india equity analytics today: buy stock of ingvysya bank

INDUSIND BANK : "BUY" 26th Mar 2014

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 : 8-10)

"BUY" 25th Mar 2014

Jindal steel & Power : Challenging Fundamentals "NEUTRAL" 24th Mar 2014

Hindalco Industries Ltd:

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 : 11-13)

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 : 20-21)

"BOOK PROFIT"

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 : 14-16)

Persistent System : "Persistently innovating.." 21th Mar 2014

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 : 17- 19)

Coal India LTD : "BUY" 27th Mar 2014

Company has decided not to increase the prices until the elections are over in May, after which company may hike the price by at least a 10per

cent . The board took up the agenda of a 10-15per cent hike on some categories of coal. Growth in Railway Rake loading from Coal India was

11% in FY13 and about 6-7% in FY14 and the growth is expected to remain in the 9-10% range for FY15.We see Coal India at a attractive

valuation to go long from the current dips. So we stick to our previous estimates with revised price premium and recommend Maintain Buy CIL

at price dips with a revised target price of Rs.318/- . ........................................ ( Page : 5-7)

IEA-Equity

Strategy

28th Mar, 2014

Edition : 234

INGVYSYA BANK : "BUY" 28th Mar 2014

INGVYSYA Bank has not participated in recent market rally despite of strong liability base franchise and stable asset quality. This has been due to

political uncertainty regarding Telangana issue. Over the last few months, bank witnessed sluggish growth in loan and SA. Now things are started

normalize and bank is still available at lucrative valuation. We retained our BUY rating with price target of Rs.680 per share.

..................................................................... ( Page : 2-4)

Narnolia Securities Ltd,

India Equity AnalyticsDaily Fundamental Report on Indian Equities

615

680

680

11

0.0

1M 1yr YTD

Absolute 12.8 14.4 14.4

Rel.to Nifty 7.0 -3.1 -3.1

Current 4QFY13 3QFY1

3Promoters 43.2 43.4 43.6

FII 28.8 28.9 28.6

DII 14.4 13.6 14.8

Others 13.6 14.1 13.1

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1007 1208 1539 1696 2058

Total Income 1661 1878 2266 2555 2916

PPP 635 768 993 1167 1283

Net Profit 319 456 613 701 739

EPS 26.3 30.4 39.6 37.1 39.2

2

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

(Source: Company/Eastwind)

Stock Performance

52wk Range H/L

0.85 lakhs

Nifty 6642

Mkt Capital (Rs Cr)

NSE Symbol INGVYSYABK

Change from Previous

INGVYSYA Bank Vs Nifty

Share Holding Pattern-%

Target Price

Previous Target Price

Presently strong presence in AP but forerunner to make outside presence

INGVYSYA bank has strong presence in Andhra Pradesh. Bank’s 170 branches are

in the state which accounts for 15% of total branch and 15% deposits come from AP

also. Bank is the largest bank in the state in term of SME lending (15% SME lending

in AP out of total SME book). Bank’s loan book grew more than 20%+ till 3QFY13

but loan grew by less than 10% in last two quarters basically due to political turmoil.

But now things are getting change and we believe bank would resume its business in

both region. Further bank has taken large steps to make it presence outside the

state as we get evidence from bank’s exposure to agriculture loan in AP is less than

national average. During the last several years, bank has not increased its

agriculture loan within state.

Market Data

Upside

667/405

BSE Code 531807

INGVYSYA BANK

In our banking coverage universe INGVYSYA Bank has not participated in

recent banking rally despite of better asset quality and strong liability

franchise among peers. We value bank at Rs.680/share which implies 1.8

times of FY14E book value. In last one month, bank reported lower return in

comparison to peers largely due to some political uncertainty in Andhra

Pradesh as bank has strong presence in state. But now things are getting

settled as both the regions (Telangana and Seemandhra) are witnessing

improving economic activities as per management. Our target price range are

1.5 to 1.8 times of book which means bank would trade in the range of Rs.570

to Rs.680 per share depending upon fundamental and economic in general

and political uncertainty in the state in particular.

Lower return on account of political uncertainty and business slowdown in

Andhra Pradesh

In last one month INGVYSYA bank has given the return of 12.8% versus Bank Nifty

17% basically due to some uncertainty regarding the Telagana issue. We believe

this would be short term and but we not saying that bank was not getting hurt in the

past. During the turmoil, bank had lost around 20 working in FY14 and from last two

quarters SA growth was muted. But now things are getting change as both the

divided state Telangana and Seemandhra are witnessing improving economic

activities in last six month as per management. Andhra Pradesh region is traditionally

know for its large entrepreneur community, should now grow strongly as this region is

well establish business centre and Government have given 5 years tax free status.

Average Daily Volume

11514

Company update BUY

CMP

"BUY"28th March2014


3

INGVYSYA BANK


View & Valuation

In our earlier note dated 10th Feb2014 result update, we had given price target of Rs.682

per share. Since then stock has appreciated about 13.6% lower than its peers largely due

to some issue regarding the division of Andhra Pradesh. In last six months bank

witnessed sluggish growth in term of saving accounts deposits growth and loan growth.

But after settled the issue, business activities start improving. Bank has strong liability

franchise and asset quality and still available at lucrative valuation.We have BUY rating

on the stock with price target of Rs.680.

Valuation Range

Valuation Band


4

INGVYSYA BANK

Financial & Assuption

Source : Eastwind/ Company



P/L 2011 2012 2013 2014E 2015EInterest/discount on advances / bills 2033 2868 3550 3824 4501

Income on investments 646 982 1307 1476 1616

Interest on balances with Reserve Bank of India 2 1 2 1 1

Others 13 7 3 13 13

Total Interest Income 2694 3857 4862 5314 6132

Others Income 655 670 727 858 858

Total Income 3349 4527 5588 6172 6990

Interest on deposits 1357 2153 2579 2619 3038

Interest on RBI/Inter bank borrowings 48 247 393 923 1033

Others 283 249 351 0 0

Interest Expended 1688 2648 3323 3618 4074

NII 1007 1208 1539 1696 2058

NII Growth(%) 21.3 20.1 27.3 10.3 21.3

Other Income 655 670 727 858 858

Total Income 1661 1878 2266 2555 2916

Employee 606 651 751 819 964

Other Expenses 420 459 522 569 670

Operating Expenses 1026 1110 1273 1388 1633

PPP( Rs Cr) 635 768 993 1167 1283

Provisions 317 312 380 127 181

Net Profit 319 456 613 701 739

31.6 43.2 34.3 14.4 5.4

Key Balance sheet dataDeposits 30194 35195 41334 45467 50923

Deposits Growth(%) 16.7 16.6 17.4 10.0 12.0

Borrowings 4147 5696 6511 8024 8986

Borrowings Growth(%) 13.0 37.4 14.3 23.2 12.0

Loan 23602 28721 31772 34949 40192

Loan Growth(%) 27.5 21.7 10.6 10.0 15.0

Investments 11021 12715 18278 20327 22766

Investments Growth(%) 5.2 15.4 43.7 11.2 12.0

Eastwind CalculationYield on Advances 8.6 10.0 11.2 10.9 11.2

Yield on Investments 5.9 7.7 7.1 7.3 7.1

Yield on Funds 7.3 8.8 9.3 9.6 9.7

Cost of deposits 4.5 6.1 6.2 5.8 6.0

Cost of Borrowings 8.0 8.7 11.4 11.4 11.5

Cost of fund 4.9 6.5 6.9 6.8 6.8

ValuationBook Value 217 265 299 379 418

P/BV 1.5 1.3 1.9 1.4 1.3

P/E 12.2 11.7 14.1 14.5 13.7

Coal India LTD.

Management Guidiance280

318

307

13%

4%

Issue with NTPC to sort out by end of FY14

533278

176226

17622 E-auction Volume Growth6601

1M 1yr YTD

Absolute -1.3 -21.2 -21.4

Rel. to Nifty 2.8 8.8 8.6

Expenditure Font

3QFY14 2QFY14 1QFY14

Promoters 90.0 90.0 90.0

FII 5.5 5.5 5.4

DII 2.4 2.3 2.3

Others 2.1 2.2 2.4 Rescheduling Date of hearing stands a key concern

Realization gain on Revised Coal Price

Financials : Q3FY14 Y-o-Y % Q-o-Q % Q3FY13 Q2FY14

Net Revenue 16928 -2.3 9.8 17325 15411

EBITDA 4104 -4.3 46.9 4288 2794

Depriciation 442 5.2 -10.7 420 495

Interest Cost 10 0.0 25.6 10 8

Tax 1930 4.9 36.6 1839 1412

PAT 3894 -11.4 27.6 4395 3052(In Crs)

5

Upside


Result UpdateCMP

Target Price



Stock Performance-%


1 yr Forward P/B

Source - Comapany/EastWind Research

Competition Appellate Tribunal stays Rs 1,773 Crore fine on CIL, and will decide on the

matter on next hearing 16th April 2014 (Rescheduled from 11th Feb 2014).

Meanwhile, Coal India Ltd is likely to get additional revenue of Rs 2,119 Crore in this fiscal

on account of revision in dry fuel prices.Though the incremental revenue is a positive sign

but it fails to change our previous valuation.

Number from the sampling exercise taken by a third-party check for the full year (FY14)

may come by Mar 2014. Also results for quarter ended Mar 2014 may see some

provisioning for such low grade quality coal.

On the expenditure side contractual expenses increased ~20% to Rs.154/ton from

Rs.128/ton in Q2FY14.Powerfuel cost and other expenses per ton remained flat, while

cost of project per ton decreased to Rs149/ton from Rs.206/ton in the previous quarter.

Realization of Coal India showed little uptick like 2% to Rs.1445/ton.

Management is fairly confident to achieve 25-30 MT (Million Tonnes) of growth in

production for FY15. Of the production growth, 12-15 MT to come from Mahanadi Coal

fields, 12 MT to come from South Eastern Coal fields and the balance from rest of the

subsidiaries primarily Western Coal Fields.FY15 Coal offtake target to be 507 MT.

NTPC has been regular in clearing payments so far, except for some payments held up

due to Grade quality issues. Receivables from NTPC were at Rs 3295 crore as of end of

Dec 2013. By end of FY14 management hopes to sort out the NTPC payment issue.Total

receivables as of end of Dec 2013 stand at Rs.10457 crores; out of which Rs.8476 crore is

undisputed and balance is disputed.

E-auction volumes during the quarter ended Dec 2013 went up to 15.14 MT from 10.48

MT during the corresponding previous quarter. For the nine-month period ended Dec

2013, E-auction volumes went up to 41.26 MT from 35.61 MT compared to the

corresponding previous period.Wherever transport and loading facility issues due to low

railway rake availability are being faced by subsidiaries then those subsidiaries are

advised by the management to go for e-auctions.

Market DataBSE Code

COALINDIA

Average Daily Volume (Nos.)

NSE Symbol

52wk Range H/L

Mkt Capital (Rs Crores)

372/238

Nifty

"Buy"27th Mar 14


FY11 FY12 FY13 FY14E

50234 62415 68303 69960

7573 5123 6556 8372

1755 2013 2333 2591

4580 4901 5802 6049

20481 26705 27943 28943

40390 40857 50219 53705

9843 21558 18084 16255

1673 1969 1813 1860

79 54 45 34

5595 6484 7623 7310

10868 20588 17356 17921

33 51 36 40

6

Earlier we suggested, if earnings falls, then price might go beyond 256, but p/b level

may be maintained , else we assume that since the company is a good dividend paying

company with Roe above 30% we assume p/b should remain above 3.

Curently the stock is trading at 3.4x at one year forward price to book but looking at the

earnings and dividend yield we believe the stock will trade at most common 3.8x level.

View & Outlook

Growth in Railway Rake loading from Coal India was 11% in FY13 and about 6-7% in

FY14 and the growth is expected to remain in the 9-10% range for FY15

Coal India LTD.

Rs. 600-700 crore benefit/savings to be seen on a full year basis for FY14 and beyond

due to rationalization of loading and crushing charges.Currently 46-47 MT of ground

stock available; 10 MT liquidation of ground stock possible by end of FY14.


Net Revenue from Operation

Cost Of Projects & Contractual

Interest Cost

P/L PERFORMANCE

Power and fuel

PAT

ROE %



We see Coal India at a attractive valuation to go long from the current dips. So we stick

to our previous estimates with revised price premium and recommend Maintain Buy CIL

at price dips with a revised target price of Rs.318/- .Which is ~13% upside from the

current level.

Company has decided not to increase the prices until the elections are over in May,

after which company may hike the price by at least a 10per cent . The board took up the

agenda of a 10-15per cent hike on some categories of coal.

Coal India has decided to add 25,000 workmen over the next five years while three

times as many workmen employed by the state run miner are scheduled to retire during

this period, a move that is expected to double its productivity per employee and reduce

cost of production by about 10 per cent.




contractual expenses

Employee benefit Expence

Expenditure

EBITDA

Depriciation

Tax


FY10 FY11 FY12 FY13

6316 6316 6316 6316

20956 26998 34137 42156

27273 33314 40453 48472

343 1334 1305 1078

1620 33 0 0

2545 22461 28271 31144

772 645 829 837

1404 12387 15595 20447

5443 8490 9785 12385

0 779 759 712

12035 12065 12681 12754

2211 2057 1848 3496

610 845 1017 1181

4402 5586 6071 5618

2169 3419 5663 10480

39078 45806 58203 62236

8066 11180 13478 16189

17921 21646 24688 25479

FY10 FY11 FY12 FY13

10727 12819 16323 15948

-131 -3822 3565 -6839

10596 8997 19888 9109

950 697 -10410 -1833

2163 2911 -7382 -7852

13708 12606 2095 -575

FY10 FY11 FY12 FY13

0.0 5.7 5.5 4.0

0.0 17.3 32.6 27.5

4.9 22.8 29.2 52.7

1.7 4.3 4.3 4.2

1.0 3.7 3.1 2.8

7

Coal India LTD.

Trade payables

Short-term provisions

Total liabilities

Intangibles

B/S PERFORMANCE

Share capital

Reserve & Surplus

Total equity

Long-term borrowings

Short-term borrowings

Long-term provisions

Cash and bank balances

Tangible assets

Capital work-in-progress

Long-term loans and advances

Inventories

Trade receivables

Inventories to Turnover%

CASH FLOWS

Cash from Operation

Short-term loans and advances

Total Assets

RATIOS

P/B

Creditors to Turnover%

Trading At :

Changes In Working Capital

Net Cash From Operation

Cash From Investment

Cash from Finance

Net Cash Flow during year

EPS

Debtor to Turnover%


INDUSIND BANK

486

540

428

11

26

1M 1yr YTD

Absolute 22.7 20.5 20.5

Rel.to Nifty 17.1 4.8 4.8

Current 24QFY1

4

3QFY1

3Promoters 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

Financials Rs, Cr

2011 2012 2013 2014E 2015E

NII 1376 1704 2233 2787 4053

Total Income 2090 2716 3596 4562 5827

PPP 1082 1373 1839 2452 2972

Net Profit 577 803 1061 1320 1633

EPS 12.4 17.2 20.3 25.3 31.1

8

Result update BUY


Upside

Market Data

Change from Previous( Rs)

INDUSIND Bank Vs Nifty


1.26 lakhs

Nifty 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).

Stock Performance

52wk Range H/L

CMP

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. Bank’s

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.

Mkt Capital (Rs Cr)

Target Price

531/318

BSE Code 532187

NSE Symbol INDUSINDBK


25535

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.

"BUY"26th March 2014


9

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 bank’s 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


10

INDUSIND BANK

Financials & Assuptions

Source: Eastwind/Company



Income Statement 2011 2012 2013 2014E 2015Interest Income 3589 5359 6983 8308 10419

Interest Expense 2213 3655 4750 5521 6367

NII 1376 1704 2233 2787 4053

Change (%)

Non Interest Income 714 1012 1363 1775 1775

Total Income 2090 2716 3596 4562 5827

Change (%)


Pre Provision Profits 1082 1373 1839 2452 2972

Change (%)

Provisions 504 180 263 455 535

PBT 577 1193 1576 1997 2437

PAT 577 803 1061 1320 1633

Change (%)

Balance Sheet 2011 2012 2013 2014E 2015EDeposits( Rs Cr) 34365 42362 54117 62234 74681

Change (%) 23 28 15 20

of which CASA Dep 9331 11563 15867 20537 22404

Change (%) 24 37 29 9

Borrowings( Rs Cr) 5525 8682 9460 15559 18670

Investments( Rs Cr) 13551 14572 19654 23338 28005

Loans( Rs Cr) 26166 35064 44321 54071 67589

Change (%) 34 26 22 25

Ratio 2011 2012 2013 2014E 2015EAvg. Yield on loans 10.8 12.0 12.7 0.0 12.5

Avg. Yield on Investments 5.4 7.4 6.5 6.6 6.5

Avg. Cost of Deposit 5.3 7.3 8.8 8.9 8.5

Avg. Cost of Borrowimgs 7.0 6.7 7.6 7.5 7.5

Valuation 2011 2012 2013 2014E 2015EBook Value 87 101 146 171 195

CMP 264 321 405 405 405

P/BV 3.0 3.2 2.8 2.4 2.1

Hindalco Industries Ltd.

122 1-

140

132

15%

NA

2-

500440

25497

17848

6284

1M 1yr YTD A. Captive bauxite is only 21km away from the refineryAbsolute 24.7 38.1 30.6 B. Low reactive silica content which reduces caustic soda consumptionRel. to Nifty 18.3 21.2 16.1 C.

D.


Promoters 37.0 37.0 37.0

FII 26.9 24.9 24.8

DII 13.3 14.4 14.3

Others 22.9 23.7 23.9


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%. (In Crs)

11

Nifty


Upside


Market DataBSE Code

HINDALCONSE Symbol

52wk Range H/L


137/83


Stock Performance-%


1 yr Forward P/B


Political sentiment:

High trihydrate alumina content (40%) i.e., it is gibbsite form of bauxite with only 2%

bohemite (low quality bauxite)

Bauxite properties are such that process is carried out at relatively low temperature and

pressure leading to savings in energy cost.

Novelis’ business has started to improve with the benefit and strong demand from

automobiles. However, the pricing pressure is impacting margin. Novelis is one of the

world’s 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 world’s 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.

Company UpdateCMP

Target Price


Expansions ready to deliver…

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.

Key reasons for this low cost UAIL plant include:

Novelis Business:

Copper producer Sesa Sterlite Ltd will shut its smelter for 22 days starting April 26, for

maintenance purpose. It produces 30,000 tons of refined copper per month and exports

half of that to China. It will help rival producer Hindalco Industries raise sales. And also

for Hindalco the copper realization is stable with the previous quarter, so it will be

additional sales if orders executes.

Ongoing Positive thrusts:

The Q3FY14 financial results still do not include Mahan, Utkal and Aditya projects. All

three projects have started production under trial run. UAIL’s commercial production

started in December 2013. Management guided for FY15E and FY16E volumes of over

1mt and 1.5mt (full capacity), respectively. Integration of Aluminium smelters (a) Newly

commissioned aluminium smelters (UP and Odisha) to ramp up volumes going forward

and (b) Cost benefit of cheap alumina for its existing smelters with high quality,

proximate and captive bauxite mine, whose production is currently running at ~4mtpa

run-rate. We are expecting a good amount profit addition from these plants in H1FY15.

"Buy"25th March' 14


12




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.

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.

Concerns:

View & Valuations:

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 :

About The Company:


FY11 FY12 FY13 FY14E

72078 80821 80193 81139

431 783 1012 1360

72509 81604 81205 82499

64102 72856 72395 72681

7976 7965 7798 8457

2725 2645 2822 3076

1839 1758 2079 2600

964 786 886 1201

366 211 -20 -

57 -50 16 -

2456 3397 3027 2940

8.5 10.6 8.4 7.8

FY10 FY11 FY12 FY13

191 191 191 191

21346 28824 31179 34597

21545 29023 31911 35330

10763 13736 37127 49857

13236 13956 3731 6442

3901 4138 5289 5691

9742 12980 11052 9613

1016 1077 1377 1610

69235 84376 101402 120590

7876 12272 15429 16435

21124 20133 19871 21490

5801 13131 22798 33831

1983 2035 3774 3170

11275 14096 13246 14332

6544 8000 8017 8952

2195 2556 3296 3770

1134 1164 2159 3257

69235 84376 101402 120590

FY10 FY11 FY12 FY13

1.6 1.4 0.8 0.5

20.5 12.8 17.7 15.8

10.8 11.1 9.9 11.2

16.0 18.0 13.7 12.0

FY10 FY11 FY12 FY13

5542 6929 8534 6852

4944 6226 7602 2978

-5448 -6710 -13220 -13765

428 825 6237 10278

-76 341 619 -510

13




B/S PERFORMANCE

Share capital

Reserve & Surplus

Total equity


Other Income

Total Income

P/L PERFORMANCE

Expenditure

EBITDA


Tangible assets


Trade payables


Total liabilities

IntangiblesSource - Comapany/EastWind Research


Cash from Finance

Net Cash Flow during year


ROE%


Inventories

Trade receivables




Share in Profit/(Loss) of Associates

PAT


Net Cash From Operation

Depriciation

Interest Cost

Tax

Minority Interest

Cash From Investment


Cash from Operation


Total Assets

RATIOS

P/B

EPS

Debtor to Turnover%

Creditors to Turnover%

CASH FLOWS


Jindal steel & Power

265

285

NA

8%

NA

532286

24796

11158

6495

1M 1yr YTD

Absolute 6.9 -21.7 -27.9

Rel. to Nifty 0.5 -36.3 -37.6


Promoters 59.7 59.1 59.1

FII 21.9 21.3 20.8

DII 4.7 6.2 6.7

Others 13.7 13.3 13.4


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)

14


CMP

Target Price


Nifty

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.

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 company’s 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.

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.

JSPL’s 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.



Stock Performance-%


1 yr Forward P/B


Market Data

Challenging Fundamentals

NSE Symbol

52wk Range H/L


362/181

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.

BSE Code

JINDALSTEL

Initial Coverage Neutral

Upside

"Neutral"24th March' 14


Coverage :

Products

• Mining

Plants Locations

• Jindal Industrial Park (Chhattisgarh)

• Raipur Division (Chhattisgarh)

• Tamnar (Odisha)

• Angul (Odisha) • Zambia

• Barbil (Odisha) • Tanzania

• Tensa - (Jharkhand)

• Patratu (Jharkhand) • Australia

15

Earning Ratios

Business Areas

• Semi-Finished Products

• Power

• Ferro Chrome

• Silico Manganese

• Sponge Iron

• Parallel Flange Beams

• Plates & Coils

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:

• Petroleum

• Cement and Infrastructure.• Power Generation & Trading

Global Presence

• South America

• Madagascar

Earning Ratios

• Angels & Channels

• TMT Re-bars

• Wire Rods

• Oman (Middle East)

EBIDTA & Margin

Debt Structure

EBIDTA & Margin

• Mozambique


• Fabricated Sections

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.

Jindal Steel and Power Limited (JSPL) is one of India’s 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.

• Rails

Revenue & Growth


FY10 FY11 FY12 FY13

11092 13112 18209 19807

60 82 142 136

11152 13194 18351 19943

4197 5078 5311 6151

273 415 591 641

774 1303 5513 7020

5244 6795 11415 13812

5848 6317 6793 5994

997 1151 1386 1539

358 260 360 758

4553 4988 5189 3833

919 1184 1186 922

3573 3754 3965 2910

34 27 22 14

6.3 4.6 2.8 1.5

FY10 FY11 FY12 FY13

93 93 93 93

10324 14017 18018 21159

10417 14110 18111 21252

5330 5549 11180 15402

3274 8428 4569 8247

17 25 34 33

2266 2573 1251 1398

2036 3081 4111 4884

25122 36091 45008 57073

14 20 31 20

9883 14824 16463 19255

7947 10041 92 19230

1090 1527 2181 2421

1431 2773 3580 4524

753 1154 1307 1954

113 480 149 200

3464 4852 6927 8079

25122 36091 45008 57073

FY10 FY11 FY12 FY13

6.3 4.6 2.8 1.5

32.0 28.5 21.6 14.6

52.4 47.9 37.0 30.1

17.8 12.8 11.2 6.1

4.2 1.9 2.3 3.2

#N/A #N/A #N/A #N/A

16

Other Expenses

Expenditure

EBITDA

Depriciation


P/L PERFORMANCE

Cost Of Projects & Contractual

Employee benefit Expence


Other Income

Total Income

PBT

Net tax expense / (benefit)

PAT

Weighted Average Cost of Debt %

Debt/Equity (debt/debt+networth or

EBITDA %

ROCE%

RATIOS

NPM %



Inventories

Trade receivables


Total Assets

P/B

Total liabilities


Intangibles

Tangible assets


Interest Cost

ROE%

P/B



Trade payables

B/S PERFORMANCE

Share capital

Reserve & Surplus

Total equity



641

700

600

9

17

1M 1yr YTD

Absolute 18.9 -19.7 -19.7

Rel.to Nifty 14.0 -30.2 -30.2


3Promoters 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

Financials Rs, Cr

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

17


PNB Vs Nifty


7.4 cr

Nifty 6495


Stock Performance

52wk Range H/L

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

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 bank’s 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 bank’s 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.

Target Price



19646Mkt Capital (Rs Cr)

PNB

Market Data

Upside

890/400

BSE Code 532461

NSE Symbol PNB

Company update ADD 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.

CMP

"ADD"24th March2014


18

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 bank’s 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


19

PNB

Financial & Assuption

Source : Eastwind/ Company



Income Statement 2011 2012 2013 2014E 2015EInterest Income 26986 36476 41893 43513 49565

Interest Expense 15179 23062 27037 26977 31875

NII 11807 13414 14857 16536 17691

Change (%) 39.3 13.6 10.8 11.3 7.0

Non Interest Income 3613 4203 4216 4240 4240

Total Income 15420 17617 19072 20775 21930

Change (%) 27.6 14.2 8.3 8.9 5.6


Pre Provision Profits 9056 10614 10907 11155 12500

Change (%) 23.6 17.2 2.8 2.3 12.1

Provisions 4622 3577 4386 6253 5059

PBT 4433 7037 6522 4902 7442

PAT 4433 4884 4748 3408 5209

Change (%) 13.5 10.2 -2.8 -28.2 52.8

Balance SheetDeposits( Rs Cr) 312899 379588 391560 450294 517838

Change (%) 25 21 3 15 15

of which CASA Dep 120325 134129 153344 139752 153766

Change (%) 18 11 14 -9 10

Borrowings( Rs Cr) 31590 37264 39621 47857 44728

Investments( Rs Cr) 95162 122703 129896 143572 149094

Loans( Rs Cr) 242107 293775 308725 339598 356578

Change (%) 30 21 5 10 5

RatioAvg. Yield on loans 8.7 9.7 10.3 9.6 10.5

Avg. Yield on Investments 6.0 6.4 7.4 7.2 7.8

Avg. Cost of Deposit 4.4 5.6 6.5 6.4 6.6

Avg. Cost of Borrowimgs 4.4 4.5 3.9 4.0 4.1

Valuation

Book Value 682 820 924 1000 1107

CMP 1220 926 759 543 543

P/BV 1.8 1.1 0.8 0.5 0.5

Persistent System.

Footing on Product Business, and working aggressively on new emerging services;

11%

Key facts from Management Interview to Media( on 20th

March,2014)

1M 1yr YTD

Absolute 1.1 76.8 85.7

Rel. to Nifty 3.4 75.8 82.3


Promoters 38.96 38.96 38.96

FII 18.26 15.28 14.84

DII 18.78 21.23 19.31

Others 24 24.53 26.89

3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-%

432.75 432.37 0.1 332.98 30.0

104.3 100.8 3.5 82.4 26.6

64.2 60.8 5.6 49.5 29.7

24.1% 23.3% 80bps 24.7% (60bps)

14.8% 14.1% 70bps 14.9% (10bps)

20

1 year forward P/E-x

Rs, Crore




4236

EBITDA Margin

PAT Margin

"Persistently innovating.."

CMP 1059

Target Price 1070

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.

Company update Book Profit

Previous Target Price 960

Upside 1%

Nifty


6483

Stock Performance

PERSISTENT

52wk Range H/L 1220/477

Average Daily Volume 12139

Market Data

BSE Code 533179

NSE Symbol

PAT

(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 company’s 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 company’s 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

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.


"Book Profit"21st Mar' 14


21

Financials


Persistent System.


Operating Metrics


2QFY12 3QFY12 4QFY13 1QFY13 QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

Top1 16.0% 15.9% 17.2% 17.8% 20.7% 21.1% 21.6% 21.2% 22.5% 19.8%

Top 5 38.6% 37.0% 36.6% 33.5% 36.3% 37.3% 36.7% 34.7% 36.4% 36.9%

Top 10 49.4% 48.3% 48.8% 45.3% 47.0% 49.4% 47.9% 46.0% 47.3% 46.9%

Onsite - Linear 12665 12387 12603 12789 12863 12772 14014 14567 14283 14510

Offshore - Linear 3803 3778 3895 3898 3978 4032 4143 4111 4109 4179

Yeild per Employee(excld- Trainee) 3208 3247 3350 3345 3746 3817 3769 3602 3919 3934

Total Employee 6900 6706 6628 6536 6370 6719 6970 7144 7457 7602

Attrition 17.7% 17.4% 18.3% 18.9% 16.9% 16.0% 14.4% 14.2% 14.0% 13.2%

Utilization rate %(xclude IP Led ) 73.8% 74.1% 71.7% 74.1% 75.2% 77.3% 72.5% 70.0% 71.7% 72.9%

Billing Rate-USD/ppm

Employee Metrics

Client Concentration

Rs in Cr, FY10 FY11 FY12 FY13 FY14E FY15E

Sales 601.16 775.84 1000.3 1294.5 1666.59 2061.72

Employee Cost 368.74 481.62 599.05 719 899.96 1123.64

Cost of technical professionals 0 30.67 41.68 54 91.66 113.39

Other expenses 86.05 105.24 135.2 218 291.65 366.99

Total expenses 454.79 617.53 775.93 990.78 1283.28 1604.02

EBITDA 146.37 158.31 224.37 303.72 383.32 457.70

Depreciation 33.52 42.39 61.1 78 100.55 93.54

Other Income 11.23 34.44 34.44 34.44 55.00 72.16

EBIT 112.85 115.92 163.27 225.44 282.76 364.16

Interest Cost 0 0 0.00 0.03 0.05 0.05

Profit (+)/Loss (-) Before Taxes 124.08 150.36 197.71 259.851 337.71 436.28

Provision for Taxes 9.05 10.62 55.09 75.37 92.03 119.98

Net Profit (+)/Loss (-) 115.03 139.74 142.62 184.481 245.69 316.30

Growth-% (YoY)

Sales 1.2% 29.1% 28.9% 29.4% 28.7% 23.7%

EBITDA 60.2% 8.2% 41.7% 35.4% 26.2% 19.4%

PAT 74.1% 21.5% 2.1% 29.4% 33.2% 28.7%

Expenses on Sales-%

Employee Cost 61.3% 62.1% 59.9% 55.5% 54.0% 54.5%

Other expenses 14.3% 13.6% 13.5% 16.9% 17.5% 17.8%

Tax rate 7.3% 7.1% 27.9% 29.0% 27.3% 27.5%

Margin-%

EBITDA 24.3% 20.4% 22.4% 23.5% 23.0% 22.2%

EBIT 18.8% 14.9% 16.3% 17.4% 17.0% 17.7%

PAT 19.1% 18.0% 14.3% 14.3% 14.7% 15.3%

Valuation:

CMP 310 366.7 409.2 541 1059 1059

No of Share 4 4 4 4 4 4

NW 639.0 747.1 840.5 1018.3 1212.5 1477.3

EPS 28.8 34.9 35.7 46.1 61.4 79.1

BVPS 159.7 186.8 210.1 254.6 303.1 369.3

RoE-% 18.0% 18.7% 17.0% 18.1% 20.3% 21.4%

P/BV 1.9 2.0 1.9 2.1 3.5 2.9

P/E 10.8 10.5 11.5 11.7 17.2 13.4

Narnolia Securities Ltd402, 4th floor 7/ 1, Lords Sinha Road Kolkata 700071, Ph

033-32011233 Toll Free no : 1-800-345-4000

email: [email protected],

website : www.narnolia.com

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

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india equity analytics today: buy stock of ingvysya bank

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