India Demographics – Playing The Enablers: Dolat Capital

The India story has taken quite a bit of whipping last quarter or
two, and a fair bit of that may be perceived to be self-inflicted and
rightly so. There are now doubts being expressed on the potential
of the demographic dividend playing out next decade, given the
structural challenges that the economy faces.
While the jury is still out on that, we believe that there are
opportunities that shall emerge next few years to play on some of
the themes that may be classified as ‘enablers’ to earn the so
called demographic dividend. We stress our intent – to look out
for sectors that will help India move towards realizing its
demographic dividend, not those that will benefit after the
dividend is realized.
We believe enablers for doing well in education shall be one of
the worthwhile segment to watch our for. We have also seen quite
a few of listed plays emerging over the last few years that offer
meaningful opportunities for making portfolio allocation. However,
given the high capex intensity, long gestation periods to generate
sustainable returns and disappointment with the listed players,
the investor interest has dwindled quite sharply. Yet given the
scalable, multi year growth opportunity, and higher priority on the
government social sector spending being a key driver, we expect
a few of these models to sucessfully play out in coming years.
Education and Training
India is one of the youngest population pools, with over 250 mn
students, nearly one fifth of its population. The size of India’s
student population in some of the segments is as large as over
ten million. However the challenge has been to improve the quality
and delivery of education services across the country, and the
concomitant resource pool.

Karur Vysya Bank - TP: ` 590 Buy ::Dolat

KVB’s 8% YoY rise in net profit to ` 1.6bn was driven by the 19% growth in net
interest income, treasury income and tax write-back as operating expenses
and provisions rose. Overall asset quality showed improvement with QoQ fall in
gross and net NPLs and stable provisioning coverage.
Fresh NPL formations declined from ` 14.4bn in Q3 to ` 9.6bn in Q4. One
account amounting to ` 650mn contributed to the bulk of this quarter’s fresh
NPLs. The bank restructured loans of ` 3.3bn , of which ` 1.25bn pertained to
TNSEB.
As per the management, the expansion in branch network and human resource
during H2FY13 was the primary driver for the sharp rise in operating expenditure.
As branches take around 9-12 months time to break-even, a significant number
of branches opened during the past five quarters should start becoming more
productive and contribute to the overall operational performance going forward.
This should also help moderate the high cost/income ratio.
Provision on restructured loans and on investment book were the main drivers
for the sharp rise in provisions. Provisioning coverage ratio was stable at 75%.
Loan book grew by 23% YoY driven by the high growth in loan against jewellery,
agriculture and personal loan segment as the bank slowed down the growth in
the corporate loan segment. Going forward, the growth would be driven by
loans to SME, agriculture and personal loans.
We believe that the bank should be able to deliver much higher than industry
growth with stable asset quality. In our view, stable asset quality; faster
improvement in productivity, moderation in pace of expansion should aid in
maintaining the ROA, at time when NIM can see near term pressure. We remain
positive on the stock with Buy rating and target price of ` 590 (based on PBR
of 1.8x on FY14 BVPS forecast).

NIIT Technologies :TP: ` 360 Buy: Dolat Capital

View: We maintain our positive call on the stock post the earning call based
on its sustained strong growth, confidence on CY13 demand, robust order
intake and possibility of margin recovery. We maintain our BUY rating with a
TP of ` 360 valued at 7.5x of FY15E EPS of ` 48.
Confidence intact: The company is confident to do better than industry in
FY14 helped by robust 12M order executable book of USD 252mn. It expect
sustained momentum from its Manufacturing and Government clients specifically
in the US and Asia markets. Europe is likely to remain soft due to existing
economic uncertainties.
Results inline: Revenue in reported currency grew by 4.4% QQ at ` 5.4 bn
from ` 5.1 bn in Q3FY13 driven by strong growth in Government projects
(revenues up 47%, contributes 11% of revenues). Travel vertical witnessed
revenues decline of 7% as it exited 2 accounts during the quarter. Revenues
were strong across key projects and segments such as CCTNS, Morris, GIS,
ROOM solutions. However; Proyecta revenues were below par as the key
client Iberia continues to witness business ramp down.
New deal momentum on: NIIT Tech added fresh orders of about USD 110mn
during the quarter leading to USD 252mn of firm business executable over next
12 month basis. It has added 5 new clients (1 in Manufacturing, 2 each in
Transport and Government and a USD 10mn renewal from a BFSI client). The
company expects sustained demand even for the non-linear business segment
both for the managed services and transaction based services in the Morris
account.

Punjab National Bank:: TP: ` 1021 Buy :: Dolat Capital,

Reductions in gross and net NPLs, with stable fresh NPL formations were the
cornerstone of PNB’s Q4FY13 results. Fresh NPL formations of ` 29.6bn was
flat QoQ and was lower than what the street was expecting. While NPL upgrades
declined QoQ, NPL recoveries showed an improvement. Overall, gross and net
NPLs declined QoQ both on absolute and percentage basis. Coverage ratio
also improved moderately from 56% in Q3 to 59%.
The bank restructured ` 64bn of loans during the quarter, while ` 64bn of loans
were reduced from the restructured loans portfolio as per the RBI guidelines.
Total restructured loans stood at ` 321bn forming 10.4% of the total loans
book. The management does not see a major restructuring pipeline going forward.
Balance sheet growth slowed down with loan growth of 5% and deposit growth
of 3%, in line with the management’s strategy of de-risking the balance sheet.
On average basis though, loan and deposit growth was better at 13% and 15%
respectively.
NIM at 3.51% improved moderately QoQ, however the management has become
more conservative in guiding for the next year. We believe that the bank should
be able to maintain its NIM at current levels supported by stable CASA.

Mahindra Satyam :TP: ` 135 Buy : Dolat

View: Satyam has been delivering improved performance quarter after quarter.
It has made commendable progress in its financial performance with 8 quarter
Revenue CQGR of 4% and 1300bps improvement in the operating profitability.
The pipeline continues to be robust with improved deal participation and success
ratio both on the RTB and discretionary side. We maintain our positive stance
on MSAT/TechM in view of impending merger and likely rerating on the stock.
Revenue Inline: Mahindra Satyam reported Q4 FY13 numbers broadly inline
with our estimates with a 1% growth in USD revenues at USD 356mn inline
with DE of USD 358mn. Volumes grew by 2% QoQ, however the realizations
were soft owing to adverse cross currency movement.
Traction intact: IT services revenues were up by 1.2% in QQ in ` terms owing
to sustained new deal addition. BPO degrew by 27% QQ as the revenues
boosted by Holiday weekend revenues in Q3 were absent during the quarter. It
has set up its large deals focus group to ensure better success ratio in the deal
wins. It is confident of benefiting from likely pent up demand in the discretionary
spending based on its strong positioning and expect to exceed NASSCOM
14% revenue growth outlook for FY14.
Exceptional item flares reported PAT: Operating profits degrew by 14% QQ
(280bps decline QQ to 16.9%) owing to smoothening of BPO revenues during
the quarter and on account of one time charge on change in policy on providing
for leaves/gratuity contingencies. It has gained from a reversal of impairment
provision of subsidiary of about ` 135bn as against outgo on Aberdeen settlement
in Q3 leading to a growth of 468% in reported PAT. PAT for the quarter stood at
` 4.5bn. Adjusted PAT down 7% QQ and was below DE.

Supreme Industries - TP: ` 409 Buy :Dolat Capital

Supreme Industries Q3 FY13 results review
Supreme Industries (SIL) for Q3FY13 has reported net revenues at ` 9.04bn
(Dolat Est. ` 9.1bn), growth of 19% YoY on the back of impressive revenue
growth of ~42% YoY in its plastic piping segment. On the other hand, while
consumer & industrial product segment grew 9% & 1% respectively, the
packaging product segment de-grew by 5% YoY for the quarter under review.
Overall volume growth was quite impressive with 13% YoY growth at 74,526
tonnes (Dolat estimates at 75,000 tonnes) while realization grew by impressive
4.1%.
Impressive operating performance powered by 110 bps expansion in
margins
Higher operating margins during the quarter resulted in EBIDTA growing by
28% YoY to ` 1.34bn (Dolat estimates at ` 1.3bn). SIL’s operating margins
improved by 110bps from 13.8% in Q3 FY12 to 14.9% in Q3 FY13 (Dolat
estimates at 14.2%) due to: a) strong 14.7% margins (an increase of 170 bps
YoY) reported by plastic piping segment (53% of overall revenues) and b)
inventory gains.
Core profitability rises 38% to ` 680mn (higher than estimates)
Profits from the core business (adjusted for construction business profits &
excluding share of associates) grew by 38% to ` 680mn (Dolat estimates at `
631mn) as compared to ` 493mn. On consolidated basis (including share of
associates & construction business), SIL has reported a YoY growth of 39% to
` 758mn from ` 547mn YoY.
View: We roll our numbers to FY15. Thus change our rating to ‘BUY’from
‘ACCUMULATE’ with a revised target price of ` 409 (14xFY15E EPS)

Titan Industries -Dolat Capital

Net Sales at ` 30bn up 17% v/s our estimate of ` 28.7bn. Gross margin declined
by 40bps YoY to 23.1%. EBITDA at ` 2.8bn up 32.8% as EBITDA margins
expanded by 64bps to 9.4% (our estimate of 10.2%). Advertising cost to sales
ratio stood at 3.6% down 133bps YoY and down 70bps QoQ. PAT at ` 2bn up
24% v/s our estimate of ` 2bn.
Key Takeaways of the conference call
􀁺 Gold volume growth stood at 12% which was negative in Q1 and Q2 at (-
21%) and (-11%) respectively. Revenue grew by 27% on back of festive,
marriage season and space addition. Space addition during the quarter stood
at 55000 sq ft and total space at the end of quarter was 504,000 sq ft across
143 stores.
􀁺 Studded share declined during the quarter to 22% v/s 32% in Q2FY13 mainly
on account of marriage season. It has initiated the discount scheme of upto
20% off in diamond jewellery from Jan 2013 which would improve the mix for
Q4FY13. The company has a target to improve the share of diamond jewellery
to 40% in the coming years.
􀁺 Watches segment margin is expected to improve in the coming quarters.
The margin impact was largely on account of rupee depreciation.
􀁺 The company has presented its response with respect to the linking of gold
on loan with the base rate and believes that they have a strong case. Only
50tons of c.900-1000tons imports is utilized for gold loan.
􀁺 Currently the company is entering into gold loan with domestic bank which
has result in a 20-25bps increase in its interest cost.

Eclerx Services: TP: ` 770 Buy: Dolat Capital

View: Eclerx has reported Q3FY13 numbers slightly better than our estimates
but the growth in the revenues were largely driven by strong momentum in short
term projects. Weak rampup in the BFS segment (as indicated in commentary),
likely onsite delivery inclusion and unfavorable captive-third party business
preposition remains a risk and would result in revenue/earnings growth moderation
in FY14/15. We maintain our underperform rating on the stock.
Financial Services to remain volatile: It expect volatility in the BFS revenues
as the regulatory driven demand (Dodd Frank, Anti-money laundering, Capital
Adequacy and others approaching deadline) are getting fragmented to small
size projects as clients are nervous on their mid-to-long term plans and are
thus restricting on co-processing on RTB opportunity.
Cable & Telco to drive traction: It expects sustained growth moderation in
its traditional business lines (both in Financial and S&M services) and is relying
heavily on the acquired business line in the Cable & Telco segment. It is
expecting strong growth over its USD 15mn revenue run rate of CY12. We
anticipates risk here owing to weak spending patterns in this verticals and
incremental spend to be largely dependent on RTB (cost cutting) opportunities.
Contemplating onsite: It is also contemplating a thought of an onsite delivery
presence in anticipation of pooling of demand for near-shore delivery by the
clients to avert on country risk. The demand currently is very soft (10-12 seat)
but would change the overall operating metrics is view of lower onsite margins
and the transition/setting up costs, and thus remains the risk to the stock.
Q3 results – What has changed?: We largely maintain our estimates with
Sales/EBIT CAGR of about 18%/13% over FY13-15E modeling for lower revenue
growth anticipation owing to challenging captive/third party business preposition
and likely OPM dilution due to changed revenue mix post inclusion of new
Telecom & Cable business segment (OPM in mid 20% versus over 35% overall).

IndusInd Bank:: Target Price: ` 434 Buy:: Dolat Capital

We initiate coverage on IndusInd Bank with a Buy rating. Post smooth transition brought by incumbent senior
management, the bank has been strengthening itself gradually in each of the key areas. Well-diversified retail
loan book, more focus on relatively newer retail product lines and improvement in SA deposits hereon would
aid margin. Core fee income would continue robust performance with investment banking, trade finance and
forex income. High T ier I capital warrants the bank’s strong business growth without raising additional equity
capital in near future. We rate the stock as a Buy with a target price of ` 434 at 3.1x ABV FY14. At current
market price, the stock trades at 3.0x and 2.5x ABV FY13 and FY14 respectively

IPCA Laboratories - Target Price: ` 487 Accumulate ::Dolat Capital

IPCA has transformed itself from a leading API manufacturer to a fully
integrated formulation company. We anticipate domestic formulations
to sustain growth trajectory from hereon (16% CAGR over FY12-14E) aided
by growth in CVS & pain management. We expect export formulations
to register 21% growth over FY12-14E mainly driven by increasing ramp
up in its US generics biz and higher contribution from institutional based
sales. The Indore SEZ will contribute revenue of ` 300-400mn in FY13E
(all of it in Q4FY13E) and ` 1bn in FY14E. Approvals from the recently
FDA approved Indore SEZ facility (approx 12-14 filings so far) is expected
to kick in Oct-Nov’12 onwards. The management appears confident of
US generics business to reach USD100mn by FY16E.
EBITDA margin guidance for the year is an improvement of 225bps YoY
(150bps shall be forex benefit). The management re-iterates its long
term growth strategy - doubling of revenues every four years.

Syndicate Bank ( TP : ` 145, Buy) 􀁹 :Dolat Capital, top pick

Syndicate Bank (CMP: ` 95, TP : ` 145, Buy)
􀁹 Syndicate Bank’s management plans to expand credit book faster than the industry, in the range of
18-19% and retail credit book would grow at even faster pace of 22%. Key focus area for credit
growth would be retail, MSME and mid-corporate. We expect credit book to grow 17.4% CAGR in
FY12-14. Faster expansion in retail and MSME books would aid asset yield and margin
􀁹 The bank plans to increase its CASA share by 100-125 bps to 32% mark. Also, re-pricing of bulk
deposits and CD at lesser rated would aid margin erosion in declining interest rate scenario.
􀁹 The bank’s management expects 15bps decline in margin to 3.25% from 3.4% in FY12. We factor in
10 bps decline in margin to 2.96% (on yearly average basis) primarily due to decline in interest rates
and re-pricing lag of liabilities
􀁹 On the back of higher loan growth and alignment of processing charges with peers, fee income is
expected to revive. We expect the bank’s other income to grow by 13% YoY in FY13
􀁹 As on June’12, the bank’s asset quality improved on sequential basis; further higher PCR provides
comfort for future NPL provisioning. The bank’s management expects to do a substantial recoveries
in FY13
􀁹 At current price, the stock quotes at 0.65x and 0.56x adjusted book value (ABV) FY13 and FY14
respectively. Based on our price target of ` 145, the stock will trade at 1.0x and 0.9x ABV FY13 and
FY14 respectively

Karur Vysya Bank (TP : ` 512, Buy) 􀁹:Dolat Capital, top pick

Karur Vysya Bank (TP : ` 512, Buy)
􀁹 Karur Vysya Bank’s better understanding of clienteles’ business domain and widespread
regional presence are the key strengths. Continued robust credit book expansion and
contained delinquencies have been key outcomes of the bank’s strengths
􀁹 We expect the bank’s credit book to expand e e pec e ba s c ed boo o e pa d by 28% cagr in FY12-14 much higher than the
industry. Key focus area would be retail trade, SME and agriculture sectors
􀁹 In Q1 FY13, KVB’s margin drifted by 22bps QoQ to 2.82% on higher cost of funds, however
going forward, moderation in deposit growth and increase in credit-deposit ratio would protect
erosion in margin. Though, the decline in CASA share remain our near term concern. We
factor margin to drift by 26bps to 2.62% (on yearly average basis), as a conservative stance
􀁹 We expect GNPA to hold in the current level even as the marginal pressure on asset quality
would be mitigated by higher recoveries and upgradations
􀁹 At current price, the stock quotes at 1.4x and 1.3x adjusted book value (ABV) FY13 and FY14
respectively. Based on our price target of ` 512, the stock will trade at 1.8x and 1.6x ABV
FY13 and FY14 respectively

HDFC Bank (TP : ` 627, ACC) 􀁹:Dolat Capital, top pick

HDFC Bank (TP : ` 627, ACC)
􀁹 HDBK’s diversified credit book with prudent expansion strategy has led to healthy yield and
minimal delinquencies. High low-costdeposits share contain erosion in margin and also aides
the bank to cross-sale its other products to huge low-cost depositors base. We expect credit
to expand faster than the system at CAGR of 21% over FY12-14
􀁹 Slight re-balancing in credit book in favor of high-yielding assets aided yield on advances
(mainly due to higher composition of retail loan book). Higher asset yield and expansion in CD
ratio aided margin. Going forward, we expect NIM to stabilize at 4.2% on yearly average
basis
􀁹 Majority of fee income comes from various retail segment and is quite diversified. Incremental
adverse impact on the bank’s fee income would be muted
􀁹 HDBK demonstrated robust performance on asset quality front; GNPA & restructured loan
book remained almost stagnant. The bank has been maintaining most comfortable asset
quality amongst the peer group with GNPA at 0.97% and NNPA at 0.2%. Total restructured
assets were 0.3% of the bank’s gross advances as of Q1 FY13
􀁹 At current price, the stock quotes at 4.0x and 3.4x adjusted book value (ABV) FY13E and
FY14E respectively. Based on our target price of ` 627, the stock would trade at 4.2x and 3.6x
ABV FY13E and FY14E respectively

ICICI Bank ( TP : ` 1,323, Buy):Dolat Capital, top pick

􀁹 ICICI Bank’s traction in business expansion, improvement in margin, reduction in credit cost
and decrease in leverage (with expansion in balance-sheet size) would yield higher return
ratios going forward
􀁹 We expect credit book to expand in high teens (e e pec c ed boo o e pa d g ee s 20% CAGR during FY12-14E) driven by SME,
retail & working capital requirements
􀁹 The bank would record NIM in a range of 2.8-2.9% on the back of higher yield on
investments, reduction in losses on securitized book, traction in overseas business and
stability in CASA deposit share
􀁹 We expect that the bank’s other income to grow by 17% CAGR over FY12-14E on the back of
healthy core fee income
􀁹 With tier I capital of 12.8% (as on end-June’12), the bank is adequately capitalized. The bank
would not be required to raise equity capital in near future
􀁹 The bank quotes at cheap valuations, hence offer an opportunity to add to the positions. At
current price, the stock quotes at 1.8x and 1.7x adjusted book value (ABV) FY13 and FY14
respectively. Based on our price target of ` 1,323, the stock will trade at 2.6x and 2.3x ABV
FY13 and FY14 respectively

Banking sector Q1 FY13 Review :Dolat Capital,

􀁹 In Q1 FY13, private sector banks demonstrated better performance on balance-sheet expansion,
stability of margin and asset quality fronts. On deposit mobilization front, each of the private sector
banks under coverage (barring ICICI Bank) recorded higher deposit growth than the industry and
state-ownedbanks.Smaller private sector posted much higher expansion indeposit base; among
state-owned banks, IOB, PNB and Andhra Bank were ahead of its peers
􀁹 Overall, banks’ deposit profile demonstrated weakening with decrease in CASA share. KVB and
Andhra Bank surprised with increase in CASA share even in such tight liquidity condition; in case of
KVB, current deposit mobilization significantly aided CASA share
􀁹 Private sector banks under coverage outshined state-owned banks and industry overall in credit
disbursements. Smaller private sector banks under coverage were better off due to their lower
bases. State-owned banks (under coverage) recorded lesser credit book expansion than the
industry overall. Canara Bank moderated its credit growth to further reduce dependence on
wholesale advances and short-term corporate loans on unsecuredbasis
􀁹 On asset quality front, PSU banks performance was quite dismal with sharp jump in gross slippage
ratio. SBI, UBI, Andhra Bank and BoI posted highest increase in slippages ratio on sequential basis.
IOB and OBC recorded sequential decline with higher base in Q4 FY12. Private sector banks were
better off on this front as well in our coverage universe
􀁹 Though, some of the state-owned banks (under coverage) reported higher credit cost on sequential
basis but not enough to maintain PCR. Most of banks under coverage reported sequential decrease
in PCR except for OBC, Syndicate Bank and ICICI Bank

Kajaria Ceramics - Target Price: ` 224 View: Buy ::DOLAT CAPITAL

We are positive on the business prospects of Kajaria Ceramics due to its leadership position in the ceramic
tiles Industry backed by complete range of products, superior design capability, high brand recall and a loyal
and strong dealer network. Our interactions with various manufacturers and intermediaries confirm our belief
in Kajaria.
The demand drivers of the tile Industry continue to be robust and we expect industry growth of 15% CAGR over
the next few years. Chinese imports are no longer a threat except in small pockets, as anti dumping duty and
other factors have made them unattractive.
We expect the top line and bottom line to grow at a CAGR of 22% & 30% respectively over the next couple of
year while the ROE is expected to remain strong at 31.8% (FY12 at 31.5%). At CMP of ` 174, the stock trades at
12x & 9.3x its FY13E & FY14E earnings of ` 14.5 & ` 18.7 respectively. We recommend Buy with a target price of
` 224 (12x FY14E EPS).

Karur Vysya Bank- Target Price: ` 512 Buy ::Dolat

In FY12, Karur Vysya Bank (KVB) reported healthy performance even in
on-going turbulent times on the back of healthy margin of 2.9% and robust
growth in fee income. Followings are key observations in KVB’s annual
report
􀁺 KVB’s management key focus area in FY13: The bank’s management
indicated that the major thrust areas for FY13 would be improvement in CASA
ratio, improvement in asset quality and recoveries of NPAs, further broadening
of fee income and increasing footprints to have a better pan India coverage

Syndicate Bank:: Target Price: ` 152 Buy ::Dolat Capital

Followings are key observations in Syndicate Bank’s financial
performance:
􀁺 Improvement in liability profile: In FY12, Syndicate Bank recorded
substantial improvement on deposit profile; whole-sale deposits & CDs
proportion declined by 470bps to 21% from 26% a year back and core retail
deposits increased by almost 430bps to 69%

Rallis India: Target Price: ` 144 Reduce: Dolat Cap

Key takeaways from the annual report
Domestic Agrochem industry witnessed a deceleration in FY12 and Rallis
was no exception to this trend (domestic pesticides sales down 3.3%
YoY). During the year, the company opted to focus on cash generation
(reflected in prudent working capital management) over revenue growth.
Also, the company discontinued red triangle products from the portfolio
(10% of sales in FY11) which further weighed on topline growth. The
downtrend was restricted by healthy growth in exports (up 49.5% YoY).
We anticipate the ramp-up in Dahej facility to catapult export growth.
Over the years, Rallis aims to expand its product offerings and scale up
its newly added adjacent businesses (Metahelix Lifesciences and Zero
Waste Agro Organics). The company is on course to transform itself from
a mere agrochem company to a complete agri-service provider.

Financials - TOP PICKS Syndicate Bank ( TP : ` 149, Buy) 􀁹 Dolat Capital

Financials - TOP PICKS
Syndicate Bank (TP : ` 149, Buy)
􀁹 We observe a change in bank’s stance with the new senior management. It now intends to grow
faster than industry, in the range of 22-24%. We believe given the cushion of high PCR and lower
slippages, it is achievable subject to overall environment. We expect credit book to grow 19% CAGR
in FY12-14
􀁹 During FY11 and FY12, due to moderate balance-sheet growth and widespread branch, the bank
has been maintaining high composition of low-cost deposits at ~30% level which aided margin.
Going forward, in FY13, we factor in 14 bps decline in margin to 2.92% (on yearly average basis)
primarily due to decline in interest rates and re-pricing lag of liabilities
􀁹 On the back of higher loan growth and levying processing charges, fee income growth is expected
to enhance further from current levels. We expect the bank’s other income to grow by 12% YoY in
FY13
􀁹 As on Mar’12, the bank’s asset quality deteriorated; however, higher PCR gave a buffer to
provisioning in case of increase in bad debts. We expect the bank to do substantial recoveries in
Q1FY13, given the aggressive focus
􀁹 At current price, the stock quotes at 0.7x and 0.6x adjusted book value (ABV) FY13 and FY14
respectively. Based on our price target of ` 149, the stock will trade at 1.0x and 0.9x ABV FY13 and
FY14 respectively