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Lilladher
Prabhudas
August 2013
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report.
Lilladher
Prabhudas
Contents
August 12, 2013 2
Page No.
Services contracting, slowing manufacturing & plunge in core sector growth 4
Indias biggest risk: Sudden stoppage & reversal of foreign capital flows. Deterioration in most external vulnerability indicators 5
RBI in classic impossible trinity dilemma, stringent measures to tighten liquidity to shore up plunging Rupee 6
Governments foremost agenda: How to finance the large CAD 7
FDI regime liberalised. Monsoon Session: Insurance/Pension Bills unlikely to be cleared 8
Markets
Global Equity Markets Performance 9
Indian Equities Sector Performance 10
India: Market cap-wise Performance 11
Global Currency Movement 12
India: FII/DII Equity Flows 13
Global Agricultural Commodities 14
Global Industrial Commodities 15
Q1FY14 Results: Actual versus Expectations 16
Nifty Valuations: Historic Trends 17
Indian Markets 18
Indian Markets: Headwinds-Deteriorating macro-economy & fears of US bond tapering, Tailwinds-Bountiful monsoons & narrowing CAD 19
Nifty Valuation 20
Lilladher
Prabhudas
Contents
August 12, 2013 3
Page No.

Mid-Caps
Britannia Industries 57
United Phosphorus 59
Crompton Greaves 61
Jammu & Kashmir Bank 63
KSB Pumps 65
MT Educare 67
Page No.
Top Pick Summary 21

Large-Caps
ITC 23
Infosys 26
HDFC Bank 28
NTPC 30
Wipro 33
ICICI Bank 35
Larsen & Toubro 37
Mahindra & Mahindra 40
Hindustan Zinc 43
Adani Port & SEZ 45
Titan Industries 49
Ranbaxy Laboratories 51
Shree Cement 53
(Prices as on August 8, 2013)
Lilladher
Prabhudas
Services contracting, slowing manufacturing &
plunge in core sector growth
Services PMI for July 2013 plunged to 47.9 from 51.7 in June 2013 led by drop in new business and growing
pessimism about the future. It is the first time since October 2011 that it has fallen below the 50 mark that divides
growth from contraction and the lowest since April 2009. Services contribute 60% of GDP that grew at a decade-low
5% in FY13.
Manufacturing PMI for July 2013 moved down to 50.1 from 50.3 in June 2013, with order books shrinking the most
in over four years, led by slower growth in export orders. The PMI survey also indicated that inflation pressures have
strengthened in July, with both the input and output prices rising at a faster pace.
Growth in eight core infrastructure industries that constitute 38% of IIP plunged to 0.1% in June 2013 (vis-a-vis 8.9%
growth in June 2012) mainly due to contraction in Crude oil (-0.6%), Natural gas (-16.7%), Coal (-3%) & Electricity
(-1.2%) output. Petroleum refining, Steel & Cement production showed an increase of 2.3%, 3.4% and 2.3%,
respectively. During Q1FY14, growth in the core industries has slowed to 1.6% vis-a-vis 6.9% YoY.
August 12, 2013 4
Lilladher
Prabhudas
Indias biggest risk: Sudden stoppage & reversal of foreign capital
flows. Deterioration in most external vulnerability indicators
RBI in its latest monetary policy has kept the policy rates unchanged and the MSF rate was stayed at 10.25%, a mark
up of 3% above the repo rate. External sector concerns continued to dominate RBIs stance. Although it has
acknowledged the more-than-normal and wide-spread monsoons, the lower-than-expected industrial production
and subdued services activity due to adverse spill-over from tepid recovery around the world led it to lower GDP
projections for FY14 to 5.5% from earlier 5.7%.
Although the WPI and non-food manufactured products inflation within WPI has come down, CPI continues to
remain close to double digits mainly because of elevated food inflation. Sharp Rupee deprecation as well as upward
revisions in fuel prices have led to an increased upside risks to both WPI and CPI. RBIs study indicates that every
10% fall in Rupee results in a 1.2% increase in inflation. RBI is fearful that despite the low demand producers may
pass on high input prices as high output prices because of their inability to absorb the increase. Although non-oil
commodity prices remain subdued, oil prices have lately remained firm and although the IMF expects them to
remain soft, going forward, they remain hostage to any adverse developments in the Middle East.
Indias biggest risk remains its vulnerability to sudden stoppage and reversal of foreign capital flows as has been
witnessed over the last few months. Any announcements by the global Central banks and in particular the US Fed
about the beginning and likely trajectory of its tapering of US$85bn/month of bond-buying program has the
potential to create wobble in global financial markets. The consequent impact on global risk-aversion and capital
flow out of the emerging markets would particularly hit hard economies like India that has a frighteningly large CAD
estimated at between US$85-90 in FY14. The large CAD, which has remained above the sustainable level of 2.5% of
GDP for the last three years, has affected Indias external situation. As most external vulnerability indicators have
deteriorated, Indias resilience to economic shocks has eroded considerably.
August 12, 2013 5
Lilladher
Prabhudas
RBI in classic impossible trinity dilemma, stringent
measures to tighten liquidity to shore up plunging Rupee
Although the government has shown its resolve in clearing long-pending industrial and infrastructure projects worth
Rs1.6lakh crores over the last six months, the investment environment continues to remain weak due to massive
time and cost overruns, high leverage, deteriorating cash flows, erosion of asset quality and muted credit
confidence. A number of supply constraints, especially in the food and infrastructure sectors, have affected growth
and inflation and need to be eased to improve growth and lower inflation.
RBI admitted that it is caught in a classic impossible trinity dilemma i.e. in order to arrest the rapid depreciation of
currency it would have to forfeit some monetary policy discretion. It has announced a series of liquidity tightening
measures to check undue volatility in foreign exchange market which will be rolled back in a calibrated manner as
stability is restored to foreign exchange market enabling monetary policy to revert to supporting growth with
continued vigil on inflation. On July 15th, RBI had raised short-term borrowing rates and limited banks access to
liquidity by way of restricting borrowing from repo window to Rs75000cr. It has also sold government securities
through OMOs since July 18th. On July 23rd, it had directed banks to draw only 50% of their deposits in overnight
borrowings and maintain a 99% average CRR on a daily basis. On Aug 8th, it has announced sale of Rs22000cr worth
of cash management bills every Monday beginning from August 12th to make Rupee more scarce and prop-up the
battered currency.
August 12, 2013 6
Lilladher
Prabhudas
Governments foremost agenda: How to finance the large
CAD
Trade deficit has risen to Us$50.2bn in Q1FY14 from US$42.2bn YoY mainly led by a surge in gold imports in the
months of April and May 2013. In FY13, Indias trade deficit stood at US$191bn (US$183.4bn in FY12) with exports at
US$300.6bn and imports at US$491.6bn, while its Current account deficit (CAD) rose to US$88bn or 4.8% of GDP in
FY13 vis-a-vis $78.2bn or 4.2% of GDP in FY12. Imports of gold and silver zoomed up to US$18.8bn in Q1FY14 from
US$8.8bn YoY. FY13 saw total gold imports of US$53.8bn versus US$56.5bn in FY12. A series of stringent measures
by the RBI to curb imports along with spike in import duty on gold to 8% and end-of-traditional-wedding-season with
the start of monsoons in June led to a sharp plunge in gold imports in June 2013 to US$2.45bn from US$8.4bn in
May 2013. Although the Finance Ministry expects to maintain CAD at 4.1-4.4% of GDP in FY14, it is banking on
reduced gold imports and a 10-20% increase in remittances by NRIs. Remittances with obligation of repayments
form part of the current account stood at US$62bn in FY13. NRI deposits with obligations of repayments on the
contrary are considered as a part of capital account. It remains to be seen whether a surge in remittances actually
materializes.
Indias fiscal deficit in Q1FY14 zoomed to Rs2.63lakh crores or almost 50% of FY14s budgeted target. The
government has projected a fiscal deficit of Rs5.42lakh crores for FY14 or 4.8% of GDP as against 4.9% achieved in
FY13. Total receipts in Q1FY14 were sluggish at Rs1.19lakh crores or just 10.6% of budget estimate (BE) for FY14,
while total expenditure at Rs3.82lakh crores was at a whopping 23% of BE. The Finance Minister has reiterated that
fiscal deficit for FY14 will not be allowed to breach its target of 4.8% of GDP.
August 12, 2013 7
Lilladher
Prabhudas
FDI regime liberalised. Monsoon Session:
Insurance/Pension Bills unlikely to be cleared
In order to attract foreign inflows, government announced measures to further open up more sectors to foreign
capital. It announced 100% ownership in telecom from the current level of 74%, relaxed or scrapped altogether
restrictions in a dozen sectors including insurance (subject to Parliamentary approval) and tea plantations and gave
Cabinet Committee on Security power to allow investment in defence sector above 26% current cap to up to 100%
on a case-to-case basis depending on infusion of state-of-the-art technology. It also eased sourcing and investment
norms for multi-brand retailing. The approved measures fell well short of the bold and sweeping recommendations
of the Mayaram Committee set up to take a comprehensive look at FDI regime.
The monsoon session which runs till August 30th, has just a dozen more sittings left for the legislative business. It
further reduces to just 9 days if the 3 Fridays on which private members bills are considered are excluded. High on
the governments agenda is to get the Food Security Bill cleared by Both the Houses lest the Ordinance lapses. Other
important bills on the agenda include the Land Acquisition Bill and Pension Bill as well as Insurance Bill that seeks to
allow foreign investments up to 49% in these two crucial sectors. The New Companies Bill which was passed by the
Lower House during last years winter session has been cleared by the Upper house last week. The Bill seeks to
update the countrys corporate laws and make executives & auditors more accountable and requires corporate to set
aside money towards corporate social responsibility.
An increase in FDI cap to 49% from the current 26% in the Insurance Sector looks most unlikely in view of the
vociferous opposition from many Opposition parties like the BJP, Left Front, SP, BSP, TMC etc. BJP is more supportive
of the Pensions Bill provided the government accepts 2 amendments suggested by it namely embedding an FDI cap
of 26% in the Bill itself and provision of assured returns to subscribers.
August 12, 2013 8
Lilladher
Prabhudas
Global Equity Markets Performance
MoM: India was among the worst-performing markets. A sharp
spike in interest rates as a result of RBIs liquidity tightening
measures to arrest the fall in Rupee has reversed markets
previously-held belief of cuts in interest rates due to cooling-off
in WPI & non-food manufacturing inflation, expected cooling-off
of food & consumer inflation due to bountiful monsoons and
narrowing of trade and CAD in the June-Aug period. Subdued
corporate performance in 1QFY14 adds to the gloom.
CYTD and YoY: Indian markets have held up better than other
emerging market peers like China, Russia and Brazil as Indian
equities have seen very little FII selling as compared to peers. If
the grim macro-economic conditions continue to deteriorate, FIIs
could pare down their weightage to India resulting in a sell-off.
Source: Bloomberg, PL Research
Month-on-Month
Year-on-Year
Calendar Year-to-date
August 12, 2013 9
5.3 5.3 5.2
4.4
4.0
3.7
3.1
1.3
0.8
0.5
(2.8)
(3.6)
(5.0)
(4.0)
(3.0)
(2.0)
(1.0)
-
1.0
2.0
3.0
4.0
5.0
6.0
A
u
s
t
r
a
l
i
a
B
r
a
z
i
l
H
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K
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C
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K
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&
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s
i
a
R
u
s
s
i
a
I
n
d
i
a
J
a
p
a
n
(
%
)
8.9
(22.2)
(4.4)
(9.9)
8.9
(5.7)
18.6
10.7
7.5
(8.0)
(3.3)
30.9
(30.0)
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
A
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s
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r
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B
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s
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I
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d
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J
a
p
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(
%
)
17.4
(19.5)
7.9
(5.4)
19.0
(1.0)
20.6
11.7
13.2
(6.4)
6.8
53.2
(30.0)
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
50.0
60.0
A
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d
i
a
J
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p
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(
%
)
Lilladher
Prabhudas
Indian Equities Sector Performance
MoM: IT proves to be a safe haven in an
environment of turmoil in the currency market and
US economy (its largest market) gathering strength.
Sharp rise in interest rates singe interest rate
sensitive sectors like Capital goods, Reality, Banks
and Power.
Month-on-Month
Year-on-Year
August 12, 2013 10
19.6
0.6
(3.0)
(4.1) (4.6)
(5.3)
(9.1)
(12.2)
(13.1)
(15.9)
(17.6)
(20.0)
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
20.0
25.0
(
%
)
36.5
(3.0)
20.4
8.2
(0.4)
27.6
(34.4)
(27.3)
(7.2)
(24.3) (23.9)
(40.0)
(30.0)
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
50.0
(
%
)
31.4
(19.7)
8.3
(10.6)
(2.0)
10.4
(38.1)
(28.8)
(21.9)
(40.8)
(30.8)
(50.0)
(40.0)
(30.0)
(20.0)
(10.0)
-
10.0
20.0
30.0
40.0
(
%
)
Lilladher
Prabhudas
India: Market cap-wise Performance
MoM: Mid & Small cap stocks bear the brunt with
massive sell-off. Large cap index falls the least by
riding on the coattails of IT and Pharma stocks
Month-on-Month
Year-on-Year
August 12, 2013 11
(4.5)
(5.3)
(7.7)
(9.7)
(12.0)
(10.0)
(8.0)
(6.0)
(4.0)
(2.0)
-
BSE100 Index BSE500 Index BSESMCAP Index BSEMDCAP Index
(
%
)
4.0
0.8
(20.6)
(11.5)
(25.0)
(20.0)
(15.0)
(10.0)
(5.0)
-
5.0
10.0
(
%
)
(7.3)
(10.5)
(29.1)
(24.0)
(35.0)
(30.0)
(25.0)
(20.0)
(15.0)
(10.0)
(5.0)
-
(
%
)
Lilladher
Prabhudas
Global Currency Movement
MoM: Rupees movement over the month is
influenced by RBIs continuous fusillade of measures
to stamp out volatility and arrest its fall. Series of
measures are announced on July 15th & 18th and Aug
8th to make Rupees scarce and holding Rupee assets
more lucrative.
Month-on-Month
Year-on-Year
August 12, 2013 12
4.8
4.6
3.8 3.7
3.5
1.4
0.8 0.7
0.5
0.2 0.2
(0.7) (0.7)
(1.1)
(2.2)
(3.4)
(4.0)
(3.0)
(2.0)
(1.0)
-
1.0
2.0
3.0
4.0
5.0
6.0
(
%
)
(9.9)
(0.6)
1.3
(4.6)
(4.4)
(4.7)
(7.3)
(3.0)
(2.1)
(6.0)
1.8
(9.9)
(12.7)
(5.8)
(11.3)
(5.0)
(14.0)
(12.0)
(10.0)
(8.0)
(6.0)
(4.0)
(2.0)
-
2.0
4.0
(
%
)
(18.6)
5.5
8.0
(1.0)
1.4
(4.5) (4.3)
0.1
0.7
(4.3)
3.9
(9.2)
(14.2)
(4.4)
(12.3)
(8.1)
(20.0)
(15.0)
(10.0)
(5.0)
-
5.0
10.0
(
%
)
Lilladher
Prabhudas
India: FII/DII Equity Flows
After massive outflows of Rs114.25bn in June, FII equity outflows come down to a trickle in July to Rs4.15bn.
DII equity buying reverses from Rs84.27bn in June to selling of Rs15.41bn in July.
FII outflows in the debt market in July reduced to Rs124.1bn from Rs315.8bn in June. August 1-7 continues to see
outflows of Rs48.1bn.
August 12, 2013 13
(200.00)
(100.00)
-
100.00
200.00
300.00
J
a
n
-
1
2
F
e
b
-
1
2
M
a
r
-
1
2
A
p
r
-
1
2
M
a
y
-
1
2
J
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n
-
1
2
J
u
l
-
1
2
A
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-
1
2
S
e
p
-
1
2
O
c
t
-
1
2
N
o
v
-
1
2
D
e
c
-
1
2
J
a
n
-
1
3
F
e
b
-
1
3
M
a
r
-
1
3
A
p
r
-
1
3
M
a
y
-
1
3
J
u
n
-
1
3
J
u
l
-
1
3
DII Net Cash Market FII Net Cash Market
CY12 - Total FII buying
Rs1,050.6bn against DII net
selling at Rs-568.9bn
YTD CY13
FII Rs462.16bn
DII Rs-420.99bn
Lilladher
Prabhudas
Global Agricultural Commodities
YoY: Corn, wheat, sugar and palm oil see sharp
erosion in prices
Source: Bloomberg, PL Research *Price in US$
Performance of Global Agricultural Commodities
Year-on-Year Performance
Month-on-Month Performance
August 12, 2013 14
60
70
80
90
100
110
120
A
u
g
-
1
2
S
e
p
-
1
2
O
c
t
-
1
2
N
o
v
-
1
2
D
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c
-
1
2
J
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-
1
3
F
e
b
-
1
3
M
a
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-
1
3
A
p
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-
1
3
M
a
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-
1
3
J
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n
-
1
3
J
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l
-
1
3
A
u
g
-
1
3
Rice Wheat Corn Soya Plam Oil Sugar
3.7
3.1
(2.6)
(2.9)
(6.0)
(7.6)
(10.0)
(8.0)
(6.0)
(4.0)
(2.0)
-
2.0
4.0
6.0
Rice Sugar Wheat Palm Oil Soya Corn
(
%
)
(4.6)
(21.4)
(23.4)
(19.9)
(7.4)
(28.5)
(30.0)
(25.0)
(20.0)
(15.0)
(10.0)
(5.0)
-
Rice Sugar Wheat Palm Oil Soya Corn
(
%
)
Lilladher
Prabhudas
Global Industrial Commodities
MoM: Zinc prices remain under pressure, with 0.2%
decline due to weak global steel demand.
YoY: With top metals consumer China facing
economic slow down, copper prices fall by 7.9%.
Month-on-Month
Year-on-Year

August 12, 2013 15
5.1
3.7
3.0
1.5
(0.2) (0.3)
(1.4) (2.0)
(1.0)
-
1.0
2.0
3.0
4.0
5.0
6.0
Nickel Lead Copper Aluminium Zinc Brent
crude
Thermal
Coal
(
%
)
(11.4)
10.2
(7.9)
(6.6)
(2.5)
(4.8)
(10.4)
(15.0)
(10.0)
(5.0)
-
5.0
10.0
15.0
crude
Thermal
Coal
(
%
)
(18.2)
(9.7)
(11.7)
(14.2)
(11.5)
(4.6)
(15.4)
(20.0)
(18.0)
(16.0)
(14.0)
(12.0)
(10.0)
(8.0)
(6.0)
(4.0)
(2.0)
-
crude
Thermal
Coal
(
%
)
Lilladher
Prabhudas
Q1FY14 Results: Actual versus Expectations
Results announced so far indicate that revenues are broadly in line with expectations, while EBITDA and PAT have
beaten expectations. Revenues have grown at 5.2% versus an estimated 5.1%, whereas EBITDA has grown at 11.3%
versus estimated 6.8% reflecting the impact of fall in global commodity prices. PAT has grown at 3.3% versus
estimated 0.6%. Even excluding BFSI, the same trend is visible.
August 12, 2013 16
YoY gr. (%)
Revenues EBITDA PAT
Q1FY14E Q1FY14 Q1FY14E Q1FY14 Q1FY14E Q1FY14
Agri & Agri Products (6.3) 4.6 (14.5) (20.3) (31.4) (35.3)
Auto (5.1) (5.1) 3.4 6.4 1.6 0.4
Auto Ancl. 0.6 9.4 2.0 30.2 (21.4) 18.8
Banks 18.0 17.6 17.1 25.0 10.5 17.1
Capital Goods 4.3 (4.1) 16.2 18.8 12.6 32.0
Cement (4.6) (4.0) (27.2) (25.1) (32.8) (23.4)
Construction 8.3 5.1 2.2 (5.3) (3.1) (18.0)
Consumer Staples 15.8 14.9 23.5 21.2 13.8 11.4
Financials 19.4 20.2 21.0 20.1 22.2 21.3
Information Technology 10.6 12.2 8.5 11.6 11.7 12.4
Metals (9.6) (6.9) (17.7) (12.4) (22.5) (15.3)
Pharma 16.7 11.1 11.5 (2.2) 59.7 23.3
Ports & Logistics 24.3 81.2 14.7 52.4 (39.0) 4.3
Power 6.9 5.8 10.7 20.9 (6.1) (16.9)
Real Estate 98.3 71.0 70.9 42.4 57.9 25.6
Others 6.6 5.6 39.8 6.4 (330.0) 501.8
PL Universe 5.1 5.2 6.8 11.3 0.6 3.3
PL Universe (excl.BFSI) 3.7 3.8 2.3 5.9 (3.4) (1.6)
Lilladher
Prabhudas
Nifty Valuations: Historic Trends
Nifty 1-year forward P/E
MSCI India Premium to MSCI Asia (ExJapan)
August 12, 2013 17
13.3
5.0
10.0
15.0
20.0
25.0
30.0
A
u
g
-
0
3
D
e
c
-
0
3
A
p
r
-
0
4
A
u
g
-
0
4
D
e
c
-
0
4
A
p
r
-
0
5
A
u
g
-
0
5
D
e
c
-
0
5
A
p
r
-
0
6
A
u
g
-
0
6
D
e
c
-
0
6
A
p
r
-
0
7
A
u
g
-
0
7
D
e
c
-
0
7
A
p
r
-
0
8
A
u
g
-
0
8
D
e
c
-
0
8
A
p
r
-
0
9
A
u
g
-
0
9
D
e
c
-
0
9
A
p
r
-
1
0
A
u
g
-
1
0
D
e
c
-
1
0
A
p
r
-
1
1
A
u
g
-
1
1
D
e
c
-
1
1
A
p
r
-
1
2
A
u
g
-
1
2
D
e
c
-
1
2
A
p
r
-
1
3
A
u
g
-
1
3
Average
14.5
11%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
A
u
g
-
0
3
D
e
c
-
0
3
A
p
r
-
0
4
A
u
g
-
0
4
D
e
c
-
0
4
A
p
r
-
0
5
A
u
g
-
0
5
D
e
c
-
0
5
A
p
r
-
0
6
A
u
g
-
0
6
D
e
c
-
0
6
A
p
r
-
0
7
A
u
g
-
0
7
D
e
c
-
0
7
A
p
r
-
0
8
A
u
g
-
0
8
D
e
c
-
0
8
A
p
r
-
0
9
A
u
g
-
0
9
D
e
c
-
0
9
A
p
r
-
1
0
A
u
g
-
1
0
D
e
c
-
1
0
A
p
r
-
1
1
A
u
g
-
1
1
D
e
c
-
1
1
A
p
r
-
1
2
A
u
g
-
1
2
D
e
c
-
1
2
A
p
r
-
1
3
A
u
g
-
1
3
10 year Avg.
22%
Lilladher
Prabhudas
Indian Markets
We estimate the free-float EPS for NIFTY companies in FY13, FY14, FY15 at Rs356.6, Rs395.2 and Rs461.6,
respectively, representing a YoY growth of 1.4%, 10.8% and 16.8%, respectively. Technology (21.1% YoY growth),
Telecom (88% YoY growth on the back of two years of de-growth) and FMCG (13.9% YoY growth) are expected to
lead the charge in PAT growth in FY14. Metals (0.7% YoY growth), Engg & Power (2.4% YoY growth) and BFSI (4.4%
YoY growth) would be the laggards.
NIFTY is currently trading at 15.6x FY13, 14.1x FY14E and 12.1x FY15E estimated free-float earnings. As the chart
below indicates, the last ten-year average for NIFTYs one-year forward PE is at 14.5x. Thus, NIFTY is currently trading
at 13.3x one-year forward earnings (EPS for year-ending July 2014 is Rs 417.3) i.e. at 9% discount to its last 10-years
average of one-year forward multiple.
We compare MSCI Indias premium to MSCI Asia (excluding Japan) over the last ten years. The average of the last 10-
years premium is 22% and the current premium has fallen sharply over the last one month to 11% indicating a sharp
de-rating of the market due to worsening macro-economic conditions.
August 12, 2013 18
Lilladher
Prabhudas
Indian Markets: Headwinds-Deteriorating macro-economy & fears of
US bond tapering, Tailwinds-Bountiful monsoons & narrowing CAD
RBIs success in stamping out wild volatility in the currency markets and arresting the slide in Rupee will play a
crucial role in determining the future of equity markets. Attempts to restore stability in the currency markets has
been achieved by RBI by stringent tightening of liquidity leading to a sharp spike in interest rates across the curve
jeopardizing hopes of recovery in economy. RBIs priority clearly seems to stabilize external sector followed by
controlling inflation and then revive growth. A sharp fall in Rupee has lead to a sharp spike in fuel under-recoveries
and this would inevitably lead to ballooning of fuel subsidies in the absence of adequate pass-through. This has the
potential to upset the governments resolve to contain FY14s fiscal deficit to 4.8% of GDP. Passage of food security
bill may not pose an immediate threat of spike in food subsidies this year as the county-wide roll out may take 6-9
months but would certainly structurally burden the fiscal from FY15 onwards.
RBI has already scaled down GDP estimates for FY14 to 5.5% versus the budgetary estimate of 6.5%. This is bound to
adversely impact the projected revenues for FY14. The government had based its commitment to contain fiscal
deficit by cutting revenue expenditure (i.e. subsidies) and not by slashing plan expenditure like it did in FY13. Infact it
has budgeted a hefty increase of around Rs1lakh cr in plan expenditure in FY14 versus FY13s revised estimates. If
the revenue projections fall short and subsidies balloon, the only way to contain fiscal deficit would be by cutting
plan expenditure. This would have grave implications on an already weak investment demand.
We expect the market to remain vulnerable to any stoppage and reversal of capital flows due to news flow on
tapering by the US Fed. Market would need to navigate both domestic and foreign headwinds. Rapid spread of
monsoons with substantial increase of area under cultivation is expected to help cool food and consumer inflation
post-harvest. Also trade and current account deficit which has narrowed in June is expected to remain benign till
August. Although NIFTY may spring a short-term bounce-back as it is trading at 9% discount to its 10-year average of
one-year forward multiple, we continue to remain cautious.
August 12, 2013 19
Lilladher
Prabhudas
Nifty Valuation
August 12, 2013 20
Weight-
age (%)
FY12 FY13 FY14E FY15E
Weight-
age (%)
FY12 FY13 FY14E FY15E
Banking & Fin. 27.0% Cement 3.2%
PER (x) 13.3 11.6 11.1 9.2 PER (x) 19.2 15.0 14.7 12.8
PAT Growth (%) 26.8 15.1 4.4 19.9 PAT Growth (%) 10.1 28.2 2.1 15.1
FMCG 13.6% Telecom 2.3%
PER (x) 44.1 36.2 31.7 26.2 PER (x) 31.7 59.2 31.4 20.4
PAT Growth (%) 35.5 21.8 13.9 21.0 PAT Growth (%) (29.6) (46.6) 88.6 53.8
Oil & Gas 12.9% Real Estate 0.3%
PER (x) 10.3 9.9 9.2 8.2 PER (x) 20.1 32.3 29.0 22.3
PAT Growth (%) 13.6 3.9 7.5 12.0 PAT Growth (%) (20.5) (37.8) 11.3 29.9
Technology 14.7% Nifty as on Aug 8 5,566
PER (x) 28.6 23.0 19.0 17.0
PAT Growth (%) 20.3 24.6 21.1 11.6 EPS (Rs) - Free Float 351.9 356.6 395.2 461.6
Growth (%) 8.1 1.4 10.8 16.8
Eng. & Power 7.6% PER (x) 15.8 15.6 14.1 12.1
PER (x) 11.0 10.6 10.3 9.6
PAT Growth (%) 5.8 4.1 2.4 7.3 EPS (Rs) - Free Float
Nifty Cons. 351.9 356.6 407.7 475.2
Auto 8.4% Var. (PLe v/s Cons.) (%) - - (3.0) (2.9)
PER (x) 11.6 12.5 11.0 9.4
PAT Growth (%) 23.1 (6.8) 13.0 17.6
Sensex as on Aug 8 18,789
Pharma 6.3%
PER (x) 75.4 26.7 27.0 17.7 EPS (Rs) - Free Float 1,149.8 1,128.8 1,262.3 1,479.7
PAT Growth (%) (51.3) 182.2 (0.8) 52.3 Growth (%) 8.5 (1.8) 11.8 17.2
PER (x) 16.3 16.6 14.9 12.7
Metals 3.6%
PER (x) 8.2 8.4 8.4 7.7 Sensex Cons. 1,149.8 1,128.8 1,340.1 1,555.6
PAT Growth (%) 1.2 (3.0) 0.7 8.6 Var. (PLe v/s Cons.) (%) - - (5.8) (4.9)
Lilladher
Prabhudas
Top Pick Summary
August 12, 2013 21
2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E 2014E 2015E
Large Cap
ITC 325 366 12.4% 2,570.9 17.4 14.7 17.6 21.4 36.5 38.6 29.5 24.3 10.0 8.7
Infosys 2,965 3,350 13.0% 1,695.7 18.5 12.0 11.5 8.8 24.2 22.5 16.1 14.8 3.6 3.1
HDFC Bank 611 750 22.9% 1,452.6 21.0 18.8 24.7 21.9 20.3 20.8 18.0 14.8 3.4 2.8
NTPC 137 167 21.8% 1,130.5 12.7 10.6 16.1 6.3 12.5 12.2 10.6 10.0 1.3 1.2
Wi pro 447 530 18.5% 1,101.3 12.8 10.7 16.1 13.6 23.2 22.4 15.4 13.5 3.3 2.8
ICICI Bank 875 1,200 37.1% 1,013.4 17.1 13.1 11.4 13.5 13.3 13.8 10.9 9.6 1.4 1.3
Larsen & Toubro 780 1,091 39.8% 721.4 13.3 15.2 4.5 16.5 15.6 16.3 15.2 13.0 2.3 2.0
Mahi ndra & Mahi ndra 864 1,044 20.9% 565.5 6.5 14.0 3.9 19.2 21.4 21.8 16.7 14.0 3.3 2.8
Hi ndustan Zi nc 103 141 37.4% 434.8 4.8 3.9 (5.6) 5.4 18.6 17.3 6.7 6.4 1.2 1.0
Adani Port & SEZ 142 180 26.6% 284.9 28.2 21.9 15.1 23.6 25.4 24.6 15.2 12.3 3.3 2.8
Ti tan Industri es 264 302 14.2% 234.5 30.8 21.1 19.5 34.4 38.2 39.2 27.1 20.1 9.1 7.0
Ranbaxy Laboratori es 359 559 55.7% 151.9 9.0 12.9 150.4 33.7 44.1 38.9 6.6 4.9 2.4 1.6
Shree Cement 3,824 5,000 30.8% 133.2 14.8 16.3 (6.3) 20.3 22.5 21.5 14.0 11.6 2.8 2.3
Mid-Caps
Bri tanni a Industri es 694 812 17.0% 82.9 15.8 16.7 26.1 30.4 41.4 43.7 28.1 21.6 10.6 8.5
Uni ted Phosphorus 137 185 35.0% 60.6 12.5 11.6 11.6 13.7 18.8 18.2 6.4 5.6 1.1 1.0
Crompton Greaves 89 108 21.9% 56.8 8.9 11.5 40.8 63.2 9.8 14.5 15.0 9.2 1.4 1.3
Jammu & Kashmi r Bank 1,014 1,500 48.0% 49.2 12.2 13.6 (0.6) 12.7 20.0 19.4 4.7 4.2 0.9 0.8
KSB Pumps 201 249 23.7% 7.0 3.3 7.3 14.5 15.4 14.7 15.3 10.5 9.1 1.5 1.3
MT Educare 97 130 33.9% 3.8 36.4 22.0 35.8 30.3 22.8 26.0 15.7 12.0 3.4 2.9
PER (x) P/BV (x)
CMP (Rs.) TP (Rs)
Revenue Growth (%) Earnings Growth (%) RoE (%)
Upside
Mcap
(Rs bn)
Lilladher
Prabhudas
LARGE CAP
August 12, 2013 22
Lilladher
Prabhudas
ITC
CMP: Rs325 TP: Rs366 Rating: BUY MCap: Rs2,593.6bn
ITC reported PAT of Rs18.9bn in Q1FY14 on the back of 18% EBIT growth in
Cigarettes even as Hotels and Paperboard businesses disappointed, resulting
in Non-cigarette business EBIT growth of only 4% YoY, mainly led by 51%
decline in losses in the FMCG business. Although Cigarette volume decline of
1.5% was disappointing, we expect a flattish volume growth in FY14. Paper
business is likely to show improved profits due to 4-5% price increase,
improving product mix and gradual increase in capacity utilization. Hotels
business remains under pressure due to decline in ARR and flat occupancy
levels, recovery is unlikely before H2FY14. New launches in FMCG have been
well received and we expect the business to end the year with EBIT of
Rs430m. We are increasing FY14 and FY15 estimates by 1.3-1.5% to factor in
18% EBIT CAGR in cigarettes and lower profitability in Hotels and FMCG. We
value the stock at Rs366 on SOTP. We maintain BUY on the stock.
Cigarettes EBIT up 18%, volumes decline 1.5%: Cigarette business reported
18% EBIT growth with 590bps EBIT margin expansion even as volumes
declined 1.5%. We are increasing our EBIT growth estimates to 18% due to 2%
price increase undertaken recently and continued momentum in 64mm
cigarettes. Cigarette profit growth visibility looks strong for FY15 as elections
will delay announcement of budget and hence any change in excise duty. We
expect ~20% cigarette EBIT growth in FY15.
Non-cigarette businesses EBIT up 4%; recovery likely from H2FY14: Non-
cigarette business reported 4% increase in EBIT YoY. FMCG sales grew 18.4%,
with EBIT loss of Rs189m, decline of 51.3%. Hotels business reported 65.9%
decline in EBIT due to flat occupancy and decline in ARR. Paperboard business
reported 5% decline in EBIT due to higher pulp and coal costs; 4-5% price
increase, improved sales mix and stabilization of new unit will enable a
bounce back in margins in H2FY14. Agri business reported 16.3% EBIT growth;
gains from rupee depreciation and higher leaf tobacco prices are positive. We
expect non-cigarette business recovery to boost profits by 20% over FY13-15.
Non-cigarette businesses should increase EBIT by more than 20% in FY15 led
by 1) benefits of new pulp unit in papers 2) rising margins in processed foods
3) recovery in hotels post stabilization of new property and low base.
August 12, 2013 23
Key Financials (Rs m)
Y/e March
FY11 FY12 FY13E FY14E FY15E
Revenue (Rs m) 214,590 251,475 299,013 351,125 402,568
Growth (%) 16.7 17.2 18.9 17.4 14.7
EBITDA (Rs m) 74,302 88,486 106,275 127,975 151,204
PAT (Rs m) 50,051 61,624 74,184 87,997 107,618
EPS (Rs) 6.5 7.9 9.4 11.0 13.4
Growth (%) (36.1) 21.9 19.1 17.6 21.4
Net DPS (Rs) 4.5 4.5 5.3 6.5 8.0
Source: Company Data, PL Research
Profitability & valuation
Y/e March
EBITDA margin (%) 34.6 35.2 35.5 36.4 37.6
RoE (%) 33.3 35.5 36.1 36.5 38.6
RoCE (%) 33.4 35.6 36.3 36.7 38.7
EV / sal es (x) 11.4 9.8 8.3 7.0 6.1
EV / EBITDA (x) 33.1 27.9 23.4 19.3 16.2
PER (x) 50.3 41.3 34.7 29.5 24.3
P / BV (x) 15.8 13.5 11.5 10.0 8.7
Net dividend yield (%) 1.4 1.4 1.6 2.0 2.5
Stock Performance
(%) 1M 6M 12M
Absol ute 14.0 22.8 47.6
Rel ati ve to Sensex 7.5 24.6 28.9
Lilladher
Prabhudas
Segmental Performance
ITC
Excise duty on cigarettes
FMCG and Hotel Business key profit drivers
August 12, 2013 24
FY10 FY11 FY12 FY13 FY14E FY15E
Net Sales (Rs m)
Ci garettes 93,212 105,737 123,244 139,696 160,337 182,310
FMCG 36,339 44,716 55,256 69,828 86,602 106,542
Hotel s 8,507 10,008 10,062 10,742 12,297 13,282
Agri Busi ness 38,621 47,480 56,953 72,007 82,346 95,170
Paperboards & Paper 31,078 35,072 39,234 42,368 48,984 50,580
EBIT (Rs m)
Ci garettes 49,381 57,668 69,077 83,259 98,447 116,678
FMCG (3,495) (2,976) (1,955) (813) 433 1,598
Hotel s 2,166 2,666 2,794 1,377 1,477 2,127
Agri Busi ness 4,478 5,663 6,432 7,313 8,646 9,993
Paperboards & Paper 6,843 8,192 9,368 9,640 10,839 11,838
EBIT Margin (%)
Ci garettes 53.0 54.5 56.0 59.6 61.4 64.0
FMCG (9.6) (6.7) (3.5) (1.2) 0.5 1.5
Hotel s 25.5 26.6 27.8 12.8 12.0 16.0
Agri Busi ness 11.6 11.9 11.3 10.2 10.5 10.5
Paperboards & Paper 22.0 23.4 23.9 22.8 22.1 23.4
EBIT Growth (%)
Ci garettes 18.0 16.8 19.8 20.5 18.2 18.5
FMCG NA NA NA NA NA NA
Hotel s (31.5) 23.0 4.8 (50.7) 7.3 44.0
Agri Busi ness 74.8 26.5 13.6 13.7 18.2 15.6
Paperboards & Paper 34.5 19.7 14.3 2.9 12.4 9.2
Non Cigarette Businesses
Net Sal es 114,545 137,277 161,505 194,945 230,228 265,574
Growth % 9.8 19.8 17.6 20.7 18.1 15.4
EBIT 9,991 13,545 16,638 17,516 21,395 25,556
EBIT Growth (%) 67.2 35.6 22.8 5.3 22.1 19.4
EBIT Margi n (%) 8.7 9.9 10.3 9.0 9.3 9.6
19.8
23.9
37.3
27.8
3.4
11.3
(17.0)
(16.1)
(3.5)
1.5
(20.0)
(10.0)
0.0
10.0
20.0
30.0
40.0
50.0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E
Paper and Paperboard Hotels Agri Business FMCG
Rs/1,000 sticks Length (mm) FY11 FY12 FY13E FY14E FY15E
Plains 65-70 1,473 1,473 1,768 2,086 2,242
Small Filter <65mm 669 669 669 669 719
Filter - Regular <70 969 969 1,163 1,372 1,475
Filter - Long 71-75 1,473 1,473 1,768 2,086 2,242
Filter - King 76-85 1,959 1,959 2,351 2,774 2,982
Filter - Extra large 86-100 2,363 2,363 2,836 3,346 3,597

Excise Duty Change (%) 11 0 20 18 8
RFC - 18
VAT (%) 14.5 18.0 20.8 23.7 25.0
Volume Growth (%) -2.8 6.4 2.0 0.9 5.0
Excise (% of realisation) 47 45 46 48 47
Net Realisation Gr (%) 16.6 9.6 12.0 9.4 8.4
EBIT Growth (%) 16.8 19.8 20.9 14.5 15.6
Lilladher
Prabhudas
Financials
ITC
August 12, 2013 25
Income Statement (Rs m)
Y/e March
Net Revenue 214,590 251,475 299,013 351,125 402,568
Di rect Expenses 97,750 114,297 140,822 163,953 185,559
% of Net Sales 45.6 45.5 47.1 46.7 46.1
Empl oyee Cost 11,400 12,576 13,870 15,305 16,986
% of Net Sales 5.3 5.0 4.6 4.4 4.2
SG&A Expenses 31,137 36,116 38,045 43,891 48,820
% of Net Sales 14.5 14.4 12.7 12.5 12.1
Other Expenses - - - - -
% of Net Sales 0.0 0.0 0.0 0.0 0.0
EBITDA 74,302 88,486 106,275 127,975 151,204
Margin (%) 34.6 35.2 35.5 36.4 37.6
Depreci ati on 6,560 6,985 7,956 9,093 10,053
PBIT 67,743 81,501 98,320 118,882 141,150
Interest Expenses 684 779 865 865 865
PBT 72,857 88,975 106,842 129,407 154,846
Total tax 22,806 27,352 32,658 41,410 47,228
Effective Tax rate (%) 31.3 30.7 30.6 32.0 30.5
PAT 50,051 61,624 74,184 87,997 107,618
Extraordi nary Gai n/(Loss) - - - - -
Adjusted PAT 50,051 61,624 74,184 87,997 107,618
Balance Sheet (Rs m)
Y/e March
Share Capi tal 7,738 7,818 7,902 7,972 8,032
Reserves & Surpl us 133,742 154,478 180,214 207,585 240,026
Sharehol der's Fund 159,533 187,919 222,879 258,720 299,020
Preference Share Capi tal - - - - -
Total Debt 992 891 777 777 777
Other Li abi l i ti es(net) - - - - -
Deferred Tax Li abi l i ty 8,019 8,727 12,037 13,749 15,058
Total Liabilities 168,543 197,537 235,692 273,246 314,855
Gross Bl ock 127,659 141,444 169,444 189,444 209,444
Less: Depreci ati on 44,208 50,452 57,350 66,444 76,497
Net Bl ock 83,451 90,992 112,093 123,000 132,947
Capi tal Work i n Progress 13,334 22,768 14,878 12,000 12,000
Cash & Cash Equi val ent 77,979 91,355 106,753 146,361 187,343
Total Current Assets 141,920 156,590 193,194 247,346 301,975
Total Current Li abi l i ti es 85,795 92,345 104,482 129,109 152,076
Net Current Assets 56,125 64,245 88,713 118,237 149,899
Other Assets - - - - -
Total Assets 168,543 197,537 235,692 273,246 314,855
Lilladher
Prabhudas
Infosys
CMP: Rs2,965 TP: Rs3,150 Rating: BUY MCap: Rs1,695.7bn
Smart beat to low running expectation: Infosys has beaten low-running
consensus expectations. Revenue grew 2.7 % (3.4%@cc) QoQ (Cons.: 0-
2%, PLe: 1.2%), and EBITDA margin was flattish at 26.5% (Cons.: 25.1-
27.5%, PLe: 26%).
Prudence with top clients: The volume and pricing discounts to its top
clients is showing early signs of success. Our channelchecks suggest
improved clients satisfaction and rampingup volume with top clients.
Flexibility in deal structuring To improve momentum: Infosys has been
flexible in pricing to structure the deal. Moreover, recent deals indicate
the company being forthcoming to acquire clients asset and employees to
consummate the deal. Over the last one year, Infosys has signed few large
deals and ramp-up of which would help to accelerate the volume growth.
Margin tailwinds balance headwinds: The management has guided for
300bps (PLe: 230bps) margin impact due to wage hike (Offshore: 8%,
Onsite: 3%). However, the currency (~110bps), Utilization (~60bps) and
non-accrual of visa expense (40bps) should limit the impact in Q2FY14.
Why we expect momentum to improve? Onsite volume and Deal wins:
Infosys has delivered second consecutive quarter of mid-single digit
volume growth (Q4FY13: 4.8%, Q1FY14: 5.8%). Moreover, they signed 7
large deals worth TCV of $600mn+ and added 66 new clients.
Strong client addition Not captured in performance: Infosys added
highest number of clients among the peers over the last four quarters.
However, the quarterly performance didnt add-up to the same. We
expect ramp-up of projects from the client win to result in a positive
surprise. We expect the ramp-up to start driving the growth.
Why we expect momentum to improve? Onsite volume and Deal wins:
Infosys has delivered second consecutive quarter of mid-single digit
volume growth (Q4FY13: 4.8%, Q1FY14: 5.8%). Moreover, they signed 7
large deals worth TCV of $600mn+ and added 66 new clients. We expect
momentum to get better
August 12, 2013 26
Y/e March
FY11 FY12 FY13 FY14E FY15E
Revenue (Rs m) 275,010 337,340 403,520 478,279 535,754
Growth (%) 20.9 22.7 19.6 18.5 12.0
EBITDA (Rs m) 89,640 107,160 115,580 129,493 141,873
PAT (Rs m) 68,230 83,160 94,210 105,040 114,332
EPS (Rs) 119.3 145.4 164.7 183.6 199.9
Growth (%) 8.9 21.9 13.3 11.5 8.8
Net DPS (Rs) 64.1 40.7 54.6 59.9 64.9
Y/e March
EBITDA margin (%) 32.6 31.8 28.6 27.1 26.5
RoE (%) 27.1 27.4 25.7 24.2 22.5
RoCE (%) 26.9 27.2 25.6 24.2 22.5
EV / sal es (x) 5.6 4.4 3.7 3.0 2.6
EV / EBITDA (x) 17.1 13.9 12.8 11.0 9.7
PER (x) 24.9 20.4 18.0 16.1 14.8
P / BV (x) 6.2 5.1 4.3 3.6 3.1
Stock Performance
(%) 1M 6M 12M
Absol ute 20.1 6.3 29.8
Lilladher
Prabhudas
Financials
Infosys
August 12, 2013 27
Y/e March
Net Revenue 275,010 337,340 403,520 478,279 535,754
Di rect Expenses 150,540 188,710 241,510 294,168 332,588
% of Net Sales 54.7 55.9 59.9 61.5 62.1
Empl oyee Cost - - - - -
% of Net Sales 0.0 0.0 0.0 0.0 0.0
SG&A Expenses 34,830 41,470 46,430 54,618 61,293
% of Net Sales 12.7 12.3 11.5 11.4 11.4
% of Net Sales 0.0 0.0 0.0 0.0 0.0
EBITDA 89,640 107,160 115,580 129,493 141,873
Margin (%) 32.6 31.8 28.6 27.1 26.5
Depreci ati on 8,620 9,370 11,290 12,826 14,834
PBIT 81,020 97,790 104,290 116,666 127,040
Interest Expenses - - - - -
PBT 93,130 116,830 127,880 141,945 154,503
Total tax 24,900 33,670 33,670 36,906 40,171
PAT 68,230 83,160 94,210 105,040 114,332
Adjusted PAT 68,230 83,160 94,210 105,040 114,332
Y/e March
Share Capi tal 2,860 2,860 2,860 2,860 2,860
Total Debt - - - - -
Other Li abi l i ti es(net) 3,190 1,090 1,490 1,490 1,490
Deferred Tax Li abi l i ty - 120 1,190 1,190 1,190
Gross Bl ock 80,980 90,300 106,760 126,369 148,335
Net Bl ock 48,440 54,090 64,680 71,463 78,595
Capi tal Work i n Progress - - - - -
Other Assets 27,300 26,930 45,700 45,700 45,700
Total Assets 276,220 335,820 400,650 471,419 548,624
Lilladher
Prabhudas
HDFC Bank
CMP: Rs611 TP: Rs750 Rating: Accumulate MCap: Rs1,452.6bn
Challenging macros seems to be having some impact on HDFCBs
financials but we see limited risks to overall profitability as we draw
comfort from (1) Floating provisions (credit cost comfort) (2) Opex
efficiency (offset growth pressure) and (3) Superior liability franchise
(limited impact from RBI.s liquidity tightening). We continue to prefer
HDFCB over HDFC Ltd/Kotak despite expensive valuations.
Stable operating metrics: (1) Loan growth at 21% YoY was on expected
lines with some moderation in CV/CE/gold book. Overall auto loans would
moderate in FY14 but we see limited risk to our 19% growth estimate (2)
NIM performance at 4.6% was robust and with a large fixed rate book and
no low reliance on bulk deposits and limited ALM mismatch, margins are
expected to hold up (3) Opex growth at 16% YoY continues to remain less
than B/S growth and with just 250-300 branches planned for FY14,
management expects steady improvement to continue on cost ratios.
Some inch up in slippages but asset quality trends manageable: Gross
NPAs inched up by ~17% QoQ with net slippages of >1% in the last 8-10
quarters. The inch up in slippages was more related to the granular
slippages in the corporate book as retail slippage levels remained at Q4
levels in most retail segments with CV/CE continuing to face pressure and
some inch-up in the gold portfolio. Liquidity pressure and FX volatility
could impact HDFCs working capital exposures as well but management
seemed relatively comfortable currently.
Macro difficult but comfort high on many fronts; Preferred defensive
name: Macro has turned difficult for financials but HDFCB provides
comfort on multiple fronts despite valuations (1) Rs19bn of floating
provisions provides significant credit cost comfort (2) Low bulk reliance
and no ALM mismatch will lead to lower impact on HDFCs margins (3)
Certain slowdown in fee income will be offset by significant cost levers
that HDFCB has built by expanding network by ~50% over FY11-13. HDFCB
remains preferred defensive over HDFC Ltd/ Kotak.
August 12, 2013 28
Y/e March
Net i nterest i ncome 105,431 128,846 158,111 191,277 227,185
Growth (%) 25.7 22.2 22.7 21.0 18.8
Operati ng profi t 77,254 93,906 114,276 141,754 172,487
PAT 39,264 51,671 64,749 80,740 98,391
EPS (Rs) 16.9 22.0 27.2 33.9 41.4
Growth (%) 31.0 30.4 23.6 24.7 21.9
Net DPS (Rs) 3.3 4.3 3.3 4.1 5.0
Y/e March
NIM (%) 73.3 72.9 72.3 74.1 75.9
RoAE (%) 16.7 18.7 19.6 20.3 20.8
RoAA (%) 1.6 1.7 1.8 1.9 1.9
P / BV (x) 5.6 4.8 4.0 3.4 2.8
P / ABV (x) 5.6 4.8 4.0 3.4 2.9
PE (x) 36.2 27.7 22.4 18.0 14.8
Stock Performance
(%) 1M 6M 12M
Absol ute (7.6) (6.1) 1.9
Rel ati ve to Sensex (4.8) (2.5) (4.8)
Lilladher
Prabhudas
Financials
HDFC Bank
August 12, 2013 29
Y/e March
Int. Earned from Adv. 150,850 211,244 268,224 318,123 375,707
Int. Earned from Invt. 46,754 65,046 78,203 89,033 103,383
Others - - - - -
Total Interest Income 199,282 278,742 350,649 411,660 483,931
Interest expense 93,851 149,896 192,538 220,383 256,746
NII 105,431 128,846 158,111 191,277 227,185
Growth (%) 25.7 22.2 22.7 21.0 18.8
Treasury Income (534) (1,944) 1,602 2,500 2,500
NTNII 43,886 59,780 66,924 77,602 94,271
Non Interest Income 43,352 57,836 68,526 80,102 96,771
Total Income 242,634 336,578 419,175 491,762 580,702
Growth (%) 21.4 38.7 24.5 17.3 18.1
Operati ng Expense 71,529 92,776 112,361 129,625 151,468
Operating Profit 77,254 93,906 114,276 141,754 172,487
Growth (%) 20.2 21.6 21.7 24.0 21.7
NPA Provi si ons 14,430 12,428 13,579 21,653 25,911
Investment Provi si ons - - 522 - -
Total Provi si ons 19,061 18,774 16,764 23,019 27,794
PBT 58,193 75,132 97,512 118,735 144,693
Tax Provi si ons 18,929 23,461 32,764 37,995 46,302
Effective Tax Rate (%) 32.5 31.2 33.6 32.0 32.0
PAT 39,264 51,671 64,749 80,740 98,391
Growth (%) 33.1 31.6 25.3 24.7 21.9
Y/e March
Par Val ue 2 2 2 2 2
No. of equi ty shares 2,326 2,347 2,379 2,379 2,379
Equi ty 4,652 4,693 4,759 4,759 4,759
Networth 253,793 299,244 362,141 431,425 515,856
Adj. Networth 250,829 295,720 357,452 424,310 505,847
Deposi ts 2,085,864 2,467,064 2,962,470 3,513,618 4,270,761
Growth (%) 24.6 18.3 20.1 18.6 21.5
Low Cost deposi ts 1,099,083 1,194,059 1,405,215 1,654,079 2,031,868
% of total deposits 52.7 48.4 47.4 47.1 47.6
Total Liabilities 2,773,517 3,379,093 4,003,320 4,704,964 5,644,741
Net Advances 1,599,827 1,954,200 2,397,206 2,852,676 3,480,264
Growth (%) 27.1 22.2 22.7 19.0 22.0
Investments 709,293 974,829 1,116,136 1,273,364 1,489,513
Total Assets 2,773,517 3,379,098 4,003,325 4,704,964 5,644,741
Lilladher
Prabhudas
NTPC
CMP: Rs137 TP: Rs167 Rating: Accumulate MCap: Rs1,130.5bn
Capacity addition on track, Q1FY14 generation muted: NTPC has
commissioned close to 3820MWs which is one of the fastest and highest
additions as compared to its past. Further, we expect 3500MWs
commercialization in FY14E and 4000MWs in FY15E. NTPCs PLFs at 79.1%
(down by 730bps YoY and QoQ) suffered once again on account of non-
availability of imported coal and lower domestic coal availability for plants
commissioned post 2009, leading to a 5.3% YoY volume growth for
Q1FY14. PAF showed a decline at 87.4% by 400bps. However the
generation was also lower on account of major O&M activities.
Coal supply situation under control: NTPC has always enjoyed merit in
dispatches of coal and will continue to do so in the future. The shortages in
domestic coal supply will be met by imports of 3-5mt every year. The new
scheme of coal pooling, where CIL will be supplying imported coal, will also
augur well for the company as it will receive close to 5-8MTs from it. Pakri-
Barwadih captive mine, is also expected to contribute from FY14E, with 2-
5MTs initially. Above this, reallocation of three captive blocks, which can
contribute close to 10MT (initially) from FY15E, should mitigate long-term
fuel supply risks. ACQ materialization of domestic coal was 100% in
Q1FY14.
Valuation undemanding, time to enter: The stock has been beaten down
on the fears of a pressure on operating parameters due to non-availability
of imported coal and shortage of domestic coal. The company will have a
challenging task further in the event of aggressive capacity addition plans
on account of shortage of coal supplies. We have toned down our target
price to factor in lower ROEs for newer plants till any clarity on coal
emerges. However, at an undemanding valuation of 1.1x FY15E, we
maintain Accumulate on the stock.
August 12, 2013 30
Y/e March
Revenue (Rs m) 549,387 611,963 662,980 747,123 826,058
Growth (%) 18.6 11.4 8.3 12.7 10.6
EBITDA (Rs m) 125,770 131,938 177,381 185,561 196,846
PAT (Rs m) 88,332 82,608 91,858 106,650 113,416
EPS (Rs) 10.7 10.0 11.1 12.9 13.8
Growth (%) 4.5 (6.5) 11.2 16.1 6.3
Net DPS (Rs) 3.8 3.9 4.2 4.2 5.0
Y/e March
EBITDA margin (%) 22.9 21.6 26.8 24.8 23.8
RoE (%) 13.6 11.7 12.0 12.5 12.2
RoCE (%) 9.6 8.0 8.1 8.6 8.1
EV / sal es (x) 2.5 2.4 2.3 2.2 2.1
EV / EBITDA (x) 11.1 11.0 8.5 9.0 8.7
PER (x) 12.8 13.7 12.3 10.6 10.0
P / BV (x) 1.7 1.5 1.4 1.3 1.2
Stock Performance
(%) 1M 6M 12M
Absol ute (2.4) (7.4) (18.5)
Rel ati ve to Sensex 0.4 (3.8) (25.3)
Lilladher
Prabhudas
Operating Metrics
NTPC
PLF and PAF Scenario
Returns have bottomed-out
BVPS on a rise
Trend in Installed Capacity
August 12, 2013 31
0
10,000
20,000
30,000
40,000
50,000
60,000
FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E
(
M
W
s
)
Total capacity (incl JV) Standalone capacity Standalone capacity only coal
80.0
82.0
84.0
86.0
88.0
90.0
92.0
94.0
96.0
(
%
)
PLF (coal) PAF (coal)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
0
100,000
200,000
300,000
400,000
500,000
Regulated equity (Rs m) BV (Rs)
10.0
11.0
12.0
13.0
14.0
15.0
16.0
(
%
)
RoE RoE on regulated equity
Lilladher
Prabhudas
Financials
NTPC
August 12, 2013 32
Y/e March
Net Revenue 549,387 611,963 662,980 747,123 826,058
Di rect Expenses 423,617 480,025 485,599 561,561 629,212
% of Net Sales 77.1 78.4 73.2 75.2 76.2
% of Net Sales 0.0 0.0 0.0 0.0 0.0
SG&A Expenses - - - - -
% of Net Sales 0.0 0.0 0.0 0.0 0.0
% of Net Sales 0.0 0.0 0.0 0.0 0.0
EBITDA 125,770 131,938 177,381 185,561 196,846
Margin (%) 22.9 21.6 26.8 24.8 23.8
Depreci ati on 24,857 27,917 33,968 44,000 46,923
PBIT 100,913 104,021 143,413 141,561 149,923
Interest Expenses 21,491 17,116 19,244 29,983 30,944
PBT 120,496 123,763 165,785 140,330 151,223
Total tax 29,470 31,024 39,592 33,679 37,806
PAT 91,026 92,738 126,193 106,650 113,416
Extraordi nary Gai n/(Loss) 2,694 10,131 34,335 - -
Adjusted PAT 88,332 82,608 91,858 106,650 113,416
Y/e March
Share Capi tal 82,455 82,455 82,455 82,455 82,455
Total Debt 431,882 482,403 552,197 685,603 751,341
Other Li abi l i ti es(net) 4,919 14,301 12,441 (2,372) (3,103)
Gross Bl ock 727,552 818,303 1,150,390 1,288,631 1,413,631
Net Bl ock 392,360 452,584 745,490 839,731 917,808
Other Assets - 1 2 3 4
Total Assets 1,121,753 1,235,985 1,377,766 1,590,506 1,718,576
Lilladher
Prabhudas
Wipro
CMP: Rs447 TP: Rs530 Rating: BUY MCap: Rs1,101.3bn
Q1FY14 ahead of expectation: Wipro reported Q1FY14 results ahead of
expectation. IT Services (USD) revenue grew by 0.2% QoQ (1.2% @cc) to
$1,588m (PLe: $1587m, Cons: $1,590m). Overall revenue grew by 1.3%
QoQ to Rs97.29bn (PLe: Rs98.96bn, Cons.: Rs99.4bn). Operating margin
expanded by 38bps to 18.1% (PLe: 17.9%, Cons: 18.1%), despite wage
hike, onsite shift, visa cost and S&M investment aided by currency
depreciation. EPS grew by 3% QoQ to Rs6.64 (PLe: Rs6.51, Cons: Rs 6.64).
Strong guidance Improved demand environment and sales cycle: The
management has given IT Services revenue guidance of 2% to 3.9% QoQ
(PLe: 2-4%, Cons.: 1-3%) growth in USD terms. The management was very
assertive about the improved demand environment, especially in the US.
Moreover, the company also highlighted some improvement in the deal
pipeline and significant improvement in the sales cycle.
Operating leverage yet to be unleashed: The management has increased
its S&M spend by 11% QoQ. Moreover, the company has very strong
bench strength with Gross Utilization at 64.7%, Net Utilization (excl.
Trainees) at 73.3%. The company has invested in tools which will drive
non-linearity. We see room for margin expansion along with improving
growth momentum.
Operating leverage yet to be unleashed: The management has increased
its S&M spend by 11% QoQ. Moreover, the company has very strong
bench strength with Gross Utilization at 64.7%, Net Utilization (excl.
Trainees) at 73.3%. The company has invested in tools which will drive
non-linearity. We see room for margin expansion along with improving
growth momentum.
August 12, 2013 33
Y/e March
Revenue (Rs m) 310,542 318,747 374,256 422,060 467,170
Growth (%) 14.2 2.6 17.4 12.8 10.7
EBITDA (Rs m) 65,463 66,713 78,181 89,476 103,002
PAT (Rs m) 53,004 52,568 61,684 71,643 81,408
EPS (Rs) 21.6 21.4 25.0 29.1 33.1
Growth (%) (29.4) (1.0) 17.1 16.1 13.6
Net DPS (Rs) 6.4 7.0 6.9 9.0 9.0
Y/e March
EBITDA margin (%) 21.1 20.9 20.9 21.2 22.0
RoE (%) 24.3 20.0 21.7 23.2 22.4
RoCE (%) 22.0 18.2 20.5 22.9 22.1
EV / sal es (x) 3.4 3.3 2.7 2.3 2.0
EV / EBITDA (x) 16.1 15.7 13.0 11.0 9.1
PER (x) 20.7 20.9 17.9 15.4 13.5
P / BV (x) 4.6 3.9 3.9 3.3 2.8
Stock Performance
(%) 1M 6M 12M
Absol ute 25.8 21.6 43.0
Lilladher
Prabhudas
Financials
Wipro
August 12, 2013 34
Y/e March
Net Revenue 310,542 318,747 374,256 422,060 467,170
Di rect Expenses 212,823 225,794 260,665 291,760 321,488
% of Net Sales 68.5 70.8 69.6 69.1 68.8
% of Net Sales 0.0 0.0 0.0 0.0 0.0
SG&A Expenses 32,256 26,240 35,410 40,824 42,681
% of Net Sales 10.4 8.2 9.5 9.7 9.1
% of Net Sales 0.0 0.0 0.0 0.0 0.0
EBITDA 65,463 66,713 78,181 89,476 103,002
Margin (%) 21.1 20.9 20.9 21.2 22.0
Depreci ati on 8,211 10,129 10,835 10,863 14,120
PBIT 57,252 56,584 67,346 78,613 88,882
Interest Expenses (11) - - - -
PBT 63,063 65,523 78,596 92,106 104,626
Total tax 9,714 12,955 16,912 20,263 23,018
PAT 53,004 52,568 61,684 71,643 81,408
Adjusted PAT 53,004 52,568 61,684 71,643 81,408
Y/e March
Share Capi tal 4,908 4,917 4,926 4,926 4,926
Total Debt 19,759 22,510 854 854 854
Gross Bl ock 94,554 109,736 101,685 114,347 128,362
Net Bl ock 47,846 53,529 44,589 46,388 46,283
Capi tal Work i n Progress 7,248 5,459 5,936 - -
Other Assets 86,006 105,698 89,159 95,095 95,095
Total Assets 270,825 318,316 294,990 344,540 403,855
Lilladher
Prabhudas
ICICI Bank
CMP: Rs875 TP: Rs1,200 Rating: BUY MCap: Rs1,013.4bn
NIM continues to surprise; To provide offset against RBIs recent
measures : ICICIs margins have improved from ~2.8% to ~3.0% and
management expects the asset mix change to drive further NIM
improvement. Though RBI measures will cause a near-term impact, we do
not expect significant NIM contraction because of the above offsets.
Asset quality stable; some lumpy risks remain: We factor in ~90bps credit
costs v/s management guidance of 75bps as we believe risks still remain
from lumpy corporate exposures as the reform process has still not
addressed power fuel/pricing issues. But low exposure to gas base power
plants is a positive.
Growth pick-up slower than expected; hence, leveraging up to take some
more time: ICICIs domestic book growth has improved but achieving
management guidance of 20% growth in the advances book looks
challenging. We expect ~13% YoY overall growth and this will also impact
the leveraging up process including improvement in consolidated ROEs.
Outlook & Valuations: We note that ~35% of the 300bps improvement in
ROEs over FY11-13 was not core operation driven and given the weak
marcos, we limit our expectation on consolidated ROE improvement to 15-
16% as against management guidance at ~17-18%. Current valuations at
1.4x Sep book does recognize the slower leveraging up and the macro
risks. Hence, we retain positive on ICICI with a PT of Rs1200/share.
August 12, 2013 35
Y/e March
Growth (%) 11.1 19.0 29.2 17.1 13.1
PAT 51,514 64,653 83,255 92,736 105,214
EPS (Rs) 44.7 56.0 71.9 80.1 90.8
Growth (%) 23.9 25.1 28.4 11.4 13.5
Net DPS (Rs) 12.0 16.5 20.0 22.3 25.3
Y/e March
NIM (%) 100.3 96.8 95.2 94.2 94.5
RoAE (%) 9.7 11.2 13.1 13.3 13.8
RoAA (%) 1.3 1.5 1.6 1.6 1.6
P / BV (x) 1.8 1.7 1.5 1.4 1.3
P / ABV (x) 1.8 1.7 1.5 1.4 1.3
PE (x) 19.6 15.6 12.2 10.9 9.6
Stock Performance
(%) 1M 6M 12M
Absol ute (14.9) (22.6) (8.7)
Lilladher
Prabhudas
Financials
ICICI Bank
August 12, 2013 36
Y/e March
Others - - - - -
NII 90,169 107,342 138,664 162,393 183,742
Growth (%) 11.1 19.0 29.2 17.1 13.1
Treasury Income (2,023) (757) 4,717 4,500 5,000
NTNII 68,501 75,784 78,740 88,235 101,067
Total Income 326,219 410,454 484,213 543,066 611,940
Growth (%) (1.7) 25.8 18.0 12.2 12.7
Growth (%) (7.0) 14.8 27.1 15.9 13.5
NPA Provi si ons 19,769 9,932 13,948 25,109 28,765
Investment Provi si ons 2,038 4,132 1,262 1,000 1,000
PBT 67,607 87,973 113,897 126,868 143,938
Tax Provi si ons 16,093 23,321 30,642 34,132 38,724
PAT 51,514 64,653 83,255 92,736 105,214
Growth (%) 28.0 25.5 28.8 11.4 13.5
Y/e March
Par Val ue 10 10 10 10 10
No. of equi ty shares 1,152 1,155 1,158 1,158 1,158
Equi ty 11,518 11,552 11,581 11,581 11,581
Networth 550,909 604,052 667,060 729,609 800,575
Adj. Networth 526,836 585,444 644,754 704,885 773,096
Deposi ts 2,256,021 2,555,000 2,926,136 3,376,707 3,867,635
Growth (%) 11.6 13.3 14.5 15.4 14.5
Low Cost deposi ts 1,016,465 1,110,194 1,225,763 1,417,884 1,633,694
Net Advances 2,163,659 2,537,277 2,902,494 3,308,844 3,838,259
Growth (%) 19.4 17.3 14.4 14.0 16.0
Investments 1,346,859 1,595,600 1,713,936 1,908,194 2,103,577
Total Assets 4,062,336 4,736,471 5,367,947 6,055,398 6,904,394
Lilladher
Prabhudas
Larsen & Toubro
CMP: Rs780 TP: Rs1,091 Rating: Accumulate MCap: Rs721.4bn
At attractive valuations: L&T is certainly facing the turmoil of a slow
economic growth environment. However, the stock is in a comfort zone
on the backdrop of healthy set of announcements in the recently policies.
L&T is trading at P/E of 8.3X FY15E core earnings. However, with the
recent news flow in terms of order intake being positive, L&T looks on a
comfortable wicket and poised to end the year with a 20% order inflow
and 15% revenue growth.
Order book at comfortable footing: LTs order inflow stood at Rs250bn in
Q1FY14. L&T, in FY13, bagged orders worth Rs880bn, a growth of 25% YoY.
The company has maintained the order inflow guidance of 20% YoY which
amounts to Rs1.1trn. L&T has seen some revival in Hydrocarbon, Power
and International orders (especially Middle East). However, Infrastructure
projects remain the prime contributors. Within Infrastructure, Urban
Infrastructure and Buildings show a promising growth path ahead. We
have taken 17% growth YoY, amounting to Rs1trn, keeping in view the
challenging domestic environment. Further, with the impetus given to
DMIC, DFC and other BOT projects in transportation (Budget 2013-14),
along with a strong financial backing, we expect L&T to be able to secure
sizeable orders. Though we have not factored in a major downfall in the
EBITDA margins (10.8%) over FY14E-15E, we have also not kept it higher.
However, any adverse mix in terms of order inflow may alter the margins.
We are expecting a 7.8% CAGR in standalone earnings for the period of
FY12-15E which is again not an out-of-reach assumption.
Valuation still in safe zone: Though the price points have corrected
sharply in the recent times, we see these levels as an entry
point/increasing exposure to a stock in volatile times. At CMP, the stock is
trading at a core P/E of 9.7x FY14E and 8.3x FY15E. With no near-term
major risks attached, the stock is not expected to underperform the
broader market, taking into account the recent sharp correction.
August 12, 2013 37
Y/e March
Revenue (Rs m) 434,959 531,705 608,738 689,490 794,394
Growth (%) 18.6 22.2 14.5 13.3 15.2
EBITDA (Rs m) 52,136 62,826 64,200 73,520 88,497
PAT (Rs m) 36,720 44,196 45,499 47,551 55,384
EPS (Rs) 39.7 47.8 49.2 51.4 59.9
Growth (%) 16.0 20.4 2.9 4.5 16.5
Net DPS (Rs) 7.6 11.0 13.0 15.1 15.1
Y/e March
EBITDA margin (%) 12.0 11.8 10.5 10.7 11.1
RoE (%) 18.4 18.8 16.7 15.6 16.3
RoCE (%) 15.3 15.2 14.2 13.6 14.4
EV / sal es (x) 1.8 1.5 1.3 1.2 1.0
EV / EBITDA (x) 14.9 12.8 12.5 10.9 9.1
PER (x)* 12.5 10.4 10.1 9.7 8.3
P / BV (x) 3.3 2.9 2.5 2.3 2.0
Source: Company Data, PL Research * Core PE
Stock Performance
(%) 1M 6M 12M
Absol ute (16.6) (22.6) (16.7)
Lilladher
Prabhudas
Operating Metrics
Order Book Break-up
Order Inflow (Rs bn)
August 12, 2013 38
SOTP Valuation
Sectors Valuation Parameter Rs / Share
L&T Standal one 13.5x FY15 EPS of Rs60 809
L&T Infotech 12x FY15E PAT of Rs 8 bn @25% HOLDCO 78
L&T Fi nance Hol di ngs 25% HOLDCO Di scount to Mkt Cap of LT Fi nance -LT share 82% 92
L & T IDPL & devel opmet projects 1.25x Equi ty i n Q1FY14E of Rs60bn @ HOLDCO of 25% 57
LT Power Equi pement P/E 6x FY15E PAT @ HOLDCO of 25% 2
L & T Manufacturi ng 10x FY15E Rs1.6bn PAT of vari ous faci l i ti es 18
L&T Urban Infra 1x BV of Real Estate Cost @ 20% HOLDCO 17
Others busi neeses 3x FY15E Rs6bn PAT of vari ous busi nesses 19
Total Value 1,091
Source: PL Research
Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13
Order inflow Composites
In-house 53 48 22 75 29 20 0 0 86 0 0 57
Third Party 103 157 111 226 133 141 171 211 110 196 198 222
Total 156 205 133 301 162 161 171 211 196 196 198 279

Order Inflow by sectors (Eng)
Infra 39 62 77 163 83 50 102 110 127 126 115 73
Hydrocarbon 11 18 0 0 15 40 65 25 4 26 36 10
Process 13 20 0 72 0 16 11 22 10 2 0 5
Power 81 88 44 61 35 42 22 36 41 22 24 123
Others 13 16 12 6 20 13 19 17 14 20 24 12
Infrastructure
49%
Power
26%
Hydro carbon
8%
Process
13%
Others
4%
Lilladher
Prabhudas
Financials
Larsen & Toubro
August 12, 2013 39
Y/e March
Net Revenue 434,959 531,705 608,738 689,490 794,394
Di rect Expenses 100,640 242,424 431,648 543,062 631,259
% of Net Sales 23.1 45.6 70.9 78.8 79.5
Empl oyee Cost 28,845 9,754 44,363 50,456 49,658
% of Net Sales 6.6 1.8 7.3 7.3 6.3
SG&A Expenses - 19,867 20,651 22,452 24,981
% of Net Sales 0.0 3.7 3.4 3.3 3.1
Other Expenses 253,338 196,834 47,876 - -
% of Net Sales 58.2 37.0 7.9 0.0 0.0
EBITDA 52,136 62,826 64,200 73,520 88,497
Margin (%) 12.0 11.8 10.5 10.7 11.1
Depreci ati on 5,992 6,995 8,184 9,000 10,045
PBIT 46,144 55,831 56,016 64,520 78,452
PBT 56,181 62,553 64,572 67,931 80,283
Total tax 19,459 18,357 17,940 20,379 24,899
PAT 39,580 44,565 49,107 47,551 55,384
Extraordi nary Gai n/(Loss) - - 3,608 - -
Adjusted PAT 36,720 44,196 45,499 47,551 55,384
Y/e March
Share Capi tal 1,850 1,850 1,850 1,850 1,850
Total Debt 71,611 98,969 93,362 96,326 102,915
Other Li abi l i ti es(net) - 1 - 3 4
Gross Bl ock 89,567 105,364 119,760 132,813 145,670
Net Bl ock 66,442 76,122 83,054 86,974 89,483
Other Assets - - (4) - -
Total Assets 292,708 352,532 387,211 418,715 463,517
Lilladher
Prabhudas
Mahindra & Mahindra
CMP: Rs864 TP: Rs1,044 Rating: Accumulate MCap: Rs565.5bn
UVs to grow at 8-10% over the next three years: Over the last 2 years, we
have seen a marked shift towards UVs from the sedan segment which is
reflected in UV share increasing by 900bps to 22% of in passenger vehicles.
In our view, this trend (UV growth higher than cars) is likely to continue.
Given its brand pull, huge distribution network and strong R&D
capabilities, we see M&M growing positively (but lower than industry)
despite all competitive challenges. Though we expect M&M to lose around
300-350bps Market share in FY14E, we expect the company to rebound in
FY15E (growth of 11%) with couple of new launches.
Tractors likely to grow at 10-12% over FY13-F15E period: M&M has
maintained its market share across all regions, validating success of most
critical factors brand, product and network. This, along with leveraging of
Mahindra Finance network, would safeguard M&Ms dominance in tractor
industry going forward as well. M&M has reported a 25.2% YoY growth in
tractor volumes in Q1FY14E with full year volume growth pegged at 10-
12%. However, given the normal monsoons and regions such as AP,
Rajasthan and Maharashtra showing some signs of improvement, we
expect M&M to clock a volume growth of 14% in FY14E.
Our volume estimates: We estimate a 5.6% CAGR in automotive volumes
and a 11.0% CAGR in tractor volumes over FY13-FY15E period. We expect
a 60-70bps improvement in EBITDA margins mainly driven by favorable
product mix towards tractors and stable raw material cost scenario.
Valuation attractive: With earnings CAGR of ~10% for FY13-FY15E period
and attractive valuations for core business at ~9.8x FY15E EPS (M&M +
MVML), we prefer M&M as our pick in the auto space with a SOTP based
TP of Rs1, 011.
August 12, 2013 40
Y/e March
Revenue (Rs m) 233,895 318,472 404,412 430,807 491,208
Growth (%) 26.2 36.2 27.0 6.5 14.0
EBITDA (Rs m) 33,989 37,645 47,093 49,083 58,713
PAT (Rs m) 24,892 27,706 32,622 33,889 40,380
EPS (Rs) 38.0 42.3 49.8 51.8 61.7
Growth (%) 8.2 11.3 17.7 3.9 19.2
Net DPS (Rs) 10.2 12.5 13.0 14.0 15.0
Y/e March
EBITDA margin (%) 14.5 11.8 11.6 11.4 12.0
RoE (%) 27.4 24.6 24.3 21.4 21.8
RoCE (%) 21.1 19.9 20.0 18.5 19.4
EV / sal es (x) 2.5 1.8 1.4 1.3 1.1
EV / EBITDA (x) 17.2 15.5 12.3 11.7 9.6
PER (x) 22.7 20.4 17.3 16.7 14.0
P / BV (x) 5.5 4.6 3.8 3.3 2.8
Stock Performance
(%) 1M 6M 12M
Absol ute (8.8) (2.3) 19.6
Rel ati ve to Sensex (6.0) 1.3 12.8
Lilladher
Prabhudas
Operating Metrics
Mahindra & Mahindra
August 12, 2013 41
Y/e March FY09 FY10 FY11 FY12 FY13 FY14E FY15E
UV vol umes (Nos) 121,232 161,293 186,343 232,204 296,382 290,600 325,579
3-wheel ers & LCVs (nos) 83,449 120,825 167,730 220,131 240,743 257,181 281,460
Total Automoti ve Vol umes (nos) 204,681 282,118 354,073 452,335 537,125 547,781 607,039
Tractor Vol umes (nos) 119,708 175,196 214,325 235,375 223,883 255,227 280,750
Total Vol umes (nos) 324,389 457,314 568,398 687,710 761,008 803,008 887,789
Average real i zati on / Vehi cl e (Rs) 403,055 405,184 404,378 451,863 520,914 536,491 553,293
EBITDA / Vehi cl e (Rs) 39,724 65,518 58,763 53,413 60,661 61,124 66,134
Net Profi t / Vehi cl e (Rs) 28,422 44,720 43,035 39,311 42,021 42,203 45,484
SOTP Valuation
Y/e March Parameter Value (Rs / share)
M&M + MVML 11.5x FY15E EPS of Rs69 799
Subsi di ari es at 25% di scount 245
SOTP Valuation 1,044
Lilladher
Prabhudas
Financials
Mahindra & Mahindra
August 12, 2013 42
Y/e March
Net Revenue 233,895 318,472 404,412 430,807 491,208
Di rect Expenses 162,639 234,997 304,149 324,295 368,217
% of Net Sales 69.5 73.8 75.2 75.3 75.0
Empl oyee Cost 14,315 17,018 18,665 20,436 22,547
% of Net Sales 6.1 5.3 4.6 4.7 4.6
% of Net Sales 0.0 0.0 0.0 0.0 0.0
Other Expenses 22,952 28,812 34,505 36,992 41,731
% of Net Sales 9.8 9.0 8.5 8.6 8.5
EBITDA 33,989 37,645 47,093 49,083 58,713
Margin (%) 14.5 11.8 11.6 11.4 12.0
Depreci ati on 4,139 5,762 7,108 8,195 9,114
PBIT 29,850 31,883 39,985 40,889 49,599
Interest Expenses 725 1,628 1,912 1,850 1,900
PBT 33,467 34,976 43,565 44,739 53,699
Total tax 8,575 7,270 10,943 10,850 13,319
PAT 26,621 28,789 33,522 33,889 40,380
Extraordi nary Gai n/(Loss) 1,729 1,083 900 - -
Adjusted PAT 24,892 27,706 32,622 33,889 40,380
Y/e March
Share Capi tal 3,274 3,274 3,274 3,274 3,274
Total Debt 24,053 31,742 32,289 30,289 28,289
Other Li abi l i ti es(net) 3,544 5,271 - - -
Deferred Tax Li abi l i ty - - - - -
Gross Bl ock 62,110 80,632 95,132 110,132 123,132
Net Bl ock 33,726 45,108 52,500 59,305 63,191
Other Assets 726 - - - -
Total Assets 131,070 159,053 179,190 200,675 227,908
Lilladher
Prabhudas
Hindustan Zinc
CMP: Rs103 TP: Rs141 Rating: BUY MCap: Rs434.8bn
Government in no perseverance to sell the stake at current levels: Our
channel checks suggest that concerned Ministry of mines and finance are
well cognizant of the steep fall in stock price and resultant contraction in
targeted receipt from sale. Both ministries are now actively contemplating
to sell the stake to Vedanta through negotiation to garner higher price
rather than selling in open market. However, the process got delayed due
to ongoing impasse in parliament.
Strong outlook for Zn and Pb: Zn is expected to remain in deficit for
couple of years, primarily on account of growth in consumption outpacing
the rise in production. Pb is expected to be in marginal surplus in 2013;
however, the trend is expected to reverse on the back of lower growth in
production. We built in LME-Zn and LME-Pb at US$1950 and US$2120 in
FY14E.
Valuation and Outlook: We remain positive on the stock, given the play on
attractive valuations and quality assets, coupled with strong likelihood of
Govts stake sale at a significant premium. We maintain our BUY rating
with PT of Rs150, EV/EBITDA of 4.5x FY15E.
August 12, 2013 43
Y/e March
Revenue (Rs m) 99,121 112,551 125,257 131,332 136,404
Growth (%) 23.6 13.5 11.3 4.8 3.9
EBITDA (Rs m) 54,859 59,193 63,075 65,190 66,431
PAT (Rs m) 49,008 54,610 68,448 64,580 68,098
EPS (Rs) 11.6 12.9 16.2 15.3 16.1
Growth (%) 21.3 11.4 25.3 (5.6) 5.4
Net DPS (Rs) 1.0 2.4 3.1 3.5 4.0
Y/e March
EBITDA margin (%) 55.3 52.6 50.4 49.6 48.7
RoE (%) 24.1 22.1 23.1 18.6 17.3
RoCE (%) 24.1 22.1 23.2 18.7 17.3
EV / sal es (x) 3.8 3.4 2.9 2.5 2.1
EV / EBITDA (x) 6.9 6.5 5.8 4.9 4.2
PER (x) 8.9 8.0 6.4 6.7 6.4
P / BV (x) 1.9 1.6 1.3 1.2 1.0
Stock Performance
(%) 1M 6M 12M
Absol ute 1.7 (16.9) (13.9)
Lilladher
Prabhudas
Financials
Hindustan Zinc
August 12, 2013 44
Y/e March
Net Revenue 99,121 112,551 125,257 131,332 136,404
Di rect Expenses 35,572 43,807 50,502 52,844 55,519
% of Net Sales 35.9 38.9 40.3 40.2 40.7
Empl oyee Cost 5,108 5,346 6,499 7,149 7,864
% of Net Sales 5.2 4.8 5.2 5.4 5.8
SG&A Expenses 3,582 4,206 5,181 6,149 6,590
% of Net Sales 3.6 3.7 4.1 4.7 4.8
% of Net Sales 0.0 0.0 0.0 0.0 0.0
EBITDA 54,859 59,193 63,075 65,190 66,431
Margin (%) 55.3 52.6 50.4 49.6 48.7
Depreci ati on 4,747 6,107 6,470 7,394 7,665
PBIT 50,112 53,086 56,604 57,795 58,766
PBT 59,637 68,884 77,675 75,978 80,115
Total tax 10,591 14,185 9,206 11,397 12,017
PAT 48,834 54,268 68,293 64,576 68,098
Extraordi nary Gai n/(Loss) (174) (342) (155) (4) -
Adjusted PAT 49,008 54,610 68,448 64,580 68,098
Y/e March
Share Capi tal 8,451 8,451 8,451 8,451 8,451
Total Debt 4 4 4 4 4
Gross Bl ock 98,023 116,579 122,648 130,148 134,148
Net Bl ock 72,542 85,128 84,837 84,943 81,279
Other Assets - - - - -
Total Assets 235,263 279,905 335,560 384,473 434,530
Lilladher
Prabhudas
Adani Port & SEZ
Coal volumes to continue its uptrend: Tata UMPP and Adani Powers coal
contribution increased from 8.6mt in FY12 to 18.4mt in FY13. These
volumes are expected to continue their uptrend to 22mt in FY14 & 28.5mt
in FY15. Overall, Mundras volumes are expected to increase from 82.1mt
in FY13 to 99.6mt in FY14 and 115mt in FY15.
HMEL to contribute to growth in crude volumes: HMELs contribution to
crude volumes witnessed strong growth in FY13, resulting in overall crude
volumes increasing from 9.3mt in FY12 to 14mt in FY13. Further, crude
volumes in FY14 are expected to scale up to 19mt on account of HMELs
production increasing.
Developing new port assets: Operations at Dahej have scaled up quite
strongly. In FY13, volumes stood at ~7.56mt as against 2.14mt in FY12. The
financial performance at Dahej was also extremely robust contributing to
revenues of Rs2.4bn and PAT of Rs0.7bn. Hazira is likely to be the next big
contributor for the company. Besides, capex at Kandla, Vishakapatnam and
Mormugao are likely to continue. Total capex for the company is likely to
be ~Rs25-30bn in FY14. Further, the company is looking at investing into
port assets in the Eastern & Southern India.
Abbot divested at cost: In order to focus on growth in India and on
account of investor criticism, the company has divested its stake in Abbot
Point in favor of Adanis promoters. This would result in the consolidated
debt declining by Rs112bn which is the debt on Abbot Point. Further, the
parent has invested US$235m as equity in the company which has been
bought by the promoters at the same valuation plus an additional US$15m
on account of exchange-rate fluctuation. The divestment of Abbot shall
provide a clear roadmap for the company as it can now focus on its India
business
Valuations: Our SOTP for the company stands at Rs180, We remain
confident on the long-term fundamentals of the company despite the risk
of volatility in the companys stock price on account of the issues
surrounding the Adani group.
August 12, 2013 45
Y/e March
Revenue (Rs m) 20,001 26,973 35,766 45,867 55,910
Growth (%) 33.7 34.9 32.6 28.2 21.9
EBITDA (Rs m) 12,994 17,908 23,835 31,999 38,228
PAT (Rs m) 8,342 11,018 16,232 19,309 23,868
EPS (Rs) 4.2 5.5 8.1 9.3 11.5
Growth (%) 23.4 32.1 47.3 15.1 23.6
Net DPS (Rs) 1.3 1.0 1.0 2.5 2.6
Y/e March
EBITDA margin (%) 65.0 66.4 66.6 69.8 68.4
RoE (%) 21.8 24.4 28.9 25.4 24.6
RoCE (%) 10.9 8.4 9.8 11.8 12.6
EV / sal es (x) 15.9 16.7 10.9 8.9 6.6
EV / EBITDA (x) 24.5 25.1 16.3 12.8 9.6
PER (x) 34.2 25.9 17.6 15.2 12.3
P / BV (x) 6.8 5.9 4.5 3.3 2.8
Stock Performance
(%) 1M 6M 12M
Absol ute (4.7) (6.4) 14.4
Rel ati ve to Sensex (1.9) (2.8) 7.6
Lilladher
Prabhudas
Operating Metrics
Adani Port & SEZ
Source: PL Research
Coal volumes to bump up with upcoming Adani and UMPP power plants
Commodity-wise contribution to port revenues
Source: PL Research
Container volumes to show rapid growth in FY11-15 period
Commodity-wise port volumes
August 12, 2013 46
-
10
20
30
40
50
60
70
80
90
100
110
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
(
m
i
l
l
i
o
n

t
o
n
n
e
s
)
Coal Crude Oil POL Products Container Bulk
1
8.63
18.4
22
28.5
0
5
10
15
20
25
30
FY11E FY12E FY13E FY14E FY15E
(
m
n

t
o
n
n
e
s
)
1.2
1.5
2.1
2.1
2.7
-
0.5
1.0
1.5
2.0
2.5
3.0
FY11E FY12E FY13E FY14E FY15E
Container (m TEUs)
53%
49%
41%
33% 34%
32%
23%
24%
25%
31% 31%
34%
14%
10%
10%
8%
9% 8%
9%
18%
22%
21% 22%
10%
7% 7% 6% 5% 5%
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13 FY14 FY15
Bulk Container Crude Oil & POL Coal Other
Lilladher
Prabhudas
Contd
Adani Ports & SEZ
August 12, 2013 47
Breakup of Volumes (m Tonnes)
Y/e March FY10 FY11E FY12E FY13E FY14E FY15E
Bul k 14.7 21.7 20.6 19.0 22.3 23.2
POL 6.9 7.5 7.1 5.3 5.3 5.3
Contai ner 11.2 14.9 18.3 25.5 25.0 32.4
Crude 7.5 6.7 9.3 14.0 19.0 20.0
Coal - 1.0 8.6 18.4 22.0 28.5
Total 40.3 51.7 64.0 82.1 93.6 109.4
Details of SEZ Area (Acres)
Total Si ze of SEZ 32,000
Area i n Possesi on 23,000
Noti fi ed Area 18,000
Summary of Valuations
NAV/Share Rs.
Mundra Port 152
Dahej Port (75% Stake) 4
Mormogao Port 2
Hazi ra Port 4
Kandl a 4
SEZ (40% di scount to NAV) 14
Total NAV 180
Revenue Break-up (Rs m)
Y/e March FY10 FY11 FY12 FY13E FY14E FY15E
Port 13,634 19,023 23,544 28,735 36,990 42,683
SEZ 865 515 805 4,399 2,770 2,850
Abbot Poi nt 0 0 6,120 15,344 20,320 23,162
Others 456 463 (3,497) (12,711) (14,213) (12,786)
Total 14,955 20,001 26,973 35,766 45,867 55,910
Opearting Parameters of Port & SEZ
Y/e March FY10 FY11E FY12E FY13E FY14E FY15E
Port Vol umes (m tonnes) 40.3 51.7 64.0 82.1 99.6 115.6
Average Real i zati on/tonne Rs 338.4 368.1 368.1 349.9 371.5 369.2
SEZ Sal es (Acres) 160.0 27.0 15.0 80.0 150.0 150.0
Lilladher
Prabhudas
Financials
Adani Port & SEZ
August 12, 2013 48
Y/e March
Net Revenue 20,001 26,973 35,766 45,867 55,910
Di rect Expenses 5,321 6,735 9,129 8,639 11,308
% of Net Sales 26.6 25.0 25.5 18.8 20.2
Empl oyee Cost 798 1,098 1,308 1,101 1,342
% of Net Sales 4.0 4.1 3.7 2.4 2.4
SG&A Expenses 888 1,232 1,496 4,128 5,032
% of Net Sales 4.4 4.6 4.2 9.0 9.0
% of Net Sales 0.0 0.0 0.0 0.0 0.0
EBITDA 12,994 17,908 23,835 31,999 38,228
Margin (%) 65.0 66.4 66.6 69.8 68.4
Depreci ati on 2,388 3,159 4,220 7,073 8,538
PBIT 10,606 14,748 19,615 24,925 29,690
Interest Expenses 880 3,256 5,493 6,316 6,936
PBT 10,036 12,007 17,619 20,909 25,312
Total tax 874 896 1,231 1,600 1,445
PAT 9,181 11,018 15,379 19,309 23,868
Extraordi nary Gai n/(Loss) 839 - (853) - -
Adjusted PAT 8,342 11,018 16,232 19,309 23,868
Y/e March
Share Capi tal 4,007 4,007 4,007 4,140 4,140
Preference Share Capi tal 28 28 28 28 28
Total Debt 35,925 175,649 112,492 132,477 126,483
Other Li abi l i ti es(net) 7,108 6,658 1,423 - -
Gross Bl ock 74,216 189,285 115,433 137,570 174,226
Net Bl ock 63,508 173,154 96,433 111,497 139,454
Other Assets 404 11,125 404 - -
Total Assets 88,400 245,871 183,164 225,712 238,139
Lilladher
Prabhudas
Titan Industries
We are upgrading TTAN from Accumulate to BUY on restatement of Gold
on lease for domestic jewellery retailers and improving visibility on profit
growth. TTANs managements ability to source Gold from SBI and ETFs in the
interim and confidence of ensuring adequate supply of Gold stands out. We
believe strong balance sheet and brand of TTAN will enable it to source Gold
at more competitive costs than its peers and unorganized players and increase
its competitiveness and market share. Although grey areas regarding 20%
sourcing by banks for exports and SEZs are still there, the visibility on
profitable growth is improving. We expect Jewellery margins to decline 50bps
in FY14 due to deterioration in sales mix, FY15 outlook looks bright with 60bps
margin expansion and 31% EBITDA growth. Watch business will gain from
planned restructuring with 110bps margin expansion in FY15 (210bps decline
in FY14) with 28% EBIT growth. We are increasing FY14 and FY15 EPS
estimates by 5.3% and 14% to Rs9.8 and Rs13.1, respectively. We value the
stock at 23xFY15 with a target of Rs302, 16.6% upside; P/E rerating post
clarity on regulatory issues can provide further upside to the target price.
Q1 sales disappoint; margins expand 110bps: TTAN Q1 sales increased 40.9%
to Rs31.1bn. However, EBITDA at Rs2.4bn increased 15.6% YoY as EBITDA
margins declined 170bps to 7.9% led by 130bps decline in ad-spend and 50bps
decline in staff cost. PAT increased 16.9% to Rs1.82bn.
Watch sales up 11.4%; volumes up 3%: Watch business reported 11.4%
increase in sales. EBIT declined 17.8% as margins declined 370bps YoY to
10.3% due to high overheads and Wages settlement (Rs150m per quarter).
Volumes increased 3%, LTL sales in WOT declined 1% and in large format
stores by 2%.
Jewellery volumes up 67%; margins decline 130bps: Jewellery sales increased
47.2% to Rs26.1bn. EBIT increased 27.7% as margins declined by 130bps YoY.
Sharp decline in gold prices and marriage season boosted sales. Sales mix
deteriorated as studded share declined to 16%.
Eyewear sales up 34%; PE sales up 60%: Eyewear sales were boosted by
successful promotion. PE business has an order book of nine months and is
eyeing sales of Rs2bn and EBIT margins of 10% in FY14.
August 12, 2013 49
Y/e March
Revenue (Rs m) 65,216 88,394 101,136 132,289 160,205
Growth (%) 39.5 35.5 14.4 30.8 21.1
EBITDA (Rs m) 6,127 8,350 10,115 12,362 16,303
PAT (Rs m) 4,304 6,011 7,252 8,667 11,646
EPS (Rs) 9.7 6.8 8.2 9.8 13.1
Growth (%) 64.6 (30.2) 20.7 19.5 34.4
Net DPS (Rs) 2.5 1.8 2.1 2.5 3.5
Y/e March
EBITDA margin (%) 9.4 9.4 10.0 9.3 10.2
RoE (%) 49.2 48.6 42.5 38.2 39.2
RoCE (%) 48.0 49.4 44.2 40.5 41.7
EV / sal es (x) 1.6 2.5 2.2 1.6 1.3
EV / EBITDA (x) 17.5 26.9 22.0 17.4 12.7
PER (x) 27.2 39.0 32.3 27.1 20.1
P / BV (x) 11.4 16.2 11.9 9.1 7.0
Stock Performance
(%) 1M 6M 12M
Absol ute 21.7 (1.4) 24.6
Lilladher
Prabhudas
Financials
Titan Industries
August 12, 2013 50
Y/e March
Net Revenue 65,216 88,394 101,136 132,289 160,205
Di rect Expenses 51,188 70,909 80,803 107,263 128,979
% of Net Sales 78.5 80.2 79.9 81.1 80.5
Empl oyee Cost 3,651 3,923 4,845 6,529 7,582
% of Net Sales 5.6 4.4 4.8 4.9 4.7
SG&A Expenses 1,217 1,398 1,601 1,988 2,364
% of Net Sales 1.9 1.6 1.6 1.5 1.5
Other Expenses 3,033 3,814 3,771 4,148 4,978
% of Net Sales 4.7 4.3 3.7 3.1 3.1
EBITDA 6,127 8,350 10,115 12,362 16,303
Margin (%) 9.4 9.4 10.0 9.3 10.2
Depreci ati on 320 424 520 559 629
PBIT 5,782 7,901 9,570 11,777 15,648
Interest Expenses 345 437 506 821 1,171
PBT 5,990 8,394 10,063 12,206 16,402
Total tax 1,686 2,383 2,811 3,540 4,757
PAT 4,304 6,011 7,252 8,667 11,646
Adjusted PAT 4,304 6,011 7,252 8,667 11,646
Y/e March
Share Capi tal 444 888 888 888 888
Total Debt 677 113 60 113 113
Deferred Tax Li abi l i ty 15 (38) (80) 203 583
Gross Bl ock 6,089 7,271 8,480 9,565 10,729
Net Bl ock 2,696 3,578 4,402 4,928 5,463
Capi tal Work i n Progress 166 249 417 150 150
Other Assets 135 110 84 59 34
Total Assets 10,946 14,574 19,629 26,014 34,431
Lilladher
Prabhudas
Ranbaxy Laboratories
NDAs and brands to drive turnaround in core US sales: Launch of branded
drugsAbsorica and Ximino, NDA in Pristiq, derma franchise and re-launch
of Lipitor to drive core sales in US. Without incurring additional marketing
costs, Ranbaxys current marketing team of 45 reps to be optimized with
additions of NDAs and branded generics. Thus, improvement in base
business implies core operating margin to rebound at 12-14% in 2013E-
14E. While Ranbaxy is likely to be AG on patented drugs of DS in US (like
Evoxac in 2012-13), we expect minimum core generic sales to be US$500m
in US in 2013E-14E.
Slew of FTF approvals in the near term: We expect Ranbaxy to receive FTF
approvals on Diovan and Valcyte in 2013E and Nexium in 2014E. Also, the
company may gain from its AG launch of Oxycontin in 2013E-14E, once a
competitor generic launch is approved by US FDA. Oxycontin to provide
better margin than other AG products as the drug would remain limited
competition over a period of time. We expect INR80 EPS from FTF
launches in 2013E-14E.
Geographical subs to contribute in operating margin growth: Post
restructuring geographical network and rationalize generic portfolio, we
believe that Asia-Pac to provide operational profit while EU to decrease
loss significantly in 2013E-14E. Russia and CIS would continue to maintain
growth on the back of robust OTC portfolio, while Africa business continue
to be depended on ARV tender business. LatAm to be profitable in 2014E-
15E, post ongoing restructuring in that geography.
Outlook and Valuations: At the current valuation of 13x CY13E and 10x in
CY14E, the stock is highly discounted to its peers. While there are concerns
over India formulations growth in 2013 and delay in approvals of Diovan,
we believe that Ranbaxy may positively surprise with US$100m revenues
from Absorica in first year of US launch. Adverse news flow on operational
issues at the new plant at Mohali had an impact on valuation of the
company in Q2FY13 though management reiterated its confidence of
maintaining FTFs in Diovan and timely launch of Valcyte in H2FY13E.
August 12, 2013 51
Y/e Dec
CY10 CY11 CY12 CY13E CY14E
Revenue (Rs m) 89,608 101,612 124,597 135,760 153,311
Growth (%) 18.0 13.4 22.6 9.0 12.9
EBITDA (Rs m) 19,209 24,261 19,379 30,242 39,882
PAT (Rs m) 14,968 (28,997) 9,228 23,110 30,887
EPS (Rs) 35.5 (68.7) 21.8 54.6 73.0
Growth (%) 825.8 (293.3) (131.8) 150.4 33.7
Net DPS (Rs) 2.0 0.0 0.0 0.0 0.0
Y/e Dec
EBITDA margin (%) 21.4 23.9 15.6 22.3 26.0
RoE (%) 30.0 (68.3) 26.5 44.1 38.9
RoCE (%) 17.2 (32.5) 14.1 28.1 28.1
EV / sal es (x) 1.8 1.6 1.0 0.8 0.5
EV / EBITDA (x) 8.4 6.8 6.5 3.4 2.0
PER (x) 10.1 (5.2) 16.5 6.6 4.9
P / BV (x) 2.7 5.3 3.7 2.4 1.6
Stock Performance
(%) 1M 6M 12M
Absol ute 4.8 (16.2) (30.3)
Lilladher
Prabhudas
Financials
Ranbaxy Laboratories
August 12, 2013 52
Y/e Dec
Net Revenue 89,608 101,612 124,597 135,760 153,311
Di rect Expenses 35,404 39,682 50,569 53,489 57,032
% of Net Sales 39.5 39.1 40.6 39.4 37.2
Empl oyee Cost 15,060 16,449 19,284 21,888 23,435
% of Net Sales 16.8 16.2 15.5 16.1 15.3
SG&A Expenses 19,935 21,221 35,365 30,140 32,963
% of Net Sales 22.2 20.9 28.4 22.2 21.5
% of Net Sales 0.0 0.0 0.0 0.0 0.0
EBITDA 19,209 24,261 19,379 30,242 39,882
Margin (%) 21.4 23.9 15.6 22.3 26.0
Depreci ati on 5,533 3,156 3,202 3,261 3,313
PBIT 13,676 21,105 16,176 26,981 36,569
Interest Expenses 614 768 1,796 1,709 1,743
PBT 15,301 22,295 17,112 28,141 37,809
Total tax 5,849 1,969 2,939 4,925 6,806
PAT 14,968 (28,997) 9,228 23,110 30,887
Adjusted PAT 14,968 (28,997) 9,228 23,110 30,887
Y/e Dec
Share Capi tal 2,105 2,110 2,115 2,115 2,115
Total Debt 43,348 44,907 19,713 20,107 20,509
Other Li abi l i ti es(net) 647 810 14,309 14,684 15,074
Deferred Tax Li abi l i ty 171 77 132 132 132
Gross Bl ock 67,050 73,266 77,317 81,517 85,817
Net Bl ock 45,479 48,587 49,435 50,374 51,361
Other Assets 467 518 489 550 548
Total Assets 100,282 74,553 74,998 98,936 130,611
Lilladher
Prabhudas
Shree Cement
CMP: Rs3,824 TP: Rs5,000 Rating: BUY MCap: Rs133.2bn
Strong visibility on volume expansion: Management has guided to
increase its cement capacity by 2.5mt/year (first unit in June-2013) over
next five years and aim to exit the FY17 with capacity of 25mtpa. Our
channel checks suggest ordering of much awaited Chhattisgarh based unit
during the current month. Robust cash flow generation, strong balance
sheet (debt-free) and exceptional project execution ascribes strong
visibility to the consistent volume growth.
Structural beneficiary of shrinking domestic coal supplies and weak
global coal prices: SRCM meets its entire fuel requirement through
imported coal/pet coke. Owing to continuous cut in coal linkages and price
increases by Coal India, cost for all top producers rose due to lower
availability and increased cost of linkage coal. Shree Cement would stand
as the major beneficiary of this structural shift, given its 100% dependence
on imported coal/pet coke.
Valuations attractive, maintain BUY: Shree Cement commands one of
the best earnings quality in the sector, backed by companys strong
command across the aspect of business-cost (ranks 1st), market share
(highest market share in northern region @20%), timely volume expansion
(5-year CAGR at 15%). At CMP, stock trades at attractive valuations of
EV/Tonne at US$100 and EV/EBITDA at 6.0x FY15E. We reiterate our BUY
rating with PT of Rs5,00, valued cement biz at EV/EBITDA of 7x FY15E and
power biz at P/BV of 0.7x FY15E BV.
August 12, 2013 53
Y/e March
Revenue (Rs m) 34,535 58,981 56,494 64,863 75,428
Growth (%) (4.9) 70.8 (4.2) 14.8 16.3
EBITDA (Rs m) 8,810 16,239 15,498 17,690 20,398
PAT (Rs m) 2,587 6,308 10,170 9,528 11,466
EPS (Rs) 74.3 181.1 291.9 273.5 329.1
Growth (%) (65.0) 143.9 61.2 (6.3) 20.3
Net DPS (Rs) 14.0 20.0 20.0 20.0 22.0
Y/e March
EBITDA margin (%) 25.5 27.5 27.4 27.3 27.0
RoE (%) 13.5 26.7 31.6 22.5 21.5
RoCE (%) 9.1 17.1 22.0 17.8 18.1
EV / sal es (x) 3.9 2.0 2.1 1.7 1.3
EV / EBITDA (x) 15.3 7.4 7.7 6.3 4.9
PER (x) 51.5 21.1 13.1 14.0 11.6
P / BV (x) 6.7 4.9 3.6 2.8 2.3
Stock Performance
(%) 1M 6M 12M
Absol ute (7.8) (1.2) 39.6
Lilladher
Prabhudas
Operating Metrics
Shree Cement
August 12, 2013 54
Y/e March
Vol ume (mn te)-Cement 10.2 10.3 14.9 12.5 13.9 16.1
Vol ume (mn uni ts)-Power 264 621 1,322 2,610 2,667 2,737
Net Real i sati ons (Rs/te) 3,372 3,114 3,576 3,698 3,896 4,004
Real i sed rate (Rs/uni t) 6.7 4.1 4.3 4.0 4.0 4.0
Cement EBITDA (Rs/te) 1,355 742 1,025 1,041 1,100 1,113
Raw materi al cost (Rs/te) 345 395 408 430 454 478
Power & Fuel cost (Rs/te) 590 656 605 451 454 504
Frei ght cost (Rs/te) 492 472 507 538 575 604
Lilladher
Prabhudas
Financials
Shree Cement
August 12, 2013 55
Y/e March
Net Revenue 34,535 58,981 56,494 64,863 75,428
Di rect Expenses 13,954 23,781 20,355 26,150 29,884
% of Net Sales 40.4 40.3 36.0 40.3 39.6
Empl oyee Cost 1,985 3,195 3,143 3,589 4,306
% of Net Sales 5.7 5.4 5.6 5.5 5.7
SG&A Expenses 6,141 10,097 9,150 11,228 13,732
% of Net Sales 17.8 17.1 16.2 17.3 18.2
Other Expenses 3,645 5,670 8,348 6,206 7,108
% of Net Sales 10.6 9.6 14.8 9.6 9.4
EBITDA 8,810 16,239 15,498 17,690 20,398
Margin (%) 25.5 27.5 27.4 27.3 27.0
Depreci ati on 6,758 8,731 4,356 6,105 6,889
PBIT 2,052 7,508 11,142 11,586 13,509
PBT 1,109 6,878 11,194 11,621 13,985
Total tax (994) 693 1,155 2,093 2,518
Effective Tax rate (%) (89.6) 10.1 10.3 18.0 18.0
PAT 2,102 6,185 10,040 9,528 11,466
Extraordi nary Gai n/(Loss) (485) (123) (130) - -
Adjusted PAT 2,587 6,308 10,170 9,528 11,466
Y/e March
Share Capi tal 348 348 348 348 348
Total Debt 18,822 17,042 15,242 13,442 11,642
Gross Bl ock 40,421 52,450 54,250 63,650 73,650
Net Bl ock 11,671 15,211 12,972 16,268 19,379
Other Assets 723 697 923 1,155 1,436
Total Assets 42,256 48,079 56,099 65,137 75,112
Lilladher
Prabhudas
MID-CAP
August 12, 2013 56
Lilladher
Prabhudas
Britannia Industries
Industry moving towards high margins: Biscuits industry is currently
operating with ~6-7% EBITDA margins which are unsustainable in the long
term. We expect focus on premium products to drive industry margins in
the medium term. BRIT by virtue of its strong position in premium
segment and 33% market share should emerge as a major beneficiary.
Near-term margins will be supported by operating leverage and benign
input cost environment. Input costs remain favourable as Sugar prices are
down 17% from peak, Palm oil prices are lower by 22% and Wheat prices
by 6%.
Sales mix moving towards higher margin products/segments:
Premiumisation continues as Glucose is now less than 19% of Biscuit sales.
Also, higher margin Cake, Bread and Rusk have grown at 28% CAGR since
2008 and accounts for 17% of sales. We note that all the leading layers are
keen on higher margin Cookies and Creams segments. New players like
Oreo, McVities etc. have tried to expand the premium end without any
irrational pricing to disturb the market. We note that both Parle and ITC
have launched several new products like Goldstar, Golden Arces, Milano
and Delicious which shows the growing trend towards premium products.
Contribution from subsidiaries on a rise: Subsidiaries are no more a drain
and contributed to an EPS of Rs2.1 in FY13. BRIT Dairy is leading the pack,
with 22% CAGR in Sales and 7% PAT margin. We estimate EPS of Rs3.2 in
FY15 from subs.
Maintain BUY with a target of Rs812: We are factoring in 80bps margin
expansion in FY14 to 7.4% and 50bps in FY15 to 7.9%. We estimate 28.5%
PAT CAGR over FY13-15. We value the stock at Rs812 based on 23xFY15
standalone EPS and 1xFY15 EV/sales for subsidiaries. The stock would
trade at 22.8xFY15 consolidated earnings and 25x FY15 on standalone EPS
at our target price.
August 12, 2013 57
Y/e March
Revenue (Rs m) 42,235 49,742 56,155 65,006 75,849
Growth (%) 23.8 17.8 12.9 15.8 16.7
EBITDA (Rs m) 2,329 2,944 3,716 4,770 5,976
PAT (Rs m) 1,467 2,020 2,339 2,950 3,846
EPS (Rs) 12.3 16.9 19.6 24.7 32.2
Growth (%) (12.3) 37.6 15.8 26.1 30.4
Net DPS (Rs) 6.5 8.5 8.5 10.7 13.5
Y/e March
EBITDA margin (%) 5.5 5.9 6.6 7.3 7.9
RoE (%) 34.6 41.6 40.2 41.4 43.7
RoCE (%) 19.8 24.4 29.0 35.0 38.9
EV / sal es (x) 2.0 1.7 1.5 1.3 1.0
EV / EBITDA (x) 35.5 28.5 22.4 17.1 13.3
PER (x) 56.5 41.1 35.5 28.1 21.6
P / BV (x) 18.4 15.9 12.9 10.6 8.5
Stock Performance
(%) 1M 6M 12M
Absol ute (3.0) 33.8 25.4
Lilladher
Prabhudas
Financials
Britannia Industries
August 12, 2013 58
Y/e March
Net Revenue 42,235 49,742 56,155 65,006 75,849
Di rect Expenses 31,538 36,680 40,882 46,855 54,468
% of Net Sales 74.7 73.7 72.8 72.1 71.8
Empl oyee Cost 1,185 1,307 1,435 1,633 1,846
% of Net Sales 2.8 2.6 2.6 2.5 2.4
SG&A Expenses 4,084 5,376 6,283 7,358 8,512
% of Net Sales 9.7 10.8 11.2 11.3 11.2
Other Expenses 3,098 3,435 3,839 4,389 5,047
% of Net Sales 7.3 6.9 6.8 6.8 6.7
EBITDA 2,329 2,944 3,716 4,770 5,976
Margin (%) 5.5 5.9 6.6 7.3 7.9
Depreci ati on 446 473 571 690 733
PBIT 1,883 2,471 3,145 4,080 5,243
PBT 1,995 2,676 3,322 4,155 5,494
Total tax 528 656 983 1,205 1,648
PAT 1,453 1,868 2,339 2,950 3,845
Extraordi nary Gai n/(Loss) (15) (152) - - (1)
Adjusted PAT 1,467 2,020 2,339 2,950 3,846
Y/e March
Share Capi tal 239 239 239 239 239
Total Debt 4,607 4,345 1,901 1,502 1,250
Gross Bl ock 5,936 6,774 9,074 9,574 10,249
Net Bl ock 3,037 3,791 5,520 5,330 5,272
Net Current Assets 4,442 3,299 924 2,095 3,814
Other Assets (62) (82) (136) (95) (40)
Total Assets 9,120 9,545 8,329 9,320 11,036
Lilladher
Prabhudas
United Phosphorus
Sustained organic earnings growth: UPLs higher exposure to emerging
markets which are growing @10-12% p.a. compared to global agrochem
market growth of 4-5% p.a. promises sustained top-line growth over the
medium term. We expect UPLs EBITDA margins to improve by 80bps over
the next two years to 18.8% driven by shift in product mix, rationalization
of costs and turnaround of DVA. We expect DVA Agro margins to improve
by 200-250bps over the medium term driven by consolidation of supply
chain in Latin America, improved product profile and better customer mix.
Improvement in Working Capital: Despite increasing contribution from
Brazil & unfavorable weather, UPL was able to improve net working capital
days to 89 in Mar13 compared to 113 days in Mar12 through
renegotiation of higher creditors days and moderate improvement in
inventory and debtors. Management has guided for net working capital to
be in the range of 90-100 days for FY14E. In Q1FY14E, net working capital
improved by 11 days YoY to 92. We believe this guidance is achievable,
given the fact that there is room for improvement in working capital across
geographies and efficient management of debtors and inventory. Also,
company is working on crop diversification towards shorter crops which
will be instrumental in bringing down receivable days.
UPLs focus on consolidation and integration: FY13 marked a change in
strategy for UPL as company diverted its energies towards consolidating
operations. It undertook multiple initiatives (new product launches,
entering newer geographies) related to strengthening its market presence,
while at the same time, targeting for profitable growth (reduction in
overheads, consolidation of the global supply chain,). UPL generated an
operating cash flow of Rs17bn in FY13 (compared to Rs1.6bn in FY12) led
primarily by reduction in working capital. It also plans to reduce gearing
ratio from 0.5 in FY13 to 0.3 by FY15.
Outlook & Valuation: Stock is currently trading at 6.4x FY14E earnings
which is at a discount of 30-35% to industry average. We believe sustained
earnings growth combined with improved management of working capital
will trigger re-rating.
August 12, 2013 59
Y/e March
Revenue (Rs m) 57,607 76,936 91,866 103,357 115,324
Growth (%) 5.4 33.6 19.4 12.5 11.6
EBITDA (Rs m) 10,668 14,054 16,539 19,121 21,681
PAT (Rs m) 6,181 6,735 8,469 9,451 10,742
EPS (Rs) 13.4 14.6 19.1 21.4 24.3
Growth (%) 5.2 9.0 31.2 11.6 13.7
Net DPS (Rs) 2.0 2.5 2.5 3.0 3.0
Y/e March
EBITDA margin (%) 18.5 18.3 18.0 18.5 18.8
RoE (%) 18.4 17.1 19.2 18.8 18.2
RoCE (%) 14.6 13.5 12.8 12.8 13.1
EV / sal es (x) 1.1 1.1 0.9 0.8 0.7
EV / EBITDA (x) 5.9 6.2 5.1 4.5 3.7
PER (x) 10.2 9.4 7.2 6.4 5.6
P / BV (x) 1.7 1.5 1.3 1.1 1.0
Stock Performance
(%) 1M 6M 12M
Absol ute 0.8 6.9 13.2
Lilladher
Prabhudas
Financials
United Phosphorus
August 12, 2013 60
Y/e March
Net Revenue 57,607 76,936 91,866 103,357 115,324
Di rect Expenses 29,881 41,421 46,874 52,505 58,354
% of Net Sales 51.9 53.8 51.0 50.8 50.6
Empl oyee Cost 5,146 6,856 8,646 9,716 10,840
% of Net Sales 8.9 8.9 9.4 9.4 9.4
% of Net Sales 0.0 0.0 0.0 0.0 0.0
Other Expenses 11,912 14,605 19,807 22,015 24,449
% of Net Sales 20.7 19.0 21.6 21.3 21.2
EBITDA 10,668 14,054 16,539 19,121 21,681
Margin (%) 18.5 18.3 18.0 18.5 18.8
Depreci ati on 2,138 2,924 3,537 3,916 4,361
PBIT 8,530 11,131 13,002 15,205 17,320
PBT 7,157 8,654 10,162 12,068 14,205
Total tax 731 1,514 2,032 2,896 3,693
PAT 5,138 5,555 7,747 9,451 10,742
Extraordi nary Gai n/(Loss) (1,043) (1,179) (722) - -
Adjusted PAT 6,181 6,735 8,469 9,451 10,742
Y/e March
Share Capi tal 924 924 885 885 885
Total Debt 14,973 31,475 39,270 38,270 36,270
Other Li abi l i ti es(net) 915 6,016 6,802 6,802 6,802
Deferred Tax Li abi l i ty 731 940 1,170 1,170 1,170
Gross Bl ock 22,909 27,325 29,851 34,351 38,851
Net Bl ock 9,800 12,613 13,217 13,801 13,940
Capi tal Work i n Progress 568 1,338 2,451 2,451 2,451
Other Assets 14,218 22,331 24,301 24,301 24,301
Total Assets 53,879 80,162 93,694 100,603 107,801
Lilladher
Prabhudas
Crompton Greaves
CMP: Rs89 TP: Rs108 Rating: Accumulate MCap: Rs56.8bn
Restructuring over, expect international operations to stabilize and
margins to improve gradually: CRG had a tough last 6-7 quarters as
profitability was badly hit by restructuring cost relating to Merlin project
(Belgium restructuring) and difficult global markets. Management expects
savings in staff costs in Belgium due to restructuring at EUR3.5m in Q4 and
~EUR12-13m in FY14. We believe that once the restructuring is out of the
way, it will unlock more management band to focus on operational and
margin improvement. We expect international operations to stabilize over
the next few quarters and see a gradual improvement in margins as
benefits of restructuring and other cost optimization (global sourcing,
Supply chain improvement) kicks in.
Consumer business continues to be on a strong footing; Energyefficient
products and drives to support industrial growth: After a difficult FY12 for
consumer business, CRG significantly underperformed the industry (8%
growth v/s 20% industry growth) due to channel issues. However, in FY13,
growth is back on track and at par with industry average (~20%). Infact, Q1
saw growth faster than market in fans and appliances. In order to shore-up
growth in the consumer segment, CRG had recently appointed Boston
Consulting Group to suggest on key issues like capacity expansion and
channel management. In the Industrial sector, the industry is showing
some rejuvenation (21% YoY growth in industrial orders, orders spread
across the globe). Growth was largely driven by successes of new range of
energy efficient LT motors introduced recently (IE2 motors). The new
product received good success not only in Europe but also in India.
Valuation: CRG had a tough last 7-8 quarters due to issues relating to
restructuring and global turmoil which impacted international operations.
With restructuring behind us, efficiency-led gains are expected to drive
margin improvement and help improve focus on execution. We believe
that a record backlog, better/leaner cost structure, good & increasing
product basket and improved reach in terms of geography will drive
earnings over the next few years, given the inexpensive valuation.
August 12, 2013 61
Y/e March
Revenue (Rs m) 100,051 112,486 120,944 131,693 146,796
Growth (%) 9.5 12.4 7.5 8.9 11.5
EBITDA (Rs m) 13,442 8,036 3,832 7,402 10,576
PAT (Rs m) 9,116 3,616 2,686 3,782 6,172
EPS (Rs) 14.2 5.6 4.2 5.9 9.6
Growth (%) 10.7 (60.3) (25.7) 40.8 63.2
Net DPS (Rs) 2.6 0.9 1.2 1.3 1.4
Y/e March
EBITDA margin (%) 13.4 7.1 3.2 5.6 7.2
RoE (%) 31.5 10.5 7.3 9.8 14.5
RoCE (%) 27.6 9.5 6.2 7.4 10.8
EV / sal es (x) 0.6 0.6 0.6 0.5 0.4
EV / EBITDA (x) 4.4 7.7 18.1 9.2 6.2
PER (x) 6.2 15.7 21.1 15.0 9.2
P / BV (x) 1.7 1.6 1.5 1.4 1.3
Stock Performance
(%) 1M 6M 12M
Absol ute (1.1) (14.5) (24.7)
Lilladher
Prabhudas
Financials
Crompton Greaves
August 12, 2013 62
Y/e March
Net Revenue 100,051 112,486 120,944 131,693 146,796
Di rect Expenses 62,684 76,851 83,461 84,682 93,459
% of Net Sales 62.7 68.3 69.0 64.3 63.7
Empl oyee Cost 11,811 14,662 17,405 14,929 17,057
% of Net Sales 11.8 13.0 14.4 11.3 11.6
% of Net Sales 0.0 0.0 0.0 0.0 0.0
Other Expenses 12,113 12,937 16,247 24,680 25,705
% of Net Sales 12.1 11.5 13.4 18.7 17.5
EBITDA 13,442 8,036 3,832 7,402 10,576
Margin (%) 13.4 7.1 3.2 5.6 7.2
Depreci ati on 1,936 2,600 2,029 2,271 2,457
PBIT 11,506 5,436 1,802 5,130 8,118
PBT 12,296 5,497 1,847 5,176 8,263
Total tax 3,100 1,821 1,009 1,432 2,122
PAT 9,116 3,616 796 3,782 6,172
Extraordi nary Gai n/(Loss) - - (1,890) - -
Adjusted PAT 9,116 3,616 2,686 3,782 6,172
Y/e March
Share Capi tal 1,283 1,283 1,283 1,283 1,283
Total Debt 4,703 10,440 18,515 18,759 17,759
Other Li abi l i ti es(net) 157 157 95 44 45
Deferred Tax Li abi l i ty 160 (513) (1,681) (1,681) (1,681)
Gross Bl ock 37,805 44,087 45,087 46,587 49,587
Net Bl ock 18,315 21,083 20,053 19,282 19,825
Capi tal Work i n Progress 1,102 1,493 893 893 893
Other Assets - - 9,792 9,792 9,793
Total Assets 37,767 46,193 54,065 57,214 61,435
Lilladher
Prabhudas
Jammu & Kashmir Bank
CMP: Rs1,014 TP: Rs1,500 Rating: BUY MCap: Rs49.2bn
J&K liability advantage; less impacted by RBIs recent measures: J&K
Bank enjoys a very strong liability franchise due to its J&K state advantage,
with CASA within J&K at ~53% and total bank CASA at ~40%. Also, retail
term deposit mix is high for J&K, given its liability franchise in the state.
Hence, impact on margins from RBIs recent tightening will be limited.
Growth picking up in J&K; bank best positioned: The bank reported 19%
growth in FY13 loan book led by growth in J&K state. Managements
intended growth acceleration after five years of consolidation coincides
with a phase of strong economic growth and activity in J&K. The state has
exhibited FY13 GDP growth at ~6-7%, better than the national average.
With ~60% market share in advances and deposits, we believe J&K Bank is
best positioned to benefit from the J&K story. Also, outside J&K, the bank
is concentrating on expanding lending expertise to mid corporate
(predominantly AAA till now) and that will aid in improving lending yields.
Competition will not be disruptive: High CASA + low operating costs make
J&K an attractive expansion opportunity for private banks. However, our
feedback from large private banks suggest that competition will not be
disruptive. Also, expertise in specific segments like horticulture lending
and state business (30% of J&K Banks loans) will be less impacted by
competition.
More private than PSU bank; Valuation benchmarking with PSUs
unwarranted: Low fee income and CA ratio are the only commonalities
with PSU banks, apart from which, J&K Bank is more of a private bank on
most fundamental parameters like high CASA and margins, sound
underwriting, high ROAs/RORWAs and management continuity. Thus,
valuation benchmarking to mid-cap PSU banks is unwarranted. The bank is
trading at 0.9x FY14 P/B, with ROE expected at ~19-20% even after
assuming higher credit cost and lower margin.

August 12, 2013 63
Y/e March
Growth (%) 37.9 19.1 26.0 12.2 13.6
PAT 6,152 8,032 10,551 10,483 11,813
EPS (Rs) 126.9 165.6 217.6 216.2 243.6
Growth (%) 20.2 30.6 31.4 -0.6 12.7
Net DPS (Rs) 26.0 33.5 50.0 50.0 50.0
Y/e March
NIM (%) 3.3 3.3 3.5 3.4 3.3
RoAE (%) 19.0 21.2 23.6 20.0 19.4
RoAA (%) 1.3 1.5 1.6 1.4 1.3
P / BV (x) 1.4 1.2 1.0 0.9 0.8
P / ABV (x) 1.4 1.2 1.0 0.9 0.7
PE (x) 8.0 6.1 4.7 4.7 4.2
Stock Performance
(%) 1M 6M 12M
Absol ute (16.9) (23.0) 7.9
Lilladher
Prabhudas
Financials
Jammu & Kashmir Bank
August 12, 2013 64
Y/e March
Others - - - - -
NII 15,437 18,384 23,160 25,977 29,502
Growth (%) 37.9 19.1 26.0 12.2 13.6
Treasury Income 924 359 1,493 1,000 750
NTNII 2,724 2,983 3,344 3,846 4,494
Total Income 40,779 51,697 66,205 74,322 83,568
Growth (%) 17.4 26.8 28.1 12.3 12.4
Growth (%) 20.0 19.2 32.1 4.8 10.2
NPA Provi si ons 1,461 1,400 2,011 3,306 3,257
Investment Provi si ons 410 123 149 - -
PBT 9,344 12,011 15,266 15,669 17,657
Tax Provi si ons 3,192 3,979 4,715 5,187 5,845
PAT 6,152 8,032 10,551 10,483 11,813
Growth (%) 20.2 30.6 31.4 (0.6) 12.7
Y/e March
Par Val ue 10 10 10 10 10
No. of equi ty shares 48 48 48 48 48
Equi ty 485 485 485 485 485
Networth 34,787 40,932 48,647 56,293 65,269
Adj. Networth 34,254 40,438 48,094 55,535 64,287
Deposi ts 446,759 533,469 642,206 749,233 880,389
Growth (%) 20.0 19.4 20.4 16.7 17.5
Low Cost deposi ts 180,867 217,152 251,910 288,455 338,950
Net Advances 261,936 330,774 392,004 466,485 555,117
Growth (%) 13.6 26.3 18.5 19.0 19.0
Investments 196,958 216,243 257,411 286,927 327,227
Total Assets 505,082 602,692 717,433 831,927 975,604
Lilladher
Prabhudas
KSB Pumps
Wide application across industries to ensure healthy growth, 160bps
improvement in margin over CY12-14E to aid earning growth: We expect
KSB to deliver sales & earnings CAGR of 5% and 15% over CY12-14E against
a CAGR of 8.4% & -4.4% over CY10-12, respectively. While the investment
cycle might be subdued in the near term, wide application across core
industries like Cement, Metals, Steel, Fertilizer, Oil & Gas, Power,
Hydrocarbon, Chemical, Water treatment and Agriculture will ensure
healthy growth once the investment cycle recovers. We expect EBITDA
margin to improve by 150bps over CY12-14E largely driven by
improvement in gross margins and benefits accruing out of various cost
control measure (strategic project taken over last year), reduction in low
margin order book and improved utilization. KSBs recent focus on
expansion of standard business and continued development of the service
and aftermarket business will help support growth and improve margin.
Healthy balance sheet: KSB has very strong balance sheet and return
ratios. The company has generated free cash in 12 of last 16 years and we
expect it to generate free cash of ~Rs1bn over CY12-14E. KSB has a debt-
free balance sheet and a free cash flow yield of ~6% on CY14 basis. The
company had peak RoE of 26% in CY06 which dipped to 11% in CY11 and
stood at 13.6% in CY12 due to falling margin and decreasing asset turns.
We expect the RoE to improve by 100bps over CY12-14E on account of
improving margin profile and improving assets turn driven by better
utilization and pick in growth profile of the company. Strong character of
balance sheet and good management are likely to restrict downside on
valuation and support re-rating once the cycle turns.
Outlook and Valuation: The stock is trading at 10.5x CY13E earnings,
which we think is cheap. We believe improving margin and RoE profile
should support quick re-rating once demand picks up, while strong balance
sheet and cash flow profile should restrict the downside. We have valued
the stock at 12x one year forward earnings which is in line with its 10-year
average. We rate the stock BUY with a TP of Rs249.
August 12, 2013 65
Y/e Dec
Revenue (Rs m) 6,085 7,495 7,224 7,461 8,002
Growth (%) 7.9 23.2 (3.6) 3.3 7.3
EBITDA (Rs m) 764 712 911 1,039 1,180
PAT (Rs m) 516 430 580 664 767
EPS (Rs) 14.8 12.3 16.7 19.1 22.0
Growth (%) (22.4) (16.7) 35.0 14.5 15.4
Net DPS (Rs) 10.0 4.0 5.5 6.0 7.0
Y/e Dec
EBITDA margin (%) 12.6 9.5 12.6 13.9 14.7
RoE (%) 14.8 11.4 14.2 14.7 15.3
RoCE (%) 14.5 10.8 13.7 14.7 15.1
EV / sal es (x) 1.0 0.9 0.9 0.8 0.7
EV / EBITDA (x) 8.0 9.6 6.8 5.7 4.7
PER (x) 13.6 16.3 12.1 10.5 9.1
P / BV (x) 1.9 1.8 1.6 1.5 1.3
Stock Performance
(%) 1M 6M 12M
Absol ute (1.1) 5.8 (0.7)
Rel ati ve to Sensex 1.7 9.4 (7.4)
Lilladher
Prabhudas
Financials
KSB Pumps
August 12, 2013 66
Y/e Dec
Net Revenue 6,085 7,495 7,224 7,461 8,002
Di rect Expenses 3,147 4,130 3,725 3,738 4,009
% of Net Sales 51.7 55.1 51.6 50.1 50.1
Empl oyee Cost 912 1,044 1,036 1,088 1,143
% of Net Sales 15.0 13.9 14.3 14.6 14.3
SG&A Expenses 792 661 535 567 616
% of Net Sales 13.0 8.8 7.4 7.6 7.7
Other Expenses 471 949 1,017 1,029 1,054
% of Net Sales 7.7 12.7 14.1 13.8 13.2
EBITDA 764 712 911 1,039 1,180
Margin (%) 12.6 9.5 12.6 13.9 14.7
Depreci ati on 207 219 235 257 282
PBIT 556 493 675 782 898
PBT 742 623 807 949 1,095
Total tax 227 193 226 285 329
PAT 516 430 580 665 767
Extraordi nary Gai n/(Loss) (0) - - 0 0
Adjusted PAT 516 430 580 664 767
Y/e Dec
Share Capi tal 174 348 348 348 348
Total Debt 137 632 169 169 169
Gross Bl ock 3,095 3,311 3,611 3,911 4,211
Net Bl ock 1,513 1,510 1,575 1,618 1,636
Cash & Cash Equi val ent 1,055 881 1,066 1,294 1,648
Other Assets 47 52 75 75 75
Total Assets 3,770 4,532 4,428 4,938 5,451
Lilladher
Prabhudas
MT Educare
Industry dynamics positive: Besides an increase in household spend on
education, the addressable market has increased substantially, with
increasing options for secondary education. The coaching industry, which
has grown at 13% CAGR from 2007-2011, is expected to pick-up pace to
17% CAGR by 2015.
De-risking through diversification: From being focused on the school
segment, MT Educare (MTEL) has diversified to Science & Commerce,
Engineering & Medical entrance exams (including IIT) and exams for CA &
MBA aspirants as well. Infact, the contribution from the school segment
has dropped from above 50% in FY10 to 45% in FY13 and is expected to
decline to 36% by FY15. This reduces MTELs dependence on a particular
segment and makes it resilient against changes in any one segment.
Asset-light, negative WC & a strong balance sheet: As against education
models, which have not seen success on account of their asset-heavy
models, MTEL has kept its business model asset-light by operating on the
lease model. It has been operating on a negative WC as the advance from
students exceeds their current assets, resulting in strong RoEs of >23%.
The company has a balance sheet size of Rs969m as of FY13, of which,
~40% is cash & cash equivalents. Its operational cash flow generation over
FY14 and FY15 is likely to be above Rs1bn.
Operating leverage through increased utilizations: With MTEL moving
towards optimum utilizations of 70-75%, from the current 50-55%,
margins are expected to strengthen by 200bps in two years.
Strong dividend payout policy: In order to share the strong cash
generation with shareholders, the company intends to maintain a dividend
payout policy of 50%. Further, with 10.8% of the shares being held by
directors and the key management, the risk of top-level exits decreases.
Valuations: MTEL currently trades at 15.7x FY14 and 12.0x FY15 on the
basis of PER. We are valuing the company at 16xFY15 on account of its
superior RoEs which translates to Rs130/share. We rate the stock BUY.
August 12, 2013 67
Y/e March
Revenue (Rs m) 1,052 1,306 1,573 2,145 2,617
Growth (%) 26.4 24.1 20.5 36.4 22.0
EBITDA (Rs m) 193 231 293 418 542
PAT (Rs m) 83 132 180 245 319
EPS (Rs) 2.4 3.8 4.6 6.2 8.1
Growth (%) (95.2) 56.5 21.3 35.8 30.3
Net DPS (Rs) 0.0 0.0 2.0 2.5 3.0
Y/e March
EBITDA margin (%) 18.3 17.7 18.6 19.5 20.7
RoE (%) 18.6 25.1 22.7 22.8 26.0
RoCE (%) 17.7 23.4 22.4 22.7 26.1
EV / sal es (x) 2.8 2.4 2.2 1.6 1.2
EV / EBITDA (x) 15.3 13.6 11.7 8.1 5.8
PER (x) 40.4 25.8 21.3 15.7 12.0
P / BV (x) 7.0 5.9 3.8 3.4 2.9
Stock Performance
(%) 1M 6M 12M
Absol ute (4.7) (6.4) 14.4
Lilladher
Prabhudas
Operating Metrics
MT Educare
Strongly growing student base
Centre Utilization
Reducing revenue contribution from Mumbai
Revenue contribution from the School segment declining
August 12, 2013 68
-
20,000
40,000
60,000
80,000
100,000
FY09 FY10 FY11 FY12 FY13 FY14E FY15E
N
o
.

o
f

S
t
u
d
e
n
t
s
School Commerce Higher CA CPLC-MBA Ent. Science Lakshya-IIT
44,317
52,726
58,300
68,017
70.828
84,461
94,732
0%
20%
40%
60%
80%
100%
School Commerce Higher CA CPLC-MBA Entrance Science Lakshya-IIT Others
0%
20%
40%
60%
80%
100%
FY10 FY11 FY12 FY13
Mumbai Rest of India
0%
10%
20%
30%
40%
50%
60%
-
100
200
300
400
500
600
700
FY09 FY10 FY11 FY12 FY13
No. of students/location Centre Utilization
Lilladher
Prabhudas
Operating Metrics
MT Educare
Operating on negative working capital
A strong financial trajectory
Healthy return ratios
Margins likely to improve with better utilizations
August 12, 2013 69
15.5%
18.3%
17.7%
18.6%
19.5%
20.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
(1,200)
(1,000)
(800)
(600)
(400)
(200)
-
FY10 FY11 FY12 FY13 FY14 FY15
(
R
s

m
)
Current Assets-Cash & Bank Balances Current Liabilities
-
5.0
10.0
15.0
20.0
25.0
30.0
ROCE ROE
1
,
0
5
2
1
,
3
0
6
1
,
5
7
3
2
,
1
4
5
2
,
6
1
7
83
132
180
245
319
18.3
17.7
18.6
19.5
20.7
16.0
17.0
18.0
19.0
20.0
21.0
-
500
1,000
1,500
2,000
2,500
3,000
(
R
s
m
)
Revenue PAT EBITDA Margins (%) (RHS)
Lilladher
Prabhudas
Financials
MT Educare
August 12, 2013 70
Y/e March
Net Revenue 1,052 1,306 1,573 2,145 2,617
Di rect Expenses 551 698 816 1,126 1,356
% of Net Sales 52.3 53.4 51.9 52.5 51.8
Empl oyee Cost 135 179 220 290 348
% of Net Sales 12.8 13.7 14.0 13.5 13.3
% of Net Sales 0.0 0.0 0.0 0.0 0.0
Other Expenses 174 198 243 311 372
% of Net Sales 16.5 15.2 15.5 14.5 14.2
EBITDA 193 231 293 418 542
Margin (%) 18.3 17.7 18.6 19.5 20.7
Depreci ati on 83 78 86 119 138
PBIT 110 153 207 299 404
Interest Expenses 0 0 - 1 1
PBT 131 192 254 359 478
Total tax 48 64 76 115 158
PAT 83 132 180 245 319
Adjusted PAT 83 132 180 245 319
Y/e March
Share Capi tal 344 352 395 395 395
Reserves & Surpl us 134 226 616 745 926
Sharehol der's Fund 478 578 1,012 1,140 1,322
Total Debt 45 - - - -
Other Li abi l i ti es(net) - - (2) - -
Deferred Tax Li abi l i ty - - 0 - -
Total Liabilities 523 578 1,010 1,140 1,322
Gross Bl ock 565 617 1,073 1,320 1,533
Less: Depreci ati on 242 315 401 520 658
Net Bl ock 323 302 672 800 875
Cash & Cash Equi val ent 453 324 416 494 782
Total Current Assets 656 745 922 984 1,286
Total Current Li abi l i ti es 527 719 767 900 1,020
Net Current Assets 130 27 155 84 266
Other Assets 31 41 41 41 41
Total Assets 523 578 1,010 1,140 1,322
Lilladher
Prabhudas
Disclaimer
August 12, 2013 71

BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months
Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months
Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is
not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any
of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will
depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies
referred to in this report and they may have used the research material prior to publication.
We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai 400 018, India.
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
PLs Recommendation Nomenclature
Rating Distribution of Research Coverage
24.6%
53.2%
19.0%
3.2%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
%

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