stock advisory for today - book profit on the stock kpit tech
DESCRIPTION
Narnolia Securities Limited initiated KPIT stock at a CMP of Rs 115 (14 Jan 2013) and now, it achieved its target of Rs 177. We advice to book profit on the stock because of its premium valuation. For information visit our website http://www.narnolia.com/TRANSCRIPT
;
8th Jan, 2014
Edition : 179
IEA-Equity
Strategy
6th Jan 2013
SHREE CEMENT: "BUY" 7th Jan 2013
We are positive on the stock as it always beats its peers group with lower operational cost. Looking at the strategy of the company and
expansion plans for FY15 the stock may outperform among cement players with the rise in cement demand.Shree cement follows a multi brand
strategy and sells cement under the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together enjoy the largest market
share in high value markets of Rajasthan, Delhi and Haryana. After a good monsoon and election we are expecting a good performance from
shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/- ............................................ ( Page : 8-10)
For 3QFY14E, Indian IT players would report muted earnings growth because of seasonal weakness like furloughs and holidays impacts, already
it is understood fact by consensus. Post result, earning guidance for FY15E and forward looking statement by most of companies would be
considered as an important fact. Considering recent demand environment scenario and healthy growth outlook of US and Europe, we are
expecting to see positive outlook on the sector for the year 2014................................. ( Page :4-7)
IT Industry: 3QFY14E results preview : "As usual flattish 3rd quarter" 7th Jan 2013
ORIENTAL BANK "Neutral"
UNION BANK : "BUY"
The automobiles companies come up with December 2013 sales volumes with no big surprises. The industry followed the same declining trend
as in November 2013 with Scooter and Tractors sales showing some upward traction. Indian automobile OEMs continue to be negatively
impacted by the overall economic slowdown, firm interest rates, inflationary headwinds and high fuel prices .......................................... ( Page :
19)
Jyothy Lab: "Efforts for stability" "BUY" 6th Jan 2013
Recent management commentary reveals that the company is planning for inorganic growth with Rs 250 Cr of bank balance (post repayment of
its debt) and especially looking at regionally strong brands. We expect that company’s new management and new strategy of product reach
would energize its growth story in near future. Hence, the management has maintained its guidance of achieving around 22% - 25% revenue
growth and OPM of 14% - 15% for FY14E. We maintain "BUY" view on the stock with a target price of Rs 260, at a CMP of Rs195, stock trades at
3.6x FY15E P/BV ............................................ ( Page : 17-18)
AUTO SALES DASHBOARD : DECEMBER 2013:Another Month of Tepid Performance 6th Jan 2013
Net interest margin of the bank is likely to expand on the back of RBI’s decision to leave policy rate (repo) unchanged and softening bond yield
to 8.75%. This would result of reducing cost of fund and fair amount of portfolio gain. Bank borrowed higher amount of repo than MSF during
the quarter. Moreover bank is getting deposits from FCNR which would give margin of one percent plus to the bank. We value bank at
Rs.163/share which would be 0.5 times of one year forward book and 5.4 times of one year forward earning .................................. ( Page : 14-
16)
6th Jan 2013
We had initiated this stock at a CMP of Rs 115 (14 Jan 2013) and now, it achieved its target of Rs 177. Despite better expectation of growth and
attractive visibility of its expansion through inorganic initiative and focus into emerging verticals, we advice to book profit on the stock because
of its premium valuation. However, sentiment could take a knock in the short run, since investors may prefer paying a premium for stock with
better earnings visibility.......................................... ( Page : 2-3)
KPIT Tech: "On billion dollar journey" Reduced 8th Jan 2013
We have now neutral rating on the stock led by trading closer to our target price of Rs.221. At this price stock would trade at 0.5 times of one
year forward book and 6.5 times of earning. In the absence of comfort earning and non visibility of ROE improvement, make us compel to value
bank in the range of 0.4-0.5 times forward book. Impairment of asset and high operating leverage would remain high according to the
management. On both front we would be getting more clarity after the quarterly result. ................... ( Page : 11-13)
Narnolia Securities Ltd,
India Equity AnalyticsDaliy Fundamental Report on Indian Equities
KPIT Tech.
1M 1yr YTD
Absolute 24.7 64 57.2
Rel. to Nifty 25.5 61.1 54
Current 1QFY14 4QFY13
Promoters 22.87 24.25 24.3
FII 36.42 32.79 30.8
DII 11.12 10.93 11.8
Others 29.59 32.03 33.1
Financials2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 702.76 613.21 14.6 567.02 23.9
EBITDA 108.1 96.6 11.9 94.1 14.9
PAT 66.7 60.1 11.0 48 39.0
EBITDA Margin 15.4% 15.8% (40bps) 16.6% (120bps)
PAT Margin 9.5% 9.8% (30bps) 8.5% (100bps)
2
Share Holding Pattern-% Close to Revolo launch and working on cloud based IB tool: The unit has been in the
process of conducting trials in 40 vehicles. As per the management, by next year it could
be a part of revenue. It is also working on cloud based BI tools as well as Analytics tool
for opportunities in warranty management.
6162
For 3QFY14E, we expect to see 4% (QoQ) sales growth in USD term and 2.7% (QoQ) in
INR term, PAT is expected to grow by 3-4% (QoQ) led by a marginal growth in the forex.
We expect 50-100bps improvement in EBITDA margin to 16-16.5%, sequentially.
Key things to watch: Outlook of deal pipeline, Updates on SAP and Revolo, and
acquisition plan.
Stock Performance
3445
Average Daily Volume 144511
Nifty
Mkt Capital (Rs Crores)
Change from Previous -
52wk Range H/L 186/92
BSE Code
"On billion dollar journey"
CMP 180
Target Price 177
Price Performance
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Robust pipeline of large deals: During the quarter, company closed 2 larges deals in
excess of USD 10 mn 1 in Europe and 1 in the US and have created a robust pipeline of
larger deals. We expect this large set of deals would reveal stronger 2HFY14
performance with judicious mix of volume and value growth.
We expect KPIT to grow its revenues at a CAGR of 24% over FY12-14E.Considering the
company’s premium valuation, we advice “Book Profit” on the stock. At a CMP of Rs
180, stock trades at 13.8x FY14E earnings. Our view could be change with
management guidance and post earnings of coming quarter.
View and Valuation: Despite all previous ups and down in IT sector, global demand
environment is on the way of recovery and growth. 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 USD
1billion in revenues by 2017.
Company update Book Profit We had initiated this stock at a CMP of Rs 115 (14 Jan 2013) and now, it achieved its
target of Rs 177. Despite better expectation of growth and attractive visibility of its
expansion through inorganic initiative and focus into emerging verticals, we advice to
book profit on the stock because of its premium valuation. However, sentiment could
take a knock in the short run, since investors may prefer paying a premium for stock
with better earnings visibility.
Previous Target Price -
532400
NSE Symbol
Market Data
KPIT
Upside
The company expects better earnings, confident of generating a positive cash flow for
FY14E, after considering the balance payments for existing M&A deals.
KPIT ‘s Management is confident to report USD Revenue for FY14 to be in the range of
USD 465 Mn to USD 475 Mn, and INR PAT for FY14 to be in the range of INR 2,309 Mn to
INR 2,388 Mn. They expect better H2FY14E than H1FY14E. KPIT expects to close some
more deals in next quarter, which will again drive growth and expects the company’s
growth to be stronger in the 2H FY14E.
-
"Book Profit"7th Jan' 14
Narnolia Securities Ltd,
3
Please refer to the Disclaimers at the end of this Report.
Financials
(Source: Company/Eastwind)
Rating and Price Target Chart Updation Detail
KPIT Tech
Narnolia Securities Ltd,
Date Update Detail CMP View Target Price
14-Jan-13 Initiation 115 BUY 145
29-Jan-13 Result Update 116 BUY 145
3-May-13 Result Update 106 BUY 145
5-Jul-13 Company Update 120 BUY 145
25-Jul-13 Result Update 132 BUY 145
13-Sep-13 Company Update 147 BUY 162
24-Oct-13 Result Update 144 BUY 162
22-Nov-13 Company Update 146 BUY 177
8-Jan-14 Company Update 180 Profit Booking 177
Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E
Net Sales-USD 153.76 224.07 306.71 410.46 465.00 558.00
Net Sales 731.64 987.05 1500.00 2238.63 2790.00 3320.10
Employee Cost 265.92 529.95 771.78 1140.79 1422.90 1726.45
Other expenses 304.70 308.82 511.97 762.32 906.75 1095.63
Total Expenses 570.62 838.77 1283.75 1903.11 2329.65 2822.09
EBITDA 161.02 148.28 216.25 335.52 460.35 498.02
Depreciation 30.80 41.12 44.49 47.16 62.58 88.34
Other Income 1.20 6.74 13.82 11.74 13.95 16.60
Extra Ordinery Items -26.45 0.00 10.05 -1.30 -45.17 16.60
EBIT 130.22 107.16 171.76 288.36 397.77 409.68
Interest Cost 2.74 3.78 7.32 13.99 21.37 18.61
PBT 102.23 110.12 188.31 284.81 345.17 424.28
Tax 16.91 15.49 43.67 76.55 93.20 116.68
PAT 85.32 94.63 144.64 208.26 251.98 307.60
PAT (excluding EO Items) 111.77 94.63 134.59 209.56 297.15 291.00
Growth-%
Sales -7.8% 34.9% 52.0% 49.2% 24.6% 19.0%
EBITDA -12.2% -7.9% 45.8% 55.2% 37.2% 8.2%
PAT 129.4% 10.9% 52.8% 44.0% 21.0% 22.1%
Margin -%
EBITDA 22.0% 15.0% 14.4% 15.0% 16.5% 15.0%
EBIT 17.8% 10.9% 11.5% 12.9% 14.3% 12.3%
PAT 11.7% 9.6% 9.6% 9.3% 9.0% 9.3%
Expenses on Sales-%
Employee Cost 36.3% 53.7% 51.5% 51.0% 51.0% 52.0%
Subcontracting Cost 20.8% 14.5% 17.2% 0.0% 0.0% 0.0%
Tax rate 16.5% 14.1% 23.2% 26.9% 27.0% 27.5%
Valuation
CMP 115.00 168.05 122.90 99 180 180
No of Share 7.90 8.70 17.80 19.28 19.28 19.28
NW 387.11 603.19 712.55 1036.23 1272.42 1557.46
EPS 10.80 10.88 8.13 10.80 13.07 15.95
BVPS 49.00 69.33 40.03 53.75 66.00 80.78
RoE-% 22.0% 15.7% 20.3% 20.1% 19.8% 19.8%
Dividen Payout ratio 6.4% 6.8% 4.9% 7.9% 6.3% 7.3%
P/BV 2.35 2.42 3.07 1.84 2.73 2.23
P/E 10.65 15.45 15.12 9.17 13.77 11.28
IT Industry: 3QFY14E results preview
Key facts of 3QFY14E earnings:
Seasonal Impacts on (QoQ) earnings, while better on YoY:
Stable Margin and flat currency movement:
New discretionary spending:
Management commentary and forward looking statement:
↑6.9%
4
"As usual flattish 3rd quarter"
(Source: Company/Eastwind)
(Source: Eastwind)
Because of better economic scenario, demand environment expansion has taken place.
Now, domestic IT players have been able to retain its market share in US and successfully
improved its market share in Euro region, at a same point pricing pressure has turned out.
During the quarter, most of multimillion-dollar projects have been bagged from Euro
region. During the current fiscal, out of 27 large projects 11 orders deputed from Euro
(including UK) region and only 3 from US.
Post revealing 3QFY14E earnings, street will closely watch on the response of its clients
budgeting cycle to assess the strength of the demand environment and its sustainability.
Most of companies will comment on earning guidance, margin outlook and order pipeline
for FY15E. Taking recent attractive supply side scenario, we would like to see hiring
guidance and commentary on maintaining utilization rate and attrition rate.
CNX IT v/s USD/INR
(Source: Eastwind)
Please refer to the Disclaimers at the end of this Report.
For 3QFY14E, Indian IT players would report muted earnings growth because of seasonal
weakness like furloughs and holidays impacts, already it is understood fact by
consensus. However, this quarter would report better earning and margin growth than
same quarters of last year. Because of stable currency movement, margin could be seen
flattish or marginally inched up.
Price performance of our coverage:
Index Performance:
Movement of INR-USD and Other Currencies v/s USD
(Source: Eastwind)
Post result, earning guidance for FY15E and forward looking statement by most of
companies would be considered as an important fact. Considering recent demand
environment scenario and healthy growth outlook of US and Europe, we are expecting
to see positive outlook on the sector for the year 2014.
For 3QFY14E, we expect to see lower rate of earning growth impacted by furloughs and
holidays, already YoY growth would be a favorable. The December quarter has
traditionally been a soft quarter for the IT sector. On USD term, revenue of top-4 IT
players could be reported at a range of 2-3.3% sequentially. We expect Tier-1 IT to report
constant-currency revenue growth of 1.4-3% (QoQ).
During the quarter, margin for IT Industry will largely be flattish or see marginal decline on
sequential basis. Across the tier-1 IT players, Infosys could improve its margin because of
cost rationalization and slow pace of currency benefit TCS will maintain its previous
quarters margin picture. While, margin of HCLTech and Mindtree could see some dip
because of wage hike during the quarter.
Narnolia Securities Ltd,
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14
Average 44.65 45.73 50.84 50.29 54.09 55.19 54.14 54.17 55.93 62.08 61.97
Closing 44.59 48.86 53.08 51.4 56.8 52.85 54.97 54.28 59.54 62.59 61.84
Average 1.41 1.4 1.35 1.31 1.28 1.25 1.3 1.32 1.31 1.33 1.36
Closing 1.45 1.36 1.3 1.33 1.26 1.29 132 1.28 1.3 1.35 1.38
Average 1.62 1.61 1.57 1.57 1.57 1.58 1.61 1.55 1.54 1.55 1.61
Closing 1.61 1.57 1.55 160 1.56 1.62 1.62 1.52 1.51 1.6 1.66
Average 1.06 1.05 1.01 1.05 1.01 1.04 1.03 1.04 0.99 0.92 0.93
Closing 1.07 0.99 1.02 1.03 1.02 1.04 1.03 1.04 0.91 0.93 0.89
INR/USD
EUR - USD
GBP-USD
AUD-USD
↑59.5%
↑6.9%
↑13%
↑59.5%
IT Industry: 3QFY14E results preview
Results preview
Forex loss as a hedging will reduce the net income growth.
We expect revenue growth of 2.2% in USD term for3rd qtr FY14E, sequentially.
5(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
We expect company is likely to report 3.5% (QoQ) revenue growth in USD term. On a
constant currency basis, the growth will be 3% QoQ.
Margins are likely to decline marginally because of Flattish currency movement
Key things to watch - Comments on
volume, demand environment, deal
closures from US, pricing, and
discretionary spends.
Margin is expected to remain stable and benefits from cost optimisation initiatives are
offset by the negative impact of the rupee appreciation by 1.2% during the quarter.
We expect Infosys to increase their FY2014 guidance to ‘at least 12%’ from 9-10% earlier.
The company needs a quarterly run rate of average 2% for the next two quarters to
achieve 12% for FY14E.
Street would like to see some up
gradation in given revenue guidance
from 9-10% to 12% for FY14E.
The company had guided a strong 3QFY14 USD revenue growth guidance of 1.8-3.6% QoQ
for IT services .We expect IT services revenue growth to be closer to the higher end of this
range and to be 3% QoQ in USD terms.
The large deals won in the previous quarter are ramping up as expected and company
could reveal its orders pipeline.
Key things to watch – 4th quarter
revenue guidance, margin commentary,
visibility of growth/hiring in software
services.
Narnolia Securities Ltd,
TCS
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%
Sales 16069.93 20977.24 21606.56 3.0% 34.5%
EBITDA 4660.49 6632.95 6300.3 -5.0% 35.2%
PAT 3549.6 4633.33 5096.66 10.0% 43.6%
EBITDA Margin 29.0% 31.6% 31.0% (60bps) 200bps
PAT Margin 22.1% 22.1% 23.6% 150bps 150bps
WIPRO
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%
Sales 9587.5 10990.7 11342.40 3.2% 18.3%
EBITDA 2050.2 2503.8 2552.04 1.9% 24.5%
PAT 1598.1 1932 1984.16 2.7% 24.2%
EBITDA Margin 21.4% 22.8% 22.5% (30bps) 10bps
PAT Margin 16.7% 17.6% 17.5% (10bps) 80bps
INFY
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%
Sales 10424 12965 13069.1 0.8% 25.4%
EBIT 2677 3346.9 3424.1 2.3% 27.9%
PAT 2369 2407 2695.8 12.0% 13.8%
EBITDA Margin 25.7% 25.8% 26.2% 40bps 50bps
PAT Margin 22.7% 18.6% 20.6% 200bps (190bps)
IT Industry: 3QFY14E results preview
6(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Expect revenue growth of 3% in $-term QoQ and margins to be down by 50-100bps which
is largely attributable to the wage hikes effective from October 1, 2013 for some
employees..
Key things to watch - outlook for
pricing/volumes and deal ramp up and
deal re bid, margin commentary,
visibility of growth/hiring in software
services.
We expect revenue growth guidance of 2.5% in USD term and and full integration of
Complex IT.
Expect margins to be don by 50-100bps (QoQ) - wage hikes deferred to 4QFY14
Key things to watch – Outlook for deal
pipeline, outlook on BT/AT&T (the
biggest clients), updates on SMAC(social,
mobility, analytics, cloud) and
comments on synergies
We expect revenue growth guidance of 1.5% in USD term and expect margin ramp up by
40bps.
Key things to watch – Outlook for deal
pipeline, updates on SMAC(social,
mobility, analytics, cloud) and guidance
on forward looking statement.
Expect 3% US$ revenue growth. Hexaware discontinued quarterly guidance since the
previous quarter.
Expect 30-50bps decline in margin.
Key things to watch: Key stance on
dividend policy, deal wins and revenue
growth momentum and outlook for
order win.
Narnolia Securities Ltd,
HCLTECH
Rs, Cr 2QFY13 1QFY14 2QFY14E (QoQ)-% (YoY)-%
Sales 6273.8 7961 8160.03 2.5% 30.1%
EBITDA 1416.6 2093 2080.81 -0.6% 46.9%
PAT 974.3 1416 1472.64 4.0% 51.1%
EBITDA Margin 22.6% 26.3% 25.5% (80bps) 290bps
PAT Margin 15.5% 17.8% 18.0% 20bps 250bps
TECHM
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%
Sales 3523.7 4771.5 4819.22 1.0% 36.8%
EBITDA 756.9 1110.85 1084.32 -2.4% 43.3%
PAT 455.9 718.2 754.11 5.0% 65.4%
EBITDA Margin 21.5% 23.3% 22.5% (80bps) 100bps
PAT Margin 12.9% 15.1% 15.6% 50bps 270bps
CMC
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%
Sales 492.97 560.75 566.36 1.0% 14.9%
EBITDA 83.2 88.41 87.79 -0.7% 5.5%
PAT 61.07 67.3 65.62 -2.5% 7.4%
EBITDA Margin 16.9% 15.8% 15.5% (30bps) (140bps)
PAT Margin 12.4% 12.0% 11.6% (40bps) (80bps)
HEXAWARE
Rs, Cr 4QCY12 3QCY13 4QCY13E (QoQ)-% (YoY)-%
Sales 507.52 621.1 629.17 1.3% 24.0%
EBITDA 109.02 147.74 147.86 0.1% 35.6%
PAT 66.20 98.7 103.64 5.0% 56.5%
EBITDA Margin 21.5% 23.8% 23.5% (30bps) 200bps
PAT Margin 13.0% 15.9% 16.5% 60bps 350bps
IT Industry: 3QFY14E results preview
We expect to see revenue growth by 4% (QoQ) in USD term.
View and valuation:
7Please refer to the Disclaimers at the end of this Report.
Key things to watch: Outlook of deal
pipeline, Updates on SAP and Revolo,
and acquisition plan.
We expect overall revenue growth at 3% in USD term due to healthy growth in IP led
business and $1mn HP deal.
PAT is expected to grow by 10% (QoQ) despite a marginal growth in margin due to the
forex gain of Rs 5-6 cr v/s 9 cr of same previous quarter.
Key things to watch: Commentary on
deal pipeline and contribution from IP-
led revenue
We expect the company to report 1% QoQ growth in USD terms. Due to the
lower other income, we expect the net income to decline by 5%.
Key things to watch: Updates on new
deal win, revenue traction from all
geographies & inorganic initiatives.
key macro indicators in US economy and recent interaction by Industry experts bring some optimistic view in the IT sector. The
meaning full recovery has been seen in US labor market. At the same time, business investment and consumer confidence appear to
be coming back. We believe, uptick in discretionary spend could be sustain over the next 12-18ms.
Commentary on demand outlook, deal pipeline and discretionary spending will be key topic to discuss post results. At a same,
management commentary would also be monitor able.
Hence, with strong medium term earnings visibility, better demand environment and optimistic management comments, we are
positive on (In order of preference) TCS, INFY, and HCL tech from large cap coverage and TECHM, eClerx and NIITTech from Mid cap
space.
Narnolia Securities Ltd,
KPIT
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%
Sales 563.3 702.8 721.97 2.7% 28.2%
EBITDA 87.9 108.1 115.52 6.9% 31.4%
PAT 59.9 66.7 69.40 4.0% 15.9%
EBITDA Margin 15.6% 15.4% 16.1% 70bps 50bps
PAT Margin 10.6% 9.5% 9.7% (90bps) 120bps
PERSISTENT
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%
Sales 333 432.4 436.06 1% 30.9%
EBITDA 82.4 100.8 104.65 4% 27.0%
PAT 49.5 60.8 66.88 10% 35.1%
EBITDA Margin 24.7% 23.3% 24.0% 70bps (70bps)
PAT Margin 14.9% 14.1% 15.3% 80bps 40bps
NIITTECH
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%
Sales 514.4 587.3 593.50 1.1% 15.4%
EBITDA 81.3 88.6 86.06 -2.9% 5.9%
PAT 56.6 60.4 57.38 -5.0% 1.4%
EBITDA Margin 15.8% 15.1% 14.5% (60bps) (130bps)
PAT Margin 11.0% 10.3% 9.7% (60bps) (130bps)
CMP Upside
(06.01.14) % FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E
TCS 2239.6 BUY 2360 5.4% 71.82 90.74 102.37 31.19 24.68 21.88 36.42% 36.22% 32.95%
INFOSYS 3514.2 BUY 3622 3.1% 164.2 181.1 208.2 21.40 19.40 16.88 24.8% 23.0% 22.2%
HCLTECH 1251.3 BUY 1415 13.1% 58.10 71.87 83.49 21.54 17.41 14.99 30.72% 29.10% 26.39%
WIPRO 558.05 NEUTRAL 450 25.0 25.15 27.4 22.28 22.19 20.37 21.7% 18.9% 17.8%
TECHM 1817.65 BUY 2330 28.2% 85.48 144.15 161.64 21.26 12.61 11.25 35.91% 38.31% 30.38%
CMC 1734.45 REDUCE 1693 75.27 101.56 110.07 23.04 17.08 15.76 24.10% 25.81% 22.92%
NIITTECH 379.85 BUY 408 7.5% 36.28 44.03 53.38 10.47 8.63 7.12 20.0% 19.6% 19.3%
KPIT 181.55 REDUCE 177 10.80 13.07 15.95 16.81 13.89 11.38 20.10% 19.80% 19.75%
HEXAWARE 138.65 BUY 141 1.4% 11.1 13.1 14.3 12.49 10.61 9.69 27.2% 27.0% 26%
PERSISTENT 990.05 REDUCE 960 46.12 63.40 76.92 21.47 15.62 12.87 18.1% 20.5% 20.4%
eCLERX 1064.6 BUY 1360 27.7% 64.25 71.61 83.65 16.57 14.87 12.73 43.8% 37.9% 34.4%
TATAELXSI 413.65 REDUCE 210 10.63 17.53 19.76 38.91 23.60 20.93 16.94% 23.55% 22.37%
ZENSARTECH 397.95 BUY 400 0.5% 40.03 57.16 74.62 9.94 6.96 5.33 23.22% 26.07% 26.34%
RoE-%Company View Target
EPS-Rs P/E-x
SHREE CEMENT.
4460
4791
NA
7%
NA
500387
15502
3875
6191
1M 1yr YTD
Absolute 0.1 -4.8 -5.1
Rel. to Nifty 0.0 -8.0 -9.2
2QFY14 1QFY14 4QFY13
Promoters 64.8 64.8 64.8
FII 8.2 8.1 7.8
DII 5.7 5.9 5.6
Others 21.3 21.2 21.8
Financials : Q1FY14 Y-o-Y % Q-o-Q % Q1FY13 Q4FY13
Net Revenue 1248 -5.7 -13.9 1324 1449
EBITDA 249 -36.8 -35.7 394 387
Depriciation 114 21.3 -14.3 94 133
Tax 5 -88.9 -68.8 45 16
PAT 172 -24.6 -39.4 228 284(In Crs)
8
Cement : Theme ReportIndustry’s profitability deteriorated to multi‐year low during 2QFY14 as all companies reported
sharp decline in their operating profits. Weak demand on account of a strong & timely monsoon
led to muted volume growth and weak cement prices. Regional & smaller players hit the hardest
.The industry’s profitability suffered on weak demand & rising costs; Fuel costs have largely
remained stable.Capex slowdown continues to impact demand off‐take. Sand mining bans also
hurting construction activities & cement demand.Infrastructure execution remains uncertain; rural
pick up on good monsoon can lead to demand growth. The storm seems over but headwind
persists Outlook is cautious.
Source - Comapany/EastWind Research
Please refer to the Disclaimers at the end of this Report.
EBIDTA for the cement segment declined 39% at Rs.249 Cr (-37% YOY) on account of weak prices
coupled with higher operational costs. Lower effective tax rate (2.8% vs 16.5%) stemmed the
decline in net profits to INR1.7bn, a degrowth of 24.5%.
On the expansion front :
Share Holding Pattern-%The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun’13.Line X of similar
capacity along with 25MW of WHRS (at the same location) is expected by Jun’14.Two grinding
units of 2m tons each, at Ras and in Bihar,are being constructed and expected by Jun’14.For the
greenfield clinker-cumgrinding unit (Chhattisgarh) and 2m ton grinding unit (Ras), equipment
order have been placed; commissioning is for Mar‐Jun’15.We expect Shree to be a 21.5m-tpa
company by Jun’15.It plans to foray into high demanding eastern. It has set its eye on 'Mission
2015', i.e. achieving a production capacity of 25mmt by 2015.Total capex for these expansion is
Rs.3,000 crore which is spread over next 2 years.1 yr Forward P/B
Volume Growth with degrowth in EBIDTA :Mkt Capital (Rs Crores)
With Q1FY14 performance Net sales declined 5.8% to Rs.1248 Cr as weak cement pricing in its key
northern market offset the benefits from higher cement and power volumes. While cement and
clinker dispatches rose 7.2% YoY to 3.26mmt, realizations weakened 12.7% YoY and 7.2% QoQ at
INR3,334/ mt.On the volumes front, while the 7.2% increase in cement dispatches positively
surprised, a 36% growth in power sales lagged our estimate of a 128% growth.
Average Daily Volume (Nos.)
Nifty
Stock Performance-%
52wk Range H/L 5210/3413
Company Update Buy As on Mid June, the company's gross debt stood at Rs.12.9bn, including Rs.3.1bn of long-term
debt maturing within a year and cash and cash equivalents of Rs. 25.7bn. We believe net cash
balance of INR12.8bn coupled with future cash flows should result in smooth execution of its
expansion plan. A very good strategy for capacity expansion has ensured that leverage remains
under control like in the past.We are positive on the stock as it always beats its peers group with
lower operational cost. Looking at the strategy of the company and expansion plans for FY15
the stock may outperform among cement players with the rise in cement demand.Shree cement
follows a multi brand strategy and sells cement under the highly recognized brands of Shree Ultra,
Bangur and Rockstrong which together enjoy the largest market share in high value markets of
Rajasthan, Delhi and Haryana. After a good monsoon and election we are expecting a good
performance from shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target
Price Rs.4791/-
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market DataBSE Code
NSE Symbol SHREECEM
"BUY"7th Jan' 14
Narnolia Securities Ltd,
0
1000
2000
3000
4000
5000
6000
Ma
r-0
2
Se
p-0
2
Ma
r-0
3
Se
p-0
3
Ma
r-0
4
Se
p-0
4
Ma
r-0
5
Se
p-0
5
Ma
r-0
6
Se
p-0
6
Ma
r-0
7
Se
p-0
7
Ma
r-0
8
Se
p-0
8
Ma
r-0
9
Se
p-0
9
Ma
r-1
0
Se
p-1
0
Ma
r-1
1
Se
p-1
1
Ma
r-1
2
Se
p-1
2
Ma
r-1
3
Se
p-1
3
PRICE 1.5x 2x 2.5x
3x 3.5x 4x 4.5x
OUT LOOK :
FY11 FY12 FY13 FY14E
3454 5898 5590
203 163 188
3656 6061 5779
2569 4252 4029
885 1646 1561
676 873 436
98 235 193
365 619 1004
20.8 23.1 26.1
9
ROE%
Expenditure
EBITDA
Depriciation
Interest Cost
PAT
Shree Cement (SCL) is a cement producer operating in the two segments cement and power. As
of June 30, 2012, the company had a cement capacity of 13.5 million tonnes per annum (MTPA)
and power capacity of 560 MW. This includes 300 MW (150 MW x2) thermal power plant
commissioned at Beawar. The company's waste heat recovery power plants have a total capacity
of 46 MW. The company’s brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It
has manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units at
Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in Uttarakhand.
From the view company Operations in the high utilisation North and Central markets, capacity
expansions underway, low gearing and strong RoE are fundamental positives. We believe
although, near term challenges in terms of a slowdown in demand for cement would remain,
strong balance sheet and better efficiency in terms of cost remains a key positive for this
company to overcome challenges.Company Management is bull for the rest two quarters of
FY2014 as according to them demand has already buttom out.We are positive on the stock as it
always beats its peers group with lower operational cost. Looking at the strategy of the
company and expansion plans for FY15 the stock may outperform among cement players with
the rise in cement demand.Shree cement follows a multi brand strategy and sells cement
under the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together
enjoy the largest market share in high value markets of Rajasthan, Delhi and Haryana. After a
good monsoon and election we are expecting a good performance from shree cement for the
H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/-
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Net tax expense / (benefit)
SHREE CEMENT.
P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income
Company Description :
Narnolia Securities Ltd,
0
5
10
15
20
25
30
35
40
Q1F
Y12
Q2F
Y12
Q3F
Y12
Q4F
Y12
Q5F
Y12
Q1F
Y13
Q2F
Y13
Q3F
Y13
Q4F
Y13
Q1F
Y14
EBIDTA Margin
(10.00)
-
10.00
20.00
30.00
40.00
50.00
60.00
1,200
1,250
1,300
1,350
1,400
1,450
1,500
1,550REVENUE
GROWTH
FY10 FY11 FY12 FY13
35 35 35 35
1798 1951 2699 3809
1833 1986 2734 3844
1789 1472 818 443
318 217 143 534
28 16 17 18
171 185 584 81
472 267 178 87
4906 4940 5973 6160
0 0 0 0
752 1167 1521 1782
967 729 97 133
299 308 205 378
358 404 503 530
82 108 181 315
416 499 459 369
415 429 363 326
4906 4940 5973 6160
FY10 FY11 FY12 FY13
4.4 3.6 3.8 4.2
212.3 118.6 177.5 288.2
2.3 3.1 3.1 5.6
4.7 5.3 9.9 1.4
1.0 1.2 0.9 0.9
FY10 FY11 FY12 FY13
0 0 0 1566
0 0 0 -64
0 0 0 0
0 0 0 0
0 0 0 0
0 0 0 0
10
Cash from Operation
Changes In Working Capital
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year
Trading At :
Source - Comapany/EastWind Research
CASH FLOWS
RATIOS
P/B
EPS
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%
Total Assets
Total liabilities
Intangibles
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
Short-term loans and advances
Short-term provisions
SHREE CEMENT.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Trade payables
Narnolia Securities Ltd,
0
1000
2000
3000
4000
5000
6000
0
1000
2000
3000
4000
5000
6000
7000
NIFTY SHREECEM
216.5
221
-
2
-
1M 1yr YTD
Absolute 15.2 -36.8 -53.8
Rel.to Nifty 14.9 -42.2 -59.2
Current 1QFY14 4QFY1
3Promoters 58.0 58.0 58.0
FII 10.0 10.1 9.6
DII 24.0 24.6 25.2
Others 8.1 7.3 7.2
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 4178 4216 4701 5719 6710
Total Income 5138 5456 6356 7419 8410
PPP 3245 3141 3691 2968 3364
Net Profit 1503 1142 1328 1032 1165
EPS 51.5 39.1 45.5 35.4 39.9
11
Please refer to the Disclaimers at the end of this Report.
We have now neutral rating on Orient Bank largely due to trading closer to our
target price Rs.221. At this price stock would trade at 0.5 times of one year
forward book and 6.5 times of forward earning. We haven’t revised the
multiple on account of non visibility of ROE improvement in near to medium
term. Asset quality and operating leverage is likely to remain at elevated level
in FY14. Provision coverage ratio at the end of 2Q was 30% implying very little
cushion to its future earnings. Balance sheet size is likely to grow at below of
industry average. Despite of comfortable Tier-1, capital infusion of Rs.150 cr
would be book value dilutive. Inability to increase CASA and expected higher
operating leverage in 2HFY14 restrict valuation multiple to move in the range
of 0.4 to 0.5 times of one year forward book in our view.
Asset quality pressure likely to persist but guided better recovery in
agriculture portfolio
Bank management is caution about impairment of asset and taken tight
measurement in lending norm especially in large corporate. Recently large ticket size
fresh slippage emerges from large corporate. Bank management has taken caution
outlook towards the corporate loan and tighten sanction and disbursement norm.
As the result corporate loan grew by 7% YoY in 2QFY14. We observe that corporate
loan constituted about 70% of total credit and rest came from retail loan. With lower
growth in corporate segment, overall credit growth is likely to be muted in full year
and would be below of industry average.
During the last quarter Orient Bank reported flesh slippage at 3.2% (annualized
basis) and asset impairment of 11.1% which would be likely to be flat in full year
according to management. However management expects better recovery in
agriculture portfolio in 2HFY14 led by better harvest. At the end of September bank
has total restructure portfolio of Rs.9421 cr in which most came from infrastructure
segment (about 49%). Power sector contributed 18% of total infrastructure standard
restructure. But as per management most of power sector exposures are from
government sector where chances of fresh slippage are very low. In line with
management guidance we model 3.3% of GNPA for FY14 and 3.4% in FY15E
keeping view of better recovery and controlled fresh slippage.
Balance sheet size likely to grow below of Industry average
Market Data
Upside
NEUTRAL
CMP
Target Price
Previous Target Price
ORIENTAL BANK
ORIENTBANK
Average Daily Volume
6329
Company Update
365/121
Mkt Capital (Rs Cr)
Change from Previous
ORIENT BANK Vs Nifty
Share Holding Pattern-%
1.98 lac
Nifty 6211
(Source: Company/Eastwind)
Stock Performance
52wk Range H/L
BSE Code 500315
NSE Symbol
"NEUTRAL"6th Jan 2014
Narnolia Securities Ltd,
12
ORIENTAL BANK
Source:Eastwind/Company
We note that bank’s CASA ratio stick to 24.5% from FY10 to 2QFY14 which undoubtedly
escalate cost of deposits from 5.8% in FY10 to present of 7.8%. We donot expect
interest rate would be come down in surging inflation imperil. Inability to increase CASA
and rising interest rate would keep NIM under pressure. However management guided
NIM at 2.85 -2.87% in FY14. Lower visibility of comfort earnings and book value dilution
on account of capital infusion, we expect ROE would be 7-10% in near term which will
attract valuation multiple of 0.4 to 0.5 times book.
Please refer to the Disclaimers at the end of this Report.
Capital infusion of Rs.150 cr despite of 8.9% of Tier-1 capital
Operating leverage would be remain at high led higher retirement expenses
Operating expenses to total asset of the bank is much higher than its peers group largely
due to higher expenses towards retirement. Cost-Income (CI) ratio of the bank remained
high at 60% as against industry average of 45%. Bank is likely to provide higher
employee provision in 2HFY14 as indicated by management. We factor CI ratio of 60%
in full year but we understand that ratio may go higher than anticipated. We will get more
clarity after the third quarter result and post conference call.
According to basel-111 norm, Tier-1 capital was 8.9% which was comfortable for required
business growth in our view but recent capital infusion of Rs.150 diluted our estimated
ROE by 10 bps. Bank may use the additional fund in credit growth without adequate
support of deposits.
Low cost deposits stick to 24.5% from last few quarters; exert pressure in
expanding NIM and ROE
Valuation Band
Narnolia Securities Ltd,
13
ORIENTAL BANK
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Financials & Assuption
Narnolia Securities Ltd,
P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 8954 12075 13758 16609 19101
Income on investments 2774 3671 3854 4865 5457
Interest on balances with Reserve Bank of India 335 34 31 78 78
Others 25 35 61 14 14
Total Interest Income 12088 15815 17705 21568 24651
Others Income 960 1240 1655 1700 1700
Total Income 13048 17055 19359 23267 26351
Interest on deposits 7474 11213 12553 15254 17251
Interest on RBI/Inter bank borrowings 23 38 111 149 172
Others 413 348 340 446 517
Interest Expended 7910 11599 13004 15849 17941
NII 4178 4216 4701 5719 6710
NII Growth(%) 43.7 0.9 11.5 21.7 17.3
Other Income 960 1240 1655 1700 1700
Total Income 5138 5456 6356 7419 8410
Employee 1048 1357 1576 2626 2977
Other Expenses 844 959 1089 1825 2069
Operating Expenses 1892 2315 2665 4451 5046
PPP( Rs Cr) 3245 3141 3691 2968 3364
Provisions 1742 1999 2363 1678 1907
Net Profit 1503 1142 1328 1032 1165
Net Profit Growth(%) 32.4 -24.0 16.3 -22.3 12.9
Key Balance sheet dataDeposits 139024 155965 175898 196963 220598
Deposits Growth(%) 15.6 12.2 12.8 12.0 12.0
Borrowings 5639 5259 7679 8498 9854
Borrowings Growth(%) 15.4 -6.7 46.0 10.7 16.0
Loan 95908 111978 128955 148298 170543
Loan Growth(%) 14.9 16.8 15.2 15.0 15.0
Investments 42075 52101 58555 65747 73745
Investments Growth(%) 17.6 23.8 12.4 12.3 12.2
Eastwind CalculationYield on Advances 9.3 10.8 10.7 11.2 11.2
Yield on Investments 6.6 7.0 6.6 7.4 7.4
Yield on Funds 7.8 9.2 9.0 10.1 10.1
Cost of deposits 5.4 7.2 7.1 7.7 7.8
Cost of Borrowings 7.7 7.3 5.9 5.9 7.0
Cost of fund 5.5 7.2 7.1 7.7 7.8
ValuationBook Value 380 409 403 435 464
P/BV 1.0 0.6 0.6 0.4 0.4
P/E 7.5 6.4 5.5 5.1 4.5
128.9
163
26.5
-
-
1M 1yr YTD
Absolute 6.3 -53.8 -53.8
Rel.to Nifty 6.0 -59.2 -59.2
Current 1QFY14 4QFY1
3Promoters 57.9 57.9 57.9
FII 10.2 11.7 10.6
DII 17.8 17.7 18.0
Others 14.2 12.8 13.5
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 6216 6793 7543 7654 8602
Total Income 8255 9241 10095 10389 11337
PPP 4305 5254 5583 5298 5782
Net Profit 2082 1787 2158 1851 1967
EPS 39.7 29.9 36.2 31.0 33.0
14
(Source: Company/Eastwind)
Stock Performance
52wk Range H/L
Margin declined by 10 bps to 2.54% largely due to increase of cost of fund. Yield on
advance was stable at 10.6% QoQ despite to tight liquidity environment whereas
cost of fund increased by 10 bps QoQ. With the recent RBI decision not to hike repo
rate along with higher FCNR deposits, bank’s margin would be expanded in 2HFY14.
Union bank has borrowed fewer amounts for repo than MSF and during quarter bond
yield settle at 8.75% which would result on fair amount of portfolio gain and reduce
the cost of fund.
Please refer to the Disclaimers at the end of this Report.
Change from Previous
UNION Bank Vs Nifty
Share Holding Pattern-%
6.87LAC
Nifty 6211
Mkt Capital (Rs Cr)
UNION BANK
Company Update BUY
CMP
Target Price
Union Bank is trading at 0.4 times of one year forward book and 4.2 times of
one year forward earning which we believe attractive for entry. We are looking
margin expansion on the back of RBI’s decision not hiking the policy rate
(repo rate) and bond yield settle at 8.75% which was much lower as compare
to April-June quarter. Bank borrowed more money on the repo and less on
MSF and bond yield softened to 8.75% which would result on fair amount of
portfolio gain. Moreover bank has taken more money through FCNR (Foreign
currency Non-Resident) which is less costlier than deposits and would help to
reduce the cost of fund and hence margin accretive. We value bank at
Rs.163/share which would be 0.5 times of one year forward book and 5 times
of one year forward earning.
Stable asset quality on sequentially but restructure pipeline still high
At the end of 2QFY14, bank has impairment assets (GNPA+ restructure) at 8.7% of
total advance which is lower as compare to its peers. Fresh addition to restructure
loans were at 2.8% of loans at Rs.1534 cr higher from 2.2% of loans at Rs.1068 cr in
1QFY14. Management guided another Rs.3000 cr of loans are in pipeline led mostly
from SEB. Fresh slippage reported by bank was stable at 3.1% as against 3% in first
quarter. Out of total fresh slippage, 50% came from 4 corporate accounts (Power,
manufacture, Iron & Steel and services). Bank made lower provisions as compare to
growth in GNPA as the result provision coverage ratio declined by 320 bps to 42.1%
from 45.3% on sequential basis.
Margin declined by 10 bps in 2QFY14 but expect to expand in 2HFY14
Average Daily Volume
3231
Previous Target Price
Market Data
Upside
281.6/97.1
BSE Code 532477
NSE Symbol UNIONBANK
"BUY"6th Jan, 2014
Narnolia Securities Ltd,
15
Source:Eastwind/Company
UNION BANK
Please refer to the Disclaimers at the end of this Report.
Comfortable earnings and ROE improvement would be possible
Stable yield on loan sequentially indicated that bank is able to deliver comfort earning on
the back of shifting low yield mix loans to borrowing other market instrument. Although
bank has stable CASA ratio but would be getting benefit from FCNR deposits and
unchanged repo rate along with MSF. So cost of fund would be lesser as compare to
previous quarter in our view. This would help bank to expand margin and ROE
improvement. Balance sheet is expected to grow at 16-17% in FY14 as per management.
View & Valuation
Union Bank is trading at 0.4 times of one year forward book and 4.2 times of one year
forward earning which we believe attractive entry point. We are looking at margin
expansion on the back of RBI’s decision not hiking the policy rate (repo rate) and bond
yield settle at 8.75% which was much lower as compare to April-June quarter. Bank
borrowed more money on the repo and less on MSF and bond yield softened on 8.75%
which would result on fair amount of portfolio gain. Moreover bank has taken more
money through FCNR (Foreign currency Non-Resident) which is less costlier than
deposits and would help to reduce the cost of fund and hence margin accretive. We
value bank at Rs.163/share which would be 0.5 times of one year forward book and 5
times of one year forward earning.
Valuation Band
Narnolia Securities Ltd,
16
UNION BANK
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 12031 16027 19140 21539 24769
Income on investments 4003 4570 5671 6797 7884
Interest on balances with Reserve Bank of India 161 331 199 205 205
Others 258 101 115 177 177
Total Interest Income 16453 21028 25125 28717 33035
Others Income 2039 2448 2552 2735 2735
Total Income 18491 23477 27677 31452 35770
Interest on deposits 9538 13406 16551 19872 23052
Interest on RBI/Inter bank borrowings 113 141 274 1191 1381
Others 585 689 756 0 0
Interest Expended 10236 14235 17582 21063 24433
NII 6216 6793 7543 7654 8602
NII Growth(%) 48.3 9.3 11.0 1.5 12.4
Other Income 2039 2448 2552 2735 2735
Total Income 8255 9241 10095 10389 11337
Employee 2600 2479 2755 3105 3389
Other Expenses 1350 1508 1757 1985 2166
Operating Expenses 3950 3988 4512 5090 5555
PPP( Rs Cr) 4305 5254 5583 5298 5782
Provisions 2223 3467 3425 3447 3815
Net Profit 2082 1787 2158 1851 1967
0.3 -14.2 20.7 -14.2 6.2
Key Balance sheet dataDeposits 202461 222869 263762 305963 354918
Deposits Growth(%) 19.1 10.1 18.3 16.0 16.0
Borrowings 13316 17909 23797 27694 32124
Borrowings Growth(%) 44.5 34.5 32.9 16.4 16.0
Loan 150986 177882 208102 239318 275215
Loan Growth(%) 26.5 17.8 17.0 15.0 15.0
Investments 58399 62364 80830 97094 112629
Investments Growth(%) 7.3 6.8 29.6 20.1 16.0
Eastwind CalculationYield on Advances 8.0 9.0 9.2 9.0 9.0
Yield on Investments 6.9 7.3 7.0 7.0 7.0
Yield on Funds 7.2 8.3 8.3 8.5 8.5
Cost of deposits 4.7 6.0 6.3 6.5 6.5
Cost of Borrowings 5.2 4.6 4.3 4.3 4.3
Cost of fund 4.7 5.9 6.1 6.3 6.3
ValuationBook Value 243 245 290 313 337
P/BV 1.4 1.0 0.7 0.4 0.4
P/E 8.7 7.8 5.8 4.2 3.9
Jyothy Lab
195
260
-
33%
-
1M 1yr YTD
Absolute 4.4 16.0 3.2
Rel. to Nift 4.5 12.6 3.1
Current 1QFY14 4QFY13
Promoters 63.7 63.7 65.6
FII 16.0 17.0 16.5
DII 9.8 9.1 9.6
Others 10.5 10.2 8.4
Financials Rs, Cr
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 306.1 319.2 -4.1% 230.14 33.0%
EBITDA 42.7 48.6 -12% 21.4 100%
PAT 20.9 28.7 -27% 1.4 1393%
EBITDA Margin 13.9% 15.2% (130bps) 9.3% 460bps
PAT Margin 6.83% 8.99% (230bps) 0.61% 620bps
17
Mkt Capital (Rs Cr)
Market Data
211/140
BSE Code 532926
NSE Symbol JYOTHYLAB
Going forward, the company will focus on brand building with extension of current
brands and continue to adapt to the continuous changes of consumers. Management
is confident that these efforts will further strengthen brands and establish better
consumer connect.
Segments/ Brandwise Performance: In its bread and butter business detergent & soap
segment, it has reported a 35% yoy growth led by a strong 77% growth in the Ujala
whitener revenues, a 24% growth in dishwash portfolio and 18% - 20% growth in
Henko. Home care revenues was up 37%, driven by strong growth in Maxo as well as
the other smaller brands in this segment. Maxo revenues grew 33% on YoY basis.
"Efforts for stability"
CMP
Upside
Company update BUY
Target Price
Recent management commentary reveals that the company is planning for inorganic
growth with Rs 250 Cr of bank balance (post repayment of its debt) and especially
looking at regionally strong brands. We expect that company’s new management and
new strategy of product reach would energize its growth story in near future. Hence,
the management has maintained its guidance of achieving around 22% - 25% revenue
growth and OPM of 14% - 15% for FY14.
Last month, Jyothy Lab raised around Rs 262.5 Cr by issuing shares to Promoters
group (Sahyadri Agencies) on preferential basis and Rs400cr of Negotiable Certificate
of Deposits (NCD) coupon payable after 3 years. Now inflow of Rs 662 would be
utilized to pay its outstanding debt of Rs 548cr as on 30th Sept 2013.
Healthy margin rampup: The EBITDA Margin expanded by 466 bps to 13.9%. In an
inflationary environment there was an impact of 2% of higher freight charges on the
OPM which would have been absent in a normal business environment.
Average Daily Volume
3522
Previous Target Price
Change from Previous
1 yr Forward P/B
Share Holding Pattern-%
51716
Nifty 6211
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
52wk Range H/L
For 2QFY14, Jyothy Lab witnessed better numbers with 22% sales growth (standalone)
led by 25% volume growth and 8% price/mix led growth. Apart from detergents
business which grew slower versus other categories due to intense price/promotion
war between top-2 players, all other power brands continue to post strong growth
which has grown by 36%. PAT growth was over the head to Rs 21cr from Rs
1.4cr(2QFY13).
View and Valuation: The Company’s products are available through 2.9 mn outlets in
India and have direct reach of 1 mn outlets. Though the company expects the sub-
stockist will increase by 20% from the current 2000 to 2400 by the end of FY14E. We
believe the distribution restructuring would lead to generate sales and company’s
presence in highly demanding categories would help to manage high margins and
volume growth simultaneously. We maintain "BUY" view on the stock with a target
price of Rs 260, at a CMP of Rs195, stock trades at 3.6x FY15E P/BV.
"BUY"6th Jan' 13
Narnolia Securities Ltd,
18
Please refer to the Disclaimers at the end of this Report.
Financials
(Source: Company/Eastwind)
Jyothy Lab
►The company's products are available through 2.9 mn outlets in India and have direct
reach of 1 mn outlets. Now, company does not expects to increase from the current level,
it expects the sub-stockist will increase by 20% from the current 2000 to 2400 by the end
of FY14.
Take away from management guidance:►The management is confident of achieving its target of 22% - 25% revenue growth and
OPM of 14% - 15% for FY14E.
►The mgmt said that its dishwash brand Pril has seen its market-share taken away by
Dettol's newly launch dishwash product. The company is going to double its ad-spend on
Pril in FY14.
► The management is confident of maintaining the strong growth rate in Ujala fabric
whitener.
Narnolia Securities Ltd,
Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E
Sales 596.32 626.39 912.99 1105.96 1349.27 1646.11
Raw Materials Cost 317.19 320.27 502.99 584.35 688.13 855.98
Employee Cost 75.38 81.31 113.67 130.48 148.42 172.84
Advertisement and Publicity 26.62 33.99 41.79 95.54 134.93 148.15
Other expenses 85.31 111.52 170.46 165.92 175.41 230.46
Total expenses 504.5 547.09 828.91 976.29 1146.88 1407.42
EBITDA 91.82 79.3 84.08 129.67 202.39 238.69
Depreciation 12.36 13.03 24.65 22.43 26.10 31.84
Other Income 17.8 16.91 22.73 5.202 53.97 65.84
EBIT 79.46 66.27 59.43 107.24 176.29 206.84
Interest Cost 1.7 1.99 23.83 68.22 63.25 49.25
Profit (+)/Loss (-) Before Taxes 95.56 81.19 58.33 44.222 167.01 223.44
Provision for Taxes 21.48 15.43 19.94 -14.87 31.73 42.45
Net Profit (+)/Loss (-) 74.08 65.76 38.39 59.092 135.28 180.99
Growth-% (YoY)
Sales 65.3% 5.0% 45.8% 21.1% 22.0% 22.0%
EBITDA 88.3% -13.6% 6.0% 54.2% 56.1% 17.9%
PAT 93.0% -11.2% -41.6% 53.9% 128.9% 33.8%
Expenses on Sales-%
RM Cost 53.2% 51.1% 55.1% 52.8% 51.0% 52.0%
Employee Cost 12.6% 13.0% 12.5% 11.8% 11.0% 10.5%
Ad spend 4.5% 5.4% 4.6% 8.6% 10.0% 9.0%
Other expenses 14.3% 17.8% 18.7% 15.0% 13.0% 14.0%
Tax rate 22.5% 19.0% 34.2% -33.6% 19.0% 19.0%
Margin-%
EBITDA 15.4% 12.7% 9.2% 11.7% 15.0% 14.5%
EBIT 13.3% 10.6% 6.5% 9.7% 13.1% 12.6%
PAT 12.4% 10.5% 4.2% 5.3% 10.0% 11.0%
Valuation:
CMP 169.85 219.80 155.00 175.00 195.00 195.00
No of Share 7.30 8.10 16.10 16.00 16.00 16.00
NW 387.76 631.10 612.42 638.56 726.69 860.53
EPS 10.15 8.12 2.38 3.69 8.46 11.31
BVPS 53.12 77.91 38.04 39.91 45.42 53.78
RoE-% 19.1% 10.4% 6.3% 9.3% 18.6% 21.0%
P/BV 3.20 2.82 4.07 4.38 4.29 3.63
P/E 16.74 27.07 65.00 47.38 23.06 17.24
Hero Motocorp
19Please refer to the Disclaimers at the end of this Report.
AUTO SALES DASHBOARD : DECEMBER 2013Another Month of Tepid Performance
The automobiles companies come up with December 2013 sales volumes with no big
surprises. The industry followed the same declining trend as in November 2013 with
Scooter and Tractors sales showing some upward traction. Indian automobile OEMs
continue to be negatively impacted by the overall economic slowdown, firm interest rates,
inflationary headwinds and high fuel prices.
The first look on the 3QFY14 volumes for most of the companies is not encouraging in
any way even the export business which did fairly better in 2QFY14 lost its momentum in
the quarter under review. Our first analysis on the quarter volumes of the OEMs shows that
except for Heromotocorp remaining all the companies have declining performance on
volume front.
The current scenario does not provide with any quick turnaround and one can expect only slow and gradual progress in the industry. On
the whole, in the light streched valuation and business outlook we will continue to maintain our previous recommendation and will tracking
for any event in the sector and its consequent impact on our coverage universe.
(Source: Company/Eastwind)
Amidst a tough market, Hero Motocorp has outperformed by posting marginally higher-than
expected volume of 524990 units in December 2013, down 3.1% YoY.
Bajaj Auto
Total sales for the month stood at 297776 units, down 13.4% YoY, driven by contraction of
32.5% YoY in domestic and 19.6% YoY in exports. With most of the Discover and Pulsar
series launches out of the way,company has little to offer in terms of new products to
protect its rapidly falling domestic business market share.
The currency movement benefit which was realized in 2QFY14 for some of the auto
companies seems not to doing much of action in this quarter owing more stable INR-Dollar
movement.
Maruti Suzuki
Domestic sales (up 5.5% YoY) posted a strong show, led by the mini segment, which
posted robust 17% YoY growth. The mini segment a on YTD basis too is up nearly 8% YoY,
indicating a slow return of first-time buyers in the entry-level petrol segment.
Mahindra & Mahindra
Pickups and 3W growth stood at a moderate 5.0% YoY and 7.6% YoY, respectively. The
aforesaid trend is in line with overall LCV segment growth, which is on a moderating path.
Tractor share on a YTD basis inched up to 36% from 30% during the same period last year.
Tata Motors
Tata Motors posted yet another month of a muted set of numbers with total sales
contraction at 42.3% YoY to 37,852 units. However,with JLR accounting for most of the
company’s profitability, the struggling domestic business is unlikely to affect consoliadted
performance.
Narnolia Securities Ltd,
Company Dec-13 Nov-13 Dec-12 MoM (% Change) YoY(% Change)
HEROMOTOCO 524990 530530 541000 -1.0% -3.0%
BAJAJ-AUTO 297776 310591 343946 -4.1% -13.4%
MARUTI 90924 92140 95145 -1.3% -4.4%
M&M 39611 39255 45297 0.9% -12.6%
TATAMOTORS 37852 40863 65582 -7.4% -42.3%
ASHOKLEY 6275 5375 7299 16.7% -14.0%
TVSMOTORS 159495 161908 156221 -1.5% 2.1%
Sales Volume (Units)
AUTO SALES DASHBOARD : DECEMBER 2013 PERFORMANCE CHART
Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4000
email: [email protected],
website : www.narnolia.com
Risk Disclosure & Disclaimer: This report/message is for the personal information of
the authorized recipient and does not construe to be any investment, legal or taxation
advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any
action based upon it. This report/message is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or
redistributed to any other person in any from. The report/message is based upon publicly
available information, findings of our research wing “East wind” & information that we
consider reliable, but we do not represent that it is accurate or complete and we do not
provide any express or implied warranty of any kind, and also these are subject to change
without notice. The recipients of this report should rely on their own investigations,
should use their own judgment for taking any investment decisions keeping in mind that
past performance is not necessarily a guide to future performance & that the the value of
any investment or income are subject to market and other risks. Further it will be safe to
assume that NSL and /or its Group or associate Companies, their Directors, affiliates
and/or employees may have interests/ positions, financial or otherwise, individually or
otherwise in the recommended/mentioned securities/mutual funds/ model funds and
other investment products which may be added or disposed including & other mentioned
in this report/message.