Nirmal Bang: Midcap: Diwali Muharat Top Picks - 2019

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Nirmal Bang :Technical: Diwali Muharat Top Picks - 2019

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Top 3 Stock Picks For 2015 :: Nirmal Bang

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Apply for Sharda Cropchem IPO:: Nirmal Bang

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Nirmal Bang's report on Sharda Cropchem IPO

Sharda Cropchem (SCL) is a crop protection chemical company engaged in the marketing and distribution of a wide range of formulations and generic active ingredients globally. It is also involved in order based procurement and supply of Belts, general chemicals, dyes and dye intermediates.

Sharda Cropchem is a cash rich company (Rs 190 crore in FY14). It is coming out with IPO to provide an exit option to its PE investors, HEP Mauritius, who invested Rs 100 crore in March’14 for 15.87 percent stake. Also, to comply with SEBI guidelines of 75 percent, promoter is also offering shares in the IPO. Hence, there is no new issue of shares and equity would remain same post issue.


Investment rationales are its core competency in registration, geographical spread with strong distribution network and strong balance sheet.

However, key concerns are high working capital cycle, high investment in registrations and currency risk.

Valuation and Recommendation

Between FY10-14 SCL’s revenues grew at CAGR of 22 percent while EBIDTA grew at a CAGR of 23.9 percent and PAT by 38.6 percent. We expect it to maintain 20-25 percent growth going forward.

On the valuation front, at the given price band of Rs 145-Rs 156, SCL is commanding at PE of 12.2x – 13.2x its FY14 EPS of Rs 11.8/sh and EV/EBIDTA of 8.6-7.9x. Considering the healthy balance sheet, strong double digit growth and cushion in valuations we recommend subscribing the issue for both short term and long term gains


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Strong Show; Upgrade To Buy On TP Roll-over To FY16 Glenmark Pharmaceuticals·:: Nirmal Bang

Strong Show; Upgrade To Buy On TP Roll-over To FY16
Glenmark Pharmaceuticals· (GPL) 3QFY14 performance showed a mixed trend. While
the 120bps QoQ expansion in margins was a key positive, stagnant US revenue and
lack of visibility on key product approvals/launches is a cause for concern. We have
retained our estimates (9MFY14 profit is 71% of our FY14 estimate), but upgraded the
rating on GPL to Buy (Hold earlier) as we rolled over our TP to FY16E earnings.
Consequently, our TP stands revised upwards at Rs651 (16xFY16E EPS of Rs40.7) from
Rs562 earlier (17xFY15E EPS of Rs33.0).
Operational performance above expectations:GPL¶V performance was above expectations
at the operating level. Revenue growth of 20% YoY was driven by Europe (combined
business ± generics+specialty - up 58% YoY) and API business (up 48% YoY, including
US$1mn from Crofelemer API supply to Salix), while domestic business growth (up 15% YoY,
led by strong growth in covered therapies) was healthy despite industry slowdown. The US
business declined by ~US$6mnQoQ, partly because of GPL suspending the sales of generic
Montelukast tablets following non-viability and lack of interesting product launches in the US
(7 approvals YTD FY14), while ROW markets grew strongly QoQ due to the seasonality effect
in key markets like Russia with the onset of winter. Following higher sales from low-margin
European business, gross margins were flat, but EBITDA margin at 22.8% (up 250bps YoY,
excl. milestone income in 3QFY13 and 120bps QoQ) was above our/Bloomberg consensus
estimates of 21%/21.5%, respectively, owing to higher operating leverage. Notably, GPL
achieved break-even in Europe operations. Reported PAT includes forex gains of Rs11mn.
US business rebound is key: *3/¶V 86 EXVLQHVV was stagnant for the past six quarters, at
around US$80mn (barring 2QFY14), owing to lack of interesting product launches in the US
and slow ramp-up of oral contraceptive portfolio. Given the fact that the US is one of the key
growth drivers, it is imperative that the approval/launch run-rate picks up in this market for
*3/¶V valuation to sustain. While product approvals in the US are subject to the US Food and
Drug Administration¶V timeline, we have noted some interesting generic product opportunities
in FY15 viz. Orthotricyclen lo (oral contraceptive drug, market size ~US$400mn, launch likely
on 31 December, 2015, as per the settlement with the innovator, five-six player market),
Vanos (dHUPDWRORJ\ GUXJ *3/¶V ODXQFK postponed from December 2013 to June 2014 post
Perrigo, the first-to-file or FTF) SOD\HU¶V VHWWOHPHQW ZLWK WKH LQQRYDWRU WR ODXQFK its product in
December 2013, market size US$40mn, four-player market likely) and Finacea (dermatology
drug, market size ~US$100mn, GPL has FTF and its 30-month period expires in June 2015).
Conference call takeaways: 1) GPL¶V net debt stood at Rs25.6bn as of end-December
2013, while the net working capital cycle improved slightly from 106 days (March 2013) to 110
days (December 2013). 2) GPL expects domestic growth to remain strong, at least until
3QFY15. 3) GPL plans to launch Crofelemer drug in FY15 in a few emerging markets, but
does not expect it to be a significant revenue driver initially. 4) Expects over 15% growth in
emerging markets and over 20% growth in API business annually. 5) Expects strong growth in
European business next year. 6) Capex is likely to be around Rs4bn in FY14E.

RBI Strategy On Short-Term Interest Rates:: nirmal bang

Introduces Measures To Soothe Hardening Yields
As expected, the Reserve Bank of India (RBI) announced measures to cool off money
market rates and permit the banks to spread their mark-to-market (MTM) losses on their
bonds portfolio. The measures were necessary to avoid higher spill-over to long-end
rates, which witnessed a sharp spike and posed a threat to credit flow towards
productive sectors. While the measures are dynamic in nature, we believe they would
be positive for the banks and markets, who were staring at huge treasury MTM losses in
2QFY14. Currently, we have not made any changes to our basic assumptions in respect
of the banks in our coverage universe and prefer to wait and watch as to how things
pan out in the near term.
RBI strategy
The recent RBI measures to harden short-term interest rates were effective and resulted in
addressing the volatility in the exchange rate. Going forward, with the onus on keeping money
market rates around the MSF (Marginal Standing Facility) rate of 10.25%, managing liquidity
for productive sectors and avoiding any abnormal hit on the banks’ bond portfolio, the RBI has
announced some more measures which are as follows:
 To conduct open market operations (OMOs) of long-dated government securities worth
Rs80bn on 23 August, 2013 and thereafter, as warranted.
 Banks are allowed to retain their SLR (Statutory Liquidity Ratio) holding in the HTM (Held
To Maturity) category at 24.5% of their NDTL (Net Demand And Time Liabilities) as against
the RBI’s earlier directive to bring down SLR investments in the HTM category gradually to
23.0%. Also, the banks would now be allowed to transfer SLR securities to the HTM
category from the AFS (Available For Sale)/HFT (Held For Trading) categories with a limit
of 24.5%, as a one-time measure, at lower of book value or market value. This is in addition
to the option of spreading the depreciation, arising out of MTM valuation of AFS/HFT
securities, over the remaining period of the current fiscal year in equal installments. As a
result of this, we expect the banks to transfer all their securities which had MTM losses to
the HTM category.
 Ever since bond yields started hardening, bank stocks were adversely impacted following
the MTM losses on their treasury book. With the latest RBI measures, bank stocks could
partially recover their losses.

Action Plan To Save Sinking Rupee: nirmal bang

We organised a conference call on 20 August, 2013 with Economic Affairs Secretary
Mr Arvind Mayaram to get an update on the government’s action plan in respect of a
sharply depreciating rupee. Mr Mayaram said the steep downward movement
witnessed in the past few days in the securities and currency markets is primarily a
panic reaction to external factors. Other countries like Indonesia, South Africa and
Brazil too faced the same stress in their markets, he said. As far as the internal
factors are concerned, he said the concerns are two-fold: the current account deficit
(CAD) expected to remain high in the current fiscal year and the inability of the
government to finance its CAD given India’s huge dependence on foreign inflows.
These concerns have aggravated on fears that the US Federal Reserve may taper its
bond purchase programme which could reduce foreign inflows and end up drawing
down the country’s foreign exchange reserves. However, Mr Mayaram said this line of
thinking is completely unwarranted because the government has come out with
estimates and set targets so that the CAD is contained and at the same time financed
without a draw-down on foreign exchange reserves. In a worst-case scenario, if
exports remain at the level witnessed in FY13, FII inflows come to a standstill and
also foreign direct investment (FDI) stays flat at the FY13 level, then the CAD is seen
at US$75bn.
The two-pronged strategy of the government to address the US$75bn CAD and the Balance
of Payments situation is as follows:
1. Compression of imports:
a. Precious metal imports: The government aims to curtail imports of precious
metals like gold, silver and platinum. It believes that if gold imports are curtailed at
850mt in FY14 compared to 950mt in FY13, then the CAD would get compressed
by around US$4bn, bringing it down to US$71bn from US$75bn.
b. Oil imports: The import growth has declined. To cite an instance, growth in oil
imports in 1QFY14 stood at 0.8% YoY compared to 18% in 1QFY13.This
indicates that the compression in oil imports by around US$1bn in FY14 over
FY13, would aid in bringing down the CAD to US$70bn in this fiscal year.
2. Capital account:
According to the government, if capital inflows into India are estimated at US$64bn,
then to bridge the CAD gap the country needs only US$6bn (US$70bn minus US$64bn
= US$6bn). However, the measures taken by the government to enhance capital inflows
into the country are expected to bring in an additional US$11bn over and above the
estimated US$64bn. Consequently, India would be able to accrue US$5bn to its foreign
exchange reserves.
The government expects the CAD at 3.7% of the gross domestic product (GDP).
While the FIIs remained net buyers in the equity segment, the bond-sell off was on concerns
over likely tapering of QE3 (Quantitative Easing 3) programme by the US Fed and
hardening of US bond yields. Debt market outflow was also due to unhedged foreign
exposure of the corporate sector. However, long-term investment by foreign investors is
expected to continue at the levels witnessed before the onset of QE3 programme. FIIs seem
to be more confident about the Indian economy compared to domestic investors.
The capital flight, especially from bond market, is primarily because of the steep surge in US
bond yields. Also, it is important to note that the US Fed may not be able to withdraw its
QE3 programme completely, given its domestic macro-economic compulsions. The Indian
government has no intention to put capital controls. The recent measures do not indicate
that India is in a crisis situation as the country has a buffer of US$280bn of foreign
exchange reserves.

Nirmal Bang - Persistent Systems Ltd

Q1FY14 quarter results were mixed wherein revenues were in
line with our expectations which grew by 7% QoQ; however
margins disappointed which witnessed pressure of 320 bps QoQ
due to onsite wage hikes and higher visa costs. The management
has cited better growth in H2FY14 on the back of increased
demand momentum in Product engineering in North America
and uptick in IP led revenues. At CMP the stock is trading at a P/E
of 9.4x/8.6x its FY14E/FY15E earnings and investors can
accumulate the stock on dips since outlook continuous to be
positive.
Quarter highlights:
Revenues in USD terms grew 1.5% QoQ to $ 63.03mn driven by 4.5%
growth in product engineering business. This business witnessed 3%
growth in volume and 1.5% growth in realisation. However, IP
revenues dipped 12.9% QoQ/ 24% growth YoY and contributed
15.1% to total revenues from 17.5% in Q4FY13.
Revenues in INR terms grew by 7% QoQ and 18.8% YoY at Rs.357.3
crore.
EBIDTA margins were down by 320 bps QoQ to 21.7% erasing the
currency gain of 180 bps due to higher visa costs, addition in sales
team in the US and onsite wage hikes. Company is giving salary hikes
to offshore employees of ~ 8-9% in the current quarter which we
believe would keep the margins under pressure in Q2FY14 as well.
Adjusted PAT for the quarter (forex gain of Rs.18.3 cr/Rs.4.2 crore in
Q1FY14 and Q4FY13 respectively) was down by 9.9% QoQ to Rs
44.05 crore.
IP revenues have been subdued for the last 3 quarters and
management is optimum of better Q3 and Q4FY14 on this front.
Concall highlights:
Onsite revenues grew by 14.6% QoQ (Volume +10.5%, +3.9%
realisation) and offshore revenue grew by 1.5% (+2.3% volume ,
-0.8% realization).
IP revenues would pick up in Q3 and Q4FY14, with revenues from
HP’s Radia Client Automation (HPCA) to start flowing in.
During the quarter, company has won 16 new clients (2 multibillion
dollar clients).

Wabco India - Nirmal Bang,

‘Brake’ Out
Wabco India (WIL), a leader in the manufacture of conventional braking products,
advanced braking systems and other related air-assisted products and systems, has
one of the best margin profiles in the automobile component industry with a strong
balance sheet, debt-free status and robust return ratios. The product profile of the
company is technology-intensive as a result of which the competitive intensity is
almost negligible, with WIL commanding an 85% market share. Further, low content
per vehicle and the under-developed commercial vehicle (CV) industry in India
leaves WIL with ample scope for growth. WIL is also one of the best companies to
play on MHCV (medium and heavy commercial vehicle) demand recovery expected in
FY15 as the demand cycle, in our view, is close to bottoming out and staging a
recovery towards the end of FY14. We have assigned a Buy rating to WIL with a
target price of Rs2,187 (20x FY15E EPS), up 24% from the current market price. Key
downside risks to our estimates are weak macro-economic activity leading to a steep
fall in CV sales. Upside risk to our estimates is successful implementation of
compulsory ABS (anti-lock braking system) in India from FY15.
Best play on recovery theme: WIL is a key beneficiary of the CV demand cycle recovery
expected from FY15. WIL has historically outperformed the MHCV segment’s growth over
the past several years due to increase in the content supplied per vehicle. Further,
continued growth in replacement segment and exports makes WIL a strong play for FY15.
Also, the government is likely to issue a notification making ABS compulsory for MHCVs
from FY15, which augurs well for WIL. We expect sales to post a CAGR of 21% over
FY13-FY15E backed by improvement in demand for CVs and increase in the content
per vehicle likely over FY14-FY15.
Ample scope for growth: The content per vehicle in India is among the lowest in the world
at ~US$240 per vehicle compared to US$500 per vehicle in eastern Europe, US$1000 in
North America, and US$3,000 per vehicle in western Europe. We believe the current
technology gap in India offers WIL a strong growth opportunity as new products launched
by it gradually gain importance.
Earnings to witness double-digit growth: With the content per vehicle set to increase
and volume recovery expected to begin by the end of FY14, we expect the margins of
the company to improve by 356bps at 20.6% in FY15E from 17.0% in 1QFY14. Due to
healthy top-line growth and expansion in margins, we expect the earnings of the
company to witness a strong CAGR of 26% over next two years i.e. over FY14/FY15.
Valuation: We have valued WIL at a 10% premium to its past three years’ average as we
believe the CV demand cycle is close to its bottom and the best for WIL is likely in
FY14/FY15. Further, the government is likely to issue a notification for compulsory use of
ABS in MHCVs in India from FY15, which will give WIL’s earnings a strong boost. Given the
comfort on the earnings front i.e. a 26% CAGR likely over FY13-FY15E, lean cost structure
and superior return ratios, we believe its premium valuation is justified. We have valued the
stock at 20xFY15E EPS of Rs109 to arrive at a target price of Rs2,187 (20x FY15E EPS),
up 24% from the current market price.

Bajaj Finance Limited:: Nirmal Bang

Results in line with expectations; growth story continues
Bajaj Finance (BFL) reported net profit of Rs 175.7 cr (+26.8% YoY) in Q1FY14 in
line with expectations; driven by strong growth across consumer and SME
business. Disbursement growth was strong at 32.2% YoY supported by
consumer durables (40.7% YoY) and SME business (39.4% YoY). Net interest
income was higher sequentially reflecting lower cost of funds and change in
asset mix. The overall share of the SME and consumer continued to remain
higher. Asset quality witnessed slight pressure with higher gross NPA at 1.14%
and net NPA at 0.25% owing to slippages in construction equipment and two
wheeler businesses. Cost to income ratio was broadly stable despite higher cost
due to steady growth in income and operating leverage.
Going forward, consumer and SME business (particularly LAP) will continue to
drive the disbursement growth. BFL has adequate capital of 21.5% with Tier I
ratio of 18.1% which will support the growth plan. Adhering to Usha Thorat
guidelines, BFL has made standard asset provisioning at 40 bps (from 25 bps
earlier) for its portfolio except two wheeler and took additional hit of Rs 17.7 cr
in Q1FY14. The current measures taken by RBI to tighten liquidity may impact
the company’s margins only in H2FY14E as per management. Lower credit costs
(prudent practices followed) and operating leverage will be the key to strong
performance going forward.
BFL has been consistently delivering healthy performance which is
commendable given the current environment. With control over NPAs,
targeting wider access and strong growth in the book, Bajaj Finance will
continue to strengthen its position as a retail finance company. We expect
profitability to grow at 22% CAGR over FY13-FY15E. At CMP the stock is trading
at 1.74x FY14E and 1.47x FY15E ABV and 9.31x FY14E and 7.59x FY15E EPS.
Post the recent correction in the stock, we recommend to BUY the stock with a
target price of Rs 1,628 indicating potential upside of 21% from current levels.
AUM grew by 32.8% YoY and 9.8% on QoQ basis at Rs 19,229 cr.
Two wheeler financing growth witnessed some slowdown reflecting
weakness in the overall market. However, market share continued to
remain around 30% of Bajaj Auto’s domestic sales.
Three wheeler business is showing steady growth signs and market share
stands at 17% of total Bajaj Auto’s sales.
BFL tied up with Apple for selling iPhone and with Dell for selling laptops.
Fee based income continues to remain strong with growth in fee based
products like life and general insurance.
Provision coverage ratio stood at 78% in Q1FY14
Disbursements in the SME segment remain robust with growth across all
business; working capital and loan against property products.
Management intends to increase rural penetration even if it doesn’t get
qualified for banking license as rural areas offer tremendous business
scope.

Just Dial -Powering Local Search Engine :Nirmal Bang

Powering Local Search Engine
With a first-mover advantage and strong brand recall, Just Dial (JDL) has taken the
top position in voice-based search and is also likely to strengthen its muscle in
Internet-based search in India. By offering its existing membership packages from
only 11 states to major cities across various states in India, adding more business
categories and creating specialised membership packages, JDL is likely to maintain a
healthy and profitable growth in the long run. With control over employee costs,
operating margin can improve significantly in the long run, while increased product
offerings can provide non-linear revenue growth. JDL stock trades at 30.6x/21.8x
EV/EBITDA and 48.6x/35.6x PE for FY14E/FY15E, respectively, lower than global peer
Yelp Inc, which trades at 37.4x/75.8x CY14E EV/EBTIDA and P/E, respectively. The
likely strong revenue/PAT CAGRs of 36.1%/43.1%, respectively, healthy free cash flow
of Rs1.5bn over FY13E-FY15E and cash/share of Rs93 should command a premium
valuation. We have assigned a Buy rating to JDL with a target price of Rs800, valuing
it at FY15E 42.2x/26.5x/7.5x P/E and EV/EBITDA, EV/S, respectively.
Ability to offer non-linear growth: Currently, JDL’s advertisement revenue is from paid
campaigns. The company is in the process of improving its offerings like launching enabling
transactions such as taxi booking/hotel reservation etc, car listing, quick quotes, and user
ratings. JDL has also developed a master application for Android operating system-based
mobile phones and is in process of developing such an application for Blackberry phones.
We believe these new offerings would open up new sources of revenue, thereby providing
non-linear revenue growth in the long run.
Assured growth with annuity income: JDL has changed its payment policy from three-four
months’ advance payment to weekly/monthly payment for the advertisers under its normal
packages, which start from as low as Rs299/week. We expect it to reduce the churn rate and
book in clients for the long term, thereby reducing the impact of competition apart from
providing better comfort to advertisers’ cash flow by improving the return on investment. We
expect JDL to post a 29% campaign CAGR over FY13E-FY15E, leading to healthy 36.1%
net sales CAGR over the same period.
Lower employee costs to improve margins: A significant portion of sales executive costs
is linked to advertisement revenue, very much similar to the compensation of an insurance
agent. An employee gets annuity income from JDL as long as the advertisers secured by
him continue their association with JDL. If an employee leaves JDL, he loses future annuity
income from JDL in respect of existing advertisers, and therefore it becomes challenging for
competitors to attract the talent from JDL. As a result, costs per employee increased by a
mere 8.2% CAGR over FY09-FY13E. Employee costs formed 48.8% of revenue in FY13.
With the rising share of Internet-based search, lower costs per employee and better
utilisation of its call centre employees, employee costs can reduce significantly in the long
run, thereby improving the margins. We have factored in a moderate 60bps improvement in
margins over FY13-FY15E as against the management’s guidance of 200bps-250bps
improvement annually. JDL aims to achieve operating margin of 30.0%-40.0% compared to
27.8% currently.

CCL- Results hit due to maintenance issues. Future Assured.: Nirmal bang

Results hit due to maintenance issues. Future Assured.
Consolidated Revenues for the quarter grew by 23% YoY but were down by 14.4% QoQ at Rs. 177 crore. Sales were below expectations due to trial runs and testing made at the Vietnam plant and some maintenance issues at the Indian plant. In addition, production at Vietnam plant also got affected by 10-12 days due to Chinese New year holidays. Vietnam plant has re-gained operations from the end of April 2013. Company would be adding another 5000 MT capacity by Sep 2013 in Vietnam taking the total capacity to 15000 MT. For FY14E, management expects to produce 6500 MT at the Vietnam plant. CCL operates a 3000 MT plant in Switzerland where it adds value addition to the products. Operations from this unit have been lackluster during the quarter since the Swiss government has imposed additional duty. EBIDTA margins have remained flattish QoQ at 20.8% (despite high power cost) as the company was able to stock up beans when the prices were lower. Coffee prices have remained stable during the quarter. PAT was lower by 25% YoY at Rs.10.9 crore due to higher taxes (39% of PBT) during the quarter. Management expects this to be lower in FY14 since Vietnam would start making profits in FY14E.

Bajaj Finance, Nirmal bang report

Growth story continues; still more steam left
Bajaj Finance (BFL) reported net profit of Rs 163.8 cr (+51.1% YoY) in Q4FY13
driven by strong growth across SME and consumer business. Overall
disbursement growth remained healthy at 21.3% YoY for FY13. However, net
interest income declined sequentially and was marginally below estimates
owing to the higher composition of the lower yielding SME product. The overall
share of the SME segment increased to 48% in Q4FY13 as compared to 46% in
Q3FY13. Cost to income ratio continued to witness improvement driven by
operating leverage. The asset quality remained fairly stable with gross NPA at
1.09% and net NPA at 0.19%. However, there was one SME client which
attributed to marginal increase in Gross NPA. Barring this, asset quality across
segments remained fairly under control.
Going forward, Management has indicated for growth of 25%+ for FY14E.
Margins may witness some compression owing to increasing mix of SME in the
overall portfolio. Lower credit costs and operating leverage will be the key to
strong performance going forward.
BFL continues to enjoy pricing power resulting from the benign competition and
healthy asset quality. BFL has been consistently delivering healthy performance
which is commendable given the current environment. With control over NPAs,
wider access and strong growth in the book, Bajaj Finance will continue to
strengthen its position as a retail finance company. We expect profitability to
grow at 25.3% CAGR over FY13-FY15E.
Demonstrating strong business model and excellent execution capability of
the management, the stock has been an outperformer in the last one year
generating a return of 71.9%. At CMP the stock is trading at 1.89x FY14E and
1.6x FY15E ABV and 9.85x FY14E and 7.89x FY15E EPS. Considering the recent
run up in the stock we recommend our investors to HOLD the stock with a
target price of Rs 1,638 indicating further potential upside of 11% from current
levels. Any decline can be used as an opportunity to BUY the stock as our long
term outlook remains positive.
AUM grew by 33.6% YoY and 4.0% on QoQ basis at Rs 16,844 cr.
Capital adequacy ratio increased to 21.95%, with tier I ratio of 18.7% after
the capital infusion which will aid in growth trajectory for the company.
Disbursement in the Lifestyle financing business stood at Rs 240 cr and is
expected to reach Rs 500 cr in FY14E.
Disbursements in the SME segment remain robust with growth across all
business; working capital and loan against property products.
The company has tied up with Apple for selling its iPhone product.
The company did assignment of Rs 330 cr in Q4FY13
Management has indicated that Bajaj Finance would be applying for
banking license and would be converting into a bank.
The company has declared dividend of Rs 15 per share translating into a
dividend yield of 1%.

Alembic Pharma - Nirmal bang, report

rage
ge
Alembic Pharma Ltd.
Q4FY13 Result Update – 06 May 2013
4
Recommendation HOLD
Operational efficiency led to better performance
 Domestic business grew by 14% yoy where as exports continue to play spoilsport and grew by meager 5% yoy during the quarter on back of capacity constraints
 Overall sales grew by 11% yoy to Rs 376.4 cr. Because of seasonality factor sequential numbers are not comparable
 The positive surprise came from margins side as EBITDA margins improved to 17.4% as compared to 12.1% in Q4FY12, supported by better product mix and higher economies of scale.
 Strong operational performance and Lower interest expense (as Debt has reduced from Rs 353 cr as on Mar’12 to Rs 185 cr) led to 115% YoY growth in net profit, much higher than our expectation of Rs 28.4cr
 APL has strong product pipeline of 34ANDAs pending approvals, which shows the research capacities of the company and also provides for the revenue visibility. The company expects 8-10 product launches every year in US markets. Cumulative ANDAs stand at 57 and DMF 60
 APL managed to substantially reduce the debt on its books from Rs 305cr at the end of FY12 to Rs 185 cr at the end of FY13 as the cross holdings on Alembic Ltd has been removed. Current Debt : Equity ratio is 0.3x which reflects the sound financial policies followed by the company. It also provides scope for expansion by fund raising if the need arise. Management believes that it can be further reduced to below Rs 100 cr by FY14.
 The company didn’t provide any quantative number the its recent big win – Desvenlafaxine Base – a 505 (b) (2) launch, however expects to garner reasonable revenues in the next 18-21 months window it has.
 The management has given healthy outlook of overall 20% growth escorted by 30-35% in international generics (as new formulation facility has partially go operated easing the capacity constraints), 15% in domestic formulations and 10% in API. Management has also maintained 100-125 bps improvement in EBITDA margins going forward.
Valuation & Recommendation
Considering the improving margins with steady growth, We recommend investors to BUY the stock on declines with price target of Rs 138 (10x of FY15E EPS), an upside of 13.4% from current levels

Ajanta Pharma, : report by Nirmal Bang

Impressive improvement in margins
Ajanta Pharma (APL) has yet again posted better than expected results with Q4FY13 sales growth of 42% yoy. EBITDA margins rose by 481 bps yoy to 27.4% on account of higher economies of scale.
Key Highlights
 Sales grew by 41.6% YoY on account of volume growth which contributed to the 80% of the growth. Price increases contributed 15% to growth and rest by new product launches.
 EBITDA margin rose significantly to 27.4% led by operating leverage and lower cost of materials. This is the third consecutive quarter of improvement in EBITDA margins
 Despite strong operational performance PAT growth got restricted at 14.8% yoy due to one-time exceptional tax expense (of Rs 15.75 cr) resulting in decline in PAT margins. However, adjusting for exceptional expense PAT showed an impressive growth of 81.5% yoy to Rs 42.8 cr.
 Company is undertaking capex of rs 400 cr at Dahej and Salvi to cater to regulated and domestic markets respectively. Both the plants are expected to operation by April’15.
 For FY14 the management seemed more confident and has given guidance of 23% sales growth with 24-25% EBITDA margins which we believe is achievable
 APL has filed three more ANDAs during the quarter taking the total number to 14 out of which 12 are awaiting approval. Going forward, Company intends to file 5-6 ANDAs per year.
Valuation & Recommendation
We had recommended partial book profits at Rs 690. However, considering the continuous outperformance, healthy outlook investors can hold the balance shares at current levels with price target of Rs 840 (12x of FY15E EPS)

Cholamandalam Investment & Finance ::Nirmal Bang

Another stable quarter
Cholamandalam Investment and Finance (CIFC) reported results in line with
expectations with strong growth in NII driven by higher disbursements and
benefit of capital raising done in the quarter. Improving product mix towards
higher yielding segment and presence in LCV segments has helped the company
to maintain growth momentum. Despite addition in branches and higher
employee base cost to income ratio of the company stood within targeted levels.
Provisions were on the higher side which was due to provision for loan loss asset
during the quarter. PAT stood at Rs 86 cr up 59% YoY and 5.3% QoQ in Q4FY13.
For FY13, PAT stood at Rs 307 cr up 77.7%.
We are impressed with the strategy of Management to maintain growth without
compromising on the asset quality. In order to maintain asset quality company
has not been focusing on increasing the gold loan portfolio considering the
overall concerns in the sector. Even though the CV industry is not doing good
CIFC is a safe player as its focus is more towards the LCV segment which has not
yet seen any significant signs of stress and is performing satisfactorily. Moreover,
company also focuses on high yielding and growing segment of used CVs and
tractor financing. This will ensure that the company continues to maintain its
growth momentum. Improving productivity of branches will lead to an
improvement in cost to income ratio. We believe that margins will continue to
remain strong with easing interest rate cycle as most of the loans of the
company are at fixed rate.
The above initiatives with a revamped business model will lead to a sustainable
and profitable growth in CIFC’s business and expect PAT to grow at a CAGR of
28.7% over FY13-FY15E. We expect CIFC to report an improvement in its RoE
from 18.3% in FY13 to 20.2% in FY15E and RoA (post tax) to improve from 1.9%
in FY12 to 2% in FY15E. At CMP the stock is trading at 1.69x FY14E and 1.43x
FY15E ABV and 9.65x FY14E and 7.58x FY15E EPS respectively. Based on our
estimated BV of Rs.159 per share for FY14E and P/ABV target multiple of 2.0x
we arrive at a target price of Rs.317. We continue to maintain our positive
outlook on the stock and recommend investors to HOLD the stock for a further
upside of 18% from current levels.
CIFC reported strong growth in AUM at 41.1% YoY and 10.9% QoQ to Rs
18,998 cr in Q4FY13.
Disbursements growth remained robust at 32.6% YoY and 22.3% QoQ to Rs
3,808 cr during Q4FY13.
CIFC opened 12 branches in Q4FY13 taking the total branch network to 518
branches in line with expectations and added 1,416 employees during the
quarter. Despite this the cost to income ratio was broadly stable during the
quarter at 48.8% reflecting improving productivity.
Gross NPA stood at 1.0% as compared to 1.17% in Q3FY13. Net NPA stood
at 0.2% vs 0.63% QoQ.

Oriental Bank of Commerce -Nirmal bang,

Higher provisions impact performance
The bank’s operating performance for Q3FY13 was slightly below estimates. Although Net interest income improved QoQ driven by lower cost of deposits; non-interest income declined sequentially due to lower recovery from written off accounts limiting the growth in core earnings. Higher provisions (+31.3% QoQ and 58.5% YoY) lead to 8% YoY decline in net profit at Rs 326.4 cr.
The bank adopted a prudent approach and provided Rs 78 cr to account for the increased provisioning norms on restructured books from 2% to 2.75% in one shot and provided Rs 30 cr on employee wage revision.
The bank witnessed some stress on its asset quality with gross NPA witnessing an increase on sequential basis; after witnessing an improvement for last two quarters. However, the increase in slippages has been on expected lines. Going forward, with an expected improvement in the recovery efforts of the bank and control over fresh slippages (close to peaking out), Management expects Gross NPAs to show a declining trend.
The Management has so far been successful in focusing on areas like retail lending, CASA accretion leading to higher NIMs, improving the asset quality of the bank with focus on recoveries. We believe that all these efforts will yield results in the bank’s performance with an improvement in the economic scenario. We still remain concerned about the expected restructuring (~Rs 2000-2200 cr) which will come in Q4FY13. Nevertheless considering the structural improvements taking place in the balance sheet, we expect the bank’s profitability to grow at 16.0% CAGR over FY12-FY14E. At CMP, the stock is trading at 0.96x and 0.88x FY13E and FY14E Adj BVPS and 7.06x and 6.27x FY13E and FY14E EPS respectively. We recommend to HOLD the stock and BUY at dips with a target price of Rs 376 (1.0 FY14E BV) indicating potential upside of 13.9% from current levels.
NIM stood at 2.84%, being 5 bps higher on QoQ basis. Advances grew 11.7% YoY and 4.9% QoQ to Rs 123,626 cr as on December’12. Gross NPA increased 6.5% QoQ to Rs 3,690 cr whereas net NPA increased by 9.1% QoQ to Rs 2610.6 cr. Gross NPA ratio stood at 2.98% and Net NPA ratio stood at 2.14%. Slippages stood at Rs 813 cr (slippage ratio of 2.6%) in Q3FY13 The bank added Rs 741 cr to its restructured book taking the total restructured book stands at Rs 11,798 cr (9.5% of total advance book) The bank took tax reversal of Rs 4 cr in Q3FY13. Management maintained its Tax rate guidance of 20%. Capital Adequacy Ratio stood at 12.25% as on December 2012 with Tier I ratio of 9.14%.

Reliance Infrastructure: Improving operating performance: Nirmal Bang

Improving operating performance
Reliance Infrastructure’s revenue declined 13.6% to Rs52.9 bn YoY (2.4% above our
estimate but 2.4% below Bloomberg estimate) as revenue from the EPC segment edged
lower. EBITDA fell 2.5% YoY to Rs7.75bn, but was 23%/20% above our/Bloomberg
consensus estimates, respectively, as revenue contribution from the high-margin
segments like road, power transmission projects surged coupled with decline in other
expenditure. RPAT grew 78% to Rs7.27bn YoY, which includes an exceptional gain of
Rs3.79bn on account of profit on sale of the shares of an associate company (Reliance
Power). Robust operating performance led to adjusted net profit of Rs4.29bn (~25%
above our and Bloomberg estimates). We have upgraded our earnings estimate by 3%
and 4% for FY13E and FY14E, respectively, to factor in the traction in infrastructure
business earnings. We have retained our Buy rating on the stock with a revised target
price of Rs665 from Rs652 earlier.
EPC revenue growth declines: For 3QFY13, EPC revenue declined 37% to Rs18.4bn YoY
(in line with estimates) due to subdued project execution run-rate following the completion of
some active projects and lower order book position. EBIT margin of the EPC segment stood
at 9.7%, down 100bps YoY and up 30bps QoQ. The order book currently stands at
Rs121.4bn (1.1x FY12 EPC revenue) comprising power generation, power transmission and
road projects.
Power distribution revenue edges higher on tariff hike: Power distribution revenue grew
6% YoY to Rs32.8bn driven by higher realisation on account of a 21% tariff hike in the Delhi
region, but volume remained muted due to the lean season. Energy sales in the Mumbai
region declined 5% to 1.5bn units YoY, while electricity volume in the Delhi region was flat at
3.37bn units YoY. Tariff revision process of the Mumbai power distribution company is
underway and it is likely to be approved by the regulator shortly.
Rise in revenue contribution from infrastructure projects - the trend likely to continue:
Revenue from infrastructure business improved 80% YoY and 38% QoQ to Rs1.52bn, driven
by commencement of incremental road projects. EBIT of the infrastructure segment improved
40% to Rs786mn QoQ (versus a loss of Rs212mn in 3QFY12). Currently, eight road projects
are revenue operational and we expect two more road projects to be commissioned in FY13E.
The company has resumed operations of Delhi Airport Metro Expressway after obtaining
necessary clearances. As much as 99% of the civil works of Mumbai metro rail project has
been completed, which is likely to be operational by 1QFY14. Six out of nine power
transmission lines of the WRSS project are generating revenue and the company expects
them to be fully operational by the end of FY13.
Retain Buy rating on the stock: We have revised our earnings estimates by 3%/4% for
FY13E/FY14E, respectively, to factor in higher income from infrastructure business compared
to our estimates. We have retained our Buy rating on the stock with a revised target price of
Rs665 from Rs652 earlier. We believe the completion of infrastructure projects leading to a
rise in infrastructure revenue, and recovery of regulatory assets next year are key triggers for
the stock’s outperformance likely in the next 12 months.

GMDC- Monopoly At Attractive Valuation:: Nirmal Bang

Monopoly At Attractive Valuation
We have assigned a Buy rating to Gujarat Mineral Development Corporation
(GMDC) due to monopolistic nature of its business, steady volume and earnings
growth and attractive valuation. We expect GMDC to post 18%/22%/21% CAGRs
in revenue/EBITDA/PAT, respectively, over FY12-FY15E, driven by 11%/9% rise in
lignite volume/realisation, respectively, in the same period. GMDC trades at P/E
of 9.0x/8.4x/7.3x FY13E/FY14E/FY15E earnings, respectively, while EV/EVITDA
multiples are at 4.8x/4.3x/3.5x, respectively, for the same period. We have set a
target price of Rs265 (6.0x FY14E EV/EBITDA) on GMDC, up 34% from the CMP

BUY Jammu & Kashmir Bank -Nirmal Bang

Snapshot
Jammu & Kashmir Bank has emerged as one of the handful (quasi) Government Banks to have registered consistent growth in earnings while maintaining the asset quality. We expect this to lead to a re-rating in the stock price.
Investment Rationale Strong performance to lead to re-rating: The Bank has reported a consistent growth in financial performance with Net Interest Income and PAT registering a growth of 19.1 per cent and 24 per cent respectively during FY’07-12 period. The Bank has strong return ratios with a RoE in excess of 20 per cent and RoA in excess of 1.5 per cent.
Play on the economy of J&K: Being a dominant player in the state of Jammu & Kashmir, the Bank should mirror the performance of the state’s economy, which is showing signs of stability.
Adequately funded to pursue future growth opportunities: Jammu & Kashmir Bank is adequately funded to pursue future growth opportunities over the next 2-3 years.
Consistent dividend pay-out ratio: The Bank has a consistent dividend pay-out policy. J&K Bank distributes ~20 per cent of the earnings as dividends. Extrapolating this trend, we expect the dividend to be minimum Rs.40 for FY’13E and Rs.48 for FY’14E.
Valuation & Recommendation
Jammu & Kashmir Bank posted Net Interest Income of Rs.1089 crore compared to Rs.871 crore, an increase of 25 per cent y-o-y. The Bank registered a pre-provisioning profit of Rs.837.8 crore compared to Rs.629.1 crore, an increase of 33.2 per cent y-o-y. Profit after tax for H1FY’13 stood at Rs.515.6 crore. EPS for the half-year stood at Rs.106.4.
Considering the improving prospects, consistent growth in earnings, we expect a strong re-rating in terms of valuation. We value J&K Bank at 1.45x FY’14E adj. book value to arrive at a price target of Rs.1710 over the next nine months (an upside potential of 22 per cent).