Stock Advisory for Today - But Stock of Coal India LTD and Cipla Limited

Orient Bank’s profitability declined by 31% YoY on the back of subdues growth at NII level led by margin compression. Higher operating

expenses and tax rate caused muted return ratios. Asset quality pressure remained persist and asset impaired (GNPA + Restructure advance)

remained at elevated level. We have buy rating on the stock due to inexpensive valuation. We value bank at Rs.216/share which is 0.4 times of

FY14E’s book. ................................................. ( Page : 19- 23)

For FY15E, NASSCOM expects IT exports to grow by 13-15% and domestic market to grow by 9-12% based on broad feedback loop from

companies and captives. Overall, Indian IT Industry is expected to reach the mark of USD130billion. For FY14, Indian IT industry is expected to

report 13% growth, in line with NASSCOM guidance at 12-14%. ....................................................... ( Page : 16-18)

CIPLA : "BUY" 14th Feb 2014

Cipla Limited posted its 3QFY14 results with its standalone net revenues at Rs 2282 up 10 % YoY led by healthy growth in export business with

well support from India operations to. The revenues from export business including formulations and API grew by 36 % to 1509 Cr for the

quarter while domestic business grew by 9% YoY to 1044 Cr. ................................................ ( Page : 2-3)

14th Feb, 2014

Edition : 206

IEA-Equity

Strategy

ORIENTAL BANK : "BUY" 13th Feb 2014

13th Feb 2014

Finolex Cables’ (FCL) Q3FY14 PAT of Rs. 24.5 crore was below ourestimate owing to lower sales and EBITDA margin. Decline in communication

cable segment segments as well as high raw material prices resulted in flat EBITDA growth of 3.2% yoy. Sales rose 5.58% to Rs. 557.55 crore in

the quarter ended December 2013 as against Rs. 528.07 crore during the previous quarter ended December 2012. Third Quarter result were

marginally below our expectaton which led us to revise our estimate on stock, we cut our EPS forecast for FY14E-15E by 8.6%/4.1%. Even after

posting marginally below result the stock is quite attractive at current market price of Rs. 81 and left a limited upside of 11%, however we

advised our reader to book a part profit on stock . ......................................... ( Page : 14- 15)

"Book Partial

Profit "Finolex Cables Ltd: "Reasonable prospects…..."

13th Feb 2014IT Industry;NASSCOM Guidance :"FY15E; a year of growth opportunity"

Canara bank’s performance was muted all through despite of healthy loan growth. Canara bank was unable to translate its balance sheet growth

in profit & loos account due to lower base rate among peers. Bank’s asset quality was deteriorating sequentially along with higher fresh

slippage. PCR was lowest among peers (without technical write off). We are disappointed with growth parameters of the bank. We have neutral

view on the stock. ..................................................................... ( Page : 9-13)

Coal India LTD : "BUY" 14th Feb 2014

Earlier we suggested, if earnings falls, then price might go beyond 256, but p/b level may be maintained , else we assume that since the

company is a good dividend paying company with Roe above 30% we assume p/b should remain above 3. We see Coal India at a attractive

valuation to go long from the current dips. So we stick to our previous estimates and recommend Maintain Buy CIL at price dips with a target

price of Rs.307/-. ............................................................... ( Page : 6-8)

Somany Ceremics: "Outlook Challenging in near term" "REDUCE" 14th Feb 2014

At the current CMP of Rs. 131, the stock is trading at a PE of 15.1x and 11.0x of FY14E and FY15E. The company can post RoE of 17.0% and 17.1%

& EPS of Rs. 8.7 and Rs. 10.8 FY14E and FY15E. We are downgrading the rating to "Reduce" and advise investors to book profits at current level.

Over the longer term, we expect the efforts to introduce new ventures, curtail costs and the expected economic revival driven by an uptick in

demand in the latter part of FY2015, to boost its fortunes. In the interim period, we are reducing our target multiple to 10x of FY15E and price

target to Rs 115. ............................................................ ( Page : 4-5 )

CANARA BANK : "NEUTRAL" 14th Feb 2014

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

BUY

1M 1yr YTD

Absolute -4.5 -3 -2

Rel. to Nifty -1.7 -4.3 -14

Current 2QFY14 1QFY1

4Promoters 36.8 36.8 36.8

FII 23.8 23.8 23.1

DII 10.6 10.9 10.8

Others 28.8 28.5 29.3

3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%

Revenue 2282 2347 (2.8) 2070 10.2

EBITDA 403 533 (24.4) 492 -18.1

PAT 261 376 (30.6) 338 -22.8

EBITDA Margin 17.7% 22.7% (500bps) 23.8% (610bps)

PAT Margin 11.4% 16.0% (460bps) 16.3% (490bps)

2

The stock at its CMP of Rs 381 is trading at 19.58 x of one year forward FY14E EPS of Rs

19.40.The stock has reacted negatively after 3QFY14 results however we don’t see any

downside risks to our estimates. We further believe that Cipla-Medpro would be earning

accretive in medium to long term horizons and we view the recent correction a good entry

point for the stock. We maintain our view BUY for the stock with Target Price of Rs

440.

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

Stock Performance-%

Share Holding Pattern-%

Mkt Capital (Rs, Cr)

View & Valuation

The management of the company after the results said that the Global respiratory unit

expects some of launches in the next year. It has set up new global respiratory team during

the quarter. The Combination inhalers planned to launch in FY'15.Company expects to be

more than 5% of Sales on the back of ramp up filings for the FY'15.The Capex is 90 Cr

during the quarter and expects to be Rs 400 Cr FY'14. The Rollover Capex of previous year

is Rs 150 Cr during the year.

CIPLA

Result Update

CMP 381

One Year Price vs Nifty

(Source: Company/Eastwind)

30,591

Average Daily Volume 617290

Nifty 6,001

Cipla Limited posted its 3QFY14 results with its standalone net revenues at Rs 2282 up 10

% YoY led by healthy growth in export business with well support from India operations to.

The revenues from export business including formulations and API grew by 36 % to 1509

Cr for the quarter while domestic business grew by 9% YoY to 1044 Cr. The growth in

export revenues was primarily due to growth in anti-retroviral, anti-cancer, anti-allergic and

anti-biotic segments.

The operating EBITDA for the quarter under review came Rs 403 Cr and OPM at 17.88

%.The OPM declines by more than 600 bps YoY due to the increase in the R&D and the

ramp up in the Staff cost during the quarter. The employ cost as percentage of sales stands

at 14 % while it was 12 % for the same time last fiscal. The other expenses as percentage

of sales were 27% for the 3QFY14 versus 25 % in 3QFY13.The other expenditure

increased largely due to rise in R&D expenses and rise in the cost owing to filings and

setting up of the front end during the quarter. The R&D expenses 4.5% of Sales during the

quarter.

450/354

NSE Symbol CIPLA

52wk Range H/L

15%Upside

Change from Previous

Previous Target Price

Market Data

BSE Code 500087

The net profits for the quarter came at Rs 261 Cr and NPM stands at 11.43 %. The Rs 40

Cr Forex gain is included in the other income during the quarter. The tax rate for the quarter

was nearly at same rate as in corresponding last quarter at 25 %.

The Company filed 10 ANDA's in the last nine months and got 6 approvals for the same

period. It has 35 ANDA's under approval as on 31st December 2013. The few of the

approval products are commercialized. Cipla Medpro formed as acquisition of

Medpro,South Africa last year added 500 Cr to top line and 50 Cr to the operating profits

during the quarter.

Target Price 440

"BUY"14th Feb' 14


3

CIPLA

Business Trend


The revenues from export business including

formulations and API grew by 36 % to 1509

Cr for the quarter while domestic business

grew by 9% YoY to 1044 Cr.

Revenue Trend %


OPM & NPM Trend %



Net revenues at Rs 2282 up 10 % YoY led by

healthy growth in export business with well

support from India operations to.

The OPM declines by more than 600 bps YoY

due to the increase in the R&D and the ramp

up in the Staff cost during the quarter.


V- Somany Ceremics Ltd.

CMP 131

Target Price 115

95

Upside -12.2%

21.1%

BSE Code 531548

NSE Symbol

61/155

452

3,109

Nifty 6,001

1M 1yr YTD

Absolute 13.2 59.9 103.2

Rel. to Nifty 16.0 58.1 97.6

3QFY14 2QFY14 1QFY14

Promoters 63.3 63.3 63.3

FII 2.8 0.8 0.2

DII 1.7 1.9 2.0

Others 32.2 34.0 34.5

Valuations :

Financials Rs, Crore


Revenue 284.5 305.6 -6.9% 267.2 6.5%

EBITDA 17.0 19.4 -12.8% 22.1 -23.3%

PAT 4.8 6.0 -20.5% 8.2 -41.4%

EBITDA Margin 6.0% 6.4% (40) bps 8.3% (230) bps

PAT Margin 1.7% 2.0% (30) bps 3.1% (140) bps

4

"Outlook Challenging in near term…….."

The Q3FY2014 results were weak marked by a double-digit decline in the profit after tax on the

back of subdued increase in fuel cost, dollar v/s rupee volatility and a pressure on the margin.

The management expect improvement in the demand conditions in the near term and guided a

revenue growth of 20% in FY14E-15E, however we expect the revenue growth to be

somewhere arround 12-15% and financial performance to remain weak on account of margin

pressure. Consequently, we are downgrading the rating to "Reduce" and advise investors to

book profits at current level. Over the longer term, we expect the efforts to introduce new

ventures, curtail costs and the expected economic revival driven by an uptick in demand in the

latter part of FY2015, to boost its fortunes. In the interim period, we are reducing our target

multiple to 10x of FY15E and price target to Rs 115.

Reduce

Result highlights :

Result update

Mkt Capital (Rs Crores)

52wk Range H/L


SOMANYCERA



Stock Performance-%

Market Data

Average Daily Volume

For Quarter Ended 2QFY14

• For the quarter ended September 2013, Somany Ceramic registered 6.5% rise in sales to Rs

284.5 crore.

• OPM fell 230 basis points to 6.0% taking OP down 8.3% to Rs 17.0 crore.

• Other income also rise 77.8% to Rs 48 lakh and interest cost decreased 8.9% to Rs 4.6 crore.

• As depreciation increased 9.1% to Rs 5.7 crore, PBT fell 41.1% to Rs 7.1 crore.

• Taxation fell 40.3% to Rs 2.3 crore (tax incidence grew from 32.5% to 32.9) and PAT fell 41.4%

to Rs 4.8 crore.

For Nine Month Ended 9MFY14

• For the nine month ended December 2013, Somany Ceramic registered 18.7% rise in sales to Rs

848.8 crore.

• However, OPM dived from 8.5% to 6.4% taking OP down 10.7% to Rs 54.5 crore.

• Other income jumped 28.1% to Rs 1 crore and interest cost decreased 8.2% to Rs 13.8 crore.

• As depreciation increased 8.7% to Rs 16.5 crore, PBT fell 20.3% to Rs 25.2 crore.

• Taxation fell to 15.5% to Rs 8.6 crore but tax incidence grew from 32.1% to 34.0% which finally

saw PAT falling 22.5% to Rs 16.6 crore.

Management is expected to achive a top-line growth of arround 20-25% in FY14E.

Management Guidence FY14E

(Standalone) (Source: Company/Eastwind Research)


At the current CMP of Rs. 131, the stock is trading at a PE of 15.1x and 11.0x of FY14E and FY15E.

The company can post RoE of 17.0% and 17.1% & EPS of Rs. 8.7 and Rs. 10.8 FY14E and FY15E.

We are downgrading the rating to "Reduce" and advise investors to book profits at current

level. Over the longer term, we expect the efforts to introduce new ventures, curtail costs and

the expected economic revival driven by an uptick in demand in the latter part of FY2015, to

boost its fortunes. In the interim period, we are reducing our target multiple to 10x of FY15E

and price target to Rs 115.

1 yr Forward P/B

"Reduce"13th Feb' 14


5


(Ammount in crore) (Source: Company/Eastwind)

Somany Ceremics Ltd.

Key financials :

(Source: Company/Eastwind Research) (Figures In crore)


PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E

Performance

Revenue 446 542 720 879 1054 1250 1438

Other Income 2 3 1 1 3 3 3

Total Income 448 545 721 880 1056 1253 1440

EBITDA 42 56 68 74 86 83 95

EBIT 28 41 50 56 65 59 75

DEPRICIATION 14 15 17 18 21 24 26

INTREST COST 16 13 17 21 20 17 17

PBT 14 31 34 36 48 44 60

TAX 5 10 11 11 15 14 19

Reported PAT 9 20 24 25 33 30 41

Dividend 1 2 3 3 5 6 6

EPS 2.5 5.9 6.9 7.3 9.4 8.7 11.9

DPS 0.4 0.7 0.8 0.9 1.4 1.9 1.9

Yeild %

EBITDA % 9.5% 10.3% 9.4% 8.4% 8.1% 6.6% 6.6%

PBT % 3.0% 5.6% 4.8% 4.1% 4.5% 3.5% 4.2%

NPM % 2.0% 3.8% 3.3% 2.9% 3.1% 2.4% 2.9%

Earning Yeild % 28.5% 18.8% 18.0% 19.5% 14.6% 6.6% 9.1%

Dividend Yeild % 3.9% 2.2% 2.1% 2.5% 2.2% 1.4% 1.4%

ROE % 13.5% 24.6% 23.0% 20.1% 21.3% 17.0% 19.4%

ROCE% 12.3% 13.8% 15.7% 16.6% 17.8% 9.8% 12.0%

Position

Net Worth 65 83 104 126 153 177 211

Total Debt 138 162 158 151 142 130 130

Capital Employed 202 245 262 276 295 307 341

No of Share 3 3 3 3 3 3 3

CMP 9 31 38 38 65 131 131

Valuation

Book Value 18.8 24.0 30.1 36.5 44.4 51.2 61.2

P/B 0.5 1.3 1.3 1.0 1.5 2.6 2.1

Int/Coverage 1.7 3.1 2.9 2.7 3.3 3.4 4.4

P/E 3.5 5.3 5.6 5.1 6.8 15.0 11.0

Net Sales/CE 2.2 2.2 2.8 3.2 3.6 4.1 4.2

Net Sales/Equity 6.9 6.6 6.9 7.0 6.9 7.1 6.8

Coal India LTD.

261

307

330

18%

-7%

533278

176226 Fluctuation in Domestic and international coal price impacted coal offtake17622

6001

1M 1yr YTD

Absolute -1.3 -21.2 -21.4

Rel. to Nifty 2.8 8.8 8.6

Rescheduling Date of hearing stands a key concern3QFY14 2QFY14 1QFY14

Promoters 90.0 90.0 90.0

FII 5.5 5.5 5.4

DII 2.4 2.3 2.3

Others 2.1 2.2 2.4

Realization gain on Revised Coal Price

Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14

Net Revenue 16928 -2.3 9.8 17325 15411

EBITDA 4104 -4.3 46.9 4288 2794

Depriciation 442 5.2 -10.7 420 495

Interest Cost 10 0.0 25.6 10 8

Tax 1930 4.9 36.6 1839 1412

PAT 3894 -11.4 27.6 4395 3052(In Crs)

6

Upside


Result UpdateCMP

Target Price


Market DataBSE Code

COALINDIA

CIL reported Rs.16928 Cr Sales (-2% YOY) against Rs.17325 Cr in Q3FY13 due to poor off

takes of the coal during the quarter. Q3FY14 PAT slipped to -11% to Rs.3894 Cr against

Rs.4395 Cr in Q3FY13.Q3FY14 EBIDTA/ton remained flat YOY at Rs.350/ton while it is

increased 36% through QOQ. EBIDTA margin corrected in this quarter to 24% from 18% in

Q2FY14.Depriciation slipped 11% to 442Cr against 495 Cr in Q2FY14, moderating the

burden on EBIDTA.

On the expenditure side contractual expenses increased ~20% to Rs.154/ton from

Rs.128/ton in Q2FY14.Powerfuel cost and other expenses per ton remained flat, while

cost of project per ton decreased to Rs149/ton from Rs.206/ton in the previous quarter.

Poor Realization of Coal India showed little uptick like 2% to Rs.1445/ton.

Meanwhile, Coal India Ltd is likely to get additional revenue of Rs 2,119 Crore in this fiscal

on account of revision in dry fuel prices.CIL (Coal India Ltd) has revised and rationalized

the basic notified prices of all the grades of non-coking coal except GI, G2 and G5.The

estimated additional revenue due to revision of basic notified price for the current

financial year is Rs 2,119 cr. Though the incremental revenue is a positive sign but it fails

to change our previous valuation.

Average Daily Volume (Nos.)


Stock Performance-%


1 yr Forward P/B

Source - Comapany/EastWind Research

In this quarter the international coal price were relatively down by 9% against Q2FY14

while the domestic coal price were showed upward movement. So the Major domestic

consumers of coal imported coal at lower price, hence it impacted the off takes and

revenue of CIL slipped -2% YOY and unable to meet the target off takes. Govt decision

related labor strikes impacted the productions of CIL too. Sequential increase in tax rate

further contracted the NPM%. From January we have seen a recovery in international

coal price which is positive sign for CIL.

Competition Appellate Tribunal stays Rs 1,773 Crore fine on CIL, and will decide on the

matter on next hearing 16th April 2014 (Rescheduled from 11th Feb 2014). The quantum

of penalty Rs 1,773.05 Crore is equal to three per cent of the PSU's average turnover for

the last three years. We believe, A Rs 1800-crore fine could possibly mean less profits for

the company and less dividend income for its owners. But as the main owner, the

government, will pocket this amount in the form of a fine, it will not be poorer in any

way.

NSE Symbol

52wk Range H/L

Mkt Capital (Rs Crores)

372/238

Nifty

"Buy"14th Feb' 14


FY11 FY12 FY13 FY14E

50234 62415 68303 69960

7573 5123 6556 8372

1755 2013 2333 2591

4580 4901 5802 6049

20481 26705 27943 28943

40390 40857 50219 53705

9843 21558 18084 16255

1673 1969 1813 1860

79 54 45 34

5595 6484 7623 7310

10868 20588 17356 17921

33 51 36 40

FY10 FY11 FY12 FY13

431 431 436 452

416 425 433 465

1073 1183 1441 1468

404744 390243 377447 364736

1066 1105 1155 1240

7

Coal India LTD.

We revised our estimates due to sequential poor production and off takes of CIL. We

expect modest increase in sales volumes growth during FY2013-15 on account of poor

off take capabilities of CIL. Management showed his confidence about their coal

production target and coal off take target for FY2014E, in previous quarter, which is

482mt and 492mt respectively. But Due to sequential poor production and off take we

revised the target to 464mt and 475mt respectively. Also, we expect CIL’s margins to

decline during FY2014 due to lower e-auction realizations and higher staff costs/other

expenses. We are expecting flat sales growth for 2014.Coal India Ltd sprang a positive

surprise by reporting higher-than-expected realizations as well as earnings before

interest, tax, depreciation and amortization (Ebitda). Average price realizations

increased by 2.3% sequentially to Rs.1,444.87 per tonne which is positive sign for future

growth.

Earlier we suggested, if earnings falls, then price might go beyond 256, but p/b level

may be maintained , else we assume that since the company is a good dividend paying

company with Roe above 30% we assume p/b should remain above 3. We see Coal India

at a attractive valuation to go long from the current dips. So we stick to our previous

estimates and recommend Maintain Buy CIL at price dips with a target price of Rs.307/-.

Recommendation

Cost Of Projects & Contractual

Power and fuel

contractual expenses

Employee benefit Expence

Expenditure

EBITDA

View & Outlook

P/L PERFORMANCE

Net Revenue from Operation

Avg Man Power (in numbers)

Productivity Per Man

Coal Offtake in MT

Depriciation

Interest Cost

Tax

PAT

ROE %

OPERATING MATRIX

Coal Production in MT

Revenue Generation From unit Ton


FY10 FY11 FY12 FY13

6316 6316 6316 6316

20956 26998 34137 42156

27273 33314 40453 48472

343 1334 1305 1078

1620 33 0 0

2545 22461 28271 31144

772 645 829 837

1404 12387 15595 20447

5443 8490 9785 12385

0 779 759 712

12035 12065 12681 12754

2211 2057 1848 3496

610 845 1017 1181

4402 5586 6071 5618

2169 3419 5663 10480

39078 45806 58203 62236

8066 11180 13478 16189

17921 21646 24688 25479

FY10 FY11 FY12 FY13

0.0 5.7 5.5 4.0

0.0 17.3 32.6 27.5

4.9 22.8 29.2 52.7

1.7 4.3 4.3 4.2

1.0 3.7 3.1 2.8

FY10 FY11 FY12 FY13

10727 12819 16323 15948

-131 -3822 3565 -6839

10596 8997 19888 9109

950 697 -10410 -1833

2163 2911 -7382 -7852

13708 12606 2095 -575

Down 21% from its 52week High

Up 14% from its 52 week Low

8

Coal India LTD.

Trade payables

Short-term provisions

Total liabilities

Intangibles

Cash and bank balances

B/S PERFORMANCE

Share capital

Reserve & Surplus

Total equity

Long-term borrowings

Short-term borrowings

Long-term provisions

Tangible assets

Capital work-in-progress

Long-term loans and advances

Inventories

Trade receivables

Debtor to Turnover%

Creditors to Turnover%

Inventories to Turnover%

Short-term loans and advances

Total Assets

RATIOS

P/B

EPS

CASH FLOWS

Trading At :

Changes In Working Capital

Net Cash From Operation

Cash From Investment

Cash from Finance

Net Cash Flow during year

Cash from Operation


213

256

-

20

1M 1yr YTD

Absolute -17.2 -52.3 -52.3

Rel.to Nifty -13.3 -54.1 -54.1


3Promoters 69.0 67.7 67.7

FII 10.3 11.9 12.7

DII 12.9 13.1 13.3

Others 7.7 7.3 6.3

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 7823 7689 7879 8511 12169

Total Income 10526 10617 11032 12328 15986

PPP 6107 5943 5890 6381 8792

Net Profit 4026 3283 2872 2399 3869

EPS 90.9 74.1 64.8 52.0 83.9

9

CANARA BANK

CANBK

Moderate growth in NII was due to margin compression Market Data

Upside

Canara bank’s performance was muted all through despite of healthy loan

growth. Canara bank was unable to translate its balance sheet growth in profit

& loos account due to lower base rate among peers. Bank’s asset quality was

deteriorating sequentially along with higher fresh slippage. PCR was lowest

among peers (without technical write off). We are disappointed with growth

parameters of the bank. We have neutral view on the stock.

Result update NEUTRAL

CMP

Target Price



CANARA BANK Vs Nifty


1.93 lakh

Nifty 6001

459/19052wk Range H/L



Stock Performance


On asset quality front, gross NPA increased by 8% QoQ in absolute term whereas

fresh slippage was high at Rs.2100 cr versus Rs.1520 cr in previous quarter. In

percentage term, GNPA stood at 2.8% versus 2.7% in previous quarter whereas

fresh slippage in annualised basis increased by 76 bps sequentially to 2.9%. During

quarter, bank’s increased provisions by 19% QoQ thereby net NPA increased by 6%

in absolute term. In percentage term net NPA stood at 2.4% versus 2.3% in previous

quarter.PCR slightly improved from 13.6% to 14.9% (without technical write off)

much lower than peers. However bank reported PCR at 57.4% in 3QFY14.

Operating cost increased by 12.9% YoY was due to higher cost registered in other

operating expenses which were came because of 47 new branches and 245 ATMs

added on yearly basis. Employee cost was flat on YoY basis while other operating

expenses increased by 26.3% YoY. Cost to income ratio 180 bps improved on YoY

basis to 48.3%. With moderate NII growth and higher operating expenses led

operating profit growth of 4.9% YoY.

Deteriorating asset quality with higher slippage

BSE Code 532483

NSE Symbol

During quarter bank’s NII grew by 12% YoY to Rs.2227 cr despite of 32% loan

growth and 26% deposits growth. Moderate growth in NII was due to margin

compression in YoY basis which was lead by lower base rate among peers. On NII

level, bank’s interest earnings asset grew by 18% YoY while interest bearing

liabilities grew by 20% due to higher share of wholesale deposits which somehow

increased cost. Other income was flat from last quarter and was stood at Rs.851 cr

versus Rs.846 cr. Consequently from lower support of other income, revenue grew

by 8.6% YoY to Rs.3078 cr.

Higher opex and moderate NII growth led muted operating profit growth

9427Mkt Capital (Rs Cr)

"NEUTRAL"14h Feb2014


10

CANARA BANK

Bank’s loan grew by 32% YoY led by retail sector growth of 55% YOY followed by SME

(46% YoY), Infrastructure (24% YoY). Within infrastructure loan growth, power generation

and transmission growth was strong at 63% YoY. Deposits grew by 1% YoY and 4% QoQ

in which current and saving account deposits grew by 19% and 16% YoY respectively. In

deposits profile, term deposits de-grew by 3% YoY which was took flat growth in overall

deposits as share of term deposits reduce to 77% from 80% in last quarter. CASA ratio

was declined by 123 bps QoQ to 23%. Credit deposits ratio for the quarter stood at

70.4% versus 71.8% in previous quarter and 67.4% in last quarter.

Margin compression on account of higher cost of fund

NIM compressed by 15 bps YoY to 2.21 largely due to lower loan yield 70 bps YoY

whereas cost of fund increased by 120 bps YoY. Higher cost of fund was due to higher

cost of bulk deposits. However declining share of bulk deposits and increasing CASA

ratio restricted to escalate funding cost. Yield on loan declined by 70 bps YoY despite of

healthy loan growth was due to lower base rate among peers.

Healthy loan growth led by retail sector

Valuation & View

Canara bank’s performance was muted all through despite of healthy loan growth.

Canara bank was unable to translate its balance sheet growth in profit & loos account

due to lower base rate among peers. Bank’s asset quality was deteriorating sequentially

along with higher fresh slippage. PCR was lowest among peers (without technical write

off). We are disappointed with growth parameters of the bank. We have neutral view on

the stock.

Valuation Band



11

Moderate growth in NII was due to margin

compression

Higher opex and moderate NII growth led

muted operating profit growth

Profitability declined due to moderate NII

growth, higher provisions and higher tax rate

CANARA BANK

Chart Focus



12

CANARA BANK

Quarterly Performance



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

Interest/discount on advances / bills 7360 6964 5958 23.5 5.7 7298 0.9

Income on investments 2575 2597 2460 4.7 -0.9 2701 -4.7

Interest on balances with Reserve Bank of India 149 93 127 17.1 60.3 216 -30.8

Others 0 0 0 - -13.5 0 -

Total Interest Income 10084 9654 8544 18.0 4.4 10214 -1.3

Others Income 851 773 846 0.7 10.1 1006 -15.3

Total Income 10935 10427 9390 16.5 4.9 11220 -2.5

Interest on deposits 7311 6923 6307 15.9 5.6 0

Interest Expended 7857 7463 6556 19.8 5.3 7608 3.3

NII 2227 2191 1988 12.0 1.6 2606 -14.5

Other Income 851 773 846 0.7 10.1 1006 -15.3

Total Income 3078 2964 2834 8.6 3.9 3612 -14.8

Employee 873 933 831 5.1 -6.3 1127 -22.5

Other Expenses 614 607 486 26.3 1.2 751 -18.3

Operating Expenses 1488 1539 1317 12.9 -3.4 1878 -20.8

PPP( Rs Cr) 1591 1425 1516 4.9 11.6 1734 -8.2

Provisions 1052 674 626 68.0 56.0 700 50.3

PBT 539 751 891 -39.4 -28.2 1034 -47.8

Tax 130 125 180 -27.8 4.0 258 -49.7

Net Profit 409 626 711 -42.4 -34.6 775 -47.2

Balance Sheet

Deposits 408924 391613 323963 26.2 4.4 400424 2.1

CASA(%) 23.1 24.3 20.0 0.0

Loan 287700 281104 218242 31.8 2.3 291913 -1.4

Investments 130359 119481 118835 9.7 9.1 127099 2.6

Asset Quality

GNPA 8,074 7,475 6,090 32.6 8.0

NPA 6870 6459 5134 33.8 6.4

% GNPA 2.8 2.7 2.8

% NPA 2.4 2.3

PCR(%) (w/o technical write-off) 14.9 13.6

13

CANARA BANK



Income Statement 2010 2011 2012 2013 2014E 2015EInterest Income 18752 23064 30851 34078 39193 47413

Interest Expense 13071 15241 23161 26199 30682 35244

NII 5681 7823 7689 7879 8511 12169

Change (%) #DIV/0! 37.7 -1.7 2.5 8.0 43.0

Non Interest Income 2858 2703 2928 3153 3817 3817

Total Income 8538 10526 10617 11032 12328 15986

Change (%) #DIV/0! 23.3 0.9 3.9 11.8 29.7

Operating Expenses 3478 4419 4674 5142 5947 7194

Pre Provision Profits 5061 6107 5943 5890 6381 8792

Change (%) #DIV/0! 20.7 -2.7 -0.9 8.3 37.8

Provisions 2039 2081 1860 2218 3347 3565

PBT 3021 4026 4083 3672 3034 5228

PAT 3021 4026 3283 2872 2399 3869

Change (%) 45.8 33.2 -18.5 -12.5 -16.5 61.3

Balance SheetDeposits( Rs Cr) 234651 293973 327054 355856 409234 470620

Change (%) #DIV/0! 25 11 9 15 15

of which CASA Dep 68261 83117 79611 86061 102878 118310

Change (%) #DIV/0! 22 -4 8 20 15

Borrowings( Rs Cr) 8441 14262 15525 20283 24439 28105

Investments( Rs Cr) 69677 83700 102057 121133 133305 168631

Loans( Rs Cr) 169335 212467 232490 242177 293034 339919

Change (%) #DIV/0! 25 9 4 21 16

RatioAvg. Yield on loans 8.2 8.0 10.1 10.1 9.6 10.0

Avg. Yield on Investments 6.6 6.9 6.9 7.5 7.7 7.5

Avg. Cost of Deposit 5.2 4.8 6.7 7.1 7.0 6.9

Avg. Cost of Borrowimgs 9.3 7.0 7.7 4.7 7.0 7.0

ValuationBook Value 358 452 512 562 639 710

CMP 410 627 474 393 214 214

P/BV 1.1 1.4 0.9 0.7 0.3 0.3

V- Finolex Cables Ltd.

CMP 81

Target Price 90

Previous

Target Price

73

Upside 11%

Change from

Previous

0%

BSE Code 500144

NSE Symbol

52wk Range

H/L

41/92

Mkt Capital

(Rs Crores)

1,238

Average Daily

Volume

94,300

Nifty 6,084

1M 1yr YTD

Absolute (4.1) 46.7 78.0

Rel. to Nifty (2.7) 43.7 71.0

3QFY14 2QFY14 1QFY14

Promoters 35.8 35.8 35.8

FII 1.8 1.1 1.0

DII 9.8 10.2 10.5

Others 52.5 52.9 52.8

Financials Rs, Crore


Revenue 563.1 593.1 -5.1% 534.3 5.4%

EBITDA 44.3 76.4 -42.0% 42.9 3.2%

PAT 24.5 80.0 -69.4% 24.0 2.1%

EBITDA Margin 7.9% 9.3% (140) bps 8.0% (10) bps

PAT Margin 4.3% 12.8% (850) bps 4.5% (20) bps

14

"Reasonable prospects…..."

Result update

1 yr Forward P/B


Stock Performance-%

Book Partial Profit

Valuation :

FCL being one of the leading players in the cable industry seems well placed to capture huge

opportunities considering the strengths & the industry in which the Company is operating.

Derivative losses coupled with bleak performance by communication cable segment were the

major reasons for de-rating of the stock in past which in our view seems to have been overdone.

The company’s LT division is doing very well, they have recently entered into HT and Extra High

Voltage (EHV) cable verticals. The company has market share of around 15-16 percent in both

electrical and telecommunication verticals. Further the company has approved setting up a

captive 5 MW solar power plant at its manufacturing facilities at Urse, Pune at an estimated cost

of Rs 40 crore.

Outlook :

Market Data

Finolex Cables’ (FCL) Q3FY14 PAT of Rs. 24.5 crore was below ourestimate owing to lower sales

and EBITDA margin. Decline in communication cable segment segments as well as high raw

material prices resulted in flat EBITDA growth of 3.2% yoy. Sales rose 5.58% to Rs. 557.55 crore

in the quarter ended December 2013 as against Rs. 528.07 crore during the previous quarter

ended December 2012. Third Quarter result were marginally below our expectaton which led

us to revise our estimate on stock, we cut our EPS forecast for FY14E-15E by 8.6%/4.1%. Even

after posting marginally below result the stock is quite attractive at current market price of Rs.

81 and left a limited upside of 11%, however we advised our reader to book a part profit on

stock

The copper rods segment was initially set up as backward integration for the cables segment. The

excess production after captive consumption is sold off to third parties at market price. However,

owing to thin and declining margins from third party transactions, FCL is gradually reducing its

exposure to the segment. The contribution of the segment to the top-line has decreased from

21% in FY2010 to ~5% currently. This trend is expected to continue, thereby improving the

overall EBIT margin of the company.

FINCABLES

(Standalone)


(Source: Company/ Eastwind Research)

We cut our earnings estimates to factor volume decline in electrical & communication cable

segment, margin decline in copper rod segment and losses in the others segment. Consequently,

we cut our earnings estimates by 8.6% for FY14E (Rs. 11.6/Share) and 4.1% for FY15E (Rs.

12.6/Share). At the CMP of Rs. 81 stock is trading at PE of 7.0/6.4 of FY14E/15E. We revised our

rating on stock from "Buy" to "Hold". However owing to slower pace of economic growth further

we advised our readers to book part profit on stock and hold the balance with a target price of

Rs. 90

"Book Partial Profit"13th Feb' 14


15


Finolex Cables Ltd.

Key financials :

(Source: Company/ Eastwind Research)


PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E

Performance

Revenue 1342 1619 2036 2064 2271 2315 2500

Other Income 51 24 26 36 24 47 42

Total Income 1392 1643 2062 2100 2295 2362 2542

EBITDA 100 195 174 175 229 241 258

EBIT 61 157 135 135 182 191 205

Depriciation 39 37 39 39 47 50 53

Intrest Cost 32 19 19 26 12 14 14

PBT -30 89 107 109 171 234 233

TAX 5 32 22 11 26 56 56

Derrivative Loss -109 -74 -34 -36 -23 10 0

Reported PAT -35 58 85 98 145 178 185

Dividend 3 9 11 12 18 23 23

EPS -2.3 3.8 5.6 6.4 9.5 11.6 13.1

DPS 0.2 0.6 0.7 0.8 1.2 1.5 1.5

Yeild %

EBITDA % 7.4% 12.0% 8.5% 8.5% 10.1% 10.4% 10.8%

NPM % -2.5% 3.5% 4.1% 4.7% 6.3% 7.5% 7.3%

Earning Yeild % -12.0% 7.4% 11.7% 20.6% 20.9% 14.3% 16.2%

Dividend Yeild % 1.0% 1.2% 1.5% 2.6% 2.6% 1.9% 1.9%

ROE % -6.0% 9.0% 11.9% 12.3% 15.7% 16.5% 15.4%

ROCE% -4.0% 6.3% 8.7% 10.1% 13.1% 14.3% 13.7%

Position

Net Worth 596 643 717 800 924 1079 1249

Total Debt 296 275 260 172 184 160 160

Capital Employed 892 918 978 972 1109 1239 1409

No of Share 15 15 15 15 15 15 15

CMP 19 51 47 31 46 81 81

Valuation

Book Value 39.0 42.0 46.9 52.3 60.4 70.6 81.7

P/B 0.5 1.2 1.0 0.6 0.8 1.1 1.0

Int/Coverage 1.9 8.4 7.0 5.2 14.6 13.6 14.6

P/E -8.3 13.4 8.5 4.9 4.8 7.0 6.4

IT Industry;NASSCOM Guidance

16

After 3 consecutive conservative guidance, NASSCOM (National Association of

Software and Services Companies) revealed earning guidance for FY15E with positive

outlook led by favorable demand discretionary environment. Overall, Industry is

cheering with NASSCOM’s fair guidance and they are confident to catch up the growth

target.

(Tier-1: TCS, INFY, HCLTECH, and WIPRO)

"FY15E; a year of growth opportunity"

Performance of Our IT Coverage Optimistic guidance by NASSCOM (FY15E), IT Industry is fit-well for all grounds;

For FY15E, NASSCOM expects IT exports to grow by 13-15% and domestic market to

grow by 9-12% based on broad feedback loop from companies and captives. Overall,

Indian IT Industry is expected to reach the mark of USD130billion. Considering the

better economic data, healthy growth pattern of US economy, and the increase in

global IT spending & global sourcing models, Indian IT players are confident to see

3.9% of global IT spending and 5.9% growth in Business Process Management space in

2014.


FY14E and NASSCOM Guidance;


For FY14, Indian IT industry is expected to report 13% growth, in line with NASSCOM

guidance at 12-14%. While, domestic revenue could be seen below expectation because

of delay in decision-making and policy paralysis by government.

Despite various challenges across the Industry, overall ecosystem is changing and they

are transforming into dynamic era by adapting new verticals like SMAC (Social, Mobility,

Analytics, and Cloud), Big data and Digital etc. Even, IT players are making its healthy

existence in US and Europe regions. They are also running for new geographies like

Africa, APAC and MEA.

Interesting analytical facts behind NASSCOM Guidance :(a) Growth rate for the Big 4 (Infosys, Wipro, TCS and HCLT) has been better than

industry growth from FY02-08. However, that trend started changing from FY09 with at

least two players underperforming the industry growth every year (with the exception of

FY11). For FY14E, a street expectation also indicates that still 2 players could be

underperformer.

(b) Profitability growth is also equally important than revenue growth. While this may be

nitpicking, even in a healthy year of growth of 16% for the Indian IT industry in FY12, and

EBITDA margins of Tier-1 IT (ex-HCLT) declined 50-180 bps. This was even after 6%

depreciation of the Rupee against the US$ and favorable cross-currency trends.

(c) This is fact; the tempo of market share gain by top players is reducing combined

because of faster growth by global players, faster focus on captives, and dogfight over

bidding and vendors consolidation. For FY15E, Tier-1 players are sanguine on beating

guidance by on an average 1-2% as record of accomplishment of previous 5 years.

Despite above facts, our optimism on Indian IT is based on possibility of accelerated

growth in 2014, on: (1) Improved business sentiment in the US and Europe; (2) signs of

discretionary spending coming back; (3) continued market share gains for Indian

companies; and (4) increased spending due to adoption of new technologies.

INR/USD&CNX IT Performance(2013);

2013 has been a year of innovation and

transformation and 2014 could be an

execution year….


NASSCOM Guidance and Industry Growth-USD term

Year NASSCOM Guidance-% Actual Growth-%

FY03 30 25

FY04 26-28 34

FY05 30-35 37

FY06 30-32 33

FY07 25-27 32

FY08 24-27 30

FY09 21-24 17

FY10 4-7 5

FY11 13-15 19

FY12 16-18 16

FY13 11-14 10

FY14E 12-14 13

FY15E 13-15 -

Export Revenue (USD, mn)

Year Tier-1 IT Exports

FY04 3670 12900

FY05 5300 17700

FY06 7163 23605

FY07 10142 31206

FY08 14399 40418

FY09 16200 47103

FY10 17100 49690

FY11 21342 59035

FY12 25475 68687

FY13 28165 75800

FY14E 31000-32000 84000-87000

FY15E - -

17




Tier-1 Revenue Growth and Margin

"The guidance is a clear reflection that

the market is strengthening, so 13-15%

overall growth seems like a fair number,”

(CMD, Persistent System)

Underlying strengths to dictate FY15E growth; Performance of Our IT Coverage

Favorable demand discretionary environment: US is witnessing better GDP growth

combined with improving business sentiment, higher consumer spend, lower

Government spending cuts and improving job data. These facts are playing key role to

uptick in discretionary spending in North America. At a same time, revival in Euro zone

has taken place and offshore services from Europe is compounding to revenue traction.

We expect to see potential uptick in IT budget.

No pressure on billing rate: Considering healthy economic scenario across US and Europe,

we are not expecting to see any pressure on billing term. If INR depreciates to the mark of

Rs65 against the USD, then client can go with marginal bargaining. Post earning of

3QFY14E, most of management quoted for stable billing rate and clients confident on

billing front.

Revenue in USD-(mn) term-FY14E

Quote on NASSCOM Guidance


“13-15% (estimate) for exports looks like

a good number,” (CEO, outsourcing

advisory Offshore Insights)

Active participations of new emerging verticals: SMAC is throwing up huge opportunities

as firms want to optimize investments in current technology and drive growth by using

digital technologies and platforms. The digital forces of social, mobile, analytics and cloud

(SMAC), Bigdata and digital will reach mainstream status in 2014 and create

requirements, drive new purchasing and establish new competitive realities.

Favorable supply side scenario: Though attrition remained higher than last year,

especially among the bellwethers, campus hiring and fresh offers declined during the

year. However, utilization rate especially on onsite and offshore are on increasing mode,

it indicates favorable supply side scenario for the industry.

Cost rationalization still a part of agenda: Across the Industry, most of players are

focusing on cost control by improving volume, reducing expenses, and improving attrition

rate to maintain stability on margin front. Considering flat range of currency exchange

rate (INR against USD), we expect to see 50-150bps ups and down in IT industry in FY15E.

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

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

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

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

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


TCS INFY WIPRO HCL TECH TCS INFY WIPRO HCL TECH

FY05 41.7 51.6 41.6 41.4 32.8 29.3 29.9 22.9

FY06 36.4 35.4 35.9 29.6 32.5 27.7 27.8 21.7

FY07 44.3 43.8 36.5 37.6 31.6 27.2 27.4 21.1

FY08 36.6 35.5 61.3 40.4 31.4 26 24.6 21.2

FY09 7.5 11.7 17.8 18.9 33.2 25.8 24.3 21.4

FY10 4.4 3 0.5 25.3 34.6 28.9 26.7 19.7

FY11 28.4 24.6 18.3 27.6 32.6 30 25.7 16.6

FY12 25.1 15.8 13 22.4 31.8 29.5 23.9 18.7

FY13 15.2 6.7 6 12.9 29.1 29 23.7 21.6

FY14E 18.1 12 6.7 14.8 29.75 27 22.7 25

FY15E 18 17.5 18.5 18.7 28.5 25.5 21.8 24

Revenue Growth-% EBITDA Margin-%Year

18


Our view on Industry Per se: NIFTY and CNX IT performance

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

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

in export as well as in the domestic markets. FY15 promises to be bigger and stronger

than the last 3 years, which were marked by bloodbath in global markets due to Euro-

zone crisis and falling consumer confidence in the US. Demand is set to pick up in

sectors like BFSI, healthcare, retail and transportation globally in the year ahead.

For FY15E, We expect that strong fundamentals should help to sustain earning

momentum in FY15E. Foray into niche verticals and executions of large deal would play an

important factor for better earning visibility in near future. There is a window of

opportunity for competent large caps and midcaps to displace incumbents and gain some

incremental business. In the past 4 quarters, large caps (four companies) have grown at

3.4% CQGR, while midcaps (five companies) at 3.2%which is comparable to larger peers.

On Tier-1 IT players, we are positive on INFY, TCS and HCL Tech. While, across the Mid

cap and niche players we are optimistic view on TECHM, PERSISTENT, ZENSARTECH,

ECLERX and KPIT .

View and Valuation;




CMP Upside

(12.02.14) % FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

TCS 2103.8 BUY 2510 19.3% 71.82 95.00 109.31 29.29 22.15 19.25 36.4% 37.5% 34.4%

INFOSYS 3599.6 BUY 3910 8.6% 164.2 188.0 218.2 21.92 19.15 16.50 24.8% 23.7% 22.9%

HCLTECH 1491.6 BUY 1560 4.6% 58.10 79.36 98.11 25.67 18.79 15.20 30.7% 31.5% 29.4%

WIPRO 562.15 NEUTRAL - - 25.0 31.07 33.5 22.44 18.10 16.78 21.7% 22.7% 20.8%

TECHM 1875.55 BUY 2130 13.6% 123.97 155.37 175.50 15.13 12.07 10.69 34.8% 30.7% 26.0%

CMC 1424.45 NEUTRAL - - 75.27 86.04 92.35 18.92 16.56 15.42 24.1% 22.8% 20.7%

NIITTECH 421.55 BUY 443 5.1% 36.28 43.33 54.18 11.62 9.73 7.78 20.0% 19.4% 19.6%

KPIT 167.15 BUY 177 5.9% 10.80 12.63 16.82 15.47 13.23 9.94 20.1% 19.3% 20.7%

HEXAWARE 144.55 NEUTRAL - - 13.9 15.0 16.0 10.40 9.61 9.03 27.4% 24.9% 22.5%

PERSISTENT 1021.8 BUY 1065 4.2% 46.12 61.42 79.08 22.16 16.64 12.92 18.1% 20.3% 21.4%

eCLERX 1203.15 BUY 1358 12.9% 64.25 71.61 83.65 18.72 16.80 14.38 43.8% 37.9% 34.4%

TATAELXSI 392.1 NEUTRAL - - 10.63 24.02 28.36 36.89 16.32 13.83 16.9% 29.7% 27.4%

ZENSARTECH 365.65 BUY 440 20.3% 40.03 52.70 68.97 9.13 6.94 5.30 23.2% 24.5% 25.2%

MINDTREE 1644.45 NEUTRAL - - 89.72 100.94 114.93 18.33 16.29 14.31 28.4% 25.6% 23.6%

RoE-%Company View Target

EPS-Rs P/E-x

43.9%

3.1%

172

216

222

26

-2.703

1M 1yr YTD

Absolute -16.8 -44.4 -44.4

Rel.to Nifty -13.8 -47.4 -47.4


3Promoters 59.1 58.0 58.0

FII 9.6 10.0 10.1

DII 24.9 24.0 24.6

Others 6.4 8.1 7.3

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 4178 4216 4701 5136 6970

Total Income 5138 5456 6356 6724 8558

PPP 3245 3141 3691 3680 4707

Net Profit 1503 1142 1328 1046 1812

EPS 51.5 39.1 45.5 34.9 60.4

19

2.21 cr

Nifty

310/12152wk Range H/L


ORIENT BANK Vs Nifty



During quarter bank’s NII grew by 2% YoY lower than expectation largely due to

margin compression and lower growth in loan and deposits. Margin compression was

on account of lower loan yield as compare to cost of deposits. Total interest income

grew by 6% YoY while interest expenses increased by 18% YoY which drag lower

growth in NII. Other income was lower by 10% YoY to Rs.341 cr versus Rs.378 cr in

last year led by 48% declined in treasury gain. Overall revenue de-grew by 1% YoY

to Rs.1571 cr.


Stock Performance


4920

Asset quality stress persists

During quarter bank made provisions and contingencies to tune of Rs.561 cr as

against Rs.551 cr in previous quarter and Rs.604 cr in last quarter. During quarter

bank reported fresh slippage of Rs. 1043 cr (3.1% annualized) as against Rs.1015 cr

(3.2% annualized) in previous quarter. In absolute term GNPA increased by 6% YoY

to Rs.5184 cr while provision decreased by 8% YoY to Rs.1351 cr. Consequently net

NPA increased by 12% QoQ to Rs.3833 cr. In percentage term, gross GNPA and net

NPA stood at 3.87% and 2.9% from 3.81% and 2.7% respectively sequentially. Due

to lower provisions PCR (without technical write off) declined from 30% to 26%.

Fresh restructure sharply surged to Rs.1365 cr during quarter and outstanding

restructure book stood at Rs. 9687 cr

Operating expenses increased by 9% YoY in which employee cost and other

operating cost increased by 1% and 20% respectively. Flat employee cost was due

to lower wage settlement provisions made by bank. Consequently CI ratio declined to

45.4% from 41.5% in last quarter and 48.2% in previous quarter. Muted NII growth,

lower other income and higher operating cost led pre provisioning profit declined to

7% YoY.

Result update BUY

CMP

Target Price


NSE Symbol

Subdue NII growth and higher operating expenses led negative growth in PPP

6084

Mkt Capital (Rs Cr)

BSE Code 500315

ORIENTAL BANK

ORIENTBANK

Muted NII growth on the back of margin compression Market Data

Upside

Orient bank reported weak set of quarterly numbers with net profit declined by

31% YoY due to muted growth in NII and higher operating expenses. Asset

quality pressure remain persist with total impaired asset (GNPA+ Restructure

advances) remain high at 11.1% of loan. Bank made lower provisions against

bad loan despite of deterioration in asset. We have buy rating on the stock

due to inexpensive valuation. We Value bank at Rs.216/share which is 0.5

times of FY14E’s book value.

"BUY"13h Feb2014


20

Margin compression on account of higher cost of fund than loan yield

Subdue loan and deposits growth

On balance sheet front, bank reported very sluggish growth rate with deposits grew by

4% YoY in which current account and saving account deposits grew by 3% and 12%

YoY. CASA deposits in absolute term grew by 10% YoY and in percentage to total

deposits it stood at 24.2% as against 23.9% in last quarter. Loan grew by 8.4% YoY to

Rs.1340 bn led by 16% YoY growth in retail loan followed by mid corporate and large

corporate. Credit deposits ratio for the quarter remained same and it stood at 73.4%.

Bank reported 15 bps QoQ margin compressions on account of higher cost of fund than

loan yield. During quarter bank’s cost of fund declined by 10 bps QoQ while yield on loan

declined by 38% QoQ to 10.8% from 11.2%. Yield in investment also declined from 7.4%

to 6.9% which also cause margin compression.

Profitability declined on account of muted NII growth, higher operating expenses

and tax rate

Orient bank’s profitability declined by 31% YoY to Rs.224 cr lower than our expectation of

Rs. 269 cr largely due to weak performance all around. During quarter bank reported

muted NII growth, lower other income, higher operating cost and higher tax rate.

Valuation & View

ORIENTAL BANK

Orient bank reported weak set of quarterly numbers with net profit declined by 31% YoY

due to muted growth in NII and higher operating expenses. Asset quality pressure remain

persist with total impaired asset (GNPA+ Restructure advances) remain high at 11.1% of

loan. Bank made lower provisions against bad loan despite of stress in asset. We have

buy rating on the stock due to inexpensive valuation. We Value bank at Rs.216/share

which is 0.5 times of FY14E’s book value.



21

ORIENTAL BANK

Source : Eastwind/ Company


Chart Focus

Muted NII growth on the back of margin

compression

Subdue NII growth and higher operating

expenses led negative growth in PPP

Profitability declined on account of muted NII

growth, higher operating expenses and tax

rate


22

ORIENTAL BANK

Source: Company/Eastwind



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

Interest/discount on advances / bills 3622 3591 3507 3.3 0.9 3783

Income on investments 1075 1076 954 12.7 -0.1 1137

Interest on balances with Reserve Bank of India 21 9 8 167.2 135.4 20

Others 6 0 0 2868.4 5027.3 4

Total Interest Income 4723 4676 4469 5.7 1.0 4943

Others Income 341 312 378 -9.8 9.3 425

Total Income 5064 4988 4847 4.5 1.5 5368

Interest on deposits 3322 3234 3150 5.5 2.7 0

Interest on RBI/Inter bank borrowings 93 93 79 17.9 0.0 0

Others 78 68 35 119.1 14.9 0

Interest Expended 3493 3395 3264 7.0 2.9 3548

NII 1230 1281 1204 2.2 -3.9 1395

Other Income 341 312 378 -9.8 9.3 425

Total Income 1571 1593 1582 -0.7 -1.4 1820

Employee 394 446 391 0.8 -11.7 496

Other Expenses 319 322 265 20.3 -0.8 359

Operating Expenses 713 768 656 8.7 -7.1 856

PPP( Rs Cr) 858 825 926 -7.3 4.0 965

Provisions 561 551 604 -7.1 1.9 581

PBT 297 275 323 -7.8 8.3 384

Tax 73 23 -4 -1996.1 215.3 115

Net Profit 224 251 326 -31.3 -10.8 269

Balance Sheet ( Rs Cr)

Deposits 182470 175153 164174 11.1 4.2 184299

Loan 133962 128353 123623 8.4 4.4 135102

Asset Qiality

GNPA 5184 4887 3690 40.5 6.1

NPA 3833 3423 2610 46.9 12.0

% GNPA 3.9 3.8 3.0

% NPA 2.9 2.7 2.1

23

ORIENTAL BANK

Source: Company/Eastwind



P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 8954 12075 13758 14677 16545

Income on investments 2774 3671 3854 4316 4491

Interest on balances with Reserve Bank of India 335 34 31 80 80

Others 25 35 61 17 17

Total Interest Income 12088 15815 17705 19090 21134

Others Income 960 1240 1655 1588 1588

Total Income 13048 17055 19359 20678 22721

Interest on deposits 7474 11213 12553 11765 13408

Interest on RBI/Inter bank borrowings 23 38 111 175 189

Others 413 348 340 525 567

Interest Expended 7910 11599 13004 13954 14164

NII 4178 4216 4701 5136 6970

NII Growth(%) 43.7 0.9 11.5 9.3 35.7

Other Income 960 1240 1655 1588 1588

Total Income 5138 5456 6356 6724 8558

Employee 1048 1357 1576 1796 2272

Other Expenses 844 959 1089 1248 1579

Operating Expenses 1892 2315 2665 3043 3851

PPP( Rs Cr) 3245 3141 3691 3680 4707

Provisions 1742 1999 2363 2243 2118

Net Profit 1503 1142 1328 1046 1812

Net Profit Growth(%) 32.4 -24.0 16.3 -21.2 73.3

Key Balance sheet dataDeposits 139024 155965 175898 189928 205123

Deposits Growth(%) 15.6 12.2 12.8 8.0 8.0

Borrowings 5639 5259 7679 9996 10796

Borrowings Growth(%) 15.4 -6.7 46.0 30.2 8.0

Loan 95908 111978 128955 139271 150413

Loan Growth(%) 14.9 16.8 15.2 8.0 8.0

Investments 42075 52101 58555 63976 69094

Investments Growth(%) 17.6 23.8 12.4 9.3 8.0

Eastwind CalculationYield on Advances 9.3 10.8 10.7 10.5 11.0

Yield on Investments 6.6 7.0 6.6 6.7 6.5

Yield on Funds 7.8 9.2 9.0 9.4 9.6

Cost of deposits 5.4 7.2 7.4 6.2 6.5

Cost of Borrowings 7.7 7.3 5.9 5.9 7.0

Cost of fund 5.5 7.2 7.1 7.0 6.6

ValuationBook Value 380 409 403 433 483

P/BV 1.0 0.6 0.6 0.4 0.4

P/E 7.5 6.4 5.5 5.0 2.9

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

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

email: [email protected],

website : www.narnolia.com

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

otherwise in the recommended/mentioned securities/mutual funds/ model funds and

other investment products which may be added or disposed including & other mentioned

in this report/message.

Date post:	26-Jun-2015
Category:	Economy & Finance
Upload:	narnolia-securities-limited
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