October 2013
India Strategy
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Contents Section A: India Strategy - The Trilemma! ................................................................................. A1-56 Section B: 2QFY14 Highlights & Ready Reckoner ..................................................................... B1-12 Section C: Sectors & Companies .............................................................................................. C1-206 1.
2.
Automobiles Ashok Leyland Bajaj Auto Eicher Motors Exide Industries Hero MotoCorp Mahindra & Mahindra Maruti Suzuki India Tata Motors
2-13 6 7 8 9 10 11 12 13
Capital Goods ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax
14-24 17 18 19 20 21 22 23 24
3.
Cement ACC Ambuja Cement Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement UltraTech Cement
25-36 29 30 31 32 33 34 35 36
4.
Consumer Asian Paints Britannia Industries Colgate Palmolive Dabur India GSK Consumer Godrej Consumer Products Hindustan Unilever ITC Marico Nestle India Pidilite Industries Radico Khaitan United Spirits
37-52 40 41 42 43 44 45 46 47 48 49 50 51 52
State Bank Union Bank Yes Bank 5b. Financials - NBFC Bajaj Finance HDFC IDFC LIC Housing Finance M & M Financial Services Power Finance Corporation Rural Electricfication Shriram Transport 6.
7.
5a. Financials - Banks Axis Bank Bank of Baroda Bank of India Canara Bank Federal Bank HDFC Bank ICICI Bank Indian Bank IndusInd Bank ING Vysya Bank Kotak Mahindra Bank Oriental Bank Punjab National Bank
53-74 59 60 61 62 63 64 65 66 67 68 69 70 71
8.
9.
Healthcare Biocon Cadila Healthcare Cipla Divi’s Laboratories Dr Reddy’s Labs. GSK Pharma Glenmark Pharma IPCA Laboratories Lupin Ranbaxy Labs. Sanofi India Sun Pharmaceuticals Torrent Pharma
72 73 74 75-84 77 78 79 80 81 82 83 84 85-102 90 91 92 93 94 95 96 97 98 99 100 101 102
Media D B Corp Dish TV HT Media Jagran Prakashan PVR Sun TV Network Zee Entertainment
103-113 107 108 109 110 111 112 113
Metals Hindalco Hindustan Zinc Jindal Steel & Power JSW Steel Nalco NMDC Sesa Goa SAIL Tata Steel
114-125 117 118 119 120 121 122 123 124 125
Oil & Gas BPCL Cairn India GAIL Gujarat State Petronet HPCL IOC Indraprastha Gas MRPL Oil India
126-141 130 131 132 133 134 135 136 137 138
ONGC Petronet LNG Reliance Industries
139 140 141
10. Real Estate Anant Raj Industries DLF Jaypee Infratech Mahindra Lifespaces Oberoi Realty Phoenix Mills Prestige Estate Projects Unitech
142-154 147 148 149 150 151 152 153 154
11. Retail Future Retail Jubilant Food Shoppers Stop Titan Industries
155-161 158 159 160 161
12. Technology Cognizant Technology HCL Technologies Hexaware Technologies Infosys KPIT Cummins Mindtree MphasiS Persistent Systems TCS Tech Mahindra Wipro
162-176 166 168 169 170 171 172 173 173 174 175 176
13. Telecom Bharti Airtel Bharti Infratel Idea Cellular Reliance Communication
177-186 183 184 185 186
14. Utilities 187-200 CESC 191 Coal India 192 Jaiprakash Power Ventures 193 JSW Energy 194 NHPC 195 NTPC 196 Power Grid Corp. 197 PTC India 198 Reliance Infrastructure 199 Tata Power 200 15. Others 201-206 Bata India 201 Castrol India 202 Multi Commodity Exchange 203 Sintex Industries 204 United Phosphorus 205 V-Guard Industries 206
Note: All stock prices and indices for Section C as on 27 September 2013, unless otherwise stated
India Strategy | The Trilemma!
India Strategy BSE Sensex: 19,727
S&P CNX: 5,833
The Trilemma INR direction | Elections outcome | Sector preferences
INDIAN EQUITIES: CY13 YTD return are flat, zero returns over 6 years
2013 has been a year of flat markets. The 10-year CAGR up to 2012 is 19%, (20032013: 13%) despite a flat markets for the last 6 years. Over the last 4 quarters, markets have been very range-bound. Technology, Telecom, Healthcare, Cement continue to be top performers for 2013. At 19,400, the BSE Sensex P/E is at 8% discount to LPA (12-month forward) and Sensex P/B at 17% discount to LPA (12-month forward). Market cap to GDP at 56% is well below the averages and is closer to the lows of last decade. FIIs continue to be buyers in 2013YTD worth USD13.4b; however DIIs are big sellers to the tune of USD 8.3b.
2QFY14 PREVIEW: The dollar divide | Aggregate PAT up 3%; Nifty USDdenominated PAT up 19%, others down 5%
We expect MOSL Universe of 140 companies (ex RMs) to report aggregate 2QFY14 PAT growth of 3% YoY. This is an improvement over 2% YoY de-growth seen in 1QFY14. 2HFY14 performance is expected to be even better with PAT growth of 11-12% YoY. The sharp 13% YoY depreciation of the INR vis-à-vis the USD is expected to boost PAT growth of USD-denominated sectors such as Technology, Healthcare and Metals. Within Nifty, USD-denominated companies' PAT is expected to grow 19% YoY, whereas others' PAT is expected to decline 5% YoY. Expect Sensex 2QFY14 PAT to grow 5% YoY. Within Sensex, top 5 PAT growth companies are: Tata Steel (loss to profit), Maruti (+110% YoY), Dr Reddy's (+39%), Sun Pharma (+36%) and TCS (+30%). Top 5 PAT degrowth companies: BHEL (-57% YoY), Bharti (-54%), State Bank (-35%), Tata Power (-34%) and Jindal Steel (-31%). FY14/15 Sensex EPS is downgraded 3-4% (from Jun-13 estimates). FY13-15 Sensex EPS CAGR stands at 11% v/s 14% a quarter ago.
FY08-13 EPS CAGR at 7%; expect rebound in FY13-15
October 2013
FY15E
FY10
1,190
1,476
1,289
FY14E
834
1,123
FY13
820
FY11
833
FY09
FY07
FY03
523
FY06
FY02
450
FY05
236
348
FY04
216
FY01
718
FY08
1,024
FY12
FY01-08: 21% CAGR
272
FY13-15E: 11% CAGR
FY08-13: 7% CAGR
FY01-13A: 15% CAGR FY01-15E: 15% CAGR
A–1
India Strategy | The Trilemma!
2QFY14 performance of MOSL Universe by sector – Seculars do, cyclicals undo SECTOR (no. of companies) High growth sectors Technology (9) Health Care (13) Media (7) NBFC (8) Consumer (13) Metals (9) Private Banks (8) Auto (8) Med/Low growth sectors Retail (4) Utilities (10) PAT de-growth sectors Oil Excl. RMs (9) Real Estate (8) Telecom (4) Cement (8) Capital Goods (8) PSU Banks (8) Others (6) MOSL Excl. RMs (140) Sensex (30)
Sep-13
Sales YoY %
3,350 504 227 39 85 324 1,143 143 885 628 62 567 2,928 1,758 45 353 166 333 274 52 6,958 4,777
16 31 24 17 21 12 11 19 14 5 -1 5 10 15 11 9 -1 -5 6 11 12 12
EBITDA Sep-13 YoY % 798 140 52 11 80 69 216 116 115 160 6 154 638 276 16 111 30 32 173 9 1,604 986
22 39 20 19 19 15 18 17 26 5 -3 5 0 6 7 11 -20 -22 -6 8 10 12
PAT Sep-13 YoY % 444 98 34 5 52 46 90 66 53 89 2 87 277 170 6 12 14 18 56 4 815 509
16 29 17 15 14 13 13 12 11 8 9 8 -14 -1 -6 -7 -31 -32 -33 -2 3 5
PAT Share %
Delta Share %
55 12 4 1 6 6 11 8 7 11 0 11 34 21 1 2 2 2 7 0 100 NA
264 92 21 3 27 23 44 30 23 29 1 28 -193 -10 -2 -4 -26 -36 -115 0 100 NA
EBITDA Margins Sep-13 YoY bp 23.8 27.8 22.7 29.3 94.3 21.2 18.9 80.5 13.0 25.4 9.4 27.2 21.8 15.7 36.3 31.4 18.1 9.5 63.3 16.6 23.0 20.6
111 154 -83 48 -217 58 102 -138 121 2 -19 -7 -213 -134 -156 72 -442 -215 -850 -50 -40 6
ELECTIONS: The game-changing juggernaut | Forthcoming State elections may well be a gauge of the national mood State elections - gauge of national mood: During Nov-Dec'13, assembly elections will be held in 5 states of Rajasthan, Madhya Pradesh, Chattisgarh, Delhi and Mizoram aggregating 73 of 543 Lok Sabha seats (13% of total seats). The assembly elections assume significance because the results could be a referendum for the General elections highlighting the national mood. Decoding the election trends: Our analysis of elections led us to some interesting findings and perspectives: Seat share can be disproportionate to vote share: The data on seats won percentage to vote share percentage suggests that parties have won less seats in a particular year despite its vote share remaining the same. This suggests that the margin of victory is slender in many seats (more than 35% seats were won with less than 5% margin victory in 2009 general elections). Higher voter turnout – an indicator of a change in government?: The past 10 general election trends suggest that a voter turnout of 60% or above has resulted in a change in government (barring 1984 which Congress won due to sympathy wave on assassination of former Prime Minister, Ms. Indira Gandhi). What could be the odds of an NDA government: Based on the opinion polls and predictions, odds favor anti-incumbency. We analyse possible scenario which could drive an NDA government. Association with allies and their performance remains a key monitor to watch. Markets - build-up pre-elections; sharp reactions post elections: Markets sees some build-up prior to the elections. However, it witnesses sharp reactions post the election results. Normally, a decisive voting in favour of a party is positively
October 2013
A–2
India Strategy | The Trilemma!
perceived by the markets, whereas a fractured government witnesses negative reactions.
ECONOMY: Three events to watch out for in 2HFY13 | Stable INR, declining food inflation and uncertain government finance Our views on three important events that for Indian economy in 2HFY14 are as under. Sharp improvement in CAD to define INR path Expect CAD to correct sharply to 2.9% of GDP in FY14 (4.8% in FY13) Government/RBI measures (e.g. gold import curbs) have started yielding results Expect INR to stabilize at 62/USD levels Food inflation to fall on good monsoon FY14 monsoon 6% above normal; the best since FY08 Foodgrain production should see a record of 265m tons (+4% YoY) CPI Inflation to ease to 8% by Mar-14 v/s 10.4% a year ago Measures to achieve fiscal deficit targets bunched up Diesel price hike, disinvestments, spectrum sale have got bunched up in 2HFY14 Expect revenue shortfall of INR638b requiring matching expenditure cuts Our FY14E GDP growth of 4.5% factors in slowdown in government expenditure.
MARKET OUTLOOK & MODEL PORTFOLIO Nifty remains range-bound due to external and domestic factors Nifty has largely remained range-bound with -3% returns YTDCY13, while Sensex was flat, led by concerns of significant slowdown in domestic economy. Corporate earnings growth at 7-8% remains well below the long term averages; divergence between domestic and export oriented businesses is at a decade high. Stable currency and elections will be key triggers Change in RBI governor along with delayed tapering of QE has brought stability to the currency. This should help to ease some of the recent monetary tightening steps. Good monsoons should bring down the inflation and rejuvenate the rural economy with more disposable income in the hands of the rural consumers. In 3QFY14, various important state elections will be viewed as a proxy to the General elections in 2014. This will be an important catalyst for the market. Divergence in market valuations The market breadth has worsened with huge divergence in sector valuations. At one end of the valuations are global cyclicals like Metals, Oil & Gas and domestic cyclicals like Capital Goods, Real Estate, PSU Banks which are trading significantly below historic averages; some of them at historic lows. At the other end, is the Consumer sector trading at close to all time high valuations. Also, some sectors look attractive with current valuations close to their historical averages like Technology and Healthcare. Divergence is not only observed sector-wise; but even in terms of heavyweight and mid-cap/small-cap stocks. While CNX Nifty has remained nearly flat (-3% returns), mid-caps and small-caps have given -18% and -26% returns, respectively. STRATEGY:
Navin Agarwal (
[email protected]) | Rajat Rajgarhia (
[email protected])
ECONOMIST: Dipankar Mitra (
[email protected]) Sources of exhibits in this section include RBI, CMIE, Bloomberg, IMF, UN, Rogers International, Industry, Companies, and MOSL database
October 2013
A–3
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India Str at egy | The Trilemma!
2QFY14 PREVIEW The dollar divide Aggregate PAT up 3%; Nifty USD-denominated PAT up 19%, others down 5%
We expect MOSL Univ erse of 140 c ompanies (ex RMs) to r eport aggregate 2QFY14 PAT gr owth of 3% YoY. This is an improvement over 2% YoY de-growth seen in 1QFY14. 2HFY14 performance is e xpected t o be even better with PAT growth of 11-12% YoY. The sharp 13% YoY depreciation of the INR vis-à-vis the USD is expected to boost PAT gr owth of USD-denominated sectors such as Technology, Healthcare and Metals. Within Nifty, USD-denominated companies' PAT is expected to grow 19% YoY, whereas others' PAT is expected to decline 5% YoY. Expect Sensex 2QFY14 PAT to grow 5% YoY. Within Sensex, top 5 PAT growth companies are: Tata Steel (loss to profit), Maruti (+110% YoY), Dr Reddy's (+39%), Sun Pharma (+36%) and TCS (+30%). Top 5 PAT de-growth companies: BHEL (-57% YoY), Bharti (-54%), State Bank (-35%), Tata Power (-34%) and Jindal Steel (-31%).
Expect 2QFY14 Aggregate PAT to grow 3% YoY We expect MOSL Universe of 140 companies (excluding RMs i.e. 3 major oil refining & marketing companies IOC, BPCL, HPCL) to report aggregate 2QFY14 PAT growth of 3% YoY. This is an improvement over 2% YoY de-growth seen in 1QFY14. 2HFY14 performance is expected to be even better with PAT growth of 11-12% YoY, inching towards the long-period average of 15% Expect 2QFY14 PAT to grow 3% YoY; fifth consecutiv e quarter of PAT growth below LPA
Global crisis quarters
6
11 9
3 12 11
3 -2
Mar-14E
Dec -13E
Sep-13E
J une-13
Dec-12 Mar-13
Sep-12
Mar-12
J une-12
Sep-10 Dec-10
J une-10
Mar-10
Dec-09
-9 Sep-09
Mar-09
-11 -13 J une-09
Dec-08
Sep- 08
Mar-08
J une-08
Sep- 07 Dec-07
J une-07
-5
17 13 12
Dec-11
26
Sep-11
31 24 26
Mar-11
34
MOSL Universe Comparable Universe PAT Growth ex R Ms 42 MOSL Universe 33 Quarterly PAT growth 27 30 23 LPA : 15% 19 18
J une-11
43
In terms of September quarter growth, the 3% YoY PAT growth of Sep- 2013 is the lowest in the last 8 years, barring the global crisis quarter of Sep-2009. PAT margin has hit an all-time low on the back of higher interest costs and MTM forex losses. On the positive side, some financial metrics like Sales growth and EBITDA growth are showing initial signs of things turning better. 2QFY14 sales growth is expected to be 12% v/s 4% in 1QFY14. This is expected to improve further in 2HFY14. Likewise, 2QFY14 EBITDA growth at 10% YoY is much better than 5% YoY in 1QFY14. 2HFY14 EBITDA growth is expected to be even higher at 15%. October 2013
A–7
India Str at egy | The Trilemma!
Sep-2013 Sales and PAT gr owth is the lowest in the last seven September quarters ex global crisis
38
MOSL Universe 2Q Sales growth LPA: 21%
39
MOSL Universe 2Q PAT growth LPA: 15%
34 27
26
26 21 16
2Q amidst global crisis
12
2Q amidst global crisis
-3
12
11
3
-9
Sep-07 Se p-08 S ep-09 Sep -10 S ep-11 S ep-12 Sep -13E
Sep-07 Sep -08 Se p-09 Sep-10 Sep-11 Sep -12 Sep -13E
Sep-13 quarter sales growth should improve to 12% YoY from 4% in previous quarter; growth in next two quarters is expected to be 13-15% 43
38 38
44
MOSL Universe Comparable Universe Sales Growth ex R Ms (%) MOSL Universe 39 36 Quarterly Sales growth 29 31 26 24 28 25 21 23 LPA : 21% 15 19 20 16 13 9
19
3
4 12 13 15
Mar-12 June-12 S ep-12 Dec-12 Mar-13 June-13 Sep-13E Dec-13E Mar-14E
Dec-10 Mar-11 June-11 S ep-11 Dec-11
June-10 S ep-10
S ep-09 Dec-09 Mar-10
June-07 Sep- 07 Dec-07 Mar-08 June-08 Sep- 08 Dec-08 Mar-09 June-09
-7 -3 Global crisis quarters
Sep-13 quarter EBITD A growth at 10% YoY is higher than 5% of Jun-13 quarter; 2H should be even better
37 35
35 27 28
25 0
MOSL Universe Comparable Universe EBITDA Growth 42 MOSL Universe Quarterly EBITDA growth 31 26 23 LPA : 18% 32 3 17 14 12 8 15 15 11 11 9 5 10 15 15
October 2013
Dec-12 Mar-13 June-13 Sep-13E Dec-13E Mar-14E
Mar-11 June-11 Sep-11 Dec-11 Mar-12 June-12 Sep-12
Sep-10 Dec-10
Dec-08 Mar-09 June-09 Sep-09 Dec-09 Mar-10 June-10
June-07 Sep- 07 Dec-07 Mar-08 June-08 Sep- 08
-6 -5 Global crisis quarters
A–8
India Str at egy | The Trilemma!
Sep-13 EBITDA margin (ex RMs and Financials) at 19.1%; below LPA for several quart ers now 22.5 21.9
FY10
FY11
FY12
FY13
4QE
3QE
19.8 19.5 19.2 19.1 19.7
2QE
18.6
1Q
2Q
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
FY09
19.6 19.1 19.0 19.3
4Q
20.1
19.0
4Q
3Q
2Q
1Q
18.8
3Q
20.7
2Q
21.5
MOSL Universe EBITDA Margin LPA: 20.5%
20.6
22.5
1Q
21.0
22.1
4Q
22.3
22.5
3Q
23.5
FY14E
Sep-13 PAT margin (ex RMs and Financials) at 10%; below LPA for se veral quarters now 14 .8 1 3.5 MOSL Universe PAT Margin LPA: 11.6%
FY09
FY10
FY11
FY12
FY13
4QE
3QE
2QE
1Q
4Q
3Q
10.5 1 0.7 1 0.6 1 0.1 1 0.7 10.3 10 .0
2Q
1Q
4Q
1 1.4 11.2
3Q
1 0.7
2Q
11.3
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
11 .0 10 .8
13.1 12.7 12.3 12.6 12.2 11.9 12.4 11.8 11.8
FY14E
PAT distribution also showing early signs of improvement The distribution of PAT growth of India Inc is marginally improving on two fronts 1. Firstly, percentage of companies reporting PAT de-growth seems to be bottoming out, down from a peak of 42% in Mar-2013 to an expected 38% in Sep-2013 and further lower to 26% and 32% in the next two quarters. 2. At the same time, percentage of companies reporting PAT growth higher than 30% seems to be rebounding after the bottom of 19% in the Jun-2013 quarter. PAT distribution improving; fewer companies reporting PAT de-growth
8
5
0
-2
3
12 11
Sep 13E
June 13
Mar 1 3
Dec 12
Sep 12
28
June 12
34 42 4 0 30 3 9 39 42 41 38 2 6 23 24 1 7 17 19 17 21 25 16 1 3 20 25 18 2 2 20 1 8 20 17 18 16 31 21 24 2 5 26 2 7 24 24 19 21
Mar 14E
18 11
Mar 1 2
June 11
Mar 1 1
Dec 10
Sep 10
June 10
Mar 1 0
Dec 09
Sep 09
4
Ex RMs (%)
Dec 13E
13 11
27 30 27 2 5 24 31 41 32 3 5 31 9 18 14 1 4 9 13 10 20 1 8 24 17 18 22 21 1 8 23 22 1 0 14 24 4 1 43 51 38 32 3 9 35 32 27 21 June 09
Dec 08
Sep 08
June 08
Mar 0 8
Dec 07
Sep 07
June 07
Mar 0 7
9
<0%
Dec 11
15 24 26 20 -8 -15 -15 -11 23 42 26 22 24
PAT Growth Ex RMs (%) October 2013
>0-15%
Sep 11
>15-30%
Mar 0 9
55 36 34 25
>30%
11 17 14 14 21 24 2 3 26 11 42 11 11 15 14 19 19 2 4 26 19 23 23 21 11 1 8 18 22 10 60 54 52 48 44 45 3 5 30 26 Dec 06
% of MOSL Universe companies
Earnings Growth
32 23 18
A–9
India Str at egy | The Trilemma!
Sector and company analysis: The dollar divide Analyzing the Sep-13 results by sector clearly suggests the significant role of the strong dollar and weak rupee. During the quarter ending Sep-13, the INR depreciated a sharp 13% YoY (11% QoQ) vis-à-vis the USD. This is expected to significantly boost the performance of USDdenominated sectors such as Technology, Healthcare and Metals. Auto sector PAT growth (11% YoY) is also well above the aggregate (3% YoY) on the back of USD-denominated sales and PAT of JLR in Tata Motors (PAT up 27% YoY). Over and above the dollar divide, the "seculars v/s cyclicals" theme of the preceding two quarters is expected to play out in the Sep-13 quarter as well. Secular sectors like Consumer, Media, Retail and Telecom should clock far superior PAT growth compared to their cyclical counterparts such as Capital Goods, Cement and Real Estate. The Financials sector overall is expected to report PAT de-growth of 7% YoY. However, the relatively more secular sub-sectors of NBFCs (PAT +14% YoY) and Private Banks (PAT +12% YoY) are likely to deliver much superior performance than the cyclically vulnerable PSU Banks (PAT -33% YoY). 2QFY14 performance of MOSL Universe by sector – Seculars do, cyclicals undo SECTOR (no. of companies) High growth sectors Technology (9) Health Care (13) Media (7) NBFC (8) Consumer (13) Metals (9) Private Banks (8) Auto (8) Med/Low growth sectors Retail (4) Utilities (10) PAT de-growth sectors Oil Excl. RMs (9) Real Estate (8) Telec om (4) Cement (8) Capital Goods (8) PSU Banks (8) Others (6) MOSL Excl. RMs (140) Sensex (30)
October 2013
Sep-13
Sales YoY %
3,350 504 227 39 85 324 1,143 143 885 628 62 567 2,928 1,758 45 353 166 333 274 52 6,958 4,777
16 31 24 17 21 12 11 19 14 5 -1 5 10 15 11 9 -1 -5 6 11 12 12
EBITDA Sep-13 YoY % 798 140 52 11 80 69 216 116 115 160 6 154 638 276 16 111 30 32 173 9 1,604 986
22 39 20 19 19 15 18 17 26 5 -3 5 0 6 7 11 -20 -22 -6 8 10 12
PAT Sep-13 YoY % 444 98 34 5 52 46 90 66 53 89 2 87 277 170 6 12 14 18 56 4 815 509
16 29 17 15 14 13 13 12 11 8 9 8 -14 -1 -6 -7 -31 -32 -33 -2 3 5
PAT Share %
Delta Share %
55 12 4 1 6 6 11 8 7 11 0 11 34 21 1 2 2 2 7 0 100 NA
264 92 21 3 27 23 44 30 23 29 1 28 -193 -10 -2 -4 -26 -36 -115 0 100 NA
EBITDA Margins Sep-13 YoY bp 23.8 27.8 22.7 29.3 94.3 21.2 18.9 80.5 13.0 25.4 9.4 27.2 21.8 15.7 36.3 31.4 18.1 9.5 63.3 16.6 23.0 20.6
111 154 -83 48 -217 58 102 -138 121 2 -19 -7 -213 -134 -156 72 -442 -215 -850 -50 -40 6
A–10
India Str at egy | The Trilemma!
INR depreciated 13% YoY v/s the USD ...
... and 11% QoQ 70
62.2
68.8
2QFY14 USD-INR average 62.1, down 11% QoQ
65 55.9
55.2 54.2
62.6
60
54.2
59.5
26-Sep-13
19-Sep-13
12-Sep-13
4-Sep-13
28-Aug-13
21-Aug-13
13-Aug-13
S ep-13
5-Aug-13
Jun-13
29-Jul-13
Mar-12
22-Jul-13
Dec-12
15-Jul-13
Sep -12
8-Jul-13
1-Jul-13
55
The twin theme of "dollar divide" and "secular-cyclical" finds expression in virtually every dissection of the Sep-2013 results Sales growth: Expect Technology, Healthcare, Media, Auto and Consumer to grow sales higher than aggregate EBITDA Margin, growth: The only sectors which are expected to expand EBITDA margin are Technology, Auto, Metals, Telecom, Consumer and Media. These very sectors lead EBITDA gro wth. Interestingly, Healthcare margins are expected to shrink 83bp. This is mainly due to companies who have no or relatively low share of USD revenues, viz, Glaxo, Sanofi and Cipla. Excluding these 3 companies, Healthcare margins actually improve 13bp YoY. PAT growth and contribution to growth: Technology sector (PAT + 26% YoY) accounts for as high as 95% of the estimated incremental PAT over Sep-2012 quarter. Private Banks, NBFC, Auto and Consumer are also high positive contributing sectors whereas PSU Banks, Capital Goods and Cement are major drags on aggregate PAT.
Cement
-215 -442 Capital
Real
-134-156
Oil Excl.
Health
MOSL*
Media
Consumer
Retail
Cement
Utilities
Telec om
Metals
Real Es tate
Financials
Consumer
MOSL Ex .
Auto
Oil Ex. RMs
Media
Health Care
Technology
-5
-7 -19 -50 -83
Others
-1 -1 -1
October 2013
72 58 48
Telecom
5
Metal s
9
Auto
12 12 12 11 11
Technology
17 15 14
121 102
Retail
215
24
Cap Goods
31
EBITDA Margin delta by sector (bp): Technology tops again
Utiliti es
Sales growth by sector (%): USD-denominated businesses lead
A–11
India Str at egy | The Trilemma!
EBITDA growth by sector (%): USD and secular plays dominate 39
PAT growth by sector (%): A near encore of EBITD A growth 29 17 15 13 13 11 9
26 20 19 18 15
11 10
7
6
5
8
3
5 -1
-6 -7
-7
-3 -31 -32 Oil Ex. RMs
Re al Estate
Te lecom
Fi nancials
Ce me nt
Cap Goods
2
2
1
1
0
Ce me nt
Te lecom
Re al Estate
Media
MOSL Ex.
Uti litie s
Retail
Auto
Me tals
Consume r
Media
2 Cap. Goods
Contribution to 2QFY14 PAT growth by sector (%)
Health
Technology
Cap Goods
Ce ment
Re tai l
Uti litie s
Fi nancials
Oil Ex. RMs
MOSL Ex.
Re al Estate
Te le com
Consume r
Metals
Media
Health
Auto
Technol ogy
-20 -22
Sector-mix of 2QFY14 PAT (%) 21
92 44 30 28 27 23 23 21 3
1
12 11 11
-2 -4 -10
8
7
7
6
-26 -36
6
4
Retail
Health
Consume r
NBFC
Auto
Banks - PSU
Banks - Pvt
Uti litie s
Metals
Technology
Oil Ex. RMs
Banks - PSU
Cap. Goods
Ce me nt
Oil Ex. RMs
Te lecom
Re al Estate
Retail
Media
Health
Consume r
Auto
NBFC
Uti litie s
Banks - Pvt
Metals
Technology
-115
Other sector highlights Oil & Gas PAT stagnating
Sep11 Dec11 Mar12 Jun12 Sep12 Dec12 Mar13 Jun13 Sep13E
167 129 135 145 163 157 126 133 161
Oil & Gas ex RMs Qtr PAT (INR b)
Overall
Expect Technology, Healthcare and Consumer to clock their highest ever sector PAT in a quarter. Media should clock its highest ever September quarter PAT of INR5.4b, which is close to its all-time high quarterly PAT of INR5.6b in 1QFY14. For some sectors - Oil & Gas (ex RMs), Metals, Utilities and Cement - quarterly PAT run rate is stuck in a band. Consumer and Retail are the only two sectors where all companies are expected to clock positive PAT growth. Cement has the dubious distinction of all companies likely to report PAT de-growth.
Automobiles PAT growth divergence
45 PAT growth YoY (%) 30 M&M 15 0 -15 B ajaj Auto
October 2013
Dec-13E Mar-14E
Sep-13E
Mar-13 June-13
Dec-12
S ep-12
-30
PAT growth of 11% YoY is primarily led by 27% YoY growth in Tata Motors PAT on the back of JLR. Ex Tata Motors, sector PAT is flat, dragged down by M&M (-13% YoY) and Ashok Leyland (profit to loss). Maruti 's profits remain volatile; expect 110% YoY growth in PAT in Sep-2013 quarter.
Capital Goods
Expect second successive quarter of 32% PAT de-growth YoY primarily given 57% expected PAT de-growth for BHEL. BHEL's performance is expected to remain weak for the rest of FY14; however, some companies like Crompton, ABB and Siemens could post PAT growth in 2HFY14 given base effect of FY13. A–12
India Str at egy | The Trilemma!
Technology, Consumer, Healthcare to clock all-time high quarterlyPAT; Media highest ever Sep quarter PAT Technology Sector Quarterly PAT (INR b)
Consumer Sector Quarterly PAT (INR b)
97.9 65.0
67.4
73.9
76.2
76.1
80.5
85.6
42.9 39.6
54.4
44.3
40.8
38.0
Sep-13E
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Dec-11
Sep-11
Sep-13E
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Mar-12
36.4
35.5
Sep-11
46.3
44.8
Media Sector September Quarter PAT (INR b)
Healthcare Sector Quarterly PAT (INR b)
5.4
33.3
23.0
24.4 21.8
4.1
4.3
S ep-11
33.3 29.3
S ep-10
34.4
4.6
3.1
26.8 23.1
Cement: The worst over?
46 39
Ce ment PAT (INR b ) Yo Y (%) 48 38 32 28 -14 -30
Sep-13E
S ep-12
S ep-09
S ep-08
Sep-13E
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
0.9
Cement
All Cement companies are expected to clock PAT de-growth. However, Sep-2013 quarter may well see the worst behind for the sector. Some demand revival in the following quarters coupled with low base of 2HFY13 may see 2HFY14 PAT bounce back to positive YoY growth.
Consumer
2HFY14
1HFY14
2HFY13
1HFY13
All Consumer companies are expected to clock positive PAT growth. Aggregate PAT growth of 13% YoY is contingent on performance of ITC (+14% YoY) and HUL (+7% YoY), which together account for almost two-thirds of sector PAT.
Financials
Expect first ever quarter of YoY PAT de-growth led by 33% de-growth in PSU Banks' PAT on the back of higher NPA provisions and MTM losses on their securities portfolio. Within Financials, the private and the public sector present a study in contrast. Among Private Banks and NBFCs, only one company in each sub-sector is expected to see PAT de-growth - Federal Bank and IDFC. Against this, among PSU banks, only one company is likely to report positive PAT growth, viz, Bank of Baroda. Expect NBFCs led by PFC and REC to report a strong 14% PAT growth despite an adverse business environment. HDFC will report mere 5% growth due to high base of sale of investment gains in 2QFY13.
October 2013
A–13
India Str at egy | The Trilemma!
Sharp 33% YoY dip in PSU Banks' PAT … Pri vate Bank s
102 84
82
83
38
37
41
42
45
46
53
58
55
58
Dec-11
92
Financials PAT growth YoY (%)
51.1
PSU B anks
Sep-11
75
NBFC
… to lead to first ever YoY PAT de-growth for Financials
83
36.5
87 56
17.6
13.4
47
55
52
52
68
72
69
66
13.7
10.3
4.9
10.5
Sep-13E
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Sep-13E
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
-7.3
Only one company each in Pv t Banks and NBFC to see PAT de-growth; in contrast, only one PSU Bank to see PAT growth
28
HDFC Kotak Ma h. In dusIn d ING Vys ya Axi s
6
ICICI
6
Yes
PSU B anks 2QFY14 PAT growth
NB FC 2QF Y14 PAT growth
Pvt Banks 2QFY14 PAT growth
22 20 16
LIC HF
37
Ba jaj
32
-22
PNB
REC
23
S BI
HDFC STF IDFC -10
Fede ral -24
-20
23
21
69
Ori en tal
M&M Fi n
PFC
3
BOI
-35 -39
B OB
5
Cana ra
-44
4
Uni o n
-47
Indi a n -59
Metals
Metals PAT is expected to grow at a reasonably healthy 13% YoY on the back of profit rebound in Tata Steel, Nalco, and SAIL. Steel companies are expected to have a good quarter led by ~20% volume growth on low base. Non-ferrous companies are expected to benefit from higher rupee realization on the back of weak INR.
Telecom
Telecom PAT is expected to decline 7% YoY despite 11% YoY growth in EBITDA on the back of improving RPM. Bharti is a major drag on sector PAT. Despite 8% EBITDA growth, PAT is expected to decline 54% YoY on the back of MTM forex losses. Ex Bharti, sector PAT is expected clock 47% growth, the highest across sectors. Idea is expected to follow up its 100%+ PAT growth in 1QFY14 with 80% growth in 2Q. Profit growth momentum for the sector is expected to be sustained in 2HFY14 and FY15.
October 2013
A–14
India Str at egy | The Trilemma!
Nifty and the dollar divide We classified the 50 Nifty companies into (1) USD-denominated and (2) Others. The USD-denominated Nifty includes Technology, Healthcare, Metals, Oil & Gas (Reliance, Cairn) and Tata Motors' JLR operations. The key findings are as under USD-denominated Nifty is expected to clock aggregate PAT growth of 19% YoY, whereas others are likely to see PAT de-growth of 5%. USD-denominated Nifty's Sales growth has been consistently higher than others, but the gap is expected to widen sharply in Sep-2013 quarter on the back of 13% YoY depreciation in the INR. Interestingly however, such a steep depreciation of the rupee is not expected to lead to a major boost in EBITDA margins (Sep-2013 USD-denominated EBITDA margins are expected to be up only 50bp YoY). This implies that the weak INR has significantly helped cushion cost pressures and/or increase volume growth on the back of lower USD selling prices to customers. EBITDA and PAT growth of both USD-denominated and others mirrors Sales growth. For USD-denominated Nifty, PAT growth is broadly in line with EBITDA growth. For non-USD Nifty, PAT growth is lower than EBITDA growth due to (1) higher interest cost, and (2) MTM forex losses. Nifty - USD sales growth poised to sky-rocket … $ D e n omi n a te d
T o ta l N i fty Co mp a n i e s Oth e rs
25
8
5
Mar-14E
Dec-13E
Sep-13E
June-13
Mar-13
Dec-12
7 -1
6 0
9 4 -3
-3 June-13
Ma r-13
Dec-12
-11
18 10
1
10 6
-5 Mar-14E
1
7 10
9 8
25
Dec-13E
9
17
19
Sep-13E
11
9
$ D e no mi na te d
21
Se p-12
4
Sep-12
Mar-14E
1
15
June-12
June-12
Mar-12
Dec-11
Sep-11
June-11
-1
8
1
Sep-13E
6
17
25 26
Ma r-12
3
24
Dec-11
4
5
3
13
28
Se p-11
6 4
20
June-11
10
June-13
8
16
Mar-13
9
8 7
Dec-12
15 16
14 8
Expect USD PAT growth to be much higher than non-USD T ota l Ni fty Com pa ni e s Oth e rs 37
Mar-14E
16 13
Sep-12
16
$ D e n omi na te d 28 24 19 14 10 8 6
Dec-13E
T ota l Ni fty Comp a ni e s Othe rs 26
June-12
Dec-13E
EBITDA growth in line with sales growth for USD & non-USD
17 .3 16 .8 1 5.4 1 5. 0 15 .3 15 .4 15 .0 16 .7 1 6.0 1 5.9 1 6. 2 16 .0 Mar-12
7
Dec-11
4
7
Sep-11
5
3
3
June-11
13
Sep-13E
10
12
8 6
3 2.8 32 .3 31 .5 32 .2 32 .3 30 .7 30 .9 30 .8 3 1.6 30 .6 3 1. 2 31 .5
16
June-13
8
Dec-12
9
$ D e n o m i n a te d
2 4.9 2 4.6 2 3.4 2 4. 0 23 .5 22 .9 22 .9 24 .0 2 3.5 2 2.6 2 3. 2 23 .4
19
Mar-13
20
Sep-12
June-12
Mar-12
June-11
20
Dec-11
25
Sep-11
30
T ota l N i fty Com pa ni e s Othe rs 33 27 24 19 1 8 21 15 17 12 18 17 16 15
… but no major impact on margins
Expect Sensex PAT growth of 5% YoY
Based on bottom-up estimates of its 30 constituent companies, Sensex 2QFY14 PAT is expected to grow 5% YoY. This is a recovery of sorts from the -4% YoY recorded in 1QFY14. The growth is expected to further improve in 2H to 11%. Still, for several quarters now, Sensex PAT growth has remained below the LPA of 15%. October 2013
A–15
India Str at egy | The Trilemma!
The top 5 PAT growth companies are expected to be: Tata Steel (loss to profit), Maruti (+110% YoY), Dr Reddy's (+39%), Sun Pharma (+36%) and TCS (+30%). The top 5 PAT de-growth companies are expected to be: BHEL (-57% YoY), Bharti (-54%), State Bank (-35%), Tata Power (-34%) and Jindal Steel (-31%). Expect 2QFY14 Sensex PAT growth of 5% YoY, 6th successive quarter below LPA of 15% 43 31 30
33 30
44 26 17 19
26 27
25 23
20
LPA: 15%
29 22 12 15
14 6
-7
7
11 11 2
-2
-25 -15
3
5 -4
-21
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q F Y07
F Y08
FY09
FY10
FY11
FY12
FY13
FY14E
Sensex Companies 2QFY14E Performance (INR b) Company Sep-13
Sales Var % YoY
EBITDA Sep-13 Var % YoY Sep-13
PAT Var % YoY
PAT Contbn (%) Delta Gr. (%)
High PAT Growth (8) 1,472 16 278 32 138 38 28 38 Tat a Steel 369 8 37 58 4 LP 1 8 Maruti Suzuki 101 21 10 90 5 110 1 3 Dr Reddy’ s Labs 34 21 8 24 5 39 1 1 Sun Pharma 35 42 14 38 10 36 2 3 TCS 208 33 65 47 46 30 9 11 HDFC Bank 45 20 33 27 20 28 4 4 Tata Mot or s 537 24 75 41 26 27 5 6 NTPC 145 -10 37 -13 22 17 5 3 Med/Low PAT Growth (10) 962 13 367 16 216 7 44 15 ITC 81 12 31 14 21 14 4 3 Infosys 127 29 36 24 27 12 5 3 Coal India 157 8 32 13 33 7 7 2 Hind. Unilever 68 8 11 12 9 7 2 1 Sesa Goa 197 14 71 17 24 7 5 2 Bajaj Auto 47 -5 10 6 8 6 2 0 ICICI Bank 39 15 35 10 21 6 4 1 ONGC 229 16 124 21 62 5 13 3 HDFC 16 17 17 7 12 5 2 1 Negative PAT Growth (12) 2,235 9 320 -4 136 -19 28 -32 Hero Motocorp 57 10 5 19 4 -1 1 0 Larsen & Toubr o 141 7 14 1 9 -5 2 0 Reliance Inds. 1,015 12 74 -4 53 -1 11 0 Cipla 27 31 6 7 4 -7 1 0 GAIL 132 16 15 10 9 -9 2 -1 Mahindra & Mahindra 84 -9 11 -18 8 -13 2 -1 Hindalco 225 14 24 9 8 -14 2 -1 Bharti Airtel 209 8 64 8 3 -54 1 -4 JSPL 49 5 14 -15 6 -31 1 -3 Tata Power 97 26 15 2 1 -34 0 -1 State Bank 117 6 65 -11 24 -35 5 -13 BHEL 82 -21 11 -43 5 -57 1 -7 Sensex (29) 4,668 12 964 12 490 5 100 21 Note: For Financials, Sales represents Net Interest Income, and EBITDA represents Operating Profit October 2013
180 36 12 6 13 50 20 26 16 71 12 13 11 3 7 2 5 15 3 -151 0 -2 -2 -1 -4 -6 -6 -18 -13 -3 -60 -34 100
EBITDA margin Sep-13 Var (bp) 19 10 10 23 40 31 73 14 25 38 38 28 21 16 36 21 91 54 105 14 10 10 7 23 12 12 11 31 30 16 56 13 21
226 314 349 63 -100 290 412 171 -75 101 80 -126 96 52 102 220 -391 207 -946 -204 71 -65 -122 -522 -59 -137 -44 19 -683 -374 -1124 -515 -1
A–16
India Str at egy | The Trilemma!
Intra-sector 2QFY14 earnings divergence (%) Sectors
Sector Growth (%)
High growth sectors Technology 29 Health Care
Media
17
15
NBFC
14
Metals
14
Consumer
Banks - Private
Autos
13
12
11
Medium/Low growth sectors Retail 9 Utilities
8
PAT degrowth sectors Oil & Gas -1 (Ex RMs) Real Estate -6
+30% Growth
15-30% growth
0-15% growth
-ve earnings growth (%)
Tech Mahindra: 5 9%, TCS: 30% Infosys: 12%, MphasiS: -3% HCL Tech: 54% Persistent Sys.: 9% Ca dila: 7 5%, Dr Reddy’s: Glenmark: 26%, Sanofi India: 13%, Cipla: -7%, 39%, Sun Pharma: 36%, Torrent Pharma: 15%, Biocon: 7% Ranbaxy Labs: -19%, Divis Labs: 33% Lupin: 15% IPCA Labs.: -20% PVR: 61% DB Corp: 21%, Zee Ent.: 14%, HT Media: -41%, Sun TV: 21% Jagran Prak.: 9% Dish TV: Loss LIC Housing: 37%, M&M Financial: 23%, HDFC: 5%, Shriram IDFC: -10% Bajaj Finance: 32% REC.: 23%,PFC: 21% Transport Fin: 4% SAIL: 85%, Hind. Zinc: 12%, Hindalco: -14%, Tat a Steel: LP JSW Steel: 10%, NMDC: -19%, Sesa Goa: 7% JSPL: -31% United Spirits: 125%, Godrej ITC: 14%,Dabur: 13%, Britannia: 69%, Consumer: 18%, Nestle: 12%, Asian Radico Khaitan: 33% Marico: 18% Paints: 9%, HUL: 7% HDFC Bank: 28%, Axis Bank: 6%, Federal Bank: -24% Kotak Bank: 22%, ICICI Bank : 6%, IndusInd Bank: 20%, Yes Bank: 3% Maruti Suzuki: 110%, Tata Motors: 2 7%, Bajaj Auto: 6% HeroM.: -1%, M&M: Eicher Motors: 35% Exide Inds.: 26% -13%, AshokL: PL Shopper ’s Stop: 64%, Future Retail: 39% JSW Energy: 55%
Oil India: -2%, GAIL: -9%, RIL: -1% Phoenix Mills: 10%, DLF: -2%, Unitech: 1% Oberoi Realty: -21% Teleco m -7 Idea Cellular: 80%, Reliance Bharti Bharti Infratel: 38% Comm: 5% Airtel: -54% Cement -31 SRCM: -64%, ACEM: -38%, UTCEM: -28%, ACC:-26%,Grasim:-1% Capital Goods -32 ABB: 69% Crompton Havells L&T: -5%, Thermax: Greaves: 24% India: 7% -20%, BHEL: -57% Banks - PSU -33 Bank of India: 69% PNB: -22%, SBI: -35%, BoB:-39%,UNBK:-47% Earnings momentum: Represents number of companies in each of the growth brackets; PL: Profit to Loss; LP: Loss to
October 2013
Cairn India: 50%, MRPL: LP Prestige Estates: 62%
NTPC: 17%, NHPC: 16%
Jub. Foodworks: 11%, Titan Industries: 6% Power Grid: 12%, Tata P ower: -34%, Coal India: 7%, PTC India: -46% CESC: 4% ONGC: 5%
Earnings momentum 1
5 1
2
4 3
2
4
1 2
2
2
2 3 2
1
3 0 3
3 2
0
4
3
8
0
3 1
2
1 3
2 0
2 0
2
1
2 3 4
2 0 1 1 0
2 0 0
0
1 1 1
0
6
2 5 1 1
0
8
1 5 0
7
Profit
A–17
India Str at egy | The Trilemma!
FY14/15 ESTIMATES Earnings slowdown, downgrades persist FY14/15 Sensex EPS cut 3%/4%; expect FY13-15 Sensex EPS CAGR of 11%
Aggr egate PAT to grow 6% in FY14; expect rebound in FY15 to 14%. FY13-15 Aggregate PAT CAGR works out to 10%. FY14 Sensex EPS is downgraded 3% (from Jun-13 estimates) to 1,289. SBI, Reliance, Coal India, ICICI Bank and Hindalco are the major contributors. FY15 Sensex EPS is downgraded 4% (from Jun-13 estimates) to 1,476. 5 companies ONGC, SBI, ICICI Bank, Coal India, and M&M - account for more than 100% of the downgrade. FY13-15 Sensex EPS CAGR stands at 11% v/s 14% a quarter ago.
Aggregate PAT to grow 6% in FY14; expect rebound in FY15 to 14% Based on bottom-up estimates, we expect MOSL Universe of 159 companies (ex RMs) to report aggregate FY14 PAT growth of 6% YoY. Growth is dragged down by two major factors First ever de-growth in Financials (-3%), a heavyweight sector accounting for 25% of FY13 Aggregate PAT; and 6% growth in Oil & Gas (ex RMs), which has the second highest share of FY13 Aggregate PAT (18%). Excluding Financials and Oil & Gas, FY14 PAT growth is a reasonable 11%. In FY15, aggregate PAT growth is expected to rebound to 14%, largely led by a bounce back in these very two sectors. Expected FY14 PAT growth muted at 6% …
… led by F inancials' first ever PAT de-growth
MOSL ex RMs PAT growth (%)
Financials Sector PAT growth (%) 47
44 32 24
26 14
25
21
20
First ever PAT de-growth for the sector 18
15
15
14
11 6
5
6 -3
FY07
FY08 FY09
FY10
FY11
FY12
FY13 FY14E FY15E
FY07 FY08
FY09 FY10 FY11 FY12 FY13 FY14E FY15E
Expect FY13-15 Aggregate PAT CAGR of 10% FY13-15 aggregate PAT CAGR works out to 10%. 50% of the FY13-15 PAT delta comes from just 3 sectors - Technology, Oil & Gas and Financials. Besides these, FY15 numbers are also contingent on (1) sustained high profit growth in Telecom (11% of FY13-15 PAT delta), and (2) a sharp upswing in Auto (10% of FY13-15 PAT delta on the back of expected 23% PAT growth in FY15).
October 2013
A–18
India Str at egy | The Trilemma!
FY14/15 Estima tes: Expect 10% PAT CAGR over FY13-15 Sales Gr./
EBIDTA
Margin
EBIDTA
PAT
PAT Gr. /
PAT
Sector (No of Companies)
Sales CAGR EBIDTA Margin Delta CAGR (INR CAGR delta (INR b) (%) (INR b) (%) (bp) (%) b) (%) FY13-15 FY13 FY14E FY15E FY13-15 FY13E FY13 FY14E FY15E (FY13-15) FY13 FY14E FY15E FY13-15 Sh. (%)
High PAT CAGR (>20%) Telecom (4) Media (8) Health Care (13) Real Estate (11) Medium PAT CAGR (10-20%) Technology (10) Consumer (13) Retail (3) Auto (8) Low PAT CAGR (up to 10%) Excl. RMs (10) Oil & Gas (13) Cement (15) Utilities (10) Financials (31) Private Banks (10) PSU Banks (12) NBFC (9) Metals (9) Capital Goods (8) Others (6) MOSL Excl. RMs (159) Sensex (30) Nifty (50)
2,456 1,306 143 791 216 6,963 1,940 1,182 137 3,702 18,575 7,407 16,501 1,194 2,015 2,197 541 1,359 296 4,194 1,569 211 28,205 9,728 11,087
14 11 17 17 22 16 25 14 20 12 10 14 11 4 7 11 16 7 20 9 -1 10 12 12 11
12 9 14 15 14 14 12 15 18 14 7 2 0 14 14 16 18 15 16 7 3 11 9 8 8
13 10 16 16 18 15 18 15 19 13 8 8 5 9 10 13 17 11 18 8 1 10 10 10 10
708 397 41 193 77 1,226 489 242 14 480 4,678 1,122 1,356 242 605 1,735 452 997 286 787 188 37 6,649 1,930 2,285
50% of FY13-15 PAT delta c omes from just 3 sectors - Technology, Oil & Gas, Financials
114 154 81 96 66 -5 -73 22 40 35 160 176 133 149 -1 80 48 92 43 -3 -77 56 105 101 104
17 211 16 45 18 19 17 112 20 36 18 785 18 383 16 168 19 9 17 226 11 2,526 11 643 11 715 10 110 12 383 12 904 17 278 8 432 17 193 10 351 -7 134 12 22 13 3,545 13 1,038 12 1,231
31 66 20 26 13 17 24 15 13 8 1 6 5 -7 5 -3 9 -19 15 8 -21 -1 6 7 6
35 70 25 19 32 17 13 18 19 23 11 13 16 26 11 15 17 13 15 0 0 19 14 15 14
33 68 23 22 22 17 18 16 16 15 6 9 10 8 8 6 13 -4 15 4 -11 9 10 11 10
21 11 1 7 2 37 20 8 0 10 41 16 20 2 8 14 10 -5 8 4 -4 1 100 NA NA
FY14 sectorwise PAT share; FY15 share remains almost the same 23
PAT delta (F Y13-15): % share 14
FY14 PAT Share (%) 18
4
12 2
2
1
0
11
10 6
5
4
3
3
2
2 Others
7
Telecom
8
Cement
8
Cap. Goods
11 10
85 193 20 -63 81 85 93 45 -43 55 -53 -88 -40 -117 66 -268 24 -491 -124 84 -96 -8 -12 6 1
Healthcare
20 16
28.8 30.4 28.7 24.4 35.7 17.6 25.2 20.5 10.1 13.0 25.2 15.2 8.2 20.2 30.0 79.0 83.5 73.4 96.4 18.8 12.0 17.6 23.6 19.8 20.6
Consumer
Auto
Metals
Utili ties
Technology
Oil ex RMs
Fi nancials
Cap. Goods
Retail
Cement Real Estate Media
Consumer Health Care Metal s
Utiliti es
Auto
Telecom
Fi nancial s
Oil ex RMs
Technology
-4
FY14/15 Sector earnings: Interesting observations
TELECOM: After four consecutive years of PAT decline, easing competitive pressure should cause Telecom sector profits to rebound sharply in FY14 and FY15 with growth rates of 66-70% per annum. AUTO - TWO-WHEELERS: After negative growth in FY13 and likely muted growth of 6% in FY14, two-wheeler PAT should see a bounce back in FY15 on the back of: (1) Healthy monsoon reviving volume growth, especially in rural India, (2) No royalty burden for Hero MotoCorp, and (3) Full benefit of weak INR reflecting in Bajaj Auto's profits from exports. October 2013
A–19
India Str at egy | The Trilemma!
CEMENT: Like Autos, even Cement would benefit from expected higher rural demand in FY15 on the back of good monsoon led higher rural GDP growth. This should help the sector reverse the muted PAT performance of the preceding years i.e. 3% growth in FY13 and 7% de-growth in FY14. HEALTHCARE v/s TECHNOLOGY: In FY14, both Healthcare and Technology sectors are expected to clock similar healthy growth rates of 24-26%, on the back of weak INR. Going forward, our numbers do not factor in further weakening of the INR. Still, Healthcare PAT is expected to grow 19% in FY15 whereas Technology PAT is expected to grow at a much lower 13%. TELECOM: Expect sharp PAT recovery on easing competition Telecom PAT (INR b) 157
Growth (%) 66
151
133
2-W: FY15 PAT to rise on higher volumes, no royalty for Hero 2-W PAT (B ajaj+Hero ) (INR b)
126
18
-4
55
56
52
46
40
90
25 19
74
67
Growth (%) 70
70
14 8
45 -25
-33
-40 FY08
FY09
FY10
FY11
FY12
FY13
-6
FY14E FY15E
CEMENT: Demand revival, pricing discipline to aid PAT rebound Cement PAT (INR b ) 103
108
Growth (%) 107
110
92
FY10
FY11
FY12
FY13
49
129
PAT growth (%) Techno l ogy Hea l thcare 27
81
FY15E
TECH v/s HEALTHCARE FY15 PAT: Healthcare to outgrow Tech
103
21 31
FY14E
18 19
26
17
19 18
FY11
FY12
20
24 26 19 13
17 3 -7
-10 -25 FY08
FY09
FY10
FY11
-7 FY12
FY13
FY14E FY15E
FY09
FY10
FY13
FY14E
FY15E
FY14 Sensex EPS cut 3% led by SBI Over the last 3 months, Sensex EPS for FY14 has seen a downgrade of 3% from 1,327 to 1,289. More than half the downgrade is attributable to one single company, State Bank of India. Reliance Industries, Coal India, ICICI Bank and Hindalco are the other major contributors to the downgrade. The top 5 companies which are expected stem the tide are all dollar plays - Wipro, Tata Motors/JLR, Infosys, TCS and Sun Pharma.
October 2013
A–20
India Str at egy | The Trilemma!
3% cut in FY14 Sensex EPS since June 2013 FY14 EPS (INR)
FY14 EPS Gro wth Yo Y (%) 16
16 14
14
14 11 8
1,431
1,387
1,395
1,389
1,368
1,327 1,289
Mar 12
Ju ne 12
SBI accounts for over half the INR37 cut in FY14 Sensex EPS Bottom5ContributorstoFY14EPS(INR)
Se p 12
De c 12
Mar 13
6
6
Sep 13
Positive contributors to FY14 Sensex EPS are all dollar plays 7
To p 5 Co ntri buto rs to FY14 Se nse x EPS (INR ) 5
5
June 13
4
5 4 2
19 SBI
Rel i a nce Inds
Coa l Indi a ICICIBank
Hi ndal co
Hindalco, JSPL lead downgrades in FY14 despite weak INR
Wi pro
Tata Motors
Infos ys
TCS
Su n Pha rma
Companies with USD revenues see upgrades in FY14 EPS
Top 5 F Y14 EPS Downgrades (%)
Top 5 F Y14 EPS Up grad es (%) 14
14 12
11 7
-20
-19
Tata Po wer
Maruti
-24 -27 -31 Hi n dal co
JSPL
SBI
Tata Motors
S un Pharma
Ci pl a
Infos ys
Wi pro
FY15 Sensex EPS cut 4% led by 3 PSUs Over the last 3 months, Sensex EPS for FY15 has seen a downgrade or 4% from 1,536 to 1,476. 5 companies - ONGC, SBI, ICICI Bank, Coal India, and M&M - account for more than 100% of the downgrade. The dollar earners are likely to continue to their damage control act even in FY15.
October 2013
A–21
India Str at egy | The Trilemma!
4% cut in FY15 Sensex EPS since June 2013 FY15EPS(INR)
FY15EPSGrowthYoY(%) 16
14
14
14
1,573
1,573
1,573
1,573
Dec12
Mar13
June13
Sep13
3 PSUs - ONGC, SBI, Coal India - lead FY15 Sensex EPS cut
Dollar plays remain positive contributors to FY15 Sensex EPS
Bottom5Contri butors toFY15EPS(INR) 9
Top5Contri butors toFY15EPS(INR) 8 7
6
5
6
8 4
23 ONGC
21 SBI
ICICI Ba nk
Coa l Indi a
Rel i ance Inds
4 of the top 5 downgrades are common to both FY14, FY15
Infos ys
Wi pro
Ses a Goa
TCS
Sun Pharma
Dollar plays continue their earnings upgrade into FY15 as well Top5FY15EPSUpgrades (%)
Top5FY15EPSDowngrades (%)
19
19 16 11 8
18 22 26
21
26
Ta taPower Hi ndal co
SBI
JSPL
M&M
Sun Pharma
Infos ys
Ses a Goa
Ci pla
Wipro
FY13-15 Sensex EPS CAGR at 11% Post the FY14 and FY15 downgrades, Sensex EPS CAGR for FY13-15 stands lower at 11% v/s 14% a quarter ago. Just five stocks in two sectors - Technology (TCS, Infosys, Wipro) and Oil & Gas (ONGC, Reliance) - account for almost half the incremental PAT, FY15 over FY13.
October 2013
A–22
India Str at egy | The Trilemma!
FY08-13 EPS CAGR at 7%; expect rebound in FY13-15
FY15E
1,190
1,289
FY14E
F Y10
1,123
F Y13
834
F Y11
820
F Y09
F Y03
F Y07
F Y02
F Y06
F Y01
523
F Y05
236
F Y04
216
450
833
F Y08
1,024 718
348
1,476
F Y12
FY01-08: 21% CAGR
272
FY13-15E: 11% CAGR
FY08-13: 7% CAGR
FY01-13A: 15% CAGR FY01-15E: 15% CAGR
Sensex Perfomance: Expect FY13-15 PAT CAGR of 11%
Company High PAT Growth (6) Tata St eel Bharti Airtel Sun Pharma HDFC Bank TCS Hero MotoCorp Medium PAT Growth (12) Cipla Dr Reddy ’s Labs ITC Tat a Motor s Wipro Infosys HDFC M&M ONGC Bajaj Auto Maruti Suzuki NTPC Low PAT Growth (12) ICICI Bank Hind. Unilever Reliance Inds. Coal India Sesa Goa Larsen & Toubro Hindalco GAIL State Bank Tat a Power JSPL BHEL Sensex (PAT free float)
October 2013
Sales Sales EBIDTA EBITDA PAT PAT PAT Contbn (INR b) CAGR Margin (%) CAGR (INR b) YoY (%) CAGR to Delta FY13 FY14 FY15 % FY13 FY14 FY15 % FY13 FY14 FY15 FY13 FY14 FY15 % % 3,252 1,347 769 112 158 630 236 6,817 83 116 299 1,888 374 404 62 687 1,614 200 442 647 8,668 139 258 3,603 683 712 609 802 473 612 96 198 484 18,737
3,737 1,470 853 156 188 817 253 7,725 106 136 340 2,251 434 499 74 743 1,812 208 449 674 9,357 157 287 4,007 727 750 658 888 531 650 105 202 394 20,819
4,025 11 22.2 1,473 5 9.1 921 9 30.2 180 26 43.0 229 20 72.3 931 22 28.7 293 11 9.5 8,711 13 22.9 122 21 26.5 151 14 21.3 390 14 35.5 2,588 17 14.1 474 13 20.8 552 17 28.6 85 18 108.7 825 10 13.3 1,976 11 33.4 238 9 18.2 508 7 9.6 801 11 26.5 9,796 6 19.7 182 14 95.2 327 12 15.5 3,879 4 8.5 773 6 26.5 841 9 35.1 738 10 10.5 995 11 10.0 610 14 13.3 748 11 67.3 115 10 21.2 274 18 33.2 315 -19 19.4 22,533 10 21.3
24.5 25.7 11.1 11.1 31.9 33.6 42.2 41.2 75.6 78.9 30.2 28.8 10.6 13.1 22.7 23.4 23.3 22.4 21.1 22.0 36.6 36.4 14.9 14.7 22.6 22.1 27.5 27.8 105.7 105.8 12.2 12.9 32.2 35.6 20.1 20.3 10.2 11.0 24.3 23.9 18.7 19.9 94.4 93.5 15.8 15.7 7.6 8.7 28.3 28.1 37.3 34.7 10.2 10.0 10.5 11.5 11.8 11.5 59.7 63.2 23.0 21.7 29.9 29.8 16.9 12.8 21.2 22.3
20 283 394 478 15 2 33 31 15 23 30 55 24 31 45 51 26 67 86 106 22 139 178 204 31 21 22 31 14 845 927 1,103 11 13 16 18 16 15 18 21 16 74 85 100 20 103 116 138 16 72 86 94 15 94 107 123 16 48 56 63 8 36 41 48 14 242 247 314 15 30 34 39 15 24 24 31 6 92 98 114 7 1,020 949 1,017 13 83 87 97 13 33 35 38 5 210 216 236 10 177 187 198 8 106 103 106 7 49 40 48 19 32 29 31 6 40 37 37 7 179 141 162 11 9 7 8 11 35 26 30 -34 66 41 25 12 1,038 1,111 1,272
6 39 -92 2,042 -47 33 31 46 30 28 31 28 -11 4 4 10 11 28 22 19 20 15 -18 12 15 19 13 13 18 15 19 12 -7 2 -2 11 44 -1 15 7 7 -7 29 4 28 7 5 3 9 6 4 -3 3 -18 -4 -11 10 -9 17 -21 -48 -22 -14 -27 -5 -37 6 7
21 -4 81 14 24 15 38 19 12 19 16 19 10 16 14 16 27 16 28 17 7 12 8 9 6 3 17 7 0 15 13 18 -40 15
30 353 55 29 26 21 20 14 19 19 16 16 14 14 14 14 14 14 12 11 0 8 7 6 6 0 -2 -2 -5 -5 -6 -7 -38 11
44 7 7 5 9 14 2 57 1 1 6 8 5 6 3 2 16 2 1 5 -1 3 1 6 5 0 0 0 -1 -4 0 -1 -9 100
A–23
India Str at egy | The Trilemma!
FY14/15 company earnings: Key observations
INFOSYS v/s TCS: Our estimates suggest that in FY15 PAT growth of Infosys and TCS should converge to 15-16%. However, TCS trades at over 30% premium valuation compared to Infosys. BHARTI AIRTEL: Bharti is poised to reverse three successive years of PAT de-growth in FY14 and FY15. HERO MOTOCORP: Expect 38% jump in FY15 earnings on the back of (1) higher rural volumes, and (2) no burden of royalty to Honda, Japan. TATA MOTORS: Expect reversal of FY13 PAT decline in the next two years led by (1) strong performance by JLR overseas, and (2) recovery in domestic vehicle demand. Trades at single digit P/E. ONGC: If the expected oil sector reforms come through, ONGC's subsidy sharing burden should significantly ease in FY15 and drive PAT growth. HINDUSTAN UNILEVER: Expect single-digit PAT growth in each of the two years FY14 and FY15. Yet, the stock continues to enjoy rich valuation (35x FY15E EPS).
INFY V/S TCS: PAT growth to converge, but TCS at premium PAT Growth (%)
Infy
TCS
BHARTI: Poised to reverse 3 years of PAT de-growth
TCS V al n. Prem. (%) 25
PAT (INR B)
PE (x) 49
34
33
43
9 -2
-9
30
23
-20
24
22 14
13
30 3
4 34
11 26
22 23
13 31
13 28
16 15
67
85
90
60
43
23
FY09
FY10
FY11
FY12
FY13
FY14E
FY15E
FY08
F Y09
F Y10
FY11
FY12
F Y13
HERO MOTO: Higher volumes, zero royalty t o fuel FY15 PAT PAT (INR B) 17
17 16
PAT(INRB)
13 21
13
22
20
24
21
FY08
FY09
FY10
FY11
FY12
FY13
22
31
FY14E FY15E
ONGC: Profit recovery contingent on oil sector reforms PAT (INR B ) 12 12
10
210
260
242
FY08
F Y09
F Y10
FY11
FY12
F Y13
October 2013
FY08
FY09
247
7
8
FY10
FY11
FY12
FY13
314
21
F Y14E FY15E
17 FY08
PE (x)
35
8
FY14E FY15E
38
35
35
38
30
30
29 7
194
9
9 15
PAT (INR B) 10
198
116
HIND. UNILEVER: Rich valuations but single-digit PAT growth
11
207
91
103
21
PE (x)
9
8
138
126 29 12P/E
10
FY14E F Y15E
PE(x)
19 15
14
55
TATA MOTOR S: Expect to rec over from FY13 PAT de-growth
PE (x) 17
30
25
25
21
21
FY09
FY10
FY11
26
FY12
33
FY13
FY14E FY15E
A–24
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dƌĂĚĞĚĞĨŝĐŝƚ ŚĂƐƐĞĞŶƐŝŐŶƐŽĨƐŚĂƌƉĐŽƌƌĞĐƚŝŽŶǁŝƚŚĂǀĞƌĂŐĞƌƵŶƌĂƚĞ ĚƌŽƉƉŝŶŐƚŽ h^ϭϮďŝŶƚŚĞůĂƐƚƚŚƌĞĞŵŽŶƚŚƐĨƌŽŵh^ϭϲďŝŶ&zϭϯ͘ dŚŝƐŚĂƐďĞĞŶĂŶŽƵƚĐŽŵĞŽĨĂĚĞĞƉĞƌĐŽƌƌĞĐƚŝŽŶŝŶŝŵƉŽƌƚƐĂŶĚĂŵŽĚĞƌĂƚĞƵƉƚŝĐŬ ŝŶ ĞdžƉŽƌƚƐ͘ tŝƚŚŝŶ ŝŵƉŽƌƚƐ ǁŚŝůĞ ŐŽůĚ ŝŵƉŽƌƚƐ ƉůƵŵŵĞƚĞĚ ƐŝŶĐĞ :ƵŶͲϭϯ ǁŚŝůĞ ŶŽŶͲŽŝůͲŶŽŶͲ ŐŽůĚ ƚŚĂƚ ĐŽŵƉƌŝƐĞƐ ŶĞĂƌůLJ ϲϬй ŽĨ ƚŽƚĂů ŝŵƉŽƌƚƐ ŶŽǁ͕ ŚĂǀĞ ĐŽŵƉƌĞƐƐĞĚ ďLJ ϰй ĚƵƌŝŶŐƉƌͲƵŐϮϬϭϯ͘ dŚŝƐ ĂďƐŽƌďĞĚ ƚŚĞ ŝŵƉĂĐƚ ŽĨ ŚŝŐŚĞƌ ŵŽŶƚŚůLJ Žŝů ďŝůů ŽĨ h^Ϭ͘ϴď ĐŽŵƉĂƌĞĚ ǁŝƚŚ Ă ĚĞĐůŝŶĞŽĨh^Ϯ͘ϭďŝŶzd&zϭϯ͘ DŽŶƚŚůLJĞdžƉŽƌƚƐŽŶƚŚĞŽƚŚĞƌŚĂŶĚĂǀĞƌĂŐĞĚϬ͘ϵďŚŝŐŚĞƌƚŚĂŶŝŶ&zϭϯǁŚĞŶŝƚǁĂƐ h^ϭ͘ϲďůŽǁĞƌƚŚƵƐŚĞůƉŝŶŐďƌŝĚŐĞƚŚĞĂǀĞƌĂŐĞŚĞůƉŝŶŐƌĞĚƵĐĞƚŚĞĂǀĞƌĂŐĞƚƌĂĚĞ ŐĂƉ͘
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India Str at egy | The Trilemma!
Falling imports and export uptick resulted in reduced trade deficit for the last three months
Aug-13
Mar-13
Oct-12
May-12
Dec-11
Jul-11
Feb-11
Sep-10
Apr-10
Aug-13
Mar-13
Oct-12
May-12
Dec-11
Jul -11
F eb-11
0 -5 -10 -15 -20 -25 Apr-10
Jul -11
Aug-13
10
Mar-13
16
20 Oct-12
28 May-12
22
Dec-11
28
36
Feb-11
34
44
Sep-10
52
Apr-10
Trade bal a nce Trend (Tra de b al ance)
Expo rts Tre nd (Exports)
Trend (Impo rts)
S ep-10
Imports
While import of oil continue to rise that of gold and non-oil-non-gold declines Oi l Imports Tre nd (Oi l i mports ) 8
Jul-13
Apr-13
Jan-13
Jul-12 Oct-12
Apr-12
Jan-12
Oct-11
Apr-11
Jul-13
Apr-13
Jan-13
Oct-12
Apr-11
Jul-13
Apr-13
Oct-12 Jan-13
Jul-12
Apr-12
Oct-11 Jan-12
Apr-11 Jul-11
6
21 20 18 Jul-12
2 0 Apr-12
4
9
Jan-12
12
24 23
Jul-11
6
Oct-11
15
Jul-11
18
No n-oi l -non -gol d Trend (Non-oi Tren(No n-oi ll-non-gold -non -gol d iimports) mports )
Gol d Tre nd (Gol d i mp orts)
FY14 CAD to correct sharply to 2.9% of GDP
Trade in services on the other hand have seen higher surplus by USD1.6b per month during YTDFY14 so far compared with no growth during YTDFY13. This was entirely due to a pick up in services exports while imports remained static. While data would be available with a lag, reports suggest a pick up in remittances as well. All these factors together can reduce India's current account deficit (CAD) to only USD51b from USD88b in FY14. This implies that vis-à-vis USD22b of CAD in 1QFY14 the CAD in the remaining quarters would come down dramatically below USD10b. As a percentage of GDP this means a sharp correction of CAD to only 2.9% in FY14 from 4.8% in FY13. A seasonal pick up in gold imports, higher oil prices and uncertainties of INR adversely affecting exporters are the risk factors to this scenario.
Services surplus is higher than YTD levels by USD1b a month Services surplus
FY12
FY13
FY14
7 5 4 2 0 Apr
October 2013
Ma y
Ju n
Jul
Aug
Sep
Oct
Nov
Dec
Ja n
Feb
Mar
A–26
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ƐŚĂƌƉĐŽƌƌĞĐƚŝŽŶŝŶŝƐůŝŬĞůLJ;h^ďͿ ϭϬϬ ϴϱ
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&zϭϯ
ϰϬ
'ŽǀĞƌŶŵĞŶƚͬZ/ŵĞĂƐƵƌĞƐLJŝĞůĚŝŶŐƌĞƐƵůƚƐ 'ŽǀĞƌŶŵĞŶƚͬZ/ŚĂƐƚĂŬĞŶŵĂŶLJŵĞĂƐƵƌĞƐƚŽĐƵƌďŐŽůĚŝŵƉŽƌƚƐ͕ĞŶĐŽƵƌĂŐĞĞdžƉŽƌƚƐ ĂŶĚ ĐĂƉŝƚĂů ĨůŽǁƐ͘ ĨƚĞƌ ƌ͘ ZĂũĂŶ ĂƐƐƵŵĞĚ ŽĨĨŝĐĞ͕ ŚĞ ŚĂƐ ƚĂŬĞŶ ŵĂŶLJ ŵĞĂƐƵƌĞƐ ƐƉĞĐŝĂůůLJ ƚĂƌŐĞƚĞĚ ƚŽ ĞŶƐƵƌŝŶŐ ƐƚĂďŝůŝƚLJ ŝŶ /EZ͘ dŚĞƐĞ ŵĞĂƐƵƌĞƐ ĂĚĚƌĞƐƐĞĚ ĚŝƌĞĐƚůLJ ƚŽ ƚŚĞ ĨŽƌĞdž ŵĂƌŬĞƚ ƌĂƚŚĞƌ ƚŚĂŶ ƚŚĞ ĞĂƌůŝĞƌ ĂƚƚĞŵƉƚ ƚŽ ǁŽƌŬ ŝƚ ƚŚƌŽƵŐŚ ƚŝŐŚƚĞŶŝŶŐ ůŝƋƵŝĚŝƚLJ ĂŶĚ ƌĂŝƐĞ ƚŚĞ ĐŽƐƚ ŽĨ /EZ͘ ůĞĂƌůLJ ƚŚĞ ůĂƚĞƌ ŵĞĂƐƵƌĞƐ ŚĂǀĞ ďĞĞŶ ƐƵĐĐĞƐƐĨƵů ŝŶ ůŝĨƚŝŶŐ ƚŚĞ /EZ ƵƉ͘ dŚĞ ůĂƚĞƐƚ ƚƌĞŶĚ ƐŚŽǁ ƚŚĂƚ &/ ĨůŽǁƐ ŚĂǀĞ ƉŝĐŬĞĚ ƵƉ ĂŶĚ ƐƚŽŽĚ Ăƚ h^ϵď ĚƵƌŝŶŐ ĨŝƌƐƚĨŽƵƌŵŽŶƚŚƐŽĨ&zϭϰƐŽĨĂƌ͕ƐŝŐŶŝĨŝĐĂŶƚůLJĂďŽǀĞh^ϱďĚƵƌŝŶŐƚŚĞĐŽƌƌĞƐƉŽŶĚŝŶŐ ƉĞƌŝŽĚ ŽĨ ƉƌĞǀŝŽƵƐ LJĞĂƌ͘ &//Ɛ ĚĞďƚ ŽƵƚĨůŽǁƐ ƚŚŽƵŐŚ ĐŽŶƚŝŶƵĞĚ ;h^Ϭ͘ϵďͿ͖ ĞƋƵŝƚLJ ĨůŽǁƐŚĂǀĞƐƵƌŐĞĚ;h^ϮďͿŝŶ^ĞƉͲϭϯ͘ ,ŽǁĞǀĞƌ͕ ƚŚĞ LJŝĞůĚ ŐĂƉ ďĞƚǁĞĞŶ h^ ĂŶĚ /ŶĚŝĂ Ăƚ ϴ͘ϱй ŝƐ Ɛƚŝůů ƌƵůŝŶŐ ŶĞĂƌ ƚŚĞŝƌ ƌĞĐĞŶƚ ŚŝƐƚŽƌŝĐĂů ƉĞĂŬ ŽĨ ϭϬ͘ϲй ĂŶĚ Ă ŶŽƌŵĂůŝnjĂƚŝŽŶ ǁŽƵůĚ ƉĞƌŚĂƉƐ ďĞ ĐĂůůĞĚ ĨŽƌ ŽŶĐĞĐŽŶĨŝĚĞŶĐĞŽŶĞdžƚĞƌŶĂůĂŶĚ/EZĨƌŽŶƚŝƐďƵŝůƚ͘
KĐƚŽďĞƌ ϮϬϭϯ
ʹϮϳ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
Z/ŚĂƐƚĂŬĞŶǀĂƌŝŽƵƐĚŝƌĞĐƚĨŽƌĞdžŵĂƌŬĞƚƌĞůĂƚĞĚŵĞĂƐƵƌĞƐƚŚĂƚŚĂƐďĞĞŶĞĨĨĞĐƚŝǀĞƚŽƐƚĂďŝůŝnjĞƚŚĞ/EZ ĂƚĞ
DĞĂƐƵƌĞƐ
ϮϴͲƵŐͲϭϯ
&ŽƌĞdž ƐǁĂƉ ǁŝŶĚŽǁ ŽƉĞŶĞĚ ĨŽƌ KDƐ ;/K͕ dŚĞ ŵŽƐƚ ĞĨĨĞĐƚŝǀĞ ŵĞĂƐƵƌĞ ƐŽ ĨĂƌ ƚŚĂƚ ƚŽŽŬ ŽŶĞͲƚŚŝƌĚ ŽĨ ƚŚĞ ,W> ĂŶĚ W>Ϳ /EZ ĚĞŵĂŶĚ ĂǁĂLJ ĨƌŽŵ ƚŚĞ ŵĂƌŬĞƚ ĨŽƌ ŐĞŶĞƌĂů ĐŽƌƉŽƌĂƚĞ ƉƵƌƉŽƐĞ ĂůůŽǁĞĚ ĨƌŽŵ 'ƌĞĂƚĞƌ ĨůĞdžŝďŝůŝƚLJ ĨŽƌ ĐŽƌƉŽƌĂƚĞƐ ĨŽƌ ĞdžƚĞƌŶĂů ĨƵŶĚŝŶŐ ĨŽƌĞŝŐŶ ĞƋƵŝƚLJ ŚŽůĚĞƌ ĐŽŵƉĂŶLJ ŽǀĞƌ ϳ LJĞĂƌ ŵĂƚƵƌŝƚLJ ĂŶŬƐ ĂůůŽǁĞĚ ƚŽ ŝƐƐƵĞ ŐƵĂƌĂŶƚĞĞ ŽŶ ďĞŚĂůĨ ŽĨ ŶĐŽƵƌĂŐĞ &/ Ăƚ ƚŚĞ ŵĂƌŐŝŶ Ă ŶŽŶͲƌĞƐŝĚĞŶƚ ďƌŝŶŐŝŶŐ ŝŶ &/ ^ǁĂƉ tŝŶĚŽǁ ƚŽ ĂƚƚƌĂĐƚ &EZ;Ϳ ŽůůĂƌ &ƵŶĚƐ ŵĞĂƐƵƌĞ ƚŚĂƚ ŚĂƐ ĨŽƵŶĚ ĨĂǀŽƵƌ ĂŵŽŶŐ ĨŽƌĞŝŐŶ ďĂŶŬƐ Ăƚ Ă ĨŝdžĞĚ ƌĂƚĞ ŽĨ ϯ͘ϱй ƵƌƌĞŶĐLJ ^ǁĂƉ ǁŝƚŚ :ĂƉĂŶ ĞŶŚĂŶĐĞĚ ƚŽ h^ϱϬď ǀĞƌLJ ƐŝŐŶŶŝĨŝĐĂŶƚ ďĂĐŬ ƵƉ ǁŝƚŚ ƉŽƚĞŶƚŝĂů ƚŽ ƐǁŝŶŐ ŵĂƌŬĞƚ ŵŽŽĚ KǀĞƌƐĞĂƐ ďĂŶŬ ďŽƌƌŽǁŝŶŐƐ ůŝŵŝƚƐ ĞŶŚĂŶĐĞĚ ƚŽ ^ĞĐŽŶĚ ŵŽƐƚ ƐƵĐĐĞƐƐĨƵů ŵĞĂƐƵƌĞ ƐŽ ĨĂƌ ϭϬϬй ;ĨƌŽŵ ϱϬйͿ ŽĨ dŝĞƌ / ĐĂƉŝƚĂů Žƌ h^ϭϬŵ ǁŚŝĐŚĞǀĞƌ ŝƐ ŚŝŐŚĞƌ ĂůŽŶŐ ǁŝƚŚ Ă ƐǁĂƉ ĨĂĐŝůŝƚLJ Ăƚ ϭϬϬďƉ ůŽǁĞƌ ƚŚĂŶ ƚŚĞ ŵĂƌŬĞƚ ƌĂƚĞ dŚĞ ĚĞĨŝŶŝƚŝŽŶ ŽĨ ŝŶĨƌĂƐƚƌƵĐƚƵƌĞ ƐĞĐƚŽƌ ďƌŽĂĚĞŶĞĚ &ƵƌƚŚĞƌ ůŝďĞƌĂůŝƐŝŶŐ ĚĞďƚ ĨůŽǁƐ ĨŽƌ ŝŶĨƌĂƐƚƌƵĐƚƵƌĞ ƐĞĐƚŽƌ ĨŽƌ ƚŚĞ ƉƵƌƉŽƐĞ ŽĨ ĂǀĂŝůŝŶŐ dƌĂĚĞ ĐƌĞĚŝƚ ĨĂĐŝ ůŝƚĂƚĞĚ ď LJ ďĂŶŬƐ ĂůůŽ ǁĞĚ ĨŽƌ tŽƵůĚ ƌĂŝƐĞ ƐŚŽƌƚͲƚ Ğƌŵ ĚĞďƚ ŽĨ /ŶĚŝĂ ĂŶĚ ƉƵƚ ĚŽŵĞƐƚŝĐ ĐŽŵƉĂŶŝĞƐ ŝŶ Ăůů ƐĞĐƚŽƌƐ ƵƉƚŽ h^ϮϬŵ ŝŶƐƚĞĂĚ ŝŶĚƵƐƚƌLJ Ăƚ Ă ĚŝƐĂĚǀĂŶƚĂŐĞ ŽĨ ŽŶůLJ ŝŶĨƌĂƐƚƌƵĐƚƵƌĞ Ăƚ ƉƌĞƐĞŶƚ >ŽǁĞƌƐ ƚŚĞ ŵŝŶŝŵƵŵ ŵĂƚƵƌŝƚLJ ĨŽƌ ŽǀĞƌƐĞĂƐ ďĂŶŬ ĚĚŝƚŝŽŶĂů ŝŶĐĞŶƚŝǀĞƐ ƚŽ ƉƌŽǀŝĚĞ ĨůŽǁƐ ƚŽ ĂĐŚŝĞǀĞ ŶĞĂƌ ďŽƌƌŽǁŝŶŐ ůŝŵŝƚ ĨƌŽŵ ƚŚƌĞĞ LJĞĂƌƐ ƚŽ ŽŶĞ LJĞĂƌ ƚĞƌŵ /EZ ƐƚĂďŝůŝƚLJ
ϰͲ^ĞƉͲϭϯ ϱͲ^ĞƉͲϭϯ ϲͲ^ĞƉͲϭϯ ϲͲ^ĞƉͲϭϯ ϭϬͲ^ĞƉͲϭϯ
ϭϴͲ^ĞƉͲϭϯ ϮϰͲ^ĞƉͲϭϯ
ϮϱͲ^ĞƉͲϭϯ
ŽŵŵĞŶƚƐ
džƉĞĐƚ/EZƚŽƐƚĂďŝůŝnjĞĂƚϲϬͲϲϮͬh^ůĞǀĞůƐ
/ƚŶĞĞĚƐƚŽďĞŵĞŶƚŝŽŶĞĚƚŚĂƚƚŚĞĞĂƌůŝĞƌůŝƋƵŝĚŝƚLJƚŝŐŚƚĞŶŝŶŐŵĞĂƐƵƌĞƐƵŶĚĞƌƚĂŬĞŶ ďLJ ƉƌĞǀŝŽƵƐ ŐŽǀĞƌŶŽƌ ŽĨ Z/ ĚŝĚŶΖƚ LJŝĞůĚ ƚŚĞŝƌ ŝŶƚĞŶĚĞĚ ƌĞƐƵůƚ͘ dŚŝƐ ŝƐ ƉƌŝŵĂƌŝůLJ ďĞĐĂƵƐĞ ĂƉĂƌƚ ĨƌŽŵ ƚŚĞ ĐŽƐƚ ŽĨ ĚŽŵĞƐƚŝĐ ĨƵŶĚƐ͕ ƚŚĞƌĞ ĂƌĞ ŵĂŶLJ ĚĞƚĞƌŵŝŶĂŶƚƐ ŽĨ ĞdžĐŚĂŶŐĞ ƌĂƚĞƐ ƚŚĂƚ ǁĞƌĞ ůĞĨƚ ƵŶĂĚĚƌĞƐƐĞĚ͘ ^ƵďƐĞƋƵĞŶƚ ŵĞĂƐƵƌĞ ƵŶĚĞƌ ƚŚĞ ĐƵƌƌĞŶƚ 'ŽǀĞƌŶŽƌ ŚĂƐ ĨŽĐƵƐĞĚ ŽŶ ĚŝƌĞĐƚ ĨŽƌĞdž ŵĂƌŬĞƚƌĞůĂƚĞĚŵĞĂƐƵƌĞƐƚŚĂƚŚĂƐĂƌƌĞƐƚĞĚƚŚĞƌĂƉŝĚĚĞĐůŝŶĞŝŶ/EZ͘ dŚĞ ƉŽƐŝƚŝǀĞ ĐŽŶƐĞƋƵĞŶĐĞ ŽĨ ƚŚĞ ůĂƚĞƌ ŵĞĂƐƵƌĞƐ ĂƌĞ ĨĞůƚ ŽŶ Ă ƐƚĂďůĞ /EZ ĂŶĚ Ă ŶĂƌƌŽǁŝŶŐLJŝĞůĚŐĂƉ͘Z/ŚĂƐĂůƐŽƐƚĂƌƚĞĚƌĞďƵŝůĚŝŶŐŝƚƐĨŽƌĞdžƌĞƐĞƌǀĞƐŝŶĞǀĞŶƚƵĂů ƉƌĞƉĂƌĂƚŝŽŶŽĨh^&ƚĂƉĞƌŝŶŐ͘ tĞĞdžƉĞĐƚ/EZƚŽ ƐƚĂďŝůŝnjĞĂƚϲϮͬh^ĨŽƌϮ,&zϭϰ͘,ŽǁĞǀĞƌ͕ĞǀĞŶĂƚƚŚŝƐůĞǀĞů/EZ ǁŽƵůĚ ĐŽŶƚŝŶƵĞ ƚŽ ďĞ ƐŝŐŶŝĨŝĐĂŶƚůLJ ƵŶĚĞƌǀĂůƵĞĚ ŝŶ ZZ ƚĞƌŵƐ͘ ,ĞŶĐĞ ǁĞ ĞdžƉĞĐƚ /EZƚŽĨƵƌƚŚĞƌĂƉƉƌĞĐŝĂƚĞƚŽϲϬͬh^ĚƵƌŝŶŐ&zϭϱ͘
^ŝŶĐĞ^ĞƉͲϭϮĐĂƉŝƚĂůĨůŽǁƐŚĂǀĞďĂƌĞůLJŬĞƉƚƉĂĐĞǁŝƚŚĐƵƌƌĞŶƚĂͬĐĚĞĨŝĐŝƚ &/ EZ/Ă ŶĚŽ ƚŚĞƌĚ ĞƉŽƐ ŝ ƚƐ
&// dƌĂĚĞ ĐƌĞĚ ŝ ƚ
Ă ŶĚŽ ƚŚĞƌĚ Ğďƚ KƚŚĞƌƐ
ϯϲ Ϯϰ ϭϮ Ϭ
KĐƚŽďĞƌ ϮϬϭϯ
:ƵŶͲϭϯ
DĂƌͲϭϯ
ĞĐͲϭϮ
^ĞƉͲϭϮ
:ƵŶͲϭϮ
DĂƌͲϭϮ
ĞĐͲϭϭ
^ĞƉͲϭϭ
:ƵŶͲϭϭ
DĂƌͲϭϭ
ĞĐͲϭϬ
^ĞƉͲϭϬ
:ƵŶͲϭϬ
ͲϭϮ
ʹϮϴ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
EĞƚ&//ƐƚŚĂƚƚƵƌŶĞĚĚĞĞƉŝŶŶĞŐĂƚŝǀĞŝƐĐŽŵŝŶŐďĂĐŬƚŽƉŽƐŝƚŝǀĞƚĞƌƌŝƚŽƌLJĂŐĂŝŶ &//ƋƵ ŝ ƚLJ /ŶǀĞƐƚ ;h^ Ϳ
&//Ğď ƚ/ŶǀĞƐ ƚ;h^ Ϳ
ϲ
&//Ɛ ĞƋƵŝƚLJ ĨůŽǁƐ ŚĂǀĞ ƌĞƐƵŵĞĚ ĂŶĚ ŽǀĞƌĂůů ĨůŽǁƐ ĂƌĞ ƉŽƐŝƚŝǀĞ ĂŐĂŝŶ
ϰ ϭ Ͳϭ Ͳϰ ^ĞƉͲϭϯ
ƵŐͲϭϯ
:ƵůͲϭϯ
:ƵŶͲϭϯ
DĂLJͲϭϯ
ƉƌͲϭϯ
DĂƌͲϭϯ
&ĞďͲϭϯ
:ĂŶͲϭϯ
ĞĐͲϭϮ
EŽǀͲϭϮ
KĐƚͲϭϮ
^ĞƉͲϭϮ
ƵŐͲϭϮ
:ƵůͲϭϮ
:ƵŶͲϭϮ
DĂLJͲϭϮ
ƉƌͲϭϮ
Ͳϲ
dŚĞLJŝĞůĚŐĂƉďĞƚǁĞĞŶ/ŶĚŝĂĂŶĚh^ŝƐƌƵůŝŶŐĂƚǀĞƌLJŚŝŐŚůĞǀĞůƐĞǀĞŶĐŽŵƉĂƌĞĚƚŽ>ĞŚŵĂŶůĞǀĞůƐ ŝ ĨĨϮͲzƌ;/Ŷ Ěŝ ĂͲ h^Ϳ
ϭϮ ϵ
ϲ͘ϳ
ϲ
ϴ͘ϱ
ǀŐϮͲLJƌLJŝĞůĚŐĂƉ͗ϰ͘ϴ ϯ͘ϴ
ϯ
^ĞƉͲϭϯ
:ĂŶͲϭϯ
DĂLJͲϭϮ
^ĞƉͲϭϭ
:ĂŶͲϭϭ
DĂLJͲϭϬ
^ĞƉͲϬϵ
:ĂŶͲϬϵ
DĂLJͲϬϴ
^ĞƉͲϬϳ
^ĞƉͲϬϱ
:ĂŶͲϬϱ
DĂLJͲϬϰ
^ĞƉͲϬϯ
:ĂŶͲϬϯ
DĂLJͲϬϮ
^ĞƉͲϬϭ
:ĂŶͲϬϭ
:ĂŶͲϬϳ
ϭ͘ϲ
Ϭ
DĂLJͲϬϲ
dŚĞ LJŝĞůĚ ŐĂƉ ďĞƚǁĞĞŶ /ŶĚŝĂĂŶĚh^ŝƐƐƚŝůůŶĞĂƌ ƚŚĞŝƌ ŚŝƐƚŽƌŝĐĂů ŚŝŐŚ
ϭϬ͘ϲ
/EZŝƐůŝŬĞůLJƚŽƐƚĂďŝůŝnjĞĂƚϲϬͲϲϮͬh^ƚŚŽƵŐŚĂƚZZŵĞĂƐƵƌĞŝƚǁŽƵůĚƐƚŝůůďĞƵŶĚĞƌǀĂůƵĞĚ /EZͬh^
ϲϱ
ZZ;Z,^Ϳ
ϭϮϬ
ƵŐͲϭϯ
:ƵŶͲϭϯ
ƉƌͲϭϯ
&ĞďͲϭϯ
ĞĐͲϭϮ
KĐƚͲϭϮ
ϵϬ ƵŐͲϭϮ
ϰϬ :ƵŶͲϭϮ
ϵϲ ƉƌͲϭϮ
ϰϱ &ĞďͲϭϮ
ϭϬϮ
ĞĐͲϭϭ
ϱϬ
KĐƚͲϭϭ
ϭϬϴ
ƵŐͲϭϭ
ϱϱ
:ƵŶͲϭϭ
ϭϭϰ
ƉƌͲϭϭ
ϲϬ
Y&ŽŽĚŝŶĨůĂƚŝŽŶƚŽĨĂůůŽŶŐŽŽĚŵŽŶƐŽŽŶ sĞƌLJ ŚŝŐŚ ĨŽŽĚ ŝŶĨůĂƚŝŽŶ ŚĂƐ ƉĞƌŝŽĚŝĐĂůůLJ ĐƌĞĂƚĞĚ ƐƚƌĞƐƐ ŽŶ ŝŶĨůĂƚŝŽŶ ŵĞĂƐƵƌĞƐ ďŽƚŚ tW/ĂŶĚW/ĂŶĚZ/ŚĂƐƐǁŝƚĐŚĞĚďĞƚǁĞĞŶƚŚĞƚǁŽŝŶĚŝĐĂƚŽƌƐĂůƚĞƌŶĂƚŝǀĞůLJƚŽĞŶƐƵƌĞ Ă ƐƚƌŝĐƚĞƌ ĂŶƚŝͲŝŶĨůĂƚŝŽŶĂƌLJ ƐƚĂŶĐĞ͘ & ŝŶĂůůLJ ǁŝƚŚ Ă ŐŽŽĚ ŵŽŶƐŽŽŶ ǁĞ ĂƌĞ ƐĞĞŝŶŐ ŝŶĚŝĐĂƚŝŽŶƐ ŽĨ ĨŽŽĚ ŝŶĨůĂƚŝŽŶ ĐŽŽůŝŶŐ ŽĨĨ ƌĞůĞĂƐŝŶŐ ƉŽůŝĐLJ ƐƉĂĐĞ ĨŽƌ Z/ ƚŽ ĞĂƐĞ ƌĂƚĞƐ͘
KĐƚŽďĞƌ ϮϬϭϯ
ʹϮϵ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
&zϭϰŵŽŶƐŽŽŶϲйĂďŽǀĞŶŽƌŵĂů͖ĞdžƉĞĐƚƌĞĐŽƌĚĨŽŽĚŐƌĂŝŶƉƌŽĚƵĐƚŝŽŶ
DŽŶƐŽŽŶĞŶĚĞĚƚŚĞƐĞĂƐŽŶǁŝƚŚϲйĂďŽǀĞŶŽƌŵĂů͕ƚŚĞďĞƐƚƌĂŝŶĨĂůůƐŝŶĐĞ&zϬϴ͘ ŚŝŐŚ ĐŽƌƌĞůĂƚŝŽŶ ŝƐ ĨŽƵŶĚ ďĞƚǁĞĞŶ ƌĂŝŶĨĂůů ĂŶĚ ŬŚĂƌŝĨ ĐƌŽƉ ƉƌŽĚƵĐƚŝŽŶ ŽǀĞƌ ƚŚĞ LJĞĂƌƐ͘ dŚŝƐ ŝƐ ĞdžƉĞĐƚĞĚ ƚŽ ƚĂŬĞ ƚŚĞ ĨŽŽĚŐƌĂŝŶ ƉƌŽĚƵĐƚŝŽŶ ƚŽ ƚŚĞ ƌĞĐŽƌĚ ůĞǀĞů ŽĨ Ϯϲϱŵƚ͘ tŚŝůĞ ƚŚĞ ŐŽǀĞƌŶŵĞŶƚ ŚĂƐ ƉƵƚ ŝƚƐ ĨŝƌƐƚ ĞƐƚŝŵĂƚĞ ŽĨ ŬŚĂƌŝĨ ĐƌŽƉ Ăƚ ϭϮϵŵƚ ƚŚŝƐ ŝƐ ƵƐƵĂůůLJ ƌĞǀŝƐĞĚ ƵƉǁĂƌĚƐ͘ /ůůƵƐƚƌĂƚŝǀĞůLJ͕ ƚŚĞ ĨŝƌƐƚ <ŚĂƌŝĨ ĐƌŽƉ ĞƐƚŝŵĂƚĞ ŽĨ ϭϭϳŵƚ ŝŶ &zϭϯǁĂƐƌĞǀŝƐĞĚƵƉǁĂƌĚƐďLJϵ͘ϰйďLJĨŽƵƌƚŚĞƐƚŝŵĂƚĞƚŽϭϮϴŵƚ͘ ŝŐŐĞƌŐĂŝŶƐĂƌĞůŝŬĞůLJŝŶŶŽŶͲĨŽŽĚŐƌĂŝŶĐƌŽƉƐǁŚĞƌĞƐŽǁŝŶŐŚĂƐĂůƌĞĂĚLJĞdžĐĞĞĚĞĚ ϭϬϬй ŽĨ ŶŽƌŵĂů ĂƌĞĂ͘ &Žƌ ĨŽŽĚŐƌĂŝŶƐ ƚŽŽ ƐŽǁŝŶŐ ŚĂƐ ƐƵďƐƚĂŶƚŝĂůůLJ ŝŵƉƌŽǀĞĚ zŽz ĨŽƌĞĂĐŚŵĂũŽƌĐŽŵƉŽŶĞŶƚ͕ǀŝnj͕͘ĐĞƌĞĂůƐ͕ĐŽĂƌƐĞĐĞƌĞĂůƐĂŶĚƉƵůƐĞƐ͘ ƐƚĂƌŬĐŽŶƚƌĂƐƚŝƐĨŽƵŶĚŝŶLJĞĂƌƐŽĨŚŝŐŚŝŶĨůĂƚŝŽŶĐŽŝŶĐŝĚŝŶŐǁŝƚŚĚĞĐůŝŶĞŝŶĨŽŽĚ ŝŶĨůĂƚŝŽŶŝŶƚŚŝƌĚĂŶĚĨŽƵƌƚŚƋƵĂƌƚĞƌŽĨƚŚĞLJĞĂƌ͘ KŶƚŚĞďĂĐŬŽĨŚŝŐŚĞƌƉƌŽĚƵĐƚŝŽŶĂŶĚŵƵĐŚůŽǁĞƌD^WŚŝŬĞƚŚŝƐLJĞĂƌ;ĂǀĞƌĂŐĞϱй ĐŽŵƉĂƌĞĚ ƚŽ ŝŶ ĞdžĐĞƐƐ ŽĨ ϯϬй ĨŽƌ ƚŚĞ ůĂƐƚ ĨŝǀĞ LJĞĂƌƐͿ ƚŚŝƐ ƚƌĞŶĚ ŝƐ ĞdžƉĞĐƚĞĚ ƚŽ ƌĞƉĞĂƚŝŶƚŚĞĐƵƌƌĞŶƚLJĞĂƌƚŽŽ͘
EŽƌŵĂůƌĂŝŶĨĂůůŝƐĞdžƉĞĐƚĞĚƚŽďƌŝŶŐƐŚĂƌƉŐƌŽǁƚŚŝŶŬŚĂƌŝĨƉƌŽĚƵĐƚŝŽŶƚŚŝƐLJĞĂƌ ZĂ ŝ ŶĨĂů ů Ă ƐĂ йŽĨ>W;>,^Ϳ ϭϮϬ
Ϯϭϯ
ϭϳϱ
Ϯϭϯ
ϭϵϴ ϮϬϵ
Ϯϭϳ Ϯϯϭ Ϯϯϰ
Ϯϭϴ
&Ž ŽĚŐƌĂŝ ŶƉ ƌŽĚƵĐƚŝ ŽŶ Ϯϰϱ
Ϯϱϵ
Ϯϱϱ
Ϯϲϱ
ϯϬϬ
ϮϬϭϯ
ϮϬϭϮ
ϮϬϭϭ
ϮϬϭϬ
ϮϬϬϵ
ϮϬϬϴ
ͲϭϬϬ ϮϬϬϳ
ϲϬ ϮϬϬϲ
Ϭ
ϮϬϬϱ
ϳϱ
ϮϬϬϰ
ϭϬϬ
ϮϬϬϯ
ϵϬ
ϮϬϬϮ
ϮϬϬ
ϮϬϬϭ
ϭϬϱ
ϮϬϬϬ
ZĞĐŽƌĚ ĨŽŽĚŐƌĂŝŶ ƉƌŽĚƵĐƚŝŽŶŽĨϮϲϱŵƚŽŶƐ ůŝŬĞůLJ ŝŶ &zϭϰ
ϭϵϳ
<ŚĂƌŝ ĨWƌŽĚ͘zͲKͲz;Z,^Ϳ
&ŽŽĚŝŶĨůĂƚŝŽŶĚĞĐůŝŶĞƐĚƵƌŝŶŐϯYĂŶĚϰYŝĨŵŽŶƐŽŽŶŝƐŶŽƌŵĂů Ϯϱ ϮϬ
,ŝŐŚĞƌ ƌĂŝŶĨĂůů ůŽǁĞƌƐ ĨŽŽĚ ŝŶĨůĂƚŝŽŶ
&zϭϭ
ϭϱ
;нϮйͿ
&zϬϴ ϭϬ ϱ
&zϭϮ &zϭϰ
;нϭйͿ ;нϲйͿ
Ϭ :ƵŶĞ
KĐƚŽďĞƌ ϮϬϭϯ
^ĞƉƚĞŵďĞƌ
ĞĐĞŵďĞƌ
DĂƌĐŚ
ʹϯϬ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
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;ͲϮϮйͿ
ϮϬ
>ŽǁĞƌ ƌĂŝŶĨĂůů ĐĂƵƐĞƐ ŚŝŐŚĞƌ ŝŶĨůĂƚŝŽŶ
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&zϭϯ & zϭϬ
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&zϬϵ
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^ĞƉ ƚĞŵď Ğƌ
ĞĐĞŵď Ğƌ
DĂƌĐŚ
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ϭϮϬ ϵϬ
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ϵϰ ϵϲ
ϵϭ
ϵϵ ϴϬ
ϵϬ
&zϭϰ
ϵϴ
ϭϬϴ
EŽ ƌŵĂů ĂƌĞĂ
ϭϬϲϭϬϯ
ϭϭϴϭϭϲ
ϭϬϴϭϬϲ
ϵϰ ϭϬϬ
ŽƚƚŽŶ
:Ƶ ƚĞΘ DĞƐ ƚĂ
dŽƚĂů
ϲϬ ϯϬ Ϭ Zŝ ĐĞ
WƵů Ɛ ĞƐ
Ž ĂƌƐĞ ĞƌĞĂ ů Ɛ
Kŝ ů ƐĞĞ ĚƐ ^Ƶ ŐĂƌĐĂŶ Ğ
W//ŶĨůĂƚŝŽŶƚŽĞĂƐĞƚŽϴйďLJDĂƌͲϭϰǀͬƐϭϬ͘ϰйĂLJĞĂƌĂŐŽ
KĐƚŽďĞƌ ϮϬϭϯ
dŚĞ ĚĞĐůŝŶĞ ŝŶ ĨŽŽĚ ŝŶĨůĂƚŝŽŶ ŝƐ ůŝŬĞůLJ ƚŽ ĨŝŶĚ ŝƚƐ ƌĞĨůĞĐƚŝŽŶ ŝŶ ƐŚĂƌƉ ĚĞĐůŝŶĞ ŝŶ W/ ŝŶĨůĂƚŝŽŶƚŚĂƚŚĂƐĂŵƵĐŚŚŝŐŚĞƌǁĞŝŐŚƚŽĨĨŽŽĚŝŶƚŚĞŽǀĞƌĂůůďĂƐŬĞƚ͘ tĞ ĞdžƉĞĐƚ ƚŚĞ ŵĂdžŝŵƵŵ ĞĂƐŝŶŐ ƚŽ ŚĂƉƉĞŶ ŝŶ ĐĞƌĞĂůƐ ŝŶĨůĂƚŝŽŶ ƚŚĂƚ ŝƐ ůŝŬĞůLJ ƚŽ ĐŽŶƚƌŝďƵƚĞƚŽĂϵϬďƉĐƵƚŝŶŽǀĞƌĂůůŝŶĨůĂƚŝŽŶ͘ EĞĂƌƚĞƌŵŵŽĚĞƌĂƚŝŽŶŝƐĞdžƉĞĐƚĞĚŝŶŵŝůŬĂŶĚǀĞŐĞƚĂďůĞƐƚŽŽŽŶƐĞĂƐŽŶĂůĨĂĐƚŽƌƐ͘ /EZĚĞƉƌĞĐŝĂƚŝŽŶĂŶĚƉŚĂƐĞĚĚĞƌĞŐƵůĂƚŽŶŝŶĚŝĞƐĞůƉƌŝĐĞƐŝƐĞdžƉĞĐƚĞĚƚŽŬĞĞƉƚŚĞ ĨƵĞů ŝŶĨůĂƚŝŽŶ ŚŝŐŚ͘ KŶƚŚĞŽƚŚĞƌŚĂŶĚƌĞŐĞŶĞƌĂƚŝŽŶŽĨƚŚĞƌƵƌĂůĞĐŽŶŽŵLJŝƐůĞĂĚŝŶŐƚŽǀĂůƵĞŵŝŐƌĂƚŝŽŶ ŝŶĐĞƌƚĂŝŶŝƚĞŵƐŝŶĐůƵĚŝŶŐĐůŽƚŚŝŶŐĂŶĚĂďƌŽĂĚƌĂŶŐĞŽĨƐĞƌǀŝĐĞƐ͕ƚŚĂƚĂƌĞůŝŬĞůLJƚŽ ŬĞĞƉ ƚŚĞ ŝŶĨůĂƚŝŽŶĂƌLJ ƉƌĞƐƐƵƌĞƐ ŚŝŐŚ Ăƚ ĐŽƌĞ ƌĞƚĂŝů ůĞǀĞůƐ͘ dŚƵƐ ǁĞ ƐĞĞ ŽǀĞƌĂůů W/ ŝŶĨůĂƚŝŽŶ ƚŽ ĚƌŝǀĞ ĚŽǁŶ ƚŽ ĂƌŽƵŶĚ ϴй ůĞǀĞůƐ ďLJ DĂƌͲϭϰ͕ ĚŽǁŶĨƌŽŵϭϬ͘ϰйĂLJĞĂƌĂŐŽ͘dŚŝƐǁŽƵůĚĂůƐŽďƌŝŶŐĚŽǁŶW/ƚŽǁĂƌĚƐĐŽŶǀĞƌŐĞŶĐĞ ǁŝƚŚ tW/͘
ʹϯϭ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
W/ŝƐĞdžƉĞĐƚĞĚƚŽĞĂƐĞƚŽϴ͘ϬйĚĞƐƉŝƚĞƉƌĞƐƐƵƌĞƐĨƌŽŵĂĨĞǁĐŽŵŵŽĚŝƚŝĞƐ tĞŝŐŚƚ ϰϵ͘ϳ
/ƚĞŵƐ &ŽŽĚ͕ďĞǀĞƌĂŐĞƐĂŶĚƚŽďĂĐĐŽ
&zϭϯ zd&zϭϯ zd&zϭϰ ϭϭ͘ϵ ϭϭ͘ϭ ϭϭ͘Ϭ
KĨǁŚŝĐŚ ϭϰ͘ϲ
ĞƌĞĂůƐ ĂŶĚ ƉƌŽĚƵĐƚƐ
ϭϬ͘ϱ
ϱ͘ϳ
ϭϲ͘ϭ
Ϯ͘ϳ
WƵůƐĞƐ ĂŶĚ ƉƌŽĚƵĐƚƐ
ϭϮ͘Ϯ
ϭϬ͘ϰ
ϳ͘ϯ
ϳ͘ϳ
DŝůŬ ĂŶĚ ƉƌŽĚƵĐƚƐ
ϭϬ͘ϱ
ϭϯ͘Ϭ
ϳ͘ϲ
Ϯ͘ϵ
ŐŐ͕ ĨŝƐŚ ĂŶĚ ŵĞĂƚ
ϭϮ͘ϭ
ϭϭ͘Ϭ
ϭϯ͘ϯ
ϱ͘ϰ ϭ͘ϵ ϵ͘ϱ
sĞ ŐĞƚ ĂďůĞƐ &ƌƵŝƚƐ &ƵĞůĂŶĚůŝŐŚƚ
Ϯϭ͘Ϭ ϳ͘ϱ ϴ͘ϲ
Ϯϱ͘ϰ ϲ͘ϭ ϵ͘ϰ
ϭϰ͘ϲ ϲ͘ϳ ϴ͘Ϯ
ϰ͘ϭ ϵ͘ϴ
ůŽƚŚŝŶŐĂŶĚďĞĚĚŝŶŐ ,ŽƵƐŝŶŐ
ϭϭ͘Ϭ ϭϭ͘ϯ
ϭϭ͘Ϯ ϭϮ͘ϱ
ϵ͘ϴ ϭϬ͘ϲ
Ϯϲ͘ϯ
DŝƐĐĞůůĂŶĞŽƵƐƐĞƌǀŝĐĞƐ
ϳ͘ϯ
ϳ͘ϴ
ϲ͘ϲ
ϭϬϬ͘Ϭ
W/ ;ŽŵďŝŶĞĚͿ
ϭϬ͘Ϯ
ϭϬ͘ϭ
ϵ͘ϱ
ƵŐͲϭϯ KƵƚůŽŽŬĂŶĚƌĂƚŝŽŶĂůĞ ϭϭ͘Ϭ KǀĞƌĂůů ĨŽŽĚ ŐƌŽƵƉ ĞdžƉĞĐƚĞĚ ƚŽ ĐŽŽů ĚŽǁŶ ƚŽ ϵй͕ ŝ͘Ğ͕͘ ϮϬϬďƉ ϭϰ͘ϭ DŽŶƐŽŽŶ ŝŵƉĂĐƚ ŝƐ ůŝŬĞůLJ ƚŽ ďĞ ϵϬďƉ ĞĂƐŝŶŐ ŝŶ ŽǀĞƌĂůů W/ ŝŶĨůĂƚŝŽŶ ϭ͘ϳ ƌĞĂ ƐŽǁŶ ŝƐ ϲй ŚŝŐŚĞƌ͖ ŝŶĨůĂƚŝŽŶ ĂůƌĞĂĚLJ ĞĂƐĞĚ ƚŽ ůŽǁ ƐŝŶŐůĞ ĚŝŐŝƚ ϳ͘ϵ /ŶĐƌĞĂƐĞ ŝŶ ƉƌŽĚƵĐƚŝŽŶ ĞdžƉĞĐƚĞĚ ĚƵƌŝŶŐ ǁŝŶƚĞƌ͖ ŽŶƚƌŝďƵƚŝŽŶ ƚŽ ŝŶĨůĂƚŝŽŶ ŵĂLJ ƌĞŵĂŝŶ ƐĂŵĞ Ăƚ ϲϱďƉ ϭϯ͘ϳ DĂLJ ƌĞŵĂŝŶ ŚŝŐŚ ĚƵĞ ƚŽ ŚŝŐŚĞƌ ŝŶĐŽŵĞ͕ ůŝĨĞƐƚLJůĞ ĐŚĂŶŐĞƐ͕ ĞƚĐ͘ Ϯϲ͘ϱ ^ĞĂƐŽŶĂůĂŶĚĨĂƐƚŵŽǀŝŶŐ͕ƐĞĞĚĞĐůŝŶĞĚƵĞƚŽĞůĞĐƚŝŽŶ ϱ͘Ϯ EŽ ĨƵƌƚŚĞƌ ŵŽĚĞƌĂƚŝŽŶ ŝƐ ĞdžƉĞĐƚĞĚ ϳ͘ϲ dŚĞ ŝŵƉĂĐƚ ŽĨ /EZ ĚĞƉƌĞĐŝĂƚŝŽŶ ĂŶĚ ĚĞƌĞŐƵůĂƚŝŽŶ ŵĂLJ ĂĚĚ ϴϬďƉ ƚŽ ŽǀĞƌĂůů W/ ϵ͘Ϯ EŽ ŵĂũŽƌ ĞĂƐŝŶŐ ĞdžƉĞĐƚĞĚ ϭϬ͘ϱ ZĞƉŽƌƚƐ ŽĨ ƐŽŵĞ ŵŽĚĞƌĂƚŝŽŶ ĞŵĞƌŐĞĚ͕ ĞdžƉĞĐƚĞĚ ƚŽ ĞĂƐĞ ŽŶ ůŽǁĞƌ ŐƌŽǁƚŚ ϳ͘ϭ ^ĞƌǀŝĐĞƐ ŝŶĨůĂƚŝŽŶ ŵĂLJ ďĞ ŚŝŐŚ ďĞĐĂƵƐĞ ŽĨ ŵŝŐƌĂƚŝŽŶ ƚŽ ƉƌŝǀĂƚĞ ƐĞƌǀŝĐĞ ĂŶĚ ƌŝƐŝŶŐ ŝŶĐŽŵĞ ůĞǀĞůƐ ϵ͘ϱ KǀĞƌĂůů W/ ŝŶĨůĂƚŝŽŶ ŝƐ ĞdžƉĞĐƚĞĚ ƚŽ ĞĂƐĞ ƚŽ ϴй ůĞǀĞůƐ ǁŝƚŚ Ă ŵŽǀĞ ƚŽǁĂƌĚƐ ĐŽŶǀĞƌŐĞŶĐĞ ǁŝƚŚ tW/
ZDĞĂƐƵƌĞƐƚŽĂĐŚŝĞǀĞĨŝƐĐĂůĚĞĨŝĐŝƚƚĂƌŐĞƚƐďƵŶĐŚĞĚƵƉ 'ŽǀĞƌŶŵĞŶƚŚĂƐĂƚƚĞŵƉƚĞĚƚŽƉƵƚŝƚƐĨŝƐĐĂůŚŽƵƐĞŝŶŽƌĚĞƌ͘,ŽǁĞǀĞƌ͕ŐƌŽǁƚŚƐůŽǁĚŽǁŶ ŚĂƐ ůŽǁĞƌĞĚ ƌĞǀĞŶƵĞ ƉŽƚĞŶƚŝĂů ǁŚŝůĞ ĞŶŚĂŶĐĞĚ ƚŚĞ ŝŵƉĞƌĂƚŝǀĞ ĨŽƌ ĂŶ ĞdžƉĞŶĚŝƚƵƌĞ ďŽŽƐƚ ƚŽ ƌĞǀŝǀĞ ƚŚĞ ĞĐŽŶŽŵLJ͘ ĂƐĞĚ ŽŶ ƚŚĞ ƚƌĞŶĚ ƐŽ ĨĂƌ ǁĞ ƉƌŽũĞĐƚ ŵŝƐƐŝŶŐ ƌĞǀĞŶƵĞ ƚĂƌŐĞƚƐ ĐĂƵƐŝŶŐ ĂŶ ĞdžƉĞŶĚŝƚƵƌĞ ƐƋƵĞĞnjĞ ŝŶ Ă ƌĞƉĞĂƚ ƐŚŽǁ ŽĨ &zϭϯ ƚŽ ŵĞĞƚ ƚŚĞ ĨŝƐĐĂů ƌĞĚůŝŶĞ ŽĨ ϰ͘ϴй ĂƐ ĂƌƚŝĐƵůĂƚĞĚ ďLJ &ŝŶĂŶĐĞ DŝŶŝƐƚĞƌ͘ /ƚ ŝƐ ƚŚĞƌĞĨŽƌĞ ŶĞĐĞƐƐĂƌLJ ƚŽ ƵƐŚĞƌ ƐŽŵĞůŽŶŐͲƉĞŶĚŝŶŐƌĞĨŽƌŵŵĞĂƐƵƌĞƐĨŽƌǁŚŝĐŚ'ŽǀĞƌŶŵĞŶƚŚĂƐǀĞƌLJůŝŵŝƚĞĚǁŝŶĚŽǁ ŽĨ ŽƉƉŽƌƚƵŶŝƚLJ ŝŶ ǀŝĞǁ ŽĨ ŝŵƉĞŶĚŝŶŐ ĞůĞĐƚŝŽŶƐ ĂŶĚ WĂƌůŝĂŵĞŶƚ ƐĞƐƐŝŽŶƐ͘
džƉĞĐƚƌĞǀĞŶƵĞƐŚŽƌƚĨĂůůŽĨ/EZϲϯϴďƌĞƋƵŝƌŝŶŐŵĂƚĐŚŝŶŐĞdžƉĞŶĚŝƚƵƌĞĐƵƚƐ
dŚĞ ŐŽǀĞƌŶŵĞŶƚ ŚĂƐ ŐŽƚ Ă ůŝŵŝƚĞĚ ǁŝŶĚŽǁ ŽĨ ŽƉƉŽƌƚƵŶŝƚLJ ƚŽ ĞĨĨĞĐƚ ŝƚƐ ƉĞŶĚŝŶŐ ƌĞĨŽƌŵƐ͘dŚĞŵŽƌĞĚŝĨĨŝĐƵůƚƌĞĨŽƌŵƐŶĞĞĚƚŽďĞƐƋƵĞĞnjĞĚŝŶďĞƚǁĞĞŶƚŚĞĞůĞĐƚŝŽŶ ĐŽĚĞ ŽĨ ĐŽŶĚƵĐƚ͕ ĂŶĚ WĂƌůŝĂŵĞŶƚ ƐĞƐƐŝŽŶƐ͘ dŚŝƐŚĂƐƌĞƐƵůƚĞĚŝŶďƵŶĐŚŝŶŐŽĨŬĞLJŵĞĂƐƵƌĞƐŝŶĐůƵĚŝŶŐ;ϭͿŚŝŬĞŝŶĚŝĞƐĞůƉƌŝĐĞƐďLJ /EZϯͲϱ͕;ϮͿĐŽŶƚƌŽůůŝŶŐƐƵďƐŝĚŝĞƐ͕;ϯͿĚŝƐŝŶǀĞƐƚŵĞŶƚƐ͕;ϰͿƚĞůĞĐŽŵƐƉĞĐƚƌƵŵĂƵĐƚŝŽŶ͕ ;ϱͿĐƵƚďĂĐŬŝŶƉůĂŶĂŶĚŶŽŶͲƉůĂŶĞdžƉĞŶĚŝƚƵƌĞ͕ĞƚĐ͘
'ŽǀĞƌŶŵĞŶƚŚĂƐĂǀĞƌLJůŝŵŝƚĞĚǁŝŶĚŽǁŽĨŽƉƉŽƌƚƵŶŝƚLJƚŽŝŶŝƚŝĂƚĞĨƵƌƚŚĞƌƌĞĨŽƌŵĂŶĚŚĂǀĞƚŽĨĂĐĞWĂƌůŝĂŵĞŶƚŝŶďĞƚǁĞĞŶ
ůĞĐƚŝŽŶ ĐŽĚĞ KĐƚ Ͳϭϯ
EŽǀ Ͳϭϯ
ZĞĨŽƌŵ ǁŝŶĚŽǁ ĞĐ Ͳϭϯ
WĂƌů^ĞƐƐŝŽŶ
KĐƚŽďĞƌ ϮϬϭϯ
:ĂŶ Ͳϭϰ
&Ğď Ͳϭϰ
ůĞĐƚŝŽŶ ĐŽĚĞ DĂƌ Ͳϭϰ
WĂƌů^ĞƐƐŝŽŶ
Ɖƌ Ͳϭϰ
DĂLJ Ͳϭϰ
:ƵŶ Ͳϭϰ
WĂƌů^ĞƐƐŝŽŶ
ʹϯϮ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
Ŷ ĂƐƐĞƐƐŵĞŶƚ ŽĨ ƚŚĞ ĨŝƐĐĂů ƐŝƚƵĂƚŝŽŶ ƐŽ ĨĂƌ ƐŚŽǁƐ ƚŚĂƚ ƐŝŐŶŝĨŝĐĂŶƚ ƐŚŽƌƚĨĂůů ŽĨ /EZϮϲϮď ŝƐ ůŝŬĞůLJ ŝŶ ƚĂdž ƌĞǀĞŶƵĞ ǁŚŝůĞ ƚŚĞ ƚĂƌŐĞƚƐ ƵŶĚĞƌ ƐƉĞĐƚƌƵŵ ĂƵĐƚŝŽŶ ĂŶĚ ĚŝƐŝŶǀĞƐƚŵĞŶƚ ŝƐ ůŝŬĞůLJ ƚŽ ĨĂůů ƐŚŽƌƚ ďLJ /EZϭϬϮď ĂŶĚ /EZϭϴϯď͕ ƌĞƐƉĞĐƚŝǀĞůLJ͘ WĞŶĚŝŶŐ ĐŽŵƉůĞƚĞ ĚŝĞƐĞů ĚĞƌĞŐƵůĂƚŝŽŶ ŶŽǁ ;ZƐ͘ϭϭ ƉĞƌ ůŝƚƌĞͿ ŐŽǀĞƌŶŵĞŶƚ ǁŽƵůĚ ŶĞĞĚ ƚŽ ƌĞůLJ ŽŶ ƚŚĞ ĨŽůůŽǁŝŶŐ ĨŽƌ ĐŽŶƚƌŽůůŝŶŐ ƐƵďƐŝĚLJ ďƵƌĚĞŶ ŝͿ /EZ ĐŽƌƌĞĐƚŝŽŶ ůŽǁĞƌŝŶŐ ƵŶĚĞƌͲƌĞĐŽǀĞƌLJ͕ ŝŝͿ ďŝŐŐĞƌ ŚŝŬĞƐ ŝŶ ĚŝĞƐĞů ƉƌŝĐĞƐ͕ ŝŝŝͿ ĚĞĨĞƌŵĞŶƚ ŽĨ ŝŵƉůĞŵĞŶƚĂƚŝŽŶ ŽĨ ĨŽŽĚ ƐƵďƐŝĚLJ͕ ŝǀͿ ĚĞĨĞƌƌĞĚ ĚŝƐďƵƌƐĂů ŽĨ ƐƵďƐŝĚŝĞƐ ƚŽ ĂŐĞŶĐŝĞƐ͘ KǀĞƌĂůůĂƐŚŽƌƚĨĂůůŽĨ/EZϲϯϴďŝƐůŝŬĞůLJŝŶƚŽƚĂůƌĞĐĞŝƉƚƐǁŚŝĐŚŶĞĞĚƚŽďĞĂĚũƵƐƚĞĚ ƚŚƌŽƵŐŚĐƵƚďĂĐŬŝŶƉůĂŶĂŶĚŶŽŶͲƉůĂŶĞdžƉĞŶĚŝƚƵƌĞƚŽŵĞĞƚƚŚĞĨŝƐĐĂůĚĞĨŝĐŝƚΖƌĞĚͲ ůŝŶĞΖŽĨϰ͘ϴйĂƐƉƌŽŶŽƵŶĐĞĚďLJ&ŝŶĂŶĐĞDŝŶŝƐƚĞƌ͘ dŚŝƐ ŝŵƉůŝĞƐ Ă ĚŝƐƉƌŽƉŽƌƚŝŽŶĂƚĞ ĞdžƉĞŶĚŝƚƵƌĞ ƐƋƵĞĞnjĞ ŽŶ Ϯ,&zϭϰ ŽĨ ĂŶ ĞƋƵŝǀĂůĞŶƚ ĂŵŽƵŶƚ͘ Ɛ ŝŶ ƚŚĞ ƉƌĞǀŝŽƵƐ LJĞĂƌ͕ ďŝŐŐĞƌ ĐƵƚƐ ĂƌĞ ůŝŬĞůLJ ŝŶ ƉůĂŶ ĞdžƉĞŶĚŝƚƵƌĞ ƚŚĂŶ ŶŽŶͲƉůĂŶĞdžƉĞŶĚŝƚƵƌĞ͘,ŽǁĞǀĞƌŐŽǀĞƌŶŵĞŶƚŵŝŐŚƚƵƐĞŝƚƐĐĂƐŚďƵĨĨĞƌƐƚŽƉĂƌƚŝĂůůLJ ŽĨĨƐĞƚ ƚŚĞ ŝŵƉĂĐƚ ŽĨ ƌĞǀĞŶƵĞ ƐŚŽƌƚĨĂůů͘
ŶĞdžƉĞŶĚŝƚƵƌĞĐŽŵƉƌĞƐƐŝŽŶŽĨ/EZϰϱϬďǁŽƵůĚďĞƌĞƋƵŝƌĞĚŝŶ&zϭϰƚŽŵĞĞƚƚŚĞƌĞǀĞŶƵĞƐŚŽƌƚĨĂůůĂŶĚĨŝƐĐĂůƚĂƌŐĞƚ
&zϭϰ zd&zϭϯ zd&zϭϰ zd&zϭϯ zd&zϭϰ ZĞƋƵŝƌĞĚ ĐƚƵĂů ZĞƋƵŝƌĞĚ džƉĞĐƚĞĚͬ ƐƚŝŵĂƚĞĚ ;zŽzͿ ;ƐйŽĨ ;ƐйŽĨ ;zŽzйͿ ;zŽzйͿ ŐƌŽǁƚŚ ŐƌŽǁƚŚŝŶ ŐƌŽǁƚŚĂƚ ZĞƋƵŝƌĞĚ ĞǀŝĂƚŝŽŶ &zϭϯͿ &zϭϰͿ ĂƚƵŐͲϭϮ ƌĞŵĂŝŶŝŶŐ ƵŐͲϭϯ ŐƌŽǁƚŚŝŶ ;/EZďͿ ƚŽŵĞĞƚ ƉĞƌŝŽĚŝŶ ƚŽŵĞĞƚ ƌĞŵĂŝŶŝŶŐ &zϭϯ &zϭϯǁŚĞŶ &zϭϯ &zϭϰƚŽ ƵĚŐĞƚ ĨŝƐĐĂůŐŽĂů ƵĚŐĞƚ ĨŝƐĐĂůŵĞĞƚ ƚĂƌŐĞƚƐǁĂƐŵĞƚ ƚĂƌŐĞƚƐ ƚĂƌŐĞƚ
dŽƚ Ăů ZĞĐĞŝƉƚ Ɛ ŽĨǁŚŝĐŚ ZĞǀĞŶƵĞ ZĞĐĞŝƉƚƐ dĂdž ZĞǀĞŶƵĞ ;EĞ ƚͿ EŽŶͲdĂdž ZĞǀĞŶƵĞ EŽŶͲĞďƚ ĂƉŝƚĂů ZĞĐĞŝƉƚƐ ZĞĐŽǀĞƌLJ ŽĨ >ŽĂŶƐ dŽƚĂůdžƉĞŶĚŝƚƵƌĞ EŽŶͲWůĂŶ džƉĞŶĚŝƚƵƌĞ ZĞǀĞŶƵĞ ĐĐŽƵŶƚ ĂƉŝƚĂů ĐĐŽƵŶƚ WůĂŶ džƉĞŶĚŝƚƵƌĞ ZĞǀĞŶƵĞ ĐĐŽƵŶƚ ĂƉŝƚĂů ĐĐŽƵŶƚ &ŝƐĐĂů ĞĨŝĐŝƚ ZĞǀĞŶƵĞĞĨŝĐŝƚ
Ϯϯ Ϯϭ ϭϵ ϯϯ ϭϯϯ ͲϮϰ ϭϲ ϭϭ ϴ ϰϯ Ϯϵ Ϯϵ ϯϭ ϰ Ͳϯ
Ϯϯ Ϯϰ Ϯϯ Ϯϵ ϭϮ ϯϮ ϯϴ ϰϯ ϰϰ ϯϲ Ϯϴ Ϯϵ Ϯϴ ϲϲ ϳϵ
Ϯϯ Ϯϰ Ϯϭ ϰϬ ϵ ϰϭ ϰϬ ϰϯ ϰϰ ϯϴ ϯϯ ϯϰ ϯϬ ϳϱ ϴϳ
ϭϱ ϭϴ Ϯϭ ϵ ͲϱϬ Ͳϱϵ ϮϬ Ϯϯ Ϯϰ ϵ ϭϮ ϳ ϰϯ Ϯϯ Ϯϭ
ϭϯ ϭϰ ϱ ϰϰ ϭϰ ϭϳ ϭϳ ϭϱ ϭϱ ϭϵ Ϯϰ Ϯϰ Ϯϯ ϮϬ ϮϬ
ϭϲ
ϭϳ
ϭϵ ϭϱ ϰϯ Ͳϭϵ ϯϮ ϭϴ ϭϲ ϭϰ ϯϴ Ϯϭ ϮϬ Ϯϰ Ϯϲ Ͳϲ
ϭϲ ϭϲ ϭϮ ϱϵ ϰϭ Ϯ ϲ ϲ Ϯ Ͳϱ Ͳϲ Ͳϱ Ͳϯϲ Ͳϰϰ
Ϯϱ ϮϮ Ϯϰ ϭϱ ϳϬ Ͳϰϰ ϭϵ ϵ ϱ ϲϮ ϰϬ ϰϭ ϯϲ ͲϭϬ Ͳϰϰ
ϭϴ ϭϲ ϮϬ ϱ ϰϬ Ϭ ϭϮ ϲ ϱ ϯϬ Ϯϴ ϯϬ ϮϮ Ͳϭϵ ͲϮϰ
Ͳϲϯϴ Ͳϰϴϭ ͲϮϲϮ ͲϭϬϮ Ͳϭϴϯ Ϯϳ Ͳϲϯϳ ͲϮϭϭ ϮϬ ͲϮϯϭ ͲϰϮϳ Ͳϯϭϰ Ͳϭϭϯ Ϭ Ϭ
^ŝŐŶŝĨŝĐĂŶƚƐŚŽƌƚĨĂůůůŝŬĞůLJŝŶŵĂũŽƌƐƚƌĞƐƐŝƚĞŵƐŽĨďƵĚŐĞƚ dĂƌŐĞƚ
zd&zϭϰ
džƉĞĐƚĞĚƐŚŽƌƚĨĂůůͬĞdžĐĞƐƐ
dĂdž ƌĞǀĞŶƵĞ ϴϴϰϭ ϭϴϯϳ ϯϯϮ ^ƉĞĐƚƌƵŵ ƌĞǀĞŶƵĞ ϮϮϴ Ϭ ϭϭϴ ŝƐŝŶǀĞƐƚŵĞŶƚ ϱϱϴ ϭϯ ϭϴϯ ^ƵďƐŝĚLJ Ϯ͕ϱϭϭ ϭϬϰϲΎ ϬΔ Ύ ƐƐƵŵŝŶŐ ƉƌŽƉŽƌƚŝŽŶĂƚĞ ƐƉĞŶĚŝŶŐ͖ Δ WĞŶĚŝŶŐ ĐŽŵƉůĞƚĞ ĚŝĞƐĞů ĚĞƌĞŐƵůĂƚŝŽŶ ŶŽǁ ;ZƐ͘ϭϭ ƉĞƌ ůŝƚƌĞͿ ĚĞĨĞƌŵĞŶƚ ŽĨ ƉĂLJŵĞŶƚ ĐĂŶ ŬĞĞƉ ƚŚĞ ƐƵďƐŝĚLJ ďŝůů ƵŶĚĞƌ ĐŚĞĐŬ
KĐƚŽďĞƌ ϮϬϭϯ
ʹϯϯ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
KƵƌ&zϭϰ'WŐƌŽǁƚŚŽĨϰ͘ϱйŝŶĐŽƌƉŽƌĂƚĞƐůŽǁĞƌ'ŽǀĞƌŶŵĞŶƚĞdžƉĞŶĚŝƚƵƌĞ /Ŷ ƚŚĞ ƉĂƐƚ Ă ƐƚƌŽŶŐ ĐŽƌƌĞůĂƚŝŽŶ ŝƐ ŽďƐĞƌǀĞĚ ďĞƚǁĞĞŶ ŐŽǀĞƌŶŵĞŶƚ ĞdžƉĞŶĚŝƚƵƌĞ ĂŶĚ ŝƚƐ ĐŽŶƚƌŝďƵƚŝŽŶ ƚŽ ƚŚĞ 'W ;ĨƌŽŵ ĞdžƉĞŶĚŝƚƵƌĞ ƐŝĚĞͿ͘ KƵƌ ĞƐƚŝŵĂƚĞƐ ƐƵŐŐĞƐƚ ƚŚĂƚ ĞdžƉĞŶĚŝƚƵƌĞ ĐŽŵƉƌĞƐƐŝŽŶ ĐĂŶ ƐŚĂǀĞ ŽĨĨ ĂƌŽƵŶĚ Ϭ͘ϲй ĨƌŽŵ'WŐƌŽǁƚŚŝŶ&zϭϰŵĞĂƐƵƌĞĚĨƌŽŵĞdžƉĞŶĚŝƚƵƌĞƐŝĚĞ͘ tŚŝůĞŽƵƌĞƐƚŝŵĂƚĞŽĨ'WŽĨϰ͘ϱй;ŵĞĂƐƵƌĞĚĂƚĨĂĐƚŽƌĐŽƐƚͿĂůƌĞĂĚLJŝŶĐŽƌƉŽƌĂƚĞƐ ƚŚĞ ůŝŬĞůŝŚŽŽĚ ŽĨ ƐůŽǁĚŽǁŶ ŝŶ ŐŽǀĞƌŶŵĞŶƚ ƐƉĞŶĚ͕ ƚŚŝƐ ǁŽƵůĚ ƉƌŽǀŝĚĞ ĨƵƌƚŚĞƌ ĚŽǁŶƐŝĚĞƌŝƐŬĞǀĞŶƚŽƚŚĞůŽǁĞƌĞĚĞƐƚŝŵĂƚĞŽĨϱ͘ϯйƉƵƚŽƵƚďLJƚŚĞWD͘
džƉĞŶĚŝƚƵƌĞĐƵƚŵĂLJƐŚĂǀĞŽĨĨϬ͘ϱйŽĨ'WĨƌŽŵĚĞŵĂŶĚƐŝĚĞ 'Ž ǀƚ͘džƉĞ ŶĚŝ ƚƵƌĞ ;zŽzͿ
ϳϬ
ϱϮϬ
DĂLJͲϭϯ
ĞĐͲϭϮ
:ƵůͲϭϮ
&ĞďͲϭϮ
^ĞƉͲϭϭ
ƉƌͲϭϭ
EŽǀͲϭϬ
:ƵŶͲϭϬ
:ĂŶͲϭϬ
ƵŐͲϬϵ
DĂƌͲϬϵ
KĐƚͲϬϴ
ͲϮϬϬ DĂLJͲϬϴ
ͲϭϬ ĞĐͲϬϳ
ͲϮϬ
:ƵůͲϬϳ
ϭϬ
&ĞďͲϬϳ
ϭϲϬ
^ĞƉͲϬϲ
ϯϬ
ƉƌͲϬϲ
ϯϰϬ
EŽǀͲϬϱ
ϱϬ
:ƵŶͲϬϱ
KĐƚŽďĞƌ ϮϬϭϯ
ŽŶƚƌŝ ď Ƶƚŝ ŽŶ ŽĨ'Žǀƚ͘ƚŽ 'W ;ďƉͿ;Z ,^Ϳ
ʹϯϰ
India Str at egy | The Trilemma!
Elections The game-changing juggernaut Forthcoming State elections may well be a gauge of the national mood X State elections - gauge of national mood: During Nov-Dec'13, assembly elections will be held in 5 states of Rajasthan, Madhya Pradesh, Chattisgarh, Delhi and Mizoram aggregating 73 of 543 Lok Sabha seats (13% of total seats). The assembly elections assume significance because the results could be a referendum for the General elections highlighting the national mood.
Y Decoding the election trends: Our analysis of elections led us to some interesting findings and perspectives: A. Seat share can be disproportionate to vote share: The data on seats won percentage to vote share percentage suggests that parties have won less seats in a particular year despite its vote share remaining the same. This suggests that the margin of victory is slender in many seats (more than 35% seats were won with less than 5% margin victory in 2009 general elections). B. Higher voter turnout – an indicator of a change in government?: The past 10 general election trends suggest that a voter turnout of 60% or above has resulted in a change in government (barring 1984 which Congress won due to sympathy wave on assassination of former Prime Minister, Ms. Indira Gandhi).
Z What could be the odds of an NDA government: Based on the opinion polls and predictions, odds favor anti-incumbency. We analyse possible scenario which could drive an NDA government. Association with allies and their performance remains a key monitor to watch.
[ Markets - build-up pre-elections; sharp reactions post elections: Markets sees some build-up prior to the elections. However, it witnesses sharp reactions post the election results. Normally, a decisive voting in favour of a party is positively perceived by the markets, whereas a fractured government witnesses negative reactions.
#1 State elections – gauge of national mood
The second innings of UPA has been marred by corruption scandals, decadal low growth, inflation, currency depreciation, etc hurting investor confidence and creating uncertainty in the mind of the corporates. With Lok Sabha elections due in the next 7 months, assembly elections during this interim period are keenly awaited since they may act as a referendum to the general elections to suggest the political mood of the nation. There are 5 state elections before the General elections in April-May 2014 – Rajasthan, Madhya Pradesh, Chattisgarh, Delhi and Mizoram. These states comprise 13% of the Lok Sabha seats (73 out of 543 seats). The state elections are important, since in 4 of these states (except Mizoram), Congress and BJP are the only two dominant parties. Thus, the outcome of these assembly elections will likely reflect the national mood.
October 2013
A–35
/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
^ƚĂƚĞĞůĞĐƚŝŽŶƐĨŽƌϭϯйŽĨ>ŽŬ^ĂďŚĂƐĞĂƚƐ͖ĚŝƌĞĐƚƚƵƐƐůĞďĞƚǁĞĞŶŽŶŐƌĞƐƐĂŶĚ:WŝŶϰƐƚĂƚĞƐ ^ƚĂƚĞƐ
DŽŶƚŚ
ZƵůŝŶŐƉĂƌƚLJ
DĂĚŚLJĂ WƌĂĚĞƐŚ ZĂũĂƐƚŚĂŶ ŚŚĂƚƚŝƐŐĂƌŚ Ed ĞůŚŝ DŝnjŽƌĂŵ dŽƚĂů
ĞĐĞŵďĞƌͲϭϯ ĞĐĞŵďĞƌͲϭϯ :ĂŶƵĂƌLJͲϭϰ ĞĐĞŵďĞƌͲϭϯ ĞĐĞŵďĞƌͲϭϯ
:W ŽŶŐƌĞƐƐ :W ŽŶŐƌĞƐƐ ŽŶŐƌĞƐƐ
>ŽŬ^ĂďŚĂ^ĞĂƚƐ
йŽĨƐĞĂƚƐ
Ϯϵ Ϯϱ ϭϭ ϳ ϭ ϳϯ
ϱ͘ϯ ϰ͘ϲ Ϯ͘Ϭ ϭ͘ϯ Ϭ͘Ϯ ϭϯ͘ϰ
ƐƐĞŵďůLJĂŶĚŐĞŶĞƌĂůĞůĞĐƚŝŽŶƚƌĞŶĚƐ dŚĞƚƌĞŶĚĨŽƌƚŚĞůĂƐƚƚŚƌĞĞĂƐƐĞŵďůLJĞůĞĐƚŝŽŶƐǀͬƐŐĞŶĞƌĂůĞůĞĐƚŝŽŶƐƐƵŐŐĞƐƚƐƚŚĂƚ ƉĂƌƚŝĞƐ ǁŚŝĐŚ ǁŽŶ ƚŚĞ ĂƐƐĞŵďůLJ ĞůĞĐƚŝŽŶƐ ŚĂǀĞ ĂůƐŽ ďĂŐŐĞĚ ƚŚĞ ŚŝŐŚĞƐƚ ƐĞĂƚƐ ŝŶ ŐĞŶĞƌĂů ĞůĞĐƚŝŽŶƐ ;ďĂƌƌŝŶŐ ϭϵϵϵͿ͘ ϭϵϵϴͲϵϵ ĞůĞĐƚŝŽŶƐ ƐĂǁ ƌĞǀĞƌƐĞ ƚƌĞŶĚƐ͕ ǁŚĞƌĞŝŶ ZĂũĂƐƚŚĂŶ͕ DW ĂŶĚ ĞůŚŝ ƐĂǁ ŽŶŐƌĞƐƐ ĂƐ ƚŚĞ ƐŝŶŐůĞ ůĂƌŐĞƐƚ ƉĂƌƚLJ ŝŶ ĂƐƐĞŵďůLJ ĞůĞĐƚŝŽŶƐ͘ ,ŽǁĞǀĞƌ͕ :W ƐǁĞƉƚ ƚŚĞ ŐĞŶĞƌĂů ĞůĞĐƚŝŽŶƐ ŝŶ ƚŚĞƐĞ ƐƚĂƚĞƐ͘
ZĂũĂƐƚŚĂŶʹZƵůŝŶŐƉĂƌƚLJ͗ŽŶŐƌĞƐƐ͖:WĞdžƉĞĐƚĞĚƚŽŽƵƚĚŽŽŶŐƌĞƐƐ WĂƌƚLJ :W KƚŚĞƌƐ ŽŶŐƌĞƐƐ dŽƚĂů
ƐƐĞŵďůLJ ;ϭϵϵϴͿ
>ŽŬ^ĂďŚĂ ;ϭϵϵϵͿ
ƐƐĞŵďůLJ ;ϮϬϬϯͿ
>ŽŬ^ĂďŚĂ ;ϮϬϬϰͿ
ƐƐĞŵďůLJ ;ϮϬϬϴͿ
>ŽŬ^ĂďŚĂ ;ϮϬϬϵͿ
ϯϯ ϭϰ ϭϱϯ ϮϬϬ
ϭϲ Ϭ ϵ Ϯϱ
ϭϮϬ Ϯϰ ϱϲ ϮϬϬ
Ϯϭ Ϭ ϰ Ϯϱ
ϳϴ Ϯϲ ϵϲ ϮϬϬ
ϰ ϭ ϮϬ Ϯϱ
DWʹZƵůŝŶŐƉĂƌƚLJ͗:W͖ĞdžƉĞĐƚĞĚƚŽƌĞƚĂŝŶŝƚƐŐƌŽƵŶĚ WĂƌƚLJ :W KƚŚĞƌƐ ŽŶŐƌĞƐƐ dŽƚĂů
ƐƐĞŵďůLJ ;ϭϵϵϴͿ
>ŽŬ^ĂďŚĂ ;ϭϵϵϵͿ
ƐƐĞŵďůLJ ;ϮϬϬϯͿ
>ŽŬ^ĂďŚĂ ;ϮϬϬϰͿ
ƐƐĞŵďůLJ ;ϮϬϬϴͿ
>ŽŬ^ĂďŚĂ ;ϮϬϬϵͿ
ϭϭϵ Ϯϵ ϭϳϮ ϯϮϬ
Ϯϵ Ϭ ϭϭ ϰϬ
ϭϳϯ ϭϵ ϯϴ ϮϯϬ
Ϯϱ Ϭ ϰ Ϯϵ
ϭϰϯ ϭϲ ϳϭ ϮϯϬ
ϭϲ ϭ ϭϮ Ϯϵ
ŚĂƚƚŝƐŐĂƌŚʹZƵůŝŶŐƉĂƌƚLJ͗:W͖ůŝŬĞůLJƚŽĐŽŶƚŝŶƵĞĚŽŵŝŶĂƚŝŽŶ WĂƌƚLJ
ƐƐĞŵďůLJ;ϮϬϬϯͿ
>ŽŬ^ĂďŚĂ;ϮϬϬϰͿ
ƐƐĞŵďůLJ;ϮϬϬϴͿ
>ŽŬ^ĂďŚĂ;ϮϬϬϵͿ
ϱϬ ϯ ϯϳ ϵϬ
ϭϬ Ϭ ϭ ϭϭ
ϱϬ Ϯ ϯϴ ϵϬ
ϭϬ Ϭ ϭ ϭϭ
:W KƚŚĞƌƐ ŽŶŐƌĞƐƐ dŽƚĂů
ĞůŚŝʹZƵůŝŶŐƉĂƌƚLJ͗ŽŶŐƌĞƐƐ͖ŵŝdžĞĚƌĞĂĐƚŝŽŶƐ͕ĂŶƚŝͲŝŶĐƵŵďĞŶĐLJůŝŬĞůLJƚŽŚĞůƉ:W WĂƌƚLJ :W KƚŚĞƌƐ ŽŶŐƌĞƐƐ dŽƚĂů
KĐƚŽďĞƌ ϮϬϭϯ
ƐƐĞŵďůLJ ;ϭϵϵϴͿ
>ŽŬ^ĂďŚĂ ;ϭϵϵϵͿ
ƐƐĞŵďůLJ ;ϮϬϬϯͿ
>ŽŬ^ĂďŚĂ ;ϮϬϬϰͿ
ƐƐĞŵďůLJ ;ϮϬϬϴͿ
>ŽŬ^ĂďŚĂ ;ϮϬϬϵͿ
ϭϱ ϯ ϱϮ ϳϬ
ϳ Ϭ Ϭ ϳ
ϮϬ ϯ ϰϳ ϳϬ
ϭ Ϭ ϲ ϳ
Ϯϯ ϰ ϰϯ ϳϬ
Ϭ Ϭ ϳ ϳ
ʹϯϲ
/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
ηϮ ĞĐŽĚŝŶŐƚŚĞĞůĞĐƚŝŽŶƚƌĞŶĚƐ
dŽ ƵŶĚĞƌƐƚĂŶĚ ƚŚĞ ĞůĞĐƚŝŽŶ ůĂŶĚƐĐĂƉĞ ĂŶĚ ƚŚĞ ǀĂƌŝŽƵƐ ƚƌĞŶĚƐ ĂƐƐŽĐŝĂƚĞĚ ǁŝƚŚ ŝƚ͕ ǁĞ ĚĞǀĞůŽƉ ƐĐĞŶĂƌŝŽƐ ƚŽ ŐĂƵŐĞ ǁŚŝĐŚ ƉĂƌƚLJ ĐŽƵůĚ ĨŽƌŵ ƚŚĞ ŐŽǀĞƌŶŵĞŶƚ ŝŶ ϮϬϭϰ ŐĞŶĞƌĂů ĞůĞĐƚŝŽŶƐ͘tĞŚĂǀĞďĂƐĞĚŽƵƌĂŶĂůLJƐŝƐŽŶƚǁŽďƌŽĂĚĂƐƉĞĐƚƐ͗
͘^ĞĂƚƐŚĂƌĞƐǁŝŶŐĐĂŶďĞĚŝƐƉƌŽƉŽƌƚŝŽŶĂƚĞƚŽǀŽƚĞƐŚĂƌĞƐǁŝŶŐ tĞŚĂǀĞŽďƐĞƌǀĞĚƚŚĂƚĨŽƌƚŚĞƚǁŽĚŽŵŝŶĂŶƚƉĂƌƚŝĞƐʹŽŶŐƌĞƐƐĂŶĚ:W͕ƉĞƌĐĞŶƚĂŐĞ ŽĨ ƐĞĂƚƐ ǁŽŶ ŚĂƐ ĂůǁĂLJƐ ďĞĞŶ ŚŝŐŚĞƌ ƚŚĂŶ ƚŚĞŝƌ ǀŽƚĞ ƐŚĂƌĞ ƉĞƌĐĞŶƚĂŐĞ͘ dŚŝƐ ŝŶĚŝĐĂƚĞƐƚŚĂƚŵĂƌŐŝŶŽĨǀŝĐƚŽƌŝĞƐďLJƚŚĞƐĞƉĂƌƚŝĞƐŝŶƚŚĞŝƌƌĞƐƉĞĐƚŝǀĞĐŽŶƐƚŝƚƵĞŶĐŝĞƐ ŚĂǀĞ ďĞĞŶ ƐůĞŶĚĞƌ͘ dŚŝƐďĞĐŽŵĞƐŽďǀŝŽƵƐĨƌŽŵƚŚĞĨĂĐƚƚŚĂƚŽŶŐƌĞƐƐŚĂĚĂůŵŽƐƚƚŚĞƐĂŵĞǀŽƚĞƐŚĂƌĞ ŝŶ ϭϵϵϵ ĂŶĚ ϮϬϬϵ ĞůĞĐƚŝŽŶƐ͕ ŚŽǁĞǀĞƌ͕ ƚŚĞ ƉĞƌĐĞŶƚĂŐĞ ŽĨ ƐĞĂƚ ƐŚĂƌĞ ƐŚŽƚ ƵƉ ĨƌŽŵ Ϯϭй;ϭϭϰƐĞĂƚƐͿŝŶϭϵϵϵƚŽϯϴйŝŶϮϬϬϵ;ϮϬϲƐĞĂƚƐͿ͘ sŽƚĞƐŚĂƌĞĨŽƌŽŶŐƌĞƐƐŚĂƐĂůǁĂLJƐďĞĞŶŚŝŐŚĞƌƚŚĂŶ:WǀŽƚĞƐŚĂƌĞ͘ ZĞŐŝŽŶĂůƉĂƌƚŝĞƐĂƌĞŐĞƚƚŝŶŐǀĞƌLJƐƚƌŽŶŐŝŶƚŚĞŝƌƌĞƐƉĞĐƚŝǀĞĐŽŶƐƚŝƚƵĞŶĐŝĞƐ͕ǁŝŶŶŝŶŐ ǁŝƚŚƚŚƵŵƉŝŶŐŵĂũŽƌŝƚŝĞƐ͘dŚŝƐŝŶƚĞŶƐŝĨŝĞƐƚŚĞďĂƚƚůĞĨŽƌǀŽƚĞͬƐĞĂƚƐŚĂƌĞďĞƚǁĞĞŶ ŽŶŐƌĞƐƐĂŶĚ:WŝŶƐƚĂƚĞƐǁŝƚŚŽƵƚƚŚĞƉƌĞƐĞŶĐĞŽĨƐƚƌŽŶŐƌĞŐŝŽŶĂůƉĂƌƚŝĞƐ͘
ŽŶŐƌĞƐƐĂŶĚ:W;ĐŽŵďŝŶĞĚͿǀŽƚĞƐŚĂƌĞĂŶĚƐĞĂƚƐǁŽŶйĚŝĨĨĞƌĞŶĐĞŽĨϭϮƉƉŝƐŵĂdžŝŵƵŵŝŶϮϬϬϵ ŝŶĚŝĐĂƚŝŶŐƐůĞŶĚĞƌǀŝĐƚŽƌLJŵĂƌŐŝŶƐŝŶŵĂŶLJƐĞĂƚƐ
ϯϬϭ
^ĞĂƚƐ ǁŽŶ ϯϮϯ
^ĞĂ ƚƐ ŚĂƌĞ ;йͿ Ϯϵϲ
sŽƚĞ Ɛ ŚĂƌĞ ;йͿ Ϯϴϯ
ϱϵ ϱϱ
ϱϱ ϱϭ
ϰϵ
ϭϵϵϲ
ϱϮ
ϭϵϵϵ
ϱϵ
ϱϮ ϰϵ
ϭϵϵϴ
ϯϮϮ
ϮϬϬϰ
ϰϳ
ϮϬϬϵ
ŽŶŐƌĞƐƐ͗sŽƚĞƐŚĂƌĞŚĂƐƌĞŵĂŝŶĞĚŝŶϮϲͲϮϵйƌĂŶŐĞ͕ŚŽǁĞǀĞƌƐĞĂƚƐŚĂƌĞŚĂǀĞǀĂƌŝĞĚĨƌŽŵϮϭй ŝŶϭϵϵϵƚŽϯϴйŝŶϮϬϬϵ ^ĞĂ ƚƐ ǁŽŶ
sŽƚĞƐ ŚĂ ƌĞ;йͿ
^ĞĂƚƐ ŚĂ ƌĞ;йͿ
EŽŶͲŽŶŐƌĞƐƐůĞĚĂůůŝĂŶĐĞ Ϯϴ͘ϴ Ϯϱ͘ϴ
Ϯϱ͘ϴ
ϯϳ͘ϵ Ϯϴ͘ϯ
Ϯϲ͘ϳ
Ϯϴ͘ϲ
Ϯϲ͘ϱ
Ϯϲ͘Ϭ Ϯϭ͘Ϭ
KĐƚŽďĞƌ ϮϬϭϯ
ϭϰϬ
ϭϰϭ
ϭϭϰ
ϭϰϱ
ϮϬϲ
ϭϵϵϲ
ϭϵϵϴ
ϭϵϵϵ
ϮϬϬϰ
ϮϬϬϵ
ʹϯϳ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
:W͗ϮϬϬϵǀŽƚĞƐŚĂƌĞŚĂƐďĞĞŶƚŚĞůŽǁĞƐƚŝŶƚŚĞůĂƐƚϱŐĞŶĞƌĂůĞůĞĐƚŝŽŶƐ ^ĞĂ ƚƐǁŽŶ
sŽƚĞ ƐŚĂ ƌĞ;йͿ
ϯϯ͘ϱ
Ϯϵ͘ϳ
^ĞĂ ƚƐŚ ĂƌĞ;йͿ
ϯϯ͘ϱ Ϯϱ͘ϰ
Ϯϱ͘ϲ
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'ĞŶĞƌĂůĞůĞĐƚŝŽŶƐƐƚĂƚĞͲǁŝƐĞĚŝǀĞƌŐĞŶĐĞŝŶƉĞƌĐĞŶƚĂŐĞŽĨƐĞĂƚƐǁŽŶƚŽǀŽƚĞƐƉŽůůĞĚ ƉĞƌĐĞŶƚĂŐĞ dŚĞĚŝǀĞƌŐĞŶĐĞďĞĐŽŵĞƐŵŽƌĞĚŝƐĐĞƌŶĂďůĞĂƐǁĞĂŶĂůLJƐĞƚŚĞƚƌĞŶĚƐĂĐƌŽƐƐƐŝdžƐƚĂƚĞƐ ƌĞƉƌĞƐĞŶƚŝŶŐϮϲϰƐĞĂƚƐ;ϰϵйŽĨƚŽƚĂůƐĞĂƚƐͿ͘KƵƌƐƚĂƚĞͲǁŝƐĞĂŶĂůLJƐŝƐĂĐƌŽƐƐƚŽƉƐƚĂƚĞƐ ƐƵŐŐĞƐƚƐ ŚƵŐĞĚŝǀĞƌŐĞŶĐĞŽďƐĞƌǀĞĚŝŶDĂŚĂƌĂƐŚƚƌĂ͕ W͕DW͕ŝŚĂƌĂŶĚZĂũĂƐƚŚĂŶ͘ hW;ϭϱйͿ͗^WĐŽŶƐŝƐƚĞŶƚůLJŚĂƐŚŝŐŚĞƌƐĞĂƚƐŚĂƌĞƚŚĂŶǀŽƚĞƐŚĂƌĞ͖ŝŶϮϬϬϵ͕ŽŶŐƌĞƐƐǁŽŶϮϲйŽĨ ƐĞĂƚƐǁŝƚŚϭϴйǀŽƚĞƐŚĂƌĞ ^ƚĂƚĞǁŝƚŚ ŵĂdžŝŵƵŵ>ŽŬ ^ĂďŚĂƐĞĂƚƐʹ ϴϬƐĞĂƚƐ
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^Ğ ĂƚƐǁŽŶ й ;ϭϵϵϵͿ
sŽƚĞƐ ƉŽ ůů Ğ Ě й;ϭϵϵϵͿ
^Ğ ĂƚƐ ǁŽ Ŷй ;ϮϬϬϰͿ
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India Str at egy | The Trilemma!
AP (8%): Congress vote share ranged from 39-43%, however, seat share moved from 12%-79% Congres s 17
19
Tel uguDes a m 19 12
MP (5%): Congress seat share has consistently remained lower than vote share before catching up in 2009 BJP
Others 7 14
25
0 28
36
Co ngre ss 0 14
10
33 79
69 43
34
25
69
47
39
16 40
86
73
42
3
18
41
44
40
Others
48
55
43
Votes pol l ed % (2004)
Sea ts won % (2009)
Vo tes p ol l ed % (2009)
12 Sea ts won% (1999)
Votes pol l ed% (1999)
Sea ts won% (2004)
Votes pol l ed% (2004)
Sea ts won% (2009)
Votes pol l ed% (2009)
Bihar (7%): Winners' vote share is always lower than seat share indicating fractured mandate B JP R ash tri ya Jana ta Dal
Jan ata Da l (Uni ted ) Othe rs 32
55
31
50
23
15 13
22 15
30
24 14
Votes pol l e d % (1999)
Sea ts won % (2004)
Vo tes p ol l ed % (2004)
Se ats wo n % (2009)
Votes pol l ed % (2009)
28
18
33
28 21
43 Seats won % (1999)
Vote s po l l ed % (1999)
Seats won % (2004)
Rajasthan (5%): Congress vote share ranged from 41-47% however, seat share swung from 16% in 2004 to 80% in 2009
10 10
11 13
Sea ts won % (1999)
BJP 0 36
43
8
Congress 0 10 16
45
41
Oth ers 4
80 19
16 47
84 64
47
49
37 16
Seats won % (1999)
Votes s hare % (1999)
Se ats wo n % (2004)
Votes sh are % (2004)
Seats won % (2009)
Vote s s hare % (2009)
Note: Brackets indicates state seats weightage in total Lok Sabha seats
Margin of victory: Our above thesis that parties win seats based on slender margin is elucidated through the exhibit below. We observe that barring 2004, 36% of the seats are won with victory margins of less than 5%. The chart below indicates the decisive voting in 2004, wherein almost half of the seats were won with victory margins of more than 10%.
More than one-third seats won with less than 5% margin
Les s tha norequa l to5%
Moretha n5%butl es s tha norequal to10%
39
40
25
24
49
Moretha n10%
37
27 23
October 2013
36
36
28
36
1998
1999
2004
2009
A–39
/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
͘,ŝŐŚĞƌǀŽƚĞƌƚƵƌŶŽƵƚʹĂŶŝŶĚŝĐĂƚŽƌŽĨĂĐŚĂŶŐĞŝŶŐŽǀĞƌŶŵĞŶƚ͍ sŽƚĞƌƚƵƌŶŽƵƚŝƐƉƌŽďĂďůLJƚŚĞŵŽƐƚĚĞĐŝƐŝǀĞĨĂĐƚŽƌǁŚŝĐŚĐŽƵůĚĚĞĐŝĚĞƚŚĞŵĂũŽƌŝƚLJ ƉĂƌƚLJŝŶϮϬϭϰŐĞŶĞƌĂůĞůĞĐƚŝŽŶƐ͘ KƵƌĂŶĂůLJƐŝƐƐƵŐŐĞƐƚƚŚĂƚĂŚŝŐŚĞƌǀŽƚĞƌƚƵƌŶŽƵƚŽĨϲϬйŽƌĂďŽǀĞƌĞƐƵůƚƐŝŶĂĐŚĂŶŐĞ ŝŶ ŐŽǀĞƌŶŵĞŶƚ ďĂƌƌŝŶŐ ϭϵϴϰ͕ ǁŚĞƌĞŝŶ ŽŶŐƌĞƐƐ ǁŽŶ ƚŚĞ ĞůĞĐƚŝŽŶƐ ĚƵĞ ƚŽ ƚŚĞ ƐLJŵƉĂƚŚLJǁĂǀĞŽŶĂƐƐĂƐƐŝŶĂƚŝŽŶŽĨƚŚĞŝŶĐƵŵďĞŶƚWƌŝŵĞDŝŶŝƐƚĞƌDƐ/ŶĚŝƌĂ'ĂŶĚŚŝ͘ ĞŵŽŐƌĂƉŚŝĐĐŚĂŶŐĞ͗dŚĞĐŚĂŶŐĞƐŝŶƚŚĞĚĞŵŽŐƌĂƉŚŝĐƉƌŽĨŝůĞĐĂŶĂůƐŽŝŶĨůƵĞŶĐĞ ǀŽƚĞƐǁŝŶŐĨŽƌƉĂƌƚŝĞƐ͘ĂƐĞĚŽŶƚŚĞĞŶƐƵƐϮϬϭϭĚĂƚĂ͕ϭϬϬŵͲϭϮϬŵǁŝůůďĞĞůŝŐŝďůĞ ĨŽƌǀŽƚŝŶŐĂƐĨŝƌƐƚƚŝŵĞǀŽƚĞƌƐ͘dŚĞƐĞLJŽƵŶŐĂĚƵůƚƐǁŽƵůĚďĞĂŶLJǁŚĞƌĞďĞƚǁĞĞŶϭϴ ĂŶĚϮϯLJĞĂƌƐŽĨĂŐĞ͘ƐĂƉƌŽƉŽƌƚŝŽŶ͕ƚŚŝƐǁŽƌŬƐŽƵƚƚŽĂďŽƵƚŽŶĞͲƐŝdžƚŚŽĨƚŚĞƚŽƚĂů ĞůĞĐƚŽƌĂƚĞŽĨΕϳϵϬŵĞƐƚŝŵĂƚĞĚďLJƚŚĞůĞĐƚŝŽŶŽŵŵŝƐƐŝŽŶŽĨ/ŶĚŝĂ͘dŚŝƐĂĚĚŝƚŝŽŶĂů LJŽƵŶŐĚĞŵŽŐƌĂƉŚŝĐƉƌŽĨŝůĞĐŽƵůĚŝŵƉƌĞƐƐƵƉŽŶĂƐǁĂLJŝŶƐĞĂƚƐĨŽƌƚŚĞƉĂƌƚŝĞƐ͘
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/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
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ĞĐŝƐŝǀĞǀŽƚŝŶŐ ϱϵ͘ϯ
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ŽŶŐƌĞƐƐĚĞƚŚƌŽŶĞƐ:W
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<ĂƌŶĂƚĂŬĂ;ϱйͿ͗sŽƚĞƌƚƵƌŶŽƵƚĂďŽǀĞϳϬйĨŽƌƚŚĞĨŝƌƐƚƚŝŵĞ
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t;ϴйͿ͗,ŝŐŚĞƐƚǀŽƚĞƌͲƚƵƌŶŽƵƚŝŶŵĂũŽƌƐƚĂƚĞƐ
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ϲϯ͘ϰ
ϲϬ͘ϲ
ϲϬ͘Ϯ
ϱϰ͘Ϯ
ϲϰ͘ϰ ϰϴ͘ϴ
ϲϳ͘Ϯ
ϲϵ͘ϴ
'ƵũĂƌĂƚ;ϱйͿ͗ĞĐŝƐŝǀĞǀŽƚŝŶŐŝŶĨĂǀŽƵƌŽĨEĂƌĞŶĚƌĂDŽĚŝ
ϰϴ͘ϭ
ŽŶŐƌĞƐƐĚĞĐŝƐŝǀĞǁŝŶ
ϭϵϵϵ
ϲϱ
ϲϱ͘ϭ
ϮϬϬϰ
ϮϬϬϴ
ϮϬϭϯ
EŽƚĞ͗ ƌĂĐŬĞƚƐ ŝŶĚŝĐĂƚĞƐ ƐƚĂƚĞ ƐĞĂƚƐ ǁĞŝŐŚƚĂŐĞ ŝŶ ƚŽƚĂů >ŽŬ ^ĂďŚĂ ƐĞĂƚƐ
KĐƚŽďĞƌ ϮϬϭϯ
ʹϰϭ
/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
ηϯ tŚĂƚĐŽƵůĚďĞƚŚĞŽĚĚƐŽĨĂŶEŐŽǀĞƌŶŵĞŶƚ dŚĞ /ŶĚŝĂŶ ƉŽůŝƚŝĐĂů ƐĐĞŶĂƌŝŽ ŝƐ ǀĞƌLJ ĚĞůŝĐĂƚĞůLJ ƉŽŝƐĞĚ ǁŝƚŚ :W ďĞŝŶŐ ĨĂǀŽƌĞĚ ŽŶ ƚŚĞ ďĂĐŬ ŽĨ ƐƚƌŽŶŐ ĂŶƚŝͲŝŶĐƵŵďĞŶĐLJ ƐƵƉƉŽƌƚĞĚ ďLJ ĐŽƌƌƵƉƚŝŽŶ͕ ŚŝŐŚ ŝŶĨůĂƚŝŽŶ͕ ƐůŽǁĚŽǁŶ ŝŶ ĞĐŽŶŽŵLJ ĂŶĚ ĚĞĐĂĚĂů ůŽǁ ŐƌŽǁƚŚ͖ ĂŶĚ ƚŚĞ ƉŽƉƵůĂƌŝƚLJ ŽĨ EĂƌĞŶĚƌĂ DŽĚŝ ĂƐ ƚŚĞ ŵŽƐƚ ĂƉƉƌĞĐŝĂƚĞĚ ůĞĂĚĞƌ͘ dŚĞ ŽŶŐƌĞƐƐ ŐŽǀĞƌŶŵĞŶƚ͕ ŽŶ ƚŚĞ ŽƚŚĞƌ ŚĂŶĚ͕ ĐůĂŝŵƐ ƚŽ ŚĂǀĞ ŵĂũŽƌŝƚLJ ŝŶ ƚŚĞ ƵƉĐŽŵŝŶŐ ĞůĞĐƚŝŽŶƐ ŽŶ ƚŚĞ ďĂĐŬ ŽĨ ŝƚƐ ƉŽƉƵůŝƐƚ ŵĞĂƐƵƌĞƐ ƐƵĐŚ ĂƐ &ŽŽĚ ^ĞĐƵƌŝƚLJ ŝůů͕>ĂŶĚĂĐƋƵŝƐŝƚŝŽŶďŝůůĂŶĚĚƵĞƚŽƚŚĞŶŽŶͲƐĞĐƵůĂƌƉĂƚƌŽŶĂŐĞŽĨ:W͘ ĂƐĞĚ ŽŶ ƚŚĞ ŽƉŝŶŝŽŶ ƉŽůůƐ ĂŶĚ ƉƌĞĚŝĐƚŝŽŶƐ͕ ŽĚĚƐ ĨĂǀŽƵƌ ĂŶƚŝͲŝŶĐƵŵďĞŶĐLJ͘ tĞ ĂŶĂůLJƐĞƉŽƐƐŝďůĞƐĐĞŶĂƌŝŽǁŚŝĐŚĐŽƵůĚĚƌŝǀĞĂŶEŐŽǀĞƌŶŵĞŶƚ͘ƐƐŽĐŝĂƚŝŽŶǁŝƚŚ ĂůůŝĞƐĂŶĚƚŚĞŝƌƉĞƌĨŽƌŵĂŶĐĞƌĞŵĂŝŶƐĂŬĞLJŵŽŶŝƚŽƌƚŽǁĂƚĐŚ͘
ŽŶŐƌĞƐƐĂŶĚ:WʹdǁŽŵĂũŽƌĚŽŵŝŶĂŶƚƐǁŝƚŚŵŽƌĞƚŚĂŶϱϬйƐĞĂƚƐ ŽŶŐƌĞƐ Ɛ ϮϴϮ
ϯϱϮ
:W
dŽƚĂů
ϯϬϭ
ϯϮϯ
ϭϲϭ
ϭϴϮ
Žŵďŝ ŶĞĚƐ ĞĂ ƚƐ ǁŽŶ;йͿ Ϯϵϲ
Ϯϴϯ
ϭϴϮ
ϭϯϴ
ϯϮϮ
ϲϴ ϭϮϬ ϴϱ ϭϵϳ
ϭϵϴϳ
ϱϯ
ϮϯϮ
ϭϵϵϭ
ϭϰϬ ϭϵϵϲ
ϱϱ
ϱϵ
ϭϰϭ
ϭϭϰ
ϭϵϵϴ
ϭϵϵϵ
ϱϱ
ϭϭϲ ϱϵ ϮϬϲ
ϭϰϱ
ϱϮ
ϮϬϬϰ
ϮϬϬϵ
hWĐŽŵƉŽƐŝƚŝŽŶ;ŝŶĐůƵĚŝŶŐƐƵƉƉŽƌƚŝŶŐƉĂƌƚŝĞƐͿ WŽůŝƚŝĐĂů ƉĂƌƚŝĞƐ
^ĞĂƚƐǁŽŶŝŶƌĞƐƉĞĐƚŝǀĞ >ŽŬ^ĂďŚĂĞůĞĐƚŝŽŶƐ ϭϵϵϵ ϮϬϬϰ ϮϬϬϵ ŽŶŐƌĞƐƐ ϭϭϰ ϭϰϱ ϮϬϲ EW ϴ ϵ ϵ ZĂƐŚƚƌŝLJĂ >ŽŬ Ăů Ϯ ϯ ϱ :Θ< EĂƚŝŽŶĂů ŽŶĨĞƌĞŶĐĞ ϰ Ϯ ϯ /ŶĚŝĂŶ hŶŝŽŶ DƵƐůŝŵ >ĞĂŐƵĞ Ϭ Ϭ Ϯ <ĞƌĂůĂ ŽŶŐƌĞƐƐ ;DĂŶŝͿ ϭ Ϭ ϭ ^ŝŬŬŝŵ ĞŵŽĐƌĂƚŝĐ &ƌŽŶƚ ϭ ϭ ϭ ƐƐĂŵ hŶŝƚĞĚ ĞŵŽĐƌĂƚŝĐ &ƌŽŶƚ Ϭ Ϭ ϭ hW ϮϮϴ ZĂƐŚƚƌŝLJĂ :ĂŶĂƚĂ Ăů ϳ Ϯϰ ϰ ^W ϭϰ ϭϵ Ϯϭ ^W Ϯϲ ϯϲ Ϯϯ
KĐƚŽďĞƌ ϮϬϭϯ
zĞĂƌŽĨĂůůŝĂŶĐĞ ǁŝƚŚhWͬ ŽŶŐƌĞƐƐ
ZĞŵĂƌŬƐ
ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ ϮϬϬϵ ϮϬϬϰ͕ϮϬϬϵ ϮϬϬϰ͕ϮϬϬϵ ϮϬϬϰ͕ϮϬϬϵ ϮϬϬϰ͕ϮϬϬϵ ϮϬϬϰ͕ϮϬϬϵ ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ ϮϬϬϵ ϮϬϬϰ͕ϮϬϬϵ
^ƵƉƉŽƌƚŝŶŐ ƉĂƌƚŝĞƐ ^ƵƉƉŽƌƚŝŶŐ ƉĂƌƚŝĞƐ ^ƵƉƉŽƌƚŝŶŐ ƉĂƌƚŝĞƐ
ʹϰϮ
/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
EĐŽŵƉŽƐŝƚŝŽŶ;ŝŶĐůƵĚŝŶŐƐƵƉƉŽƌƚŝŶŐƉĂƌƚŝĞƐͿŝŶϭϵϵϵ>ŽŬ^ĂďŚĂǁŝƚŚŽƚŚĞƌŐĞŶĞƌĂůĞůĞĐƚŝŽŶƐĞĂƚƐ WŽůŝƚŝĐĂů ƉĂƌƚŝĞƐ
^ĞĂƚƐǁŽŶŝŶƌĞƐƉĞĐƚŝǀĞ >ŽŬ^ĂďŚĂĞůĞĐƚŝŽŶƐ ϭϵϵϵ ϮϬϬϰ ϮϬϬϵ
zĞĂƌŽĨĂůůŝĂŶĐĞ ǁŝƚŚE
:W ^Śŝǀ ^ĞŶĂ ^ŚŝƌŽŵĂŶŝ ŬĂůŝ Ăů :ĂŶĂƚĂ Ăů ;hŶŝƚĞĚͿ ^ƵƉƉŽƌƚŝŶŐ ƉĂƌƚŝĞƐ D<
ϭϴϮ ϭϱ Ϯ Ϯϭ
ϭϯϴ ϭϮ ϴ ϴ
ϭϭϲ ϭϭ ϰ ϮϬ
ϭϮ
ϭϲ
ϭϴ
ϭϵϵϵ
ŝũƵ :ĂŶĂƚĂ Ăů dƌŝŶĂŵŽŽů ŽŶŐƌĞƐƐ WĂƚƚĂůŝ DĂŬŬĂů <ĂƚĐŚŝ
ϭϬ ϴ ϱ
ϭϭ Ϯ ϲ
ϭϰ ϭϵ Ϭ
ϭϵϵϵ͕ϮϬϬϰ ϭϵϵϵ͕ϮϬϬϰ ϭϵϵϵ
ϱ ϰ ϰ Ϯ
Ϭ ϰ Ϯ ϯ
Ϭ ϭ ϯ ϱ
ϭϵϵϵ͕ϮϬϬϵ ϭϵϵϵ ϭϵϵϵ ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ
Ϭ Ϭ Ϯϵ Ϯϵϵ
Ϭ Ϯ ϱ
Ϭ ϭ ϲ
ϭϵϵϵ ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ ϭϵϵϵ͕ϮϬϬϰ
/ŶĚŝĂŶ EĂƚŝŽŶĂů >ŽŬ Ăů DD< :Θ< EĂƚŝŽŶĂů ŽŶĨĞƌĞŶĐĞ ZĂƐŚƚƌŝLJĂ >ŽŬ Ăů >ŽŬ ^ŚĂŬƚŝ ƐŽŵ 'ĂŶĂ WĂƌŝƐŚĂĚ dĞůƵŐƵ ĞƐĂŵ WĂƌƚLJ dŽƚĂů
ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ
ZĞŵĂƌŬƐ
ƌĞĂŬͲƵƉ ǁŝƚŚ E tŝƚŚĚƌĞǁ ƐƵƉƉŽƌƚ ĨƌŽŵ hW ŝŶ DĂƌͲϭϯ
^ƵƉƉŽƌƚŝŶŐ ƉĂƌƚLJ ƚŽ hW ŝŶ ϮϬϬϰ ĞůĞĐƚŝŽŶƐ
WĂƌƚ ŽĨ hW ĐƵƌƌĞŶƚůLJ ,ĂƐ ũŽŝŶĞĚ hW ƉŽƐƚ ϮϬϬϵ ĞůĞĐƚŝŽŶƐ
KƉŝŶŝŽŶƉŽůůƐ tŝƚŚ ƚŚĞ ĞůĞĐƚŝŽŶ ŵĂŶŝĂ ƌŽƵŶĚ ƚŚĞ ĐŽƌŶĞƌ͕ Ă ůŽƚ ŽĨ ŽƉŝŶŝŽŶ ƉŽůůƐ͕ ŝŶƚĞƌŶĂů ƉĂƌƚLJ ƉƌĞĚŝĐƚŝŽŶƐ ǁŝƚŚ ƚĂƌŐĞƚ ƐĞĂƚƐ ŚĂǀĞ ďĞŐƵŶ͘ dŚĞƐĞ ƉŽůůƐ ŚĂǀĞ ŵŝdžĞĚ ƌĞĂĐƚŝŽŶƐ ĂƐ ƚŽ ǁŚŽ ĐĂŶ ĨŽƌŵ ƚŚĞ ŐŽǀĞƌŶŵĞŶƚ ďƵƚ ƚŚĞ ƵŶĚĞƌůLJŝŶŐƐĞĂƚƐŚĂƌĞĐŽƵůĚƐƵŐŐĞƐƚĂŶĂůƚĞƌŶĂƚĞĂůůŝĂŶĐĞĂƚƚŚĞĞŶƚƌĞ͘
ZĞĐĞŶƚŽƉŝŶŝŽŶƉŽůůƐƐƵŐŐĞƐƚ:WĂƐƚŚĞŵĂũŽƌŝƚLJƉĂƌƚLJ WĂƌƚLJ
hW ŽŶŐƌĞƐƐ ŽŶŐƌĞƐƐ ĂůůŝĞƐ E :W :W ĂůůŝĞƐ KƚŚĞƌƉĂƌƚŝĞƐ >ĞĨƚ ^W ^W :;hͿ dD : D< dW Z: dZ^ z^Z ŽŶŐƌĞƐƐ KƚŚĞƌƐ dŽƚĂů KĐƚŽďĞƌ ϮϬϭϯ
dŝŵĞƐEŽǁͲsŽƚĞƌ :ƵůͲϭϯ ϭϯϲ ϭϭϵ ϭϳ ϭϱϲ ϭϯϭ Ϯϱ Ϯϱϭ ϯϯ ϯϯ Ϯϴ ϭϭ ϮϮ ϭϮ Ϯϵ ϵ ϭϮ ϭϭ ϭϰ ϯϳ ϱϰϯ
EE/E :ƵůͲϭϯ ϭϱϯ ϭϯϱ ϭϴ ϭϳϲ ϭϲϭ ϭϱ Ϯϭϰ Ϯϱ ϭϵ ϭϳ ϭϳ Ϯϱ ϭϰ ϭϴ ϴ ϭϬ ϳ ϭϯ ϰϭ ϱϰϯ
/ŶĚŝĂdŽĚĂLJ ƵŐͲϭϯ ϭϯϳ ϭϮϮ ϭϱ ϭϱϱ ϭϯϱ ϮϬ Ϯϱϭ ϯϬ ϯϰ Ϯϳ ϭϬ Ϯϯ ϭϯ ϯϬ ϵ ϭϯ ϭϮ ϭϯ ϯϳ ϱϰϯ
>ŽŬ^ĂďŚĂ ϮϬϬϵ ϮϮϴ ϮϬϲ ϮϮ ϭϯϯ ϭϭϲ ϭϳ ϭϴϮ Ϯϰ Ϯϯ Ϯϭ ϮϬ ϭϵ ϭϰ ϵ ϲ ϰ Ϯ Ϭ ϰϬ ϱϰϯ ʹϰϯ
/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
^ƚĂƚĞ ĞůĞĐƚŝŽŶ ƉƌĞͲƉŽůů ƐƵŐŐĞƐƚƐ :WͲůĞĚ ŐŽǀĞƌŶŵĞŶƚ ŝŶ DW͕ ZĂũĂƐƚŚĂŶ͕ ŚĂƚƚŝƐŐĂƌŚ͖ ĞůŚŝ ŝƐ ĞdžƉĞĐƚĞĚƚŽďĞĂŚƵŶŐĂƐƐĞŵďůLJ WŽůŝƚŝĐĂůƉĂƌƚŝĞƐ
,ĞĂĚůŝŶĞƐdŽĚĂLJͲͲsŽƚĞƌ;^ĞƉƚͲϭϯͿ DĂĚŚLJĂWƌĂĚĞƐŚ ŚĂƚƚŝƐŐĂƌŚ ĞůŚŝ
ŽŶŐƌĞƐƐ :W Ăŵ ĂĚŵŝ WĂƌƚLJ ^W KƚŚĞƌƐ dŽƚĂů
ϴϰ ϭϯϬ
ϰϬ ϰϳ
ϱ ϭϭ ϮϯϬ
Ϯ ϭ ϵϬ
ZĂũĂƐƚŚĂŶ
Ϯϴ Ϯϴ ϵ ϱ ϳϬ
ϳϵ ϵϳ ϱ ϭϵ ϮϬϬ
ůƵĞƉƌŝŶƚŽĨϮϬϭϰ'ĞŶĞƌĂůĞůĞĐƚŝŽŶƐ tĞ ƉƌĞƐĞŶƚ Ă ďůƵĞƉƌŝŶƚ ŽĨ Ă ƉŽƐƐŝďůĞ ƐĐĞŶĂƌŝŽ ĨŽƌ E ŐŽǀĞƌŶŵĞŶƚ ǁŝŶŶŝŶŐ ŝŶ ϮϬϭϰ ŐĞŶĞƌĂů ĞůĞĐƚŝŽŶƐ͘ &Žƌ ƚŚŝƐ͕ ǁĞ ŚĂǀĞ ĐŽůůĂƚĞĚ ƚŚĞ ŵĂdžŝŵƵŵ ƐĞĂƚƐ ƐƚĂƚĞͲǁŝƐĞ ǁŚŝĐŚ:WŚĂĚŐĂƌŶĞƌĞĚŝŶƚŚĞůĂƐƚƚŚƌĞĞ>ŽŬ^ĂďŚĂĞůĞĐƚŝŽŶƐĂŶĚƚŚĞŶĂŶĂůLJƐĞƚŚĞ ƉŽƐƐŝďŝůŝƚLJŽĨ:WǁŝŶŶŝŶŐƚŚĞƐĞƐĞĂƚƐŝŶƚŚĞůŝŐŚƚŽĨƉƌĞƐĞŶƚĂǀĂŝůĂďůĞŝŶĨŽƌŵĂƚŝŽŶ͘ tĞĂůƐŽŐĂƚŚĞƌĞĚĚĂƚĂŽŶƚŚĞĂůůŝĞƐŽĨĞĂĐŚŽĨƚŚĞƉĂƌƚŝĞƐʹŽŶŐƌĞƐƐĂŶĚ:WŝŶƚŚĞ ůĂƐƚ ƚŚƌĞĞ ĞůĞĐƚŝŽŶƐ ĂŶĚ ƚŚĞŝƌ ĂƐƐŽĐŝĂƚŝŽŶ ƚƌĞŶĚƐ͘ ĂƐĞĚ ŽŶ ƚŚĞ ŵĂdžŝŵƵŵ ƐĞĂƚƐ ƚŚĞLJ ǁŽŶ ŝŶ ƚŚĞ ůĂƐƚ ƚŚƌĞĞ ĞůĞĐƚŝŽŶƐ͕ ǁĞ ĂƐĐĞƌƚĂŝŶ ƚŚĞ ƉŽƐƐŝďůĞ ƐĞĂƚƐ ĨŽƌ E ;ŝŶĐůƵĚŝŶŐ ƐƵƉƉŽƌƚŝŶŐ ƉĂƌƚŝĞƐͿ͘ dŚĞĐŚŽŝĐĞŽĨĂůůŝĞƐĂŶĚƚŚĞŝƌƉĞƌĨŽƌŵĂŶĐĞƌĞŵĂŝŶƐĂŬĞLJŵŽŶŝƚŽƌƚŽǁĂƚĐŚ͘
:W͗tŚĂƚ͛ƐƚŚĞŶƵŵďĞƌƐƚĂĐŬŝŶŐĨŽƌĂƉŽƐƐŝďůĞEǁŝŶƐĐĞŶĂƌŝŽ͍ ^ƚĂƚĞ
hƚƚĂƌ WƌĂĚĞƐŚ
DĂŚĂƌĂƐŚƚƌĂ ŶĚŚƌĂ WƌĂĚĞƐŚ tĞƐƚ ĞŶŐĂů ŝŚĂƌ dĂŵŝů EĂĚƵ DĂĚŚLJĂ WƌĂĚĞƐŚ <ĂƌŶĂƚĂŬĂ 'ƵũĂƌĂƚ ZĂũĂƐƚŚĂŶ KƌŝƐƐĂ ƐƐĂŵ :ŚĂƌŬŚĂŶĚ WƵŶũĂď ŚŚĂƚƚŝƐŐĂƌŚ ,ĂƌLJĂŶĂ ĞůŚŝ :ĂŵŵƵ Θ <ĂƐŚŵŝƌ ,ŝŵĂĐŚĂů WƌĂĚĞƐŚ 'ŽĂ KƚŚĞƌƐ dŽƚĂů KĐƚŽďĞƌ ϮϬϭϯ
dŽƚĂů>^ ƐĞĂƚƐ
:WƐĞĂƚƐǁŽŶ
DĂdžŽĨƐĞĂƚƐ ůƵĞ ŝŶϮϬϬϵ͕ϮϬϬϰ ƉƌŝŶƚ ĂŶĚϭϵϵϵ ϮϬϭϰ
ϭϵϵϵ
ϮϬϬϰ
ϮϬϬϵ
ϴϱͬϴϬ
Ϯϵͬϴϱ
ϭϬͬϴϬ
ϭϬͬϴϬ
ϭϬ
ϯϱ
ϰϴ ϰϮ ϰϮ ϰϬ
ϭϯ ϳ Ϯ Ϯϯ
ϭϯ Ϭ Ϭ ϱ
ϵ Ϭ ϭ ϭϮ
ϭϯ ϳ Ϯ Ϯϯ
ϭϯ ϳ Ϯ ϭϱ
ϯϵ ϰϬͬϮϵ
ϰ ϮϵͬϰϬ
Ϭ ϮϱͬϮϵ
Ϭ ϭϲͬϮϵ
ϰ Ϯϱ
ϰ ϮϬ
Ϯϴ
ϳ
ϭϴ
ϭϵ
ϭϵ
ϭϮ
Ϯϲ Ϯϱ Ϯϭ ϭϰ ϭϰ ϭϯ ϭϭ ϭϬ ϳ ϲ ϰ Ϯ ϰϮ ϱϰϯ
ϮϬ ϭϲ ϵ Ϯ E ϭ E ϱ ϳ Ϯ ϯ Ϯ ϭ ϭϴϮ
ϭϰ Ϯϭ ϳ Ϯ ϭ ϯ ϭϬ ϭ ϭ Ϭ ϭ ϭ ϱ ϭϯϴ
ϭϱ ϰ Ϭ ϰ ϴ ϭ ϭϬ Ϭ Ϭ Ϭ ϯ ϭ ϯ ϭϭϲ
ϮϬ Ϯϭ ϵ ϰ ϴ ϯ ϭϬ ϱ ϳ Ϯ ϯ Ϯ ϱ ϮϬϮ
ϮϬ Ϯϭ ϱ ϰ ϴ ϯ ϭϬ ϱ ϱ Ϯ ϯ ϭ ϱ ϮϬϬ
ZĞŵĂƌŬƐ
/ŶĐƌĞĂƐŝŶŐ ƉŽƉƵůĂƌŝƚLJ ŽĨ EĂƌĞŶĚƌĂ DŽĚŝ͕ ŝƐƐƵĞƐ ǁŝƚŚ ^W ŐŽǀĞƌŶŵĞŶƚ ŝƐ ůŝŬĞůLJ ƚŽ ďĞŶĞĨŝƚ :W ;нϮϱ ƐĞĂƚƐͿ
ƌĞĂŬͲƵƉ ǁŝƚŚ :;hͿ ŵŝŐŚƚ ƐǁŝŶŐ ƐŽŵĞ ǀŽƚĞƐ ;Ͳϴ ƐĞĂƚƐͿ ŶƚŝͲŝŶĐƵŵďĞŶĐLJ ŵŝŐŚƚ ƌĞĚƵĐĞ ƚŚĞ ƐĞĂƚ ƐŚĂƌĞ ;Ͳϱ ƐĞĂƚƐͿ WŽŽƌ ƌĞĐĞŶƚ ĂƐƐĞŵďůLJ ĞůĞĐƚŝŽŶ ƌĞƐƵůƚƐ ĨŽƌ :W ;Ͳϳ ƐĞĂƚƐͿ
ůĞĂŶͲƐǁĞĞƉ ŶŽƚ ĞdžƉĞĐƚĞĚ ;ͲϮ ƐĞĂƚƐͿ
ʹϰϰ
/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
ƵƌƌĞŶƚĂŶĚƉŽƚĞŶƚŝĂůĂůůŝĂŶĐĞƉĂƌƚŶĞƌƐǁŚŝĐŚĐĂŶĐĂƵƐĞǀŽƚĞƐǁŝŶŐƐĂŶĚŵƵƐƚĨŽƌEƚŽĨŽƌŵŐŽǀĞƌŶŵĞŶƚ WŽůŝƚŝĐĂůƉĂƌƚŝĞƐ
DĂdžŽĨƐĞĂƚƐ ŝŶϮϬϬϵ͕ϮϬϬϰ ĂŶĚϭϵϵϵ
ůƵĞ WƌŝŶƚ
ϭϱ ϴ ϭ ϭ Ϭ Ϭ Ϯϱ
ϭϱ ϴ ϭ ϭ Ϭ Ϭ Ϯϱ
ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ ϭϵϵϵ͕ϮϬϬϰ͕ϮϬϬϵ ϮϬϬϰ͕ϮϬϬϵ ϮϬϬϵ ϮϬϬϵ ϮϬϬϵ
DĂŚĂƌĂƐŚƚƌĂ WƵŶũĂď EĂŐĂůĂŶĚ ,ĂƌLJĂŶĂ
ϭϰ ϭϵ
ϭϮ ϭϵ
ϭϵϵϵ ϭϵϵϵ
dĞůƵŐƵ ĞƐĂŵ WĂƌƚLJ
Ϯϵ
ϭϬ
ϭϵϵϵ
KƌŝƐƐĂ tĞƐƚ ĞŶŐĂů͕ DĞŐŚĂůĂLJĂ ŶĚŚƌĂ WƌĂĚĞƐŚ
z^Z ŽŶŐƌĞƐƐ D<
E ϭϬ
ϵ ϮϬ
ϮϬϬϰ
ŶĚŚƌĂ WƌĂĚĞƐŚ dĂŵŝů EĂĚƵ
ƐŽŵ 'ĂŶĂ WĂƌŝƐŚĂĚ DŝnjŽ EĂƚŝŽŶĂů &ƌŽŶƚ dŽƚĂůƉŽƚĞŶƚŝĂůƐƵƉƉŽƌƚŝŶŐƉĂƌƚŝĞƐ;Ϳ WŽƚĞŶƚŝĂůE;:WннͿ
Ϯ ϭ ϳϱ ϯϬϮ
Ϯ ϭ ϳϯ Ϯϵϴ
ϭϵϵϵ ϮϬϬϰ
ƐƐĂŵ DŝnjŽƌĂŵ
ƵƌƌĞŶƚEĂůůŝĞƐ ^Śŝǀ ^ĞŶĂ ^ŚŝƌŽŵĂŶŝ ŬĂůŝ Ăů EĂŐĂůĂŶĚ WĞŽƉůĞΖƐ &ƌŽŶƚΎ ,ĂƌLJĂŶĂ :ĂŶŚŝƚ ŽŶŐƌĞƐƐ ZĞƉƵďůŝĐĂŶ WĂƌƚLJ ŽĨ /ŶĚŝĂ ;Ϳ DĂŚĂƌĂƐŚƚƌĂǁĂĚŝ 'ŽŵĂŶƚĂŬ dŽƚĂůEĂůůŝĞƐ;ƵƌƌĞŶƚͲͿ WŽƚĞŶƚŝĂůƐƵƉƉŽƌƚŝŶŐƉĂƌƚŝĞƐ ŝũƵ :ĂŶĂƚĂ Ăů ůů /ŶĚŝĂ dƌŝŶĂŵŽŽů ŽŶŐƌĞƐƐ
KĐƚŽďĞƌ ϮϬϭϯ
zĞĂƌŽĨĂůůŝĂŶĐĞ ^ƚĂƚĞƐ ǁŝƚŚE
ZĞŵĂƌŬƐ
>ŽǁĞƌ ĂƐƐƵŵĞĚ ĚƵĞ ƚŽ ƉŽƉƵůĂƌŝƚLJ ŽĨ z^Z ŽŶŐƌĞƐƐ ;Ͳϭϵ ƐĞĂƚƐͿ >ŝŬĞůLJ ĂůůŝĂŶĐĞ ǁŝƚŚ :W ,ŝŐŚĞƌ ĂƐƐƵŵĞĚ ĚƵĞ ƚŽ D< ĐŽƌƌƵƉƚŝŽŶ ŝƐƐƵĞƐ ;нϭϬ ƐĞĂƚƐͿ
ʹϰϱ
/ŶĚŝĂ ^ƚƌĂƚĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
ηϰ DĂƌŬĞƚƐͲďƵŝůĚͲƵƉƉƌĞͲĞůĞĐƚŝŽŶƐ͖ƐŚĂƌƉƌĞĂĐƚŝŽŶƐƉŽƐƚĞůĞĐƚŝŽŶƐ ůĞĐƚŝŽŶƐ ĂƌĞ ĞĂŐĞƌůLJ ĂǁĂŝƚĞĚ ďLJ ƚŚĞ ŵĂƌŬĞƚƐ͘ dŚĞ ŵĂƌŬĞƚ ŶŽƌŵĂůůLJ ǁŝƚŶĞƐƐĞƐ ƐŽŵĞ ďƵŝůĚͲƵƉ ŽŶ ƚŚĞ ƌƵŶͲƵƉ ƚŽ ƚŚĞ ĞůĞĐƚŝŽŶƐ͘ ,ŽǁĞǀĞƌ͕ ƚŚĞ ŵĂƌŬĞƚ ǁŝƚŶĞƐƐĞƐ ƐŚĂƌƉ ƌĞĂĐƚŝŽŶƐ ƉŽƐƚ ĞůĞĐƚŝŽŶ ƌĞƐƵůƚƐ͘ ϭϵϵϴŐĞŶĞƌĂůĞůĞĐƚŝŽŶƐ͗dŚĞŵĂƌŬĞƚƐƐĂǁƉŽƐŝƚŝǀĞƌĞĂĐƚŝŽŶƐƉŽƐƚƚŚĞĞůĞĐƚŝŽŶƐǁŝƚŚ :W ďĞŝŶŐ ƚŚĞ ŵĂũŽƌŝƚLJ ƉĂƌƚLJ ǁŝƚŚ ϭϴϮ ƐĞĂƚƐ ĨŽůůŽǁĞĚ ďLJ ŽŶŐƌĞƐƐ ǁŝƚŚ ϭϰϭ ƐĞĂƚƐ͘ dŚŝƐƌĞƐƵůƚĞĚŝŶ^ĞŶƐĞdžŐŝǀŝŶŐϭϰйƌĞƚƵƌŶƐŝŶŽŶĞŵŽŶƚŚƉŽƐƚƚŚĞĞůĞĐƚŝŽŶƌĞƐƵůƚƐ͘ ϭϵϵϵ ŐĞŶĞƌĂů ĞůĞĐƚŝŽŶƐ͗ dŚĞ ŵĂƌŬĞƚ ǁŝƚŶĞƐƐĞĚ Ă ďƵŝůĚͲƵƉ ƚŽ ƚŚĞ ĞůĞĐƚŝŽŶƐ Ɛŝdž ŵŽŶƚŚƐ ƉƌŝŽƌ ƚŽ ƚŚĞ ĞůĞĐƚŝŽŶƐ ǁŝƚŚ ^ĞŶƐĞdž ƌŝƐŝŶŐ ĨƌŽŵ ϯϲϬϮ ƚŽ ϰϳϭϬ͘ tŝƚŚ E ĨŽƌŵŝŶŐ ƚŚĞ ŐŽǀĞƌŶŵĞŶƚ͕ ƚŚĞ ^ĞŶƐĞdž ƌŽƐĞ ϱ͘ϲй ƉŽƐƚ ƚŚĞ ĞůĞĐƚŝŽŶ ƌĞƐƵůƚƐ͘ ϮϬϬϰŐĞŶĞƌĂůĞůĞĐƚŝŽŶƐ͗dŚĞĞůĞĐƚŝŽŶƐƌĞƐƵůƚĞĚŝŶĨƌĂĐƚƵƌĞĚǀŽƚŝŶŐǁŝƚŚŽŶŐƌĞƐƐĂƐ ƚŚĞŵĂũŽƌŝƚLJƉĂƌƚLJǁŝƚŚϭϰϱƐĞĂƚƐĂŶĚ:WũƵƐƚϳƐĞĂƚƐƐŚŽƌƚŽĨŽŶŐƌĞƐƐ͘dŚŝƐǁĂƐƚŚĞ ůŽǁĞƐƚ ŵĂƌŐŝŶ ĚŝĨĨĞƌĞŶĐĞ ďĞƚǁĞĞŶ ƚŚĞ ƚŽƉ ƚǁŽ ƉĂƌƚŝĞƐ ŝŶ ĂŶLJ ĞůĞĐƚŝŽŶƐ͘ hůƚŝŵĂƚĞůLJ͕ hWĨŽƌŵĞĚƚŚĞŐŽǀĞƌŶŵĞŶƚǁŝƚŚƐƵƉƉŽƌƚĨƌŽŵƚŚĞ>ĞĨƚƉĂƌƚŝĞƐ͕ŚŽǁĞǀĞƌ͕ƚŚĞŵĂƌŬĞƚ ƌĞĂĐƚĞĚŶĞŐĂƚŝǀĞůLJĚƵƌŝŶŐŽŶĞǁĞĞŬƉŽƐƚĞůĞĐƚŝŽŶƐƚĂŶŬŝŶŐďLJϭϵй͘ ϮϬϬϵŐĞŶĞƌĂůĞůĞĐƚŝŽŶƐ͗ŽŶŐƌĞƐƐǁŽŶǁŝƚŚŵŽƌĞƚŚĂŶϮϬϬƐĞĂƚƐŝŶƚŚŝƐĞůĞĐƚŝŽŶ͘ /ŶĨĂĐƚ͕ ƚŚĞ ƌƵŶͲƵƉ ƐƚĂƌƚĞĚ ŵƵĐŚ ďĞĨŽƌĞ ƚŚĞ ĞůĞĐƚŝŽŶ ƌĞƐƵůƚƐ ǁŝƚŚ ƚŚĞ Ğdžŝƚ ƉŽůůƐ ƉƌĞĚŝĐƚŝŶŐ Ă ŽŶŐƌĞƐƐ ǁŝŶ͘ EŽƌŵĂůůLJ͕ Ă ĚĞĐŝƐŝǀĞ ǀŽƚŝŶŐ ŝŶ ĨĂǀŽƵƌ ŽĨ Ă ƉĂƌƚLJ ŝƐ ƉŽƐŝƚŝǀĞůLJ ƉĞƌĐĞŝǀĞĚ ďLJ ƚŚĞ ŵĂƌŬĞƚƐ͕ ǁŚĞƌĞĂƐ Ă ĨƌĂĐƚƵƌĞĚ ŐŽǀĞƌŶŵĞŶƚ ƐĞĞƐ ŶĞŐĂƚŝǀĞ ƌĞĂĐƚŝŽŶƐ͘
DĂƌŬĞƚƌĞĂĐƚŝŽŶƐʹ^ĞŶƐĞdž͗ϲŵŽŶƚŚƐƉƌŝŽƌƚŽĞůĞĐƚŝŽŶƐĂŶĚϭŵŽŶƚŚĂĨƚĞƌ ϭϵϵϴʹ:W ϭϵϵϵʹ:WůĞĚE ϱ͕ϰϬϬ
ϰ͕ϮϬϬ
ϲKĐƚ ϭϵϵϵ͕ ϰ͕ϳϬϬ
ϯ͕ϲϬϬ
ϱ͕ϵϬϬ
ϭϬDĂLJ ϮϬϬϰ͕ ϱ͕ϱϱϲ
ϭϰ͕ϬϬϬ ϭϮ͕ϬϬϬ
ϰ͕ϴϱϮ
ϰ͕ϵϰϱ
ϰ͕ϵϬϬ
ϭϬ͕ϱϴϭ
ϭϯDĂLJ ϮϬϬϵ͕ ϭϮ͕ϬϮϬ
ϭϬ͕ϬϬϬ
ƉƌͲϬϵ
DĂƌͲϬϵ
:ĂŶͲϬϵ
ĞĐͲϬϴ
EŽǀͲϬϴ
ϴ͕ϬϬϬ KĐƚͲϬϴ
:ƵŶͲϬϰ
DĂLJͲϬϰ
ƉƌͲϬϰ
&ĞďͲϬϰ
:ĂŶͲϬϰ
ĞĐͲϬϯ
EŽǀͲϬϯ
ϰ͕ϰϬϬ
ϭϰ͕ϴϳϲ
ϭϲƉƌϮϬϬϵ ϭϬ͕ϵϰϳ
ϭϲ͕ϬϬϬ
:ƵŶͲϬϵ
ϮϬƉƌϮϬϬϰ ϱ͕ϴϬϱ
KĐƚͲϬϯ
EŽǀͲϵϵ
ϮϬϬϵʹŽŶŐƌĞƐƐůĞĚhW
ϲ͕ϰϬϬ
KĐƚŽďĞƌ ϮϬϭϯ
KĐƚͲϵϵ
^ĞƉͲϵϵ
:ƵůͲϵϵ
ϯ͕ϬϬϬ
DĂLJͲϬϵ
ϮϬϬϰʹŽŶŐƌĞƐƐůĞĚhW
ϰ͕ϲϱϭ
ϯ͕ϲϬϮ
:ƵŶͲϵϵ
DĂƌͲϵϴ
&ĞďͲϵϴ
:ĂŶͲϵϴ
:ĂŶͲϵϴ
ĞĐͲϵϳ
ĞĐͲϵϳ
EŽǀͲϵϳ
KĐƚͲϵϳ
KĐƚͲϵϳ
^ĞƉͲϵϳ
^ĞƉͲϵϳ
ƵŐͲϵϳ
ϯ͕ϮϬϬ
DĂƌͲϵϴ
Ϯϯ&Ğď ϭϵϵϴ͕ ϯ͕ϰϳϴ
ϯ͕ϱϬϬ
ϱ͕ϰϬϬ
ϰ͕ϴϬϬ
DĂLJͲϵϵ
ϯ͕ϴϬϬ
ϯ͕ϵϲϰ
DĂƌͲϵϵ
ϰ͕ϭϬϬ
ϱ^ĞƉϭϵϵϵ ϰ͕ϳϭϬ
ƉƌͲϵϵ
ϭϲ&Ğď ϭϵϵϴ ϯ͕ϳϮϬ
ƵŐͲϵϵ
ϰ͕ϰϬϬ ϰ͕ϯϮϭ
ʹϰϲ
/ŶĚŝĂ ^ƚƌ Ăƚ ĞŐLJ ͮ dŚĞ dƌŝůĞŵŵĂ͊
WůĞĂƐĞƌĞĨĞƌŽƵƌŶĞǁƉƌŽĚƵĐƚ ƌĞůĞĂƐĞĚŝŶKĐƚŽďĞƌϮϬϭϯ
sĂůƵĂƚŝŽŶƐΘDŽĚĞůƉŽƌƚĨŽůŝŽ ŝǀĞƌŐĞŶĐĞŝŶǀĂůƵĂƚŝŽŶƐ͖ŽƵƌƚŚĞƐŝƐŽŶŬĞLJĐŽŵƉĂŶŝĞƐǁŝƚŚƐĞŶƐŝƚŝǀŝƚLJ
EŝĨƚLJƌĞŵĂŝŶƐƌĂŶŐĞͲďŽƵŶĚĚƵĞƚŽĞdžƚĞƌŶĂůĂŶĚĚŽŵĞƐƚŝĐĨĂĐƚŽƌƐ EŝĨƚLJŚĂƐůĂƌŐĞůLJƌĞŵĂŝŶĞĚƌĂŶŐĞͲďŽƵŶĚǁŝƚŚͲϯйƌĞƚƵƌŶƐzdzϭϯ͕ǁŚŝůĞ^ĞŶƐĞdž ǁĂƐĨůĂƚ͕ůĞĚďLJĐŽŶĐĞƌŶƐ ŽĨ ƐŝŐŶŝĨŝĐĂŶƚ ƐůŽǁĚŽǁŶ ŝŶ ĚŽŵĞƐƚŝĐ ĞĐŽŶŽŵLJ͘ ŽƌƉŽƌĂƚĞ ĞĂƌŶŝŶŐƐ ŐƌŽǁƚŚ Ăƚ ϳͲϴй ƌĞŵĂŝŶƐ ǁĞůů ďĞůŽǁ ƚŚĞ ůŽŶŐ ƚĞƌŵ ĂǀĞƌĂŐĞƐ͖ ĚŝǀĞƌŐĞŶĐĞďĞƚǁĞĞŶĚŽŵĞƐƚŝĐĂŶĚĞdžƉŽƌƚŽƌŝĞŶƚĞĚďƵƐŝŶĞƐƐĞƐŝƐĂƚĂĚĞĐĂĚĞŚŝŐŚ͘
DŝĚͲĐĂƉƐƵŶĚĞƌƉĞƌĨŽƌŵ͘͘͘ E^ͲEŝ ĨƚLJϱϬ E^ͲEyDŝ Ě ĐĂ Ɖ
ϭϭϬ
^ĞƉͲϭϯ
:ƵŶͲϭϯ
ĞĐͲϭϮ
DĂƌͲϭϯ
ϭϬϬ ϵϬ ϴϬ ϳϬ
EŽƚĞƐ͗ ZĞͲďĂƐĞĚ ƚŽ ϭϬϬ
͘͘͘ƐŽĚŽƐŵĂůůͲĐĂƉƐ E^ ͲEŝ ĨƚLJϱϬ E^ ͲEy^ŵĂů ů ĐĂƉ
^ĞƉͲϭϯ
:ƵŶͲϭϯ
DĂƌͲϭϯ
ĞĐͲϭϮ
ϭϭϲ ϭϬϮ ϴϴ ϳϰ ϲϬ
^ƚĂďůĞĐƵƌƌĞŶĐLJĂŶĚĞůĞĐƚŝŽŶƐǁŝůůďĞŬĞLJƚƌŝŐŐĞƌƐ
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India Str at egy | The Trilemma!
Telecom EV/EBITDA valuations a t 22% discount to historic averages despite significant run Tel e co m S ector EV/EB DITA (x)
Cement EV/EBITDA valuations slip below historical averages Cement EV/EBDITA (x)
10 Yr Avg (x)
17.0
13.0
14.0
10.5
11.0
8.0
10 Yr Avg (x)
7.6 8.7
7.1
5.5
10 Yr Avg (x)
PSU B ank s P/B (x)
3.8
1.8
2.5
1.3
0.8
1.2
0.8
0.6 Nov12
Jan12
Mar11
May10
Jul09
Sep08
Nov07
Jan07
Mar06
May05
Jul04
Sep13
Nov12
Jan12
Mar11
May10
Jul09
Sep08
Nov07
Jan07
Mar06
May05
Jul04
Sep03
Healthcare valuations attractive at historical averages 30
Sep03
0.3
0.0
Heal thcareP/E(x)
Sep13
Nov12
Jan12
10 Yr Avg (x)
Sep13
2.3
1.8
Mar11
May10
Jul09
Sep08
Nov07
Jan07
Mar06
PSU Banks at historic lows of 0.6x P/B
5.0
1.3
May05
S ep13
Nov12
Jan12
Mar11
May10
Jul09
S ep08
Nov07
Jan07
Mar06
May05
Jul04
S ep03
Metals at 63% discount to market PB and less than 1x PB Me tal s P/B (x)
3.0 Jul04
6.8
5.0
Sep03
8.0
Technology close t o historical average; still up side left
10YrAvg(x)
Technol ogyP/E(x)
27
10YrAvg(x)
22
26 22.3 22 21.9
16.9
17
16.0
12
18 Sep13
Nov12
Jan12
Mar11
May10
Jul09
Sep08
Nov07
Jan07
Mar06
May05
Jul04
Sep13
Nov12
Jan12
Mar11
May10
Jul09
Sep08
Nov07
Jan07
Mar06
May05
Jul04
Sep03
Sep03
7
14
Presenting sensitivity on top ideas
October 2013
We present our views on few top ideas, where underlying business is seeing an improvement in fundamentals.
Several of these stocks are likely earning upgrade candidates, and are also trading at attractive valuations. Our Model Portfolio has a positive bias towards these names.
A–48
India Str at egy | The Trilemma!
Infosys: Revival in progress What went wrong?
Revenue growth declined over FY11-13 (from 25.7% in FY11 to 5.8% in FY13) due to focus on high end work at the expense of traditional, scale business. Margins fell from 32.6% in FY11 to 28.6% in FY13 (despite currency depreciating by 20%) led by lower growth and utilization (78.2% in FY11 to 70.7% in FY13) Inflexibility in pricing and resistance to new deal structuring
What's changing?
Management structure change - Return of Mr N R Narayana Murthy Focus back on growing traditional business amidst improved sentiment among US clients Proactively exercising levers of utilization, onsite costs and pyramid to revive margins
What will this result in?
Revenue: FY13-15 USD revenue CAGR to 11.6% (closer to industry) as deal signings improve (USD1.6b in 3 quarters) Margins: 170bp expansion in operating margin from bottom (1QFY14-26.5%), led by: [1] leverage from growth, [2] exercising cost efficiencies [3] favorable currency. Valuations: Results in 22% upside at 17x FY15E. Margin escalator: Current margins to our estimate to optimistic scenario in FY15
EPS estimates at various scenarios
Based on optimistic scenario 1.8%
ImpliedEPS @15% rev gr. & 34% ma rgins
33.0%
1.0% 2.0%
0.2%
0.6%
1.1%
2.0%
ImpliedEPS @12% rev gr. & 34% ma rgins
28.2%
FY15 aspired exit margin
Onsite eff. redn by 10%
Pyramid adjustment by 10pp
Util incr to 78%80%
F Y15 exit margin(%)
Wage hikes & INR depn.
Onsite efforts redn by 1% to29%
Op. lev from growth
Util: +5.3pp to 74.8%
1QFY14 EBITDA %
26.5%
Our FY15 EPS@12% rev gr.
P/E - LHS (x)
USD re v Gr
44%
35%
12%
3%
216
YoY gr - R HS (USD rev)
26 35%
237
Valuation multiples will move higher with high margins and better growth
Lowest EBITDA margins with low growth EBITDA %
245
26%
16%
Low margin
21
Avg PE = 18.5
16
Avg Gr = 11.5 20%
10%
Avg Gr=12.7
0%
11 Avg PE = 14.1
High margin
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
-10%
6 Sep-13
29%
Dec-12
32%
Mar-12
33%
Jun-11
35%
Sep-10
33%
Dec-09
31%
Mar-09
32%
Jun-08
32%
October 2013
30%
6%
A–49
India Str at egy | The Trilemma!
ICICI Bank: Measured growth with focus on RoE enhancement What went wrong?
Significant tightening by RBI led to concerns over growth, asset quality (especially corporate sector) and earnings (higher pressure on margins and fees) Lack of resolution for the structural issues faced by infrastructure sector, especially power. Post consolidation phase, ICICIBC grew its domestic corporate portfolio at a CAGR 52% over FY10/12, led by power (CAGR 45% over FY10/12).
What's changing?
Rapid branch network expansion will keep share of granular retail liabilities high in the balance sheet ensuring stability to margins. Recent efforts to resove issues in infrastructure segment should ease some of the concerns raised. Subsidiaries are now self-sufficient and can provide capital support to banking business. With the healthy return ratios and capital from subsidiaries ICICIBC is sufficiently capitalized till FY16.
What will this result in?
Confidence on core earnings parameters (like margins, granularity of fees, ability to manage asset quality shocks if any) remains high. Return ratio to remain superior with Core ROA of 1.5%+. RoE will largely be a function of growth opportunities in the system. Improvement in subsidiaries profitability to ensure consolidated PAT growth higher than standalone PAT growth. Management is targeting RoE of 18% over the next few years. Thus, there will be dilution free growth for 2-3 years. Strong capitalization increasing leverage to boost RoE (%) R oE
1.7
9.6
1.2
October 2013
FY07
1,707
1,419
16.0 18.8
26.3 FY10
12.5
FY09
12.7
1,262
755
0.8
FY08
614
Sep-13
Jul-12
May-11
Mar-10
Jan-09
Nov-07
Sep-06
0.4
1.1
FY06
1.3 1.4
3.2
FY14E
FY13
1.6
1.2
3.1
29.6 29.8 29.3
3,350
FY12
1.5 1.8
3.0
0.9
30.7 30.8 FY14E
SA ra ti o (%) B ranches
1.8
1.9
2.7
0.8
Branch expansion to benefit - retail deposit and loan opportunities
RoA (RHS, %)
2.7
2.7
FY13
FY11
2.5
3,100
FY10
2.5
FY13
FY09
Avg(x)
3.4
2.2
FY12
FY08
P/B (x)
2.0
2,752
FY07
Sustainability of return ratios to lead to re-rating of multiples
2.0
FY12
12.8
FY11
12.7
2,529
13.2
0.4
0.5
FY11
14.4
FY10
11.8
1.0
FY09
11.8
FY07
7.4
FY06
9.2 FY06
0.7
0.8
FY08
9.1
2.2
12.8
FY15E
11.5 9.9
Credi t Cost
3,600
13.4 12.1
NIM
14.8
FY15E
Ti er I
NIM at decadal high and credit cost contained (%)
A–50
India Str at egy | The Trilemma!
Please refer to our detailed report in June 2013
Bharti: Structural changes in industry to drive profitability What went wrong?
RPM declined from 53 paisa in FY10 to 42 paisa in FY13 EBITDA margin declined from 40% in FY10 to 30% in FY13, with African business performance continuing to disappoint Cash outlay of INR123b for 3G spectrum; data penetration also disappointed INR depreciation led to a cumulative reported forex loss of INR 12b from FY11-13
What's changing?
Improving pricing discipline and profitability focus across operators (4% RPM increase in 1QFY14). Africa business performance also expected to stabilize Decreasing competitive intensity from challengers due to regulatory/balance sheet/cash flow issues Accommodative regulatory stance leading to correction in spectrum reserve prices (cut by 37% / 62% for 1800 MHz/900 MHz). Increased policy visibility to spur M&A.
What will this result in?
Revenue: CAGR of 9% over FY13-16 led by traffic CAGR of 7% and RPM CAGR of 4% Margins: 336 bp improvement in EBITDA margins from FY13-15 led by RPM improvement Valuations: Results in 37% upside based on 9x FY15E EV/EBITDA for India, 6x FY15E EV/EBITDA for Africa business, 15% disc to market value for stake in Bharti Infratel and INR188b (INR49/share) for potential spectrum liability
YoY Mobile RPM decline and India EBITDA margin (%)
Earnings per share (INR)
Mob i l e RPM growth (%) Indi a & SA EB ITDA margi n (%)
22
24
18
38
37
40
42
41
40
5
37
36 -1
4
16
2
14
33
11
35
-3
21
37
11
37 6
6
8
Bharti: EV/EBITDA band chart Peak of 14.5x
13
Median of 8.8x
10
6.4
Bottom of 6.2x
Aug-13
Dec-12
Apr-12
Aug-11
Dec-10
Apr-10
Aug-09
Dec-08
Apr-08
Aug-07
Dec-06
Apr-06
4
October 2013
FY16E
FY15E
FY14E
F Y13
F Y12
F Y11
F Y10
F Y09
F Y08
F Y07
F Y06
Bharti: Earnings sensitivity to RPM
16
7
F Y05
F Y16E
F Y15E
F Y14E
FY13
FY12
FY11
-17 -17 FY10
-17
FY09
-21
FY06
FY05
-24
FY07
-18
FY08
4
-17
FY14E
FY15E
Wireless traffic (b minutes) 1,032 Wireless RPM (p) 44.4 Consolidated Revenue (INR b) 853 Consolidated EBITDA (INR b) 272 Con solidated PAT (INR b) 30 Incremental revenue for 1p higher RPM (INR b) 10.3 Incremental EBITDA for 1p higher RPM (INR b) 7.2 Potential EBITDA upgrade for 1p higher RPM 2.7% Incr emental PAT for 1p RPM increase (INR b) 5.3 Potential PAT upgrade for 1p higher RPM 17%
1,100 46.2 921 309 55 11.0 7.7 2.5% 5.4 10% A–51
India Str at egy | The Trilemma!
Please refer to our detailed report in October 2013
BPCL: Transition from a downstream to integrated player What went wrong?
Benefits of reforms in Jan 2013 (diesel price hikes, shift to cash subsidy in LPG/ Kerosene and limiting LPG cylinders) were scuttled by INR depreciation. Relook at the refinery transfer pricing added to uncertainties in refining profitability.
What's changing?
Diesel price hikes had brought some demand growth moderation in sale volumes and is positive in short term from under recoveries perspective. Despite skepticism, government has stuck to its monthly diesel price hikes. Benchmark deals in BPCL's Mozambique imply at least 30% higher valuation than our base case Expect positive reserve announcement from the SEAL basin drilling in Brazil and FID at Mozambique.
What will this result in?
Diesel reforms to reduce under recoveries by 40% to INR960b by FY15 over FY13. FID in Mozambique could significantly reduce the execution risk for the block. SEAL basin (Brazil) reserve announcement would increase TP by INR50/sh
Silver lining led by E&P successes, valuing conservatively at USD1.8b (invested USD1.1b), at 30% discount to benchmark Country
Successes
Mozambique
13
Brazil
8
Reserves announced by company
Comments
35-65 tcf
We v alue the block at USD3.5/boe, a ssuming recoverable reserves of 45 tcf, and start of prodn from 2019 We value the block at USD10/boe, assuming recoverable reserves of 200mmbbl, and start of prodn from 2018
150-200mmbbl (includes only Wahoo discov ery, reser ves not decared yet for SEAL discoveries)
Refining capacity set to increase by 1.6x…. Mu mba i
Kochi
B i na
NRL
39.5 3.0 9.0
30.5 3.0 6.0 9.5
….deregulated era could increase marketing profitability To tal (mmt) 47.5
F Y15 EPS
9.0
41.9
12.0
15.5
15.5
12.0
14.0
2015E
2017E
34.8
1.2
Curre nt
Expect overall under recovery to reduce 40% by FY15 (INR b) Ups tream
Govern men t
OMC's
1,385
Investment & E&P val ue 500
10 1,378
1,033 780
400 960
Barquentine Discovery Wahoo Discovery
303
310
200 100
F Y10
F Y11
552
600
700
650
FY12
FY13
FY14E
F Y15E
B PCL stock pri ce Golfinho Discovery
Diesel Reforms Orca
300
410
260 145
October 2013
678
67
461 56
329 (9) F Y09
829
1,000
1.5 2 2.5 Marketing margin on auto fuels (INR/ltr)
BPCL investment value on the rise led by E&P upsides
Total
1,610
713
53.7
Our base case
9.0
65.6
Discovery Petrol Deregulation
Lagosta Discovery
0 Mar-09
Feb -10
Fe b-11
Fe b-12
Fe b-13 Mar-14E
A–52
India Str at egy | The Trilemma!
Please refer to our detailed report in September 2013
Hindalco: At an inflexion point What went wrong?
Lured by natural resources like coal and bauxite, nearly USD6b has been invested in projects in India. Delay in start-up coal mines due to regulatory hurdles led to ballooning of debt and CWIP. Execution of project has also been slower.
What's changing?
Mahan coal block cleared the major hurdle of MoEF clearance. Cabinet committee on investment looking to expedite projects, which may benefit coal blocks for Mahan and Aditya smelter. Cost pressures have eased due to cooling of input prices. INR/USD depreciation has come as a relief to rising operating costs in last 4-5 years.
What will this result in?
Margins of Indian smelting business will expand due to easing of cost pressure and favourable exchange rate. Utkal Alumina has already started production resulting in additional cash flows. Peaking of CapEx cycle will drive equity value.
EPS sensitivity
Depreciation of INR/USD exchange rate by INR1 results in 7% upside in FY15 EPS. USD100/ton improvement in aluminum prices results in 15% upside in FY15 EPS. FCF turning positive as HNDL exit capex cycle (INR b) Free Cas h fl ows 125
119
5
26
10 -17
-49
106
88 24
85
20
42
40
-89
FY17
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
34
Equi ty val u e (RHS)
8.0
Ratio (x)
240
197 152 165
4.0
160 6.0
2.0
3.2
4.2
4.1
5.2
4.1
2.3 2.7
3.2
80 2.3
0.0
October 2013
FY17
FY16
FY15
FY14
FY13
FY12
FY11
FY10
FY09
FY08
0
INR/share
287 320
6.0
46 54
55
69
69
40 43
83 107
49
62
76
93
112
134
30
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
SOTP Valuation (INR b)
Deleveraging to lead to equity value accretion Net Deb t /EBITDA
149 125
B efore wo rki ng capi ta l
114
97 50
27 43 7 16
28
After work i ng ca pi tal
Cap Ex
79 29
Operating cashflows are poised for rapid growth (INR b)
EBITDA EV/EBTIDAx Target EV Net Debt EQ = (EV-ne t Debt) A. INR/share(EQ) CWIP B. INR/share (CWIP) C. discount factor (%) D. Investments (quoted) E. INR/share (investments) F.discount f actor (%) TP (A+B*(1-C%)+E*(1-F%))
FY14E 93 5.5 514 483 31 15 279 135 12 48 23 20 152
FY15E 115 5.5 632 473 159 77 162 79 12 48 23 20 165
FY16E 134 5.5 738 435 303 147 75 36 12 48 23 20 197
FY17E 162 5.5 891 367 525 254 34 17 12 48 23 20 287 A–53
India Str at egy | The Trilemma!
Hero MotoCorp: Defending its turf What went wrong?
Economic slowdown coupled with poor monsoon impacted FY13/1HFY14 growth for the 2W industry with 3%/1% growth (v/s decadal average of 12% growth). Increasing competitive pressures, with HMSI on expansion spree (product portfolio, distribution and capacity), taking away large part of incremental volumes. No new product launches since Nov-12, during which HMSI had 5 launches. Margin erosion of 740bp to trough in FY13 of 9.5% and no EPS growth.
What's changing?
Product life cycle turning favorable, with 7-8 product actions lined-up from start of festive season to 1HFY14 (product upgrades/refreshes in 2HFY14 and new product launch in 1HFY15). Entry in multiple new export markets can improve overall growth by ~3%. We are estimating export volumes of ~0.23m units in FY14 v/s mgmt guidance of 0.35m units. Royalty would stop from Jun-14, resulting in annual savings of ~INR8b or ~320bp at EBITDA level. Cost cutting initiatives to result in net 2-3pp improvement in margins starting from 3QFY14, with full benefit reflecting in FY16.
What will this result in?
Significant margin recovery led by savings on a) royalty of 3.2pp from 2QFY15 and b) cost cutting initiatives. We are modeling in for margin improvement of 4.3pp over FY13-16E to 13.8%. Very attractive EPS growth of 27% CAGR over FY14-16E, based on our estimates and over 32% based on mgmts targeted cost savings. Levers to profitability
EBITDA Margins to improve meaningfully from FY15
Base Case
FY14E
FY15E
FY16E
Volume Growth (%) 5.0 13.4 Adj EBITDA Margins (%) 10.6 13.1 EPS (INR) 110.4 152.8 TP (@ 16x) 2,444 Cost cutting initiatives: Base case 100bp savings in FY16 Adj EBITDA Margins (%) 10.6 14.6 EPS (INR) 110.4 169.0 EPS Upgrades (%) 10.6 TP (@ 16x PE) 2,704
13.4 13.8 179.2 2,866
18.1 14.5
16.1 207.0 15.5 3,312
13.0
16.2
15
16.9
11.8
11.0
FY10
F Y11
F Y12
-3
FY13
Cas h (INR /s h) 110 13.1
Vol Gr (%) 13
13
10.6
13.1
13.8
FY14E
FY15E
F Y16E
5
Dividends to increase with rise in surplus cash
Impl i ed PE (x) 17.7 18.1
14.2
17
9.5
EPS to grow at 27% CAGR, after 4 years of muted EPS EPS
EBITDA Ma rgi ns (%)
24
DPS (INR /s h)
105
11.2
60
65
70
75
45
48
64
112
101
119
FY08
FY09
FY10
FY11
FY12 FY13 FY14E FY15E FY16E
October 2013
106
110
153
179
289
153
117
175
190
235
306
FY10
FY11
FY12
FY13
FY14E
FY15E
FY16E
A–54
India Str at egy | The Trilemma!
ACC: Synergy benefits to drive profitability What went wrong?
Weak demand-supply hurts sector utilization to 73% (-11pp since FY10), & pricing power. Severe cost escalations in RM, power and freight cost (11% CAGR in cost/ton over CY10-12) Recent pricing weakness adds further pressure. Volume growth tapered to 1.6% YoY in CY12 and negative 1.8% YoY in 1HCY13 EBITDA margin contracted 2.4pp over CY10-12 to 17.7% (est. 14.6% in CY13E).
What's changing?
ACEM's acquiring 50.01% stake in ACC would unleash ~INR4.5b p.a of synergy benefits over 2 years. It also offers regional pricing power and volume synergies due to consolidation.
What will this result in?
Gradual cost savings up to INR160-170/ton due to synergy benefits over next 2-3 years EPS accretion of 4%/9% in CY14/15 (assuming 20%/50% of synergies to percolate) INR5/bag of better pricing would translate into 12.6% EPS accretion.
EPS sensitivity
1% Change in pricing/volume would change CY14E EPS by 5.4%/1% Synergy benefit to aid 5-9% accretion in CY13-14 EPS INR10/bag of better pricing over synergies to aid ~35% accretion in CY14-15 EPS. Industry's actual utilization much higher than reported Re ported Uti l (%)
EPS expected to grow strongly (INR)
Actu al Uti l (%)
EPS
Ro E (%)
FY08
FY12
Max
Avg
83
FY14E
85
52
60
69
FY16E
CY08
CY09
CY10
CY11
CY12
Mi n 217
130
93
70
30 Jul-01 Apr-02 Jan-03 S ep-03 Jun-04 F eb-05 Nov-05 Jul-06 Apr-07 Dec-07 S ep-08 May-09 F eb-10 Nov-10 Jul-11 Apr-12 Dec-12 S ep-13
10
October 2013
13.1
14.0
56
66
16.8
84
CY13E CY14E CY15E
Levers to profitability
250 190
17.7
58
Trading at significant discount to replacement cos t EV/ton (USD)
16.9
80
80 66
69
71
70
75
86
FY10
67
82
85
89
91
83
FY06
90
95
78 92
86
76 FY04
16.2
70
FY02
84
78 82
75
77
83
87
91
30.0 26.0
Base Case CY13E CY14E CY15E EBITDA/ton (INR) with synergy * 656 764 935 Change in EBITDA/ton (INR) 35 82 EPS with synergy (INR) 69 93 EPS accretion (%) 5 10 Fair value (INR/Sh) 1,313 1,484 Pricing power: Base case +INR10/bag price in CY14/CY15/CY16 Price higher by INR5/bag v/s est EBITDA/ton (INR) 656 864 1,035 EPS with synergy & higher realn (INR) 79 103 EPS accretion (%) 20 22 Fair value (INR/Sh) 1,446 1,616 A–55
India Str at egy | The Trilemma!
MOSL model portfolio
October 2013
Sector / Portfolio Picks
BSE-100
Financials Private ICICI Bank HDFC Bank Axis Bank NBFCs HDFC LIC Housing IDFC PSU SBI BOB Energy Reliance Inds. ONGC BPCL In formation Technology Infosys TCS Tech Mahindra Healthcare Dr Reddy's Lupin Divi's Lab Consumer / Retail ITC Marico United Spirits Automobiles Tat a Motor s Bajaj Auto Hero Motocorp Infrastructure & Related sectors Larsen & Toubro ACC Telec om Bharti Airtel Idea Cellular Metals NMDC Hindalco Utilities NTPC Others Oberoi Realty Yes Bank Just Dial Eicher Motors Bata Shree Cement Prestige Estates SUN TV Cash Total
23.6 13.2 4.4 4.9 1.4 6.8 5.1 0.2 0.5 3.7 1.9 0.4 11.2 6.3 2.5 0.4 15.0 6.4 4.9 0.9 6.2 1.3 0.9 0.3 16.5 8.2 0.0 1.1 7.8 2.7 1.2 0.9 7.4 2.8 0.5 2.7 1.7 0.6 3.3 0.4 0.6 4.6 1.3 1.7 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 100.0
MOSL Wt 24.0 12 5 4 3 8 4 2 2 4 2 2 13.0 5 5 3 13.0 7 3 3 8.0 3 3 2 8.0 4 2 2 7.0 3 2 2 7.0 4 3 5.0 3 2 4.0 2 2 3.0 3 8.0 1 1 1 1 1 1 1 1 0.0 100.0
Wt relative to BSE-100 0.4 -1.2 0.6 -0.9 1.6 1.2 -1.1 1.8 1.5 0.3 0.1 1.6 1.8 -0.3 1.5 2.6 -2.0 0.6 -1.9 2.1 1.8 1.7 2.1 1.7 -8.5 -4.2 2.0 0.9 -0.8 0.3 0.8 1.1 -1.4 1.2 1.5 2.3 1.3 1.4 0.7 1.6 1.4 -1.6 1.7 7.3 1.0 0.7 1.0 1.0 1.0 1.0 1.0 1.0 0.00
Sector Stance Neutral Neutral Buy Neutral Buy Overweight Buy Buy Buy Neutral Buy Buy Overweight Neutral Buy Buy Neutral Buy Neutral Buy Overweight Buy Buy Buy Underweight Neutral Buy Buy Neutral Buy Buy Buy Neutral Buy Buy Overweight Buy Buy Neutral Buy Buy Underweight Buy Overweight Buy Buy Buy Buy Buy Buy Buy Buy
A–56
September 2013 Results Preview
MOSL Universe: 2QFY14 Highlights & Ready Reckoner
Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year numbers. This is because of differences in classification of account heads in the company’s quarterly and annual results or because of differences in the way we classify account heads as opposed to the company. All stock prices and indices as on 27 September 2013, unless otherwise stated.
October 2013
MOSL Universe
MOSL Universe: 2QFY14 aggregate performance highlights (Ex RMs) Quarter-wise sales growth (% YoY)
Quarter-wise net profit growth (% YoY)
13%
9%
12% 9%
3%
3% 4% -2% Dec-12
Mar-13
June-13
Dec-12
Sep-13E
Ma r-13
June-13
Sep-13E
Sectoral sales growth - quarter ended September 2013 (%) 24.3 14.6
14.4
12.2
12.1
12.0
11.5
11.3
8.6
5.2
Real Estate
Metals
Telecom
Utilities
6.9
5.6
4.9
4.9
Cement
Financials 10.3
Consumer
MOSL Ex. RMs
Auto
Oil Ex. RMs
Media
Health Care
Technology
-0.7
-1.3
-4.8 Cap Goods
16.7
Retail
31.2
-20.2
-22.4
Sectoral EBITDA growth - quarter ended September 2013 (%) 38.9
26.1
19.9
18.6
17.7
15.2
11.1
Cap Goods
-7.3 -31.1
-32.0 Cap Goods
Retail
-7.0
Cement
Utilities
-5.9
Cement
Financials
Oil Ex. RMs
Real Estate
MOSL Ex. RMs
Telecom
Consumer
Metals
Media
Health Care
Technology
Auto
-3.3
Sectoral net profit growth - quarter ended September 2013 (%)
13.4
13.0
11.5
8.6
8.4
3.0
October 2013
Oil Ex. RMs
MOSL Ex. RMs
Utilities
Retail
Auto
Metals
Consumer
Media
Health Care
Technology
-1.3
Financials
15.1
Telecom
17.2
Real Estate
28.5
B–2
October 2013 MRPL
-57
-55
-43 -43
BHEL Ambuja Cements Anant Raj Inds Shree Cement
Oberoi Realty BHEL Future Retail
-47
-46
-10
41 -41
-44
Shree Cement
Thermax
NTPC
Ashok Leyland
Siemens
-10
Canara Bank Anant Raj Inds
MCX
-20
Anant Raj Inds
MCX
-48 -23
PTC India
-75 -47
PTC India
-76 -47
Birla Corporation
-77
Ashok Leyland
Cipla
Bajaj Finance Tech Mahindra
31 -25 -21
-27
Union Bank
-59
Birla Corporation
-70
-67
-64
BHEL
69
Indian Bank
Top 10 by net profit growth (%) -79
Siemens
Top 10 by EBITDA growth (%)
Shree Cement
69
43
Tata Motors
44
32
MCX
69
32
KPIT Tech.
47
Tech Mahindra
TCS
IndusInd Bank
MphasiS
Top 10 by sales growth (%)
India Cements
75
TCS
HCL Technologies 48 33
Shopper's Stop
80 34
Britannia
85
Tata Steel
60 35
ABB
90 36
Idea Cellular Cadila Health Bank of India
65
ABB
Prestige Estates Sun Pharma Petronet LNG Jaypee Infratech 38
SAIL
Prestige Estates
90
Britannia
Maruti Suzuki 42
KPIT Tech.
United Spirits Maruti Suzuki
MOSL Universe
Corporate Scoreboard (quarter ended September 2013) Worst 10 by sales growth (%)
83
-17 -10
Worst 10 by EBITDA growth (%)
83 58 -35
Worst 10 by net profit growth (%)
125 110
64
-41
Source: MOSL
B–3
MOSL Universe
Annual performance - MOSL universe Sales EBITDA FY13 FY14E FY15E Chg.# Chg.@ FY13 FY14E FY15E Chg.# Chg.@ FY13 (%) (%) (%) (%) Auto (8) 3,702 4,152 4,753 13.0 12.2 480 561 659 13.0 16.9 226 Capital Goods (8) 1,569 1,547 1,598 5.0 -1.4 188 170 163 -6.9 -9.3 134 Cement (15) 1,194 1,237 1,410 11.9 3.7 242 236 290 8.6 -2.3 110 Consumer (13) 1,182 1,346 1,553 16.5 13.8 242 282 329 18.3 16.3 168 Financials (31) 2,197 2,436 2,826 13.5 10.9 1,735 1,858 2,178 12.3 7.1 904 Private Banks (10) 541 626 739 24.4 15.7 452 524 622 25.2 16.1 278 PSU Banks (12) 1,359 1,454 1,675 7.4 6.9 997 995 1,162 4.1 -0.2 432 NBFC (9) 296 355 412 26.6 20.0 286 338 394 26.0 18.4 193 Health Care (13) 791 927 1,065 24.3 17.2 193 221 264 26.0 14.2 112 Media (8) 143 168 191 12.6 17.3 41 48 57 8.7 18.1 19 Metals (9) 4,194 4,582 4,893 2.1 9.3 787 898 958 -3.0 14.2 351 Oil & Gas (13) 16,501 18,241 18,256 13.2 10.5 1,356 1,426 1,671 -6.3 5.2 715 Excl. RMs (10) 7,407 8,436 8,618 12.2 13.9 1,122 1,204 1,382 -5.3 7.3 643 Real Estate (11) 216 263 299 -4.6 21.6 77 96 111 -11.7 24.4 36 Retail (3) 137 166 196 16.9 20.4 14 16 20 18.8 15.2 9 Technology (10) 1,940 2,418 2,697 27.7 24.6 489 632 685 26.5 29.2 383 Telecom (4) 1,306 1,444 1,574 8.2 10.5 397 467 533 2.3 17.6 45 Utilities (10) 2,015 2,163 2,457 7.5 7.3 605 663 753 17.4 9.7 383 Others (6) 211 232 258 16.4 10.1 37 41 47 8.5 9.6 22 MOSL (162) 37,300 41321 44025 11.8 10.8 6,883 7615 8718 6.3 10.6 3,617 Excl.RMs (159) 28,205 31517 34388 11.1 11.7 6,649 7393 8429 7.1 11.2 3,545 Sensex (30) 9,728 10,870 11,774 13.3 11.7 1,930 2,163 2,462 10.9 12.1 1,038 Nifty (50) 11,087 12,340 13,346 9.1 11.3 2,285 2,544 2,891 10.0 11.3 1,231 # Growth FY13 over FY12; @ Growth FY14 over FY13; For Banks : Sales = Net Interest Income, EBITDA = Operating Profits; Note: Sensex & Nifty Numbers
(INR Billion) Net Profit FY14E FY15E Chg.# Chg.@ (%) (%) 244 300 -6.7 7.9 107 107 -7.5 -20.6 103 129 3.4 -6.8 193 227 21.1 14.9 877 1,009 14.8 -3.0 304 357 26.8 9.5 351 396 4.1 -18.9 222 255 26.6 14.8 140 166 20.1 25.5 23 29 11.4 20.2 381 380 -8.6 8.4 753 871 -9.4 5.3 680 769 -1.6 5.8 40 53 -24.0 12.8 10 12 16.1 12.5 473 535 27.1 23.6 74 126 -33.3 65.6 403 446 8.8 5.2 22 26 7.7 -0.6 3843 4417 3.4 6.2 3770 4315 5.4 6.4 1,111 1,272 9.9 7.0 1,311 1,494 14.4 6.5 are Free Float.
Valuations - MOSL universe Sector (No. of companies) FY13 Auto (8) 14.4 Capital Goods (8) 12.7 Cement (15) 14.5 Consumer (13) 39.7 Financials (31) 9.0 Private Banks (10) 14.5 PSU Banks (12) 4.6 NBFC (9) 11.2 Health Care (13) 30.5 Media (8) 28.8 Metals (9) 8.0 Oil & Gas (13) 10.3 Excl. RMs (10) 10.2 Real Estate (11) 14.7 Retail (3) 34.6 Technology (10) 20.9 Telecom (4) 55.4 Utilities (10) 11.5 Others (6) 14.4 MOSL (162) 14.3 MOSL Excl. RMs (159) 14.3 Sensex (30) 16.6 Nifty (50) 15.8 N.M. - Not Meaningful. October 2013
P/E (x) FY14E FY15E 13.3 10.8 16.0 16.0 15.6 12.4 34.5 29.4 9.3 8.1 13.2 11.2 5.7 5.0 9.7 8.4 24.3 20.5 24.0 19.1 7.3 7.4 9.8 8.5 9.7 8.6 13.0 9.9 30.8 25.8 16.9 14.9 33.5 19.7 10.9 9.9 14.5 12.2 13.4 11.7 13.5 11.8 15.3 13.4 14.5 12.7
EV/EBITDA (x) FY13 FY14E FY15E 7.0 5.7 4.7 8.3 9.3 9.0 8.8 8.0 6.4 27.1 23.0 19.5 NM NM NM NM NM NM NM NM NM NM NM NM 17.4 15.4 12.6 13.7 11.4 9.4 5.8 5.5 5.1 6.2 5.8 4.8 5.5 5.2 4.4 13.1 10.3 8.6 21.6 19.3 15.7 15.3 11.6 10.3 9.1 7.7 6.3 8.6 8.0 7.2 9.5 8.5 7.3 N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M N.M
FY13 3.5 2.3 1.9 13.0 1.5 2.5 0.7 2.2 5.9 4.9 0.9 1.4 1.5 0.6 10.2 5.7 2.2 1.8 3.0 2.2 2.3 2.7 2.5
P/BV (x) FY14E FY15E 2.9 2.4 2.1 1.8 1.7 1.6 11.5 10.0 1.3 1.2 2.1 1.9 0.6 0.6 1.9 1.7 5.1 4.3 4.4 3.9 0.9 0.8 1.3 1.2 1.3 1.2 0.6 0.6 8.2 6.6 4.7 3.8 2.0 1.7 1.7 1.6 2.7 2.5 2.0 1.8 2.0 1.8 2.4 2.2 2.3 2.0
FY13 24.2 17.7 12.9 32.8 16.5 17.2 14.9 20.1 19.3 17.1 11.9 13.4 14.6 4.2 29.3 27.5 4.0 16.0 21.2 15.5 15.8 16.6 16.0
RoE Div. PAT (%) yld (%) CAGR FY14E FY15E FY13 FY13-15 21.8 22.2 1.4 15.3 12.8 12.0 1.8 -10.8 10.9 12.4 1.3 8.3 33.2 34.2 1.4 16.3 14.0 14.4 2.6 5.7 16.0 16.5 1.5 13.4 10.8 11.2 4.7 -4.3 19.6 19.6 2.6 14.9 21.1 20.6 0.6 22.1 18.4 20.3 1.4 22.7 12.1 11.1 2.8 4.0 12.8 13.4 2.6 10.4 13.9 14.1 2.5 9.4 4.5 5.6 1.5 22.0 26.5 25.4 0.7 15.8 27.9 25.9 1.3 18.3 6.1 9.5 0.5 67.7 15.2 15.5 3.8 7.9 18.8 19.7 2.2 8.6 14.7 15.1 1.9 10.5 14.9 15.3 1.9 10.3 15.8 16.1 1.6 10.7 15.6 15.8 1.6 10.1 Source: MOSL B–4
MOSL Universe
Ready reckoner: quarterly performance (INR Million)
Automobiles Ashok Leyland Bajaj Auto Eicher Motors Exide Inds. Hero Motocorp Mahindra & Mahindra Maruti Suzuki Tata Motors Sector Aggregate
CMP (INR) 27.09.13
Rating Sep.13
Sales Var. % YoY
Sep.13
EBITDA Var. % YoY
Var. % QoQ
Sep.13
15.7 769 -3.8 9,734 -5.7 1,452 1.6 2,394 -7.3 5,494 -13.0 10,523 -1.8 9,667 14.7 75,120 6.1 115,153
-77.0 6.4 30.4 27.2 18.9 -17.8 90.1 40.8 26.1
230.4 7.4 -12.6 -8.7 -19.3 -24.9 -17.1 20.8 6.4
-822 7,851 891 1,514 4,367 8,470 4,775 26,436 53,483
PL 6.0 35.0 26.0 -0.9 -13.4 109.9 27.0 11.5
Loss 6.4 -3.4 -4.5 -20.4 -6.9 -24.4 44.2 12.0
Var. % QoQ
Net Profit Var. % YoY
Var. % QoQ
15 1,992 3,539 132 2,048 844 1,368 340
Neutral Buy Buy Neutral Buy Buy Buy Buy
27,348 47,252 15,746 16,514 56,782 84,430 100,528 536,575 885,176
-17.0 -5.0 6.2 8.9 10.2 -8.7 21.0 23.6 14.4
551 144 89 409 633 817 480 590
Neutral Neutral Buy Buy Neutral Buy Neutral Buy
18,719 82,437 34,078 9,850 10,250 141,358 25,436 10,715 332,844
3.5 -20.7 16.5 -9.4 6.3 7.1 -24.6 -10.1 -4.8
7.5 29.8 7.9 -6.1 -2.5 12.6 -3.7 24.2 13.2
1,062 10,810 1,496 1,523 1,221 14,136 206 1,066 31,520
60.0 -43.1 0.4 -23.8 2.5 0.6 -79.3 -12.4 -22.4
-3.5 178.2 3.3 -13.2 -13.4 19.8 -84.0 31.0 34.1
361 5,496 679 1,293 846 8,687 -149 726 17,938
68.9 -56.9 24.4 -19.8 7.3 -5.1 PL -20.3 -32.0
-10.6 18.1 12.9 -22.2 -17.8 4.5 Loss 44.5 7.5
Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements Jaiprakash Associates Shree Cement Ultratech Cement Sector Aggregate
1,101 184 207 2,678 51 37 4,004 1,826
Buy Neutral Buy Buy Neutral Buy Buy Buy
24,719 19,904 6,754 12,779 11,406 33,377 11,898 44,866 165,702
1.7 -8.0 7.6 -4.2 1.6 11.9 -10.1 -4.5 -0.7
-11.6 -15.1 -12.5 11.2 -7.9 0.7 -17.5 -9.5 -8.0
3,088 3,239 579 2,445 1,866 8,112 2,538 8,180 30,048
-26.7 -42.9 -47.4 -15.6 -9.0 5.2 -35.4 -18.6 -20.2
-28.8 -34.2 -13.3 20.8 -2.3 3.4 -33.1 -22.0 -16.5
1,840 2,099 365 3,791 149 804 830 3,934 13,811
-26.0 -37.7 -54.5 -1.0 -69.7 -37.2 -63.7 -28.5 -31.1
-29.0 -35.3 -20.7 67.6 -11.5 287.7 -70.8 -41.5 -25.3
Consumer Asian Paints Britannia Colgate Dabur Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. Radico Khaitan United Spirits Sector Aggregate
471 775 1,233 170 832 4,238 621 349 220 5,097 253 128 2,621
Neutral Buy Neutral Buy Neutral Neutral Sell Neutral Buy Neutral Neutral Buy Buy
29,863 15,852 8,859 17,083 19,303 9,709 68,157 80,938 12,779 24,057 9,358 3,333 24,428 323,717
14.2 13.0 14.5 12.2 21.0 17.3 8.0 12.0 10.6 13.7 14.0 12.2 10.0 12.1
6.0 12.9 4.9 3.5 12.2 13.8 0.1 9.2 -7.4 8.7 -7.8 -6.7 11.4 5.6
4,241 1,110 1,893 3,024 2,896 1,689 10,905 30,756 1,687 5,052 1,684 573 3,053 68,563
17.4 83.0 7.7 14.3 18.7 20.3 11.6 14.4 14.2 13.9 14.8 16.7 20.6 15.2
-4.0 -5.0 14.5 28.4 31.2 42.4 0.5 10.2 -25.7 5.9 -24.8 -6.1 9.8 6.4
2,604 768 1,465 2,293 1,881 1,443 8,628 20,900 1,013 2,944 1,184 293 884 46,300
8.9 68.5 1.0 13.4 18.1 12.3 7.1 13.8 18.0 11.9 5.9 32.6 125.2 13.4
-5.4 -10.9 12.9 23.3 44.2 20.3 -2.5 10.5 -34.8 8.5 -23.4 -4.4 -25.2 4.4
Capital Goods ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Sector Aggregate
PULL OUT October 2013
B–5
MOSL Universe
Ready reckoner: quarterly performance (INR Million)
CMP (INR) 27.09.13
Healthcare Biocon Cadila Health Cipla Divis Labs Dr Reddy’ s Labs Glenmark Pharma GSK Pharma IPCA Labs. Lupin Ranbaxy Labs Sanofi India Sun Pharma Torrent Pharma Sector Aggregate
Rating Sep.13
Sales Var. % YoY
Var. % QoQ
Sep.13
EBITDA Var. % YoY
Var. % QoQ
Sep.13
Net Profit Var. % YoY
Var. % QoQ
334 693 433 984 2,411 523 2,414 695 853 334 2,558 590 439
Neutral Buy Neutral Buy Buy Buy Buy Buy Buy Neutral Neutral Buy Buy
7,338 17,326 27,040 5,494 33,615 15,192 7,054 9,097 27,042 29,909 4,380 34,561 9,424 227,471
23.9 11.9 31.5 16.2 20.8 24.5 5.5 17.9 22.1 26.5 10.4 41.6 21.3 24.3
5.6 5.8 9.7 6.5 20.5 22.7 10.8 12.9 17.2 11.5 6.8 5.2 1.3 11.5
1,534 2,973 6,245 2,109 7,732 3,000 1,546 2,097 5,124 3,027 716 13,740 1,810 51,653
31.6 28.9 7.2 14.2 24.2 27.0 -22.3 17.3 17.3 4.1 -11.0 38.2 16.5 19.9
4.9 4.0 -7.5 7.6 54.4 21.3 36.0 22.6 12.7 15.3 15.0 0.0 -3.7 10.4
959 1,665 4,103 1,566 4,859 1,800 1,308 1,003 3,168 1,663 581 10,476 1,235 34,387
7.1 75.1 -6.6 32.7 39.3 26.4 -20.1 -19.8 15.0 -19.1 13.3 35.6 15.1 17.2
2.6 -14.9 -13.6 -10.4 48.4 39.9 37.6 39.8 -4.9 27.8 13.5 -6.8 -4.3 3.3
Media D B Corp Dish TV HT Media Jagran Prakashan PVR Sun TV Zee Entertainment Sector Aggregate
252 50 87 82 470 401 238
Buy Buy Neutral Buy Buy Buy Neutral
4,334 5,908 5,154 4,095 3,556 5,026 10,551 38,624
14.5 10.7 0.9 27.1 99.6 16.0 10.6 16.7
-3.6 2.1 -4.7 -0.9 6.1 -16.5 8.4 -0.8
1,058 1,515 445 911 693 3,805 2,907 11,334
23.0 -2.7 -21.2 16.5 114.4 15.6 33.5 18.6
-20.3 24.5 -42.8 -10.6 16.8 7.6 -0.3 -0.5
590 -198 196 529 262 1,828 2,145 5,351
21.4 Loss -41.1 8.7 60.9 20.5 14.3 15.1
-22.5 Loss -58.7 -8.5 58.5 11.2 -4.5 -3.9
Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Sterlite Tata Steel Sector Aggregate
114 131 237 732 32 126 51 183 288
Buy Buy Neutral Sell Buy Buy Sell Buy Sell
225,222 34,041 48,919 104,363 15,184 25,103 124,425 196,875 369,030 1,143,162
13.7 18.8 5.1 17.6 -5.6 -3.9 15.0 13.6 8.1 11.3
14.0 24,017 14.1 16,796 7.7 14,486 11.5 19,414 -2.7 2,334 -12.6 15,200 21.2 15,427 38.7 71,339 12.5 36,553 16.2 215,566
9.2 16.4 -14.6 27.3 LP -21.4 39.1 16.9 58.2 17.7
29.0 11.7 -3.8 11.0 52.6 -20.2 59.5 22.2 -0.9 12.4
8,155 17,318 6,213 5,605 1,692 13,556 9,257 24,182 3,646 89,623
-13.5 12.5 -30.8 9.6 3439.9 -19.2 85.3 6.8 LP 13.0
91.8 8.8 -10.5 19.9 6.0 -13.8 75.7 1.2 -67.5 0.2
851 311 402 21 143 486
Buy Neutral Buy Buy Buy Buy
-16.0 -12.4 -44.5 6.8 -6.5 -11.7 -6.9
18.4 17.0 -76.0 -4.4 31.7 -2.1 7.9
-37.1 -25.4 -69.0 8.6 -6.0 -5.1 -14.3
370 1,017 270 795 1,432 159 4,044
15.5 18.7 -66.8 3.0 19.6 -11.5 -2.4
-40.2 -24.0 -55.0 58.0 -32.6 -9.8 -24.6
Others Bata India Castrol India MCX Sintex Inds. United Phosphorous V-Guard Inds Sector Aggregate PL: Profit to Loss; LP: Loss
4,809 7,527 682 12,047 22,952 3,605 51,621
13.5 4.3 -48.0 0.5 23.7 15.0 11.2
604 1,422 196 1,748 4,294 294 8,557
to Profit
PULL OUT October 2013
B–6
MOSL Universe
Ready reckoner: quarterly performance (INR Million)
Oil & Gas BPCL Cairn India GAIL Gujarat State Petronet HPCL IOC Indraprastha Gas MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Excl. RMs Real Estate Anant Raj Inds DLF Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Unitech Sector Aggregate
CMP (INR) 27.09.13
Sep.13
Sales Var. % YoY
329 318 326 52 190 211 276 33 454 275 123 840
Buy 628,031 Buy 50,949 Neutral 131,709 Neutral 2,810 Buy 596,881 Buy 1,215,928 Neutral 10,041 Neutral 188,626 Buy 25,526 Buy 229,313 Buy 104,000 Neutral 1,014,562 4,198,376 1,757,536
10.5 14.7 15.9 2.9 23.2 14.9 17.5 15.7 6.3 15.9 37.8 12.3 15.2 14.6
42 132 16 406 166 237 123 16
Buy Buy Buy Buy Buy Buy Buy Buy
1,009 20,537 9,590 868 1,980 746 4,419 6,230 45,378
-26.5 0.7 36.1 3.6 -23.2 12.2 83.0 15.4 11.5
26.1 -11.3 24.7 29.6 -9.3 6.8 -11.3 8.8 -1.1
424 7,722 4,446 139 1,150 492 1,193 885 16,450
-40.9 3.5 24.0 -7.7 -23.1 12.3 64.6 8.1 6.9
45.6 -15.7 32.6 49.2 -13.9 3.7 -7.4 17.6 -1.7
UR Sell Neutral Neutral
24,365 4,345 6,868 26,174 61,752
-20.4 27.0 18.5 15.0 -1.3
8.0 9.6 27.9 -15.8 -1.9
2,071 717 364 2,670 5,822
-21.8 22.2 25.2 7.0 -3.3
Buy Neutral Buy Neutral Neutral Sell Buy Neutral Buy Buy
79,037 6,194 127,385 7,087 7,613 17,656 4,155 207,982 46,535 109,044 503,645
29.8 22.0 29.2 24.9 27.7 35.2 27.1 33.1 32.1 NA 31.2
13.8 19,690 15.4 1,492 13.1 35,502 15.6 1,355 17.5 1,612 14.7 3,538 16.3 931 15.6 65,151 13.4 10,886 12.1 22,273 14.5 140,157
Buy Neutral Buy Neutral
209,143 26,670 63,353 53,458 352,624
7.8 4.4 19.2 2.8 8.6
3.2 64,406 1.7 10,338 -3.1 19,175 -1.2 16,735 1.2 110,654
Retail Future Retail 71 Jubilant Foodworks 1,173 Shopper's Stop 356 Titan Industries 235 Sector Aggregate UR = Under Review Technology HCL Technologies 1,071 Hexaware Tech. 129 Infosys 3,006 KPIT Tech. 131 Mindtree 1,186 MphasiS 428 Persistent Systems 619 TCS 1,947 Tech Mahindra 1,306 Wipro 475 Sector Aggregate (ex Wipro) Telecom Bharti Airtel Bharti Infratel Idea Cellular Reliance Comm Sector Aggregate
October 2013
325 159 172 151
Rating
Sep.13
EBITDA Var. % YoY
7.0 12,470 25.4 39,607 2.5 15,223 -5.1 2,538 15.3 13,266 10.3 30,304 11.4 1,821 23.6 2,902 28.9 11,633 19.3 123,784 23.2 3,894 15.8 74,174 13.1 331,616 16.6 275,575
-70.3 14.8 10.3 0.7 -41.0 -66.6 -11.6 -74.9 1.4 20.5 -24.9 -3.7 -20.3 5.6
Var. % QoQ
Var. % QoQ
Sep.13
Net Profit Var. % YoY
37.7 3,743 31.6 34,775 4.0 8,931 -5.7 1,268 LP 4,443 LP 18,020 -5.4 807 72.5 -2,185 66.9 9,339 47.4 62,053 -2.1 1,988 4.8 53,395 61.8 196,577 27.2 170,372
Var. % QoQ
-92.6 49.8 -9.4 -4.5 -80.9 -81.3 -18.7 PL -2.2 5.2 -36.8 -0.7 -42.6 -1.3
149.0 11.2 10.5 0.4 LP LP -7.6 Loss 53.3 54.5 -11.8 -0.2 107.1 22.6
296 1,362 1,656 235 986 362 739 711 6,349
-41.1 -1.7 -8.5 -25.1 -20.7 9.7 61.8 0.7 -5.9
52.4 -24.8 104.4 49.3 -3.1 -13.4 -14.7 13.1 7.5
8.9 7.5 55.9 9.0 10.9
41 359 105 1,905 2,409
39.1 10.9 63.6 5.7 8.6
LP 5.5 351.5 4.4 15.7
48.2 35.9 23.6 43.4 22.2 31.1 4.6 46.7 43.8 NA 38.9
21.9 17.2 19.0 39.4 35.4 26.4 19.8 26.4 25.9 26.2 23.9
13,333 1,167 26,558 771 1,077 2,022 489 45,803 6,699 18,435 97,918
54.3 38.9 12.1 89.6 49.2 -3.4 9.4 30.4 58.6 NA 28.5
11.3 19.2 11.9 28.2 -20.5 5.0 -14.4 20.7 2.6 13.6 14.3
8.5 7.9 34.8 2.2 11.1
-1.6 -2.0 -8.7 -1.6 -3.0
3,350 3,428 4,309 1,383 12,470
-53.5 38.4 79.6 4.6 -7.0
-51.4 -4.1 -11.7 6.1 -25.1
B–7
MOSL Universe
Ready reckoner: quarterly performance (INR Million)
CMP (INR) 27.09.13
Utilities CESC Coal India Jaiprakash Power JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infrastructure Tata Power Sector Aggregate PL: Profit to Loss; LP: Loss
336 307 16 46 20 148 99 46 393 82
Rating Sep.13
14,675 156,744 10,134 21,963 18,312 144,566 37,413 31,146 35,018 96,643 566,615 to Profit; UR = Under Review
CMP (INR) 27.09.13 Financials Private Banks Axis Bank 1,031 Federal Bank 298 HDFC Bank 610 ICICI Bank 923 IndusInd Bank 377 ING Vysya Bank 510 Kotak Mahindra Bank 682 Yes Bank 305 Pvt Bkg.Sector Aggregate PSU Banks Bank of Baroda 501 Bank of India 163 Canara Bank 225 Indian Bank 70 Oriental Bank 150 Punjab National Bank 478 State Bank 1,642 Union Bank 115 PSU Bkg. Sector Aggregate NBFC Bajaj Finance 1,177 HDFC 783 IDFC 89 LIC Housing Fin 192 M & M Financial 257 Power Finance Corp 133 Rural Electric. Corp. 195 Shriram Transport Fin. 574 NBFC Bkg. Sector Aggregate Financials Sector Aggregate
Buy Neutral Buy Neutral Neutral Buy Buy Buy Buy Neutral
Rating
Sales Var. % YoY 9.2 7.6 11.9 5.8 3.3 -10.3 21.2 11.5 0.0 25.5 5.2
Sep.13
EBITDA Var. % YoY
Var. % QoQ
Sep.13
Net Profit Var. % YoY
Var. % QoQ
2.2 3,265 -4.8 32,285 28.9 8,591 -9.7 8,028 13.1 12,512 -7.4 36,803 2.0 32,479 12.4 300 6.8 4,425 3.5 15,330 -1.3 154,017
5.0 12.8 5.9 39.2 4.0 -12.9 21.7 -47.3 -2.4 1.6 4.9
1.7 -18.4 46.0 -13.0 16.9 -13.7 2.6 -11.8 0.6 -25.8 -8.5
1,411 33,050 3,325 2,510 8,455 22,167 11,327 242 3,137 1,369 86,992
3.8 7.4 -9.2 55.4 16.3 17.5 12.5 -45.7 -24.3 -33.6 8.4
7.7 -11.5 182.1 -38.9 18.1 -4.7 -1.2 -17.3 -16.2 26.6 -4.4
Net Profit Sep.13 Var. % YoY
Var. % QoQ
Var. % QoQ
Net Interest Income Sep.13 Var. Var. % YoY % QoQ
Operating Profit Sep.13 Var. Var. % YoY % QoQ
Buy Buy Neutral Buy Buy Buy Neutral Buy
27,802 5,013 44,851 38,736 6,823 4,567 9,178 6,524 143,494
19.5 -0.9 20.2 14.9 33.9 23.8 21.1 24.5 18.6
-3.0 23,782 -1.6 3,348 1.5 32,753 1.4 35,178 0.4 5,494 7.4 3,052 0.1 6,044 -1.0 5,889 0.4 115,540
9.2 -4.3 27.4 10.2 30.9 34.1 25.3 21.5 16.6
-16.4 -16.4 -0.9 -7.8 -14.4 -6.6 -22.4 -13.4 -9.7
11,958 1,633 19,915 20,684 3,005 1,739 3,426 3,165 65,525
6.4 -24.1 27.7 5.7 20.1 15.8 22.2 3.4 12.2
-15.1 54.6 8.0 -9.1 -10.2 -0.7 -15.0 -21.0 -5.7
Buy Neutral Neutral Buy Buy Buy Buy Neutral
28,615 25,787 20,488 11,097 12,912 39,378 116,796 18,920 273,991
0.0 17.4 4.7 -0.9 11.6 7.9 6.4 2.3 6.3
-1.0 20,394 1.6 18,630 2.9 14,225 1.2 7,064 -1.2 9,316 0.8 26,493 1.5 65,133 -0.9 12,121 0.9 173,376
-14.0 0.5 11.0 -22.2 1.1 4.6 -11.4 -4.8 -6.3
-16.3 -14.6 -25.1 -17.8 -14.4 -10.9 -13.7 -14.1 -15.0
7,956 5,101 3,709 2,026 2,410 8,259 23,798 2,959 56,219
-38.9 69.0 -43.9 -59.2 -20.2 -22.5 -34.9 -46.6 -32.6
-31.9 -47.1 -53.2 -36.2 -31.8 -35.2 -26.6 -47.2 -35.2
Buy Buy Buy Buy Buy Neutral Neutral Buy
5,830 16,192 6,868 4,607 6,602 18,499 16,545 9,383 84,526 502,012
32.3 16.8 6.8 30.3 25.5 25.4 29.2 8.1 21.2 12.0
-2.3 3,308 6.5 17,022 0.1 7,543 1.3 4,356 7.1 4,669 -4.7 18,235 -0.9 16,711 4.0 7,826 0.8 79,671 0.7 368,588
35.8 7.2 3.9 28.4 28.8 25.2 29.0 9.9 18.5 4.9
0.0 1,702 3.9 12,103 -14.2 4,288 -1.3 3,326 12.2 2,302 -5.0 12,776 -1.8 11,825 6.5 3,520 -1.2 51,842 -10.6 173,586
32.2 5.1 -9.8 36.8 22.7 21.2 22.6 4.3 14.1 -7.3
-3.2 3.2 -22.6 7.1 20.4 0.4 -1.1 3.2 -0.6 -16.7
PULL OUT October 2013
B–8
MOSL Universe
Ready reckoner: valuations CMP (INR) 27.09.13 Automobiles Ashok Leyland Bajaj Auto Eicher Motors Exide Inds. Hero Motocorp Mahindra & Mah. Maruti Suzuki Tata Motors Sector Aggregate Capital Goods ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Sector Aggregate Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements J P Associates Shree Cement Ultratech Cement Century Textiles Dalmia Bharat J K Cements JK Lakshmi Cem. Madras Cement Orient Paper Prism Cement Sector Aggregate Consumer Asian Paints Britannia Colgate Dabur Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. Radico Khaitan United Spirits Sector Aggregate
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
15 1,992 3,539 132 2,048 844 1,368 340
Neutral Buy Buy Neutral Buy Buy Buy Buy
0.6 105.2 120.1 6.2 106.1 60.9 80.2 32.1
-1.2 117.2 146.4 7.7 110.4 68.3 79.1 35.9
0.6 135.6 180.1 8.9 152.8 79.4 101.2 42.8
24.0 18.9 29.5 21.5 19.3 13.9 17.1 10.6 14.4
-12.1 17.0 24.2 17.2 18.5 12.4 17.3 9.5 13.3
24.5 14.7 19.7 14.8 13.4 10.6 13.5 7.9 10.8
6.8 14.0 16.1 12.1 16.7 5.5 8.2 5.1 7.0
17.1 11.5 12.4 9.2 13.8 5.4 7.5 3.9 5.7
5.9 9.5 9.2 7.8 9.5 4.5 5.7 3.2 4.7
3.9 43.7 20.8 15.3 45.6 22.4 12.9 27.4 24.2
-7.4 38.7 22.3 16.7 41.2 19.8 11.4 23.9 21.8
3.6 37.2 23.3 17.0 47.7 18.5 13.2 22.4 22.2
551 144 89 409 633 817 480 590
Neutral Neutral Buy Buy Neutral Buy Neutral Buy
6.5 26.8 3.0 23.8 34.4 53.4 0.8 27.0
8.2 16.9 5.6 21.7 35.5 43.8 7.6 26.2
11.5 10.2 8.3 24.7 39.3 51.5 20.2 31.3
84.9 5.4 29.8 17.1 18.4 15.3 565.7 21.8 12.7
66.8 8.5 15.9 18.8 17.8 18.7 63.6 22.5 16.0
47.9 14.1 10.7 16.5 16.1 15.9 23.7 18.8 16.0
35.3 3.0 18.3 12.4 12.6 10.4 64.5 13.4 8.3
25.9 4.6 10.2 14.8 12.2 10.1 25.9 13.0 9.3
21.4 5.0 7.5 12.7 10.1 9.1 12.3 10.7 9.0
5.4 23.5 -1.0 29.7 29.8 16.2 0.8 18.4 17.7
6.6 13.0 9.6 24.0 25.5 14.6 6.6 15.9 12.8
8.8 7.3 13.8 25.3 23.5 14.4 16.6 17.4 12.0
1,101 184 207 2,678 51 37 4,004 1,826 250 126 188 71 180 8 28
Buy Neutral Buy Buy Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Buy Neutral
68.7 10.0 35.0 278.7 5.8 2.3 314.9 96.8 -3.7 24.3 33.0 16.0 17.0 5.4 -1.2
55.7 8.0 34.7 322.7 3.2 2.7 277.0 96.1 -12.5 20.2 26.7 9.1 14.8 5.2 -1.8
65.5 9.3 44.8 379.7 6.6 4.4 321.1 110.9 -5.7 24.5 43.9 11.3 21.8 7.3 2.9
16.0 18.4 5.9 9.6 8.7 16.2 12.7 18.9 -67.3 5.2 5.7 4.4 10.6 1.5 -23.4 14.5
19.8 22.9 6.0 8.3 15.9 13.7 14.5 19.0 -20.0 6.2 7.0 7.8 12.1 1.5 -16.1 15.6
16.8 19.8 4.6 7.1 7.7 8.4 12.5 16.5 -43.5 5.2 4.3 6.3 8.2 1.1 9.6 12.4
8.9 10.0 3.4 4.2 5.4 15.6 8.1 11.1 14.7 5.8 3.9 4.2 7.1 2.9 12.8 8.8
10.7 13.4 3.2 3.7 5.7 7.4 8.1 11.2 17.3 6.5 6.1 7.0 7.2 3.7 14.7 8.0
9.1 11.7 1.9 2.8 4.8 6.6 7.1 9.4 11.3 4.8 4.2 5.8 5.0 4.3 5.4 6.4
17.7 18.3 11.0 13.0 4.3 3.9 30.6 18.9 -1.9 6.6 14.4 15.4 18.3 9.7 -5.4 12.9
13.1 13.6 10.1 13.3 2.4 4.3 17.4 16.1 -6.7 5.2 10.7 8.2 14.1 8.9 -8.6 10.9
14.0 14.7 11.9 13.6 4.7 6.7 17.4 16.1 -3.4 6.1 15.6 9.6 18.2 11.7 14.5 12.4
471 775 1,233 170 832 4,238 621 349 220 5,097 253 128 2,621
Neutral Buy Neutral Buy Neutral Neutral Sell Neutral Buy Neutral Neutral Buy Buy
11.6 19.6 36.5 4.4 19.6 98.3 15.3 9.5 6.0 114.1 8.5 6.7 29.6
12.4 27.1 40.8 5.4 24.7 119.1 16.4 10.9 7.5 123.1 9.7 8.0 41.1
15.2 32.0 46.1 6.5 30.5 139.8 17.7 12.7 8.6 150.2 11.7 10.7 66.0
40.6 39.6 33.8 38.6 42.4 43.1 40.5 36.8 36.6 44.7 29.9 19.1 88.6 39.7
38.1 28.6 30.2 31.4 33.7 35.6 37.9 31.9 29.4 41.4 26.2 16.0 63.7 34.5
31.0 24.2 26.7 26.1 27.3 30.3 35.1 27.4 25.6 33.9 21.6 12.0 39.7 29.4
26.7 28.1 24.6 29.7 29.6 35.7 32.2 24.3 23.6 27.2 19.9 11.7 35.5 27.1
23.6 19.7 21.8 24.1 23.5 31.7 28.1 20.7 19.1 24.2 16.7 10.1 29.4 23.0
19.8 16.2 18.3 20.3 19.5 25.0 24.7 17.9 15.8 20.2 13.7 8.2 21.5 19.5
33.3 37.5 108.4 35.1 20.9 30.5 71.4 36.1 19.6 71.6 24.9 12.3 4.3 32.8
30.7 42.6 97.6 35.3 23.2 31.1 61.3 37.8 20.1 58.0 24.1 13.3 6.6 33.2
32.1 41.5 92.5 35.1 24.3 30.8 57.1 39.8 19.2 56.7 24.6 15.7 9.7 34.2
PULL OUT October 2013
B–9
MOSL Universe
Ready reckoner: valuations CMP (INR) 27.09.13
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Healthcare Biocon 334 Cadila Health 693 Cipla 433 Divis Labs 984 Dr Reddy’ s Labs 2,411 Glenmark Pharma 523 GSK Pharma 2,414 IPCA Labs. 695 Lupin 853 Ranbaxy Labs 334 Sanofi India 2,558 Sun Pharma 590 Torrent Pharma 439 Sector Aggregate
Neutral Buy Neutral Buy Buy Buy Buy Buy Buy Neutral Neutral Buy Buy
16.4 31.9 15.8 45.4 90.2 18.4 80.0 25.7 23.1 13.0 76.7 14.7 27.8
18.8 35.8 20.2 54.8 107.1 25.4 62.5 31.8 31.5 13.0 87.3 21.6 29.8
21.1 41.4 22.6 66.5 127.0 31.9 79.1 51.0 41.9 12.9 105.5 24.7 34.1
20.4 21.7 27.3 21.7 26.7 28.4 30.2 27.1 36.9 25.7 33.3 40.0 15.8 30.5
15.8 16.7 19.2 14.8 19.0 16.4 30.5 13.6 20.3 25.8 24.2 23.9 12.9 20.5
10.4 14.5 15.1 15.6 16.9 15.5 23.2 14.8 19.4 7.4 23.4 24.0 10.8 17.4
9.6 13.5 13.5 12.9 14.5 13.3 30.9 12.5 15.9 13.8 22.1 17.4 10.1 15.4
8.5 11.5 12.0 10.1 12.3 11.2 23.1 9.4 13.1 7.5 18.1 15.0 8.8 12.6
12.1 23.7 14.1 26.0 20.7 18.1 33.7 23.1 22.5 31.4 14.8 22.5 35.8 19.3
12.8 22.8 15.6 26.7 20.3 20.5 25.1 23.4 23.8 -4.7 15.6 27.9 30.8 21.1
13.1 22.3 15.0 27.7 19.9 21.1 29.9 30.2 25.4 28.2 17.2 26.4 28.3 20.6
Media D B Corp Dish TV Hindustan Media HT Media Jagran Prakashan PVR Sun TV Zee Entertainment Sector Aggregate
252 50 111 87 82 470 401 238
Buy Buy Buy Neutral Buy Buy Buy Neutral
11.9 -1.2 11.5 7.1 4.7 11.2 17.3 7.5
15.3 -0.9 14.1 5.7 6.4 15.4 19.5 9.2
18.6 -0.2 16.3 6.0 7.7 24.2 24.1 11.0
21.2 -42.7 9.7 12.3 17.6 41.8 23.1 31.5 28.8
16.5 13.6 -58.9 -289.8 7.9 6.8 15.4 14.6 12.8 10.7 30.6 19.4 20.6 16.6 26.0 21.7 24.0 19.1
12.4 10.9 4.6 5.9 10.1 20.9 11.2 23.2 13.7
9.3 10.1 3.0 6.3 7.6 10.7 9.6 18.7 11.4
7.9 8.1 2.0 5.5 6.5 8.4 8.0 15.4 9.4
22.3 NA 17.9 10.1 17.5 9.6 23.6 19.6 17.1
25.7 NA 18.5 7.4 20.4 9.3 24.1 20.7 18.4
27.7 NA 17.9 7.2 21.5 13.3 26.7 21.4 20.3
Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Sterlite Tata Steel Sector Aggregate
114 131 237 732 32 126 51 183 288
Buy Buy Neutral Sell Buy Buy Sell Buy Sell
17.0 16.4 37.2 49.7 2.3 16.7 5.7 35.9 1.6
14.0 16.7 27.3 65.5 3.3 15.7 8.2 34.7 33.6
15.0 16.4 32.3 71.4 3.3 16.0 5.5 35.8 32.2
6.7 8.0 6.4 14.7 13.9 7.5 8.9 5.1 183.5 8.0
8.1 7.8 8.7 11.2 9.8 8.0 6.2 5.3 8.6 7.3
7.6 8.0 7.3 10.3 9.9 7.8 9.2 5.1 8.9 7.4
8.9 5.2 7.1 7.2 3.6 3.7 7.4 4.1 7.2 5.8
7.7 4.2 8.4 6.6 3.5 3.9 7.5 3.8 6.0 5.5
6.2 3.5 6.1 6.3 3.0 3.8 8.1 3.5 6.3 5.1
18.0 23.4 17.7 6.6 5.0 26.8 5.8 14.4 0.7 11.9
13.1 20.2 12.0 9.1 6.9 22.2 8.0 13.5 14.9 12.1
12.5 17.1 13.3 10.1 6.6 19.6 5.1 13.0 13.1 11.1
Others Bata India Castrol India MCX Sintex Inds. United Phosphorous V-Guard Inds Sector Aggregate
851 311 402 21 143 486
Buy Neutral Buy Buy Buy Buy
26.8 9.0 54.9 13.3 18.1 21.1
30.7 9.7 29.4 9.9 21.0 29.1
38.5 10.9 29.9 11.3 25.2 39.1
31.8 34.4 7.3 1.6 7.9 23.1 14.4
27.7 32.1 13.7 2.1 6.8 16.7 14.5
22.1 28.5 13.5 1.9 5.7 12.4 12.2
19.2 25.0 5.7 4.4 4.8 14.6 9.5
16.6 23.1 11.3 4.2 3.8 10.5 8.5
13.4 20.1 11.7 3.5 3.1 8.0 7.3
27.1 83.8 26.0 14.3 18.2 26.7 21.2
25.6 71.4 12.7 9.8 18.5 29.4 18.8
26.5 71.3 12.3 10.1 19.0 31.1 19.7
17.8 19.3 21.4 18.0 22.5 20.6 38.6 21.9 27.1 25.7 29.3 27.4 14.7 24.3
PULL OUT October 2013
B–10
MOSL Universe
Ready reckoner: valuations CMP (INR) 27.09.13 Oil & Gas BPCL Cairn India Chennai Petroleum GAIL Guj. State Petronet HPCL Indraprastha Gas IOC MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Ex RMS
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
329 318 56 326 52 190 276 211 33 454 275 123 840
Buy Buy Buy Neutral Neutral Buy Neutral Buy Neutral Buy Buy Buy Neutral
26.0 63.1 -118.6 31.7 9.6 26.7 25.3 18.3 -4.3 59.7 28.3 15.3 71.9
28.2 65.6 -2.3 28.9 9.0 16.3 26.4 19.5 1.3 60.1 28.9 10.6 74.0
34.8 55.2 30.2 28.8 9.2 26.3 31.6 28.0 6.8 68.9 36.7 12.9 80.6
12.6 5.0 -0.5 10.3 5.4 7.1 10.9 11.5 -7.7 7.6 9.7 8.0 11.7 10.3 10.2
11.7 4.8 -24.6 11.3 5.7 11.7 10.4 10.9 25.9 7.6 9.5 11.6 11.4 9.8 9.7
9.4 5.8 1.9 11.3 5.6 7.2 8.7 7.5 4.9 6.6 7.5 9.5 10.4 8.5 8.6
7.6 3.3 -7.0 8.0 3.6 9.9 5.5 10.3 14.4 3.8 3.8 5.8 8.5 6.2 5.5
7.2 2.5 11.0 8.8 3.0 9.8 5.0 10.7 6.2 3.6 3.5 6.6 8.9 5.8 5.2
6.4 2.5 5.2 7.8 3.0 8.0 4.0 6.7 3.5 2.9 2.8 5.7 8.0 4.8 4.4
11.5 24.8 -60.7 17.5 19.9 6.7 26.0 7.2 -11.1 19.4 16.8 28.8 12.3 13.4 14.6
11.6 23.8 -1.7 14.4 16.1 4.0 22.6 7.3 3.4 17.8 15.6 16.7 11.5 12.8 13.9
13.2 17.2 20.8 13.1 14.4 6.2 22.7 9.9 16.9 18.2 17.8 17.7 11.4 13.4 14.1
42 132 346 37 55 16 406 166 237 123 16
Buy Buy Neutral UR Buy Buy Buy Buy Buy Buy Buy
3.6 4.2 17.7 1.7 4.1 5.0 34.6 15.4 5.8 8.2 0.8
4.7 4.5 21.4 6.8 6.9 6.3 31.6 16.8 7.0 10.2 1.2
5.5 6.5 32.8 8.9 13.8 6.2 41.3 22.0 13.5 13.3 1.5
11.6 31.4 19.5 21.3 13.3 3.2 11.7 10.8 40.8 15.0 20.3 14.7
8.9 29.2 16.2 5.5 7.9 2.5 12.8 9.9 33.8 12.0 13.0 13.0
7.6 20.2 10.6 4.2 4.0 2.6 9.8 7.6 17.6 9.2 10.9 9.9
16.2 17.7 14.7 8.0 7.5 6.8 10.2 7.2 21.1 11.0 29.8 13.1
11.4 13.1 14.3 9.8 6.4 4.6 13.0 6.1 12.3 8.8 23.3 10.3
9.9 11.6 9.6 7.7 4.0 4.6 10.7 4.2 9.4 6.7 18.9 8.6
2.7 2.6 9.6 0.7 2.5 11.6 10.9 12.8 4.8 10.4 1.8 4.2
3.5 2.8 11.2 2.7 4.4 13.4 9.2 12.5 5.5 11.7 2.8 4.5
4.0 3.9 15.3 3.4 7.9 11.8 10.8 14.6 9.9 13.4 3.3 5.6
Retail Jubi. Foodworks Shopper's Stop Titan Industries Sector Aggregate
1,173 356 235
Sell Neutral Neutral
20.9 4.9 8.2
24.7 7.0 9.0
34.3 10.6 10.1
56.1 73.2 28.7 34.6
47.5 51.0 26.2 30.8
34.2 33.6 23.2 25.8
29.6 22.7 19.5 21.6
23.5 18.6 18.3 19.3
16.7 14.1 15.6 15.7
31.2 5.9 42.5 29.3
26.9 7.9 31.7 26.5
27.2 10.9 28.6 25.4
Technology HCL Technologies Hexaware Tech. Infosys KPIT Tech. Mindtree MphasiS Persistent Systems TCS Tech Mahindra Wipro Sector Aggregate
1,071 129 3,006 131 1,186 428 619 1,947 1,306 475
Buy Neutral Buy Neutral Neutral Sell Buy Neutral Buy Buy
57.0 10.9 164.9 10.6 81.7 37.5 46.9 71.2 93.2 25.0
76.7 13.8 186.5 15.9 118.8 35.9 57.7 91.0 122.8 30.9
85.2 14.9 215.5 17.5 130.8 42.4 66.8 104.2 131.1 34.0
18.8 11.8 18.2 12.4 14.5 11.4 13.2 27.3 14.0 19.0 20.9
14.0 9.3 16.1 8.2 10.0 11.9 10.7 21.4 10.6 15.4 16.9
12.6 8.6 14.0 7.5 9.1 10.1 9.3 18.7 10.0 14.0 14.9
12.4 8.3 12.8 6.4 9.8 8.9 6.2 20.7 8.8 13.8 15.3
9.0 6.3 10.3 4.3 7.3 8.9 4.9 15.0 6.6 10.6 11.6
8.1 5.5 8.7 4.0 5.7 7.3 4.3 13.4 6.0 9.6 10.3
32.2 30.1 25.7 22.7 25.8 19.1 20.2 37.8 32.6 25.3 27.5
37.4 33.4 24.4 26.0 33.2 16.9 20.9 38.7 33.9 27.6 27.9
32.4 32.3 25.8 24.6 28.1 18.7 20.4 35.2 28.5 25.5 25.9
325 159 172 151
Buy Neutral Buy Neutral
6.0 5.6 3.1 0.9
7.7 7.4 6.0 4.9
13.7 9.9 8.9 11.2
54.2 28.6 56.4 160.3 55.4
42.4 21.5 28.8 31.0 33.5
23.7 16.2 19.3 13.5 19.7
8.1 8.7 11.7 10.6 9.1
7.1 7.9 8.2 9.3 7.7
5.8 7.0 6.5 7.4 6.3
4.2 6.3 7.4 0.6 4.0
5.2 8.0 12.8 3.4 6.1
8.4 10.3 16.6 7.5 9.5
Real Estate Anant Raj Inds DLF Godrej Properties HDIL Indiabulls Real Est. Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Unitech Sector Aggregate
Telecommunication Bharti Airtel Bharti Infratel Idea Cellular Reliance Comm Sector Aggregate October 2013
B–11
MOSL Universe
Ready reckoner: valuations CMP (INR) 27.09.13 Utilities CESC Coal India Jaiprakash Power JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infra. Tata Power Sector Aggregate UR = Under Review
336 307 16 46 20 148 99 46 393 82
CMP (INR) 27.09.13 Private Banks Axis Bank 1,031 Federal Bank 298 HDFC Bank 610 ICICI Bank 923 IndusInd Bank 377 ING Vysya Bank 510 J&K Bank 1,129 Kotak Mah. Bank 682 South Indian Bank 20 Yes Bank 305 Pvt. Bank Aggregate PSU Banks Andhra Bank 53 Bank of Baroda 501 Bank of India 163 Canara Bank 225 Corporation Bank 245 Dena Bank 47 IDBI Bank 60 Indian Bank 70 Oriental Bank 150 Punjab Nat. Bank 478 State Bank 1,642 Union Bank 115 PSU Bank Aggregate NBFC Bajaj Finance 1,177 Dewan Housing 104 HDFC 783 IDFC 89 LIC Housing Fin 192 M & M Financial 257 Power Finance Corp 133 Rural Electric. Corp. 195 Shriram Transport 574 NBFC Aggregate Sector Aggregate
October 2013
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Buy Neutral Buy Neutral Neutral Buy Buy Buy Buy Neutral
49.2 28.0 1.3 6.5 1.8 11.1 8.9 6.7 65.2 3.9
6.8 11.0 12.5 7.1 11.3 13.3 11.1 6.8 6.0 21.0 11.5
4.9 7.3 13.9 5.7 8.2 9.1 10.6 5.9 0.6 14.1 8.6
12.3 28.4 6.3 17.8 7.4 12.0 16.6 5.6 10.4 8.1 16.0
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
Buy Buy Neutral Buy Buy Buy Buy Neutral Neutral Buy
110.7 49.0 28.3 72.2 20.3 39.6 217.5 29.3 3.8 36.3
114.4 36.1 36.1 75.0 23.9 37.4 211.2 32.0 3.8 37.8
132.0 47.2 44.7 84.4 28.4 42.9 234.6 36.7 4.1 45.9
9.3 6.1 21.6 12.8 18.6 12.9 5.2 23.3 5.3 8.4 14.5
9.0 8.3 16.9 12.3 15.7 13.6 5.3 21.3 5.3 8.1 13.2
7.8 6.3 13.6 10.9 13.3 11.9 4.8 18.6 4.9 6.6 11.2
1.5 0.8 4.0 2.0 2.7 1.7 1.1 3.3 0.9 1.9 2.5
1.3 0.7 3.4 1.8 2.3 1.4 1.0 2.9 0.8 1.6 2.1
1.1 0.7 2.8 1.6 2.0 1.2 0.8 2.5 0.7 1.3 1.9
18.5 13.9 20.3 14.8 17.8 14.6 23.6 15.5 20.5 24.8 17.2
15.2 9.3 21.7 12.8 15.8 12.1 19.5 14.6 16.5 21.3 16.0
15.4 11.3 22.7 12.8 16.4 10.9 18.8 14.5 15.6 21.8 16.5
Neutral Buy Neutral Neutral Neutral Neutral Neutral Buy Buy Buy Buy Neutral
23.0 106.0 46.1 64.8 93.8 23.1 14.1 36.8 45.5 134.3 261.9 36.0
16.4 85.7 44.6 46.6 86.6 18.8 14.1 25.5 37.2 113.3 206.1 27.4
17.6 93.5 48.2 53.6 93.7 20.8 15.7 29.5 42.7 129.4 236.8 31.5
2.3 4.7 3.5 3.5 2.6 2.0 4.2 1.9 3.3 3.6 6.3 3.2 4.6
3.2 5.8 3.7 4.8 2.8 2.5 4.2 2.7 4.0 4.2 8.0 4.2 5.7
3.0 5.4 3.4 4.2 2.6 2.3 3.8 2.4 3.5 3.7 6.9 3.7 5.0
0.4 0.7 0.5 0.4 0.4 0.3 0.4 0.3 0.4 0.5 0.9 0.4 0.7
0.3 0.6 0.4 0.4 0.4 0.3 0.4 0.3 0.3 0.5 0.8 0.4 0.6
0.3 0.6 0.4 0.4 0.3 0.3 0.4 0.2 0.3 0.4 0.8 0.4 0.6
16.2 16.1 13.6 13.3 16.1 17.6 10.2 15.6 11.5 16.5 16.5 15.0 14.9
10.5 11.6 11.7 8.8 13.2 12.7 9.4 9.7 8.7 12.2 11.7 10.0 10.8
10.4 11.5 11.6 9.4 12.9 12.7 9.8 10.3 9.3 12.7 12.2 10.6 11.2
Buy Buy Buy Buy Buy Buy Neutral Neutral Buy
118.8 35.2 31.4 12.1 20.3 15.7 34.3 38.7 64.7
146.1 44.2 35.9 13.0 24.2 17.8 38.8 46.4 69.7
181.1 54.1 40.9 14.9 29.6 22.5 42.7 53.8 80.0
9.9 3.0 25.0 7.3 9.5 16.4 3.9 5.0 8.9 11.2 9.0
8.1 2.4 21.8 6.8 7.9 14.5 3.4 4.2 8.2 9.7 9.3
6.5 1.9 19.1 5.9 6.5 11.4 3.1 3.6 7.2 8.4 8.1
1.7 0.4 4.8 1.0 1.5 3.3 0.7 1.1 1.8 2.2 1.5
1.5 0.4 4.3 0.9 1.3 2.8 0.6 0.9 1.5 1.9 1.3
1.2 0.3 3.9 0.8 1.1 2.4 0.5 0.8 1.3 1.7 1.2
21.9 17.1 23.8 14.1 16.8 23.4 20.1 23.6 20.6 20.1 16.5
19.8 16.3 25.6 13.7 17.4 20.7 19.6 23.7 18.3 19.6 14.0
20.8 17.2 25.7 14.1 18.4 22.4 18.7 23.1 17.9 19.6 14.4
53.2 29.6 1.4 7.7 1.9 11.9 8.7 6.8 50.5 3.0
56.8 31.4 2.3 6.9 2.0 13.8 10.5 6.8 55.5 3.4
6.3 10.4 11.2 5.9 10.7 12.5 11.4 6.7 7.8 26.8 10.9
5.9 9.8 7.0 6.6 10.1 10.7 9.4 6.7 7.1 23.7 9.9
4.2 6.3 12.6 4.8 9.1 9.7 9.4 7.1 -1.4 10.4 8.0
3.9 5.9 6.8 4.6 7.8 8.6 8.6 6.5 -1.3 9.7 7.2
P/BV (x) FY13 FY14E FY15E
12.1 25.7 6.3 19.2 7.4 11.8 15.0 3.6 6.5 8.0 15.2
11.6 24.0 10.1 15.5 7.5 12.7 15.0 4.2 6.8 8.2 15.5
RoE (%) FY13 FY14E FY15E
B–12
September 2013 Results Preview
Sectors & Companies BSE Sensex: 19,727
S&P CNX: 5,833
Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year numbers. This is because of differences in classification of account heads in the company’s quarterly and annual results or because of differences in the way we classify account heads as opposed to the company. All stock prices and indices as on 27 September 2013, unless otherwise stated.
October 2013
C–1
September 2013 Results Preview | Sector: Automobiles
Automobiles Companies Covered Ashok Leyland Bajaj Auto Eicher Motors Exide Industries
Demand remains weak; however festive-led buying and good monsoon provide hope: Considering the slowdown in economic activity and consequent weakness in consumer and business sentiments, demand continues to remain weak across auto segments. MHCVs and cars have been the worst impacted. However, tractor volumes continue to remain healthy (though growth moderated in 2Q post strong 1Q) on favorable monsoon and high farm income. Two-wheelers are showing early signs of recovery led by favorable monsoon and consequent strong demand from rural markets.
Hero MotoCorp Mahindra & Mahindra Maruti Suzuki India Tata Motors
2QFY14 margins to decline YoY on lower volumes and consequent high discounts: EBITDA margins for our auto coverage universe (excluding JLR) is expected to decline 40bp YoY (-100bp QoQ) on continued demand weakness and consequent high discounting pressure. While two-wheeler players (Bajaj, Hero and Royal Enfield) are expected to report YoY improvement in margins, M&M, Tata Motors (S/A) and Ashok Leyland would report a decline. MSIL would report YoY margin improvement due to a low base (labor issues last year) and SPIL merger benefit, while on a QoQ basis, margins would decline 180bp due to higher discounts and weaker mix (lower diesel share). JLR expected to show strong margins of 16.9% (+40bp QoQ). Easing of macro headwinds to be key catalyst for demand recovery: With the expectation of an increase in rural incomes due to favorable monsoon coupled with election spending-led improvement in macro-economic factors, we hope for a better 2H for the auto sector. Over the long term, easing macro headwinds such as lower interest rates and higher economic growth would be the key driver for volume growth, profitability and in turn for re-rating. Valuation and view: Considering the current weakness in demand environment and slower-than-earlier-anticipated economic recovery, we downgrade the volume growth/earnings estimates across companies. Our estimates for Bajaj Auto have been lowered by 8.2%/8.7% for FY14E/15E largely reflecting continued weakness in domestic business, partially offset by favorable INR/USD. For Maruti, our estimates are lowered by 8.7%/9.5% for FY14E/15E to factor
Expected quarterly performance summary CMP (INR) 27.09.13 Ashok Leyland 15 Bajaj Auto 1,992 Eicher Motors 3,539 Exide Inds. 132 Hero Motocorp 2,048 Mahindra & Mahindra 844 Maruti Suzuki 1,368 Tata Motors 340 Sector Aggregate
(INR Million)
Rating Sep.13 Neutral Buy Buy Neutral Buy Buy Buy Buy
27,348 47,252 15,746 16,514 56,782 84,430 100,528 536,575 885,176
Sales Var. % YoY -17.0 -5.0 6.2 8.9 10.2 -8.7 21.0 23.6 14.4
Var. Sep.13 % QoQ 15.7 769 -3.8 9,734 -5.7 1,452 1.6 2,394 -7.3 5,494 -13.0 10,523 -1.8 9,667 14.7 75,120 6.1 115,153
EBITDA Var. % YoY -77.0 6.4 30.4 27.2 18.9 -17.8 90.1 40.8 26.1
Var. % QoQ 230.4 7.4 -12.6 -8.7 -19.3 -24.9 -17.1 20.8 6.4
Net Profit Sep.13 Var. % YoY -822 PL 7,851 6.0 891 35.0 1,514 26.0 4,367 -0.9 8,470 -13.4 4,775 109.9 26,436 27.0 53,483 11.5
Var. % QoQ Loss 6.4 -3.4 -4.5 -20.4 -6.9 -24.4 44.2 12.0
Jinesh Gandhi (
[email protected]) / Chirag Jain (
[email protected]) October 2013
C–2
September 2013 Results Preview | Sector: Automobiles
the persistent weakness in demand and consequent pressure on margins due to high discounts, weak mix (lower diesel share) coupled with adverse currency. Due to continued weakness in UV demand, we lower M&M's consolidated FY14E/15E EPS by 4.4%/11.4%. Demand environment and changing competitive landscape in the auto sector would be key determinants of stocks' performance. We are hopeful of a demand recovery in 2HFY14 driven by festive season and benefit of favorable monsoon. Prefer Tata Motors and Hero MotoCorp in large caps, and Eicher Motors in mid caps.
Volume snapshot for 2QFY14 ('000 units) Two wheelers Three wheelers Passenger cars UVs & MPVs Total PVs M&HCV LCV Total CVs Total
2QFY14E 4,018 204 571 149 721 79 145 225 5,167
2QFY13 3,739 216 540 169 709 80 146 226 4,890
YoY (%) 7.4 -5.4 5.8 -11.6 1.7 -1.0 -0.2 -0.5 5.7
1QFY14 QoQ (%) 3,947 1.8 203 0.7 627 -8.9 177 -15.7 804 -10.4 60 32.4 124 17.5 184 22.3 5,137 0.6
1HFY14 7,964 407 1,131 326 1,457 139 269 408 10,237
1HFY13 YoY (%) 7,782 2.3 387 5.1 1,142 -1.0 333 -1.9 1,475 -1.2 151 -7.7 278 -3.2 429 -4.8 10,072 1.6 Source: SIAM, MOSL
Trend in industry volumes Indus try ('000 uni ts )
Growth YoY (%) 60.0%
5,700
40.0%
4,900
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
-20.0% 1QFY11
2,500 4QFY10
0.0%
3QFY10
3,300
2QFY10
20.0%
1QFY10
4,100
Source: Company, MOSL
Revised EPS estimates (INR) EPS Bajaj Auto Hero MotoCorp Maruti * M&M * Tata Motors * Ashok Leyland Eicher Motors * Exide Industries * Consolidated
October 2013
Rev 117.2 110.4 79.1 68.3 35.9 -1.2 146.4 7.7
FY14E Old 127.7 111.6 86.7 71.5 32.8 -0.4 145.5 7.8
Chg (%) -8.2 -1.1 -8.7 -4.4 9.7 177.5 0.6 -1.2
Rev 135.6 152.8 101.2 79.4 42.8 0.6 180.1 8.9
FY15E Old 148.6 153.5 111.9 89.6 40.0 1.1 180.1 8.9
Chg (%) -8.7 -0.5 -9.5 -11.4 7.0 -43.4 0.0 0.9
C–3
September 2013 Results Preview | Sector: Automobiles
Commodity cost (Index)
103
100
1QF Y13 2QF Y14
USD
Euro
GBP
JPY
170
140 100 96 83 95 95 95 84 75 7883
80
R ubbe r
Jun12 Sep12 Dec12 Mar13 Jun13
Al umi n i um
110
Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11 Mar12
Le ad
4QF Y12 1QF Y14
92 92
107 102 96 100 83 90 87 86 101
100 113 97 103 100 92 93 98 97 S teel (HR C)
3QFY12 4QFY13
100 93 95 95 93 99
2QFY12 3QFY13 113
1QF Y12 2QF Y13
Trend in movement of various currencies (Indexed)
Source: Bloomberg, MOSL
Trend in EBITDA margins (%) Aggre gate
Trend in segment-wise EBITDA margins (%) Aggrega te (i ncl JLR)
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
15.0
15
12.9 10.9
14.4 14.6
18
2W
9.0 7.9
9.4 10.3 10.2 10.6 12.3
11.7 9.4
14.7 13.9 13.6 13.4 13.1
1QF Y10 2QF Y10 3QF Y10 4QF Y10 1QF Y11 2QF Y11 3QF Y11 4QF Y11 1QF Y12 2QF Y12 3QF Y12 4QF Y12 1QF Y13 2QF Y13 3QF Y13 4QF Y13 1QF Y14 2QF Y14
6
13.9 15.0
9
6.8 9.8 7.5 6.8 2.6 4.1 2.0 2.0
9.4
12
Ca rs
CVs
Source: Compan y, MOSL
Trend in HDFC Bank's base r ate
Trend in petrol and diesel price s
HDFC Ban k B ase Rate
Di es el (INR /l tr)
Petrol (INR /l tr)
80
11.0 10.0
60
9.0
40 8.0
October 2013
Aug13
Mar13
Oct12
Dec11 May12
Jul11
Sep10
Feb11
Apr10
Nov09
Jan09 Jun09
Mar08
Aug08
Oct07
Sep10 Nov10 Jan11 Mar11 May11 Jul11 Sep11 Nov11 Jan12 Mar12 May12 Jul12 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Sep13
Source: HDFC Bank PLR
May07
20
7.0
Source: Bloomberg, MOSL
C–4
September 2013 Results Preview | Sector: Automobiles
Trend in key financials Volumes (‘000 units) 2Q YoY QoQ FY14 (%) (%) 914 -12.9 -6.7 1,438 7.9 -7.8 266 15.3 -0.3 173 -7.9 -11.0 154 -31.0 0.8
EBITDA Margins (%) Adj PAT (INR M) 2Q YoY QoQ 2Q YoY QoQ FY14 (bp) (bp) FY14 (%) (%) BJAUT 20.6 220.0 210.0 7,851 6.0 6.4 HMCL* 9.7 70.0 -140.0 4,367 -0.9 -20.4 MSIL 9.6 350.0 -180.0 4,775 109.9 -24.4 MM 12.5 -140.0 -200.0 8,470 -13.4 -6.9 TTMT (S/A) 1.8 -410.0 -50.0 -5,997 -155.4 -170.8 TTMT (Cons) 14.0 170.0 70.0 26,436 27.0 44.2 Ashok Leyland 25 -17.7 13.0 2.8 -730.0 180.0 -822 -157.6 NA Eicher Motors 9.9 240.0 60.0 1,157 75.2 29.8 Exide Industries 14.5 210.0 420.0 1,514 26.0 -4.5 Aggregate 2,969 -2.8 -6.5 9.3 -30 -100 19,801 -46.2 -45.4 *Normalized; **Aggregate includes Tata Motor’s standalone performance only
Relative Performance-3m (%)
Relative Performance-1Yr (%)
Sens ex Index MOSL Automobi l es Index
110
Sens ex Index MOSL Automobi l es Index
115 110
105
105
100
100
95
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Sep-13
Aug-13
Jul-13
Jun-13
95
Comparative valuation CMP (INR) 27.09.13 Automobiles Ashok Leyland Bajaj Auto Eicher Motors Exide Inds. Hero Motocorp Mahindra & Mah. Maruti Suzuki Tata Motors Sector Aggregate
October 2013
15 1,992 3,539 132 2,048 844 1,368 340
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Neutral Buy Buy Neutral Buy Buy Buy Buy
0.6 105.2 120.1 6.2 106.1 60.9 80.2 32.1
24.0 18.9 29.5 21.5 19.3 13.9 17.1 10.6 14.4
6.8 14.0 16.1 12.1 16.7 5.5 8.2 5.1 7.0
3.9 43.7 20.8 15.3 45.6 22.4 12.9 27.4 24.2
-1.2 117.2 146.4 7.7 110.4 68.3 79.1 35.9
0.6 135.6 180.1 8.9 152.8 79.4 101.2 42.8
-12.1 17.0 24.2 17.2 18.5 12.4 17.3 9.5 13.3
24.5 14.7 19.7 14.8 13.4 10.6 13.5 7.9 10.8
17.1 11.5 12.4 9.2 13.8 5.4 7.5 3.9 5.7
5.9 9.5 9.2 7.8 9.5 4.5 5.7 3.2 4.7
-7.4 38.7 22.3 16.7 41.2 19.8 11.4 23.9 21.8
3.6 37.2 23.3 17.0 47.7 18.5 13.2 22.4 22.2
C–5
September 2013 Results Preview | Sector: Automobiles
Ashok Leyland Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
AL IN 2,660.7 40 / 1 29 / 12 11 / -36 / -43
Financials & Valuation (INR b) Y/E March
2012
2013 2014E
2015E
Sales
129.0 124.8 113.5
137.7
EBITDA
13.2
8.8
3.4
9.5
NP
6.3
1.7
(3.3)
1.6
Adj. EPS (INR)
2.4
0.6
(1.2)
0.6
EPS Gr. (%)
(0.8) (73.3) (297.8) (149.5)
BV/Sh. (INR)
15.8
RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
16.7
16.7
17.1
15.3
3.9
(7.4)
3.6
13.4
6.5
0.1
6.2
42.5
95.6 (16.1)
162.9
6.4 1.0 5.0 6.6
24.0 (12.1) 0.9 0.9 8.8 23.0 4.0 1.3
24.5 0.9 8.1 6.6
CMP: INR15
Neutral
Expect volumes to decline 17.7% YoY (+13% QoQ) on continued weakness in industrial activity and slowdown in consumption spends. MHCVs volumes are expected to report a decline of 18.4% YoY (+16% QoQ) to 17,275 units, while LCV (Dost) volumes are expected to decline by 16% YoY (+6.7% QoQ) to 7,280 units. Margins expected to fall 730bp YoY to 2.8% (+180bp QoQ) on lower volumes and higher discounting pressure. Sequentially, margins are expected to improve on better volumes. Company has undertaken a pricing action of INR20,000/unit in Aug 2013. Expect to report a loss of INR822m (v/s profit of INR1,426m in 2QFY13) on lower volumes and weak margins. ALL has guided for 10% decline in MHCV industry for FY14. Company has recently launched a new vehicle under ICV segment called Boss. We lower FY14E/15E EPS on continued weakness in CV industry and consequent margin pressure. Key issues to watch out ¾ Current demand environment and discounting trend, plant and channel inventory for MHCVs. ¾ Industry growth, market share guidance for FY14. ¾ Pantnagar volume, RM cost and margin guidance for FY14. ¾ Capex and investment guidance and divestment plans for FY14.
Quarterly Performance
(INR Million)
Y/E March Total Volumes (nos) Growth (%) Realizations ('000) Change (%) Net Sales Change (%) RM/Sales % Staff / sales % Oth. Exp./ Sales % EBITDA EBITDA Margins (%) Other Income Interest Depreciation PBT before EO Exp EO Exp/(Inc) PBT Tax Effective Tax Rate (%) Rep. PAT Change (%) Adj. PAT Change (%) E: MOSL Estimates October 2013
FY13 1Q 27,487 42.6 1,094 -16.1 30,074 19.7 72.8 8.9 10.3 2,407 8.0 129 834 893 810 0 810 140 17.3 670 -22.3 670 -22.3
2Q 29,840 25.0 1,105 -15.4 32,960 5.8 72.8 8.0 9.1 3,341 10.1 239 1,036 984 1,559 0 1,559 133 8.5 1,426 -7.5 1,426 -7.5
3Q 22,666 -2.2 1,050 -16.2 23,805 -18.0 71.9 11.0 12.8 1,023 4.3 141 1,071 931 -838 -1,563 725 -17 -2.3 741 10.8 -858 -228.2
FY14 4Q 34,627 -4.9 1,077 -9.1 37,285 -13.5 75.8 7.6 11.4 1,983 5.3 115 828 1,000 271 -1,344 1,614 114 7.1 1,500 -42.0 251 -90.2
1Q 21,721 -21.0 1,088 -0.5 23,638 -21.4 75.5 10.9 12.6 233 1.0 123 1,007 952 -1,603 65 -1,669 -251 15.0 -1,418 -311.6 -1,362 -303.3
2QE 24,555 -17.7 1,114 0.8 27,348 -17.0 75.0 9.7 12.5 769 2.8 240 1,000 975 -966 0 -966 -145 15.0 -822 -157.6 -822 -157.6
3QE 21,283 -6.1 1,110 5.7 23,619 -0.8 75.0 11.6 12.0 320 1.4 150 1,000 1,000 -1,530 0 -1,530 -229 15.0 -1,300 -275.4 -1,300 51.6
FY13 4QE 34,380 -0.7 1,131 5.1 38,897 4.3 75.0 8.5 11.2 2,047 5.3 157 931 1,059 215 0 215 33 15.3 182 -87.9 182 -27.7
FY14E
114,620 101,439 11.6 -11.5 1,089 1,119 -13.4 2.8 124,812 113,502 -3.4 -9.1 73.1 75.1 8.6 9.9 11.3 12.0 8,765 3,368 7.0 3.0 624 670 3,769 3,938 3,808 3,985 1,812 -3,885 -2,896 65 4,707 -3,950 370 -592 7.9 15.0 4,337 -3,357 -33.0 -177.4 1,669 -3,302 -74.2 -297.8 C–6
September 2013 Results Preview | Sector: Automobiles
Bajaj Auto Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BJAUT IN 289.4 576 / 9 2,229 / 1,658 6/6/4
CMP: INR1,992
Expect 2QFY14 volumes to decline 12.9% YoY (-6.7% QoQ) to 0.92m units as weak consumer sentiments impacts sales.
EBITDA margins to improve 220bp YoY (+210bp QoQ) to 20.6% led by favorable export realizations (USD/INR hedged at 59 levels v/s INR55.5 for 1Q and INR49.5/USD in FY13), partially offset by lower volumes, weaker mix (lower 3W share), price cuts in Nigeria/Sri Lanka effective Aug 2013 and higher marketing spend.
Expect PAT to rise 6% YoY (+6.4% QoQ) to INR7.85b, in line with EBITDA rise.
We lower FY14E/FY15E EPS by 8.2%/8.7% as we cut our FY14E volume assumptions on continued weakness in macro-economic environment and consequent slower economic recovery, coupled with partial passthru of favorable Fx hedges to revive export demand.
Financials & Valuation (INR b) Y/E March
2012
2013 2014E
2015E
Sales
195.3 200.0 207.6
237.6
EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR)
37.2
36.4
41.7
31.1
30.4
33.9
39.3
107.4 105.2 117.2
135.6
18.8
(2.0)
48.2
11.4
15.8
208.8 273.1 331.7
397.7
RoE (%)
56.7
43.7
38.7
37.2
RoCE (%)
73.0
59.8
53.3
51.4
Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
48.7
49.7
49.9
51.4
18.6 9.5 13.8 2.3
18.9 7.3 14.0 2.3
17.0 6.0 11.5 2.5
14.7 5.0 9.5 3.0
Buy
Key issues to watch out ¾ Update on festive retail demand environment and channel inventory. ¾ Revised guidance for FY14 volume and margins, new launches, update on forex hedges on exports for FY14/FY15. ¾ Update on RE60 launch timeline (for export and domestic market), volume and margin guidance.
Quarterly Performance
(INR Million)
Y/E March Volumes ('000 units) Change (%) Realization (INR/unit) Change (%) Net Sales Change (%) Total Cost (Inc)/Dec in Stock Raw Materials Staff Cost Other Expenditure EBITDA EBITDA Margins (%) Change (%) Other Income Interest Depreciation PBT Effective Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates October 2013
FY13 1Q 1,079.0 -1.3 45,095 4.7 48,657 3.4 39,940 1,156 33,925 1,604 3,362 8,717 17.9 3.8 1,820 0 352 10,184 29.5 7,184 1.0
2Q 1,049.2 -9.9 47,392 6.4 49,724 -4.1 40,572 -902 36,589 1,532 3,479 9,152 18.4 -6.2 1,667 2 410 10,407 28.8 7,407 (6.2)
3Q 1,127.7 4.9 47,996 3.5 54,127 8.6 44,010 0 39,211 1,592 3,360 10,118 18.7 2.8 2,032 1 411 11,738 30.2 8,187 (1.8)
FY14 4Q 981.2 -3.5 48,372 2.1 47,465 -4.5 39,099 0 34,088 1,666 3,588 8,366 17.6 -4.2 2,436 2 466 10,334 25.9 7,658 0.9
1Q 979.3 -9.2 50,150 11.2 49,111 0.9 40,044 622 33,445 1,837 4,322 9,067 18.5 4.0 1,756 1 444 10,378 28.9 7,377 2.7
2QE 913.5 -12.9 51,725 9.1 47,252 -5.0 37,518 0 32,368 1,800 3,500 9,734 20.6 6.4 1,806 3 480 11,057 29.0 7,851 6.0
3QE 1,061.3 -5.9 52,918 10.3 56,160 3.8 44,519 0 38,469 1,950 4,250 11,640 20.7 15.1 2,000 2 480 13,158 29.0 9,342 14.1
4QE 1,045.1 6.5 52,684 8.9 55,061 16.5 43,836 0 37,707 2,087 4,183 11,226 20.4 15.7 2,450 7 512 13,157 29.1 9,333 21.9
FY13
FY14E
4,237.2 (2.6) 47,195 5.1 199,973 2.4 163,620 0 144,066 6,395 13,788 36,353 18.2 -2.3 7,955 5 1,640 42,662 28.7 30,436 -2.0
3,999.2 (5.6) 51,907 10.0 207,584 3.8 166,538 622 142,610 7,674 16,255 41,046 19.8 12.9 8,012 13 1,916 47,130 29.4 33,903 11.4
C–7
September 2013 Results Preview | Sector: Automobiles
Eicher Motors Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
EIM IN 27.0 96 / 2 3,980 / 2,205 -2 / 34 / 52
Financials & Valuation (INR b) Y/E December
2012 2013E 2014E
2015E
Net Income
63.9
69.9
88.4
109.4
5.5
6.8
8.7
12.1
3.2
4.0
4.9
6.6
120.1 146.4 180.1
242.8
EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR)
5.0
21.8
23.0
34.8
603.6 708.2 839.8 1,023.8
RoE (%)
20.8
22.3
23.3
26.1
RoCE (%)
23.0
22.5
23.6
28.5
0.6
0.7
0.8
1.0
29.5 5.9 24.4 0.6
24.2 5.0 16.5 0.7
19.7 4.2 11.9 0.8
14.6 3.5 8.3 1.0
Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
CMP: INR3,539
Buy
With higher production and continued demand momentum, Royal Enfield's (RE) volumes are expected to improve 61% YoY (+21% QoQ). Expect standalone margins at 17.8% (+280bp YoY, +10bp QoQ) led by higher volumes and efficiencies of the new plant. Expect VECV's volumes to decline by 12.7% YoY (-14.5% QoQ). However, VECV is expected to outperform CV industry, given its high exposure to buses and LMD segment. VECV's margins are expected to decline 10bp YoY (-200bp QoQ) due to ramp-up in MDEP (engine project). Expect 6.2% YoY (-5.7% QoQ) growth in consolidated sales. Consolidated margins expected to improve 170bp QoQ (-70bp YoY) to 10%. Consolidated PAT (after minority) to remain flat at INR891m, as higher profits from Royal Enfield would offset weakness in VECV. RE plans to sell 175,000/250,000 units in CY13/CY14. However, the CV business remains weak, with no signs of stability yet. Key issues to watch out ¾ Update on key projects slated to commence operations in CY13 viz a) medium duty engine project, b) bus body plant and c) new HCV range. ¾ Update on CV demand trends, discount levels and channel inventory. ¾ New launches and timelines under Royal Enfield business.
Quarterly Performance
(INR Million)
Y/E December Net Op Income Growth (%) EBITDA EBITDA Margins (%) Depreciation Other income Interest cost PBT after EO item Effective tax rate (%) PAT Minority interest Recurring PAT Growth (%) Standalone (Royal Enfield) Royal Enfield (units) Net Realizations (INR/unit) Change - YoY (%) EBITDA Margins (%) VECV (derived) Total CV Volumes Growth (%) Net Realizations (INR '000/unit) Change - YoY (%) EBITDA Margins (%) E: MOSL Estimates October 2013
CY12
CY13
1Q 16,950 21.7 1,802 10.6 177 543 9 2,160 24.3 1,634 539 1,096 49.5
2Q 15,850 22.1 1,395 8.8 187 306 9 1,506 25.3 1,125 366 759 -0.6
3Q 14,831 2.2 1,114 7.5 213 246 12 1,135 17.4 937 277 660 -10.5
4Q 16,536 4.7 1,180 7.1 245 271 10 1,196 12.1 1,052 324 727 -14.9
1Q 17,243 1.7 1,705 9.9 275 444 6 1,868 28.9 1,328 348 979 -10.6
2Q 16,699 5.4 1,662 10.0 296 211 12 1,565 19.6 1,258 335 923 21.7
3QE 15,746 6.2 1,452 9.2 330 270 11 1,381 20.7 1,095 203 891 35.0
4QE 20,186 22.1 1,991 9.9 368 292 8 1,907 20.9 1,509 352 1,157 59.1
23,899 92,083 4.5 13.9
27,519 92,162 3.1 15.3
30,046 91,476 2.0 15.1
31,968 92,345 2.8 11.5
34,737 95,299 3.5 17.7
40,040 93,911 1.9 17.8
48,295 94,430 3.2 17.9
57,008 94,223 2.0 17.5
14,346 13.0 1,019 4.9 10.1
12,016 9.0 1,098 7.9 7.6
10,791 -14.1 1,108 10.6 5.8
11,735 -8.1 1,138 3.9 6.2
12,529 -12.7 1,099 7.9 8.0
11,027 -8.2 1,152 4.9 7.6
9,424 -12.7 1,171 5.6 5.6
10,596 -9.7 1,381 21.4 7.3
CY12
CY13E
63,899 11.6 5,490 8.6 822 1,366 38 5,997 20.8 4,749 1,506 3,243 5.0
69,874 9.4 6,810 9.7 1,269 1,218 37 6,721 22.8 5,189 1,238 3,951 21.8
113,432 180,078 92,015 94,418 3.0 2.5 13.9 17.7 48,888 -0.3 1,081 5.8 7.6
43,575 -10.9 1,197 17.4 7.2
C–8
September 2013 Results Preview | Sector: Automobiles
Exide Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
EXID IN 850.0 112 / 2 166 / 115 -4 / -3 / -17
CMP: INR132
Expect revenue growth of 8.9% YoY (+1.6% QoQ) to INR16.5b.
EBITDA margins expected to improve 210bp YoY (-160bp QoQ). Sequential decline in margins is due to INR/USD depreciation, weaker product mix (lower share of inventor battery due to seasonality) partially offset by price hike implemented in Aug 2013 and Sept 2013.
PAT expected to grow by 26% YoY (-4.5% QoQ) to INR1.5b.
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 51.1 6.8 4.6 5.4 (27.4) 36.0 15.1 20.3 27.6
2013 2014E 60.7 66.1 7.8 10.1 5.2 6.5 6.2 7.7 13.4 24.6 40.3 45.9 15.3 16.7 21.2 23.6 26.0 22.8
24.3 3.7 14.1 1.1
21.5 3.3 12.1 1.2
17.2 2.9 9.2 1.3
2015E 76.4 11.5 7.6 8.9 16.6 52.5 17.0 23.8 22.4
Neutral
Key issues to watch out ¾ Update on demand environment for auto replacement and industrial battery segment. ¾ Outlook on RM cost trend, recent pricing action and currency hedges if any. ¾ Update on capacity expansion plans across product segments.
14.8 2.5 7.8 1.5
Quarterly Performance
(INR Million)
Y/E March Net Sales Change (%) RM/Sales % Employee Cost (% of sales) Other Exp. (% of Sales) EBITDA As a % of Sales Change (%) Non-Operating Income Interest Depreciation PBT Tax Effective Tax Rate (%) Rep. PAT Change (%) Adj. PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 15,521 24.8 65.1 5.4 14.5 2,321 14.9 4.3 157 14 276 2,187 665 30.4 1,522 -6.7 1,522 -6.7
2Q 15,168 29.1 66.2 5.9 15.5 1,882 12.4 108.5 125 10 282 1,716 514 30.0 1,202 135.0 1,202 135.0
3Q 14,622 17.0 67.2 5.8 15.7 1,647 11.3 -0.5 121 11 289 1,469 428 29.1 1,041 -0.2 1,041 -0.2
FY14 4Q 15,382 6.4 67.1 5.8 13.8 2,044 13.3 -4.0 304 8 288 2,053 588 28.7 1,465 2.8 1,465 2.8
1Q 16,261 4.8 64.3 5.8 13.8 2,622 16.1 13.0 62 4 300 2,381 795 33.4 1,586 4.2 1,586 4.2
2QE 16,514 8.9 65.5 5.8 14.3 2,394 14.5 27.2 100 5 310 2,179 665 30.5 1,514 26.0 1,514 26.0
3QE 16,337 11.7 64.5 6.0 14.3 2,497 15.3 51.6 135 5 320 2,306 703 30.5 1,603 54.0 1,603 54.0
4QE 16,967 10.3 64.7 5.8 14.3 2,586 15.3 26.5 318 6 291 2,607 794 30.5 1,813 23.8 1,813 23.8
FY13
FY14E
60,718 18.9 66.5 5.7 14.8 7,899 13.0 14.8 704 42 1,135 7,427 2,195 29.6 5,232 13.4 5,232 13.4
66,079 8.8 64.8 5.8 14.2 10,099 15.3 27.8 615 20 1,222 9,472 2,957 31.2 6,516 24.5 6,516 24.5
C–9
September 2013 Results Preview | Sector: Automobiles
Hero MotoCorp Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HMCL IN 199.7 409 / 7 2,128 / 1,434 -2 / 28 / 3
CMP: INR2,048
Expect 2QFY14 volumes to rise 7.9% YoY (-7.8% QoQ) to 1.56m units. 1Q witnessed healthy sales due to strong demand during the marriage season and benefit from healthy rabi crop harvest.
Adjusted margins to improve 70bp YoY (-140bp QoQ) to 9.7% on adverse JPY/USD movement (vendors import with a quarter lag) and lower volumes.
Demand environment for Hero MotoCorp has stabilized over the last few months and with good monsoon, outlook for 2H looks strong. We estimate a volume growth of 5%/13.4% for Hero for FY14E/15E respectively.
We downgrade FY14E/FY15E EPS by 1.1%/0.5% as we moderate our margin assumption on adverse INR/USD movement.
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 233.7 34.1 23.8 119.1 18.4 214.8 65.6 49.9 43.5
2013 235.8 31.0 21.2 106.1 (10.9) 250.7 45.6 43.6 65.1
2014E 253.0 35.3 22.1 110.4 4.1 284.9 41.2 52.4 67.7
2015E 292.9 40.2 30.5 152.8 38.3 356.3 47.7 62.6 52.7
16.8 9.3 11.0 2.3
18.8 8.0 11.7 3.0
18.1 7.0 10.2 3.3
13.1 5.6 8.8 3.5
Buy
Key issues to watch out ¾ Update on festive retail demand environment and channel inventory. ¾ Guidance on FY14 volume growth and margins, update on export plans and new launches together with timelines.
Quarterly Performance
(INR Million)
Y/E March Total Volumes ('000nos) Change (%) Net Realization Change (%) Net Sales Change (%) RM Cost (% sales) Staff Cost (% sales) Other Exp (% sales) EBITDA EBITDA Margins (%) Adj. EBITDA Margins (%) Other Income Interest Depreciation PBT Tax Effective Tax Rate (%) PAT Adj. PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 1,642 7.4 37,799 2.6 62,078 10.1 74.1 3.3 8.1 8,974 14.5 10.7 1,439 29 3,035 7,349 1,194 16.3 6,155 6,155 10.3
2Q 1,333 -13.7 38,649 3.2 51,512 -10.9 73.2 3.7 9.8 6,829 13.3 9.0 1,356 30 2,895 5,261 855 16.3 4,406 4,406 -27.0
3Q 1,573 -1.0 39,102 3.9 61,513 2.8 74.5 3.2 10.2 7,423 12.1 8.7 1,264 30 2,832 5,826 947 16.3 4,879 4,879 -20.4
FY14 4Q 1,525 -3.0 39,810 5.0 60,725 1.8 73.1 3.7 10.4 7,765 12.8 9.6 1,778 31 2,655 6,857 1,115 16.3 5,742 5,742 -4.9
1Q 1,559 -5.1 39,300 4.0 61,268 -1.3 72.7 3.6 9.3 8,825 14.4 11.1 1,449 30 2,744 7,502 2,016 26.9 5,486 5,486 -10.9
2QE 1,438 7.9 39,500 2.2 56,782 10.2 73.1 3.9 9.6 7,614 13.4 9.7 1,200 32 2,880 5,902 1,534 26.0 4,367 4,367 -0.9
3QE 1,695 7.7 39,700 1.5 67,291 9.4 73.0 3.5 9.4 9,504 14.1 11.0 1,650 31 2,903 8,220 2,137 26.0 6,083 6,083 24.7
FY13 4QE 1,688 10.7 40,091 0.7 67,683 11.5 73.2 3.7 9.4 9,319 13.8 10.7 2,024 33 3,045 8,265 2,146 26.0 6,118 6,118 6.6
FY14E
6,074 6,380 -2.6 5.0 38,828 39,660 3.6 2.1 235,827 253,025 0.9 7.3 73.8 73.0 3.5 3.7 9.6 9.4 30,991 35,261 13.1 13.9 9.5 10.6 5,838 6,324 119 125 11,418 11,572 25,292 29,888 4,110 7,834 16.3 26.2 21,182 22,054 21,182 22,054 -9.5 4.1
C–10
September 2013 Results Preview | Sector: Automobiles
Mahindra & Mahindra Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MM IN 598.6 505 / 8 1,026 / 742 -3 / -7 / -7
Financials & Valuation (INR b) Y/E March Sales EBITDA NP* Adj. EPS (INR)* EPS Gr. (%)* Cons. EPS (INR) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) Cons. P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%) * Incl. MVML
2012 2013 2014E 318.5 404.4 401.7 37.7 47.1 48.4 28.9 36.3 34.3 48.3 60.7 57.3 12.2 25.8 (5.6) 51.2 60.9 68.3 206 248 292 23.0 22.4 19.8 23.1 23.2 21.3 29.7 26.6 28.2 17.5 17.1 4.1 -
13.9 14.3 3.4 7.2 1.5
14.7 12.8 2.9 6.8 1.6
2015E 444.5 53.6 36.7 61.4 7.0 79.4 340 18.5 20.7 27.7 13.8 11.0 2.5 5.5 1.7
CMP: INR844
Buy
While M&M continues to face pressure on UV business led by correction in fuel price disparity and higher competitive pressures, growth in tractors has also moderated after strong 1Q. We expect auto business to report a decline of 15.4%, while tractor volumes are expected to grow by 9.8%. Expect M&M to report revenue decline of 9.6% YoY (-13.8% QoQ) due to sharp decline in auto volumes. EBITDA margin (incl. MVML) to decline 200bp QoQ (-140bp YoY) led by lower volumes, higher discounts (in autos) and lower share of high margin tractor volumes. Adjusted PAT estimated at INR8.4b (-14.5% YoY, -8% QoQ). Key issues to watch out ¾ Update on current retail demand environment for auto and tractor division; plant and channel inventory. ¾ Considering competitive launches in CY13, FY14 guidance on auto volumes and margins. ¾ Guidance for FY14 tractor volumes (current guidance of 10-12% for FY14 industry growth). ¾ Update on Ssangyong business and financial performance.
Quarterly Performance (incl. MVML)
(INR Million)
Y/E March Total Volumes (nos) Growth YoY (%) Net Realization Growth YoY (%) Gross Sales Less: Excise Excise (%) Net Sales Growth YoY (%) Total Cost EBITDA EBITDA Margins (%) Change (%) Other income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 182,149 14.4 487,431 14.9 99,377 10,592 11.9 88,785 31.5 76,435 12,350 13.9 27.9 662 10,498 2,713 25.8 7,785 25.9 7,785 25.9
2Q 188,412 10.4 491,082 14.9 104,607 12,081 13.1 92,526 26.8 79,729 12,797 13.8 33.2 3,260 13,272 3,491 26.3 9,781 28.4 9,781 28.4
3Q 209,266 14.2 489,452 9.2 114,466 12,040 11.8 102,426 24.7 88,631 13,795 13.5 26.5 758 11,774 2,625 22.3 9,149 29.6 9,149 35.1
FY14 4Q 195,528 0.1 510,569 9.4 112,407 12,576 12.6 99,831 9.5 85,478 14,352 14.4 30.1 1,017 13,211 3,581 27.1 9,630 5.7 8,941 11.4
1Q 194,962 7.0 497,564 2.1 107,043 10,037 10.3 97,006 9.3 82,998 14,008 14.4 13.4 972 12,141 3,045 25.1 9,097 16.9 9,097 16.9
2QE 171,897 -8.8 486,701 -0.9 94,833 11,171 13.4 83,662 -9.6 73,284 10,379 12.4 -18.9 3,560 11,004 2,643 24.0 8,360 -14.5 8,360 -14.5
3QE 208,664 -0.3 483,816 -1.2 114,434 13,480 13.4 100,955 -1.4 87,121 13,834 13.7 0.3 860 11,604 2,788 24.0 8,817 -3.6 8,817 -3.6
4QE 206,556 5.6 470,797 -7.8 113,145 15,899 16.3 97,246 -2.6 84,383 12,863 13.2 -10.4 835 10,410 2,373 22.8 8,037 -16.5 8,037 -10.1
FY13
FY14E
775,358 10.0 494,696 11.1 430,856 47,290 12.3 383,566 22.2 330,273 53,293 13.9 28.1 5,697 48,754 12,410 25.5 36,344 21.3 36,344 25.8
782,079 0.9 484,439 -2.1 429,456 50,587 13.4 378,869 -1.2 327,786 51,084 13.5 6,227 45,159 10,848 24.0 34,311 -5.6 34,311 -5.6
C–11
September 2013 Results Preview | Sector: Automobiles
Maruti Suzuki India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MSIL IN 302.1 413 / 7 1,773 / 1,217 -1 / 2 / -3
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Sales 355.9 435.9 441.4 EBITDA 25.1 42.3 45.2 Adj. PAT 16.4 23.9 23.5 Con.adj.EPS(INR) 58.2 80.2 79.1 EPS Growth (%) (35.9) 37.8 (1.4) BV/Share (INR) 525.7 615.0 679.9 RoE (%) 10.8 12.9 11.4 RoCE (%) 13.2 15.5 14.9 Payout (%) 13.3 10.1 14.1 Valuations P/E (x) 23.5 17.1 17.3 P/CE (x) 2.6 9.1 8.6 EV/EBITDA (x) 11.9 7.7 7.0 Div. Yield (%) 0.6 0.6 0.9
2015E 508.4 56.0 30.6 101.2 27.9 767.2 13.2 16.8 11.9 13.5 7.1 5.2 0.9
CMP: INR1,368
Buy
Our quarterly estimates for 2QFY14 include SPIL's merger; hence, YoY performance is strictly not comparable. Expect volumes to improve 15.3% YoY (flat QoQ) on a lower base (labor issues related production constraints last year). Realizations to improve 5.4% YoY (-1.6% QoQ). Sequential decline in realizations is due to higher discounts and weak product mix (higher petrol share). Expect margins to improve 350bp YoY on a low base. Sequentially, margins would fall by 180bp on higher discounts and lower share of diesel vehicles. We downgrade FY14E/15E EPS by 8.7%/9.5% as we moderate our margin assumption on continued increase in discounts and adverse currency movement. Key issues to watch out ¾ Update on festive demand scenario, channel inventory, discounting trends and new launches. ¾ Guidance on FY14 volume growth, margins, forex hedges, localization efforts.
Quarterly Performance Y/E March 1Q 2Q Total Volumes (nos) 295,899 230,376 Change (%) 5.1 -8.7 Realizations (INR/car) 355,839 350,302 Change (%) 21.3 19.5 Net Sales 105,292 80,701 Change (%) 26.9 8.5 Other Operating Income 2,489 2,353 Net Op. Revenues 107,782 83,054 Change (%) 27.5 8.2 RM Cost (% of Sales) 77.8 79.6 Staff Cost (% of Sales) 2.1 2.8 Other exp. (% of Sales) 12.8 11.4 EBITDA 7,864 5,085 EBITDA Margins (%) 7.3 6.1 Change (%) -3.0 15.4 Non-Operating Income 1,123 1,563 Interest 332 380 Depreciation 3,399 3,470 PBT 5,256 2,798 Tax 1,018 524 Effective Tax Rate (%) 19.4 18.7 PAT 4,239 2,274 Adjusted PAT 4,239 2,274 Change (%) -22.8 -5.4 E:MOSL Estimates; * Including SPIL Merger October 2013
(INR Million) FY13 3Q 301,453 25.9 363,471 15.7 109,570 44.5 2,434 112,003 44.9 78.4 2.2 11.5 8,913 8.0 121.0 1,886 459 3,583 6,756 1,743 25.8 5,013 5,013 143.8
FY14 4Q* 343,756 -4.6 379,812 19.1 130,563 13.3 2,478 133,040 13.4 65.6 2.9 16.4 19,996 15.0 132.9 3,990 726 8,159 15,101 2,705 17.9 12,396 12,396 93.7
1Q 266,434 -10.0 375,144 5.4 99,951 -5.1 2,422 102,373 -5.0 71.9 2.9 13.8 11,662 11.4 48.3 2,043 442 4,802 8,461 2,145 25.3 6,316 6,316 49.0
2QE 275,586 19.6 369,191 5.4 101,744 26.1 2,500 104,244 25.5 73.3 2.9 14.1 10,135 9.7 99.3 2,100 500 4,900 6,835 1,709 25.0 5,126 5,126 125.4
3QE 302,500 0.3 371,625 2.2 112,417 2.6 2,700 115,117 2.8 74.3 2.8 13.2 11,247 9.8 26.2 2,386 515 5,750 7,368 1,842 25.0 5,526 5,526 10.2
FY13
FY14E 4QE 309,894 1,171,484 1,154,414 -9.9 3.3 -1.5 377,699 363,749 373,487 -0.6 18.8 2.7 117,047 426,126 431,158 -10.4 22.2 1.2 2,594 9,753 10,217 119,641 435,879 441,375 -10.1 22.5 1.3 74.4 74.7 73.5 2.9 2.5 2.8 12.6 13.1 13.4 12,197 42,296 45,240 10.2 9.7 10.2 -39.0 68.3 7.0 2,871 8,124 9,400 558 1,898 2,015 5,855 18,612 21,307 8,654 29,910 31,318 2,134 5,989 7,830 24.7 20.0 25.0 6,520 23,921 23,489 6,520 23,921 23,489 -47.4 46.3 -1.8
C–12
September 2013 Results Preview | Sector: Automobiles
Tata Motors Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
TTMT IN 3,218.9 1,094 / 18 355 / 245 7 / 21 / 25
Financials & Valuation (INR b) Y/E March Net Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 1,657 237.0 125.6 39.0 38.5 103.0 38.4 24.1 11.7
2013 1,888 265.7 103.3 32.1 (17.7) 118.0 27.4 21.7 7.2
2014E 2,251 335.9 115.7 35.9 12.0 150.5 23.9 22.2 6.5
2015E 2,588 380.8 137.9 42.8 19.2 191.6 22.4 22.2 8.1
8.6 3.3 5.3 1.2
10.5 2.8 5.0 0.6
9.3 2.2 3.8 0.6
7.8 1.8 3.2 0.9
CMP: INR340
Buy
JLR volumes expected to grow 29% YoY (+10.4% QoQ) driven by strong growth in Jaguar due to variant launches (smaller engines, AWD and XF sportsbrake) and ramp-up of new Range Rover/Range Rover Sport. EBITDA margins to improve 40bp QoQ on higher volumes and stronger mix (higher Range Rover/Sport). Standalone volumes to decline 31% YoY (+1% QoQ) led by 21.4%/50.1% YoY decline in CVs/PVs respectively. Within CVs, MHCVs expected to report a decline of 31% (despite lower base), while LCVs to decline by 17%. Standalone margins to remain weak at 1.8% (-50bp QoQ, -410bp YoY) on lower volumes and higher discounting pressures. Expect 23.6% YoY (+14.7% QoQ) rise in TTMT's consolidated revenue. Consolidated margins to improve 170bp YoY (+70bp QoQ). Expect consolidated PAT to rise by 27% YoY (+44.2% QoQ) to INR26.4b led by strong JLR performance, translation gains partially offset by higher standalone loss. We upgrade FY14E/15E consolidated EPS by 9.7%/7% led by upgrades in JLR partially and Fx translation gains offset by higher losses in S/A. Key issues to watch out ¾ Current JLR demand trends and outlook for FY14, particularly China and the US. ¾ Order book for new Range Rover and Range Rover Sport and their ramp-up schedule. ¾ Update on Fx hedges, particularly for JLR operations. ¾ FY14 volume guidance for MHCVs and PVs, channel inventory, discount trends.
Quarterly Performance (Consolidated)
(INR Million)
Y/E March Total Op Income Growth (%) EBITDA EBITDA Margins (%) Depreciation Other Income Interest Expenses PBT before EO Exp EO Exp/(Inc) PBT after EO Exp Tax rate (%) PAT Minority Interest Share in profit of Associate Adj PAT Growth (%) JLR EBITDA Margins (%) S/A EBITDA Margins (%) E: MOSL Estimates October 2013
FY13 1Q 433,236 30.1 57,548 13.3 15,659 2,386 8,044 36,232 4,405 31,826 27.3 23,138 -276 -414 25,651 25.2 14.5 7.3
2Q 434,029 19.9 53,336 12.3 15,944 2,068 8,474 30,987 101 30,886 32.0 21,010 -230 -32 20,816 (7.3) 14.8 5.9
3Q 460,895 1.8 56,573 12.3 20,700 1,886 9,344 28,416 1,735 26,681 38.7 16,362 -152 67 17,341 (50.9) 14.0 2.2
FY14 4Q 560,016 10.0 78,015 13.9 23,391 1,775 9,670 46,729 -215 46,943 18.8 38,116 -178 1,517 39,280 -11.5 16.9 3.6
1Q 467,847 8.0 62,192 13.3 23,477 1,823 9,482 31,056 1,786 29,270 39.8 17,628 -198 -169 18,337 (28.5) 16.5 2.3
2QE 536,575 23.6 75,120 14.0 29,477 1,750 9,500 37,894 0 37,894 30.0 26,526 -250 160 26,436 27.0 16.9 1.8
3QE 572,175 24.1 78,674 13.8 30,000 1,500 9,500 40,674 0 40,674 30.0 28,472 -175 190 28,487 64.3 16.5 2.7
FY13
FY14E 4QE 674,385 1,888,176 2,250,982 20.4 14.0 19.2 98,398 245,473 314,384 14.6 13.0 14.0 32,765 75,693 115,718 1,341 8,115 6,414 9,354 35,533 37,837 57,619 142,362 167,243 0 6,027 0 57,619 136,335 167,243 28.9 27.7 31.0 40,968 98,625 115,380 -134 -837 -757 859 1,138 1,040 41,693 103,286 115,663 6.1 -17.7 12.0 17.3 15.2 16.8 3.9 4.8 2.7 C–13
September 2013 Results Preview | Sector: Capital Goods
Capital Goods Companies Covered
No respite from tardy pace of project execution: 1QFY14 witnessed sharp deceleration in the pace of project execution. Slowdown was also witnessed in smaller segments of the industry. In 2QFY14, the full scale impact of RBI's liquidity tightening measures is likely to be evident. In 1QFY14 post results conference calls, several companies had informed that they were forced to stop work on certain project sites due to delayed payments from customers. With further liquidity tightening, we expect increase in pile up of retention money, leading to increased debtors and stretched working capital. (BHEL: 1QFY14 debtors ~INR40b, of which retention money was INR22b).
ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro
Mega projects fail to get response, IDPL does cherry picking: Considering the strong sectoral headwinds and ongoing issues with existing projects, developers' appetite for mega projects is at its nadir. 2QFY14 witnessed annulment of RFQ for the 4,000MW Orissa UMPP, which would be re-bid along with Cheyyur UMPP in Tamil Nadu on DFBOT basis as per revised bidding norms. In all, three mega projects - two UMPPs of 4,000MW each in Orissa and Tamil Nadu, and the Elevated Rail Corridor Project between Churchgate and Virar in Mumbai (estimated value: INR210b) have invited EoIs from developers. However, positive impact of lower competitive intensity was seen in terms of L&T IDPL getting quality projects at higher IRRs (L2 price 12% higher). L&T IDPL was able to bag its first power transmission line project from NTPC for its Kudgi power plant for a consideration of INR13.5b with an annuity of INR1.96b for a period of 35 years, representing an IRR of 19-21%. L&T IDPL also bagged another road project from the Orissa government, in which it should be able to get an IRR of 19-21%. (Project details: two-lane to four-lane, 165km, project value INR14.5b, concession 30 years, and DSCR of 1.3x).
Siemens Thermax
Maintain Neutral rating on sector: For 2QFY14, we expect 5% YoY de-growth across our Capital Goods coverage universe, with 23% YoY decline in EBITDA and 32% YoY decrease in PAT. BHEL is likely to report subdued performance in 2QFY14, as well. We expect 21% YoY decline in revenues, with 43% YoY decrease in EBITDA and 57% YoY drop in PAT. Cummins India is likely to gain relative to its peers because of its manufacturing operations in India, which have given an edge over other MNC peers. Unlike 1QFY14, Havells is unlikely to be impacted by strong base effect in its Fans business. We expect 6% YoY increase in revenues, with 3% YoY de-growth in PAT. Expected quarterly performance summary
ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Sector Aggregate
CMP (INR) 27.09.13 551 144 89 409 633 817 480 590
(INR Million)
Rating Sep.13 Neutral Neutral Buy Buy Neutral Buy Neutral Buy
18,719 82,437 34,078 9,850 10,250 141,358 25,436 10,715 332,844
Sales Var. % YoY 3.5 -20.7 16.5 -9.4 6.3 7.1 -24.6 -10.1 -4.8
Var. % QoQ 7.5 29.8 7.9 -6.1 -2.5 12.6 -3.7 24.2 13.2
Sep.13 1,062 10,810 1,496 1,523 1,221 14,136 206 1,066 31,520
EBITDA Var. % YoY 60.0 -43.1 0.4 -23.8 2.5 0.6 -79.3 -12.4 -22.4
Var. % QoQ -3.5 178.2 3.3 -13.2 -13.4 19.8 -84.0 31.0 34.1
Net Profit Sep.13 Var. % YoY 361 68.9 5,496 -56.9 679 24.4 1,293 -19.8 846 7.3 8,687 -5.1 -149 PL 726 -20.3 17,938 -32.0
Var. % QoQ -10.6 18.1 12.9 -22.2 -17.8 4.5 Loss 44.5 7.5
Satyam Agarwal (
[email protected]) / Nirav Vasa (
[email protected]) October 2013
C–14
September 2013 Results Preview | Sector: Capital Goods
Impact of INR depreciation is likely to be most evident in the results of Siemens and ABB because of their dependence on imported raw materials. Thermax's domestic order inflow is expected to be hit in 2QFY14, given the constrained environment. However, strong order inflows of INR21.5b in 1QFY14 would help the company meet our order inflow expectation of INR55b. We remain Neutral on the sector. Our top picks are Larsen and Toubro, Crompton Greaves, and Thermax.
Order i ntake YoY %
-2
20
20
36
64
3 1QFY14
3QFY13
1QFY13
3QFY12
1QFY12
3QFY11
1QFY11
3QFY10
1QFY10
3QFY09
1QFY09
3QFY08
2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
1QFY08
-56
-15 -18
-22 -12
-16
2051.4 2196.3 2232.0 2340.1 2494.0 2704.9 2888.3 3007.5 3170.5 3199.4 3396.5 3405.4 3471.8 3380.6 3227.8 3318.4 3289.1 3260.9 3168.7 3241.5
-19 -7
-2
9
22
23
46 41
53 40
13 25
BTB (x)
2.7 2.8 2.6 2.7 2.8 3.0 3.0 3.0 3.1 2.9 2.9 2.9 2.8 2.6 2.4 2.4 2.3 2.3 2.2 2.3
Order book (INR bn)
95
Expect muted domestic order inflows in 2QFY14, as well
Source: Company, MOSL
Domestic project execution impacted in constrained environment
8.5 11.7 8.7 12.1 9.6 13.5 11.5 15.4 8.2 11.6 9.1 13.4 10.6 16.1 11.9 16.5 8.9 13.3 9.7 14.3 10.2 15.2 10.5 15.8 8.4 12.0 8.5 12.2 9.1 13.0 12.1 17.7 8.3 10.9 7.9 12.1 7.8 11.2 11.0 15.8 6.1 7.6
1QFY14 -4.0
3QFY13
1QFY13
3QFY12
1QFY12
EBITDA Ma rgi n (%)
1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
24.0 30.4
Net Profi t Margi n (%)
15.1 15.3 17.7 16.3 19.5 15.0 6.2 2.9 1.2
3QFY11
16.0 1QFY11
3QFY10
1QFY10
3QFY09
1QFY09
3QFY08
1QFY08
3QFY07
1QFY07
3QFY06
1QFY06
8.9 7.3 4.7
24.7
32.3 29.5 33.2 21.6 31.4 32.5 32.7 39.5 38.0 35.1 32.2 19.1 31.3 28.8 19.7 26.8
Eng Sector (revenue growth %)
Source: Company, MOSL
Relative Performance - 3m (%) Sens ex Index MOSL Ca pi tal Goods Index 110
115
100
100
90
85
80
70
70
Sens ex Index MOSL Ca pi tal Goods Index
55 Jun-13
October 2013
Relative Performance-1Yr (%)
Jul -13
Aug-13 Sep-13
Sep-12 Dec-12 Mar-13 Jun-13 Sep-13
C–15
September 2013 Results Preview | Sector: Capital Goods
Comparative valuation CMP (INR) 27.09.13 Capital Goods ABB BHEL Crompton Greaves Cummins India Havells India Larsen & Toubro Siemens Thermax Sector Aggregate
October 2013
551 144 89 409 633 817 480 590
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Neutral Neutral Buy Buy Neutral Buy Neutral Buy
6.5 26.8 3.0 23.8 34.4 53.4 0.8 27.0
84.9 5.4 29.8 17.1 18.4 15.3 565.7 21.8 12.7
35.3 3.0 18.3 12.4 12.6 10.4 64.5 13.4 8.3
5.4 23.5 -1.0 29.7 29.8 16.2 0.8 18.4 17.7
8.2 16.9 5.6 21.7 35.5 43.8 7.6 26.2
11.5 10.2 8.3 24.7 39.3 51.5 20.2 31.3
66.8 8.5 15.9 18.8 17.8 18.7 63.6 22.5 16.0
47.9 14.1 10.7 16.5 16.1 15.9 23.7 18.8 16.0
25.9 4.6 10.2 14.8 12.2 10.1 25.9 13.0 9.3
21.4 5.0 7.5 12.7 10.1 9.1 12.3 10.7 9.0
6.6 13.0 9.6 24.0 25.5 14.6 6.6 15.9 12.8
8.8 7.3 13.8 25.3 23.5 14.4 16.6 17.4 12.0
C–16
September 2013 Results Preview | Sector: Capital Goods
ABB Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
ABB IN 211.9 117 / 2 830 / 448 7 / 8 / -36
Financials & Valuation (INR b) Y/E December Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Gr (%) BV/Sh (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013E 2014E 75.7 76.9 82.3 3.4 4.7 5.7 1.4 1.7 2.4 6.5 8.2 11.5 -25.5 27.1 39.4 122.6 127.0 134.6 5.4 6.6 8.8 5.7 7.1 8.8 53.8 40.0 30.0 127.4 6.7 52.6 0.4
66.8 4.3 25.9 0.7
47.9 4.1 21.4 0.7
2015E 92.4 6.8 3.4 16.0 39.0 145.0 11.4 10.1 30.0 34.5 3.8 17.5 1.0
CMP: INR551
Neutral
Though we expect gradual improvement, profitability will remain muted, particularly in Project businesses, impacted by higher competitive intensity, slower execution and low margin fixed price contracts. Also, the benefit of softening commodity prices has largely been negated by INR depreciation - 40% of the raw material consumption is imported, largely from parent. The order book currently stands at INR82.3b, down 9% YoY. ABB has not received any meaningful large order in the last 12 months. We expect order intake to grow 12% in CY13 over a low base. There are signs of increasing pressure on working capital due to tightening liquidity conditions; long cycle businesses in Power Systems and Process Automation have high contractual retention. Debt has grown from INR3.3b to INR5b in December 2012 and correction is likely to take some time. Key issues to watch out ¾ In 2QCY13, the project business had reported positive EBIT; watch for sustainability of the same. ¾ Order intake during the quarter, particularly large projects, as demand environment is tough. ¾ Profit margins are likely to be impacted by adverse currency movement (INR depreciation). Imports constitute ~39% of material consumption. While Power Products benefit from a depreciating INR, given increased share of exports, Discrete and Process Automation segments are impacted due to higher share of imports.
Quarterly Performance
(INR Million)
Y/E December Sales Change (%) EBITDA Change (%) As % of Sales Adjusted EBITDA (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Repoted PAT Adj. PAT Change (%) Order Intake Order Book BTB (x) E: MOSL Estimates October 2013
CY12 1Q 17,903 (0.3) 975 -4.0 5.4 6.2 223 54 19 716 240 33.5 476 476 -20.0 16,320 90,280 1.2
2Q 18,838 10.0 1,060 24.0 5.6 4.6 231 77 14 766 250 32.6 516 516 33.2 20,450 91,892 1.2
3Q 18,086 3.7 664 -0.4 3.7 4.3 240 117 10 316 102 32.4 214 214 -3.6 16,800 90,606 1.2
CY13 4Q 20,823 (5.3) 666 -38.4 3.2 5.2 246 185 28 263 96 36.4 168 168 -73.8 15,790 86,720 1.1
1Q 19,700 10.0 1,065 9.2 5.4 5.4 246 198 14 636 210 33.0 426 426 -10.7 15,310 82,290 1.1
2Q 17,416 (7.5) 1,100 3.8 6.3 6.3 259 266 38 612 209 34.1 403 403 -21.9 17,310 82,350 1.1
3QE 18,719 3.5 1,062 60.0 5.7
4QE 21,070 1.2 1,473 121.2 7.0
264 275 20 543 182 33.5 361 361 68.9 20,160 82,272 1.1
327 312 2 837 280 33.4 557 557 232.1 24,904 82,265 1.1
CY12
CY13E
75,650 1.2 3,365 -7.0 4.4 5.1 941 432 71 2,062 688 33.4 1,374 1,374 -25.5 69,660 86,720 1.1
76,906 1.7 4,700 39.7 6.1 1097 1,050 74 2,627 881 33.5 1,747 1,747 27.1 77,684 82,265
C–17
September 2013 Results Preview | Sector: Capital Goods
BHEL Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BHEL IN 2,447.6 352 / 6 272 / 100 19 / -23 / -48
Financials & Valuation (INR b) Y/E March 2012 2013 Net Sales 479.8 484.2 EBITDA 99.1 93.9 Adj PAT 68.9 65.5 EPS (INR) 28.2 26.8 EPS Gr. (%) 21.7 (4.9) BV/Sh. (INR) 103.7 124.4 RoE (%) 30.3 23.5 RoCE (%) 33.0 24.5 Payout (%) 22.3 20.0 Valuations P/E (x) 11.5 5.4 P/BV (x) 3.1 1.2 EV/EBITDA (x) 7.3 3.0 Div Yield (%) 4.4 3.8 Consolidated
2014E 393.8 66.6 41.3 16.9 (37.0) 135.3 13.0 13.7 30.0
2015E 315.0 40.3 24.9 10.2 (39.6) 141.9 7.3 8.0 30.0
8.5 1.1 4.6 3.5
14.1 1.0 5.0 2.1
CMP: INR144
Neutral
Recovery in the pace of project execution is likely to remain sluggish in 2QFY14 because of multiple headwinds like lack of clarity on fuel availability, shrinking peak demand deficit (as a result of lower growth rates), etc. We understand that ~20% of BHEL's order book, largely from the private sector, is non-moving / slow-moving in nature. Thus, we expect revenues to decline 21% in 2QFY14, similar to the 24% decline in 1QFY14. EBITDA margin had declined to a historical low of 6% in 1QFY14, which was also an aberration. However, we expect margins to remain under pressure, given poor fixed cost absorption. We estimate EBITDA margin at 13.1% (down 490bp YoY) for 2QFY14. Order inflow for 1QFY14 was just INR14.7b (down 73% YoY), which included orders for equipment like electrostatic precipitators, solar power projects, etc. Considering the strong sector headwinds, we expect the pace of order inflows to remain under pressure in 2QFY14, as well. Larsen and Toubro (LT) has emerged as L1 in Malwa 1,320MW project, and competition remains intense. Key issues to watch out ¾ Order intake remains impacted, both for Power and Industry segments. ¾ Release of retention money (INR220b at the end of 1QFY14 from debtors of ~INR400b on FY13 revenue base of INR502b).
Quarterly Performance
(INR Million)
Y/E March Sales (Net) Change (%) EBITDA As a % Sales Adjusted EBITDA Change (%) As a % Sales Interest Depreciation Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj. PAT Change (%) Order intake Order book (INRb) BTB (x) E: MOSL Estimates October 2013
FY13 1Q 83,262 16.9 12,022 14.4 12,022 41.0 14.2 55 2,284 3,663 13,346 4,137 31.0 9,209 12.9 9,209 12.9 55,900 1,330 2.7
2Q 103,996 1.0 18,995 18.3 18,995 12.0 18.0 259 2,163 1,307 17,880 5,135 28.7 12,745 -9.7 12,745 -0.9 31,530 1,223 2.5
3Q 100,417 -4.8 16,341 16.3 16,341 -12.6 16.3 509 2,200 3,324 16,955 5,139 30.3 11,816 -17.5 11,816 -17.5 19,500 1,137 2.4
4Q 188,502 -2.2 46,512 24.7 46,512 -3.2 24.7 405 2,889 2,924 46,142 13,766 29.8 32,375 -4.2 32,375 -3.6 209,570 1,152 2.4
1Q 63,526 -23.7 3,886 6.1 3,886 -67.7 6.1 278 2,308 5,385 6,685 2,031 30.4 4,654 -49.5 4,654 -49.5 14,690 1,086 2.4
FY14 2QE 3QE 82,437 86,002 -20.7 -14.4 10,810 12,586 13.1 14.6 10,810 12,586 -43.1 -23.0 13.1 14.6 678 714 2,336 2,376 1,250 1,100 9,046 10,597 2,940 3,444 32.5 32.5 6,106 7,153 -52.1 -39.5 5,496 6,542 -56.9 -44.6 50,000 75,000 1,054 1,043 2.4 2.4
4QE 153,678 -18.5 39,289 25.6 39,289 -15.5 25.6 1,186 3,637 330 34,796 11,436 32.9 23,360 -27.8 22,750 -29.7 124,479 1,014 2.6
FY13
FY14E
476,177 0.8 93,894 19.7 93,894 -3.3 19.7 1,253 9,534 11,217 94,324 28,177 29.9 66,148 -6.0 65,537 -4.9 316,500 1,152 2.4
385,643 -19.0 66,571 17.3 66,571 -29.1 17.3 2,855 10,657 8,065 61,124 19,851 32.5 41,273 -37.6 40,663 -38.0 264,169 1,014 2.6
C–18
September 2013 Results Preview | Sector: Capital Goods
Crompton Greaves Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
CRG IN 641.5 57 / 1 142 / 72 1 / -9 / -35
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Net Sales 112.5 120.9 137.5 EBITDA 8.0 3.8 7.0 Adj PAT 3.7 1.9 3.6 EPS(INR) 5.8 3.0 5.6 EPS Gr. (%) (59.7) (48.4) 87.3 BV/Sh. (INR) 56.3 55.5 60.2 RoE (%) 10.7 (1.0) 9.6 RoCE (%) 9.8 2.8 8.0 Payout (%) 20.7 20.1 20.0 Valuations P/E (x) 15.3 29.7 15.8 P/BV (x) 3.0 1.6 1.5 EV/EBITDA (x) 13.6 16.9 9.3 Div Yield (%) 1.6 1.3 1.3 Consolidated
2015E 147.8 9.5 5.3 8.3 48.1 59.6 13.8 10.8 20.0 10.7 1.5 6.5 1.4
CMP: INR89
Buy
We expect standalone revenues to grow just 2.3% in 2QFY14, impacted by expectations of 5% YoY decline in Industrial business and muted 3% growth in Power segment. EBITDA margin is likely to be 7.6% (down 120bp QoQ), impacted by poor cost absorption. We expect overseas operations to turn around in 2Q (EBITDA margin at 1.1%). In EUR terms, revenue growth would be 10% YoY (in INR terms, growth would be 36% YoY). In 1QFY14, EBITDA was -0.6%, impacted by (1) lower capacity utilization of just 65% in Belgium, and (2) EUR3m-4m revenue impact in Hungary due to floods. We understand that utilization rates in Belgium have improved. Canada losses are expected to be maintained at INR300m in 2QFY14 (similar QoQ). In the domestic Power segment, order intake is likely to be robust, driven by pick-up in ordering from SEBs. Revenues in Consumer business had bounced back in 1QFY14 to 21% YoY and sustainability of the same would be watched for. Key issues to watch out ¾ Losses in Canada, which stood at INR300m in 1QFY14. Also, liquidated damages are an important swing factor. ¾ Margins in Belgium and Hungary, given that production in 2QFY14 is expected to be at optimum levels. ¾ Margins in exports, particularly from Kanjurmarg transformer factory. The company will be a key beneficiary of the INR depreciation.
Quarterly performance (Consolidated)
(INR Million)
Y/E March Sales (Net) Change (%) EBITDA Change (%) Adjusted EBITDA As of % Sales (Adj) Depreciation Interest Other Income EO Income/(Exp) PBT Tax Effective Tax Rate (%) Minority interest Reported PAT Adjusted PAT Change (%) Order book Order Intake BTB (x) E: MOSL Estimates October 2013
FY13 1Q 28,111 15.3 1,668 -8.3 1,793 6.4 466 99 192 0 1,294 445 34.4 -9.6 859 984 23.8 91,720 27,170 0.8
2Q 29,242 8.1 1,365 -39.6 1,490 5.1 544 190 208 0 838 414 49.4 4.2 420 545 (53.3) 94,000 25,750 1.0
3Q 29,718 -1.9 20 -98.9 850 2.9 566 213 304 1,207 -1,662 228 -13.7 -1.4 -1,888 149 (80.7) 92,320 22,570 0.8
4Q 33,873 10.1 779 -63.4 779 2.3 453 208 51 0 169 -78 -45.9 -5.7 253 253 (74.8) 91,250 29,830 1.0
1Q 31,572 12.3 1,448 -13.2 1,448 4.6 527 201 353 0 1,072 464 43.3 7.5 601 601 (38.9) 97,700 24,410 0.8
FY14 2QE 3QE 34,078 34,233 16.5 15.2 1,496 1,878 9.6 1,496 1,878 4.4 5.5 590 605 325 325 280 335 0 0 861 1,283 192 285 22.3 22.2 -10.0 -10.0 679 1,008 679 1,008 24.4 578.1 89,729 91,496 25,000 29,000 0.7 0.7
4QE 37,591 11.0 2,218 184.7 2,218 5.9 596 343 276 0 1,555 262 16.8 -27.5 1,321 1,321 422.7 93,905 33,000 0.7
FY13
FY14E
120,944 77.0 3,832 -48.6 4,912 4.1 2,029 709 754 1,207 640 1,009 157.5 -7.3 -361 1,926 (51.5) 91,250 105,450 0.8
137,474 13.7 7,039 83.7 7,039 5.1 2,318 1,110 1,160 0 4,771 1,203 25.2 -40.0 3,608 3,608 87.4 93,905 33,000 0.7
C–19
September 2013 Results Preview | Sector: Capital Goods
Cummins India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
KKC IN 277.2 113 / 2 550 / 365 -4 / -23 / -23
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)
2012 41.2 7.0 5.5 19.8 (6.9) 73.5 28.8 28.8 64.2
2013 2014E 45.9 42.2 8.3 7.0 6.6 6.0 23.8 21.7 20.1 (8.8) 87.3 93.8 29.7 24.0 29.8 24.2 58.9 70.0
20.6 5.6 16.3 2.5
17.1 4.7 14.8 2.5
2015E 46.2 8.1 6.9 24.7 13.8 101.6 25.3 25.5 68.6
18.8 4.4 14.8 3.2
16.5 4.0 12.8 3.5
CMP: INR409
Buy
Domestic powergen demand had declined 25% in 1QFY14; we expect ~33% decline in 2QFY14. This is on the back of a strong 27% demand growth in FY13. The demand decline is led by improved power availability, tight liquidity conditions, etc. Export revenues had declined 34% in 1QFY14, led by high base effect, particularly for the high horsepower (HHP) segment. In 2QFY14, we expect export revenues to improve 11% YoY. Pig iron prices have been largely stable QoQ and are down ~16% YoY. Based on our channel checks, we understand that HHP engines have witnessed price increases of 5-10% in the last two months, given the currency volatility. For KKC, we expect raw material costs to decline to 62.1% in 2QFY14 from 62.4% in 1QFY14. However, EBITDA margin is likely to decline to 15.5% (down 130bp QoQ), led by poor operating leverage. Key issues to watch out ¾ KKC's genset original equipment manufacturers (GOEMs) have tied up with L&T Finance for financing purchases, which should lead to market share gains. ¾ HHP exports are showing signs of bottoming out and demand recovery in US could be positive. ¾ Producer pricing arrangement has been revised, and now the currency reset is every year v/s the earlier practice of reset post three years.
Quarterly Performance (Standalone)
(INR Million)
Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Extra-ordinary Items PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adjusted PAT Change (%) Operational Details Domestic Sales Change (%) Exports Change (%) E: MOSL Estimates October 2013
FY13 1Q 12,588 21.8 2,325 33.7 18.5 114 14 385 0 2,583 777 30.1 1,806 1.9 1,806 32.7
2Q 10,869 -0.3 1,999 13.6 18.4 117 13 338 0 2,207 596 27.0 1,611 25.3 1,611 25.3
3Q 10,895 13.2 2,086 29.4 19.1 118 9 661 475 3,096 755 24.4 2,341 66.1 1,817 28.9
4Q 11,543 10.9 1,939 -0.5 16.8 124 11 824 0 2,628 742 28.2 1,886 30.4 1,494 3.3
1Q 10,493 -16.6 1,756 -24.5 16.7 117 12 668 0 2,294 632 27.6 1,662 -8.0 1,662 (8.0)
8,210 10.1 4,210 52.4
7,650 (0.5) 3,030 0.7
8,223 21.3 2,490 (5.9)
8,320 20.2 2,960 (10.0)
7,550 (8.0) 2,737 (35.0)
FY14 2QE 3QE 9,850 10,700 -9.4 -1.8 1,523 1,887 -23.8 -9.5 15.5 17.6 125 140 15 15 400 550 0 0 1,783 2,282 490 650 27.5 28.5 1,293 1,632 -19.8 -30.3 1,293 1,632 (19.8) (10.2) 6,275 (18.0) 3,350 10.6
7,750 (5.8) 2,750 10.4
FY13
FY14E
4QE 11,108 -3.8 1,845 -4.8 16.6 183 18 364 0 2,008 570 28.4 1,439 -23.7 1,439 (3.7)
45,894 11.5 8,349 19.7 18.2 473 46 2,067 616 10,513 2,872 27.3 7,641 29.2 6,606 20.1
42,151 -8.2 7,011 -16.0 16.6 565 60 1,982 0 8,368 2,343 28.0 6,025 (21.2) 6,025 (8.8)
7,409 (10.9) 3,446 16.4
32,400 12.5 12,690 8.3
-1,769 (9.8) 12,056 (5.0) C–20
September 2013 Results Preview | Sector: Capital Goods
Havells India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HAVL IN 124.8 79 / 1 817 / 557 -6 / -7 / -4
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Gr. (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%) Consolidated
2012 65.2 6.6 4.3 34.1 64.6 76.6 44.5 26.4 25.5
2013 2014E 72.5 76.1 6.7 6.7 4.3 4.4 34.4 35.5 1.0 3.1 99.2 139.3 29.8 25.5 21.4 19.9 28.3 30.7
18.6 8.3 8.9 1.0
18.4 6.4 11.9 1.2
17.8 4.5 12.2 1.4
2015E 81.6 7.7 4.9 39.3 10.7 166.9 23.5 19.2 29.8 16.1 3.8 10.1 1.6
CMP: INR633
Buy
Sharp decline in standalone revenue growth to just 2% YoY in 1QFY14 was a negative surprise; Consumer business growth was just 7% YoY. In 2QFY14, we expect growth in Consumer business to remain subdued at 10-11%, as consumption demand has weakened further and the slowdown is more pronounced in the 'premium' category. Reported revenue should grow 6% YoY. We expect EBITDA margin to decline to 11.9% in 2QFY14, down 45bp, largely a result of volatile input costs, given the sharp currency movements. While we understand that part of the cost increases have been passed on, margins could be impacted due to timing differences. For Sylvania, Europe is showing signs of stabilization, with revenue decline of just 1% YoY in 1QFY14. Macro data points suggest some pickup in construction spending. However, LatAm is impacted by sharp currency volatility, particularly in Brazil and Argentina. Key issues to watch out ¾ 'Price-volume' trade-off in domestic market, particularly given the increased competitive intensity in specific segments. ¾ Revenue growth in Fans business, which was largely flat in 1QFY14. Revenues from Reo and financial targets post the launch of pumps. ¾ Margins in LatAm, given the sharp currency volatility in few countries.
Quarterly Performance (Standalone)
(INR Million)
Y/E March Sales Change (%) Adj EBITDA Change (%) Adj EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 10,328 25.4 1,281 44.1 12.4 118 102 28 1,004 204 20.3 800 23.5 880 55.5
2Q 9,642 13.4 1,192 9.5 12.4 159 99 20 1,054 185 17.5 870 23.8 789 6.5
3Q 10,584 17.8 1,399 15.2 13.2 146 58 15 1,173 227 19.3 947 20.0 976 17.6
4Q 11,696 11.7 1,460 2.1 12.5 156 26 34 1,342 243 18.1 1,099 20.0 1,075 5.3
1Q 10,513 1.8 1,411 10.1 13.4 156 56 32 1,154 207 18.0 947 18.3 1,029 16.9
FY14 2QE 3QE 10,250 11,600 6.3 9.6 1,221 1,412 2.5 0.9 11.9 12.2 165 168 25 25 40 45 1,071 1,264 225 265 21.0 21.0 846 998 -2.7 5.5 846 998 7.3 2.3
4QE 12,983 11.0 1,624 11.2 12.5 176 19 83 1,513 253 16.7 1,260 14.7 1,260 17.2
FY13
FY14E
42,250 16.9 5,331 17.0 12.6 579 286 96 4,571 858 18.8 3,713 21.3 3,720 21.8
45,346 7.3 5,591 4.9 12.3 665 125 200 5,002 950 19.0 4,051 9.1 4,134 11.1
C–21
September 2013 Results Preview | Sector: Capital Goods
Larsen & Toubro Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
LT IN 923.1 755 / 12 1,146 / 678 6 / -15 / -29
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Sales 537.4 614.7 664.8 EBITDA 62.6 63.9 67.3 Adj PAT * 47.7 49.3 40.4 EPS (INR)* 52.0 53.4 43.8 EPS Gr. (%) 11.9 2.8 -18.0 BV/Sh (INR) 274.6 315.7 349.4 RoE (%) 18.0 16.2 14.6 RoCE (%) 14.3 14.4 12.5 Payout (%) 25.0 24.9 32.9 Valuations P/E (x)* 18.5 18.3 18.7 P/BV (x) 3.5 3.1 2.3 EV/EBITDA (x) 14.3 14.4 11.9 Div Yield (%) 1.1 1.3 1.7 * Consolidated
2015E 745.5 73.6 47.5 51.5 17.5 387.1 14.4 12.5 32.3 15.9 2.1 11.0 1.9
CMP: INR817
Buy
Larsen and Toubro (LT) has announced order intake of INR239b in 2QFY14, including INR82b from Riyadh Metro and INR20b from Bathinah Expressway in Oman. Domestic orders were constrained at INR121b v/s an average of INR160b in the last two quarters. Given the tight liquidity conditions, volume of orders bagged is still commendable. Overseas projects are likely to contribute 25% of the intake in FY14. Large Infrastructure projects under bidding include: Doha Metro Project (Phase-2), Etihad Rail, Water Infrastructure, Highways / Interchanges, Power T&D, etc. LT is favorably positioned in few large tenders (also gleaned from media articles): Malwa EPC 1,320MW, NTPC Tanda 1,320MW Boiler, Power T&D in Qatar, few road projects in ME, Fertilizer project in India, etc. We expect EBITDA margin to decline by 70bp in 2QFY14. However, as the share of domestic revenue increases during the year, margins are likely to improve in 2H. Key issues to watch out ¾ Revision in FY14 guidance: We believe that while order intake growth guidance could be maintained at 20% (supported by overseas projects), achieving revenue (+15%) and margin (flat) guidance would be challenging. ¾ Net working capital continues to be under pressure due to tightening liquidity and increased vendor support in a tough market. ¾ Asset monetization plans and attempt to correct the capital structure.
Quarterly Performance (Standalone) Y/E March
(INR Million) FY13
1Q 2Q 3Q Net Sales 119,554 131,952 154,294 Change (%) 26.1 17.4 10.3 EBITDA 10,847 14,054 14,620 Change (%) -3.7 15.5 6.9 Margin (%) 9.1 10.7 9.5 Adjusted EBITDA 12,447 14,054 15,870 Change (%) 10.5 15.5 1.2 Adjusted Margin (%) 10.4 10.7 10.3 Depreciation 1,919 2,040 2,004 Interest 2,284 2,350 2,380 Other Income 6,081 3,294 5,431 Extraordinary Inc/(Exp) -383 2,672 0 Reported PBT 12,341 15,630 15,668 Tax 3,705 4,257 4,450 Effective Tax Rate (%) 30.0 27.2 28.4 Reported PAT 8,636 11,373 11,218 Adjusted PAT 10,025 9,151 10,393 Change (%) 34.4 14.6 -7.8 Order Intake 196 210 195 Order book (INR b) 1,531 1,585 1,623 BTB (x) 2.8 2.8 2.7 E: MOSL Estimates; MTM Forex loss in 3QFY12 of INR2b October 2013
4Q 202,938 9.9 24,509 -1.5 12.1 25,759 -4.2 12.1 2,222 2,810 3,744 187 23,408 5,528 23.6 17,880 17,758 -1.5 279 1,536 2.5
1Q 125,551 5.0 10,715 -1.2 8.5 11,795 -5.2 9.4 2,103 2,453 4,726 0 10,885 3,325 30.5 7,560 8,316 -17.0 252 1,654 2.7
FY14 2QE 3QE 141,358 168,315 7.1 9.1 14,136 17,252 0.6 18.0 10.0 10.3 14,136 17,252 0.6 8.7 10.0 10.3 2,150 2,250 2,750 3,000 3,000 3,500 0 0 12,236 15,502 3,548 4,496 29.0 29.0 8,687 11,007 8,687 11,007 -5.1 5.9 250 200 1,761 1,791 2.8 2.8
4QE 223,106 9.9 25,171 2.7 11.3 25,171 -2.3 11.3 2,286 3,297 5,217 0 24,804 5,726 23.1 19,079 19,079 7.4 190 1,756 2.7
FY13
FY14E
608,733 14.5 64,071 2.0 10.5 66,071 1.9 11.0 8,185 9,824 18,509 2,475 67,046 17,940 26.8 49,106 47,327 5.6 880 1,536 2.5
658,329 8.1 67,274 5.0 10.2 67,274 1.8 10.4 8,789 11,500 16,443 0 63,428 17,125 27.0 46,302 47,058 -0.6 891 1,756 2.7 C–22
September 2013 Results Preview | Sector: Capital Goods
Siemens Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SIEM IN 352.0 169 / 3 750 / 414 -1 / -17 / -38
Financials & Valuation (INR b) Y/E September Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Gr (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013E 2014E 129.2 106.4 107.8 8.9 2.5 5.8 5.0 0.3 2.7 14.8 0.8 7.6 -40.5 -94.3 789.9 116.4 113.0 116.8 12.9 0.8 6.6 14.3 5.4 7.6 48.8 49.7 49.7 32.5 565.7 4.1 4.2 17.4 62.9 0.8 0.1
63.6 4.1 25.2 0.7
2015E 125.3 12.6 7.1 20.2 168.0 127.0 16.6 18.4 49.7 23.7 3.8 12.0 1.8
CMP: INR480
Neutral
We expect revenues to decline 25% YoY in 4QFY13, impacted by delays in offtake by customers, sluggish industrial capex and depletion of order book (BTB at just 1.1x) because of macro headwinds. Profit margins have been impacted by cost escalations. We expect margins to remain under pressure due to pricing pressure and slower execution in the Power business. In 3QFY13, the company made provisions on projects (for cost/time overruns) of INR1,354m; we have not factored in these provisions as exceptional, as they pertain to normal business operations. Weak INR would have a negative impact on profit margins, as raw material imports are ~40% of revenues. Key issues to watch out ¾ EBITDA margin would be a key factor to watch for. SIEM's earnings have historically been volatile, impacted by multiple factors. ¾ Order intake had surprised positively in 2QFY13, supported by few large orders; sustainability of the same would be a key positive. SIEM has bagged various orders from Delhi Metro Rail Corporation in 4QFY13, which could be an important contributor. ¾ Segmental working capital appears to be under pressure and would be closely watched due to tightening liquidity. ¾ Profit margins are likely to be adversely impacted by unfavorable currency movement (INR depreciation).
Quarterly Performance (Standalone) Y/E September
(INR Million) FY12
1Q 2Q 3Q Total Revenues 25,004 40,171 30,186 Change (%) -3.1 28.7 8.5 EBITDA 1,132 5,445 1,298 As % of Revenues 4.5 13.6 4.3 Adjusted EBITDA 1,132 3,336 1,298 As % of Revenues 4.5 8.3 4.3 Depreciation 445 487 519 Interest Income -30 -76 -122 Other Income 235 120 Extra-ordinary Items 551 240 PBT 893 5,432 1,018 Tax 291 1,444 175 Effective Tax Rate (%) 32.6 26.6 17.2 Reported PAT 602 3,988 843 Adjusted PAT 602 3,361 530 Change (%) -74.7 22.5 -65.7 Order Intake (INR b) 28 18 27 Order book (INR b) 140 126 124 BTB (x) 1.2 1.0 1.0 E: MOSL Estimates; Adj EBITDA: Adjusted for change in project October 2013
FY13 4Q 33,752 -4.6 995 2.9 995 2.9 559 -66 126 1,208 1,704 -154 -9.1 1,858 409 -77.0 29 137 1.1 revenues
1Q 2Q 3Q 24,962 29,556 26,426 -0.2 -26.4 -12.5 1,556 754 -62 6.2 2.6 -0.2 1,841 1,654 1,292 7.4 5.6 4.9 588 610 626 -87 -84 -39 69 125 26 0 0 0 951 185 -701 314 -115 -213 33.0 -62.3 30.4 636 300 -488 636 300 -488 5.8 -91.1 -192.1 20 28 26 132 130 130 1.0 1.1 1.2 and cost estimates
4QE 25,436 -24.6 206 0.8 206 0.8 382 -340 180 0 -335 -186 55.5 -149 -149 -136.5 36 142 1.4
FY12
FY13E
129,199 7.4 8,913 6.9 8,913 6.9 2,010 -269 575 1,999 9,208 1,777 19.3 7,431 5,032 -40.5 102 137 1.1
106,380 -17.7 2,455 2.3
2,206 -550 400 0 99 -200 -202.6 299 299 -94.1 111 142 1.3 C–23
September 2013 Results Preview | Sector: Capital Goods
Thermax Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
TMX IN 119.2 70 / 1 684 / 526 -4 / -1 / 0
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (X) P/BV (X) EV/EBITDA (X) Div Yield (%)
2012 2013 2014E 60.3 54.3 54.7 5.9 5.0 4.9 4.0 3.2 3.1 33.9 27.0 26.2 5.7 (20.2) (2.9) 139.9 160.0 175.8 27.4 18.4 15.9 22.9 14.8 13.3 20.7 25.9 34.3 15.1 3.7 9.2 1.4
20.2 3.4 12.3 1.3
22.5 3.4 13.0 1.5
2015E 61.4 5.9 3.7 31.3 19.5 191.9 17.4 15.3 41.5 18.8 3.1 10.7 2.2
CMP: INR590
Buy
The domestic ordering environment remains muted, particularly given the tight liquidity conditions. In 1QFY14, excluding the Reliance order, domestic order intake was just INR5.2b and compares with an average of INR9b-11b/quarter during April-December 2012. Execution is likely to remain constrained, particularly for the Energy business. In 2QFY14, we expect Energy business revenues to decline 12% YoY and Environment business revenues by 4% YoY. Increasing exports is a priority across businesses. The Chairperson stated in the recent issue of Fireside, "We have to continue to focus on the export market and try and make up for the shortfalls in domestic order bookings". Consolidated PAT has been impacted by losses in subsidiaries (down 21% in FY13). However, in 1QFY14, subsidiaries reported PAT of INR27m (after seven consecutive quarters of losses), largely driven by improved performance in Danstoker and lower losses in Chinise subsidiaries (expect PAT breakeven by the end of FY14). Key issues to watch out ¾ Order intake remains constrained, also for standard products. Exports are an important focus area and increasing trend will be a positive. ¾ Subsidiaries' profit had shown signs of improvement in 1QFY14. ¾ EBITDA margins have been outperforming expectations despite decline in sales, benefiting from softening commodity prices and cost efficiency measures. However, maintaining these at current levels would be challenging.
Quarterly Performance (Standalone)
(INR Million)
Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adj PAT Change (%) Order Book Order Intake BTB (x) E: MOSL Estimates October 2013
FY13 1Q 9,835 -5.8 964 -15.1 9.8 132 37 187 981 309 31.5 672 672 -15.9 44,740 12,580 0.9
2Q 11,924 -8.5 1,218 -13.3 10.2 139 34 274 1,318 407 30.9 911 911 -10.4 44,120 11,620 0.9
3Q 10,468 -17.5 1,119 -18.0 10.7 133 20 124 1,090 326 29.9 764 764 -20.1 46,490 12,840 0.9
4Q 14,682 -13.0 1,672 -9.7 11.4 145 5 244 1,767 614 34.7 1,153 1,153 -11.2 43,358 11,550 1.2
1Q 8,628 -12.3 814 -15.5 9.4 142 8 81 745 243 32.6 503 503 -25.2 55,300 21,230 1.2
FY14 2QE 3QE 10,715 11,059 -10.1 5.6 1,066 1,048 -12.4 -6.3 10.0 9.5 146 152 23 25 150 200 1,048 1,072 322 329 30.7 30.7 726 743 726 743 -20.3 -2.8 53,735 56,224 9,150 13,548 1.2 1.2
4QE 15,788 7.5 1,813 8.4 11.5 167 44 245 1,847 567 30.7 1,280 1,280 11.0 54,001 11,963 1.2
FY13
FY14E
46,909 -11.6 5,071 -13.1 10.8 549 96 730 5,156 1,657 32.1 3,500 3,500 -14.0 43,358 48,590 0.9
46,189 -1.5 4,742 -6.5 10.3 607 100 677 4,711 1,446 30.7 3,265 3,265 -6.7 54,001 55,890 1.2 C–24
September 2013 Results Preview | Sector: Cement
Cement Companies Covered
Demand continues to remain weak, utilization falls to lowest levels
ACC
Cement demand growth is expected to remain sluggish in 2QFY14, impacted by continued weakness in housing and infrastructure vertical and seasonal impact of monsoon. We estimate growth of 1.3% YoY (-8% QoQ) in 2QFY14 and ~3% for FY14. Capacity utilization is expected to decline YoY (-3pp YoY/9% QoQ) at 66% - lowest levels in last 13 years. Our interactions with dealers across regions highlight limited visibility in near term demand recovery, although they are hopeful of election impact to play out in favor of demand uptick in 2HFY14, resulting in 5% volume growth.
Ambuja Cements Birla Corporation Grasim Industries India Cements
Prices have been volatile in 2QFY14; net decline of INR4/bag QoQ Jaiprakash Associates Shree Cement UltraTech Cement
Weak demand resulted in weaker pricing by ~INR4/bag QoQ (-INR18/bag YoY). Prices have been volatile over quarters, with upticks in July and slides in August, followed by a sharp rise in second half of September. This includes specific trends of (a) INR14/ bag QoQ decline in north, (b) INR9/bag decline in east, (c) INR3/bag decline in west and (d) INR2-4/bag increase in central and south. We factor for YoY stability and INR10/ bag YoY increase in realizations in FY14 and FY15 respectively.
Weaker demand and price to exert pressure on profitability Profitability is expected to be under pressure in 2QFY14, as lower realizations and negative operating leverage will be a drag. We estimate EBITDA at ~INR686 (-INR6/bag QoQ, -INR15/bag YoY for pure cement players). We expect cost pressures from higher diesel prices and negative operating leverage, impact of which would be diluted by soft energy prices. On the back of moderation in cost push and potential demand recovery in 2HFY14, we estimate EBITDA/ton at INR884/998 for FY14/FY15 respectively, based on ~INR7.5/INR10 per bag QoQ price increases.
Valuation and view We revise the realizations improvement assumption for FY14/15 at INR0/10 per bag YoY (v/s earlier estimate of -INR3/15 per bag) to factor (1) relatively lower-thanexpected price decline in 2QFY14 (hence, upgrade in FY14 realizations) and (2) weaker demand revival visibility (thus, downgrade FY15 realizations). This downgrades our FY15 EPS estimates by 12-14% for ACC/ACEM/UTCEM/SRCM and ~3.5% for Grasim. Expected quarterly performance summary CMP (INR) 27.09.13 ACC 1,101 Ambuja Cements 184 Birla Corporation 207 Grasim Industries 2,678 India Cements 51 Jaiprakash Associates 37 Shree Cement 4,004 Ultratech Cement 1,826 Sector Aggregate
(INR Million)
Rating Sep.13 Buy Neutral Buy Buy Neutral Buy Buy Buy
24,719 19,904 6,754 12,779 11,406 33,377 11,898 44,866 165,702
Sales Var. % YoY 1.7 -8.0 7.6 -4.2 1.6 11.9 -10.1 -4.5 -0.7
Var. % QoQ -11.6 -15.1 -12.5 11.2 -7.9 0.7 -17.5 -9.5 -8.0
Sep.13 3,088 3,239 579 2,445 1,866 8,112 2,538 8,180 30,048
EBITDA Var. % YoY -26.7 -42.9 -47.4 -15.6 -9.0 5.2 -35.4 -18.6 -20.2
Var. % QoQ -28.8 -34.2 -13.3 20.8 -2.3 3.4 -33.1 -22.0 -16.5
Net Profit Sep.13 Var. % YoY 1,840 -26.0 2,099 -37.7 365 -54.5 3,791 -1.0 149 -69.7 804 -37.2 830 -63.7 3,934 -28.5 13,811 -31.1
Var. % QoQ -29.0 -35.3 -20.7 67.6 -11.5 287.7 -70.8 -41.5 -25.3
Jinesh K Gandhi (
[email protected]) / Sandipan Pal (
[email protected]) October 2013
C–25
September 2013 Results Preview | Sector: Cement
While demand recovery is expected to be gradual, slowing capacity addition coupled with higher capex and opex cost would support cement prices and profitability, going forward. Recovery in demand would be critical for operations and stock's performance. In large caps, we prefer ACC and Shree Cement, while in mid caps we prefer Birla Corp, Madras Cement and Dalmia Bharat. Demand growth flattish YoY in a seasonally strong quarter Des pa tches (MT) 12.2 10.8
…utilization to decline YoY due to unusually weak demand
Growth (%)
100%
10.2 9.0 9.8
9.4 9.3 6.9 4.0 3.2
90%
4.9
6.0
6.1
2.6 5.6
3.3 2.7
0.9
80% 70%
50 46 49 55 53 48 51 58 54 51 56 64 59 54 57 67 61 55 2QFY14E
4QFY13
2QFY13
4QFY12
2QFY12
4QFY11
2QFY11
4QFY10
2QFY10
4QFY09
2QFY09
2QFY14E
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14
2QFY12 3QFY12 4QFY12
1QFY12
4QFY10 1QFY11 2QFY11 3QFY11 4QFY11
1QFY10 2QFY10 3QFY10
60%
Source: CMA/MOSL
320 322 316 307
30 20 10 0
3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
-3
40
North
4QFY13
1QFY14
2QFY14
295
2
50
262 261 259 245 331
7
3QFY13
272
12
7.9 8.3
17
2QFY13
Vol ume growth (%)
15.8 13.4 12.4 8.5 11.4 6.4 3.6 4.3 4.0 9.4 10.4 13.8 8.3 2.7 2.0 -2.2 0.7 1.3
Vol umes (MT) - RHS
Trend in average quarterly cement price (INR/bag)
282 283 275 272 303 300 293 289 294 270 264 265 262 264 295 287 286 281 277
MOSL cement universe volumes to grow 1.3% YoY (-8% QoQ)
Eas t
Wes t
South
Centra l Na ti onal Avera ge
Source: CMA/MOSL
Realization to moderate sequentially as suggested by price trend
Weaker realizations coupled with negative operating leverage to dent profitability
835
804 686
4QFY13
1QFY14
2QFY14E
797 3QFY13
1,157
988 2QFY13
1,004 4QFY12
1QFY13
855
614
3QFY12
1,031 1QFY12
2QFY12
927
3QFY11
925 1QFY11
394 593
878 4QFY10
2QFY11
828 3QFY10
1,310 1,216 1QFY10
2QFY10
4,309
4,274
1QFY14
4QFY13
2QFY14E
4,328
4,316
3QFY13
4,505
4,221 4QFY12
4,471
4,146 3QFY12
2QFY13
4,049 3,853 1QFY12 2QFY12
1QFY13
3,899
3,490
4QFY11
3,279
3,654 1QFY11
3QFY11
3,449 4QFY10
2QFY11
3,401 3QFY10
3,771 3,747 2QFY10
1QFY10
4QFY11
EBITDA (INR/ton)
Rea l i za ti on (INR/ton)
Source: Company/MOSL
October 2013
C–26
September 2013 Results Preview | Sector: Cement
Trend in key operating parameters
ACC Ambuja Cement UltraTech Birla Corp India Cement Shree Cement Dalmia Bharat J K Cements JK Lakshmi Cem. Madras Cement Orient Paper Prism Cement Sector Agg.
Volume (m tons) 2QFY14 YoY (%) QoQ (%) 24,719 1.7 -11.6 19,904 -8.0 -15.1 44,866 -4.5 -9.5 6,754 7.6 -12.5 11,406 1.6 -7.9 11,898 -10.1 -17.5 7,357 9.7 4.2 6,903 -3.1 5.0 4,194 -14.4 -8.2 9,669 -3.3 0.7 3,418 -3.7 -8.2 11,272 6.1 -0.3 162,360 -2.5 -9.0
Realization (INR/ton) 2QFY14 YoY (BP) QoQ (BP) 12.5 -480 -300 16.3 -990 -470 18.2 -320 -290 8.6 -900 -10 16.4 -190 90 21.3 -840 -500 16.1 -970 190 13.7 -450 -20 10.2 -1,260 -520 14.8 200 190 11.6 -850 -750 2.8 -30 -30 14.9 -520 -250
EBITDA (INR/ton) 2QFY14 YoY (%) QoQ (%) 1,840 -26.0 -29.0 2,099 -37.7 -35.3 3,934 -28.5 -41.5 365 -54.5 -20.7 149 -69.7 -11.5 830 -63.7 -70.8 256 -63.2 -27.4 233 -56.9 -24.4 -14 -102.8 -109.1 757 -43.1 9.9 167 -54.4 -55.3 -342 7.1 -28.4 10,272 -43.1 -41.1
EBITDA Margins (%) 2QFY14 YoY (Rs) QoQ (Rs) 4,218 -284 -80 4,157 -364 -140 4,879 -110 32 4,010 24 -100 4,258 -97 70 3,438 -464 -140 4,309 -103 50 4,621 -45 43 3,585 -479 -160 4,365 -270 60 3,454 -169 -30 3,659 -318 100 4,274 -232 -35
2QFY14 556 677 889 495 716 724 731 633 366 840 402 124 686
Trend in key financial parameters
ACC Ambuja Cement UltraTech Birla Corp India Cement Shree Cement Dalmia Bharat J K Cements JK Lakshmi Cem. Madras Cement Orient Paper Prism Cement Sector Agg.
Net Sales (INR m) 2QFY14 YoY (%) QoQ (%) 5.5 1.5 -10.4 4.8 0.0 -12.3 9.1 -2.5 -10.2 1.7 7.0 -10.3 2.6 3.7 -1.6 3.1 2.0 -2.1 1.6 10.0 1.5 1.5 -2.2 4.0 1.2 -3.0 -4.1 2.1 3.0 -5.1 1.0 1.0 -7.4 1.1 20.0 -17.7 35.2 1.3 -8.0
Net Profit (INR m) YoY (INR) QoQ (INR) -224 -145 -508 -225 -178 -136 -303 -120 -100 -5 -461 -209 -444 105 -215 -3 -559 -210 -443 125 -328 -266 -52 -60 -302 -118 Source: Company, MOSL
Revised EPS estimates (INR) FY14E/CY13E Old Chg (%)
Rev ACC Ambuja Cement Grasim UltraTech Birla Corp India Cement Shree Cement
55.7 8.0 322.7 96.1 34.7 3.2 277.0
53.8 8.3 313.6 99.9 35.3 4.1 280.7
3.5 -2.7 2.9 -3.8 -1.8 -22.5 -1.3
Rev
FY15E/CY14E Old
65.5 9.3 379.7 110.9 44.8 6.6 321.1
76.0 10.8 367.1 126.5 50.2 9.0 365.3
Chg (%) -13.7 -14.2 3.4 -12.3 -10.7 -26.3 -12.1
Recent correction makes valuations attractive (FY12)
EV (USD/Ton)
200 Repl a cement Cos t a t USD140/ton Ultra Tech
150
Ambuja
100 Indi a Cement
ACC
50
Gra s i m
Shree
Bi rl a Corp
0 0%
6%
12%
18%
24%
30%
36%
42%
48%
RoCE (%)
October 2013
C–27
September 2013 Results Preview | Sector: Cement
Relative Performance - 3m (%)
Relative Performance-1Yr (%)
Sens ex Index MOSL Cement Index
Sens ex Index MOSL Cement Index
110
120
100
105
90
90
80
75
70
60 Jun-13
Jul -13
Sep-12 Dec-12 Ma r-13 Jun-13 Sep-13
Aug-13 Sep-13
Comparative valuation CMP (INR) 27.09.13 Cement ACC Ambuja Cements Birla Corporation Grasim Industries India Cements J P Associates Shree Cement Ultratech Cement Century Textiles Dalmia Bharat J K Cements JK Lakshmi Cem. Madras Cement Prism Cement Sector Aggregate
October 2013
1,101 184 207 2,678 51 37 4,004 1,826 250 126 188 71 180 28
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Buy Neutral Buy Buy Neutral Buy Buy Buy Neutral Buy Buy Buy Buy Neutral
68.7 10.0 35.0 278.7 5.8 2.3 314.9 96.8 -3.7 24.3 33.0 16.0 17.0 -1.2
16.0 18.4 5.9 9.6 8.7 16.2 12.7 18.9 -67.3 5.2 5.7 4.4 10.6 -23.4 14.5
8.9 10.0 3.4 4.2 5.4 15.6 8.1 11.1 14.7 5.8 3.9 4.2 7.1 12.8 8.8
17.7 18.3 11.0 13.0 4.3 3.9 30.6 18.9 -1.9 6.6 14.4 15.4 18.3 -5.4 12.9
55.7 8.0 34.7 322.7 3.2 2.7 277.0 96.1 -12.5 20.2 26.7 9.1 14.8 -1.8
65.5 9.3 44.8 379.7 6.6 4.4 321.1 110.9 -5.7 24.5 43.9 11.3 21.8 2.9
19.8 22.9 6.0 8.3 15.9 13.7 14.5 19.0 -20.0 6.2 7.0 7.8 12.1 -16.1 15.6
16.8 19.8 4.6 7.1 7.7 8.4 12.5 16.5 -43.5 5.2 4.3 6.3 8.2 9.6 12.4
10.7 13.4 3.2 3.7 5.7 7.4 8.1 11.2 17.3 6.5 6.1 7.0 7.2 14.7 8.0
9.1 11.7 1.9 2.8 4.8 6.6 7.1 9.4 11.3 4.8 4.2 5.8 5.0 5.4 6.4
13.1 13.6 10.1 13.3 2.4 4.3 17.4 16.1 -6.7 5.2 10.7 8.2 14.1 -8.6 10.9
14.0 14.7 11.9 13.6 4.7 6.7 17.4 16.1 -3.4 6.1 15.6 9.6 18.2 14.5 12.4
C–28
September 2013 Results Preview | Sector: Cement
ACC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
ACC IN 187.9 207 / 3 1,515 / 912 7 / -10 / -30
CMP: INR1,101
Financials & Valuation (INR b) Y/E December Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (x)
2012 2013E 2014E 111.3 110.4 123.0 19.7 15.8 18.7 12.9 10.5 12.3 68.7 55.8 65.5 14.1 -18.8 17.4 393 455 480 17.7 13.1 14.0 17.4 11.8 13.4 61.8 61.1 62.1 16.0 2.8 8.8 90
19.8 2.4 10.2 84
16.8 2.3 8.0 79
2015E 140.7 23.6 15.8 83.8 28.0 517 16.8 16.8 55.4 13.1 2.1 7.0 78
Buy
Dispatches in 3QCY14 are estimated to grow 1.5% YoY (-10% QoQ) to 5.48mt. Average realizations are expected to decline by 2% QoQ (-6.3% YoY) to INR4,218/ton. Revenue is expected to de-grow by 12% QoQ (1.7% YoY) to INR24.7b. EBITDA margin is expected to compress by 4.8pp YoY (-3pp QoQ) to 12.5% due to (a) lower realizations growth, (b) negative operating leverage and (c) consolidation of loss-making RMC business in 4QCY14. EBITDA/ton is estimated to decline by ~INR224/ton YoY (-INR145/ton YoY) to INR556/ton. PAT would decline 26% YoY (-29% QoQ) to INR1.84b. We upgrade the EPS estimates by 6.1%/3% for CY13E/CY14E to INR57.1 and INR78.2 respectively to factor better realizations. The stock trades at 14.2x CY14E EPS, 6.7x EV/EBITDA and USD77/ton. Upgrade to Buy from Neutral.
Key issues to watch out ¾ Volume growth recovery and outlook. ¾ Cement pricing outlook and sustainability, considering recent volatility (prices were down in July-August followed by sharp uptick in September-end). ¾ Progress in ongoing capex for Jamul expansion of 5mt.
Quarterly Performance (Standalone) Y/E December
(INR Million) CY12
1Q 2Q 3Q Cement Sales (m ton) 6.72 6.05 5.40 YoY Change (%) 9.1 2.0 -5.1 Cement Realization 4,231 4,558 4,502 YoY Change (%) 8.7 12.5 19.1 QoQ Change (%) 0.7 7.7 -1.2 Net Sales 28,430 27,576 24,310 YoY Change (%) 18.5 14.8 13.1 EBITDA 5,988 6,306 4,215 Margins (%) 21.1 22.9 17.3 Depreciation 1,305 1,356 1,352 Interest 316 301 257 Other Income 1,121 1,360 975 PBT before EO Item 5,487 6,009 3,581 PBT after EO Item 2,134 6,009 3,581 Tax 580 1,829 1,094 Rate (%) 27.2 30.4 30.6 Reported PAT 1,554 4,179 2,487 Adjusted PAT 3,859 4,179 2,487 Margins (%) 13.6 15.2 10.2 YoY Change (%) 10.1 24.2 48.4 E: MOSL Estimates; * Merger of RMC business from 4QCY12
October 2013
CY13 4Q* 5.94 -0.2 4,166 -0.8 -7.5 30,989 24.0 3,172 10.2 1,575 273 1,468 2,792 2,792 400 14.3 2,392 2,392 7.7 -15.2
1Q 6.42 -4.5 4,269 0.9 2.5 29,111 2.4 4,468 15.3 1,383 108 1,205 4,182 5,861 1,484 25.3 4,377 3,124 10.7 -19.1
2Q 6.12 1.2 4,298 -5.7 0.7 27,952 1.4 4,335 15.5 1,387 179 908 3,677 3,677 1,086 29.5 2,591 2,591 9.3 -38.0
3QE 5.48 1.5 4,218 -6.3 -1.9 24,719 1.7 3,088 12.5 1,415 150 1,050 2,573 2,573 733 28.5 1,840 1,840 7.4 -26.0
4QE 6.09 2.5 4,371 4.9 3.6 28,620 -7.6 3,924 13.7 1,483 113 1,687 4,014 4,014 1,131 28.2 2,883 2,883 10.1 20.5
CY12
CY13E
24.11 1.6 4,358 9.7
24.11 0.0 4,291 -1.5
111,305 18.0 19,681 17.7 5,589 1,147 4,923 17,869 14,515 3,903 26.9 10,612 12,918 11.6 11.9
110,402 -0.8 15,814 14.3 5,668 550 4,850 14,446 16,124 4,434 27.5 11,690 10,473 9.5 -18.9
C–29
September 2013 Results Preview | Sector: Cement
Ambuja Cements Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
ACEM IN 1,542.2 284 / 5 221 / 148 6 / 2 / -15
CMP: INR184
Dispatches in 3QCY13 are estimated to grow 0% YoY (-12% QoQ) to 4.79mt. Average realizations are expected to decline by 3.3% QoQ (8% YoY) to INR4,157/ton.
EBITDA margin is expected to decline by 9.9pp YoY (-4.7pp QoQ) to 16.3%, impacted by lower realizations and negative operating leverage. EBITDA/ton is estimated at ~INR677/ton (-INR225/ton QoQ, and INR508/ton YoY).
PAT estimated to decline 38% YoY (-35% QoQ) to INR2.1b.
The stock trades at 17.5x CY14E EPS, 10x EV/EBITDA and USD130/ton. Maintain Buy with a target price of INR174 (9x CY14E EV/EBITDA).
Financials & Valuation (INR b) Y/E December Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (USD)
2012 2013E 2014E 96.7 92.8 103.0 24.7 18.3 20.9 15.4 12.4 14.4 10.0 8.0 9.3 22.4 -19.6 15.7 56.9 61.1 65.2 18.3 13.6 14.7 27.6 19.7 21.2 49.8 52.6 56.3 18.4 3.2 9.7 138
22.9 3.0 13.2 135
19.8 2.8 11.4 129
2015E 119.6 25.3 17.7 11.5 23.6 70.9 16.9 24.2 50.6 16.0 2.6 9.0 123
Buy
Key issues to watch out ¾ Volume growth recovery and outlook. ¾ Cement pricing outlook and sustainability, considering recent volatility (prices were down in July-August, followed by a sharp uptick in September-end). ¾ Progress in ongoing mining land acquisition and capex in Nagaur (Rajasthan) plant of 4.5mt.
Quarterly Performance
(INR Million)
Y/E December Sales Volume (m ton)* YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Item Extraordinary Inc/(Exp) PBT after EO Exp/(Inc) Tax Rate (%) Reported Profit Adj PAT YoY Change (%) E: MOSL Estimates
October 2013
CY12 1Q 6.18 9.6 4,257 8.5 4.4 26,315 18.9 7,470 28.4 1,209 168 1,122 7,215 -2,791 4,424 1,301 29.4 3,122 5,075 24.5
2Q 5.63 6.5 4,556 10.7 7.0 25,660 17.9 7,223 28.2 1,215 180 908 6,736 0 6,736 2,047 30.4 4,689 4,689 34.9
3Q 4.79 -0.4 4,521 20.3 -0.8 21,645 19.8 5,673 26.2 1,373 166 939 5,074 -499 4,575 1,535 33.6 3,040 3,371 96.6
CY13 4Q 5.39 -5.6 4,293 5.2 -5.0 23,133 -0.7 4,282 18.5 1,576 243 1,100 3,563 -279 3,284 1,164 35.5 2,120 2,300 -28.8
1Q 5.96 -3.6 4,271 0.3 -0.5 25,448 -3.3 5,118 20.1 1,204 132 1,339 5,121 1,741 6,862 1,983 28.9 4,879 3,641 -28.3
2Q 5.46 -3.1 4,297 -5.7 0.6 23,457 -8.6 4,920 21.0 1,223 171 1,051 4,578 0 4,578 1,336 29.2 3,242 3,242 -30.9
3QE 4.79 0.0 4,157 -8.0 -3.3 19,904 -8.0 3,239 16.3 1,300 135 1,150 2,954 0 2,954 855 29.0 2,099 2,099 -37.7
4QE 5.56 3.3 4,312 0.4 3.7 23,990 3.7 5,030 21.0 1,340 144 1,260 4,805 0 4,805 1,385 28.8 3,420 3,420 48.7
CY12
CY13E
21.99 2.5 4,400 11.0
21.77 -1.0 4,263 -3.1
96,749 13.8 24,675 25.5 5,373 757 4,042 22,588 -3,570 19,018 6,048 31.8 12,971 15,435 23.0
92,800 49.2 18,307 19.7 5,068 582 4,800 17,458 1,741 19,199 5,559 29.0 13,640 12,403 -19.6
C–30
September 2013 Results Preview | Sector: Cement
Birla Corporation Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BCORP IN 77.0 16 / 0 342 / 191 -9 / -20 / -19
2012 2013 2014E 22.5 25.6 28.6 3.1 3.5 3.5 2.4 2.7 2.7 31.1 35.0 34.7 -25.2 12.8 -1.0 291.3 318.2 343.5 10.7 11.0 10.1 11.3 10.8 9.9 22.6 24.9 27.0 6.6 0.7 2.3 15
5.9 0.6 2.8 17
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (x)
CMP: INR207
6.0 0.6 2.9 17
2015E 31.1 4.8 3.5 44.8 29.2 377.8 11.9 12.7 23.3 4.6 0.5 1.7 14
Buy
2QFY14 volumes are estimated to grow 7% YoY (-10.3% QoQ) to 1.68mt, on a low base of last year, when the mining ban was imposed. Average realizations are expected to decline by 3.1% QoQ (-5.6% QoQ) to INR3,725/ton. EBITDA margin is expected to decline by 9pp YoY (stable QoQ) to 8.6%, impacted by lower realizations and YoY higher cost. EBITDA/ton is estimated to decline by ~INR12/ton QoQ (-INR356/ton QoQ) to INR344/ ton. PAT is estimated to decline 55% YoY (-21% QoQ) to INR365m. We upgrade FY14E/15E EPS estimates by 2.2%/6.3% to factor lower volume but better realizations. The stock trades at 3.9x FY15E EPS, 1.3x EV/EBITDA and USD13/ton. Maintain Buy with a target price of INR400 (4x FY15E EV/EBITDA).
Key issues to watch out ¾ Volume growth recovery and outlook. ¾ Cement pricing outlook and sustainability, considering recent volatility (prices were down in July-August, followed by a sharp uptick in September-end). ¾ Status of mining ban at Rajasthan plant and any contingency plans.
Quarterly Performance
(INR Million)
Y/E March Cement Sales (m ton) YoY Change (%) Cement Realization YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income Profit before Tax Tax Rate (%) PAT Margins (%) YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 1.61 5.6 4,079 19.5 12.9 6,580 18.1 1,258 19.1 235 237 346 1,132 284 25.1 847 12.9 -24.3
2Q 1.57 11.4 3,946 25.6 -3.2 6,274 24.2 1,102 17.6 252 141 347 1,056 254 24.0 802 12.8 206.8
3Q 1.57 12.9 3,750 7.1 -5.0 6,126 14.7 514 8.4 285 171 270 328 6 1.7 322 5.3 -26.3
FY14 4Q 1.59 -2.6 3,847 6.5 2.6 6,658 2.4 663 10.0 272 99 701 992 265 26.8 726 10.9 26.4
1Q 1.88 17.0 3,845 -5.7 0.0 7,720 17.3 668 8.7 302 207 367 525 66 12.5 460 6.0 -45.7
2QE 1.68 7.0 3,725 -5.6 -3.1 6,754 7.6 579 8.6 300 200 350 429 64 15.0 365 5.4 -54.5
3QE 1.64 5.0 3,875 3.3 4.0 6,902 12.7 924 13.4 300 200 400 824 124 15.0 700 10.1 117.4
4QE 1.65 3.7 4,087 6.2 5.5 7,236 8.7 1,303 18.0 303 206 570 1,365 218 16.0 1,147 15.9 58.0
FY13
FY14E
6.47 8.5 3,827 12.0
6.86 6.0 3,881 1.4
25,638 14.1 3,536 13.8 1,044 649 1,663 3,507 809 23.1 2,698 10.5 12.8
28,611 11.6 3,474 12.1 1,205 813 1,688 3,144 472 15.0 2,672 9.3 -1.0
C–31
September 2013 Results Preview | Sector: Cement
Grasim Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
GRASIM IN 91.7 246 / 4 3,511 / 2,121 9 / -9 / -24
2012 2013 2014E 249.8 276.4 271.2 53.2 56.6 59.0 35.3 35.6 39.7 288.6 278.7 322.7 16.2 -3.4 15.8 1,861 2,142 2,435 15.5 13.0 13.3 21.4 18.1 18.0 9.0 9.4 9.1 9.3 1.4 5.7 90
9.6 1.3 6.2 102
¾
¾
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (USD)
CMP: INR2,678
8.3 1.1 5.4 78
2015E 315.2 75.4 47.5 379.7 17.7 2,783 13.6 20.9 8.4 7.1 1.0 4.1 67
¾ ¾
¾
Buy
VSF volumes are estimated to grow 4.2% YoY (14.6% QoQ) to 88,899 tons, impacted by uncertain global economic outlook. VSF realizations are estimated to improve by ~INR2/kg QoQ, down INR8/kg YoY, to INR118.5/kg. This is due to the price increase taken in VSF segment in August 2013, as import parity price has gone up in line with INR depreciation. We assume price/kg of INR118/120 for FY14E/15E. Standalone EBITDA margin is estimated to improve by 150bp QoQ (2.6pp YoY) to 19.1% YoY. EBITDA is estimated to de-grow by 15.6% YoY (+20.8% QoQ) to INR2.44b, translating into PAT of INR3.8b - de-growth of 1% YoY (+68% QoQ). The stock trades at 7.2x FY15E consolidated EPS, 4.6x FY15E EV/EBITDA and USD78/ton. Maintain Buy with a target price of INR3,557 (FY15E SOTP-based).
Key issues to watch out ¾ Outlook on VSF business and strategy to utilize upcoming capacities (~47% capacity growth). ¾ Cement business outlook on demand and pricing, and status of capacity addition.
Quarterly Performance
(INR Million)
Y/E March VSF Volume (ton) YoY Change (%) VSF Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Items Extraordinary Inc/(Exp) PBT after EO Items Tax Rate (%) Reported PAT Adj. PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 77,013 40.4 128,024 -16.0 5.5 12,390 21.0 2,953 23.8 360 61 844 3,376 0 3,376 647 19.2 2,729 2,729 -13.1
2Q 85,312 8.0 126,656 1.6 -1.1 13,345 9.6 2,898 21.7 386 78 2,106 4,540 0 4,540 712 15.7 3,827 3,827 11.0
3Q 78,579 0.5 121,668 -5.3 -3.9 12,157 -2.2 2,154 17.7 395 107 951 2,603 0 2,603 623 24.0 1,980 1,980 -27.9
FY14 4Q 95,161 0.3 119,150 -1.8 -2.1 13,765 -1.1 2,141 15.6 451 145 1,181 2,726 2,044 4,770 1,046 21.9 3,724 2,128 -12.6
1Q 77,518 0.7 116,501 -9.0 -2.2 11,489 -7.3 2,024 17.6 484 78 959 2,420 0 2,420 159 6.6 2,261 2,261 -17.2
2QE 88,899 4.2 118,501 -6.4 1.7 12,779 -4.2 2,445 19.1 500 125 2,300 4,120 0 4,120 330 8.0 3,791 3,791 -1.0
3QE 85,343 8.6 118,501 -2.6 0.0 12,494 2.8 2,350 18.8 650 175 1,050 2,575 0 2,575 206 8.0 2,369 2,369 19.7
4QE 103,835 9.1 118,852 -0.2 0.3 14,354 4.3 2,748 19.1 658 205 1,191 3,077 0 3,077 281 9.1 2,796 2,796 31.4
FY13
FY14E
336,065 9.5 123,678 -4.5
355,594 5.8 118,378 -4.3
51,814 6.3 10,145 19.6 1,592 391 5,082 13,245 2,044 15,289 3,029 19.8 12,260 10,621 -9.8
51,116 -1.3 9,567 18.7 2,292 583 5,500 12,192 0 12,192 975 8.0 11,217 11,217 5.6
C–32
September 2013 Results Preview | Sector: Cement
India Cements Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
ICEM IN 307.2 16 / 0 105 / 43 -3 / -44 / -54
2012 2013 2014E 42.0 46.0 47.7 9.0 8.4 8.1 3.0 1.8 1.0 8.5 5.8 3.2 266.2 -31.3 -45.3 132.1 133.1 134.0 7.3 4.3 2.4 10.1 8.4 7.4 24.5 43.6 72.0 6.0 0.4 4.5 45
8.7 0.4 4.8 49
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (USD)
CMP: INR51
15.9 0.4 5.4 49
2015E 52.9 9.0 1.9 6.6 107.7 137.5 4.7 8.4 45.8 7.7 0.4 4.5 46
Neutral
India Cements' volumes are expected to grow by 3.7% YoY (-2% QoQ) to 2.61mt. Better pricing environment (strong uptick in Andhra Pradesh) to result in 1.7% QoQ (-2.2% YoY) growth in realizations to INR4,258/ ton. We estimate revenue of ~INR70m from IPL (v/s INR52m in 2QFY13). EBITDA is estimated at INR1.9b (-9% YoY and -2% QoQ) and EBITDA margin to improve by 1pp QoQ (-1.9pp YoY) to 16.4%, translating into PAT de-growth of 70% YoY (-11% QoQ) to INR149m. Pure Cement's EBITDA/ton is estimated to increase by ~INR122/ton QoQ (-INR77/ton YoY) to INR694/ton. We downgrade FY14E EPS estimates by 4.5% and upgrade FY15E by 8.4% to INR3.9/INR9.7, led by lower volume but better realizations growth. Valuations stand at 4.6x FY15E EPS, 3.6x FY15E EBITDA and USD43/ton. Maintain Neutral with a target price of INR44 (3.5x FY15E EV/EBITDA).
Key issues to watch out ¾ Demand and pricing outlook, especially in South India. ¾ Expected timeline and potential cost savings from captive coal block in Indonesia and AP power plant. ¾ Roadmap for stake increase in Trinetra (Rajasthan plant).
Quarterly Performance (Standalone)
(INR Million)
Y/E March Sales Dispatches (m ton) YoY Change (%) Realization (INR/ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates October 2013
FY13 1Q 2.38 2.9 4,464 7.6 5.1 12,014 13.7 9,237 2,777 23.1 692 949 37 1,173 973 353 36.2 621 748 -26.7 6.2
2Q 2.51 3.5 4,355 3.1 -2.4 11,227 3.1 9,176 2,051 18.3 699 667 32 717 717 226 31.5 491 491 -29.6 4.4
3Q 2.42 10.8 4,364 2.9 0.2 10,824 15.0 8,897 1,927 17.8 708 822 34 431 431 169 39.3 261 261 -53.6 2.4
FY14 4Q 2.78 6.7 4,221 -0.6 -3.3 11,906 6.7 10,228 1,679 14.1 720 638 84 404 404 141 34.8 263 263 -59.4 2.2
1Q 2.65 11.3 4,188 -6.2 -0.8 12,384 3.1 10,473 1,910 15.4 680 999 25 257 257 89 34.6 168 168 -77.5 1.4
2QE 2.61 3.7 4,258 -2.2 1.7 11,406 1.6 9,540 1,866 16.4 730 950 40 226 226 77 34.1 149 149 -69.7 1.3
3QE 2.42 -0.2 4,408 1.0 3.5 10,955 1.2 9,063 1,892 17.3 750 950 40 232 232 79 34.1 153 153 -41.5 1.4
4QE 2.77 -0.1 4,609 9.2 4.6 12,947 8.7 10,516 2,432 18.8 780 947 95 799 799 271 33.9 528 528 100.6 4.1
FY13
FY14E
10.06 5.6 4,360 3.4
10.44 3.9 4,368 0.2
45,970 9.4 37,537 8,433 18.3 2,818 3,078 186 2,724 2,524 888 35.2 1,636 1,765 -40.5 3.8
47,691 3.7 39,592 8,099 17.0 2,940 3,846 200 1,514 1,514 516 34.1 998 998 -43.4 2.1
C–33
September 2013 Results Preview | Sector: Cement
Jaiprakash Associates Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
JPA IN 2,219.1 81 / 1 107 / 28 2 / -49 / -61
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Sales 128.5 133.6 149.9 EBITDA 34.4 33.3 37.6 NP 10.2 4.9 5.9 Adj. EPS (INR) 4.8 2.3 2.7 EPS Gr. (%) 37.5 -52.9 17.9 BV/Sh. (INR) 57.9 60.1 63.5 RoE (%) 9.4 3.9 4.3 RoCE (%) 9.3 7.5 8.4 Payout (%) 22.7 22.8 14.9 Valuations P/E (x) 7.6 16.2 13.7 P/BV (x) 0.6 0.6 0.6 EV/ EBITDA (x) 8.1 9.4 7.4 Div. Yield (%) 2.6 1.2 1.5
2015E 162.7 40.9 9.7 4.4 63.4 66.9 6.7 9.3 22.8 8.4 0.5 6.6 2.4
CMP: INR37
Buy
In 2QFY14E, we expect JPA to post revenue of INR33.4b, EBITDA of INR8.1b and net profit of INR804m. In cement business, we have assumed a realization of INR4,214/ton v/s INR4,264/ton sequentially. We have estimated volumes of 3.35mt, up 3% YoY. EPC division's revenue is expected at INR13.5b (up 5% YoY) and EBIT margin of 25% v/s 34.2% YoY. JPA recently sold its 4.8mt of Gujarat-based capacity to Ultratech for INR38b. Consideration involves takeover of INR36.5b of debt in Jaypee Cement (100% subsidiary of JPA) and INR1.5b equity issuance. As per media report, JPA is also considering to sell its Himachal-based cement capacity and hydro assets in Jaiprakash Power. We expect JPA to post standalone net profit of INR5.9b in FY14E (up 20% YoY) and INR9.7b in FY15E (up 63.4% YoY). The stock trades at a reported PER of 8.4x FY15E.
Key issues to watch out ¾ Cement realizations and cost. ¾ Update on further disinvestment. ¾ EPC division's profitability and visibility on revenue/order book. ¾ Ramp-up in real estate division, revenue recognition.
Quarterly Performance
(INR Million)
Y/E March
FY13 1Q 29,636 -6.9 7,713 -0.2 26.0 1,763 4,653 731 9 2,037 649 31.8 1,388 1,379 28.7
2Q 29,825 -4.8 7,711 3.1 25.9 1,778 4,544 448 33 1,870 590 31.6 1,280 1,280 -0.5
3Q 33,984 2.8 7,625 -6.5 22.4 1,813 5,327 1,176 8 1,670 561 33.6 1,109 1,101 -45.9
FY14 4Q 38,642 -4.9 8,507 -16.6 22.0 1,908 5,490 679 43 1,831 596 32.5 1,235 1,192 -57.3
1Q 33,149 11.9 7,847 1.7 23.7 1,943 5,900 371
2QE 33,377 11.9 8,112 5.2 24.3 1,950 5,900 950
Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Extra-ordinary income PBT 4,327 1,212 Tax 982 408 Effective Tax Rate (%) 22.7 33.7 Reported PAT 3,345 804 Adj PAT 207 804 Change (%) -85.0 -37.2 Cement Business Volumes (m ton) 3.59 3.25 3.71 3.95 3.61 3.35 Revenues (INR m) 15,629 13,719 14,747 16,363 15,393 14,117 Realization (INR/t) 4,354 4,221 3,971 4,147 4,264 4,214 E: MOSL Estimates, *Change (% YoY) is not comparable due to Jaypee Cement de-merger
3QE 39,419 16.0 9,655 26.6 24.5 1,950 5,900 1,075
4QE 43,963 13.8 11,996 41.0 27.3 2,006 5,972 1,202
2,880 970 33.7 1,911 1,911 73.5
5,220 2,232 42.8 2,988 2,988 150.6
4.15 18,319 4,414
4.39 20,695 4,714
FY13
FY14E
132,087
149,907 13.5 37,610 18.4 25.1 7,848 23,672 3,598 3,952 13,639 4,592 33.7 9,047 5,910 20.1
31,755 24.0 7,261 20,114 3,034 93 7,507 2,495 33.2 5,013 4,920
14.50 60,459 4,170
15.50 68,524 4,421
Nalin Bhatt (
[email protected])/Aditya Bahety (
[email protected]) October 2013
C–34
September 2013 Results Preview | Sector: Cement
Shree Cement Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SRCM IN 34.8 139 / 2 5,210 / 3,413 1 / -6 / 0
CMP: INR4,004
We expect cement volumes to grow 2% YoY (-2.1% QoQ) to 3.1mt (including clinker) and realizations are expected to decline by 2.9% QoQ (-11.9% YoY) to INR3,438/ton.
Merchant power sale is estimated at 325m units (v/s 307m units YoY and 795m QoQ) at ~INR3.8/unit (v/s INR3.88 QoQ and INR3.97 YoY).
Realizations de-growth and QoQ increase in cost trend, due to negative operating leverage, led to cement business profitability at INR724/ ton (-INR209/ton QoQ and -INR461/ton QoQ).
Power EBITDA contribution estimated at INR293m (v/s INR326m YoY/ INR840m QoQ). Adjusted PAT seen at INR0.83b (v/s INR2.3b YoY v/s INR2.8b QoQ).
Valuations at 11.4x FY15E EPS, 6.6x FY15E EBITDA and USD76/ton. Maintain Buy with a target price of INR5,400 (FY15E SOTP-based).
Financials & Valuation (INR b) Y/E June Sales EBITDA NP Adj EPS (INR) EPS Growth (%) BV/Share (Rs) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (USD)
2012 2013 2014E 47.8 55.7 59.1 13.9 15.4 15.4 5.7 10.0 7.3 274.4 314.9 277.0 37.1 14.8 -12.0 785 1,103 1,283 24.0 30.6 17.4 19.6 28.1 20.4 14.5 8.1 13.5 14.6 5.1 9.1 120
12.7 3.6 8.1 97
14.5 3.1 8.1 79
2015E 67.4 17.8 8.4 321.1 15.9 1,495 17.4 21.3 12.5 12.5 2.7 7.1 73
Buy
Key issues to watch out ¾ Volume and pricing outlook for North India. ¾ Pet coke price trend and update on any forward agreements for merchant power. ¾ Update on cement capacity addition and capex plans.
Quarterly Performance
(INR Million)
Y/E March Sales Dispat. (m ton) YoY Change (%) Realization (INR/Ton) YoY Change (%) QoQ Change (%) Net Sales YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Exp Extra-Ord Expense PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 3.04 22.4 3,902 14.7 4.1 13,230 55.3 3,930 29.7 942 543 300 2,745 10 2,736 454 16.6 2,281 2,289 438.0
2Q 3.00 5.2 3,724 4.1 -4.6 14,281 19.4 3,717 26.0 818 563 323 2,659 120 2,539 365 14.4 2,174 2,277 284.6
3Q 3.26 -6.2 3,498 -1.7 -6.1 14,281 0.3 4,054 28.4 1,265 447 576 2,918 1 2,917 176 6.0 2,741 2,741 85.2
FY14 4Q 3.17 -6.0 3,578 -4.6 2.3 14,414 0.4 3,796 26.3 1,332 378 916 3,003 0 3,002 159 5.3 2,843 2,843 -19.1
1Q 3.10 2.0 3,438 -11.9 -3.9 11,898 -10.1 2,538 21.3 1,450 450 350 988 0 988 158 16.0 830 830 -63.7
2QE 3.15 5.0 3,608 -3.1 4.9 14,557 1.9 3,548 24.4 1,550 500 400 1,898 0 1,898 304 16.0 1,594 1,594 -30.0
3QE 3.48 7.0 3,833 9.6 6.2 16,305 14.2 4,756 29.2 1,600 525 500 3,131 0 3,131 501 16.0 2,630 2,630 -4.1
4QE 3.36 6.0 3,886 8.6 1.4 16,367 13.5 4,543 27.8 1,988 531 750 2,774 0 2,774 576 20.8 2,198 2,198 -22.7
FY13
FY14E
12.46 -16.2 3,628 3.4
13.09 5.1 3,699 1.9
55,671 -4.0 15,378 27.6 4,356 1,931 2,114 11,205 11 11,194 1,155 10.3 10,040 10,049 59.6
59,127 6.2 15,385 26.0 6,588 2,006 2,000 8,791 0 8,791 1,538 17.5 7,253 7,253 -27.8
C–35
September 2013 Results Preview | Sector: Cement
UltraTech Cement Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
UTCEM IN 274.0 500 / 8 2,075 / 1,405 7 / -7 / -13
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Ton (USD)
2012 2013 2014E 181.7 200.2 208.4 40.0 45.2 45.6 24.1 26.6 26.3 87.8 96.8 96.1 71.4 10.4 -0.8 469.2 555.7 640.0 20.5 18.9 16.1 23.5 21.4 18.1 10.4 10.9 12.2 20.8 3.9 12.1 157
18.9 3.3 10.3 145
19.0 2.9 10.5 127
2015E 235.5 54.3 30.4 110.9 15.4 736.9 16.1 19.6 12.6 16.5 2.5 8.8 121
CMP: INR1,826
Buy
Cement volumes are estimated to grow -2.5% YoY (-10% QoQ) to 9.06mt. Realizations are estimated to decline by 1.7% QoQ (-4% YoY) to INR4,050/ton. Its supplementary business of white cement and RMC are estimated to grow 5% and -5% YoY respectively in volume and 5.6% YoY in realizations. Realizations decline coupled with sequential cost push (4.4% QoQ) led by negative operating leverage and higher employee costs would result in an impact on EBITDA/ton of INR889/ton (-INR136/ton QoQ, INR178/ton YoY). EBITDA margin would decline 3pp QoQ (-3.2pp YoY) to 18.2%. EBITDA is estimated to de-grow 19% YoY (-22% QoQ) to INR8.2b, translating into PAT de-growth of 28% YoY (-42% QoQ) to INR3.9b. We upgrade the EPS estimates for FY14E/15E by 1.4%/3% to INR101.2/ INR130.2 respectively. The stock trades at 13.4x FY15E EPS, 7.3x FY15E EV/EBITDA and USD114/ ton. Maintain Buy with a target price of INR2,130 (9x FY15E EV/EBITDA). Key issues to watch out Volume growth recovery and outlook. Cement pricing outlook and sustainability, considering recent volatility (prices were down in July-August, followed by a sharp uptick in September-end). Update on capacity addition of 10.2mt, which is slated to commission in 1HFY14. Progress and timeline over JPA deal. Update on financial performance of Star Cement, UAE.
Quarterly Performance Y/E March
(INR Million) FY13
1Q 2Q 3Q 4Q Sales (m ton) 10.33 9.29 9.94 11.13 YoY Change (%) 4.8 0.7 -1.7 -3.6 Grey Cement Realn.(INR/ton) * 4,121 4,219 4,050 4,011 YoY Change (%) 9.9 20.4 7.8 3.0 QoQ Change (%) 5.8 2.4 -4.0 -1.0 Net Sales 50,719 46,994 48,574 53,892 YoY Change (%) 16.6 20.3 6.4 1.0 EBITDA 12,897 10,052 10,243 11,993 Margins (%) 25.4 21.4 21.1 22.3 Depreciation 2,281 2,325 2,388 2,460 Interest 498 600 521 478 Other Income 869 706 1,212 1,833 PBT 10,987 7,834 8,545 10,888 Tax 3,203 2,334 2,537 3,626 Rate (%) 29.2 29.8 29.7 33.3 Reported PAT 7,784 5,500 6,008 7,262 Adj PAT 7,784 5,500 6,008 7,262 YoY Change (%) 14.0 97.2 5.5 -15.8 E: MOSL Estimates; * Grey cement realization is our estimate October 2013
FY14 1Q 10.09 -2.3 4,120 0.0 2.7 49,575 -2.3 10,491 21.2 2,521 660 1,882 9,192 2,466 26.8 6,726 6,726 -13.6
2QE 9.06 -2.5 4,050 -4.0 -1.7 44,866 -4.5 8,180 18.2 2,791 700 700 5,389 1,455 27.0 3,934 3,934 -28.5
3QE 10.36 4.2 4,220 4.2 4.2 52,553 8.2 11,641 22.2 2,850 750 1,000 9,041 2,441 27.0 6,600 6,600 9.9
4QE 11.60 4.2 4,419 10.2 4.7 61,451 14.0 15,279 24.9 3,065 775 1,018 12,457 3,379 27.1 9,077 9,077 25.0
FY13
FY14E
40.65 -0.2 4,102 9.8
41.11 1.1 4,215 2.8
200,179 10.2 45,185 22.6 9,454 2,097 4,620 38,254 11,700 30.6 26,554 26,554 10.7
208,445 4.1 45,591 21.9 11,227 2,885 4,600 36,079 9,741 27.0 26,338 26,338 -0.8
C–36
September 2013 Results Preview | Sector: Consumer
Consumer Companies Covered
Sales to grow 12%, PAT to grow 13% - similar to 1QFY14
Asian Paints
We expect our Consumer coverage universe to post 12.1% revenue growth and 13.4% PAT growth in 2QFY14. EBITDA is likely to grow 15.2%, with 60bp margin expansion, led by Hindustan Unilever (HUVR), ITC, Asian Paints (APNT), GSK Consumer (SKB) and Britannia (BRIT). We expect ITC to post 12% sales growth (~3% cigarette volume decline) and 14% PAT growth. HUVR's sales are likely to grow 8% (volume growth of ~5%), with EBITDA margin expanding 50bp to 16%.
Britannia Industries Colgate Palmolive Dabur India GSK Consumer Godrej Consumer Products
Growth has not picked up; rural markets to continue outperforming Our recent interactions with 14 Consumer/Retail companies indicate that demand for staples has not picked up yet. We expect volume growth for most of our Staples universe to remain broadly similar to 1QFY14 levels. Rural growth will continue to outperform urban, in our view. Good monsoons provide some respite for rural consumption in 2H, post the harvesting season. Premiumization, the overarching theme of the Consumer sector, has weakened and virtually halted, expect in the Oral Care category.
Hindustan Unilever ITC Marico Nestle India Pidilite Industries Radico Khaitan
2Q gross margins to sustain; currency depreciation impact to be visible 3Q onwards
United Spirits
While the underlying commodity price movements have not been dramatic, the INR depreciation led raw material inflation leads to downside risks ahead to gross margins. Required price hikes have not been initiated yet and we expect the same to commence soon. HUVR, APNT, Pidilite (PIDI) and Dabur have relatively higher exposure to imported raw material. Companies have selectively withdrawn promotions and are looking at cutting ad spends to buffer the impact of input cost inflation. We expect HUVR, ITC and BRIT to post margin expansion. Colgate is likely to report margin decline due to high promotional activity after P&G's Oral B launch.
Expected quarterly performance summary
Asian Paints Britannia Colgate Dabur Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. Radico Khaitan United Spirits Sector Aggregate
CMP (INR) 27.09.13 471 775 1,233 170 832 4,238 621 349 220 5,097 253 128 2,621
(INR Million)
Rating Sep.13 Neutral Buy Neutral Buy Neutral Neutral Sell Neutral Buy Neutral Neutral Buy Buy
29,863 15,852 8,859 17,083 19,303 9,709 68,157 80,938 12,779 24,057 9,358 3,333 24,428 323,717
Sales Var. % YoY 14.2 13.0 14.5 12.2 21.0 17.3 8.0 12.0 10.6 13.7 14.0 12.2 10.0 12.1
Var. % QoQ 6.0 12.9 4.9 3.5 12.2 13.8 0.1 9.2 -7.4 8.7 -7.8 -6.7 11.4 5.6
Sep.13 4,241 1,110 1,893 3,024 2,896 1,689 10,905 30,756 1,687 5,052 1,684 573 3,053 68,563
EBITDA Var. % YoY 17.4 83.0 7.7 14.3 18.7 20.3 11.6 14.4 14.2 13.9 14.8 16.7 20.6 15.2
Var. % QoQ -4.0 -5.0 14.5 28.4 31.2 42.4 0.5 10.2 -25.7 5.9 -24.8 -6.1 9.8 6.4
Net Profit Sep.13 Var. % YoY 2,604 8.9 768 68.5 1,465 1.0 2,293 13.4 1,881 18.1 1,443 12.3 8,628 7.1 20,900 13.8 1,013 18.0 2,944 11.9 1,184 5.9 293 32.6 884 125.2 46,300 13.4
Var. % QoQ -5.4 -10.9 12.9 23.3 44.2 20.3 -2.5 10.5 -34.8 8.5 -23.4 -4.4 -25.2 4.4
Gautam Duggad (
[email protected]) October 2013
C–37
September 2013 Results Preview | Sector: Consumer
Relative Performance-3m (%) Sens ex Index MOSL Cons umer Index 110 105 100
Relative Performance-1Yr (%) Sens ex Index MOSL Cons umer Index 135 120 105
Sep-13
Jun-13
Mar-13
Dec-12
90 Sep-12
P&G entered toothpastes with the launch of Oral B. HUVR re-launched Fair & Lovely with white color after several quarters of weak performance. Marvella Slim RO purifiers and Rin Pink Bar are some of HUVR's other innovations. Dabur launched Vatika Enriched Coconut Oil with Hibiscus. Godrej Consumer (GCPL) launched Good Knight Fast Card, a paper-based household insecticide.
Little to choose from: Weak demand, margin headwinds and expensive valuations
Sep-13
Aug-13
Jul-13
Jun-13
95 90
New launches continue selectively
The Consumer sector faces two key risks ahead: (a) continued weak volume growth, given poor macroeconomic parameters, and (b) risks to margins from INR depreciation, led raw material inflation and reluctance to implement price hikes, given volume growth implications. While the progress of monsoons has been good, the benefits will be visible only in 2H and may not completely offset the weakness in urban demand, in our view. We are also not too enthused with the street's expectation of election stimulus for rural consumption (75% of budgeted fiscal deficit target has already been reached in five months). This coupled with multi-year high valuations for the sector makes choice difficult. We continue to prefer niche plays with strong pricing power and greater visibility on earnings growth. Dabur and Marico remain our top picks in the sector. In the large caps, we prefer ITC. Probability of earnings downgrade is higher than upgrade in the sector - Colgate, GCPL, UNSP, APNT have earnings downgrade risks.
2QFY14 volume growth expectations Quarter Ending Asian Paints Colgate (Toothpaste) Dabur Godrej Consumer Soaps GSK Consumer Hindustan Unilever ITC (cigarette) Marico Parachute Hair Oil Saffola Radico Khaitan United Spirits
Jun-11 15.0 14.0 8.6
Sep-11 15.0 15.0 10.0
Dec-11 12.0 15.0 10.8
Mar-12 18.0 14.0 12.4
Jun-12 -2.0 13.0 12.0
Sep-12 5.0 11.0 10.5
Dec-12 13.0 8.0 9.5
Mar-13 3.0 11.0 12.0
Jun-13 10.0 11.0 9.0
Sep-13 10.0 10.0 8.0
9.0 14.0 8.3 8.0
19.0 8.0 9.8 7.5
20.0 12.0 9.1 5.0
17.0 7.0 10.0 5.5
22.0 7.4 9.0 1.5
6.0 4.5 7.0 0.5
2.0 6.0 5.0 1.5
4.0 8.0 6.3 2.5
7.0 7.0 4.0 -1.5
5.0 7.0 5.0 -3.0
10.0 32.0 15.0 12.3 15.4
10.0 26.0 11.0 9.7 8.0
13.0 20.0 15.0 10.5 0.7
11.1 17.5 3.3 6.8 5.1
18.0 25.0 12.0 8.2 1.9
9.0 20.0 6.0 7.8 -1.0
6.0 30.0 4.0 6.5 7.0
5.0 4.0 6.0 24.0 16.0 15.0 5.0 10.0 10.0 7.4 7.6 7.0 3.8 0.2 5.0 Source: Company, MOSL
Impact of input price changes Input Price Trend (Y-o-Y) LAB Up Soda Ash Down Palm Fatty Acid Down Palm Oil Up HDPE Up Sugar Down Titanium Dioxide Up Copra Up
October 2013
Unit INR/Kg INR/50Kg US$/MT MYR/MT INR/Kg INR/Qtl INR/Kg INR/Qtl
CMP (INR) 138.1 1055 659 2320 106 3127.5 272 6100
12m change % 18.0 -7.5 -3.2 9.7 14.0 -17.3 8.8 51.6
Impact Negative Positive Positive Negative Negative Positive Negative Negative
Companies HUL HUL HUL, Godrej Consumer Britannia, Nestle, HUL, ITC All Companies Britannia, Nestle, GSK Consumer Asian Paints Marico Source: Company, MOSL C–38
September 2013 Results Preview | Sector: Consumer
New launches during 2QFY14 Company HUL HUL HUL Dabur Dabur Colgate GCPL
Brand F&L Rin Pink Bar Marvella Slim RO purifier Vatika Enriched Coconut Oil Oxylife Men Craeme Bleach Colgate SlimSoft Good knight Fast Card
Palm Fatty Acid (INR/ton)
Category Skin Care Detergents Water Purifier Hair Oils Male Grooming Toothbrush Home Insecticides Source: Company, MOSL
LAB prices (INR/kg) 138
113 111
70,000
114
109
60,000 46,363
46,704
50,000
90
44,171
40,000
84 102
84 86
86
43,025
121
76 41,170
30,000 32,441
Mar09 Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11 Mar12 Jun12 Sep12 Dec12 Mar13 Jun13 Sep13
Sep13
Jun13
Mar13
Dec12
Sep12
Jun12
Mar12
Dec11
Sep11
Jun11
Mar11
Dec10
Sep10
20,000
Copra prices (INR/Qtl)
Sugar prices (INR/Qtl)
7,500
3,895
4,000
7,075 5,950
3,600
5,500
3,383
3,200
3,220 3,135
3,800
2,800
3,200 1,500
Consumer Asian Paints Britannia Colgate Dabur Godrej Consumer GSK Consumer Hind. Unilever ITC Marico Nestle Pidilite Inds. Radico Khaitan United Spirits Sector Aggregate October 2013
471 775 1,233 170 832 4,238 621 349 220 5,097 253 128 2,621
Sep13
Jun13
Mar13
Jan13
Oct12
Jul12
Source: Companies, MOSL
Comparative valuation CMP (INR) 27.09.13
Apr12
Jan12
Nov11
Aug11
May11
Nov10
Sep13 May13 Jan13 Sep12 May12 Jan12 Sep11 May11 Jan11 Sep10 May10 Jan10 Sep09 May09 Jan09 Sep08 May08 Jan08
2,400 Feb11
3,500
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Neutral Buy Neutral Buy Neutral Neutral Sell Neutral Buy Neutral Neutral Buy Buy
11.6 19.6 36.5 4.4 19.6 98.3 15.3 9.5 6.0 114.1 8.5 6.7 29.6
40.6 39.6 33.8 38.6 42.4 43.1 40.5 36.8 36.6 44.7 29.9 19.1 88.6 39.7
26.7 28.1 24.6 29.7 29.6 35.7 32.2 24.3 23.6 27.2 19.9 11.7 35.5 27.1
33.3 37.5 108.4 35.1 20.9 30.5 71.4 36.1 19.6 71.6 24.9 12.3 4.3 32.8
12.4 27.1 40.8 5.4 24.7 119.1 16.4 10.9 7.5 123.1 9.7 8.0 41.1
15.2 32.0 46.1 6.5 30.5 139.8 17.7 12.7 8.6 150.2 11.7 10.7 66.0
38.1 28.6 30.2 31.4 33.7 35.6 37.9 31.9 29.4 41.4 26.2 16.0 63.7 34.5
31.0 24.2 26.7 26.1 27.3 30.3 35.1 27.4 25.6 33.9 21.6 12.0 39.7 29.4
23.6 19.7 21.8 24.1 23.5 31.7 28.1 20.7 19.1 24.2 16.7 10.1 29.4 23.0
19.8 16.2 18.3 20.3 19.5 25.0 24.7 17.9 15.8 20.2 13.7 8.2 21.5 19.5
30.7 42.6 97.6 35.3 23.2 31.1 61.3 37.8 20.1 58.0 24.1 13.3 6.6 33.2
32.1 41.5 92.5 35.1 24.3 30.8 57.1 39.8 19.2 56.7 24.6 15.7 9.7 34.2 C–39
September 2013 Results Preview | Sector: Consumer
Asian Paints Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
APNT IN 959.2 452 / 7 525 / 376 5 / -9 / 16
CMP: INR471
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 96.3 109.0 125.5 15.1 16.7 18.8 9.9 11.1 11.9 10.3 11.6 12.4 17.3 12.7 6.4 28.7 34.9 40.2 36.0 33.3 30.7 47.8 44.2 42.2 38.8 41.6 48.5
2015E 145.4 22.2 14.6 15.2 22.8 47.2 32.1 42.7 46.1
40.5 14.6 25.9 1.1
36.0 12.0 23.6 1.4
33.8 10.4 20.9 16.8
27.5 8.8 17.5 19.6
Neutral
We expect Asian Paints (APNT) to post 14% revenue growth to INR29.9b in 2QFY14, with 8-10% volume growth in domestic decorative paints. Inventory build-up ahead of price hikes should boost volume growth, in our view. APNT has taken ~4% price hike in YTD FY14 to pass on the impact of INR depreciation led raw material cost inflation. We expect margin expansion of 40bp to 14.2%, as the benefit of low cost inventory is available in 2QFY14. We expect the currency impact on margins to manifest 3Q onwards. Power issues at the Khandala plant are in the process of being addressed and could help defray overheads over larger base as capacity utilization improves. We estimate PAT growth for 2QFY14 at 9%. The stock trades at 27.5x FY15E EPS of INR15.2. Neutral.
Key issues to watch out ¾ Update on Sleek integration ¾ Comments on volume growth trends and demand scenario ¾ Outlook on raw material scenario
Quarterly Performance (Consolidated)
(INR Million)
Y/E March Volume Growth % Net Sales Change (%) Raw Material/PM Gross Profit Gross Margin (%) Operating Expenses % of Sales EBITDA Margin (%) Change (%) Interest Depreciation Other Income PBT Tax Effective Tax Rate (%) PAT before Minority Minority Interest Adjusted PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q -2.0 25,373 12.4 14,838 10,535 41.5 6,156 24.3 4,379 17.3 12.7 109 334 326 4,262 1,273 29.9 2,989 106 2,884 9.5
2Q 5.0 26,160 16.5 15,714 10,445 39.9 6,834 26.1 3,612 13.8 14.0 122 357 422 3,555 1,041 29.3 2,514 122 2,392 14.6
3Q 13.0 30,371 18.7 18,133 12,238 40.3 7,292 24.0 4,947 16.3 24.6 79 366 467 4,969 1,466 29.5 3,503 151 3,352 30.5
FY14 4Q 2.0 27,137 6.9 15,523 11,614 42.8 7,878 29.0 3,735 13.8 -0.5 58 489 577 3,766 1,178 31.3 2,589 78 2,511 -3.2
1Q 10.0 28,183 11.1 16,138 12,045 42.7 7,627 27.1 4,418 15.7 0.9 86 599 506 4,239 1,390 32.8 2,850 98 2,752 -4.6
2QE 10.0 29,863 14.2 17,560 12,304 41.2 8,063 27.0 4,241 14.2 17.4 160 510 465 4,035 1,291 32.0 2,744 140 2,604 8.9
3QE 9.0 35,133 15.7 20,377 14,756 42.0 8,818 25.1 5,938 16.9 20.0 140 520 514 5,791 1,853 32.0 3,938 155 3,783 12.8
4QE 10.0 32,297 19.0 18,285 14,012 43.4 9,797 30.3 4,215 13.0 12.8 191 424 495 4,095 1,268 31.0 2,826 110 2,716 8.2
FY13
FY14E
8.0 109,041 13.6 64,209 44,832 41.1 28,160 25.8 16,672 15.3 12.8 367 1,546 1,793 16,552 4,957 29.9 11,595 456 11,139 12.7
8.0 125,476 15.1 72,360 53,117 42.3 34,306 27.3 18,811 15.0 12.8 576 2,053 1,978 18,160 5,803 32.0 12,358 503 11,855 6.4
C–40
September 2013 Results Preview | Sector: Consumer
Britannia Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BRIT IN 119.5 93 / 1 784 / 400 3 / 43 / 56
CMP: INR775
Buy
We expect Britannia (BRIT) to post sales of INR15.9b, a growth of ~13% YoY. Volume growth would be 5-6%, aided by lower base.
We estimate 270bp EBITDA margin expansion to 7%, driven by better control on overheads and conversion costs.
BRIT is least impacted by INR depreciation, as less than 20% of its raw material basket is USD-linked.
According to the management, overall volume growth for the industry has come off by two-third in 12 months.
BRIT is one of the few stocks in our universe where we see strong probability of earnings upgrade, driven by sustained margin expansion. The stock trades at 22x FY15E EPS. Buy.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 49.7 2.6 1.7 14.1 29.5 43.5 32.3 34.5 60.5
2013 2014E 55.6 63.3 3.2 4.5 2.3 3.2 19.6 27.1 39.3 38.4 52.2 63.6 37.5 42.6 60.4 63.7 52.9 50.0
50.0 16.1 31.7 1.2
35.9 13.5 25.4 1.5
25.9 11.1 17.8 1.9
2015E 72.7 5.4 3.8 32.0 18.0 77.0 41.5 58.7 50.0 22.0 9.1 14.6 2.3
Key issues to watch out ¾ Volume growth in biscuits ¾ Outlook on raw material scenario ¾ Comments on growth in non-biscuits portfolio
Quarterly Performance
(INR Million)
Y/E March Net Sales YoY Change (%) COGS Gross Profit Margins (%) Other Exp % of Sales Total Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 12,216 10.8 7,575 4,642 38.0 3,991 32.7 11,566 651 5.3 37.6 130 95 179 605 170 28.1 435 4.0
2Q 14,028 8.7 9,042 4,986 35.5 4,379 31.2 13,422 606 4.3 -17.6 143 88 266 642 186 29.0 456 -4.8
3Q 14,533 16.5 9,192 5,341 36.8 4,559 31.4 13,752 782 5.4 -4.2 149 91 257 797 228 28.6 570 5.3
FY14 4Q 14,866 13.5 9,369 5,497 37.0 4,337 29.2 13,706 1,161 7.8 70.6 149 104 369 1,277 399 31.2 878 65.7
1Q 14,034 14.9 8,374 5,660 40.3 4,492 32.0 12,867 1,168 8.3 79.5 153 34 267 1,249 386 30.9 863 98.6
2QE 15,852 13.0 9,987 5,865 37.0 4,755 30.0 14,742 1,110 7.0 83.0 157 25 170 1,098 329 30.0 768 68.5
3QE 16,568 14.0 10,272 6,296 38.0 5,169 31.2 15,441 1,127 6.8 44.1 164 24 180 1,119 336 30.0 783 37.5
4QE 16,798 13.0 10,647 6,151 36.6 5,007 29.8 15,654 1,144 6.8 -1.4 163 13 191 1,159 336 29.0 822 -6.4
FY13
FY14E
55,644 12.4 35,184 20,459 36.8 17,255 31.0 52,440 3,204 5.8 18.5 571 377 1,066 3,322 983 29.6 2,339 18.9
63,252 13.7 39,279 23,972 37.9 19,424 30.7 58,704 4,548 7.2 41.9 637 96 808 4,624 1,387 30.0 3,237 38.4
C–41
September 2013 Results Preview | Sector: Consumer
Colgate Palmolive Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
CLGT IN 136.0 168 / 3 1,580 / 1,170 -8 / -6 / -3
CMP: INR1,233
We expect sales growth of 15% YoY to INR8.85b; toothpaste volume growth is estimated at 10%.
We expect 130bp contraction in EBITDA margin to 20.9% on account of higher ad spends due to product launches and heightened promotional activity post P&G's Oral B launch.
Lower tax rate in the base quarter (19.4% in 2QFY13 v/s estimated 25% in 2QFY14) would result in flat PAT.
P&G's Oral B launch has not generated much response as yet in the market. However, competitive intensity has stepped up further.
The stock trades at 27.4x FY15E EPS. Neutral.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 26.2 30.8 35.4 5.8 6.6 7.4 4.5 5.0 5.6 32.8 36.5 40.8 10.9 11.3 11.8 31.2 38.1 45.6 109.4 108.4 97.6 110.1 108.5 97.7 78.0 70.0 70.0 38.5 40.5 28.9 2.0
34.6 33.2 25.2 2.1
31.0 27.7 22.3 2.3
2015E 41.0 8.8 6.3 46.1 12.9 54.1 92.5 92.6 70.0 27.4 23.4 18.7 2.6
Neutral
Key issues to watch out ¾ Volume growth in Toothpastes ¾ Market share trends in Toothpastes
Quarterly Performance
(INR Million)
Y/E March Toothpaste Volume Gr % Net Sales YoY Change (%) COGS Gross Profit Gross Margin (%) Other operating Expenses % to sales Other operating Income EBITDA Margins (%) YoY Growth (%) Depreciation Interest Financial other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 11.0 7,361 20.5 2,997 4,364 59.3 2,939 39.9 200 1,625 21.5 21.7 105 0 112 1,632 457 28.0 1,174 16.9
2Q 11.0 7,738 17.7 3,238 4,499 58.1 2,928 37.8 187 1,758 22.2 28.2 106 0 149 1,801 350 19.4 1,451 34.9
3Q 8.0 7,627 13.9 3,045 4,582 60.1 3,294 43.2 211 1,499 19.1 2.4 113 0 117 1,504 393 26.1 1,111 -3.9
FY14 4Q 11.0 8,116 18.3 3,222 4,894 60.3 3,407 42.0 200 1,687 20.3 -0.7 113 0 121 1,695 463 27.3 1,232 -5.8
1Q 11.0 8,446 14.7 3,283 5,164 61.1 3,662 43.4 151 1,653 19.2 1.7 117 0 171 1,707 409 24.0 1,297 10.5
2QE 10.0 8,859 14.5 3,676 5,182 58.5 3,499 39.5 210 1,893 20.9 7.7 119 1 180 1,953 488 25.0 1,465 1.0
3QE 10.0 8,763 14.9 3,435 5,328 60.8 3,724 42.5 230 1,834 20.4 22.3 127 1 152 1,857 505 27.2 1,352 21.8
4QE 9.0 9,367 15.4 3,722 5,645 60.3 3,932 42.0 319 2,032 21.0 20.5 122 2 97 2,005 567 28.3 1,438 16.7
FY13
FY14E
10.3 30,841 17.5 12,502 18,339 59.5 12,568 40.8 797 6,568 20.8 #DIV/0! 437 0 499 6,630 1,663 25.1 4,968 11.3
10.0 35,435 14.9 14,116 21,319 60.2 14,817 41.8 909 7,411 20.4 426.4 485 5 600 7,522 1,970 26.2 5,552 11.8
C–42
September 2013 Results Preview | Sector: Consumer
Dabur India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
DABUR IN 1,740.7 296 / 5 177 / 121 -2 / 19 / 31
CMP: INR170
We expect sales to grow 12.2% to INR17.1b, led by 8-9% domestic organic volume growth.
Dabur's rural growth would continue to outperform urban growth, in our view. In our recent interaction, the management had indicated that rural markets are growing twice as fast as the urban markets.
INR depreciation puts the earlier margin expansion guidance of 100bp at risk. We expect weighted average ~5% price hikes and reduction in ad spends to protect margins.
We estimate marginal 30bp operating margin expansion to 17.7%, led by improvement in international margins. Dabur has recently launched Vatika Enriched Coconut Oil with Hibiscus in South India.
We expect PAT growth of 13.4% to INR2.29b.
The stock trades at 26.1x FY15E EPS of INR6.5. Buy.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 52.8 8.7 6.4 3.7 13.2 9.9 37.4 30.0 37.6
2013 2014E 61.5 71.8 10.0 12.1 7.7 9.4 4.4 5.4 19.3 22.7 12.6 15.3 35.1 35.3 38.1 40.7 40.2 42.7
46.0 17.2 35.1 0.8
38.6 13.5 29.7 1.0
2015E 83.7 14.2 11.3 6.5 20.4 18.6 35.1 40.8 42.7
31.4 11.1 24.2 1.4
26.1 9.1 20.3 1.6
Buy
Key issues to watch out ¾ Domestic volume growth and outlook on rural demand ¾ International business outlook ¾ Competitive intensity in Hair Oils
Quarterly Performance (Consolidated)
(INR Million)
Y/E March Volume Growth (%) Net Sales YoY Change (%) Total Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 12.0 14,620 21.4 12,576 2,044 14.0 14.9 267 213 356 1,921 378 19.7 2 1,541 20.6
2Q 10.5 15,226 20.6 12,582 2,644 17.4 9.3 270 149 275 2,500 464 18.6 13 2,023 16.4
3Q 9.5 16,307 12.3 13,615 2,693 16.5 19.0 305 78 273 2,582 478 18.5 -6 2,111 22.2
FY14 4Q 12.0 15,311 12.3 12,708 2,603 17.0 16.4 282 150 355 2,527 507 20.1 0 2,020 18.4
1Q 9.0 16,511 12.9 14,156 2,355 14.3 15.2 287 133 420 2,355 484 20.6 10 1,860 20.7
2QE 8.0 17,083 12.2 14,059 3,024 17.7 14.3 278 150 324 2,919 613 21.0 13 2,293 13.4
3QE 10.0 19,379 18.8 16,027 3,353 17.3 24.5 314 80 319 3,277 688 21.0 -6 2,595 22.9
4QE 12.0 18,803 22.8 15,387 3,416 18.2 31.2 278 137 390 3,392 726 21.4 -6 2,672 32.3
FY13
FY14E
10.0 61,464 16.3 51,463 10,001 16.3 15.2 1,124 589 1,242 9,530 1,826 19.2 24 7,680 19.3
10.0 71,776 16.8 59,629 12,147 16.9 4.0 1,158 500 1,454 11,943 2,511 21.0 11 9,421 22.7
C–43
September 2013 Results Preview | Sector: Consumer
GlaxoSmithKline Consumer Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SKB IN 42.1 178 / 3 6,020 / 2,875 -4 / -4 / 39
CMP: INR4,238
Neutral
We expect GSK Consumer to report net sales of INR9.7b, up 17.3% YoY, led by 7% volume growth, similar to 2QCY13.
We estimate 40bp EBITDA margin expansion to 17.4% on account of price hikes.
Despite higher tax rates, we estimate 14% growth in PAT.
The stock trades at 30.3x CY14E EPS. Neutral.
Financials & Valuation (INR b) Y/E December Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2011 2012 2013E 26.9 30.8 36.0 4.2 4.6 5.2 3.6 4.1 5.0 84.5 98.3 119.1 18.4 16.4 21.1 272.1 322.1 382.7 31.0 30.5 31.1 55.6 54.6 54.2 48.2 49.1 49.1 50.2 15.6 32.2 0.8
40.5 13.2 27.5 1.0
35.6 11.1 31.7 1.2
2014E 41.6 6.5 5.9 139.8 17.4 453.8 30.8 53.6 49.1
Key issues to watch out ¾ MFD volume growth ¾ Outlook on market growth and raw material environment ¾ Comments on Noodles strategy
30.3 9.3 25.0 1.4
Quarterly Performance
(INR Million)
Y/E December MFD Volume Growth (%) Net Sales YoY Change (%) Total Exp EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates
October 2013
CY12 1Q 7.0 8,130 14.5 6,514 1,617 20.3 11.3 119 12 479 1,964 645 32.8 1,320 19.3
2Q 7.4 7,297 11.7 6,191 1,107 15.2 12.3 86 8 572 1,585 519 32.8 1,066 29.3
3Q 6.0 8,275 14.9 6,871 1,405 17.0 19.1 77 3 578 1,903 617 32.4 1,286 24.8
CY13 4Q 6.0 7,091 17.8 6,581 510 7.2 -17.3 79 1 606 1,035 338 32.7 697 17.9
1Q 8.0 9,399 15.6 7,691 1,708 18.2 5.6 107 1 680 2,279 715 31.4 1,564 18.5
2Q 7.0 8,529 16.9 7,343 1,187 13.9 7.2 122 2 759 1,822 623 34.2 1,200 12.5
3QE 7.0 9,709 17.3 8,019 1,689 17.4 20.3 170 10 728 2,237 794 35.5 1,443 12.3
4QE 8.0 8,322 17.4 7,697 625 7.5 22.6 178 32 775 1,189 389 32.7 801 15.0
CY12
CY13E
7.0 30,794 14.7 26,156 4,638 15.1 9.5 361 24 2,234 6,487 2,119 32.7 4,368 23.0
7.5 35,959 16.8 30,750 5,209 14.5 12.3 577 45 2,942 7,528 2,520 33.5 5,008 14.7
C–44
September 2013 Results Preview | Sector: Consumer
Godrej Consumer Products Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
GCPL IN 340.3 283 / 5 977 / 655 -8 / 2 / 18
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
CMP: INR832
2012 48.5 8.6 5.3 15.5 5.7 82.7 18.7 20.7 29.7
2013 2014E 63.9 78.3 10.0 12.5 6.7 8.4 19.6 24.7 26.7 26.0 93.7 106.7 20.9 23.2 24.8 28.4 40.8 40.5
55.4 10.4 35.4 0.5
43.7 9.1 30.5 0.9
2015E 91.5 15.0 10.4 30.5 23.3 125.5 24.3 30.2 32.8
34.7 8.0 24.2 1.2
28.1 6.8 20.1 1.2
Neutral
We expect GCPL to post 21% revenue growth to INR19.3b in 2QFY14, led by strong momentum in domestic Household Insecticides and Hair Colors. Darling Phase II and Soft & Genteel should provide inorganic boost for the quarter. Indonesia should see some QoQ recovery. However, full recovery would be visible only from the beginning of 3QFY14. We expect 30bp margin contraction to 15% due to higher brand spends. Benefits of low cost palm oil inventory would be eroded by higher ad spends. INR depreciation impact in P&L would be reflected due to MTM on (a) palm oil payables, and (b) interest cost. Impact on forex loans would be capitalized. We expect PAT growth of 18% to INR1.9b. However, in our estimates, we do not build in forex losses. The stock trades at 28.1x FY15E EPS of INR30.5. Neutral.
Key issues to watch out ¾ Comments on volume growth trend in Soaps and sustenance of turnaround witnessed in Hair Colors ¾ Outlook on raw material scenario ¾ International business (Africa and Latin America) outlook
Quarterly Performance (Consolidated)
(INR Million)
Y/E March Net Sales YoY Change (%) EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other Income Forex gain / (loss) PBT Tax Rate (%) Minority Int Adj PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 13,886 39.2 1,988 14.3 39.3 199 164 181 -176 1,630 192 11.8 213 1,225 22.2
2Q 15,953 34.5 2,440 15.3 18.0 206 200 194 -76 2,151 476 22.1 83 1,593 24.8
3Q 16,913 25.8 2,806 16.6 5.8 205 189 188 -27 2,574 674 26.2 178 1,722 3.1
FY14 4Q 17,155 29.7 2,752 16.0 11.5 160 222 281 -48 2,602 531 20.4 19 2,052 22.4
1Q 17,203 23.9 2,208 12.8 11.0 221 240 178 -154 1,769 338 19.1 126 1,305 6.5
2QE 19,303 21.0 2,896 15.0 18.7 240 206 194 0 2,644 642 24.3 120 1,881 18.1
3QE 21,141 25.0 3,700 17.5 31.9 220 194 188 0 3,474 844 24.3 178 2,452 42.4
4QE 20,679 20.5 3,745 18.1 36.1 214 141 319 154 3,863 783 20.3 310 2,770 35.0
FY13
FY14E
63,908 31.7 9,985 15.6 16.0 770 775 844 -328 8,957 1,792 20.0 493 6,672 26.7
78,327 22.6 12,547 16.0 25.7 895 782 880 0 11,750 2,607 22.2 735 8,408 26.0
C–45
September 2013 Results Preview | Sector: Consumer
Hindustan Unilever Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HUVR IN 2,161.5 1,342 / 22 725 / 432 -5 / 28 / 10
CMP: INR621
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 217.4 252.1 281.3 32.9 40.0 45.5 25.9 33.1 35.4 12.0 15.3 16.4 23.4 27.8 6.9 16.3 21.5 26.8 73.8 71.4 61.3 95.4 94.2 83.5 62.5 55.4 58.0 51.8 38.2 39.7 1.2
40.5 28.9 32.2 1.4
37.9 23.2 28.1 1.5
2015E 320.5 51.3 38.2 17.7 7.9 31.0 57.1 81.2 65.0 35.1 20.0 24.7 1.9
Sell
We expect HUVR to post 5% volume growth and 8% revenue growth. Consumer demand remains subdued, though it has not deteriorated QoQ. We expect 50bp EBITDA margin expansion to 16%, led by higher gross margins. However, we note that the time lag in passing on the impact of raw material inflation can put 2HFY14 margins at risk. Promotional intensity remains high in Detergents and Oral Care. However, it is coming off selectively in Soaps. Skin Care revenue base will ease (Fair & Lovely, F&L re-launched in 1QFY13) in 2QFY14. HUVR has re-launched F&L in white color. This coupled with higher tax rate (up ~240bps) to restrict PAT growth to 7% in our view. However it has lowered its tax rate guidance to 24.5-25% vs. earlier 26-27%. The stock trades at 35.1x FY15E EPS of INR17.7. Sell.
Key issues to watch out ¾ Comments on volume growth and consumer demand environment ¾ Pricing environment, given pressure on gross margins from INR depreciation
Quarterly Performance
(INR Million)
Y/E March Volume Growth (%) S&D EBIT Margin (%) PP EBIT Margin (%) Net Sales (incl service inc) YoY Change (%) COGS Gross Profit Margin % Operating Exp % to sales EBITDA YoY Change (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 9.0 12.2 25.8 63,788 14.1 33,677 30,110 47.2 20,446 32.1 9,664 28.1 15.2 576 53 2,186 11,221 2,676 23.8 8,546 47.7
2Q 7.0 14.3 24.2 63,108 12.5 32,695 30,414 48.2 20,646 32.7 9,767 18.2 15.5 577 63 1,488 10,615 2,556 24.1 8,059 22.9
3Q 5.0 12.4 28.3 66,548 11.7 34,191 32,357 48.6 21,470 32.3 10,888 12.2 16.4 593 75 1,337 11,557 2,827 24.5 8,730 14.5
FY14 4Q 6.0 12.0 25.8 64,658 12.1 34,326 30,333 46.9 20,615 31.9 9,718 16.6 15.0 614 60 1,058 10,102 2,293 22.7 7,808 17.7
1Q 4.0 13.4 26.8 68,090 6.7 34,828 33,262 48.9 22,406 32.9 10,856 12.3 15.9 664 62 1,768 11,897 3,046 25.6 8,851 3.6
2QE 5.0 14.5 24.6 68,157 8.0 34,760 33,397 49.0 22,492 33.0 10,905 11.6 16.0 646 38 1,517 11,738 3,111 26.5 8,628 7.1
3QE 8.0 12.0 28.0 75,200 13.0 38,201 36,998 49.2 24,440 32.5 12,558 15.3 16.7 664 45 1,203 13,053 3,459 26.5 9,594 9.9
4QE 8.0 11.8 26.0 75,847 17.3 40,132 35,715 47.1 24,571 32.4 11,144 14.7 14.7 677 5 1,010 11,473 3,113 27.1 8,359 7.1
FY13
FY14E
8.0 12.5 25.3 258,102 16.7 134,888 123,214 47.7 83,176 32.2 40,037 21.6 15.5 2,360 251 6,069 43,495 11,653 26.8 33,143 24.6
7.0 13.0 26..0 287,293 11.3 147,921 139,372 48.5 93,909 32.7 45,463 13.6 15.8 2,651 150 5,498 48,160 12,729 26.4 35,432 6.9
C–46
September 2013 Results Preview | Sector: Consumer
ITC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
ITC IN 7,738.1 2,700 / 43 380 / 259 8 / 8 / 25
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 248.0 296.1 335.4 88.5 106.3 124.2 49.9 61.6 74.2 7.9 9.5 10.9 22.3 20.4 15.3 24.0 26.3 28.9 32.8 36.1 37.8 45.4 50.2 53.9 66.7 76.1 76.1 44.5 14.5 29.5 1.3
36.6 13.3 24.3 1.8
31.9 12.1 20.7 2.0
2015E 385.4 142.1 85.5 12.7 16.5 32.0 39.8 56.1 76.1 27.4 10.9 17.9 2.4
CMP: INR349
Neutral
We expect ITC to post 2.5-3% volume decline in Cigarettes. Traction in 64mm Cigarettes is compensating for the decline in the 69mm segment, in our view.
Net sales are likely to grow 12% to INR80.9b.
We expect margin expansion of 80bp to 38%, led by Cigarettes, where ITC has taken 17-18% price hike YTD. One more round of price hike is likely in Gold Flake Premium and Gold Flake.
Non-Cigarette FMCG sales growth would moderate to 17-18%. We build in EBIT loss of INR120m.
We estimate 13.8% PAT growth to INR20.9b.
The stock trades at 27.4x FY15E EPS of INR12.7. Neutral.
Key issues to watch out ¾ Cigarette volume trend post the price hikes and update on 64mm segment ¾ Demand outlook for FMCG-Others ¾ Profitability in FMCG-Others portfolio ¾ Signs of pick-up in Hotels business
Quarterly Performance
INR Million
Y/E March Cigarette Vol Gr (%) Cigarette-net EBIT Margin (%) Non Cigarette FMCG Loss Net Sales YoY Change (%) Total Exp EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adj PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 1.5 57.5 -388 67,065 14.6 43,313 23,752 21.3 35.4 1,948 138 1,699 23,366 7,344 31.4 16,021 20.2
2Q 0.5 61.4 -303 72,266 18.7 45,383 26,883 21.0 37.2 1,889 233 1,850 26,611 8,247 31.0 18,364 21.3
3Q 1.5 61.1 -240 77,121 22.8 48,543 28,578 20.0 37.1 2,052 252 3,298 29,572 9,053 30.6 20,519 20.6
FY14 4Q 2.5 58.3 119 82,574 18.8 55,511 27,063 18.9 32.8 2,067 243 2,540 27,293 8,014 29.4 19,280 19.4
1Q -2.0 63.4 -189 74,107 10.5 46,194 27,913 17.5 37.7 2,153 170 2,032 27,622 8,709 31.5 18,913 18.1
2QE -3.0 62.2 -120 80,938 12.0 50,181 30,756 14.4 38.0 2,077 198 2,164 30,645 9,745 31.8 20,900 13.8
3QE 2.0 61.8 230 88,304 14.5 54,748 33,555 17.4 38.0 2,257 214 3,694 34,778 11,025 31.7 23,753 15.8
4QE 3.0 59.0 250 96,202 16.5 64,232 31,970 18.1 33.2 2,317 199 3,033 32,488 10,554 32.5 21,933 13.8
FY13
FY14E
1.5 59.6 -813 299,013 18.9 192,738 106,275 20.1 35.5 7,956 865 9,387 106,842 32,658 30.6 74,184 20.4
0.5 60.3 810 339,550 13.6 215,356 124,195 16.9 36.6 8,805 780 10,923 125,533 40,033 31.9 85,500 15.3
C–47
September 2013 Results Preview | Sector: Consumer
Marico Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MRCO IN 643.8 141 / 2 251 / 191 -4 / -1 / 4
CMP: INR220
Buy
We expect sales growth of 10.6% to INR12.8b, led by ~10% domestic organic volume growth. We expect Parachute, Saffola and value-added hair oils to post 6%, 10% and 15% volume growth, respectively.
International business should post 15% revenue growth, in our view.
We estimate a gross margin decline of 50bp, as copra prices are increasing. Also, MRCO has taken selective price cuts in Parachute and Saffola to drive volume growth.
MRCO has guided 250-300bp YoY international margin expansion.
Expect PAT growth of 18%.
The stock trades at 25.6x FY15E EPS of INR8.6. Buy.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 39.7 4.7 3.2 5.2 34.2 18.6 28.0 30.5 13.5
2013 2014E 45.8 51.9 6.1 7.3 3.9 4.8 6.0 7.5 15.6 24.4 30.5 37.1 19.6 20.1 28.8 30.0 12.5 10.7
42.3 11.8 29.2 0.3
36.6 7.2 23.6 0.3
29.4 5.9 19.1 0.4
2015E 60.3 8.6 5.5 8.6 14.9 44.7 19.2 29.9 9.3 25.6 4.9 15.8 0.4
Key issues to watch out ¾ Comments on volume growth trends in key categories ¾ Performance of Paras brand ¾ Recovery in Middle East business ¾ Management comments on Kaya and input cost outlook
Quarterly Performance
(INR Million)
Y/E March Domestic organic vol gr (%) Net Sales YoY Change (%) COGS Gross Profit Gross margin (%) Other Expenditure % to Sales EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Minority Interest Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 14.0 12,672 21.7 6,469 6,203 48.9 4,364 34.4 1,839 14.5 47.0 193 135 150 1,660 403 24.2 0 1,258 48.0
2Q 10.0 11,559 19.5 5,606 5,953 51.5 4,476 38.7 1,477 12.8 27.8 225 145 75 1,182 293 24.8 30 859 9.7
3Q 9.0 11,640 10.9 5,587 6,053 52.0 4,433 38.1 1,620 13.9 31.1 195 146 127 1,406 360 25.6 -23 1,068 21.2
FY14 4Q 8.0 9,973 9.7 4,410 5,563 55.8 4,373 43.9 1,189 11.9 9.3 253 113 115 938 189 20.1 26 723 1.2
1Q 10.0 13,797 8.9 6,710 7,086 51.4 4,816 34.9 2,270 16.5 23.5 206 121 167 2,109 512 24.3 44 1,553 23.5
2QE 10.0 12,779 10.6 6,262 6,517 51.0 4,831 37.8 1,687 13.2 14.2 258 145 98 1,381 338 24.5 30 1,013 18.0
3QE 12.0 13,403 15.1 6,701 6,701 50.0 4,959 37.0 1,742 13.0 7.6 224 146 159 1,531 367 24.0 -23 1,186 11.0
4QE 12.0 12,000 20.3 5,644 6,356 53.0 4,718 39.3 1,638 13.6 37.7 287 164 221 1,408 331 23.5 26 1,051 45.4
FY13
FY14E
11.0 45,843 15.5 22,073 23,771 51.9 17,646 38.5 6,125 13.4 29.5 866 540 468 5,186 1,245 24.0 79 3,862 21.1
51,949 13.3 25,288 26,661 51.3 19,324 37.2 7,337 14.1 19.8 975 576 644 6,429 1,549 24.1 -76 4,804 24.4
C–48
September 2013 Results Preview | Sector: Consumer
Nestle India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
NEST IN 96.4 491 / 8 5,865 / 4,306 -2 / 6 / 12
CMP: INR5,097
Neutral
We expect Nestle India (NEST) to report net sales of INR24b, up 13.7% YoY on a low base; we expect growth to be price-led.
Our channel checks indicate that discretionary consumption and processed foods offtake remains soft.
We estimate flat EBITDA margin at 21%.
PAT would grow 12% to INR2.94b on account of higher capital costs and tax rates.
Recovery in volume growth remains a key factor to monitor, as we believe stock performance will hinge on the same.
The stock trades at 36.3x CY14E EPS. Neutral.
Financials & Valuation (INR b) Y/E December Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2011 2012 2013E 74.9 83.0 93.6 15.4 18.3 20.4 10.0 11.0 11.9 103.8 114.1 123.1 19.6 9.9 7.9 132.1 186.5 238.4 94.0 71.6 58.0 88.3 59.6 55.9 54.3 49.4 54.9 52.5 41.2 34.6 0.9
47.8 29.2 29.0 0.9
44.3 22.9 25.8 1.1
2014E 109.4 23.9 14.5 150.2 22.0 291.3 56.7 62.3 62.0 36.3 18.7 21.6 1.5
Key issues to watch out ¾ Volume growth ¾ Performance of new launches
Quarterly Performance
(INR Million)
Y/E December Net Sales YoY Change (%) COGS Gross Profit Margin (%) Operating Exp EBITDA Margins (%) YoY Growth (%) Depreciation Interest Other income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates October 2013
CY12 1Q 20,475 13.1 9,384 11,091 54.2 6,647 4,444 21.7 15.3 528 23 136 4,029 1,272 31.6 2,757 5.0
2Q 19,866 12.7 9,024 10,842 54.6 6,554 4,288 21.6 24.5 673 220 113 3,507 1,085 30.9 2,423 10.3
3Q 21,156 7.8 9,712 11,444 54.1 7,010 4,434 21.0 8.1 735 44 173 3,827 1,197 31.3 2,630 -2.0
4Q 21,526 10.1 9,644 11,882 55.2 6,926 4,957 23.0 20.1 835 99 211 4,233 1,293 30.5 2,940 9.7
1Q 22,481 9.8 10,158 12,323 54.8 7,113 5,210 23.2 17.2 821 79 200 4,510 1,581 35.1 2,929 6.2
CY13 2Q 3QE 22,132 24,057 11.4 13.7 10,004 10,994 12,128 13,063 54.8 54.3 7,357 8,011 4,771 5,052 21.6 21.0 11.3 13.9 887 845 85 80 249 197 4,048 4,323 1,334 1,379 33.0 31.9 2,714 2,944 12.0 11.9
4QE 24,936 15.8 11,410 13,526 54.2 8,198 5,328 21.4 7.5 800 106 132 4,554 1,270 27.9 3,285 11.7
CY12
CY13E
83,023 10.8 37,764 45,259 54.5 27,136 18,122 21.8 18.1 2,772 387 633 15,597 4,847 31.1 10,750 7.4
93,605 12.7 42,565 51,040 54.5 30,679 20,361 21.8 12.4 3,354 350 778 17,435 5,564 31.9 11,871 10.4
C–49
September 2013 Results Preview | Sector: Consumer
Pidilite Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PIDI IN 506.1 128 / 2 303 / 189 2 / -8 / 20
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
CMP: INR253
2012 28.2 4.9 3.6 7.0 7.8 26.6 26.3 29.0 36.0
2013 2014E 33.3 38.2 6.1 7.2 4.4 5.1 8.5 9.7 21.0 14.0 34.0 40.2 24.9 24.1 31.8 32.6 35.5 36.3
36.2 9.5 25.3 0.8
29.9 7.4 20.6 1.0
26.2 6.3 17.3 1.2
2015E 45.5 8.5 6.1 11.7 21.4 47.7 24.6 33.1 35.9 21.6 5.3 14.3 1.4
Neutral
We expect Pidilite Industries (PIDI) to post 14% revenue growth, led by high single-digit volume growth in the Consumer and Bazaar segments. Growth in Industrial Chemicals will continue to be muted, in our view. Continued weak macro environment would put further pressure on PIDI's revenues. EBITDA margins would remain flat YoY at 18%. INR depreciation led raw material inflation would adversely impact margins. PAT growth is likely to be muted at 6% due to lower tax rate of 22.5% in base quarter. Uncertainty regarding the synthetic elastomer project continues and the company is yet to take a call on the project implementation. The stock trades at 21.6x FY15E EPS of INR11.7. We see downside risks to our earnings estimate.
Key issues to watch out ¾ Volume growth in Fevicol ¾ Performance of Construction Chemicals business ¾ Outlook on Industrial segment ¾ Progress on Elastomer project, if any
Quarterly Performance
(INR Million)
Y/E March Sales Change (%) Gross Profit Gross Margin % Operating Expenses % of sales EBITDA EBITDA Margin % Change (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Adj PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 9,125 18.8 4,087 44.8 2,180 23.9 1,907 20.9 25.4 124 91 139 1,831 498 27.2 1,333 23.6
2Q 8,209 16.0 3,680 44.8 2,212 26.9 1,468 17.9 14.5 128 18 121 1,443 325 22.5 1,117 29.3
3Q 8,376 21.6 3,770 45.0 2,257 26.9 1,514 18.1 27.3 141 86 164 1,450 413 28.5 1,037 19.9
FY14 4Q 7,608 16.7 3,645 47.9 2,397 31.5 1,248 16.4 30.2 139 36 235 1,307 352 26.9 956 27.6
1Q 10,148 11.2 4,681 46.1 2,441 24.1 2,240 22.1 17.5 153 36 90 2,140 595 27.8 1,546 16.0
2QE 9,358 14.0 4,164 44.5 2,480 26.5 1,684 18.0 14.8 151 16 138 1,655 472 28.5 1,184 5.9
3QE 9,799 17.0 4,400 44.9 2,597 26.5 1,803 18.4 19.1 167 82 186 1,741 496 28.5 1,245 20.0
4QE 8,916 17.2 4,139 46.4 2,691 30.2 1,449 16.3 16.1 163 95 334 1,525 435 28.5 1,090 14.1
FY13
FY14E
33,317 18.3 15,182 45.6 9,046 27.2 6,136 18.4 24.0 532 232 659 6,031 1,588 26.3 4,443 24.9
38,222 14.7 17,385 45.5 10,208 26.7 7,176 18.8 17.0 634 229 748 7,062 1,997 28.3 5,064 14.0
C–50
September 2013 Results Preview | Sector: Consumer
Radico Khaitan Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
RDCK IN 132.6 17 / 0 156 / 89 1 / -6 / 1
CMP: INR128
Buy
We expect Radico Khaitan (RDCK) to post 12% revenue growth to INR3.3b in 2QFY14, led by 7% volume growth.
We expect premiumization trend to continue, with double-digit growth in premium portfolio.
EBITDA margin would expand 70bp to 17.2%, led by higher gross margins and better control on overheads.
The stock trades at 9.4x FY15E EPS of INR10.7. Buy.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 11.4 1.7 0.8 6.0 10.9 52.4 11.3 9.9 15.4
2013 2014E 12.6 14.1 2.0 2.3 0.9 1.1 6.7 8.0 11.5 19.5 57.0 63.6 12.3 13.3 10.3 11.2 17.6 17.6
16.6 1.9 11.4 1.2
14.9 1.8 10.4 1.6
12.5 1.6 9.0 1.2
2015E 16.5 2.8 1.4 10.7 33.0 72.4 15.7 13.3 17.6
Key issues to watch out ¾ Trade issues in Tamil Nadu ¾ ENA price trend and outlook
9.4 1.4 7.2 1.6
Quarterly Performance
(INR Million)
Y/E March Net sales YoY Change (%) Total Expenses EBITDA Margins (%) YoY Change (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 3,038 2.1 2,514 524 17.3 22.4 90 168 62 328 75 22.9 253 21.8
2Q 2,970 13.9 2,479 491 16.5 10.7 85 159 84 331 110 33.3 221 49.1
3Q 3,260 8.1 2,760 501 15.4 12.1 90 216 85 279 95 34.1 184 -22.3
FY14 4Q 3,315 16.8 2,911 403 12.2 1.5 88 182 74 207 40 19.3 167 -1.4
1Q 3,573 17.6 2,963 611 17.1 16.5 95 204 85 396 90 22.7 306 21.2
2QE 3,333 12.2 2,760 573 17.2 16.7 100 151 91 412 119 29.0 293 32.6
3QE 3,652 12.0 3,060 592 16.2 18.2 106 206 92 371 108 29.0 264 43.4
4QE 3,556 7.3 3,032 524 14.7 30.0 122 153 71 320 118 36.8 203 21.2
FY13
FY14E
12,584 10.0 10,597 1,987 15.8
14,114 12.2 11,814 2,300 16.2 15.8 423 714 338 1,500 435 29.0 1,065 19.5
353 726 304 1,211 320 26.4 891 17.0
C–51
September 2013 Results Preview | Sector: Consumer
United Spirits Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
UNSP IN 145.3 381 / 6 2,815 / 990 14 / 33 / 99
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 82.1 92.9 104.7 11.9 12.6 14.5 2.4 3.6 6.0 19.5 29.6 41.1 -30.9 51.4 39.1 397.9 693.3 620.4 4.9 4.3 6.6 8.3 8.4 9.8 15.4 13.5 10.9 134.2 6.6 35.7 0.1
88.6 3.8 31.3 0.2
63.7 4.2 26.8 0.2
2015E 121.6 19.6 9.6 66.0 60.5 681.3 9.7 13.1 0.7 39.7 3.8 19.5 0.0
CMP: INR2,621
Buy
We expect United Spirits (UNSP) to post 10% revenue growth to INR24.4b in 2QFY14, led by 5% volume growth. Lower base (volume decline of 1% in 2QFY13) should aid performance, though the Tamil Nadu issue continues.
The premium segment would grow at a faster pace, aided by up-trading.
We expect margin expansion of 110bp to 12.5%.
PAT would more than double to INR884m (PAT had declined 75% in 2QFY13).
The stock trades at 39.7x FY15E EPS of INR66. Buy.
Key issues to watch out ¾ Trade issues in Tamil Nadu ¾ ENA price trend and outlook ¾ Debt reduction ¾ Updates on Diageo integration
Quarterly Performance (Standalone)
(INR Million)
Y/E March Volume Growth % ENA Price/Case Net Sales YoY Change (%) Total Exp EBITDA Margins (%) Depreciation Interest PBT from operations Other income PBT Tax Rate (%) PAT YoY Change (%) Extraordinary Inc/(Exp) Reported PAT E: MOSL Estimates
October 2013
FY13 1Q 2 151 20,573 6.3 17,223 3,350 16.3 162 1,656 1,532 607 2,139 689 32.2 1,450 5.9 0 1,450
2Q -1 159 22,207 24.0 19,676 2,531 11.4 188 1,700 643 -48 595 202 34.0 393 -75.3 0 393
3Q 7 172 21,740 11.3 19,281 2,459 11.3 173 1,636 651 608 1,258 453 36.0 806 64.6 0 806
FY14 4Q 4 176 20,577 10.5 18,584 1,993 9.7 195 1,570 228 836 1,065 288 27.1 777 878.1 -217 560
1Q 0.2 171 21,924 6.6 19,142 2,782 12.7 195 1,595 992 781 1,773 592 33.4 1,181 -18.5 0 1,181
2QE 5 173 24,428 10.0 21,374 3,053 12.5 244 1,649 1,160 180 1,340 455 34.0 884 125.2 0 884
3QE 6 175 24,784 14.0 21,438 3,346 13.5 225 1,586 1,534 170 1,704 579 34.0 1,125 39.6 0 1,125
4QE 6 175 24,075 17.0 20,911 3,165 13.1 240 1,545 1,380 212 1,592 552 34.7 1,040 33.9 0 1,040
FY13
FY14E
3 165 85,097 12.8 74,763 10,334 12.1 718 6,562 3,054 2,002 5,056 1,632 32.3 3,424 278.0 -217 3,208
5 173 95,210 11.9 82,865 12,346 13.0 904 6,375 5,066 1,343 6,409 2,179 34.0 4,230 23.5 0 4,230
C–52
September 2013 Results Preview | Sector: Financials - Banks
Financials – Banks Companies Covered
A quarter marked by significant volatility and sharp earnings downgrades
Axis Bank
At the financial year's beginning, supportive growth and inflation dynamics paved the way for further monetary easing, which could have ensured better growth and asset quality for banks in 2HFY14. However, two important events (from July 15, 2013, RBI tightened liquidity and inverted the yield curve, and on September 20 attempts were made to flatten the yield curve at a higher level) during the quarter led to significant volatility and earnings downgrades for financials. RBI's future course of action is largely macro economic data dependent and on events in external markets. In our view, in the short term, inflation and INR are likely to be major factors influencing the monetary action. Thus, interest rates are likely to remain high, which will have an impact on growth and asset quality and resultantly earnings of financial stocks.
Bank of Baroda Bank of India Canara Bank HDFC Bank Federal Bank ICICI Bank Indian Bank IndusInd Bank
In this uncertain environment, we remain selective and prefer banks with strong capitalization (risk of dilution low) and liability franchise (emerge stronger in the upturn of economy), management stability, P&L strength (to absorb credit cost risk) and those who have recognized stress upfront (risk of setback remains low). We downgrade UNBK from Under review to Neutral and CBK to Neutral from Buy. Top picks are: ICICIBC and Bank of Baroda. Preferred beta names are YES, OBC and AXSB.
ING Vysya Kotak Mahindra Bank Oriental Bank Punjab National Bank State Bank Union Bank Yes Bank
Expected quarterly performance summary CMP (INR) 27.09.13 Financials - Banks Private Banks Axis Bank 1,031 Federal Bank 298 HDFC Bank 610 ICICI Bank 923 IndusInd Bank 377 ING Vysya Bank 510 Kotak Mahindra Bank* 682 Yes Bank 305 Pvt Bkg.Sector Aggregate PSU Banks Bank of Baroda 501 Bank of India 163 Canara Bank 225 Indian Bank 70 Oriental Bank 150 Punjab National Bank 478 State Bank 1,642 Union Bank 115 PSU Bkg. Sector Aggregate *Standalone
Rating
(INR Million) Net Interest Income Sep.13 Var. Var. % YoY % QoQ
Operating Profit Sep.13 Var. Var. % YoY % QoQ
Net Profit Sep.13 Var. % YoY
Var. % QoQ
Buy Buy Neutral Buy Buy Buy Neutral Buy
27,802 5,013 44,851 38,736 6,823 4,567 9,178 6,524 143,494
19.5 -0.9 20.2 14.9 33.9 23.8 21.1 24.5 18.6
-3.0 23,782 -1.6 3,348 1.5 32,753 1.4 35,178 0.4 5,494 7.4 3,052 0.1 6,044 -1.0 5,889 0.4 115,540
9.2 -4.3 27.4 10.2 30.9 34.1 25.3 21.5 16.6
-16.4 -16.4 -0.9 -7.8 -14.4 -6.6 -22.4 -13.4 -9.7
11,958 1,633 19,915 20,684 3,005 1,739 3,426 3,165 65,525
6.4 -24.1 27.7 5.7 20.1 15.8 22.2 3.4 12.2
-15.1 54.6 8.0 -9.1 -10.2 -0.7 -15.0 -21.0 -5.7
Buy Neutral Neutral Buy Buy Buy Buy Neutral
28,615 25,787 20,488 11,097 12,912 39,378 116,796 18,920 273,991
0.0 17.4 4.7 -0.9 11.6 7.9 6.4 2.3 6.3
-1.0 20,394 1.6 18,630 2.9 14,225 1.2 7,064 -1.2 9,316 0.8 26,493 1.5 65,133 -0.9 12,121 0.9 173,376
-14.0 0.5 11.0 -22.2 1.1 4.6 -11.4 -4.8 -6.3
-16.3 -14.6 -25.1 -17.8 -14.4 -10.9 -13.7 -14.1 -15.0
7,956 5,101 3,709 2,026 2,410 8,259 23,798 2,959 56,219
-38.9 69.0 -43.9 -59.2 -20.2 -22.5 -34.9 -46.6 -32.6
-31.9 -47.1 -53.2 -36.2 -31.8 -35.2 -26.6 -47.2 -35.2
Alpesh Mehta (
[email protected]) / Sohail Halai (
[email protected]) October 2013
C–53
September 2013 Results Preview | Sector: Financials - Banks
A quarter marred by significant earnings downgrades In 2QFY14 preview, we have downgraded the estimates for our coverage universe by 7-11% to factor lower net trading gains, lower margins (~10bp lower than what was expected earlier) and higher credit cost (increase of 5-7bp). While the impact is likely to be felt across the board, state-owned banks are expected to be impacted the most (downgrade of 9/15% over FY14E/15E), while private banks are likely to sail through with less dent on earnings (6/8% over FY14E/15E). Financials: Earnings downgrade led by increased risk in the system (INR b) Aggregate Private Banks Aggregate State-owned Banks Aggregate Banks Old Est. New Est. Chg (%) Old Est. New Est. Chg (%) Old Est. New Est. FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15 FY14 FY15 NII 601 722 586 693 -2.5 -4.0 1,136 1,318 1,110 1,277 -2.3 -3.1 1,738 2,040 1,696 1,970 PPP 514 625 496 591 -3.5 -5.5 776 920 749 876 -3.5 -4.8 1,290 1,545 1,245 1,466 PAT 298 359 280 330 -6.1 -8.1 298 363 273 311 -8.5 -14.5 596 722 553 641
Chg (%) FY14 FY15 -2.4 -3.4 -3.5 -5.1 -7.3 -11.3 Source: MOSL
Outlook on 2QFY14 earnings - levers for profitability are less NIMs are expected to be flat/decline marginally, despite sharp rise in cost of funds as the bankers enjoyed strong pricing power in the quarter. Though loan growth has picked up, non SLR investments are expected to moderate. Thus, customer asset growth is likely to be the trend witnessed so far. Incremental stress additions are expected to be in line with the guidance given during 1Q results. However, banks' guidance for 2H/ full year is expected to worsen. Forex income is expected to be strong (especially for banks with higher foreign operations) due to significant volatility in forex markets. While net investment gain is expected to be significantly lower/negative, exact amount of losses on investment portfolio is difficult to quantify. Some of the problem faced are a) Amount of portfolio transferred to HTM during the quarter b) Within available portfolio non interest sensitive AFS portfolio like Treasury bills, Cash mgmt bills etc c) exact cut of yield on portfolio d) excess SLR held in the portfolio and e) back to back hedging used on the interest sensitive portfolio like swaps etc. Hence, for 2QFY14, we expect NII/operating profit growth of 10%/2% YoY, while PAT is expected to be lower by 14%+ YoY. Higher margins pressure, weak fees, opex, sharp fall in QoQ trading gains and asset quality pressures will significantly pressurize earnings of state-owned banks. For 2QFY14, we expect state-owned banks to report NII growth of 6%, though operating profit and PAT is expected to decline by ~6% and 33% YoY respectively. Private banks on the other hand are expected to suffer from lower net trading gains and weak fees. While pressure on revenue drivers has increased, flexibility on the opex side will help earnings of private banks, in our view. We expect private banks to report NII/operating profit/profit growth of 19%/17%/12% YoY for 2QFY14.
Margins to be stable in 2QFY14, but expect moderation in 2H Led by significant liquidity tightness (CD ratio at lifetime high of 78%), banks have a pricing power in the system, indicated by an increase in base rates (up 25bp for private and roll back of the cut in the quarter by state-owned banks). Further, our discussions with banks suggest that spreads over base rate for incremental lending has risen and incremental net slippages are likely to be lower QoQ due to seasonal factors. Thus, October 2013
C–54
September 2013 Results Preview | Sector: Financials - Banks
NIMs are likely to be flat/decline marginally in 2Q despite a) rise in cost of funds, b) higher CRR maintenance impact (from 70% on an average daily basis to 99%) and c) lower arbitrage opportunities due to RBI move of addressing liquidity requirements from MSF window v/s LAF earlier and sharp rise in MSF spread over Repo to 300bp (on September 20 reduced to 200bp) v/s 100bp earlier. Banks with excess liquidity on balance sheet like CBK, BOI and BOB can surprise positively by increasing the CD ratio. In 2HFY14, we expect moderation in margins as a) cost of funds will hit margins, b) bond markets volatility likely to reduce, leading to large corporate shifting to bond markets again, c) corporates realigning their funding requirements with a changed scenario and d) expected high net slippages/restructuring in 2H. Positive surprises however can come from a) higher retail liabilities growth and b) change in liquidity stance by RBI.
2Q - Sharp improvement in loan growth; macro challenges will keep business growth low in 2H For the fortnight ended September 20, 2013, loans/deposits each grew by 18%/14% YoY and on a sequential basis were up 1.1%/3.8% respectively. Over the last five to six fortnights, loan growth has picked up from 14% to 18% due to shifting of funding requirement by corporates from bond market (on sharp rise in rates) to traditional bank funding (as base rate remains low). With the all-time high CD ratio of 78% and continued tightness in liquidity, we expect an increase in lending/deposits rates. Thus, loan growth is expected to moderate and expect some pick-up in deposit growth as real interest rates becomes positive. Sequential depreciation of 4/5% in INR may help banks with higher proportion of international portfolio (BoB, BoI and ICICIBC) to report better growth rates.
Sanctions pipeline narrows down; more reforms needed to instill confidence Given that investment pick-up has a direct correlation with other segments of economy, it remains critical for the Government to speed up the reforms process, faster implementation of reforms already announced and remove supply side constraints. Our interactions with bankers suggest that new project proposals are not yet picking up. However, business sentiments, after showing some improvement in 1Q, have weakened in 2Q. Even if new sanctions were to take place, actual disbursements will take 6-9 months. Till then working capital, retail and agriculture are likely to be the key growth drivers. We expect a moderate growth of 13-14% over FY13-15E.
RBI actions led to delay in recovery and change in outlook for asset quality In 1QFY14, looking at the macro scenario, we expected an improvement in asset quality from 2HFY14. However, post RBI's actions and continued sharp depreciation in INR, we expect stress levels to remain high at least till end-FY14. We factor a net slippage ratio (for state-owned banks) of 2% in 2QFY14, compared to 3.3% in 1QFY14. 1Q is seasonally the worst quarter for banks, and with the expectation of recovery from agriculture segment, we expect net slippages (at high levels) to be lower. Retail focused banks are likely to be better placed (most private sector banks). However, unlike the past, retail delinquency has started to increase. Thus, NPAs are expected to rise in this segment too but will remain manageable. October 2013
C–55
September 2013 Results Preview | Sector: Financials - Banks
Restructuring would continue - CDR references, a key indicator Lag impact of the cases (amounting to INR700b+ (1.2% of loans)) referred in 1HCY13 will be felt in 2QFY14 as some of them get approvals during the quarter. Further, our channel checks suggest that incremental flow in CDR and in bilateral remains high in 2QFY14 as well. SEBs restructuring under the FRP has further been delayed and is expected to take place in 3QFY14. Provisioning would also be higher led by (1) increase in provision requirement on standard restructured loans (0.75% to be spread over four quarters of FY14), (2) incremental restructuring would attract provisions of 5% and (3) net slippages to remain elevated. In 2HFY14, we expect additional provisioning requirement for the un-hedged forex exposures of corporates.
Trading gains: From expected earnings driver in 1QFY14 to a drag in 2QFY14 RBI's actions led to sharp volatility in bond markets. 1/5/10-year G-sec yields touched a peak of 11.7/9.7/9.2% from a low of 7.6/7.7/7.4% in 2QFY14, before settling at 9.3/8.8/ 8.7% as on September 30. Significant volatility in yields during the quarter may help banks with strong treasury desks to report decent profits. Further, significant volatility in currency markets will also help banks to report strong forex revenue in the quarter. As a one-off measure, RBI allowed banks to transfer investment portfolio from AFS to HTM and amortize the MTM losses on AFS portfolio if any, over the next three quarters. Higher impact expected for PNB, SBIN, CBK, OBC, AXSB and YES.
Other earnings drivers: Fees well factored; pension liabilities unascertainable
Moderate economic growth, lower capex etc will keep corporate fees under pressure. RBI's strict stance on retail products will also keep retail fees under check. Moderation in revenue for private banks may be partially compensated by flexible opex structure. Situation remains grim for state-owned banks on the opex front as it largely remains fixed. Further, adoption of LIC's new mortality table will exert pressure on earnings.
Sector strategy: Uncertain environment; remain selective
The policy stance to contain inflationary expectation in the medium term and protect INR in the near term will keep interest rates higher in the system, thus delaying growth revival. Higher interest rates, with moderating economic growth, will keep pressure on business growth and asset quality of Indian financials. Stateowned banks to be more impacted due to high share of corporate business. From uncertain policy stance of inverted yield curve (negative for financials), the move towards flattening curve is positive from earnings perspective (especially on margins), in our view. However, RBI's stance is contingent on various domestic and external developments, which if required can be reverted. Thus, the overall macro environment is likely to remain uncertain for financials. Considering the current tightness in liquidity, high CD ratio of 78% and increasing deposit/credit gap, interest rates, in both retail liability and lending side, should rise. Private banks have already increased the base rates by 20-25bp and some
October 2013
C–56
September 2013 Results Preview | Sector: Financials - Banks
PSU banks increased it by 10-25bp. If the current tightness continues, then there is a possibility of further 25bp hike in lending rates over three to six months. In this current uncertainty, we remain selective and prefer banks with strong capitalization (risk of dilution low) and liability franchise (emerge stronger in the upturn of economy), management stability, P&L strength (to absorb credit cost risk), levered to interest rate reversal cycle (earnings cushion) and those who have recognized stress upfront (risk of setback remains low). Top picks: ICICIBC and Bank of Baroda. Preferred beta names are YES, OBC and AXSB. …deposit growth remains moderate
14.1 71.8
13.8 1QFY14
20-Sep
11.1 13.2 3QFY13 4QFY13
69.0 70.9
13.9
64.8
14.4 13.5 62.3 1QFY13
61.0
17.0 3QFY12
4QFY12
18.5 17.5
56.3 58.3
54.9
1QFY12 2QFY12
16.8 15.9 52.1
20-Sep
49.9
56.2
1QFY14
4QFY11
54.2
4QFY13
3QFY11
53.5
3QFY13
14.4
50.3
2QFY13
47.1
48.1
1QFY13
2QFY11
47.6
4QFY12
1QFY11
46.9
3QFY12
17.7 17.2 15.0
13.7
43.7
44.9 46.4
13.9
41.5 2QFY12
42.7
15.9
15.1
40.9 1QFY12
3QFY10 4QFY10
18.7
16.5
39.4 4QFY11
22.0 19.8
19.5
37.7 3QFY11
Chg YoY (%)
Short-term rates have eased marginally
15-Jul -13
20-Sep-13
40.3 41.2
21.5 20.0
34.3 2QFY11
30-Jun-13
2QFY10
19.2 24.5
34.1 1QFY11
Shift in yield curve in 2QFY14 (%)
1QFY10
17.1 21.9 32.4 4QFY10
17.9
13.8 30.2 3QFY10
16.0
16.2 12.7 2QFY10
28.0 28.7
Depos i ts (INR t)
64.1
Chg YoY (%)
1QFY10
Loa ns (INR t)
2QFY13
Loan growth picks up in 2QFY14...
18-Jul -13
6 Month (%)
12 Month (%)
12
30-Sep-13
10
11 10
9
9 8
8
Sep-13
Jun-13
31
394
205 1QFY13
25
1QFY14
916 FY13
33
313
679 FY12
41
226
2QFY14E
1QFY14
4QFY13
3QFY13
2QFY13
49
FY11
31
1.1
1QFY13
4QFY12
3QFY12
2QFY12
1.1
2.0
4QFY13
2.0
1.7
130
87
210
2.7
2.0
No. of Ca s es Recd.
202
2.7
Agg. Debt (INR b)
3.3
3QFY13
Net Sl i ppa ge Ra ti o
3.1
1QFY12
Referrals to CDR remain high
2QFY13 189
Net slippage ratio to decline but still high (%)
Apr-13
10 yea r
Feb-13
5 Yea r
Sep-12
Jun-12
2 Year
FY10
1 Yea r
Nov-12
7 7
27
Source: Company, MOSL
October 2013
C–57
September 2013 Results Preview | Sector: Financials - Banks
Relative Performance-3m (%)
Relative Performance-1Yr (%)
Sens ex Index MOSL Fi nanci a ls Index
Sens ex Index MOSL Fi na nci a ls Index
110
115
100
105
90
95
80
85
70
75 Jun-13
Sep-12 Dec-12 Ma r-13 Jun-13 Sep-13
Jul -13 Aug-13 Sep-13
Comparative valuation CMP (INR) 27.09.13 Financials - Banks Private Banks Axis Bank 1,031 Federal Bank 298 HDFC Bank 610 ICICI Bank 923 IndusInd Bank 377 ING Vysya Bank 510 J&K Bank 1,129 Kotak Mah. Bank 682 South Indian Bank 20 Yes Bank 305 Pvt. Bank Aggregate PSU Banks Andhra Bank 53 Bank of Baroda 501 Bank of India 163 Canara Bank 225 Corporation Bank 245 Dena Bank 47 IDBI Bank 60 Indian Bank 70 Oriental Bank 150 Punjab Nat. Bank 478 State Bank 1,642 Union Bank 115 PSU Bank Aggregate
October 2013
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
P/BV (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Buy Buy Neutral Buy Buy Buy Buy Neutral Neutral Buy
110.7 49.0 28.3 72.2 20.3 39.6 217.5 29.3 3.8 36.3
114.4 36.1 36.1 75.0 23.9 37.4 211.2 32.0 3.8 37.8
132.0 47.2 44.7 84.4 28.4 42.9 234.6 36.7 4.1 45.9
9.3 6.1 21.6 12.8 18.6 12.9 5.2 23.3 5.3 8.4 14.5
9.0 8.3 16.9 12.3 15.7 13.6 5.3 21.3 5.3 8.1 13.2
7.8 6.3 13.6 10.9 13.3 11.9 4.8 18.6 4.9 6.6 11.2
1.5 0.8 4.0 2.0 2.7 1.7 1.1 3.3 0.9 1.9 2.5
1.3 0.7 3.4 1.8 2.3 1.4 1.0 2.9 0.8 1.6 2.1
1.1 0.7 2.8 1.6 2.0 1.2 0.8 2.5 0.7 1.3 1.9
18.5 13.9 20.3 14.8 17.8 14.6 23.6 15.5 20.5 24.8 17.2
15.2 9.3 21.7 12.8 15.8 12.1 19.5 14.6 16.5 21.3 16.0
15.4 11.3 22.7 12.8 16.4 10.9 18.8 14.5 15.6 21.8 16.5
Neutral Buy Neutral Neutral Neutral Neutral Neutral Buy Buy Buy Buy Neutral
23.0 106.0 46.1 64.8 93.8 23.1 14.1 36.8 45.5 134.3 261.9 36.0
16.4 85.7 44.6 46.6 86.6 18.8 14.1 25.5 37.2 113.3 206.1 27.4
17.6 93.5 48.2 53.6 93.7 20.8 15.7 29.5 42.7 129.4 236.8 31.5
2.3 4.7 3.5 3.5 2.6 2.0 4.2 1.9 3.3 3.6 6.3 3.2 4.6
3.2 5.8 3.7 4.8 2.8 2.5 4.2 2.7 4.0 4.2 8.0 4.2 5.7
3.0 5.4 3.4 4.2 2.6 2.3 3.8 2.4 3.5 3.7 6.9 3.7 5.0
0.4 0.7 0.5 0.4 0.4 0.3 0.4 0.3 0.4 0.5 0.9 0.4 0.7
0.3 0.6 0.4 0.4 0.4 0.3 0.4 0.3 0.3 0.5 0.8 0.4 0.6
0.3 0.6 0.4 0.4 0.3 0.3 0.4 0.2 0.3 0.4 0.8 0.4 0.6
16.2 16.1 13.6 13.3 16.1 17.6 10.2 15.6 11.5 16.5 16.5 15.0 14.9
10.5 11.6 11.7 8.8 13.2 12.7 9.4 9.7 8.7 12.2 11.7 10.0 10.8
10.4 11.5 11.6 9.4 12.9 12.7 9.8 10.3 9.3 12.7 12.2 10.6 11.2
C–58
September 2013 Results Preview | Sector: Financials - Banks
Axis Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
AXSB IN 468.0 482 / 8 1549 / 764 8 / -25 / -15
Financials & Valuation (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)
2012 2013 2014E 80.2 96.7 111.1 74.3 93.0 105.3 42.4 51.8 53.6 3.3 3.3 3.3 102.7 110.7 114.4 24.4 7.8 3.4 547.4 699.9 795.5 18.2 690.1 782.8 20.3 18.5 15.2 1.6 1.7 1.5 18.2 19.1 19.2 9.3 1.5 1.5 1.7
9.0 1.3 1.3 1.8
2015E 127.9 121.0 61.7 3.3 132.0 15.3 905.6 892.1 15.4 1.5 19.2 7.8 1.1 1.2 2.1
CMP: INR1,031
Buy
Loan growth is expected to remain healthy at 18%+ YoY. However, deposit growth is expected to be lower at 5% YoY. Low deposit growth is partially on account of capital infusion benefits - bank utilized it by reducing bulk deposits proportion in 1QFY14. Margins are expected to moderate by ~10bp to 3.75%, as high bulk deposit rate and waning impact of capital raised will increase pressure on cost of funds. Fee income growth expected to be sub 10%, led by muted corporate fees and slowdown in retail fees. Net investment gain is likely to be negligible led by limited opportunity to book trading gains and MTM expected on AFS portfolio. Factoring slippage ratio of 1.7% (v/s 1.6% in 1QFY14) and credit cost of 1% (v/s 1.2% in 1QFY14) for 2QFY14E. Overall, we lower the earnings estimate by 8/10% for FY14E/15E, to factor lower risk adjusted NIMs. Maintain Buy. Key issues to watch for ¾ Impact on trading income (net of MTM) - due to steep rise in yields. ¾ Bulk deposit proportion and cost of funds movement. ¾ Growth in retail business, traction in SA deposits and asset quality.
Quarterly Performance
(INR Million)
Y/E March 1Q 64,829 43,030 21,799 26.4 13,355 35,154 15,517 19,637 26.0 2,588 17,048 5,513 11,535 22.4
Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (on customer assets, %) E: MOSL Estimates October 2013
FY13 2Q 3Q 66,872 69,649 43,603 44,701 23,269 24,948 15.9 16.6 15,931 16,154 39,200 41,102 17,417 17,487 21,783 23,615 22.7 14.7 5,094 3,868 16,688 19,747 5,453 6,275 11,235 13,472 22.1 22.2
FY14 4Q 70,476 43,829 26,647 24.2 20,072 46,718 18,721 27,997 37.4 5,954 22,044 6,492 15,552 21.8
1Q 72,778 44,126 28,652 31.4 17,813 46,465 18,030 28,436 44.8 7,123 21,313 7,224 14,089 22.1
2QE 74,135 46,332 27,802 19.5 16,001 43,803 20,021 23,782 9.2 6,066 17,716 5,758 11,958 6.4
3QE 76,766 49,576 27,190 9.0 18,351 45,541 20,689 24,852 5.2 5,841 19,011 6,179 12,833 -4.7
4QE 80,913 53,444 27,469 3.1 22,152 49,621 21,346 28,275 1.0 6,385 21,890 7,217 14,673 -5.6
3.6 5.2 18.6 82.3
3.4 6.5 18.2 81.5
3.2 14.0 15.0 78.7
3.4 3.3 21.3 29.8 76.9 39.1
3.5 3.5 21.2 22.9 73.1 40.5
3.6 3.6 17.2 20.7 73.4 40.0
3.7 3.5 14.8 16.0 78.0 44.4
3.9 3.7 7.1 15.8 83.1 42.4
38.3 2.2 20.9 1.1
40.7 2.4 21.9 1.1
42.6 2.4 22.8 1.1
43.7 2.2 23.9 1.1
42.1 2.1 24.9 1.1
27.8 1.2
31.1 1.3
35.7 1.4
FY13
FY14E
271,826 175,163 96,663 20.6 65,511 162,174 69,142 93,031 25.2 17,504 75,527 23,733 51,794 22.1
304,592 193,478 111,113 14.9 74,317 185,431 80,086 105,345 13.2 25,414 79,931 26,377 53,553 3.4
3.5 3.3 14.8 16.0 78.0 44.4
3.3 14.0 15.0 78.7
43.7 2.2 23.9 1.1
35.7 1.4 C–59
September 2013 Results Preview | Sector: Financials - Banks
Bank of Baroda Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BOB IN 422.5 212 / 3 900 / 429 -1 / -31 / -42
CMP: INR501
Financials & Valuation (INR b) Y/E March 2012 2013 2014E NII 103.2 113.2 117.5 OP 85.8 90.0 88.3 NP 50.1 44.8 36.2 NIM (%) 2.8 2.4 2.1 EPS (INR) 121 106 86 EPS Gr. (%) 12.4 -12.7 -19.2 BV/Sh. (INR) 621 707 775 ABV/Sh. (INR) 597 643 651 ROE (%) 22.1 16.1 11.6 ROA (%) 1.2 0.9 0.6 Div. Payout (%) 16.2 27.4 23.2 Valuations P/E(X) 4.7 5.8 P/BV (X) 0.7 0.6 P/ABV (X) 0.8 0.8 Div. Yield (%) 4.3 3.4
2015E 134.4 101.9 39.5 2.2 94 9.2 848 693 11.5 0.6 23.2 5.4 0.6 0.7 3.7
Buy
Loans and deposits are expected to grow 14% YoY and 19% YoY respectively. This would partially be helped by currency depreciation, which would translate into strong growth in international portfolio (formed 31% of overall business). NIM is expected to be stable at 2.4%. Fee income growth is expected to be ~7%. Factored net investment loss of INR500m v/s investment gains of INR2.9b in 1QFY14. Factored net slippage ratio of 2.3% and credit cost of 85bp. Further, fresh restructuring is expected to remain high (INR23b was done in 1QFY14). Flat NII growth, sharp increase in both operating and provisioning expense is expected to drag PAT lower by 39% YoY to INR8b. Overall, we lower the earnings estimate by 12/20% for FY14E/15E, to factor lower NIMs and loan growth. Upgrade to Buy.
Key issues to watch for ¾ Outlook on asset quality and restructuring - management had in the past indicated that 2QFY14 would be the last quarter of high slippages, which is expected to decline in 2HFY14.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported, %) NIM (Calculated, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR B) OSRL (%) Gross NPA (INR B) Gross NPA (%) E: MOSL Estimates October 2013
1Q 85,576 57,595 27,981 21.8 7,708 35,689 13,281 22,407 23.2 8,938 13,469 2,081 11,389 10.3
FY13 2Q 3Q 87,226 88,449 58,603 60,040 28,623 28,409 11.5 7.0 8,283 8,406 36,906 36,815 13,205 14,380 23,701 22,435 11.4 -13.6 6,464 10,293 17,237 12,142 4,223 2,026 13,014 10,116 11.6 -21.6
FY14 4Q 90,716 62,576 28,140 0.6 11,909 40,049 18,602 21,447 5.1 15,984 5,463 -4,825 10,289 -32.2
1Q 94,869 65,978 28,891 3.3 12,306 41,197 16,836 24,361 8.7 10,179 14,182 2,503 11,679 2.5
2.7 2.6 22.3 23.0 32.2 15.4
2.7 2.6 24.0 22.2 31.8 24.5
2.7 2.5 18.8 14.8 32.2 16.7
2.5 2.3 23.1 14.2 30.4 -88.3
2.4 2.2 22.0 12.4 31.2 17.7
179.8 6.3 53.2 1.8
195.8 6.7 58.8 2.0
205.0 6.8 73.2 2.4
200.1 6.1 79.8 2.4
207.2 6.4 97.6 3.0
2QE 96,242 67,628 28,615 0.0 8,861 37,475 17,081 20,394 -14.0 10,572 9,822 1,866 7,956 -38.9
3QE 99,283 69,657 29,626 4.3 9,463 39,089 17,928 21,161 -5.7 10,907 10,255 2,000 8,255 -18.4
4QE 105,739 75,410 30,329 7.8 11,073 41,402 19,026 22,376 4.3 11,954 10,422 2,121 8,301 -19.3
2.2 19.0 14.4
2.2 21.8 16.1
2.2 12.0 13.0
19.0
19.5
108.0 3.2
117.0 3.3
FY13
FY14E
351,967 238,814 113,153 9.7 36,306 149,459 59,467 89,992 4.9 41,679 48,312 3,505 44,807 -10.5
396,134 278,673 117,460 3.8 41,702 159,163 70,870 88,293 -1.9 43,609 44,684 8,490 36,194 -19.2
20.3
2.7 2.4 23.1 14.2 31.6 7.3
19.0
122.9 3.3
200.1 6.1 79.8 2.4
122.9 3.3
2.1 12.0 13.0
C–60
September 2013 Results Preview | Sector: Financials - Banks
Bank of India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BOI IN 596.6 97 / 2 392 / 127 9 / -51 / -53
CMP: INR163
Financials & Valuation (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Gr. (%) ROE (%) ROA (%) BV/Sh. (INR) ABV/Sh. (INR) Div.Payout (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)
2012 83.1 66.9 26.8 2.5 47 2.5 15.6 0.7 327 285 20.2
2013 2014E 90.2 104.9 74.6 80.4 27.5 26.6 2.3 2.3 46.1 44.6 -1.1 -3.3 13.6 11.7 0.7 0.5 362 396 298 307 29.4 24.4 3.5 0.5 0.5 6.1
3.7 0.4 0.5 5.7
2015E 123.5 92.3 28.7 2.4 48.2 8.1 11.6 0.5 433 332 24.4 3.4 0.4 0.5 6.2
Neutral
Loans and deposits growth is expected to be 23% YoY and 28% YoY, partially aided by currency depreciation, which is expected to translate into strong growth in international portfolio (formed 27% of overall business at end-1QFY14). NIM is expected to moderate by 10bp+ to 2.4%. Factored net investment loss of INR1b, compared to a gain of INR1.6b in 2QFY13 and INR6b in 1QFY14. Slippages are expected to be high; we have factored a slippage ratio of 2.9% and credit cost of 1%. Sequentially, PAT is expected to decline 48%+. However, on a lower base of 2QFY13, PAT growth is expected to be strong at 69% YoY. Overall, we lower the earnings estimate by 8% for FY14E, to factor in lower NIMs and higher credit cost. Maintain Neutral.
Key issues to watch for ¾ Asset quality performance has been volatile over the last few quarters. Outlook on slippages and restructuring pipeline. ¾ AFS as a proportion of overall investment is at 35%. Hence, net investment gains could lead to divergence in profitability.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters NIM (Reported, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (Reported, %) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2013
1Q 77,092 56,656 20,436 11.0 8,409 28,844 12,109 16,736 19.9 4,722 12,013 3,139 8,875 71.5
FY13 2Q 3Q 80,055 80,227 58,095 57,142 21,960 23,085 15.3 11.7 8,941 9,371 30,901 32,456 12,360 13,898 18,541 18,558 19.5 7.2 15,521 9,158 3,020 9,400 1 1,365 3,019 8,035 -38.5 12.2
FY14 4Q 81,716 56,956 24,760 -1.0 10,939 35,700 14,949 20,751 3.0 15,106 5,645 -1,921 7,566 -20.6
1Q 85,412 60,042 25,370 24.1 11,808 37,178 15,374 21,804 30.3 6,946 14,858 5,217 9,642 8.6
2.3 2.3 15.7 22.9 32.0 26.1
2.4 2.4 11.2 20.0 32.8 0.0
2.4 2.5 13.6 20.3 33.8 14.5
2.5 2.5 20.0 16.5 32.8 -34.0
2.5 2.3 22.4 17.1 31.4 35.1
175.7 6.6 67.5 2.6
178.5 6.9 89.0 3.4
181.4 6.5 86.3 3.1
163.5 5.6 87.7 3.0
162.3 5.2 94.1 3.0
2QE 88,305 62,518 25,787 17.4 8,848 34,635 16,005 18,630 0.5 11,343 7,287 2,186 5,101 69.0
3QE 91,452 64,915 26,537 15.0 9,048 35,585 16,365 19,220 3.6 11,397 7,823 2,347 5,476 -31.8
4QE 94,550 67,304 27,246 10.0 10,675 37,921 17,188 20,733 -0.1 11,612 9,121 2,759 6,362 -15.9
2.2 27.8 23.3
2.2 24.3 17.4
2.3 17.0 16.8
30.0
30.0
102.0 3.2
110.2 3.3
FY13
FY14E
319,089 228,849 90,240 8.5 37,660 127,900 53,315 74,585 11.4 44,508 30,077 2,584 27,493 2.7
359,720 254,780 104,940 16.3 40,379 145,319 64,932 80,387 7.8 41,298 39,090 12,509 26,581 -3.3
30.2
2.5 2.3 20.0 16.5 32.8 8.6
32.0
116.3 3.4
163.5 5.6 87.7 3.0
116.3 3.4
2.3 17.0 16.8
C–61
September 2013 Results Preview | Sector: Financials - Banks
Canara Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
CBK IN 443.0 100 / 2 550 / 190 2 / -46 / -54
Financials & Valuation (INR b) Y/E March 2012 NII 76.9 OP 59.4 NP 32.8 NIM (%) 2.4 EPS (INR) 74 EPS Gr. (%) -18.5 BV/Sh. (INR) 464 ABV/Sh. (INR) 414 ROE (%) 17.1 ROA (%) 0.9 Div. Payout (%) 17.2 Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)
2013 2014E 78.8 83.0 58.9 62.4 28.7 20.6 2.2 2.0 65 47 -12.5 -28.2 513 550 436 435 13.3 8.8 0.7 0.5 23.3 23.2 3.5 0.4 0.5 5.8
4.8 0.4 0.5 4.1
2015E 98.3 71.1 23.8 2.1 54 15.2 592 449 9.4 0.5 23.2 4.2 0.4 0.5 4.8
CMP: INR225
Neutral
Low CD ratio (65%) to help NIMs, hence, expect it to be stable QoQ. High proportion of AFS portfolio (52% of investment coupled with duration of 3.8 years) at end-1QFY14 coupled with rise in G-sec yields is expected to drag earnings. Factored net investment loss of INR3.2b. Modeled a slippage ratio of 3% v/s 4.8% in 1QFY14. Restructuring is expected to add pressure on overall asset quality. At end-1QFY14, management had guided for further restructuring of INR40b, of which INR30b was on account of SEBs. Overall, we lower the earnings estimate by 15/31% for FY14E/15E, to factor lower NIMs and higher provisions (credit cost and MTM loss). CBK is highly levered to systemic interest rate and with expectation of rates being elevated, benefit on NIMs and treasury gains may not play out. Elevated stress creation and ageing of the portfolio will keep credit cost and earnings under pressure. Hence, downgrade to Neutral. Key issues to watch for ¾ CBK is highly levered to interest rate, which could not only impact NIM, but also translate into high MTM losses and weak earnings. ¾ Slippages and restructuring. Proportion of infrastructure loans is highest among peers, which could add pressure on asset quality.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2013
1Q 84,729 66,293 18,435 4.2 6,926 25,362 11,424 13,938 9.7 4,185 9,752 2,000 7,752 6.8
FY13 2Q 3Q 85,955 85,445 66,387 65,565 19,568 19,880 -0.2 3.6 6,081 8,458 25,649 28,338 12,828 13,174 12,821 15,164 -19.9 -2.8 4,211 6,259 8,610 8,905 2,000 1,800 6,610 7,105 -22.4 -18.9
FY14
FY13
FY14E
340,779 261,989 78,790 2.5 31,530 110,320 51,420 58,900 -0.9 22,179 36,721 8,000 28,721 -12.5
380,248 297,287 82,962 5.3 36,774 119,735 57,377 62,358 5.9 36,568 25,790 5,158 20,632 -28.2 2.3 13.0 16.0 69.9
4Q 84,651 63,744 20,906 2.5 10,065 30,971 13,994 16,977 13.9 7,524 9,454 2,200 7,254 -12.5
1Q 92,696 72,785 19,911 8.0 12,383 32,294 13,311 18,983 36.2 9,162 9,821 1,900 7,921 2.2
2QE 94,001 73,513 20,488 4.7 7,691 28,179 13,954 14,225 11.0 9,589 4,636 927 3,709 -43.9
3QE 95,351 74,248 21,103 6.2 8,006 29,109 14,942 14,168 -6.6 9,000 5,167 1,033 4,134 -41.8
4QE 98,201 76,742 21,459 2.6 8,694 30,153 15,170 14,983 -11.7 8,816 6,166 1,297 4,869 -32.9
2.0 14.6 19.9 67.0
2.0 20.3 23.2 69.0
2.0 13.0 16.0 69.9
20.0
20.0
21.0
2.2 8.8 4.2 68.1 24.2 21.8
88.6 3.2
159.0 6.6 62.6 2.6
2.1 11.5 4.9 67.4 23.3 20.5
2.2 7.7 -1.0 64.1 24.8 23.2
2.3 3.1 0.3 67.4 25.1 20.2
2.3 8.8 4.2 68.1 24.2 23.3
2.0 14.2 10.8 65.4 23.1 19.3
129.6 5.7 45.0 2.0
137.7 6.4 56.1 2.6
133.8 6.1 60.9 2.8
159.0 6.6 62.6 2.6
181.8 7.3 73.3 2.9
79.7 3.1
85.0 3.1
20.0
88.6 3.2 C–62
September 2013 Results Preview | Sector: Financials - Banks
Federal Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
FB IN 171.0 51 / 1 551 / 221 2 / -43 / -38
CMP: INR298
Financials & Valuation (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) ROE (%) ROA (%) Payout (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)
2012 2013 2014E 19.5 19.7 20.5 15.1 14.6 14.2 7.8 8.4 6.2 3.8 3.2 2.9 45.4 49.0 36.1 32.3 7.9 -26.4 333.3 371.8 400.2 326.0 355.4 377.8 14.4 13.9 9.3 1.4 1.3 0.8 23.0 21.3 20.9 6.1 0.8 0.8 3.0
8.3 0.7 0.8 2.2
2015E 24.1 16.8 8.1 2.9 47.2 31.0 437.5 412.0 11.3 0.9 20.9 6.3 0.7 0.7 2.9
Buy
Business growth is expected to be marginally above industry average, with loan and deposit growth at 17% YoY and 19% YoY respectively. Systemic interest rates have risen. However, lower dependence on bulk deposits and expected NRI flows (NRI SA deposits as well) will keep overall increase in cost of funds under check. Nevertheless, we expect NIM to decline by 5bp+ and to be near 3.1%. Fee income growth is expected to be at 18%. Modeled net investment loss of INR50m v/s gain of INR922m in 1QFY14. While slippages in retail and SME are showing signs of stability/ improvement, corporate slippages continue to keep the asset quality volatile. Hence, factored a net slippage ratio of 1.7%. Overall, we lower the earnings estimate by 15/8% for FY14E/15E, to factor lower margins. Maintain Buy.
Key issues to watch for ¾ Slippages in corporate segment and update on a large government account, which was expected to be recovered. ¾ Liability profile improved in 1QFY14 as the bank reduced its proportion of bulk business in 1QFY14. Medium term strategy in terms of loan growth and liability mix.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Asset Quality Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2013
1Q 15,367 10,451 4,916 6.9 1,243 6,160 2,695 3,465 -2.1 628 2,837 934 1,904 30.2
FY13 2Q 3Q 15,256 15,218 10,197 10,244 5,059 4,974 6.6 -5.8 1,394 2,039 6,453 7,012 2,957 3,073 3,496 3,939 -3.2 -5.9 305 744 3,192 3,196 1,041 1,088 2,151 2,108 12.5 4.4
FY14 4Q 15,835 11,037 4,798 -2.3 1,969 6,766 3,071 3,695 -0.8 982 2,713 494 2,219 -6.6
1Q 16,533 11,437 5,096 3.7 2,158 7,254 3,249 4,005 15.6 2,451 1,554 498 1,057 -44.5
2QE 16,792 11,780 5,013 -0.9 1,682 6,695 3,347 3,348 -4.3 946 2,402 769 1,633 -24.1
3QE 17,393 12,310 5,083 2.2 1,717 6,800 3,496 3,304 -16.1 849 2,455 786 1,669 -20.8
4QE 18,291 12,959 5,332 11.1 1,893 7,225 3,704 3,521 -4.7 862 2,659 851 1,809 -18.5
FY13
FY14E
61,676 41,929 19,747 1.1 6,644 26,391 11,795 14,596 -3.1 2,658 11,938 3,556 8,382 7.9
69,009 48,485 20,524 3.9 7,451 27,974 13,796 14,178 -2.9 5,108 9,070 2,902 6,168 -26.4
3.4 3.4 17.8 19.0 75.2 28.4
3.6 3.6 4.8 8.0 73.3 29.0
3.5 3.4 10.4 18.9 76.5 29.5
3.1 3.1 17.7 16.8 76.5 26.9
3.1 3.1 12.7 8.5 72.4 29.0
3.0 18.6 17.1 72.4
3.0 20.6 14.1 72.4
2.9 16.0 14.0 75.2
3.4 3.2 17.7 16.8 76.5 26.9
2.9 16.0 14.0 75.2
14.1 3.6
14.4 3.8
15.6 3.9
15.5 3.4
14.8 3.5
16.2 3.7
17.1 3.7
17.6 3.4
15.5 3.4
17.6 3.4
C–63
September 2013 Results Preview | Sector: Financials - Banks
HDFC Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HDFCB IN 2,346.7 1,431 / 23 727 / 528 -1 / -7 / -9
CMP: INR610
Financials & Valuation (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)
2012 128.8 93.9 51.7 4.8 22.0 30.4 127.4 126.4 18.7 1.7 22.8
2013 158.1 114.3 67.3 4.8 28.3 28.4 152.1 150.7 20.3 1.8 22.8
2014E 188.2 142.2 85.8 4.7 36.1 27.6 179.7 175.7 21.7 2.0 23.4
2015E 228.6 180.4 106.5 4.7 44.7 24.1 214.1 207.8 22.7 2.0 23.4
21.6 4.0 4.0 0.9
16.9 3.4 3.5 1.2
13.6 2.8 2.9 1.5
Neutral
On the back of buoyant retail demand, HDFCB is expected to deliver healthy loan growth of 18%+ YoY. Deposit growth is also expected to be in line with loan growth at ~17% YoY. Margins are expected to moderate by 10bp+ QoQ but will remain steady on a YoY basis. Resultantly, NII growth is expected to be ~2% QoQ and 20% YoY. Ex-forex, fee income growth is expected to remain healthy at ~17%. However, contribution from trading income is expected to be negligible. Asset quality is expected to remain healthy, though stress in few segments of retail loans has increased, which needs to be watched. Hence, we build provisions of INR3.2b, compared to INR3b (which also included INR750m for floating provisions) in 2QFY13. Neutral.
Key issues to watch for ¾ Commentary on retail portfolio, which has been holding out strongly amid a slowdown in economy. ¾ Branch expansion has been strong in the last couple of years; continuation of strategy would be positive.
Quarterly Performance
(INR Million)
Y/E March 1Q 81,757 45,234 36,524 28.2 16,494 53,018 26,266 26,752 31.6 5,816 20,936 6,762 14,174 30.6
Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters NIM (Reported,%)* NIM (Cal, %)# Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (%) Gross NPA (INR B) Gross NPA (%) E: MOSL Estimates; * Reported on October 2013
4.6 4.8 22.0 21.5 46.0 32.3
FY13 2Q 3Q 85,247 88,904 47,930 49,088 37,317 39,816 26.7 27.8 13,451 19,277 50,768 59,094 25,055 27,880 25,713 31,214 21.0 31.3 2,929 4,050 22,784 27,164 7,184 8,573 15,600 18,591 30.1 30.0 4.2 4.7 18.8 22.9 46.4 31.5
4.1 4.7 22.2 24.3 45.4 31.6
FY14 4Q 93,239 50,287 42,953 20.6 18,036 60,989 31,362 29,627 17.3 3,005 26,622 7,723 18,898 30.1
1Q 96,630 52,443 44,187 21.0 19,256 63,443 30,382 33,061 23.6 5,271 27,790 9,351 18,439 30.1
4.3 4.9 20.1 22.7 47.4 29.0
4.6 4.8 17.8 21.2 44.7 33.6
0.1 0.1 0.1 0.2 0.2 20.9 21.3 24.3 23.3 27.2 1.0 0.2 1.0 1.0 1.0 total assets; # Cal. on interest earning assets
2QE 99,129 54,278 44,851 20.2 17,405 62,256 29,503 32,753 27.4 3,250 29,503 9,589 19,915 27.7
3QE 104,686 56,449 48,237 21.1 20,565 68,802 31,372 37,430 19.9 3,250 34,180 10,681 23,499 26.4
4QE 110,381 59,416 50,965 18.7 21,372 72,337 33,343 38,994 31.6 4,308 34,686 10,750 23,936 26.7
FY13
FY14E
350,649 192,538 158,111 22.7 68,526 226,637 112,361 114,276 21.7 16,770 97,506 30,249 67,257 30.2
410,826 222,586 188,240 19.1 78,599 266,839 124,601 142,238 24.5 16,079 126,159 40,371 85,788 27.6
4.7 20.0 22.0 46.7 32.0
41.4 1.4
4.7 17.3 18.3
4.8 20.0 19.2
4.8 20.0 22.0
32.5
31.3
31.0
4.3 4.8 20.1 22.7 47.4 31.0
31.7 1.1
37.1 1.3
41.4 1.4
0.2 23.3 1.0
C–64
September 2013 Results Preview | Sector: Financials - Banks
ICICI Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
ICICIBC IN 1,152.8 1,064 / 17 1,237 / 759 5 / -16 / -19
CMP: INR923
Financials & Valuation (INR b) Y/E March 2012 2013 2014E 2015E NII 107.3 138.7 156.6 181.6 OP 103.9 132.0 147.8 169.8 NP 64.7 83.3 86.5 97.4 NIM (%) 2.7 3.0 3.1 3.2 EPS (INR) 56 72 75 84 EPS Gr (%) 25.4 28.7 4.0 12.5 BV/Sh (INR)* 409 459 512 571 ABV/Sh (INR)* 397 446 494 545 RoE (%) 12.8 14.8 12.8 12.8 RoA (%) 1.4 1.6 1.5 1.5 Div. Payout (%) 34.1 32.2 34.2 34.8 Valuations AP/E (x) 10.2 9.5 8.2 AP/BV (x) 1.6 1.4 1.2 AP/ABV (x) 1.7 1.4 1.3 Div. Yield (%) 2.2 2.4 2.7 * BV adjusted for investment in susbdiaries, Prices adj for sub value
Buy
On a YoY basis, loan and deposit growth is expected to be below industry average at 14% and 8% respectively. Growth in international portfolio is also likely to remain moderate despite the currency depreciation (forms 27% of overall loans). Margins are expected to remain stable at ~3.3%. Fee income growth is expected to be in the high single digit. While net investment gain is expected to be negative (v/s INR1.7b in 2QFY13), higher contribution from dividend income would help overall noninterest income to grow by 5%+ YoY. Bank's asset quality has been holding fairly well over the past few quarters and we expect it to continue, given the benign asset quality in retail segment. At end-1QFY14, the bank had guided for further restructuring (under CDR) of INR10-12b. Overall, we lower the earnings estimate by 6/10% for FY14E/15E, to factor lower risk adjusted margins. Maintain Buy.
Key issues to watch for ¾ Domestic loan growth and traction in retail portfolio. ¾ While performance in asset quality has been strong, moderation in economic growth may lead to higher-than-expected restructuring.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) October 2013
1Q 95,457 63,527 31,929 32.4 18,799 50,729 21,235 29,493 32.0 4,659 24,835 6,684 18,151 36.3
FY13 2Q 3Q 100,263 101,383 66,551 66,393 33,712 34,990 34.5 29.0 20,430 22,146 54,142 57,136 22,209 22,612 31,933 34,525 35.7 28.5 5,079 3,687 26,854 30,838 7,293 8,335 19,561 22,502 30.1 30.2
FY14 4Q 103,653 65,621 38,032 22.5 22,082 60,114 24,073 36,041 15.8 4,600 31,441 8,400 23,041 21.2
1Q 104,207 66,002 38,205 19.7 24,843 63,048 24,906 38,142 29.3 5,932 32,210 9,468 22,742 25.3
3.0 2.9 16.1 21.6 39.1 26.9
3.0 3.0 14.8 17.6 37.5 27.2
3.1 3.0 9.9 16.5 37.4 27.0
3.3 3.2 14.5 14.4 38.1 26.7
3.3 3.1 8.7 12.3 39.0 29.4
41.7 1.6 98.2 3.5
41.6 1.5 100.4 3.5
45.6 1.6 97.6 3.3
53.2 1.8 96.1 3.2
59.2 2.0 100.1 3.2
2QE 108,038 69,302 38,736 14.9 21,598 60,334 25,156 35,178 10.2 6,250 28,928 8,245 20,684 5.7
3QE 110,980 71,381 39,598 13.2 23,797 63,395 26,786 36,609 6.0 6,750 29,859 8,510 21,349 -5.1
4QE 111,112 71,061 40,051 5.3 24,868 64,919 27,036 37,883 5.1 7,409 30,474 8,701 21,773 -5.5
FY13
FY14E
400,756 262,092 138,664 29.2 83,457 222,121 90,129 131,992 27.1 18,025 113,967 30,712 83,255 28.8
434,337 277,747 156,591 12.9 95,106 251,697 103,884 147,812 12.0 26,341 121,471 34,923 86,548 4.0
3.1 7.6 13.9
3.1 11.0 12.6
3.1 10.5 13.4
28.5
28.5
28.6
3.3 3.2 14.5 14.4 38.1 26.7
110.7 3.3
53.2 1.8 96.1 3.2
104.1 3.2
108.1 3.3
3.1 10.5 13.4 28.6
110.7 3.3 C–65
September 2013 Results Preview | Sector: Financials - Banks
Indian Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
INBK IN 429.8 30 / 0 219 / 61 -6 / -65 / -69
CMP: INR70
Financials & Valuation (INR b) Y/E March 2012 NII 44.2 OP 34.6 NP 17.5 NIM (%) 3.6 EPS (INR) 41 EPS Gr. (%) 1.9 BV/Sh. (INR) 215 ABV/Sh (INR) 197 RoE (%) 19.8 RoA (%) 1.3 Div. Payout (%) 21.4 Valuations P/E (x) P/ BV (x) P/ABV (x) Div. Yield (%)
2013 2014E 45.2 45.4 30.6 31.2 15.8 11.0 3.2 2.8 37 26 -9.5 -30.7 243 262 207 211 15.6 9.7 1.0 0.6 20.8 23.8 1.9 0.3 0.3 9.5
2.7 0.3 0.3 7.5
2015E 52.0 34.6 12.7 2.8 29 15.5 285 227 10.3 0.6 20.9 2.4 0.2 0.3 7.6
Buy
Business growth is expected to be marginally above industry average, with loan and deposit growth of 18% and 17% respectively. Declining trend in NIM is expected to continue, led by an increase in cost of funds. Hence, we model a 5bp QoQ decline. Slippages are expected to be at a high level, as economic environment continues to be challenging. Factor net slippage ratio of 2% and credit cost of 85bp. Further, continued restructuring in large and midcorporate segment would add stress on the balance sheet. At end-1QFY14, AFS investments as a proportion of overall investments stood at 36%, which could translate into MTM loss. We model net investment loss of INR750m v/s a gain of INR2.6b in 1QFY14. Led by weak core income and higher provisioning expense, PAT is expected to be INR2b v/s INR5b in 2QFY13. Overall, we lower the earnings estimate by 17/15% for FY14E/15E, to factor higher provisions. Maintain Buy.
Key issues to watch for ¾ Asset quality has been very volatile. Improvement in the same and outlook would be a key for future performance. ¾ Improvement in core operations (NIMs and fees).
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters NIM (Rep, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Tax Rate (%) Asset Quality Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates October 2013
1Q 33,738 22,206 11,532 12.0 2,227 13,759 5,356 8,402 7.6 1,457 6,945 2,328 4,617 13.5
FY13 2Q 3Q 34,104 35,465 22,901 24,030 11,203 11,434 -1.3 -2.3 3,645 2,402 14,848 13,837 5,764 6,355 9,084 7,481 -1.4 -17.9 2,022 4,116 7,063 3,365 2,096 59 4,967 3,306 6.0 -37.1
FY14 4Q 35,620 24,546 11,074 2.3 4,605 15,678 10,033 5,646 -29.2 4,758 888 -2,032 2,919 -15.5
1Q 36,658 25,690 10,968 -4.9 5,297 16,265 7,672 8,593 2.3 3,681 4,912 1,738 3,174 -31.3
2QE 37,750 26,653 11,097 -0.9 3,227 14,324 7,260 7,064 -22.2 4,210 2,853 827 2,026 -59.2
3QE 38,965 27,653 11,312 -1.1 3,421 14,733 7,442 7,291 -2.5 3,698 3,593 1,042 2,551 -22.8
4QE 40,702 28,662 12,040 8.7 3,860 15,900 7,652 8,248 46.1 3,718 4,530 1,319 3,211 10.0
FY13
FY14E
138,926 93,684 45,243 2.4 12,879 58,122 27,509 30,613 2.9 12,351 18,262 2,451 15,811 -9.5
154,075 108,659 45,417 0.4 15,804 61,221 30,026 31,196 5.3 15,306 15,890 4,926 10,964 -30.7 2.7 2.8 16.0 15.0 74.6
46.8 3.8
3.3 3.5 15.0 13.8 73.9 29.3 33.5
3.1 3.3 12.9 10.8 73.0 29.0 29.7
3.1 3.2 13.5 13.6 74.0 28.3 1.8
2.9 3.0 17.5 17.5 75.5 27.6 -228.9
2.7 2.9 17.8 16.3 73.0 26.9 35.4
2.8 16.9 18.1 73.7
2.8 16.9 17.6 74.4
2.8 16.0 15.0 74.6
29.0
29.0
29.1
3.1 3.2 17.5 17.5 75.5 27.6 13.4
15.5 1.7
19.8 2.1
31.8 3.2
35.7 3.3
37.2 3.4
40.1 3.5
43.2 3.7
46.8 3.8
35.7 3.3
31.0
C–66
September 2013 Results Preview | Sector: Financials - Banks
IndusInd Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
IIB IN 522.9 197 / 3 531 / 318 -1 / -12 / 4
Financials & Valuation (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) Valuations P/E (X) P/BV (X) P/ABV (X) Div. Yield (%)
2012 2013 2014E 17.0 22.3 27.5 13.7 18.4 23.0 8.0 10.6 12.5 3.6 3.7 3.7 17.2 20.3 23.9 38.5 18.3 17.8 96.7 141.9 161.6 17.8 140.2 159.6 19.2 17.8 15.8 1.6 1.6 1.6 14.9 20.3 17.5 18.6 2.7 2.7 0.8
15.7 2.3 2.4 1.0
2015E 33.7 27.8 14.9 3.8 28.4 18.8 185.1 181.6 16.4 1.6 17.5 13.3 2.0 2.1 1.1
CMP: INR377
Buy
Though growth in commercial vehicle finance portfolio is likely to moderate on the back of slower demand, introduction of new products will drive growth in the consumer finance portfolio. In the corporate segment, growth is expected to be driven by working capital. Loan growth is expected to be above industry average at 27% YoY. Margins are expected to decline by 5-7bp to ~3.6%. Fee income growth is expected to be healthy at ~25% YoY. While there may be some MTM losses, strong growth in forex income is expected to contain the impact on PBT. Amid a slowdown in CV segment, IIB's asset quality performance remains healthy. However, we may see delinquencies and fresh restructuring inching up. We lower our earnings estimate by 10/13% for FY14E/15E, to factor lower NIMs. Maintain Buy. Key issues to watch for ¾ Growth strategy, traction in new products and fee-based income. ¾ Additions to saving bank accounts and traction in SA deposits. ¾ Outlook on asset quality, especially on CV portfolio (given the slowdown in the industry).
Quarterly Performance
(INR Million)
Y/E March 1Q 16,320 11,479 4,841 24.1 3,188 8,029 3,989 4,040 29.6 535 3,505 1,143 2,363 31.1
FY13 2Q 3Q 17,279 18,005 12,182 12,227 5,097 5,778 21.6 34.2 3,205 3,558 8,302 9,336 4,104 4,614 4,198 4,722 26.1 35.2 491 787 3,708 3,935 1,205 1,262 2,503 2,673 29.6 29.8
FY14 4Q 18,228 11,615 6,612 42.4 3,679 10,291 4,857 5,435 43.4 819 4,616 1,542 3,074 37.6
1Q 19,122 12,327 6,795 40.4 4,706 11,501 5,085 6,416 58.8 1,321 5,095 1,747 3,348 41.7
3.7 3.7 27.7 26.4 81.9 29.3 33.4
3.7 3.7 23.5 27.3 85.2 30.0 34.3
Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported,%) 3.2 3.3 3.5 NIM (Cal, %) 3.3 3.3 3.6 Deposit Growth (%) 27.8 24.5 26.0 Loan Growth (%) 31.2 30.8 30.8 CD Ratio (%) 82.6 82.5 83.0 CASA Ratio (%) 27.9 28.0 28.7 Tax Rate (%) 32.6 32.5 32.1 Asset Quality OSRL (INR b) 0.9 0.7 1.1 OSRL (%) 0.2 0.2 0.3 Gross NPA (INR b) 3.7 4.1 4.2 Gross NPA (%) 1.0 1.0 1.0 E: MOSL2013 Estimates; Quarterly calculated margins based on total October
2QE 20,013 13,190 6,823 33.9 4,116 10,939 5,445 5,494 30.9 975 4,519 1,514 3,005 20.1
3QE 21,054 14,179 6,874 19.0 4,336 11,210 5,790 5,420 14.8 875 4,545 1,523 3,023 13.1
4QE 21,708 14,690 7,018 6.1 4,715 11,733 6,109 5,625 3.5 909 4,715 1,587 3,129 1.8
3.7 24.7 27.5 84.4
3.5 23.5 24.4 83.6
3.3 19.0 22.0 84.0
33.5
33.5
33.7
1.3 1.3 0.3 0.3 4.6 5.1 5.8 6.7 7.7 1.0 1.1 1.1 1.3 1.4 assets, yearly on interest earning assets
FY13
FY14E
69,832 47,504 22,329 31.0 13,630 35,958 17,564 18,395 34.0 2,631 15,764 5,152 10,612 32.2
81,897 54,387 27,510 23.2 17,874 45,384 22,429 22,955 24.8 4,080 18,876 6,371 12,505 17.8
3.4 3.7 27.7 26.4 81.9 29.3 32.7
33.8
1.3 0.3 4.6 1.0
7.7 1.4
3.7 19.0 22.0 83.6
C–67
September 2013 Results Preview | Sector: Financials - Banks
ING Vysya Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
VYSB IN 150.1 77 / 1 667 / 395 6 / -13 / 22
CMP: INR510
Financials & Valuation (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)
2012 2013 2014E 12.1 15.4 18.0 7.7 9.9 12.4 4.6 6.1 6.9 3.0 3.2 3.2 30.4 39.6 37.4 15.4 30.2 -5.6 258.2 292.1 375.3 2.0 291.7 370.6 14.3 14.6 12.1 1.1 1.2 1.2 17.5 16.1 16.2 12.9 1.7 1.7 1.1
13.6 1.4 1.4 1.0
2015E 21.2 14.7 7.9 3.2 42.9 14.9 411.3 403.1 10.9 1.1 16.2 11.9 1.2 1.3 1.2
Buy
NIM is expected to improve sequentially by ~20bp, led by the benefit of capital raised of INR18.4b at end-1QFY14. Thus, NII is expected to grow 24% YoY. Fee income growth is expected to be lower than the balance sheet growth at ~11% YoY. While VYSB has surprised positively over the quarters, in 1QFY14, asset quality came under pressure (slippage ratio of 2.1% v/s 0.7% in FY13). Hence, it would be a key matrix to watch. Modeled provision expense of INR475m v/s INR681m in 1QFY14 and INR64m in 2QFY13 to provide buffer for credit cost and MTM loss. The stock trades at 1.4x FY14E and 1.2x FY15E BV, and 13.6x FY14E and 11.9x FY15E EPS. Maintain Buy.
Key issues to watch for ¾ NIM would benefit in 2QFY14 from the recently raised capital. However, outlook on core NIM would be important. ¾ Demonstration of operating leverage and performance and outlook on asset quality remain critical. ¾ Over the past few quarters, SA deposit growth has been in low single digits - improvement in the same would be a positive.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Tax Rate (%) Asset Quality Gross NPA (INR B) Gross NPA (%) Net NPA (%) October 2013
1Q 11,714 8,281 3,433 31.0 1,710 5,142 2,967 2,175 48.1 267 1,908 607 1,301 38.4
FY13 2Q 3Q 11,976 12,389 8,288 8,359 3,688 4,029 21.5 24.5 1,689 1,866 5,377 5,895 3,100 3,263 2,276 2,633 20.2 24.6 64 246 2,213 2,387 710 764 1,502 1,623 30.2 35.8
FY14 4Q 12,537 8,301 4,237 32.7 2,004 6,241 3,398 2,843 29.0 336 2,507 804 1,703 33.7
1Q 13,086 8,832 4,254 23.9 2,445 6,699 3,430 3,269 50.3 681 2,588 837 1,751 34.6
2QE 13,487 8,920 4,567 23.8 1,935 6,502 3,450 3,052 34.1 475 2,577 837 1,739 15.8
3QE 14,041 9,455 4,586 13.8 2,020 6,606 3,636 2,969 12.8 450 2,519 819 1,701 4.8
4QE 14,568 9,928 4,641 9.5 2,293 6,934 3,860 3,074 8.1 527 2,547 832 1,715 0.7
3.3 3.3 14.6 22.8 81.5 33.3 31.8
3.5 3.4 17.8 20.8 83.1 32.8 32.1
3.6 3.6 19.1 20.2 83.8 31.7 32.0
3.7 3.5 17.4 10.6 76.9 32.5 32.1
3.6 3.4 14.1 13.0 80.7 30.2 32.3
3.6 17.7 15.5 81.5
3.4 17.4 15.3 82.3
3.3 14.0 18.0 79.6
32.5
32.5
5.9 2.0 0.2
5.8 1.9 0.1
5.7 1.8 0.1
5.7 1.8 0.0
5.9 1.8 0.2
6.6 1.9 0.2
7.4 2.0 0.3
FY13
FY14E
48,616 33,230 15,386 27.3 7,269 22,655 12,728 9,927 29.3 912 9,014 2,885 6,130 34.3
55,182 37,135 18,047 17.3 8,693 26,740 14,376 12,365 24.6 2,133 10,231 3,325 6,906 12.7
32.7
3.5 3.4 17.4 10.6 76.9 32.5 32.0
32.5
8.5 2.2 0.3
5.7 1.8 0.0
8.5 2.2 0.3
3.5 14.0 18.0 79.6
C–68
September 2013 Results Preview | Sector: Financials - Banks
Kotak Mahindra Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
KMB IN 766.6 523 / 8 804 / 588 2/0/0
Financials & Valuation (Standalone, INR b) Y/E March 2012 2013 2014E NII 25.1 32.1 37.7 OP 16.6 21.6 26.7 NP 10.9 13.6 14.9 NIM (%) 4.6 4.6 4.4 EPS (INR) 24.7 29.3 32.0 EPS Gr. (%) 16.3 18.5 9.2 Cons. BV. (INR) 174.2 204.3 235.3 Cons. ROE (%) 15.4 15.5 14.6 ROA (%) 1.9 1.8 1.6 Payout (%) 2.8 2.8 2.9 Valuations P/E(X) (Cons.) 23.3 21.3 P/BV (X) (Cons.) 3.3 2.9 P/ABV (X) (Cons.) 3.4 3.0 Div. Yield (%) 0.1 0.1
2015E 44.4 30.9 17.3 4.4 36.7 14.6 271.0 14.5 1.6 2.9 18.6 2.5 2.6 0.1
CMP: INR682
Neutral
Lending business Profit from the lending business is expected to moderate to ~12% YoY, led by the moderation in profitability for standalone bank and YoY decline in earnings for Kotak Prime and Kotak Investments. For the standalone bank, we expect loan and PAT growth of ~17% YoY and 22% YoY respectively. Margins are expected to moderate by 10bp+ QoQ and credit cost (including standard asset provisioning) to be ~70bp (stable YoY). Capital Market and Asset Management business We expect PAT from capital market related businesses to be flat QoQ. However, it is expected to be lower by 20% on a YoY basis. In the asset management business, profitability is expected to improve 42% YoY. Though, overall contribution to PAT from this segment would continue to remain low at ~3%. The stock trades at 18.6x FY15E EPS and 2.5x FY15E BV. Maintain Neutral. Key issues to watch for ¾ Business growth and CASA trends. ¾ Asset quality trends, especially in the CV segment.
KMB Group: Earnings Trends
(INR Million)
Y/E March Kotak Bank (Standalone) Kotak Prime Kotak Mah. Investments Lending Business YoY Growth (%) Kotak Securities Kotak Mah. Capital Co. Capital Market Business YoY Growth (%) Intl. Subsidiaries Kotak Mah. AMC & Trustee Co. Kotak Investment Advisors Asset Management Business YoY Growth (%) Consol. PAT excluding Kotak Life YoY Growth (%) Kotak OM Life Insurance Consolidation Adjust. Consol. PAT Including Kotak Life YoY Growth (%) E: MOSL Estimates
October 2013
1Q 2,824 940 40 3,804 9.0 230 60 290 20.8 -50 40 80 70 -58.8 4,164 6.8 320 -50 4,434 6.6
FY13 2Q 3Q 2,804 3,617 1,140 1,050 160 80 4,104 4,747 16.3 23.9 400 380 40 20 440 400 76.0 42.9 80 50 -50 110 90 60 120 220 50.0 266.7 4,664 5,367 20.8 28.7 470 530 -110 -130 5,024 5,767 16.0 24.5
FY14 4Q 4,362 1,190 50 5,602 40.1 130 40 170 -69.1 -10 20 80 90 -43.8 5,862 24.5 580 220 6,662 27.9
1Q 4,028 1,170 40 5,238 37.7 310 40 350 20.7 -100 70 10 -20 -128.6 5,568 33.7 710 -10 6,268 41.4
2QE 3,426 1,112 55 4,592 11.9 302 50 352 -19.9 30 70 70 170 41.7 5,114 9.7 600 -50 5,664 12.7
3QE 3,678 1,156 70 4,904 3.3 317 50 367 -8.2 30 70 80 180 -18.2 5,452 1.6 550 -50 5,952 3.2
4QE 3,736 1,167 84 4,987 -11.0 337 64 401 135.8 40 76 90 206 128.8 5,594 -4.6 515 -90 6,019 -9.7
FY13
FY14E
13,607 4,307 336 18,250 22.9 1,145 167 1,312 -0.4 60 35 307 401 -0.8 19,964 20.4 1,900 21 21,885 19.4
14,868 4,604 249 19,721 8.1 1,267 204 1,471 12.1 0 286 250 536 33.5 21,728 8.8 2,375 -200 23,903 9.2
C–69
September 2013 Results Preview | Sector: Financials - Banks
Oriental Bank of Commerce Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
OBC IN 291.8 44 / 1 368 / 121 7 / -45 / -55
Financials & Valuation (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Growth (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Div. Payout (%) Valuations P/E (x) P/BV (x) P/ABV (x) Div. Yield (%)
2012 42.2 31.4 11.4 2.7 39 -24.0 380 325 10.7 0.7 23.4
2013 2014E 47.0 52.8 36.9 40.3 13.3 10.9 2.7 2.6 46 37 16.3 -18.3 415 443 350 368 11.5 8.7 0.7 0.5 23.4 23.2 3.3 0.4 0.4 6.1
4.0 0.3 0.4 5.0
2015E 60.0 45.4 12.4 2.6 43 14.7 476 401 9.3 0.5 23.2 3.5 0.3 0.4 5.7
CMP: INR150
Buy
Loan and deposit growth each is expected to be lower than the industry average at 11% YoY. Expect pressure on cost of funds to translate into lower NIM - building 6-7bp of sequential decline. Asset quality is expected to remain under pressure. Hence, factored a net slippage ratio of 1.8% v/s 1.3% in 1QFY14 and credit cost of 1.2% v/s 1.1% in 1QFY14. At end-1QFY14, AFS as a proportion of overall investment stood at 42%, with a duration of 4.5 years. And with an increase in G-sec yields, we factor a net investment loss of INR100m v/s gain of INR1.7b in 1QFY14. Overall, we lower the earnings estimate by 8/13% for FY14E/15E to factor lower margins and loan growth. Maintain Buy. Key issues to watch for ¾ Balance sheet growth and outlook on NIM. ¾ Pipeline of restructuring and outlook on SEBs restructuring. ¾ Tax rate: In 1QFY14, bank made higher tax provisions and effective tax rate stood at 36%. Currently, we factor a tax rate of 22%.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Rep, %) NIM (Cal,%) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR b) OSRL (%) Gross NPA (INR b) Gross NPA (%) October 2013
1Q 42,872 31,613 11,258 10.6 4,084 15,343 6,377 8,965 11.9 3,321 5,644 1,730 3,914 10.4
FY13 2Q 3Q 44,146 44,687 32,575 32,643 11,571 12,044 16.9 5.7 4,068 3,778 15,639 15,822 6,427 6,559 9,212 9,264 21.5 12.0 4,599 6,038 4,614 3,226 1,592 -39 3,022 3,264 80.2 -7.9
FY14 4Q 45,343 33,205 12,138 13.6 4,617 16,755 7,290 9,465 25.5 7,588 1,878 -1,202 3,079 16.2
1Q 47,177 34,106 13,070 16.1 5,381 18,451 7,568 10,883 21.4 5,327 5,555 2,022 3,534 -9.7
2.8 2.7 9.4 16.0 71.3 24.0 30.7
2.8 2.7 9.8 12.5 71.8 24.1 34.5
2.8 2.7 7.9 11.7 72.7 23.9 -1.2
2.8 2.7 12.8 15.2 73.3 23.9 -64.0
2.9 2.8 11.5 12.4 71.8 23.5 36.4
105.7 9.3 33.8 3.0
109.4 9.2 34.7 2.9
109.9 8.9 36.9 3.0
99.4 7.6 41.8 3.2
102.7 8.0 43.0 3.4
FY13
FY14E
177,048 130,036 47,012 11.5 16,547 63,559 26,652 36,907 17.5 21,546 15,361 2,081 13,279 16.3
196,822 144,014 52,808 12.3 18,412 71,220 30,938 40,281 9.1 25,808 14,473 3,618 10,855 -18.3
2QE 48,353 35,441 12,912 11.6 3,893 16,805 7,489 9,316 1.1 6,226 3,090 680 2,410 -20.2
3QE 49,838 36,693 13,145 9.1 4,186 17,330 7,657 9,673 4.4 6,790 2,883 432 2,451 -24.9
4QE 51,454 37,773 13,681 12.7 4,953 18,634 8,224 10,409 10.0 7,465 2,944 484 2,460 -20.1
2.8 10.6 10.9 71.8
2.7 12.1 10.9 71.8
2.7 14.0 13.1 72.7
22.0
15.0
16.5
2.8 2.7 12.8 15.2 73.3 23.9 13.5
48.8 3.3
99.4 7.6 41.8 3.2
45.1 3.4
47.4 3.5
2.6 14.0 13.1 72.7 25.0
48.8 3.3 C–70
September 2013 Results Preview | Sector: Financials - Banks
Punjab National Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PNB IN 353.5 169 / 3 922 / 402 -6 / -38 / -49
Financials & Valuation (INR b) Y/E March 2012 2013 2014E NII 134.1 148.6 160.8 OP 106.1 109.1 111.5 NP 48.8 47.5 40.0 NIM (%) 3.5 3.4 3.4 EPS (INR) 144 134 113 EPS Gr. (%) 2.9 -6.7 -15.7 BV/Sh. (INR) 777 884 971 ABV/Sh. (INR) 692 751 759 ROE (%) 21.1 16.5 12.2 ROA (%) 1.2 1.0 0.8 Div. Payout (%) 17.7 23.3 23.2 Valuations P/E(X) 3.6 4.2 P/BV (X) 0.5 0.5 P/ABV (X) 0.6 0.6 Div. Yield (%) 5.7 4.7
2015E 180.5 125.9 45.7 3.3 129 14.2 1,070 813 12.7 0.8 23.2 3.7 0.4 0.6 5.4
CMP: INR478
Buy
Business growth is expected to be low amid management's focus on consolidation, with loan and deposit growth of 8% YoY and 2% YoY. NIM is expected to be stable QoQ at ~3.5%, led by an improvement in liability profile over the past few quarters. At end-1QFY14, the bank had 35% of portfolio in AFS, with a duration of 4.7 years. And due to an increase in G-sec yields, we model a net investment loss of INR1.2b v/s investment gain of INR1.9b in 1QFY14. Net slippage ratio is likely to decline from the levels of 1QFY14, which is seasonally a weak quarter. Also, there was a large corporate account of INR16.6b (i.e. 45%+ of overall slippages) that slipped into NPA. We factor a net slippage ratio of 1% v/s 3.3% in 1QFY14. Further, restructuring would keep the stress high. Overall, we lower the earnings estimate by 10/13% for FY14E/15E, to factor lower NIMs, MTM loss and increase in credit cost. Maintain Buy. Key issues to watch for ¾ Management strategy: (1) consolidation of balance sheet, (2) proportion of bulk deposits and CASA ratio and (3) asset quality management. ¾ Pipeline of restructured loans.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Rep, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR B) OSRL (%) Gross NPA (INR B) Gross NPA (%) October 2013
1Q 105,540 68,608 36,931 18.5 11,680 48,611 20,203 28,409 14.8 10,325 18,084 5,627 12,457 12.7
FY13 2Q 3Q 104,211 105,288 67,717 67,954 36,494 37,333 5.7 5.6 9,054 9,705 45,548 47,038 20,219 20,219 25,329 26,819 0.2 0.2 10,738 8,016 14,590 18,803 3,935 5,747 10,656 13,056 -11.6 13.5
FY14 4Q 103,788 66,001 37,787 14.2 11,740 49,527 21,010 28,517 -2.9 14,777 13,740 2,423 11,317 -20.5
1Q 104,045 64,970 39,075 5.8 13,421 52,496 22,758 29,738 4.7 10,665 19,073 6,320 12,753 2.4
3.6 3.5 18.9 21.2 76.4 35.6 31.1
3.5 3.4 17.3 18.4 73.5 37.0 27.0
3.5 3.4 8.2 13.2 77.1 38.4 30.6
3.5 3.4 3.2 5.1 78.8 40.9 17.6
3.5 3.5 3.0 3.6 76.9 39.6 33.1
240.5 8.2 99.9 3.3
259.0 8.8 140.2 4.7
285.3 9.6 140.0 4.6
305.3 9.9 134.7 4.3
319.1 10.5 150.9 4.8
2QE 106,947 67,569 39,378 7.9 10,078 49,456 22,964 26,493 4.6 14,165 12,327 4,068 8,259 -22.5
3QE 109,886 69,560 40,326 8.0 10,547 50,874 23,742 27,132 1.2 13,426 13,706 4,523 9,183 -29.7
4QE 113,743 71,761 41,982 11.1 11,024 53,007 24,846 28,161 -1.2 13,514 14,647 4,808 9,839 -13.1
FY13
FY14E
418,933 270,368 148,565 10.8 42,159 190,724 81,651 109,074 2.8 43,856 65,218 17,741 47,477 -2.8
434,622 273,861 160,761 8.2 45,071 205,832 94,309 111,523 2.2 51,771 59,753 19,718 40,034 -15.7
3.4 2.0 7.6 77.6
3.4 10.2 11.0 77.6
3.4 14.0 12.0 77.5
33.0
33.0
32.8
3.5 3.4 3.2 5.1 78.8 40.9 27.2
194.7 5.5
305.3 9.9 134.7 4.3
165.4 5.1
179.9 5.3
3.4 14.0 12.0 77.5 33.0
194.7 5.5 C–71
September 2013 Results Preview | Sector: Financials - Banks
State Bank of India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SBIN IN 684.0 1,123 / 18 2,550 / 1,453 -2 / -26 / -33
CMP: INR1,642
Financials & Valuation (INR b) Y/E March NII OP NP NIM (%) EPS (INR) EPS Gr. (%) Cons.BV (INR) Cons.ABV (INR) RoE (%) RoA (%) Div. Payout (%) Valuations Cons. P/E (x) Cons. P/BV (x) Cons P/ABV (x) Div. Yield (%)
2012 432.9 315.7 117.1 3.8 229 35.9 1,541 1,321 16.0 0.9 17.8
2013 443.3 310.8 141.0 3.3 262 14.6 1,769 1,475 15.9 1.0 18.5
2014E 469.2 284.3 111.3 3.0 206 -21.3 1,937 1,474 11.2 0.7 18.7
2015E 539.2 346.2 128.8 3.0 237 14.9 2,130 1,604 11.8 0.7 18.6
5.9 0.9 1.1 2.5
7.5 0.8 1.1 2.0
6.6 0.7 1.0 2.3
Buy
Loan growth is expected to be strong at 20%+ YoY, while deposit growth is expected to be lower at ~14%. Expect the downward trajectory in NIM to continue. Modeled NIM decline of ~10bp QoQ (down 35bp YoY); hence, NII is expected to grow by 6% YoY. Factored net investment loss of INR1b, compared to a gain of INR6.7b in 1QFY14 and INR4.9b in 2QFY13, thus dragging earnings lower. On a sequential basis, net slippages (on a high base) are expected to decline, with expectation of both lower gross slippages and higher recoveries and upgrades (predominantly led by agriculture segment). We factor a net slippage ratio of 1.8% and credit cost of 90bp. Hence, we expect PAT to decline 35% YoY and be at INR23.8b. Overall, we lower the earnings estimate by 4/11% for FY14E/15E, to factor higher credit cost. Maintain Buy.
Key issues to watch for ¾ Mr Pratip Chaudhuri retired as Chairman in September 2013. Strategy of new management and outlook on margin, asset quality and loan growth in FY14 would be critical.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Domestic CD Ratio (%) CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR B) OSRL (%) Gross NPA (INR B) Gross NPA (%) October 2013
1Q 289,225 177,979 111,246 14.7 34,931 146,177 64,410 81,767 12.9 24,563 57,204 19,688 37,516 136.9
FY13 2Q 3Q 296,068 303,436 186,330 191,892 109,738 111,545 4.7 -3.2 33,466 36,485 143,205 148,030 69,668 70,122 73,536 77,908 -1.6 7.3 18,256 26,679 55,280 51,229 18,699 17,268 36,581 33,961 30.2 4.1
FY14 4Q 307,842 197,058 110,784 -4.4 55,467 166,251 88,645 77,606 -19.1 41,810 35,797 2,804 32,992 -18.5
1Q 317,183 202,065 115,119 3.5 44,743 159,862 84,349 75,513 -7.6 28,659 46,854 14,443 32,411 -13.6
3.6 3.7 16.1 18.9 77.8 46.1 34.4
3.3 3.4 16.5 17.2 76.6 45.0 33.8
3.3 3.4 15.6 15.6 79.2 45.5 33.7
3.2 3.2 15.2 20.5 82.4 46.5 7.8
3.2 3.2 14.0 15.7 78.8 44.7 30.8
164 1.8 472 5.0
219 2.4 492 5.2
238 2.4 535 5.3
322 3.1 512 4.8
330 3.1 609 5.6
FY13 FY14E 4QE 340,114 1,196,571 1,319,400 220,585 753,258 850,233 119,529 443,313 469,167 7.9 2.4 5.8 53,912 160,348 170,416 173,441 603,661 639,583 94,588 292,844 355,256 78,854 310,817 284,327 1.6 -1.6 -8.5 33,538 111,308 123,074 45,316 199,509 161,253 14,129 58,459 49,988 31,186 141,050 111,264 -5.5 20.5 -21.1
2QE 327,789 210,993 116,796 6.4 35,843 152,639 87,506 65,133 -11.4 30,644 34,489 10,692 23,798 -34.9
3QE 334,314 216,590 117,723 5.5 35,918 153,641 88,814 64,827 -16.8 30,233 34,594 10,724 23,870 -29.7
3.1 14.2 20.2
3.0 15.3 18.4
3.0 15.0 15.0
31.0
31.0
641 5.6
678 5.7
31.2
3.3 3.3 15.2 20.5 82.4 46.5 29.3
31.0
706 5.7
322 3.1 512 4.8
706 5.7
3.0 15.0 15.0
C–72
September 2013 Results Preview | Sector: Financials - Banks
Union Bank of India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
UNBK IN 550.5 64 / 1 288 / 97 -2 / -52 / -50
2013 2014E 75.4 76.3 55.8 51.0 21.6 16.5 2.8 2.4 36 27 11.5 -23.8 263 284 224 222 15.0 10.0 0.7 0.5 25.8 23.2 3.2 0.4 0.5 6.9
4.2 0.4 0.5 4.8
2015E 89.2 58.5 18.9 2.5 31 14.9 308 226 10.6 0.5 23.2 3.7 0.4 0.5 5.5
Quarterly Performance
October 2013
Neutral
While pressure on cost of funds has increased, lower interest income reversals QoQ would provide a cushion. Hence, factored NIM decline of 5bp (on an already lower base). Net investment loss is expected to be INR500m v/s a gain of INR1.7b in 1QFY14 and INR1.2b in 2QFY13. Asset quality has been volatile over the past few quarters and given the emerging challenges in macro-economic environment, we factor a net slippage ratio of 1.8% and credit cost of 0.8%. Restructured loans portfolio would continue to rise. At end-1QFY14, bank had given a guidance of INR50b, of which INR23b was on account of SEBs (implementation of which may get delayed to 3QFY14). Overall, we lower the earnings estimate by 12/18% for FY14E/15E, to facor lower NIMs and higher provisions. Sustained pressure on asset quality (higher restructuring guidance), low capitalization and management change in Nov-12 will remain as a overhang on the stock. Downgrade to Neutral from Under Review.
Key issues to watch for ¾ Asset quality outlook. ¾ Guidance of 2.9% NIM given at end-1QFY14 seems optimistic and there may be a downward revision in the same.
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (YoY) Other Income Net Income Operating Expenses Operating Profit % Change (YoY) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (YoY) Operating Parameters NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) CASA Ratio (%) Tax Rate (%) Asset Quality Gross NPA (INR b) Gross NPA (%) E: MOSL Estimates
Financials & Valuation (INR b) Y/E March 2012 NII 92.4 OP 27.1 NP 17.9 NIM (%) 3.0 EPS (INR) 32 EPS Gr. (%) -18.5 BV/Sh. (INR) 236 ABV/Sh. (INR) 197 RoE (%) 14.8 RoA (%) 0.7 Div. Payout (%) 28.8 Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)
CMP: INR115
1Q 60,699 42,482 18,217 14.6 4,912 23,129 10,459 12,671 8.7 5,185 7,486 2,370 5,116 10.2
FY13 2Q 3Q 61,098 63,199 42,597 44,284 18,502 18,915 11.4 9.9 5,458 6,395 23,960 25,310 11,234 11,726 12,727 13,584 5.6 5.8 4,871 8,573 7,856 5,010 2,310 1,986 5,546 3,024 57.3 53.5
FY14 4Q 66,251 46,456 19,795 8.7 8,755 28,550 11,703 16,846 5.4 6,555 10,291 2,397 7,894 2.1
1Q 68,573 49,482 19,091 4.8 7,563 26,654 12,536 14,118 11.4 6,816 7,302 1,700 5,602 9.5
2QE 69,886 50,966 18,920 2.3 5,630 24,550 12,429 12,121 -4.8 8,011 4,110 1,151 2,959 -46.6
3QE 71,920 53,005 18,915 0.0 6,436 25,351 13,061 12,289 -9.5 6,511 5,778 1,734 4,045 33.8
4QE 75,591 56,208 19,382 -2.1 7,314 26,696 14,220 12,476 -25.9 6,807 5,669 1,816 3,853 -51.2
3.0 3.0 11.5 19.1 78.3 30.9 31.7
3.0 3.0 15.6 19.4 78.1 30.5 29.4
3.0 2.9 16.6 21.3 79.4 31.3 39.6
2.9 2.8 18.3 17.0 80.3 31.0 23.3
2.6 2.5 22.3 16.0 74.6 29.1 23.3
2.5 23.7 17.1 73.6
2.4 20.4 14.4 75.0
2.4 15.0 12.0 78.0
28.0
30.0
65.4 3.8
64.7 3.7
63.8 3.4
63.1 3.0
70.9 3.5
75.9 3.7
81.1 3.8
FY13
FY14E
251,247 175,819 75,428 11.0 25,520 100,949 45,122 55,827 6.3 25,185 30,642 9,063 21,579 20.7
285,969 209,661 76,308 1.2 26,943 103,250 52,246 51,005 -8.6 28,144 22,860 6,401 16,459 -23.7
32.0
3.0 2.8 18.3 17.0 80.3 31.0 29.6
28.0
87.6 3.7
63.1 3.0
87.6 3.7
2.4 15.0 12.0 78.0
C–73
September 2013 Results Preview | Sector: Financials - Banks
Yes Bank Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
YES IN 358.6 109 / 2 547 / 216 19 / -34 / -26
CMP: INR305
Financials & Valuation (INR b) Y/E March 2012 NII 16.2 OP 15.4 NP 9.8 NIM (%) 2.7 EPS (INR) 28 EPS Gr. (%) 32.1 BV/Sh. (INR) 132 ABV/Sh. (INR) 132 RoE (%) 23.1 RoA (%) 1.5 Div. Payout (%) 16.8 Valuations P/E(X) P/BV (X) P/ABV (X) Div. Yield (%)
2013 2014E 22.2 26.7 21.4 24.4 13.0 13.6 2.8 2.8 36.3 37.8 31.0 4.2 162 192 162 192 24.8 21.3 1.5 1.3 19.2 19.1 8.4 1.9 1.9 2.0
8.1 1.6 1.6 2.0
2015E 31.7 29.2 16.5 2.8 45.9 21.6 230 228 21.8 1.3 19.1 6.6 1.3 1.3 2.5
Buy
Loan and deposit growth is expected to be above industry average at ~20% YoY and 30%+ YoY respectively. While higher dependence on bulk deposits is expected to increase the cost of funds, increase in base rate by 25bp would provide a cushion and help the bank maintain NIM at ~2.9%. Some MTM is expected on corporate bond portfolio (in provisions line). However, gains from swap (in non-interest income line) that the bank entered into, is expected to provide a cushion to earnings. Growth in fee income, ex-financial markets, is expected to be 19/20%. YES continues to demonstrate strong asset quality performance even as the economic environment continues to pose challenges. We expect the healthy trend to continue. Overall, we lower the earnings estimate by 12/10% for FY14E/15E, to factor lower risk adjusted margins. Maintain Buy.
Key issues to watch for ¾ Outlook on NIM and positioning of investment portfolio. ¾ Roll out branch network and continuation of the same would be important for building its retail business (especially SA deposits). ¾ Capital raising plans.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income % Change (Y-o-Y) Other Income Net Income Operating Expenses Operating Profit % Change (Y-o-Y) Other Provisions Profit before Tax Tax Provisions Net Profit % Change (Y-o-Y) Operating Parameters NIM (Reported,%) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Customer assets growth (%) CD Ratio (%) CASA Ratio (%) Asset Quality Gross NPA (INR B) Gross NPA (%) E: MOSL Estimates October 2013
1Q 18,863 14,142 4,722 33.3 2,881 7,603 3,007 4,596 41.4 300 4,296 1,395 2,901 34.3
FY13 2Q 3Q 19,864 21,336 14,622 15,493 5,242 5,843 35.9 36.7 2,768 3,132 8,009 8,975 3,162 3,341 4,847 5,635 25.6 41.3 317 567 4,530 5,068 1,469 1,645 3,061 3,423 30.2 34.7
FY14 4Q 22,877 16,495 6,381 42.4 3,794 10,175 3,836 6,339 47.3 975 5,364 1,742 3,622 33.2
1Q 23,979 17,388 6,591 39.6 4,421 11,012 4,212 6,800 47.9 970 5,830 1,821 4,008 38.2
2.8 2.8 15.2 16.4 32.4 76.7 16.3
2.9 2.9 18.6 22.9 32.5 80.4 17.3
3.0 3.1 20.2 22.3 27.4 77.8 18.3
3.0 3.0 36.2 23.7 30.9 70.2 18.9
3.0 2.9 29.9 24.3 24.2 73.4 20.2
1.1 0.3
1.0 0.2
0.8 0.2
0.9 0.2
1.0 0.2
2QE 25,129 18,605 6,524 24.5 3,733 10,257 4,367 5,889 21.5 1,200 4,689 1,524 3,165 3.4
3QE 26,366 19,814 6,552 12.1 3,633 10,185 4,326 5,858 4.0 1,200 4,658 1,491 3,167 -7.5
4QE 27,547 20,482 7,066 10.7 3,790 10,855 4,982 5,874 -7.3 1,121 4,753 1,542 3,211 -11.3
2.9 31.0 19.7
2.8 28.8 20.4
2.8 14.0 18.0
73.4
72.7
72.7
1.6 0.3
2.3 0.4
3.2 0.6
FY13
FY14E
82,940 60,752 22,188 37.3 12,574 34,762 13,345 21,417 39.1 2,160 19,257 6,251 13,007 33.1
103,021 76,289 26,732 20.5 15,576 42,308 17,888 24,421 14.0 4,491 19,930 6,378 13,552 4.2
2.9 2.8 36.2 23.7 30.9 70.2 18.9 0.9 0.2
2.8 14.0 18.0 72.7 24.1 3.2 0.6 C–74
September 2013 Results Preview | Sector: Financials - NBFC
Financials – NBFC Growth to remain healthy; margins and asset quality, a key monitorable
Companies Covered
The performance of retail NBFCs (HFCs and AFCs) is expected to remain strong, led by healthy loan growth (+20%) and stable asset quality outlook (though incremental data points show some weakness). Margins are likely to moderate/remain stable despite recent spike in cost of wholesale funds as companies have utilised excess liqudity on balance sheet and have also raised lending rates during the quarter. While competition from banks in the retail financing space is intensifying, growth outlook remains healthy, led by the buoyancy in semi urban and rural economy, market share gain, loan mix change, unique customer base and expanding branch network. Within the NBFC space, we continue to like HDFC, IDFC, BAF and MMFS.
Bajaj Finance HDFC IDFC LIC Housing Fin M & M Financial Power Finance Corp
The new RBI Governor has indicated to issue new banking licences by January 2014; among NBFCs under our coverage, Shriram Transport Finance Company, Bajaj Finance and IDFC are strong contenders for the same.
Rural Electric. Corp. Shriram Transport Fin.
Housing finance companies: For housing finance companies (HFCs), 2QFY14 is likely to remain a steady quarter, as growth in individual loans remains buoyant and asset quality remains healthy. We expect overall loan growth for HDFC and LIC Housing Finance (LICHF) to remain healthy at +20%. Margins are likely to remain stable/ marginally moderate on a sequential basis. No major regulatory changes were announced during the quarter. HDFC remains our preferred pick; we also like LICHF on valuation however margin pressure likely to persist. Infrastructure finance companies: Infrastructure sector continues to remain in a fragile state. Over the past few months, Government cleared projects worth over INR1t, which is good for the sector and will have a positive impact but with a lag. Fuel availability remains the most critical issue for power sector and resolution is still not in sight. Among infrastructure finance companies, we expect growth to remain healthy for REC and PFC at +20%; however, growth rate for IDFC is likely to moderate at sub 10%. Margins are likely to be under pressure due to spike in cost of funds. While no
Expected quarterly performance summary CMP (INR) 27.09.13 Financials - NBFC Bajaj Finance 1,177 HDFC 783 IDFC 89 LIC Housing Fin 192 M & M Financial 257 Power Finance Corp 133 Rural Electric. Corp. 195 Shriram Transport Fin. 574 NBFC Bkg. Sector Aggregate
Rating
Buy Buy Buy Buy Buy Neutral Neutral Buy
(INR Million) Net Interest Income Sep.13 Var. Var. % YoY % QoQ
Operating Profit Sep.13 Var. Var. % YoY % QoQ
Net Profit Sep.13 Var. % YoY
5,830 16,192 6,868 4,607 6,602 18,499 16,545 9,383 84,526
3,308 17,022 7,543 4,356 4,669 18,235 16,711 7,826 79,671
1,702 12,103 4,288 3,326 2,302 12,776 11,825 3,520 51,842
32.3 16.8 6.8 30.3 25.5 25.4 29.2 8.1 21.2
-2.3 6.5 0.1 1.3 7.1 -4.7 -0.9 4.0 0.8
35.8 7.2 3.9 28.4 28.8 25.2 29.0 9.9 18.5
0.0 3.9 -14.2 -1.3 12.2 -5.0 -1.8 6.5 -1.2
32.2 5.1 -9.8 36.8 22.7 21.2 22.6 4.3 14.1
Var. % QoQ -3.2 3.2 -22.6 7.1 20.4 0.4 -1.1 3.2 -0.6
Sunesh Khanna (
[email protected]) / Alpesh Mehta (
[email protected]) October 2013
C–75
September 2013 Results Preview | Sector: Financials - NBFC
large accounts are likely to fall into NPA category, however delayed power/ infrastructure reforms continues to remin overhang on the asset quality will remain a key monitorable in the current environment. In light of above issues and slow progress on the power sector reforms we downgrade REC/PFC to Neutral. Asset finance companies: Retail asset finance companies (AFCs) delivered strong performance both in terms of growth and asset quality in the current cycle. Among AFCs under our coverage, we expect both MMFS and Bajaj Finance to report healthy growth in AUM led by good monsoon and continued buoyancy in rural India. SHTF delivered healthy growth in the previous three quarters despite the sluggish CV sales; however, such high growth is concerning, given the stress in the CV segment and increasing delinquency levels. Margins are likely to moderate sequentially due to increase in wholesale funding costs. Asset quality will remain a key monitorable, given the continued stress on CV/UV/tractors/car sales. BAF is our prefered pick in this segment Relative Performance-3m (%)
Relative Performance-1Yr (%)
Sens ex Index MOSL Fi nanci a ls Index
Sens ex Index MOSL Fi na nci a ls Index
110
115
100
105
90
95
80
85
70
75 Jun-13
Jul -13 Aug-13 Sep-13
Sep-12 Dec-12 Ma r-13 Jun-13 Sep-13
Comparative valuation CMP (INR) 27.09.13 Financials - NBFC Bajaj Finance 1,177 Dewan Housing 104 HDFC 783 IDFC 89 LIC Housing Fin 192 M & M Financial 257 Power Finance Corp 133 Rural Electric. Corp. 195 Shriram Transport 574 NBFC Aggregate
October 2013
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
Buy Buy Buy Buy Buy Buy Neutral Neutral Buy
118.8 35.2 31.4 12.1 20.3 15.7 34.3 38.7 64.7
9.9 3.0 25.0 7.3 9.5 16.4 3.9 5.0 8.9 11.2
146.1 44.2 35.9 13.0 24.2 17.8 38.8 46.4 69.7
181.1 54.1 40.9 14.9 29.6 22.5 42.7 53.8 80.0
8.1 2.4 21.8 6.8 7.9 14.5 3.4 4.2 8.2 9.7
6.5 1.9 19.1 5.9 6.5 11.4 3.1 3.6 7.2 8.4
P/BV (x) FY13 FY14E FY15E 1.7 0.4 4.8 1.0 1.5 3.3 0.7 1.1 1.8 2.2
1.5 0.4 4.3 0.9 1.3 2.8 0.6 0.9 1.5 1.9
1.2 0.3 3.9 0.8 1.1 2.4 0.5 0.8 1.3 1.7
RoE (%) FY13 FY14E FY15E 21.9 17.1 23.8 14.1 16.8 23.4 20.1 23.6 20.6 20.1
19.8 16.3 25.6 13.7 17.4 20.7 19.6 23.7 18.3 19.6
20.8 17.2 25.7 14.1 18.4 22.4 18.7 23.1 17.9 19.6
C–76
September 2013 Results Preview | Sector: Financials - NBFC
Bajaj Finance Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BAF IN 49.8 59 / 1 1,591 / 966 3 / -3 / -3
Financials & Valuation (INR b) Y/E March 2012 2013 2014E NII 12.5 17.2 22.5 PPP 7.6 10.5 13.9 PAT 4.1 5.9 7.3 EPS (INR) 98.4 118.8 146.1 EPS Gr. (%) 45.9 20.8 23.0 BV/Share (INR) 487 676 797 RoA on AUM (%) 3.8 3.8 3.6 RoE (%) 24.0 21.9 19.8 Payout (%) 12.2 15.0 15.0 Valuations P/E (x) 12.0 9.9 8.0 P/BV (x) 2.4 1.7 1.5 Div. Yield (%) 1.0 1.3 1.9 * Adj for value of subs
CMP: INR1,177
2015E 28.0 17.4 9.0 181.1 23.9 946 3.5 20.8 15.0 6.5 1.2 2.3
Buy
Bajaj Finance continues to ride high on its diversification strategy and strong focus. Healthy growth momentum continues in consumer and SME segments. Loan book is expected to grow at a at 28% YoY. Margins are likely to moderate during this quarter due to spike in cost of funds; in the last quarter, margins stood at 12.9%. We expect NII to grow at 32% YoY and flat QoQ. Asset quality is expected to remain stable. As in June 2013, GNPAs were 1.14% and NNPAs were 0.25%. We expect provisions of INR730m v/s INR534m during 2QFY13 and INR639m during the last quarter. The stock trades at 1.5x FY14E and 1.2x FY15E BV. Maintain Buy.
Key issues to watch for ¾ Business growth momentum, as the company has been growing its AUMs at 25%+ for the past 12 quarters. ¾ Margin trends, as the wholesale cost of funds increased during the quarter. ¾ Asset quality trends in CE and two-wheeler business.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Fees and other income Net Income YoY Growth (%) Operating Expenses Operating Profit YoY Growth (%) Provisions and Cont. Profit before Tax Tax Provisions Net Profit YoY Growth (%) Adj PAT (Post Tax) YoY Growth (%) Loan Growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates
October 2013
1Q 7,013 2,636 4,377 21.2 494 4,871 15.7 2,010 2,861 -24.5 320 2,540 677 1,864 -27.3 1,387 -45.9 61.2 41.3 26.6
FY13 2Q 3Q 7,355 8,250 2,947 3,209 4,408 5,041 31.9 54.7 537 500 4,945 5,541 26.3 46.0 1,983 2,195 2,963 3,346 -11.7 2.6 534 513 2,429 2,833 616 762 1,813 2,072 84.3 -32.2 1,287 1,608 -49.1 -28.8 57.7 47.3 40.1 39.6 25.4 26.9
FY14 4Q 8,323 3,265 5,058 36.4 466 5,524 27.9 2,336 3,188 -8.0 450 2,738 746 1,992 -21.4 1,638 -35.4 36.3 42.3 27.2
1Q 9,283 3,314 5,969 36.4 477 6,446 32.3 2,703 3,743 30.9 639 3,104 911 2,193 17.7 1,757 26.7 34.6 41.9 29.4
2QE 9,376 3,546 5,830 32.3 500 6,330 28.0 2,563 3,767 27.1 730 3,037 877 2,160 19.1 1,702 32.2 32.1 40.5 28.9
3QE 10,032 3,653 6,380 26.5 550 6,930 25.1 2,684 4,245 26.9 800 3,445 999 2,447 18.1 1,939 20.6 27.7 38.7 29.0
4QE 10,105 3,945 6,160 21.8 596 6,756 22.3 2,695 4,060 27.4 941 3,119 715 2,404 20.7 1,874 14.4 30.0 39.9 22.9
FY13
FY14E
29,248 12,057 17,191 23.5 1,998 19,189 18.2 8,523 10,666 -23.1 1,818 8,848 2,803 5,913 45.5 5,913 45.5 36.3 44.4 31.7
36,932 14,458 22,474 30.7 2,123 24,597 28.2 10,645 13,952 30.8 3,110 10,842 3,501 7,272 23.0 7,272 23.0 30.0 43.3 32.3
C–77
September 2013 Results Preview | Sector: Financials - NBFC
HDFC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HDFC IN 1,546.4 1,210 / 19 931 / 632 4 / -10 / -3
Financials & Valuation (INR b) Y/E March 2012 NII 52.1 PPP 57.5 PAT 41.2 Adj. EPS (INR) 22.7 EPS Gr. (%) 19.8 BV/Share (INR) 129 ABV / Share (INR)100 RoAA (%) 2.7 Core RoE (%) 22.3 Payout (%) 45.8 Valuations AP/E (x) 26.0 P/BV (x) 6.1 AP/ABV (x) 5.9 Div. Yield (%) 1.4
2013 2014E 61.8 73.7 67.2 77.9 48.5 55.5 26.2 30.3 15.3 15.9 162 181 109 128 2.7 2.6 23.8 25.6 46.6 46.4 21.6 4.8 5.2 1.6
17.5 4.3 4.2 1.8
2015E 85.4 90.4 63.3 34.7 14.3 200 147 2.5 25.7 46.4 14.0 3.9 3.3 2.1
CMP: INR783
Buy
HDFC's loan growth (net of sell-downs) is likely to remain healthy at ~19.8% YoY and 5% QoQ.
Spreads should largely be stable at ~2.3% levels as the company has utilised excess liqudity on balance sheet; furthur HDFC has also retail & corporate lending rates by 25/100bp during the quarter.
NII is likely to remain strong at INR16.2b, registering a growth of 16.8% YoY.
Non-interest income is likely to de-grow 30% YoY and 13% QoQ as we estimate zero gains on sale of investments during the quarter.
Asset quality has remained healthy over the past several quarters and the trend is likely to continue. In 1QFY14, GNPAs were 0.77% on 90days overdue basis.
The stock trades at 4.2x FY14E AP/ABV and 3.3x FY15E AP/AEPS (price adjusted for value of other businesses and book value adjusted for investments made in those businesses). Maintain Buy.
Key issues to watch for ¾ Loan growth and movement in spreads (on individual loans). ¾ Asset quality trends; progress on the recovery of a corporate account that became NPL during 1QFY14. ¾ Spreads movement in the wake of increased wholesale rates.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expense Net Interest Income YoY Change (%) Profit on Sale of Inv. Other operating income Net Operating Income YoY Change (%) Other Income Total Income Operating Expenses Pre Provisioning Profit YoY Change (%) Provisions PBT YoY Change (%) Provision for Tax PAT YoY Change (%) E: MOSL Estimates
October 2013
1Q 46,924 33,882 13,042 19.1 202 2,223 15,467 18.8 74 15,541 1,342 14,199 19.0 400 13,799 17.4 3,780 10,019 18.6
FY13 2Q 3Q 49,273 50,604 35,414 35,215 13,859 15,389 11.5 24.5 941 963 2,480 853 17,281 17,206 17.3 18.3 78 84 17,358 17,290 1,477 1,439 15,881 15,851 17.2 17.6 400 400 15,481 15,451 15.7 16.3 3,970 4,050 11,511 11,401 18.6 16.2
FY14 4Q 54,207 34,398 19,808 13.6 1,049 1,405 22,263 14.4 116 22,379 1,132 21,247 14.9 250 20,997 15.1 5,445 15,552 17.3
1Q 52,844 37,636 15,208 16.6 0 2,726 17,933 15.9 80 18,013 1,635 16,378 15.3 300 16,078 16.5 4,350 11,728 17.1
2QE 55,616 39,424 16,192 16.8 0 2,350 18,542 7.3 90 18,632 1,610 17,022 7.2 442 16,580 7.1 4,477 12,103 5.1
3QE 59,105 41,001 18,104 17.6 800 1,650 20,554 19.5 90 20,644 1,635 19,009 19.9 465 18,544 20.0 5,007 13,537 18.7
4QE 61,665 37,429 24,236 22.4 856 1,752 26,844 20.6 90 26,934 1,415 25,520 20.1 658 24,862 18.4 6,704 18,158 16.8
FY13
FY14E
200,695 138,909 61,786 18.5 3,156 7,274 72,216 16.9 351 72,567 5,389 67,178 16.9 1,450 65,728 16.0 17,245 48,483 17.6
229,231 155,490 73,741 19.3 1,656 8,478 83,874 16.1 350 84,224 6,295 77,929 16.0 1,865 76,064 15.7 20,537 55,527 14.5
C–78
September 2013 Results Preview | Sector: Financials - NBFC
IDFC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
IDFC IN 1,514.7 135 / 2 185 / 76 2 / -43 / -49
2013 2014E 25.8 28.3 29.4 33.1 18.4 19.8 12.1 13.0 18.0 7.6 90 100 81 91 2.9 2.7 15.1 15.7 26.2 26.9 7.3 1.0 0.8 2.9
Financials & Valuation (INR b) Y/E March 2012 NII 20.3 PPP 24.6 Cons. PAT 15.5 EPS (INR) 10.3 EPS Gr. (%) 17.1 BV/Share (INR) 81 ABV/Share (INR) 73 RoAA (%) 2.9 Core RoE (%) 16.2 Payout (%) 25.2 Valuations P/E (x) 8.7 P/BV (x) 1.1 P/ABV (x) 0.9 Div. Yield (%) 2.6 * Adj for value of subs
CMP: INR89
6.8 0.9 0.7 3.2
2015E 31.5 37.1 22.6 14.9 14.5 111 102 2.8 16.0 26.9 6.0 0.8 0.7 3.7
Buy
IDFC has consciously moderated loan growth in the wake of uncertain macro environment. Loan growth is expected at 2.5% QoQ and 9% YoY. We expect margins to contract 10bp on a QoQ basis, translating into ~5.4% QoQ and 23.4% YoY growth in NII. Revenue from Investment Banking and Broking business is expected to decline sequentially, given the subdued activity levels in capital markets. However, we expect revenue from Asset Management to improve marginally YoY. Loan related and other fee income too is expected to increase sequentially YoY to INR530m. Cost to income ratio on a 12-month rolling basis is likely to remain stable at 15.3%. Asset quality is expected to remain stable. We model provisions of INR1.2b, against INR305m in 2QFY13 and INR592m during last quarter. The stock trades at 0.9x FY14 P/BV and 0.8x FY15E P/BV. Buy.
Key issues to watch for ¾ Loan growth guidance, given the uncertain macro environment. ¾ Movement in spreads in the wake of increase in wholesale cost of funds. ¾ Asset quality trends.
Quarterly Performance
(INR Million)
Y/E March NII % Change (YoY) - Infra Loans - Treasury Fees - Asset management - IB and Broking - Fixed Income - Loan related/others Principal investments Other Income Net Income % Change (YoY) Operating Expenses Operating Profit % Change (YoY) Provisions PBT Tax PAT Less: Consol Adjustments Consol PAT % Change (YoY) E: MOSL Estimates October 2013
1Q 6,220 28.8 5,550 670 1,462 640 90 120 612 20 14 7,716 8.3 1,160 6,556 9.6 1,026 5,530 1,713 3,817 19 3,798 21.1
FY13 2Q 3Q 6,430 6,560 29.1 22.4 5,960 6,110 470 450 1,568 1,676 690 870 210 80 190 300 478 426 490 70 16 59 8,504 8,365 (18.6) (6.0) 1,241 1,333 7,263 7,032 (20.5) (7.9) 305 518 6,957 6,514 2,188 1,965 4,770 4,549 13 (2) 4,757 4,551 (9.3) 19.4
FY14 4Q 6,430 9.9 6,030 400 2,412 890 400 570 552 1,290 9 10,141 22.7 1,559 8,581 26.9 1,647 6,934 1,646 5,289 32 5,257 57.0
1Q 6,860 10.3 6,310 550 2,679 930 130 1,390 229 630 6 10,174 31.9 1,384 8,790 34.1 592 8,198 2,627 5,571 34 5,537 45.8
2QE 6,868 6.8 6,387 481 1,600 725 145 200 530 500 0 8,968 5.5 1,425 7,543 3.9 1,200 6,343 2,030 4,313 25 4,288 (9.8)
3QE 7,005 6.8 6,515 490 1,980 800 150 300 730 625 0 9,610 14.9 1,475 8,135 15.7 1,000 7,135 2,283 4,852 25 4,827 6.1
4QE 7,153 11.2 6,652 501 2,327 944 169 300 915 709 0 10,190 0.5 1,556 8,634 0.6 1,089 7,544 2,409 5,136 16 5,120 (2.6)
FY13
FY14E
25,640 22.0 23,650 1,990 7,118 3,090 780 1,180 2,068 1,870 98 34,726 (0.0) 5,294 29,432 (0.3) 3,496 25,936 7,511 18,425 62 18,362 18.2
27,887 8.8 25,865 2,022 8,586 3,399 594 2,190 2,403 1,850 6 38,943 12.1 5,841 33,102 12.5 3,881 29,221 9,349 19,872 100 19,772 7.7
C–79
September 2013 Results Preview | Sector: Financials - NBFC
LIC Housing Finance Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
LICHF IN 505.0 97 / 2 300 / 152 7 / -19 / -36
Financials & Valuation (INR b) Y/E March NII PPP Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh (INR) RoAA (%) RoE (%) Payout (%) Valuations P/E (x) P/BV (x) Div. Yield (%)
2012 2013 2014E 13.9 15.3 18.9 13.9 14.5 17.8 10.0 10.2 12.2 19.8 20.3 24.2 -8.4 2.2 19.4 112.5 128.3 149.3 1.8 1.5 1.5 20.3 16.8 17.4 19.9 21.7 20.9 10.6 1.7 1.9
9.5 1.5 2.0
7.9 1.3 2.5
2015E 23.2 21.8 14.9 29.6 22.3 173.1 1.4 18.4 20.9 6.5 1.1 2.8
CMP: INR192
Buy
LICHF's loan growth is likely to remain healthy at 22% YoY on the back of buoyant demand in the individual loans segment.
Individual loans segment is likely to grow by 23% YoY and 6% QoQ, while the developer segment is expected to grow by 4% QoQ. Share of builder loan is likely to fall below 3% of overall book.
We expect margins to expand by ~15bp YoY (re-pricing of the teaser rate loans), which would provide cushion to margins.
Asset quality is likely to remain stable. We model provisioning reversal of ~INR200m (v/s provisioning of INR171m in 1QFY14); the reversal would be on account of provisioning release for teaser loans.
The stock trades at 1.3x FY14E and 1.1x FY15E BV. Maintain Buy.
Key issues to watch for ¾ Asset quality in the developer category; outlook on performance in the developer portfolio. ¾ Margin trends; LICHF has been disappointing on the margin front for past few quarters. Margins bounced back last quarter; however, sustaining/improving the margins will be key. ¾ Overall asset quality trends.
Quarterly Performance
(INR Million)
Y/E March Interest Income Interest Expenses Net Interest Income YoY Growth (%) Fees and other income Net Income YoY Growth (%) Operating Expenses Operating Profit YoY Growth (%) Provisions and Cont. Profit before Tax Tax Provisions Net Profit YoY Growth (%) Adj PAT (Post Tax) YoY Growth (%) Loan Growth (%) Borrowings Growth (%) Cost to Income Ratio (%) Tax Rate (%) E: MOSL Estimates
October 2013
1Q 17,179 13,674 3,505 -2.9 494 3,999 -5.0 521 3,479 -8.2 436 3,043 766 2,277 -11.2 2,277 -11.2 24.1 23.7 13.0 25.2
FY13 2Q 3Q 18,081 19,050 14,546 15,353 3,535 3,697 5.8 13.5 537 500 4,073 4,196 4.0 10.6 679 673 3,393 3,524 1.2 8.0 69 319 3,324 3,205 894 843 2,430 2,362 147.0 -22.7 2,430 2,362 -3.8 4.6 23.2 23.8 24.2 22.1 16.7 16.0 26.9 26.3
FY14 4Q 20,281 15,673 4,608 24.3 466 5,074 17.5 946 4,128 19.2 -35 4,163 1,002 3,162 24.7 3,162 24.7 23.4 22.6 18.6 24.1
1Q 21,303 16,755 4,547 29.7 477 5,024 25.6 613 4,411 26.8 171 4,240 1,135 3,105 36.3 3,105 36.3 22.1 22.6 12.2 26.8
2QE 22,368 17,761 4,607 30.3 500 5,107 25.4 751 4,356 28.4 -200 4,556 1,230 3,326 36.8 3,326 36.8 22.5 20.6 14.7 27.0
3QE 23,350 18,649 4,701 27.2 550 5,251 25.1 822 4,429 25.7 -225 4,654 1,257 3,398 43.8 3,398 43.8 22.9 23.0 15.7 27.0
4QE 24,924 19,858 5,066 9.9 596 5,662 11.6 1,033 4,629 12.1 -261 4,890 1,330 3,560 12.6 3,560 12.6 22.0 23.6 18.2 27.2
FY13
FY14E
74,591 59,246 15,345 10.3 1,998 17,343 6.8 2,819 14,524 4.7 789 13,736 3,504 10,232 11.9 10,232 2.2 23.4 22.6 16.3 25.5
91,945 73,023 18,921 23.3 2,123 21,044 21.3 3,219 17,826 22.7 -515 18,341 4,952 13,389 30.9 12,221 19.4 22.0 23.6 15.3 27.0
C–80
September 2013 Results Preview | Sector: Financials - NBFC
M & M Financial Services Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MMFS IN 563.0 145 / 2 288 / 171 3 / 28 / 37
CMP: INR257
MMFS continues to ride high on its multi-product strategy and strong rural focus. Healthy growth momentum in the car segments is likely to sustain on the back of festive season . AUMs expected to grow at a healthy pace at 30% levels.
Margins are likely to remain flat during this quarter; despite rise in cost of funds as the company has raised lending rates during the quarter which is likely to cushion margins
We expect NII to grow at 35% YoY and flat QoQ.
Asset quality is expected to remain stable. As in June 2013, GNPAs were 4.2% and NNPAs were at 1.9%.
We expect provisions of INR1.15b v/s INR836m during 2QFY13 and INR1.25b during last quarter.
The stock trades at 3x FY14E and 2.6x FY15E BV. Maintain Buy.
Financials & Valuation (INR b) Y/E March 2012 NII 16.2 PPP 10.8 PAT 6.2 EPS (INR) 12.1 EPS Gr. (%) 33.6 BV/Share (INR) 57.5 ABV/Share (INR) 18.3 RoA on AUM (%) 3.8 RoE (%) 22.8 Payout (%) 27.1 Valuations P/E (x) 21.3 P/BV (x) 4.5 P/ABV (x) 4.6 Div. Yield (%) 1.1
2013 2014E 22.2 28.4 15.3 19.8 8.7 10.0 15.7 17.8 29.8 13.4 79.1 92.2 76.1 86.7 3.9 3.4 23.4 20.7 27.1 26.3 16.4 3.2 3.4 1.4
14.5 2.8 3.0 1.6
2015E 35.4 25.3 12.7 22.5 26.6 108.8 100.1 3.3 22.4 26.3 11.4 2.4 2.6 2.0
Quarterly Performance Y/E March 1Q Operating Income 8,351 Other Income 39 Total income 8,390 YoY Growth (%) 49.8 Interest Expenses 3,475 Net Income 4,916 Operating Expenses 1,667 Operating Profit 3,248 YoY Growth (%) 56.6 Provisions 854 Profit before Tax 2,395 Tax Provisions 784 Net Profit 1,610 YoY Growth (%) 57.6 AUM growth (%) 39.3 Borrowings growth (%) 44.8 Cost to Income Ratio (%) 33.9 Provisions/Operating Profits (%) 26.3 Tax Rate (%) 32.8 E: MOSL Estimates; We have not included
October 2013
Buy
Key issues to watch for ¾ Business growth momentum, as the company has been growing its AUMs at 30%+ rate for the past 10 quarters. ¾ Margin trends, as the wholesale cost of funds increased during the quarter. ¾ Asset quality trends, given continued weakness in car sales.
(INR Million) FY13 FY14 FY13 FY14E 2Q 3Q 4Q 1Q 2QE 3QE 4QE 9,157 9,956 11,103 10,925 11,744 12,684 14,050 38,413 49,402 135 53 153 60 150 100 139 533 450 9,292 10,009 11,256 10,985 11,894 12,784 14,189 38,947 49,852 43.9 35.0 32.9 30.9 28.0 27.7 26.1 39.4 28.0 3,898 4,344 4,471 4,761 5,142 5,464 5,672 16,188 21,039 5,394 5,665 6,784 6,224 6,752 7,320 8,517 22,759 28,813 1,768 1,872 2,112 2,064 2,083 2,340 2,537 7,420 9,023 3,626 3,793 4,673 4,160 4,669 4,980 5,980 15,339 19,789 51.8 35.6 31.2 28.1 28.8 31.3 28.0 41.7 29.0 836 815 329 1,252 1,150 1,000 1,110 2,833 4,512 2,790 2,977 4,344 2,907 3,519 3,980 4,870 12,507 15,278 914 975 1,160 995 1,218 1,377 1,681 3,833 5,271 1,876 2,002 3,184 1,912 2,302 2,603 3,190 8,674 10,008 38.4 29.4 39.9 18.7 22.7 30.0 0.2 39.9 15.4 35.6 32.0 35.1 34.8 31.2 28.8 28.8 35.1 28.8 38.9 34.5 35.1 36.8 23.2 21.5 32.3 35.1 32.3 32.8 33.1 31.1 33.2 30.8 32.0 29.8 32.6 31.3 23.1 21.5 7.0 30.1 24.6 20.1 18.6 18.5 22.8 32.7 32.8 26.7 34.2 34.6 34.6 34.5 30.6 34.5 EO inc. of INR154m in 4QFY13 for presentation purpose; According taxes have been adj.
C–81
September 2013 Results Preview | Sector: Financials - NBFC
Power Finance Corporation Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
POWF IN 1,319.9 176 / 3 227 / 97 16 / -31 / -36
CMP: INR133
Financials & Valuation (INR b) Y/E March 2012 2013 2014E NII 41.1 62.7 74.4 PPP 42.5 60.5 69.8 Adj. PAT 31.5 45.2 51.3 Adj. EPS (INR) 23.9 34.3 38.8 EPS Gr. (%) 3.9 43.4 13.3 BV/Share (INR) 157.5 183.9 211.8 Adj. RoAA (%) 2.7 3.1 2.8 RoE (%) 17.5 20.1 19.6 Payout (%) 30.3 24.2 24.4 Valuations P/E (x) 5.6 3.9 3.4 P/BV (x) 0.8 0.7 0.6 Div. Yield (%) 4.5 5.3 5.8
2015E 81.8 79.0 56.3 42.7 9.9 243.7 2.6 18.7 23.5 3.1 0.5 6.4
Neutral
Loan growth is expected to remain healthy at ~23% YoY. On a sequential basis, loans and borrowings are expected to grow by ~4% and ~5% respectively. NII is expected to grow at a healthy 25% YoY on the back of healthy loan growth. Margins are likely to moderate QoQ. We expect MTM loss of INR1.2b during the quarter, compared with a gain of INR1.1b loss incurred in 1QFY14. We expect NIMs to remain moderate at 4.4%, compared to 4.7% reported during 1QFY14. Barring a couple of accounts, asset quality by large remained healthy, though it will remain a key monitorable, given the uncertain macro environment and issues related to fuel linkages. The stock trades at 0.63x FY14E and 0.55x FY15E BV. We are downgrading our rating from Buy to Neutral.
Key issues to watch for ¾ Growth trends and asset quality performance, against the backdrop of challenging fuel linkage issues. ¾ Movement in spreads and yields on assets. ¾ Overall disbursements trends and disbursements to SEBs for transitional finance. ¾ Forex loss due to sharp depreciation in INR.
Quarterly Performance Y/E March 1Q Interest Income 39,000 Interest Expenses 25,060 Net Interest Income 13,940 YoY Gr % 40.8 Other Income 90 Net Operational Income 14,030 YoY Gr % 36.9 Exchange gain/(loss) -770 Total Net Income 13,260 YoY Gr % 39.6 Operating Expenses 286 YoY Gr % 5.8 % to Income 2.2 Operating Profit 12,974 YoY Gr % 40.6 Provisions 20 PBT 12,954 Tax 3,240 Tax Rate % 25.0 PAT 9,714 YoY Gr % 41.6 Adjusted PAT (For Forex) 10,292 YoY Gr % 38.6 E:MOSL Estimates; Quarterly and annual October 2013
(INR Million) FY13 2Q 3Q 41,300 44,190 26,550 27,410 14,750 16,780 36.6 53.0 160 90 14,910 16,870 37.0 50.5 -240 -460 14,670 16,410 151.2 6.4 351 389 6.2 34.0 2.4 2.4 14,320 16,022 159.9 5.9 -30 900 14,350 15,122 3,978 3,940 27.7 26.1 10,372 11,182 147.5 0.9 10,545 11,522 31.4 45.6 numbers would not
FY14 4Q 1Q 2QE 3QE 4QE 45,920 49,590 49,888 50,237 51,886 28,660 30,181 31,388 32,644 33,016 17,260 19,409 18,499 17,593 18,870 40.4 39.2 25.4 4.8 9.3 250 100 130 140 212 17,510 19,509 18,629 17,733 19,082 36.6 39.1 24.9 5.1 9.0 90 -1,070 -1,200 -650 -580 17,600 18,439 17,429 17,083 18,502 35.2 39.1 18.8 4.1 5.1 426 319 394 359 593 4.1 11.8 12.4 -7.7 39.2 2.4 1.7 2.3 2.1 3.2 17,174 18,120 17,035 16,724 17,909 36.2 39.7 19.0 4.4 4.3 -90 910 1,200 700 732 17,264 17,210 15,835 16,024 17,177 4,320 5,230 3,959 4,006 4,360 25.0 30.4 25.0 25.0 25.4 12,944 11,980 11,876 12,018 12,816 57.9 23.3 14.5 7.5 -1.0 12,877 12,725 12,776 12,506 13,249 59.9 23.6 21.2 8.5 2.9 match due to differences in classification
FY13
FY14E
170,410 107,680 62,730 52.7 590 63,320 40.2 -1,380 61,940 41.5 1,450 12.1 2.3 60,490 42.4 800 59,690 15,478 25.9 44,212 45.8 45,235 44.0
201,601 127,229 74,371 18.6 582 74,953 18.4 -3,500 71,453 15.4 1,665 14.8 2.3 69,788 15.4 3,542 66,246 17,555 26.5 48,691 10.1 51,256 13.3
C–82
September 2013 Results Preview | Sector: Financials - NBFC
Rural Electrification Corp Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
RECL IN 987.5 193 / 3 268 / 146 4 / -11 / -16
Financials & Valuation (INR b) Y/E March 2012 2013 2014E NII 38.9 52.8 66.8 PPP 38.5 52.9 65.2 PAT 28.2 38.2 45.9 EPS (INR) 28.6 38.7 46.4 EPS Gr. (%) 10.1 35.4 20.1 BV/Share (INR) 149.2 178.2 213.1 RoAA (%) 3.0 3.3 3.4 RoE (%) 20.5 23.6 23.7 Payout (%) 30.5 24.9 24.9 Valuations P/E (x) 6.8 5.0 4.2 P/BV (x) 1.3 1.1 0.9 Div. Yield (%) 3.8 4.3 5.1
2015E 74.9 75.4 53.1 53.8 15.8 253.5 3.3 23.1 24.9 3.6 0.8 5.9
CMP: INR195
Loan growth is expected to remain healthy at 20%+ levels. We model a loan growth of ~24% YoY and ~4% QoQ. RECL's margins have stood at 4.96% (highest in last four years). This was led by an improvement in yields, while it also maintained a tight leash on cost of funds. However, in the current quarter, we expect margins to moderate and decline 25bp sequentially to 4.88%. We factor forex MTM loss of INR700m for 2QFY14. Barring a couple of accounts, asset quality by large remained healthy, though it will remain a key monitorable, given the uncertain macro environment. We model provisions of INR400m during the quarter. The stock trades at 0.9x FY14E and 0.8x FY15E BV. We are downgrading our rating from Buy to Neutral.
Key issues to watch for ¾ Growth trends and asset quality performance against the backdrop of challenging macro environment. ¾ Movement in spreads and yield on assets. ¾ Overall disbursement trends and disbursements to SEBs for transitional finance. ¾ Forex loss due to sharp depreciation in INR.
Quarterly Performance Y/E March
FY13 1Q 2Q 3Q Interest Income 29,968 32,405 35,014 Interest Expenses 18,314 19,603 20,711 Net Interest Income 11,654 12,802 14,303 YoY Gr (%) 28.1 34.8 42.3 Other Operational Income 717 514 322 Net Operational Income 12,372 13,316 14,626 YoY Gr (%) 30.4 36.1 41.0 Other Income -133 79 -34 Total Net Income 12,239 13,394 14,591 YoY Gr (%) 27.2 52.3 27.9 Operating Expenses 456 585 507 YoY Gr (%) 8.7 34.2 -34.9 % to Income 3.7 4.4 3.5 Operating Profit 11,784 12,809 14,085 YoY Gr % 28.0 53.2 32.5 Op. Profit adj. forex gain /loss 12,158 12,949 14,305 YoY Gr (%) 31.0 34.7 46.5 Provisions 0 0 250 PBT 11,784 12,809 13,835 YoY Gr (%) 31.6 53.2 33.2 Tax 3,016 3,270 3,568 Tax Rate (%) 25.6 25.5 25.8 PAT 8,767 9,539 10,267 YoY Gr (%) 32.5 52.8 33.4 Adjusted PAT 9,046 9,643 10,430 YoY Gr (%) 35.6 34.3 47.9 E:MOSL Estimates; Quarterly and annual numbers would not October 2013
Neutral
(INR Million) FY14 4Q 1Q 2QE 3QE 4QE 35,522 39,141 40,315 41,524 42,892 21,435 22,439 23,770 24,711 26,124 14,088 16,702 16,545 16,814 16,769 38.0 43.3 29.2 17.5 19.0 726 675 600 600 671 14,813 17,377 17,145 17,414 17,440 37.1 40.5 28.8 19.1 17.7 112 -374 -475 -375 -302 14,925 17,004 16,670 17,039 17,138 36.3 38.9 24.5 16.8 14.8 656 564 659 726 656 -2.2 23.8 12.7 43.3 -0.1 4.4 3.3 4.0 4.3 3.8 14,269 16,440 16,011 16,313 16,483 38.8 39.5 25.0 15.8 15.5 14,310 17,020 16,711 16,913 17,002 38.4 40.0 29.0 18.2 18.8 1,057 560 400 450 574 13,212 15,880 15,611 15,863 15,909 29.0 34.8 21.9 14.7 20.4 3,609 4,343 4,293 4,362 4,399 27.3 27.3 27.5 27.5 27.7 9,603 11,537 11,318 11,500 11,510 25.9 31.6 18.6 12.0 19.9 9,633 11,958 11,825 11,935 11,886 25.5 32.2 22.6 14.4 23.4 match due to differences in classification
FY13
FY14E
132,910 80,063 52,847 36.0 2,279 55,126 39.2 23 55,149 35.2 2,203 -5.3 4.0 52,946 37.7 53,721 37.8 1,307 51,640 36.1 13,463 26.1 38,176 35.5 38,752 35.6
163,872 97,043 66,829 26.5 2,546 69,375 25.8 -1,525 67,850 23.0 2,605 18.2 3.8 65,245 23.2 67,645 25.9 1,984 63,262 22.5 17,397 27.5 45,865 20.1 47,605 22.8 C–83
September 2013 Results Preview | Sector: Financials - NBFC
Shriram Transport Finance Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SHTF IN 226.3 130 / 2 842 / 465 5 / -22 / -11
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Net Inc. 32.3 34.6 38.7 PPP 26.4 28.7 32.1 PAT 12.6 13.6 14.3 Cons.PAT 13.1 14.6 15.8 EPS (INR) 55.6 60.0 63.0 EPS Gr. (%) 4.5 7.9 5.0 Cons. EPS (INR) 57.8 64.7 69.7 Cons. EPS Gr. (%) 9.9 11.9 7.8 BV/Share (INR) 264.8 317.1 371.6 Cons. BV (INR) 266.5 323.0 384.2 RoA on AUM (%) 2.8 2.6 2.3 RoE (%) 23.1 20.6 18.3 Payout (%) 13.6 13.6 13.3 Valuations P/Cons. EPS (x) 9.9 8.9 8.2 P/Cons. BV (x) 2.2 1.8 1.5 Div. Yield (%) 1.1 1.2 1.3
CMP: INR574
2015E 45.6 37.4 16.3 18.1 72.1 14.5 80.0 14.8 433.9 454.5 2.3 17.9 13.3 7.2 1.3 1.4
SHTF's asset growth improved in FY13. We expect company's AUM growth to remain healthy at ~22%/3% YoY/QoQ. We estimate disbursements growth to remain muted at 4% YoY and stable QoQ. Sequentially, disbursements may see some decline as they grew sharply by 48%/3% YoY/QoQ in 1QFY14. We model AUM growth of 6% QoQ at INR556b. Margins are expected to moderate 10bp sequentially. Thus, NII (incl. securitization income) should grow 8% YoY. Given the uncertain macro environment and slowdown in CV sales, asset quality continues to be a key monitorable. We have factored higher provisions of INR2.6b v/s INR2.5b in 1QFY13 and INR2.1b in 2QFY13. The stock trades at 1.5x FY14E and 1.3x FY15E BV. Maintain Buy.
Key issues to watch for ¾ Business growth; pick-up in growth was observed during last two quarters and management's commentary on the same. ¾ Movement in borrowing costs. ¾ Asset quality trends, given the sluggish CV sales.
Quaterly Performance Y/E March
FY13 FY14 1Q 2Q 3Q 4Q 1Q 2QE 3QE Interest Income 8,876 10,946 12,046 13,104 13,856 15,380 16,379 Interest expenses 6,173 6,859 7,350 8,057 8,692 9,562 9,848 Net Interest Income 2,702 4,087 4,696 5,046 5,163 5,818 6,531 YoY Growth (%) 1.8 16.0 51.0 74.1 91.1 42.3 39.1 Securitization income 5,323 4,590 4,252 3,892 3,859 3,565 3,408 Net Income (Incl. Securitization) 8,025 8,678 8,947 8,939 9,022 9,383 9,939 YoY Growth (%) 2.6 4.0 11.3 11.0 12.4 8.1 11.1 Fees and Other Income 702 314 300 569 825 725 725 Net Operating Income 8,727 8,991 9,247 9,508 9,848 10,108 10,664 YoY Growth (%) 5.2 4.5 11.0 14.4 12.8 12.4 15.3 Operating Expenses 1,940 1,872 1,999 2,049 2,499 2,282 2,334 Operating Profit 6,787 7,119 7,248 7,459 7,348 7,826 8,331 YoY Growth (%) 2.5 4.4 12.1 14.2 8.3 9.9 14.9 Provisions 2,026 2,106 2,126 2,193 2,503 2,725 3,025 Profit before Tax 4,761 5,013 5,122 5,266 4,845 5,101 5,306 Tax Provisions 1,543 1,638 1,662 1,713 1,435 1,581 1,671 Net Profit 3,219 3,376 3,460 3,552 3,411 3,520 3,634 YoY Growth (%) -7.3 12.7 14.3 15.3 6.0 4.3 5.0 AUM Growth (%) 13.3 15.8 18.6 23.5 25.2 26.1 25.9 Disbursement Growth (%) 12.2 28.6 42.0 54.6 47.9 31.3 18.1 Securitization Inc. / Net Inc. (%) 61.0 51.1 46.0 40.9 39.2 35.3 32.0 Cost to Income Ratio (%) 22.2 20.8 21.6 21.6 25.4 22.6 21.9 Tax Rate (%) 32.4 32.7 32.5 32.5 29.6 31.0 31.5 E: MOSL Estimates; * Quaterly nos and full year nos will not tally due to different way of reporting
October 2013
Buy
(INR Million) FY13
FY14E
4QE 16,625 45,028 10,084 28,439 6,541 16,588 29.6 36.1 3,860 18,057 10,401 34,645 16.4 7.4 741 1,885 11,142 36,530 17.2 8.9 2,497 7,860 8,645 28,670 15.9 8.5 3,196 8,508 5,449 20,162 1,730 6,556 3,719 13,606 4.7 8.2 24.0 23.5 10.2 34.6 34.6 49.4 22.4 21.5 31.7 32.5 financial nos
62,240 38,187 24,053 45.0 14,692 38,746 11.8 3,016 41,762 14.3 9,612 32,150 12.1 11,449 20,701 6,417 14,284 5.0 24.0 25.0 35.2 23.0 31.0
C–84
September 2013 Results Preview | Sector: Healthcare
Healthcare Companies Covered
EBITDA to grow 19% YoY on strong operational performance by Sun Pharma, Dr Reddy's, Glenmark and Cadila
Biocon
For 2QFY14, we expect revenue growth of 24% YoY and EBITDA growth of 19% YoY for Healthcare Universe (excluding one-offs). Adjusted PAT is likely to grow 16% YoY.
Cadila Healthcare Cipla Divi’s Laboratories
EBITDA growth would be mainly led by strong performance by Sun Pharma, Dr Reddy's, Glenmark and Cadila. For Sun Pharma, growth would be driven by consolidation of URL and DUSA Pharma. For Dr Reddy's and Glenmark, it would be driven by new launches and better sales mix. Cadila would witness strong EBITDA growth over a low base of 2QFY13.
Dr Reddy’s Labs. GSK Pharma Glenmark Pharma IPCA Laboratories Lupin
EBITDA growth would be lower than revenue growth due to subdued operational performance from Cipla and Ranbaxy on account of deteriorating profitability in the base business and other cost pressures. GSK Pharma may continue to report YoY decline in EBITDA due to supply chain related issues, while Sanofi India will suffer from high base effect. At the macro level, we expect operating performance for the rest of our Healthcare Universe to benefit from favorable currency.
Ranbaxy Labs. Sanofi India Sun Pharmaceuticals Torrent Pharma
2QFY14E aggregates, excluding one-offs Healthcare Universe YoY Growth (%) EBITDA Margin Net Profit Margin Aggregates Sales EBITDA Adj PAT Sep-13 Sep-12 Chg.(bp) Sep-13 Sep-12 Chg.(bp) MNC Pharma 7.3 -19.0 -12.1 19.8 26.2 -645 16.5 20.2 -366 Big 4 Generics 29.1 21.5 17.3 24.3 25.8 -153 16.6 18.3 -166 CRAMS 16.2 14.2 32.7 38.4 39.1 -68 28.5 25.0 354 Second Tier generics 19.9 22.1 17.8 19.4 19.0 34 11.5 11.7 -21 Sector Aggregate 23.9 18.7 15.9 22.5 23.5 -99 15.0 16.0 -103 Note: Above numbers exclude one-offs to facilitate comparison of core operations. Big-4 Generics include Ranbaxy, Cipla, Dr Reddy's and Sun.
Expected quarterly performance summary CMP (INR) 27.09.13 334 693 433 984 2,411 523 2,414 695 853 334 2,558 590 439
(INR million)
Rating
Biocon Neutral Cadila Health Buy Cipla Neutral Divis Labs Buy Dr Reddy’ s Labs Buy Glenmark Pharma Buy GSK Pharma Buy IPCA Labs. Buy Lupin Buy Ranbaxy Labs Neutral Sanofi India Neutral Sun Pharma Buy Torrent Pharma Buy Sector Aggregate Note: Historic numbers exclude upside from
Sep.13 7,338 17,326 27,040 5,494 33,615 15,192 7,054 9,097 27,042 29,909 4,380 34,561 9,424 227,471 one-off
Sales Var. Var. % YoY % QoQ 23.9 5.6 11.9 5.8 31.5 9.7 16.2 6.5 20.8 20.5 24.5 22.7 5.5 10.8 17.9 12.9 22.1 17.2 26.5 11.5 10.4 6.8 41.6 5.2 21.3 1.3 24.3 11.5 opportunities
Sep.13 1,534 2,973 6,245 2,109 7,732 3,000 1,546 2,097 5,124 3,027 716 13,740 1,810 51,653
EBITDA Var. % YoY 31.6 28.9 7.2 14.2 24.2 27.0 -22.3 17.3 17.3 4.1 -11.0 38.2 16.5 19.9
Var. % QoQ 4.9 4.0 -7.5 7.6 54.4 21.3 36.0 22.6 12.7 15.3 15.0 0.0 -3.7 10.4
Net Profit Sep.13 Var. % YoY 959 7.1 1,665 75.1 4,103 -6.6 1,566 32.7 4,859 39.3 1,800 26.4 1,308 -20.1 1,003 -19.8 3,168 15.0 1,663 -19.1 581 13.3 10,476 35.6 1,235 15.1 34,387 17.2
Var. % QoQ 2.6 -14.9 -13.6 -10.4 48.4 39.9 37.6 39.8 -4.9 27.8 13.5 -6.8 -4.3 3.3
Alok Dalal (
[email protected]) / Hardick Bora (
[email protected]) October 2013
C–85
September 2013 Results Preview | Sector: Healthcare
Adjusted PAT growth at 16% would be lower than EBITDA growth, mainly because of MTM losses on forex loans and derivatives in 2QFY14 vis-à-vis gains reported in 2QFY13.
Core 2QFY14 performance: Highlights Sun Pharma, Dr Reddy's, Glenmark and Cadila to record strong operational performance We expect Sun Pharma, Dr Reddy's, Glenmark and Cadila to record strong EBITDA growth for 2QFY14. We attribute the following company-specific reasons for this performance: 1. Sun Pharma: We expect Sun Pharma to report 33% growth in 2QFY14, driven by consolidation of URL and DUSA Pharma, and strong growth in US base business and RoW markets. We believe that Taro's declining profitability will be offset by faster than expected turnaround at URL and DUSA Pharma. 2. Dr Reddy's: We expect Dr Reddy's to report strong growth of 24% in core EBITDA. This will be driven by a robust 43% growth in US base business, in turn aided by increasing market share in recent product launches like gDacogen and gReclast. Russia is also expected to report strong growth. Consequently, we expect core EBITDA margin to expand 60bp YoY to 23%. 3. Glenmark: Glenmark's performance would be driven by 24.5% YoY revenue growth, led by US generics and growth in SRM branded formulations. EBITDA growth of 27% would be faster than revenue growth primarily due to improving sales mix and increasing contribution from recent launches in the US generic market. 4. Cadila: Cadila Healthcare is likely to report EBITDA growth of 29% on the back of an abnormally low base. In 2QFY13, the company had reported its lowest gross margin since 2QFY06, impacted by ANVISA strike in Brazil, flat growth in US, while fixed overheads impacted operational performance. We estimate EBITDA margin at 17.2% v/s 14.9% in 2QFY13. 5. We expect Ranbaxy Labs and Cipla to report subdued operational performance due to deteriorating profitability in the base business and rising cost pressures. 6. MNCs: We expect GSK Pharma's operating performance to continue to be impacted by supply chain related issues, which we believe will take time to normalize. Sanofi India could witness decline in EBITDA margin, mainly due to high base effect. Expect no fireworks from CRAMS companies Divi's Labs is the only CRAMS company in our universe. We expect Divi's Labs to report subdued EBITDA growth, impacted by high power costs and fixed overheads at new SEZ unit.
Sector view Generics Emerging markets to help improve profitability gradually from FY14. New launches imperative for driving growth in core US business. Differentiation becoming imperative - low competition/patent challenge products, brands, NCE research will be key differentiators. Increasing MNC interest in Generics space - may lead to large acquisitions/supply arrangements with Indian companies. Top picks: Dr Reddy's, Lupin, Sun Pharma and IPCA Labs. October 2013
C–86
September 2013 Results Preview | Sector: Healthcare
CRAMS (Contract Research & Manufacturing Services) Favorable macro trends: India on the threshold of significant opportunity, given the optimum combination of strong chemistry and regulatory skills, and low costs. Inventory de-stocking impacted performance over 2010-2012; expect healthy performance in FY14. Top pick: Divi's Laboratories. MNC Pharma Portfolio realignment in favor of lifestyle products to drive growth in medium-tolong term. Branded generics, patented products and in-licensing to drive long-term growth. Parent's commitment to listed entity is imperative. Short-term adverse impact likely from the proposed New Pharma Policy. Top pick: GlaxoSmithKline Pharmaceuticals.
Key developments The major development during the quarter was the FDA alert for Ranbaxy. Ranbaxy Labs' Mohali plant received import alert and fell under consent decree Ranbaxy Labs (RBXY) received an import alert for its Mohali plant on 13 September 2013. The alert was for two separate locations at Mohali Phase-III Industrial Area and SEZ Unit-I. Subsequently, the FDA ordered that the facility be subject to certain terms of consent decree entered by Ranbaxy in January 2012. The Mohali facility was approved by USFDA, WHO, ANVISA (Brazil) and TGA (Australia) in CY10. RBXY was supplying only exhibit batches to the US; hence, the financial impact on current sales is zero. There are 16-18 ANDAs filed from the Mohali plant awaiting approval. These will be impacted until the FDA issues are resolved. We note that this development has occurred despite the company spending almost five years in resolving quality compliance issues raised by the FDA in 2008. This could weigh heavily on investor confidence in particular, as these issues come under the leadership of the new management.
Key launches in US - hits and misses 2QFY14 saw some interesting developments in terms of generic launches in the US. While Sun Pharma and Dr Reddy's were able to capitalize on key product launches, Ranbaxy's exclusive copies of generic Diovan and Valcyte continue to be out of sight. Hits and misses
Hits Miss
October 2013
Generic name Repaglinide Azacitidine Valsartan Valgancyclovir
Brand equivalent Prandin Vidaza Diovan Valcyte
US sales Indication (USD m) Competition Anti-diabetic 200 None Oncology 380 Sandoz (AG) Anti-hypertensive 1900 NA Cytomegalovirus Infections 400 NA Source: MOSL Research
C–87
September 2013 Results Preview | Sector: Healthcare
Hits Sun Pharma launches generic Prandin in US Sun Pharma (SUNP) received FDA approval for launching its generic version of Novo Nordisk's Prandin (Repaglinide 1mg & 2mg tablet). Prandin generates USD200m in sales annually. After long-winding patent litigation, Sun Pharma won a favorable ruling in June 2013 from a US court, allowing it to launch its generic copy of Prandin, should it receive FDA approval for the same. SUNP is the sole FTF filer and will enjoy 180day exclusivity. Other known filers include Mylan, Actavis, Paddock and Aurobindo Pharma, and will enter the market post SUNP's exclusivity. We estimate one-off sales of ~USD50m, with PAT of USD35m from this launch, to be realized during the exclusivity. Since this is a non-recurring opportunity, we have assigned INR2/share to our DCF estimate for one-off opportunities. Dr Reddy's monetizes generic Vidaza Dr Reddy's (DRRD) received final USFDA approval for generic Vidaza (injectable product) for the US market. The product currently generates annual revenues of ~USD380m for its innovator, Celgene. All the patents on the product have expired, but there has been no generic entry till date. DRRD will launch this product in few weeks. There are seven DMF filers including DRRD, of which we believe 3-4 may enter the market eventually. Our interactions suggest that it is difficult to manufacture Vidaza and there is a requirement of PK study at actual MDS points, which can present some challenge. Hence, the upside from this launch is more sustainable in nature. Limited competition presents a high margin opportunity in the foreseeable future. We believe this drug can generate sales of USD25m annually, with PAT of USD15m. While the addition to EPS was marginal, it reaffirms DRRD's capability to identify and monetize such opportunities at a time when USFDA has intensified its vigilance.
Misses Ranbaxy's generic Diovan still out of sight While the street was hopeful after dismissal of Mylan's pleas for revoking Ranbaxy's exclusivity and allowing another generic player in the market, Ranbaxy's exclusive copy is already late by a year. Despite the recent issuance of import alert on Mohali, the management continues to maintain that it still holds exclusive marketing rights for 180 days and is confident of monetizing it. Diovan generates USD1.9b in sales from the US for Novartis. If successfully launched, we expect this opportunity to generate one-off sales of ~USD100m for Ranbaxy over the exclusivity period. We also expect Novartis to introduce an authorized generic version through its generics unit, Sandoz. Generic Valcyte also seems to be delayed Another FTF opportunity for Ranbaxy, generic Valcyte, also seems to be delayed. The company received tentative approval from USFDA on 24 June 2008, while the litigation with Roche was still ongoing. Subsequent to a win in lower court, Ranbaxy settled with Roche to launch the authorized generic (AG) version of Valcyte sometime in March 2013. October 2013
C–88
September 2013 Results Preview | Sector: Healthcare
Relative Performance-3m (%)
Sensex Index MOSL Healthcare Index
110
Valcyte generates ~USD300m in US sales for Roche. On successful launch, we expect this opportunity to generate one-off sales of ~USD19m for Ranbaxy over the exclusivity period. Since Ranbaxy is the AG, it will be the only generic player in the market.
105
INR depreciation to aid sales, but higher MTM losses to limit benefit for some
100 Sep-13
Aug-13
Jul-13
Jun-13
95
Relative Performance-1Yr (%) Sensex Index MOSL Healthcare Index
135 120 105
In 2QFY14, the average USD/INR rate was ~12.5% lower than in 2QFY13. We expect companies with largely un-hedged net exports to realize the benefit of favorable currency at EBITDA level. Companies that are likely to benefit include: (1) Biocon, (2) Cipla, (3) Divi's Labs, and (4) Dr Reddy's. At the same time, the QoQ INR depreciation has been ~5%. We expect companies with large forex debt and derivative exposure to report higher MTM losses, offsetting the benefit at PAT level. Companies likely to be impacted are: (1) Ranbaxy, (2) IPCA, (3) Cadila, and (4) Glenmark. Currency movement (INR/USD)
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
90
72 67 62 57 52 Sep-13
Aug-13
Jul-13
Jun-13
May-13
Apr-13
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
47
Source: Bloomberg
Comparative valuation CMP (INR) 27.09.13 Healthcare Biocon 334 Cadila Health 693 Cipla 433 Divis Labs 984 Dr Reddy’ s Labs 2,411 Glenmark Pharma 523 GSK Pharma 2,414 IPCA Labs. 695 Lupin 853 Ranbaxy Labs 334 Sanofi India 2,558 Sun Pharma 590 Torrent Pharma 439 Sector Aggregate
October 2013
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Neutral Buy Neutral Buy Buy Buy Buy Buy Buy Neutral Neutral Buy Buy
16.4 31.9 15.8 45.4 90.2 18.4 80.0 25.7 23.1 13.0 76.7 14.7 27.8
20.4 21.7 27.3 21.7 26.7 28.4 30.2 27.1 36.9 25.7 33.3 40.0 15.8 30.5
10.4 14.5 15.1 15.6 16.9 15.5 23.2 14.8 19.4 7.4 23.4 24.0 10.8 17.4
12.1 23.7 14.1 26.0 20.7 18.1 33.7 23.1 22.5 31.4 14.8 22.5 35.8 19.3
18.8 35.8 20.2 54.8 107.1 25.4 62.5 31.8 31.5 13.0 87.3 21.6 29.8
21.1 41.4 22.6 66.5 127.0 31.9 79.1 51.0 41.9 12.9 105.5 24.7 34.1
17.8 19.3 21.4 18.0 22.5 20.6 38.6 21.9 27.1 25.7 29.3 27.4 14.7 24.3
15.8 16.7 19.2 14.8 19.0 16.4 30.5 13.6 20.3 25.8 24.2 23.9 12.9 20.5
9.6 13.5 13.5 12.9 14.5 13.3 30.9 12.5 15.9 13.8 22.1 17.4 10.1 15.4
8.5 11.5 12.0 10.1 12.3 11.2 23.1 9.4 13.1 7.5 18.1 15.0 8.8 12.6
12.8 22.8 15.6 26.7 20.3 20.5 25.1 23.4 23.8 -4.7 15.6 27.9 30.8 21.1
13.1 22.3 15.0 27.7 19.9 21.1 29.9 30.2 25.4 28.2 17.2 26.4 28.3 20.6
C–89
September 2013 Results Preview | Sector: Healthcare
Biocon Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BIOS IN 200.0 67 / 1 360 / 255 -12 / 17 / 15
CMP: INR334
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 20.9 24.9 29.3 5.2 5.4 6.2 3.4 3.3 3.8 16.9 16.4 18.8 -7.6 -3.4 14.9 113.6 134.7 146.9 14.9 12.1 12.8 13.0 17.8 13.4 34.3 34.5 35.1 19.6 2.9 11.2 1.5
20.2 2.5 10.3 2.3
17.6 2.3 9.5 1.7
2015E 34.0 7.4 4.2 21.1 12.2 160.6 13.1 13.7 35.1 15.7 2.1 8.4 1.9
Neutral
We expect Biocon's sales to grow 24% YoY to INR7.34b, led by 36% growth in CRO division. Biopharma division is likely to grow 17% YoY. We expect licensing income at INR153m (nil in 2QFY13). EBITDA is likely to grow 32% YoY to INR1.53b and EBITDA margin would expand by 120bp to 20.9% due to superior sales mix and favorable currency. We expect adjusted PAT to grow just 7% YoY to INR959m due to base effect (high other income on 2QFY13). Key growth drivers for FY14/15 would be: (1) traction in Insulin initiative in RoW, (2) ramp-up in CRO division, (3) contribution from immunosuppressant supplies, and (4) branded formulations. However, high R&D costs and long-term capex would put pressure on near-term profitability and return ratios. The stock trades at 17.6x FY14E and 15.7 x FY15E earnings. Option values for the future include separate listing of Contract Research business and potential out-licensing of the Oral Insulin NCE by BMS. Return ratios are likely to remain subdued, with both RoE and RoCE in the 1314% range over FY13-15. Maintain Neutral.
Key issues to watch out ¾ Update on initiatives to out-license Anti-CD6 ¾ Progress on product registration for Rh-Insulin in Europe/US ¾ Ramp up in Contract Services business.
Consolidated Quarterly Performance Y/E March
(INR Million) FY13
1Q 2Q Net Sales 5,767 5,924 YoY Change (%) 30.6 16.5 Total Expenditure 4,540 4,759 EBITDA 1,227 1,165 Margins (%) 21.3 19.7 Depreciation 427 446 Interest 32 11 Other Income 159 495 PBT 927 1,203 Tax 137 304 Rate (%) 14.8 25.3 Minority Interest 2 3 PAT 788 896 YoY Change (%) 12.5 4.6 Margins (%) 13.7 15.1 Licensing income 139 0 YoY Change (%) -0.7 -100.0 Contract research 1,224 1,291 YoY Change (%) 39.1 39.1 E: MOSL Estimates; Note - Quarterly nos will not add
October 2013
3Q 4Q 6,342 6,244 22.6 2.3 4,925 5,199 1,417 1,045 22.3 16.7 461 459 29 9 253 1,639 1,180 2,215 253 281 21.4 12.7 10 23 917 1,911 26.4 73.7 14.5 30.6 88 19 -69.9 -95.9 1,397 1,660 24.7 40.7 up to full-year nos
FY14 1Q 2QE 3QE 6,948 7,338 7,550 20.5 23.9 19.1 5,486 5,804 5,980 1,462 1,534 1,570 21.0 20.9 20.8 483 486 496 4 25 25 284 227 222 1,259 1,250 1,272 297 265 261 23.6 21.2 20.5 27 26 27 935 959 984 18.7 7.1 7.3 13.5 13.1 13.0 76 153 152 -45.3 0.0 0.0 1,546 1,755 1,860 26.3 36.0 33.2 due to restatements
4QE 7,510 20.3 5,902 1,607 21.4 518 46 193 1,236 331 26.8 26 879 -54.0 11.7 226 0.0 1,859 12.0
FY13
FY14E
24,853 19.1 19,423 5,430 21.8 1,793 81 2,546 6,101 975 16.0 38 5,088 50.3 20.5 1,386 0.0 26 0.0
29,346 18.1 23,173 6,174 21.0 1,982 100 926 5,017 1,154 23.0 106 3,757 -26.2 12.8 900 -35.1 659 2,469.0
C–90
September 2013 Results Preview | Sector: Healthcare
Cadila Healthcare Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
CDH IN 204.7 142 / 2 925 / 631 -4 / -11 / -24
CMP: INR693
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 52.6 63.6 71.2 10.8 11.3 12.4 5.7 6.5 7.3 27.6 31.9 35.8 -10.6 15.5 12.2 125.7 143.8 170.0 27.5 23.7 22.8 22.9 17.9 17.6 27.1 30.5 25.3 25.1 5.5 14.6 0.9
21.7 4.8 14.5 1.0
2015E 81.3 14.4 8.5 41.4 15.6 200.6 22.3 18.6 24.8
19.3 4.1 13.5 1.3
16.7 3.5 11.5 1.6
Buy
We expect Cadila Healthcare's (CDH) 2QFY14 revenues to grow 12% YoY to INR17.3b, led by 21% YoY growth in US formulations. Total export formulations would grow 20% YoY to INR8.55b. Domestic formulations would grow 3% YoY to INR6.2b, impacted by the New Drug Policy. We expect EBITDA to grow 29% YoY to INR2.97b on a low base. The company had witnessed de-growth in Brazil while fixed overheads impacted operational performance in 2QFY13. Adjusted PAT is expected to grow 75% YoY to INR1.66b, aided by lower taxes and lower forex losses compared to 2QFY13. While FY14 continues to be a year of consolidation for CDH, we believe pressure on margins would start easing, as new drug approvals start coming through for key markets. We believe CDH has made investments in the right areas and will unlock value at the appropriate time. We expect FY15 to be a year of recovery for CDH. We estimate 14% EPS CAGR for FY13-15, with stable RoCE/RoE at ~18%/ ~24% over the next two years. The stock trades at 19.3x FY14E and 16.7x FY15E EPS. Maintain Buy.
Key issues to watch out ¾ Update on US launches from the Moraiya facility ¾ Progress on improvement in balance sheet.
Quarterly Performance (Consolidated)
(INR Million)
Y/E March Net Revenues YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT after EO Income Tax Rate (%) Min. Int/Adj on Consol Reported PAT Adj PAT YoY Change (%) Margins (%) Adj PAT incl one-offs Domestic formulation sales YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 15,486 24.3 12,370 3,116 20.1 434 572 553 2,663 654 24.5 61 1,948 1,948 39.4 12.6 1,948 5,818 27.2
2Q 15,476 24.3 13,171 2,306 14.9 432 405 65 1,533 494 32.2 88 951 951 -5.7 6.1 951 6,018 28.0
3Q 16,041 16.0 13,491 2,550 15.9 496 479 171 1,746 630 36.1 86 1,029 1,029 -29.9 6.4 1,029 5,699 21.4
FY14 4Q 16,119 15.3 13,255 2,864 17.8 466 316 87 2,170 -583 -26.9 128 2,625 2,625 47.0 16.3 2,625 5,708 14.4
1Q 16,371 5.7 13,513 2,858 17.5 466 278 125 2,239 203 9.1 80 1,956 1,956 0.4 11.9 1,956 6,252 7.5
2QE 17,326 11.9 14,353 2,973 17.2 480 387 100 2,206 441 20.0 100 1,665 1,665 75.1 9.6 1,665 6,199 3.0
3QE 18,451 15.0 15,265 3,186 17.3 500 387 100 2,399 480 20.0 100 1,819 1,819 76.8 9.9 1,819 6,269 10.0
4QE 19,015 18.0 15,627 3,388 17.8 520 387 90 2,571 527 20.5 150 1,894 1,894 -27.8 10.0 1,894 6,279 10.0
FY13
FY14E
63,581 20.8 52,324 11,257 17.7 1,828 1,686 370 8,112 1,195 14.7 364 6,553 6,553 15.8 10.3 6,553 23,232 22.6
71,162 11.9 58,757 12,405 17.4 1,966 1,439 415 9,415 1,651 17.5 430 7,334 7,334 11.9 10.3 7,334 24,916 7.3
C–91
September 2013 Results Preview | Sector: Healthcare
Cipla Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
CIPLA IN 802.9 348 / 6 450 / 353 -1 / 9 / 10
CMP: INR433
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 70.2 82.8 106.1 16.6 22.0 24.7 10.9 12.7 16.3 13.6 15.8 20.2 13.9 16.4 27.8 95.0 112.2 130.1 14.3 14.1 15.6 18.0 19.4 19.2 14.3 12.1 17.3
2015E 121.9 27.3 18.2 22.6 11.7 150.4 15.0 18.9 20.7
32.1 4.6 21.1 0.4
27.6 3.9 16.3 0.5
21.6 3.4 14.6 0.7
19.3 2.9 13.1 0.9
Neutral
Cipla's core revenue for 2QFY14 is likely to grow 23% YoY to INR27b. Growth in core sales (adjusted for Lexapro in 2QFY13) will be 31%. The domestic formulations business is expected to grow 10% YoY to INR10.3b due to the impact of the pricing policy. Export formulations sales would grow 38% YoY to INR14.3b due to consolidation of Cipla Medpro. EBITDA is likely to decline 8% YoY to INR6.2b, with EBITDA margin expected to contract to 23.1% on account of higher employee and R&D costs. Core EBITDA growth would be 7%. We expect adjusted PAT to decline 7% YoY to INR4.1b, on account of higher interest costs and lower other income. The coming quarters will be challenging for Cipla due to the impact of the new pricing policy and increasing pressure on profitability due to rising manpower, R&D and interest costs. This is also evident in the 14-15% organic growth guidance for FY14, despite 26% growth in 1Q alone. As such, we expect some moderation in growth and profitability over the coming quarters. Stock trades at 21.6x FY14E and 19.3x FY15E earnings. Maintain Neutral.
Key issues to watch out ¾ Update on launch of inhalers in Europe ¾ Impact of Cipla Medpro consolidation.
Quarterly Performance
(INR Million)
Y/E March Net Revenues YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income Profit before Tax Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Domestic formulation sales YoY Change (%) Other operating income YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 19,581 23.0 14,184 5,397 27.6 729 11 531 5,188 1,182 22.8 4,006 3,055 20.6 15.6 9,388 30.4 408 -0.7
2Q 21,918 23.3 15,149 6,770 30.9 740 54 641 6,618 1,618 24.4 5,000 4,392 42.1 20.0 9,332 13.7 460 -0.5
3Q 20,705 17.8 15,775 4,930 23.8 780 93 535 4,592 1,203 26.2 3,389 3,389 25.6 16.4 9,241 9.3 398 -14.5
FY14 4Q 19,667 5.4 15,572 4,095 20.8 783 176 585 3,720 1,045 28.1 2,676 2,676 -1.9 13.6 7,780 8.3 605 21.4
1Q 24,639 25.8 17,885 6,754 27.4 789 408 691 6,249 1,500 24.0 4,749 4,749 55.5 19.3 11,039 17.6 1,792 339.1
2QE 27,040 23.4 20,794 6,245 23.1 850 300 450 5,545 1,442 26.0 4,103 4,103 -6.6 15.2 10,303 10.4 550 19.6
3QE 27,767 34.1 21,672 6,095 22.0 900 250 420 5,365 1,341 25.0 4,024 4,024 18.7 14.5 10,266 11.1 575 44.5
4QE 26,691 35.7 21,055 5,636 21.1 1,177 180 239 4,517 1,136 25.2 3,381 3,381 26.4 12.7 8,951 15.0 701 16.0
FY13
FY14E
82,793 97.0 60,815 21,979 26.5 3,305 276 1,323 19,721 5,443 27.6 15,449 12,719 13.0 15.4 35,892 15.6 1,871 8.1
106,136 102.8 81,407 24,730 23.3 3,716 1,138 1,800 21,676 5,419 25.0 16,257 16,257 27.8 15.3 40,560 13.0 3,618 93.4
C–92
September 2013 Results Preview | Sector: Healthcare
Divi's Laboratories Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
DIVI IN 132.7 131 / 2 1,233 / 905 -4 / -5 / -14
CMP: INR984
Divi's Laboratories (DIVI) is likely to post 16% YoY growth in 2QFY14 revenue to INR5.49b largely on account of and favorable currency movement. Growth would be driven by both CCS and API businesses.
We expect EBITDA to grow 14% YoY to INR2.1b, impacted by higher material and employee cost. EBITDA margin would contract 70bp YoY.
We expect PAT to grow 33% YoY to INR1.56b, mainly due to higher other income. There was a forex loss of INR208m in 2QFY13.
For FY14, DIVI expects sales growth to be in line with FY13 (i.e. 15%), as capacity utilization would ramp up significantly only after FDA approval of the remaining three blocks at the DSN SEZ (expected in 2HFY14). The new units at Vizag are expected to be inspected by USFDA in 2HFY14.
While operational performance for 1HFY14 could be subdued, this is mainly due to delayed FDA inspection for the new SEZ units (now expected in 2HFY14 instead of 2HFY13 earlier).
The stock trades at 17.8x FY14E and 14.7x FY15E earnings. Maintain Buy.
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 18.6 21.4 24.7 6.8 8.1 9.6 5.3 6.0 7.3 40.2 45.4 54.8 24.1 12.9 20.8 160.6 188.4 221.3 27.1 26.0 26.7 34.1 33.1 34.9 37.6 38.7 40.0 24.3 6.1 19.0 1.3
21.5 5.2 16.0 1.5
2015E 30.2 11.9 8.8 66.5 21.3 257.8 27.7 35.7 45.0
17.8 4.4 13.5 1.9
14.7 3.8 10.8 2.6
Buy
Key issues to watch out ¾ Ramp-up at Vizag SEZ and timeline for USFDA inspection ¾ Impact of subsiding power cost (in Andhra Pradesh) on profitability.
Quarterly Performance (Standalone)
(INR Million)
Y/E March Net Op Revenue YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) CCS Revenues YoY Change (%) Carotenoid Revenues YoY Change (%) E: MOSL Estimates;
October 2013
FY13 1Q 4,684 30.6 2,780 1,904 40.7 175 4 418 2,143 469 21.9 1,674 1,674 63.2 35.7 2,148 22.2 210 50.0
2Q 4,726 33.5 2,880 1,846 39.1 188 3 -112 1,544 364 23.6 1,180 1,180 11.2 25.0 2,268 37.5 250 4.2
3Q 5,333 28.6 3,521 1,813 34.0 204 4 234 1,838 396 21.5 1,442 1,442 17.7 27.0 2,507 36.9 185 -7.5
FY14 4Q 6,496 -8.2 3,989 2,507 38.6 203 6 93 2,391 573 23.9 1,818 1,818 -15.3 28.0 3,118 -15.3 265 15.2
1Q 5,159 10.1 3,200 1,959 38.0 209 4 547 2,293 546 23.8 1,747 1,747 4.4 33.9 2,476 15.3 280 33.3
2QE 5,494 16.2 3,385 2,109 38.4 215 7 147 2,034 468 23.0 1,566 1,566 32.7 28.5 2,637 16.2 325 30.0
3QE 6,173 15.7 3,765 2,408 39.0 230 8 149 2,319 557 24.0 1,763 1,763 22.2 28.6 2,901 15.7 241 30.0
4QE 7,866 21.1 4,786 3,080 39.2 303 8 152 2,920 725 24.8 2,194 2,194 20.7 27.9 3,695 18.5 488 84.0
FY13
FY14E
21,399 15.1 13,297 8,102 37.9 769 18 497 7,812 1,792 22.9 6,020 6,020 12.9 28.1 10,272 15.1 910 12.3
24,692 15.4 15,136 9,556 38.7 958 27 995 9,566 2,296 24.0 7,270 7,270 20.8 29.4 11,710 14.0 1,333 46.5
C–93
September 2013 Results Preview | Sector: Healthcare
Dr Reddy's Laboratories Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
DRRD IN 167.9 405 / 6 2,472 / 1,617 2 / 32 / 42
CMP: INR2,411
We expect Dr Reddy's Laboratories (DRRD) to post 17% YoY growth in revenue (no one-off this quarter) for 2QFY14 to INR33.61b. Growth in core sales will be 21% YoY.
Growth would be led by 43% YoY growth in core US revenue and 24% YoY growth in the Russia/CIS. Domestic formulations would grow 4% YoY, while PSAI would grow 9% YoY. Reported sales growth, adjusted for Geodon contribution in 2QFY13, would be 17%.
Core EBITDA would grow 24% YoY to INR7.73b, driven by improving product mix in the US business and strong growth in Russia. We expect core EBITDA margin to expand by 60bp YoY. EBITDA growth on reported basis would be 12% YoY.
Adjusted PAT would be INR4.86b, up 39% YoY - higher than the growth in EBITDA due to lower amortization and tax expense. We expect reported PAT (incl. one-off contributions) to grow 19% YoY.
While there is uncertainty revolving around timely FDA approvals, recently launched limited competition products like gDacogen, gReclast injections and pipeline of 65 pending ANDAs will support growth in the US over the medium term.
The stock trades at 22.5x FY14E and 19x FY15E core earnings. Buy.
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 96.7 116.3 136.0 23.7 24.8 28.8 12.4 15.1 18.0 74.0 90.2 107.1 12.0 21.9 18.7 342.1 435.4 528.2 21.6 20.7 20.3 19.7 17.2 18.0 18.2 16.3 14.9 32.6 7.0 17.6 0.6
26.7 5.5 16.9 0.6
22.5 4.6 14.5 0.6
2015E 151.0 33.2 21.3 127.0 18.6 638.9 19.9 18.4 12.8 19.0 3.8 12.3 0.6
Buy
Key issues to watch out ¾ View on pipeline for products in the US ¾ FY14-15 outlook for both generics and PSAI businesses. Quarterly Performance - IFRS FY13 1Q 2Q 3Q 4Q Gross Sales 25,406 28,809 28,651 33,400 YoY Change (%) 28.4 27.0 3.5 25.6 Total Expenditure 20,410 21,900 22,977 26,215 EBITDA 4,996 6,909 5,674 7,185 Margins (%) 19.7 24.0 19.8 21.5 Amortization 1,296 2,064 1,382 1,495 Other Income 25 796 168 2,162 Profit before Tax 3,725 5,641 4,460 7,852 Tax 365 1,567 827 2,141 Rate (%) 9.8 27.8 18.5 27.3 Net Profit 3,360 4,074 3,633 5,711 One-off/low-competition PAT in US 715 586 0 325 Adjusted PAT 2,645 3,488 3,633 5,386 YoY Change (%) 17.5 29.9 71.4 101.5 Margins (%) 10.4 12.1 12.7 16.1 US Sales 7,920 9,270 9,243 11,413 YoY Change (%) 37.6 47.4 -16.8 30.7 Branded formualtion sales 8,968 9,056 9,654 9,323 YoY Change (%) 32.8 17.1 24.6 18.5 E: MOSL Estimates; Note-Estimates do not include one-off upsides.
(INR Million)
Y/E March
October 2013
FY14 1Q 28,449 12.0 23,051 5,398 19.0 1,603 342 4,137 528 12.8 3,609 335 3,273 23.8 11.5 10,871 37.3 9,459 5.5
2QE 33,615 16.7 25,884 7,732 23.0 1,653 273 6,351 1,493 23.5 4,859 0 4,859 39.3 14.5 11,875 28.1 10,372 14.5
3QE 34,914 21.9 27,478 7,437 21.3 1,703 273 6,006 1,412 23.5 4,595 0 4,595 26.5 13.2 12,710 37.5 11,382 17.9
4QE 39,018 16.8 30,824 8,194 21.0 1,753 409 6,849 1,596 23.3 5,254 0 5,254 -2.5 13.5 13,950 22.2 11,027 18.3
FY13
FY14E
116,266 20.2 91,503 24,763 21.3 6,237 3,151 21,676 4,900 22.6 16,777 1,627 15,150 55.7 13.0 37,846 18.7 37,001 22.9
135,997 17.0 107,237 28,760 21.1 6,712 1,296 23,344 5,028 21.5 18,316 335 17,981 18.7 13.2 49,406 30.5 42,239 14.2
C–94
September 2013 Results Preview | Sector: Healthcare
GlaxoSmithKline Pharmaceuticals Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
GLXO IN 84.7 204 / 3 2,899 / 1,931 -3 / 6 / 17
CMP: INR2,414
We expect GlaxoSmithKline Pharmaceuticals (GLXO) to post 6% YoY growth in 3QCY13 sales to INR7.05b.
EBITDA is likely to decline by 22% YoY to INR1.55b. EBITDA margin is expected to decline 7.9% to 21.9%, which we believe will be impacted by supply chain related issues highlighted in 1QCY13.
We expect adjusted PAT to decline 20% YoY to INR1.31b in 3QCY13, in line with EBITDA decline, due to subdued operational performance.
Performance for 1QCY13 was impacted by supply chain related issues, some of which were expected to get resolved by 3QCY13. While some of these factors are temporary in nature, we believe the normalization in margins will be gradual.
GLXO deserves premium valuations due to strong parentage (giving access to large product pipeline), brand-building ability and likely positioning in post patent era. It is one of the few companies with the ability to drive reasonable growth without any major capital requirement, leading to high RoCE of 45-50%.
The stock trades at 38.7x CY13E and 30.6x CY14E EPS. Maintain Buy.
Financials & Valuation (INR b) Y/E December Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2011 2012 2013E 23.4 26.0 26.8 7.4 7.9 6.0 6.3 6.8 5.3 74.5 80.0 62.5 8.6 7.3 -21.8 226.7 237.3 249.3 32.9 33.7 25.1 47.9 49.4 36.9 68.8 71.3 82.1 32.5 10.7 24.6 1.9
30.3 10.2 23.3 2.1
38.7 9.7 30.9 1.9
2014E 29.2 8.0 6.7 79.1 26.5 264.8 29.9 44.5 79.3
Buy
30.6 9.1 23.1 2.3
Key issues to watch out ¾ Impact of normalization of supply chain issues ¾ Impact of Drug Price Control Order (DPCO), 2013 ¾ Update on new launches. Quarterly Performance
(INR Million)
Y/E December Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Tax Rate (%) Adjusted PAT YoY Change (%) Margins (%) Extra-Ord Expense Reported PAT E: MOSL Estimates
October 2013
CY12 1Q 6,228 3.3 4,271 1,957 31.4 41 0 804 2,720 863 31.7 1,857 -0.3 29.8 628 1,229
2Q 6,520 16.1 4,492 2,028 31.1 43 0 479 2,464 768 31.2 1,696 11.8 26.0 61 1,635
3Q 6,685 10.0 4,696 1,989 29.8 48 0 479 2,419 783 32.4 1,636 12.1 24.5 113 1,523
4Q 6,567 16.0 4,653 1,914 29.1 46 3 477 2,341 762 32.5 1,579 7.2 24.1 198 1,382
1Q 6,321 1.5 4,693 1,629 25.8 42 0 817 2,404 698 29.1 1,706 -8.1 27.0 16 1,690
CY13 2Q 3QE 6,369 7,054 -2.3 5.5 5,232 5,508 1,137 1,546 17.9 21.9 50 50 0 0 454 434 1,541 1,930 590 623 38.3 32.3 951 1,308 -44.0 -20.1 14.9 18.5 -201 -185 1,151 1,493
4QE 6,993 6.5 5,376 1,617 23.1 53 0 315 1,879 605 32.2 1,274 -19.3 18.2 -185 1,459
CY12
CY13E
25,999 11.2 18,112 7,888 30.3 178 3 2,239 9,944 3,176 31.9 6,769 7.2 26.0 999 5,769
26,796 3.1 20,809 5,987 22.3 194 0 2,020 7,812 2,516 32.2 5,297 -21.7 19.8 371 4,925
C–95
September 2013 Results Preview | Sector: Healthcare
Glenmark Pharmaceuticals Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
GNP IN 270.9 142 / 2 612 / 387 -12 / 8 / 18
CMP: INR523
We expect Glenmark Pharmaceuticals (GNP) to post 24.5% YoY growth in core revenue (excluding one-offs and R&D income) for 2QFY14 to INR15.19b. Growth on reported basis would be 21% YoY.
Growth would be led by strong performance in branded SRM and US generics. The branded business is likely to grow 19% YoY. We do not expect any R&D licensing income for the quarter (nil in 2QFY13).
Core EBITDA is likely to grow 27% YoY to INR3b, while core EBITDA margin is expected to increase by 30bp YoY. Repored EBITDA would grow 17% YoY.
GNP is likely to report adjusted PAT of INR1.8b, up 26% YoY, in line with operational performance. There was forex gain of INR150m in 2QFY13. We do not expect any significant impact in 2QFY14, as GNP has transferred its forex loans to its subsidiaries.
We expect GNP to gradually reduce its net debt over FY14-15, resulting in improvement in D/E from 1x in FY13 to 0.6x by FY15.
RoCE is likely to improve from 16% in FY13 to 21% in FY15 and RoE from 18% to 22%.
The stock trades at 20.6x FY14E and 16.4x FY15E EPS. Maintain Buy.
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 40.2 50.1 60.1 9.9 10.6 12.0 3.2 5.0 6.9 12.0 18.4 25.4 -8.6 53.9 37.6 88.8 102.0 123.9 13.5 18.1 20.5 11.4 16.1 18.5 13.6 10.2 13.3 43.6 5.9 16.4 0.4
28.3 5.1 15.5 0.4
20.6 4.2 13.3 0.6
2015E 70.2 14.1 8.6 31.9 25.8 151.1 21.1 19.9 14.5 16.4 3.5 11.2 0.8
Buy
Key issues to watch out ¾ Approvals for US ¾ Update on free cash flow generation and debt repayment schedule ¾ Timeline for reporting clinical data for NCE pipeline. Quarterly performance Y/E March
(INR Million) FY13
FY14
1Q 2Q 3Q 4Q 1Q 2QE Net Revenues (Core) 10,404 12,552 13,813 13,355 12,379 15,192 YoY Change (%) 19.8 18.9 34.0 25.3 19.0 21.0 EBITDA 2,198 2,560 3,158 2,694 2,474 3,000 Margins (%) 21.1 20.4 22.9 20.2 20.0 19.7 Depreciation 275 321 356 318 349 336 Interest 380 384 400 436 464 479 Other Income -521 219 95 -196 37 41 PBT 1,022 2,074 2,497 1,744 1,698 2,226 Tax 218 477 366 46 392 401 Rate (%) 21.3 23.0 14.7 2.6 23.1 18.0 Reported PAT (incl one-offs) 804 1,597 2,130 1,698 1,306 1,825 Minority Interest 21 30 1 30 19 25 Adj PAT (excl one-offs) 506 1,424 1,575 1,486 1,287 1,800 YoY Change (%) -53.6 91.3 1,972.1 565.9 154.1 26.4 Margins (%) 4.9 11.3 11.4 11.1 10.4 11.9 US Sales 3,924 4,307 4,365 4,291 4,470 5,305 YoY Change (%) 56.2 43.5 36.8 24.9 13.9 23.2 Note: 2Q, 3Q, 4Q numbers are not comparable due to shift to IFRS accounting. 1Q numbers Estimates include one-off upsides. October 2013
3QE 4QE 15,887 16,637 15.0 24.6 3,118 3,425 19.6 20.6 353 346 489 563 43 47 2,319 2,564 371 509 16.0 19.9 1,948 2,055 26 31 1,882 1,902 19.5 27.9 11.8 11.4 5,411 6,034 24.0 40.6 are comparable as
FY13
FY14E
50,123 60,095 24.7 19.9 10,610 12,018 21.2 20.0 1,270 1,384 1,600 1,995 -403 168 7,337 8,807 1,107 1,673 15.1 19.0 6,230 7,134 83 100 4,992 6,871 53.9 37.6 10.0 11.4 16,887 21,219 39.1 25.6 per IFRS;
C–96
September 2013 Results Preview | Sector: Healthcare
IPCA Laboratories Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
IPCA IN 126.2 88 / 1 730 / 401 1 / 27 / 40
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 23.6 28.1 33.2 5.1 6.2 7.5 2.8 3.2 4.0 21.9 25.7 31.8 4.7 17.4 23.6 99.4 123.1 148.5 24.0 23.1 23.4 24.1 25.2 24.9 17.0 18.1 20.0 31.8 7.0 18.1 0.5
27.1 5.7 14.8 0.7
21.9 4.7 12.5 0.9
2015E 41.1 9.8 6.4 51.0 60.6 189.3 30.2 32.8 20.0 13.6 3.7 9.4 1.5
CMP: INR695
Buy
We expect Ipca Laboratories' (IPCA) 2QFY14 revenue to grow 18% YoY to INR9.1b, led mainly by 29% growth in export formulations. Domestic formulations would grow 9% YoY, while total API sales would grow 13% YoY.
EBITDA is likely to grow 17% YoY to INR2.1b, with a minor 10bp decline in EBITDA margin to 23.1%.
Despite healthy operational performance, we expect adjusted PAT to decline 20% YoY to INR1b, impacted by higher INR depreciation and MTM loss on forex loans.
We expect significant ramp-up in IPCA's international formulations revenue, led by 30% CAGR in export formulations and 70% CAGR in US business over FY13-15. Domestic formulations growth is likely to be maintained at 15%.
We expect IPCA to clock EPS CAGR of 40% over FY13-15 on the back of 21% revenue CAGR, aided by 170bp EBITDA margin expansion.
The stock trades at 21.9x FY14E and 13.6x FY15E EPS. Maintain Buy.
Key issues to watch out ¾ Ramp-up at recently approved Indore SEZ for US ¾ Outlook for institutional tender business after FY14. Quarterly Performance
(INR Million)
Y/E March Net Revenues (Core) YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Domestic formulation YoY Change (%) Export formualtions YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 6,344 19.7 1,329 21.0 199 95 -470 565 135 23.9 430 430 -30.3 6.8 2,242 18.6 2,245 8.7
2Q 7,713 23.7 1,788 23.2 209 89 155 1,646 395 24.0 1,251 1,251 60.5 16.2 2,628 14.6 3,392 30.2
3Q 7,010 14.0 1,584 22.6 216 74 -146 1,148 269 23.4 879 879 37.5 12.5 2,127 13.4 3,175 9.5
FY14 4Q 6,717 19.7 1,423 21.2 216 55 103 1,255 501 39.9 754 754 -1.5 11.2 1,784 20.8 3,131 30.8
1Q 8,056 27.0 1,710 21.2 241 71 -435 963 245 25.4 718 718 67.0 8.9 2,504 11.7 3,300 47.0
2QE 9,097 17.9 2,097 23.1 244 91 -446 1,316 312 23.8 1,003 1,003 -19.8 11.0 2,853 8.6 4,359 28.5
3QE 8,171 16.6 1,844 22.6 249 82 51 1,564 391 25.0 1,173 1,173 33.4 14.4 2,553 20.0 3,758 18.4
4QE 7,880 17.3 1,831 23.2 304 112 19 1,434 318 22.2 1,116 1,116 47.9 14.2 2,101 17.8 3,615 15.5
FY13
FY14E
28,131 19.3 6,232 22.2 867 334 -488 4,543 1,299 28.6 3,243 3,243 17.4 11.5 8,781 16.6 11,942 19.9
33,203 18.0 7,482 22.5 1,038 356 -812 5,276 1,266 24.0 4,009 4,009 23.6 12.1 10,010 14.0 15,031 25.9
C–97
September 2013 Results Preview | Sector: Healthcare
Lupin Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
LPC IN 447.5 382 / 6 908 / 540 3 / 31 / 37
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations PP/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
CMP: INR853
2012 2013 2014E 68.2 93.7 112.6 11.8 20.0 24.2 7.9 10.3 14.1 17.7 23.1 31.5 -8.8 30.4 36.3 89.9 116.3 148.0 21.7 22.5 23.8 24.6 33.3 33.5 20.0 15.6 18.4
2015E 128.6 28.9 18.8 41.9 33.1 182.9 25.4 33.1 21.9
48.1 9.5 33.3 0.4
36.9 7.3 19.4 0.5
27.1 5.8 15.9 0.7
20.3 4.7 13.1 0.9
Buy
We expect Lupin's (LPC) 2QFY14 core revenues to grow 22% YoY to INR27.04b, driven mainly by 29% YoY growth in advance market formulations (excluding one-off US sales). Domestic formulations are expected to grow 13% YoY. Reported revenue would include one-off upside from generic Tricor and is expected at INR28.17b, up 26% YoY. Core EBITDA is likely to grow 17% YoY to INR5.12b, with core EBITDA margin declining 80bp YoY to 18.9% impacted by increased competition in Antara and generic Tricor. Reported EBITDA is expected to be INR5.92b, with reported EBITDA margin at 21%. We estimate adjusted PAT at INR3.17b, up 15% YoY, impacted mainly by lower other income. Reported PAT would be INR3.9b, up 32% YoY. Key growth drivers for FY14/15 will be the strong product pipeline for the US, including higher contribution from oral contraceptives. While India formulations would see a slowdown in FY14, impacted by the New Pricing Policy, we expect growth to rebound to historical levels of 18-20% in FY15. The stock trades at 27.1x FY14E and 20.3x FY15E EPS. Maintain Buy.
Key issues to watch out ¾ Outlook on future launches in the US ¾ Revival in constant currency sales growth in I'rom. Quarterly Performance (Consolidated) Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT EO Exp/(Inc) Minority Interest Recurring PAT YoY Change (%) Margins (%) Advanced mkt formulations YoY Change (%) Emerging mkt formulations YoY Change (%) E: MOSL Estimates; Quarterly nos October 2013
(INR Million) FY13
1Q 2Q 22,192 22,393 43.8 28.6 17,961 17,848 4,230 4,545 19.1 20.3 654 690 101 101 582 657 4,058 4,412 1,208 1,438 29.8 32.6 2,850 2,974 0 0 46 69 1,783 2,753 -15.1 3.2 8.0 12.3 11,826 11,745 68.6 34.6 8,049 8,256 27.4 23.0 will not add up to
FY14
3Q 4Q 1Q 2QE 3QE 4QE 24,659 25,374 24,207 28,174 29,972 30,230 37.6 34.7 9.1 25.8 21.5 19.1 18,961 19,271 18,867 22,257 23,498 23,730 5,698 6,103 5,340 5,917 6,474 6,499 23.1 24.1 22.1 21.0 21.6 21.5 688 1,290 624 650 700 750 77 133 54 54 54 54 617 547 565 390 390 390 5,550 5,227 5,226 5,603 6,110 6,085 2,116 1,080 2,172 1,681 1,527 1,527 38.1 20.7 41.6 30.0 25.0 25.1 3,434 4,148 4,055 3,922 4,582 4,558 0 0 -1,000 0 0 0 82 66 44 75 85 96 2,812 3,000 3,331 3,168 3,818 3,783 12.5 262.1 86.8 15.0 35.8 26.1 11.4 11.8 13.8 11.2 12.7 12.5 14,646 14,875 13,917 15,909 18,081 17,694 57.5 37.2 17.7 35.5 23.5 19.0 7,660 8,063 7,861 9,754 9,420 9,978 15.4 35.0 -2.3 18.1 23.0 23.7 full year nos due to restatement of past quarters
FY13
FY14E
94,617 37.9 74,041 20,576 21.7 3,322 410 2,403 19,247 5,842 30.4 13,405 0 263 10,348 46.7 10.9 53,100 48.0 32,027 24.9
112,582 19.0 88,352 24,230 21.5 2,724 216 1,735 23,024 6,907 30.0 17,117 -1,000 300 14,100 36.3 12.5 63,759 20.1 37,012 15.6
C–98
September 2013 Results Preview | Sector: Healthcare
Ranbaxy Laboratories Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
RBXY IN 422.9 141 / 2 560 / 254 -22 / -29 / -43
Financials & Valuation (INR b) Y/E December 2011 2012 2013E Sales 102.3 124.6 115.8 EBITDA 17.0 19.4 13.5 Net Profit 6.0 5.5 5.5 Rep. EPS (INR) 30.2 -4.3 Adj. EPS (INR) 14.1 13.0 13.0 EPS Gr. (%) 25.9 -7.7 0.0 BV/Sh. (INR) 67.8 96.4 89.8 RoE (%) 31.4 -4.7 RoCE (%) 20.9 21.0 12.6 Payout (%) -3.4 0.0 -62.0 Valuations P/E (x) 20.3 22.0 22.0 P/BV (x) 4.9 3.0 3.2 EV/EBITDA (x) 0.0 7.4 13.8 Div. Yield (%) 0.0 0.0 0.7
CMP: INR334
2014E 135.1 23.2 5.5 33.0 12.9 -0.4 116.9 28.2 19.7 17.7 22.1 2.4 7.5 1.7
Neutral
We expect Ranbaxy Laboratories (RBXY) to post 26% YoY growth in core sales for 3QCY13 to INR29.91b, driven by strong 80% growth in core US sales over a low base of 3QCY12. Reported sales is expected to grow 11% YoY. Core EBITDA is likely to grow just 4% YoY to INR3.03b, mainly due to deteriorating profitability in the base business and higher R&D and remediation costs related to USFDA. Core EBITDA margin would shrink 220bp YoY to 10.1%. We expect adjusted PAT to decline 19% YoY to INR1.66b mainly due to lower other income and higher interest costs. RBXY had reported a forex gain of INR1.24b above EBITDA in 3QCY12, against which we expect forex loss of INR1.58b in 3QCY13. There was also a forex gain of INR3.93b in extraordinary expenses, against which we expect a loss of INR2.6b in 3QCY13. We believe the outlook for RBXY remains challenging, as quality / compliance issues have impacted its operations and will weigh on investor confidence. It is imperative for the company to improve core business margins, as one-offs have started waning off. The stock trades at 22x FY14E and 22.1x FY15E EPS. Maintain Neutral.
Key issues to watch out ¾ Timeline for resolving USFDA issues under the consent decree ¾ Improvement in core EBITDA margin. Quarterly performance Y/E December
(INR Million) CY12
1Q 2Q 3Q 4Q Net Income 37,868 32,284 26,910 27,112 YoY Change (%) 73.6 54.2 28.4 -28.5 EBITDA 9,552 5,113 3,495 811 Margins (%) 25.2 15.8 13.0 3.0 Depreciation 798 783 816 805 Interest 377 484 389 537 Other Income 1,556 -2,972 1,889 -334 PBT before EO Expense 9,933 874 4,178 -865 Extra-Ord Expense -4,050 5,993 -3,933 3,657 PBT after EO Expense 13,983 -5,119 8,112 -4,522 Tax 1,374 683 542 340 Rate (%) 9.8 -13.3 6.7 -7.5 Reported PAT 12,609 -5,802 7,570 -4,862 Minority Interest 138 56 29 59 Reported PAT (incl one-offs) 12,468 -5,857 7,542 -4,924 Adj PAT (excl. one-offs) 2,039 1,447 2,055 -45 YoY Change (%) 18.3 37.1 26.9 -102.9 Margins (%) 5.4 4.5 7.6 -0.2 US Sales (USD m) 399 254 155 136 YoY Change (%) 156.7 167.4 84.2 -64.8 India formulation sales 4,922 5,541 5,829 5,418 YoY Change (%) 13.0 14.9 13.0 -0.4 E: MOSL Estimates; Estimates include upside from FTF opportunities October 2013
1Q 25,005 -34.0 1,906 7.6 797 512 254 851 -818 1,669 353 21.1 1,316 59 1,257 904 -55.7 3.6 110 -72.5 5,427 10.3
CY13 2Q 3QE 26,834 29,909 -16.9 11.1 2,625 3,027 9.8 10.1 763 800 488 500 -1,378 -1,228 -3 500 4,863 2,604 -4,866 -2,104 311 110 -6.4 -5.2 -5,177 -2,214 64 40 -5,241 -2,254 1,302 1,663 -10.0 -19.1 4.9 5.6 138 145 -45.8 -6.3 5,426 5,995 -2.1 2.9
4QE 34,046 25.6 5,935 17.4 830 510 604 5,199 -420 5,619 1,144 20.4 4,475 40 4,435 1,627 0.0 4.8 217 58.9 5,743 6.0
CY12
CY13E
124,597 22.6 19,379 15.6 3,202 1,796 340 14,721 2,272 12,449 2,939 23.6 9,510 282 9,228 5,496 -7.7 4.4 946 31.4 22,073 11.6
115,794 -7.1 13,493 11.7 3,187 2,012 -1,747 6,547 6,229 319 1,916 601.1 -1,597 203 -1,800 5,496 0.0 4.7 385 -59.3 24,832 12.5 C–99
September 2013 Results Preview | Sector: Healthcare
Sanofi India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SANL IN 23.0 59 / 1 2,899 / 2,060 -5 / -6 / 6
Financials & Valuation (INR b) Y/E December Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2011 2012 2013E 12.3 14.9 16.6 1.8 2.3 2.5 1.9 1.8 2.0 83.0 76.7 87.3 23.3 -7.6 13.9 479.7 518.0 559.0 17.3 14.8 15.6 25.3 21.5 23.0 46.0 50.0 53.1 30.8 5.3 32.1 1.3
33.3 4.9 23.4 1.3
29.3 4.6 22.1 1.6
2014E 19.1 2.9 2.4 105.5 20.8 612.3 17.2 25.0 49.5 24.2 4.2 18.1 1.8
CMP: INR2,558
Neutral
We expect Sanofi India's (SANL) revenues to grow 10% YoY in 3QCY13 to INR4.38b, led by the domestic formulations business.
EBITDA is likely to decline 11% YoY to INR716m on a high base of 3QCY12. EBITDA margin would stand at 16.4% v/s 20.3% in 3QCY12.
We expect PAT to grow 13% YoY to INR581m, despite subdued operational performance, due to lower depreciation (high amortization charges in 3QCY12) and higher other income.
SANL's profitability has declined significantly in the last six years, with EBITDA margin declining from 25% in CY06 to 15.6% in CY12, mainly impacted by discontinuation of Rabipur sales in the domestic market and acquisition of Universal Healthcare in 2011.
RoE has declined from 28.6% to 14.8% over CY06-12.
We believe the stock price performance is likely to remain muted until clarity emerges on future growth drivers.
The stock trades at 29.3x FY14E and 24.2x FY15E EPS. Maintain Neutral.
Key issues to watch out ¾ Amortization of goodwill and brands acquired from Universal Medicare ¾ Impact of Drug Price Control Order (DPCO), 2013.
Quarterly Performance
(INR Million)
Y/E December Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Effective tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) Domestic sales YoY Change (%) E: MOSL Estimates October 2013
CY12 1Q 3,225 16.7 2,733 492 15.3 183 4 289 594 193 32.5 401 401 -20.8 12.4 2,765 24.5
2Q 3,741 23.5 3,219 522 14.0 186 4 267 599 194 32.4 405 405 -18.5 10.8 3,040 24.6
3Q 3,966 26.8 3,161 805 20.3 307 3 266 761 248 32.6 513 513 -6.4 12.9 3,288 27.7
4Q 4,007 18.6 3,500 507 12.7 223 3 382 663 215 32.4 448 448 24.3 11.2 3,315 18.9
1Q 3,629 12.5 3,161 468 12.9 223 3 414 656 213 32.5 443 443 10.5 12.2 3,169 14.6
CY13 2Q 3QE 4,100 4,380 9.6 10.4 3,477 3,663 623 716 15.2 16.4 227 235 1 3 396 388 791 867 279 286 35.3 33.0 512 581 512 581 26.4 13.3 12.5 13.3 3,344 3,617 10.0 10.0
4QE 4,450 11.1 3,779 671 15.1 254 4 294 708 233 32.9 475 475 6.1 10.7 3,519 6.2
CY12
CY13E
14,939 21.5 12,604 2,335 15.6 907 14 1,204 2,617 722 27.6 1,895 1,895 -0.9 12.7 12,408 23.8
16,559 10.8 14,081 2,478 15.0 938 10 1,492 3,023 1,011 33.5 2,011 2,011 6.2 12.1 13,649 10.0
C–100
September 2013 Results Preview | Sector: Healthcare
Sun Pharmaceuticals Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SUNP IN 2,071.2 1,221 / 20 597 / 328 9 / 39 / 68
Financials & Valuation (INR b) Y/E March 2012* 2013 2014E 2015E Sales 80.1 112.4 156.4 179.6 EBITDA 31.9 48.4 66.0 74.1 Reported PAT 25.9 29.8 26.0 56.8 Reported EPS (INR)12.5 14.4 12.5 27.4 Core PAT 25.9 30.5 44.6 51.1 Core EPS (INR) 12.5 14.8 21.6 24.7 EPS Gr. (%) 42.7 31.3 46.1 14.4 BV/Sh. (INR) 58.7 72.4 81.9 105.2 RoE (%) 21.5 22.5 27.9 26.4 RoCE (%) 30.4 31.5 25.5 38.7 Payout (%) 17.2 17.5 23.9 13.9 Valuations P/E (x) 47.1 40.0 27.4 23.9 P/BV (x) 10.0 8.1 7.2 5.6 EV/EBITDA (x) 36.6 15.3 15.3 15.3 Div. Yield (%) 0.4 0.7 0.7 0.7 *Including Para-IV/one-off upsides
CMP: INR590
Buy
We expect Sun Pharmaceuticals (SUNP) to post 39% YoY growth in core revenues to INR33.94b. Growth will be mainly driven by consolidation of URL and DUSA Pharma, and traction in US base business, while domestic formulations will report flat growth YoY. We expect reported sales to grow 42% to INR37.8b. Core EBITDA is likely to grow 33% YoY to INR13.24b. Core EBITDA margin would contract 180bp YoY to 39% in 2QFY13, impacted by falling profitability from Taro. Reported EBITDA is expected to grow 40% to INR16.32b. We expect adjusted PAT to grow 31% YoY to INR10.1b. Reported PAT is likely to be significantly higher at INR12.41b due to Protonix-related provisioning in 2QFY13. We believe that the US market will remain the core earnings driver for SUNP, along with support from India and RoW markets. While India formulations will see a slowdown in FY14, impacted by the New Pricing Policy, we expect growth to rebound to historical levels of 16-18% in FY15. The stock trades at 27.4x FY14E and 23.9x FY15E core EPS. Buy.
Key issues to watch out ¾ Outlook on competitive landscape for Taro's products ¾ Sustainability of price increases at URL Pharma.
Quarterly Performance (Consolidated) Y/E March Net Revenues YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Net Other Income PBT before EO Exp EO Exp/(Inc) PBT Tax Rate (%) Profit after Tax Share of Minority Partner Reported PAT One-off upsides Adj Net Profit YoY Change (%) Margins (%) US Sales YoY Change (%) E: MOSL Estimates; Quarterly no. upsides. October 2013
(INR Million) FY13
1Q 2Q 3Q 26,581 26,572 28,520 62.5 40.3 33.0 14,413 14,889 15,909 12,169 11,684 12,611 45.8 44.0 44.2 801 829 844 -231 1,476 936 11,136 12,331 12,703 0 5,836 0 11,136 6,495 12,703 1,925 2,139 2,369 17.3 17.3 18.6 9,211 4,356 10,335 1,256 1,161 1,521 7,956 3,195 8,814 2,276 1,303 812 5,679 7,728 8,002 29.5 41.7 31.0 21.4 29.1 28.1 15,411 13,301 14,946 147.8 66.5 43.7 don’t match with annual no.
FY14 4Q 30,715 31.8 18,116 12,599 41.0 887 1,102 12,814 0 12,814 1,773 13.8 11,041 925 10,116 976 9,140 25.6 29.8 17,879 76.9 because
1Q 2QE 34,822 37,790 31.0 42.2 19,515 21,467 15,306 16,324 44.0 43.2 978 1,000 735 836 15,063 16,160 25,174 0 -10,111 16,160 1,511 2,633 10.0 16.3 -11,622 13,526 1,139 1,113 -12,761 12,414 1,174 1,938 11,239 10,476 97.9 35.6 32.3 27.7 20,314 17,673 31.8 32.9 of reinstatement of
FY13
FY14E
3QE 4QE 42,168 41,593 112,389 156,374 47.9 35.4 40.4 39.1 24,998 24,406 63,327 90,385 17,171 17,187 49,062 65,988 40.7 41.3 43.7 42.2 1,050 1,080 3,362 4,108 986 1,036 3,284 3,593 17,107 17,143 48,984 65,473 0 0 5,836 25,174 17,107 17,143 43,149 40,299 2,790 2,913 8,205 9,847 16.3 17.0 16.8 15.0 14,317 14,230 34,944 30,452 1,062 1,161 4,863 4,476 13,255 13,069 30,081 25,976 1,907 1,488 5,367 6,506 11,348 11,581 30,550 44,644 41.8 26.7 31.5 46.1 26.9 27.8 27.2 28.5 18,126 15,908 59,238 59,946 21.3 -11.0 70.6 1.2 financials; Estimates include one-off C–101
September 2013 Results Preview | Sector: Healthcare
Torrent Pharma Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
TRP IN 169.2 74 / 1 465 / 315 0 / 22 / 21
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 27.0 5.2 3.3 19.4 21.7 70.5 29.7 28.8 29.2
2013 2014E 32.1 38.3 6.9 7.4 4.7 5.0 27.8 29.8 43.1 7.2 84.9 108.5 35.8 30.8 33.5 29.6 52.3 28.1
22.6 6.2 14.1 1.9
15.8 5.2 10.8 5.2
14.7 4.0 10.1 1.7
2015E 43.3 8.4 5.8 34.1 14.4 132.6 28.3 28.7 29.3 12.9 3.3 8.8 1.9
CMP: INR439
Buy
We expect Torrent Pharmaceuticals (TRP) to post 21% YoY growth in 2QFY14 sales to INR9.42b, led by strong growth in all markets outside India except Brazil. Domestic formulations would grow 8% YoY to INR3.1b, while Brazil would continue to witness slowdown.
EBITDA is likely to grow 16.5% YoY to INR1.81b, with EBITDA margin declining 100bp YoY.
Adjusted PAT would be INR1.23b, up 15% YoY.
Over the last six years, TRP has delivered 30.5% EPS CAGR, even as capital employed CAGR was just 17.5%. RoCE has increased from 14.5% in FY05 to 35.7% in FY13.
We believe that current valuations do not reflect the improvement in business profitability (ex Europe), scale up of international operations, and TRP's strong positioning in domestic formulations, particularly in chronic therapeutic segments.
The stock trades at 14.7x FY14E and 12.9x FY15E EPS. Maintain Buy.
Key issues to watch out ¾ Outlook on Brazilian operations for FY14-15 ¾ Sustained recovery in domestic formulations ¾ Impact of Drug Price Control Order (DPCO), 2013. Quarterly Performance
(INR Million)
Y/E March Net Revenues (Core) YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT Minority Interest Adj PAT YoY Change (%) Margins (%) Dom. formulations sales YoY Change (%) Intl. formulations sales YoY Change (%) E: MOSL Estimates October 2013
FY13 1Q 7,669 18.4 1,560 20.3 201 94 140 1,404 0 1,404 374 26.6 1,030 12 1,019 14.1 13.3 2,778 13.5 4,212 33.3
2Q 7,772 13.7 1,553 20.0 203 80 123 1,394 0 1,394 309 22.2 1,085 12 1,073 7.3 13.8 2,710 14.7 4,362 13.5
3Q 7,975 14.8 1,612 20.2 204 67 89 1,429 0 1,429 309 21.6 1,121 -3 1,123 35.0 14.1 2,586 12.7 4,490 14.2
FY14 4Q 8,710 29.2 2,200 25.3 220 100 80 1,960 370 1,590 480 24.5 1,110 0 1,480 164.4 17.0 2,180 9.8 5,260 34.1
1Q 9,300 21.3 1,880 20.2 210 80 80 1,670 -200 1,870 380 22.8 1,490 0 1,290 26.7 13.9 3,120 12.3 5,390 28.0
2QE 9,424 21.3 1,810 19.2 221 85 100 1,604 0 1,604 369 23.0 1,235 0 1,235 15.1 13.1 2,927 8.0 5,518 26.5
3QE 9,684 21.4 1,854 19.1 229 90 130 1,665 0 1,665 383 23.0 1,282 0 1,282 14.1 13.2 2,922 13.0 5,686 26.6
4QE 9,888 13.5 1,809 18.3 238 99 140 1,612 0 1,612 375 23.3 1,237 0 1,237 -16.4 12.5 2,420 11.0 6,128 16.5
FY13
FY14E
32,120 19.1 6,930 21.6 830 340 430 6,190 370 5,820 1,470 23.7 4,350 20 4,705 43.1 14.6 10,240 12.7 18,340 23.8
38,295 19.2 7,353 19.2 898 354 450 6,551 -200 6,751 1,507 23.0 5,244 0 5,044 7.2 13.2 11,389 11.2 22,722 23.9 C–102
September 2013 Results Preview | Sector: Media
Media Companies Covered
Ad environment challenging
D B Corp
The ad environment is likely to remain challenging due to the slowing economy. In 2QFY14, we expect Zee/Sun TV to clock 10/13% YoY ad growth (including broadcast revenue for Sun TV). We expect our print universe ad growth to be impacted due to bulk of the "shraadh" season falling in 2QFY14 against 3Q last year. Regional print companies are likely to post double-digit ad growth, though ad growth would remain under pressure for English language publications. We expect DB Corp/Jagran/HT Media to post ad growth of 16/10/12%.
Dish TV H T Media Jagran Prakashan PVR Sun TV Network
Expect strong earnings growth for Sun TV/DB Corp
Zee Entertainment
We expect Sun TV/DB Corp to report the highest YoY PAT growth at ~21%, followed by Zee. Zee's adjusted PAT is likely to grow 14% YoY. Dish TV's net loss would decline ~35% QoQ, driven by EBITDA margin expansion. HT Media's PAT is likely to decline 41% YoY due to muted ad growth and newsprint price inflation caused by INR depreciation.
DTH: Subscriber additions to remain largely flat QoQ We expect DTH subscriber additions to remain largely flat QoQ due to lack of catalysts during 2QFY14. We expect Dish TV to add 0.4m subscribers on a gross basis in 2QFY14.
Hiccups in digitization process continue There have been hiccups in the phase-I implementation, as cable subscribers are yet to fully transition to "addressable" systems. The regulator, TRAI has given directions to MSOs/LCOs operating in phase-I to implement "subscriber management system" to maintain subscriber details and their choice of services. The last date for collection of customer application forms from digital cable subscribers in phase-II has been extended to 15 November 2013 from 20 September 2013. Abbreviations and acronyms GEC: General entertainment channel DTH: direct to home
Digitization remains a strong theme for broadcasting; earnings revival continues for print Our industry interactions suggest that the ad environment is likely to remain challenging for the rest of FY14. The print media sector continues to post earnings recovery, led by yield improvement focus for regional print and cost management. Digitization remains a strong theme for broadcasting and distribution stocks, as the government has remained committed to the timelines.
Expected quarterly performance summary
D B Corp Dish TV HT Media Jagran Prakashan PVR Sun TV Zee Entertainment Sector Aggregate
CMP (INR) 27.09.13 252 50 87 82 470 401 238
(INR million)
Rating Sep.13 Buy Buy Neutral Buy Buy Buy Neutral
4,334 5,908 5,154 4,095 3,556 5,026 10,551 38,624
Sales Var. % YoY 14.5 10.7 0.9 27.1 99.6 16.0 10.6 16.7
Var. % QoQ -3.6 2.1 -4.7 -0.9 6.1 -16.5 8.4 -0.8
Sep.13 1,058 1,515 445 911 693 3,805 2,907 11,334
EBITDA Var. % YoY 23.0 -2.7 -21.2 16.5 114.4 15.6 33.5 18.6
Var. % QoQ -20.3 24.5 -42.8 -10.6 16.8 7.6 -0.3 -0.5
Net Profit Sep.13 Var. % YoY 590 21.4 -198 Loss 196 -41.1 529 8.7 262 60.9 1,828 20.5 2,145 14.3 5,351 15.1
Var. % QoQ -22.5 Loss -58.7 -8.5 58.5 11.2 -4.5 -3.9
Shobhit Khare (
[email protected]) / Anil Shenoy (
[email protected]) October 2013
C–103
September 2013 Results Preview | Sector: Media
Media: Quarterly financials FY12
FY13
1Q 2Q 3Q 4Q 1Q 2Q 3Q Advertisement Revenue (INR b) ZEEL 3.8 3.9 4.0 4.2 4.5 5.3 5.1 Sun TV 2.7 2.7 2.9 2.8 2.8 2.8 3.3 Dish TV NM NM NM NM NM NM NM DB Corp 2.7 2.6 2.9 2.5 2.7 2.6 3.2 Jagran Prakashan* 2.0 2.1 2.2 2.1 2.2 2.2 2.4 HT Media 3.8 3.7 4.1 3.7 3.7 3.6 4.1 HMVL 1.1 1.1 1.0 1.1 1.2 1.1 1.2 Subscription Revenue (INR b) ZEEL 3.1 2.9 3.3 4.0 3.6 3.9 4.1 Sun TV 1.6 1.4 1.4 1.4 1.5 1.5 1.6 Dish TV 3.9 4.1 4.3 4.3 4.6 4.7 4.9 DB Corp 0.6 0.6 0.6 0.6 0.7 0.7 0.7 Jagran Prakashan* 0.6 0.6 0.6 0.6 0.6 0.7 0.7 HT Media 0.5 0.5 0.5 0.5 0.5 0.6 0.6 HMVL 0.3 0.3 0.3 0.3 0.4 0.4 0.4 Total Revenue (INR b) ZEEL 7.0 7.2 7.5 8.7 8.4 9.5 9.4 Sun TV 4.5 4.5 4.3 4.3 4.3 4.3 4.9 Dish TV 4.6 4.8 4.9 5.2 5.2 5.3 5.6 DB Corp 3.5 3.5 4.0 3.6 3.8 3.8 4.4 Jagran Prakashan* 3.0 3.1 3.2 3.1 3.2 3.2 3.5 HT Media 5.0 4.9 5.3 4.9 4.9 5.1 5.5 HMVL 1.5 1.5 1.4 1.6 1.6 1.6 1.6 EBITDA (INR b) ZEEL 1.6 2.1 2.2 1.6 2.3 2.2 2.6 Sun TV 3.7 3.7 3.4 3.3 3.2 3.3 3.8 Dish TV 1.1 1.2 1.2 1.4 1.6 1.6 1.4 DB Corp 1.00 0.77 1.02 0.76 0.76 0.86 1.19 Jagran Prakashan* 0.82 0.79 0.85 0.66 0.79 0.78 0.91 HT Media 0.90 0.71 0.78 0.48 0.67 0.57 0.87 HMVL 0.27 0.31 0.17 0.21 0.28 0.29 0.29 EBITDA Margin (%) ZEEL 22.3 28.9 28.6 18.4 27.7 22.8 27.8 Sun TV 80.6 81.0 80.2 76.9 75.9 75.9 77.5 Dish TV 24.4 25.2 24.5 27.5 29.9 29.2 24.7 DB Corp 28.4 21.8 25.7 21.0 20.3 22.7 27.2 Jagran Prakashan* 26.9 25.9 26.3 21.2 24.8 24.3 26.1 HT Media 18.2 14.4 14.8 9.7 13.7 11.1 16.0 HMVL 18.1 20.3 11.7 13.7 17.7 18.0 17.6 Adj. PAT (INR b) ZEEL 1.34 1.56 1.39 1.42 1.58 1.88 1.94 Sun TV 1.88 1.80 1.68 1.59 1.64 1.52 1.90 Dish TV -0.18 -0.49 -0.43 -0.49 -0.32 -0.21 -0.45 DB Corp 0.61 0.40 0.55 0.45 0.44 0.49 0.71 Jagran Prakashan* 0.50 0.46 0.41 0.43 0.39 0.49 0.46 HT Media 0.52 0.44 0.48 0.22 0.41 0.33 0.53 HMVL 0.19 0.22 0.11 0.14 0.21 0.22 0.21 * Consolidated numbers from 1QFY14. Not comparable with previous quarters
October 2013
4Q
FY14 1Q 2QE
YoY (%)
QoQ (%)
4.8 3.1 NM 2.8 2.3 3.8 1.1
5.3 3.1 NM 3.3 2.9 4.1 1.3
5.8 3.2 NM 3.1 2.8 3.8 1.3
10 13 NM 16 29 4 12
10 1 NM -6 -2 -7 -3
4.5 1.6 5.0 0.7 0.8 0.6 0.4
4.2 1.8 5.3 0.8 0.9 0.6 0.4
4.5 1.8 5.4 0.8 0.9 0.64 0.4
13 22 14 14 30 13 12
6 4 3 4 1 5 3
9.6 4.7 5.6 4.0 3.4 5.0 1.6
9.7 6.0 5.8 4.5 4.1 5.4 1.8
10.6 5.0 5.9 4.3 4.1 5.2 1.8
11 16 11 15 27 1 12
8 -16 2 -4 -1 -5 -1
2.4 3.5 1.2 0.94 0.54 0.72 0.29
2.9 3.5 1.2 1.33 1.02 0.78 0.40
2.9 3.8 1.5 1.06 0.91 0.45 0.35
34 16 -3 23 17 -21 23
0 8 24 -20 -10 -43 -11
25.1 73.7 21.6 23.6 15.8 14.3 18.9
30.0 58.8 21.0 29.6 24.7 14.4 22.0
27.5 472bp -240bp 75.7 -23bp 1693bp 25.6 -354bp 460bp 24.4 167bp -514bp 22.3 -199bp -240bp 8.6 -242bp -576bp 19.8 179bp -227bp
1.80 1.78 -0.44 0.55 0.28 0.40 0.23
2.25 1.64 -0.30 0.76 0.58 0.48 0.30
2.14 14 1.83 21 -0.20 -7 0.59 21 0.53 9 0.20 -41 0.26 21 Source: Company,
-5 11 -35 -22 -8 -59 -13 MOSL
C–104
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September 2013 Results Preview | Sector: Media
Relative Performance-3m (%)
Relative Performance-1Yr (%)
Sens ex Index MOSL Medi a Index 104
Sens ex Index MOSL Medi a Index
Sep-13
Sep-13
Jun-13
Jul-13
Aug-13
94
Jun-13
96
Mar-13
98
Dec-12
100
Sep-12
120 115 110 105 100 95 90
102
Comparative valuation CMP (INR) 27.09.13 Media D B Corp Dish TV Hindustan Media HT Media Jagran Prakashan PVR Sun TV Zee Entertainment Sector Aggregate
October 2013
252 50 111 87 82 470 401 238
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Buy Buy Buy Neutral Buy Buy Buy Neutral
11.9 -1.2 11.5 7.1 4.7 11.2 17.3 7.5
21.2 -42.7 9.7 12.3 17.6 41.8 23.1 31.5 28.8
12.4 10.9 4.6 5.9 10.1 20.9 11.2 23.2 13.7
22.3 NA 17.9 10.1 17.5 9.6 23.6 19.6 17.1
15.3 -0.9 14.1 5.7 6.4 15.4 19.5 9.2
18.6 -0.2 16.3 6.0 7.7 24.2 24.1 11.0
16.5 13.6 -58.9 -289.8 7.9 6.8 15.4 14.6 12.8 10.7 30.6 19.4 20.6 16.6 26.0 21.7 24.0 19.1
9.3 10.1 3.0 6.3 7.6 10.7 9.6 18.7 11.4
7.9 8.1 2.0 5.5 6.5 8.4 8.0 15.4 9.4
25.7 NA 18.5 7.4 20.4 9.3 24.1 20.7 18.4
27.7 NA 17.9 7.2 21.5 13.3 26.7 21.4 20.3
C–106
September 2013 Results Preview | Sector: Media
D B Corp Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
DBCL IN 183.4 46 / 1 280 / 196 -3 / 7 / 21
Financials & Valuation (INR b) Y/E March 2012 Net Sales 14.6 EBITDA 3.55 Adj. Net Profit 2.02 Adj. EPS (INR) 11.0 Adj. EPS Gr. (%) -12.3 BV/Sh (INR) 50.7 RoE (%) 23.0 RoCE (%) 18.1 Div. Payout (%) 52.7 Valuations P/E (x) 23.0 P/BV (x) 5.0 EV/EBITDA (x) 13.3 Div. Yield (%) 2.0
2013 2014E 15.9 18.4 3.76 4.93 2.18 2.81 11.9 15.3 7.9 28.8 56.2 63.0 22.3 25.7 18.0 21.6 53.7 55.7 21.3 4.5 12.5 2.2
16.6 4.0 9.3 2.9
2015E 20.6 5.63 3.40 18.6 21.1 70.9 27.7 23.6 57.0 13.7 3.6 7.9 3.6
CMP: INR252
Buy
We expect print advertising revenues to grow 16% YoY to INR3.06b.
Circulation revenues are likely to grow 14% YoY to INR0.8b.
We expect aggregate revenues to increase 15% YoY to INR4.33b.
We estimate EBITDA at INR1.06b, up 23% YoY. EBITDA margin should expand ~170bp YoY to 24.4%.
Net profit is likely to grow 21% YoY to INR0.59b.
The stock trades at 16.6x FY14E and 13.7x FY15E EPS. Buy.
Key issues to watch out ¾ YoY ad growth (we expect 16%) ¾ EBITDA margin (we expect 24.4%)
Quarterly performance
(INR Million)
Y/E March Sales YoY (%) Operating Expenses EBITDA YoY (%) EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Adj PAT YoY (%) Revenue break-up (INR m) Ad revenue (print) Circulation revenue Radio Event management Others Total revenue E: MOSL Estimates
October 2013
FY13
FY14
FY13
FY14E
1Q 3,770 6.6 3,005 765 -23.8 20.3 135 17 46 658 222 33.7 437 -28.5
2Q 3,784 6.9 2,923 861 11.6 22.7 143 19 38 736 251 34.0 486 20.7
3Q 4,389 11.0 3,197 1,192 17.1 27.2 151 19 38 1,060 352 33.2 706 27.6
4Q 3,981 10.4 3,042 939 24.0 23.6 151 22 92 858 307 35.7 552 21.7
1Q 4,494 19.2 3,166 1,328 73.7 29.6 158 25 45 1,191 430 36.1 761 74.3
2QE 4,334 14.5 3,276 1,058 23.0 24.4 159 26 50 923 334 36.1 590 21.4
3QE 5,030 14.6 3,633 1,398 17.3 27.8 160 26 55 1,267 458 36.1 809 14.6
4QE 4,540 14.0 3,397 1,143 21.7 25.2 164 26 65 1,018 368 36.1 650 17.7
15,923 8.8 12,163 3,760 5.9 23.6 581 80 213 3,313 1,132 34.2 2,181 7.9
18,398 15.5 13,472 4,927 31.0 26.8 640 102 214 4,398 1,589 36.1 2,810 28.8
2,701 656 140 46 227 3,770
2,636 698 153 40 257 3,784
3,184 729 191 9 276 4,389
2,779 731 183 31 257 3,981
3,253 767 172 15 288 4,494
3,058 796 179 16 286 4,334
3,662 831 214 16 308 5,030
3,200 833 202 16 288 4,540
11,300 2,814 667 126 1,017 15,923
13,173 3,227 766 63 1,169 18,398
C–107
September 2013 Results Preview | Sector: Media
Dish TV Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
DITV IN 1,064.8 54 / 1 85 / 40 9 / -30 / -45
CMP: INR50
Buy
We expect revenues to grow 11% YoY and 2% QoQ to INR5.9b.
Subscription revenues are likely to increase 3% QoQ to INR5.4b.
We expect gross additions of 0.4m and net additions of 0.15m.
EBITDA margin should expand 460bp QoQ to 25.6% largely due to lower content costs.
Net loss is expected to decline 35% QoQ to INR198m.
The stock trades at an EV/EBITDA of 10.1x FY14E and 8.1x FY15E. Buy.
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Net Sales 19.6 21.7 24.3 EBITDA 5.0 5.8 6.0 Adj. Net Profit -1.6 -1.3 -0.9 Adj. EPS (INR) -1.5 -1.2 -0.9 Adj. EPS Gr. (%) NA NA NA BV/Sh (INR) -0.9 -1.5 -2.3 RoE (%) NA NA NA RoCE (%) NA 1.2 -0.9 Div. Payout (%) NA NA NA Valuations P/E (x) NA NA NA P/BV (x) NA NA NA EV/EBITDA (x) 12.4 10.9 10.1 EV/Sub (INR) 6,435 5,891 5,169
2015E 28.0 7.3 -0.2 -0.2 NA -2.5 NA 6.4 NA NA NA 8.1 4,517
Key issues to watch out ¾ Quarterly gross additions (we expect 0.4m) ¾ ARPU (we expect INR164) ¾ EBITDA margin (we expect 25.6%)
Quarterly performance
(INR Million)
Y/E March Sales YoY Change (%) Operating expenses EBITDA YoY Change (%) EBITDA margin (%) Depreciation Interest Other Income PBT Adjusted net profit YoY Change (%) Net Subs (m) ARPU (INR/month) Revenue break-up (INR m) Subscription revenue Lease rentals Others Total revenue E: MOSL Estimates
October 2013
FY13
FY14
FY13
FY14E
1Q 5,200 12.9 3,644 1,556 38.7 29.9 1,512 473 106 -324 -324 76.8 9.8 156
2Q 5,336 10.7 3,779 1,557 27.9 29.2 1,533 317 80 -213 -213 -56.3 10.0 159
3Q 5,578 13.7 4,201 1,377 14.6 24.7 1,713 288 175 -449 -449 4.4 10.5 160
4Q 5,554 5.9 4,354 1,200 -16.7 21.6 1,450 344 157 -436 -436 -11.0 10.7 157
1Q 5,784 11.2 4,567 1,217 -21.8 21.0 1,444 354 277 -304 -304 -6.0 10.9 165
2QE 5,908 10.7 4,393 1,515 -2.7 25.6 1,499 308 94 -198 -198 -6.9 11.1 164
3QE 6,123 9.8 4,650 1,473 6.9 24.1 1,556 265 70 -278 -278 -38.1 11.5 167
4QE 6,466 16.4 4,663 1,802 50.2 27.9 1,629 233 45 -15 -15 -96.6 11.7 169
21,668 10.7 15,873 5,795 16.3 26.7 6,276 1,284 512 -1,252 -1,252 -21.2 10.7 157
24,280 12.1 18,273 6,007 3.7 24.7 6,127 1,274 486 -908 -908 -27.5 11.7 166
4,556 460 184 5,200
4,729 430 177 5,336
4,943 380 255 5,578
5,001 320 233 5,554
5,280 300 204 5,784
5,415 285 208 5,908
5,644 271 208 6,123
5,978 290 199 6,466
19,228 1,597 843 21,668
22,316 1,145 818 24,280
C–108
September 2013 Results Preview | Sector: Media
H T Media Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HTML IN 235.0 21 / 0 124 / 81 -14 / -20 / -11
CMP: INR87
Neutral
We expect revenues to grow 1% YoY to INR5.15b.
Ad revenues are likely to grow 4% YoY to INR3.80b.
We expect circulation revenues to increase 13% YoY to INR0.64b.
EBITDA margin should contract 242bp YoY to 8.6% due to newsprint price inflation, led by INR depreciation.
Net profit is likely to decline 41% YoY to INR0.20b.
The stock trades at 15.6x FY14E and 14.8x FY15E EPS. Neutral.
Financials & Valuation (INR b) Y/E March 2012 Net Sales 20.0 EBITDA 2.85 Adj. Net Profit 1.64 Adj. EPS (INR) 7.0 Adj. EPS Gr. (%) -9.5 BV/Sh (INR) 67.4 RoE (%) 10.9 RoCE (%) 10.4 Div. Payout (%) 6.7 Valuations P/E (x) 12.7 P/BV (x) 1.3 EV/EBITDA (x) 6.1 Div. Yield (%) 0.5
2013 2014E 20.5 22.0 2.83 2.48 1.68 1.33 7.1 5.7 2.5 -20.6 74.0 80.0 10.1 7.4 10.0 8.4 6.5 7.5 12.4 1.2 5.9 0.5
2015E 23.8 2.56 1.40 6.0 5.3 86.5 7.2 8.8 8.2
15.6 1.1 6.4 0.5
14.8 1.0 5.6 0.6
Key issues to watch out ¾ English ad growth (we expect 1% YoY growth) ¾ Hindi ad growth (we expect 12% YoY growth) ¾ EBITDA margin (we expect 8.6%)
Quarterly performance (Consolidated)
(INR Million)
Y/E March Revenue YoY (%) Operating expenses EBITDA YoY (%) EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) PAT Minority Interest Reported PAT Adj PAT YoY (%) Ad revenue growth (%) -English -Hindi Circulation revenue growth (%) -English -Hindi E: MOSL Estimates
October 2013
FY13 1Q 4,899 -1.4 4,230 669 -25.9 13.7 220 103 209 555 129 23.2 426 19 407 407 -21.0 -3 -6 5 8 -3 13
2Q 5,107 3.6 4,542 565 -20.7 11.1 242 98 244 469 107 22.8 362 29 333 333 -24.0 -2 -3 1 11 1 16
3Q 5,470 3.9 4,596 875 12.6 16.0 220 110 238 783 222 28.3 562 34 528 528 9.5 2 -3 15 12 6 15
FY14 4Q 5,005 1.3 4,288 718 49.3 14.3 232 135 247 597 167 27.9 430 29 401 401 82.5 1 3 -3 19 27 16
1Q 5,409 10.4 4,630 779 16.5 14.4 219 137 276 699 183 26.2 516 41 475 475 16.7 10 8 14 16 25 12
2QE 5,154 0.9 4,708 445 -21.2 8.6 223 88 220 354 99 28.0 255 59 196 196 -41.1 4 1 12 13 15 12
3QE 5,890 7.7 5,091 799 -8.7 13.6 231 100 225 693 195 28.1 498 58 440 440 -16.6 9 6 16 11 10 12
4QE 5,542 10.7 5,089 453 -36.9 8.2 238 98 241 359 101 28.0 259 37 221 221 -44.8 10 8 16 12 10 12
FY13
FY14E
20,482 1.9 17,656 2,826 -1.6 13.8 914 446 938 2,404 624 26.0 1,780 111 1,669 1,669 1 0 -2 5 13 7 15
21,994 7.4 19,518 2,476 -12.4 11.3 911 423 962 2,105 577 27.4 1,528 1,332 1,332 -20 8 6 14 13 14 12
C–109
September 2013 Results Preview | Sector: Media
Jagran Prakashan Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
JAGP IN 331.9 27 / 0 118 / 79 -12 / -16 / -16
CMP: INR82
Quarterly financials will not be comparable on a YoY basis due to inclusion of 'Nai Duniya'.
We expect advertising revenues to grow 29% YoY to INR2.84b on reported basis. On a like to like basis, we expect ad revenue growth to be 10% YoY.
We expect circulation revenues to grow 30% YoY to INR0.87b on a reported basis. On a like to like basis, we expect circulation revenue growth of 13% YoY.
Aggregate revenues are likely to increase 27% YoY to INR4.10b.
We estimate EBITDA at INR0.91b, up 17% YoY, and EBITDA margin at 22.3%.
Adjusted earnings should grow 9% YoY to INR0.53b, despite consolidation of 'Nai Duniya'.
The stock trades at 12.3x FY14E and 9.8x FY15E EPS. Buy.
Financials & Valuation (INR b) Y/E March 2012 Net Sales 13.6 EBITDA 3.17 Adj. Net Profit 1.78 Adj. EPS (INR) 5.6 Adj. EPS Gr. (%) -18.3 BV/Sh (INR) 23.8 RoE (%) 24.5 RoCE (%) 15.5 Div. Payout (%) 72.6 Valuations P/E (x) 14.7 P/BV (x) 3.5 EV/EBITDA (x) 9.5 Div. Yield (%) 4.2
2013 2014E 15.3 17.0 2.96 3.92 1.47 2.14 4.7 6.8 -17.3 44.8 29.5 33.9 17.5 21.3 18.8 16.4 50.2 43.3 17.8 2.8 9.8 2.4
12.3 2.4 7.1 3.0
2015E 18.7 4.63 2.67 8.5 25.2 38.9 23.2 16.9 41.5 9.8 2.1 5.7 3.6
Buy
Key issues to watch out ¾ YoY ad growth (we expect 29% including ad revenues of Nai Duniya) ¾ EBITDA margin (we expect 22.3%)
Quarterly Performance (Consolidated from 1QFY14) Y/E March Sales YoY (%) Operating expenses EBITDA YoY (%) EBITDA margin (%) Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported net profit Extra-ordinary item Adjusted net profit YoY (%) Key Metrics Ad revenue growth (YoY, %) Circulation revenue growth (YoY,%) RM/Sales (%) E: MOSL Estimates
October 2013
(INR Million)
FY13
FY14
FY13
FY14E
1Q 3,175 4.2 2,387 788 -3.9 24.8 148 76 -7 557 0 0.0 557 167 390 -21.5
2Q 3,221 5.5 2,439 782 -1.1 24.3 161 59 133 694 0 0.0 694 208 486 6.2
3Q 3,489 7.7 2,578 911 7.0 26.1 166 77 -9 659 0 0.0 659 198 461 11.6
4Q 3,428 10.4 2,888 540 -18.0 15.8 185 65 109 398 -4 -1.1 402 119 283 -34.0
1Q 4,131 30.1 3,111 1,019 29.3 24.7 181 71 -12 755 177 23.5 578 0 578 48.1
2QE 4,097 27.2 3,184 913 16.8 22.3 188 72 40 693 163 23.5 530 0 530 9.0
3QE 4,475 28.3 3,357 1,118 22.8 25.0 196 73 79 929 218 23.5 711 0 711 54.2
4QE 4,287 25.1 3,418 869 60.9 20.3 205 70 80 673 158 23.5 515 0 515 82.1
13,314 7.0 10,292 3,021 -3.2 22.7 660 278 225 2,308 -4 (0.2) 2,313 693 1,620 -17.3
16,990 27.6 13,071 3,920 29.7 23.1 770 286 187 3,051 717 23.5 2,334 0 2,334 44.1
8 10 36
4 9 34
7 12 34
8 21 36
31 35 34
29 30 35
33 25 36
31 15 36
4 13 35
14 19 29
C–110
September 2013 Results Preview | Sector: Media
PVR Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PVRL IN 39.6 19 / 0 476 / 186 12 / 50 / 145
Financials & Valuation (INR b) Y/E March Sales EBITDA NP EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x)
2012 2013 2014E 5.2 8.1 14.3 0.8 1.2 2.3 0.3 0.4 0.6 9.8 11.2 15.4 225.4 14.7 36.6 109.3 162.2 171.2 8.1 9.6 9.3 10.4 7.8 12.2 47.6 4.3 26.7 3.9
41.6 2.9 21.1 3.1
30.4 2.7 10.6 1.7
2015E 17.3 2.9 1.0 24.2 57.5 191.9 13.3 15.1 19.3 2.4 8.3 1.4
CMP: INR470
Buy
We expect PVR to report revenues of INR3.5b for 2QFY14, marking a growth of 100% due to consolidation of Cinemax with PVR. We expect footfalls of 16.6m, with average ticket price (ATP) at INR175 and spend per head (SPH) of INR55.5 on food and beverages (F&B).
EBITDA margin is likely to expand 150bp YoY to 19.5%, primarily on account higher growth in F&B and advertisement revenues, and synergies from Cinemax acquisition.
Due to higher margins and Cinemax consolidation, we expect PAT to grow 60% YoY.
The stock trades at an EV of 10.6x FY14E and 8.3x FY15E EBITDA. Maintain Buy.
Key issues to watch out for ¾ Growth in footfalls ¾ New screen openings ¾ Synergies with Cinemax
Quarterly Performance Y/E March 1Q Net Sales 1,799 YoY Change (%) 53.3 Total Expenditure 1,461 EBITDA 338 Margins (%) 18.8 Depreciation 179 Interest 47 Other Income 8 PBT before EO expense 120 Extra-Ord expense 0 PBT 120 Tax 42 Rate (%) 34.8 Min. Int. & Profit/Loss of Asso. Cos. -3 Reported PAT 81 YoY Change (%) 37.1 Margins (%) 4.5 E: MOSL Estimates
(INR Million) FY13 2Q 3Q 1,782 2,024 28.1 43.2 1,458 1,681 323 343 18.2 17.0 89 118 52 92 52 11 235 145 0 33 235 111 73 56 31.0 50.0 -1 2 163 53 14.8 -22.4 9.1 2.6
FY14 4Q 2,448 108.0 2,284 164 6.7 175 176 19 -167 0 -167 -294 176 3 124 5.1
1Q 3,352 86.0 2,758 594 17.7 182 194 21 238 41 197 57 29.1 4 136 105 4.1
2QE 3,556 100.0 2,862 693 19.5 213 178 25 327 0 327 65 20.0 0 262 61 7.4
3QE 3,913 93.0 3,142 771 19.7 211 203 30 386 0 386 89 23.0 0 297 326 7.6
4QE 3,444 41.0 3,168 276 8.0 207 207 36 -102 0 -102 -20 20.0 0 -82 -166 -2.4
FY13
FY14E
8,053 55.7 6,884 1,169 14.5 560 368 91 332 -12 320 (124) -38.7 2 445 0.9 5.5
14,274 77.2 11,937 2,337 16.4 824 794 113 833 0 833 208 25.0 0 625 0.4 4.4
Niket Shah (
[email protected]) October 2013
C–111
September 2013 Results Preview | Sector: Media
Sun TV Network Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SUNTV IN 394.1 158 / 3 494 / 311 -3 / -2 / 12
Financials & Valuation (INR b) Y/E March 2012 Net Sales 17.6 EBITDA 14.0 Adj. Net Profit 6.9 Adj. EPS (INR) 17.6 Adj. EPS Gr. (%) -10.0 BV/Sh (INR) 67.1 RoE (%) 26.3 RoCE (%) 51.2 Div. Payout (%) 53.9 Valuations P/E (x) 22.7 P/BV (x) 6.0 EV/EBITDA (x) 11.0 Div. Yield (%) 2.4
2013 2014E 18.2 22.1 13.8 15.8 6.8 7.7 17.3 19.5 -1.6 12.2 73.4 80.7 23.6 24.1 45.3 47.5 54.8 54.0 23.1 5.4 11.2 2.4
20.5 5.0 9.6 2.6
2015E 25.8 18.6 9.5 24.1 24.0 90.4 26.7 50.6 51.8 16.6 4.4 7.9 3.1
CMP: INR401
Buy
We expect revenues to increase 16% YoY to INR5b.
Advertising and broadcasting revenues are likely to grow 13% YoY to INR3.16b.
We expect total subscription revenues (domestic + international) to grow 22% YoY to INR1.84b.
EBITDA is likely to grow 16% YoY to INR3.8b.
PAT would grow 21% YoY to INR1.83b.
The stock trades at 20.5x FY14E and 16.6x FY15E EPS. Buy.
Key issues to watch out ¾ YoY ad growth (we expect 16%) ¾ QoQ subscription growth (we expect 4%)
Quarterly Performance
(INR Million)
Y/E March
FY13 1Q 4,258 -6.2 3,230 -11.7 75.9 933 2 132 2,427 784 32.3 1,643 1,643 -12.4
2Q 4,333 -4.0 3,290 -10.0 75.9 1,138 5 96 2,243 726 32.4 1,517 1,517 -15.8
3Q 4,859 14.3 3,763 10.3 77.5 1,044 17 106 2,808 910 32.4 1,899 1,899 13.1
Revenue YoY (%) EBITDA YoY (%) As of % Sales Depreciation and Amortization Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adj PAT YoY (%) Revenue Breakup (INR m) Advertising and Broadcast 2,800 2,810 3,270 International 260 260 260 DTH 890 900 945 Domestic Cable 300 340 370 Films and Others 8 23 14 Total 4,258 4,333 4,859 E: MOSL Estimates; * 1QFY14 includes IPL revenue of INR985.4m
October 2013
FY14 4Q 4,727 10.7 3,486 6.2 73.7 1,017 24 216 2,661 886 33.3 1,775 1,775 11.6
1Q 6,019 41.4 3,537 9.5 58.8 1,174 7 134 2,489 845 33.9 1,644 1,644 0.1
2QE 5,026 16.0 3,805 15.6 75.7 1,174 10 141 2,761 933 33.8 1,828 1,828 20.5
FY13
FY14E
3QE 5,641 16.1 4,369 16.1 77.5 1,291 14 148 3,212 1,086 33.8 2,126 2,126 12.0
4QE 5,400 14.2 4,062 16.5 75.2 1,162 17 238 3,122 1,052 33.7 2,070 2,070 16.6
18,176 3.4 13,769 -1.7 75.8 4,132 48 550 10,139 3,306 32.6 6,833 6,833 -1.6
22,086 21.5 15,773 14.6 71.4 4,801 48 660 11,584 3,915 33.8 7,669 7,669 12.2
3,050 3,140 3,161 3,679 260 290 300 303 1,000 1,060 1,071 1,087 380 420 466 473 37 1,109 28 100 4,727 6,019 5,026 5,641 and IPL EBITDA loss of INR307.9m
3,451 303 1,111 485 50 5,400
11,930 1,040 3,735 1,390 81 18,176
13,431 1,196 4,329 1,844 1,287 22,086
C–112
September 2013 Results Preview | Sector: Media
Zee Entertainment Enterprises Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
Z IN 954.0 227 / 4 267 / 174 -5 / 8 / 23
CMP: INR238
Neutral
We expect advertising revenues to grow 10% YoY to INR5.8b.
We estimate subscription revenue growth at 13% YoY to INR4.47b.
EBITDA margin is likely to expand 470bp YoY to 27.5%.
Adjusted PAT is expected to increase 14% YoY to INR2.14b.
The stock trades at 26.1x FY14E and 21.7x FY15E EPS. Neutral.
Financials & Valuation (INR b) Y/E March 2012 Net Sales 30.4 EBITDA 7.4 Adj. Net Profit 5.7 Adj. EPS (INR) 5.9 Adj. EPS Gr. (%) -1.4 BV/Sh (INR) 35.8 RoE (%) 17.5 RoCE (%) 25.5 Div. Payout (%) 24.3 Valuations P/E (x) 40.4 P/BV (x) 6.8 EV/EBITDA (x) 29.4 Div. Yield (%) 0.6
2013 2014E 37.0 42.4 9.5 11.7 7.2 8.7 7.5 9.2 27.9 21.4 41.0 47.5 19.6 20.7 29.1 31.5 26.6 25.0 31.6 6.0 22.5 0.8
26.1 5.1 18.1 1.0
2015E 49.2 14.0 10.5 11.0 20.0 55.2 21.4 31.8 25.0
Key issues to watch out ¾ YoY ad growth (we expect 10%) ¾ Sports loss (we expect INR350m)
21.7 4.4 14.9 1.2
Quarterly Performance
(INR Million)
Y/E March Advertsing Revenue Subscription Revenue Other Sales and Services Net Sales Change (%) Prog, Transmission & Direct Exp Staff Cost Selling and Other Exp EBITDA Change (%) As of % Sales Depreciation Finance cost Other Income PBT Tax Effective Tax Rate (%) PAT Minority Interest/Associates Adj PAT after Minority Interest Change (%) Subscription revenue (INR m) Domestic International Total Subscription revenue E: MOSL Estimates October 2013
FY13
FY14
FY13
FY14E
1Q 4,472 3,641 317 8,430 20.7 3,757 888 1,453 2,332 49.5 27.7 99 18 301 2,517 947 37.6 1,570 -12 1,582 18.3
2Q 5,281 3,950 305 9,536 32.7 4,791 873 1,695 2,177 4.9 22.8 96 23 260 2,318 444 19.2 1,874 -2 1,876 20.3
3Q 5,094 4,098 197 9,388 24.4 4,185 895 1,697 2,611 20.9 27.8 90 16 360 2,865 933 32.6 1,933 -8 1,941 39.3
4Q 4,792 4,546 305 9,643 11.0 4,669 835 1,716 2,423 51.5 25.1 115 29 538 2,817 1,014 36.0 1,803 8 1,795 26.3
1Q 5,301 4,241 191 9,733 15.5 4,108 956 1,754 2,915 25.0 30.0 87 22 722 3,528 1,289 36.5 2,239 -8 2,246 42.0
2QE 5,809 4,474 268 10,551 10.6 4,845 975 1,824 2,907 33.5 27.5 100 22 385 3,170 1,027 32.4 2,143 -2 2,145 14.3
3QE 6,113 4,724 201 11,037 17.6 4,737 985 1,897 3,418 30.9 31.0 106 22 388 3,678 1,192 32.4 2,486 -3 2,489 28.3
4QE 5,840 4,935 301 11,077 14.9 5,642 989 1,970 2,475 2.2 22.3 111 21 392 2,736 884 32.3 1,851 -3 1,854 3.3
19,639 16,234 1,123 36,997 21.7 17,401 3,491 6,561 9,544 29.0 25.8 399 86 1,459 10,517 3,338 31.7 7,179 -15 7,194 26.0
23,063 18,374 960 42,397 14.6 19,333 3,906 7,444 11,715 22.7 27.6 403 87 1,886 13,111 4,392 33.5 8,719 -15 8,734 21.4
2,504 1,137 3,641
2,808 1,141 3,949
2,962 1,136 4,098
3,374 1,172 4,546
3,168 1,073 4,241
3,356 1,118 4,474
3,554 1,170 4,724
3,728 1,207 4,935
11,648 4,586 16,234
13,806 4,569 18,374
C–113
September 2013 Results Preview | Sector: Metals
Metals Companies Covered
Ferrous
Hindalco
Steel prices flat/marginally lower in most regions, except North America
Hindustan Zinc
Average steel prices were flat/marginally negative in most regions, except North America, where prices increased 10% QoQ. HRC prices declined QoQ in CIS (down 2%) and Europe (down 2%), while prices in China and Turkey were flat QoQ. However, iron ore prices showed an uptrend, increasing 6% QoQ to USD134/t, while coking coal prices were flat QoQ at USD142/t. Indian steel prices were also weak, with prices declining 1-3% QoQ despite depreciating rupee. However, current prices are higher than the 2QFY14 average due to the price hike taken by producers in September.
Global steel prices were flat/marginally lower QoQ (USD/ton) CIS North Ameri ca Europe RHS(Euro/ton)
Chinese steel prices were also flat QoQ (USD/ton) HRC
710
Sep-13
Jul-13
Jun-13
Apr-13
Mar-13
Jan-13
Nov-12
Oct-12
640
Sep-11
Sep-13
Jul-13
May-13
Apr-13
500
Feb-13
410 Oct-12
500 Dec-12
570
Aug-12
460
Jun-12
600
Apr-12
510
Jan-12
700
Mar-12
560
Nov-11
800
Sep-11
Rebar
780
Jul-12
Tata Steel
Aug-12
SAIL
Apr-12
Sesa Sterlite
May-12
NMDC
Feb-12
Nalco
Dec-11
JSW Steel
Nov-11
Jindal Steel & Power
Source: Bloomberg, MOSL
Expected quarterly performance summary
Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Sterlite Tata Steel Sector Aggregate
CMP (INR) 27.09.13 114 131 237 732 32 126 51 183 288
(INR Million)
Rating Sep.13 Buy Buy Neutral Sell Buy Buy Sell Buy Sell
225,222 34,041 48,919 104,363 15,184 25,103 124,425 196,875 369,030 1,143,162
Sales Var. % YoY 13.7 18.8 5.1 17.6 -5.6 -3.9 15.0 13.6 8.1 11.3
Var. Sep.13 % QoQ 14.0 24,017 14.1 16,796 7.7 14,486 11.5 19,414 -2.7 2,334 -12.6 15,200 21.2 15,427 38.7 71,339 12.5 36,553 16.2 215,566
EBITDA Var. % YoY 9.2 16.4 -14.6 27.3 LP -21.4 39.1 16.9 58.2 17.7
Var. % QoQ 29.0 11.7 -3.8 11.0 52.6 -20.2 59.5 22.2 -0.9 12.4
Net Profit Var. % YoY 8,155 -13.5 17,318 12.5 6,213 -30.8 5,605 9.6 1,692 3439.9 13,556 -19.2 9,257 85.3 24,182 6.8 3,646 LP 89,623 13.0
Sep.13
Var. % QoQ 91.8 8.8 -10.5 19.9 6.0 -13.8 75.7 1.2 -67.5 0.2
Sanjay Jain (
[email protected]) / Pavas Pethia (
[email protected]) October 2013
C–114
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September 2013 Results Preview | Sector: Metals
Relative performance-3m (%) Sens ex Index MOSL Metal s Index
Sep-13
Aug-13
Jul-13
Jun-13
140 125 110 95 80
QoQ respectively. Base metals spot premiums have started correcting post indication of warehousing rule changes by LME. However, INR realization of base metals will be higher due to 11% depreciation in INR against USD. We factor aluminum, zinc and lead prices of USD2,000/t, USD1,900/t and USD2,100/t in FY15. We believe that non-ferrous companies are structurally better placed than steel companies in terms of demand and pricing scenario in India. Hindalco is our top pick in the metal space. Base metals US spot premium (USD/ton) Alumi ni um
Zi nc
Copper
300
Relative performance-1Yr (%)
235
Sens ex Index MOSL Meta l s Index
170
110 95 80 65 50
105
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
Sep-09
May-09
Jan-09
Aug-08
Apr-08
Dec-07
Aug-07
Apr-07
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
40
Source: Bloomberg, MOSL
Base metal prices decline 8-11% QoQ (Quarterly averageUSD/ton) Quarter Avg. 2QFY14 1QFY14 4QFY13 3QFY13 2QFY13 1QFY13 4QFY12 3QFY12 2QFY12 1QFY12 4QFY11 3QFY11 2QFY11 1QFY11
1,858 1,840 2,032 1,946 1,885 1,927 2,024 1,897 2,223 2,249 2,393 2,315 2,012 2,017
Zinc QoQ (%) 1 -9 4 3 -2 -5 7 -15 -1 -6 3 15 0 -12
YoY (%) -1 -5 0 3 -15 -14 -15 -18 10 12 5 5 15 37
Aluminium Avg. QoQ YoY (%) (%) 1,780 -3 -7 1,834 -8 -7 2,002 0 -8 1,997 4 -4 1,918 -3 -20 1,978 -9 -24 2,175 4 -13 2,090 -13 -11 2,398 -8 15 2,598 4 24 2,502 7 16 2,343 12 17 2,089 0 16 2,092 -3 41
Copper Avg. QoQ (%) 7,069 -1 7,147 -10 7,931 0 7,908 3 7,705 -2 7,869 -5 8,308 11 7,488 -17 8,982 -2 9,137 -5 9,644 12 8,633 19 7,242 3 7,013 -3
YoY (%) -8 -9 -5 6 -14 -14 -14 -13 24 30 33 30 24 50
Avg. 2,102 2,053 2,301 2,198 1,974 1,973 2,093 1,982 2,458 2,550 2,603 2,389 2,031 1,943
Lead QoQ (%) 2 -11 5 11 0 -6 6 -19 -4 -2 9 18 5 -12
YoY (%) 1 3 8 -1 -15 -22 -19 -10 17 21 20 20 18 61
Silver (INR/kg) Avg. QoQ YoY (%) (%) 46,040 3 -17 44,837 -20 -18 55,927 -7 1 59,949 8 11 55,755 2 -5 54,406 -2 -5 55,256 3 15 53,770 -9 35 58,791 2 96 57,430 20 101 48,008 20 82 39,929 33 46 29,948 5 28 28,557 8 30
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
YoY Avg. (%) 6 318 4 327 10 341 11 326 -20 316 -23 317 -20 317 -17 329 21 372 31 404 17 391 4 366 6 317 29 335
Alumina QoQ (%) -3 -4 5 3 0 0 -4 -12 -8 4 7 15 -5 3
Comparative valuation CMP (INR) 27.09.13 Metals Hindalco Hindustan Zinc JSPL JSW Steel Nalco NMDC SAIL Sesa Sterlite Tata Steel Sector Aggregate October 2013
114 131 237 732 32 126 51 183 288
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
Buy Buy Neutral Sell Buy Buy Sell Buy Sell
17.0 16.4 37.2 49.7 2.3 16.7 5.7 35.9 1.6
6.7 8.0 6.4 14.7 13.9 7.5 8.9 5.1 183.5 8.0
14.0 16.7 27.3 65.5 3.3 15.7 8.2 34.7 33.6
15.0 16.4 32.3 71.4 3.3 16.0 5.5 35.8 32.2
8.1 7.8 8.7 11.2 9.8 8.0 6.2 5.3 8.6 7.3
7.6 8.0 7.3 10.3 9.9 7.8 9.2 5.1 8.9 7.4
8.9 5.2 7.1 7.2 3.6 3.7 7.4 4.1 7.2 5.8
7.7 4.2 8.4 6.6 3.5 3.9 7.5 3.8 6.0 5.5
6.2 3.5 6.1 6.3 3.0 3.8 8.1 3.5 6.3 5.1
18.0 23.4 17.7 6.6 5.0 26.8 5.8 14.4 0.7 11.9
13.1 20.2 12.0 9.1 6.9 22.2 8.0 13.5 14.9 12.1
12.5 17.1 13.3 10.1 6.6 19.6 5.1 13.0 13.1 11.1 C–116
September 2013 Results Preview | Sector: Metals
Hindalco Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HNDL IN 2,064.8 235 / 4 137 / 83 5 / 20 / -8
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr(%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 808.2 801.9 888.4 81.9 80.6 93.4 34.0 32.5 28.9 17.7 17.0 14.0 -2.9 -4.4 -17.4 88.3 100.7 113.2 20.3 18.0 13.1 7.3 5.8 5.6 9.9 9.7 11.7 6.4 1.3 6.9 1.3
6.7 1.1 8.7 1.2
8.1 1.0 7.7 1.2
2015E 994.7 114.9 31.0 15.0 7.1 126.5 12.5 6.8 10.9 7.6 0.9 6.2 1.2
CMP: INR114
Buy
Net sales to increase 33% QoQ: We expect net sales to increase 33% QoQ (up 26% YoY) to INR78b due to higher realization in aluminum segment and higher sales volumes in both aluminum and copper segments. Aluminum sales volume is expected to increase 20% QoQ, while copper sales volume is likely to increase 25% QoQ. 1QFY14 copper production was affected due to maintenance shutdown. HNDL's blended realization for aluminum is likely to increase 6% QoQ to INR164,500/ton despite decline in LME prices on account of INR depreciation. We expect Novelis' shipments to increase 3% QoQ to 729kt, while operating margins are expected to increase 9% QoQ to USD335/ton. Standalone EBITDA to increase 49% QoQ: We expect standalone EBITDA to increase 49% QoQ to INR7.1b due to higher aluminum and copper sales volume and better aluminum realization. Maintain Buy: Hindalco is at an inflexion point as operating cash flows are poised for rapid growth, since benefits of USD8b investment have begun. Margins of aluminum business should expand, driven by declining cost of production. Novelis' free cash flows will also improve in FY15 as it exits capex cycle. Reiterate Buy. Key issues to watch out ¾ Mahan coal block is critical to drive profitability of its 359ktpa Mahan smelter. The coal block has received stage I forest clearance so far.
Quarterly Performance (Standalone) Y/E March Alumina (Production, kt) Aluminium (sales, kt) Copper (sales, kt) Exchange USD/INR Avg LME Aluminium (USD/T) Net Sales EBITDA EBITDA - Aluminium EBITDA-Copper Interest Depreciation Other Income PBT (before EO item) Extra-ordinary Income PBT (after EO item) Total Tax % Tax Adjusted PAT Novelis Shipments (kt) Novelis adj. EBITDA (USDm) Consolidated adj. PAT E: MOSL Estimates October 2013
1Q 335 124 71 54.2 1,978 60,279 4,631 3,415 1,216 815 1,705 1,714 3,826 1,300 5,126 878 23.0 2,948 722 259 7,864
(INR Million) FY13 2Q 3Q 328 326 127 135 73 82 55.2 54.2 1,918 1,997 61,635 68,717 5,153 5,821 2,609 3,110 2,544 2,711 279 1,690 1,728 1,884 1,324 1,741 4,471 3,988 1,440 4,471 5,428 882 1,093 19.7 27.4 3,589 2,895 719 647 277 185 9,431 4,811
FY14 4Q 330 147 84 54.3 2,002 69,938 6,432 3,388 3,044 1,577 1,726 2,312 5,442 5,442 621 11.4 4,820 698 240 8,970
1Q 348 130 68 56.0 1,834 58,379 4,785 3,515 1,270 1,487 1,831 2,249 3,716 2,030 5,746 1,005 27.0 2,711 708 218 4,253
2QE 351 156 85 62.5 1,782 77,742 7,122 4,385 2,737 1,562 1,831 2,439 6,169
3QE 355 157 85 62.0 1,900 78,528 8,320 5,588 2,732 2,573 2,529 2,265 5,483
4QE 359 170 85 62.0 1,950 80,750 9,022 6,290 2,732 2,578 2,533 2,089 6,001
6,169 1,295 21.0 4,873 729 244 8,155
5,483 1,367 24.9 4,116 701 231 6,718
6,001 1,326 22.1 4,675 758 258 8,456
FY13
FY14E
1,319 532 310 54.5 1,974 260,569 22,037 12,523 9,515 4,360 7,042 7,091 17,726 2,740 20,466 3,474 17.0 14,252 2,786 961 32,485
1,413 612 323 60.6 1,867 295,399 29,249 19,778 9,471 8,199 8,724 9,042 21,368 21,368 4,994 23.4 16,374 2,896 951 28,927
C–117
September 2013 Results Preview | Sector: Metals
Hindustan Zinc Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HZ IN 4,225.3 553 / 9 147 / 94 4 / 3 / -6
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr(%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 114.1 127.0 139.7 60.7 64.8 69.4 55.6 69.1 70.7 13.2 16.4 16.7 13.1 24.4 2.3 63.6 76.4 89.5 22.5 23.4 20.2 27.2 25.6 22.7 21.5 22.2 21.7 9.9 2.1 6.2 1.8
8.0 1.7 5.2 2.4
7.8 1.5 4.2 2.4
2015E 144.2 69.2 69.5 16.4 -1.7 102.3 17.1 19.3 22.1 8.0 1.3 3.5 2.4
CMP: INR131
Buy
Net sales to increase 14% QoQ on higher volumes: We expect net sales to increase 14% QoQ (grow 19% YoY) to INR34b on higher sales volume and realization. LME zinc and lead prices increased 1% and 2% QoQ respectively, while INR depreciation against USD will further boost prices. We expect mine metal production of 240kt, while integrated lead/zinc production is likely to be 220kt. EBITDA to increase 12% QoQ: We expect EBITDA to increase 12% QoQ to INR16.8b (+16% YoY) due to higher volumes and realization. Integrated silver production is expected to be 84 tons. Maintain Buy: HZL has guided for 1mt of MIC production in FY14 along with 360 tons of saleable silver. We model 978kt of MIC production and 359 tons of integrated silver production. We expect EBITDA to post 3% CAGR over FY13-15E on higher sales volume. The stock trades at 8x FY15E EPS and at an EV of 3.5x FY15E EBITDA. Maintain Buy. Key issues to watch out ¾ Management has guided for a mine production (MIC basis) of 1mt in FY14. Increase in production from Zawar and Kayar and further rampup at SK Mines will be critical to drive overall mine production.
Quarterly Performance
(INR Million)
Y/E March Zn (000 tons) Pb (000 tons) Silver (tons) Net Sales Change (YoY %) EBITDA As % of Net Sales Interest Depreciation Other Income PBT (before EO item) Extra-ordinary Income PBT (after EO item) Total Tax % Tax Reported PAT Adjusted PAT Change (YoY %) Avg LME Zinc (USD/T) Avg LME Lead (USD/T) Silver (USD/oz) E: MOSL Estimates October 2013
1Q 157 29 79 27,477 -3.5 14,286 52.0 129 1,734 5,743 18,166 0 18,166 2,353 13.0 15,813 15,813 5.5 1,927 1,973 28
FY13 2Q 3Q 153 168 24 22 80 62 28,655 31,780 8.7 14.0 14,431 14,940 50.4 47.0 -21 75 1,746 1,772 5,398 5,063 18,104 18,156 0 0 18,104 18,156 2,706 2,031 14.9 11.2 15,398 16,125 15,398 16,125 12.9 26.1 1,885 1,946 1,974 2,198 28 31
FY14 4Q 181 32 100 39,087 24.7 21,160 54.1 108 1,219 4,118 23,951 -175 23,776 2,117 8.9 21,658 21,818 53.7 2,032 2,301 30
1Q 173 29 86 29,842 8.6 15,031 50.4 109 1,843 5,403 18,481 795 19,275 2,671 13.9 16,605 15,920 0.7 1,840 2,053 22
2QE 188 30 84 34,041 18.8 16,796 49.3 109 1,862 5,312 20,137 0 20,137 2,819 14.0 17,318 17,318 12.5 1,860 2,105 21
3QE 200 32 92 36,436 14.6 18,047 49.5 109 1,880 4,945 21,002 0 21,002 2,940 14.0 18,062 18,062 12.0 1,900 2,100 21
4QE 220 34 97 39,392 0.8 19,493 49.5 109 1,899 5,219 22,703 0 22,703 3,178 14.0 19,525 19,525 -10.5 1,900 2,100 21
FY13
FY14E
659 107 321 126,998 11.4 64,816 51.0 291 6,470 20,322 78,377 -175 78,201 9,206 11.8 68,995 69,149 24.4 1,948 2,112 29
781 125 359 139,710 10.0 69,366 49.7 438 7,485 20,879 82,323 0 82,323 11,609 14.1 70,714 70,714 2.3 1,875 2,089 21
C–118
September 2013 Results Preview | Sector: Metals
Jindal Steel & Power Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
JSP IN 934.8 221 / 4 474 / 182 -7 / -37 / -51
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr(%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 182.1 198.1 201.8 68.9 65.7 60.3 40.6 34.8 25.6 43.4 37.2 27.3 8.1 -14.2 -26.6 193.7 227.3 227.9 25.2 17.7 12.0 17.2 12.3 9.0 3.8 4.4 7.5 5.5 1.2 5.7 0.7
6.4 1.0 7.1 0.7
2015E 273.7 81.6 30.2 32.3 18.2 256.4 13.3 10.4 6.4
8.7 1.0 8.4 0.8
7.3 0.9 6.1 0.8
CMP: INR237
Neutral
Net sales to increase marginally: We expect standalone net sales to increase 1% YoY (up 6% QoQ) to INR36.2b on higher sales volume. Steel sales volume would increase 3% YoY (down 1% QoQ) to 658kt. We expect pellet sales volume to increase 21% YoY (down 4% QoQ). Power sales are likely to grow 68% YoY (up 139% QoQ) to 919m units. We expect standalone EBITDA to decrease 10% QoQ to INR9.4b. Jindal Power's sales volume to decline 2% QoQ: Power sales volume at Jindal Power is likely to decrease 2% QoQ (up 12% YoY) to 2b units, while the average rate is likely to remain flat at INR3.2/unit. PAT would grow 4% QoQ to INR3.4b. Maintain Neutral: Valuations are not demanding although headwinds still remain. Stock is trading at FY15E P/BV of 0.9x. We value the stock at INR238 based on SOTP. Maintain Neutral. Key issues to watch out ¾ Angul steel's melt shop is expected to be lit in August but it will take couple of months for production to stabilize. Coal gasification and sponge iron unit is expected to start by December 2013. Also, the CPP at Angul will be fully commissioned in FY14. There is still no clarity on final signing of lease for the Utkal B1 coal block due to delay from the state government side. The coal block is critical to derive profitability of Angul 1.6mtpa project.
Quarterly Performance (Standalone)
(INR Million)
Y/E March 1Q Sales volume Steel (000 tons) Pellets (000 tons) CPP (M kwh) Jindal Power (M kwh) Net Sales EBITDA As % of Net Sales Interest Depreciation Other Income PBT (before EO item) Extra-ordinary Income PBT (after EO item) Total Tax % Tax Reported PAT Adjusted PAT JPL Power Sales (MU) JPL PAT Adj consol PAT E: MOSL Estimates October 2013
561 395 584 2,015 33,311 10,377 31.2 2,186 2,372 122 5,942 -5,741 201 76 38.1 124 4,602 2,015 3,144 9,594
FY13 2Q 639 436 547 1,746 35,890 12,607 35.1 1,779 2,489 74 8,413 0 8,413 2,591 30.8 5,822 5,822 1,746 2,603 8,973
FY14 3Q
4Q
1Q
2QE
3QE
4QE
734 623 603 1,651 38,209 12,781 33.4 2,876 2,543 39 7,401 0 7,401 2,196 29.7 5,205 5,205 1,651 2,558 8,673
909 658 517 1,999 42,137 11,363 27.0 2,369 3,081 1,358 7,271 -1,000 6,271 1,496 23.9 4,774 5,774 1,999 2,822 8,602
665 551 384 2,000 34,252 10,477 30.6 2,318 3,036 63 5,185 -2,000 3,185 796 25.0 2,389 4,389 2,000 3,217 6,943
658 527 919 1,955 36,170 9,436 26.1 2,480 3,006 85 4,035 0 4,035 1,130 28.0 2,905 2,905 1,955 3,356 6,213
705 417 924 2,016 37,162 9,638 25.9 2,755 3,226 223 3,880 0 3,880 1,086 28.0 2,794 2,794 2,016 3,491 6,343
869 517 939 2,037 42,494 10,501 24.7 3,253 3,646 1,526 5,128 0 5,128 1,436 28.0 3,692 3,692 2,037 3,537 6,071
FY13
FY14E
2,843 2,112 2,251 7,411 149,547 47,127 31.5 9,209 10,485 1,593 29,026 -6,741 22,285 6,360 28.5 15,926 21,404 7,411 11,126 33,841
2,897 3,729 3,623 7,984 150,079 40,052 26.7 10,806 12,914 1,896 18,228 -2,000 16,228 4,448 27.4 11,780 13,780 7,984 13,600 25,570
C–119
September 2013 Results Preview | Sector: Metals
JSW Steel Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
JSTL IN 241.7 177 / 3 894 / 452 32 / 4 / -7
Financials & Valuation (INR b) Y/E March 2012 2013 2014E 2015E Sales 343.7 382.1 468.7 466.9 EBITDA 61.0 65.0 85.4 88.2 Adj. PAT 14.8 11.1 15.8 17.2 Adj. EPS (INR) 66.5 49.7 65.5 71.4 EPS Gr(%) -11.6 -25.3 31.7 9.0 BV/Sh. (INR) 738.2 764.8 679.8 738.3 RoE (%) 9.1 6.6 9.1 10.1 RoCE (%) 8.8 8.4 10.1 9.5 Payout (%) 27.1 25.9 25.5 15.8 Valuations P/E (x) 11.0 14.7 11.2 10.3 P/BV 1.0 1.0 1.1 1.0 EV/EBITDA (x) 7.0 7.0 6.6 6.3 Div. Yield (%) 1.0 1.4 1.4 1.4 Note: JSW Ispat included in FY14 and FY15
CMP: INR732
Sell
Standalone (S/A) revenue to increase 18% YoY: We expect standalone net sales to increase 18% YoY to INR104b due to 27% increase in volumes on account of merger with JSW Ispat. Average steel realization would fall 8% YoY (up 3% QoQ) to INR37,813/ton. S/A EBITDA to increase 27% YoY: We expect JSTL's EBITDA to increase 27% YoY to INR19.4b. We expect EBITDA/ton to increase 3% QoQ to INR7,034 (USD113). Maintain Sell: JSW Steel has been able to sustain margins despite a weak demand scenario. Iron ore costs have not inched up much despite tight supply in Karnataka due to the export ban and weak demand from secondary steel producers. However, the uncertainty still remains over stability in steel prices and relative pricing power in weak demand environment. Further, weaker INR/USD rate poses significant balance sheet challenges due to ~USD3b of forex debt. The stock trades at an expensive 10.3x FY15E EPS and an EV of 6.3x FY15E EBITDA. Sell. Key issues to watch out ¾ Given that availability of iron ore remains critical in Karnataka, JSW's FY14 and FY15 production guidance will be the key figure to watch out. It is targeting to produce 11.55mt of saleable steel and 12mt of crude steel in FY14. ¾ JSW is investing ~INR22b in the 55mw WHRB, railway siding, lime calcinations, 1mtpa coke oven plant and 4mtpa pellet plant for its Dolvi units. Turnaround in profitability of Dolvi units due to plant level integrations could provide upside to our estimates.
Quarterly Performance (Standalone) FY13 1Q 2Q 3Q Sales ('000 tons) 2,109 2,170 2,170 Realization (INR per ton) 42,853 40,880 38,214 Net Sales 90,376 88,709 82,924 EBITDA 17,728 15,252 13,136 As % of Net Sales 19.6 17.2 15.8 EBITDA (INR per ton) 8,406 7,028 6,053 EBITDA (USD per ton) 155 127 112 Interest 4,067 4,208 4,546 Depreciation 4,678 4,812 4,975 Other Income 723 783 566 PBT (before EO Item) 9,706 7,015 4,181 EO Items -5,921 4,224 -3,274 PBT (after EO Item) 3,786 11,239 907 Total Tax 1,096 3,016 -460 % Tax 28.9 26.8 -50.7 Reported PAT 2,690 8,223 1,367 Preference Dividend 70 70 70 Adjusted PAT 6,879 5,115 3,652 Consolidated adj PAT 3,997 3,393 620 E: MOSL Estimates; Note: JSW Ispat is excluded until 4QFY13
(INR Million)
Y/E March
October 2013
FY14 4Q 2,430 38,234 92,909 16,973 18.3 6,985 129 4,425 5,274 537 7,811 1,299 9,110 3,377 37.1 5,732 70 4,728 2,270
1Q 2,550 36,699 93,582 17,491 18.7 6,859 122 6,418 6,439 723 5,357 -8,529 -3,173 -965 30.4 -2,208 70 4,674 1,232
2QE 2,760 37,813 104,363 19,414 18.6 7,034 113 6,482 6,568 730 7,093 0 7,093 1,419 20.0 5,675 70 5,605 3,824
3QE 2,990 37,510 112,155 19,774 17.6 6,613 107 6,547 6,700 737 7,264 0 7,264 1,453 20.0 5,811 70 5,742 3,966
4QE 3,220 37,200 119,784 23,502 19.6 7,299 118 6,612 6,834 744 10,801 0 10,801 2,160 20.0 8,641 70 8,571 6,800
FY13
FY14E
8,879 39,973 354,918 63,088 17.8 7,105 130 17,245 19,739 2,609 28,713 -3,672 25,041 7,029 28.1 18,012 279 20,374 10,280
11,520 37,316 429,883 80,182 18.7 6,960 115 26,060 26,541 2,934 30,515 -8,529 21,986 4,067 18.5 17,919 279 24,592 15,822
C–120
September 2013 Results Preview | Sector: Metals
Nalco Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
NACL IN 2,577.2 83 / 1 52 / 24 -3 / -8 / -43
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr(%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)
2012 66.1 11.4 8.7 3.4 -19.2 45.5 7.6 10.0 48.9 9.5 0.7 2.9 4.3
2013 2014E 69.2 67.6 9.1 11.6 5.9 8.4 2.3 3.3 -31.5 41.7 46.3 48.1 5.0 6.9 7.2 9.2 63.6 44.9 13.9 0.7 3.6 3.9
2015E 78.7 11.6 8.4 3.3 -0.2 49.9 6.6 9.1 45.0
9.8 0.7 3.5 3.9
9.9 0.6 3.0 3.9
CMP: INR32
Buy
Net sales to decrease 3% QoQ on lower volumes: We expect net sales to decrease 3% QoQ (down 6% YoY) to INR15.2b on lower aluminum volumes. Aluminum sales volume is likely to decline 9% QoQ to 77kt. Aluminum production has been affected due to constraints in supply of linkage coal from MCL and lower LME prices. Nalco is operating at 25-30% lower capacity and the trend is likely to continue due to weak LME prices and lower linkage coal supply. Aluminum realization is expected to increase 6% QoQ , despite weak LME, due to INR depreciation against USD. Similarly, alumina realization is expected to increase 4% QoQ to INR18,934/t. EBITDA to increase 53% QoQ: We expect EBITDA to increase 53% QoQ to INR2.3b due to higher realization in both aluminum and alumina segments. Power cost to remain high till Utkal coal block commissioning; Buy: NACL has a strong balance sheet, with cash surplus of INR42b-50b post capex. Potential upsides from the Utkal-E block, further expansion of the alumina refinery, weakening INR and peaking of labor cost as older employees retire over the next three to five years are long term positives. We recently upgraded our stock rating to Buy. Key issues to watch out ¾ Utkal coal block remains the key to company's future profitability. It has received stage I forest clearance so far. ¾ Progress on Panchpatmali bauxite mining lease renewal. Currently, it is operating through a temporary one-year permit. ¾ Status of investment in NPCIL JV. It will be investing INR8.95b for a 26% stake in the venture.
Quarterly performance (Consolidated) Y/E March Aluminium Prod. ('000 tons) Aluminium Sales ('000 tons) Alumina Sales ('000 tons) Avg LME Aluminium (USD/ton) Alumina Exports (USD/ton) Net Sales Total Expenditure EBITDA As % of Net Sales Interest Depreciation Other Income PBT Total Tax % Tax Reported PAT Adjusted PAT E: MOSL Esitmates October 2013
1Q 103 102 253 1,978 343 17,481 14,439 3,042 17.4 32 1,224 1,403 3,190 959 30.1 2,231 2,231
(INR Million) FY13 2Q 3Q 102 100 101 102 190 220 1,918 1,997 323 328 16,083 16,928 16,100 15,102 -16 1,827 -0.1 10.8 41 2 1,239 1,231 1,391 1,127 95 1,720 47 531 49.5 30.9 48 1,189 48 1,189
FY14 4Q 98 98 320 2,008 341 18,673 14,456 4,216 22.6 0 1,361 1,190 4,046 1,585 39.2 2,460 2,460
1Q 85 85 283 1,834 325 15,606 14,076 1,530 9.8 0 1,245 1,787 2,072 476 23.0 1,597 1,597
2QE 77 77 284 1,782 303 15,184 12,850 2,334 15.4 0 1,251 1,405 2,488 796 32.0 1,692 1,692
3QE 84 84 329 1,900 323 17,988 14,441 3,547 19.7 0 1,257 1,138 3,428 1,097 32.0 2,331 2,331
4QE 83 83 356 1,950 332 18,799 14,649 4,151 22.1 0 1,263 1,202 4,089 1,308 32.0 2,780 2,780
FY13
FY14E
403 403 983 1,975 334 69,165 60,096 9,069 13.1 75 5,054 5,111 9,050 3,122 34.5 5,928 5,928
328 328 1,251 1,867 321 67,577 56,015 11,562 17.1 0 5,016 5,532 12,077 3,677 30.4 8,400 8,400
C–121
September 2013 Results Preview | Sector: Metals
NMDC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
NMDC IN 3,964.7 499 / 8 200 / 93 2 / -13 / -40
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr(%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 112.6 107.0 115.0 89.3 77.8 72.8 73.0 66.3 62.2 18.4 16.7 15.7 12.3 -9.2 -6.1 61.6 69.4 76.9 31.6 26.8 22.2 31.5 26.7 22.1 26.3 51.1 52.2 6.8 2.0 3.3 3.6
7.5 1.8 3.7 5.6
2015E 119.9 74.0 63.6 16.0 2.1 84.8 19.6 19.6 51.1
8.0 1.6 3.9 5.6
7.8 1.5 3.8 5.6
CMP: INR126
Buy
Iron ore sales to decrease 4% YoY: We expect standalone net sales to decrease 4% YoY (down 13% QoQ) to INR25.1b due to lower realization, despite higher iron ore sales volume. We expect iron ore sales volume to increase 6% YoY (down 15% QoQ) to 6.2mt in a seasonally weak quarter. Iron ore realization is likely to decrease 10% QoQ to INR3,379/ ton due to price correction taken by NMDC in July and August. Lumps percentage is expected to be 36% in 2QFY14. EBITDA to decline 20% QoQ: We expect EBITDA to decrease 20% QoQ to INR15.2b due to lower realization and volumes in a seasonally weak quarter. Sales volume to post CAGR of 10% over FY13-15E: We continue to believe that iron ore supply is getting tighter in India, which will improve the pricing power for iron ore fines. We expect NMDC to deliver ~10% volume CAGR during FY13-15E. NMDC trades at 1.5x FY15E BV and at an EV of 3.8x FY15E EBITDA. With 70% of the book in cash and dividend yield of 5.6%, valuations are compelling. Reiterate Buy. Key issues to watch out ¾ NMDC's internal target of iron ore sales volume for FY14 is 30-32mt, which is ~10% ahead of our estimates.
Quarterly performance (Consolidated) Y/E March Production (m tons) Sales (m tons) Avg Iron ore realization (USD/t) Avg Iron ore realization (INR/t) Lumps (%) Net Sales Change (YoY %) EBITDA Change (YoY %) As % of Net Sales EBITDA per ton (USD) EBITDA per ton (INR/t) Interest Depreciation Other Income PBT (before EO Item) Extra-ordinary Income PBT (after EO Item) Total Tax % Tax Reported PAT Adjusted PAT Change (QoQ %) Change (YoY %) E: MOSL Esitmates October 2013
(INR Million)
1Q 6.9 6.9 76 4,102 37 28,404 2.1 23,020 2.1 81.0 62 3,358 0 328 5,521 28,214
FY13 2Q 3Q 5.4 5.4 5.9 5.3 80 70 4,130 3,630 39 36 26,120 20,477 -14.7 -27.4 19,349 13,913 -20.6 -38.5 74.1 67.9 60 48 3,305 2,612 0 0 332 339 5,831 5,563 24,848 19,137
28,214 9,154 32.4 19,060 19,060 13.7 5.8
24,848 8,062 32.4 16,786 16,786 -11.9 -14.5
19,137 6,209 32.4 12,928 12,928 -23.0 -30.5
FY14 4Q 9.6 8.2 71 3,680 34 32,043 23.5 21,556 9.0 67.3 48 2,616 132 387 5,474 26,511 -4,058 22,453 7,804 34.8 14,650 17,297 33.8 3.2
1Q 6.9 7.3 70 3,735 37 28,706 1.1 19,052 -17.2 66.4 47 2,627 0 364 5,209 23,897
2QE 6.2 6.2 65 3,379 36 25,103 -3.9 15,200 -21.4 60.6 39 2,452 0 373 5,107 19,935
3QE 7.6 7.6 63 3,379 36 29,443 43.8 18,800 35.1 63.9 40 2,477 0 382 5,249 23,667
4QE 8.3 8.3 62 3,379 36 31,760 -0.9 19,755 -8.4 62.2 39 2,395 0 391 5,440 24,804
23,897 8,176 34.2 15,722 15,722 -9.1 -17.5
19,935 6,379 32.0 13,556 13,556 -13.8 -19.2
23,667 7,573 32.0 16,094 16,094 18.7 24.5
24,804 7,937 32.0 16,866 16,866 4.8 -2.5
FY13
FY14E
27.2 26.3 75 3,880 36 107,043 -4.9 77,838 -12.8 72.7 54 2,963 0 1,385 22,389 98,841 -4,058 94,783 31,228 32.9 63,556 66,277
29.0 29.3 65 3,467 36 115,012 7.4 72,807 -6.5 63.3 41 2,486 0 1,509 21,005 92,303 0 92,303 30,065 32.6 62,238 62,238 0.6 -6.1
-9.2
C–122
September 2013 Results Preview | Sector: Metals
Sesa Sterlite Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SSLT IN 2,964.8 542 / 9 205 / 119 -1 / 13 / 1
Financials & Valuation (INR b) Y/E March 2012 2013 2014E 2015E Sales 683.7 711.9 749.6 841.2 EBITDA* 181.3 170.6 191.0 206.6 NP 102.2 106.5 102.8 106.1 Adj. EPS (INR) 34.5 35.9 34.7 35.8 EPS Gr(%) -29.1 15.8 0.5 -0.3 BV/Sh. (INR) 38.0 77.7 88.5 115.3 RoE (%) 16.4 14.4 13.5 13.0 RoCE (%) 25.2 22.3 13.2 12.9 Payout (%) 11.9 11.4 11.8 11.4 Valuations P/E (x) 5.3 5.1 5.3 5.1 P/BV 0.7 0.7 0.7 0.6 EV/EBITDA (x) 5.3 6.1 5.6 4.9 Div. Yield (%) 1.9 1.9 1.9 1.9 Note: Sesa-Sterlite merged entity basis; * attributable
Quarterly Performance (Consolidated)
CMP: INR183
Buy
Net sales to increase 39% QoQ: We expect consolidated net sales to increase 39% QoQ due to resumption of copper refining operations at Tuticorin smelter and higher realization in zinc/lead business. EBITDA to increase 22% QoQ: We expect consolidated EBITDA to increase 22% QoQ to INR71.4b. Adj. PAT is likely to increase just 1% QoQ to INR24.2b due to higher tax rate, compared to earlier quarters. Maintain Buy: Assuming LME price of USD2,000/ton for aluminum, SD1,900/ton for zinc and USD2,100/ton for lead in FY15E, our SOTPbased valuation works out to INR213/share. Currently, the INR/USD rate is higher than our assumption of 60 for FY15E. While a weaker INR results in ballooning of forex debt, there is greater gain in EBITDA for the oil and zinc-lead-silver businesses. We maintain a Buy. Key issues to watch out ¾ Specific capex for Liberia is estimated at USD80-90/t of capacity, while it is targeting to end FY14 with 2mtpa. However, given constraints in cash flows post mining ban, it will be raising external funds for the project. ¾ It is widely believed that the Indian Government needs to urgently divest in HZ and Balco so that the much-needed funds can be raised to partially bridge the fiscal deficit and meet divestment targets. We believe delisting HZ and merging it with Sesa-Sterlite is perhaps the best option in terms of capital efficiency — HZ's cash will become fungible and available for servicing CAIR's acquisition debt.
(INR Million)
Y/E March
FY13 FY14 FY13 FY14E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 183,529 173,381 171,000 183,943 141,909 196,875 203,110 207,683 711,852 749,577 EBITDA 66,457 61,050 57,349 65,016 58,385 71,339 73,149 76,864 249,872 279,738 As % of Net Sales 36.2 35.2 33.5 35.3 41.1 36.2 36.0 37.0 35.1 37.3 Interest 4,002 19,550 9,795 13,272 10,721 13,377 17,650 17,869 46,620 59,617 Depreciation 12,104 12,206 12,644 16,054 14,710 15,968 16,474 17,937 53,008 65,088 Other Income 7,961 11,129 12,442 7,980 12,373 7,959 12,799 9,923 39,511 43,054 PBT (before XO item) 58,312 40,423 47,352 43,670 45,328 49,953 51,825 50,981 189,756 198,086 Extra-ordinary gain (loss) 0 0 1,888 0 0 0 0 0 1,888 0 PBT (after XO item) 58,312 40,423 49,240 43,670 45,328 49,953 51,825 50,981 191,644 198,086 Total Tax 2,956 2,736 1,687 2,032 2,310 4,678 4,752 4,379 9,412 16,118 % Tax 5.1 6.8 3.4 4.7 5.1 9.4 9.2 8.6 4.9 8.1 Reported PAT 55,355 37,687 47,553 41,637 43,018 45,275 47,073 46,602 182,232 181,968 Less: Minority int. 21,365 15,040 18,723 18,290 19,124 21,093 19,482 19,514 73,417 79,212 Adjusted PAT 33,990 22,647 28,830 23,348 23,894 24,182 27,591 27,088 106,458 102,756 E: MOSL Estimates; * Please note that these consolidated numbers, including previous quarters, are on best effort basis estimates. Numbers may differ from actuals due to complexity post Sesa-Sterlite merger.
October 2013
C–123
September 2013 Results Preview | Sector: Metals
Steel Authority of India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SAIL IN 4,130.4 211 / 3 102 / 38 4 / -23 / -47
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr(%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 466.6 449.3 481.5 64.0 50.5 61.7 37.7 23.7 34.0 9.1 5.7 8.2 -23.5 -37.1 43.4 97.5 100.5 106.3 9.7 5.8 8.0 10.6 7.1 7.0 26.9 43.5 29.0 5.6 0.5 5.0 3.9
8.9 0.5 7.4 3.9
6.2 0.5 7.5 3.9
2015E 501.4 62.1 22.9 5.5 -32.7 110.6 5.1 5.3 21.1 9.2 0.5 8.1 2.0
CMP: INR51
Sell
Net sales to increase 15% YoY due to higher volumes: We expect net sales to increase 15% YoY (up 21% QoQ) to INR124b due to higher sales volumes. SAIL has already achieved 2.2mt of sales in the first two months of 2QFY14. We expect sales volumes to increase 22% YoY to 3.2mt. Realization is expected to remain flat QoQ (decline 5% YoY) to INR39,375/ton. Margins to improve 18% QoQ to USD78/ton: We expect EBITDA/ton to increase 18% QoQ to USD78/ton due to higher operating leverage on higher sales volume. Other income would fall by 28% QoQ to INR1.6b as more cash will be deployed to support capex. INR720b capex benefits to accrue slowly; maintain Sell: We expect earnings to decline at 2% per annum over FY13-15E, despite 9% CAGR in volumes, due to SAIL's uncompetitive cost structure, execution delays, decline in steel realization and poor operating efficiencies. The full benefits of INR720b capex will accrue gradually due to poor execution. The stock still appears expensive at 9.2x FY15E EPS and an EV of 8.1x FY15E EBITDA. Maintain Sell. Key issues to watch out ¾ BOF commissioning at ISP and RSP will be critical for volume ramp-up in FY14 and FY15.
Quarterly Performance (Standalone) Y/E March Sales (m tons) Change (YoY %) Realization (INR per ton) Change (YoY %) Net Sales Change (%) EBITDA Change (YoY %) EBITDA per ton (INR) EBITDA per ton (USD) Interest Depreciation Other Income PBT (after EO Inc.) Total Tax % Tax Reported PAT Adjusted PAT Change (YoY %) E: MOSL Estimates
October 2013
1Q 2.5 -9.1 43,110 5.9 107,775 -3.7 15,153 15.5 6,061 112 1,249 4,018 2,785 10,101 3,137 31.1 6,964 8,485 1.2
(INR Million) FY13 2Q 3Q 2.6 2.8 -8.8 5.8 41,616 38,800 5.9 -8.7 108,202 106,701 -3.4 -3.4 11,093 11,384 -16.4 -28.0 4,267 4,140 77 76 1,862 2,220 4,026 4,049 2,255 2,209 7,879 7,016 2,448 2,173 31.1 31.0 5,431 4,843 4,996 4,904 -50.2 -55.4
FY14 4Q 3.2 38,533 -9.9 123,304 -9.9 9,039 -51.7 2,825 52 2,145 1,838 2,178 7,398 2,944 39.8 4,454 4,844 -43.2
1Q 2.6 4.8 39,190 -9.1 102,679 -4.7 9,673 -36.2 3,692 66 1,918 3,929 2,262 5,209 700 13.4 4,509 5,270 -37.9
2QE 3.2 21.5 39,375 -5.4 124,425 15.0 15,427 39.1 4,882 78 2,149 4,265 1,628 10,640 1,383 13.0 9,257 9,257 85.3
3QE 3.0 9.1 39,060 0.7 117,180 9.8 14,324 25.8 4,775 77 2,249 4,350 1,561 9,286 1,207 13.0 8,079 8,079 64.7
4QE 3.5 7.8 38,750 0.6 133,688 8.4 18,155 100.9 5,262 85 2,492 4,652 1,498 12,509 1,626 13.0 10,883 10,883 124.7
FY13
FY14E
11.1 -3.1 40,360 -2.4 445,983 -5.4 46,669 -23.4 4,223 78 7,476 13,932 9,426 32,394 10,701 33.0 21,693 23,228 -37.5
12.2 10.7 39,082 -3.2 477,972 7.2 57,579 23.4 4,708 78 8,809 17,196 6,948 37,644 4,916 13.1 32,727 33,491 44.2
C–124
September 2013 Results Preview | Sector: Metals
Tata Steel Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
TATA IN 971.4 280 / 4 448 / 195 -4 / -13 / -33
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr(%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 1,329 1,347 1,470 124.2 123.2 163.7 18.1 1.5 32.6 18.6 1.6 33.6 -70.1 -91.62,041.7 260.2 217.3 233.8 7.9 0.7 14.9 9.2 6.6 9.3 27.6 -12.3 26.7 15.5 183.5 1.1 1.3 6.5 7.2 4.2 2.8
8.6 1.2 6.0 2.8
2015E 1,473 164.2 31.2 32.2 -4.3 256.3 13.1 8.8 27.8 8.9 1.1 6.3 2.8
CMP: INR288
Sell
Tata Steel India (TSI): We expect net revenue to increase 12% YoY (up 9% QoQ) to INR103b due to higher sales volume. Steel volumes are expected to increase 20% YoY (down 4% QoQ) to 2.1mt. Realization is expected to increase 1% QoQ (decline 6% YoY). We expect EBITDA to increase 15% QoQ to INR33b and EBITDA/ton to increase 10% QoQ to USD236/ton. TSE and others: We expect Tata Steel Europe (TSE) and other subsidiaries to report EBITDA/ton of USD15 in a seasonally weak quarter. We expect steel shipments to decrease 5% YoY (up 2% QoQ) to 4.1mt. Steel environment challenging, price outlook negative; maintain Sell: We expect steel environment to remain challenging due to a weak demand scenario. We expect TSI margins to suppress further as lower iron ore prices will eat away certain captive iron benefits. TSE's capex program, despite insufficient cash flows, will be an additional overhang on the stock. The stock trades at 8.9x FY15E EPS and an EV of 6.3x FY15E EBITDA. Maintain Sell. Key issues to watch out ¾ Funding of TSE modernization and upgradation program, as TSE's cash flows are insufficient to support its capex.
Quarterly Performance (Standalone) Y/E March
(INR Million) FY13 2Q 3Q 1,730 1,890 5.0 16.5 48,459 45,314 91,506 93,703 25,162 25,262 27.5 27.0 14,545 13,366 246 232 4,539 5,090 3,913 4,339 2,397 357 19,203 16,190 5,695 5,726 29.7 35.4 13,508 10,464 13,412 10,464
4Q 2,279 28.9 44,394 107,705 33,040 30.7 14,498 263 4,594 4,608 4,747 21,744 8,652 39.8 13,092 19,933
1Q 2,005 26.1 44,719 94,554 28,343 30.0 14,136 245 4,664 4,596 1,442 20,525 6,964 33.9 13,561 13,561
2QE 2,080 20.2 45,313 102,842 32,607 31.7 15,676 236 4,804 4,642 2,409 25,570 8,438 33.0 17,132 17,132
3QE 2,200 16.4 44,950 107,496 34,853 32.4 15,842 242 4,948 4,688 359 25,575 8,440 33.0 17,135 17,135
4QE 2,315 1.6 44,640 109,999 32,998 30.0 14,254 220 5,097 4,735 4,771 27,937 9,219 33.0 18,718 18,718
321,071 22,389 -7,886 -7,433 3,020 -26
346,505 43,689 -66,775 8,843 3,420 33
328,048 36,880 11,423 11,213 3,140 44
369,030 36,553 3,493 3,646 3,213 17
383,212 44,590 10,082 10,175 3,417 40
389,668 1,347,115 1,469,958 45,695 123,212 163,718 9,292 -73,624 34,114 9,407 3,323 34,441 3,488 13,070 13,258 51 11 38
1Q Sales ('000 tons) 1,590 Change (YoY %) -0.2 Avg Seg.Realn. (INR/tss) 51,530 Net Sales 89,080 EBITDA 29,768 (% of Net Sales) 33.4 Steel EBITDA(INR/tss) 18,722 Steel EBITDA(USD/tss) 326 Interest 4,544 Depreciation 3,544 Other Income 1,519 PBT (after EO Inc.) 21,229 Total Tax 7,663 % Tax 36.1 Reported PAT 13,566 Adjusted PAT 15,536 Consolidated Financials Net Sales 338,212 341,327 EBITDA 36,003 23,101 Rep. PAT (before MI & asso.) 5,170 -4,133 Adj. PAT (after MI & asso) 7,949 -4,066 TSE Sales (000 tons) 3,210 3,420 TSE EBITDA(USD/tss) 36 -2 E: MOSL Estimates; tss=ton of steel sales October 2013
FY14
FY13
FY14E
7,489 12.9 47,081 381,994 113,232 29.6 15,120 263 18,768 16,404 9,020 78,366 27,736 35.4 50,630 59,345
8,600 14.8 44,900 414,891 128,801 31.0 14,977 235 19,514 18,661 8,981 99,607 33,061 33.2 66,546 66,546
C–125
September 2013 Results Preview | Sector: Oil & Gas
Oil & Gas Companies Covered BPCL Cairn India GAIL Gujarat State Petronet HPCL IOC Indraprastha Gas MRPL
INR depreciation to partly compensate for 15% QoQ fall in GRM; crude rises 7% QoQ: Strong crude prices in 2QFY14 (Brent average at USD110/bbl; +7% QoQ, flat YoY), led by geo-political concerns in Syria and INR depreciation (average at INR62.5/USD, +12% YoY and QoQ) will benefit oil producers. Refinery margins will be under pressure, with Reuters Singapore GRM falling 15% QoQ to USD5.5/bbl, primarily driven by lower gasoline cracks (end of driving season in US and Europe) and lower fuel oil cracks. Petchem spreads recover QoQ: Simple spreads over naphtha improved 4.9% and 8.7% QoQ for PE and PP, but decreased by a marginal 1.3% QoQ for PVC. However, led by higher international prices and steep INR depreciation, the domestic premium to international prices reduced significantly in 2QFY14. During the quarter, polymer producers (RIL and GAIL) also benefitted from full impact of increase in polymer customs duty from 5% to 7.5% in May 2013.
Oil India ONGC Petronet LNG Reliance Industries
Higher crude prices coupled with significant INR depreciation led to QoQ increase in under-recoveries: We estimate 42% QoQ increase in under-recoveries to INR362b, led by almost doubling of diesel losses. We model upstream sharing similar to 1QFY14 (subsidy at USD56/bbl) and expect the government to compensate INR200b in 2QFY14. However, on the back of higher retail selling prices for diesel and capping of LPG cylinders, the YoY growth softened (2% YTD for diesel and -3% YTD for LPG) and provided some respite to ballooning under-recoveries. For FY14/FY15, we model upstream sharing at INR700b/650b, downstream sharing at nil, and balance by the government. Valuation and view: In event of likely deregulation over coming years, we prefer ONGC/OINL in upstream (significant earnings growth opportunity) and BPCL in OMC's (relatively strong balance sheet and E&P potential). Maintain Neutral on Gail India due to headwinds for gas availability, however believe PLNG is available at attractive valuation given its medium term earnings potential. Maintain Buy on Cairn India for its attractive valuation and Neutral on RIL as the next earnings growth is still some time away when its new core-business/E&P projects commission from FY16/FY17.
Expected quarterly performance summary CMP Rating (INR) 27.09.13 BPCL 329 Cairn India 318 GAIL 326 Gujarat State Petronet 52 HPCL 190 IOC 211 Indraprastha Gas 276 MRPL 33 Oil India 454 ONGC 275 Petronet LNG 123 Reliance Inds. 840 Sector Aggregate Excl. RMs
Sales Sep.13
Buy 628,031 Buy 50,949 Neutral 131,709 Neutral 2,810 Buy 596,881 Buy 1,215,928 Neutral 10,041 Neutral 188,626 Buy 25,526 Buy 229,313 Buy 104,000 Neutral 1,014,562 4,198,376 1,757,536
Var. % YoY 10.5 14.7 15.9 2.9 23.2 14.9 17.5 15.7 6.3 15.9 37.8 12.3 15.2 14.6
EBITDA Var. Sep.13 % QoQ 7.0 12,470 25.4 39,607 2.5 15,223 -5.1 2,538 15.3 13,266 10.3 30,304 11.4 1,821 23.6 2,902 28.9 11,633 19.3 123,784 23.2 3,894 15.8 74,174 13.1 331,616 16.6 275,575
Var. % YoY -70.3 14.8 10.3 0.7 -41.0 -66.6 -11.6 -74.9 1.4 20.5 -24.9 -3.7 -20.3 5.6
(INR Million) Net Profit Var. Sep.13 % QoQ 37.7 3,743 31.6 34,775 4.0 8,931 -5.7 1,268 LP 4,443 LP 18,020 -5.4 807 72.5 -2,185 66.9 9,339 47.4 62,053 -2.1 1,988 4.8 53,395 61.8 196,577 27.2 170,372
Var. % YoY -92.6 49.8 -9.4 -4.5 -80.9 -81.3 -18.7 PL -2.2 5.2 -36.8 -0.7 -42.6 -1.3
Var. % QoQ 149.0 11.2 10.5 0.4 LP LP -7.6 Loss 53.3 54.5 -11.8 -0.2 107.1 22.6
Harshad Borawake (
[email protected])/Kunal Gupta(
[email protected]) October 2013
C–126
September 2013 Results Preview | Sector: Oil & Gas
GRM down 15% QoQ; crude up 7% QoQ; Arab L-H spread increases QoQ Crude price was up 7% QoQ at USD110/bbl
Brent-WTI s pread halved QoQ to USD4/bbl in 2QFY14
Brent cru de (month ly a ve rage ) Brent cru de (q uarterl y avera ge)
10
150
0
120
-10
90
-20
60
-30
30
-40 S ep-07 Se p-08 S ep-09 S ep-10 Se p-11 S ep-12 S ep-13
S ep-07 S ep-08 S ep-09 S ep-10 Se p-11 Se p-12 Se p-13
Singapore GRM was down 15% QoQ to USD5.5/bbl in 2QFY14
Gasoline and FO cracks meaningfully down QoQ (USD/bbl)
Si ngapo re GRM (Monthl y Avg) Si ngapo re GRM (Qtr Avg)
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
12 30 9
18.9
9.7
16.6
5
-35.6 Fuel Oil
Se p-07 Sep-08 Sep-09 Sep-10 Se p-11 Sep-12 Se p-13
Naphtha
0
Jet/Kero
-45
-10.0
Di esel
3
-5.8
LPG
-20
Gasoline
6
Arab L-H differential higher QoQ in 2QFY14 (USD/bbl) Arab L-H (month l y average) Arab L-H (quarterl y a ve rage )
Our key assumptions Our crude price assumptions f or FY14/15/long-term ar e USD108.5/105/100/bbl.
12 10 8 6
We expect regional benchmark Singapore Reuters GRM to remain in the USD7-9/bbl range for the near term.
We model Singapore GRM a t USD6.5/bbl in FY14.
4
4 2
2.6
0 Sep-07 Sep-08 Sep -09 Sep-10 Sep-11 Sep-12 Sep -13
Source: Reuters, Bloomberg, MOSL
PV C
POY
October 2013
PSF
75 65 55
2QFY14
1QFY14
4QFY13
2QFY13
1QFY13
45 4QFY12
2QFY14
0 1QFY14
20 4QFY13
5 3QFY13
30 2QFY13
10
1QFY13
40
4QFY12
15
3QFY12
50
2QFY12
20
3QFY12
PP
60
2QFY12
PE
POY/PSF spreads also improved QoQ (INR/kg)
3QFY13
Polymer spreads increased QoQ in 2QFY14 (INR/kg)
C–127
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September 2013 Results Preview | Sector: Oil & Gas
ONGC's net realization estimated at USD48/bbl
102.9 FY14
FY11
FY12
FY13
2QE
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
4Q
3Q
2Q
1Q
51 4Q
FY13
63
48 3Q
FY12
40
47 2Q
FY11
Ga s - Tra ns mi ss ion (mms cmd) 116 115 120 120 117 119 119 116 110 106 105 99 99 99
1Q
63
47 1Q
114.0
62
44 4Q
110.2
63
45 3Q
109.9
63
83 2Q
109.9
121.6 77
48 1Q
111.5
33
70 39 4Q
67
73 24 65 3Q
115.9
79.2 63 16 2Q
121.3
Gross Rea li za tion
80.8
108.9
Subs idy Burden
1Q 48 33
89.1
Net Rea li za tion
GAIL transmission volumes under pressure (mmscmd)
FY14
Source: Company/MOSL
Expect RIL premium to Singapore GRM at USD2.3/bbl Premium/ (di scount)
Singapore GRM
Cairn's Rajasthan production likely to average 180kbpd RIL
Ra jas tha n Gros s Prodn (kbpd) 180 167 172 170 169 173
20 14
116 125 118 125 125 125
138
8 45
2 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
4
FY08
FY09
FY10
FY11
FY12
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE
FY13 FY14
FY11
FY12
FY13
FY14
Source: Company/MOSL
Comparative valuation CMP (INR) 27.09.13 Oil & Gas BPCL Cairn India GAIL Guj. State Petronet HPCL Indraprastha Gas IOC MRPL Oil India ONGC Petronet LNG Reliance Inds. Sector Aggregate Ex RMS
October 2013
329 318 326 52 190 276 211 33 454 275 123 840
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Buy Buy Neutral Neutral Buy Neutral Buy Neutral Buy Buy Buy Neutral
26.0 63.1 31.7 9.6 26.7 25.3 18.3 -4.3 59.7 28.3 15.3 71.9
12.6 5.0 10.3 5.4 7.1 10.9 11.5 -7.7 7.6 9.7 8.0 11.7 10.3 10.2
7.6 3.3 8.0 3.6 9.9 5.5 10.3 14.4 3.8 3.8 5.8 8.5 6.2 5.5
11.5 24.8 17.5 19.9 6.7 26.0 7.2 -11.1 19.4 16.8 28.8 12.3 13.4 14.6
28.2 65.6 28.9 9.0 16.3 26.4 19.5 1.3 60.1 28.9 10.6 74.0
34.8 55.2 28.8 9.2 26.3 31.6 28.0 6.8 68.9 36.7 12.9 80.6
11.7 4.8 11.3 5.7 11.7 10.4 10.9 25.9 7.6 9.5 11.6 11.4 9.8 9.7
9.4 5.8 11.3 5.6 7.2 8.7 7.5 4.9 6.6 7.5 9.5 10.4 8.5 8.6
7.2 2.5 8.8 3.0 9.8 5.0 10.7 6.2 3.6 3.5 6.6 8.9 5.8 5.2
6.4 2.5 7.8 3.0 8.0 4.0 6.7 3.5 2.9 2.8 5.7 8.0 4.8 4.4
11.6 23.8 14.4 16.1 4.0 22.6 7.3 3.4 17.8 15.6 16.7 11.5 12.8 13.9
13.2 17.2 13.1 14.4 6.2 22.7 9.9 16.9 18.2 17.8 17.7 11.4 13.4 14.1
C–129
September 2013 Results Preview | Sector: Oil & Gas
BPCL Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BPCL IN 723.0 238 / 4 449 / 256 3 / -18 / -11
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Sales 2,121 2,422 2,669 EBITDA 48 67 67 Adj. PAT 8 19 20 Adj. EPS (INR) 10.8 26.0 28.2 EPS Gr. (%) -52.2 140.9 8.2 BV/Sh.(INR) 220 233 252 RoE (%) 5.0 11.5 11.6 RoCE (%) 5.2 8.9 8.9 Payout* (%) 35.5 35.2 35.2 Valuations P/E (x) 30.5 12.6 11.7 P/BV (x) 1.5 1.4 1.3 EV/EBITDA (x) 11.3 7.6 7.2 Div. Yield (%) 1.7 3.3 2.3 *Based on standalone
2015E 2,694 67 25 34.8 23.5 276 13.2 8.8 35.3 9.5 1.2 6.5 2.9
CMP: INR329
Buy
As in earlier quarters, profitability of OMCs (BPCL, HPCL, IOCL) would depend more on subsidy sharing, which is ad-hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.
2QFY14 gross under-recoveries are up 42% QoQ due to the impact of INR depreciation and increase in crude price.
For FY14/FY15, we model OMCs' subsidy sharing at nil and upstream sharing at INR700b/650b, with the government sharing the balance.
We peg refinery throughput at 5.9mmt for 2QFY14 v/s 5.9mmt in 2QFY13 and 5.6mmt in 1QFY14.
We expect BPCL to report PAT of INR3.7b, led by our assumption of INR200b subsidy sharing by the government in 2QFY14.
BPCL trades at 9.5x FY15E EPS and 1.2x FY15E BV. E&P upsides from Mozambique and Brazil are the key medium-term triggers. Buy.
Key issues to watch out ¾ (a) subsidy sharing, and (b) GRM.
Quarterly Performance (Standalone)
(INR Million)
Y/E March Net Sales Change (%) EBITDA % of Sales Depreciation Interest Other Income PBT Tax Tax rate (%) PAT Change (%) Adj. PAT Adj. EPS Key Assumption (INR b) Gross under recovery Upstream sharing Govt. sharing Net Under/(Over) recovery As a % of Gross E: MOSL Estimates October 2013
FY13
FY14
FY13
1Q 545,227 18.2 -81,757 -15.0 4,801 5,205 3,395 -88,368 0 0.0 -88,368 nm -88,368 -122.2
2Q 568,595 34.5 41,932 7.4 3,983 4,117 16,516 50,348 0 0.0 50,348 nm 50,348 69.6
3Q 623,398 6.0 22,584 3.6 4,657 5,758 4,307 16,476 0 0.0 16,476 -47.5 16,476 22.8
4Q 662,820 2.5 65,527 9.9 5,820 3,172 5,366 61,901 13,928 22.5 47,973 21.1 47,973 66.4
1Q 587,053 7.7 9,054 1.5 5,305 5,253 3,695 2,191 688 31.4 1,503 nm 1,503 2.1
2QE 628,031 10.5 12,470 2.0 5,300 5,008 3,778 5,940 2,197 37.0 3,743 -92.6 3,743 5.2
3QE 676,743 8.6 13,251 2.0 5,350 4,894 3,778 6,785 2,510 37.0 4,275 -74.1 4,275 5.9
116 37 0 80 68.5
90 36 72 -18 nm
94 36 60 -2 nm
90 60 87 -57 nm
61 37 19 5 8.9
89 42 49 -2 nm
96 42 53 1 0.9
FY14E
4QE 635,631 2,400,041 2,527,457 -4.1 13.3 5.3 17,842 48,287 52,617 2.8 2.0 2.1 5,448 19,261 21,403 4,811 18,252 19,966 4,005 29,583 15,256 11,588 40,357 26,504 3,614 13,928 9,009 31.2 34.5 34.0 7,974 26,429 17,495 -83.4 101.6 -33.8 7,974 26,429 17,495 11.0 36.6 24.2 87 48 43 -4 nm
390 168 219 2 0.6
333 169 164 0 0.1
C–130
September 2013 Results Preview | Sector: Oil & Gas
Cairn India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
CAIR IN 1,910.2 607 / 10 350 / 268 -7 / 12 / -9
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
CMP: INR318
2012 2013 2014E 131.1 175.2 191.5 108.1 134.9 145.7 92.9 119.2 125.3 41.6 63.1 65.6 46.7 51.7 3.9 253 250 302 21.0 24.8 23.8 20.3 24.5 23.2 0.0 21.6 23.4
2015E 181.5 130.9 105.4 55.2 -15.9 342 17.2 19.0 23.4
7.6 1.3 4.9 NA
5.0 1.3 3.4 3.6
4.8 1.1 2.5 4.1
5.8 0.9 2.5 3.5
Buy
We expect Cairn India's 2QFY14 Rajasthan production to increase to 180kbpd from 173kbpd in 1QFY14, primarily led by ramp-up in production at Aishwariya and Bhagyam fields and total net sales of 126kboepd (v/s 120kboepd in 2QFY13 and 121kboepd in 1QFY14). Net sales would be INR51b (v/s INR41b in 1QFY14), led by increase in average production at its Rajasthan block and INR depreciation. We estimate EBITDA at INR39.6b v/s INR34.5b in 2QFY13 and INR30.1b in 1QFY14. Other income is likely to increase, led by higher cash balance. We estimate forex gain of INR4b v/s gain of INR6.8b in 1QFY14 due to ~4% INR depreciation during the quarter (INR/USD on 30 September 2013 as compared to 30 June 2013). We model Brent crude price of USD108.5/105/100/bbl for FY14/15/longterm, and take a quality discount of 9% for Cairn India. Key operational factors to watch in the medium-term would be: (a) production ramp-up and (b) reserve updates, with ongoing 100-well exploration program at Rajasthan. With increasing cash balance on the balance sheet, clarity on its utilization will be positive. The stock currently trades at 5.8x FY15E EPS of INR55.2. Maintain Buy.
Key issues to watch out ¾ (a) net realization, and (b) forex fluctuations. Quarterly Performance (Consolidated)
(INR Million)
Y/E March
FY13 1Q 44,400 19.6 34,921 352 4,373 295 964 8,663 39,528 1,271 4.1 38,257 40.3
3Q Net Sales 42,776 Change (%) 38.1 EBITDA 32,862 Exploration w/off 277 D,D&A 4,824 Interest 52 Other Income (Net) 1,819 Forex Fluctuations 2,357 PBT 31,884 Tax 323 Tax rate* (%) 1.1 Adj. PAT 31,561 YoY Change (%) 39.5 Merger arrangement gain 1,888 PAT 38,257 23,222 33,449 Adj. EPS 20.0 12.2 16.5 Key Assumptions and Cain's share in production (kboepd) Exchange rate (INR/USD) 54.2 55.5 54.2 Brent Price (USD/bbl) 108.7 110.0 110.0 Ravva & Cambay Prodn 10.2 9.2 9.1 Rajasthan Prodn 117.0 120.3 119.0 Total 127.2 129.4 128.1 E: MOSL Estimates; * Excluding forex fluctuations, includes October 2013
2Q 44,431 67.5 34,516 262 4,515 188 2,226 -7,858 23,918 697 2.2 23,222 204.3
FY14
FY13
FY14E 191,537 9.3 145,731 7,209 23,692 450 8,425 10,862 133,666 8,348 6.8 125,318 5.6 0 125,318 65.6 60.6 108.5 10.6 126.8 137.5
4Q 43,634 19.5 32,582 3,657 4,747 152 2,219 -28 26,218 582 2.2 25,636 17.3
1Q 40,629 -8.5 30,099 1,001 5,193 105 1,251 6,820 31,871 599 2.4 31,272 -18.3
2QE 50,949 14.7 39,607 1,500 5,932 110 1,487 4,042 37,594 2,818 8.4 34,775 49.8
3QE 50,491 18.0 38,800 1,820 6,097 115 2,224 0 32,992 2,771 8.4 30,221 -4.2
4QE 49,468 13.4 37,226 2,889 6,471 121 3,463 0 31,209 2,160 6.9 29,050 13.3
25,636 13.4
31,272 16.4
34,775 18.2
30,221 15.8
29,050 15.2
175,241 33.6 134,880 4,549 18,459 687 7,228 3,134 121,548 2,872 2.4 118,676 49.5 1,888 120,564 62.1
62.5 111.0 10.6 126.0 136.6
62.0 110.0 10.6 129.5 140.1
61.9 110.2 10.6 130.9 141.5
54.5 108.5 9.3 118.6 127.8
54.2 113.5 8.6 118.0 126.6 MAT credit.
56.0 102.8 10.6 121.0 131.6
C–131
September 2013 Results Preview | Sector: Oil & Gas
GAIL (India) Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
GAIL IN 1,268.5 414 / 7 396 / 273 2 / -2 / -21
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 402.8 473.3 531.5 57.0 62.8 62.5 36.5 40.2 36.6 28.8 31.7 28.9 2.6 10.1 -8.9 170 191 210 17.9 17.5 14.4 21.0 19.4 15.0 35.1 35.2 34.9 9.2 1.6 7.9 2.6
8.4 1.4 7.2 2.8
9.2 1.3 8.1 2.6
2015E 609.8 70.4 36.5 28.8 -0.3 229 13.1 14.0 34.9 9.2 1.2 7.3 2.6
CMP: INR326
Neutral
We expect GAIL to report PAT of INR9b (down 9% YoY; up 11% QoQ). Subsidy sharing would be INR7b in 2QFY14 v/s INR7.9b in 2QFY13 and INR7b in 1QFY14. GAIL's subsidy sharing has been ad-hoc at INR7b for every quarter in FY13. Subsidy sharing assumption: For FY14/FY15, we model upstream sharing at INR700/650b. For GAIL, we have assumed a sharing of INR29b in FY14 v/s INR26.9b in FY13. We model gas transmission volumes at 99mmscmd v/s 106 in 2QFY13 and 99.5 in 1QFY14. Segmental EBIT (pre-subsidy) is expected to increase by 11% QoQ, led by petrochemicals and LPG segments. Adjusted for investments, the stock trades at 9.2x FY15E EPS of INR28.8. Though we like the management's strategy to build network to enable gas sourcing, we remain Neutral due to medium-term earnings concern led by likely under-utilization of its new network on account of headwinds to incremental gas availability. Key issues to watch out ¾ (a) subsidy sharing, (b) transmission volumes, and (c) cost of natural gas for consumption in LPG and petrochemicals segment.
Quarterly Performance
(INR Million)
Y/E March
FY13
FY13
FY14E
1Q 110,886 25.0 18,991 17.1 2,169 588 612 16,846 5,508 32.7 11,338 15.1 11,338 8.9
2Q 113,612 17.1 13,803 12.1 2,491 261 2,685 13,736 3,882 28.3 9,854 -10.0 9,854 7.8
3Q 124,743 10.8 19,722 15.8 2,424 552 1,841 18,587 5,738 30.9 12,849 17.7 12,849 10.1
4Q 124,086 18.7 11,367 9.2 2,726 549 3,317 11,409 5,227 45.8 6,182 27.9 6,065 4.8
1Q 128,556 15.9 14,642 11.4 2,808 612 1,018 12,241 4,159 34.0 8,082 -28.7 8,082 6.4
2QE 131,709 15.9 15,223 11.6 2,898 650 1,850 13,525 4,594 34.0 8,931 -9.4 8,931 7.0
3QE 134,008 7.4 17,838 13.3 2,948 679 1,850 16,061 5,455 34.0 10,606 -17.5 10,606 8.4
4QE 137,219 10.6 15,961 11.6 3,011 1,019 2,912 14,843 4,672 31.5 10,171 64.5 10,170 8.0
473,327 17.5 63,882 13.5 9,809 1,950 8,455 60,578 20,356 33.6 40,222 10.1 40,105 31.6
531,492 12.3 63,663 12.0 11,665 2,960 7,631 56,669 18,879 33.3 37,789 -6.0 37,788 29.8
110 66
106 101
105 128
99 132
99 121
99 115
100 115
100 117
105 427
100 468
5,673 709 4,956 1,958 11,373 81 24,751 -7,000 17,751
6,049 -489 2,447 4,182 8,521 69 20,779 -7,857 12,922
6,195 133 2,986 4,395 12,063 -834 24,939 -6,143 18,796
406 620 3,469 4,716 10,799 -338 19,671 -5,872 13,799
5,538 550 3,025 4,383 6,891 -255 20,132 -7,000 13,132
5,453 527 3,225 5,002 8,156 0 22,363 -7,000 15,363
5,298 546 3,155 4,700 11,004 0 24,704 -7,000 17,704
5,496 453 4,105 4,925 10,621 0 25,601 -8,056 17,545
18,323 973 13,858 15,250 42,756 -1,022 90,139 -26,872 63,268
21,786 2,077 13,511 19,010 36,671 -255 92,800 -29,056 63,744
Net Sales Change (%) EBITDA % of Net Sales Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) Adj PAT EPS (INR) Key Assumptions Gas Trans. volume (mmsmd) Petchem sales ('000MT) Segmental EBIT Breakup (INR m) Transmission Natural Gas LPG Natural Gas Trading Petrochemicals LPG & Liq.HC (pre-subsidy) Unallocated; GAILTEL Total Less: Subsidy Total E: MOSL Estimates October 2013
FY14
C–132
September 2013 Results Preview | Sector: Oil & Gas
Gujarat State Petronet Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
GUJS IN 562.7 29 / 0 84 / 47 -10 / -27 / -41
CMP: INR52
We expect GSPL to report net sales of INR2.8b and PAT of INR1.3b (down 4% YoY and flat QoQ) in 1QFY14.
We build lower gas transmission volumes at 22mmscmd in 2QFY14 (v/s 28.6mmscmd in 2QFY13 and 22.1mmscmd in 1QFY14), led by decline in KG-D6 production.
GSPL has won all three bids for cross-country pipelines conducted by PNGRB last year. We await clarity on the timelines and other details regarding these pipelines.
We build gas transmission volumes of 22.2mmscmd and model average tariff at INR1,325/mscm in FY14. The stock trades at 5.5x FY15E EPS of INR9.2. Maintain Neutral.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 11.2 10.2 5.2 9.3 3.1 44 23.3 23.6 13.0
2013 2014E 11.6 11.4 10.6 10.3 5.4 5.1 9.6 9.0 3.1 -5.5 52 60 19.9 16.1 22.2 18.1 12.6 12.2
5.6 1.2 3.7 1.9
5.4 1.0 3.6 1.9
5.6 0.8 3.0 1.9
2015E 11.2 10.1 5.2 9.2 2.0 68 14.4 16.7 12.9 5.5 0.7 2.9 1.9
Neutral
Key issues to watch out ¾ (a) transmission volumes and ¾ (b) tariff.
Quarterly Performance
(INR Milllion)
Y/E March Net Sales Change (%) EBITDA % of Net Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) EPS (INR) Transmission Vol. (mmscmd) Implied tariff (INR/mscm) E: MOSL Estimates
October 2013
FY13 1Q 2,676 -5.9 2,465 92.1 -5.9 439 317 176 1,884 636 33.7 1,248 -9 2.2 31.1 903
2Q 2,732 -2.7 2,520 92.2 -2.5 464 316 226 1,966 638 32.5 1,328 3 2.4 28.6 993
3Q 2,606 -4.9 2,338 89.7 -7.1 478 314 230 1,776 586 33.0 1,190 -6 2.1 27.3 1,043
FY14 4Q 3,590 29.9 3,268 91.0 29.7 480 315 158 2,630 1,015 38.6 1,615 25 2.9 22.2 1,768
1Q 2,961 10.6 2,691 90.9 9.2 458 380 139 1,992 729 36.6 1,263 1 2.2 22.1 1,411
2QE 2,810 2.9 2,538 90.3 0.7 480 380 215 1,893 625 33.0 1,268 -4 2.3 22.0 1,325
3QE 2,780 6.7 2,510 90.3 7.3 510 380 221 1,841 607 33.0 1,233 4 2.2 22.0 1,310
4QE 2,862 -20.3 2,530 88.4 -22.6 515 399 246 1,862 543 29.1 1,319 -18 2.3 22.7 1,334
FY13
FY14E
11,603 4.0 10,591 91.3 3.4 1,861 1,263 790 8,257 2,876 34.8 5,381 3 9.6 27.3 1,135
11,413 -1.6 10,269 90.0 -3.0 1,963 1,539 820 7,588 2,504 33.0 5,084 -6 9.0 22.2 1,345
C–133
September 2013 Results Preview | Sector: Oil & Gas
HPCL Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HPCL IN 339.0 64 / 1 381 / 158 -3 / -38 / -44
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 1,781 2,065 2,383 34.1 39.4 35.6 9.1 9.0 5.5 26.9 26.7 16.3 -40.8 -0.7 -38.9 387 404 414 7.1 6.7 4.0 6.7 6.8 5.5 37.0 37.3 35.1 7.1 0.5 8.4 4.5
7.1 0.5 8.1 4.5
11.6 0.5 7.6 2.6
2015E 2,275 39.8 8.9 26.3 61.4 432 6.2 6.4 35.1 7.2 0.4 6.1 4.2
CMP: INR190
Buy
As in earlier quarters, profitability of OMCs (BPCL, HPCL, IOCL) would depend more on subsidy sharing, which is ad-hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.
2QFY14 gross under-recoveries are up 42% QoQ, due to impact of INR depreciation and increase in crude price.
For FY14/FY15, we model OMCs' subsidy sharing at nil and upstream sharing at INR700b/650b, with the government sharing the balance.
We peg refinery throughput at 4.1mmt for 2QFY14 v/s 3.7mmt in 2QFY13 and 3.4mmt in 1QFY14.
We expect HPCL to report PAT of INR4.4b in 2QFY14, led by our assumption of INR200b subsidy sharing by the government in 2QFY14.
HPCL trades at 7.2x FY15E EPS and 0.4x FY15E BV. We have a Buy rating due to our positive stance on diesel reforms and attractive valuations.
Key issues to watch out ¾ (a) subsidy sharing, and ¾ (b) GRM.
Quarterly Performance (Standalone)
(INR Million)
Y/E March
FY13 1Q 440,765 8.0 -88,759 -20.1 nm 4,544 5,492 2,524 3,784 -92,488 0 0.0 -92,488 nm -272.8
Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other income Exceptional Item PBT Tax Rate (%) PAT Change (%) Adj. EPS Key Assumptions (INR b) Gross under recovery Upstream sharing Govt. subsidy Net Under recovery Net Sharing (%) E: MOSL Estimates; * 1QFY14 net October 2013
2Q 484,639 30.9 22,480 4.6 nm 4,910 3,899 3,419 6,181 23,271 0 0.0 23,271 nm 68.6
3Q 527,510 10.1 3,877 0.7 -89.1 4,947 6,135 2,446 6,229 1,471 0 0.0 1,471 -94.6 4.3
FY14 4Q 612,379 16.9 101,826 16.6 86.3 4,914 2,852 3,910 -15,479 82,492 5,699 6.9 76,793 65.8 226.5
1Q 517,639 17.4 -6,879 -1.3 nm 5,100 4,668 2,042 0 -14,605 0 0.0 -14,605 nm -43.1
107 83 87 85 34 33 33 11 0 67 55 126 73 -17 -2 -52 69 nm nm nm sales includes receivables from ONGC
58 35 18 5 9
FY13
2QE 596,881 23.2 13,266 2.2 -41.0 5,218 4,559 3,163 0 6,653 2,210 33.2 4,443 -80.9 13.1
3QE 610,586 15.7 12,439 2.0 220.8 5,789 4,484 3,663 0 5,829 1,936 33.2 3,892 164.6 11.5
83 40 46 -2 nm
91 40 50 1 1
FY14E 4QE 658,017 2,065,294 2,383,123 7.5 15.9 15.4 16,732 39,424 35,559 2.5 2 1 -83.6 -246.7 10.9 5,890 19,315 21,997 4,260 18,377 17,969 3,825 12,300 12,692 0 714 0 10,408 14,746 8,284 -1,394 5,699 2,752 nm 38.6 33.2 11,802 9,047 5,532 -84.6 -0.7 -38.9 34.8 26.7 16.3 82 46 40 -3 nm
362 112 248 2 nm
315 160 155 0 nm
C–134
September 2013 Results Preview | Sector: Oil & Gas
Indian Oil Corporation Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
IOCL IN 2,428.0 513 / 8 375 / 186 -8 / -30 / -21
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 4,072 4,607 4,752 180.3 127.4 119.3 119.3 44.5 47.3 49.2 18.3 19.5 52.4 -62.7 6.3 249 261 274 20.2 7.2 7.3 12.9 7.6 6.9 10.2 33.8 30.8 4.3 0.8 6.7 2.4
11.5 0.8 9.2 2.9
10.8 0.8 9.5 2.8
Quarterly Performance (Standalone)
2015E 4,668 182.2 68.0 28.0 43.9 292 9.9 10.2 28.5 7.5 0.7 5.9 3.8
CMP: INR211
Buy
As in earlier quarters, profitability of OMCs (BPCL, HPCL, IOCL) would depend more on subsidy sharing, which is ad-hoc, than on business fundamentals. Government subsidy compensation typically comes with a delay.
2QFY14 gross under-recoveries are up 42% QoQ, due to the impact of INR depreciation and increase in crude price.
For FY14/FY15, we model OMCs' subsidy sharing at nil and upstream sharing at INR700b/650b, with the government sharing the balance.
We peg refinery throughput at 13.7mmt for 2QFY14 v/s 13.1mmt in 2QFY13 and 13.1mmt in 1QFY14.
We expect IOCL to report a PAT of INR18b in 2QFY14, led by our assumption of INR200b subsidy sharing by the government in 2QFY14.
IOCL trades at an attractive 0.7x FY15E BV and 7.5x FY15E EPS. Buy.
Key issues to watch out ¾ (a) subsidy sharing, and ¾ (b) GRM.
(INR Million)
Y/E March
FY13 FY14 FY13 FY14E 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Net Sales 966,028 1,057,913 1,152,767 1,284,497 1,102,332 1,215,928 1,321,307 1,353,265 4,461,204 4,992,832 Change (%) -4.1 18.7 0.1 0.6 14.1 14.9 14.6 5.4 3.1 11.9 Raw Material Consumed 583,006 433,753 571,328 462,966 534,835 622,943 641,723 638,262 2,051,053 2,437,762 Staff Cost 13,316 12,074 15,858 31,464 17,309 17,500 17,500 17,691 72,713 70,000 Finished Goods Purchase 490,231 460,076 451,893 573,810 464,835 522,289 597,589 616,001 1,976,009 2,200,714 Other Exp 81,835 61,384 62,377 51,052 99,347 22,892 24,036 27,869 256,648 174,144 EBITDA -202,360 90,627 51,310 165,205 -13,994 30,304 40,459 53,443 104,782 110,212 % of Net Sales -20.9 8.6 4.5 12.9 -1.3 2.5 3.1 3.9 2.3 2.2 % Change nm nm -52.2 17.7 nm -66.6 -21.1 -67.7 -38.3 5.2 Depreciation 12,775 12,865 13,243 13,128 13,858 14,000 14,000 14,019 52,010 55,877 Interest 18,491 15,108 16,726 13,766 14,702 13,426 13,406 13,406 64,092 54,941 Other Income 9,117 33,460 11,978 13,244 11,621 15,143 16,143 16,532 67,798 59,438 PBT -224,510 96,113 33,320 151,554 -30,932 18,020 29,195 42,549 56,478 58,832 Tax 0 0 0 6,426 0 0 5,839 7,104 6,426 12,943 Rate (%) nm 0.0 0.0 4.2 nm 0.0 20.0 16.7 11.4 22.0 Adj. PAT -224,510 96,113 33,320 145,128 -30,932 18,020 23,356 35,445 50,053 45,890 Change (%) nm nm -61.5 2.1 nm -81.3 -29.9 -75.6 -57.1 -8.3 PAT -224,510 96,113 33,320 145,128 -30,932 18,020 23,356 35,445 50,053 45,890 Adj. EPS -92.5 39.6 13.7 59.8 -12.7 7.4 9.6 14.6 20.6 18.9 Gross under recovery (INR b) 255 204 212 187 136 190 205 197 858 728 Upstream sharing 80 81 81 76 82 90 90 108 320 370 Govt. sharing 0 161 135 237 43 105 113 97 533 358 Net Under recovery 175 -38 -4 -127 12 -5 2 -9 5 0 E: MOSL Estimates October 2013
C–135
September 2013 Results Preview | Sector: Oil & Gas
Indraprastha Gas Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
IGL IN 140.0 39 / 1 329 / 236 -7 / -4 / -1
CMP: INR276
We expect IGL to report volumes of 3.9mmscmd and PAT of INR807m (down 8% YoY and 19% QoQ) for 2QFY14.
Historically, owing to favorable economics vis-à-vis alternative fuels, IGL has been able to pass on any hike in its gas cost, thereby insulating any impact on its EBITDA margin. However, with absence of KG-D6 gas supply, there is pressure on the company's margins, as it is sourcing more expensive RLNG to meet demand.
We expect 2QFY14 CNG volumes to grow 5% YoY to 2.9mmscmd and PNG volumes to grow 7% YoY to 1mmscmd.
We model in total volumes of 3.9/4.3mmscmd in FY14/FY15. The stock trades at 8.1x FY15E EPS of INR31.6.
Post the High Court quashing PNGRB's tariff cut order, PNGRB has now approached the Supreme Court and the hearing is still on. Maintain Neutral.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 25.2 6.3 3.1 21.9 18.4 88 27.5 33.2 22.8
2013 2014E 33.7 41.3 7.6 8.1 3.5 3.7 25.3 26.4 15.3 4.5 107 127 26.0 22.6 32.4 29.1 21.7 18.9
12.6 3.1 6.7 1.8
10.9 2.6 5.1 2.0
9.7 2.0 4.6 1.9
2015E 47.5 9.2 4.4 31.6 19.7 152 22.7 29.0 19.0 8.1 1.7 3.7 2.3
Neutral
Key issues to watch out ¾ (a) EBITDA margin and ¾ (b) Sales volumes.
Quarterly Performance
(INR Million)
Y/E March Net Sales Change (%) EBITDA EBITDA (INR/scm) % of Net Sales % Change Depreciation Interest Other Income PBT Tax Rate (%) PAT PAT (INR/scm) Change (%) EPS Gas Volumes (mmscmd) CNG PNG Total E: MOSL Estimates
October 2013
FY13
FY14
FY13
FY14E
1Q 7,602 41.7 1,793 5.6 23.6 13.9 427 155 36 1,247 396 31.8 850 2.6 6.2 6.1
2Q 8,546 43.2 2,060 6.1 24.1 30.9 477 140 39 1,482 489 33.0 992 2.9 28.5 7.1
3Q 8,694 31.4 1,871 5.5 21.5 25.7 474 141 26 1,282 418 32.6 863 2.5 24.9 6.2
4Q 8,818 22.4 1,848 5.5 21.0 9.7 489 125 38 1,272 437 34.3 835 2.5 3.4 6.0
1Q 9,015 18.6 1,924 5.7 21.3 7.3 532 128 51 1,315 442 33.6 873 2.6 2.6 6.2
2QE 10,041 17.5 1,821 5.1 18.1 -11.6 537 125 49 1,208 401 33.2 807 2.3 -18.7 5.8
3QE 11,127 28.0 2,205 5.9 19.8 17.9 557 125 56 1,579 525 33.2 1,055 2.8 22.2 7.5
4QE 11,138 26.3 2,107 5.8 18.9 14.0 586 122 59 1,457 490 33.6 967 2.7 15.7 6.9
33,661 33.8 7,572 5.6 22.5 19.8 1,867 562 138 5,282 1,741 33.0 3,541 2.6 15.3 25.3
41,321 22.8 8,057 5.6 19.5 6.4 2,212 500 215 5,559 1,858 33.4 3,701 2.6 4.5 26.4
2.67 0.88 3.55
2.80 0.88 3.69
2.80 0.91 3.71
2.77 0.98 3.74
2.77 0.95 3.71
2.94 0.95 3.89
3.05 0.98 4.03
2.99 1.06 4.05
2.76 0.91 3.67
2.94 0.98 3.92
C–136
September 2013 Results Preview | Sector: Oil & Gas
MRPL Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MRPL IN 1,752.6 58 / 1 71 / 26 3 / -38 / -51
CMP: INR33
We expect MRPL to report a loss of INR2.2b (v/s profit of INR11.9b in 2QFY13 and loss of INR4.5b in 1QFY14) in 2QFY14.
EBITDA is likely to be INR2.9b (v/s INR11.6b in 2QFY13 and INR1.7b in 1QFY14). Regional benchmark Reuters Singapore GRM is down 15% QoQ to USD5.5/bbl from USD6.5/bbl due to decline in gasoline and fuel oil cracks.
On the operational front, we expect refinery throughput at 3.6mmt.
Medium-term GRM outlook continues to be subdued due to overcapacity and sluggish global demand. We expect GRM to be volatile (occasional spurts) due to occasional bunching up of shutdowns.
For MRPL, we model in GRM of USD4/bbl for FY14 and USD5.5/bbl for FY15. The stock trades at 4.4x FY15E EPS and an EV of 3x FY15E EBITDA. Maintain Neutral.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 537.7 656.9 769.0 22.6 8.3 20.0 9.1 -7.6 2.3 5.2 -4.3 1.3 -22.8 nm -129.8 41 37 38 13.2 -11.1 3.4 13.1 -0.3 5.5 22.4 0.0 27.3 6.4 0.8 4.1 3.0
-7.7 0.9 13.5 -
25.9 0.9 5.8 0.9
2015E 791.6 31.4 11.9 6.8 430.0 43 16.9 20.3 24.0 4.4 0.7 3.0 4.7
Neutral
Key issues to watch out ¾ (a) GRM, ¾ (b) Forex fluctuations and ¾ (c) Inventory changes.
Quarterly Performance
(INR Million)
Y/E March Net Sales Change (%) Raw Material (incl. inv chg) Staff Cost Other Expenditure EBITDA % of Net Sales % Change Depreciation Interest Other Income PBT b/f forex/exceptional Forex gain/(loss) Exceptional items PBT Tax Rate (%) PAT Change (%) EPS GRM (USD/bbl) Throughput (mmt) E: MOSL Estimates October 2013
FY13 1Q 128,099 -4.2 133,106 421 1,048 -6,476 nm nm -1,375 -1,102 495 -8,458 -6,490 0 -14,948 -257 nm -15,206 nm -8.7 -4.2 2.9
2Q 163,101 39.8 150,154 568 809 11,569 7.1 1,435 -1,456 -701 369 9,781 2,836 30 12,647 -796 6.3 11,851 4,811.4 6.8 9.2 3.6
3Q 179,921 39.1 177,051 459 637 1,774 1.0 -41 -1,550 -777 192 -362 -2,570 0 -2,932 -664 nm -3,596 nm -2.1 1.9 3.8
FY14 4Q 185,795 17.3 182,529 397 1,441 1,428 0.8 -82 -1,663 -706 105 -836 856 445 465 -1,084 233.2 -619 nm -0.4 2.0 4.1
1Q 152,659 19.2 149,399 502 1,076 1,683 1.1 nm -1,688 -779 293 -491 -5,166 1,118 -4,539 0 nm -4,539 nm -2.6 2.9 3.3
2QE 188,626 15.7 184,066 520 1,138 2,902 1.5 nm -1,700 -805 350 747 -3,000 0 -2,253 68 3.0 -2,185 -118.4 -1.2 2.8 3.6
3QE 214,510 19.2 206,080 525 1,442 6,463 3.0 nm -1,750 -850 485 4,348 0 0 4,348 -652 15.0 3,696 nm 2.1 4.5 4.1
4QE 213,204 14.8 202,300 500 1,425 8,979 4.2 nm -2,359 -1,397 536 5,757 0 0 5,757 -476 8.3 5,281 nm 3.0 5.8 4.2
FY13
FY14E
656,915 22.1 642,840 1,846 3,935 8,294 1.3 -39.9 -6,044 -3,286 1,160 125 -5,368 475 -4,769 -2,801 nm -7,569 nm -4.3 2.5 14.4
768,999 17.1 741,845 2,047 5,081 20,027 2.6 141.5 -7,497 -3,831 1,664 10,362 -8,166 1,118 3,313 -1,060 32.0 2,253 -129.8 1.3 4.0 15.2 C–137
September 2013 Results Preview | Sector: Oil & Gas
Oil India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
OINL IN 601.1 273 / 4 630 / 415 -7 / -16 / -11
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 97.7 46.9 34.5 57.3 19.4 295 20.7 27.7 38.5 7.9 1.5 3.5 4.2
2013 2014E 95.3 99.6 42.5 44.7 35.9 36.1 59.7 60.1 4.1 0.6 320 357 19.4 17.8 26.0 23.6 58.2 37.3 7.6 1.4 3.8 6.6
7.6 1.3 3.6 4.2
2015E 112.9 52.8 41.4 68.9 14.7 401 18.2 24.4 37.3 6.6 1.1 2.9 4.8
CMP: INR454
Buy
We expect OINL to report a PAT of INR9.3b (v/s INR9.5b in 2QFY13 and INR6.1b in 1QFY14). OINL's subsidy sharing has been ad-hoc at USD56/ bbl for FY13. Similar to FY13, we model subsidy sharing at USD56/bbl until there is further clarity. The government has set up a committee to look into the subsidy sharing mechanism and provide clarity over the longer term. We estimate EBITDA at INR11.6b (flat YoY and up 67% QoQ). We estimate gross realization at USD110/bbl v/s USD109/bbl in 2QFY13 and USD102/bbl in 1QFY14, and net realization at USD54/bbl v/s USD53/ bbl in 2QFY13 and USD46/bbl in 1QFY14. Subsidy sharing assumption: For FY14/15, we model upstream sharing at INR700/650b, and OINL's share at 13.4% of upstream. We model OINL to share INR23.3b in 2QFY14. Our Brent price assumption is USD108.5/105/100/bbl for FY14/15/longterm. We model upstream sharing at INR700b/650b in FY14/15. The stock trades at 6.6x FY15E EPS of INR68.9. We remain positive on OINL due to recently announced diesel reforms, gas price hike and strong operational foothold: (1) steady production growth, (2) high share of oil in its reserves (55% in 1P and 62% in 2P), and (3) attractive valuations (>40% discount to its global peers on EV/BOE, 1P basis). Buy. Key issues to watch out ¾ (a) subsidy sharing, (b) DD&A charges, and (c) oil & gas production volumes.
Quarterly Performance (Standalone)
(INR Billion)
Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) D,D&A Interest OI (incl. Oper. other inc) PBT Tax Rate (%) PAT Change (%) Adj. PAT Adj. EPS (INR) Key Assumptions (USD/bbl) Exchange rate (INR/USD) Gross Oil Realization Subsidy Net Oil Realization Subsidy (INR b) E: MOSL Estimates October 2013
FY13
FY14
FY13
FY14E
1Q 23.3 2.0 11.0 47.0 -12.2 2.0 0.0 4.8 13.8 4.5 32.5 9.3 9.5 9.3 15.5
2Q 24.0 -26.6 11.5 47.8 -29.2 2.6 0.0 5.2 14.1 4.6 32.4 9.5 -16.2 9.5 15.9
3Q 24.1 -3.3 11.2 46.6 -15.7 2.2 0.0 4.9 13.9 4.5 32.4 9.4 -7.3 9.4 15.6
4Q 23.8 38.2 8.8 37.1 82.6 2.4 0.0 4.6 11.0 3.4 30.7 7.6 71.9 7.6 12.7
1Q 19.8 -15.1 7.0 35.2 -36.4 2.7 0.0 4.7 9.0 2.9 32.2 6.1 -34.5 6.1 10.1
2QE 25.5 6.3 11.6 45.6 1.4 2.7 0.0 5.0 13.9 4.6 33.0 9.3 -2.2 9.3 15.5
3QE 27.0 11.8 12.6 46.7 12.1 2.7 0.0 5.0 15.0 4.9 33.0 10.0 6.6 10.0 16.7
4QE 27.3 15.0 13.5 49.5 53.5 3.2 0.0 5.7 16.0 5.4 33.5 10.7 39.4 10.7 17.7
95.3 -2.5 42.5 44.6 287.6 9.2 0.0 19.6 52.8 16.9 32.1 35.9 4.1 35.9 59.7
99.6 4.6 44.7 44.9 5.3 11.2 0.1 20.4 53.9 17.8 33.0 36.1 0.6 36.1 60.1
54.2 109.8 56.0 53.8 20.2
55.2 108.6 56.0 52.6 20.8
54.2 108.6 56.0 52.6 19.5
54.4 111.4 56.0 55.4 18.5
56.0 101.9 56.0 45.9 19.8
62.5 110.0 56.0 54.0 23.3
62.0 109.0 55.0 54.0 23.2
61.9 109.2 64.5 44.7 27.4
54.5 109.6 56.0 53.6 78.9
60.6 107.5 57.9 49.6 93.7 C–138
September 2013 Results Preview | Sector: Oil & Gas
ONGC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
ONGC IN 8,555.5 2,348 / 38 354 / 234 -4 / -17 / -7
CMP: INR275
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Sales 1,464 1,614 1,812 EBITDA 577.7 539.6 583.7 Adj. PAT 263.1 239.9 248.9 Adj. EPS (INR) 30.4 28.3 28.9 EPS Gr. (%) 23.3 (8.8) 3.7 BV/Sh.(INR) 159 177 194 RoE (%) 20.7 16.8 15.6 RoCE (%) 19.4 15.6 14.8 Payout (%) 32.8 39.2 39.3 Valuations P/E (x) 9.0 9.7 9.5 P/BV (x) 1.7 1.6 1.4 EV/EBITDA (x) 3.6 3.8 3.5 Div. Yield (%) 3.5 3.5 3.5
2015E 1,976 702.8 317.4 36.7 27.5 217 17.8 16.9 38.3
7.5 1.3 2.8 4.4
Buy
We expect ONGC to report adjusted PAT of INR62b (v/s INR59b in 2QFY13 and INR40.2b in 1QFY14). ONGC's subsidy sharing has been adhoc at USD56/bbl for FY13. Similar to FY13, we model subsidy sharing at USD56/bbl until there is further clarity. The government has set up a committee to look into the subsidy sharing mechanism and provide clarity over the longer term. We estimate EBITDA at INR124b (v/s INR103b in 2QFY13 and INR84b in 1QFY14). We estimate gross realization at USD111/bbl v/s USD110/bbl in 2QFY13 and USD103/bbl in 1QFY14, and net realization at USD47.7/bbl v/s USD46.8/bbl in 2QFY13 and USD40.2/bbl in 1QFY14. Subsidy sharing assumption: For FY14/15, we model upstream sharing at INR700/650b, and ONGC's share at 82.5% of upstream. We expect ONGC to share INR141.9b in 2QFY14. Our Brent price assumption is USD108.5/105/100/bbl for FY14/15/longterm. We model upstream sharing at INR700b/650b in FY14/15. The stock trades at 7.5x FY15E consolidated EPS of INR36.7. Maintain Buy.
Key issues to watch out ¾ (a) subsidy sharing, ¾ (b) DD&A charges, and ¾ (c) Oil & Gas production volumes.
Quaterly performance (Standalone)
(INR Billion)
Y/E March Net Sales Change (%) EBITDA % of Net Sales D,D & A Interest Other Income PBT Tax Rate (%) PAT Adjusted PAT Change (%) Adj. EPS Key Assumptions (USD/bbl) Fx rate (INR/USD) Gross Oil Realization Subsidy Net Oil Realization Subsidy (INR b) E: MOSL Estimates October 2013
FY13
FY14
FY13
FY14E
1Q 200.8 24.0 110.4 55.0 32.0 0.3 11.3 89.4 28.6 32.0 60.8 60.8 48.4 7.1
2Q 197.9 -12.5 102.7 51.9 37.3 0.0 20.0 85.4 26.4 30.9 59.0 59.0 -31.8 6.9
3Q 209.9 15.8 112.4 53.5 44.1 0.0 13.9 82.1 26.5 32.2 55.6 55.6 20.0 6.5
4Q 213.9 13.7 102.9 48.1 71.3 0.0 16.9 48.5 14.6 30.2 33.9 33.9 -40.0 4.0
1Q 192.2 -4.3 84.0 43.7 39.0 0.0 12.9 57.8 17.7 30.6 40.2 40.2 -33.9 4.7
2QE 229.3 15.9 123.8 54.0 44.4 0.1 13.3 92.6 30.6 33.0 62.1 62.1 5.2 7.3
3QE 228.9 9.1 123.1 53.8 52.9 0.1 12.1 82.2 27.1 32.9 55.1 55.1 -0.9 6.4
4QE 214.3 0.2 108.8 50.8 55.6 0.1 13.5 66.7 21.9 32.8 44.8 44.8 32.2 5.2
822.5 8.6 428.4 52.1 184.6 0.3 62.0 305.4 96.2 31.5 209.3 209.3 -9.1 24.5
864.7 5.1 439.6 50.8 191.9 0.2 51.8 299.3 97.2 32.5 202.1 202.1 -3.4 23.6
54.2 109.9 63.3 46.6 123.5
55.2 109.9 63.1 46.8 123.3
54.2 110.2 62.2 48.0 124.3
54.4 114.0 63.1 50.9 123.1
56.0 102.9 62.7 40.2 126.2
62.5 111.0 63.3 47.7 141.9
62.0 110.0 63.0 47.0 141.9
61.9 110.2 74.0 36.2 167.3
54.5 111.0 62.9 48.1 494.2
60.6 108.5 65.7 42.8 577.2 C–139
September 2013 Results Preview | Sector: Oil & Gas
Petronet LNG Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PLNG IN 750.0 92 / 1 175 / 106 -11 / -14 / -28
CMP: INR123
We expect PLNG to report PAT of INR2b (down 37% YoY and 12% QoQ) for 2QFY14. We estimate EBITDA at INR3.9b (down 25% YoY and 2% QoQ).
We have built in LNG volumes at 2.6mmt in 2QFY14, flat QoQ. We model 10.6mmtpa volumes in FY14 at Dahej, of which 7.5mmtpa would be on long-term contract and 3.1mmtpa on short-term. We model in 0.2mmt volumes from Kochi in FY14.
We model 5% escalation in re-gasification tariff till FY15 and flat thereafter at Dahej.
The stock trades at 9.5x FY15E consolidated EPS of INR12.9. Lower spot LNG prices and sale of ADB's stake are key near-term positives for the stock. Buy.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 227.0 314.7 411.0 18.7 18.4 16.2 11.0 11.5 8.0 14.6 15.3 10.6 76.8 4.9 -30.7 47 59 68 35.3 28.8 16.7 27.2 24.1 17.5 20.7 19.1 21.1 8.4 2.6 6.2 2.0
8.0 2.1 6.0 2.0
11.6 1.8 6.8 1.6
2015E 443.0 20.7 9.7 12.9 21.7 78 17.7 19.7 19.9 9.5 1.6 5.9 1.8
Buy
Key issues to watch out ¾ (a) interest and depreciation charges for Kochi terminal, ¾ (b) Spot volumes, and ¾ (c) Marketing margin on spot volumes.
Quarterly Performance
(INR Million)
Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) EPS (INR) Dahej Gas Volume (TBTU) Dahej Gas Volumes (mmt) Kochi Gas Volumes (mmt) Avg. Dahej Regas (INR/mmbtu) E: MOSL Estimates
October 2013
FY13
FY14
FY13
FY14E
1Q 70,304 52.1 4,571 6.5 4.3 459 329 266 4,048 1,340 33.1 2,708 5.5 3.6 127.2 2.5
2Q 75,484 40.6 5,182 6.9 15.6 467 317 248 4,646 1,500 32.3 3,146 20.8 4.2 135.0 2.7
3Q 84,228 33.1 5,289 6.3 4.1 472 291 149 4,675 1,490 31.9 3,185 7.8 4.2 140.6 2.8
4Q 84,656 32.8 4,344 5.1 18.8 468 247 203 3,831 1,380 36.0 2,451 0.0 3.3 122.0 2.4
1Q 84,442 20.1 3,978 4.7 -13.0 467 240 152 3,423 1,170 34.2 2,253 -16.8 3.0 129.5 2.6
2QE 104,000 37.8 3,894 3.7 -24.9 742 432 225 2,945 957 32.5 1,988 -36.8 2.7 130.8 2.6
3QE 109,348 29.8 4,079 3.7 -22.9 1,016 621 230 2,672 868 32.5 1,804 -43.4 2.4 135.8 2.7
4QE 113,191 33.7 4,251 3.8 -2.1 1,018 627 231 2,838 922 32.5 1,916 -21.8 2.6 136.8 2.7
314,672 38.6 19,385 6.2 10.1 1,866 1,184 865 17,200 5,710 33.2 11,490 8.7 15.3 524.8 10.4
410,982 30.6 16,202 3.9 -16.4 3,243 1,920 839 11,878 3,918 33.0 7,960 -30.7 10.6 533.0 10.6
44.9
49.1
47.6
45.3
41.8
40.8
41.2
43.3
46.7
41.8
C–140
September 2013 Results Preview | Sector: Oil & Gas
Reliance Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
RIL IN 3,230.7 2,714 / 44 955 / 761 -5 / 4 / -5
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 3,299 3,603 4,007 336.2 307.9 306.0 200.4 210.0 216.3 67.7 71.9 74.0 (1.2) 4.8 3.0 561 616 679 13.0 12.3 11.5 12.1 11.6 11.0 14.7 14.6 16.5 13.7 1.5 8.1 1.0
12.9 1.4 8.5 1.1
12.5 1.2 8.9 1.1
2015E 3,879 338.8 236.1 80.6 9.1 746 11.4 11.0 16.4 11.5 1.1 8.0 1.2
CMP: INR840
Neutral
We expect RIL to report GRM of USD7.8/bbl in 2QFY14 v/s USD8.4/bbl in 1QFY14. Singapore GRM decreased 15% QoQ due to weak gasoline and fuel oil cracks. We also expect some recovery in petchem profits.
We expect average 2QFY14 KG-D6 volume of 13.5mmscmd v/s 14.8mmscmd in 1QFY14.
We expect RIL to report PAT of INR53.4b (v/s INR53.8b in 2QFY13 and INR53.5b in 1QFY14).
RIL trades at 11.5x FY15E adjusted EPS of INR80.6. RIL's new refining/ petchem projects are likely to add to earnings from end-FY16/FY17, but medium-term outlook on core business remains weak, with RoE reaching sub-12%. Maintain Neutral.
Key issues to watch out ¾ (a) GRM, ¾ (b) Petchem margin, and ¾ (c) KG-D6 production.
Quarterly Performance (Standalone)
(INR Billion)
Y/E March Net Sales Change (%) EBITDA % of Net Sales Change (%) Depreciation Interest Other Income PBT Tax Rate (%) PAT Change (%) Adj. EPS (INR) Key Assumptions (USD/bbl) Fx Rate (INR/USD) Brent Price (USD/bbl) RIL GRM Singapore GRM Premium/(disc) to Singapore KG-D6 Gas Prodn (mmscmd) Segmental EBIT Breakup (INRb) Refining Petrochemicals E&P Others Total E: MOSL Estimates; EPS adjusted October 2013
FY13
FY14
FY13
FY14E
1Q 918.8 13.4 67.5 7.3 -32.0 24.3 7.8 19.0 54.3 9.6 17.7 44.7 -21.0 15.3
2Q 903.4 15.0 77.1 8.5 -21.7 22.8 7.4 21.1 68.0 14.3 21.0 53.8 -5.7 18.4
3Q 938.9 10.3 83.7 8.9 14.9 24.6 8.1 17.4 68.5 13.5 19.7 55.0 23.9 18.8
4Q 842.0 -1.2 78.3 9.3 19.2 22.4 7.1 22.4 71.2 15.3 21.5 55.9 31.9 19.1
1Q 876.5 -4.6 70.8 8.1 4.9 21.4 8.1 25.4 66.6 13.1 19.7 53.5 19.7 18.3
2QE 1,014.6 12.3 74.2 7.3 -3.7 21.4 8.1 22.1 66.7 13.3 20.0 53.4 -0.7 18.3
3QE 1,020.1 8.7 79.5 7.8 -5.0 23.6 8.2 22.1 69.8 15.0 21.5 54.8 -0.4 18.8
4QE 1,095.7 30.1 81.6 7.4 4.3 24.8 8.4 21.7 70.0 15.4 22.0 54.6 -2.3 18.7
3,602.9 9.2 307.9 8.5 -8.4 94.7 30.4 80.0 262.8 52.8 20.1 210.0 4.8 71.6
4,006.8 11.2 306.0 30.6 -0.6 91.2 32.9 91.3 273.2 56.9 20.8 216.3 3.0 74.0
54.2 109 7.6 6.7 0.9 33.0
55.5 110 9.5 9.1 0.4 28.5
54.2 110 9.6 6.5 3.1 24.0
54.2 114 10.1 8.7 1.4 19.2
56.0 103 8.4 6.6 1.8 14.8
62.5 111 7.8 5.5 2.3 13.5
62.0 110 8.8 6.9 1.9 12.5
61.9 110 9.0 7.0 2.0 12.0
54.5 111 9.2 7.8 1.4 26.2
60.6 109 8.5 6.5 2.0 13.2
36.2 19.4 5.9 0.8 62.2
35.2 19.0 4.6 0.5 59.2
29.5 18.9 3.5 0.8 52.8
29.0 23.0 4.2 0.1 56.3
35.8 22.0 4.0 0.1 61.9
35.7 23.0 3.6 0.3 62.5
128.3 73.3 28.9 1.3 230.5
130.0 86.9 15.3 1.3 232.1
21.5 35.4 17.6 17.4 9.7 8.7 0.0 0.1 48.8 61.6 for treasury shares
C–141
September 2013 Results Preview | Sector: Real Estate
Real Estate Companies Covered
2QFY14 witnessed severe sectoral underperformance
Anant Raj Industries
BSE Realty index underperformed the broader index by ~22% in 2QFY14. As uncertainties over macro and politico-economical outlook galore, the relatively weaker dynamics of real estate sector garnered a hawkish reaction from investors, apprehensive on liquidity stress. Near-to-medium term risk continues to remain beyond comfort zone due to weakening demand, high inventory, stressed balance sheets and risk of defaults. Core operational strengths are improving due to rising discipline and conservative strategies of managements. But the recovery has been slow due to weakness in fundamental support.
DLF Jaypee Infratech Mahindra Lifespaces Oberoi Realty Phoenix Mills Prestige Estate Projects
Concerns to persist in near term
Price appreciations in recent past aid the risk of potential 10-20% contraction in realizations. If it is in tandem with a decline in volumes as well, it could hurt the monetization plan of developers meaningfully and weaken the cash flow. Despite strategic discipline adopted by most developers, the improvement in operational cash flow, liquidity and P&L would be slow and gradual over the current base due to broader challenges. In a contracting demand scenario, (a) product proposition, (b) targeting right customer segment, (c) brand and (d) attractive pricing would play a crucial role to grab demand market share. Price correction is essential in select metros to boost demand, as rate-sensitive theory is weak in the near term. Even if a rate cut happens, bearing of the same over buyers' affordability is much less than the impact of price correction.
Unitech
Prefer companies poised in favorable operating cycle
We prefer companies which have reasonably cleared their older inventories and are riding on new and strong operating cycles, led by fresh launches, robust pre-sales and favorable market outlook. With downside risk to realizations and volumes hereon, cash flow certainty lies with players with strong FY12-13 pre-sales and reasonably strong balance sheet to carry forward execution. Expected quarterly performance summary
Anant Raj Inds DLF Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Unitech Sector Aggregate
CMP (INR) 27.09.13 42 132 16 406 166 237 123 16
(INR Million)
Rating Sep.13 Buy Buy Buy Buy Buy Buy Buy Buy
1,009 20,537 9,590 868 1,980 746 4,419 6,230 45,378
Sales Var. % YoY -26.5 0.7 36.1 3.6 -23.2 12.2 83.0 15.4 11.5
Var. % QoQ 26.1 -11.3 24.7 29.6 -9.3 6.8 -11.3 8.8 -1.1
Sep.13 424 7,722 4,446 139 1,150 492 1,193 885 16,450
EBITDA Var. % YoY -40.9 3.5 24.0 -7.7 -23.1 12.3 64.6 8.1 6.9
Var. % QoQ 45.6 -15.7 32.6 49.2 -13.9 3.7 -7.4 17.6 -1.7
Net Profit Sep.13 Var. % YoY 296 -41.1 1,362 -1.7 1,656 -8.5 235 -25.1 986 -20.7 362 9.7 739 61.8 711 0.7 6,349 -5.9
Var. % QoQ 52.4 -24.8 104.4 49.3 -3.1 -13.4 -14.7 13.1 7.5
Sandipan Pal (
[email protected]) October 2013
C–142
September 2013 Results Preview | Sector: Real Estate
Relative Performance-3m (%) Sensex Index MOSL Real Estate Index
While asset valuations (discount to NAV) are cheap for almost all, the relative strengths in earnings visibility render comforts to select companies. We prefer Prestige, IBREL, DLF and Sobha.
105 90
Physical markets to witness seasonal weakness
75
Sep-13
Aug-13
Jul-13
Jun-13
60
Relative Performance-1Yr (%) Sensex Index MOSL Real Estate Index
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
120 100 80 60 40
2QFY14 witnessed typical sequential weakness due to monsoon and non-preferred buying season. New launches have been low across most developers after a strong 1HCY13. Old inventory would be key drivers to pre-sales in the quarter. Southern markets (Bangalore and Chennai) are likely to post sequential decline in pre-sales, but maintain strengths YoY. Key launches include Sobha's premium projects in Yamlur, Bangalore (Palladian; INR8,500/sf), and Calicut (Bella Encosta; INR7,200/sf), and PEPL's launches of super premium villas Silver Spring, Chennai (@INR9,800/sf, ticket size of INR60m) and Royal Garden Phase II, Bangalore (1.69msf, @INR4,200/sf). Gurgaon witnessed limited fresh launches with DLF, Unitech, Anantraj etc not offering new projects. Last major launches were Tata Housing's launch in Dwarka Expressway (@INR11/sf), DLF Crest (@INR15/sf) in Phase V. Upcoming launches of IBREL, GPL, MLIFE are key to watch out. In Mumbai, approvals and launches have picked up, including some success in recent launches (mostly in 1QFY14) like IBREL's Sky Forest, Sky, Lodha's Blue Moon (Central Mumbai), L&T's in Powai, Kalapataru's in Goregaon, Shaporji's in Kandivali, which have garnered a decent response with better pricing and/or subvention scheme (10-20% discount to market). Increasingly, projects are offering discounts, rent-free periods, 20:80 schemes (EMI waiver during construction period) etc.
Key expectations
In 2QFY14 Real estate universe is expected to post a revenue growth of 11.5% YoY (down 1.1% QoQ), EBITDA growth of 6.9% YoY (down 1.7% QoQ) and PAT degrowth of 5.9% YoY (+7.5% QoQ). We expect the Operating cash flow (OCF) and FCFE to improve YoY for across most developers.
Key issues to watch out
October 2013
Status of planned launches and approvals (crucial for Oberoi, UT, MLIFE, PHNX, Godrej etc). Demand and pricing stability in hitherto performing markets (Bangalore, Chennai, Pune). Scale-up in execution reflected in improvement in revenue booking or cash collections (DLF, UT). Leasing velocity and managements' outlook in commercial verticals (PEPL, Oberoi, DLF). New acquisitions and visibility on the same (Oberoi, MILFE, Godrej). Cash flow and trend in leverage (DLF, PHNX, Godrej). Project completion (JPIN,HDIL etc).
C–143
September 2013 Results Preview | Sector: Real Estate
Quaterly sales trends (INR b) Presales (INR b) NCR Centric developers DLF Unitech Anantraj JPIN Mumbai Centric developers IBREL HDIL ORL Bangalore Centric developers Sobha PEPL Purva Diversified MAHLIFE GPL
1Q
2Q
FY12 3Q
11.1 10.2 1.0 5.7
6.3 10.7 1.6 5.8
11.1 9.4 0.9 16.4
24.3 7.8 3.6 11.0
52.8 38.1 7.0 38.9
6.0 7.0 1.6 9.3
6.3 8.4 0.7 13.4
12.5 6.8 0.5 4.0
13.4 5.9 0.4 5.7
38.2 28.1 3.2 32.4
24.3 4.5 1.2 4.0
3.8 1.9 2.6
4.9 7.7 2.3
4.5 0.6 1.8
6.3 0.5 2.8
19.5 10.6 9.5
6.0 1.0 2.1
6.1 1.0 2.2
12.0 NA 2.2
5.9 NA 2.2
30.0 NA 8.7
15.9 2.5 0.9
3.0 2.1 1.4
4.9 7.8 1.2
4.5 4.7 1.6
5.0 6.0 2.9
17.4 20.6 7.0
4.8 10.0 3.4
5.3 8.2 2.4
5.3 7.5 3.7
6.8 5.4 7.0
22.2 31.1 16.5
6.0 10.2 2.6
1.7 2.3
0.8 2.2
3.0 2.0
0.6 6.4
6.0 12.8
0.5 4.4
0.9 7.0
1.5 4.0
Bank loans to developers stood at INR1.27t as in Mar-13 Loa n (INR b)
1,400 1,200 1,000 800 600 400 200 0
4Q
FY12
1Q
2Q
FY13 3Q
4Q
FY13
FY14 1Q
1.5 4.4 0.7 4.9 20.3 4.2 Source: Company, MOSL
Home loans disbursement trend Di s burs ement (INR b)
Growth (%)
20
5 0 -5 -10 Mar-13 Sep-12 Mar-12
Sep-11 Mar-11 Sep-10
Mar-10 Sep-09
Mar-09 Sep-08 Mar-08
Sep-07 Mar-07 Sep-06
Mar-06 Sep-05
1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014
10
69 102 102 136 92 132 119 163 119 184 158 231 155 243 197 272 181 280 231 310 231 335 201 380 268
15
Source: RBI, MOSL
Top 6 cities launches and sales trend (msf) Sales value (INR b) till June-13: New launches improve QoQ, but absorption velocity and average realization were stable QoQ. Hyderabad, Bangalore, Pune best placed in terms of inventory months Top 6 cities launch and presales trend (msf)
55
71 81 68 81 70 73 71
300
4,000
250 200
1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
150
29 23
21 14
3,500 3,000 2,500
Chennai
69 77 75 63 69 60
4,500
Hyderabad
53
350
Pune
72
83
35
5,000
Bangalore
70
84
400
NCR
74
91 91
98
97
45
Mumbai
104 103
116
Sa l es val ue (INR b) Rea l i zati ons (INR/s f)
3QCY09 232 4QCY09 227 1QCY10 248 2QCY10 221 250 3QCY10 4QCY10 227 243 1QCY11 2QCY11 217 3QCY11 225 4QCY11 294 335 1QCY12 297 2QCY12 3QCY12 355 270 4QCY12 349 1QCY13 2QCY13 338
La unch (ms f) Sa l es (ms f) 127
Status of unsold stock (months)
Source: Liases Foras/MOSL October 2013
C–144
September 2013 Results Preview | Sector: Real Estate
Mumbai: Approvals gain traction, new launches rise steadily; launches at discounted prices and favorable payment scheme garnered good response; average realizations have seen time correction; absorption velocity has been reviving from a low base; inventory high but stable QoQ
18 15 16
9
11
11 12
14
16 16
17
21 16 12
12
Pricing trend
Sa l es vo l ume (ms f) Sa l es va l ue (INR b) 93 85 83 94 87 79 71 64 53 50 80 72 67 57 62 51
14,000 12,000 10,000 8,000 6,000 4,000 2,000
3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
181312131211 9 8 9 8 9 1010 1010 9
Avg. Quoted pri ces (INR/sf) Avg. sal e s p ri ce s (INR/s f)
3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
Sales trend
27
New launches trend (msf)
NCR: Sales remain steady hitherto on the back of good number of recent launches in past 6-9 months; moderation in velocity and pricing visible in Dwarka Expressway projects; price rise in recent times poses some risks going forward; Noida inventory high but stable QoQ Sales performance trend
59
Launch volume trend (msf)
Sal es vo l ume (ms f) Sal es va l ue (INR b)
50 48
37
17
26
34 32 19
30
11
Avg Quote d pri ces (INR/sf) Avg. s al es pri ces (INR/sf) 113
40 40
49 26 19
Pricing trend
5,500
124 112 103 93 84 91 89 82 79 6870 66 59 69 62 19232723262027221823312126202522
4,500 3,500 2,500 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
1,500
Bangalore: Outperformance prevails; inventory and prices rose but still manageable; sales velocity revived in 2Q post a decline in the past couple of quarters (partly due to lower launches) Sales performance trend S al es vol ume (msf) S al es val ue (INR b) 63 54 54 67 43 3536 33 35 27 23 30 50 23 23 39 12
In ven tory ask pri ces (INR/sf) S ol d p ri ce s (INR/sf) 5,200 4,400 3,600 2,800
2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
8 4 8 8 1110 7 9 7 9 14111616121013 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
Pricing trend
2,000 1QCY09 3QCY09 1QCY10 3QCY10 1QCY11 3QCY11 1QCY12 3QCY12 1QCY13
23 18 16 20 22 22 30 18 17 12 9 13 17 23
34 30 30
68
Launch volume trend (msf)
Source: Liases Foras/MOSL October 2013
C–145
September 2013 Results Preview | Sector: Real Estate
Overall leasing run-rate continues to weaken, with cautious sentiment, barring better resilience in Bangalore market. Overall vacancy level improved; absorption outpaces supply. Bangalore remains the better among bigger markets. 3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
1.6 2.4 1.6 0.8 0.6 7.0
2.0 1.0 0.8 0.6 0.3 4.7
1.0 2.7 1.7 0.3 0.3 6.0
0.7 0.5 0.7 0.6 0.2 0.3 0.2 3.1
1.7 2.7 2.3 0.6 0.6 1.0 0.2 9.1
1.1 1.6 0.7 1.2 0.5 0.1 0.5 5.7
1.3 1.5 0.7 1.5 1.0 0.1 0.2 6.3
0.8 1.0 0.6 1.0 0.8 0.3 4.5
1.0 1.0 2.4 0.6 0.4 0.6 1.4 7.4
1.6 1.2 3.0 1.2 0.5 0.4 0.5 8.4
0.9 1.1 3.6 0.7 0.5 0.5 0.2 7.5
1.7 0.4 1.8 0.7 0.3 0.5 0.5 5.9
1.2 0.9 3.0 0.8 0.4 0.8 0.5 7.6
1.1 1.2 1.6 1.4 0.4 0.9 0.3 6.8
0.7 1.3 1.0 0.9 0.3 0.5 0.1 4.9
1.2 1.0 4.2 0.9 0.4 0.3 0.2 8.2
32 24 18 27 28 10 21 24
31 23 16 25 26 11 19 22
31 23 15 24 26 10 18 22
30 23 14 24 25 10 15 22
30 23 13 23 25 10 14 21
31 22 14 20 25 8 17 20
32 22 13 22 24 11 18 21
31 22 13 20 22 11 18 20 Source: DTZ
Supply (msf) NCR Mumbai Bangalore Chennai Pune Hyderabad Kolkata India Absorption (msf) NCR Mumbai Bangalore Chennai Pune Hyderabad Kolkata India Vacancy (%) NCR Mumbai Bangalore Chennai Pune Hyderabad Kolkata India
Comparative valuation CMP (INR) 27.09.13 Real Estate Anant Raj Inds DLF Godrej Properties HDIL Indiabulls Real Est. Jaypee Infratech Mahindra Lifespace Oberoi Realty Phoenix Mills Prestige Estates Unitech Sector Aggregate UR: Under Review
October 2013
42 132 346 37 55 16 406 166 237 123 16
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Buy Buy Neutral UR Buy Buy Buy Buy Buy Buy Buy
3.6 4.2 17.7 1.7 4.1 5.0 34.6 15.4 5.8 8.2 0.8
11.6 31.4 19.5 21.3 13.3 3.2 11.7 10.8 40.8 15.0 20.3 14.7
16.2 17.7 14.7 8.0 7.5 6.8 10.2 7.2 21.1 11.0 29.8 13.1
2.7 2.6 9.6 0.7 2.5 11.6 10.9 12.8 4.8 10.4 1.8 4.2
4.7 4.5 21.4 6.8 6.9 6.3 31.6 16.8 7.0 10.2 1.2
5.5 6.5 32.8 8.9 13.8 6.2 41.3 22.0 13.5 13.3 1.5
8.9 29.2 16.2 5.5 7.9 2.5 12.8 9.9 33.8 12.0 13.0 13.0
7.6 20.2 10.6 4.2 4.0 2.6 9.8 7.6 17.6 9.2 10.9 9.9
11.4 13.1 14.3 9.8 6.4 4.6 13.0 6.1 12.3 8.8 23.3 10.3
9.9 11.6 9.6 7.7 4.0 4.6 10.7 4.2 9.4 6.7 18.9 8.6
3.5 2.8 11.2 2.7 4.4 13.4 9.2 12.5 5.5 11.7 2.8 4.5
4.0 3.9 15.3 3.4 7.9 11.8 10.8 14.6 9.9 13.4 3.3 5.6
C–146
September 2013 Results Preview | Sector: Real Estate
Anant Raj Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
ARCP IN 294.6 12 / 0.2 104 / 41 -14 / -38 / -44
CMP: INR42
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 3.1 5.6 5.8 1.7 1.6 2.1 1.1 1.1 1.4 3.8 3.6 4.7 -32.5 -6.6 31.1 129.9 132.8 137.0 3.1 2.7 3.5 3.6 3.1 3.8 11.7 0.0 9.7 10.9 0.3 13.4 1.0
11.6 0.3 16.2 0.0
8.9 0.3 11.9 1.0
2015E 6.5 2.4 1.6 5.5 16.2 142.0 4.0 4.4 8.3 7.6 0.3 9.9 1.0
Buy
2QFY14 P&L to improve QoQ due to INR0.5b of land divestment in June 2013, which is likely to contribute ~INR0.35b to EBITDA. However, cost escalations in key ongoing projects are likely to dent margins. Overall, we estimate 6pp QoQ uptick in EBITDA margin. EBITDA to de-grow -41% YoY to INR424m. Revenue is estimated at INR1b (-27% YoY), while PAT to decline 41% YoY to INR296m. Revenue from POCM projects and rentals to remain flat QoQ. Higher operating time in Hotel Retreat (for the full quarter post renovation) may lead to moderate incremental revenue growth to INR184m YoY (INR11m QoQ). New leasing continues to be muted in Manesar and Rai IT Park. Pre-sales momentum would remain dependent on Golf Course Road projects (across plots, villas and row houses), while QoQ pre-sales in Neemrana (140 unit) and Sector 91 project (16 unit) have been comparatively better. ARCP plans to launch the Golf Course group housing project (2.6msf) during Diwali, which could accelerate presales momentum. Core operations have been subdued, with disappointment in cash flow trends and rental assets. The stock trades at 7.6x FY15E EPS of INR5.5 and 0.3x FY15E BV. Maintain Buy with a target price of INR60.
Key issues to watch for ¾ Cash collections were disappointing so far. Any improvement would be a key factor as the company is also acquiring new land. ¾ Sales velocity in Golf Course Road project. ¾ Any positive surprises on Bhagwandas and Hauz Khas monetization.
Quarterly Performance
(INR Million)
Y/E March Total Sales Change (%) Total Expenditure EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) PAT before MI Change (%) Reported PAT Change (%) E MOSL Estimates October 2013
FY13 1Q 989 18.0 488 501 1.5 51 32 37 44 475 110 23 354 1.0 355 1.2
2Q 1,373 50.5 656 717 40.8 52 33 41 41 683 185 27 499 37.5 502 44.6
3Q 1,818 97.3 1,058 760 55.0 42 34 41 42 727 178 26 549 61.7 548 74.1
FY14 4Q 1,406 212.9 1,778 -372 -286.8 -26 41 38 39 -412 -64 16 -348 -403.8 -362 -396.6
1Q 800 -19.1 509 291 -41.8 36 35 33 41 265 63 24 201 -43.2 194 -45.3
2QE 1,009 -26.5 585 424 -41 42 37 35 45 397 101 26 296 -40.7 296 -41.1
3QE 1,569 -13.7 1,052 518 -31.8 33 41 37 50 490 127 26 363 -34.0 358 -34.8
4QE 2,434 73.1 1,614 820 -320.4 34 42 39 44 783 211 27 572 -264.4 567 -256.6
FY13
FY14E
5,586 79.3 3,981 1,605 -5.5 29 140 157 166 1,473 409 27.8 1,060 -10.5 1,060 -6.6
5,813 4.1 3,760 2,053 27.9 35 155 144 179 1,933 503 26.0 1,430 34.9 1,390 31.1
C–147
September 2013 Results Preview | Sector: Real Estate
DLF Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
DLFU IN 1,780.8 235 / 4 289 / 120 -9 / -49 / -50
CMP: INR132
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 96.3 77.7 89.3 39.0 26.3 33.9 11.8 7.1 8.0 7.1 4.2 4.5 -26.8 -40.8 7.6 150.9 152.9 158.5 4.5 2.6 2.8 7.4 6.0 6.1 33.1 55.8 51.9 18.6 0.9 11.5 1.5
31.4 0.9 16.8 1.5
29.2 0.8 12.4 1.5
2015E 96.8 36.9 11.6 6.5 44.7 154.9 3.9 6.6 35.9 20.2 0.9 11.3 1.5
Buy
DLF's 2QFY14E revenue is estimated at INR20.5b (flat YoY), EBITDA at INR7.7b (+3.5% YoY) and PAT at INR1.36b (-2% YoY). EBITDA margin is estimated at 37.5% (-2pp QoQ). Launch of Camellia had resulted in strong revenue booking and margin expansion in 1QFY14. Hence, we expect relatively lower incremental pre-sales and execution in Camellia would lead to weaker revenue booking and margin contraction in 2QFY14E. DLF had assumed INR0.77b of profit in 1QFY14 which pertains to one of the wind mills transactions. Thus, 2Q EBITDA margin could get impacted due to provisioning of remaining divestments. Post strong pre-sales in super luxury projects in 1QFY14, DLF is expected to witness a decline in run-rate in 2Q (~INR7.5b), due to the absence of new launches and lower pre-sales velocity in recent launches. Expect cash flow situation to improve QoQ, with receipt of balance INR5.25b from wind mills' divestments, along with improvement in collections from super luxury projects. However, core FCFE would continue to remain negative. DLF trades at 20.2x FY15E EPS, 0.9x FY15E BV and ~50% discount to our NAV estimate of INR270. Maintain Buy with a target price of INR230.
Key issues to watch for ¾ Pre-sales and launch momentum; execution in line with management's guidance. ¾ Clarity on Aman Resort and other planned divestments. ¾ Trend in FCFE and leverage, where management has guided for a strong improvement in 2HFY14.
Quarterly Performance
(INR Million)
Y/E March Sales Change (%) Total Expenditure EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adj. PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 21,977 (10.1) 11,307 10,670 -4.0 48.6 1,786 6,226 1,311 3,970 1,137 29 2,928 2,928 (18.3)
2Q 20,395 -19.5 12,932 7,464 -36.4 36.6 1,837 5,224 1,173 1,575 394 25.0 1,385 1,385 (62.8)
3Q 13,100 -35.6 12,230 870 -89.4 6.6 2,479 5,809 9,812 2,395 -84 -3.5 2,848 2,848 10.2
FY14 4Q 22,256 -15.0 14,998 7,258 -9.0 32.6 1,861 5,882 932 118 -196 -165.5 -42 -42 (102.0)
1Q 23,141 5.3 13,985 9,156 -14.2 39.6 1,782 5,914 1,391 2,909 913 31.4 1,812 1,812 (38.1)
2QE 20,537 0.7 12,815 7,722 3.5 37.6 1,786 5,624 1,345 1,656 414 25 1,362 1,362 (1.7)
3QE 22,769 73.8 14,231 8,538 881.2 37.5 1,801 5,294 1,399 2,843 711 25.0 2,282 2,282 (19.9)
4QE 22,844 2.6 14,387 8,457 16.5 37.0 1,834 5,225 1,245 2,644 661 25.0 2,287 2,287 LTP
FY13
FY14E
77,728 -19.3 51,466 26,262 -32.7 33.8 7,962 23,140 13,229 8,059 1,251 15.5 7,119 7,119 (40.7)
89,290 14.9 55,417 33,873 29.0 37.9 7,202 22,056 5,380 9,993 2,698 27.0 8,022 8,022 12.7
C–148
September 2013 Results Preview | Sector: Real Estate
Jaypee Infratech Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
JPIN IN 1,388.9 22 / 0.4 59 / 14 -8 / -65 / -77
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 31.6 16.5 12.9 9.3 -10.1 41.6 24.5 13.8 12.6
2013 2014E 32.7 40.9 14.8 20.2 6.9 8.7 5.0 6.3 -46.2 25.9 44.5 49.6 11.6 13.4 10.9 13.9 23.4 18.6
1.7 0.4 5.3 6.3
3.2 0.4 6.8 6.3
2.5 0.3 4.6 6.3
2015E 40.4 19.9 8.6 6.2 -2.0 54.6 11.8 13.1 19.0 2.6 0.3 4.6 6.3
CMP: INR16
Buy
We expect revenue at INR9.6b (+36% YoY), EBITDA at INR4.4b (+24%), margin at 46.4% (+2.8pp QoQ) and PAT at INR1.7b (-8.5% YoY). We have assumed INR3.75b of land revenue (from INR15b of divestment concluded in 1QFY14), and INR335m of expressway revenue (v/s INR290m in 1QFY14). Pre-sales momentum is expected to remain subdued due to current dynamics of Noida and Parcel 3. We maintain FY14E pre-sales estimate at INR24b (v/s 1QFY14 pre-sales of INR4b). Weakening operations and high leverage level have been key concerns. JPIN trades at 2.6x FY15E EPS, 0.3x FY14E BV. Maintain Buy. Key issues to watch for ¾ Traffic growth and toll revenue trend in expressway. ¾ Response to Parcel 3 Agra launches and overall market outlook. ¾ Any further divestment plan and deleveraging.
Quarterly Performance
(INR Million)
Y/E March Sales Change (%) Total Expenditure EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adj PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 6,783 9.9 4,062 2,721 -8.5 40.1 6 98 8 2,625 525 20.0 2,099 -11.7 2,099 -11.7
2Q 7,047 -1.5 3,462 3,584 -8.9 50.9 35 1,323 35 2,262 453 20.0 1,810 -41.7 1,810 -41.7
3Q 9,331 3.4 5,107 4,224 -15.0 45.3 54 2,259 27 1,939 388 20.0 1,551 -60.5 1,551 -60.5
FY14 4Q 9,582 4.1 5,344 4,238 -2.7 44.2 55 2,435 109 1,857 371 20.0 1,485 -57.5 1,485 -57.5
1Q 7,692 13.4 4,340 3,352 23.2 43.6 86 2,315 74 1,025 215 21.0 810 -61.4 810 -61.4
2QE 9,590 36.1 5,144 4,446 24.0 46.4 100 2,350 100 2,096 440 21.0 1,656 -8.5 1,656 -8.5
3QE 15,252 63.4 6,386 8,866 109.9 58.1 130 2,300 125 6,561 1,378 21.0 5,183 234.2 5,183 234.2
4QE 8,342 -12.9 4,778 3,564 -15.9 42.7 166 2,235 224 1,387 292 21.0 1,095 -26.2 1,095 -26.2
FY13 Cons. 32,743 3.8 17,976 14,767 -10.5 45.1 149 6,115 179 8,682 1,737 20.0 6,945 -46.2 6,945 -46.2
FY14E Cons. 40,876 24.8 20,648 20,228 37.0 49.5 482 9,200 523 11,069 2,324 21.0 8,744 25.9 8,744 25.9
C–149
September 2013 Results Preview | Sector: Real Estate
Mahindra Lifespaces Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MLIFE IN 40.8 17 / 0.3 472 / 327 -18 / 2 / 2
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 7.0 1.9 1.2 29.2 10.1 283 10.3 10.9 22.8
2013 2014E 7.4 7.2 2.4 2.1 1.4 1.3 34.6 31.6 18.7 -8.8 317 344 10.9 9.2 11.4 9.5 18.4 20.7
13.9 1.4 11.4 1.2
11.7 1.3 10.2 1.2
12.8 1.2 13.0 1.2
2015E 7.6 2.3 1.7 41.3 30.6 382 10.8 11.6 15.8 9.8 1.1 10.7 1.2
CMP: INR406
Buy
Mahindra Lifespaces' (MILFE) 2QFY14E standalone revenue is estimated to grow 3.6% YoY to ~INR868m. EBITDA is expected to decline 7.7% YoY to INR139m (margin at 16%, v/s 18% YoY and 14% QoQ) and PAT to de-grow 25% YoY to INR235m. We estimate Antheia Phase I and Ashvita Phase II to commence revenue in 2QFY14E. In the absence of new launches, we expect pre-sales to remain subdued and driven by Nagpur, Hyderabad and Chennai. While launch pipeline, post recent acquisitions, has been strong, it hinges on progress in approvals. We estimate FY14E pre-sales at INR4.9b (v/s INR4.5b in FY14). The stock trades at 14% discount to our one-year forward SOTP value of INR482/share, 9.8x FY15E EPS and 1.1x FY15E BV. Maintain Buy. Key issues to watch for ¾ Progress in approvals in recent acquisitions. ¾ Trend in gearing level. ¾ Leasing progress in Jaipur DTA and clarity on possible re-sizing. ¾ Progress of land acquisition in North Chennai SEZ.
Quarterly Performance (Standalone) Y/E March
(INR Million) FY13
FY14
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 1,041 838 614 1,022 670 868 885 981 Change (%) 27.8 -10.6 -60.1 -27.0 -35.6 3.6 44.2 -3.9 Total Expenditure 723 688 524 850 577 729 726 825 EBITDA 319 151 91 172 93 139 159 156 As % of Sales 30.6 18.0 14.7 16.8 13.9 16.0 18.0 15.9 Change (%) 84.8 -41.7 -80.4 -46.1 -70.8 -7.7 76.1 -9.0 Depreciation 4 4 4 5 5 7 7 7 Interest 14 14 19 15 107 116 126 135 Other Income 134 301 133 140 237 311 234 237 Extra-ordinary 0 0 0 -1 0 0 0 -1 PBT 434 433 200 292 218 327 261 252 Tax 141 119 64 60 60 91 73 71 Effective Tax Rate (%) 32.5 27.5 31.0 20.5 27.6 28.0 28.0 28.3 Reported PAT 293 314 136 232 158 235 188 181 Adj. PAT 293 314 136 232 158 235 188 181 Change (%) 71.5 -0.1 -65.7 -27.7 -46.2 -25.1 38.7 -22.2 E: MOSL Estimates; *Revenue outside Standalone is largely contributed by Mahindra World City (MWC) Chennai
October 2013
FY13
FY14E
3,515 3,405 -25.0 -3.1 2,784 2,858 731 547 20.8 16.1 -39.6 -25.1 18 27 62 483 707 1,019 2 2 1,359 1,056 384 296 28.3 28.0 975 760 975 760 -18.9 -22.0 and Jaipur
C–150
September 2013 Results Preview | Sector: Real Estate
Oberoi Realty Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
OBER IN 328.2 55 / 1 328 / 154 -9 / -40 / -44
CMP: INR166
We expect OBER's 2QFY14E revenue to degrow 23% YoY to INR2b, EBITDA down 23% YoY to INR1.1b and PAT to de-grow 21% to INR1b, with EBITDA margin of 58%.
Esquire has received IOD and is expected to witness revival in construction followed by revenue recognition by 4QFY14. Till then, Exquisite will continue to remain the key revenue driver, with no inventory left in completed projects at JVLR (Splendor and Grande).
We expect sales volume to remain subdued in the absence of any major contribution of JVLR projects and weakening velocity at Esquire. While IOD at Esquire should improve buyers' sentiment hereon, 2QFY14E is likely to remain muted.
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 8.2 10.5 12.0 4.8 6.1 6.8 4.6 5.0 5.5 14.1 15.4 16.8 -10.5 9.1 9.0 113.8 126.8 141.2 13.1 12.8 12.5 17.1 17.3 17.3 16.6 15.2 14.0 11.8 1.5 8.6 1.2
10.8 1.3 7.2 1.2
2015E 15.0 9.4 7.2 22.0 31.4 159.7 14.6 20.5 15.9
9.9 1.2 6.1 1.2
7.6 1.0 4.2 1.8
Buy
Key issues to watch for ¾ Sales momentum in Esquire (Goregaon) and Grande (Andheri). ¾ Visibility on new launches (Mulund/Phase III of Exquisite). ¾ Clarity over Oasis launch. ¾ Leasing visibility in Commerz II. ¾ Visibility on change in usage at JVLR project from commercial to residential. ¾ Visibility on new project acquisitions.
Consolidated Quarterly Performance
(INR Million)
Y/E March Total Revenue Change (%) Total Expenditure Adm Exp Construction Exp Employee Cost EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 1,999 24.2 860 67 697 96 1,139 26.1 57 70 1 309 1,376 368 26.8 1,008 -4.7
2Q 2,577 15.7 1,081 73 910 98 1,496 29.5 58 71 1 250 1,674 430 25.7 1,244 11.6
3Q 2,861 52.8 1,155 69 987 99 1,707 50.5 60 71 1 219 1,854 509 27.5 1,345 31.7
FY14 4Q 3,039 19.3 1,260 48 1,122 91 1,779 8.3 59 72 1 221 1,927 475 24.7 1,452 1.1
1Q 2,184 9.3 849 63 689 97 1,335 17.2 61 69 1 210 1,476 457 31.0 1,018 1.0
2QE 1,980 -23.2 830 74 646 110 1,150 -23.1 58 88 1 291 1,351 365 27.0 986 -20.7
3QE 2,156 -24.6 906 74 722 110 1,251 -26.7 58 88 1 315 1,477 414 28.0 1,063 -20.9
4QE 5,659 86.2 2,611 84 2,403 124 3,048 71.3 54 108 1 396 3,335 904 27.1 2,431 67.5
FY13
FY14E
10,476 27.0 4,355 257 3,715 383 6,121 26.6 58.4 285 4 999 6,827 1,783 26.1 5,045 9.1
11,980 14.4 5,196 295 4,460 441 6,783 10.8 57 353 0 1,212 7,638 2,140 28.0 5,498 9.0
C–151
September 2013 Results Preview | Sector: Real Estate
Phoenix Mills Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PHNX IN 144.8 34 / 1 293 / 181 6 / -16 / 16
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 3.9 4.7 11.0 2.1 2.6 4.8 1.1 0.8 1.0 7.3 5.8 7.0 25.5 -20.3 20.6 118.1 122.1 126.8 6.2 4.8 5.5 6.1 6.6 9.5 32.1 40.3 33.4 32.5 2.0 23.7 0.8
40.8 1.9 21.1 0.8
2015E 14.0 6.1 2.0 13.5 92.4 136.7 9.9 11.6 26.0
33.8 1.9 12.3 0.8
17.6 1.7 9.4 1.3
CMP: INR237
Buy
We expect High Street Phoenix's (HSP) 2QFY14E rentals at INR746m, (12% YoY), EBITDA at INR492m (margin of 66%) and PAT of INR362m (9.7% YoY). The rental growth is led by a steady rise in revenue sharing component (which stands at ~15%) and higher incremental rentals. We expect 11% CAGR in HSP rentals in FY14E. HSP Hotel, post termination of contract with Shangri La, is named as Palladium for the interim period, and is in an advanced stage of negotiation with a new hotel operator. The hotel is operating with 228 rooms, with the expansion plan stalled briefly. Expect pre-sales in Phase II of market development to remain subdued, with lower inventory under offer and sequential weakness in markets. Launch of Pune residential is scheduled for pre-Diwali. It plans to launch ~4msf of residential projects over next 12 months, including Bangalore East (1msf), Phase II of Bangalore West (2msf), Pune (0.3msf) and last phase of Chennai (0.4msf). There has been an acquisition of the balance 3.3% stake from Horizon in Island Star in 2QFY14 (with o/f of ~INR87m). The stock trades at a PER of 17.6x FY15E EPS of INR13.5, 1.7x FY15E BV and 16% discount to its one-year forward NAV of INR282. Maintain Buy.
Key issues to watch for ¾ Sales momentum in Phase II projects in Market City. ¾ Progress on ramp-up in recently-commenced malls. ¾ Improvement in operating cash flow, which can lead to de-leveraging. ¾ Progress in proposed stake purchase in Market City projects.
Quarterly Performance (Standalone)
(INR Million)
Y/E March Sales Change (%) EBITDA Change (%) As % of Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Adj. PAT Change (%) E: MOSL Estimates October 2013
FY13 1Q 626 17.0 394 19.3 63 67 58 143 413 107 26 306 12.4
2Q 665 23.4 438 31.4 66 69 72 156 454 123 27 330 38.2
FY14 3Q 693 20.1 474 27.0 68 69 70 126 461 120 26 341 26.9
4Q 722 20.3 479 31.8 66 71 66 140 483 122 25 361 32.2
1Q 698 11.5 475 20.4 68 65 72 215 553 135 24 418 36.7
2QE 746 12.2 492 12.3 66 69 68 130 485 123 27 362 9.7
3QE 746 7.6 500 5.4 67 69 70 125 486 120 27 366 7.3
4QE 793 9.9 532 11.1 67 71 68 130 522 134 26 389 7.6
FY13 Cons. 4,699 19.1 2,632 24.5 56.0 474 1,430 521 1,248 428 34.3 842 -20.3
FY14E Cons. 10,970 133.4 4,822 83.2 44.0 973 2,872 529 1,507 497 33.0 1,015 20.6
C–152
September 2013 Results Preview | Sector: Real Estate
Prestige Estate Projects Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PEPL IN 350.0 43 / 1 195 / 105 -3 / -29 / -16
CMP: INR123
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT Adj EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 10.5 19.5 24.1 3.0 5.8 7.2 0.8 2.9 3.6 2.4 8.2 10.2 -51.7 246.2 24.8 65.6 78.4 87.1 3.8 10.4 11.7 6.6 11.7 12.5 55.8 17.2 13.8 51.9 1.9 19.2 1.0
15.0 1.6 11.0 1.0
2015E 30.8 9.3 4.7 13.3 30.3 99.0 13.4 15.1 10.6
12.0 1.4 8.8 1.0
9.2 1.2 6.7 1.0
Buy
We expect P&L to maintain strengths, with INR4.4b of revenue booking and margins of 27%, translating into EBITDA of INR1.2b (+65% YoY), and PAT of INR739m (+62% YoY). We expect key projects to commence and contribute to POCM revenue in 2QFY14E -- Royal Woods and Technopolish. QoQ decline is assumed due to lower number of fresh projects commencing revenue. During 2QFY14, PEPL launched super premium villas Silver Spring, Chennai (@INR9,800/sf, ticket size of INR60m) and Royal Garden Phase II, Bangalore (1.69msf, @INR4,200/sf). We estimate pre-sales of INR89b in 2QFY14E (v/s INR8.2b YoY and INR10.2b QoQ). We estimate FY14E/ 15E pre-sales at INR36/38b. Rentals are expected to increase by INR50-60m QoQ to INR6.3b due to higher contribution from full quarter operations at Vijaya Mall (one month in 1QFY14) and Exora B3. Cessna Block 7 would commence revenue from October 2013. Vijaya Mall is operating at 68% occupancy, with commencement of Satyam Cinema being awaited. The stock trades at 9.2x FY15E EPS, 1.2x FY15E BV and at 39% discount to our NAV estimate of INR202. Maintain Buy with a target price of INR180.
Key issues to watch for ¾ Outlook of Bangalore residential market and leasing. ¾ Execution progress in ongoing projects, collections and movements of debtors. ¾ Cash flow dynamics, land acquisition and debt movements.
Consolidated Quarterly Performance
(INR Million)
Y/E March Total Revenue Change (%) Total Expenditure EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 2,192 -12 1,488 704 2.1 32.1 77 240 272 659 166 25.2 493 35.3
2Q 2,414 88.5 1,689 725 47.2 30.0 83 191 195 647 190 29.3 457 73.9
3Q 4,921 195 3,497 1,424 184.1 28.9 83 209 195 1,328 407 30.7 920 227.9
FY14 4Q 5,597 177 4,277 1,321 92.5 23.6 87 258 278 1,253 363 28.9 890 132.6
1Q 4,983 127 3,694 1,289 83.2 25.9 80 257 310 1,263 396 31.4 867 75.8
2QE 4,419 83.0 3,226 1,193 64.6 27.0 99 269 246 1,072 332 31.0 739 61.8
3QE 4,611 -6 3,297 1,314 -7.7 28.5 112 269 252 1,185 367 31.0 818 -11.2
4QE 5,200 -7 3,578 1,622 22.8 31.2 139 281 240 1,441 442 30.7 999 12.2
FY12 Cons. 19,476 85.1 13,685 5,791 95.2 30 682 1,489 636 4,256 1,314 30.9 2,941 246.2
FY13E Cons. 24,073 23.6 16,854 7,219 24.7 30 834 1,671 676 5,390 1,671 31.0 3,719 24.8
C–153
September 2013 Results Preview | Sector: Real Estate
Unitech Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
UT IN 2,438.8 40 / 1 41 / 15 -11 / -36 / -39
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj PAT Adj. EPS (INR) EPS Growth (%) BV/Share (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 24.2 3.3 2.4 0.9 -58.2 37.8 2.0 2.8 0.0
2013 2014E 24.4 27.4 3.3 4.2 2.1 3.3 0.8 1.2 -11.7 55.7 35.2 36.1 1.8 2.8 2.7 2.8 0.0 12.8
18.2 0.4 29.4 0.0
20.7 0.5 30.9 0.0
13.3 0.5 24.2 0.9
2015E 30.4 5.1 3.9 1.5 19.3 45.6 3.3 3.2 10.7 11.1 0.4 19.6 0.9
CMP: INR16
Buy
We expect only a moderate growth in 2QFY14 P&L as execution improvement has been subdued. We estimate revenue at INR6.2b (+15% YoY), EBITDA at INR0.9b (+8% YoY) and PAT at INR711m (+0.7% YoY). Margin is estimated at 14.2% (v/s 13.1% in 1QFY14). Focus on new launches has been low till date. It is preparing grounds to launch the luxury project Ivy Terraces in sector 70, Gurgaon, which would be the first major launch in the city after a long hiatus. It is also planning to launch The Palm at Noida (Sector 117). Due to limited fresh launches and weakness in Noida market (which has been a key sales driver in FY13), we expect pre-sales to remain subdued in 2QFY14E. UT trades at 60% discount to its one-year forward NAV estimate of INR40 and 11.1x FY15E EPS and 0.4x FY14E BV. Maintain Buy. Key issues to watch for ¾ Sales momentum on the back of lesser new launches (estimate INR21b in FY14E). ¾ Progress in construction and delivery (company aims at INR4-4.5b/ qtr run-rate v/s INR3b currently), along with an improvement in debtor days. ¾ Cash flow health and repayment need.
Quarterly Performance
(INR Million)
Y/E March Sales Change (%) Total Expenditure EBITDA Change (%) As of % Sales Depreciation Interest Other Income Prior period adjustment PBT Tax Effective Tax Rate (%) Reported PAT Change (%) Adjusted PAT Change (%) October 2013
FY13 1Q 4,077 -33.8 3,530 547 -54.3 13.4 99 117 345 -1 677 261 38.5 373 -63.5 374 -62.0
2Q 5,398 -13.8 4,580 818 -40.8 15.2 98 87 340 -268 973 240 24.7 439 -53.3 707 -23.6
3Q 6,447 26.8 5,340 1,107 7.6 17.2 98 84 346 0 1,272 415 32.6 842 46.4 841 52.4
FY14 4Q 8,483 26.3 7,685 797 -1,567 9.4 104 17 857 269 1,533 463 30.2 304 -180.4 1,070 4,636
1Q 5,726 40.4 4,974 752 37.4 13.1 112 57 251 3 834 264 31.6 570 52.7 629 68.2
2QE 6,230 15.4 5,345 885 8.1 14.2 102 60 283 0 1,006 342 34.0 664 51.4 711 0.7
3QE 6,861 6.4 5,763 1,098 -0.9 16.0 111 65 273 0 1,195 406 34.0 788 -6.3 840 -0.1
4QE 8,627 1.7 7,116 1,511 89.5 17.5 118 80 283 1 1,596 562 35.2 1,034 240.1 1,086 1.4
FY13
FY14E
24,405 0.8 21,135 3,270 -0.3 13.4 398 305 1,888 0 4,454 1,378 30.9 2,095 -15.2 3,130 31.9
27,444 12.4 23,198 4,245 29.8 15.5 443 262 1,090 0 4,630 1,574 34.0 3,056 45.9 3,262 4.2 C–154
September 2013 Results Preview | Sector: Retail
Retail Companies Covered
For the quarter ended September 2013, we expect our Retail Universe to post flat sales and 3.3% EBITDA decline. Excluding Future Retail (FRL), which has undergone restructuring, aggregate sales, EBITDA and PAT should grow 17%, 11% and 8.2%, respectively. Speciality retailers like Titan Industries (TTAN) and Jubilant Foodworks (JUBI) will continue to report subdued numbers due to pressure on discretionary consumption. For traditional retailers, we expect continuation of 8-10% same store sales (SSS) growth.
Future Retail Jubilant Foodworks Shoppers Stop Titan Industries
Demand remains muted Consumer sentiment and footfalls remain subdued. The quarter saw Independence Day sale and end of season discount sale. Post the strong 67% volume growth in 1QFY14, TTAN's Jewelry division should report single-digit volume growth in 2Q, as gold price has spiked. This coupled with supply issues post RBI's 20:80 guidelines has exacerbated the situation on the ground. For JUBI, we expect 6-8% SSS growth, impacted by splitting of stores and weaker consumer sentiment. For FRL and Shoppers Stop (SHOP), we expect high single-digit SSS growth.
Space expansion selective Retail space expansion continues. SHOP opened three stores and closed one during the quarter. We expect JUBI to have opened ~30 stores. We expect traditional retailers to continue expanding, notwithstanding the weak consumer sentiment, as they believe there could be shortage of quality retail space after three years.
Regulatory actions continue in Jewelry segment RBI has continued with its regulatory onslaught on the Jewelry segment. It has linked gold imports to exports and has introduced the 20:80 scheme, whereby 20% of the imported quantity will be earmarked for exports and the next import consignment will be permitted only after 75% of the earlier 20% quantity is actually exported. It has also withdrawn the Gold-On-Lease scheme. The cumulative impact of all this will be reflected in TTAN's return ratios, working capital and leverage, as its balance sheet turns net debt from net cash. Our ground level checks suggest supply issues for jewelers, widening of premium and rising price gap between branded and 'mom and pop' jewelers due to surge in smuggled quantities.
Expected quarterly performance summary
Future Retail Jubilant Foodworks Shopper's Stop Titan Industries Sector Aggregate
CMP (INR) 27.09.13 71 1,173 356 235
(INR Million)
Rating Sep.13 UR Sell Neutral Neutral
24,365 4,345 6,868 26,174 61,752
Sales Var. % YoY -20.4 27.0 18.5 15.0 -1.3
Var. % QoQ 8.0 9.6 27.9 -15.8 -1.9
EBITDA Sep.13 Var. % YoY 2,071 -21.8 717 22.2 364 25.2 2,670 7.0 5,822 -3.3
Var. % QoQ 8.9 7.5 55.9 9.0 10.9
Net Profit Sep.13 Var. % YoY 41 39.1 359 10.9 105 63.6 1,905 5.7 2,409 8.6
Var. % QoQ LP 5.5 351.5 4.4 15.7
Gautam Duggad (
[email protected]) October 2013
C–155
September 2013 Results Preview | Sector: Retail
No imminent trigger The Retail sector has been impacted by well entrenched slowdown in discretionary consumption. The situation has marginally changed in favor of traditional retailers v/ s specialty retailers like TTAN and JUBI. Elongated discount season and low base are the driving factors, in our view. We expect another subdued quarter with cautious commentaries. We have a Neutral rating on TTAN and SHOP, and a Sell rating on JUBI. For FRL, which has recently completed the listing of its newly crafted fashion entity, Future Lifestyle Fashion, our rating is Under Review. Shoppers Stop - low base should drive 10% same store growth
Gold prices down 4.1% YoY and up 7% QoQ
LTL Sal es Gr (%)
38.5%
21
36.0%
35.6%
22 16 14
7
12.2% 5
11
20.0%
12
10
8.0%
10
-1
2
-6.3% -4.1%
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
1 Mar-10
Dec-09
23.2%
13 13
32.3%
Jubilant Foodworks' LTL sales growth is weakening consistently 36.7
33.2
30.1 26.2
26.7
22.3
19.8 16.1
1QFY14
6.3
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
4QFY11
7.7
Source: Company, MOSL
Relative performance-1Yr (%)
80
95
70
October 2013
Sep-13
100
Jun-13
90
Mar-13
105
Sep-13
100
Aug-13
110
Jul-13
110
Jun-13
115
Sens ex Index MOSL Reta il Index
Dec-12
Sens ex Index MOSL Reta il Index
Sep-12
Relative performance-3m (%)
C–156
September 2013 Results Preview | Sector: Retail
Area addition plans on track Shoppers Stop
Jubilant Foodworks
96
100 105 110 112 118 123 128
1QFY14
93
4QFY13
90
3QFY13
Jun-13
Mar-13
Dec-12
Sep-12
87
2QFY13
59
1QFY13
55
4QFY12
55
439 392 411
602
3QFY12
54
364 378
552 576
515 465 489
2QFY12
52
Jun-12
Jun-11
51
Mar-12
Mar-11
Dec-11
Dec-10
12
43
Sep-11
38
12
Ci ties
1QFY12
49
8 36
12
10
9 41
12
Stores 13
4QFY11
12
12 10
Hyperci ty
3QFY11
Shoppers Stop
Source: Company, MOSL
Comparative valuation CMP (INR) 27.09.13 Retail Jubi. Foodworks Shopper's Stop Titan Industries Sector Aggregate
October 2013
1,173 356 235
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Sell Neutral Neutral
20.9 4.9 8.2
56.1 73.2 28.7 34.6
29.6 22.7 19.5 21.6
31.2 5.9 42.5 29.3
24.7 7.0 9.0
34.3 10.6 10.1
47.5 51.0 26.2 30.8
34.2 33.6 23.2 25.8
23.5 18.6 18.3 19.3
16.7 14.1 15.6 15.7
26.9 7.9 31.7 26.5
27.2 10.9 28.6 25.4
C–157
September 2013 Results Preview | Sector: Retail
Future Retail Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
FRL IN 231.6 16 / 0.3 276 / 63 -8 / -57 / -74
Financials & Valuation (INR b) Y/E June Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%) * 18 months
2009 2010 2011 63.4 89.3 110.1 6.5 8.2 9.6 1.2 1.7 1.9 6.5 8.2 8.7 -18.0 25.8 7.1 119.4 136.1 140.1 5.4 6.0 6.2 12.5 14.2 12.1 10.2 9.8 10.3 13.9 0.8 5.9 0.7
11.0 0.7 4.7 0.9
2012* 122.5 11.0 1.1 4.8 -45.2 139.5 3.4 12.0 25.0
10.3 0.6 5.8 1.0
18.8 0.6 5.9 1.3
CMP: INR71
Under Review
For 3QCY13, reported results will include the numbers of only Future Retail. The base quarter had numbers of Pantaloon, Brand Factory and Central. Hence, the quarterly numbers will not be comparable.
We expect Future Retail to report sales of INR24.4b.
SSS growth in the value segment would be 7-8%.
We estimate EBITDA at INR2.07b (8.5% margin).
Interest cost would decline 53% QoQ to INR1.2b, as debt transfer of Pantaloon Retail format reflects in the numbers.
Adjusted PAT would be INR41m.
Our stock rating is Under Review. The demerger of Future Lifestyle Fashion is complete and the stock has listed recently.
Key issues to watch out ¾ Same store sales (SSS) performance; commentary on consumer demand ¾ Clarity on debt and inventory strategy
Quarterly Performance: Core Retailing
(INR Million)
Y/E June Net Sales YoY Change (%) Total Exp EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY12 1Q 29,106 12.8 26,583 2,523 18.6 8.7 828 1,305 79 468 138 29.5 330 -22.8
2Q 28,933 4.9 26,321 2,612 9.6 9.0 877 1,582 40 193 58 30.1 135 -71.4
3Q 30,264 7.6 27,488 2,776 12.0 9.2 887 1,725 16 180 60 33.3 120 -76.2
4Q 29,627 3.6 26,864 2,763 6.9 9.3 929 1,804 28 58 19 33.0 39 -92.1
CY13 5Q 30,600 5.1 27,953 2,647 4.9 8.7 975 1,761 132 44 14 33.0 29 -90.6
6Q 31,708 9.6 28,929 2,779 6.4 8.8 1,215 1,567 69 66 22 33.0 44 -67.2
1Q 23,360 -22.8 21,580 1,780 -35.9 7.6 730 1,160 30 -80 -26 33.0 -54 -144.6
2Q 22,561 -23.9 20,659 1,901 -31.2 8.4 788 1,280 60 -107 0 33.0 -107 -462.8
3QE 24,365 -20.4 22,294 2,071 -21.8 8.5 850 1,200 40 61 20 33.0 41 -
C–158
September 2013 Results Preview | Sector: Retail
Jubilant Foodworks Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
JUBI IN 63.5 74 / 1 1,397 / 928 0 / -10 / -19
CMP: INR1,173
Sell
We expect Jubilant Foodworks (JUBI) to report 27% increase in sales to INR4.3b. LTL sales growth would be ~8%.
Discretionary consumption remains weak and should impact quick service restaurant (QSR) spends too.
JUBI is likely to post 70bp contraction in EBITDA margin to 16.5% due to higher promotions and Dunkin Donuts expansion costs.
We estimate 11% PAT growth for 2QFY14 to INR359m.
We expect JUBI to have added 30 stores in 2QFY14.
The stock trades at 34.2x FY15E EPS of INR34.3 and does not reflect the slowdown and cyclicality of business model. Sell.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 10.2 1.9 1.1 16.6 48.9 45.6 36.4 48.9 0.0
2013 2014E 14.1 18.6 2.4 3.1 1.4 1.6 20.9 24.7 26.0 18.0 67.1 91.8 31.2 26.9 42.8 38.2 0.0 0.0
70.6 25.7 39.6 0.0
56.1 17.5 30.1 0.0
47.5 12.8 23.9 0.0
2015E 24.8 4.2 2.2 34.3 38.9 126.1 27.2 38.7 0.0 34.2 9.3 16.9 0.0
Key issues to watch out ¾
Management comments on demand outlook ¾ Performance of Dunkin Donuts ¾ Changes in expansion and capex strategy, if any
Quarterly Performance
(INR Million)
Y/E March No of Stores LTL Growth (%) Net Sales YoY Change (%) Gross Profit Gross Margin (%) Other Expenses % of Sales EBITDA EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 489 22.3 3,145 45.0 2,309 73.4 1,736 55.2 573 36.3 18.2 117 0 19 475 152 31.9 323 39.3
2Q 515 19.8 3,421 42.3 2,530 74.0 1,943 56.8 587 34.5 17.2 138 0 20 468 145 30.9 323 36.5
3Q 552 16.1 3,851 39.0 2,863 74.3 2,192 56.9 672 30.3 17.4 140 1 20 551 174 31.6 377 28.0
FY14 4Q 576 7.7 3,658 29.3 2,703 73.9 2,091 57.2 612 20.7 16.7 152 0 20 480 153 31.9 327 11.4
1Q 602 6.3 3,965 26.1 2,937 74.1 2,270 57.3 667 16.4 16.8 179 0 22 510 170 33.3 340 5.1
2QE 632 8.0 4,345 27.0 3,224 74.2 2,507 57.7 717 22.2 16.5 193 0 24 548 189 34.5 359 10.9
3QE 664 12.0 5,277 37.0 3,920 74.3 3,039 57.6 881 31.2 16.7 196 1 25 709 245 34.5 465 23.2
4QE 697 12.0 4,994 36.5 3,689 73.9 2,891 57.9 799 30.4 16.0 196 1 28 630 199 31.7 431 31.7
FY13
FY14E
576 16.2 14,076 38.4 10,405 73.9 7,961 56.6 2,444 30.0 17.4 547 1 78 1,974 623 31.6 1,351 26.0
701 10.0 18,580 32.0 13,771 74.1 10,707 57.6 3,064 25.4 16.5 765 1 100 2,397 803 33.5 1,594 18.0
C–159
September 2013 Results Preview | Sector: Retail
Shoppers Stop Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SHOP IN 82.2 29 / 0.5 494 / 321 -6 / -17 / -16
CMP: INR356
We expect Shoppers Stop (SHOP) to report 18.5% increase in sales to INR6.9b. SSS growth would be 10%, driven by low base of 2% growth in 2QFY13.
We estimate EBITDA margin at 5.3%, still below the normal trend of 78%, but up 30bp YoY due to better operating leverage, led by higher SSS growth.
Hypercity would remain a drag on consolidated profitability and post losses.
SHOP added three Shoppers Stop departmental stores and closed one during 2QFY14.
The stock trades at 33x FY15E standalone EPS. Maintain Neutral.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 19.0 1.4 0.6 7.8 -14.5 78.9 9.9 11.0 14.6
2013 2014E 22.3 26.8 1.3 1.6 0.4 0.6 4.9 7.0 -37.9 43.5 82.5 88.3 5.9 7.9 7.3 9.9 13.6 15.0
44.8 4.4 20.7 0.3
72.1 4.2 23.7 0.2
50.2 4.0 18.6 0.3
2015E 31.2 2.1 0.9 10.6 51.9 97.0 10.9 13.1 15.0 33.0 3.6 14.1 0.5
Neutral
Key issues to watch out ¾ Comments on same store sales (SSS) performance ¾ Comments on ensuing festive season demand
Quarterly Performance
(INR Million)
Y/E March LTL Sales Gr % Deptt Stores Net Sales YoY Change (%) Total Exp EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 1.0 52 4,467 13.7 4,330 138 -47.7 3.1 120 77 74 15 3 17.9 12 -89.3
2Q 2.0 55 5,796 16.5 5,505 291 -24.9 5.0 142 77 31 102 38 37.1 64 -67.3
3Q 12.5 55 6,041 20.4 5,588 453 9.6 7.5 120 86 32 279 108 38.7 171 -11.4
FY14 4Q 10.0 55 6,251 15.6 5,868 383 5.4 6.1 125 79 35 214 62 29.1 152 10.4
1Q 12.0 60 5,371 20.2 5,137 234 69.4 4.3 133 98 32 34 11 32.2 23 86.1
2QE 10.0 62 6,868 18.5 6,504 364 25.2 5.3 145 91 32 160 55 34.5 105 63.6
3QE 10.0 60 7,141 18.2 6,605 536 18.3 7.5 122 101 34 346 119 34.5 226 32.5
4QE 8.0 63 7,452 19.2 6,972 481 25.5 6.4 116 117 89 336 117 34.9 219 44.1
FY13
FY14E
7.4 55 22,555 16.7 21,291 1,264 -11.4 5.6 507 319 172 610 211 34.6 399 -37.9
10.0 60 26,831 19.0 25,218 1,614 27.6 6.0 517 408 187 876 303 34.6 573 43.5
C–160
September 2013 Results Preview | Sector: Retail
Titan Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
TTAN IN 887.8 208 / 3 314 / 200 -4 / -13 / -14
CMP: INR235
We expect Titan Industries (TTAN) to post sales of INR26.2b, up 15% YoY.
TTAN's Jewelry business is facing multiple challenges: (a) demand slowdown due to pressure on discretionary consumption, (b) supply shortage due to 20:80 scheme, and (c) withdrawal of gold-on-lease scheme.
After strong 67% volume growth in Jewelry in 1Q, we expect Jewelry volumes to grow in single digits. However, TTAN has been pushing Diamond Jewelry, which should result in higher share of Studded Jewelry.
We estimate margin decline of 50bp YoY, led by promotional offer on Diamond Jewelry and continued impact of INR depreciation on Watch margins. PAT should grow 9% to INR1.96b.
We expect the Watch segment to post a subdued quarter.
The stock trades at 21x FY15E EPS of INR11.2. Neutral.
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 88.4 101.1 120.1 8.3 10.1 11.2 6.0 7.3 8.3 6.8 8.2 9.3 40.5 20.1 13.9 16.3 22.1 28.5 48.9 42.5 32.6 66.9 59.4 52.6 30.1 30.0 30.0 34.5 14.4 23.9 0.9
28.7 10.6 19.5 1.0
25.2 8.2 17.1 1.2
2015E 142.0 13.3 9.9 11.2 19.8 36.3 30.7 49.1 30.0 21.0 6.5 14.0 1.4
Neutral
Key issues to watch out ¾ Clarity on gold supply and exports strategy in Jewelry, if any ¾ Hedging strategy ¾ Changes in expansion strategy, if any
Quarterly Performance
(INR Million)
Y/E March Net Sales YoY Change (%) Total Exp EBITDA EBITDA Growth (%) Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Adjusted PAT YoY Change (%) E: MOSL Estimates
October 2013
FY13 1Q 22,057 9.2 19,937 2,120 10.3 9.6 123 126 252 2,123 561 26.4 1,561 8.7
2Q 22,760 8.6 20,266 2,494 19.4 11.0 130 121 238 2,481 679 27.4 1,801 21.3
3Q 29,829 23.2 27,351 2,478 20.1 8.3 142 117 571 2,791 752 26.9 2,039 24.4
FY14 4Q 25,931 14.8 23,467 2,464 34.1 9.5 150 142 496 2,669 819 30.7 1,850 28.2
1Q 31,077 40.9 28,627 2,449 16 7.9 146 170 382 2,515 691 27.5 1,825 16.9
2QE 26,174 15.0 23,426 2,748 10.2 10.5 141 170 250 2,688 726 27.0 1,962 8.9
3QE 32,215 8.0 29,219 2,996 20.9 9.3 153 164 628 3,307 893 27.0 2,414 18.4
4QE 30,637 18.1 27,608 3,028 22.9 9.9 149 240 178 2,817 627 22.3 2,190 18.4
FY13
FY14E
101,127 15.6 91,020 10,116 37 10.0 545 506 1,008 10,072 2,811 27.9 7,262 20.1
120,102 18.8 108,880 11,222 11 9.3 589 744 1,439 11,328 2,936 25.9 8,391 15.6
C–161
September 2013 Results Preview | Sector: Technology
Technology Companies Covered Cognizant Technology HCL Technologies Hexaware Technologies Infosys
Currency to steal the show: While 2Q is a seasonally strong quarter for revenue growth, and 2QFY14 should pan out in line with seasonality, significant INR depreciation will dominate Technology companies' financial performance for the quarter. We expect aggregate EBITDA margin to expand 220bp QoQ for top-tier companies, with the range being 140-270bp QoQ. Margin expansion would be the least for Infosys due to full quarter impact of offshore wage hikes and the highest for TCS, as wage hikes were absorbed in 1Q.
KPIT Cummins MindTree MphasiS Persistent Systems TCS
Expect growth traction across the board: We expect no changes to the usual suspects when it comes to growth outperformance in 2QFY14. TCS (+4.9% QoQ including ALTI), and Cognizant (CTSH, +5.2% QoQ) would continue to lead the pack. Other companies across the top-tier are also expected to post decent growth ranging between 2-3% QoQ. In tier-II companies, we expect strong growth across the board (MTCL, PSYS, HEXW, KPIT).
Tech Mahindra Wipro
Cross-currency headwinds from AUD and INR: Companies are likely to be impacted negatively (on USD revenue line) by depreciation in AUD (~8% QoQ) and INR (~10%+ QoQ). Across the top-tier, we expect USD revenues to be impacted negatively by 50100bp from depreciation in sequential average rates of AUD and INR v/s the USD. Watch out for Infosys after a series of significant surprises, deal signings: The last three quarters kicked off the results calendar, with significant surprise at INFO, on the positive side in 3QFY13 and 1QFY14 and negative in 4QFY13. NRN's return to the fold should imply little likelihood of a stark negative surprise, given his recent commentary. TPI gave an outlook of healthy deal closures in the second half of calendar year, and the sentiment in US has been improving. Deal signing activity across the board will be keenly watched in company results.
Expected quarterly performance summary CMP Rating (INR) 27.09.13 HCL Technologies 1,071 Buy Hexaware Tech. 129 Neutral Infosys 3,006 Buy KPIT Tech. 131 Neutral Mindtree 1,186 Neutral MphasiS 428 Sell Persistent Systems 619 Buy TCS 1,947 Neutral Tech Mahindra 1,306 Buy Wipro 475 Buy Sector Aggregate
Sep.13 79,037 6,194 127,385 7,087 7,613 17,656 4,155 207,982 46,535 109,044 503,645
Sales Var. % YoY 29.8 22.0 29.2 24.9 27.7 35.2 27.1 33.1 32.1 NA 31.2
Var. Sep.13 % QoQ 13.8 19,690 15.4 1,492 13.1 35,502 15.6 1,355 17.5 1,612 14.7 3,538 16.3 931 15.6 65,151 13.4 10,886 12.1 22,273 14.5 140,157
EBITDA Var. % YoY 48.2 35.9 23.6 43.4 22.2 31.1 4.6 46.7 43.8 NA 38.9
Var. % QoQ 21.9 17.2 19.0 39.4 35.4 26.4 19.8 26.4 25.9 26.2 23.9
(INR Million) Net Profit Sep.13 Var. Var. % YoY % QoQ 13,333 54.3 11.3 1,167 38.9 19.2 26,558 12.1 11.9 771 89.6 28.2 1,077 49.2 -20.5 2,022 -3.4 5.0 489 9.4 -14.4 45,803 30.4 20.7 6,699 58.6 2.6 18,435 NA 13.6 97,918 28.5 14.3
Ashish Chopra (
[email protected])/Siddharth Vora (
[email protected]) October 2013
C–162
September 2013 Results Preview | Sector: Technology
Relative performance-3m (%) Sensex Index MOSL Technology Index
150 135 120 105 Sep-13
Aug-13
Jul-13
Jun-13
90
Relative performance-1Yr (%)
INFO, TECHM are our top picks: After a healthy run in valuations over the last four months amid favorable currency, improving demand environment and receding concerns around Immigration Bill, we expect select companies to outperform. We expect INFO's recent deal signings and cost optimization efforts to drive a healthy financial performance. INFO is our top pick in the sector. We see re-rating potential at TECHM, as the merged entity guns stronger for deals. Our Neutral rating on TCS is only due to steep valuations. Among tier-II companies, we prefer PSYS for its strong business mix and receding profitability concerns. TCS and Cognizant will continue to be growth leaders
Sensex Index MOSL Technology Index
155
TCS
Infos ys
Wi pro
HCL Tech
Cogni zant
9
140
4.9
6
110
2.4 2.4
3 0
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
-3 3QFY12
Sep-13
Jun-13
Mar-13
Dec-12
95 Sep-12
5.2 3.0
2QFY14E
125
TCS and Wipro showing incremental revenue acceleration 200 150 100 50 0 -50 TCS
Infos ys
Wi pro
HCL
Cogni za nt
Healthy growth across the board in tier-II companies Tech Mahi ndra
Pers i s tent Sys tem
Hexa ware
KPIT Cummi ns
Mi ndtree
10 5.5
7
4.2 2.8 4.5 4.3
3 -1 -4 1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14E
Source: Company, MOSL October 2013
C–163
September 2013 Results Preview | Sector: Technology
Margins uptick driven by depreciating rupee EBITDA Margins across the top tier TCS
Infos ys
HCL Tech
Wi pro
Cogni za nt
36% 31.3% 27.9%
31% 26%
24.9% 22.6% 21.8%
21%
*EBITDA margins in USD for Cognizant
2QFY14E
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
16%
Source: Company, MOSL
Aggregate top-tier USD revenue growth estimated at 3.4% QoQ Company TCS Infosys Wipro HCLT Aggregate
2QFY14E 3,321 2,038 1,627 1,265 8,250
Company TCS Infosys Wipro HCLT Aggregate
2QFY14E 31.3 27.9 22.6 24.9 27.7
Revenues (USD m) YoY (%) 1QFY14 16.4 3,165 13.4 1,991 5.6 1,588 13.5 1,228 13.0 7,972 EBITDA Margin (%) 2QFY13 YoY (%) 1QFY14 28.4 290 28.6 29.1 -130 26.5 20.1 260 20.5 21.8 310 23.3 25.5 218 25.6 2QFY13 2,853 1,797 1,541 1,114 7,304
QoQ (%) 4.9 2.4 2.4 3.0 3.5
2QFY14E 208 127 109 79 523
QoQ (%) 270 140 220 170 216
2QFY14E 46 27 18 13 104
Revenues (INR b) YoY (%) 1QFY14 33.1 180 29.2 113 2.3 99 29.8 69 24.0 461 PAT (INR b) 2QFY13 YoY (%) 1QFY14 35 30.4 38 24 12.1 24 16 14.5 16 9 54.3 12 84 24.6 90 2QFY13 156 99 107 61 422
QoQ (%) 15.6 13.1 10.7 13.8 13.7 QoQ (%) 20.7 11.9 13.6 11.3 15.8
Across tier-II companies, margins are expected to improve on aggregate and growth is likely to be driven by better macro environment Company 2QFY14E Tech Mahindra 745 Persistent Systems 66 Mphasis 277 Hexaware 99 KPIT Cummins 113 Mindtree 123 Aggregate 1,423 Company 2QFY14E Tech Mahindra 23.4 Persistent Systems 22.4 Mphasis 17.9 Hexaware 24.1 KPIT Cummins 19.1 Mindtree 21.2 Aggregate 21.8
October 2013
Revenues (USD m) 2QFY13 Yoy (%) 1QFY14 644 15.6 724 60 10.7 63 248 11.5 265 93 6.8 95 103 9.6 109 107 14.5 118 1,256 13.3 1,374 EBITDA Margin (%) 2QFY13 Yoy (%) 1QFY14 21.5 191 21.1 27.2 -483 21.7 17.6 31 15.8 21.6 245 23.7 16.7 246 15.9 22.1 -94 18.4 20.7 110 19.6
QoQ (%) 2.8 5.5 4.2 4.5 4.2 4.3 3.6
2QFY14E 46.5 4.2 17.7 6.2 7.1 7.6 89
QoQ (%) 232 66 206 36 326 279 216
2QFY14E 6.7 0.5 2.0 1.2 0.8 1.1 12.2
Revenues (INR b) Yoy (%) 1QFY14 QoQ (%) 32.1 41.0 13.4 27.1 3.6 16.3 35.2 15.4 14.7 22.0 5.4 15.4 24.9 6.1 15.6 27.7 6.5 17.5 30.7 78 14.4 PAT (INR b) 2QFY13 Yoy (%) 1QFY14 QoQ (%) 6.5 3 5.1 32 0.4 9 0.6 -14 2.1 -3 1.9 5 0.8 39 1.0 19 0.4 86 0.6 28 0.7 49 1.4 -20 11.0 11 10.5 16 Source: Company, MOSL 2QFY13 35.2 3.3 13.1 5.1 5.7 6.0 68
C–164
September 2013 Results Preview | Sector: Technology
2QFY14 Currency highlights (INR)
Average Closing
USD
Rates (INR) EUR GBP
AUD
USD
62.1 62.4
82.2 84.6
56.9 58.3
10.9% 5.4%
96.3 101.1
Change (QoQ, %) EUR GBP
AUD
12.5% 12.3% 2.8% 8.9% 11.7% 6.5% Source: Company, MOSL
2QFY14 Currency highlights (USD) EUR
Rates (USD) GBP
AUD
EUR
Change (QoQ, %) GBP
Average
1.33
1.55
0.92
1.5
1.0
Closing
1.35
1.62
0.93
3.8
AUD -7.7
6.3 1.8 Source: Company, MOSL
Cross currencies: Assumed rates v/s actuals Guided at
EUR
GBP
AUD
INR/USD
Infosys Wipro Actual (Average)
1.30 1.31 1.33
1.52 1.54 1.55
0.91 0.97 0.92
59.39 57.24 62.07
Change (%)
EUR
GBP
AUD
INR/USD
Impact on USD revenue
Infosys Wipro
1.9 1.2
2.0 0.7
0.3 -5.6
4.5 8.4
0.23 -0.58
EPS Estimates (INR) - MOSL v/s Consensus
Infosys TCS Wipro HCL Tech Mphasis Tech Mahindra Cognizant Hexaware KPIT Cummins Mindtree Persistent Systems Comparative valuation CMP (INR) 27.09.13 Technology HCL Technologies 1,071 Hexaware Tech. 129 Infosys 3,006 KPIT Tech. 131 Mindtree 1,186 MphasiS 428 Persistent Systems 619 TCS 1,947 Tech Mahindra 1,306 Wipro 475 Sector Aggregate October 2013
2QFY14 MOSL Consensus 46.5 43.1 23.4 21.9 7.5 7.4 18.9 15.4 9.6 10.2 31.5 36.3 1.10 1.20 3.9 4.3 3.9 3.6 25.8 26.2 12.2 13.6
FY14 MOSL Consensus 186.5 178.3 91.0 88.9 30.9 29.1 76.7 72.0 35.9 41.0 122.8 121.5 4.2 4.9 13.8 13.5 15.9 14.3 118.8 96.5 57.7 56.9
FY15 MOSL Consensus 215.5 200.4 104.2 102.5 34.0 32.4 85.2 80.5 42.4 43.3 131.1 129.1 4.8 5.7 14.9 14.3 17.5 16.1 130.8 104.4 66.8 63.9
Upside/Downside to Consensus (%) 2QFY14 FY14 FY15 7.9 4.6 7.6 6.8 2.3 1.7 1.0 6.0 4.9 22.6 6.5 5.8 -5.7 -12.4 -2.1 -13.1 1.1 1.5 -8.5 -14.2 -15.1 -9.4 1.9 4.2 8.2 11.6 8.4 -1.7 23.1 25.3 -10.3 1.3 4.5 Source: Company, MOSL
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Buy Neutral Buy Neutral Neutral Sell Buy Neutral Buy Buy
57.0 10.9 164.9 10.6 81.7 37.5 46.9 71.2 93.2 25.0
18.8 11.8 18.2 12.4 14.5 11.4 13.2 27.3 14.0 19.0 20.9
12.4 8.3 12.8 6.4 9.8 8.9 6.2 20.7 8.8 13.8 15.3
32.2 30.1 25.7 22.7 25.8 19.1 20.2 37.8 32.6 25.3 27.5
76.7 13.8 186.5 15.9 118.8 35.9 57.7 91.0 122.8 30.9
85.2 14.9 215.5 17.5 130.8 42.4 66.8 104.2 131.1 34.0
14.0 9.3 16.1 8.2 10.0 11.9 10.7 21.4 10.6 15.4 16.9
12.6 8.6 14.0 7.5 9.1 10.1 9.3 18.7 10.0 14.0 14.9
9.0 6.3 10.3 4.3 7.3 8.9 4.9 15.0 6.6 10.6 11.6
8.1 5.5 8.7 4.0 5.7 7.3 4.3 13.4 6.0 9.6 10.3
37.4 33.4 24.4 26.0 33.2 16.9 20.9 38.7 33.9 27.6 27.9
32.4 32.3 25.8 24.6 28.1 18.7 20.4 35.2 28.5 25.5 25.9 C–165
September 2013 Results Preview | Sector: Technology
Cognizant Bloomberg Equity Shares (m) M.Cap. (USD b) 52-Week Range (USD)
CTSH US 303.8 25 84 / 61
CMP: USD83
For 3QCY13, CTSH guided revenues of at least USD2,250m, implying QoQ growth of 4.1%, having upgraded its full-year revenue guidance to at least 19% from at least 17% earlier.
We expect CTSH to beat its 3QCY13 guidance and post revenues of USD2,275m, up 5.2% QoQ.
CTSH's full-year growth guidance implies 3.6% growth in 2H. With the company citing improved macro environment, reflected in our 3QCY13 estimate, we expect it to beat even its revised guidance.
With ~78% of revenues from North America, CTSH is likely to remain relatively unscathed from the impact of cross-currency movements, compared to its top-tier Indian peers.
We expect EBITDA margin of 21.8% for the quarter, up 10bp QoQ. Our SGA estimate is 21%, up 150bp QoQ due to wage hikes effective from 1 July 2013.
We expect net income of USD336m, up 11.7% QoQ, and net margin of 14.8%, up 90bp QoQ.
The stock trades at 8.8 CY13E and 10.3 CY14E earnings. Not Rated.
Financials & Valuation (USD b) Y/E December Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div yld (%)
2011 6.1 1.3 0.9 2.9 20.0 12.8 23.4 28.6 0.0
2012 2013E 7.3 8.8 1.5 1.9 1.1 1.3 3.5 4.2 21.0 20.5 16.0 19.7 23.9 23.4 28.9 29.8 0.0 0.0
29.0 6.5 18.8 0.0
24.0 5.2 15.0 0.0
19.9 4.2 11.8 0.0
2014E 10.3 2.1 1.5 4.8 15.5 24.6 21.7 27.1 0.0 17.2 3.4 9.8 0.0
Not Rated
Key issues to watch out ¾ Guidance for 4Q and expected revision of CY13 revenue guidance ¾ Commentary on deal ramp-ups following weak outlook cited by Accenture Quarterly Performance (US GAAP)
(USD Million)
Y/E December Revenues Q-o-Q Change (%) Direct Expenses SG&A SG&A as % of Sales EBITDA Margins (%) Other Income Depreciation PBT bef. Extra-ordinary Provision for Tax Rate (%) PAT before EO Q-o-Q Change (%) Headcount addition Closing Headcount Utilization E: MOSL Estimates
October 2013
CY12 1Q 1,711 2.9 985 374 21.9 353 20.6 4 35 322 79 24.4 244 7.3 2,800 140,500 67
2Q 1,795 4.9 1,031 397 22.1 368 20.5 3 36 335 83 24.8 252 3.4 4,500 145,000 68
3Q 1,892 5.4 1,112 385 20.3 395 20.9 9 39 364 87 24.0 277 9.9 5,400 150,400 70
CY13 4Q 1,948 3.0 1,151 402 20.6 396 20.3 10 39 366 87 23.8 279 0.7 6,300 156,700 68
1Q 2,021 3.7 1,200 413 20.4 408 20.2 11 42 377 93 24.6 284 1.9 6,000 162,700 67
2Q 2,161 7.0 1,272 421 19.5 469 21.7 -6 42 420 120 28.5 300 5.7 1,600 164,300 70
3QE 2,274 5.2 1,301 478 21.0 495 21.8 12 44 463 127 27.5 336 11.7 6,946 171,200 72
4QE 2,355 3.5 1,348 495 21.0 512 21.7 12 46 478 129 27.0 349 4.0 5,878 177,100 72
CY12
CY13E
7,346 20.0 4,278 1,558 21.2 1,511 20.6 26 149 1,388 336 24.2 1,051 19.0 19,000 156,700 68
8,812 19.9 5,122 1,806 20.5 1,884 21.4 28 173 1,739 469 27.0 1,269 20.7 20,400 177,100 70
C–166
September 2013 Results Preview | Sector: Technology
HCL Technologies Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HCLT IN 705.8 756 / 12 1,104 / 557 3 / 30 / 79
CMP: INR1,071
Financials & Valuation (INR b) Y/E June Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div yld (%)
2012 2013 2014E 210.3 257.3 327.9 39.4 57.5 77.5 24.6 40.3 54.5 35.1 57.0 76.7 52.0 62.6 34.5 155.4 205.9 267.5 25.6 32.2 37.4 21.2 29.1 32.2 34.2 21.1 17.0 30.5 6.9 18.6 1.1
18.8 5.2 12.2 1.1
14.0 4.0 8.9 1.2
2015E 360.8 81.4 61.0 85.2 11.1 334.9 32.4 28.8 19.5 12.6 3.2 8.0 1.2
Buy
We expect HCLT's revenues to grow 3% QoQ to USD1,265m. Traction in IMS should be strong - we estimate 6.1% QoQ growth to USD410m. We expect Software Services revenue growth of 1.5% QoQ to USD800m. Cross-currency movements would have a negative impact of ~60bp. Our volume growth estimate for Software Services is 2.6% QoQ. In INR terms, we expect revenue growth of 13.8% QoQ to INR79.04b. While wage hikes to a section of the staff will be a 60bp headwind to margins, we expect EBITDA margin to expand 160bp QoQ to 24.9% (after ESOP charges), owing to INR depreciation of ~10.5% QoQ. Our PAT estimate for the quarter is INR13,333m, up 11.3% QoQ. Our PAT margin estimate is 16.9% (after ESOP charges). HCLT announced deal signings with TCV of over USD1b+ in 4QFY13, taking total deals in FY13 to USD3b+. TPI has suggested that 2HCY13 will see healthy deal closures, driving expectations of healthy deal signings at HCLT. The stock trades at 14x FY14E and 12.6x FY15E EPS. Maintain Buy.
Key issues to watch out ¾ TCV of deals signed during the quarter ¾ Growth in Software Services segment ¾ Growth in US after improved outlook (Europe outgrew US in last three quarters)
Quarterly Performance (US GAAP) Y/E June
(INR Million) FY13
1Q 2Q 3Q Revenues 60,910 62,738 64,246 Q-o-Q Change (%) 2.9 3.0 2.4 EBITDA 13,288 13,945 14,156 Margins (%) 21.8 22.2 22.0 Other Income -253 154 887 PAT 8,642 9,444 10,189 Q-o-Q Change (%) 2.8 9.3 7.9 Y-o-Y Change (%) 80.0 70.9 75.1 Diluted EPS (INR) 12.3 13.5 14.4 USD Revenues 1,114 1,154 1,191 Q-o-Q Change (%) 3.2 3.6 3.2 Gross Margin (%) 34.9 35.5 35.6 SGA (%) 13.0 13.2 13.6 Tax rate (%) 23.8 23.7 24.0 Net Employee additions 1,016 -141 -791 Util. - incl. trainees (%) 74.2 75.6 79.0 Q-o-Q Vol Gr in s/w serv. (%) 2.5 0.4 0.4 Q-o-Q Realization change (%) -1.9 0.5 0.7 Offshore revenues (%) 44.3 44.9 44.6 E: MOSL Estimates; After adjusting for ESOP charges
October 2013
FY14E 4Q 69,442 8.1 16,147 23.3 782 11,975 17.5 42.4 17.0 1,228 3.1 36.5 13.3 21.5 1,102 80.6 1.4 -0.8 45.4
1Q 79,037 13.8 19,690 24.9 -765 13,333 11.3 54.3 18.9 1,265 3.0 37.8 12.9 22.0 2,950 81.0 2.6 -1.0 45.8
2Q 81,502 3.1 19,046 23.4 -351 13,107 -1.7 38.8 18.5 1,315 4.0 36.5 13.2 22.0 1,850 80.5 2.9 0.1 45.7
3Q 83,907 2.9 19,726 23.5 683 14,401 9.9 41.3 20.3 1,353 2.9 36.6 13.1 22.0 2,600 81.0 1.7 0.5 45.3
4Q 83,467 -0.5 19,015 22.8 437 13,644 -5.3 13.9 19.2 1,391 2.8 35.9 13.1 22.0 2,300 81.0 2.2 -0.1 45.4
FY13
FY14E
257,336 22.4 57,536 22.4 1,570 53,583
327,913 27.4 77,477 23.6 1,570 58,049
118.2 57.0 5,951 43.3 35.6 13.3 23.2 1,186 78.6 7.5 -2.0 44.8
8.3 76.7 6,152 3.4 36.7 13.1 22.0 9,700 81.1 7.8 -0.9 45.6
C–167
September 2013 Results Preview | Sector: Technology
Hexaware Technologies Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
HEXW IN 296.9 38 / 1 134 / 72 -9 / 47 / 1
2011 14.5 2.6 2.7 8.9 319.3 34.4 26.3 23.6 43.9 14.4 3.8 12.8 3.1
2012 2013E 19.5 23.0 4.1 5.2 3.4 4.1 10.9 13.8 22.2 26.3 40.3 42.3 27.8 32.5 31.2 37.2 48.7 35.4 11.8 3.2 8.4 4.2
Financials & Valuation (INR b) Y/E December Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div yld (%)
CMP: INR129
2014E 26.5 5.7 4.5 14.9 8.5 50.0 29.9 34.9 33.9
9.3 3.0 6.3 3.9
8.6 2.6 5.6 4.0
Neutral
For 3QCY13, HEXW had guided for USD revenue of USD98.1m-100m, implying QoQ growth of 3.5-5.5%. We estimate revenue growth of 4.5% QoQ to USD99.1m, at the midpoint of the guided band. In INR terms, we expect revenue growth of 15.4% QoQ to INR6.19b. HEXW managed to more than recover its EBITDA margin shrinkage that resulted from client-specific issues in 4QCY12. It had guided for gradual pick-up in margins in CY13. We saw a recovery of 240bp in 1QCY13 and another 440bp in 2QCY13. We model EBITDA margin uptick of 40bp QoQ to 24.1% in 3QCY13, as wage hikes become effective, offsetting most of the gains from favorable currency. Also, we expect SGA to revert to 17.3% of sales, up from 14.7% (the lowest ever) in 2Q. Our PAT estimate for the quarter is INR1,167m, up 19.2% QoQ, driven primarily by uptick in INR revenues. Our implied PAT margin estimate is 18.8%, up 60bp QoQ. HEXW had guided for a strong 2H, and we model 4.3% QoQ growth in 4Q, taking full-year revenue growth to 7.4%. Barings recently acquired the promoters' stake in the company for a maximum of INR135/share, casting doubts on further upside in the stock. The stock trades at 9.3x CY13E and 8.6x CY14E earnings. Neutral.
Key issues to watch out ¾ Outlook on strategy under the new promoters ¾ Guidance for 4QCY13 and margin outlook ¾ Peoplesoft implementation and large deals outlook Quarterly Performance (Indian GAAP)
(USD Million)
Y/E December Revenues Q-o-Q Change (%) Direct Cost Other Operating Exps Operating Profit Margins (%) Other Income Depreciation PBT bef. Extra-ordinary Provision for Tax Rate (%) Net Income bef. Extra-ordinary Q-o-Q Change (%) USD Revenues Q-o-Q Change (%) Diluted EPS - After EOI (INR) E: MOSL Estimates
October 2013
CY12 1Q 4,383 31.2 2,574 827 982 22.4 138 71 1,049 165 15.7 884 0.2 88.0 4.6 2.9
2Q 5,001 14.1 2,995 859 1,147 22.9 49 76 1,120 230 20.5 890 0.7 91.2 3.6 3.0
3Q 5,075 1.5 3,067 910 1,098 21.6 55 88 1,065 225 21.1 840 -5.6 92.8 1.8 2.8
CY13 4Q 5,023 -1.0 3,210 966 847 16.9 48 89 806 144 17.9 662 -21.2 92.4 -0.4 2.3
1Q 5,077 1.1 3,162 936 979 19.3 118 93 1,004 211 21.0 793 19.8 94.1 1.8 2.6
2Q 5,366 5.7 3,252 841 1,273 23.7 62 94 1,241 262 21.1 979 23.5 94.8 0.7 3.3
3QE 6,194 15.4 3,633 1,068 1,492 24.1 121 96 1,516 349 23.0 1,167 19.2 99.1 4.5 3.9
4QE 6,410 3.5 3,823 1,106 1,481 23.1 182 99 1,565 361 23.0 1,204 3.2 103.4 4.3 4.0
CY12
CY13E
19,482 34.3 11,846 3,562 4,074 20.9 380 324 4,130 764 18.5 3,366 26.2 364 18.3 10.9
23,046 18.3 13,870 3,951 5,225 22.7 483 382 5,326 1,183 22.2 4,143 23.1 391.4 7.4 13.8
C–168
September 2013 Results Preview | Sector: Technology
Infosys Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
INFO IN 571.4 1,718 / 28 3,173 / 2,190 -11 / -1 / 12
Financials & Valuation (INR b) Y/E March Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yield (%)
2012 337.3 107.2 83.2 145.5 21.9 585.0 28.0 32.9 32.3
2013 403.5 115.6 94.2 164.9 13.3 695.8 25.7 28.5 25.5
2014E 499.5 137.4 106.5 186.5 13.1 829.4 24.4 28.6 24.1
2015E 552.4 153.3 123.1 215.5 15.6 986.3 25.8 27.1 23.2
20.7 5.1 14.1 1.6
18.2 4.3 12.8 1.4
16.1 3.6 10.3 1.5
14.0 3.0 8.7 1.7
CMP: INR3,006
Buy
INFO's guidance of 6-10% growth in annual USD revenues implies flattish CQGR to meet the mid-point and 1.45% CQGR to meet the higher end of the guidance. We expect the company to beat the higher end of its implied revenue growth guidance for FY14.
We expect overall revenues to grow 2.4% QoQ to USD2.04b. This includes negative impact of 60bp from cross-currency, implying CC revenue growth of 3% QoQ. In INR terms, we expect revenue growth of 13.1% QoQ to INR127.4b.
EBITDA margin is likely to expand 140bp QoQ, as tailwinds from 10.4% QoQ depreciation in INR should be offset by ~200bp headwind from offshore wage hikes becoming effective during the quarter.
INFO has been aggressive in addressing cost optimization, and we expect some gains from the lower hanging fruits to show on margins as well. We expect overall utilization including trainees to increase by 60bp QoQ to 73%.
We expect PAT to grow 11.9% QoQ to INR26.6b, led by higher margins during the quarter.
The stock trades at 16.1x FY14E and 14x FY15E EPS. Maintain Buy.
Key issues to watch out ¾ Revenue growth guidance for FY14 ¾ Deal signings in the BITS segment and growth in the same ¾ Performance on margins ¾ Pricing movement QoQ Quarterly Performance (IFRS)
(INR Million)
Y/E March Revenues Q-o-Q Change (%) EBITDA Margins (%) Other Income PAT Q-o-Q Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) Operating Metrics Gross Margin (%) SGA (%) Tax rate (%) Net Employee additions Utiliz. - excl. trainees (%) Q-o-Q Volume Growth (%) Q-o-Q Realization chg (%) E: MOSL Estimates
October 2013
FY13
FY14E
1Q 96,160 8.6 29,460 30.6 4,760 22,890 -1.2 40.1 1,752 -1.1
2Q 98,580 2.5 28,720 29.1 7,060 23,690 3.5 41.5 1,797 2.6
FY13 3Q 104,240 5.7 29,700 28.5 5,030 23,690 0.0 41.5 1,911 6.3
4Q 104,540 0.3 27,694 26.5 6,740 23,940 1.1 41.9 1,938 1.4
1Q 112,670 7.8 29,830 26.5 5,770 23,740 -0.8 41.6 1,991 2.7
2QE 127,385 13.1 35,502 27.9 3,914 26,558 11.9 46.5 2,038 2.4
FY14 3QE 128,912 1.2 35,766 27.7 5,041 27,679 4.2 48.5 2,079 2.0
4QE 130,510 1.2 36,263 27.8 5,771 28,573 3.2 50.0 2,105 1.2
403,520 19.6 115,570 28.6 23,590 94,206 13.3 164.9 7,398 5.8
499,478 23.8 137,361 27.5 20,496 106,549 13.1 186.5 8,213 11.0
42.2 11.6 27.8 1,157 71.6 2.8 (3.7)
40.9 11.8 28.3 2,610 73.3 3.8 (0.2)
39.8 11.3 25.5 1,508 73.2 2.7 3.6
37.9 11.4 23.7 1,419 73.9 1.6 (0.2)
37.9 11.4 26.8 575 75.9 2.4 (0.1)
38.5 10.7 26.5 1,709 77.9 2.1 (0.1)
38.5 10.7 26.5 3,231 76.5 1.4 (0.1)
38.5 10.7 26.5 2,634 75.6 5.3 0.0
40.1 11.5 26.3 6,694 73.0 0.0 -
38.4 10.9 26.6 8,149 76.5 0.0 -
C–169
September 2013 Results Preview | Sector: Technology
KPIT Cummins Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
KPIT IN 198.3 26 / 0.4 160 / 92 -8 / 31 / 0
CMP: INR131
Financials & Valuation (INR b) Y/E March Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div yld (%)
2012 14.9 2.1 1.2 8.0 41.4 39.0 22.4 20.6 8.7
2013 2014E 22.4 28.3 3.7 5.3 2.0 3.2 10.6 15.9 31.5 51.0 53.3 68.9 23.6 26.7 30.2 34.4 9.5 6.3
16.3 3.3 12.1 0.5
12.4 2.5 6.4 0.8
8.2 1.9 4.3 0.8
2015E 32.1 5.5 3.5 17.5 9.6 73.0 25.2 31.0 8.6 7.5 1.8 4.0 1.1
Neutral
KPIT expects higher revenue growth in 2QFY14 than in 1Q (3.1% QoQ). We expect USD revenues to grow 4.2% QoQ to USD113.4m. In INR terms, we expect revenue growth of 15.6% QoQ to INR7.09b. With wage hikes already effective in 1Q, we expect margins to expand by 320bp QoQ to 19.1% owing to sharp INR depreciation. Our SGA estimate for the quarter is 15.5%, down 20bp QoQ. In absolute terms, our SGA estimate is INR1,099m v/s INR960m in 4QFY13. Our PAT estimate for the quarter is INR770.9m, up 28.2% QoQ. Our PAT margin estimate is 10.9%, up 110bp QoQ. PAT would be boosted by higher margins, but partially offset by forex losses. KPIT has guided revenues of USD465m-475m for FY14, a growth of 13.3-15.7%. We estimate FY14 revenues at USD465.3m, up 13.4%. The SAP segment is likely to boost revenues and margins in 2HFY14. Top account, Cummins should sustain its 1Q levels in the near term. The two contribute ~43% to KPIT's revenues. The stock trades at 8.2x FY14E and 7.5x FY15E EPS. Maintain Neutral.
Key issues to watch out ¾ Growth in top account (Cummins) and SAP segment ¾ Overall revenue guidance ¾ Outlook on margins
Quarterly Performance
(INR Million)
Y/E March Revenues QoQ Change (%) Direct Expenses SG&A EBITDA Margins (%) Other Income Depreciation Interest PBT bef. Extra-ordinary items Provision for Tax Rate (%) PAT after MI QoQ Change (%) Extra-ordinary Items PAT aft. Minority and EO QoQ Change (%) Diluted EPS (INR) USD Revenues QoQ Change (%) Offshore util. (%) Onsite util. (%) E: MOSL Estimates October 2013
FY13 1Q 5,383 42.1 3,506 1,065 812 15.1 30 113 35 694 185 26.6 486 16.9 27 513 24.9 2.8 98 33.5 74.1 94.7
2Q 5,672 5.4 3,703 1,024 945 16.7 -191 114 34 605 191 31.6 407 (16.8) 55 461 (10.0) 2.5 103 5.5 74.7 94.5
3Q 5,633 4.7 3,706 1,045 882 15.7 77 118 42 800 183 22.8 599 47.2 -94 504 (1.6) 2.7 103 0.0 72.9 92.8
FY14 4Q 5,699 1.2 3,725 963 1,011 17.7 -86 121 42 762 207 27.1 512 (19.3) 0 512 1.5 2.6 106 2.0 74.1 94.3
1Q 6,132 7.6 4,200 960 972 15.9 59 122 63 847 246 29.0 601 17.5 0 601 17.5 3.0 109 3.1 73.4 94.2
2QE 7,087 15.6 4,634 1,099 1,355 19.1 -80 130 63 1,083 312 28.8 771 28.2 0 771 28.2 3.9 113.4 4.2 74.0 94.0
3QE 7,359 3.8 4,803 1,141 1,415 19.2 -41 140 63 1,171 337 28.8 834 8.1 0 834 8.1 4.2 119 4.7 74.0 94.0
4QE 7,714 4.8 4,970 1,196 1,548 20.1 -13 145 63 1,326 382 28.8 944 13.3 0 944 13.3 4.8 124 4.8 75.0 95.0
FY13
FY14E
22,386 50.3 14,640 4,096 3,650 16.3 -170 466 154 2,860 766 26.8 2,003 62.0 -13 1,990 63.8 10.6 410 33.6 73.9 94.1
28,292 26.4 18,607 4,395 5,290 18.7 -75 537 252 4,427 1,277 28.8 3,150 64.3 0 3,150 58.3 15.9 465 13.4 74.1 94.3 C–170
September 2013 Results Preview | Sector: Technology
MindTree Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MTCL IN 41.5 49 / 1 1,216 / 635 9 / 25 / 73
2012 2013 2014E 19.2 23.6 30.0 2.9 4.9 6.3 2.2 3.4 5.0 53.7 81.7 118.8 116.5 52.2 45.4 233.5 314.5 400.9 25.2 25.8 33.2 25.6 37.0 36.8 7.4 14.7 11.8 22.1 2.2 15.1 0.3
14.5 3.7 9.0 1.0
Financials & Valuation (INR b) Y/E March Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yld (%)
CMP: INR1,186
10.0 2.9 6.7 1.2
2015E 33.9 7.4 5.5 130.8 10.1 531.7 28.1 33.1 13.0
9.1 2.2 5.2 1.4
Neutral
MTCL reiterated its guidance of growing 2QFY14 USD revenues at a rate similar to 1Q. We model QoQ revenue growth of 4.3% to USD122.8m. Despite significant traction in overall deals, the Hi-tech vertical is likely to witness QoQ decline. In INR terms, our growth estimate stands at INR7.6b or 17.5% QoQ. For accounting, MTCL follows the practice of taking the USD/INR rate prevalent at the beginning of a month for the whole month. In consistently depreciating INR scenario of 2Q, the QoQ depreciation in average realized INR is greater for MTCL than for peers. We estimate EBITDA margin at 21.4%, up 280bp QoQ. We expect significant tailwinds from currency to be offset by wage hikes effective during the quarter for ~65% of the salary base. Our PAT estimate for the quarter is INR1,076.9m, which implies PAT margin of 14.1%, well below the PAT margin of 20.9% in the previous quarter, which was inflated by INR618m worth of forex gains. We model INR114m of forex losses in 2QFY14. MTCL had reiterated its confidence of improving its growth rate in FY14 v/s FY13. This confidence emanates from deal wins worth USD256m in the last two quarters. The stock trades at 10x FY14E and 9.1 FY15E earnings. Neutral.
Key issues to watch out ¾ Performance and outlook of the Hi-tech vertical ¾ Deal wins on the back of strong couple of quarters ¾ Margin outlook in a weak currency environment Quarterly Performance
(INR Million)
Y/E March Revenues Q-o-Q Change (%) Direct Expenses SGA Operating Profit Margins (%) Other Income Forex Gain / (Loss) Depreciation & Amort. Interest PBT bef. Extra-ordinary Provision for Tax Rate (%) Reported PAT Q-o-Q Change (%) USD Revenue Q-o-Q Change (%) Util including trainees (%) E: MOSL Estimates October 2013
FY13 1Q 5,630 23.3 3,442 1,014 1,174 20.9 52 86 159 3 1,150 260 22.6 890 63.3 105.5 4.1 68.9
2Q 5,963 5.9 3,570 1,074 1,319 22.1 74 -415 159 4 815 93 11.4 722 -18.9 107.3 1.7 71.7
3Q 5,901 -1.0 3,517 1,180 1,204 20.4 70 142 151 2 1,263 275 21.8 988 36.8 109.9 2.5 71.4
FY14 4Q 6,124 3.8 3,745 1,216 1,163 19.0 154 -153 155 1 1,008 219 21.7 789 -20.1 113.0 2.8 69.6
1Q 6,477 5.8 3,824 1,462 1,191 18.4 117 618 181 1 1,744 390 22.4 1,354 71.6 117.7 4.2 69.6
2QE 7,613 17.5 4,282 1,718 1,612 21.2 96 -114 193 1 1,399 323 23.0 1,077 -20.5 122.8 4.3 71.0
3QE 7,829 2.8 4,391 1,738 1,700 21.7 106 0 201 1 1,604 377 23.5 1,227 14.0 126.3 2.8 69.0
4QE 8,088 3.3 4,502 1,779 1,807 22.3 120 0 216 1 1,710 402 23.5 1,308 6.6 130.5 3.3 70.0
FY13
FY14E
23,618 23.3 14,274 4,484 4,860 20.6 350 -340 624 10 4,236 847 20.0 3,389 55.1 435.7 8.2 70.4
30,007 27.0 16,999 6,698 6,310 21.0 439 504 790 4 6,458 1,491 23.1 4,966 46.5 497.2 14.1 69.9
C–171
September 2013 Results Preview | Sector: Technology
Mphasis Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MPHL IN 210.0 90 / 1 513 / 335 -1 / 4 / 3
CMP: INR428
Financials & Valuation (INR b) Y/E October Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div yld (%)
2011 2012 2013E 51.0 53.6 59.7 9.9 10.5 11.1 8.3 7.9 7.6 39.3 37.5 35.9 -19.1 -4.6 -4.3 185.7 209.6 216.9 23.1 19.1 16.9 22.2 19.6 18.9 16.5 45.3 50.1
2014E 68.6 13.3 8.9 42.4 18.0 236.0 18.7 21.1 47.2
10.9 2.3 7.3 1.5
11.4 2.0 6.1 4.0
11.9 2.0 7.1 4.2
10.1 1.8 5.6 4.7
Sell
We expect MPHL's 4QFY13 revenues to grow 4.2% QoQ to USD276.6m, driven by Digital Risk and mature market growth. The company is likely to report healthy growth, as (1) headwinds of reducing emerging markets business are behind, with exit from India business completed last quarter, (2) the pace of decline in HP business has reduced, and (3) HP's overall contribution to total revenues has declined substantially. Digital Risk continues to grow at a healthy rate, with annualized exit rate of USD170m, last quarter. In INR terms, we expect revenues at INR17.6b, up 14.7% QoQ. EBITDA margin is likely to expand 180bp QoQ to 20%, primarily on account of exit from low margin India business and currency benefit. In absolute terms, we expect EBITDA to grow 26.4% QoQ to INR3.54b. We expect SG&A expense to increase by 90bp to 10.3% v/s 9.4% in 3QFY13. We have assumed tax rate of 26% for the quarter. PAT is likely to grow 5% QoQ to INR2.02b. Our PAT margin estimate is 11.5%, down 100bp QoQ due to incremental investments in S&M, as guided by the management. The stock trades at 11.9x FY13E and 10.1x FY14E EPS. Maintain Sell.
Key issues to watch out ¾ Outlook for Digital Risk, HP Channel and Direct Channel ¾ Margin outlook post currency benefit and incremental investments in sales ¾ Change in headcount and hiring outlook Mphasis - Quarterly Performance
(INR Million)
Y/E October Revenues Q-o-Q Change (%) Direct Expenses Sales, Gen. & Admin. Exp. Operating Profit Margins (%) Other Income Depreciation PBT bef. Extra-ordinary Provision for Tax Rate (%) PAT bef. Extra-ordinary Q-o-Q Change (%) Diluted EPS (INR) USD Revs Q-o-Q Change (%) E: MOSL Estimates
October 2013
FY12 1Q 13,672 5.7 9,995 1,155 2,522 18.4 338 468 2,392 544 22.7 1,848 -5.1 8.8 271 -2.0
2Q 13,289 -2.8 9,454 1,221 2,614 19.7 340 455 2,499 605 24.2 1,894 2.5 9.0 266 -1.8
3Q 13,551 2.0 9,596 1,280 2,675 19.7 441 415 2,701 614 22.7 2,087 10.2 9.9 252 -5.2
FY13 4Q 13,062 -3.6 9,088 1,274 2,700 20.7 394 407 2,687 594 22.1 2,093 0.3 9.9 248 -1.6
1Q 12,571 -5.4 9,052 1,191 2,328 18.5 423 378 2,373 529 22.3 1,844 -2.6 8.8 237 -6.0
2Q 14,054 11.8 10,168 1,468 2,418 17.2 290 350 2,358 593 25.1 1,765 -4.3 8.4 263 11.0
3Q 15,398 9.6 11,136 1,463 2,799 18.2 193 365 2,627 701 26.7 1,926 9.1 9.2 265 1.0
4QE 17,656 14.7 12,300 1,818 3,538 20.0 -422 385 2,732 710 26.0 2,022 5.0 9.6 276.6 4.2
FY12
FY13E
53,574 5.1 38,133 4,930 10,511 19.6 1,513 1,745 10,279 2,357 22.9 7,922 -4.6 37.5 1,036 -7.4
59,679 11.4 42,656 5,940 11,083 18.6 484 1,478 10,090 2,533 25.1 7,557 -4.6 35.9 1,042 0.5
C–172
September 2013 Results Preview | Sector: Technology
Persistent Systems Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PSYS IN 40.0 25 / 0.4 630 / 409 -2 / 10 / 44
Financials & Valuation (INR b) Y/E March Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 10.0 12.9 16.8 2.3 3.4 4.0 1.4 1.9 2.3 35.4 46.9 57.7 3.8 32.4 23.0 216.4 262.1 306.8 17.9 20.2 20.9 17.5 14.7 16.0 49.3 19.2 20.8 17.5 2.9 8.9 1.0
13.2 2.4 6.0 1.5
10.7 2.0 4.7 1.9
2015E 19.6 4.3 2.7 66.8 15.8 366.1 20.4 16.8 21.0 9.3 1.7 4.1 2.3
CMP: INR619
Buy
We expect PSYS' USD revenues to grow 5.5% QoQ to USD66.5m and INR revenues to grow 16.3% QoQ to INR4.15b. Growth in Services as well as IP-led business is likely to be strong. We expect Services revenues to grow 4% QoQ, and HPCA (Radia) revenues to drive IP-led segment growth of 10.8% QoQ. EBITDA margin should expand 70bp QoQ to 22.4%. 500bp tailwind to margins (~450bp from currency and 40-50bp on lower costs) should be offset by ~350bp headwind (260-270bp offshore wages, 20-30bp campus joinees, ~50bp on higher CSR, and 20-30bp on new facility in US). Our PAT estimate for the quarter is INR488.6m, down from INR571m in the previous quarter due to lower other income (INR7m v/s INR263m in 1Q) on the back of forex losses. The stock trades at 10.7x FY14E and 9.3x FY15E earnings. Buy.
Key issues to watch out ¾ Revenue growth outlook in IP and SMAC ¾ Commentary on potential of winning large deals ¾ Strategy on reinvestment of currency benefits ¾ Commentary on HPCA (Radia) renewals
Quarterly Performance
(INR Million)
Y/E March Revenues Q-o-Q Change (%) EBITDA Margins (%) Other Income Depreciation PBT bef. Extra-ordinary Provision for Tax Rate (%) PAT aft. Minority and EO Q-o-Q Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) E: MOSL Estimates
October 2013
FY13 1Q 3,007 12.3 807 26.8 -47 185 575 160 27.7 416 2.4 10.4 54.9 6.3
2Q 3,269 8.7 890 27.2 -78 189 623 176 28.3 446 7.4 11.2 60.1 9.4
3Q 3,330 1.9 824 24.7 84 198 710 215 30.3 495 10.9 12.4 60.8 1.2
FY14 4Q 3,340 0.3 831 24.9 102 211 722 203 28.1 519 4.8 13.0 62.1 2.2
1Q 3,573 7.0 777 21.7 263 237 803 232 28.9 571 10.0 14.3 63.0 1.5
2QE 4,155 16.3 931 22.4 7 245 693 204 29.5 489 -14.4 12.2 66.5 5.5
3QE 4,391 5.7 1,062 24.2 -41 248 772 228 29.5 544 11.4 13.6 70.8 6.5
4QE 4,679 6.6 1,280 27.3 -31 251 997 294 29.5 703 29.1 17.6 75.5 6.6
FY13
FY14E
12,945 29.4 3,352 25.9 61 783 2,630 754 28.7 1,876 32.3 46.9 237.8 14.7
16,798 29.8 4,049 24.1 198 981 3,266 959 29.4 2,307 23.0 57.7 275.8 16.0
C–173
September 2013 Results Preview | Sector: Technology
Tata Consultancy Services Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
TCS IN 1,957.2 3,811 / 61 2,076 / 1,198 -4 / 19 / 47
CMP: INR1,947
Financials & Valuation (INR b) Y/E March Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. yield (%)
2012 488.9 144.2 106.4 54.4 22.5 166.7 36.7 44.1 46.0
2013 629.9 180.9 139.4 71.2 31.0 209.8 37.8 43.8 30.9
2014E 816.5 246.6 178.1 91.0 27.7 260.7 38.7 48.4 33.0
2015E 931.2 268.3 204.0 104.2 14.6 331.0 35.2 42.2 27.8
35.8 11.7 26.3 1.3
27.3 9.3 20.7 1.1
21.4 7.5 15.0 1.5
18.7 5.9 42.2 1.5
Neutral
We expect 2QFY14 revenues to grow 4.9% QoQ to USD3,321m, driven by [1] ~5% organic revenue growth in CC terms, [2] ALTI contribution of 1.2%, and [3] negative cross-currency impact of -1% QoQ. In INR terms, we expect revenue growth of 15.6% QoQ to INR208b. There will be marginal impact from promotions during the quarter, along with integration of lower margin ALTI. Despite these, we expect EBITDA margin to expand 270bp QoQ to 31.3%. Our SGA assumption for the quarter is 17.3% (v/s 18.6% in 1QFY14). We expect negative other income of -INR588m (v/s INR2.5b in 1QFY14), driven by forex loss of INR2.5b during the quarter. Our PAT estimate stands at INR45.8b, up 20.7% QoQ. PAT margin would be 22%, up 90bp QoQ. We have assumed effective tax rate of 24% (similar to 1Q). TCS has maintained its guidance of beating Nasscom's growth guidance of 12-14% for FY14. The stock trades at 21.4x FY14E and 18.7x FY15E EPS. Maintain Neutral, with a price target of INR2,000.
Key issues to watch out ¾ Commentary on sustainable margins ¾ Probability of higher growth due to reinvestment of currency gains ¾ Deal signings
Quarterly Performance (IFRS)
(INR Million)
Y/E March Revenues Q-o-Q Change (%) EBITDA Margins (%) Other Income PAT Q-o-Q Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) Operating Metrics Gross Margin (%) SGA (%) Tax rate (%) Util - excl. trainees (%) Q-o-Q Volume Gr (%) E: MOSL Estimates
October 2013
FY13
FY14
FY13
FY14E
1Q 148,687 12.1 43,328 29.1 1,754 32,806 11.9 16.8 2,728 3.0
2Q 156,208 5.1 44,403 28.4 3,103 35,121 7.1 17.9 2,853 4.6
3Q 160,699 2.9 46,540 29.0 2,133 35,518 1.1 18.1 2,948 3.3
4Q 164,301 2.2 46,599 28.4 4,185 35,969 1.3 18.4 3,040 3.1
1Q 179,871 9.5 51,532 28.6 2,517 37,962 5.5 19.4 3,165 4.1
2QE 207,982 15.6 65,151 31.3 -588 45,803 20.7 23.4 3,321 4.9
3QE 211,334 1.6 64,355 30.5 1,101 46,456 1.4 23.7 3,409 2.6
4QE 217,361 2.9 65,554 30.2 1,772 47,855 3.0 24.5 3,506 2.9
629,895 28.8 180,870 28.7 11,174 139,413 31.0 71.2 11,568 13.7
816,548 29.6 246,592 30.2 4,802 178,075 27.7 91.0 13,400 15.8
47.2 18.1 22.2 81.3 5.2
46.4 18.0 21.0 81.6 5.0
47.4 18.4 21.8 81.7 1.2
47.8 19.4 23.9 82.0 4.4
47.2 18.6 24.1 82.7 6.1
48.7 17.3 24.0 84.1 6.8
48.2 17.7 24.0 82.7 2.0
48.0 17.8 24.0 82.2 2.2
47.2 18.5 22.3 81.7 15.2
48.0 17.8 24.0 82.9 19.1
C–174
September 2013 Results Preview | Sector: Technology
Tech Mahindra Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
TECHM IN 231.9 303 / 5 1,434 / 865 -14 / 19 / 31
CMP: INR1,306
Financials & Valuation (INR b)* Y/E March 2012 2013 2014E Sales 54.9 143.3 182.3 EBITDA 9.2 30.6 40.3 Adj. PAT 9.3 19.8 26.1 Adj. EPS (INR) 70.4 93.2 122.8 EPS Gr. (%) 29.8 32.4 31.7 BV/Sh.(INR) 339.7 322.3 410.7 RoE (%) 26.0 32.6 33.9 RoCE (%) 14.3 35.3 33.7 Payout (%) 5.7 5.8 4.1 Valuations P/E (x) 18.6 14.0 10.6 P/BV (x) 3.8 4.1 3.2 EV/EBITDA (x) 18.4 7.8 5.9 Div. Yield (%) 0.3 0.4 0.4 * TECHM standalone
2015E 198.3 41.1 27.9 131.1 6.8 529.1 28.5 28.6 3.8 10.0 2.5 5.2 0.4
Buy
We expect TECHM's revenues to grow 2.8% QoQ to USD745m, partially aided (50bp) by one month of revenues from the acquisition of Complex IT. Revenues from BT are likely to decline sequentially, with growth in all other major segments. In INR terms, we expect revenue growth of 13.4% QoQ to INR46.5b. We expect EBITDA margin to expand by 230bp QoQ on account of INR depreciation, following partial offset of tailwinds, with transitionrelated expenses at onsite. Our PAT estimate for the quarter is INR6.7b (after adjusting for restructuring fees), up 2.6% QoQ. This implies PAT margin of 14.4%, down 150bp QoQ. 1Q PAT was boosted by INR1.4b forex gains. TECHM trades at 10.6x FY14E and 10x FY15E EPS. Maintain Buy, with a price target of INR1,580 (12x FY15E EPS).
Key issues to watch out ¾ Commentary on large deals traction and success ¾ Commentary on BT contract under re-negotiation ¾ Large deals progress at Satyam
Quarterly Performance
(INR Million)
Y/E March Revenues Q-o-Q Change (%) Direct Cost Other Operating Exps Operating Profit Margins (%) Other Income Interest Depreciation PBT bef. Extra-ordinary Provision for Tax Rate (%) Minority Interest Net Income bef. Extra-ordinary Q-o-Q Change (%) Adjust. for Restructuring item Extra-ordinary items Net Income aft. EO & Rest. fees Q-o-Q Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) E: MOSL Estimates October 2013
FY13 1Q 33,727 21,007 5,328 7,392 21.9 1,129 251 915 7,355 1,911 26.0 -40 5,404 335.0 0 5,069 1.5 23.8 615
2Q 35,237 4.5 22,271 5,397 7,569 21.5 -697 214 908 5,750 1,176 20.5 -15 4,559 -15.6 335.0 0 4,224 -16.7 19.9 644 4.7
3Q 36,683 4.1 22,761 5,965 7,957 21.7 1,308 204 866 8,195 1,931 23.6 -109 6,155 35.0 335.0 -2,940 2,880 -31.8 27.4 675 4.7
FY14 4Q 37,673 2.7 23,968 5,992 7,713 20.5 381 253 1,207 6,634 1,461 22.0 -137 5,036 -18.2 335.0 1,340 6,041 109.8 22.1 698 3.5
1Q 41,032 8.9 25,693 6,694 8,645 21.1 2,073 223 1,174 9,321 2,328 25.0 -130 6,863 36.3 335.0 0 6,528 8.1 30.7 724 3.7
2QE 46,535 13.4 27,971 7,678 10,886 23.4 188 224 1,297 9,553 2,388 25.0 -130 7,034 2.5 335.0 0 6,699 2.6 31.5 745 2.8
3QE 47,100 1.2 28,293 7,771 11,035 23.4 25 224 1,283 9,554 2,388 25.0 -130 7,035 0.0 335.0 0 6,700 0.0 31.5 760 2.0
4QE 47,594 1.0 29,999 7,853 9,742 20.5 609 224 1,269 8,858 2,214 25.0 -130 6,513 -7.4 335.0 0 6,178 -7.8 29.1 768 1.0
FY13
FY14E
143,320
182,261 27.2 111,957 29,997 40,307 22.1 2,895 895 5,022 37,285 9,319 25.0 -520 27,446 29.7 1,340.0 0 26,106 43.3 122.8 2,996 13.8
90,007 22,682 30,631 21.4 2,121 922 3,896 27,934 6,479 23.2 -301 21,154 56.8 1,340.0 -1,600 18,214 53.2 93.2 2,633
C–175
September 2013 Results Preview | Sector: Technology
Wipro Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
WPRO IN 2,461.1 1,169 / 19 501 / 315 -5 / 4 / 20
Financials & Valuation (INR b) Y/E March Sales EBITDA PAT EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div Yld (%)
2012 2013 2014E 318.7 374.3 434.1 74.1 83.7 98.2 62.5 72.0 85.8 21.3 25.0 30.9 -1.3 17.3 23.6 116.5 115.6 138.0 23.8 25.3 27.6 20.2 21.9 25.8 28.2 28.0 24.3 22.3 4.1 16.5 1.3
19.0 4.1 13.8 1.5
15.4 3.4 10.6 1.6
2015E 473.9 104.8 94.2 34.0 10.1 162.7 25.5 24.1 23.5 14.0 2.9 9.6 1.7
CMP: INR475
Buy
Wipro had guided 2-4% QoQ revenue growth for 2QFY14, implying revenues of USD1,620m-1,650m.
We model revenue growth at 3% QoQ in CC terms and at 2.4% in reported currency terms to USD1,627m.
We expect SGA to be 12.3% (v/s 12.8% in 1Q) and EBIT margin to expand 230bp QoQ to 20.4%.
IT Services EBIT margin should expand 210bp QoQ to 22.1% on tailwinds from currency and some leverage from SGA, offsetting headwinds from wage hikes.
Our PAT estimate for the quarter is INR18.4b, up 13.6% QoQ.
We expect Wipro to sustain its performance for the next quarter as well, and estimate 2-4% QoQ growth in CC terms.
The stock trades at 15.4x FY14E and 14x FY15E earnings. Buy.
Key issues to watch out ¾ Revenue growth guidance for 3QFY14 ¾ Commentary on margins and investment plans ¾ Outlook on declining segments like Telecom OEMs and Hi-tech
Wipro Quarterly Performance (IFRS)
(INR Million)
Y/E March Revenues Q-o-Q Change (%) EBIT Margins (%) Other Income PAT Q-o-Q Change (%) Y-o-Y Change (%) Diluted EPS (INR) USD Revenues Q-o-Q Change (%) Gross Margin (%) SGA (%) IT Services EBIT (%) Tax rate (%) Net Employee additions Utilization-incl.trainees (%) Q-o-Q Volume Growth(%) Q-o-Q Realization Chg. (%) Offshore revenues (%) Rev Guidance (USDm)
FY13 1Q 106,530 7.9 18,722 17.6 1,223 15,802 6.7 18.4 6.4 1,515 -1.4 31.6 14.0 21.0 20.2 2,632 69.5 0.8 -2.2 46.2 1,5201,550
2Q 106,566 0.0 18,587 17.4 2,662 16,106 1.9 23.8 6.6 1,541 1.7 31.3 13.9 20.7 23.9 2,017 67.5 0.2 1.5 46.6 1,5201,550
3Q 109,487 2.7 18,700 17.1 3,402 17,164 6.6 17.9 7.0 1,577 2.4 31.0 13.9 20.2 21.9 2,336 65.0 -1.0 3.3 46.2 1,5601,590
FY14 4Q 96,078 -12.2 17,067 17.8 2,744 17,373 1.2 17.3 6.4 1,585 0.5 30.3 12.5 20.2 20.1 2,907 65.1 2.5 -2.0 46.6 1,5851,630
1Q 97,294 1.3 17,650 18.1 2,918 16,233 -6.6 2.7 6.6 1,588 0.2 30.9 12.8 20.0 20.7 1,469 64.7 0.9 -0.7 46.1 1,5751,610
2QE 109,044 12.1 22,273 20.4 1,778 18,435 13.6 14.5 7.5 1,627 2.4 32.7 12.3 22.1 23.0 2,715 66.1 3.4 -1.0 46.3 1,6201,650
3QE 112,411 3.1 23,569 21.0 2,227 19,779 7.3 15.2 8.0 1,663 2.2 33.2 12.3 22.8 23.0 3,515 66.0 1.7 0.5 46.2
4QE 115,360 2.6 24,699 21.4 3,189 21,389 8.1 23.1 8.7 1,698 2.1 33.6 12.2 23.4 23.0 3,515 66.0 1.8 0.3 46.3
FY13
FY14E
374,256 17.4 67,346 18.0 11,250 61,362
434,110 16.0 88,190 20.3 10,111 75,835
17.3 25.0 6,218 5.0 30.4 12.4 20.5 21.5 9,892 66.7 4.2 1.7 46.2
23.6 30.9 6,576 5.8 32.7 12.4 22.1 22.5 11,214 65.7 6.3 0.0 46.1
E: MOSL Estimates October 2013
C–176
Sept ember 2013 Results Pr eview | Sect or: Telecom
Telecom Companies Covered Bharti Airtel Bharti Infratel Idea Cellular Reliance Communication
Seasonal weakness - wireless traffic to decline ~3% QoQ: In 2QFY14, we expect average wireless traffic (Bharti/Idea/RCom/Vodafone) to decline ~3% QoQ. At the aggregate level, 2Q traffic growth has historically declined by 6-7 percentage points as compared to the average QoQ growth witnessed during the preceding three quarters (3Q-1Q). Based on the average traffic growth of 3% in the preceding three quarters (3QFY131QFY14), a 'normal' seasonal impact should result in ~3% decline in traffic at the aggregate level, in-line with our estimates. Blended RPM to remain flat: Post 4-6% increase in 1QFY14, we expect voice RPM to remain flat QoQ on a blended basis. TRAI guidelines of reduction in SMS termination charges and double confirmation for VAS services are likely to impact "non-voice non-data" revenues (9-10% of India wireless revenues for Bharti/Idea) but should be offset by strong data revenue growth (~7% of wireless revenues for Bharti/Idea). EBITDA margin to decline 150/190bp QoQ for Bharti/Idea: We expect 150-190bp EBITDA margin decline for Bharti/Idea due to negative operating leverage. Our estimates imply 7/9% QoQ domestic wireless EBIDTA decline for Bharti/Idea, in line with seasonal weakness.
Abbreviations and acronyms RPM: revenue per minute TRAI: Telecom R egulat or y Authority of India ARPU: average revenue per user MOU: minutes of use
Bharti Africa - expect performance to stabilize: Post disappointments during the past few quarters in the Africa business, led by regulatory/political uncertainties as well as competitive action, we expect the performance to stabilize. We model 2/3% QoQ growth in USD denominated revenues/EBITDA for Bharti Africa. Subscriber additions remain muted; Aircel's net adds leadership surprises: Subscriber additions in 2QFY14 remained positive but relatively muted, likely due to seasonal weakness as well as continued operator discipline towards increasing channel efficiencies. We note that Indian wireless subscriber base had declined by 71m during the period July 2012 to February 2013, led by stringent TRAI regulations on the subscriber acquisition process, decline in industry level channel commissions, and footprint reduction by challengers. Aircel added the highest subscribers for the second straight month in August. Given the recent RPM increase for wireless operators (4-6% QoQ in 1QFY14), we would watch for the net adds trend to ascertain whether Aircel's strong subscriber growth is driven by opening up of any pricing advantage.
Expected quarterly performance summary
Bharti Airtel Bharti Infratel Idea Cellular Reliance Comm Sector Aggregate
CMP (INR) 27.09.13 325 159 172 151
(INR Million)
Rating Sep.13 Buy Neutral Buy Neutral
209,143 26,670 63,353 53,458 352,624
Sales Var. % YoY 7.8 4.4 19.2 2.8 8.6
Var. % QoQ 3.2 1.7 -3.1 -1.2 1.2
EBITDA Sep.13 Var. % YoY 64,406 8.5 10,338 7.9 19,175 34.8 16,735 2.2 110,654 11.1
Var. % QoQ -1.6 -2.0 -8.7 -1.6 -3.0
Net Profit Sep.13 Var. % YoY 3,350 -53.5 3,428 38.4 4,309 79.6 1,383 4.6 12,470 -7.0
Var. % QoQ -51.4 -4.1 -11.7 6.1 -25.1
Shobhit Khare (
[email protected]) / Anil Shenoy (
[email protected]) October 2013
C–177
Sept ember 2013 Results Pr eview | Sect or: Telecom
Sharp reserve price cut by TRAI re-confirms that policy regime turning accommodative; spectrum auction expected in January 2014; spectrum trading can accelerate consolidation: Recent TRAI recommendations re-confirm our view of a more accommodative stance by the regulator. The Supreme Court mandated spectrum auction as well as auction for renewal of spectrum for two operators each in Delhi/ Mumbai/Kolkata is likely to be scheduled in January 2014. TRAI has recommended ~37%/62% cut in reserve price for 1800MHz/900MHz (for Delhi, Mumbai and Kolkata) to ~INR75b/INR33b. The reserve price is at the upper end of our spectrum valuation estimate of INR45b-75b. Also, TRAI has allowed spectrum trading, which can be a significant reform and can accelerate the pace of industry consolidation, in our view. Assuming spectrum valuation at current reserve prices, our next four-year spectrum liability incorporated in current target prices (based on 75% of earlier reserve price) would decline for Bharti from ~INR188b (INR47/share) to ~INR142b (INR36/share) and for Idea from ~INR129b (INR39/share) to ~INR118b (INR36/share). Passive consolidation "in progress" - M&A to follow?: We believe incumbents could be gearing up to be natural consolidators post announcement of final policy on M&A (expected in October 2013), given (1) increased market maturity (2) funding/leverage constraints for challengers, and (3) some gaps in incumbents' portfolio like 3G dark circles and circles where their revenue market share is below 15% (especially Idea, with single-digit revenue market share in 8/22 circles). Valuation and view: Over FY13-15, we expect 15/26/11% EBITDA CAGR for Bharti/Idea/ RCom led by 6/10/4% traffic CAGR and 4-5% RPM CAGR in the India wireless business. We reiterate Buy on Bharti (trades at ~6.1x proportionate FY15E EV/EBITDA) and Idea (trades at ~6.5x FY15E EV/EBITDA), and Neutral on RCom (trades at ~7.4x FY15E EV/ EBITDA).
Wireless subscriber net additions (m) 19 20 20
Industry subscriber additions have stabilized
15 13
11
7 7 8 8
3
9 10 7 8
8 2
6
5
-5
-2 -1
-2 -2
3 3 2 -1
-14 -21 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
-26
Source: TRAI, MOSL
October 2013
C–178
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dƌĞŶĚŝŶǁŝƌĞůĞƐƐZWD;/EZͿ Bha rti
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Voda foneIndi a
RCOM
47
tĞĞdžƉĞĐƚZWDƚŽƌĞŵĂŝŶ ĨůĂƚYŽY
45.7 44.0 43.7 42.5
45 43 41 2QFY14E/A
1QFY14E
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
39
ŐŐƌĞŐĂƚĞƚƌĂĨĨŝĐŐƌŽǁƚŚĂŶĚZWDƚƌĞŶĚĨŽƌǁŝƌĞůĞƐƐŵĂũŽƌƐ QoQ traffi c growth (%) 6 1
5 3
4 2
1
0
2 0
0
0 1QFY14E
4QFY13
3
1QFY13
4QFY12
3QFY12
2QFY12
2
2QFY13
1 1QFY12
14
15
15
13
12
2QFY14E
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11
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3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
6
7
4QFY13
8
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1QFY14
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5
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3QFY13
10 8 6 4 2 0 2 4
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Sept ember 2013 Results Pr eview | Sect or: Telecom
Bharti: Non-voice contribution Non Voi ce a s a % revenu e 17.3 16.8
16.3
4.3
Traditional VAS and SMS are likely to be under pressure, offset by continued strong data growth
1QFY13
Data as a % revenu e 17.4 17.3
5.7
6.5
7.4
5.2
2QFY13
3QFY13
4QFY13
1QFY14
Idea: Non-voice contribution Non Voi ce as a % reven ue
Data a s a % revenu e
14.5
15.6
14.6
15.2
16.0
5.7
7.2
5.4
6.6
4.5
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
Net Debt/EBITDA (FY13) 5.9
3.2 2.6
RCom
Voda fone Indi a
Bh arti
2.1
Ide a
Leverage remains reasonable for Bharti/ Net Debt/Equity (FY13) Idea, but alarming for RCom 1.4 1.2 0.9
RCo m
Idea
B harti Source: Compan y, MOSL
October 2013
C–180
Sept ember 2013 Results Pr eview | Sect or: Telecom
2QFY14: Summary Expectations Wireless KPIs FY12
YoY (%)
QoQ (%)
193 127 128 154
4.0 9.8 -5.3 1.1
1.3 1.5 1.6 -0.4
190 123 124 154
192 126 127 155
2.9 8.2 -12.4 1.0
1.3 2.1 1.9 0.6
193 167 128 187
200 174 129 196
190 164 125 189
7.4 10.7 23.0 11.8
-4.9 -5.9 -2.9 -3.6
435 384 271 329 438
455 406 291 344 459
455 398 283 346 461
433 374 275 334 445
3.9 4.3 16.3 6.4 6.4
-4.9 -5.9 -3.0 -3.6 -3.6
42.6 41.2 43.2 53.9 40.4
42.6 41.1 43.8 53.6 40.2
42.4 41.1 43.9 54.3 40.7
44.0 43.7 45.6 56.6 42.5
44.0 43.7 45.7 56.6 42.5
3.4 6.1 5.8 5.0 5.6
0.0 0.0 0.1 0.0 0.0
234 126 102 144 192
241 132 103 148 197
253 143 105 155 207
258 147 106 160 213
3Q
4Q
1Q
2Q
3Q
4Q
169 95 143 142
173 100 147 145
176 106 150 148
181 113 153 150
187 117 155 154
186 115 135 153
182 114 119 147
188 122 123 152
191 125 126 155
166 92 139 138
171 98 145 143
174 103 149 146
178 110 152 149
184 115 154 152
187 116 145 153
184 115 127 150
185 118 121 150
190 160 103 169
183 155 101 164
187 159 100 167
189 160 99 173
185 156 98 174
177 148 102 169
185 158 119 176
445 391 233 308 411
423 364 227 297 396
419 369 224 303 405
431 379 227 318 424
433 379 228 324 433
417 359 236 313 418
42.8 40.9 44.4 54.8 41.1
43.2 42.6 44.7 55.2 41.4
44.6 43.1 44.5 55.0 41.3
43.8 42.2 43.7 54.4 40.8
42.7 41.2 43.1 53.6 40.2
221 109 98 128 170
217 106 99 128 170
219 114 100 133 178
231 124 103 142 190
239 131 105 148 197
140
95
115
85
90 Sep-13
105
Jun-13
165
Sep-13
115
Aug-13
190
Jul-13
125
Sens ex Inde x MOSL Tel ecom Index
Mar-13
Se nse x Index MOSL Te l ecom Index
Jun-13
249 6.4 -3.5 141 12.6 -4.0 104 1.8 -1.2 155 7.5 -3.0 206 7.5 -3.0 Source: Company/MOSL
Relative Performance-1Yr (%)
Dec-12
Relative Performance-3m (%)
October 2013
FY14 1Q 2QE
2Q
Sep-12
EOP Wireless Subs (m) Bharti (India) Idea RCOM Voda fone - India AV. Wirele ss Subs (m) Bharti (India) Idea RCOM Voda fone - India ARPU (INR/month) Bharti (India) Idea RCOM Voda fone - India MOU/Sub Bharti (India) Idea RCOM Voda fone India (report ed) Vodafone India (adj) Revenue per min (p) Bharti (India) Idea RCOM Voda fone India (report ed) Vodafone India (adj) Wireless traffic (B min) Bharti (India) Idea RCOM Voda fone India (report ed) Vodafone India (adj)
FY13
1Q
C–181
Sept ember 2013 Results Pr eview | Sect or: Telecom
Quarterly F inancials (INR b) FY12 Revenue Bharti (ex Africa) Bharti (consolidated) Idea RCOM Vodafone - India (implie d) EBITDA (INR b) Bharti (ex Africa) Bharti (consolidated) Idea RCOM EBITDA Margin (%) Bharti (ex Africa) Bharti (consolidated) Idea RCOM# PAT (INR b) Bharti (ex Africa) Bharti (consolidated) Idea RCOM EPS (INR) Bharti
FY13
FY14 1Q 2QE
YoY (%)
QoQ (%)
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
126.3 169.7 45.2 53.0 70.0
126.8 172.7 46.2 50.4 70.5
131.6 184.8 50.3 50.5 73.3
134.2 187.3 53.7 53.1 77.4
126.6 185.6 55.0 53.2 79.4
126.9 188.1 53.1 52.0 77.7
131.0 193.6 55.8 53.0 79.2
133.6 195.8 60.6 54.1 84.1
141.2 202.6 65.4 54.1 90.4
138.9 209.1 63.4 53.5 87.7
9.5 11.2 19.2 2.8 12.9
-1.6 3.2 -3.1 -1.2 -3.0
46.0 57.1 12.0 16.0
45.7 58.2 11.9 16.1
45.2 59.6 13.4 16.1
47.4 62.3 15.1 16.3
40.4 54.9 14.4 16.5
40.9 57.0 14.2 16.4
41.5 57.7 14.7 16.5
45.2 60.6 17.5 16.7
49.3 65.4 21.0 17.0
46.0 64.4 19.2 16.7
12.5 13.1 34.8 2.2
-6.6 -1.6 -8.7 -1.6
36.4 33.6 26.6 30.2
36.1 33.7 25.7 31.8
34.4 32.2 26.7 31.9
35.3 33.3 28.1 30.7
31.9 29.6 26.1 31.0
32.3 30.3 26.8 31.5
31.6 29.8 26.4 31.2
33.9 30.9 28.9 30.9
34.9 32.3 32.1 31.4
33.1 30.8 30.3 31.3
15.2 12.2 1.8 2.2
14.5 10.3 1.1 3.2
12.7 10.1 2.0 2.4
13.5 10.1 3.4 2.0
15.8 7.6 2.3 1.9
13.9 7.2 2.4 1.3
8.9 2.8 2.3 1.1
10.8 5.1 3.8 -2.4
14.8 6.9 4.9 1.3
12.1 3.4 4.3 1.4
-13.1 -53.5 79.6 4.6
-18.5 -51.4 -11.7 6.1
3.2
2.7
2.7
2.7
2.0
1.9
0.7
1.3
1.8
0.8
-55.9
-53.4
0.5 1.1
0.3 1.6
0.6 1.2
0.7 1.0
0.7 0.9
0.7 0.6
0.7 0.6
0.9 -1.2
1.4 0.6
1.3 0.7
79.3 4.6
-6.9 6.1
24.7 20.6 7.8 11.0 26.5 25.5 12.0 18.8 12.6 10.4 11.0 9.0 8.4 4.1 9.7 6.5 13.3 4.3 3.6 3.5 3.6 4.3 3.7 4.2 4.2 3.4 2.5 interconnect revenue of ~INR5.9b and one-time EBITDA of ~INR2.4b
20.6 5.1 3.1
-19.0 -47.8 -26.7
64.0 18.0 26.8
Idea RCOM Capex (INR b) Bharti (ex Africa) Idea RCOM * 2QFY13 adjusted for one-time
88bp -178bp 51bp -150bp 350bp -187bp -19bp -13bp
Comparative valuation CMP (INR) 27.09.13 Telecommunication Bharti Airtel 325 Bharti Infratel 159 Idea Cellular 172 Reliance Comm 151 Sector Aggregate
October 2013
Rating
Buy Neutral Buy Neutral
EPS (INR) FY13 FY14E FY15E 6.0 5.6 3.1 0.9
7.7 7.4 6.0 4.9
13.7 9.9 8.9 11.2
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
54.2 28.6 56.4 160.3 55.4
8.1 8.7 11.7 10.6 9.1
42.4 21.5 28.8 31.0 33.5
23.7 16.2 19.3 13.5 19.7
7.1 7.9 8.2 9.3 7.7
5.8 7.0 6.5 7.4 6.3
RoE (%) FY13 FY14E FY15E 4.2 6.3 7.4 0.6 4.0
5.2 8.0 12.8 3.4 6.1
8.4 10.3 16.6 7.5 9.5
C–182
Sept ember 2013 Results Pr eview | Sect or: Telecom
Bharti Airtel Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BHARTI IN 3,997.4 1,300 / 21 370 / 257 1 / 7 / 18
CMP: INR325
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj. Net Profit Adj. EPS (INR) Adj. EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) Div. payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 714.5 237.1 42.6 11.2 -29.6 140.7 8.1 6.2 10.0
2013 769.0 232.6 22.8 6.0 -46.6 143.4 4.2 4.3 10.0
2014E 853.0 271.9 30.3 7.7 27.9 158.5 5.2 5.0 10.0
2015E 920.7 309.4 54.7 13.7 78.7 171.4 8.4 6.2 10.0
28.9 2.3 8.1 0.3
54.2 2.3 8.0 0.2
42.4 2.1 7.6 0.2
23.7 1.9 6.1 0.4
Buy
We expect consolidated revenues to grow 8% YoY and 3% QoQ to INR209.1b. India revenues would grow 5% YoY to INR139b while Africa business revenues would grow 2% QoQ to USD1.08b. Consolidated EBITDA margin is likely to decline by ~150bp. We expect ~180bp QoQ EBITDA margin decline for the India business, largely due to decline in traffic at flat RPM due to seasonal weakness. India mobile revenues would decline 3% QoQ to INR112b, due to 3.5% QoQ traffic decline and flat wireless RPM. We estimate EBITDA margin for mobile business at 30.4%. After weak performance in 1QFY14 (revenue decline of 5%), Africa business is expected to post stronger results, with 2/3% revenue/ EBITDA growth QoQ in USD terms. We estimate an ARPU of USD5.5 and subscriber base of 67m. Consolidated net profit is likely to decline 54% YoY to INR3.4b. PAT for India & SA is expected to remain flat YoY. We have estimated a forex loss of INR 2.8b for Bharti for 2QFY14. Bharti trades at proportionate EV/EBITDA of 7.6x FY14E and 6.1x FY15E. Maintain Buy.
Key issues to watch out ¾ QoQ mobile traffic growth in India business (we expect 3.5% decline), forex loss (we have modeled INR 2.8b), African business financials (we have 2/3% revenue/EBITDA growth QoQ in USD terms. Quarterly Performance (Consolidated) Y/E March
(INR Million) FY13
1Q 2Q 3Q 4Q Revenue 185,601 193,999 193,624 195,821 YoY Growth (%) 9.3 12.3 4.8 4.6 EBITDA 54,856 59,369 57,749 60,605 YoY Growth (%) -3.9 2.1 -3.1 -2.8 QoQ Growth (%) -12.0 8.2 -2.7 4.9 Margin (%) 29.6 30.6 29.8 30.9 Net Finance Costs 7,367 9,250 12,310 11,157 Depreciation & Amortization 35,901 36,891 37,350 38,006 Profit before Tax 12,294 14,211 9,032 12,317 Income Tax Expense / (Income) 4,543 7,195 6,192 7,254 Profit after Tax 7,751 7,016 2,839 5,063 Minority interest -129 196 -2 23 Reported Net Profit / (Loss) 7,622 7,212 2,836 5,086 YoY Growth (%) -37.3 -29.8 -72.0 -49.4 Consolidated net debt (INR b) 656 612 585 586 India - Mobi le Traffic (B Min) 239 234 241 253 QoQ Growth (%) 3.7 -2.1 2.8 5.1 India - Mobile RPM (p/min) 42.7 42.6 42.6 42.4 QoQ Growth (%) -2.6 -0.2 -0.1 -0.5 Africa - Revenue (USD m) 1,066 1,097 1,133 1,120 Africa - EBITDA (USD m) 275 298 300 285 Africa - EBITDA margin (%) 25.8 27.1 26.5 25.4 E: MOSL Estimates October 2013
FY14 1Q 2QE 3QE 202,639 209,143 216,734 9.2 7.8 11.9 65,449 64,406 68,582 19.3 8.5 18.8 8.0 -1.6 6.5 32.3 30.8 31.6 11,676 13,037 10,006 38,470 41,430 41,950 16,125 10,816 17,561 8,573 7,079 8,785 7,553 3,738 8,776 -664 -388 -395 6,889 3,350 8,380 -9.6 -53.5 195.4 593 674 648 258 249 257 2.1 -3.5 3.0 44.0 44.0 44.5 3.9 0.0 1.2 1,062 1,085 1,124 283 291 306 26.7 26.8 27.2
FY13
FY14E 4QE 224,461 769,045 852,977 14.6 7.6 10.9 73,454 232,579 271,891 21.2 -1.9 16.9 7.1 32.7 30.2 31.9 9,762 40,085 44,481 42,578 148,148 164,429 22,111 47,852 66,614 10,014 25,183 34,450 12,097 22,669 32,164 -395 88 -1,842 11,702 22,757 30,322 130.1 -46.6 33.2 631 586 631 267 968 1,032 4.0 45.0 42.4 44.4 1.1 1,162 4,416 4,433 313 1,157 1,193 26.9 26.2 26.9
C–183
Sept ember 2013 Results Pr eview | Sect or: Telecom
Bharti Infratel Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BHIN IN 1,888.7 301 / 5 216 / 126 13/-15/-
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj. Net Profit Adj. EPS (INR) Adj. EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) Div. payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2013 102.7 38.3 10.0 5.6 29.6 91.0 6.3 5.6 86.5
2014E 107.7 42.0 14.0 7.4 33.0 94.1 8.0 7.0 58.2
2015E 117.5 46.5 18.6 9.9 32.9 98.1 10.3 8.6 60.1
28.6 1.7 7.7 3.0
21.5 1.7 6.9 2.7
16.2 1.6 6.1 3.7
CMP: INR159
Neutral
We expect revenue to grow 1.7% QoQ to INR26.7b.
Revenue from rent is likely to grow 1.9% QoQ, while energy and other reimbursements are likely to grow 1.5% QoQ.
We expect EBITDA to decline 2% QoQ to INR10.34b due to one-off income of INR193m in 1QFY14; proforma EBITDA is expected to remain largely flat. EBITDA margin would decline ~150bp QoQ to 38.8%; however, profroma EBITDA margin is likely to improve by ~35bp.
We expect 4.1% QoQ decline in reported PAT to INR3.43b. On a liketo-like basis, PAT is expected to increase 7% QoQ.
Bharti Infratel trades at an EV/EBITDA of 6.9x FY14E and 6.1x FY15E. Neutral.
Key issues to watch out ¾ EBITDA margin (we expect 38.8%), Rental revenue mix (we expect 61%).
Quarterly Performance (Consolidated)
(INR Million)
Y/E March 1Q Sales 24,165 YoY Change (%) Operating expenses 15,306 EBITDA 8,859 YoY Change (%) EBITDA margin (%) 36.7 Depreciation 5,396 Interest 849 Other Income 543 PBT 3,157 Tax 1,023 Effective Tax Rate (%) 32.4 Adjusted net profit 2,134 YoY Change (%) Revenue mix Rent revenue mix (%) 63 Energy & other reimbursements (%) 37 E: MOSL Estimates
October 2013
FY13
FY14
2Q 25,555
3Q 26,264
15,977 9,578
16,448 9,816
37.5 5,528 1,033 646 3,663 1,186 32.4 2,477
37.4 5,620 996 569 3,769 1,228 32.6 2,541
62 38
62 38
FY13
4Q 26,736 11.3 16,687 10,049 -16.7 37.6 5,655 1,067 1,369 4,696 1,845 39.3 2,873 34.3
1Q 26,220 8.5 15,670 10,550 19.1 40.2 5,528 1,044 1,469 5,447 1,871 34.3 3,576 67.6
2QE 26,670 4.4 16,333 10,338 7.9 38.8 5,597 1,039 1,484 5,186 1,758 33.9 3,428 38.4
3QE 27,172 3.5 16,675 10,497 6.9 38.6 5,683 1,037 1,487 5,264 1,784 33.9 3,479 36.9
4QE 27,682 3.5 17,023 10,659 6.1 38.5 5,771 1,032 1,502 5,358 1,811 33.8 3,545 23.4
61 39
61 39
61 39
61 39
61 39
FY14E
102,720 107,744 8.7 4.9 64,418 65,701 38,302 42,043 8.2 9.8 37.3 39.0 22,199 22,579 3,945 4,151 3,127 5,942 15,285 21,254 5,282 7,225 34.6 34.0 10,003 14,029 33.2 40.3 62 38
61 39
C–184
Sept ember 2013 Results Pr eview | Sect or: Telecom
Idea Cellular Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
IDEA IN 3,316.7 571 / 9 177 / 79 1 / 47 / 94
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Net Sales 195.4 224.6 263.8 EBITDA 50.9 60.0 81.7 Adj. Net Profit 7.2 10.1 19.8 Adj. EPS (INR) 2.2 3.1 6.0 Adj. EPS Gr. (%) -19.6 39.6 95.6 BV/Sh (INR) 39.5 43.6 49.8 RoE (%) 5.7 7.4 12.8 RoCE (%) 5.4 5.7 8.2 Div. Payout (%) 0.0 11.5 11.5 Valuations P/E (x) 78.7 56.4 28.8 P/BV (x) 4.4 4.0 3.5 EV/EBITDA (x) 13.8 11.6 8.2 Div. Yield (%) 0.0 0.2 0.4
2015E 299.3 95.6 29.6 8.9 49.4 57.7 16.6 11.5 11.5 19.3 3.0 6.5 0.6
CMP: INR172
Buy
Idea's consolidated revenues are likely to grow 19% YoY (decline 3% QoQ) to INR63.4b.
We expect Idea to report mobile traffic decline of 4% QoQ (13% growth YoY). We expect RPM to remain flat QoQ (6% growth YoY).
ARPU is likely to decline 6% QoQ to INR164 (v/s 4% increase in 1QFY14).
EBITDA margin would decline 190bp QoQ to 30.3%. EBITDA loss in new circles is estimated at INR1.73b.
Net profit is expected to decline 12% QoQ to INR4.3b.
Idea trades at an EV/EBITDA of 8.2x FY14E and 6.5x FY15E. Maintain Buy.
Key issues to watch out ¾ QoQ RPM trend (we expect RPM to remain flat), mobile traffic (We expect 4% QoQ decline) & EBITDA loss in new circles (we expect INR 1.73b).
Quarterly Performance (Consolidated) FY13 1Q 2Q 3Q 4Q# Gross Revenue 55,037 53,140 55,785 60,614 YoY Growth (%) 21.7 15.0 10.9 12.9 QoQ Growth (%) 2.5 -3.4 5.0 8.7 EBITDA 14,355 14,225 14,734 17,491 YoY Growth (%) 19.2 19.9 9.6 16.1 QoQ Growth (%) -4.8 -0.9 3.6 18.7 Margin (%) 26.1 26.8 26.4 28.9 Net Finance Costs 2,670 2,164 2,416 2,244 Depreciation & Amortization 8,324 8,526 8,836 9,092 Profit before Tax 3,361 3,536 3,482 6,155 Inc ome Tax Exp. / (Income) 1,019 1,136 1,196 2,313 Adj Net Profit / (Loss) 2,342 2,400 2,286 3,842 YoY Growth (%) 32.1 126.9 13.7 12.0 Margin (%) 4.3 4.5 4.1 6.3 Mobile ARPU (INR/month) 156 148 158 167 QoQ Growth (%) -2.5 -5.1 6.8 5.7 Mobile MOU/sub/month 379 359 384 406 QoQ Growth (%) 0.0 -5.3 7.0 5.7 Mobi le Traffic (B Min) 131 126 132 143 QoQ Growth (%) 5.3 -4.0 5.2 8.5 Mobile RPM (INR) 0.41 0.41 0.41 0.41 QoQ Growth (%) -2.5 0.2 -0.2 0.0 E: MOSL Estimates; # Adjusted for one-off provision for licence and WPC
(INR Million)
Y/E March
October 2013
1Q# 65,388 18.8 7.9 21,013 46.4 20.1 32.1 2,211 11,353 7,450 2,572 4,878 108.2 7.5 174 4.2 398 -2.0 147 2.8 0.44 6.3 charges of
FY14 FY13 FY14E 2QE 3QE 4QE 63,353 65,841 69,213 224,578 263,794 19.2 18.0 14.2 14.9 17.5 -3.1 3.9 5.1 19,175 20,140 21,592 60,045 81,670 34.8 36.7 23.4 17.9 36.0 -8.7 5.0 7.2 30.3 30.6 31.2 26.7 31.0 1,953 1,608 1,544 9,494 7,316 10,593 10,789 11,066 34,778 43,800 6,629 7,744 8,982 15,774 30,554 2,320 2,710 3,144 5,664 10,746 4,309 5,033 5,838 10,110 19,807 79.6 120.2 52.0 39.8 95.9 6.8 7.6 8.4 4.5 7.5 164 167 170 156 166 -5.9 1.7 2.1 -0.9 6.3 374 377 375 376 379 -5.9 0.6 -0.4 1.2 0.8 141 146 150 532 584 -4.0 3.0 2.9 17.4 9.8 0.44 0.44 0.45 0.41 0.44 0.0 1.1 2.4 -2.1 5.5 INR0.76b in 4QFY13 and INR0.25b in 1QFY14
C–185
Sept ember 2013 Results Pr eview | Sect or: Telecom
Reliance Communications Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
RCOM IN 2,064.0 312 / 5 164 / 50 25 / 169 / 131
Financials & Valuation (INR b) Y/E March Net Sales EBITDA Adj. Net Profit Adj. EPS (INR) Adj. EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) Div. Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 203.4 210.0 219.5 64.5 66.1 71.1 9.9 1.9 10.0 4.8 0.9 4.9 -33.8 -80.3 416.4 157.9 142.8 143.8 2.9 0.6 3.4 2.7 3.3 3.8 6.5 9.0 6.6 31.6 160.5 1.0 1.1 10.4 10.6 0.2 0.2
2015E 236.2 81.4 23.1 11.2 130.3 154.8 7.5 5.6 2.8
31.1 1.1 9.3 0.2
13.5 1.0 7.4 0.2
CMP: INR151
Neutral
We expect revenues to decline 1.2% QoQ to INR53.4b.
After 4% RPM growth in 1QFY14, we expect RPM to remain flat at INR0.46.
With lower impact of seasonality on RCom, wireless traffic decline is likely to be relatively lower at 1.2% to 104b minutes.
Consolidated EBITDA is likely to decline 2% QoQ to INR16.7b.
We expect RCom to report proforma PAT of INR1.38b.
RCom trades at an EV/EBITDA of 9.3x FY14E and 7.4x FY15E. Neutral.
Key issues to watch out ¾ RPM trend (we expect flat RPM), traffic growth (we expect 1.2% decline).
Quarterly Performance (Consolidated)
(INR Million)
Y/E March 1Q Gross Revenue 53,192 YoY Growth (%) 7.7 QoQ Growth (%) 0.2 EBITDA 16,502 YoY Growth (%) 3.0 QoQ Growth (%) 1.1 Margin (%) 31.0 Net Finance Costs 5,534 Depreciation & Amortization 9,093 Profit before Tax 1,875 Income Tax Expense / (Income) -39 Adjusted Net Profit / (Loss) 1,914 YoY Growth (%) -14.4 QoQ Growth (%) -5.1 Margin (%) 3.6 Extraordinary Exp/Minority Interest 290 Reported Net Profit / (Loss) 1,624 Wireless ARPU (INR/month) 98 QoQ Growth (%) -1.0 Wireless MOU/sub/month 228 QoQ Growth (%) 0.4 Wireless Traffic (B Min) 105 QoQ Growth (%) 1.8 Wireless RPM (INR) 0.43 QoQ Growth (%) -1.3 E: MOSL Estimates October 2013
FY13 2Q 52,020 3.2 -2.2 16,382 2.1 -0.7 31.5 5,929 9,130 1,323 0 1,323 -59.0 -30.9 2.5 302 1,021 102 3.8 236 3.6 102 -2.5 0.43 0.2
3Q 53,013 4.9 1.9 16,533 2.6 0.9 31.2 6,054 9,337 1,142 0 1,142 -52.6 -13.6 2.2 87 1,055 119 16.6 271 14.8 103 0.5 0.44 1.6
FY14 4Q 54,059 1.8 2.0 16,684 2.2 0.9 30.9 7,475 10,892 -1,683 751 -2,434 -220.7 -313.1 -4.5 -5,461 3,027 128 7.5 291 7.4 105 2.3 0.44 0.1
1Q 54,117 1.7 0.1 17,012 3.1 2.0 31.4 6,870 8,831 1,311 7 1,304 -31.9 -153.6 2.4 220 1,084 129 1.1 283 -2.7 106 0.2 0.46 3.9
2QE 53,458 2.8 -1.2 16,735 2.2 -1.6 31.3 6,490 8,854 1,391 7 1,383 4.6 6.1 2.6 250 1,133 125 -2.9 275 -3.0 104 -1.2 0.46 0.1
3QE 55,055 3.9 3.0 18,014 9.0 7.6 32.7 6,101 8,881 3,032 16 3,016 164.0 118.0 5.5 250 2,766 128 1.9 276 0.5 107 2.2 0.46 1.4
FY13
FY14E
4QE 56,911 210,035 219,541 5.3 3.3 4.5 3.4 19,376 66,101 71,137 16.1 2.5 7.6 7.6 34.0 31.5 32.4 6,103 24,992 25,563 8,909 38,452 35,475 4,365 2,657 10,099 23 712 54 4,342 1,945 10,045 -278.4 -80.3 416.4 43.9 7.6 0.9 4.6 250 -4,782 970 4,092 6,727 9,075 130 109 128 2.1 6.9 17.6 277 251 278 0.5 9.0 10.6 109 416 426 2.4 4.1 2.4 0.47 0.43 0.46 1.6 -1.8 6.3 C–186
September 2013 Results Preview | Sector: Utilities
Utilities Companies Covered CESC Coal India Jaiprakash Power Ventures JSW Energy NHPC NTPC Power Grid PTC India Reliance Infrastructure
We expect utility companies in our coverage to report aggregate 2QFY14 revenue growth of 5.2% YoY and PAT growth of 8.4% YoY. PAT growth would mainly be led by JSW Energy (55.4% on lower base), and PSUs NTPC, PGCIL and NHPC to grow by 17.5%, 12.5% and 16.3% respectively led by benefits coming from new capacity additions. We expect Coal India's PAT to grow by 7.4% to INR33b. We estimate a decline in Tata Power's PAT due to lower contribution from mining business, while PTC India's PAT is expected to be lower due to tolling arrangement conversion to trading. July/Aug 2013 generation grew by 6.4% YoY but PLF dips by 165bp: In July/Aug 2013, all India generation grew by 6.4% YoY, led by lower demand from SEBs. The overall PLF was down by 165bp to 54.5% v/s 56.2% for the same period last year. Coal and lignitebased generation grew by 5.2% YoY but PLF was down by 560bp led by higher hydro generation, which impacted coal-based demand. Gas-based generation continued to de-grew (45% YoY) on account of decline in gas production in India. Hydro generation was up by 35% YoY led by good monsoon, while nuclear generation grew by 15% YoY. Generation growth could be better in the second half led by elections.
Tata Power
Power deficit declines to 3.6% for July/August 2013; peak deficit for YTD FY14 also down to 6.3%: For July/August 2013, power demand has increased by 1.8% YoY and supply increased by 8% YoY, leading to a deficit of 3.6% v/s 9.1% for the same period last year. Southern region registered significant improvement, with the deficit reducing to 4.8% from 14.3% last year. Substantial improvement is on account of lower demand led by good monsoon and reluctance of SEBs to buy high cost power. The deficit in western region has substantially lowered to 0.5% from 3.3%. Improvement in the western region is led by addition of large projects in the states of Madhya Pradesh, Gujarat and Maharashtra. Imported coal prices remain weak, INR depreciation nullifies impact; ST (IEX) prices dip to INR2/unit: Imported coal prices' average during the quarter stood at USD73/t v/
Expected quarterly performance summary CMP (INR) 27.09.13 CESC 336 Coal India 307 Jaiprakash Power 16 JSW Energy 46 NHPC 20 NTPC 148 Power Grid Corp. 99 PTC India 46 Reliance Infrastructure 393 Tata Power 82 Sector Aggregate
(INR Million)
Rating Sep.13 Buy Neutral Buy Neutral Neutral Buy Buy Buy Buy Neutral
14,675 156,744 10,134 21,963 18,312 144,566 37,413 31,146 35,018 96,643 566,615
Sales Var. % YoY 9.2 7.6 11.9 5.8 3.3 -10.3 21.2 11.5 0.0 25.5 5.2
Var. Sep.13 % QoQ 2.2 3,265 -4.8 32,285 28.9 8,591 -9.7 8,028 13.1 12,512 -7.4 36,803 2.0 32,479 12.4 300 6.8 4,425 3.5 15,330 -1.3 154,017
EBITDA Var. % YoY 5.0 12.8 5.9 39.2 4.0 -12.9 21.7 -47.3 -2.4 1.6 4.9
Var. % QoQ 1.7 -18.4 46.0 -13.0 16.9 -13.7 2.6 -11.8 0.6 -25.8 -8.5
Net Profit Var. % YoY 1,411 3.8 33,050 7.4 3,325 -9.2 2,510 55.4 8,455 16.3 22,167 17.5 11,327 12.5 242 -45.7 3,137 -24.3 1,369 -33.6 86,992 8.4 Sep.13
Var. % QoQ 7.7 -11.5 182.1 -38.9 18.1 -4.7 -1.2 -17.3 -16.2 26.6 -4.4
Nalin Bhatt (
[email protected])/Aditya Bahety (
[email protected]) October 2013
C–187
September 2013 Results Preview | Sector: Utilities
s USD88/t YoY. Benefit to generators has been limited as the decline in prices was offset by depreciation in INR (14.3% to USD62.5/INR, v/s USD55/INR YoY). Short term prices in the day ahead market remained muted, with prices at INR2.3/unit for July 2013 and INR2/unit for August 2013, while average prices for the quarter stood at INR2.4/unit. Short term forward contract prices dipped below ~INR4/unit. Valuation and view: Power sector has begun to witness several initiatives by authorities to address concerns on SEBs, fuel supply pacts and PPAs. It would however take some time for clarity on several issues to emerge. In this environment, we continue to prefer CPSUs which are relatively better positioned on these fronts.
July/Aug-13: All-India generation grew 6.4% YoY … Al l Indi a Genera ti on (BUs )
Coal plant PLF dipped by 5.5ps YoY Centre Sector
Gr (YoY, %)
14
14 9 9
Sta te Sector
Pri vate Sector
100 8
8
5 2
4
6
8 2 2 4
2
6 3
5
85
7 4 4
6 7
6
70 0
73 72 70 74 71 73 73 71 77 75 79 76 75 73 72 78 73 76 78 68 80 77 84 76 80 78
-4
55
Power demand grew by 1.8% in July/Aug-13 FY14
100
FY13
Base deficit declines in July/Aug-13 to 3.6%
Gr (%)
16%
92
FY14
14
FY12
FY13
11 8%
8 8 6
5
3 Mar
...Forward ST price dip below INR4/unit 4.8
5.3
May-14
Apr-14
Mar-14
Feb-14
Jan-14
Dec-13
Nov-13
Oct-13
Sep-13
2.4
3.8
2QFY14
2.7 1QFY14
4QFY13
3QFY13
2QFY13
3QFY12
4QFY11
3QFY11
October 2013
4.4
3.2
3.5
3.1 1QFY13
3.5
3.4 2.9 2QFY12
4QFY12
3.1 1QFY12
3.6
4.6
4.4
2.3
3.1 2QFY11
1QFY11
Feb
Jan
Dec
Nov
Mar
Feb
Jan
Dec
Nov
Oct
Sept
Aug
July
June
May
April
ST prices slightly decline to 2.4 (INR/unit)...
4
2 May
-8%
60
Apr
79 84 85 86 83 80 84 79 85 85 73 86
4
Oct
0%
68
Sep
83
Aug
83
87
Jul
91
Jun
84 76
Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
40
C–188
September 2013 Results Preview | Sector: Utilities
QoQ (%)
* 6,200Kcal, FoB South Africa
2QFY14
1QFY14
-10% 1QFY11
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
1QFY12
4QFY11
3QFY11
2QFY11
1QFY11
-0.40
4QFY13
91 88 104121121117107105 96 88 86 85 81 73 50
-2% 3QFY13
-0.15
14% 6%
2QFY13
75
22%
55 55 54 54 57
1QFY13
0.10
51 50
INR/USD 63
46 46 45 45 45 46
4QFY12
100
2QFY12
0.35
YoY (%)
1QFY12
66 61 56 51 46 41 36
4QFY11
QoQ 0.60
3QFY11
YoY
125
2QFY11
Avg RB Index (USD/ton)
INR declines to all-time low compared to USD
3QFY12
RB Index* prices decline substantially (USD/ton)
Source: CEA, CERC and Bloomberg
Relative Performance-3m (%)
Relative Performance-1Yr (%)
Sens ex Index MOSL Util i ti es Index
105
Se ns e x Index MOSL Uti l i ti e s Inde x 110
100
100
95 90 90 80 Sep-13
Aug-13
Jul-13
Jun-13
85 70 Se p-12 Dec-12 Ma r-13 Jun-13 Se p-13
Comparative valuation CMP (INR) 27.09.13
Rating
EPS (INR) FY13 FY14E FY15E
P/E (x) FY13 FY14E FY15E
EV/EBITDA (x) FY13 FY14E FY15E
RoE (%) FY13 FY14E FY15E
Buy Neutral Buy Neutral Neutral Buy Buy Buy Buy Neutral
49.2 28.0 1.3 6.5 1.8 11.1 8.9 6.7 65.2 3.9
6.8 11.0 12.5 7.1 11.3 13.3 11.1 6.8 6.0 21.0 11.5
4.9 7.3 13.9 5.7 8.2 9.1 10.6 5.9 0.6 14.1 8.6
12.3 28.4 6.3 17.8 7.4 12.0 16.6 5.6 10.4 8.1 16.0
Utilities
CESC Coal India Jaiprakash Power JSW Energy NHPC NTPC Power Grid Corp. PTC India Reliance Infra. Tata Power Sector Aggregate
October 2013
336 307 16 46 20 148 99 46 393 82
53.2 29.6 1.4 7.7 1.9 11.9 8.7 6.8 50.5 3.0
56.8 31.4 2.3 6.9 2.0 13.8 10.5 6.8 55.5 3.4
6.3 10.4 11.2 5.9 10.7 12.5 11.4 6.7 7.8 26.8 10.9
5.9 9.8 7.0 6.6 10.1 10.7 9.4 6.7 7.1 23.7 9.9
4.2 6.3 12.6 4.8 9.1 9.7 9.4 7.1 -1.4 10.4 8.0
3.9 5.9 6.8 4.6 7.8 8.6 8.6 6.5 -1.3 9.7 7.2
12.1 25.7 6.3 19.2 7.4 11.8 15.0 3.6 6.5 8.0 15.2
11.6 24.0 10.1 15.5 7.5 12.7 15.0 4.2 6.8 8.2 15.5
C–189
September 2013 Results Preview | Sector: Utilities
Generation and PLFs of various plants Capacity (MW)* Adani Power - Mundra - Tirora GVK - JP 1 & 2 - Gautami GMR - Barge Mounted - Chennai - Vemagiri JPL - Chattisgarh Rel Infra - Dahanu - Samalkot (AP) - Goa - Kochi Rel Power - Rosa Tata Power - Trombay - TISCO (Jamshedpur) - Mundra UMPP - Maithon Torrent Power - Existing - Sugen JSW Energy - Rajwest - Karnataka/Ratnagiri CESC Lanco Infratech - Kondapali - Amarkantak - UPCL - Anpara KSK - Wardha Sterlite - Jharsuguda *Monitored capacity by CEA
October 2013
Aug-13 Generation PLF (%)
Aug-12 Generation PLF (%)
YTDFY14 Generation PLF (%)
YTDFY13 Generation PLF (%)
4,620 1,980
2,118.0 799.1
61.6 47.1
1,414.1 0.0
41.1 0.0
11,683.3 2,980.0
68.9 54.2
8,180.7 0.0
48.8 0.0
455 464
74.8 0.0
22.5 0.0
143.1 92.8
43.0 27.4
399.4 0.0
24.0 0.0
969.4 654.0
58.4 38.6
570 200 370
0.0 52.3 0.0
0.0 35.8 0.0
38.1 46.7 70.4
23.7 32.0 26.1
137.0 316.8 177.5
6.6 43.4 13.1
275.5 249.9 658.3
34.3 34.2 48.7
1,000
657.5
88.4
707.3
95.1
3,592.4
97.8
3,522.9
95.9
500 220 48 174
357.3 39.4 21.7 0.0
96.0 24.5 61.9 0.0
385.1 58.8 23.3 0.0
103.5 36.6 66.4 0.0
1,771.9 213.6 105.7 0.0
96.5 26.6 60.3 0.0
1,878.3 409.3 114.6 0.0
102.3 51.0 65.4 0.0
1,200
707.7
79.3
649.2
72.7
3,364.1
76.3
3,160.5
71.7
1,580 441 4,000 1,050
817.2 184.5 1,661.1 298.8
46.2 68.9 55.8 38.3
817.3 265.0 394.5 0.0
65.0 94.3 33.1 0.0
3,378.4 1,028.6 9,718.5 2,391.3
55.7 77.8 66.2 62.0
4,214.9 1,278.7 1,930.8 1,377.0
69.2 91.1 48.9 49.3
500 1,148
177.7 210.0
59.7 25.1
254.2 428.8
85.4 51.2
1,008.1 971.7
68.6 23.2
1,447.3 2,292.8
93.1 54.7
1,080 2,060 1,285
325.0 1,232.7 811.7
40.4 80.4 84.9
295.1 1,401.6 814.6
73.5 91.5 85.2
2,358.7 6,409.8 4,049.3
59.5 84.7 85.8
1,365.3 7,157.5 4,070.6
68.9 94.6 86.3
716 600 1,200 1,200
108.6 159.6 226.3 503.4
20.8 35.8 25.3 56.4
202.9 293.5 331.9 239.6
38.8 65.7 31.2 26.8
651.4 896.3 2,689.1 2,553.2
24.9 40.8 61.0 57.9
1,309.0 1,357.1 1,836.5 1,474.8
50.1 61.6 74.6 33.5
1,140
285.6
58.1
227.0
56.5
1,308.9
63.4
1,495.8
75.4
2,400
487.7
27.3
749.6
42.0
3,753.2
52.6
3,702.6
43.5 Source: CEA
C–190
September 2013 Results Preview | Sector: Utilities
CESC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
CESC IN 125.6 42 / 1 368 / 253 3 / 22 / -2
2012 2013 2014E 46.0 52.4 58.5 10.8 12.5 13.7 5.5 6.2 6.7 44.1 49.2 53.2 13.5 11.6 8.0 386.6 416.4 463.9 12.1 12.3 12.1 10.6 10.9 10.7 11.3 14.2 13.2 7.6 0.9 5.4 1.5
6.8 0.8 5.2 2.1
Financials & Valuation (INR b) Y/E March Sales EBITDA Net Profit Adj. EPS (INR) EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
CMP: INR336
6.3 0.7 4.5 2.1
2015E 64.8 14.3 7.1 56.8 6.7 515.0 11.6 10.4 14.1 5.9 0.7 4.1 2.4
Buy
We expect CESC to report PAT of INR1.4b, a growth of 3.8%, on account of higher accretion to regulated assets, capitalized in FY13 and tariff hike in 4QFY13. We thus expect CESC to report revenue of INR14.7b (up 9.2% YoY), EBITDA of INR3.3b (up 5% YoY). We estimate generation of 2.4bu in 2QFY14 and sales of 3.3bu. PLF in 2QFY14 is expected to be almost flat YoY. CESC has entered into an agreement with the Jharkhand State Electricity Board (JSEB) for distribution franchise of Ranchi for a period of 15 years. This is the first distribution franchise for CESC and we expect CESC to do well on the back of its experience in distribution business in KLA. Spencer has been consistently consolidating (closing less profitable stores) and it has plans to concentrate more on hyper stores. CESC has recently commissioned its mall in Kolkata. It would also earn the rental income in the standalone entity. The full year impact of rental income would be ~INR150m. We expect CESC to post standalone PAT (ex. Spencer) of INR6.7b in FY14E (up 8% YoY) and INR7.1b in FY15E (up 6.7% YoY).
Key issues to watch out ¾ Performance of Spencer - same stores revenue growth, stores' EBITDA. ¾ Details on Ranchi distribution circle. ¾ Details on commissioning of Chandrapur (expected to CoD in FY14). Quarterly Performance (Standalone Numbers - excl Spencers Retail) Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) Operating Parameters Generation Sales Realisation (INR/unit) Overall PLF (Derived) (%) E: MOSL Estimates October 2013
(INR Million) FY13
FY14E
1Q 14,200 20.0 2,900 8.6 20.4 770 780 210 1,560 310 19.9 1,250 1,250 12.5
2Q 13,440 8.3 3,110 19.6 23.1 760 890 240 1,700 340 20.0 1,360 1,360 19.3
FY13 3Q 10,400 0.8 2,660 24.9 25.6 770 860 240 1,270 260 20.5 1,010 1,010 36.5
4Q 15,130 9.7 4,570 5.8 30.2 760 850 240 3,200 640 20.0 2,560 2,560 2.0
1Q 14,360 1.1 3,210 10.7 22.4 840 900 190 1,660 350 21.1 1,310 1,310 4.8
2QE 14,675 9.2 3,265 5.0 22.3 810 870 200 1,785 374 21.0 1,411 1,411 3.8
FY14 3QE 13,063 25.6 3,040 14.3 23.3 830 890 200 1,520 319 21.0 1,201 1,201 18.9
4QE 17,264 14.1 5,025 10.0 29.1 888 884 235 3,487 729 20.9 2,758 2,758 7.7
52,420 14.1 13,240 14.4 25.3 3,060 3,380 930 7,730 1,550 20.1 6,180 6,180 12.4
58,487 11.6 14,540 9.8 24.9 3,368 3,544 825 8,452 1,772 21.0 6,680 6,680 8.1
2,430 3,388 4.2 90.6
2,426 3,173 4.2 90.4
2,067 2,383 4.4 77.0
1,792 2,414 6.3 66.8
2,404 3,342 4.3 89.6
2,400 3,293 4.5 89.5
2,104 2,634 5.0 78.4
1,962 3,136 5.5 73.1
8,715 11,357 4.6 81.2
8,870 12,405 4.7 82.7
C–191
September 2013 Results Preview | Sector: Utilities
Coal India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
COAL IN 6,316.4 1,939 / 31 374 / 238 8 / -5 / -20
CMP: INR307
Financials & Valuation (INR b) Y/E March 2012 2013 2014E 2015E Sales 624.2 683.0 727.5 773.4 EBITDA 156.7 180.8 206.2 217.0 NP* 161.6 176.6 186.9 198.4 EPS (INR)* 25.6 28.0 29.6 31.4 EPS Gr. (%) 47.8 9.3 5.8 6.2 BV/Sh. (INR) 64.0 76.7 88.6 101.1 RoE (%)** 31.9 28.4 25.7 24.0 RoCE (%) 57.5 56.9 54.4 49.9 Payout (%) 50.1 50.1 50.1 50.1 Valuations P/E (x) 12.0 11.0 10.4 9.8 P/BV (x) 4.8 4.0 3.5 3.0 EV/EBITDA (x) 8.7 7.3 6.3 5.9 Div. Yield (%) 3.3 4.6 4.8 5.1 *Adj. EPS, **RoE is adj.for OB reserves accounts, as appplicable under IFRS
Neutral
We expect COAL to report PAT of INR33b (up 7.4% YoY). For 2QFY14E, we expect dispatches to be ~108mt (up 7% YoY). We estimate CIL's production in 2QFY14E at 95mt, up 6% YoY. RB Index has declined QoQ to USD73/ton, v/s USD81/ton in 1Q. For 2QFY14E, currency has depreciated on a sequential basis from 57/USD to 62.5/USD. Hence, the lower coal prices were up to a large extent neutralized by the higher currency rates. Rupee deprecation thus acts as a cushion to e-auction realizations. The ACQ realization is expected to be higher in 2QFY14E YoY, as COAL had taken a tariff hike effective from mid-May to compensate for the decline in e-auction realizations and beneficiated coal. Workers union has postponed its three-day strike to December 2013 led by assurance by the management to facilitate further discussion with the Government on OFS. We expect the company to report consolidated PAT of INR187b in FY14E (up 5.8% YoY) and INR198b in FY15E (up 6.2% YoY).
Key issues to watch out ¾ Volume, realization trend for 2Q and guidance for FY14/15. E-auction and ACQ mix guidance for FY14/15. ¾ Clarity on OFS/buyback and special dividend.
Quarterly Performance (Consolidated)
(INR Million)
Y/E March
FY13 1Q 165,006 13.8 48,146 -0.1 29.2 5,356 126 20,714 -103 63,275 18,582 29.4 44,693 44,796 8.4
Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income EO Income/(Expense) PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT* Change (%) Key Operational metrics Production 102.5 Sales/Offtake 113.0 Blended Realization (INR/ton) - Regulated 1,267 - E-auction 2,562 - Washed Coal 2,315 - Own Consumption 3,023 E: MOSL Estimates; *Pre Exceptional October 2013
FY13
FY14E
2Q 145,725 10.8 28,617 15.5 19.6 3,872 102 20,929 -107 45,464 14,703 32.3 30,761 30,781 37.8
3Q 173,250 12.9 42,883 -5.6 24.8 4,204 96 23,605 -2,849 59,338 18,387 31.0 40,951 46,801 26.8
4Q 199,046 2.5 61,191 61.6 30.7 4,698 127 22,065 0 78,431 24,508 31.2 53,923 54,139 -10.5
1Q 164,724 -0.2 39,579 -17.8 24.0 4,757 74 22,196 -50 56,894 19,585 34.4 37,310 37,360 -16.6
2QE 156,744 7.6 32,285 12.8 20.6 4,850 150 21,750 0 49,035 15,985 32.6 33,050 33,050 7.4
FY14 3QE 185,696 7.2 53,681 25.2 28.9 4,750 180 24,000 0 72,751 23,717 32.6 49,034 49,034 4.8
4QE 220,292 10.7 80,675 31.8 36.6 4,957 203 23,137 0 98,652 31,224 31.7 67,428 67,428 24.5
683,027 9.4 180,836 15.6 26.5 18,130 452 87,467 69 249,790 76,227 30.5 173,564 176,624 9.9
727,455 6.5 206,220 14.0 28.3 19,313 608 91,083 -50 277,332 90,511 32.6 186,821 186,871 5.8
89.1 101.7
117.4 120.5
143.3 130.0
102.9 115.3
95.0 108.0
125.0 130.0
158.8 138.4
452.2 465.2
481.7 491.7
1,281 2,460 2,092 2,626
1,232 2,941 2,491 2,703
1,403 2,308 2,264 2,759
1,296 2,140 2,117 2,810
1,325 2,250 2,200 2,850
1,300 2,250 2,200 2,850
1,491 2,218 2,213 2,927
1,298 2,544 2,300 2,781
1,358 2,212 2,186 2,848
C–192
September 2013 Results Preview | Sector: Utilities
Jaiprakash Power Ventures Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
JPVL IN 2,938.0 47 / 1 47 / 9 26 / -43 / -60
CMP: INR16
In 2QFY14E, we expect JPVL to post revenue of INR10.1b, up 11.9% YoY, EBITDA of INR8.6b, up 5.9% YoY and net profit of INR3.3b (down 9.2% YoY).
We estimate generation from Karcham Wangtoo at 2.3bu, compared to 2.1bu in 1QFY14. We estimate generation of Bina to remain muted during the quarter at 274mu led by lower demand from MPSEB. Vishnuprayag was not operational during the quarter.
Nigrie (1.3gw) is expected to be commissioned during FY14 and Bara I (2gw) in FY15, providing delta in FY14/15 earnings.
Amelia north mine is also expected to commission in 3QFY14.
We expect JPVL to post consolidated net profit of INR4.2b in FY14E (up 11% YoY) and INR6.7b in FY15E (up 60% YoY). The stock trades at a reported PER of 7x FY15E.
Financials & Valuation (INR b) Y/E March Sales EBITDA NP EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 16.2 14.6 4.0 1.4 129.4 18.6 7.5 6.1 11.7 0.9 14.6 -
2013 2014E 24.6 33.6 19.3 25.5 3.8 4.2 1.3 1.4 (6.1) 11.2 22.0 23.0 6.3 6.3 5.9 6.3 12.5 0.7 13.9 -
11.2 0.7 12.6 -
2015E 72.8 46.9 6.7 2.3 60.0 22.2 10.1 9.9 7.0 0.7 6.8 -
Buy
Key issues to watch out ¾ Clarity on offloading hydro assets. ¾ Coal availability for Bina TPS (500mw). ¾ Update on the clearance of Dongri Tal II coal mine. ¾ Update on commissioning of Nigre (1.3gw) and Bara I (2gw).
Quarterly Performance (Standalone)
(INR Million)
Y/E March 1Q Sales 5,454 Change (%) 98.1 EBITDA 4,900 Change (%) 98.6 As of % Sales 89.9 Depreciation 674 Interest 2,278 Other Income 91 PBT 2,039 Tax 210 Effective Tax Rate (%) 10.3 Reported PAT 1,830 Adjusted PAT (Pre Exceptional) 1,830 Change (%) 162.9 Operational Details - Generation (MU) Baspa 343 Vishnuprayag 574 Karcham Wangtoo 1,191 Bina 0 E: MOSL Estimates
October 2013
FY13
FY14E
2Q 9,058 39.4 8,115 33.4 89.6 774 2,885 73 4,528 868 19.2 3,660 3,660 30.4
FY13 3Q 4,270 7.6 2,679 -25.0 62.7 960 2,874 113 -1,043 -67 6.4 -976 -976 -263.9
4Q 3,744 27.5 1,637 -32.9 43.7 831 2,946 105 -2,034 -811 39.9 -1,223 -973 1,338.8
1Q 7,863 44.2 5,882 20.0 74.8 1,082 3,506 48 1,343 414 30.8 929 1,179 -35.6
2QE 10,134 11.9 8,591 5.9 84.8 1,135 3,500 200 4,156 831 20.0 3,325 3,325 -9.2
FY14 3QE 6,235 46.0 3,871 44.5 62.1 1,350 3,650 200 -929 100 -10.8 -1,029 -829 -15.0
4QE 7,951 112.3 5,923 261.8 74.5 1,543 3,980 245 645 295 45.7 350 350 -136.0
22,526 39.4 17,331 19.0 76.9 3,239 10,983 382 3,491 200 5.7 3,292 3,542 -11.7
32,183 42.9 24,267 40.0 75.4 5,110 14,636 693 5,214 1,640 31.4 3,574 3,824 8.0
660 937 2,154 11
151 261 467 171
104 116 242 238
426 438 1,528 301
674 0 2,349 274
158 0 475 821
161 0 115 925
1,258 1,888 4,054 421
915 1,314 2,863 421
C–193
September 2013 Results Preview | Sector: Utilities
JSW Energy Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
JSW IN 1,640.1 75 / 1 75 / 34 11 / -21 / -30
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. yield (%)
2012 2013 2014E 61.2 89.3 98.7 14.5 27.9 35.2 3.3 10.6 12.6 2.0 6.5 7.7 -60.6 219.7 19.1 34.8 37.8 42.5 5.8 17.8 19.2 6.4 14.4 15.9 24.7 31.0 21.3 21.3 1.2 10.7 1.2
6.7 1.1 5.5 4.7
2015E 103.3 32.2 11.4 6.9 -9.7 47.5 15.5 14.5 25.0
5.6 1.0 4.8 3.8
6.2 0.9 4.6 4.0
CMP: INR46
Neutral
We expect JSWEL to report consolidated revenue of INR22b (up 5.8% YoY) and PAT of INR2.5b, up 55% YoY on a lower base. We expect JSWEL to generate 4.8bu during 2QFY14, including coal and lignite capacity. The decline in generation is led by a decline in Vijayanagar to 85% from 100% YoY; Ratnagiri PLF declined to 78% from 90% YoY and lignite PLFs also declined substantially. Lower generation could have been led by better hydro generation this year. We have assumed short term realization of INR4.6/unit, almost flat YoY. We expect fuel cost to be ~INR2.6/unit (coal-based) as coal mix of South African and Indonesian coal changes during the quarter. We expect JSWEL to report consolidated PAT of INR12.6b in FY14E (up 19% YoY) and INR11.4b in FY15E (down 9.7% YoY). Stock trades at reported P/E of 6.2x FY15E. Key issues to watch out ¾ ST realization, fuel mix and fuel cost for 2QFY14 and guidance for FY14/15. ¾ RajWest project: lignite mine clearance and tariff approval. ¾ Capacity addition plan for the 12th Plan as none of the projects are under construction.
Quarterly Performance (Consolidated)
(INR Million)
Y/E March Total Operating Income Change (%) EBITDA Change (%) Depreciation Interest Other Income Extraordinary items PBT Tax Effective Tax Rate (%) Reported PAT Share of profit from Assoc Minority interest Exceptional Income/ (Expense) Reported PAT (Post MI) Adjusted PAT Change (%) Operational Details Sales Mix (MUs) - Long Term - Merchant Realization (INR/unit) - PPA - Merchant E: MOSL Estimates October 2013
FY13
FY14
FY13
FY14E
1Q 21,915 72.2 5,834 48.4 1,697 2,426 764 2,325 150 160 106.4 -10 0 -44 1,915 34 1,949 43.0
2Q 20,765 108.4 5,769 388.2 1,605 2,281 453 -925 3,261 721 22.1 2,540 0 -1 -925 2,541 1,615 n.a.
3Q 23,652 33.7 8,370 139.5 1,572 2,364 300 610 4,125 1,005 24.4 3,120 0 15 610 3,105 3,715 n.a.
4Q 23,010 10.6 7,959 35.6 1,741 2,557 617 -43 4,322 848 19.6 3,474 -117 0 -43 3,357 3,314 96.9
1Q 24,310 10.9 9,226 58.1 2,008 2,747 453 1,872 3,052 870 28.5 2,182 -46 -5 1,872 2,233 4,105 110.6
2QE 21,963 5.8 8,028 39.2 2,250 2,950 425 0 3,253 813 25.0 2,440 -55 -15 0 2,510 2,510 55.4
3QE 25,315 7.0 9,419 12.5 2,350 3,100 450 0 4,419 1,149 26.0 3,270 -55 -25 0 3,350 3,350 -9.8
4QE 26,672 15.9 8,553 7.5 2,432 3,333 473 0 3,261 690 21.2 2,571 -44 -37 0 2,652 2,652 -20.0
89,343 46.0 27,932 92.9 6,615 9,628 2,134 1,966 11,857 2,733 23.1 9,124 -117 -29 1,556 9,037 10,592 219.8
98,669 10.4 35,227 26.1 9,040 12,130 1,801 1,872 13,986 3,522 25.2 10,464 -200 -82 1,872 10,746 12,617 19.1
2,233 2,498
2,036 2,205
2,264 2,616
2,271 2,570
2,704 2,275
2,327 2,109
2,796 2,369
2,977 2,634
8,808 9,885
10,805 9,387
3.64 4.40
3.65 4.60
3.30 4.60
2.99 4.60
3.58 4.52
3.56 4.60
3.62 4.65
3.63 4.63
3.26 4.55
3.61 4.60 C–194
September 2013 Results Preview | Sector: Utilities
NHPC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
NHPC IN 12,300.7 244 / 4 29 / 15 11 / -5 / -2
CMP: INR20
We expect NHPC to report 2QFY14E revenue of INR18.3b (up 3.3% YoY) and PAT of INR8.5b (up 16.3% YoY). We expect it to generate 7.3bu, compared to 7.6bu in 2QFY13 - a decline in generation is due to lower generation from plants impacted in the recent floods (mainly Dhauliganga 280mw).
2015E 69.9 45.6 27.7 2.0 6.2 26.7 7.5 8.1 42.4
For FY14, NHPC is targeting to add 937mw of projects, while it has commissioned TLDP III (132mw) during 1QFY14 and 2 units of URI II (120mw) in 2QFY14.
In addition, Nimo Bazgo (45mw), 2 units of Uri-II (120mw) and Parbati III are also expected to be commissioned in FY14E.
NHPC has guided for addition of only 164mw TLDP IV during FY15/16. However, given substantial delays in FY13 capacity addition and current expectation of ~937mw addition in FY14, we expect slippages in commissioning in FY14 to be passed on to FY15.
10.1 0.7 7.8 4.2
We expect NHPC to report consolidated PAT of INR26b in FY14E (up 5.9% YoY) and INR27.7b in FY15E (up 6.5% YoY). Stock trades at reported P/E of 7.6x FY15E.
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (X) P/BV (X) EV/EBITDA (X) Div. Yield (%)
2012 69.2 48.1 25.2 1.8 12.2 23.3 8.0 10.1 29.4
2013 2014E 64.0 63.7 42.8 41.1 24.5 26.0 1.8 1.9 -1.5 5.2 24.7 25.7 7.4 7.4 8.7 7.8 29.8 42.5
11.1 0.9 7.5 3.5
11.3 0.8 8.2 3.0
10.7 0.8 9.1 3.9
Neutral
Key issues to watch out ¾ Incentives for 2QFY14 and progress on projects impacted by floods. ¾ Total capacity addition for FY14/15. ¾ Status on Parbati II and Subhanshri lower project. Quarterly Performance (Standalone)
(INR Million)
Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income EO Income/(Expense) PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) Operational Details Generation (MUs) Increase/ (Decrease) (%) Installed Capacity (MW) - Owned - JV's E: MOSL Estimates October 2013
FY13
FY14
FY13
FY14E
1Q 14,218 -3.3 9,040 -5.5 63.6 2,218 798 2,451 0 8,475 1,777 21.0 6,698 6,450 6.6
2Q 17,725 -4.6 12,036 -9.4 67.9 2,532 1,047 2,406 0 10,863 3,028 27.9 7,834 7,272 -6.4
3Q 10,104 14.6 6,132 61.9 60.7 2,390 989 1,890 0 4,644 1,526 32.9 3,118 2,416 -18.8
4Q 10,994 -23.8 6,050 -39.1 55.0 2,546 1,020 3,156 2,400 8,041 2,208 27.5 5,833 2,863 35.7
1Q 16,194 13.9 10,707 18.4 66.1 2,760 1,160 2,486 0 9,272 2,073 22.4 7,199 7,160 11.0
2QE 18,312 3.3 12,512 4.0 68.3 2,650 1,100 2,900 0 11,662 3,207 27.5 8,455 8,455 16.3
3QE 10,205 1.0 5,505 -10.2 53.9 2,625 1,200 2,500 0 4,180 1,149 27.5 3,030 3,030 25.4
4QE 11,174 1.6 6,104 0.9 54.6 2,470 1,261 1,845 0 4,218 1,520 36.1 2,697 2,281 -20.3
53,066 -6.2 33,240 -9.1 62.6 9,693 3,854 9,928 2,400 32,021 8,539 26.7 23,482 19,000 0.6
55,884 5.3 34,827 4.8 62.3 10,505 4,721 9,730 0 29,331 7,950 27.1 21,381 20,926 10.1
6,148 -2.2 5,287 3,767 1,520
7,634 10.0 5,518 3,998 1,520
2,563 -17.8 5,551 4,031 1,520
2,496 4.6 5,562 4,042 1,520
6,388 3.9 5,694 4,174 1,520
7,317 -4.2 5,694 4,294 1,520
2,560 -0.1 5,934 4,414 1,520
2,457 -1.6 6,499 4,979 1,520
22,825 22.2 5,562 4,042 1,520
22,716 -0.5 6,499 4,979 1,520
C–195
September 2013 Results Preview | Sector: Utilities
NTPC Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
NTPC IN 8,245.5 1,219 / 20 174 / 123 9 / -1 / -16
CMP: INR148
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 615.9 647.0 674.0 140.4 171.1 163.6 79.7 91.9 97.9 9.7 11.1 11.9 0.2 15.3 6.5 88.9 97.5 104.5 11.3 12.0 11.8 12.0 14.3 10.9 41.5 43.4 42.2
2015E 801.4 191.2 114.1 13.8 16.6 112.6 12.7 11.6 41.2
15.3 1.7 10.5 2.7
13.3 1.5 9.1 3.9
12.5 1.4 9.7 3.0
10.7 1.3 8.6 3.3
Buy
We expect NTPC to report PAT of INR22.2b (up 17.5% YoY). The growth in profits is mainly led by the addition of new capacities. We expect company's generation to be flat YoY, mainly led by lower generation from the gas-based capacity at ~2.7bu, compared to 5bu in 2QFY13, down 46% YoY. We estimate coal-based generation to grow by 5%, leading to flattish generation growth during the quarter. For FY14, the capacity addition target stands at 1.8gw. However, in 1HFY14, the capacity addition has been nil. NTPC commercialized Vallur unit II (500mw in Aug 2013. The total commercialization target for FY14 is 1.5gw, of which 1gw has already been commercialized. Government has cleared the dues of Loharinag-pala hydro power project and paid INR5.4b to NTPC for the settlement of claim. Earlier, Lohariang-pala project was cancelled after initial investments made by NTPC. We expect NTPC to report PAT of INR97.9b in FY14E (up 6.5% YoY) and INR114b in FY15E (up 16.6% YoY). Maintain Buy.
Key issues to watch out ¾ Plant availability factor (PAF) for coal-based projects and generation loss. ¾ Guidance on capacity addition/commercialization for FY14E/15E. ¾ Development on captive coal block development and jetty connecting to Farakka and Kahalgaon projects.
Quarterly Performance (Standalone)
(INR Million)
Y/E March
FY13 1Q 159,600 12.6 36,306 26.7 22.7 7,602 4,994 8,849
2Q 161,197 4.8 42,243 30.4 26.2 7,865 3,035 10,482
3Q 157,749 2.9 39,952 39.9 25.3 8,288 5,304 7,546
FY14 4Q 164,618 1.2 39,065 -5.0 23.7 10,213 5,912 17,714 16,841 57,495 13,679 23.8 43,816 22,054 -3.9
1Q 156,129 -2.2 42,653 17.5 27.3 9,423 6,174 7,459 0 34,514 9,244 26.8 25,270 23,263 -3.4
2QE 144,566 -10.3 36,803 -12.9 25.5 10,500 6,000 8,300 0 28,603 6,436 22.5 22,167 22,167 17.5
Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income EO Inc./(Exp.) PBT 32,559 41,825 33,907 Tax 7,573 10,402 7,940 Effective Tax Rate (%) 23.3 24.9 23.4 Reported PAT 24,987 31,424 25,968 Adjusted PAT 24,093 18,869 22,069 Change (%) 26.7 27.5 6.7 Capacity - NTPC 34,810 34,810 34,810 35,810 35,810 35,810 - JVs 4,364 4,364 4,864 5,364 5,364 5,364 Total 39,174 39,174 39,674 41,174 41,174 41,174 Addition 2,160 500 1,500 E: MOSL Estimates; Adj profit based on the calculations provided by the management
October 2013
FY13
FY14E
3QE 167,218 6.0 41,971 5.1 25.1 10,500 6,100 8,350 0 33,721 7,587 22.5 26,134 26,134 18.4
4QE 206,058 25.2 40,763 4.3 19.8 11,391 6,233 9,333 0 32,472 6,155 19.0 26,317 26,317 19.3
643,164 5.2 157,565 19.9 24.5 33,968 19,244 44,591 16,841 165,786 39,592 23.9 126,194 91,885 15.3
673,971 4.8 162,190 2.9 24.1 41,815 24,507 33,442 0 129,310 29,422 22.8 99,888 97,881 6.5
36,310 5,864 42,174 1,000
36,970 6,059 43,029 855
35,810 5,364 41,174 4,160
36,970 6,059 43,029 1,855
C–196
September 2013 Results Preview | Sector: Utilities
Power Grid Corporation Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PWGR IN 5,324.2 527 / 8 122 / 87 -6 / -11 / -21
Financials & Valuation (INR b) Y/E March Sales EBITDA NP EPS (INR) EPS Gr. (%) BV/Sh. (INR ) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 101.6 127.6 154.5 85.1 109.4 134.5 33.2 41.4 46.4 7.2 8.9 8.9 30.6 24.6 -0.8 50.7 56.7 66.3 14.8 16.6 15.2 9.2 9.3 9.1 34.8 35.0 34.9 13.8 1.9 11.1 2.1
11.1 1.7 10.0 2.8
11.2 1.5 9.4 2.7
2015E 184.4 161.3 56.0 10.7 20.9 73.3 15.4 9.3 35.0 9.2 1.4 8.6 3.2
CMP: INR99
Buy
We expect PWGR to report 2QFY14E PAT of INR11.4b (up 12.5% YoY). The growth in profit is mainly led by capitalization. In 2QFY14E, we expect the company to capitalize INR30b, higher than INR26.6b in 1QFY14. We expect capex of INR45b in 2QFY14E.
PWGR has revised its capex target to INR1.1t from INR1t in the 12th Plan. For FY14E, we assume a capex of INR222b and capitalization at INR185b.
We estimate consultancy revenue at INR1,200m and telecom revenue at INR700m. We expect contribution of ~INR700m to PBT from consultancy and telecom.
Company has approved projects worth INR18b in 1HFY14 and has awarded projects worth INR48.4b till August 2013. In FY13, PWGR had approved projects worth INR126b and had awarded projects worth INR161b.
We expect the company to report PAT of INR46.4b in FY14E (up 22.1% YoY) and INR56b in FY15E (up 20.9% YoY). Stock trades at 9.4x FY15E EPS and 1.4x FY15E book value.
Key issues to watch out ¾ Timelines for OFS + FPO. ¾ Capitalization/capex for 2QFY14 and guidance for FY14/15. ¾ Development in green energy projects. ¾ Development in state JVs. Quarterly Performance
(INR Million)
Y/E March Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Extraordinary Inc / (Exp) PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT (Pre Exceptional) Change (%) Operational Details Capitalization Regulated Equity E: MOSL Estimates
October 2013
FY13
FY14E
1Q 28,883 31.1 24,646 33.6 85.3 7,565 6,461 920 0 11,540 2,836 24.6 8,705 9,065 29.1
2Q 30,858 36.3 26,693 40.6 86.5 8,252 5,295 1,570 -140 14,856 3,597 24.2 11,259 10,071 32.5
FY13 3Q 33,617 36.3 29,231 39.0 87.0 8,653 6,848 1,286 6 15,009 3,717 24.8 11,291 11,072 43.0
4Q 33,738 8.8 28,311 8.7 83.9 9,049 6,747 2,417 -117 15,049 3,954 26.3 11,094 10,926 0.9
1Q 36,665 26.9 31,657 28.4 86.3 9,644 7,599 803 60 15,277 3,747 24.5 11,531 11,470 26.5
2QE 37,413 21.2 32,479 21.7 86.8 9,843 7,782 1,100 0 15,954 4,627 29.0 11,327 11,327 12.5
FY14 3QE 38,284 13.9 33,315 14.0 87.0 10,108 7,946 1,300 0 16,562 5,051 30.5 11,511 11,511 4.0
4QE 42,140 24.9 37,016 30.7 87.8 12,635 8,297 1,423 0 17,508 5,392 30.8 12,116 12,055 10.3
127,095 26.6 108,880 29.9 85.7 33,519 25,352 6,193 -247 56,449 14,104 25.0 42,345 41,359 24.6
154,502 21.6 134,466 23.5 87.0 42,230 31,623 4,626 0 65,240 18,817 28.8 46,424 46,363 12.1
41,000 190,112
26,600 198,092
25,860 205,850
78,540 215,000
29,500 223,850
30,000 232,850
40,000 244,850
85,500 270,500
172,000 215,000
185,000 270,500
C–197
September 2013 Results Preview | Sector: Utilities
PTC India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
PTCIN IN 296.0 14 / 0.2 81 / 35 0 / -28 / -39
CMP: INR46
We expect PTCIN to report 2QFY14E revenue of INR31b (up 11.5% YoY) and PAT of INR242m (down 45.7% YoY). Decline in PAT is due to conversion of tolling arrangement into trading.
In 2QFY14E, we expect PTC's volume at ~9.7bu (up 2.4% YoY). We expect adjusted trading margin ~paisa3.25/kwh.
On Simhapuri/Meenaxi tolling business, we expect PTCIN to do sales volume of 445mu and PBT spread of INR0.18/unit, compared to INR1.08/ unit in 2QFY14E due to change in the arrangement.
The conversion of tolling arrangement into trading business led to de-growth in profits YoY. However, it reduces the risk on PTCIN's balance sheet, which is positive in the long run.
We expect the company to report consolidated PAT of INR2b in FY14E (up 2.1% YoY) and INR2b in FY15E (down 0.4% YoY). Stock trades at reported P/E of 6.7x FY15E.
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. yield (%)
2012 76.5 1.5 2.0 6.9 22.9 76.3 5.4 8.6 45.0 6.6 0.6 9.0 4.0
2013 2014E 88.6 104.5 1.7 1.2 2.0 2.0 6.7 6.8 -3.2 2.1 78.6 79.5 5.6 3.6 3.8 3.7 45.0 65.7 6.8 0.6 5.9 4.3
6.7 0.6 7.1 4.1
2015E 122.6 1.1 2.0 6.8 -0.4 81.4 4.2 4.7 45.0 6.7 0.6 6.5 3.3
Buy
Key issues to watch out ¾ Trading volumes and margins for 2QFY14 and guidance for FY14/15. ¾ Simhapuri and Meenakshi business volumes and PBT contribution. ¾ Receipt of outstanding dues from Tamil Nadu and Uttar Pradesh Discoms. ¾ Guidance on commissioning of projects.
Quarterly Performance (Standalone) Y/E March
(INR Million) FY13
FY14
FY13
1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE Sales 19,869 27,928 18,778 21,987 27,704 31,146 22,000 23,683 88,569 Change (%) -20.1 16.9 41.2 52.3 39.4 11.5 17.2 7.7 EBITDA 313 569 300 512 340 300 270 310 1,700 Change (%) -34.4 28.3 42.9 58.7 8.6 -47.3 -9.9 -39.5 17.0 As of % Sales 1.6 2.0 1.6 2.3 1.2 1.0 1.2 1.3 1.9 Depreciation 10 10 11 11 11 11 11 13 42 Interest 1 4 4 0 4 3 2 1 9 Other Income 26 63 12 23 81 60 70 50 119 Extraordinary Income/(Expense) -23 0 0 7 3 0 0 0 -17 PBT 304 619 297 530 410 346 327 345 1,785 Tax 98 173 79 147 114 104 98 42 497 Effective Tax Rate (%) 32.3 28.0 26.7 27.7 27.8 30.0 30.0 12.3 27.9 Reported PAT 206 446 218 371 296 242 229 303 1,287 Adjusted PAT 229 446 218 377 293 242 229 303 1,270 Change (%) -49.4 25.4 129.2 26.2 27.8 -45.7 5.0 -19.8 Operational Details Power Traded (MUs) 6,566 9,428 5,871 6,732 8,075 9,655 6,053 7,198 28,597 Growth (% YoY) -2.4 8.9 28.6 53.7 23.0 2.4 3.1 6.9 17.6 Adj Margins (Ps/Unit) 3.98 3.06 3.74 3.71 3.48 3.25 4.25 4.49 3.31 E: MOSL Estimates; % Change for FY13E not comparable given inclusion of tolling profits from 1QFY13 onwards
October 2013
FY14E 104,533 1,219 -28.3 1.2 46 10 261 -3 1,428 358 25.1 1,070 1,066
30,981 8.3 3.79
C–198
September 2013 Results Preview | Sector: Utilities
Reliance Infrastructure Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
RELI IN 263.0 103 / 2 572 / 308 9 / 16 / -34
CMP: INR393
We expect RELI to report 2QFY14E revenue of INR35b, flat YoY, and PAT of INR3.1b (down 24% YoY). During the quarter, we expect RELI to post EPC revenue of INR17.8b (v/s INR19.3b YoY).
In the cement business, total capacity under development is 5mt pa both in Madhya Pradesh and Maharashtra. The grinding unit at Butibori is commissioned.
Metro 1 project's, in Mumbai, civil work is 100% completed. Commissioning is expected in 2HFY14. Company has sought a threefold hike in the Mumbai Metro's tariff, led by escalation cost of ~INR20b in the project.
In the Delhi metro, total investment is INR28b, including equity of INR7b. RELI is confident of receiving the complete equity.
EPC revenue in FY14E/15E may get impacted due to prolonged delay in large capacity projects of Chittrangi, Krishnapattnam and Tilaiya.
We expect RELI to report standalone PAT of INR13.3b in FY14E (down 22.5% YoY) and INR14.6b in FY15E (up 9.9% YoY). Stock trades at reported P/E of 7.5x FY15E.
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS(INR) EPS Gr. (%) BV/Sh. (INR) ROE (%) ROCE (%) Payout (%) Valuations P/E (X) P/BV (X) EV/EBITDA (X) Div. yield (%)
2012 2013 2014E 178.5 143.2 142.4 25.7 19.2 18.1 20.0 17.2 13.3 76.0 65.2 50.5 88.2 -14.3 -22.5 686 769 793 11.4 10.4 6.5 13.3 10.5 8.0 8.9 11.2 14.9 5.2 0.6 0.5 1.5
6.0 0.5 0.6 1.7
7.8 0.5 -1.4 1.7
2015E 149.8 18.8 14.6 55.5 9.9 840 6.8 8.2 15.2 7.1 0.5 -1.3 1.9
Buy
Key issues to watch out ¾ Performance of EPC division and order book position. ¾ Performance of infrastructure business and development in projects under construction. ¾ Contribution from cement business. Quarterly Performance (Standalone)
(INR Million)
Y/E March
FY13 1Q 34,473 -5.8 4,598 -33.9 13.3 1,130 1,902 2,586
2Q 35,002 -11.4 4,535 -36.1 13.0 922 1,980 3,457
3Q 34,552 -22.8 4,898 -24.9 14.2 980 2,055 2,433 4,183 8,480 1,887 22.2 6,594 3,749 -7.6
Sales Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income Exceptional item PBT 4,152 5,090 Tax (incl contingencies) 882 949 Effective Tax Rate (%) 21.2 18.6 Reported PAT 3,270 4,141 PAT (Pre Exceptionals) 3,270 4,141 Change (%) 13.8 -15.5 Operational Details - EPC Division Revenues 17,749 19,184 19,260 EBITDA 3,031 2,836 3,050 Margin (%) 17.1 14.8 15.8 E: MOSL Estimates; Quarterly nos. are on standalone basis October 2013
FY14
FY13
FY14E
4Q 39,193 -31.6 5,126 -17.0 13.1 888 1,902 1,374 0 3,710 -2,280 -61.5 5,990 5,990 -7.5
1Q 32,789 -4.9 4,401 -4.3 13.4 828 2,172 3,141 0 4,542 800 17.6 3,742 3,742 14.4
2QE 35,018 0.0 4,425 -2.4 12.6 1,000 2,100 2,500 0 3,825 689 18.0 3,137 3,137 -24.3
3QE 34,521 -0.1 4,367 -10.8 12.7 1,000 2,100 2,500 0 3,767 678 18.0 3,089 3,089 -17.6
4QE 40,033 2.1 4,869 -5.0 12.2 1,154 2,125 2,484 0 4,073 751 18.4 3,323 3,323 -44.5
143,220 -19.6 19,158 -28.4 13.4 3,921 8,794 10,806 4,183 21,432 1,437 6.7 19,995 17,150 -12.6
142,362 -0.6 18,062 -5.7 12.7 3,982 8,496 10,625 0 16,208 2,918 18.0 13,291 13,291 -22.5
23,049 3,533 15.3
16,537 2,312 14.0
17,803 1,780 10.0
17,874 1,877 10.5
21,326 1,776 8.3
79,243 16,114 20.3
73,540 7,746 10.5
C–199
September 2013 Results Preview | Sector: Utilities
Tata Power Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
TPWR IN 2,373.3 194 / 3 113 / 68 0 / -20 / -28
CMP: INR82
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj. EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. yield (%)
2012 2013 2014E 85.0 95.7 105.3 17.8 20.2 24.3 17.6 9.2 7.2 7.4 3.9 3.0 0.6 (47.7) (21.6) 47.3 49.1 51.8 9.8 8.1 8.0 6.2 7.5 8.2 39.9 27.6 33.2 11.0 1.7 14.6 1.5
21.0 1.7 14.1 1.6
26.8 1.6 10.4 1.6
2015E 114.9 24.9 8.2 3.4 13.0 54.9 8.2 8.6 32.3 23.7 1.5 9.7 1.6
Neutral
We expect TPWR to report standalone PAT of INR2b (down 32.3% YoY) and consolidated PAT of INR1.4b (down 33.6% YoY). Generation from its 2,021mw (Mumbai region) capacity in July-Aug 2013 stood at 1.8bu, down 22% YoY. Mundra UMPP generation for the period stood at 3.6bu and PLF stood at 59.5%. Maithon generation stood at 691mu at a PLF of 44.2%. TPWR has filed a petition with CERC seeking a tariff hike of ~paise67/ unit for its Mundra project. The hearing of the same has been completed and CERC has ordered to form a committee involving all the stakeholders. The committee has submitted its report to CERC; however, CERC has asked states to sign it with the approval from respective state cabinet, which may further delay the process. Global coal prices have declined sequentially to ~USD73 and currency has depreciated to INR62.5/USD in 2QFY14, compared to INR57/USD in 1QFY14 thus nullifying the impact of coal price correction. Hence, contribution from KPC/Arutmin mines may remain muted. Higher translation gain would however accrue. We expect TPWR to report consolidated PAT of INR7.2b in FY14E (down 21.6% YoY) and INR8.2b in FY15E (down 13% YoY).
Key issues to watch out ¾ Contribution/loss of Maithon/Mundra UMPP project. ¾ Sales/realization for KPC/Arutmin mines and any downward revision in volume growth/realization. Quarterly Performance (Standalone)
(INR Million)
Y/E March Units Generated Total Operating Income Change (%) EBITDA Change (%) As of % Sales Depreciation Interest Other Income PBT Tax Effective Tax Rate (%) Reported PAT Adjusted PAT Change (%) Consolidated Adjusted PAT Change (%) E: MOSL Estimates
October 2013
FY13 1Q 4,259 22,841 18.9 3,759 -12.1 16.5 1,548 1,386 3,456 4,281 1,158 27.1 3,123 4,140 40.8 3,059 -26.4
2Q 4,272 25,198 29.3 5,279 26.0 21.0 1,556 1,643 1,963 4,043 1,083 26.8 2,960 2,969 -18.8 2,062 -53.4
3Q 3,873 25,491 13.2 5,685 19.7 22.3 1,281 1,788 318 2,934 770 26.2 2,164 1,285 -30.3 2,759 -50.0
FY14 4Q 3,366 22,143 -6.8 5,793 30.4 26.2 -744 1,965 1,204 5,776 3,776 65.4 2,000 885 -61.4 1,337 -62.0
1Q 3,897 26,075 14.2 7,420 97.4 28.5 1,360 2,363 1,799 5,496 1,926 35.0 3,570 3,527 -14.8 1,081 -64.7
2QE 4,387 27,868 10.6 5,620 6.5 20.2 1,400 2,300 1,100 3,020 1,012 33.5 2,008 2,008 -32.3 1,369 -33.6
3QE 3,977 26,309 3.2 5,700 0.3 21.7 1,450 2,325 1,200 3,125 1,062 34.0 2,062 2,062 60.5 1,914 -30.6
4QE 3,933 25,049 13.1 5,517 -4.8 22.0 1,457 2,338 1,162 2,884 937 32.5 1,947 1,947 119.9 2,894 116.4
FY13
FY14E
15,770 95,673 12.6 20,517 16.2 21.4 3,641 6,783 6,940 17,034 6,787 39.8 10,247 9,279 -13.6 9,217 -47.7
16,195 105,301 10.1 24,257 18.2 23.0 5,667 9,326 5,261 14,524 4,937 34.0 9,587 9,544 2.9 7,257 -21.3
C–200
September 2013 Results Preview | Sector: Consumer
Bata India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
BATA IN 64.3 55 / 1 989 / 688 -2 / 14 / -16
CMP: INR851
We expect 2QCY13 revenue to grow 13.5% YoY to INR4.8b, driven by 8% same store sales growth (SSSG) and new store openings. The company had guided addition of 100 stores in CY13, of which it has opened 37 in 1HCY13.
EBITDA margin is likely to increase 60bp YoY to 12.6%, primarily on account of lower base last year and improvement in gross margin.
As a percentage of sales, we expect rent to increase from 13.2% in 3QCY12 to 13.6% in 3QCY13. We believe that rent will peak out at ~14% as the company focuses on opening new stores on revenue sharing model.
Driven by higher margins, we expect PAT growth to be 15.5% YoY.
We cut our EPS estimates by 2.5% for CY13 and 3% for CY14, primarily on account of lower than expected sales due to slowdown.
The stock trades at 27.7x CY13E and 22.1x CY14E EPS. We value the company at 26x CY14E EPS of INR38.5. Our target price is INR1,001. Maintain Buy.
Financials & Valuation (INR b) Y/E December Sales EBITDA NP EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013E 2014E 18.4 20.9 24.3 2.7 3.1 3.8 1.7 2.0 2.5 26.8 30.7 38.5 -33.4 14.7 25.3 108.8 131.4 159.4 27.1 25.6 26.5 39.3 37.9 38.7 26.4 27.1 31.7 7.8 18.3
27.7 6.5 15.8 0.8
22.1 5.3 12.7 1.1
2015E 28.4 4.5 3.0 46.5 20.8 193.2 26.4 38.8 27.4 18.3 4.4 10.3 1.3
Buy
Key issues to watch out for ¾ Gross margin expansion ¾ New store openings ¾ Rent as a percentage of sales Quarterly Performance
(INR Million)
Y/E December Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates
CY12 1Q 4,059 29.9 3,462 598 14.7 122 2 60 534 174 32.6 360 360 -67.1 8.9
2Q 5,038 16.5 4,206 831 16.5 124 2 67 773 247 31.9 527 527 28.4 10.5
3Q 4,237 13.8 3,727 510 12.0 127 2 97 478 158 33.0 320 320 5.3 7.6
CY13 4Q 5,090 18.0 4,286 805 15.8 140 5 76 734 226 30.7 509 509 13.0 10.0
1Q 4,538 11.8 3,910 628 13.8 131 2 69 564 180 32.0 384 384 6.6 8.5
2Q 5,725 13.6 4,764 961 16.8 141 2 78 895 276 30.8 619 619 17.6 10.8
3QE 4,809 13.5 4,205 604 12.6 144 2 91 549 179 32.6 370 370 15.5 7.7
4QE 5,803 14.0 4,869 934 16.1 157 2 113 889 289 32.5 600 600 17.9 10.3
CY12
CY13E
20,879 13.3 17,751 3,128 15.0 565 8 361 2,915 942 32.3 1,974 1,974 15.0 9.5
24,293 16.3 20,516 3,777 15.5 612 7 451 3,609 1,135 31.5 2,474 2,474 25.3 10.2
Niket Shah (
[email protected]) October 2013
C–201
September 2013 Results Preview | Sector: Consumer
Castrol India Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
CSTRL IN 494.6 154 / 2 371 / 285 -11 / -6 / -6
Financials & Valuation (INR b) Y/E December Sales EBITDA Adj. PAT Adj. EPS (INR) EPS Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2011 2012 2013E 29.8 31.2 32.6 6.6 6.2 6.7 4.8 4.5 4.8 9.8 9.0 9.7 -2 -8 9 12.2 13.1 14.1 93.7 83.8 71.4 133.6 109.1 94.2 89.7 96.7 90.1 31.7 25.5 22.6 2.4
34.4 23.7 24.0 2.4
33.0 22.7 22.7 2.4
2014E 34.7 7.7 5.4 10.9 13 14.0 71.3 94.7 101.2
CMP: INR311
Neutral
We expect revenue to increase by 4.3% YoY to INR7.5b. We have assumed a 2.3% volume growth on a YoY basis and realization growth of 2%.
For CY13E, we have assumed 1% YoY volume increase and realization growth of 8% YoY.
EBITDA margin is likely to increase 210bp YoY to 18.9%, primarily driven by higher realizations.
We model net profit to increase by 18.7% YoY to INR1b.
CSTRL trades at a P/E of 33/29.2 CY13E/CY14E earnings estimates. Our DCF-based target price for CSTRL is INR297/share. Though we remain positive on the long term prospects of the company, given rich valuations, we have a Neutral rating.
29.2 22.9 19.7 3.1
Quarterly Performance
(INR Million)
Y/E December Volumes (m litres) Realizations (INR/ ltr) Net Sales YoY Change (%) Net Raw Material Employee Expenses Other Operating Expenses Total Expenditure EBITDA YoY Change (%) Margins (%) Depreciation Interest Other Income PBT before EO Item Extraordinary Inc/(Exp) PBT Tax Rate* (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates
CY12 1Q 52.6 149 7,817 4.1 4,590 265 1,394 6,249 1,568 -12.6 20.1 60 7 335 1,836 0 1,836 607 33.1 1,229 1,229 -10.0 15.72
2Q 56.7 150 8,513 7.8 4,974 339 1,506 6,819 1,694 -13.4 19.9 60 3 162 1,793 0 1,793 584 32.6 1,209 1,209 -15.2 14.20
3Q 46.1 156 7,213 7.4 4,334 310 1,354 5,998 1,215 -6.8 16.8 66 1 130 1,278 0 1,278 421 32.9 857 857 -9.9 11.88
CY13 4Q 48.5 156 7,580 -1.5 4,345 370 1,200 5,915 1,665 8.8 22.0 80 10 181 1,756 0 1,756 577 32.9 1,179 1,179 10.4 15.6
1Q 50.1 156 7,814 0.0 4,429 335 1,366 6,130 1,684 7.4 21.6 71 5 245 1,853 1,853 610 32.9 1,243 1,243 1.1 15.9
2Q 54.1 159 8,588 0.9 4,638 385 1,659 6,682 1,906 12.5 22.2 73 3 226 2,056 198 2,254 718 31.9 1,536 1,338 10.7 15.6
3QE 47.2 159 7,527 4.3 4,333 378 1,394 6,105 1,422 17.0 18.9 74 4 192 1,536
4QE 54.6 159 8,686 14.6 5,039 402 1,589 7,030 1,656 -0.5 19.1 76 6 233 1,807
1,536 519 33.8 1,017 1,017 18.7 13.51
1,807 604 33.4 1,203 1,203 2.0 13.85
CY12
CY13E
203.9 153.0 31,209 4.7 16,894 1,284 5,520 23,699 6,142 -6.7 19.7 266 21 808 6,663 0 6,663 2,189 32.9 4,474 4,474 -7.0 14.3
206.0 164.8 32,614 4.5 18,439 1,500 6,008 25,946 6,668 8.6 20.4 294 18 896 7,252 198 7,450 2,451 32.9 4,999 4,801 7.3 14.7
Harshad Borawake (
[email protected])/Kunal Gupta(
[email protected]) October 2013
C–202
September 2013 Results Preview | Sector: Diversified
Multi Commodity Exchange Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
MCX IN 51.0 21 / 0 1,617 / 238 15 / -56 / -74
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Sales 5.3 4.9 3.3 EBITDA 3.3 2.8 1.3 PAT 2.9 2.8 1.5 EPS (INR) 56.1 54.9 29.4 EPS Gr. (%) 65.6 -2.2 -46.4 BV/Sh. (INR) 195.5 226.8 237.7 RoE (% 31.0 26.0 12.7 RoCE (%) 24.8 24.8 12.2 Payout (%) 50.0 53.3 55.7 Valuations P/E (x) 7.2 7.3 13.7 P/BV (x) 2.1 1.8 1.7 EV/ EBITDA (x) 2.5 2.9 5.4 Div. Yield (%) 7.0 7.3 4.1
2015E 3.1 1.2 1.5 29.9 1.6 248.5 12.3 11.9 66.5 13.5 1.6 5.3 4.9
CMP: INR402
Buy
2QFY14 is the first full quarter of impact of commodities transaction tax (CTT), which has had a severe impact on volumes. In addition, there are uncertainties around the parent group FTECH and its subsidiary NSEL, which seemingly impacted volumes in the last month of the quarter. The value of total transactions at MCX during the quarter was ~INR21t, down ~47% YoY and 44% QoQ. We estimate no change in transaction yield, as a result of which our revenue estimate for the quarter is INR682m, down 48% YoY and 45% QoQ. Volumes in Gold declined by ~41% QoQ, in Silver by ~53% QoQ, in Copper by ~43% QoQ and in Crude Oil by ~36% QoQ. Our EBITDA margin estimate for the quarter is 28.8%, down 22.7pp QoQ, owing to strong operating leverage. Our absolute EBITDA estimate is down 69% QoQ and 76% YoY to INR196m. Our PAT estimate is INR375m, down 55% QoQ, and 67% YoY. The stock trades at 13.7x FY14E and 13.5x FY15E EPS. Maintain Buy.
Key issues to watch for ¾ Volumes, post imposition of CTT. ¾ Volumes ramp-up at MCX-SX.
Quarterly Performance
(INR Million)
Y/E March Sales Q-o-Q Gr. (%) Staff Costs Admin and other expenses Depreciation EBIT Margins (%) Other Income PBT Tax Rate (%) PAT Q-o-Q Gr. (%) EPS (INR) Total volumes (INR t) Q-o-Q Gr. (%) Y-o-Y Gr. (%) E: MOSL Estimates
FY13 1Q 1,230 -0.7 78 396 67 689 56.0 233 921 274 29.7 647 -19.1 12.7 36.4 0.6 8.4
2Q 1,310 6.5 78 415 71 746 57.0 338 1,084 270 24.9 814 25.7 16.0 39.3 8.0 -17.8
3Q 1,246 -4.9 68 455 85 638 51.2 372 1,010 252 24.9 759 -6.8 14.9 37.0 -5.8 -3.6
FY14 4Q 1,207 -3.1 66 504 84 552 45.8 484 1,036 269 26.0 766 1.0 15.0 36.1 -2.6 -0.3
1Q 1,228 1.8 80 516 84 548 44.6 285 834 232 27.9 601 -21.5 11.8 37.5 4.0 3.0
2QE 682 -44.5 72 414 82 114 16.8 260 375 104 27.9 270 -55.0 5.3 20.9 -44.4 -42.7
3QE 653 -4.2 67 366 82 139 21.3 271 410 114 27.9 295 9.3 5.8 19.9 -4.4 -49.3
4QE 698 6.9 67 373 82 176 25.3 276 453 126 27.9 326 10.5 6.4 21.4 7.3 -42.2
FY13
FY14E
4,935 -6.2 340 1,770 314 2,510 50.9 1,355 3,865 1,065 27.6 2,800 -2.2 54.9 148.8
3,261 -33.9 245 1,669 326 1,021 31.3 1,062 2,083 583 28.0 1,500 -46.4 29.4 99.7
-4.6
-33.0
Ashish Chopra (
[email protected])/Siddharth Vora (
[email protected]) October 2013
C–203
September 2013 Results Preview | Sector: Diversified
Sintex Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
SINT IN 324.1 7/0 76 / 17 -3 / -59 / -74
CMP: INR21
Financials & Valuation (INR b) Y/E March 2012 2013 2014E Net sales 44.5 51.1 53.2 EBITDA 7.2 7.7 7.8 Adj. PAT 3.5 4.1 3.2 Adj EPS (INR) 13.0 13.3 9.9 EPS Gr. (%) -22.4 2.1 -25.3 BV/share (INR) 97.7 100.4 105.8 RoE (%) 14.0 14.3 9.8 RoCE (%) 11.0 10.3 8.9 Payout (%) 6.7 7.8 10.0 Valuations P/E (x) 1.7 1.6 2.2 P/BV (x) 0.2 0.2 0.2 EV/EBITDA (x) 3.9 4.4 4.2 Div. Yield (%) 3.0 3.2 3.2
2015E 56.6 9.0 4.0 11.3 13.5 117.4 10.1 9.0 6.6 1.9 0.2 3.5 3.2
Buy
We expect SINT's 2QFY14E revenue to grow 0.5% YoY to INR12b, EBITDA to de-grow 5% YoY to INR1.7b and Adjusted PAT to 3% to INR795m. Monolithic segment to post 25% YoY de-growth, while Prefab growth to moderate at 13% YoY (v/s 19% YoY in 1QFY14). Overseas, the automobile vertical is yet to show signs of an improvement, albeit growth in electrical and medical imaging segments and recent acquisitions will render cushion. Currency benefit to bolster overseas business further. We estimate foreign composites to grow 24% YoY. Domestic composites to post 11% YoY decline on the back of weakness in automobile segment, thus denting Bright's performance. We assume a broadly flattish trend in QoQ margins in most verticals, and estimate overall margins at 14.5% (+0.2pp QoQ, -0.8pp YoY). Nonetheless, sharp INR depreciation is likely to dent reported PAT severely. We assume MTM forex loss of INR665m on its un-hedged portion of FCCB (USD110m). The stock trades at FY15E P/E of 1.9x and EV/EBITDA of 3.5x. We value SINT at INR30 and maintain a Buy.
Key issues to watch out ¾ Outlook in monolithic business and improvement in working capital. ¾ Stabilization in operations of recent acquisitions in Germany and Poland, along with outlook on overseas composite business. ¾ Cash flow health and scope for deleveraging.
Quarterly Performance
(INR Million)
Y/E March 1Q Operating Income 10,806 YoY Growth (%) -2.8 EBITDA 1,776 EBITDA Margin (%) 16.4 YoY Growth (%) -3.4 Depreciation 483 Interest 354 Other Income 42 Extraordinary items -289 Profit before Tax 692 Tax Provisions 241 Tax / PBT 25 PAT before MI & Income from Assoc 451 Min. Int. and Profit from Associate 17 Consolidated PAT 468 Adj. Consolidated PAT 757 YoY Growth (%) -20.0 E: MOSL Estimates
FY13 2Q 11,985 3.6 1,828 15.3 -13.6 505 361 64 -49 978 258 25 721 3 723 772 -21.6
3Q 14,272 22.9 2,198 15.4 9.6 520 312 36 -450 953 420 30 533 3 536 986 43.2
FY14 4Q 14,013 36.9 1,890 13.5 -13.7 546 436 456 -116 1,247 -250 -18 1,497 13 1,510 1,626 79.0
1Q 11,281 4.4 1,609 14.3 -13.2 564 434 87 -37 661 201 29 460 6 466 503 -33.5
2QE 12,047 0.5 1,748 14.5 -4.9 579 434 84 -665 153 31 20 123 8 130 795 3.0
3QE 14,804 3.7 2,324 15.7 1.9 579 452 87 80 1,461 292 20 1,168 8 1,176 1,096 11.1
4QE 15,069 7.5 2,128 14.1 4.8 595 452 85 35 1,202 289 25 913 8 920 885 -45.5
FY13
FY14E
51,079 14.7 7,695 15.1 7.2 2,054 1,462 596 -903 3,871 669 14.0 3,202 0 3,238 4,141 17.2
53,202 4.2 7,810 14.7 1.5 2,317 1,772 343 -587 3,477 813 20.0 2,664 30 2,634 3,221 -22.2
Sandipan Pal (
[email protected]) October 2013
C–204
September 2013 Results Preview | Sector: Agrochemicals
United Phosphorus Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
UNTP IN 442.6 63 / 1 168 / 108 -9 / 17 / 5
Financials & Valuation (INR b) Y/E March Sales EBITDA NP Adj EPS (INR) EPS Growth (%) BV/Share (Rs) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 2013 2014E 76.7 91.9 105.6 13.8 16.6 20.2 5.9 8.0 9.3 12.8 18.1 21.0 3.3 42.1 15.7 90.4 105.0 121.8 14.9 18.2 18.5 17.3 17.3 19.2 22.5 17.5 19.9 11.2 1.6 6.4 1.8
7.9 1.4 5.4 1.8
2015E 117.8 23.0 11.2 25.2 20.2 142.9 19.0 20.0 16.9
6.8 1.2 4.4 2.5
5.7 1.0 3.6 2.5
CMP: INR143
Buy
We estimate United Phosphorus (UNTP) will report 23.7% YoY growth in consolidated revenue to INR22.9b. We expect 26% growth in domestic revenue and 16% growth in international revenue.
EBITDA margin is expected to improve by 110bp YoY to 18.7% due to favorable forex and operating leverage, translating into EBITDA growth of 32% to INR4.3b.
However, higher depreciation, interest cost and losses from associate to reduce PAT growth to 20% YoY to INR1.6b.
Current valuations of 6.8x FY14E EPS and 5.7x EV/EBITDA are very attractive. Maintain Buy with a target price of INR202 (8x FY15E EPS).
Key issues to watch for ¾ Update on delayed start to season in the US. ¢ Any revision in outlook for FY14, considering favorable climatic patterns and weaker INR. ¢ Status of integration of DVA Agro, Brazil and turnaround of Sipcam Isagro, Brazil.
Quarterly Performance (Consolidated)
(INR Million)
Y/E March Net Revenues YoY Change (%) EBITDA Margins (%) Depreciation Interest Other Income PBT before EO Expense Extra-Ord Expense PBT after EO Expense Tax Rate (%) Reported PAT Income from Associate Co Adjusted PAT YoY Change (%) Margins (%) Market-mix Domestic YoY Change (%) % of sales Exports YoY Change (%) % of sales Total Sales (incl OI) E: MOSL Estimates
FY13
FY14
FY13
FY14E
1Q 22,222 19.8 3,944 17.7 734 1,109 275 2,375 0 2,375 703 29.6 1,672 357 2,029 10.1 9.1
2Q 18,560 4.8 3,261 17.6 820 869 262 1,834 0 1,834 457 24.9 1,377 -179 1,198 68.0 6.5
3Q 22,956 20.2 4,042 17.6 961 1,013 280 2,348 0 2,348 685 29.2 1,663 72 1,735 52.9 7.6
4Q 28,207 32.3 5,372 19.0 1,022 1,299 183 3,234 352 2,881 186 6.5 2,695 89 3,114 38.0 11.0
1Q 24,558 10.5 4,566 18.6 863 1,358 265 2,609 0 2,609 683 26.2 1,927 200 2,127 4.8 8.7
2QE 22,952 23.7 4,294 18.7 950 1,350 230 2,224 0 2,224 612 27.5 1,612 -180 1,432 19.6 6.2
3QE 27,139 18.2 5,099 18.8 950 1,350 300 3,099 0 3,099 930 30.0 2,169 70 2,239 29.1 8.3
4QE 30,986 9.8 6,291 20.3 986 1,389 140 4,056 0 4,056 653 16.1 3,403 80 3,483 11.8 11.2
91,945 19.9 16,618 18.1 3,537 4,290 1,000 9,791 352 9,439 2,032 21.5 7,407 339 8,022 36.2 8.7
105,635 14.9 20,250 19.2 3,749 5,447 935 11,989 0 11,989 2,877 24.0 9,111 170 9,281 15.7 8.8
6,220 16.0 27.6 16,280 20.7 72.4 22,500
4,910 -13.7 26.1 13,910 13.5 73.9 18,820
4,010 5.2 17.3 19,230 23.4 82.7 23,240
2,910 24.9 10.3 25,470 33.2 89.7 28,380
7,690 23.6 31.0 17,130 5.2 69.0 24,820
6,191 26.1 27.7 16,191 16.4 72.3 22,382
4,754 18.6 17.8 21,915 14.0 82.2 26,669
3,476 19.5 10.6 29,222 14.7 89.4 32,699
18,050 5.0 19.4 74,890 23.9 80.6 92,940
22,111 22.5 20.7 84,459 12.8 79.3 106,570
Jinesh K Gandhi (
[email protected]) October 2013
C–205
September 2013 Results Preview | Sector: Electrical Goods
V-Guard Industries Bloomberg Equity Shares (m) M. Cap. (INR b)/(USD b) 52-Week Range (INR) 1,6,12 Rel Perf. (%)
VGRD IN 29.8 15 / 0 591 / 381 -19 / 7 / 16
Financials & Valuation (INR b) Y/E March Sales EBITDA NP EPS (iNR) EPS Gr. (%) BV/Sh (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) Div. Yield (%)
2012 9.6 0.9 0.5 17.0 27.0 70.6 26.6 27.3
2013 2014E 13.6 16.8 1.1 1.5 0.6 0.9 21.1 29.1 23.8 38.2 87.6 110.3 26.7 29.4 27.4 31.0 19.4 21.9
28.5 6.9 16.6 1.6
23.1 5.6 14.6 0.7
16.7 4.4 10.5 1.1
2015E 21.1 1.9 1.2 39.1 34.3 141.3 31.1 35.4 20.8 12.4 3.4 8.0 1.4
CMP: INR486
Buy
We expect 2QFY14 revenue to grow 15% YoY to INR3.6b, primarily due to extended rains and improvement in power scenario in South India. However, strong rural demand should result in 26% YoY growth in 2HFY14.
EBITDA margin is likely to decline 140bp YoY to 8.2%, primarily on account of higher ad spends during the quarter and lower operating leverage.
Due to lower margins, we expect PAT to decline 12% YoY. However, we expect growth to bounce back, as ad spends in 2HFY14 reduce considerably.
We cut our EPS estimates by 3% for FY14 and 4.5% for FY15 to factor in lower growth due to slowdown and improvement in power situation in South India. The stock trades at 16.7x FY14E and 12.4x FY15E EPS. Maintain Buy with a revised target price of INR587.
Key issues to watch out for Decline in invertor sales due to improvement in power scenario ¾ Movement of copper prices ¾ Update on new housing wiring cable capacity ¾
Quarterly Performance
(INR Million)
Y/E March Net Sales YoY Change (%) Total Expenditure EBITDA Margins (%) Depreciation Interest Other Income PBT Tax Rate (%) Reported PAT Adj PAT YoY Change (%) Margins (%) E: MOSL Estimates
1Q 3,190 32.8 2,847 343 10.7 28 45 5 276 69 25.1 207 207 67.3 6.5
FY13 2Q 3Q 3,135 3,490 48.2 41.5 2,835 3,233 300 257 9.6 7.4 29 29 43 49 11 15 239 194 59 40 24.8 20.7 180 153 180 153 162.9 23.2 5.7 4.4
FY14 4Q 3,787 38.5 3,588 199 5.3 29 63 5 113 24 21.1 89 89 -53.4 2.4
1Q 4,082 28.0 3,772 309 7.6 29 55 11 237 60 25.5 176 176 -14.6 4.3
2QE 3,605 15.0 3,311 294 8.2 25 61 10 218 59 27.0 159 159 -11.5 4.4
3QE 4,398 26.0 3,969 429 9.7 37 64 10 338 88 26.0 250 250 62.9 5.7
4QE 4,757 25.6 4,281 476 10.0 40 65 10 381 95 25.0 285 285 219.4 6.0
FY13
FY14E
13,602 40.0 12,503 1,099 8.1 114 200 36 822 193 23.4 629 629 23.8 4.6
16,840 23.8 15,331 1,509 9.0 132 244 42 1,175 305 26.0 869 869 38.2 5.2
Niket Shah (
[email protected]) October 2013
C–206
India Strategy | The Trilemma!
N O T E S
July 2013
C–210
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For U.S. Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Kadambari Balachandran Email :
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