Stock Recommendation for Today: Buy Stock of TCS and Hold HDFC Bank Share

TCS : " Strong Fundamentals" "BUY" 20th Mar 2014

On Mid Quarter Analyst Meet, TCS commented on weak revenue growth momentum for 4QFY14E due to weak seasonality. Growth in 4QFY14E

would be lower than the preceding quarter and margin would decline 40-50 basis points on cross currency movement and higher investments.

However, sigh of relief was seen on FY15E outlook and comments on overall demand environment. .................................................................. (

Page : 2-4 )

"BOOK PROFIT" 18th Mar 2014

No doubt the stock's fundamentals are good and also available at a cheaper rate comparing to its early trade . In the previous one month the

stock performed well & recover 20-22% from its estimated low of CY2013. We didn't expected this rise to be so fast.The CMP was estimated for

a medium term target price looking at its earnings and fundamentals . How ever the target price got achieved few days back. we believe the

stock's fundamental is still good and price too cheap also , but for the earning up gradation and revised target price we would like to see the 1st

quarter earnings, hence we recommend Book Profit on the stock at a price range between Rs.1253 to Rs.1310.

......................................................................... ( Page : 10-12)

IEA-Equity

Strategy

20th Mar, 2014

Edition : 228

ACC Limited :

KPIT Tech: "On billion dollar journey" "BUY" 19th Mar 2014

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. ........................................................................ ( Page : 8-9)

HDFC Bank : "HOLD" 20th Mar 2014

Profitability of bank is likely to report better in next few quarters on the back of mobilization of FCNR deposits which would reflect better NII

growth for being a low cost carry, RBI allowed banks to use counter cycle buffer for making specific provisions against bad loans, declining share

of priority sector lending but still met regulatory requirement and exempted foreign deposits with tenure more than 3 years from SLR, CRR and

PSL. Now the economy is witnessing some sign of revival and market sentiment boost up on account of exit poll result. We raised our price

target to Rs.760/share which is upper side of our valuation band. .................... ( Page : 5-7)

Addressing an Investor Con Call, Infosys management has expressed its cautious view on earnings outlook as well as clients spending for near

term. They indicated that FY14E would be a year of lower earnings than NASSCOM guidance followed by FY13 and FY12. The company’s knee

jerk has not associated with single factor; these are partly company specific and partly external factors.

.......................................................................................................... ( Page : 22 - 23)

AXIS BANK :

ICICI BANK : "HOLD" 18th Mar 2014

In our earlier note dated 31st Jan.2014 in which we have given the price target of Rs.1094 lower side of valuation band. Now the stock reached

to the level of Rs.1214 but still below of our upper side of valuation band. We value bank in the range of Rs. 836 to Rs.1287 depending upon the

fundamental and return ratios. Since our result updated report, the stock has given the return of 24%, now we advice our investor to hold the

stock as bank has potential to reached at upper side of valuation band. ........................ ( Page : 13-18)

Infosys: "Recovery delayed, but not denied" "BUY" 14th Mar 2014

"BOOK PROFIT" 14th Mar 2014

Recent rally in Axis Bank is fundamentally not justified but is the result of sentiment boost up lead by Modi effect. Opinion poll suggests BJP led

NDA would come to power after the general election. NDA prime ministerial candidate Narendra Modi is perceived by foreign investor as a

decisive and development making leader. Market participates have hope for revival in economy and business growth opportunity to start again.

This would be result of diminishing NPA buffer and profitability boost up. We advice our clients to book part profit.

....................................................................................... ( Page : 19- 21)

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

TCS

Key facts from Management Commentary:

1M 1yr YTD

Absolute -5.9 29.9 67.2

Rel. to Nifty -13.3 18.8 57.1

Current 2QFY14 1QFY14

Promoters 73.9 73.96 73.96

FII 16.33 16.09 15.67

DII 5.26 5.58 5.90

Others 4.51 4.37 4.47

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

21294 20977.2 1.5 16069.93 32.5

6686.76 6633.0 0.8 4660.49 43.5

5333.43 4633.3 15.1 3549.61 50.3

31.4% 31.6% (20bps) 29.0% 240bps

25.0% 22.1% 290bps 22.1% 290bps

2

Nifty 6524

Stock Performance

PAT

EBITDA Margin

PAT Margin

Share Holding Pattern-%

1 year forward P/E

Rs, Crore

(Source: Company/Eastwind)

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

(5) Currency will play a small role with marginal impact of cross currency movement and

average currency movement. There may be some accounting changes related to

recognition of forex gains or losses, but it is not likely to be material.

View and Valuation: We continue to remain positive on its demand outlook and margin

profile, the management expects for robust deal pipeline going forward and also expects

to materialize its emerging space like Digital as well as Cloud, Mobility, Analytics and Big

data. We expect, TCS will be star performer in growth sense than other peers. Hence, we

are maintaining 17% (revised from 18%) revenue growth in dollar term for FY14E

because of improved demand environment, while NASSCOM expects 12-14% for the

Industry. At a price of Rs 2041, it is trading at 18x FY15E earnings, We maintain" BUY"

view on the stock with a target price of Rs 2510.

Financials

Revenue

EBITDA

Mid Quarter's Analyst Meet: Lower than expected growth for 4QFY14E, but still better

outlook for FY15E than FY14E,

" Strong Fundamentals"

CMP 2041

Target Price 2510

Company update Buy

On Mid Quarter Analyst Meet, TCS also commented on weak revenue growth

momentum for 4QFY14E followed by Infosys due to weak seasonality. Growth in

4QFY14E would be lower than the preceding quarter and margin would decline 40-50

basis points on cross currency movement and higher investments. However, sigh of

relief was seen on FY15E outlook and comments on overall demand environment.

52wk Range H/L 2384/1300

Mkt Capital (Rs Crores) 433985

Previous Target Price 2360

Upside 23%

Change from Previous 6%

Market DataBSE Code 532540

Now, revenue in 4QFY14E could be a bit lighter than what we had expected post 3QFY14

earnings. We are not much surprise on comments on weak revenue as well as ramping

down on margin picture for current quarter. We believe that the 1QFY15E, the first

seasonally strong quarter of the year, is the stern litmus test of TCS’s confidence for

FY15E.

(1) For 4QFY14E, revenue would be lower than preceding quarter because of seasonal

impacts, and domestic revenue may clock negative growth largely impacted by upcoming

general election. However, no pressure would be seen on revenue for FY15E.

(2)Margin would decline by 40-50 basis points on cross currency movement and higher

investments. However, company is expecting no hiccups on margin for long- term

prospect.

(3) The company is very optimistic on Europe, US and UK growth could be inline. Latin

America will see good growth. Europe will continue to do well, and the US and the UK will

be close to industry average. Middle East and APAC could be seen on flattish node.

(4) Across vertical, Media and Entertainment has reported better, Telecom remains

challenged. While, there could be some ray of growth because of higher penetration in

Europe.

Average Daily Volume 1011877

NSE Symbol TCS

"BUY"20th Mar' 14


3

Unlike Infosys, TCS comments are based on potential impact from seasonally lower

demand in its biggest market (US and Europe) and weak domestic demand environment.

On previous comments, management had already quoted regarding demand volatility at

home because of upcoming poll.

Comparing with its nearest rival Infosys, TCS is not facing largely with any specific issue.

Despite a weak commentary on 4QFY14E, management is aggressively confident to report

better numbers in FY15E with healthy demand outlook. We are considering following

factors for its growth story in FY15E.

Healthy Demand Environment: TCS is much confident on healthy demand outlook and

expects that FY15E could be better year than FY14E propelled by better discretionary

spending in the US. Management suggests that except India, other emerging markets

(contributes 18-19% of revenue) continue to see healthy demand. Also, in its FY15

revenue growth models, India (contributes 7% of sales) is the only market which TCS

expects to be weak.

TCS.

Is there any setback?


No sign of any ramp down: Management suggests that Continental Europe will likely

grow ahead of overall company growth in FY15E. On vertical front, smaller verticals such

as Energy & Utilities, Transportation and Life sciences & Healthcare might grow ahead of

overall company average. While, its mature verticals like BFSI and Retails could grow

flattish, Telecom continues to face structural issue. Contracts wins from continental

Europe could change the shape of verticals. Still, we are not seeing any project ramp

down.

New emerging business on demand: A part of legacy business, the emerging

opportunities in helping large corporations tap areas such as social media and data

analytics are seen as increasingly contributing to the IT sector's next phase of growth. TCS

and its Indian competitors are winning a significant share of several 2nd and 3rd

generation renewal contracts as western companies look to both cut costs and modernise

their IT infrastructure.

Sales (USD) and Sales growth-%

Considering above growth factors, we are not expecting any major concern with

company's growth. The company is also focussed to drive operational improvements in

the business and aims to expand reach in non-traditional markets and servicelines.


We expect 1% (QoQ) revenue growth in

USD term for 4QFY14E,


4


TCS.


Financials


Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E

Net Sales-USD 6339.0 8187.0 10171.0 11569.0 13531.7 16012.2

Net Sales 30029.0 37325.1 48894.3 62989.5 81731.2 96073.3

Employee Cost 10879.6 13850.5 18571.9 24040.0 30060.7 35547.1

Overseas business expenses 4570.1 5497.7 6800.5 8701.9 11565.0 13930.6

Services rendered by business associates and others 1262.0 1743.7 2391.3 3763.7 4952.9 5764.4

Operation and other expenses 4622.8 5054.3 6694.8 8443.9 10044.8 12009.2

Total Expenses 21334.4 26146.2 34458.5 44949.6 56623.4 67251.3

EBITDA 8694.6 11178.9 14435.8 18040.0 25107.8 28822.0

Depreciation 601.8 686.2 860.9 1016.3 1279.2 1503.7

Amortisation 59.1 49.1 57.1 63.7 57.5 76.7

Other Income 272.0 604.0 428.2 1178.2 1348.6 1921.5

Extra Ordinery Items 0.0 0.0 0.0 0.0 0.0 0.0

EBIT 8033.7 10443.6 13517.9 16960.1 23828.6 27318.3

Interest Cost 16.1 26.5 22.2 48.5 35.9 33.8

PBT 8289.6 11021.2 13923.8 18089.8 25141.3 29206.0

Tax 1197.0 1830.8 3399.9 4014.0 5933.3 7009.4

PAT 7092.7 9190.3 10524.0 14075.7 19208.0 22196.5

PAT (Reported PAT) 7000.6 9068.6 10414.0 13917.4 19208.0 22196.5

Sales-USD 29.2% 24.2% 13.7% 17.0% 18.3%

Sales 8.0% 24.3% 31.0% 28.8% 29.8% 17.5%

EBITDA 21.3% 28.6% 29.1% 25.0% 39.2% 14.8%

PAT 31.8% 29.6% 14.5% 33.7% 36.5% 15.6%

EBITDA 29.0% 30.0% 29.5% 28.6% 30.7% 30.0%

EBIT 26.8% 28.0% 27.6% 26.9% 29.2% 28.4%

PAT 23.6% 24.6% 21.5% 22.3% 23.5% 23.1%

Employee Cost 36.2% 37.1% 38.0% 38.2% 36.8% 37.0%

Overseas business expenses 15.2% 14.7% 13.9% 13.8% 14.2% 14.5%

Services rendered by business associates and others 4.2% 4.7% 4.9% 6.0% 6.1% 6.0%

Operation and other expenses 15.4% 13.5% 13.7% 13.4% 12.3% 12.5%

Tax rate 14.4% 16.6% 24.4% 22.2% 23.6% 24.0%

CMP 780.8 1182.5 1322.0 1563.0 2041.0 2041.0

No of Share 195.7 195.7 195.7 196.0 196.0 196.0

NW 18466.7 24504.8 29579.2 38645.7 49940.0 62991.6

EPS 36.2 47.0 53.8 71.8 98.0 113.2

BVPS 94.4 125.2 151.1 197.2 254.8 321.4

RoE-% 38.4% 37.5% 35.6% 36.4% 38.5% 35.2%

Dividen Payout ratio 28.1% 50.8% 37.5% 41.2% 41.2% 41.2%

P/BV 8.3 9.4 8.7 7.9 8.0 6.4

P/E 21.5 25.2 24.6 21.8 20.8 18.0

Margin -%

Expenses on Sales-%

Valuation

Growth-%

HDFC Bank

741

760

720

3

6

1M 1yr YTD

Absolute 11.8 15.1 15.1

Rel.to Nifty 4.7 4.8 4.8


3Promoters 22.7 22.7 22.7

FII 34.9 33.6 34.9

DII 9.3 9.8 6.6

Others 33.1 33.8 34.2

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 10543 12885 15811 18713 22944

Total Income 14878 18668 22664 26604 30835

PPP 7725 9391 11428 14516 15572

Net Profit 3926 5167 6726 8453 9119

EPS 84.4 22.0 28.7 36.0 38.9

5

176874

Raised foreign deposits higher amount in comparison to peers; likely to report

better NII for being low cost in nature

Market Data

Upside

750/528

BSE Code 500180

NSE Symbol HDFCBANK

52wk Range H/L

Company update HOLD

CMP

Target Price

We have raised our price target to Rs.760/share on account of bank’s likely to

get benefit from FCNR deposits mobilization that it had recently raised. We

value bank in the range of Rs.660 to Rs.760 per share on the back of current

fundamental and prevailing economic scenario. Now the economy is

witnessing some sign of revival and market sentiment boost up on account of

exit poll result. HDFC bank is likely to see earnings boost-up in near term on

account of mobilization of FCNR deposits which would reflect better NII for

being a low cost carrying in nature, recently RBI allow banks to use 33% of

buffer/floating provisions for bad loan and declining of low yielding PSL share

in overall lending.

Previous Target Price

Mkt Capital (Rs Cr)



Stock Performance

In last quarter, HDFC bank has raised FCNR deposits to the tune of $3.4 bn nearly

about Rs.21000 cr through RBI special window which carry interest rate of 3.5%

while normal deposits rate are in the range of 6.5% to 7%. HDFC Bank raised larger

chunk of monies in compare to other banks like SBI and ICICI bank. SBI and ICICI

bank raised monies through FCRN deposits to the tune of $2bn each. Further

incremental foreign deposits with tenure are more than 3 years are exempted from

SLR, CRR and PSL lending. This would help bank to lower cost of fund by 75 bps to

100 bps and hence margin expansion. Bank management guided margin would be in

the range of 4.1% to 4.5% going forward.

Mounting bad loans have major cause of worry; RBI allowed banks to use 33%

of counter cycle, floating provisions for specific provisions

Recently RBI allows banks to use 33% of counter cycle provisioning buffer, floating

provisions for making specific provisions against impaired accounts which would help

bank to make lower provisions and hence boost up earnings. HDFC bank reported

very strong asset quality with GNPA and net NPA stood at 1% and 0.3% at the end

of December quarter. Bank would use counter cycle buffer, floating provisions for

specific provisions and make lower fresh provisions. This would be the result of

boosting up profitability.

Average Daily Volume

Counter cycle provisions and floating provisions are represented as capital reserves

that bank need to build up in good times and can only use for contingencies under

extra circumstance. This is the first time when central bank allows to use since the

reserve were created starting 2010. At the end of quarter all banks reported Rs.1.71

trillion of GNPA, the rise of 39.4% YoY. In a very rough estimate, banking system

has nearly about Rs. 2 trillion in bad loans and another Rs.4 trillion loans are being

restructured pipeline out of total Rs.82 trillion.

Change from Previous

HDFC Bank Vs Nifty


4.17 lakhs

Nifty 6524

"HOLD"20th March.,2014


6

Source:Eastwind/Company

HDFC BANK


Share of PSL down sharply; release fund would be deployed in high yield sector

Recently share of PSL in HDFC bank came sharply but bank already met PSL target of

40% which means addition fund would be deployed in high yield segment which would

reflect in NII growth. According to RBI, bank’s need to spend 40% in net advance in

priority sector lending and HDFC bank are among those which have highest share in PSL

in private bank category. Additionally fund raised fund through FCNR deposits with

tenure more than 3 years are exempted from SLR, CRR and PSL means bank would

have higher fund for deploying in sector those are high yield in nature.

Valuation & View

HDFC bank is expected to report better earnings on the back of (a) likely to get benefit

from FCRN deposits mobilization, (b) recent RBI allow bank to use 33% of counter cycle

buffer provisions for specific provisions, this would help bank to make lower provisions

and hence profitability and (c) share of additional PSL lending would be deployed in high

yielding sector. We have raised our price target to Rs.760/share which is upper side of

our valuation band.

Valuation Band


7

HDFC BANK

Financials

Source: Eastwind/ Company



P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 15085 21124 26822 32002 40213

Income on investments 4675 6505 7820 9311 10952

Interest on balances with Reserve Bank of India 148 137 282 373 373

Others 20 108 141 65 65

Total Interest Income 19928 27874 35065 41751 51603

Others Income 4335 5784 6853 7891 7891

Total Income 24263 33658 41917 49642 59494

Interest on deposits 8028 12690 16321 20281 24337

Interest on RBI/Inter bank borrowings 1336 2253 2889 4571 4278

Others 20 47 44 44 44

Interest Expended 9385 14990 19254 23038 28659

NII 10543 12885 15811 18713 22944

NII Growth(%) 25.7 22.2 22.7 18.4 22.6

Other Income 4335 5784 6853 7891 7891

Total Income 14878 18668 22664 26604 30835

Total Income Growth(%) 20.3 25.5 21.4 17.4 15.9

Employee 2836 3400 3965 4231 5342

Other Expenses 4317 5878 7271 7857 9921

Operating Expenses 7153 9278 11236 12087 15263

PPP( Rs Cr) 7725 9391 11428 14516 15572

Provisions( Incl tax provision) 3799 4224 4701 1751 6453

Net Profit 3926 5167 6726 8453 9119

Net Profit Growth(%) 33.2 31.6 30.2 25.7 7.9

Key Balance Sheet DataDeposits 208586 246706 296247 355496 426596

Deposits Growth(%) 24.6 18.3 20.1 20 20

Borrowings 14394 23847 33007 50785 47529

Borrowings Growth(%) 11.4 65.7 38.4 54 -6

Loan 159983 195420 239721 299651 365574

Loan Growth(%) 27.1 22.2 22.7 25 22

Investment 70929 97483 111614 114580 156461

Investment Growth(%) 21.0 37.4 14.5 3 37

Eastwind CalculationYield on Advances 9.4 10.8 11.2 10.7 11.0

Yield on Investments 6.6 6.7 7.0 8.1 7.0

Yield on Funds 7.7 8.9 9.3 10.1 9.9

Cost of deposits 4.3 5.6 6.0 6.5 6.2

Cost of Borrowings 9.4 9.6 8.9 9.0 9.0

Cost of fund 4.2 5.5 5.8 5.7 6.0

ValuationBook Value 545.5 127.5 154.3 189.4 222.3

P/BV 4.3 4.1 4.1 3.5 3.0

P/E 27.8 23.6 21.8 18.7 17.3

KPIT Tech.

Key Facts from recent Management Interview to media (on 12th

March, 2014)

1M 1yr YTD

Absolute -4.7 52.9 -

Rel. to Nifty -12 41.9 -


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

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

677.93 702.76 (3.5) 567.02 19.6

103.5 108.1 (4.3) 94.1 10.0

66.7 66.7 0.0 48 39.0

15.3% 15.4% (10bps) 16.6% (130bps)

9.8% 9.5% 30bps 8.5% 130bps

8

Expectation of margin improvement: The decline in SAP revenue has impacted the overall

margins, and margin was seen almost flat at 15.4% in 2QFY14 and 3QFY14. We expect that

profitability from SAP business would support to shape up its margin in next couple of

quarters. Even, Utilization rate in SAP has declined to below 90% at onsite and below 70%

mark at offshore. This is expected to improve in FY15E. Management expects to see PAT

margin at double digit by next couple of quarters.

Auto Engineering Services; a growth driver: The global Automotive Industry has

witnessed a strong revival. US industry sales in 2013 finished at 15.6 million vehicles, up

7.6% from 2012, and China became the first country in which more than 20-million

vehicles were sold in any given year. Considering healthy demand outlook in Auto

Industry, KPIT is seeing exports growth above the industry rates, driven by demand for

services around safety systems, intelligent driving, hybrid electric cars, fuel efficiency etc.

Management expects revenues from Auto Engineering to exceed 30% of the company’s

revenues, in the next 3 years, as KPIT expected to achieve the mark of USD1b in

revenues.

6517

Mkt Capital (Rs Crores)


Nifty

52wk Range H/L 189/92

"On billion dollar journey"

CMP 160

Target Price 185 SAP business back to growth trajectory: KPIT’s revenue has been facing growth related

issues on account of deficit in SAP business (contributes 24% of sales). Profitability on SAP

business was also a challenge for the company. On 3QFY14 revenues from SAP was down

by 10% (QoQ). However, on the back of deal signings and visible deal pipeline, SAP should

return into growth path in 4QFY14E and FY15E. Considering healthy demand environment

in FY15E, We expect that USD revenue growth in SAP could be in double digits.

Previous Target Price -

Company update Buy

16%

Change from Previous -

Market Data

SAP revival and Auto Engineering Services shape; a growth driver in near term,

Upside

BSE Code 532400

Price Performance

Rs, Crore


Incremental revenue by REVOLO and Systime: As per the management comment, its

dream project “REVOLO Technology” REVOLO would play a key role to report an

incremental growth in FY15E. KPIT’s acquisition Systime from Integrated Enterprise

Services (IES) segment would report healthy growth prospects at least over the next

couple of years.

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.

NSE Symbol KPIT

Stock Performance

3103

Average Daily Volume 144511

EBITDA Margin

PAT Margin

We expect that the company would report better earnings with margin ramp up and

signing of larger deals in next couple of quarters. Now, we upgrade our view on the

stock from “Neutral” to “Buy” with a price target of Rs 185. At a CMP of Rs 160, stock

trades at 9.5x FY15E EPS.

Financials

Revenue

EBITDA

PAT

"BUY"19th Mar' 14


9


Financials


KPIT Tech

Operating Metrics


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 153.76 224.07 306.71 410.46 445.78 535.96

Net Sales 731.64 987.05 1500.00 2238.63 2692.54 3215.75

Employee Cost 265.92 529.95 771.78 1140.79 1378.58 1640.03

Other expenses 304.70 308.82 511.97 762.32 902.00 1061.20

Total Expenses 570.62 838.77 1283.75 1903.11 2280.58 2701.23

EBITDA 161.02 148.28 216.25 335.52 411.96 514.52

Depreciation 30.80 41.12 44.49 47.16 54.42 67.93

Other Income 1.20 6.74 13.82 11.74 12.12 24.12

Extra Ordinery Items -26.45 0.00 10.05 -1.30 -21.05 16.08

EBIT 130.22 107.16 171.76 288.36 357.54 446.59

Interest Cost 2.74 3.78 7.32 13.99 24.31 24.56

PBT 128.68 110.12 178.26 286.11 345.35 446.15

Tax 16.91 15.49 43.67 76.55 96.70 122.69

PAT 111.77 94.63 134.59 209.56 248.65 323.46

Sales-USD -11.7% 45.7% 36.9% 33.8% 8.6% 20.2%

Sales-INR -7.8% 34.9% 52.0% 49.2% 20.3% 19.4%

EBITDA -12.2% -7.9% 45.8% 55.2% 22.8% 24.9%

PAT 169.6% -15.3% 42.2% 55.7% 18.7% 30.1%

EBITDA 22.0% 15.0% 14.4% 15.0% 15.3% 16.0%

EBIT 17.8% 10.9% 11.5% 12.9% 13.3% 13.9%

PAT 15.3% 9.6% 9.0% 9.4% 9.2% 10.1%

Employee Cost 36.3% 53.7% 51.5% 51.0% 51.2% 51.0%

Other Exp 41.6% 31.3% 34.1% 34.1% 33.5% 33.0%

Tax rate 13.1% 14.1% 24.5% 26.8% 28.0% 27.5%

CMP 115.00 168.05 122.90 99.0 160.0 160.0

No of Share 7.90 8.70 17.80 19.28 19.28 19.28

NW 387.11 603.19 712.55 1036.23 1269.09 1570.00

EPS 14.15 10.88 7.56 10.87 12.90 16.78

BVPS 49.00 69.33 40.03 53.75 65.82 81.43

RoE-% 28.9% 15.7% 18.9% 20.2% 19.6% 20.6%


P/BV 2.35 2.42 3.07 1.84 2.43 1.96

P/E 8.13 15.45 16.25 9.11 12.41 9.54

Valuation

Expenses on Sales-%

Margin -%

Growth-%

ACC Ltd.

1253

1257

1257

0%

0%

500410

19634

9817

6063

Holcim eyeing Jaypee Group's cement grinding plant in Panipat

1M 1yr YTD

Absolute -3.5 -22.3 -21.0

Rel. to Nifty -1.9 -24.4 -22.8

Cureent 3QCY13 2QCY13Promoters 50.3 50.3 50.3 JP Associates looks to exit JV with SAILFII 20.0 20.9 19.5

DII 12.9 11.9 11.7

Others 16.8 16.9 18.6

Management Quotes :

Financials : Q4CY13 Y-o-Y % Q-o-Q % Q4CY12 Q3CY13

Net Revenue 2792 -12.2 8.6 3180 2570

EBITDA 361 -9.3 26.2 398 286

Depriciation 153 -3.2 6.3 158 144

Interest Cost 12 -55.6 9.1 27 11

Tax -36 -190.0 -170.6 40 51

PAT 278 16.3 129.8 239 121(In Crs)

10

Market DataBSE Code

ACC

Source - Comapany/EastWind Research

According to Management the economic environment in the country was sluggish, thus

impacting the demand for cement and concrete. As a result, the company's cement

volumes remained almost flat. The company appears not enthusiastic for demand growth

going forward. Based on current demand indications, we do not foresee any significant

improvement in the cement.


Average Daily Volume (Nos.)

52wk Range H/L 1355/912

CMP

Upside


Result Update Book Profit Nearly we saw a upward rally in stocks due to the forecasting of a stable government

after election by the market players. The sentimental effect on market is on positive side

,hence the low valued stock like ACC took very less time like one month to come to its

near fare value, which we had estimated for a medium term target.

No doubt the stock's fundamentals are good and also available at a cheaper rate

comparing to its early trade . In the previous one month the stock performed well &

recover 20-22% from its estimated low of CY2013. We didn't expected this rise to be so

fast.The CMP was estimated for a medium term target price looking at its earnings and

fundamentals . How ever the target price got achieved few days back. we believe the

stock's fundamental is still good and price too cheap also , but for the earning

upgradation and revised target price we would like to see the 1st quarter earnings, hence

we recommend Book Profit on the stock at a price range between Rs.1253 to Rs.1310.

NSE Symbol

Target Price


Nifty


Stock Performance-%


1 yr Forward P/B

Holcim Cements has expressed interest in the grinding unit which has an annual capacity

of 1.5 million tonnes per annum and the talks are at a preliminary stage. Holcim wants to

expand its presence in North India through this strategic asset and will take a call if this

potential deal can be routed through ACC cements.ACC Cements has a cement plant

nearby in Himachal Pradesh and if JP's grinding unit is absorbed, it would be beneficial

logistically and even in terms of costs.

JP Associates,looking to sell its entire stake in its cement joint ventures with SAIL to cut

down its debt.The company is likely to part with its 74% stake in Bhilai and Bokaro

cement plants that together have an installed capacity of 4.3 mtpa. As per the story , the

company is eying around Rs. 2900 crore from the deal with cement major ACC.The deal

with ACC if it happens would imply enterprise value of USD 147 per MT as against USD

127 per MT it got for Gujarat plant sale.

"Book

Profit"18th March' 14


Outlook

Valuation And Recommendation

Company Description :

Margin Gap

Margin Gap

CY11 CY12 CY13 CY14E

10237 11358 11169 13027

191 263 219 219

10428 11621 11389 19723

2199 2384 2384 0

1940 2219 2299 0

8316 9162 9540 10942

1921 2197 1848 2084

510 569 584 639

97 115 52 50

215 391 132 323

1276 1050 1094 1292

17.7 18.8 13.8 15.3

11


Tax

PAT

ROE%

Power and fuel

Freight and forwarding

Expenditure

EBITDA

ACC Ltd.

P/L PERFORMANCE

Net Revenue from Operation

Other Income

Cement Sales Volume

Cement Realization

Cement Realization

Cement Realization

Per Ton Analysis

Per Ton Analysis

Cement Realization

ACC Limited (ACC) is engaged in manufacture of cement & ready mixed concrete. The

Company has grinding plants in Karnataka and clinkering line in Maharashtra. The

Company’s subsidiaries include ACC Mineral Resources Limited, Lucky Minmat Limited,

Bulk Cement Corporation (India) Limited, National Limestone Company Private Limited

and Encore Cement and Additives Private Limited. The Company is subsidiary of Ambuja

Cement India Private Limited.

Cement prices witnessed an increase during Oct-Nov,13 but also witnessed a sharp fall

during Dec,13 which has contributed towards lower average realizations for the year for

the company.Further,with a strong balance sheet with zero debt and better dividend

yield of 3%,we continue to remain positive despite near term challenges.We revise our

estimates downwards to factor in lower demand growth scenario. At current price of Rs

1253, stock is trading at 2.8x P/B and 2.8x P/B on CY14 estimates.Valuation looks good

for this company,but we would like to see the 1st quarter for earning upgrading hence

we recommend Book Profit on the stock at a price range between 1253 to 1310.

Company has made several capacity expansion plans in the region. ACC is replacing the

existing facilities at Jamul, Chhattisgarh with a clinker plant with an annual production

capacity of 2.8 MT and local grinding capacity of 1.1 MT of cement, while a new plant

with annual capacity of 2.7 MT is scheduled to be built in Kharagpur. The capacity

expansion plant will increase the company's total cement production capacity to 35 MT

from the existing 30 MT.On a QoQ basis, the EBITDA/tonne improved 10.4% due to an

improvement in realisations & comparatively lower increase in total expenditure/tonne,

it shows a positive view for the further quarters.onsidering the expansion plans we

expect 4% growth in sales volume and 10% growth in realization for CY14.

Interest Cost

Total Income

Depriciation


CY10 CY11 CY12 CY13

6281 6979 7372 7813

510 506 85 0

14 0 0 0

188 126 157 89

1581 816 661 642

1466 1051 1227 1081

11041 11921 11928 12101

77 48 39 40

5230 6359 5893 6040

1564 370 314 322

283 461 566 880

926 1113 1134 1122

249 266 303 397

1086 1660 681 506

162 279 325 340

11041 11921 11928 12101

CY10 CY11 CY12 CY13

3.2 3.1 3.6 2.7

57.4 68.7 73.8 57.6

3.0 2.6 2.7 3.6

19.1 8.0 5.8 5.7

19632 20180 26240 20296

18.7 16.5 19.4 19.2

12.7 10.5 11.9 12.5

2.8 2.5 2.1 2.7

14.6 15.2 16.3 12.3

0.1 0.1 0.0 0.0

1.0 1.3 1.4 1.4

Trading At :

12

Current Ratio

Dividend Yield%

ROCE%

Inventories

Long-term loans and advances

Capital work-in-progress

Trade payables

EV

Creditors to Turnover%

P/E

EV/EBIDTA

P/B

EPS

Debtor to Turnover%

Intangibles

Tangible assets

Debt/Equity

Long-term provisions

Cash and bank balances

ACC Ltd.

Total equity

Long-term borrowings

Short-term borrowings

B/S PERFORMANCE

Trade receivables

Short-term loans and advances

RATIOS

Total Assets

Short-term provisions

Total liabilities



1214

1287

1094

6

18

1M 1yr YTD

Absolute 23.7 7.4 7.4

Rel.to Nifty 15.3 -2.0 -2.0


3Promoters 66.7 64.1 64.1

FII 11.0 13.2 13.6

DII 15.4 15.3 15.6

Others 6.9 7.4 6.7

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 10739 10734 13866 17734 21111

Total Income 42252 18237 22212 27035 30413

PPP 10950 10386 13199 16762 18856

Net Profit 6093 6465 8325 10658 11955

EPS 52.9 56.0 72.2 92.3 103.6

13

ICICI BANK

Market Data

Upside

758

BSE Code 532174

NSE Symbol ICICIBANK

Company Update HOLD

140141

Asset quality continued to be concern, impairment asset were higher at QoQ,

Management remained cautious on asset quality

On asset quality front, bank saw some deterioration as impaired assets (GNPA +

Restructure Asset) to loan increased from 5.3% to 5.7% sequentially. According to

bank’s management it would remain at elevated level going forward. However bank

has lower exposure towards corporate segment where slippage risk is relatively high

in current scenario. Total loan in corporate debt restructure was to tune of 30

bn(0.9% of loan). However GNPA showed some strength sequentially and was

improved slightly to 3.07% from 3.10% while net NPA stood at 0.94% versus 0.85%

due to lower loan loss provision made. But provision coverage ratio remained at 70%

level, so nothing to worry about.

Target Price

In our earlier note dated 31st Jan.2014 in which we have given the price target

of Rs.1094 lower side of valuation band. Now the stock reached to the level of

Rs.1214 but still below of our upper side of valuation band. We value bank in

the range of Rs. 836 to Rs.1287 depending upon the fundamental and return

ratios. Since our result updated report, the stock has given the return of 24%,

now we advice our investor to hold the stock as bank has potential to reached

at upper side of valuation band.

CMP


Mkt Capital (Rs Cr)

Strong operating performance led by healthy balance sheet growth

ICICI Bank reported revenue growth of 23.5% YoY led by strong operating

performance and healthy non interest income. Strong growth in NII was led by

margin expansion on year on year basis which further led by strong growth in loan

and higher deposits base. Bank’s loan grew by 16% YoY supported by retail and

oversea loan while deposits grew by 11%. Credit deposits for the quarter was 102%

largely liquidity came from borrowing fund but strong base of CASA kept cost of fund

under control. Operating cost increased by 15.7% YoY but CI ratio remained under

control. Operating leverage increased sequentially due to higher expansion towards

branch expansion. Overall it remained in the range of 0.40% to 0.45%.


ICICI Bank Vs Nifty


3.58 lakh

Nifty



Stock Performance

52wk Range H/L


"HOLD"18th March 2014


14

ICICI BANK


Margin expansion led by stable NIM and healthy loan growth

ICICI bank NIM was stable at 3.32% sequentially led by stable NIM and retail loan.

Bank’s CASA was strong at 43%+ on which current account growth of 13.2% and saving

account growth of 17.5% ahead of private sector banks. Overall CASA reported 16%

YoY growth and in percentage to total deposits, it stood at 42.9% at the end of 3QFY14.

Bank’s loan grew by 16% YoY led by retail loan which grew by 22% YoY and share in

retail loan increased from 35% to 37% at the end of December quarter. Loan growth from

oversea branches was also supportive, registered growth of 24% YoY. Share of oversea

loan composition was 28% at the end of quarter, an increase of 200 bps YoY.

Growth of CASA trend


15

ICICI BANK


ICICI Bank NIM remain healthy

Healthy loan growth led by retail and oversea loan growth

Non Interest Income

ICICI Bank’s total income grew by 23.5% YoY was due to non interest income growth of

26.5% YoY in fee income registered growth of 12.8% YoY. Dividend and other income

growth was higher at 85% owing to higher dividend income from life insurance subsidiary

whereas treasury income grew by 78% YoY. Overall healthy growth in non interest

income was due to bank saw reversal of M2M provisions on bond and equity portfolio.

Composition of non interest income to total revenue

Source: Company/Eastwind

NIM was stable at sequnetial basis led by

strong loan growth and CASA base


Loan Composition (Rs Cr) 3QFY13 2QFY14 3QFY14 YoY Gr. QoQ Gr.

Domestic Corporate 98074 103598 104779 6.8 1.1

Retails Business 100081 115039 122076 22.0 6.1

Overseas Branches 73699 84531 91474 24.1 8.2

SME 14912 14618 14303 -4.1 -2.2

% of loan

Domestic Corporate 34.2 32.6 31.5

Retails Business 34.9 36.2 36.7

Overseas Branches 25.7 26.6 27.5

SME 5.2 4.6 4.3

Non Interest Income 3QFY13 2QFY14 3QFY14 YoY Gr. QoQ Gr.

Core fee income 17.71 19.94 19.97 12.8 0.2

Dividend & Other Income 1.93 2.51 3.57 85.0 42.2

Treasury Income 2.51 -0.79 4.47 78.1 -

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

NII 1991 2204 2312 2510 2411 2506 2712 3105 3193 3371 3499 3803 3820 4044 4256

Other Income 1681 1578 1749 1641 1643 1740 1892 2228 1880 2043 2215 2208 2484 2166 2801

Total Income 3672 3782 4061 4150 4054 4246 4604 5333 5073 5414 5714 6011 6305 6210 7057

% of Other Income to NII 84.4 71.6 75.6 65.4 68.1 69.4 69.8 71.8 58.9 60.6 63.3 58.1 65.0 53.6 65.8

16


ICICI BANK

Operating Expenses and Employee Cost


Total expenses increased by 15.7% YoY in which employee cost and other operating

cost were increased by 6% and 23% YoY respectively. Cost to income ratio was

remained flat at 37.1% sequentially while operating leverage (operating cost to total

asset) increased slightly from 0.41% to 0.46% but remained under control. This was due

to branch expansion.

Asset quality remain under pressure

Bank reported deterioration in asset quality (GNPA) in sequential basis by 3.7% in

absoluter term. In percentage to gross advance, GNPA stood at 3.07% versus 3.1% in

previous quarter (marginally improved).

Sequentailly cost to income ratio remained

satble. Management guided CI ratio would be

below of 40% in FY14.

Operating leverage remain ed stable but

sequentially up led by higher operating

expansion largely due to branch expansion

cost

Operating leverage increased sequentially but remained under control. The rise of

operating leverage was due to increased expansion towards branch expansion.


17

ICICI BANK



Provisions were declined by 0.6% QoQ taking net NPA increased by 15.3% QoQ. In

percentage to net advance, this ratio stood at 0.94% versus 0.85% in previous quarter.

Lower provisions made PCR to 70.1% versus 73.1% in previous quarter. Bank’s impair

asset (GNPA+ Restructure asset) were 5.7% of advance at the end of quarter from 5.3%

in previous quarter and 5% in last quarter. Bank management guided asset quality stress

would remain at elevated level. According to the company, corporate debt restructure

pipeline presently is Rs.30 bn which is 0.9% of loan.

Asset quality remained concern. Management

expects it to remained elevated level going

forward. Outstanding CDR at 0.9% of loan

Valuation & View

At the current price of Rs.1214, bank is trading at 1.8 times of FY14E book value. We

value bank in the range of Rs.836 to Rs.1287 depending upon fundamental and return

ratio. Our base case assumption was deposits growth of 12%, loan growth of 17% in

FY14 and margin at current level. Improvement and deterioration from base and bull case

would driven the price movement in either side. We advance our clients to hold the stock

as bank has potential to reach upper side of value band.

Valuation Band1 Yr forward P/BV 1 Yr forward P/E


18

ICICI BANK

Financials & Assuption




Quarterly Result 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 19098 22130 27341 31646 34992

Income on investments 9181 9684 11009 11785 13220

Interest on balances with Reserve Bank of India 469 491 543 184 184

Others 1334 1238 1182 946 946

Total Interest Income 30081 33543 40076 44561 49342

Others Income 31513 7503 8346 9302 9302

Total Income 61595 41045 48421 53863 58644

Interest on deposits 11315 14304 16889 18217 20402

Interest on RBI/Inter bank borrowings 1683 1469 2087 0 0

Others 6345 7035 7234 10146 11364

Interest Expended 19343 22808 26209 27812 28840

NII 10739 10734 13866 16749 20502

Other Income 31513 7503 8346 9302 9302

Total Income 42252 18237 22212 26051 29804

Employee 4393 3515 3893 4451 5096

Other Expenses 26910 4335 5120 5441 6229


PPP( Rs Cr) 10950 10386 13199 16159 18478

Provisions 4631 1583 1803 2592 2853

PBT 0 8803 11397 13567 15626

Tax 0 2338 3071 4071 4688

Net Profit 6093 6465 8325 9496 10938

Balance Sheet

DEPOSITS 259106 255500 292,614 321,875 360,500

Deposits Growth 7.3 -1.4 14.5 10.0 12.0

Borrowings 125839 140165 145,341 158,535 177,560

Borrowings Growth(%) 8.8 11.4 3.7 9.1 12.0

Investment 209653 159560 171,394 187,360 209,843

Growth(%) 12.5 -23.9 7.4 9.3 12.0

Advances 256019 253728 290,249 339,592 380,343

Growth(%) 13.4 -0.9 14.4 17.0 12.0

Eastwind CalculationYield on Advances 7.5 8.7 9.4 9.3 9.2

Yield on Investments 4.7 6.4 6.7 6.3 6.3

Cost of deposits 4.4 5.6 5.8 5.7 8.0

Cost of Borrowings 6.4 6.1 6.4 6.4 6.4

Cost of fund 5.0 5.8 6.0 0.0 5.9

ValuationBook Value 480 524 578 643 682

P/BV 2.3 1.7 1.5 1.6 1.5

P/E 5.5 7.3 9.4 9.2 10.6

AXIS BANK

1385

1340

1220

-3

10

1M 1yr YTD

Absolute 25.2 -1.9 -1.9

Rel.to Nifty 17.9 -11.1 -11.1

Promoters 33.9 33.9 33.9

FII 43.2 43.4 40.7

DII 9.7 4.9 8.8

Others 13.2 17.8 16.6

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 6566 8026 9666 12224 14775

Total Income 11238 13513 16217 19146 21697

PPP 6377 7413 9303 11206 12367

Net Profit 3340 4224 5179 5826 6934

EPS 81.4 102.2 110.7 124.2 148.2

19

Company Updated BOOK PART

PROFITCMP

In last one month, Axis Bank has outperformed Bank Nifty and CNX Nifty by

6% and 18% respectively and is now trading at more than 1.7 times of FY14E

book value which is above of our upper side of valuation band. We value bank

in the range of 1.5 to 1.7 times of book lower than its peers group largely due

to some exposure in stress sector specially in infra and power companies

where slippage risk are relatively high. We value bank in the range of Rs.1220

to Rs.1340 per share that implying book value multiple of 1.5 to 1.7 based on

current fundamental and return ratios. The rise of stock price is supported by

opinion poll result which suggests BJP led NDA would come in power. NDA

prime ministry candidate Narendra Modi is perceived by foreign investor as a

decisive and development making leader and would rescue economy. AXISBANK

Market Data

BSE Code


Axis Bank Vs Nifty


26.18 cr

532215

NSE Symbol

Axis bank’s low cost deposits CASA has grown faster than peers like ICICI bank

and is stable at 43% at the end of 3QFY14. Bank’s management expects it to reach

at 46% in FY15E which would help to keep cost of deposits under control and hence

margin expansion. In loan growth parameter, Axis bank expects loan growth higher

than industry growth by 2%. Incremental loan growth would come from SME and

retail sector while corporate loan book is expected to remain sluggish. Bank’s capital

adequacy ratio is close to 17% in which tier -1 capital of 12.5% much healthier than

peers indicating no need to raise money for long tenure in near term. ROA at pre

provisioning profit is at 3% indicating strong capability to delivered profit once asset

quality issue resolve.

Stress loan (GNPA+ Restructure asset) is remained at 3.7% of advances but it might

go up as bank has significant exposure in power (5.54%) and Infrastructure (7.33%)

where slippage risk is relatively high in present economy scenario. Provision

coverage ratio reported by bank is 78% with technical write off which would provides

some cushion on earnings. Axis bank still have 46% of loan exposure in large

corporate where profitability uncertain due to ongoing recession. Therefore on asset

quality front, bank would still have to face tough time as per our view.

We believe market sentiment in recent days are boosted up on the hope that BJP

led NDA would come to power after the general election and revive economy. The

domestic equity market is supported by opinion poll result which suggests BJP led

NDA coming to power after the forthcoming election. Over the last few months, the

estimated numbers of seat, the NDA may win has increased from 165-175 to 220-

230 seats. The prime ministerial candidate of NPA Narendra Modi is known for his

development in Gujarat. Domestic as well as foreign investors are in hope that Indian

economy would come at track and business opportunity would start again. Banking

stocks are rallied more than other sectors in hoping of reducing fresh NPA creation.

64823 Domestic equity market boost-up by economy revival sentiment

Key positive trigger

Key negative trigger


Stock Performance


Target Price


Upside

Nifty 6493

Mkt Capital (Rs Cr)

"BOOK PART PROFIT "

14th March, 2014


20

Quarterly Result

AXIS BANK

Source: Eastwind/Company



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

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

Income on investments 2110 2143 2014 4.8 -1.5 2235 5.9

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

Others 73 37 19 277.1 95.6 38 -47.4

Total Interest Income 7789 7609 6965 11.8 2.4 8056 3.4

Others Income 1644 1766 1615 1.8 -6.9 1774 7.9

Total Income 4628 4703 4110 12.6 -1.6 4780 3.3

Interest Expended 4805 4672 4470 7.5 2.8 5049 5.1

NII 2984 2937 2495 19.6 1.6 3006 0.8

Other Income 1644 1766 1615 1.8 -6.9 1774 7.9

Total Income 4628 4703 4110 12.6 -1.6 4780 3.3

Employee 655 644 615 6.5 1.7 0

Other Expenses 1358 1309 1134 19.8 3.8 0

Operating Expenses 2013 1953 1749 15.1 3.1 2008 -0.3

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

Provisions 202 687 387 -47.7 -70.5 752 271.4

PBT 2413 2062 1975 22.2 17.0 2020 -16.3

Tax 808 700 628 28.8 15.5 687 -15.0

Net Profit 1604 1362 1347 19.1 17.7 1333 -16.9

Balance Sheet Date

Net Worth 37649 36224 27027 39.3 3.9 37558 -0.2

Deposits 262398 255365 244501 7.3 2.8 272935 4.0

Loan 211467 201303 179504 17.8 5.0 214892 1.6

Asset qualtiy( Rs Cr)

GNPA 3008 2734 2275 32.2 10.0 -

NPA 1003 838 679 47.8 19.7 -

%GNPA 1.4 1.4 1.3 -

%NPA 0.5 0.4 0.4 -

21

AXIS BANK

FINANCIALS & ASSUPTION

Source: Eastwind/Company



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

Interest Expense 8589 13969 17516 18974 23716

NII 6566 8026 9666 12224 14775

Change (%) 31.2 22.2 20.4 26.5 20.9

Non Interest Income 4671 5487 6551 6922 6922

Total Income 11238 13513 16217 19146 21697

Change (%) 25.3 20.2 20.0 18.1 13.3


Pre Provision Profits 6377 7413 9303 11206 12367

Change (%) 22.4 16.2 25.5 20.5 10.4

Provisions 3033 3189 4124 2402 2461

PBT 3345 4224 5179 8804 9906

PAT 3340 4224 5179 5826 6934

Change (%) 34.8 26.5 22.6 12.5 19.0

Balance SheetDeposits( Rs Cr) 189166 219988 252614 290506 334081

Change (%) 34 16 15 15 15

of which CASA Dep 77758 91412 112100 124917 143655

Change (%) 18 18 23 11 15

Borrowings( Rs Cr) 26268 34072 43951 51266 58956

Investments( Rs Cr) 71788 92921 113738 129873 149354

Loans( Rs Cr) 142408 169760 196966 228481 265037

Change (%) 36 19 16 16 16

Valuation

Book Value 460 549 708 813 942

CMP 1404 1146 1304 1174 1174

P/BV 3.1 2.1 1.8 1.4 1.2

Infosys

Reasons behind the weak outlooks:

1M 1yr YTD

Absolute 4.5 30.4 53.1

Rel. to Nifty 0.8 21.6 49.4


Promoters 15.94 15.94 16.04

FII 40.65 39.93 39.55

DII 15.35 16.16 18.28

Others 28.06 27.97 26.13

Financials3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%

Revenue 13026 12965 0.47 10424 25.0

EBITDA 3258.9 2836.9 14.88 2677 21.7

PAT 2874.9 2406.9 19.44 2369 21.4

EBITDA Margin 25.0% 21.9% 310bps 25.7% (70bps)

PAT Margin 22.1% 18.6% 350bps 22.7% (60bps)

22

1 year forward P/E

Rs, Crore


Stock Performance

View and Valuation: Infosys seems to be on its way to rediscovering its past mojo with

revenue momentum kicking, and the NRN invisible hand in play. Further announcement of

strategic acquisitions, better utilization of cash balances, better deal win, consistent client

traction and revenue momentum would help the company to bridge the gap with rivals

such as TCS. At a CMP of Rs 3358, it trades at 16x FY15E earnings. We retain our “BUY”

view on the stock with a target price of target price of Rs 3760 (revised from 3910).

Impact on Estimates: We expect that the recent developments of Infosys could adversely

impact our sales guidance by 2-3% and earnings growth guidance by 3-4% for FY15E. We

downgrade our revenue growth guidance from 16.5% to 13.7%.

(3) Challenges with skill mis-matches: Infosys CEO anticipated order cancellation from

some of its clients because of its skill mis-match issue. Infosys has also seen some

challenges with skill mis-matches between client’s needs and what company could have

provided; this has led to slowdown in ramp-ups.

(1) Poor response from Retail and CPG verticals: In the retail segment (contributes 25%

of sales) a sluggish sales over the last 2 months, severe winter, and aggressive discounts

by retailers have led to lesser profitability. In addition, this has led to capping of additional

spending in CY14. Some retail clients have specific issues leading to categorization of

spends. We expect this is not specific for Infosys, it could be viral for the Industry growth.

(2) Portfolio related concern in Manufacturing: Recently, Manufacturing segment

(contributes 22% of sales) has adversely impacted by the reduced PC sales and capex

spending in networking and this will have an impact on revenue growth in this segment.

Revenue contribution from manufacturing segments stands larger than other peers.


52wk Range H/L 3847/2190


Nifty 6493

192799

1240448Average Daily Volume

"Recovery delayed, but not denied"

CMP 3358

Target Price 3760

Company update BUY A gloomy outlook by Infosys; however, the best is yet to come.

Addressing an Investor Con Call, Infosys management has expressed its cautious view on

earnings outlook as well as clients spending for near term. They indicated that FY14E

would be a year of lower earnings than NASSCOM guidance followed by FY13 and FY12.

The company’s knee jerk has not associated with single factor; these are partly company

specific and partly external factors. We expect, this adverse scenario would impact its

earnings growth for next couple of quarters.

■ Slowdown in client sentiment in 4QFY14E could be remain continue in the next couple

of the quarters of the next financial year. We expect that 1HFY15E could be a part of

worrisome.

Key facts from Investors Con Call

Previous Target Price 3910

Upside 12%

Change from Previous -4%

Market DataBSE Code 500209

NSE Symbol INFY

■ The company might only be able to meet the lower end of its annual revenue growth

guidance of 11.5-12% for FY14E, and they are expecting weakness in client spending

throughout the current quarter (4QFY14E).

"BUY"14th March' 14


23

Why the best is yet to come?

Recent weak guidance given by Infosys management is not an episode of close out. The

company is working on various strategies to rediscovering its past sparkle days with

revenue momentum kicking.

Already, company has initiated to work closely with clients and focused on building

relationship for deal intake. To maintain margin stability and increase productivity,

company is working efficiently on cost optimization initiative. However, the management

indicated that early signs of sales effectiveness initiative would start showing from

1HFY15E.

Infosys.


We believe that strong demand environment across the industry would offer Infosys

breathing space to tide over reorganization-related challenges. Its strategies on sales

effectiveness and cost optimization initiative could turn the growth story as before.

Now, we are waiting for next earning outlook and guidance by management for FY15E.

Financials



Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales, INR 22742 27501 33734 40352 50217.7 57222.3

Employee Cost 12085 14856 18340 22565 28373.0 32330.6

Other expenses 2792 3677 4671 6254 8034.8 9441.7

Total Expenses 14877 18533 23011 28819 36407.8 41772.3

EBITDA 7865 8968 10723 11533 13809.9 15450.0

Depreciation 905 854 928 1099 1367.7 1558.5

Other Income 982 1211 1904 2365 2566.1 2861.1

EBIT 7942 9325 11699 12799 15008.3 16752.7

Interest Cost 0 0 0 0 0.0 0.0

PBT 7942 9325 11699 12799 15008.3 16752.7

Tax 1681 2490 3367 3370 4202.3 4690.7

PAT 6261 6835 8332 9429 10806.0 12061.9

Growth-%

Sales 4.8% 20.9% 22.7% 19.6% 24.4% 13.9%

EBITDA 9.3% 14.0% 19.6% 7.6% 19.7% 11.9%

PAT 4.6% 9.2% 21.9% 13.2% 14.6% 11.6%

Margin -%

EBITDA 34.6% 32.6% 31.8% 28.6% 27.5% 27.0%

EBIT 34.9% 33.9% 34.7% 31.7% 29.9% 29.3%

PAT 27.5% 24.9% 24.7% 23.4% 21.5% 21.1%

Expenses on Sales-%

Employee Cost 53.1% 54.0% 54.4% 55.9% 56.5% 56.5%

Other expenses 12.3% 13.4% 13.8% 15.5% 16.0% 16.5%

Tax rate 21.2% 26.7% 28.8% 26.3% 28.0% 28.0%

Valuation

CMP 2615.1 2765.1 2865.0 2400.0 3358.0 3358.0

No of Share 57.4 57.4 57.4 57.4 57.4 57.4

NW 23049.0 25976.0 31332.0 37994.0 45642.7 54345.7

EPS 109.1 119.0 145.1 164.2 188.2 210.1

BVPS 401.7 452.4 545.6 661.7 794.9 946.5

RoE-% 27.2% 26.3% 26.6% 24.8% 23.7% 22.2%


P/BV 6.5 6.1 5.3 3.6 4.2 3.5

P/E 24.0 23.2 19.7 14.6 17.8 16.0

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Date post:	12-Jan-2015
Category:	Economy & Finance
Upload:	narnolia-securities-limited
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