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Reliance Industries Limited registered a turnover of Rs 197112 Cr which is healthy operating profits of half year. we recommend to BUY the stock with target price of Rs 1040 as well as hold Jammu and Kashmir Bank due to trading at lower valuation in comparison to private sector banks.
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email: research@narnolia.com, 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
HINDALCO : "BUY" 24th Dec 2013
Hindalco has expanded its aluminium capacity recently, low aluminium prices, sticky costs, delay in commencement of mining from captive
blocks and higher interest and depreciation costs may hit its profitability. In the near-term, there is lack of clarity over production from the
Mahan coal block for its Mahan smelter. Without captive coal block, the Mahan smelter is expected to face cost pressures, resulting in lower
return ratios over FY2013-15.So Clearance of Mahan coal block will be most awaited trigger for Hindalco. Mean While on the Positive Side We
can expect 7% growth on the Stock with a Target Price of Rs.132.............. ( Page:13-15)
IEA-Equity
Strategy
30th Dec, 2013
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 : 18-19)
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 : 16-
17)
Infosys : Bala exit; a pros and cons? "BUY" 26th Dec , 2013
Last week, V Balakrishnan a former CFO and member of Board director resigned from the company to turn entrepreneur of Private Equity
space. Currently, he is the head of Infosys business process outsourcing unit, the company's core banking software Finacle, its India business
and chairman of Infosys Lodestone. This was now the 8th senior and top level departure after the taking charges by Company founder Narayana
Murthy. At a CMP of Rs 3486, it trades at 19.2x FY14E and 16.7x FY15E earnings. We retain our “BUY” view on the stock with a target price of
target price of Rs 3620............................... ( Page : 11-12)
DCB : "REDUCE" 27th Dec 2013
DCB is currently trading at 1.3 times of one year forward book which is almost upper side of valuation band. We value the bank at Rs.62/share
which is 1.4 times of one year forward book and 15 times of FY14E earnings. Valuation multiple is justified at present fundamental in our view
but has potential to expand the multiple once visibility of ROE improvement clearly come to on the floor after 1-2 quarters.
......................................................... ( Page : 8-10)
J&K BANK : "HOLD" 30th Dec 2013
J&K Bank is one of our prefer bank in mid cap private sector banking space. Currently bank is trading at 1 times of one year forward book and
4.6 times of one forward earnings which we believe bank is still trading at attractive valuation post recent rally. We advice our investor to hold
the stock as bank is trading at lower valuation in comparison to private sector banks despite of having sound fundamental. We value bank at
Rs.1578/share which is 1.1 times of FY15’s book and 5.2 times of FY15’s earnings. ..... ( Page : 5-7)
RELIANCE : Good Growth Ahead "BUY" 30th Dec 2013
Reliance Industries Limited registered a turnover of Rs 197112 Cr for the half year ended 30th September 2013, up 4.7% YoY while it had
made turnover of Rs 188,193 Cr in 1HFY13. The exports were higher by 19.3% YoY to Rs 134455 Cr for 1HFY14……………….. ( Page : 2-4)
India Equity Analytics
BUY
1M 1yr YTD
Absolute 4 6 11
Rel. to Nifty 0.5 -1 -7
Current 1QFY14 4QFY1
3Promoters 45.3 45.3 45.3
FII 17.7 17.4 17.8
DII 11.8 11.6 11.0
Others 25.2 25.7 25.9
Rs, Crore
2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 103758 90336 14.9 87645 18.4
EBITDA 9909 9610 3.1 9818 0.9
PAT 5490 5352 2.6 5409 1.5
EBITDA Margin 9.6% 10.6% (110bps) 11.2% (170bps)
PAT Margin 5.3% 5.9% (60bps) 6.2% (90bps)
2
Target Price 1040
Previous Target Price -
18%
RELIANCEGood Growth Ahead
Stock Performance-%
Share Holding Pattern-%
Mkt Capital (Rs, Cr)
Market Data
BSE Code 500325
About the Company
Reliance Industries Limited (RIL) is a conglomerate with business in the energy and
materials value chain. The Company operates in three segments: petrochemicals, refining
and oil & gas.
Please refer to the Disclaimers at the end of this Report.
Half Yearly Financial Performance
The operating EBITDA during 1HFY14 was Rs 14924 Cr up 2.3 % YoY on the back of
higher margins in refining and petrochemicals business. The cost RM increased by 3 % to
Rs 162,094 from Rs 156,975 Cr due to higher crude prices. The employee cost for 1HFY14
was Rs 1707 Cr largely flat on yearly basis. The other expenditure increased by 13.6% YoY
to Rs 13,101 Cr primarily due to higher expenses on account of power & fuel consumption
and higher selling expenses on account of higher exports.
The profit after tax was higher by 9.4% at Rs 10,842 Cr as against Rs 9,912 Cr in the
corresponding period of the previous year. The other income for 1HFY14 stands Rs 4595 Cr
up 14 % YoY mainly due to higher investment income.
1HFY14 revenue from the Petrochemicals segment increased by 6.7% YoY to Rs 46,842
Cr. Higher prices accounted for 7.4% growth in revenue. EBIT margin improved to 9.4% in
1H FY14 as compared to 8.0% a year ago. The production during 1HFY14 was 11 Mn
Tones verses 11.1 Mn Tonnes in 1HFY13.
1 Yr Price Movement Vs Nifty
(Source: Company/Eastwind)
283929
Average Daily Volume 52019
Nifty 6313
Company Update
CMP 878
Upside Half Yearly Business Performance
52wk Range H/L 954/765
NSE Symbol RELIANCE
OIL AND GAS (EXPLORATION & PRODUCTION) BUSINESS:
Company for half year ended earned Rs 2918 Cr from this business segment down by
38.7% YoY mainly due to Fall in production from KG-D6 owing to geological complexity
and natural decline in the fields.The EBIT margin for the segment in 1HFY14 was 24.3% .
REFINING & MARKETING BUSINESS
Financials
Change from Previous -
Reliance Industries Limited registered a turnover of Rs 197112 Cr for the half year ended
30th September 2013, up 4.7% YoY while it had made turnover of Rs 188,193 Cr in
1HFY13.The exports were higher by 19.3% YoY to Rs 134455 Cr for 1HFY14.
Revenue from Refining and Marketing segment during 1HFY14 increased by 5.7% YoY to
Rs 178,914 Cr, while EBIT was up 8.3% YoY at Rs 6,125 Cr. GRMs averaged $ 8.0/bbl
during 1H FY14 and the refineries achieved an average utilization rate of 112%. 1H FY14
export of refined products was at 22.1 MMT as compared to 19.2 MMT in 1H FY13.
PETROCHEMICALS BUSINESS
"BUY" 30th
Dec' 13
Narnolia Securities Ltd,
3
View and Valuation
The stock is trading at Rs 878 and in light of half yearly performance, business outlook and
management commentary we recommend BUY for the stock with Target Price Rs
1040.
2QFY14 SEGMENTAL REVENUE BREAK UP
Graphical Depiction
The net addition to fixed assets for the half year ended 30th September 2013 was Rs
20,154 Cr including exchange rate difference capitalization. Capital expenditure was
principally on account of ongoing expansions projects in the petrochemicals and refining
business at Jamnagar, Dahej, Silvassa and Hazira.
The Outstanding debt as on 30th September 2013 was Rs 83,982 Cr compared to Rs
72,427 Cr as on 31st March 2013. The company had cash and cash equivalents of Rs
90,540 Cr. These were in bank deposits, mutual funds, CDs and Government securities /
bonds. RIL is debt free on a net basis as at 30th September 2013.
Management Commentary
The management of the company on their half yearly performance said that diversified and
integrated petrochemicals business captured margins across segments and delivered near-
record profit levels even as the domestic economy slowed. The management further said
that optimal utilization of best-in-class refinery assets and inherent flexibility in sourcing,
product delivery contributed to healthy operating profits from our refining business.
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
RELIANCEContinued….
Narnolia Securities Ltd,
4
(Source: Company/Eastwind)
RELIANCE
Sales Trend (Rs/Bn)
A better realisation with a weaker rupee and
improved volume were the key drivers of the
sales growth of both petchem and refinery
businesses.
EBITDA & OPM %
(Source: Company/Eastwind)
PAT & NPM %
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
The improved margin and higher volume of
the petrochemical (petchem) business were
the major drivers of the profit in Q2FY2014.
Despite a healthy revenue growth, OPM
remain flat due to a lower margin in the
refining and exploration segments
Narnolia Securities Ltd,
J&K BANK
1411
1578
1420
12
11
1M 1yr YTD
Absolute 3.6 7.8 7.8
Rel.to Nifty -12.9 -0.8 -0.8
Current 4QFY13 3QFY1
3Promoters 53.2 53.2 53.2
FII 24.8 24.5 24.3
DII 5.0 4.9 4.9
Others 17.1 17.4 17.7
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 1544 1838 2316 2595 3091
Total Income 1908 2172 2800 2979 3817
PPP 1149 1370 1811 1906 2443
Net Profit 615 803 1055 1128 1478
EPS 126.9 165.7 217.6 232.6 304.9
5
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
52wk Range H/L
Change from Previous
J&k Bank Vs Nifty
Share Holding Pattern-%
21053
Nifty 6314
Company Update HOLD
CMP
Target Price
Jammu and Kashmir Bank (J&K Bank) is one of our prefer bank in mid cap
private sector banking space. Currently bank is trading at 1times of one year
forward book and 4.6 times of one forward earnings which we believe bank is
still trading at attractive valuation despite of recent rally. We advice our
investor to hold the stock as bank is trading at lower valuation premium in
comparison to peers despite of having sound fundamental. We value bank at
Rs.1578/share which is 1.1 times of FY15’s book and 5.2 times of FY15’s
earnings. Looking at bank’s metrics like Tier1 capital of 13.2%, GNPA of 1.7%,
PCR at 92% make it strong for trading at premium valuation as compare to
peers group.
Average Daily Volume
6841
Previous Target Price
Market Data
Upside
1695/1130
BSE Code 532209
NSE Symbol J&KBANK
At the end of 2QFY14, bank reported GNPA of 1.7% and in absolute basis, GNPA
grew by mere 4% QoQ despite of current phase of economy cycle. Restructure loans
declined by 70 bps to 3.6% of loans whereas fresh restructure was low at 70 bps of
loan. Provision coverage ratio declined by 250 bps QoQ to 89% (without technical
write-off) made net NPA to 0.2% from 0.1% in 1QFY14.
Strong balance sheet growth continued with margin expansion
J&K bank aggressively expanding its loan growth outside of the state and witnessed
20.3% growth whereas within state loan grew by 26.4% in 2QFY14. Management
guided loan growth of 20-25% in FY14 premium of industry average of 15%.
Deposits growth would be 17-18% in FY14 according to management. Bank’s CASA
ratio at the end of 2Q stood at 39% which keep cost of deposits at 6% of level, one
of the lowest in industry. Low cost and high yield asset helped bank to maintain NIM
at 4.33%. Bank’s management guided NIM 4%+ level in FY14.
Sustainable high return ratio makes a strong case to trade at premium
valuation
J&K bank has sustainable high return ratio like ROE of 23%+ and ROA of 1.5%+
which help bank to maintain high valuation premium. Operating leverage (operating
cost to total asset) of the bank remains at 1.4 to 1.6 times in last few quarters which
restrict cost income escalate beyond 36%. Capital adequacy ratio of 13.2%
according to basel-II helps bank to maintain high growth trajectory with raising capital
in next few years.
Stable asset quality with lowest restructure asset comparison to peers
"HOLD"30th Dec, 2013
Narnolia Securities Ltd,
6
J&K BANK
Source: Eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quaterly Result (Rs. Cr) 2QFY14 1QFY14 2QFY13 % YoY Gr % QoQ Gr
Interest/discount on advances / bills 1244 1184 1061 17.3 5.0
Income on investments 396 423 417 -5.0 -6.3
Interest on balances with Reserve Bank of India 10 17 23 -57.4 -42.8
Others 0 0 0
Total Interest Income 1650 1624 1501 9.9 1.6
Others Income 99 92 91 9.4 7.9
Total Income 1749 1716 1592 9.9 1.9
Interest Expended 968 969 948 2.1 -0.1
NII 682 655 553 23.4 4.1
Other Income 99 92 91 9.4 7.9
Total Income 781 747 644 21.4 4.6
Employee 177 176 143 23.6 0.6
Other Expenses 108 90 78 38.7 19.4
Operating Expenses 285 266 221 28.9 7.0
PPP( Rs Cr) 496 481 423 17.5 3.2
Provisions 56 36 33 69.7 53.7
PBT 441 445 390 13.1 -0.9
Tax 138 137 120 14.8 1.0
Net Profit 303 308 270 12.3 -1.7
Balance Sheet Data ( Rs Cr)
Net Worth 5475 5173 4609 18.8 5.9
Deposits 61171 58601 54927 11.4 4.4
Borrowings 1346 758 922 45.9 77.7
Advances 41121 39282 34272 20.0 4.7
Investment 22316 21734 22521 -0.9 2.7
Asset Qaulity ( Rs Cr)
GNPA 709 665 709 0.0 6.5
NNPA 78 56 78 0.0 38.2
GNPA(%) 1.7 1.7 2.1
NNPA(%) 0.2 0.1 0.2
PCR(%) 89 92 89
7
J&K BANK
Source: eastwind/Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
P/L 2010 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 2342 2630 3394 4318 4959 5703
Income on investments 705 1066 1403 1723 1892 2085
Interest on balances with Reserve Bank of India 11 17 39 97 53 53
Others 0 0 0 0 0 0
Total Interest Income 3057 3713 4836 6137 6904 7841
Others Income 416 365 334 484 383 727
Total Income 3473 4078 5170 6621 7287 8568
Interest on deposits 1841 2069 2902 3741 4217 4639
Interest on RBI/Inter bank borrowings 83 46 41 26 91 111
Others 14 54 54 54 0 0
Interest Expended 1938 2169 2997 3821 4308 4750
NII 1119 1544 1838 2316 2595 3091
NII Growth(%) 37.9 19.1 26.0 12.1 19.1
Other Income 416 365 334 484 383 727
Total Income 1536 1908 2172 2800 2979 3817
Employee 366 524 521 652 633 811
Other Expenses 211 235 281 337 440 563
Operating Expenses 577 759 802 989 1072 1374
PPP( Rs Cr) 958 1149 1370 1811 1906 2443
Provisions 446 534 567 756 779 965
Net Profit 512 615 803 1055 1128 1478
Net Profit Grwoth(%) 20.1 30.6 31.4 6.9 31.1
Key Balance sheet dataDeposits 37237 44676 53347 64221 70643 77707
Deposits Growth(%) 20.0 19.4 20.4 10.0 10.0
Borrowings 1100 1105 1241 1075 1230 1500
Borrowings Growth(%) 0.4 12.3 -13.4 14.4 22.0
Loan 23057 26194 33077 39200 45080 51843
Loan Growth(%) 13.6 26.3 18.5 15.0 15.0
Investments 13956 19696 21624 25741 20124 22178
Investments Growth(%) 41.1 9.8 19.0 -21.8 10.2
Eastwind CalculationYield on Advances 10.2 10.0 10.3 11.0 11.0 11.0
Yield on Investments 5.0 5.4 6.5 9.4 9.4 9.4
Yield on Funds 7.7 7.5 8.3 8.9 10.6 10.6
Cost of deposits 4.9 4.6 5.4 5.8 6.0 6.0
Cost of Borrowings 8.8 9.1 7.7 7.4 7.4 7.4
Cost of fund 5.1 4.7 5.5 5.9 6.0 6.0
ValuationBook Value 621 718 844 1003 1186 1441
P/BV 1.1 1.2 1.1 1.3 1.2 1.0
P/E 6.4 6.9 5.5 5.9 6.1 4.6
57.25
62
62
8
-
1M 1yr YTD
Absolute 19.2 20.4 20.4
Rel.to Nifty 15.6 13.1 13.1
Current 4QFY13 3QFY1
3Promoters 18.5 18.5 18.5
FII 11.4 11.4 11.1
DII 14.1 12.5 13.0
Others 56.1 57.7 57.5
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 189 228 284 127 190
Total Income 301 328 401 272 334
PPP 86 84 126 95 127
Net Profit 21 55 102 95 127
EPS 1.1 2.3 4.1 3.8 5.1
8
BSE Code 532772
NSE Symbol DCB
52wk Range H/L
Company Update Book Profit
CMP
Target Price
Well capitalized and stable asset quality
Bank is well capitalized with tier 1 ratio of 13% means no need to raise money in
short term. Bank’s management guided loan and deposits growth of 25-27% and 30-
32% in FY14 which seen possible looking at present scenario. Management is also
very focus on low ticket size loan (prefer less than 30 mn) on account of avoiding
large slippage. At the 2QFY14, bank reported slippage of Rs.21 cr which was 1.3%
in annualized basis. Fresh slippage ratio remains in the range of 1.1-1.5 times in last
few quarters, so we believe bank would maintain similar trend in term of fresh
slippage which restrict GNPA out of control. Provision coverage ratio at the end of
2QFY14 stood at 84% (without technical write off) and management reiterate PCR to
maintain above of 80%.
Mkt Capital (Rs Cr)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Potential to expand valuation multiple, need to watch growth trajectory 1-2
quarters more
On valuation front, DCB valuation could be expanded if visibility of ROE
improvement is clearly seen. ROE improvement could be possible in two front- first
reducing cost income ratio which will boost the profit and second loan growth
specially in high yield segment like SME and MSME. We observed that bank’s Cost-
Income ratio was higher at 66.2% at the end of 2QFY14. Cost income ratio would
reduce to less than 65% in FY14 and would further reduce to 60% in FY15 according
to management. To reduce the cost, bank initiated to invest high yield segment,
planning to maintain CASA at 30% in long run while in short term does not expect
below of 27% and escalating branch network. In FY13 bank opened 10 branches but
in 1HFY14, DCB opened 9 branches and will go upto 120-125 branches in FY14.
54.85/38
Stock Performance
DCB
Change from Previous
DCB Vs Nifty
Share Holding Pattern-%
2158026
Nifty 6279
Development Credit Bank (DCB) currently trading at 1.3 times of one year
forward book which is now almost of higher side of our valuation range. We
value the bank at Rs.62/share at the higher side which is 1.4 times of one year
forward book and 15 times of FY14E’s earnings. Present valuation multiple
justified on account of DCB’s consistent improvement in its return ratio and
management guided similar trend of growth in FY14,however bank cited
margin could be compressed by 25-30 bps. We can’t rule out the valuation
multiple expansions but there is need to watch 1-2 quarters more as per our
view
Average Daily Volume
1437
Previous Target Price
Market Data
Upside
"Book Profit"27th Dec,2013
Narnolia Securities Ltd,
9
DCB
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Result( Rs Cr) 2QFY14 1QFY14 2QFY13 % YoY % QoQ
Interest/discount on advances / bills 205.2 201.5 170.9 20.1 1.8
Income on investments 57.9 56.7 47.6 21.8 2.1
Interest on balances with Reserve Bank of India 5.5 2.3 1.1 378.2 142.4
Others 0.2 0.2 0.4 -45.6 -9.7
Total Interest Income 268.8 260.7 219.9 22.2 3.1
Others Income 27.3 45.1 27.5 -0.9 -39.5
Total Income 296.1 305.8 247.5 19.6 -3.2
Interest Expended 177.6 177.6 153.0 16.1 0.0
NII 91.3 83.1 67.0 36.3 9.8
Other Income 27.3 45.1 27.5 -0.9 -39.5
Total Income 118.5 128.2 94.5 25.5 -7.6
Employee 38.8 37.7 34.1 13.9 2.9
Other Expenses 39.6 39.2 33.9 16.8 1.1
Operating Expenses 78.4 76.9 68.0 15.4 2.0
PPP( Rs Cr) 40.1 51.3 26.5 51.4 -21.8
Provisions 7.0 8.5 4.4 60.8 -17.4
PBT 33.1 42.8 22.1 49.5 -22.7
Tax 0.0 0.0 0.0
Net Profit 33.1 42.8 22.1 49.5 -22.7
Balance Sheet (Rs Cr)
Net Worth 1079 1046 902 19.6 3.2
Deposits 8788 8320 7137 23.1 5.6
Loan 6677 6472 5671 17.7 3.2
Asset quality (Rs Cr)
GNPA 235 226 226 4.0 4.0
NPA 57 54 38 50.0 5.6
% GNPA 3.5 3.5 4
% NPA 0.9 0.8 0.7
10
DCB
Source: Eastwind/ Company
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2010 2011 2012 2013 2014E 2015EInterest Income 459 536 717 916 1090 1279
Interest Expense 317 347 489 632 963 1089
NII 142 189 228 284 127 190
Change (%) -28.2 33.6 20.4 24.9 -55.3 49.1
Non Interest Income 107 112 100 117 145 145
Total Income 249 301 328 401 272 334
Change (%) -21.6 21.2 8.9 22.4 -32.3 23.0
Operating Expenses 201 215 244 275 177 207
Pre Provision Profits 48 86 84 126 95 127
Change (%) -36.5 79.9 -2.6 50.5 -24.5 33.5
Provisions 121 57 29 24 0 0
PBT -73 29 55 102 95 127
PAT -79 21 55 102 95 127
Change (%) -10.1 -127.2 157.1 85.3 -6.7 33.5
Balance SheetDeposits( Rs Cr) 4787 5610 6336 8364 9618 11061
Change (%) 3 17 13 32 15 15
of which CASA Dep 1693 1975 2035 2272 2597 1825
Change (%) 17 17 3 12 14 -30
Borrowings( Rs Cr) 504 861 1123 1526 1697 1952
Investments( Rs Cr) 2018 2295 2518 3359 2886 3318
Loans( Rs Cr) 3460 4271 5284 6586 7903 9484
Change (%) 6 23 24 25 20 20
RatioAvg. Yield on loans 10.4 9.4 10.1 10.8 9.7 9.7
Avg. Yield on Investments 4.7 5.8 6.9 5.8 6.8 6.8
Avg. Cost of Deposit 5.9 5.2 6.4 6.4 5.9 5.9
Avg. Cost of Borrowimgs 6.8 6.4 7.2 6.4 6.0 6.0
Valuation
Book Value 30 31 36 40 44 49
CMP 32.2 45.9 45 45 57.3 57.3
P/BV 1.1 1.5 1.3 1.1 1.3 1.2
Infosys
How do we see the impacts of this buzz?
1M 1yr YTD
Absolute 4.1 52.1 27.2
Rel. to Nifty -0.3 44.9 23.3
Current 4QFY13 3QFY13
Promoters 16.04 16.04 16.04
FII 40.52 40.55 39.42
DII 17.51 18.7 18.33
Others 25.93 24.71 26.21
Financials2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%
Revenue 12965 11267 15.07 9858 31.5
EBITDA 2836.9 2664 6.49 2597 9.2
PAT 2406.9 2374 1.39 2369 1.6
EBITDA Margin 21.9% 23.6% (170bps) 26.3% (440bps)
PAT Margin 18.6% 21.1% (250bps) 24.0% (540bps)
11
NSE Symbol INFY
Change from Previous 7%
Behind the top-level departure, only one cause reflects on the picture that is the tussle
of CEO post. Current CEO Shibulal is going to complete its tenure by next years.
Among the front-runner of this post, Balakrishnan was strong contender for the post
of CEO race.
52wk Range H/L 3570/2190
Stock Performance
160944
(a) We think, there would not be any major impact on qualitative and quantitative sense
and company would not see any major gap between sales executives and clients. Yes,
the magnitude of the exits could create a leadership vacuum. However, very soon
company will try to turn into smoothie organization structure.
Previous Target Price 3390
Upside 4%
BSE Code 500209
Mkt Capital (Rs Crores)
Average Daily Volume 1240448
Nifty 6268
Bala exit; a pros and cons?
CMP 3486
Target Price 3622
Company update BUY Does Balakrishnan departure from Infosys would affect the company’s bread and
butter?
Last week, V Balakrishnan a former CFO and member of Board director resigned from
the company to turn entrepreneur of Private Equity space. Currently, he is the head of
Infosys business process outsourcing unit, the company's core banking software
Finacle, its India business and chairman of Infosys Lodestone. This was now the 8th
senior and top level departure after the taking charges by Company founder Narayana
Murthy. Market Data
1 year forward P/E
Rs, Crore
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
(d) Post Narayana Murthy, company has committed for future transformational changes
and next generation growth plan. Recently, the company has undertaken a clear shift in
direction where it has been focusing on higher-margin businesses, a strategy that rival
TCS that has successfully implemented.
For near term, there could be some small sort of rally on the stock because of this knee
jerk and as the December quarter is generally expected to be a bit tepid for the
technology sector. Although, the street will forget all things after a good quarter
earnings or a strong commentary on the business outlook. For long term, we do not
see any major pressure because of co’s poster boy exit.
(b) V Balakrsihnan’s resignation is not one night decision and not an affect of internal
hiccups. Post declaration of his resignation V Balakrishnan stated to media “it was my
long term plan and we were waiting for SEBI approval for my new Private Equity firm”.
Even, he sold 1,00,000 shares in the company for Rs 33 crore in the open market on 9th
Nov 2013 (50,000 shares each held by his daughters), it indicates its earlier decision.
Therefore, we think Bala’s exit is a part of an ongoing strategy to reshuffle the top
management at Infosys.
(c) The top management conundrum has not been new to Infosys. Even, as Infosys’s
hyper-growth story played out over the course of three decades, powered by not just its
seven cofounders but also several talented employees that came on later on. Even, most
of company founders have churned out and company has been working for growth story
and committing for strategy 3.0.
Share Holding Pattern-%
"BUY"26th Dec' 13
Narnolia Securities Ltd,
12
Please refer to the Disclaimers at the end of this Report.
Financials
(Source: Company/Eastwind)
Considering the revised guidance by management and its growth priority than margin
inching up strategy, we are positive on the stock. At a CMP of Rs 3486, it trades at 19.2x
FY14E and 16.7x FY15E earnings. We retain our “BUY” view on the stock with a target
price of target price of Rs 3622.
Infosys.
View and Valuation: Infosys seems to be on its way to rediscovering its past mojo with revenue momentum
kicking, its past strategy of under-promising and over delivering - remember present
guidance now factors flat gorwth in next 2 qtrs, and the NRN invisible hand in play.
Further announcement of strategic acquisitions, better utilization of cash balances, ramp-
up in sales investment ,better deal win, consistent client traction and revenue
momentum would help the company to bridge the gap with rivals such as TCS and HCL
Tech.
Narnolia Securities Ltd,
Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E
Sales, INR 22742 27501 33734 40352 48659.6 55939.5
Employee Cost 12085 14856 18340 22565 27736.0 32165.2
Other expenses 2792 3677 4671 6254 7785.5 9230.0
Total Expenses 14877 18533 23011 28819 35521.5 41395.2
EBITDA 7865 8968 10723 11533 13138.1 14544.3
Depreciation 905 854 928 1099 1325.3 1523.5
Other Income 982 1211 1904 2365 2433.0 3356.4
EBIT 7942 9325 11699 12799 14245.8 16377.1
Interest Cost 0 0 0 0 0.0 0.0
PBT 7942 9325 11699 12799 14245.8 16377.1
Tax 1681 2490 3367 3370 3846.4 4421.8
PAT 6261 6835 8332 9429 10399.4 11955.3
Growth-%
Sales 4.8% 20.9% 22.7% 19.6% 20.6% 15.0%
EBITDA 9.3% 14.0% 19.6% 7.6% 13.9% 10.7%
PAT 4.6% 9.2% 21.9% 13.2% 10.3% 15.0%
Margin -%
EBITDA 34.6% 32.6% 31.8% 28.6% 27.0% 26.0%
EBIT 34.9% 33.9% 34.7% 31.7% 29.3% 29.3%
PAT 27.5% 24.9% 24.7% 23.4% 21.4% 21.4%
Expenses on Sales-%
Employee Cost 53.1% 54.0% 54.4% 55.9% 57.0% 57.5%
Other expenses 12.3% 13.4% 13.8% 15.5% 16.0% 16.5%
Tax rate 21.2% 26.7% 28.8% 26.3% 27.0% 27.0%
Valuation
CMP 2615.1 2765.1 2865.0 2400.0 3486 3486
No of Share 57.4 57.4 57.4 57.4 57.4 57.4
NW 23049.0 25976.0 31332.0 37994.0 45236.1 53832.6
EPS 109.1 119.0 145.1 164.2 181.1 208.2
BVPS 401.7 452.4 545.6 661.7 787.8 937.5
RoE-% 27.2% 26.3% 26.6% 24.8% 23.0% 22.2%
Dividen Payout ratio 25.1% 45.9% 24.0% 45.1% 23.8% 20.7%
P/BV 6.5 6.1 5.3 3.6 4.4 3.7
P/E 24.0 23.2 19.7 14.6 19.2 16.7
Hindalco Industries Ltd.
124
132
NA
7%
NA
500440
25497
17848
6284
1M 1yr YTD
Absolute -1.3 11.3 8.7
Rel. to Nifty -2.7 0.5 0.0
2QFY14 1QFY14 4QFY13
Promoters 37.0 37.0 32.1
FII 24.9 24.8 24.5
DII 14.4 14.3 15.5
Others 23.7 23.9 28.0
Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14
Net Revenue 6585 4.6 5.1 6296 6266
EBITDA 540 4.8 12.8 515 478
Depriciation 196 13.7 7.3 173 183
Tax 83 -5.9 -17.4 88 101
PAT 357 -0.5 -24.7 359 474(In Crs)
13
Average Daily Volume (Nos.)
The PM's Project Monitoring Group has sorted out issues with regards to Hindalco's 7000
Cr rupees Utkal Alumina refinery among others. On a medium-term view we would still
be positive on Hindalco Industries. As the improvement happens across economies
whether it is US, Europe, to an extent in China also we think Hindalco is very well
positioned.
Market DataBSE Code
HINDALCONSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
137/83
Upside
Change from Previous
Company UpdateCMP
Target Price
Previous Target Price
Novelis, leader in aluminum rolling and recycling completed $400 millionexpansion
program in South Korea. The expansion of its Yeongju and Ulsan plants increases the
company's production capacity in the region by more than 50 percent to approximately
one million metric tons of aluminum sheet per year.Hindalco has expanded its smelting
capacity by 359kt via Mahan greenfield project.Aruna Sundarajan is back and set to
take charge as Industries new additional chief secretary and looks forward
optimistically for a better industrial climate focusing on young entrepreneurship.
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
1 yr Forward P/B
Source - Comapany/EastWind Research
Hindalco Industries, the world's largest Aluminium rolling company, disappointed with
the second quarter net profit declining marginally to Rs 357Cr from Rs 358.9Cr y-o-y,
dented by higher finance cost. Bottom line was largely supported by other income;
otherwise profit would have much lower than currently reported. Other income, which
included Rs61 Cr non-recurring income and dividend of Rs 100 Cr from subsidiaries, more
than doubled to Rs 280Cr in three-month period ended September 2013 from Rs 132.4Cr
in a year ago period. Net sales increased over 2 percent year-on-year to Rs 6245Cr during
September quarter. EBITDA climbed 3 percent Y-o-Y to Rs 481Cr while operating profit
margin improved marginally to 7.7 percent from 7.63 percent during the same period on
higher inventory. Finance cost surged 6.5 times on a yearly basis to Rs 183Cr in the
quarter gone by, given higher average borrowing. Revenue from Aluminium business
grew 11 percent y-o-y to Rs 2,342.6Cr, driven by higher volumes, but EBIT margin of the
same business declined to 7.1 percent during 2QFY14
During the same period, total metal production increased to 1,32,000 ton (excluding
Mahan production) from 1,28,000 ton while alumina production (excluding Utkal alumina
production) rose to 3,34,000 ton from 3,28,000 ton y-o-y, but sequentially it was down
from 3,48,000 ton due to a planned ramp down at one of refineries. In case of copper
business, revenue slipped 2.2 percent Y-o-Y to Rs 3,974Cr in the quarter gone by, but its
EBIT margin expanded to 6 percent. Cathode production declined to 77,000 ton from
78,000 ton y-o-y.
Nifty
"Buy"24 Dec' 13
Narnolia Securities Ltd,
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
100
200
300
400
500
600
700
800
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
PRICE BV 1x 2x
3x 4x P/BV
LME Price/Ton
LME Price/Ton
FY10 FY11 FY12 FY13
6761 7965 9041 8779
11752 15902 17575 17305
1963 2004 1822 930
599 602 802 768
138254 74799 178990 225246
FY11 FY12 FY13 FY14E
72078 80821 80193 86000
431 783 1012 1360
72509 81604 81205 87360
64102 72856 72395 78572
7976 7965 7798 7428
2725 2645 2822 2700
1839 1758 2079 2500
964 786 886 825
366 211 -20 0
57 -50 16 0
2456 3397 3027 2763
8.5 10.6 8.6 7.3
14
Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Hindalco Industries Ltd.
OPERATING MATRIX
Aluminium Revenue
P/L PERFORMANCE
Aluminium Results
Copper Results
Capital Employed
Out Look : Although Hindalco has expanded its aluminium capacity recently, low
aluminium prices, sticky costs, delay in commencement of mining from captive blocks
and higher interest and depreciation costs may hit its profitability. In the near-term,
there is lack of clarity over production from the Mahan coal block for its Mahan smelter.
Without captive coal block, the Mahan smelter is expected to face cost pressures,
resulting in lower return ratios over FY2013-15.So Clearance of Mahan coal block will be
most awaited trigger for Hindalco. Mean While on the Positive Side We can expect 7%
growth on the Stock with a Target Price of Rs.132.
Expenditure
EBITDA
Depriciation
Copper Revenue
Net Revenue from Operation
Other Income
Total Income
Source - Comapany/EastWind Research
Minority Interest
Share in Profit/(Loss) of Associates
PAT
ROE%
Tax
Interest Cost
Narnolia Securities Ltd,
90000
95000
100000
105000
110000
115000
120000
Jan
-13
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Ma
y-1
3
Jun
-13
Jul-
13
Au
g-1
3
Se
p-1
3
Oct
-13
No
v-1
3
De
c-1
3
Primary Aluminium
340000
360000
380000
400000
420000
440000
460000
480000
Jan
-13
Fe
b-1
3
Ma
r-1
3
Ap
r-1
3
Ma
y-1
3
Jun
-13
Jul-
13
Au
g-1
3
Se
p-1
3
Oct
-13
No
v-1
3
De
c-1
3
Copper
FY10 FY11 FY12 FY13
191 191 191 191
21346 28824 31179 34597
21545 29023 31911 35330
10763 13736 37127 49857
13236 13956 3731 6442
3901 4138 5289 5691
9742 12980 11052 9613
1016 1077 1377 1610
69235 84376 101402 120590
7876 12272 15429 16435
21124 20133 19871 21490
5801 13131 22798 33831
1983 2035 3774 3170
11275 14096 13246 14332
6544 8000 8017 8952
2195 2556 3296 3770
1134 1164 2159 3257
69235 84376 101402 120590
FY10 FY11 FY12 FY13
1.6 1.4 0.8 0.5
20.5 12.8 17.7 15.8
10.8 11.1 9.9 11.2
16.0 18.0 13.7 12.0
1.9 2.0 1.6 1.8
FY10 FY11 FY12 FY13
5542 6929 8534 6852
-598 -703 -932 -3874
4944 6226 7602 2978
-5448 -6710 -13220 -13765
428 825 6237 10278
-76 341 619 -510
15
Hindalco Industries Ltd.
Source - Comapany/EastWind Research
Trade payables
Short-term provisions
Total liabilities
Intangibles
Cash and bank balances
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Source - Comapany/EastWind Research
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Cash from Operation
Short-term loans and advances
Total Assets
RATIOS
P/B
EPS
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%
Source - Comapany/EastWind Research
CASH FLOWS
Trading At :
Changes In Working Capital
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year
Narnolia Securities Ltd,
0
20
40
60
80
100
120
140
160
0
1000
2000
3000
4000
5000
6000
7000
NIFTY HINDALCO
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
16
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.
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.
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.
"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.Change from Previous
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.
Nifty
Share Holding Pattern-%
6274
Stock Performance
NSE Symbol PERSISTENT
Mkt Capital (Rs Crores)
BSE Code 533179
Market Data
Previous Target Price 890
Upside -
"Book Profit"23rd Dec' 13
Narnolia Securities Ltd,
17
Please refer to the Disclaimers at the end of this Report.
Persistent System.
(Source: Company/Eastwind)
Financials
(Source: Company/Eastwind)
Rating and Price Target Chart Updation Detail
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
18
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-%
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).
Market Data
6274
Mkt Capital (Rs Crores) 42991
"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.Previous Target Price 1875
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 .
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.
BSE Code 532755
NSE Symbol TECHM
52wk Range H/L 1872/895
Nifty
Change from Previous
Upside 26%
Average Daily Volume 191827
"BUY"23rd Dec' 13
Narnolia Securities Ltd,
19
Financials
Please refer to the Disclaimers at the end of this Report.
Tech Mahindra.
(Source: Company/Eastwind)
Operating Metrics
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
20
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