India Equity Analytics Today- Buy Stock of Oriental Bank and Finolex Cables Ltd
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Transcript of India Equity Analytics Today- Buy Stock of Oriental Bank and Finolex Cables Ltd
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 : 2-3)
"BUY"Finolex Cables Ltd: "Reasonable prospects…..."
13th Feb 2014
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 : 4-6)
IT Industry;NASSCOM Guidance :"FY15E; a year of growth opportunity"
ORIENTAL BANK : "BUY" 13th Feb 2014
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 : 7- 11)
TATAMOTORS :Strong Results "BUY" 11th Feb 2014
Tata Motors has posted 3QFY14 revenues at Rs 63877 Cr up by 38.59% YoY on the back of strong demand ,Growth in volume and favourable
product mix and geography mix of Jaguar and land Rover. The growth in the volume of JLR is largely driven by launch of new Range Rover Sport,
New Range Rover and Jaguar F-Type . ........................................................... ( Page :17- 18)
13th Feb, 2014
Edition : 205
IEA-Equity
Strategy
Ambuja Cements Ltd: "Neutral" 10th Feb 2014
For the full year,net profit declined 1% to Rs 1278 crore as against Rs 1293 crore during CY12. Sales declined 6% to Rs 9192 crore as against Rs
9795 crore in CY12.Flat realisations (Rs 4,177/t,3.5% QoQ) and sluggish volumes spoiled the show(5.3mT, -1.9% YoY) . At current price of Rs 163,
stock is trading at 3x P/B on CY14 estimates. We are Neutral on the stock at CMP Rs.163 for a target price Rs.165.
........................................................... ( Page : 22-24)
ACC Ltd: "BUY" 10th Feb 2014
ACC's EBIDTA declined by 16% to Rs 1848 crore, While y-o-y sales turnover of ACC declined a mere 2% to Rs 10,908.41 crore, as the sales
relaisations remained low and Cost remained stable. Cement sales volumes remained flat for ACC .At current price of Rs 1046, stock is trading at
2.6x P/B and 2.8x P/B on CY14 estimates. The valuation looks good from current level, hence we recommend Buy on the stock at CMP Rs.1046
for a target price Rs.1257. ..................................................... ( Page : 19-21)
UNION BANK : "BUY" 12th Feb 2014
Union Bank’s profit growth was due to lower provisions led by lower slippage and restructure assets. Operating profit was negative due to
muted NII growth and higher operating expenses. Bank’s loan and deposits both are grown by 20% along with improvement in CD ratio. This
would help to expand margin and hence profitability. Like other PSBs, Union bank is trading at attractive valuation and we value Rs.152/share
which is 0.5 times of FY14E’s book ...................................................... ( Page : 12- 16)
Narnolia Securities Ltd,
India Equity AnalyticsDaily Fundamental Report on Indian Equities
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
2
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
Book Partial Profit
(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
"Reasonable prospects…..."
Result update
1 yr Forward P/B
Share Holding Pattern-%
Stock Performance-%
"Book Partial Profit"13th Feb' 14
Narnolia Securities Ltd,
3
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
4Please 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….
(Tier-1: TCS, INFY, HCLTECH, and WIPRO)
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;
Performance of Our IT Coverage Optimistic guidance by NASSCOM (FY15E), IT Industry is fit-well for all grounds;
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.
"FY15E; a year of growth opportunity"
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 - -
5
“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.
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)
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)
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
6
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;
IT Industry;NASSCOM Guidance
Our view on Industry Per se: NIFTY and CNX IT performance
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
7
ORIENTAL BANK
ORIENTBANK
Muted NII growth on the back of margin compression Market Data
Upside
310/12152wk Range H/L
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.
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
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
2.21 cr
Nifty 6084
Mkt Capital (Rs Cr)
BSE Code 500315
NSE Symbol
Subdue NII growth and higher operating expenses led negative growth in PPP
Change from Previous
ORIENT BANK Vs Nifty
Share Holding Pattern-%
"BUY"13h Feb2014
Narnolia Securities Ltd,
8
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.
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%.
Narnolia Securities Ltd,
9
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,
10
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
11
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
ORIENTAL BANK
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
105.2
152
163
45
-7
1M 1yr YTD
Absolute -15.3 -54.8 -54.8
Rel.to Nifty -11.9 -56.8 -56.8
Current 1QFY14 4QFY1
3Promoters 60.1 57.9 57.9
FII 8.8 10.2 11.9
DII 17.0 17.8 17.7
Others 14.1 14.2 12.8
Financials Rs, Cr
2011 2012 2013 2014E 2015E
NII 6216 6793 7543 7974 8953
Total Income 8255 9241 10095 10704 11683
PPP 4305 5254 5583 5256 5724
Net Profit 2082 1787 2158 1427 1431
EPS 39.7 29.9 36.2 22.6 22.7
12
UNION BANK
Company Update BUY Union bank reported profit growth of 15.4% largely due to lower provisions
and contingencies led by lower slippage and restructure assets. At operating
profit level bank reported negative growth of 7.1% YoY due to margin
compression and higher operating expenses. Bank’s loan and deposits both
are grown by 20% along with improvement in CD ratio. Like other PBS, Union
Bank also trading at 0.4 times of one year forward book which is impressive.
We value bank at Rs.152/share which is 0.5 times of FY14E’s book value.
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market Data
BSE Code 532477
Higher operating expenses drag operating profit in negative zone
Muted NII growth due to margin compression
NSE Symbol UNIONBANK During quarter, bank’s NII grew by 3.8% YoY despite of loan and deposits growth of
20%. Lower NII was driven by higher cost of fund than yield on fund (Loan+
Investment). Total interest earned by bank was grown by 19.5% whereas interest
expenses increased by 26.2% which took muted NII growth. Other income was
Rs.680 cr versus Rs.611 cr in previous year and Rs.640 cr in last year. With the little
support from other income, revenue during quarter was grown by 4.4% YoY to
Rs.2643 cr.
52wk Range H/L 255/97
Mkt Capital (Rs Cr) 6281
Average Daily Volume 2.37 cr
Nifty 6063
Stock Performance
(Source: Company/Eastwind)
Please refer to the Disclaimers at the end of this Report.
Operating expenses during quarter was higher at 17.8% YoY which drag operating
profit growth in negative direction to 7.1% YoY to Rs.1262 cr. Employee cost and
other operating expenses increased by 12.4% and 27% YoY respectively. Operating
leverage (opex to total asset) remained stable at 0.4%.
Share Holding Pattern-%
Provisions lower because of lower slippage and restructure assets
Provisions and contingencies were lower by 29% YoY and 35% QoQ on the back of
lower slippage and restructure assets. During quarter bank witness fresh slippage of
Rs, 1154 cr versus Rs.1657 cr in previous quarter and thereby taking slippage ratio
to 2.1% from 3.1% in previous quarter. Fresh restructure advance was come down to
Rs.1004 cr as compare to Rs.1534 cr in previous quarter and Rs.1205 cr in last
quarter. Sequentially lower recovery (Rs.265 cr Vs Rs.419 cr) and lower write off (Rs.
174 cr Vs Rs.270 cr) caused spike in gross NPA. GNPA as a percentage to gross
advances was increased by 22.5 bps QoQ to 3.9% from 3.7%. Loan loss provisions
was increased by 10% QoQ taking slightly improvement in PCR to 42.5% (without
technical write off) from 42.1% in previous quarter. Net NPA stood at 2.3% as
against 2.1% in previous quarter.
UNION Bank Vs Nifty
"BUY"12h Feb, 2014
Narnolia Securities Ltd,
13
Margin narrowed due to higher cost of fund and asset yield
UNION BANK
Loan and deposits grew by 20% YoY but CASA declined
On balance sheet front, deposits grew by 19% YoY in which current account and saving
account deposits grew by 3.3% and 12.2% YoY respectively. Overall CASA increased by
10% YoY and in percentage to total deposits CASA ratio declined by 245 bps YoY to
28.8% due to higher growth in wholesale deposits. Term deposits grew by 23.4% YoY
taking overall deposits growth. Due to higher share in bulk deposits, cost of fund spike
from 7.4% to 7.8%. In loan growth perspective, it grew by 20% YoY to Rs.2230 bn.
Incremental loan growth came from MMSE (29.5% YoY) followed by retail (28% YoY) and
agriculture (18.7% YoY). Credit deposits ratio improved by 56 bps to 78.2%.
Please refer to the Disclaimers at the end of this Report.
Margin narrowed by 50 bps on account of higher cost of fund than yield on assets.
Overall cost of fund increased from 7.8% to 7.4% largely due to higher share of bulk
deposits and lower CASA ratio. Yield on loan declined by 30 bps to 10% from 10.3% in
last quarter. Investment yield improved by 28 bps YoY to 8.2% from 7.9% in 3QFY13.
Higher profit on account of lower provisions led by lower slippage and restructure
assets
Union Bank reported net profit growth of 15.4% YoY largely driven by lower provisions
and contingencies. Tax rate was higher at 46.4% versus 28% in previous quarter mainly
due to Rs.44 cr created for deferred tax liabilities on special reverse as per suggestion of
RBI. Bank has also normalized tax rate of 30% in 9MFY14.
Valuation & View
Union bank reported profit growth of 15.4% largely due to lower provisions and
contingencies led by lower slippage and restructure assets. At operating profit level bank
reported negative growth of 7.1% YoY due to margin compression and higher operating
expenses. Bank’s loan and deposits both are grown by 20% along with improvement in
CD ratio. Like other PBS, Union Bank also trading at 0.4 times of one year forward book
which is impressive. We value bank at Rs.152/share which is 0.5 times of FY14E’s book
value.
Narnolia Securities Ltd,
14
Higher profit on account of lower provisions
led by lower slippage and restructure assets
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
UNION BANK
Chart Focus
Muted NII growth due to margin compression
Higher operating expenses drag operating
profit in negative zone
Narnolia Securities Ltd,
15
UNION BANK
Source: Company/Eastwind
Please refer to the Disclaimers at the end of this Report.
Narnolia Securities Ltd,
Quarterly Performance 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation(%)
Interest/discount on advances / bills 5565 5288 4775 16.6 5.3 5422 2.6
Income on investments 1911 1890 1478 29.3 1.1 1839 3.9
Interest on balances with Reserve Bank of India 36 51 41 -11.7 -28.6 51 -28.8
Others 38 43 26 46.3 -12.1 44 -14.7
Total Interest Income 7550 7271 6320 19.5 3.8 7356 2.6
Others Income 680 611 640 6.3 11.2 684 -0.6
Total Income 8230 7882 6959 18.3 4.4 8040 2.4
Interest Expended 5587 5317 4428 26.2 5.1 5313 5.1
NII 1964 1954 1891 3.8 0.5 2043 -3.9
Other Income 680 611 640 6.3 11.2 684 -0.6
Total Income 2643 2566 2531 4.4 3.0 2727 -3.1
Employee 823 807 733 12.4 2.0 757 8.8
Other Expenses 559 534 440 27.0 4.6 484 15.4
Operating Expenses 1382 1341 1173 17.8 3.1 1241 11.4
PPP( Rs Cr) 1262 1225 1358 -7.1 3.0 1486 -15.1
Provisions 610 937 857 -28.8 -34.8 913 -33.2
PBT 651 288 501 30.0 126.0 573 13.7
Tax 302 80 199 52.2 277.6 172 75.9
Net Profit 349 208 302 15.4 67.7 401 -13.0
Balance Sheet ( Rs Cr)
Net Worth 18165 18046 15973 13.7 0.7 17847 1.8
Deposits 285125 287029 239355 19.1 -0.7 271558 5.0
Borrowings 31730 27664 22883 38.7 14.7 23945 32.5
Investment 93778 95600 75117 24.8 -1.9 91294 2.7
Advances 223024 217295 185885 20.0 2.6 198543 12.3
Asset Quality
GNPA( Rs Cr) 8776 8061 6384 37.5 8.9
NPA ( Rs Cr) 5048 4670 3168 59.3 8.1
% GNPA 3.9 3.7 3.4
% NPA 2.3 2.1 1.7
PCR(w/o technical write-off) (%) 42.5 42.1 50.4
16
UNION 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 12031 16027 19140 21702 23074
Income on investments 4003 4570 5671 7428 8313
Interest on balances with Reserve Bank of India 161 331 199 185 185
Others 258 101 115 169 169
Total Interest Income 16453 21028 25125 29483 31741
Others Income 2039 2448 2552 2730 2730
Total Income 18491 23477 27677 32213 34471
Interest on deposits 9538 13406 16551 18844 21106
Interest on RBI/Inter bank borrowings 113 141 274 379 378
Others 585 689 756 1309 1305
Interest Expended 10236 14235 17582 21509 22788
NII 6216 6793 7543 7974 8953
NII Growth(%) 48.3 9.3 11.0 5.7 12.3
Other Income 2039 2448 2552 2730 2730
Total Income 8255 9241 10095 10704 11683
Employee 2600 2479 2755 3323 3634
Other Expenses 1350 1508 1757 2124 2324
Operating Expenses 3950 3988 4512 5447 5958
PPP( Rs Cr) 4305 5254 5583 5256 5724
Provisions 2223 3467 3425 3144 3680
Net Profit 2082 1787 2158 1427 1431
0.3 -14.2 20.7 -33.9 0.3
Key Balance sheet dataDeposits 202461 222869 263762 290138 324954
Deposits Growth(%) 19.1 10.1 18.3 10.0 12.0
Borrowings 13316 17909 23797 32238 32138
Borrowings Growth(%) 44.5 34.5 32.9 35.5 -0.3
Loan 150986 177882 208102 228912 256382
Loan Growth(%) 26.5 17.8 17.0 10.0 12.0
Investments 58399 62364 80830 93811 103914
Investments Growth(%) 7.3 6.8 29.6 16.1 10.8
Eastwind CalculationYield on Advances 8.0 9.0 9.2 9.5 9.0
Yield on Investments 6.9 7.3 7.0 7.9 8.0
Yield on Funds 7.2 8.3 8.3 9.1 8.8
Cost of deposits 4.7 6.0 6.3 6.5 6.5
Cost of Borrowings 5.2 4.6 4.3 4.3 4.5
Cost of fund 4.7 5.9 6.1 6.7 6.4
ValuationBook Value 243 245 290 293 307
P/BV 1.4 1.0 0.7 0.4 0.3
P/E 8.7 7.8 5.8 4.7 4.7
BUY
1M 1yr YTD
Absolute -1.1 27.5 48.6
Rel. to Nifty 0.8 25 35.6
Current 2QFY14 1QFY1
4Promoters 34.3 34.3 34.3
FII 28.0 26.7 26.6
DII 9.6 11.7 11.4
Others 28.1 27.3 27.7
Financials Rs, Crore
3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%
Revenue 63877 56882 12.3 46090 38.6
EBITDA 9948 8635 15.2 5657 75.9
PAT 4863 3559 36.6 1636 197.2
EBITDA Margin 15.6% 15.2% 40bps 12.3% 330bps
PAT Margin 7.6% 6.3% 140bps 3.5% 410bps
17
Please refer to the Disclaimers at the end of this Report.
The consolidated adjusted net profits surged almost by 200 % YoY to Rs 4863 Cr. The
sharp rise in the profits came in due to an exceptional income of Rs 1,948 Cr accruing to
the local business, which came from a sale of stake in its Korean subsidiary to its Singapore
subsidiary.
The management of the company after the results said that it expects capital expenditure of
about 3.5 billion pounds to 3.7 billion pounds in fiscal 2015 from an estimated 2.75 billion
pounds in fiscal 2014, raising worries that the increased spend would hurt free cash flow.One Year Price vs Nifty
The company lost his Managing Director Karl Slym last week in an accident, and company
has set up a panel, headed by Tata Sons chairman Cyrus P. Mistry, to oversee its
operations and strategy as an interim measure after Slym's death.
View And Valuation
The stock at its CMP of Rs 364 is trading at 7.34 x of one year forward FY14E EPS of Rs
50.The robust 3QFY14 results, Strong cash flows by JLR and better demand outlook, new
product mix of JLR with brand positioning makes us positive for the company .We Maintain
BUY for the stock with Target Price Rs 425.
The consolidated operating EBITDA for the quarter came at Rs 9948 Cr and OPM at 15.5
%.The OPM surges by 330 bps due to improvement in operational metrics. The RM cost as
percentage of sales stands 59% in comparison to 62 % for 3QFY13.The company spends
nearly 1% of sales for its R&D. There is improvement of almost 100bps in other expenses
as percentage of sales on yearly basis.Share Holding Pattern-%
(Source: Company/Eastwind)
Nifty 6053
Stock Performance-%
NSE Symbol TATAMOTORS
Mkt Capital (Rs, Cr) 98,064
Average Daily Volume 4681598
Market Data
BSE Code 500570
TATAMOTORSStrong Results
Result Update Tata Motors has posted 3QFY14 revenues at Rs 63877 Cr up by 38.59% YoY on the back
of strong demand ,Growth in volume and favorable product mix and geography mix of
Jaguar and land Rover. The growth in the volume of JLR is largely driven by launch of new
Range Rover Sport, New Range Rover and Jaguar F-Type, along side higher volume of the
newer XF and XJ derivatives. JLR whole sales volume for the 3QFY14 grew by 22.7 %
YoY to 116357 units while its retail volume grew by 26.5 5 to 112172 units. The revenues
for JLR for the 3QFY14 came at GBP 5328 Mn representing growth of 40 %YoY. Amidst
of splendid performance by British subsidiary, the domestic operations still acting as
dragger to the consolidated performance. The domestic business once again for the quarter
under review posted declining performance. The sales (including exports ) of the
commercial and passenger vehicles for the 3QFY14 stood at 132087 units translating a
decline of 35.7% YoY. The revenues for the quarter from domestic business came at Rs
7770 Cr as compared to Rs 10630 Cr for the same time last fiscal. This weak performance
in the quarter came on the back of prolonged slowdown in economic activities, weak
consumer segment, tight financing norms with high interest rates, weak operating
economics for the transporters due to lower fleet utilization and stagnant fright rates
combined with fuel price hikes.
CMP 364
Target Price 425
Previous Target Price
52wk Range H/L 405/252
Upside 17%
Change from Previous
"BUY"11th Feb' 14
Narnolia Securities Ltd,
18
Please refer to the Disclaimers at the end of this Report.
OPM % & NPM %
The OPM surges by 330 bps due to
improvement in operational metrics.The
sharp rise in the profits came in due to an
exceptional income of Rs 1,948 Cr accruing to
the local business
(Source: Company/Eastwind)
JLR Whole Sales Vol. Trend
The growth in the sales volume come from all
geographies including Brazil, China, India and
the United States.
(Source: Company/Eastwind)
(Source: Company/Eastwind)
TATAMOTORS
Sales and PAT Trend (Rs)
The revenue jumps by 38.59% YoY on the
back of strong demand ,Growth in volume
and favorable product mix and geography
mix of Jaguar and land Rover.
Narnolia Securities Ltd,
ACC Ltd.
1046
1257
1122
20%
12%
500410
19634
9817
6063
1M 1yr YTD Poor Operational Performance :Absolute -3.5 -22.3 -21.0
Rel. to Nifty -1.9 -24.4 -22.8
Cureent 3QCY13 2QCY13
Promoters 50.3 50.3 50.3
FII 20.0 20.9 19.5
DII 12.9 11.9 11.7
Others 16.8 16.9 18.6
Management Quotes :
Financials : Q4CY13 Y-o-Y % Q-o-Q % Q4CY12 Q3CY13
Net Revenue 2792 -12.2 8.6 3180 2570
EBITDA 361 -9.3 26.2 398 286
Depriciation 153 -3.2 6.3 158 144
Interest Cost 12 -55.6 9.1 27 11
Tax -36 -190.0 -170.6 40 51
PAT 278 16.3 129.8 239 121(In Crs)
19
Result Update BUY ACC's sales turnover slipped to Rs 11169 crore in 2013 against Rs 11358 crore in the
previous year. At first glance, consolidated net profit growth of 9% from the year-ago
period looked impressive, given the dull market. But a closer look shows that net profit
for the quarter included a tax write-back. PAT was Rs.1094Cr. As this pat is incomparable
with previous year pat due to additional depreciation charge as extra-ordinary item in
previous year, we adjusted the pat and it reported Rs.1081Cr for Cy13 Down by -19%
from Rs 1339Cr in CY12.
CMP
Target Price
Previous Target Price
Upside
Change from Previous
Market Data ACC's EBIDTA declined by 16% to Rs 1848 crore, While y-o-y sales turnover of ACC
declined a mere 2% to Rs 10,908.41 crore, as the sales relaisations remained low and
Cost remained stable. Cement sales volumes remained flat for ACC .
BSE Code
NSE Symbol ACC
52wk Range H/L 1355/912 Lower Cement Volume Impacted the Bottomline Growth
Mkt Capital (Rs Crores) What is more worrying for the company is that it sold less cement in 2013 than what it
did in 2012. This comes as a major jolt for the cement giant which saw its cement sales
volume dropping to 23.93 million tonne compared with 24.11 million tonne. It not only
impacted its bottom-line growth but also hit its revenues.
Average Daily Volume (Nos.)
Nifty
Stock Performance-%
According to Management the economic environment in the country was sluggish, thus
impacting the demand for cement and concrete. As a result, the company's cement
volumes remained almost flat. The company appears not enthusiastic for demand growth
going forward. Based on current demand indications, we do not foresee any significant
improvement in the cement.
Source - Comapany/EastWind Research
Please refer to the Disclaimers at the end of this Report.
At the operating level, poor volumes down by 1.5% from the year-ago period and weak
realizations pulled down revenue during the quarter. Net consolidated sales fell by 13%
to Rs.2,693.1 crore. Profitability was further hit as costs during the quarter, mainly on
freight and power, rose compared with the year-ago period and the September quarter
as well.
Share Holding Pattern-%
During the CY13 Acc suffered through sluggish demand and at the same time with
increasing cost. Company unable to pass on the cost to the consumer due to lower sales
volume. Sales Volume come to 23.93 Mmt form 24.11 Mmt(down by ~1%). Rising Input
Cost mainly due to Raw Material and Freight Cost.Raw material cost increased 5% to
Rs.778/ton from Rs.740/ton and freight cost increased ~5% Rs.961/ton from Rs.920/ton.
Other expenses increased ~9% to Rs.975/ton from Rs.894/ton.1 yr Forward P/B
"BUY"10th Feb' 14
Narnolia Securities Ltd,
Outlook
Valuation And Recommendation
Company Description :
CY11 CY12 CY13 CY14E
10237 11358 11169 13027
191 263 219 219
10428 11621 11389 19723
2199 2384 2384 0
1940 2219 2299 0
8316 9162 9540 10942
1921 2197 1848 2084
510 569 584 639
97 115 52 50
215 391 132 323
1276 1050 1094 1292
17.7 18.8 13.8 15.3
20
ACC Ltd.
Cement Sales Volume
Company has made several capacity expansion plans in the region. ACC is replacing the
existing facilities at Jamul, Chhattisgarh with a clinker plant with an annual production
capacity of 2.8 MT and local grinding capacity of 1.1 MT of cement, while a new plant
with annual capacity of 2.7 MT is scheduled to be built in Kharagpur. The capacity
expansion plant will increase the company's total cement production capacity to 35 MT
from the existing 30 MT.On a QoQ basis, the EBITDA/tonne improved 10.4% due to an
improvement in realisations & comparatively lower increase in total expenditure/tonne,
it shows a positive view for the further quarters.onsidering the expansion plans we
expect 4% growth in sales volume and 10% growth in realization for CY14.
Cement Realization
Cement prices witnessed an increase during Oct-Nov,13 but also witnessed a sharp fall
during Dec,13 which has contributed towards lower average realizations for the year for
the company. Further, with a strong balance sheet with zero debt and better dividend
yield of 3%, we continue to remain positive despite near term challenges. We revise our
estimates downwards to factor in lower demand growth scenario. At current price of Rs
1046, stock is trading at 2.6x P/B and 2.8x P/B on CY14 estimates. The valuation looks
good from current level, hence we recommend Buy on the stock at CMP Rs.1046 for a
target price Rs.1257.
Cement Realization
ACC Limited (ACC) is engaged in manufacture of cement & ready mixed concrete. The
Company has grinding plants in Karnataka and clinkering line in Maharashtra. The
Company’s subsidiaries include ACC Mineral Resources Limited, Lucky Minmat Limited,
Bulk Cement Corporation (India) Limited, National Limestone Company Private Limited
and Encore Cement and Additives Private Limited. The Company is subsidiary of Ambuja
Cement India Private Limited.
P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income
Freight and forwarding
Expenditure
PAT
EBITDA
Power and fuel
ROE% Source - Comapany/EastWind Research
Depriciation
Interest Cost
Tax
Narnolia Securities Ltd,
CY10 CY11 CY12 CY13
188 188 188 188
6093 6791 7184 7625
6281 6979 7372 7813
510 506 85 0
14 0 0 0
188 126 157 89
1581 816 661 642
1466 1051 1227 1081
11041 11921 11928 12101
77 48 39 40
5230 6359 5893 6040
1564 370 314 322
283 461 566 880
926 1113 1134 1122
249 266 303 397
1086 1660 681 506
162 279 325 340
11041 11921 11928 12101
CY10 CY11 CY12 CY13
3.2 3.1 3.6 2.7
57.4 68.7 73.8 57.6
3.0 2.6 2.7 3.6
19.1 8.0 5.8 5.7
1.1 1.1 1.0 1.0
19632 20180 26240 20296
18.7 16.5 19.4 19.2
12.7 10.5 11.9 12.5
2.8 2.5 2.1 2.7
14.6 15.2 16.3 12.3
0.1 0.1 0.0 0.0
1.0 1.3 1.4 1.4
1823 1506 2027 2027
(785) (258) (308) (308)
(641) (768) (1066) (1066)
Trading At :
21
Short-term provisions
ACC Ltd.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Trade payables
Total Assets
Total liabilities
Intangibles
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
Short-term loans and advances
RATIOS
P/B
EPS
Dividend Yield%
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%
EV
P/E
EV/EBIDTA
ROCE%
Debt/Equity
Current Ratio
Source - Comapany/EastWind Research
Cash from Operation
Cash From Investment
Cash from Finance
Narnolia Securities Ltd,
163
165
NA
1%
NA
500425
25166
12583
6063
1M 1yr YTD
Absolute -7.1 -18.6 -19.2 Decline in EBITDA marginRel. to Nifty -5.4 -20.7 -21.0
Cureent 3QCY13 2QCY13
Promoters 50.5 50.5 50.6
FII 30.5 30.1 28.7
DII 9.4 9.6 10.2
Others 9.6 9.8 10.5
Key issues to watch out for1 Volume growth recovery and outlook2
3
Progress in ongoing mining land acquisition and capex in Nagaur plant of 4.5mt
Financials : Q4CY13 Y-o-Y % Q-o-Q % Q4CY12 Q3CY13
Net Revenue 2209 -5.4 9.5 2335 2017
EBITDA 307 -31.8 14.6 450 268
Depriciation 123 -33.9 -1.6 186 125
Interest Cost 17 -29.2 -5.6 24 18
Tax -61 -152.6 -192.4 116 66
PAT 317 49.5 91.0 212 166(In Crs)
22
Ambuja Cements Ltd.
Result Update Neutral Net profit of Ambuja Cements decline 49% to Rs 317 crore in Q4CY13 as against Rs 212
crore during Q4CY12. Sales declined 5% to Rs 2191 crore Q4CY13 as against Rs 2313
crore during Q4CY12. For the full year,net profit declined 1% to Rs 1278 crore as against
Rs 1293 crore during CY12. Sales declined 6% to Rs 9192 crore as against Rs 9795 crore in
CY12.
CMP
Target Price
Previous Target Price
Upside
Change from Previous Flat realisations (Rs 4,177/t,3.5% QoQ) and sluggish volumes spoiled the show(5.3mT, -
1.9% YoY) .
Market Data During the CY13 Ambuja Cement suffered through sluggish demand and at the same time
with increasing cost. Company unable to pass on the cost to the consumer due to lower
sales volume. Sales Volume come to 21.6 Mmt form 21.99 Mmt(down by ~2%). Rising
Input Cost mainly due to Raw Material and Freight Cost.Raw material cost increased 63%
to Rs.358/ton from Rs.219/ton and freight cost increased ~5% Rs.1097/ton from
Rs.1046/ton. Other expenses increased 8% to Rs.847/ton from Rs.742/ton.
BSE Code
NSE Symbol AMBUJACEM
52wk Range H/L 212/148
Mkt Capital (Rs Crores)
Average Daily Volume (Nos.)
Nifty
Please refer to the Disclaimers at the end of this Report.
The company is undertaking expansion at Rabriyawas (Rajasthan 0.8 mTPA) and Sankrail
(WB, 0.8 mTPA) to be completed by CY14 and CY15 respectively.Stock Performance-%
Key concerns for EBITDA margins to decline in CY13 are Lower realizations, Cost push and
no seasonal benefits from operating leverage, Weak rupee push fuel costs higher as
rupee depreciation likely to outweigh lower coal prices (more than 35 percent of total
requirement comes by import), Higher freight costs and impact of diesel price hike Inched
up power fuel and Freight cost.
Share Holding Pattern-%
Challenging Outlook
Management views the company was able to keep its production cost flat year-on-year
and would continue to work on improving operational efficiencies, cost optimization and
continued focus on customer and commercial excellence. Board has recommended a final
dividend of Rs 2.20 per share and together with the Rs 1.40 per share of interim dividend,
the total dividend for the year is Rs 3.60 per share.
1 yr Forward P/B
Cement pricing outlook and sustainability, considering recent downtrend in November
and December
Source - Comapany/EastWind Research
"Neutral"10th Feb' 14
Narnolia Securities Ltd,
PER Ton Analysis 4QCY13 4QCY12 YOY% 3QCY13 QOQ%
5 5 -2 5 8
4177 4332 -4 4126 1
406 266 53 415 -2
946 1015 -7 934 1
1093 1079 1 1073 2
226 254 -11 266 -15
924 884 5 890 4
Valuation and Recommendation
Company Description :
Trading At :
CY10 CY11 CY12 CY13
7390 8571 9795 9192
248 248 349 391
7638 8819 10144 9583
1697 2003 2334 2066
352 1939 2300 2370
5568 6594 7322 7549
1822 1977 2473 1643
387 446 569 494
49 53 78 67
398 474 604 220
1262 1228 1293 1278
16.9 15.5 17.9 13.2
23
Freight Cost(Rs/T)
Ambuja Cements Ltd.
Volumes mT
Realization(Rs/T)
R&M Cost(Rs/T)
P&F Cost(Rs/T)
Employee(Rs/T)
Others(Rs/T)
India average cement price is still down 0.5 percent Y-o-Y, making Q3CY13 the third
consecutive quarter of Y-o-Y decline. On a QoQ basis, the EBITDA/tonne improved 6%
due to an improvement in realisations & comparatively lower increase in total
expenditure/tonne. The outlook continues to remain challenging due to difficult macro-
economic condition and resultant subdued cement demand. At current price of Rs 163,
stock is trading at 3x P/B on CY14 estimates. We are Neutral on the stock at CMP
Rs.163 for a target price Rs.165.
Source - Comapany/EastWind Research
Ambuja Cements Ltd. (ACL) is a cement manufacturing company in India. The Company
has five integrated cement manufacturing plants and eight cement grinding units. The
Company is engaged in manufacturing of Portland cement. The Company manufactures
Portland Pozollana cement and ordinary Portland cement. The Company operates in
Cementitious Materials segment . Source - Comapany/EastWind Research
EBITDA
P/L PERFORMANCE
Net Revenue from Operation
Other Income Source - Comapany/EastWind Research
Total Income
Power and fuel
Freight and forwarding
Expenditure
PAT
ROE% Source - Comapany/EastWind Research
Depriciation
Interest Cost
Tax
Narnolia Securities Ltd,
CY10 CY11 CY12 CY13
306 307 308 309
7021 7758 8489 9153
7327 8065 8797 9462
65 51 39 33
0 8 10 1
17 19 22 26
1109 961 949 980
1079 1173 1421 1076
10320 11577 12457 12957
16 42 47 6798
5616 6223 5904 0
931 488 524 0
299 504 641 307
902 928 987 936
128 248 221 235
1648 2073 2260 2345
142 238 251 271
10320 11577 12457 12957
CY10 CY11 CY12 CY13
3.0 3.0 3.5 3.0
8.1 8.2 10.2 8.1
1.7 2.9 2.3 2.6
15.0 11.2 9.7 10.7
1.2 1.1 1.0 1.0
20301 21829 28780 25865
17.7 19.0 19.7 22.5
11.1 11.0 11.6 15.7
1.8 2.1 1.8 2.0
15.6 14.2 16.7 12.4
0.0 0.0 0.0 0.0
1.4 1.5 1.7 1.9
1896 1554 1900 0
(527) (445) (388) 0
(474) (473) (509) 0
24
Short-term provisions
Ambuja Cements Ltd.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Trade payables
Total Assets
Total liabilities
Intangibles
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
Short-term loans and advances
RATIOS
P/B
EPS
Dividend Yield%
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%
EV
P/E
EV/EBIDTA
ROCE%
Debt/Equity
Current Ratio Source - Comapany/EastWind Research
Source - Comapany/EastWind Research
Cash from Operation
Cash From Investment
Cash from Finance
Narnolia Securities Ltd,
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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