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As per the management, the quarterly margins differ for every quarter as the project completion cycle is different and hence it is difficult to
capture the EBITDA movement every quarter. Though we agree with the management’s comment, we still believe that there would be some
amount of pressure on the margins on a yearly basis due to risks related to competition, inflation, adverse mix and a slowdown. As regards the
results we are of the opinion that, despite the gloomy scenario the results have been good. Consistent order inflow is a major positive factor.
We expect the sector to witness revival in coming quarters, whereas we see a near term earnings growth muted and look for a better entry
point. Currently we have a neutral view on a stock ......................... ( Page :10)
"HOLD" 24th Jan 2014
KPIT Tech: "On billion dollar journey" "NEUTRAL" 27th Jan 2014
KPIT Technologies Ltd revealed its 3QFY14 earnings with below than expectation, sales declined by 3.5%(QoQ) in INR term and 2.3%(QoQ) in
USD term due to the delay in project kick-off and additional loss of billing days in Q3FY14. Considering delay executions of some projects for
next 2 quarters and ongoing change in organization structure, we have a “Neutral” view on the stock. .............................................................. (
Page :7-9)
27th Jan, 2014
Edition : 192
IEA-Equity
Strategy
Larsen & Toubro Ltd: "On Track of Revival………" "NEUTRAL" 24th Jan 2014
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 :2-6)
Public Sector Banks Result Preview 3QFY14E 24th Jan 2014
Ultratech Cement : Moderated but Not outdated "HOLD" 24th Jan 2014
Ultratech's Q3FY14 was in line to our estimates.The white cement Volume Growth and capacity expansions are positive in terms of
fundamentals. We see the uptick of EBIDTA margin and volume growth for FY15. Currently the stock valuing at 3x in 1yr forward P/B, and we cut
our stance for FY15 to 2.7x. Hence we maintain our positive stance on Ultratech Cement with Target price of Rs.1846/- . As from the current
level the upside is very limited(7%), we recommend “Hold” Ultratech and Buy at Dips to get handsome return.
............................................................ ( Page : 17-19)
Dabur India Ltd : "Confident tone for growth" "BUY" 24th Jan 2014
Dabur delivered inline set of numbers;During 3QFY14, Dabur reported 16.7% (YoY) sales growth led by 9% overall volume growth because of
discretionary demand ramp up in rural area and price hikes by around 4-5% . PAT grew by 16%(YoY).Post earning, company’s management
stated that they would focus on pursuing aggressive and profitable growth strategy with brand building by judicious mix of price hike and
product launch in near future. ............................................( Page :14-16)
V-Guard: "Lower FY14 Sales growth guidence to 11-12%"
We believe that during the election period, the power supply could remain better (with political interest), consequently lowering the UPS
demand. Hence, it could take a couple of quarters to witness a reversal in the trend, if any. On this backdrop, we have lowered our revenues
estimates by 9% in FY2014 and 13% in FY2015. Consequently, we have revised down our EPS estimates by 21% in FY2014 and 16% in FY2015
......................................................... ( Page : 11-13)
Most of PSBs are trading at lower range of valuation multiple owing to absence of core earnings, operating leverage, deteriorating asset quality
and higher amount of restructure assets that are in pipeline. High inflation would be risk for the economy going forward. Any rise in inflation
would result of rise in interest rate by RBI in its third quarter monetary policy review on 28th Jan.2014 which would be negative for banking
industry. Most of banking stocks are expected to report moderate revenue and profit growth owing to multiple headwinds. In PSBs universe we
like Canara Bank, UCO Bank, Union Bank. .............................................. ( Page : 20-23)
Narnolia Securities Ltd,
India Equity AnalyticsDaily Fundamental Report on Indian Equities
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
2
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
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.
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
Market Data
Upside
86.65/46
Mkt Capital (Rs Cr)
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.
Change from Previous
UCO Bank Vs Nifty
Share Holding Pattern-%
2960821
Nifty 6154
"BUY"27h Jan, 2014
Narnolia Securities Ltd,
3
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.
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
Narnolia Securities Ltd,
4
UCO BANK
Source:Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
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
Narnolia Securities Ltd,
5
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
6
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
KPIT Tech.
KPIT Tech witnessed weak numbers, now..they will miss its earning guidance;
1M 1yr YTD
Absolute -7.95 32.66 -17.1
Rel. to Nifty -7.65 29.16 -18.32
Current 2QFY14 1QFY14
Promoters 22.53 22.87 24.25
FII 41.96 36.42 32.79
DII 6.99 11.12 10.93
Others 28.52 29.59 32.03
Financials3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 677.93 702.76 (3.5) 567.02 19.6
EBITDA 103.5 108.1 (4.3) 94.1 10.0
PAT 66.7 66.7 0.0 48 39.0
EBITDA Margin 15.3% 15.4% (10bps) 16.6% (130bps)
PAT Margin 9.8% 9.5% 30bps 8.5% 130bps
7
Price Performance
Rs, Crore
Please refer to the Disclaimers at the end of this Report.
Deal Momentum: There has been good momentum during Q3 across the business lines
in terms of deal closure and pipeline building. Though in 3 large deals there has been
almost a quarter’s delay in closure, two in SAP and one in A&E, that got closed during
Q3. Company closed large deals in excess of USD 70 million during the quarter, which
provides a sound platform, going into FY15E.
View and Valuation: Impressive organic growth despite inorganic thrust (acquired 10
companies in the last 10 yrs), Potential option value from success of its hybrid engine
venture Revolo (on trial). KPIT has targeted to reach $1bn sales by 2017. Its
differentiated positioning and competitive edge in its focus areas, imperatives to the
success of smaller-sized IT vendors impress to investors.
Considering delay executions of some projects for next 2 quarters and ongoing change
in organization structure, we have a “Neutral” view on the stock. Already we had
advised to book profit on 8th Jan 2014 at a target price of Rs177(Initiated at Rs115). Our
view on the stock could be change after favorable update on stock and healthy earning
guidance for FY15E. At a CMP of Rs151, stock trades at 9x FY15E EPS.
KPIT Technologies Ltd revealed its 3QFY14 earnings with below than expectation, sales
declined by 3.5%(QoQ) in INR term and 2.3%(QoQ) in USD term due to the delay in
project kick-off and additional loss of billing days in Q3FY14. Despite cost optimization
strategy by company, PAT dip by 9% (QoQ).
"On billion dollar journey"
CMP 151
Target Price -
52wk Range H/L 189/92
Previous Target Price -
Result update Neutral
The company expects better earnings, confident of generating a positive cash flow for
FY14E, after considering the balance payments for existing M&A deals.
Upside
BSE Code 532400
NSE Symbol
-
Change from Previous - Now, Company will be in the position of short with its annual revenue guidance. The
shortfall in the revenue is entirely because of deficit in SAP SBU revenue for FY14.
However, on profit they are confident to exceed the higher end of the guidance
despite the challenges faced on SAP SBU profitability.
Market Data
KPIT
Stock Performance
2910
Average Daily Volume 144511
Nifty
Steady set of margin: EBITDA margin almost flat at 15.3% and PAT margin declined by
50bps to 9%, sequentially. Commenting on margin, management stated that the higher
margin growth business coming up apart from revenue growth would improve the
margins going ahead. By next couple of quarter margin from SAP business would inch
up.
Growth inside the Europe: Europe region has been the leading growth market with
9.1%. During the quarter, USA had a marginal de-growth in USD terms and APAC
declined by 18%(QoQ) because of seasonality and furloughs impact. In INR terms,
Europe grew by 7.7%, US down by 2.5% and APAC 19.4%, on QoQ.
Share Holding Pattern-% Mix growth across verticals: On INR basis, KPIT reported 8% of growth from Energy &
Utilities (15% contribution on sales), while Manufacturing (39% contribution on sales)
down by 4%(QoQ) and Automotive & Transport-(36% contribution on sales) down by
1.5%, sequentially.
6267
Mkt Capital (Rs Crores)
"NEUTRAL"27th Jan' 14
Narnolia Securities Ltd,
8
Sales Mix
(Source: Company/Eastwind)
Revolo: The unit has been in the process of conducting trials in 40 vehicles, which has
been yielding encouraging results, with fuel savings between 30-40%. KPIT is working to
bring the costs down further and attaining regulatory approvals.As per the management,
by next year it could be a part of revenue.
Headcounts Metrics: During the quarter, Considering the ramp up of deals, this quarter
was good for hiring prospect, adding around 300+ people during the quarter.Over the
next few quarters, we expect, company will introduce multiple initiatives to develop
individuals to take on more responsibilities in future. During the quarter, Attrition at 18%
(LTM).
Client Metrics: Amongst the top customer accounts, Cummins has grown by 4.7% on a Q-
o-Q basis with revenue share at 17.9% during the quarter. The top 5 and top 10
customers had Q-o-Q decline of 3.2% and 1% respectively.
Please refer to the Disclaimers at the end of this Report.
KPIT Tech
Sales and Sales growth-%(QoQ)
(Source: Company/Eastwind)
Margin-%
Narnolia Securities Ltd,
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
USA 73.3% 76.2% 76.4% 74.7% 76.3% 75.0% 71.9% 72.6%
UK & Europe 14.4% 14.6% 12.1% 13.9% 11.3% 13.1% 13.8% 15.4%
RoW 12.3% 9.2% 11.6% 11.4% 12.3% 11.9% 14.4% 12.0%
Automotive & Transportation 37.1% 39.6% 38.8% 40.3% 38.5% 35.5% 36.1% 36.4%
Manufacturing 35.0% 32.9% 32.4% 34.0% 35.4% 39.6% 39.7% 38.9%
Energy & Utilities 11.6% 13.7% 15.3% 14.2% 13.5% 14.1% 13.6% 15.1%
Others 16.4% 13.8% 13.5% 11.5% 12.7% 10.8% 10.7% 9.7%
Sales Mix (% of Sales) - Geography
Sales Mix (% of Sales) - Verticles
9
KPIT Tech
Operating Metrics
Please refer to the Disclaimers at the end of this Report.
Financials
(Source: Company/Eastwind)
Narnolia Securities Ltd,
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
No. of Customers Added 4 3 4 2 5 6 3 3
No. of Active Customers 169 172 176 178 183 189 192 195
Customers with run rate of >$1Mn 59 65 69 72 78 78 78 78
Top Client – Cummins 19.5% 20.6% 19.7% 19.1% 16.6% 16.8% 16.5% 17.9%
Top 5 Clients 33.0% 36.3% 35.2% 36.8% 35.2% 38.6% 38.0% 38.2%
Top 10 Clients 42.2% 44.0% 43.7% 45.2% 44.0% 47.3% 46.3% 47.6%
DSO 90 75 75 70 75 77 75 76
Total Employee 7719 7873 8111 8286 8321 8456 8816 9136
Onsite Utilization 94.5% 94.7% 94.5% 92.8% 94.3% 94.2% 92.4% 88.1%
Offshore Utilization 74.3% 74.1% 74.7% 72.9% 74.1% 73.4% 72.9% 71.3%
Client Metrics
Client Concentration
Employee Metrics
Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E
Net Sales-USD 153.76 224.07 306.71 410.46 449.39 543.42
Net Sales 731.64 987.05 1500.00 2238.63 2696.33 3233.33
Employee Cost 265.92 529.95 771.78 1140.79 1367.04 1649.00
Other expenses 280.65 254.81 430.30 762.32 903.27 1067.00
Total Expenses 570.62 838.77 1283.75 1903.11 2270.31 2715.99
EBITDA 161.02 148.28 216.25 335.52 426.02 517.33
Depreciation 30.80 41.12 44.49 47.16 58.32 77.73
Other Income 1.20 6.74 13.82 11.74 13.48 16.17
Extra Ordinery Items -26.45 0.00 10.05 -1.30 -18.61 16.17
EBIT 130.22 107.16 171.76 288.36 367.70 439.60
Interest Cost 2.74 3.78 7.32 13.99 24.31 24.59
PBT 102.23 110.12 188.31 284.81 338.26 447.35
Tax 16.91 15.49 43.67 76.55 94.71 123.02
PAT 85.32 94.63 144.64 208.26 243.55 324.33
PAT (excluding EO Items) 111.77 94.63 134.59 209.56 262.16 308.16Growth-%
Sales -7.8% 34.9% 52.0% 49.2% 20.4% 19.9%
EBITDA -12.2% -7.9% 45.8% 55.2% 27.0% 21.4%
PAT 129.4% 10.9% 52.8% 44.0% 16.9% 33.2%
Margin -%
EBITDA 22.0% 15.0% 14.4% 15.0% 15.8% 16.0%
EBIT 17.8% 10.9% 11.5% 12.9% 13.6% 13.6%
PAT 11.7% 9.6% 9.6% 9.3% 9.0% 10.0%
Expenses on Sales-%
Employee Cost 36.3% 53.7% 51.5% 51.0% 50.7% 51.0%
Other Exp 38.4% 25.8% 28.7% 34.1% 33.5% 33.0%
Tax rate 16.5% 14.1% 23.2% 26.9% 28.0% 27.5%
Valuation
CMP 115.00 168.05 122.90 99.00 151.00 151.00
No of Share 7.90 8.70 17.80 19.28 19.28 19.28
NW 387.11 603.19 712.55 1036.23 1263.99 1565.76
EPS 10.80 10.88 8.13 10.80 12.63 16.82
BVPS 49.00 69.33 40.03 53.75 65.56 81.21
RoE-% 22.0% 15.7% 20.3% 20.1% 19.3% 20.7%
Dividen Payout ratio 6.4% 6.8% 4.9% 7.9% 6.5% 7.0%
P/BV 2.35 2.42 3.07 1.84 2.30 1.86
P/E 10.65 15.45 15.12 9.17 11.95 8.98
V- Larsen & Toubro Ltd.
CMP 1033
Target Price NA
Previous
Target Price
NA
Upside NA
Change from
Previous
NA
BSE Code 500510
NSE Symbol LT
52wk Range
H/L
861/114
6Mkt Capital
(Rs Crores)
80,145
Average Daily
VolumeNifty 6,346
1M 1yr YTD
Absolute (2.7) 0.8 13.5
Rel. to Nifty 1.1 4.6 11.6
3QFY14 2QFY14 1QFY14
Promoters 0.0 0.0 0.0
FII 17.9 15.3 16.1
DII 36.6 37.4 36.9
Others 45.5 47.4 47.2
Financials Rs, Crore
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 14387.5 12308.4 16.9% 12869.3 11.8%
EBITDA 1674.8 1185.7 41.3% 1258.3 33.1%
PAT 1240.7 864.6 43.5% 1013.2 22.4%
EBITDA Margin 11.6% 9.6% 200 bps 9.8% 180 bps
PAT Margin 8.4% 6.8% 160 bps 7.5% 90 bps
10
(Standalone)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/ Eastwind Research)
Price Performance V/s NIFTY
Outlook
We have a Neutral on L&T as we think it will be difficult rate L&T from today’s level without
earnings upgrade and/or uncertanity across sector. Downside risks are project delays, weaker
margins and stronger Rupee. Upside risks are higher than expected order inflow and higher
operating margins a head.
Contribution margin expansion came as a surprise and in our recent meeting the management
attributed it to quarterly skews rather than improvement in project-level profitability. We build
slightly higher margins for FY2014E at 10.9% (versus 10% earlier). However, we believe margins
face downward trajectory over FY2014-16E (build EBITDA margin of 10.5% in FY2015E and 10.3%
in FY2016E) due to risks related to competition, inflation, adverse mix and a slowdown. L&T
maintained its revenue growth guidance of 15% yoy for FY2014 (9% posted in 9MFY14). We build
lower revenue growth of 12% in FY2014 implying 16% growth requirement in 4QFY14. L&T also
maintained its inflow guidance of 15-20% in FY2014 (strong 23% growth in 9MFY14; but is a bit
wary about maintaining this traction on delayed decision making by customers).
Share Holding Pattern-%
"On Track of Revival………"
95,662
NeutralResult update
Market Data
Stock Performance-%
Construction & engineering major, L&T posted a surprisingly set of numbers for the quarter
ended Dec, 13. The company's net sales grew by a mere 11.8% on a yearly basis to Rs
14387.5crore. The company recurring bottom line witnessing a upstik of 12.15% , and came in
at Rs. 1136.3 crore. the results have been adjusted for the quarter as it transferred
hydrocarbon business to its subsidiary L&T Hydrocarbon Engineering with effect from April 1,
2013. Accordingly, the company restated suitably its earnings for the previous quarter ended
September 2013 and numbers relating to previous periods. However, if we If we consider the
exceptional gains on dilution of part stake in a subsidiary company, the overall PAT grew by
22.1 % during the quarter. While the operational performance has been good, the company
has witnessed good traction in its order book also. Order inflow for the quarter stood at Rs
21722 crore showing a growth of 21% on Y-o-Y basis. The total order book as on December
31st 2013 stood at Rs 171184 crore showing an increase of 13 % on Y-o-Y basis. EBITDA
margins for the Dec 2013 quarter expanded by 180 bps to 11.6% against 9.8% last year.
However, as per the management, the quarterly margins differ for every quarter as the project
completion cycle is different and hence it is difficult to capture the EBITDA movement every
quarter. Though we agree with the management’s comment, we still believe that there would
be some amount of pressure on the margins on a yearly basis due to risks related to
competition, inflation, adverse mix and a slowdown. As regards the results we are of the
opinion that, despite the gloomy scenario the results have been good. Consistent order inflow
is a major positive factor. We expect the sector to witness revival in coming quarters, whereas
we see a near term earnings growth muted and look for a better entry point. Currently we
have a neutral view on a stock.
Why neutral…???
"Neutral"24th Jan' 14
Narnolia Securities Ltd,
V- V-Guard Industries Ltd.
CMP 450
Target Price 475
Previous
Target Price
525
Upside 5%
Change from
Previous
-11%
BSE Code 532953
NSE Symbol
1,374
59,460
Nifty 6,344
1M 1yr YTD
Absolute (4.5) (9.0) 5.0
Rel. to Nifty (5.6) (13.6) (6.7)
3QFY14 2QFY14 1QFY14
Promoters 65.5 65.5 65.5
FII 18.5 17.4 14.5
DII 2.2 2.5 3.5
Others 13.8 14.5 16.4
Financials Rs, Crore
Consolidated 3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 352.9 334.0 5.7% 349.0 1.1%
EBITDA 29.1 27.1 7.7% 25.7 13.3%
PAT 17.5 14.5 -21.0% 15.4 14.2%
EBITDA Margin 8.1% 8.1% 0 bps 7.3% 80 bps
PAT Margin 4.9% 4.3% 60 bps 4.4% 50 bps
11
"Lower FY14 Sales growth guidence to 11-12%……..."
HoldResult update
Mkt Capital (Rs Crores)
52wk Range H/L 390/570
V-GUARD
Market Data
For the quarter ended Dec 2013, V-Guard reported a top line of Rs. 352.9 crore, compared to
Rs. 349.0 crore in 3QFY13, marking a marginal YoY growth of 1.1%. EBITDA margins for the
quarter were significantly improved to 8.2% (up 89 bps YoY) due to lower ad spends. Interest
expense for the quarter were up by 10.0% YoY to Rs. 5.4 crore and after giving effect
depreciation and taxes, the company’s PAT stood at Rs. 17.5 crore (up 14.2% YoY). On
conference call, the management of V-Guard lowered their top-line guidance to 11-12% from
the earlier 18-20% in FY2014. However, they expect to achieve EBITDA margin of around 8.5%
for FY2014. We believe that during the election period, the power supply could remain better
(with political interest), consequently lowering the UPS demand. Hence, it could take a couple
of quarters to witness a reversal in the trend, if any. On this backdrop, we have lowered our
revenues estimates by 9% in FY2014 and 13% in FY2015. Consequently, we have revised down
our EPS estimates by 21% in FY2014 and 16% in FY2015.
Strong Balance Sheet
Standalone
Please refer to the Disclaimers at the end of this Report.
(Source: Company/ Eastwind Research)
Average Daily Volume
Stock Performance-%
Share Holding Pattern-%
As expected, the company’s contribution to revenue has improved from its non south market as
compared to its incumbent southern market. All in all we observe this result as significantly
below our estimates. Although company has reported increase in EBITDA margin in 3QFY14 by 80
bps, but it still below our full year expectaion of 9%. We believe that during the election period,
the power supply could remain better (with political interest), consequently lowering the UPS
demand. Hence, it could take a couple of quarters to witness a reversal in the trend, if any. On
this backdrop, we have lowered our revenues estimates by 9% in FY2014 and 13% in FY2015.
Consequently, we have revised down our EPS estimates by 21% in FY2014 and 16% in FY2015.
However we belive company strong balance sheet, a wide range of products and a strong hold
over its existing market, all of which give it an edge over its rivals. At the current CMP of Rs.
457, the stock is trading at a PE of 18.3x and 13.8x of FY14E and FY15E. The company can post
RoE of 23.2% and 24.1% & EPS of Rs. 25.2 and Rs. 33.2 FY14E and FY15E. We belive that the
current level is not attractive to make position in this stock, one should wait further correction
from current level, however one who already own the stock can hold it with the revised price
target of Rs. 475.
•Total Debt has been reduced significantly as on 3Q FY14 to Rs. 117.7 crore, compared to Rs. 157
crore as on 3Q FY13. Working capital loan reduced to Rs. 77.1 vrore from 134.0 crore and
whereas term loan icreased to Rs. 40.6 crore from 22.9 crore.
• Working capital cycle on a TTM basis improves by 9 days to 76 days. Mainly Led by 15 days
reduction in debtors. Management has also guided for improvement in net working capital cycle
by 5- 10 days every year going forward. This will further improve its ROCE and ROE going
forward.
• Strong cash generation in 9M. FY14 Cash from operations at Rs. 90 crore in 9M FY14 as
compared to Rs. 14.5 crore for full year FY13
Outlook
1 yr Forward P/B
"Hold"24th Jan' 14
Narnolia Securities Ltd,
12
V-Guard Industries Ltd.
Confrence Call Highlights
Please refer to the Disclaimers at the end of this Report.
• Non South market sales in Q3 FY'14 stood about 30% of total sales and grew by about 30% as
well. The South market which constitutes about 70% degrew by about 8-9% in value terms and by
about 13-15% in volume terms. Overall, thus company ended up with flattish kind of sales growth
in Q3 FY'14. For Q4 FY'14, management expects about 10-12% sales growth.
• In Q3 FY'14, the company was able to improve its gross margin by 100 bps which was largely due
to lower Advertisement expenditure YoY. Going forward Ad expenditure will be around 3.5-4% of
sales.
• The Electronics segment, which constitute stabilizers and UPS, which contribute about 24% of
total sales in Q3 FY'14, degrew by 18% YoY, Electrical which includes pumps, house wiring cable,
electric water heater, fans and others, and contribute about 72% of total sales, grew by about 8%,
with electric water heater and house wiring cables delivered a healthy growth, while the solar
water heater which constitute about 4% of total sales, grew by about 30%. The premium variant of
the electric water heater segment launched in FY'14 continues to get good response.
• As per the management, better power supply in States of Tamil Nadu and Andhra Pradesh
together with lower sale of consumer durable products due to weak consumer sentiment, affected
the growth of the company. Also due to sand mining ban in many parts of the country,
construction activities were also slow leading to lower sale of wire business.
• As per the management, the power situation in South India should be temporary phenomena
largely due to elections. Also extended monsoon also delayed some of the product sale and
affected the demand.
• Total market of electric wires will be about Rs 7500 crore of which company has share of about
6%. By year end the company should be able to report about Rs 450-475 crore of electric wires.
Polycab has highest market share of 20% followed by Finolex cables of about 12%.
• Raw material prices of cooper and other metals were steady and more on downward side.
Management expects raw material prices to slightly inch up from March'14 onwards which is
general seasonally trend.
• The new products introduced last year namely Induction Cooker, Mixer Grinder and Switchgears
did well and are expected to post revenue of about Rs 50 crore totally in FY'14.
• Lower tax rate during the quarter was as a result of a 200% weightage deduction on R&D and on
capital expenditure which the company received the approval from this year and going forward
also the deduction will continue.
• Overall, management expects about 11-12% growth in FY'14 with Ebidta margin of about 8.5-9%.
The management lowered its earlier guidance of about 20% growth in FY'14 largely due to current
economic and environmental challenges.
Narnolia Securities Ltd,
13
Please refer to the Disclaimers at the end of this Report.
Key financials
V-Guard Industries Ltd.
(Source: Company/ Eastwind Research)
Narnolia Securities Ltd,
PARTICULAR 2010A 2011A 2012A 2013A 2014E 2015E
Performance
Revenue 454 727 994 1360 1510 1736Other Income 1 2 2 4 5 6Total Income 456 728 996 1364 1515 1742EBITDA 50 73 94 110 131 156EBIT 43 65 84 99 119 141DEPRICIATION 7 8 10 11 12 15INTREST COST 5 11 17 20 21 15PBT 40 55 69 82 102 132TAX 14 16 18 19 27 33Extra Oridiniary Items NA NA NA NA NA NAReported PAT 25 39 51 63 75 99Dividend (INR) 10 12 12 12 12 12DPS 3.5 4.1 4.1 4.1 4.1 4.0EPS 8.5 13.1 17.0 21.1 25.2 33.2
Yeild %
EBITDA % 11.1% 10.1% 9.4% 8.1% 8.7% 9.0%NPM % 5.6% 5.4% 5.1% 4.6% 5.0% 5.7%Earning Yeild % 9.6% 7.8% 9.2% 4.8% 5.5% 7.2%Dividend Yeild % 4.0% 2.4% 2.2% 0.9% 0.9% 0.9%ROE % 18.0% 22.7% 24.1% 24.1% 23.2% 24.1%ROCE% 13.8% 16.2% 21.2% 19.4% 21.4% 21.7%
Position
Net Worth 141 172 211 261 324 412Total Debt 81 139 109 165 125 115Capital Employed 222 311 320 427 449 527No of Share (Adj) 3 3 3 3 3 3CMP 89 168 186 435 460 460
Valuation
Book Value 47.4 57.6 70.6 87.6 108.7 137.9P/B 1.9 2.9 2.6 5.0 4.2 3.3Int/Coverage 8.4 5.7 4.9 4.9 5.6 9.4P/E 10.4 12.9 10.9 20.7 18.3 13.8
Dabur India Ltd.
BUY
1M 1yr YTD
Absolute 3.3% 25% 24.0%
Rel. to Nifty 2.20% 20% 12.8%
Current 2QFY14 1QFY14
Promoters 68.64 68.66 68.66
FII 19.94 20.71 20.4
DII 4.47 3.96 3.97
Others 6.95 6.7 7
Financials
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 1904.28 1748.81 8.9 1635.98 16.4
EBITDA 297.59 329.24 (9.6) 274.51 8.4
PAT 243.5 249.83 (2.5) 209.87 16.0
EBITDA Margin 15.6% 18.8% 220bps 16.8% 120bps
PAT Margin 12.8% 14.3% 150bps 12.8% -
14
View and Valuation: Despite signs of weak discretionary demand and increased
competitive intensity in the market, Dabur India has reported comparatively better
volume growth in its key categories. On all operating parameters, its performance was
satisfactory. Still, management is cautious for margin ramp up due to high inflation in
India.The strong momentum in relatively low competition in the core categories with
diversified portfolio, Dabur gets a better place than other peers and its rural
distribution expansion should boost sales volumes. We retain our “Buy” view on the
stock with a target price of Rs206. At a CMP of Rs 162 stock trades at 8.5x FY15E P/BV.
Recent updates: (a)Introduced a host of new products and variants, including the new
Fem Fairness Naturals facial bleach range and Vatika Hibiscus hair care range.(b)Dabur
Tunisie, a wholly owned subsidiary, incorporated in Tunisia on Dec. 2013 with the object
of buying, selling and manufacturing consumer care products, having meagre asset base
at present.
Growth on all Categories: The Health Supplements business was a key driver of growth
during the quarter, reporting a strong 19.5% surge. The Air Freshener business under
the brand Odonil, continued to surge ahead with an over 27% growth. The Foods
business also reported a robust near 18% growth. The Shampoo business grew by 25%.
The Toothpaste business grew by over 14% while the Skin Care category reported an
over 13% growth.
Share Holding Pattern-%
The International Business grew by 26%. Organic business grew by 29% with 14%
constant currency growth rate led by strong performance in GCC, Egypt and Nigeria.
The GCC business reported a 21% growth, while sales in Egypt and Nigeria both grew
by 16%. Domestic FMCG business grew by 14%.
Post earning, company’s management stated that they would focus on pursuing
aggressive and profitable growth strategy with brand building by judicious mix of price
hike and product launch in near future.
Margin ramp down: During the quarter, EBITDA margin declined by 120 bps to 15.6%
due to rise in A&P cost by 130 bps to 15.72% and employee cost by 60 bps to 8.58% of
adjusted net sales. PAT margin flat at 12.8% on YoY basis.
Volume growth in single digit: Because better discretionary demand environment in
rural area and judicious pricing strategy overall volume growth increased by 9% (YoY) in
3QFY14 with 4-5% (YoY) pricing growth.For FY15E, management stated to hike its
product prices by 4-5% to maintain its margin.
NSE Symbol DABUR
28197
Average Daily Volume 908049
52wk Range H/L 185/125
Mkt Capital (Rs Cr)
Previous Target Price -
Upside 27%
Change from Previous -
"Confident tone for growth"
Result update
CMP 162
Target Price 206
During 3QFY14, Dabur reported 16.7% (YoY) sales growth led by 9% overall volume
growth because of discretionary demand ramp up in rural area and price hikes by
around 4-5% . PAT grew by 16%(YoY).
Dabur delivered inline set of numbers ;
Market Data
BSE Code 500096
P/BV(x)-1year forward
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Stock Performance
Nifty 6346
"BUY"24th Jan' 14
Narnolia Securities Ltd,
15
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Dabur India Ltd.
Sales and Sales Growth(%) -
Consolidated Volume Growth-%
RM cost (on sales) decreased from 37.6% to
36.3% and AD spend down from 14.4% to
12%, historicaly low ad spend.
EBITDA margin declined by 120 bps to 15.6%
due to rise in A&P cost by 130 bps to 15.72%
and employee cost by 60 bps to 8.58% of
adjusted net sales.
The company has been looking to maintain 8-
12% volume growth in the near term.
(Source: Company/Eastwind)
Margin-%
(Source: Company/Eastwind)
(Source: Company/Eastwind)
Expenses on sales-%
Narnolia Securities Ltd,
16
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Key facts from Management Commentary:
Financials
■ The company may hike prices by 4-5% in FY15E and focus will be on pursuing an
aggressive and profitable growth strategy.
■ Ad expenses to be within the range of 13-15 percent at the consolidated level for
FY15E.
■ Expanding rural distribution networks as a part of project double and new products as
hair serums and professional hair care products were launched.
■ There has been a softening of demand generally speaking in urban India. Overall much
higher level of growth is coming from rural as compared to urban.
Dabur India Ltd.
Narnolia Securities Ltd,
Rs in Cr, FY10 FY11 FY12 FY13E FY14E FY15E
Sales 3391.4 4104.5 5305.4 6178.9 7070.30 8203.32
RM Cost 811.0 1806.8 2278.8 2422.1 2757.42 3240.31
Purchases of stock-in-trade 750 252 509 599 742.38 820.33
WIP (10) (122) (103) (2) (71) (41)
Employee Cost 285 309 387 471 608.05 738.30
Ad Spend 493.5 534.6 659.5 837.0 996.91 1132.06
Other expenses 438.4 524.1 683.1 819.10 908.53 1066.43
Total expenses 2767.3 3304.8 4415.2 5146.6 5942.59 6956.42
EBITDA 624.1 799.7 890.2 1032.2 1127.71 1246.90
Depreciation and Amortisation 50.0 95.2 103.4 112.7 111.09 133.15
Other Income 39.4 32.2 57.4 92.0 141.41 164.07
EBIT 613.5 736.6 844.2 1011.5 1158.03 1277.82
Interest 12.3 29.1 53.8 58.9 54.69 51.95
PBT 601.2 707.5 790.4 952.6 1103.34 1225.87
Tax Exp 100.5 139.0 146.4 182.62 212.39 232.91
PAT 500.7 568.5 644.0 770.0 890.95 992.95
Growth-% (YoY)
Volume 9.5% 10.5%
Pricing 4.5% 5.0%
Sales 20.9% 21.0% 29.3% 16.5% 14.4% 16.0%
EBITDA 33.9% 28.1% 11.3% 16.0% 9.3% 10.6%
PAT 28.1% 13.5% 13.3% 19.6% 15.7% 11.4%
Expenses on Sales-%
RM Cost 23.9% 44.0% 43.0% 39.2% 39.0% 39.5%
Ad Spend 14.6% 13.0% 12.4% 13.5% 14.1% 13.8%
Employee Cost 8.4% 7.5% 7.3% 7.6% 8.6% 9.0%
Other expenses 12.9% 12.8% 12.9% 13.3% 12.9% 13.0%
Tax rate 16.7% 19.6% 18.5% 19.2% 19.3% 19.0%
Margin-%
EBITDA 18.4% 19.5% 16.8% 16.7% 16.0% 15.2%
EBIT 18.1% 17.9% 15.9% 16.4% 16.4% 15.6%
PAT 14.8% 13.9% 12.1% 12.5% 12.6% 12.1%
Valuation:
CMP 158.6 96.1 103.2 131.0 162.0 162.0
No of Share 86.8 174.1 174.2 174.3 174.3 174.3
NW 935.4 1391.1 1716.9 2124.4 2689.1 3335.4
EPS 5.8 3.3 3.7 4.4 5.1 5.7
BVPS 10.8 8.0 9.9 12.2 15.4 19.1
RoE-% 53.5% 40.9% 37.5% 36.2% 33.1% 29.8%
P/BV 14.7 12.0 10.5 10.7 10.5 8.5
P/E 27.5 29.4 27.9 29.7 31.7 28.4
Ultratech Cement.
1719
1846
1846
7%
0%
532538
46885
18754
6346
1M 1yr YTD
Absolute -7.3 -14.8 -10.2
Rel. to Nifty -9.0 -19.9 -14.3
3QFY14 2QFY14 1QFY14
Promoters 62.0 62.0 62.0
FII 21.0 20.7 20.7
DII 4.6 4.8 4.6
Others 12.4 12.6 12.7
Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY13
Net Revenue 4818 -1.3 6.5 4883 4522
EBITDA 796 -24.2 17.1 1050 679
Depriciation 264 10.7 0.0 239 264
Interest Cost 90 73.6 1.9 52 89
Tax 139 -45.2 30.0 254 107
PAT 370 -38.5 41.6 601 261(In Crs)
17
Moderated but Not outdated
Market Data
Average Daily Volume (Nos.)
BSE Code
ULTRACEMCONSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
1405/2067
CMP
Target Price
Previous Target Price
Result Update Hold
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
Expansion Updates :In Jul’13 it commissioned a 3.3m-ton clinker plant in Karnataka,
adding to its earlier commissioning (Mar’13) of similar capacity in Chhattisgarh. In Oct’13
it commissioned a 1.6m-ton grinding unit in Jharsuguda, Orissa, adding to its earlier
commissioning (Mar’13) of similar capacity in Hotgi, Maharashtra. The balance five
associated grinding units will be set up in 4QFY14 and FY15.
Acquisition. During 2Q, Ultratech acquired JPA’s 4.8m-ton unit in Gujarat, lifting its
capacity to 59m tons, while ongoing expansions would further that to 70m tons by
Mar’15. The transaction, at an EV of 38bn (US$125 a ton) is expected to be completed
only by 1QFY15 given multiple approvals required.
Depreciation rose 11% yoy due to the commissioning of clinker capacity in Chhattisgarh,
Karnataka, and grinding units in Maharashtra, Gujarat and Orissa. Other income too fell,
18% yoy, leading to a further crunch in PAT.
Investment concerns :Key drivers of long-term growth would continue to be housing and
infrastructure development.Revival in cement demand would be key catalyst for the
stock performance.cement prices and demand are expected to pick-up post election.High
operating leverage, especially post commissioning of new capacities in 1QFY14, could
result in volatile earnings.Cement Makers may rise cement prices due to increase in
variable input costs.
Nifty
Lower Realization and higher Operating Cost Impact PAT: UltraTech’s 3QFY14 Sales,
EBITDA & PAT declined 1%, 24% and 39% YoY respectively to Rs4818Cr, Rs796Cr and
Rs370Cr respectively. On QoQ basis, Sales, EBITDA & PAT rose 7%, 17% and 40%. While
EBITDA margin contracted ~499 bps YoY it expanded 149 bps QoQ to 16.5%. EBITDA per
MT at Rs788 down 24% YoY and up 10% QoQ.
At Rs.788 /Ton Average Realization Down 1% YOY : The benefit of lower coal prices (net
of rupee devaluation) and optimization of the fuel mix led to an 6.5% yoy dip in power &
fuel costs a ton. A 23.5% yoy drop in EBITDA and a 75.4% yoy rise in interest led to a
37.8% yoy fall in PAT.
Despite of Weak Realization Ultratech has delivered QOQ margin Expansion :Despite
24%,7%,8% YOY increase in Rawmaterial cost, freight cost and other expenses
respectively, Ultratech’s variable input cost increased 6%YOY and -2%QOQ . Through
better cost efficiency which has been one of the key factors resulting in UltraTech’s
results outperforming its large cap peer group over the last 4‐5 quarters. Thus We believe
UItraTech will deliver QoQ margin expansion despite marginally weak realization .
Upside
Change from Previous
"Hold"24th Jan' 14
Narnolia Securities Ltd,
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Au
g-0
4
May
-05
Feb
-06
No
v-0
6
Au
g-0
7
May
-08
Feb
-09
No
v-0
9
Au
g-1
0
May
-11
Feb
-12
No
v-1
2
Au
g-1
3
Price 1x2x 3x4x 5x6x 7x8x
OUTLOOK :
Vew & Valuation :
FY11 FY12 FY13 FY14E
13798 19232 21319 20797
154 371 304 346
13952 19603 21623 21143
3280 4639 4646 4315
2881 3741 4243 4461
11102 15039 16480 16957
2696 4194 4839 3840
813 963 1023 1110
292 256 252 325
384 948 1179 759
1367 2403 2678 1982
12.8 18.7 17.6 11.7
18
Net Tax
PAT
ROE%
Power and fuel
Freight and forwarding
Expenditure
EBITDA
Depriciation
Interest Cost
Ultratech Cement.
P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income
We are expecting Demand Growth for the rest FY14 will be 4% - 5% and for FY15 it will
be in the range of 8% - 12%.Demand already revived after the monsoon ,hence it
reported a 4% realization growth in Q3FY14.The Ultratech's expansion plans are ramp
up to become 70 mnTon cement producer in India by FY15 . Its waste heat recovery
plants and efficient fuel mix (usage of petcock for energy instead of coal) moderates the
Cost pressure, so to make Ultratech cost efficient among large cap peers. Govt
initiatives to expedite large infrastructure projects have yielded little so far and this is
putting pressure in the cement makers, especially those with debt that has become
expensive to service due to high interest rates. We expect lower other income to revive
after the settlement of volatile interest rates by Govt in coming quarters. At present
ultratech is running at 79% of its capacity utilization. The utilization level may decline
due to stabilization of supply from new capacities, owing to insufficient demand in
Domestic Market. Ultratech is planning to strengthen its logistic infrastructures and
increase its captive power plants capacity, which will help to reduce its Operational
cost.
Ultratech's Q3FY14 was in line to our estimates.The white cement Volume Growth and
capacity expansions are positive in terms of fundamentals. We see the uptick of EBIDTA
margin and volume growth for FY15. Currently the stock valuing at 3x in 1yr forward
P/B, and we cut our stance for FY15 to 2.7x. Hence we maintain our positive stance on
Ultratech Cement with Target price of Rs.1846/- . As from the current level the upside is
very limited(7%), we recommend “Hold” Ultratech and Buy at Dips to get handsome
return.
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Narnolia Securities Ltd,
FY10 FY11 FY12 FY13
124 274 274 274
4495 10373 12550 14955
4620 10647 12824 15230
857 3295 4843 5169
750 727 705 1227
32 113 121 135
683 1830 2207 2338
133 473 709 949
8375 21630 24904 29590
6 39 40 62
4953 12265 12729 14254
260 760 1940 3601
146 583 1544 1066
827 2094 2198 2541
210 825 1089 1376
112 190 214 185
219 873 1041 1048
8375 21630 24904 29590
FY10 FY11 FY12 FY13
3.1 2.9 3.2 3.4
88.1 49.9 87.7 97.7
2.9 6.0 5.7 6.5
9.5 13.3 11.5 11.0
1.2 1.5 1.1 1.2
15890 34903 46634 57428
13.1 22.7 17.2 19.1
7.9 12.9 11.1 11.9
0.5 0.5 0.5 0.5
15.4 8.2 11.8 11.3
0.3 0.4 0.4 0.4
2.3 1.5 1.6 1.4
1673 2195 3482 4122
(843) (2240) (3050) (4407)
(740) 248 (353) 715
19
Cash From Investment
Cash from Finance
Inventories to Turnover%
Short-term loans and advances
Total Assets
P/B
EPS
Debtor to Turnover%
RATIOS
EV
Creditors to Turnover%
Debt/Equity
Current Ratio
Cash from Operation
Trade payables
Short-term provisions
Total liabilities
Intangibles
Tangible assets
P/E
EV/EBIDTA
Dividend Yield%
ROCE%
Cash and bank balances
Ultratech Cement.
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
B/S PERFORMANCE
Trade receivables
Inventories
Long-term loans and advances
Capital work-in-progress
Long-term provisions
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Narnolia Securities Ltd,
20
Deposits growth lead by flow of FCNR deposits
Indian banks registered deposits growth of 17% YoY as on 13th Dec2014 according
to RBI data preliminary due to flow of FCRN deposits through RBI’s special
concession window to the tune of Rs. $14 bn. Union Bank is likely to get more
benefit from this route as per management. According to bank’s top official, bank
raised more FCNR deposits than repo borrowing. Bond yield during this quarter
soften to 7.5% as against 9.5% in second quarter and FCNR deposits are generally
low cost of deposits. This would lead the margin expansion of more than 1%. Margin
expansion would be seen in case of Union Bank. Cost of deposits of most of banks
is expected to remain same but we expect actual benefit would come from 4QFY14E
and onwards.
Asset quality pressure likely to remain at elevated level
Revenue growth tepid on account of moderate loan growth and high cost of
fund
We expect performance of Public Sector Banks (PSBs) to remain muted on the back
of slower pace of loan growth and deteriorating asset quality led by ongoing
restructure assets and stress in economy. We expect PSBs in our coverage universe
to report NII growth of 17.2% YoY led by moderate loan growth of 18% YoY by the
system and restructure assets which would likely to remain at elevated level as per
most of bank management. Provision for loan loss would be elevated level owing to
deteriorating asset quality and larger sum of restructure assets are in pipeline. Most
of PSBs are expected to reported higher slippage of restructure asset as per
management.
During quarter the banking system experience loan growth of 15% YoY as on 13th
Dec.2013 (as per RBI data) as against 18% YoY loan growth in 2QFY14. Second
quarter witnessed higher loan growth because of transfer of CD/CP borrowings to
loan but during this quarter revival of bond yield and lower demand of corporate loan
led slowdown in economy restricted moderate loan growth in the system. We expect
loan growth of 10-15% in our coverage universe. Bank of Baroda, Canara Bank,
UCO bank and Union bank are expected to reported loan growth of >15% while PNB
and SBIN would report <10% of loan growth.
Public Sector Banks Result Preview
3QFY14E
Muted loan growth reported by system
Stock Performance During Quarter
Please refer to the Disclaimers at the end of this Report.
Asset quality pressure is likely to persist due to ongoing slowdown in economy, high
interest rate and continuous rising inflation. Gross slippages of banks are expected
to remain at elevated level and most of bankers are guided higher amount of
restructure assets in pipeline. We expect Andhra bank would hit more as their
impairment of asset would be more than 18% of asset means 100% of liability has to
service 82% of asset which would be tough itself for bank. We expect GNPA and net
NPA for PSBs would be in the range of 3.5%-4% and 2 to 2.5% respectively in
3QFY14.
Nifty Vs Bank Nifty during Quarter
Loan (Rs tn) and YoY Gr(%)
Narnolia Securities Ltd,
21
Public Sector Banks Result Preview 3QFY14E
Profitability of PSBs are expected to declined by 19.5% in our coverage universe in
absence of core earnings, higher operating leverage due to wage revisions and high
provision against loan loss due to deteriorating asset quality. Union Bank, Canara Bank
and UCO Bank are expected to report healthy profit in our coverage because of healthy
loan growth and margin expansion. Although these banks would not be free from
impairment of asset and high operating leverage but would have comfortable profit due to
healthy core earnings as per our view.
Most of PSBs are trading at lower range of valuation multiple owing to absence of core
earnings, operating leverage, deteriorating asset quality and higher amount of restructure
assets that are in pipeline. High inflation would be risk for the economy going forward.
Any rise in inflation would result of rise in interest rate by RBI in its third quarter monetary
policy review on 28th Jan.2014 which would be negative for banking industry. Most of
banking stocks are expected to report moderate revenue and profit growth owing to
multiple headwinds. In PSBs universe we like Canara Bank, UCO Bank, Union Bank.
ALBK
Please refer to the Disclaimers at the end of this Report.
Outlook
Profitability likely to declined due to absence of core earnings, high operating
leverage and deteriorating asset quality
We expect bank to report profit growth of 4.2% YoY on the back of high operating
leverage and high provisions. Higher operating leverage is expected due to higher
employee provision and higher provisions on account of deteriorating asset quality as
bank witnessed sequentially increased of gross NPA.
Andhra Bank
We expect bank to report loan growth and deposits growth of 14% and 18% respectively.
Profit is expected to report negative growth on YoY basis largely due to high base and
expected muted performance during the quarter. Asset quality during quarter is expected
to report high deteriorating due to large chunk of restructure assets.
Narnolia Securities Ltd,
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 1169 1309 1330 -12.1 -10.7
PPP 750 1154 860 -12.7 -34.9
Net Profit 182 276 311 -41.4 -34.0
ALBK
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 1169 1045 971 20.4 11.9
PPP 750 643 712 5.4 16.7
Net Profit 166 71 257 -35.4 135.0
ANDHRABANK
22
Punjab National Bank
PNB is expected to report loan growth of less than 10% as bank is more focus on
consolidating its balance sheet than growth. Asset quality is expected to remain at
elevated level as bank’s slippage not concentrated in particular industry. NIM is expected
to report in the range of 3.5-3.7%. Profit is expected to be dented on account of higher
provisions.
Public Sector Banks Result Preview 3QFY14E
Please refer to the Disclaimers at the end of this Report.
Bank of Baroda
We expect profit growth of 5.5% YoY largely due to tax rate of 30% versus 6.3% in
2QFY14 and 17.5% YoY in 1QFY14. As per our expectation NII would be grew by 24%
largely due loan growth of 20% YoY. Asset quality of bank is expected to remain high as
management guided restructure pipeline is Rs.20bn.
Bank of India
We expect loan and deposits growth of 23% and 29% YoY respectively. Profit is lower by
25% YoY largely due to higher provisions. Bank is expected to report higher slippage as
management guided restructure pipeline of Rs.10-15 bn. NIM is expected to improve by
20 bps YoY due to international NIM.
Canara Bank
Canara Bank is expected to report 30%+loan growth largely due to lower base. We
expect loan to grow by 34% YoY and flat deposits growth. Asset quality of bank is
expected to improve on sequential basis largely due to expected lower slippage. AT PBT
level , we expect bank to grow by 12.5% but we assume tax rate of 25% versus 16% in
2QFY14 and 19% in 1QFY14 which lead profit growth of 8.5% YoY. Gross slippage and
tax rate will be monitor able.
Narnolia Securities Ltd,
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 3515 2895 2841 23.7 21.4
PPP 2539 2125 2256 12.6 19.5
Net Profit 1067 1168 1012 5.5 -8.7
BANKBARODA
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 2683 2527 2308 16.2 6.2
PPP 2218 2102 1856 19.5 5.5
Net Profit 602 622 803 -25.1 -3.3
BANKINDIA
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 2606 2191 1988 31.1 18.9
PPP 1734 1425 1516 14.4 21.7
Net Profit 775 626 714 8.5 23.8
CANBK
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 4201 4016 3733 12.5 4.6
PPP 2874 2535 2682 7.2 13.4
Net Profit 607 505 1306 -53.5 20.2
PNB
23
Result Preview ; at a glance
Please refer to the Disclaimers at the end of this Report.
State Bank of India
We expect Union bank’s profit to grow by 32% YoY largely due to margin expansion and
flow of FCNR deposits. Cost of fund is likely to soften this quarter as bank borrowed
more money on repo and less MSF. Bond yield settled at 8.75% during quarter as
against 9.5% in previous quarter. We expect loan and deposits growth of 17% and 18%
YoY. Asset quality is likely to persist. Improvement in CASA and margin expansion would
be key monitor able.
Public Sector Banks Result Preview 3QFY14E
We expect SBIN loan and deposits growth of 17% and 16% YoY respectively. NIN is
expected to report in the range of 3.5-4% as bank has increased base rate during the
quarter. Operating leverage and asset quality is expected to dent profit by 25% YoY. We
remain have concern about bank’s deteriorating asset quality and continuous fall of PCR.
Gross slippage and provisions make by bank is key monitor able as per our view.
UCO Bank
UCO bank is expected to report profit growth of 200%+ largely due to robust expected NII
growth which is lead by low of fund. UCO Bank’s CASA grew exponential in past few
quarter but after sanction of western countries in Iran, low cost deposits are likely to be
stagnant. But bank is expected to get benefit of same in FY14. Key monitor able would
be CASA trend and asset quality.
Union Bank
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 12959 12251 11154 16.2 5.8
PPP 6734 6312 7791 -13.6 6.7
Net Profit 2535 2375 3396 -25.4 6.7
SBIN
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 1642 1569 1177 39.5 4.7
PPP 1285 1166 831 54.6 10.2
Net Profit 338 400 102 231.4 -15.5
UCOBANK
Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth
NII 2015 1954 1891 6.6 3.1
PPP 1484 1225 1358 9.3 21.1
Net Profit 400 208 302 32.5 92.3
UNIONBANK
PSU BANKS NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit
ALBK 1382 1139 324 1309 1154 276 1330 860 311 3.9 32.4 4.2 5.6 -1.3 17.5
ANDHRABANK 1169 750 182 1045 643 71 971 712 257 20.4 5.4 -29.2 11.9 16.7 157.6
BANKBARODA 3515 2539 1067 2895 2125 1168 2841 2256 1012 23.7 12.6 5.5 21.4 19.5 -8.7
BANKINDIA 2683 2218 602 2527 2102 622 2308 1856 803 16.2 19.5 -25.1 6.2 5.5 -3.3
CANBK 2606 1734 775 2191 1425 626 1988 1516 714 31.1 14.4 8.5 18.9 21.7 23.8
DENABANK 684 458 107.4 107 369 625 615 443 206 11.2 3.4 -47.9 539.3 24.1 -82.8
IOB 1467 972 120 1452 791 133 1382 1017 116 6.2 -4.4 3.4 1.0 22.9 -9.8
ORIENTBANK 1395 965 269 1281 825 251 1204 926 326 15.9 4.2 -17.5 8.9 17.0 7.2
PNB 4201 2874 607 4016 2535 505 3733 2682 1306 12.5 7.2 -53.5 4.6 13.4 20.2
SBIN 12959 6734 2535 12251 6312 2375 11154 7791 3396 16.2 -13.6 -25.4 5.8 6.7 6.7
SYNDIBANK 1480 847 319 1411 811 470 1400 864 508 5.7 -2.0 -37.2 4.9 4.4 -32.1
UCOBANK 1642 1285 338 1569 1166 400 1177 831 102 39.5 54.6 231.4 4.7 10.2 -15.5
UNIONBANK 2015 1484 400 1954 1225 208 1891 1358 302 6.6 9.3 32.5 3.1 21.1 92.3
VIJAYABANK 660 385 127 705 273 136 456 261 127 44.7 47.5 0.0 -6.4 41.0 -6.6
Total 36476 23245 7448 33404 20601 7590 31120 22513 9175 17.2 3.3 -18.8 9.2 12.8 -1.9
YoY Growth QoQ Growth3QFY14E 3QFY132QFY14
Narnolia Securities Ltd,
Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4000
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website : www.narnolia.com
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