Post on 26-Jun-2015
description
Orient Bank’s profitability declined by 31% YoY on the back of subdues growth at NII level led by margin compression. Higher operating
expenses and tax rate caused muted return ratios. Asset quality pressure remained persist and asset impaired (GNPA + Restructure advance)
remained at elevated level. We have buy rating on the stock due to inexpensive valuation. We value bank at Rs.216/share which is 0.4 times of
FY14E’s book. ................................................. ( Page : 19- 23)
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. Overall, Indian IT Industry is expected to reach the mark of USD130billion. For FY14, Indian IT industry is expected to
report 13% growth, in line with NASSCOM guidance at 12-14%. ....................................................... ( Page : 16-18)
CIPLA : "BUY" 14th Feb 2014
Cipla Limited posted its 3QFY14 results with its standalone net revenues at Rs 2282 up 10 % YoY led by healthy growth in export business with
well support from India operations to. The revenues from export business including formulations and API grew by 36 % to 1509 Cr for the
quarter while domestic business grew by 9% YoY to 1044 Cr. ................................................ ( Page : 2-3)
14th Feb, 2014
Edition : 206
IEA-Equity
Strategy
ORIENTAL BANK : "BUY" 13th Feb 2014
13th Feb 2014
Finolex Cables’ (FCL) Q3FY14 PAT of Rs. 24.5 crore was below ourestimate owing to lower sales and EBITDA margin. Decline in communication
cable segment segments as well as high raw material prices resulted in flat EBITDA growth of 3.2% yoy. Sales rose 5.58% to Rs. 557.55 crore in
the quarter ended December 2013 as against Rs. 528.07 crore during the previous quarter ended December 2012. Third Quarter result were
marginally below our expectaton which led us to revise our estimate on stock, we cut our EPS forecast for FY14E-15E by 8.6%/4.1%. Even after
posting marginally below result the stock is quite attractive at current market price of Rs. 81 and left a limited upside of 11%, however we
advised our reader to book a part profit on stock . ......................................... ( Page : 14- 15)
"Book Partial
Profit "Finolex Cables Ltd: "Reasonable prospects…..."
13th Feb 2014IT Industry;NASSCOM Guidance :"FY15E; a year of growth opportunity"
Canara bank’s performance was muted all through despite of healthy loan growth. Canara bank was unable to translate its balance sheet growth
in profit & loos account due to lower base rate among peers. Bank’s asset quality was deteriorating sequentially along with higher fresh
slippage. PCR was lowest among peers (without technical write off). We are disappointed with growth parameters of the bank. We have neutral
view on the stock. ..................................................................... ( Page : 9-13)
Coal India LTD : "BUY" 14th Feb 2014
Earlier we suggested, if earnings falls, then price might go beyond 256, but p/b level may be maintained , else we assume that since the
company is a good dividend paying company with Roe above 30% we assume p/b should remain above 3. We see Coal India at a attractive
valuation to go long from the current dips. So we stick to our previous estimates and recommend Maintain Buy CIL at price dips with a target
price of Rs.307/-. ............................................................... ( Page : 6-8)
Somany Ceremics: "Outlook Challenging in near term" "REDUCE" 14th Feb 2014
At the current CMP of Rs. 131, the stock is trading at a PE of 15.1x and 11.0x of FY14E and FY15E. The company can post RoE of 17.0% and 17.1%
& EPS of Rs. 8.7 and Rs. 10.8 FY14E and FY15E. We are downgrading the rating to "Reduce" and advise investors to book profits at current level.
Over the longer term, we expect the efforts to introduce new ventures, curtail costs and the expected economic revival driven by an uptick in
demand in the latter part of FY2015, to boost its fortunes. In the interim period, we are reducing our target multiple to 10x of FY15E and price
target to Rs 115. ............................................................ ( Page : 4-5 )
CANARA BANK : "NEUTRAL" 14th Feb 2014
Narnolia Securities Ltd,
India Equity AnalyticsDaily Fundamental Report on Indian Equities
BUY
1M 1yr YTD
Absolute -4.5 -3 -2
Rel. to Nifty -1.7 -4.3 -14
Current 2QFY14 1QFY1
4Promoters 36.8 36.8 36.8
FII 23.8 23.8 23.1
DII 10.6 10.9 10.8
Others 28.8 28.5 29.3
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 2282 2347 (2.8) 2070 10.2
EBITDA 403 533 (24.4) 492 -18.1
PAT 261 376 (30.6) 338 -22.8
EBITDA Margin 17.7% 22.7% (500bps) 23.8% (610bps)
PAT Margin 11.4% 16.0% (460bps) 16.3% (490bps)
2
The stock at its CMP of Rs 381 is trading at 19.58 x of one year forward FY14E EPS of Rs
19.40.The stock has reacted negatively after 3QFY14 results however we don’t see any
downside risks to our estimates. We further believe that Cipla-Medpro would be earning
accretive in medium to long term horizons and we view the recent correction a good entry
point for the stock. We maintain our view BUY for the stock with Target Price of Rs
440.
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
Mkt Capital (Rs, Cr)
View & Valuation
The management of the company after the results said that the Global respiratory unit
expects some of launches in the next year. It has set up new global respiratory team during
the quarter. The Combination inhalers planned to launch in FY'15.Company expects to be
more than 5% of Sales on the back of ramp up filings for the FY'15.The Capex is 90 Cr
during the quarter and expects to be Rs 400 Cr FY'14. The Rollover Capex of previous year
is Rs 150 Cr during the year.
CIPLA
Result Update
CMP 381
One Year Price vs Nifty
(Source: Company/Eastwind)
30,591
Average Daily Volume 617290
Nifty 6,001
Cipla Limited posted its 3QFY14 results with its standalone net revenues at Rs 2282 up 10
% YoY led by healthy growth in export business with well support from India operations to.
The revenues from export business including formulations and API grew by 36 % to 1509
Cr for the quarter while domestic business grew by 9% YoY to 1044 Cr. The growth in
export revenues was primarily due to growth in anti-retroviral, anti-cancer, anti-allergic and
anti-biotic segments.
The operating EBITDA for the quarter under review came Rs 403 Cr and OPM at 17.88
%.The OPM declines by more than 600 bps YoY due to the increase in the R&D and the
ramp up in the Staff cost during the quarter. The employ cost as percentage of sales stands
at 14 % while it was 12 % for the same time last fiscal. The other expenses as percentage
of sales were 27% for the 3QFY14 versus 25 % in 3QFY13.The other expenditure
increased largely due to rise in R&D expenses and rise in the cost owing to filings and
setting up of the front end during the quarter. The R&D expenses 4.5% of Sales during the
quarter.
450/354
NSE Symbol CIPLA
52wk Range H/L
15%Upside
Change from Previous
Previous Target Price
Market Data
BSE Code 500087
The net profits for the quarter came at Rs 261 Cr and NPM stands at 11.43 %. The Rs 40
Cr Forex gain is included in the other income during the quarter. The tax rate for the quarter
was nearly at same rate as in corresponding last quarter at 25 %.
The Company filed 10 ANDA's in the last nine months and got 6 approvals for the same
period. It has 35 ANDA's under approval as on 31st December 2013. The few of the
approval products are commercialized. Cipla Medpro formed as acquisition of
Medpro,South Africa last year added 500 Cr to top line and 50 Cr to the operating profits
during the quarter.
Target Price 440
"BUY"14th Feb' 14
Narnolia Securities Ltd,
3
CIPLA
Business Trend
(Source: Company/Eastwind)
The revenues from export business including
formulations and API grew by 36 % to 1509
Cr for the quarter while domestic business
grew by 9% YoY to 1044 Cr.
Revenue Trend %
(Source: Company/Eastwind)
OPM & NPM Trend %
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Net revenues at Rs 2282 up 10 % YoY led by
healthy growth in export business with well
support from India operations to.
The OPM declines by more than 600 bps YoY
due to the increase in the R&D and the ramp
up in the Staff cost during the quarter.
Narnolia Securities Ltd,
V- Somany Ceremics Ltd.
CMP 131
Target Price 115
95
Upside -12.2%
21.1%
BSE Code 531548
NSE Symbol
61/155
452
3,109
Nifty 6,001
1M 1yr YTD
Absolute 13.2 59.9 103.2
Rel. to Nifty 16.0 58.1 97.6
3QFY14 2QFY14 1QFY14
Promoters 63.3 63.3 63.3
FII 2.8 0.8 0.2
DII 1.7 1.9 2.0
Others 32.2 34.0 34.5
Valuations :
Financials Rs, Crore
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 284.5 305.6 -6.9% 267.2 6.5%
EBITDA 17.0 19.4 -12.8% 22.1 -23.3%
PAT 4.8 6.0 -20.5% 8.2 -41.4%
EBITDA Margin 6.0% 6.4% (40) bps 8.3% (230) bps
PAT Margin 1.7% 2.0% (30) bps 3.1% (140) bps
4
"Outlook Challenging in near term…….."
The Q3FY2014 results were weak marked by a double-digit decline in the profit after tax on the
back of subdued increase in fuel cost, dollar v/s rupee volatility and a pressure on the margin.
The management expect improvement in the demand conditions in the near term and guided a
revenue growth of 20% in FY14E-15E, however we expect the revenue growth to be
somewhere arround 12-15% and financial performance to remain weak on account of margin
pressure. Consequently, we are downgrading the rating to "Reduce" and advise investors to
book profits at current level. Over the longer term, we expect the efforts to introduce new
ventures, curtail costs and the expected economic revival driven by an uptick in demand in the
latter part of FY2015, to boost its fortunes. In the interim period, we are reducing our target
multiple to 10x of FY15E and price target to Rs 115.
Reduce
Result highlights :
Result update
Mkt Capital (Rs Crores)
52wk Range H/L
Previous Target Price
SOMANYCERA
Change from Previous
Share Holding Pattern-%
Stock Performance-%
Market Data
Average Daily Volume
For Quarter Ended 2QFY14
• For the quarter ended September 2013, Somany Ceramic registered 6.5% rise in sales to Rs
284.5 crore.
• OPM fell 230 basis points to 6.0% taking OP down 8.3% to Rs 17.0 crore.
• Other income also rise 77.8% to Rs 48 lakh and interest cost decreased 8.9% to Rs 4.6 crore.
• As depreciation increased 9.1% to Rs 5.7 crore, PBT fell 41.1% to Rs 7.1 crore.
• Taxation fell 40.3% to Rs 2.3 crore (tax incidence grew from 32.5% to 32.9) and PAT fell 41.4%
to Rs 4.8 crore.
For Nine Month Ended 9MFY14
• For the nine month ended December 2013, Somany Ceramic registered 18.7% rise in sales to Rs
848.8 crore.
• However, OPM dived from 8.5% to 6.4% taking OP down 10.7% to Rs 54.5 crore.
• Other income jumped 28.1% to Rs 1 crore and interest cost decreased 8.2% to Rs 13.8 crore.
• As depreciation increased 8.7% to Rs 16.5 crore, PBT fell 20.3% to Rs 25.2 crore.
• Taxation fell to 15.5% to Rs 8.6 crore but tax incidence grew from 32.1% to 34.0% which finally
saw PAT falling 22.5% to Rs 16.6 crore.
Management is expected to achive a top-line growth of arround 20-25% in FY14E.
Management Guidence FY14E
(Standalone) (Source: Company/Eastwind Research)
Please refer to the Disclaimers at the end of this Report.
At the current CMP of Rs. 131, the stock is trading at a PE of 15.1x and 11.0x of FY14E and FY15E.
The company can post RoE of 17.0% and 17.1% & EPS of Rs. 8.7 and Rs. 10.8 FY14E and FY15E.
We are downgrading the rating to "Reduce" and advise investors to book profits at current
level. Over the longer term, we expect the efforts to introduce new ventures, curtail costs and
the expected economic revival driven by an uptick in demand in the latter part of FY2015, to
boost its fortunes. In the interim period, we are reducing our target multiple to 10x of FY15E
and price target to Rs 115.
1 yr Forward P/B
"Reduce"13th Feb' 14
Narnolia Securities Ltd,
5
Please refer to the Disclaimers at the end of this Report.
(Ammount in crore) (Source: Company/Eastwind)
Somany Ceremics Ltd.
Key financials :
(Source: Company/Eastwind Research) (Figures In crore)
Narnolia Securities Ltd,
PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E
Performance
Revenue 446 542 720 879 1054 1250 1438
Other Income 2 3 1 1 3 3 3
Total Income 448 545 721 880 1056 1253 1440
EBITDA 42 56 68 74 86 83 95
EBIT 28 41 50 56 65 59 75
DEPRICIATION 14 15 17 18 21 24 26
INTREST COST 16 13 17 21 20 17 17
PBT 14 31 34 36 48 44 60
TAX 5 10 11 11 15 14 19
Reported PAT 9 20 24 25 33 30 41
Dividend 1 2 3 3 5 6 6
EPS 2.5 5.9 6.9 7.3 9.4 8.7 11.9
DPS 0.4 0.7 0.8 0.9 1.4 1.9 1.9
Yeild %
EBITDA % 9.5% 10.3% 9.4% 8.4% 8.1% 6.6% 6.6%
PBT % 3.0% 5.6% 4.8% 4.1% 4.5% 3.5% 4.2%
NPM % 2.0% 3.8% 3.3% 2.9% 3.1% 2.4% 2.9%
Earning Yeild % 28.5% 18.8% 18.0% 19.5% 14.6% 6.6% 9.1%
Dividend Yeild % 3.9% 2.2% 2.1% 2.5% 2.2% 1.4% 1.4%
ROE % 13.5% 24.6% 23.0% 20.1% 21.3% 17.0% 19.4%
ROCE% 12.3% 13.8% 15.7% 16.6% 17.8% 9.8% 12.0%
Position
Net Worth 65 83 104 126 153 177 211
Total Debt 138 162 158 151 142 130 130
Capital Employed 202 245 262 276 295 307 341
No of Share 3 3 3 3 3 3 3
CMP 9 31 38 38 65 131 131
Valuation
Book Value 18.8 24.0 30.1 36.5 44.4 51.2 61.2
P/B 0.5 1.3 1.3 1.0 1.5 2.6 2.1
Int/Coverage 1.7 3.1 2.9 2.7 3.3 3.4 4.4
P/E 3.5 5.3 5.6 5.1 6.8 15.0 11.0
Net Sales/CE 2.2 2.2 2.8 3.2 3.6 4.1 4.2
Net Sales/Equity 6.9 6.6 6.9 7.0 6.9 7.1 6.8
Coal India LTD.
261
307
330
18%
-7%
533278
176226 Fluctuation in Domestic and international coal price impacted coal offtake17622
6001
1M 1yr YTD
Absolute -1.3 -21.2 -21.4
Rel. to Nifty 2.8 8.8 8.6
Rescheduling Date of hearing stands a key concern3QFY14 2QFY14 1QFY14
Promoters 90.0 90.0 90.0
FII 5.5 5.5 5.4
DII 2.4 2.3 2.3
Others 2.1 2.2 2.4
Realization gain on Revised Coal Price
Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14
Net Revenue 16928 -2.3 9.8 17325 15411
EBITDA 4104 -4.3 46.9 4288 2794
Depriciation 442 5.2 -10.7 420 495
Interest Cost 10 0.0 25.6 10 8
Tax 1930 4.9 36.6 1839 1412
PAT 3894 -11.4 27.6 4395 3052(In Crs)
6
Upside
Change from Previous
Result UpdateCMP
Target Price
Previous Target Price
Market DataBSE Code
COALINDIA
CIL reported Rs.16928 Cr Sales (-2% YOY) against Rs.17325 Cr in Q3FY13 due to poor off
takes of the coal during the quarter. Q3FY14 PAT slipped to -11% to Rs.3894 Cr against
Rs.4395 Cr in Q3FY13.Q3FY14 EBIDTA/ton remained flat YOY at Rs.350/ton while it is
increased 36% through QOQ. EBIDTA margin corrected in this quarter to 24% from 18% in
Q2FY14.Depriciation slipped 11% to 442Cr against 495 Cr in Q2FY14, moderating the
burden on EBIDTA.
On the expenditure side contractual expenses increased ~20% to Rs.154/ton from
Rs.128/ton in Q2FY14.Powerfuel cost and other expenses per ton remained flat, while
cost of project per ton decreased to Rs149/ton from Rs.206/ton in the previous quarter.
Poor Realization of Coal India showed little uptick like 2% to Rs.1445/ton.
Meanwhile, Coal India Ltd is likely to get additional revenue of Rs 2,119 Crore in this fiscal
on account of revision in dry fuel prices.CIL (Coal India Ltd) has revised and rationalized
the basic notified prices of all the grades of non-coking coal except GI, G2 and G5.The
estimated additional revenue due to revision of basic notified price for the current
financial year is Rs 2,119 cr. Though the incremental revenue is a positive sign but it fails
to change our previous valuation.
Average Daily Volume (Nos.)
Please refer to the Disclaimers at the end of this Report.
Stock Performance-%
Share Holding Pattern-%
1 yr Forward P/B
Source - Comapany/EastWind Research
In this quarter the international coal price were relatively down by 9% against Q2FY14
while the domestic coal price were showed upward movement. So the Major domestic
consumers of coal imported coal at lower price, hence it impacted the off takes and
revenue of CIL slipped -2% YOY and unable to meet the target off takes. Govt decision
related labor strikes impacted the productions of CIL too. Sequential increase in tax rate
further contracted the NPM%. From January we have seen a recovery in international
coal price which is positive sign for CIL.
Competition Appellate Tribunal stays Rs 1,773 Crore fine on CIL, and will decide on the
matter on next hearing 16th April 2014 (Rescheduled from 11th Feb 2014). The quantum
of penalty Rs 1,773.05 Crore is equal to three per cent of the PSU's average turnover for
the last three years. We believe, A Rs 1800-crore fine could possibly mean less profits for
the company and less dividend income for its owners. But as the main owner, the
government, will pocket this amount in the form of a fine, it will not be poorer in any
way.
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Crores)
372/238
Nifty
"Buy"14th Feb' 14
Narnolia Securities Ltd,
FY11 FY12 FY13 FY14E
50234 62415 68303 69960
7573 5123 6556 8372
1755 2013 2333 2591
4580 4901 5802 6049
20481 26705 27943 28943
40390 40857 50219 53705
9843 21558 18084 16255
1673 1969 1813 1860
79 54 45 34
5595 6484 7623 7310
10868 20588 17356 17921
33 51 36 40
FY10 FY11 FY12 FY13
431 431 436 452
416 425 433 465
1073 1183 1441 1468
404744 390243 377447 364736
1066 1105 1155 1240
7
Coal India LTD.
We revised our estimates due to sequential poor production and off takes of CIL. We
expect modest increase in sales volumes growth during FY2013-15 on account of poor
off take capabilities of CIL. Management showed his confidence about their coal
production target and coal off take target for FY2014E, in previous quarter, which is
482mt and 492mt respectively. But Due to sequential poor production and off take we
revised the target to 464mt and 475mt respectively. Also, we expect CIL’s margins to
decline during FY2014 due to lower e-auction realizations and higher staff costs/other
expenses. We are expecting flat sales growth for 2014.Coal India Ltd sprang a positive
surprise by reporting higher-than-expected realizations as well as earnings before
interest, tax, depreciation and amortization (Ebitda). Average price realizations
increased by 2.3% sequentially to Rs.1,444.87 per tonne which is positive sign for future
growth.
Earlier we suggested, if earnings falls, then price might go beyond 256, but p/b level
may be maintained , else we assume that since the company is a good dividend paying
company with Roe above 30% we assume p/b should remain above 3. We see Coal India
at a attractive valuation to go long from the current dips. So we stick to our previous
estimates and recommend Maintain Buy CIL at price dips with a target price of Rs.307/-.
Recommendation
Cost Of Projects & Contractual
Power and fuel
contractual expenses
Employee benefit Expence
Expenditure
EBITDA
View & Outlook
P/L PERFORMANCE
Net Revenue from Operation
Avg Man Power (in numbers)
Productivity Per Man
Coal Offtake in MT
Depriciation
Interest Cost
Tax
PAT
ROE %
OPERATING MATRIX
Coal Production in MT
Revenue Generation From unit Ton
Narnolia Securities Ltd,
FY10 FY11 FY12 FY13
6316 6316 6316 6316
20956 26998 34137 42156
27273 33314 40453 48472
343 1334 1305 1078
1620 33 0 0
2545 22461 28271 31144
772 645 829 837
1404 12387 15595 20447
5443 8490 9785 12385
0 779 759 712
12035 12065 12681 12754
2211 2057 1848 3496
610 845 1017 1181
4402 5586 6071 5618
2169 3419 5663 10480
39078 45806 58203 62236
8066 11180 13478 16189
17921 21646 24688 25479
FY10 FY11 FY12 FY13
0.0 5.7 5.5 4.0
0.0 17.3 32.6 27.5
4.9 22.8 29.2 52.7
1.7 4.3 4.3 4.2
1.0 3.7 3.1 2.8
FY10 FY11 FY12 FY13
10727 12819 16323 15948
-131 -3822 3565 -6839
10596 8997 19888 9109
950 697 -10410 -1833
2163 2911 -7382 -7852
13708 12606 2095 -575
Down 21% from its 52week High
Up 14% from its 52 week Low
8
Coal India LTD.
Trade payables
Short-term provisions
Total liabilities
Intangibles
Cash and bank balances
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%
Short-term loans and advances
Total Assets
RATIOS
P/B
EPS
CASH FLOWS
Trading At :
Changes In Working Capital
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year
Cash from Operation
Narnolia Securities Ltd,
213
256
-
20
1M 1yr YTD
Absolute -17.2 -52.3 -52.3
Rel.to Nifty -13.3 -54.1 -54.1
Current 1QFY14 4QFY1
3Promoters 69.0 67.7 67.7
FII 10.3 11.9 12.7
DII 12.9 13.1 13.3
Others 7.7 7.3 6.3
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 7823 7689 7879 8511 12169
Total Income 10526 10617 11032 12328 15986
PPP 6107 5943 5890 6381 8792
Net Profit 4026 3283 2872 2399 3869
EPS 90.9 74.1 64.8 52.0 83.9
9
CANARA BANK
CANBK
Moderate growth in NII was due to margin compression Market Data
Upside
Canara bank’s performance was muted all through despite of healthy loan
growth. Canara bank was unable to translate its balance sheet growth in profit
& loos account due to lower base rate among peers. Bank’s asset quality was
deteriorating sequentially along with higher fresh slippage. PCR was lowest
among peers (without technical write off). We are disappointed with growth
parameters of the bank. We have neutral view on the stock.
Result update NEUTRAL
CMP
Target Price
Previous Target Price
Change from Previous
CANARA BANK Vs Nifty
Share Holding Pattern-%
1.93 lakh
Nifty 6001
459/19052wk Range H/L
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Stock Performance
Average Daily Volume
On asset quality front, gross NPA increased by 8% QoQ in absolute term whereas
fresh slippage was high at Rs.2100 cr versus Rs.1520 cr in previous quarter. In
percentage term, GNPA stood at 2.8% versus 2.7% in previous quarter whereas
fresh slippage in annualised basis increased by 76 bps sequentially to 2.9%. During
quarter, bank’s increased provisions by 19% QoQ thereby net NPA increased by 6%
in absolute term. In percentage term net NPA stood at 2.4% versus 2.3% in previous
quarter.PCR slightly improved from 13.6% to 14.9% (without technical write off)
much lower than peers. However bank reported PCR at 57.4% in 3QFY14.
Operating cost increased by 12.9% YoY was due to higher cost registered in other
operating expenses which were came because of 47 new branches and 245 ATMs
added on yearly basis. Employee cost was flat on YoY basis while other operating
expenses increased by 26.3% YoY. Cost to income ratio 180 bps improved on YoY
basis to 48.3%. With moderate NII growth and higher operating expenses led
operating profit growth of 4.9% YoY.
Deteriorating asset quality with higher slippage
BSE Code 532483
NSE Symbol
During quarter bank’s NII grew by 12% YoY to Rs.2227 cr despite of 32% loan
growth and 26% deposits growth. Moderate growth in NII was due to margin
compression in YoY basis which was lead by lower base rate among peers. On NII
level, bank’s interest earnings asset grew by 18% YoY while interest bearing
liabilities grew by 20% due to higher share of wholesale deposits which somehow
increased cost. Other income was flat from last quarter and was stood at Rs.851 cr
versus Rs.846 cr. Consequently from lower support of other income, revenue grew
by 8.6% YoY to Rs.3078 cr.
Higher opex and moderate NII growth led muted operating profit growth
9427Mkt Capital (Rs Cr)
"NEUTRAL"14h Feb2014
Narnolia Securities Ltd,
10
CANARA BANK
Bank’s loan grew by 32% YoY led by retail sector growth of 55% YOY followed by SME
(46% YoY), Infrastructure (24% YoY). Within infrastructure loan growth, power generation
and transmission growth was strong at 63% YoY. Deposits grew by 1% YoY and 4% QoQ
in which current and saving account deposits grew by 19% and 16% YoY respectively. In
deposits profile, term deposits de-grew by 3% YoY which was took flat growth in overall
deposits as share of term deposits reduce to 77% from 80% in last quarter. CASA ratio
was declined by 123 bps QoQ to 23%. Credit deposits ratio for the quarter stood at
70.4% versus 71.8% in previous quarter and 67.4% in last quarter.
Margin compression on account of higher cost of fund
NIM compressed by 15 bps YoY to 2.21 largely due to lower loan yield 70 bps YoY
whereas cost of fund increased by 120 bps YoY. Higher cost of fund was due to higher
cost of bulk deposits. However declining share of bulk deposits and increasing CASA
ratio restricted to escalate funding cost. Yield on loan declined by 70 bps YoY despite of
healthy loan growth was due to lower base rate among peers.
Healthy loan growth led by retail sector
Valuation & View
Canara bank’s performance was muted all through despite of healthy loan growth.
Canara bank was unable to translate its balance sheet growth in profit & loos account
due to lower base rate among peers. Bank’s asset quality was deteriorating sequentially
along with higher fresh slippage. PCR was lowest among peers (without technical write
off). We are disappointed with growth parameters of the bank. We have neutral view on
the stock.
Valuation Band
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
11
Moderate growth in NII was due to margin
compression
Higher opex and moderate NII growth led
muted operating profit growth
Profitability declined due to moderate NII
growth, higher provisions and higher tax rate
CANARA BANK
Chart Focus
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
12
CANARA BANK
Quarterly Performance
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Result 3QFY14 2QFY14 3QFY13 % YoY % QoQ 3QFY14E % Variation
Interest/discount on advances / bills 7360 6964 5958 23.5 5.7 7298 0.9
Income on investments 2575 2597 2460 4.7 -0.9 2701 -4.7
Interest on balances with Reserve Bank of India 149 93 127 17.1 60.3 216 -30.8
Others 0 0 0 - -13.5 0 -
Total Interest Income 10084 9654 8544 18.0 4.4 10214 -1.3
Others Income 851 773 846 0.7 10.1 1006 -15.3
Total Income 10935 10427 9390 16.5 4.9 11220 -2.5
Interest on deposits 7311 6923 6307 15.9 5.6 0
Interest Expended 7857 7463 6556 19.8 5.3 7608 3.3
NII 2227 2191 1988 12.0 1.6 2606 -14.5
Other Income 851 773 846 0.7 10.1 1006 -15.3
Total Income 3078 2964 2834 8.6 3.9 3612 -14.8
Employee 873 933 831 5.1 -6.3 1127 -22.5
Other Expenses 614 607 486 26.3 1.2 751 -18.3
Operating Expenses 1488 1539 1317 12.9 -3.4 1878 -20.8
PPP( Rs Cr) 1591 1425 1516 4.9 11.6 1734 -8.2
Provisions 1052 674 626 68.0 56.0 700 50.3
PBT 539 751 891 -39.4 -28.2 1034 -47.8
Tax 130 125 180 -27.8 4.0 258 -49.7
Net Profit 409 626 711 -42.4 -34.6 775 -47.2
Balance Sheet
Deposits 408924 391613 323963 26.2 4.4 400424 2.1
CASA(%) 23.1 24.3 20.0 0.0
Loan 287700 281104 218242 31.8 2.3 291913 -1.4
Investments 130359 119481 118835 9.7 9.1 127099 2.6
Asset Quality
GNPA 8,074 7,475 6,090 32.6 8.0
NPA 6870 6459 5134 33.8 6.4
% GNPA 2.8 2.7 2.8
% NPA 2.4 2.3
PCR(%) (w/o technical write-off) 14.9 13.6
13
CANARA BANK
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Income Statement 2010 2011 2012 2013 2014E 2015EInterest Income 18752 23064 30851 34078 39193 47413
Interest Expense 13071 15241 23161 26199 30682 35244
NII 5681 7823 7689 7879 8511 12169
Change (%) #DIV/0! 37.7 -1.7 2.5 8.0 43.0
Non Interest Income 2858 2703 2928 3153 3817 3817
Total Income 8538 10526 10617 11032 12328 15986
Change (%) #DIV/0! 23.3 0.9 3.9 11.8 29.7
Operating Expenses 3478 4419 4674 5142 5947 7194
Pre Provision Profits 5061 6107 5943 5890 6381 8792
Change (%) #DIV/0! 20.7 -2.7 -0.9 8.3 37.8
Provisions 2039 2081 1860 2218 3347 3565
PBT 3021 4026 4083 3672 3034 5228
PAT 3021 4026 3283 2872 2399 3869
Change (%) 45.8 33.2 -18.5 -12.5 -16.5 61.3
Balance SheetDeposits( Rs Cr) 234651 293973 327054 355856 409234 470620
Change (%) #DIV/0! 25 11 9 15 15
of which CASA Dep 68261 83117 79611 86061 102878 118310
Change (%) #DIV/0! 22 -4 8 20 15
Borrowings( Rs Cr) 8441 14262 15525 20283 24439 28105
Investments( Rs Cr) 69677 83700 102057 121133 133305 168631
Loans( Rs Cr) 169335 212467 232490 242177 293034 339919
Change (%) #DIV/0! 25 9 4 21 16
RatioAvg. Yield on loans 8.2 8.0 10.1 10.1 9.6 10.0
Avg. Yield on Investments 6.6 6.9 6.9 7.5 7.7 7.5
Avg. Cost of Deposit 5.2 4.8 6.7 7.1 7.0 6.9
Avg. Cost of Borrowimgs 9.3 7.0 7.7 4.7 7.0 7.0
ValuationBook Value 358 452 512 562 639 710
CMP 410 627 474 393 214 214
P/BV 1.1 1.4 0.9 0.7 0.3 0.3
V- Finolex Cables Ltd.
CMP 81
Target Price 90
Previous
Target Price
73
Upside 11%
Change from
Previous
0%
BSE Code 500144
NSE Symbol
52wk Range
H/L
41/92
Mkt Capital
(Rs Crores)
1,238
Average Daily
Volume
94,300
Nifty 6,084
1M 1yr YTD
Absolute (4.1) 46.7 78.0
Rel. to Nifty (2.7) 43.7 71.0
3QFY14 2QFY14 1QFY14
Promoters 35.8 35.8 35.8
FII 1.8 1.1 1.0
DII 9.8 10.2 10.5
Others 52.5 52.9 52.8
Financials Rs, Crore
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 563.1 593.1 -5.1% 534.3 5.4%
EBITDA 44.3 76.4 -42.0% 42.9 3.2%
PAT 24.5 80.0 -69.4% 24.0 2.1%
EBITDA Margin 7.9% 9.3% (140) bps 8.0% (10) bps
PAT Margin 4.3% 12.8% (850) bps 4.5% (20) bps
14
"Reasonable prospects…..."
Result update
1 yr Forward P/B
Share Holding Pattern-%
Stock Performance-%
Book Partial Profit
Valuation :
FCL being one of the leading players in the cable industry seems well placed to capture huge
opportunities considering the strengths & the industry in which the Company is operating.
Derivative losses coupled with bleak performance by communication cable segment were the
major reasons for de-rating of the stock in past which in our view seems to have been overdone.
The company’s LT division is doing very well, they have recently entered into HT and Extra High
Voltage (EHV) cable verticals. The company has market share of around 15-16 percent in both
electrical and telecommunication verticals. Further the company has approved setting up a
captive 5 MW solar power plant at its manufacturing facilities at Urse, Pune at an estimated cost
of Rs 40 crore.
Outlook :
Market Data
Finolex Cables’ (FCL) Q3FY14 PAT of Rs. 24.5 crore was below ourestimate owing to lower sales
and EBITDA margin. Decline in communication cable segment segments as well as high raw
material prices resulted in flat EBITDA growth of 3.2% yoy. Sales rose 5.58% to Rs. 557.55 crore
in the quarter ended December 2013 as against Rs. 528.07 crore during the previous quarter
ended December 2012. Third Quarter result were marginally below our expectaton which led
us to revise our estimate on stock, we cut our EPS forecast for FY14E-15E by 8.6%/4.1%. Even
after posting marginally below result the stock is quite attractive at current market price of Rs.
81 and left a limited upside of 11%, however we advised our reader to book a part profit on
stock
The copper rods segment was initially set up as backward integration for the cables segment. The
excess production after captive consumption is sold off to third parties at market price. However,
owing to thin and declining margins from third party transactions, FCL is gradually reducing its
exposure to the segment. The contribution of the segment to the top-line has decreased from
21% in FY2010 to ~5% currently. This trend is expected to continue, thereby improving the
overall EBIT margin of the company.
FINCABLES
(Standalone)
Please refer to the Disclaimers at the end of this Report.
(Source: Company/ Eastwind Research)
We cut our earnings estimates to factor volume decline in electrical & communication cable
segment, margin decline in copper rod segment and losses in the others segment. Consequently,
we cut our earnings estimates by 8.6% for FY14E (Rs. 11.6/Share) and 4.1% for FY15E (Rs.
12.6/Share). At the CMP of Rs. 81 stock is trading at PE of 7.0/6.4 of FY14E/15E. We revised our
rating on stock from "Buy" to "Hold". However owing to slower pace of economic growth further
we advised our readers to book part profit on stock and hold the balance with a target price of
Rs. 90
"Book Partial Profit"13th Feb' 14
Narnolia Securities Ltd,
15
Please refer to the Disclaimers at the end of this Report.
Finolex Cables Ltd.
Key financials :
(Source: Company/ Eastwind Research)
Narnolia Securities Ltd,
PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E
Performance
Revenue 1342 1619 2036 2064 2271 2315 2500
Other Income 51 24 26 36 24 47 42
Total Income 1392 1643 2062 2100 2295 2362 2542
EBITDA 100 195 174 175 229 241 258
EBIT 61 157 135 135 182 191 205
Depriciation 39 37 39 39 47 50 53
Intrest Cost 32 19 19 26 12 14 14
PBT -30 89 107 109 171 234 233
TAX 5 32 22 11 26 56 56
Derrivative Loss -109 -74 -34 -36 -23 10 0
Reported PAT -35 58 85 98 145 178 185
Dividend 3 9 11 12 18 23 23
EPS -2.3 3.8 5.6 6.4 9.5 11.6 13.1
DPS 0.2 0.6 0.7 0.8 1.2 1.5 1.5
Yeild %
EBITDA % 7.4% 12.0% 8.5% 8.5% 10.1% 10.4% 10.8%
NPM % -2.5% 3.5% 4.1% 4.7% 6.3% 7.5% 7.3%
Earning Yeild % -12.0% 7.4% 11.7% 20.6% 20.9% 14.3% 16.2%
Dividend Yeild % 1.0% 1.2% 1.5% 2.6% 2.6% 1.9% 1.9%
ROE % -6.0% 9.0% 11.9% 12.3% 15.7% 16.5% 15.4%
ROCE% -4.0% 6.3% 8.7% 10.1% 13.1% 14.3% 13.7%
Position
Net Worth 596 643 717 800 924 1079 1249
Total Debt 296 275 260 172 184 160 160
Capital Employed 892 918 978 972 1109 1239 1409
No of Share 15 15 15 15 15 15 15
CMP 19 51 47 31 46 81 81
Valuation
Book Value 39.0 42.0 46.9 52.3 60.4 70.6 81.7
P/B 0.5 1.2 1.0 0.6 0.8 1.1 1.0
Int/Coverage 1.9 8.4 7.0 5.2 14.6 13.6 14.6
P/E -8.3 13.4 8.5 4.9 4.8 7.0 6.4
IT Industry;NASSCOM Guidance
16
After 3 consecutive conservative guidance, NASSCOM (National Association of
Software and Services Companies) revealed earning guidance for FY15E with positive
outlook led by favorable demand discretionary environment. Overall, Industry is
cheering with NASSCOM’s fair guidance and they are confident to catch up the growth
target.
(Tier-1: TCS, INFY, HCLTECH, and WIPRO)
"FY15E; a year of growth opportunity"
Performance of Our IT Coverage Optimistic guidance by NASSCOM (FY15E), IT Industry is fit-well for all grounds;
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. Overall,
Indian IT Industry is expected to reach the mark of USD130billion. Considering the
better economic data, healthy growth pattern of US economy, and the increase in
global IT spending & global sourcing models, Indian IT players are confident to see
3.9% of global IT spending and 5.9% growth in Business Process Management space in
2014.
(Source: Company/Eastwind)
FY14E and NASSCOM Guidance;
Please refer to the Disclaimers at the end of this Report.
For FY14, Indian IT industry is expected to report 13% growth, in line with NASSCOM
guidance at 12-14%. While, domestic revenue could be seen below expectation because
of delay in decision-making and policy paralysis by government.
Despite various challenges across the Industry, overall ecosystem is changing and they
are transforming into dynamic era by adapting new verticals like SMAC (Social, Mobility,
Analytics, and Cloud), Big data and Digital etc. Even, IT players are making its healthy
existence in US and Europe regions. They are also running for new geographies like
Africa, APAC and MEA.
Interesting analytical facts behind NASSCOM Guidance :(a) Growth rate for the Big 4 (Infosys, Wipro, TCS and HCLT) has been better than
industry growth from FY02-08. However, that trend started changing from FY09 with at
least two players underperforming the industry growth every year (with the exception of
FY11). For FY14E, a street expectation also indicates that still 2 players could be
underperformer.
(b) Profitability growth is also equally important than revenue growth. While this may be
nitpicking, even in a healthy year of growth of 16% for the Indian IT industry in FY12, and
EBITDA margins of Tier-1 IT (ex-HCLT) declined 50-180 bps. This was even after 6%
depreciation of the Rupee against the US$ and favorable cross-currency trends.
(c) This is fact; the tempo of market share gain by top players is reducing combined
because of faster growth by global players, faster focus on captives, and dogfight over
bidding and vendors consolidation. For FY15E, Tier-1 players are sanguine on beating
guidance by on an average 1-2% as record of accomplishment of previous 5 years.
Despite above facts, our optimism on Indian IT is based on possibility of accelerated
growth in 2014, on: (1) Improved business sentiment in the US and Europe; (2) signs of
discretionary spending coming back; (3) continued market share gains for Indian
companies; and (4) increased spending due to adoption of new technologies.
INR/USD&CNX IT Performance(2013);
2013 has been a year of innovation and
transformation and 2014 could be an
execution year….
Narnolia Securities Ltd,
NASSCOM Guidance and Industry Growth-USD term
Year NASSCOM Guidance-% Actual Growth-%
FY03 30 25
FY04 26-28 34
FY05 30-35 37
FY06 30-32 33
FY07 25-27 32
FY08 24-27 30
FY09 21-24 17
FY10 4-7 5
FY11 13-15 19
FY12 16-18 16
FY13 11-14 10
FY14E 12-14 13
FY15E 13-15 -
Export Revenue (USD, mn)
Year Tier-1 IT Exports
FY04 3670 12900
FY05 5300 17700
FY06 7163 23605
FY07 10142 31206
FY08 14399 40418
FY09 16200 47103
FY10 17100 49690
FY11 21342 59035
FY12 25475 68687
FY13 28165 75800
FY14E 31000-32000 84000-87000
FY15E - -
17
IT Industry;NASSCOM Guidance
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Tier-1 Revenue Growth and Margin
"The guidance is a clear reflection that
the market is strengthening, so 13-15%
overall growth seems like a fair number,”
(CMD, Persistent System)
Underlying strengths to dictate FY15E growth; Performance of Our IT Coverage
Favorable demand discretionary environment: US is witnessing better GDP growth
combined with improving business sentiment, higher consumer spend, lower
Government spending cuts and improving job data. These facts are playing key role to
uptick in discretionary spending in North America. At a same time, revival in Euro zone
has taken place and offshore services from Europe is compounding to revenue traction.
We expect to see potential uptick in IT budget.
No pressure on billing rate: Considering healthy economic scenario across US and Europe,
we are not expecting to see any pressure on billing term. If INR depreciates to the mark of
Rs65 against the USD, then client can go with marginal bargaining. Post earning of
3QFY14E, most of management quoted for stable billing rate and clients confident on
billing front.
Revenue in USD-(mn) term-FY14E
Quote on NASSCOM Guidance
(Source: Company/Eastwind)
“13-15% (estimate) for exports looks like
a good number,” (CEO, outsourcing
advisory Offshore Insights)
Active participations of new emerging verticals: SMAC is throwing up huge opportunities
as firms want to optimize investments in current technology and drive growth by using
digital technologies and platforms. The digital forces of social, mobile, analytics and cloud
(SMAC), Bigdata and digital will reach mainstream status in 2014 and create
requirements, drive new purchasing and establish new competitive realities.
Favorable supply side scenario: Though attrition remained higher than last year,
especially among the bellwethers, campus hiring and fresh offers declined during the
year. However, utilization rate especially on onsite and offshore are on increasing mode,
it indicates favorable supply side scenario for the industry.
Cost rationalization still a part of agenda: Across the Industry, most of players are
focusing on cost control by improving volume, reducing expenses, and improving attrition
rate to maintain stability on margin front. Considering flat range of currency exchange
rate (INR against USD), we expect to see 50-150bps ups and down in IT industry in FY15E.
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.
Narnolia Securities Ltd,
TCS INFY WIPRO HCL TECH TCS INFY WIPRO HCL TECH
FY05 41.7 51.6 41.6 41.4 32.8 29.3 29.9 22.9
FY06 36.4 35.4 35.9 29.6 32.5 27.7 27.8 21.7
FY07 44.3 43.8 36.5 37.6 31.6 27.2 27.4 21.1
FY08 36.6 35.5 61.3 40.4 31.4 26 24.6 21.2
FY09 7.5 11.7 17.8 18.9 33.2 25.8 24.3 21.4
FY10 4.4 3 0.5 25.3 34.6 28.9 26.7 19.7
FY11 28.4 24.6 18.3 27.6 32.6 30 25.7 16.6
FY12 25.1 15.8 13 22.4 31.8 29.5 23.9 18.7
FY13 15.2 6.7 6 12.9 29.1 29 23.7 21.6
FY14E 18.1 12 6.7 14.8 29.75 27 22.7 25
FY15E 18 17.5 18.5 18.7 28.5 25.5 21.8 24
Revenue Growth-% EBITDA Margin-%Year
18
IT Industry;NASSCOM Guidance
Our view on Industry Per se: NIFTY and CNX IT performance
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. FY15 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.
On Tier-1 IT players, we are positive on INFY, TCS and HCL Tech. While, across the Mid
cap and niche players we are optimistic view on TECHM, PERSISTENT, ZENSARTECH,
ECLERX and KPIT .
View and Valuation;
Please refer to the Disclaimers at the end of this Report.
(Source: Company/Eastwind)
Narnolia Securities Ltd,
CMP Upside
(12.02.14) % FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E
TCS 2103.8 BUY 2510 19.3% 71.82 95.00 109.31 29.29 22.15 19.25 36.4% 37.5% 34.4%
INFOSYS 3599.6 BUY 3910 8.6% 164.2 188.0 218.2 21.92 19.15 16.50 24.8% 23.7% 22.9%
HCLTECH 1491.6 BUY 1560 4.6% 58.10 79.36 98.11 25.67 18.79 15.20 30.7% 31.5% 29.4%
WIPRO 562.15 NEUTRAL - - 25.0 31.07 33.5 22.44 18.10 16.78 21.7% 22.7% 20.8%
TECHM 1875.55 BUY 2130 13.6% 123.97 155.37 175.50 15.13 12.07 10.69 34.8% 30.7% 26.0%
CMC 1424.45 NEUTRAL - - 75.27 86.04 92.35 18.92 16.56 15.42 24.1% 22.8% 20.7%
NIITTECH 421.55 BUY 443 5.1% 36.28 43.33 54.18 11.62 9.73 7.78 20.0% 19.4% 19.6%
KPIT 167.15 BUY 177 5.9% 10.80 12.63 16.82 15.47 13.23 9.94 20.1% 19.3% 20.7%
HEXAWARE 144.55 NEUTRAL - - 13.9 15.0 16.0 10.40 9.61 9.03 27.4% 24.9% 22.5%
PERSISTENT 1021.8 BUY 1065 4.2% 46.12 61.42 79.08 22.16 16.64 12.92 18.1% 20.3% 21.4%
eCLERX 1203.15 BUY 1358 12.9% 64.25 71.61 83.65 18.72 16.80 14.38 43.8% 37.9% 34.4%
TATAELXSI 392.1 NEUTRAL - - 10.63 24.02 28.36 36.89 16.32 13.83 16.9% 29.7% 27.4%
ZENSARTECH 365.65 BUY 440 20.3% 40.03 52.70 68.97 9.13 6.94 5.30 23.2% 24.5% 25.2%
MINDTREE 1644.45 NEUTRAL - - 89.72 100.94 114.93 18.33 16.29 14.31 28.4% 25.6% 23.6%
RoE-%Company View Target
EPS-Rs P/E-x
43.9%
3.1%
172
216
222
26
-2.703
1M 1yr YTD
Absolute -16.8 -44.4 -44.4
Rel.to Nifty -13.8 -47.4 -47.4
Current 1QFY14 4QFY1
3Promoters 59.1 58.0 58.0
FII 9.6 10.0 10.1
DII 24.9 24.0 24.6
Others 6.4 8.1 7.3
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 4178 4216 4701 5136 6970
Total Income 5138 5456 6356 6724 8558
PPP 3245 3141 3691 3680 4707
Net Profit 1503 1142 1328 1046 1812
EPS 51.5 39.1 45.5 34.9 60.4
19
2.21 cr
Nifty
310/12152wk Range H/L
Change from Previous
ORIENT BANK Vs Nifty
Share Holding Pattern-%
Please refer to the Disclaimers at the end of this Report.
During quarter bank’s NII grew by 2% YoY lower than expectation largely due to
margin compression and lower growth in loan and deposits. Margin compression was
on account of lower loan yield as compare to cost of deposits. Total interest income
grew by 6% YoY while interest expenses increased by 18% YoY which drag lower
growth in NII. Other income was lower by 10% YoY to Rs.341 cr versus Rs.378 cr in
last year led by 48% declined in treasury gain. Overall revenue de-grew by 1% YoY
to Rs.1571 cr.
(Source: Company/Eastwind)
Stock Performance
Average Daily Volume
4920
Asset quality stress persists
During quarter bank made provisions and contingencies to tune of Rs.561 cr as
against Rs.551 cr in previous quarter and Rs.604 cr in last quarter. During quarter
bank reported fresh slippage of Rs. 1043 cr (3.1% annualized) as against Rs.1015 cr
(3.2% annualized) in previous quarter. In absolute term GNPA increased by 6% YoY
to Rs.5184 cr while provision decreased by 8% YoY to Rs.1351 cr. Consequently net
NPA increased by 12% QoQ to Rs.3833 cr. In percentage term, gross GNPA and net
NPA stood at 3.87% and 2.9% from 3.81% and 2.7% respectively sequentially. Due
to lower provisions PCR (without technical write off) declined from 30% to 26%.
Fresh restructure sharply surged to Rs.1365 cr during quarter and outstanding
restructure book stood at Rs. 9687 cr
Operating expenses increased by 9% YoY in which employee cost and other
operating cost increased by 1% and 20% respectively. Flat employee cost was due
to lower wage settlement provisions made by bank. Consequently CI ratio declined to
45.4% from 41.5% in last quarter and 48.2% in previous quarter. Muted NII growth,
lower other income and higher operating cost led pre provisioning profit declined to
7% YoY.
Result update BUY
CMP
Target Price
Previous Target Price
NSE Symbol
Subdue NII growth and higher operating expenses led negative growth in PPP
6084
Mkt Capital (Rs Cr)
BSE Code 500315
ORIENTAL BANK
ORIENTBANK
Muted NII growth on the back of margin compression Market Data
Upside
Orient bank reported weak set of quarterly numbers with net profit declined by
31% YoY due to muted growth in NII and higher operating expenses. Asset
quality pressure remain persist with total impaired asset (GNPA+ Restructure
advances) remain high at 11.1% of loan. Bank made lower provisions against
bad loan despite of deterioration in asset. We have buy rating on the stock
due to inexpensive valuation. We Value bank at Rs.216/share which is 0.5
times of FY14E’s book value.
"BUY"13h Feb2014
Narnolia Securities Ltd,
20
Margin compression on account of higher cost of fund than loan yield
Subdue loan and deposits growth
On balance sheet front, bank reported very sluggish growth rate with deposits grew by
4% YoY in which current account and saving account deposits grew by 3% and 12%
YoY. CASA deposits in absolute term grew by 10% YoY and in percentage to total
deposits it stood at 24.2% as against 23.9% in last quarter. Loan grew by 8.4% YoY to
Rs.1340 bn led by 16% YoY growth in retail loan followed by mid corporate and large
corporate. Credit deposits ratio for the quarter remained same and it stood at 73.4%.
Bank reported 15 bps QoQ margin compressions on account of higher cost of fund than
loan yield. During quarter bank’s cost of fund declined by 10 bps QoQ while yield on loan
declined by 38% QoQ to 10.8% from 11.2%. Yield in investment also declined from 7.4%
to 6.9% which also cause margin compression.
Profitability declined on account of muted NII growth, higher operating expenses
and tax rate
Orient bank’s profitability declined by 31% YoY to Rs.224 cr lower than our expectation of
Rs. 269 cr largely due to weak performance all around. During quarter bank reported
muted NII growth, lower other income, higher operating cost and higher tax rate.
Valuation & View
ORIENTAL BANK
Orient bank reported weak set of quarterly numbers with net profit declined by 31% YoY
due to muted growth in NII and higher operating expenses. Asset quality pressure remain
persist with total impaired asset (GNPA+ Restructure advances) remain high at 11.1% of
loan. Bank made lower provisions against bad loan despite of stress in asset. We have
buy rating on the stock due to inexpensive valuation. We Value bank at Rs.216/share
which is 0.5 times of FY14E’s book value.
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
21
ORIENTAL BANK
Source : Eastwind/ Company
Please refer to the Disclaimers at the end of this Report.
Chart Focus
Muted NII growth on the back of margin
compression
Subdue NII growth and higher operating
expenses led negative growth in PPP
Profitability declined on account of muted NII
growth, higher operating expenses and tax
rate
Narnolia Securities Ltd,
22
ORIENTAL BANK
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Result ( Rs Cr) 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E
Interest/discount on advances / bills 3622 3591 3507 3.3 0.9 3783
Income on investments 1075 1076 954 12.7 -0.1 1137
Interest on balances with Reserve Bank of India 21 9 8 167.2 135.4 20
Others 6 0 0 2868.4 5027.3 4
Total Interest Income 4723 4676 4469 5.7 1.0 4943
Others Income 341 312 378 -9.8 9.3 425
Total Income 5064 4988 4847 4.5 1.5 5368
Interest on deposits 3322 3234 3150 5.5 2.7 0
Interest on RBI/Inter bank borrowings 93 93 79 17.9 0.0 0
Others 78 68 35 119.1 14.9 0
Interest Expended 3493 3395 3264 7.0 2.9 3548
NII 1230 1281 1204 2.2 -3.9 1395
Other Income 341 312 378 -9.8 9.3 425
Total Income 1571 1593 1582 -0.7 -1.4 1820
Employee 394 446 391 0.8 -11.7 496
Other Expenses 319 322 265 20.3 -0.8 359
Operating Expenses 713 768 656 8.7 -7.1 856
PPP( Rs Cr) 858 825 926 -7.3 4.0 965
Provisions 561 551 604 -7.1 1.9 581
PBT 297 275 323 -7.8 8.3 384
Tax 73 23 -4 -1996.1 215.3 115
Net Profit 224 251 326 -31.3 -10.8 269
Balance Sheet ( Rs Cr)
Deposits 182470 175153 164174 11.1 4.2 184299
Loan 133962 128353 123623 8.4 4.4 135102
Asset Qiality
GNPA 5184 4887 3690 40.5 6.1
NPA 3833 3423 2610 46.9 12.0
% GNPA 3.9 3.8 3.0
% NPA 2.9 2.7 2.1
23
ORIENTAL BANK
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 8954 12075 13758 14677 16545
Income on investments 2774 3671 3854 4316 4491
Interest on balances with Reserve Bank of India 335 34 31 80 80
Others 25 35 61 17 17
Total Interest Income 12088 15815 17705 19090 21134
Others Income 960 1240 1655 1588 1588
Total Income 13048 17055 19359 20678 22721
Interest on deposits 7474 11213 12553 11765 13408
Interest on RBI/Inter bank borrowings 23 38 111 175 189
Others 413 348 340 525 567
Interest Expended 7910 11599 13004 13954 14164
NII 4178 4216 4701 5136 6970
NII Growth(%) 43.7 0.9 11.5 9.3 35.7
Other Income 960 1240 1655 1588 1588
Total Income 5138 5456 6356 6724 8558
Employee 1048 1357 1576 1796 2272
Other Expenses 844 959 1089 1248 1579
Operating Expenses 1892 2315 2665 3043 3851
PPP( Rs Cr) 3245 3141 3691 3680 4707
Provisions 1742 1999 2363 2243 2118
Net Profit 1503 1142 1328 1046 1812
Net Profit Growth(%) 32.4 -24.0 16.3 -21.2 73.3
Key Balance sheet dataDeposits 139024 155965 175898 189928 205123
Deposits Growth(%) 15.6 12.2 12.8 8.0 8.0
Borrowings 5639 5259 7679 9996 10796
Borrowings Growth(%) 15.4 -6.7 46.0 30.2 8.0
Loan 95908 111978 128955 139271 150413
Loan Growth(%) 14.9 16.8 15.2 8.0 8.0
Investments 42075 52101 58555 63976 69094
Investments Growth(%) 17.6 23.8 12.4 9.3 8.0
Eastwind CalculationYield on Advances 9.3 10.8 10.7 10.5 11.0
Yield on Investments 6.6 7.0 6.6 6.7 6.5
Yield on Funds 7.8 9.2 9.0 9.4 9.6
Cost of deposits 5.4 7.2 7.4 6.2 6.5
Cost of Borrowings 7.7 7.3 5.9 5.9 7.0
Cost of fund 5.5 7.2 7.1 7.0 6.6
ValuationBook Value 380 409 403 433 483
P/BV 1.0 0.6 0.6 0.4 0.4
P/E 7.5 6.4 5.5 5.0 2.9
Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4000
email: research@narnolia.com,
website : www.narnolia.com
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provide any express or implied warranty of any kind, and also these are subject to change
without notice. The recipients of this report should rely on their own investigations,
should use their own judgment for taking any investment decisions keeping in mind that
past performance is not necessarily a guide to future performance & that the the value of
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