IEA-Equity Strategy

India Equity Analytics

IT Industry: 3QFY14E results preview : "As usual flattish 3rd quarter"
7th Jan 2013

7th Jan, 2014 Edition : 178

For 3QFY14E, Indian IT players would report muted earnings growth because of seasonal weakness like furloughs and holidays impacts, already it is understood fact by consensus. Post result, earning guidance for FY15E and forward looking statement by most of companies would be considered as an important fact. Considering recent demand environment scenario and healthy growth outlook of US and Europe, we are expecting to see positive outlook on the sector for the year 2014................................. ( Page :2-5)

SHREE CEMENT:

"BUY"

7th Jan 2013

We are positive on the stock as it always beats its peers group with lower operational cost. Looking at the strategy of the company and expansion plans for FY15 the stock may outperform among cement players with the rise in cement demand.Shree cement follows a multi brand strategy and sells cement under the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together enjoy the largest market share in high value markets of Rajasthan, Delhi and Haryana. After a good monsoon and election we are expecting a good performance from shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/- ............................................ ( Page : 6-8)

ORIENTAL BANK

"Neutral"

6th Jan 2013

We have now neutral rating on the stock led by trading closer to our target price of Rs.221. At this price stock would trade at 0.5 times of one year forward book and 6.5 times of earning. In the absence of comfort earning and non visibility of ROE improvement, make us compel to value bank in the range of 0.4-0.5 times forward book. Impairment of asset and high operating leverage would remain high according to the management. On both front we would be getting more clarity after the quarterly result. ................... ( Page : 9-11)

UNION BANK :

"BUY"

6th Jan 2013

Net interest margin of the bank is likely to expand on the back of RBIs decision to leave policy rate (repo) unchanged and softening bond yield to 8.75%. This would result of reducing cost of fund and fair amount of portfolio gain. Bank borrowed higher amount of repo than MSF during the quarter. Moreover bank is getting deposits from FCNR which would give margin of one percent plus to the bank. We value bank at Rs.163/share which would be 0.5 times of one year forward book and 5.4 times of one year forward earning .................................. ( Page : 1214)

Jyothy Lab: "Efforts for stability"

"BUY"

6th Jan 2013

Recent management commentary reveals that the company is planning for inorganic growth with Rs 250 Cr of bank balance (post repayment of its debt) and especially looking at regionally strong brands. We expect that companys new management and new strategy of product reach would energize its growth story in near future. Hence, the management has maintained its guidance of achieving around 22% - 25% revenue growth and OPM of 14% - 15% for FY14E. We maintain "BUY" view on the stock with a target price of Rs 260, at a CMP of Rs195, stock trades at 3.6x FY15E P/BV ............................................ ( Page : 15-17)

AUTO SALES DASHBOARD : DECEMBER 2013:Another Month of Tepid Performance

6th Jan 2013

The automobiles companies come up with December 2013 sales volumes with no big surprises. The industry followed the same declining trend as in November 2013 with Scooter and Tractors sales showing some upward traction. Indian automobile OEMs continue to be negatively impacted by the overall economic slowdown, firm interest rates, inflationary headwinds and high fuel prices .......................................... ( Page : 18)

Emami Ltd : "The niche advantage"

"BUY"

3rd Jan 2014

Considering Emamis focus on increasing rural penetration, favorable monsoon, continuous strengthening of its brand equity and new product funnel strongly in next 2- 3 years, we are positive on the stock. We recommend Buy on the stock with a target price of Rs 635. At a CMP of Rs 481 , the stock is trading at P/BV of 10.3x and 7.8x on FY14E and FY15E, respectively. .................... ( Page : 19-20)
Narnolia Securities Ltd,

IT Industry: 3QFY14E results preview

"As usual flattish 3rd quarter"
Price performance of our coverage: For 3QFY14E, Indian IT players would report muted earnings growth because of seasonal weakness like furloughs and holidays impacts, already it is understood fact by consensus. However, this quarter would report better earning and margin growth than same quarters of last year. Because of stable currency movement, margin could be seen flattish or marginally inched up. Post result, earning guidance for FY15E and forward looking statement by most of companies would be considered as an important fact. Considering recent demand environment scenario and healthy growth outlook of US and Europe, we are expecting to see positive outlook on the sector for the year 2014. Key facts of 3QFY14E earnings: Seasonal Impacts on (QoQ) earnings, while better on YoY: For 3QFY14E, we expect to see lower rate of earning growth impacted by furloughs and holidays, already YoY growth would be a favorable. The December quarter has traditionally been a soft quarter for the IT sector. On USD term, revenue of top-4 IT players could be reported at a range of 2-3.3% sequentially. We expect Tier-1 IT to report constant-currency revenue growth of 1.4-3% (QoQ). Stable Margin and flat currency movement: During the quarter, margin for IT Industry will largely be flattish or see marginal decline on sequential basis. Across the tier-1 IT players, Infosys could improve its margin because of cost rationalization and slow pace of currency benefit TCS will maintain its previous quarters margin picture. While, margin of HCLTech and Mindtree could see some dip because of wage hike during the quarter. New discretionary spending: Because of better economic scenario, demand environment expansion has taken place. Now, domestic IT players have been able to retain its market share in US and successfully improved its market share in Euro region, at a same point pricing pressure has turned out. During the quarter, most of multimillion-dollar projects have been bagged from Euro region. During the current fiscal, out of 27 large projects 11 orders deputed from Euro (including UK) region and only 3 from US. Management commentary and forward looking statement: Post revealing 3QFY14E earnings, street will closely watch on the response of its clients budgeting cycle to assess the strength of the demand environment and its sustainability. Most of companies will comment on earning guidance, margin outlook and order pipeline for FY15E. Taking recent attractive supply side scenario, we would like to see hiring guidance and commentary on maintaining utilization rate and attrition rate. Movement of INR-USD and Other Currencies v/s USD
1QFY12 2QFY12 45.73 48.86 1.4 1.36 1.61 1.57 1.05 0.99 3QFY12 50.84 53.08 1.35 1.3 1.57 1.55 1.01 1.02 4QFY12 50.29 51.4 1.31 1.33 1.57 160 1.05 1.03 1QFY13 54.09 56.8 1.28 1.26 1.57 1.56 1.01 1.02 2QFY13 55.19 52.85 1.25 1.29 1.58 1.62 1.04 1.04 3QFY13 54.14 54.97 1.3 132 1.61 1.62 1.03 1.03 4QFY13 54.17 54.28 1.32 1.28 1.55 1.52 1QFY14 55.93 59.54 1.31 1.3 1.54 1.51 2QFY14 62.08 62.59 1.33 1.35 1.55 1.6 3QFY14 61.97 61.84 1.36 1.38 1.61 1.66

(Source: Eastwind)

Index Performance:

59.5%

6.9%

(Source: Eastwind)

CNX IT v/s USD/INR

59.5% 6.9%

13%

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

44.65 44.59 1.41 1.45 1.62 1.61 1.06 1.07

(Source: Eastwind)

1.04 0.99 0.92 0.93 1.04 0.91 0.93 0.89 (Source: Company/Eastwind)

Narnolia Securities Ltd,

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

IT Industry: 3QFY14E results preview

Results preview TCS Key things to watch - Comments on volume, demand environment, deal closures from US, pricing, and discretionary spends.
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%

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

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

INFY

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

Rs, Cr

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

Sales EBIT PAT EBITDA Margin PAT Margin

10424 2677 2369 25.7% 22.7%

12965 3346.9 2407 25.8% 18.6%

13069.1 3424.1 2695.8 26.2% 20.6%

0.8% 2.3% 12.0% 40bps 200bps

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

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

WIPRO
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%

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

Sales EBITDA PAT EBITDA Margin PAT Margin

9587.5 2050.2 1598.1 21.4% 16.7%

10990.7 2503.8 1932 22.8% 17.6%

11342.40 2552.04 1984.16 22.5% 17.5%

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

18.3% 24.5% 24.2% 10bps 80bps

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

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

IT Industry: 3QFY14E results preview

HCLTECH

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

Rs, Cr

2QFY13

1QFY14

2QFY14E

(QoQ)-%

(YoY)-%

Sales EBITDA PAT EBITDA Margin PAT Margin

6273.8 1416.6 974.3 22.6% 15.5%

7961 2093 1416 26.3% 17.8%

8160.03 2080.81 1472.64 25.5% 18.0%

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

30.1% 46.9% 51.1% 290bps 250bps

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

TECHM
Key things to watch Outlook for deal pipeline, outlook on BT/AT&T (the biggest clients), updates on SMAC(social, mobility, analytics, cloud) and comments on synergies
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%

Sales EBITDA PAT EBITDA Margin PAT Margin

3523.7 756.9 455.9 21.5% 12.9%

4771.5 1110.85 718.2 23.3% 15.1%

4819.22 1084.32 754.11 22.5% 15.6%

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

36.8% 43.3% 65.4% 100bps 270bps

We expect revenue growth guidance of 2.5% in USD term and and full integration of Complex IT. Expect margins to be don by 50-100bps (QoQ) - wage hikes deferred to 4QFY14
CMC
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%

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

Sales EBITDA PAT EBITDA Margin PAT Margin

492.97 83.2 61.07 16.9% 12.4%

560.75 88.41 67.3 15.8% 12.0%

566.36 87.79 65.62 15.5% 11.6%

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

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

We expect revenue growth guidance of 1.5% in USD term and expect margin ramp up by 40bps.
HEXAWARE
Rs, Cr 4QCY12 3QCY13 4QCY13E (QoQ)-% (YoY)-%

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

Sales EBITDA PAT EBITDA Margin PAT Margin

507.52 109.02 66.20 21.5% 13.0%

621.1 147.74 98.7 23.8% 15.9%

629.17 147.86 103.64 23.5% 16.5%

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

24.0% 35.6% 56.5% 200bps 350bps

Expect 3% US$ revenue growth. Hexaware discontinued quarterly guidance since the previous quarter. Expect 30-50bps decline in margin.
(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

IT Industry: 3QFY14E results preview

KPIT

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

Rs, Cr

3QFY13

2QFY14

3QFY14E

(QoQ)-%

(YoY)-%

Sales EBITDA PAT EBITDA Margin PAT Margin

563.3 87.9 59.9 15.6% 10.6%

702.8 108.1 66.7 15.4% 9.5%

721.97 115.52 69.40 16.1% 9.7%

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

28.2% 31.4% 15.9% 50bps 120bps

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

PERSISTENT
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%

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

Sales EBITDA PAT EBITDA Margin PAT Margin

333 82.4 49.5 24.7% 14.9%

432.4 100.8 60.8 23.3% 14.1%

436.06 104.65 66.88 24.0% 15.3%

1% 4% 10% 70bps 80bps

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

We expect overall revenue growth at 3% in USD term due to healthy growth in IP led business and $1mn HP deal. PAT is expected to grow by 10% (QoQ) despite a marginal growth in margin due to the forex gain of Rs 5-6 cr v/s 9 cr of same previous quarter. NIITTECH
Rs, Cr 3QFY13 2QFY14 3QFY14E (QoQ)-% (YoY)-%

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

Sales 514.4 587.3 593.50 1.1% EBITDA 81.3 88.6 86.06 -2.9% PAT 56.6 60.4 57.38 -5.0% EBITDA Margin 15.8% 15.1% 14.5% (60bps) PAT Margin 11.0% 10.3% 9.7% (60bps) We expect the company to report 1% QoQ growth in USD terms. Due to the lower other income, we expect the net income to decline by 5%.
EPS-Rs FY14E
90.74

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

View and valuation:

Company TCS INFOSYS HCLTECH WIPRO TECHM CMC NIITTECH KPIT HEXAWARE PERSISTENT eCLERX TATAELXSI ZENSARTECH CMP Upside View Target (06.01.14) % 2239.6 BUY 2360 5.4% 3514.2 BUY 3622 3.1% 1251.3 BUY 1415 13.1% 558.05 NEUTRAL 450 1817.65 BUY 2330 28.2% 1734.45 REDUCE 1693 379.85 BUY 408 7.5% 181.55 REDUCE 177 138.65 BUY 141 1.4% 990.05 REDUCE 960 1064.6 BUY 1360 27.7% 413.65 REDUCE 210 397.95 BUY 400 0.5% FY13 71.82 164.2 58.10 25.0 85.48 75.27 36.28 10.80 11.1 46.12 64.25 10.63 40.03 FY15E
102.37

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

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

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

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

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

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

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

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

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

SHREE CEMENT.
Company Update
CMP Target Price Previous Target Price Upside Change from Previous

"BUY"
7th Jan' 14

Buy
4460 4791 NA 7% NA

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 500387 SHREECEM 5210/3413 15502 3875 6191

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

Stock Performance-%
Absolute Rel. to Nifty 1M 0.1 0.0 1yr -4.8 -8.0 YTD -5.1 -9.2

On the expansion front : Share Holding Pattern-%

Promoters FII DII Others 2QFY14 64.8 8.2 5.7 21.3 1QFY14 4QFY13 64.8 64.8 8.1 7.8 5.9 5.6 21.2 21.8 The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun13.Line X of similar capacity along with 25MW of WHRS (at the same location) is expected by Jun14.Two grinding units of 2m tons each, at Ras and in Bihar,are being constructed and expected by Jun14.For the greenfield clinker-cumgrinding unit (Chhattisgarh) and 2m ton grinding unit (Ras), equipment order have been placed; commissioning is for MarJun15.We expect Shree to be a 21.5m-tpa company by Jun15.It plans to foray into high demanding eastern. It has set its eye on 'Mission 2015', i.e. achieving a production capacity of 25mmt by 2015.Total capex for these expansion is Rs.3,000 crore which is spread over next 2 years.

1 yr Forward P/B
6000

Cement : Theme Report

PRICE 1.5x 2x 2.5x

5000 4000 3000 2000 1000 0

Sep-02

3x

3.5x

4x

4.5x

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

Source - Comapany/EastWind Research

Financials : Net Revenue EBITDA Depriciation Tax PAT

Q1FY14 1248 249 114 5 172

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

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

Q1FY13 1324 394 94 45 228

Q4FY13 1449 387 133 16 284

Sep-03

Sep-06

Sep-07

Sep-09

Sep-10

Mar-02

Mar-04

Mar-05

Mar-06

Mar-08

Mar-09

Mar-11

Mar-12

Mar-13

Mar-03

Mar-07

Mar-10

Sep-13

Sep-04

Sep-05

Sep-08

Sep-11

Sep-12

(In Crs)

Narnolia Securities Ltd,

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

SHREE CEMENT.
OUT LOOK :
From the view company Operations in the high utilisation North and Central markets, capacity expansions underway, low gearing and strong RoE are fundamental positives. We believe although, near term challenges in terms of a slowdown in demand for cement would remain, strong balance sheet and better efficiency in terms of cost remains a key positive for this company to overcome challenges.Company Management is bull for the rest two quarters of FY2014 as according to them demand has already buttom out.We are positive on the stock as it always beats its peers group with lower operational cost. Looking at the strategy of the company and expansion plans for FY15 the stock may outperform among cement players with the rise in cement demand.Shree cement follows a multi brand strategy and sells cement under the highly recognized brands of Shree Ultra, Bangur and Rockstrong which together enjoy the largest market share in high value markets of Rajasthan, Delhi and Haryana. After a good monsoon and election we are expecting a good performance from shree cement for the H2FY14, thus at CMP Rs.4460/- we are bull at a target Price Rs.4791/40 EBIDTA Margin

35
30 25

20
15 10

5
0

Company Description :
Shree Cement (SCL) is a cement producer operating in the two segments cement and power. As of June 30, 2012, the company had a cement capacity of 13.5 million tonnes per annum (MTPA) and power capacity of 560 MW. This includes 300 MW (150 MW x2) thermal power plant commissioned at Beawar. The company's waste heat recovery power plants have a total capacity of 46 MW. The companys brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It has manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units at Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in Uttarakhand. Source - Comapany/EastWind Research
1,550 1,500 1,450 REVENUE GROWTH 60.00 50.00 40.00

1,400 1,350
1,300 1,250 1,200

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

FY11 3454 203 3656

FY12 5898 163 6061

FY13 5590 188 5779

FY14E
Source - Comapany/EastWind Research

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

2569 885 676 98 365 20.8

4252 1646 873 235 619 23.1

4029 1561 436 193 1004 26.1

7

Narnolia Securities Ltd,

Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q5FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14
30.00 20.00
10.00 (10.00)

SHREE CEMENT.
B/S PERFORMANCE Share capital Reserve & Surplus Total equity Long-term borrowings Short-term borrowings Long-term provisions Trade payables Short-term provisions Total liabilities Intangibles Tangible assets Capital work-in-progress Long-term loans and advances Inventories Trade receivables Cash and bank balances Short-term loans and advances Total Assets RATIOS P/B EPS Debtor to Turnover% Creditors to Turnover% Inventories to Turnover% CASH FLOWS Cash from Operation Changes In Working Capital Net Cash From Operation Cash From Investment Cash from Finance Net Cash Flow during year FY10 35 1798 1833 1789 318 28 171 472 4906 0 752 967 299 358 82 416 415 4906 FY10 4.4 212.3 2.3 4.7 1.0 FY10 0 0 0 0 0 0 FY11 35 1951 1986 1472 217 16 185 267 4940 0 1167 729 308 404 108 499 429 4940 FY11 3.6 118.6 3.1 5.3 1.2 FY11 0 0 0 0 0 0 FY12 35 2699 2734 818 143 17 584 178 5973 0 1521 97 205 503 181 459 363 5973 FY12 3.8 177.5 3.1 9.9 0.9 FY12 0 0 0 0 0 0 FY13 35 3809 3844 443 534 18 81 87 6160 0 1782 133 378 530 315 369 326 6160 FY13 4.2 288.2 5.6 1.4 0.9 FY13 1566 -64 0 0 0 0

Trading At :
7000 6000 5000 4000 3000 2000 1000 0 6000 5000 4000 3000 2000 1000 0

NIFTY

SHREECEM

Source - Comapany/EastWind Research

Narnolia Securities Ltd,

ORIENTAL BANK
Company Update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol
52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty

"NEUTRAL"
6th Jan 2014

NEUTRAL 216.5 221 2 -

500315 ORIENTBANK 365/121 6329 1.98 lac 6211

We have now neutral rating on Orient Bank largely due to trading closer to our target price Rs.221. At this price stock would trade at 0.5 times of one year forward book and 6.5 times of forward earning. We havent revised the multiple on account of non visibility of ROE improvement in near to medium term. Asset quality and operating leverage is likely to remain at elevated level in FY14. Provision coverage ratio at the end of 2Q was 30% implying very little cushion to its future earnings. Balance sheet size is likely to grow at below of industry average. Despite of comfortable Tier-1, capital infusion of Rs.150 cr would be book value dilutive. Inability to increase CASA and expected higher operating leverage in 2HFY14 restrict valuation multiple to move in the range of 0.4 to 0.5 times of one year forward book in our view. Asset quality pressure likely to persist but guided better recovery in agriculture portfolio During the last quarter Orient Bank reported flesh slippage at 3.2% (annualized basis) and asset impairment of 11.1% which would be likely to be flat in full year according to management. However management expects better recovery in agriculture portfolio in 2HFY14 led by better harvest. At the end of September bank has total restructure portfolio of Rs.9421 cr in which most came from infrastructure segment (about 49%). Power sector contributed 18% of total infrastructure standard restructure. But as per management most of power sector exposures are from government sector where chances of fresh slippage are very low. In line with management guidance we model 3.3% of GNPA for FY14 and 3.4% in FY15E keeping view of better recovery and controlled fresh slippage. Balance sheet size likely to grow below of Industry average Bank management is caution about impairment of asset and taken tight measurement in lending norm especially in large corporate. Recently large ticket size fresh slippage emerges from large corporate. Bank management has taken caution outlook towards the corporate loan and tighten sanction and disbursement norm. As the result corporate loan grew by 7% YoY in 2QFY14. We observe that corporate loan constituted about 70% of total credit and rest came from retail loan. With lower growth in corporate segment, overall credit growth is likely to be muted in full year and would be below of industry average.

Stock Performance 1M Absolute 15.2 Rel.to Nifty 14.9

1yr -36.8 -42.2

YTD -53.8 -59.2

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

Financials
NII Total Income PPP Net Profit EPS 2011 4178 5138 3245 1503 51.5 2012 4216 5456 3141 1142 39.1

Rs, Cr 2013 2014E 2015E 4701 5719 6710 6356 7419 8410 3691 2968 3364 1328 1032 1165 45.5 35.4 39.9 (Source: Company/Eastwind)
9

Narnolia Securities Ltd,

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

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

Source:Eastwind/Company
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

10

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

2011
8954 2774 335 25 12088 960 13048 7474 23 413 7910 4178 43.7 960 5138 1048 844 1892 3245 1742 1503 32.4

2012
12075 3671 34 35 15815 1240 17055 11213 38 348 11599 4216 0.9 1240 5456 1357 959 2315 3141 1999 1142 -24.0

2013
13758 3854 31 61 17705 1655 19359 12553 111 340 13004 4701 11.5 1655 6356 1576 1089 2665 3691 2363 1328 16.3

2014E
16609 4865 78 14 21568 1700 23267 15254 149 446 15849 5719 21.7 1700 7419 2626 1825 4451 2968 1678 1032 -22.3

2015E
19101 5457 78 14 24651 1700 26351 17251 172 517 17941 6710 17.3 1700 8410 2977 2069 5046 3364 1907 1165 12.9

Key Balance sheet data

Deposits Deposits Growth(%) Borrowings Borrowings Growth(%) Loan Loan Growth(%) Investments Investments Growth(%) 139024 15.6 5639 15.4 95908 14.9 42075 17.6 155965 12.2 5259 -6.7 111978 16.8 52101 23.8 175898 12.8 7679 46.0 128955 15.2 58555 12.4 196963 12.0 8498 10.7 148298 15.0 65747 12.3 220598 12.0 9854 16.0 170543 15.0 73745 12.2

Eastwind Calculation
Yield on Advances Yield on Investments Yield on Funds Cost of deposits Cost of Borrowings Cost of fund 9.3 6.6 7.8 5.4 7.7 5.5 10.8 7.0 9.2 7.2 7.3 7.2 10.7 6.6 9.0 7.1 5.9 7.1 11.2 7.4 10.1 7.7 5.9 7.7 11.2 7.4 10.1 7.8 7.0 7.8

Valuation
Book Value P/BV P/E 380 1.0 7.5 409 0.6 6.4 403 0.6 5.5 435 0.4 5.1 464 0.4 4.5

Source: Company/Eastwind
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

11

UNION BANK
Company Update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance 1M Absolute 6.3 Rel.to Nifty 6.0 BUY 128.9 163 26.5 -

"BUY"
6th Jan, 2014

532477 UNIONBANK 281.6/97.1 3231 6.87LAC 6211

Union Bank is trading at 0.4 times of one year forward book and 4.2 times of one year forward earning which we believe attractive for entry. We are looking margin expansion on the back of RBIs decision not hiking the policy rate (repo rate) and bond yield settle at 8.75% which was much lower as compare to April-June quarter. Bank borrowed more money on the repo and less on MSF and bond yield softened to 8.75% which would result on fair amount of portfolio gain. Moreover bank has taken more money through FCNR (Foreign currency Non-Resident) which is less costlier than deposits and would help to reduce the cost of fund and hence margin accretive. We value bank at Rs.163/share which would be 0.5 times of one year forward book and 5 times of one year forward earning. Stable asset quality on sequentially but restructure pipeline still high At the end of 2QFY14, bank has impairment assets (GNPA+ restructure) at 8.7% of total advance which is lower as compare to its peers. Fresh addition to restructure loans were at 2.8% of loans at Rs.1534 cr higher from 2.2% of loans at Rs.1068 cr in 1QFY14. Management guided another Rs.3000 cr of loans are in pipeline led mostly from SEB. Fresh slippage reported by bank was stable at 3.1% as against 3% in first quarter. Out of total fresh slippage, 50% came from 4 corporate accounts (Power, manufacture, Iron & Steel and services). Bank made lower provisions as compare to growth in GNPA as the result provision coverage ratio declined by 320 bps to 42.1% from 45.3% on sequential basis. Margin declined by 10 bps in 2QFY14 but expect to expand in 2HFY14 Margin declined by 10 bps to 2.54% largely due to increase of cost of fund. Yield on advance was stable at 10.6% QoQ despite to tight liquidity environment whereas cost of fund increased by 10 bps QoQ. With the recent RBI decision not to hike repo rate along with higher FCNR deposits, banks margin would be expanded in 2HFY14. Union bank has borrowed fewer amounts for repo than MSF and during quarter bond yield settle at 8.75% which would result on fair amount of portfolio gain and reduce the cost of fund.

1yr -53.8 -59.2

YTD -53.8 -59.2

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

Financials
NII Total Income PPP Net Profit EPS 2011 6216 8255 4305 2082 39.7 2012 6793 9241 5254 1787 29.9

Narnolia Securities Ltd,

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

Rs, Cr 2013 2014E 2015E 7543 7654 8602 10095 10389 11337 5583 5298 5782 2158 1851 1967 36.2 31.0 33.0 (Source: Company/Eastwind) 12

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

Source:Eastwind/Company

Narnolia Securities Ltd,

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

13

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

2011
12031 4003 161 258 16453 2039 18491 9538 113 585 10236 6216 48.3 2039 8255 2600 1350 3950 4305 2223 2082 0.3

2012
16027 4570 331 101 21028 2448 23477 13406 141 689 14235 6793 9.3 2448 9241 2479 1508 3988 5254 3467 1787 -14.2

2013
19140 5671 199 115 25125 2552 27677 16551 274 756 17582 7543 11.0 2552 10095 2755 1757 4512 5583 3425 2158 20.7

2014E
21539 6797 205 177 28717 2735 31452 19872 1191 0 21063 7654 1.5 2735 10389 3105 1985 5090 5298 3447 1851 -14.2

2015E
24769 7884 205 177 33035 2735 35770 23052 1381 0 24433 8602 12.4 2735 11337 3389 2166 5555 5782 3815 1967 6.2

Key Balance sheet data

Deposits Deposits Growth(%) Borrowings Borrowings Growth(%) Loan Loan Growth(%) Investments Investments Growth(%) 202461 19.1 13316 44.5 150986 26.5 58399 7.3 222869 10.1 17909 34.5 177882 17.8 62364 6.8 263762 18.3 23797 32.9 208102 17.0 80830 29.6 305963 16.0 27694 16.4 239318 15.0 97094 20.1 354918 16.0 32124 16.0 275215 15.0 112629 16.0

Eastwind Calculation
Yield on Advances Yield on Investments Yield on Funds Cost of deposits Cost of Borrowings Cost of fund 8.0 6.9 7.2 4.7 5.2 4.7 9.0 7.3 8.3 6.0 4.6 5.9 9.2 7.0 8.3 6.3 4.3 6.1 9.0 7.0 8.5 6.5 4.3 6.3 9.0 7.0 8.5 6.5 4.3 6.3

Valuation
Book Value P/BV P/E 243 1.4 8.7 245 1.0 7.8 290 0.7 5.8 313 0.4 4.2 337 0.4 3.9

Source: Company/Eastwind
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

14

Jyothy Lab
"Efforts for stability"
Company update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance 1M Absolute 4.4 Rel. to Nift 4.5 Share Holding Pattern-%
Current 1QFY14 4QFY13

"BUY"
6th Jan' 13

BUY 195 260 33% -

532926 JYOTHYLAB 211/140 3522 51716 6211

Recent management commentary reveals that the company is planning for inorganic growth with Rs 250 Cr of bank balance (post repayment of its debt) and especially looking at regionally strong brands. We expect that companys new management and new strategy of product reach would energize its growth story in near future. Hence, the management has maintained its guidance of achieving around 22% - 25% revenue growth and OPM of 14% - 15% for FY14. Last month, Jyothy Lab raised around Rs 262.5 Cr by issuing shares to Promoters group (Sahyadri Agencies) on preferential basis and Rs400cr of Negotiable Certificate of Deposits (NCD) coupon payable after 3 years. Now inflow of Rs 662 would be utilized to pay its outstanding debt of Rs 548cr as on 30th Sept 2013. For 2QFY14, Jyothy Lab witnessed better numbers with 22% sales growth (standalone) led by 25% volume growth and 8% price/mix led growth. Apart from detergents business which grew slower versus other categories due to intense price/promotion war between top-2 players, all other power brands continue to post strong growth which has grown by 36%. PAT growth was over the head to Rs 21cr from Rs 1.4cr(2QFY13). Healthy margin rampup: The EBITDA Margin expanded by 466 bps to 13.9%. In an inflationary environment there was an impact of 2% of higher freight charges on the OPM which would have been absent in a normal business environment. Segments/ Brandwise Performance: In its bread and butter business detergent & soap segment, it has reported a 35% yoy growth led by a strong 77% growth in the Ujala whitener revenues, a 24% growth in dishwash portfolio and 18% - 20% growth in Henko. Home care revenues was up 37%, driven by strong growth in Maxo as well as the other smaller brands in this segment. Maxo revenues grew 33% on YoY basis. Going forward, the company will focus on brand building with extension of current brands and continue to adapt to the continuous changes of consumers. Management is confident that these efforts will further strengthen brands and establish better consumer connect. View and Valuation: The Companys products are available through 2.9 mn outlets in India and have direct reach of 1 mn outlets. Though the company expects the substockist will increase by 20% from the current 2000 to 2400 by the end of FY14E. We believe the distribution restructuring would lead to generate sales and companys presence in highly demanding categories would help to manage high margins and volume growth simultaneously. We maintain "BUY" view on the stock with a target price of Rs 260, at a CMP of Rs195, stock trades at 3.6x FY15E P/BV. Financials Rs, Cr 2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-% Revenue 306.1 319.2 -4.1% 230.14 33.0% EBITDA 42.7 48.6 -12% 21.4 100% PAT 20.9 28.7 -27% 1.4 1393% EBITDA Margin 13.9% 15.2% (130bps) 9.3% 460bps PAT Margin 6.83% 8.99% (230bps) 0.61% 620bps (Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

1yr 16.0 12.6

YTD 3.2 3.1

Promoters FII DII Others

63.7 16.0 9.8 10.5

63.7 17.0 9.1 10.2

65.6 16.5 9.6 8.4

1 yr Forward P/B

15

Jyothy Lab
The management is confident of achieving its target of 22% - 25% revenue growth and OPM of 14% - 15% for FY14E. The mgmt said that its dishwash brand Pril has seen its market-share taken away by Dettol's newly launch dishwash product. The company is going to double its ad-spend on Pril in FY14. The management is confident of maintaining the strong growth rate in Ujala fabric whitener. The company's products are available through 2.9 mn outlets in India and have direct reach of 1 mn outlets. Now, company does not expects to increase from the current level, it expects the sub-stockist will increase by 20% from the current 2000 to 2400 by the end of FY14.

Take away from management guidance:

Financials
Rs, Cr Sales Raw Materials Cost Employee Cost Advertisement and Publicity Other expenses Total expenses EBITDA Depreciation Other Income EBIT Interest Cost Profit (+)/Loss (-) Before Taxes Provision for Taxes Net Profit (+)/Loss (-) Growth-% (YoY) Sales EBITDA PAT Expenses on Sales-% RM Cost Employee Cost Ad spend Other expenses Tax rate Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% P/BV P/E FY10 596.32 317.19 75.38 26.62 85.31 504.5 91.82 12.36 17.8 79.46 1.7 95.56 21.48 74.08 65.3% 88.3% 93.0% 53.2% 12.6% 4.5% 14.3% 22.5% 15.4% 13.3% 12.4% 169.85 7.30 387.76 10.15 53.12 19.1% 3.20 16.74 FY11 626.39 320.27 81.31 33.99 111.52 547.09 79.3 13.03 16.91 66.27 1.99 81.19 15.43 65.76 5.0% -13.6% -11.2% 51.1% 13.0% 5.4% 17.8% 19.0% 12.7% 10.6% 10.5% 219.80 8.10 631.10 8.12 77.91 10.4% 2.82 27.07 FY12 912.99 502.99 113.67 41.79 170.46 828.91 84.08 24.65 22.73 59.43 23.83 58.33 19.94 38.39 45.8% 6.0% -41.6% 55.1% 12.5% 4.6% 18.7% 34.2% 9.2% 6.5% 4.2% 155.00 16.10 612.42 2.38 38.04 6.3% 4.07 65.00 FY13 1105.96 584.35 130.48 95.54 165.92 976.29 129.67 22.43 5.202 107.24 68.22 44.222 -14.87 59.092 21.1% 54.2% 53.9% 52.8% 11.8% 8.6% 15.0% -33.6% 11.7% 9.7% 5.3% 175.00 16.00 638.56 3.69 39.91 9.3% 4.38 47.38 FY14E 1349.27 688.13 148.42 134.93 175.41 1146.88 202.39 26.10 53.97 176.29 63.25 167.01 31.73 135.28 22.0% 56.1% 128.9% 51.0% 11.0% 10.0% 13.0% 19.0% 15.0% 13.1% 10.0% 195.00 16.00 726.69 8.46 45.42 18.6% 4.29 23.06 FY15E 1646.11 855.98 172.84 148.15 230.46 1407.42 238.69 31.84 65.84 206.84 49.25 223.44 42.45 180.99 22.0% 17.9% 33.8% 52.0% 10.5% 9.0% 14.0% 19.0% 14.5% 12.6% 11.0% 195.00 16.00 860.53 11.31 53.78 21.0% 3.63 17.24

Narnolia Securities Ltd,

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

(Source: Company/Eastwind) 16

AUTO SALES DASHBOARD : DECEMBER 2013

Another Month of Tepid Performance
The automobiles companies come up with December 2013 sales volumes with no big surprises. The industry followed the same declining trend as in November 2013 with Scooter and Tractors sales showing some upward traction. Indian automobile OEMs continue to be negatively impacted by the overall economic slowdown, firm interest rates, inflationary headwinds and high fuel prices. The first look on the 3QFY14 volumes for most of the companies is not encouraging in any way even the export business which did fairly better in 2QFY14 lost its momentum in the quarter under review. Our first analysis on the quarter volumes of the OEMs shows that except for Heromotocorp remaining all the companies have declining performance on volume front. The currency movement benefit which was realized in 2QFY14 for some of the auto companies seems not to doing much of action in this quarter owing more stable INR-Dollar movement. Maruti Suzuki Domestic sales (up 5.5% YoY) posted a strong show, led by the mini segment, which posted robust 17% YoY growth. The mini segment a on YTD basis too is up nearly 8% YoY, indicating a slow return of first-time buyers in the entry-level petrol segment. Mahindra & Mahindra Pickups and 3W growth stood at a moderate 5.0% YoY and 7.6% YoY, respectively. The aforesaid trend is in line with overall LCV segment growth, which is on a moderating path. Tractor share on a YTD basis inched up to 36% from 30% during the same period last year. Tata Motors Tata Motors posted yet another month of a muted set of numbers with total sales contraction at 42.3% YoY to 37,852 units. However,with JLR accounting for most of the companys profitability, the struggling domestic business is unlikely to affect consoliadted performance. Hero Motocorp Amidst a tough market, Hero Motocorp has outperformed by posting marginally higher-than expected volume of 524990 units in December 2013, down 3.1% YoY. Bajaj Auto Total sales for the month stood at 297776 units, down 13.4% YoY, driven by contraction of 32.5% YoY in domestic and 19.6% YoY in exports. With most of the Discover and Pulsar series launches out of the way,company has little to offer in terms of new products to protect its rapidly falling domestic business market share.
AUTO SALES DASHBOARD : DECEMBER 2013 PERFORMANCE CHART Sales Volume (Units) Dec-13 Nov-13 Dec-12 MoM (% Change) 524990 530530 541000 -1.0% 297776 310591 343946 -4.1% 90924 92140 95145 -1.3% 39611 39255 45297 0.9% 37852 40863 65582 -7.4% 6275 5375 7299 16.7% 159495 161908 156221 -1.5%

Company HEROMOTOCO BAJAJ-AUTO MARUTI M&M TATAMOTORS ASHOKLEY TVSMOTORS

YoY(% Change) -3.0% -13.4% -4.4% -12.6% -42.3% -14.0% 2.1%

(Source: Company/Eastwind)

The current scenario does not provide with any quick turnaround and one can expect only slow and gradual progress in the industry. On the whole, in the light streched valuation and business outlook we will continue to maintain our previous recommendation and will tracking for any event in the sector and its consequent impact on our coverage universe.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

17

Emami Ltd
"The niche advantage."
Company update
CMP Target Price Previous Target Price Upside Change from Previous

"BUY"
3rd Jan' 14

BUY
481 635 500 32% 27%

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 531162 EMAMI 539/368 10912 37072 6221

Stock Performance
Absolute Rel. to Nifty 1M -3.3 -4 1yr 20.3 15.8 YTD 50.6 33

Share Holding Pattern-%

Promoters FII DII Others Current 1QFY14 4QFY13 72.74 72.74 72.74 16.68 15.46 14.46 2.18 3.27 3.45 8.4 8.53 9.35

1 yr Forward P/B

Usually, Emami reports good earnings growth for third quarter every year. For 3QFY14E, we expect 20-22% sales growth led by strong rural demand and 22-25% PAT growth on YoY Basis. In addition, we expect to improve margin by 150-200bps (YoY) to 26% because of softening raw material prices. The Companys major raw material Menthol Prices declined by 34% (YoY), as the company has already forward contracted menthol for the year, menthol prices continue to trend lower and price hikes for the year have been taken. Therefore, margin expansion visibility remains high. We expect better revenue growth in 2HFY14 as the weather related headwinds for cooling oils is behind us and pricing on balms stabilize. Visibility of margin expansion remains high because of benign cost of Menthol. Key facts: Favorable rural discretionary demand: Recently, rural discretionary demand has increased because of favorable monsoon and per capita rural growth. During the 2QFY14, its revenue from urban markets grew 8%, rural markets by 11%. Direct rural business was up by 17%. Stable Ad spend: The ad spends in Q2FY14 have declined by 125bps YoY to 16.6% as a percentage of sales. The ad spends, as a percentage of sales, are expected to be in the range of 16-17% in FY14 and FY15. Capex plan: For FY14 & FY15, they plan to spend INR700-750mn per year. It is setting up a new factory in Guwahati at an investment of INR500-600mn. Strong distribution reach: Although rural continues to grow ahead of urban markets, the growth for Emami has tapered off in both urban and rural areas. While urban markets grew 8%, rural markets by 11% growth. Direct rural business was up by 17%. The company's direct outlet reach is 6 lakh. The company has added 20000 outlets in Q2 and expects to add 75000 100000 in FY14. Product expansion: The company has launched Boroplus face-wash last month and there will be new launches in Q4 also. The mgmt said that for next 2 3 years it has strong pipeline of products to be launch. View and Valuation: Considering Emamis focus on increasing rural penetration, favorable monsoon, continuous strengthening of its brand equity and new product funnel strongly in next 2- 3 years, we are positive on the stock. We recommend Buy on the stock with a target price of Rs 635. At a CMP of Rs 481 , the stock is trading at P/BV of 10.3x and 7.8x on FY14E and FY15E, respectively. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 2QFY14 406.7 87.4 80 21.5% 19.7% 1QFY14 383.7 59.2 60.7 15.4% 15.8% Rs, Cr (QoQ)-% 2QFY13 (YoY)-% 6.0% 360.7 12.8% 47.6% 64.1 36.3% 31.8% 59.2 35.1% 610bps 17.8% 370bps 390bps 16.4% 330bps (Source: Company/Eastwind)
18

Narnolia Securities Ltd,

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

Emami Ltd
Key facts from recent Conference Call The management has lowered its annual revenue growth guidance from 16% - 18% to 13% - 15% while PAT guidance continues to stand at 18% - 20% aided by strong gross margin expansion on the back of lower Mentha Oil prices. Contribution from power brands is ~65%. The company plans to grow these brands by 15-16% in FY14. The mgmt has guided for a capex of Rs 70 75 crore each during FY14 and FY15. ASP for FY14 will be 16% - 17%. The company has already taken price hikes and no further hikes are expected in FY14E. Total annualized price hike for FY14 is 4% YoY. Emami has a good cash balance of Rs3bn which it expects to utilize for acquisition.

Financials
Rs in Cr, Sales Raw Materials Cost Purchases of stock-in-trade WIP Employee Cost Advertisement and Publicity Other expenses Total expenses EBITDA Depreciation and Amortisation Other Income Exceptional Items EBIT Interest PBT Tax Exp PAT Growth-% (YoY) Sales EBITDA PAT Expenses on Sales-% RM Cost Ad Spend Employee Cost Other expenses Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% Dividend payout-% P/BV P/E FY10 1037.98 380.53 0 0 57.91 194.42 158.66 791.52 246.46 117.52 7 89.97 128.94 20.98 204.93 35.21 169.72 35.5% 91.0% 85.0% 36.7% 18.7% 5.6% 15.3% 23.7% 12.4% 16.4% 197.7 15.1 625.4 11.2 41.3 27.1% 23.4% 4.8 17.6 FY11 1247.08 346.76 204.9 -28.48 72.87 219.41 178.17 993.63 253.45 116.09 33.1 113.9 137.36 15.23 269.13 40.41 228.72 20.1% 2.8% 34.8% 27.8% 17.6% 5.8% 14.3% 20.3% 11.0% 18.3% 249.4 15.1 689.9 15.1 45.6 33.2% 23.2% 5.5 16.5 FY12 1453.51 415.12 189.13 22.17 92.31 228.99 209.02 1156.74 296.77 120.89 54.12 84.15 175.88 15.21 298.94 40.12 258.82 16.6% 17.1% 13.2% 28.6% 15.8% 6.4% 14.4% 20.4% 12.1% 17.8% 260.8 15.1 706.6 17.1 46.7 36.6% 23.8% 5.6 15.2 FY13 1699.09 539.83 182.14 -6.52 115.55 279 241.82 1351.82 347.27 124 56 96 223.2 6.6 368.69 54 314.68 16.9% 17.0% 21.6% 31.8% 16.4% 6.8% 14.2% 20.4% 13.1% 18.5% 397.4 15.1 777.5 20.8 51.4 40.5% 44.6% 7.7 19.1 FY14E 1936.23 580.87 203.30 -7.37 135.54 319.48 281.65 1513.46 422.76 131.63 58.09 109.82 291.14 6.86 452.18 66.24 385.94 14.0% 21.7% 22.6% 30.0% 16.5% 7.0% 14.5% 21.8% 15.0% 19.9% 481 22.7 1070.5 17.0 47.2 36.1% 24.1% 10.2 28.3 FY15E 2211.18 685.47 221.12 -8.42 165.84 353.79 321.64 1739.44 471.74 150.32 66.34 125.41 321.42 5.14 508.03 74.42 433.61 14.2% 11.6% 12.4% 31.0% 16.0% 7.5% 14.5% 21.3% 14.5% 19.6% 481 22.7 1397.9 19.1 61.6 31.0% 24.5% 7.8 25.2

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