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Index
� Stock Update >> Wipro
� Stock Update >> Marico
� Stock Update >> GlaxoSmithKline Consumer Healthcare
� Stock Update >> Union Bank of India
� Stock Update >> V-Guard Industries
� Stock Update >> Eros International Media
� Stock Update >> Dishman Pharmaceuticals & Chemicals
� Stock Update >> Deepak Fertilisers & Petrochemicals Corporation
� Sector Update >> Insurance
2Sharekhan Home NextNovember 02, 2012
investor’s eye stock update
Wipro Apple Green
Stock Update
Hive off of non-core businesses to support valuations Hold; CMP: Rs363
Company details
Price target: Rs390
Market cap: Rs89,851 cr
52-week high/low: Rs453/326
NSE volume: 13.9 lakh(no. of shares)
BSE code: 507685
NSE code: WIPRO
Sharekhan code: WIPRO
Free float: 53.4 cr(no. of shares)
Price performance
(%) 1m 3m 6m 12m
Absolute -8.0 3.1 -12.6 -2.9
Relative -6.8 -4.2 -19.3 -8.7to Sensex
Price chart
Shareholding pattern
Result highlights (IFRS)
� Muted volume growth continues, pricing uptick salvages performance: Wipro
continues to disappoint on the volume front. In Q2FY2013 the company’s volume
growth dropped sequentially to the lowest level in 12 quarters at 0.2% quarter
on quarter (QoQ). The growth is lower than our expectation of a 1.5% sequential
growth. However, a sequential pricing uptick (1.4% offshore and 1.9% onsite)
saved the day on the revenue front, as the revenues of IT services business rose
by 1.7% QoQ to $1,540.7 million (marginally lower than our estimate of $1,545
million), and met the mid level of the guidance range ($1,520-1,550 million).
On a constant currency basis, the revenues of IT services business rose by 1.3%
QoQ to $1,535 million. In rupee terms, revenues of IT services business grew
0.7% QoQ to Rs8,373.2 crore.
� Margin surprises positively helped by productivity improvement: The IT
services business’ earnings before interest and tax (EBIT) margin showed a
marginal decline of 30 basis points QoQ to 20.7% (ahead of our expectations of
18.8%), driven largely by realisation improvement.
� Net other income jumped by 103.5% QoQ to Rs269.7 crore on account of a higher
treasury income and lower marked-to-market (MTM) foreign exchange (forex) losses
on the external currency borrowings (ECB). The treasury income rose by 20% QoQ
to Rs323.4 crore and the forex loss was lower by 73% QoQ at Rs27.2 crore.
Results: consolidated (under IFRS) Rs cr
Particular Q2FY13 Q2FY12 Q1FY13 YoY % QoQ %
Net sales 10639.7 9007.0 10483.2 18.1 1.5
Direct costs 7316.2 6497.9 7287.0 12.6 0.4
Gross profit 3323.5 2509.1 3196.2 32.5 4.0
SG&A 1464.8 1021.3 1324.0 43.4 10.6
EBIT 1858.7 1487.8 1872.2 24.9 -0.7
Net other income 269.7 86.3 132.5 212.5 103.5
Affiliate profit/(loss) -3.5 9.9 -10.2 -135.4 -65.7
PBT 2124.9 1584.0 1994.5 34.1 6.5
Tax provision 507.9 284.1 404.6 78.8 25.5
PAT 1617.0 1299.9 1589.9 24.4 1.7
Minority interest 6.4 -1.0 9.7 -740.0 -34.0
Net profit 1610.6 1300.9 1580.2 23.8 1.9
Equity capital (FV Rs2/-) 492.3 492.3 492.3
EPS (Rs) 6.5 5.3 6.4
Margin (%)
GPM 31.2 27.9 30.5
EBIT margins 17.5 16.5 17.9
NPM 15.1 14.4 15.1
Tax rate 23.9 17.9 20.3
Foreign9%
Institutions4%
Non-promoter corporate
3%
Promoters78%
Public & Others6%
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3Sharekhan November 02, 2012 Home Next
� The consolidated revenues for the quarter were up by
1.5% QoQ to Rs10,639.7 crore and the net profit was
up by 1.9% QoQ to Rs1,610.6 crore (ahead of our
expectations of Rs1,526 crore).
� Management sees deal pipeline improving but
decision making remains uncertain: Wipro signed a
few large deals towards the end of the quarter and
expects to see a ramp-up in these deals in Q4FY2013.
The management also foresees a decent deal pipeline
but the decision making on the deals remains
uncertain. The deals are coming in the traditional
outsourcing business as well as the newer service lines
of cloud and mobility. On client mining, the company
has as of now made investments in the top 55 client
accounts. Going ahead, the company plans to extend
the investments to 134 client accounts. On the other
hand, the company is moving out of the so-called tail
accounts, which, it believes, are not strategic to the
company’s growth. The tail accounts have reduced
from 87 to 45 and would go down to zero in the coming
quarters. This strategy has led to loss of revenue to
the tune of $8 million in the quarter.
� Outlook and valuation: Wipro’s IT services business
continues to struggle to catch up with the peers and
has reported less than 1% sequential volume growth in
the last three quarters. Worst still, we do not anticipate
any dramatic improvement in the volume growth in
the near future. Nevertheless, the company’s move
to hive off the non-core businesses provides
opportunity to investors to earn a decent return by
opting for the 7% redeemable preference shares in
Wipro Enterprises (for details refer to the box). Thus,
we believe the business demerger move would support
the stock price in the medium term. However, we
remain circumspect about any meaningful revival in
Wipro’s core IT services business in the medium term
and continue to prefer Tata Consultancy Services (TCS)
and HCL Technologies (HCL Tech). We increase our price
target to Rs390 and maintain our Hold recommendation
on the stock.
Segment-wise performance
IT products
The IT products segment’s revenues fell by 5.7% QoQ and
10.2% year on year (YoY) to Rs899 crore. The Y-o-Y drop
in the revenues could be attributed to the sluggishness in
the India and Middle-East business. The EBIT margin for
the segment improved by 80 basis points QoQ but fell by
150 basis points YoY to 3%.
Consumer care and lighting business
The division’s revenues grew by 2.8% QoQ and 25.9% YoY
to Rs1,007.5 crore. The EBIT margin for the segment was
down 30 basis points QoQ and up 30 basis points YoY to
11.3%. ‘Santoor’ grew by 22% YoY and ‘Yardley’ grew by
70% YoY. The company also saw a good growth in the office
furniture business.
Segmental performance Rs cr
Particulars Q2 Q2 Q1 YoY QoQ
FY13 FY12 FY13 % %
IT revenues ($ mn) 1540.7 1472.5 1514.8 4.6 1.7
Avg. exchange rate 54.3 46.4 54.9 17.2 -1.0
IT services 8373.2 6829.4 8314.3 22.6 0.7
IT products 899.0 1000.8 953.3 -10.2 -5.7
IT services & products 9272.2 7830.2 9267.6 18.4 0.0
Con. care & lighting 1007.5 800.2 979.8 25.9 2.8
Others 377.8 457.0 388.7 -17.3 -2.8
Eliminations -0.9 7.1 16.9
Total revenues 10656.6 9094.5 10653.0 17.2 0.0
EBIT
IT services 1730.5 1364.0 1744.3 26.9 -0.8
IT products 27.2 45.1 21.1 -39.7 28.9
IT services & products 1757.7 1409.1 1765.4 24.7 -0.4
Con. Care & lighting 113.4 88.2 113.9 28.6 -0.4
Others 18.0 4.1 9.7 -339.0 -85.6
Eliminations -30.4 -13.6 -16.8
Total EBIT 1858.7 1487.8 1872.2 24.9 -0.7
EBIT margin (%)
IT services 20.7 20.0 21.0
IT products 3.0 4.5 2.2
IT services & products 19.0 18.0 19.0
Con. care & lighting 11.3 11.0 11.6
Others 4.8 0.9 2.5
Source: Company and Sharekhan Research
Other highlights
� During Q2FY2013, Wipro made a net addition of 2,017
employees in the IT services business. The total
headcount in the IT services business at the end of
Q2FY2013 stood at 140,569 people.
� The utilisation excluding trainees was stable at 77.9%
and including trainees was down by 180 basis points
to 73.7%.
� At the end of Q2FY2013, the voluntary quarterly
annualised attrition rate decreased to 14.4% as
compared with 15.2% in Q1FY2013. On a trailing
twelve-month (TTM) basis, the attrition was down 100
basis points to 14.6%.
investor’s eye stock update
4Sharekhan Home NextNovember 02, 2012
investor’s eye stock update
Wipro to demerges consumer care & lighting and other businesses into WEL
� The board of directors of Wipro has approved the demerger of the Wipro Consumer Care & Lighting (including
the furniture business), Wipro Infrastructure Engineering (hydraulics and water businesses) and medical diagnostic
product & services business (through its strategic joint venture) into a separate company to be named Wipro
Enterprises Ltd (WEL).
� Wipro will remain a publicly listed company that will focus on IT. WEL will be an unlisted company. Currently, IT
services and products business contributes about 86% of revenues and 95% of the EBIT.
� The appointed date for the demerger is the opening of the business hours on April 1, 2012, and the demerger is
expected to be completed by the next fiscal. This demerger is subject to Indian court approval and regulatory
approvals.
Options
I
Resident Indian shareholders Non-resident shareholders
excluding ADR holders
ADR holders
II Receive one 7% redeemable
preference share of WEL for
every 5 equity shares of Wipro
redeemable after 12 months at
Rs235.2
III Exchange WEL equity shares
received in the above ratio for
Wipro equity shares held by
promoter in ratio of 1 share of
Wipro for 1.65 shares of WEL
Exchange WEL equity shares for
Wipro equity shares held by
promoter in ratio of 1 equity
share of Wipro for 1.65 equity
shares of WEL
Exchange WEL shares received
in the ratio of 1 equity share
for every 5 equity shares of
Wipro for Wipro equity shares
held by promoter in ratio of 1
share of Wipro for 1.65 shares
of WEL
Receive 1 equity share of WEL
for 5 equity shares of Wipro
and hold the shares of WEL
Receive 1 equity share of WEL
for 5 equity shares of Wipro
and hold the shares of WEL
Our view: we recommend resident investors opt for Option II and receive 7% redeemable preference shares
(face value Rs50) redeemable in 12 months for Rs235.2. (The potential yield based on the current market
price) works out to around 12%.
Potential implied return on opting for 7% redeemable preference shares
CMP (Rs) 365
5 share of Wipro gets one 7% redeemable preference share in Wipro Enterprises 5:1
Effective cost (CMP*5) 1825
Redemption value after one year (Rs) 235.2
Capital gain (redemption value - face value of Rs 50) 185.2
Long-term capital gain @10.3% (Rs) 19.1
Net redemption value per share (Rs) 216.1
7% dividend on FV of Rs 50 (Rs) 3.5
Total value including dividend (Rs) 219.6
Potential yield (%) total value/effective cost 12.0
5Sharekhan November 02, 2012 Home Next
investor’s eye stock update
Operating matrix
Particulars Q2FY13 Q2FY12 Q1FY13 YoY % QoQ %
Geographic mix (%)
Americas 51.5 51.7 51.6 4.2 1.5
Europe 28.2 28.8 28.1 2.5 2.1
Japan 1.1 1.3 1.3 -11.5 -13.9
India & Middle East 8.6 9.3 8.8 -3.2 -0.6
APAC & others 10.6 8.9 10.2 24.6 5.7
Service offering (%)
Tech Infra. Services 23.2 22.1 22.8 9.8 3.5
Analytics & Information Mgmt 7.1 6.6 7.1 12.6 1.7
Business application services 30.7 30.5 30.7 5.3 1.7
BPO 8.7 8.8 8.4 3.4 5.3
Product Engg. 8.2 8.4 8.5 2.1 -1.9
ADM 22.1 23.6 22.5 -2.0 -0.1
R&D business 11.6 12.5 12.0 -2.9 -1.7
Consulting 2.4 3.2 2.5 -21.5 -2.4
Industry verticals (%)
Global Media & Telecom 14.4 15.7 14.9 -4.0 -1.7
Finance Solutions 27.0 27.1 26.4 4.2 4.0
Manufacturing & Hitech 19.0 19.0 19.4 4.6 -0.4
Healthcare, life sciences 9.5 9.8 10.1 1.4 -4.3
& services
Retail & Transportation 15.0 14.7 15.0 6.8 1.7
Energy & Utilities 15.1 13.7 14.2 15.3 8.2
Client contribution (%)
Top client 3.5 3.7 3.5 -1.0 1.7
Top 5 clients 13.0 11.6 12.2 17.3 8.4
Top 10 clients 22.3 20.0 20.9 16.7 8.5
Others 77.7 80.0 79.1 1.6 -0.1
� Americas grow inline with company
� Europe grows at 1.7% on constant-currency basis
� India and Middle East remain soft due to softness in demand
� Infrastructure services seeing traction
� BPO services leads the growth with 5.3% Q-o-Q growth
� Business application services grows in line with the company
but R&D business reports a fall
� Energy & utilities vertical leads growth
� Manufacturing continues to see traction
� Financial services growth led by retail banking
Investment banking remains sluggish
� Telecom OEM space remains sluggish whereas telecom
service providers segment is doing reasonably well
� Top 10 clients grow at 8.5%. This is indicated by increase
in clients with revenue contribution of more than $100
million by 1 to 9 and increase of 2 to 16 in clients with
revenue contribution of more than $75 million
Remarks
Source: Company & Sharekhan Research
� The cash and cash equivalents at the end of Q2FY2013
increased to Rs6,657.4 crore and that including the
investments increased to Rs13,339.6 crore.
� The total hedge at the end of Q2FY2013 stood at $1.7
billion, up from $1.6 billion at the end of the previous
quarter.
� The DSO days were down to 66 from 69 days in the
previous quarter.
� Clients: The company added 53 new clients in the
quarter and the active number of clients for the quarter
increased to 939 (919 in the previous quarter). The
clients contributing more than $100 million increased
to nine from eight in the previous quarter and five in
the corresponding quarter of the previous year.
� Deal wins: The company won deals towards the end
of the quarter the benefit of which would be seen
from Q4FY2013 onwards. The deal wins include a multi-
year, multi-million deal from one of the largest non-
profit healthcare providers in the USA, a deal from
one of the largest retail departmental store chains
based in North America, a large multi-year engagement
from a leading provider of renewable energy
headquartered in Germany and a long-term strategic
partnership with Qatar Airways.
� Outlook and valuation: Wipro continues to struggle
to catch up with peers in terms of growth and the
muted volume growth of the last three quarters do
not favour business revival in the near term.
Nevertheless, the company’s move to hive off the non-
core businesses provides opportunity to investors to
earn a decent return by opting for the 7% redeemable
preference shares in Wipro Enterprises (for details refer
to the box). Thus, we believe the business demerger
move would support the stock price in the medium
term. However, we remain circumspect about any
meaningful revival in Wipro’s core IT services business
in the medium term and continue to prefer TCS and
HCL Tech. We have increased our price target to Rs390
and maintained our Hold recommendation on the stock.
6Sharekhan Home NextNovember 02, 2012
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
investor’s eye stock update
One-year forward PE band
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Valuation
Particulars FY2011 FY2012 FY2013E FY2014E
Net sales (Rs cr) 31,054.2 37,197.1 42,758.5 47,015.8
Net profit (Rs cr) 5297.7 5573.0 6179.1 6748.9
EPS (Rs) 21.5 22.7 25.1 27.5
YoY change (%) 13.6 5.2 10.9 9.2
PER (x) 17.0 16.2 14.6 13.4
EV/EBIDTA(x) 15.4 13.8 12.0 11.2
RoCE (%) 21.6 20.8 20.7 19.7
RoNW (%) 23.9 20.8 19.6 18.6
Dividend yield (%) 1.6 1.6 1.7 1.9
Source: Bloomberg
7Sharekhan November 02, 2012 Home Next
investor’s eye stock update
Marico Apple Green
Stock Update
Price target revised to Rs217 Hold; CMP: Rs204
Company details
Price target: Rs217
Market cap: Rs13,164 cr
52-week high/low: Rs217/134
NSE volume: 3.1 lakh(no. of shares)
BSE code: 531642
NSE code: MARICO
Sharekhan code: MARICO
Free float: 25.9 cr(no. of shares)
Price performance
(%) 1m 3m 6m 12m
Absolute 4.7 6.9 18.6 36.2
Relative 6.1 -0.8 9.4 28.1to Sensex
Price chart
Shareholding pattern
Result highlights
� Q2FY13 – moderation in organic volume growth: Marico posted a disappointing
performance in Q2FY2013 with profit after tax (PAT) growing by 11% year on
year (YoY), lower than our and the Street’s expectation of close to 30% YoY
growth for the quarter. The organic sales volume growth stood at 9% YoY in
Q2FY2013, which is lower than the 16% volume growth in Q1FY2013.The lower
canteen stores department (CSD) sales and deceleration in the rate of acquisition
of new customer on its products led to moderation in volume growth during the
quarter. The international business continues to disappoint with a constant
currency growth of 3% YoY during the quarter. However, the highlight of the
quarter was performance of Kaya Skin Care (Kaya) business, which registered a
revenue growth of 38% YoY and achieved a profit before interest and tax of
~Rs6.0 crore
� Results snapshot: Marico’s net sales grew by 19.4% YoY to Rs1,159.5 crore in
Q2FY2013. The growth was driven by a 14% year-on-year (Y-o-Y) sales volume
growth during the quarter. The organic volume growth (excluding contribution
for Paras brand) stood at 9% YoY. The gross profit margin (GPM) improved
significantly by 684 basis points YoY to 49.5% on account of a 33% Y-o-Y correction
in the copra prices on a Y-o-Y basis and a low base of Q2FY2012. The large part
of GPM savings were invested towards advertisement activities behind existing
products and new products such as Saffola Oats, Saffola Muesli and Parachute
Advansed Body Lotion. The advertisement spends as a percentage of its total
sales increased by about 450 basis points YoY to 13.7% during the quarter. This
along with 24% Y-o-Y growth in other expenses led to a 79-basis-point Y-o-Y
improvement in the operating profit margin (OPM) to 13.0%. The operating
profit grew by 27.2% YoY to Rs151.2 crore. However, the lower Y-o-Y other
Results Rs cr
Particular Q2FY13 Q2FY12 YoY % Q1FY13 QoQ %
Net sales 1,159.5 970.8 19.4 1,270.33 -8.7
Expenditure 1,008.2 851.9 18.4 1,082.44 -6.9
Operating profit 151.2 118.9 27.2 187.89 -19.5
Other income 3.9 9.6 -59.2 14.51 -72.9
Interest expenses 14.5 10.4 40.1 17.03 -14.6
Depreciation 22.5 17.7 26.8 19.33 16.2
PBT 118.2 100.5 17.6 166.05 -28.8
Tax 29.3 20.5 42.8 40.26 -27.2
Adjusted PAT (before MI) 88.9 80.0 11.1 125.78 -29.4
Minority interest (MI) 3.0 1.7 79.6 1.95
Reported PAT 85.9 78.3 9.7 123.8 -30.7
Adjusted EPS 1.4 1.3 5.9 1.95 -29.4
GPM (%) 51.6 44.8 684 bps 49.5 212 bps
OPM (%) 13.0 12.3 79 bps 14.8 (174) bps
Others7%
Foreign & Institutions
33% Promoters60%
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8Sharekhan Home NextNovember 02, 2012
income and higher incidence of tax led to just 11.0%
Y-o-Y growth in the PAT before minority interest to
Rs88.9crore (lower than our expectation of
Rs103.1crore).
� Outlook and valuation: We have fine-tuned our
earning estimates to factor in the higher advertisement
spends, higher interest expenses and incremental
revenues from youth brands. We expect Marico’s top
line and bottom line to grow at a compounded annual
growth rate (CAGR) of 19% and 29% over FY2012-14.
However, any significant moderation in the sales
volume growth of some of the key domestic segments
and any substantial increase in the prices of the key
inputs would act as a key risk to the earning estimates.
At the current market price, the stock trades at 33.2x
its FY2013E earnings per share (EPS) of Rs6.2 and 25.0x
its FY2014E EPS of Rs8.2. In view of the limited upside
from the current level, we maintain our Hold
recommendation on the stock with the revised price
target of Rs217 (rolling it over average earnings of
FY2014-15).
Domestic consumer product business
The domestic consumer product business achieved
revenues of Rs793 crore in Q2FY2013, a growth of around
19% over Q2FY2012. The revenues of the acquired portfolio
of Paras consumer care business stood at Rs46 crore during
the quarter. Excluding the revenues from the Paras
portfolio, the organic value growth in the domestic
consumer product business could be just 12% YoY. The
organic volume growth in the domestic consumer business
stood at 10% YoY, which is lower than a 16% volume growth
in Q2FY2012. The lower CSD sales and deceleration in the
rate of acquisition of new customer on its products led to
moderation in the volume growth during the quarter. The
OPM of the business stood at 17%, ahead of the
consolidated OPM of 13.0% for the quarter.
Coconut oil: steady volume growth of 9%
� Parachute Coconut Oil (rigid packs) registered a steady
state growth of 14% in value terms and 9% in volume
terms during the quarter. The company attributes this
growth to a shift in consumer’s choice from the loose
oil to branded coconut oil. During the quarter,
Parachute improved its market share by 390 basis
points over the previous year.
� Marico’s volume share (including Parachute and Nihar)
stood at 57.2% in Q2FY2013 as against 53.3% in
Q2FY2012.
� The copra prices were down by about 33% YoY in
Q2FY2013, which helped the GPM to improve
significantly during the quarter. The company offered
several promotional offers (including Rs2 off on
Parachute Coconut Oil [PCNO] 100-ml pack, Rs2 off
on PCNO 45-ml pack, PCNO 250 ml + Jas 50 ml free,
PCHO 500ml + 20% free) during the quarter. If the copra
prices maintain its stability in the coming months, we
might see a reduction in the prices of key packs in the
coming quarters.
� We expect the volume growth to sustain in the range
of 8-10% in the medium term. The key drivers of the
volume growth would be the sustenance of the
consumer’s shift from loose oil to branded oil. Loose
oil constitutes around 40% of the overall coconut
market in India. Also, in the long run, an increase in
the distribution reach in rural India would add to the
overall volumes of Parachute.
Value-added hair oil portfolio— achieved around 20%
Y-o-Y volume growth
� Valued added hair oil registered a value growth of 23%
YoY in Q2FY2013 with the volume growth standing at
20% YoY. This was largely on account of all the brands
recording healthy growths and market share gains
during the quarter.
� Marico has maintained its leadership positioning with
a volume market share of about 25.3%. There is a
positive shift in market share by 260 basis points in
Q2FY2013 over Q2FY2012. The market share gains can
be attributed to product innovation and participation
in sub-segment of value added hair oils category along
with continued media supports.
� With the increasing acceptance of the value-added hair
oil in the domestic market, we expect the volume
growth to sustain in the range of 18-20% in the coming
quarters.
Trend in volume growth of focus portfolio
Brands Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13
Parachute 14 11 5 5 10 10 13 11 18 9
Saffola 18 18 13 14 15 11 15 3.3 12 6
Value-added hair oil 27 14 31 21 32 25 20 17.5 25 20
investor’s eye stock update
9Sharekhan November 02, 2012 Home Next
Saffola: volume growth improved to double digits
� The Saffola edible oil portfolio grew by 13% YoY in
value terms in Q2FY2013. The volume growth
decelerated to 6% YoY in Q2FY2013 from 13% YoY in
Q1FY2013. The sustenance of high food inflation had
an impact of on the sales of the discretionary segments.
The pace at which the consumers were upgrading to
the Saffola brands has slowed down during the quarter.
� The company had come up with several promotional
offers to improve volume growth in the coming
quarters. The company expects the volume growth to
come back in double digits in the medium term.
� The brand maintained its leadership in the super
premium edible oils segment with a market share of
about 58.6% (improvement of 30 basis points on a
sequential basis).
� The prices of kardi oil and the rice bran oil remained
higher by 59% and 16% YoY respectively in Q2FY2013.
However, the company will watch the price movement
of these key inputs for some more months before taking
any pricing action.
List of Key Promotional Offers during Q2FY13
Parachute Coconut Oil (PCNO)
PCNO 100ML - Rs 2 off
PCNO 45ML - Rs 2 off
PCNO 250ML + Jas 50ML free
PCNO 500ML+20% free
Saffola Super Premium Refined Edible Oils
Saffola Gold 1Ltr + 20% free
Saffola Gold 5Ltr + 1Ltr Free
Saffola Original 5Ltr + 1Ltr Free
Performance of the new launches
� Saffola Oats (including the savoury variant) continues
to gain good traction in the southern market. After
gaining good response in south India, the company has
rolled out the product nationally during the quarter.
It has also extended the range by introducing three
new flavours in the market. With this, Saffola offers a
bucket of six flavours in savoury oats category. Saffola
Oats commands a value market share of 14%
(improvement of 200 basis points on a sequential basis)
and is the number two player in the domestic market.
The category is growing at 35-40% per annum.
� Saffola strengthened its position in the breakfast
category by introducing Muesli on a national basis.
The product is available in three variants. The market
size of Muesli is estimated to be around Rs 80-100crore
growing at rapid pace of 40% per annum.
� Parachute Advansed Body Lotion has achieved a market
share of 6% within a short period of time and has
become the number three player in the market. Since
the penetration level is low at 20% for the category, it
is expected to maintain the strong growth momentum
of over 25% in the coming years.
� The company expects Saffola Oats and Parachute
Advansed Body Lotion to achieve revenues of around
Rs 50-55crore in FY2013.
Internal business—muted quarter with a 3% organic
growth
The international business, which contributes close to 25%
to Marico’s total turnover, registered a revenue growth
of 16% to Rs275 crore in Q2FY2013. However, the organic
growth stood at a muted 3% YoY, while a 13% Y-o-Y revenue
growth was driven by a favourable currency translation.
The muted performance was on account of flat revenues
from Bangladesh (39% of international business) and South
Africa (11% of international business) due to the persistent
macro uncertainties and sustained high inflation during
the quarter. The EBIDTA margin of the international
business stood at 10%, which is a 150 basis-point
improvement on the sequential basis. The company
expects the performance of key geographies such as
Bangladesh, South Africa and Middle East region to improve
in the second half of the year. We could see organic growth
rate coming back to double digit in the coming quarters.
Also, the EBIDT margins of the international business are
expected to improve on a quarter-on-quarter (Q-o-Q)
basis.
� Bangladesh: Bangladesh (which contributes about 40%
to the international business’ revenues) has seen an
improvement in the macro environment on a sequential
basis. However, the business environment is still
challenging for Marico. Marico’s flagship brand has an
80% market share in the Bangladesh hair oil market.
Going ahead, focusing on the long-term growth
potential, the company continues to make investment
behind the existing brand and add new products in
the portfolio. The company expects the performance
of Bangladesh to improve in the coming quarter and it
will achieve a growth of 10% YoY in the medium term.
� Egypt: The overall business environment in Egypt has
improved with gradual signs of revival in the economy.
The company’s business in Egypt grew by 11% YoY during
the quarter. In the Middle East, the company has lost
some momentum due to the new pack transition.
However, the company has made efforts to
communicate the same to the end consumers and
expects things to improve in the coming quarters.
investor’s eye stock update
�
10Sharekhan Home NextNovember 02, 2012
Overall, the Mena region revenues grew by 6% YoY
during the quarter.
� South Africa: The South African business recorded a
flat revenue growth mainly due to a transportation
strike during the month of September 2012, which
adversely affected all the businesses. Hence, this can
be looked as a one-off quarter and expect the region
to perform well in the coming quarters.
� South-East region: The business in Vietnam grew by
23% YoY in Q2FY2013 on account of a drop in the
inflation to single digit and good traction show by
portfolio of products. On the other hand, Malaysian
business continues to grow at a very healthy rate.
Kaya performance exceeds expectations driven by
higher promotions
� Kaya performed better than expected, achieving a
turnover of Rs91.5 crore. The revenue grew by 38% on
a Y-o-Y basis (~25% in the constant currency terms).
The business posted a profit of Rs5.7 crore at the PBIT
level compared with a loss of Rs4.8 crore in Q2FY2012.
The trend during the last couple of years has been
encouraging.
� Kaya achieved same store-sales-growth of about 10%
in India and in the Middle East on account of higher
promotional activities and introduction of loyalty
programs.
� The products from Derma Rx portfolio continued to
gain good traction in India. About 25% revenues from
the Indian operations came from the sales of Derma
Rx products.
� Regarding the new store addition, the management
intends to maintain a run rate of opening three to four
stores every year.
� The management has indicated that the current
quarter performance was a one–off, driven largely by
promotional activities. The company would like to
observe few more quarters to gain confidence about
the sustain profitability.
Outlook and valuation: We have fine-tuned our earning
estimates to factor in the higher advertisement spends,
higher interest expenses and incremental revenues from
youth brands. We expect Marico’s top line and bottom
line to grow at a compounded annual growth rate (CAGR)
of 19% and 29% over FY2012-14. However, any significant
moderation in the sales volume growth of some of the
key domestic segments and any substantial increase in
the prices of the key inputs would act as a key risk to the
earning estimates.
At the current market price, the stock trades at 33.2x its
FY2013E earnings per share (EPS) of Rs6.2 and 25.0x its
FY2014E EPS of Rs8.2. In view of the limited upside from
the current level, we maintain our Hold recommendation
on the stock with the revised price target of Rs217 (rolling
it over average earnings of FY2014-15).
Valuations
Particulars FY11 FY12 FY13E FY14E FY15E
Net sales (Rs cr) 3,135.0 4,008.3 4,822.0 5,657.1 6,503.8
Adj. net profit (Rs cr) 256.4 318.9 396.7 525.8 609.1
EPS (Rs) 4.2 5.2 6.2 8.2 9.4
Y-o-Y growth (%) 0.9 24.2 18.6 32.6 15.8
PER (x) 48.9 39.3 33.2 25.0 21.6
Book value (Rs) 14.9 18.6 30.8 38.1 46.8
P/BV (x) 13.7 11.0 6.6 5.3 4.4
EV/EBIDTA (x) 31.1 26.6 20.8 16.9 14.5
RoCE (%) 26.1 24.3 26.5 26.9 26.7
RoNW (%) 32.7 31.0 25.3 23.7 22.3
investor’s eye stock update
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
11Sharekhan November 02, 2012 Home Next
investor’s eye stock update
GlaxoSmithKline Consumer Healthcare Evergreen
Stock Update
Upgrade to Buy, price target revised to Rs3,450 Buy; CMP: Rs3,079
Company details
Price target: Rs3,450
Market cap: Rs12,966 cr
52-week high/low: Rs3,200/2,179
NSE volume: 2.3 lakh(no. of shares)
BSE code: 500676
NSE code: GSKCONS
Sharekhan code: GSKCONS
Free float: 2.4 cr(no. of shares)
Price performance
(%) 1m 3m 6m 12m
Absolute 1.2 14.8 8.2 30.6
Relative 2.5 6.6 -0.2 22.9to Sensex
Price chart
Shareholding pattern
Result highlights
� Operating performance came in line with expectation: In Q3CY2012,
GlaxoSmithKline Consumer Healthcare (GSK Consumer)’s operating performance
was largely in line with our expectation, with a ~15% year-on-year (Y-o-y) growth
in revenues and the operating profit margins (OPMs) standing at 17%. Despite a
slowdown in canteen store department sales, the company was able to achieve
a volume growth of 6% year on year (YoY; ahead of 3% volume growth in
Q2CY2012). However, excluding the impact of lower canteen sales department
(CSD) sales, the volume growth in the domestic market would have been 7.5%
for the quarter. The export sales continue to disappoint with 3% sales growth.
� Performance snapshot: GSK Consumer’s net sales grew by 14.9% YoY to Rs827.5
crore (our expectation was of Rs832 crore) driven by a 6% volume growth and
an approximately 10% YoY price-led growth in Q3CY2012. The malted food drinks
(MFD) segment grew by 16.2% YoY (volume growth of 6%) with Horlicks growing
by 16% YoY (volume growth of 4.5% YoY) and Boost growing by 22% YoY (volume
growth of 8.5% YoY). The gross profit margins (GPMs) improved by 39 basis
points YoY to 62.5%. The steady GPMs are largely on judicious price increases in
the portfolio. The OPM improved by 59 basis points YoY to 17.0% and the operating
profit grew by 19.0% YoY to Rs140.5 crore. The business auxiliary income grew
Results Rs cr
Particular Q3CY12 Q3CY11 YoY % Q2CY12 QoQ %
Net sales 827.5 720.1 14.9 729.7 13.4
Business auxiliary inc. 30.2 24.5 23.0 28.7 5.1
Total operating income 857.7 744.6 15.2 758.4 13.1
Total expenditure 687.1 602.1 14.1 619.1 11.0
Raw material cost 310.4 272.9 13.8 270.3 14.8
Employee expenses 77.5 66.3 17.0 79.1 -2.0
Advertisement expenses 138.6 119.6 15.9 116.1 19.4
Other expenses 160.5 143.3 12.0 153.6 4.5
Operating profit 140.5 118.0 19.1 110.7 26.9
Other income 27.6 23.1 19.5 28.5 -3.2
EBIDTA 198.3 165.6 19.7 167.9 18.1
Interest 0.3 1.0 -73.8 0.8 -67.5
PBDT 198.0 164.6 20.3 167.1 18.5
Depreciation 7.7 11.7 -33.9 8.6 -9.9
PBT 190.3 153.0 24.4 158.5 20.0
Tax 61.7 49.9 23.6 51.9 18.9
Reported PAT 128.6 103.0 24.8 106.6 20.6
Adjusted EPS (Rs) 31 24 24.8 25 20.6
GPM (%) 62.5 62.1 39 bps 63.0 (47) bps
OPM (%) 17.0 16.4 59 bps 15.2 181 bps(excluding other operating inc.)
Promoters43%
FIIs15%
Others25%
Domestic institutions
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12Sharekhan Home NextNovember 02, 2012
investor’s eye stock update
by 23% YoY to Rs30.2 crore and the other income grew
by 19.5% YoY to Rs27.6 crore during the quarter. This
led to a strong 24.8% Y-o-Y growth in the reported profit
after tax (PAT) to Rs128.6crore (slightly ahead of our
expectation of Rs122.6 crore) during the quarter.
� Outlook and valuation: In view of the portfolio of strong
brands and a thrust on enhancing the distribution reach,
we believe GSK Consumers is well poised to achieve a
mid-to-high teens topline growth in the coming years
(with volume growth standing in range of 6-9%). If the
key inputs’ prices continue to remain stable in the
coming quarters, we expect the company to post better
profitability in CY2013 and CY2014. Overall, we expect
GSK Consumer’s top line and bottom line to grow at a
CAGR of 16% and 18% over CY2011-14.
At the current market price, the stock is trading at
29.7x its CY2012E EPS of Rs103.5 and 25.7x its CY2013E
EPS of Rs119.7. Our revised price target stands at
Rs3,450, rolling it over to CY2014 earnings of Rs138.2.
In view of a strong market positioning in the MFD
segment and a robust cash pile of above Rs1,350 crore
(could be utilised for growth initiatives or to reward
investors with good dividend), we upgrade our rating
on the stock from Hold to Buy.
Business performance
� MFD segment - maintained double-digit growth: The
MFD segment grew by 16.2% YoY in value terms (volume
growth of 6% YoY), in line with the industry growth of
17% during the quarter. Excluding the impact of the
lower CSD sales, the value growth could have been 18%
YoY. Horlicks and Boost maintained its double-digit
growth momentum with value growth of 16% YoY and
22% YoY respectively during the quarter. Horlicks volume
growth stood at 4.5% YoY (excluding the CSD impact, it
was 6% YoY). On the other hand, Boost clocked a volume
growth of 8.5% YoY on account of several initiatives
undertaken to improve growth of the brand in the
domestic market. Going ahead, the management
expects to achieve volume growth in the range of 7-9%
YoY. This will be driven by an increase in reach in the
rural markets, increased focus on improving sales in
the north and western regions and launch of new
variants in the segment. The company is planning to
add new products in the super premium MFD segment,
which is growing at around 35% YoY per annum.
Volume growth in MFD segment stood at 6%
Lower CSD sales affected the volume growth of MFD
segment
� Non-MFD segment – strong growth momentum
sustained: The non-MFD segment (~6% of overall
revenues) continues to perform well for the company.
The revenues of this segment grew by 35% YoY during
the quarter. The biscuit segment, the largest
contributor in the non-MFD segment, grew by 29%
YoY in Q3CY2012, largely driven by strong volume
growth of 23% YoY in Q3CY2012. The company
launched Horlicks Nutribic biscuit in the premium
biscuit segment, which is growing at a brisk space.
The Horlicks Nutribic biscuit gaining good acceptance
in the market, achieved a market share of 8% in south
India. The company is planning to enhance the biscuit
portfolio with new variants in the segment. On the
other hand, Horlicks Oats maintained its number three
position with a market share of 11% in south India.
� Exports continue to disappoint: The export sales,
which contribute around 5% to GSK Consumer’s total
revenues, grew moderately by 3% YoY in Q3CY2012.
20.0%
12.0%
6.0%
16.0%
13.0%
10.0%
20.0%
15.0%
6.5%
16.0%
10.0%11%
7.0% 7.0%6.0%
11.4% 11.1%9.5%
7.2%
4.6%3.7%
6.4%
3.0%
6.0%7.5% 8.0%
10.0%
12.5%
7.60%
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5.0%
10.0%
15.0%
20.0%
25.0%
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Q1C
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Q4C
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Q3C
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Q1C
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Q2C
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)
Volume growth Price-led growth
20.0%
12.0%
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16.0%
11.0%10.0%
19.0%
13.0%
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10.0% 9.4%
7.0%
4.5%
8.0%10.0%
9.0%
15.0%
25.0%
3.0%
5.5%
8.5%
16.0%16.0%
2.1%
11.0%
2.0%
11.0%
20.0%21.0%
17.0%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
Q1C
Y09
Q2C
Y09
Q3C
Y09
Q4C
Y09
Q1C
Y10
Q2C
Y10
Q3C
Y10
Q4C
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Vol
ume
grow
th (
%)
Horlicks volume growth Boost volume growth
13Sharekhan November 02, 2012 Home Next
investor’s eye stock update
The moderate growth can be attributed to lower sales
in the Sri Lankan market and a high base of Q3CY2012.
Sri Lanka, which is one of the key export markets for
GSK Consumer, is reeling under inflationary pressure.
On the other hand, Bangladesh continues to clock good
performance for the company.
Other key highlights
� Key input prices remained flat sequentially: The
malted barley and skimmed milk powder prices were
up by 6% YoY and 7% YoY respectively. However, the
same continues to remain flat on a sequential basis.
The wheat prices which had remained stable for the
past several quarters, saw around 13% Y-o-Y surge in
Q3CY2012. The Y-o-Y inflation in raw material cost
stood at 8% in Q3CY2012. The company expects the Y-
o-Y inflation to be 5% in Q4CY2012. The company has
already undertaken judicious price increases in its
portfolio to mitigate the input cost impact. Having
said that, if the key input prices continue to remain
stable in the coming months, we should see a
substantial improvement in the margins in CY2013.
� Business auxiliary income continues to grow
strongly: The business auxiliary income grew by ~23%
YoY to Rs30.2crore in Q3CY2012. The strong growth in
the income can be attributed to the robust
performance of Sensodyne toothpaste and Eno. On the
other hand, the other income grew by 19.5% YoY to
Rs27.5crore, achieving higher yield on a strong cash
pile of above of Rs1,300 crore.
Region wise revenue break-up
� Capex of Rs ~270 crore for CY2013: The company
had planned a capital expenditure (capex) of Rs120-
130 crore for CY2012 for the expansion of its capacity.
It has already incurred a capex of Rs 65 crore. Going
ahead, for CY2013, the company is planning to incur
the capex of Rs270 crore. The capex would be funded
through internal accruals.
� Focus on enhancing rural reach: The company has
maintained its thrust on enhancing its distribution
reach (especially in rural India). Currently, GSK
Consumer’s covers around 50,000 villages in India,
which contributes to around 27% of the domestic sales.
It would be adding additional 10,000 villages by the
end of CY2012.
Outlook and valuation: In view of the portfolio of strong
brands and a thrust on enhancing the distribution reach,
we believe GSK Consumers is well poised to achieve a mid-
to-high teens topline growth in the coming years (with
volume growth standing in range of 6-9%). If the key inputs’
prices continue to remain stable in the coming quarters,
we expect the company to post better profitability in
CY2013 and CY2014. Overall, we expect GSK Consumer’s
top line and bottom line to grow at a CAGR of 16% and 18%
over CY2011-14.
At the current market price, the stock is trading at 29.7x
its CY2012E EPS of Rs103.5 and 25.7x its CY2013E EPS of
Rs119.7. Our revised price target stands at Rs3,450, rolling
it over to CY2014 earnings of Rs138.2. In view of a strong
market positioning in the MFD segment and a robust cash
pile of above Rs1,350 crore (could be utilised for growth
initiatives or to reward investors with good dividend), we
upgrade our rating on the stock from Hold to Buy.
Valuations
Particulars CY10 CY11 CY12E CY13E CY14E
Revenues (Rs cr) 2306.1 2685.5 3119.8 3651.4 4218.7
Operating margins (%) 16.3 15.8 16.6 16.7 16.6
PAT (Rs cr) 299.8 355.2 435.4 503.5 581.1
EPS (Rs) 71.3 84.5 103.5 119.7 138.2
P/E (x) 43.2 36.5 29.7 25.7 22.3
EV/Sales (x) 5.2 4.4 3.8 3.2 2.7
EV/EBIDTA (x) 24.2 20.1 16.3 13.8 11.6
RoNW (%) 32.2 33.8 34.6 33.4 32.3
RoCE (%) 48.7 51.7 52.8 50.9 49.3
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
North India6%
West India5%
Exports5%
East India38%
South India46%
14Sharekhan Home NextNovember 02, 2012
Promoter55%
Foreign10%
MF & FI20%
Public & others15%
Company details
Price chart
Shareholding pattern
Price performance
(%) 1m 3m 6m 12m
Absolute -5.9 16.6 -9.3 -9.9
Relative -4.6 8.3 -16.3 -15.3to Sensex
Union Bank of India Ugly Duckling
Stock Update
Price target revised to Rs206, downgrade to reduce Reduce; CMP: Rs223
Price target: Rs206
Market cap: Rs12,291 cr
52 week high/low: Rs274/150
NSE volume: 10.8 lakh(no. of shares)
BSE code: 532477
NSE code: UNIONBANK
Sharekhan code: UNIONBANK
Free float: 25.1 cr(no. of shares)
Result highlights
� In Q2FY2013, Union Bank of India (Union Bank)’s net profit was marginally lower
than our estimates as it grew by 57.2% year on year (YoY; 8.4% quarter on
quarter [QoQ]) to Rs554.6 crore. The growth in profit was on account of lower
provisions, which declined by 21.8% YoY (down 6.1% QoQ).
� The net interest income (NII) grew by 11.4% YoY (1.6% QoQ) in line with our
estimates. However, the net interest margins (NIMs) were stable at 3.02% in
Q2FY2013 as the drop in yield was offset by a similar decline in the cost of
funds.
� The business growth was steady as advances grew by 19.4% YoY (- 0.6% QoQ),
while the deposits grew 15.6% YoY. The current account savings account (CASA)
stood at 30.5% as against 30.9% in the previous quarter.
� During Q2FY2013, the asset quality improved as gross and net non-performing
assets (NPAs) declined led by lower slippages and improved recoveries. However,
the bank restructured Rs839 crore of advances in Q2FY2013 taking the
restructured advances book to 8.3% of total advances.
� The non-interest income grew by a healthy at 11.1% QoQ on account of a strong
growth in the fee income, which grew by 19% QoQ. The treasury profits also
grew 36% QoQ but foreign (forex) income declined significantly on a quarter-
on-quarter (Q-o-Q) basis.
Results Rs cr
Particulars Q2FY13 Q2FY12 YoY % Q1FY13 QoQ %
Interest earned 6,109.8 5,110.6 19.6 6,069.9 0.7
Interest expense 4,259.7 3,449.2 23.5 4,248.2 0.3
Net interest income 1,850.2 1,661.4 11.4 1,821.7 1.6
Other income 545.8 500.9 9.0 491.2 11.1
- Fee and other income 351.0 298.0 17.8 295.0 19.0
- Trading income 61.0 61.0 - 83.0 (26.5)
- others 131.0 141.9 (7.7) 113.0 15.9
Total income 2,396.0 2,162.4 10.8 2,312.9 3.6
Operating expenses 1,123.4 957.1 17.4 1,045.9 7.4
- Employee cost 678.7 591.4 14.8 679.5 (0.1)
- Other costs 444.6 365.7 21.6 366.4 21.3
Operating profit 1,272.7 1,205.3 5.6 1,267.1 0.4
Prov for contingencies 487.1 622.8 (21.8) 518.5 (6.1)
PBT 785.6 582.5 34.9 748.6 4.9
Tax 231.0 229.7 0.5 237.0 (2.5)
PAT 554.6 352.7 57.2 511.6 8.4
Gross NPA (%) 3.66 3.49 17 bps 3.76 -10 bps
Net NPA (%) 2.06 2.04 2 bps 2.20 -14 bps
investor’s eye stock update
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� Valuation and outlook: In Q2FY2013, Union Bank’s
results were stable with some improvement in asset
quality on a sequential basis. Further, the asset quality
is likely to be under pressure with rise in restructured
loans and exposure to troubled sectors. We expect the
return ratios to lag as compared with its peers, though
the valuations seem unreasonable in view of the asset
quality concerns. We have revised our target price to
Rs206 (0.85x FY14 adjusted book value). We downgrade
the recommendation to reduce.
NII growth in line; NIMs stable on QoQ at 3.02%
Union Bank’s NII grew by 11.4% YoY (1.6% QoQ), largely in
line with our estimates. The growth in NII was backed by
a growth in advances and steady margins. During the
quarter, the margins were maintained at 3.02% as the
drop in yields (9.16% vs 9.34% in Q1FY2013) was
compensated by almost a similar decline in the cost of
funds (6.38% vs 6.54% in Q1FY2013).
Non-interest income
Particulars Q2FY13 Q2FY12 YoY % Q1FY13 QoQ %
- Fee income 351.0 298.0 17.8 295.0 19.0
- Trading and 61.0 61.0 - 83.0 (26.5)Forex income
- Treasury profit 75.0 100.0 (25.0) 55.0 36.4
- Misc. income 56.0 41.9 33.6 58.0 (3.4)
Total 543.0 500.9 8.4 491.0 1,059.1
Steady business growth
During Q2FY2013, the advances grew at a healthy rate of
19.4% YoY (down 0.6% QoQ). The incremental growth in
advances was driven by corporate (up 8% QoQ) and small-
and medium-enterprise sectors (up 9.2%). The retail
advances grew 5.1% QoQ (22% YoY) while the trade loans
declined sharply (-48% QoQ) due to reduction in bills
discounting and letter of credit. The management has
guided for a credit growth of ~17% in FY2013.
Business growth
Particulars Q2 Q2 YoY Q1 QoQFY13 FY12 % FY13 %
Advances 172,901 144,854 19.4 173,911 (0.6)
Deposits 226,095 195,572 15.6 222,110 1.8
CD Ratio (%) 76.5 74.1 241 bps 78.3 -183 bps
CASA ratio declines to 30.5%
The deposits grew by 15.6% YoY (1.8% QoQ) as the bank
focused on reducing the bulk deposits. The bank has bulk
deposits of 17% (including certificate of deposits), which
the management plans to reduce to below 15% by end of
the fiscal. The savings deposits grew by 11.5% YoY while
the term deposits increased by 18.3% YoY. The CASA ratio,
dipped by 40 basis points to 30.5% in Q2FY2013 from 30.9%
as on Q1FY2013.
Asset quality improvement led by recoveries, but
challenges remain
After showing a sharp rise in slippages during Q1FY2013,
the bank’s slippages declined in Q2FY2013 to Rs792 crore.
Consequently, the gross and net NPAs declined to 3.66%
and 2.06% respectively from 3.76% and 2.20% in Q1FY2013.
Moreover, the asset quality improved as slippages were
lower at Rs792 crore (Rs1,631 crore in Q1FY2013) and
recoveries were higher at Rs863 core (Rs 863 crore in
Q1FY2013). The bank restructured loans to the tune of
Rs839 crore, thereby taking the total restructured loan
book to Rs14,630 crore (8.31% of loan book). Going ahead,
the bank expects around Rs2,500 crore of loans to get
restructured over the next two quarters, which in our
view will stress the asset quality.
Provisioning expected to remain high
During the quarter, the provisions declined by 21% YoY as
the slippages were relatively lower. Decline in NPAs’
provisions coupled with a reversal of investment provisions
(Rs46 crore) contributed to the decline in provisions. The
provision coverage ratio improved to 61.4% vs 58.8% in
Q1FY2013. Going ahead, the asset quality pressures and
the increase in provision restructured loans by the Reserve
Bank of India are likely to impact Union Bank’s earnings.
Provision expenses
Particulars Q2 Q2 YoY Q1 QoQFY13 FY12 % FY13 %
- For NPAs/ 367.0 498.0 (26.3) 443.0 (17.2)Standard assets
- For investment (46.0) 82.0 (156.1) 66.0 (169.7)Depreciation/amortisation
- Others 168.0 42.0 300.0 9.0 1,766.7
Total 489.0 622.0 (21.4) 518.0 (5.6)
Moderate growth in non-interest income
The non-interest income increased by 9% YoY (11% QoQ),
driven by a strong growth in the fee income. The fee
income increased by 18% YoY (19% QoQ) contributed by
the loan syndication fees. The treasury income grew by
36% QoQ to Rs75 crore, aided by growth in the non-
interest income. However, forex income declined sharply
by 27% QoQ.
16Sharekhan Home NextNovember 02, 2012
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Cost-income ratio
investor’s eye stock update
Trend in gross and net NPAs
Trend in NIM Trend in advance growth
Valuation and outlook: In Q2FY2013, Union Bank’s results
were stable with some improvement in asset quality on a
sequential basis. Further, the asset quality is likely to be
under pressure with rise in restructured loans and
exposure to troubled sectors. We expect the return ratios
Valuations matrix (based on Q2FY2013 reported figures in %)
Banks Gross NPA Restructured advances/ Stressed PCR Tier-I P/BV (x)# RoA #total advances Loans
BOB 2.0 5.8 7.8 75.7 9.6 0.9 1.0
BOI 3.4 6.8 10.2 61.0 8.1 0.7 0.7
PNB 4.7 9.4 14.1 54.3 8.7 0.7 1.0
ALLBK* 2.0 9.7 11.7 73.6 9.3 0.5 0.9
UBI 3.7 8.3 12.0 61.5 8.2 0.7 0.8
* based on Q1FY13 reported numbers
# FY14
to lag as compared with its peers, though the valuations
seem unreasonable in view of the asset quality concerns.
We have revised our target price to Rs206 (0.85x FY14
adjusted book value). We downgrade the recommendation
to reduce.
17Sharekhan November 02, 2012 Home Next
30.0%
30.5%
31.0%
31.5%
32.0%
32.5%
33.0%
33.5%
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investor’s eye stock update
Profit and loss statement (Rs cr)
Particulars FY10 FY11 FY12 FY13E FY14E
Net interest income 4,192 6,216 6,909 7,735 9,115
Non-interest income 1,975 2,039 2,332 2,557 2,812
Net total income 6,167 8,255 9,241 10,292 11,927
Operating expenses 2,507 3,950 3,986 4,527 5,260
Pre-provisioning profit 3,660 4,305 5,255 5,765 6,667
Provision & contingency 826 1,352 2,541 2,409 2,659
PBT 2,833 2,953 2,714 3,356 4,008
Tax 758 873 926 1,040 1,282
PAT 2,075 2,080 1,788 2,315 2,725
Balance sheet (Rs cr)
Particulars FY10 FY11 FY12 FY13E FY14E
Liabilities
Networth 10,424 12,652 14,522 16,431 18,678
Deposits 170,040 202,461 222,869 260,757 308,997
Borrowings 9,215 13,427 18,020 20,861 24,411
Other liabilities & 5,483 7,443 6,800 8,185 8,857provisions
Total liabilities 195,162 235,983 262,211 306,233 360,943
Assets
Cash & balances 12,468 17,610 11,634 15,645 17,613with RBI
Balances with banks 3,308 2,488 4,042 4,203 4,329& money at call
Investments 54,404 58,399 62,364 71,957 83,403
Advances 119,315 150,986 177,882 208,122 248,706
Fixed assets 2,305 2,293 2,336 2,453 2,575
Other assets 3,361 4,206 3,955 3,853 4,316
Total assets 195,162 235,983 262,211 306,233 360,943
Financials
Key ratios
Particulars FY10 FY11 FY12 FY13E FY14E
Per share data
EPS 41 40 32 42 50
BV 174 211 236 272 315
ABV 155 177 181 192 243
Spreads (%)
Yield on advances 9.0 8.9 9.7 9.4 9.2
Cost of deposits 5.5 5.1 6.3 6.0 5.9
Net interest margins 2.6 3.2 3.2 3.1 3.1
Operating ratios (%)
Credit to deposit 70.2 74.6 79.8 79.8 80.5
Cost to income 40.7 47.8 43.1 44.0 44.1
CASA 31.7 31.8 31.3 31.9 32.2
Non interest income/ 32.0 24.7 25.2 24.8 23.6Total income
Return ratios (%)
RoE 21.7 18.0 13.2 15.0 15.5
RoA 1.17 0.96 0.72 0.81 0.82
Assets/equity 18.6 18.7 18.3 18.4 19.0
Asset quality ratios (%)
Gross NPA 2.2 2.4 3.0 3.7 3.3
Net NPA 0.8 1.2 1.7 2.1 1.6
Provision coverage 61.5 49.0 43.1 43.4 53.1
Growth (%)
NII 10.0 48.0 11.0 12.0 18.0
PPP 19.0 18.0 22.0 10.0 16.0
PAT 20.0 - -14.0 29.0 18.0
Advances 24.0 27.0 18.0 17.0 20.0
Deposits 22.6 19.1 10.1 17.0 18.5
Valuation ratios (%)
P/E 5.4 5.6 6.9 5.3 4.5
P/BV 1.3 1.1 0.9 0.8 0.71
P/ABV 1.4 1.3 1.2 1.2 0.9
100,000
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-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%
Deposits QoQ Grow th
Trend in deposits growth Trend in CASA
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
18Sharekhan Home NextNovember 02, 2012
investor’s eye stock update
Company details
Price chart
Shareholding pattern
Price performance
(%) 1m 3m 6m 12m
Absolute 10.8 45.8 132.6 118.7
Relative 12.2 35.4 114.6 105.7to Sensex
V-Guard Industries Ugly Duckling
Stock Update
Growth on track, price target revised to Rs451 Hold; CMP: Rs430
Price target: Rs451
Market cap: Rs1,283 cr
52 week high/low: Rs457/141
NSE volume: 2.7 lakh(no. of shares)
BSE code: 532953
NSE code: VGUARD
Sharekhan code: VGUARD
Free float: 1.0 cr(no. of shares)
Result highlights
� Top line growth led by non-south region and products like digital UPS, pumps
and fans: In Q2FY2013, V-Guard Industries (V-Guard) continued to a post stellar
performance with revenues growing by 49% year on year (YoY) to Rs312 crore
(10% above expectations). This was driven by a robust growth in the sales of
digital uninterrupted power supply (UPS; up 255% YoY), fans (up 55% YoY) and
pumps (54% YoY). Further, the non-south region, which accounts for 23% of the
company’s sales, demonstrated a robust growth of 67% in Q2FY2013.
� Margin under slight pressure: The operating profit margin (OPM) for the quarter
came in at 9.6%, slightly lower than our expectation of 10%, on account of
input cost pressure. The raw material cost as a percentage of sales increased
to 73.8% from ~71% it maintained earlier, mainly led by an increase in the
purchase of traded goods. However, the margins are not comparable with a
7.1% margin recorded in Q2FY2012 as it was abnormally low on account of
discounts and incentives offered to increase the then subdued demand. The
selling and distribution expenses came much lower at 4.2% of sales this quarter
(vs 7-9% in the previous year). Overall, the operating profit nearly doubled to
Rs30 crore from Rs15 crore reported in Q2FY2012.
� Net profit rose by 163% YoY: A lower increase in the interest and depreciation
expenses coupled with a higher other income contributed towards the profit
after tax (PAT) of Rs18 crore (up 163% YoY), which is 15% higher than our
expectation. The tax rate remained low during the quarter at 24.8% because of
the increased contribution from the company’s new Kachipuram plant, which
enjoys tax benefits.
Results Rs cr
Particulars Q2FY12 Q2FY13 YoY % H1FY12 H1FY13 YoY %
Income from operations 210 312 48.6 448 629 40.3
Other operating income 2 2 1.4 3 3 6.5
Operational income 211 313 48.2 452 632 40.0
Total expenditure 196 283 44.3 414 568 37.3
Operating profits 15 30 98.8 38 64 69.8
Other income 0 1 206.2 1 2 115.1
EBIDTA 15 31 101.4 39 66 70.7
Interest 4 4 1.6 8 9 8.7
Depreciation 2 3 24.0 5 6 22.7
PBT 9 24 169.3 26 51 98.6
Tax 2 6 191.1 7 13 90.6
Adjusted PAT 7 18 162.8 19 39 101.4
Ratio (%)
Operating margin 7.1 9.6 8.4 10.2
PAT margin 3.2 5.7 4.2 6.1
Tax rate 23.0 24.8 26.0 25.0
Promoters65%
Foreign10%
DIIs3%
Others22%
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19Sharekhan November 02, 2012 Home Next
investor’s eye stock update
� Estimates fine-tuned: The company has upgraded its
revenue growth target for FY2013 to 35-40% YoY (from
30% growth guidance given earlier) and indicated an
OPM of 9.5-10% for the same period. We have fine-
tuned our earnings estimates for FY2013 and FY2014
after incorporating better revenue offtake in digital
UPS segment. We are now expecting a compounded
annual growth rate (CAGR) of 31% in the company’s
revenues and 38% in its earnings over FY2012-14.
� Maintain Hold: The company has continued to deliver
results in line or ahead of its growth guidance. Hence,
V-Guard remains our preferred pick on the Indian
consumption boom theme. The company’s foray into
product segments like induction cookers and
switchgears also holds promise. Amid tough
competition, the company has been able to register a
good growth in its distribution network, while the
working capital cycle also improved. At the current
level, the stock is trading at 17.1x and 13.4x its FY2013
and FY2014 expected earnings, which looks a bit
stretched, and offer limited upside from the current
level. Hence, we maintain our Hold rating on the stock
with a price target of Rs451 (14x target multiple on its
FY2014 earnings per share [EPS]).
Valuation
Particulars FY10 FY11 FY12E FY13E FY14E
Net sales (Rs cr) 454.1 726.3 993.6 1,342.0 1,699.9
Y-o-Y growth (%) 43.3 60.0 36.8 35.1 26.7
Operating margin (%) 11.1 10.0 9.4 9.8 9.8
Net profit (Rs cr) 25.5 39.0 50.8 75.1 96.0
Adjusted EPS (Rs) 8.5 13.1 17.0 25.15 32.18
Y-o-Y growth (%) 46.9 53.1 30.2 47.8 28.0
PER (x) 50.5 33.0 25.3 17.1 13.4
P/B (x) 9.1 7.5 6.1 4.7 3.6
EV/EBIDTA (x) 26.2 19.0 14.5 10.6 8.3
RoCE (%) 23.8 25.0 27.3 32.5 31.8
RoNW (%) 19.0 24.9 26.6 30.9 30.3
Key takeaways from the conference call
� Reduction in working capital cycle to 65 days: The
working capital cycle reduced to 65 days in Q2FY2013
from 74 days in Q2FY2012 and 68 days in Q1FY2013.
This was led by a reduction in the inventory days to 64
days from 52 days in Q2FY2012. The total debt liability
of the company stands at Rs117.5 crore down from
Rs131.2 crore in Q2FY2012.
� Update on new products: The company has launched
new consumer appliances, like induction cooker and
switchgear, in H1FY2013, whose production would be
mainly outsourced. The company indicated that its
capital expenditure requirement for FY2013 stands at
Rs22 crore as most of the new products would be
sourced mainly from China.
� Guidance: The company upgraded its FY2013 revenue
growth guidance to 35-40% from earlier guidance of
30% growth. This implies growth of 25% in its top line
for H2FY2013, which looks achievable considering its
track record of outpacing the industry. For FY2013,
the advertising spends is expected to be at 3.5-4% of
revenues.
Margins improved during the quarter
Product-wise sales: sales of stabilisers, pumps and inverters
picked up Rs cr
Particulars Q2 Q2 YoY H1 H1 YoY
FY12 FY13 % FY13 FY12 %
Stabiliser 42 50 20 131 100 30
Cable 64 89 40 170 128 33
LT cables 13 20 51 39 30 31
Pump 28 43 54 92 64 44
WH 26 29 14 49 40 22
SWH 7 7 4 11 12 -3
UPS 12 15 27 27 21 30
FAN 10 15 55 38 30 28
Digital UPS 11 37 255 76 26 193
Others 0 8 3174 10 2 496
Total 211 313 48 643 452 42
0.0%
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16.0%
Q2F
Y09
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Operating margin PA T margin
20Sharekhan Home NextNovember 02, 2012
Zone-wise sales Rs cr
Particulars Q2 Q2 YoY H1 H1 YoY
FY12 FY13 % FY13 FY12 %
South zone 171 247 44 491 351 40
Non-south zone 43 72 67 164 107 54
Total 214 319 49 656 458 43
As a % of sales
South zone 80 77 75 77
Non-south zone 20 23 25 23
Cost break-up Rs cr
Particulars Q2FY12 Q2FY13 YoY % H1FY13 H1FY12 YoY %
Consumption of RM 78.1 98.1 26 198.1 145.5 36
as % of sales 36.9 31.3 31.3 32.2
Purchase of traded goods 88.3 141.4 60 283.6 179.7 58
as % of sales 42 45 45 40
Incr/decr in stock -17.1 -8.3 -52 -20.3 -4.4 358
as % of sales -8 -3 -3 -1
Raw material cost 149.3 231.3 55 461.4 320.8 44
as % of sales 70.6 73.8 73.0 71.0
Employee expenses 11.6 16.9 45 32.8 22.5 46
as % of sales 5.5 5.4 5.2 5.0
Selling and distribution expenses 14.0 13.1 -6 30.8 36.1 -15
as % of sales 6.6 4.2 4.9 8.0
Other expenses 21.4 22.2 3 43.2 34.3 26
as % of sales 10.1 7.1 6.8 7.6
Total expenditure 196.4 283.5 44 568.2 413.8 37
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
investor’s eye stock update
PE band
15x
12x
9x
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0
50100
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200250
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350400
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21Sharekhan November 02, 2012 Home Next
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Promoters78%
Institutions2%
Foreign7%
Non-promoter corporate
5%
Public & Others8%
Company details
Price chart
Shareholding pattern
Price performance
(%) 1m 3m 6m 12m
Absolute 0.3 -3.1 -12.2 -36.2
Relative 1.6 -10.0 -19.0 -40.0to Sensex
Price target: Rs267
Market cap: Rs1,539 cr
52 week high/low: Rs270/153
NSE volume: 1.7 lakh(no. of shares)
BSE code: 533261
NSE code: EROSMEDIA
Sharekhan code: EROSMEDIA
Free float: 2.0 cr(no. of shares)
Result highlights
Performance above expectation: For the second quarter of FY2013, Eros
International Media Ltd (EIML) reported a strong performance in a seasonally weak
quarter, which is much ahead of our and the Street’s expectations. The
outperformance was led by a higher catalogue revenues and partial pre-booking of
film revenues from the next quarter. The revenues were up by 31.2% year on year
(YoY) to Rs229.3 crore ahead of our expectation of Rs192.3 crore. The EBITDA
margin was down by 530 basis points YoY to 18.4%, which is ahead of our expectation
of 14.5%. The net profit was down by 4.8% YoY to Rs26.1 crore, which is much
ahead of our expectation of Rs17.1 crore.
� The consolidated revenues grew by 31.2% YoY to Rs229.3 crore. The revenues
of the Hindi film business (stand-alone) grew by 50.2% to Rs227.2 crore. The
company released three Hindi films and 16 regional films, including Tamil. The
Hindi film revenues were boosted by revenues from the films released in the
quarter like “Cocktail” and “Shirin Farhad Ki Toh Nikal Padi” as well booking of
television syndication revenues of deals signed in the quarter. The
outperformance was mainly driven by booking of partial revenues of music
rights and minimum guarantee for theatrical release from “English Vinglish”
and “Maatraan” released in October 2012.
Eros International Media Emerging Star
Stock Update
Performance above expectation Buy; CMP: Rs168
investor’s eye stock update
Results Rs cr
Particulars Q2FY13 Q2FY12 YoY % Q1FY13 QoQ %
Net sales 229.3 174.8 31.2 257.0 -10.8
Direct costs 175.0 117.4 49.0 190.3 -8.1
Gross profit 54.3 57.4 -5.3 66.7 -18.6
SG&A 12.1 16.0 -24.3 15.0 -19.7
EBITDA 42.3 41.4 2.0 51.7 -18.3
Depreciation and amortisation 1.7 1.4 17.5 1.7 0.0
EBIT 40.6 40.0 1.5 50.0 -18.9
Other income 1.8 0.8 137.3 2.2 -19.8
Interest 2.7 3.4 -18.2 2.1 30.5
PBT 39.6 37.4 5.9 50.1 -21.0
Tax provision 15.2 10.7 42.0 20.5 -25.7
PAT 24.4 26.7 -8.7 29.6 -17.8
Minority interest -1.7 -0.7 148.5 -1.8 -3.4
Net profit 26.1 27.4 -4.8 31.4 -17.0
EO 0.0 0.0 0.0
Reported net profit 26.1 27.4 -4.8 31.4 -17.0
Equity capital (FV Rs10/-) 91.8 91.8 91.8
EPS (Rs) 2.8 3.0 3.4
Margin (%)
GPM 23.7 32.8 26.0
EBITDA 18.4 23.7 20.1
EBIT 17.7 22.9 19.5
NPM 11.4 15.6 12.2
Tax rate 38.5 28.7 40.9
22Sharekhan Home NextNovember 02, 2012
investor’s eye stock update
Upcoming film slate
Name Star cast Tentative release
English Vinglish Sridevi, Priya Anand, Mehdi Nebbou 5-Oct-12
Maatraan (Tamil) Suriya, Kajal Aggarwal 12-Oct-12
Bhoot 2 Ram Gopal Verma 12-Oct-12
Chakravyuh Arjun Rampal, Abhay Deol (Prakash Jha) 24-Oct-12
Son of Sardar Ajay Devgn, Sonakshi Sinha, Sanjay Dutt 13-Nov-12
Khiladi 786 Akshay Kumar, Paresh Rawal FY2013
Attacks of 26/11 Ram Gopal Verma FY2013
Kochadaiyaan - 3D (Tamil) Rajinikanth, Deepika Padukone FY2013
Dishkiyaaoon Sanjay Dutt, Harman Baweja FY2013
3G Neil Nitin Mukesh, Sonal Chauhan FY2013
Go Goa Gone Saif Ali Khan, Kunal Khemu, Vir Das, Puja Gupta FY2013
Table No 21 Paresh Rawal, Rajeev Khandelwal FY2013
Dekh Tamasha Dekh Satish Kaushik & others FY2013
Rangeeley (Punjabi) Jimmy Shergill FY2013
Sadi Love Story Jimmy Shergill, Amrinder Gill FY2013
Warning (3D) Santosh Barmola, Madhurima Tuli, Manjari Phadnis FY2013
Peddlers Gulshan Devaiah, Kriti Malhotra (Vasan Bala) - Selected forInternational Critic's Week, Cannes 2012 FY2013
Ranjhna Dhanush, Kangna Ranaut FY2014
Ram Leela Ranvir Singh, Kareena Kapoor, (Sanjay Leela Bhansali) FY2014
Tanu Weds Manu Season 2 R Madhavan, Kangana Ranaut FY2014
Namak Shahid Kapoor (Prabhu Deva) FY2014
Untitled Saif Ali Khan FY2014
Akele Akele Arjun Rampal FY2014
Purani Jeans Tanushree Basu FY2014
Sarkar 3 Amitabh Bachchan, Abhishek Bachchan FY2014
Rana (Hindi, Tamil & Telugu) Rajnikanth, Deepika Padukone FY2014
Untitled Rohit Dhawan FY2014
Chalo China Shashank Shah FY2014
Source: Company
� The EBITDA margins were down 530 basis points YoY to
18.4% affected by the higher film acquisition/
production costs coupled with loss in subsidiary
(Ayngaran International) to the tune of Rs 6.9 crore
� The effective tax rate increased to 38.4% from 28.6%
in the corresponding quarter of the previous year,
mainly due to the timing differences of tax incidence.
The management expects the tax rate to normalise in
the coming quarters.
� On the account of lower margins and higher tax rate,
the net profit fell by 4.8% to Rs26.1 crore. However, it
is still much ahead of our and the Street’s expectations.
� Valuation: EIML continues to see strong revenues
visibility (notwithstanding quarterly volatility) owing
to impressive slate of films and healthier monetisation
capabilities through the satellite rights, which lend
support to improve the margins in the coming years.
On the other hand, compulsory digitalisation by the
end of 2014 would act as a further catalyst for demand
of films amongst the broadcasters, which would help
in getting better prices for the satellite rights in the
coming years. EIML, with a films catalogue of more
than 1,100 films, will be a key beneficiary. We continue
to maintain our preference for EIML as the best player
in the entertainment space. At the current market
price of Rs168, the stock is attractively available at
8.8x and 7.2x FY2013 and FY2014 earnings estimates.
We maintain our Buy rating on the stock with a price
target of Rs267.
Entertainment industry entering the stronger half…: The
second half of the fiscal year is generally the strong business
half for the entertainment industry, which contributes to
more than 60% of revenues of the industry. Of that, the
third quarter being a festival season would see a host of
big releases lined up for the quarter. EIML has at least two
big releases in Q3FY2013, namely “Son of Sardar” (to be
released on the day Diwali) and “Khiladi 786” (to be
released in December 2012), and at least one in Q4FY2013,
namely “Kochadaiyaan”, along with other small- and
medium-sized releases. The other big releases in Q3FY2013
include “Jab Tak Hai Jaan”, “Talaash” and “Dabaangg 2”.
23Sharekhan November 02, 2012 Home Next
investor’s eye stock update
….EIML has strong films lined up: We expect EIML to report
a strong performance in H2FY2013 and FY2014. EIML has
already seen the successful release of “English Vinglish”
released on October 5, 2012, which reported a worldwide
gross collection of Rs27 crore in the first weekend. Going
ahead, H2FY2013 is expected to be a strong half with three
big releases namely the Ajay Devgn starrer “Son Of Sardar”,
the Akshay Kumar starrer “Khiladi 786” and the Rajnikanth
starrer Tamil 3D film “Kochadaiyaan”. Along with these big
releases, the company has a mix of small- and medium-
budget films. As per the film slate announced, the company
has about 17 releases in FY2013 with a mix of Hindi, Tamil
and Punjabi films, which gives it strong visibility for FY2013,
and about 11 releases in FY2014.
Other highlights
� During the quarter, the company released 19 films: three
films in Hindi and 16 regional films, including Tamil and
other regional language films. The releases include
“Cocktail” and “Shirin Farhad Ki Toh Nikal Padi”.
� For the quarter, all the subsidiaries taken together
reported a 91.3% fall in the revenues to Rs2 crore with
a loss of Rs6.9 crore at the EBITDA level against a profit
of Rs4.3 crore in the corresponding quarter of the
previous year. The subsidiaries reported a net loss of
Rs5.8 crore against profit of Rs4 crore in the
corresponding quarter of the previous year.
� The net debt on books is Rs150 crore and content
advance stood at Rs457.2 crore.
Valuation: EIML continues to see strong revenues visibility
(notwithstanding quarterly volatility) owing to impressive
slate of films and healthier monetisation capabilities
through the satellite rights, which lend support to improve
the margins in the coming years. On the other hand,
compulsory digitalisation by end 2014 would act as a
further catalyst for demand of films amongst the
broadcasters, which would help in getting better prices
for the satellite rights in the coming years. EIML, with a
films catalogue of more than 1,100 films, will be a key
beneficiary. We continue to maintain our preference for
EIML as the best player in the entertainment space. At
the current market price of Rs168, the stock is attractively
available at 8.8x and 7.2x FY2013 and FY2014 earnings
estimates. We maintain our Buy rating on the stock with
a price target of Rs267.
Valuations
Particulars FY11 FY12 FY13E FY14E
Revenues (Rs cr) 707.0 943.9 1,245.9 1,521.2
Net profit (Rs cr) 117.3 147.8 174.9 214.2
Y-o-Y growth (%) 42.3 27.9 16.8 22.5
EPS (Rs) 12.8 16.3 19.1 23.4
EV/EBITDA (x) 10.3 7.8 6.2 5.7
P/E (x) 13.0 10.4 8.8 7.2
RoE (%) 25.6 19.5 19.0 19.5
RoCE (%) 21.6 19.1 18.4 18.9
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24Sharekhan Home NextNovember 02, 2012
Company details
Price chart
Shareholding pattern
Price performance
(%) 1m 3m 6m 12m
Absolute -1.0 38.9 112.2 86.0
Relative 0.3 29.0 95.8 75.0to Sensex
Dishman Pharmaceuticals & Chemicals Ugly Duckling
Stock Update
Strong traction continues Buy; CMP: Rs96
Price target: Rs135
Market cap: Rs778 cr
52 week high/low: Rs107/33
NSE volume: 8.3 lakh(no. of shares)
BSE code: 532526
NSE code: DISHMAN
Sharekhan code: DISHMAN
Free float: 3.1 cr(no. of shares)
Result highlights
� Unsold stock influences operating results; expect stronger traction ahead:
In Q2FY2013, Dishman Pharmaceuticals &Chemicals (Dishman) reported a
moderate 7.4% year-on-year (Y-o-Y) rise in the net sales to Rs289.3 crore, which
is 11% lower than our estimates. However, if we consider the unsold stock
(increase in stock-in-trade by Rs59.9 crore in), the revenues would have been
much higher. Such increase in the stock in trade also helped operating profit
margin (OPM) to surge by 963 basis points year on year (YoY) to 20.1%. However,
OPM was also benefited from the cost optimisation at Carbogen Amcis and
Dishman Netherlands. This led the net profit turning around to Rs26.6 crore as
compared with a net loss of Rs6.3 crore in Q2FY2012. However, adjusted for
foreign exchange gains of Rs11.2 crore, adjusted net profit is worked out at
Rs15.4 crore. We expect stronger traction in H2FY2013, as the unsold stock
would be realised by Carbogen Amcis and the newly started facilities would
give better contribution.
� Focus on de-risking the business: Although the products pipeline for the contract
research and manufacturing services (CRAMs) business is pretty strong, the
revenues have not been consistent due to irregular offtake by client companies.
To de-risk this scenario, the company is focusing on new revenue streams from
the commercialisation of generic active pharmaceutical ingredient (API). This
will give a consistency in the revenue stream for the company. The company is
currently working on 20 APIs, part of which will be filed as drug master files with
US Food and Drug Administration. The sizeable revenues are expected from this
investor’s eye stock update
Foreign7%
Institutions6%
Non-promoter corporate
12%
Promoters62%
Public and others13%
30
50
70
90
110
Nov
-11
Feb
-12
May
-12
Aug
-12
Nov
-12
Results Rs cr
Particulars Q2FY13 Q2FY12 YoY % Q1FY13 QoQ % H1FY13 H1FY12 YoY %
Net sales 289.3 269.2 7.4 315.3 -8.3 604.5 506.4 19.4
Expenditure 231.0 241.0 -4.1 231.7 -0.3 462.7 434.5 6.5
Operating profit 58.2 28.3 106.0 83.6 -30.3 141.8 72.0 97.1
Other Income 3.5 0.5 664.1 2.6 33.1 6.2 6.9 -10.8
EBIDTA 61.7 28.7 114.9 86.2 -28.4 148.0 78.9 87.6
Interest 18.8 15.0 25.3 23.1 -18.5 42.0 29.7 41.6
Depreciation 20.4 20.7 -1.4 19.4 5.5 39.8 39.4 1.1
PBT 22.5 -7.0 LP 43.7 -48.6 66.2 9.8 572.2
Taxes 7.1 -0.7 LP 5.0 40.6 12.1 1.1 1044.0
Adj.PAT 15.4 -6.3 LP 38.7 -60.2 54.1 8.8 515.7
Reported PAT 26.6 -6.3 LP 38.7 -31.3 65.3 8.8 639.5
EPS 3.3 -0.8 LP 4.8 -31.3 8.1 0.4 2148.4
Margins (%) bps bps bps
OPM 20.13 10.50 963 26.51 -638 23.46 14.21 925
EBIDTA 21.34 10.67 1067 27.35 -601 24.47 15.57 890
PATM 5.33 -2.34 767 12.27 -694 8.95 1.74 722
Effective tax rate 31.54 9.82 2172 11.52 2001 18.32 10.76 755
LP - Loss to profit
25Sharekhan November 02, 2012 Home Next
investor’s eye stock update
business in FY2014 and FY2015, which will supplement
the growth from the CRAMs business.
� We maintain our estimates, price target and
recommendation: Although H1FY2013 profits
constitute nearly 62% of our annual estimates for
FY2013, we prefer to maintain our estimates intact
given time uncertainty in CRAMs business. The stock
is currently trading at 5.6x FY2014E earnings per share
(EPS). We maintain our Buy rating on the stock with a
price target of Rs135 (8x FY2014E earnings).
Good traction in CRAMs business, unsold stock impacts
Carbogen Amcis: During the quarter, the revenues from
Dishman’s CRAMs business jumped by 23% YoY to Rs77
crore. However, the revenues from Carbogen Amcis
witnessed a moderate 4.5% Y-o-Y rise to Rs111 crore.
During the quarter, Rs45 crore of inventory was supplied
by Dishman to Carbogen Amcis, which remained unsold
by the end of September 2012. We believe the revenues
from these inventories would be realised in the subsequent
quarters. The total revenues from CRAMs business jumped
by 11.6% YoY to Rs188.4 crore in Q2FY2013.
Ramp-up of vitamin D business helps marketable
molecules business: During the quarter, the company’s
marketable molecules business, which includes revenue
from the specialty chemicals, reported a decline of 27%
YoY to Rs4,837 crore. However, the vitamin D business,
which includes vitamin-D3 business that started in
Q1FY2013, witnessed an impressive 55.3% Y-o-Y rise to
Rs52.2 crore.
HiPo facility getting more traction: The company has
registered more number of clients for supply of oncology
products from its Hi-Potency (HiPo) plants situated at
Ahemedabad. The players like Novartis, Merck and other
big pharmaceutical players have shown their interest in
HiPo-based products. The management expects US$6-7
million of revenues to come from this facility (earlier
guidance of US$5 million) in FY2013.
China facility to break even by end of FY2013: The
facility in China, which started commercialisation of
intermediates in Q1FY2013, is progressing well and is likely
to break-even by end of FY2013.
OPM improves across the segments; expect healthy
margin to continue
During the quarter, the OPM jumped by 963 basis points
YoY to 20.1% mainly due to stock adjustments (an increase
in the stock, reducing material costs) and low base effect.
However, the cost rationalisation at Carbogen Amcis is
also playing out to help margin.
During the quarter, the OPM of Carbogen Amcis jumped
to 18.1% from 7.19% in Q2FY2012, while Dishman
Netherlands (vitamin D business) reported an OPM of 32%
during the quarter as compared with 15.9% in Q2FY2012.
We expect the OPM to remain healthy through H2FY2013
and FY2014 in the range of 21-22%.
Interest costs jumps 25% YoY on higher level of debts;
debt level to recede by end of FY2013: By end of this
quarter, the company had gross debts of Rs882 crore, after
repaying Rs53 crore. This is higher than Rs812 crore by
end FY2012. This resulted in 25% Y-o-Y rise in interest
costs to Rs18.8 crore, excluding foreign exchange gains.
However, the management indicated that it is close to a
deal for selling its land in the special economic zones
which should fetch Rs100 crore. The revenues obtained
would be utilised to repay part of debts. Therefore, we
expect the debt level to reduce by Rs100 crore by the
end of FY2013 and that should reduce the interest costs.
Effective tax rate jumps sharply during the quarter;
expect 25% effective tax rate in FY2013: During the
quarter, the effective tax rate stood at 31%, presumably
due to higher provisioning for stock not sold during the
quarter. In H1FY2013, effective tax rate stood at 18%. We
expect effective tax rate of 25% for FY2013.
Revenue break-up Rs (cr)
Particulars Q2FY2013 Q2FY2012 YoY % Q1FY2013 QoQ % H1FY2013 H1FY2012 YoY %
Crams business 188.4 168.8 11.6 197.0 -4.4 385.0 328.0 17.6
Dishman CRAMs 77.0 62.6 23.0 64.0 20.3 141.0 140.8 0.1
Carbogen Amcis 111.0 106.2 4.9 133.0 -16.2 244.0 186.8 30.8
MM business 100.9 100.4 0.5 118.3 -14.7 219.0 178.9 22.5
Marketable molecules 48.7 66.8 -27.1 54.0 -10.3 103.0 99.5 3.5and others
Vitamin-D business 52.2 33.6 55.3 64.0 -18.5 116.0 79.4 46.3
Total revenue 289.0 269.0 7.5 315.0 -8.3 605.0 507.0 19.4
26Sharekhan Home NextNovember 02, 2012
investor’s eye stock update
Cost analysis Rs (cr)
Particulars Q2FY2013 Q2FY2012 YoY % Q1FY2013 QoQ % H1FY2013 H1FY2012 YoY %
Adjusted material cost 86.8 97.7 -11.2 84.2 3.1 170.9 173.4 -1.4
% of sales 30.0 36.3 26.7 28.3 34.2
Employee Expenses 84.6 69.7 21.4 86.2 -1.9 170.7 141.7 20.5
% of sales 29.2 25.9 27.3 120.4 196.9
Other expenses 59.7 73.6 -18.9 61.3 -2.6 121.1 119.4 1.4
% of sales 20.6 27.3 19.5 78.9 151.5
Total 231.0 241.0 231.7 -0.3 462.7 434.5
We are positive on the stock: The management kept its
revenue guidance intact at Rs1,250-1,300 crore and net
profit of Rs90-100 crore for FY2013. Although H1FY2013
revenue and net profit constitute 48% and 65% of annual
guidance respectively, time uncertainty in CRAMs business
prompts management to go on conservative. We believe
Dishman has lot more value to be unlocked from its HiPo
facility and API business. In Q1FY2013, the company
received US$5 million income from its research services
out of US$13 million deal. Therefore, we expect the
remaining US$8 million to come in the next couple of
quarters. We expect the revenues and net profit CAGR of
16.5% and 56% respectively over FY2012-14E.
We maintain our estimates, price target and
recommendation: Although H1FY2013 profits constitute
nearly 62% of our annual estimates for FY2013, we prefer to
maintain our estimates intact given time uncertainty in CRAMs
business. The stock is currently trading at 5.6x FY2014E
earnings per share (EPS). We maintain our Buy rating on the
stock with a price target of Rs135 (8x FY2014E earnings).
Valuations
Particulars FY11 FY12 FY13E FY14E
Net sales (Rs cr) 990.8 1122.1 1306.0 1521.9
PAT (Rs cr) 80.2 56.3 86.7 138.1
Shares in issue (cr) 8.1 8.1 8.1 8.1
EPS (Rs) 9.9 7.0 10.7 17.1
Y-o-Y change % -31.8 -29.7 53.9 59.3
PER (x) 9.7 13.8 9.0 5.6
Cash EPS (Rs) 18.5 16.5 22.0 28.8
Cash PER (x) 41.7 46.7 35.0 26.7
EV/EBIDTA (x) 7.9 6.6 5.5 4.3
Book value (Rs/share) 108.9 115.3 123.4 137.9
P/BV (x) 0.9 0.8 0.8 0.7
MCap/sales 0.8 0.7 0.6 0.5
RoCE (%) 7.5 9.0 10.2 13.2
RoNW (%) 9.1 6.1 8.7 12.4
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
27Sharekhan November 02, 2012 Home Next
Company details
Price chart
Shareholding pattern
Price performance
(%) 1m 3m 6m 12m
Absolute 0.0 2.0 -0.6 -19.2
Relative 1.3 -5.2 -8.3 -24.0to Sensex
Deepak Fertilisers & Petrochemicals Corporation Ugly Duckling
Stock Update
Higher input cost erodes margin Buy; CMP: Rs129
Price target: Rs179
Market cap: Rs1,471 cr
52 week high/low: Rs170/ 118
NSE volume: 0.5 lakh(no. of shares)
BSE code: 500645
NSE code: DEEPAKFERT
Sharekhan code: DEEPAKFERT
Free float: 5.0 cr(no. of shares)
Result highlights
� Revenue in line with expectation; margin disappoint: The revenues of Deepak
Fertilisers and Petrochemicals Corporation Ltd (DFPCL) were up by 20.1% year
on year (YoY), which was in line with our expectation. DFPCL reported total
revenues of Q2FY2013 to Rs693.4 crore. The revenues were mainly driven by
higher volume in the fertiliser segment. Growth in fertiliser segment was led
by a higher volume (both production and traded) growth and an increase in
realisation. The operating profit margin (OPM) stood at 11.6%, which was lower
by 540 basis points on a year-on-year (Y-o-Y) basis (our estimate was 17.0%), on
account of a higher input cost (ammonia, major raw material), unexpected
plant shut down of isopropyl alcohol (IPA) for 20 days and zero production of
methanol during the quarter due to higher gas price.
� Margin pressure along with high depreciation led to profit decline: During
the Q2FY2013, the RPAT for the company declined by 24.2% YoY to Rs40.6 crore,
which was much lower than ours and the Street’s expectation. The margin
pressure along with higher depreciation charges led to a decline of profit during
the quarter as compared with the same period of last year. During the quarter,
depreciation has increase by 25.6% to Rs25 crore due to the capitalisation of
the new technical ammonium nitrate (TAN) plant. During the quarter, the tax
rate stood at 25.5%, which was in line with our expectation.
� Favourable demand environment going ahead for chemical and fertiliser
segments: The demand in the chemical segment will remain firm despite a
slow down in the mining activities. In the chemical segment, the company has
started to focus on export market, which will drive the incremental volumes in
TAN (16% of the total revenue in Q2FY2013). In the fertiliser segment, the
demand for the manufactured and traded fertiliser will remain robust because
Results Rs cr
Particulars Q2FY13 Q2FY12 YoY % 6MFY13 6MFY12 YoY %
Total income from operation 693.4 577.2 20 1,327.5 1051.1 26
Total expenditure 613.1 479.3 28 1,145.0 840.3 36
Operating profit 80.3 97.9 -18 182.5 210.8 -13
Other income 15.3 11.9 29 25.5 18.6 37
EBIDTA 95.6 109.7 -13 208.0 229.4 -9
Depreciation 25.0 19.9 26 47.7 39.0 22
Interest 15.8 15.0 6 42.4 27.7 53
PBT 54.7 74.9 -27 117.9 162.8 -28
Tax 14.1 21.3 -34 31.8 45.2 -30
Adjusted PAT 40.6 53.6 -24 86.1 117.5 -27
Exceptional items 0.0 0.0 0.0 0.0
RPAT 40.6 53.6 -24 86.1 117.5 -27
Margins (%) bps bps
OPM 11.6 17.0 -538 13.7 20.1 -631
NPM 5.9 9.3 -342 6.5 11.2 -469
investor’s eye stock update
Promoter44%
Foreign13% MF & FI
8%
Public & others35%
115
125
135
145
155
165
175
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May
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28Sharekhan Home NextNovember 02, 2012
investor’s eye stock update
of a good start to the rabi season. The overall volumes
in manufactured chemicals saw a decline of 24% during
the quarter inspite of a robust demand, mainly on
account of a lower production of IPA (unexpected IPA
plant shut down for 20 days) and shut down of methanol
plant due to high spot gas price. In the fertiliser
segment, the volume has seen a sharp increase of 20%
due to revival in the monsoon season in later part of
the quarter.
Outlook and valuation: Though the profits of DFPCL
were marginally subdued on account of margin pressure
due to increase in the price of ammonia and shut down
of the IPA plant. We have marginally revised our
revenue estimates upward, mainly to factor in better
volume growth in the fertiliser and chemical segments.
However, we have also factored in the high price of
key inputs in the chemical segment (ammonia and
propylene), thus lowering our margin expectation. We
continue to prefer DFCL and maintain our “Buy” rating
with a price target of Rs179. At the current market
price of Rs129, the stock trades at a very attractive
valuation of 5.3 and 3.9x its FY2013E and FY2014E
earnings respectively.
Key takes ways of conference call
� DFPCL is targeting a total volume of 2.5 lakh tonne for
TAN in the chemical segment for FY2013, including a
new TAN plant. Going ahead, the company will focus
more on the export market for the TAN, due to high
quality. The company will also focus on increasing the
exports of TAN to South East Asia, Australia and other
parts of the world.
� The current market price of the TAN stood at Rs23,000
per tonne, while the IPA realisation stood at Rs80,000
per tonne and that of ammonium nitrate phosphate
(ANP) fertiliser realisation comes at Rs28,000 per
tonne.
� The prices of the raw material remain high during the
quarter due to demand supply mismatch. But the
management believes that going ahead the price of
ammonia may decline in Q1FY2014 on account of start-
up of the plants that are currently closed and adding
up of the new capacity in ammonia.
� During the quarter, the total gas received by the
company was 50 SM3 at a rate of Rs13 SM3. The
company has seen a decline in supply of the gas from
the KG-D6 basin on account of a decline in the gas
output.
� The sales of fertiliser may increase going head mainly
because of a good rainfall in the rabi season.
� DFPCL has started the work of capacity expansion on
its ANP fertiliser plant from 2 lakh tonne to 6 lakh
tonne, with a total capital expenditure (capex) of
Rs360 crore, which may commence production from
Q4FY2015. The company is also expanding its capacity
of Bensulf with a capex of Rs50 crore.
� Zero production of methanol was mainly on account
of higher spot price of gas, which has resulted in an
increase in the cost of manufacturing of methanol.
The current price of methanol is Rs19,000 per tonne,
whereas the cost of production due to high gas price
arrives at Rs30,000 per tonne.
Chemical segment
The chemical segment’s total revenues grew marginally
by 4.1% during the quarter to Rs373.4 crore on account of
higher volume of TAN and dilute nitric acid (DNA). The
profit before interest and tax (PBIT) margin in the
chemical segment was affected by the increase in the
prices of ammonia and propane, which reduced the margin
by 1,000 basis points to 13% during the quarter. Going
ahead, we believe that the price of ammonia may remain
Segmental performance Rs cr
Revenue Q2FY13 Q2FY12 YoY % 6MFY13 6MFY12 YoY %
Chemicals 373.42 358.67 4.11 843.39 691.38 21.99
Fertiliser 339.11 230.70 46.99 518.61 378.14 37.15
Total 712.53 589.37 20.90 1,362.00 1,069.52 27.35
PBIT
Chemicals 50.07 84.66 (40.86) 146.17 179.15 (18.41)
Fertiliser 44.71 27.44 62.94 58.29 50.07 16.42
Total 94.78 112.1 (15.45) 204.46 229.22 (10.80)
PBIT margin (%) bps bps
Chemicals 13 24 -1020 17 26 -858
Fertiliser 13 12 129 11 13 -200
29Sharekhan November 02, 2012 Home Next
investor’s eye stock update
firm on account of lower supply and higher demand. In
the current quarter, the price of ammonia arrives at
Rs36,000 per tonne as compared with Rs26,000 per tonne
in Q2FY2012.
Fertiliser segment
The revenues from the fertiliser segment have increased
by 47% YoY to Rs339.1 crore. The growth in the fertiliser
revenues was largely on account of the higher sales volume
of indigenously manufactured and traded fertilisers. The
overall earnings before interest and tax (EBIT) margin in
the fertiliser segment was higher by 129 basis point to
13% on YoY basis for Q2FY2013. Improvement in margin
was mainly due to improved realisation and stable prices
of major inputs.
Volumes during the quarter: The volumes of DNA, TAN
and strong nitric acid (SNA) increased by 8%, 14% and 3%
respectively while there was a decline of 9%, 98% and
34% in the volumes of CNA, methanol and IPA. The capacity
utilisation of the overall TAN capacity was in range of 50%
during Q2FY2013. The company is targeting a total
turnover of 2.5 lakh tonne of TAN in FY2013 and 75%
capacity utilisation in FY2014, of which 1 lakh tonne will
be exported.
Sales quantity (tonnes)
Particulars Q2 Q2 YoY 6M 6M YoY
FY13 FY12 % FY13 FY12 %
CNA 16,147 17,656 -9 34,497 32,785 5
DNA 10,051 9,293 8 19,823 19,981 -1
Methanol 295 17,978 -98 15,003 37,908 -60
IPA 14,398 21,829 -34 35,791 36,266 -1
TAN 47,513 41,688 14 116,014 99,250 17
ANP 50,466 41,982 20 80,727 74,303 9
Bensulf 1,889 3,097 -39 8,965 7,256 24
SNA 5,503 5,355 3 10,908 10,000 9
Propane 2,935 4,289 -32 6,964 7,326 -5
Realty business continues to post a loss at EBIT level
In Q2FY13, the revenues from the real estate business (ie
the mall business) contracted by 71.3% YoY to Rs0.54 crore.
The lower revenues were reported mainly due to the
change in revenue model in the real estate segment from
a fixed revenue model to a revenue sharing model. The
segment reported a loss of Rs4.7 crore at the EBIT level
during the quarter. Moreover, the company has completed
its modification work at Ishanya Mall at a cost of Rs57
crore. The real estate business will not break even in
FY2013 mainly due to a change in the revenue sharing
model and economic slowdown.
Valuation and outlook: Though the profits of DFPCL were
marginally subdued on account of margin pressure due to
increase in the price of ammonia and shut down of the
IPA plant. We have marginally revised our revenue
estimates upward, mainly to factor in better volume
growth in the fertiliser and chemical segments. However,
we have also factored in the high price of key inputs in
the chemical segment (ammonia and propylene), thus
lowering our margin expectation. We continue to prefer
DFCL and maintain our “Buy” rating with a price target of
Rs179. At the current market price of Rs129, the stock
trades at a very attractive valuation of 5.3 and 3.9x its
FY2013E and FY2014E earnings respectively.
Valuation
Particulars FY10 FY11 FY12 FY13E FY14E
Net sales (Rs cr) 1,296.6 1,564.8 2,342.8 2,726.4 3,246.5
Rep. net profit (Rs cr) 172.1 186.6 213.0 215.9 292.0
EPS (Rs) 19.5 21.2 24.1 24.5 33.1
PER (x) 6.6 6.1 5.3 5.3 3.9
Book value (Rs) 105.5 120.9 139.0 153.7 178.4
P/BV (x) 1.2 1.1 0.9 0.8 0.7
EV/EBITDA (x) 6.3 5.4 4.7 5.1 4.0
RoCE (%) 12.9 12.0 13.1 11.6 13.7
RoNW (%) 19.9 18.7 18.6 16.6 19.7
Green market ammonia US Gulf C&F
0
100
200
300
400
500
600
700
800
Jul-1
1Ju
l-11
Aug
-11
Sep
-11
Sep
-11
Oct
-11
Nov
-11
Nov
-11
Dec
-11
Jan-
12F
eb-1
2F
eb-1
2M
ar-1
2A
pr-1
2A
pr-1
2M
ay-1
2Ju
n-12
Jul-1
2Ju
l-12
Aug
-12
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Sep
-12
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$ pe
r to
nne
Segmental PBIT margin
13.4% 13.2%
23.6%
11.9%
Chemicals Fertilizers
Q2FY13 Q2FY12
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
30Sharekhan Home NextNovember 02, 2012
investor’s eye sector update
Insurance
Sector Update
APE growth continues to slow down
� The growth in the annual premium equivalent (APE)
of the life insurance industry continues to slow down.
It declined by 18.7% year on year (YoY) in September
2012, the third consecutive month of slowing growth.
The slowdown was mainly contributed by Life Insurance
Corporation of India (LIC), which showed a decline of
13.4%, 26.5% and 19.% in the months of July, August
and September respectively. The private players posted
a decline of 18.3% YoY in September. On a year-till-
date (YTD) basis (April-September 2012), the private
players fared better than LIC as these fell by merely
0.4% YoY as compared with the 10.9% year-on-year (Y-
o-Y) decline seen by LIC. The industry’s APE decline
by 7.5% on a YTD basis. The YTD growth in the private
industry was led by players like ICICI Prudential Life
(ICICI Prudential; 14.4%) and Bajaj Allianz (15.1%).
� On a month-on-month (M-o-M) basis, the APE numbers
for the industry declined by 14.1% led by a 22.4% fall
in the APE of LIC. However, the private players posted
a growth of 1.1% month on month (MoM). On an M-o-M
basis, 16 out of 22 players posted an increase in the
APE, with Max Life Insurance and Bajaj Allianz posting
a growth of 28.2% and 14.7% respectively.
� The market share of the private players improved by
about 250 basis points to 34.9% (LIC, 65.1%) in the
April-September 2012 period compared with 32.4% in
APE* growth (Rs cr)
Insurer Sep-12 Sep-11 YoY % MoM % YTDFY13 YTDFY12 YoY %
Bajaj Allianz 165.8 160.6 3.2 14.7 782.2 679.6 15.1
ING Vysya 49.7 74.8 -33.6 6.1 208.9 255.2 -18.2
Reliance Life 108.3 135.6 -20.1 13.3 513.6 548.0 -6.3
SBI Life 199.8 225.6 -11.4 5.9 922.2 924.2 -0.2
Tata AIG 44.1 86.0 -48.7 13.6 204.0 380.9 -46.4
HDFC Life 253.6 293.1 -13.5 4.1 1,177.3 1,195.3 -1.5
ICICI Prudential 259.3 361.3 -28.2 -3.2 1,751.3 1,530.4 14.4
Birla SunLife 123.0 227.1 -45.8 -8.5 672.6 758.3 -11.3
Aviva Life 38.3 42.0 -8.9 5.3 296.2 281.4 5.2
Kotak Life 53.2 46.3 15.0 -21.3 251.4 257.7 -2.5
Max New York Life 151.2 139.2 8.7 28.2 659.2 702.8 -6.2
MetLife 39.9 47.4 -15.8 -0.8 262.4 197.8 32.6
Private total 1,664 2,035.1 -18.3 1.1 8,701.8 8,737.0 -0.4
LIC 2,341 2889.1 -19.0 -22.4 16,221.3 18,203.9 -10.9
Industry 4005.0 4924.2 -18.7 -14.1 24,923.1 26,940.9 -7.5
* APE=10% single premium + non single premium
the corresponding period of the previous year. During
the period under review, companies like Tata AIA Life
Insurance (2.3 vs 4.4%), Max Life Insurance (7.6% vs
8.0%) and Reliance Life Insurance (5.9%vs 6.3%) showed
a decline in their market share. Moreover, ICICI
Prudential turned out to be a major gainer as its market
share improved by about 260 basis points to 20.1%.
� The APE growth for the industry has been affected by
the regulatory overhaul and the uncertainty with
regard the new regulations. However, the government
is likely to take several measures to boost the insurance
sector, which includes faster approval of products, tax
breaks, easing of investment norms, easier know-your-
customer (KYC) norms etc. Therefore, the growth in
the APE is likely to pick up in the second half of FY2013.
-49%-46%
-34%-28%
-20%-19%-19%-18%-16%-13%-11% -9%
3%9% 15%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
Tat
a A
IA
Birl
a S
unlif
e
ING
Vys
ya
ICIC
I Pru
dent
ial
Rel
ianc
e Li
fe
LIC
Indu
stry
Priv
ate
Tot
al
Met
life
HD
FC
Life
SB
I Life
Avi
va L
ife
Baj
aj A
llian
z
Max
Life
Kot
ak L
ife
Industry growth (YoY %) in September 2012
Source: IRDA
31Sharekhan November 02, 2012 Home Next
investor’s eye sector update
Trend in market share (MoM)
Source: IRDA, Sharekhan Research
Trend in industry growth (YoY %)
Source: IRDA, Sharekhan Research
Trend in industry growth (MoM %)
Source: IRDA, Sharekhan Research
Trend in APE growth of major private players
Source: IRDA, Sharekhan Research
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%S
ep-0
9
Nov
-09
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep
-11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Private LIC
-75%-50%-25%
0%25%50%75%
100%125%150%175%
Sep
'09
Nov
'09
Jan'
10
Mar
'10
May
'10
Jul'1
0
Sep
'10
Nov
'10
Jan'
11
Mar
'11
May
'11
Jul'1
1
Sep
'11
Nov
'11
Jan'
12
Mar
'12
May
'12
Jul'1
2
Sep
'12
Private LIC
-120%-80%-40%
0%40%80%
120%160%200%240%280%
Sep
'09
Nov
'09
Jan'
10
Mar
'10
May
'10
Jul'1
0
Sep
'10
Nov
'10
Jan'
11
Mar
'11
May
'11
Jul'1
1
Sep
'11
Nov
'11
Jan'
12
Mar
'12
May
'12
Jul'1
2
Sep
'12
Private LIC Industry
-75%-50%-25%
0%25%50%75%
100%125%150%175%200%
Sep
'09
Nov
'09
Jan'
10
Mar
'10
May
'10
Jul'1
0
Sep
'10
Nov
'10
Jan'
11
Mar
'11
May
'11
Jul'1
1
Sep
'11
Nov
'11
Jan'
12
Mar
'12
May
'12
Jul'1
2
Sep
'12
ICICI Pru Bajaj Allianz HDFC Std Max New York Life SBI Life
APE declined by 7.5% on YTD basis
On a YTD basis, the APE declined by 7.5% for the industry
largely contributed by LIC, which showed a decline of
10.9%. During the period (April-September 2012), the
private players posted a marginal decline of 0.4% YoY while
LIC showed a decline of 10.9% YoY in the APE. Since the
Insurance Regulatory and Development Authority has
gradually started granting approval for new products and
the second half is seasonally strong, the premium growth
is likely to improve in the coming months.
Market share of private players expands
The market share of the private players increased
marginally from 32.4% to 34.9% over April-September
2012. Consequently, LIC’s market share declined from
67.6% to 65.1% in the same period.
ICICI Prudential remains top insurer
ICICI Prudential continued to be the dominant player
among the private insurers. The market share of ICICI
Prudential increased from 17.5% to 20.1% in September
2012. HDFC Life Insurance has a market share of 13.5%
followed by SBI Life (10.6%), Bajaj Allianz (9.0%) and Birla
Sun Life (7.7%).
32Sharekhan Home NextNovember 02, 2012
investor’s eye sector update
Market share of the private players in corresponding YTD FY2012
Source: IRDA, Sharekhan Research
Market share of private players in YTD FY2013
Source: IRDA, Sharekhan Research
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
Others12%
SBI Life11%
HDFC Life14%
Aviva Life3%
MetLife3%
Kotak Life3%
Reliance Life6%
Max Life8%
Birla SunLife8%
Bajaj Allianz9%
ING Vysya2% Tata AIA
2% ICICI Prudential19%
HDFC Life14%
Others12%SBI Life
11%
Tata AIA4%
Max Life8% Birla SunLife
9%
Bajaj Allianz8%
Reliance Life6%
Aviva Life3%
Kotak Life3%
ICICI Prudential17%
MetLife2%
ING Vysya3%
Outlook
The APE growth for the industry has been affected by the
regulatory overhaul and the uncertainty with regard the
new regulations. However, the government is likely to
take several measures to boost the insurance sector
including faster approval of products, tax breaks, easing
of the investment norms, easier KYC norms etc. Therefore,
the APE growth is likely to improve in the second half of
FY2013.
33Sharekhan November 02, 2012 Home Next
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