India Equity Analytics

Daily Fundamental Report on Indian Equities

IEA-Equity Strategy 26th Mar, 2014 Edition : 232

26th Mar 2014

INDUSIND BANK :

"BUY"

We have raised our target price largely due to two factors (1) margin and return ratio likely to improve from April quarter as per management and (2) price would settle at 3.2 times of FY14E book due to showing some positive upturn in economy and boost up of market sentiment. .................................................................... ( Page : 2-4)

Hindalco Industries Ltd:

"BUY"

25th Mar 2014

Sesa Sterlite's 22 days smelting shut will help rival producer Hindalco Industries raise sales.With greater comfort on sustainability and visibility of ramp up in UAIL operations, we raise our FY15E volume and consolidated EBITDA by ~2%. Currently the stock is trading at 0.7x in 1yr Forward P/B and we believe with the changing political climate and improving auto mobile demand the stock will accumulate to 0.8x P/B. Hence at CMP Rs.121.5 we are bullish on the stock to a medium term target price of Rs.140 which is a 15% upside addition. ................................................................ ( Page : 5-7)

Jindal steel & Power : Challenging Fundamentals

"NEUTRAL"

24th Mar 2014

The Company has embarked on expansion projects of US$9bn in steel and power, backed by resource availability and steady cash flows. Improving free-cash-flows and volumes would be visible from end-FY15. Profitability is geared to iron ore and coal, which, against the present backdrop of improving iron-ore prices and higher coal consumption, would drive a re-rating. The stock quotes at 1.1x FY14e P/B. We initiate our coverage on this stock with a target of Rs.285/share on the basis of improving steel business, and Recommend Neutral. .................................................................. ( Page : 8-10)

PNB :

"BUY"

24th Mar 2014

We upgrade PNB from neutral to add rating on account of external factors like better than expected GDP growth and CAD numbers which showing some improvement along with softening inflation numbers. Recently market sentiments are also booted on account of opinion poll result which revealed that BJP led NDA would close to formation of Government in coming general election. We raised our price target to Rs.700 from Rs.600 earlier. ............................................................. ( Page : 10- 12)

Persistent System : "Persistently innovating.."

"BOOK PROFIT"

21th Mar 2014

We cover Persistent System as one of the few companies in the tier-II with potential to grow revenue at a range of 18-20%, specially focused on emerging business and relationship building with marquee clients. Despite better predictability of growth and attractive visibility of its expansion in new emerging verticals, we advice to book profit on the stock because of its premium valuation. ............................................................... (Page : 13-14)

TCS : " Strong Fundamentals"

"BUY"

20th Mar 2014

On Mid Quarter Analyst Meet, TCS commented on weak revenue growth momentum for 4QFY14E due to weak seasonality. Growth in 4QFY14E would be lower than the preceding quarter and margin would decline 40-50 basis points on cross currency movement and higher investments. However, sigh of relief was seen on FY15E outlook and comments on overall demand environment. .................................................................. ( Page : 15-17 )

HDFC Bank :

"HOLD"

20th Mar 2014

Profitability of bank is likely to report better in next few quarters on the back of mobilization of FCNR deposits which would reflect better NII growth for being a low cost carry, RBI allowed banks to use counter cycle buffer for making specific provisions against bad loans, declining share of priority sector lending but still met regulatory requirement and exempted foreign deposits with tenure more than 3 years from SLR, CRR and PSL. Now the economy is witnessing some sign of revival and market sentiment boost up on account of exit poll result. We raised our price target to Rs.760/share which is upper side of our valuation band. . ................... ( Page : 18-20)
Narnolia Securities Ltd,

INDUSIND BANK
Result update CMP Target Price Previous Target Price Upside Change from Previous( Rs) Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance
Absolute Rel.to Nifty 1M 22.7 17.1 1yr 20.5 4.8 YTD 20.5 4.8

"BUY"
26th March 2014

BUY 486 540 428 11 26

532187 INDUSINDBK 531/318 25535 1.26 lakhs 6589

Indusind bank has outperformed Nifty by 16% in last one month and Bank Nifty by 6%. We believe this has been on the back of possible margin expansion as per management and market sentiments. Margin could be expanded on the back of lower cost of fund led by wholesale deposits, FCRN deposits fund, CASA accretion and shift loan book in fovour of corporate book due to slowdown in commercial segment in retail portfolio. Further we observe that there is about 80% correlation between price of HDFC bank and Indusind bank and their current price ratio (HDFC Bank to Indusind Bank) moved in range of 1.7 to 1.4 in five year time frame (Presently at 1.52). HDFC bank is close to 4 times of book but Indusind bank still has potential to move up (presently trading at 2.8 times of book versus 3.2 times in historical band). Our target price ratio would be 1.4 which implies expected HDFC price target of Rs.760 (4 times of book) and Indusind bank price target of Rs.540 (3.2 times of FY14E book). We have raised our target price largely due to two factors (1) margin and return ratio likely to improve from April quarter as per management and (2) price would settle at 3.2 times of FY14E book due to showing some positive upturn in economy and boost up of market sentiment. Margin expansion on the lower cost of fund and change in portfolio composition Margin expansion would be come from whole sale deposits and CASA front as per management. Indusind bank funding profile constitute about 35% of wholesale fund which is lower is cost and bank had raised $300 bn in form of foreign currency deposits which has cost around 3.5% while regular deposits cost fall around 6.5 to 7%. Further bank advance composition has switched in favour of corporate book in the wake of possible slowdown in commercial vehicle segment in retail book. Banks CASA improved from 31.8% in 2QFY14 to 32.2% in 3QFY14 led by SA growth of 50% YoY and 8% QoQ. Bank opened 13 branches in December quarter and another 40 branches are under process of various stages which are to be opened by March 2014. Aggressive branch expansion would be CASA accretion and deposits cost would be soften. Management expects NIM to remain steady with upward basis.

Share Holding Pattern-% Current 24QFY1 3QFY1 4 3 Promoters 15.2 15.2 15.3 FII 41.1 39.9 42.3 DII 7.2 7.4 7.0 Others 36.4 37.5 35.4 INDUSIND Bank Vs Nifty

Financials
NII Total Income PPP Net Profit EPS 2011 1376 2090 1082 577 12.4 2012 1704 2716 1373 803 17.2

Rs, Cr 2013 2014E 2015E 2233 2787 4053 3596 4562 5827 1839 2452 2972 1061 1320 1633 20.3 25.3 31.1 (Source: Company/Eastwind)
2

Narnolia Securities Ltd,

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

INDUSIND BANK
Trading significantly discount than HDFC Bank despite of almost lending profit Historically it has been observed that Indusind Bank one year forward price to book move in the range of 2.5 to 3.2 times. Recently banks price has appreciated but still below of 3 times of book. Further we also observe that price ratio of HDFC Bank and Indusind bank move in the range of 1.7 to 1.4 and their correlation in one year price is about 78%. HDFC Bank is now very close to 4 times of book (one year forward P/BV justifies as it has been historically observed) but Indusind bank is still to reach at 3.2 times of book. Therefore chances of price appreciation in Indusind bank are higher than HDFC Bank and said price ratio of both banks would be justified. We compare this bank with HDFC Bank is due to both banks have about almost same percentage in retail lending profile. Historical Price Band

HDFC Bank and Indusind Bank Price Ratio

Narnolia Securities Ltd,

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

INDUSIND BANK
Financials & Assuptions

Income Statement
Interest Income Interest Expense NII Change (%) Non Interest Income Total Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions PBT PAT Change (%)

2011
3589 2213 1376 714 2090 1008 1082 504 577 577

2012
5359 3655 1704 1012 2716 1343 1373 180 1193 803

2013
6983 4750 2233 1363 3596 1756 1839 263 1576 1061

2014E
8308 5521 2787 1775 4562 2110 2452 455 1997 1320

2015
10419 6367 4053 1775 5827 2855 2972 535 2437 1633

Balance Sheet
Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%)

2011
34365 9331 5525 13551 26166

2012
42362 23 11563 24 8682 14572 35064 34

2013
54117 28 15867 37 9460 19654 44321 26

2014E
62234 15 20537 29 15559 23338 54071 22

2015E
74681 20 22404 9 18670 28005 67589 25

Ratio
Avg. Yield on loans Avg. Yield on Investments Avg. Cost of Deposit Avg. Cost of Borrowimgs

2011
10.8 5.4 5.3 7.0

2012
12.0 7.4 7.3 6.7

2013
12.7 6.5 8.8 7.6

2014E
0.0 6.6 8.9 7.5

2015E
12.5 6.5 8.5 7.5

Valuation
Book Value CMP P/BV

2011
87 264 3.0

2012
101 321 3.2

2013
146 405 2.8

2014E
171 405 2.4

2015E
195 405 2.1

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

Hindalco Industries Ltd.

Expansions ready to deliver
Company Update
CMP Target Price Previous Target Price Upside Change from Previous

"Buy"
25th March' 14

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty

Ongoing Positive thrusts: 122 1- Copper producer Sesa Sterlite Ltd will shut its smelter for 22 days starting April 26, for 140 maintenance purpose. It produces 30,000 tons of refined copper per month and exports 132 half of that to China. It will help rival producer Hindalco Industries raise sales. And also 15% for Hindalco the copper realization is stable with the previous quarter, so it will be NA additional sales if orders executes. 2- The Q3FY14 financial results still do not include Mahan, Utkal and Aditya projects. All three projects have started production under trial run. UAILs commercial production 500440 started in December 2013. Management guided for FY15E and FY16E volumes of over HINDALCO 1mt and 1.5mt (full capacity), respectively. Integration of Aluminium smelters (a) Newly 137/83 commissioned aluminium smelters (UP and Odisha) to ramp up volumes going forward 25497 and (b) Cost benefit of cheap alumina for its existing smelters with high quality, 17848 proximate and captive bauxite mine, whose production is currently running at ~4mtpa 6284 run-rate. We are expecting a good amount profit addition from these plants in H1FY15. Key reasons for this low cost UAIL plant include:
1yr 38.1 21.2 YTD A. Captive bauxite is only 21km away from the refinery 30.6 B. Low reactive silica content which reduces caustic soda consumption 16.1 C. High trihydrate alumina content (40%) i.e., it is gibbsite form of bauxite with only 2%

Stock Performance-%
Absolute Rel. to Nifty 1M 24.7 18.3

Share Holding Pattern-%

Promoters FII DII Others 3QFY14 2QFY14 37.0 37.0 26.9 24.9 13.3 14.4 22.9 23.7

1 yr Forward P/B

bohemite (low quality bauxite) D. Bauxite properties are such that process is carried out at relatively low temperature and 1QFY14 pressure leading to savings in energy cost. 37.0 Novelis Business: 24.8 Novelis business has started to improve with the benefit and strong demand from 14.3 automobiles. However, the pricing pressure is impacting margin. Novelis is one of the 23.9 worlds leading aluminium rolling and recycling companies supplying premium products in the markets of North America, Europe, Asia and South America. The company is the largest single producer of aluminium rolled products with an estimated share of 14% of the worlds supply. Novelis sales volumes are expected to grow at a CAGR of 5.7% in FY13-16E. On the back of increasing share of the automobile segment in the overall sales mix, we expect the EBITDA/ton to improve. Political sentiment: With the change in political climate, we believe there will be demand from domestic aluminium and copper consumer. Currently copper is going through a three month low,we expect it to be better after election. Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14 Net Revenue 7273 5.8 15.4 6872 6305 EBITDA 629 8.1 16.5 582 540 PAT 344 -20.6 -3.7 434 357 EBIDTA % 9% 2.1 1.0 8% 9% NPM % 5% -25.0 -16.5 6% 6%
.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report. (In Crs)

Source - Comapany/EastWind Research

Hindalco Industries Ltd.

View & Valuations: With greater comfort on sustainability and visibility of ramp up in UAIL operations, we raise our FY16E volume and consolidated EBITDA by ~2%. We continue to see Hindalco benefiting over next three years from volume growth in Novelis and Indian operations.

Although Hindalco has expanded its aluminium capacity recently, low aluminium prices, sticky costs and delay in commencement of mining from captive blocks have resulted in decline in profitability over the past few quarters. In the near-term, its profitability is likely to be muted due to higher costs at Mahan smelter and low aluminium prices. Currently the stock is trading at 0.7x in 1yr Forward P/B and we believe with the changing political climate and improving aluminium demand the stock will accumulate to 0.8x P/B. Hence at CMP Rs.121.5 we are bullish on the stock to a medium term target price of Rs.140 which is a 15% upside addition. Concerns: The company has received stage-2 forest clearance for its Mahan coal block subject to certain conditions. The next important step would be signing of liming lease with the state government and subsequent mine development, which is likely to take ~18-24 months. High debt on the books continues to weigh on valuations.

About The Company: Hindalco is a metal major with business interests in copper smelting & aluminium manufacturing domestically. It is also a leading aluminum converter globally through subsidiary Novelis. On the domestic aluminium business front, the company is undergoing an ambitious capacity expansion wherein its aluminium (primary metal) production capacity will increase from 560 KT currently to 1278 KT by FY15E. The planned capacity expansion is backed by corresponding alumina refinery with captive bauxite linkage. Bauxite conveyor expected to start in December 2014.

Trading At :

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Narnolia Securities Ltd,
6

Hindalco Industries Ltd.

P/L PERFORMANCE Net Revenue from Operation Other Income Total Income Expenditure EBITDA Depriciation Interest Cost Tax Minority Interest Share in Profit/(Loss) of Associates PAT ROE% 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% CASH FLOWS Cash from Operation Net Cash From Operation Cash From Investment Cash from Finance Net Cash Flow during year FY11 72078 431 72509 64102 7976 2725 1839 964 366 57 2456 8.5 FY10 191 21346 21545 10763 13236 3901 9742 1016 69235 7876 21124 5801 1983 11275 6544 2195 1134 69235 FY10 1.6 20.5 10.8 16.0 FY10 5542 4944 -5448 428 -76 FY12 80821 783 81604 72856 7965 2645 1758 786 211 -50 3397 10.6 FY11 191 28824 29023 13736 13956 4138 12980 1077 84376 12272 20133 13131 2035 14096 8000 2556 1164 84376 FY11 1.4 12.8 11.1 18.0 FY11 6929 6226 -6710 825 341 FY13 80193 1012 81205 72395 7798 2822 2079 886 -20 16 3027 8.4 FY12 191 31179 31911 37127 3731 5289 11052 1377 101402 15429 19871 22798 3774 13246 8017 3296 2159 101402 FY12 0.8 17.7 9.9 13.7 FY12 8534 7602 -13220 6237 619 FY14E 81139 1360 82499 72681 8457 3076 2600 1201 2940 7.8 FY13 191 34597 35330 49857 6442 5691 9613 1610 120590 16435 21490 33831 3170 14332 8952 3770 3257 120590 FY13 0.5 15.8 11.2 12.0 FY13 6852 2978 -13765 10278 -510

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

7

Narnolia Securities Ltd,

Jindal steel & Power

Challenging Fundamentals
Initial Coverage
CMP Target Price Previous Target Price Upside Change from Previous

"Neutral"
24th March' 14

Neutral
265 285 NA 8% NA

The Company has embarked on expansion projects of US$9bn in steel and power, backed by resource availability and steady cash flows. Improving free-cash-flows and volumes would be visible from end-FY15. Profitability is geared to iron ore and coal, which, against the present backdrop of improving iron-ore prices and higher coal consumption, would drive a re-rating. The stock quotes at 1.1x FY14e P/B. We initiate our coverage on this stock with a target of Rs.285/share on the basis of improving steel business, and Recommend Neutral. The consolidated turnover was up by 12% to Rs.5377 Cr against Rs. 4683 Cr in previous year period. Net Profit is after tax for the quarter is Rs. 562Cr (Rs. 867 Cr in Q3FY13). The steel business in volume and value terms grew by 11% and 7% respectively compared to the previous quarter. JSPL achieved a spectacular growth in its export volumes which in volume and value terms grew by 32% and 104% for the same period last year. The Company has received Rail order from DFCC for the prestigious Delhi Kolkata corridor and export order from Ferrotech Alloys, UK. JSPLs retail segment has been very successful and the sale during Q3 FY14. Jindal Power Ltd., a subsidiary of JSPL sales grew by 17.7% while PBT and PAT increased by 16.9% and 15.7% respectively in Q3 this year compared to Q3FY13.Net Sales of the company is expected to grow at a CAGR of 6% over 2012 to 2015E respectively.

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 532286 JINDALSTEL 362/181 24796 11158 6495

Stock Performance-%
Absolute Rel. to Nifty 1M 6.9 0.5 1yr -21.7 -36.3 YTD -27.9 -37.6

Share Holding Pattern-%

Promoters FII DII Others 3QFY14 59.7 21.9 4.7 13.7 2QFY14 1QFY13 59.1 59.1 21.3 20.8 6.2 6.7 13.3 13.4

1 yr Forward P/B

Steel segment improving : Steel sales volumes of Jindal Steel and Power are likely to have improved in 3QFY14, to 0.75m tons. On the changing business and client mix, prices are likely to have been better. Export opportunities in the quarter due to favorable currency could have offset the impact of iron ore realizations and would have improved EBITDA, aided by stable costs. The Shadeed Oman HBI business, iron ore and coking coal mine are likely to have been stable.Management expects the companys total steel capacity, both in India and overseas, to increase around 8 million ton as compared to current 3 million ton by the end of the fiscal. Balance sheet at inflection point: In the past three years, 3bn dollar has been spent on expansion, and a further 6bn will be expended in the next three years. The expansion has been supported by the strong business cash flows. However, the net-debt-to-EBITDA level has hit 3.7x due to delayed cash flows, though the leverage ratio is likely to have peaked. Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14 Revenue 5377 12.0 7.9 4802 4984 EBIDTA 1701 -5.0 16.7 1790 1457 Net Profit 562 -35.2 24.3 867 452 EBIDTA% 32 -15.1 8.2 37 29 NPM% 10 -42.1 15.2 18 9
(In Crs)

Source - Comapany/EastWind Research

Narnolia Securities Ltd,

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

Jindal steel & Power

Stabilizing Power segment: With a steady performance and power sales to Rs.1130 Cr in 3QFY14 (Rs.1068Cr in 3QFY13), the PLF in 3QFY14 would have held at ~100%, helping maintain realizations. Capped realizations and the power-surplus situation would have posed downside risks to earnings. Coverage : Jindal Steel and Power Limited (JSPL) is one of Indias major steel producers with a significant presence in sectors like Steel, Mining, Power Generation and Infrastructure. With an annual turnover of over US$ 3.6 billion, JSPL is a part of the over US$ 18 billion diversified O. P. Jindal Group. In the recent past, JSPL has expanded its steel, power and mining businesses to various parts of the world particularly in Asia, Africa and Australia. The company has committed investments exceeding US$ 30 billion in the future and has several business initiatives running simultaneously across continents. The company produces economical and efficient steel and power through backward and forward integration. Products Rails Fabricated Sections Parallel Flange Beams Semi-Finished Products Plates & Coils Power Angels & Channels Ferro Chrome TMT Re-bars Silico Manganese Wire Rods Sponge Iron Business Areas Jindal Steel and Power Limited started as a steel manufacturing company, enhanced the company position as a major steel producer and diversified into various other sectors such as: Mining Petroleum Power Generation & Trading Cement and Infrastructure. Plants Locations Jindal Industrial Park (Chhattisgarh) Raipur Division (Chhattisgarh) Tamnar (Odisha) Angul (Odisha) Barbil (Odisha) Tensa - (Jharkhand) Patratu (Jharkhand) Global Presence South America Mozambique Madagascar Zambia Tanzania Oman (Middle East) Australia
Earning Ratios Earning Ratios

Revenue & Growth

EBIDTA & Margin EBIDTA & Margin

Debt Structure
Narnolia Securities Ltd,
9

Jindal steel & Power

P/L PERFORMANCE Net Revenue from Operation Other Income Total Income Cost Of Projects & Contractual Employee benefit Expence Other Expenses Expenditure EBITDA Depriciation Interest Cost PBT Net tax expense / (benefit) PAT ROE% P/B 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 NPM % EBITDA % ROCE% Weighted Average Cost of Debt % Debt/Equity (debt/debt+networth or FY10 11092 60 11152 4197 273 774 5244 5848 997 358 4553 919 3573 34 6.3 FY10 93 10324 10417 5330 3274 17 2266 2036 25122 14 9883 7947 1090 1431 753 113 3464 25122 FY10 6.3 32.0 52.4 17.8 4.2 #N/A FY11 13112 82 13194 5078 415 1303 6795 6317 1151 260 4988 1184 3754 27 4.6 FY11 93 14017 14110 5549 8428 25 2573 3081 36091 20 14824 10041 1527 2773 1154 480 4852 36091 FY11 4.6 28.5 47.9 12.8 1.9 #N/A FY12 18209 142 18351 5311 591 5513 11415 6793 1386 360 5189 1186 3965 22 2.8 FY12 93 18018 18111 11180 4569 34 1251 4111 45008 31 16463 92 2181 3580 1307 149 6927 45008 FY12 2.8 21.6 37.0 11.2 2.3 #N/A FY13 19807 136 19943 6151 641 7020 13812 5994 1539 758 3833 922 2910 14 1.5 FY13 93 21159 21252 15402 8247 33 1398 4884 57073 20 19255 19230 2421 4524 1954 200 8079 57073 FY13 1.5 14.6 30.1 6.1 3.2 #N/A
10

Narnolia Securities Ltd,

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

"ADD"
24th March2014

ADD 641 700 600 9 17

Over the last one month, PNB has outperform Nifty by 14% and Bank Nifty by 5.7% largely on account of external factor like economy and fiscal deficit showing some positive trend, softening of inflation from its peak level. Market sentiment are also boosted by recent opinion poll result which revealed BJP led NDA would come to power and economy would revived. Although we like Bank of Baroda over PNB but former is trading close to our target price. We value PNB at Rs.600 to Rs.775 per share implying 0.6 to 0.75 times of one year forward book depending upon current economy scenario and banks own fundamental. Looking at current fundamental and market sentiments we believe bank would trade in the range of Rs.600 to Rs.700. In the subsequent section we will discuss two positive fronts that bank has witnessed in last quarter result (a) asset quality improvement especially in fresh slippage side, (b) margin expansion. We will discuss the possibility valuation contraction from current level. Creation of fresh slippage lower, impaired asset high but showing improvement During the last quarter PNB experienced improvement of asset quality especially in fresh slippage front. Fresh addition in GNPA was declined by 52% sequential to Rs. 1142 cr as against average run rate in last ten quarter was Rs.2124cr. In percentage to gross advances, slippage ratio came down to 1.4% versus 3% in 2Q and 4.7% in 1Q. Cash recoveries were better which drag net NPA to 2.8% from 3.1% in previous quarter. Further bank restructure Rs. 2115 cr in 3QFY14 mainly come from power sector which was offset by similar amount of bond received from SEBs. Bank management has not indicated restructure pipeline in near term which means stable to improving asset quality trend could be seen. Margin expansion on the back of shifting concentration of portfolio mix and CASA growth During the last quarter banks margin expanded by 10 bps QoQ despite of moderate loan growth. Bank witnessed 9.7% YoY loan growth led by SME growth of 21.6% and retail segment growth of 17.5%. Retail and SME segment are high yield in nature. Further banks low cost deposits CASA increased by 13% in absolute term in which saving account supported with 14% growth current account 7% YoY. But overall deposits declined by 20% led by 33% declined of term deposits which inflated CASA ratio to 38.3% from 27%. Sequentially cost of fund declined by 25 bps while yield on loan declined by 11 bps on account of creation of low deposits franchise and shifting of portfolio. Rs, Cr Financials 2011 2012 2013 2014E 2015E NII 11807 13414 14857 16536 17691 Total Income 15420 17617 19072 20775 21930 PPP 9056 10614 10907 11155 12500 Net Profit 4433 4884 4748 3408 5209 EPS 140.6 144.0 134.3 94.1 143.9 (Source: Company/Eastwind) 11 Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

532461 PNB 890/400 19646 7.4 cr 6495 1yr -19.7 -30.2 YTD -19.7 -30.2

Stock Performance 1M
Absolute Rel.to Nifty 18.9 14.0

Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 58.9 57.9 57.9 FII 17.5 17.9 18.0 DII 18.5 18.4 19.1 Others 5.1 5.9 5.1 PNB Vs Nifty

PNB
Management guided stable NIM, more focus on liability rather than asset yield According to bank management, PNB is focusing more on liability side rather than yield. Bank has reduced high cost bulk deposits from Rs.880 bn in Sept.2012 to Rs.220 bn in Dec.2013 and certificate of deposits came down to Rs.110 bn from Rs.240 bn in 3QFY13. Share of low cost deposits improved to 40% which would help bank to maintain NIM at 3.5% according to management. Valuation & View We upgrade PNB from neutral to add rating on account of improving sign of economy led by CAD number and softening of inflation. Recently market sentiments are also boosted up due to exit poll result which revealed that BJP led NDA government would be close to government formation in coming general election. In our valuation matrix, we value in the range of 0.6 times to 0.75 times of F14E book depending upon banks fundamental and market sentiment. Looking at current market sentiment and fundamental, we value bank in the range of Rs.600 to Rs.770 per share. We have added rating on the stock with current price target of Rs.700. Current Valuation Range

Narnolia Securities Ltd,

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

12

PNB
Financial & Assuption

Income Statement
Interest Income Interest Expense NII Change (%) Non Interest Income Total Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions PBT PAT Change (%)

2011
26986 15179 11807 39.3 3613 15420 27.6 6364 9056 23.6 4622 4433 4433 13.5

2012
36476 23062 13414 13.6 4203 17617 14.2 7003 10614 17.2 3577 7037 4884 10.2

2013
41893 27037 14857 10.8 4216 19072 8.3 8165 10907 2.8 4386 6522 4748 -2.8

2014E
43513 26977 16536 11.3 4240 20775 8.9 9621 11155 2.3 6253 4902 3408 -28.2

2015E
49565 31875 17691 7.0 4240 21930 5.6 9430 12500 12.1 5059 7442 5209 52.8

Balance Sheet
Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%) 312899 25 120325 18 31590 95162 242107 30 379588 21 134129 11 37264 122703 293775 21 391560 3 153344 14 39621 129896 308725 5 450294 15 139752 -9 47857 143572 339598 10 517838 15 153766 10 44728 149094 356578 5

Ratio
Avg. Yield on loans Avg. Yield on Investments Avg. Cost of Deposit Avg. Cost of Borrowimgs Valuation Book Value CMP P/BV 8.7 6.0 4.4 4.4 9.7 6.4 5.6 4.5 10.3 7.4 6.5 3.9 9.6 7.2 6.4 4.0 10.5 7.8 6.6 4.1

682 1220 1.8

820 926 1.1

924 759 0.8

1000 543 0.5

1107 543 0.5

Source : Eastwind/ Company

Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

13

Persistent System.
"Persistently innovating.."
Company update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty Stock Performance Absolute Rel. to Nifty 1M 1.1 3.4 1yr 76.8 75.8 YTD 85.7 82.3 Book Profit 1059 1070 960 1% 11%

"Book Profit"
21st Mar' 14

533179 PERSISTENT 1220/477 4236 12139 6483

Share Holding Pattern-%

Current 2QFY14 1QFY14

Promoters FII DII Others

38.96 18.26 18.78 24

38.96 15.28 21.23 24.53

38.96 14.84 19.31 26.89

Footing on Product Business, and working aggressively on new emerging services; On recent management Interview, Persistent System announced its new footing of dedicated product business unit Accelerite to align its business strategy combined with Products and IP (Intellectual Property) based on SMAC (Social, Mobility, Analytics, Cloud) platform. We cover Persistent System as one of the few companies in the tier-II with potential to grow revenue at a range of 18-20%, specially focused on emerging business and relationship building with marquee clients. Despite better predictability of growth and attractive visibility of its expansion in new emerging verticals, we advice to book profit on the stock because of its premium valuation. th Key facts from Management Interview to Media( on 20 March,2014) (1) Persistent System is setting up a unit related to product and Product services, named it Accelerite to manage efficiently. They are taking some of its IP led products into this Accelerite. We expect that company is able to compete as a product company, which Accelerite will in the market. (2) Management expects that the overall trends are looking good on Industry per se and new emerging segment will play a major role for growth. Now, clients are moving into new changes and focusing into new services and solution. (3) For 4QFY14E, muted set of growth could be seen and expecting Intellectual Property (IP) growth this quarter. (4) The business outlook though is very positive in the sense, and they are seeing good opportunities, good pipeline growth and many good interesting deals being signed. (5) Persistent system is expecting to see IP led growth at a range of 18-19% in FY14E and 20%+ in FY15E driven by HPCA without any addition of new IPs. At same point of time, they are also looking to scale strong potential of rCloud after adding new capabilities. Persistent management suggests that deal pipeline are looking strong and seeing good activity and traction in the market across the board. Its focus on some of newer technologies like cloud, analytics and mobility, M2M, digital transformation are gaining a lot of traction because of pickup in demand environment. Because of actively investment in these themes, management is very confident to see healthy growth. View and Valuation: The companys focus is shifting greater proportion to IP led services and company has marquee clientele in cutting-edge technologies around cloud, mobility, digital and analytics; witnessing faster growth. Considering the companys premium valuation, we advice Book Profit on the stock. At a CMP of Rs 1059, stock trades at 13.4x FY15E earnings. Our view could be change with management guidance, higher currency flactuations and post earnings of coming quarter. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 432.75 104.3 64.2 24.1% 14.8% 2QFY14 432.37 100.8 60.8 23.3% 14.1% (QoQ)-% 0.1 3.5 5.6 80bps 70bps 3QFY13 332.98 82.4 49.5 24.7% 14.9% Rs, Crore (YoY)-% 30.0 26.6 29.7 (60bps) (10bps)
14

1 year forward P/E-x

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

Persistent System.
Operating Metrics
2QFY12 Client Concentration Top1 Top 5 Top 10 Billing Rate-USD/ppm Onsite - Linear Offshore - Linear Yeild per Employee(excld- Trainee) Employee Metrics Total Employee Attrition Utilization rate %(xclude IP Led ) 16.0% 38.6% 49.4% 12665 3803 3208 6900 17.7% 73.8% 3QFY12 4QFY13 1QFY13 QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 15.9% 37.0% 48.3% 12387 3778 3247 6706 17.4% 74.1% 17.2% 36.6% 48.8% 12603 3895 3350 6628 18.3% 71.7% 17.8% 33.5% 45.3% 12789 3898 3345 6536 18.9% 74.1% 20.7% 36.3% 47.0% 12863 3978 3746 6370 16.9% 75.2% 21.1% 37.3% 49.4% 12772 4032 3817 6719 16.0% 77.3% 21.6% 36.7% 47.9% 14014 4143 3769 6970 14.4% 72.5% 21.2% 34.7% 46.0% 14567 4111 3602 7144 14.2% 70.0% 22.5% 36.4% 47.3% 14283 4109 3919 7457 14.0% 71.7% 19.8% 36.9% 46.9% 14510 4179 3934 7602 13.2% 72.9%

Financials
Rs in Cr, Sales Employee Cost Cost of technical professionals Other expenses Total expenses EBITDA Depreciation Other Income EBIT Interest Cost Profit (+)/Loss (-) Before Taxes Provision for Taxes Net Profit (+)/Loss (-) Growth-% (YoY) Sales EBITDA PAT Expenses on Sales-% Employee Cost Other expenses Tax rate Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% P/BV P/E FY10 601.16 368.74 0 86.05 454.79 146.37 33.52 11.23 112.85 0 124.08 9.05 115.03 1.2% 60.2% 74.1% 61.3% 14.3% 7.3% 24.3% 18.8% 19.1% 310 4 639.0 28.8 159.7 18.0% 1.9 10.8 FY11 775.84 481.62 30.67 105.24 617.53 158.31 42.39 34.44 115.92 0 150.36 10.62 139.74 29.1% 8.2% 21.5% 62.1% 13.6% 7.1% 20.4% 14.9% 18.0% 366.7 4 747.1 34.9 186.8 18.7% 2.0 10.5 FY12 1000.3 599.05 41.68 135.2 775.93 224.37 61.1 34.44 163.27 0.00 197.71 55.09 142.62 28.9% 41.7% 2.1% 59.9% 13.5% 27.9% 22.4% 16.3% 14.3% 409.2 4 840.5 35.7 210.1 17.0% 1.9 11.5 FY13 1294.5 719 54 218 990.78 303.72 78 34.44 225.44 0.03 259.851 75.37 184.481 29.4% 35.4% 29.4% 55.5% 16.9% 29.0% 23.5% 17.4% 14.3% 541 4 1018.3 46.1 254.6 18.1% 2.1 11.7 FY14E 1666.59 899.96 91.66 291.65 1283.28 383.32 100.55 55.00 282.76 0.05 337.71 92.03 245.69 28.7% 26.2% 33.2% 54.0% 17.5% 27.3% 23.0% 17.0% 14.7% 1059 4 1212.5 61.4 303.1 20.3% 3.5 17.2 FY15E 2061.72 1123.64 113.39 366.99 1604.02 457.70 93.54 72.16 364.16 0.05 436.28 119.98 316.30 23.7% 19.4% 28.7% 54.5% 17.8% 27.5% 22.2% 17.7% 15.3% 1059 4 1477.3 79.1 369.3 21.4% 2.9 13.4
15

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

TCS
" Strong Fundamentals"
Company update
CMP Target Price Previous Target Price Upside Change from Previous

"BUY"
20th Mar' 14

Buy
2041 2510 2360 23% 6%

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 532540 TCS 2384/1300 433985 1011877 6524

Stock Performance
Absolute Rel. to Nifty 1M -5.9 -13.3 1yr 29.9 18.8 YTD 67.2 57.1

Mid Quarter's Analyst Meet: Lower than expected growth for 4QFY14E, but still better outlook for FY15E than FY14E, On Mid Quarter Analyst Meet, TCS also commented on weak revenue growth momentum for 4QFY14E followed by Infosys due to weak seasonality. Growth in 4QFY14E would be lower than the preceding quarter and margin would decline 40-50 basis points on cross currency movement and higher investments. However, sigh of relief was seen on FY15E outlook and comments on overall demand environment. Now, revenue in 4QFY14E could be a bit lighter than what we had expected post 3QFY14 earnings. We are not much surprise on comments on weak revenue as well as ramping down on margin picture for current quarter. We believe that the 1QFY15E, the first seasonally strong quarter of the year, is the stern litmus test of TCSs confidence for FY15E. Key facts from Management Commentary: (1) For 4QFY14E, revenue would be lower than preceding quarter because of seasonal impacts, and domestic revenue may clock negative growth largely impacted by upcoming general election. However, no pressure would be seen on revenue for FY15E. (2)Margin would decline by 40-50 basis points on cross currency movement and higher investments. However, company is expecting no hiccups on margin for long- term prospect. (3) The company is very optimistic on Europe, US and UK growth could be inline. Latin America will see good growth. Europe will continue to do well, and the US and the UK will be close to industry average. Middle East and APAC could be seen on flattish node. (4) Across vertical, Media and Entertainment has reported better, Telecom remains challenged. While, there could be some ray of growth because of higher penetration in Europe. (5) Currency will play a small role with marginal impact of cross currency movement and average currency movement. There may be some accounting changes related to recognition of forex gains or losses, but it is not likely to be material. View and Valuation: We continue to remain positive on its demand outlook and margin profile, the management expects for robust deal pipeline going forward and also expects to materialize its emerging space like Digital as well as Cloud, Mobility, Analytics and Big data. We expect, TCS will be star performer in growth sense than other peers. Hence, we are maintaining 17% (revised from 18%) revenue growth in dollar term for FY14E because of improved demand environment, while NASSCOM expects 12-14% for the Industry. At a price of Rs 2041, it is trading at 18x FY15E earnings, We maintain" BUY" view on the stock with a target price of Rs 2510.

Share Holding Pattern-%

Promoters FII DII Others Current 73.9 16.33 5.26 4.51 2QFY14 1QFY14 73.96 73.96 16.09 15.67 5.58 5.90 4.37 4.47

1 year forward P/E

Financials
Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 21294 6686.76 5333.43 31.4% 25.0% 2QFY14 20977.2 6633.0 4633.3 31.6% 22.1% (QoQ)-% 1.5 0.8 15.1 (20bps) 290bps 3QFY13 16069.93 4660.49 3549.61 29.0% 22.1%

Rs, Crore (YoY)-% 32.5 43.5 50.3 240bps 290bps

16

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

TCS.
Is there any setback?
Unlike Infosys, TCS comments are based on potential impact from seasonally lower demand in its biggest market (US and Europe) and weak domestic demand environment. On previous comments, management had already quoted regarding demand volatility at home because of upcoming poll. Comparing with its nearest rival Infosys, TCS is not facing largely with any specific issue. Despite a weak commentary on 4QFY14E, management is aggressively confident to report better numbers in FY15E with healthy demand outlook. We are considering following factors for its growth story in FY15E. Healthy Demand Environment: TCS is much confident on healthy demand outlook and expects that FY15E could be better year than FY14E propelled by better discretionary spending in the US. Management suggests that except India, other emerging markets (contributes 18-19% of revenue) continue to see healthy demand. Also, in its FY15 revenue growth models, India (contributes 7% of sales) is the only market which TCS expects to be weak. No sign of any ramp down: Management suggests that Continental Europe will likely grow ahead of overall company growth in FY15E. On vertical front, smaller verticals such as Energy & Utilities, Transportation and Life sciences & Healthcare might grow ahead of overall company average. While, its mature verticals like BFSI and Retails could grow flattish, Telecom continues to face structural issue. Contracts wins from continental Europe could change the shape of verticals. Still, we are not seeing any project ramp down. New emerging business on demand: A part of legacy business, the emerging opportunities in helping large corporations tap areas such as social media and data analytics are seen as increasingly contributing to the IT sector's next phase of growth. TCS and its Indian competitors are winning a significant share of several 2nd and 3rd generation renewal contracts as western companies look to both cut costs and modernise their IT infrastructure. Considering above growth factors, we are not expecting any major concern with company's growth. The company is also focussed to drive operational improvements in the business and aims to expand reach in non-traditional markets and servicelines.

Sales (USD) and Sales growth-%

We expect 1% (QoQ) revenue growth in USD term for 4QFY14E,

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

17

TCS.
Financials
Rs, Cr Net Sales-USD Net Sales Employee Cost Overseas business expenses Services rendered by business associates and others Operation and other expenses Total Expenses EBITDA Depreciation Amortisation Other Income Extra Ordinery Items EBIT Interest Cost PBT Tax PAT PAT (Reported PAT) Growth-% Sales-USD Sales EBITDA PAT Margin -% EBITDA EBIT PAT Expenses on Sales-% Employee Cost Overseas business expenses Services rendered by business associates and others Operation and other expenses Tax rate Valuation CMP No of Share NW EPS BVPS RoE-% Dividen Payout ratio P/BV P/E FY10 6339.0 30029.0 10879.6 4570.1 1262.0 4622.8 21334.4 8694.6 601.8 59.1 272.0 0.0 8033.7 16.1 8289.6 1197.0 7092.7 7000.6 FY11 8187.0 37325.1 13850.5 5497.7 1743.7 5054.3 26146.2 11178.9 686.2 49.1 604.0 0.0 10443.6 26.5 11021.2 1830.8 9190.3 9068.6 29.2% 24.3% 28.6% 29.6% 30.0% 28.0% 24.6% 37.1% 14.7% 4.7% 13.5% 16.6% 1182.5 195.7 24504.8 47.0 125.2 37.5% 50.8% 9.4 25.2 FY12 10171.0 48894.3 18571.9 6800.5 2391.3 6694.8 34458.5 14435.8 860.9 57.1 428.2 0.0 13517.9 22.2 13923.8 3399.9 10524.0 10414.0 24.2% 31.0% 29.1% 14.5% 29.5% 27.6% 21.5% 38.0% 13.9% 4.9% 13.7% 24.4% 1322.0 195.7 29579.2 53.8 151.1 35.6% 37.5% 8.7 24.6 FY13 11569.0 62989.5 24040.0 8701.9 3763.7 8443.9 44949.6 18040.0 1016.3 63.7 1178.2 0.0 16960.1 48.5 18089.8 4014.0 14075.7 13917.4 13.7% 28.8% 25.0% 33.7% 28.6% 26.9% 22.3% 38.2% 13.8% 6.0% 13.4% 22.2% 1563.0 196.0 38645.7 71.8 197.2 36.4% 41.2% 7.9 21.8 FY14E 13531.7 81731.2 30060.7 11565.0 4952.9 10044.8 56623.4 25107.8 1279.2 57.5 1348.6 0.0 23828.6 35.9 25141.3 5933.3 19208.0 19208.0 17.0% 29.8% 39.2% 36.5% 30.7% 29.2% 23.5% 36.8% 14.2% 6.1% 12.3% 23.6% 2041.0 196.0 49940.0 98.0 254.8 38.5% 41.2% 8.0 20.8 FY15E 16012.2 96073.3 35547.1 13930.6 5764.4 12009.2 67251.3 28822.0 1503.7 76.7 1921.5 0.0 27318.3 33.8 29206.0 7009.4 22196.5 22196.5 18.3% 17.5% 14.8% 15.6% 30.0% 28.4% 23.1% 37.0% 14.5% 6.0% 12.5% 24.0% 2041.0 196.0 62991.6 113.2 321.4 35.2% 41.2% 6.4 18.0
18

8.0% 21.3% 31.8% 29.0% 26.8% 23.6% 36.2% 15.2% 4.2% 15.4% 14.4% 780.8 195.7 18466.7 36.2 94.4 38.4% 28.1% 8.3 21.5

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

HDFC 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 11.8 Rel.to Nifty 4.7 HOLD 741 760 720 3 6

"HOLD"
20th March.,2014

500180 HDFCBANK 750/528 176874 4.17 lakhs 6524

We have raised our price target to Rs.760/share on account of banks likely to get benefit from FCNR deposits mobilization that it had recently raised. We value bank in the range of Rs.660 to Rs.760 per share on the back of current fundamental and prevailing economic scenario. Now the economy is witnessing some sign of revival and market sentiment boost up on account of exit poll result. HDFC bank is likely to see earnings boost-up in near term on account of mobilization of FCNR deposits which would reflect better NII for being a low cost carrying in nature, recently RBI allow banks to use 33% of buffer/floating provisions for bad loan and declining of low yielding PSL share in overall lending. Raised foreign deposits higher amount in comparison to peers; likely to report better NII for being low cost in nature In last quarter, HDFC bank has raised FCNR deposits to the tune of $3.4 bn nearly about Rs.21000 cr through RBI special window which carry interest rate of 3.5% while normal deposits rate are in the range of 6.5% to 7%. HDFC Bank raised larger chunk of monies in compare to other banks like SBI and ICICI bank. SBI and ICICI bank raised monies through FCRN deposits to the tune of $2bn each. Further incremental foreign deposits with tenure are more than 3 years are exempted from SLR, CRR and PSL lending. This would help bank to lower cost of fund by 75 bps to 100 bps and hence margin expansion. Bank management guided margin would be in the range of 4.1% to 4.5% going forward. Mounting bad loans have major cause of worry; RBI allowed banks to use 33% of counter cycle, floating provisions for specific provisions Recently RBI allows banks to use 33% of counter cycle provisioning buffer, floating provisions for making specific provisions against impaired accounts which would help bank to make lower provisions and hence boost up earnings. HDFC bank reported very strong asset quality with GNPA and net NPA stood at 1% and 0.3% at the end of December quarter. Bank would use counter cycle buffer, floating provisions for specific provisions and make lower fresh provisions. This would be the result of boosting up profitability. Counter cycle provisions and floating provisions are represented as capital reserves that bank need to build up in good times and can only use for contingencies under extra circumstance. This is the first time when central bank allows to use since the reserve were created starting 2010. At the end of quarter all banks reported Rs.1.71 trillion of GNPA, the rise of 39.4% YoY. In a very rough estimate, banking system has nearly about Rs. 2 trillion in bad loans and another Rs.4 trillion loans are being restructured pipeline out of total Rs.82 trillion. Rs, Cr Financials 2011 2012 2013 2014E 2015E NII 10543 12885 15811 18713 22944 Total Income 14878 18668 22664 26604 30835 PPP 7725 9391 11428 14516 15572 Net Profit 3926 5167 6726 8453 9119 EPS 84.4 22.0 28.7 36.0 38.9 (Source: Company/Eastwind) 19 Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

1yr 15.1 4.8

YTD 15.1 4.8

Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 22.7 22.7 22.7 FII 34.9 33.6 34.9 DII 9.3 9.8 6.6 Others 33.1 33.8 34.2 HDFC Bank Vs Nifty

HDFC BANK
Share of PSL down sharply; release fund would be deployed in high yield sector Recently share of PSL in HDFC bank came sharply but bank already met PSL target of 40% which means addition fund would be deployed in high yield segment which would reflect in NII growth. According to RBI, banks need to spend 40% in net advance in priority sector lending and HDFC bank are among those which have highest share in PSL in private bank category. Additionally fund raised fund through FCNR deposits with tenure more than 3 years are exempted from SLR, CRR and PSL means bank would have higher fund for deploying in sector those are high yield in nature. Valuation & View HDFC bank is expected to report better earnings on the back of (a) likely to get benefit from FCRN deposits mobilization, (b) recent RBI allow bank to use 33% of counter cycle buffer provisions for specific provisions, this would help bank to make lower provisions and hence profitability and (c) share of additional PSL lending would be deployed in high yielding sector. We have raised our price target to Rs.760/share which is upper side of our valuation band. Valuation Band

Source:Eastwind/Company

Narnolia Securities Ltd,

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

20

HDFC BANK
Financials
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 Total Income Growth(%) Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions( Incl tax provision) Net Profit Net Profit Growth(%)

2011
15085 4675 148 20 19928 4335 24263 8028 1336 20 9385 10543 25.7 4335 14878 20.3 2836 4317 7153 7725 3799 3926 33.2

2012
21124 6505 137 108 27874 5784 33658 12690 2253 47 14990 12885 22.2 5784 18668 25.5 3400 5878 9278 9391 4224 5167 31.6

2013
26822 7820 282 141 35065 6853 41917 16321 2889 44 19254 15811 22.7 6853 22664 21.4 3965 7271 11236 11428 4701 6726 30.2

2014E
32002 9311 373 65 41751 7891 49642 20281 4571 44 23038 18713 18.4 7891 26604 17.4 4231 7857 12087 14516 1751 8453 25.7

2015E
40213 10952 373 65 51603 7891 59494 24337 4278 44 28659 22944 22.6 7891 30835 15.9 5342 9921 15263 15572 6453 9119 7.9

Key Balance Sheet Data

Deposits Deposits Growth(%) Borrowings Borrowings Growth(%) Loan Loan Growth(%) Investment Investment Growth(%) 208586 24.6 14394 11.4 159983 27.1 70929 21.0 246706 18.3 23847 65.7 195420 22.2 97483 37.4 296247 20.1 33007 38.4 239721 22.7 111614 14.5 355496 20 50785 54 299651 25 114580 3 426596 20 47529 -6 365574 22 156461 37

Eastwind Calculation
Yield on Advances Yield on Investments Yield on Funds Cost of deposits Cost of Borrowings Cost of fund 9.4 6.6 7.7 4.3 9.4 4.2 10.8 6.7 8.9 5.6 9.6 5.5 11.2 7.0 9.3 6.0 8.9 5.8 10.7 8.1 10.1 6.5 9.0 5.7 11.0 7.0 9.9 6.2 9.0 6.0

Valuation
Book Value P/BV P/E 545.5 4.3 27.8 127.5 4.1 23.6 154.3 4.1 21.8 189.4 3.5 18.7 222.3 3.0 17.3

Source: Eastwind/ Company

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21

N arnolia Securities Ltd

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the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any action based upon it. This report/message is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any from. The report/message is based upon publicly available information, findings of our research wing East wind & information that we consider reliable, but we do not represent that it is accurate or complete and we do not provide any express or implied warranty of any kind, and also these are subject to change without notice. The recipients of this report should rely on their own investigations, should use their own judgment for taking any investment decisions keeping in mind that past performance is not necessarily a guide to future performance & that the the value of any investment or income are subject to market and other risks. Further it will be safe to assume that NSL and /or its Group or associate Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise, individually or otherwise in the recommended/mentioned securities/mutual funds/ model funds and other investment products which may be added or disposed including & other mentioned in this report/message.