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IEA-Equity Strategy

India Equity Analytics


Infosys : Bala exit; a pros and cons? "BUY"
26th Dec , 2013

26th Dec, 2013

Last week, V Balakrishnan a former CFO and member of Board director resigned from the company to turn entrepreneur of Private Equity space. Currently, he is the head of Infosys business process outsourcing unit, the company's core banking software Finacle, its India business and chairman of Infosys Lodestone. This was now the 8th senior and top level departure after the taking charges by Company founder Narayana Murthy. At a CMP of Rs 3486, it trades at 19.2x FY14E and 16.7x FY15E earnings. We retain our BUY view on the stock with a target price of target price of Rs 3620............................... ( Page : 2-3)

HINDALCO :

"BUY"

24th Dec 2013

Hindalco has expanded its aluminium capacity recently, low aluminium prices, sticky costs, delay in commencement of mining from captive blocks and higher interest and depreciation costs may hit its profitability. In the near-term, there is lack of clarity over production from the Mahan coal block for its Mahan smelter. Without captive coal block, the Mahan smelter is expected to face cost pressures, resulting in lower return ratios over FY2013-15.So Clearance of Mahan coal block will be most awaited trigger for Hindalco. Mean While on the Positive Side We can expect 7% growth on the Stock with a Target Price of Rs.132.............. ( Page:4-6)

Persistent System : "Persistently innovating.."

"REDUCED" 23rd Dec 2013

We had initiated this stock at a CMP of Rs 526(on 16th Feb 2013) and now, it achieved its target of Rs 960. 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. However, sentiment could take a knock in the short run, since investors may prefer paying a premium for stocks with better earnings visibility. Our view could be change with management guidance and post earnings of coming quarter................................................... ( Page : 78)

Tech Mahindra : "On a stronger footing.."

"BUY"

23rd Dec 2013

Post merger with Satyam, strong demand traction in Telecom (Non BT) has improved and company's attractive deal win ratios make us optimistic view on the stock. At a CMP of Rs 1691, relatively the stock is trading at a fair valuation, 12.8x of FY14E earnings (at USD of Rs60/59.5 for FY14E/FY15E). We maintain BUY on the stock with a price target of Rs 2330 (revised from Rs 1875)..................... ( Page : 9-10)

CMC : "On track to deliver"

"BUY"

20th Dec 2013

Considering recent healthy demand environment across the IT space with favorable supply side scenario, we remain confident on the stock for better earning visibility and stable margin picture. Still, we reiterate our positive stance on the long-term story of CMC due to its focus on high margin SI and ITES businesses.At a CMP of Rs 1510, stock trades at 14.9X FY14E earnings. We have "BUY" view on the stock and we revise our target price from Rs1490 to Rs1690.............................. (Page : 11-12)

DIVISLAB : Good Growth Ahead

"BUY"

19th Dec 2013

The company posted strong 2QFY4 results with net sales growing to Rs 566 Cr up by 19.7% YoY on the back of good growth coming from all business segments. The generic API grew by 18% YoY to Rs 261 Cr for the quarter and CRAMS business segment grew by 20% YoY to Rs 271 Cr............................................. ( Page : 13-15)

AXIS BANK :

"Neutral"

19th Dec 2013

Axis bank is trading at 1.6 times of one year forward book which is almost upper side of bear case valuation band. We are not seeing banks earnings better than expectation as banks has significant exposure in riskier sector like infrastructure and power as compare to its peers. We have taken banks valuation multiple in bear case scenario on account of non visibility of ROE improvement and expected muted earnings growth. We assume loan and deposits growth of 16% and 15% along with margin at 3.5%. Better than expected performance will lead price performance and valuation multiple............................... ( Page : 16-19) Narnolia Securities Ltd,
402, 4th floor 7/1, Lords Sinha Road Kolkata 700071, Ph 033-32011233 Toll Free no : 1-800-345-4000 email: research@narnolia.com, website : www.narnolia.com

Infosys
Bala exit; a pros and cons?
Company update
CMP Target Price Previous Target Price Upside Change from Previous

"BUY"
26th Dec' 13

BUY
3486 3622 3390 4% 7%

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 500209 INFY 3570/2190 160944 1240448 6268

Stock Performance
Absolute Rel. to Nifty 1M 4.1 -0.3 1yr 52.1 44.9 YTD 27.2 23.3

Does Balakrishnan departure from Infosys would affect the companys bread and butter? Last week, V Balakrishnan a former CFO and member of Board director resigned from the company to turn entrepreneur of Private Equity space. Currently, he is the head of Infosys business process outsourcing unit, the company's core banking software th Finacle, its India business and chairman of Infosys Lodestone. This was now the 8 senior and top level departure after the taking charges by Company founder Narayana Murthy. Behind the top-level departure, only one cause reflects on the picture that is the tussle of CEO post. Current CEO Shibulal is going to complete its tenure by next years. Among the front-runner of this post, Balakrishnan was strong contender for the post of CEO race. How do we see the impacts of this buzz? (a) We think, there would not be any major impact on qualitative and quantitative sense and company would not see any major gap between sales executives and clients. Yes, the magnitude of the exits could create a leadership vacuum. However, very soon company will try to turn into smoothie organization structure. (b) V Balakrsihnans resignation is not one night decision and not an affect of internal hiccups. Post declaration of his resignation V Balakrishnan stated to media it was my long term plan and we were waiting for SEBI approval for my new Private Equity firm. th Even, he sold 1,00,000 shares in the company for Rs 33 crore in the open market on 9 Nov 2013 (50,000 shares each held by his daughters), it indicates its earlier decision. Therefore, we think Balas exit is a part of an ongoing strategy to reshuffle the top management at Infosys. (c) The top management conundrum has not been new to Infosys. Even, as Infosyss hyper-growth story played out over the course of three decades, powered by not just its seven cofounders but also several talented employees that came on later on. Even, most of company founders have churned out and company has been working for growth story and committing for strategy 3.0. (d) Post Narayana Murthy, company has committed for future transformational changes and next generation growth plan. Recently, the company has undertaken a clear shift in direction where it has been focusing on higher-margin businesses, a strategy that rival TCS that has successfully implemented. For near term, there could be some small sort of rally on the stock because of this knee jerk and as the December quarter is generally expected to be a bit tepid for the technology sector. Although, the street will forget all things after a good quarter earnings or a strong commentary on the business outlook. For long term, we do not see any major pressure because of cos poster boy exit. Rs, Crore Financials 2QFY14 1QFY14 2QFY13 (YoY)-% (QoQ)-% Revenue 12965 11267 9858 31.5 15.07 EBITDA 2836.9 2664 2597 9.2 6.49 PAT 2406.9 2374 2369 1.6 1.39 EBITDA Margin 21.9% 23.6% (170bps) 26.3% (440bps) PAT Margin 18.6% 21.1% (250bps) 24.0% (540bps)
(Source: Company/Eastwind)

Share Holding Pattern-%


Promoters FII DII Others Current 16.04 40.52 17.51 25.93 4QFY13 3QFY13 16.04 16.04 40.55 39.42 18.7 18.33 24.71 26.21

1 year forward P/E

Narnolia Securities Ltd,


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

Infosys.
View and Valuation:
Infosys seems to be on its way to rediscovering its past mojo with revenue momentum kicking, its past strategy of under-promising and over delivering - remember present guidance now factors flat gorwth in next 2 qtrs, and the NRN invisible hand in play. Further announcement of strategic acquisitions, better utilization of cash balances, rampup in sales investment ,better deal win, consistent client traction and revenue momentum would help the company to bridge the gap with rivals such as TCS and HCL Tech. Considering the revised guidance by management and its growth priority than margin inching up strategy, we are positive on the stock. At a CMP of Rs 3486, it trades at 19.2x FY14E and 16.7x FY15E earnings. We retain our BUY view on the stock with a target price of target price of Rs 3622.

Financials
Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales, INR Employee Cost Other expenses Total Expenses EBITDA Depreciation Other Income EBIT Interest Cost PBT Tax PAT Growth-% Sales EBITDA PAT Margin -% EBITDA EBIT PAT Expenses on Sales-% Employee Cost Other expenses Tax rate Valuation CMP No of Share NW EPS BVPS RoE-% Dividen Payout ratio P/BV P/E

22742 12085 2792 14877 7865 905 982 7942 0 7942 1681 6261 4.8% 9.3% 4.6% 34.6% 34.9% 27.5% 53.1% 12.3% 21.2% 2615.1 57.4 23049.0 109.1 401.7 27.2% 25.1% 6.5 24.0

27501 14856 3677 18533 8968 854 1211 9325 0 9325 2490 6835 20.9% 14.0% 9.2% 32.6% 33.9% 24.9% 54.0% 13.4% 26.7% 2765.1 57.4 25976.0 119.0 452.4 26.3% 45.9% 6.1 23.2

33734 18340 4671 23011 10723 928 1904 11699 0 11699 3367 8332 22.7% 19.6% 21.9% 31.8% 34.7% 24.7% 54.4% 13.8% 28.8% 2865.0 57.4 31332.0 145.1 545.6 26.6% 24.0% 5.3 19.7

40352 22565 6254 28819 11533 1099 2365 12799 0 12799 3370 9429 19.6% 7.6% 13.2% 28.6% 31.7% 23.4% 55.9% 15.5% 26.3% 2400.0 57.4 37994.0 164.2 661.7 24.8% 45.1% 3.6 14.6

48659.6 27736.0 7785.5 35521.5 13138.1 1325.3 2433.0 14245.8 0.0 14245.8 3846.4 10399.4 20.6% 13.9% 10.3% 27.0% 29.3% 21.4% 57.0% 16.0% 27.0% 3486 57.4 45236.1 181.1 787.8 23.0% 23.8% 4.4 19.2

55939.5 32165.2 9230.0 41395.2 14544.3 1523.5 3356.4 16377.1 0.0 16377.1 4421.8 11955.3 15.0% 10.7% 15.0% 26.0% 29.3% 21.4% 57.5% 16.5% 27.0% 3486 57.4 53832.6 208.2 937.5 22.2% 20.7% 3.7 16.7
3

(Source: Company/Eastwind)

Narnolia Securities Ltd,


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

Hindalco Industries Ltd.


Company Update
CMP Target Price Previous Target Price Upside Change from Previous 124 132 NA 7% NA

"Buy"
24 Dec' 13

Novelis, leader in aluminum rolling and recycling completed $400 millionexpansion program in South Korea. The expansion of its Yeongju and Ulsan plants increases the company's production capacity in the region by more than 50 percent to approximately one million metric tons of aluminum sheet per year.Hindalco has expanded its smelting capacity by 359kt via Mahan greenfield project.Aruna Sundarajan is back and set to take charge as Industries new additional chief secretary and looks forward optimistically for a better industrial climate focusing on young entrepreneurship. The PM's Project Monitoring Group has sorted out issues with regards to Hindalco's 7000 Cr rupees Utkal Alumina refinery among others. On a medium-term view we would still be positive on Hindalco Industries. As the improvement happens across economies whether it is US, Europe, to an extent in China also we think Hindalco is very well positioned. Hindalco Industries, the world's largest Aluminium rolling company, disappointed with the second quarter net profit declining marginally to Rs 357Cr from Rs 358.9Cr y-o-y, dented by higher finance cost. Bottom line was largely supported by other income; otherwise profit would have much lower than currently reported. Other income, which included Rs61 Cr non-recurring income and dividend of Rs 100 Cr from subsidiaries, more than doubled to Rs 280Cr in three-month period ended September 2013 from Rs 132.4Cr in a year ago period. Net sales increased over 2 percent year-on-year to Rs 6245Cr during September quarter. EBITDA climbed 3 percent Y-o-Y to Rs 481Cr while operating profit margin improved marginally to 7.7 percent from 7.63 percent during the same period on higher inventory. Finance cost surged 6.5 times on a yearly basis to Rs 183Cr in the quarter gone by, given higher average borrowing. Revenue from Aluminium business grew 11 percent y-o-y to Rs 2,342.6Cr, driven by higher volumes, but EBIT margin of the same business declined to 7.1 percent during 2QFY14 During the same period, total metal production increased to 1,32,000 ton (excluding Mahan production) from 1,28,000 ton while alumina production (excluding Utkal alumina production) rose to 3,34,000 ton from 3,28,000 ton y-o-y, but sequentially it was down from 3,48,000 ton due to a planned ramp down at one of refineries. In case of copper business, revenue slipped 2.2 percent Y-o-Y to Rs 3,974Cr in the quarter gone by, but its EBIT margin expanded to 6 percent. Cathode production declined to 77,000 ton from 78,000 ton y-o-y. Financials : Q2FY14 Y-o-Y % Q-o-Q % Q2FY13 Q1FY14 Net Revenue 6585 4.6 5.1 6296 6266 EBITDA 540 4.8 12.8 515 478 Depriciation 196 13.7 7.3 173 183 Tax 83 -5.9 -17.4 88 101 PAT 357 -0.5 -24.7 359 474
(In Crs)

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 500440 HINDALCO 137/83 25497 17848 6284

Stock Performance-%
Absolute Rel. to Nifty 1M -1.3 -2.7 1yr 11.3 0.5 YTD 8.7 0.0

Share Holding Pattern-%


Promoters FII DII Others 2QFY14 37.0 24.9 14.4 23.7 1QFY14 4QFY13 37.0 32.1 24.8 24.5 14.3 15.5 23.9 28.0

1 yr Forward P/B
800 700 600 500 2.0

PRICE 3x

BV 4x

1x P/BV

2x

3.0

2.5

400
300 200 100 0

1.5

1.0

0.5

0.0

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Mar-07

Mar-06

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Source - Comapany/EastWind Research

Mar-13

Sep-13

Narnolia Securities Ltd,


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

Hindalco Industries Ltd.


Out Look : Although Hindalco has expanded its aluminium capacity recently, low aluminium prices, sticky costs, delay in commencement of mining from captive blocks and higher interest and depreciation costs may hit its profitability. In the near-term, there is lack of clarity over production from the Mahan coal block for its Mahan smelter. Without captive coal block, the Mahan smelter is expected to face cost pressures, resulting in lower return ratios over FY2013-15.So Clearance of Mahan coal block will be most awaited trigger for Hindalco. Mean While on the Positive Side We can expect 7% growth on the Stock with a Target Price of Rs.132.
LME Price/Ton
120000 115000 Primary Aluminium

110000
105000 100000 95000 90000

Apr-13

Mar-13

May-13

Aug-13

Source - Comapany/EastWind Research LME Price/Ton


Copper 480000 460000 440000 420000 400000 380000 360000 340000

Apr-13

May-13

Nov-13
5

Mar-13

Aug-13

OPERATING MATRIX Aluminium Revenue Copper Revenue Aluminium Results Copper Results Capital Employed 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%

FY10 6761 11752 1963 599 138254 FY11 72078 431 72509 64102 7976 2725 1839 964 366 57 2456 8.5

FY11 7965 15902 2004 602 74799 FY12 80821 783 81604 72856 7965 2645 1758 786 211 -50 3397 10.6

FY12 9041 17575 1822 802 178990 FY13 80193 1012 81205 72395 7798 2822 2079 886 -20 16 3027 8.6

FY13 8779 17305 930 768 225246 FY14E 86000 1360 87360 78572 7428 2700 2500 825 0 0 2763 7.3

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Narnolia Securities Ltd,

Nov-13

Dec-13

Jan-13

Feb-13

Sep-13

Oct-13

Jun-13

Jul-13

Dec-13

Feb-13

Sep-13

Oct-13

Jun-13

Jan-13

Jul-13

Hindalco Industries Ltd.


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 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 1.9 FY10 5542 -598 4944 -5448 428 -76 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 2.0 FY11 6929 -703 6226 -6710 825 341 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 1.6 FY12 8534 -932 7602 -13220 6237 619 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 1.8 FY13 6852 -3874 2978 -13765 10278 -510

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Trading At :
7000 6000 5000 4000 3000 2000 1000 0 160 140 120 100 80 60 40 20 0

NIFTY

HINDALCO

Source - Comapany/EastWind Research


Narnolia Securities Ltd,
6

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 24.1 23 1yr 105.2 99.4 YTD 91.2 84.6 Book Profit 1007 960 890 th

"Book Profit"
23rd Dec' 13

We had initiated this stock at a CMP of Rs 526(on 16 Feb 2013) and now, it achieved its target of Rs 960. 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. However, sentiment could take a knock in the short run, since investors may prefer paying a premium for stocks with better earnings visibility. Persistent Sytems management remains confident of FY14 with deal pipeline being strong and remains focused on increasing the share of IP-led revenues in its portfolio. They expect to see more than 15% USD revenue growth for FY14E. With the potential revenue growth, strong deal pipeline and multi-year relationships with marquee clientele in the Infrastructure vertical, we expect for better earning visibility across niche IT players. Recently , Persistent System reported superlative set of numbers during the 2QFY14 with 21%(QoQ) sales growth in INR term and 8.6%(QoQ) growth in USD term led by 38%(QOQ) growth on the intellectual property (IP) revenues. PAT growth was at 6.5% (QoQ). Margin ramp up: During the quarter, Its EBITDA margin improved by 180bps to 23.3%, positively impacted by currency gain(270bps), while during the quarter company wage hike to its off shore employee at a range of 8-9% was impacted margin by 310 bps adversely. However, management expects to maintain margin at a range of 24-25% for FY14E. Clients Metrics: During the quarter, company added 2 clients at 32 under medium category( >$1mn to $3mn) and 1 client at 16 from large ( > $ 3Mn) . Revenue from top-1 client was improved from 21.2% (1QFY14) to 22.5% . DSO at 62days, almost 12 quarters low. Persistent's 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 are gaining a lot of traction because of pickup in demand environment. The emerging themes, (CAMB) Cloud, Analytics, Mobility, and Big data could also see strong demand traction ahead. Because of actively investment in these themes, management is very confident to see healthy growth and also they expressed their confidence to beat the NASSCOM guidance (1214% revenue growth for FY14E). 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, collaboration and analytics; witnessing faster growth. Considering the companys premium valuation, we advice Book Profit on the stock. At a CMP of Rs 1007, stock trades at 15.9x FY14E earnings. Our view could be change with management guidance and post earnings of coming quarter. Financials Rs, Crore 2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-% Revenue 432.37 357.29 21.0 326.86 32.3 EBITDA 100.8 76.8 31.3 89.06 13.2 PAT 60.8 57.1 6.5 44.71 36.0 EBITDA Margin 23.3% 21.5% 180bps 27.2% (390bps) PAT Margin 14.1% 16.0% (190bps) 13.7% 40bps
(Source: Company/Eastwind)

533179 PERSISTENT 1023/477 4029 12139 6274

Share Holding Pattern-%


Current 1QFY14 4QFY13

Promoters FII DII Others

38.96 15.28 21.23 24.53

38.96 14.84 19.31 26.89

38.96 12.39 21.59 27.06

1 year forward P/E-x

Narnolia Securities Ltd,


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

Persistent System.
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 1657.54 895.07 82.88 290.07 1268.02 389.52 93.54 66.30 295.98 0.00 362.29 108.69 253.60 28.0% 28.3% 37.5% 54.0% 17.5% 30.0% 23.5% 17.9% 15.3% 1007 4.00 1234.4 63.4 308.6 20.5% 3.3 15.9 FY15E 2053.93 1119.39 102.70 379.98 1602.06 451.86 84.18 71.89 367.68 0.00 439.57 131.87 307.70 23.9% 16.0% 21.3% 54.5% 18.5% 30.0% 22.0% 17.9% 15.0% 1007 4.00 1504.7 76.9 376.2 20.4% 2.7 13.1

(Source: Company/Eastwind)

Rating and Price Target Chart

Updation Detail
Date 16-Feb-13 25-Jun-13 7-May-13 31-Jul-13 18-Sep-13 26-Sep-13 9-Oct-13 22-Oct-13 13-Dec-13 23-Dec-13
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

Update Detail Initiation Company Update Result Update Result Update Company Update Company Update Company Update Result Update Company Update Company Update

CMP 526 499 514 522 573 623 682 739 876 1007

View Target Price BUY 580 BUY 580 BUY 580 BUY 580 BUY 642 BUY 834 BUY 834 BUY 890 BUY 960 Book Profit
8

(Source: Company/Eastwind)

Tech Mahindra
"On a stronger footing.."
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 9.3 6.8 1yr 99 93 YTD 39.2 32.7 BUY 1844 2330 1875 26% 24%

"BUY"
23rd Dec' 13

532755 TECHM 1872/895 42991 191827 6274

Share Holding Pattern-% Current 1QFY14 4QFY13 Promoters 36.46 47.17 47.41 FII 32.59 26.79 27.34 DII 15.13 15.83 16 Others 15.82 10.21 9.25 1 year forward P/E-x

Broad-based performance with positive outlook, positive view retained; The company remains confident on demand and expects client budgets to remain at the same levels in FY15E. It announced 2 large deals in the enterprise solutions (previously Mahindra Satyam) and has a healthy deal pipeline. Recently, following the footsteps of other larger giants such as TCS and Infy, Tech Mahindra revealed its earning story better than street expectations for 2QFY14. Sales grew by 16.3% (QoQ) in INR term led by healthy growth across all segments, verticals and geographies. In USD term, sales grew 4.7% (QoQ) better than all nearest peers barring TCS. PAT was up by 4.7% (QoQ) adversely impacted by lower other income and forex loss of Rs 26 Cr during the quarter. The company had forex gains of Rs 134 Cr in the June quarter. Green flag on Margin front: EBITDA margin expanded 222 basis points sequentially to 23.3% aided by a weaker rupee. Despite sweet flavor on margin front, management is still cautious for coming quarter due to Furloughs . Win- Win on all geographies: During the 2QFY14, winning trio was seen across geographies. US (contributes 33% on sales) grew by 8%, RoW (23% on sales) by 9.4% (QoQ). While Europe (contributes 44% on sales) was marginally up by 2.4%(QoQ) in USD term. Post earning management quoted for better outlook in Europe with greater traction in Australia and Africa in near term. All-rounder across all verticals: During the quarter, company reported 2.5% growth in Telecom, 4.7% growth in manufacturing, media including entertainment, BFSI and others each in USD term. While Retail, Transport and Logistic snapped a larger growth figure of 22% sequentially. The company is focusing on BFSI, manufacturing and telecom. BT on Slide: The management said revenues from British Telecom (BT) continued to slide. Those were 12% of consolidated revenues in the June quarter. It believes revenues from BT will be under pressure. View and Valuation: Recently, companys management explained its 6-pillar strategy i.e., selling 6 service lines of IT, infr- management, network management, security services, value added services and services such as analytics to telcos. Currently, non-IT services contribute 33% of telecom revenues for the company. Further, it is focusing on segments that are growing faster such as platforms, enterprise, mobility and NMACS (networks, mobility, analytics, cloud and security). Post merger with Satyam, strong demand traction in Telecom (Non BT) has improved and company's attractive deal win ratios make us optimistic view on the stock. At a CMP of Rs 1691, relatively the stock is trading at a fair valuation, 12.8x of FY14E earnings (at USD of Rs60/59.5 for FY14E/FY15E). We maintain BUY on the stock with a price target of Rs 2330 (revised from Rs 1875). Financials Rs, Crore 2QFY14 1QFY14 (QoQ)-% 2QFY13 (YoY)-% Revenue 4771.5 4103.2 16.3 3523.7 35.4 EBITDA 1110.85 864.5 28.5 756.9 46.8 PAT 718.2 686.3 4.6 455.9 57.5 EBITDA Margin 23.3% 21.1% 220bps 21.5% 150bps PAT Margin 15.1% 16.7% (160bps) 12.9% 220bps
(Source: Company/Eastwind)

Narnolia Securities Ltd,


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

Tech Mahindra.
Operating Metrics
Client contribution to revenue-% Customer Active Top 10 clients Top 5 clients Top client Revenue mix - onsite/offshore (%) Onsite Offshore Employee Metrics Utilisation % Attrition % 1QFY13 484.00 50.0% 40.0% 17.0% 48.0% 52.0% 75.0% 17.0% 2QFY13 475.00 51.0% 41.0% 14.0% 48.0% 52.0% 74.0% 16.0% 3QFY13 475.00 50.0% 39.0% 15.0% 48.0% 52.0% 76.0% 16.0% 4QFY13 516.00 50.0% 37.0% 13.0% 48.0% 52.0% 77.0% 16.0% 1QFY14 567.00 49.0% 37.0% 12.0% 51.0% 49.0% 76.0% 15.0% 2QFY14 576.00 48.0% 36.0% 12.0% 51.0% 49.0% 75.0% 16.0%

Financials
Rs, Cr Net Sales(mn)-USD Net Sales Employee Cost Operation and other expenses Subcontracting Cost Total Expenses EBITDA Depreciation Other Income Extra Ordinery Items EBIT Interest Cost PBT Tax PAT Growth-% Sales-USD Sales EBITDA PAT Margin -% EBITDA EBIT PAT Expenses on Sales-% Employee Cost Subcontracting Cost Operation and other expenses Tax rate Valuation CMP No of Share NW EPS BVPS RoE-% Dividen Payout-% P/BV P/E FY12 1157 11702.4 6591.9 2210.1 948.6 9750.6 1951.8 319.0 501.3 36.9 1632.80 107.3 2063.7 228.9 1834.8 2.7% 13.8% 11.9% 11.9% 16.7% 14.0% 15.7% 56.3% 8.1% 18.9% 11.1% 652.5 23.2 4815.8 79.0 207.3 38.1% 3.2% 3.1 8.3 FY13 2633 14332.0 8099.5 2287.3 882.0 11268.8 3063.2 389.6 212.2 -160.1 2673.60 92.1 2633.6 647.9 1985.7 127.6% 22.5% 56.9% 8.2% 21.4% 18.7% 13.9% 56.5% 6.2% 16.0% 24.6% 1081.7 23.2 5529.1 85.5 238.0 35.9% 3.0% 4.5 12.7 FY14E 3124.01 18744.06 10309.24 3373.93 1405.80 13683.17 5060.90 509.54 281.16 -209.39 4551.36 98.04 4525.09 1176.5 3348.6 18.6% 30.8% 65.2% 68.6% 27.0% 24.3% 17.9% 55.0% 7.5% 18.0% 26.0% 1844 23.2 8741.77 144.1 376.31 38.3% 4.1% 4.9 12.79 FY15E 3592.61 21376.04 11756.82 3847.69 1603.20 15604.51 5771.53 581.08 213.76 -238.79 5190.45 91.37 5074.05 1319.3 3754.8 15.0% 14.0% 14.0% 12.1% 27.0% 24.3% 17.6% 55.0% 7.5% 18.0% 26.0% 1844 23.2 12360.68 161.6 532.10 30.4% 3.6% 3.5 11.41 FY16E 4023.73 24343.54 13388.95 4381.84 1947.48 17770.79 6572.76 661.75 243.44 -121.72 5911.00 86.93 5945.79 1545.9 4399.9 12.0% 13.9% 13.9% 17.2% 27.0% 24.3% 18.1% 55.0% 8.0% 18.0% 26.0% 1844 23.2 16624.68 189.4 715.66 26.5% 3.1% 2.6 9.74

(Source: Company/Eastwind)

Narnolia Securities Ltd,


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

10

CMC
"On track to deliver"
Company update
CMP Target Price Previous Target Price Upside Change from Previous

"BUY"
20th Dec' 13

Buy
1510 1690 1490 12% 13.4%

We believe, CMC will continue with its efforts to enhance revenue contribution of high margin System Integration and ITES segments. Further, its high focus on education space will also add margin in near term. Considering recent healthy demand environment across the IT space with favorable supply side scenario, we remain confident on the stock for better earning visibility and stable margin picture. Still, we reiterate our positive stance on the long-term story of CMC due to its focus on high margin SI and ITES businesses.

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 517326 CMC 1560/1107 4575 20884 6167

Stock Performance
Absolute Rel. to Nifty 1M 15.0 15.4 1yr 29.2 24.6 YTD 54.5 37.1

Share Holding Pattern-%


Promoters FII DII Others Current 51.12 23.32 17.83 7.73 4QFY13 3QFY13 51.12 51.12 19.87 21.84 20.46 19.05 8.55 7.99

For 2QFY14E earnings, CMC witnessed better Sales and PAT growth with 15% sales growth driven by the strong growth from the System Integration (29%) coupled with the good growth from the System Integration (24%) and ITES business (16%) sequentially. PAT grew by 27%(QoQ) because lower effective tax rate (from 34%, 1QFY14) to 20% of earning before tax) . Steady Margin: During the quarter, EBITDA margin was almost unchanged at 15.8% due to wage hikes (70 bps), but also has positive impact from currency gain (170 bps) which were reinvested into the business. However, Management is still confident to maintain the margin in a range of 15-16%. Deal pipeline: The deal pipeline is in line with the last year. It indicated that pursuing good number of deals in the Developed and as well emerging markets. Considering current sound demand environment across geographies (like US and Europe) and verticals Company is more optimistic for clients acquisition and deal executions ahead. Now, CMC is focusing on new emerging segments like IMS (Infrastructure Management Services), Cloud, Big data, Mobility and Analytics. Considering its impressive client as well as market response, company is expecting to quantify into revenue. Its new and emerging projects like Mining Management System, GPS System and Port & Cargo Management System would play a major role for generating revenue. View and Valuation: CMC expects the growth momentum to improve in the quarters ahead and the revenue growth to be higher than the NASSCOM guidance in FY14. The Company remains a strong with excellent earning visibility led by joint effort of market strategy by TCS (contributes 59% of sales) in its product and solutions. For a long-term prospect, we remain positive on the stock, taking its earning visibility and healthy earnings among the mid-cap IT space (over 25% CAGR in earnings over FY2013-15E). At a CMP of Rs 1510, stock trades at 14.9X FY14E earnings. We have "BUY" view on the stock and we revise our target price from Rs1490 to Rs1690.

1 year forward P/E

Financials
Revenue EBITDA PAT EBITDA Margin PAT Margin 2QFY14 560.75 88.41 67.3 15.8% 12.0% 1QFY14 486.61 77.04 53.12 15.8% 10.9% (QoQ)-% 15.2 14.8 26.7 110bps 2QFY13 458.64 76.59 49.4 16.7% 10.8%

Rs, Crore (YoY)-% 22.3 15.4 36.2 (90bps) (120bps)


11

(Source: Company/Eastwind)

Narnolia Securities Ltd,


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

CMC
Key facts from recent Concall
CMC continues to target growth ahead of the overall IT industry; the company expects to grow faster than that in the current financial year Expects operating Profit margin between 15 percent and 16 percent for FY14E, The Capex expected to be Rs 190 crore (planned is around Rs 230 crore) for FY'14.The capex will be financed by internal accruals. Companys hiring Plan; a net addition of 400-500 this year Notably, it targets revenues of Rs 250-300 crore from Education and Training business in next two 3-4 years timeline.

Financials;
Rs, Cr Net Sales Purchases of stock-in-trade Employee Cost Subcontracting and outsourcing cost Other expenses Total Expenses EBITDA Depreciation Other Income EBIT Interest Cost PBT Tax PAT Growth-% Sales EBITDA PAT Margin -% EBITDA EBIT PAT Expenses on Sales-% Employee Cost Subcontracting Cost Tax rate Valuation CMP No of Share NW EPS BVPS RoE-% Dividen Payout ratio P/BV P/E FY10 870.73 99.35 276.16 173.56 159.94 709.01 161.72 9.85 18.75 151.87 3.17 167.45 24.23 143.22 -7.4% 27.7% 23.3% 18.6% 17.4% 16.4% 31.7% 19.9% 14.5% 1340.0 1.50 510.68 95.48 340.45 28.0% 18.6% 3.94 14.03 FY11 1084.40 99.28 345.13 262.35 170.17 876.93 207.47 10.46 11.80 197.01 0.22 208.59 32.42 176.17 24.5% 28.3% 23.0% 19.1% 18.2% 16.2% 31.8% 24.2% 15.5% 2079.6 1.50 654.02 117.45 436.01 26.9% 19.9% 4.77 17.71 FY12 1469.34 145.40 440.22 446.11 213.63 1245.36 223.98 21.37 17.46 202.61 0.02 220.05 68.59 151.46 35.5% 8.0% -14.0% 15.2% 13.8% 10.3% 30.0% 30.4% 31.2% 994.8 3.00 772.19 50.49 257.40 19.6% 23.2% 3.86 19.70 FY13 1927.87 188.56 521.65 679.73 222.88 1612.82 315.05 23.20 13.17 291.85 0.18 304.84 76.76 228.08 31.2% 40.7% 50.6% 16.3% 15.1% 11.8% 27.1% 35.3% 25.2% 1410.0 3.03 946.26 75.27 312.30 24.1% 19.4% 4.51 18.73 FY14E 2239.31 201.54 593.42 794.96 235.13 1825.04 414.27 41.95 22.39 372.33 0.2 394.52 86.79 307.73 16.2% 31.5% 34.9% 18.5% 16.6% 13.7% 26.5% 35.5% 22.0% 1510 3.03 1192.11 101.56 393.44 25.8% 20.1% 3.84 14.87 FY15E 2600.41 234.04 702.11 923.15 273.04 2132.34 468.07 60.69 26.00 407.38 0.25 433.14 99.62 333.52 16.1% 13.0% 8.4% 18.0% 15.7% 12.8% 27.0% 35.5% 23.0% 1510 3.03 1454.91 110.07 480.17 22.9% 21.2% 2.78 13.72
12

(Source: Company/Eastwind)

Narnolia Securities Ltd,


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

DIVISLAB
Good Growth Ahead
Result Update
CMP Target Price Previous Target Price Upside Change from Previous

"BUY"
19th Dec' 13

BUY
1186 1350 14% -

About The Company :


Divis Laboratories Limited is an India-based manufacturer of Active Pharmaceutical Ingredients (APIs) and Intermediates. Divi is engaged in manufacture of generic APIs, custom synthesis of active ingredients for innovator companies and other specialty chemicals like peptides and nutraceuticals.

Investment Rationale :
Company is one of the few CRAMS (Contract Research and Manufacturing Services) players with a superior business mix comprising high-margin custom synthesis of APIs (Active Pharma Ingredients) and intermediates for innovator companies. The company collaborates with innovators throughout the product development cycle. Post commercialization, company is usually the key supplier of APIs and intermediates for these products to the innovators. In 2012-13, the company added six products to its custom synthesis portfolio. The CRAMS business which contributes nearly 45%- 50% of the total revenues have from Rs 560 Cr in 2009 to Rs 1000 Cr translating CAGR of 15 %.The Generic API business which contributes another 45-50 % to the total revenues is also well track after witness some pressure in FY10.As on FY13 this segment contributed Rs 1029 Cr to the total revenues and this segment to more revenues to the company in the light of upcoming patent cliff of US and new launches . The company have one more business segment Nutraceuticals relatively smaller and newer as compared to other business segment can act as growth driver going forward. The management of the company is quite optimistic for this business segment and has guided that this business at 40-50% CAGR (albeit on a low base) over the next 2-3 years.

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs, Cr) Average Daily Volume Nifty 532488 DIVISLAB 1189/905 15631 5.43 6217

Stock Performance-%
1M Absolute Rel. to Nifty 2.8 0.1 1yr 4.4 -1.3 YTD 1.4 -14.6

Share Holding Pattern-%


Promoters FII DII Others Current 1QFY14 4QFY1 3 52.1 52.2 52.2 15.8 14.9 14.0 12.5 12.5 13.3 19.5 20.5 20.5

2QFY14 Results Update.


The company posted strong 2QFY4 results with net sales growing to Rs 566 Cr up by 19.7% YoY on the back of good growth coming from all business segments. The generic API grew by 18% YoY to Rs 261 Cr for the quarter and CRAMS business segment grew by 20% YoY to Rs 271 Cr. The company derives almost 45-50% of revenues each from CRAMS and generic API business while rest comes from Nutraceuticals. The operating EBITDA for the quarter came at Rs 250 Cr and OPM at 43.9 %. Companys 2QFY14 EBITDA margins were higher than 34.8% reported in Q2FY13 on account of higher gross margins, lower power cost and forex loss in Q2FY13.The RM cost as % of net sales stands at 50% for the 2QFY14 while employee cost as % of net sales was 10 %.

One Year Price vs Nifty

Financials
Revenue EBITDA PAT EBITDA Margin PAT Margin 2QFY14 567 249 205 43.9% 36.2% 1QFY14 517 197 174 38.1% 33.7% (QoQ)-% 9.7 26.4 17.8 580bps 250bps 2QFY13 474 165 117 34.8% 24.7%

Rs, Crore (YoY)-% 19.6 50.9 75.2 910bps 1150bps


13

(Source: Company/Eastwind)

Narnolia Securities Ltd,


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

DIVISLAB
Continued
The net profits for the 2QFY14 came at Rs 205 Cr and NPM came at 36.2%.The net profits also include forex gain of Rs 31 Cr. The company reports its forex gain under other income headings and forex loss under its other expenditure head. The tax rate for the quarter stands at 22%. Company has capitalized Fixed assets to the tune of Rs120 Cr for H1 FY14. The company will commercialize DSN SEZ by the end of the year and the FDA inspection post that. The new DSN SEZ contribution will start in Q1 FY15E and full benefits will fructify only from Q2 FY15E.The existing DSN blocks contributed Rs125 Cr revenues in Q2 FY14 as against Rs70.8 Cr in Q1 FY14.

Management Guidance
The management of the company after strong 2QFY14results expects that revenue to grow by 15-20 % (15% guided earlier), with FY15E growth expected above 20%. The management further indicated that this high level of OPM is not sustainable but reiterated that 38% levels OPM is quite reachable . On Power shortage ,which declined the OPM in 1QFY14 has been solved and will aid margin expansion going forward. The capex guidance stands at INR500-600m (apart from INR2b addition from CWIP) and tax rate guidance remains between 23-24%.

View & Valuation


The company is not only the most profitable company in the CRAMS space, but also features among the most profitable companies in the Indian healthcare sector with EBIDTA margin of 35-40% backed by its strong chemistry skills and custom synthesis presence.The stock is currently trading at CMP of Rs 1186, strong 2QFY14 results ,optimistic management guidance and better business model in comparison to its peers makes us confident for the stock. We are positive for the stock and recommend BUY with

target price of Rs 1350.


Graphical Depiction Revenue Break Up: 2QFY14

(Source: Company/Eastwind)

Narnolia Securities Ltd,


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

14

DIVISLAB
Sales and PAT Trend (Rs)

Net sales growing to Rs 566 Cr up by 19.7% YoY on the back of good growth coming from all business segments.

(Source: Company/Eastwind)

OPM %

2QFY14 EBITDA margins were higher than 34.8% reported in Q2FY13 on account of higher gross margins, lower power cost and forex loss in Q2FY13.

(Source: Company/Eastwind)

NPM %

The 2QFY14 PAT also include forex gain of Rs 31 Cr. The company reports its forex gain under other income headings and forex loss under its other expenditure head.

(Source: Company/Eastwind)

Narnolia Securities Ltd,


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

15

AXIS BANK
Company Update CMP Target Price Previous Target Price Upside Change from Previous NEUTRAL 1286 1325 1247 3 6.3

"NEUTRAL "
19th Dec, 2013

Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance 1M Absolute 12.9 Rel.to Nifty 12.6

532215 AXISBANK 1549/763 39764 2066127 6217

Axis bank is trading at 1.6 times of one year forward book which we believe that it is higher side of our bear case valuation band. We have neither seen valuation band expansion nor did earnings lead price performance. Axis bank has significant exposure in infrastructure and power (12.64% in 2QFY14) as compare to its peer group. Asset quality pressure may persists in coming quarters which restrict banks valuation multiple in the range of 1.4 to 1.6 times of book in our view. We advice our investors to book part profit at the current level. Our valuation multiples are based upon banks present growth parameters, better than expected performance and visibility of ROE improvement will expand valuation and multiples. Healthy NII growth on the back of margin improvement and loan growth During 2QFY14, Axis bank reported NII growth of 26.2% YoY largely due to 50 bps YoY improvement of margin and 577 bps YoY increased of credit deposits ratio and 17% increased in loan growth. Axis banks interest earnings assets increased by 20% YoY whereas interest bearing liabilities increased by 13% YoY. Total revenue of the bank grew by 21.3% YoY to Rs.4703 cr. Non- interest income registered growth of 14% YoY to Rs.1766 cr. Declined in cost income ratio led robust growth in operating profit Operating expenses increased by 12.1% YoY to Rs.1953 cr in which employee cost and other operating cost increased by 11.4% and 12.5% respectively. Cost income ratio declined by 440 bps to 41.5% from 44.9% in 2QFY13. Employee cost and other operating cost as a percentage of total assets remain flat at 0.2% and 0.4% respectively. With the support of healthy NII, fee income and improvement of cost income, operating profit grew by 29% YoY and -3.3% in QoQ to Rs.2750 cr. Sequential declined of operating profit was due to gain of treasury income in 1QFY14 which was absent in 2QFY14. Sequentially stable asset quality help to make lower provision On asset quality front, Axis bank reported 10 bps deterioration in GNPA on sequential basis to 1.4%. In absolute term GNPA increased by 10% QoQ and provision increased by 12% QoQ. This led net NPA increased by 6% sequentially. In percentage term NPA stood at 0.4%, flat on QoQ basis. Provision coverage ratio (without technical write off) was improved by 100 bps to 69.3% and PCR at technical write off was 89%. During quarter bank made loan loss provision of Rs.687 cr versus Rs.712 cr in 1QFY14 and Rs.509 cr in 2QFY13. On sequential basis risky sector like power and infrastructure exposure remain flat at 12.64% from 12.67% in 1QFY14. Rs, Cr Financials 2011 2012 2013 2014E 2015E NII 6566 8026 9666 12620 14710 Total Income 11238 13513 16217 19715 21804 PPP 6377 7413 9303 11238 12429 Net Profit 3340 4224 5179 6343 6977 EPS 81.4 102.2 110.7 135.2 149.1 (Source: Company/Eastwind) 16 Narnolia Securities Ltd,

1yr -5.2 -10.9

YTD -5.2 -10.9

Share Holding Pattern-% Current 4QFY13 3QFY1 3 Promoters 33.9 33.9 33.5 FII 40.7 4094.0 39.6 DII 8.8 8.5 10.0 Others 16.6 16.6 17.0 Axis Bank Vs Nifty

AXIS BANK
Healthy NII growth and controlled CI ratio along with stable margin help to boost up profit With the support of healthy NII growth and controlled operating expenses led net profit of 26% YoY to Rs.1362 cr from Rs.1081 cr. Consequently ROA improved by 12 bps to 1.6% and ROE declined to 15.3% from 17.5% in 2QFY13 largely due to operating leveraging. Modest deposits growth and strong traction in loan growth On business growth parameters, banks total business grew by 12% YoY to Rs.4567 bn as against Rs.4077 bn. Deposits grew by moderate pace with 8% YoY while current deposits and saving deposits grew by 9% and 18% respectively taking overall CASA ratio to 42.9%. Banks strategy to focus on retail deposits seem well is shaping as share of retail deposits in term deposits increased continuously to 45.2% from 40.3% in21QFY13. Loan grew by 17% YoY to Rs.20130 bn. Incremental loan growth came from retail advance and SME segment. Share of retail loan increased to 30.2% of overall loan from 25.7% in 2QFY13. Banks has decreased in share of risky sector (Power & Infrastructure) exposure to 12.64% from 13.63% in 2QFY13. Credit deposits ratio improved by 577 bps YoY to 78.8% implying best utilization of excess liquidity in balance sheet. Sequential declined of margin owing to flat loan yield During quarter bank reported 7 bps QoQ declined in NIM to 3.79% led by 500 bps sequentially declined of credit deposits ratio and almost flat of loan yield on QoQ basis. Loan yield during the quarter was 10.5% and cost of deposits declined from 7.4% to 7.1% sequentially. Valuation & View Axis bank delivered good set of numbers during quarter but exposure to stress sector remain at 12%+ level. Moreover Axis bank has higher exposure in small, medium enterprises and infra segment in comparison to peers. In challenging macro environment and tight liquidity situation, Axis bank is more vulnerable among peers. At the current price of Rs.1286, stock is trading at 1.6 times of one year forward book which is upper side of bear case valuation band. We advice book part profit at current level. We value bank at multiple of 1.4 to 1.6 times of one year forward book which implies Rs. price range of Rs.1247 to Rs.1325.

Narnolia Securities Ltd,


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

17

AXIS BANK
Quarterly Result Interest/discount on advances / bills Income on investments Interest on balances with Reserve Bank of India Others Total Interest Income Fee Income Trading Income Miscellaneous Income Others Income Total Income Interest Expended NII Other Income Total Income Employee Other Expenses Operating Expenses PPP( Rs Cr) Provisions PBT Tax Net Profit Balance Sheet Date ( Rs Bn) Net Worth Deposits Loan Asset qualtiy( Rs Cr) GNPA NPA %GNPA %NPA 2QFY14 5394 2143 35 37 7609 1432 5 329 1766 9375 4672 2937 1766 4703 644 1309 1953 2750 687 2062 700 1362 1QFY14 5189 2015 34 39 7278 1317 440 24 1781 9059 4413 2865 1781 4647 643 1160 1803 2844 712 2131 722 1409 2QFY13 % YoY Gr % QoQ Gr 4736 13.9 4.0 1897 13.0 6.3 22 58.9 2.6 32 14.9 -5.5 6687 13.8 4.6 1343 6.6 8.7 207 -97.6 -98.9 0 1270.2 1551 13.9 -0.9 8238 13.8 3.5 4360 7.2 5.9 2327 26.2 2.5 1551 13.9 -0.9 3877 21.3 1.2 578 11.4 0.1 1164 12.5 12.9 1742 12.1 8.3 2136 28.8 -3.3 509 35.0 -3.5 1626 26.8 -3.2 545 28.4 -3.1 1081 26.0 -3.3

362 2554 2013

349 2384 1982

252 2356 1721

43.6 8.4 16.9

3.7 7.1 1.6

2734 838 1.4 0.4

2490 790 1.3 0.4

2191 654 1.3 0.4

24.8 28.1

9.8 6.1

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

18

AXIS BANK
FINANCIALS & 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
15155 8589 6566 31.2 4671 11238 25.3 4860 6377 22.4 3033 3345 3340 34.8

2012
21995 13969 8026 22.2 5487 13513 20.2 6100 7413 16.2 3189 4224 4224 26.5

2013
27183 17516 9666 20.4 6551 16217 20.0 6914 9303 25.5 4124 5179 5179 22.6

2014E
33243 20622 12620 30.6 7095 19715 21.6 8478 11238 20.8 2176 9062 6343 22.5

2015E
38426 23716 14710 16.6 7095 21804 10.6 9376 12429 10.6 2461 9967 6977 10.0

Balance Sheet
Deposits( Rs Cr) Change (%) of which CASA Dep Change (%) Borrowings( Rs Cr) Investments( Rs Cr) Loans( Rs Cr) Change (%) 189166 34 77758 18 26268 71788 142408 36 219988 16 91412 18 34072 92921 169760 19 252614 15 112100 23 43951 113738 196966 16 290506 15 124917 11 51266 129873 228481 16 334081 15 143655 15 58956 149354 265037 16

Valuation Book Value CMP P/BV

460 1404 3.1

549 1146 2.1

708 1304 1.8

828 1288 1.6

957 1288 1.3

Source: Eastwind/Company
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19

Risk Disclosure & Disclaimer: This report/message is for the personal information of 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.

20