City Union Bank Ltd. (CUB) -Q3FY14 Result Update -Sushil Research

City Union Bank Ltd. (CUB) has reported decent set of numbers for the quarter ended
December’13 with higher focus on asset quality. We attended the conference call of the
company and following are the key highlights of the results.
Key Highlights of Q3FY14 results
• NII grew by 21% YoY & 4% QoQ on back of modest advances growth & improvement
in NIM's which improved by 10 bps to 3.6% (QoQ 3.5%). Core Fee Income grew by 4%
YoY to Rs.453 mn. Ongoing branch expansion coupled with one-time ex-gratia
payments to employees (~Rs.100-120 mn in Q3) led to sharp rise in operating
expenses (higher 30% YoY & 15% QoQ) which led to lower PAT growth of ~5% YoY. C/I
increased to 48% v/s 44% in Q2 on back of moderate advances growth & higher
operating expenses, however management expects C/I to improve going ahead.
• Advances & Deposits grew by 9% & 11% YoY while both were flat sequentially.
Moderate advances growth was on account of conscious management decision to
focus on profitable growth instead of aggressive credit growth. CASA improved
marginally to 17.5% v/s 16.8% QoQ. Bulk Deposit remains at ~5-6% of the total
deposits.
• Asset quality remained stable with GNPA & NNPA at 1.7% (Q2 1.66%) & 0.89% (Q2
0.83%) resp. Slippages came in lower at 0.57% (Rs.907 mn) v/s 0.96% QoQ
(Rs.1500 mn) which includes one major account of ~Rs.400 mn from Steel segment.
CUB has been focusing more on recovery with recovery rate of ~75-80%. It was
successful in recovering ~Rs.400-450 mn from an account which slipped into NPA last
quarter while remaining amount expected to be recovered by March'14 (~Rs.600-800
mn). Restructured book as % of advances stood at 1.9% v/s 1.4% in Q2 while PCR
stood at 70%.
• Management Guidance: 1) Advances to grow at ~12-14% in FY14 with more focus on
profitability 2) NIM's to remain stable at ~3.5-3.6% over the next 2-3 quarters 3) C/I
likely to be ~45% over the long run 4) Branch expansion to continue with ~100
branches to be added by FY15E taking the total to ~500 branches 5) Asset quality
likely to remain stable with no restructured pipeline 6) Tax Rate likely to be ~20-21%
in FY14E.
OUTLOOK & VALUATION
Despite of the gloom economic scenario, CUB has reported decent set of numbers in
Q3FY14 with major focus on profitable growth rather than aggressive credit growth.
Moderate advances growth, lower core-fee income along with higher operating expenses
did impact the profitability marginally in the current quarter. However with gradual
economic recovery, we expect advances growth to be back on track going ahead. In our
view, management stance of focusing on quality growth & maintaining healthy margins is
likely to auger well for the bank in better times. Hence, considering the strong
fundamentals & growth prospects over the long run, we maintain ‘BUY’ on the stock with
a price target of Rs.58.

Aegis Logistics Ltd.:: report by Sushil Research,

Aegis Logistics has come out with decent set of numbers for Q4FY13. We attended the
concall and some of the key takeaways are:-
For Q4FY13, as guided by the management its consolidated revenues de-grew by 51.4%
YoY and 14.3% QoQ to Rs.7450.9 Mn. Its volumes in the B2B gas segment have come down
drastically impacting the revenue. For FY13 the revenue is down by 10.8% YoY to
Rs.39816.4 Mn in line with our estimates.
Its Liquid Division has seen a growth of 22.6% YoY in Q4FY13 to Rs.292.9Mn with Liquid
PBT at Rs.133.2 Mn and PBT margin of 45.5% up 260 bps. Its Liquid revenue for FY13 is up
by 17% YoY due to higher volumes from debottlenecking at Mumbai and higher capacity
utilization at Kochi.
Its Gas revenue for Q4FY13 is down by 52.5% YoY to Rs.7158.0 Mn due to lower volumes
from the B2B segment. The company’s wholesale business contributes more than 80% of
its gas revenue, thus as the volumes from this segment have fallen drastically due to lower
offtake from oil PSU’s the revenue is impacted. Its B2B volumes have fallen from 620,000
MT in FY12 to 417,000 MT in FY13. However the higher margin distribution business
volumes have increased by 35.9% YoY to 53,000 tonnes thus reducing the impact at
EBITDA level. For FY13 its gas revenue is down by 11% YoY to Rs.38741.3 Mn but
normalized EBITDA is up by 11.8% to Rs.951 Mn.
Its EBITDA has come in green in Q4FY13 at Rs.82.7 Mn after losses in the preceding three
quarters as the company has decisively closed all the outstanding options contract.
Normalized EBITDA for the full year stood at Rs.1560 Mn vs Rs.1390 Mn up by 12% YoY
despite of 10.8% fall in revenue due to higher contribution from Liquid and Gas – B2C
segment.
It’s RPAT for FY13 stood at Rs.336 Mn up by 71% YoY due to higher other income with Net
Profit Margin at 0.8% up by 40 bps. EPS for FY13 stood at Rs.10.
The company has declared a dividend of Rs.4 for FY13, 40% dividend payout.
EXPANSION
Liquid Division - The Company has commissioned phase 1 of Haldia of 15,000 KL which is
already running at 100% capacity utilization. The remaining 45,000 KL is likely to be
commissioned by end of Q2FY14 at a total capex of Rs.480 Mn. It has also commenced
work at Pipavav for a 120,000 KL facility with a total capex of Rs.1010 Mn. This project is
likely to get commissioned by FY15. Post this expansion the company’s liquid division’s
capacity is likely to increase to 504,000 KL from the current 339,000 KL.
Gas Division – The Company is also increasing its gas division’s capacity by 10% to 25,400
MT which translates into a handling capacity of 850,000 MT from current 750,000 MT at a
capex of Rs.220 Mn. It is also widening its reach in the B2C segment with number of
operational autogas stations at 94 from 80 in FY12. It also plans to add another 41 autogas
stations by the end of FY15E.
OUTLOOK & VALUATION
We strongly believe that Aegis Logistics, India’s leading oil, gas, and chemical logistics company,
is likely to be in a sweet spot from FY14E due to spurt in volume from the high margin business
– Liquid division post expansion and Retail Autogas and Commercial cylinder business due to -
cap on subsidized cylinders and network expansion. Also, with the expiry of the options
contract in Mar’13, the volatility in earnings is also likely to reduce considerably. However,
revenue is likely to grow at a slower pace of 6% in FY14 as its wholesale low margin gas
business is witnessing short term blip because of lower offtake from National Oil Companies.
Keeping in mind subdued volumes from the wholesale segment, we have reduced our earnings
estimate for FY14E by 12% to Rs.22.6 and introduced FY15 earnings of Rs.33.8. The stock
currently trades at 6.3x and 4.2x its FY14E and FY15E EPS vs 5yr average P/E of 12x. We thus
continue to maintain our positive outlook on the company with BUY rating and a target price of
Rs.205.

Alembic Pharmaceuticals : Q4FY13 Result Update: Sushil

Alembic Pharmaceuticals Limited (APL) has reported strong set of numbers on a quarterly as well as on a
yearly basis exceeding our margin & bottom line estimates. APL recorded a revenue growth of 10.5% &
4% in Q4FY13 & FY13 respectively. However, with a positive surprise on the margins front, APL managed
to record a strong PAT growth of 115% & 27% in Q4FY13 & FY13 respectively. The following are the key
highlights of the results:
Key Highlights of Q4FY13
Revenues grew by 10.5% YoY from Rs. 3426 mn in Q4FY12 to Rs. 3781 mn in Q4FY13. The company
registered a growth 14.2% in its domestic business whereas Export business registered a meager
growth of 5.8%.
Domestic formulation business registered a growth of 12.5% from Rs. 1845 mn in Q4FY12 to Rs. 2075
mn in Q4FY13 whereas domestic APIs witnessed a YoY growth of 30.2%. APL’s specialty segment
(chronic segment) registered a healthy growth of 31% which was partially offset by a slow growth of
only 3% YoY in anti-infective, cold & cough segment (acute segment). The share of APL’s Speciality
segment to its total domestic formulations went up from 45% in Q4FY12 to 51% in Q4FY13.
Export formulations business registered a growth of 32.9% to Rs. 905 mn on the back of a 54.2%
growth witnessed in its international generics business. During the quarter, APL initiated supply of
Desvenlafaxine to Ranbaxy for sale in US market coupled with partial commencement of the
expanded formulation facility at Panelav. The company however witnessed a de-growth of 27.5% &
21.3% in its international branded business & export API business respectively.
Operating profit reported a growth of 59.5% from Rs. 411 mn in Q4FY12 to Rs. 656 mn in Q4FY13 on
the back of decline in material cost & other expenses (Forex loss of Rs. 18 mn in Q4FY12 vs Forex gain
of Rs. 32 mn in Q4FY13). The positive surprise came from margins side as EBITDA margins improved
to 17.3% as compared to 12.0% in Q4FY12 supported by better product mix.
A higher than expected expansion in EBIDTA margins coupled with a reduction in interest expenditure
on the back of debt reduction, aided the 115% YoY growth in net profit.
Key Highlights of FY13
Revenues grew by 3.7% to Rs. 15203 mn in FY13. The company registered a growth of 14.1% in its
domestic business whereas Export business registered a de-growth of 10.6%.
Domestic formulation business registered a growth of 13.2% from Rs. 7826 mn in FY12 to Rs. 8863 mn
in FY13 on the back of a healthy growth of ~27% in its specialty segment. Its domestic API business
registered a growth of 20.8% to record revenue of Rs. 1138 mn for FY13.
Export formulations business registered a de-growth of 10.6% to Rs. 5166 mn on the back of 2.5% degrowth
in its international generics business (phasing out of low margin products + capacity constraint
faced at Panelav during the year), 22.2% de-growth in its international branded business & 15.2% degrowth
its export API business (rationalizing it for high margin business + focus on captive use).
Operating profit reported a growth of 14.8% from Rs. 2194 mn in FY12 to Rs. 2520 mn in FY13 with
margins at 16.6% v/s 15.0% in FY12 bearing the fruits of the strategic decision taken by the company
to shift to high margin international generic business and increased contribution from specialty
segments in the domestic space.
Net Profit grew by 27% from Rs. 1301 mn to Rs. 1652 mn in FY13 mainly on the back of a substantial
dip in its interest expense (D:E now at 0.3 v/s 0.9 in FY12).
OUTLOOK & VALUATION
On the domestic formulations front, the company is already recording strong growth backed by
increasing contribution from its chronic portfolio. On the international generics front, with the transition
phase to high margin business over in Q4FY13 + Desvenlafaxine ramp up expected going forward, the
management is confident of recording 30‐35% CAGR over FY13-15E. With greater focus on chronic
segments & expected ramp-up from the regulated markets post commissioning of its expanded facility
coupled with expanding return ratios, robust cash flows (CFO - FY14E: Rs.2078 mn, FY15E: Rs.2457 mn),
reducing debt profile and expanding margins going forward, we believe APL is still trading significantly
cheaper vis-à-vis its peers and further re-rating is due on the counter (from 6x at the initiation time to
10x now). We have thereby rolled forward our TP to Rs.153 based on 12x FY15E EPS of Rs.12.8,
recommending a BUY on the stock & reiterate our view of it continuing to be a strong re-rating
candidate.

BRITANNIA INDUSTRIES- Target Rs 540; Sushil research

Britannia Industries Ltd (BIL) is one of the largest food companies in India with presence in bakery and dairy products. It also forayed into the breakfast cereals category in FY11.
BIL – One of the Key Players in the Branded Biscuits Category
BIL is one of the key players with ~1/3rd market share in India’s $2.2 bn branded biscuits category having 7 power brands in its kitty (Good Day, Marie, Tiger, Treat, 50-50, Milk Bikis & Nutri Choice). According to the management, BIL’s household penetration at the moment is ~50% which is more than half of the biscuit category’s overall household penetration in India (90%). Biscuits category contributed ~84% to BIL’s standalone revenue in FY12. BIL’s standalone biscuits sales volume and revenue has grown at a CAGR of 6.6% & 14.9% resp. during FY07-FY12. Considering branded food market is growing faster than overall food & non-food market and biscuits being the largest category in the ~$21 bn branded foods market, we expect BIL’s standalone biscuits sales volume and revenue to grow at a CAGR of 3.5% & 11.5% resp. during FY12-FY14E.

Finolex Cables: Strong Brand Equity:: Sushil Research

STRENGTH: Strong Brand Equity, Vast Distribution Network, Healthy Balance Sheet, Strong Operating Cash-Flows
WEAKNESS: Dependency on Govt. Reforms in Power & Telecom Sector
OPPORTUNITIES: Diverse End-user Industries, Turnaround of New Ventures (CFL & Switches)
THREAT: Increasing Competition from Unorganized Players, Volatility in Copper Prices & Currency.

Everest Industries Ltd. (EIL)- BUY - TARGET Rs. 284:: Sushil

Strong Demand Visibility for Building Products – ‘Driven by Low Penetration of Pucca Housing’
EIL is primarily present in the manufacturing of AC (Asbestos Cement) roofing sheets and non-asbestos boards and panels which contributes ~75% to the company’s revenues. ~48% of rural India lives in kuccha houses (thatched roofing) providing an opportunity to every player to have a pie of the market which is estimated at ~Rs.250 Bn. EIL has reported an impressive volume CAGR of 10.3% over FY07-12 aided by timely expansion of building product capacity, strong rural demand driven by increasing rural income and increased thrust of Government on rural development through various schemes like Indira Awas Yojana, Bharat Nirman Yojana, NREGA etc. We expect EIL to post a volume CAGR of 5% over FY12-14E to be driven by 100,000 MTPA capacity additions in FY14E, better capacity utilization by way of technological upgradation and rising inclination towards pucca housing. Also, given the increasing thrust on rural housing and rise in income levels of rural people, the company has been able to efficiently pass on the increasing costs in the past (FY07-12 Pricing CAGR of 7.3%). We expect the prices to increase at a CAGR of 7.9% over FY12-14E resulting in Building Products revenue CAGR of 13.2% over the same period.
Pre-Engineered Buildings (PEB) – ‘Gaining Acceptance’
Given cost overruns in traditional concrete building structures due to delays in the construction, PEB is gaining acceptance on account of its speed of construction and quick turnaround time. The other features of PEB are similar to that of concrete structures in terms of strength, earthquake resistance and safety. However it reduces dependence on labor as predominantly the steel structures and panels are manufactured in-house and only the assembly work is carried onsite which significantly reduces the turnaround time. In the current situation where TIME is the king, many infrastructure projects like airports, cargo hubs, schools, metro rails, Indian railways, warehouses, Pharma companies, Automobile Companies etc. are increasingly using PEB. However, given current low acceptance of this structure and weak macroeconomic environment, we are factoring in a low growth of 11.2% over FY12-14E (FY09-12 CAGR– 34%).
Strong Financials, Healthy Return Ratios, Robust Cash flow Generation & Consistent Dividend History
EIL recently took an ECB of $12 mn to be repaid over next 5 years for setting up a Greenfield facility at Balasore in Orissa resulting in its D/E inching up to 0.4 from 0.3 as on March’2012. However given strong operating cash flows over the next 2 years (Rs.777 mn and Rs.972 mn in FY13E & FY14E resp.) and low capex (~Rs.540 mn. for AC Sheet Plant at Balasore and Metal Roofing Plant at Ranchi), we expect the company to become net debt free by FY14E. Also, the company has healthy return ratios with RoE & RoCE pegged at 23.0% and 18.7% respectively (likely to expand). It follows a consistent dividend paying policy (since last 10 years) with ~20% payout in FY12 offering a dividend yield of 3.2%.
OUTLOOK & VALUATION EIL is one of the leading players in the building products segment with a volume market share of 13.2% (Source: ACPMA) and having a strong pan-India presence with 38 sales depots & 6,000 retail outlets. Given the government’s thrust on rural development and the significance of rural India in overall GDP growth, we believe that the Roofing Industry would continue to grow at a decent pace. Also, given the increasing acceptance of urban products & PEB in the Industry, we believe EIL is well positioned to reap the benefits of its de-risking strategy. Based on H1FY13 performance, we have upward revised our earnings estimate by 9.1% & 15% to Rs.43.0 & Rs.47.4 respectively. At the CMP of Rs.219, the stock is trading at 5.1x and 4.6x its FY13E & FY14E EPS. We change our rating from ACCUMULATE to BUY with a revised price target of Rs.284.

Everest Industries Ltd. (EIL)- BUY - TARGET Rs. 284:: Sushil

Strong Demand Visibility for Building Products – ‘Driven by Low Penetration of Pucca Housing’
EIL is primarily present in the manufacturing of AC (Asbestos Cement) roofing sheets and non-asbestos boards and panels which contributes ~75% to the company’s revenues. ~48% of rural India lives in kuccha houses (thatched roofing) providing an opportunity to every player to have a pie of the market which is estimated at ~Rs.250 Bn. EIL has reported an impressive volume CAGR of 10.3% over FY07-12 aided by timely expansion of building product capacity, strong rural demand driven by increasing rural income and increased thrust of Government on rural development through various schemes like Indira Awas Yojana, Bharat Nirman Yojana, NREGA etc. We expect EIL to post a volume CAGR of 5% over FY12-14E to be driven by 100,000 MTPA capacity additions in FY14E, better capacity utilization by way of technological upgradation and rising inclination towards pucca housing. Also, given the increasing thrust on rural housing and rise in income levels of rural people, the company has been able to efficiently pass on the increasing costs in the past (FY07-12 Pricing CAGR of 7.3%). We expect the prices to increase at a CAGR of 7.9% over FY12-14E resulting in Building Products revenue CAGR of 13.2% over the same period.
Pre-Engineered Buildings (PEB) – ‘Gaining Acceptance’
Given cost overruns in traditional concrete building structures due to delays in the construction, PEB is gaining acceptance on account of its speed of construction and quick turnaround time. The other features of PEB are similar to that of concrete structures in terms of strength, earthquake resistance and safety. However it reduces dependence on labor as predominantly the steel structures and panels are manufactured in-house and only the assembly work is carried onsite which significantly reduces the turnaround time. In the current situation where TIME is the king, many infrastructure projects like airports, cargo hubs, schools, metro rails, Indian railways, warehouses, Pharma companies, Automobile Companies etc. are increasingly using PEB. However, given current low acceptance of this structure and weak macroeconomic environment, we are factoring in a low growth of 11.2% over FY12-14E (FY09-12 CAGR– 34%).
Strong Financials, Healthy Return Ratios, Robust Cash flow Generation & Consistent Dividend History
EIL recently took an ECB of $12 mn to be repaid over next 5 years for setting up a Greenfield facility at Balasore in Orissa resulting in its D/E inching up to 0.4 from 0.3 as on March’2012. However given strong operating cash flows over the next 2 years (Rs.777 mn and Rs.972 mn in FY13E & FY14E resp.) and low capex (~Rs.540 mn. for AC Sheet Plant at Balasore and Metal Roofing Plant at Ranchi), we expect the company to become net debt free by FY14E. Also, the company has healthy return ratios with RoE & RoCE pegged at 23.0% and 18.7% respectively (likely to expand). It follows a consistent dividend paying policy (since last 10 years) with ~20% payout in FY12 offering a dividend yield of 3.2%.
OUTLOOK & VALUATION EIL is one of the leading players in the building products segment with a volume market share of 13.2% (Source: ACPMA) and having a strong pan-India presence with 38 sales depots & 6,000 retail outlets. Given the government’s thrust on rural development and the significance of rural India in overall GDP growth, we believe that the Roofing Industry would continue to grow at a decent pace. Also, given the increasing acceptance of urban products & PEB in the Industry, we believe EIL is well positioned to reap the benefits of its de-risking strategy. Based on H1FY13 performance, we have upward revised our earnings estimate by 9.1% & 15% to Rs.43.0 & Rs.47.4 respectively. At the CMP of Rs.219, the stock is trading at 5.1x and 4.6x its FY13E & FY14E EPS. We change our rating from ACCUMULATE to BUY with a revised price target of Rs.284.

SML ISUZU LIMITED (SIL) TARGET Rs.472 ::Sushil Finance Research

Strategically Increasing Presence in Niche Category of MCV
SIL was primarily present in the cargo segment with a blend of 63:37 (FY07) between its cargo (GC)
and passenger carriers (PC). Given the volatility in the GC segment and its huge dependence on the
economic activities, the company strategically moved towards high margin and less volatile PC in
order to improve its margins and thereby protect itself from the downturn in the CV industry. In
FY12, the company lost market share due to some supply constraints with regards to chassis frame
& bus body availability, which is no more a concern, thus, starting FY13, the company’s bus sales
(7.5–12 tons) recorded an increase of 43% YTD vs. industry’s 23% (+248 bps market share). With
challenging macro environment, going forward we expect the share of PC to increase from 48% in
FY12 to 54% by FY14E. Overall, we expect the MCV contribution to total sales to increase from 63%
in FY12 to 68% by FY14E driven by product up-gradations & innovations.

Petronet LNG: Capacity expansion to drive volume growth: Sushil FInance

STRENGTH: Sound Business Model, Long Term Revenue Visibility, Early Mover Advantage, Strong Parental Support, Consistent Cash Flows, Healthy Return Ratios WEAKNESS: Inability to Source Long Term Gas OPPORTUNITIES: Consistently Increasing Gas Demand THREAT: Delay in Commissioning of New Capacities, Rising International Gas Prices, Regulatory Intervention.

BHEL- Decent FY12 Operating Performance :: Sushil

Decent FY12 Operating Performance
BHEL posted Consolidated Revenues of Rs. 475,990 mn (including other operating income), registering a growth of 13.7% YoY. Despite 380 bps increase in RM cost, its EBITDA increased by 15.7% YoY to Rs. 91,951 mn and EBITDA margins improved 30 bps to 19.3%. The margin improvement was mainly due to containing the manpower cost at lower level and ~9% drop in other expenses. Its interest cost reduced by 5.9% YoY to Rs. 531 mn, while the depreciation increased by 47% YoY to Rs. 8,032 mn. Its PBT (including other income) increased by 14.4 YoY to Rs. 103,672 mn and its APAT stood at Rs. 70,873 mn, registering a growth of 17.2% YoY.

Gujarat Mineral Development Corporation Ltd. (GMDC) TARGET Rs.214 -Sushil Research