India Equity Analytics

Daily Fundamental Report on Indian Equities

IEA-Equity Strategy 4th Feb, 2014 Edition : 198

4th Feb 2014

SWARAJ ENGINES: "Long term fundamental continue to remains intact "

"BUY"

At the CMP of INR610, the stock discounts its FY14E EPS of INR53.20 by 10.8x and FY15E EPS of INR61.2 by 9.8x. Given the strong revenue growth at a CAGR of 21%; PAT growth at CAGR of 26% post acquisition and stable margins at ~15%, the company is poised to grow further and capable of ustaining its healthy earnings. Also, Company assurance of 30-60% dividend payout ratio implies an attractive dividend yield of 4-9%. So taking all this into consideration share looks reasonable at Rs. 610 as long term fundamental continue to remains intact and one can expect growth of about maybe 10-13% in next eight-twelve months time. We upgrade our rating on stock from "Hold" to "accumulate", with a revised price target to Rs 648 ................................. ( Page :2-3)

Kolte-Patil Developers: "On track to meet FY14 guidence"

"BUY"

4th Feb 2014

At the CMP of Rs.91, the stock P/E ratio is at 4.6x FY14E and 3.8x FY15E respectively. EPS of the company for the earnings for FY14E and FY15E is seen at Rs. 19.6 and Rs.23.8 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 68% and 69% over FY13-15E respectively. On the basis of Intrest coverage ratio, the stock trades at 7.5x for FY14E and 9.1x for FY15E. Price to Book Value of the stock is expected to be at 0.7x and 0.8x respectively for FY14E and FY15E at current price . We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We maintain Buy in this particular scrip with a target price of Rs 120 for medium to long term investment. .......................... ( Page : 4-5)

Kalpatru Power Transmission : "Missed one."

"BUY"

4th Feb 2014

At CMP of Rs.75.6, KPTL tradesat 7.6x FY14 EPS and 5.5x FY15 EPS. To factor in robust revenue growth, we revise revenue estimates for FY14/FY15 by 5.1%/1.0% respectively. On account of continued losses and low margin orders in the infrastructure segment we revise standalone EBIDTA margins as well to 9.7% for FY14 and 10.0% for FY15. Hence, we maintain "Buy"rating with target price at Rs.95/share. ................................................ ( Page : 6-9)

Godrej Consumer Product :" Strategy Shining"

"BUY"

4th Feb 2014

For 3QFY14, Godrej CP revealed inline set of numbers with 17% sales growth led by 18% domestic and 25% international sales growth, reported growth across all geographies and segments, respectively. With launching new products in domestic as well as international market, Godrej CP will explore organic & inorganic growth. Along with its 3x3 strategy, it has 10x10 strategy also, which refers to 10x growth in 10 yrs. .............................................. ( Page : 10 -12)

Sesa Sterlite Ltd :

"NEUTRAL"

4th Feb 2014

Vedanta group firm Sesa Sterlite reported a consolidated net profit of Rs 1,868.29 crore for the Q3FY14.The company, previously known as Sesa Goa, had reported a net profit of Rs 496.73 crore in the corresponding period of the previous fiscal.During the quarter, its net sales stood at Rs 19,414.34 crore .The company has resumed iron ore mining operations in Karnataka , 2013 where it has 2.29mn tonne per annum capacity .We value the stock using forward P/B and here by we recomend Neutral rating on the stock at a target price of Rs.196 from current market price of Rs.185 ................................................ ( Page : 13-15)

HEROMOTOCO: Average Sales with Flat Profits Growth..

"BUY"

3th Feb 2014

The company registered its 3QFY14 net sales at Rs 6846 Cr up by 11.3% YoY led by healthy volume growth of 7% for the period under review. The company during 3QFY14 sold 1680940 units including exports. The volume performance was led by a strong 7.8% YoY growth in the domestic segment. ..................................................................... ( Page : 16-17)

Marico : " Volume slows"

"NEUTRAL"

3th Feb 2014

Beats the street on profitability and Margin front with poor volume growth;Marico witnessed better numbers than expectation with 10% sales growth (excluding Kaya Sales) led by 3% volume growth on YoY basis. We believe that slower volume growth could not easily turned out in next 1-2 quarters because of poor discretionary demand environment. Therefore, we downgrade our view from "BUY" to "NEUTRAL". ....................................................................... ( Page : 18-20)
Narnolia Securities Ltd,

VResult update
CMP Target Price Previous Target Price Upside Change from Previous

SWARAJ ENGINES Ltd.

" Long term fundamental continue to remains intact. "
Accumulate
598 648 600 8% 7%

"Accumulate"
4th Feb' 14

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 500407 SWARAJENG 382/535 742 601 6,002

Swaraj Engines posted a moderate revenue growth of 20.8% to Rs. 150.2 crore during Q3FY14 over corresponding period of previous year due to 21.2% growth yoy reported in diesel engines sales volume. Company sold 18,530 diesel engines during the quarter as compared to 15,288 engines sold during corresponding period of previous year. EBITDA of the company marginally outpaced by the revenue due to unexpected rise in non operating expenses and stands at Rs. 21.8 crore up by 18.6% yoy. Though company managed to control material cost, which constitutes ~90% of the total expenses; however, employee cost and administration expenses reported the growth of 22.1% and 23.9% respectively during the quarter. As a result, EBITDA and PBT margin reported a marginal deterioration of 24bps and 5bps during Q3FY14 yoy respectively. PAT reflected in-line numbers and reported the yoy growth of 21.4% to Rs. 16.7 crore before extra ordiniary item of Rs. 1.15 crore; while PAT margin improved by 5bps. Leading supplier to Mahindra & Mahindra Ltd : Leading supplier to Mahindra & Mahindra Ltd A key source to growth: SEL enjoys the access to the Indias largest tractor manufacturer M&M (41% market share in Domestic tractor industry), which has a holding of 33% in SEL. Swaraj Engines Ltd manufactures tractor engines solely for the Swaraj Division of M&M. It caters to ~80% demand of Swaraj division of M&M and rest 20% of demand is met through Kirloskar Oil Engines, which has a holding of 17% in SEL. The demand from M&M is estimated to grow further and reach ~8590%. Outlook : We have modeled a 25% of revenue growth for FY15 yoy respectively, due to SWEs ability to maintain growth in product volume and recent enhancement in annual production capacity from 75,000 units to 105,000 units. Company currently operates at TTM EBITDA and net margin of 14.8% and 11.3% respectively, which provides sufficient cushion against operating cost. With liquidity being moderate and cash flow positive, company has enough cash to finance its expansion plan of Rs. 38 crore through internal accruals. Valuations : At the CMP of INR610, the stock discounts its FY14E EPS of INR53.20 by 10.8x and FY15E EPS of INR61.2 by 9.8x. Given the strong revenue growth at a CAGR of 21%; PAT growth at CAGR of 26% post acquisition and stable margins at ~15%, the company is poised to grow further and capable of ustaining its healthy earnings. Furthermore, despite the capex of INR58crore, the company has strong cash flows and the company is debt free. Also, Company assurance of 30-60% dividend payout ratio implies an attractive dividend yield of 4-9%. So taking all this into consideration share looks reasonable at Rs. 610 as long term fundamental continue to remains intact and one can expect growth of about maybe 10-13% in next eight-twelve months time. We upgrade our rating on stock from "Hold" to "accumulate", with a revised price target to Rs 648.

Stock Performance-%
Absolute Rel. to Nifty 1M (6.6) (2.3) 1yr 24.3 24.7 YTD 51.4 45.3

Share Holding Pattern-%

Promoters FII DII Others 3QFY14 50.6 1.9 10.6 36.9 2QFY14 50.6 1.9 10.4 37.1 1QFY14 50.6 1.5 10.6 37.3

1 yr Forward P/B

Financials Revenue EBITDA PAT EBITDA Margin PAT Margin

(Standalone)

3QFY14A 150.2 21.8 15.6 14.5% 10.8%

2QFY14A 151.6 22.7 17.2 14.9% 11.0%

(Var)-% -0.9% -3.8% -9.5% (40) bps (20) bps

3QFY13A 124.6 18.4 13.8 14.8% 10.7%

Rs, Crore (YoY)-% 21.7% 23.3% 24.9% (30) bps 10 bps 2

(Source: Company/Eastwind Research)

Narnolia Securities Ltd,

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

SWARAJ ENGINES Ltd.

Key financials :
PARTICULAR Performance Revenue Other Income Total Income EBITDA EBIT DEPRICIATION INTREST COST PBT TAX Reported PAT Dividend EPS DPS Yeild % EBITDA % PBT % NPM % Earning Yeild % Dividend Yeild % ROE % ROCE% Position Net Worth No of Share CMP
(Ammount Valuation in crore)

2009A

2010A

2011A

2012A

2013A

2014E

2015E

208 5 213 32 27 5 0 32 11 21 7 17.2 5.9

282 10 292 50 45 5 0 55 17 37 12 30.1 9.3

361 8 369 61 56 4 0 64 20 44 14 35.4 11.6

449 12 461 69 65 4 0 77 24 53 19 42.5 15.1

479 15 494 71 64 7 0 79 24 55 48 44.6 38.4

602 18 620 87 78 9 0 96 30 66 24 53.5 19.3

750 20 770 109 98 11 0 118 37 81 30 65.4 24.2

15.3% 15.1% 10.0% 8.0% 2.7% 21.9% 21.9%

17.6% 18.7% 12.8% 31.6% 9.8% 30.4% 30.4%

16.8% 17.4% 11.9% 12.2% 4.0% 28.8% 28.8%

15.5% 16.8% 11.5% 9.9% 3.5% 28.4% 28.4%

14.9% 16.1% 11.2% 11.3% 9.7% 28.6% 28.6%

14.5% 16.0% 11.0% 9.0% 3.2% 28.1% 28.1%

14.5% 15.7% 10.8% 10.9% 4.0% 28.3% 28.3%

97 1 214

123 1 95

152 1 290

186 1 429

194 1 395

236 1 598

287 1 598

(Source: Company/Eastwind)

Book Value P/B P/E Net Sales/Equity

78.3 2.7 3.5 2.1

98.8 1.0 5.3 2.3

122.6 2.4 5.6 2.4

150.0 2.9 5.1 2.4

156.0 2.5 6.8 2.5

190.2 3.1 11.2 2.5

231.5 2.6 9.1 2.6

(Source: Company/Eastwind Research)

(Figures In crore)

Narnolia Securities Ltd,

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

VResult update
CMP Target Price Previous Target Price Upside Change from Previous

Kolte-Patil Developers Ltd.

"On track to meet FY14 guidence.........."
Buy
74 100 120 35% 0%

"Buy"
4th Feb' 14

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume Nifty 532924 KOLTEPATIL 49/115 558 239,587 6,002

The company posted de-growth in its revenue and net profit during the third quarter compared to same period last year. KPD's net revenue for Q3FY14 dipped to Rs 188 crore against Rs 225 crore in Q3FY13. The company's net profit also decreased to Rs 20.40 crore in Q3FY14 against Rs 30.52 crore in Q3FY13. However, the company's net revenues for first nine months for FY14 grew by 15 per cent to Rs 593 crore against Rs 518 crore in 9MFY13. Interestingly the company's EBITDA soared up by 45 per cent to Rs 181 crore in 9MFY14 on yearly basis. This has improved its EBITDA margins by 630 basis points on yearly basis. The PAT stood at Rs 79 crore in 9MFY14 against the PAT during same period in last financial year. Based on revised volume guidence by management in range of 1.8-2.0mnsft, we cut our FY14/FY15 earnings by 5%/8% while maintaining BUY with a revised TP of Rs 100 (Rs 120 earlier) New sales booking recorded in Q3FY14 is 0.44 msf of which about 93% is residential and 7% commercial projects. The sales value was worth Rs 253 crore. The Average price realization (APR) for the quarter stood at Rs 5730/sft with average price for residential project stood at Rs 5421/sft and that for commercial project at Rs 9932/sft. The ongoing projects as end of Dec 2013 have a saleable area is 14.1 msf (KPDL's share is 9.3 msf) and of which the company already sold about 7.8 msf with a sale value of Rs 3157.7 crore. Cumulative collection as end of Dec 2013 in case of ongoing projects is about Rs 2442.7 crore and the collection in Q3FY14 stood at Rs 230 crore. In January 2014 launched 0.2 msf (of total saleable area of 0.9 msf) of Jazz Phase I at Aundh. Jan 2, 2014 the company obtained final approval and started pre launch activity and made 34 units as far as 0.6 msf Mirabilis, Horamavu, Bengaluru project. Gross debt excluding compulsory convertible debentures (CCD) is Rs 205 crore and the net debt is Rs 127 crore. In Q3FY14 recorded its first sale in Mumbai of 2,200 sft. at an APR of Rs 34375/sft. Management Guidence Management is hopeful of achiveing a topline target of Rs. 800-900 crore for FY14E and new area sales booking of 1.8 - 2 msf for FY2014 with average price realization of Rs 5300/sft. Valuations At the CMP of Rs.91, the stock P/E ratio is at 4.6x FY14E and 3.8x FY15E respectively. EPS of the company for the earnings for FY14E and FY15E is seen at Rs. 19.6 and Rs.23.8 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 68% and 69% over FY13-15E respectively. On the basis of Intrest coverage ratio, the stock trades at 7.5x for FY14E and 9.1x for FY15E. Price to Book Value of the stock is expected to be at 0.7x and 0.8x respectively for FY14E and FY15E at current price . We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We maintain Buy in this particular scrip with a target price of Rs 120 for medium to long term investment.

Stock Performance-%
Absolute Rel. to Nifty 1M (18.8) (14.5) 1yr (36.6) (36.3) YTD (16.3) (22.4)

Share Holding Pattern-%

Promoters FII DII Others 3QFY14 74.5 1.4 0.4 23.8 2QFY14 74.5 1.4 0.8 23.5 1QFY14 74.5 1.5 0.5 23.5

1 yr Forward P/B

Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 188.1 57.3 20.4 30.4% 15.8% 2QFY14 188.6 60.3 32.2 32.0% 18.3% (Var)-% -0.3% -5.0% -36.7% (160) bps (250) bps 3QFY13 225.4 62.9 30.6 27.9% 16.6%

Rs, Crore (YoY)-% -16.5% -9.0% -33.2% 252 bps (80) bps 4

(Source: Company/ Eastwind Research)

Narnolia Securities Ltd,

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

Kolte-Patil Developers Ltd.

Key financials :
PARTICULAR Performance Revenue Other Income Total Income EBITDA EBIT DEPRICIATION INTREST COST PBT TAX Reported PAT Dividend EPS DPS Yeild % EBITDA % NPM % Earning Yeild % Dividend Yeild % ROE % ROCE% Position Net Worth Total Debt Capital Employed No of Share CMP (Ammount in crore) Valuation Book Value P/B Int/Coverage P/E
(Source: Eastwind Research)

2009A

2010A

2011A

2012A

2013A

2014E

2015E

186 50 236 85 84 1 8 126 40 9 8 11.5 1.0

148 5 153 58 57 2 8 54 16 36 8 5.0 1.0

204 5 209 91 89 2 7 87 30 61 12 7.5 1.6

249 10 260 68 66 2 24 50 14 82 12 4.7 1.6

743 7 750 201 196 5 42 160 55 108 30 16.4 4.0

825 7 832 248 240 8 46 201 69 132 30 17.4 4.0

908 18 925 272 265 8 46 237 81 155 30 20.5 4.0

45.8% 36.7% 58.0% 5.1% 13.2% 10.6%

39.5% 24.7% 9.3% 1.9% 5.6% 4.6%

44.4% 27.3% 16.4% 3.5% 8.2% 6.5%

27.2% 13.8% 12.1% 4.1% 5.0% 3.8%

26.4% 16.2% 18.4% 4.5% 17.3% 13.9%

30.0% 15.9% 23.7% 5.4% 16.1% 12.3%

30.0% 16.8% 27.9% 5.4% 16.4% 13.0%

657 159 816 8 20

675 150 824 8 54

700 175 874 8 46

721 226 947 8 39

717 819 944 173 250 250 891 1069 1194 8 8 8 89 74 74 (Source: Company/Eastwind)

87.2 0.2 11.2 1.7

89.4 0.6 6.8 10.8

92.3 0.5 13.1 6.1

95.2 0.4 2.7 8.3

94.6 0.9 5.1 5.4

108.1 0.7 5.2 4.2

124.6 0.6 5.8 3.6

(Figures in crore)

Narnolia Securities Ltd,

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

Kalpatru Power Transmission

"Missed one."
Result
CMP Target Price Previous Target Upside Price Change from Previous

"Buy"
4th Feb' 14

Buy
73 95 120 30% -21%

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 522287 KALPATPOWR 64/105 1201 48500 6002

Kalpataru Power Transmission reported a 18% growth in standalone net sales to Rs 1051.34 crore. The growth was driven by Transmission business, which constitute about 96% of total sales and was up by 25% YoY to Rs 1007.22 crore. Infrastructure segment comprising of Railways and Pipeline execution reported a 61% fall in net sales to Rs 28.05 crore largely due to lower execution and excessive rainfall in Eastern region of the country. Other segment comprising of Biogas reported a 6% growth in net sales to Rs 16.07 crore. OPM was down by 110 bps to 8.9%. While there was a better execution of Transmission sector business including higher execution of export orders having better margins, continued losses in Infrastructure segment resulted in fall in OPM. The PBIT of Transmission business stood at Rs 89.51 crore with PBIT margin of about 9%, where as Infrastructure business reported loss of about Rs 15.23 crore as compared to profit of Rs 5 lakh for Dec'12 quarter. The Other segment PBIT was down by 11% to Rs 1.80 crore. Thus overall OP was up by 6% to Rs 94.04 crore. JMC Projects EBITDA margins improve to 5.1%, PAT up 75.6% yoy to Rs.31.4mn: Standalone PAT grew by 75.1% yoy to Rs.58.3mn upon 8.8% yoy growth in income from operations to Rs.6651mn, better than our PAT and revenue estimates of Rs.32.1 and Rs.6426mn. Robust execution of better margin factories and buildings orders and cost optimization measures,led 40 bps yoy increase in EBITDA margins to5.1%, Standalone Performance for nine months ended Dec 2013 Kalpataru Power Transmission reported a 26% growth in standalone net sales to Rs 2903.14 crore for the nine months ended Dec'13 period. The growth was driven by Transmission business, which constitute about 94% of total sales and was up by 33% YoY to Rs 2720.41 crore. Infrastructure segment comprising of Railways and Pipeline execution reported a 36% fall in net sales to Rs 138.48 crore largely due to lower execution and excessive rainfall in Eastern region of the country. Other segment comprising of Biogas reported a 13% growth in net sales to Rs 44.25 crore. OPM was down by 30 bps to 9.5%. While there was a better execution of Transmission sector business including higher execution of export orders having better margins, continued losses in Infrastructure segment resulted in fall in OPM The PBIT of Transmission business stood at Rs 259.25 crore with PBIT margin of about 9.5%, improvement of 60 bps YoY, where as Infrastructure business reported loss of about Rs 36.48 crore as compared to profit of Rs 5.45 crore for nine months ended Dec'12 period. The Other segment PBIT was stood at Rs 3.49 crore as compared to Rs 0.47 crore for nine months ended Dec'12 period. Thus overall OP was up by 23% to Rs 277.15 crore. Other income was up by 10% to Rs 37.80 crore. Interest was up by about 24% to Rs 114.26 crore and depreciation was up by 35% to Rs 51.33 crore, after which the PBT was up by 16% to Rs 149.36 crore. After providing total tax of Rs 50 crore, up by 25% YoY, standalone PAT for nine Financials Rs, Crore 3QFY14 2QFY14 (QoQ)-% 3QFY13 (YoY)-% Revenue 1051.3 962.2 9.3 889.7 18.2 EBITDA 94.0 91.1 3.2 88.6 6.2 PAT 33.7 31.0 8.7 35.1 -4.1 EBITDA Margin 8.9% 9.5% (60) bps 10.0% 110 bps PAT Margin 3.2% 3.2% 0 bps 3.9% (70) bps (Standalone) (Source: Company/Eastwind) 6 Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

Stock Performance-%
Absolute Rel. to Nifty 1M -18 (13) 1yr -25 (24) YTD -11 (17)

Share Holding Pattern-%

Promoters FII DII Others 3QFY14 2QFY14 1QFY14 59 59 58 9.7 9.9 10.9 23.2 23.4 23.2 7.6 7.3 7.8

1 yr Forward P/B

Kalpatru Power Transmission.

Concall Highlights:
PGCIL has changed its model on bidding as PGCIL itself needs to be now competitive for winning future bids. Competition continues to remain as it is, although everybody has become cautious. Management expects good orders from PGCIL in Mar'14 quarter, which is the normal trend. Infrastructure segment comprising of railways and pipelines continue to report losses due to lower execution, delays for some projects due to ROW issues and high and extended rainfall in Eastern region of India, where the company has maximum orders. Infrastructure business has an order book of around Rs 420 crore of which 80% are legacy orders. Management expects legacy orders to end by 2 more quarters after which better margins and better results within the sector will come in. Railways are not making any money and it's been very disappointing with not much to bid in and legacy orders hurting the margins. About 50% of order book is from Government contracts in JMC Projects and rests are private. Q4 will see some more margin improvement due to better execution. Margin improvement of about 50-75 bps will continue in FY'15 for JMC Projects. Overall, the management expects to end the year with a 20% net sales growth for FY'14 for KPTL and about 15% for FY'15. Margins will hover around 10-10.5% for transmission business segment. Company has standalone debt of abut Rs 650 crore which it expects to bring down by about Rs 100 crore by end of FY'14. Average interest costs is about 10.5%. Consolidated debt is about Rs 2600 crore.

Healthy order book:

Consolidated order book as end of Dec 2013 was above Rs 12500 crore and of which KPTL's was Rs 7000 crore and that of JMC Project's was Rs 5500 crore. JMC received new order worth Rs 880 crore in Q3 FY'14. About 54% of order book of Transmission business was from international markets. About 50% of order book is from Government contracts in JMC Projects and rests are private.

Outlook:
At CMP of Rs.75.6, KPTL tradesat 7.6x FY14 EPS and 5.5x FY15 EPS. To factor in robust revenue growth, we revise revenue estimates for FY14/FY15 by 5.1%/1.0% respectively. On account of continued losses and low margin orders in the infrastructure segment we revise standalone EBIDTA margins as well to 9.7% for FY14 and 10.0% for FY15. Hence, we maintain "Buy"rating with target price at Rs.95/share.

Narnolia Securities Ltd,

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

Kalpatru Power Transmission.

Story in graphs :
T&D Revenue (INR) & T&D EBIT (%) (Q-o-Q) :

Standalone, INR in crores

(Source: Company/Eastwind)

Revenue (Q-o-Q) :

Standalone, INR in crores

(Source: Company/Eastwind)

Margin % (Q-o-Q) :

INR in crores

(Source: Company/Eastwind)

Cost % of revenue :
(Source: Company/Eastwind)

Cost as a % of sales (Q-o-Q) :

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

Kalpatru Power Transmission.

Key financials :
PARTICULAR 2009A 2010A 2011A 2012A 2013A 2014E 2015E

Performance Revenue Other Income Total Income EBITDA EBIT DEPRICIATION INTREST COST PBT TAX Reported PAT Dividend EPS DPS Yeild % EBITDA % NPM % Earning Yeild % Dividend Yeild % ROE % ROCE% Position Net Worth Total Debt Ammount in crores Capital Employed No of Share INR in crores CMP Valuation Book Value P/B Int/Coverage P/E
(Source: Eastwind Research)

3246 35 3281 329 272 58 137 170 42 128 23 9.7 1.7

4032 25 4057 448 373 75 126 272 69 203 23 15.3 1.7

4363 31 4394 464 376 88 117 291 79 211 27 13.8 1.7

5308 33 5341 500 402 99 158 277 73 204 27 13.3 1.7

6085 36 6121 475 352 122 194 194 60 135 27 8.8 1.7

7210 30 7240 584 445 139 263 212 65 147 27 9.6 1.7

8166 30 8196 692 525 167 263 293 90 203 27 13.2 1.7

10.1% 3.9% 14.6% 2.6% 14.7% 7.1%

11.1% 5.0% 7.3% 0.8% 19.7% 10.5%

10.6% 4.8% 11.4% 1.4% 12.9% 8.5%

9.4% 3.8% 12.3% 1.6% 11.0% 6.5%

7.8% 2.2% 10.6% 2.1% 6.9% 3.7%

8.1% 2.0% 13.1% 2.4% 7.1% 3.2%

8.5% 2.5% 18.0% 2.4% 9.0% 4.3%

870 945 1815 13 66

1027 901 1929 13 210

1645 831 2476 15 121

1851 1281 3133 15 108

1947 2068 2244 1669 2500 2500 (Source: Company/Eastwind) 3616 4568 4744 15 15 15 Company/Eastwind) 83 (Source: 73 73

65.6 1.0 2.0 6.8

77.5 2.7 3.0 13.7

107.2 1.1 3.2 8.8

120.7 0.9 2.5 8.1

126.9 0.7 1.8 9.4

134.8 0.5 1.7 7.6

146.2 0.5 2.0 5.5

(Figures in crore)

Narnolia Securities Ltd,

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

Godrej Consumer Product

" Strategy Shining"
Result update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance 1M Absolute -13.8 Rel. to Nifty -10.3 BUY 722 960 725 33% 32%
Almost inline set of numbers;

"BUY"
4th Feb' 14

532424 GODREJCP 977/672 24573 120012 6002

1yr 1.5 1.4

YTD 5.4 0.6

For 3QFY14, Godrej CP revealed inline set of numbers with 17% sales growth led by 18% domestic and 25% international sales growth, reported growth across all geographies and segments, respectively. PAT grew by 14% on YoY basis. Its strong focus on driving growth in the domestic and international market by expansion of products and distribution reach, we expect strong earning in near future. With launching new products in domestic as well as international mkt, Godrej CP will explore organic & inorganic growth. Along with its 3x3 strategy, it has 10x10 strategy also, which refers to 10x growth in 10 yrs. Margin decline: The Company has been able to maintain its margin more than 15% mark. EBITDA margin declined 110bps (YoY) to 15.7%, due to rise in A&P cost by 80 bps to 11.5%. However, there was decline in RM cost by 500 bps to 38.8% of adjusted net sales. On Category wise: During the Quarter, Household insecticides grew by +8%, adversely impacted by abnormal seasonal slowdown. Both the key brands Hit and Good knight continue to gain share and strengthen market leadership positions across all formats. Soap sales growth was +6%, volume growth at +4%, ahead of the category growth, but down in value and volume term. Strong momentum in hair colours was maintained, delivering sales growth at +37%. Liquid detergents grew 36%. Geography wise performance: For 3QFY14, Business from India grew by 18% and contributed 53% of total revenue, Indonesia grew by +18% and contributed 17% of total revenue, Africa grew by 29% and contributed 15% of total revenue, Latin America grew by 15% and contributed 8% of total revenue and Europes business continued strong sales performance on both organic and Soft & Gentle (S&G) product portfolio. Business reported growth of 124%. Products strategy: The company continues to gain and enjoy market leader ship position across all three formats. The company is driving increase in penetration with launch of "Goodknight Advanced colour play". Recent developments: The Company has entered into an agreement on Oct 7, 2013, to acquire a 30% stake in Bhabani Blunt Hair Dressing Pvt Ltd, a premier hair salon company with one of the strongest consumer franchises in this space. View and Valuations: Its strong 20%+ growth in the domestic household insecticides business is the key growth driver. We expect strong momentum to continue in its international business led by Megasari and consolidation of Darling business. Despite some concerns related to higher leverage, lost domestic focus, macro uncertainties in Africa and LatAM, and currency risk, we remain confident of achieving the 20%+ sales growth with strong PAT growth for FY14E & beyond. At a CMP of Rs722, stock trades at 5.1x FY15E P/BV. We retain BUY with a price target of Rs 960. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 1982.3 311.1 196 15.7% 9.9% 2QFY14 1961.7 299.8 195 15.3% 9.9% (QoQ)-% 1.1% 3.8% 0.5% 210bps 220bps 3QFY13 1695.6 284.9 172.2 16.8% 10.2% Rs, Cr (YoY)-% 16.9% 9.2% 13.8% (30bps) (10bps)
10

Share Holding Pattern-% Current 2QFY14 1QFY14 Promoters 63.3 63.3 63.3 FII 28.9 28.7 28.3 DII 1.4 1.2 1.2 Others 6.5 6.8 7.2 1 yr Forward P/B

Narnolia Securities Ltd,

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

Godrej Consumer Product

Sales and its Growth(%)

India branded business grows 17%, ahead of the market growth across core categories.

(Source: Company/Eastwind)

Margin-%

It expects expansion in gross margin, which will help it to fund new product launches.

(Source: Company/Eastwind) Region-wise EBITDA Margin

Regions India Indonesia Africa Latin America Europe

2QFY12 18.9% 19.4% 26.0% 7.4% 11%

3QFY12 20.4% 20.6% 31% 9% 5%

4QFY12 20.2% 20.7% 19.3% 16.3% 10.5%

1QFY13 15.1% 18% 19% 3% 13%

2QFY13 17.6% 19% 16% 4% 9%

3QFY13 18% 20% 20% 8% 5%

4QFY13 1QFY14 2QFY14 3QFY142 16.7% 15.8% 18.9% 18.5% 19% 15% 17% 16.0% 7% 13% 14% 18.0% 9% 3% 7% 9.0% 13% 9% 10% 6.0% (Source: Company/Eastwind)

Domestic and Export sales-(% of Sales)

(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

11

Godrej Consumer Product

Key facts from Conference call (attended on 3rd Feb 2014); (1) The management stated that the company is continue to be aggressive in launching new innovations that have been well accepted by consumers. They are backing new launches with strong investments. (2) More focusing on Innovative pipeline and Brand equity to maintain its market share across brands,They will launch a new product next week, but they did not tell the segment name. (3) Q4 will be better quarter for household segments. (4)The company will continue investing judiciously for the longer term to improve position, create competitive advantage and emerge stronger than before. (5) They are not seeing any major impact on Argentina or Africa revenue, because of economic uncertainties, Financials and Valuation
Rs in Cr, Sales Other Operating Income Total income from operations RM Cost Purchases of stock-in-trade WIP Employee Cost Ad Spend Other expenses Total expenses EBITDA Depreciation and Amortisation Other Income Exceptional Item EBIT Interest PBT Tax Exp PAT Growth-% (YoY) Sales EBITDA PAT Expenses on Sales-% RM Cost Ad Spend Employee Cost Other expenses Tax rate Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% Div- Payout-% P/BV P/E FY10 2041.2 2.5 2043.7 619.59 367.16 -40.45 151.81 132.8 402.98 1633.89 409.81 23.6 44.81 0 386.21 11.1 419.92 80.33 339.59 46.3% 95.2% 97.0% 30.3% 6.5% 7.4% 19.7% 19.1% 20.1% 18.9% 16.6% 261 30.8 954.7 11.0 31.0 35.6% 30.6% 8.4 23.7 FY11 3693.6 28.11 3721.71 1458.28 294.12 -45.22 284.51 352.85 695.96 3040.5 681.21 49.92 24.13 41.14 631.29 43.64 652.92 138.21 514.71 81.0% 66.2% 51.6% 39.2% 9.5% 7.6% 18.7% 21.2% 18.3% 17.0% 13.8% 365 32.4 1725.2 15.9 53.2 29.8% 38.3% 6.9 23.0 FY12 4866.16 45.93 4912.09 2174.67 356.11 -212.26 391.91 449.86 850.47 4010.76 901.33 64.44 6.07 200.17 836.89 65.84 977.29 226.05 751.24 31.7% 32.3% 46.0% 44.3% 9.2% 8.0% 17.3% 23.1% 18.3% 17.0% 15.3% 559 34 2815.2 22.1 82.8 26.7% 22.6% 6.8 25.3 FY13 6390.79 16.58 6407.37 2640.31 451.03 -118.06 590.68 660.35 1196.46 5420.77 986.6 77 67.78 96.12 909.6 77.45 996.05 179.18 816.87 31.3% 9.5% 8.7% 41.2% 10.3% 9.2% 18.7% 18.0% 15.4% 14.2% 12.7% 836 34.03 3313.0 24.0 97.4 24.7% 23.0% 8.6 34.8 FY14E 7701.26 15.40 7716.66 3028.79 559.46 -23.15 733.08 887.42 1311.8 6497.4 1219.2 92.7 57.9 38.6 1126.5 87.7 1135.3 204.35 930.9 20.5% 23.6% 14.0% 39.3% 11.5% 9.5% 17.0% 18.0% 15.8% 14.6% 12.1% 722.0 34.03 4044.9 27.4 118.9 23.0% 21.4% 6.1 26.4 FY15E 9053.82 18.11 9071.93 3719.49 657.71 -90.72 907.19 997.91 1587.6 7779.2 1292.7 100.4 90.7 45.4 1192.3 78.7 1249.7 249.94 999.8 17.6% 6.0% 7.4% 41.0% 11.0% 10.0% 17.5% 20.0% 14.3% 13.1% 11.0% 722.0 34.03 4845.6 29.4 142.4 20.6% 19.9% 5.1 24.6

(Source: Company/Eastwind)
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

12

Sesa Sterlite Ltd.

Initial Coverage
CMP Target Price Previous Target Price Upside Change from Previous

"Neutral"
4th Feb' 14

Neutral
185 196 NA 6% NA

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Crores) Average Daily Volume (Nos.) Nifty 500295 SSLT 213/119 54979 24740 6002

Q3FY14 Result Update Vedanta group firm Sesa Sterlite reported a consolidated net profit of Rs 1,868.29 crore for the Q3FY14.The company, previously known as Sesa Goa, had reported a net profit of Rs 496.73 crore in the corresponding period of the previous fiscal.During the quarter, its net sales stood at Rs 19,414.34 crore .Results of the company, however, are not comparable due to merger of Sterlite Industries, Sterlite Energy, Ekaterina Ltd, Madras Aluminium and Vedanta Aluminium into itself.The merger had become effective in August last year.During the quarter EBIDTA% and NPM% increased to 33% and 9.4% respectively from 24.6% and 7.6% in previous quarter . The company reported a forex loss of 82cr during the quarter. Zinc Operations Production was lower by ~5% YoY to 220kt and FY14E production guidnace was reduced further to 900kt (from 950kt in Q2 and 1000kt in Q1) due to slower than expected rampup in underground mining.Integrated silver production guidance has been reduced to 290t (vs 335t earlier) due to lower output from Agucha than earlier expected. Aluminium Operations VAL alumina refinery utilization increased to 72% in Q3 vs 46% in Q2 and captive alumina met 43% of total requirements of the aluminium smelter.BALCO volume performance was stable but costs were lower resulting in increase in profits.Management expects to tap first metal from 325 ktpa smelter of BALCO in H1FY15 and sees synchronization of 1st unit of 1200 MW power plant in Q1FY15. Starting of metal tapping from 1.25 mtpa smelter of VAL has still not been finalized. Power Operations Blended realizations fell QoQ to Rs3.4/unit while CoP stood at Rs2.3/unit.Boiler light up of 1st unit of 660MW of Talwandi Sabo power project was done in Q3 and trial runs are expected to commence during Q4. Iron Ore Operations Operations at Karnataka have resumed and ramp up to a run rate of 0.5 MT/month is underway.The first iron ore sale through e-auction is expected at the end of current month.Operations remained in Goa but e-auction of inventory has been allowed. However, further clarityon the start of auctions is still sought. Q3FY14 Financials : Revenue from Operation EBITDA Depriciation Interest Cost Tax PAT Q3FY14 19523 6572 2004 1530 -139 1868 Q-o-Q % -23 2 -30 -19 -85 -22 Q3FY13 237 -107 35 126 -81 498 Q2FY13 25352 6460 2846 1880 -924 2394
(In Crs)

Stock Performance-%
Absolute Rel. to Nifty 1M -6.6 -3.3 1yr 4.3 3.6 YTD -0.6 0.2

Share Holding Pattern-%

Promoters FII DII Others 3QFY14 55.0 17.0 8.4 19.7 2QFY14 1QFY13 55.0 55.0 16.5 16.8 8.1 7.4 20.4 20.9

1 yr Forward P/B

Source - Comapany/EastWind Research

Narnolia Securities Ltd,

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

13

Sesa Sterlite Ltd.

Oil & Gas Operations In Q2, average gross operated production and working interest production were 224493 boepd and 140830 boepd, respectively, 10% higher YoY. Production at Cambay was higher by 51% YoY due to new infill wells. Balance sheet and debt Gross debt at Sesa Sterlite was Rs840.2bn as at Dec13. This comprises long term loans of Rs.650bn and short term working capital loans of Rs. 189.6bn. Sesa Sterlite's mines in Goa remains a challenge During 2QFY2013, the Goa government had imposed a ban on iron ore mining in Goa until further review. Later, the Ministry of Environment and Forest Clearances (MOEF) also suspended environment clearances to all functional mining leases in Goa. Sesa Goa operated several mines in the region with an annual production of 12mn tonne. While we believe the ban could be temporary, there are chances of iron ore production cap by the government/MOEF which could affect Sesas production going forward. This is likely to be a key overhang on the stock in our view. Zinc Lead Expansion projects for better growth Sesa Sterlites subsidiary, Hindustan Zinc (HZL) has commenced production at its underground Kayad mine, which has 11mn tonne of high-grade reserves. The company expects to increase its capacity from 1.0mn tonne to 5mn tonne over the coming five years. OUTLOOK The companys actual 3QFY2014 results are not comparable with 3QFY2013 results as the two companies, Sesa Goa and Sterlite Industries were merged during August 2013.The company has delayed the commissioning of the 325ktpa BALCO-III Aluminium smelter from 3QFY2014 to 1HFY2015.The company has resumed iron ore mining operations in Karnataka from December 28, 2013 where it has 2.29mn tonne per annum capacity and is gradually ramping up the production at the rate of 0.5mn tonne per month.We expect Sesa Sterlite to benefit from the expansion of Zinc-Lead smelting capacity during FY2014-15.In the mean time Norwegian government has asked its sovereign wealth fund not to invest in Sesa Sterlite and two Israeli firms citing ethical issues.We value the stock using forward P/B and here by we recomend Neutral rating on the stock at a target price of Rs.196 from current market price of Rs.185. Company background Sesa Sterlite is one of the worlds largest diversified natural resource companies. It produces zinc, lead, silver, copper, aluminium, iron ore, oil & gas and power. Sesa Sterlite came into existence mainly as a result of merging of two companies Sesa Goa and Sterlite Industries which were owned by Vedanta Resources. The merger was announced during January 2012 while it was completed during August 2013. Sesa Sterlite generates ~80% of its revenues from India, China, East Asia, Africa and the Middle East.
Narnolia Securities Ltd,
14

Sesa Sterlite Ltd.

P/L PERFORMANCE Net Revenue from Operation Cost Of Projects & Contractual Employee benefit Expence Loss on Foreign Currency Transaction Other expences Expenditure EBITDA Depriciation Depriciation Interest Cost PBT Tax PAT WITHOUT Expactional Item ROE% EPS B/S PERFORMANCE Share capital Reserve & Surplus Total equity Long-term borrowings Short-term borrowings Long-term provisions Trade payables Short-term provisions Total liabilities Intangibles Tangible assets Capital work-in-progress Long-term loans and advances Inventories Trade receivables Cash and bank balances Short-term loans and advances Total Assets RATIOS P/B NPM % EBITDA % ROCE% Weighted Average Cost of Debt % Debt/Equity (debt/debt+networth or FY12 8310 973 268 181 1739 4810 3500 106 106 433 3195 1021 2762 14 25.0 FY10 83 7835 7918 44 1916 6 727 405 11238 0 704 79 401 503 338 2392 745 11238 FY10 3.4 41.8 56.9 28.8 2.8 0.2 FY13 2554 567 250 51 756 2089 465 197 197 475 -153 -43 2301 -1 -1.3 FY11 87 12724 12810 31 968 6 1169 425 15604 15 927 729 462 744 683 897 859 15604 FY11 1.1 43.3 59.0 37.7 9.0 0.1 FY14E 66976 25416 3011 705 12791 47412 19564 6939 6939 5107 9422 -1175 6548 8 21.9 FY12 87 15031 15118 1116 2618 4 887 233 20401 10 1390 837 199 875 549 98 369 20401 FY12 1.1 25.4 41.0 14.2 11.6 0.2 FY15E 75013 28294 3311 705 13590 52009 23004 8300 8300 6280 11224 2416 6478 5 21.9 FY13 87 17388 17475 1179 3322 4 547 42 22889 89 1880 723 492 961 142 36 329 22889 FY13 1.0 -4.2 17.8 10.4 10.5 0.3

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Source - Comapany/EastWind Research

Narnolia Securities Ltd,

15

HEROMOTOCO
Average Sales with Flat Profits Growth..
Result Update
CMP Target Price Previous Target Price Upside Change from Previous

"BUY"
Feb' 14.

3rd

BUY
1979 2100 6% -

The company registered its 3QFY14 net sales at Rs 6846 Cr up by 11.3% YoY led by healthy volume growth of 7% for the period under review. The company during 3QFY14 sold 1680940 units including exports. The volume performance was led by a strong 7.8% YoY growth in the domestic segment, while export volumes posted a decline of 26.5% YoY, mainly due to a weak demand environment in major exporting nations. Scooters sales maintained strong momentum, led by the success of Maestro. The average realization for the quarter moved up and came around at Rs 41000 verses Rs 39100 for the same time last fiscal. The net average realization for the quarter was driven by price increases, which were undertaken in April and October 2013. The operating EBITDA for the 3QFY14 came at Rs 898 Cr and OPM stands at 13.06 %.There is yearly rise in the OPM by nearly 40 bps however on sequential basis it had shrunk by 150 bps due to led by increase in raw-material costs and significantly higher other expenditure. Raw material cost as a percentage of sales increased 120bp QoQ due to the currency impact on indirect imports, which comes with a quarters lag. The other expenses in the quarter rose significantly very high because of higher advertisement expenses due to festival season and also due to the launch of new products/ refreshes and higher royalty payments on the back of rising share of new products. Additionally, the ongoing cost reduction initiatives from the company led to a savings of Rs45 Cr during the quarter. The net profits for the stands at Rs 525 Cr for the quarter grew by only 7.5% yoy as the tax rate increased to nearly 27% from 16% earlier due to expiry of tax benefits at the Haridwar facility. Post the 3QFY14 result management said that Industry motorcycle sales should be in the range of 5 % and it will be in that level for the year and HMC will be at par with that. Company has maintained its ad spend guidance at 2-2.5 % of sales and R&D spends at nearly 0.75% of sales. The capital expenditure guidance for FY2014 stands at Rs1100 Cr to Rs1200 Crr.For FY2015 the company has guided for Rs 1,500 Cr to Rs1,800 Cr. The Management indicated that the current dividend policy of 35-45% payout will continue in future. The total installed capacity of the company currently stands at 6.9mn units. Post the
commissioning of the Neemrana plant, scheduled by end of March 2014, the installed capacity is expected to increase to 7.65mn units.

Market Data
BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs, Cr) Average Daily Volume Nifty 500182 HEROMOTOCO 2215 1,434 245841 6089

Stock Performance-%
Absolute Rel. to Nifty 1M -5.0 -1.6 1yr 9.5 8.9 YTD 9.3 -4.4

Share Holding Pattern-%

Promoters FII DII Others Current 2QFY14 1QFY1 4 39.9 39.9 39.9 30.6 30.4 29.9 8.5 8.8 9.3 21.0 20.9 8.7

One Yr Price Vs NIFTY

View & Valuation The stock at its CMP of Rs 1979 which is 17.9x of one year forward FY14E EPS of Rs 110 and upcoming capacity expansion, Rising trend of volume growth of scooter business, Improvement in operational efficiency are few factors which make us positive for the stock. We recommend BUY for the stock with Target Price Rs 2100.

Financials
Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 6846 898 525 13.1% 7.7% 2QFY14 5696 833 482 14.6% 8.5% (QoQ)-% 20.2 7.8 8.9 (150bps) (80bps) 3QFY13 6151 779 489 12.7% 7.9%

Rs, Crore (YoY)-% 11.3 15.3 7.4 50bps (30bps)

16

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

HEROMOTOCO
SALES & PAT TREND

Company registered its 3QFY14 net sales at Rs 6846 Cr up by 11.3% YoY led by healthy volume growth of 7%.

(Source: Company/Eastwind)

OPM & NPM TREND

Rise in the OPM by nearly 40 bps however on sequential basis it had shrunk by 150 bps due to led by increase in raw-material costs and significantly higher other expenditure.

(Source: Company/Eastwind)

Realization Trend

Profits for the grew by only 7.5% yoy as the tax rate increased to nearly 27% from 16% earlier due to expiry of tax benefits at the Haridwar facility.

(Source: Company/Eastwind)

Narnolia Securities Ltd,

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

17

Marico
" Volume slows"
Result update CMP Target Price Previous Target Price Upside Change from Previous Market Data BSE Code NSE Symbol 52wk Range H/L Mkt Capital (Rs Cr) Average Daily Volume Nifty Stock Performance 1M Absolute -3.6 Rel. to Nifty -10.8 Share Holding Pattern-%
Current 2QFY14 1QFY14

"NEUTRAL"
3rd Feb' 14

Neutral 214 -

531642 MARICO 248/188 13829 126142 6090

1yr 2.4 -7.9

YTD 0.5 -9.1

Beats the street on profitability and Margin front with poor volume growth; Marico witnessed better numbers than expectation with 10% sales growth (excluding Kaya Sales) led by 3% volume growth on YoY basis. PAT grew by 31% (YoY) because of cost rationalization across various head of expenses like Ad Spend, employee cost etc. However, the profits of Q3FY14 are not strictly comparable to Q3FY13 due to the change in the method of depreciation from WDV to SLM carried out in Q4FY13 and demerger of Kaya business. The Company maintained its market share across the portfolio, reflecting strong equity of its brands, even though the rates of category growth have decelerated over the past few quarters. We believe that slower volume growth could not easily turned out in next 1-2 quarters because of poor discretionary demand. Margin ramp up: During the quarter, its EBITDA margin of the India FMCG business during Q3FY14 was 18.7% and PAT margin was at 11.3%. The Company believes that an operating margin in the band of 17% to 18% is sustainable in the medium term. On YoY basis margin growth could not computed because of Kaya consolidation in same quarter previous year. Poor volume growth: Because of weak demand discretionary environment and socio political instability in some regions, its volume growth of various segments have come down during the quarter. The volume growth in India was marginally above 3% for the quarter, reflecting continued soft consumption trends. Post earning, management stated that the trend of volume decline has bottomed out based on hypothesis. Mix segmental growth: India FMCG business grew by 10%(YoY). Parachutes rigid portfolio (packs in blue bottles), recorded a volume growth of about 2% during Q3FY14 over Q3FY13. Parachute along with Nihar marginally improved its market share over the same period last year to 56%. The Saffola refined edible oils franchise grew by about 9% in volume terms during Q3FY14. During the quarter, Saffola average price hiked by 4-5% to manage its RM cost and Packaging materials. Maricos hair oil brands (Parachute Advansed, Nihar Naturals and Hair & Care) grew by 8% (YoY) in volume terms during Q3FY14. View and Valuation: The company expects demand scenario to remain challenging especially in urban areas in India and some of its international market like Bangladesh, Egypt and MENA. Based on hypothesis, management is expecting regarding the bottom out of volume decline but they are not ignoring the threat of demand environment challenges for near future. We believe that slower volume growth could not easily turned out in next 1-2 quarters because of poor discretionary demand environment. Therefore, we downgrade our view from BUY to NEUTRAL on the stock, at a price of Rs 214, stock trades at 4.9x FY15E P/BV. Financials Revenue EBITDA PAT EBITDA Margin PAT Margin 3QFY14 1089.29 201.81 135.4 18.5% 12.4% 2QFY14 1115.36 168.51 105.9 15.1% 9.5% Rs, Crore (QoQ)-% 2QFY13 (YoY)-% (2.3) 1155.89 -5.8 19.8 165.8 21.7 27.9 102.3 32.4 340bps 14.3% 290bps 8.9% (Source: Company/Eastwind)
18

Promoters FII DII Others

59.69 27.58 5.72 7.01

59.69 27.6 5.88 6.83

59.72 27.96 5.19 7.13

1 year forward P/BV-X

Narnolia Securities Ltd,

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

Marico
Sales (cr) and Growth (%) -

For 2QFY14, Marico reported 4% (YoY) decline in sales growth because of sluggish volume growth impacted by weaker demand in urban area.

(Source: Company/Eastwind)

Margin-%

Because of cost control in ad spend by 200bps and Raw material about 190bps, its margin gone up by 210 bps to 15.1% on YoY basis.

(Source: Company/Eastwind)

Expenses on Sales -%

The demerger of Kaya is on the way, and new demerged entity would expected to get listed by November or December.

(Source: Company/Eastwind)

Geographical challenges: International market recorded a growth of 15%. Because of political uncertainty, Bangladesh sales declined by 14%(YoY). While, the MENA business on an average grew by 10% CC basis. The business in Egypt grew by 22% mainly led by strong volume growth in Haircode and Fiance. The business in GCC continued to report a decline. Political environment in Egypt seems to have bettered for the time being with no major report of violence, however the uncertainty continues. South Africa reported a topline growth of 5%. The business in South East Asia of which Vietnam comprises a significant portion grew by 24% in constant currency terms.

Narnolia Securities Ltd,

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

19

Marico
Key facts from Management guidance; (1) Management believes that the decline trend of volume growth has turned out, while the economic environment is still challenging and there will be gradual recovery. (2) Immediate future could see volume growth rates of 7%- 8%. With the price increases already in market place the overall sales growth could still be in the region of 12%-14%. This is expected to improve from early/mid FY15. (3) Operating Margin could sustain at a range of 17-18% in the medium term. (4) The Youth brands portfolio is expected to grow by about 20% to 25%. (5) In near term, Company does not expect to see any price hike decision.

Financials
Rs in Cr, Sales Other Operating Income Total income from operations RM Cost Purchases of stock-in-trade WIP Employee Cost Ad Spend Other expenses Total expenses EBITDA Depreciation and Amortisation Other Income Exceptional Item EBIT Interest PBT Tax Exp PAT Growth-% (YoY) Sales EBITDA PAT Expenses on Sales-% RM Cost Ad Spend Employee Cost Other expenses Tax rate Margin-% EBITDA EBIT PAT Valuation: CMP No of Share NW EPS BVPS RoE-% P/BV P/E FY10 2500.09 160.67 2660.76 1265.48 12.47 -16.35 190.13 351.12 482.76 2285.61 375.15 60.06 18.26 -9.79 323.56 25.69 297.87 64.33 233.54 11.4% 29.2% 33.5% 47.6% 13.2% 7.1% 18.1% 21.6% 14.1% 12.2% 8.8% 108.55 60.90 653.96 3.83 10.74 35.7% 10.11 28.31 FY11 3134.99 19.06 3154.05 1712.66 20.36 -115.43 229.98 345.95 523.36 2716.88 437.17 70.80 2.16 48.91 417.44 41.01 376.43 84.98 291.45 18.5% 16.5% 24.8% 54.3% 11.0% 7.3% 16.6% 22.6% 13.9% 13.2% 9.2% 138.75 61.40 915.44 4.75 14.91 31.8% 9.31 29.23 FY12 4008.28 30.90 4039.18 2132.04 17.44 -50.78 307.29 448.99 668.90 3523.88 515.30 72.52 1.67 -1.75 442.70 42.39 400.31 78.25 322.06 28.1% 17.9% 10.5% 52.8% 11.1% 7.6% 16.6% 19.5% 12.8% 11.0% 8.0% 206.00 61.40 1143.01 5.25 18.62 28.2% 11.07 39.27 FY13 4259.53 12.51 4596.86 2212.27 116.59 -127.47 380.56 597.94 791.07 3970.96 625.90 86.62 37.52 33.20 610.00 57.43 552.57 146.18 406.39 13.8% 21.5% 26.2% 48.1% 13.0% 8.3% 17.2% 26.5% 13.6% 13.3% 8.8% 216.95 64.48 1981.52 6.30 30.73 20.5% 7.06 34.42 FY14E 4740.86 14.22 4755.08 2228.20 48.53 -98.72 380.41 618.16 808.36 3984.94 770.14 145.44 19.17 33.29 677.15 57.43 619.72 163.95 455.78 3.4% 23.0% 12.2% 46.9% 13.0% 8.0% 17.0% 26.5% 16.2% 14.2% 9.6% FY15E 5344.65 16.03 5360.68 2672.32 54.71 -111.29 428.85 643.28 911.32 4599.19 761.49 133.80 21.61 37.52 686.82 57.43 629.39 166.50 462.89 12.7% -1.1% 1.6% 49.9% 12.0% 8.0% 17.0% 26.5% 14.2% 12.8% 8.6%

214.00 214.00 64.48 64.48 2399.58 2824.75 7.07 7.18 37.21 43.81 19.0% 16.4% 5.75 4.88 30.28 29.81 (Source: Company/Eastwind)

Narnolia Securities Ltd,

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

20

N arnolia Securities Ltd

402, 4th floor 7/ 1, Lord s Sinha Road Kolkata 700071, Ph 033-32011233 Toll Free no : 1-800-345-4000 em ail: research@narnolia.com , w ebsite : w w w .narnolia.com

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