Best Performing Stock Advice for Today - Neutral Rating on GAIL Stock With a Target Price of Rs.346

IEA-Equity
Strategy

India Equity Analytics

10th Jan, 2014

Daliy Fundamental Report on Indian Equities

GAIL :

"Neutral"

Edition : 181
10th Jan 2014

Company registered a turnover of Rs. 26902.25 Cr, up by 19% in H1FY14 compared to corresponding previous year period. There was fall of
10% in operating profits of the company to Rs 2971.72 Cr for H1FY14. The Other income was down 8% to Rs 279.6 Cr while Interest cost grew
99% to Rs 169.36 Cr. .......................................... ( Page : 2-4)

CMC :

"Reduced"

9th Jan 2014

We had initiated this stock at a CMP of Rs 1208 (5th June 2013) and now, it achieved its target of Rs1690, we advice to book profit on the stock
because of its premium valuation at current price. However, sentiment could take a knock in the short run, since investors may prefer paying a
premium for stock with better earnings visibility........................................ (Page : 5-6)

KPIT Tech: "On billion dollar journey"

"Reduced"

8th Jan 2014

We had initiated this stock at a CMP of Rs 115 (14 Jan 2013) and now, it achieved its target of Rs 177. Despite better expectation of growth and
attractive visibility of its expansion through inorganic initiative and focus into emerging verticals, we advice to book profit on the stock because
of its premium valuation. However, sentiment could take a knock in the short run, since investors may prefer paying a premium for stock with
better earnings visibility.......................................... ( Page : 7-8)

IT Industry: 3QFY14E results preview : "As usual flattish 3rd quarter"

7th Jan 2014

For 3QFY14E, Indian IT players would report muted earnings growth because of seasonal weakness like furloughs and holidays impacts, already
it is understood fact by consensus. Post result, earning guidance for FY15E and forward looking statement by most of companies would be
considered as an important fact. Considering recent demand environment scenario and healthy growth outlook of US and Europe, we are
expecting to see positive outlook on the sector for the year 2014................................. ( Page : 9-12)
;

SHREE CEMENT:

"BUY"

7th Jan 2014

We are positive on the stock as it always beats its peers group with lower operational cost. Looking at the strategy of the company and
expansion plans for FY15 the stock may outperform among cement players with the rise in cement demand.Shree cement follows a multi brand
strategy and sells cement under the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together enjoy the largest market
share in high value markets of Rajasthan, Delhi and Haryana. After a good monsoon and election we are expecting a good performance from
shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/- ............................................ ( Page : 13-15)

ORIENTAL BANK

"Neutral"

6th Jan 2014

We have now neutral rating on the stock led by trading closer to our target price of Rs.221. At this price stock would trade at 0.5 times of one
year forward book and 6.5 times of earning. In the absence of comfort earning and non visibility of ROE improvement, make us compel to value
bank in the range of 0.4-0.5 times forward book. Impairment of asset and high operating leverage would remain high according to the
management. On both front we would be getting more clarity after the quarterly result. ................... ( Page : 16-18)

UNION BANK :

"BUY"

6th Jan 2014

Net interest margin of the bank is likely to expand on the back of RBI’s decision to leave policy rate (repo) unchanged and softening bond yield
to 8.75%. This would result of reducing cost of fund and fair amount of portfolio gain. Bank borrowed higher amount of repo than MSF during
the quarter. Moreover bank is getting deposits from FCNR which would give margin of one percent plus to the bank. We value bank at
Rs.163/share which would be 0.5 times of one year forward book and 5.4 times of one year forward earning .................................. ( Page : 1921)
Narnolia Securities Ltd,

GAIL
Company Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

Neutral
348

532155
GAIL
395/273
44,047
399457
6168

Stock Performance
1M
0.6
1.7

About The Company
GAIL (India) Limited is a gas utility company. The Company is engaged in transport
through pipeline; manufacture of basic chemicals, fertilizer and nitrogen compounds,
plastics and synthetic rubber in primary forms; extraction of crude petroleum; extraction of
natural gas and electric power generation, transmission and distribution. The company
operates in five segments viz Gas Transmission Business ,LPG Transmission Business,
Gas Trading Business, Petrochemical Business and LPG and Liquid Hydrocarbon
Business.

1HFY14 Financial Highlights :

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

Absolute
Rel. to Nifty

"NEUTRAL"
10th Jan' 14

1yr
-5.6
-8.7

YTD
-5.0
-20.0

Share Holding Pattern-%
Current
1QFY14 4QFY13
Promoters
57.3
57.3
57.3
FII
17
16.7
16.3
DII
21.6
22
22.2
Others
3.9
3.9
4
1 yr Price Movement Vs Nifty

Company registered a turnover of Rs. 26902.25 Cr, up by 19% in H1FY14 compared to
corresponding previous year period. There was fall of 10% in operating profits of the
company to Rs 2971.72 Cr for H1FY14. The Other income was down 8% to Rs 279.6 Cr
while Interest cost grew 99% to Rs 169.36 Cr, The net profits for H1FY14 was Rs
1723.84 Cr down by 19 %in comparison to 2HFY13.
The company during the first half of the current financial year, earned the revenues of Rs.
23,437 Cr from Natural Gas Trading up 24% YoY as compared to corresponding period
of the last year. The revenues from Natural Gas Transmission increased by 9% YoY to
Rs. 2,066 Cr for H1FY14. The net sales from LPG and Liquid Hydrocarbons business
increased by 11% YoY to Rs. 2,043 Cr as against Rs. 1,842 Cr for the same period of
last year. The net sales from Petrochemicals business increased by 54% to Rs 2,237 Cr
for 1HFY14. The revenues from LPG transmission increased by 72% to Rs. 189 Cr in
1HFY14.

1HFY14 Production Highlights :
During 1HFY14, Petrochemical Production was 231 TMT, up by 20 % YoY it was 193
TMT in 1HFY13.The Petrochemical Sales were 229 TMT, up by 37 % against 167 TMT in
the corresponding period in the previous year. The LPG and Other Liquid Hydrocarbon
production were 685 TMT, against 684 TMT in 1HFY13.
The LPG transmission was 1,428 TMT. The Natural Gas transmission was 97.25
MMSCMD, against 107.72 MMSCMD. The Natural Gas stood at 80.33 MMSCMD in
1HFY14 as against 81.92 MMSCMD in 1HFY3.

Highlights of Conference Call:
→The company has commissioned Kochi pipeline on 25th August 2013.
→Company has shared Rs 698.68 Cr towards LPG subsidy in the quarter ended
September 2013 compared to Rs 785.67 Cr in the corresponding previous year period.
→Ministry of Petroleum and Natural gas has capped subsidy burden of Gail (India) at Rs
1400 Cr for FY'14.
→Capex incurred during H1FY'13 was Rs 2525 Cr as Rs 1500 Cr on Petrochemical, Rs
400 Cr on pipeline expansion, Rs 270 Cr on E&P and Rs 360 Cr towards equity
contribution.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

2QFY14
13944.6
1405.5
915.7
10.1%
6.6%

1QFY14
12855.6
1136.7
606.5
8.8%
4.7%

(QoQ)-%
8.5
23.6
51.0
120bps
180bps

2QFY13
11361.2
1380.3
985.4
12.1%
8.7%

Rs, Crore
(YoY)-%
22.7
1.8
-7.1
(200bps)
(210bps)

(Source: Company/Eastwind)

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

2

GAIL
Continued
→ Projected Capex for FY'14 is Rs 5000 Cr and Rs 3500 Cr in FY'15.
→ The company has borrowed Rs 585 Cr during Q2FY'14.
→ Total borrowings stood at Rs 10632 Cr at the end of September 2013 quarter-out of which
56% loan is foreign currency loan. Almost 90% of foreign currency loan is financially or
naturally hedged.
→ The company anticipates increase in gas availability in near future. It expects around 20-25
mmscmd of gas over a period of 3-4 years including 11-12 mmscmd of gas from domestic
sources and 10-15 mmscmd from LNG.
→GAIL has shared Rs 698.68 Cr towards LPG subsidy in the quarter ended September 2013
compared to Rs 785.67 crore in the corresponding previous year period

Recent Events
GAIL management indicated that, MoPNG has in-principle agreed to provisionally cap GAIL’s
FY14 subsidy at INR14b, implying 2HFY14 subsidy to be nil. As per our view the final decision
will be post Finance Ministry consent.

Risk & Concern
Uncertainty on under recovery sharing
Near-term gas supply visibility which may lead to under-utilization of new pipelines

View and Valuation :
The stock is currently trading at Rs 346 and business outlook going forward ,management
guidance does not provide us with much convincing thought .We donot see much upsides
attached with the stock in current business scenario. We therefore recommend NEUTRAL

view on the stock.
Graphical Dipiction
2QFY14 SEGMENTAL SALES TURNOVER



3

GAIL
SALES TREND

Sales increased by 22% YoY driven by higher
revenues from the natural gas
trading and petrochemical segments


EBITDA & OPM%


Adj PAT & NPM %

Higher Depcreciation owing to capitalization
of assets with respect to new
pipelines and higher interest cost resulted in
a NPM decline



4

CMC

"Book Profit"
9th Jan, 2014

"On track to deliver"
Company update

Book Profit

CMP
Target Price
High Price (08.01.2014)
Upside

1657
1690
1729
-

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

517326
CMC
1780/1107
5020
20884
6175

Stock Performance
1M
15.0
15.4

Absolute
Rel. to Nifty

1yr
29.2
24.6

YTD
40.0
35.8

Promoters
FII
DII
Others

Current
51.12
23.32
17.83
7.73

1 year forward P/E

4QFY13 3QFY13
51.12
51.12
19.87
21.84
20.46
19.05
8.55
7.99

We had initiated this stock at a CMP of Rs 1208 (5th June 2013) and now, it achieved
its target of Rs1690, we advice to book profit on the stock because of its premium
valuation at current price. However, sentiment could take a knock in the short run,
since investors may prefer paying a premium for stock with better earnings visibility.
We believe, CMC will continue with its efforts to enhance revenue contribution of high
margin System Integration (SI) and ITES segments. Further, its high focus on education
space will also add margin in near term. Considering recent healthy demand
environment across the IT space with favorable supply side scenario, we remain
confident on the stock for better earning visibility and stable margin picture.

For 3QFY14E, we expect to see 2-1.5% (QoQ) sales growth in USD term and 1-1.5%
(QoQ) in INR term, PAT is expected to decline by 2-3% (QoQ) led by a marginal growth in
the forex loss. We expect 50-100bps improvement in EBITDA margin to 15.5-16%,
sequentially.
Key things to watch: Outlook for deal pipeline, updates on SMAC(social, mobility,
analytics, cloud) and guidance on forward looking statement.
Healthy Deal pipeline: The deal pipeline is in line with the last year. It indicated that
pursuing good number of deals in the Developed and as well emerging markets.
Considering current sound demand environment across geographies (like US and
Europe) and verticals Company is more optimistic for clients acquisition and deal
executions ahead.
Now, CMC is focusing on new emerging segments like IMS (Infrastructure
Management Services), Cloud, Big data, Mobility and Analytics. Considering its
impressive client as well as market response, company is expecting to quantify into
revenue. Its new and emerging projects like Mining Management System, GPS System
and Port & Cargo Management System would play a major role for generating
revenue.
View and Valuation: View and Valuation: CMC expects the growth momentum to
improve in the quarters ahead and the revenue growth to be higher than the NASSCOM
guidance in FY14. The Company remains a strong with excellent earning visibility led by
joint effort of market strategy by TCS (contributes 59% of sales) in its product and
solutions. Considering the company’s premium valuation, we advice “Book Profit” on
the stock. At a CMP of Rs 1657, stock trades at 16.3x FY14E earnings. Our view could
be change with management guidance and post earnings of coming quarter.

Financials
Revenue
EBITDA
PAT
EBITDA Margin
PAT Margin

2QFY14
560.75
88.41
67.3
15.8%
12.0%

1QFY14
486.61
77.04
53.12
15.8%
10.9%

(QoQ)-%
15.2
14.8
26.7
110bps

2QFY13
458.64
76.59
49.4
16.7%
10.8%

Rs, Crore
(YoY)-%
22.3
15.4
36.2
(90bps)
(120bps)



5

CMC
Financials;
Rs, Cr
Net Sales
Purchases of stock-in-trade
Employee Cost
Subcontracting and outsourcing cost
Other expenses
Total Expenses
EBITDA
Depreciation
Other Income
EBIT
Interest Cost
PBT
Tax
PAT
Growth-%
Sales
EBITDA
PAT
Margin -%
EBITDA
EBIT
PAT
Expenses on Sales-%
Employee Cost
Subcontracting Cost
Tax rate
Valuation
CMP
No of Share
NW
EPS
BVPS
RoE-%
Dividen Payout ratio
P/BV
P/E

FY10
870.73
99.35
276.16
173.56
159.94
709.01
161.72
9.85
18.75
151.87
3.17
167.45
24.23
143.22

FY11
1084.40
99.28
345.13
262.35
170.17
876.93
207.47
10.46
11.80
197.01
0.22
208.59
32.42
176.17

FY12
1469.34
145.40
440.22
446.11
213.63
1245.36
223.98
21.37
17.46
202.61
0.02
220.05
68.59
151.46

FY13
1927.87
188.56
521.65
679.73
222.88
1612.82
315.05
23.20
13.17
291.85
0.18
304.84
76.76
228.08

FY14E
2239.31
201.54
593.42
794.96
235.13
1825.04
414.27
41.95
22.39
372.33
0.2
394.52
86.79
307.73

FY15E
2600.41
234.04
702.11
923.15
273.04
2132.34
468.07
60.69
26.00
407.38
0.25
433.14
99.62
333.52

-7.4%
27.7%
23.3%

24.5%
28.3%
23.0%

35.5%
8.0%
-14.0%

31.2%
40.7%
50.6%

16.2%
31.5%
34.9%

16.1%
13.0%
8.4%

18.6%
17.4%
16.4%

19.1%
18.2%
16.2%

15.2%
13.8%
10.3%

16.3%
15.1%
11.8%

18.5%
16.6%
13.7%

18.0%
15.7%
12.8%

31.7%
19.9%
14.5%

31.8%
24.2%
15.5%

30.0%
30.4%
31.2%

27.1%
35.3%
25.2%

26.5%
35.5%
22.0%

27.0%
35.5%
23.0%

1340.0
1.50
510.68
95.48
340.45
28.0%
18.6%
3.94
14.03

2079.6
1.50
654.02
117.45
436.01
26.9%
19.9%
4.77
17.71

994.8
3.00
772.19
50.49
257.40
19.6%
23.2%
3.86
19.70

1410.0
3.03
946.26
75.27
312.30
24.1%
19.4%
4.51
18.73

1657
3.03
1192.11
101.56
393.44
25.8%
20.1%
4.21
16.32

1657
3.03
1454.91
110.07
480.17
22.9%
21.2%
2.78
15.05


Rating and Price Target Chart

Updation Detail
Date
5-Jun-13
4-Jul-13
18-Jul-13
21-Oct-13
20-Dec-13
9-Jan-14

Update Detail
Initiation
Company Update
Result Update
Result Update
Company Update
Company Update

CMP
View
Target Price
1208
BUY
1380
1315
BUY
1490
1318
BUY
1490
1334
BUY
1490
1510
BUY
1690
1729 Profit Booking
1690


6

KPIT Tech.

"Book Profit"
7th Jan' 14

"On billion dollar journey"
Company update

Book Profit

CMP
Target Price

180
177
-

Upside

-

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

532400
KPIT
186/92
3445
144511
6162

Stock Performance
Absolute
Rel. to Nifty

1M
24.7
25.5

1yr
64
61.1

YTD
57.2
54

Promoters
FII
DII
Others

Current
22.87
36.42
11.12
29.59

Price Performance

1QFY14 4QFY13
24.25
24.3
32.79
30.8
10.93
11.8
32.03
33.1

We had initiated this stock at a CMP of Rs 115 (14 Jan 2013) and now, it achieved its
target of Rs 177. Despite better expectation of growth and attractive visibility of its
expansion through inorganic initiative and focus into emerging verticals, we advice to
book profit on the stock because of its premium valuation. However, sentiment could
take a knock in the short run, since investors may prefer paying a premium for stock
with better earnings visibility.
The company expects better earnings, confident of generating a positive cash flow for
FY14E, after considering the balance payments for existing M&A deals.
KPIT ‘s Management is confident to report USD Revenue for FY14 to be in the range of
USD 465 Mn to USD 475 Mn, and INR PAT for FY14 to be in the range of INR 2,309 Mn to
INR 2,388 Mn. They expect better H2FY14E than H1FY14E. KPIT expects to close some
more deals in next quarter, which will again drive growth and expects the company’s
growth to be stronger in the 2H FY14E.
For 3QFY14E, we expect to see 4% (QoQ) sales growth in USD term and 2.7% (QoQ) in
INR term, PAT is expected to grow by 3-4% (QoQ) led by a marginal growth in the forex.
We expect 50-100bps improvement in EBITDA margin to 16-16.5%, sequentially.
Key things to watch: Outlook of deal pipeline, Updates on SAP and Revolo, and
acquisition plan.
Close to Revolo launch and working on cloud based IB tool: The unit has been in the
process of conducting trials in 40 vehicles. As per the management, by next year it could
be a part of revenue. It is also working on cloud based BI tools as well as Analytics tool
for opportunities in warranty management.
Robust pipeline of large deals: During the quarter, company closed 2 larges deals in
excess of USD 10 mn 1 in Europe and 1 in the US and have created a robust pipeline of
larger deals. We expect this large set of deals would reveal stronger 2HFY14
performance with judicious mix of volume and value growth.
View and Valuation: Despite all previous ups and down in IT sector, global demand
environment is on the way of recovery and growth. Impressive organic growth despite
inorganic thrust (acquired 10 companies in the last 10 yrs), Potential option value from
success of its hybrid engine venture Revolo (on trial) . KPIT has targeted to reach USD
1billion in revenues by 2017.
We expect KPIT to grow its revenues at a CAGR of 24% over FY12-14E.Considering the
company’s premium valuation, we advice “Book Profit” on the stock. At a CMP of Rs
180, stock trades at 13.8x FY14E earnings. Our view could be change with
management guidance and post earnings of coming quarter.
Rs, Crore
Financials
2QFY14
1QFY14
(QoQ)-%
2QFY13
(YoY)-%
Revenue
702.76
613.21
14.6
567.02
23.9
EBITDA
108.1
96.6
11.9
94.1
14.9
PAT
66.7
60.1
11.0
48
39.0
EBITDA Margin
15.4%
15.8%
(40bps)
16.6%
(120bps)
PAT Margin
9.5%
9.8%
(30bps)
8.5%
(100bps)


7

KPIT Tech
Financials
Rs, Cr
Net Sales-USD
Net Sales
Employee Cost
Other expenses
Total Expenses
EBITDA
Depreciation
Other Income
Extra Ordinery Items
EBIT
Interest Cost
PBT
Tax
PAT
PAT (excluding EO Items)
Growth-%
Sales
EBITDA
PAT
Margin -%
EBITDA
EBIT
PAT
Expenses on Sales-%
Employee Cost
Subcontracting Cost
Tax rate
Valuation
CMP
No of Share
NW
EPS
BVPS
RoE-%
Dividen Payout ratio
P/BV
P/E

Rating and Price Target Chart

FY10
153.76
731.64
265.92
304.70
570.62
161.02
30.80
1.20
-26.45
130.22
2.74
102.23
16.91
85.32
111.77

FY11
224.07
987.05
529.95
308.82
838.77
148.28
41.12
6.74
0.00
107.16
3.78
110.12
15.49
94.63
94.63

FY12
306.71
1500.00
771.78
511.97
1283.75
216.25
44.49
13.82
10.05
171.76
7.32
188.31
43.67
144.64
134.59

FY13
410.46
2238.63
1140.79
762.32
1903.11
335.52
47.16
11.74
-1.30
288.36
13.99
284.81
76.55
208.26
209.56

FY14E
465.00
2790.00
1422.90
906.75
2329.65
460.35
62.58
13.95
-45.17
397.77
21.37
345.17
93.20
251.98
297.15

FY15E
558.00
3320.10
1726.45
1095.63
2822.09
498.02
88.34
16.60
16.60
409.68
18.61
424.28
116.68
307.60
291.00

-7.8%
-12.2%
129.4%

34.9%
-7.9%
10.9%

52.0%
45.8%
52.8%

49.2%
55.2%
44.0%

24.6%
37.2%
21.0%

19.0%
8.2%
22.1%

22.0%
17.8%
11.7%

15.0%
10.9%
9.6%

14.4%
11.5%
9.6%

15.0%
12.9%
9.3%

16.5%
14.3%
9.0%

15.0%
12.3%
9.3%

36.3%
20.8%
16.5%

53.7%
14.5%
14.1%

51.5%
17.2%
23.2%

51.0%
0.0%
26.9%

51.0%
0.0%
27.0%

52.0%
0.0%
27.5%

115.00
7.90
387.11
10.80
49.00
22.0%
6.4%
2.35
10.65

168.05
8.70
603.19
10.88
69.33
15.7%
6.8%
2.42
15.45

122.90
17.80
712.55
8.13
40.03
20.3%
4.9%
3.07
15.12

99
19.28
1036.23
10.80
53.75
20.1%
7.9%
1.84
9.17

180
19.28
1272.42
13.07
66.00
19.8%
6.3%
2.73
13.77

180
19.28
1557.46
15.95
80.78
19.8%
7.3%
2.23
11.28

Updation Detail
Date
14-Jan-13
29-Jan-13
3-May-13
5-Jul-13
25-Jul-13
13-Sep-13
24-Oct-13
22-Nov-13
8-Jan-14

Update Detail
Initiation
Result Update
Result Update
Company Update
Result Update
Company Update
Result Update
Company Update
Company Update

CMP
View
115
BUY
116
BUY
106
BUY
120
BUY
132
BUY
147
BUY
144
BUY
146
BUY
180 Profit Booking

Target Price
145
145
145
145
145
162
162
177
177



8

IT Industry: 3QFY14E results preview
"As usual flattish 3rd quarter"
Price performance of our coverage:

(Source: Eastwind)

Index Performance:

↑59.5%

↑6.9%

(Source: Eastwind)

CNX IT v/s USD/INR
↑59.5%
↑6.9%

For 3QFY14E, Indian IT players would report muted earnings growth because of seasonal
weakness like furloughs and holidays impacts, already it is understood fact by
consensus. However, this quarter would report better earning and margin growth than
same quarters of last year. Because of stable currency movement, margin could be seen
flattish or marginally inched up.
Post result, earning guidance for FY15E and forward looking statement by most of
companies would be considered as an important fact. Considering recent demand
environment scenario and healthy growth outlook of US and Europe, we are expecting
to see positive outlook on the sector for the year 2014.
Key facts of 3QFY14E earnings:
Seasonal Impacts on (QoQ) earnings, while better on YoY:
For 3QFY14E, we expect to see lower rate of earning growth impacted by furloughs and
holidays, already YoY growth would be a favorable. The December quarter has
traditionally been a soft quarter for the IT sector. On USD term, revenue of top-4 IT
players could be reported at a range of 2-3.3% sequentially. We expect Tier-1 IT to report
constant-currency revenue growth of 1.4-3% (QoQ).
Stable Margin and flat currency movement:
During the quarter, margin for IT Industry will largely be flattish or see marginal decline on
sequential basis. Across the tier-1 IT players, Infosys could improve its margin because of
cost rationalization and slow pace of currency benefit TCS will maintain its previous
quarters margin picture. While, margin of HCLTech and Mindtree could see some dip
because of wage hike during the quarter.
New discretionary spending:
Because of better economic scenario, demand environment expansion has taken place.
Now, domestic IT players have been able to retain its market share in US and successfully
improved its market share in Euro region, at a same point pricing pressure has turned out.
During the quarter, most of multimillion-dollar projects have been bagged from Euro
region. During the current fiscal, out of 27 large projects 11 orders deputed from Euro
(including UK) region and only 3 from US.
Management commentary and forward looking statement:
Post revealing 3QFY14E earnings, street will closely watch on the response of its clients
budgeting cycle to assess the strength of the demand environment and its sustainability.
Most of companies will comment on earning guidance, margin outlook and order pipeline
for FY15E. Taking recent attractive supply side scenario, we would like to see hiring
guidance and commentary on maintaining utilization rate and attrition rate.
Movement of INR-USD and Other Currencies v/s USD
1QFY12

↑13%

INR/USD
Average
Closing
EUR - USD
Average
Closing
GBP-USD
Average
Closing
AUD-USD
Average
Closing

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

44.65
44.59

45.73
48.86

50.84
53.08

50.29
51.4

54.09
56.8

55.19
52.85

54.14
54.97

54.17
54.28

55.93
59.54

62.08
62.59

61.97
61.84

1.41
1.45

1.4
1.36

1.35
1.3

1.31
1.33

1.28
1.26

1.25
1.29

1.3
132

1.32
1.28

1.31
1.3

1.33
1.35

1.36
1.38

1.62
1.61

1.61
1.57

1.57
1.55

1.57
160

1.57
1.56

1.58
1.62

1.61
1.62

1.55
1.52

1.54
1.51

1.55
1.6

1.61
1.66

1.06
1.07

1.05
0.99

1.01
1.02

1.05
1.03

1.01
1.02

1.04
1.04

1.03
1.03

1.04
0.99
0.92
0.93
1.04
0.91
0.93
0.89

(Source: Eastwind)


9


Results preview
TCS
Key things to watch - Comments on
volume, demand environment, deal
closures from US, pricing, and
discretionary spends.

Rs, Cr

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

Sales
16069.93 20977.24 21606.56
3.0%
34.5%
EBITDA
4660.49
6632.95
6300.3
-5.0%
35.2%
PAT
3549.6
4633.33
5096.66
10.0%
43.6%
EBITDA Margin
29.0%
31.6%
31.0%
(60bps)
200bps
PAT Margin
22.1%
22.1%
23.6%
150bps
150bps
We expect company is likely to report 3.5% (QoQ) revenue growth in USD term. On a
constant currency basis, the growth will be 3% QoQ.
Margins are likely to decline marginally because of Flattish currency movement

Forex loss as a hedging will reduce the net income growth.
INFY

Street would like to see some up
gradation in given revenue guidance
from 9-10% to 12% for FY14E.

Rs, Cr

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

Sales
EBIT
PAT
EBITDA Margin
PAT Margin

10424
2677
2369
25.7%
22.7%

12965
3346.9
2407
25.8%
18.6%

13069.1
3424.1
2695.8
26.2%
20.6%

0.8%
2.3%
12.0%
40bps
200bps

25.4%
27.9%
13.8%
50bps
(190bps)

We expect revenue growth of 2.2% in USD term for3rd qtr FY14E, sequentially.
Margin is expected to remain stable and benefits from cost optimisation initiatives are
offset by the negative impact of the rupee appreciation by 1.2% during the quarter.
We expect Infosys to increase their FY2014 guidance to ‘at least 12%’ from 9-10% earlier.
The company needs a quarterly run rate of average 2% for the next two quarters to
achieve 12% for FY14E.

WIPRO
Rs, Cr

Key things to watch – 4th quarter
revenue guidance, margin commentary,
visibility of growth/hiring in software
services.

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

Sales
EBITDA
PAT
EBITDA Margin
PAT Margin

9587.5
2050.2
1598.1
21.4%
16.7%

10990.7
2503.8
1932
22.8%
17.6%

11342.40
2552.04
1984.16
22.5%
17.5%

3.2%
1.9%
2.7%
(30bps)
(10bps)

18.3%
24.5%
24.2%
10bps
80bps

The company had guided a strong 3QFY14 USD revenue growth guidance of 1.8-3.6% QoQ
for IT services .We expect IT services revenue growth to be closer to the higher end of this
range and to be 3% QoQ in USD terms.
The large deals won in the previous quarter are ramping up as expected and company
could reveal its orders pipeline.



10


HCLTECH

Key things to watch - outlook for
pricing/volumes and deal ramp up and
deal re bid, margin commentary,
visibility of growth/hiring in software
services.

Rs, Cr

2QFY13

1QFY14

2QFY14E

(QoQ)-%

(YoY)-%

Sales
EBITDA
PAT
EBITDA Margin
PAT Margin

6273.8
1416.6
974.3
22.6%
15.5%

7961
2093
1416
26.3%
17.8%

8160.03
2080.81
1472.64
25.5%
18.0%

2.5%
-0.6%
4.0%
(80bps)
20bps

30.1%
46.9%
51.1%
290bps
250bps

Expect revenue growth of 3% in $-term QoQ and margins to be down by 50-100bps which
is largely attributable to the wage hikes effective from October 1, 2013 for some
employees..

TECHM
Key things to watch – Outlook for deal
pipeline, outlook on BT/AT&T (the
biggest clients), updates on SMAC(social,
mobility,
analytics,
cloud)
and
comments on synergies

Rs, Cr

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

Sales
EBITDA
PAT
EBITDA Margin
PAT Margin

3523.7
756.9
455.9
21.5%
12.9%

4771.5
1110.85
718.2
23.3%
15.1%

4819.22
1084.32
754.11
22.5%
15.6%

1.0%
-2.4%
5.0%
(80bps)
50bps

36.8%
43.3%
65.4%
100bps
270bps

We expect revenue growth guidance of 2.5% in USD term and and full integration of
Complex IT.
Expect margins to be don by 50-100bps (QoQ) - wage hikes deferred to 4QFY14
CMC
Rs, Cr

Key things to watch – Outlook for deal
pipeline, updates on SMAC(social,
mobility, analytics, cloud) and guidance
on forward looking statement.

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

Sales
EBITDA
PAT
EBITDA Margin
PAT Margin

492.97
83.2
61.07
16.9%
12.4%

560.75
88.41
67.3
15.8%
12.0%

566.36
87.79
65.62
15.5%
11.6%

1.0%
-0.7%
-2.5%
(30bps)
(40bps)

14.9%
5.5%
7.4%
(140bps)
(80bps)

We expect revenue growth guidance of 1.5% in USD term and expect margin ramp up by
40bps.
HEXAWARE
Rs, Cr

Key things to watch: Key stance on
dividend policy, deal wins and revenue
growth momentum and outlook for
order win.

4QCY12

3QCY13

4QCY13E

(QoQ)-%

(YoY)-%

Sales
EBITDA
PAT
EBITDA Margin
PAT Margin

507.52
109.02
66.20
21.5%
13.0%

621.1
147.74
98.7
23.8%
15.9%

629.17
147.86
103.64
23.5%
16.5%

1.3%
0.1%
5.0%
(30bps)
60bps

24.0%
35.6%
56.5%
200bps
350bps

Expect 3% US$ revenue growth. Hexaware discontinued quarterly guidance since the
previous quarter.
Expect 30-50bps decline in margin.


11


KPIT

Key things to watch: Outlook of deal
pipeline, Updates on SAP and Revolo,
and acquisition plan.

Rs, Cr

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

563.3
87.9
59.9
15.6%
10.6%

Sales
EBITDA
PAT
EBITDA Margin
PAT Margin

702.8
108.1
66.7
15.4%
9.5%

721.97
115.52
69.40
16.1%
9.7%

2.7%
6.9%
4.0%
70bps
(90bps)

28.2%
31.4%
15.9%
50bps
120bps

We expect to see revenue growth by 4% (QoQ) in USD term.
PERSISTENT

Key things to watch: Commentary on
deal pipeline and contribution from IPled revenue

Rs, Cr

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

333
82.4
49.5
24.7%
14.9%

Sales
EBITDA
PAT
EBITDA Margin
PAT Margin

432.4
100.8
60.8
23.3%
14.1%

436.06
104.65
66.88
24.0%
15.3%

1%
4%
10%
70bps
80bps

30.9%
27.0%
35.1%
(70bps)
40bps

We expect overall revenue growth at 3% in USD term due to healthy growth in IP led
business and $1mn HP deal.
PAT is expected to grow by 10% (QoQ) despite a marginal growth in margin due to the
forex gain of Rs 5-6 cr v/s 9 cr of same previous quarter.
NIITTECH
Rs, Cr

Key things to watch: Updates on new
deal win, revenue traction from all
geographies & inorganic initiatives.

3QFY13

2QFY14

3QFY14E

(QoQ)-%

Sales
514.4
587.3
593.50
1.1%
EBITDA
81.3
88.6
86.06
-2.9%
PAT
56.6
60.4
57.38
-5.0%
EBITDA Margin
15.8%
15.1%
14.5%
(60bps)
PAT Margin
11.0%
10.3%
9.7%
(60bps)
We expect the company to report 1% QoQ growth in USD terms. Due to the
lower other income, we expect the net income to decline by 5%.

(YoY)-%

15.4%
5.9%
1.4%
(130bps)
(130bps)

View and valuation:
Company
TCS
INFOSYS
HCLTECH
WIPRO
TECHM
CMC
NIITTECH
KPIT
HEXAWARE
PERSISTENT
eCLERX
TATAELXSI
ZENSARTECH

CMP
Upside
View
Target
(06.01.14)
%
2239.6
BUY
2360
5.4%
3514.2
BUY
3622
3.1%
1251.3
BUY
1415
13.1%
558.05
NEUTRAL 450
1817.65
BUY
2330
28.2%
1734.45
REDUCE 1693
379.85
BUY
408
7.5%
181.55
REDUCE
177
138.65
BUY
141
1.4%
990.05
REDUCE
960
1064.6
BUY
1360
27.7%
413.65
REDUCE
210
397.95
BUY
400
0.5%

FY13
71.82
164.2
58.10
25.0
85.48
75.27
36.28
10.80
11.1
46.12
64.25
10.63
40.03

EPS-Rs
FY14E
90.74

181.1
71.87
25.15
144.15
101.56
44.03
13.07
13.1
63.40
71.61
17.53
57.16

FY15E
102.37

208.2
83.49
27.4
161.64
110.07
53.38
15.95
14.3
76.92
83.65
19.76
74.62

FY13
31.19
21.40
21.54
22.28
21.26
23.04
10.47
16.81
12.49
21.47
16.57
38.91
9.94

P/E-x
FY14E
24.68
19.40
17.41
22.19
12.61
17.08
8.63
13.89
10.61
15.62
14.87
23.60
6.96

FY15E
21.88
16.88
14.99
20.37
11.25
15.76
7.12
11.38
9.69
12.87
12.73
20.93
5.33

FY13
36.42%
24.8%
30.72%
21.7%
35.91%
24.10%
20.0%
20.10%
27.2%
18.1%
43.8%
16.94%
23.22%

RoE-%
FY14E
36.22%
23.0%
29.10%
18.9%
38.31%
25.81%
19.6%
19.80%
27.0%
20.5%
37.9%
23.55%
26.07%

FY15E
32.95%
22.2%
26.39%
17.8%
30.38%
22.92%
19.3%
19.75%
26%
20.4%
34.4%
22.37%
26.34%

key macro indicators in US economy and recent interaction by Industry experts bring some optimistic view in the IT sector. The
meaning full recovery has been seen in US labor market. At the same time, business investment and consumer confidence appear to
be coming back. We believe, uptick in discretionary spend could be sustain over the next 12-18ms.
Commentary on demand outlook, deal pipeline and discretionary spending will be key topic to discuss post results. At a same,
management commentary would also be monitor able.
Hence, with strong medium term earnings visibility, better demand environment and optimistic management comments, we are
positive on (In order of preference) TCS, INFY, and HCL tech from large cap coverage and TECHM, eClerx and NIITTech from Mid cap
space.

12

SHREE CEMENT.
Company Update

Buy

CMP
Target Price
Upside

4460
4791
NA
7%
NA

Market Data
BSE Code
NSE Symbol

500387
SHREECEM

52wk Range H/L
Average Daily Volume (Nos.)
Nifty

5210/3413
15502
3875
6191

Stock Performance-%
1M
0.1
0.0

Absolute
Rel. to Nifty

1yr
-4.8
-8.0

YTD
-5.1
-9.2

"BUY"
7th Jan' 14

As on Mid June, the company's gross debt stood at Rs.12.9bn, including Rs.3.1bn of long-term
debt maturing within a year and cash and cash equivalents of Rs. 25.7bn. We believe net cash
balance of INR12.8bn coupled with future cash flows should result in smooth execution of its
expansion plan. A very good strategy for capacity expansion has ensured that leverage remains
under control like in the past.We are positive on the stock as it always beats its peers group with
lower operational cost. Looking at the strategy of the company and expansion plans for FY15
the stock may outperform among cement players with the rise in cement demand.Shree cement
follows a multi brand strategy and sells cement under the highly recognized brands of Shree Ultra,
Bangur and Rockstrong which together enjoy the largest market share in high value markets of
Rajasthan, Delhi and Haryana. After a good monsoon and election we are expecting a good
performance from shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target
Price Rs.4791/- with degrowth in EBIDTA :
Volume Growth
With Q1FY14 performance Net sales declined 5.8% to Rs.1248 Cr as weak cement pricing in its key
northern market offset the benefits from higher cement and power volumes. While cement and
clinker dispatches rose 7.2% YoY to 3.26mmt, realizations weakened 12.7% YoY and 7.2% QoQ at
INR3,334/ mt.On the volumes front, while the 7.2% increase in cement dispatches positively
surprised, a 36% growth in power sales lagged our estimate of a 128% growth.
EBIDTA for the cement segment declined 39% at Rs.249 Cr (-37% YOY) on account of weak prices
coupled with higher operational costs. Lower effective tax rate (2.8% vs 16.5%) stemmed the
decline in net profits to INR1.7bn, a degrowth of 24.5%.

On the expansion front :

1 yr Forward P/B

The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun’13.Line X of similar
capacity along with 25MW of WHRS (at the same location) is expected by Jun’14.Two grinding
units of 2m tons each, at Ras and in Bihar,are being constructed and expected by Jun’14.For the
greenfield clinker-cumgrinding unit (Chhattisgarh) and 2m ton grinding unit (Ras), equipment
order have been placed; commissioning is for Mar‐Jun’15.We expect Shree to be a 21.5m-tpa
company by Jun’15.It plans to foray into high demanding eastern. It has set its eye on 'Mission
2015', i.e. achieving a production capacity of 25mmt by 2015.Total capex for these expansion is
Rs.3,000 crore which is spread over next 2 years.

6000

Cement : Theme Report

2QFY14
64.8
8.2
5.7
21.3

Promoters
FII
DII
Others

1QFY14 4QFY13
64.8
64.8
8.1
7.8
5.9
5.6
21.2
21.8

PRICE

1.5x

2x

3.5x

4x

Industry’s profitability deteriorated to multi‐year low during 2QFY14 as all companies reported
sharp decline in their operating profits. Weak demand on account of a strong & timely monsoon
led to muted volume growth and weak cement prices. Regional & smaller players hit the hardest
.The industry’s profitability suffered on weak demand & rising costs; Fuel costs have largely
remained stable.Capex slowdown continues to impact demand off‐take. Sand mining bans also
hurting construction activities & cement demand.Infrastructure execution remains uncertain; rural
pick up on good monsoon can lead to demand growth. The storm seems over but headwind
persists Outlook is cautious.

2.5x

3x

5000

4.5x

4000
3000
2000
1000

Sep-13

Sep-12

Mar-13

Sep-11

Mar-12

Sep-10

Mar-11

Sep-09

Mar-10

Sep-08

Mar-09

Sep-07

Mar-08

Sep-06

Mar-07

Sep-05

Mar-06

Sep-04

Mar-05

Sep-03

Mar-04

Sep-02

Mar-03

Mar-02

0

Source - Comapany/EastWind Research

Financials :
Net Revenue
EBITDA
Depriciation
Tax
PAT

Q1FY14
1248
249
114
5
172

Y-o-Y %
-5.7
-36.8
21.3
-88.9
-24.6

Q-o-Q %
-13.9
-35.7
-14.3
-68.8
-39.4

Q1FY13
1324
394
94
45
228

Q4FY13
1449
387
133
16
284

(In Crs)



13

SHREE CEMENT.
OUT LOOK :

EBIDTA Margin
40

35
30
25

20
15
10

5
0

Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q5FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14

From the view company Operations in the high utilisation North and Central markets, capacity
expansions underway, low gearing and strong RoE are fundamental positives. We believe
although, near term challenges in terms of a slowdown in demand for cement would remain,
strong balance sheet and better efficiency in terms of cost remains a key positive for this
company to overcome challenges.Company Management is bull for the rest two quarters of
FY2014 as according to them demand has already buttom out.We are positive on the stock as it
always beats its peers group with lower operational cost. Looking at the strategy of the
company and expansion plans for FY15 the stock may outperform among cement players with
the rise in cement demand.Shree cement follows a multi brand strategy and sells cement
under the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together
enjoy the largest market share in high value markets of Rajasthan, Delhi and Haryana. After a
good monsoon and election we are expecting a good performance from shree cement for the
H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/-

Company Description :
Shree Cement (SCL) is a cement producer operating in the two segments cement and power. As
of June 30, 2012, the company had a cement capacity of 13.5 million tonnes per annum (MTPA)
and power capacity of 560 MW. This includes 300 MW (150 MW x2) thermal power plant
commissioned at Beawar. The company's waste heat recovery power plants have a total capacity
of 46 MW. The company’s brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It
has manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units at
Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in Uttarakhand.

1,550
1,500

REVENUE
GROWTH

60.00
50.00

Expenditure
EBITDA
Depriciation
Interest Cost
Net tax expense / (benefit)
PAT
ROE%

2569
885
676
98

4252
1646
873
235
619
23.1

10.00
(10.00)

4029
1561
436
193

365
20.8

20.00

1,200

FY13
5590
188
5779

30.00

1,250

FY12
5898
163
6061

1,400

1,300

FY11
3454
203
3656

40.00

1,350

P/L PERFORMANCE
Net Revenue from Operation
Other Income
Total Income

1,450

1004
26.1


FY14E

14

SHREE CEMENT.
B/S PERFORMANCE
Share capital
Reserve & Surplus
Total equity
Long-term borrowings
Short-term borrowings
Long-term provisions
Trade payables
Short-term provisions
Total liabilities
Intangibles
Tangible assets
Capital work-in-progress
Long-term loans and advances
Inventories
Trade receivables
Cash and bank balances
Short-term loans and advances
Total Assets
RATIOS
P/B
EPS
Debtor to Turnover%
Creditors to Turnover%
Inventories to Turnover%

FY10

FY11

FY12

FY13

35
1798
1833
1789
318
28
171
472
4906
0
752
967
299
358
82
416
415
4906
FY10
4.4
212.3
2.3
4.7
1.0

35
1951
1986
1472
217
16
185
267
4940
0
1167
729
308
404
108
499
429
4940
FY11
3.6
118.6
3.1
5.3
1.2

35
2699
2734
818
143
17
584
178
5973
0
1521
97
205
503
181
459
363
5973
FY12
3.8
177.5
3.1
9.9
0.9

35
3809
3844
443
534
18
81
87
6160
0
1782
133
378
530
315
369
326
6160
FY13
4.2
288.2
5.6
1.4
0.9

CASH FLOWS
Cash from Operation
Changes In Working Capital
Net Cash From Operation
Cash From Investment
Cash from Finance
Net Cash Flow during year

FY10

FY11

FY12

FY13
1566
-64
0
0
0
0

0
0
0
0
0
0

0
0
0
0
0
0

0
0
0
0
0
0

Trading At :
7000
6000
5000
4000
3000
2000
1000
0

6000
5000
4000
3000
2000

NIFTY

SHREECEM

1000
0



15

ORIENTAL BANK
Company Update
CMP
Target Price
Upside

NEUTRAL
216.5
221
2
-

Market Data
BSE Code
NSE Symbol

500315
ORIENTBANK

52wk Range H/L
Mkt Capital (Rs Cr)
Nifty

Stock Performance
1M
Absolute
15.2
Rel.to Nifty
14.9

365/121
6329
1.98 lac
6211

1yr
-36.8
-42.2

YTD
-53.8
-59.2

Current 1QFY14 4QFY1
3
Promoters
58.0
58.0
58.0
FII
10.0
10.1
9.6
DII
24.0
24.6
25.2
Others
8.1
7.3
7.2
ORIENT BANK Vs Nifty

"NEUTRAL"
6th Jan 2014

We have now neutral rating on Orient Bank largely due to trading closer to our
target price Rs.221. At this price stock would trade at 0.5 times of one year
forward book and 6.5 times of forward earning. We haven’t revised the
multiple on account of non visibility of ROE improvement in near to medium
term. Asset quality and operating leverage is likely to remain at elevated level
in FY14. Provision coverage ratio at the end of 2Q was 30% implying very little
cushion to its future earnings. Balance sheet size is likely to grow at below of
industry average. Despite of comfortable Tier-1, capital infusion of Rs.150 cr
would be book value dilutive. Inability to increase CASA and expected higher
operating leverage in 2HFY14 restrict valuation multiple to move in the range
of 0.4 to 0.5 times of one year forward book in our view.
Asset quality pressure likely to persist but guided better recovery in
agriculture portfolio
During the last quarter Orient Bank reported flesh slippage at 3.2% (annualized
basis) and asset impairment of 11.1% which would be likely to be flat in full year
according to management. However management expects better recovery in
agriculture portfolio in 2HFY14 led by better harvest. At the end of September bank
has total restructure portfolio of Rs.9421 cr in which most came from infrastructure
segment (about 49%). Power sector contributed 18% of total infrastructure standard
restructure. But as per management most of power sector exposures are from
government sector where chances of fresh slippage are very low. In line with
management guidance we model 3.3% of GNPA for FY14 and 3.4% in FY15E
keeping view of better recovery and controlled fresh slippage.
Balance sheet size likely to grow below of Industry average
Bank management is caution about impairment of asset and taken tight
measurement in lending norm especially in large corporate. Recently large ticket size
fresh slippage emerges from large corporate. Bank management has taken caution
outlook towards the corporate loan and tighten sanction and disbursement norm.
As the result corporate loan grew by 7% YoY in 2QFY14. We observe that corporate
loan constituted about 70% of total credit and rest came from retail loan. With lower
growth in corporate segment, overall credit growth is likely to be muted in full year
and would be below of industry average.

Financials
NII
Total Income
PPP
Net Profit
EPS

2011
4178
5138
3245
1503
51.5

2012
4216
5456
3141
1142
39.1


Rs, Cr
2013
2014E
2015E
4701
5719
6710
6356
7419
8410
3691
2968
3364
1328
1032
1165
45.5
35.4
39.9
16

ORIENTAL BANK
Operating leverage would be remain at high led higher retirement expenses
Operating expenses to total asset of the bank is much higher than its peers group largely
due to higher expenses towards retirement. Cost-Income (CI) ratio of the bank remained
high at 60% as against industry average of 45%. Bank is likely to provide higher
employee provision in 2HFY14 as indicated by management. We factor CI ratio of 60%
in full year but we understand that ratio may go higher than anticipated. We will get more
clarity after the third quarter result and post conference call.
Capital infusion of Rs.150 cr despite of 8.9% of Tier-1 capital
According to basel-111 norm, Tier-1 capital was 8.9% which was comfortable for required
business growth in our view but recent capital infusion of Rs.150 diluted our estimated
ROE by 10 bps. Bank may use the additional fund in credit growth without adequate
support of deposits.
Low cost deposits stick to 24.5% from last few quarters; exert pressure in
expanding NIM and ROE
We note that bank’s CASA ratio stick to 24.5% from FY10 to 2QFY14 which undoubtedly
escalate cost of deposits from 5.8% in FY10 to present of 7.8%. We donot expect
interest rate would be come down in surging inflation imperil. Inability to increase CASA
and rising interest rate would keep NIM under pressure. However management guided
NIM at 2.85 -2.87% in FY14. Lower visibility of comfort earnings and book value dilution
on account of capital infusion, we expect ROE would be 7-10% in near term which will
attract valuation multiple of 0.4 to 0.5 times book.
Valuation Band

Source:Eastwind/Company

17

ORIENTAL BANK
Financials & Assuption
P/L

2011

2012

2013

2014E

2015E

Interest/discount on advances / bills
Income on investments
Interest on balances with Reserve Bank of India
Others
Total Interest Income
Others Income
Total Income
Interest on deposits
Interest on RBI/Inter bank borrowings
Others
Interest Expended
NII
NII Growth(%)
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
Net Profit
Net Profit Growth(%)

8954
2774
335
25
12088
960
13048
7474
23
413
7910
4178
43.7
960
5138
1048
844
1892
3245
1742
1503
32.4

12075
3671
34
35
15815
1240
17055
11213
38
348
11599
4216
0.9
1240
5456
1357
959
2315
3141
1999
1142
-24.0

13758
3854
31
61
17705
1655
19359
12553
111
340
13004
4701
11.5
1655
6356
1576
1089
2665
3691
2363
1328
16.3

16609
4865
78
14
21568
1700
23267
15254
149
446
15849
5719
21.7
1700
7419
2626
1825
4451
2968
1678
1032
-22.3

19101
5457
78
14
24651
1700
26351
17251
172
517
17941
6710
17.3
1700
8410
2977
2069
5046
3364
1907
1165
12.9

139024
15.6
5639
15.4
95908
14.9
42075
17.6

155965
12.2
5259
-6.7
111978
16.8
52101
23.8

175898
12.8
7679
46.0
128955
15.2
58555
12.4

196963
12.0
8498
10.7
148298
15.0
65747
12.3

220598
12.0
9854
16.0
170543
15.0
73745
12.2

9.3
6.6
7.8
5.4
7.7
5.5

10.8
7.0
9.2
7.2
7.3
7.2

10.7
6.6
9.0
7.1
5.9
7.1

11.2
7.4
10.1
7.7
5.9
7.7

11.2
7.4
10.1
7.8
7.0
7.8

380
1.0
7.5

409
0.6
6.4

403
0.6
5.5

435
0.4
5.1

464
0.4
4.5

Key Balance sheet data
Deposits
Deposits Growth(%)
Borrowings
Borrowings Growth(%)
Loan
Loan Growth(%)
Investments
Investments Growth(%)

Eastwind Calculation
Yield on Advances
Yield on Investments
Yield on Funds
Cost of deposits
Cost of Borrowings
Cost of fund

Valuation
Book Value
P/BV
P/E

Source: Company/Eastwind

18

UNION BANK
Company Update
CMP
Target Price
Upside

BUY
128.9
163
26.5
-

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

532477
UNIONBANK
281.6/97.1
3231
6.87LAC
6211

Stock Performance
1M
Absolute
6.3
Rel.to Nifty
6.0

6th Jan, 2014

Union Bank is trading at 0.4 times of one year forward book and 4.2 times of
one year forward earning which we believe attractive for entry. We are looking
margin expansion on the back of RBI’s decision not hiking the policy rate
(repo rate) and bond yield settle at 8.75% which was much lower as compare
to April-June quarter. Bank borrowed more money on the repo and less on
MSF and bond yield softened to 8.75% which would result on fair amount of
portfolio gain. Moreover bank has taken more money through FCNR (Foreign
currency Non-Resident) which is less costlier than deposits and would help to
reduce the cost of fund and hence margin accretive. We value bank at
Rs.163/share which would be 0.5 times of one year forward book and 5 times
of one year forward earning.
Stable asset quality on sequentially but restructure pipeline still high
At the end of 2QFY14, bank has impairment assets (GNPA+ restructure) at 8.7% of
total advance which is lower as compare to its peers. Fresh addition to restructure

1yr
-53.8
-59.2

YTD
-53.8
-59.2

Current 1QFY14 4QFY1
3
Promoters
57.9
57.9
57.9
FII
10.2
11.7
10.6
DII
17.8
17.7
18.0
Others
14.2
12.8
13.5
UNION Bank Vs Nifty

"BUY"

loans were at 2.8% of loans at Rs.1534 cr higher from 2.2% of loans at Rs.1068 cr in
1QFY14. Management guided another Rs.3000 cr of loans are in pipeline led mostly
from SEB. Fresh slippage reported by bank was stable at 3.1% as against 3% in first
quarter. Out of total fresh slippage, 50% came from 4 corporate accounts (Power,
manufacture, Iron & Steel and services). Bank made lower provisions as compare to
growth in GNPA as the result provision coverage ratio declined by 320 bps to 42.1%
from 45.3% on sequential basis.
Margin declined by 10 bps in 2QFY14 but expect to expand in 2HFY14
Margin declined by 10 bps to 2.54% largely due to increase of cost of fund. Yield on
advance was stable at 10.6% QoQ despite to tight liquidity environment whereas
cost of fund increased by 10 bps QoQ. With the recent RBI decision not to hike repo
rate along with higher FCNR deposits, bank’s margin would be expanded in 2HFY14.
Union bank has borrowed fewer amounts for repo than MSF and during quarter bond
yield settle at 8.75% which would result on fair amount of portfolio gain and reduce
the cost of fund.

Financials
NII
Total Income
PPP
Net Profit
EPS

2011
6216
8255
4305
2082
39.7

2012
6793
9241
5254
1787
29.9


Rs, Cr
2013
2014E
2015E
7543
7654
8602
10095
10389
11337
5583
5298
5782
2158
1851
1967
36.2
31.0
33.0
19

UNION BANK
Comfortable earnings and ROE improvement would be possible
Stable yield on loan sequentially indicated that bank is able to deliver comfort earning on
the back of shifting low yield mix loans to borrowing other market instrument. Although
bank has stable CASA ratio but would be getting benefit from FCNR deposits and
unchanged repo rate along with MSF. So cost of fund would be lesser as compare to
previous quarter in our view. This would help bank to expand margin and ROE
improvement. Balance sheet is expected to grow at 16-17% in FY14 as per management.
View & Valuation
Union Bank is trading at 0.4 times of one year forward book and 4.2 times of one year
forward earning which we believe attractive entry point. We are looking at margin
expansion on the back of RBI’s decision not hiking the policy rate (repo rate) and bond
yield settle at 8.75% which was much lower as compare to April-June quarter. Bank
borrowed more money on the repo and less on MSF and bond yield softened on 8.75%
which would result on fair amount of portfolio gain. Moreover bank has taken more
money through FCNR (Foreign currency Non-Resident) which is less costlier than
deposits and would help to reduce the cost of fund and hence margin accretive. We
value bank at Rs.163/share which would be 0.5 times of one year forward book and 5
times of one year forward earning.
Valuation Band

Source:Eastwind/Company


20

UNION BANK
P/L

2011

2012

2013

2014E

2015E

Interest/discount on advances / bills
Income on investments
Interest on balances with Reserve Bank of India
Others
Total Interest Income
Others Income
Total Income
Interest on deposits
Interest on RBI/Inter bank borrowings
Others
Interest Expended
NII
NII Growth(%)
Other Income
Total Income
Employee
Other Expenses
Operating Expenses
PPP( Rs Cr)
Provisions
Net Profit

12031
4003
161
258
16453
2039
18491
9538
113
585
10236
6216
48.3
2039
8255
2600
1350
3950
4305
2223
2082
0.3

16027
4570
331
101
21028
2448
23477
13406
141
689
14235
6793
9.3
2448
9241
2479
1508
3988
5254
3467
1787
-14.2

19140
5671
199
115
25125
2552
27677
16551
274
756
17582
7543
11.0
2552
10095
2755
1757
4512
5583
3425
2158
20.7

21539
6797
205
177
28717
2735
31452
19872
1191
0
21063
7654
1.5
2735
10389
3105
1985
5090
5298
3447
1851
-14.2

24769
7884
205
177
33035
2735
35770
23052
1381
0
24433
8602
12.4
2735
11337
3389
2166
5555
5782
3815
1967
6.2

202461
19.1
13316
44.5
150986
26.5
58399
7.3

222869
10.1
17909
34.5
177882
17.8
62364
6.8

263762
18.3
23797
32.9
208102
17.0
80830
29.6

305963
16.0
27694
16.4
239318
15.0
97094
20.1

354918
16.0
32124
16.0
275215
15.0
112629
16.0

8.0
6.9
7.2
4.7
5.2
4.7

9.0
7.3
8.3
6.0
4.6
5.9

9.2
7.0
8.3
6.3
4.3
6.1

9.0
7.0
8.5
6.5
4.3
6.3

9.0
7.0
8.5
6.5
4.3
6.3

243
1.4
8.7

245
1.0
7.8

290
0.7
5.8

313
0.4
4.2

337
0.4
3.9

Key Balance sheet data
Deposits
Deposits Growth(%)
Borrowings
Borrowings Growth(%)
Loan
Loan Growth(%)
Investments
Investments Growth(%)

Eastwind Calculation
Yield on Advances
Yield on Investments
Yield on Funds
Cost of deposits
Cost of Borrowings
Cost of fund

Valuation
Book Value
P/BV
P/E

Source: Company/Eastwind

21

N arnolia Securities Ltd
402, 4th floor 7/ 1, Lord s Sinha Road Kolkata 700071, Ph
033-32011233 Toll Free no : 1-800-345-4000
em ail: research@narnolia.com ,
w ebsite : w w w .narnolia.com

Risk Disclosure & Disclaimer: This report/message is for the personal information of
the authorized recipient and does not construe to be any investment, legal or taxation
advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any
action based upon it. This report/message is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or
redistributed to any other person in any from. The report/message is based upon publicly
available information, findings of our research wing “East wind” & information that we
consider reliable, but we do not represent that it is accurate or complete and we do not
provide any express or implied warranty of any kind, and also these are subject to change
without notice. The recipients of this report should rely on their own investigations,
should use their own judgment for taking any investment decisions keeping in mind that
past performance is not necessarily a guide to future performance & that the the value of
any investment or income are subject to market and other risks. Further it will be safe to
assume that NSL and /or its Group or associate Companies, their Directors, affiliates
and/or employees may have interests/ positions, financial or otherwise, individually or
otherwise in the recommended/mentioned securities/mutual funds/ model funds and
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Best Performing Stock Advice for Today - Neutral Rating on GAIL Stock With a Target Price of Rs.346