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Stock Advisory for Today - Buy Infosys stock with target price of target price of Rs 3910

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Stock Advisory for Today -  Buy Infosys stock with target price of target price of Rs 3910 Powered By Docstoc
					                                                                                                                                                        IEA-Equity
                                                                                                                                                         Strategy
                                                  India Equity Analytics                                                                            4th March, 2014
                                                               Daily Fundamental Report on Indian Equities
                                                                                                                                                       Edition : 217

Infosys : "Meritocracy to growth"                                                                    "BUY"                      4th Mar 2014
In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level exits from the company. In near term, non-performers in
Infosys could be asked to leave or may hand over layoff notices. Infosys will retain its revenue acceleration and margin expansion, also operating
metrics will turn into greenery from hay. At a CMP of Rs 3793, it trades at 17.4x FY15E earnings. We retain our “BUY” view on the stock with a
target price of target price of Rs 3910 . ............................................................... ( Page : 2-4)


Powergrid :                                                                                          "BUY"                      3th Mar 2014
The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x BVPS. Valuation is very reasonable for a business
model with RoE (16%), strong growth visibility and minimal operational risks. We valued stock for a 12 month period at a target price of
Rs.118.With equity dilution overhang on the stock is removed, so we expect the stock price will drive by purely on its fundamentals, on our
estimates we maintain a positive fundamental outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of further
equity dilution is reduced . ............................................................ (Page : 5)

IFGL Refractories Ltd :"Strong Fundamentals…..."                                                     "BUY"                      3th Mar 2014
IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing Continuous Casting Refractories and Special grade
Refractories which find applications in steel industry. IFGL has grown as an Indian multinational with manufacturing facilities located in Brazil,
China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a subsidiary of world’s second largest steel maker
NipponSteel Corporation holding about 15 % stake in IFGL. We expect IFGL will report its best ever performance in this full year. Considering
industry’s improving prospects, stabilization of production from its newly built plant at Kandla SEZ and out performance of company in its
financials, We don’t expect any scope for deep correction, hence recommending a BUY. ................................................................................... (
Page : 6-7)

Private Sector Banks Result Review 3QFY14                                                                                       3th Mar 2014
Private Banks are trading at significantly lower or reasonable valuation when compare to their historical trend due to possible deterioration in
asset quality earnings pressure and political un-clarity. We prefer private banks over PSBs largely due to their capability to report healthy
earnings, higher capital adequacy ratio and lower or stable asset quality. Our top picks in sector are HDFC Bank, ICICI Bank, Indusind Bank and
DCB. ............................................................................ ( Page : 8-9)


IT Industry: 3QFY14 results review : "Clear acceleration in growth"                                                            28th Feb 2014
For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted by seasonality and furloughs impact. However, most of
companies expressed its sanguine view for industry outlook and demand discretionary environment ahead. Post earnings, almost all companies
management have expressed for better earnings outlook in near term . .................................................. ( Page : 10-15)



Public Sector Banks Result Review 3QFY14                                                                                       26th Feb 2014

Most of PSBs profitability were declined due to higher operating cost, surge in provisions and contingencies and creation of DTL special reserve.
But declining profitability and deteriorating asset quality is not a concern but structure damage of balance sheet. Going forward banks with
higher CASA base and healthy growth in deposits would able to protect margin and hence profitability. Post result we like SBI, Union Bank and
UCO          Bank          due         to        their         structural         improvement in balance sheet, operating and financial  metrics.
............................................................................ ( Page : 16-17)


SHREE CEMENT.                                                                                  "BOOK PROFIT "                  25th Feb 2014
The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market scenario the price is fare enough to trade.But looking at
future capex plans and sluggish demand we belive the earnings and profitability of Shree cement may fall for the next two consecutive
quarters.The profitability may fall due to incrising depriciation.Till now the company's depriciation level is stable but it may surprise further.so
we recommend its a better pic to book profit. ................................................................. ( Page : 18-20)

                                                                       Narnolia Securities Ltd,
                                     Infosys                                                                       "BUY"
                                                                                                                  4th March' 14
                                                                  "Meritocracy to growth"

Company update                          BUY    Focus on meritocracy for client satisfaction as well as margin expansion;
CMP                                    3793    In the recent webcast, Mr. Narayan Murthy expressed its view regarding senior level
Target Price                           3910    exits from the company. In near term, non-performers in Infosys could be asked to
Previous Target Price                  3620    leave or may hand over layoff notices. Despite high salaries, some identified
Upside                                   3%    employees are not contributing so much to improve productivity and efficiency of
Change from Previous                     8%    operations. Already, the restructuring initiatives has taken place at the top of the
                                               pyramid and now shifted to mid level of pyramid. Hence, its pink slip strategy indicates
Market Data                                    to regain its growth and margin in near term.
BSE Code                              500209   Considering the strategy to build clients relation, execution of growth oriented policy
NSE Symbol                              INFY   and combination of reduced onsite costs and higher utilization would be an optimistic
52wk Range H/L                     3847/2190   growth story despite recent hiccups of top management exit.
Mkt Capital (Rs Crores)               217810   Key takeaways from recent webcast;
Average Daily Volume                 1240448   Restructuring at middle management: Mr. Murthy has taken initiatives to improve
Nifty                                   6221   cost efficiency and effective delivery system. The management has rewarded the top
                                               performers and has given an opportunity to mediocre performers. Its PIP (performance
Stock Performance                              Improvement Program) followed by exam, and appraisal would dictate the level of
                   1M       1yr         YTD    efficiency for mediocre, and the situation of involuntary attrition.
Absolute           4.5      30.4        53.1
Rel. to Nifty      0.8      21.6        49.4   Cost Rationalization: Company’s employee costs have ballooned very rapidly in the last
                                               2-3 years. For example, on-site compensation was 36% of the overall revenue in FY11
Share Holding Pattern-%                        and it went up to 46.3% in FY13, Overall employee cost on sales increased from
                 Current   2QFY14 1QFY14       52%(FY09) to 56% (FY13). Company has hired a number of employees at higher salaries
Promoters         15.94     15.94  16.04       outside India and employees are not adding efficient growth in productivity.
FII               40.65     39.93  39.55
DII               15.35     16.16  18.28       Improving utilization level: Comparing with other peers, its utilization level (excluding
Others            28.06     27.97  26.13       trainees) declined from 80% in FY11 to 74% in FY13. Post NRN entry, company had
                                               hiked offshore wage at the rate of 8% and overseas at 3%. We expect that company’s
1 year forward P/E                             management could decide for wage hike across onsite as well as offshore to enhance its
                                               utilization rate in near term.
                                               View and Valuation: Infosys seems to be on its way to rediscovering its past mojo with
                                               revenue momentum kicking, and the NRN invisible hand in play. Further announcement
                                               of strategic acquisitions, better utilization of cash balances, better deal win, consistent
                                               client traction and revenue momentum would help the company to bridge the gap with
                                               rivals such as TCS.
                                               On an ongoing basis, Infosys will retain its revenue acceleration and margin expansion,
                                               also operating metrics will turn into greenery from hay. Upgradation of earning
                                               guidance by management hinted to join the party to enjoy with 12-14% earnings
                                               growth for FY14E like other top bellwether. At a CMP of Rs 3793, it trades at 17.4x
                                               FY15E earnings. We retain our “BUY” view on the stock with a target price of target
                                               price of Rs 3910 .
                                               Financials                                                                        Rs, Crore
                                                                      3QFY14        2QFY14        (QoQ)-%         3QFY13       (YoY)-%
                                               Revenue                 13026          12965          0.47          10424          25.0
                                               EBITDA                  3258.9        2836.9         14.88           2677          21.7
                                               PAT                     2874.9        2406.9         19.44           2369          21.4
                                               EBITDA Margin           25.0%          21.9%        310bps          25.7%       (70bps)
                                               PAT Margin              22.1%          18.6%        350bps          22.7%       (60bps)
                                                                Narnolia Securities Ltd,                                                2
                                               Please refer to the Disclaimers at the end of this Report.
                           Infosys.
Employee cost on sales-%




                                                                                              Employee cost on sales at all time high




                                                      (Source: Company/Eastwind)


Total Employee and additions,



                                                                                              Looking to bring in about maximum 6,000
                                                                                              off-campus offers, Infosys will hire up to
                                                                                              16,000 engineers next year.




                                                      (Source: Company/Eastwind)


Headcount Metrics:                                                                            Its attrition increased to 18% from
                                                                                              17.3%(2QFY14) on LTM basis, however
                                                                                              on sequentially basis they have been able
                                                                                              to control its attrition. we hope that the
                                                                                              further salary hikes across the board will
                                                                                              bring down the attrition levels going
                                                                                              forward.


                                                      (Source: Company/Eastwind)


Utilization:


                                                                                              The Company's Utilization is likely to
                                                                                              keep inching up, which could lead to
                                                                                              margin expansion for a couple of
                                                                                              quarters and that is going to be a huge
                                                                                              positive for Infosys as a company.


                                                      (Source: Company/Eastwind)

                                              Narnolia Securities Ltd,                                                                  3
                                      Please refer to the Disclaimers at the end of this Report.
                             Infosys.
Key facts from Management Interview;
■ Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%. This
guidnace means the company only has to achieve flat growth in the fourth quarter to
meet the projection.
■ With 85% of the company’s revenues coming from clients based in US and Europe, the
company should hope the current economic recovery in developed countries would help
its revenues.
■They are seeing confidence coming back from client’s metrics. However, they expect
[their] budgets only remain stable from last year. Clients are still focused on cost.

■ The Company is looking to bring in about maximum 6,000 off-campus offers starting
late January early February, so there is a lot of activity going on that is bringing people in,
engaging and developing.

Financials
Rs in Cr,                                       FY10               FY11                  FY12                  FY13    FY14E          FY15E
Sales, INR                                      22742              27501                 33734                 40352   50330          59631
Employee Cost                                   12085              14856                 18340                 22565   28185          33691
Other expenses                                   2792               3677                  4671                  6254    8556          10734
Total Expenses                                  14877              18533                 23011                 28819   36741          44425
EBITDA                                           7865               8968                 10723                 11533   13589          15206
Depreciation                                     905                854                   928                   1099    1371           1624
Other Income                                     982                1211                  1904                  2365    2567           3578
EBIT                                             7942               9325                 11699                 12799   14785          17160
Interest Cost                                     0                  0                     0                     0       0              0
PBT                                              7942               9325                 11699                 12799   14785          17160
Tax                                              1681               2490                  3367                  3370    3992           4633
PAT                                              6261               6835                  8332                  9429   10793          12527
Growth-%
Sales                                            4.8%              20.9%                 22.7%                 19.6%   24.7%          18.5%
EBITDA                                           9.3%              14.0%                 19.6%                 7.6%    17.8%          11.9%
PAT                                              4.6%              9.2%                  21.9%                 13.2%   14.5%          16.1%
Margin -%
EBITDA                                          34.6%              32.6%                 31.8%                 28.6%   27.0%          25.5%
EBIT                                            34.9%              33.9%                 34.7%                 31.7%   29.4%          28.8%
PAT                                             27.5%              24.9%                 24.7%                 23.4%   21.4%          21.0%
Expenses on Sales-%
Employee Cost                                   53.1%              54.0%                 54.4%                 55.9%   56.0%          56.5%
Other expenses                                  12.3%              13.4%                 13.8%                 15.5%   17.0%          18.0%
Tax rate                                        21.2%              26.7%                 28.8%                 26.3%   27.0%          27.0%
Valuation
CMP                                              2615               2765                  2865                 2400      3793          3793
No of Share                                      57.4               57.4                  57.4                 57.4      57.4          57.4
NW                                             23049.0            25976.0               31332.0              37994.0   45629.8       54797.5
EPS                                             109.1              119.0                 145.1                164.2     188.0         218.2
BVPS                                            401.7              452.4                 545.6                661.7     794.7         954.3
RoE-%                                           27.2%              26.3%                 26.6%                24.8%     23.7%         22.9%
Dividen Payout ratio                            25.1%              45.9%                 24.0%                45.1%     23.0%         19.8%
P/BV                                              6.5                6.1                   5.3                  3.6       4.8           4.0
P/E                                              24.0               23.2                  19.7                 14.6      20.2          17.4
                                                                                                                         (Source: Company/Eastwind)

                                                                Narnolia Securities Ltd,                                                         4
                                                        Please refer to the Disclaimers at the end of this Report.
                                                      Powergrid..                                                                 "Buy"
                                                                                                                                3rd march' 14




Update                                       BUY      Overall revenues increased 9.6% YoY to Rs.3685 crore due to lower than anticipated
CMP                                            95     capitalisation (Rs.3050 crore) in Q3FY14 . Income increased 6.5%, 10.0% and 121.9% YoY
Target Price                                  118     in transmission, telecom and consultancy income, respectively. Other income declined
Previous Target Price                          NA     9.7% YoY to Rs.116 crore as cash was deployed across various upcoming projects.
Upside                                        25%     Margins declined 336 bps YoY to 87.4% due to 55.7% YoY rise in transmission & other
Change from Previous                           NA     expenses to Rs.333 crore. Tax expenses increased 7.5% YoY to Rs. 399 crore. Q3FY13
                                                      included a one-time income of Rs.167 crore as wage revision benefit. Adjusting the same,
Market Data                                           PAT increased 4.3% YoY to Rs.1,043 crore.
BSE Code                                532898
NSE Symbol                           POWERGRID        The Central Electricity Regulatory Commission (CERC) issued the final tariff regulations for
52wk Range H/L                             116/87     the period FY15-19 – these regulations form the basis of Power Grid’s earnings (regulated
Mkt Capital (Rs Crores)                     49490     returns) from its core transmission business over the next five years.The Key take aways
Average Daily Volume (Nos.)                 22270     of these Regulations are Normative TAF (NATAF) for incentives lowered; no incentive for
Nifty                                        6277     TAF >99.75% .Normative O&M charges raised (vs. draft), but still below FY14 levels.

Stock Performance-%                                   Strong Capitalization : Power Grid’s adjusted PAT increased 4.3% YoY to Rs. 1,043 crore
                         1M          1yr      YTD     in Q3FY14 While asset capitalisation was below estimate Rs. 3050 crore, PGCIL
Absolute                 8.2         9.5       8.1    commissioned another Rs. 3450 crore in January 2014 taking overall capitalisation to Rs.
Rel. to Nifty            9.5         3.8       4.0    13000 crore YTDFY14.
                                                      Capitalisation of assets remains on track. Till Jan end the company has capitalised Rs
Share Holding Pattern-%                               118bn of assets which is 70% of our full year estimate. Since last two months of the year
                    3QFY14      2QFY14 1QFY14         usually account for the bulk of yearly commissioning we are confident that the co. will meet
                                                      our estimate of Rs 170bn for FY14.
Promoters             57.9        57.9   69.4
FII                   25.4        19.4   14.7         Power Grid's Raichur-Solapur line has been connected to national grid. Management Says
DII                    8.6         8.8    7.6         there were four trippings in the first week. Two were to increase reliability and were
Others                 8.2        13.9    8.3         done intentionally, and the other two were because of a few glitches. For the last month
                                                      there has been no tripping.
1 yr Forward P/B                                      View & Recommendation
                                                      With equity dilution overhang on the stock is removed, so we expect the stock price will
                                                      drive by purely on its fundamentals, on our estimates we maintain a positive fundamental
                                                      outlook for Power grid. Also, govt. stake coming down to 58% is a positive, as risk of
                                                      further equity dilution is reduced

                                                      The stock is trading at 1.7x FY15E BVPS. We estimate to Power grid stock to trade at 1.8x
                                                      BVPS. Valuation is very reasonable for a business model with RoE (16%), strong growth
                                                      visibility and minimal operational risks. We valued stock for a 12 month period at a target
                                                      price of Rs.118.

                                                      Financials :                  Q3FY14               Y-o-Y %    Q-o-Q %    Q3FY13      Q2FY14
                                                      Revenue                         3685                    9.4       -7.9     3369        3999
                                                      EBIDTA                          3105                    6.0       -8.4     2930        3389
                                                      Net Profit                       988                   -8.5      -16.9     1080        1189
                                                      EBIDTA%                           84                   -3.1       -0.6       87          85
                Source - Comapany/EastWind Research   NPM%                              27                 -16.3        -9.8       32          30
                                                                                                                                                (In Crs)

                                                                      Narnolia Securities Ltd,                                                        5


                                                       Please refer to the Disclaimers at the end of this Report.
V-                                   IFGL Refractories Ltd.                                                                "Buy"
                                                                                                                        3rd Mar' 14
                                    "Strong Fundamentals…..."
Result update                          Buy    IFGL refractories is the flagship company of SK Bajoria group.Company manufacturing
CMP                                     62    Continuous Casting Refractories and Special grade Refractories which find applications in steel
Target Price                            80    industry. IFGL has grown as an Indian multinational with manufacturing facilities located in
Previous                                NA    Brazil, China, Czech Republic, Germany, India, UK and USA. Krosaki HarimaCorporation Japan ,a
Target Price                                  subsidiary of world’s second largest steel maker NipponSteel Corporation holding about 15 %
Upside                                 29%
                                              stake in IFGL. The company has a lot of subsidiaries with the ones in US and Germany
Change from                             0%
                                              seemingly doing well. For the latest December quarter,on a consolidated basis company
Previous
                                              reported a Sales of Rs. 195.7 Cr v/s Rs. 168.9 Cr. Net profit improved sharply from Rs. 9.5 Cr to
Market Data                                   Rs. 14.3 Cr. For 9 Month period EPS is Rs. 13.9 which is more than the full year figure of Rs. 7.3
BSE Code                           532133     of last year. We expect IFGL will report its best ever performance in this full year. Considering
NSE Symbol                     IFGLREFRAC     industry’s improving prospects, stabilization of production from its newly built plant at Kandla
52wk Range                          24/68     SEZ and out performance of company in its financials, We don’t expect any scope for deep
H/L Capital
Mkt                                    214    correction, hence recommending a BUY.
(Rs Crores)
Average Daily                        6,366
Volume
Nifty                                6,277    Industry revival to spur growth :
                                              Fate of refractory companies closely related with the growth of steel industry. Now steel industry
Stock Performance-%                           world around showing some earlier signs of revival.As a global player ,IFGL is expected to get
                    1M        1yr      YTD    immense benefit from this revival.Its technical collaboration and equity participation with one of
Absolute           (0.5)     75.7     100.2   the world leaders also helping the company to adopt latest technology in manufacturing process.
                                              A major portion of company’s income is from exports and the currency valuation of currency is
Rel. to Nifty      (3.6)     68.5      89.7
                                              also positive for it. Steel industry in the US and in Europe is coming out of pro-longed recession
                                              and demand in India is also expected to pick up on account of major projects getting started.
Share Holding Pattern-%                       Increase in capital expenditure for capacity expansion by major steel producers both within India
                3QFY14     2QFY14 1QFY14      and internationally augurs well for the refractory industry
Promoters         71.3       71.3   71.3
FII                0.0        0.0    0.0      Low leverage balance sheet and attractive valuations augurs well :
DII                2.2        2.2    2.2      IFGL reported debt equity ratio of 0.35x in Sep FY13, even after the series of acquisitions, and we
Others            26.5       26.5   26.5      expect it to gradually reduce over time to 0.28x in FY15E.Company having an uninterrupted
                                              dividend paying record for the past four years. Promoters holding more than 70 % stake (NIL
1 yr Forward P/B                              pledged) in the company and another 7 % is held by large investors. At a time the steel industry
                                              is showing revival, We expect IFGL will report its best ever performance in this full year.
                                              Considering industry’s improving prospects, stabilization of production from its newly built plant
                                              at Kandla SEZ and out performance of company in its financials, We don’t expect any scope for
                                              deep correction, hence recommending a BUY.
                                              Valuation :
                                              At CMP of INR 62, IFGL is trading at P/E of 3.7x and 3.2x its FY14E and FY15E earnings. Company
                                              can post the EPS of Rs 16.8/18.6 in FY14/15E and RoE% of 20.3%/19.2% in FY14/15E . We rate a
                                              BUY rating on the stock with an 12 months price target price of Rs 80.0 at 4.1x FY15E earnings.


                                              Financials                                                                            Rs, Crore
                                                                            3QFY14              2QFY14     (QoQ)-%     3QFY13         (YoY)-%
                                              Revenue                        194.7               201.4        -3.3%     169.0          15.3%
                                              EBITDA                          27.2                29.9        -8.8%      18.3          48.5%
                                              PAT                             14.3                19.1       -25.2%       9.5          50.3%
                                              EBITDA Margin                  14.0%               14.8%      (80) bps    10.9%         310 bps
                                              PAT Margin                      7.4%                9.7%     (230) bps     5.1%         230 bps
                                              (Source: Company/ Eastwind Research)                                                  (Standalone)
                                                               Narnolia Securities Ltd,                                                         6

                                              Please refer to the Disclaimers at the end of this Report.
IFGL Refractories Ltd.
Key financials :
 PARTICULAR                 2009A      2010A   2011A   2012A        2013A        2014E         2015E

 Performance

 Revenue                      398       415     471    604           671          772           888
 Other Income                  2         3       5       3            4             3             3
 Total Income                 401       419     476    607           676          776           891
 EBITDA                        27        58      43     75            58          106           120
 EBIT                          20        50      34     62            45           89           103
 Depriciation                  7         8       9      13            13           17            17
 Intrest Cost                  10        5       6       7            8             7             7
 PBT                           13        49      33     58            41           85            99
 TAX                           7         15      8      18            16           27            31
 Derrivative Loss              0         0       0       0            0             0             0
 Reported PAT                  6         34      24     40            25           58            68
 Dividend                      2         2       0       1            2             2             2
 EPS                          1.8       9.7     7.0    11.5          7.3          16.8          19.6
 DPS                          0.7       0.6     0.0     0.2          0.6           0.6           0.6

 Yeild %

 EBITDA %                    6.9%      13.9%   9.1%    12.3%        8.7%         13.7%         13.5%
 NPM %                       1.5%      8.0%    5.1%    6.6%         3.8%         7.5%          7.6%
 Earning Yeild %             9.7%      17.6%   22.9%   29.2%        23.7%        27.2%         31.6%
 Dividend Yeild %            3.7%      1.1%    0.0%    0.5%         1.9%         1.0%          1.0%
 ROE %                       5.3%      24.6%   15.0%   19.2%        11.0%        20.3%         19.2%
 ROCE%                       2.8%      15.6%   8.3%    11.9%        7.1%         14.6%         15.0%

 Position

 Net Worth                    114       137     161     207           231          287           353
 Total Debt                   100       79      129     127           129          110           100
 Capital Employed             214       216     290     335           360          397           453
 No of Share                   3         3       3       3             3            3             3
 CMP                          18        55      31      39            31           62            62

 Valuation

 Book Value                   32.8     39.6    46.6    59.9          66.7         83.0         101.9
 P/B                           0.5      1.4     0.7     0.7           0.5          0.7          0.6
 Int/Coverage                  2.1     11.1     5.7     9.1           5.6         12.2          14.1
 P/E                          10.3      5.7     4.4     3.4           4.2          3.7          3.2

(Source: Company/ Eastwind Research)


                                                              Narnolia Securities Ltd,                              7

                                                       Please refer to the Disclaimers at the end of this Report.
                             Private Sector Banks Result Review 3QFY14


                                   Better than expected NII on the back of margin expansion and loan growth
                                   In our coverage universe, banks NII grew by 15.7% YoY largely due to stable margin
                                   and loan growth. Private sector banks are getting benefit from their high base CASA
                                   franchise and low share of high cost wholesale bulk deposit. HDFC Bank, ICICI
                                   Bank, Indusind Bank and DCB were continued to report 20%+ NII growth whereas
                                   Federal Bank, INGVYSYA Bank, J&K Bank saw some stress in their earnings.

                                   Well structure balance sheet led healthy growth at operating profit level
                                   Operating expenses in our coverage universe remained stable on sequential basis
                                   and on very positive note; they delivered on an average basis growth of 19.8% YoY
                                   at operating profit level. This was due to healthy NII growth, stable fee income and
                                   controlled operating leverage. We have highlighted above that banks with healthy
                                   operating profit would do better going forward as strong performance at operating
                                   profit level would be possible only in case of well structure balance sheet growth.
                                   Economic growth and stress in asset quality issue would be resolve with the passage
                                   of time. Although we have not seen any revival in economy nor improvement in asset
                                   quality in near term but private sector banks are trading significant discount as
                                   against their historical valuation due to possible fear of deterioration in assets.

                                   Profitability increased due to healthy NII growth, controlled CI ratio and stable
                                   asset quality
                                   Most of banking stocks are trading at lower side of valuation band due to earnings
                                   pressure, higher operating leverage and asset quality. In our coverage universe,
                                   bank reported profit growth of 16.6% YoY higher than our expectation led by margin
Nifty Vs Bank Nifty during Year    expansion, controlled operating leverage and stable asset quality. Although we saw
                                   some earnings pressure in many large and mid cap banks on which Axis bank’s
                                   profitability was boost up by right back of investment depreciation and Yes Bank’s
                                   provisions and contingencies was almost down by 100% which inflated profit growth
                                   by 21.4% YoY.
                                   Asset quality continues to persist and would take time despite of uptick in
                                   economy
                                   Private sector banks delivered better when compare to PSBs in term of asset quality
                                   at sequential basis. Sequentially banks reported stable asset quality with high
                                   coverage ratio which provided cushion to their earnings. But in our sense, asset
                                   quality pressure continues to persist because economy growth is likely to be tepid
                                   and it will take some time for recovery in domestic industrial activity and corporate
                                   balance sheet’s leverage to decline. According to S&P, with the uptick in economy,
                                   bank will have take some time for revival as banks have to struggle for capital base
                                   too for further growth but private banks have adequate capital base and healthy tier-
                                   1 capital. Outlook of asset quality in system is not positive and it would remain
                                   challenge for banks in FY14.



                                                   Narnolia Securities Ltd,                                                8

                                  Please refer to the Disclaimers at the end of this Report.
          Private Sector Banks Result Review 3QFY14

Well structure balance sheet growth and high CASA base would help to keep
profitability up
We like those banks which did well at operating profit level, keeping in mind that with
slower pace of economy growth and rising interest rate scenario, asset quality pressure
would persist. Provision and contingencies are already expected to remain high. Most of
bank’s profitability was down owing to higher provisions against loan loss. With the
recovery in economy loan growth and asset quality would improve with the passage of
time but operating leverage and margin expansion are permanent structure of balance
sheet. Banks with strong CASA base and adequate deposits growth that could support
loan growth easily without depending upon external fund would do better in going
forward.
Outlook
Private Banks are trading at significantly lower to their historical valuation or reasonable
valuation due to their possible earnings pressure and asset quality issue. This is on
account of sluggish economic growth and political un-clarity. Some banks in our universe
are capable to generate high level of profit, have high capital adequacy ratio and lower
level of stress. In our sense these banks would do better in current economy macro
situation. Out top picks are HDFC Bank, ICICI Bank, Indusind Bank and DCB.

Result Snapshot
                         3QFY14E                       2QFY14                           3QFY13                          YoY Growth                  QoQ Growth
 PRIVATE BANK      NII       PPP Net Profit      NII       PPP Net Profit         NII       PPP Net Profit          NII       PPP Net Profit     NII      PPP Net Profit
AXISBANK         2984       2615 1604          2937       2750 1362             2495       2311 1296               19.6      13.2       23.8    1.6       -4.9      17.8
CUB               198         135       89      190        141        84         163        131        85          21.2       2.8        4.8    4.0       -4.5       6.1
DCB                94          46       36       91         40        33          72         32        27          30.5      44.9       34.7    3.3       15.9      10.2
DHANBANK           57          -8     -119       82         18 -1.85              74         14         4         -23.6    -154.4    -3084.3   -31.1    -142.3    6352.4
FEDERALBNK        546         356      230      548        354       226         497        394       211           9.8      -9.7        9.1    -0.4       0.5       1.8
HDFCBANK         4635       3888 2326          4477       3387 1982             3799       3024 1859               22.0      28.6       25.1    3.5       14.8      17.3
ICICIBANK        4256       4440 2533          4044       3888 2352             3499       3452 2250               21.6      28.6       12.6    5.2       14.2       7.7
INDUSINDBK        730         647      347      700        588       330         578        472       267          26.3      37.2       29.9    4.3       10.1       5.1
INGVYSYABANK      416         274      167      440        276       176         403        263       162           3.3       4.3        3.3    -5.4      -0.6      -4.9
J&KBANK           647         441      321      682        496       303         594        435       289           8.9       1.3       11.2    -5.2     -11.1       6.0
KARURVYSYA        305         153      107      298        157        83         308        212       113          -0.9     -27.8       -5.5    2.4       -2.6      28.7
SOUTHBANK         350         216      141      364        212       127         353        235       128          -0.7      -8.1       10.4    -3.7       1.8      11.3
YESBANK           665         615      416      672        713       371         584        563       342          13.9       9.2       21.5    -1.0     -13.8      12.0
Total           15882      13818 8198         15525      13020 7427            13419      11538 7033               18.4      19.8       16.6     2.3       6.1      10.4


                                                                     Narnolia Securities Ltd,                                                                          9

                                                              Please refer to the Disclaimers at the end of this Report.
                                 IT Industry: 3QFY14 results review
                                                                        "Clear acceleration in growth"

Price performance of our coverage:          Mix performance and margin sustainability, future outlook appears positive;
                                            For IT Industry, 3QFY14 has carried out a quarter of mix set of numbers largely impacted
                                            by seasonality and furloughs impact. However, most of companies expressed its
                                            sanguine view for industry outlook and demand discretionary environment ahead. The
                                            Top-4 companies responded a decent set of performance despite seasonally weak
                                            quarter with aggregate revenue of 2.8% in USD term (QoQ).

                                            Comparing with street expectation, Infosys and HCL Tech beat the street, while TCS and
                                            Wipro reported inline set of numbers. On margin front, they surprised positively with
                                            back-to-back quarters of margin improvement led by operational efficiencies and cost
                                            rationalization.
                                            Post earnings, almost all companies management have expressed for better earnings
                                            outlook in near term and they were confident to see stronger FY15E than FY14E on
                                            healthy growth prospect and a secular improvement in demand trend.

                       (Source: Eastwind)   Key takeaways from 3QFY14 earnings:
                                            USD revenue was marginally inline and Positive FY15E outlook: Reported USD revenues
                                            were in line or very marginally below our estimate during the seasonally weak quarter
                                            across the top tier. A part of this, companies management have given better outlook with
Index Performance:                          margin expansion for FY15E, even NASSCOM aired the earning guidance of 13-15% for
                                            FY15E, better than FY14E and FY13.
                                            Margin ramped up across the Tier-1 and most of mid cap space: Despite flattish currency
                                            benefit, companies have been efficient to maintain its margin because of reinvested
                                            higher growth and efficient strategy to improve utilization. With macro improving and
                                            positive growth outlook, the operating advantage from investment is likely beginning to
                                            play out.
                           ▲ 43%            SMAC and Digital were subject to discussion: Emerging verticals SMAC (Social, Mobility,
                                            Analytics and Cloud) and Digital transformation are expected to bring next generation of
                                            growth in IT Industry. A number of IT companies, especially tier-1 IT companies have
                       (Source: Eastwind)
                          ▲ 9.4%            expressed its priority area and strategy to pan-out growth opportunities on these
                                            emerging verticals. Current uptrend in discretionary spend is being driven by the same.

                                            Deal Pipeline remains healthy: During the quarter, weak seasonality marginally impacted
                                            order inflow. For near term, deal pipeline remains healthy and somehow, Pricing will be
                                            marginally under pressure in the traditional IT segment, Application Development and
                                            Management segment. While, we do not see any pressure on new emerging segments like
                                            SMAC, Digital, Infra, etc.
                       (Source: Eastwind)   Earning Performance v/s Estimates;

                                                                                               TCS
                                                                                             WIPRO
                                                                                               CMC
                                                       INFY                                MINDTREE
                                                     HCLTECH                               HEXAWARE
                                                      TECHM                                 NIITTECH
                                                   ZENSARTECH                              PERSISTENT
                                                    TATA ELXSI                               ECLERX           KPIT
                                                   Outperform                                 Inline      Underperform
                                                                                                                    (Source: Eastwind)
                                                              Narnolia Securities Ltd,                                             10
                                             Please refer to the Disclaimers at the end of this Report.
                                      IT Industry: 3QFY14 results review


Companies Specific Earnings Review
                                Sales,cr                               EBITDA,cr                                                        PAT,cr
Company
                3QFY13     2QFY14 3QFY14E          3QFY14 3QFY13 2QFY14 3QFY14E 3QFY14                                  3QFY13   2QFY14 3QFY14E 3QFY14
TCS             16069.9    20977.2 21606.6          21294.0 4660.5 6633.0 6300.3  6686.8                                3549.6    4633.3     5096.7   5333.4
INFY*           10424.0    12965.0 13069.1          13026.0 2677.0 2837.0 3424.1  3258.9                                2369.0    2407.0     2695.8   2874.9
WIPRO           9587.5     10990.7 11342.4          11327.4 2050.2 2503.8 2552.0  2652.7                                1598.1    1932.0     1984.2   2014.7
HCLTECH#        6273.8      7961.0 8160.0            8184.0 1416.6 2093.0 2080.8  2125.0                                 974.3    1416.0     1472.6   1495.0
TECHM           3523.7      4771.5 4819.2            4898.6 756.9  1110.9 1084.3  1136.3                                 455.9     718.2      754.1   1009.8
CMC              493.0      560.8    566.4           561.0   83.2   88.4     87.8  90.8                                  61.1      67.3        65.6     70.6
MINDTREE         590.1      769.5    792.2           790.6  120.4  159.8    153.9  154.1                                 87.7      113.0       98.6    114.0
HEXAWARE$        507.5      621.1    629.2           620.0  109.0  147.7    147.9  139.4                                 66.2      98.7       103.6    103.3
NIITTECH         514.4      587.3    593.5           587.3   81.3   88.6     86.1  95.1                                  56.6      60.4        57.4     52.5
KPIT             563.3      702.8    722.0           677.9   87.9  108.1    115.5  103.5                                 59.9      66.7        69.4     60.8
PERSISTENT       333.0      432.4    436.1           432.8   82.4  100.8    104.7  104.3                                 49.5      60.8        66.9     64.2
ZENSARTECH       525.5      599.7    590.6           594.1   70.1  102.5     87.5  87.3                                  48.7      70.6        50.4     50.8
ECLERX           170.8      214.6    218.5           219.5   66.8   92.8     90.5  88.8                                  49.8      67.2        61.4     62.3
TATA ELXSI       156.7      190.0    195.5           200.1   16.5   32.4     40.4  43.6                                   8.8      19.9        20.5     21.6
            *Infosys (net profit for 2QFY14 includes the one-time visa charge of Rs219 crore).                                       (Source: Company/Eastwind)
               # HCL Technologies (June year ending). $ Hexaware (Follow Callendar year)


Growth and Margin Performance-%
                              Growth (QoQ)-%                            Growth (YoY)-%                                 Margin-%        Margin Change,(QoQ)
Company
                         Sales    EBITDA     PAT                   Sales   EBITDA      PAT                         EBITDA     PAT       EBITDA       PAT
TCS                      1.5%      0.8%     15.1%                  32.5%    43.5%     50.3%                         31.4%    25.0%      (20bps)    290bps
INFY                     0.5%      14.9%    19.4%                  25.0%    21.7%     21.4%                         25.0%    22.1%      310bps     350bps
WIPRO                    3.1%      5.9%     4.3%                   18.1%    29.4%     26.1%                         23.4%    17.8%       60bps      20bps
HCLTECH                  2.8%      1.5%     5.6%                   30.4%    50.0%     53.4%                         26.0%    18.3%      (30bps)     50bps
TECHM                    2.7%      2.3%     40.6%                  39.0%    50.1%    121.5%                         23.2%    20.6%      (10bps)    560bps
CMC                      0.0%      2.7%     4.8%                   13.8%    9.1%      15.5%                         16.2%    12.6%       40bps     60bps%
MINDTREE                 2.7%      -3.6%    0.9%                   34.0%    28.0%     30.0%                         19.5%    14.4%     (130bps)    (30bps)
HEXAWARE                 -0.2%     -5.7%    4.7%                   22.2%    27.9%     56.0%                         22.5%    16.7%     (130bps)     80bps
NIITTECH                 0.0%      7.3%    -13.1%                  14.2%    17.0%     -7.2%                         16.2%     8.9%      110bps    (130bps)
KPIT                     -3.5%     -4.3%    -8.8%                  20.3%    17.7%     1.5%                          15.3%     9.0%      (10bps)    (50bps)
PERSISTENT               0.1%      3.5%     5.6%                   30.0%    26.6%     29.7%                         24.1%    14.8%       80bps      80bps
ZENSARTECH               -0.9%    -14.9%   -28.0%                  13.1%    24.5%     4.3%                          14.7%     8.6%     (240bps)   (320bps)
ECLERX                   2.3%      -4.3%    -7.2%                  28.5%    32.9%     25.2%                         40.5%    28.4%     (280bps)   (290bps)
TATA ELXSI               5.3%      34.6%    8.5%                   27.7%   164.4%    146.9%                         21.8%    10.8%      470bps      30bps
                                                                                                                                     (Source: Company/Eastwind)

Tier-1 ; The top four IT companies delivered a decent performance in a seasonally soft quarter with an aggregate revenue growth of
2.8% QoQ. INFY and HCL Tech beat the street on growth and margin front, while TCS and Wipro reported inline set of numbers.

Mid cap/Niche (Tier-2)-TECHM and Persistent outmatch peers; TECHM’s broad based revenue growth and deal signing was robust.
Persistent system surprised positively on margin front for the second consecutive quarter led by higher utilization. Apart of this,
Zensar Tech also reported good margin ramp up during the quarter. As a backbencher, KPIT, NIITTECH and Hexaware reported flat to
below expected numbers.


                                                                       Narnolia Securities Ltd,                                                             11
                                                      Please refer to the Disclaimers at the end of this Report.
                                  IT Industry: 3QFY14 results review


                                             Operating Metrics across Tier-1 IT space
                                             Sales mix- Geogrpahy wise



Discretionary spends continue to gain
momentum in America and in specific
pockets in Europe.




                                                                                                           (Source: Company/Eastwind)
                                             Sales mix- Segment wise




During the quarter, manufacturing
segment reported attractive growth.
Whilea      mong      service   offerings,
Infrastructure Management Services
(IMS) will be a key growth driver.


                                                                                                           (Source: Company/Eastwind)
                                             Utilization Rate-%




Employee Addition;
                TCS    INFY WIPRO HCLTECH
Total Employee 290713 158404 146402 88332
Gross Addition 14663 6,682 -814 7593
                                                                                                           (Source: Company/Eastwind)
                                             Attirition rate-%




                                                                                                           (Source: Company/Eastwind)
                                                               Narnolia Securities Ltd,                                            12
                                              Please refer to the Disclaimers at the end of this Report.
IT Industry: 3QFY14 results review


     Key Takeaways from Conference Call;
     (1) TCS
      - Confident of beating NASSCOM's FY15 growth guidance of 13-15%,
       -FY15E will be better than the current fiscal,
      -Expect Europe to perform better than the US,
      -Chasing 20-25 large transformational deals,
      -Seeing an uptick in discretionary spends,
      - Lateral hiring 50000-55000 in FY15E,

     (2) INFOSYS
      -Management upgraded its earning guidance for FY14E from 9-10% to 11.5-12%.
      -They are seeing confidence coming back from client’s metrics.
      -The Company is looking to bring in about maximum 6,000 off-campus offers.

     (3) WIPRO
       -4QFY14: Revenues from IT Services business to be in the range of $ 1,712 million to
     $1,745 million* including the revenues from acquisition.
      -Expect better FY15E than FY14.
      -Hiring target for FY15E would be like FY14, will focus on onsite hiring.
      -Wage hike by 1st June ,2014.
     (4) HCLTECH:
      -The company is expecting to catch up more deal from US and Europe because of better
     demand environment ahead.
      -The company expects to see margin at a range of 21-22% in near term.
      -The wage hike is spread over two quarters or rather more than two quarters. Q3 and Q4
     margin could be impact be 30bps.
     (5) TECHM
       -The Company aspires revenues of USD 5 billion by 2015. This expects to be through
     organic and inorganic initiatives (looking for USD 0.5 billion to 0.8 billion as acquisition
     targets) going forward.
      -Year 2014 would be better year than FY13, demand environment and Order pipeline is
     looking good.
       -Despite salary hike in 4Q, margin would be on place. Wage hike in 4Q could impact
     200bps in margin front, but management is confident to mitigate.
      -Expecting utilisation rate to 77% from 75%(3QFY14) in near term.
      -The tax rate expected to be 26% for the FY'14.
     (6) CMC
      -CMC continues to target growth ahead of the overall IT industry; the company expects to
     grow faster than that in the current financial year.
      -Expects operating Profit margin at 16 percent for FY14E,
      -The company expects to maintatin its tax regime at 20-20.5% for coming quarter. For
     next year tax rate could be stand at a range of 20-21%.
      -Company’s hiring Plan; a net addition of 400-500 this year.
                       Narnolia Securities Ltd,                                               13
      Please refer to the Disclaimers at the end of this Report.
IT Industry: 3QFY14 results review


     (7) PERSISTENT SYS
      - Persistent is confident of doing more than 15% revenue ($) growth forFY14E.
      -They expect to maintain margin at 24-25% for FY14E.
      -Expects 20-21% growth in the next year from IP led business, which in turn will help
     improve margins going forward.
      -The Company’s focus on newer technologies like cloud, analytics, mobility and digital
     transformation are gaining traction.
      -The company is optimistic to see more deals on SMACS and IP led business.

     (8) NIITTECH
      -Company expects FY14 to be better than FY13 with respect to both revenue growth and
     EBIT margin.
      -Managent is very confident to maintain attrition at 12-13% and utilization at 77-80% in
     near to medium term.
       -It expects the growth momentum will sustain with holding the margins going forward.


     (9) ZENSARTECH
      - It expects double-digit growth in the Enterprise Services business for the FY15 on the
     back of healthy pipeline.
      - It anticipates good growth from the IMS for the FY'15.
      -Management has expressed its margin at a range of 16-17%

     (10) ECLERX
      -The billing rates expected to be flat to slight uptick for the FY15E.
      -Expect to see similar set of environment in FY 15E than FY14.
      -On margins, it indicated that it will continue to operate in the mid 30% (30-31%) going
     forward.
      -Tax rate is expected to see at 23% mark in FY15E.
      -It continues to look at inorganic opportunities.
      - Expects to maintain 51% of payout ratio.

     (11) MINDTREE
      -Management expects the strong traction in top 10/20 clients to continue.
       -Expects 4QFY14E revenue performance to be better than both 4QFY13 revenue
     performance (+2.8% QoQ) as well as 3QFY14 revenue growth (+2.5% QoQ).
      -Company expects to maintain operating margins at current levels in the near/medium
     term

     (12) KPIT
      -Management expects to see better revenue growth in 4QFY14E than 3QFY14.
      -The company is making significant changes in organization structure.
      -Margins are expected to improve going forward as the one off during the quarter will be
     absent.
      -Utilization will also go up as revenue growth is realized on the back two deals won this
     quarter which have a duration of 12 months.

                       Narnolia Securities Ltd,                                                  14
      Please refer to the Disclaimers at the end of this Report.
                                 IT Industry: 3QFY14 results review


                                                Industry Outlook:
                                                We have seen a significant increase in global technology spending this year, creating
                                                opportunities for the Indian software services sector to post double-digit growth again in
                                                export as well as in the domestic markets. FY15E promises to be bigger and stronger than
                                                the last 3 years, which were marked by bloodbath in global markets due to Euro-zone
                                                crisis and falling consumer confidence in the US. Demand is set to pick up in sectors like
                                                BFSI, healthcare, retail and transportation globally in the year ahead.
For FY15E, NASSCOM expects IT exports
to grow by 13-15% and domestic market
                                                For FY15E, We expect that strong fundamentals should help to sustain earning
to grow by 9-12% based on broad
                                                momentum in FY15E. Foray into niche verticals and executions of large deal would play an
feedback loop from companies and
                                                important factor for better earning visibility in near future. There is a window of
captives.
                                                opportunity for competent large caps and midcaps to displace incumbents and gain some
                                                incremental business. In the past 4 quarters, large caps (four companies) have grown at
                                                3.4% CQGR, while midcaps (five companies) at 3.2%which is comparable to larger peers.


                                                Concerns:
                                                However, hardening of regulatory related to visa approval in USA, Canada and Australia
                                                could spoil the party. Even, the approval of Immigration Bill attached with higher visa fee,
US Immigration Bill to remain an                wage requirements and enhanced audit by US agencies could turn the growth story of
overhang in short-to-medium term,               Indian IT players adversely. If passed in its current form, the Bill could hurt the margins of
                                                the Indian IT export sector, which derives almost 55-60% of its revenues from USA.


                                                Our top picks:
                                                While all companies are accelerating its revenue growth and shaping up its margin
TCS and HCLT are growing the fastest
                                                because of favorable demand and supply environment. Across the tier-1 IT space, TCS,
and    with      tremendous       margin
                                                INFY and HCL TECH remain our best picks in order of our preference. These companies
performance. Infy is accelerating growth
                                                are very much optimistic to improve margin as well as operational efficiencies with
…
                                                healthy deal pipeline across emerging verticals as well as traditional IT Space under
                                                positive demand scenario.
                                                Hence, with strong medium term earnings visibility, better demand environment and
                                                optimistic management comments, we maintain our positive stance on (In order of
                                                preference) TECHM, PERSISTENT, ZENSARTECH, ECLERX and KPIT under mid cap space.

View and valuation:
                    CMP                           Upside                    EPS-Rs                             P/E-x                   RoE-%
Company                        View     Target
                 (26.02.14)                            %         FY13        FY14E        FY15E        FY13    FY14E   FY15E    FY13   FY14E   FY15E
TCS                2182.4       BUY      2510     15.0%          71.82        95.00       109.31       30.39   22.97   19.97   36.4%   37.5%   34.4%
INFOSYS           3803.85       BUY      3910      2.8%          164.2        188.0       218.2        23.16   20.24   17.44   24.8%   23.7%   22.9%
HCLTECH            1572.9      HOLD      1560      -0.8%         58.10        79.36       98.11        27.07   19.82   16.03   30.7%   31.5%   29.4%
WIPRO              603.35     NEUTRAL      -          -          25.0          31.1        33.5        24.09   19.42   18.01   21.7%   22.7%   20.8%
TECHM             1821.65       BUY      2130     16.9%         123.97       155.37       175.50       14.69   11.72   10.38   34.8%   30.7%   26.0%
CMC                1450.4     NEUTRAL      -          -          75.3          86.0        92.4        19.27   16.86   15.70   24.1%   22.8%   20.7%
NIITTECH            446.4      HOLD       443      -0.8%         36.28        43.33       54.18        12.30   10.30    8.24   20.0%   19.4%   19.6%
KPIT                174.9       BUY       177      1.2%          10.8          12.6        16.8        16.19   13.85   10.40   20.1%   19.3%   20.7%
HEXAWARE           165.85     NEUTRAL      -          -          13.90        15.04       16.01        11.93   11.02   10.36   27.4%   24.9%   22.5%
PERSISTENT        1119.25      HOLD      1065      -4.8%         46.1          61.4        79.1        24.27   18.22   14.15   18.1%   20.3%   21.4%
eCLERX            1341.05       BUY      1358      1.3%          64.25        71.61       83.65        20.87   18.73   16.03   43.8%   37.9%   34.4%
TATAELXSI          518.65     NEUTRAL      -          -          10.6          24.0        28.4        48.79   21.59   18.29   16.9%   29.7%   27.4%
ZENSARTECH          387.2       BUY       440     13.6%          40.03        52.70       68.97         9.67    7.35    5.61   23.2%   24.5%   25.2%
MINDTREE           1632.7     NEUTRAL      -          -          89.7         100.9       114.9        18.20   16.18   14.21   28.4%   25.6%   23.6%
                                                                  Narnolia Securities Ltd,                                                        15
                                                 Please refer to the Disclaimers at the end of this Report.
                             Public Sector Banks Result Review 3QFY14


                                   Moderate NII growth in the system due to muted loan growth
                                   Net interest income of our universe grew by 10.4% YoY on the back of margin
                                   expansion on YoY basis along with moderate to healthy loan growth. In our coverage
                                   universe, Bank of India and UCO Bank were reported healthy NII growth whereas
                                   Andhra Bank reported 10.6% YoY declined in NII. SBI reported NII growth of 13 YoY
                                   largely due to loan growth of 17% while margin was declined by 12 bps and flat at
                                   QoQ basis.

                                   Lower operating profit on account of higher wage settlement provisions and
                                   cost related to branch expenses
                                   Operating profit of our universe was declined by 1.5% YoY on the back of higher
                                   cost against employee provisions, operating cost and non supportive other income.
                                   Most of PSBs were reported negative growth in their other income led by lower
                                   corporate fee income. In our universe ALBK, Bank of India and UCO bank reported
                                   healthy operating profit. But we have not seen improvement of operating metrics in
                                   these banks. Operating leverage of PSBs bank has been increasing led higher wage
                                   provisions and branch expansion.

                                   Profitability declined led by higher operating expenses, higher provisions and
Nifty Vs Bank Nifty during Year    creation of DTL special reserve
                                   Earnings growth of Public Sector Banks (PSBs) are remained weak largely due to
                                   higher operating expenses led by employee provisions and surged in provisions and
                                   contingencies and higher tax provision for DTL special reserve as per RBI’s
                                   suggestion. In our banking coverage universe, profitability declined by 27% YoY and
                                   11.5% QoQ. UCO Bank reported 208% YoY growth while Andhra Bank de-grew by
                                   82% YoY.

                                   Asset quality deterioration sequentially on account of tight liquidity condition
                                   and rising interest rate
                                   Most of PSBs reported 10 to 20% deterioration in asset quality sequentially while
                                   United Bank’s GNPA and net NPA were 11% and 7.5% of gross advance and net
                                   advance respectively and fresh slippages were 16% (annualized). On slippage front
                                   some banks like PNB, Bank of Baroda, Union Bank and UCO bank showed some
                                   strength. But in tight economy condition and rising interest rate scenario, asset
Loan (Rs tn) and YoY Gr(%)         quality pressure would continue. Banks with higher coverage ratio would be
                                   protected. PNB and Bank of Baroda are in better place and their management
                                   commentaries reflect some confidence on asset quality issue.

                                                   Narnolia Securities Ltd,                                        16

                                  Please refer to the Disclaimers at the end of this Report.
          Public Sector Banks Result Review 3QFY14

Worry about the structure damage of balance sheet, declined profit is not matter

We are not worried about the declining trend of PSBs profitability but to worry about the
structural damage of balance sheet. Most of PSBs were reported moderate to healthy
loan growth but their deposits and CASA growth were absent. In rising interest rate
scenario, banks with higher low cost deposits would be able to report healthy NII growth
on the back of margin expansion and would absorb operating cost. In our sense, PSBs
would either have to improve their cost structure or improve deposits franchise to report
growth at operating profit level. On cost structure front, we are pessimist as PSBs have
higher numbers of unproductive employee than private banks and their salary at lower to
middle level management are no means less than private sector banks. So banks with
higher deposits growth and strong CASA would be able to report healthy growth going
forward. We have buy rating on SBI on the back of its high CASA base and reasonable
valuation despite of bank’s profitability was declined by 34% YoY.
Outlook
Most of PSBs are trading at lower range of valuation multiple owing to absence of core
earnings, operating leverage, deteriorating asset quality and higher amount of restructure
assets that are in pipeline. Most of banking stocks reported moderate revenue and profit
growth owing to multiple headwinds. In near term we are not seeing improvement in
economic condition and asset quality pressure are expected to remain in the system due
to tight liquidity situation and rising interest rate. Post result we like SBI, Union Bank and
UCO Bank due to their structural improvement in balance sheet, operating and financial
metrics.

Result Snapshot

                        3QFY14                     2QFY14                         3QFY13                           YoY Growth                  QoQ Growth
PSU BANKS      NII       PPP Net Profit   NII       PPP Net Profit       NII       PPP Net Profit              NII       PPP Net Profit     NII      PPP Net Profit
ALBK            1336       1008    325     1309       1154    276         1330        860    311               0.4       17.2       4.7     2.0     -12.6      18.0
ANDHRABANK        868       522     46     1045        643     71           971       712    257             -10.6      -26.8     -82.3   -16.9     -18.9     -35.5
BANKBARODA      3057       2197   1048     2895       2125   1168         2841       2256   1012               7.6       -2.6       3.6     5.6       3.4     -10.3
BANKINDIA       2719       2144    586     2527       2102    622         2308       1856    803              17.8       15.5     -27.0     7.6       2.0      -5.8
CANBK           2191       1425    626     2191       1425    626         1988       1516    714              10.2       -6.0     -12.3     0.0       0.0       0.0
DENABANK          661       371     68       107       369    625           615       443    206               7.5      -16.3     -67.1   517.7       0.5     -89.2
IOB             1398        961     75     1452        791    133         1382       1017    116               1.2       -5.5     -35.3    -3.7      21.5     -43.6
ORIENTBANK      1230        858    224     1281        825    251         1204        926    326               2.2       -7.3     -31.2    -3.9       4.0     -10.6
PNB             4221       2702    755     4016       2535    505         3733       2682   1306              13.1        0.8     -42.2     5.1       6.6      49.6
SBIN           12641       7618   2235    12251       6312   2375        11154       7791   3396              13.3       -2.2     -34.2     3.2      20.7      -5.9
SYNDIBANK       1359        806    380     1411        811    470         1400        864    508              -3.0       -6.8     -25.2    -3.7      -0.7     -19.2
UCOBANK         1566       1137    315     1569       1166    400         1177        831    102              33.0       36.8    208.4     -0.2      -2.5     -21.4
UNIONBANK       1964       1262    349     1954       1225    208         1891       1358    302               3.8       -7.1      15.5     0.5       3.0      67.8
VIJAYABANK        495       168     11       705       273    136           456       261    127               8.5      -35.7     -91.0   -29.8     -38.6     -91.6
Total          34369      22170   6717    33404      20601   7590        31120      22513   9175              10.4       -1.5     -26.8     2.9       7.6     -11.5

                                                                 Narnolia Securities Ltd,                                                                       17

                                                         Please refer to the Disclaimers at the end of this Report.
                                                                                                                                                                                                     SHREE CEMENT.                                                 "Book Profit"
                                                                                                                                                                                                                                                                      25th Feb' 14



Update                                                                                                                                    Book Profit                                                Profitability and Earning drag may surprise for the next cosecutive quarters.
CMP                                                                                                                                                                        4772                      The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market
Target Price                                                                                                                                                               4791                      scenario the price is fare enough to trade.But looking at future capex plans and sluggish
Previous Target Price                                                                                                                                                      4791                      demand we belive the earnings and profitability of Shree cement may fall for the next
Upside                                                                                                                                                                       0%                      two consecutive quarters.The profitability may fall due to incrising depriciation.Till now
Change from Previous                                                                                                                                                         NA                      the company's depriciation level is stable but it may surprise further.so we recommend
                                                                                                                                                                                                     its a better pic to book profit.
Market Data                                                                                                                                                                                          Volumes grew by18 % but prices came down by 5%. So the EBITDA margin has hit
BSE Code                                                                                                                                            500387                                           badly:Shree Cement Ltd has reported a 47% fall in its December quarter net profit on
NSE Symbol                                                                                                                                       SHREECEM                                            lower sales as well as 5% degrowth in realization. PAT impacted due to lower other
52wk Range H/L                                                                                                                                   5210/3413                                           income (down by 70% YOY), Depriciation burden on EBIDTA (Depriciation increased 41%
Mkt Capital (Rs Crores)                                                                                                                              16572                                           YOY). Volumes grew by18 % to3.8mn ton from 3.3mn ton QOQ. Net profit decreased by
Average Daily Volume (Nos.)                                                                                                                           4143                                           47% yoy from Rs.217.44 crore (Rs.62.42 per share) in 2Q13 to Rs.115.49 crore (Rs.33.15
Nifty                                                                                                                                                 6186                                           per share) in 2Q14.Total net income from operations stood at Rs.1318.13 crore in 2Q14,
                                                                                                                                                                                                     a 6% fall yoy from Rs.1401.23 crore in 2Q13.Other income decreased from Rs.30.2 crore
Stock Performance-%                                                                                                                                                                                  in 2Q13 to Rs.9.9 crore in 2Q14.In the mean time company declares a Rs.10 as interim
                                                                                            1M                                            1yr                                      YTD               dividend/share.
Absolute                                                                                    8.2                                           9.5                                       8.1
                                                                                                                                                                                                     Power Segment: Realization Down By 15% : For power generation the net realization has
Rel. to Nifty                                                                               9.5                                           3.8                                       4.0
                                                                                                                                                                                                     come down from Rs 383 to Rs 334 compared to last year same quarter and in the first
                                                                                                                                                                                                     quarter it was still better at Rs 397.So the power realization is down by 13 percent and
Share Holding Pattern-%
                                                                                                                                                                                                     hence sales also have come down by 35 percent to Rs.290 Cr. At the same time 14%
                                                                        2QFY14                                         1QFY14 4QFY13
                                                                                                                                                                                                     increase in its profitability from power segment to Rs112.56 crore while its cement
Promoters                                                                 64.8                                           64.8   64.8
                                                                                                                                                                                                     segment reported 79% fall in its profitability to Rs37.65 crore.
FII                                                                        8.2                                            8.2    8.1
DII                                                                        5.9                                            5.7    5.9                                                                 MAT Credit support the buttom line :
Others                                                                    21.2                                           21.3   21.2                                                                 During the Quarter Company got MAT (minimum alternative tax) credit entitlement of
                                                                                                                                                                                                     Rs9.25 crore and deferred tax of Rs1.79 crore. This reduced total tax payable amount to
1 yr Forward P/B                                                                                                                                                                                     Rs15.27 crore from Rs26.31 crore.
6000                                                                                                                                                                                                 On the expansion front :
                                     PRICE                                              1.5x
                                     2x                                                 2.5x                                                                                                         The 2m-ton Line-IX clinker unit at Ras, Rajasthan, was commissioned in Jun’13.Line X of
5000                                 3x                                                 3.5x                                                                                                         similar capacity along with 25MW of WHRS (at the same location) is expected by
                                     4x                                                 4.5x                                                                                                         Jun’14.Two grinding units of 2m tons each, at Ras and in Bihar,are being constructed and
4000
                                                                                                                                                                                                     expected by Jun’14.We expect Shree to be a 21.5m-tpa company by Jun’15.It plans to
                                                                                                                                                                                                     foray into high demanding eastern.Total capex for these expansion is Rs.3,000 crore
3000
                                                                                                                                                                                                     which is spread over next 2 years.
2000
                                                                                                                                                                                                     Financials :          Q2FY14         Y-o-Y %       Q-o-Q %         Q2FY13        Q1FY14
                                                                                                                                                                                                     Revenue                   1318           -7.7           5.6          1428          1248
1000                                                                                                                                                                                                 EBIDTA                     271          -24.7           8.8            360           249
                                                                                                                                                                                                     Net Profit                 115          -46.9         -32.9            217           172
   0                                                                                                                                                                                                 EPS                         33          -46.9         -32.9             62            49
                                  Dec-03




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                                           Jul-04
                Oct-02




                                                                                                                             Oct-09
                                                    Feb-05
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                                                                      Apr-06




                                                                                                                                                                 Feb-12
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       Mar-02


                         May-03




                                                                                                                    Mar-09
                                                                                                  Jan-08




                                                                                                                                      May-10




                                                                                                                                                                                                     EBIDTA%                     21          -18.4           3.1             25            20
                                                     Source - Comapany/EastWind Research                                                                                                             NPM%                         9          -42.5         -36.5             15            14
                                                                                                                                                                                                                                                                                         (In Crs)



                                                                                                                                                                                                                       Narnolia Securities Ltd,                                              18
                                                                                                                                                                                                      Please refer to the Disclaimers at the end of this Report.
SHREE CEMENT.
Management Corner : From mid-January there is a big change in demand scenario              1500                                       60
because of the Indian calendar, the prices have improved, the demand has also                                          Revenue
                                                                                           1450                                       50
improved and they think that January to June some impact of elections will be there -                                  Growth
pre-election demand and other things. So margins should be better than 21 percent.         1400                                       40
                                                                                           1350                                       30
Outlook :
                                                                                           1300                                       20
From the view company Operations in the high utilisation North and Central markets,
capacity expansions underway, low gearing and strong RoE are fundamental positives.        1250                                       10
We believe although, near term challenges in terms of a slowdown in demand for             1200                                       0
cement would remain, strong balance sheet and better efficiency in terms of cost
                                                                                           1150                                       -10
remains a key positive for this company to overcome challenges.Company Management
is bull for the rest two quarters of FY2014 as according to them demand has already        1100                                       -20
buttom out.We are positive on the stock as it always beats its peers group with lower
operational cost.
The stock is trading at 4x in 1 yr forward P/B chart.we believe for the current market
scenario the price is fare enough to trade.But looking at future capex plans and           Source - Comapany/EastWind Research
sluggish demand we belive the earnings and profitability of Shree cement may fall for                 EBIDTA
the next two consecutive quarters.The profitability may fall due to incrising
                                                                                           450        INTEREST SERVICE COVERAGE        12
depriciation.Till now the company's depriciation level is stable but it may surprise                  RATIO
                                                                                           400
further.so we recommend its a better pic to book profit.                                                                               10
we recommend book profit at a 11% high,and stay out from the stock for medium              350
term,till the triggers hit.                                                                300                                         8
Company Description : Shree Cement (SCL) is a cement producer operating in the two         250
                                                                                                                                       6
segments cement and power. As of June 30, 2012, the company had a cement capacity          200
of 13.5 million tonnes per annum (MTPA) and power capacity of 560 MW. The                  150                                         4
company’s brands include Shree Ultra,Bangur Cement and Rockstrong Cement. It has           100
                                                                                                                                       2
manufacturing facilities at Beawar and Ras in Ajmer and Pali district and grinding units    50
at Khushkhera, Suratgarh and Jaipur, respectively, in Rajasthan and Roorkee in               0                                         0
Uttarakhand.
P/L PERFORMANCE                           FY11        FY12         FY13        FY14E
Net Revenue from Operation                   3454        5898          5590        5409
Other Income                                   203         163          188          197   Source - Comapany/EastWind Research
Total Income                                 3656        6061          5779        5550    40.0     NPM %      OPM %     EBITDA %
Power and fuel                                 905       1500          1513        1409    35.0
                                                                                           30.0
Freight and forwarding                         602       1006           915        1090
                                                                                           25.0
Expenditure                                  2569        4252          4029        4318    20.0
EBITDA                                         885       1646          1561        1091    15.0
Depriciation                                   676         873          436          562   10.0
Interest Cost                                   98         235          193          138    5.0
                                                                                             -
Net tax expense / (benefit)                    -99          69          115           54
PAT                                            365         619         1004          478
ROE%                                          20.8        23.1          26.1        11.0

                                                          Narnolia Securities Ltd,                                               19
SHREE CEMENT.
B/S PERFORMANCE                 FY10       FY11          FY12            FY13
Share capital                         35         35            35              35
Reserve & Surplus                  1798       1951          2699            3809
Total equity                       1833       1986          2734            3844
Long-term borrowings               1789       1472           818             443
Short-term borrowings               318        217           143             534
Long-term provisions                  28         16            17              18
Trade payables                      171        185           584               81
Short-term provisions               472        267           178               87
Total liabilities                  4906       4940          5973            6160
Intangibles                            0          0             0               0
Tangible assets                     752       1167          1521            1782
Capital work-in-progress            967        729             97            133
Long-term loans and advances        299        308           205             378
Inventories                         358        404           503             530
Trade receivables                     82       108           181             315
Cash and bank balances              416        499           459             369
Short-term loans and advances       415        429           363             326
Total Assets                       4906       4940          5973            6160
RATIOS                          FY10       FY11          FY12            FY13
P/B                                  4.4        3.6           3.8             4.2
EPS                               212.3      118.6         177.5           288.2
Debtor to Turnover%                  2.3        3.1           3.1             5.6
Creditors to Turnover%               4.7        5.3           9.9             1.4
Inventories to Turnover%             1.0        1.2           0.9             0.9




Trading At :




                                                                                    Source - Comapany/EastWind Research



                                              Narnolia Securities Ltd,                                                    20
                      N arnolia Securities Ltd
            402, 4th floor 7/ 1, Lord s Sinha Road Kolkata 700071, Ph
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DOCUMENT INFO
Description: Mr. Narayan Murthy expressed its view regarding senior level exits from the company. In near term, non-performers in Infosys could be asked to leave or may hand over layoff notices. Infosys will retain its revenue acceleration and margin expansion. We retain our “BUY” view on the stock with a target price of target price of Rs 3910 .