best performing stock to buy today - reliance and emami ltd

RELIANCE : "BUY" 22th Jan 2014

The company for 3QFY14 reported turnover of Rs 103521 Cr up by 10.5% YoY. Refining revenues during the quarter increased to Rs 95432 Cr

up 10.1%YoY however it has witness sequential decline on account lower crude throughput of 17mmt due to maintenance turnaround. The

Capacity utilization stood at 110%.. .................................................. ( Page :2-3)

Emami Ltd : "BUY" 22th Jan 2014

Witnessed below sales numbers and beats on profitability and Margin expansion;Emami Ltd reported 6.6% (YoY) sales growth, Adversely

impacted by unfavorable season and moderation in the growth of FMCG sector. Overall volume grew by 6%. We retain “Buy” view on the stock

with a target price of Rs 635. At a CMP of Rs 448 , the stock is trading at P/BV of 7.3x on FY15E, respectively.

................................................................................... ( Page : 9-11)

KOTAK BANK "NEUTRAL" 22th Jan 2014

At the current price of Rs.708, bank is trading at 4.5 times of one year forward book and 37.5 times of one year forward earnings which

premium over its peers under our coverage. Bank reported slightly deterioration in asset quality and negative earnings due to muted operating

and financials metrics. We lower our target price to Rs.714 from earlier of Rs.782. We have neutral view on the stock.

...................................................................... ( Page : 4- 8)

Hindustan Zinc LTD : Good gains ahead "BUY" 21th Jan 2014

Hindustan Zinc’s (HZL) Q3FY14 performance was inline to our estimates on the back of healthy zinc sales volumes and higher metal premiums.

Total operating income for Q3FY14 stood at Rs. 3450.1 crore higher by 8.6% YoY but lower by 3.1% QoQ. Total zinc sales in Q3FY14 came in at

196,000 tonne, up 17% YoY and 2% QoQ . Being an integrated & dominant player in the domestic industry with low cost of production, the

company is poised to benefit in the long run. We reaffirm our positive stance on HZL and assign a BUY rating to the stock with a target price of

Rs. 148/-. .................................................. ( Page : 12- 14)

20th Jan 2014

TCS witnessed inline set of numbers with 1.5%(QoQ)of consolidated sales growth led by 1.8% volume growth.We continue to believe that TCS

will be star performer in growth sense than other peers. Hence, we are maintaining 18% revenue growth in dollar term for FY14E because of

improved demand environment, while NASSCOM expects 12-14% for the Industry.We maintain" BUY" view on the stock and we revised our

target price from Rs 2360 to Rs 2510. ...................................... ( Page : 15-17)

HDFC Bank

22th Jan, 2014

Edition : 189

IEA-Equity

Strategy

FEDERAL BANK : "BUY" 20th Jan 2014

Federal bank’s profitability grew by 9.2% YoY on the back of lower provisions led by improving asset quality and comfortable high provision

coverage ratio. But bank’s operating and financials metrics remained muted, this has resulted of negative growth at operating profit level. We

slightly tweak our book value estimate to Rs.82.2 from earlier of Rs.78. We value bank at Rs.98/share which is 1.2 times of FY14E’s book value

and 8.5 times of forward earnings........................................... ( Page : 23-27)

"BUY" 20th Jan 2014

HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters growth trajectory that it had witnessed but remain very impressive in

challenging macro environment. Bank is well poised in most of operating parameters like CASA ratio of 45%+, higher than industry credit

growth, best asset quality among peers, better utilization of cash in form of higher CAR ratio for further growth, consistent delivered margin

above of 4%. We continue to believe bank would enjoy valuation premium. We value bank at Rs.760/share which is 4 times of one year FY14E’s

book value ...................................... ( Page : 18-22)

TCS :" Strong Fundamentals" "BUY"

Narnolia Securities Ltd,

India Equity AnalyticsDaliy Fundamental Report on Indian Equities

BUY

1M 1yr YTD

Absolute -3 -4 9

Rel. to Nifty -4 -8 -7

Current 2QFY14 1QFY1

4Promoters 45.3 45.3 45.3

FII 18.3 17.7 17.4

DII 11.5 11.8 11.6

Others 25.0 25.2 25.7

Rs, Crore

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

Revenue 103521 103758 (0.2) 93886 10.3

EBITDA 7622 9909 (23.1) 8373 -9.0

PAT 5511 5490 0.4 5502 0.2

EBITDA Margin 7.4% 9.6% (220bps) 8.9% (160bps)

PAT Margin 5.3% 5.3% (10bps) 5.9% (50bps)

2

Shale gas: RIL has incurred a cumulative investment of USD6.8bn till date across its three

shale gas JVs in the US. RIL’s share of revenue and EBITDA from the shale gas JVs during

3QFY14 amounted to USD221.3 Mn up 29% YoY and USD174 Mn,respectively.The Shale

Business during 9MFY14 registered turnover USD 627Mn up 47% YoY and EBITDA for the

period stand was USD 462Mn up 40% YoY.

Retail business: Revenues grew to Rs3927Cr in the third quarter compared to Rs 2839 Cr

for the same period last fiscal translating growth of 38% YoY. The Retail business reported

an EBITDA of Rs1bn during the quarter. The company added 27 new stores in 3QFY14,

taking the total number of stores to 1,577.

The company’s outstanding cash on the standalone balance sheet as at end-3QFY14 was

at USD14.4bn and outstanding debt was at USD13.2bn

View and Valuation:

Result Update

CMP 862

Result Highlights :

The stock is trading at Rs 862 and in light of 3QFY14 performance, business outlook and

management commentary we maintain our previous recommendation BUY for the stock

with Target Price Rs 1040.

Better-than-expected performance of the refining segment.

Higher Other Income.

Company’s Q3FY14 EBITDA witnessed a sequential decline of 2.9% to Rs 7622 Cr mainly

on account of fall in petrochemical margin and lower crude throughput at RIL’s refineries.

Petrochemical EBIT for the quarter decreased by 15.2% sequentially to Rs2124 Cr due to

lower volumes in polymers and polyester segments. The refining EBIT for the 3QFY14

came at Rs 3141 Cr down by 13 % YoY while Oil and gas EBIT came at Rs 540 Cr.

RIL’s GRM at US$7.6/bbl was relatively superior to Singapore-Dubai GRM (which has

weakened to US$4.3/bbl in 3QFY14 vs US$5.4/bbl in 2QFY14 and US$6.6/bbl in 3QFY13)

due to the strength in gasoil cracks and the widening light-heavy crude spread.

Other Highlights:

BSE Code 500325

Target Price 1040

Previous Target Price -

21%

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

RELIANCEGood Growth Ahead

Stock Performance-%

Share Holding Pattern-%

Mkt Capital (Rs, Cr)

Market Data

The company for 3QFY14 reported turnover of Rs 103521 Cr up by 10.5% YoY. Refining

revenues during the quarter increased to Rs95432 Cr up 10.1%YoY however it has witness

sequential decline on account lower crude throughput of 17mmt due to maintenance

turnaround. The Capacity utilization stood at 110%.The Petrochemical revenues for the

quarter increased by 14.6% YoY to Rs25280 Cr driven by higher prices during the quarter.

The Oil and Gas segment revenue witnessed a fall of 9.8% YoY to Rs1733 Cr on account of

falling gas production from KG- D6.

1 Yr Price Movement Vs Nifty

(Source: Company/Eastwind)

279218

Average Daily Volume 52019

Nifty 6313

Upside

Financials

Change from Previous -

52wk Range H/L 954/765

NSE Symbol RELIANCE

"BUY"22th Jan' 14


3


RELIANCE

Sales Trend (Rs/Bn)

Sales was flat on sequential basis.

EBITDA & OPM %


PAT & NPM %



Yearly decline in EBITDA reflects lower

refining margin and lower crude throughput

Growth in PAT due to strong financial

performance of the refining segment and

higher-thanexpected other income


KOTAK BANK

702

714

782

2

-9

1M 1yr YTD

Absolute -3.6 12.4 12.4

Rel.to Nifty -4.1 7.8 7.8


3Promoters 43.7 43.7 43.8

FII 31.8 31.1 31.2

DII 1.7 2.3 2.2

Others 22.9 22.9 22.9

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 2098 2512 3206 3682 3762

Total Income 781 977 1161 1412 1412

PPP 1325 1655 2157 2585 2536

Net Profit 818 1085 1361 1450 1601

EPS 11.1 14.6 17.7 18.9 20.8

4

Operating expenses increased by 13.1% to Rs.628 cr from Rs.555 cr in last year

same quarter in which employee cost decreased by 5% YoY while other operating

cost increased by 33% YoY. Operating profit reported growth of 2.1% YoY to Rs.585

cr largely due to lower other income. Cost income increased to 51.8% in 3QFY14

versus 49.2% in 3QFY13 and 50.3% in 2QFY14.

Sequentially asset quality deteriorated

In 3QFY14, bank’s asset quality deteriorated by 7% on sequential basis in absolute

term while as a percentage to gross advance, it stood at 2% (slightly deteriorated by

4 bps). During quarter bank had made provisions of Rs.70 cr versus Rs.72 cr in

previous year in which loan loss provisions were Rs. 25.44 cr and investment

provisions to the tune of Rs. 43.3cr. As the result, net NPA increased by 20% QoQ

while as a percentage to net advance, this ratio stood at 1.1% versus 1% in previous

quarter. Provisions coverage ratio (without technical write off) declined by 590 bps on

sequential basis to 45.7%.

Market Data

Upside

804/588

BSE Code 500247

NSE Symbol KOTAKBANK

52wk Range H/L

Result update NEUTRAL

CMP

Target Price

At the current price of Rs.708, bank is trading at 4.5 times of one year forward

book and 37.5 times of one year forward earnings which premium over its

peers under our coverage. Bank reported slightly deterioration in asset quality

and negative earnings due to muted operating and financials metrics. We

lower our target price to Rs.714 from earlier of Rs.782. We have neutral view

on the stock.

Previous Target Price

Mkt Capital (Rs Cr)



Stock Performance

Average Daily Volume

54341

Kotak Mahindra Bank reported moderate growth in core banking business with NII

grew by 10.9% YoY to Rs.913 cr. Muted revenue growth was driven by lower loan

growth, flat to negative non interest income, declined credit deposits ratio and NIM

compression. Non- interest income reported flat to negative numbers to Rs.300 cr

from Rs.305 cr in 3QFY13. Fee income registered growth of 6% YoY to Rs.226 cr

from Rs.213 cr in corresponding quarter last year and treasury income reported

128% YoY growth to Rs.144 cr versus Rs.63 cr in 3QFY13.

Cost Income ratio increased led flat growth in operating profit

Muted revenue growth driven moderate NII growth negative non Interest

Income

Change from Previous

KOTAK Bank Vs Nifty


1.12 lakhs

Nifty 6314

"NEUTRAL"22th Jan, 2014


5

KOTAK BANK

Kotak bank reported net profit de-growth of 6% YoY to Rs.340 cr largely due to lower

loan growth, declined in credit deposits ratio, moderate NII growth , lower other income

along with higher cost income ratio. Consequently ROA declined to 1.6% from 1.8% in

3QFY14 and ROE declined to 11.4% from 16.1%. On consolidated level, bank’s profit

grew by 2.4% YoY to Rs.591.25 cr. Consolidated profit come from Kotak Mahindra Prime,

Kotak Securities, Kotak Mahindra Capital, Kotak Mahindra Old Mutual Life Insurance and

other businesses.

Loan & deposits growth muted on YoY basis, saving deposits grew on the back of

lucrative interest rate

Loan increased by 5.8% YoY to Rs.53149 cr from Rs.50245 cr in corresponding quarter

last year led by retail and corporate loan growth of 6% and 5% respectively. Deposits

grew by 6% YoY led by saving deposits growth of 37.6% YoY largely due to bank’s

lucrative interest rate on saving deposits. Demand deposits and term deposits registered

growth of 6.1% and 0.6% respectively. CASA ratio, in absolute term grew by 22% YoY

while in percentage to total deposits, it stood at 29.7% versus 25.9% in last quarter.


Profit declined due to lower NII Growth, flat to negative other income growth along

with muted performance in operating and financials metrics

Valuation Band

Valuation &view

At the current price of Rs.708, bank is trading at 4.5 times of one year forward book and

37.5 times of one year forward earnings which premium over its peers under our

coverage. Bank reported slightly deterioration in asset quality and negative earnings due

to muted operating and financials metrics. We lower our target price to Rs.714 from

earlier of Rs.782. We have neutral view on the stock.


6

KOTAK BANK


Fundamental through graph

Muted growth in NII was on account of

moderate growth in operating as well as

financials metrics

Lower non interest income and higher

operating cost led operating growth of 2.1%

YoY

Profit declined by 6% YoY due to lower NII

growth, flat non interest income, higher

operating cost and higher provsions on yealry

basis.


7

KOTAK BANK

Source: Eastwind/ Company


Quarterly Performance


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

Interest/discount on advances / bills 1702 1644 1597 6.5 3.5

Income on investments 484 510 492 -1.6 -5.0

Interest on balances with Reserve Bank of India 6 7 5 21.3 -11.7

Others 0 11 0 82.6 -96.3

Total Interest Income 2192 2172 2095 4.7 0.9

Others Income 300 297 305 -1.7 0.9

Total Income 2492 2469 2399 3.9 0.9

Interest Expended 1280 1248 1272 0.6 2.5

NII 913 924 823 10.9 -1.2

Other Income 300 297 305 -1.7 0.9

Total Income 1212 1221 1128 7.5 -0.7

Employee 277 265 292 -4.9 4.8

Other Expenses 350 350 264 32.9 0.1

Operating Expenses 628 615 555 13.1 2.1

PPP( Rs Cr) 585 607 573 2.1 -3.6

Provisions 70 72 42 64.6 -3.5

PBT 515 534 530 -2.9 -3.6

Tax 175 182 169 3.8 -3.7

Net Profit 340 353 362 -6.0 -3.6

Balalce Sheet( Rs Cr)

Net Worth 11896 11569 8992 32.3 2.8

Deposits 54671 52642 51524 6.1 3.9

Borrowings 13673 14523 18566 -26.4 -5.9

Total Liabilities 84297 82185 82428 2.3 2.6

Investment 23615 22528 26587 -11.2 4.8

Advances 53149 50609 50245 5.8 5.0

Total Assets 84297 82185 82428 2.3 2.6

Asset Quality

GNPA 1076.2 1005.9 740.0

NPA 584.5 486.9 322.7

GNPA 2.02 1.99 1.47

NPA 1.10 0.96 0.64

PCR(w/o technical write-off) 46 52 56

8

Financials & Assumption

KOTAK BANK




Rs Cr 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 3214 4867 6146 6751 8141

Income on investments 957 1306 1870 2079 2006

Interest on balances with Reserve Bank of India 17 4 24 27 7

Others 1 2 2 20 20

Total Interest Income 4190 6180 8042 8877 10173

Others Income 781 977 1161 1412 1412

Total Income 4970 7158 9203 10290 11586

Interest on deposits 1498 2504 3346 3926 4515

Interest on RBI/Inter bank borrowings 349 775 1055 0 0

Others 246 389 435 1071 2583

Interest Expended 2092 3668 4837 5195 6411

NII 2098 2512 3206 3682 3762

Other Income 781 977 1161 1412 1412

Total Income 2878 3490 4366 5095 5175

Employee 784 902 1075 1129 1188

Other Expenses 769 932 1135 1380 1451

Operating Expenses 1553 1835 2210 2509 2639

PPP( Rs Cr) 1325 1655 2157 2585 2536

Provisions 507 570 796 389 249

Net Profit 818 1085 1361 1450 1601

Deposits 29261 38537 51029 58683 67486

Deposits Growth(%) 22.5 31.7 32.4 15.0 15.0

Borrowings 11724 16596 20411 14671 35387

Borrowings Growth(%) 90.9 41.6 23.0 -28.1 141.2

Loan 29329 39079 48469 55739 64100

Loan Growth(%) 41.2 33.2 24.0 15.0 15.0

Investment 17121 21567 28873 25718 30862

Investment Growth(%) 36.8 26.0 33.9 -10.9 20.0

Eastwind CalculationYield on Advances 11.0 12.5 12.7 12.7 12.7

Yield on Investments 5.6 6.1 6.5 8.1 6.5

Yield on Funds 8.6 9.8 9.9 4.5 4.0

Cost of deposits 5.1 6.5 6.6 6.7 9.5

Cost of Borrowings 5.1 7.0 7.3 7.3 7.3

Cost of fund 5.1 6.7 6.8 7.1 6.2

ValuationBook Value 93 108 123 159 179

P/BV 4.9 5.0 5.3 4.5 4.0

P/E 41.2 37.0 36.9 37.5 34.0

Emami Ltd

BUY

1M 1yr YTD

Absolute -3.3 15.2 15.3

Rel. to Nifty -3.9 11.1 10.8


Promoters 72.74 72.74 72.74

FII 16.69 16.68 15.46

DII 2.02 2.18 3.27

Others 8.55 8.4 8.53

Financials Rs, Cr

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

Revenue 584.7 406.7 43.8% 548.65 6.6%

EBITDA 176.8 87.4 102.3% 136.9 29.1%

PAT 150.7 80 88.4% 114.9 31.2%

EBITDA Margin 30.2% 21.5% 870bps 25.0% 520bps

PAT Margin 25.8% 19.7% 610bps 20.9% 490bps

9

We expect revenue growth could be seen better in 4QFY14 as the weather related

headwinds for cooling oils is behind us and pricing on balms stabilize.

As the company has already forward contracted menthol for the year, menthol prices

continue to trend lower and price hikes for the year have been taken place. Margin

expansion visibility remains high going forward.

"The niche advantage."

Results updateCMP 448

Target Price 635

For 3QFY14, Emami Ltd reported 6.6% (YoY) sales growth, Adversely impacted by

unfavorable season and moderation in the growth of FMCG sector. Overall volume

grew by 6%. International Business has performed well with 37% sales growth led by

aggressive growth in GCC and SAARC. PAT up by 31%(YoY) due to judicious mix of

benign RM cost and price hike on some selective brands. its market share increased

across all brands during the quarter.

Witnessed below sales numbers and beats on profitability and Margin expansion;

Previous Target Price 500

Upside 42%

Change from Previous 27%

BSE Code 531162

NSE Symbol EMAMI

Market Data

52wk Range H/L 539/368

Mkt Capital (Rs Crores) 10275


Nifty 6314


Stock Performance

Margin Picked up: The OPM has increased by 520 bps to 30.2 % due to fall in RM cost by

60 bps to 28.1%, purchases of finished goods by 400bps to 4.6% and ASP cost by 160 bps

to 15% of adjusted net sales. The mgmt said that the prices are likely to remain stable

for the remainder of the fiscal year. The company has covered the Menthol prices for

the whole year.

View and Valuation: Considering Emami’s focus on increasing rural penetration,

effective cost management, continuous strengthening of its brand equity and new

product funnel strongly in next 2- 3 years. The company's efforts are continue to

strengthen its market share in most of the categories it is present, we are positive on

the stock. We retain “Buy” view on the stock with a target price of Rs 635. At a CMP of

Rs 448 , the stock is trading at P/BV of 7.3x on FY15E, respectively.

Volume and Value growth: The volume of Navratna oil grew by 1%, Fair and Handsome

was 2% and Balm volume grew by 4%. While, Boroplus volume decline by 4% on YoY

basis impacted by unfavourable winter season. The value growth for , Fair and

Handsome was 12%, Navratna oil was 6% while Balm was at 3%. While, Boroplus

decline by 3% on YoY basis.

Distribution Reach: Although rural continues to grow ahead of urban markets, the

growth for Emami from rural area was at 13% and urban growth was flat on YoY basis.

The company, which gets majority of its rural revenues from Uttar Pradesh, Bihar and

West Bengal, is looking beyond these markets for its future growth. The company's

direct outlet reach is 6 lakh. The company has added 20000 outlets in Q2 and expects to

add 75000 – 100000 in FY14E. 1 yr Forward P/B



Product expansion: The company has launched Boroplus face-wash last month and

there will be new launches in Q4 also. The mgmt said that for next 2 – 3 years it has

strong pipeline of products to be launch.

"BUY"22nd Jan' 14


10

Expenses on Sales

Management is focussed to reduce its Ad

revenue as before.





Ad spends: The ad spends in 3QFY14 have declined by 360bps YoY to 15% as a percentage

of sales. The ad spends, as a percentage of sales, are expected to be in the range of 17-

18% in 4QFY14 and FY15.

Tax: The effective tax rate was flat at 17% on YoY basis.and Company expects to see

samr range of tax rate for FY15E

The OPM has increased by 520 bps to 30.2 %

due to fall in RM cost by 60 bps to 28.1%,

Margin-%


Emami Ltd

Sales and Sales Growth(%)

Sales for3QFY14E increased by 6.6%(YoY).

Overall volume grew by 5%. However, the

company continues to successfully

strengthen its market share in most of the

categories it is present.


11

▪ Emami has a good cash balance of Rs5bn which it expects to utilize for acquisition.



Financials

▪ The company has already taken price hikes and no further hikes are expected in FY14E.

Total annualized price hike for FY14 is 4% YoY.

Emami Ltd

Key facts from Conference Call (Attended on 21st Jan 2013)

▪ The management expects sales growth of 15%, consolidated with 3.4% growth from

new launches and 12% from existing brands while PAT guidance also continues to stand at

15% aided by strong gross margin expansion on the back of lower Mentha Oil prices.

▪ The mgmt has guided for a capex of Rs 70 – 75 crore each during FY14 and FY15. ASP for

FY14 will be 16% - 17%. And 18% for FY15%.

▪ The management expects 25% growth from International business considering political

uncertianty in Bangladesh for FY15E.


Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales 1037.98 1247.08 1453.51 1699.09 1886.97 2177.55

Raw Materials Cost 380.53 346.76 415.12 539.83 566.09 675.04

Purchases of stock-in-trade 0 204.9 189.13 182.14 141.52 174.20

WIP 0 -28.48 22.17 -6.52 22.64 21.78

Employee Cost 57.91 72.87 92.31 115.55 141.52 174.20

Advertisement and Publicity 194.42 219.41 228.99 279 311.35 348.41

Other expenses 158.66 178.17 209.02 241.82 283.05 332.08

Total expenses 791.52 993.63 1156.74 1351.82 1466.18 1725.71

EBITDA 246.46 253.45 296.77 347.27 420.79 451.84

Depreciation and Amortisation 117.52 116.09 120.89 124 103.61 119.57

Other Income 7 33.1 54.12 56 56.61 65.33

Exceptional Items 89.97 113.9 84.15 96 94.35 119.77

EBIT 128.94 137.36 175.88 223.2 317.18 332.28

Interest 20.98 15.23 15.21 6.6 6.86 5.14

PBT 204.93 269.13 298.94 368.69 461.28 512.22

Tax Exp 35.21 40.41 40.12 54 76.11 87.08

PAT 169.72 228.72 258.82 314.68 385.17 425.15

Growth-% (YoY)

Sales 35.5% 20.1% 16.6% 16.9% 11.1% 15.4%

EBITDA 91.0% 2.8% 17.1% 17.0% 21.2% 7.4%

PAT 85.0% 34.8% 13.2% 21.6% 22.4% 10.4%

Expenses on Sales-%

RM Cost 36.7% 27.8% 28.6% 31.8% 30.0% 31.0%

Ad Spend 18.7% 17.6% 15.8% 16.4% 16.5% 16.0%

Employee Cost 5.6% 5.8% 6.4% 6.8% 7.5% 8.0%

Other expenses 15.3% 14.3% 14.4% 14.2% 15.0% 15.3%

Tax rate 17.2% 15.0% 13.4% 14.6% 16.5% 17.0%

Margin-%

EBITDA 23.7% 20.3% 20.4% 20.4% 22.3% 20.8%

EBIT 12.4% 11.0% 12.1% 13.1% 16.8% 15.3%

PAT 16.4% 18.3% 17.8% 18.5% 20.4% 19.5%

Valuation:

CMP 197.70 249.40 260.80 397.40 448.00 448.00

No of Share 15.13 15.13 15.13 15.13 22.70 22.70

NW 625.42 689.85 706.63 777.47 1069.71 1388.64

EPS 11.22 15.12 17.11 20.80 16.97 18.73

BVPS 41.34 45.59 46.70 51.39 47.13 61.18

RoE-% 27.1% 33.2% 36.6% 40.5% 36.0% 30.6%

Dividend payout-% 23.4% 23.2% 23.8% 44.6% 24.1% 25.0%

P/BV 4.78 5.47 5.58 7.73 9.51 7.32

P/E 17.62 16.50 15.25 19.11 26.40 23.92

Hindustan Zinc LTD.

135

148

143

10%

3%

500188

56133 Q3FY14 Performance :5613

6291

1M 1yr YTD

Absolute 4.3 -1.7 -3.4

Rel. to Nifty 0.0 9.2 11.3

3QFY14 2QFY14 1QFY14

Promoters 64.9 64.9 64.9

FII 1.8 1.8 1.5

DII 31.4 31.4 31.5

Others 1.8 1.8 2.1

Investment Concern

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

Net Revenue 3450 8.6 -9.8 3178 3826

EBITDA 1824 22.1 -3.1 1494 1883

Depriciation 210 18.6 12.9 177 186

Tax 305 50.2 20.1 203 254

PAT 1723 6.8 5.1 1613 1640(In Crs)

12

Target Price

BUY

Market Data

Average Daily Volume (Nos.)

BSE Code

HINDZINCNSE Symbol

52wk Range H/L

Mkt Capital (Rs Crores)

143/94

Upside


Result Update


CMP

Disruptions in mining due to equipment failures, unexpected maintenance problems ,

non-availability of raw materials of appropriate price, quantity and quality for our energy

requirements, disruptions to or increased cost of transport services or strikes and

industrial actions or disputes.Lower than expected demand by galvanizing industries for

zinc and industrial batteries, car batteries industries for lead would affect the company

estimates.


Stock Performance-%


1 yr Forward P/B

Source - Comapany/EastWind Research

Hindustan Zinc’s (HZL) Q3FY14 performance was inline to our estimates on the back of

healthy zinc sales volumes and higher metal premiums. Total operating income for

Q3FY14 stood at Rs. 3450.1 crore higher by 8.6% YoY but lower by 3.1% QoQ. Total zinc

sales in Q3FY14 came in at 196,000 tonne, up 17% YoY and 2% QoQ . The company

realised premium on metal sales amounting to ~US$241/tonne for zinc (Zn) &

~US$305/tonne for lead (Pb) . Lead sales volume for the quarter stood at 23500 tonnes

(lower by 24% QoQ and 22% YoY), while silver sales volumes stood at 78500 kg (lower by

31% YoY and 14% QoQ) . EBITDA came in at Rs.1823.8 crore and inline to our estimate of

Rs. 1829.6 crore. Subsequently, net profit stood at Rs. 1722.7 crore . Being an integrated

& dominant player in the domestic industry with low cost of production, the company is

poised to benefit in the long run. We reaffirm our positive stance on HZL and assign a

BUY rating to the stock with a target price of Rs. 148/-.

Nifty

Good gains ahead

The attorney-general’s clearance for the Centre’s proposal to divest its residual stake in

Hindustan Zinc Ltd (HZL) lifted the Street’s mood. As the government holds 29.5 per cent

(minority) stake in HZL, the attorney-general said HZL was no longer a public sector

company. With the majority 64.92 per cent stake with Vedanta, the group will be eyeing

the government’s stake as well as the remaining 5.58 per cent owned by others.

HZL’s revenues are directly linked with the global market for products essentially, Zinc

and Lead which are priced with reference to LME prices and Silver to LBMA (London

Bullion Metal Association) prices.

A reason to wait and watch , is since the government is looking at auction, how much will

Vedanta be able to garner and what price it is willing to pay is not known. In the past it

has said it wanted majority control when Vedanta had earlier offered Rs 149 a share (13.7

per cent more than the current price). If this is any benchmark, investors stand to gain.

"BUY"21st Jan' 14


0

50

100

150

200

250

300

350

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450

Jan-

07

Jul-0

7

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Jul-1

1

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12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Lower Production Guideline LME Price/Ton

From the Management Corner :

Outlook and valuation: LME Price/Ton

LME Price/Ton

FY11 FY12 FY13 FY14E

9912 11405 12700 13577

979 1543 2032 1787

10891 12948 14732 15364

1023 1228 1070 1291

492 568 696 707

4417 5336 6218 6484

5496 6069 6482 7093

475 611 647 718

19 14 29 37

1059 1419 921 1097

4900 5526 6899 6967

22.0 21.0 21.0 19.0

13

Volatile Desel Price and high Sulphuric acid price affecting the company,s PAT

adversly.Company is tracking on 95% capacity utilization.Captive plants enjoy the lower

Tax rate and company enjoys zero tax from tax free geographycal areas. Smelting Plants

are improvised and management is confident that the smelting plants will maintain

their stance for the coming quarters also.

Power, fuel & water

Repairs

PAT

ROE%

Hindustan Zinc LTD.

P/L PERFORMANCE

Net Revenue from Operation

Other Income

Total Income

Expenditure

EBITDA

Interest Cost

Net tax expense / (benefit)

Depriciation

HZL has marginally downward revised its mined metal production guidance for FY14

from 950,000 tonnes earlier to 900,000 tonnes. This reflects slower-than-expected

ramp up of underground mining projects and some changes in mining sequence

wherein preference has been given to primary mine development during this period.

With a cash-rich balance sheet and strong visibility over production growth of zinc, lead

and silver over FY2013-15, we are positive on HZL.The Rampura Agucha underground

mine project is operational via ramps (tunnel driven downward from the surface) and

commercial production already ramp up in Q3 and will in Q4 of FY14 . The Kayad mine

project will also commence commercial production in the current fiscal year. A cash-rich

balance sheet, low cost of production and inexpensive valuations make HZL an

attractive bet at the current price levels.HZL’s integrated business model ensures steady

cash flow, which reiterates our positive stance on the company.we Valuing the stock at

this level, we recommend BUY rating on HZL with a target price of Rs.143-148 for FY14.






0200400600800

10001200140016001800

Jan

-13

Fe

b-1

3

Ma

r-1

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Ap

r-1

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Ma

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Au

g-1

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Silver(rs/ounce)

020000400006000080000

100000120000140000160000

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-13

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b-1

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r-1

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y-1

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-13

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Lead

90000

95000

100000

105000

110000

115000

120000

125000

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Zinc

FY10 FY11 FY12 FY13

423 845 845 845

17701 21688 26036 31431

18124 22533 26881 32276

0 0 0 0

60 0 0 0

0 0 0 0

478 475 410 484

340 567 504 825

20238 25053 29485 35465

109 109 47 10

6071 7145 8466 8474

1113 875 445 1082

361 594 876 1898

452 762 798 1111

152 209 332 403

928 5633 5255 6942

96 158 233 373

20238 25053 29485 35465

FY10 FY11 FY12 FY13

3.2 2.2 2.1 1.7

95.6 11.6 13.1 16.3

1.9 2.1 2.9 3.2

6.0 4.8 3.6 3.8

0.6 0.8 0.7 0.9

FY10 FY11 FY12 FY13

4001 4483 4553 4935

77 -212 -61 -183

4077 4272 4492 4752

-3881 -3658 -3499 -3234

-187 -363 -1242 -1257

8 250 -248 262

14

Intangibles

Tangible assets

Long-term borrowings

Short-term borrowings

Trade payables

Short-term provisions

Total liabilities

Hindustan Zinc LTD.

Long-term provisions

B/S PERFORMANCE

Share capital

Short-term loans and advances

Total Assets

Long-term loans and advances

Inventories

Trade receivables

Cash and bank balances

Capital work-in-progress

Reserve & Surplus

Total equity

RATIOS

CASH FLOWS


P/B

EPS

Debtor to Turnover%

Creditors to Turnover%


ZinC Productions:


EBIDTA & Margin :

Inventories to Turnover%

Cash from Operation

Changes In Working Capital

Net Cash From Operation


Trading At :

Cash From Investment

Cash from Finance

Net Cash Flow during year


0

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40

60

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100

120

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0

1000

2000

3000

4000

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6000

7000 NIFTY HINDZINC

43 43 41

49

42

49 47

0

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30

40

50

60

0

500

1000

1500

2000

2500EBIDTA

EBIDTA %

0

50000

100000

150000

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250000

Zinc Production (tons)

-5.0

0.0

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4500 NetRevenuefromOperation

RevenueGrowth

TCS

1M 1yr YTD

Absolute 9.8 64.4 67.2

Rel. to Nifty 8.1 60.1 57.1


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

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

Revenue 21294 20977.2 1.5 16069.93 32.5

EBITDA 6686.76 6633.0 0.8 4660.49 43.5

PAT 5333.43 4633.3 15.1 3549.61 50.3

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

PAT Margin 25.0% 22.1% 290bps 22.1% 290bps

15

Market DataBSE Code 532540

NSE Symbol TCS

We continue to believe that TCS will be star performer in growth sense than other

peers. Hence, we are maintaining 18% revenue growth in dollar term for FY14E

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

Industry. We continue to be positive on demand prospect for TCS.

In US dollar terms, revenue was $3438mn compared with USD 3337 mn in Q2FY14. Net

profit was at USD 858 mn, compared with USD 748 mn in Q2FY14.

▪ Strong growth across segments: On segmental front, Manufacturing grew by 6.1%

(QoQ), and Telecom (including media and entertainment) by 5.1% (QoQ), while, BFSI

and Retail (including consumer-packaged goods) reported strong below 1% growth,

sequentially. Even, the telecom sector posted excellent quarter than before but still wait

to change view on the sector.

▪Steady Margin growth: On margin front, EBITDA down by 20bps and EBIT 30bps on QoQ

basis to 31.4% and 29.8%, during the quarter. The company attributed this fall to

reinvestment of gains from margin into the business. Management is very confident to

maintain EBITDA margin at a range of 26-28% ahead.

▪ Lower volume and stable pricing growth: The volume growth of 1.8% was lower than

expectations and what the company has been delivering over the last few quarters. The

company attributed this fall to de-growth in India business. The third quarter is generally

slow due to holidays, and furloughs. The pricing is expected to be stable overall but

expects variability across the quarters going forward.


Change from Previous 6%

52wk Range H/L 2384/1300

Mkt Capital (Rs Crores) 433985

Street stunned with inline set of number, management is confident to see better

growth in near future;

TCS witnessed inline set of numbers with 1.5%(QoQ)of consolidated sales growth led

by 1.8% volume growth and1.2% pricing growth. This volume growth dampened

because of holidays and furlough effects. PAT grew by 15.1% (QoQ).

" Strong Fundamentals"

CMP 2216

Target Price 2510

Results update Buy

Previous Target Price 2360

Upside 13%

1 year forward P/E

Rs, Crore



▪ Growth across the geographies: Among growth markets, Latin America, APAC and

MEA registered strong growth. India business suffered from volatility and declined

sequentially. Further, US grew by 2.6%, Europe by 2.6% and RoW by 7.1% QoQ. USA

contributes 55%, Europe 29.1% and RoW 15.9% of its revenue.

View and Valuation: We continue to remain positive on 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. Based on initial discussions with customers, Management believes for stronger

2014 than 2013. We continue to be positive on demand environment and company’s

strength of efficient deal execution. We advise that TCS now seem to be trading ahead

of fundamentals; At a price of Rs 2216, it is trading at 20.3x FY15E earnings, We

maintain" BUY" view on the stock and we revised our target price from Rs 2360 to Rs

2510.


Nifty 6262

Stock Performance

"BUY"20th Jan' 14


16

The outlook on margins, it indicated that

is comfortable in the current level and

will be in the range of 26-28% range

going forward.

(3) The outlook on margins, it indicated that is comfortable in the current level and will be

in the range of 26-28% range going forward.

TCS.

Revenue and growth in INR term-(QoQ)

Margin-%

Volume and Pricing Growth (QoQ)-%


The Company remains confident to clock

better growth in FY14 than FY13 and

aims to exceed upper end of industry

body NASSCOM’s guidance at 12-14% in

FY14. We expect better revenue growth

than its peer like Infy



(4) The company has maintained hiring target of 55,000 gross employees for FY14,

(5) Demand environment from Domestic market for next 2Qtrs will be adversly impacted

because of fortcong general election.

The volumes were strong across the

board during the quarter. The pricing is

expected to be stable overall but expects

variability across the quarters going

forward.The volume growth could be

improve further because of better

demand environment across all

geogrpahies and space.


Key Facts from Conference Call (attended on 16th Jan,2014):

(1)TCS, which does not provide detailed revenue forecasts, The Company remains

confident to clock better growth in FY14 than FY13 and aims to exceed upper end of

industry body NASSCOM’s guidance at 12-14% in FY14. And continued to reiterate its

stand that FY15 will be a better year than FY14.

(2) The management stated that pricing would be stable for next 12 months. Realization

seeing minor fluctuations, but


17

TCS.


Financials

Attrition is low in the Industry – Expects to improve Utilizations to 85% and beyond:: At

the end of 3QFY14, TCS continued its uptick in hiring and upped the numbers to 55,000

from its earlier stated 50,000. This is reflective of the demand environment. The

utilization rate (excluding trainees) was at 84.3% and that including trainees was 77.5 %.

The attrition rate in IT was at 10.3 %, while BPS attrition fell to 13.4 %. The attrition rate

(LTM) was stable at 10.9% including BPS.

Sound clients metrics: TCS sees a robust demand pipeline across markets and a unique

opportunity to strategically partner and participate with clients. TCS' USD added total 8

large clients(net).



Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E

Net Sales-USD 6339.0 8187.0 10171.0 11569.0 13660.8 16393.8

Net Sales 30029.0 37325.1 48894.3 62989.5 81964.9 97543.1

Employee Cost 10879.6 13850.5 18571.9 24040.0 30327.0 36578.7

Overseas business expenses 4570.1 5497.7 6800.5 8701.9 11680.0 14143.7

Services rendered by business associates and others 1262.0 1743.7 2391.3 3763.7 4917.9 6340.3

Operation and other expenses 4622.8 5054.3 6694.8 8443.9 10655.4 12680.6

Total Expenses 21334.4 26146.2 34458.5 44949.6 57580.4 69743.3

EBITDA 8694.6 11178.9 14435.8 18040.0 24384.6 27799.8

Depreciation 601.8 686.2 860.9 1016.3 1282.9 1526.7

Amortisation 59.1 49.1 57.1 63.7 57.5 76.7

Other Income 272.0 604.0 428.2 1178.2 1434.4 1950.9

EBIT 8033.7 10443.6 13517.9 16960.1 23101.7 26273.1

Interest Cost 16.1 26.5 22.2 48.5 35.9 33.8

PBT 8289.6 11021.2 13923.8 18089.8 24500.2 28190.2

Tax 1197.0 1830.8 3399.9 4014.0 5880.0 6765.6

PAT 7092.7 9190.3 10524.0 14075.7 18620.2 21424.5

PAT ((Reported PAT)) 7000.6 9068.6 10414.0 13917.4 18620.2 21424.5

Growth-%

Sales-USD 29.2% 24.2% 13.7% 18.1% 20.0%

Sales 8.0% 24.3% 31.0% 28.8% 30.1% 19.0%

EBITDA 21.3% 28.6% 29.1% 25.0% 35.2% 14.0%

PAT 31.8% 29.6% 14.5% 33.7% 32.3% 15.1%

Margin -%

EBITDA 29.0% 30.0% 29.5% 28.6% 29.8% 28.5%

EBIT 26.8% 28.0% 27.6% 26.9% 28.2% 26.9%

PAT 23.6% 24.6% 21.5% 22.3% 22.7% 22.0%

Expenses on Sales-%

Employee Cost 36.2% 37.1% 38.0% 38.2% 37.0% 37.5%

Overseas business expenses 15.2% 14.7% 13.9% 13.8% 14.3% 14.5%

Services rendered by business associates and others 4.2% 4.7% 4.9% 6.0% 6.0% 6.5%

Operation and other expenses 15.4% 13.5% 13.7% 13.4% 13.0% 13.0%

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

Valuation

CMP 780.8 1182.5 1322.0 1563.0 2216.0 2216.0

No of Share 195.7 195.7 195.7 196.0 196.0 196.0

NW 18466.7 24504.8 29579.2 38645.7 49594.4 62192.0

EPS 36.2 47.0 53.8 71.8 95.0 109.3

BVPS 94.4 125.2 151.1 197.2 253.0 317.3

RoE-% 38.4% 37.5% 35.6% 36.4% 37.5% 34.4%

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 8.8 7.0

P/E 21.5 25.2 24.6 21.8 23.3 20.3

HDFC Bank

668

760

720

14

6

1M 1yr YTD

Absolute 0.1 0.0 0.0

Rel.to Nifty -0.6 -3.4 -3.4


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

18


HDFC Bank Vs Nifty


4.17 lakhs

Nifty 6261



Stock Performance

52wk Range H/L

Cost to income ratio declined to 42.7% from 46% in 3QFY14 largely due to employee

expenses. In 3QFY14, employee cost was declined by 3.1% YoY due to hiring soften

strategy taken by bank. At the end of quarter, bank has total 68200 employees as

against 69700 employees in last quarter. Other operating cost increased by 12.5%

YoY largely due to addition of new branches and ATMs. At the end of December

quarter, bank’s added 274 branches taking total network to 3336 branches against

2776 branches in 3QFY13. With the support of healthy NII growth, non interest

income and control cost measurement; bank’s operating profit grew by 28.6% YoY.

160030

Result update BUY

CMP

Target Price

HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters

growth trajectory that it had witnessed but remain very impressive in

challenging macro environment. Bank is well poised in most of operating

parameters like CASA ratio of 45%+, higher than industry credit growth, best

asset quality among peers, better utilization of cash in form of higher CAR

ratio for further growth, consistent delivered margin above of 4%. We continue

to believe bank would enjoy valuation premium. We value bank at

Rs.760/share which is 4 times of one year FY14E’s book value.


Declined CI ratio along with healthy revenue growth led operating profit growth

Market Data

Upside

727/528

BSE Code 500180

NSE Symbol HDFCBANK

Mkt Capital (Rs Cr)

Profit growth of 25% YoY, quite impressive in present economy scenario


HDFC bank’s profitability grew by 25% YoY to Rs.2326 cr against our expectation of

Rs.2289 cr. Growth in profit was due to higher growth in revenue, lower cost income

ratio and stable asset quality. But growth trajectory of the bank was lower if we

compare it from past as bank has been witnessing 30% growth previously. In

previous quarter bank reported 27% YoY growth in profit and this quarter reported

lower from previous quarter. We believe to maintain 30%+ growth would be tough in

present challenging macro environment.

Healthy NII growth on the back of stable margin and higher CD ratio

HDFC Bank reported another good set of numbers with NII grew by 22% YoY to

Rs.4635 cr better than our expectation due to healthy loan growth, stable margin,

higher credit deposits ratio and controlled cost of deposits. Total revenue of the bank

grew by 21.2% YoY to Rs.6783 cr. Non- interest income registered growth of 19.4%

YoY to Rs.2148 cr. Other income comprises fees & commissions of Rs 1,575.0 cr

(Rs 1,413.5 cr in 3QFY13), foreign exchange & derivatives revenue of Rs.333.2 cr

(Rs 258 cr in 3QFY13), gain on revaluation / sale of investments of Rs 50.9 cr (gain

of Rs. 135.8 cr in 3QFY13) and miscellaneous income including recoveries of Rs

189.1 cr (Rs 120.4 cr in 3QFY13).

"BUY "20th Jan.,2014


19

HDFC BANK


Sequentially stable asset quality despite of challenging macro environment

Despite of challenging macro environment, bank reported stable asset quality with GNPA

in absolute term grew by mere 3% on sequential basis. As a percentage to gross

advance, GNPA stood at 1.02% versus 1.1% in previous quarter. Loan loss provisions

were Rs.389 cr versus Rs.386 cr in previous quarter. Consequently net NPA increased

by 4% QoQ and in percentage to net advance, it stood at 0.27% versus 0.29%. Provision

coverage ratio with technical write-off was stable on sequential basis to 73.8%.

Valuation Band

Advance grew by 23% YoY and deposits grew by 23% led by FCNR deposits

Total advance increased by 23% to Rs.2967 bn. Loan growth was driven by 13.6% YoY

increased of retail loan and 22.1%YoY increased of corporate loan. Composition of retail

and corporate loan stood at 54:46 ratios. Deposits increased by 23% to Rs.3492 bn in

which saving deposits increased by 16% and current deposits grew by 23% taking overall

CASA ratio of 43.7%. Deposits growth of 23% included US$3.4 bn of FCNR deposits

raised through RBI’s special window. Adjusted with same, deposits grew by 15.5% YoY.

Credit deposits ratio during quarter stood at 85% which was by and large same in both

quarter on quarter and year on year basis.

Valuation & View

HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters growth

trajectory that it had witnessed but remain very impressive in challenging macro

environment. Bank is well poised in most of operating parameters like CASA ratio of

45%+, higher than industry credit growth, best asset quality among peers, better

utilization of cash in form of higher CAR ratio for further growth, consistent delivered

margin above of 4%. We continue to believe bank would enjoy valuation premium. We

value bank at Rs.760/share which is 4 times of one year FY14E’s book value.


20

HDFC BANK



Fundamental Through Graph

NII growth of 22% led by healthy loan

growth, stable margin, higher credit deposits

ratio and controlled cost of deposits

Declined CI ratio along with healthy revenue

growth led operating profit growth

Profit growth of 25% YoY due to higher

growth in revenue, lower cost income ratio

and stable asset quality


21



HDFC BANK

Quarterly Performance


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

Interest/discount on advances / bills 8183 7692 6722 21.7 6.4 8524 4.2

Income on investments 2309 2292 1893 22.0 0.8 2354 1.9

Interest on balances with Reserve Bank of India 85 84 68 25.7 1.2 97 14.2

Others 13 25 25 -48.3 -48.4 18 35.7

Total Interest Income 10591 10093 8708 21.6 4.9 10993 3.8

Others Income 2148 1844 1799 19.4 16.5 1885 -12.3

Total Income 12739 11938 10507 21.2 6.7 12878 1.1

Interest Expended 5956 5617 4909 21.3 6.0 5798 -2.7

NII 4635 4477 3799 22.0 3.5 5195 12.1

Other Income 2148 1844 1799 19.4 16.5 1885 -12.3

Total Income 6783 6321 5598 21.2 7.3 7080 4.4

Employee 973 1036 1004 -3.1 -6.1 1115 14.6

Other Expenses 1922 1899 1570 22.4 1.2 2071 7.7

Operating Expenses 2895 2934 2574 12.5 -1.3 3186 10.0

PPP( Rs Cr) 3888 3387 3024 28.6 14.8 3894 0.2

Provisions 389 386 307 26.6 0.8 426 9.6

PBT 3499 3001 2716 28.8 16.6 3468 -0.9

Tax 1173 1018 857 36.9 15.2 1179 0.5

Net Profit 2326 1982 1859 25.1 17.3 2289 -1.6

Balance Sheet( Rs Cr)

Net Worth 42891 40485 35436 21.0 5.9 42774 -0.3

Deposits 349215 313011 284119 22.9 11.6 331291 -5.1

Borrowings 43848 39340 31585 38.8 11.5 44639 1.8

Investment 110616 101850 95979 15.3 8.6 108215 -2.2

Loan 296742 268617 241493 22.9 10.5 284134 -4.2

Asset Quality

GNPA( Rs Cr) 3017.84 2941.71 2432.2 24.1 2.6

NPA(Rs Cr) 797 767 496 60.8 3.9

GNPA(%) 1.0 1.1 1.0

NPA(%) 0.3 0.3 0.2

PCR(w/o tech write-off)(%) 74 74 80

22

HDFC BANK

Financials




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


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

FEDERAL BANK

80

98

87

23

13

1M 1yr YTD

Absolute -0.6 -24.3 -24.3

Rel.to Nifty -1.3 -27.7 -27.7


3Promoters - - -

FII 42.4 44.1 44.4

DII 21.6 20.6 20.8

Others 36.1 35.3 34.8

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1747 1953 1975 2206 2543

Total Income 2263 2486 2639 2893 3230

PPP 1427 1506 1460 1520 1777

Net Profit 902 734 803 799 1012

EPS 6.5 8.6 9.4 9.3 11.8

23

Federal bank continued to deliver moderate growth in net profit on the back of muted

growth in operating as well as financial metrics. During quarter bank’s net growth

grew by 9.2% YoY largely due to lower provisions led by improving asset quality. This

quarter bank reported improvement in asset quality when most of banks reported

deteriorating or stable stress in assets which surprise us positively. Despite of lower

loan loss provisions, bank’s provision coverage ratio remained high against

regulatory requirement. Therefore we take it positive as bank’s strategy to make

lower provision in order to inflate profit. But muted growths in balance sheet remain

a cause of concern.

CMP

Target Price

Mkt Capital (Rs Cr)

Change from Previous( Rs)

FEDERAL Bank Vs Nifty


9.78 lakh

Nifty 6261

Market Data

Profit growth on the back of lower provision led by improving asset quality

Stock Performance

52wk Range H/L 104.75/44.25

BSE Code


Bank reported net profit growth of 9.2% YoY largely due to lower provision led

by improving asset quality. Making lower provision in order to inflate profit is

not too bad in our sense as bank has high provision coverage ratio and

sequentially improved gross NPA. However at operating profit level, bank

reported negative growth of 9.7% due to muted performance all around. We

revised our book value estimate to Rs.82.2 from earlier of Rs.78. We believe

bank to trade at 1.2 times of book value of FY14E. We value bank at

Rs.98/share which is 1.2 times of FY14E’s book value and 8.5 times of full year

earnings

Result update BUY


Upside

500469

NSE Symbol FEDERALBNK


6792


Flat revenue growth because of negative growth in other income

During this quarter bank’s NII grew by 9.7% on account of muted loan growth along

with continuous fall in credit deposits ratio. However bank able to maintain cost of

deposits under control. Other income de-grew by 23.4% YoY taking flat revenue

growth on year on year basis and quarterly basis.

Operating profit de-growth by 9.7% YoY led by flat revenue growth and high CI

ratio

Cost Income ratio increased by 550 bps YoY to 49.3% but operating leverage

(operating cost to total assets) remain flat at 0.45%, indicating comfortable cost

management. Employee cost and other operating cost increased by 8.1% and 17.7%

respectively. During quarter bank opened 18 new branches and 47 ATMs. Operating

profit de-grew by 9.7% YoY on account of muted NII growth and lower other income.

"BUY"20th Jan, 2014


24

FEDERAL BANK


NIM declined sequentially due to higher cost of fund than deposits

NIM on sequential basis declined by 6 bps to 3.24% due to higher cost of fund (in

absolute term) than yield on loan (in absolute term). Higher cost of fund largely came

from cost of borrowing than deposits. Borrowings as a percentage of NDTL, sequentially

increased to 9.2% from 8.1% taking overall interest expenses up in absolute term. Loan

yield improved by 18 bps QoQ to 12.2% from 12% but muted growth in loan, increased

interest income by 0.1% QoQ whereas interest expenses increased by 2.4% QoQ.

Despite of lower increased in cost of fund (6 bps QoQ), NIM declined sequentially.

Loan & deposit grew by moderate pace

Federal Bank’s balance sheet grew by 15% YoY in which loan grew by 5.4% YoY. SME

and retail loan registered growth of 38.4% and 11.5% YoY respectively but corporate

loan de-grew by 14.4% YoY. Share of corporate loan declined to 33% from 40% in

3QFY14 whereas share of SME and retail loan increased to 24% and 32% from 18% and

30% respectively. Despite of reported higher growth in SME and retail loan, overall loan

grew by 5.4% YoY. Deposits witnessed growth of 12% YoY led by CASA growth of 15%

YoY while term deposits de-grew by 10% YoY. In percentage term CASA improved by 90

bps YoY to 30.4%.

Valuation & View

Provision lower to Rs.7 cr but PCR remain high

Bank reported net profit growth of 9.2% YoY largely due to lower provision led by

improving asset quality. Making lower provision in order to inflate profit is not too bad in

our sense as bank has high provision coverage ratio and sequentially improved gross

NPA. However at operating profit level, bank reported negative growth of 9.7% due to

muted performance all around. We revised our book value estimate to Rs.82.2 from

earlier of Rs.78. We believe bank to trade at 1.2 times of book value of FY14E. We value

bank at Rs.98/share which is 1.2 times of FY14E’s book value and 8.5 times of full year

earnings

In 3QFY14, Federal bank made total provisions of Rs.7 cr versus Rs.11 cr in previous

quarter and Rs.74 cr in last quarter. Lower provision was due to improving asset quality.

Gross NPA improved by 18% QoQ to Rs.1201 cr in absolute term whereas as a

percentage to total advance, it stood at 2.88% versus 3.47% in previous quarter. Loan

loss provisions were lower by 20% QoQ, taking PCR ratio to 70.3% (without technical

write-off). This has resulted net NPA declined to 0.9% versus 1% in previous quarter.


25

Fundamental Through Graph

FEDERAL BANK

Source: Eastwind/Company


Valuation Band


26



FEDERAL BANK

Quarterly Result


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

Interest/discount on advances / bills 1266 1265 1151 10.0 0.1 1348 6.4

Income on investments 461 438 358 28.7 5.3 434 -6.0

Interest on balances with Reserve Bank of India 11 11 11 -8.2 -5.2 12 15.6

Others 2 1 1 48.7 151.5 -100.0

Total Interest Income 1740 1714 1522 14.3 1.5 1793 3.1

Others Income 156 143 204 -23.4 9.0 180 14.9

Total Income 1896 1858 1726 9.9 2.0 1973 4.1

Interest Expended 1194 1166 1024 16.6 2.4 1184 -0.8

NII 546 548 497 9.7 -0.5 609 11.6

Other Income 156 143 204 -23.4 9.0 180 14.9

Total Income 702 692 701 0.1 1.5 789 12.4

Employee 177 170 163 8.1 3.7 189 7.0

Other Expenses 169 167 144 17.7 1.1 182 7.3

Operating Expenses 346 338 307 12.6 2.4 371 7.1

PPP( Rs Cr) 356 354 394 -9.7 0.6 418 17.4

Provisions 7 11 74 -90.2 -33.6 90 1132.4

PBT 349 343 320 9.1 1.7 328 -5.9

Tax 118 117 109 8.9 1.2 98 -16.9

Net Profit 230 226 211 9.2 1.9 230 -0.2

Balance Sheet(Rs Cr)

Net Worth 6872 6696 6323 8.7 2.6 6926 0.8

Deposits 57737 56794 51607 11.9 1.7 59221 2.6

Borrowings 5850 5033 3562 64.2 16.2 5197 -11.2

Investment 25028 22794 19433 28.8 9.8 23124 -7.6

Loan 41640 42220 39494 5.4 -1.4 44922 7.9

Asset Quality

GNPA(Rs Cr) 1201 1466 1564 -23.2 -18.1 -

NPA(Rs Cr) 356 411 363 -1.9 -13.4 -

GNPA(%) 2.9 3.5 4.0 -

NPA(%) 0.9 1.0 0.9 -

PCR(w/o tech write-off)(%) 70 72 77 -

27



FEDERAL BANK

Financials & View


Income Statement 2011 2012 2013 2014E 2015EInterest Income 4052 5558 6168 6989 7707

Interest Expense 2305 3605 4193 4783 5164

NII 1747 1953 1975 2206 2543

Change (%) 23.8 11.8 1.1 11.7 15.3

Non Interest Income 517 532 664 687 687

Total Income 2263 2486 2639 2893 3230

Change (%) 16.6 9.8 6.2 9.6 11.7


Pre Provision Profits 1427 1506 1460 1520 1777

Change (%) 12.8 5.6 -3.1 4.2 16.9

Provisions 525 335 297 335 331

PBT 902 1172 1162 1186 1445

PAT 902 734 803 799 1012

Change (%) 94.1 -18.6 9.4 -0.5 26.7

Balance SheetDeposits( Rs Cr) 43015 48937 57615 66257 76196

Change (%) 19 14 18 15 15

of which CASA Dep 11554 13476 15652 19111 22360

Change (%) 22 17 16 22 17

Borrowings( Rs Cr) 1888 4241 5187 5361 6272

Investments( Rs Cr) 14538 17402 21155 23453 26656

Loans( Rs Cr) 31953 37756 44097 47624 55244

Change (%) 19 18 17 8 16

RatioAvg. Yield on loans 9.9 11.1 10.5 10.9 10.5

Avg. Yield on Investments 6.0 7.6 6.9 7.4 6.9

Avg. Cost of Deposit 5.0 6.8 6.7 6.6 6.6

Avg. Cost of Borrowimgs 7.6 6.5 6.9 7.0 7.0

Valuation

Book Value 60 67 74 83 85

CMP 84 85 96 80 80

P/BV 1.4 1.3 1.3 1.0 0.9

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

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

email: [email protected],

website : www.narnolia.com

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