india morning bell - rathionline.com morning bell... · market-share ratio of bajaj corp. to 2 may...

Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient and is to be circulated only within India and to no countries outside India. Disclosures and analyst certifications are present in Appendix. Anand Rathi Research India Equities

India I Equities Country

Daily

2 May 2014

India Morning Bell

All the latest research and data

Core Infrastructure Industries – Core continues to grow. The continuing strong performance of electricity has helped the core sector grow for the fifth successive month. Electricity was the best performing sector for FY14, followed by steel and cement. The uninspiring performances of natural gas and crude oil continued. Growth of electricity steel and cement is harbinger of improvement in construction. Mining growth will help manufacturing sector to grow. With inflation off its peak, we feel that RBI is likely to cut rates by 25 – 50 bps in 2HCY14.

Maruti Suzuki – Weak trend continues; Sell. In FY15, the company would benefit from a favourable exchange rate and the low base for its vehicle sales. Nevertheless, headwinds of curtailed demand for passenger cars and of launches by competitors would prove to be speed bumps. With the past six-month movement in the stock price, we believe that the short-term positives have already been factored into the price, while possible downgrades in vehicle-sales estimates have not yet been captured. Additionally, the proposed structure of the new Gujarat plant complicates matters over the long term. For the short term, though, it would prove positive for the company because cash is now being conserved. We value the stock at 14x Sep’15e earnings, which works out to `1,753, a 10% downside from present levels.

Federal Bank – SME-led credit growth, lower slippages; Buy. Overall credit growth for Federal Bank during the quarter was sluggish, at 4.3% yoy (up 1.4% qoq). This was due to a 14% drop in the corporate loan book, the share of which has now declined 1070bps yoy, to 31.4% in the overall loan book. We raise our target to `108, from `98 earlier and value the bank at 1.1x 1HFY16e BV (1.1xFY15e earlier). Diversified loan book, better asset quality and high capital adequacy would aid RoE expansion by FY16, to 14.4%. On inexpensive valuations, we retain Buy. At our target, the stock would trade at P/ABV of 1.2x FY15e and 1x FY16e, based on the two-stage DDM.

Bajaj Corp. – Market-share gains; Buy. Dabur’s Almond Hair Oil has failed to gain more than a 4% market share. Keo Karpin is not investing in pushing its brands. This has led to Bajaj Corp. gaining market share. The market-share ratio of Bajaj Corp. to Keo Karpin has risen from 4.34 to 4.44. We expect a 13% earnings CAGR over FY14-16. We value the stock at a target price of `270, at a target PE of 18x FY16e earnings. We believe the success of Kailash Parbat and the No Marks acquisition would reduce dependence on Bajaj Almond Drops and erase the ‘single-product-company’ tag.

Sensex: 22418

Nifty: 6696

Markets 30 Apr ’14 1 Day YTD Sensex 22418 -0.2% 5.9%Nifty 6696 -0.3% 6.2%Dow Jones 16559 -0.1% -0.1%S & P 500 1884 0.0% 1.9%FTSE 6809 0.4% 0.9%Nikkei* 14435 -0.3% -11.4%Hang Seng* 22177 0.1% -4.8%

Volumes (US$m) 30 Apr ’14 1 Day Avg '14Cash BSE 517 9.0% 400Cash NSE 2,741 18.7% 1,991Derivatives (NSE) 17,606 44.7% 24,583

Flows (US$m) 30 Apr ’14* MTD YTD FII – Cash Buy 737 4,880 35,919Sell 661 4,458 31,344Net 75 1,115 5,201FII - Derivatives Buy 2,901 72,105 256,100Sell 2,956 70,804 252,629Net -55 607 2,778DII – Cash Buy 220 1,888 6,263Sell 219 2,308 7,892Net 1 -302 -1,511

Others 30 Apr ’14 1 Day YTD Oil Brent (US$/bbl)* 107.7 -0.1% -1.7%Gold (US$/oz)* 1,282.5 -0.1% 6.4%Steel (US$/MT) 590.0 3.5% 0.9%`/US$ 60.34 0.0% 2.4%US$/Euro* 1.39 0.1% -0.8%Yen/US$* 102.35 0.0% 2.9%Call Rate 9.00% 55.bps 25.bps10-year G-Secs 8.83% .bps .5bpsEMBI spreads 318.79 2.2bps -15.5bps@7:30am *Provisional Source: BSE, Bloomberg

2 May 2014 India Morning Bell

Anand Rathi Research India Equities

Shoppers Stop – Recovery still some time away; Hold. With comparable growth recovering, we believe the standalone business is improving. The margin expansion, with an increase in private-label sales and with cost controls, would be a key growth driver. We believe Hypercity remains a drag and could return to profitability only in FY16. We maintain our Hold (call) on the stock and value it on a sum-of-parts basis at `366, using the PE multiple for the standalone business and m.cap/sales for Hypercity and Crossword.

Orient Cement – In-line 4Q; recovery ahead, expansion on track; Buy. Orient Cement’s EBITDA and PAT was largely in-line with estimates due to lower-than-expected costs. We expect better performance in FY15 given expectation of better cement prices in Maharashtra and AP. Our fair price is `60, based on 7x Mar’16e EV/EBITDA. The implied EV/ton is US$52, with a PE of 12x. The stock is attractively priced when benchmarked against midcap peers. A key advantage is its low-cost cement production, resulting in industry-leading RoE and RoCE.

Swaraj Engines – Results surprise, maintain Buy. The results bettered our expectations chiefly because of better-than-expected volumes. Growth ahead would be boosted by a better performance by the Swaraj division of tractors as compared to the rest of the tractor industry. For FY15 however, the tractor industry growth outlook is likely to be under pressure. We expect tractors to do well in the long run, led by more scope for productivity, low penetration, need for mechanization and shortage of labour. Greater capacity could prove to be a huge fillip. We maintain a Buy. At the ruling market price, the stock trades at 11.7x FY15e and 10.5x FY16e. We value it at 12.5x Sep’15e earnings and arrive at a price target of `780.

Phillips Carbon Black – Performance constrained, improvement in sight; Hold. For 4QFY14, Phillips Carbon Black (PCB) reported `5.9bn in revenue against our estimates of `5.7bn (up 11% yoy). Sales in the carbon black (CB) division grew 12% to `5.8bn, while in power it declined 27% to `0.14bn. The company has commissioned 50,000MT carbon black line at Kochi Plant. With this the total capacity is 4,72,000 MTPA. In view of global developments, project work at Vietnam is under review. We value the stock at a target PE of 4x FY16e earnings. We retain a Hold, with a revised target of `71.

2 May 2014 India Morning Bell

Anand Rathi Research India Equities

Market Data

Price Performance Price Performance Price Performance Top-5 gainers Top-5 gainers Top-5 gainersCompany CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%)

UPL LTD 268 24.9 45.4 STRIDES ARCOLAB 545 18.2 39.4 FUTURE CONSUMER 7 38.4 45.7

INDIAN OVERSEAS 62 17.7 21.6 FUTURE RETAIL LT 130 16.4 62.8 PREMIER CAPITAL 178 20.6 72.5

WOCKHARDT LTD 767 16.4 67.7 TRINITY TRADELIN 1025 16.3 7.3 TATA SPONGE IRON 568 19.0 11.8

INDIABULLS HOUSI 299 8.2 25.9 JAIN IRRIGATION 82 15.7 26.9 LUMINAIRE TECH 25 14.5 (7.0)

KANSAI NEROLAC P 1258 7.6 6.3 NATIONAL BUILDIN 203 14.7 28.9 GRANULES INDIA 353 14.1 38.3

Top-5 losers Top-5 losers Top-5 losersCompany CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%) Company CMP (INR) 1 wk (%) 1 Mth (%)

CROMPTON GREAVES 165 (10.8) 2.6 JET AIRWAYS IND 251 (12.9) 1.0 HCL INFOSYSTEMS 45 (17.6) 18.8

AMBUJA CEMENTS 198 (9.6) (2.2) HEXAWARE TECHNOL 152 (12.2) 0.8 KESORAM INDS LTD 63 (16.0) (13.7)

SHRIRAM TRANSPRT 735 (9.4) (4.3) CESC LTD 455 (9.7) (9.2) RAJ TELEVISION 124 (15.5) (16.6)

HINDUSTAN COPPER 74 (8.9) 7.9 MMTC LTD 55 (9.0) 4.0 ASIAN STAR CO 556 (13.1) (9.4)

TATA COMMUNICATI 283 (8.9) (7.8) ESSAR PORTS LTD 59 (9.0) 16.2 HINDUSTAN OIL EX 47 (12.7) (1.9)

Volume Volume VolumeVolume spurts Volume spurts Volume spurtsCompany CMP (INR) 1 wk avg 1/4 wk (%) Company CMP (INR) 1 wk avg 1/4 wk (%) Company CMP (INR) 1 wk avg 1/4 wk (%)

BHARTI INFRATEL 216 2,435,325 190.7 ALSTOM INDIA LTD 457 509,058 206.8 ASIAN STAR CO 556 11 266.7

INDIAN OVERSEAS 62 11,017,795 185.3 VST INDS LTD 1,960 77,688 205.5 MANGALORE CHEM 69 1,984,133 261.0

UPL LTD 268 14,689,773 163.3 HATSUN AGRO PROD 270 45,860 189.2 MANGALAM IND FIN 78 115 255.0

MANGALORE REFINE 60 2,751,922 146.1 NATIONAL BUILDIN 210 1,447,995 180.1 FORBES & CO LTD 505 10,386 245.8

KANSAI NEROLAC P 1,258 17,925 146.0 3M INDIA LTD 3,754 3,832 172.7 FUTURE CONSUMER 7 6,626,991 237.9

Technicals Technicals Technicals Above 200 DMA Above 200 DMA Above 200 DMACompany CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%)

ADANI ENTERPRISE 418 239 73.1 PRITI MERCANTILE 698 276 149.8 CHANNEL NINE ENT 492 129 269.2

AUROBINDO PHARMA 573 345 65.2 # AMTEK AUTO LTD 174 84 102.6 GREENCREST FINAN 193 56 235.2

WOCKHARDT LTD 767 473 61.6 # PARAG SHILPA INV 536 266 100.0 ECO FRIENDLY FOO 289 93 204.4

APOLLO TYRES LTD 159 98 61.1 # MONSANTO INDIA 1,733 916 87.8 ESTEEM BIO PROC 605 206 186.1

UPL LTD 268 174 54.3 SYMPHONY LTD 821.8 441.6 84.6 HPC BIOSCIENCES 610 220 170.8

Below 200 DMA Below 200 DMA Below 200 DMACompany CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%) Company CMP (INR) 200D Avg (%)

JUBILANT FOODWOR 946 1,129 (16.0) STRIDES ARCOLAB 521 639 (18.5) GLOBAL INFRATECH 45 79 (43.1)

IDEA CELLULAR 135 157 (14.3) JET AIRWAYS IND 251 295 (15.1) LUMINAIRE TECH 25 42 (39.7)

NTPC LTD 116 134 (13.4) WESTLIFE DEVELOP 321 368 (12.7) UNNO INDUS LTD 18 29 (38.1)

L&T FINANCE HOLD 64 70 (8.9) SUNRISE ASIAN LT 434 493 (12.0) JAYBHARAT TEXTIL 22 34 (34.4)

DLF LTD 140 153 (8.3) WNS HOLDINGS-ADR 1,131 1,263 (10.6) RADICO KHAITAN L 106 135 (21.5)

Small Caps(US$100m-250m)

Large Caps(>US$1bn)

Mid Caps(US$250m-1bn)

Source: Bloomberg


India I Equities

Economy

Update

`

2 May 2014

Core Infrastructure Industries Core continues to grow

The continuing strong performance of electricity has helped the core sector grow for the fifth successive month. Electricity was the best performing sector for FY14, followed by steel and cement. The uninspiring performances of natural gas and crude oil continued. Growth of electricity steel and cement is harbinger of improvement in construction. Mining growth will help manufacturing sector to grow. With inflation off its peak, we feel that RBI is likely to cut rates by 25 – 50 bps in 2HCY14.

Performance. Core infrastructure industries, with a weighting of 37.9% in industrial production grew 2.5% in Mar’14 (vs 7.0% in Mar’13). During Mar’14 steel and electricity grew 5.4%, refinery products also grew 2.8%. Cement index remained same as the Mar’13 level. Coal grew 0.7% in Mar’14 (vs 1.7% growth in Mar’13). The major contraction was visible in natural gas (-9.3%), followed by fertilizers (-6.1%) and crude oil (-1.6%). We thus have the FY14 growth of core infrastructure at 2.6% versus 6.5% growth in FY13. Excluding natural gas and crude oil, all the other six core sectors have grown over the year – electricity being the best performing sector.

Assessment. Core infrastructure industries have been maintaining better growth than overall industrial production, chiefly due to the higher weighting of electricity (10.3%) in core industries. While electricity growth decelerated in the month, the average growth in FY14 (5.6%) is still better than FY13. Steel and cement also grew through the year. Coal sector growth is showing signs of bottoming out. Fertilizers is losing steam – it contracted for the second month. Performance of natural gas, however, continues to be lackluster.

Outlook. Electricity, steel and cement (a combined weighting of 19%) are likely to maintain the robust growth of FY14 next year. With the operational and procedural aspects of mining improving, we are optimistic of coal picking up pace. Natural gas has contracted for the third year and a revival in this sector looks distant. Core infrastructure will also be helped by a favorable base in the first eight months of FY15.

Recommendations. While the core industries continue to grow, the headline IIP number remain disappointing, for Feb’14 while core grew by 4.5%, IIP contracted by -1.9%. Manufacturing sector contraction has negated the growth of electricity and mining sectors. Growth in electricity, steel and cement are the harbinger of growth in construction. The growth of mining would help in the turnaround of manufacturing sector. We thus expect a modest recovery for the manufacturing sector in FY15. With inflation rates off the peak and inflation on a downward trajectory, barring the seasonal headwinds, we believe that RBI is likely to cut rates by 25 – 50bps in 2HCY14.

Fig 1 – Growth decelerates in Mar

Source: Government of India

Fig 2 –Mar growth at 2.5%

Source: Government of India (GoI)

Core infrastructure (Mar’14): 2.5%

Core infrastructure (FY14): 2.6%

2 May 2014 India Economy – Core Infrastructure Industries – Core continues to grow

Anand Rathi Research 2

Fig 3 – Coal production picks up pace

Source: GoI

Fig 4 – Crude oil contracts in Mar’14

Source: GoI

Fig 5 – Electricity growth buoyant throughout FY14

Source: GoI



Fig 6 – Steel growth consistent

Source: GoI

Fig 7 – Refinery-product contracts due to high base of Mar’13

Source: GoI

Fig 8 – Base unfavourable for first eight months of FY15

Source: GoI



Fig 9 – Five sectors posted mom growth

Source: GoI

Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.

Anand Rathi Ratings Definitions

Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described in the Ratings Table below:

Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5% Anand Rathi Research Ratings Distribution (as of 4 March 2014) Buy Hold Sell Anand Rathi Research stock coverage (185) 64% 27% 9% % who are investment banking clients 4% 0% 0% Other Disclosures This report has been issued by ARSSBL which is a SEBI regulated entity, and which is in full compliance with all rules and regulations as are applicable to its functioning and governance. The investors should note that ARSSBL is one of the companies comprising within ANAND RATHI group, and ANAND RATHI as a group consists of various companies which may include (but is not limited to) its subsidiaries, its affiliates, its group companies who may hold positions, views, stakes and may service the companies covered in this report independent of ARSSBL. Investors are cautioned to be aware that there could arise a potential conflict of interest in the views held by ARSSBL and other companies of Anand Rathi who maybe affiliated, connected or catering to the companies mentioned in the Research Report; even though, ARSSBL and Anand Rathi are fully complaint with all procedural and operational regulatory requirements. Thus, investors should not use this as a sole basis for making their investment decision and should consider the recommendations mentioned in the Research Report bearing in mind the aforementioned.

Further, the information herein has been obtained from various sources which we believe is reliable, and we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures or other derivatives related to such securities (hereinafter referred to as “Related Investments”). ARSSBL and/or Anand Rathi may trade for their own accounts as market maker / jobber and/or arbitrageur in any securities of the companies mentioned in the Research Report or in related investments, and may be on taking a different position from the ones which haven been taken by the public orders. ARSSBL and/or Anand Rathi and its affiliates, directors, officers, and employees may have a long or short position in any securities of the companies mentioned in the Research Report or in Related Investments. ARSSBL and/or Anand Rathi, may from time to time, perform investment banking, investment management, financial advisory or any other services not explicitly mentioned herein, or solicit investment banking or other business from, any entity and/or company mentioned in this Research Report; however, the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the other companies of Anand Rathi, even though there might exist an inherent conflict of interest.

Furthermore, this Research Report is prepared for private circulation and use only. It does not have regard to the specific investment objectives, financial situation and the specific financial needs or objectives of any specific person who may receive this Research Report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this Research Report, and, should understand that statements regarding future prospects may or may not be realized, and we can not guarantee the same as analysis and valuation is a tool to enable investors to make investment decisions but, is not an exact and/or a precise science. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Past performance is not necessarily a guide to future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investments mentioned in this report.

Other Disclosures pertaining to distribution of research in the United States of America

This material was produced by ARSSBL, solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. It is distributed in the United States of America by Enclave Capital LLC (19 West 44th Street, Suite 1700, New York, NY 10036) and elsewhere in the world by ARSSBL or an authorized affiliate of ARSSBL (such entities and any other entity, directly or indirectly, controlled by ARSSBL, the “Affiliates”). This document does not constitute an offer of, or an invitation by or on behalf of ARSSBL or its Affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources, which ARSSBL or its Affiliates consider to be reliable. None of ARSSBL or its Affiliates accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions.

1. ARSSBL or its Affiliates may or may not have been beneficial owners of the securities mentioned in this report.

2. ARSSBL or its affiliates may have or not managed or co-managed a public offering of the securities mentioned in the report in the past 12 months.

3. ARSSBL or its affiliates may have or not received compensation for investment banking services from the issuer of these securities in the past 12 months and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months.

4. However, one or more of ARSSBL or its Affiliates may, from time to time, have a long or short position in any of the securities mentioned herein and may buy or sell those securities or options thereon, either on their own account or on behalf of their clients.

5. As of the publication of this report, ARSSBL does not make a market in the subject securities.

6. ARSSBL or its Affiliates may or may not, to the extent permitted by law, act upon or use the above material or the conclusions stated above, or the research or analysis on which they are based before the material is published to recipients and from time to time, provide investment banking, investment management or other services for or solicit to seek to obtain investment banking, or other securities business from, any entity referred to in this report.

Enclave Capital LLC is distributing this document in the United States of America. ARSSBL accepts responsibility for its contents. Any US customer wishing to effect transactions in any securities referred to herein or options thereon should do so only by contacting a representative of Enclave Capital LLC.

© 2014 Anand Rathi Shares and Stock Brokers Limited. All rights reserved. This report or any portion thereof may not be reprinted, sold or redistributed without the prior written consent of Anand Rathi Shares and Stock Brokers Limited.

Additional information on recommended securities/instruments is available on request.


Autos

Company UpdateIndia I Equities

Volume data – April (units) Apr-14 yoy chg (%) mom chg (%) FY14 yoy chg (%)

Minis 26,043 -25.4 -35.0 436,032 1.5

Compacts 23,659 9.9 -16.4 252,708 -1.0

Super-compacts 16,008 -17.7 -7.1 197,685 16.6

Mid-sized 76 -87.4 -81.5 4,029 -39.9

Executive 0 NM NM 1 -99.5

UVs 5,011 -5.8 -22.9 61,119 -22.8

Vans 8,322 -4.3 -14.7 102,115 -7.6

Domestic Sales 79,119 -12.6 -22.6 1,053,689 0.3

Exports 7,077 4.4 -36.1 101,352 -15.8

Total sales 86,196 -11.4 -24.0 1,155,041 -1.4

Source: Company

Rating: Sell Target Price: `1,753 Share Price: `1,918

Key data MSIL IN / MRTI.BO52-week high / low `2,008/ `1,217 Sensex / Nifty 22418 / 66963-m average volume US$23.1m Market cap `579.4bn / US$9.6bn Shares outstanding 302m

Shareholding pattern (%) Mar ’14 Dec ’13 Sep’13

Promoters 56.21 56.21 56.21 - of which, Pledged - - -Free Float 43.79 43.79 43.79 - Foreign Institutions 22.36 21.47 19.66 - Domestic Institutions 13.60 13.98 15.36 - Public 7.83 8.34 8.77

2 May 2014

Maruti Suzuki

Weak trend continues; Sell

Key takeaways

Sales dip sustains. Maruti Suzuki’s Apr’14 dispatches declined 11.4% yoy to 86,196 units (lower 24% month-over-month). This is on the back of a 1.4% volume decline in FY14. This was the sixth consecutive month of yoy volume decline for Maruti. This is also the biggest m-o-m drop for the company in its April sales since April ’07. The weak growth trend for the company over FY11-14 saw a compounded volume decline of 3.1%.

Compacts do well. Domestic sales were weak, 12.6% lower yoy, to 79,119 units; exports fared better, at 7,077 units, 4.4% higher yoy (though mom down 36.1%). The compact-vehicle sub-segment was the best performing, with 9.9% yoy growth (16.4% lower mom). Growth in this segment has been driven by the newly launched Celerio, which is drawing a good response and is witnessing a high average waiting period.

In most other segments sales dwindle. In the super-compact-car sub-segment, sales disappointed, 17.7% lower yoy and 7.1% mom. The mini segment declined 25.4% yoy (down 35% mom). Vans and UVs also declined, down 4.3% yoy and 5.8% yoy respectively.

Our take. In FY15, the company would benefit from a favourable exchange rate and the low base for its vehicle sales. Nevertheless, headwinds of curtailed demand for passenger cars and of launches by competitors would prove to be speed bumps. With the past six-month movement in the stock price, we believe that the short-term positives have already been factored into the price, while possible downgrades in vehicle-sales estimates have not yet been captured. Additionally, the proposed structure of the new Gujarat plant complicates matters over the long term. For the short term, though, it would prove positive for the company because cash is now being conserved. We value the stock at 14x Sep’15e earnings, which works out to `1,753, a 10% downside from present levels. Risks: More-than-expected volume growth and currency-related benefits.

Volume Trade

50,000

70,000

90,000

110,000

130,000

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

(Units)

-60.0

-30.0

0.0

30.0

60.0

90.0(%)

Volume yoy growth (RHS)

Source: Company

2 April 2014 Maruti Suzuki – Weak trend continues; Sell


Quick Glance – Financials and ValuationsFig 1 – Income statement (` m) Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Net revenues 355,871 435,879 438,436 503,048 579,791Revenue growth (%) -3.9 22.5 0.6 14.7 15.3- Op. expenses 331,052 394,083 386,047 442,912 511,060EBIDTA 24,819 41,797 52,389 60,136 68,730EBITDA margin (%) 7.0 9.6 11.9 12.0 11.9- Interest expenses 552 1,898 1,759 1,854 1,854- Depreciation 11,384 18,612 20,844 22,598 24,489+ Other income 8,269 7,694 8,229 10,415 10,597- Extraordinary items -310 -930 1,430 0 0- Tax 5,111 5,989 8,755 11,064 12,716Effective tax rate (%) 23.8 20.0 23.9 24.0 24.0Reported Profit 16,352 23,921 27,830 35,036 40,268Adjusted Profit 16,119 23,215 28,917 35,036 40,268Adj. Profit growth (%) -30.9 44.0 24.6 21.2 14.9Adj. FDEPS (`/sh) 55.8 76.8 95.7 116.0 133.3Adj. FDEPS growth (%) -30.9 37.8 24.6 21.2 14.9Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (` m) Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Reported Profit 16,352 23,921 27,830 35,036 40,268+ Depreciation 11,384 18,612 20,844 22,598 24,489Cash profit 27,735 42,533 48,674 57,634 64,757- Incr./(decr.) in WC -3,425 9,298 -16,919 -124 -616Operating cash-flow 31,160 33,235 65,593 57,758 65,373- Capex 27,459 63,968 37,548 31,861 30,000Free cash-flow 3,701 -30,733 28,045 25,897 35,373- Dividend 2,167 2,417 3,625 4,229 4,833+ Equity raised 0 65 0 0 0+ Debt raised 9,081 3,109 2,959 0 0- Investments 10,406 9,309 30,396 25,000 25,000- Misc. items 933 -22,673 -1,565 0 0Net cash-flow -724 -16,611 -1,452 -3,333 5,540+ Op. cash & bank bal. 25,085 24,361 7,750 6,298 2,965Cl. cash & bank bal. 24,361 7,750 6,297 2,965 8,505Source: Company, Anand Rathi Research

Fig 5 – PE band

9.0x

12.0x

15.0x

18.0x

21.0x

24.0x

300

800

1,300

1,800

2,300

2,800

Apr-1

0

Jul-1

0

Oct

-10

Jan-

11

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

Source: Bloomberg, Anand Rathi Research

Fig 2 – Balance sheet (` m) Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Share capital 1,445 1,510 1,510 1,510 1,510Reserves & surplus 150,429 184,279 208,270 239,077 274,512Net worth 151,874 185,789 209,781 240,588 276,023Total debt 10,783 13,892 16,851 16,851 16,851Def. tax liab. (net) 3,023 4,087 5,866 5,866 5,866Capital employed 165,680 203,768 232,498 263,305 298,740Net fixed assets 81,321 117,414 134,118 143,381 148,892Investments 61,474 70,783 101,179 126,179 151,179Net working capital -1,476 7,822 -9,097 -9,221 -9,837Cash and bank balance 24,361 7,750 6,298 2,965 8,505Capital deployed 165,680 203,768 232,498 263,305 298,740No. of shares (m) 289 302 302 302 302Net debt -75,052 -64,640 -90,626 -112,293 -142,833Net debt / Equity -0.5 -0.3 -0.4 -0.5 -0.5WC turn days -6 -8 -15 -15 -15Book value (`/sh) 525.5 615.0 694.5 796.4 913.7Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `1,918 Year-end: Mar FY12 FY13 FY14e FY15e FY16e

P/E (x) 34.4 25.0 20.0 16.5 14.4P/B (x) 3.6 3.1 2.8 2.4 2.1EV/EBITDA (x) 19.3 12.3 9.3 7.8 6.4RoE (%) 10.8 12.9 13.3 14.6 14.6RoCE (%) 13.1 15.2 17.1 18.2 18.4Dividend yield (%) 0.4 0.4 0.6 0.7 0.8Dividend payout (%) 13.4 10.4 12.5 12.1 12.0Debt to equity (%) 0.1 0.1 0.1 0.1 0.1Core P/E (x) 53.7 32.5 25.0 20.9 17.6Cash P/E 20.2 13.9 11.6 10.1 8.9EV/sales 1.4 1.2 1.1 1.0 0.8Inventory days 20 17 16 16 16Receivables days 9 11 11 11 11Payables days 65 61 75 74 72Asset turnover 2.1 2.1 1.8 1.9 1.9Source: Company, Anand Rathi Research

Fig 6 – Product mix

0

75,000

150,000

225,000

300,000

375,000

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

Mini Compact Super Compact Mid-Size Executive UVs Vans Exports

Source: Company

2 April 2014 Maruti Suzuki – Weak trend continues; Sell


Fig 11 – Minis too witness sharp decline

20,000

26,000

32,000

38,000

44,000

50,000

56,000

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

(Units)

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

(%)

Mini segment yoy growth (RHS) Source: Company

Fig 12 – Van sales subdued

5,000

7,500

10,000

12,500

15,000

17,500

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4(Units)

-50.0

-25.0

0.0

25.0

(%)

Vans yoy growth (RHS) Source: Company

Fig 7 – Compact cars boosted by the Celerio launch

5,000

9,000

13,000

17,000

21,000

25,000

29,000

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

(Units)

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

(%)

Compact segment yoy growth (RHS)

Source: Company

Fig 8 – Exports were higher yoy

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

(Units)

-100.0

-50.0

0.0

50.0

100.0

150.0

200.0

(%)

Exports yoy growth (RHS)

Source: Company

Fig 9 – Super-compact sales decline yoy

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

Apr-1

1

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

(Units)

-100.0

0.0

100.0

200.0

300.0

400.0

500.0

(%)

Super Compact yoy growth (RHS)

Source: Company

Fig 10 – UVs remain subdued

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000Ap

r-11

Jul-1

1

Oct

-11

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

(Units)

-100.0

400.0

900.0

1,400.0

1,900.0

2,400.0

2,900.0

3,400.0

3,900.0

4,400.0

(%)

UVs yoy growth (RHS)

Source: Company

Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 2 May 2014)

Maruti26

2

3 4

5 6

1

7 8 910

11

1213 14

1516

1719

18

20

2122

23

2425

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Jan-

08

Jun-

08

Nov

-08

Apr-0

9

Sep-

09

Feb-

10

Jul-1

0

Dec

-10

May

-11

Oct

-11

Mar

-12

Aug-

12

Jan-

13

Jun-

13

Nov

-13

Apr-1

4

Date Rating TP (`) Share Price (`)

1 25-Feb-09 Buy 760 633 2 9-Mar-09 Buy 773 644 3 29-Mar-09 Sell 783 768 4 27-Apr-09 Sell 794 802 5 1-Jun-09 Sell 787 1,022 6 1-Jul-09 Sell 950 1,065 7 24-Jul-09 Sell 1,271 1,295 8 26-Oct-09 Sell 1,451 1,517 9 25-Jan-10 Sell 1,500 1,440

10 27-Apr-10 Sell 1,375 1,335 11 2-Nov-10 Sell 1,539 1,509 12 1-Feb-11 Buy 1,475 1,252 13 9-Apr-12 Buy 1,581 1,349 14 8-Oct-12 Buy 1,619 1,388 15 7-Jan-13 Buy 1,723 1,545 16 28-Jan-13 Buy 1,823 1,600 17 10-Apr-13 Buy 1,692 1,406 18 29-Apr-13 Sell 1,621 1,674 19 2-Jul-13 Sell 1,521 1,605 20 26-Jul-13 Sell 1,358 1,414 21 2-Aug-13 Sell 1,302 1,332 22 3-Sep-13 Sell 1,250 1,270 23 1-Nov-13 Sell 1,398 1,634 24 9-Jan-14 Sell 1,476 1,775 25 2-Apr-14 Sell 1,627 1,931 26 25-Apr-14 Sell 1,753 1,956

The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.



Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5%

Anand Rathi Research Ratings Distribution (as of 4 March 2014) Buy Hold Sell Anand Rathi Research stock coverage (182) 64% 27% 9% % who are investment banking clients 4% 0% 0% Other Disclosures This report has been issued by ARSSBL which is a SEBI regulated entity, and which is in full compliance with all rules and regulations as are applicable to its functioning and governance. The investors should note that ARSSBL is one of the companies comprising within ANAND RATHI group, and ANAND RATHI as a group consists of various companies which may include (but is not limited to) its subsidiaries, its affiliates, its group companies who may hold positions, views, stakes and may service the companies covered in this report independent of ARSSBL. Investors are cautioned to be aware that there could arise a potential conflict of interest in the views held by ARSSBL and other companies of Anand Rathi who maybe affiliated, connected or catering to the companies mentioned in the Research Report; even though, ARSSBL and Anand Rathi are fully complaint with all procedural and operational regulatory requirements. Thus, investors should not use this as a sole basis for making their investment decision and should consider the recommendations mentioned in the Research Report bearing in mind the aforementioned.




India I Equities

Banks Result Update

2 May 2014

Federal Bank

SME-led credit growth, lower slippages; Buy

Key takeaways

SME and agri-led credit growth. Overall credit growth for Federal Bank during the quarter was sluggish, at 4.3% yoy (up 1.4% qoq). This was due to a 14% drop in the corporate loan book, the share of which has now declined 1070bps yoy, to 31.4% in the overall loan book. SME loans continue to trend upward, growing 26% yoy. We expect the SME and retail segments to drive the 19% loan growth over FY14-16. Higher NIM and CASA, lower productivity. Reported NIM increased sharply by 52bps yoy (up 34bps qoq), to 3.6%, led by a one-time interest received on income tax refund. The proportion of CASA improved 360bps yoy, to 30.8%, on traction in savings deposit (up 19.9% yoy). Going forward, we expect higher CASA to drive improvement in NIM to 3.4% by FY16. Cost-income rose 230bps yoy, to 47.7%. Management expects to consolidate its strong branch-network expansion in FY15. Consequently, we expect cost-income to improve to 45% by FY16. Asset quality improves on sale to Arcil. GNPA declined 9.4% qoq, driven by: (a) Lower slippages yoy (1.8% of loans) and (b) `1.6bn sale of non performing asset to ARCIL. NPA coverage remained steady at 70.3%. The bank has restructured an additional `3.2m of loans in the quarter. The outstanding restructured portfolio now stands at 4.5% of book. A high restructured book are likely to keep credit costs at a high 60bps over FY15-16. The high 14.6% capital adequacy is better than most peers and offers fair assurance against further delinquencies. Our take. We raise our target to `108, from `98 earlier and value the bank at 1.1x 1HFY16e BV (1.1xFY15e earlier). Diversified loan book, better asset quality and high capital adequacy would aid RoE expansion by FY16, to 14.4%. On inexpensive valuations, we retain Buy. At our target, the stock would trade at P/ABV of 1.2x FY15e and 1x FY16e, based on the two-stage DDM (CoE: 15.5%; beta: 0.8; Rf: 8.5%). Risk. Higher delinquencies.

Rating: Buy Target Price: `108

Share Price: `90

Key data FB IN/FED.BO52-week high / low `99/`44 Sensex / Nifty 22148/66963-m average volume US$3.9mMarket cap `77bn/US$1.3bn Shares outstanding 170.9m

Shareholding pattern (%) Mar ’14 Dec ’13 Sep’13

Promoters - - - - of which, Pledged - - -Free Float 100 100 100 - Foreign Institutions 41.0 42.4 44.1 - Domestic Institutions 23.1 21.6 20.6 - Public 35.8 36.0 35.3

Change in Estimates Target Reco

Quarterly results (YE: Mar) 4QFY13 4QFY14 % yoy FY13 FY14 % yoy

Net interest income (`m) 4,798 6,251 30.3 19,747 22,286 12.9

Non-interest income (`m) 1,969 1,784 (9.4) 6,644 6,939 4.4

Operating expenses (`m) 3,071 3,835 24.8 11,795 13,921 18.0

Cost-to-income (%) 45.4 47.7 233bps 44.7 47.6 294bps

Pre-provisioning profit (`m) 3,695 4,200 13.7 14,596 15,304 4.9Provisions (`m) 982 550 (43.9) 2,658 3,184 19.8PBT (`m) 2,713 3,650 34.5 11,938 12,120 1.5

Tax (`m) 494 877 77.8 3,556 3,731 4.9

PAT (`m) 2,219 2,773 24.9 8,382 8,389 0.1

EPS (`) 2.6 3.2 24.9 9.8 9.7 (0.9)

Source: Company, Anand Rathi Research

Financials (YE: Mar) FY15e FY16e

Net interest income (`m) 25,237 30,026 Net profit (`m) 9,848 12,049 EPS (`) 11.5 14.1 Growth (%) 17.4 22.3 PE (x) 7.8 6.4 PABV (x) 1.1 0.9 RoE (%) 13.4 14.6 RoA (%) 1.2 1.3 Dividend yield (%) 2.4 2.7Net NPA (%) 1.2 1.0 Source: Anand Rathi Research

Estimates revision (%) FY15e FY16e

NII (2.3) (2.6)PAT (2.1) (3.0) RoE (bps) (25) (45)

2 May 2014 Federal Bank – SME-led credit growth, lower slippages; Buy


Quick Glance – Financials and Valuations Fig 1 – Income statement (`m)

Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Net interest income 19,534 19,747 22,286 25,237 30,026NII growth (%) 11.8 1.1 12.9 13.2 19.0Non-interest inc 5,323 6,644 6,939 7,583 8,608Total income 24,857 26,391 29,225 32,820 38,634Total Inc growth (%) 9.8 6.2 10.7 12.3 17.7Op. expenses 9,793 11,795 13,921 15,097 17,385Operating profit 15,065 14,596 15,304 17,723 21,249Op profit growth (%) 5.6 (3.1) 4.9 15.8 19.9Provisions 3,370 2,658 3,184 3,240 3,530PBT 11,695 11,938 12,120 14,483 17,719Tax 3,927 3,556 3,731 4,634 5,670PAT 7,768 8,382 8,389 9,848 12,049PAT growth (%) 32.3 7.9 0.1 17.4 22.3FDEPS (`/sh) 9.1 9.8 9.8 11.5 14.1DPS (`/sh) 1.8 1.8 2.0 2.2 2.4Source: Company, Anand Rathi Research

Fig 2 – Balance sheet (`m) Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Share capital 1,711 1,711 1,711 1,711 1,711Reserves & surplus 55,353 61,936 67,800 75,914 85,576Deposits 489,371 576,149 597,310 674,401 816,025Borrowings 59,833 70,701 79,180 91,558 106,512Minority interests - - - - -Total liabilities 606,268 710,496 746,001 843,584 1,009,824 Advances 377,560 440,967 434,360 512,545 620,179Investments 174,025 211,546 241,180 256,272 301,929Cash & bank bal 35,326 37,200 44,990 40,408 47,871Fixed & other assets 19,357 20,783 25,471 27,616 33,102Total assets 606,268 710,496 746,001 836,841 1,003,082No. of shares (m) 171 171 171 171 171Deposits growth (%) 13.8 17.7 3.7 12.9 21.0Advances growth (%) 18.2 16.8 (1.5) 18.0 21.0Source: Company, Anand Rathi Research

Fig 3 – Key ratios Year-end: Mar FY12 FY13 FY14e FY15e FY16e

NIM (%) 3.6 3.1 3.2 3.3 3.4Other inc / total inc (%) 21.4 25.2 23.7 23.1 22.3Cost-income (%) 39.4 44.7 47.6 46.0 45.0Provision coverage (%) 84.7 72.2 64.8 59.6 57.4Dividend payout (%) 19.8 18.4 20.4 19.1 17.0Credit-deposit (%) 77.2 76.5 72.7 76.0 76.0Investment-deposit (%) 35.6 36.7 40.4 38.0 37.0Gross NPA (%) 3.4 3.5 3.4 2.9 2.3Net NPA (%) 0.5 1.0 1.2 1.2 1.0BV (`) 66.7 74.4 81.3 90.7 102.0Adj. BV (`) 64.4 69.4 75.2 83.8 94.8 CAR (%) 16.6 14.7 14.8 15.7 14.6 - Tier 1 (%) 15.9 14.1 14.3 14.3 13.5RoE (%) 14.4 13.9 12.6 13.4 14.6RoA (%) 1.4 1.3 1.2 1.2 1.3Source: Company, Anand Rathi Research

Fig 4 – PE band

4x

7x

10x

13x

0

20

40

60

80

100

120

140

160

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

Oct

-10

Apr-1

1

Oct

-11

Apr-1

2

Oct

-12

Apr-1

3

Oct

-13

Apr-1

4

Federal Bank


Fig 5 – Price-to-book band

0.4x

0.8x

1.2x

1.6x

0

20

40

60

80

100

120

140

160

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

Oct

-10

Apr-1

1

Oct

-11

Apr-1

2

Oct

-12

Apr-1

3

Oct

-13

Apr-1

4

Federal Bank


Fig 6 – Federal Bank vs. Bankex

FB

Bankex

40

55

70

85

100

Apr-1

3

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

Source: Bloomberg



Result highlights Fig 7 – 4QFY14 Results vs Expectations (`m) 4QFY14 4QFY14e Var % 4QFY13 YoY % 3QFY14 QoQ %

Net interest income 6,251 5,825 7.3 4,798 30.3 5,456 14.6

Pre-provisioning profits 4,200 3,984 5.4 3,695 13.7 3,559 18.0

PAT 2,773 2,390 16.0 2,219 24.9 2,301 20.5


Fig 8 – 4QFY14 Results (`m) 4QFY14 4QFY13 % Chg FY14 FY13

Net interest income 6,251 4,798 30.3 22,286 19,747

Non-interest income 1,784 1,969 (9.4) 6,939 6,644

Fees 1,376 1,219 12.9 4,954 4,106

Treasury gains 269 576 (53.4) 1,571 2,058

Others 140 174 (19.6) 413 481

Pre-provisioning profits 4,200 3,695 13.7 15,304 14,596

PAT 2,773 2,219 24.9 8,389 8,382

(`m) 4QFY14 4QFY13 YoY 3QFY14 QoQ

Credit 434,360 440,967 (1.5) 416,400 5.9

Deposits 597,310 576,149 3.7 577,370 (0.2)

Credit-to-deposits 72.7 76.5 (382)bps 72.1 442bps

CASA % 30.8 27.2 364bps 30.4 (319)bps

Gross NPA 10,874 15,540 (30.0) 12,009 29.4

Net NPA 3,216 4,319 (25.6) 3,563 21.2

Gross NPA % 2.5 3.4 (98)bps 2.8 61bps

Net NPA % 0.7 1.0 (24)bps 0.9 12bps


SME credit growth increasing

Overall credit growth for Federal Bank during the quarter was sluggish, at 4.3% yoy (up 1.4% qoq). This was due to a 14% drop in the corporate loan book, the share of which has now declined 1070bps yoy to 31.4% in the overall loan book. SME loans continue to trend upward, growing 26% yoy. We expect the SME and retail segments to drive the 19% loan growth over FY14-16.

Fig 9 – Business growth sluggish

-5

0

5

10

15

20

25

1QFY

102Q

FY10

3QFY

104Q

FY10

1QFY

112Q

FY11

3QFY

114Q

FY11

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

(%)

-

5.0

10.0

15.0

20.0

25.0

30.0(%)

Credit Growth Business Growth (RHS)


Fig 10 – SME growth healthy, corporate in consolidation

-40

-30

-20

-10

0

10

20

30

40

50

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

Corporate SME Retail

(%)




NIM improves, expected to continue

Reported NIM increased sharply by 52bps yoy (up 34bps qoq) to 3.6%, led by a one time interest received on income tax refund. The proportion of CASA improved 360bps yoy, to 30.8%, on traction in savings deposit (up 19.9% yoy). Ahead, we expect improvement in NIM to 3.4%, given the likely drop in cost of funds, a higher credit-deposit ratio and the rising proportion of higher-yielding SME.

Fig 13 – NII growth jumps as NIM increase

1,000

2,000

3,000

4,000

5,000

1QFY

102Q

FY10

3QFY

104Q

FY10

1QFY

112Q

FY11

3QFY

114Q

FY11

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

2.5

3.0

3.5

4.0

4.5

Net Interest Income Reported NIM (RHS)

(`m) (%)

Source: Company

Fig 14 – CASA share improves

30

50

70

90

110

130

150

170

190

210

1QFY

102Q

FY10

3QFY

104Q

FY10

1QFY

112Q

FY11

3QFY

114Q

FY11

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

25.0

26.0

27.0

28.0

29.0

30.0

31.0

32.0

CASA CASA Share (RHS)

(`bn) (%)

Source: Company

Fig 11 – SME gaining share

0%

20%

40%

60%

80%

100%1Q

FY10

2QFY

103Q

FY10

4QFY

101Q

FY11

2QFY

113Q

FY11

4QFY

111Q

FY12

2QFY

123Q

FY12

4QFY

121Q

FY13

2QFY

133Q

FY13

4QFY

131Q

FY14

2QFY

143Q

FY14

4QFY

14

Corporate Advances S M E Advances Retail Loans


Fig 12 – Gold loan also slows down

0%

20%

40%

60%

80%

100%

1QFY

102Q

FY10

3QFY

104Q

FY10

1QFY

112Q

FY11

3QFY

114Q

FY11

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

Housing Loans Gold Loans Others Source: Company, Anand Rathi Research



Investment in branches slows down, treasury profits fall

Fee income, excluding treasury and recoveries, registered 12.9% yoy growth, while treasury profits decreased 53% yoy, leading to the 9.4% yoy decline in non-interest income. We expect fee income to grow in line with balance-sheet growth, given the various measures undertaken by the bank. Cost-income rose 230bps yoy, to 47.7%. Management expects to consolidate its strong branch network expansion in FY15. Consequently, we expect cost-income to improve to 45% by FY16.

Fig 15 – Core cost-income rises; bank to consolidate branches

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1QFY

102Q

FY10

3QFY

104Q

FY10

1QFY

112Q

FY11

3QFY

114Q

FY11

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

30

35

40

45

50

55

Branches Cost-Income (RHS)

(%)

Source: Company

Asset quality improves on lower slippages and sale to Arcil

GNPA declined 9.4% qoq, driven by: (a) Lower slippages yoy (1.8% of loans) and (b) `1.6bn sale of non-performing asset to ARCIL. Slippages in retail and SME seem to have stabilized. NPA coverage remained steady at 70.3%. The bank has restructured an additional `3.2m of loans in the quarter. The outstanding restructured portfolio now stands at 4.5% of book. A high restructured book are likely to keep credit costs at a high 60bps over FY15/16. The high 14.6% capital adequacy is better than most of its peers and offers fair assurance against further delinquencies.

Fig 16 – Asset quality improves on lower slippages yoy

0

400

800

1,200

1,600

2,000

2,400

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

Slippages in Retail Slippages in SME Slippages in corporate

(`m)

Source: Company



Valuations We raise our target to `108, from `98 earlier and value the bank at 1.1x 1HFY16e BV (1.1xFY15e earlier). The diversified loan book, better productivity and high capital adequacy would aid RoE expansion by FY16, to 14.4%. On the inexpensive valuations, we retain a Buy. At our target, the stock would trade at P/ABV of 1.2x FY15e and 1x FY16e. Our target is based on the two-stage DDM (CoE: 15.5%; beta: 0.8; Rf: 8.5%).

Fig 17 – Past one-year-forward P/BV

Mean

+1SD

-1SD

+2SD

-2SD

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Apr-0

8

Oct

-08

Apr-0

9

Oct

-09

Apr-1

0

Oct

-10

Apr-1

1

Oct

-11

Apr-1

2

Oct

-12

Apr-1

3

Oct

-13

Apr-1

4


Risk

Less-than-expected economic growth over FY15-16, leading to NPA being more than estimated, consequently leading to higher credit costs.

More-than-expected delinquencies could lead to a rise in costs of provisioning and drop in earnings.



Financials We expect the bank’s business to register an 18% CAGR over FY14-16,. We expect a 20.4% CAGR in net profit over the same period.

Fig 18 – Income Statement Year-end: Mar (`m) FY12 FY13 FY14e FY15e FY16e

Interest Income 55,584 61,676 69,461 74,191 84,817

Interest Expended 36,050 41,929 47,175 48,955 54,791

Net Interest Income 19,534 19,747 22,286 25,237 30,026

Growth (%) 11.8 1.1 12.9 13.2 19.0

Non-interest Income 5,323 6,644 6,939 7,583 8,608

Total Income 24,857 26,391 29,225 32,820 38,634

Non-interest income / Total Inc (%) 21.4 25.2 23.7 23.1 22.3

Operating Expenses 9,793 11,795 13,921 15,097 17,385

Employee Expenses 5,439 6,265 7,215 8,605 9,910

Other Expenses 4,354 5,531 6,705 6,492 7,476

Pre-provisioning profit 15,065 14,596 15,304 17,723 21,249

Growth (%) 5.6 (3.1) 4.9 15.8 19.9

Provisions 3,370 2,658 3,184 3,240 3,530

Profit Before Tax 11,695 11,938 12,120 14,483 17,719

Taxes 3,927 3,556 3,731 4,634 5,670

Tax Rate (%) 33.6 29.8 30.8 32.0 32.0

Profit After Tax 7,768 8,382 8,389 9,848 12,049

Growth (%) 32.3 7.9 0.1 17.4 22.3

Number of Shares (m) 171 171 171 171 171

Earnings Per Share (`) 45.4 49.0 49.0 57.6 70.4

Source : Company, Anand Rathi Research

Fig 19 – Balance Sheet Year-end: Mar (`m) FY12 FY13 FY14e FY15e FY16e

Share Capital 1,711 1,711 1,711 1,711 1,711

Reserves and Surplus 55,353 61,936 67,800 75,914 85,576

Net Worth 57,063 63,647 69,511 77,625 87,287

Deposits 489,371 576,149 597,310 674,401 816,025

Other Liabilities & Provisions 59,833 70,701 79,180 91,558 106,512

Total Loans 549,205 646,849 676,490 765,959 922,537

Total Liabilities 606,268 710,496 746,001 843,584 1,009,824

Advances 377,560 440,967 434,360 512,545 620,179

Investments 174,025 211,546 241,180 256,272 301,929

Cash & Bank Balances 35,326 37,200 44,990 40,408 47,871

Fixed & Other Assets 19,357 20,783 25,471 27,616 33,102

Total Assets 606,268 710,496 746,001 836,841 1,003,082

Source : Company, Anand Rathi Research

Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. Important Disclosures on subject companies Rating and Target Price History (as of 30 April 2014)

Federal Bank

1

2

3

4

56

7

8

9

10

0

20

40

60

80

100

120

Jan-

08

Apr-0

8Ju

l-08

Oct

-08

Jan-

09

Apr-0

9Ju

l-09

Oct

-09

Jan-

10Ap

r-10

Jul-1

0

Oct

-10

Jan-

11Ap

r-11

Jul-1

1

Oct

-11

Jan-

12Ap

r-12

Jul-1

2

Oct

-12

Jan-

13Ap

r-13

Jul-1

3

Oct

-13

Jan-

14Ap

r-14

Date Rating TP (`)

Share Price (`)

1 27-Sep-10 Buy 95 74 2 1-Nov-10 Buy 113 94 3 1-Aug-11 Buy 118 84 4 14-Dec-11 Buy 100 76 5 28-Jun-12 Buy 108 89 6 22-Oct-12 Buy 113 96 7 30-Apr-13 Buy 108 90 8 23-Jul-13 Buy 96 76 9 19-Sep-13 Buy 73 59

10 16-Dec-13 Buy 98 84









Consumer

Result UpdateIndia I Equities

`

Rating: Buy Target Price: `270 Share Price: `211

Key data BJCOR IN / BACO.BO52-week high / low `287 / `198Sensex / Nifty 22418 / 66963-m average volume US$0.6m Market cap `31bn / US$519mShares outstanding 148m

Shareholding pattern (%) Dec ’13 Sep ’13 Jun ’13


2 May 2014

Bajaj Corp.

Market-share gains; Buy

Key takeaways

Muted revenue growth. Bajaj Corp.’s revenues were flat, yoy, on price hikes of only 6%. Volume dropped 6.3%. The company reported lower primary sales as inventory days in trade have reduced from 55 to 32. Secondary revenue growth, though, was on track. The company has continued to report market share gains in Almond Drops hair oil. As of now, the company has market leadership in the almond drops hair oil industry with market share of 57.9%, up 350bps, yoy. On the other hand, it lost market share in Kailash Parbat cooling oil due to a delayed summer. It, however, continues to invest in this brand, along with expanding distribution. The company has raised average prices by 5% in April 2014.

EBITDA margin lower. The company reported gross margin expansion of 60bps due to price hikes of 6%. Average prices of major raw material, light liquid paraffin was up 6%, and that of refined oil was down 5.5%, yoy. EBITDA margin was up 50bps, yoy. Due to acquisition of No Marks and repayment of debt, other income is down 23%, yoy. The company has also reduced the ad-spend by 180bps, yoy. Effective income tax rate is also down 260bps, yoy. Net profit dropped 2%, yoy.

Our take. Competition in almond-based hair oils is benign. Dabur’s Almond Hair Oil has failed to gain more than a 4% market share. Keo Karpin is not investing in pushing its brands. This has led to Bajaj Corp. gaining market share. The market-share ratio of Bajaj Corp. to Keo Karpin has risen from 4.34 to 4.44. We expect a 13% earnings CAGR over FY14-16. We value the stock at a target price of `270, at a target PE of 18x FY16e earnings. We believe the success of Kailash Parbat and the No Marks acquisition would reduce dependence on Bajaj Almond Drops and erase the ‘single-product-company’ tag. Risks. Raw-material price rises, keener-than-expected competition.

Financials (YE Mar) FY15e FY16e

Sales (`m) 7,704 8,780

Net profit (`m) 1,931 2,206

EPS (`) 13.1 15.0

Growth (%) 12.3 14.2

PE (x) 16.9 14.8

PBV (x) 5.9 5.3

RoE (%) 35.9 37.9

RoCE (%) 38.3 40.3

Dividend yield (%) 3.5 3.7

Net gearing (%) (60.9) (65.5)

Source: Anand Rathi Research

Quarterly results (YE Mar) 4QFY13 4QFY14 % yoy FY13 FY14 % yoy

Sales (`m) 1,837 1,842 0.3 6,057 6,707 10.7

EBITDA (`m) 514 524 2.0 1,715 1,849 7.8

EBITDA margin (%) 28.0 28.5 (210) bps 28.3 27.6 (74) bps

Interest (`m) 0 16 4,636.8 1 59 7,076.7

Depreciation (`m) 8 10 13.5 40 43 9.0

Other income (`m) 112 86 (22.9) 411 412 0.2

PBT (`m) 617 584 (5.3) 2,085 2,159 3.5

Tax (`m) 125 104 (17.3) 424 440 3.7

Tax rate (%) 20.3 17.8 20 bps 20.3 20.4 10 bps

PAT (`m)* 492 481 (2.2) 1,662 1,719 3.5

Source: Company *Adjusted for extra ordinary items


Revenues (4.9) (7.3)EBITDA (6.9) (9.3)PAT (4.3) (6.7)


2 May 2014 Bajaj Corp – Market-share gains; Buy


Quick Glance – Financials and ValuationsFig 1 – Income statement (`m)

Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Net revenues 4,722 6,057 6,707 7,704 8,780 Revenue growth (%) 31.7 28.3 10.7 14.9 14.0 - Op. expenses 3,568 4,342 4,857 5,578 6,357 EBIDTA 1,154 1,715 1,849 2,126 2,423 EBITDA margin (%) 24.4 28.3 27.6 27.6 27.6 - Interest expenses 1 1 59 - - - Depreciation 26 40 43 67 77 + Other income 385 411 412 354 411 - Tax 311 424 440 483 551 Effective tax rate (%) 20.6 20.3 20.4 20.0 20.0 Reported PAT 1,201 1,662 1,719 1,931 2,206 +/- Extraordinary items - - (230.0) (376.0) (376.0)+/- Minority interest - - - - -Adjusted PAT 1,201 1,662 1,489 1,555 1,830 Adj. FDEPS (`/sh) 8.1 11.3 11.7 13.1 15.0 Adj. FDEPS growth (%) 21.2 38.4 3.5 12.3 14.2 Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (`m) Year-end: Mar FY12 FY13 FY14e FY15e FY16e

PAT 1,201 1,662 1,489 1,555 1,830 +Non-cash items 26 40 43 67 77 Cash profit 1,198 1,700 1,533 1,997 2,283 - Incr./(Decr.) in WC 28 (157) (81) 22 11 Operating cash-flow 1,226 1,544 1,452 2,019 2,294 -Capex (196) 1,188 (1,188) (300) (400) Free cash-flow 1,030 2,731 264 1,719 1,894 -Dividend (1,013) (1,114) (1,133) (1,198) (1,283) + Equity raised - - - - - + Debt raised - - - - - -Investments (556) - 270 (700) (700) -Misc. items - - - - - Net cash-flow (539) 1,617 (600) (178) (89) +Op. cash & bank bal. 813 275 1,892 1,292 1,114 Cl. cash & bank bal. 275 1,892 1,292 1,114 1,025 Source: Company, Anand Rathi Research

Fig 5 – PE band

Bajaj corp

9x

12x

15x

19x

23x

50

100

150

200

250

300

350

Aug-

10

Nov

-10

Feb-

11

May

-11

Aug-

11

Nov

-11

Feb-

12

May

-12

Aug-

12

Nov

-12

Feb-

13

May

-13

Aug-

13

Oct

-13

Jan-

14

Apr-1

4


Fig 2 – Balance sheet (`m) Year-end: Mar FY12 FY13 FY14e FY15e FY16e

Share capital 148 148 148 148 148 Reserves & surplus 4,131 4,678 5,045 5,402 5,949 Net worth 4,278 4,826 5,192 5,550 6,096 Minority interest - - - - -Total debt 4 - - - -Def. tax liab. (net) 10 15 4 4 4 Capital employed 4,292 4,840 5,196 5,553 6,100 Net fixed assets 819 1,221 2,366 2,223 2,170 Investments 3,135 1,845 1,575 2,275 2,975 - of which, Liquid 3,135 1,845 1,575 2,275 2,975 Net working capital 64 (118) (37) (58) (69)Cash and bank balance 275 1,892 1,292 1,114 1,025 Capital deployed 4,292 4,840 5,196 5,553 6,100 Net debt (3,405) (3,737) (2,867) (3,389) (4,000)WC days 1.4 (1.9) (0.5) (0.8) (0.8)Book value (`/sh) 29.1 32.8 35.2 37.7 41.4 Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `211 Year-end: Mar FY12 FY13 FY14e FY15e FY16e

P/E (x) 27.1 19.6 19.0 16.9 14.8 P/B (x) 7.6 6.7 6.3 5.9 5.3 EV/Sales (x) 6.3 4.9 4.4 3.9 3.4 EV/EBITDA (x) 25.8 17.3 16.1 14.0 12.3 RoAE (%) 29.8 36.4 34.3 35.9 37.9 RoACE (%) 28.0 36.7 36.0 38.3 40.3 Dividend yield (%) 2.0 3.2 3.2 3.5 3.7 Dividend payout (%) 49.1 57.7 55.8 53.5 50.1 RM to sales (%) 46.6 42.5 40.1 40.0 40.0 Ad spend to sales (%) 22.5 22.8 25.8 25.8 25.8 EBITDA growth (%) 6.8 48.6 7.8 15.0 14.0 EPS growth (%) 21.2 38.4 3.5 12.3 14.2 PAT margin (%) 27.6 25.4 27.4 25.6 25.1 FCF/EPS (%) 85.8 164.4 15.3 89.0 85.9 OCF /Sales (%) 26.0 25.5 21.6 26.2 26.1 Source: Company, Anand Rathi Research

Fig 6 – Revenue break-up

Bajaj Almond Drops91%

Brahmi Amla5%

Kailash Parbat1%

Amla Shikakai2%

Others1%

Source: Company



Result highlights Result comparison

Fig 7 – Estimates vs Actuals (`m) 4QFY14e 4QFY14 Change (%)

Revenues 1,947 1,842 (5.4)

EBITDA 541 524 (3.1)Margin (%) 27.8 28.5

PAT 505 481 (4.8)Margin (%) 25.9 26.1


Muted revenue growth. Bajaj Corp.’s revenues were flat, yoy, on price hikes of only 6%. Volume dropped 6.3%. The company reported lower primary sales as inventory days in trade have reduced from 55 to 32. Secondary revenue growth, though, was on track. The company has continued to report market share gains in Almond Drops hair oil. As of now, the company has market leadership in the almond drops hair oil industry with market share of 57.9%, up 350bps, yoy. On the other hand, it lost market share in Kailash Parbat cooling oil due to a delayed summer. It, however, continues to invest in this brand, along with expanding distribution. The company has raised average prices by 5% in April 2014.

Fig 8 – Muted revenue growth

0

5

10

15

20

25

30

35

Jun

12

Sept

12

Dec

12

Mar

13

Jun

13

Sept

13

Dec

13

Mar

14

(%)


Fig 9 – Improving market shares

0

15

30

45

60

FY08

FY09

FY10

FY11

FY12

FY13

FY14

(%)




EBITDA margin improves slightly

The company reported gross margin expansion of 60bps due to price hikes of 6%. Average prices of major raw material, light liquid paraffin was up by 6%, yoy. The average price of refined oil was down 5.5%, yoy. EBITDA margin was up 50bps, yoy. Due to acquisition of No Marks and repayment of debt, other income is down 23%, yoy. The company has also reduced the ad-spend by 180bps, yoy. Effective income tax rate is also down 260bps, yoy. Net profit dropped 2%, yoy.

Fig 10 – EBITDA margin expands

25

26

27

28

29

Jun

12

Sept

12

Dec

12

Mar

13

Jun

13

Sept

13

Dec

13

Mar

14

(%)


Fig 11 – Net profit drops

-10

0

10

20

30

40

50

Jun

12

Sept

12

Dec

12

Mar

13

Jun

13

Sept

13

Dec

13

Mar

14

(%)


Valuation

Competition in almond-based hair oils is benign. Dabur’s Almond Hair Oil has failed to gain more than a 4% market share. Keo Karpin is not investing in pushing its brands. This has led to Bajaj Corp. gaining market share. The market-share ratio of Bajaj Corp. to Keo Karpin has risen from 4.34 to 4.44.

We expect a 13% earnings CAGR over FY14-16. We value the stock at a target price of `270, at a target PE of 18x FY16e earnings. We believe the success of Kailash Parbat and the No Marks acquisition would reduce dependence on Bajaj Almond Drops and erase the ‘single-product-company’ tag.



Fig 12 – Mean PE and Standard deviation

Mean

+1SD

+2SD

-1SD

-2SD

0

5

10

15

20

25

Aug-

10

Nov

-10

Feb-

11

May

-11

Aug-

11

Nov

-11

Feb-

12

May

-12

Aug-

12

Nov

-12

Feb-

13

May

-13

Aug-

13

Oct

-13

Jan-

14

Apr-1

4


Risks

Higher raw-material prices.

More-than-expected competitive pressures.


Bajaj Corp

1

23

45

6

7

8

9

10

11

12

70

120

170

220

270

320

Aug-

10

Nov

-10

Feb-

11

May

-11

Aug-

11

Nov

-11

Feb-

12

May

-12

Aug-

12

Nov

-12

Feb-

13

May

-13

Aug-

13

Oct

-13

Jan-

14

Apr-1

4

Date Rating TP (`)

Share Price (`)

1 22-Nov-10 Hold 134 105 2 19-Apr-11 Buy 134 92 3 27-Jun-11 Buy 155 116 4 8-Nov-11 Buy 146 100 5 6-Mar-12 Buy 155 114 6 6-Jul-12 Buy 189 125 7 8-Oct-12 Buy 235 187 8 14-Dec-12 Buy 263 212 9 4-Jan-13 Buy 295 237

10 9-Apr-13 Buy 325 234 11 6-May-13 Buy 335 254 12 13-Feb-14 Buy 270 208









India I Equities

Retail

Result Update `

Rating: Hold Target Price: `366 Share Price: `364

Key data SHOP IN / SHOP.BO52-week high / low `444 / `318Sensex / Nifty 22418 / 66963-m average volume US$1.6m Market cap `30.2bn/US$487mShares outstanding 83m

Shareholding pattern (%) Mar ’14 Dec ’13 Sep ’13


2 May 2014

Shoppers Stop

Recovery still some time away; Hold

Key takeaways

Strong revenue growth. In 4QFY14, Shoppers Stop’s net sales (standalone) rose 18.1% yoy to `7.27bn. Comparable growth, at 8.4%, was quite low, resulting from lower growth by matured stores. Comparable volume growth improved 6.5%. With 3.3m members, First Citizen’s share of revenue was 72% (74% in 3QFY14 and 69% in 4QFY13). Consignment/SOR revenue came at 57.9% (55.3% in 3QFY14), bought-out items 39.4% and concession sales 2.7%. Revenue from Hypercity (a 51% subsidiary) increased 7.5%, with comparable sales declining 6.6% due to a cut in store area.

EBITDA margin declines. The standalone EBITDA margin dipped from 6.2% in 3QFY14 and 4.9% in 4QFY13 to 3.9% in the current quarter on the back of extended discount sales. In FY15/16, however, we expect it to expand following a slowdown in expansion and a rise in the proportion of private-label sales, to 20% (currently 15.6%). The company completed 70,000 sq.ft. of down-sizing in 4Q14, taking the total downsizing to 1.5lac sq.ft.

Other highlights. The area increased from 5.17m sq.ft. in 2QFY14 to 5.41m sq.ft. in 4QFY14 with the addition of two Shoppers Stop department stores (to 67 now), one MAC store and one Clinique store. In FY14, we expect the company to open eight stores, taking the store count to 75. Eight stores are likely to be added in FY16 & FY17.

Our take. With comparable growth recovering, we believe the standalone business is improving. The margin expansion, with an increase in private-label sales and with cost controls, would be a key growth driver. We believe Hypercity remains a drag and could return to profitability only in FY16. We maintain our Hold (call) on the stock and value it on a sum-of-parts basis at `366, using the PE multiple for the standalone business and m.cap/sales for Hypercity and Crossword. Risk. Slower growth in the economy.

Financials (YE Mar) * FY15e FY16e

Sales (`m) 43,360 49,762

Net profit (`m) 632 869

EPS (`) 7.6 10.4

Growth (%) NA 37

PE (x) 47.0 34.2

PBV (x) 2.7 2.4

RoE (%) 4.7 9.7

RoCE (%) 5.0 9.5


Net Debt Equity 93.8 70.5

Source: Anand Rathi Research *Consolidated

Quarterly results (YE Mar) 4QFY13 4QFY14 % yoy FY13 FY14 % yoy

Sales (`m) 6163 7279 18.1 22261 26807 20.4

EBITDA (`m) 299 284 -5.2 983 1207 22.8

EBITDA margin (%) 4.9 3.9 (96)bps 4.4 4.5 9bps

Interest (`m) 79 108 37.3 319 419 31.4

Depreciation (`m) 125 178 42.5 507 618 21.7

Other income(`m) 118 133 12.5 453 463 2.2

PBT (`m) 214 131 -38.8 610 634 3.9

Tax (`m) 62 50 -19.9 211 257 21.9

Tax rate (%) 29.1 38.1 899bps 34.6 40.6 598bps

PAT (`m) 152 81 -46.6 399 377 -5.6

Source: Company Note: Standalone numbers


Sales (2.5) (1.6)EBITDA (24.1) (15.6)PAT (15.3) (17.4)


2 May 2014 Shoppers Stop – Recovery still some time away; Hold


Quick Glance – Financials and ValuationsFig 1 – Income statement (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Net revenues 27,372 31,190 37,060 43,360 49,762 Revenue growth (%) 28.1 14.0 18.8 17.0 14.8 - Oper. expenses 26,838 30,795 36,377 41,841 47,626 EBIDTA 534 396 683 1,519 2,136 EBITDA margins (%) 1.9 1.3 1.8 3.5 4.3 - Interest 422 547 653 750 825 - Depreciation 609 791 981 1,000 1,050 + Other income 579 634 711 600 600 PBT 82 (315) (246) 369 861 Income taxes 322 228 257 125 293Reported net profit (240) (543) (503) 243 568 Minority Interest 434 430 420 389 301 PAT after MI 194 (106) (76) 632 869 PAT growth (%) (55.0) (154.3) (27.9) NA 37.4 Adj. FDEPS (`/sh) 2.4 (1.3) (0.9) 7.6 10.4 Adj. FDEPS growth (%) (55.2) (154.1) (28.1) NA 37.4 Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

PAT 194 (106) (76) 632 869

Non-cash items 527 525 1,018 1,000 1,050 Cash profit 722 419 942 1,632 1,919 Incr./(Decr.) in WC 701 411 (621) 721 134 Operating cash-flow 21 8 1,563 912 1,785 Capex 1,680 722 2,216 1,200 1,300 Free cash-flow (1,659) (715) (653) (288) 485 Dividend 72 73 73 73 73 Equity raised 29 27 45 (0) (0)

Debt raised 1,653 872 723 - -

Investments 0 - 0 - -Miscellaneous items - - - - -Net cash-flow (32) 118 11 27 713 Opening cash 182 150 268 278 306 Closing cash 150 268 278 306 1,018 Source: Company, Anand Rathi Research

Fig 5 – Merchandise buying model (4QFY14)

Bought out, 39.4%

Consignment and SOR, 57.9%

Concession,2.7%


Fig 2 – Balance sheet (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Share capital 413 415 416 416 416 Reserves & surplus 4,748 4,594 4,489 5,048 5,844 Net worth 5,160 5,009 4,905 5,464 6,260 Total debt 3,835 4,707 5,430 5,430 5,430 Minority interest 39 46 15 403 704 Def. tax liab. (net) 2 63 100 100 100 Capital employed 9,037 9,825 10,450 11,398 12,494 Net fixed assets 7,469 7,727 8,963 9,163 9,413 Investments 0 0 0 0 0 - of which, Liquid 0 0 0 0 0 Working capital 1,418 1,829 1,208 1,929 2,063 Cash 150 268 279 306 1,018 Capital deployed 9,037 9,825 10,450 11,398 12,494 Net debt/equity (%) 0.7 0.9 1.1 0.9 0.7 W C turn (days) 14 19 15 13 15 Book value (`/sh) 125 121 118 131 150 Source: Company, Anand Rathi Research

Fig 4 – Ratio analysis @ `364 Year-end: Mar FY12 FY13 FY14 FY15e FY16e

P/E (x) 154.7 NA NA 47.9 34.9 Cash P/E (x) 81.4 118.3 62.6 24.4 18.7 EV/EBITDA (x) 63.2 87.5 50.6 23.3 16.2 EV/sales (x) 1.2 1.1 0.9 0.8 0.7 P/B (x) 2.9 3.0 3.1 2.8 2.4 RoE (%) (4.7) (10.5) (10.1) 4.7 9.7 RoCE (%) (0.9) (4.2) (3.1) 5.0 9.5 Dividend yield (%) 0.2 0.2 0.2 0.2 0.2 Dividend payout (%) (25.8) (11.5) (12.4) 25.6 11.0 Net Debt to equity (x) 0.7 0.9 0.9 0.9 0.7 Debtor days 3 4 4 4 5 Inventory days 44 43 43 43 43 Payables days 44 45 45 46 46 Working capital days 14 19 15 13 15 Fixed asset T/O (x) 3.3 3.2 3.3 3.4 3.6 Source: Company, Anand Rathi Research

Fig 6 – Revenue break-up (standalone)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

Men Women Kids Non Apparels

Source: Company



Result Highlights Fig 7 – Estimates vs Actual Quarterly results (YE Mar) 4QFY14e 4QFY14 % var 4QFY13 % yoy 3QFY14 % qoq

Sales (`m) 7324 7279 (0.6) 6163 18.1 7004 3.9

EBITDA (`m) 432 284 (34.3) 299 (5.2) 434 (34.6)

EBITDA margin (%) 5.9 3.9 (200)bps 4.9 (96)bps 6.2 (230)bps

Interest (`m) 130 108 (17.0) 79 37.3 115 (6.4)

Depreciation (`m) 150 178 18.7 125 42.5 140 27.4

Other income(`m) 120 133 10.7 118 12.5 124 7.4

PBT (`m) 272 131 (51.9) 214 (38.8) 303 (56.8)

Tax (`m) 98 50 (49.1) 62 (19.9) 130 (61.6)

Tax rate (%) 36.0 38.1 209bps 29.1 899bps 42.8 (472)bps

PAT (`m) 174 81 (53.5) 152 (46.6) 173 (53.3)


Strong revenue growth

In 4QFY14, Shoppers Stop’s net sales (standalone) rose 18.1% yoy to `7.27bn. Comparable growth, at 8.4%, was quite low consequent on the lower growth in matured stores. Comparable volume growth improved 6.5%. With 3.3m members, First Citizen’s share of revenue was 72% (74% in 3QFY14 and 69% in 4QFY13). Consignment/SOR revenue was 57.9% (55.3% in 3QFY14), bought-out items 39.4% and concession sales 2.7%.

Fig 8 – First Citizen members and their contribution to sales

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

3.5

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

(m)

66

67

68

69

70

71

72

73

74

75

(%)

First citizen member First citizen member contribution to sales (RHS) Source: Company

Fig 9 – Comparable volume growth and average selling price

0

200

400

600

800

1,000

1,200

1,400

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

(`)

-15

-10

-5

0

5

10

15

20(%)

ASP LTL Volume growth (RHS) Source: Company, Anand Rathi Research

Fig 10 – Comparable sales growth

-2%0%2%4%6%8%

10%12%14%16%18%20%22%24%

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

Source: Company



Fig 11 – Sales/sq.ft. and total area

2.0

2.5

3.0

3.5

4.0

4.5

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

(msf)

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

(`)

Area m sq.ft Sales per sq.ft. (RHS) Source: Company

EBITDA margin expands

The standalone EBITDA margin dipped from 6.2% in 3QFY14 and 4.9% in 4QFY13 to 3.9% in the current quarter on the back of extended discount sales. In FY15/16, however, we expect it to expand following the slowdown in expansion and a rise in the proportion of private-label sales to 20% (currently 15.6%).

The company completed 70,000 sq.ft. of down-sizing in 4Q14, taking the total downsizing to 1.5lac sq.ft. It will continue this exercise to further downsize by 1.25lac sq.ft. in FY15-16. The new stores will not be selling furniture, white goods, mobiles, etc., aiding an expansion in the EBITDA margin. So far, in Hypercity, eight stores are EBITDA positive.

The proportion of the apparel business increased to 63.2% compared with 60.3% in 4QFY13.

Fig 12 – Private-label sales and growth

600

750

900

1,050

1,200

1,350

1,500

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

(`m)

0

5

10

15

20

25

30

(%)

Private label sales Private label sales growth (RHS) Source: Company

Fig 13 – Private sales vs non-private sales

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1QFY

11

2QFY

11

3QFY

11

4QFY

11

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

Non Private labels Private labels

Source: Company



Fig 14 – EBITDA and EBITDA margin

0

100

200

300

400

500

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

(`m)

0

2

4

6

8

(%)

EBITDA EBITDA Margin (RHS) Source: Bloomberg, Company, Anand Rathi Research

Other Highlights

The area increased from 5.17m sq.ft. in 2QFY14 to 5.41m sq.ft. in 4QFY14 with the addition of two Shoppers Stop department stores (to 67 now), an MAC store and a Clinique store. In FY14, we expect the company to open eight stores, taking its store count to 75. Eight stores are likely to be added in FY16 & FY17.

Fig 15 – Revenue vs store growth

0

10

20

30

40

50

60

70

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1F

Y14

Q2F

Y14

Q3F

Y14

Q4F

Y14

(nos.)

3,500

4,250

5,000

5,750

6,500

7,250

8,000

8,750

(`m)

Shoppers stop store Home Stores Mother care

MAC/Estee/Clinique Revenue (RHS) Source: Company, Anand Rathi Research

Fig 16 – Store count Stores Nos.

Shoppers Stop Department stores 67

Crossword 44

Homestop 18

Mother Care 4

MAC/Estee/Clinique/Bobbi Brown 66

Hypercity 15

Total 214

Source: Company

Hypercity remains a drag

Revenue from Hypercity (a 51% subsidiary) increased 7.5% with comparable sales declining 6.6% due to a cut in the store area. The gross margin expanded



90bps yoy following more sales of apparel, which now contributes over 12.6% of sales. The management plans to increase it to ~15% over a few quarters. The company, however, suffered a `140m/`103m EBITDA/PAT loss (adjusting for one time gain from property options).

Valuations

We maintain a Hold recommendation, and value the stock on a sum-of-parts basis at `366, using the PE multiple for the standalone business and m.cap/sales for Hypercity and Crossword.

Fig 19 – Sum-of-parts calculation

Basis of Valuation Driver Value (`m) Multiple (x) Value (`m) Value Per

share (`)Standalone Business P/E Mar'16 1,239 16.0 19,826 239 Other Businesses Hypercity M Cap /sales - Mar'16 11,055 1.5 16,582 102 Crossword M Cap /sales - Mar'16 1,381 1.5 2,071 25

Fair Value (per share) 38,479 366 Source: Anand Rathi Research

Risks

Revival in the macro-economic scenario

Increase/decrease in the pace of expansion.

Fig 17 – Sales/sq.ft. and Total area (Hypercity)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

(msf)

0

500

1,000

1,500

2,000

2,500

(`)

Area Sales per sq. ft. (RHS)


Fig 18 – Gross and EBITDA margins (Hypercity)

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

(%)

Gross margin EBITDA margin Source: Company, Anand Rathi Research


Shoppers Stop

1

2

250

300

350

400

450

500

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

Date Rating TP (`)

Share Price (`)

1 15-Jan-13 Hold 440 450 2 29-Oct-13 Hold 357 338









India I Equities Cement

Result Update `


Key data ORCMNT IN 52-week high / low `60 / `30Sensex / Nifty 22418 / 66963-m average volume US$0.05mMarket cap `10bn / US$167Shares outstanding 204.9m

Shareholding pattern (%) Mar’14 Dec’13 Sep’13


2 May 2014

Orient Cement

In-line 4Q; recovery ahead, expansion on track; Buy

Key takeaways

Dispatches up 8% yoy. Orient Cement’s 4QFY14 dispatches rose 8% yoy (22% qoq), to 1.2m tons, better than regional growth rate. It operated at 96% utilisation in 4Q and 84% in FY14. Average realisation, though, fell 8% yoy (4% qoq) to `3,290 a ton, below estimates. The drop can be attributed largely to price decline in AP (30% of sales). Revenue slid 1% yoy (up 16% qoq).

EBITDA falls 27% yoy; rises 4% qoq. EBITDA fell 27% yoy, though qoq it rose 4%, and was 7% over our estimates. EBITDA/ton came at `425 (vs `630 in 4QFY13 and `495 in 3QFY14) better than we expected, because of lower power & fuel costs. PAT dipped 27% yoy, in line with the EBITDA decline. Cost deflation stemmed chiefly from decline in freight (10% yoy), fixed costs (11% yoy) and static power & fuel charges.

Capacity addition in progress. Work on the proposed 3m-ton greenfield project in Gulbarga, Karnataka, is underway, with most of the land and clearances in place. Equipment has been ordered and commissioning is slated for 1QFY16. Trial production is expected to start from Apr’15 and commercial production from Jun’15. Capex of `17.2bn is to be funded through a mix of debt (`12bn) and internal accruals. Financial closure has been achieved. The project includes associated infrastructure such as a 45 MW thermal plant, a 7-MW waste-heat-recovery plant and a railway line.

Our take. Orient Cement’s EBITDA and PAT was largely in-line with estimates due to lower-than-expected costs. We expect better performance in FY15 given expectation of better cement prices in Maharashtra and AP. Our fair price is `60, based on 7x Mar’16e EV/EBITDA. The implied EV/ton is US$52, with a PE of 12x. The stock is attractively priced when benchmarked against midcap peers. A key advantage is its low-cost cement production, resulting in industry-leading RoE and RoCE. Risk. Drop in cement prices.

Year-end: Mar FY15e FY16e

Sales (`m) 17,016 20,550

Net profit (`m) 1,536 1,014

EPS (`) 7.5 5.0

Growth (%) 52.1 (34.0)

PE (x) 6.5 9.9

EV/EBITDA (x) 7.1 6.2

EV/ton (US$) 41.8 47.3

RoE (%) 17.3 10.4

RoCE (%) 13.0 10.7

Net gearing (x) 1.1 1.3


Year-end: Mar 4QFY13 4QFY14 % yoy FY13 FY14 % yoy

Sales (`m) 4,000 3,960 (1.0) 14,844 14,302 (3.7)

EBITDA (`m) 703 512 (27.2) 3,015 2,065 (31.5)

EBITDA margin (%) 17.6 12.9 (464)bps 20.3 14.4 (588)bps

EBITDA per ton (`) 628 425 (32.2) 737 491 (33.4)

Interest (`m) 39 31 (20.0) 187 144 (23.1)

Depreciation (`m) 145 143 (1.5) 561 564 0.6

Other income(`m) 109 64 (41.1) 219 175 (19.8)

PBT (`m) 628 402 (36.0) 2,486 1,532 (38.4)

Tax (`m) 267 139 (48.0) 870 522 (40.0)

Adj. PAT (`m) 361 263 (27.1) 1,617 1,010 (37.5)


2 May 2014 Orient Cement – In-line 4Q; recovery ahead, expansion on track; Buy



Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Net revenues 13,729 14,844 14,302 17,016 20,550 Revenue growth (%) 33.2 8.1 (3.7) 19.0 20.8 - Op. expenses 9,600 11,829 12,237 14,173 16,901 EBIDTA 4,129 3,015 2,065 2,843 3,649 EBITDA margin (%) 30.1 20.3 14.4 16.7 17.8 - Interest expenses 189 187 144 85 1,131 - Depreciation 581 561 564 606 1,157 + Other income 234 219 175 175 175 - Tax 1,216 870 522 791 523 Effective tax rate (%) 33.8 35.0 34.1 34.0 34.0 Reported PAT 2,378 1,617 1,010 1,536 1,014 +/- Extraordinary items - - - - -+/- Minority interest - - - - 1.00 Adjusted PAT 2,378 1,617 1,010 1,536 1,014 Adj. FDEPS (`/sh) 11.6 7.9 4.9 7.5 5.0 Adj. FDEPS growth (%) 54.9 (32.0) (37.5) 52.1 (34.0)Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (`m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

PAT - 1,617 1,010 1,536 1,014 +Non-cash items - 636 564 606 1,407 Cash profit - 2,253 1,574 2,142 2,422 - Incr./(Decr.) in WC - 140 (170) 92 119 Operating cash-flow - 2,113 1,744 2,051 2,303 -Capex - 299 3,161 9,300 4,600 Free cash-flow - 1,813 (1,417) (7,249) (2,297) -Dividend - 479 355 357 354 + Equity raised - (0) - - - + Debt raised - (941) 1,787 7,500 2,500 -Investments - 0 0 - - -Misc. items - - (37) - - Net cash-flow - 393 53 (106) (151) +Op. cash & bank bal. - 369 763 816 710 Cl. cash & bank bal. 369 763 816 710 558 Source: Company, Anand Rathi Research

Fig 5 – Sales trend

-20

-10

0

10

20

30

40

50

60

70

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Sep-

09D

ec-0

9M

ar-1

0Ju

n-10

Sep-

10D

ec-1

0M

ar-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4

Sales Sales growth yoy (RHS)

(`m)(%)

Source: : Company, Anand Rathi Research

Fig 2 – Balance sheet (`m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Share capital NA 205 205 205 205 Reserves & surplus NA 7,363 8,083 9,262 9,923 Net worth NA 7,567 8,288 9,467 10,128 Minority interest NA - - - -Total Debt NA 1,489 3,277 10,777 13,277 Def. tax liab. (net) NA 1,293 1,266 1,266 1,516 Capital employed NA 10,350 12,830 21,509 24,920 Net fixed assets NA 8,935 11,532 20,226 23,669 Investments NA 0.0 0.1 0.1 0.1 - of which, Liquid 0.0 0.0 0.0 0.0 Net working capital NA 652 482 574 693 Cash and bank balance NA 763 816 710 558 Capital deployed NA 10,350 12,830 21,509 24,920 Net debt NA 726 2,461 10,067 12,718 WC days NA 14 14 11 11 Book value (`/sh) NA 37 40 46 49 Source: Company, Anand Rathi Research


P/E (x) 4.2 6.2 9.9 6.5 9.9 P/B (x) 1.6 1.3 1.2 1.1 1.0 P/CEPS (x) 3.3 4.4 6.4 4.7 4.1 EV/EBITDA (x) 2.9 3.6 6.0 7.1 6.2 EV/Ton (US$) 40.2 35.8 41.6 41.8 47.3 RoE (%) 44.5 23.1 12.7 17.3 10.4 RoCE (%) 36.5 24.0 12.9 13.0 10.7 Net Debt / Equity (x) 0.3 0.1 0.3 1.1 1.3 Interest Coverage (x) 18.8 13.1 10.4 26.3 2.2 DPS (`) 1.9 2.0 1.5 1.5 1.5 Dividend yield (%) 4.0 4.1 3.0 3.1 3.0 Dividend payout (%) 16.7 25.3 30.0 20.0 30.0 NSR/ton (`) 3,583 3,628 3,402 3,750 4,000 EBITDA/ton (`) 1,078 737 491 627 710 Volumes (m tons) 3.8 4.1 4.2 4.5 5.1 Source: Company, Anand Rathi Research

Fig 6 – PBIT trend

-

5

10

15

20

25

30

35

40

-

200

400

600

800

1,000

1,200

1,400

Sep-

09D

ec-0

9M

ar-1

0Ju

n-10

Sep-

10D

ec-1

0M

ar-1

1Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

n-12

Sep-

12D

ec-1

2M

ar-1

3Ju

n-13

Sep-

13D

ec-1

3M

ar-1

4

PBIT PBIT Margin (RHS)

(`m) (%)

Source: : Company, Anand Rathi Research



Result highlights Fig 7 – 4QFY14 Results vs Expectations 4QFY14 4QFY14e % Var 4QFY13 % yoy 3QFY14 % qoq

Sales (`m) 3,960 4,390 (9.8) 4,000 (1.0) 3,406 16.3 EBITDA (`m) 512 477 7.4 703 (27.2) 491 4.2 EBITDA margin (%) 12.9 10.9 19.1 17.6 (26.4) 14.4 (10.4)EBITDA per ton (`) 425 374 13.7 628 (32.2) 497 (14.4)Interest (`m) 31 39 (20.0) 39 (20.0) 35 (11.3)Depreciation (`m) 143 145 (1.5) 145 (1.5) 141 1.1 Other income (`m) 64 109 (41.1) 109 (41.1) 32 99.5 PBT (`m) 402 402 0.1 628 (36.0) 347 15.8 Tax (`m) 139 137 1.5 267 (48.0) 118 17.5 Adj. PAT (`m) 263 265 (0.7) 361 (27.1) 229 15.0


Fig 8 – Per-ton analysis (`) 4QFY13 4QFY14 % yoy 3QFY14 % qoqRealization 3,575 3,289 (8.0) 3,443 (4.5)EBITDA 628 425 (32.2) 497 (14.4)Sales Volumes (m tons) 1.12 1.20 7.5 0.99 21.7 Costs Raw Material 556 559 0.5 626 (10.7)Stores, Chemicals & Spares 78 81 4.3 94 (13.8)Power & Fuel 871 875 0.5 1,007 (13.2)Packing, Freight & Forwarding 808 727 (10.1) 740 (1.7)Staff 140 121 (13.1) 146 (16.6)Other Expenditure 509 455 (10.7) 478 (4.8)


Orient Cement’s 4QFY14 dispatches rose 8% yoy (22% qoq) to 1.2m tons, better than the regional growth rate. It was marginally lower than our estimate. It operated at 96% utilisation in 4Q and 84% in FY14. Average realisation though fell 8% yoy (4% qoq) to `3,290 a ton, lower than our estimate. The drop can be attributed largely to the price decline in AP (30% of sales). Revenue slid 1% yoy (up 16% qoq).

EBITDA fell 27% yoy, though qoq it rose 4%, and was 7% over our estimation. EBITDA/ton came at `425 (vs `630 in 4QFY13 and `495 in 3QFY14) better than we expected, because of lower power &fuel costs. PAT dipped 27% yoy, in line with the EBITDA decline. Cost deflation stemmed chiefly from decline in freight (10% yoy), fixed costs (11% yoy) and static power & fuel charges. Better availability of coal from Singareni Collieries arrested any escalation in fuel costs.

Key updates

Work on the proposed 3m-ton greenfield project in Gulbarga, Karnataka, is underway, with most of the land and clearances in place. Equipment has been ordered and commissioning is slated for 1QFY16. Trial production is expected to start from Apr’15 and commercial production from Jun’15. Capex of `17.2bn is to be funded through a mix of debt (`12bn) and internal accruals. It has already spent `5.5bn till Mar’14. Financial closure has been achieved. The company has taken a short-term loan of `3bn as on Mar’14, which will be repaid once the banks start releasing the term loans.

The project includes associated infrastructure such as a 45 MW thermal plant, a 7-MW waste-heat-recovery plant and a railway line.



Valuations The stock is attractively priced when benchmarked against peers in the mid- to small-cap space. The company’s key competitive advantage is that it is a low-cost cement producer, resulting in industry-leading RoE and RoCE. Our fair price is `60, based on 7x Mar’16e EV/EBITDA. The implied EV per ton is US$52, with a PE of 12x. We have a Buy rating on the stock.

Risks

A sharp spike in coal prices.

Drop in cement prices.

Fig 9 – Peer comparison FY15e EV/ton EV/EBITDA PE P/BV RoE RoCE Capacity EBITDA/ton Net Gearing

(US$) (x) (x) (x) (%) (%) (m ton) (`) (x)

Orient Cement 42 7.1 6.7 1.1 17.3 13.0 8.0 627 0.1

Shree Cement 132 11.1 22.2 3.8 18.3 16.6 21.5 949 (0.3)

Madras Cement 94 10.2 22.3 1.9 9.0 7.1 13.5 728 1.1

India Cement 67 8.1 19.4 0.6 2.9 6.3 14.1 632 0.6

JK Cement 57 8.9 13.5 1.0 7.7 6.9 11.6 650 0.7

Mangalam Cement 35 4.6 5.7 0.6 12.0 9.5 3.3 587 0.3



Orient Cement

4

3

1

2

30

35

40

45

50

55

Jul-1

3

Aug-

13

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr-1

4

Date Rating TP (`)

Share Price (`)

1 13-Aug-13 Buy 58 36 2 9-Oct-13 Buy 54 38 3 3-Feb-14 Buy 52 36 4 4-Apr-14 Buy 60 46









Autos


`


Key data SWE IN / SWAR.BO

52-week high / low `773 / `421

Sensex / Nifty 22418 / 6696

3-m average volume US$0.1m

Market cap `8.96bn / US$149.3m

Shares outstanding 12.4m

Shareholding pattern (%) Mar’14 Dec’13 Sep’13

Promoters 50.62 50.62 50.62

- of which, Pledged - - -

Free Float 49.38 49.38 49.38

- Foreign Institutions 2.53 1.94 1.90

- Domestic Institutions 10.30 10.55 10.43

- Public 36.55 36.89 37.05

Estimates revision (%) FY14 FY15e FY16e

Sales 5.8 3.5 6.4 EBITDA 6.2 7.4 9.5 EPS 5.1 7.3 9.3


2 May 2014

Swaraj Engines

Results surprise, maintain Buy

Key takeaways

Healthy volume growth. Boosted by greater capacity, Swaraj Engines hit its highest ever quarterly sales in 4QFY14, its engine volumes growing 40.8% yoy. Qoq growth was also good at 4%. This was, much better than our expectations. Tractor sales of M&M, for whose ‘Swaraj’ family of tractors Swaraj Engines sells engines, were up just 11.5% yoy and lower 29.4% qoq. This indicates that the Swaraj family of tractors continues to gain prominence within M&M’s product mix. Driven by strong volume growth, total income grew 39.1% yoy to `1.6bn as realisations were lower 1.2% yoy.

EBITDA margin improves. EBITDA margin, at 15.1%, was 80bps higher yoy and 60bps qoq. Lower margin was mainly attributable to a lower qoq RM/sales ratio (by 60bps), while other-expenditure-to-sales ratio was 90bps lower yoy.

Profit less than anticipated. On the back of 46.4% yoy, EBITDA growth, profit growth was lower at 25.3% yoy to Rs175m (bettering expectations). This was due to lower non-operating income and an effective tax rate higher by 160bps.

Our take. The results bettered our expectations chiefly because of better-than-expected volumes (it may be noted that 3Q volumes were a shade lower than expected). Growth ahead would be boosted by a better performance by the Swaraj division of tractors as compared to the rest of the tractor industry. For FY15 however, the tractor industry growth outlook is likely to be under pressure. We expect tractors to do well in the long run, led by more scope for productivity, low penetration, need for mechanization and shortage of labour. Greater capacity could prove to be a huge fillip. We maintain a Buy. At the ruling market price, the stock trades at 11.7x FY15e and 10.5x FY16e. We value it at 12.5x Sep’15e earnings and arrive at a price target of `780. Risks. Commodity price rises, loss of market share by M&M, tractor cycle slowdown, labour strife.


Sales (`m) 6,735 7,775

Net profit (`m) 765 854

EPS (`) 61.6 68.8

Growth (%) 11.6 11.7

PE (x) 11.7 10.5

PBV (x) 3.5 2.9

RoE (%) 30.0 27.9

RoCE (%) 42.2 39.3


Net gearing (%) -2.7 -3.4


Quarterly results (YE Mar) 4QFY13 4QFY14 % yoy 9MFY13 9MFY14 % yoy

Sales (`m) 1,145 1,594 39.1 3,645 4,489 23.2

EBITDA (`m) 164 241 46.4 551 666 20.9

EBITDA margin (%) 14.3 15.1 75bps 15.1 14.8 -28bps

Interest (`m) 0 0 0.0 1 0 -78.6

Depreciation (`m) 22 25 13.4 49 66 33.7

Other income (`m) 58 40 -29.9 96 135 40.7

PBT (`m) 199 256 28.1 596 723 21.3

Tax (`m) 60 81 34.8 181 227 25.5

Tax rate (%) 30.1 31.7 157bps 30.4 31.4 105bps

Adjusted Profit (`m) 139 175 25.3 415 501 20.7

Source: Company

2 May 2014 Swaraj Engines – Results surprise, maintain Buy


Quick Glance – Financials and ValuationsFig 1 – Income statement (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Net revenues 4,486 4,790 6,083 6,735 7,775Revenue growth (%) 24.2 6.8 27.0 10.7 15.4- Op. expenses 3,792 4,075 5,177 5,706 6,617EBIDTA 694 715 906 1,029 1,158EBITDA margin (%) 15.5 14.9 14.9 15.3 14.9- Interest expenses 1 2 0 2 2- Depreciation 43 72 91 103 113+ Other income 122 153 175 185 195- Extraordinary items 0 0 0 0 0- Tax 245 241 308 344 384Effective tax rate (%) 31.6 30.3 31.1 31.0 31.0Reported Profit 528 554 693 765 854Adjusted Profit 528 554 685 765 854Adj. Profit growth (%) 20.3 4.9 23.7 11.6 11.7Adj. FDEPS (`/sh) 42.5 44.6 55.2 61.6 68.8Adj. FDEPS growth (%) 20.3 4.9 23.7 11.6 11.7Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Reported Profit 528 554 693 765 854+ Depreciation 43 72 91 103 113Cash profit 571 626 784 868 967- Incr./(decr.) in WC -76 -261 -127 139 -20Operating cash-flow 646 887 911 729 987- Capex 266 392 117 400 200Free cash-flow 380 495 794 329 787- Dividend 161 410 435 310 342+ Equity raised 0 0 0 0 0+ Debt raised 0 0 0 0 0- Investments 233 -70 -20 300 300- Misc. items 50 44 91 -10 -10Net cash-flow -65 110 288 -272 155+ Op. cash & bank bal. 762 697 807 1,095 823Cl. cash & bank bal. 697 807 1,095 823 979Source: Company, Anand Rathi Research

Fig 5 – PE band

Swaraj Engines

3x

5x

7x

9x

11x

13x

50

150

250

350

450

550

650

750

850

Apr-0

9

Aug-

09

Dec

-09

Apr-1

0

Aug-

10

Dec

-10

Apr-1

1

Aug-

11

Dec

-11

Apr-1

2

Aug-

12

Dec

-12

Apr-1

3

Aug-

13

Dec

-13

Apr-1

4


Fig 2 – Balance sheet (` m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Share capital 124 124 124 124 124Reserves & surplus 1,739 1,813 1,975 2,429 2,941Net worth 1,863 1,937 2,099 2,553 3,066Total debt 0 0 0 0 0Def. tax liab. (net) 32 63 69 79 89Capital employed 1,895 2,001 2,168 2,632 3,155Net fixed assets 505 832 858 1,155 1,242Investments 811 742 722 1,022 1,322Net working capital -119 -380 -507 -368 -388Cash and bank balance 697 807 1,095 823 979Capital deployed 1,895 2,001 2,168 2,632 3,155No. of shares (m) 12 12 12 12 12Net debt -1,508 -1,549 -1,817 -1,845 -2,301Net debt / Equity -81.0 -79.9 -86.6 -72.3 -75.0WC turn days 2 6 -3 -3 -3Book value (`/sh) 150.0 156.0 169.0 205.6 246.8Source: Company, Anand Rathi Research


P/E (x) 17.0 16.2 13.1 11.7 10.5P/B (x) 4.8 4.6 4.3 3.5 2.9EV/EBITDA (x) 10.8 10.4 7.9 6.9 5.8RoE (%) 28.4 28.6 33.0 30.0 27.9RoCE (%) 40.8 39.8 45.7 42.2 39.3Dividend yield (%) 1.8 4.6 4.8 3.5 3.8Dividend payout (%) 30.6 74.0 62.7 40.6 40.0Debt to equity (%) 0.0 0.0 0.0 0.0 0.0Core P/E (x) 20.1 19.9 15.8 14.0 12.4Cash P/E 15.7 14.3 11.4 10.3 9.3EV/sales 1.7 1.5 1.2 1.1 0.9Inventory days 27.2 30.0 27.8 27.8 27.8Receivables days 9.7 7.0 4.7 4.7 4.7Payables days 35.4 31.5 35.5 35.5 35.5Asset Turnover 2.4 2.4 2.8 2.6 2.5Source: Company, Anand Rathi Research

Fig 6 – Trend in EBITDA margin

14

15

16

17

18

19

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

e

FY16

e




Result highlights Fig 7 – 4QFY14 Results vs Expectations (`m) 4QFY14 4QFY14e Var % 4QFY13 YoY % 3QFY14 QoQ %

Revenue 1,594 1,260 26.4 1,145 39.1 1,502 6.1

EBITDA 241 188 28.2 164 46.4 218 10.4

EBITDA Margin (%) 15.1 14.9 21 14.3 75 14.5 58

Adjusted Profit 175 142 23.1 139 25.3 161 8.7

EPS (`) 14.1 11.4 23.1 11.2 25.3 12.9 8.7


Volumes better qoq and yoy

Boosted by greater capacity, Swaraj Engines hit its highest ever quarterly sales in 4QFY14, its engine volumes growing 40.8% yoy. Qoq growth was also good at 4%. This was, much better than our expectations. Tractor sales of M&M, for whose ‘Swaraj’ family of tractors Swaraj Engines sells engines were up just 11.5% yoy and lower 29.4% qoq. This indicates that the Swaraj family of tractors continues to gain prominence within M&M’s product mix.

Fig 8 – Trend in volumes

21.216.6

1.2

7.1

21.2

40.8

12.116.1 12.1

(4.1)

26.9 28.5

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY12 FY13 FY14

-5

0

5

10

15

20

25

30

35

40

45

Engine volume trend yoy change (RHS) Source: Company, Anand Rathi Research

Profits better expectations

Driven by strong volume growth, total income grew 39.1% yoy to `1.6bn as realisations were lower 1.2% yoy. The EBITDA margin, at 15.1%, was 80bps higher yoy and 60bps qoq. The lower margin was mainly attributable to a lower qoq RM/sales ratio (by 60bps), while the other-expenditure-to-sales ratio was 90bps lower yoy. On the back of 46.4% yoy EBITDA growth, profit growth was lower at 25.3% yoy to Rs175m (bettering expectations). This was due to lower non-operating income and an effective tax rate higher by 160bps.

Capacity expansion

Swaraj Engines benefited from its timely expansion in FY13 in time for the tractor-cycle recovery in FY14. With this capacity likely to be fully utilised in the near-term itself, the Board has approved further capacity expansion from 75,000 units to 105,000 units over the next 1.5 years. The cost involved would be `380m, to be fully financed from internal resources. Besides capacity augmentation, the company is also to focus on engineering and quality.



Per-unit parameters were better qoq. Realisations were 1.2% lower yoy, but higher 2.1% qoq. EBITDA per engine was up 4% yoy and 6.2% qoq; while contribution per engine while lower 1.9% yoy was up 4.6% qoq. The profit per engine was 11% lower yoy, but higher 4,6% qoq.

Fig 9 – EBITDA margin higher yoy

16.2

14.7

15.3

14.8

14.314.5

15.1

15.515.4 15.3

15.014.9

140

160

180

200

220

240

260

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY12 FY13 FY14

14

15

16

17

EBITDA EBITDA as a % of Sales (RHS)


Fig 10 – RM/Sales lower qoq

77.0

75.5

77.9

75.3

76.7

75.6

76.3

75.6

76.6

75.3

76.4

75.8

700

800

900

1,000

1,100

1,200

1,300

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY12 FY13 FY14

75.0

76.0

77.0

78.0

Raw-material cost RM cost as a % of Sales (RHS)


Fig 11 – Realisation–per-vehicle higher qoq

7.1

9.4

5.0

0.9

(1.9)(3.1)

(0.5)(1.2)

7.1

4.76.0

(1.1)

78,000

79,000

80,000

81,000

82,000

83,000

84,000

85,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY12 FY13 FY14

(4.0)

(2.0)

-

2.0

4.0

6.0

8.0

10.0

Realisation yoy change (RHS)


Fig 12 – Contribution-per-vehicle lower yoy

(1.3)

5.4

(1.8)

14.8

7.15.9

(0.8)(1.9)

4.6

(0.5) (1.1) (1.9)

17,000

18,000

19,000

20,000

21,000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY12 FY13 FY14

-5

0

5

10

15

20

Contribution yoy change (RHS)


Fig 13 – EBITDA-per-vehicle up yoy

(1.2)

(9.4)

(2.0)

4.9

0.0

9.2

(5.8)

(2.1)

4.0

(5.8)

(3.4)

(5.4)

11,500

11,900

12,300

12,700

13,100

13,500

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY12 FY13 FY14

-10

-6

-2

2

6

10

EBITDA yoy change (RHS)


Fig 14 – Profit-per-vehicle also higher qoq

4.1

(2.9)

3.9

0.0

6.0

(8.8)

8.3

(3.2) (3.7)

(11.0)

7.0

(4.5)

8,800

9,000

9,200

9,400

9,600

9,800

10,000

10,200

10,400

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

FY12 FY13 FY14

-15

-10

-5

0

5

10

Profit yoy change (RHS)




Valuations The results bettered our expectations chiefly because of better-than-expected volumes (it may be noted that 3Q volumes were a shade lower than expected). Growth ahead would be boosted by a better performance by the Swaraj division of tractors as compared to the rest of the tractor industry.

For FY15 however, the tractor industry growth outlook is likely to be under pressure. We expect tractors to do well in the long run, led by more scope for productivity, low penetration, need for mechanization and shortage of labour. Greater capacity could prove to be a huge fillip. We maintain a Buy. At the ruling market price, the stock trades at 11.7x FY15e and 10.5x FY16e. We value it at 12.5x Sep’15e earnings and arrive at a price target of `780.

Risks. Commodity price rises, loss of market share by M&M, tractor cycle slowdown, labour strife.

Fig 15 – EV/EBITDA Band

Mean

+1SD

+2SD

-1SD

-2SD

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Source: company, Anand Rathi Research


Swaraj Engines

8

7

1

2

3

4

5

6

350

400

450

500

550

600

650

700

750

Jan-

12

Apr-1

2

Jul-1

2

Oct

-12

Jan-

13

Apr-1

3

Jul-1

3

Oct

-13

Jan-

14

Apr-1

4

Date Rating TP (`)

Share Price (`)

1 24-Sep-12 Buy 532 412 2 7-Jan-13 Buy 623 503 3 23-Apr-13 Buy 551 440 4 31-Jul-13 Buy 581 488 5 22-Oct-13 Buy 610 506 6 9-Jan-14 Buy 697 640 7 3-Feb-14 Buy 701 607 8 7-Apr-14 Buy 722 675









Chemical


`

Rating: Hold Target Price: `71 Share Price: `62

Key data PHCB IN /PHIL.BO

52-week high / low `76/ `32

Sensex / Nifty 22418 / 6696

3-m average volume US$0.1m

Market cap `2.1bn / US$35.5m

Shares outstanding 34.5m

Shareholding pattern (%) Mar ’14 Dec ’13 Sep ’13

Promoters 53.4 53.0 52.6

- of which, Pledged - - -

Free Float 46.6 47.0 47.4

- Foreign Institutions 9.8 9.8 9.2

- Domestic Institutions 2.8 2.8 3.9

- Public 33.8 34.1 34.1

2 May 2014

Phillips Carbon Black

Performance constrained, improvement in sight; Hold

Key takeaways

Sales flat for FY14, up 11% yoy for 4Q. For 4QFY14, Phillips Carbon Black (PCB) reported `5.9bn in revenue against our estimates of `5.7bn (up 11% yoy). Sales in the carbon black (CB) division grew 12% to `5.8bn, while in power it declined 27% to `0.14bn. Revenue for FY14 was flat at `22.7bn with CB & power divisions contributing ~96% (at `22.1bn) and ~4% (at`0.6bn) respectively. Volumes for 4QFY14 rose 11% yoy to 77,298MT, leading to yoy growth in revenue. There was a 2% decline in FY14 volume at 2,87,839 MT, resulting in flat revenue for the year. Export volumes increased 26% yoy.

Modest EBITDA margin for 4Q, decline in FY14. EBIDTA came in at `319m, 6% above our estimate. EBIDTA margin was 5.4%, 29bps lower yoy, as the company was unable to fully pass on higher input costs. Margin in CB is down 87bps yoy to 1.9%, while it rose in power. EBIDTA margin for FY14 dipped 210bps to 1.1% due to high forex loss incurred in the year. In 4QFY14, net realization in power was 17% lower than 4QFY14 figures.

Net profit of `20m for 4Q; FY14 profitability severely hit. PCB reported `20m profit (`49.4m profit 4QFY13), better than our estimates. Decline in the quarter is due to high finance cost. For FY14, it reported net loss of `866mn, up from `218mn FY13, owing to the high finance cost and forex loss.

Our take. The company has commissioned 50,000MT carbon black line at Kochi Plant. With this the total capacity is 4,72,000 MTPA. In view of global developments, project work at Vietnam is under review. We value the stock at a target PE of 4x FY16e earnings. We retain a Hold, with a revised target of `71. Risks. A slowdown among tyre manufacturers and adverse forex movements.


Sales (`m) 27,415 31,523 Net profit (`m) 406 701 EPS (`) 11.8 20.3 Growth (%) (146.9) 72.5 PE (x) 5.3 3.0 PBV (x) 0.4 0.4 RoE (%) 7.8 12.2 RoCE (%) 8.7 10.8 Dividend yield (%) 0.8 0.8 Net gearing (%) 190.6 174.5 Source: Anand Rathi Research

Year end 31 March 4QFY13 4QFY14 % yoy FY13 FY14 % yoy

Sales (`m) 5,354 5,941 11.0 22,849 22,775 (0.3)

EBITDA (`m) 296 319 7.9 736 255 (65.3)

EBITDA margin (%) 5.5 5.4 (29) bps 3.2 1.1 (210) bps

Interest (`m) 176 258 46.6 721 802 11.2

Depreciation (`m) 126 134 6.3 508 537 5.8

Other income (`m) 21 92 341.3 93 205 121.3

PBT (`m) 15 19 32.2 -400 -879 119.6

Tax (`m) -35 -1 (97.1) (194) (13) (93.2)

Tax rate (%) (238.4) (5.2) - 48.4 1.5 (4694) bps

PAT (`m) 49 20 (58.9) (207) (866) (319.4)

Source: Company


2 May 2014 Phillips Carbon Black – Performance constrained, improvement in sight; Hold



Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Net sales 21,868 22,849 22,775 27,415 31,523 Sales growth (%) 29 4 (0) 20 15 - Op. expenses 19,776 22,113 22,519 25,440 29,084 EBIDTA 2,092 736 256 1,975 2,439 EBITDA margins (%) 10 3 1 7 8 - Interest 676 721 802 938 965 - Depreciation 486 508 537 610 648 + Other income 105 93 205 50 50 - Tax 163 (194) (13) 72 175 Tax rate (%) 16 48 1 15 20 Reported PAT 871 (206) (866) 406 701 Adjustments - - - - -Adjusted PAT 871 (206) (866) 406 701 FDEPS (Rs/share) 25 (6) (25) 12 20 FDEPS growth (%) (28) (124) 320 - 73 DPS (`/share) 4 0.5 0.5 0.5 0.5 Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (`m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

PAT 871 (206) (866) 406 701 + Non-cash items 486 508 537 610 648 Cash profit 1,517 99 (557) 1,016 1,349 - Incr./(decr.) in WC 2,683 (208) 1,171 849 844 Operating cash-flow (1,166) 307 (1,727) 167 504 - Capex 768 1,407 764 429 800 Free cash-flow (1,934) (1,100) (2,491) (262) (296)- Dividend 203 40 56 20 20 + Equity raised 226 39 36 0 0 + Debt raised 1,540 1,655 1,911 300 300 - Investments 148 - - - -- Misc. items - - - - -Net cash-flow (518) 555 (601) 18 (16)+ Op. cash & bank bal. 653 135 690 89 107 Cl. Cash & bank bal. 135 690 89 107 91 Source: Company, Anand Rathi Research

Fig 5 – PB band

0.3x

0.8x

1.3x

1.8x

0

50

100

150

200

250

300

350

Mar

-10

May

-10

Jul-1

0Se

p-10

Nov

-10

Jan-

11M

ar-1

1M

ay-1

1Au

g-11

Oct

-11

Dec

-11

Feb-

12Ap

r-12

Jun-

12Au

g-12

Oct

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Sep-

13N

ov-1

3Ja

n-14

Apr-1

4


Fig 2 – Balance sheet (`m) Year-end: Mar FY12 FY13 FY14 FY15e FY16e

Share capital 345 345 345 345 345 Reserves & surplus 5,773 5,567 4,680 5,066 5,747 Shareholders’ fund 6,118 5,911 5,025 5,411 6,092 Debt 6,554 8,210 10,120 10,420 10,720 Deferred Tax/ others 729 527 299 299 299 Capital employed 13,401 14,647 15,444 16,130 17,110 Fixed assets 8,124 9,023 9,250 9,069 9,221 Investments 724 724 724 724 724 of which, Liquid - - - - -Working capital 4,418 4,210 5,381 6,230 7,074 Cash 135 690 89 107 91 Capital deployed 13,401 14,647 15,444 16,130 17,110 No. of shares (m) 6,419 7,520 10,031 10,313 10,629 Net Debt/Equity (%) 105 127 200 191 174 W C turn (days) 51 69 77 77 77 Book value (`/sh) 178 172 146 157 177 Source: Company, Anand Rathi Research


P/E 2.5 (10.4) (2.5) 5.3 3.0 P/BV 0.3 0.4 0.4 0.4 0.4 EV/EBITDA 4.1 13.1 47.6 6.3 5.2 EV/Sales 0.4 0.4 0.5 0.5 0.4 Cash P/E 1.6 7.1 (6.5) 2.1 1.6 Dividend Yield (%) 6.5 0.8 0.8 0.8 0.8 Dividend Payout (%) 18.4 (9.7) (2.3) 4.9 2.9 RoE 15.4 (3.4) (15.8) 7.8 12.2 RoCE 13.3 1.6 (1.9) 8.7 10.8 Debtors (Days) 76 85 83 75 77 Inventory (Days) 51 69 75 61 61 Creditors (Days) 148 160 147 105 108 Working Cap (Days) 51 69 77 77 77 Asset Turnover (x) 2.7 2.5 2.5 3.0 3.4 Debt/Equity (x) 1.1 1.4 2.0 1.9 1.8 Source: Company, Anand Rathi Research

Fig 6 – Segment-wise revenue break-up (FY14)

Power4%

Carbon black96%




Result highlights Fig 7 – Quarterly Results vs. Estimates (` m) 4QFY13 4QFY14 % var 3QFY14 % var 4QFY14e % var

Sales 5,353.7 5,941.4 11.0 5,604.3 6.0 5,759.3 3.2

EBIDTA 295.8 319.3 7.9 181.8 75.6 301.6 5.9

PBT 14.6 19.3 32.2 (169.3) - (70.4) -

PAT 49.4 20.3 (58.9) (154.8) - (70.4) -


Fig 8 – Segment-wise results (` m) 4QFY14 4QFY13 % Chg 3QFY14 % Chg FY14

Revenue

- CB 5,805 5166 12% 5,423 7% 22,122 - Power 137 187 -27% 181 -24% 652

Total 5,941 5,354 11% 5,604 6% 22,775PBIT - CB 108 141 -23% (43) -351% (458)

Percent of Revenue 1.9% 2.7% (87)bps -0.8% 266bps -2% - Power 177 184 -3% 197 -10% 733.8Percent of Revenue 130% 98% 3151 bps 109% 2057 bps 113%Total 285.6 325 -12% 153.9 86% 276Less: Interest 224.6 154 46% 228 -2% 750.4Less: Other net unalloc. Exp 42 156 -73% 95 -56% 404.7PBT (Before extraordinary items) 19.3 14.6 32% (169) -111% (879)Source: Company, Anand Rathi Research

Operating performance down

CB sales were 12% higher yoy. The EBIT margin in this division rose 266bps qoq to (1.9%). Capital employed in this division increased sharply, by 28% yoy. Volumes increased 11% yoy to 77,298 MT. Export volumes rose 26% yoy, though exports to the US and Turkey have improved. With the anticipated economic revival in the USA and China and stabilization in the euro zone, carbon-black feedstock (CBFS) prices are expected to rise. In the power division, volumes declined 12% & realisations declined 17%. On account of the safeguard duty imposed, imports from China dropped; however, those from Korea increased.

Fig 9 – EBITDA margin improves

-250

0

250

500

750

1,000

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1F

Y14

Q2F

Y14

Q3F

Y14

Q4F

Y14

-10

-5

0

5

10

15

20

EBITDA EBITDA margin (%)

(`m) (%)


Fig 10 – RM/sales increases yoy and qoq

0

1,000

2,000

3,000

4,000

5,000

6,000

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

Q4F

Y11

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1F

Y14

Q2F

Y14

Q3F

Y14

Q4F

Y14

60

65

70

75

80

85

90

Raw material cost Raw material cost as % of sales

(`m) (%)




Valuations On account of the weak short-term outlook, the stock is available at attractive valuations. At this price, all the negatives have been priced in. We maintain a Hold rating, with a revised price target of `71. We value the stock at a target PE of 3.5x FY16e earnings.

Risks

Volatility in key raw material prices.PCB imports most of its key raw material, CBFS. Prices strongly correlate with those of crude oil. Though a pricing mechanism is in place, any sharp increase in the price of CBFS, if not passed on to end-customers, would eat into margins.

Capacity utilization. Capacity has been constantly increased over the years. If optimal utilization is not forthcoming, profitability would be substantially affected.

Forex fluctuation. Nearly 90% of the raw material is imported; hence, any depreciation in exchange rates may squeeze margins.


Phillips Carbon Black

12

3

4

75

6

8

910

11

12

20

70

120

170

220

270

320

Jan-

08Ap

r-08

Jul-0

8O

ct-0

8Ja

n-09

Apr-0

9Ju

l-09

Oct

-09

Jan-

10Ap

r-10

Jul-1

0O

ct-1

0Ja

n-11

Apr-1

1Ju

l-11

Oct

-11

Jan-

12Ap

r-12

Jul-1

2O

ct-1

2Ja

n-13

Apr-1

3Ju

l-13

Oct

-13

Jan-

14Ap

r-14

Date Rating TP (`)

Share Price (`)

1 19-Jul-10 Buy 278 206 2 20-Oct-10 Buy 272 209 3 1-Feb-11 Buy 261 134 4 22-Feb-11 Buy 246 134 5 24-Sep-12 Hold 110 92 6 5-Nov-12 Sell 105 105 7 7-Jan-13 Hold 105 94 8 10-Apr-13 Hold 81 67 9 27-May-13 Hold 74 65

10 9-Jul-13 Buy 74 52 11 9-Oct-13 Buy 49 37 12 9-Jan-14 Hold 49 37








Appendix Analyst Certification The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have no bearing whatsoever on any recommendation that they have given in the Research Report. The research analysts, strategists, or research associates principally responsible for the preparation of Anand Rathi Research have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues.



Ratings Guide Buy Hold Sell Large Caps (>US$1bn) >15% 5-15% <5% Mid/Small Caps (<US$1bn) >25% 5-25% <5% Anand Rathi Research Ratings Distribution (as of 4 March 2014) Buy Hold Sell Anand Rathi Research stock coverage (185) 64% 27% 9% % who are investment banking clients 4% 0% 0% Other Disclosures This report has been issued by ARSSBL which is a SEBI regulated entity, and which is in full compliance with all rules and regulations as are applicable to its functioning and governance. The investors should note that ARSSBL is one of the companies comprising within ANAND RATHI group, and ANAND RATHI as a group consists of various companies which may include (but is not limited to) its subsidiaries, its affiliates, its group companies who may hold positions, views, stakes and may service the companies covered in this report independent of ARSSBL. Investors are cautioned to be aware that there could arise a potential conflict of interest in the views held by ARSSBL and other companies of Anand Rathi who maybe affiliated, connected or catering to the companies mentioned in the Research Report; even though, ARSSBL and Anand Rathi are fully complaint with all procedural and operational regulatory requirements. Thus, investors should not use this as a sole basis for making their investment decision and should consider the recommendations mentioned in the Research Report bearing in mind the aforementioned.














india morning bell - rathionline.com morning bell... · market-share ratio of bajaj corp. to 2 may...

Documents