Stock Advisory for Today - Buy Infosys stock with target price of target price of Rs 3910

IEA-Equity

Strategy

Private Sector Banks Result Review 3QFY14 3th Mar 2014

Private Banks are trading at significantly lower or reasonable valuation when compare to their historical trend due to possible deterioration in

asset quality earnings pressure and political un-clarity. We prefer private banks over PSBs largely due to their capability to report healthy

earnings, higher capital adequacy ratio and lower or stable asset quality. Our top picks in sector are HDFC Bank, ICICI Bank, Indusind Bank and

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

3th Mar 2014

IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing Continuous Casting Refractories and Special grade

Refractories which find applications in steel industry. IFGL has grown as an Indian multinational with manufacturing facilities located in Brazil,

China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a subsidiary of world’s second largest steel maker

NipponSteel Corporation holding about 15 % stake in IFGL. We expect IFGL will report its best ever performance in this full year. Considering

industry’s improving prospects, stabilization of production from its newly built plant at Kandla SEZ and out performance of company in its

financials, We don’t expect any scope for deep correction, hence recommending a BUY. ................................................................................... (

Page : 6-7)

3th Mar 2014

The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x BVPS. Valuation is very reasonable for a business

model with RoE (16%), strong growth visibility and minimal operational risks. We valued stock for a 12 month period at a target price of

Rs.118.With equity dilution overhang on the stock is removed, so we expect the stock price will drive by purely on its fundamentals, on our

estimates we maintain a positive fundamental outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of further

equity dilution is reduced . ............................................................ (Page : 5)

IFGL Refractories Ltd :"Strong Fundamentals…..." "BUY"

Infosys : "Meritocracy to growth" "BUY" 4th Mar 2014

In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level exits from the company. In near term, non-performers in

Infosys could be asked to leave or may hand over layoff notices. Infosys will retain its revenue acceleration and margin expansion, also operating

metrics will turn into greenery from hay. At a CMP of Rs 3793, it trades at 17.4x FY15E earnings. We retain our “BUY” view on the stock with a

target price of target price of Rs 3910 . ............................................................... ( Page : 2-4)

4th March, 2014

Edition : 217

Public Sector Banks Result Review 3QFY14 26th Feb 2014

28th Feb 2014

For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted by seasonality and furloughs impact. However, most of

companies expressed its sanguine view for industry outlook and demand discretionary environment ahead. Post earnings, almost all companies

management have expressed for better earnings outlook in near term . .................................................. ( Page : 10-15)

IT Industry: 3QFY14 results review : "Clear acceleration in growth"

SHREE CEMENT. "BOOK PROFIT " 25th Feb 2014

The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market scenario the price is fare enough to trade.But looking at

future capex plans and sluggish demand we belive the earnings and profitability of Shree cement may fall for the next two consecutive

quarters.The profitability may fall due to incrising depriciation.Till now the company's depriciation level is stable but it may surprise further.so

we recommend its a better pic to book profit. ................................................................. ( Page : 18-20)

Powergrid : "BUY"

Most of PSBs profitability were declined due to higher operating cost, surge in provisions and contingencies and creation of DTL special reserve.

But declining profitability and deteriorating asset quality is not a concern but structure damage of balance sheet. Going forward banks with

higher CASA base and healthy growth in deposits would able to protect margin and hence profitability. Post result we like SBI, Union Bank and

UCO Bank due to their structural improvement in balance sheet, operating and financial metrics.

............................................................................ ( Page : 16-17)

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

Infosys

1M 1yr YTD

Absolute 4.5 30.4 53.1

Rel. to Nifty 0.8 21.6 49.4

Current 2QFY14 1QFY14

Promoters 15.94 15.94 16.04

FII 40.65 39.93 39.55

DII 15.35 16.16 18.28

Others 28.06 27.97 26.13

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

Revenue 13026 12965 0.47 10424 25.0

EBITDA 3258.9 2836.9 14.88 2677 21.7

PAT 2874.9 2406.9 19.44 2369 21.4

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

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

2

Previous Target Price 3620

Upside 3%

Change from Previous 8%

"Meritocracy to growth"

CMP 3793

Target Price 3910

Focus on meritocracy for client satisfaction as well as margin expansion;Company update BUY

52wk Range H/L 3847/2190

Mkt Capital (Rs Crores)

Stock Performance

Average Daily Volume

1 year forward P/E

Rs, Crore

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

BSE Code 500209

NSE Symbol INFY

Share Holding Pattern-%

1240448

Nifty 6221

217810

Cost Rationalization: Company’s employee costs have ballooned very rapidly in the last

2-3 years. For example, on-site compensation was 36% of the overall revenue in FY11

and it went up to 46.3% in FY13, Overall employee cost on sales increased from

52%(FY09) to 56% (FY13). Company has hired a number of employees at higher salaries

outside India and employees are not adding efficient growth in productivity.

Improving utilization level: Comparing with other peers, its utilization level (excluding

trainees) declined from 80% in FY11 to 74% in FY13. Post NRN entry, company had

hiked offshore wage at the rate of 8% and overseas at 3%. We expect that company’s

management could decide for wage hike across onsite as well as offshore to enhance its

utilization rate in near term.

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

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

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

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

rivals such as TCS.

On an ongoing basis, Infosys will retain its revenue acceleration and margin expansion,

also operating metrics will turn into greenery from hay. Upgradation of earning

guidance by management hinted to join the party to enjoy with 12-14% earnings

growth for FY14E like other top bellwether. At a CMP of Rs 3793, it trades at 17.4x

FY15E earnings. We retain our “BUY” view on the stock with a target price of target

price of Rs 3910 .

Market Data

In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level

exits from the company. In near term, non-performers in Infosys could be asked to

leave or may hand over layoff notices. Despite high salaries, some identified

employees are not contributing so much to improve productivity and efficiency of

operations. Already, the restructuring initiatives has taken place at the top of the

pyramid and now shifted to mid level of pyramid. Hence, its pink slip strategy indicates

to regain its growth and margin in near term.

Considering the strategy to build clients relation, execution of growth oriented policy

and combination of reduced onsite costs and higher utilization would be an optimistic

growth story despite recent hiccups of top management exit.

Key takeaways from recent webcast;

Restructuring at middle management: Mr. Murthy has taken initiatives to improve

cost efficiency and effective delivery system. The management has rewarded the top

performers and has given an opportunity to mediocre performers. Its PIP (performance

Improvement Program) followed by exam, and appraisal would dictate the level of

efficiency for mediocre, and the situation of involuntary attrition.

"BUY"4th March' 14


3

(Source: Company/Eastwind)

Infosys.

Employee cost on sales-%

Employee cost on sales at all time high


Total Employee and additions,

Looking to bring in about maximum 6,000

off-campus offers, Infosys will hire up to

16,000 engineers next year.



The Company's Utilization is likely to

keep inching up, which could lead to

margin expansion for a couple of

quarters and that is going to be a huge

positive for Infosys as a company.

Headcount Metrics: Its attrition increased to 18% from

17.3%(2QFY14) on LTM basis, however

on sequentially basis they have been able

to control its attrition. we hope that the

further salary hikes across the board will

bring down the attrition levels going

forward.


Utilization:


Employee's 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Total Employees (Cons-) 151,151 153,761 155,629 156,688 157,263 160,227 158404

Net additions 1,157 2,610 1,868 1,059 575 2,964 -1823

Laterals hired 5,233 3,656 4,351 3,545 3,008 3,806 3,333

LTM Attrition (Stand-) 14.9% 15.0% 15.1% 16% 16.9% 17.3% 18.10%

4


Infosys.

Financials


Key facts from Management Interview;

■ Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%. This

guidnace means the company only has to achieve flat growth in the fourth quarter to

meet the projection.

■ With 85% of the company’s revenues coming from clients based in US and Europe, the

company should hope the current economic recovery in developed countries would help

its revenues.

■They are seeing confidence coming back from client’s metrics. However, they expect

[their] budgets only remain stable from last year. Clients are still focused on cost.

■ The Company is looking to bring in about maximum 6,000 off-campus offers starting

late January early February, so there is a lot of activity going on that is bringing people in,

engaging and developing.


Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales, INR 22742 27501 33734 40352 50330 59631

Employee Cost 12085 14856 18340 22565 28185 33691

Other expenses 2792 3677 4671 6254 8556 10734

Total Expenses 14877 18533 23011 28819 36741 44425

EBITDA 7865 8968 10723 11533 13589 15206

Depreciation 905 854 928 1099 1371 1624

Other Income 982 1211 1904 2365 2567 3578

EBIT 7942 9325 11699 12799 14785 17160

Interest Cost 0 0 0 0 0 0

PBT 7942 9325 11699 12799 14785 17160

Tax 1681 2490 3367 3370 3992 4633

PAT 6261 6835 8332 9429 10793 12527

Growth-%

Sales 4.8% 20.9% 22.7% 19.6% 24.7% 18.5%

EBITDA 9.3% 14.0% 19.6% 7.6% 17.8% 11.9%

PAT 4.6% 9.2% 21.9% 13.2% 14.5% 16.1%

Margin -%

EBITDA 34.6% 32.6% 31.8% 28.6% 27.0% 25.5%

EBIT 34.9% 33.9% 34.7% 31.7% 29.4% 28.8%

PAT 27.5% 24.9% 24.7% 23.4% 21.4% 21.0%

Expenses on Sales-%

Employee Cost 53.1% 54.0% 54.4% 55.9% 56.0% 56.5%

Other expenses 12.3% 13.4% 13.8% 15.5% 17.0% 18.0%

Tax rate 21.2% 26.7% 28.8% 26.3% 27.0% 27.0%

Valuation

CMP 2615 2765 2865 2400 3793 3793

No of Share 57.4 57.4 57.4 57.4 57.4 57.4

NW 23049.0 25976.0 31332.0 37994.0 45629.8 54797.5

EPS 109.1 119.0 145.1 164.2 188.0 218.2

BVPS 401.7 452.4 545.6 661.7 794.7 954.3

RoE-% 27.2% 26.3% 26.6% 24.8% 23.7% 22.9%

Dividen Payout ratio 25.1% 45.9% 24.0% 45.1% 23.0% 19.8%

P/BV 6.5 6.1 5.3 3.6 4.8 4.0

P/E 24.0 23.2 19.7 14.6 20.2 17.4

Powergrid..

95

118

NA

25%

NA

532898

49490

22270

6277

1M 1yr YTD

Absolute 8.2 9.5 8.1

Rel. to Nifty 9.5 3.8 4.0

3QFY14 2QFY14 1QFY14

Promoters 57.9 57.9 69.4

FII 25.4 19.4 14.7

DII 8.6 8.8 7.6

Others 8.2 13.9 8.3

View & Recommendation

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

Revenue 3685 9.4 -7.9 3369 3999

EBIDTA 3105 6.0 -8.4 2930 3389

Net Profit 988 -8.5 -16.9 1080 1189

EBIDTA% 84 -3.1 -0.6 87 85

NPM% 27 -16.3 -9.8 32 30(In Crs)

5

The Central Electricity Regulatory Commission (CERC) issued the final tariff regulations for

the period FY15-19 – these regulations form the basis of Power Grid’s earnings (regulated

returns) from its core transmission business over the next five years.The Key take aways

of these Regulations are Normative TAF (NATAF) for incentives lowered; no incentive for

TAF >99.75% .Normative O&M charges raised (vs. draft), but still below FY14 levels.

BSE Code

POWERGRIDNSE Symbol

52wk Range H/L


116/87


Stock Performance-%


1 yr Forward P/B

Source - Comapany/EastWind Research

The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x

BVPS. Valuation is very reasonable for a business model with RoE (16%), strong growth

visibility and minimal operational risks. We valued stock for a 12 month period at a target

price of Rs.118.

Power Grid's Raichur-Solapur line has been connected to national grid. Management Says

there were four trippings in the first week. Two were to increase reliability and were

done intentionally, and the other two were because of a few glitches. For the last month

there has been no tripping.

With equity dilution overhang on the stock is removed, so we expect the stock price will

drive by purely on its fundamentals, on our estimates we maintain a positive fundamental

outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of

further equity dilution is reduced

Capitalisation of assets remains on track. Till Jan end the company has capitalised Rs

118bn of assets which is 70% of our full year estimate. Since last two months of the year

usually account for the bulk of yearly commissioning we are confident that the co. will meet

our estimate of Rs 170bn for FY14.

Strong Capitalization : Power Grid’s adjusted PAT increased 4.3% YoY to Rs. 1,043 crore

in Q3FY14 While asset capitalisation was below estimate Rs. 3050 crore, PGCIL

commissioned another Rs. 3450 crore in January 2014 taking overall capitalisation to Rs.

13000 crore YTDFY14.

Overall revenues increased 9.6% YoY to Rs.3685 crore due to lower than anticipated

capitalisation (Rs.3050 crore) in Q3FY14 . Income increased 6.5%, 10.0% and 121.9% YoY

in transmission, telecom and consultancy income, respectively. Other income declined

9.7% YoY to Rs.116 crore as cash was deployed across various upcoming projects.

Margins declined 336 bps YoY to 87.4% due to 55.7% YoY rise in transmission & other

expenses to Rs.333 crore. Tax expenses increased 7.5% YoY to Rs. 399 crore. Q3FY13

included a one-time income of Rs.167 crore as wage revision benefit. Adjusting the same,

PAT increased 4.3% YoY to Rs.1,043 crore.

Upside

Change from Previous

Nifty

Update BUY

Market Data

Average Daily Volume (Nos.)

CMP

Target Price

Previous Target Price

"Buy"3rd march' 14


V- IFGL Refractories Ltd.

CMP 62

Target Price 80

Previous

Target Price

NA

Upside 29%

Change from

Previous

0%

BSE Code 532133

NSE Symbol

52wk Range

H/L

24/68

Mkt Capital

(Rs Crores)

214

Average Daily

Volume

6,366

Nifty 6,277

1M 1yr YTD

Absolute (0.5) 75.7 100.2

Rel. to Nifty (3.6) 68.5 89.7


Promoters 71.3 71.3 71.3

FII 0.0 0.0 0.0

DII 2.2 2.2 2.2

Others 26.5 26.5 26.5

Financials Rs, Crore

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

Revenue 194.7 201.4 -3.3% 169.0 15.3%

EBITDA 27.2 29.9 -8.8% 18.3 48.5%

PAT 14.3 19.1 -25.2% 9.5 50.3%

EBITDA Margin 14.0% 14.8% (80) bps 10.9% 310 bps

PAT Margin 7.4% 9.7% (230) bps 5.1% 230 bps

6

Valuation :

Low leverage balance sheet and attractive valuations augurs well :

IFGL reported debt equity ratio of 0.35x in Sep FY13, even after the series of acquisitions, and we

expect it to gradually reduce over time to 0.28x in FY15E.Company having an uninterrupted

dividend paying record for the past four years. Promoters holding more than 70 % stake (NIL

pledged) in the company and another 7 % is held by large investors. At a time the steel industry

is showing revival, We expect IFGL will report its best ever performance in this full year.

Considering industry’s improving prospects, stabilization of production from its newly built plant

at Kandla SEZ and out performance of company in its financials, We don’t expect any scope for

deep correction, hence recommending a BUY.

(Standalone)


(Source: Company/ Eastwind Research)

At CMP of INR 62, IFGL is trading at P/E of 3.7x and 3.2x its FY14E and FY15E earnings. Company

can post the EPS of Rs 16.8/18.6 in FY14/15E and RoE% of 20.3%/19.2% in FY14/15E . We rate a

BUY rating on the stock with an 12 months price target price of Rs 80.0 at 4.1x FY15E earnings.

IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing

Continuous Casting Refractories and Special grade Refractories which find applications in steel

industry. IFGL has grown as an Indian multinational with manufacturing facilities located in

Brazil, China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a

subsidiary of world’s second largest steel maker NipponSteel Corporation holding about 15 %

stake in IFGL. The company has a lot of subsidiaries with the ones in US and Germany

seemingly doing well. For the latest December quarter,on a consolidated basis company

reported a Sales of Rs. 195.7 Cr v/s Rs. 168.9 Cr. Net profit improved sharply from Rs. 9.5 Cr to

Rs. 14.3 Cr. For 9 Month period EPS is Rs. 13.9 which is more than the full year figure of Rs. 7.3

of last year. We expect IFGL will report its best ever performance in this full year. Considering

industry’s improving prospects, stabilization of production from its newly built plant at Kandla

SEZ and out performance of company in its financials, We don’t expect any scope for deep

correction, hence recommending a BUY.

"Strong Fundamentals…..."

Result update

1 yr Forward P/B


Stock Performance-%

Market Data

IFGLREFRAC

Buy

Industry revival to spur growth :

Fate of refractory companies closely related with the growth of steel industry. Now steel industry

world around showing some earlier signs of revival.As a global player ,IFGL is expected to get

immense benefit from this revival.Its technical collaboration and equity participation with one of

the world leaders also helping the company to adopt latest technology in manufacturing process.

A major portion of company’s income is from exports and the currency valuation of currency is

also positive for it. Steel industry in the US and in Europe is coming out of pro-longed recession

and demand in India is also expected to pick up on account of major projects getting started.

Increase in capital expenditure for capacity expansion by major steel producers both within India

and internationally augurs well for the refractory industry

"Buy"3rd Mar' 14


7


IFGL Refractories Ltd.

Key financials :

(Source: Company/ Eastwind Research)


PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E

Performance

Revenue 398 415 471 604 671 772 888

Other Income 2 3 5 3 4 3 3

Total Income 401 419 476 607 676 776 891

EBITDA 27 58 43 75 58 106 120

EBIT 20 50 34 62 45 89 103

Depriciation 7 8 9 13 13 17 17

Intrest Cost 10 5 6 7 8 7 7

PBT 13 49 33 58 41 85 99

TAX 7 15 8 18 16 27 31

Derrivative Loss 0 0 0 0 0 0 0

Reported PAT 6 34 24 40 25 58 68

Dividend 2 2 0 1 2 2 2

EPS 1.8 9.7 7.0 11.5 7.3 16.8 19.6

DPS 0.7 0.6 0.0 0.2 0.6 0.6 0.6

Yeild %

EBITDA % 6.9% 13.9% 9.1% 12.3% 8.7% 13.7% 13.5%

NPM % 1.5% 8.0% 5.1% 6.6% 3.8% 7.5% 7.6%

Earning Yeild % 9.7% 17.6% 22.9% 29.2% 23.7% 27.2% 31.6%

Dividend Yeild % 3.7% 1.1% 0.0% 0.5% 1.9% 1.0% 1.0%

ROE % 5.3% 24.6% 15.0% 19.2% 11.0% 20.3% 19.2%

ROCE% 2.8% 15.6% 8.3% 11.9% 7.1% 14.6% 15.0%

Position

Net Worth 114 137 161 207 231 287 353

Total Debt 100 79 129 127 129 110 100

Capital Employed 214 216 290 335 360 397 453

No of Share 3 3 3 3 3 3 3

CMP 18 55 31 39 31 62 62

Valuation

Book Value 32.8 39.6 46.6 59.9 66.7 83.0 101.9

P/B 0.5 1.4 0.7 0.7 0.5 0.7 0.6

Int/Coverage 2.1 11.1 5.7 9.1 5.6 12.2 14.1

P/E 10.3 5.7 4.4 3.4 4.2 3.7 3.2

8


In our coverage universe, banks NII grew by 15.7% YoY largely due to stable margin

and loan growth. Private sector banks are getting benefit from their high base CASA

franchise and low share of high cost wholesale bulk deposit. HDFC Bank, ICICI

Bank, Indusind Bank and DCB were continued to report 20%+ NII growth whereas

Federal Bank, INGVYSYA Bank, J&K Bank saw some stress in their earnings.

Asset quality continues to persist and would take time despite of uptick in

economy

Private Sector Banks Result Review 3QFY14

Better than expected NII on the back of margin expansion and loan growth

Private sector banks delivered better when compare to PSBs in term of asset quality

at sequential basis. Sequentially banks reported stable asset quality with high

coverage ratio which provided cushion to their earnings. But in our sense, asset

quality pressure continues to persist because economy growth is likely to be tepid

and it will take some time for recovery in domestic industrial activity and corporate

balance sheet’s leverage to decline. According to S&P, with the uptick in economy,

bank will have take some time for revival as banks have to struggle for capital base

too for further growth but private banks have adequate capital base and healthy tier-

1 capital. Outlook of asset quality in system is not positive and it would remain

challenge for banks in FY14.

Nifty Vs Bank Nifty during Year

Well structure balance sheet led healthy growth at operating profit level

Operating expenses in our coverage universe remained stable on sequential basis

and on very positive note; they delivered on an average basis growth of 19.8% YoY

at operating profit level. This was due to healthy NII growth, stable fee income and

controlled operating leverage. We have highlighted above that banks with healthy

operating profit would do better going forward as strong performance at operating

profit level would be possible only in case of well structure balance sheet growth.

Economic growth and stress in asset quality issue would be resolve with the passage

of time. Although we have not seen any revival in economy nor improvement in asset

quality in near term but private sector banks are trading significant discount as

against their historical valuation due to possible fear of deterioration in assets.

Profitability increased due to healthy NII growth, controlled CI ratio and stable

asset quality

Most of banking stocks are trading at lower side of valuation band due to earnings

pressure, higher operating leverage and asset quality. In our coverage universe,

bank reported profit growth of 16.6% YoY higher than our expectation led by margin

expansion, controlled operating leverage and stable asset quality. Although we saw

some earnings pressure in many large and mid cap banks on which Axis bank’s

profitability was boost up by right back of investment depreciation and Yes Bank’s

provisions and contingencies was almost down by 100% which inflated profit growth

by 21.4% YoY.


9

Well structure balance sheet growth and high CASA base would help to keep

profitability up

Result Snapshot

Private Sector Banks Result Review 3QFY14

We like those banks which did well at operating profit level, keeping in mind that with

slower pace of economy growth and rising interest rate scenario, asset quality pressure

would persist. Provision and contingencies are already expected to remain high. Most of

bank’s profitability was down owing to higher provisions against loan loss. With the

recovery in economy loan growth and asset quality would improve with the passage of

time but operating leverage and margin expansion are permanent structure of balance

sheet. Banks with strong CASA base and adequate deposits growth that could support

loan growth easily without depending upon external fund would do better in going

forward. Outlook

Private Banks are trading at significantly lower to their historical valuation or reasonable

valuation due to their possible earnings pressure and asset quality issue. This is on

account of sluggish economic growth and political un-clarity. Some banks in our universe

are capable to generate high level of profit, have high capital adequacy ratio and lower

level of stress. In our sense these banks would do better in current economy macro

situation. Out top picks are HDFC Bank, ICICI Bank, Indusind Bank and DCB.



NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit

AXISBANK 2984 2615 1604 2937 2750 1362 2495 2311 1296 19.6 13.2 23.8 1.6 -4.9 17.8

CUB 198 135 89 190 141 84 163 131 85 21.2 2.8 4.8 4.0 -4.5 6.1

DCB 94 46 36 91 40 33 72 32 27 30.5 44.9 34.7 3.3 15.9 10.2

DHANBANK 57 -8 -119 82 18 -1.85 74 14 4 -23.6 -154.4 -3084.3 -31.1 -142.3 6352.4

FEDERALBNK 546 356 230 548 354 226 497 394 211 9.8 -9.7 9.1 -0.4 0.5 1.8

HDFCBANK 4635 3888 2326 4477 3387 1982 3799 3024 1859 22.0 28.6 25.1 3.5 14.8 17.3

ICICIBANK 4256 4440 2533 4044 3888 2352 3499 3452 2250 21.6 28.6 12.6 5.2 14.2 7.7

INDUSINDBK 730 647 347 700 588 330 578 472 267 26.3 37.2 29.9 4.3 10.1 5.1

INGVYSYABANK 416 274 167 440 276 176 403 263 162 3.3 4.3 3.3 -5.4 -0.6 -4.9

J&KBANK 647 441 321 682 496 303 594 435 289 8.9 1.3 11.2 -5.2 -11.1 6.0

KARURVYSYA 305 153 107 298 157 83 308 212 113 -0.9 -27.8 -5.5 2.4 -2.6 28.7

SOUTHBANK 350 216 141 364 212 127 353 235 128 -0.7 -8.1 10.4 -3.7 1.8 11.3

YESBANK 665 615 416 672 713 371 584 563 342 13.9 9.2 21.5 -1.0 -13.8 12.0

Total 15882 13818 8198 15525 13020 7427 13419 11538 7033 18.4 19.8 16.6 2.3 6.1 10.4

QoQ Growth

PRIVATE BANK

3QFY14E 2QFY14 3QFY13 YoY Growth

IT Industry: 3QFY14 results review

Key takeaways from 3QFY14 earnings:

10

Price performance of our coverage:

(Source: Eastwind)

For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted

by seasonality and furloughs impact. However, most of companies expressed its

sanguine view for industry outlook and demand discretionary environment ahead. The

Top-4 companies responded a decent set of performance despite seasonally weak

quarter with aggregate revenue of 2.8% in USD term (QoQ).

Comparing with street expectation, Infosys and HCL Tech beat the street, while TCS and

Wipro reported inline set of numbers. On margin front, they surprised positively with

back-to-back quarters of margin improvement led by operational efficiencies and cost

rationalization.

USD revenue was marginally inline and Positive FY15E outlook: Reported USD revenues

were in line or very marginally below our estimate during the seasonally weak quarter

across the top tier. A part of this, companies management have given better outlook with

margin expansion for FY15E, even NASSCOM aired the earning guidance of 13-15% for

FY15E, better than FY14E and FY13.

(Source: Eastwind)

Index Performance:

(Source: Eastwind)

"Clear acceleration in growth"

(Source: Eastwind)


Post earnings, almost all companies management have expressed for better earnings

outlook in near term and they were confident to see stronger FY15E than FY14E on

healthy growth prospect and a secular improvement in demand trend.

Margin ramped up across the Tier-1 and most of mid cap space: Despite flattish currency

benefit, companies have been efficient to maintain its margin because of reinvested

higher growth and efficient strategy to improve utilization. With macro improving and

positive growth outlook, the operating advantage from investment is likely beginning to

play out.

SMAC and Digital were subject to discussion: Emerging verticals SMAC (Social, Mobility,

Analytics and Cloud) and Digital transformation are expected to bring next generation of

growth in IT Industry. A number of IT companies, especially tier-1 IT companies have

expressed its priority area and strategy to pan-out growth opportunities on these

emerging verticals. Current uptrend in discretionary spend is being driven by the same.

Deal Pipeline remains healthy: During the quarter, weak seasonality marginally impacted

order inflow. For near term, deal pipeline remains healthy and somehow, Pricing will be

marginally under pressure in the traditional IT segment, Application Development and

Management segment. While, we do not see any pressure on new emerging segments like

SMAC, Digital, Infra, etc.

Earning Performance v/s Estimates;

Mix performance and margin sustainability, future outlook appears positive;


TCS

WIPRO

CMC

INFY MINDTREE

HCLTECH HEXAWARE

TECHM NIITTECH

ZENSARTECH PERSISTENT

TATA ELXSI ECLERX KPIT

Outperform Inline Underperform

▲ 9.4%

▲ 43%


11Please refer to the Disclaimers at the end of this Report.

Companies Specific Earnings Review

Tier-1 ; The top four IT companies delivered a decent performance in a seasonally soft quarter with an aggregate revenue growth of

2.8% QoQ. INFY and HCL Tech beat the street on growth and margin front, while TCS and Wipro reported inline set of numbers.

Mid cap/Niche (Tier-2)-TECHM and Persistent outmatch peers; TECHM’s broad based revenue growth and deal signing was robust.

Persistent system surprised positively on margin front for the second consecutive quarter led by higher utilization. Apart of this,

Zensar Tech also reported good margin ramp up during the quarter. As a backbencher, KPIT, NIITTECH and Hexaware reported flat to

below expected numbers.

Growth and Margin Performance-%


*Infosys (net profit for 2QFY14 includes the one-time visa charge of Rs219 crore).

# HCL Technologies (June year ending). $ Hexaware (Follow Callendar year)



3QFY13 2QFY14 3QFY14E 3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14

TCS 16069.9 20977.2 21606.6 21294.0 4660.5 6633.0 6300.3 6686.8 3549.6 4633.3 5096.7 5333.4

INFY* 10424.0 12965.0 13069.1 13026.0 2677.0 2837.0 3424.1 3258.9 2369.0 2407.0 2695.8 2874.9

WIPRO 9587.5 10990.7 11342.4 11327.4 2050.2 2503.8 2552.0 2652.7 1598.1 1932.0 1984.2 2014.7

HCLTECH# 6273.8 7961.0 8160.0 8184.0 1416.6 2093.0 2080.8 2125.0 974.3 1416.0 1472.6 1495.0

TECHM 3523.7 4771.5 4819.2 4898.6 756.9 1110.9 1084.3 1136.3 455.9 718.2 754.1 1009.8

CMC 493.0 560.8 566.4 561.0 83.2 88.4 87.8 90.8 61.1 67.3 65.6 70.6

MINDTREE 590.1 769.5 792.2 790.6 120.4 159.8 153.9 154.1 87.7 113.0 98.6 114.0

HEXAWARE$ 507.5 621.1 629.2 620.0 109.0 147.7 147.9 139.4 66.2 98.7 103.6 103.3

NIITTECH 514.4 587.3 593.5 587.3 81.3 88.6 86.1 95.1 56.6 60.4 57.4 52.5

KPIT 563.3 702.8 722.0 677.9 87.9 108.1 115.5 103.5 59.9 66.7 69.4 60.8

PERSISTENT 333.0 432.4 436.1 432.8 82.4 100.8 104.7 104.3 49.5 60.8 66.9 64.2

ZENSARTECH 525.5 599.7 590.6 594.1 70.1 102.5 87.5 87.3 48.7 70.6 50.4 50.8

ECLERX 170.8 214.6 218.5 219.5 66.8 92.8 90.5 88.8 49.8 67.2 61.4 62.3

TATA ELXSI 156.7 190.0 195.5 200.1 16.5 32.4 40.4 43.6 8.8 19.9 20.5 21.6

CompanySales,cr EBITDA,cr PAT,cr

Sales EBITDA PAT Sales EBITDA PAT EBITDA PAT EBITDA PAT

TCS 1.5% 0.8% 15.1% 32.5% 43.5% 50.3% 31.4% 25.0% (20bps) 290bps

INFY 0.5% 14.9% 19.4% 25.0% 21.7% 21.4% 25.0% 22.1% 310bps 350bps

WIPRO 3.1% 5.9% 4.3% 18.1% 29.4% 26.1% 23.4% 17.8% 60bps 20bps

HCLTECH 2.8% 1.5% 5.6% 30.4% 50.0% 53.4% 26.0% 18.3% (30bps) 50bps

TECHM 2.7% 2.3% 40.6% 39.0% 50.1% 121.5% 23.2% 20.6% (10bps) 560bps

CMC 0.0% 2.7% 4.8% 13.8% 9.1% 15.5% 16.2% 12.6% 40bps 60bps%

MINDTREE 2.7% -3.6% 0.9% 34.0% 28.0% 30.0% 19.5% 14.4% (130bps) (30bps)

HEXAWARE -0.2% -5.7% 4.7% 22.2% 27.9% 56.0% 22.5% 16.7% (130bps) 80bps

NIITTECH 0.0% 7.3% -13.1% 14.2% 17.0% -7.2% 16.2% 8.9% 110bps (130bps)

KPIT -3.5% -4.3% -8.8% 20.3% 17.7% 1.5% 15.3% 9.0% (10bps) (50bps)

PERSISTENT 0.1% 3.5% 5.6% 30.0% 26.6% 29.7% 24.1% 14.8% 80bps 80bps

ZENSARTECH -0.9% -14.9% -28.0% 13.1% 24.5% 4.3% 14.7% 8.6% (240bps) (320bps)

ECLERX 2.3% -4.3% -7.2% 28.5% 32.9% 25.2% 40.5% 28.4% (280bps) (290bps)

TATA ELXSI 5.3% 34.6% 8.5% 27.7% 164.4% 146.9% 21.8% 10.8% 470bps 30bps

Margin Change,(QoQ)Company

Growth (QoQ)-% Margin-%Growth (YoY)-%


12

Discretionary spends continue to gain

momentum in America and in specific

pockets in Europe.

Operating Metrics across Tier-1 IT space

Sales mix- Geogrpahy wise

Sales mix- Segment wise

During the quarter, manufacturing

segment reported attractive growth.

Whilea mong service offerings,

Infrastructure Management Services

(IMS) will be a key growth driver.




Utilization Rate-%



Attirition rate-%

Employee Addition;


TCS INFY WIPRO HCLTECH

Total Employee 290713 158404 146402 88332

Gross Addition 14663 6,682 -814 7593


13

(6) CMC

-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 at 16 percent for FY14E,

(5) TECHM

-The Company aspires revenues of USD 5 billion by 2015. This expects to be through

organic and inorganic initiatives (looking for USD 0.5 billion to 0.8 billion as acquisition

targets) going forward.

-Expecting utilisation rate to 77% from 75%(3QFY14) in near term.

-The tax rate expected to be 26% for the FY'14.

-Year 2014 would be better year than FY13, demand environment and Order pipeline is

looking good.

-The company expects to see margin at a range of 21-22% in near term.

-The company is expecting to catch up more deal from US and Europe because of better

demand environment ahead.

-The wage hike is spread over two quarters or rather more than two quarters. Q3 and Q4

margin could be impact be 30bps.

-Hiring target for FY15E would be like FY14, will focus on onsite hiring.

-Wage hike by 1st June ,2014.

(4) HCLTECH:

-Chasing 20-25 large transformational deals,

-Seeing an uptick in discretionary spends,

(3) WIPRO

-Expect better FY15E than FY14.

-4QFY14: Revenues from IT Services business to be in the range of $ 1,712 million to

$1,745 million* including the revenues from acquisition.

- Lateral hiring 50000-55000 in FY15E,

(2) INFOSYS

-Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%.

-They are seeing confidence coming back from client’s metrics.

-The Company is looking to bring in about maximum 6,000 off-campus offers.


-Despite salary hike in 4Q, margin would be on place. Wage hike in 4Q could impact

200bps in margin front, but management is confident to mitigate.

-The company expects to maintatin its tax regime at 20-20.5% for coming quarter. For

next year tax rate could be stand at a range of 20-21%.

-Company’s hiring Plan; a net addition of 400-500 this year.

Key Takeaways from Conference Call;

(1) TCS

- Confident of beating NASSCOM's FY15 growth guidance of 13-15%,

-FY15E will be better than the current fiscal,

-Expect Europe to perform better than the US,



-Expect to see similar set of environment in FY 15E than FY14.

-Tax rate is expected to see at 23% mark in FY15E.

-It continues to look at inorganic opportunities.

- Expects to maintain 51% of payout ratio.

-Management expects the strong traction in top 10/20 clients to continue.

-Management expects to see better revenue growth in 4QFY14E than 3QFY14.

-The company is making significant changes in organization structure.

14

-The billing rates expected to be flat to slight uptick for the FY15E.

(12) KPIT

-Margins are expected to improve going forward as the one off during the quarter will be

absent.

-Utilization will also go up as revenue growth is realized on the back two deals won this

quarter which have a duration of 12 months.

-On margins, it indicated that it will continue to operate in the mid 30% (30-31%) going

forward.

(11) MINDTREE

-Company expects to maintain operating margins at current levels in the near/medium

term

-Management has expressed its margin at a range of 16-17%

(7) PERSISTENT SYS

- Persistent is confident of doing more than 15% revenue ($) growth forFY14E.

-They expect to maintain margin at 24-25% for FY14E.

-Expects 20-21% growth in the next year from IP led business, which in turn will help

improve margins going forward.


-It expects the growth momentum will sustain with holding the margins going forward.

(9) ZENSARTECH

-Expects 4QFY14E revenue performance to be better than both 4QFY13 revenue

performance (+2.8% QoQ) as well as 3QFY14 revenue growth (+2.5% QoQ).

-The company is optimistic to see more deals on SMACS and IP led business.

-Company expects FY14 to be better than FY13 with respect to both revenue growth and

EBIT margin.

(10) ECLERX

-Managent is very confident to maintain attrition at 12-13% and utilization at 77-80% in

near to medium term.

(8) NIITTECH

-The Company’s focus on newer technologies like cloud, analytics, mobility and digital

transformation are gaining traction.

- It expects double-digit growth in the Enterprise Services business for the FY15 on the

back of healthy pipeline.

- It anticipates good growth from the IMS for the FY'15.



View and valuation:

15

Industry Outlook:We have seen a significant increase in global technology spending this year, creating

opportunities for the Indian software services sector to post double-digit growth again in

export as well as in the domestic markets. FY15E promises to be bigger and stronger than

the last 3 years, which were marked by bloodbath in global markets due to Euro-zone

crisis and falling consumer confidence in the US. Demand is set to pick up in sectors like

BFSI, healthcare, retail and transportation globally in the year ahead.

For FY15E, We expect that strong fundamentals should help to sustain earning

momentum in FY15E. Foray into niche verticals and executions of large deal would play an

important factor for better earning visibility in near future. There is a window of

opportunity for competent large caps and midcaps to displace incumbents and gain some

incremental business. In the past 4 quarters, large caps (four companies) have grown at

3.4% CQGR, while midcaps (five companies) at 3.2%which is comparable to larger peers.


Hence, with strong medium term earnings visibility, better demand environment and

optimistic management comments, we maintain our positive stance on (In order of

preference) TECHM, PERSISTENT, ZENSARTECH, ECLERX and KPIT under mid cap space.

For FY15E, NASSCOM expects IT exports

to grow by 13-15% and domestic market

to grow by 9-12% based on broad

feedback loop from companies and

captives.

US Immigration Bill to remain an

overhang in short-to-medium term,

TCS and HCLT are growing the fastest

and with tremendous margin

performance. Infy is accelerating growth

…

Our top picks:

Concerns:However, hardening of regulatory related to visa approval in USA, Canada and Australia

could spoil the party. Even, the approval of Immigration Bill attached with higher visa fee,

wage requirements and enhanced audit by US agencies could turn the growth story of

Indian IT players adversely. If passed in its current form, the Bill could hurt the margins of

the Indian IT export sector, which derives almost 55-60% of its revenues from USA.

While all companies are accelerating its revenue growth and shaping up its margin

because of favorable demand and supply environment. Across the tier-1 IT space, TCS,

INFY and HCL TECH remain our best picks in order of our preference. These companies

are very much optimistic to improve margin as well as operational efficiencies with

healthy deal pipeline across emerging verticals as well as traditional IT Space under

positive demand scenario.


CMP Upside

(26.02.14) % FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

TCS 2182.4 BUY 2510 15.0% 71.82 95.00 109.31 30.39 22.97 19.97 36.4% 37.5% 34.4%

INFOSYS 3803.85 BUY 3910 2.8% 164.2 188.0 218.2 23.16 20.24 17.44 24.8% 23.7% 22.9%

HCLTECH 1572.9 HOLD 1560 -0.8% 58.10 79.36 98.11 27.07 19.82 16.03 30.7% 31.5% 29.4%

WIPRO 603.35 NEUTRAL - - 25.0 31.1 33.5 24.09 19.42 18.01 21.7% 22.7% 20.8%

TECHM 1821.65 BUY 2130 16.9% 123.97 155.37 175.50 14.69 11.72 10.38 34.8% 30.7% 26.0%

CMC 1450.4 NEUTRAL - - 75.3 86.0 92.4 19.27 16.86 15.70 24.1% 22.8% 20.7%

NIITTECH 446.4 HOLD 443 -0.8% 36.28 43.33 54.18 12.30 10.30 8.24 20.0% 19.4% 19.6%

KPIT 174.9 BUY 177 1.2% 10.8 12.6 16.8 16.19 13.85 10.40 20.1% 19.3% 20.7%

HEXAWARE 165.85 NEUTRAL - - 13.90 15.04 16.01 11.93 11.02 10.36 27.4% 24.9% 22.5%

PERSISTENT 1119.25 HOLD 1065 -4.8% 46.1 61.4 79.1 24.27 18.22 14.15 18.1% 20.3% 21.4%

eCLERX 1341.05 BUY 1358 1.3% 64.25 71.61 83.65 20.87 18.73 16.03 43.8% 37.9% 34.4%

TATAELXSI 518.65 NEUTRAL - - 10.6 24.0 28.4 48.79 21.59 18.29 16.9% 29.7% 27.4%

ZENSARTECH 387.2 BUY 440 13.6% 40.03 52.70 68.97 9.67 7.35 5.61 23.2% 24.5% 25.2%

MINDTREE 1632.7 NEUTRAL - - 89.7 100.9 114.9 18.20 16.18 14.21 28.4% 25.6% 23.6%

RoE-%Company View Target

EPS-Rs P/E-x

16

Profitability declined led by higher operating expenses, higher provisions and

creation of DTL special reserve

Earnings growth of Public Sector Banks (PSBs) are remained weak largely due to

higher operating expenses led by employee provisions and surged in provisions and

contingencies and higher tax provision for DTL special reserve as per RBI’s

suggestion. In our banking coverage universe, profitability declined by 27% YoY and

11.5% QoQ. UCO Bank reported 208% YoY growth while Andhra Bank de-grew by

82% YoY.

Nifty Vs Bank Nifty during Year

Loan (Rs tn) and YoY Gr(%)

Asset quality deterioration sequentially on account of tight liquidity condition

and rising interest rate

Most of PSBs reported 10 to 20% deterioration in asset quality sequentially while

United Bank’s GNPA and net NPA were 11% and 7.5% of gross advance and net

advance respectively and fresh slippages were 16% (annualized). On slippage front

some banks like PNB, Bank of Baroda, Union Bank and UCO bank showed some

strength. But in tight economy condition and rising interest rate scenario, asset

quality pressure would continue. Banks with higher coverage ratio would be

protected. PNB and Bank of Baroda are in better place and their management

commentaries reflect some confidence on asset quality issue.

Public Sector Banks Result Review 3QFY14

Moderate NII growth in the system due to muted loan growth

Operating profit of our universe was declined by 1.5% YoY on the back of higher

cost against employee provisions, operating cost and non supportive other income.

Most of PSBs were reported negative growth in their other income led by lower

corporate fee income. In our universe ALBK, Bank of India and UCO bank reported

healthy operating profit. But we have not seen improvement of operating metrics in

these banks. Operating leverage of PSBs bank has been increasing led higher wage

provisions and branch expansion.

Lower operating profit on account of higher wage settlement provisions and

cost related to branch expenses


Net interest income of our universe grew by 10.4% YoY on the back of margin

expansion on YoY basis along with moderate to healthy loan growth. In our coverage

universe, Bank of India and UCO Bank were reported healthy NII growth whereas

Andhra Bank reported 10.6% YoY declined in NII. SBI reported NII growth of 13 YoY

largely due to loan growth of 17% while margin was declined by 12 bps and flat at

QoQ basis.


17

Public Sector Banks Result Review 3QFY14


Worry about the structure damage of balance sheet, declined profit is not matter

Outlook

Most of PSBs are trading at lower range of valuation multiple owing to absence of core

earnings, operating leverage, deteriorating asset quality and higher amount of restructure

assets that are in pipeline. Most of banking stocks reported moderate revenue and profit

growth owing to multiple headwinds. In near term we are not seeing improvement in

economic condition and asset quality pressure are expected to remain in the system due

to tight liquidity situation and rising interest rate. Post result we like SBI, Union Bank and

UCO Bank due to their structural improvement in balance sheet, operating and financial

metrics.

Result Snapshot

We are not worried about the declining trend of PSBs profitability but to worry about the

structural damage of balance sheet. Most of PSBs were reported moderate to healthy

loan growth but their deposits and CASA growth were absent. In rising interest rate

scenario, banks with higher low cost deposits would be able to report healthy NII growth

on the back of margin expansion and would absorb operating cost. In our sense, PSBs

would either have to improve their cost structure or improve deposits franchise to report

growth at operating profit level. On cost structure front, we are pessimist as PSBs have

higher numbers of unproductive employee than private banks and their salary at lower to

middle level management are no means less than private sector banks. So banks with

higher deposits growth and strong CASA would be able to report healthy growth going

forward. We have buy rating on SBI on the back of its high CASA base and reasonable

valuation despite of bank’s profitability was declined by 34% YoY.


PSU BANKS NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit NII PPP Net Profit

ALBK 1336 1008 325 1309 1154 276 1330 860 311 0.4 17.2 4.7 2.0 -12.6 18.0

ANDHRABANK 868 522 46 1045 643 71 971 712 257 -10.6 -26.8 -82.3 -16.9 -18.9 -35.5

BANKBARODA 3057 2197 1048 2895 2125 1168 2841 2256 1012 7.6 -2.6 3.6 5.6 3.4 -10.3

BANKINDIA 2719 2144 586 2527 2102 622 2308 1856 803 17.8 15.5 -27.0 7.6 2.0 -5.8

CANBK 2191 1425 626 2191 1425 626 1988 1516 714 10.2 -6.0 -12.3 0.0 0.0 0.0

DENABANK 661 371 68 107 369 625 615 443 206 7.5 -16.3 -67.1 517.7 0.5 -89.2

IOB 1398 961 75 1452 791 133 1382 1017 116 1.2 -5.5 -35.3 -3.7 21.5 -43.6

ORIENTBANK 1230 858 224 1281 825 251 1204 926 326 2.2 -7.3 -31.2 -3.9 4.0 -10.6

PNB 4221 2702 755 4016 2535 505 3733 2682 1306 13.1 0.8 -42.2 5.1 6.6 49.6

SBIN 12641 7618 2235 12251 6312 2375 11154 7791 3396 13.3 -2.2 -34.2 3.2 20.7 -5.9

SYNDIBANK 1359 806 380 1411 811 470 1400 864 508 -3.0 -6.8 -25.2 -3.7 -0.7 -19.2

UCOBANK 1566 1137 315 1569 1166 400 1177 831 102 33.0 36.8 208.4 -0.2 -2.5 -21.4

UNIONBANK 1964 1262 349 1954 1225 208 1891 1358 302 3.8 -7.1 15.5 0.5 3.0 67.8

VIJAYABANK 495 168 11 705 273 136 456 261 127 8.5 -35.7 -91.0 -29.8 -38.6 -91.6

Total 34369 22170 6717 33404 20601 7590 31120 22513 9175 10.4 -1.5 -26.8 2.9 7.6 -11.5

3QFY14 2QFY14 3QFY13 YoY Growth QoQ Growth

SHREE CEMENT.

Profitability and Earning drag may surprise for the next cosecutive quarters.4772

4791

4791

0%

NA

500387

16572

4143

6186

1M 1yr YTD

Absolute 8.2 9.5 8.1

Rel. to Nifty 9.5 3.8 4.0


Promoters 64.8 64.8 64.8

FII 8.2 8.2 8.1

DII 5.9 5.7 5.9 MAT Credit support the buttom line :Others 21.2 21.3 21.2

Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14

Revenue 1318 -7.7 5.6 1428 1248

EBIDTA 271 -24.7 8.8 360 249

Net Profit 115 -46.9 -32.9 217 172

EPS 33 -46.9 -32.9 62 49

EBIDTA% 21 -18.4 3.1 25 20

NPM% 9 -42.5 -36.5 15 14(In Crs)

18

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.We expect Shree to be a 21.5m-tpa company by Jun’15.It plans to

foray into high demanding eastern.Total capex for these expansion is Rs.3,000 crore

which is spread over next 2 years.

The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market

scenario the price is fare enough to trade.But looking at future capex plans and sluggish

demand we belive the earnings and profitability of Shree cement may fall for the next

two consecutive quarters.The profitability may fall due to incrising depriciation.Till now

the company's depriciation level is stable but it may surprise further.so we recommend

its a better pic to book profit.

BSE Code

SHREECEMNSE Symbol

52wk Range H/L


5210/3413

Previous Target Price

Nifty

Update Book Profit


Stock Performance-%


1 yr Forward P/B


On the expansion front :

During the Quarter Company got MAT (minimum alternative tax) credit entitlement of

Rs9.25 crore and deferred tax of Rs1.79 crore. This reduced total tax payable amount to

Rs15.27 crore from Rs26.31 crore.

Volumes grew by18 % but prices came down by 5%. So the EBITDA margin has hit

badly:Shree Cement Ltd has reported a 47% fall in its December quarter net profit on

lower sales as well as 5% degrowth in realization. PAT impacted due to lower other

income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41%

YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. Net profit decreased by

47% yoy from Rs.217.44 crore (Rs.62.42 per share) in 2Q13 to Rs.115.49 crore (Rs.33.15

per share) in 2Q14.Total net income from operations stood at Rs.1318.13 crore in 2Q14,

a 6% fall yoy from Rs.1401.23 crore in 2Q13.Other income decreased from Rs.30.2 crore

in 2Q13 to Rs.9.9 crore in 2Q14.In the mean time company declares a Rs.10 as interim

dividend/share.

Power Segment: Realization Down By 15% : For power generation the net realization has

come down from Rs 383 to Rs 334 compared to last year same quarter and in the first

quarter it was still better at Rs 397.So the power realization is down by 13 percent and

hence sales also have come down by 35 percent to Rs.290 Cr. At the same time 14%

increase in its profitability from power segment to Rs112.56 crore while its cement

segment reported 79% fall in its profitability to Rs37.65 crore.

Market Data

Average Daily Volume (Nos.)

Upside

Change from Previous

CMP

Target Price

"Book Profit"25th Feb' 14


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PRICE 1.5x2x 2.5x3x 3.5x4x 4.5x

Outlook :

FY11 FY12 FY13 FY14E

3454 5898 5590 5409

203 163 188 197

3656 6061 5779 5550

905 1500 1513 1409

602 1006 915 1090

2569 4252 4029 4318

885 1646 1561 1091

676 873 436 562

98 235 193 138

-99 69 115 54

365 619 1004 478

20.8 23.1 26.1 11.0

19

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.

The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market

scenario the price is fare enough to trade.But looking at future capex plans and

sluggish demand we belive the earnings and profitability of Shree cement may fall for

the next two consecutive quarters.The profitability may fall due to incrising

depriciation.Till now the company's depriciation level is stable but it may surprise

further.so we recommend its a better pic to book profit.

we recommend book profit at a 11% high,and stay out from the stock for medium

term,till the triggers hit.

Company Description : 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. 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.



Net tax expense / (benefit)

PAT

ROE%

Power and fuel

Freight and forwarding

Expenditure

EBITDA

Depriciation

Interest Cost

SHREE CEMENT.

P/L PERFORMANCE

Net Revenue from Operation

Other Income

Total Income

Management Corner : From mid-January there is a big change in demand scenario

because of the Indian calendar, the prices have improved, the demand has also

improved and they think that January to June some impact of elections will be there -

pre-election demand and other things. So margins should be better than 21 percent.


-20

-10

0

10

20

30

40

50

60

1100

1150

1200

1250

1300

1350

1400

1450

1500

Revenue

Growth

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0 NPM % OPM % EBITDA %

0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

400

450

EBIDTA

INTEREST SERVICE COVERAGERATIO

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

20

Tangible assets

Inventories to Turnover%

Short-term loans and advances

Total Assets

P/B

EPS

Debtor to Turnover%

Creditors to Turnover%

Short-term borrowings

Long-term provisions

Trade payables

Short-term provisions

Total liabilities

SHREE CEMENT.

Share capital

Reserve & Surplus

Total equity

Long-term borrowings

B/S PERFORMANCE

Trading At :

RATIOS

Capital work-in-progress


Intangibles

Long-term loans and advances

Inventories

Trade receivables

Cash and bank balances


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

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