Beruflich Dokumente
Kultur Dokumente
"BUY"
Company has decided not to increase the prices until the elections are over in May, after which company may hike the price by at least a 10per cent . The board took up the agenda of a 10-15per cent hike on some categories of coal. Growth in Railway Rake loading from Coal India was 11% in FY13 and about 6-7% in FY14 and the growth is expected to remain in the 9-10% range for FY15.We see Coal India at a attractive valuation to go long from the current dips. So we stick to our previous estimates with revised price premium and recommend Maintain Buy CIL at price dips with a revised target price of Rs.318/- . ........................................ ( Page : 2- 4)
INDUSIND BANK :
"BUY"
We have raised our target price largely due to two factors (1) margin and return ratio likely to improve from April quarter as per management and (2) price would settle at 3.2 times of FY14E book due to showing some positive upturn in economy and boost up of market sentiment. .................................................................... ( Page : 5-7)
"BUY"
Sesa Sterlite's 22 days smelting shut will help rival producer Hindalco Industries raise sales.With greater comfort on sustainability and visibility of ramp up in UAIL operations, we raise our FY15E volume and consolidated EBITDA by ~2%. Currently the stock is trading at 0.7x in 1yr Forward P/B and we believe with the changing political climate and improving auto mobile demand the stock will accumulate to 0.8x P/B. Hence at CMP Rs.121.5 we are bullish on the stock to a medium term target price of Rs.140 which is a 15% upside addition. ................................................................ ( Page : 8-10)
"NEUTRAL"
The Company has embarked on expansion projects of US$9bn in steel and power, backed by resource availability and steady cash flows. Improving free-cash-flows and volumes would be visible from end-FY15. Profitability is geared to iron ore and coal, which, against the present backdrop of improving iron-ore prices and higher coal consumption, would drive a re-rating. The stock quotes at 1.1x FY14e P/B. We initiate our coverage on this stock with a target of Rs.285/share on the basis of improving steel business, and Recommend Neutral. .................................................................. ( Page : 11-13)
PNB :
"BUY"
We upgrade PNB from neutral to add rating on account of external factors like better than expected GDP growth and CAD numbers which showing some improvement along with softening inflation numbers. Recently market sentiments are also booted on account of opinion poll result which revealed that BJP led NDA would close to formation of Government in coming general election. We raised our price target to Rs.700 from Rs.600 earlier. ............................................................. ( Page : 14- 16)
"BOOK PROFIT"
We cover Persistent System as one of the few companies in the tier-II with potential to grow revenue at a range of 18-20%, specially focused on emerging business and relationship building with marquee clients. Despite better predictability of growth and attractive visibility of its expansion in new emerging verticals, we advice to book profit on the stock because of its premium valuation. ............................................................... (Page : 17-18)
"BUY"
On Mid Quarter Analyst Meet, TCS commented on weak revenue growth momentum for 4QFY14E due to weak seasonality. Growth in 4QFY14E would be lower than the preceding quarter and margin would decline 40-50 basis points on cross currency movement and higher investments. However, sigh of relief was seen on FY15E outlook and comments on overall demand environment. .................................................................. ( Page : 19- 21)
Narnolia Securities Ltd,
"Buy"
27th Mar 14
Management Guidiance Management is fairly confident to achieve 25-30 MT (Million Tonnes) of growth in production for FY15. Of the production growth, 12-15 MT to come from Mahanadi Coal fields, 12 MT to come from South Eastern Coal fields and the balance from rest of the subsidiaries primarily Western Coal Fields.FY15 Coal offtake target to be 507 MT. Issue with NTPC to sort out by end of FY14 NTPC has been regular in clearing payments so far, except for some payments held up due to Grade quality issues. Receivables from NTPC were at Rs 3295 crore as of end of Dec 2013. By end of FY14 management hopes to sort out the NTPC payment issue.Total receivables as of end of Dec 2013 stand at Rs.10457 crores; out of which Rs.8476 crore is undisputed and balance is disputed. E-auction Volume Growth E-auction volumes during the quarter ended Dec 2013 went up to 15.14 MT from 10.48 MT during the corresponding previous quarter. For the nine-month period ended Dec 2013, E-auction volumes went up to 41.26 MT from 35.61 MT compared to the corresponding previous period.Wherever transport and loading facility issues due to low railway rake availability are being faced by subsidiaries then those subsidiaries are advised by the management to go for e-auctions. Expenditure Font On the expenditure side contractual expenses increased ~20% to Rs.154/ton from Rs.128/ton in Q2FY14.Powerfuel cost and other expenses per ton remained flat, while cost of project per ton decreased to Rs149/ton from Rs.206/ton in the previous quarter. Realization of Coal India showed little uptick like 2% to Rs.1445/ton. Rescheduling Date of hearing stands a key concern Competition Appellate Tribunal stays Rs 1,773 Crore fine on CIL, and will decide on the matter on next hearing 16th April 2014 (Rescheduled from 11th Feb 2014). Realization gain on Revised Coal Price Meanwhile, Coal India Ltd is likely to get additional revenue of Rs 2,119 Crore in this fiscal on account of revision in dry fuel prices.Though the incremental revenue is a positive sign but it fails to change our previous valuation. Number from the sampling exercise taken by a third-party check for the full year (FY14) may come by Mar 2014. Also results for quarter ended Mar 2014 may see some provisioning for such low grade quality coal. Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14 Net Revenue 16928 -2.3 9.8 17325 15411 EBITDA 4104 -4.3 46.9 2794 4288 Depriciation 442 5.2 -10.7 495 420 Interest Cost 10 0.0 25.6 8 10 Tax 1930 4.9 36.6 1412 1839 PAT 3894 -11.4 27.6 4395 3052
(In Crs)
Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 533278 COALINDIA 372/238 176226 17622 6601
Stock Performance-%
Absolute Rel. to Nifty 1M -1.3 2.8 1yr -21.2 8.8 YTD -21.4 8.6
1 yr Forward P/B
P/L PERFORMANCE Net Revenue from Operation Cost Of Projects & Contractual Power and fuel contractual expenses Employee benefit Expence Expenditure EBITDA Depriciation Interest Cost Tax PAT ROE %
FY11 50234 7573 1755 4580 20481 40390 9843 1673 79 5595 10868 33
FY12 62415 5123 2013 4901 26705 40857 21558 1969 54 6484 20588 51
FY13 68303 6556 2333 5802 27943 50219 18084 1813 45 7623 17356 36
FY14E 69960 8372 2591 6049 28943 53705 16255 1860 34 7310 17921 40 Source - Comapany/EastWind Research
3
Trading At :
INDUSIND BANK
Result update CMP Target Price Previous Target Price Upside Change from Previous( Rs) Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance
Absolute Rel.to Nifty 1M 22.7 17.1 1yr 20.5 4.8 YTD 20.5 4.8
"BUY"
26th March 2014
Indusind bank has outperformed Nifty by 16% in last one month and Bank Nifty by 6%. We believe this has been on the back of possible margin expansion as per management and market sentiments. Margin could be expanded on the back of lower cost of fund led by wholesale deposits, FCRN deposits fund, CASA accretion and shift loan book in fovour of corporate book due to slowdown in commercial segment in retail portfolio. Further we observe that there is about 80% correlation between price of HDFC bank and Indusind bank and their current price ratio (HDFC Bank to Indusind Bank) moved in range of 1.7 to 1.4 in five year time frame (Presently at 1.52). HDFC bank is close to 4 times of book but Indusind bank still has potential to move up (presently trading at 2.8 times of book versus 3.2 times in historical band). Our target price ratio would be 1.4 which implies expected HDFC price target of Rs.760 (4 times of book) and Indusind bank price target of Rs.540 (3.2 times of FY14E book). We have raised our target price largely due to two factors (1) margin and return ratio likely to improve from April quarter as per management and (2) price would settle at 3.2 times of FY14E book due to showing some positive upturn in economy and boost up of market sentiment. Margin expansion on the lower cost of fund and change in portfolio composition Margin expansion would be come from whole sale deposits and CASA front as per management. Indusind bank funding profile constitute about 35% of wholesale fund which is lower is cost and bank had raised $300 bn in form of foreign currency deposits which has cost around 3.5% while regular deposits cost fall around 6.5 to 7%. Further bank advance composition has switched in favour of corporate book in the wake of possible slowdown in commercial vehicle segment in retail book. Banks CASA improved from 31.8% in 2QFY14 to 32.2% in 3QFY14 led by SA growth of 50% YoY and 8% QoQ. Bank opened 13 branches in December quarter and another 40 branches are under process of various stages which are to be opened by March 2014. Aggressive branch expansion would be CASA accretion and deposits cost would be soften. Management expects NIM to remain steady with upward basis.
Share Holding Pattern-% Current 24QFY1 3QFY1 4 3 Promoters 15.2 15.2 15.3 FII 41.1 39.9 42.3 DII 7.2 7.4 7.0 Others 36.4 37.5 35.4 INDUSIND Bank Vs Nifty
Financials
NII Total Income PPP Net Profit EPS 2011 1376 2090 1082 577 12.4 2012 1704 2716 1373 803 17.2
Rs, Cr 2013 2014E 2015E 2233 2787 4053 3596 4562 5827 1839 2452 2972 1061 1320 1633 20.3 25.3 31.1 (Source: Company/Eastwind)
5
INDUSIND BANK
Trading significantly discount than HDFC Bank despite of almost lending profit Historically it has been observed that Indusind Bank one year forward price to book move in the range of 2.5 to 3.2 times. Recently banks price has appreciated but still below of 3 times of book. Further we also observe that price ratio of HDFC Bank and Indusind bank move in the range of 1.7 to 1.4 and their correlation in one year price is about 78%. HDFC Bank is now very close to 4 times of book (one year forward P/BV justifies as it has been historically observed) but Indusind bank is still to reach at 3.2 times of book. Therefore chances of price appreciation in Indusind bank are higher than HDFC Bank and said price ratio of both banks would be justified. We compare this bank with HDFC Bank is due to both banks have about almost same percentage in retail lending profile. Historical Price Band
INDUSIND BANK
Financials & Assuptions
Income Statement
Interest Income Interest Expense NII Change (%) Non Interest Income Total Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions PBT PAT Change (%)
2011
3589 2213 1376 714 2090 1008 1082 504 577 577
2012
5359 3655 1704 1012 2716 1343 1373 180 1193 803
2013
6983 4750 2233 1363 3596 1756 1839 263 1576 1061
2014E
8308 5521 2787 1775 4562 2110 2452 455 1997 1320
2015
10419 6367 4053 1775 5827 2855 2972 535 2437 1633
Balance Sheet
Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%)
2011
34365 9331 5525 13551 26166
2012
42362 23 11563 24 8682 14572 35064 34
2013
54117 28 15867 37 9460 19654 44321 26
2014E
62234 15 20537 29 15559 23338 54071 22
2015E
74681 20 22404 9 18670 28005 67589 25
Ratio
Avg. Yield on loans Avg. Yield on Investments Avg. Cost of Deposit Avg. Cost of Borrowimgs
2011
10.8 5.4 5.3 7.0
2012
12.0 7.4 7.3 6.7
2013
12.7 6.5 8.8 7.6
2014E
0.0 6.6 8.9 7.5
2015E
12.5 6.5 8.5 7.5
Valuation
Book Value CMP P/BV
2011
87 264 3.0
2012
101 321 3.2
2013
146 405 2.8
2014E
171 405 2.4
2015E
195 405 2.1
Source: Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
"Buy"
25th March' 14
Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty
Ongoing Positive thrusts: 122 1- Copper producer Sesa Sterlite Ltd will shut its smelter for 22 days starting April 26, for 140 maintenance purpose. It produces 30,000 tons of refined copper per month and exports 132 half of that to China. It will help rival producer Hindalco Industries raise sales. And also 15% for Hindalco the copper realization is stable with the previous quarter, so it will be NA additional sales if orders executes. 2- The Q3FY14 financial results still do not include Mahan, Utkal and Aditya projects. All three projects have started production under trial run. UAILs commercial production 500440 started in December 2013. Management guided for FY15E and FY16E volumes of over HINDALCO 1mt and 1.5mt (full capacity), respectively. Integration of Aluminium smelters (a) Newly 137/83 commissioned aluminium smelters (UP and Odisha) to ramp up volumes going forward 25497 and (b) Cost benefit of cheap alumina for its existing smelters with high quality, 17848 proximate and captive bauxite mine, whose production is currently running at ~4mtpa 6284 run-rate. We are expecting a good amount profit addition from these plants in H1FY15. Key reasons for this low cost UAIL plant include:
1yr 38.1 21.2 YTD A. Captive bauxite is only 21km away from the refinery 30.6 B. Low reactive silica content which reduces caustic soda consumption 16.1 C. High trihydrate alumina content (40%) i.e., it is gibbsite form of bauxite with only 2%
Stock Performance-%
Absolute Rel. to Nifty 1M 24.7 18.3
1 yr Forward P/B
bohemite (low quality bauxite) D. Bauxite properties are such that process is carried out at relatively low temperature and 1QFY14 pressure leading to savings in energy cost. 37.0 Novelis Business: 24.8 Novelis business has started to improve with the benefit and strong demand from 14.3 automobiles. However, the pricing pressure is impacting margin. Novelis is one of the 23.9 worlds leading aluminium rolling and recycling companies supplying premium products in the markets of North America, Europe, Asia and South America. The company is the largest single producer of aluminium rolled products with an estimated share of 14% of the worlds supply. Novelis sales volumes are expected to grow at a CAGR of 5.7% in FY13-16E. On the back of increasing share of the automobile segment in the overall sales mix, we expect the EBITDA/ton to improve. Political sentiment: With the change in political climate, we believe there will be demand from domestic aluminium and copper consumer. Currently copper is going through a three month low,we expect it to be better after election. Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14 Net Revenue 7273 5.8 15.4 6872 6305 EBITDA 629 8.1 16.5 582 540 PAT 344 -20.6 -3.7 434 357 EBIDTA % 9% 2.1 1.0 8% 9% NPM % 5% -25.0 -16.5 6% 6%
.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report. (In Crs)
Although Hindalco has expanded its aluminium capacity recently, low aluminium prices, sticky costs and delay in commencement of mining from captive blocks have resulted in decline in profitability over the past few quarters. In the near-term, its profitability is likely to be muted due to higher costs at Mahan smelter and low aluminium prices. Currently the stock is trading at 0.7x in 1yr Forward P/B and we believe with the changing political climate and improving aluminium demand the stock will accumulate to 0.8x P/B. Hence at CMP Rs.121.5 we are bullish on the stock to a medium term target price of Rs.140 which is a 15% upside addition. Concerns: The company has received stage-2 forest clearance for its Mahan coal block subject to certain conditions. The next important step would be signing of liming lease with the state government and subsequent mine development, which is likely to take ~18-24 months. High debt on the books continues to weigh on valuations.
About The Company: Hindalco is a metal major with business interests in copper smelting & aluminium manufacturing domestically. It is also a leading aluminum converter globally through subsidiary Novelis. On the domestic aluminium business front, the company is undergoing an ambitious capacity expansion wherein its aluminium (primary metal) production capacity will increase from 560 KT currently to 1278 KT by FY15E. The planned capacity expansion is backed by corresponding alumina refinery with captive bauxite linkage. Bauxite conveyor expected to start in December 2014.
Trading At :
"Neutral"
24th March' 14
Neutral
265 285 NA 8% NA
The Company has embarked on expansion projects of US$9bn in steel and power, backed by resource availability and steady cash flows. Improving free-cash-flows and volumes would be visible from end-FY15. Profitability is geared to iron ore and coal, which, against the present backdrop of improving iron-ore prices and higher coal consumption, would drive a re-rating. The stock quotes at 1.1x FY14e P/B. We initiate our coverage on this stock with a target of Rs.285/share on the basis of improving steel business, and Recommend Neutral. The consolidated turnover was up by 12% to Rs.5377 Cr against Rs. 4683 Cr in previous year period. Net Profit is after tax for the quarter is Rs. 562Cr (Rs. 867 Cr in Q3FY13). The steel business in volume and value terms grew by 11% and 7% respectively compared to the previous quarter. JSPL achieved a spectacular growth in its export volumes which in volume and value terms grew by 32% and 104% for the same period last year. The Company has received Rail order from DFCC for the prestigious Delhi Kolkata corridor and export order from Ferrotech Alloys, UK. JSPLs retail segment has been very successful and the sale during Q3 FY14. Jindal Power Ltd., a subsidiary of JSPL sales grew by 17.7% while PBT and PAT increased by 16.9% and 15.7% respectively in Q3 this year compared to Q3FY13.Net Sales of the company is expected to grow at a CAGR of 6% over 2012 to 2015E respectively.
Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 532286 JINDALSTEL 362/181 24796 11158 6495
Stock Performance-%
Absolute Rel. to Nifty 1M 6.9 0.5 1yr -21.7 -36.3 YTD -27.9 -37.6
1 yr Forward P/B
Steel segment improving : Steel sales volumes of Jindal Steel and Power are likely to have improved in 3QFY14, to 0.75m tons. On the changing business and client mix, prices are likely to have been better. Export opportunities in the quarter due to favorable currency could have offset the impact of iron ore realizations and would have improved EBITDA, aided by stable costs. The Shadeed Oman HBI business, iron ore and coking coal mine are likely to have been stable.Management expects the companys total steel capacity, both in India and overseas, to increase around 8 million ton as compared to current 3 million ton by the end of the fiscal. Balance sheet at inflection point: In the past three years, 3bn dollar has been spent on expansion, and a further 6bn will be expended in the next three years. The expansion has been supported by the strong business cash flows. However, the net-debt-to-EBITDA level has hit 3.7x due to delayed cash flows, though the leverage ratio is likely to have peaked. Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14 Revenue 5377 12.0 7.9 4802 4984 EBIDTA 1701 -5.0 16.7 1790 1457 Net Profit 562 -35.2 24.3 867 452 EBIDTA% 32 -15.1 8.2 37 29 NPM% 10 -42.1 15.2 18 9
(In Crs)
11
Debt Structure
Narnolia Securities Ltd,
12
PNB
Company update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol
52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty
"ADD"
24th March2014
Over the last one month, PNB has outperform Nifty by 14% and Bank Nifty by 5.7% largely on account of external factor like economy and fiscal deficit showing some positive trend, softening of inflation from its peak level. Market sentiment are also boosted by recent opinion poll result which revealed BJP led NDA would come to power and economy would revived. Although we like Bank of Baroda over PNB but former is trading close to our target price. We value PNB at Rs.600 to Rs.775 per share implying 0.6 to 0.75 times of one year forward book depending upon current economy scenario and banks own fundamental. Looking at current fundamental and market sentiments we believe bank would trade in the range of Rs.600 to Rs.700. In the subsequent section we will discuss two positive fronts that bank has witnessed in last quarter result (a) asset quality improvement especially in fresh slippage side, (b) margin expansion. We will discuss the possibility valuation contraction from current level. Creation of fresh slippage lower, impaired asset high but showing improvement During the last quarter PNB experienced improvement of asset quality especially in fresh slippage front. Fresh addition in GNPA was declined by 52% sequential to Rs. 1142 cr as against average run rate in last ten quarter was Rs.2124cr. In percentage to gross advances, slippage ratio came down to 1.4% versus 3% in 2Q and 4.7% in 1Q. Cash recoveries were better which drag net NPA to 2.8% from 3.1% in previous quarter. Further bank restructure Rs. 2115 cr in 3QFY14 mainly come from power sector which was offset by similar amount of bond received from SEBs. Bank management has not indicated restructure pipeline in near term which means stable to improving asset quality trend could be seen. Margin expansion on the back of shifting concentration of portfolio mix and CASA growth During the last quarter banks margin expanded by 10 bps QoQ despite of moderate loan growth. Bank witnessed 9.7% YoY loan growth led by SME growth of 21.6% and retail segment growth of 17.5%. Retail and SME segment are high yield in nature. Further banks low cost deposits CASA increased by 13% in absolute term in which saving account supported with 14% growth current account 7% YoY. But overall deposits declined by 20% led by 33% declined of term deposits which inflated CASA ratio to 38.3% from 27%. Sequentially cost of fund declined by 25 bps while yield on loan declined by 11 bps on account of creation of low deposits franchise and shifting of portfolio. Rs, Cr Financials 2011 2012 2013 2014E 2015E NII 11807 13414 14857 16536 17691 Total Income 15420 17617 19072 20775 21930 PPP 9056 10614 10907 11155 12500 Net Profit 4433 4884 4748 3408 5209 EPS 140.6 144.0 134.3 94.1 143.9 (Source: Company/Eastwind) 14 Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.
532461 PNB 890/400 19646 7.4 cr 6495 1yr -19.7 -30.2 YTD -19.7 -30.2
Stock Performance 1M
Absolute Rel.to Nifty 18.9 14.0
Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 58.9 57.9 57.9 FII 17.5 17.9 18.0 DII 18.5 18.4 19.1 Others 5.1 5.9 5.1 PNB Vs Nifty
PNB
Management guided stable NIM, more focus on liability rather than asset yield According to bank management, PNB is focusing more on liability side rather than yield. Bank has reduced high cost bulk deposits from Rs.880 bn in Sept.2012 to Rs.220 bn in Dec.2013 and certificate of deposits came down to Rs.110 bn from Rs.240 bn in 3QFY13. Share of low cost deposits improved to 40% which would help bank to maintain NIM at 3.5% according to management. Valuation & View We upgrade PNB from neutral to add rating on account of improving sign of economy led by CAD number and softening of inflation. Recently market sentiments are also boosted up due to exit poll result which revealed that BJP led NDA government would be close to government formation in coming general election. In our valuation matrix, we value in the range of 0.6 times to 0.75 times of F14E book depending upon banks fundamental and market sentiment. Looking at current market sentiment and fundamental, we value bank in the range of Rs.600 to Rs.770 per share. We have added rating on the stock with current price target of Rs.700. Current Valuation Range
15
PNB
Financial & Assuption
Income Statement
Interest Income Interest Expense NII Change (%) Non Interest Income Total Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions PBT PAT Change (%)
2011
26986 15179 11807 39.3 3613 15420 27.6 6364 9056 23.6 4622 4433 4433 13.5
2012
36476 23062 13414 13.6 4203 17617 14.2 7003 10614 17.2 3577 7037 4884 10.2
2013
41893 27037 14857 10.8 4216 19072 8.3 8165 10907 2.8 4386 6522 4748 -2.8
2014E
43513 26977 16536 11.3 4240 20775 8.9 9621 11155 2.3 6253 4902 3408 -28.2
2015E
49565 31875 17691 7.0 4240 21930 5.6 9430 12500 12.1 5059 7442 5209 52.8
Balance Sheet
Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%) 312899 25 120325 18 31590 95162 242107 30 379588 21 134129 11 37264 122703 293775 21 391560 3 153344 14 39621 129896 308725 5 450294 15 139752 -9 47857 143572 339598 10 517838 15 153766 10 44728 149094 356578 5
Ratio
Avg. Yield on loans Avg. Yield on Investments Avg. Cost of Deposit Avg. Cost of Borrowimgs Valuation Book Value CMP P/BV 8.7 6.0 4.4 4.4 9.7 6.4 5.6 4.5 10.3 7.4 6.5 3.9 9.6 7.2 6.4 4.0 10.5 7.8 6.6 4.1
16
Persistent System.
"Persistently innovating.."
Company update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty Stock Performance Absolute Rel. to Nifty 1M 1.1 3.4 1yr 76.8 75.8 YTD 85.7 82.3 Book Profit 1059 1070 960 1% 11%
"Book Profit"
21st Mar' 14
Footing on Product Business, and working aggressively on new emerging services; On recent management Interview, Persistent System announced its new footing of dedicated product business unit Accelerite to align its business strategy combined with Products and IP (Intellectual Property) based on SMAC (Social, Mobility, Analytics, Cloud) platform. We cover Persistent System as one of the few companies in the tier-II with potential to grow revenue at a range of 18-20%, specially focused on emerging business and relationship building with marquee clients. Despite better predictability of growth and attractive visibility of its expansion in new emerging verticals, we advice to book profit on the stock because of its premium valuation. th Key facts from Management Interview to Media( on 20 March,2014) (1) Persistent System is setting up a unit related to product and Product services, named it Accelerite to manage efficiently. They are taking some of its IP led products into this Accelerite. We expect that company is able to compete as a product company, which Accelerite will in the market. (2) Management expects that the overall trends are looking good on Industry per se and new emerging segment will play a major role for growth. Now, clients are moving into new changes and focusing into new services and solution. (3) For 4QFY14E, muted set of growth could be seen and expecting Intellectual Property (IP) growth this quarter. (4) The business outlook though is very positive in the sense, and they are seeing good opportunities, good pipeline growth and many good interesting deals being signed. (5) Persistent system is expecting to see IP led growth at a range of 18-19% in FY14E and 20%+ in FY15E driven by HPCA without any addition of new IPs. At same point of time, they are also looking to scale strong potential of rCloud after adding new capabilities. Persistent management suggests that deal pipeline are looking strong and seeing good activity and traction in the market across the board. Its focus on some of newer technologies like cloud, analytics and mobility, M2M, digital transformation are gaining a lot of traction because of pickup in demand environment. Because of actively investment in these themes, management is very confident to see healthy growth. View and Valuation: The companys focus is shifting greater proportion to IP led services and company has marquee clientele in cutting-edge technologies around cloud, mobility, digital and analytics; witnessing faster growth. Considering the companys premium valuation, we advice Book Profit on the stock. At a CMP of Rs 1059, stock trades at 13.4x FY15E earnings. Our view could be change with management guidance, higher currency flactuations and post earnings of coming quarter. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 432.75 104.3 64.2 24.1% 14.8% 2QFY14 432.37 100.8 60.8 23.3% 14.1% (QoQ)-% 0.1 3.5 5.6 80bps 70bps 3QFY13 332.98 82.4 49.5 24.7% 14.9% Rs, Crore (YoY)-% 30.0 26.6 29.7 (60bps) (10bps)
17
(Source: Company/Eastwind)
Persistent System.
Operating Metrics
2QFY12 Client Concentration Top1 Top 5 Top 10 Billing Rate-USD/ppm Onsite - Linear Offshore - Linear Yeild per Employee(excld- Trainee) Employee Metrics Total Employee Attrition Utilization rate %(xclude IP Led ) 16.0% 38.6% 49.4% 12665 3803 3208 6900 17.7% 73.8% 3QFY12 4QFY13 1QFY13 QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 15.9% 37.0% 48.3% 12387 3778 3247 6706 17.4% 74.1% 17.2% 36.6% 48.8% 12603 3895 3350 6628 18.3% 71.7% 17.8% 33.5% 45.3% 12789 3898 3345 6536 18.9% 74.1% 20.7% 36.3% 47.0% 12863 3978 3746 6370 16.9% 75.2% 21.1% 37.3% 49.4% 12772 4032 3817 6719 16.0% 77.3% 21.6% 36.7% 47.9% 14014 4143 3769 6970 14.4% 72.5% 21.2% 34.7% 46.0% 14567 4111 3602 7144 14.2% 70.0% 22.5% 36.4% 47.3% 14283 4109 3919 7457 14.0% 71.7% 19.8% 36.9% 46.9% 14510 4179 3934 7602 13.2% 72.9%
Financials
Rs in Cr, Sales Employee Cost Cost of technical professionals Other expenses Total expenses EBITDA Depreciation Other Income EBIT Interest Cost Profit (+)/Loss (-) Before Taxes Provision for Taxes Net Profit (+)/Loss (-) Growth-% (YoY) Sales EBITDA PAT Expenses on Sales-% Employee Cost Other expenses Tax rate Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% P/BV P/E FY10 601.16 368.74 0 86.05 454.79 146.37 33.52 11.23 112.85 0 124.08 9.05 115.03 1.2% 60.2% 74.1% 61.3% 14.3% 7.3% 24.3% 18.8% 19.1% 310 4 639.0 28.8 159.7 18.0% 1.9 10.8 FY11 775.84 481.62 30.67 105.24 617.53 158.31 42.39 34.44 115.92 0 150.36 10.62 139.74 29.1% 8.2% 21.5% 62.1% 13.6% 7.1% 20.4% 14.9% 18.0% 366.7 4 747.1 34.9 186.8 18.7% 2.0 10.5 FY12 1000.3 599.05 41.68 135.2 775.93 224.37 61.1 34.44 163.27 0.00 197.71 55.09 142.62 28.9% 41.7% 2.1% 59.9% 13.5% 27.9% 22.4% 16.3% 14.3% 409.2 4 840.5 35.7 210.1 17.0% 1.9 11.5 FY13 1294.5 719 54 218 990.78 303.72 78 34.44 225.44 0.03 259.851 75.37 184.481 29.4% 35.4% 29.4% 55.5% 16.9% 29.0% 23.5% 17.4% 14.3% 541 4 1018.3 46.1 254.6 18.1% 2.1 11.7 FY14E 1666.59 899.96 91.66 291.65 1283.28 383.32 100.55 55.00 282.76 0.05 337.71 92.03 245.69 28.7% 26.2% 33.2% 54.0% 17.5% 27.3% 23.0% 17.0% 14.7% 1059 4 1212.5 61.4 303.1 20.3% 3.5 17.2 FY15E 2061.72 1123.64 113.39 366.99 1604.02 457.70 93.54 72.16 364.16 0.05 436.28 119.98 316.30 23.7% 19.4% 28.7% 54.5% 17.8% 27.5% 22.2% 17.7% 15.3% 1059 4 1477.3 79.1 369.3 21.4% 2.9 13.4
18
(Source: Company/Eastwind)
TCS
" Strong Fundamentals"
Company update
CMP Target Price Previous Target Price Upside Change from Previous
"BUY"
20th Mar' 14
Buy
2041 2510 2360 23% 6%
Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 532540 TCS 2384/1300 433985 1011877 6524
Stock Performance
Absolute Rel. to Nifty 1M -5.9 -13.3 1yr 29.9 18.8 YTD 67.2 57.1
Mid Quarter's Analyst Meet: Lower than expected growth for 4QFY14E, but still better outlook for FY15E than FY14E, On Mid Quarter Analyst Meet, TCS also commented on weak revenue growth momentum for 4QFY14E followed by Infosys due to weak seasonality. Growth in 4QFY14E would be lower than the preceding quarter and margin would decline 40-50 basis points on cross currency movement and higher investments. However, sigh of relief was seen on FY15E outlook and comments on overall demand environment. Now, revenue in 4QFY14E could be a bit lighter than what we had expected post 3QFY14 earnings. We are not much surprise on comments on weak revenue as well as ramping down on margin picture for current quarter. We believe that the 1QFY15E, the first seasonally strong quarter of the year, is the stern litmus test of TCSs confidence for FY15E. Key facts from Management Commentary: (1) For 4QFY14E, revenue would be lower than preceding quarter because of seasonal impacts, and domestic revenue may clock negative growth largely impacted by upcoming general election. However, no pressure would be seen on revenue for FY15E. (2)Margin would decline by 40-50 basis points on cross currency movement and higher investments. However, company is expecting no hiccups on margin for long- term prospect. (3) The company is very optimistic on Europe, US and UK growth could be inline. Latin America will see good growth. Europe will continue to do well, and the US and the UK will be close to industry average. Middle East and APAC could be seen on flattish node. (4) Across vertical, Media and Entertainment has reported better, Telecom remains challenged. While, there could be some ray of growth because of higher penetration in Europe. (5) Currency will play a small role with marginal impact of cross currency movement and average currency movement. There may be some accounting changes related to recognition of forex gains or losses, but it is not likely to be material. View and Valuation: We continue to remain positive on its demand outlook and margin profile, the management expects for robust deal pipeline going forward and also expects to materialize its emerging space like Digital as well as Cloud, Mobility, Analytics and Big data. We expect, TCS will be star performer in growth sense than other peers. Hence, we are maintaining 17% (revised from 18%) revenue growth in dollar term for FY14E because of improved demand environment, while NASSCOM expects 12-14% for the Industry. At a price of Rs 2041, it is trading at 18x FY15E earnings, We maintain" BUY" view on the stock with a target price of Rs 2510.
Financials
Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 21294 6686.76 5333.43 31.4% 25.0% 2QFY14 20977.2 6633.0 4633.3 31.6% 22.1% (QoQ)-% 1.5 0.8 15.1 (20bps) 290bps 3QFY13 16069.93 4660.49 3549.61 29.0% 22.1%
(Source: Company/Eastwind)
TCS.
Is there any setback?
Unlike Infosys, TCS comments are based on potential impact from seasonally lower demand in its biggest market (US and Europe) and weak domestic demand environment. On previous comments, management had already quoted regarding demand volatility at home because of upcoming poll. Comparing with its nearest rival Infosys, TCS is not facing largely with any specific issue. Despite a weak commentary on 4QFY14E, management is aggressively confident to report better numbers in FY15E with healthy demand outlook. We are considering following factors for its growth story in FY15E. Healthy Demand Environment: TCS is much confident on healthy demand outlook and expects that FY15E could be better year than FY14E propelled by better discretionary spending in the US. Management suggests that except India, other emerging markets (contributes 18-19% of revenue) continue to see healthy demand. Also, in its FY15 revenue growth models, India (contributes 7% of sales) is the only market which TCS expects to be weak. No sign of any ramp down: Management suggests that Continental Europe will likely grow ahead of overall company growth in FY15E. On vertical front, smaller verticals such as Energy & Utilities, Transportation and Life sciences & Healthcare might grow ahead of overall company average. While, its mature verticals like BFSI and Retails could grow flattish, Telecom continues to face structural issue. Contracts wins from continental Europe could change the shape of verticals. Still, we are not seeing any project ramp down. New emerging business on demand: A part of legacy business, the emerging opportunities in helping large corporations tap areas such as social media and data analytics are seen as increasingly contributing to the IT sector's next phase of growth. TCS and its Indian competitors are winning a significant share of several 2nd and 3rd generation renewal contracts as western companies look to both cut costs and modernise their IT infrastructure. Considering above growth factors, we are not expecting any major concern with company's growth. The company is also focussed to drive operational improvements in the business and aims to expand reach in non-traditional markets and servicelines.
(Source: Company/Eastwind)
20
TCS.
Financials
Rs, Cr Net Sales-USD Net Sales Employee Cost Overseas business expenses Services rendered by business associates and others Operation and other expenses Total Expenses EBITDA Depreciation Amortisation Other Income Extra Ordinery Items EBIT Interest Cost PBT Tax PAT PAT (Reported PAT) Growth-% Sales-USD Sales EBITDA PAT Margin -% EBITDA EBIT PAT Expenses on Sales-% Employee Cost Overseas business expenses Services rendered by business associates and others Operation and other expenses Tax rate Valuation CMP No of Share NW EPS BVPS RoE-% Dividen Payout ratio P/BV P/E FY10 6339.0 30029.0 10879.6 4570.1 1262.0 4622.8 21334.4 8694.6 601.8 59.1 272.0 0.0 8033.7 16.1 8289.6 1197.0 7092.7 7000.6 FY11 8187.0 37325.1 13850.5 5497.7 1743.7 5054.3 26146.2 11178.9 686.2 49.1 604.0 0.0 10443.6 26.5 11021.2 1830.8 9190.3 9068.6 29.2% 24.3% 28.6% 29.6% 30.0% 28.0% 24.6% 37.1% 14.7% 4.7% 13.5% 16.6% 1182.5 195.7 24504.8 47.0 125.2 37.5% 50.8% 9.4 25.2 FY12 10171.0 48894.3 18571.9 6800.5 2391.3 6694.8 34458.5 14435.8 860.9 57.1 428.2 0.0 13517.9 22.2 13923.8 3399.9 10524.0 10414.0 24.2% 31.0% 29.1% 14.5% 29.5% 27.6% 21.5% 38.0% 13.9% 4.9% 13.7% 24.4% 1322.0 195.7 29579.2 53.8 151.1 35.6% 37.5% 8.7 24.6 FY13 11569.0 62989.5 24040.0 8701.9 3763.7 8443.9 44949.6 18040.0 1016.3 63.7 1178.2 0.0 16960.1 48.5 18089.8 4014.0 14075.7 13917.4 13.7% 28.8% 25.0% 33.7% 28.6% 26.9% 22.3% 38.2% 13.8% 6.0% 13.4% 22.2% 1563.0 196.0 38645.7 71.8 197.2 36.4% 41.2% 7.9 21.8 FY14E 13531.7 81731.2 30060.7 11565.0 4952.9 10044.8 56623.4 25107.8 1279.2 57.5 1348.6 0.0 23828.6 35.9 25141.3 5933.3 19208.0 19208.0 17.0% 29.8% 39.2% 36.5% 30.7% 29.2% 23.5% 36.8% 14.2% 6.1% 12.3% 23.6% 2041.0 196.0 49940.0 98.0 254.8 38.5% 41.2% 8.0 20.8 FY15E 16012.2 96073.3 35547.1 13930.6 5764.4 12009.2 67251.3 28822.0 1503.7 76.7 1921.5 0.0 27318.3 33.8 29206.0 7009.4 22196.5 22196.5 18.3% 17.5% 14.8% 15.6% 30.0% 28.4% 23.1% 37.0% 14.5% 6.0% 12.5% 24.0% 2041.0 196.0 62991.6 113.2 321.4 35.2% 41.2% 6.4 18.0
21
8.0% 21.3% 31.8% 29.0% 26.8% 23.6% 36.2% 15.2% 4.2% 15.4% 14.4% 780.8 195.7 18466.7 36.2 94.4 38.4% 28.1% 8.3 21.5
(Source: Company/Eastwind)
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