Financial Advisory Stock for Today- Buy Stocks of Infosys with Target Price Rs.3910

;

Company registered a turnover of Rs. 26902.25 Cr, up by 19% in H1FY14 compared to corresponding previous year period. There was fall of

10% in operating profits of the company to Rs 2971.72 Cr for H1FY14. The Other income was down 8% to Rs 279.6 Cr while Interest cost grew

99% to Rs 169.36 Cr. .......................................... ( Page : 15-17)

Private Bank Result Preview 3QFY14 : 13th Jan 2014

Broadly banking indices outperform Nifty by 6% in third quarter and most of banking stocks are trading at attractive valuation. Despite of, we

have caution view on account of slowdown in economy, high interest rate and inflationary pressure. High inflation would be risk for the

economy going forward. Any rise in inflation would result of rise in interest rate by RBI in its third quarter monetary policy review on 28th

Jan.2014 which would be negative for banking industry. Most of banking stocks are expected to report moderate revenue and profit growth

owing to multiple headwinds. In private sector banking universe we like HDFC Bank, ICICI bank and DCB.............................................. ( Page :

12-14)

13th Jan, 2014

Edition : 182

IEA-Equity

Strategy

GAIL : "Neutral" 10th Jan 2014

INDUSIND BANK "Neutral" 13th Jan 2014

Despite of reported higher than expected profit we have neutral view on the stock owing to shifting of loan mix from consumer finance to

corporate loan which will lead to margin compression and deterioration in asset quality as per our view. Corporate loans generally are big ticket

size in nature and with slowing of economy there are higher chances of these loan slip into NPA than other loan. Moreover retail loans are high

yield in nature than corporate loan. At current price, we have neutral view on the stock due to trading almost near to our valuation multiple and

anticipating margin compression and higher slippage. ........................ ( Page : 6-11)

Infosys : "On the way of excitement" BUY 13th Jan 2014

Infosys largely reported inline set of sales numbers and beats the street on margin front, In USD term, Sales grew by 1.65%(QoQ) and 0.5%(QoQ)

in INR term, led by 0.7% (QoQ) volume growth and 0.7%(QoQ) pricing growth. At a CMP of Rs 3549, it trades at 16.3x FY15E At a CMP of Rs

3549, it trades at 16.3x FY15E earnings. We retain our “BUY” view on the stock with a target price of target price of Rs 3910 (revised from 3620).

....................................... ( Page : 2-5)

CMC : "Reduced" 9th Jan 2014

We had initiated this stock at a CMP of Rs 1208 (5th June 2013) and now, it achieved its target of Rs1690, we advice to book profit on the stock

because of its premium valuation at current price. However, sentiment could take a knock in the short run, since investors may prefer paying a

premium for stock with better earnings visibility........................................ (Page : 18-19)

KPIT Tech: "On billion dollar journey" "Reduced" 8th Jan 2014

For 3QFY14E, Indian IT players would report muted earnings growth because of seasonal weakness like furloughs and holidays impacts, already

it is understood fact by consensus. Post result, earning guidance for FY15E and forward looking statement by most of companies would be

considered as an important fact. Considering recent demand environment scenario and healthy growth outlook of US and Europe, we are

expecting to see positive outlook on the sector for the year 2014................................. ( Page : 22-25)

IT Industry: 3QFY14E results preview : "As usual flattish 3rd quarter" 7th Jan 2014

We had initiated this stock at a CMP of Rs 115 (14 Jan 2013) and now, it achieved its target of Rs 177. Despite better expectation of growth and

attractive visibility of its expansion through inorganic initiative and focus into emerging verticals, we advice to book profit on the stock because

of its premium valuation. However, sentiment could take a knock in the short run, since investors may prefer paying a premium for stock with

better earnings visibility.......................................... ( Page : 20-21)

Narnolia Securities Ltd,

India Equity AnalyticsDaliy Fundamental Report on Indian Equities

Infosys

1M 1yr YTD

Absolute 6.3 52.4 53.1

Rel. to Nifty 3.3 49.1 49.4

Current 1QFY14 4QFY13

Promoters 15.94 16.04 16.04

FII 39.93 39.55 40.52

DII 16.16 18.28 17.51

Others 27.97 26.13 25.93

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

Revenue 13026 12965 0.47 10424 25.0

EBITDA 3258.9 2836.9 14.88 2677 21.7

PAT 2874.9 2406.9 19.44 2369 21.4

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

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

2

Previous Target Price 3620

Upside 10%

Change from Previous 8%

"On the way of excitement"

CMP 3549

Target Price 3910

Inline sales and beats the street on margin front, upgraded earning guidance;Result update BUY

52wk Range H/L 35810/2190

Mkt Capital (Rs Crores)

Stock Performance

Average Daily Volume

203790

1 year forward P/E

Rs, Crore

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

BSE Code 500209

NSE Symbol INFY

Share Holding Pattern-%

Earning Guidance: Infosys upgrades its earning guidance from 6-10% to 9-10% to 11.5-

12% for FY14E, now nearest to NASSCOM guidance (12-14%). Management is very

confident to achieve the guidance figure and stated much focused on creating superior

financial performance ahead.

1240448

Nifty 6171

Market Data

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

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

announcement of strategic acquisitions, better utilization of cash balances, better deal

win, consistent client traction and revenue momentum would help the company to

bridge the gap with rivals such as TCS.

Considering the revised guidance by management and its growth priority than margin

inching up strategy, we upgraded our EPS from Rs 181/208 to Rs 188/218 for

FY14E/15E. At a CMP of Rs 3549, it trades at 16.3x FY15E At a CMP of Rs 3549, it trades

at 16.3x FY15E earnings. We retain our “BUY” view on the stock with a target price of

target price of Rs 3910 (revised from 3620).

Infosys largely reported inline set of sales numbers and beats the street on margin

front, In USD term, Sales grew by 1.65%(QoQ) and 0.5%(QoQ) in INR term, led by 0.7%

(QoQ) volume growth and 0.7%(QoQ) pricing growth. However, the good news is that

the PAT grew by 21% because of cost rationalization, sequentially.

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

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

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

growth for FY14E like its bellwether.

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

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

growth story despite recent hiccups of top management exit.

Healthy Margin growth: During the quarter, its EBIT margin expanded by 310 bps (QoQ)

to 25%. The company's cost cutting measures are yielding the expected gains. This again

is in line with what the market was expecting. During the December quarter, Infosys

selling and marketing expenses declined by 13.3% compared to the second quarter.

Administrative expenses too have declined by 18.4% in dollar terms. Both these have

helped improve operating margins.

Steady volume growth: The volume growth in the quarter was weak, 0.7% (QoQ)

growth with stable pricing growth of 0.7%(QoQ), but it is also weak for the group and for

Infosys. we expect it to be improve in the coming quarters.

Healthy deal pipeline: Overall, the company continues to show signs of recovery at the

operational level. The company has added 54 new clients in the quarter and added 15

clients where the deal size is over $100 million. This implies that client confidence is

returning.

"BUY"13th Jan' 14


Margin-%

On segmental front: Infosys has reported teen set of growth in all segments;

3

Segmental Performance:

Infosys.

Revenue growth in USD term-(QoQ)

Volume and Pricing Growth (QoQ)-%

(Source: Company/Eastwind)


In USD term, Sales grew by 1.65%(QoQ)

in USD term and 0.5%(QoQ) in INR term,

led by 0.7% volume growth and

0.7%(QoQ) pricing growth. Mgt revised

revenue growth to 11.5%-12% for FY14E.

EBIT margin expanded by 310 bps (QoQ)

to 25%. Mgt expects to see margin

growth in near term.




With 0.7% pricing growth, volume

growth was reported by 0.7%

growth(QoQ), impacted by seasonal

wave.

On QoQ, Company’s margin improved in

entire segments .


QoQ YoY QoQ YoY

BFSI 33.5% 0.8% 24.2% 29.9% 340bps 80bps

Manufacturing 22.8% -1.3% 31.3% 24.2% 340bps (50bps)

Energy&Utilities 19.1% -0.1% 16.4% 28.8% 30bps (130bps)

Retail, Logis-&Life sc- 24.6% 2.1% 27.6% 27.52% 560bps (230bps)

Margin-%Sales contribution-%Segments

Sales Growth-%Margin-%

Utilization:

4

Clients Concentration:

Total Clients and Clients Addition:

Infosys.

Geography wise revenue contribution-

we expect that growth from Euro as well

as Europe would prove a milestone for

the company ahead because of healthy

demand environment and optimistic

tempo of clients expanding.


On geographical front: During the quarter, company has reported 4% revenue growth

from Euro and RoW each, which contributes 25% and 13% of sales. While revenue from

US declined by 2%, it contributes 60% of Sales.

Clients Metrics

The company has added 54 new clients in

the quarter and added 15 clients where

the deal size is over $100 million. This

implies that client confidence is

returning.



We expect that Infy’s improving

utilization despite higher attrition

compare to its nearest bellwethers is

good sign for its future growth story.

Headcount Metrics: Its attrition increased to 18% from

17.3%(2QFY14) on LTM basis, however

on sequentially basis they have been able

to control its attrition. we hope that the

further salary hikes across the board will

bring down the attrition levels going

forward.


The Company's Utilization is likely to keep inching up, which could lead to margin

expansion for a couple of quarters and that is going to be a huge positive for Infosys as a

company.


Clients Category 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Top clients 4.1% 4% 3.60% 3.6% 3.9% 4% 3.70%

Top 5 clients 16.2% 16% 15% 14.7% 14.9% 15% 14%

Top 10 clients 25.3% 25.40% 23.90% 24.0% 24.0% 24.5% 23.5%

Clients, number 3QFY13 4QFY13 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Active clients,nos 665 694 711 715 776 798 836 873 888

New clients 49 52 51 39 89 56 66 68 54

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

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

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

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

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

5


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

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

its revenues.

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

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

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

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

engaging and developing.

Financials


Infosys.

Key facts from Management Interview;

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

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

meet the projection.


Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales, INR 22742 27501 33734 40352 50330 59631

Employee Cost 12085 14856 18340 22565 28185 33691

Other expenses 2792 3677 4671 6254 8556 10734

Total Expenses 14877 18533 23011 28819 36741 44425

EBITDA 7865 8968 10723 11533 13589 15206

Depreciation 905 854 928 1099 1371 1624

Other Income 982 1211 1904 2365 2567 3578

EBIT 7942 9325 11699 12799 14785 17160

Interest Cost 0 0 0 0 0 0

PBT 7942 9325 11699 12799 14785 17160

Tax 1681 2490 3367 3370 3992 4633

PAT 6261 6835 8332 9429 10793 12527

Growth-%

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

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

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

Margin -%

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

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

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

Expenses on Sales-%

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

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

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

Valuation

CMP 2615 2765 2865 2400 3549 3549

No of Share 57.4 57.4 57.4 57.4 57.4 57.4

NW 23049.0 25976.0 31332.0 37994.0 45629.8 54797.5

EPS 109.1 119.0 145.1 164.2 188.0 218.2

BVPS 401.7 452.4 545.6 661.7 794.7 954.3

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

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

P/BV 6.5 6.1 5.3 3.6 4.5 3.7

P/E 24.0 23.2 19.7 14.6 18.9 16.3

INDUSIND BANK

402

428

-

6

-

1M 1yr YTD

Absolute -9.2 -6.9 -6.9

Rel.to Nifty -7.0 -9.7 -9.7

Current 24QFY1

4

3QFY1

3Promoters 15.2 15.2 15.3

FII 41.1 39.9 42.3

DII 7.2 7.4 7.0

Others 36.4 37.5 35.4

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1376 1704 2233 2787 4053

Total Income 2090 2716 3596 4562 5827

PPP 1082 1373 1839 2452 2972

Net Profit 577 803 1061 1320 1633

EPS 12.4 17.2 20.3 25.3 31.1

6

Market Data

Asset quality witnessed deterioration in sequential basis

During quarter bank witnessed deterioration in asset quality with GNPA and net NPA

in absolute term deteriorated by 14.7% QoQ and 51% QoQ respectively. Fresh

slippages were 1.4% (annualized) as against 1.1% in last quarter. Bank made lower

provisions against loan loss, as the result net NPA as the percentage of net loan

reached to 0.3% as against 0.2% in 2QFY14. Provision coverage ratio (without

technical write off) declined to 73.6% from 80% in 2QFY14 but still above of

regulatory requirement of 70%.


Target Price

Stock Performance

52wk Range H/L 561/318

BSE Code 532187

NSE Symbol

CMP

Operating leverage (Operating expenses to total asset) remained at elevated level

but cost to income ratio declined on both front i.e. on sequential and yearly basis as

well. During quarter bank reported employee cost growth of 22% and operating cost

growth of 22% YoY to Rs.206 cr and Rs.563 cr respectively. Cost to income ratio

improved by 80 bps sequentially and 280 bps yearly to 46.5%. This led pre

provisioning profit growth of 37% YoY.

INDUSINDBK

Average Daily Volume

22400

Previous Target Price

Mkt Capital (Rs Cr)


Despite of higher profit we remain have neutral view on the stock owing to

shifting of loan mix from retail loan to corporate banking. We anticipate two

things-(a) margin compression, (b) higher slippage. Retail loan generally have

higher yield in nature than corporate loans. Corporate loan has big ticket size

loans and in slowdown of economy, corporate loan emerges as biggest

slippage risk than other loans. At the current price of Rs.405, stock is trading

at 2.4 times of one year forward book. We value bank at Rs.428/share which

would be 2.5 times of FY14E’s book value.

Better than expected earnings led by higher loan growth and margin

Result update

Upside

During quarter Indusind bank reported better than expected earnings largely due to

higher loan growth and margin expansion. In 3QF14, bank reported NII growth of

26.4% YoY supported higher yield on asset to 13.7% and margin expansion of 20

bps YoY. Other income grew by 35% YoY to Rs. 480 cr in which fee income

registered growth of 30% and trading, forex and other reported 101% growth in YoY

due to low base.

Declined cost to income ratio boost PPP growth

NEUTRAL

Change from Previous( Rs)

INDUSIND Bank Vs Nifty


7.88

Nifty 6171

"NEUTRAL"13th Jan, 2014


7

Moderate deposits growth due to muted current and term deposits growth

In balance sheet front, bank reported moderate growth 10% YoY in deposits largely due

to stagnant growth in current account and term deposits. Demand deposits grew by 4%

YoY whereas saving deposits grew by 50% YoY. As a percentage of total deposits

demand deposits and saving deport were 15.7% and 16.5% versus 16.6% and 12.1% in

3QFY13 respectively. CASA ratio was remained flat at 29.6% from 31.4% in 2QFY14 and

28.7% in 3QFY13. Term deposited reported growth of 4.7% YoY to Rs.382 bn.

Loan growth higher than industry average and shifting of loan mix

Loan reported 27.4% YoY growth above industry average of 20% despite of slowdown in

economy. During quarter bank witnessed shifting of loan composition from consumer

finance division to corporate finance which would be result of margin compression and

deterioration asset quality. Consumer loan (which is generally high yielding in nature)

composition has changed to 47% of loan advance from 52% in 3QFY13 whereas

corporate banking division constitute 53% of loan. Corporate loans are generally in high

ticket size and in slowdown of economy; there is high chances of such loan slip into NPA.

But this quarter we note that bank is able to improve it yield in both front. Corporate yield

improved to 11.9% from 11.5% and retail loan improved to 15.6% from 15.5% in

sequential basis.

INDUSIND BANK


Better than expected profit on the back of healthy core earnings, lower CI ratio and

lower provision

With the support of healthy core earnings, improvement in cost income ratio and lower

provisions, net profit grew by 30% YoY to Rs. 347 cr as against our expectation of

Rs.303 cr largely due to higher than expected loan growth and operating leverage.

Healthy profit led ROA and ROE to 1.74% and 16.8% respectively.

Margin expansion of 10 bps YoY to 3.7%

Bank reported NIM expansion of 20 bps YoY to 3.7% largely due to improvement in loan

yield whereas cost of deposits remained flat. Going forward margin would be

compressed due to bank’s strategy to shift loan mix from consumer to corporate. Loan on

yield during quarter was 13.7% versus 13.5% in last quarter while cost of fund by and

large stable at 10%.


8

Fundamenatl Through Graph

INDUSIND BANK

Source: Eastwind/Company


NII profit led by higher loan growth and

margin expansion

Sequentail and yearly improvement of CI

ratio boosted PPP

Higher core earnings, improvement in CI ratio

and lower provisions support profit growth

higher than expecattion


9

INDUSIND BANK

Fundamenatl Through Graph


Valuation Band (1yr forward book value)

Loan growth higher than industry average

and moderate growth in deposits led by

muted current deposits and term deposits

Margin expansion of 10 bps on account of

increased in loan yiled and stable cost of fund

Trading at 1.5 times of one year forward

book which we believe fair looking at indsury

headwinds and economy



10


INDUSIND BANK

Quarterly Performance



Quarterly Result( Rs. Cr) 3QFY14 2QFY14 3QFY13 % YoY % QoQ

Interest/discount on advances / bills 1739 1611 1455 19.5 7.9

Income on investments 368 365 325 13.5 0.8

Interest on balances with Reserve Bank of India 36 42 21 71.9 -12.9

Others 0 0 0 333.3 -13.3

Total Interest Income 2143 2019 1800 19.1 6.2

Others Income 480 417 356 35.0 15.2

Total Income 2624 2435 2156 21.7 7.7

Interest Expended 1413 1319 1223 15.6 7.2

NII 730 700 578 26.4 4.3

Other Income 480 417 356 35.0 15.2

Total Income 1210 1117 934 29.6 8.4

Employee 206 202 168 22.1 1.9

Other Expenses 357 327 293 21.9 9.3

Operating Expenses 563 529 461 22.0 6.5

PPP( Rs Cr) 647 588 472 37.1 10.1

Provisions 126 89 79 60.3 42.0

PBT 521 499 393 32.5 4.4

Tax 174 169 126 38.1 3.2

Net Profit 347 330 267 29.8 5.0

Balance Sheet data( Rs. Bn)

Net Worth 8664 8313 7495 15.6 4.2

Deposits 56247 53058 51098 10.1 6.0

Borrowings 14771 13995 6567 124.9 5.5

Total Liabilities 81799 77422 67896 20.5 5.7

Investments 20134 19413 17594 14.4 3.7

Advances 52469 48968 42426 23.7 7.1

Total Assets 81799 77422 67896 20.5 5.7

Asset Quality

GNPA 626 546 422 48.3 14.7

NPA 165 109 125 32.0 51.0

% GNPA 1.2 1.1 1.0

% NPA 0.3 0.2 0.3

11

INDUSIND BANK

Financials & Assuptions




Income Statement 2011 2012 2013 2014E 2015Interest Income 3589 5359 6983 8308 10419

Interest Expense 2213 3655 4750 5521 6367

NII 1376 1704 2233 2787 4053

Change (%)

Non Interest Income 714 1012 1363 1775 1775

Total Income 2090 2716 3596 4562 5827

Change (%)

Operating Expenses 1008 1343 1756 2110 2855

Pre Provision Profits 1082 1373 1839 2452 2972

Change (%)

Provisions 504 180 263 455 535

PBT 577 1193 1576 1997 2437

PAT 577 803 1061 1320 1633

Change (%)

Balance Sheet 2011 2012 2013 2014E 2015EDeposits( Rs Cr) 34365 42362 54117 62234 74681

Change (%) 23 28 15 20

of which CASA Dep 9331 11563 15867 20537 22404

Change (%) 24 37 29 9

Borrowings( Rs Cr) 5525 8682 9460 15559 18670

Investments( Rs Cr) 13551 14572 19654 23338 28005

Loans( Rs Cr) 26166 35064 44321 54071 67589

Change (%) 34 26 22 25

Ratio 2011 2012 2013 2014E 2015EAvg. Yield on loans 10.8 12.0 12.7 0.0 12.5

Avg. Yield on Investments 5.4 7.4 6.5 6.6 6.5

Avg. Cost of Deposit 5.3 7.3 8.8 8.9 8.5

Avg. Cost of Borrowimgs 7.0 6.7 7.6 7.5 7.5

Valuation 2011 2012 2013 2014E 2015EBook Value 87 101 146 171 195

CMP 264 321 405 405 405

P/BV 3.0 3.2 2.8 2.4 2.1

12


Asset quality pressure continue to persist

Asset quality pressure is likely to remain in 3QFY14E due to rising interest rate, high

inflation and slower pace of economic growth. Gross slippages are expected to be

elevated as per most of banker. We expect restructure asset in private sector bank

would be less as compare to PSBs. With the implementation of FRP (route through

which loans lead to investment book), banks are expected to report lower less

restructure asset as against previous queerer. In worsen macroeconomic

environment, we expect asset quality to remain at the level of 2QFY14.

Private Bank Result Preview 3QFY14

Revenue growth would be moderate owing to tepid loan growth

Performance of banking sector is likely to remain modest in 3QFY14E as most of

private sector banks in our coverage are expected to reported muted net interest

income owing to tepid loan growth and stress in asset quality. However private sector

banks are expected to report stable asset quality on sequential basis as compare to

PSBs. Loan loss provision are expected to remain high due to higher restructure

assets are in pipeline as per some of key bank management. We expect impairment

of asset in private sector banks are less and slippages are expected to remain same

as in 2QFY14. We expect NII to grow by 23.6% YoY in our private banking

coverage universe. HDFC Bank and DCB are expected to report 34% and 22% YoY

in 3QFY14E led by higher than industry loan growth and stable NIM.

Operating leverage high provision dent net profit

Profitability of private sector banks are expected to report 11% YoY on the back of

loan loss provisions, MTM provisions, cost income ratio and lower core earnings.

HDFC bank and DCB are expected to report 23% YoY and 26% YoY growth in their

3QFY14E while most of large and mid cap banks are expected to report muted profit

growth. With the flow of FCNR deposits, we expect deposits cost to come down from

present level but most likely the bank get benefit from 4QFY14 and onwards.

Stock Performance During Quarter

Nifty Vs Bank Nifty during Quarter

Loan (Rs tn) and YoY Gr(%)

Muted loan growth reported by system

In 2QFY14 banking industry experience loan growth of 18% YoY led by transfer of

CP/CD borrowings to bank loans while in 3QFY14 loan growth has moderated to

15% YoY (as on 13th Dec.2013) due to revival of bond and lower demand of

corporate loan led by slowdown in economy. We expect loan growth of 15-20% YoY

growth in private sector while DCB and HDFC bank are expected to grow by

20%+YoY loan growth.

Deposits growth lead by flow of FCNR deposits

Deposits growth in the system registered 17% YoY growth as per RBI date (as on

13th Dec.2013) due to flow of FCNR deposits through RBI’s special concession

window. As per RBI data total fund inflow through FCNR is the tune of US$ 26 bn

which would help bank to keep cost of deposits low. But we expect bank would get

benefit from 4QFY14 and onwards. We expect lower cost of deposits of deposits in

private sector banks largely due to strong franchise base network. HDFC bank and

ICICI bank which have CASA of 40%+ would be benefited more than other banks in

term of low cost of fund. Through FCNR deposits we expect Yes Bank would be

leader but actual benefit would come from next quarter.


13

Broadly banking indices outperform Nifty by 6% in third quarter and most of banking

stocks are trading at attractive valuation. Despite of, we have caution view on account of

slowdown in economy, high interest rate and inflationary pressure. High inflation would be

risk for the economy going forward. Any rise in inflation would result of rise in interest

rate by RBI in its third quarter monetary policy review on 28th Jan.2014 which would be

negative for banking industry. Most of banking stocks are expected to report moderate

revenue and profit growth owing to multiple headwinds. In private sector banking

universe we like HDFC Bank, ICICI bank and DCB.

Axis Bank



Outlook

We expect Axis Bank to report 20% YoY loan growth and 12% YoY deposits growth.

Cost Income ratio is expected to be 42% while loan loss provision was remain same at

sequential basis. Profitability of bank would be muted on account of non improvement of

loan yield.

DCB

We expect loan and deposits growth of DCB would be higher than industry average.

Profitability would be grown on account of stable asset quality. We expect Cost to Income

ratio at 66% and NIM are expected to compression by >10 bps on sequential basis. Key

monitor able would be CI ratio.

HDFC Bank

We expect bank to report loan and deposits growth of 21% and 14% respectively. Asset

quality would be remained under control and profitability are expected to grow on account

of comfortable core earnings and stable asset quality. Operating leverage is expected to

be in better position.


Rs Cr 3QFY14E 2QFY14 3QFY13 % YoY Growth % QoQ Growth

NII 3006 2937 2495 20.5 2.3

PPP 2772 2750 2311 19.9 0.8

Net Profit 1333 1362 1296 2.9 -2.1

Axis Bank


NII 88 91 72 22.2 -3.3

PPP 42 40 32 31.3 5.0

Net Profit 34 33 27 25.9 3.0

DCB


NII 5087 4477 3799 33.9 13.6

PPP 3695 3387 3024 22.2 9.1

Net Profit 2289 1982 1859 23.1 15.5

HDFC Bank

14

YES Bank

We expect Yes bank to report muted earnings on account of high credit cost and

restructure assets. Loan growth and deposits growth are expected to be line with industry

average. We expect NIM compression on account higher cost of fund and lower loan

yield. NIM is key monitorable for the quarter.

Result Preview ; at a glance



ICICI BANK

We expect loan and deposits growth of 15% and 11% YoY for 3QFY14E respectively.

Revenue growth was due to hike of lending rate and asset quality is expected to be

stable on sequential basis. Operating leverage and cost of fund would be key

monitorable.

J&K BANK

J&K bank is expected to report 17.5% YoY profit growth on account of 20%+loan growth

and stable asset quality. We expect little bit higher of gross slippage during the quarter as

bank reported higher slippage in previous quarter. NIM would be expanded <10 bps

QoQ due to high loan yield and lower cost of fund likely to get benefit from CASA

deposits.



NII 4505 4044 3499 28.8 11.4

PPP 4235 3888 3452 22.7 8.9

Net Profit 2504 2352 2250 11.3 6.5

ICICI BANK


NII 679 682 594 14.3 -0.4

PPP 496 496 435 14.0 0.0

Net Profit 339 303 289 17.5 12.0

J&K BANK


NII 578 672 584 -1.0 -14.0

PPP 664 713 563 17.9 -6.9

Net Profit 358 371 342 4.7 -3.5

YES Bank

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

AXISBANK 3006 2772 1333 2937 2750 1362 2495 2311 1296 20.5 19.9 2.9 2.3 0.8 -2.1

CUB 207 152 71 190 141 84 163 131 85 27.0 16.0 -16.5 8.9 7.8 -15.5

DCB 88 42 34 91 40 33 72 32 27 22.2 31.3 25.9 -3.3 5.0 3.0

DHANBANK 96 22 0.72 82 18 -1.85 74 14 4 29.7 57.1 82.0 17.1 22.2 -138.9

FEDERALBNK 609 418 230 548 354 226 497 394 211 22.5 6.1 9.0 11.1 18.1 1.8

HDFCBANK 5087 3695 2289 4477 3387 1982 3799 3024 1859 33.9 22.2 23.1 13.6 9.1 15.5

ICICIBANK 4505 4235 2504 4044 3888 2352 3499 3452 2250 28.8 22.7 11.3 11.4 8.9 6.5

INDUSINDBK 657 561 303 700 588 330 578 472 267 13.7 18.9 13.5 -6.1 -4.6 -8.2

INGVYSYABANK 397 275 173 440 276 176 403 263 162 -1.5 4.6 6.8 -9.8 -0.4 -1.7

J&KBANK 679 496 339 682 496 303 594 435 289 14.3 14.0 17.5 -0.4 0.0 12.0

KARURVYSYA 308 186 41.5 298 157 83 308 212 113 0.0 -12.3 -63.3 3.4 18.5 -50.0

SOUTHBANK 374 255 131 364 212 127 353 235 128 5.9 8.5 2.3 2.7 20.3 3.1

YESBANK 578 664 358 672 713 371 584 563 342 -1.0 17.9 4.7 -14.0 -6.9 -3.5

Total 16591 13773 7808 15525 13020 7427 13419 11538 7033 23.6 19.4 11.0 6.9 5.8 5.1

PRIVATE BANK

YoY Growth QoQ Growth3QFY14E 2QFY14 3QFY13

GAIL

1M 1yr YTD

Absolute 0.6 -5.6 -5.0

Rel. to Nifty 1.7 -8.7 -20.0


Promoters 57.3 57.3 57.3

FII 17 16.7 16.3

DII 21.6 22 22.2

Others 3.9 3.9 4

Financials

2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-%

Revenue 13944.6 12855.6 8.5 11361.2 22.7

EBITDA 1405.5 1136.7 23.6 1380.3 1.8

PAT 915.7 606.5 51.0 985.4 -7.1

EBITDA Margin 10.1% 8.8% 120bps 12.1% (200bps)


15

1 yr Price Movement Vs Nifty

Rs, Crore



44,047

Average Daily Volume 399457


→Ministry of Petroleum and Natural gas has capped subsidy burden of Gail (India) at Rs

1400 Cr for FY'14.

→Capex incurred during H1FY'13 was Rs 2525 Cr as Rs 1500 Cr on Petrochemical, Rs

400 Cr on pipeline expansion, Rs 270 Cr on E&P and Rs 360 Cr towards equity

contribution.

→The company has commissioned Kochi pipeline on 25th August 2013.

→Company has shared Rs 698.68 Cr towards LPG subsidy in the quarter ended

September 2013 compared to Rs 785.67 Cr in the corresponding previous year period.

The LPG transmission was 1,428 TMT. The Natural Gas transmission was 97.25

MMSCMD, against 107.72 MMSCMD. The Natural Gas stood at 80.33 MMSCMD in

1HFY14 as against 81.92 MMSCMD in 1HFY3.

Highlights of Conference Call:

During 1HFY14, Petrochemical Production was 231 TMT, up by 20 % YoY it was 193

TMT in 1HFY13.The Petrochemical Sales were 229 TMT, up by 37 % against 167 TMT in

the corresponding period in the previous year. The LPG and Other Liquid Hydrocarbon

production were 685 TMT, against 684 TMT in 1HFY13.

CMP 348

Target Price

About The Company

Change from Previous

6168

Mkt Cap (Rs Crores)

Company Update Neutral

Upside

1HFY14 Production Highlights :

1HFY14 Financial Highlights :

Nifty

GAIL (India) Limited is a gas utility company. The Company is engaged in transport

through pipeline; manufacture of basic chemicals, fertilizer and nitrogen compounds,

plastics and synthetic rubber in primary forms; extraction of crude petroleum; extraction of

natural gas and electric power generation, transmission and distribution. The company

operates in five segments viz Gas Transmission Business ,LPG Transmission Business,

Gas Trading Business, Petrochemical Business and LPG and Liquid Hydrocarbon

Business.

Company registered a turnover of Rs. 26902.25 Cr, up by 19% in H1FY14 compared to

corresponding previous year period. There was fall of 10% in operating profits of the

company to Rs 2971.72 Cr for H1FY14. The Other income was down 8% to Rs 279.6 Cr

while Interest cost grew 99% to Rs 169.36 Cr, The net profits for H1FY14 was Rs

1723.84 Cr down by 19 %in comparison to 2HFY13.

The company during the first half of the current financial year, earned the revenues of Rs.

23,437 Cr from Natural Gas Trading up 24% YoY as compared to corresponding period

of the last year. The revenues from Natural Gas Transmission increased by 9% YoY to

Rs. 2,066 Cr for H1FY14. The net sales from LPG and Liquid Hydrocarbons business

increased by 11% YoY to Rs. 2,043 Cr as against Rs. 1,842 Cr for the same period of

last year. The net sales from Petrochemicals business increased by 54% to Rs 2,237 Cr

for 1HFY14. The revenues from LPG transmission increased by 72% to Rs. 189 Cr in

1HFY14.

Market Data

BSE Code 532155

NSE Symbol GAIL


Previous Target Price

Stock Performance

"NEUTRAL"

10th Jan' 14


16


Near-term gas supply visibility which may lead to under-utilization of new pipelines

The stock is currently trading at Rs 346 and business outlook going forward ,management

guidance does not provide us with much convincing thought .We donot see much upsides

attached with the stock in current business scenario. We therefore recommend NEUTRAL

view on the stock.

Continued → Projected Capex for FY'14 is Rs 5000 Cr and Rs 3500 Cr in FY'15.

→GAIL has shared Rs 698.68 Cr towards LPG subsidy in the quarter ended September 2013

compared to Rs 785.67 crore in the corresponding previous year period

Recent EventsGAIL management indicated that, MoPNG has in-principle agreed to provisionally cap GAIL’s

FY14 subsidy at INR14b, implying 2HFY14 subsidy to be nil. As per our view the final decision

will be post Finance Ministry consent.

Uncertainty on under recovery sharing

Risk & Concern


Graphical Dipiction

2QFY14 SEGMENTAL SALES TURNOVER

→ The company has borrowed Rs 585 Cr during Q2FY'14.

→ Total borrowings stood at Rs 10632 Cr at the end of September 2013 quarter-out of which

56% loan is foreign currency loan. Almost 90% of foreign currency loan is financially or

naturally hedged.

→ The company anticipates increase in gas availability in near future. It expects around 20-25

mmscmd of gas over a period of 3-4 years including 11-12 mmscmd of gas from domestic

sources and 10-15 mmscmd from LNG.

View and Valuation :

GAIL


17


EBITDA & OPM%


GAIL

SALES TREND

Sales increased by 22% YoY driven by higher

revenues from the natural gas

trading and petrochemical segments

Higher Depcreciation owing to capitalization

of assets with respect to new

pipelines and higher interest cost resulted in

a NPM decline


Adj PAT & NPM %



CMC

1M 1yr YTD

Absolute 15.0 29.2 40.0

Rel. to Nifty 15.4 24.6 35.8


Promoters 51.12 51.12 51.12

FII 23.32 21.84 19.87

DII 17.83 19.05 20.46

Others 7.73 7.99 8.55


Revenue 560.75 486.61 15.2 458.64 22.3

EBITDA 88.41 77.04 14.8 76.59 15.4

PAT 67.3 53.12 26.7 49.4 36.2

EBITDA Margin 15.8% 15.8% - 16.7% (90bps)


18

52wk Range H/L 1780/1107

Healthy Deal pipeline: The deal pipeline is in line with the last year. It indicated that

pursuing good number of deals in the Developed and as well emerging markets.

Considering current sound demand environment across geographies (like US and

Europe) and verticals Company is more optimistic for clients acquisition and deal

executions ahead.


We believe, CMC will continue with its efforts to enhance revenue contribution of high

margin System Integration (SI) and ITES segments. Further, its high focus on education

space will also add margin in near term. Considering recent healthy demand

environment across the IT space with favorable supply side scenario, we remain

confident on the stock for better earning visibility and stable margin picture.

Key things to watch: Outlook for deal pipeline, updates on SMAC(social, mobility,

analytics, cloud) and guidance on forward looking statement.

BSE Code 517326

NSE Symbol CMC


1 year forward P/E

Rs, Crore



Now, CMC is focusing on new emerging segments like IMS (Infrastructure

Management Services), Cloud, Big data, Mobility and Analytics. Considering its

impressive client as well as market response, company is expecting to quantify into

revenue. Its new and emerging projects like Mining Management System, GPS System

and Port & Cargo Management System would play a major role for generating

revenue.

View and Valuation: View and Valuation: CMC expects the growth momentum to

improve in the quarters ahead and the revenue growth to be higher than the NASSCOM

guidance in FY14. The Company remains a strong with excellent earning visibility led by

joint effort of market strategy by TCS (contributes 59% of sales) in its product and

solutions. Considering the company’s premium valuation, we advice “Book Profit” on

the stock. At a CMP of Rs 1657, stock trades at 16.3x FY14E earnings. Our view could

be change with management guidance and post earnings of coming quarter.

"On track to deliver"

CMP 1657

Target Price 1690

We had initiated this stock at a CMP of Rs 1208 (5th June 2013) and now, it achieved

its target of Rs1690, we advice to book profit on the stock because of its premium

valuation at current price. However, sentiment could take a knock in the short run,

since investors may prefer paying a premium for stock with better earnings visibility.1729

Upside -

For 3QFY14E, we expect to see 2-1.5% (QoQ) sales growth in USD term and 1-1.5%

(QoQ) in INR term, PAT is expected to decline by 2-3% (QoQ) led by a marginal growth in

the forex loss. We expect 50-100bps improvement in EBITDA margin to 15.5-16%,

sequentially.

Mkt Capital (Rs Crores)

Company update Book Profit

High Price (08.01.2014)

Market Data

Stock Performance

Change from Previous -

Nifty 6175

5020

"Book Profit"9th Jan, 2014


19

CMC



Financials;

Rating and Price Target Chart Updation Detail



Date Update Detail CMP View Target Price

5-Jun-13 Initiation 1208 BUY 1380

4-Jul-13 Company Update 1315 BUY 1490

18-Jul-13 Result Update 1318 BUY 1490

21-Oct-13 Result Update 1334 BUY 1490

20-Dec-13 Company Update 1510 BUY 1690

9-Jan-14 Company Update 1729 Profit Booking 1690

Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E

Net Sales 870.73 1084.40 1469.34 1927.87 2239.31 2600.41

Purchases of stock-in-trade 99.35 99.28 145.40 188.56 201.54 234.04

Employee Cost 276.16 345.13 440.22 521.65 593.42 702.11

Subcontracting and outsourcing cost 173.56 262.35 446.11 679.73 794.96 923.15

Other expenses 159.94 170.17 213.63 222.88 235.13 273.04

Total Expenses 709.01 876.93 1245.36 1612.82 1825.04 2132.34

EBITDA 161.72 207.47 223.98 315.05 414.27 468.07

Depreciation 9.85 10.46 21.37 23.20 41.95 60.69

Other Income 18.75 11.80 17.46 13.17 22.39 26.00

EBIT 151.87 197.01 202.61 291.85 372.33 407.38

Interest Cost 3.17 0.22 0.02 0.18 0.2 0.25

PBT 167.45 208.59 220.05 304.84 394.52 433.14

Tax 24.23 32.42 68.59 76.76 86.79 99.62

PAT 143.22 176.17 151.46 228.08 307.73 333.52

Growth-%

Sales -7.4% 24.5% 35.5% 31.2% 16.2% 16.1%

EBITDA 27.7% 28.3% 8.0% 40.7% 31.5% 13.0%

PAT 23.3% 23.0% -14.0% 50.6% 34.9% 8.4%

Margin -%

EBITDA 18.6% 19.1% 15.2% 16.3% 18.5% 18.0%

EBIT 17.4% 18.2% 13.8% 15.1% 16.6% 15.7%

PAT 16.4% 16.2% 10.3% 11.8% 13.7% 12.8%

Expenses on Sales-%

Employee Cost 31.7% 31.8% 30.0% 27.1% 26.5% 27.0%

Subcontracting Cost 19.9% 24.2% 30.4% 35.3% 35.5% 35.5%

Tax rate 14.5% 15.5% 31.2% 25.2% 22.0% 23.0%

Valuation

CMP 1340.0 2079.6 994.8 1410.0 1657 1657

No of Share 1.50 1.50 3.00 3.03 3.03 3.03

NW 510.68 654.02 772.19 946.26 1192.11 1454.91

EPS 95.48 117.45 50.49 75.27 101.56 110.07

BVPS 340.45 436.01 257.40 312.30 393.44 480.17

RoE-% 28.0% 26.9% 19.6% 24.1% 25.8% 22.9%


P/BV 3.94 4.77 3.86 4.51 4.21 2.78

P/E 14.03 17.71 19.70 18.73 16.32 15.05

KPIT Tech.

1M 1yr YTD

Absolute 24.7 64 57.2

Rel. to Nifty 25.5 61.1 54


Promoters 22.87 24.25 24.3

FII 36.42 32.79 30.8

DII 11.12 10.93 11.8

Others 29.59 32.03 33.1


Revenue 702.76 613.21 14.6 567.02 23.9

EBITDA 108.1 96.6 11.9 94.1 14.9

PAT 66.7 60.1 11.0 48 39.0

EBITDA Margin 15.4% 15.8% (40bps) 16.6% (120bps)

PAT Margin 9.5% 9.8% (30bps) 8.5% (100bps)

20

Share Holding Pattern-% Close to Revolo launch and working on cloud based IB tool: The unit has been in the

process of conducting trials in 40 vehicles. As per the management, by next year it could

be a part of revenue. It is also working on cloud based BI tools as well as Analytics tool

for opportunities in warranty management.

6162

For 3QFY14E, we expect to see 4% (QoQ) sales growth in USD term and 2.7% (QoQ) in

INR term, PAT is expected to grow by 3-4% (QoQ) led by a marginal growth in the forex.

We expect 50-100bps improvement in EBITDA margin to 16-16.5%, sequentially.

Key things to watch: Outlook of deal pipeline, Updates on SAP and Revolo, and

acquisition plan.

Stock Performance


Nifty

532400

NSE Symbol

Market Data

KPIT

3445Mkt Capital (Rs Crores)

"On billion dollar journey"

CMP 180

Target Price 177

Company update Book Profit We had initiated this stock at a CMP of Rs 115 (14 Jan 2013) and now, it achieved its

target of Rs 177. Despite better expectation of growth and attractive visibility of its

expansion through inorganic initiative and focus into emerging verticals, we advice to

book profit on the stock because of its premium valuation. However, sentiment could

take a knock in the short run, since investors may prefer paying a premium for stock

with better earnings visibility.

Previous Target Price -

Upside

Change from Previous -

The company expects better earnings, confident of generating a positive cash flow for

FY14E, after considering the balance payments for existing M&A deals.

KPIT ‘s Management is confident to report USD Revenue for FY14 to be in the range of

USD 465 Mn to USD 475 Mn, and INR PAT for FY14 to be in the range of INR 2,309 Mn to

INR 2,388 Mn. They expect better H2FY14E than H1FY14E. KPIT expects to close some

more deals in next quarter, which will again drive growth and expects the company’s

growth to be stronger in the 2H FY14E.

-

Price Performance

Rs, Crore



Robust pipeline of large deals: During the quarter, company closed 2 larges deals in

excess of USD 10 mn 1 in Europe and 1 in the US and have created a robust pipeline of

larger deals. We expect this large set of deals would reveal stronger 2HFY14

performance with judicious mix of volume and value growth.

We expect KPIT to grow its revenues at a CAGR of 24% over FY12-14E.Considering the

company’s premium valuation, we advice “Book Profit” on the stock. At a CMP of Rs

180, stock trades at 13.8x FY14E earnings. Our view could be change with

management guidance and post earnings of coming quarter.

View and Valuation: Despite all previous ups and down in IT sector, global demand

environment is on the way of recovery and growth. Impressive organic growth despite

inorganic thrust (acquired 10 companies in the last 10 yrs), Potential option value from

success of its hybrid engine venture Revolo (on trial) . KPIT has targeted to reach USD

1billion in revenues by 2017.


BSE Code

"Book Profit"7th Jan' 14


21


Financials


Rating and Price Target Chart Updation Detail

KPIT Tech


Date Update Detail CMP View Target Price

14-Jan-13 Initiation 115 BUY 145

29-Jan-13 Result Update 116 BUY 145

3-May-13 Result Update 106 BUY 145

5-Jul-13 Company Update 120 BUY 145

25-Jul-13 Result Update 132 BUY 145

13-Sep-13 Company Update 147 BUY 162

24-Oct-13 Result Update 144 BUY 162

22-Nov-13 Company Update 146 BUY 177

8-Jan-14 Company Update 180 Profit Booking 177

Rs, Cr FY10 FY11 FY12 FY13 FY14E FY15E

Net Sales-USD 153.76 224.07 306.71 410.46 465.00 558.00

Net Sales 731.64 987.05 1500.00 2238.63 2790.00 3320.10

Employee Cost 265.92 529.95 771.78 1140.79 1422.90 1726.45

Other expenses 304.70 308.82 511.97 762.32 906.75 1095.63

Total Expenses 570.62 838.77 1283.75 1903.11 2329.65 2822.09

EBITDA 161.02 148.28 216.25 335.52 460.35 498.02

Depreciation 30.80 41.12 44.49 47.16 62.58 88.34

Other Income 1.20 6.74 13.82 11.74 13.95 16.60

Extra Ordinery Items -26.45 0.00 10.05 -1.30 -45.17 16.60

EBIT 130.22 107.16 171.76 288.36 397.77 409.68

Interest Cost 2.74 3.78 7.32 13.99 21.37 18.61

PBT 102.23 110.12 188.31 284.81 345.17 424.28

Tax 16.91 15.49 43.67 76.55 93.20 116.68

PAT 85.32 94.63 144.64 208.26 251.98 307.60

PAT (excluding EO Items) 111.77 94.63 134.59 209.56 297.15 291.00

Growth-%

Sales -7.8% 34.9% 52.0% 49.2% 24.6% 19.0%

EBITDA -12.2% -7.9% 45.8% 55.2% 37.2% 8.2%

PAT 129.4% 10.9% 52.8% 44.0% 21.0% 22.1%

Margin -%

EBITDA 22.0% 15.0% 14.4% 15.0% 16.5% 15.0%

EBIT 17.8% 10.9% 11.5% 12.9% 14.3% 12.3%

PAT 11.7% 9.6% 9.6% 9.3% 9.0% 9.3%

Expenses on Sales-%

Employee Cost 36.3% 53.7% 51.5% 51.0% 51.0% 52.0%

Subcontracting Cost 20.8% 14.5% 17.2% 0.0% 0.0% 0.0%

Tax rate 16.5% 14.1% 23.2% 26.9% 27.0% 27.5%

Valuation

CMP 115.00 168.05 122.90 99 180 180

No of Share 7.90 8.70 17.80 19.28 19.28 19.28

NW 387.11 603.19 712.55 1036.23 1272.42 1557.46

EPS 10.80 10.88 8.13 10.80 13.07 15.95

BVPS 49.00 69.33 40.03 53.75 66.00 80.78

RoE-% 22.0% 15.7% 20.3% 20.1% 19.8% 19.8%


P/BV 2.35 2.42 3.07 1.84 2.73 2.23

P/E 10.65 15.45 15.12 9.17 13.77 11.28

IT Industry: 3QFY14E results preview

Key facts of 3QFY14E earnings:

Seasonal Impacts on (QoQ) earnings, while better on YoY:

Stable Margin and flat currency movement:

New discretionary spending:

Management commentary and forward looking statement:

↑6.9%

22

"As usual flattish 3rd quarter"


(Source: Eastwind)

Because of better economic scenario, demand environment expansion has taken place.

Now, domestic IT players have been able to retain its market share in US and successfully

improved its market share in Euro region, at a same point pricing pressure has turned out.

During the quarter, most of multimillion-dollar projects have been bagged from Euro

region. During the current fiscal, out of 27 large projects 11 orders deputed from Euro

(including UK) region and only 3 from US.

Post revealing 3QFY14E earnings, street will closely watch on the response of its clients

budgeting cycle to assess the strength of the demand environment and its sustainability.

Most of companies will comment on earning guidance, margin outlook and order pipeline

for FY15E. Taking recent attractive supply side scenario, we would like to see hiring

guidance and commentary on maintaining utilization rate and attrition rate.

CNX IT v/s USD/INR

(Source: Eastwind)


For 3QFY14E, Indian IT players would report muted earnings growth because of seasonal

weakness like furloughs and holidays impacts, already it is understood fact by

consensus. However, this quarter would report better earning and margin growth than

same quarters of last year. Because of stable currency movement, margin could be seen

flattish or marginally inched up.

Price performance of our coverage:

Index Performance:

Movement of INR-USD and Other Currencies v/s USD

(Source: Eastwind)

Post result, earning guidance for FY15E and forward looking statement by most of

companies would be considered as an important fact. Considering recent demand

environment scenario and healthy growth outlook of US and Europe, we are expecting

to see positive outlook on the sector for the year 2014.

For 3QFY14E, we expect to see lower rate of earning growth impacted by furloughs and

holidays, already YoY growth would be a favorable. The December quarter has

traditionally been a soft quarter for the IT sector. On USD term, revenue of top-4 IT

players could be reported at a range of 2-3.3% sequentially. We expect Tier-1 IT to report

constant-currency revenue growth of 1.4-3% (QoQ).

During the quarter, margin for IT Industry will largely be flattish or see marginal decline on

sequential basis. Across the tier-1 IT players, Infosys could improve its margin because of

cost rationalization and slow pace of currency benefit TCS will maintain its previous

quarters margin picture. While, margin of HCLTech and Mindtree could see some dip

because of wage hike during the quarter.


1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Average 44.65 45.73 50.84 50.29 54.09 55.19 54.14 54.17 55.93 62.08 61.97

Closing 44.59 48.86 53.08 51.4 56.8 52.85 54.97 54.28 59.54 62.59 61.84

Average 1.41 1.4 1.35 1.31 1.28 1.25 1.3 1.32 1.31 1.33 1.36

Closing 1.45 1.36 1.3 1.33 1.26 1.29 132 1.28 1.3 1.35 1.38

Average 1.62 1.61 1.57 1.57 1.57 1.58 1.61 1.55 1.54 1.55 1.61

Closing 1.61 1.57 1.55 160 1.56 1.62 1.62 1.52 1.51 1.6 1.66

Average 1.06 1.05 1.01 1.05 1.01 1.04 1.03 1.04 0.99 0.92 0.93

Closing 1.07 0.99 1.02 1.03 1.02 1.04 1.03 1.04 0.91 0.93 0.89

INR/USD

EUR - USD

GBP-USD

AUD-USD

↑59.5%

↑6.9%

↑13%

↑59.5%


Results preview

Forex loss as a hedging will reduce the net income growth.

We expect revenue growth of 2.2% in USD term for3rd qtr FY14E, sequentially.

23(Source: Company/Eastwind)


We expect company is likely to report 3.5% (QoQ) revenue growth in USD term. On a

constant currency basis, the growth will be 3% QoQ.

Margins are likely to decline marginally because of Flattish currency movement

Key things to watch - Comments on

volume, demand environment, deal

closures from US, pricing, and

discretionary spends.

Margin is expected to remain stable and benefits from cost optimisation initiatives are

offset by the negative impact of the rupee appreciation by 1.2% during the quarter.

We expect Infosys to increase their FY2014 guidance to ‘at least 12%’ from 9-10% earlier.

The company needs a quarterly run rate of average 2% for the next two quarters to

achieve 12% for FY14E.

Street would like to see some up

gradation in given revenue guidance

from 9-10% to 12% for FY14E.

The company had guided a strong 3QFY14 USD revenue growth guidance of 1.8-3.6% QoQ

for IT services .We expect IT services revenue growth to be closer to the higher end of this

range and to be 3% QoQ in USD terms.

The large deals won in the previous quarter are ramping up as expected and company

could reveal its orders pipeline.

Key things to watch – 4th quarter

revenue guidance, margin commentary,

visibility of growth/hiring in software

services.


TCS

Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%

Sales 16069.93 20977.24 21606.56 3.0% 34.5%

EBITDA 4660.49 6632.95 6300.3 -5.0% 35.2%

PAT 3549.6 4633.33 5096.66 10.0% 43.6%

EBITDA Margin 29.0% 31.6% 31.0% (60bps) 200bps

PAT Margin 22.1% 22.1% 23.6% 150bps 150bps

WIPRO


Sales 9587.5 10990.7 11342.40 3.2% 18.3%

EBITDA 2050.2 2503.8 2552.04 1.9% 24.5%

PAT 1598.1 1932 1984.16 2.7% 24.2%


PAT Margin 16.7% 17.6% 17.5% (10bps) 80bps

INFY


Sales 10424 12965 13069.1 0.8% 25.4%

EBIT 2677 3346.9 3424.1 2.3% 27.9%

PAT 2369 2407 2695.8 12.0% 13.8%

EBITDA Margin 25.7% 25.8% 26.2% 40bps 50bps

PAT Margin 22.7% 18.6% 20.6% 200bps (190bps)


14(Source: Company/Eastwind)


Expect revenue growth of 3% in $-term QoQ and margins to be down by 50-100bps which

is largely attributable to the wage hikes effective from October 1, 2013 for some

employees..

Key things to watch - outlook for

pricing/volumes and deal ramp up and

deal re bid, margin commentary,

visibility of growth/hiring in software

services.

We expect revenue growth guidance of 2.5% in USD term and and full integration of

Complex IT.

Expect margins to be don by 50-100bps (QoQ) - wage hikes deferred to 4QFY14

Key things to watch – Outlook for deal

pipeline, outlook on BT/AT&T (the

biggest clients), updates on SMAC(social,

mobility, analytics, cloud) and

comments on synergies

We expect revenue growth guidance of 1.5% in USD term and expect margin ramp up by

40bps.

Key things to watch – Outlook for deal

pipeline, updates on SMAC(social,

mobility, analytics, cloud) and guidance

on forward looking statement.

Expect 3% US$ revenue growth. Hexaware discontinued quarterly guidance since the

previous quarter.

Expect 30-50bps decline in margin.

Key things to watch: Key stance on

dividend policy, deal wins and revenue

growth momentum and outlook for

order win.


HCLTECH


Sales 6273.8 7961 8160.03 2.5% 30.1%

EBITDA 1416.6 2093 2080.81 -0.6% 46.9%

PAT 974.3 1416 1472.64 4.0% 51.1%



TECHM


Sales 3523.7 4771.5 4819.22 1.0% 36.8%

EBITDA 756.9 1110.85 1084.32 -2.4% 43.3%

PAT 455.9 718.2 754.11 5.0% 65.4%



CMC


Sales 492.97 560.75 566.36 1.0% 14.9%

EBITDA 83.2 88.41 87.79 -0.7% 5.5%

PAT 61.07 67.3 65.62 -2.5% 7.4%

EBITDA Margin 16.9% 15.8% 15.5% (30bps) (140bps)

PAT Margin 12.4% 12.0% 11.6% (40bps) (80bps)

HEXAWARE

Rs, Cr 4QCY12 3QCY13 4QCY13E (QoQ)-% (YoY)-%

Sales 507.52 621.1 629.17 1.3% 24.0%

EBITDA 109.02 147.74 147.86 0.1% 35.6%

PAT 66.20 98.7 103.64 5.0% 56.5%




We expect to see revenue growth by 4% (QoQ) in USD term.

View and valuation:

25Please refer to the Disclaimers at the end of this Report.

Key things to watch: Outlook of deal

pipeline, Updates on SAP and Revolo,

and acquisition plan.

We expect overall revenue growth at 3% in USD term due to healthy growth in IP led

business and $1mn HP deal.

PAT is expected to grow by 10% (QoQ) despite a marginal growth in margin due to the

forex gain of Rs 5-6 cr v/s 9 cr of same previous quarter.

Key things to watch: Commentary on

deal pipeline and contribution from IP-

led revenue

We expect the company to report 1% QoQ growth in USD terms. Due to the

lower other income, we expect the net income to decline by 5%.

Key things to watch: Updates on new

deal win, revenue traction from all

geographies & inorganic initiatives.

key macro indicators in US economy and recent interaction by Industry experts bring some optimistic view in the IT sector. The

meaning full recovery has been seen in US labor market. At the same time, business investment and consumer confidence appear to

be coming back. We believe, uptick in discretionary spend could be sustain over the next 12-18ms.

Commentary on demand outlook, deal pipeline and discretionary spending will be key topic to discuss post results. At a same,

management commentary would also be monitor able.

Hence, with strong medium term earnings visibility, better demand environment and optimistic management comments, we are

positive on (In order of preference) TCS, INFY, and HCL tech from large cap coverage and TECHM, eClerx and NIITTech from Mid cap

space.


KPIT


Sales 563.3 702.8 721.97 2.7% 28.2%

EBITDA 87.9 108.1 115.52 6.9% 31.4%

PAT 59.9 66.7 69.40 4.0% 15.9%

EBITDA Margin 15.6% 15.4% 16.1% 70bps 50bps

PAT Margin 10.6% 9.5% 9.7% (90bps) 120bps

PERSISTENT


Sales 333 432.4 436.06 1% 30.9%

EBITDA 82.4 100.8 104.65 4% 27.0%

PAT 49.5 60.8 66.88 10% 35.1%

EBITDA Margin 24.7% 23.3% 24.0% 70bps (70bps)


NIITTECH


Sales 514.4 587.3 593.50 1.1% 15.4%

EBITDA 81.3 88.6 86.06 -2.9% 5.9%

PAT 56.6 60.4 57.38 -5.0% 1.4%

EBITDA Margin 15.8% 15.1% 14.5% (60bps) (130bps)

PAT Margin 11.0% 10.3% 9.7% (60bps) (130bps)

CMP Upside

(06.01.14) % FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

TCS 2239.6 BUY 2360 5.4% 71.82 90.74 102.37 31.19 24.68 21.88 36.42% 36.22% 32.95%

INFOSYS 3514.2 BUY 3622 3.1% 164.2 181.1 208.2 21.40 19.40 16.88 24.8% 23.0% 22.2%

HCLTECH 1251.3 BUY 1415 13.1% 58.10 71.87 83.49 21.54 17.41 14.99 30.72% 29.10% 26.39%

WIPRO 558.05 NEUTRAL 450 25.0 25.15 27.4 22.28 22.19 20.37 21.7% 18.9% 17.8%

TECHM 1817.65 BUY 2330 28.2% 85.48 144.15 161.64 21.26 12.61 11.25 35.91% 38.31% 30.38%

CMC 1734.45 REDUCE 1693 75.27 101.56 110.07 23.04 17.08 15.76 24.10% 25.81% 22.92%

NIITTECH 379.85 BUY 408 7.5% 36.28 44.03 53.38 10.47 8.63 7.12 20.0% 19.6% 19.3%

KPIT 181.55 REDUCE 177 10.80 13.07 15.95 16.81 13.89 11.38 20.10% 19.80% 19.75%

HEXAWARE 138.65 BUY 141 1.4% 11.1 13.1 14.3 12.49 10.61 9.69 27.2% 27.0% 26%

PERSISTENT 990.05 REDUCE 960 46.12 63.40 76.92 21.47 15.62 12.87 18.1% 20.5% 20.4%

eCLERX 1064.6 BUY 1360 27.7% 64.25 71.61 83.65 16.57 14.87 12.73 43.8% 37.9% 34.4%

TATAELXSI 413.65 REDUCE 210 10.63 17.53 19.76 38.91 23.60 20.93 16.94% 23.55% 22.37%

ZENSARTECH 397.95 BUY 400 0.5% 40.03 57.16 74.62 9.94 6.96 5.33 23.22% 26.07% 26.34%

RoE-%Company View Target

EPS-Rs P/E-x

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