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Tech Mahindra attractive deal wins ratios make us optimistic view on the stock, we recommend to BUY stock with target price of Rs 2330. Also Persistent System book profit on the stock because of its premium valuation
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IEA-Equity
Strategy
23th Dec, 2013
AXIS BANK : "Neutral" 19th Dec 2013
Axis bank is trading at 1.6 times of one year forward book which is almost upper side of bear case valuation band. We are not seeing bank’s
earnings better than expectation as bank’s has significant exposure in riskier sector like infrastructure and power as compare to its peers. We
have taken bank’s valuation multiple in bear case scenario on account of non visibility of ROE improvement and expected muted earnings
growth. We assume loan and deposits growth of 16% and 15% along with margin at 3.5%. Better than expected performance will lead price
performance and valuation multiple............................... ( Page : 11-14)
CMC : "On track to deliver" "BUY" 20th Dec 2013
Considering recent healthy demand environment across the IT space with favorable supply side scenario, we remain confident on the stock for
better earning visibility and stable margin picture. Still, we reiterate our positive stance on the long-term story of CMC due to its focus on high
margin SI and ITES businesses.At a CMP of Rs 1510, stock trades at 14.9X FY14E earnings. We have "BUY" view on the stock and we revise our
target price from Rs1490 to Rs1690.............................. (Page : 6-7)
Tech Mahindra : "On a stronger footing.." "BUY" 23rd Dec 2013
Post merger with Satyam, strong demand traction in Telecom (Non BT) has improved and company's attractive deal win ratios make us
optimistic view on the stock. At a CMP of Rs 1691, relatively the stock is trading at a fair valuation, 12.8x of FY14E earnings (at USD of
Rs60/59.5 for FY14E/FY15E). We maintain “BUY” on the stock with a price target of Rs 2330 (revised from Rs 1875)..................... ( Page : 4-5)
Persistent System : "Persistently innovating.." "REDUCED" 23rd Dec 2013
We had initiated this stock at a CMP of Rs 526(on 16th Feb 2013) and now, it achieved its target of Rs 960. Despite better predictability of
growth and attractive visibility of its expansion in new 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 stocks with better earnings
visibility. Our view could be change with management guidance and post earnings of coming quarter................................................... ( Page : 2-
3)
Godrej Consumer Product : " Strategy Shining" "BUY" 19th Dec 2013
Its strong 20%+ growth in the domestic household insecticides business is the key growth driver. We expect strong momentum to continue in
its international business led by Megasari and consolidation of Darling business. Despite some concerns related to higher leverage, lost
domestic focus and currency risk, we remain confident of achieving the 20%+ sales growth with strong PAT growth for FY14E & beyond.
........................................... ( Page : 15-16)
BANK OF INDIA : "BUY" 18th Dec 2013
Bank of India is trading at 0.5 times of one year forward book which is the lowest in valuation band despite of performing better than
expectation largely due to lower CAR and slower economic growth. With the capital infusion to the tune of Rs.1000 cr and improving sign of
asset quality would re-rate the stock as it did previously in our view. The management guided fresh slippage in line with 2QFY and inch up
higher restructure asset for December quarter. We believe that current level is attractive entry point for the investor with time horizon more
than one year with price target of Rs.235.................................... ( Page : 17- 19)
DIVISLAB : Good Growth Ahead "BUY" 19th Dec 2013
The company posted strong 2QFY4 results with net sales growing to Rs 566 Cr up by 19.7% YoY on the back of good growth coming from all
business segments. The generic API grew by 18% YoY to Rs 261 Cr for the quarter and CRAMS business segment grew by 20% YoY to Rs 271
Cr............................................. ( Page : 8-10)
email: [email protected], website : www.narnolia.com
Narnolia Securities Ltd,
402, 4th floor 7/1, Lords Sinha Road Kolkata 700071, Ph 033-32011233 Toll Free no : 1-800-345-4000
India Equity Analytics
Persistent System.
-
1M 1yr YTD
Absolute 24.1 105.2 91.2
Rel. to Nifty 23 99.4 84.6
Current 1QFY14 4QFY13
Promoters 38.96 38.96 38.96
FII 15.28 14.84 12.39
DII 21.23 19.31 21.59
Others 24.53 26.89 27.06
Financials
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 432.37 357.29 21.0 326.86 32.3
EBITDA 100.8 76.8 31.3 89.06 13.2
PAT 60.8 57.1 6.5 44.71 36.0
EBITDA Margin 23.3% 21.5% 180bps 27.2% (390bps)
PAT Margin 14.1% 16.0% (190bps) 13.7% 40bps
2
Previous Target Price 890
Upside -
BSE Code 533179
NSE Symbol PERSISTENT
Mkt Capital (Rs Crores)
Change from Previous
Nifty
Share Holding Pattern-%
6274
Stock Performance
Market Data
Clients Metrics: During the quarter, company added 2 clients at 32 under medium
category( >$1mn to $3mn) and 1 client at 16 from large ( > $ 3Mn) . Revenue from top-1
client was improved from 21.2% (1QFY14) to 22.5% . DSO at 62days, almost 12
quarters low.
"Persistently innovating.."
CMP 1007
Target Price 960
Company update Book Profit We had initiated this stock at a CMP of Rs 526(on 16th
Feb 2013) and now, it achieved
its target of Rs 960. Despite better predictability of growth and attractive visibility of
its expansion in new 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 stocks with better earnings visibility.
4029
Average Daily Volume 12139
Margin ramp up: During the quarter, Its EBITDA margin improved by 180bps to 23.3%,
positively impacted by currency gain(270bps), while during the quarter company wage
hike to its off shore employee at a range of 8-9% was impacted margin by 310 bps
adversely. However, management expects to maintain margin at a range of 24-25% for
FY14E.
Recently , Persistent System reported superlative set of numbers during the 2QFY14
with 21%(QoQ) sales growth in INR term and 8.6%(QoQ) growth in USD term led by
38%(QOQ) growth on the intellectual property (IP) revenues. PAT growth was at 6.5%
(QoQ).
With the potential revenue growth, strong deal pipeline and multi-year relationships
with marquee clientele in the Infrastructure vertical, we expect for better earning
visibility across niche IT players.
Persistent Sytem’s management remains confident of FY14 with deal pipeline being
strong and remains focused on increasing the share of IP-led revenues in its portfolio.
They expect to see more than 15% USD revenue growth for FY14E.
1 year forward P/E-x
Rs, Crore
(Source: Company/Eastwind)
View and Valuation: The company’s focus is shifting greater proportion to IP led services
and company has marquee clientele in cutting-edge technologies around cloud,
mobility, collaboration and analytics; witnessing faster growth. Considering the
company’s premium valuation, we advice “Book Profit” on the stock. At a CMP of Rs
1007, stock trades at 15.9x FY14E earnings. Our view could be change with
management guidance and post earnings of coming quarter.
Persistent's management suggests that deal pipeline are looking strong and seeing
good activity and traction in the market across the board. Its focus on some of newer
technologies like cloud, analytics and mobility are gaining a lot of traction because of
pickup in demand environment. The emerging themes, (CAMB) Cloud, Analytics,
Mobility, and Big data could also see strong demand traction ahead. Because of
actively investment in these themes, management is very confident to see healthy
growth and also they expressed their confidence to beat the NASSCOM guidance (12-
14% revenue growth for FY14E).
52wk Range H/L 1023/477
Please refer to the Disclaimers at the end of this Report.
"Book Profit"23rd Dec' 13
Narnolia Securities Ltd,
3
Persistent System.
(Source: Company/Eastwind)
Financials
(Source: Company/Eastwind)
Rating and Price Target Chart Updation Detail
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Rs, in Cr. FY10 FY11 FY12 FY13 FY14E FY15E
Sales 601.16 775.84 1000.3 1294.5 1657.54 2053.93
Employee Cost 368.74 481.62 599.05 719 895.07 1119.39
Cost of technical professionals 0 30.67 41.68 54 82.88 102.70
Other expenses 86.05 105.24 135.2 218 290.07 379.98
Total expenses 454.79 617.53 775.93 990.78 1268.02 1602.06
EBITDA 146.37 158.31 224.37 303.72 389.52 451.86
Depreciation 33.52 42.39 61.1 78 93.54 84.18
Other Income 11.23 34.44 34.44 34.44 66.30 71.89
EBIT 112.85 115.92 163.27 225.44 295.98 367.68
Interest Cost 0 0 0.00 0.03 0.00 0.00
Profit (+)/Loss (-) Before Taxes 124.08 150.36 197.71 259.851 362.29 439.57
Provision for Taxes 9.05 10.62 55.09 75.37 108.69 131.87
Net Profit (+)/Loss (-) 115.03 139.74 142.62 184.481 253.60 307.70
Growth-% (YoY)
Sales 1.2% 29.1% 28.9% 29.4% 28.0% 23.9%
EBITDA 60.2% 8.2% 41.7% 35.4% 28.3% 16.0%
PAT 74.1% 21.5% 2.1% 29.4% 37.5% 21.3%
Expenses on Sales-%
Employee Cost 61.3% 62.1% 59.9% 55.5% 54.0% 54.5%
Other expenses 14.3% 13.6% 13.5% 16.9% 17.5% 18.5%
Tax rate 7.3% 7.1% 27.9% 29.0% 30.0% 30.0%
Margin-%
EBITDA 24.3% 20.4% 22.4% 23.5% 23.5% 22.0%
EBIT 18.8% 14.9% 16.3% 17.4% 17.9% 17.9%
PAT 19.1% 18.0% 14.3% 14.3% 15.3% 15.0%
Valuation:
CMP 310 366.7 409.2 541 1007 1007
No of Share 4 4 4 4 4.00 4.00
NW 639.0 747.1 840.5 1018.3 1234.4 1504.7
EPS 28.8 34.9 35.7 46.1 63.4 76.9
BVPS 159.7 186.8 210.1 254.6 308.6 376.2
RoE-% 18.0% 18.7% 17.0% 18.1% 20.5% 20.4%
P/BV 1.9 2.0 1.9 2.1 3.3 2.7
P/E 10.8 10.5 11.5 11.7 15.9 13.1
Date Update Detail CMP View Target Price
16-Feb-13 Initiation 526 BUY 580
25-Jun-13 Company Update 499 BUY 580
7-May-13 Result Update 514 BUY 580
31-Jul-13 Result Update 522 BUY 580
18-Sep-13 Company Update 573 BUY 642
26-Sep-13 Company Update 623 BUY 834
9-Oct-13 Company Update 682 BUY 834
22-Oct-13 Result Update 739 BUY 890
13-Dec-13 Company Update 876 BUY 960
23-Dec-13 Company Update 1007 Book Profit
Tech Mahindra
BUY
24%
1M 1yr YTD
Absolute 9.3 99 39.2
Rel. to Nifty 6.8 93 32.7
Current 1QFY14 4QFY13
Promoters 36.46 47.17 47.41
FII 32.59 26.79 27.34
DII 15.13 15.83 16
Others 15.82 10.21 9.25
Financials
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 4771.5 4103.2 16.3 3523.7 35.4
EBITDA 1110.85 864.5 28.5 756.9 46.8
PAT 718.2 686.3 4.6 455.9 57.5
EBITDA Margin 23.3% 21.1% 220bps 21.5% 150bps
PAT Margin 15.1% 16.7% (160bps) 12.9% 220bps
4
Previous Target Price 1875
Recently, following the footsteps of other larger giants such as TCS and Infy, Tech
Mahindra revealed its earning story better than street expectations for 2QFY14. Sales
grew by 16.3% (QoQ) in INR term led by healthy growth across all segments, verticals
and geographies. In USD term, sales grew 4.7% (QoQ) better than all nearest peers
barring TCS. PAT was up by 4.7% (QoQ) adversely impacted by lower other income and
forex loss of Rs 26 Cr during the quarter. The company had forex gains of Rs 134 Cr in
the June quarter.
Nifty
Change from Previous
Upside 26%
Average Daily Volume 191827
"On a stronger footing.."
Company update
CMP 1844
Target Price 2330
Broad-based performance with positive outlook, positive view retained;
The company remains confident on demand and expects client budgets to remain at
the same levels in FY15E. It announced 2 large deals in the enterprise solutions
(previously Mahindra Satyam) and has a healthy deal pipeline.
Market Data
BSE Code 532755
NSE Symbol TECHM
Mkt Capital (Rs Crores)
52wk Range H/L 1872/895
42991
Win- Win on all geographies: During the 2QFY14, winning trio was seen across
geographies. US (contributes 33% on sales) grew by 8%, RoW (23% on sales) by 9.4%
(QoQ). While Europe (contributes 44% on sales) was marginally up by 2.4%(QoQ) in USD
term. Post earning management quoted for better outlook in Europe with greater
traction in Australia and Africa in near term.
All-rounder across all verticals: During the quarter, company reported 2.5% growth in
Telecom, 4.7% growth in manufacturing, media including entertainment, BFSI and
others each in USD term. While Retail, Transport and Logistic snapped a larger growth
figure of 22% sequentially. The company is focusing on BFSI, manufacturing and
telecom.
BT on Slide: The management said revenues from British Telecom (BT) continued to
slide. Those were 12% of consolidated revenues in the June quarter. It believes revenues
from BT will be under pressure.
1 year forward P/E-x
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Post merger with Satyam, strong demand traction in Telecom (Non BT) has improved
and company's attractive deal win ratios make us optimistic view on the stock. At a
CMP of Rs 1691, relatively the stock is trading at a fair valuation, 12.8x of FY14E
earnings (at USD of Rs60/59.5 for FY14E/FY15E). We maintain “BUY” on the stock with
a price target of Rs 2330 (revised from Rs 1875).
Share Holding Pattern-%
6274
Stock Performance
View and Valuation: Recently, company’s management explained its 6-pillar strategy
i.e., selling 6 service lines of IT, infr- management, network management, security
services, value added services and services such as analytics to telcos. Currently, non-IT
services contribute 33% of telecom revenues for the company. Further, it is focusing on
segments that are growing faster such as platforms, enterprise, mobility and NMACS
(networks, mobility, analytics, cloud and security).
Green flag on Margin front: EBITDA margin expanded 222 basis points sequentially to
23.3% aided by a weaker rupee. Despite sweet flavor on margin front, management is
still cautious for coming quarter due to Furloughs .
"BUY"23rd Dec' 13
Narnolia Securities Ltd,
5
Tech Mahindra.
(Source: Company/Eastwind)
Operating Metrics
Financials
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Client contribution to revenue-% 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
Customer Active 484.00 475.00 475.00 516.00 567.00 576.00
Top 10 clients 50.0% 51.0% 50.0% 50.0% 49.0% 48.0%
Top 5 clients 40.0% 41.0% 39.0% 37.0% 37.0% 36.0%
Top client 17.0% 14.0% 15.0% 13.0% 12.0% 12.0%
Revenue mix - onsite/offshore (%)
Onsite 48.0% 48.0% 48.0% 48.0% 51.0% 51.0%
Offshore 52.0% 52.0% 52.0% 52.0% 49.0% 49.0%
Employee Metrics
Utilisation % 75.0% 74.0% 76.0% 77.0% 76.0% 75.0%
Attrition % 17.0% 16.0% 16.0% 16.0% 15.0% 16.0%
Rs, Cr FY12 FY13 FY14E FY15E FY16E
Net Sales(mn)-USD 1157 2633 3124.01 3592.61 4023.73
Net Sales 11702.4 14332.0 18744.06 21376.04 24343.54
Employee Cost 6591.9 8099.5 10309.24 11756.82 13388.95
Operation and other expenses 2210.1 2287.3 3373.93 3847.69 4381.84
Subcontracting Cost 948.6 882.0 1405.80 1603.20 1947.48
Total Expenses 9750.6 11268.8 13683.17 15604.51 17770.79
EBITDA 1951.8 3063.2 5060.90 5771.53 6572.76
Depreciation 319.0 389.6 509.54 581.08 661.75
Other Income 501.3 212.2 281.16 213.76 243.44
Extra Ordinery Items 36.9 -160.1 -209.39 -238.79 -121.72
EBIT 1632.80 2673.60 4551.36 5190.45 5911.00
Interest Cost 107.3 92.1 98.04 91.37 86.93
PBT 2063.7 2633.6 4525.09 5074.05 5945.79
Tax 228.9 647.9 1176.5 1319.3 1545.9
PAT 1834.8 1985.7 3348.6 3754.8 4399.9
Growth-%
Sales-USD 2.7% 127.6% 18.6% 15.0% 12.0%
Sales 13.8% 22.5% 30.8% 14.0% 13.9%
EBITDA 11.9% 56.9% 65.2% 14.0% 13.9%
PAT 11.9% 8.2% 68.6% 12.1% 17.2%
Margin -%
EBITDA 16.7% 21.4% 27.0% 27.0% 27.0%
EBIT 14.0% 18.7% 24.3% 24.3% 24.3%
PAT 15.7% 13.9% 17.9% 17.6% 18.1%
Expenses on Sales-%
Employee Cost 56.3% 56.5% 55.0% 55.0% 55.0%
Subcontracting Cost 8.1% 6.2% 7.5% 7.5% 8.0%
Operation and other expenses 18.9% 16.0% 18.0% 18.0% 18.0%
Tax rate 11.1% 24.6% 26.0% 26.0% 26.0%
Valuation
CMP 652.5 1081.7 1844 1844 1844
No of Share 23.2 23.2 23.2 23.2 23.2
NW 4815.8 5529.1 8741.77 12360.68 16624.68
EPS 79.0 85.5 144.1 161.6 189.4
BVPS 207.3 238.0 376.31 532.10 715.66
RoE-% 38.1% 35.9% 38.3% 30.4% 26.5%
Dividen Payout-% 3.2% 3.0% 4.1% 3.6% 3.1%
P/BV 3.1 4.5 4.9 3.5 2.6
P/E 8.3 12.7 12.79 11.41 9.74
CMC
1M 1yr YTD
Absolute 15.0 29.2 54.5
Rel. to Nifty 15.4 24.6 37.1
Current 4QFY13 3QFY13
Promoters 51.12 51.12 51.12
FII 23.32 21.84 19.87
DII 17.83 19.05 20.46
Others 7.73 7.99 8.55
Financials2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 560.75 486.61 15.2 458.64 22.3
EBITDA 88.41 77.04 14.8 76.59 15.4
PAT 67.3 53.12 26.7 49.4 36.2
EBITDA Margin 15.8% 15.8% - 16.7% (90bps)
PAT Margin 12.0% 10.9% 110bps 10.8% (120bps)
6
"On track to deliver"
CMP 1510
Target Price 1690
Mkt Capital (Rs Crores)
Share Holding Pattern-%
Average Daily Volume 20884
1560/1107
Company update Buy
Previous Target Price 1490
Upside 12%
Stock Performance
1 year forward P/E
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Deal pipeline: The deal pipeline is in line with the last year. It indicated that pursuing
good number of deals in the Developed and as well emerging markets. Considering
current sound demand environment across geographies (like US and Europe) and
verticals Company is more optimistic for clients acquisition and deal executions ahead.
Now, CMC is focusing on new emerging segments like IMS (Infrastructure
Management Services), Cloud, Big data, Mobility and Analytics. Considering its
impressive client as well as market response, company is expecting to quantify into
revenue. Its new and emerging projects like Mining Management System, GPS System
and Port & Cargo Management System would play a major role for generating
revenue.
View and Valuation: CMC expects the growth momentum to improve in the quarters
ahead and the revenue growth to be higher than the NASSCOM guidance in FY14. The
Company remains a strong with excellent earning visibility led by joint effort of market
strategy by TCS (contributes 59% of sales) in its product and solutions. For a long-term
prospect, we remain positive on the stock, taking its earning visibility and healthy
earnings among the mid-cap IT space (over 25% CAGR in earnings over FY2013-15E). At
a CMP of Rs 1510, stock trades at 14.9X FY14E earnings. We have "BUY" view on the
stock and we revise our target price from Rs1490 to Rs1690.
Steady Margin: During the quarter, EBITDA margin was almost unchanged at 15.8% due
to wage hikes (70 bps), but also has positive impact from currency gain (170 bps) which
were reinvested into the business. However, Management is still confident to maintain
the margin in a range of 15-16%.
Nifty 6167
4575
We believe, CMC will continue with its efforts to enhance revenue contribution of high
margin System Integration and ITES segments. Further, its high focus on education
space will also add margin in near term.
Considering recent healthy demand environment across the IT space with favorable
supply side scenario, we remain confident on the stock for better earning visibility and
stable margin picture. Still, we reiterate our positive stance on the long-term story of
CMC due to its focus on high margin SI and ITES businesses.
For 2QFY14E earnings, CMC witnessed better Sales and PAT growth with 15% sales
growth driven by the strong growth from the System Integration (29%) coupled with the
good growth from the System Integration (24%) and ITES business (16%) sequentially.
PAT grew by 27%(QoQ) because lower effective tax rate (from 34%, 1QFY14) to 20% of
earning before tax) .
BSE Code 517326
NSE Symbol CMC
Change from Previous 13.4%
Market Data
52wk Range H/L
"BUY"20th Dec' 13
Narnolia Securities Ltd,
7
CMC
Key facts from recent Concall
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Financials;
►CMC continues to target growth ahead of the overall IT industry; the company expects
to grow faster than that in the current financial year
►Expects operating Profit margin between 15 percent and 16 percent for FY14E,
►The Capex expected to be Rs 190 crore (planned is around Rs 230 crore) for FY'14.The
capex will be financed by internal accruals.
►Company’s hiring Plan; a net addition of 400-500 this year
► Notably, it targets revenues of Rs 250-300 crore from Education and Training business
in next two 3-4 years timeline.
Narnolia Securities Ltd,
Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E
Net Sales 870.73 1084.40 1469.34 1927.87 2239.31 2600.41
Purchases of stock-in-trade 99.35 99.28 145.40 188.56 201.54 234.04
Employee Cost 276.16 345.13 440.22 521.65 593.42 702.11
Subcontracting and outsourcing cost 173.56 262.35 446.11 679.73 794.96 923.15
Other expenses 159.94 170.17 213.63 222.88 235.13 273.04
Total Expenses 709.01 876.93 1245.36 1612.82 1825.04 2132.34
EBITDA 161.72 207.47 223.98 315.05 414.27 468.07
Depreciation 9.85 10.46 21.37 23.20 41.95 60.69
Other Income 18.75 11.80 17.46 13.17 22.39 26.00
EBIT 151.87 197.01 202.61 291.85 372.33 407.38
Interest Cost 3.17 0.22 0.02 0.18 0.2 0.25
PBT 167.45 208.59 220.05 304.84 394.52 433.14
Tax 24.23 32.42 68.59 76.76 86.79 99.62
PAT 143.22 176.17 151.46 228.08 307.73 333.52
Growth-%
Sales -7.4% 24.5% 35.5% 31.2% 16.2% 16.1%
EBITDA 27.7% 28.3% 8.0% 40.7% 31.5% 13.0%
PAT 23.3% 23.0% -14.0% 50.6% 34.9% 8.4%
Margin -%
EBITDA 18.6% 19.1% 15.2% 16.3% 18.5% 18.0%
EBIT 17.4% 18.2% 13.8% 15.1% 16.6% 15.7%
PAT 16.4% 16.2% 10.3% 11.8% 13.7% 12.8%
Expenses on Sales-%
Employee Cost 31.7% 31.8% 30.0% 27.1% 26.5% 27.0%
Subcontracting Cost 19.9% 24.2% 30.4% 35.3% 35.5% 35.5%
Tax rate 14.5% 15.5% 31.2% 25.2% 22.0% 23.0%
Valuation
CMP 1340.0 2079.6 994.8 1410.0 1510 1510
No of Share 1.50 1.50 3.00 3.03 3.03 3.03
NW 510.68 654.02 772.19 946.26 1192.11 1454.91
EPS 95.48 117.45 50.49 75.27 101.56 110.07
BVPS 340.45 436.01 257.40 312.30 393.44 480.17
RoE-% 28.0% 26.9% 19.6% 24.1% 25.8% 22.9%
Dividen Payout ratio 18.6% 19.9% 23.2% 19.4% 20.1% 21.2%
P/BV 3.94 4.77 3.86 4.51 3.84 2.78
P/E 14.03 17.71 19.70 18.73 14.87 13.72
BUY
1M 1yr YTD
Absolute 2.8 4.4 1.4
Rel. to Nifty 0.1 -1.3 -14.6
Current 1QFY14 4QFY1
3Promoters 52.1 52.2 52.2
FII 15.8 14.9 14.0
DII 12.5 12.5 13.3
Others 19.5 20.5 20.5
Financials Rs, Crore
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 567 517 9.7 474 19.6
EBITDA 249 197 26.4 165 50.9
PAT 205 174 17.8 117 75.2
EBITDA Margin 43.9% 38.1% 580bps 34.8% 910bps
PAT Margin 36.2% 33.7% 250bps 24.7% 1150bps
8
Change from Previous -
NSE Symbol
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
Mkt Capital (Rs, Cr)
Nifty 6217
The company have one more business segment ‘Nutraceuticals’ relatively smaller and
newer as compared to other business segment can act as growth driver going forward. The
management of the company is quite optimistic for this business segment and has guided
that this business at 40-50% CAGR (albeit on a low base) over the next 2-3 years.
2QFY14 Results Update.The company posted strong 2QFY4 results with net sales growing to Rs 566 Cr up by
19.7% YoY on the back of good growth coming from all business segments. The generic
API grew by 18% YoY to Rs 261 Cr for the quarter and CRAMS business segment grew by
20% YoY to Rs 271 Cr. The company derives almost 45-50% of revenues each from
CRAMS and generic API business while rest comes from ‘Nutraceuticals’.One Year Price vs Nifty
(Source: Company/Eastwind)
15631
Average Daily Volume 5.43
The operating EBITDA for the quarter came at Rs 250 Cr and OPM at 43.9 %. Company’s
2QFY14 EBITDA margins were higher than 34.8% reported in Q2FY13 on account of
higher gross margins, lower power cost and forex loss in Q2FY13.The RM cost as % of net
sales stands at 50% for the 2QFY14 while employee cost as % of net sales was 10 %.
Company is one of the few CRAMS (Contract Research and Manufacturing Services)
players with a superior business mix comprising high-margin custom synthesis of APIs
(Active Pharma Ingredients) and intermediates for innovator companies. The company
collaborates with innovators throughout the product development cycle. Post
commercialization, company is usually the key supplier of APIs and intermediates for these
products to the innovators. In 2012-13, the company added six products to its custom
synthesis portfolio.The CRAMS business which contributes nearly 45%- 50% of the total revenues have from
Rs 560 Cr in 2009 to Rs 1000 Cr translating CAGR of 15 %.The Generic API business
which contributes another 45-50 % to the total revenues is also well track after witness
some pressure in FY10.As on FY13 this segment contributed Rs 1029 Cr to the total
revenues and this segment to more revenues to the company in the light of upcoming
patent cliff of US and new launches .
14%Upside
DIVISLABGood Growth Ahead
Target Price 1350
Previous Target Price -
Result Update
CMP 1186
About The Company :Divi’s Laboratories Limited is an India-based manufacturer of Active Pharmaceutical
Ingredients (APIs) and Intermediates. Divi is engaged in manufacture of generic APIs,
custom synthesis of active ingredients for innovator companies and other specialty
chemicals like peptides and nutraceuticals.
Investment Rationale :
52wk Range H/L 1189/905
DIVISLAB
Market Data
BSE Code 532488
"BUY"19th Dec' 13
Narnolia Securities Ltd,
9
Please refer to the Disclaimers at the end of this Report.
DIVISLAB
Continued…The net profits for the 2QFY14 came at Rs 205 Cr and NPM came at 36.2%.The net profits
also include forex gain of Rs 31 Cr. The company reports its forex gain under other
income headings and forex loss under its other expenditure head. The tax rate for the
quarter stands at 22%.
Graphical Depiction
Revenue Break Up: 2QFY14
(Source: Company/Eastwind)
Company has capitalized Fixed assets to the tune of Rs120 Cr for H1 FY14. The company
will commercialize DSN SEZ by the end of the year and the FDA inspection post that. The
new DSN SEZ contribution will start in Q1 FY15E and full benefits will fructify only from Q2
FY15E.The existing DSN blocks contributed Rs125 Cr revenues in Q2 FY14 as against
Rs70.8 Cr in Q1 FY14.
Management GuidanceThe management of the company after strong 2QFY14results expects that revenue to
grow by 15-20 % (15% guided earlier), with FY15E growth expected above 20%. The
management further indicated that this high level of OPM is not sustainable but reiterated
that 38% levels OPM is quite reachable . On Power shortage ,which declined the OPM in
1QFY14 has been solved and will aid margin expansion going forward. The capex
guidance stands at INR500-600m (apart from INR2b addition from CWIP) and tax rate
guidance remains between 23-24%.
View & ValuationThe company is not only the most profitable company in the CRAMS space, but also
features among the most profitable companies in the Indian healthcare sector with EBIDTA
margin of 35-40% backed by its strong chemistry skills and custom synthesis presence.The
stock is currently trading at CMP of Rs 1186, strong 2QFY14 results ,optimistic
management guidance and better business model in comparison to its peers makes us
confident for the stock. We are positive for the stock and recommend BUY with
target price of Rs 1350.
Narnolia Securities Ltd,
10
DIVISLAB
Sales and PAT Trend (Rs)
(Source: Company/Eastwind)
Net sales growing to Rs 566 Cr up by 19.7%
YoY on the back of good growth coming from
all business segments.
2QFY14 EBITDA margins were higher than
34.8% reported in Q2FY13 on account of
higher gross margins, lower power cost and
forex loss in Q2FY13.
OPM %
(Source: Company/Eastwind)
NPM %
The 2QFY14 PAT also include forex gain of Rs
31 Cr. The company reports its forex gain
under other income headings and forex loss
under its other expenditure head.
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
AXIS BANK
1286
1325
1247
3
6.3
1M 1yr YTD
Absolute 12.9 -5.2 -5.2
Rel.to Nifty 12.6 -10.9 -10.9
Current 4QFY13 3QFY1
3Promoters 33.9 33.9 33.5
FII 40.7 4094.0 39.6
DII 8.8 8.5 10.0
Others 16.6 16.6 17.0
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 6566 8026 9666 12620 14710
Total Income 11238 13513 16217 19715 21804
PPP 6377 7413 9303 11238 12429
Net Profit 3340 4224 5179 6343 6977
EPS 81.4 102.2 110.7 135.2 149.1
11
Mkt Capital (Rs Cr)
(Source: Company/Eastwind)
Stock Performance
Average Daily Volume
Sequentially stable asset quality help to make lower provision
On asset quality front, Axis bank reported 10 bps deterioration in GNPA on
sequential basis to 1.4%. In absolute term GNPA increased by 10% QoQ and
provision increased by 12% QoQ. This led net NPA increased by 6% sequentially. In
percentage term NPA stood at 0.4%, flat on QoQ basis. Provision coverage ratio
(without technical write off) was improved by 100 bps to 69.3% and PCR at technical
write off was 89%. During quarter bank made loan loss provision of Rs.687 cr versus
Rs.712 cr in 1QFY14 and Rs.509 cr in 2QFY13. On sequential basis risky sector
like power and infrastructure exposure remain flat at 12.64% from 12.67% in
1QFY14.
Declined in cost income ratio led robust growth in operating profit
Operating expenses increased by 12.1% YoY to Rs.1953 cr in which employee cost
and other operating cost increased by 11.4% and 12.5% respectively. Cost income
ratio declined by 440 bps to 41.5% from 44.9% in 2QFY13. Employee cost and other
operating cost as a percentage of total assets remain flat at 0.2% and 0.4%
respectively. With the support of healthy NII, fee income and improvement of cost
income, operating profit grew by 29% YoY and -3.3% in QoQ to Rs.2750 cr.
Sequential declined of operating profit was due to gain of treasury income in
1QFY14 which was absent in 2QFY14.
During 2QFY14, Axis bank reported NII growth of 26.2% YoY largely due to 50 bps
YoY improvement of margin and 577 bps YoY increased of credit deposits ratio and
17% increased in loan growth. Axis bank’s interest earnings assets increased by
20% YoY whereas interest bearing liabilities increased by 13% YoY. Total revenue
of the bank grew by 21.3% YoY to Rs.4703 cr. Non- interest income registered
growth of 14% YoY to Rs.1766 cr.
Change from Previous
Axis Bank Vs Nifty
Share Holding Pattern-%
2066127
Nifty 6217
39764
1549/763
NSE Symbol AXISBANK
52wk Range H/L
Healthy NII growth on the back of margin improvement and loan growth
Company Update NEUTRAL
CMP
Target Price
Axis bank is trading at 1.6 times of one year forward book which we believe
that it is higher side of our bear case valuation band. We have neither seen
valuation band expansion nor did earnings lead price performance. Axis bank
has significant exposure in infrastructure and power (12.64% in 2QFY14) as
compare to its peer group. Asset quality pressure may persists in coming
quarters which restrict bank’s valuation multiple in the range of 1.4 to 1.6
times of book in our view. We advice our investors to book part profit at the
current level. Our valuation multiples are based upon bank’s present growth
parameters, better than expected performance and visibility of ROE
improvement will expand valuation and multiples.
Previous Target Price
Market Data
Upside
BSE Code 532215
"NEUTRAL "19th Dec, 2013
Narnolia Securities Ltd,
12
AXIS BANK
Please refer to the Disclaimers at the end of this Report.
During quarter bank reported 7 bps QoQ declined in NIM to 3.79% led by 500 bps
sequentially declined of credit deposits ratio and almost flat of loan yield on QoQ basis.
Loan yield during the quarter was 10.5% and cost of deposits declined from 7.4% to
7.1% sequentially.
Valuation & View
Healthy NII growth and controlled CI ratio along with stable margin help to boost
up profit
With the support of healthy NII growth and controlled operating expenses led net profit of
26% YoY to Rs.1362 cr from Rs.1081 cr. Consequently ROA improved by 12 bps to 1.6%
and ROE declined to 15.3% from 17.5% in 2QFY13 largely due to operating leveraging.
Modest deposits growth and strong traction in loan growth
On business growth parameters, bank’s total business grew by 12% YoY to Rs.4567 bn
as against Rs.4077 bn. Deposits grew by moderate pace with 8% YoY while current
deposits and saving deposits grew by 9% and 18% respectively taking overall CASA ratio
to 42.9%. Bank’s strategy to focus on retail deposits seem well is shaping as share of
retail deposits in term deposits increased continuously to 45.2% from 40.3% in21QFY13.
Loan grew by 17% YoY to Rs.20130 bn. Incremental loan growth came from retail
advance and SME segment. Share of retail loan increased to 30.2% of overall loan from
25.7% in 2QFY13. Bank’s has decreased in share of risky sector (Power & Infrastructure)
exposure to 12.64% from 13.63% in 2QFY13. Credit deposits ratio improved by 577 bps
YoY to 78.8% implying best utilization of excess liquidity in balance sheet.
Sequential declined of margin owing to flat loan yield
Axis bank delivered good set of numbers during quarter but exposure to stress sector
remain at 12%+ level. Moreover Axis bank has higher exposure in small, medium
enterprises and infra segment in comparison to peers. In challenging macro environment
and tight liquidity situation, Axis bank is more vulnerable among peers. At the current
price of Rs.1286, stock is trading at 1.6 times of one year forward book which is upper
side of bear case valuation band. We advice book part profit at current level. We value
bank at multiple of 1.4 to 1.6 times of one year forward book which implies Rs. price
range of Rs.1247 to Rs.1325.
Narnolia Securities Ltd,
13
AXIS BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Result 2QFY14 1QFY14 2QFY13 % YoY Gr % QoQ Gr
Interest/discount on advances / bills 5394 5189 4736 13.9 4.0
Income on investments 2143 2015 1897 13.0 6.3
Interest on balances with Reserve Bank of India 35 34 22 58.9 2.6
Others 37 39 32 14.9 -5.5
Total Interest Income 7609 7278 6687 13.8 4.6
Fee Income 1432 1317 1343 6.6 8.7
Trading Income 5 440 207 -97.6 -98.9
Miscellaneous Income 329 24 0 - 1270.2
Others Income 1766 1781 1551 13.9 -0.9
Total Income 9375 9059 8238 13.8 3.5
Interest Expended 4672 4413 4360 7.2 5.9
NII 2937 2865 2327 26.2 2.5
Other Income 1766 1781 1551 13.9 -0.9
Total Income 4703 4647 3877 21.3 1.2
Employee 644 643 578 11.4 0.1
Other Expenses 1309 1160 1164 12.5 12.9
Operating Expenses 1953 1803 1742 12.1 8.3
PPP( Rs Cr) 2750 2844 2136 28.8 -3.3
Provisions 687 712 509 35.0 -3.5
PBT 2062 2131 1626 26.8 -3.2
Tax 700 722 545 28.4 -3.1
Net Profit 1362 1409 1081 26.0 -3.3
Balance Sheet Date ( Rs Bn)
Net Worth 362 349 252 43.6 3.7
Deposits 2554 2384 2356 8.4 7.1
Loan 2013 1982 1721 16.9 1.6
Asset qualtiy( Rs Cr)
GNPA 2734 2490 2191 24.8 9.8
NPA 838 790 654 28.1 6.1
%GNPA 1.4 1.3 1.3
%NPA 0.4 0.4 0.4
14
FINANCIALS & ASSUPTION
AXIS BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2011 2012 2013 2014E 2015EInterest Income 15155 21995 27183 33243 38426
Interest Expense 8589 13969 17516 20622 23716
NII 6566 8026 9666 12620 14710
Change (%) 31.2 22.2 20.4 30.6 16.6
Non Interest Income 4671 5487 6551 7095 7095
Total Income 11238 13513 16217 19715 21804
Change (%) 25.3 20.2 20.0 21.6 10.6
Operating Expenses 4860 6100 6914 8478 9376
Pre Provision Profits 6377 7413 9303 11238 12429
Change (%) 22.4 16.2 25.5 20.8 10.6
Provisions 3033 3189 4124 2176 2461
PBT 3345 4224 5179 9062 9967
PAT 3340 4224 5179 6343 6977
Change (%) 34.8 26.5 22.6 22.5 10.0
Balance SheetDeposits( Rs Cr) 189166 219988 252614 290506 334081
Change (%) 34 16 15 15 15
of which CASA Dep 77758 91412 112100 124917 143655
Change (%) 18 18 23 11 15
Borrowings( Rs Cr) 26268 34072 43951 51266 58956
Investments( Rs Cr) 71788 92921 113738 129873 149354
Loans( Rs Cr) 142408 169760 196966 228481 265037
Change (%) 36 19 16 16 16
Valuation
Book Value 460 549 708 828 957
CMP 1404 1146 1304 1288 1288
P/BV 3.1 2.1 1.8 1.6 1.3
Godrej Consumer Product
840
960
725
14%
32%
▪ Godrej Consumer aims to grow 10 times in the next 10 years.
Key updates;
1M 1yr YTD
Absolute -2.1 17.6 27.0
Rel. to Nifty -4.8 11.5 8.8
Current 1QFY14 4QFY13
Promoters 63.3 63.3 63.5
FII 28.7 28.3 28.2
DII 1.2 1.2 1.2
Others 6.8 7.2 7.1
Financials Rs, Cr
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 1961.7 1724.9 13.7% 1600.32 22.6%
EBITDA 299.8 225.4 33.0% 248.96 20.4%
PAT 195 133 46.6% 159.31 22.4%
EBITDA Margin 15.3% 13.1% 210bps 15.6% (30bps)
PAT Margin 9.9% 7.7% 220bps 10.0% (10bps)
15Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
Change from Previous
1 yr Forward P/B
Share Holding Pattern-%
120012
Nifty 6217
Average Daily Volume
28593
977/693
BSE Code 532424
NSE Symbol
▪ Godrej Consumer's management is hopeful of seeing an uptick in the urban demand
and the rural demand is expected to be strong due to good harvest. We expect 20-22%
(YoY) sales growth for 3QFY14.
" Strategy Shining"
CMP
Upside
Key facts from recent Management Comments:
Target Price
Company update BUY
Previous Target Price
▪ The company does not see company’s margins coming under pressure going ahead,
due to heavy investments it has made in advertisements. We expect 15-15.5% EBITDA
margin for FY14E and 15.5-16% for FY15E.
GODREJCP
Market Data
52wk Range H/L
View and Valuations: Its strong 20%+ growth in the domestic household insecticides
business is the key growth driver. We expect strong momentum to continue in its
international business led by Megasari and consolidation of Darling business. Despite
some concerns related to higher leverage, lost domestic focus and currency risk, we
remain confident of achieving the 20%+ sales growth with strong PAT growth for FY14E
& beyond. At a CMP of Rs840, stock trades at 5.7x FY15E P/BV. We retain BUY with a
price target of Rs 960.
▪ On International revenue front, Godrej Consumer could see some threads in certain
areas especially Indonesia (18% of sales) and Nigeria (13% of sales), Indonesia is going
into election next year and in Nigeria, there have been wage hikes.
Demand Pickup scenario: On demand side scenario, we expect that the strong
agricultural season leading to strong rural GDP growth would support to improve
demand environment very soon. Considering recent GDP growth and Current Account
Deficit (CAD) numbers, we are expecting that the economy is moving to track and urban
demand will see some picking up.
Strong focus on driving growth with 10x10 strategy: Its strong focus on driving growth
in the domestic and international market by expansion of products and distribution
reach, we expect strong earning in near future. With launching new products in
domestic as well as international mkt, Godrej CP will explore organic & inorganic growth.
Along with its 3x3 strategy, it has 10x10 strategy also, which refers to 10x growth in 10
yrs.
Products strategy: The company continues to gain and enjoy market leader ship position
across all three formats. The company is driving increase in penetration with launch of
"Goodknight Advanced colour play". The company has launched Goodknight aerosol and
coil in Nigeria.
Recent developments: The Company has entered into an agreement on Oct 7, 2013, to
acquire a 30% stake in Bhabani Blunt Hair Dressing Pvt Ltd, a premier hair salon
company with one of the strongest consumer franchises in this space.
Mkt Capital (Rs Cr)
"BUY"19th Dec' 13
Narnolia Securities Ltd,
16
Godrej Consumer Product
Regionwise margin:
Quaterly snapshot:
-1
-2
Please refer to the Disclaimers at the end of this Report.
Financials and Valuation
(Source: Company/Eastwind)
Narnolia Securities Ltd,
Qtrly, 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
Sales Gr(YoY) 23% 36% 31% 39% 35% 26% 30% 23.9% 22.6%
PAT Gr(YoY) -2.6% 68.3% 36.0% -45.5% 24.7% 3.1% 58.7% 1.8% 22.4%
EBITDA Margin 18.0% 20.1% 18.9% 14.5% 15.6% 16.8% 16.2% 13.1% 15.3%
PAT Margin 12.0% 13.9% 13.5% 12.1% 10.8% 11.3% 13.3% 9.0% 10.9%
Regions 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
India 18.9% 20.4% 20.2% 15.1% 17.6% 18% 16.7% 15.8% 18.9%
Indonesia 19.4% 20.6% 20.7% 18% 19% 20% 19% 15% 17%
Africa 26.0% 31% 19.3% 19% 16% 20% 7% 13% 14%
Latin America 7.4% 9% 16.3% 3% 4% 8% 9% 3% 7%
Europe 11% 5% 10.5% 13% 9% 5% 13% 9% 10%
Rs, in Cr FY10 FY11 FY12 FY13 FY14E FY15E
Sales 2041.2 3693.6 4866.16 6390.79 7823.32 9198.58
Other Operating Income 2.5 28.11 45.93 16.58 20.30 23.86
Total income from operations 2043.7 3721.71 4912.09 6407.37 7843.62 9222.44
RM Cost 619.59 1458.28 2174.67 2640.31 3176.67 3781.20
Purchases of stock-in-trade 367.16 294.12 356.11 451.03 552.13 649.19
WIP -40.45 -45.22 -212.26 -118.06 -183.50 -224.07
Employee Cost 151.81 284.51 391.91 590.68 723.08 850.19
Ad Spend 132.8 352.85 449.86 660.35 902.02 1014.47
Other expenses 402.98 695.96 850.47 1196.46 1459.0 1689.7
Total expenses 1633.89 3040.5 4010.76 5420.77 6629.4 7760.7
EBITDA 409.81 681.21 901.33 986.6 1214.2 1461.7
Depreciation and Amortisation 23.6 49.92 64.44 77 94.3 102.1
Other Income 44.81 24.13 6.07 67.78 47.8 56.2
Exceptional Item 0 41.14 200.17 96.12 78.4 92.2
EBIT 386.21 631.29 836.89 909.6 1119.9 1359.6
Interest 11.1 43.64 65.84 77.45 61.1 53.2
PBT 419.92 652.92 977.29 996.05 1185.1 1454.9
Tax Exp 80.33 138.21 226.05 179.18 225.17 290.98
PAT 339.59 514.71 751.24 816.87 959.9 1163.9
Growth-% (YoY)
Sales 46.3% 81.0% 31.7% 31.3% 22.4% 17.6%
EBITDA 95.2% 66.2% 32.3% 9.5% 23.1% 20.4%
PAT 97.0% 51.6% 46.0% 8.7% 17.5% 21.3%
Expenses on Sales-%
RM Cost 30.3% 39.2% 44.3% 41.2% 40.5% 41.0%
Ad Spend 6.5% 9.5% 9.2% 10.3% 11.5% 11.0%
Employee Cost 7.4% 7.6% 8.0% 9.2% 9.2% 9.2%
Other expenses 19.7% 18.7% 17.3% 18.7% 18.6% 18.3%
Tax rate 19.1% 21.2% 23.1% 18.0% 19.0% 20.0%
Margin-%
EBITDA 20.1% 18.3% 18.3% 15.4% 15.5% 15.8%
EBIT 18.9% 17.0% 17.0% 14.2% 14.3% 14.7%
PAT 16.6% 13.8% 15.3% 12.7% 12.2% 12.6%
Valuation:
CMP 261.0 365.0 559.0 836.0 840.0 840.0
No of Share 30.8 32.4 34.0 34.0 34.0 34.0
NW 954.7 1725.2 2815.2 3313.0 4073.9 5038.8
EPS 11.0 15.9 22.1 24.0 28.2 34.2
BVPS 31.0 53.2 82.8 97.4 119.7 148.1
RoE-% 35.6% 29.8% 26.7% 24.7% 23.6% 23.1%
Div- Payout-% 30.6% 38.3% 22.6% 23.0% 20.7% 17.1%
P/BV 8.4 6.9 6.8 8.6 7.0 5.7
P/E 23.7 23.0 25.3 34.8 29.8 24.6
BANK OF INDIA
206
235
-
14
-
1M 1yr YTD
Absolute -14.5 -32.2 -32.2
Rel.to Nifty -13.7 -37.1 -37.1
Current 1QFY14 4QFY1
3Promoters 64.1 64.1 64.1
FII 13.2 13.6 13.5
DII 15.3 15.6 16.3
Others 7.4 6.7 6.0
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 7878 8313 9024 12110 11804
Total Income 10519 11635 12790 16672 16366
PPP 5398 6694 7458 9670 9492
Net Profit 2542 2678 2749 3533 3269
EPS 46.5 46.7 47.9 61.6 57.0
17
CMP
Previous Target Price
Upside
Change from Previous
BANKINDIA Vs Nifty
Share Holding Pattern-%
2271804
Nifty
NSE Symbol BANKINDIA
Most of banks especially PSUs are beaten down by the market on account of slower
economic growth and stress in asset quality. But Bank of India has witnessed
improvement in asset quality in 2QFY14 as fresh slippages were down by 26%
sequentially and 46% Year-on-year basis. Moreover bank reported reduction to the
tune of Rs.1009 cr versus Rs.1338 cr in 1QFY14. Most of reduction was due to
higher recovery and up-gradation rather than write-off. Write-off came down sharply
from Rs.598 cr 1QFY14 to Rs.120 cr in 2QFY14.
Inch up restructure guidance in 3QFY14
Shown Improving sign of asset quality with higher recovery and up-gradation
rather than write-off
Average Daily Volume
12260
Market Data
Target Price
Despite of improving fundamental from past two quarters, Bank of India is
trading at 0.5 times of one year forward book which is the lowest level in our
valuation parameters. We believe that current level is attractive entry point for
the investor with time horizon more than one year. With the capital infusion of
Rs.1000 cr by GoI and improving sign of asset quality would re-rate the stock
in our view as it previously witnessed i.e. 0.8 to 1.2 times of book. The
management has guided fresh slippage of about Rs.1500 cr and restructures
to the tune of Rs.1000-1200 cr in 3QFY14 which is in line with 2QFY14. We
recommend buy with price target of Rs. 235
Company Update BUY
393/126
BSE Code 532149
52wk Range H/L
6139
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
Capital infusion by GoI raise CAR ratio to 8.1% from 7.75%
Bank has lower CAR to 7.75% at the end of 2QFY14 according to Basel 3 norm.
Now Bank of India has approved to initiate process to raise further capital for issue
of 4.63cr Equity Shares to GoI on Preferential basis at a price of Rs. 215.70 per
share. This capital infusion is taking CAR ratio to 8.1% and government holding rise
to 66.7% from 64.1%. Capital infusion to the tune of Rs.1000 cr diluting our FY14E’s
book value by 40 bps.
As far as restructure loan are concern, bank’s total restructure loan was about 5% of
total loan asset and bank’s management expects Rs.1000-1200 cr of restructure in
December quarter. In 2QFY14, bank sold about Rs.370 cr of bad loan to Asset
Reconstruction Company (ARC) for recovery and during quarters its plan to sell
about Rs.500 cr of bad loan to ARC.
Sequentially improving PCR provide cushion on stress asset
Despite of stable asset quality and lower slippage, Bank of India provided 24% more
provision in sequential basis which improved its provision coverage ratio(Without
technical write off) to 63.3% from 61% in preceding quarter same year. Higher
provision would provide cushion on stress asset without hurting profit going further.
"BUY"18th Dec, 2013
Narnolia Securities Ltd,
18
BANK OF INDIA
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Result 2QFY14 1QFY14 2QFY13 % YoY Gr % QoQ Gr
Interest/discount on advances / bills 6631 6190 5881 12.8 7.1
Income on investments 2129 1885 1835 16.0 12.9
Interest on balances with Reserve Bank of India 479 465 289 65.6 2.9
Others 0 0 0 42.9 36.4
Total Interest Income 9239 8541 8005 15.4 8.2
Others Income 1100 1181 894 23.1 -6.8
Total Income 10340 9722 8900 16.2 6.4
Interest on deposits 5966 5401 5154 15.8 10.5
Interest on RBI/Inter bank borrowings 414 296 536 -22.8 40.0
Others 333 308 119 179.8 8.2
Interest Expended 6712 6004 5810 15.5 11.8
NII 2527 2537 2196 15.1 -0.4
Other Income 1100 1181 894 23.1 -6.8
Total Income 3627 3718 3090 17.4 -2.4
Employee 897 963 700 28.2 -6.8
Other Expenses 628 575 536 17.1 9.3
Operating Expenses 1525 1537 1236 23.4 -0.8
PPP( Rs Cr) 2102 2180 1854 13.4 -3.6
Provisions 1232 695 1552 -20.6 77.4
Net Profit 622 964 302 106.0 -35.5
Balance Sheet Data
Equity Capital 597 575 575 3.9 3.9
Reserve & Surplus 25,686 21,774 21,774 18.0 18.0
Deposits 432,282 332,695 332,695 29.9 29.9
Borrowings 41,751 29,434 29,434 41.8 41.8
Other liabilities and provisions 12,727 11,262 11,262 13.0 13.0
Total Liability 513,042 395,739 395,739 29.6 29.6
Cash in hand 24,621 17,080 17,080 44.2 44.2
Cash and balances with reserve bank of india 34,658 19,198 19,198 80.5 80.5
Investment 107,413 90,147 90,147 19.2 19.2
Advance 332,190 256,148 256,148 29.7 29.7
Fixed Assets 2,957 2,839 2,839 4.2 4.2
Others Assets 11,203 10,327 10,327 8.5 8.5
Total Assets 513,042 395,739 395,739 29.6 29.6
Asset Quality
GNPA 9873 8765 8898 11.0 12.6
NPA 6156 5947.3 5,228 17.7 3.5
GNPA(%) 3.0 3.0 3.4
NPA(%) 1.9 2.0 2.0
PCR(%) Without technical write off 37.6 32.1 41.2
19
BANK OF INDIA
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Financials & Assuption 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 15570 20241 23139 29515 31171
Income on investments 5195 7142 7261 8828 10152
Interest on balances with Reserve Bank of India 798 834 1257 1889 1889
Others 295 264 251 1 1
Total Interest Income 21858 28481 31909 40233 43213
Others Income 2642 3321 3766 4562 4562
Total Income 24500 31802 35675 44795 47775
Interest on deposits 12218 17957 20238 25422 28709
Interest on RBI/Inter bank borrowings 813 1145 1489 1419 1419
Others 950 1065 1158 1281 1281
Interest Expended 13981 20167 22885 28123 31410
NII 7878 8313 9024 12110 11804
Other Income 2642 3321 3766 4562 4562
Total Income 10519 11635 12790 16672 16366
Employee 3492 3069 3131 4131 4055
Other Expenses 1629 1871 2201 3965 3892
Operating Expenses 5121 4941 5332 7002 6874
PPP( Rs Cr) 5398 6694 7458 9670 9492
Provisions 2909 4016 4709 5254 5406
Net Profit 2542 2678 2749 3533 3269
46.0 5.3 2.7 28.5 -7.5
Key Balance Sheet DataDeposits 299559 318216 381840 434075 503527
Deposits Growth(%) 30 6 20 14 16
Borrowings 22021 32114 35368 36854 37953
Borrowings Growth(%) -2 46 10 4 3
Loan 213708 248833 289367 347241 366720
Loan Growth(%) 26 16 16 20 6
Investment 86677 86754 94613 110351 126904
Investment Growth(%) 27 0 9 17 15
Eastwind CalculationYield on Advances 7.3 8.1 8.0 8.5 8.5
Yield on Investments 6.3 8.7 7.1 8.0 8.0
Yield on Funds 6.5 7.8 7.7 8.4 8.4
Cost of deposits 4.1 5.6 5.2 5.7 5.6
Cost of Borrowings 8.0 6.9 6.8 7.5 7.5
Cost of fund 4.3 5.8 5.3 6.5 6.2
ValuationBook Value 322.7 365.3 416.9 469.4 510.4
P/BV 1.5 1.0 0.7 0.4 0.4
P/E 10.3 7.7 6.3 3.8 4.1
20
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.