Sunteți pe pagina 1din 24

IEA Report

23th Dec 2016


SUNPHARMA

"NEUTRAL"

23th Dec 2016

Synergies from the Ranbaxy acquisition are gaining momentum and the Company is on track to achieve the targeted benefits. Post 2QFY17,
Sunpharma has further strengthened the branded ophthalmic pipeline through the acquisition of Ocular Technologies. But recent developments
are not very conducive for the company. US business is under pricing pressure due to customer consolidation. Ongoing issue in Halol plant and
inflated pricing issue on dermatology products in US will pose near term uncertainty. Though the company has maintained its guidance of 8-10%
sales growth for FY17E, we are little skeptical about it considering on-going issues. Thus, we recommend "NEUTRAL" view on this
stock......................................... ( Page : 2-4)

ASIANPAINT

"NEUTRAL"

22th Dec 2016

Management remained silent on volume growth improvement (which indicates lower double digit volume growth going ahead) but did hint at
margin pressures. We do not see significant improvement in volume growth, margin risks (due to high input cost) and peak valuations (trades at
FY18 P/E of 45x) make the risk-reward unfavourable. We see downside risks to our estimates due to an unfavourable H2FY17 base with topline and
gross margins peaking out.It also expects paint companies to register flat growth in sales during Q3FY17 compared Q3FY16, following the
government's move to scrap old Rs 500 and 1,000 notes. While the month of October saw significant jump in sales during festive season, November
has seen a significant fall on account of the demonetization announcement.
While the paint industry is 80-85 per cent cash-driven with the paint retailers accepting only cash payments for the sales, is now shifting over to
digitized payments to keep the business going. We maintain Neutral rating with a target price of Rs.1015. .......................................... ( Page : 5-6)

GLENMARK

"BUY"

21th Dec 2016

Management expects domestic business to grow by 15% in FY17 and US business to grow by 25% on the back of new launches like Zetia, Mycolog II,
Crestor, etc. in FY17.Going forward we believe that US business will remain key driver for growth. Management has guided for 20 new ANDAs
filings in FY17. Considering the long-term opportunities, we recommend buy rating on this stock with a target price of Rs. 1096
.......................................... ( Page : 7-10)

BEML

"BUY"

20th Dec 2016

Company has an order book of roughly about Rs 6600 cr that will set the sales target of Rs 3300 cr for FY17 as whole. However, companys
performance till the first half of FY17 has not been satisfactory, as it has achieved only 23% of annual target, leaving a huge target of 77% to
achieve in remaining six months. The Company has order on hand from Defense and Rail & Metro businesses and orders are steadily flowing in
from Mining & Construction equipment. With dedicated and committed employees, management is confident of reaching the set target for FY17.
Company has guided for Rs 3300 cr of top line for FY17 but after seeing 1st and 2nd quarter results we are not confident on the given guidance,
hence we have reduced our revenue estimate from Rs 2900 cr to Rs 2500 cr . We have positive view on this stock in long term but due to below
expected sales number this quarter we maintain our HOLD rating to the stock at a target price of Rs 1240/-(potential upside of 35%). We will
review target price post further clarity from management on near term business condition. ........................................ ( Page : 11-14)

KNRCON

"Book Profit"

19th Dec 2016

Work commencement on Dindigul Bangalore project and on - going projects will drive the revenue growth. Going forward we expect top line of Rs.
1433 Cr with 15.5% of EBITDA margin and RoE of 9% in FY17. Currently, the stock is trading at 11 times of FY17 Expected EV/EBITDA which is
companys historic highs and also one of the highest in the industry. On the operations front, we still hold positive view on this stock but on the
valuation front we are not very comfortable. We had initiated BUY on KNR Construction at the adjusted CMP of Rs. 111 on 22th April 2016. Hence,
we recommend to Book Profit on this stock, up by 54% from initiating price. ................. ( Page : 15- 20)

HDFCBANK

"BUY"

16th Dec 2016

HDFC Bank is one of the leading banks in the industry with the strong fundamentals, best in assets quality, adequate capital, steady loan growth and
consistency in profitability growth. Where some of its peers in large cap are struggling with the deteriorating assets quality, HDFC Bank is well
poised to take the advantage from improving macroeconomic scenario. While in the short term there may be hiccups in the lending activity due to
demonetization drive and this has led to uncertainty over the earnings during this period, but the long term growth and profitability remain intact
for the bank. One of the huge benefits from the demonetization drive will arise in the form of shoot in CASA ratio which will help the bank to cut
the rates further to drive the demand. Strategy of the management to focus on high yield products will help the bank to maintain the NIMs apart
from the expected benefits from spurt in CASA (due to demonetization). We expect the RoE of 19% and maintain BUY rating on this stock with our
previous target price of Rs 1400. ....................... ( Page : 21-26)
Narnolia Securities Ltd

IEA Edition No.-

910

Neutral

SUN PHARMACEUTICAL INDUSTRIES LTD


Company Update
CMP

611

Target Price

NA

Previous Target Price

870

Upside

NA

Change from Previous

NA

Market Data
BSE Code

524715

NSE Symbol

SUNPHARMA
898/571
146723
421.82
8607.5

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume(,000)
Nifty

Stock Performance
1M

3M

12M

Absolute

-10.1

-23.4

-23.3

Rel.to Nifty

-11.3

-26.2

-29.3

Q2FY17_Result Update

EBITDA margin of the company has improved by 1110 bps to 38.3% in


2QFY17 from 27.2% in 2QFY16.
PAT has increased by 90% to Rs. 2471 Cr in the last quarter from Rs.
1299 Cr. in 2QFY16.

Sales from the US formulations business has increased by 9% to ~ Rs.


3774 Cr. in 2QFY17 which accounts for 48% of total revenue. Sales for
1HFY17 were boosted due to the benefit of 180-day exclusivity for Imatinib
which commenced from 01-Feb- 2016.
R&D expense for Q2FY17 was Rs. 570 crores

1QFY17 4QFY16

Promoters

55.0

55.0

55.0

Public

45.0

45.0

45.0

Others

0.01

Company Vs NIFTY
120

Sunpharma has posted robust growth in revenue of 20% to Rs. 8265


Cr in 2QFY17 vs Rs. 6873 Cr. in the same period of FY16. In 2QFY17,
company has filed 3 ANDAs received approval for 6 ANDAs.
Additionally, the pipeline includes 37 approved NDAs while 4 NDAs
await US FDA approval, of which 2 ANDAs were filed in H1FY17.
Ranbaxy integration is gaining momentum and company is on track to
achieve revenue guidance of Rs. 2000 Cr in FY18.Company has
undergone an inspection by USFDA on Dec 7,2016 and post that the
health regulator issued a Form-483 observation letter for Halol Plant.
Management has guided to commercialize Tildrakizumab in near term,
company is waiting for USFDA approval.

Revenue from branded formulations in India increased by 11% on YoY to


Rs. 2009 Cr in 2QFY17 which accounts for 26% of total revenue.

Share Holding Pattern-%


2QFY17

23rd December2016

SUNPHARMA

NIFTY

115
110
105
100

Outlook

Synergies from the Ranbaxy acquisition are gaining momentum and the
Company is on track to achieve the targeted benefits. Post 2QFY17,
Sunpharma has further strengthened the branded ophthalmic pipeline
through the acquisition of Ocular Technologies. But recent developments
are not very conducive for the company. US business is under pricing
pressure due to customer consolidation. Ongoing issue in Halol plant and
inflated pricing issue on dermatology products in US will pose near term
uncertainty. Though the company has maintained its guidance of 8-10%
sales growth for FY17E, we are little skeptical about it considering on-going
issues. Thus, we recommend "NEUTRAL" view on this stock.

90

Financials

2012

2013

2014

2015

Rs,Cr
2016

85

Sales
EBITDA
Net Profit
EPS
ROE

8019
3204
2657
26
22%

11300
4896
2983
29
20%

16080
7002
3141
15
17%

27433
8064
4541
22
17%

27219
7431
3665
18
12%

95

Dec-16

Nov-16

Oct-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

80

Aditya Gupta
aditya.gupta@narnolia.com

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

Segmental Revenue

Latest Events
16 Dec 2016- The necessary formalities for closure of acquisition transaction have been concluded and we have successfully
completed the acquisition of Ocular Technologies.
12 dec 2016- Sun Pharma, Moebius Medical ink pact to develop pain management product.Moebius Medical will conduct requisite
pre-clinical studies and will assume responsibility for product development and manufacturing through the end of Phase-II studies,
as per the pact
7 Dec 2016- Company has undergone an inspection by USFDA recently and post that the health regulator issued a Form-483
observation letter For Halol Plant. The company is in the process of responding to the letter.

Financial Performance

EBITDA
50%

46%

44%

44%

45%

41%

44%

44%

46%

EBITDA Margins

44%

44%

46%

3000
2500

40%

31%

35%

27%

30%

28%

31%

33%
26%

27%

25%

1500

20%

14%

1000

1873

1768

2520

2169

1934

1850

892

2165

2180

1733

1801

2001

1843

1551

1275

1275

1175

5%

1242

15%
10%

2000

0%

500
0

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17

About the Company


Sun Pharmaceuticals (SUNP) is one of the fastest growing companies in India as well as globally. It has a highly impressive track
record of organic and inorganic growth. Various US acquisitions augment SUNPs pipeline with differentiated products, and SUNP
has turned around business in a highly profitable manner Taro/ TDPL/ Natcos brands/ etc. It has one of the highest margins/
return ratios amongst global peers. In Apr 14, SUNP announced its biggest M&A deal ever Ranbaxy (RBXY). SUNP currently is
the second largest player in the domestic market, while the merged entity will become the largest player. Its API business footprint
is strengthened through 11 world class API manufacturing facilities across the globe. Sun Pharma fosters excellence through
innovation supported by strong R&D capabilities comprising about 1800 scientists and R&D investments of over 7% of annual
revenues.

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

Financials Snap Shot


INCOME STATEMENT
FY13
FY14
FY15
FY16
11300
16080 27433
27219 EPS
388
552
452
459 Book Value
11688
16633 27885
27678 DPS
2,073
2,779
6,739
6,483 Payout (incl. Div. Tax.)
18%
17%
25%
24% Valuation(x)
2,796
4,225
8,201
8,508 P/E
4896
7002
8064
7431 Price / Book Value
43%
44%
29%
27% Dividend Yield (%)
336
409
1295
1014 Profitability Ratios
4,560
6,592
6,769
6,417 RoE
43
44
579
477 RoCE
4,905
7,101
6,642
6,399 Turnover Ratios
846
702
915
935 Asset Turnover (x)
17%
10%
14%
15% Debtors (No. of Days)
2983
3141
4541
3665 Inventory (No. of Days)
512
606
363
363 Creditors (No. of Days)
104
207
207
207 Net Debt/Equity (x)

Share Capital
Reserves and surplus
Shareholders' funds
Long term Debt
Total Borrowings
Non Current liabilities
Long term provisions
Short term Provisions
Current liabilities
Total liabilities
Net Fixed Assets
Non Current Investments
Other non Current assets
Current assets
Total Assets

FY13
104
14,886
14,990
115
198
1,001
787
1,482
2,758
20,583
5,077
1,106
8
11,503
20,583

BALANCE SHEET
FY14
FY15
207
207
18,318 26,252
18,525 26,459
49
1,368
2,489
7,596
2,886
2,817
2,602
2,532
1,961
3,336
3,549
9,256
29,371 49,028
5,824 11,020
788
599
0
55
18,686 29,122
29,371 49,028

FY16
241
31,164
31,404
3,117
8,338
2,365
2,080
3,417
8,026
54,220
13,361
593
96
30,865
54,220

FY13
29
145
5
17%

RATIOS
FY14
FY15
15
22
89
128
3
2
19%
8%

FY16
18
152
2
10%

14
3
1%

38
6
1%

47
8
0%

58
7
0%

20%
30%

17%
35%

17%
24%

12%
19%

1
78
83
34
0.0

1
50
71
30
0.0

1
71
75
42
0.1

1
91
86
47
0.1

CASH FLOW STATEMENT


FY13
FY14
FY15
FY16
OP/(Loss) before Tax
4,315
4,581
6,403
6,765
Depreciation
336
409
1,195
1,014
Direct Taxes Paid
1,073
789
1,740
1,988
Operating profit before working
4,475
capital changes
4,541
7,101
8,492
CF from Op. Activity
3,357
3,959
5,322
6,769
Purchase of Non Current investments
(15,672) (28,265) (28,802) (40,089)
Capital expenditure on fixed assets
(845) including
(906)capital
(2,366)
advances(3,382)
and capital
CF from Inv. Activity
(2,635)
(2,367)
(2,671)
(4,455)
Repayment of Long Term Borrowings
(111)
(89)
(6,662)
(9,076)
Interest Paid
38
23
251
300
Divd Paid (incl Tax)
512
606
363
869
CF from Fin. Activity
(665)
507
(1,087)
(1,924)
Inc/(Dec) in Cash
57
2,099
1,563
390
Add: Opening Balance
2,013
2,260
4,479
7,729
Closing Balance
2,069
4,359
7,286
8,120

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

Neutral

Asian Paints Ltd.

22-Dec-16
View & Valuations :

Company Update
CMP

866

Target Price

1015

Previous Target Price

1100

Upside

NA

Change from Previous

NA

Market Data
BSE Code

500820

NSE Symbol

ASIANPAINT
1230/825

52wk Range H/L


Mkt Capital (Rs Cr)

83,095

Av. Volume(,000)

128.0

Nifty

8061

Management remained silent on volume growth improvement (which indicates


lower double digit volume growth going ahead) but did hint at margin
pressures. We do not see significant improvement in volume growth, margin
risks (due to high input cost) and peak valuations (trades at FY18 P/E of 45x)
make the risk-reward unfavourable. We see downside risks to our estimates
due to an unfavourable H2FY17 base with topline and gross margins peaking
out.It also expects paint companies to register flat growth in sales during
Q3FY17 compared Q3FY16, following the government's move to scrap old Rs
500 and 1,000 notes. While the month of October saw significant jump in sales
during festive season, November has seen a significant fall on account of the
demonetization announcement.
While the paint industry is 80-85 per cent cash-driven with the paint retailers
accepting only cash payments for the sales, is now shifting over to digitized
payments to keep the business going. We maintain Neutral rating with a target
price of Rs.1015.

Stock Performance
1Month

1Year

YTD

Absolute

-7.6

-1.0

1.2

Rel.to Nifty

-8.8

-3.8

-4.8

Q2FY17 Result Update :

Share Holding Pattern-%


Q2FY17 Q1FY17 4QFY16

Promoter

52.8

52.8

52.8

Public
Others
Total

47.2

47.2

47.2

100.0

100.0

100.0

Company Vs NIFTY
140

ASIANPAINT

NIFTY

130
120
110
100
90

Dec-16

Oct-16

Nov-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

80

Bhabani Prasad Dehury

Consolidated net profit grew 18.1% to Rs494.76 Cr YoY in Q2FY17, while


consolidated income from operations rose 10.2% to Rs4,232 Cr YoY.
Consolidated EBIDTA margins improved by more than 100bps to 16.85% YoY,
but on a sequential basis, gross margins declined. 271bps QoQ dip in gross
margin was purely owing to increase in raw material cost not due to a change
in the product mix. We see further drop in margins as crude price is bottoming
out.
Investment Rationals :

Double digit volume growth in decorative business in Q2FY17, but, a


prolonged monsoon did affect demand in West and Central India.
No price revision for this quarter. Asian Paints will closely monitor movement
of input prices and GST rate before deciding on price revision, if any.
In the standalone business, the company will incur capex of INR6bn in FY17
for its Mysore and Vizag facilities. Of this, capitalisation will be INR2bn in FY17.
Full Vizag and Mysore plants will be capitalised in FY18.
Financials
Q2FY17
Q1FY17
Q2FY16
QoQ
YoY
Sales
4232
4082
3779
3.7%
12.0%
EBITDA
713
820
621
-13.1%
14.8%
Net Profit
507
622
399
-18.5%
27.0%
Gross %
51%
53%
46%
(231Bps)
444.87
EBIDTA %
17%
20%
16%
-324.84
41.95
PAT %
12%
15%
11%
-325.86
141.80

bhabani.dehury@narnolia.com
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

Brief Highlights Q4FY16 Results :


Net Sales from Operations
Other Income
Total Income
COGS
Employee Benefit Expenses
Excise Duty
Other Expenses
Expenditure
EBITDA
Depreciation
EBIT
Interest
PROFIT BEFORE TAX
Tax
PROFIT AFTER TAX
Margin %
EBIDTA %
EBIT %
PAT %
Cost Calculation % to Sales
COGS Cost % to Sales
Employee Cost % to Sales
Excise Duty % to Sales
Other expenses % to Sales

Q2FY16

Q3FY16

Q4FY16

3779
58
3837
2032
247

4160
36
4196
2200
247

3971
34
4005
2027
277

880
3159
621
71
550
9
598
184
415

912
3359
801
73
728
8
756
229
527

964
3268
704
75
628
15
648
225
422

Q2FY16

16.4%
14.6%
11.0%
Q2FY16

53.8%
6.5%
0.0%
23.3%
1QFY15

Q3FY16

19.2%
17.5%
12.7%
Q3FY16

52.9%
5.9%
0.0%
21.9%
2QFY15

Q4FY16

17.7%
15.8%
10.6%
Q4FY16

51.0%
7.0%
0.0%
24.3%
3QFY15

Q1FY17

4082
72
4154
1919
277
445
621
3262
820
85
735
6
800
260
540
Q1FY17

20.1%
18.0%
13.2%
Q1FY17

47.0%
6.8%
10.9%
15.2%
4QFY15

Q2FY17

4232
79
4312
2088
279
469
683
3519
713
84
629
6
702
221
481
Q2FY17

QoQ

YoY

3.7%
10.0%
3.8%
8.8%
0.7%
5.5%
10.1%
7.9%
-13.1%
-1.3%
-14.4%
-5.0%
-12.3%
-15.2%
-10.9%

12.0%
37.6%
12.4%
2.7%
13.3%

14183
170
14353
7971
907

-22.3%
11.4%
14.8%
19.0%
14.3%
-34.5%
17.3%
20.2%
16.0%

3069
11947
2235
266
1969
35
2104
650
1395

QoQ

YoY

16.8% (325 Bps)


14.9% (315 Bps)
11.4% (186 Bps)
Q2FY17

49.3%
6.6%
11.1%
16.1%
1QFY16

QoQ

42 Bps
30 Bps
39 Bps
YoY

231 Bps (445 Bps)


(20 Bps)
7 Bps
19 Bps 1108 Bps
94 Bps (713 Bps)
Q2FY16

Q3FY16

FY15

FY15

15.8%
13.9%
9.8%
FY15

56.2%
6.4%
0.0%
21.6%
Q4FY16

FY16

15843
213
16056
8049
990
1571
2463
13074
2769
276
2494
41
2666
844
1779
FY16

17.5%
15.7%
11.2%
FY16

YoY

11.7%
25.7%
11.9%
1.0%
9.1%
-19.7%
9.4%
23.9%
3.6%
26.6%
17.0%
26.7%
30.0%
27.5%
YoY

172 Bps
185 Bps
139 Bps
YoY

50.8% (540 Bps)


6.2% (15 Bps)
9.9% 992 Bps
15.5% (609 Bps)
Q1FY17

Q2FY17

Volume Growth ( % )
11%
10%
3%
4%
12%
5%
15%
13%
11%
12%
Realization Growth (%)
7%
6%
3%
3%
-4%
-1%
-1%
-1%
1%
0%
Sales Growth (%)
18%
17%
6%
7%
8%
4%
14%
12%
13%
12%
Crude Price in USD
109.8
102.1
76.0
54.0
62.1
50.0
43.4
34.4
45.5
45.8
Key Conference call Highlights :
Double digit volume growth in decorative business in Q2FY17, but, a prolonged monsoon did affect demand in West and Central
India.
Rural India still continues to grow faster than urban India. South India, post floods, has picked up. Hence, North and South have been
growing at similar pace. Overall retail demand has improved after monsoon eased out.
No price revision this quarter. Asian Paints will closely monitor movement of input prices and GST rate before deciding on price
revision, if any.
271bps QoQ dip in gross margin was purely owing to increase in raw material cost.
Good demand in auto OEM and general industrial business segment led to improved performance of automotive coatings JV. In the
industrial coatings JV, the industrial liquid paints segment continued to grow well.
Home improvement delivered good top line due to network expansion and new product launches. Good improvement in Ess Ess and
Sleek business. New products launches under Ess Ess have resulted in better traction.
International business performed well aided by good growth in markets like Nepal, UAE and Fiji. Moderate improvement in Ethiopia
too, but it was affected by adverse forex fluctuations.
In the standalone business, the company will incur capex of INR6bn in FY17 for its Mysore and Vizag facilities. Of this, capitalisation
will be INR2bn in FY17. Full Vizag and Mysore plants will be capitalised in FY18.
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

Buy
GLENMARK PHARMACEUTICALS LTD.

Company Update
CMP

932

Target Price

1096

Previous Target Price


Upside

18%

Change from Previous

Market Data
BSE Code

532296

NSE Symbol

GLENMARK
994/671

52wk Range H/L


Mkt Capital (Rs Cr)

26324
100.95
8124

Av. Volume(,000)
Nifty

21th Dec 2016


Glenmark has posted flat revenue of Rs. 2224 Cr in 2QFY17 vs Rs.
2281 Cr in the corresponding period of FY16. This is led by the
growth in the revenue of US formulations business by 28.9% to Rs.
771 Cr. The company has filed 2 new ANDAs and received
approval for 6 ANDAs in 2QFY17.The company has cumulatively
filed 6 new ANDAs in 1HFY17 and received approval for 11 in the
first half of FY17. Glenmark has launched cholesterol drug Zetia
with 6 months exclusivity in the US on December 12.The company
has partnered with Par pharmaceuticals in this product. Total
revenue estimated to be generated is around Rs. 2700-3400 Cr and
post profit sharing with Par pharmaceuticals, Glenmark should
make around Rs. 1300-1700 Cr. The management plans to reduce
debt by Rs. 600-800 Cr. by 1QFY18 on the back of growth in US
business.
Result Highlights of 2QFY17

Absolute

5.2

8.6

17.0

EBITDA margin has improved by 690 bps to 20.2% in 2QFY17.


PAT has inccreased by 50% to Rs. 224 Cr in 2QFY17 as compared to
Rs.149 Cr in the same quarter of FY16.

Rel.to Nifty

2.6

2.2

11.8

India business grew by 10.91% to Rs. 674 Cr in 2QFY17.

Stock Performance
1M

3M

12M

US business grew by 28.87% to Rs. 771 Cr in 2QFY17.


Rest of the World(ROW) grew by 20.38% to Rs. 253 Cr in 2QFY17.

Share Holding Pattern-%


2QFY17

1QFY17 4QFY16

Promoters

46.5

46.5

46.5

Public
Others
Total

53.5

53.5

53.5

100

100

100

Europe Formulations Business decreased by 16.00% at Rs. 134Cr.


Latin America Business decreased by 19.24% at Rs. 133 Cr.

Outlook and Valuation

Management expects domestic business to grow by 15% in FY17 and US


business to grow by 25% on the back of new launches like Zetia, Mycolog II,
Crestor, etc. in FY17.Going forward we believe that US business will remain
key driver for growth. Management has guided for 20 new ANDAs filings in
FY17. Considering the long-term opportunities, we recommend buy rating
on this stock with a target price of Rs. 1096

Company Vs NIFTY
120

GLENMARK

NIFTY

115
110
105
100
95
90
85
Dec-16

Oct-16

Nov-16

Sep-16

Aug-16

Jul-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

80

Aditya Gupta

Financials

2012

2013

2014

2015

Rs,Cr
2016

Sales
EBITDA
Net Profit
EPS
P/E

4021
714
464
17
18.0

5012
1015
628
23
20.0

6005
1091
546
20
28.1

6630
1210
474
17
45.0

7650
1433
702
26
30.7

aditya.gupta@narnolia.com
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

Concall Highlights

Glenmark has launched cholesterol drug Zetia in US on Dec 12,2016


Total revenue estimated to be generated is around USD 400-500 million and post profit sharing with Par, Glenmark should
make around USD 200-250 million.
Zetia launch would lead to further debt repayment in 1HFY18
Inhaler launch in EU to start from end-4QFY17, with Nordic countries
Tax rate to normalize at ~25% in FY17
R&D stood at ~10.5% of sales (FY17 guidance: 10-11%)
Expect growth to pick up further in 2HFY17, and full year growth is likely to normalize at 15% in FY17E
The company has no pending observations from USFDA on any of its facilities
Sales

250

191

185

200
150

PAT

214

143
198
170

165

157
131

198

191

2000
1500

115

100

1000

1701

1776

11

1655

1909

1778

2307

1655

1909

3QFY14

1681

2QFY14

1487

1602

1QFY14

1704

1463

43

1238

50

2500

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

500
0

Filings with USFDA


ANDA Filed

ANDA Pending

ANDA Approved

180
160
136

140
120
100

103

116

108

85

112
90

83

78

80
60

171

165

155

65

70

FY2014

FY2015

67

4045

5053

95

59

53
41

38

FY2011

FY2012

40
20
0

FY2009

FY2010

FY2013

FY2016

About Company
Glenmark Pharmaceuticals is one of the most successful research focused pharmaceutical companies, with a business model
spanning drug discovery research, APIs and formulations in the domestic and international markets. Glenmark's R&D efforts have
been extremely productive.GPL almost has a leadership position in the Indian drug discovery space (both NCEs and biologics).
GPL has a presence in over 85 countries across the world including India, Europe, Brazil, Latin America (excluding Argentina),
Russia/CIS, Africa and Asia through branded generic formulations. In regulated markets such as US, Europe, Argentina, etc it has
a presence via its non-branded generics. GPLs formulation business is diversified over several therapeutic segments such as
dermatology, internal medicine, respiratory, diabetes, paediatrics, gynaecology, ENT and oncology. Its manufacturing plants are
located in Baddi (India), Nashik (India), Sao Paolo (Brazil) and Vysoke Myto (Czech Republic). In India, GPL markets over 100
molecules and combinations in various therapy areas such as dermatology, respiratory, gynaecology, pain management, diabetes,
cardio-vascular, internal medicine, etc.Glenmark has reclassified it operations into 6 categories- India, US, Europe, Latin America,
ROW markets and APIs. Earlier the classification was on the basis of - 1) Specialty businesses and 2) Generics businesses.
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

Financials Snap Shot


INCOME STATEMENT
FY13
FY14
FY15
FY16
Revenue (Net of Excise Duty) 5012
6005
6630
7650
EPS
Other Income
6
5
20
20
Book Value
Total Revenue
5019
6010
6650
7670
DPS
COGS
1654
1873
1934
2361
Payout (incl. Div. Tax.)
GPM
33.0%
31.2%
29.2%
30.9%
Valuation(x)
Other Expenses
1561
2015
2283
2477
P/E
EBITDA
1015
1091
1210
1433
Price / Book Value
EBITDA Margin (%)
20%
18%
18%
19%
Dividend Yield (%)
Depreciation
127
217
260
269
Profitability Ratios
EBIT
888
874
950
1164
RoE
Interest
160
189
190
179
RoCE
PBT
739
697
780
1005
Turnover Ratios
Tax
111
151
119
303
Asset Turnover (x)
Tax Rate (%)
15%
22%
15%
30%
Debtors (No. of Days)
Reported PAT
628
546
474
702
Inventory (No. of Days)
Dividend Paid
64
63
63
63
Creditors (No. of Days)
No. of Shares
27
27
27
27
Net Debt/Equity (x)
Souce: Eastwind/Company

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY13
27
2760
2787
1920
2288
262
57
33
1834
7171
2768
60
636
3727
7171

BALANCE SHEET
FY14
FY15
27
27
2969
3073
2997
3000
2429
2574
2782
2922
259
402
111
232
260
59
2596
3364
8634
9688
3036
3270
60
58
873
774
4763
5323
8634
9688

FY16
28
3737
4270
2487
3275
344
247
63
3214
11103
3908
57
987
5910
11103

FY13
23.2
102.9
2.4
10%

RATIOS
FY14
FY15
20.1
17.5
110.5
110.6
2.3
2.3
12%
13%

FY16
25.9
157.4
2.3
9%

20.0
4.5
1%

28.1
5.1
0%

45.0
7.1
0%

30.7
5.1
0%

23%
19%

18%
16%

16%
17%

16%
17%

0.7
119
61
76
0.7

0.7
131
57
83
0.8

0.7
138
70
113
0.9

0.7
100
75
96
0.6

Souce: Eastwind/Company

CASH FLOW STATEMENT


FY13
FY14
FY15
FY16
OP/(Loss) before Tax
739
697
594
1005
Depreciation
127
217
260
269
Direct Taxes Paid
165
263
318
478
Operating profit before working
1081capital1407
changes 1067
1431
CF from Op. Activity
648
854
482
345
Purchase of Non Current investments
-471
-377
-544
-890
Capital expenditure on fixed-464
assets including
-368 capital
-540advances
-880and capi
CF from Inv. Activity
-314
-56
3
452
Repayment of Long Term Borrowings
-256
-628
-691
-1340
Interest Paid
147
194
179
180
Divd Paid (incl Tax)
64
63
63
68
CF from Fin. Activity
195
-98
199
699
Inc/(Dec) in Cash
379
388
141
163
Add: Opening Balance
226
407
623
694
Closing Balance
605
795
764
857

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

HOLD
BEML LTD.

20-Dec-16

Result Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

Company has an order book of roughly about Rs 6600 cr that will set the
sales target of Rs 3300 cr for FY17 as whole. However, companys
performance till the first half of FY17 has not been satisfactory, as it has
achieved only 23% of annual target, leaving a huge target of 77% to achieve
in remaining six months. The Company has order on hand from Defense and
Rail & Metro businesses and orders are steadily flowing in from Mining &
Construction equipment. With dedicated and committed employees,
management is confident of reaching the set target for FY17. Company has
guided for Rs 3300 cr of top line for FY17 but after seeing 1st and 2nd
quarter results we are not confident on the given guidance, hence we have
reduced our revenue estimate from Rs 2900 cr to Rs 2500 cr . We have
positive view on this stock in long term but due to below expected sales
number this quarter we maintain our HOLD rating to the stock at a target
price of Rs 1240/-(potential upside of 35%). We will review target price post
further clarity from management on near term business condition.

920
1240
35%
-

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume
Nifty

500048
BEML
1324.40/770.15
3,810
244
8104

Management highlights:
Stock Performance
Absolute
Rel.to Nifty

1Month

1Year

YTD

13.7
11.1

-12.5
-17.5

3.5
5.8

As per the management company would be looking to double its revenue to


over Rs 6000 Cr by 2020 and Rs 3500 Cr in FY17.
Order book is roughly about Rs 6600 Cr in FY17.
Management expects Mining segment will improve in FY18E and expects
almost another Rs 800-1,000 Cr worth of mining orders.

Share Holding Pattern-%


2QFY17 1QFY17

In Defence segment, lots of opportunities are coming. Management assures

4QFY16

Promoter

54.03

54.03

54.03

Public

45.97

45.97

45.97

--

--

--

100

100

100

Others
Total

that this particular sector will take huge jump in near future. In Defence front

order inflow will be double in FY17 as compare to FY16, these would all be in
the vehicle space, the mine systems, the missile systems, the other vehicles,
etc.
In Metro segment company is having order book roughly about Rs 2000 Cr
of which Rs 1000 Cr will execute in FY17 and rest Rs 1000 Cr will be
executing in FY18E. In FY18E company is having another order worth Rs
2400 Cr. So, total order book in Metro is Rs 3500 Cr in FY18E.

out
Company Vs NIFTY
130

BEML

NIFTY

There

120
110
100
90

80
70

Bibha Kashyap
bibha.kashyap@narnolia.com

are a lot of options and opportunities that are going to emerge. We


have a big special economic zone (SEZ) land in Bangalore so we are already
poised. We will wait for the opportunities and we are talking to a lot of
partners as well.
Rs in Cr
Financials
FY13
FY14
FY15
FY16
FY17E
Sales
2801
2904
2802
2978
2521
EBITDA
-49
115
70
129
145
Net Profit
-83
6
6
53
69
EBIDTA%
-1.7%
4.0%
2.5%
4.3%
5.7%
P/E
0.0
0.0
0.0
0.0
0.0
Narnolia Securities Ltd

Please refer to the Disclaimers at the end of this Report

10

Order book position:

Trend of Gross margin and EBITDA margin:


Gross Margin %

EBIDTA %
0.75

0.80
0.66

0.70
0.60

0.50
0.40

0.52 0.50 0.13

0.47

0.40 0.43
0.05 0.06 0.37
0.35
0.01 (0.00)

0.30

0.40
0.01

0.37
(0.01)

(0.07)

0.20

0.18
0.47

0.50

0.37
0.02

(0.00)

(0.09)

(0.13)

0.10
-

(0.25)

0.20
0.15
0.10
0.05
(0.05)
(0.10)
(0.15)
(0.20)
(0.25)
(0.30)

Trend of Net sales and PAT:

Net Sales(Cr)
169

155

64
-11
-55

-24

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

454

-115

346

1009

764

590

577

451

502

780

783

-68

-96

751

-30

676

6
-39

1279

-26

598

1400
1200
1000
800
600
400
200
0

PAT (Cr)
200
150
100
50
0
-50
-100
-150

11

Trend of Employee benefit and Other expenses:


Employee benefit Expence % as Sales

Other expenses % as Sales

60%

52%

50%
40%

38%

41%

25%

30%

39%
32%

31%
24%

19%

28%

25%
18%

16%

20%
10%

32%

39%

36%

24%

15%

15%

14%

0%

10%

13%

18%

16%

12%

13%

10%

11%

Investment Arguments:
The approval for Tatra trucks has come through with delivery commencing from August 2015. The
order backlog of ~Rs11bn-12bn from Tatra is likely to get executed in 18-24 months. which will help
improve profitability of BEMLs defence business for FY16 &FY17.
All the three segments have done well especially on the defence side it is very good. It is very
satisfied and defence for the future is going to be much more exciting because of Make in India
campaign where management is expecting exciting opportunities, which are already up and running.
That should go very well in FY16-FY17.
Coal India, in its commentary, has stated its intent to spend Rs 1500 Cr -2000Cr annually on
machinery procurement including heavy equipment, dumpers, etc segments where BEML is the
market leader.

Key Risks:
Inventory obsolescence
Metro capex cycle recovery

Production Units:

About the company:


BEML Limited is an India-based company engaged in manufacture of rail coaches and
spare parts and mining equipment. Its segment includes Mining & Construction, Rail &
Metro and Defense. The Trading Division deals in non-Company products. The
International Division exports products manufactured by all the three verticals. Under
Mining and Construction business, the Company manufactures and supplies Mining &
Construction equipment such as Bull Dozers, Excavators, Dumpers, Shovels, Loaders
and Motor Graders to various user segments and under Rail & Metro Business, it
manufactures and supplies Rail Coaches, Metro Cars, Steel and Aluminium Wagons
to the rail sector.

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

12

Financials Snap Shot

FY14
1.5
506.8
3.0
200%

RATIOS
FY15
FY16
1.4
12.8
505.8
506.6
1.2
4.7
82%
37%

FY17E
16.5
518.5
4.7
28%

196.6
0.6
1.02%

759.6
2.2
0.11%

68.8
1.7
0.53%

55.5
1.8
0.51%

0%
2%

0%
1%

3%
3%

3%
4%

0.6
122.9
271.6
48.9
0.22

0.6
129.2
250.3
70.8
0.20

0.7
148.1
208.7
50.5
0.17

0.6
150.0
209.5
40.0
0.16

INCOME STATEMENT

Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

FY14
2904
64
2967
1694
1
373
115
4%
54
60
111
13
4
29%
6
12
4

FY15
2802
60
2862
1564
1
393
70
2%
53
17
71
6
0
-8%
6
5
4

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY14
42
2039
2081
465
441
0
2546
686
135
977
18
389
284
2420
4770

FY15
42
2035
2077
414
178
0
2491
660
150
992
145
543
290
2148
4591

FY16
2978
39
3017
1703
1
373
129
4%
54
75
49
65
11
18%
53
19
4

FY17E
2521
26
2546
868
0
758
145
6%
46
99
0
125
25
20%
69
19
4

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

BALANCE SHEET

FY16
42
2068
2110
363
147
0
2472
657
59
1208
66
412
317
2157
4331

FY17E
42
2117
2159
345
101
0
2504
694
150
1036
81
276
281
2096
3961

OP/(Loss) before Tax


Depreciation
Direct Taxes Paid
OP before WC changes
CF from Op. Activity

FY14
10
54
(26)
171
394

CAPEX
CF from Inv. Activity
Repayment of LTB
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

(43)
(28)
(34)
(109)
(12)
(427)
(61)
78
18

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

CASH FLOW STATEMENT


FY15
FY16
FY17E
5
65
125
53
54
46
12
(15)
(25)
151
201
170
548
84
212
(41)
(36)
(31)
(67)
(5)
(384)
128
18
146

(24)
(30)
(31)
(45)
(5)
(134)
(79)
146
66

(83)
(83)
(18)
0
(19)
(84)
45
66
112
13

BOOK PROFIT
KNR Construction

17-Dec-16

Result Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

172
163
128
27%

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume
Nifty

532942
KNRCON
187/81
2417
6190
8139

Stock Performance
1Month

1Year

YTD

16.3
15.5

22.8
30.4

52.7
47.7

Absolute
Rel.to Nifty

Share Holding Pattern-%


2QFY17

Promoters
Public

1QFY17 4QFY16

58%
42%

61%
39%

61%
39%

Strong Execution drove Revenue and Profitability


KNR reported robust revenue growth of 72% YoY to Rs.373 Cr as compare
to Rs. 178 Cr. Revenue growth has mainly driven by the execution of the
orders received last year, is now contributing to the top line. Currently KNR
order book is Rs. 4579 Cr (5x of FY16 revenue) which provide strong
revenue visibilities and management expecting another Rs.1000-1500 Cr of
new orders in next 4-5 months. This will boost the earning and profitability of
FY17E/FY18E. Management maintains 1200 Cr plus revenue guidance for
KNR and its JV partner (Patel Engineering) has signed a share purchase
agreement with Essel group to sell their entire equity share in Patel KNR
infrastructure Ltd. and Patel KNR heavy infrastructure Ltd., BOT project for
enterprise value of Rs. 850 Cr put to together. KNR holds minority stake of
40% in both project. Current debt on both the project together is Rs.780 Cr.
Hence company likely to get Rs. 40 Cr and this amount utilize as growth
capital.

Q2FY17 Result Update : KNR reported robust revenue growth of 72% YoY to Rs.373 cr as against
Rs.217Cr. Growth driven by execution of the orders received in last year is
now contributing to the top line.
EBITDA of the company clocked 43.2% of growth to Rs.56 cr as against
Rs.39Cr in corresponding period last year led by higher revenue growth.
However EBITDA M decline by 300 bps YoY to 15% on account of high
base.
Adjusted Profit after tax grew by the 29% YoY to Rs. 39 (after adjusting
MAT credit) Cr compare to Rs. 30 Cr (after adjusting prior period item).
KNR infuse 90 cr & 130 Cr as equity in walayar BOT project respectively in
Q2FY17 and H1FY17. Out of this promoters put 40 cr and balance part is
funded by the parent company.

Outlook and Valuation


Work commencement on Dindigul Bangalore project and on - going projects
will drive the revenue growth. Going forward we expect top line of Rs. 1433
Cr with 15.5% of EBITDA margin and RoE of 9% in FY17. Currently, the
stock is trading at 11 times of FY17 Expected EV/EBITDA which is
companys historic highs and also one of the highest in the industry. On the
operations front, we still hold positive view on this stock but on the valuation
front we are not very comfortable. We had initiated BUY on KNR
Construction at the adjusted CMP of Rs. 111 on 22th April 2016. Hence, we
recommend to Book Profit on this stock, up by 54% from initiating price.

Company Vs NIFTY
150

KNRCON

NIFTY

140
130

120
110
100
90

Dec-16

Oct-16

Nov-16

Sep-16

Aug-16

Jul-16

Jun-16

May-16

Apr-16

Feb-16

Mar-16

Jan-16

Dec-15

80

Sandip Jabuani
sandip.jabuani@narnolia.com

Financials
Sales
EBITDA
Net Profit
EBIDTA%
P/E

FY13
765
117
49
15.2%
5.1

FY14
895
131
60
14.7%
4.0

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

FY15
931
127
70
13.6%
17.1

FY16E
995
174
126
17.5%
9.5

FY17E
1521
234
24
15.4%
14

Investment Argument : The ministry and NHAI has set a target of 25000 Km of road for FY17 on awarding
site and in terms of construction, NHAI is targeting to construction 8000 Km while the
Ministry is targeting 7000 Km
Company has taken strategic decision to exit from BOT asset to focus on EPC
projects, which will help company to keep balance sheet assets light. Post the recent
deal KNR debt on consolidated book will come down by 300 Cr.

Concall/ Managment Intreviwe Update :-

NHAI set to award 25000 km road project in FY17 as compare to 10000 km in FY16
KNR aims to take 1000-1500 cr of new road project in next 4-5 months
Marginal impact of demonization of currency on companys operation
Debt will be come down by Rs. 300 Cr on consolidated books post deal with Essel.
KNR infuse Rs.90 cr and Rs. 130 Cr in walayar project respectively in Q2FY17 and
H1FY17. Out of this promoter put Rs. 40 Cr and balance part was funded by parent
company.
Management maintains revenue guidance of Rs. 1200 Cr plus with 13.5-14.5% of EBITDA
Tax rate for the FY17 will be 8-10%
Company continues to have 80IA benefit on project received in FY17.Hence, FY18 tax
rate will be in range of 10-30% depending on composition of execution.
About the Company:KNR constructions Limited ( from know written as "KNRCL" ) is an ISO 9001:2000
Certified company and listed in Bombay StockExchange Limited (BSE) and National
Stock Exchange of India Limited (NSE). KNRCL is a multidomain infrastructure project
development company providing (EPC) engineering, procurement and construction
services across various fast growing sectors namely roads & highways, irrigation and
urban water infrastructure management. Our project execution strength primarily is in road
transportation engineering projects namely construction and maintenance of roads,
highways, flyovers and bridges wherever integral to the projects undertaken .

Significant experience and Strong track record in timely execution of Projects :-

Timely completion
capabilities will help
KNR construction to
grow higher in
competitive
scenario, comapny
earn bonus of 6Cr on
early completation of
Penchalakona
Yerpedu project.

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

15

Strong order book gives good Revenue visibility

(In Rs. Cr)

Road Sector

Irrigation

4,500
4,000

3,479

3,500

3,899

3,605

3,412

3,407

3,528

3,000

2,500
2,000

1,500

1,256

1,141

1,123

730

1,000
500

72

59

62

62

60

59

680

57

2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17

EBIDTA %

30%

PAT %
25%

25%
20%

21%

10%

14%

14%

10%

9%

4QFY15

1QFY16

14%

15%
8%

20%

18%

18%

7%

15%

15%

14%

15%

10%

10%

1QFY17

2QFY17

5%
0%

2QFY15

3QFY15

2QFY16

3QFY16

4QFY16

Walayar BOT peoject


Provisional Completion Certificate for 100% of Project length has been issued for the
project on 31st
October
Caters 2015
to commercial traffic towards Kochi Port and Kochi International

Container Transshipment Terminal. The project road serves as an arterial link to


most of the important southern cities such as Salem, Erode, Coimbatore, Trissur,
Palakkad, Kochi, Alappuzha, Kollam, Thiruvananthapuram and Nagercoil

Current Debt is Rs.309 Cr and Toll collection in Q1FY17 is Rs.9.57 Cr

KNR infuse Rs.90 cr and Rs. 130 Cr


in walayar project respectively in
Q2FY17 and H1FY17. Out of this
promoter put Rs. 40 Cr and balance
part was funded by parent
company

Muzaffarpur - Barauni BOT peoject


Provisional Completion Certificate for 75% of Project length has been issued for the
project on 3rd June
2016
Muzaffarpur is an important place for wholesale cloth trade and the largest city of
northern Bihar while Barauni city is situated on holy river Ganga and also an important
industrial city of Bihar having major industrial units such as IOC refinery, Barauni
Thermal Power Plant, Hindustan Fertilizers Corporation and Barauni Dairy

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

Current Toll collection is 6lakh/day.


KNR will receive 100% COD in next
3-4 months and daily collection
likely to go upto 10lakh/day

16

Financials Snap Shot


INCOME STATEMENT
Net Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares (In Cr)

FY14
895
17
912
707
21%
21
131
15%
59
73
18
72
7
9%
60
3
3

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY14
28
583
611
343
50
0
954
858
2
75
57
78
57
117
1454

FY15
931
13
944
723
22%
43
127
14%
55
72
13
71
0
0%
70
3
3

FY16
995
42
1038
748
25%
27
174
18%
48
126
56
112
-21
-19%
126
3
3

FY17E
1433
33
1466
1074
25%
39
222
15%
98
124
79
79
9
11%
70
2
3

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

RATIOS

FY14
21
217
1.2
5%

FY15
25
280
1.2
5%

FY16
45
248
1.2
3%

FY17E
25
272
0.6
3%

0.8
0.1
6.88%

3.4
0.3
1.38%

2.3
0.4
1.16%

6.9
0.6
0.38%

10%
7%

9%
5%

18%
9%

9%
9%

0.6
31
27
32
0.85

0.5
43
28
30
0.91

0.5
49
30
44
0.66

0.6
49
21
44
0.66

BALANCE SHEET

FY15
28
760
788
672
88
0
1460
1343
4
110
44
75
42
174
2012

FY16
28
669
697
631
106
0
1328
1263
7
135
45
119
71
260
2051

CASH FLOW

FY17E
28
737
765
502
173
0
1268
1333
0
194
102
173
87
306
2367

OP/(Loss) before Tax


Depreciation
Direct Taxes Paid
Op. before WC Change
CF from Op. Activity
Non Current Investment
Capex
CF from Inv. Activity
Repayment of LTB
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

FY14
72
59
24
147
239
0
512
(485)
278
18
3
276
31
19
50

FY15
71
55
33
145
66
0
548
(549)
342
14
3
462
(21)
50
29

FY16
112
48
5
214
256
0
258
(254)
12
57
3
2
3
29
33

FY17E
79
98
9
255
258
0
167
(167)
(129)
79
2
(142)
(52)
45
-7

17

BUY
HDFC BANK

15-Dec-16

Demonetization to provide long term benefits

Result Update
CMP

1176

Target Price

1400

Previous Target Price

1400

Upside

19%

Change from Previous

0%

Market Data
BSE Code

500180

NSE Symbol

HDFCBANK
1318/928
300373

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume (,000)

950
8153

Nifty

Stock Performance
1Month

3 Month

1Year

Absolute

(2.9)

12.5

8.7

Rel.to Nifty

(3.9)

5.4

6.1

Share Holding Pattern-%


2QFY17

Promoters
Public
Others
Total

1QFY17 4QFY16

26.4

26.3

26.2

73.6
0.0
100.0

73.7
0.0
100.0

73.8
0.0
100.0

Company Vs NIFTY
125

HDFCBANK

NIFTY

120

115
110

After the AQR review, banking system is again grappling with the new
challenges in the form of demonetization. In near term the operation of the
banks has got hampered due to spurt in cash management activity. This has
no doubt impacted the lending activities of the banks during the
demonetization period. But this demonetization move may come up with
huge opportunities for the banks in long run in the form of spurt in low cost of
funds and expectation of higher trading gains.
With the strong fundamentals and efficient management, HDFC Bank has
the ability to overcome the tough time of the industry. Aggressive on digital
mode, leadership in credit card business and wide network presence will help
HDFC bank to surpass the peers in this demonetization move.

Result Highlights 2Q FY17


HDFC BANK reported 20% YoY growth in its PAT to Rs 3455 Cr backed by
20% growth in NII. NIM was stable to 4.20% YoY. Non Fund based Income
grew by 14% YoY due to surge in profit from sale of investment. Cost to
Income ratio improved marginally to 44.7% against 45.4% a year back.
Operating profit grew by 19% YoY. Provisions and contingencies grew by
10% YoY to Rs 749 Cr but sequentially it declined by 14%. Assets Quality
stabilizes with marginal improvement in GNPA at 1.02% against 1.04% QoQ.
Advances grew by 18% YoY to Rs 494418 Cr. Deposits grew by 17% YoY
led by 19% growth in CASA. SA grew by 22% whereas CA grew by 13%
YoY. CASA was maintained at 40% level of the total deposits.

Assets Quality Stabilizes


GNPA declined marginally to 1.02% against 1.04% on 2Q FY17 but it
increased by 11 bps YoY. NNPA was at 0.30% against 0.32% on 2Q FY16.
Gross slippages during the quarter were Rs 1440 against Rs 1761 Cr QoQ.
Recovery & Upgrades were Rs 764 Cr in this quarter. Restructured assets
were maintained at 0.10% of the gross advances of the bank. Provisions for
the quarter grew by 10% YoY. Specific provision was at 71% against 73% a
year back. Floating provisions outstanding is Rs 1240 Cr. Management
highlighted that the assets quality on retail book remained stable.

105
100

Stable NIM

95

90
85

80

DEEPAK KUMAR

NIM was stable at 4.2% YoY but sequentially NIM declined by 20 bps from
4.4%. This decline in NIM was resulted due to excess liquid investment which
was kept for the FCNR redemption and some part of it may be attributed to
the MCLR regime. However NIM remained within the guided range of 4%4.3%. Going further management is confident to maintain the NIM within the
guided range.

Deepak.kumar@narnolia.com
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

18

HDFCBANK
Moderate Core Fee Growth
Other Income grew by 14% YoY to Rs 2901 Cr backed by income from sale of investments which increased by 75% YoY to Rs
284 Cr. Fee & commission income grew by 13% YoY to Rs 2104 Cr. Barring FX& Derivatives, total other income grew by 17%
YoY. FX & Derivatives income for the quarter was Rs 295 Cr registering negative growth of 8% YoY.

Healthy Retail Loan Growth


Advances in this quarter grew by 18% YoY led by strong growth on retail banking. As per the internal classification of the bank,
retail loan portfolio grew by 21.7% and corporate loan portfolio grew by 14.3% YoY. Corporate loan growth was low due to
some short term loan matured during the quarter which was lent in the March month. As per the Basel 2 classification retail loan
and corporate loan mix is 54:46 of the portfolio. Under the retail loan personal loan grew by 39% YoY. Loan against securities
grew by 35% YoY. The growth in vehicle loan segment was 19% YoY.

(Rs in Crore)

Quarterly Performance

Financials
Interest Inc.
Interest Exp.
NII
Other Income
Total Income
Ope Exp.
PPP
Provisions
PBT
Tax
Net Profit

2QFY15
11848
6337
5511
2047
7558
3498
4060
456
3604
1223
2381

3QFY15
12396
6696
5700
2535
8235
3456
4779
560
4218
1424
2795

4QFY15
13006
6993
6013
2564
8577
3855
4722
577
4145
1338
2807

1QFY16
14041
7652
6389
2462
8851
4001
4850
728
4122
1426
2696

2QFY16
14773
8092
6681
2552
9233
4190
5043
681
4362
1492
2869

3QFY16
15411
8343
7069
2872
9941
4205
5736
654
5082
1725
3357

4QFY16
15997
8543
7453
2866
10319
4584
5735
662
5072
1698
3374

1QFY17
16516
8735
7781
2807
10588
4769
5819
867
4952
1714
3239

2QFY17
17070
9076
7994
2901
10895
4870
6025
749
5276
1820
3455

YoY %
16%
12%
20%
14%
18%
16%
19%
10%
21%
22%
20%

QoQ%
3%
4%
3%
3%
3%
2%
4%
-14%
7%
6%
7%

Profitability Metrix
Ratios

Yield On Earning Asset %


Overall Cost Of Funds %
NIM %
NII Growth % (YoY)
Other Inc./Tot. Net Inc.%
C/I Ratio %
Empl. Cost/ Tot. Exp. %
Other Exp/Tot. Exp.%
PPP Grpwth % (YoY)
Provision/PPP %
Tax %
PAT Growth %

2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 YoY(bps) QoQ(bps)
10.4
10.5
10.5
10.6
10.4
10.2
10.1
9.9
9.8
(0.06)
(0.13)
5.7
5.9
5.9
6.0
6.0
5.8
5.7
5.6
5.5
(0.08)
(0.04)
4.5
4.4
4.4
4.3
4.2
4.3
4.3
4.4
4.2
(0.20)
23.1
23.0
21.4
23.5
21.2
24.0
24.0
21.8
19.6
37.1
44.5
42.6
38.5
38.2
40.6
38.5
36.1
36.3
(0.05)
0.22
46.3
42.0
44.9
45.2
45.4
42.3
44.4
45.0
44.7
(0.01)
(0.34)
33.4
32.8
34.4
34.0
33.7
34.0
32.7
33.2
34.0
0.01
0.79
66.6
67.2
65.6
66.0
66.3
66.0
67.3
66.8
66.0
(0.00)
(0.79)
19.9
22.9
24.9
26.2
24.2
20.0
21.5
20.0
19.5
11.2
11.7
12.2
15.0
13.5
11.4
11.6
14.9
12.4
(0.08)
(2.46)
33.9
33.8
32.3
34.6
34.2
33.9
33.5
34.6
34.5
0.01
(0.10)
20.1
20.2
20.6
20.7
20.5
20.1
20.2
20.2
20.4

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

19

HDFCBANK

Yield On Earning Assets %

Overall Cost Of Funds %

PAT Growth %

NIM %

NII Growth % (YoY)

C/I Ratio %

30.0

12.0

47.0
46.0

25.0

10.0

45.0

8.0

20.0

6.0

15.0

4.0

10.0

2.0

5.0

44.0

43.0
42.0

41.0
40.0

39.0

Other income Break Up


Fees & Commissions
FX & Derivatives
Profit / (loss) on Invest.
Miscellaneous Income
Including
Recoveries
Total
Other
Income

(Rs in Crore)

2QFY15
1537
222
95
194
2047

3QFY15
1807
253
266
210
2535

4QFY15
1835
329
196
204
2564

1QFY16
1713
348
126
275
2462

2QFY16
1869
320
162
201
2552

Other Income/Total Net Income %


31.0
30.0
29.0
28.0

4QFY16
2172
283
116
295
2866

1QFY17
1978
315
277
237
2807

2QFY17
2104
295
284
219
2901

YoY%
13%
-8%
75%
9%
14%

QoQ%
6%
-6%
2%
-8%
3%

Fee Income/ Advances %


0.60
0.50
0.40

27.0

0.30

26.0

0.20

25.0

0.10

24.0

3QFY16
2005
277
328
262
2872

Outlook & Valuation:


HDFC Bank is one of the leading banks in the industry with the strong fundamentals, best in assets quality, adequate capital, steady
loan growth and consistency in profitability growth. Where some of its peers in large cap are struggling with the deteriorating assets
quality, HDFC Bank is well poised to take the advantage from improving macroeconomic scenario. While in the short term there may
be hiccups in the lending activity due to demonetization drive and this has led to uncertainty over the earnings during this period, but
the long term growth and profitability remain intact for the bank. One of the huge benefits from the demonetization drive will arise in
the form of shoot in CASA ratio which will help the bank to cut the rates further to drive the demand. Strategy of the management to
focus on high yield products will help the bank to maintain the NIMs apart from the expected benefits from spurt in CASA (due to
demonetization). We expect the RoE of 19% and maintain BUY rating on this stock with our previous target price of Rs
1400.

20
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

HDFCBANK
Concall Highlights:
>> Cost of FCNR deposits will be close to 8.5%.
>> Sequentially NIM declined by 20 bps out of which close to 10 bps would be due to MCLR and some of it will be due to excess
investment for redemption of FCNR deposits.
>> Margin will broadly remain in the range of 4 to 4.3%.
>> Advances growth was lower due to lower corporate growth under which some of the short term loan which spiked in the March
Qurter has matured in this quarter.
>> In retail sector there is intensified competition on yields and processing fees.
>> Floating provisions is Rs 1240 Cr.
>> Assets Quality on retail side remained stable.
>> Provision breakup for the quarter was- Rs 641 Cr of NPA provision, Rs 101 Cr for general provisions and rest are others.
>> Number of employees increased in this quarter. Hiring has been done largely for business banking and retail business.

Assets Quality Performance


GNPA (Rs)
GNPA %
NNPA (Rs)
NNPA %
Slippages (Rs)
Restructured Assets %
Specific PCR %

2QFY15
3362
1.02
917
0.28
1030
0.10
73

GNPA %

NNPA %

1.20
1.00
0.80
0.60
0.40
0.20
-

3QFY15
3468
0.99
904
0.26
1164
0.10
74

4QFY15
3438
0.93
896
0.25
1720
0.10
74

1QFY16
3652
0.95
1028
0.27
1390
0.10
72

2QFY16
3828
0.91
1038
0.25
1300
0.10
73

3QFY16
4255
0.97
1261
0.29
1551
0.10
70

Restructured Assets %

4QFY16
4393
0.94
1320
0.28
1700
0.10
70

1QFY17
4921
1.04
1493
0.32
1761
0.10
70

2QFY17
5069
1.02
1489
0.30
1440
0.10
71

YoY Ch.
32%
0.11
43%
0.05
11%
0.00
-2.26

QoQ Ch.
3%
-0.02
0%
-0.02
-18%
0.00
0.98

Specific PCR %
74
73
72
71
70
69
68
67

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

21

HDFCBANK
Advances
Net Advances (Rs in Cr)
Advances Growth YoY %
>> Growth QoQ %

2QFY15
327273
21.84
4.86

3QFY15
347088
16.97
6.05

4QFY15
365495
20.63
5.30

1QFY16
382010
22.40
4.52

2QFY16
418541
27.89
9.56

3QFY16
436364
25.72
4.26

4QFY16
464594
27.11
6.47

1QFY17
470622
23.20
1.30

2QFY17
494418
18.13
5.06

Break-up of Advances % (As per internal business classification)


2QFY15
3QFY15
4QFY15
1QFY16
13.46
13.14
12.79
13.11
7.13
7.20
7.12
7.61
5.98
5.76
6.60
7.04
14.22
14.05
13.65
13.34
3.95
3.95
4.45
4.42
4.28
4.43
4.42
4.41
7.48
7.19
6.83
6.93
2.61
2.78
3.02
2.81
1.37
1.37
1.38
1.38
1.18
1.13
1.11
1.11
0.33
0.35
0.37
0.35
61.98
61.33
61.75
62.53
38.02
38.67
38.25
37.47

2QFY16
12.81
7.75
6.81
13.74
4.67
4.30
6.92
2.88
1.38
1.04
0.36
62.66
37.34

3QFY16
12.91
8.13
6.52
13.66
4.61
4.51
6.82
3.06
1.40
1.01
0.38
63.00
37.00

4QFY16
12.33
8.12
6.86
13.15
4.94
4.42
6.66
3.15
1.37
0.99
0.41
62.38
37.62

1QFY17
12.66
8.72
7.14
12.84
4.76
4.52
6.68
3.22
1.41
1.04
0.40
63.39
36.61

2QFY17
13.03
9.11
6.79
13.31
5.03
4.32
6.79
3.29
1.44
1.03
0.42
64.55
35.45

Deposits
Deposits (Rs in Cr)
>> Growth YoY %
>> Growth QoQ %
CA %
SA %
CASA %
>>CASA Growth YoY %
>> Growth QoQ %
Credit Deposit Ratio%

2QFY16
506909
29.75
4.70
13.77
25.95
39.72
19.41
4.94
82.57

3QFY16
523997
26.53
3.37
14.13
25.85
39.98
23.67
4.04
83.28

4QFY16
546424
21.21
4.28
16.18
27.06
43.25
19.05
12.81
85.02

1QFY17
573755
18.50
5.00
13.26
26.61
39.87
19.24
-3.19
82.03

2QFY17
591731
16.73
3.13
13.38
27.03
40.41
18.76
4.51
83.55

Advances Break Up %
Auto
Personal Loans
Home Loans
Business Banking
Kisan Gold Card
Credit Cards
CV/CE
Others
Two Wheelers
Gold Loans
Loans against securities
Total Retail Advances
Corp. and Overseas Adva.

Retail Adv. %

70.0
60.0
50.0
40.0
30.0
20.0
10.0
-

2QFY15
390682
24.81
5.00
14.80
28.36
43.16
19.71
5.39
83.77

3QFY15
414128
18.59
6.00
13.79
27.11
40.90
11.00
0.46
83.81

Corp. and Overseas Adv. %

4QFY15
450796
22.72
8.85
16.32
27.71
44.03
20.58
17.18
81.08

1QFY16
484175
30.13
7.40
13.82
25.81
39.63
19.92
-3.34
78.90

CA %

Adv. Growth YoY %

30.0
25.0

20.0
15.0
10.0

5.0
-

50
45
40
35
30
25
20
15
10
5
-

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

SA %

CASA %

>>CASA Growth YoY %

25.0
20.0
15.0
10.0
5.0
-

22

HDFCBANK
Financials Snap Shot
INCOME STATEMENT

Int./disc. on advances / bills


Income on Investments
Int. on bal.with RBI
Others
Total Interest Income
Total Interest expended
Net Interest Income
Other Income
Total Income
Total Operating Expenses
Pre Provisioning Profit
Provisions and Contingencies
Profit Before Tax
Tax
PAT

BALANCE SHEET

(Rs in Crore)

FY14
31,687
9,037
356
56
41,136
22,653
18,483
7,920
26,402
12,042

FY15
37,181
10,706
517
66
48,470
26,074
22,396
8,996
31,392
13,988

FY16
44,828
14,120
362
912
60,221
32,630
27,592
10,752
38,343
16,980

1,588
12,772
4,294
8,478

2,076
15,329
5,113
10,216

2,726
18,638
6,342
12,296

FY17E
54,070
16,035
237
947
71,289
38,042
33,246
12,777
46,023
20,729
14,360
3,353
21,941
7,592
14,350

(Rs in Crore)

Capital
Reserves & Surplus
Deposits
Borrowings
Other Liabilities & Provisions
Total Capital & Liabilities

FY14
FY15
FY16
FY17E
480
501
506
506
42999 61508 72172 83556
367337 450796 546424 661363
39439 45214 53018 60971
41344 32484 36725 38561
491600 590503 708846 844957

Cash & Balances with RBI


Bal. with Bank&Money at Call
Investments
Advances
Fixed Assets
Other Assets
Total Assets

25346 27510 30058 36221


14238
8821
8861
13768
120951 166460 163886 180274
303000 365495 464594 562159
2940
3122
3343
3677
25125 19095 38104 48858
491600 590503 708846 844957

RATIOS
Business Ratios
Credit-Deposit(%)
CASA %
Efficiency Ratios
Emp. Cost as a % of Total Inco. (%)
Other Exp./Total Inco. (%)
Cost Income Ratio (%)
Spread Analysis As Calculated
Yield on Advances (%)
Yield on Investments (%)
Yield on Earning Assets (%)
Cost of Deposits (%)
Cost of Fund (%)
Interest Spread (%)
NIM (%)
Profitability Ratio
RoE %
RoA %
Int. Expended / Int. Earned (%)
Provisions/PPP (%)
Other Income/Net Income (%)
Tax Rate (%)
Asset Quality Ratio
GNPA (%)
GNPA(Rs)
NNPA (%)
NNPA (Rs)
PCR (%)
Os. Std. Restr. Assets (%)
Capital Adequacy Ratio
Capital Adequacy Ratio (%)
Tier I Capital (%)
Tier II Capital (%)

Narnolia Securities
Ltd
23
Please refer to the Disclaimers at the end of this Report

FY14
82.5
45.0

FY15
81.1
44.0

FY16
85.0
43.0

FY17E
85.0
42.0

34.7
65.3
45.6

34.0
66.0
44.6

33.6
66.4
44.3

33.0
67.0
45.0

12.2
8.6
10.4
5.7
6.0
4.5
4.4

11.8
8.7
10.4
5.7
5.8
4.6
4.4

11.5
8.9
10.3
5.9
5.9
4.4
4.3

11.2
8.7
10.0
5.4
5.7
4.4
4.3

21.3
1.9
55.1
11.1
30.0
33.6

19.4
1.9
53.8
11.9
28.7
33.4

18.3
1.9
54.2
12.8
28.0
34.0

18.9
1.9
53.4
13.3
27.8
34.6

0.98
2989
0.30
820
73
0.20

0.93
3438
0.25
896
74
0.10

0.94
4393
0.28
1320
70
0.10

16.1
11.8
4.3

16.8
13.7
3.1

15.5
13.2
2.3

Narnolia Securities Ltd


201 | 2nd Floor | Marble Arch Building | 236B-AJC Bose Road |
Kolkata-700 020 , Ph : 033-40501500
email: narnolia@narnolia.com, website
: www.narnolia.com

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