india equity analytics today- buy stock of jyothy lab, icici bank, crompton greaves ltd and bank of...

BANK OF INDIA : "BUY" 31th Jan 2014

Bank of India reported profit de-growth of 27% YoY largely due to higher loan loss provision. At operating profit level, bank reported 15.5% YoY

growth but higher provisions against loan loss (almost double from last quarter) drag profit downward. Bank’s loan and deposits grew

handsomely and asset qualities were also improved sequentially. Restructure loan was at Rs 1146 cr (0.3% loan) which is not alarming. We have

not found any stress at operating profit level. The stock is corrected almost 10% likely due to profit de-growth. We believe buffer up provision

would be temporally phenomena. The stock could reshape its valuation multiple. We have buy rating on the stock with price target of Rs.217

...................................................... ( Page : 2-6)

Crompton Greaves Ltd : "Rebounds begains…….." "BUY" 31th Jan 2014

We have rolled forward our valuation to FY16E earnings and maintained our Accumulated rating on CGL with a revised target price of Rs130

(Rs105 earlier) based on 14xFY16E EPS, driven by likely turnaround in international operations and a better earnings growth trajectory. We

believe that a record backlog, better/leaner cost structure, good & increasing product basket, improved reach in terms of geography will drive

earnings & intrest coverage ratio over the next few years. ................................................ ( Page : 9-10)

Maruti Suzuki India Limited : "NEUTRAL" 31th Jan 2014

The company for 3QFY14 has registered net sales of Rs 10620 Cr down by 2.7% YoY led by 4.5 % volume decline to 288151 units for the period

under review. The decline in the volume came majorly due to weaker performance on export business front. Export sales volumes were down

38.6% YoY ......................................................... ( Page : 7-8)

Bank’s profit growth of 12.6% YoY despite of 21.6% YoY growth in NII and 28.6% growth in operating profit was largely due to higher tax

provisions made of bank (32.4% of PBT versus 27.9% of PBT in 2QFY14). During quarter, bank has created special reserve for deferred tax liability

to the tune of Rs.215 Cr as per recent RBI guideline dated 20th December 2013. Adjusting the same, profit grew by 22% YoY which was quite

impressive. But bank’s cost of fund increased higher than loan yield which would restrict margin expansion. We lower our book value estimates

to Rs.643 from earlier of Rs.657. Accordingly we reduce our target price to Rs.1094 from earlier of Rs.1118.

............................................................... ( Page : 11-15)

30th Jan 2014

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

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

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

for improvement in the volume growth in near term. ............................................ ( Page :19-21)

31th Jan, 2014

Edition : 196

IEA-Equity

Strategy

Jyothy Lab : "Efforts for stability" "BUY" 31th Jan 2014

Better numbers than expectation and hope to maintain healthy growth ahead;Jyothy Lab registered better growth with 27.5% sales growth led

by stellar set of performance across all segments. We expect that company’s new management and new strategy of product reach would

energize its growth story in near future. Hence, the management has maintained its guidance of achieving around 25% revenue growth and

OPM of 14% - 15% for FY14. ........................................................ ( Page : 16-18)

ICICI BANK Cromtom

Hindustan Unilever :"wait for triggers" "NEUTRAL"

"BUY" 31th Jan 2014

Escorts Ltd :"Out Performer……." "BUY" 30th Jan 2014

Going forward, we remain positive on the company’s growth prospects particularly in AMP segment. We expect demand to improve further in

FY2014E with the economic recovery. However, we remain cautious with regards to growth in Construction Equipment segment in near-to-

medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume performance. We therefore revised our rating on

the stock from "Reduce" to "Buy" and advised to our investors to enter at current level with Revised price target of Rs. 175

.................................................................( Page :22-24)

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

BANK OF INDIA

187

217

235

16

1M 1yr YTD

Absolute -21.6 -47.5 -18.1

Rel.to Nifty -17.9 -47.5 -18.1

Current 1QFY14 4QFY1

3Promoters 64.1 64.1 64.1

FII 13.2 13.6 13.5

DII 15.3 15.6 16.3

Others 7.4 6.7 6.0

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 7878 8313 9024 10578 10869

Total Income 10519 11635 12790 15082 15373

PPP 5398 6694 7458 8701 8917

Net Profit 2542 2678 2749 2776 3170

EPS 46.5 46.7 47.9 43.2 49.4

2

532149

NSE Symbol BANKINDIA

Company Update BUY Bank of India reported profit de-growth of 27% YoY largely due to higher loan

loss provision. At operating profit level, bank reported 15.5% YoY growth but

higher provisions against loan loss (almost double from last quarter) drag

profit downward. Bank’s loan and deposits grew handsomely and asset

qualities were also improved sequentially. Restructure loan was at Rs 1146 cr

(0.3% loan) which is not alarming. We have not found any stress at operating

profit level. The stock is corrected almost 10% likely due to profit de-growth.

We believe buffer up provision would be temporally phenomena. The stock

could reshape its valuation multiple. We have buy rating on the stock with

price target of Rs.217.

NII growth on the back of higher loan growth and margin expansion

During quarter, Bank India reported NII growth of 17.8% YoY to Rs.2719 cr versus

our expectation of Rs.2683 largely due to higher than expected loan growth,

improvement in credit deposits ratio and margin expansion. Bank reported other

income of Rs.1097 cr versus Rs.937 cr in last quarter and Rs.1097 cr in previous

quarter. Total revenue grew by 17.6% YoY to Rs.3816 cr.

Average Daily Volume

12260

Previous Target Price

Market Data

Upside

393/126

BSE Code

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

(Source: Company/Eastwind)

Stock Performance

52wk Range H/L

CMP

Target Price

2271804

Nifty 6074

Mkt Capital (Rs Cr)

Operating leverage remained stable

Bank’s operating leverage remained stable at 0.3% which is quite impressive. In

absolute term, operating expenses increased by 20.3% YoY in which employee cost

and other operating expenses increased by 18.7% and 22.8% respectively. Healthy

NII growth and higher operating cost led pre provisioning profit growth of 15.5% YoY.

Loan loss provisions were almost double from last quarter, but asset quality

improved

Provisions and contingencies increased by 53.3% which includes loan loss provision

of Rs.1173 cr which was double from last quarter. But in absolute term, GNPA

marginally increased by 1.4% on sequential basis while in percentage to gross

advance, it improved by 12.5 bps to 2.8% from 3%. Provisions were little higher by

4% in sequential basis taking almost flat improvement in net NPA. In percentage

term, NPA improved to 1.7% from 1.9% in previous quarter. Provision coverage ratio

without technical write-off was 38.7% and with technical write off, it stood at 63.8%.

Slippage during the quarter was at Rs.1747 cr (2% of advance) versus Rs.1469 cr

(1.8% of advance).

Change from Previous

BANKINDIA Vs Nifty

Share Holding Pattern-%

"BUY"31th Jan, 2014


3

NIM for the quarter was 2.89%, an improvement of 50 bps YoY due to improvement of

investment yield. However fund yield and cost of fund both were declined marginally in

sequential but investment yield improved to 8.2% from 7.9% in previous quarter.

Profit declined on account of higher loan loss provisions

Bank of India (Bank India) profit was declined by 27.1% YoY to Rs.586 cr as against our

expectation of Rs.602 cr. Profit growth was lower on account of 98% YoY rise in loan loss

provisions. Overall provisions were increased by 53.3% YoY which drag PBT to 21.3%

YoY de-growth. Tax rate were 21% versus 28.5% of PBT in previous quarter and 14.5 of

PBT in 3QFY13. Total provisions for the quarter stood at 0.4% of net advances higher

than 0.28% in 3QFY13.

Valuation & View

Bank of India reported profit de-growth of 27% YoY largely due to higher loan loss

provision. At operating profit level, bank reported 15.5% YoY growth but higher provisions

against loan loss (almost double from last quarter) drag profit downward. Bank’s loan

and deposits grew handsomely and asset qualities were also improved sequentially.

Restructure loan was at Rs 1146 cr (0.3% loan) which is not alarming. We have not

found any stress at operating profit level. The stock is corrected almost 10% likely due to

profit de-growth. We believe buffer up provision would be temporally phenomena. The

stock could reshape its valuation multiple. We have buy rating on the stock with price

target of Rs.217.

BANK OF INDIA


Balance sheet growth impressive

We are impressed with bank’s balance sheet growth trajectory during the quarter as bank

reported deposits growth of 30% YoY higher than peers (result so far announced) led by

term deposits growth of 35% YoY. Current deposits and saving deposits reported growth

of 24% and 14% respectively taking overall CASA deposits growth of 16%. In percentage

to total deposits, CASA ratio declined to 22.5% from 24.6% in 3QFY13 largely due to

higher growth in term deposits than CASA deposits. Loan grew by 27.2% YoY which is

highest so far result announced. Credit deposits ratio for the quarter stood at 77.4% as

against 76.8% in previous quarter and 79.2% in last quarter.

Margin expansion led by imrprovement in investment yield


4

Fundamental Through Graph

NII growth on the back of higher loan growth

and margin expansion

Loan loss provisions were almost double from

last quarter, but asset quality improved

Profit declined on account of higher loan loss

provisions

BANK OF INDIA

Source: Eastwind/Company



5

BANK OF INDIA




Quarterly Result 3QFY14 2QFY14 3QFY13 % YoY Gr % QoQ Gr 3QFY14E Variation

Interest/discount on advances / bills 7017 6631 5791 21.2 5.8 6910 -1.5

Income on investments 2207 2129 1809 22.0 3.7 2261 2.5

Interest on balances with Reserve Bank of India 546 479 298 83.4 14.0 472 -13.5

Total Interest Income 9769 9239 8023 21.8 5.7 9644 -1.3

Others Income 1097 1100 937 17.1 -0.3 1141 4.0

Total Income 10866 10340 8960 21.3 5.1 10784 -0.8

Interest Expended 7050 6712 5714 23.4 5.0 6960 -1.3

NII 2719 2527 2308 17.8 7.6 2683 -1.3

Other Income 1097 1100 937 17.1 -0.3 1141 4.0

Total Income 3816 3627 3246 17.6 5.2 3824 0.2

Employee 989 897 833 18.7 10.2 931 -5.8

Other Expenses 684 628 557 22.8 8.8 674 -1.3

Operating Expenses 1672 1525 1390 20.3 9.7 1606 -4.0

PPP( Rs Cr) 2144 2102 1856 15.5 2.0 2218 3.4

Provisions 1404 1232 916 53.3 13.9 1382 -1.5

Net Profit 586 622 803 -27.1 -5.8 602 2.7

Balance Sheet Data

Equity Capital 643 597 575 11.9 7.8 597 -7.2

Reserve & Surplus 26,672 25,686 22,698 17.5 3.8 27,243 2.1

Deposits 454,140 432,282 349,117 30.1 5.1 449,063 -1.1

Borrowings 40,545 41,751 28,686 41.3 -2.9 42,513 4.9

Other liabilities and provisions 14,492 12,727 14,890 -2.7 13.9

Total Liability 536,492 513,042 415,966 29.0 4.6 -100.0

Cash in hand 21,406 24,621 17,940 19.3 -13.1 -100.0

Cash and balances with reserve bank of india 39,662 34,658 22,580 75.7 14.4 -100.0

Investment 108,253 107,413 86,083 25.8 0.8 2,261 -97.9

Advance 351,725 332,190 276,486 27.2 5.9 345,503 -1.8

Fixed Assets 2,975 2,957 2,853 4.3 0.6

Others Assets 12,470 11,203 10,024 24.4 11.3

Total Assets 536,492 513,042 415,966 29.0 4.6

Asset Quality

GNPA 9881 8765 8898 11.0 12.7

NPA 6156 5947.3 5,228 17.7 3.5

GNPA(%) 3.0 3.0 3.5

NPA(%) 1.9 2.0 2.0

PCR(%) Without technical write off 37.7 32.1 41.2

6

BANK OF INDIA




Financials & Assuption 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 15570 20241 23139 27015 31171

Income on investments 5195 7142 7261 8562 10773

Interest on balances with Reserve Bank of India 798 834 1257 1987 1987

Others 295 264 251 1 1

Total Interest Income 21858 28481 31909 37565 43932

Others Income 2642 3321 3766 4504 4504

Total Income 24500 31802 35675 42069 48436

Interest on deposits 12218 17957 20238 29922 30362

Interest on RBI/Inter bank borrowings 813 1145 1489 1419 1419

Others 950 1065 1158 1281 1281

Interest Expended 13981 20167 22885 26987 33063

NII 7878 8313 9024 10578 10869

Other Income 2642 3321 3766 4504 4504

Total Income 10519 11635 12790 15082 15373

Employee 3492 3069 3131 0 3810

Other Expenses 1629 1871 2201 0 3656

Operating Expenses 5121 4941 5332 6381 6457

PPP( Rs Cr) 5398 6694 7458 8701 8917

Provisions 2909 4016 4709 4766 5045

Net Profit 2542 2678 2749 2776 3170

46.0 5.3 2.7 1.0 14.2

Key Balance Sheet DataDeposits 299559 318216 381840 465844 535721

Deposits Growth(%) 30 6 20 22 15

Borrowings 22021 32114 35368 43275 49766

Borrowings Growth(%) -2 46 10 22 15

Loan 213708 248833 289367 358816 366720

Loan Growth(%) 26 16 16 24 2

Investment 86677 86754 94613 117097 134662

Investment Growth(%) 27 0 9 24 15

Eastwind CalculationYield on Advances 7.3 8.1 8.0 7.5 8.5

Yield on Investments 6.3 8.7 7.1 7.3 8.0

Yield on Funds 6.5 7.8 7.7 7.5 8.4

Cost of deposits 4.1 5.6 5.2 6.4 5.7

Cost of Borrowings 8.0 6.9 6.8 7.5 7.5

Cost of fund 4.3 5.8 5.3 5.3 6.2

ValuationBook Value 322.7 365.3 416.9 434.0 0.0

P/BV 1.5 1.0 0.7 0.6 0.5

P/E 10.3 7.7 6.3 5.6 4.9

1M 1yr YTD

Absolute -7.1 2.9 35.0

Rel. to Nifty -3.4 2.5 22.0


4Promoters 56.2 56.2 56.2

FII 21.5 19.7 22.0

DII 14.0 15.4 13.1

Others 8.3 8.8 8.7

Financials Rs, Crore

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

Revenue 10894 10468 4.1 11200 -2.7

EBITDA 1355 1321 2.6 891 52.0

PAT 681 669 1.8 501 35.9

EBITDA Margin 12.4% 12.6% (20bps) 8.0% 450bps

PAT Margin 6.3% 6.4% (10bps) 4.5% 180bps

7

4..In any case Suzuki Motor will make profit equal to its stake in MSIL whether it makes its

own capex as in this case or MSIL made capex then why did Suzuki made this huge capex.

View & Valuation:

At CMP Rs 1638 the stock is trading at highest 5 year historical P/E multiple and in current

scenario we donot see much upsides from hereon. Therefore we are Neutral for the stock

with target price Rs 1700.The CMP seems to factored almost all the upsides including

improving operational efficiency and volume growth. The stock may see some upward

movement from current price on buzz that Suzuki may increase its stake in MSIL.



Share Holding Pattern-% How we see the deal :

1.The near term effect of the deal on PAT is neutral, as this Greenfield facility at Gujrat will

take 2 -3 year to get commissioned and another 1 year to get its full capacity utilization, this

translates period FY17 onwards.

2.The MSIL is getting cars at cost of manufacturing plus portion of incremental capex which

means MSIL will lose manufacturing margins and will getting only the trading margin. The

newly formed company will be 100 % subsidiary of Suzuki Motors Limited.

One Year Price Vs NIFTY 3.The profit sharing from the upcoming Gujrat facility would depend on the stake of Suzuki

Motor in MSIL.

Stock Performance-%

Recent Event :

MSIL has announced that the proposed capacity expansion (1.5 Million units per annum) in

Gujarat would be through a 100% Suzuki (parent) owned subsidiary. The subsidiary would

be fully dedicated to Maruti.

52wk Range H/L 1864/1217 The net profits for the company during 3QFY14 came at Rs 681 Cr and NPM at 6.25

%.Effective tax rate is around 23.1%.Market Cap (Rs/Cr) 22,266

Average Daily Volume 423015 On realization front, the Net realization for company is up 1.4% YoY to Rs.368547 however

there is sequential decrease in net realization mainly due weak product mix, lower export

sales number and higher contribution of Mini Segments. Discounts in 3QFY14 is at all time

high to Rs.19412/unit vs. 17,500/unit QoQ.

Nifty 6073

EBITDA for MSIL is up 52% YoY to Rs.1,355 Cr and EBITDA margin was up 448 bps YoY

to 12.3%. However results are not comparable on yearly basis as 3QFY13 does not

include impact of SPIL merger. Raw material cost as % of net sales is down 671 bps

YoY.Employee cost as % of net sales is up 62 bps YoY but down 82 bps QoQ to

2.8%.Royalty payments for Q3 FY14 were around levels of H1 FY14.

Market Data

BSE Code 532500

NSE Symbol MARUTI

Previous Target Price -

Upside 4%

Change from Previous -

Maruti Suzuki India Limited

Result Update NEUTRAL Result Analysis:

CMP 1638 The company for 3QFY14 has registered net sales of Rs 10620 Cr down by 2.7% YoY led

by 4.5 % volume decline to 288151 units for the period under review. The decline in the

volume came majorly due to weaker performance on export business front. Export sales

volumes were down 38.6% YoY and 41.3% QoQ to 19,966 units.

Target Price 1700

"NEUTRAL"31st Jan' 14


8




REALIZATION PER VEHICLE

Net realization for company is up 1.4% YoY to

Rs.368547 however there is sequential

decrease in net realization mainly due weak

product mix, lower export sales number and

higher contribution of Mini Segments

Net sales of Rs 10620 Cr down by 2.7% YoY

led by 4.5 % volume decline to 288151 units

for the period under review.


OPM & NPM TREND

Raw material cost as % of net sales is down

671 bps YoY. Employee cost as % of net sales

is up 62 bps YoY but down 82 bps QoQ to

2.8%.

Maruti Suzuki India Limited

Graphical Represenation

SALES & PAT TREND


V- Crompton Greaves Ltd.

CMP 110

Target Price 130

Previous

Target Price

120

Upside 15%

Change from

Previous

8%

Market DataBSE Code 500093

NSE Symbol

4,251

775,133

Nifty 6,074

Stock 1M 1yr YTD

Absolute (14.2) 2.3 17.9

Rel. to Nifty (10.6) 2.3 11.0

Share 3QFY14 2QFY14 1QFY14

Promoters 42.5 42.5 41.7

FII 18.5 16.6 15.2

DII 23.8 24.5 23.7

Others 15.2 16.5 19.4

Financials Rs, Crore

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

Revenue 3351.9 3204.9 4.6% 2971.8 12.8%

EBITDA 169.3 161.3 5.0% 2.0 8322.4%

PAT 59.5 57.8 3.0% -69.0 186.2%

EBITDA Margin 5.1% 5.0% 10 bps 0.1% 500 bps

PAT Margin 1.8% 1.8% 0 bps -6.3% 810 bps

9

72/137

Order scenerio :

Domestic power systems and consumer products segment were key margin drivers as they

sustained healthy operating margins of 9.4% and 11.7%, respectively. Collectively, both segments

constitute 41% of total consolidated revenue. Consumer products segment continued its market

share expansion following higher distribution reach in categories like lighting (up 17% yoy and

fans up 13% yoy.

Crompton consolidated net sales rose 12.8% on yearly basis to Rs 3351.9 crore during the

quarter, which were inline with street expectations. Consolidated earnings before interest, tax,

depreciation & amortisation (EBITDA) stands to Rs 169.3 crore and EBITDA margin at 4.9

percent. Power systems revenues increased 17.3 percent on yearly basis to Rs 2132.2 crore

during Dec quarter FY14, and earnings before interest & tax (EBIT) from power segment during

the quarter were Rs 53.3 crore. Meanwhile, its consumer products and industrial systems

divisions posted single digit growth in topline during the quarter and it gone by 7.3% to Rs 651

crore. EBIT of consumer products rose to Rs 75.9 crore up by 19.9% and industrial systems'

EBIT decreased by 42.7% to Rs 29.5 crore. Other income jumped 33.0% yoy to Rs 40.4 crore

while finance cost climbed to Rs 26.7 crore up by 25.6% yoy. At the current level of INR 110, we

maintain 'ACCUMULATE' at the Stock as Power sector has shown sign of revival by posting an

EBIT of Rs 53.3 crore VS Loss of Rs 104.6 crore qoq and also performance of Consumer division

was satisfactory with a sales growth of 7.25% yoy and EBIT Growth of 19.9%.

Margin to improve further :


"Rebounds begains…….."

AccumulateResult update

Mkt Capital (Rs Crores)

52wk Range H/L

1 yr Forward P/B

CROMPGREAV

(Consolidated)


We have rolled forward our valuation to FY16E earnings and maintained our Accumulated rating

on CGL with a revised target price of Rs130 (Rs105 earlier) based on 14xFY16E EPS, driven by

likely turnaround in international operations and a better earnings growth trajectory. We believe

that a record backlog, better/leaner cost structure, good & increasing product basket, improved

reach in terms of geography will drive earnings & intrest coverage ratio over the next few years.

It has assumed break even EBIT level for international subsidiaries in FY14. Further, In our view,

the stock's performance would largely be driven by an improvement in overseas business, though

standalone performance would protect downsides.

Valuations :

(Source: Company/ Eastwind Research)

Consolidated order book at the quarter ended Dec'14 was Rs. 10074 crore, up 9.12% yoy.

Consolidated order inflow for the quarter was Rs. 2624 crore up 15.7% yoy. Crompton expects a

robust order intake in high value-added segments like UHV/EHV in Asia, Automation/smart grid

in the power segment, Motors in EMEA market, Railway transportation and electronic drives in

the industrial segment.

"Accumulate"31th Jan' 14


10


Key financials

Crompton Greaves Ltd.

(Source: Company/ Eastwind Research)


PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E

Performance

Revenue 8737 9141 10005 11249 12094 13304 14634 16098

Other Income 74 110 113 63 75 110 110 110

Total Income 8811 9251 10118 11311 12170 13414 14744 16208

EBITDA 996 1278 1344 804 383 665 922 1014

EBIT 874 1122 1150 544 180 412 669 736

DEPRICIATION 122 155 194 260 203 253 253 278

INTREST COST 81 43 34 57 71 90 100 110

PBT 867 1190 1229 550 185 432 679 736

TAX 305 365 310 182 101 137 215 233

Extra Oridiniary Items 0 35 -38 0 -121 0 0 0

Reported PAT 563 860 881 368 -37 295 464 502

Dividend (INR) 75 82 82 52 30 52 52 52

DPS 1.2 1.3 1.3 0.8 0.5 0.8 0.8 0.8

EPS 8.8 13.4 13.7 5.7 -0.6 4.6 7.2 7.8

Yeild %

EBITDA % 11.4% 14.0% 13.4% 7.1% 3.2% 5.0% 6.0% 6.0%

NPM % 6.4% 9.4% 8.8% 3.3% -0.3% 2.2% 3.0% 3.0%

Earning Yeild % 13.0% 5.2% 5.1% 4.1% -0.6% 4.2% 6.6% 7.1%

Dividend Yeild % 1.7% 0.5% 0.5% 0.6% 0.5% 0.7% 0.7% 0.7%

ROE % 30.7% 34.3% 26.9% 10.2% -1.0% 8.4% 11.8% 11.4%

ROCE% 25.2% 30.0% 24.9% 9.2% 0.6% 7.5% 11.3% 11.5%

Position

Net Worth 1831 2504 3275 3611 3562 3529 3941 4391

Total Debt 718 501 395 985 1851 2000 2000 2000

Capital Employed 2549 3005 3670 4596 5413 5529 5941 6391

No of Share (Adj) 64 64 64 64 64 64 64 64

CMP 68 256 268 138 94 110 110 110

Valuation

Book Value 28.5 39.0 51.0 56.3 55.5 55.0 61.4 68.4

P/B 2.4 6.6 5.3 2.5 1.7 2.0 1.8 1.6

Int/Coverage 10.8 26.2 33.5 9.6 2.5 4.6 6.7 6.7

P/E 8 19 20 24 24 15 14

981

1094

1118

12

-2.147

1M 1yr YTD

Absolute -11.3 -18.1 -18.1

Rel.to Nifty -7.6 -18.1 -18.1


3Promoters 66.7 64.1 64.1

FII 11.0 13.2 13.6

DII 15.4 15.3 15.6

Others 6.9 7.4 6.7

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 10739 10734 13866 17734 21111

Total Income 42252 18237 22212 27035 30413

PPP 10950 10386 13199 16762 18856

Net Profit 6093 6465 8325 10658 11955

EPS 52.9 56.0 72.2 92.3 103.6

11

Mkt Capital (Rs Cr)



Stock Performance

52wk Range H/L


ICICI Bank Vs Nifty


19.54 lakhs

Nifty 6073

ICICIBANK

Stable operating leverage led healthy operating profit growth

Operating leverage (opex to total assets) was remained very impressive and was

stable at 0.46% versus 0.43% in 3QFY13. Cost to income ratio of the bank improved

by 250 bps YoY to 37.4% as against 39.6%. Operating expenses increased by

15.7% YoY in which employee cost and other operating expenses increased by 6%

and 23% YoY respectively. Healthy revenue growth and controlled operating

expenses led operating profit growth of 28.6% YoY to Rs.4440 cr.

Asset quality by and large stable sequentially but provision declined

Bank reported deterioration in asset quality (GNPA) in sequential basis by 3.7% in

absoluter term. In percentage to gross advance, GNPA stood at 3.07% versus 3.1%

in previous quarter (marginally improved). Provisions were declined by 0.6% QoQ

taking net NPA increased by 15.3% QoQ. In percentage to net advance, this ratio

stood at 0.94% versus 0.85% in previous quarter. Lower provisions made PCR to

70.1% versus 73.1% in previous quarter.

Target Price

Bank’s profit growth of 12.6% YoY despite of 21.6% YoY growth in NII and

28.6% growth in operating profit was largely due to higher tax provisions

made of bank (32.4% of PBT versus 27.9% of PBT in 2QFY14). During quarter,

bank has created special reserve for deferred tax liability to the tune of Rs.215

Cr as per recent RBI guideline dated 20th December 2013. Adjusting the same,

profit grew by 22% YoY which was quite impressive. But bank’s cost of fund

increased higher than loan yield which would restrict margin expansion. We

lower our book value estimates to Rs.643 from earlier of Rs.657. Accordingly

we reduce our target price to Rs.1094 from earlier of Rs.1118.

ICICI BANK


11104


Market Data

Upside

358/127

BSE Code 532174NSE Symbol

Healthy NII growth on the back of higher loan growth and margin expansion

During quarter, bank reported NII growth of 21.6% YoY to Rs.4256 cr on the back of

higher than expected loan growth and loan yield led by credit deposits ratio and

expansion NIM. Other income registered growth of 26.5% YoY to Rs.2801 cr versus

Rs.2166 cr in previous quarter and Rs.2215 Cr in last quarter in corresponding

quarter. Healthy NII along with higher support from other income, revenue of the

bank grew by 23.5% YoY to Rs.7057 Cr.

Result update ACCUMULATE

CMP

"ACCUMULATE"31th Jan, 2013


12

ICICI BANK

Bank’s profit growth of 12.6% YoY despite of 21.6% YoY growth in NII and 28.6% growth

in operating profit largely due to higher tax provisions made of bank (32.4% of PBT

versus 27.9% of PBT in 2QFY14). During quarter, bank has created special reserve for

deferred tax liability to the tune of Rs.215 Cr as per recent RBI guideline dated 20th

December 2013. Adjusting the same, profit grew by 22% YoY which was quite

impressive. But bank’s cost of fund increased higher than loan yield would restrict margin

expansion. We lower our book value estimates to Rs.643 from earlier of Rs.657.

Accordingly we reduce our target price to Rs.1094 from earlier of Rs.1118.


Lower growth in deposits led by muted growth in term deposits

In balance sheet front, bank’s deposits grew by 11% YoY lower than expectation largely

due to lower growth in term deposits. Demand deposits and saving deposits grew by

9.3% and 11.8% YoY taking overall CASA deposits growth to 16% YoY. In percentage to

total deposits, CASA stood at 42.9% versus 40.9% in last quarter. But in sequential

basis, bank reported 40 bps declined in CASA and borrowing also increased by 4%.

Overall cost of fund was increased by 32 bps in sequential basis which restricted margin

expansion despite of improvement in loan yield.

Higher loan growth led by retail loan followed by overseas and corporate loan

Loan grew by 16% YoY higher than expectation. Incremental loan growth came from

retail advances which grew by 22% YoY followed by oversea and corporate loan. Retail

loan now constituted 39% of total loan versus 37% in last quarter. Retail loans are

generally high yield in nature and higher loan constitute would result of margin sustaining

at current level. We are susceptible about the margin improvement because of higher

cost of fund as bank reported lower CASA and higher borrowing as a percentage to

NDTL in sequential basis.

Margin expansion marginally on account of higher cost of fund than deposits

NIM improved marginally from previous quarter to 3.32% from 3.31% largely due to

higher cost of fund than loan yield. Sequentially, cost of fund increased to 9.1% from

8.8% in previous quarter due to higher borrowing cost along with lower CASA ratio. Loan

yield improved to 9.9% from 9.7% in previous quarter. We believe NIM of the bank would

be highest as increasing cost of fund would cushion loan yield improvement.

Valuation & View


13

ICICI BANK

Source: Company/Eastwind


Chart Focus

NII growth on account of higher than expected

loan growth and margin expansion

Healthy revenue growth and impressive

operating leverage led operating profit

Despite of higher revenue grwoth and

operating profit growth, net profit muted

because of higher tax provisions against DTL


14

ICICI BANK

Quarterly Result




Quarterly Result 3QFY14 2QFY14 3QFY13 % YoY % QoQ 3QFY14E Variation

Interest/discount on advances / bills 8224 7737 7066 16.4 6.3 7971 -3.1

Income on investments 2923 2839 2742 6.6 2.9 3012 3.0

Interest on balances with Reserve Bank of India 34 47 136 -75.3 -28.5 52 55.8

Others 275 190 194 42.1 44.7 236 -14.1

Total Interest Income 11456 10813 10138 13.0 5.9 11271 -1.6

Others Income 2801 2166 2215 26.5 29.3 2325 -17.0

Total Income 14257 12980 12353 15.4 9.8 13597 -4.6

Interest Expended 7200 6770 6639 8.4 6.4 6766 -6.0

NII 4256 4044 3499 21.6 5.2 4505 5.9

Other Income 2801 2166 2215 26.5 29.3 2325 -17.0

Total Income 7057 6210 5714 23.5 13.6 6831 -3.2

Employee 997 872 941 6.0 14.4 0 -100.0

Other Expenses 1620 1451 1321 22.7 11.7 0 -100.0

Operating Expenses 2617 2322 2261 15.7 12.7 2596 -0.8

PPP( Rs Cr) 4440 3888 3452 28.6 14.2 4235 -4.6

Provisions 695 625 369 88.4 11.2 657 -5.4

PBT 3745 3263 3084 21.4 14.8 3578 -4.5

Tax 1212 911 834 45.4 33.1 1073 -11.5

Net Profit 2533 2352 2250 12.6 7.7 2504 -1.1

Balance Sheet

Net Worth 74057 73103 67119 10.3 1.3 75608 2.1

Deposits 316970 309046 286418 10.7 2.6 318387 0.4

Borrowings 150940 145356 147149 2.6 3.8 153387 1.6

Investment 171985 168829 166842 3.1 1.9 3012 -98.2

Loan 332632 317786 286766 16.0 4.7 328689 -1.2

Asset Quality

GNPA (Rs Cr) 10448 10078 9803 6.6 3.7

NPA (Rs Cr) 3121 2707 2185 42.8 15.3

% GNPA 3.1 3.1 3.4

% NPA 0.9 0.9 0.8

PCR(w/o technical write-off)(%) 70.1 73.1 77.7

15

ICICI BANK

Financials & Assuption




Quarterly Result 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 19098 22130 27341 31646 34992

Income on investments 9181 9684 11009 11785 13220

Interest on balances with Reserve Bank of India 469 491 543 184 184

Others 1334 1238 1182 946 946

Total Interest Income 30081 33543 40076 44561 49342

Others Income 31513 7503 8346 9302 9302

Total Income 61595 41045 48421 53863 58644

Interest on deposits 11315 14304 16889 18217 20402

Interest on RBI/Inter bank borrowings 1683 1469 2087 0 0

Others 6345 7035 7234 10146 11364

Interest Expended 19343 22808 26209 27812 28840

NII 10739 10734 13866 16749 20502

Other Income 31513 7503 8346 9302 9302

Total Income 42252 18237 22212 26051 29804

Employee 4393 3515 3893 4451 5096

Other Expenses 26910 4335 5120 5441 6229

Operating Expenses 31302 7850 9013 9892 11325

PPP( Rs Cr) 10950 10386 13199 16159 18478

Provisions 4631 1583 1803 2592 2853

PBT 0 8803 11397 13567 15626

Tax 0 2338 3071 4071 4688

Net Profit 6093 6465 8325 9496 10938

Balance Sheet

DEPOSITS 259106 255500 292,614 321,875 360,500

Deposits Growth 7.3 -1.4 14.5 10.0 12.0

Borrowings 125839 140165 145,341 158,535 177,560

Borrowings Growth(%) 8.8 11.4 3.7 9.1 12.0

Investment 209653 159560 171,394 187,360 209,843

Growth(%) 12.5 -23.9 7.4 9.3 12.0

Advances 256019 253728 290,249 339,592 380,343

Growth(%) 13.4 -0.9 14.4 17.0 12.0

Eastwind CalculationYield on Advances 7.5 8.7 9.4 9.3 9.2

Yield on Investments 4.7 6.4 6.7 6.3 6.3

Cost of deposits 4.4 5.6 5.8 5.7 8.0

Cost of Borrowings 6.4 6.1 6.4 6.4 6.4

Cost of fund 5.0 5.8 6.0 0.0 5.9

ValuationBook Value 480 524 578 643 682

P/BV 2.3 1.7 1.5 1.6 1.5

P/E 5.5 7.3 9.4 9.2 10.6

Jyothy Lab

207

260

-

26%

-

1M 1yr YTD

Absolute 7.9 36.6 3.5

Rel. to Nift 11.7 36.2 4.9


Promoters 66.7 63.7 63.7

FII 15.3 16.0 17.0

DII 8.6 9.8 9.1

Others 9.4 10.5 10.2

Financials Rs, Cr


Revenue 297.44 306.1 -2.8% 233.3 27.5%

EBITDA 42.7 40 7% 36.5 17%

PAT 27.2 19.6 39% 16.9 61%

EBITDA Margin 14.4% 13.1% 130bps 15.6% (12bps)

PAT Margin 9.14% 6.40% 270bps 7.24% 180bps

16


3741



Stock Performance

Home Care, which includes mosquito repellant Maxo and Exo scrubber, saw revenues

growth of 26% . The coils saw moderation due to a weak season. Others business,

which include brands like Fa and Neem, saw revenue to Rs 4cr from negative Rs 0.32cr

(3QFY13).

The Company’s products are available through 2.9 mn outlets in India and expects the

sub-stockist will increase by 20% from the current 2000 to 2400 by the end of FY14E.

We believe the distribution restructuring would lead to generate sales and its presence

in highly demanding categories would help to manage high margins and volume

growth simultaneously. We maintain "BUY" view with a target price of Rs 260. At a

CMP of Rs207, stock trades at 3.9x FY15E P/BV.

View and Valuation: Going forward, the company will focus on brand building with

extension of current brands and continue to adapt to the continuous changes of

consumers. Management is confident that these efforts will further strengthen

brands and establish better consumer connect.


1 yr Forward P/B


51716

Nifty 6074

For 3QFY14, Jyothy Lab registered better growth with 27.5% sales growth led by

stellar set of performance across all segments. Its synergy affect of the Henkel

Integration and entry into new geographies combined with rural, urban, modern and

traditional shops envisage its brilliant performance during the quarter. PAT grew by

60.5% on YoY basis.

We expect that company’s new management and new strategy of product reach

would energize its growth story in near future. Hence, the management has

maintained its guidance of achieving around 25% revenue growth and OPM of 14% -

15% for FY14.

Volume growth: Volume grew by 22% while 5% was price/product mix growth. The

dishwash and personal care grew higher versus overall volume growth while fabric

care and HI grew slower.

Margin impacted due to higher Ad spend: Company’s EBITDA margin declined 130bps

(YoY) to 14.3% and improved 130bps sequentially. Company increased its RM cost from

28.5% (3QFY13) to 29.5% and Ad spend from 6.9%(3QFY13) to 9.2%. While, PAT margin

improved by 180bps(YoY) and 270bps(QoQ) to 9.1%. Management expected to see

EBITDA margin at a range of 14-15% and Ad spends at 10-12%, which is in-line.

However, they will spend little more on Ad spend in coming quarters but it will not be

more than 12%.

Segments/ Brandwise Performance: In its bread and butter business detergent & soap

segment which includes brands like Ujala, Henko, Exo, Pril, Margo, Mr. White, grew by

27.6%. Ujala fabric whitener continues to be the market leader with a market share of

72.5% by value. There was a strong over 25% growth in the dishwash segment

especially Exo bars. Pril posted a modest growth.

Mkt Capital (Rs Cr)

"Efforts for stability"

CMP

Upside

Result update BUY

Target Price

Better numbers than expectation and hope to maintain healthy growth ahead;


Market Data

221/140

BSE Code 532926

NSE Symbol JYOTHYLAB

52wk Range H/L

"BUY"31st Jan' 14


17

Jyothy Lab

Sales Mix-segment (%)



Sales and Sales Growth (YoY)-%


Management expected to see EBITDA margin

at a range of 14-15% in FY14E.

Company will spend little more on Ad spend

in coming quarters but it will not be more

than 12%.

The company has maintained its guidance of

achieving around 22% - 25% revenue growth.


RM Cost and Ad Spend-(% of sales)


Margin-%


18

Jyothy Lab

(4) The company will continue to invest aggressively in expanding its share of revenue

from non-South markets. Next year target is 40% should be from south and 60% from rest

of south India. And finally, 70-30% in favour of rest of India.

Key takeaways from Conference call;1) The company has maintained its guidance of achieving around 22% - 25% revenue

growth.

(2) EBITDA margin will be between 14-15% and ad spends will be 10-12% which is in-line

and they will spend little more ad spend in coming quarters but it will not be more than

12%.

(3) For FY15, the company will re-launch Henko with a completely new positioning and

formulation in Q1 FY15,

(4) They will extend Margo brand in skin care category and planned several activities for

Maxo in FY15 including entry into low smoke coil.


Financials



Rs in Cr FY10 FY11 FY12 FY13 FY14E FY15E

Sales 596.32 626.39 912.99 1105.96 1373.60 1703.27

Raw Materials Cost 317.19 320.27 502.99 584.35 714.27 885.70

Employee Cost 75.38 81.31 113.67 130.48 151.10 178.84

Advertisement and Publicity 26.62 33.99 41.79 95.54 137.36 153.29

Other expenses 85.31 111.52 170.46 165.92 185.44 238.46

Total expenses 504.5 547.09 828.91 976.29 1188.17 1456.29

EBITDA 91.82 79.3 84.08 129.67 185.44 246.97

Depreciation 12.36 13.03 24.65 22.43 26.57 32.95

Other Income 17.8 16.91 22.73 5.202 54.94 68.13

EBIT 79.46 66.27 59.43 107.24 158.87 214.03

Interest Cost 1.7 1.99 23.83 68.22 63.25 49.25

Profit (+)/Loss (-) Before Taxes 95.56 81.19 58.33 44.222 150.56 232.91

Provision for Taxes 21.48 15.43 19.94 -14.87 28.61 44.25

Net Profit (+)/Loss (-) 74.08 65.76 38.39 59.092 121.95 188.66

Growth-% (YoY)

Sales 65.3% 5.0% 45.8% 21.1% 24.2% 24.0%

EBITDA 88.3% -13.6% 6.0% 54.2% 43.0% 33.2%

PAT 93.0% -11.2% -41.6% 53.9% 106.4% 54.7%

Expenses on Sales-%

RM Cost 53.2% 51.1% 55.1% 52.8% 52.0% 52.0%

Employee Cost 12.6% 13.0% 12.5% 11.8% 11.0% 10.5%

Ad spend 4.5% 5.4% 4.6% 8.6% 10.0% 9.0%

Other expenses 14.3% 17.8% 18.7% 15.0% 13.5% 14.0%

Tax rate 22.5% 19.0% 34.2% -33.6% 19.0% 19.0%

Margin-%

EBITDA 15.4% 12.7% 9.2% 11.7% 13.5% 14.5%

EBIT 13.3% 10.6% 6.5% 9.7% 11.6% 12.6%

PAT 12.4% 10.5% 4.2% 5.3% 8.9% 11.1%

Valuation:

CMP 169.85 219.8 155 175 207 207

No of Share 7.3 8.1 16.1 16 16 16

NW 387.8 631.1 612.4 638.6 713.4 854.9

EPS 10.1 8.1 2.4 3.7 7.6 11.8

BVPS 53.1 77.9 38.0 39.9 44.6 53.4

RoE-% 19.1% 10.4% 6.3% 9.3% 17.1% 22.1%

P/BV 3.2 2.8 4.1 4.4 4.6 3.9

P/E 16.7 27.1 65.0 47.4 27.2 17.6

Hindustan Unilever

1M 1yr YTD

Absolute 0.23 21.18 21.63

Rel. to Nifty 3.2 20.33 19.85


Promoters 67.25 67.25 52.5

FII 14.83 15.33 20.23

DII 3.35 3.03 7.13

Others 14.57 14.39 20.16

Financials


Revenue 7037.78 6747.2 4.3 6433.89 9.4

EBITDA 1226.8 1085.31 13.0 1088.99 12.7

PAT 1043.7 888.3 17.5 877.08 19.0

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

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

19

500696

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

revival in macro economy and resultant improvement in consumer sentiment would

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

P/BV (x) -1year forward

Rs, Crore



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

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

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

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

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

view on the stock.

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

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

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

depreciation, and heightened competitive intensity during the quarter.

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

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

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

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

pricing and unwinding of promotions.


123161

Average Daily Volume 2006314

Nifty 6153

"wait for triggers"

CMP 570

Target Price -

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

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

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

Result update NEUTRAL

Previous Target Price -

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

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

could play out over the next couple of quarters.

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

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

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

detergents category.

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

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

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

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

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

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

the delay in the onset of the winter season.

52wk Range H/L 725/432

NSE Symbol HINDUNILVR

Market Data

BSE Code

Upside -

Change from Previous -

Stock Performance-%

"NEUTRAL"30th Jan' 14


20



Hindustan Unilever

Volume and Pricing growth -%(YoY)


Sales (cr) and Growth(YoY)-%

Margin-%

Seg


Volume growth for the quarter was at 4%,

which is slightly lower than the 5% registered

in previous several quarters

EBITDA margin inched up by 50bps(YoY) to

17% because of stable INR movement against

the USD and stable set of RM cost than same

quarter previous year.

EBITDA Margin up by 90bps to 13.3% from

Soap and Detergent, flat margin growth on

Personal Products.



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

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

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

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

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

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

Margin-%Revenue Growth-%% of SalesSegments

21

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

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

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

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

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

because of 12 minutes advertisement cap.

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

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

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

will remain focus area.

Hindustan Unilever

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



Financials


Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales 18025.6 20022.6 23436.3 27004.0 28959.1 31506.3

RM Cost 6762.8 7796.9 9487.0 10987.8 11873.2 13075.1

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

WIP 75.7 -307.6 95.2 -26.0 -27.9 -30.3

Employee Cost 970.9 1014.9 1200.9 1412.7 1515.0 1648.2

Ad Spend 2423.0 2797.1 2697.0 3290.0 3619.9 3938.3

Other expenses 2783.2 3317.4 3553.2 4008.9 4054.3 4568.4

Total expenses 15188.7 17311.3 19952.8 22798.7 24219.9 26665.4

EBITDA 2836.9 2711.2 3483.6 4205.3 4739.1 4840.9

Depreciation and Amortisation 191.9 207.5 211.9 251.3 270.4 294.2

Other Income 82.7 255.2 259.6 532.0 579.2 630.1

EBIT 2727.6 2758.9 3531.3 4486.0 5047.9 5176.9

Interest 7.5 1.0 1.7 25.7 25.7 27.0

PBT 2720.2 2757.9 3529.7 4460.3 5022.2 5149.9

Tax Exp 615.3 650.3 821.5 1226.7 1406.2 1442.0

PAT 2104.9 2107.6 2708.1 3233.7 3616.0 3707.9

Growth-% (YoY)

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

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

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

Expenses on Sales-%

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

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

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

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

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

Margin-%

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

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

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

Valuation:

CMP 238.7 284.6 419.0 483.3 570.00 570.00

No of Share 218.2 215.9 218.2 216.2 216.26 216.26

NW 2668.9 2735.0 3681.1 2864.8 3571.24 4243.13

EPS 9.6 9.8 12.4 15.0 16.72 17.15

BVPS 12.2 12.7 16.9 13.3 16.51 19.62

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

P/BV 19.5 22.5 24.8 36.5 34.52 29.05

P/E 24.7 29.2 33.8 32.3 34.09 33.24

V- Escorts Ltd.

CMP 125

Target Price 175

Previous

Target Price

105

Upside 40%

Change from

Previous

67%

BSE Code 500495

NSE Symbol

52wk Range

H/L

48/96

Mkt Capital

(Rs Crores)

1,505

Average Daily

Volume

225,953

Nifty 6,120

1M 1yr YTD

Absolute (11.3) 62.7 147.9

Rel. to Nifty (8.2) 61.0 140.2

3QFY14 2QFY14 1QFY14

Promoter's 42.0 42.0 42.0

FII's 9.4 12.3 12.1

DII's 2.1 4.7 5.4

Others's 46.5 41.0 40.6

22

"Out Performer……."

ESCORTS


Stock Performance-%

Result update

Market Data

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

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

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

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

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

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

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

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

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

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

working capital cycles, which in turn trimmed interest costs.

Buy

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

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

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

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

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

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

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

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

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

favoring the farm equipment business.


"Buy"30th Jan' 14


Penetration to high HP Tractors

Company Outlook

23

The stock is currently trading at 6.5x FY14E EPS with a negative bias in case of construction equipment

segment due to adverse macroeconomic conditions . At current price of Rs. 117, the stock is trading at

P/E of 7.1 x for FY13E and 6.5 x the FY14E. Escorts could post EPS of Rs. 12.13 for FY14E and Rs. 12.98

for FY15E. An increase in volumes is an indication of healthy demand. Tractor sales revival has enabled

the company to register strong result. Escorts’ EBITDA margin and bottom-line exceeded our

expectations. Going forward, we remain positive on the company’s growth prospects particularly in

AMP segment. We expect demand to improve further in FY2014E with the economic recovery.

However, we remain cautious with regards to growth in Construction Equipment segment in near-to-

medium. Thus, We revise our estimates upwards to factor in the strong CY13 tractor volume

performance. We therefore revised our rating on the stock from "Reduce" to "Buy" and advised to

our investors to enter at current level with Revised price target of Rs. 175

Escorts Ltd.


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

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

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

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

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

Outlook on Industry

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

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

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

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

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

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

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

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

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

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

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

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

also leading to growth.


24


Escorts Ltd.

Revenue from operation :

(Source: Eastwind Research) (Figures in crore)

Graphical representations :

Operating profit :

Net Profit :

Trailling ROE % & Trailling Asset T/O :





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