investment funds advisory today- buy stock of escorts ltd and neutral view on hindustan unilever

Escorts Ltd :"Out Performer……." "BUY" 30th Jan 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 :5-7)

Hindustan Unilever :"wait for triggers" "NEUTRAL" 30th Jan 2014

Delivered stable set of numbers, still expecting key challenges ahead;For 3QFY14, despite slow discretionary demand HUL reported inline set of

numbers with 8.5% (YoY) sales growth led by 4% (YOY) volume growth. PAT grew by 19%(YoY). We do not see any sign of improvement in

volume growth in near future. However, revival in macro economy and resultant improvement in consumer sentiment would play a key triggers

for improvement in the volume growth in near term. ............................................ ( Page :2-4)

28th Jan 2014

Delivered inline set of numbers but better on all aspects than its peers did: For 3QFY14, Persistent System’s sales was almost flat (QoQ) in INR

term, while grew 2.2% (QoQ) in USD term impacted by seasonality and furloughs impacts. Considering the company’s ability to achieve scale and

growth, we upgrade our target price from Rs 960 to Rs 1070 with “BUY” view on the stock. ................................................................ ( Page : 18

- 20)

ALLAHABAD BANK : "BUY" 28th Jan 2014

Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII growth and deteriorated asset quality. Bank’s operating

expenses were stable in absoluter term but as cost income ratio increased drastically on account of lower revenue growth. Asset quality has

deteriorated sequentially. Due to lower corporate demand, loan growth remain muted and bank’s lower its total business (Loan + Deposits)

guidance to Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s book value. We are not

impression with bank’s fundament but current price provide 15% upside from our target price. ........................................................... ( Page :

13-17)

30th Jan, 2014

Edition : 195

IEA-Equity

Strategy

UCO BANK : "BUY" 27th Jan 2014

UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII along with higher than industry average loan growth.

Bank’s asset quality improved sequentially despite of challenging macro environment. However bank’s CASA growth has declined marginally in

sequential basis but still at comfortable level. UCO Bank’s operating as well as financials metrics has been improving continuously. We value

bank at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s earning. ............................................................ (

Page :21-25)

SHREE CEMENT : "BUY" 28th Jan 2014

Persistent System: "Persistently innovating.." "BUY"

SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES 29th Jan 2014

India's auto mobile sales continued to remain on sluggish trajectory as most of the companies reported a decline in sales number due to

slowdown in economic activity and increasing fuel prices. However, two-wheeler segments continued to grow at a healthy rate, led by strong

rural demand ........................................... ( Page : 8-9)

Shree Cement Ltd has reported a 47% fall in its December quarter net profit on lower sales as well as 5% degrowth in realization. PAT impacted

due to lower other income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41% YOY). Volumes grew by18 %

to3.8mn ton from 3.3mn ton QOQ. After a good monsoon and election ahead management expecting a good performance from shree cement

for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/- . ............................................ ( Page :10-12)

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

Hindustan Unilever

1M 1yr YTD

Absolute 0.23 21.18 21.63

Rel. to Nifty 3.2 20.33 19.85

Current 2QFY14 1QFY14

Promoters 67.25 67.25 52.5

FII 14.83 15.33 20.23

DII 3.35 3.03 7.13

Others 14.57 14.39 20.16

Financials

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

Revenue 7037.78 6747.2 4.3 6433.89 9.4

EBITDA 1226.8 1085.31 13.0 1088.99 12.7

PAT 1043.7 888.3 17.5 877.08 19.0

EBITDA Margin 17.4% 16.1% 130bps 16.9% 50bps

PAT Margin 14.8% 13.2% 160bps 13.6% 120bps

2

500696

Share Holding Pattern-%

Increasing competitive intensity, slow consumer demand and expectation of hike in

input cost in near term could be major concern for HUL. We expect that these concerns

could play out over the next couple of quarters.

Volume growth: Volume growth for the quarter was at 4%, which is slightly lower than

the 5% registered in previous several quarters due to further deterioration in market

growth rates and higher component of price versus volume in its core soaps and

detergents category.

Segment-wise performance: (a)Soaps and Detergents delivered a healthy performance.

The company witnessed a price led growth in this segment during the quarter. Wheel

was re-launched with superior formulation at quarter end. It has grown well compared

to preceding last 2 quarters. (b)Household Care delivered another strong quarter with

both Vim and Domex growing in double digits. (3)On Personal Products, Skin Care

performing well with a revenue growth in mid teens in a slowing market and in spite of

the delay in the onset of the winter season.

52wk Range H/L 725/432

NSE Symbol HINDUNILVR

Market Data

BSE Code

"wait for triggers"

CMP 570

Target Price -

Delivered stable set of numbers, still expecting key challenges ahead;

For 3QFY14, despite slow discretionary demand HUL reported inline set of numbers

with 8.5% (YoY) sales growth led by 4% (YOY) volume growth. PAT grew by 19%(YoY).

Upside -

Result update NEUTRAL

Previous Target Price -

Change from Previous -

Stock Performance-%

123161

Average Daily Volume 2006314

Nifty 6153

We do not see any sign of improvement in volume growth in near future. However,

revival in macro economy and resultant improvement in consumer sentiment would

play a key triggers for improvement in the volume growth in near term.

P/BV (x) -1year forward

Rs, Crore

(Source: Company/Eastwind)

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

View and Valuation: To continue to deliver strong growth, HUL is likely to continue with

aggressive marketing and offer discounts/price cuts, especially in soaps, detergents and

personal products and the company fights off competition rivals domestic as well as

multi-national. we are confident of the medium to long-term growth prospects of the

FMCG sector. At a CMP of Rs 570, stock trades at 29x FY15E P/BV. We have a NEUTRAL

view on the stock.

Product Strategy: The company has launched premium range of hair care products -

Toni and Guy. This brands are sold through select top end outlets. However, its

operating metrics was challenging given the volatile cost environment, led by the INR

depreciation, and heightened competitive intensity during the quarter.

Mkt Capital (Rs Cr) Steady margin growth: During the quarter, EBITDA margin inched up by 50bps(YoY) to

17% because of stable INR movement against the USD and stable set of RM cost than

same quarter previous year. PAT margin also improved slightly to 17.4% on YoY. During

the quarter, company has been efficient to manage cost inflation through judicious

pricing and unwinding of promotions.

"NEUTRAL"30th Jan' 14


3

Margin-%

Seg


Volume growth for the quarter was at 4%,

which is slightly lower than the 5% registered

in previous several quarters

EBITDA margin inched up by 50bps(YoY) to

17% because of stable INR movement against

the USD and stable set of RM cost than same

quarter previous year.

EBITDA Margin up by 90bps to 13.3% from

Soap and Detergent, flat margin growth on

Personal Products.




Hindustan Unilever

Volume and Pricing growth -%(YoY)


Sales (cr) and Growth(YoY)-%


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

Soaps & Detergents 47.0% 19.9% 6.4% 7.1% 12.4% 14.0% 13.3%

Personal Products 31.9% 8.5% 11.8% 12.4% 28.3% 22.8% 28.6%

Beverages 11.8% 18.2% 16.1% 7.2% 17.7% 17.0% 16.2%

Packaged Foods 5.2% 7.7% 8.7% 12.9% -0.7% 3.3% -3.6%

Others 3.8% -33.4% 5.7% -4.7% -6.4% 1.5% -4.9%

Margin-%Revenue Growth-%% of SalesSegments

4

(5)Tax rate is expected to rise by 300-400 bps for FY15.



Financials

(2)The management expects to see some cost burden on promotion through media

because of 12 minutes advertisement cap.

(3)Rural growth continues to outpace urban growth by 200 bps and there is no clear-cut

sign of uptick in urban demand as per available data from Nielsen.

(4)Personal products and packaged foods both segments have headroom for growth and

will remain focus area.

Hindustan Unilever

Key facts from HUL Con-call (attended on 28th Jan, 2014)

(1)The mgmt stated that FMCG market growth continues to remain soft across the

categories, with high competitive intensity and uncertain media environment. While, for

medium to long term the mgmt is positive on FMCG sector.


Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales 18025.6 20022.6 23436.3 27004.0 28959.1 31506.3

RM Cost 6762.8 7796.9 9487.0 10987.8 11873.2 13075.1

Purchases of stock-in-trade 2173.1 2692.8 2919.5 3125.3 3185.5 3465.7

WIP 75.7 -307.6 95.2 -26.0 -27.9 -30.3

Employee Cost 970.9 1014.9 1200.9 1412.7 1515.0 1648.2

Ad Spend 2423.0 2797.1 2697.0 3290.0 3619.9 3938.3

Other expenses 2783.2 3317.4 3553.2 4008.9 4054.3 4568.4

Total expenses 15188.7 17311.3 19952.8 22798.7 24219.9 26665.4

EBITDA 2836.9 2711.2 3483.6 4205.3 4739.1 4840.9

Depreciation and Amortisation 191.9 207.5 211.9 251.3 270.4 294.2

Other Income 82.7 255.2 259.6 532.0 579.2 630.1

EBIT 2727.6 2758.9 3531.3 4486.0 5047.9 5176.9

Interest 7.5 1.0 1.7 25.7 25.7 27.0

PBT 2720.2 2757.9 3529.7 4460.3 5022.2 5149.9

Tax Exp 615.3 650.3 821.5 1226.7 1406.2 1442.0

PAT 2104.9 2107.6 2708.1 3233.7 3616.0 3707.9

Growth-% (YoY)

Sales -13.4% 11.1% 17.0% 15.2% 7.2% 8.8%

EBITDA -4.9% -4.4% 28.5% 20.7% 12.7% 2.1%

PAT -16.1% 0.1% 28.5% 19.4% 11.8% 2.5%

Expenses on Sales-%

RM Cost 37.5% 38.9% 40.5% 40.7% 41.0% 41.5%

Ad Spend 13.4% 14.0% 11.5% 12.2% 12.5% 12.5%

Employee Cost 5.4% 5.1% 5.1% 5.2% 5.2% 5.2%

Other expenses 15.4% 16.6% 15.2% 14.8% 14.0% 14.5%

Tax rate 22.6% 23.6% 23.3% 27.5% 28.0% 28.0%

Margin-%

EBITDA 15.7% 13.5% 14.9% 15.6% 16.4% 15.4%

EBIT 15.1% 13.8% 15.1% 16.6% 17.4% 16.4%

PAT 11.7% 10.5% 11.6% 12.0% 12.5% 11.8%

Valuation:

CMP 238.7 284.6 419.0 483.3 570.00 570.00

No of Share 218.2 215.9 218.2 216.2 216.26 216.26

NW 2668.9 2735.0 3681.1 2864.8 3571.24 4243.13

EPS 9.6 9.8 12.4 15.0 16.72 17.15

BVPS 12.2 12.7 16.9 13.3 16.51 19.62

RoE-% 78.9% 77.1% 73.6% 112.9% 101.3% 87.4%

P/BV 19.5 22.5 24.8 36.5 34.52 29.05

P/E 24.7 29.2 33.8 32.3 34.09 33.24

V- Escorts Ltd.

CMP 125

Target Price 175

Previous

Target Price

105

Upside 40%

Change from

Previous

67%

BSE Code 500495

NSE Symbol

52wk Range

H/L

48/96

Mkt Capital

(Rs Crores)

1,505

Average Daily

Volume

225,953

Nifty 6,120

1M 1yr YTD

Absolute (11.3) 62.7 147.9

Rel. to Nifty (8.2) 61.0 140.2

3QFY14 2QFY14 1QFY14

Promoter's 42.0 42.0 42.0

FII's 9.4 12.3 12.1

DII's 2.1 4.7 5.4

Others's 46.5 41.0 40.6

5

Result update

Market Data

In 5QFY13 the company saw revenue growth of 12.8% to Rs 1159.6 crore. This result was

mirrors the pent-up demand for tractor business, partly driven by improved crop cultivation

and production and revival in farm equipment segment. In current quarter 84% of Escorts’

revenues come from the sale of tractors, and it saw volumes growth of 11.3% to 19047 in its

tractor sales. Company construction equipment business witnessed a flattish of 1.4% to Rs.

130.9 crore and stands at 11% of company total revenue during this quarter. Lower inventory

levels typical of this quarter, where sales are better than in the preceding quarter, translated

into a 6.1% operating margin, up 100 basis points from the year-ago period. Further, A

marginal price hike in the latter part of the December quarter also propped up realizations.

More importantly, the improved financial position in the farm segment eased cash flows and

working capital cycles, which in turn trimmed interest costs.

Buy

Industry players expects the year 2013-14 to end with volume growth of around 15%

After an all time high sales in Oct 2013, where the industry saw a volume growth of 28.8% YoY,

Nov'13 volume growth was expected on lower side. While in Dec'13, the industry came back

strongly with a 21.1% growth. In April-Dec'13 period, the industry saw a healthy 23.8% growth in

volume. So while high growth is expected to tilt down in lean season, overall, the industry as a

whole is still expected to end the year with a volume growth of about 15% for 2013-14. Key

markets that supported the growth in FY'14 are Andhra Pradesh, Madhya Pradesh, Rajasthan and

Chhattisgarh. Some of these markets grew by more than 30% YoY. All macroeconomic factors

such as crop prices, productivity, soil moisture, government focus on rural spending etc are

favoring the farm equipment business.


"Out Performer……."

ESCORTS


Stock Performance-%

"Buy"30th Jan' 14


Penetration to high HP Tractors

Company Outlook

6

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. 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

Escorts Ltd.


Escorts management aims to improve tractor margins from the current ~10% to 15% over the next 1-2

years led by change in focus to higher HP tractors and by cost rationalization measures. Higher tractor

margins would take Escorts' company level EBITDA margins from ~6% to ~10%, as tractor segment

contributes 80% to the company's overall sales. Moreover, the management's strategy to focus on

higher HP tractors and increase presence in Southern markets will lead to faster-than-market growth.

Outlook on Industry

Despite being an agricultural nation, Tractors penetration in India is about 5% of total cultivable

land. Going forward, we expect deeper penetration of Tractors to happen which will continue to

drive strong demand for the sector. The growth in farm incomes will fuel the need for further

mechanization, which will tend to accelerate as social welfare programs, urbanization and

alternative occupations move farm labor to other sectors. So the demand for higher HP tractors

will be the future growth within the sector. The proportion of higher power (greater than 50 HP+)

segment has shown increase in total industry volume share by 380 bps from 12.6% in FY'08 to

about 18% in FY'13. For tractor industry more than festive season it is the monsoons that matters

a lot. The onset of positive sentiments because of monsoons, the reservoirs are full, the kharif crop

sowing is more than 1,000 lakh hectors which is almost 6 percent up vis-à-vis last year. The prices

of the crops declared by the government are pretty good and on top of it there are host of

financiers who are financing the tractors and funds are available to prospective buyers and that is

also leading to growth.


7

Graphical representations :

Operating profit :

Net Profit :

Trailling ROE % & Trailling Asset T/O :

(Source: Eastwind Research) (Figures in crore)




Escorts Ltd.

Revenue from operation :



SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES

8

Industry Overview:India's automobile sales continued to remain on sluggish trajectory as most of the companies reported a decline in sales number due to

slowdown in economic activity and increasing fuel prices. However, two-wheeler segments continued to grow at a healthy rate, led by

strong rural demand.The contribution of various segment for the 9MFY14 automobiles sales stands as under :

Two Wheelers For December 2013, overall auto industry volumes were led by the two-wheeler industry (4% YoY growth). Two Wheelers segment

contribution has increased to 80.2% of the total auto volume, during first nine months of FY14 from 77% in FY 13.The cumulative volume

for 9MFY14 for 2 Wheelers stands at 12489192 units up 5.3% YoY.

Better monsoon benefitted rural demand, while urban sales remained lackluster, which was higher than offsetting the rural growth. With

the festive season ending early in November 2013 this year, the positive momentum seen October 2013 has cooled off with retail sales

largely lagging wholesales. The two-wheeler segment has again managed to keep its head over water even as all other segments have

shown an annual decline with last years' festive season ending later.

Sub Segment Motorcycle

The analysis of previous year’s sales indicates that the three major players viz Heromoto Corp, Bajaj-Auto,TVS Motors have shown

declining performance along with market share loss to both HMSI and Yamaha. The strong rural demand helps to boost the sales of

commuter sub segment (100-125 CC) of motorcycles. The following table shows yearly performance of some of major motorcycle

players


The graph clearly indicates that of total automobiles sold for 9MFY14

the contribution of two wheelers stand at maximum. This trend shows

that slow down in consumer discretionary expenses. The differential

pricing makes people to spend more towards two wheelers more over

people look for option which gives them more mileage for every unit of

fuel. As stated earlier there is growth in rural economy and trend is

clearly visible from the sales made by two wheelers in total

automobiles sold for the period.

Sub Segment Scooter

Year Wise Motorcycle SalesYear Wise Motorcycle Market Share


The scooter sub segment grew well led by new launches from Honda (New Activa), Hero (Maestro), TVS (Jupiter) and Suzuki (Swish),

the scooter segment grew at a faster clip of 19% YoY for Apr-Dec'13 period against a flattish (3%) growth in the motorcycle segment.

The faster volume growth of the scooter segment led to a 220bps improvement to 21.2% in its share of the two-wheeler market during

this period. The main drivers for this growth are (a) growing acceptability of gearless scooters, particularly by women, (b) rising

urbanization and increasing proportion of working women and (d) new launches.


Companies FY12-13 FY11-12 FY10-11

Hero MotoCorp 46% 48% 48%

Bajaj Auto 31% 32% 32%

TVS Motors 6% 7% 8%

HMSI 11% 7% 7%

Yamaha 4% 4% 3%

Companies FY12-13 FY11-12 FY10-11

Hero MotoCorp 5499245 5779621 5040971

Bajaj Auto 3757094 3834405 3387043

TVS Motors 749806 843338 836831

HMSI 1291688 864183 748488

Yamaha 437998 484891 366770

SECTOR ANALYSIS :2 W and 3W 9MFY14 SALES

9


In three wheelers universe for the December 2013 Industry domestic volumes were down 21% to 35249 units led by 27% drop in the

passenger segment. There was a 7% rise in the goods carrier segment in Dec 13. Exports registered 11% rise to 33,044 units. This segment

for 9MFY14 registered domestic sales was 364669 units down by 9 % YoY for the same period last fiscal. The exports have done fairly well

for the period with 11 % growth YoY to 33044 units. The three wheeler segment remains flat on YoY to 626749 units for 9MFY14. The three

Wheelers demand largely driven by exports, while domestic sales remained weak.

Bajaj-Auto with 55% market share is the market leader in 3 Wheeler sales in the country. Q1FY14 Domestic 3W sales accounted for 38% of

the company's total 3W sales. Of the total 3W sales, 15-20% came from new permits, while replacement accounts for the rest. On the

domestic 3W front, the outlook remains positive with 20000 permits opening up in Hyderabad (5k already utilized in June-July 2013) and

3000 permits opening up in Maharashtra in Sept-Oct 2013. Also, its plan to launch a renewed range of 3W (RE Compact) promises to drive

replacement demand.

For TVS, 3W sales stood up by 36.8% YoY to 6,137 units with most of it coming from the overseas markets; 3W share to total sales forms

3.8% in December and 3.9% YTD, 150bp higher YoY. The Company is expected to benefit from this as 3W forms a high margin product.On

the other hand, Mahindra & Mahindra's 3w sales were up 7.6% to 5.6k units. Sales were down 5% on a MoM basis.

The YTD performance of Three wheelers for FY14 is tabulated as under:

While the macro-economic environment remains challenging, OEMs have pinned hopes on the bevy of launches that might trigger a

response from customers. Also, the recent cut in the price of petrol might just prove to be a good thing for companies. Additionally, better

crop realization due to a good monsoon and hike in MSP is expected to boost the rural income leading to a sales recovery. Over the long

term, easing macro headwinds in terms of lower interest rates and higher economic growth would be the key driver for volume growth and

profitability.

Conclusion

Given its low ticket size and high rural share, this segment of the auto industry is sure to pick up momentum in the coming months. With

urbanization, rise in women riders, higher fuel efficiency and improving per capita income, the penetration of scooters will continue to

increase and at a pace faster than motorcycles. 2/3 wheeler companies which are the direct beneficiaries of the rural consumption are

expected to remain strong given the buoyant prices for food items, strong monsoon and additional benefits of government doll outs and

largesse.

Future Outlook (Source: Company/Eastwind)

Continued…Scooter sales growth has taken-off since FY10 and has consistently

outgrown that for the motorcycle segment. An increasing population of

working women, mainly in urban markets, has led to rapid sales-volume

growth in this segment. On a longer term perspective, scooter industry

volumes are expected to grow at ~20% CAGR over FY14-20, twice the

growth rate for motorcycles. Overall two wheeler industry volumes are likely

to grow at 12% CAGR during this period. The shares of scooters are

expected to increase to 37% by 2020, with annual sales of 10.7m units

(equal to the current market size of the domestic motorcycle industry).

Three Wheelers (Source: Company/Eastwind)


Month 9MFY14 Sales (Volume) 9MFY13 Sales (Volume) Change %

April 69562 61772 12.6%

May 61089 55184 10.7%

June 71889 54274 32.5%

July 66335 65352 1.5%

August 67141 72122 -6.9%

September 80549 78097 3.1%

October 76874 86072 -10.7%

November 65017 80325 -19.1%

December 68293 74596 -8.4%

YTD 626749 627794 -0.2%

SHREE CEMENT.

4325

4791

4791

11%

0%

500387

15502

3875

6136

1M 1yr YTD

Absolute 0.1 -4.8 -5.1 MAT Credit support the buttom line :Rel. to Nifty 0.0 -8.0 -9.2

2QFY14 1QFY14 4QFY13

Promoters 64.8 64.8 64.8

FII 8.2 8.2 8.1

DII 5.9 5.7 5.9

Others 21.2 21.3 21.2

Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14

Revenue 1318 -7.7 5.6 1428 1248

EBIDTA 271 -24.7 8.8 360 249

Net Profit 115 -46.9 -32.9 217 172

EPS 33 -46.9 -32.9 62 49

EBIDTA% 21 -18.4 3.1 25 20

NPM% 9 -42.5 -36.5 15 14(In Crs)

10

Buy

Market Data

Average Daily Volume (Nos.)

Volumes grew by18 % but prices came down by 5%. So the EBITDA margin has hit

badly:Shree Cement Ltd has reported a 47% fall in its December quarter net profit on

lower sales as well as 5% degrowth in realization. PAT impacted due to lower other

income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41%

YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. Net profit decreased by

47% yoy from Rs.217.44 crore (Rs.62.42 per share) in 2Q13 to Rs.115.49 crore (Rs.33.15

per share) in 2Q14.Total net income from operations stood at Rs.1318.13 crore in 2Q14,

a 6% fall yoy from Rs.1401.23 crore in 2Q13.Other income decreased from Rs.30.2 crore

in 2Q13 to Rs.9.9 crore in 2Q14.In the mean time company declares a Rs.10 as interim

dividend/share.

Power Segment: Realization Down By 15% : For power generation the net realization has

come down from Rs 383 to Rs 334 compared to last year same quarter and in the first

quarter it was still better at Rs 397.So the power realization is down by 13 percent and

hence sales also have come down by 35 percent to Rs.290 Cr. At the same time 14%

increase in its profitability from power segment to Rs112.56 crore while its cement

segment reported 79% fall in its profitability to Rs37.65 crore.

Upside

Change from Previous

CMP

Target Price

Previous Target Price

Result Update

BSE Code

SHREECEMNSE Symbol

During the Quarter Company got MAT (minimum alternative tax) credit entitlement of

Rs9.25 crore and deferred tax of Rs1.79 crore. This reduced total tax payable amount to

Rs15.27 crore from Rs26.31 crore.Company’s EBIDTA/ton decreased 6% to Rs.712 (vs Rs.756 in previous quarter), at the

same time the Expenditure also decreased 9% to Rs.2757 (vs Rs.3025 in Q1).Hence we

believe that company will outperform among its peers ,once Realization get improve.The

exceptional weakness is there in the cement prices. Volumes have grown by about 18

percent but the prices have come down by 5 percent and naturally the cost increase is

there. So the EBITDA margin has been badly hit .

The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun’13.Line X of

similar capacity along with 25MW of WHRS (at the same location) is expected by

Jun’14.Two grinding units of 2m tons each, at Ras and in Bihar,are being constructed and

expected by Jun’14.We expect Shree to be a 21.5m-tpa company by Jun’15.It plans to

foray into high demanding eastern.Total capex for these expansion is Rs.3,000 crore

which is spread over next 2 years.

On the expansion front :

52wk Range H/L

Mkt Capital (Rs Crores)

5210/3413


Stock Performance-%


1 yr Forward P/B

Source - Comapany/EastWind Research

Nifty

"BUY"28th Jan' 14


0

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PRICE 1.5x2x 2.5x3x 3.5x4x 4.5x

Outlook :

FY11 FY12 FY13 FY14E

3454 5898 5590 5798

203 163 188 217

3656 6061 5779 6015

905 1500 1513 1409

602 1006 915 1090

2569 4252 4029 4275

885 1646 1561 1523

676 873 436 470

98 235 193 145

-99 69 115 118

365 619 1004 1007

20.8 23.1 26.1 21.1

11



SHREE CEMENT.

P/L PERFORMANCE

Net Revenue from Operation

Other Income

Total Income

Company Description : Shree Cement (SCL) is a cement producer operating in the two

segments cement and power. As of June 30, 2012, the company had a cement capacity

of 13.5 million tonnes per annum (MTPA) and power capacity of 560 MW. The

company's waste heat recovery power plants have a total capacity of 46 MW. The

company’s brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It has

manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units

at Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in

Uttarakhand.

Management Corner : From mid-January there is a big change in demand scenario

because of the Indian calendar, the prices have improved, the demand has also

improved and they think that January to June some impact of elections will be there -

pre-election demand and other things. So margins should be better than 21 percent.

From the view company Operations in the high utilisation North and Central markets,

capacity expansions underway, low gearing and strong RoE are fundamental positives.

We believe although, near term challenges in terms of a slowdown in demand for

cement would remain, strong balance sheet and better efficiency in terms of cost

remains a key positive for this company to overcome challenges.Company Management

is bull for the rest two quarters of FY2014 as according to them demand has already

buttom out.We are positive on the stock as it always beats its peers group with lower

operational cost.Shree cement follows a multi brand strategy and sells cement under

the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together

enjoy the largest market share in high value markets of Rajasthan, Delhi and Haryana.

After a good monsoon and election ahead we are expecting a good performance from

shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price

Rs.4791/-

Net tax expense / (benefit)

PAT

ROE%

Power and fuel

Freight and forwarding

Expenditure

EBITDA

Depriciation

Interest Cost


-20

-10

0

10

20

30

40

50

60

1100

1150

1200

1250

1300

1350

1400

1450

1500

Revenue

Growth

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0 NPM % OPM % EBITDA %

0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

400

450

EBIDTA

INTEREST SERVICE COVERAGERATIO

FY10 FY11 FY12 FY13

35 35 35 35

1798 1951 2699 3809

1833 1986 2734 3844

1789 1472 818 443

318 217 143 534

28 16 17 18

171 185 584 81

472 267 178 87

4906 4940 5973 6160

0 0 0 0

752 1167 1521 1782

967 729 97 133

299 308 205 378

358 404 503 530

82 108 181 315

416 499 459 369

415 429 363 326

4906 4940 5973 6160

FY10 FY11 FY12 FY13

4.4 3.6 3.8 4.2

212.3 118.6 177.5 288.2

2.3 3.1 3.1 5.6

4.7 5.3 9.9 1.4

1.0 1.2 0.9 0.9

12


B/S PERFORMANCE

Trading At :

RATIOS

Long-term provisions

Trade payables

Short-term provisions

Total liabilities

Intangibles

Capital work-in-progress

Tangible assets

SHREE CEMENT.

Share capital

Reserve & Surplus

Total equity

Long-term borrowings

Short-term borrowings

Long-term loans and advances

Inventories

Trade receivables

Cash and bank balances

Inventories to Turnover%

Short-term loans and advances

Total Assets

P/B

EPS

Debtor to Turnover%

Creditors to Turnover%


80

92

121

16

31.5

1M 1yr YTD

Absolute -14.9 -55.2 -55.2

Rel.to Nifty -12.5 -56.6 -56.6


3Promoters 58.9 55.2 55.2

FII 8.7 8.0 8.1

DII 18.5 21.1 22.0

Others 13.9 15.6 14.7

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 4022 5163 4866 5426 6715

Total Income 5393 6461 6343 7745 9034

PPP 3055 3770 3385 4361 5150

Net Profit 1423 1867 1185 1290 1522

EPS 29.9 39.2 23.7 23.7 27.9

13

Mkt Capital (Rs Cr)



Stock Performance

During this quarter bank’s asset quality worsen with gross NPA further deteriorated

by 14% QoQ in absolute term while as a percentage to gross advance, this ratio

stood at 5.5% versus 5% in previous quarter. Provisions had increased by 19% on

sequential basis which led net NPA deterioration to 12% QoQ. In percentage term,

net NPA to net advance stood at 4.1% versus 3.8% in previous quarter. Provision

coverage ratio (w/o technical write-off) marginally improved to 24.8% from 23.7% in

2QFY14. During this quarter, bank’s sold Rs.389 cr of non- performing assets to

asset reconstruction companies. Total outstanding restructure at the end of stood at

Rs.12624 cr which is 9.2% of net advance.

52wk Range H/L


Allahabad Bank Vs Nifty


8.26 LAKH

Nifty 6136

Average Daily Volume

3975

176/65

NSE Symbol ALBK

Company UPDATE BUY

CMP

Target Price

Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due

muted NII growth and deteriorated asset quality. Bank’s operating expenses

were stable in absoluter term but as cost income ratio increased drastically on

account of lower revenue growth. Asset quality has deteriorated sequentially.

Due to lower corporate demand, loan growth remain muted and bank’s lower

its total business (Loan + Deposits) guidance to Rs.340,000 cr from earlier of

Rs.360,000 cr. We value bank at Rs.92/share which is 0.4 times of FY14E’s

book value. We are not impression with bank’s fundament but current price

provide 15% upside from our target price.


Market Data

Upside

BSE Code 532480

ALLAHABAD BANK

Allahabad bank’s NII grew by 0.4% YoY to Rs.1336 cr versus our expectation of

Rs.1422 cr largely due to lower interest income led by lower than expected loan

growth and loan yield as well. Bank’s deposits growth was also lower than expected

but cost of deposits was almost same in previous quarter. Therefore interest income

was lower than interest expenses which cause muted NII growth. During quarter,

bank’s other income was Rs.542 cr as against Rs.341 cr in last quarter which helped

to report revenue growth of 11% YoY.

CI ratio up drastically in sequential basis but in absolute term it remain

comfortable

Cost to income ratio was higher at 46.3% versus 42.5% in previous quarter largely

due to lower revenue growth. In absolute term operating expenses increased by

2.2% QoQ and 7.3% YoY on which employee cost and other operating expenses

increased by 1% and 22% YoY respectively. With lower operating cost and high

support from other income, operating profit grew by 17.2% YoY to Rs.1008 cr.

Worsen asset quality led by macro environment

NII growth muted on account of lower loan growth and loan yield

"BUY"28th Jan, 2014


14

ALLAHABAD BANK

Source:Company/Eastwind


Lower business growth target due to absence of corporate loan

Allahabad Bank’s total deposits grew by 10% YoY and advance grew by 13% YoY to

Rs.1875 bn and Rs.1373 bn respectively. Muted growth in loan was on account of lower

borrowing from corporate segment whereas bank reported retail, MSME and priority

sector registered handsome growth. CASA for the quarter stood at 30.8% versus 31.2%

in previous quarter. Bank management lower its FY14’s total business guidance to

340,000 cr from Rs.360,000 cr earlier. Accordingly we lower our loan and deposits growth

to 12% and 9% from earlier of 15% each. Credit deposits ratio was stable at 73.2%.

Lower profit growth because of muted NII growth and deteriorating asset quality

Net profit of Allahabad bank’s grew by 4.7% YoY to Rs.325 cr largely due to muted NII

growth and high provision led by deteriorating asset quality. Due to lower demand from

corporate borrowing, banks reduce its business growth target by 5.5% for FY14. Asset

quality pressure would likely to persist in FY14 which would result of lower valuation

multiple. We lower our book value estimate to Rs. 229.3 from earlier of Rs.254 primarily

due to equity dilution and lower profit expectation in FY14E.

Valuation & View

Allahabad reported net profit growth of 4.7% YoY to Rs.325 cr largely due muted NII

growth and deteriorated asset quality. Bank’s operating expenses were stable in

absoluter term but as cost income ratio increased drastically on account of lower revenue

growth. Asset quality has deteriorated sequentially. Due to lower corporate demand, loan

growth remain muted and bank’s lower its total business (Loan + Deposits) guidance to

Rs.340,000 cr from earlier of Rs.360,000 cr. We value bank at Rs.92/share which is 0.4

times of FY14E’s book value. We are not impression with bank’s fundament but current

price provide 15% upside from our target price.


15

ALLAHABAD BANK

Source: Eastwind/Company


Fundamant Through Graph

NII growth muted on account of lower loan

growth and loan yield

With the support from other income and

lower operating expenses, PP grew by 17.2%

YoY

Lower profit growth because of muted NII

growth and deteriorating asset quality


16

ALLAHABAD BANK




Quarterly Performance (Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY % QoQ 3QFY14E Variation

Interest/discount on advances / bills 3533 3422 3234 9.2 3.2 3669 -3.7

Income on investments 1161 1131 1161 0.0 2.6 1199 -3.2

Interest on balances with Reserve Bank of India 27 28 29 -7.9 -5.1 33 -18.5

Others 42 25 21 102.9 67.8 43 -2.6

Total Interest Income 4762 4607 4445 7.1 3.4 4944 -3.7

Others Income 542 696 341 59.2 -22.1 599 -9.4

Total Income 5305 5303 4785 10.9 0.0 5542 -4.3

Interest Expended 3427 3298 3114 10.0 3.9 3522 -2.7

NII 1336 1309 1330 0.4 2.0 1422 -6.1

Other Income 542 696 341 59.2 -22.1 599 -9.4

Total Income 1878 2005 1671 12.4 -6.3 2021 -7.1

Employee 569 550 563 1.0 3.4 301 89.3

Other Expenses 301 301 247 21.7 0.0 558 -46.1

Operating Expenses 870 852 811 7.3 2.2 859 1.3

PPP( Rs Cr) 1008 1154 860 17.2 -12.6 1162 -13.3

Provisions 555 742 432 28.3 -25.2 699 -20.6

PBT 453 411 428 5.9 10.1 463 -2.2

Tax 128 136 117 9.2 -5.9 139 -8.2

Net Profit 325 276 311 4.7 18.0 324 0.4

Balance Sheet ( Rs Cr)

Net Worth 12410 12085 11572 7.2 2.7 12409 0.0

Deposits 187478 180396 170649 9.9 3.9 192974 -2.8

Loans 137300 131896 121555 13.0 4.1 139757 -1.8

Asset Quality

GNPA( Rs Cr) 7,512 6,613 3,532 112.7 13.6 6,997 7.4

NPA( Rs Cr) 5651 5048 2478 128.1 11.9 5320 6.2

%GNPA 5.5 5.0 2.9

%NPA 4.1 3.8 2.0

PCR(w/o technical write-off)(%) 24.8 23.7 29.8

Operating Metrics

Credit-Deposits Ratio(%) 73.2 73.1 0.0

Cost-Income Ratio(%) 46.3 42.5 48.5

17

Financials & Assumption

ALLAHABAD BANK




Income Statement 2011 2012 2013 2014E 2015EInterest Income 11015 15523 17436 18958 22529

Interest Expense 6992 10361 12569 13532 15814

NII 4022 5163 4866 5426 6715

Change (%) 51.8 28.3 -5.7 11.5 23.8

Non Interest Income 1370 1299 1477 2319 2319

Total Income 5393 6461 6343 7745 9034

Change (%) 29.4 19.8 -1.8 22.1 16.6

Operating Expenses 2338 2691 2958 3384 3885

Pre Provision Profits 3055 3770 3385 4361 5150

Change (%) 19.9 23.4 -10.2 28.8 18.1

Provisions 1112 1602 1865 2527 2976

PBT 1943 2167 1520 1835 2174

PAT 1423 1867 1185 1290 1522

Change (%) 18.0 31.2 -36.5 8.8 17.9

Balance SheetDeposits( Rs Cr) 131887 159593 178742 194828 222104

Change (%) 24 21 12 9 14

of which CASA Dep 44156 48668 54930 60397 68852

Change (%) 21 10 13 10 14

Borrowings( Rs Cr) 6918 9094 10098 13544 15440

Investments( Rs Cr) 43247 54283 58306 60428 71263

Loans( Rs Cr) 93625 111145 129490 145028 165332

Change (%) 31 19 17 12 14

RatioAvg. Yield on loans 8.8 10.5 9.8 9.7 10.0

Avg. Yield on Investments 6.2 6.8 7.7 7.5 8.0

Avg. Cost of Deposit 4.9 6.1 6.7 9.2 9.5

Avg. Cost of Borrowimgs 7.1 6.8 5.2 7.1 7.1

Persistent System.

BUY Delivered inline set of numbers but better on all aspects than its peers did :

11%

1M 1yr YTD

Absolute 1.1 76.8 85.7

Rel. to Nifty 3.4 75.8 82.3


Promoters 38.96 38.96 38.96

FII 18.26 15.28 14.84

DII 18.78 21.23 19.31

Others 24 24.53 26.89

Financials

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

Revenue 432.75 432.37 0.1 332.98 30.0

EBITDA 104.3 100.8 3.5 82.4 26.6

PAT 64.2 60.8 5.6 49.5 29.7

EBITDA Margin 24.1% 23.3% 80bps 24.7% (60bps)

PAT Margin 14.8% 14.1% 70bps 14.9% (10bps)

18

Market Data

BSE Code 533179

NSE Symbol

Persistent management suggests that deal pipeline are looking strong and seeing good

activity and traction in the market across the board. Its focus on some of newer

technologies like cloud, analytics and mobility, M2M, digital transformation are

gaining a lot of traction because of pickup in demand environment. Because of actively

investment in these themes, management is very confident to see healthy growth.

Mkt Capital (Rs Crores)

52wk Range H/L 1058/477

3974

Nifty


6136

Margin ramp up: During the quarter, Its EBITDA margin improved by 80bps to 24.1%

because of cost rationalization. PAT margin up by 70bps to 14.83%. However,

management expects to maintain margin at 24-25% for FY14E.

On segmental front: The Company’s cash cow segment Infrastructure and System,

which contributes 69% on sales, was flat than previous quarter and Telecom (18%

contribution on sales) was up by 2% sequentially. While, Life Science space (13%

contribution on sales) down marginally by 1% (QoQ).

Geography wise revenue: Because of weak seasonality and furloughs impact, North

America and APAC regions were marginally down by 1-2%(QoQ). The company’s earning

potential from US is 83% and APAC is 11%. While Europe contributes 6% of sales and has

seen tremendous set of growth at 36% (QoQ) led by a large account execution during

the quarter.

1 year forward P/E-x

Rs, Crore


View and Valuation: The company’s focus is shifting greater proportion to IP led services

and company has marquee clientele in cutting-edge technologies around cloud,

mobility, collaboration and analytics; witnessing faster growth. Considering the

company’s ability to achieve scale and growth, we upgrade our target price from Rs

960 to Rs 1070 with “BUY” view on the stock. Recently we had advised to book profit

on the stock at a target price of Rs 960. Post 3rd quarter earnings, we upgrade our EPS

for FY15E from Rs 76.9 to Rs 79.1. At a CMP of Rs 994, stock trades at 12.6x FY15E

earnings.

Clients Metrics: During the quarter, company added 2 clients(Total 34) under medium

category( >$1mn to $3mn) and no client addition (Total) 16 from large ( > $ 3Mn) .

Revenue contribution from top-1 client declined from 22.5% (2QFY14) to 19.8% and

contribution from top-5 and Top-10 marginally down. DSO at 63days, almost 12

quarters low.

Average Daily Volume 12139


Stock Performance

PERSISTENT

"Persistently innovating.."

Results update

CMP 994

Target Price 1070

For 3QFY14, Persistent System’s sales was almost flat (QoQ) in INR term, while grew

2.2% (QoQ) in USD term impacted by seasonality and furloughs impacts. During the

quarter, volume growth from Offshore increased by 3.8% and Onsite volume growth

was flat, sequentially. PAT grew by 5.5% (QoQ)


Previous Target Price 960

Upside 8%

The management remains confident of FY14 with deal pipeline being strong and

remains focused on increasing the share of IP-led revenues in its portfolio. The

management expects to see more than 15% dollar revenue growth, more than

NASSCOM guidance of 12-14 % for FY14E.

"BUY"28th Jan' 14


■Persistent is confident of doing more than 15% revenue growth in$ terms(FY14E).

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

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

■ Services business can continue to keep the growth momentum.19

Persistent System.

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

On $term, Sales growth was up by 2.2%

(QoQ) and 0.8% on INR term,



Key facts from Concall (attended on 27th Jan,2014)

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

transformation are gaining traction.

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

improve margins going forward.


Segmental Revenue-%

Persistent's exposure on Infr and System has

increased to 69%, growth in Infra space

indicates more visibility of deal intake in near

future,


Margin-%

Its EBITDA margin improved by 80bps to

24.1% because of cost rationalization.


20

Financials


Persistent System.


Operating Metrics


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

Top1 16.0% 15.9% 17.2% 17.8% 20.7% 21.1% 21.6% 21.2% 22.5% 19.8%

Top 5 38.6% 37.0% 36.6% 33.5% 36.3% 37.3% 36.7% 34.7% 36.4% 36.9%

Top 10 49.4% 48.3% 48.8% 45.3% 47.0% 49.4% 47.9% 46.0% 47.3% 46.9%

Onsite - Linear 12665 12387 12603 12789 12863 12772 14014 14567 14283 14510

Offshore - Linear 3803 3778 3895 3898 3978 4032 4143 4111 4109 4179

Yeild per Employee(excld- Trainee) 3208 3247 3350 3345 3746 3817 3769 3602 3919 3934

Total Employee 6900 6706 6628 6536 6370 6719 6970 7144 7457 7602

Attrition 17.7% 17.4% 18.3% 18.9% 16.9% 16.0% 14.4% 14.2% 14.0% 13.2%

Utilization rate %(xclude IP Led ) 73.8% 74.1% 71.7% 74.1% 75.2% 77.3% 72.5% 70.0% 71.7% 72.9%

Billing Rate-USD/ppm

Employee Metrics

Client Concentration

Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales 601.16 775.84 1000.3 1294.5 1666.59 2061.72

Employee Cost 368.74 481.62 599.05 719 899.96 1123.64

Cost of technical professionals 0 30.67 41.68 54 91.66 113.39

Other expenses 86.05 105.24 135.2 218 291.65 366.99

Total expenses 454.79 617.53 775.93 990.78 1283.28 1604.02

EBITDA 146.37 158.31 224.37 303.72 383.32 457.70

Depreciation 33.52 42.39 61.1 78 100.55 93.54

Other Income 11.23 34.44 34.44 34.44 55.00 72.16

EBIT 112.85 115.92 163.27 225.44 282.76 364.16

Interest Cost 0 0 0.00 0.03 0.05 0.05

Profit (+)/Loss (-) Before Taxes 124.08 150.36 197.71 259.851 337.71 436.28

Provision for Taxes 9.05 10.62 55.09 75.37 92.03 119.98

Net Profit (+)/Loss (-) 115.03 139.74 142.62 184.481 245.69 316.30

Growth-% (YoY)

Sales 1.2% 29.1% 28.9% 29.4% 28.7% 23.7%

EBITDA 60.2% 8.2% 41.7% 35.4% 26.2% 19.4%

PAT 74.1% 21.5% 2.1% 29.4% 33.2% 28.7%

Expenses on Sales-%

Employee Cost 61.3% 62.1% 59.9% 55.5% 54.0% 54.5%

Other expenses 14.3% 13.6% 13.5% 16.9% 17.5% 17.8%

Tax rate 7.3% 7.1% 27.9% 29.0% 27.3% 27.5%

Margin-%

EBITDA 24.3% 20.4% 22.4% 23.5% 23.0% 22.2%

EBIT 18.8% 14.9% 16.3% 17.4% 17.0% 17.7%

PAT 19.1% 18.0% 14.3% 14.3% 14.7% 15.3%

Valuation:

CMP 310 366.7 409.2 541 994 994

No of Share 4 4 4 4 4 4

NW 639.0 747.1 840.5 1018.3 1212.5 1477.3

EPS 28.8 34.9 35.7 46.1 61.4 79.1

BVPS 159.7 186.8 210.1 254.6 303.1 369.3

RoE-% 18.0% 18.7% 17.0% 18.1% 20.3% 21.4%

P/BV 1.9 2.0 1.9 2.1 3.3 2.7

P/E 10.8 10.5 11.5 11.7 16.2 12.6

84

82

#####

1M 1yr YTD

Absolute -0.7 -5.4 -5.4

Rel.to Nifty -0.6 -9.0 -9.0


3Promoters 69.3 69.3 69.3

FII 4.2 3.9 3.2

DII 12.4 12.5 13.0

Others 14.2 14.3 14.6

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 3845 3902 4582 6186 6289

Total Income 4770 4868 5534 7335 7438

PPP 2695 2811 3357 4850 5132

Net Profit 907 1109 618 1585 2101

EPS 16.5 17.7 9.3 23.8 31.6

21


UCO Bank Vs Nifty


2960821

Nifty 6154



Stock Performance

52wk Range H/L

Stable asset quality in sequential basis despite of challenging environment

On delinquencies front, bank reported very stable asset quality in sequential basis

with GNPA deteriorated by 0.3% to Rs.7353 cr versus Rs.7376 cr in challenging

macro environment. In percentage term GPA improved by 25 bps to 5.2% versus

5.5% in previous quarter. Provisions in absolute term declined by 0.7% in sequential

basis which led net NPA improve to 0.3%. In percentage of gross NPA to gross

advance, it stood at 5.2% versus 5.5% in 2QFY14 while net NPA in percentage term

was improved to 3% from 3.1% in previous quarter. Provisions coverage ratio

(without technical write-off), was 46.4% as against 46.6% in previous quarter.

Operating expenses increased by 15.5% YoY in which employee cost and other

operating expenses increased by 12.7% and 21% YoY respectively. Cost income

ratio declined from 39.2% in 3QFY13 to 35.3% inn3QFY14. With the support from

healthy NII growth and lower cost income ratio, bank’s operating profit grew by 37%

YoY to Rs.1137 cr.

Healthy NII growth and controlled cost income ratio led operating profit growth

BSE Code

UCO BANK

Company Update BUY

CMP

532205

Target Price

Average Daily Volume

5561


During quarter, bank reported NII growth of 33% YoY to Rs.1566 cr below of our

expectation of Rs. 1642 cr largely due to higher cost of fund than anticipated which

led by sequentially declined of low cost deposits(CASA). NII growth of 33% YoY was

much higher than its peers which have delivered result so far. Other income was

Rs.190 cr versus Rs.209 cr in 2QFY14 and Rs.190 cr in 3QFY14. With the lower

support from other income, total revenue growth was 28.5% YoY to Rs.1756 cr.

Upside

86.65/46

Mkt Capital (Rs Cr)

Market Data

NSE Symbol UCOBANK

UCO bank reported net profit growth of 207% YoY largely due to robust

growth in NII along with higher than industry average loan growth. Bank’s

asset quality improved sequentially despite of challenging macro

environment. However bank’s CASA growth has declined marginally in

sequential basis but still at comfortable level. UCO Bank’s operating as well

as financials metrics has been improving continuously. We value bank at

Rs.84/share which is 0.5 times of one year forward book and 3.5 times

FY14E’s earning.

NII growth of 33% YoY led by higher than industry loan growth and high CD

ratio

"BUY"27h Jan, 2014


22

UCO BANK


Loan and deposits reported higher growth than industry average

On balance sheet growth front, bank’s advance grew by 16.5% YoY while deposits grew

by 13.4% YoY led by CASA growth of 23% YoY in absolute term. CASA in percentage of

total deposits improved to 30.5% versus 19.2% in 3QFY13. Saving deposits and current

deposits increased by 13% and 38% YoY respectively. But in sequential basis, CASA

deposits declined to 30.5% from 31.8% and 32.1% in 1QFY14. Credit deposits ratio for

quarter stood at 73.5% as against 71.6% in 3QFY14 and 71.4% in previous quarter. Total

business (Deposits +Advance) grew by 14.7% YoY to Rs.3.34 lakh Cr versus Rs.2.91

lakh Cr.

Marginal expansion of NIM on account of declined loan yield than cost of fund

NIM improved by 60 bps YoY to 3.06% from 2.42% largely due to lower cost of deposits

which was lead by low cost franchise network. Cost of deposits stood at 6.27% versus

6.92% in 3QFY14. Yield on advance (EW calculation) declined from 10.5% to 10% which

has restricted limited NIM growth.

Profit tripled on account of healthy NII growth, lower CI ratio and stable asset

quality

UCO Bank reported net profit growth of 207% YoY to Rs.315 cr as against our

expectation of Rs.338 cr largely due to robust growth in NII, lower cost income ratio,

improving asset quality which led lower provisions and high credit deposits ratio.

Valuation & View

UCO bank reported net profit growth of 207% YoY largely due to robust growth in NII

along with higher than industry average loan growth. Bank’s asset quality improved

sequentially despite of challenging macro environment. However bank’s CASA growth

has declined marginally in sequential basis but still at comfortable level. UCO Bank’s

operating as well as financials metrics has been improving continuously. We value bank

at Rs.84/share which is 0.5 times of one year forward book and 3.5 times FY14E’s

earning.


23

Fundamental Through Graph

NII growth of 33% YoY led by higher than

industry loan growth and high CD ratio

Healthy NII growth and controlled cost

income ratio led operating profit growth

Profit tripled on account of healthy NII

growth, lower CI ratio and stable asset

quality

UCO BANK

Source:Eastwind/Company



24

UCO BANK



Quarterly Performance


Quarterly Result 3QFY14 2QFY14 3QFY13 % YoY % QoQ

Interest/discount on advances / bills 3543 3396 3197 10.8 4.3

Income on investments 1138 1026 923 23.3 11.0

Interest on balances with Reserve Bank of India 29 8 30 -2.7 243.2

Others 19 14 21 -13.7 31.7

Total Interest Income 4729 4444 4171 13.4 6.4

Others Income 190 209 190 0.4 -9.0

Total Income 4919 4653 4361 12.8 5.7

Interest Expended 3163 2875 2994 5.6 10.0

NII 1566 1569 1177 33.0 -0.2

Other Income 190 209 190 0.4 -9.0

Total Income 1756 1779 1367 28.5 -1.3

Employee 395 382 351 12.7 3.3

Other Expenses 225 230 186 20.9 -2.4

Operating Expenses 620 612 536 15.5 1.2

PPP( Rs Cr) 1137 1166 831 36.8 -2.5

Provisions 812 759 728 11.5 7.0

PBT 325 408 103 215.1 -20.3

Tax 10 7 1 1536.5 40.7

Net Profit 315 400 102 206.9 -21.4

Balance Sheet

Net Worth 11085 10770 9399 17.9 2.9

Deposits 192406 188779 169711 13.4 1.9

Total Liabilities 203491 212416 179110 13.6 -4.2

Advances 141457 135233 121455 16.5 4.6

Total Assets 141457 212416 121455 16.5 -33.4

Asset Quality

GNPA 7,353 7,376 6,711 9.6 -0.3

NPA 4217 4228 3927 7.4 -0.3

% GNPA 5.2 5.5 5.5

% NPA 3.0 3.1 3.2

% PCR(Without technical writeoff) 46.4 46.6 41.5

25

UCO BANK

Source: Company/Eastwind



Income Statement 2011 2012 2013 2014E 2015EInterest Income 11371 14632 16752 18346 22476

Interest Expense 7526 10730 12170 12160 16186

NII 3845 3902 4582 6186 6289

Change (%) 65.4 1.5 17.4 35.0 1.7

Non Interest Income 925 966 952 1149 1149

Total Income 4770 4868 5534 7335 7438

Change (%) 45.0 2.0 13.7 32.5 1.4

Operating Expenses 2075 2056 2177 2485 2306

Pre Provision Profits 2695 2811 3357 4850 5132

Change (%) 58.0 4.3 19.4 44.5 5.8

Provisions 1788 1661 2710 3217 2798

PBT 907 1150 647 1634 2334

PAT 907 1109 618 1585 2101

Change (%) -10.4 22.3 -44.2 156.4 32.5

Balance SheetDeposits( Rs Cr) 99071 115540 128283 153939 184727

Change (%) 17 11 20 20

of which CASA Dep 32031 34403 55733 67707 81249

Change (%) 6 7 62 21 20

Borrowings( Rs Cr) 5475 12901 9492 12315 14777

Investments( Rs Cr) 42927 45771 52245 62692 75231

Loans( Rs Cr) 99071 115540 128283 153939 184727

Change (%) 20 17 11 20 20

RatioAvg. Yield on loans 8.6 9.9 10.0 9.0 9.0

Avg. Yield on Investments 6.6 7.1 7.1 6.8 7.5

Avg. Cost of Deposit 4.7 6.5 6.6 7.0 6.4

Avg. Cost of Borrowimgs 12.5 6.1 7.0 6.0 6.0

Valuation

Book Value 135 137 146 173 185

CMP 107 79 50.1 75.25 75.25

P/BV 0.8 0.6 0.3 0.4 0.4

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

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

email: [email protected],

website : www.narnolia.com

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investment funds advisory today- buy stock of escorts ltd and neutral view on hindustan unilever

Economy & Finance

yoy sales growth

yoy volume growth

robust growth

target price rs

banks casa growth

net profit growth

muted nii growth

companys growth prospects