segment. There was a 7% rise in the goods carrier segment in Dec 13. Exports registered 11% rise to 33,044 units. This segment
for 9MFY14 registered domestic sales was 364669 units down by 9 % YoY for the same period last fiscal. The exports have done fairly well
for the period with 11 % growth YoY to 33044 units. The three wheeler segment remains flat on YoY to 626749 units for 9MFY14. The three
Wheelers demand largely driven by exports, while domestic sales remained weak.
Bajaj-Auto with 55% market share is the market leader in 3 Wheeler sales in the country. Q1FY14 Domestic 3W sales accounted for 38% of
the company's total 3W sales. Of the total 3W sales, 15-20% came from new permits, while replacement accounts for the rest. On the
domestic 3W front, the outlook remains positive with 20000 permits opening up in Hyderabad (5k already utilized in June-July 2013) and
3000 permits opening up in Maharashtra in Sept-Oct 2013. Also, its plan to launch a renewed range of 3W (RE Compact) promises to drive
replacement demand.
For TVS, 3W sales stood up by 36.8% YoY to 6,137 units with most of it coming from the overseas markets; 3W share to total sales forms
3.8% in December and 3.9% YTD, 150bp higher YoY. The Company is expected to benefit from this as 3W forms a high margin product.On
the other hand, Mahindra & Mahindra's 3w sales were up 7.6% to 5.6k units. Sales were down 5% on a MoM basis.
The YTD performance of Three wheelers for FY14 is tabulated as under:
While the macro-economic environment remains challenging, OEMs have pinned hopes on the bevy of launches that might trigger a
response from customers. Also, the recent cut in the price of petrol might just prove to be a good thing for companies. Additionally, better
crop realization due to a good monsoon and hike in MSP is expected to boost the rural income leading to a sales recovery. Over the long
term, easing macro headwinds in terms of lower interest rates and higher economic growth would be the key driver for volume growth and
profitability.
Conclusion
Given its low ticket size and high rural share, this segment of the auto industry is sure to pick up momentum in the coming months. With
urbanization, rise in women riders, higher fuel efficiency and improving per capita income, the penetration of scooters will continue to
increase and at a pace faster than motorcycles. 2/3 wheeler companies which are the direct beneficiaries of the rural consumption are
expected to remain strong given the buoyant prices for food items, strong monsoon and additional benefits of government doll outs and
largesse.
Future Outlook (Source: Company/Eastwind)
Continued…Scooter sales growth has taken-off since FY10 and has consistently
outgrown that for the motorcycle segment. An increasing population of
working women, mainly in urban markets, has led to rapid sales-volume
growth in this segment. On a longer term perspective, scooter industry
volumes are expected to grow at ~20% CAGR over FY14-20, twice the
growth rate for motorcycles. Overall two wheeler industry volumes are likely
to grow at 12% CAGR during this period. The shares of scooters are
expected to increase to 37% by 2020, with annual sales of 10.7m units
(equal to the current market size of the domestic motorcycle industry).
Three Wheelers (Source: Company/Eastwind)
Narnolia Securities Ltd,
Month 9MFY14 Sales (Volume) 9MFY13 Sales (Volume) Change %
April 69562 61772 12.6%
May 61089 55184 10.7%
June 71889 54274 32.5%
July 66335 65352 1.5%
August 67141 72122 -6.9%
September 80549 78097 3.1%
October 76874 86072 -10.7%
November 65017 80325 -19.1%
December 68293 74596 -8.4%
YTD 626749 627794 -0.2%
SHREE CEMENT.
4325
4791
4791
11%
0%
500387
15502
3875
6136
1M 1yr YTD
Absolute 0.1 -4.8 -5.1 MAT Credit support the buttom line :Rel. to Nifty 0.0 -8.0 -9.2
2QFY14 1QFY14 4QFY13
Promoters 64.8 64.8 64.8
FII 8.2 8.2 8.1
DII 5.9 5.7 5.9
Others 21.2 21.3 21.2
Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14
Revenue 1318 -7.7 5.6 1428 1248
EBIDTA 271 -24.7 8.8 360 249
Net Profit 115 -46.9 -32.9 217 172
EPS 33 -46.9 -32.9 62 49
EBIDTA% 21 -18.4 3.1 25 20
NPM% 9 -42.5 -36.5 15 14(In Crs)
10
Buy
Market Data
Average Daily Volume (Nos.)
Volumes grew by18 % but prices came down by 5%. So the EBITDA margin has hit
badly:Shree Cement Ltd has reported a 47% fall in its December quarter net profit on
lower sales as well as 5% degrowth in realization. PAT impacted due to lower other
income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41%
YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. Net profit decreased by
47% yoy from Rs.217.44 crore (Rs.62.42 per share) in 2Q13 to Rs.115.49 crore (Rs.33.15
per share) in 2Q14.Total net income from operations stood at Rs.1318.13 crore in 2Q14,
a 6% fall yoy from Rs.1401.23 crore in 2Q13.Other income decreased from Rs.30.2 crore
in 2Q13 to Rs.9.9 crore in 2Q14.In the mean time company declares a Rs.10 as interim
dividend/share.
Power Segment: Realization Down By 15% : For power generation the net realization has
come down from Rs 383 to Rs 334 compared to last year same quarter and in the first
quarter it was still better at Rs 397.So the power realization is down by 13 percent and
hence sales also have come down by 35 percent to Rs.290 Cr. At the same time 14%
increase in its profitability from power segment to Rs112.56 crore while its cement
segment reported 79% fall in its profitability to Rs37.65 crore.
Upside
Change from Previous
CMP
Target Price
Previous Target Price
Result Update
BSE Code
SHREECEMNSE Symbol
During the Quarter Company got MAT (minimum alternative tax) credit entitlement of
Rs9.25 crore and deferred tax of Rs1.79 crore. This reduced total tax payable amount to
Rs15.27 crore from Rs26.31 crore.Company’s EBIDTA/ton decreased 6% to Rs.712 (vs Rs.756 in previous quarter), at the
same time the Expenditure also decreased 9% to Rs.2757 (vs Rs.3025 in Q1).Hence we
believe that company will outperform among its peers ,once Realization get improve.The
exceptional weakness is there in the cement prices. Volumes have grown by about 18
percent but the prices have come down by 5 percent and naturally the cost increase is
there. So the EBITDA margin has been badly hit .
The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun’13.Line X of
similar capacity along with 25MW of WHRS (at the same location) is expected by
Jun’14.Two grinding units of 2m tons each, at Ras and in Bihar,are being constructed and
expected by Jun’14.We expect Shree to be a 21.5m-tpa company by Jun’15.It plans to
foray into high demanding eastern.Total capex for these expansion is Rs.3,000 crore
which is spread over next 2 years.
On the expansion front :
52wk Range H/L
Mkt Capital (Rs Crores)
5210/3413
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
Nifty
"BUY"28th Jan' 14
Narnolia Securities Ltd,
0
1000
2000
3000
4000
5000
6000
Ma
r-0
2
Oct-
02
Ma
y-0
3
De
c-0
3
Jul-
04
Fe
b-0
5
Se
p-0
5
Ap
r-0
6
No
v-0
6
Jun
-07
Jan
-08
Au
g-0
8
Ma
r-0
9
Oct-
09
Ma
y-1
0
De
c-1
0
Jul-
11
Fe
b-1
2
Se
p-1
2
Ap
r-1
3
No
v-1
3
PRICE 1.5x2x 2.5x3x 3.5x4x 4.5x
Outlook :
FY11 FY12 FY13 FY14E
3454 5898 5590 5798
203 163 188 217
3656 6061 5779 6015
905 1500 1513 1409
602 1006 915 1090
2569 4252 4029 4275
885 1646 1561 1523
676 873 436 470
98 235 193 145
-99 69 115 118
365 619 1004 1007
20.8 23.1 26.1 21.1
11
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
SHREE CEMENT.
P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income
Company Description : Shree Cement (SCL) is a cement producer operating in the two
segments cement and power. As of June 30, 2012, the company had a cement capacity
of 13.5 million tonnes per annum (MTPA) and power capacity of 560 MW. The
company's waste heat recovery power plants have a total capacity of 46 MW. The
company’s brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It has
manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units
at Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in
Uttarakhand.
Management Corner : From mid-January there is a big change in demand scenario
because of the Indian calendar, the prices have improved, the demand has also
improved and they think that January to June some impact of elections will be there -
pre-election demand and other things. So margins should be better than 21 percent.
From the view company Operations in the high utilisation North and Central markets,
capacity expansions underway, low gearing and strong RoE are fundamental positives.
We believe although, near term challenges in terms of a slowdown in demand for
cement would remain, strong balance sheet and better efficiency in terms of cost
remains a key positive for this company to overcome challenges.Company Management
is bull for the rest two quarters of FY2014 as according to them demand has already
buttom out.We are positive on the stock as it always beats its peers group with lower
operational cost.Shree cement follows a multi brand strategy and sells cement under
the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together
enjoy the largest market share in high value markets of Rajasthan, Delhi and Haryana.
After a good monsoon and election ahead we are expecting a good performance from
shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price
Rs.4791/-
Net tax expense / (benefit)
PAT
ROE%
Power and fuel
Freight and forwarding
Expenditure
EBITDA
Depriciation
Interest Cost
Narnolia Securities Ltd,
-20
-10
0
10
20
30
40
50
60
1100
1150
1200
1250
1300
1350
1400
1450
1500
Revenue
Growth
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0 NPM % OPM % EBITDA %
0
2
4
6
8
10
12
0
50
100
150
200
250
300
350
400
450
EBIDTA
INTEREST SERVICE COVERAGERATIO
FY10 FY11 FY12 FY13
35 35 35 35
1798 1951 2699 3809
1833 1986 2734 3844
1789 1472 818 443
318 217 143 534
28 16 17 18
171 185 584 81
472 267 178 87
4906 4940 5973 6160
0 0 0 0
752 1167 1521 1782
967 729 97 133
299 308 205 378
358 404 503 530
82 108 181 315
416 499 459 369
415 429 363 326
4906 4940 5973 6160
FY10 FY11 FY12 FY13
4.4 3.6 3.8 4.2
212.3 118.6 177.5 288.2
2.3 3.1 3.1 5.6
4.7 5.3 9.9 1.4
1.0 1.2 0.9 0.9
12
Source - Comapany/EastWind Research
B/S PERFORMANCE
Trading At :
RATIOS
Long-term provisions
Trade payables
Short-term provisions
Total liabilities
Intangibles
Capital work-in-progress
Tangible assets
SHREE CEMENT.
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
Inventories to Turnover%
Short-term loans and advances
Total Assets
P/B
EPS
Debtor to Turnover%
Creditors to Turnover%
Narnolia Securities Ltd,
80
92
121
16
31.5
1M 1yr YTD
Absolute -14.9 -55.2 -55.2
Rel.to Nifty -12.5 -56.6 -56.6
Current 4QFY13 3QFY1
3Promoters 58.9 55.2 55.2
FII 8.7 8.0 8.1
DII 18.5 21.1 22.0
Others 13.9 15.6 14.7
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 4022 5163 4866 5426 6715
Total Income 5393 6461 6343 7745 9034
PPP 3055 3770 3385 4361 5150
Net Profit 1423 1867 1185 1290 1522
EPS 29.9 39.2 23.7 23.7 27.9
13
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
During this quarter bank’s asset quality worsen with gross NPA further deteriorated
by 14% QoQ in absolute term while as a percentage to gross advance, this ratio
stood at 5.5% versus 5% in previous quarter. Provisions had increased by 19% on
sequential basis which led net NPA deterioration to 12% QoQ. In percentage term,
net NPA to net advance stood at 4.1% versus 3.8% in previous quarter. Provision
coverage ratio (w/o technical write-off) marginally improved to 24.8% from 23.7% in
2QFY14. During this quarter, bank’s sold Rs.389 cr of non- performing assets to
asset reconstruction companies. Total outstanding restructure at the end of stood at
Rs.12624 cr which is 9.2% of net advance.
52wk Range H/L
Change from Previous
Allahabad Bank Vs Nifty
Share Holding Pattern-%
8.26 LAKH
Nifty 6136
Average Daily Volume
3975
176/65
NSE Symbol ALBK
Company UPDATE BUY
CMP
Target Price
Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due
muted NII growth and deteriorated asset quality. Bank’s operating expenses
were stable in absoluter term but as cost income ratio increased drastically on
account of lower revenue growth. Asset quality has deteriorated sequentially.
Due to lower corporate demand, loan growth remain muted and bank’s lower
its total business (Loan + Deposits) guidance to Rs.340,000 cr from earlier of
Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s
book value. We are not impression with bank’s fundament but current price
provide 15% upside from our target price.
Previous Target Price
Market Data
Upside
BSE Code 532480
ALLAHABAD BANK
Allahabad bank’s NII grew by 0.4% YoY to Rs.1336 cr versus our expectation of
Rs.1422 cr largely due to lower interest income led by lower than expected loan
growth and loan yield as well. Bank’s deposits growth was also lower than expected
but cost of deposits was almost same in previous quarter. Therefore interest income
was lower than interest expenses which cause muted NII growth. During quarter,
bank’s other income was Rs.542 cr as against Rs.341 cr in last quarter which helped
to report revenue growth of 11% YoY.
CI ratio up drastically in sequential basis but in absolute term it remain
comfortable
Cost to income ratio was higher at 46.3% versus 42.5% in previous quarter largely
due to lower revenue growth. In absolute term operating expenses increased by
2.2% QoQ and 7.3% YoY on which employee cost and other operating expenses
increased by 1% and 22% YoY respectively. With lower operating cost and high
support from other income, operating profit grew by 17.2% YoY to Rs.1008 cr.
Worsen asset quality led by macro environment
NII growth muted on account of lower loan growth and loan yield
"BUY"28th Jan, 2014
Narnolia Securities Ltd,
14
ALLAHABAD BANK
Source:Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Lower business growth target due to absence of corporate loan
Allahabad Bank’s total deposits grew by 10% YoY and advance grew by 13% YoY to
Rs.1875 bn and Rs.1373 bn respectively. Muted growth in loan was on account of lower
borrowing from corporate segment whereas bank reported retail, MSME and priority
sector registered handsome growth. CASA for the quarter stood at 30.8% versus 31.2%
in previous quarter. Bank management lower its FY14’s total business guidance to
340,000 cr from Rs.360,000 cr earlier. Accordingly we lower our loan and deposits growth
to 12% and 9% from earlier of 15% each. Credit deposits ratio was stable at 73.2%.
Lower profit growth because of muted NII growth and deteriorating asset quality
Net profit of Allahabad bank’s grew by 4.7% YoY to Rs.325 cr largely due to muted NII
growth and high provision led by deteriorating asset quality. Due to lower demand from
corporate borrowing, banks reduce its business growth target by 5.5% for FY14. Asset
quality pressure would likely to persist in FY14 which would result of lower valuation
multiple. We lower our book value estimate to Rs. 229.3 from earlier of Rs.254 primarily
due to equity dilution and lower profit expectation in FY14E.
Valuation & View
Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII
growth and deteriorated asset quality. Bank’s operating expenses were stable in
absoluter term but as cost income ratio increased drastically on account of lower revenue
growth. Asset quality has deteriorated sequentially. Due to lower corporate demand, loan
growth remain muted and bank’s lower its total business (Loan + Deposits) guidance to
Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4
times of FY14E’s book value. We are not impression with bank’s fundament but current
price provide 15% upside from our target price.
Narnolia Securities Ltd,
15
ALLAHABAD BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Fundamant Through Graph
NII growth muted on account of lower loan
growth and loan yield
With the support from other income and
lower operating expenses, PP grew by 17.2%
YoY
Lower profit growth because of muted NII
growth and deteriorating asset quality
Narnolia Securities Ltd,
16
ALLAHABAD BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Performance (Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY % QoQ 3QFY14E Variation
Interest/discount on advances / bills 3533 3422 3234 9.2 3.2 3669 -3.7
Income on investments 1161 1131 1161 0.0 2.6 1199 -3.2
Interest on balances with Reserve Bank of India 27 28 29 -7.9 -5.1 33 -18.5
Others 42 25 21 102.9 67.8 43 -2.6
Total Interest Income 4762 4607 4445 7.1 3.4 4944 -3.7
Others Income 542 696 341 59.2 -22.1 599 -9.4
Total Income 5305 5303 4785 10.9 0.0 5542 -4.3
Interest Expended 3427 3298 3114 10.0 3.9 3522 -2.7
NII 1336 1309 1330 0.4 2.0 1422 -6.1
Other Income 542 696 341 59.2 -22.1 599 -9.4
Total Income 1878 2005 1671 12.4 -6.3 2021 -7.1
Employee 569 550 563 1.0 3.4 301 89.3
Other Expenses 301 301 247 21.7 0.0 558 -46.1
Operating Expenses 870 852 811 7.3 2.2 859 1.3
PPP( Rs Cr) 1008 1154 860 17.2 -12.6 1162 -13.3
Provisions 555 742 432 28.3 -25.2 699 -20.6
PBT 453 411 428 5.9 10.1 463 -2.2
Tax 128 136 117 9.2 -5.9 139 -8.2
Net Profit 325 276 311 4.7 18.0 324 0.4
Balance Sheet ( Rs Cr)
Net Worth 12410 12085 11572 7.2 2.7 12409 0.0
Deposits 187478 180396 170649 9.9 3.9 192974 -2.8
Loans 137300 131896 121555 13.0 4.1 139757 -1.8
Asset Quality
GNPA( Rs Cr) 7,512 6,613 3,532 112.7 13.6 6,997 7.4
NPA( Rs Cr) 5651 5048 2478 128.1 11.9 5320 6.2
%GNPA 5.5 5.0 2.9
%NPA 4.1 3.8 2.0
PCR(w/o technical write-off)(%) 24.8 23.7 29.8
Operating Metrics
Credit-Deposits Ratio(%) 73.2 73.1 0.0
Cost-Income Ratio(%) 46.3 42.5 48.5
17
Financials & Assumption
ALLAHABAD BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2011 2012 2013 2014E 2015EInterest Income 11015 15523 17436 18958 22529
Interest Expense 6992 10361 12569 13532 15814
NII 4022 5163 4866 5426 6715
Change (%) 51.8 28.3 -5.7 11.5 23.8
Non Interest Income 1370 1299 1477 2319 2319
Total Income 5393 6461 6343 7745 9034
Change (%) 29.4 19.8 -1.8 22.1 16.6
Operating Expenses 2338 2691 2958 3384 3885
Pre Provision Profits 3055 3770 3385 4361 5150
Change (%) 19.9 23.4 -10.2 28.8 18.1
Provisions 1112 1602 1865 2527 2976
PBT 1943 2167 1520 1835 2174
PAT 1423 1867 1185 1290 1522
Change (%) 18.0 31.2 -36.5 8.8 17.9
Balance SheetDeposits( Rs Cr) 131887 159593 178742 194828 222104
Change (%) 24 21 12 9 14
of which CASA Dep 44156 48668 54930 60397 68852
Change (%) 21 10 13 10 14
Borrowings( Rs Cr) 6918 9094 10098 13544 15440
Investments( Rs Cr) 43247 54283 58306 60428 71263
Loans( Rs Cr) 93625 111145 129490 145028 165332
Change (%) 31 19 17 12 14
RatioAvg. Yield on loans 8.8 10.5 9.8 9.7 10.0
Avg. Yield on Investments 6.2 6.8 7.7 7.5 8.0
Avg. Cost of Deposit 4.9 6.1 6.7 9.2 9.5
Avg. Cost of Borrowimgs 7.1 6.8 5.2 7.1 7.1
Persistent System.
BUY Delivered inline set of numbers but better on all aspects than its peers did :
11%
1M 1yr YTD
Absolute 1.1 76.8 85.7
Rel. to Nifty 3.4 75.8 82.3
Current 2QFY14 1QFY14
Promoters 38.96 38.96 38.96
FII 18.26 15.28 14.84
DII 18.78 21.23 19.31
Others 24 24.53 26.89
Financials
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 432.75 432.37 0.1 332.98 30.0
EBITDA 104.3 100.8 3.5 82.4 26.6
PAT 64.2 60.8 5.6 49.5 29.7
EBITDA Margin 24.1% 23.3% 80bps 24.7% (60bps)
PAT Margin 14.8% 14.1% 70bps 14.9% (10bps)
18
Market Data
BSE Code 533179
NSE Symbol
Persistent 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, M2M, digital transformation are
gaining a lot of traction because of pickup in demand environment. Because of actively
investment in these themes, management is very confident to see healthy growth.
Mkt Capital (Rs Crores)
52wk Range H/L 1058/477
3974
Nifty
Share Holding Pattern-%
6136
Margin ramp up: During the quarter, Its EBITDA margin improved by 80bps to 24.1%
because of cost rationalization. PAT margin up by 70bps to 14.83%. However,
management expects to maintain margin at 24-25% for FY14E.
On segmental front: The Company’s cash cow segment Infrastructure and System,
which contributes 69% on sales, was flat than previous quarter and Telecom (18%
contribution on sales) was up by 2% sequentially. While, Life Science space (13%
contribution on sales) down marginally by 1% (QoQ).
Geography wise revenue: Because of weak seasonality and furloughs impact, North
America and APAC regions were marginally down by 1-2%(QoQ). The company’s earning
potential from US is 83% and APAC is 11%. While Europe contributes 6% of sales and has
seen tremendous set of growth at 36% (QoQ) led by a large account execution during
the quarter.
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 ability to achieve scale and growth, we upgrade our target price from Rs
960 to Rs 1070 with “BUY” view on the stock. Recently we had advised to book profit
on the stock at a target price of Rs 960. Post 3rd quarter earnings, we upgrade our EPS
for FY15E from Rs 76.9 to Rs 79.1. At a CMP of Rs 994, stock trades at 12.6x FY15E
earnings.
Clients Metrics: During the quarter, company added 2 clients(Total 34) under medium
category( >$1mn to $3mn) and no client addition (Total) 16 from large ( > $ 3Mn) .
Revenue contribution from top-1 client declined from 22.5% (2QFY14) to 19.8% and
contribution from top-5 and Top-10 marginally down. DSO at 63days, almost 12
quarters low.
Average Daily Volume 12139
Please refer to the Disclaimers at the end of this Report.
Stock Performance
PERSISTENT
"Persistently innovating.."
Results update
CMP 994
Target Price 1070
For 3QFY14, Persistent System’s sales was almost flat (QoQ) in INR term, while grew
2.2% (QoQ) in USD term impacted by seasonality and furloughs impacts. During the
quarter, volume growth from Offshore increased by 3.8% and Onsite volume growth
was flat, sequentially. PAT grew by 5.5% (QoQ)
Change from Previous
Previous Target Price 960
Upside 8%
The management remains confident of FY14 with deal pipeline being strong and
remains focused on increasing the share of IP-led revenues in its portfolio. The
management expects to see more than 15% dollar revenue growth, more than
NASSCOM guidance of 12-14 % for FY14E.
"BUY"28th Jan' 14
Narnolia Securities Ltd,
■Persistent is confident of doing more than 15% revenue growth in$ terms(FY14E).
■They expect to maintain margin at 24-25% for FY14E
■ The company is optimistic to see more deals on SMACS and IP led business.
■ Services business can continue to keep the growth momentum.19
Persistent System.
Sales (INR) and Sales growth-%(QoQ)
On $term, Sales growth was up by 2.2%
(QoQ) and 0.8% on INR term,
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Key facts from Concall (attended on 27th Jan,2014)
■The Company’s focus on newer technologies like cloud, analytics, mobility and digital
transformation are gaining traction.
■ Expects 20-21% growth in the next year from IP led business, which in turn will help
improve margins going forward.
(Source: Company/Eastwind)
Segmental Revenue-%
Persistent's exposure on Infr and System has
increased to 69%, growth in Infra space
indicates more visibility of deal intake in near
future,
(Source: Company/Eastwind)
Margin-%
Its EBITDA margin improved by 80bps to
24.1% because of cost rationalization.
Narnolia Securities Ltd,
20
Financials
Please refer to the Disclaimers at the end of this Report.
Persistent System.
(Source: Company/Eastwind)
Operating Metrics
Narnolia Securities Ltd,
2QFY12 3QFY12 4QFY13 1QFY13 QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
Top1 16.0% 15.9% 17.2% 17.8% 20.7% 21.1% 21.6% 21.2% 22.5% 19.8%
Top 5 38.6% 37.0% 36.6% 33.5% 36.3% 37.3% 36.7% 34.7% 36.4% 36.9%
Top 10 49.4% 48.3% 48.8% 45.3% 47.0% 49.4% 47.9% 46.0% 47.3% 46.9%
Onsite - Linear 12665 12387 12603 12789 12863 12772 14014 14567 14283 14510
Offshore - Linear 3803 3778 3895 3898 3978 4032 4143 4111 4109 4179
Yeild per Employee(excld- Trainee) 3208 3247 3350 3345 3746 3817 3769 3602 3919 3934
Total Employee 6900 6706 6628 6536 6370 6719 6970 7144 7457 7602
Attrition 17.7% 17.4% 18.3% 18.9% 16.9% 16.0% 14.4% 14.2% 14.0% 13.2%
Utilization rate %(xclude IP Led ) 73.8% 74.1% 71.7% 74.1% 75.2% 77.3% 72.5% 70.0% 71.7% 72.9%
Billing Rate-USD/ppm
Employee Metrics
Client Concentration
Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E
Sales 601.16 775.84 1000.3 1294.5 1666.59 2061.72
Employee Cost 368.74 481.62 599.05 719 899.96 1123.64
Cost of technical professionals 0 30.67 41.68 54 91.66 113.39
Other expenses 86.05 105.24 135.2 218 291.65 366.99
Total expenses 454.79 617.53 775.93 990.78 1283.28 1604.02
EBITDA 146.37 158.31 224.37 303.72 383.32 457.70
Depreciation 33.52 42.39 61.1 78 100.55 93.54
Other Income 11.23 34.44 34.44 34.44 55.00 72.16
EBIT 112.85 115.92 163.27 225.44 282.76 364.16
Interest Cost 0 0 0.00 0.03 0.05 0.05
Profit (+)/Loss (-) Before Taxes 124.08 150.36 197.71 259.851 337.71 436.28
Provision for Taxes 9.05 10.62 55.09 75.37 92.03 119.98
Net Profit (+)/Loss (-) 115.03 139.74 142.62 184.481 245.69 316.30
Growth-% (YoY)
Sales 1.2% 29.1% 28.9% 29.4% 28.7% 23.7%
EBITDA 60.2% 8.2% 41.7% 35.4% 26.2% 19.4%
PAT 74.1% 21.5% 2.1% 29.4% 33.2% 28.7%
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% 17.8%
Tax rate 7.3% 7.1% 27.9% 29.0% 27.3% 27.5%
Margin-%
EBITDA 24.3% 20.4% 22.4% 23.5% 23.0% 22.2%
EBIT 18.8% 14.9% 16.3% 17.4% 17.0% 17.7%
PAT 19.1% 18.0% 14.3% 14.3% 14.7% 15.3%
Valuation:
CMP 310 366.7 409.2 541 994 994
No of Share 4 4 4 4 4 4
NW 639.0 747.1 840.5 1018.3 1212.5 1477.3
EPS 28.8 34.9 35.7 46.1 61.4 79.1
BVPS 159.7 186.8 210.1 254.6 303.1 369.3
RoE-% 18.0% 18.7% 17.0% 18.1% 20.3% 21.4%
P/BV 1.9 2.0 1.9 2.1 3.3 2.7
P/E 10.8 10.5 11.5 11.7 16.2 12.6
84
82
#####
1M 1yr YTD
Absolute -0.7 -5.4 -5.4
Rel.to Nifty -0.6 -9.0 -9.0
Current 1QFY14 4QFY1
3Promoters 69.3 69.3 69.3
FII 4.2 3.9 3.2
DII 12.4 12.5 13.0
Others 14.2 14.3 14.6
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 3845 3902 4582 6186 6289
Total Income 4770 4868 5534 7335 7438
PPP 2695 2811 3357 4850 5132
Net Profit 907 1109 618 1585 2101
EPS 16.5 17.7 9.3 23.8 31.6
21
Change from Previous
UCO Bank Vs Nifty
Share Holding Pattern-%
2960821
Nifty 6154
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
52wk Range H/L
Stable asset quality in sequential basis despite of challenging environment
On delinquencies front, bank reported very stable asset quality in sequential basis
with GNPA deteriorated by 0.3% to Rs.7353 cr versus Rs.7376 cr in challenging
macro environment. In percentage term GPA improved by 25 bps to 5.2% versus
5.5% in previous quarter. Provisions in absolute term declined by 0.7% in sequential
basis which led net NPA improve to 0.3%. In percentage of gross NPA to gross
advance, it stood at 5.2% versus 5.5% in 2QFY14 while net NPA in percentage term
was improved to 3% from 3.1% in previous quarter. Provisions coverage ratio
(without technical write-off), was 46.4% as against 46.6% in previous quarter.
Operating expenses increased by 15.5% YoY in which employee cost and other
operating expenses increased by 12.7% and 21% YoY respectively. Cost income
ratio declined from 39.2% in 3QFY13 to 35.3% inn3QFY14. With the support from
healthy NII growth and lower cost income ratio, bank’s operating profit grew by 37%
YoY to Rs.1137 cr.
Healthy NII growth and controlled cost income ratio led operating profit growth
BSE Code
UCO BANK
Company Update BUY
CMP
532205
Target Price
Average Daily Volume
5561
Previous Target Price
During quarter, bank reported NII growth of 33% YoY to Rs.1566 cr below of our
expectation of Rs. 1642 cr largely due to higher cost of fund than anticipated which
led by sequentially declined of low cost deposits(CASA). NII growth of 33% YoY was
much higher than its peers which have delivered result so far. Other income was
Rs.190 cr versus Rs.209 cr in 2QFY14 and Rs.190 cr in 3QFY14. With the lower
support from other income, total revenue growth was 28.5% YoY to Rs.1756 cr.
Upside
86.65/46
Mkt Capital (Rs Cr)
Market Data
NSE Symbol UCOBANK
UCO bank reported net profit growth of 207% YoY largely due to robust
growth in NII along with higher than industry average loan growth. Bank’s
asset quality improved sequentially despite of challenging macro
environment. However bank’s CASA growth has declined marginally in
sequential basis but still at comfortable level. UCO Bank’s operating as well
as financials metrics has been improving continuously. We value bank at
Rs.84/share which is 0.5 times of one year forward book and 3.5 times
FY14E’s earning.
NII growth of 33% YoY led by higher than industry loan growth and high CD
ratio
"BUY"27h Jan, 2014
Narnolia Securities Ltd,
22
UCO BANK
Please refer to the Disclaimers at the end of this Report.
Loan and deposits reported higher growth than industry average
On balance sheet growth front, bank’s advance grew by 16.5% YoY while deposits grew
by 13.4% YoY led by CASA growth of 23% YoY in absolute term. CASA in percentage of
total deposits improved to 30.5% versus 19.2% in 3QFY13. Saving deposits and current
deposits increased by 13% and 38% YoY respectively. But in sequential basis, CASA
deposits declined to 30.5% from 31.8% and 32.1% in 1QFY14. Credit deposits ratio for
quarter stood at 73.5% as against 71.6% in 3QFY14 and 71.4% in previous quarter. Total
business (Deposits +Advance) grew by 14.7% YoY to Rs.3.34 lakh Cr versus Rs.2.91
lakh Cr.
Marginal expansion of NIM on account of declined loan yield than cost of fund
NIM improved by 60 bps YoY to 3.06% from 2.42% largely due to lower cost of deposits
which was lead by low cost franchise network. Cost of deposits stood at 6.27% versus
6.92% in 3QFY14. Yield on advance (EW calculation) declined from 10.5% to 10% which
has restricted limited NIM growth.
Profit tripled on account of healthy NII growth, lower CI ratio and stable asset
quality
UCO Bank reported net profit growth of 207% YoY to Rs.315 cr as against our
expectation of Rs.338 cr largely due to robust growth in NII, lower cost income ratio,
improving asset quality which led lower provisions and high credit deposits ratio.
Valuation & View
UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII
along with higher than industry average loan growth. Bank’s asset quality improved
sequentially despite of challenging macro environment. However bank’s CASA growth
has declined marginally in sequential basis but still at comfortable level. UCO Bank’s
operating as well as financials metrics has been improving continuously. We value bank
at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s
earning.
Narnolia Securities Ltd,
23
Fundamental Through Graph
NII growth of 33% YoY led by higher than
industry loan growth and high CD ratio
Healthy NII growth and controlled cost
income ratio led operating profit growth
Profit tripled on account of healthy NII
growth, lower CI ratio and stable asset
quality
UCO BANK
Source:Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
24
UCO BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Quarterly Performance
Narnolia Securities Ltd,
Quarterly Result 3QFY14 2QFY14 3QFY13 % YoY % QoQ
Interest/discount on advances / bills 3543 3396 3197 10.8 4.3
Income on investments 1138 1026 923 23.3 11.0
Interest on balances with Reserve Bank of India 29 8 30 -2.7 243.2
Others 19 14 21 -13.7 31.7
Total Interest Income 4729 4444 4171 13.4 6.4
Others Income 190 209 190 0.4 -9.0
Total Income 4919 4653 4361 12.8 5.7
Interest Expended 3163 2875 2994 5.6 10.0
NII 1566 1569 1177 33.0 -0.2
Other Income 190 209 190 0.4 -9.0
Total Income 1756 1779 1367 28.5 -1.3
Employee 395 382 351 12.7 3.3
Other Expenses 225 230 186 20.9 -2.4
Operating Expenses 620 612 536 15.5 1.2
PPP( Rs Cr) 1137 1166 831 36.8 -2.5
Provisions 812 759 728 11.5 7.0
PBT 325 408 103 215.1 -20.3
Tax 10 7 1 1536.5 40.7
Net Profit 315 400 102 206.9 -21.4
Balance Sheet
Net Worth 11085 10770 9399 17.9 2.9
Deposits 192406 188779 169711 13.4 1.9
Total Liabilities 203491 212416 179110 13.6 -4.2
Advances 141457 135233 121455 16.5 4.6
Total Assets 141457 212416 121455 16.5 -33.4
Asset Quality
GNPA 7,353 7,376 6,711 9.6 -0.3
NPA 4217 4228 3927 7.4 -0.3
% GNPA 5.2 5.5 5.5
% NPA 3.0 3.1 3.2
% PCR(Without technical writeoff) 46.4 46.6 41.5
25
UCO BANK
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2011 2012 2013 2014E 2015EInterest Income 11371 14632 16752 18346 22476
Interest Expense 7526 10730 12170 12160 16186
NII 3845 3902 4582 6186 6289
Change (%) 65.4 1.5 17.4 35.0 1.7
Non Interest Income 925 966 952 1149 1149
Total Income 4770 4868 5534 7335 7438
Change (%) 45.0 2.0 13.7 32.5 1.4
Operating Expenses 2075 2056 2177 2485 2306
Pre Provision Profits 2695 2811 3357 4850 5132
Change (%) 58.0 4.3 19.4 44.5 5.8
Provisions 1788 1661 2710 3217 2798
PBT 907 1150 647 1634 2334
PAT 907 1109 618 1585 2101
Change (%) -10.4 22.3 -44.2 156.4 32.5
Balance SheetDeposits( Rs Cr) 99071 115540 128283 153939 184727
Change (%) 17 11 20 20
of which CASA Dep 32031 34403 55733 67707 81249
Change (%) 6 7 62 21 20
Borrowings( Rs Cr) 5475 12901 9492 12315 14777
Investments( Rs Cr) 42927 45771 52245 62692 75231
Loans( Rs Cr) 99071 115540 128283 153939 184727
Change (%) 20 17 11 20 20
RatioAvg. Yield on loans 8.6 9.9 10.0 9.0 9.0
Avg. Yield on Investments 6.6 7.1 7.1 6.8 7.5
Avg. Cost of Deposit 4.7 6.5 6.6 7.0 6.4
Avg. Cost of Borrowimgs 12.5 6.1 7.0 6.0 6.0
Valuation
Book Value 135 137 146 173 185
CMP 107 79 50.1 75.25 75.25
P/BV 0.8 0.6 0.3 0.4 0.4
Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4000
email: [email protected],
website : www.narnolia.com
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should use their own judgment for taking any investment decisions keeping in mind that
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