Stock Advisory for Today - Natural View on the Stock Dena Bank, Nestle India and Buy Vardhman Textiles

J&K BANK : "BUY" 20th Feb 2014

J&K Bank’s profitability increased by 11% YoY on account of reversal of provisions against NPA and investments, further on account of lower tax

rate profits inflated. Operating profit was flat at 1.4% YoY led by moderate NII growth which further led to margin compression. We lower our

price target to Rs.1525 from earlier of Rs.1578 which implies 1.3 times of FY14E book and 6 times of price earning.

.................................................................................... ( Page : 18- 22)

Britannia Inds :"Decent quarter" "BUY" 19th Feb 2014

Once again, Britannia Industries revealed better earning performance than street expectation. Its consolidated revenue grew by 10.7% (YoY) led

by 4-5% volume growth during the quarter.The company's margins are also likely to expand due to higher proportion of premium products and

easing input costs. We have "BUY" view on the stock with a target price of Rs 1065. At a CMP of Rs915, stock trades at 9.3x FY15E P/BV.

................................................. ( Page : 23-25)

DENA BANK : "Neutral" 24th Feb 2014

Bank’s performance was lower than our expectation in all fronts and reported very weak set of numbers. Operating as well as financials metrics

were remained muted. Profitability was declined by 67% YoY despite of tax reversal owing to muted growth in NII and higher operating

expenses. We are pessimist about the growth parameters. We have neutral view on the stock. .............................................................. ( Page :

8- 12 )

Considering the favourable export scenario and completion of capacity expansions, we remain positive on FY14. We, hereby, initiate our

coverage with Vardhman Textiles to BUY with a target price of Rs.412 . Currently the stock is trading at 0.8x p/b , we cut our Earning parameter

for FY15 and cut p/b to 0.7x for FY15 . Looking at the current earning growth and environment the stock is looking very good but due to lack of

trigeers in FY15 we are really conservative for FY15 . ................................................. ( Page : 5-7)

IEA-Equity

Strategy

eClerx Services :"Consistent Performer" "BUY" 18th Feb 2014

eClerx Services witnessed inline set of growth with 2.3 %(QoQ) sales growth in INR term and 4.7%(QoQ) in USD term (4% in CC term) led by

some preponement of volume of work from Q4 into Q3 which has resulted into the slightly higher sequential growth. Company’s high RoE and

dividend payout ratio make attractive to invest on the stock. ........................................................ ( Page : 26-28)

Bank of Baroda’s profitability was up by 3.6% YoY due to right back of depreciation provisions. Bank’s operating and financials metrics were

remained muted except healthy loan growth. Margin compressed sequentially but management guided domestic NIM of 3% from present of

2.95% which seems achievable if we look at balance sheet structure. We value bank at Rs.634/share which implies 0.75 times of FY14E’s book

value. ......................................................................... ( Page : 13- 17)

24th Feb, 2014

Edition : 212

BANKBARODA : "BUY" 21th Feb 2014

Vardhman Textiles : "BUY" 24th Feb 2014

Nestle India :"The nest becomes weaker" "Neutral" 24th Feb 2014

For 4QCY13, Nestle Ind reported below numbers than street expectations in all counts, sales grew by 4.7%(YoY) led by 3.7% domestic growth

and 20.9% export growth. Its domestic sales contribute 94% and exports 6% of sales. While, PAT marginally declined by 0.7% on YoY basis. At a

CMP of Rs 5043, stock trades at 15.9x P/BV of CY14E. We have a “Neutral” view on stock. .................................................................. ( Page : 2-

4)

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

Nestle India

5043

-

-

-

-

1M 1yr YTD

Absolute -3.7 10.7 3.4

Rel. to Nifty -1.0 7.4 1.8

Current 3QCY13 2QCY13

Promoters 62.8 62.8 62.8

FII 13.1 12.6 12.6

DII 5.9 6.3 6.2

Others 18.2 18.3 18.5

Financials Rs, Cr

4QCY13 3QCY13 (QoQ)-% 4QCY12 (YoY)-%

Revenue 2262.97 2360 -4.1% 2161.1 4.7%

EBITDA 478.3 503.9 -5.1% 504.1 -5.1%

PAT 287.1 289.6 -0.9% 289.2 -0.7%

EBITDA Margin 21.1% 21.4% (30bps) 23.3% (210bps)

PAT Margin 12.7% 12.3% 40bps 13.4% (70bps)

2

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

(Source: Company/Eastwind)

Stock Performance

For 4QCY13, Nestle Ind reported below numbers than street expectations in all counts,

sales grew by 4.7%(YoY) led by 3.7% domestic growth and 20.9% export growth. Its

domestic sales contribute 94% and exports 6% of sales. While, PAT marginally declined

by 0.7% on YoY basis. The company does not share volume growth numbers, but its

statement did mention that sales rose mainly because of higher prices and product

mix.

Average Daily Volume

Change from Previous

View and Valuation: Company’s less aggression on volume growth and the excessive

focus on Margin expansion make us cautious on the stock. At same time, company

believes on expansion of new plant set up by ignoring the dividend payout to

investors. Consistently, its RoE is on downward direction. At a CMP of Rs 5043, stock

trades at 15.9x P/BV of CY14E. We have a “Neutral” view on stock.

1 yr Forward P/B

Share Holding Pattern-%

21590

Nifty 6091

"The nest becomes weaker"

CMP

Market Data

Upside

Weak numbers and showing up magin as well…,

Target Price

Previous Target Price

For CY13, Company posted 9.2% sales growth, hugely impacted by weak consumer

demand and high competitive intensity environment, PAT up by 6%.

NESTLEIND Management will continue to focus on reinforcing the fundamentals of growth drivers.

Further, improve operational efficiencies, and keep rationalizing its SKUs. They are

very confident of strategy to deliver long-term sustainable profitable growth, despite

the short-term challenges.

Margin dip: During the quarter, company has been efficient to maintain its mark of

margin above than 20%. However, Margin ramp down by 210bps(YOY) to 21.1% because

of inflationary pressure on raw material. There was improvement in raw material cost by

110 bps to 46.1% of adjusted net sales. PAT margin inched down by 70bps(YOY) to

12.7%. For CY13, EBITDA Margin and PAT margin were flat at 22.2% and 13%.

Mix impact on RM Cost: Its top 3 inputs by value are milk and milk products, flour, and

palm oil, which together account for two-thirds of its material cost. Milk and wheat flour

have both seen prices increase, while a weak rupee has affected palm oil prices.

However, other inputs such as green coffee and sugar have seen softer price trends.

Jerk on Potential Market share: Nestle has been enjoying its leadership position (No.1)

in all categories except soups and its positioning in Chocolates, noodles, Coffee has

dominantly been unchallenged. Despite all facts, company has been facing many

challenges over the past one and half years from Cadbury's and Ferrero Rocher in

Chocolate, from HUL and ITC in noodles and from HUL in Coffee (Bru).

Nestlé’s more focus on margin stability could sacrifice its volume. Company’s cash cow

portfolio baby foods becoming weaker because of low ad spend. Now, Mead Jhonson

and Danone are dominating in same segment.

Result update NEUTRAL

48593Mkt Capital (Rs Cr)

52wk Range H/L 5865/4410

BSE Code 500790

NSE Symbol

"NEUTRAL"24th Feb' 14


3

Concerns: (1)Continued input cost pressure could impacts its margin, (2) Competitive

intensity impacting its market share adversely, (3) Any adverse impact of inflation on

consumer demand would significantly impact sales and earnings growth assumptions.


Sales and Sales Growth(%)




Domestic and Export sales-(% of Sales)

Catalysts and Concerns;

Catalysts: Nestle plays on “Urban consumption theme” and now urban consumption and

demand are stagnant. Thus, we see steady growth in near term, while we maintain that

Nestle is a great long-term story with excellent quality management, strong leadership

across several categories in the food segment and with brand portfolio, there are several

headwinds, which will keep volume growth muted.

Nestle India

RM inflation outlook appears adverse

and that could impact margins to hold

out.

Domestic revenue growth continues to

be very weak

Sales growth led by 4.7% (YoY) India

growth, contributed by net realization

and volume growth in certain product

categories

Margin-%


4



Nestle India

Financials


Rs in Cr, CY10 CY11 CY12 CY13 CY13E CY14E CY15E

Sales 6284.7 7526.6 8334.5 9101.1 9218.0 9904.9 10942.2

RM Cost 2560.1 2933.4 3756.9 3907.0 3871.6 4308.6 4814.6

Purchases of stock-in-trade 578.4 704.2 111.5 110.0 110.62 118.86 142.25

WIP (83) (48) (92) 105 175 99 131

Employee Cost 433.4 546.5 663.4 741.5 760 792.39 875.38

Ad Spend 302.6 327.6 355.9 391.3 488.6 435.8 492.4

Other expenses 1213.0 1474.2 1680.9 1826.3 1797.51 1931.45 2133.73

Total expenses 5004.7 5937.6 6476.5 7081.5 7203.9 7686.19 8589.64

EBITDA 1280.1 1589.0 1858.0 2019.6 2014.1 2218.69 2352.58

Depreciation and Amortisation 127.8 153.3 277.2 330.0 342.9 402.0 474.0

Other Income 12.7 15.1 31.0 83.1 73.7 49.5 87.5

EBIT 1165.0 1450.8 1611.9 1772.7 1744.9 1866.23 1966.08

Interest 1.1 5.1 26.6 36.5 36.0 59.7 83.7

PBT 1163.9 1445.7 1585.3 1736.2 1708.9 1806.5 1882.4

Tax Exp 326.5 426.4 484.7 560.9 564.0 578.1 611.8

PAT 837.5 1019.3 1100.6 1175.3 1145.0 1228.45 1270.62

Growth-% (YoY)

Sales 21.9% 19.8% 10.7% 9.2% 10.6% 8.8% 10.5%

EBITDA 20.5% 24.1% 16.9% 8.7% 8.4% 9.9% 6.0%

PAT 27.9% 21.7% 8.0% 6.8% 4.0% 4.5% 3.4%

Expenses on Sales-%

RM Cost 40.7% 39.0% 45.1% 42.9% 42.0% 43.5% 44.0%

Ad Spend 4.8% 4.4% 4.3% 4.3% 5.3% 4.4% 4.5%

Employee Cost 6.9% 7.3% 8.0% 8.1% 8.3% 8.0% 8.0%

Other expenses 19.3% 19.6% 20.2% 24.4% 19.5% 19.5% 19.5%

Tax rate 28.0% 29.5% 30.6% 32.3% 33.0% 32.0% 32.5%

Margin-%

EBITDA 20.4% 21.1% 22.3% 22.2% 21.9% 22.4% 21.5%

EBIT 18.5% 19.3% 19.3% 19.5% 18.9% 18.8% 18.0%

PAT 13.3% 13.5% 13.2% 12.9% 12.4% 12.4% 11.6%

Valuation:

CMP 3795.2 4569.3 4592.0 5189.0 5189.0 5043.0 5043.0

No of Share 9.6 9.6 9.6 9.6 9.6 9.64 9.64

NW 855.4 1274.0 1798.4 2368.8 2369.6 3050.2 3773.9

EPS 86.9 105.7 114.2 121.9 119.3 127.43 131.81

BVPS 88.7 132.2 186.6 245.7 246.8 316.4 391.5

RoE-% 97.9% 80.0% 61.2% 49.6% 48.3% 40.3% 33.7%

P/BV 42.8 34.6 24.6 21.1 21.0 15.9 12.9

P/E 43.7 43.2 40.2 42.6 43.5 39.57 38.26

Vardhman Textiles

341

412

NA

21%

NA

502986

Profitability at the pick to serve

2170

868

6155

1M 1yr YTD

Absolute -3.8 22.6 29.5

Rel. to Nifty -0.5 20.1 26.2

3QFY14 2QFY14 1QFY14

Promoters 61.9 61.7 61.6

FII 6.6 5.7 5.3

DII 17.2 18.2 18.9

Others 14.4 14.4 14.2

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

Net Revenue 1431 30.9 10.9 1093 1290

EBITDA 346 53.1 0.0 226 346

Depriciation 72 10.8 1.4 65 71

Interest Cost 31 -22.5 -11.4 40 35

Tax 68 83.8 9.7 37 62

PAT 175 108.3 -1.7 84 178(In Crs)

5

Company operates at EBITDA and net margin of 24.9% and 12.2% respectively, which

provides sufficient financial cushion against operating cost and financial expenses. With

liquidity being excellent and cash flows positive, current ratio at 2.58 and cash ratio at

0.47 offer no worries.

On a Strong earning foot..

VTL with its largest domestic capacity in terms of spindles, drives a significant por-tion of

its revenue from spinning segment. Company is one of the largest cotton yarn exporters

from India. Significant presence in Indian market and has emerged as a well known

supplier of the global market. Past few quarters were the turnaround for the company .

Company has strategic tie-ups with Japanese and Korean companies. Consistent

expansion and technological up-gradation has given a global status to the company. VTL

is the supplier of fabrics to the world’s leading brands such as Tommy Hil-figer, Esprit,

Gap, Louis Philippe, Arrow, etc

Vardhman Textiles Ltd (VTL), India’s leading textile player, reported a significant revenue

growth of 30.7% to Rs. 1431 Cr during Q3-FY14 over corresponding period previous year

on the back of 45.8% YoY increase in fabric business to Rs.522 Cr, which constitutes 35-

40% of the overall revenue. While yarn segment, which is the highest contributor of the

revenue, reported YoY growth of 30.5% to Rs.1182 Cr.

Nifty

Upside


Initial CoverageCMP

Target Price


Market DataBSE Code

VTL

Average Daily Volume (Nos.)

NSE Symbol

52wk Range H/L

Mkt Capital (Rs Crores)

410/241


Stock Performance-%


1 yr Forward P/B

Source - Comapany/EastWind Research

Operating profit of the company recorded substantial growth of 70.9% to Rs.274 Cr

during Q3FY14 yoy and outpaced the revenue growth due to significant control over

material cost, employee expenses and fuel charges. Material cost, which constitutes 60%

of the total expenses, grew at YoY rate of 22.9% to Rs.660 Cr. As a result, EBITDA and

operating profit margin re-ported a considerable improvement of 358bps and 455bps

during Q3FY14 yoy respectively. PAT reported the YoY growth of 109.6%, while PAT mar-

gin improved by 466bps.

VTL reported consistent and strong YoY growth in past several quarters with the average

growth rate of more than 20%. Company reported compounded quarterly growth of 3.5%

in past 10 quarters

Despite expansion and heavy CAPEX for capacity enhancement, VTL managed to reduce

its debt to equity on the back of significant expansion in reserves & surplus due to

phenomenal improvement in profit-ability in past several quarters.

"Buy"24th Feb' 14


Advantage India remains for most of FY14E

Business and its strategies

Views and Valuation

FY12 FY13 FY14E FY15E

4641 4972 6245 6682

2651 2316 2741 3007

460 559 647 702

386 486 887 1002

292 349 433 520

4025 3997 4709 5231

616 975 1536 1451

274 295 343 397

174 177 160 160

66 168 336 296

141 356 720 628

6 14 23 17

6

Other expences

Vardhman Textiles

VTL with its largest domestic capacity in terms of spindles drives a significant portion of

its revenue from spinning segment. Company is one of the largest cotton yarn exporters

from India. Significant presence in Indian market and has emerged as a well-known

supplier of the global market. Past few quarters were the turnaround for the company.

Company has strategic tie-ups with Japanese and Korean companies. Consistent

expansion and technological up-gradation has given a global status to the company. VTL

is the supplier of fabrics to the world’s leading brands such as Tommy Hilfiger, Esprit,

Gap, Louis Philippe, Arrow, etc

Chinese players imported yarn from India owing to the high cotton prices. This led to

the strong performance of Vardhman over the last three quarters. There is no clarity yet

on the policy to be followed by China. If the current scenario continues, Indian spinners

will continue to gain. However, if Chinese players are able to procure cotton at lower

prices, it will have a negative impact on the demand for Indian yarn. We, thereby,

remain conservative about our FY15 estimates.

Employee benefit Expence

Expenditure

EBITDA

Vardhman is geared to report a record profit in FY14. Despite weak macro-economic

scenario and recent expansion, VTL managed to report significant improvement in its

key metrics.Considering the favourable export scenario and completion of capacity

expansions, we remain positive on FY14. We, hereby, initiate our coverage with

Vardhman Textiles to BUY with a target price of Rs.412 . Currently the stock is trading at

0.8x p/b , we cut our Earning parameter for FY15 and cut p/b to 0.7x for FY15 . Looking

at the current earning growth and environment the stock is looking very good but due

to lack of trigeers in FY15 we are really conservative for FY15 .

P/L PERFORMANCE

Net Revenue from Operation

Cost Of Projects & Contractual

Power and fuel


Depriciation

Interest Cost

Tax

PAT

ROE%


FY10 FY11 FY12 FY13

57 63 63 63

1548 2202 2144 2444

1604 2264 2207 2506

2346 2925 2044 2100

297 20 505 778

3 3 5 6

87 123 116 84

26 30 48 64

5077 6103 5967 6789

0 0 18 22

2553 2534 2557 2679

45 156 185 213

77 111 92 147

1297 1933 1535 1784

476 667 630 746

262 71 84 65

272 395 326 475

5077 6103 5967 6789

FY10 FY11 FY12 FY13

1.0 0.7 0.6 0.7

45.3 82.5 22.2 56.0

14.2 15.1 13.6 15.0

2.6 2.8 2.5 1.7

3.9 4.4 3.3 3.6

FY10 FY11 FY12 FY13

640 933 576 843

-629 -902 444 -510

11 31 1020 333

-132 -456 -647 -517

10 234 -355 165

-111 -192 18 -19

7

Total liabilities

Intangibles

Cash and bank balances



Vardhman Textiles

Trade payables

Short-term provisions

Tangible assets

Capital work-in-progress

Long-term loans and advances

Inventories

Trade receivables

CASH FLOWS

B/S PERFORMANCE

Share capital

Reserve & Surplus

Total equity

Long-term borrowings

Short-term borrowings

Long-term provisions

Cash from Operation

Short-term loans and advances

Total Assets

RATIOS

P/B

EPS

Debtor to Turnover%

Creditors to Turnover%

Inventories to Turnover%

Trading At :

Changes In Working Capital

Net Cash From Operation

Cash From Investment

Cash from Finance

Net Cash Flow during year


51.55

57

55

11

-

1M 1yr YTD

Absolute -13.6 -50.3 -50.3

Rel.to Nifty -10.7 -53.9 -53.9

Current 4QFY13 3QFY1

3Promoters 66.6 55.2 55.2

FII 7.9 8.6 16.5

DII 4.9 7.3 8.1

Others 20.7 28.9 20.2

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1763 2101 2383 2551 3538

Total Income 2297 2683 3039 3410 4397

PPP 1224 1528 1739 1808 1627

Net Profit 612 803 810 445 502

EPS 18.3 22.9 23.2 9.5 10.7

8

Mkt Capital (Rs Cr)



Stock Performance

52wk Range H/L


DENA Bank Vs Nifty


1.16 lakh

Nifty 6155

Result update NEUTRAL

CMP

ANNUAL REPORT UPDATE

Target Price

Bank’s performance was lower than street expectation and disappointed in

most of operating metrics. GNPA remain high at 2.96% while net NPA were

1.97%. Provision coverage ratio (without technical write off) improved slightly

on sequential basis. Valuation wise, stock is trading at 0.4 times of one year

forward book which is quite reasonable. But looking at growth and operating

metrics, we believe bank would be trade in the range of 0.3 to 0.4 times of one

year forward book. We have neutral view on the stock with price target of

Rs.57.


1809


Market Data

Upside

103/42

BSE Code 532121

NSE Symbol DENABANK

DENA BANK

Provision and contingencies were up on the back of deteriorating asset quality

Higher operating expenses led negative growth in PPP

Operating expenses during quarter was higher at 32.5% YoY which escalated cost

income ratio to 63.4% versus 51.4% in last year. Bank’s employee cost and other

operating expenses both surged to 33% and 32% YoY respectively. This had make

down operating profit to Rs.371 cr (down by 16.3% YoY) versus Rs.443 cr in last

quarter and Rs.371 cr in previous quarter.

Provisions and contingencies were up by 44% QoQ on the back of deteriorating

asset quality. In absolute term gross NPA and net NPA both increased by 5% YoY

each. In percentage term GNPA and net NPA stood at 2.96% and 1.97 versus

3.04% and 2.02% in previous quarter. Cumulative provision was up by 4.7% which

slightly improved provisions coverage ratio without technical write off to 33.4% from

33.5% in 2QFY14. Dena Bank's Capital Adequacy Ratio as per Basel III norms stood

at 10.61% as against 10.21% in previous quarter.

NII grew at moderate pace owing to margin compression on Y-o-Y

Dena bank reported very weak set of numbers during quarter with NII grew by 7.5%

YoY to Rs.661 cr largely due to margin compression in year on year basis led by

higher cost of fund than fund yield. Higher cost of fund was due to 208 bps declined

in low cost franchise deposits. Other income was lower at 10.7% YoY to Rs.129 cr

versus Rs.144 cr in previous quarter. Total income was moderate at 4% YoY growth.

"NEUTRAL"24th Feb, 2014


9

Profitability declined despite of tax reversal

Profitability declined by 67% YoY due to reversal of tax to the tune of Rs. 79 cr as against

reversal of Rs.73 cr in previous quarter. At PBT level, bank was negative at Rs.12 cr

which was highly discouraging. This was basically due to moderate NII growth, higher

operating expenses and higher provisions.

Sequentially margin improved on the back of stable loan yield and slightly

increased of cost of deposits

NIM improved by 10 bps sequentially on the back of higher yield on advance than cost of

deposits. During quarter, bank’s yield on advances remained flat at 11.6% while yield on

investment improved by 4 bps QoQ to 7.6%. Cost of deposits increased by 5 bps QoQ to

7.6%. Going forward, management guided NIM at the range of 2.75% to 3%.

Deposits growth faster than loan growth

On balance sheet growth front, bank’s deposits grew by 13.2% YoY led by term deposits

which grew by 17% YoY. Current account deposits de-grew by 5% YoY while saving

account deposits grew by 9% YoY. Overall CASA ratio de-grew by 208 bps to 29%.

Bank’s loan grew by 11% YoY aided by agriculture and MSME segment which was grown

by 30.7% and 25.4% YoY respectively. Retail advance grew by moderate at 14.4% YoY.

Management guided loan growth of 15-17% for FY14. We model 15% loan growth and

6% deposits growth for FY14.

DENA BANK


Valuation & View

Bank’s performance was lower than street expectation and disappointed in most of

operating metrics. GNPA remain high at 2.96% while net NPA were 1.97%. Provision

coverage ratio (without technical write off) improved slightly on sequential basis.

Valuation wise, stock is trading at 0.4 times of one year forward book which is quite

reasonable. But looking at growth and operating metrics, we believe bank would be trade

in the range of 0.3 to 0.4 times of one year forward book. We have neutral view on the

stock with price target of Rs.57.


10

DENA BANK

Source: Eastwind/Company


NII grew by 7.5% YoY to Rs.661 cr largely due

to margin compression in year on year basis

led by higher cost of fund than fund yield.

Higher operating expenses led negative

growth in PPP

Profitability declined by 67% YoY due to

reversal of tax to the tune of Rs. 79 cr as

against reversal of Rs.73 cr in previous

quarter.


11

DENA BANK




Quarterly Result ( Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14EVariation(%)

Interest/discount on advances / bills 1848 1790 1742 6.1 3.2 1931 -4.3

Income on investments 654 644 519 26.0 1.4 666 -1.9

Interest on balances with Reserve Bank of India 3 9 3 -1.5 -70.1 9 -72.2

Others 30 7 0 7541.0 303.8 4 707.6

Total Interest Income 2534 2450 2264 11.9 3.4 2610 -2.9

Others Income 129 150 144 -10.7 -13.9 150 -14.0

Total Income 2663 2600 2408 10.6 2.4 2760 -3.5

Interest Expended 1873 1825 1649 13.6 2.6 1926 -2.8

NII 661 625 615 7.5 5.7 684 -3.3

Other Income 129 150 144 -10.7 -13.9 150 -14.0

Total Income 790 775 759 4.0 1.9 834 -5.3

Employee 255 251 192 32.8 1.6 225 13.4

Other Expenses 164 154 124 32.1 6.1 150 9.2

Operating Expenses 419 406 316 32.5 3.3 375 11.7

PPP( Rs Cr) 371 369 443 -16.3 0.4 458 -19.1

Provisions( Incl. tax provision) 382 335 157 144.2 14.1 351 8.9

PBT -12 34 286 -104.1 -134.2 107 -110.9

Tax -79 -73 80 -199.3 8.6 21 -470.0

Net Profit 68 107 206 -67.2 -36.9 86 -21.1

Balance Sheet Data (Rs Cr)

Deposits 96081 93669 84882

Saving Accounts 21983 21476 20216

Current Accounts 5786 5695 6083

Loan 69895 64785 63040

Asset Quality

GNPA (Rs Cr) 2066 1968 1317

NPA (Rs Cr) 1375 1309 817

GNPA(%) 2.96 3.04 2.09

NPA(%) 1.97 2.02 1.30

PCR(%) (Without technical writeoff) 33 34 38

12

DENA BANK




P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 3820 5161 6819 7421 8737

Income on investments 1193 1544 2019 2536 2307

Interest on balances with Reserve Bank of India 16 38 31 28 28

Others 4 51 30 50 50

Total Interest Income 5034 6794 8899 10035 11122

Others Income 534 582 655 859 859

Total Income 5567 7376 9555 10894 11981

Interest on deposits 3117 4528 6234 6583 7242

Interest on RBI/Inter bank borrowings 8 18 59 0 0

Others 145 147 223 228 342

Interest Expended 3270 4693 6516 7484 7583

NII 1763 2101 2383 2551 3538

NII Growth(%) 60.3 19.1 13.4 7.1 38.7

Other Income 534 582 655 859 859

Total Income 2297 2683 3039 3410 4397

Employee 688 715 792 978 1690

Other Expenses 385 440 508 625 1080

Operating Expenses 1073 1155 1300 1603 2770

PPP( Rs Cr) 1224 1528 1739 1808 1627

Provisions 612 725 706 1308 1000

Net Profit 612 803 810 445 502

Key Balance sheet dataDeposits 64210 77167 97207 102068 112274

Deposits Growth(%) 25.1 20.2 26.0 5.0 10.0

Borrowings 1692 3881 8414 6515 9763

Borrowings Growth(%) 8.3 129.4 116.8 -22.6 49.9

Loan 44828 56693 65781 72359 83213

Loan Growth(%) 26.4 26.5 16.0 10.0 15.0

Investments 18769 23028 34343 34203 38442

Investments Growth(%) 19.6 22.7 49.1 -0.4 12.4

Eastwind CalculationYield on Advances 8.5 9.1 10.4 10.5 10.5

Yield on Investments 6.4 6.7 5.9 7.4 6.0

Yield on Funds 7.4 8.0 8.1 9.4 9.1

Cost of deposits 4.9 5.9 6.4 6.5 6.5

Cost of Borrowings 9.0 4.2 3.4 3.4 3.5

Cost of fund 5.0 5.8 6.2 6.9 6.2

BANKBARODA

513

624

-

22

1M 1yr YTD

Absolute -18.8 -32.4 -32.4

Rel.to Nifty -15.3 -35.7 -35.7


3Promoters 55.4 55.4 55.4

FII 15.5 15.5 15.3

DII 19.6 19.6 19.0

Others 9.5 9.5 10.3

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 8802 10317 11315 12218 14122

Total Income 11611 13739 14946 16400 18304

PPP 6982 8581 8999 9206 10067

Net Profit 4242 5007 4481 4444 4819

EPS 108.3 121.8 106.4 105.5 114.4

13

Market Data

Upside

773/429

BSE Code 532134

CMP

ANNUAL REPORT UPDATE

Target Price


During quarter bank’s most of operating as well as financials was muted

except loan growth of 18% YoY. Asset quality was better among peers but in

tight liquidity situation it would remain challenging. Margin was compressed

slightly in sequential basis but management continued to guided domestic

NIM at 3% level from present of 2.95%. We value bank at Rs.634/share which is

0.75 times of FY14E’s book value.Change from Previous

BANKBARODA Vs Nifty


18.25 Cr

Nifty 6091

NSE Symbol BANKBARODA

Result update BUY

Moderate NII growth despite of healthy loan growth and stable CD ratio

Bank’s NII growth moderate at 7.8% YoY to Rs. 3057 cr despite of healthy loan

growth and stable CD ratio. This was due to margin compression of 28 bps YoY led

by lower loan yield than cost of fund. However bank has taken several steps to

reduce the cost as share of bulk deposits declined to 73.8% from 79.3% in last year

and liability franchise increased by increased by 556 bps YoY. Other income (11%

YoY) was supportively help to growth revenue by 8.4% YoY to Rs.3989 cr.

52wk Range H/L

Mkt Capital (Rs Cr)



Stock Performance


21627

Profitability increased by 3.6% YoY to Rs.1048 cr on account of higher tax provision

made by bank led by DTL special reserve as per suggestion by RBI. In 9MFY14,

total effective tax rate altogether came to 17%. Management guided tax rate for full

year would be 20-22%.

Higher operating expenses led de-growth in operating profit

Operating expenses increased by 25.7% in which employee cost increased higher by

32.3% YoY followed by 17.3% other operating expenses. This was result of

escalating cost to income ratio to 45% from 39% in last year. Higher cost income

ratio and moderate income growth led operating profit de-growth by 2.6% YoY to

Rs.2197 cr.

Provisions lower on account of right back of investment depreciation

Provisions and contingencies declined by 12% QoQ largely due to reversal of

provisions against investment depreciation to the tune of Rs.120 cr as against Rs.93

cr in previous quarter. Loan loss provision was by and large same as in previous

quarter and stood at Rs.819 cr versus Rs. 838 cr. With the reversal of provisions,

PBT increased by 17% YoY and 14% QoQ to Rs.1436 cr.

Profitability increased due to lower provisions

"BUY"21h Feb. 2014


14


Asset quality by and large stable, PCR increased

On asset quality front, bank’s gross NPA increased by 10% YoY and net NPA

deteriorated by 5% in absolute term led by higher provision in balance sheet. In

percentage term, GNPA and net NPA stood at 3.4% and 1.9% versus 3.2% and 1.9% in

previous quarter. Provisions coverage ratio without technical write off was improved by

246 bps QoQ to 44.5%. Bank’s asset quality was better than among peers under our

coverage universe.

Margin compression on account of higher cost of fund than fund yield

Valuation & View

During quarter bank’s most of operating as well as financials was muted except loan

growth of 18% YoY. Asset quality was better among peers but in tight liquidity situation it

would remain challenging. Margin was compressed slightly in sequential basis but

management continued to guided domestic NIM at 3% level from present of 2.95%. We

value bank at Rs.634/share which is 0.75 times of FY14E’s book value.

NIM compressed by 5 bps QoQ to 2.37% due to stable loan yield while cost of fund

increased marginally by 10 bps to 5.4%. Bank has taken several steps to curtail cost by

reducing share of bulk deposits and increasing CASA ratio. Domestic NIM improved to

2.95% versus 2.85% in previous quarter whereas oversea NIM remained flat at 1.18% as

against 1.19%. Domestic NIM improvement was on account of higher investment yield to

7.98% from 7.9% on sequential basis.

Loan growth healthy led by SME and retail

Overall deposits de-grew by 4% YoY led by 10% declined of term deposits on year on

year basis. Current account and saving account deposits registered growth of 19% and

13% YoY respectively. This was the result of CASA ratio increased by 556 bps YoY to

26.2%. Loan grew by 18% YoY led by SME growth of 39.2% YoY followed by 21% YoY

growth retail. Corporate loan growth remained intact as bank’s has caution outlook

towards corporate exposure in tight economy scenario.

BANKBARODA


15

BANKBARODA

Source: eastwind/Company


Bank’s NII growth moderate at 7.8% YoY to Rs.

3057 cr despite of healthy loan growth and

stable CD ratio. This was due to margin

compression of 28 bps YoY led by lower loan

yield than cost of fund

Higher operating expenses led de-growth in

operating profit

Profitability increased due to lower provisions


16

BANKBARODA




Quarterly Result (Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E

Interest/discount on advances / bills 7061 6832 6485 8.9 3.3 7173

Income on investments 2175 2220 1898 14.6 -2.0 2350

Interest on balances with Reserve Bank of India 245 281 403 -39.2 -12.8 397

Others 209 140 58 258.2 50.1 173

Total Interest Income 9691 9473 8845 9.6 2.3 10092

Others Income 932 974 841 10.9 -4.3 1102

Total Income 10623 10447 9686 9.7 1.7 11194

Interest Expended 6634 6579 6004 10.5 0.8 6792

NII 3057 2895 2841 7.6 5.6 3300

Other Income 932 974 841 10.9 -4.3 1102

Total Income 3989 3869 3681 8.4 3.1 4402

Employee 1056 1030 798 32.3 2.5 1189

Other Expenses 736 714 627 17.3 3.1 792

Operating Expenses 1792 1744 1426 25.7 2.7 1981

PPP( Rs Cr) 2197 2125 2256 -2.6 3.4 2421

Provisions 762 861 1029 -26.0 -11.5 897

Exceptional Items 16 16 12 25.0 0.0 0

PBT 1436 1264 1227 17.0 13.6 1524

Tax 372 80 203 83.7 364.7 457

Net Profit 1048 1168 1012 3.6 -10.3 1067

Balance Sheet Date( Rs Cr)

Equity Capital 423 423 412 2.5 0.0

Reserve & Surplus 35232 35127 30966 13.8 0.3

Net Worth 35654 35549 31379 13.6 0.3

Total Deposits 503772 484931 414733 21.5 3.9

Borrowings 29304 28558 27899 5.0 2.6

Other liabilities and provisions 18638 13995 14552 28.1 33.2

Total Liability 587368 563033 488563 20.2 4.3

Cash in hand 16742 15681 17147 -2.4 6.8

Cash and balances with RBI 87599 79980 58295 50.3 9.5

Total Investment 115210 111840 101848 13.1 3.0

Advances 352446 339855 299318 17.7 3.7

Fixed Assets 2562 2498 2399 6.8 2.6

Others Assets 12809 13179 9557 34.0 -2.8

Total Assets 587368 563033 488563 20.2 4.3

Asset Quality

GNPA( Rs Cr) 11926 10888 7321

NPA(Rs Cr) 6624 6316 3363

% GNPA 3.4 3.2 2.4

% NPA 1.9 1.9 1.1

% PCR (without technical writeoff) 44.5 42.0 54.1

17

BANKBARODA




Income Statement 2011 2012 2013 2014E 2015EInterest Income 21886 29674 35197 39065 45206

Interest Expense 13084 19357 23881 26847 31084

NII 8802 10317 11315 12218 14122

Change (%) 48.2 17.2 9.7 8.0 15.6

Non Interest Income 2809 3422 3631 4182 4182

Total Income 11611 13739 14946 16400 18304

Change (%) 32.8 18.3 8.8 9.7 11.6

Operating Expenses 4630 5159 5947 7194 8237

Pre Provision Profits 6982 8581 8999 9206 10067

Change (%) 41.5 22.9 4.9 2.3 9.4

Provisions 1331 2555 4168 3559 4043

PBT 5650 6026 4831 5647 6024

PAT 4242 5007 4481 4444 4819

Change (%) 38.7 18.0 -10.5 -0.8 8.4

Balance SheetDeposits( Rs Cr) 305439 384871 473883 521272 573399

Change (%) 27 26 23 10 10

of which CASA Dep 87589 103524 119981 135531 149084

Change (%) 23 18 16 13 10

Borrowings( Rs Cr) 22308 23573 26579 33273 36600

Investments( Rs Cr) 71261 83209 121394 122000 134200

Loans( Rs Cr) 228676 287377 328186 367568 404325

Change (%) 31 26 14 12 10

RatioAvg. Yield on loans 8.0 8.7 8.4 8.6 9.3

Avg. Yield on Investments 7.0 7.8 6.4 7.3 8

Avg. Cost of Deposit 4.3 5.1 5.2 5.2 5.4

Avg. Cost of Borrowings 5.5 6.7 5.4 5.5 5.5

Valuation

Book Value 536 668 759 846 929

CMP 963 794 652 513 513

P/BV 1.8 1.2 0.9 0.61 0.6

J&K BANK

1329

1525

1578

15

-3

1M 1yr YTD

Absolute -4.6 2.1 2.1

Rel.to Nifty -1.8 -1.8 -1.8


3Promoters 53.2 53.2 53.2

FII 28.2 27.1 24.8

DII 4.5 4.3 5.0

Others 14.1 15.4 17.1

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1544 1838 2316 2724 3356

Total Income 1908 2172 2800 3097 3728

PPP 1149 1370 1811 1952 2349

Net Profit 615 803 1055 1271 1535

EPS 105.7 126.9 165.7 217.6 262.2

18

532209

NSE Symbol J&KBANK

Loan grew by 21.5% YoY led by loan growth in J&K state by 25% YoY and 19% YoY

growth in outside state. Incremental loan came from corporate loan book which grew

by 23.4% YoY followed by agriculture (21.2% YoY) and SME (21% YoY). Corporate

loan constituted 83% in outside J&K sate, mostly infrastructure segment which has

high risk of restructure. Bank’s management guided loan growth of 20% in FY14

which means bank has to achieve 9% QoQ growth in loan as against quarterly run

rate of 5%.We lower our loan growth assumption from 20% to 15% in FY14E. Credit

deposits ratio improved by 611 bps YoY largely due to lower deposits growth as

against loan.

Margin compression on account of higher cost of fund than deposits

BSE Code

Moderate growth in deposits; CASA remained flat

Bank’s deposits grew by 11% YoY in which 12% growth within state of J&K while

deposits grew by 7% YoY in outside of state. CASA in absolute term reported growth

of 9% YoY while share to total deposits declined by 65 bps YoY 38.8%. Saving

deposits and current deposits registered growth of 5% and 10% YoY respectively

whereas term deposits reported growth of 12% YoY. Despite of lower growth in

CASA bank’s cost of deposits remain stable at 6.6% while cost of fund increased by

16 bps YoY.

Loan grew handsomely led by corporate loan growth

1496/995

Mkt Capital (Rs Cr)

CMP

Target Price

We are disappointed with the growth parameters of bank and accordingly

reduce our target price from Rs.1578 to Rs.1525 due to lower growth in

balance sheet especially within state of Jammu & Kashmir. Bank’ profitability

was up by 11% due to reversal of provisions towards NPA and investment

depreciation while tax rate reduce to 28% versus 30% in last year. Bank’s

management continued to guide loan growth of 20% in FY14 but we lower our

loan growth assumption to 15% for FY14. We value bank at Rs.1525/share

which implies that 1.3 times of FY14E book value and 6 times of price

earnings.


Company Update BUY


Market Data

Upside



Stock Performance

52wk Range H/L

J&k Bank Vs Nifty


22.54lakh

Nifty 6153

Bank’s margin compressed by 36 bps QoQ to 3.97% due to 41 bps QoQ declined of

loan yield to 11.7% while deposits cost increased by 47 bps to 6.6%. Investment

yield improved by 55 bps to 7.7%. Overall cost of fund increased to 6.6% from 6.2%

in previous quarter whereas yield on fund improved slightly from 9.8% to 9.9% which

compressed margin by 36 bps sequentially.


6419

"BUY"20th Feb, 2014


19

We are disappointed with the growth parameters of bank and accordingly reduce our

target price from Rs.1578 to Rs.1525 due to lower growth in balance sheet especially

within state of Jammu & Kashmir. Bank’ profitability was up by 11% due to reversal of

provisions towards NPA and investment depreciation while tax rate reduce to 28% versus

30% in last year. Bank’s management continued to guide loan growth of 20% in FY14 but

we lower our loan growth assumption to 15% for FY14. We value bank at Rs.1525/share

which implies that 1.3 times of FY14E book value and 6 times of price earnings.

J&K BANK



Stable asset quality; PCR highest in industry

On asset quality front, bank’s GNPA increased by 2% QoQ in absolute basis while in

percentage to gross advance, it slightly improved from 1.72% to 1.67% sequentially.

During quarter, bank lowered its provisions by 1% which was the result of increased of

net NPA by 25% QoQ in absolute term. However in percentage to net advance, it stood

at 0.22% as against 0.19% in previous quarter. Fresh slippage ratio was at 1.4 %(

annualized) during quarter which was lower from previous quarter of 1.9%. Provisions

coverage ratio remained high at 86.6% (without technical write off) which was best in

industry in our coverage universe.

Moderate growth in NII despite of healthy loan growth

Bank’s NII grew by 8.8% to Rs.647 cr despite of healthy loan growth and improvement in

CD ratio led by margin compression. Other income was also lower to Rs.87 cr versus

Rs.91 cr in last quarter and Rs.99 cr in previous quarter. With the lower support from

other income, total revenue grew by 7.2% YoY to Rs.734 cr.

Higher operating expenses led flat growth in operating profit

Operating expenses increased by 17% YoY in which employee cost and other operating

cost increased by 15% and 22% YoY respectively. Consequently CI ratio increased by

340 bps to 40%. Moderate loan growth, lower other income and higher operating cost led

pre provisioning growth of 1.4% YoY.

Profitability increased on account of reversal of provisions and lower tax rate

Profitability increased by 11% YoY to Rs.321 cr despite of flat operating profit growth was

due to reversal of provisions towards NPA and depreciation. Bank’s provisions and

contingencies declined by 121% YoY due to Rs. 13 cr reverse from NPA provision and

Rs.5 cr reverse from investment depreciation provision. Tax rate was also lower to 28%

versus 31% in previous quarter and 30% in last quarter. We are disappointed with growth

parameters of profit and loss account. Bank’s balance sheet within J&K state especially

in deposits growth sense remained muted while credit growth grew handsomely. Overall

we found mixed growth trend which discourage us to reduce price target.

Valuation & View


20

J&K BANK



Moderate growth in NII despite of healthy

loan growth

Higher operating expenses led flat growth in

operating profit

Profitability increased on account of reversal

of provisions and lower tax rate


21

J&K BANK




Quaterly Result (Rs. Cr) 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation(%)

Interest/discount on advances / bills 1266 1244 1090 16.2 1.7 1322 -4.3

Income on investments 434 396 421 3.2 9.7 423 2.6

Interest on balances with Reserve Bank of India 16 10 23 -31.4 60.2 13 16.6

Others 0 0 0 0

Total Interest Income 1716 1650 1533 11.9 4.0 1759 -2.5

Others Income 87 99 91 -3.4 -12.1 96 -8.8

Total Income 1803 1749 1624 11.0 3.1 1855 -2.8

Interest Expended 1069 968 939 13.8 10.4 1022 4.6

NII 647 682 594 8.8 -5.2 738 -12.3

Other Income 87 99 91 -3.4 -12.1 96 -8.8

Total Income 734 781 685 7.2 -6.0 834 -11.9

Employee 188 177 164 14.7 6.3 180 4.3

Other Expenses 105 108 86 22.3 -2.5 120 -12.2

Operating Expenses 293 285 250 17.3 2.9 300 -2.3

PPP( Rs Cr) 441 496 435 1.4 -11.2 533 -17.4

Provisions -5 56 22 -120.6 -108.3 48 -109.5

PBT 445 441 412 8.0 1.1 485 -8.2

Tax 124 138 123 0.9 -10.1 145 -14.7

Net Profit 321 303 289 11.0 6.2 339 -5.4

Balance Sheet Data ( Rs Cr)

Net Worth 5797 5475 4898 18.3 5.9 5815 -0.3

Deposits 63157 61171 57075 10.7 3.2 65907 -4.2

Borrowings 1150 1346 801 43.6 -14.6 1579 -27.2

Advances 43318 41121 35658 21.5 5.3 44081 -1.7

Investment 22714 22316 22681 0.1 1.8 24200 -6.1

Asset Qaulity ( Rs Cr)

GNPA 725 709 582 24.7 2.3

NNPA 97 78 50 95.7 24.9

GNPA(%) 1.67 1.72 1.63

NNPA(%) 0.22 0.19 0.14

PCR(%) 87 89 91

22

J&K BANK




P/L 2010 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 2342 2630 3394 4318 5046 5703

Income on investments 705 1066 1403 1723 1713 1983

Interest on balances with Reserve Bank of India 11 17 39 97 56 56

Total Interest Income 3057 3713 4836 6137 6816 7742

Others Income 416 365 334 484 372 372

Total Income 3473 4078 5170 6621 7188 8114

Interest on deposits 1841 2069 2902 3741 3987 4386

Interest on RBI/Inter bank borrowings 83 46 41 26 101 139

Others 14 54 54 54 0 0

Interest Expended 1938 2169 2997 3821 4092 4386

NII 1119 1544 1838 2316 2724 3356

NII Growth(%) 37.9 19.1 26.0 17.6 23.2

Other Income 416 365 334 484 372 372

Total Income 1536 1908 2172 2800 3097 3728

Employee 366 524 521 652 675 814

Other Expenses 211 235 281 337 469 566

Operating Expenses 577 759 802 989 1144 1379

PPP( Rs Cr) 958 1149 1370 1811 1952 2349

Provisions 446 534 567 756 137 156

Net Profit 512 615 803 1055 1271 1535

Net Profit Grwoth(%) 20.1 30.6 31.4 20.5 20.8

Key Balance sheet dataDeposits 37237 44676 53347 64221 66789 73468

Deposits Growth(%) 20.0 19.4 20.4 4.0 10.0

Borrowings 1100 1105 1241 1075 1363 1884

Borrowings Growth(%) 0.4 12.3 -13.4 26.8 38.2

Loan 23057 26194 33077 39200 45080 51843

Loan Growth(%) 13.6 26.3 18.5 15.0 15.0

Investments 13956 19696 21624 25741 24535 21099

Investments Growth(%) 41.1 9.8 19.0 -4.7 -14.0

Eastwind CalculationYield on Advances 10.2 10.0 10.3 11.0 11.2 11.0

Yield on Investments 5.0 5.4 6.5 9.4 7.0 9.4

Yield on Funds 7.7 7.5 8.3 8.9 9.8 10.6

Cost of deposits 4.9 4.6 5.4 5.8 6.1 6.0

Cost of Borrowings 8.8 9.1 7.7 7.4 7.4 7.4

Cost of fund 5.1 4.7 5.5 5.9 6.0 5.8

ValuationBook Value 621 718 844 1003 1146 1412

P/BV 1.1 1.2 1.1 1.3 1.2 0.9

P/E 6.4 6.9 5.5 5.9 5.1 4.2

Britannia Inds

1M 1yr YTD

Absolute 1.7 86.9 34.57

Rel. to Nifty 3.8 82.8 18.27


Promoters 50.75 50.8 50.85

FII 20.11 19.11 19.48

DII 8.77 9.59 9.89

Others 20.38 20.5 19.78

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

Revenue 1771.94 1755.27 0.9 1620.4 9.4

EBITDA 159.7 160.4 (0.4) 103.5 54.3

PAT 99.8 97.1 2.8 62 61.0

EBITDA Margin 9.0% 9.1% (10bps) 6.4% 260bps

PAT Margin 5.6% 5.5% 10bps 3.8% 180bps

23

Upside 16%

Change from Previous -

1 year forward P/BV

Rs, Crore



View and Valuation: Management also believes that volume growth will recover

gradually over the next few quarters, driven by higher brand spends and portfolio

expansion. The company's margins are also likely to expand due to higher proportion of

premium products and easing input costs. We have "BUY" on the stock with a target

price of Rs 1065. At a CMP of Rs915, stock trades at 9.3x FY15E P/BV.

Healthy distribution reach: The Company is also taking initiative to increase its rural

distribution reach for benefitting the opportunity of increasing consumption of food

products in rural markets. The company plans to increase its overall distribution

coverage by around 7-8% every year and rural coverage by around 10% every year.

"Decent quarter"

CMP 915

Target Price 1065

Consistency on witnessing better numbers with Margin expansion:Result update BUY

Once again, Britannia Industries revealed better earning performance than street

expectation. Its consolidated revenue grew by 10.7% (YoY) led by 4-5% volume growth

during the quarter. Even, company has hiked the prices of some of its brands during

the quarter. PAT grew by 61% (YoY) because of its effective cost rationalization efforts.

The management expects the biscuit business to grow by 10-11% in FY14E, whereas

the non-biscuit business to grow at a faster rate by 20-25% in FY14E. Over the last few

quarter, company has more focused on its product portfolio expansion. We expect

that new products expansion is likely to increase going forward. By judicious mix of

cost rationalization and high value added biscuits, we expect its margin expansion

gradually over next couple of quarters.

No pressure on RM cost: High food price inflation remains a concern for the company.

Thankfully, Britannia doesn’t import much raw materials from abroad and is thus not

affected by rupee fluctuations. Its strategy of focusing on premium brands has not only

allowed the company to hike prices but also improve its product mix as well.

Market DataBSE Code 500825

NSE Symbol

52wk Range H/L 973/478

10967

Average Daily Volume 248428

Previous Target Price -

Pricing and Promotion: During the quarter, company initiated its price hike of some of

its brand. The full benefit of these prices hikes will be seen in the March quarter. Its

strategy of focusing on premium brands has not only allowed the company to hike prices

but also improve its product mix as well.

BRITANNIA


Nifty 6127

Mkt Capital (Rs Crores)

Stock Performance

Margin Pickup: EBITDA Margin improved by 250 bps to 8.9%. The operating profit has

increased by 54% mainly due to decline in raw material cost by 420 bps to 54.7% and

purchase of stock in trade by 100 bps to 7.3% of adjusted net sales. The company also

expects to track margin expansion ahead by judicious mix of cost rationalization and

increasing supply chain efficiency.

"BUY"19th Feb' 14


24

Britannia Inds.

Sales and Sales growth-%(YoY)

Entry into new categories like cereals will

also help drive growth. Consequently, the

company's earnings are expected to grow

20% over the next 2 years.


Sale of Land in Chennai and Banglore could result in Value unlocking: The company

plans to sell off its 8.60 acres industrial land in Chennai,which is located at Madras

Thiruvallur High (MTH) Road, Padi, Chennai. We expect the company to realize around

Rs120 crores to Rs150 crores from this land sale when it happens. Further the company

has another 5.0 acres prime real estate land in Bangalore at old airport road which can

fetch around Rs 350 crores.

volatility on key input (wheat, sugar, palm

oil) would prices directly impact its

margin picture,

The company's margins are also likely to

expand due to higher proportion of

premium products and easing input costs.


Expenses on Sales-%



Margin-%


25


Britannia Inds.

Financials




Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Net Sales 3770.84 4589.73 5460.75 6135.91 6869.15 7693.45

Other Operating Income 63.53 19.65 24.62 49.5 68.69 76.93

Total income from operations (net) 3834.37 4609.38 5485.37 6185.41 6937.84 7770.38

Raw Materials Cost 2416.78 2714.38 3109.12 3350.51 3722.15 4196.01

Purchases of stock-in-trade 0 328.91 437.68 518.51 520.34 543.93

WIP 0 -15.68 -14.03 -7.57 -76.32 -77.70

Employee Cost 157.9 177.49 211.15 226.75 270.58 310.82

Advertisement and Publicity 300.96 332.84 419.6 534.28 610.53 660.48

Other expenses 728.57 834.76 1010.98 1142.39 1255.75 1398.67

Total expenses 3604.21 4372.7 5174.5 5764.87 6303.03 7032.20

EBITDA 230.16 236.68 310.87 420.54 634.81 738.19

Depreciation 58.23 64.91 61.83 73.15 84.12 100.50

Other Income 0 59.01 59.14 52.24 27.75 38.85

EBIT 171.93 230.78 308.18 399.63 578.44 676.54

Interest Cost 23.46 43.63 41.6 41.3 8.88 4.10

Profit (+)/Loss (-) Before Taxes 148.47 187.15 266.58 358.33 569.57 672.45

Provision for Taxes 5.58 52.94 66.85 98.55 176.57 208.46

Net Profit (+)/Loss (-) 142.89 134.21 199.73 259.78 393.00 463.99

Sales 10.2% 21.7% 19.0% 12.4% 12.0% 12.0%

EBITDA -16.8% 2.8% 31.3% 35.3% 51.0% 16.3%

PAT -0.3% -6.1% 48.8% 30.1% 51.3% 18.1%

RM Cost 63.0% 58.9% 56.7% 54.2% 53.7% 54.0%

Ad Spend 8.0% 7.3% 7.7% 8.7% 8.9% 8.6%

Employee Cost 4.1% 3.9% 3.8% 3.7% 3.9% 4.0%

Other expenses 19.3% 18.2% 18.5% 18.6% 18.3% 18.2%

Tax rate 3.8% 28.3% 25.1% 27.5% 31.0% 31.0%

EBITDA 6.0% 5.1% 5.7% 6.8% 9.2% 9.5%

EBIT 4.5% 5.0% 5.6% 6.5% 8.3% 8.7%

PAT 3.7% 2.9% 3.6% 4.2% 5.7% 6.0%

CMP 1599.5 382.6 459.9 504.7 915.0 915.0

No of Share 2.39 11.95 11.95 11.95258 11.97 11.97

NW 282.8 326.04 409.17 555.58 829.55 1174.50

EPS 59.79 11.23 16.71 21.73 32.83 38.76

BVPS 118.33 27.28 34.24 46.48 69.30 98.12

RoE-% 50.5% 41.2% 48.8% 46.8% 47.4% 39.5%

Dividend payout-% 126.4% 51.8% 45.1% 45.5% 30.3% 25.7%

P/BV 13.5 14.0 13.4 10.9 13.2 9.3

P/E 26.8 34.1 27.5 23.2 27.9 23.6

Growth-% (YoY)

Valuation:

Margin-%

Expenses on Sales-%

eClerx Services

1M 1yr YTD

Absolute 20.4 26.3 30.6

Rel. to Nifty 14.6 20.5 16.3


Promoters 52.95 52.88 53.13

FII 26.21 22.37 21.38

DII 11.27 14.72 14.80

Others 9.57 10.03 10.69

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

Revenue 219.5 214.6 2.3 170.8 28.5

EBITDA 88.81 92.8 (4.3) 66.8 32.9

PAT 62.33 67.91 (8.2) 49 27.2

EBITDA Margin 40.5% 43.2% (270bps) 39.1% 140bps

PAT Margin 28.4% 31.6% (320bps) 28.7% (30bps)

26

Average Daily Volume 18894

View and Valuation: We expect that company’s organic revenue growth remains soft in

near term, and company is very focussed on inorganic growth and expect to see growth

from cable business . Furthermore, stable billing rate will support to maintain margin.

Company’s high RoE and dividend payout ratio make attractive to invest on the stock.

At a CMP of Rs 1212, stock trades at 12.5x FY15E earnings, we recommend ”BUY”

view on the stock with a target price of Rs 1410 (revised from Rs 1350) .

On demand environment, it indicated that there is no significant change and expects

to grow same pace of 10-15% in USD terms in the medium term. On margins, it

indicated that it will continue to operate in the mid 30% going forward. It continues to

look at inorganic opportunities.

Margin declined and expects to maintain stablity on demand: The OPM fell by 310 bps

QoQ to 37% on the back of rise in Selling and Distribution costs due to increase in onsite

headcount, bonus and commission and travel. Accordingly, PAT margin down by 270bps

to 28.6%, sequentially. Management is very confident to maintain its PAT margin at 30-

31% in near term.

Good growth from Financial Services: The Cable business grew faster on the low base,

Financial Services also grew fast during the quarter. In the Cable business, there is lot of

demand for its services. The digital and digital market has lot of demand and is another

key area.

Growth from Emerging revenue: It added 2 clients during the quarter. The Revenue

growth from Top 5 grew by 8% YoY and Emerging grew by 35% QoQ respectively during

the quarter. The Emerging revenue has continued to outpace growth in strategic clients

in line with firm strategy.

Approval on SEZ: The SEZ approval received for new floor in Airoli and planned go live

on April 2014 (600 Seats). It is discussing additional floors in Airoli to consolidate

Mumbai facilities, subject to regulatory approval. During the quarter, the Final payment

is done for Agilyst acquisition (for the total acquisition cost ~ $21 million) during the

quarter.

Nifty 6048

Market DataBSE Code 532755

NSE Symbol ECLERX

Stock Performance

1 year forward P/E

Rs, Crore




Mkt Capital (Rs Crores) 3701

52wk Range H/L 1255/599

"Consistent Performer"

CMP 1212

Target Price 1074

Result update Inline numbers , and expects to report better than NASSCOM guidance(FY14E);

eClerx Services witnessed inline set of growth with 2.3 %(QoQ) sales growth in INR

term and 4.7%(QoQ) in USD term (4% in CC term) led by some preponement of volume

of work from Q4 into Q3 which has resulted into the slightly higher sequential growth .

It expects some impact of this on Q4 growth. While, PAT decline by 7.2%, sequentially.Change from Previous 22%

Buy

Previous Target Price 881

Upside -11%

"BUY"18th Feb' 14


(1) The billing rates expected to be flat to slight uptick for the FY15E.

(2) Expect to see similar set of environment in FY 15E than FY14.

(4) Tax rate is expected to see at 23% mark in FY15E.

(5) It continues to look at inorganic opportunities.

(6) Expects to maintain 51% of payout ratio.

27


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

forward.

Key Facts from Cnference Call

Margin-%


Employee Metrics-%

Attrition decreased from 36% (2QFY14) to

31.8% .



eClerx Services.

Sales (USD) and Sales growth-%(QoQ)

On $term, Sales growth was up by 4.7%

(QoQ) and 2.3% on INR term,


28



Financials;

eClerx Services.

Operating Metrics;


Sales Mix-Geography 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

North America 70% 70% 71% 75% 75% 74% 74% 74% 74%

Europe 24% 23% 20% 19% 18% 21% 21% 21% 21%

RoW 6% 7% 9% 6% 7% 5% 5% 5% 5%

Client Concentration 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Top-5 86% 87% 80% 79% 78% 78% 76% 75% 74%

Client addition 8 10 8 4 7 6 5 5 2

Total Clients 53 55 54 54 60 73 61 65 65

DSO,days 52 29 30 41 31 33 35 41 33

Billing Mix 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

FTE 94% 95% 93% 93% 92% 91% 94% 95% 95%

SEZ Revenue 67% 72% 62% 58% 59% 60% 60% 60% 60%

Employee Metrics 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Employee Utilization 72% 72% 68% 68% 69% 69% 66% 65.0% 66%

Attrition - 30.9% 23.2% 30.2% 26.5% 27.3% 25.2% 36.4% 31.8%

Total Employee - 4405 5545 5760 5837 5954 6389 6543 6620

Employee Cost 39% 45.1% 42.4% 46.0% 45.0% 45.2% 44.1% 42.2% 43.6%

Rs, Cr FY11 FY12 FY13A FY14E FY15E

Sales 366.12 495.19 660.58 852.54 1020.87

Empolyee Cost 147.65 203.87 295.28 370.00 449.18

Other expenses 59.87 79.28 108.47 130.44 158.24

EBITDA 158.6 212.04 256.83 352.10 413.45

Dep 9.13 12.89 25.53 33.10 43.10

EBIT 149.47 199.15 231.3 319.00 370.35

INT 0 0 0 0.00 0.00

Other Income 0 0 0 28.99 10.21

PBT 149.47 199.15 231.3 347.98 380.56

Tax 16.76 39.47 39.34 83.52 91.33

PAT 132.71 159.68 191.96 264.47 289.22

Growth-%

Sales-% 39.5% 35.3% 33.4% 29.1% 19.7%

PAT-% 80.5% 20.3% 20.2% 37.8% 9.4%

Margin-%

EBITDA 43.3% 42.8% 38.9% 41.3% 40.5%

EBIT 40.8% 40.2% 35.0% 37.4% 36.3%

PAT 36.2% 32.2% 29.1% 31.0% 28.3%

Expense on Sales-%

Employee cost-% 40.3% 41.2% 44.7% 43.4% 44.0%

Other expenses-% 16.4% 16.0% 16.4% 15.3% 15.5%

Tax Rate% 11.2% 19.8% 17.0% 24.0% 24.0%

Valuations

CMP 783.95 625 650 1212 1212

OS.Cr 2.9 2.958 2.9875 2.99 2.99

EPS 45.76207 53.9824 64.2544 88.52 96.81

NW 238.32 342.92 438.32 615.20 816.84

BVPS 82.17931 115.93 146.718 205.93 273.42

P/E (x) 17.131 11.5778 10.116 13.69 12.52

P/BV (x) 9.54 5.39 4.43 5.89 4.43

RoE-% 55.7% 46.6% 43.8% 43.0% 35.4%

Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph

033-32011233 Toll Free no : 1-800-345-4000

email: [email protected],

website : www.narnolia.com

Risk Disclosure & Disclaimer: This report/message is for the personal information of

the authorized recipient and does not construe to be any investment, legal or taxation

advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any

action based upon it. This report/message is not for public distribution and has been

furnished to you solely for your information and should not be reproduced or

redistributed to any other person in any from. The report/message is based upon publicly

available information, findings of our research wing “East wind” & information that we

consider reliable, but we do not represent that it is accurate or complete and we do not

provide any express or implied warranty of any kind, and also these are subject to change

without notice. The recipients of this report should rely on their own investigations,

should use their own judgment for taking any investment decisions keeping in mind that

past performance is not necessarily a guide to future performance & that the the value of

any investment or income are subject to market and other risks. Further it will be safe to

assume that NSL and /or its Group or associate Companies, their Directors, affiliates

and/or employees may have interests/ positions, financial or otherwise, individually or

otherwise in the recommended/mentioned securities/mutual funds/ model funds and

other investment products which may be added or disposed including & other mentioned

in this report/message.

Economy & Finance

Stock Advisory for Today - Natural View on the Stock Dena Bank, Nestle India and Buy Vardhman Textiles