Best performing stock to buy today - Reliance and Emami Ltd

IEA-Equity
Strategy

India Equity Analytics

22th Jan, 2014

Daliy Fundamental Report on Indian Equities

RELIANCE :

"BUY"

Edition : 189
22th Jan 2014

The company for 3QFY14 reported turnover of Rs 103521 Cr up by 10.5% YoY. Refining revenues during the quarter increased to Rs 95432 Cr
up 10.1%YoY however it has witness sequential decline on account lower crude throughput of 17mmt due to maintenance turnaround. The
Capacity utilization stood at 110%.. .................................................. ( Page :2-3)

KOTAK BANK

"NEUTRAL"

22th Jan 2014

At the current price of Rs.708, bank is trading at 4.5 times of one year forward book and 37.5 times of one year forward earnings which
premium over its peers under our coverage. Bank reported slightly deterioration in asset quality and negative earnings due to muted operating
and financials metrics. We lower our target price to Rs.714 from earlier of Rs.782. We have neutral view on the stock.
...................................................................... ( Page : 4- 8)

Emami Ltd :

"BUY"

22th Jan 2014

Witnessed below sales numbers and beats on profitability and Margin expansion;Emami Ltd reported 6.6% (YoY) sales growth, Adversely
impacted by unfavorable season and moderation in the growth of FMCG sector. Overall volume grew by 6%. We retain “Buy” view on the stock
with a target price of Rs 635. At a CMP of Rs 448 , the stock is trading at P/BV of 7.3x on FY15E, respectively.
................................................................................... ( Page : 9-11)

Hindustan Zinc LTD : Good gains ahead

"BUY"

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 : 12- 14)

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 : 15-17)

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 : 18-22)

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 : 23-27)
Narnolia Securities Ltd,

RELIANCE

"BUY"
22th Jan' 14

Good Growth Ahead
Result Update

BUY

CMP
Target Price
Previous Target Price
Upside
Change from Previous

862
1040
21%
-

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

500325
RELIANCE
954/765
279218
52019
6313

Result Highlights :
Better-than-expected performance of the refining segment.
Higher Other Income.
The company for 3QFY14 reported turnover of Rs 103521 Cr up by 10.5% YoY. Refining
revenues during the quarter increased to Rs95432 Cr up 10.1%YoY however it has witness
sequential decline on account lower crude throughput of 17mmt due to maintenance
turnaround. The Capacity utilization stood at 110%.The Petrochemical revenues for the
quarter increased by 14.6% YoY to Rs25280 Cr driven by higher prices during the quarter.
The Oil and Gas segment revenue witnessed a fall of 9.8% YoY to Rs1733 Cr on account of
falling gas production from KG- D6.
Company’s Q3FY14 EBITDA witnessed a sequential decline of 2.9% to Rs 7622 Cr mainly
on account of fall in petrochemical margin and lower crude throughput at RIL’s refineries.
Petrochemical EBIT for the quarter decreased by 15.2% sequentially to Rs2124 Cr due to
lower volumes in polymers and polyester segments. The refining EBIT for the 3QFY14
came at Rs 3141 Cr down by 13 % YoY while Oil and gas EBIT came at Rs 540 Cr.

Stock Performance-%
Absolute
Rel. to Nifty

1M
-3
-4

1yr
-4
-8

YTD
9
-7

Share Holding Pattern-%
Promoters
FII
DII
Others

Current 2QFY14 1QFY1
4
45.3
45.3
45.3
18.3
17.7
17.4
11.5
11.8
11.6
25.0
25.2
25.7

1 Yr Price Movement Vs Nifty

RIL’s GRM at US$7.6/bbl was relatively superior to Singapore-Dubai GRM (which has
weakened to US$4.3/bbl in 3QFY14 vs US$5.4/bbl in 2QFY14 and US$6.6/bbl in 3QFY13)
due to the strength in gasoil cracks and the widening light-heavy crude spread.
Other Highlights:
Shale gas: RIL has incurred a cumulative investment of USD6.8bn till date across its three
shale gas JVs in the US. RIL’s share of revenue and EBITDA from the shale gas JVs during
3QFY14 amounted to USD221.3 Mn up 29% YoY and USD174 Mn,respectively.The Shale
Business during 9MFY14 registered turnover USD 627Mn up 47% YoY and EBITDA for the
period stand was USD 462Mn up 40% YoY.
Retail business: Revenues grew to Rs3927Cr in the third quarter compared to Rs 2839 Cr
for the same period last fiscal translating growth of 38% YoY. The Retail business reported
an EBITDA of Rs1bn during the quarter. The company added 27 new stores in 3QFY14,
taking the total number of stores to 1,577.
The company’s outstanding cash on the standalone balance sheet as at end-3QFY14 was
at USD14.4bn and outstanding debt was at USD13.2bn
View and Valuation:
The stock is trading at Rs 862 and in light of 3QFY14 performance, business outlook and
management commentary we maintain our previous recommendation BUY for the stock
with Target Price Rs 1040.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
103521
7622
5511
7.4%
5.3%

2QFY14
103758
9909
5490
9.6%
5.3%

(QoQ)-%
(0.2)
(23.1)
0.4
(220bps)
(10bps)

3QFY13
93886
8373
5502
8.9%
5.9%

Rs, Crore
(YoY)-%
10.3
-9.0
0.2
(160bps)
(50bps)

(Source: Company/Eastwind)

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

2

RELIANCE
Sales Trend (Rs/Bn)

Sales was flat on sequential basis.


EBITDA & OPM %

Yearly

decline in EBITDA reflects lower

refining margin and lower crude throughput


PAT & NPM %

Growth in PAT due to strong financial
performance of the refining segment and
higher-thanexpected other income



3

KOTAK BANK
Result update
CMP
Target Price
Upside

NEUTRAL
702
714
782
2
-9

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

500247
KOTAKBANK
804/588
54341
1.12 lakhs
6314

"NEUTRAL"
22th Jan, 2014

At the current price of Rs.708, bank is trading at 4.5 times of one year forward
book and 37.5 times of one year forward earnings which premium over its
peers under our coverage. Bank reported slightly deterioration in asset quality
and negative earnings due to muted operating and financials metrics. We
lower our target price to Rs.714 from earlier of Rs.782. We have neutral view
on the stock.
Muted revenue growth driven moderate NII growth negative non Interest
Income
Kotak Mahindra Bank reported moderate growth in core banking business with NII
grew by 10.9% YoY to Rs.913 cr. Muted revenue growth was driven by lower loan
growth, flat to negative non interest income, declined credit deposits ratio and NIM
compression. Non- interest income reported flat to negative numbers to Rs.300 cr
from Rs.305 cr in 3QFY13. Fee income registered growth of 6% YoY to Rs.226 cr

Stock Performance
1M
Absolute
-3.6
Rel.to Nifty
-4.1

from Rs.213 cr in corresponding quarter last year and treasury income reported
1yr
12.4
7.8

YTD
12.4
7.8

3
Promoters
43.7
43.7
43.8
FII
31.8
31.1
31.2
DII
Others

1.7
22.9

KOTAK Bank Vs Nifty

2.3
22.9

2.2
22.9

128% YoY growth to Rs.144 cr versus Rs.63 cr in 3QFY13.
Cost Income ratio increased led flat growth in operating profit
Operating expenses increased by 13.1% to Rs.628 cr from Rs.555 cr in last year
same quarter in which employee cost decreased by 5% YoY while other operating
cost increased by 33% YoY. Operating profit reported growth of 2.1% YoY to Rs.585
cr largely due to lower other income. Cost income increased to 51.8% in 3QFY14
versus 49.2% in 3QFY13 and 50.3% in 2QFY14.
Sequentially asset quality deteriorated
In 3QFY14, bank’s asset quality deteriorated by 7% on sequential basis in absolute
term while as a percentage to gross advance, it stood at 2% (slightly deteriorated by
4 bps). During quarter bank had made provisions of Rs.70 cr versus Rs.72 cr in
previous year in which loan loss provisions were Rs. 25.44 cr and investment
provisions to the tune of Rs. 43.3cr. As the result, net NPA increased by 20% QoQ
while as a percentage to net advance, this ratio stood at 1.1% versus 1% in previous
quarter. Provisions coverage ratio (without technical write off) declined by 590 bps on
sequential basis to 45.7%.

Financials
NII
Total Income
PPP
Net Profit
EPS

2011
2098
781
1325
818
11.1

2012
2512
977
1655
1085
14.6


Rs, Cr
2013
2014E
2015E
3206
3682
3762
1161
1412
1412
2157
2585
2536
1361
1450
1601
17.7
18.9
20.8
4

KOTAK BANK
Profit declined due to lower NII Growth, flat to negative other income growth along
with muted performance in operating and financials metrics
Kotak bank reported net profit de-growth of 6% YoY to Rs.340 cr largely due to lower
loan growth, declined in credit deposits ratio, moderate NII growth , lower other income
along with higher cost income ratio. Consequently ROA declined to 1.6% from 1.8% in
3QFY14 and ROE declined to 11.4% from 16.1%. On consolidated level, bank’s profit
grew by 2.4% YoY to Rs.591.25 cr. Consolidated profit come from Kotak Mahindra Prime,
Kotak Securities, Kotak Mahindra Capital, Kotak Mahindra Old Mutual Life Insurance and
other businesses.
Loan & deposits growth muted on YoY basis, saving deposits grew on the back of
lucrative interest rate
Loan increased by 5.8% YoY to Rs.53149 cr from Rs.50245 cr in corresponding quarter
last year led by retail and corporate loan growth of 6% and 5% respectively. Deposits
grew by 6% YoY led by saving deposits growth of 37.6% YoY largely due to bank’s
lucrative interest rate on saving deposits. Demand deposits and term deposits registered
growth of 6.1% and 0.6% respectively. CASA ratio, in absolute term grew by 22% YoY
while in percentage to total deposits, it stood at 29.7% versus 25.9% in last quarter.
Valuation &view
At the current price of Rs.708, bank is trading at 4.5 times of one year forward book and
37.5 times of one year forward earnings which premium over its peers under our
coverage. Bank reported slightly deterioration in asset quality and negative earnings due
to muted operating and financials metrics. We lower our target price to Rs.714 from
earlier of Rs.782. We have neutral view on the stock.
Valuation Band


5

KOTAK BANK
Fundamental through graph

Muted growth in NII was on account of
moderate growth in operating as well as
financials metrics

Lower non interest income and higher
operating cost led operating growth of 2.1%
YoY

Profit declined by 6% YoY due to lower NII
growth, flat non interest income, higher
operating cost and higher provsions on yealry
basis.


6

KOTAK BANK
Quarterly Performance

Quarterly Result( Rs Cr)
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
1702
484
6
0
2192
300
2492
1280
913
300
1212
277
350
628
585
70
515
175
340

2QFY13
1644
510
7
11
2172
297
2469
1248
924
297
1221
265
350
615
607
72
534
182
353

3QFY13 % YoY Gr % QoQ Gr
1597
6.5
3.5
492
-1.6
-5.0
5
21.3
-11.7
0
82.6
-96.3
2095
4.7
0.9
305
-1.7
0.9
2399
3.9
0.9
1272
0.6
2.5
823
10.9
-1.2
305
-1.7
0.9
1128
7.5
-0.7
292
-4.9
4.8
264
32.9
0.1
555
13.1
2.1
573
2.1
-3.6
42
64.6
-3.5
530
-2.9
-3.6
169
3.8
-3.7
362
-6.0
-3.6

Balalce Sheet( Rs Cr)
Net Worth
Deposits
Borrowings
Total Liabilities
Investment
Advances
Total Assets

11896
54671
13673
84297
23615
53149
84297

11569
52642
14523
82185
22528
50609
82185

8992
51524
18566
82428
26587
50245
82428

Asset Quality
GNPA
NPA
GNPA
NPA
PCR(w/o technical write-off)

1076.2
584.5
2.02
1.10
46

1005.9
486.9
1.99
0.96
52

740.0
322.7
1.47
0.64
56

32.3

2.8

6.1

3.9

-26.4

-5.9

2.3

2.6

-11.2

4.8

5.8

5.0

2.3

2.6

Source: Eastwind/ Company

7

KOTAK BANK
Financials & Assumption
Rs Cr
Others
Others Income
Total Income
Interest on deposits
Interest on RBI/Inter bank borrowings
Others
Interest Expended
NII
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
Net Profit

2011

2012

2013

2014E

2015E

3214
957
17
1
4190
781
4970
1498
349
246
2092
2098
781
2878
784
769
1553
1325
507
818

4867
1306
4
2
6180
977
7158
2504
775
389
3668
2512
977
3490
902
932
1835
1655
570
1085

6146
1870
24
2
8042
1161
9203
3346
1055
435
4837
3206
1161
4366
1075
1135
2210
2157
796
1361

6751
2079
27
20
8877
1412
10290
3926
0
1071
5195
3682
1412
5095
1129
1380
2509
2585
389
1450

8141
2006
7
20
10173
1412
11586
4515
0
2583
6411
3762
1412
5175
1188
1451
2639
2536
249
1601

Deposits
Deposits Growth(%)
Borrowings
Borrowings Growth(%)
Loan
Loan Growth(%)
Investment
Investment Growth(%)

29261
22.5
11724
90.9
29329
41.2
17121
36.8

38537
31.7
16596
41.6
39079
33.2
21567
26.0

51029
32.4
20411
23.0
48469
24.0
28873
33.9

58683
15.0
14671
-28.1
55739
15.0
25718
-10.9

67486
15.0
35387
141.2
64100
15.0
30862
20.0

11.0
5.6
8.6
5.1
5.1
5.1

12.5
6.1
9.8
6.5
7.0
6.7

12.7
6.5
9.9
6.6
7.3
6.8

12.7
8.1
4.5
6.7
7.3
7.1

12.7
6.5
4.0
9.5
7.3
6.2

93
4.9
41.2

108
5.0
37.0

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

123
159
179
5.3
4.5
4.0
36.9
37.5
34.0


8

Emami Ltd

"BUY"
22nd Jan' 14

"The niche advantage."
Results update

BUY

Witnessed below sales numbers and beats on profitability and Margin expansion;

CMP
Target Price
Upside

448
635
500
42%
27%

For 3QFY14, Emami Ltd reported 6.6% (YoY) sales growth, Adversely impacted by
unfavorable season and moderation in the growth of FMCG sector. Overall volume
grew by 6%. International Business has performed well with 37% sales growth led by
aggressive growth in GCC and SAARC. PAT up by 31%(YoY) due to judicious mix of
benign RM cost and price hike on some selective brands. its market share increased
across all brands during the quarter.
We expect revenue growth could be seen better in 4QFY14 as the weather related
headwinds for cooling oils is behind us and pricing on balms stabilize.
As the company has already forward contracted menthol for the year, menthol prices
continue to trend lower and price hikes for the year have been taken place. Margin
expansion visibility remains high going forward.
Margin Picked up: The OPM has increased by 520 bps to 30.2 % due to fall in RM cost by
60 bps to 28.1%, purchases of finished goods by 400bps to 4.6% and ASP cost by 160 bps
to 15% of adjusted net sales. The mgmt said that the prices are likely to remain stable
for the remainder of the fiscal year. The company has covered the Menthol prices for
the whole year.
Volume and Value growth: The volume of Navratna oil grew by 1%, Fair and Handsome
was 2% and Balm volume grew by 4%. While, Boroplus volume decline by 4% on YoY
basis impacted by unfavourable winter season. The value growth for , Fair and
Handsome was 12%, Navratna oil was 6% while Balm was at 3%. While, Boroplus
decline by 3% on YoY basis.
Distribution Reach: Although rural continues to grow ahead of urban markets, the
growth for Emami from rural area was at 13% and urban growth was flat on YoY basis.
The company, which gets majority of its rural revenues from Uttar Pradesh, Bihar and
West Bengal, is looking beyond these markets for its future growth. The company's
direct outlet reach is 6 lakh. The company has added 20000 outlets in Q2 and expects to
add 75000 – 100000 in FY14E.
Product expansion: The company has launched Boroplus face-wash last month and
there will be new launches in Q4 also. The mgmt said that for next 2 – 3 years it has
strong pipeline of products to be launch.
View and Valuation: Considering Emami’s focus on increasing rural penetration,
effective cost management, continuous strengthening of its brand equity and new
product funnel strongly in next 2- 3 years. The company's efforts are continue to
strengthen its market share in most of the categories it is present, we are positive on
the stock. We retain “Buy” view on the stock with a target price of Rs 635. At a CMP of
Rs 448 , the stock is trading at P/BV of 7.3x on FY15E, respectively.

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

531162
EMAMI
539/368
10275
37072
6314

Stock Performance
1M
-3.3
-3.9

Absolute
Rel. to Nifty

1yr
15.2
11.1

YTD
15.3
10.8

Promoters
FII
DII
Others

72.74
72.74
72.74
16.69
16.68
15.46
2.02
2.18
3.27
8.55
8.4
8.53

1 yr Forward P/B

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

3QFY14
584.7
176.8
150.7
30.2%
25.8%

2QFY14
406.7
87.4
80
21.5%
19.7%

(QoQ)-%
43.8%
102.3%
88.4%
870bps
610bps

3QFY13
548.65
136.9
114.9
25.0%
20.9%

Rs, Cr
(YoY)-%
6.6%
29.1%
31.2%
520bps
490bps


9

Emami Ltd
Sales and Sales Growth(%)

Sales for3QFY14E increased by 6.6%(YoY).
Overall volume grew by 5%. However, the
company continues to successfully
strengthen its market share in most of the
categories it is present.


Margin-%

The OPM has increased by 520 bps to 30.2 %
due to fall in RM cost by 60 bps to 28.1%,

Expenses on Sales

Management is focussed to reduce its Ad
revenue as before.


Ad spends: The ad spends in 3QFY14 have declined by 360bps YoY to 15% as a percentage
of sales. The ad spends, as a percentage of sales, are expected to be in the range of 1718% in 4QFY14 and FY15.
Tax: The effective tax rate was flat at 17% on YoY basis.and Company expects to see
samr range of tax rate for FY15E

10

Emami Ltd
Key facts from Conference Call (Attended on 21st Jan 2013)
▪ The management expects sales growth of 15%, consolidated with 3.4% growth from
new launches and 12% from existing brands while PAT guidance also continues to stand at
15% aided by strong gross margin expansion on the back of lower Mentha Oil prices.
▪ The mgmt has guided for a capex of Rs 70 – 75 crore each during FY14 and FY15. ASP for
FY14 will be 16% - 17%. And 18% for FY15%.
▪ The management expects 25% growth from International business considering political
uncertianty in Bangladesh for FY15E.
▪ The company has already taken price hikes and no further hikes are expected in FY14E.
Total annualized price hike for FY14 is 4% YoY.
▪ Emami has a good cash balance of Rs5bn which it expects to utilize for acquisition.

Financials
Rs in Cr,
Sales
Raw Materials Cost
Purchases of stock-in-trade
WIP
Employee Cost
Advertisement and Publicity
Other expenses
Total expenses
EBITDA
Depreciation and Amortisation
Other Income
Exceptional Items
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-%
Dividend payout-%
P/BV
P/E

FY10
1037.98
380.53
0
0
57.91
194.42
158.66
791.52
246.46
117.52
7
89.97
128.94
20.98
204.93
35.21
169.72

FY11
1247.08
346.76
204.9
-28.48
72.87
219.41
178.17
993.63
253.45
116.09
33.1
113.9
137.36
15.23
269.13
40.41
228.72

FY12
1453.51
415.12
189.13
22.17
92.31
228.99
209.02
1156.74
296.77
120.89
54.12
84.15
175.88
15.21
298.94
40.12
258.82

FY13
1699.09
539.83
182.14
-6.52
115.55
279
241.82
1351.82
347.27
124
56
96
223.2
6.6
368.69
54
314.68

FY14E
1886.97
566.09
141.52
22.64
141.52
311.35
283.05
1466.18
420.79
103.61
56.61
94.35
317.18
6.86
461.28
76.11
385.17

FY15E
2177.55
675.04
174.20
21.78
174.20
348.41
332.08
1725.71
451.84
119.57
65.33
119.77
332.28
5.14
512.22
87.08
425.15

35.5%
91.0%
85.0%

20.1%
2.8%
34.8%

16.6%
17.1%
13.2%

16.9%
17.0%
21.6%

11.1%
21.2%
22.4%

15.4%
7.4%
10.4%

36.7%
18.7%
5.6%
15.3%
17.2%

27.8%
17.6%
5.8%
14.3%
15.0%

28.6%
15.8%
6.4%
14.4%
13.4%

31.8%
16.4%
6.8%
14.2%
14.6%

30.0%
16.5%
7.5%
15.0%
16.5%

31.0%
16.0%
8.0%
15.3%
17.0%

23.7%
12.4%
16.4%

20.3%
11.0%
18.3%

20.4%
12.1%
17.8%

20.4%
13.1%
18.5%

22.3%
16.8%
20.4%

20.8%
15.3%
19.5%

197.70
15.13
625.42
11.22
41.34
27.1%
23.4%
4.78
17.62

249.40
15.13
689.85
15.12
45.59
33.2%
23.2%
5.47
16.50

260.80
15.13
706.63
17.11
46.70
36.6%
23.8%
5.58
15.25

397.40
15.13
777.47
20.80
51.39
40.5%
44.6%
7.73
19.11

448.00
22.70
1069.71
16.97
47.13
36.0%
24.1%
9.51
26.40

448.00
22.70
1388.64
18.73
61.18
30.6%
25.0%
7.32
23.92


11

Hindustan Zinc LTD.

"BUY"
21st Jan' 14

Good gains ahead
Result Update

BUY

CMP
Target Price
Upside

135
148
143
10%
3%

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

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)


12

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%


13

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

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

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


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

60

2000

0

40

1000

0

20

0

0



14

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
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



15

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.

16

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
Operation and other expenses
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



17

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

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
18

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


19

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


20

HDFC BANK

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

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


21

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


22

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

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
23

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


24

FEDERAL BANK
Fundamental Through Graph

Valuation Band

Source: Eastwind/Company

25

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

-


26

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


27

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
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