india equity analytics: buy stock of eros media and escorts ltd

Powergrid : "BUY"

Escorts Ltd: "Volume Growth Remains The Key;Retain Buy" "BUY" 5th Mar 2014

Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in

FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-to-

medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on

the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175

........................................................................ ( Page : 5-6)

Edition : 218

28th Feb 2014

For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted by seasonality and furloughs impact. However, most of

companies expressed its sanguine view for industry outlook and demand discretionary environment ahead. Post earnings, almost all companies

management have expressed for better earnings outlook in near term . .................................................. ( Page : 15-20)

IT Industry: 3QFY14 results review : "Clear acceleration in growth"

EROSMEDIA :"Moving to Blockbuster" "BUY" 5th Mar 2014

Healthy movies pipeline for FY15E; Company is expecting to release more than 8 big budget movies across Hindi and regional languages.

Likewise, company is going to release much awaited Rajnikanth’s movie Kochadaiiyaan on 11 April, 2014. Its well positioned to monetize rich

content of library ensures annuity and regular set of revenue. .......................................... ( Page :2-4)

IEA-Equity

Strategy

Private Sector Banks Result Review 3QFY14 3th Mar 2014

Private Banks are trading at significantly lower or reasonable valuation when compare to their historical trend due to possible deterioration in

asset quality earnings pressure and political un-clarity. We prefer private banks over PSBs largely due to their capability to report healthy

earnings, higher capital adequacy ratio and lower or stable asset quality. Our top picks in sector are HDFC Bank, ICICI Bank, Indusind Bank and

DCB. ............................................................................ ( Page : 13-14)

3th Mar 2014

IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing Continuous Casting Refractories and Special grade

Refractories which find applications in steel industry. IFGL has grown as an Indian multinational with manufacturing facilities located in Brazil,

China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a subsidiary of world’s second largest steel maker

NipponSteel Corporation holding about 15 % stake in IFGL. We expect IFGL will report its best ever performance in this full year. Considering

industry’s improving prospects, stabilization of production from its newly built plant at Kandla SEZ and out performance of company in its

financials, We don’t expect any scope for deep correction, hence recommending a BUY. ................................................................................... (

Page : 11-12)

3th Mar 2014

The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x BVPS. Valuation is very reasonable for a business

model with RoE (16%), strong growth visibility and minimal operational risks. We valued stock for a 12 month period at a target price of

Rs.118.With equity dilution overhang on the stock is removed, so we expect the stock price will drive by purely on its fundamentals, on our

estimates we maintain a positive fundamental outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of further

equity dilution is reduced . ............................................................ (Page : 10)

IFGL Refractories Ltd :"Strong Fundamentals…..." "BUY"

Infosys : "Meritocracy to growth" "BUY" 4th Mar 2014

In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level exits from the company. In near term, non-performers in

Infosys could be asked to leave or may hand over layoff notices. Infosys will retain its revenue acceleration and margin expansion, also operating

metrics will turn into greenery from hay. At a CMP of Rs 3793, it trades at 17.4x FY15E earnings. We retain our “BUY” view on the stock with a

target price of target price of Rs 3910 . ............................................................... ( Page : 7-9)

5th March, 2014

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

EROSMEDIA

1M 1yr YTD

Absolute 13.1 -7.3 -

Rel. to Nifty 8.2 -17.4 -

Current 2QFY14 1QFY14

Promoters 74.88 74.88 74.88

FII 12.45 12.16 11.35

DII 1.56 1.87 2.95

Others 11.11 11.09 10.82

Financials

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

Revenue 432.68 201 115.2 369.3 17.2

EBITDA 135.6 51.2 165.0 90.6 49.6

PAT 92.0 37.0 148.8 65.2 41.1

EBITDA Margin 31.3% 25.4% 590bps 24.5% 680bps

PAT Margin 21.3% 18.4% 290bps 17.7% 360bps

2

Nifty 6298

Stock Performance

Buy

P/BV-1 year forward

Rs, Crore

(Source: Company/Eastwind)

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

Recent initiatives: Eros has struck new deals during the period with MSM

Satellite Singapore private ltd for broadcast of films on Sony as well as with

Viacom18 media for broadcast films on colours.Recently Eros International media has launched two new movie channels HBO

DEFINED and HBO HITS, which will reduce its dependence on highly

unpredictable revenue streams going forward.

Share Holding Pattern-%

"Moving to Blockbuster"

Healthy movies pipeline for FY15E; Company is expecting to release more than

8 big budget movies across Hindi and regional languages. Likewise, company is

going to release much awaited Rajnikanth’s movie Kochadaiiyaan on 11 April,

2014. Apart from this, company is expected to release Dishkiyaaoon, Shadi Ke

Side Effect, Action Jackson, Tanu weds Manu season 2, Sarkar3, Chalo China,

NH-10, Dekho Magar Pyaar Se, Happy Ending and Rana in FY15E.

It has largest Indian content library of films with 1100+ films and digital rights

to an additional 700 films. Its well positioned to monetize rich content of

library ensures annuity and regular set of revenue. Considering diversified and sustainable Business Model along with well

positioned to monetize rich content of its library and block buster success ratio

of movies (out of the top 10 grossing films in recent years, 3 are from Eros.)

make us positive view on the stock.About Company: Eros International Media (EROS) is one of the largest films co-

production and distribution company in India and overseas, engage with pre-

sales of overseas rights, music rights and broadcasting rights. It recovers 35-40%

of its costs by selling movie rights to channels, recovers another 35-40% from

selling its overseas rights to overseas entities. Similarly, it gets 10-15% of the

cost of movies by selling music rights .

CMP 160

Target Price 200

Initiating Report

Previous Target Price -

Upside 25%

Change from Previous

BSE Code 533261

NSE Symbol EROSMEDIA

Average Daily Volume 26241

Robust 3QFY14 Result: Company reported better numbers with sales growth of

17% (YoY) led by huge spurt in catalogue monetization, which increase by approx-

75% (YoY). Its PAT grew by 41%(YoY).

View and Valuation: Management is very excited to invest into different

medium like internet and launching channels to generate revenue. Company’s

optimistic stance towards maintaining margins, strong movies slate and very low

valuation makes attractive. At a CMP of Rs 160, stock trades at 1.1 P/BVx FY15.

We initiate “BUY” with a target price of Rs 200.

During the quarter, Its EBITDA margin improved by 680bps (YoY) to 31.3%

because of reduction in operational expenses and employee expenses.

Management expects to see EBITDA margin at 25% in FY14E and FY15E than 20-

22% range of margin in previous 4 years.

52wk Range H/L 195/107

1467Mkt Capital (Rs Crores)

Market Data

"BUY"5th March' 14


3

Sales and Sales growth(%)(yoy)


EROSMEDIA

Margin-%



Upcoming Movies:

1. Piracy is the key concern for the

company. Indian film industry loses

approx. Rs.2000 cr. every year due to

piracy (source: FICCI-KPMG report 2009).

Key Concerns:

2. Lower consumer discretionary demand.

3. Difficult to predict fate of films.



Date of Release Upcoming movies Director Starcast

28-Feb-14 Shaadi Ke Side Effects Saket Chaudhary Farhan Akhtar,Vidya Balan

21-Mar-14 Dishkiyaaoon Sanmjit Singh Talwar Sunny Deol, Harman Baweja

28-Mar-14 Happy Ending Raj and DK Saif Ali Khan, Ileana D'Cruz

11-Apr-14 Kochadaiiyaan Soundarya Ashwin Rajnikanth, Deepika Padukone

6-Jun-14 Action Jackson Prabhu Deva Ajay Devgn, Sonakshi Sinha

12-Sep-14 NH-10 Navdeep singh Anushka sharma,Neil bhoopalam

Tanu Weds Manu Season 2 Anand Rai R.Madhavan,Kangana Ranaut

R. Balki Untitled R.Balki Amitabh Bachchan, Dhanush

Aankheen 2 Apoorva Lakhia Abhishek Bachchan

Illuminati Untitled Arif Ali Armaan Jain

Dekh Tamasha Dekh Feroz Abbas Khan Satish Kaushik and Others

Purani Jeans Tanushree Basu Aditya Seal

Chalo china Shashank Ghosh Vinay Pathak, Lara Dutta

FY15E

Q2FY15

Q1FY15

Q4FY14E

1. Catalogue monetization will continue to grow strong in the upcoming quarters.

2. Company will monetize entire portfolio across different platforms

3. Catalogue monetization will increase from 13%-14% to 20-25% of overall revenue in coming 3 to 4 years.

4. Management is looking for more and more free cash flows going forward.

5. Q4 will be very positive and going forward FY15E will also be very positive for the company.

6

4

Management is very confident about its performance going forward and expects EBITDA margin to be around 25% in

FY14E and FY15E.



Financials;

EROSMEDIA

Management Guidance:


Rs,cr FY10 FY11 FY12 FY13 FY14E FY15E

Sales 640.88 706.97 943.88 1067.95 1110.8 1229.9

RM Cost(Operatinal expenses) 480.33 495.13 665.45 765.78 766.5 860.9

WIP 0 0.84 -2.92 -2.55 -2.7 -2.9

Employee Cost 19.7 25.28 22.55 27.29 29.4 36.9

Other expenses 27.81 29.57 42.96 47.47 29.4 36.9

Total expenses 527.84 550.82 728.04 837.99 822.7 931.8

EBITDA 113.04 156.15 215.84 229.96 288.1 298.1

Depreciation and Amortisation 4.39 3.82 6 6.45 7.7 9.2

Other Income 12.62 8.95 19.3 6.4 11.1 12.3

EBIT 108.65 152.33 209.84 223.51 280.4 288.9

Interest 9.02 9.39 13.44 9.22 25.4 26.0

PBT 112.25 151.89 215.7 220.69 266.2 275.2

Tax Exp 29.63 33.67 63.14 61.19 77.7 80.4

PAT 82.62 118.22 152.56 159.5 188.5 194.8

Sales 16.9% 10.3% 33.5% 13.1% 4.0% 10.7%

EBITDA 52.8% 38.1% 38.2% 6.5% 25.3% 3.5%

PAT 72.1% 43.1% 29.0% 4.5% 18.2% 3.4%

RM Cost 74.9% 70.0% 70.5% 71.7% 69.0% 70.0%

Employee Cost 3.1% 3.6% 2.4% 2.6% 2.7% 3.0%

Other expenses 4.3% 4.2% 4.6% 4.4% 2.7% 3.0%

Tax rate 4.6% 4.8% 6.7% 5.7% 7.0% 6.5%

EBITDA 17.6% 22.1% 22.9% 21.5% 25.9% 24.2%

EBIT 17.0% 21.5% 22.2% 20.9% 25.2% 23.5%

PAT 12.9% 16.7% 16.2% 14.9% 17.0% 15.8%

CMP 138.9 138.9 181.15 180.53 160.0 160.0

No of Share 9.14 9.14 9.17 9.19 9.2 9.2

NW 237.55 670.48 834.61 986.5 1158.6 1337.0

EPS 9.0 12.9 16.6 17.4 20.5 21.2

BVPS 26.0 73.4 91.0 107.3 126.1 145.5

RoE-% 35% 17.6% 18.3% 16.2% 16.3% 14.6%

P/BV 5.3 1.9 2.0 1.7 1.3 1.1

P/E 15.4 10.7 10.9 10.4 7.8 7.5

Valuation:

Margin-%

Expenses on Sales-%

Growth-% (YoY)

V- Escorts Ltd.

CMP 115

Target Price 175

Previous

Target Price

95

Upside 52%

Change from

Previous

84%

BSE Code 500495

NSE Symbol Tractor Volume

52wk Range

H/L

48/96

Mkt Capital

(Rs Crores)

1,402

Average Daily

Volume

225,953

Nifty 6,298

1M 1yr YTD

Absolute (7.5) 86.6 131.4

Rel. to Nifty (10.9) 77.3 121.9

3QFY14 2QFY14 1QFY14

Promoter's 42.0 42.0 42.0 Outlook

FII's 9.4 12.3 12.1

DII's 2.1 4.7 5.4

Others's 46.5 41.0 40.6

Valuation

5

An increase in volumes is an indication of healthy demand. The rise in volumes for this quarter

can be attributed to a good monsoon. Tractor sales seem to have improved across all players,

indicating an overall improvement in demand. We believe that this segment will continue to

support the growth of the company. The adverse macroeconomic conditions, however, will see

the performance of its construction equipment segment and auto ancillary segment remaining

subdued. For these businesses, the firm is looking at premium product positioning and to deliver

a better than expected customer experience. In addition, it is looking at the export market as a

window of opportunity especially in the auto ancillary business.

The stock is currently trading at 6.5x FY14E EPS with a negative bias in case of construction

equipment segment due to adverse macroeconomic conditions . At current price of Rs. 117, the

stock is trading at P/E of 7.1 x for FY13E and 6.5 x the FY14E. Escorts could post EPS of Rs. 12.13

for FY14E and Rs. 12.98 for FY15E. An increase in volumes is an indication of healthy demand.

Tractor sales revival has enabled the company to register strong result. Escorts’ EBITDA margin

and bottom-line exceeded our expectations. Going forward, we remain positive on the

company’s growth prospects particularly in AMP segment. Going forward, we remain positive on

the company’s growth prospects particularly in AMP segment. We expect demand to improve

further in FY2014E with the economic recovery. However, we remain cautious with regards to

growth in Construction Equipment segment in near-to-medium. Thus, We revise our estimates

upwards to factor in the strong CY13 tractor volume performance. We therefore revised our

rating on the stock from "Reduce" to "Buy" and advised to our investors to enter at current

level with Revised price target of Rs. 175

Buy In February month company witnessed a good tractor volume number. In February 2014

company sold 4,627 tractors, growth of 7.5% against 4,305 tractors in February month of 2013.

Domestic sales in February 2014 up by 6.8% stood at 4,581 tractors as against 4,288 tractors in

February 2013. Export for the month of February 2014 stood at 46 tractors as that of 17

tractors in February 2013. Also during the last 17 months tractor sales grossed at 94553 units

as against 86337 units sold during corresponding period of 15 months last year. Going forward

management indicated that volume growth is to be in double digit and at arround 14%. The

management further indicated that margins should improve from the current level on the back

of improvement in the product mix, taking hikes in the prices, controlling inflation, rid of

inflation, as well as cutting down on the other costs.


"Volume Growth Remains The Key; Retain Buy……."

ESCORTS


Stock Performance-%

Company update

Market Data

(Source: Company/Eastwind Research)

"Buy"5th Mar' 14


6

Key financials :


Escorts Ltd.

(Source: Company/Eastwind Research) (Figures In crore)


PARTICULAR 2009A 2010A 2011A 2012A2014E 18

Months2015E 2016E

Performance

Revenue 2600 3353 4101 4049 7424 6186 7424

Other Income 53 27 56 48 75 60 72

Total Income 2653 3380 4157 4098 7499 6246 7496

EBITDA 160 220 168 190 438 402 557

EBIT 100 172 120 139 346 332 473

DEPRICIATION 60 48 48 50 92 70 84

INTREST COST 67 18 71 97 135 65 65

PBT 86 181 104 90 285 326 479

TAX 29 49 -15 19 77 88 129

Reported PAT 57 132 119 71 208 238 350

Dividend 11 11 13 13 13 20 20

EPS 6.3 12.5 11.3 6.7 19.7 22.6 33.1

DPS 1.2 1.0 1.2 1.2 1.2 1.9 1.9

Yeild %

EBITDA % 6.2% 6.6% 4.1% 4.7% 5.9% 6.5% 7.5%

PBT % 3.2% 5.4% 2.5% 2.2% 3.8% 5.2% 6.4%

NPM % 2.2% 3.9% 2.9% 1.7% 2.8% 3.8% 4.7%

Earning Yeild % 5.7% 5.8% 15.9% 10.6% 17.3% 19.8% 29.1%

Dividend Yeild % 1.1% 0.5% 1.7% 1.9% 1.1% 1.7% 1.7%

ROE % 4.0% 7.8% 6.7% 4.3% 11.4% 11.6% 14.7%

ROCE% 3.1% 6.3% 5.3% 3.2% 9.4% 9.8% 12.7%

Position

Net Worth 1425 1686 1784 1645 1834 2052 2382

Total Debt 402 405 486 554 390 375 375

Capital Employed 1827 2091 2270 2199 2224 2427 2757

No of Share 9 11 11 11 11 11 11

CMP 110 216 71 64 114 114 114

Valuation

Book Value 157.1 159.6 168.9 155.8 173.6 194.3 225.5

P/B 0.7 1.4 0.4 0.4 0.7 0.6 0.5

Int/Coverage 1.5 9.5 1.7 1.4 2.6 5.1 7.3

P/E 17.5 17.3 6.3 9.5 5.8 5.1 3.4

Net Sales/CE 1.4 1.6 1.8 1.8 3.3 2.5 2.7

Net Sales/Equity 1.8 2.0 2.3 2.5 4.0 3.0 3.1

Infosys

1M 1yr YTD

Absolute 4.5 30.4 53.1

Rel. to Nifty 0.8 21.6 49.4

Current 2QFY14 1QFY14

Promoters 15.94 15.94 16.04

FII 40.65 39.93 39.55

DII 15.35 16.16 18.28

Others 28.06 27.97 26.13

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

Revenue 13026 12965 0.47 10424 25.0

EBITDA 3258.9 2836.9 14.88 2677 21.7

PAT 2874.9 2406.9 19.44 2369 21.4

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

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

7

Cost Rationalization: Company’s employee costs have ballooned very rapidly in the last

2-3 years. For example, on-site compensation was 36% of the overall revenue in FY11

and it went up to 46.3% in FY13, Overall employee cost on sales increased from

52%(FY09) to 56% (FY13). Company has hired a number of employees at higher salaries

outside India and employees are not adding efficient growth in productivity.

Improving utilization level: Comparing with other peers, its utilization level (excluding

trainees) declined from 80% in FY11 to 74% in FY13. Post NRN entry, company had

hiked offshore wage at the rate of 8% and overseas at 3%. We expect that company’s

management could decide for wage hike across onsite as well as offshore to enhance its

utilization rate in near term.

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

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

of strategic acquisitions, better utilization of cash balances, better deal win, consistent

client traction and revenue momentum would help the company to bridge the gap with

rivals such as TCS.

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

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

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

growth for FY14E like other top bellwether. At a CMP of Rs 3793, it trades at 17.4x

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

price of Rs 3910 .

Market Data

In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level

exits from the company. In near term, non-performers in Infosys could be asked to

leave or may hand over layoff notices. Despite high salaries, some identified

employees are not contributing so much to improve productivity and efficiency of

operations. Already, the restructuring initiatives has taken place at the top of the

pyramid and now shifted to mid level of pyramid. Hence, its pink slip strategy indicates

to regain its growth and margin in near term.

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

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

growth story despite recent hiccups of top management exit.

Key takeaways from recent webcast;

Restructuring at middle management: Mr. Murthy has taken initiatives to improve

cost efficiency and effective delivery system. The management has rewarded the top

performers and has given an opportunity to mediocre performers. Its PIP (performance

Improvement Program) followed by exam, and appraisal would dictate the level of

efficiency for mediocre, and the situation of involuntary attrition.

1 year forward P/E

Rs, Crore


BSE Code 500209

NSE Symbol INFY


1240448

Nifty 6221

217810

52wk Range H/L 3847/2190

Mkt Capital (Rs Crores)

Stock Performance

Average Daily Volume

"Meritocracy to growth"

CMP 3793

Target Price 3910

Focus on meritocracy for client satisfaction as well as margin expansion;Company update BUY

Previous Target Price 3620

Upside 3%

Change from Previous 8%

"BUY"4th March' 14


8



The Company's Utilization is likely to

keep inching up, which could lead to

margin expansion for a couple of

quarters and that is going to be a huge

positive for Infosys as a company.

Headcount Metrics: Its attrition increased to 18% from

17.3%(2QFY14) on LTM basis, however

on sequentially basis they have been able

to control its attrition. we hope that the

further salary hikes across the board will

bring down the attrition levels going

forward.

Utilization:


Infosys.

Employee cost on sales-%

Employee cost on sales at all time high


Total Employee and additions,

Looking to bring in about maximum 6,000

off-campus offers, Infosys will hire up to

16,000 engineers next year.



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

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

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

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

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

9

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

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

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

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

engaging and developing.


Infosys.

Financials


Key facts from Management Interview;

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

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

meet the projection.

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

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

its revenues.


Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales, INR 22742 27501 33734 40352 50330 59631

Employee Cost 12085 14856 18340 22565 28185 33691

Other expenses 2792 3677 4671 6254 8556 10734

Total Expenses 14877 18533 23011 28819 36741 44425

EBITDA 7865 8968 10723 11533 13589 15206

Depreciation 905 854 928 1099 1371 1624

Other Income 982 1211 1904 2365 2567 3578

EBIT 7942 9325 11699 12799 14785 17160

Interest Cost 0 0 0 0 0 0

PBT 7942 9325 11699 12799 14785 17160

Tax 1681 2490 3367 3370 3992 4633

PAT 6261 6835 8332 9429 10793 12527

Growth-%

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

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

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

Margin -%

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

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

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

Expenses on Sales-%

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

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

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

Valuation

CMP 2615 2765 2865 2400 3793 3793

No of Share 57.4 57.4 57.4 57.4 57.4 57.4

NW 23049.0 25976.0 31332.0 37994.0 45629.8 54797.5

EPS 109.1 119.0 145.1 164.2 188.0 218.2

BVPS 401.7 452.4 545.6 661.7 794.7 954.3

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

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

P/BV 6.5 6.1 5.3 3.6 4.8 4.0

P/E 24.0 23.2 19.7 14.6 20.2 17.4

Powergrid..

95

118

NA

25%

NA

532898

49490

22270

6277

1M 1yr YTD

Absolute 8.2 9.5 8.1

Rel. to Nifty 9.5 3.8 4.0


Promoters 57.9 57.9 69.4

FII 25.4 19.4 14.7

DII 8.6 8.8 7.6

Others 8.2 13.9 8.3

View & Recommendation

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

Revenue 3685 9.4 -7.9 3369 3999

EBIDTA 3105 6.0 -8.4 2930 3389

Net Profit 988 -8.5 -16.9 1080 1189

EBIDTA% 84 -3.1 -0.6 87 85

NPM% 27 -16.3 -9.8 32 30(In Crs)

10

BUY

Market Data

Average Daily Volume (Nos.)

CMP

Target Price

Previous Target Price


Stock Performance-%


1 yr Forward P/B

Source - Comapany/EastWind Research

The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x

BVPS. Valuation is very reasonable for a business model with RoE (16%), strong growth

visibility and minimal operational risks. We valued stock for a 12 month period at a target

price of Rs.118.

Power Grid's Raichur-Solapur line has been connected to national grid. Management Says

there were four trippings in the first week. Two were to increase reliability and were

done intentionally, and the other two were because of a few glitches. For the last month

there has been no tripping.

With equity dilution overhang on the stock is removed, so we expect the stock price will

drive by purely on its fundamentals, on our estimates we maintain a positive fundamental

outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of

further equity dilution is reduced

Capitalisation of assets remains on track. Till Jan end the company has capitalised Rs

118bn of assets which is 70% of our full year estimate. Since last two months of the year

usually account for the bulk of yearly commissioning we are confident that the co. will meet

our estimate of Rs 170bn for FY14.

Strong Capitalization : Power Grid’s adjusted PAT increased 4.3% YoY to Rs. 1,043 crore

in Q3FY14 While asset capitalisation was below estimate Rs. 3050 crore, PGCIL

commissioned another Rs. 3450 crore in January 2014 taking overall capitalisation to Rs.

13000 crore YTDFY14.

The Central Electricity Regulatory Commission (CERC) issued the final tariff regulations for

the period FY15-19 – these regulations form the basis of Power Grid’s earnings (regulated

returns) from its core transmission business over the next five years.The Key take aways

of these Regulations are Normative TAF (NATAF) for incentives lowered; no incentive for

TAF >99.75% .Normative O&M charges raised (vs. draft), but still below FY14 levels.

BSE Code

POWERGRIDNSE Symbol

52wk Range H/L

Mkt Capital (Rs Crores)

116/87

Overall revenues increased 9.6% YoY to Rs.3685 crore due to lower than anticipated

capitalisation (Rs.3050 crore) in Q3FY14 . Income increased 6.5%, 10.0% and 121.9% YoY

in transmission, telecom and consultancy income, respectively. Other income declined

9.7% YoY to Rs.116 crore as cash was deployed across various upcoming projects.

Margins declined 336 bps YoY to 87.4% due to 55.7% YoY rise in transmission & other

expenses to Rs.333 crore. Tax expenses increased 7.5% YoY to Rs. 399 crore. Q3FY13

included a one-time income of Rs.167 crore as wage revision benefit. Adjusting the same,

PAT increased 4.3% YoY to Rs.1,043 crore.

Upside

Change from Previous

Nifty

Update

"Buy"3rd march' 14


V- IFGL Refractories Ltd.

CMP 62

Target Price 80

Previous

Target Price

NA

Upside 29%

Change from

Previous

0%

BSE Code 532133

NSE Symbol

52wk Range

H/L

24/68

Mkt Capital

(Rs Crores)

214

Average Daily

Volume

6,366

Nifty 6,277

1M 1yr YTD

Absolute (0.5) 75.7 100.2

Rel. to Nifty (3.6) 68.5 89.7


Promoters 71.3 71.3 71.3

FII 0.0 0.0 0.0

DII 2.2 2.2 2.2

Others 26.5 26.5 26.5

Financials Rs, Crore

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

Revenue 194.7 201.4 -3.3% 169.0 15.3%

EBITDA 27.2 29.9 -8.8% 18.3 48.5%

PAT 14.3 19.1 -25.2% 9.5 50.3%

EBITDA Margin 14.0% 14.8% (80) bps 10.9% 310 bps

PAT Margin 7.4% 9.7% (230) bps 5.1% 230 bps

11

IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing

Continuous Casting Refractories and Special grade Refractories which find applications in steel

industry. IFGL has grown as an Indian multinational with manufacturing facilities located in

Brazil, China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a

subsidiary of world’s second largest steel maker NipponSteel Corporation holding about 15 %

stake in IFGL. The company has a lot of subsidiaries with the ones in US and Germany

seemingly doing well. For the latest December quarter,on a consolidated basis company

reported a Sales of Rs. 195.7 Cr v/s Rs. 168.9 Cr. Net profit improved sharply from Rs. 9.5 Cr to

Rs. 14.3 Cr. For 9 Month period EPS is Rs. 13.9 which is more than the full year figure of Rs. 7.3

of last year. We expect IFGL will report its best ever performance in this full year. Considering

industry’s improving prospects, stabilization of production from its newly built plant at Kandla

SEZ and out performance of company in its financials, We don’t expect any scope for deep

correction, hence recommending a BUY.

"Strong Fundamentals…..."

Result update

1 yr Forward P/B


Stock Performance-%

Market Data

IFGLREFRAC

Buy

Industry revival to spur growth :

Fate of refractory companies closely related with the growth of steel industry. Now steel industry

world around showing some earlier signs of revival.As a global player ,IFGL is expected to get

immense benefit from this revival.Its technical collaboration and equity participation with one of

the world leaders also helping the company to adopt latest technology in manufacturing process.

A major portion of company’s income is from exports and the currency valuation of currency is

also positive for it. Steel industry in the US and in Europe is coming out of pro-longed recession

and demand in India is also expected to pick up on account of major projects getting started.

Increase in capital expenditure for capacity expansion by major steel producers both within India

and internationally augurs well for the refractory industry

Valuation :

Low leverage balance sheet and attractive valuations augurs well :

IFGL reported debt equity ratio of 0.35x in Sep FY13, even after the series of acquisitions, and we

expect it to gradually reduce over time to 0.28x in FY15E.Company having an uninterrupted

dividend paying record for the past four years. Promoters holding more than 70 % stake (NIL

pledged) in the company and another 7 % is held by large investors. At a time the steel industry

is showing revival, We expect IFGL will report its best ever performance in this full year.

Considering industry’s improving prospects, stabilization of production from its newly built plant

at Kandla SEZ and out performance of company in its financials, We don’t expect any scope for

deep correction, hence recommending a BUY.

(Standalone)


(Source: Company/ Eastwind Research)

At CMP of INR 62, IFGL is trading at P/E of 3.7x and 3.2x its FY14E and FY15E earnings. Company

can post the EPS of Rs 16.8/18.6 in FY14/15E and RoE% of 20.3%/19.2% in FY14/15E . We rate a

BUY rating on the stock with an 12 months price target price of Rs 80.0 at 4.1x FY15E earnings.

"Buy"3rd Mar' 14


12


IFGL Refractories Ltd.

Key financials :

(Source: Company/ Eastwind Research)


PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E

Performance

Revenue 398 415 471 604 671 772 888

Other Income 2 3 5 3 4 3 3

Total Income 401 419 476 607 676 776 891

EBITDA 27 58 43 75 58 106 120

EBIT 20 50 34 62 45 89 103

Depriciation 7 8 9 13 13 17 17

Intrest Cost 10 5 6 7 8 7 7

PBT 13 49 33 58 41 85 99

TAX 7 15 8 18 16 27 31

Derrivative Loss 0 0 0 0 0 0 0

Reported PAT 6 34 24 40 25 58 68

Dividend 2 2 0 1 2 2 2

EPS 1.8 9.7 7.0 11.5 7.3 16.8 19.6

DPS 0.7 0.6 0.0 0.2 0.6 0.6 0.6

Yeild %

EBITDA % 6.9% 13.9% 9.1% 12.3% 8.7% 13.7% 13.5%

NPM % 1.5% 8.0% 5.1% 6.6% 3.8% 7.5% 7.6%

Earning Yeild % 9.7% 17.6% 22.9% 29.2% 23.7% 27.2% 31.6%

Dividend Yeild % 3.7% 1.1% 0.0% 0.5% 1.9% 1.0% 1.0%

ROE % 5.3% 24.6% 15.0% 19.2% 11.0% 20.3% 19.2%

ROCE% 2.8% 15.6% 8.3% 11.9% 7.1% 14.6% 15.0%

Position

Net Worth 114 137 161 207 231 287 353

Total Debt 100 79 129 127 129 110 100

Capital Employed 214 216 290 335 360 397 453

No of Share 3 3 3 3 3 3 3

CMP 18 55 31 39 31 62 62

Valuation

Book Value 32.8 39.6 46.6 59.9 66.7 83.0 101.9

P/B 0.5 1.4 0.7 0.7 0.5 0.7 0.6

Int/Coverage 2.1 11.1 5.7 9.1 5.6 12.2 14.1

P/E 10.3 5.7 4.4 3.4 4.2 3.7 3.2

13

Private sector banks delivered better when compare to PSBs in term of asset quality

at sequential basis. Sequentially banks reported stable asset quality with high

coverage ratio which provided cushion to their earnings. But in our sense, asset

quality pressure continues to persist because economy growth is likely to be tepid

and it will take some time for recovery in domestic industrial activity and corporate

balance sheet’s leverage to decline. According to S&P, with the uptick in economy,

bank will have take some time for revival as banks have to struggle for capital base

too for further growth but private banks have adequate capital base and healthy tier-

1 capital. Outlook of asset quality in system is not positive and it would remain

challenge for banks in FY14.

Nifty Vs Bank Nifty during Year

Well structure balance sheet led healthy growth at operating profit level

Operating expenses in our coverage universe remained stable on sequential basis

and on very positive note; they delivered on an average basis growth of 19.8% YoY

at operating profit level. This was due to healthy NII growth, stable fee income and

controlled operating leverage. We have highlighted above that banks with healthy

operating profit would do better going forward as strong performance at operating

profit level would be possible only in case of well structure balance sheet growth.

Economic growth and stress in asset quality issue would be resolve with the passage

of time. Although we have not seen any revival in economy nor improvement in asset

quality in near term but private sector banks are trading significant discount as

against their historical valuation due to possible fear of deterioration in assets.

Profitability increased due to healthy NII growth, controlled CI ratio and stable

asset quality

Most of banking stocks are trading at lower side of valuation band due to earnings

pressure, higher operating leverage and asset quality. In our coverage universe,

bank reported profit growth of 16.6% YoY higher than our expectation led by margin

expansion, controlled operating leverage and stable asset quality. Although we saw

some earnings pressure in many large and mid cap banks on which Axis bank’s

profitability was boost up by right back of investment depreciation and Yes Bank’s

provisions and contingencies was almost down by 100% which inflated profit growth

by 21.4% YoY.

Asset quality continues to persist and would take time despite of uptick in

economy

Private Sector Banks Result Review 3QFY14

Better than expected NII on the back of margin expansion and loan growth


In our coverage universe, banks NII grew by 15.7% YoY largely due to stable margin

and loan growth. Private sector banks are getting benefit from their high base CASA

franchise and low share of high cost wholesale bulk deposit. HDFC Bank, ICICI

Bank, Indusind Bank and DCB were continued to report 20%+ NII growth whereas

Federal Bank, INGVYSYA Bank, J&K Bank saw some stress in their earnings.


14

Private Sector Banks Result Review 3QFY14

We like those banks which did well at operating profit level, keeping in mind that with

slower pace of economy growth and rising interest rate scenario, asset quality pressure

would persist. Provision and contingencies are already expected to remain high. Most of

bank’s profitability was down owing to higher provisions against loan loss. With the

recovery in economy loan growth and asset quality would improve with the passage of

time but operating leverage and margin expansion are permanent structure of balance

sheet. Banks with strong CASA base and adequate deposits growth that could support

loan growth easily without depending upon external fund would do better in going

forward. Outlook

Private Banks are trading at significantly lower to their historical valuation or reasonable

valuation due to their possible earnings pressure and asset quality issue. This is on

account of sluggish economic growth and political un-clarity. Some banks in our universe

are capable to generate high level of profit, have high capital adequacy ratio and lower

level of stress. In our sense these banks would do better in current economy macro

situation. Out top picks are HDFC Bank, ICICI Bank, Indusind Bank and DCB.


Well structure balance sheet growth and high CASA base would help to keep

profitability up

Result Snapshot


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

AXISBANK 2984 2615 1604 2937 2750 1362 2495 2311 1296 19.6 13.2 23.8 1.6 -4.9 17.8

CUB 198 135 89 190 141 84 163 131 85 21.2 2.8 4.8 4.0 -4.5 6.1

DCB 94 46 36 91 40 33 72 32 27 30.5 44.9 34.7 3.3 15.9 10.2

DHANBANK 57 -8 -119 82 18 -1.85 74 14 4 -23.6 -154.4 -3084.3 -31.1 -142.3 6352.4

FEDERALBNK 546 356 230 548 354 226 497 394 211 9.8 -9.7 9.1 -0.4 0.5 1.8

HDFCBANK 4635 3888 2326 4477 3387 1982 3799 3024 1859 22.0 28.6 25.1 3.5 14.8 17.3

ICICIBANK 4256 4440 2533 4044 3888 2352 3499 3452 2250 21.6 28.6 12.6 5.2 14.2 7.7

INDUSINDBK 730 647 347 700 588 330 578 472 267 26.3 37.2 29.9 4.3 10.1 5.1

INGVYSYABANK 416 274 167 440 276 176 403 263 162 3.3 4.3 3.3 -5.4 -0.6 -4.9

J&KBANK 647 441 321 682 496 303 594 435 289 8.9 1.3 11.2 -5.2 -11.1 6.0

KARURVYSYA 305 153 107 298 157 83 308 212 113 -0.9 -27.8 -5.5 2.4 -2.6 28.7

SOUTHBANK 350 216 141 364 212 127 353 235 128 -0.7 -8.1 10.4 -3.7 1.8 11.3

YESBANK 665 615 416 672 713 371 584 563 342 13.9 9.2 21.5 -1.0 -13.8 12.0

Total 15882 13818 8198 15525 13020 7427 13419 11538 7033 18.4 19.8 16.6 2.3 6.1 10.4

QoQ Growth

PRIVATE BANK

3QFY14E 2QFY14 3QFY13 YoY Growth

IT Industry: 3QFY14 results review

Key takeaways from 3QFY14 earnings:

15

"Clear acceleration in growth"

(Source: Eastwind)


Post earnings, almost all companies management have expressed for better earnings

outlook in near term and they were confident to see stronger FY15E than FY14E on

healthy growth prospect and a secular improvement in demand trend.

Margin ramped up across the Tier-1 and most of mid cap space: Despite flattish currency

benefit, companies have been efficient to maintain its margin because of reinvested

higher growth and efficient strategy to improve utilization. With macro improving and

positive growth outlook, the operating advantage from investment is likely beginning to

play out.

SMAC and Digital were subject to discussion: Emerging verticals SMAC (Social, Mobility,

Analytics and Cloud) and Digital transformation are expected to bring next generation of

growth in IT Industry. A number of IT companies, especially tier-1 IT companies have

expressed its priority area and strategy to pan-out growth opportunities on these

emerging verticals. Current uptrend in discretionary spend is being driven by the same.

Deal Pipeline remains healthy: During the quarter, weak seasonality marginally impacted

order inflow. For near term, deal pipeline remains healthy and somehow, Pricing will be

marginally under pressure in the traditional IT segment, Application Development and

Management segment. While, we do not see any pressure on new emerging segments like

SMAC, Digital, Infra, etc.

Earning Performance v/s Estimates;

Mix performance and margin sustainability, future outlook appears positive;Price performance of our coverage:

(Source: Eastwind)

For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted

by seasonality and furloughs impact. However, most of companies expressed its

sanguine view for industry outlook and demand discretionary environment ahead. The

Top-4 companies responded a decent set of performance despite seasonally weak

quarter with aggregate revenue of 2.8% in USD term (QoQ).

Comparing with street expectation, Infosys and HCL Tech beat the street, while TCS and

Wipro reported inline set of numbers. On margin front, they surprised positively with

back-to-back quarters of margin improvement led by operational efficiencies and cost

rationalization.

USD revenue was marginally inline and Positive FY15E outlook: Reported USD revenues

were in line or very marginally below our estimate during the seasonally weak quarter

across the top tier. A part of this, companies management have given better outlook with

margin expansion for FY15E, even NASSCOM aired the earning guidance of 13-15% for

FY15E, better than FY14E and FY13.

(Source: Eastwind)

Index Performance:

(Source: Eastwind)


TCS

WIPRO

CMC

INFY MINDTREE

HCLTECH HEXAWARE

TECHM NIITTECH

ZENSARTECH PERSISTENT

TATA ELXSI ECLERX KPIT

Outperform Inline Underperform

▲ 9.4%

▲ 43%


16Please refer to the Disclaimers at the end of this Report.

Companies Specific Earnings Review

Tier-1 ; The top four IT companies delivered a decent performance in a seasonally soft quarter with an aggregate revenue growth of

2.8% QoQ. INFY and HCL Tech beat the street on growth and margin front, while TCS and Wipro reported inline set of numbers.

Mid cap/Niche (Tier-2)-TECHM and Persistent outmatch peers; TECHM’s broad based revenue growth and deal signing was robust.

Persistent system surprised positively on margin front for the second consecutive quarter led by higher utilization. Apart of this,

Zensar Tech also reported good margin ramp up during the quarter. As a backbencher, KPIT, NIITTECH and Hexaware reported flat to

below expected numbers.

Growth and Margin Performance-%


*Infosys (net profit for 2QFY14 includes the one-time visa charge of Rs219 crore).

# HCL Technologies (June year ending). $ Hexaware (Follow Callendar year)



3QFY13 2QFY14 3QFY14E 3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14

TCS 16069.9 20977.2 21606.6 21294.0 4660.5 6633.0 6300.3 6686.8 3549.6 4633.3 5096.7 5333.4

INFY* 10424.0 12965.0 13069.1 13026.0 2677.0 2837.0 3424.1 3258.9 2369.0 2407.0 2695.8 2874.9

WIPRO 9587.5 10990.7 11342.4 11327.4 2050.2 2503.8 2552.0 2652.7 1598.1 1932.0 1984.2 2014.7

HCLTECH# 6273.8 7961.0 8160.0 8184.0 1416.6 2093.0 2080.8 2125.0 974.3 1416.0 1472.6 1495.0

TECHM 3523.7 4771.5 4819.2 4898.6 756.9 1110.9 1084.3 1136.3 455.9 718.2 754.1 1009.8

CMC 493.0 560.8 566.4 561.0 83.2 88.4 87.8 90.8 61.1 67.3 65.6 70.6

MINDTREE 590.1 769.5 792.2 790.6 120.4 159.8 153.9 154.1 87.7 113.0 98.6 114.0

HEXAWARE$ 507.5 621.1 629.2 620.0 109.0 147.7 147.9 139.4 66.2 98.7 103.6 103.3

NIITTECH 514.4 587.3 593.5 587.3 81.3 88.6 86.1 95.1 56.6 60.4 57.4 52.5

KPIT 563.3 702.8 722.0 677.9 87.9 108.1 115.5 103.5 59.9 66.7 69.4 60.8

PERSISTENT 333.0 432.4 436.1 432.8 82.4 100.8 104.7 104.3 49.5 60.8 66.9 64.2

ZENSARTECH 525.5 599.7 590.6 594.1 70.1 102.5 87.5 87.3 48.7 70.6 50.4 50.8

ECLERX 170.8 214.6 218.5 219.5 66.8 92.8 90.5 88.8 49.8 67.2 61.4 62.3

TATA ELXSI 156.7 190.0 195.5 200.1 16.5 32.4 40.4 43.6 8.8 19.9 20.5 21.6

CompanySales,cr EBITDA,cr PAT,cr

Sales EBITDA PAT Sales EBITDA PAT EBITDA PAT EBITDA PAT

TCS 1.5% 0.8% 15.1% 32.5% 43.5% 50.3% 31.4% 25.0% (20bps) 290bps

INFY 0.5% 14.9% 19.4% 25.0% 21.7% 21.4% 25.0% 22.1% 310bps 350bps

WIPRO 3.1% 5.9% 4.3% 18.1% 29.4% 26.1% 23.4% 17.8% 60bps 20bps

HCLTECH 2.8% 1.5% 5.6% 30.4% 50.0% 53.4% 26.0% 18.3% (30bps) 50bps

TECHM 2.7% 2.3% 40.6% 39.0% 50.1% 121.5% 23.2% 20.6% (10bps) 560bps

CMC 0.0% 2.7% 4.8% 13.8% 9.1% 15.5% 16.2% 12.6% 40bps 60bps%

MINDTREE 2.7% -3.6% 0.9% 34.0% 28.0% 30.0% 19.5% 14.4% (130bps) (30bps)

HEXAWARE -0.2% -5.7% 4.7% 22.2% 27.9% 56.0% 22.5% 16.7% (130bps) 80bps

NIITTECH 0.0% 7.3% -13.1% 14.2% 17.0% -7.2% 16.2% 8.9% 110bps (130bps)

KPIT -3.5% -4.3% -8.8% 20.3% 17.7% 1.5% 15.3% 9.0% (10bps) (50bps)

PERSISTENT 0.1% 3.5% 5.6% 30.0% 26.6% 29.7% 24.1% 14.8% 80bps 80bps

ZENSARTECH -0.9% -14.9% -28.0% 13.1% 24.5% 4.3% 14.7% 8.6% (240bps) (320bps)

ECLERX 2.3% -4.3% -7.2% 28.5% 32.9% 25.2% 40.5% 28.4% (280bps) (290bps)

TATA ELXSI 5.3% 34.6% 8.5% 27.7% 164.4% 146.9% 21.8% 10.8% 470bps 30bps

Margin Change,(QoQ)Company

Growth (QoQ)-% Margin-%Growth (YoY)-%





Utilization Rate-%



Attirition rate-%

Employee Addition;

Sales mix- Segment wise

During the quarter, manufacturing

segment reported attractive growth.

Whilea mong service offerings,

Infrastructure Management Services

(IMS) will be a key growth driver.

Operating Metrics across Tier-1 IT space

Sales mix- Geogrpahy wise

Discretionary spends continue to gain

momentum in America and in specific

pockets in Europe.


TCS INFY WIPRO HCLTECH

Total Employee 290713 158404 146402 88332

Gross Addition 14663 6,682 -814 7593



-Despite salary hike in 4Q, margin would be on place. Wage hike in 4Q could impact

200bps in margin front, but management is confident to mitigate.

-The company expects to maintatin its tax regime at 20-20.5% for coming quarter. For

next year tax rate could be stand at a range of 20-21%.

-Company’s hiring Plan; a net addition of 400-500 this year.

Key Takeaways from Conference Call;

(1) TCS

- Confident of beating NASSCOM's FY15 growth guidance of 13-15%,

-FY15E will be better than the current fiscal,

-Expect Europe to perform better than the US,

-Chasing 20-25 large transformational deals,

-Seeing an uptick in discretionary spends,

(3) WIPRO

-Expect better FY15E than FY14.

-4QFY14: Revenues from IT Services business to be in the range of $ 1,712 million to

$1,745 million* including the revenues from acquisition.

- Lateral hiring 50000-55000 in FY15E,

(2) INFOSYS

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

-They are seeing confidence coming back from client’s metrics.

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

-The company expects to see margin at a range of 21-22% in near term.

-The company is expecting to catch up more deal from US and Europe because of better

demand environment ahead.

-The wage hike is spread over two quarters or rather more than two quarters. Q3 and Q4

margin could be impact be 30bps.

-Hiring target for FY15E would be like FY14, will focus on onsite hiring.

-Wage hike by 1st June ,2014.

(4) HCLTECH:

(6) CMC

-CMC continues to target growth ahead of the overall IT industry; the company expects to

grow faster than that in the current financial year.

-Expects operating Profit margin at 16 percent for FY14E,

(5) TECHM

-The Company aspires revenues of USD 5 billion by 2015. This expects to be through

organic and inorganic initiatives (looking for USD 0.5 billion to 0.8 billion as acquisition

targets) going forward.

-Expecting utilisation rate to 77% from 75%(3QFY14) in near term.

-The tax rate expected to be 26% for the FY'14.

-Year 2014 would be better year than FY13, demand environment and Order pipeline is

looking good.



-Expect to see similar set of environment in FY 15E than FY14.

-Tax rate is expected to see at 23% mark in FY15E.

-It continues to look at inorganic opportunities.

- Expects to maintain 51% of payout ratio.

-Management expects the strong traction in top 10/20 clients to continue.

-Management expects to see better revenue growth in 4QFY14E than 3QFY14.

-The company is making significant changes in organization structure.


-It expects the growth momentum will sustain with holding the margins going forward.

(9) ZENSARTECH

-Expects 4QFY14E revenue performance to be better than both 4QFY13 revenue

performance (+2.8% QoQ) as well as 3QFY14 revenue growth (+2.5% QoQ).

-The company is optimistic to see more deals on SMACS and IP led business.

-Company expects FY14 to be better than FY13 with respect to both revenue growth and

EBIT margin.

(10) ECLERX

-Managent is very confident to maintain attrition at 12-13% and utilization at 77-80% in

near to medium term.

(8) NIITTECH

-The Company’s focus on newer technologies like cloud, analytics, mobility and digital

transformation are gaining traction.

- It expects double-digit growth in the Enterprise Services business for the FY15 on the

back of healthy pipeline.

- It anticipates good growth from the IMS for the FY'15.

-Management has expressed its margin at a range of 16-17%

(7) PERSISTENT SYS

- Persistent is confident of doing more than 15% revenue ($) growth forFY14E.

-They expect to maintain margin at 24-25% for FY14E.

-Expects 20-21% growth in the next year from IP led business, which in turn will help

improve margins going forward.

-The billing rates expected to be flat to slight uptick for the FY15E.

(12) KPIT

-Margins are expected to improve going forward as the one off during the quarter will be

absent.

-Utilization will also go up as revenue growth is realized on the back two deals won this

quarter which have a duration of 12 months.

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

forward.

(11) MINDTREE

-Company expects to maintain operating margins at current levels in the near/medium

term



View and valuation:


Hence, with strong medium term earnings visibility, better demand environment and

optimistic management comments, we maintain our positive stance on (In order of

preference) TECHM, PERSISTENT, ZENSARTECH, ECLERX and KPIT under mid cap space.

For FY15E, NASSCOM expects IT exports

to grow by 13-15% and domestic market

to grow by 9-12% based on broad

feedback loop from companies and

captives.

US Immigration Bill to remain an

overhang in short-to-medium term,

TCS and HCLT are growing the fastest

and with tremendous margin

performance. Infy is accelerating growth

…

Our top picks:

Concerns:However, hardening of regulatory related to visa approval in USA, Canada and Australia

could spoil the party. Even, the approval of Immigration Bill attached with higher visa fee,

wage requirements and enhanced audit by US agencies could turn the growth story of

Indian IT players adversely. If passed in its current form, the Bill could hurt the margins of

the Indian IT export sector, which derives almost 55-60% of its revenues from USA.

While all companies are accelerating its revenue growth and shaping up its margin

because of favorable demand and supply environment. Across the tier-1 IT space, TCS,

INFY and HCL TECH remain our best picks in order of our preference. These companies

are very much optimistic to improve margin as well as operational efficiencies with

healthy deal pipeline across emerging verticals as well as traditional IT Space under

positive demand scenario.

Industry Outlook:We have seen a significant increase in global technology spending this year, creating

opportunities for the Indian software services sector to post double-digit growth again in

export as well as in the domestic markets. FY15E promises to be bigger and stronger than

the last 3 years, which were marked by bloodbath in global markets due to Euro-zone

crisis and falling consumer confidence in the US. Demand is set to pick up in sectors like

BFSI, healthcare, retail and transportation globally in the year ahead.

For FY15E, We expect that strong fundamentals should help to sustain earning

momentum in FY15E. Foray into niche verticals and executions of large deal would play an

important factor for better earning visibility in near future. There is a window of

opportunity for competent large caps and midcaps to displace incumbents and gain some

incremental business. In the past 4 quarters, large caps (four companies) have grown at

3.4% CQGR, while midcaps (five companies) at 3.2%which is comparable to larger peers.


CMP Upside

(26.02.14) % FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E

TCS 2182.4 BUY 2510 15.0% 71.82 95.00 109.31 30.39 22.97 19.97 36.4% 37.5% 34.4%

INFOSYS 3803.85 BUY 3910 2.8% 164.2 188.0 218.2 23.16 20.24 17.44 24.8% 23.7% 22.9%

HCLTECH 1572.9 HOLD 1560 -0.8% 58.10 79.36 98.11 27.07 19.82 16.03 30.7% 31.5% 29.4%

WIPRO 603.35 NEUTRAL - - 25.0 31.1 33.5 24.09 19.42 18.01 21.7% 22.7% 20.8%

TECHM 1821.65 BUY 2130 16.9% 123.97 155.37 175.50 14.69 11.72 10.38 34.8% 30.7% 26.0%

CMC 1450.4 NEUTRAL - - 75.3 86.0 92.4 19.27 16.86 15.70 24.1% 22.8% 20.7%

NIITTECH 446.4 HOLD 443 -0.8% 36.28 43.33 54.18 12.30 10.30 8.24 20.0% 19.4% 19.6%

KPIT 174.9 BUY 177 1.2% 10.8 12.6 16.8 16.19 13.85 10.40 20.1% 19.3% 20.7%

HEXAWARE 165.85 NEUTRAL - - 13.90 15.04 16.01 11.93 11.02 10.36 27.4% 24.9% 22.5%

PERSISTENT 1119.25 HOLD 1065 -4.8% 46.1 61.4 79.1 24.27 18.22 14.15 18.1% 20.3% 21.4%

eCLERX 1341.05 BUY 1358 1.3% 64.25 71.61 83.65 20.87 18.73 16.03 43.8% 37.9% 34.4%

TATAELXSI 518.65 NEUTRAL - - 10.6 24.0 28.4 48.79 21.59 18.29 16.9% 29.7% 27.4%

ZENSARTECH 387.2 BUY 440 13.6% 40.03 52.70 68.97 9.67 7.35 5.61 23.2% 24.5% 25.2%

MINDTREE 1632.7 NEUTRAL - - 89.7 100.9 114.9 18.20 16.18 14.21 28.4% 25.6% 23.6%

RoE-%Company View Target

EPS-Rs P/E-x

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