IEA Report

7th Mar 2017

DHFL "BUY" 7th Mar 2017
DHFL has continuously performed well in its operating parameters with healthy AUM growth and stable assets quality. We expect the AUM growth
of 18%-19% going forward. Recently huge rate cut by banks has raised the concerns over the margin protection for Housing Finance companies.
However due to strategy of management for efficient liability mix and increasing share of non-core home loan portfolio, we expect DHFL to
maintain its NIM at 3% level. Improving operating efficiency has boosted the bottom line of the company and we expect this trend to continue in
FY18. Also the stake sale deal will further boost the earnings for the company with free from concern of stake dilution for next 2 to 3 years. We
recommend BUY with target price of Rs 385. ................................ ( Page : 2-5)

Music Broadcast "SUBSCRIBE" 6th Mar 2017

Music Broadcast runs 39 FM radio stations in 6 languages to 50mn listeners in 37 cities. The company has successfully migrated all its Phase II
Radio City Stations to the Phase III Policy and now enjoys an extended license period of 15 years.
High NPM of the company keeps Return ratios increasing over the long term though high capex intensity in the industry keeps the Asset turnover
depressed. As regards valuations, the company is being offered at 3.5times P/B and 33 times Price to Earnings post IPO at ROE of 10.5% which is
better than its listed Peer ENIL. We recommend SUBSCRIBE .................................................. ( Page : 6-8)

MARICO "BUY" 3rd Mar 2017

Major positive for Q3FY17 remained 6% volume growth of Saffola despite demand pressure due to demonetization. Management is optimistic of
clocking double digit volume growth for Saffola in medium term which gives us confidence of high single to double digit overall volume growth for
Marico going forward. Management expects minimum 15% constant currency (CC) organic growth in the International business in next 4-5 years.
Presently company trades at 16 times of FY17E book value with 35% of RoE. Considering improving business conditions after demonetization,
better medium term volume guidance for domestic business and expected recovery from international business going forward, we reiterate to BUY
this stock with the target price for Rs 330............ ( Page : 9-11)

INFY "BUY" 2nd Mar 2017

The Companys' strategy of renewing their existing core buss through a combination of automation and innovation has been making a huge
progress. Execution has reflected well in several metrics, including volume growth, deal wins and pick-up in new initiatives. There are some hiccups
on account of rift with founders and H1B regime which could have negative impact on the company. But we believe that the company is investing
in all the right areas to regain and sustain its growth leadership, compounded by industry-leading margins. The company presently is trading at 3.3
times FY17 price to book. With this we remain positive on the stock and maintain our 'BUY' rating with the unchanged target price of 1210.
............................................. ( Page : 12-14)

LT "BUY" 1st Mar 2017

L&T is the largest Engineering and Construction Company in India. It has presence in Construction, Hydrocarbon Eng., Power, Heavy Eng.,
Shipbuilding- defense and Merchant, IT, Finance, Realty and Metro. Revenue growth in Q3FY17 was muted but strong operating performance
supported the bottom-line. Despite muted revenue growth in Q3FY17, management is confident to achieve 10% revenue growth in FY17 coupled
with improvement in operating margins based on the operational efficiency. The company has closed out some legacy projects in hydrocarbon
business, which will help to post better margins going ahead. We expects to 33 bps improvement RoE in FY17. Hence, we recommend to BUY
with a target price of Rs.1780. ..................................................... ( Page : 15-17)

HDFCBANK "HOLD" 28th Feb 2017

We continue to like HDFC Bank given its strong fundamentals, steady loan growth, adequate capital, best in assets quality, strong branch network
and intensive digitalization initiatives. While 3Q FY17 saw some uneven activities, we expect the operations of banking to come to its normal
situation. We expect RoE of 19% going forward. Recent rally in the stock has led to achieve our previous target price of Rs 1400. However despite
this rally we dont think to exit the stock at current levels given its strong fundamentals and recommend must have in the portfolio. Also
HDFCBANK has performed much better than its peers in the industry. We maintain HOLD in this stock with the target price of Rs 1460.
..................................................... ( Page : 18-23)

Narnolia Securities Ltd IEA Edition No.- 969

 BUY
DEWAN HOUSING FINANCE CORPORATION LTD. 7-Mar-17

Result Update Stake Sale deal will Significantly Contribute to Net Worth
CMP 324 Recently DHFL announced an agreement with its promoter to sell its 100% of
Target Price 385 share held in DHFL Pramerica Life Insurance (DPLI) (equivalent to 50% of
the paid-up capital of DPLI) to its wholly owned subsidiary DHFL Investment
Previous Target Price
Ltd (DIL). The fair market value for the shares proposed to be transferred is
Upside 19% ascertained in the range of Rs 1690 Cr to Rs 2020 Cr. To fund this
Change from Previous transaction, DIL will issue compulsorily convertible debentures (CCDs) to the
promoters entity (Wadhawan Global Capital). However this deal awaits for
the regulatory approval. If the deal is approved, it will significantly contribute
Market Data
to Capital of DHFL without any dilution with minimum increase of 25% in its
BSE Code 511072 net worth and hence company will not require capital for next 2 to 3 years.
NSE Symbol
DHFL
52wk Range H/L 339/163
3Q FY17 Result Highlight
Mkt Capital (Rs Cr) 10159
Av. Volume (,000) 281 DHFL posted 3Q FY17 PAT at Rs 244 Cr up 31% YoY owing to better NIMs
Nifty 8961 which improved by 11 bps YoY and was stable QoQ. NII growth was strong
at 21% YoY. Operating expenses were under control and grew by just 9%
YoY. C/I ratio improved to 26.5% against 29.5% a year back. AUM grew by
Stock Performance
19% YoY despite the challenging times during demonetization. Disbursement
1Month 1Year YTD
was muted to 10% growth YoY, however considering demonetization impact
Absolute 9.4 111.2 29.9 we had anticipated it even lower. Assets quality was stable with GNPA at 95
Rel.to Nifty 7.6 83.9 21.1 bps sequentially.

AUM Growth Impressive Despite Demonetization, Assets Quality Stable.

Share Holding Pattern-%
3QFY17 2QFY17 1QFY17 AUM of DHFL grew with healthy rate of 19% YoY despite the demonetization.
Promoters 39.3 39.3 34.9 This strong growth was mainly contributed by project loan which grew by 85%
YoY while Core home loan book grew by 11% YoY. The share of project loan
Public 60.7 60.7 65.1
in total portfolio increased to 12.5% against 8% a year back. Disbursements
Others - - -
grew by 10% YoY in 3Q FY17 despite demonetization. The management
Total 100 100 100 highlighted that the disbursements were down 12% MoM in November 2016
but recovered to pre-demonetization levels in December 2016. Management
Company Vs NIFTY is confident of continuing the same growth level going forward. Assets quality
200 was stable with GNPA at 95 Bps and provision coverage ratio at 101.5%
DHFL NIFTY
which resulted in almost nil NNPA.
180
Improving Margins and Cost Efficiency.
160
NIM of DHFL improved by 11 bps YoY to 3.06% backed by decline in cost of
140
fund by 50 bps. Change in liability mix with reduction in bank rate has
120 supported this decline in cost of fund.
100 Operating Expenses grew by 9% YoY led lower other expenses. Employee
expenses grew by 18% YoY. Thus the C/I ratio improved to 26.5% against
80
29.5% a year back. This decline in cost to income ratio has helped the
Dec-16
Jun-16

Oct-16
Nov-16
Jul-16
Apr-16
Feb-16

Sep-16

Feb-17
Mar-16

Jan-17
Aug-16
May-16

company to achieve the pre-provisioning profit of 27% YoY. C/I Ratio at

26.5% is still very high from its industry peers, so a lot of scope to improve
DEEPAK KUMAR further.
Deepak.kumar@narnolia.com
Narnolia Securities Ltd 2
Please refer to the Disclaimers at the end of this Report
 DHFL

Concall Highlights

>> Management is confident to protect the NIM going forward.

>> Project loan will continue to grow going forward. Share of project financing is expected to increase to 14-15%
over the next few quarters due to the strong pipeline.
>> Targeting the C/I ratio at 21%.
>> Collection dropped to 12% in the month of November. Collection for December month was as per pre-
demonetization period.
>> Yield on LAP-13.55%-13.75%. Yield on Project loan is 15.45%-16.2%. Yield on SME is >13%.
>> Will not raise equity in 2 to 3 years.
>> Disbursements were up 10% YoY primarily driven by home loans and LAP (up 15% YoY). Disbursements in
project financing were flat-to-marginally-negative on a YoY basis.
>> Not utilized the RBI dispensation scheme.

View & Valuation

DHFL has continuously performed well in its operating parameters with healthy AUM growth and stable assets
quality. We expect the AUM growth of 18%-19% going forward. Recently huge rate cut by banks has raised the
concerns over the margin protection for Housing Finance companies. However due to strategy of management for
efficient liability mix and increasing share of non-core home loan portfolio, we expect DHFL to maintain its NIM at 3%
level. Improving operating efficiency has boosted the bottom line of the company and we expect this trend to
continue in FY18. Also the stake sale deal will further boost the earnings for the company with free from concern of
stake dilution for next 2 to 3 years. We recommend BUY with target price of Rs 385.

Quarterly Performance (Rs in Cr)

Financials 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Interest Income 1,488 1,541 1,633 1,762 1,845 1,914 1,932 2,122 2,315
NII 355 365 399 405 425 436 456 491 514
Net Total Income 393 407 419 454 466 488 484 536 565
Operating Expense 126 121 126 132 137 155 136 140 150
PPP 267 286 293 322 328 333 348 396 416
Provisions 25 35 32 45 48 50 45 45 45
PBT 242 251 261 277 280 283 303 351 371
Net Profit 160 162 173 180 186 190 201 232 244

Profitability Metrix 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Yield% (Cal.) 11.67 11.25 11.18 11.48 11.46 11.30 10.92 11.53 12.06
Cost of Fund% (Cal.) 10.05 9.90 9.69 9.92 9.75 9.77 9.45 9.18 9.29
Spread% (Cal) 2.82 2.57 2.78 2.88 3.05 2.91 2.87 2.35 2.77
NIM% 2.77 2.89 2.96 2.86 2.87 2.96 2.91 3.05 3.07
C/I Ratio 32.18 29.73 29.97 29.03 29.46 31.76 28.11 26.09 26.48

Narnolia Securities Ltd 3

Please refer to the Disclaimers at the end of this Report

 DHFL
(Rs in Cr)
Assets Quality 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
GNPA% 0.77 0.84 0.8 0.81 0.84 0.93 0.98 0.96 0.95
NNPA% 0 0 0 0 0 0 0 0 0
PCR% 108.2 100.2 106.9 111 110.79 101.74 99.3 99.6 101.5

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

AUM 52,637 56,884 60,002 62,837 65,962 69,524 72,012 75,223 78,296
On- Book 47,776 51,040 53,796 56,312 58,992 61,775 63,647 65,346 68,961
Off- Book 4,861 5,845 6,206 6,525 6,970 7,749 8,365 9,877 9,335

AUM MIX %
Disbursement Growth% YoY
Housing LAP/LRF Project Others
120 35%
32%
30% 31% 31%
100 6 8 9 10 12 13
17 16 16 16 25% 24%
26%
80 16 16 22%
20%
60 18%
15%
14%
76 74 12%
40 72 72 70 69 10% 10%

20 5%
0%
0
2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

NIM% Borrowing Mix %

3.10 Bank Money Market NHB Others
3.05 3.07
3.00
2.96 2.96 100 12 12 14 10 13
2.90 2.89 2.91
2.86 2.87 80
32 33 32 43
2.80 42
2.77 60
2.70 40
53 53 52 44
2.60 42
20

-
3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Narnolia Securities Ltd 4

Please refer to the Disclaimers at the end of this Report

 DHFL

Financials Snap Shot

INCOME STATEMENT (Consolidated) RATIOS
FY13 FY14 FY15 FY16 Spreads Analysis (%) FY13 FY14 FY15 FY16
Interest Income 3,883 4,776 5,839 7,159 Yield on Loan Portfolio % 13.7 13.1 12.9 12.7
Interest Expenses 3,119 3,783 4,460 5,490 Cost Of Borrowing % 10.7 10.6 10.4 9.8
Net Interest Income 764 993 1,380 1,669 Spread % 3.0 2.5 2.5 2.9
Other Income 257 194 142 157 Profitability Ratios (%)
Total Net Income 1,021 1,187 1,522 1,827 NIM % 2.7 2.7 2.9 3.0
Employee Benefits Expense 141 176 196 228 ROA % 1.5 1.3 1.3 1.2
Other Expenses 216 195 252 298 ROE % 14.1 15.5 15.1 15.1
Total Oper. Expenses 365 382 474 550 EPS (Rs) 17.6 20.6 21.3 25.0
Pre Provisioning Profit 656 805 1,048 1,277 Cost to Income Ratio % 35.8 32.2 31.1 30.1
Provisions / Write offs (Net) 45 70 105 175 Asset-Liability Profile
Profit Before Tax 611 735 943 1,102 Loans/Borrowings (X) 1.1 1.0 1.0 1.0
Total Tax 159 206 322 373 Debt/Equity (x) 8.5 9.5 8.7 10.3
Profit After Tax 452 529 621 729 PCR % Specific 113 104 100 102
Gross NPAs (Rs cr) 263 394 473 568
Gross NPAs % 0.7 0.8 0.8 0.9
Net NPAs (Rs cr) 43 93 72 50
CRAR % 19.0 16.5 17.6 17.0

Loan Mix %
BALANCE SHEET Housing Loan 83 78 75 72
FY13 FY14 FY15 FY16 LAP 11 16 18 16
Share Capital 128 128 146 292 Project 6 6 6 10
Reserves 3,109 3,447 4,490 4,725 Others - - 1 2
Net Worth 3,237 3,575 4,636 5,017 Total AUM (Rs in Cr) 36,117 44,822 56,884 69,524
Long term Debt 26,565 32,295 36,889 45,119 Borrowing Mix %
Short term Debt 876 1,595 3,637 6,437 NCD 11 20 28 33
Total Borrowing 27,441 33,890 40,526 51,556 Bank 71 68 58 53
Long Term Provision 264 331 430 583 Others 18 12 14 14
Other Liability 4,862 6,063 9,046 10,697 Resource Mobilization (Rs in Cr) 32,058 39,487 48,921 61,104
Total Liability 35,803 43,859 54,638 67,853
Fixed Assets 438 988 985 781 About the Company
Non-current investments 191 307 611 720 DHFL was founded in 1984 and is promoted by Wadhawan Group.
Current investments 85 269 396 173 Focused on low and medium income group it operates mainly in tier
Loans/Advances 34,222 41,016 51,511 62,295 1 and tier 2 cities with its presence in 363 cities. It has total AUM of
Cash & Bank Balances 513 983 676 3,408 Rs 783 Billion .
Other Assets 356 297 460 476 Chairman & MD Kapil Wadhawan
Total Assets 35,803 43,859 54,638 67,853 CEO Harsil Mehta

5
Narnolia Securities Ltd

Please refer to the Disclaimers at the end of this Report

 "SUBSCRIBE "
Music Broadcast Ltd 6th Mar 2017

IPO Note
Issue Detail Company Overview
Type 100% Book Building Music Broadcast is first private FM broadcaster in India which operates 91.9 FM as "Radio City"
Issue Size Rs.500 Crore brand name. Radio station has presence in 29 cities like Bengaluru, Delhi, Mumbai, Chennai, Pune,
Offer Price *Rs (324 - 333)/Equity Share Hyderbad, Ahmedabad, Nagpur, Surat etc in india till Nov 2016 and reached out to over 49.60
million listerners in 23 cities. All Phase II Radio City stations are migrated to the phase III Policy.
Min App Size 45 Shares
Company also operates 31 web radio stations on their web portal www.planetradiocity.com in six
Issue Open 6-Mar-17 languages and reached out to 12.20 million listener as of Sept 2016.
Issue Close 8-Mar-17
Shares Offer 1.48Cr Radio Station contains RJ show and film music. Famous shows of the FM station are "Love Guru" ,
Face Value Rs 10 "Kal Bhi Aaj bhi", Babber Sher Joke Studio, Radio City Super Singer etc. Company has hired 82
ICICI Securities Limited RJs, including two online web radio RJs, to conduct their shows . The studios use IP based studio
Lead Mgrs
equipment and consoles which are free from noise pick-ups & customised software to control the
Listing NSE sound quality.
Registrar Karvy Computershare Pvt Ltd In 2015, JPL(Jagran Publication Ltd) acquired a majority shareholding of the company through its
Market Cap direct holding in Spectrum and indirect holding in Crystal. In 2016, pursuant to the Scheme of
1906.0 Arrangement the radio business of SPML was demerged and subsequently transferred and
(Post Issue)
Spectrum and Crystal were merged with JPL.
No of shares ( Post & Pre Issue) Company Strategies
No of Shares (Pre Issue) 45,042,767 > Radio City has strong leadership position in market in term of popularity. Total number of lister
reached to 49.6mn across top 23 cities (AZ Research report ). Company is holds top rank in
Offer for Sale 2,658,518
Mumbai and Bengaluru and holds 2nd in Delhi.
Fresh Issue made 12195122 > Radio City is witnessing ~19% CAGR in revenue and ~54% CAGR in PAT over FY13-16 . Company
has positive cash flow from operation in last five year which indicates healtly financial
No of Shares (Post Issue) 57237889
performance .
> The advertising volume in 14 of its markets covered by AirCheck has increased at a CAGR of 15%
Bid allocation pattern between Fiscal 2014 and Fiscal 2016 . The total number of seconds advertised in top 14 cities was
QIB 50% 63.72 million . Radio Citys advertising volumes have witnessed higher growth than the industry
Non-Institutional 15% (CAGR of 10.4% over the same period) due to its higher listenership.
Retail 35%
> Company is focusing to expand and explore new market . The expansion strategy under the
Phase III Policy was driven by identifying markets after taking into consideration advertising
potential, population density, per capita income and number of existing players.

Objects of the Issue:

Particulars
Redemption of Listed NCDs
Rubi Burman Early redemption of the JPL NCDs and repayment / pre-payment of JPL ICDs
rubi.burman@narnolia.com General corporate purposes

Recommendation
Music Broadcast runs 39 FM radio stations in 6 languages to 50mn listeners in 37 cities. The company has successfully migrated all its Phase II
Radio City Stations to the Phase III Policy and now enjoys an extended license period of 15 years.
High NPM of the company keeps Return ratios increasing over the long term though high capex intensity in the industry keeps the Asset
turnover depressed. As regards valuations, the company is being offered at 3.5times P/B and 33 times Price to Earnings post IPO at ROE of
10.5% which is better than its listed Peer ENIL. We recommend SUBSCRIBE

Narnolia Securities Ltd, 6

Please refer to the Disclaimers at the end of this Report.
 Music Broadcast Ltd

Pan India Location of Radio City Station :

Competitive Risks
> Company's majority of sound recordings are licensed by third parties. Company pay royalties/license
fees to these third parties for the right to broadcast these sound recordings. The licensing agreements
are typically on a non-transferable and non-exclusive basis and with limited license to communicate to
public".

> Company is involved in various litigations pursuant to the Copyright Boards order dated August 25, 2010
granting compulsory licenses for broadcast of sound recordings by radio companies. If any of proceedings in
which company may be involved in is decided against them, it might lead to termination of the Compulsory
License.
> Company is substantially dependent on Government policies. There is often significant initial uncertainty
concerning the scope and impact of many liberalization and deregulation measures introduced by the
Government .

Narnolia Securities Ltd, 7

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

 Music Broadcast Ltd
Financials Snap Shot
INCOME STATEMENT RATIOS
31 March 31 March 31 March 31 Sept 31 March 31 March 31 March 31 Sept
2014 2015 2016 2016 2014 2015 2016 2016
Revenue (Net) 154.2 200.8 232.3 136.9 EPS 4.3 8.2 9.8 5.2
Other Income 3.1 6.7 13.2 1.3 Book Value Per share 1.9 10.1 18.8 24.5
Total Revenue 157.3 207.5 245.5 138.2 Valuation(x)
License fees 8.2 9.5 17.2 9.4 P/E ( Upper Band ) 78.3 40.5 34.0 64.0
Employee Benefits Expense 36.3 43.0 51.6 32.4 P/E ( Lower Band ) 76.2 39.4 33.0 62.3
Other expenses 67.3 86.0 84.9 49.6 Price / Book Value 179.3 33.1 17.7 13.6
Total Expenses 111.8 138.5 153.7 91.4 EV 1975.2 2136.5 2146.0 2126.7
EBITDA 42.4 62.3 78.6 45.5 EV/Sales 12.8 10.6 9.2 15.5
Depreciation 15.5 15.7 16.7 9.0 EV/EBITDA 46.6 34.3 27.3 46.7
EBIT 26.9 46.6 61.9 36.5 Profitability Ratios
Finance Costs 5.7 6.2 19.0 8.1 RoE 2.29 0.82 0.52 0.21
Profit before Tax 24.3 47.1 56.1 29.8 RoCE 2.29 0.82 0.52 0.21
Current tax (MAT) 0.0 3.7 9.9 5.9 Liquidity Ratios
MAT credit entitlement 0.0 -3.7 -9.9 -5.9 Net Debt/Equity 9.711 4.947 2.167 1.661
Total tax expense 0.0 0.0 0.0 0.0 Interest Coverage Ratio 4.8 7.5 3.3 4.5
Exceptional Item 0.0 0.0 0.0 0.0 Current Ratio 2.02 6.61 0.97 1.13
PROFIT AFTER TAX 24.3 47.1 56.1 29.8

31 March 31 March 31 March 30 Sept 31 March 31 March 31 March 30 Sept

2014 2015 2016 2016 2014 2015 2016 2016
Share Capital 38.9 38.9 38.9 41.9 Profit before exceptional items and taxation24.3 47.1 56.1 29.8
Reserves -28.3 18.7 68.5 98.2 Adjustments for
Net Worth 10.6 57.6 107.4 140.2 Depreciation 15.5 15.7 16.7 9.0
Long-term borrowings 103.2 284.8 232.7 232.7 Finance costs 5.7 6.2 19.0 8.1
Long-term provisions 1.8 2.9 4.1 4.7 Interest income (2.2) (5.7) (11.9) (0.9)
Non - current liabilities 105.0 287.7 236.9 237.4 Loss/(profit) on sale of fixed assets (net) (0.1) (0.0) (0.0) (0.0)
Short-term borrowings 0.0 0.0 23.0 17.5 Loss/(profit) on sale of investments 0.0 0.0 (0.8) (0.4)
Trade payables 23.1 33.9 39.3 50.5 (Reversal of)/Provision for bad debts and advances
1.1 5.3 4.1 (2.2)
Other current liabilities 30.5 17.8 77.6 80.8 Provision for Gratuity and Leave Encashment0.3 1.1 (4.0) 0.8
Short-term provisions 0.8 0.7 1.2 1.4 Operating profit/ (loss) before working capital
44.5changes 69.7 79.2 44.1
Current liabilities 54.4 52.4 141.0 150.3 Movements in working capital
Total Liabilities 170.0 397.7 485.3 527.8 loans and advances (3.1) (1.2) (2.8) 2.8
Tangible assets 7.4 7.1 8.2 7.5 trade receivables 0.6 (17.3) (11.9) (17.0)
Intangible assets 24.2 11.6 222.2 214.0 Other current assets (0.1) (0.6) 0.7 0.0
Capital work-in-progress 0.3 0.3 65.7 69.1 trade payables (6.2) 10.8 8.0 11.2
Long-term loans and advances23.5 22.4 48.6 63.4 Other current liabilities 1.0 2.8 17.3 3.6
Other non-current assets 4.6 9.7 4.2 3.6 Cash generated from/ (used in) operations 36.8 64.3 90.4 44.7
Non-current assets 60.1 51.2 348.8 357.6 Direct taxes 0.4 (0.7) 10.6 2.9
Current investments 0.0 0.0 14.2 16.5 Payment of Exceptional item 0.0 0.0 13.6 0.0
Trade receivables 62.8 77.2 95.0 114.2 Net cash generated from operating activities36.4 65.0 66.3 41.7
Cash and bank balances 33.9 54.3 15.8 29.5
Short-term loans and advances12.0 211.6 11.4 9.6 Net cash generated from/ (used in) investing
(4.6)
activities(201.0) (68.9) (22.7)
Other current assets 1.1 3.4 0.1 0.4 Net cash generated from/ (used in) financing
(25.9)
activities159.9 (28.1) (13.9)
Current assets 109.9 346.6 136.4 170.2
TOTAL Assets 170.0 397.7 485.3 527.8 Net increase/ (decrease) in cash and cash equivalents
59.1 239.1 (307.4) 53.8

Narnolia Securities Ltd 8

 BUY
MARICO 3rd March. 2017

Company Update Recent Update

CMP 282 In its latest interview, management has discussed their short term as well as
Target Price 330 medium term focus areas and goals. Management sees 14-15% revenue
growth from Indian business for the next 4- 5 years. The company is
Previous Target Price 330
concentrating on 5 point agenda to improve its business performance going
Upside 17% forward which are innovation, go to the market, cost management, talent &
Change from Previous NA culture and IT. Immediate target for Maricos management is to get back to
10% volume growth for Indian business. However medium term expectation
for organizations blended margins is 18% and Indian business margin is
Market Data
20%plus.Food business is also expected to become Rs 300-500 crores in
BSE Code 531642 next 5 years. Management sees minimum15% constant currency (CC)
NSE Symbol MARICO organic growth in the International business in upcoming 4-5 years.
52wk Range H/L 307/235
Mkt Capital (Rs Cr) 36,356 International Business
Av. Volume(,000) 1317 Overall international business grew by 2% in constant currency (CC) terms
Nifty 8,900 and value growth of 9% to Rs 336 cr in this quarter. Bangladeshs business
remained flat in CC terms with 7% volume growth.The near term outlook for
the Bangladesh business is looking promising with high single digit CC
Stock Performance growth. Middle East and North Africa(MENA) business declined by 11%CC
1M 3M 12M during Q3FY17 due to 27% CC decline in Middle East business.
Absolute 8.3 10.4 17.2 Management sees recovery in Middle East business in 2HFY18.South East
Rel.to Nifty 3.8 1.6 -10.1 Asian business grew by 6% in CC terms. South African business grew by
4% in CC term despite challenging macro .

Share Holding Pattern-% Outlook and Valuation

3QFY17 2QFY17 1QFY17
Major positive for Q3FY17 remained 6% volume growth of Saffola despite
Promoters 59.7 59.7 59.7 demand pressure due to demonetization. Management is optimistic of
Public 40.1 40.0 40.0 clocking double digit volume growth for Saffola in medium term which gives
us confidence of high single to double digit overall volume growth for Marico
Others 0.2 0.3 0.3
going forward. On margin front, management reiterated its previous
Total 100 100 100 guidance of 20% plus margin for domestic business and 18% for overall
business. Management expects minimum15% constant currency (CC)
Company Vs NIFTY organic growth in the International business in next 4-5 years. Presently
company trades at 16 times of FY17E book value with 35% of RoE.
130 MARICO NIFTY
125
Considering improving business conditions after demonetization, better
120 medium term volume guidance for domestic business and expected
115 recovery from international business going forward, we reiterate to BUY this
110 stock with the target price for Rs 330.
105
100
Rs,Cr
95 Financials 3QFY17 2QFY17 (QoQ)-% 3QFY16 (YoY)-%
90 Sales 1417 1443 -2% 1530 -7%
85
80 EBITDA 272 253 8% 290 -6%
Net Profit 192 181 6% 206 -7%
EBITDA% 19% 18% 169 Bps 19% 28 Bps
Rajeev Anand PAT% 14% 13% 100 Bps 13% 9 Bps
rajeev.anand@narnolia.com
Narnolia Securities Ltd 9
Please refer to the Disclaimers at the end of this Report
 Concall Highlights(Q3FY17)
The company sees inflation led value growth going ahead.
South and West impacted less due to demonetization.
Company sees much better traction from Bangladesh going forward.
Management expects recovery from MENA region in 2HFY18.
The company expects 18% overall margin in the medium term.
Management guided for 6-8% near term volume growth for overall business.
The company is diversifying its products portfolio.
GST will lead to improvement in market share for Marico going forward.
A&P Expenses will be in the range of 10% going forward.
In the month Jan, company witnessed 90% of its demand recovery.
The company may initiate pricing growth for Egypt.
In medium term, the company would be comfortable at 20%+ EBITDA margin.
Parachute and Nihar: Despite headwinds of demonetization and steep increase in inputs costs, near term volume growth prospects
remain promising.
Copra prices went up by 17%on sequential basis and YoY decline of 5%. The company expects the copra prices to go up further in
Q4FY17.
Company will take prices up in near term considering the inflation in commodity prices.
Net Sales and PAT(in cr.)
2000 300
Sales(in cr) PAT(in cr)
1800 268
250
1600
229
1400 206 200
185 192
1200 181
160 153
1000 150
138
800 118 110
100
600
400
50
1623

1431

1452

1226

1750

1454

1530

1307

1754

1443

1417

200
0 0
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

EBITDA and PAT Margin

25.0%
EBITDA Margin% PAT Margin%
21.3%
18.9% 19.2%
20.0% 18.2% 17.5%
16.4% 16.3% 16.6%
15.7% 15.3%
13.6% 14.0% 13.4% 13.5%
15.0% 13.1% 12.5%
11.4% 11.0% 10.5% 10.6%
9.0%
10.0% 8.3%

5.0%

0.0%
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Narnolia Securities Ltd 10

Please refer to the Disclaimers at the end of this Report

 Financials Snap Shot
INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Revenue 4687 5733 6132 5929 EPS(adjusted) 8 9 6 6
Other Income 58 59 93 101 Book Value(adjusted) 21 28 16 18
Total Revenue 4744 5792 6225 6029 DPS 2 5 4 4
COGS 2399 3119 3061 2849 Payout (incl. Div. Tax.) 29% 52% 72% 60%
GPM 48.8% 45.6% 50.1% 51.9% Valuation(x)
Other Expenses 1255 1419 1644 1537 P/E 15.7 23.1 46.5 45.1
EBITDA 748 870 1062 1148 Price / Book Value 5.6 7.2 16.1 15.7
EBITDA Margin (%) 16.0% 15.2% 17.3% 19.4% Dividend Yield (%) 1.9% 2.3% 1.6% 1.3%
Depreciation 77 84 102 96 Profitability Ratios
EBIT 671 786 961 1052 RoE 35.7% 31.4% 34.6% 34.7%
Interest 34 23 20 15 RoCE 41.6% 39.4% 45.8% 45.3%
PBT 695 822 1034 1138 Turnover Ratios
Tax 190 237 297 328 Asset Turnover (x) 1.6 1.8 1.8 1.6
Tax Rate (%) 27.4% 28.8% 28.7% 28.8% Debtors (No. of Days) 17 11 15 20
Reported PAT 485 573 725 807 Inventory (No. of Days) 121 116 110 105
Dividend Paid 142 300 522 484 Creditors (No. of Days) 39 36 40 42
No. of Shares 64 64 129 129 Net Debt/Equity (x) 0.2 0.1 0.0 0.0

BALANCE SHEET CASH FLOW STATEMENT

FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 64 65 129 129 OP/(Loss) before Tax 695 822 1,034 1,135
Reserves 1296 1760 1968 2194 Depreciation 77 84 102 96
Net Worth 1361 1825 2097 2323 Direct Taxes Paid (181) (210) (246) (328)
Long term Debt 252 169 0 0 Op. profit bef. WC changes 754 891 1,079 1,246
Short term Debt 274 165 153 140 CF from Op. Activity 660 665 833 901
Deferred Tax 10 8 10 10 Non Current investments (155) (121) (33) -
Capital Employed 1612 1994 2097 2323 Capital expenditure (785) (48) (7) (18)
Net Fixed Assets 638 590 583 565 CF from Inv. Activity (204) (179) (235) (220)
Capital WIP 4 0 0 0 Repaym of L T Borrowings (181) (83) (168) -
Debtors 223 177 252 325 Interest Paid (35) (23) (20) (15)
Cash & Bank Balances 406 205 310 382 Divd Paid (incl Tax) (142) (300) (502) (581)
Trade payables 503 564 669 682 CF from Fin. Activity (339) (625) (580) (609)
Total Provisions 86 104 115 115 Inc/(Dec) in Cash 144 (147) 17 72
Net Current Assets 777 893 967 1149 Add: Opening Balance 105 224 77 310
Total Assets 2965 3125 3433 3668 Closing Balance 224 77 91 382

Narnolia Securities Ltd 11

Please refer to the Disclaimers at the end of this Report
 BUY
INFOSYS LTD. 1st Mar 2017
No structural worry on top accounts, Management reiterated margin
Company Update guidance of 24-25% for FY17 vs. 24.7% in 9MFY17.
CMP 1025 Revenues from top-10 clients declined by 9.1% QoQ (USD terms) because
of RBS project ramp-down, furloughs in top clients. Management has
Target Price 1210 clarified that it is gaining share in these top accounts and there is nothing to
Previous Target Price 1285 worry upon. Optimizing the onsite pyramid and automation will be a margin
Upside 25% levers. AI adoption driving revenue growth for businesses. AI adopters
Change from Previous - expect 39% revenue rise by 2020. The management shared that it would
both partner with third-party automation providers and also build automation
technology in-house.
Market Data On the concern of H1B Visa issue, management said that it would hire more
BSE Code 500209 locals, and leverage automation and digital collaboration technologies to get
NSE Symbol INFY around this problem. Management remain positive on BFSI segment which
52wk Range H/L contributed 33% of revenues in 3QFY17. A 25bps rate hike by the Fed in
1278/900
mid-December and Trumps promise of easing regulatory pressures on
Mkt Capital (Rs Cr) 235,437 banks give confidence to the management that IT spending of the US banks
Av. Volume(,000) 4644 will surge.
Nifty 8,946
Recent days, INFY caught an eye of Media, once the issues like (a)
appointment of Dr. Punita Sinha, (b) compensation revision for the CEO (c)
Stock Performance
severance pay for the ex-CFO Rajiv Bansal & ex-general counsel, David
1M 3M 12M Kennedy raised by the founder & shareholders. Management proactively
Absolute 8.9 0.2 -6.6 held an investor call on Feb 16 and given a clarification on above issues
Rel.to Nifty 5.2 -8.3 -33.7 which was a welcome step from the management of the company.

Also, according to media reports, INFY is likely to seek shareholders

Share Holding Pattern-% approval to make amendments to its Articles of Association (AOA) to
2QFY17 1QFY17 4QFY16 include provision on buyback amounting to USD2.5bn.
Promoters 12.8 12.8 12.8
Public 86.8 86.8 86.8
Outlook & Valuation
Others 0.49 0.49 0.49
Total 100.0 100.0 100.0 The Companys' strategy of renewing their existing core buss through a
combination of automation and innovation has been making a huge
progress. Execution has reflected well in several metrics, including volume
Company Vs NIFTY growth, deal wins and pick-up in new initiatives. There are some hiccups on
account of rift with founders and H1B regime which could have negative
impact on the company. But we believe that the company is investing in all
the right areas to regain and sustain its growth leadership, compounded by
industry-leading margins. The company presently is trading at 3.3 times
FY17 price to book. With this we remain positive on the stock and maintain
our 'BUY' rating with the unchanged target price of 1210.

Rs,Cr
Financials 2013 2014 2015 2016 2017E
Sales 40352 50133 53319 62441 66812
Net Profit 9429 10656 12372 13678 14362
ROE 24.8% 23.9% 24.4% 23.7% 21.5%
P/B 4.4 4.2 5.0 4.8 3.3
BINEETA KUMARI Div Yield 1.5% 1.9% 2.0% 2.0% 2.5%
bineeta.kumari@narnolia.com
Narnolia Securities Ltd 12
Please refer to the Disclaimers at the end of this Report
INFY

Investment Arguments

The Management has lowered its revenue growth guidance for FY2017. The company has issued 8.4%-8.8% CC growth v/s
8%-9% QoQ CC growth guidance earlier. This implies 4QFY2017, CC revenue growth of 0.3-1.8% QoQ. In 2QFY2017, the guidance was
reduced to factor the impact of ramp-down in RBS, softness/uncertainty in some other clients, and slower growth than anticipated in
some service lines.

The company expects to lead industry growth and reach a milestone of achieving sales of US$20bn by FY2020. The Management
believes the traditional IT services model is dying and a structural change is taking place in the industry. Pricing pressure is being
witnessed in commoditized services, thus necessitating the company to pursue newer growth avenues, including acquisitions in areas
like automation. The outsourcing services provider is therefore looking to
ramp up its productivity through automation and is looking for acquisitions to boost growth.

As part of its Vision 2020 (target to have US$20bn revenues at 30% operating margins and US$80,000 per employee revenue
productivity by CY2020), the Management expects acceleration in revenue growth and margin improvement to reflect ahead of the
increase in revenue productivity.

The company plans to utilize cash properly through increased dividends and acquisitions, so that it can increase its capital
efficiency.

Attrition Rate dropped 18.4% from 20% sequentially

The continued efforts of

Management to improve
employee engagement and
experience resulted in a
reduction in attrition.

Client Contribution to Revenues

The decline in Top Client was

due to due to RBS deal
cancellation and seasonal
weakness.

Narnolia Securities Ltd 13

Please refer to the Disclaimers at the end of this Report

INFY

Financials Snap Shot

INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue 40352 50133 53319 62441 EPS 164 186 108 60
Other Income 2365 2664 3430 3128 Book Value 662 775 442 252
Total Revenue 42717 52797 56749 65569 DPS 54 55 43 40
COGS Payout (incl. Div. Tax.) 33% 30% 40% 66%
GPM Valuation(x)
Other Expenses 1557 2119 2478 2497 P/E 4 4 10 20
EBITDA 11533 13381 14871 17120 Price / Book Value 1.1 1.1 2.5 4.8
EBITDA Margin (%) 29% 27% 28% 27% Dividend Yield (%)
Depreciation 1099 1317 1017 1266 Profitability Ratios
EBIT 10434 12064 13854 15854 RoE 25% 24% 24% 24%
Interest 0 0 0 0 RoCE 27% 27% 27% 27%
PBT 12799 14728 17284 18982 Turnover Ratios
Tax 3370 4072 4911 5301 Asset Turnover (x) 0.9 0.9 0.8 0.8
Tax Rate (%) 26% 28% 28% 28% Debtors (No. of Days) 64 61 66 66
Reported PAT 9429 10656 12372 13678 Inventory (No. of Days)
Dividend Paid 3122 3144 4935 9062 Creditors (No. of Days) 2 1 1 2
No. of Shares 57 57 115 229 Net Debt/Equity (x) 0.0 0.0 0.0 0.0

BALANCE SHEET CASH FLOW STATEMENT

FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 286 286 572 1144 OP/(Loss) before Tax 12799 14728 17283 18979
Reserves 37708 44244 50164 56682 Depreciation 1099 1317 1017 1266
Net Worth 37994 44530 50736 57826 Direct Taxes Paid -3293 -3874 -6751 -5865
Long term Debt 0 405 50 0 O.profit befo. WC changes -951 -556 -1337 -1105
Short term Debt 0 0 0 0 CF from Op. Activity 7373 9825 8353 9863
Deferred Tax 56 0 0 0 Capital expenditure -2095 -2748 -2255 -2723
Capital Employed 37994 44935 50786 57826 CF from Inv. Activity -3020 -2577 1088 -686
Net Fixed Assets 8279 9339 12122 14140 Repayment of LT Borrow. -89 0 0 0
Capital WIP 1140 961 776 960 Interest Paid
Debtors 7083 8351 9713 11330 Divd Paid (incl Tax) -438 0 0 0
Cash & Bank Balances 21832 25950 30367 32697 CF from Fin. Activity -3210 -3144 -4935 -6813
Trade payables 189 173 140 386 Inc/(Dec) in Cash 1241 4118 4417 2330
Total Provisions 4151 6814 8493 9328 Add: Opening Balance 20591 21832 25950 30367
Net Current Assets 27244 31047 31739 34564 Closing Balance 21832 25950 30367 32697
Total Assets 46331 56966 66289 75141

Narnolia Securities Ltd 14

Please refer to the Disclaimers at the end of this Report

 BUY
Larsen & Toubro Ltd. 1-Mar-17

Result Update L&T reported its Q3FY17 result in line with our estimates. Consolidated
CMP 1470 revenue grew by 1.4% YoY to Rs. 26287 Cr as compared to Rs. 25928 Cr in
Target Price 1780 same period previous year on the back of strong growth of 13% in
Previous Target Price hydrocarbon vertical. Standalone business remained flat YoY to Rs. 15946
Cr as against Rs. 15868 Cr in previous year. However EBITDA margin on
Upside 21%
consolidated basis has improved by 140 bps YoY to 9.6% as against 8.5%
Change from Previous
on account of margin improvement in Heavy Engineering and Hydrocarbon
business. Consolidated Order Inflow during the quarter was Rs. 34900 Cr,
Market Data down by 9% YoY. Unannounced Orders were Rs. 22300 Cr. Mgt. has cut
BSE Code 500510 down the order intake guidance for FY17 to 10% plus from 15%. Reduced
NSE Symbol LT order intake guidance due to deferment in finalization of orders.
52wk Range H/L 1615/1055
Mkt Capital (Rs Cr) 120,708
Av. Volume 92026 Muted Revenue growth, Strong Operating Margin:-
Nifty 8880 Revenue growth remained muted due to demonization, however the
operating margin has improved by 140 bps on a back of improved
Stock Performance performance of Heavy Engineering, Hydrocarbon business and Infra
1Month 3 Month 1Year business. Heavy Engineering has reported EBITDA margin of 20.3% as
compared to 1.6% a year back led by operational efficiency. Close out of
Absolute 1.4 7.3 32.4
legacy orders, Operational efficiency and improved project execution have
Rel.to Nifty -1.8 -2.1 6.1
helped to post better numbers in Hydrocarbon business. Infra business
margin improved by 110 bps to 8.3% on account of the execution of better
Share Holding Pattern-% margin projects. Close down of legacy projects, margin improvement scope in
3QFY17 2QFY17 1QFY17 Heavy civil engineering & T&D business and execution of better margin
Promoters 0% 0% 0% projects in infra business will help to post strong operating margin going
Public 100% 100% 100% forward. Management has maintained 50 bps of margin improvement
Others guidance in FY17.
Total 100% 100% 100%
Healthy Order:-

Company Vs NIFTY Order book at the end of the Q3FY17 stands at Rs. 258600 Cr which
140
provides two and half year revenue visibility. However, management has cut
LT NIFTY
down order intake guidance for FY17 to 10%plus from 15% earlier.
130 Management has lower down guidance due to deferment in finalization of
120 some of the projects. We continue to expect healthy order inflow in next year.
Despite muted revenue growth in Q3FY17, management is confident to
110
achieve 10%revenue growth in FY17. It can achieve higher than that if the
100 company gets some clearance in infra business. The situation in terms of
obtaining approval has shown some sign of improvement.
90
Financials Q3FY17 Q2FY17 Q3FY16 YoY % QoQ %
80 Sales 26287 25022 25928 1% 5%
Jul-16
Feb-16

Sep-16

Feb-17
Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16
Mar-16

EBITDA 2523 2297 2126 19% 10%

Net Profit 812 1513 768 6% -46%
Sandip Jabuani EBIDTA% 9.6% 9.2% 8.2% 140 bps 40 bps
sandip.jabuani@narnolia.com PAT 3.7% 5.7% 2.7% 100 bps (200 bps)
Narnolia Securities Ltd 15
Please refer to the Disclaimers at the end of this Report
 Result Highlights of Q3FY17
Consolidate Revenue grew by 1.4% to Rs. 26287 Cr as compared to Rs. 25928 Cr in same period previous year.
L&T reported 18.7% growth in EBITDA to Rs. 2523 Cr as against Rs. 2126 Cr in Q3FY16 on back of 140 bps improvement in
margin
PAT during the quarter grew by 38.8% to Rs. 812 Cr as compared to 768 Cr in same period previous year on account of higher
EBITDA and lower tax rate.
Order intake during the quarter was Rs.34900 Cr, out of which Rs.23732 Cr from domestic market and rest from international
business.

Managment / Concall Update

Management lower down sales guidance to 10% from 12-15%. It can do better if it gets some project related clearance.
Order guidance cut down to 10% plus from 15%
Maintained 50n bps margin improvement in FY17
Real estate: Shifting of factories has helped LT to commercially monetize the land bank (Chennai, Bangalore and Mumbai). Lower
interest rate would lead to revival in demand of residential realty.
Toll Collection suspended for the 23 days and lost 100 Cr of toll, will get compensation for the same
Rs. 800 Cr of loss due to demonization at PBT level
Canadian pension fund has subscribed preference share of Rs.2000 Cr and convert based on their option.
Management expects Power business to pick up after two years once manufacturing gets better.
Heavy Eng.:- Better margins in process and defense business
Margin improved in Hydrocarbon as the legacy projects completed.
Mumbai Metro Phase 3 order is stuck due to PIL against MMRDA.
110 bps margin improved in Heavy civil engineering and T&D on account of operation efficiency.
Power :- Lower order book led to lower execution, will tough to get new orders.
Mgt. expects to pick up in Power business after two years once manufacturing picks up
Company look to monetize Nabha Power plant
Seen political and other issues at Hyderabad metro project. 70% of the project is completed and schedule completion is
June 17 but it will extend.
Hydrocarbon:- International business driving the growth and margin improved on close of legacy projects.
Expect to close Kattupali port sale transaction by Q4FY17. L&T has sold Kattuppali port to Adani ports.
Demand in hydrocarbon business is weak due to lower oil price

Outlook and Valuation:-

L&T is the largest Engineering and Construction Company in India. It has presence in Construction, Hydrocarbon Eng., Power,
Heavy Eng., Shipbuilding- defense and Merchant, IT, Finance, Realty and Metro. Revenue growth in Q3FY17 was muted but strong
operating performance supported the bottom-line. Despite muted revenue growth in Q3FY17, management is confident to achieve
10% revenue growth in FY17 coupled with improvement in operating margins based on the operational efficiency. The company
has closed out some legacy projects in hydrocarbon business, which will help to post better margins going ahead. We expects to 33
bps improvement RoE in FY17. Hence, we recommend to BUY with a target price of Rs.1780.

Narnolia Securities Ltd 16

Please refer to the Disclaimers at the end of this Report

Segment Revenue 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Infrastructure 9,841 11,798 15,685 8,504 11,178 12,122 18,655 9,288 11,596 12,735 5% 10%
Power 1,166 1,141 1,448 1,079 1,340 2,116 2,185 1,723 1,745 1,633 -23% -6%
Metallurgical and Material Handling
802 734 953 - - - 924 - - -
Heavy Engineering 860 855 1,021 644 622 929 1,072 734 808 870 -6% 8%
Electrical & Automation 1,301 1,359 1,745 1,114 1,318 1,351 1,599 1,081 1,252 1,356 0% 8%
Hydrocarbon 1,832 1,779 2,235 2,155 1,896 2,118 2,487 2,146 2,501 2,402 13% -4%
IT & Technology Services 1,877 1,989 2,042 2,063 2,270 2,306 2,363 2,375 2,462 2,502 9% 2%
Financial Services 1,606 1,636 1,676 1,782 1,891 1,899 1,996 2,091 2,140 2,108 11% -1%
Developmental Projects 988 1,140 878 1,138 1,146 1,491 1,300 1,383 1,073 906 -39% -16%
Others 1,554 2,077 1,635 2,122 2,386 2,307 2,028 1,818 2,181 2,434 6% 12%
Less:Inter Segment Revenue 494 477 1,045 553 924 711 1,211 764 747 659 -7% -12%
Total 21,331 24,033 28,275 20,048 23,123 25,928 33,399 21,874 25,010 26,287 1% 5%

Order Book (Rs. crore) :-

Domestic International
200000
180000
160000
140000
120000

75600

75300
73000
70000
69255
68348
62500

100000
58175
57888

56450

80000
60000
156512

169350

174525

176500

175752

187245

180000

181900

178800

183300
40000
20000
0
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Order Inflow (Rs. crore):-

Domestic International
35700
33034

40000
29512
28372

35000
26180

23732
30000
20526
18590
18300

25000
16500
13888

13200

20000
12320
11900

11168
10574
10010

15000
8100
6766

6228

10000
5000
0
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Narnolia Securities Ltd 17

Please refer to the Disclaimers at the end of this Report

 Financials Snap Shot
INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue 74498 85128 92005 102632 EPS 84.6 52.9 51.3 75.6
Other Income 1096 982 1007 1183 Book Value 550.2 406.9 440.1 473.3
Total Revenue 75594 86110 93012 103815 DPS 19.3 14.4 16.7 19.0
EBITDA 9859 10730 11336 14278 Payout (incl. Div. Tax.) 23% 27% 33% 25%
EBITDA Margin (%) 13% 13% 12% 14% Valuation(x)
Depreciation 1637 1446 2623 2756 P/E 10.8 24.1 33.5 20.6
EBIT 8222 9284 8713 11522 Price / Book Value 1.7 3.1 3.9 3.3
Interest 2095 3138 2851 3041 Dividend Yield (%) 2.12% 1.13% 0.97% 1.22%
PBT 7638 7483 7217 10022 Profitability Ratios
Tax 2386 2608 2253 2548 RoE 15% 13% 12% 16%
Tax Rate (%) 31% 35% 31% 25% RoCE 9% 9% 7% 9%
Reported PAT 5206 4902 4765 7026 Turnover Ratios
Dividend Paid 1188 1337 1550 1767 Asset Turnover (x) 0.5 0.5 0.5 0.5
No. of Shares 62 93 93 93 Debtors (No. of Days) 113 113 119 128
Inventory (No. of Days) 70 69 76 55
Creditors (No. of Days) 92 89 99 105
Net Debt/Equity (x) 1.40 1.47 1.60 1.68

BALANCE SHEET CASH FLOW

FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 123 185 186 186 OP/(Loss) before Tax 7223 7128 6870 7729
Reserves 33737 37526 40723 43805 Depreciation 1637 1446 2623 2756
Net Worth 33860 37712 40909 43992 Direct Taxes Paid 2532 2947 2979 3318
Long term Debt 47400 55445 65278 73754 Op. Profit before WC change10256 11184 10194 12487
Short term Debt 7288 13859 16989 17008 CF from Op. Activity (3760) (7143) (669) (3229)
Deferred Tax 378 618 540 411 Non Current investments 273 674 830 526
Total Capital Employed 81260 93157 106187 117745 Capex 7832 6967 6929 5264
Net Fixed Assets 39620 44440 48047 58600 CF from Inv. Activity (6912) (5510) (5463) (4132)
Capital WIP 4017 4165 5420 6486 Repayment of LTB 6829 10964 20836 21446
Debtors 23015 26385 30089 35990 Interest Paid 2825 3905 3926 3678
Cash & Bank Balances 3572 4097 5756 5902 Divd Paid (incl Tax) 1201 1418 1603 1878
Trade payables 18812 20850 24859 29391 CF from Fin. Activity 10781 13136 7891 7488
Total Provisions 2883 3301 4098 4478 Inc/(Dec) in Cash 109 483 1759 128
Net Current Assets 29106 31263 34272 33108 Add: Opening Balance 3522 3604 4087 5846
Total Assets 143105 169162 194184 227525 Closing Balance 3631 4087 5846 5973

Narnolia Securities Ltd 18

Please refer to the Disclaimers at the end of this Report

 HOLD
HDFC BANK 28-Feb-17

Result Update Recent Development and Result Update.

CMP 1393 Recently RBIs decision on withdrawal of FPI exposure limit on HDFCBANK
Target Price 1460 has led significant rally in the stock; however heavy buying by FPI, forced
RBI to restore the cap as exposure crossed the prescribed limit of 74%.
Previous Target Price 1400
Following this Sebi and RBI are looking at tightening trigger points for foreign
Upside 5% portfolio investment limit breach for entire banking sector. However we see
Change from Previous 4% this as a one-off event. The fundamentals of HDFCBANK remains intact and
has performed significantly better than its peers in the industry.
Market Data
HDFCBANK reported a stable performance. PAT grew by 15% YoY backed
BSE Code 500180 by similar growth in its operating profit. Operating profit growth was supported
NSE Symbol by stringent control over cost to income ratio and healthy NII growth. C/I ratio
HDFCBANK
52wk Range H/L was flat YoY to 42%.Total operating expenses grew by 15% YoY. Other
1450/928
income grew by 9% YoY. Provisions for loans grew by 9.5% YoY and it
Mkt Capital (Rs Cr) 356836 declined by 4.4% QoQ. Net Interest Margin declined by 20 bps YoY to 4.1%.
Av. Volume (,000) 641 NII grew by 18% YoY, mainly due to moderation in advances growth
Nifty 8897 reflecting the impact of repayment of loans linked to FCNR deposits. Total
net advances grew by 13% YoY. Deposit of the bank grew by healthy rate of
Stock Performance 21% despite of redemption of FCNR Deposits. CASA ratio spiked to 45%
1Month 3 Month 1Year
mainly due demonetization event. Sequentially assets quality was stable with
GNPA at 1.05% against 1.02%. NNPA was at 0.32% against 0.30% a quarter
Absolute 8.5 43.7 16.4 back.
Rel.to Nifty 5.4 18.6 7.6

Share Holding Pattern-% Domestic Advances growth was backed by Retail Growth.
3QFY17 2QFY17 1QFY17 Advances growth in this quarter moderated to 13% YoY mainly due to
Promoters 26.1 26.4 26.3 repayment in overseas loan linked to FCNR Deposits. The domestic loan
portfolio of bank grew by 17.5% YoY while it saw contraction of 41% YoY in
Public 73.9 73.6 73.7
overseas loan. Now the domestic loan book constitutes 96% of the
Others 0.0 0.0 0.0
advances. Healthy retail loan growth continued in personal loan, credit card,
Total 100.0 100.0 100.0 home and LAS which YoY grew by 32%, 20%, 25% and 36% respectively.
On the vehicle segment auto, commercial vehicle and two-wheeler grew by
Company Vs NIFTY 16% each YoY. On sequential basis some of the loan product got impacted
due to demonetization. Business banking book contracted by 3% QoQ
150 HDFCBANK NIFTY largely due to huge repayment in demonetization period.
140

130

120 CASA Deposits Spiked

110
Overall deposits registered a healthy growth of 21% YoY mainly due to
100 demonetization drive. However this strong growth was despite of FCNR
90 redemption of nearly Rs 20000 Cr (US $3 Bn). CASA deposit grew by 37%
80 YoY backed by 38% and 37% growth in both SA and CA respectively. CASA
ratio spiked to 45% against 40% a quarter back. However we expect the
most of the CASA deposits to outflow from the bank after the increase in
withdrawal limit by RBI and hence expect the CASA at 42% level to sustain.
DEEPAK KUMAR
Deepak.kumar@narnolia.com
Narnolia Securities Ltd 19
Please refer to the Disclaimers at the end of this Report
 HDFCBANK

Stable Assets Quality

Assets quality was broadly stable on sequential basis with GNPA at 1.05% against 1.02% and NNPA at 0.32%
against 0.30%. Provision coverage ratio was 70% against 71% QoQ. Assets quality of HDFCBANK remains one of
the best in the industry. Going forward we are less concerned about the assets quality given its portfolio mix towards
secured retail loans and better rated corporate loan. We expect the credit cost of 65 bps going forward.

NIM Impacted by Demonetization

NIM declined by 20 bps YoY and 10 bps QoQ to 4.10% reflecting the impact of demonetization. NIM got impacted
mostly due to lower loan growth as well as negative carry of interest for fortnight on excess liquidity imposed by RBI.
Going forward CASA will have major impact on NIM. However management believes the NIM to range between 4%-
4.3%.

Fee Income Moderated

Other income growth moderated to 9% YoY. Fee income registered the 10% growth YoY. The fee income was mainly
impacted by the waive-off of card fee during the demonetization period. Management highlighted that the third party
distribution fee growth was also muted largely impacted by muted insurance income. However management hopes to
recover the same in further quarter. FX & Derivatives income grew by 7% YoY. Treasury gain grew by 22% YoY.

Quarterly Performance (Rs in Crore)

Financials 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY % QoQ%
Interest Inc. 12396 13006 14041 14773 15411 15997 16516 17070 17606 14% 3%
Interest Exp. 6696 6993 7652 8092 8343 8543 8735 9076 9297 11% 2%
NII 5700 6013 6389 6681 7069 7453 7781 7994 8309 18% 4%
Other Income 2535 2564 2462 2552 2872 2866 2807 2901 3143 9% 8%
Total Income 8235 8577 8851 9233 9941 10319 10588 10895 11452 15% 5%
Ope Exp. 3456 3855 4001 4190 4205 4584 4769 4870 4843 15% -1%
PPP 4779 4722 4850 5043 5736 5735 5819 6025 6609 15% 10%
Provisions 560 577 728 681 654 662 867 749 716 9% -4%
PBT 4218 4145 4122 4362 5082 5072 4952 5276 5893 16% 12%
Tax 1424 1338 1426 1492 1725 1698 1714 1820 2028 18% 11%
Net Profit 2795 2807 2696 2869 3357 3374 3239 3455 3865 15% 12%

Profitability Metrix 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY(bps) QoQ(bps)
Yield On Earning Assets % 10.5 10.5 10.6 10.4 10.1 9.9 9.8 9.7 9.6 -0.58 -0.11
Cost of Deposits % 5.9 5.9 6.0 6.0 5.8 5.6 5.5 5.4 5.3 -0.46 -0.10
NIM % 4.4 4.4 4.3 4.2 4.3 4.3 4.4 4.2 4.1 -0.20 -0.10
Other Income as a % of 30.8 29.9 27.8 27.6 28.9 27.8 26.5 26.6 27.4 -1.45 0.82
Total
C/I Net%Income
Ratio 42.0 44.9 45.2 45.4 42.3 44.4 45.0 44.7 42.3 -0.01 -2.42
Provision/PPP % 11.7 12.2 15.0 13.5 11.4 11.6 14.9 12.4 10.8 -0.57 -1.60
Tax % 33.8 32.3 34.6 34.2 33.9 33.5 34.6 34.5 34.4 0.47 -0.09
PAT/Total Net Income % 33.9 32.7 30.5 31.1 33.8 32.7 30.6 31.7 33.8 -0.02 2.04
NII Growth % (YoY) 23.0 21.4 23.5 21.2 24.0 24.0 21.8 19.6 17.6 -6.46 -2.10
Opex Growth % (YoY) 19.4 21.4 25.9 19.8 21.7 18.9 19.2 16.2 15.2 -6.49 -1.07
PPP Growth % (YoY) 22.9 24.9 26.2 24.2 20.0 21.5 20.0 19.5 15.2 -4.81 -4.24
PAT Growth % (YoY) 20.2 20.6 20.7 20.5 20.1 20.2 20.2 20.4 15.1 -4.97 -5.27

Narnolia Securities Ltd 20

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

Yield On Earning Assets % Cost of Deposits % NIM % PAT Growth % (YoY) NII Growth % (YoY)
C/I Ratio %
12.0
30.0 47.0
10.0
25.0 46.0
8.0 45.0
20.0 44.0
6.0
15.0 43.0
4.0 42.0
10.0
41.0
2.0 5.0 40.0
- - 39.0

Other income Break Up (Rs in Crore)

3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Fees & Commissions 1807 1835 1713 1869 2005 2172 1978 2104 2207 10% 5%
FX & Derivatives 253 329 348 320 277 283 315 295 297 7% 1%
Profit / (loss) on Invest. 266 196 126 162 328 116 277 284 399 22% 41%
Miscellaneous Income 210 204 275 201 262 295 237 219 240 -8% 10%
Including
Total Other Recoveries
Income 2535 2564 2462 2552 2872 2866 2807 2901 3143 9% 8%

Other Income/Total Net Income % Fee Income/ Advances %

31.0 0.60

30.0 0.50
29.0 0.40
28.0
0.30
27.0
0.20
26.0
25.0 0.10

24.0 -

Outlook & Valuation:

We continue to like HDFC Bank given its strong fundamentals, steady loan growth, adequate capital, best in assets quality, strong
branch network and intensive digitalization initiatives. While 3Q FY17 saw some uneven activities, we expect the operations of
banking to come to its normal situation. Despite intense competition, we expect margins of HDFCBANK to sustain in the range of
4%-4.3% backed by normal CASA level of 40% and healthy growth in retail assets. Earning momentum will be maintained with
core revenue of 19% plus growth going forward backed by healthy domestic loan growth with higher yield products. We expect
RoE of 19% going forward. Recent rally in the stock has led to achieve our previous target price of Rs 1400. However despite this
rally we dont think to exit the stock at current levels given its strong fundamentals and recommend must have in the portfolio. Also
HDFCBANK has performed much better than its peers in the industry. We maintain HOLD in this stock with the target price of
Rs 1460.

21
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report
 HDFCBANK

Concall Highlights:

>> Around Rs 13000 Cr (US $2 Bn) of overseas loan got repayment linked to FCNR Deposits.
>> Around Rs 20000 Cr (US $3 Bn) FCNR Deposits got redemption during the quarter.
>> Domestic loan book is now at 96% of the portfolio. While it grew by 17% YoY.
>> Due to demonetization bank witnessed higher repayment and prepayment in Overdraft and cash credit facility which
affected the loan growth. There was slightly muted disbursement on retail lending.
>> Decline in NIM was due to various factor including the impact of negative carry of interest on excess liquidity
imposed by RBI during the quarter to some extent. However management expect the NIM in the range of 4-4.3% going
forward.
>> Other expenses was lower as commission to dealer got impacted due to muted retail loan disbursement. There was
also reduction in staff number.
>> Fee income was impacted due to waive off of fee on card business. Also third party fee was muted mainly due to
lower insurance business fee.

Assets Quality Performance

3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY Ch. QoQ Ch.
GNPA (Rs) 3468 3438 3652 3828 4255 4393 4921 5069 5232 23% 3%
GNPA % 0.99 0.93 0.95 0.91 0.97 0.94 1.04 1.02 1.05 0.08 0.03
NNPA (Rs) 904 896 1028 1038 1261 1320 1493 1489 1564 24% 5%
NNPA % 0.26 0.25 0.27 0.25 0.29 0.28 0.32 0.30 0.32 0.03 0.02
Slippages (Rs) 1164 1720 1390 1300 1551 1700 1761 1440 1948* 26% 35%
Restructured Assets % 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.00 0.00
Specific PCR % 74 74 72 73 70 70 70 71 70 -0.27 -0.53
*3Q FY17 Slippage is Basel disclosure number and hence may not be comaparable.

GNPA % NNPA % Restructured Assets % Specific PCR %

1.20
74
1.00 73
0.80 72
0.60 71
0.40 70
69
0.20
68
- 67

Narnolia Securities Ltd 22

Please refer to the Disclaimers at the end of this Report

 HDFCBANK

Advances 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Net Advances (Rs in Cr) 347088 365495 382010 418541 436364 464594 470622 494418 495043
Advances Growth YoY % 16.97 20.63 22.40 27.89 25.72 27.11 23.20 18.13 13.45
>> Growth QoQ % 6.05 5.30 4.52 9.56 4.26 6.47 1.30 5.06 0.13

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

Advances Break Up % 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Auto 13.14 12.79 13.11 12.81 12.91 12.33 12.66 13.03 13.24
Personal Loans 7.20 7.12 7.61 7.75 8.13 8.12 8.72 9.11 9.46
Home Loans 5.76 6.60 7.04 6.81 6.52 6.86 7.14 6.79 7.16
Business Banking 14.05 13.65 13.34 13.74 13.66 13.15 12.84 13.31 12.84
Kisan Gold Card 3.95 4.45 4.42 4.67 4.61 4.94 4.76 5.03 4.83
Credit Cards 4.43 4.42 4.41 4.30 4.51 4.42 4.52 4.32 4.78
CV/CE 7.19 6.83 6.93 6.92 6.82 6.66 6.68 6.79 6.97
Others 2.78 3.02 2.81 2.88 3.06 3.15 3.22 3.29 3.27
Two Wheelers 1.37 1.38 1.38 1.38 1.40 1.37 1.41 1.44 1.44
Gold Loans 1.13 1.11 1.11 1.04 1.01 0.99 1.04 1.03 0.97
Loans against securities 0.35 0.37 0.35 0.36 0.38 0.41 0.40 0.42 0.45
Total Retail Advances 61.33 61.75 62.53 62.66 63.00 62.38 63.39 64.55 65.41
Corp. and Overseas Adva. 38.67 38.25 37.47 37.34 37.00 37.62 36.61 35.45 34.59

Deposits 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Deposits (Rs in Cr) 414128 450796 484175 506909 523997 546424 573755 591731 634705
>> Growth YoY % 18.59 22.72 30.13 29.75 26.53 21.21 18.50 16.73 21.13
>> Growth QoQ % 6.00 8.85 7.40 4.70 3.37 4.28 5.00 3.13 7.26
CA % 13.79 16.32 13.82 13.77 14.13 16.18 13.26 13.38 15.95
SA % 27.11 27.71 25.81 25.95 25.85 27.06 26.61 27.03 29.40
CASA % 40.90 44.03 39.63 39.72 39.98 43.25 39.87 40.41 45.36
>>CASA Growth YoY % 11.00 20.58 19.92 19.41 23.67 19.05 19.24 18.76 37.43
>> Growth QoQ % 0.46 17.18 -3.34 4.94 4.04 12.81 -3.19 4.51 20.40
Credit Deposit Ratio% 83.81 81.08 78.90 82.57 83.28 85.02 82.03 83.55 78.00

CA % (of Deposits ) SA % (of Deposits)

Retail Adv. % Corp. and Overseas Adv. % Adv. Growth YoY %
CASA % >>CASA Growth YoY %
70.0 30.0
50 40.0
60.0 25.0 45 35.0
50.0 40
20.0 30.0
35
40.0 30 25.0
15.0 25 20.0
30.0
10.0 20 15.0
20.0 15
10.0
10.0 5.0 10
5 5.0
- - - -

Narnolia Securities Ltd 23

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

Financials Snap Shot

INCOME STATEMENT (Rs in Crore) RATIOS
FY13 FY14 FY15 FY16 Business Ratios FY13 FY14 FY15 FY16
Int./disc. on advances / bills 26,822 31,687 37,181 44,828 Credit-Deposit(%) 80.9 82.5 81.1 85.0
Income on Investments 7,820 9,037 10,706 14,120 CASA % 47.0 45.0 44.0 43.0
Int. on bal.with RBI 282 356 517 362 Efficiency Ratios
Others 141 56 66 912 Emp. Cost as a % of Total Inco. (%)17.5 15.8 15.1 14.9
Total Interest Income 35,065 41,136 48,470 60,221 Other Exp./Total Inco. (%) 32.1 29.8 29.4 29.4
Total Interest expended 19,254 22,653 26,074 32,630 Cost Income Ratio (%) 49.6 45.6 44.6 44.3
Net Interest Income 15,811 18,483 22,396 27,592 Spread Analysis As Calculated
Other Income 6,853 7,920 8,996 10,752 Yield on Advances (%) 12.3 12.2 11.8 11.5
Total Income 22,664 26,402 31,392 38,343 Yield on Investments (%) 8.5 8.6 8.7 8.9
Total Operating Expenses 11,236 12,042 13,988 16,980 Yield on Earning Assets (%) 10.5 10.4 10.4 10.3
Pre Provisioning Profit 11,428 14,360 17,404 21,364 Cost of Deposits (%) 6.0 5.7 5.7 5.9
Provisions and Contingencies 1,677 1,588 2,076 2,726 Cost of Fund (%) 6.4 6.0 5.8 5.9
Profit Before Tax 9,751 12,772 15,329 18,638 Interest Spread (%) 4.1 4.5 4.6 4.4
Tax 3,024 4,294 5,113 6,342 NIM (%) 4.6 4.4 4.4 4.3
PAT 6,726 8,478 10,216 12,296 Profitability Ratio
RoE % 20.3 21.3 19.4 18.3
RoA % 1.8 1.9 1.9 1.9
BALANCE SHEET (Rs in Crore) Int. Expended / Int. Earned (%) 54.9 55.1 53.8 54.2
FY13 FY14 FY15 FY16 Provisions/PPP (%) 14.7 11.1 11.9 12.8
Capital 476 480 501 506 Other Income/Net Income (%) 30.2 30.0 28.7 28.0
Reserves & Surplus 35738 42999 61508 72172 Tax Rate (%) 31.0 33.6 33.4 34.0
Deposits 296247 367337 450796 546424 Asset Quality Ratio
Borrowings 33007 39439 45214 53018 GNPA (%) 1.01 0.98 0.93 0.94
Other Liabilities & Provisions 34864 41344 32484 36725 GNPA(Rs) 3018 2989 3438 4393
Total Capital & Liabilities 400332 491600 590503 708846 NNPA (%) 0.30 0.30 0.25 0.28
NNPA (Rs) 797 820 896 1320
Cash & Balances with RBI 14627 25346 27510 30058 PCR (%) 74 73 74 70.0
Bal. with Bank&Money at Call 12653 14238 8821 8861 Os. Std. Restr. Assets (%) 0.20 0.20 0.10 0.10
Investments 111614 120951 166460 163886
Advances 239721 303000 365495 464594 Capital Adequacy Ratio
Fixed Assets 2703 2940 3122 3343 Capital Adequacy Ratio (%) 16.8 16.1 16.8 15.5
Other Assets 19014 25125 19095 38104 Tier I Capital (%) 11.1 11.8 13.7 13.2
Total Assets 400332 491600 590503 708846 Tier II Capital (%) 5.7 4.3 3.1 2.3

Narnolia Securities Ltd 24

Please refer to the Disclaimers at the end of this Report
 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

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