Trade advisory services for Today Buy Stock of Hindustan Zinc LTD

IEA-Equity
Strategy

India Equity Analytics

21th Jan, 2014

Daliy Fundamental Report on Indian Equities

Hindustan Zinc LTD : Good gains ahead

"BUY"

Edition : 188
21th Jan 2014

Hindustan Zinc’s (HZL) Q3FY14 performance was inline to our estimates on the back of healthy zinc sales volumes and higher metal premiums.
Total operating income for Q3FY14 stood at Rs. 3450.1 crore higher by 8.6% YoY but lower by 3.1% QoQ. Total zinc sales in Q3FY14 came in at
196,000 tonne, up 17% YoY and 2% QoQ . Being an integrated & dominant player in the domestic industry with low cost of production, the
company is poised to benefit in the long run. We reaffirm our positive stance on HZL and assign a BUY rating to the stock with a target price of
Rs. 148/-. .................................................. ( Page : 2-4)

TCS :" Strong Fundamentals"

"BUY"

20th Jan 2014

TCS witnessed inline set of numbers with 1.5%(QoQ)of consolidated sales growth led by 1.8% volume growth.We continue to believe that TCS
will be star performer in growth sense than other peers. Hence, we are maintaining 18% revenue growth in dollar term for FY14E because of
improved demand environment, while NASSCOM expects 12-14% for the Industry.We maintain" BUY" view on the stock and we revised our
target price from Rs 2360 to Rs 2510. ...................................... ( Page : 5-7)

HDFC Bank

"BUY"

20th Jan 2014

HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters growth trajectory that it had witnessed but remain very impressive in
challenging macro environment. Bank is well poised in most of operating parameters like CASA ratio of 45%+, higher than industry credit
growth, best asset quality among peers, better utilization of cash in form of higher CAR ratio for further growth, consistent delivered margin
above of 4%. We continue to believe bank would enjoy valuation premium. We value bank at Rs.760/share which is 4 times of one year FY14E’s
book value ...................................... ( Page : 8-12)

FEDERAL BANK :

"BUY"

20th Jan 2014

Federal bank’s profitability grew by 9.2% YoY on the back of lower provisions led by improving asset quality and comfortable high provision
coverage ratio. But bank’s operating and financials metrics remained muted, this has resulted of negative growth at operating profit level. We
slightly tweak our book value estimate to Rs.82.2 from earlier of Rs.78. We value bank at Rs.98/share which is 1.2 times of FY14E’s book value
and 8.5 times of forward earnings........................................... ( Page : 13-17)

DB CORP : "On Strong Footing"

"BUY"

20th Jan 2014

Considering its long-term growth story with favorable earning scenario and leadership position in key market, we are positive on the stock. We
maintain “BUY” view on the stock with the target price of Rs 340. At a CMP of Rs 301, stock trades at 4.1x of FY15E P/BV.
.............................................................. ( Page : 18-20)

ITC : " Accessing the growth"

"BUY"

20th Jan 2014

Strong set of numbers, sales grew by 13.1% (YoY) led by robust sales across its FMCG and Paper and Packaging divisions. Cigarette volume
declined by 2%(YoY) because of price hike by 18% in premium brand. PAT up by 16.3%, YoY. ITC offers the best earnings visibility in the sector
especially when sector peers are confronting multiple challenges. The premium valuations enjoyed by ITC, at the CMP of Rs 325, the stock trades
at 8.2x FY15E P/BV seems justified from a growth point of view. We maintain ” BUY” with a price target of Rs 380.
........................................................................... ( Page : 21-23)

HCLTECH : "Retain confidence"

"BUY"

17th Jan 2014

HCL tech beats expectations with a sustained momentum in volumes and proved its consistency to maintain its margin at 26% mark; Sales grew
by 2.8% (QoQ) in INR term and 4% (QoQ) in USD term led by 4.6% of growth from Infrastructure services and BPO services. Considering the
increasing discretionary spends across the geographies like US and Europe, we expect healthy earnings performance ahead. At a CMP of Rs
1392, stock trades at 17.5x of FY14E earnings, We retain BUY on the stock and revised our target price from Rs 1194 to Rs1560.
............................................... ( Page : 24-26)
Narnolia Securities Ltd,

Hindustan Zinc LTD.

"BUY"
21st Jan' 14

Good gains ahead
Result Update

BUY

CMP
Target Price
Previous Target Price
Upside
Change from Previous

135
148
143
10%
3%

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
Average Daily Volume (Nos.)
Nifty

500188
HINDZINC
143/94
56133
5613
6291

Stock Performance-%
1M
4.3
0.0

Absolute
Rel. to Nifty

1yr
-1.7
9.2

YTD
-3.4
11.3

Share Holding Pattern-%
3QFY14
64.9
1.8
31.4
1.8

Promoters
FII
DII
Others

2QFY14 1QFY14
64.9
64.9
1.8
1.5
31.4
31.5
1.8
2.1

1 yr Forward P/B
450

400
350
300
250
200

150
100
50

Jul-13

Jan-14

Jul-12

Jan-13

Jul-11

Jan-12

Jul-10

Jan-11

Jul-09

Jan-10

Jul-08

Jan-09

Jul-07

Jan-08

Jan-07

0

Source - Comapany/EastWind Research

The attorney-general’s clearance for the Centre’s proposal to divest its residual stake in
Hindustan Zinc Ltd (HZL) lifted the Street’s mood. As the government holds 29.5 per cent
(minority) stake in HZL, the attorney-general said HZL was no longer a public sector
company. With the majority 64.92 per cent stake with Vedanta, the group will be eyeing
the government’s stake as well as the remaining 5.58 per cent owned by others.
A reason to wait and watch , is since the government is looking at auction, how much will
Vedanta be able to garner and what price it is willing to pay is not known. In the past it
has said it wanted majority control when Vedanta had earlier offered Rs 149 a share (13.7
per cent more than the current price). If this is any benchmark, investors stand to gain.
Q3FY14 Performance :
Hindustan Zinc’s (HZL) Q3FY14 performance was inline to our estimates on the back of
healthy zinc sales volumes and higher metal premiums. Total operating income for
Q3FY14 stood at Rs. 3450.1 crore higher by 8.6% YoY but lower by 3.1% QoQ. Total zinc
sales in Q3FY14 came in at 196,000 tonne, up 17% YoY and 2% QoQ . The company
realised premium on metal sales amounting to ~US$241/tonne for zinc (Zn) &
~US$305/tonne for lead (Pb) . Lead sales volume for the quarter stood at 23500 tonnes
(lower by 24% QoQ and 22% YoY), while silver sales volumes stood at 78500 kg (lower by
31% YoY and 14% QoQ) . EBITDA came in at Rs.1823.8 crore and inline to our estimate of
Rs. 1829.6 crore. Subsequently, net profit stood at Rs. 1722.7 crore . Being an integrated
& dominant player in the domestic industry with low cost of production, the company is
poised to benefit in the long run. We reaffirm our positive stance on HZL and assign a
BUY rating to the stock with a target price of Rs. 148/-.

Investment Concern
HZL’s revenues are directly linked with the global market for products essentially, Zinc
and Lead which are priced with reference to LME prices and Silver to LBMA (London
Bullion Metal Association) prices.
Disruptions in mining due to equipment failures, unexpected maintenance problems ,
non-availability of raw materials of appropriate price, quantity and quality for our energy
requirements, disruptions to or increased cost of transport services or strikes and
industrial actions or disputes.Lower than expected demand by galvanizing industries for
zinc and industrial batteries, car batteries industries for lead would affect the company
estimates.
Financials :
Q3FY14
Y-o-Y %
Q-o-Q %
Q3FY13
Q2FY14
Net Revenue
3450
8.6
-9.8
3178
3826
EBITDA
1824
22.1
-3.1
1883
1494
Depriciation
210
18.6
12.9
186
177
Tax
305
50.2
20.1
254
203
PAT
1723
6.8
5.1
1640
1613
(In Crs)

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

2

Hindustan Zinc LTD.
Silver(rs/ounce)

Nov-13

Dec-13

Nov-13

Dec-13

Nov-13

Dec-13

Oct-13

Sep-13

Jul-13

Aug-13

Jun-13

Apr-13

May-13

Feb-13

Mar-13

1800
1600
1400
1200
1000
800
600
400
200
0
Jan-13

LME Price/Ton
Lead

Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

May-13

Apr-13

Mar-13

160000
140000
120000
100000
80000
60000
40000
20000
0

Feb-13

From the Management Corner :
Volatile Desel Price and high Sulphuric acid price affecting the company,s PAT
adversly.Company is tracking on 95% capacity utilization.Captive plants enjoy the lower
Tax rate and company enjoys zero tax from tax free geographycal areas. Smelting Plants
are improvised and management is confident that the smelting plants will maintain
their stance for the coming quarters also.
Outlook and valuation:
With a cash-rich balance sheet and strong visibility over production growth of zinc, lead
and silver over FY2013-15, we are positive on HZL.The Rampura Agucha underground
mine project is operational via ramps (tunnel driven downward from the surface) and
commercial production already ramp up in Q3 and will in Q4 of FY14 . The Kayad mine
project will also commence commercial production in the current fiscal year. A cash-rich
balance sheet, low cost of production and inexpensive valuations make HZL an
attractive bet at the current price levels.HZL’s integrated business model ensures steady
cash flow, which reiterates our positive stance on the company.we Valuing the stock at
this level, we recommend BUY rating on HZL with a target price of Rs.143-148 for FY14.

LME Price/Ton

Jan-13

Lower Production Guideline
HZL has marginally downward revised its mined metal production guidance for FY14
from 950,000 tonnes earlier to 900,000 tonnes. This reflects slower-than-expected
ramp up of underground mining projects and some changes in mining sequence
wherein preference has been given to primary mine development during this period.


LME Price/Ton
Zinc


Oct-13

Sep-13

Aug-13

Jul-13

Jun-13

125000
120000
115000
110000
105000
100000
95000
90000

May-13

FY14E
13577
1787
15364
1291
707
6484
7093
718
37
1097
6967
19.0

Apr-13

FY13
12700
2032
14732
1070
696
6218
6482
647
29
921
6899
21.0

Mar-13

FY12
11405
1543
12948
1228
568
5336
6069
611
14
1419
5526
21.0

Feb-13

FY11
9912
979
10891
1023
492
4417
5496
475
19
1059
4900
22.0

Jan-13

P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income
Power, fuel & water
Repairs
Expenditure
EBITDA
Depriciation
Interest Cost
Net tax expense / (benefit)
PAT
ROE%


3

Hindustan Zinc LTD.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Trade payables
Short-term provisions
Total liabilities
Intangibles
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
Short-term loans and advances
Total Assets
RATIOS
P/B
EPS
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%

FY10
423
17701
18124
0
60
0
478
340
20238
109
6071
1113
361
452
152
928
96
20238
FY10
3.2
95.6
1.9
6.0
0.6

FY11
845
21688
22533
0
0
0
475
567
25053
109
7145
875
594
762
209
5633
158
25053
FY11
2.2
11.6
2.1
4.8
0.8

FY12
845
26036
26881
0
0
0
410
504
29485
47
8466
445
876
798
332
5255
233
29485
FY12
2.1
13.1
2.9
3.6
0.7

FY13
845
31431
32276
0
0
0
484
825
35465
10
8474
1082
1898
1111
403
6942
373
35465
FY13
1.7
16.3
3.2
3.8
0.9

Net
Revenue
from
Operatio
n

4000
3500
3000
2500

30.0

Revenue
Growth

4500

15.0

25.0
20.0

2000

10.0

1500

5.0

1000
0.0

500
0

-5.0

ZinC Productions:
250000

Zinc Production
(tons)

200000
150000
100000

50000
0


CASH FLOWS
Cash from Operation
Changes In Working Capital
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year

FY10
4001
77
4077
-3881
-187
8

FY11
4483
-212
4272
-3658
-363
250

FY12
4553
-61
4492
-3499
-1242
-248

FY13
4935
-183
4752
-3234
-1257
262

2500

EBIDTA %

2000

49

49

50

47
43

1500

60

EBIDTA

43

41

40

42

30

Trading At :
7000

EBIDTA & Margin :

1000

NIFTY

HINDZINC

20

160

6000

140

5000

120

500

10

100

4000

80

3000

0

0

60

2000

40

1000

20

0

0


4

TCS

"BUY"
20th Jan' 14

" Strong Fundamentals"
Results update

Buy

CMP
Target Price
Upside

2216
2510
2360
13%
6%

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Average Daily Volume
Nifty

532540
TCS
2384/1300
433985
1011877
6262

Stock Performance
1M
9.8
8.1

Absolute
Rel. to Nifty

1yr
64.4
60.1

YTD
67.2
57.1

Street stunned with inline set of number, management is confident to see better
growth in near future;

TCS witnessed inline set of numbers with 1.5%(QoQ)of consolidated sales growth led
by 1.8% volume growth and1.2% pricing growth. This volume growth dampened
because of holidays and furlough effects. PAT grew by 15.1% (QoQ).
We continue to believe that TCS will be star performer in growth sense than other
peers. Hence, we are maintaining 18% revenue growth in dollar term for FY14E
because of improved demand environment, while NASSCOM expects 12-14% for the
Industry. We continue to be positive on demand prospect for TCS.
In US dollar terms, revenue was $3438mn compared with USD 3337 mn in Q2FY14. Net
profit was at USD 858 mn, compared with USD 748 mn in Q2FY14.
▪Steady Margin growth: On margin front, EBITDA down by 20bps and EBIT 30bps on QoQ
basis to 31.4% and 29.8%, during the quarter. The company attributed this fall to
reinvestment of gains from margin into the business. Management is very confident to
maintain EBITDA margin at a range of 26-28% ahead.
▪ Lower volume and stable pricing growth: The volume growth of 1.8% was lower than
expectations and what the company has been delivering over the last few quarters. The
company attributed this fall to de-growth in India business. The third quarter is generally
slow due to holidays, and furloughs. The pricing is expected to be stable overall but
expects variability across the quarters going forward.

Promoters
FII
DII
Others

Current
73.9
16.33
5.26
4.51

1 year forward P/E

2QFY14 1QFY14
73.96
73.96
16.09
15.67
5.58
5.90
4.37
4.47

▪ Strong growth across segments: On segmental front, Manufacturing grew by 6.1%
(QoQ), and Telecom (including media and entertainment) by 5.1% (QoQ), while, BFSI
and Retail (including consumer-packaged goods) reported strong below 1% growth,
sequentially. Even, the telecom sector posted excellent quarter than before but still wait
to change view on the sector.
▪ Growth across the geographies: Among growth markets, Latin America, APAC and
MEA registered strong growth. India business suffered from volatility and declined
sequentially. Further, US grew by 2.6%, Europe by 2.6% and RoW by 7.1% QoQ. USA
contributes 55%, Europe 29.1% and RoW 15.9% of its revenue.
View and Valuation: We continue to remain positive on demand outlook and margin
profile, the management expects for robust deal pipeline going forward and also expects
to materialize its emerging space like Digital as well as Cloud, Mobility, Analytics and Big
data. Based on initial discussions with customers, Management believes for stronger
2014 than 2013. We continue to be positive on demand environment and company’s
strength of efficient deal execution. We advise that TCS now seem to be trading ahead
of fundamentals; At a price of Rs 2216, it is trading at 20.3x FY15E earnings, We
maintain" BUY" view on the stock and we revised our target price from Rs 2360 to Rs
2510.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
21294
6686.76
5333.43
31.4%
25.0%

2QFY14
20977.2
6633.0
4633.3
31.6%
22.1%

(QoQ)-%
1.5
0.8
15.1
(20bps)
290bps

3QFY13
16069.93
4660.49
3549.61
29.0%
22.1%

Rs, Crore
(YoY)-%
32.5
43.5
50.3
240bps
290bps

(Source: Company/Eastwind)


5

TCS.
Revenue and growth in INR term-(QoQ)
The Company remains confident to clock
better growth in FY14 than FY13 and
aims to exceed upper end of industry
body NASSCOM’s guidance at 12-14% in
FY14. We expect better revenue growth
than its peer like Infy


Margin-%

The outlook on margins, it indicated that
is comfortable in the current level and
will be in the range of 26-28% range
going forward.


Volume and Pricing Growth (QoQ)-%
The volumes were strong across the
board during the quarter. The pricing is
expected to be stable overall but expects
variability across the quarters going
forward.The volume growth could be
improve further because of better
demand
environment
across
all
geogrpahies and space.

Key Facts from Conference Call (attended on 16th Jan,2014):
(1)TCS, which does not provide detailed revenue forecasts, The Company remains
confident to clock better growth in FY14 than FY13 and aims to exceed upper end of
industry body NASSCOM’s guidance at 12-14% in FY14. And continued to reiterate its
stand that FY15 will be a better year than FY14.
(2) The management stated that pricing would be stable for next 12 months. Realization
seeing minor fluctuations, but
(3) The outlook on margins, it indicated that is comfortable in the current level and will be
in the range of 26-28% range going forward.
(4) The company has maintained hiring target of 55,000 gross employees for FY14,
(5) Demand environment from Domestic market for next 2Qtrs will be adversly impacted
because of fortcong general election.

6

TCS.
Attrition is low in the Industry – Expects to improve Utilizations to 85% and beyond:: At
the end of 3QFY14, TCS continued its uptick in hiring and upped the numbers to 55,000
from its earlier stated 50,000. This is reflective of the demand environment. The
utilization rate (excluding trainees) was at 84.3% and that including trainees was 77.5 %.
The attrition rate in IT was at 10.3 %, while BPS attrition fell to 13.4 %. The attrition rate
(LTM) was stable at 10.9% including BPS.
Sound clients metrics: TCS sees a robust demand pipeline across markets and a unique
opportunity to strategically partner and participate with clients. TCS' USD added total 8
large clients(net).

Financials
Rs, Cr
Net Sales-USD
Net Sales
Employee Cost
Overseas business expenses
Services rendered by business associates and others
Operation and other expenses
Total Expenses
EBITDA
Depreciation
Amortisation
Other Income
EBIT
Interest Cost
PBT
Tax
PAT
PAT ((Reported PAT))
Growth-%
Sales-USD
Sales
EBITDA
PAT
Margin -%
EBITDA
EBIT
PAT
Expenses on Sales-%
Employee Cost
Overseas business expenses
Services rendered by business associates and others
Tax rate
Valuation
CMP
No of Share
NW
EPS
BVPS
RoE-%
Dividen Payout ratio
P/BV
P/E

FY10
6339.0
30029.0
10879.6
4570.1
1262.0
4622.8
21334.4
8694.6
601.8
59.1
272.0
8033.7
16.1
8289.6
1197.0
7092.7
7000.6

FY11
8187.0
37325.1
13850.5
5497.7
1743.7
5054.3
26146.2
11178.9
686.2
49.1
604.0
10443.6
26.5
11021.2
1830.8
9190.3
9068.6

FY12
10171.0
48894.3
18571.9
6800.5
2391.3
6694.8
34458.5
14435.8
860.9
57.1
428.2
13517.9
22.2
13923.8
3399.9
10524.0
10414.0

FY13
11569.0
62989.5
24040.0
8701.9
3763.7
8443.9
44949.6
18040.0
1016.3
63.7
1178.2
16960.1
48.5
18089.8
4014.0
14075.7
13917.4

FY14E
13660.8
81964.9
30327.0
11680.0
4917.9
10655.4
57580.4
24384.6
1282.9
57.5
1434.4
23101.7
35.9
24500.2
5880.0
18620.2
18620.2

FY15E
16393.8
97543.1
36578.7
14143.7
6340.3
12680.6
69743.3
27799.8
1526.7
76.7
1950.9
26273.1
33.8
28190.2
6765.6
21424.5
21424.5

8.0%
21.3%
31.8%

29.2%
24.3%
28.6%
29.6%

24.2%
31.0%
29.1%
14.5%

13.7%
28.8%
25.0%
33.7%

18.1%
30.1%
35.2%
32.3%

20.0%
19.0%
14.0%
15.1%

29.0%
26.8%
23.6%

30.0%
28.0%
24.6%

29.5%
27.6%
21.5%

28.6%
26.9%
22.3%

29.8%
28.2%
22.7%

28.5%
26.9%
22.0%

36.2%
15.2%
4.2%
15.4%
14.4%

37.1%
14.7%
4.7%
13.5%
16.6%

38.0%
13.9%
4.9%
13.7%
24.4%

38.2%
13.8%
6.0%
13.4%
22.2%

37.0%
14.3%
6.0%
13.0%
24.0%

37.5%
14.5%
6.5%
13.0%
24.0%

780.8
195.7
18466.7
36.2
94.4
38.4%
28.1%
8.3
21.5

1182.5
195.7
24504.8
47.0
125.2
37.5%
50.8%
9.4
25.2

1322.0
195.7
29579.2
53.8
151.1
35.6%
37.5%
8.7
24.6

1563.0
196.0
38645.7
71.8
197.2
36.4%
41.2%
7.9
21.8

2216.0
196.0
49594.4
95.0
253.0
37.5%
41.2%
8.8
23.3

2216.0
196.0
62192.0
109.3
317.3
34.4%
41.2%
7.0
20.3



7

HDFC Bank

"BUY "
20th Jan.,2014

Result update
CMP
Target Price
Upside

BUY
668
760
720
14
6

HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters
growth trajectory that it had witnessed but remain very impressive in
challenging macro environment. Bank is well poised in most of operating
parameters like CASA ratio of 45%+, higher than industry credit growth, best
asset quality among peers, better utilization of cash in form of higher CAR
ratio for further growth, consistent delivered margin above of 4%. We continue
to believe bank would enjoy valuation premium. We value bank at
Rs.760/share which is 4 times of one year FY14E’s book value.

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Nifty

500180
HDFCBANK
727/528
160030
4.17 lakhs
6261

Profit growth of 25% YoY, quite impressive in present economy scenario
HDFC bank’s profitability grew by 25% YoY to Rs.2326 cr against our expectation of
Rs.2289 cr. Growth in profit was due to higher growth in revenue, lower cost income
ratio and stable asset quality. But growth trajectory of the bank was lower if we
compare it from past as bank has been witnessing 30% growth previously. In
previous quarter bank reported 27% YoY growth in profit and this quarter reported
lower from previous quarter. We believe to maintain 30%+ growth would be tough in
present challenging macro environment.

Stock Performance
1M
Absolute
0.1
Rel.to Nifty
-0.6

1yr
0.0
-3.4

YTD
0.0
-3.4

Current 4QFY13 3QFY1
3
Promoters
22.7
22.7
22.7
FII
34.9
33.6
34.9
DII
9.3
9.8
6.6
Others
33.1
33.8
34.2

Healthy NII growth on the back of stable margin and higher CD ratio
HDFC Bank reported another good set of numbers with NII grew by 22% YoY to
Rs.4635 cr better than our expectation due to healthy loan growth, stable margin,
higher credit deposits ratio and controlled cost of deposits. Total revenue of the bank
grew by 21.2% YoY to Rs.6783 cr. Non- interest income registered growth of 19.4%
YoY to Rs.2148 cr. Other income comprises fees & commissions of Rs 1,575.0 cr
(Rs 1,413.5 cr in 3QFY13), foreign exchange & derivatives revenue of Rs.333.2 cr
(Rs 258 cr in 3QFY13), gain on revaluation / sale of investments of Rs 50.9 cr (gain
of Rs. 135.8 cr in 3QFY13) and miscellaneous income including recoveries of Rs
189.1 cr (Rs 120.4 cr in 3QFY13).

HDFC Bank Vs Nifty
Declined CI ratio along with healthy revenue growth led operating profit growth
Cost to income ratio declined to 42.7% from 46% in 3QFY14 largely due to employee
expenses. In 3QFY14, employee cost was declined by 3.1% YoY due to hiring soften
strategy taken by bank. At the end of quarter, bank has total 68200 employees as
against 69700 employees in last quarter. Other operating cost increased by 12.5%
YoY largely due to addition of new branches and ATMs. At the end of December
quarter, bank’s added 274 branches taking total network to 3336 branches against
2776 branches in 3QFY13. With the support of healthy NII growth, non interest
income and control cost measurement; bank’s operating profit grew by 28.6% YoY.
Rs, Cr
Financials
2011
2012
2013
2014E
2015E
NII
10543
12885
15811
18713
22944
Total Income
14878
18668
22664
26604
30835
PPP
7725
9391
11428
14516
15572
Net Profit
3926
5167
6726
8453
9119
EPS
84.4
22.0
28.7
36.0
38.9
8

HDFC BANK
Sequentially stable asset quality despite of challenging macro environment
Despite of challenging macro environment, bank reported stable asset quality with GNPA
in absolute term grew by mere 3% on sequential basis. As a percentage to gross
advance, GNPA stood at 1.02% versus 1.1% in previous quarter. Loan loss provisions
were Rs.389 cr versus Rs.386 cr in previous quarter. Consequently net NPA increased
by 4% QoQ and in percentage to net advance, it stood at 0.27% versus 0.29%. Provision
coverage ratio with technical write-off was stable on sequential basis to 73.8%.
Advance grew by 23% YoY and deposits grew by 23% led by FCNR deposits
Total advance increased by 23% to Rs.2967 bn. Loan growth was driven by 13.6% YoY
increased of retail loan and 22.1%YoY increased of corporate loan. Composition of retail
and corporate loan stood at 54:46 ratios. Deposits increased by 23% to Rs.3492 bn in
which saving deposits increased by 16% and current deposits grew by 23% taking overall
CASA ratio of 43.7%. Deposits growth of 23% included US$3.4 bn of FCNR deposits
raised through RBI’s special window. Adjusted with same, deposits grew by 15.5% YoY.
Credit deposits ratio during quarter stood at 85% which was by and large same in both
quarter on quarter and year on year basis.
Valuation & View
HDFC Bank’s profit growth of 25% YoY lowers than its previous quarters growth
trajectory that it had witnessed but remain very impressive in challenging macro
environment. Bank is well poised in most of operating parameters like CASA ratio of
45%+, higher than industry credit growth, best asset quality among peers, better
utilization of cash in form of higher CAR ratio for further growth, consistent delivered
margin above of 4%. We continue to believe bank would enjoy valuation premium. We
value bank at Rs.760/share which is 4 times of one year FY14E’s book value.
Valuation Band


9

HDFC BANK
Fundamental Through Graph

NII growth of 22% led by healthy loan
growth, stable margin, higher credit deposits
ratio and controlled cost of deposits

Declined CI ratio along with healthy revenue
growth led operating profit growth

Profit growth of 25% YoY due to higher
growth in revenue, lower cost income ratio
and stable asset quality

Source: Eastwind/ Company

10

HDFC BANK
Quarterly Performance

Quarterly Performance
Interest/discount on advances / bills
Income on investments
Interest on balances with Reserve Bank of India
Others
Total Interest Income
Others Income
Total Income
Interest Expended
NII
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
PBT
Tax
Net Profit

3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation
8183
7692
6722
21.7
6.4
8524
4.2
2309
2292
1893
22.0
0.8
2354
1.9
85
84
68
25.7
1.2
97
14.2
13
25
25
-48.3
-48.4
18
35.7
10591 10093
8708
21.6
4.9
10993
3.8
2148
1844
1799
19.4
16.5
1885
-12.3
12739 11938 10507
21.2
6.7
12878
1.1
5956
5617
4909
21.3
6.0
5798
-2.7
4635
4477
3799
22.0
3.5
5195
12.1
2148
1844
1799
19.4
16.5
1885
-12.3
6783
6321
5598
21.2
7.3
7080
4.4
973
1036
1004
-3.1
-6.1
1115
14.6
1922
1899
1570
22.4
1.2
2071
7.7
2895
2934
2574
12.5
-1.3
3186
10.0
3888
3387
3024
28.6
14.8
3894
0.2
389
386
307
26.6
0.8
426
9.6
3499
3001
2716
28.8
16.6
3468
-0.9
1173
1018
857
36.9
15.2
1179
0.5
2326
1982
1859
25.1
17.3
2289
-1.6

Balance Sheet( Rs Cr)
Net Worth
Deposits
Borrowings
Investment
Loan

42891
349215
43848
110616
296742

40485
313011
39340
101850
268617

35436
284119
31585
95979
241493

21.0

5.9

22.9

11.6

38.8

11.5

15.3

8.6

22.9

10.5

Asset Quality
GNPA( Rs Cr)
NPA(Rs Cr)
GNPA(%)
NPA(%)
PCR(w/o tech write-off)(%)

3017.84 2941.71
797
767
1.0
1.1
0.3
0.3
74
74

2432.2
496
1.0
0.2
80

24.1

2.6

60.8

3.9

42774
331291
44639
108215
284134

-0.3
-5.1
1.8
-2.2
-4.2


11

HDFC BANK
Financials
P/L

2011

2012

2013

2014E

2015E

Others
Others Income
Total Income
Interest on deposits
Interest on RBI/Inter bank borrowings
Others
Interest Expended
NII
NII Growth(%)
Other Income
Total Income
Total Income Growth(%)
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions( Incl tax provision)
Net Profit
Net Profit Growth(%)

15085
4675
148
20
19928
4335
24263
8028
1336
20
9385
10543
25.7
4335
14878
20.3
2836
4317
7153
7725
3799
3926
33.2

21124
6505
137
108
27874
5784
33658
12690
2253
47
14990
12885
22.2
5784
18668
25.5
3400
5878
9278
9391
4224
5167
31.6

26822
7820
282
141
35065
6853
41917
16321
2889
44
19254
15811
22.7
6853
22664
21.4
3965
7271
11236
11428
4701
6726
30.2

32002
9311
373
65
41751
7891
49642
20281
4571
44
23038
18713
18.4
7891
26604
17.4
4231
7857
12087
14516
1751
8453
25.7

40213
10952
373
65
51603
7891
59494
24337
4278
44
28659
22944
22.6
7891
30835
15.9
5342
9921
15263
15572
6453
9119
7.9

208586
24.6
14394
11.4
159983
27.1
70929
21.0

246706
18.3
23847
65.7
195420
22.2
97483
37.4

296247
20.1
33007
38.4
239721
22.7
111614
14.5

355496
20
50785
54
299651
25
114580
3

426596
20
47529
-6
365574
22
156461
37

9.4
6.6
7.7
4.3
9.4
4.2

10.8
6.7
8.9
5.6
9.6
5.5

11.2
7.0
9.3
6.0
8.9
5.8

10.7
8.1
10.1
6.5
9.0
5.7

11.0
7.0
9.9
6.2
9.0
6.0

545.5
4.3
27.8

127.5
4.1
23.6

154.3
4.1
21.8

189.4
3.5
18.7

222.3
3.0
17.3

Key Balance Sheet Data
Deposits
Deposits Growth(%)
Borrowings
Borrowings Growth(%)
Loan
Loan Growth(%)
Investment
Investment Growth(%)

Eastwind Calculation
Yield on Advances
Yield on Investments
Yield on Funds
Cost of deposits
Cost of Borrowings
Cost of fund

Valuation
Book Value
P/BV
P/E


12

FEDERAL BANK
Result update
CMP
Target Price
Upside
Change from Previous( Rs)
Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Nifty

BUY
80
98
87
23
13

500469
FEDERALBNK
104.75/44.25
6792
9.78 lakh
6261

Stock Performance
Absolute
Rel.to Nifty

1M
-0.6
-1.3

1yr
-24.3
-27.7

YTD
-24.3
-27.7

Current 1QFY14 4QFY1
3
Promoters
FII
42.4
44.1
44.4
DII
21.6
20.6
20.8
Others
36.1
35.3
34.8
FEDERAL Bank Vs Nifty

"BUY"
20th Jan, 2014

Bank reported net profit growth of 9.2% YoY largely due to lower provision led
by improving asset quality. Making lower provision in order to inflate profit is
not too bad in our sense as bank has high provision coverage ratio and
sequentially improved gross NPA. However at operating profit level, bank
reported negative growth of 9.7% due to muted performance all around. We
revised our book value estimate to Rs.82.2 from earlier of Rs.78. We believe
bank to trade at 1.2 times of book value of FY14E. We value bank at
Rs.98/share which is 1.2 times of FY14E’s book value and 8.5 times of full year
earnings
Profit growth on the back of lower provision led by improving asset quality
Federal bank continued to deliver moderate growth in net profit on the back of muted
growth in operating as well as financial metrics. During quarter bank’s net growth
grew by 9.2% YoY largely due to lower provisions led by improving asset quality. This
quarter bank reported improvement in asset quality when most of banks reported
deteriorating or stable stress in assets which surprise us positively. Despite of lower
loan loss provisions, bank’s provision coverage ratio remained high against
regulatory requirement. Therefore we take it positive as bank’s strategy to make
lower provision in order to inflate profit. But muted growths in balance sheet remain
a cause of concern.
Flat revenue growth because of negative growth in other income
During this quarter bank’s NII grew by 9.7% on account of muted loan growth along
with continuous fall in credit deposits ratio. However bank able to maintain cost of
deposits under control. Other income de-grew by 23.4% YoY taking flat revenue
growth on year on year basis and quarterly basis.
Operating profit de-growth by 9.7% YoY led by flat revenue growth and high CI
ratio
Cost Income ratio increased by 550 bps YoY to 49.3% but operating leverage
(operating cost to total assets) remain flat at 0.45%, indicating comfortable cost
management. Employee cost and other operating cost increased by 8.1% and 17.7%
respectively. During quarter bank opened 18 new branches and 47 ATMs. Operating
profit de-grew by 9.7% YoY on account of muted NII growth and lower other income.

Financials
NII
Total Income
PPP
Net Profit
EPS

2011
1747
2263
1427
902
6.5

2012
1953
2486
1506
734
8.6


Rs, Cr
2013
2014E
2015E
1975
2206
2543
2639
2893
3230
1460
1520
1777
803
799
1012
9.4
9.3
11.8
13

FEDERAL BANK
Provision lower to Rs.7 cr but PCR remain high
In 3QFY14, Federal bank made total provisions of Rs.7 cr versus Rs.11 cr in previous
quarter and Rs.74 cr in last quarter. Lower provision was due to improving asset quality.
Gross NPA improved by 18% QoQ to Rs.1201 cr in absolute term whereas as a
percentage to total advance, it stood at 2.88% versus 3.47% in previous quarter. Loan
loss provisions were lower by 20% QoQ, taking PCR ratio to 70.3% (without technical
write-off). This has resulted net NPA declined to 0.9% versus 1% in previous quarter.
NIM declined sequentially due to higher cost of fund than deposits
NIM on sequential basis declined by 6 bps to 3.24% due to higher cost of fund (in
absolute term) than yield on loan (in absolute term). Higher cost of fund largely came
from cost of borrowing than deposits. Borrowings as a percentage of NDTL, sequentially
increased to 9.2% from 8.1% taking overall interest expenses up in absolute term. Loan
yield improved by 18 bps QoQ to 12.2% from 12% but muted growth in loan, increased
interest income by 0.1% QoQ whereas interest expenses increased by 2.4% QoQ.
Despite of lower increased in cost of fund (6 bps QoQ), NIM declined sequentially.
Loan & deposit grew by moderate pace
Federal Bank’s balance sheet grew by 15% YoY in which loan grew by 5.4% YoY. SME
and retail loan registered growth of 38.4% and 11.5% YoY respectively but corporate
loan de-grew by 14.4% YoY. Share of corporate loan declined to 33% from 40% in
3QFY14 whereas share of SME and retail loan increased to 24% and 32% from 18% and
30% respectively. Despite of reported higher growth in SME and retail loan, overall loan
grew by 5.4% YoY. Deposits witnessed growth of 12% YoY led by CASA growth of 15%
YoY while term deposits de-grew by 10% YoY. In percentage term CASA improved by 90
bps YoY to 30.4%.
Valuation & View
Bank reported net profit growth of 9.2% YoY largely due to lower provision led by
improving asset quality. Making lower provision in order to inflate profit is not too bad in
our sense as bank has high provision coverage ratio and sequentially improved gross
NPA. However at operating profit level, bank reported negative growth of 9.7% due to
muted performance all around. We revised our book value estimate to Rs.82.2 from
earlier of Rs.78. We believe bank to trade at 1.2 times of book value of FY14E. We value
bank at Rs.98/share which is 1.2 times of FY14E’s book value and 8.5 times of full year
earnings


14

FEDERAL BANK
Fundamental Through Graph

Valuation Band

Source: Eastwind/Company

15

FEDERAL BANK
Quarterly Result

Quarterly Performance(Rs Cr)
Others
Others Income
Total Income
Interest Expended
NII
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
PBT
Tax
Net Profit
Balance Sheet(Rs Cr)
Net Worth
Deposits
Borrowings
Investment
Loan
Asset Quality
GNPA(Rs Cr)
NPA(Rs Cr)
GNPA(%)
NPA(%)
PCR(w/o tech write-off)(%)

3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation
1266
1265
1151
10.0
0.1
1348
6.4
461
438
358
28.7
5.3
434
-6.0
11
11
11
-8.2
-5.2
12
15.6
2
1
1
48.7
151.5
-100.0
1740
1714
1522
14.3
1.5
1793
3.1
156
143
204
-23.4
9.0
180
14.9
1896
1858
1726
9.9
2.0
1973
4.1
1194
1166
1024
16.6
2.4
1184
-0.8
546
548
497
9.7
-0.5
609
11.6
156
143
204
-23.4
9.0
180
14.9
702
692
701
0.1
1.5
789
12.4
177
170
163
8.1
3.7
189
7.0
169
167
144
17.7
1.1
182
7.3
346
338
307
12.6
2.4
371
7.1
356
354
394
-9.7
0.6
418
17.4
7
11
74
-90.2
-33.6
90 1132.4
349
343
320
9.1
1.7
328
-5.9
118
117
109
8.9
1.2
98
-16.9
230
226
211
9.2
1.9
230
-0.2

6872
57737
5850
25028
41640

6696
56794
5033
22794
42220

6323
51607
3562
19433
39494

1201
356
2.9
0.9
70

1466
411
3.5
1.0
72

1564
363
4.0
0.9
77

8.7

2.6

11.9

1.7

64.2

16.2

28.8

9.8

5.4

-1.4

-23.2

-18.1

-1.9

-13.4

6926
59221
5197
23124
44922

0.8
2.6
-11.2
-7.6
7.9

-


16

FEDERAL BANK
Financials & View

Income Statement

2011

2012

2013

2014E

2015E

Interest Income
Interest Expense
NII
Change (%)
Non Interest Income
Total Income
Change (%)
Operating Expenses
Pre Provision Profits
Change (%)
Provisions
PBT
PAT
Change (%)

4052
2305
1747
23.8
517
2263
16.6
836
1427
12.8
525
902
902
94.1

5558
3605
1953
11.8
532
2486
9.8
979
1506
5.6
335
1172
734
-18.6

6168
4193
1975
1.1
664
2639
6.2
1180
1460
-3.1
297
1162
803
9.4

6989
4783
2206
11.7
687
2893
9.6
1372
1520
4.2
335
1186
799
-0.5

7707
5164
2543
15.3
687
3230
11.7
1454
1777
16.9
331
1445
1012
26.7

43015
19
11554
22
1888
14538
31953
19

48937
14
13476
17
4241
17402
37756
18

57615
18
15652
16
5187
21155
44097
17

66257
15
19111
22
5361
23453
47624
8

76196
15
22360
17
6272
26656
55244
16

Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost of Deposit
Avg. Cost of Borrowimgs

9.9
6.0
5.0
7.6

11.1
7.6
6.8
6.5

10.5
6.9
6.7
6.9

10.9
7.4
6.6
7.0

10.5
6.9
6.6
7.0

Valuation
Book Value
CMP
P/BV

60
84
1.4

67
85
1.3

74
96
1.3

83
80
1.0

85
80
0.9

Balance Sheet
Deposits( Rs Cr)
Change (%)
of which CASA Dep
Change (%)
Borrowings( Rs Cr)
Investments( Rs Cr)
Loans( Rs Cr)
Change (%)

Ratio


17

DB CORP

"BUY"
20th Jan' 14

"On Strong Footing"
Result update

Buy

CMP
Target Price

301
340
-

Upside

13%

DBCORP beats the street with 18% (YoY) revenue growth led by healthy Ad- revenue
positively impacted by festive and election season during the quarter. PAT (excluding
EOI) grew by 28 %(YoY) because of growth in other Income.
Consistency on earning performance led by regional growth and strategy on judicious
mix of price and promotion energize its strong visibility in near future. Management is
also committed for cost control and yield improvement, it will continue its strong
market positioning in all aspect.

Robust Margin:

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Nifty

533151
DBCORP
321.50/210

5521
25750

Company witnessed impressive ramp up in margin front because of cost controlling
efforts, EBITDA margin up by 170bps (YoY) to 29.67% and PAT margin improved by
140bps (YoY) to 18.1%. Management stated to maintain its margin going forward and
clearly indicated for thrust on yield improvement. For few quarters company has been
consciously working on improvement of yield and cutting discount.

6261.65

Segmental Performance:
Stock Performance
Absolute
Rel. to Nifty

1M
10
8

1yr
28.74
25.06

YTD
-0.003
-0.002

During the quarter, company has seen 18.2% revenue growth from its advertisement,
14% from circulation and 25% from Radio business on YoY basis. Management
expressed its interest regarding inorganic expansion in near future to maintain its
healthy growth across all segments.

Management Commentary:
Promoters
FII
DII
Others

Current
74.96
17.73
2.95
4.36

2QFY14
74.97
16.46
4.00
4.57

Stock Performace with Nifty

1QFY14
74.98
14.66
5.34
5.02

According to management, Company will maintain a pragmatic approach towards
operational controls and higher efficiency. DBCORP will continue to capitalize its
consumption potential of Tier 2 and 3 cities. And they are studying on marketing
strategies of niche brands in Tier 2 and 3 cities. Company is expected to launch its Bihar
edition on 19 Jan, 2014, and we expect to see some part of additional revenue from
Bihar edition by 4QFY14E and also expect to see breakeven in 3 to 4 years.

View and Valuation:
In view of upcoming general election, we expect government ad spending to go up
substantially. Provision of TRAI’s 12 minutes ad cap would provide revenue visibility to
print media players, being one of the largest players DB Corp will be strong beneficiary
in near future. Company’s continuous efforts towards yield improvement and cutting
discounts will lead to margin improvement in future. Considering its long-term growth
story with favorable earning scenario and leadership position in key market, we are
positive on the stock. We maintain “BUY” view on the stock with the target price of Rs
340. At a CMP of Rs 301, stock trades at 4.1x of FY15E P/BV.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
518.2
153.8
93.57
29.7%
18.1%

2QFY14
438
112.5
63.2
25.7%
14.4%

(QoQ)-%
18.3
36.7
48.0
400bps
370bps

3QFY13
438.9
122.8
73.2
28.0%
16.7%

Rs, Crore
(YoY)-%
18.1
25.2
27.9
170bps
140bps



18

DB CORP
Sales and Sales growth(%)(yoy)


Margin-%


PAT and PAT growth(%)(yoy)


Segments
Printing & Publishing newspaper
Radio
Event

Sales
Growth
Margin Change
Margin-%
3QFY14 2QFY14 3QFY13 (YoY)-% (QoQ)-%
YoY
QoQ
488.63 416.17 416.83
17%
17%
28% 200bps 500bps
23.82
17.09
19.08
25%
39%
36% 1200bps 2100bps
1.12
1.76
0.89
26%
-36%
-66% (3500bps) (7900bps)



19

DB CORP
Revenue Segments

Revenue Geography-wise

Financials;
Rs,cr
Sales
RM Cost
WIP
Employee Cost
Ad Spend
Other expenses
Total expenses
EBITDA
Depreciation and Amortisation
Other Income
EBIT
Interest
PBT
Tax Exp
PAT
Growth-% (YoY)
Sales
EBITDA
PAT
Expenses on Sales-%
RM Cost
Employee Cost
Ad Spend
Event Expenses
consumption of store & spare
Distribution expenses
Other expenses
Tax rate
Margin-%
EBITDA
EBIT
PAT
Valuation:
CMP
No of Share
NW
EPS
BVPS
RoE-%
P/BV
P/E

FY10
1062.1
327.87
-0.0016
131.81
12.98
161.24
720.03
342.07
37.83
11.15
304.24
35.69
279.70
105.72
173.98

FY11
1265.18
383.91
-0.06
184.56
12.52
185.2
862.13
403.05
43.28
14.18
359.77
15.3
358.65
99.97
258.68

FY12
1451.51
508.04
-0.04
242.93
15.04
216.06
1105.03
346.48
50.57
24.02
295.91
9.23
310.7
98.32
212.38

FY13
1592.32
544.54
0.03
279.5
17.21
234.07
1210.25
382.07
58.06
21.34
324.01
7.99
337.36
113.18
224.18

FY14E
1861.91
623.74
-1.86
307.21
22.34
260.67
1371.5
490.5
64.5
27.9
426.0
8.0
445.9
156.1
289.8

FY15E
2176.94
740.16
-2.18
380.97
23.95
315.66
1656.7
520.3
75.4
28.3
444.9
5.1
468.1
163.8
304.3

10.5%
132.2%
265.4%

19.1%
17.8%
48.7%

14.7%
-14.0%
-17.9%

9.7%
10.3%
5.6%

16.9%
28.4%
29.3%

16.9%
6.1%
5.0%

30.9%
12.4%
1.2%
1.1%
4.8%
2.1%
15.2%
10.0%

30.3%
14.6%
1.0%
1.3%
4.6%
1.7%
14.6%
7.9%

35.0%
16.7%
1.0%
1.0%
5.8%
1.7%
14.9%
6.8%

34.2%
17.6%
1.1%
0.8%
6.0%
1.8%
14.7%
7.1%

32.0%
16.6%
1.2%
0.8%
6.0%
1.8%
14.0%
8.4%

34.3%
17.0%
1.1%
1.0%
6.2%
1.9%
14.5%
7.5%

32.2%
28.6%
16.4%

31.9%
28.4%
20.4%

23.9%
20.4%
14.6%

24.0%
20.3%
14.1%

26.3%
22.9%
15.6%

23.9%
20.4%
14.0%

239
18
649
9.6
36
27%
6.7
24.9

246
18
829
14.1
45
31%
5.4
17.4

219
18
927
11.6
51
23%
4.3
18.9

212.1
18.33
1029
12.2
56
22%
3.8
17.3

301
18.33
1180
15.8
64
25%
4.7
19.0

301
18.33
1344
16.6
73
23%
4.1
18.1



20

ITC

"BUY"
20th Jan' 14

" Accessing the growth "
Result update
CMP
Target Price
Upside

BUY
325
380
320
17%
19%

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Nifty

500875
ITC
380/281
257784
3497040
6262

Stock Performance
1M
3.7
2.0

Absolute
Rel. to Nifty

1yr
14.5
10.2

YTD
13.8
9.3

Current

Promoters
FII
DII
Others
1 yr Forward P/B

19.3
34.3
46.4

2QFY14 1QFY14

19.3
34.3
46.1

19.6
33.8
46.6

ITC posted better growth ahead of street expectations, Cigarette business on a strong
footing, long-term growth outlook remains strong;
Strong set of numbers, sales grew by 13.1% (YoY) led by robust sales across its FMCG
and Paper and Packaging divisions. Cigarette volume declined by 2%(YoY) because of
price hike by 18% in premium brand. PAT up by 16.3%, YoY.
Further, with ITC being the market leader in cigarettes, higher pricing power in
Cigarette would continue to maintain higher margins. However, volume growth on
cigarette would be on the way of recovery position, previously impacted by price hike
on cigarette (king and 74mm size). Price rises in the cigarettes business drove margin,
revenue and profit growth.
Win- win performance across all Segments: Cigarettes (47.7% of Sales) up by 12.6% ,
FMCG-others (24.1% of sales up by 16.1%, Hotels (3.7% of sales) up by 2%, Agri
business (20.7% of sales) up by 10% and Paper and packaging (15% of sales) up by 19%.
FMCG business outside of cigarettes has broken even operationally despite consumers
slowing their discretionary spending.
Margin status: The Company’s EBITDA Margin inched up by 50bps to 37.6% on YoY basis.
On segment wise, FMCG margin was positive to 0.5%, Cigarette Margin (EBIT) improved
to 64.4% from 61.1% (3QFY13), Hotel business margin up by 170bps to 19.7% and AgriBusiness up by 90bps to 11.5% on YoY basis. While Paper & Paper Product Business
margin down by 310bps to 18.4%, and Agri Business margin remains on negative
respectively.
Volume growth: This was the third consecutive quarter when the company’s cigarettes
volume fell. Because of increased prices of cigarette, and volume growth declined by 2%
YoY. We expect, Volumes will retain its growth by next quarter, but the latest hike would
ensure better margins for the company.
Sound response from new launches: Its newer launches Sunfeast Delishus gourmet
cookies and Candyman confectionery during the quarter grew rapidly.
Products strategy: ITC continues to enjoy dominant market share in cigarette while ban
on Gutkha by most of state govt- has provided a strong demand. FMCG business is
expected to maintain momentum led by distribution linked growth, expected the price
hikes to aid cigarettes revenue.
View and Valuation: ITC’s cigarette volume decline to arrest towards Q4FY14 and
recover in FY15E, while non-cigarette business to report EBIT breakeven in FY14E. We
are positive on long-term demand growth in cigarette business due to rising affordability
and huge demand potential in small towns and rural areas. ITC offers the best earnings
visibility in the sector especially when sector peers are confronting multiple
challenges. The premium valuations enjoyed by ITC, at the CMP of Rs 325, the stock
trades at 8.2x FY15E P/BV seems justified from a growth point of view. We maintain ”
BUY” with a price target of Rs 380.
Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
8623.11
3284.3
2385.3
38.1%
27.7%

2QFY14
7775.79
3173.3
2227.98
40.8%
28.7%


(QoQ)-%
10.9%
3.5%
7.1%
(270bps)
(100bps)

3QFY13
7627
2857.7
2051.8
37.5%
26.9%

Rs, Cr
(YoY)-%
13.1%
14.9%
16.3%
60bps
80bs
21

ITC
Sales and its Growth(%)

Cigarette sales have grown by 13%
YoY. However, ITC attributed its
performance to the strategy of creating
multiple drivers of growth.


Margin-%
These cost pressures were, however,
mitigated through a combination of
improvements in product and process
efficiencies, smart sourcing and supply
chain initiatives.


RM Cost improved by 130bps because
of higher prices of Cigarette leaves and
imported paper products

Cigarette Volume Growth-%

ITC clocks
cigarettes,

2%

volume

decline

in


22

ITC
Segment-wise Performance-%
Segments
Cigarettes
FMCG - Others
Hotels
Agri business
Paper and packaging

Sales Contribution Sales Gr-YoY EBIT Margin
47.7%
12.6%
64.4%
24.1%
16.6%
0.5%
3.7%
1.9%
19.7%
20.7%
9.7%
11.5%
14.6%
18.5%
18.4%

Margin Change(YoY)
330bps
180bps
180bps
90bps
(310bps)

Double digit growth in Cigarette, FMCG,
Agri and Paper & Packaging, but
single digit growthon Hotel business

Financials
Rs in Cr,
Sales
RM Cost
Purchases of stock-in-trade
WIP
Employee Cost
Ad Spend
Other expenses
Total expenses
EBITDA
Depreciation and Amortisation
Other Income
EBIT
Interest
PBT
Tax Exp
PAT
Growth-% (YoY)
Sales
EBITDA
PAT
Expenses on Sales-%
RM Cost
Ad Spend
Employee Cost
Other expenses
Tax rate
Margin-%
EBITDA
EBIT
PAT
Valuation:
CMP
No of Share
NW
EPS
BVPS
RoE-%
P/BV
P/E

FY10
19302.1
6045.5
826.0
100.5
1464.0
544.9
3830.9
12811.8
6490.3
643.9
452.7
6299.1
53.4
6245.7
2034.9
4210.8

FY11
22575.0
7136.9
1296.8
-272.7
1708.5
654.6
4381.9
14905.9
7669.1
699.1
536.1
7506.1
70.9
7435.2
2365.5
5069.7

FY12
26552.2
7810.5
1921.2
-86.4
1944.3
710.1
5042.4
17342.0
9210.1
745.5
784.3
9249.0
80.5
9168.5
2845.8
6322.7

FY13
31627.5
9069.8
3305.2
-256.8
2145.6
834.2
5355.1
20453.2
11174.3
859.1
877.6
11192.8
87.2
11105.7
3412.1
7693.6

FY14E
35368.9
10433.8
2829.5
-247.6
2475.8
919.6
6647.6
23058.8
12310.2
943.2
1061.1
12428.1
12.9
12415.1
3910.8
8504.4

FY15E
40349.1
11903.0
3227.9
-322.8
3026.2
1089.4
7583.6
26507.3
13841.8
968.4
1210.5
14083.9
17.9
14065.9
4430.8
9635.2

15.7%
24.7%
25.4%

17.0%
18.2%
20.4%

17.6%
20.1%
24.7%

19.1%
21.3%
21.7%

11.8%
10.2%
10.5%

14.1%
12.4%
13.3%

31.3%
2.8%
7.6%
19.8%
32.6%

31.6%
2.9%
7.6%
19.4%
31.8%

29.4%
2.7%
7.3%
19.0%
31.0%

28.7%
2.6%
6.8%
16.9%
30.7%

29.5%
2.6%
7.0%
18.8%
31.5%

29.5%
2.7%
7.5%
18.8%
31.5%

33.6%
32.6%
21.8%

34.0%
33.2%
22.5%

34.7%
34.8%
23.8%

35.3%
35.4%
24.3%

34.8%
35.1%
24.0%

34.3%
34.9%
23.9%

263.2
381.8
14458.3
11.0
37.9
29.1%
6.9
23.9

181.5
773.8
16489.9
6.6
21.3
30.7%
8.5
27.7

256.5
779.6
19458.6
8.1
25.0
32.5%
10.3
31.6

335.0
790.2
23157.9
9.7
29.3
33.2%
11.4
34.4

325.0
790.2
26808.9
10.8
33.9
31.7%
9.6
30.2

325.0
790.2
31128.5
12.2
39.4
31.0%
8.2
26.7


23

HCLTECH

"BUY"
17th Jan' 14

"Retain confidence"
Result update

Buy

CMP
Target Price
Upside

1392
1560
1194
12%
30.7%

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Nifty

532281
HCLTECH
1398/653
97287
1193062
6319

Stock Performance
1M
17.8
15.4

Absolute
Rel. to Nifty

1yr
109.4
105.1

YTD
149.1
131

Promoters
FII
DII
Others

Current
61.84
26.01
5.70
6.45

1 year forward P/E

4QFY13
61.92
24.45
6.49
7.14

3QFY13
61.99
24.32
6.56
7.13

HCL tech beats expectations with a sustained momentum in volumes and proved its
consistency to maintain its margin at 26% mark;
Following the successive 10th quarter, again company witnessed healthy growth in
2QFY14 than street expectation. Sales grew by 2.8% (QoQ) in INR term and 4% (QoQ)
in USD term led by 4.6% of growth from Infrastructure services and BPO services.
During the quarter, the company has crossed the landmark of USD5bn. PAT grew by
5.6 %(QoQ) in INR term and 7.1% (QoQ) in USD term.
The company continues to lead the industry in profitable growth, with 11 successive
quarters of net income margin expansion, having reported 55% growth in Net Income
on Yearly basis. Management is confident to focus on vendor consolidation and cost
control activities to maintain its growth story.
Stable Margin: During the quarter, its EBITDA Margin was almost flat at 26% and good
thing is, company has been able to maintain its range of 25-26% for its margin. PAT
margin improved by 50bps to 18.3%, sequentially.
Segmental Performance: Infrastructure Services (contributes 34% of sales) continued to
lead with growth at 4.6%, and BPO services (contributes 5% of sales) grew by
10%(QoQ)followed by Enterprise Application at 1.6%, Custom Application Services at
1.4% and Engineering/ R&D Services at 1%, respectively.
Mixed performance across verticals: The Company contributed strong growth in the
Retal and manufacturing verticals. Retail & CPG and Manufacturing’s revenue growth up
by 6.5% and 3.7% respectively and Financial Services up by 2.4%. While growth from
Healthcare and Other services declined by 5.2% and 16.1% respectively.
Healthy deal pipeline: During the quarter, HCL Tech reported an addition of 15
transformational deals in the US and Europe for the December quarter. These wins have
been in the momentum markets of manufacturing and Financial Services as well as the
emerging momentum markets of life sciences & Healthcare and Public Services. Across
the geographies, USA and Europe remain best to drive deal wins during the quarter
because of healthy scenario of demand environment.
View and Valuation: HCL tech’s decent level of utilization, focused on cost control and
utilization of new market opportunities through vendor’s consolidation would provide a
new shape to the company in near future. On performance front, it continues to be
bullish on the rebid market and bullish on short-term to medium term, momentum on
deals pipeline also looking robust. Considering the increasing discretionary spends
across the geographies like US and Europe, we expect healthy earnings performance
ahead. At a CMP of Rs 1392, stock trades at 17.5x of FY14E earnings, We retain BUY on
the stock and revised our target price from Rs 1194 to Rs1560.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

2QFY14
8184
2125
1495
26.0%
18.3%

1QFY14
7961
2093
1416
26.3%
17.8%

(QoQ)-%
2.8
1.5
5.6
(30bps)
50bps

1QFY13
6273.8
1417
965
22.6%
15.4%

Rs, Crore
(YoY)-%
30.4
50.0
54.9
340bps
290bps



24

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

In dollar terms, the revenues grew by
4% QoQ (cc terms 3.1%) to USD 1321mn
and net profit grew by 7.1% QoQ to
USD 241.6mn.


Margin-%

Tha company expects to maintain EBIT
margin at 18.5-19.5% in FY14


Clients Metrics
Clients Contribution
.
Top 5 Clients
Top 10 Clients
Top 20 Clients

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
15.3% 15.8% 16.0% 16.4% 16.2% 15.7% 15.4% 15.4%
24.1% 24.2% 24.3% 24.7% 24.5% 24.2% 24.0% 23.8%
34.2% 33.9% 33.9% 34.1% 33.6% 33.3% 32.8% 33.0%

1QFY14
15.1%
23.8%
33.2%

2QFY14
14.8%
23.8%
33.6%

Employee Metrics
.
No of Employee
Gross Addition
Attrition

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
70321 72055 72474 74675 75621 75226 74226 74912 87196 88332
6927
4931
3303
5274
4479
3291
2933 4316
8061
7593
15.9% 15.7% 15.0% 14.0% 13.6% 13.6% 14.2% 14.9% 16.10% 16.6%

Utilization rate

Utilization down from 84.9% to 84.1%.
Further, it's Utilization are at decent
levels, indicated can still derive more
efficiency .



25

HCLTECH
Key facts from Con-Call
The company is expecting to catch up more deal from US and Europe because of better
demand environment ahead. Clients are looking vendor’s consolidation, and company will
try to turn this opportunity into deal.
The company expects to see margin at a range of 21-22% in near term. The wage hike is
spread over two quarters or rather more than two quarters. Q3 and Q4 margin could be
impact be 30bps.
The infrastructure business is largely under penetrated globally, less than 5% from an
Indian (vendor's) standpoint. They expect to see significant growth over there, in that
business and expect to raise infrastructure services margins by supporting customers
migrating to cloud computing.

Financials;
Rs, Cr
Net Sales-USD
Net Sales
Raw Materials Cost
Employee Cost
Total Expenses
EBITDA
Depreciation
Other Income
Extra Ordinery Items
EBIT
Interest Cost
PBT
Tax
PAT
Growth-%
Sales-USD
Sales
EBITDA
PAT
Margin -%
EBITDA
EBIT
PAT
Expenses on Sales-%
Employee Cost
RM Cost
Tax rate
Valuation
CMP
No of Share
NW
EPS
BVPS
RoE-%
Dividend Payout ratio
P/BV
P/E

FY10
2704.6
12136.3
443.6
6253.7
3498.5
10195.7
1940.6
418.1
154.1
0.0
1522.5
204.1
1472.4
213.4
1259.0

FY11
3545.3
15730.3
522.1
8589.6
4163.2
13274.9
2455.4
459.7
299.7
0.0
1995.7
142.6
2152.8
488.5
1664.3

FY12
4151.5
20830.6
612.0
11104.6
5418.8
17135.3
3695.2
549.2
206.5
0.0
3146.0
142.6
3209.8
782.7
2427.1

FY13
4686.5
25581.1
959.3
12574.2
6386.4
19919.9
5661.2
636.8
306.6
44.5
5024.4
105.6
5269.9
1225.3
4044.6

FY14E
5379.7
32278.2
968.3
16139.1
7101.2
24208.6
8069.5
748.6
511.6
-484.2
7320.9
79.2
7269.1
1744.6
5524.5

FY15E
6492.2
38628.3
1158.8
19507.3
8691.4
29357.5
9270.8
903.4
645.6
77.3
8367.3
59.4
9030.8
2212.5
6818.2

24.1%
18.6%
5.9%
-4.6%

31.1%
29.6%
26.5%
32.2%

17.1%
32.4%
50.5%
45.8%

12.9%
22.8%
53.2%
66.6%

14.8%
26.2%
42.5%
36.6%

20.7%
19.7%
14.9%
23.4%

16.0%
12.5%
10.4%

15.6%
12.7%
10.6%

17.7%
15.1%
11.7%

22.1%
19.6%
15.8%

25.0%
22.7%
17.1%

24.0%
21.7%
17.7%

51.5%
3.7%
28.8%
14.5%

54.6%
3.3%
26.5%
22.7%

53.3%
2.9%
26.0%
24.4%

49.2%
3.8%
25.0%
23.3%

50.0%
3.0%
22.0%
24.0%

50.5%
3.0%
22.5%
24.5%

364.9
67.9
6288.8
18.5
92.6
20.0%
25.0%
3.94
19.68

493.5
68.9
7653.0
24.2
111.1
21.7%
31.5%
4.44
20.43

490.0
69.3
9837.9
35.0
141.9
24.7%
33.1%
3.45
13.99

759.5
69.6
13164.0
58.1
189.1
30.7%
24.2%
4.02
13.07

1392.0
69.6
17548.4
79.4
252.1
31.5%
20.6%
5.52
17.54

1392.0
69.6
23226.5
97.9
333.7
29.4%
16.7%
4.17
14.21



26

N arnolia Securities Ltd
402, 4th floor 7/ 1, Lord s Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4000
em ail: research@narnolia.com ,
w ebsite : w w w .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.

Trade advisory services for Today Buy Stock of Hindustan Zinc LTD

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Trade advisory services for Today Buy Stock of Hindustan Zinc LTD

Similar to Trade advisory services for Today Buy Stock of Hindustan Zinc LTD (20)

More from NARNOLIA SECURITIES LIMITED

More from NARNOLIA SECURITIES LIMITED (16)

Recently uploaded

Recently uploaded (20)

Trade advisory services for Today Buy Stock of Hindustan Zinc LTD