IEA Report

20th Apr 2017

INDUSIND BANK "NEUTRAL" 20th Apr 2017
Among the mid size private bank, Indusind bank remains one of the consistent performers in growth and profitability parameter. Superior loan
book growth, diversified fee income profile and low credit cost are the key drivers of the bank. We expect the IIB to maintain 25%+ loan growth
backed by revival in economic environment and declining interest rate. We expect the consumer loan demand to pick up with improving vehicle
financing and card business giving the boost. Spike in CASA ratio and focus on consumer finance segment will help to maintain the NIM at 4%. With
healthy capitalization of Tier 1 at 14.7% we expect the RoA of 1.9%+, RoE of 16%-17%. The stock trades at 3.1x FY19E P/BV which gives us limited
upside of 4% at target price of 1480, hence we are 'NUETRAL'. .................................................................. ( Page : 2-9)

DCB BANK "BUY" 19th Apr 2017

Net Interest Income growth remained healthy over 25% plus since last 7 quarters. While the margins are near to peak.
Strong loan growth of 22.4% remained better than its peers. Assets quality seems to stabilize with no major concerns on it due to retail focused.
CASA has shown impressive growth despite majority of branches is newly opened.
DCB Bank has shown aggressiveness in branch expansion as a major strategy to expand its reach. But on the other hand, increased operating
expenses have resulted in lower return ratios.
DCB Bank is planning to raise Rs 400 equity capital to strengthen it Tier 1 CRAR ratio to support the loan growth momentum.
We value DCB Bank at (2.2x P/B and 10.4x EPS at FY19) Rs 205 and maintain ‘BUY’. .................................. ( Page : 10-17)

JYOTHYLAB "Book Profit " 18th Apr 2017

Going forward, management is confident of demand revival as demonetization effect will ease of. As far as margin is concern, the company is
looking to increase prices by 5-7% going ahead which gives us confidence that company may protect margin going forwards. Implementation of
GST may be game changer for Organized FMCG players. It may boost market share of the company in times to come. Lastly, JYOTHYLAB gets large
chunk of its revenue from South market and South market conditions are improving rapidly which is positive for this company. We initiated `BUY’
on JYOTHYLAB on 27th Jan2017 at Rs356 with a target price of Rs 410. As company has achieved our target and considering GST related hiccups
going forward, we recommend to `BOOK PROFIT’ for now. ......................................................... ( Page : 18-20)

BAJAJCORP "HOLD" 18th Apr 2017

The company’s Q4FY17 result is largely in line to our estimates. Volume growth remained subdued in this quarter but improved after
demonetization QoQ. Based on management’s recent commentary, we see pressure in volume of BAJAJ Almond Hair Oil for next 2-3 quarters
considering destocking led by confusion regarding GST. Earlier we were expecting EPS for BAJAJCORP in FY18E and FY19E, Rs 15 and Rs 16
respectively. But after recent management’s commentary we have changed over estimates of EPS for FY18E and FY19E by 5% and 8% downward
respectively. Based on change in our EPS estimates we have changed our rating on this stock from `BUY’ to `HOLD’ and accordingly we have
lowered our target price from Rs 490 to Rs 455. ............................................. ( Page : 21-23)

IOC "BUY" 18th Apr 2017

Indian Oil Corporation has plans to come up with a 15 MT refinery, with an investment of about Rs 40,000 Cr. at Nagapattinam in Tamil Nadu.
Currently, Nagapattinam has a 1 MT plant operated by IOC’s subsidiary Chennai Petroleum Corporation. This will improve the volume of the
company up-to a large extent. IOC has equipped with BS VI standard HSD and BS VI standard motor spirit and by October 2017, a new unit will go
on stream at the refinery, where only BS VI standard HSD and high quality motor spirit will be produced on a mass scale. Recently IOC stock has
rallied and achieved our previous recommended price of Rs. 410, but considering upside potential we recommend “HOLD” rating in this stock
while revising our target price to Rs. 445. ....................... ( Page : 24-26)

BERGEPAINT "BUY" 17th Apr 2017

The implementation of One Rank One Pension (OROP), Seventh Pay Commission, revival of MGNREGA scheme, setting up of smart cities and
strong govt. initiatives on infrastructure development are likely to enhance demand both in rural and urban markets. Government’s ambitious plan
``Housing for All by 2022” will be major growth driver for the company. Implementation of GST will boost company’s market share going forward.
With the commencement of Assam Plant the company will enjoy a 10 year tax holiday at new plant and will also benefit from VAT exemption for
sales in Assam. Recent MoU with Chugoku Marine Paints of Japan will help to expand company’s footprint in industrial paint segment. Thus,
considering strong revival in Urban and rural demand, GST implementation and commencement of Assam Plant, We remain positive on the stock
and recommend "BUY" with the target Price of Rs 267. ............................................................... ( Page : 27-29)

Narnolia Securities Ltd IEA Edition No.- 997

 INDUSTRY - BANKING
BSE Code - 532187
NSE Code - INDUSINDBK
20-Apr-17 NIFTY - 8288

Comapany Data Key Highlights of the report:

CMP 1422  Revenue is growing at a CAGR of 36%, boosting the overall profitability and
Target Price 1480 return ratios.
Previous Target Price 1480  Indusind Bank is continuously gaining market share with above industry loan
Upside 4% growth of 25%. Assets Quality continues to remain one of the best in the
Change from Previous 0% industry with GNPA at 94 bps.
52wk Range H/L 1444/965  CASA is growing with the healthy pace of 43% YoY which will boost the
Mkt Capital (Rs Cr) 85108 margins significantly.
Av. Volume (,000) 78.58  Despite of aggressive growth, operating expenses are under stringent control
Share Holding Pattern % with C/I ratio of 46%.
4QFY17 3QFY17 2QFY17  INDUSINDBK will continue to enjoy high premium in terms of P/B. The
Promoters 16.8 16.8 16.7 stock is trading at 3.1x P/B FY19 which leaves us with limited upside of
DII 13.3 13.4 12.5 4%, so we are NEUTRAL with target price of Rs 1480.
FII 48.6 48.4 49.1
Others 21.3 21.4 21.7 Financials/Valuation FY15 FY16 FY17 FY18E FY19E
NII 3,420 4,517 6,063 7,184 8,829
INDUSINDBK is trading at its higher PPP 3,098 4,141 5,451 6,670 8,073
range of P/B PAT 1,794 2,286 2,868 3,602 4,334
NIM % 3.7 3.8 4.1 3.9 3.8
P/B
EPS (Rs) 33.9 38.4 48.0 60.2 72.5
5.00
EPS growth (%) 26.4% 13.4% 24.8% 25.6% 20.3%
4.00

3.00
ROE (%) 19.0 16.6 15.3 16.5 17.2

2.00
ROA (%) 1.9 1.9 1.9 1.9 1.9
1.00 BV 193 291 339 390 451
- P/B (X) 4.6 3.3 4.2 3.7 3.2
Apr-14
Feb-13
Sep-13
Jun-08

Jun-15
Mar-10

Jul-12

Mar-17
Dec-11
Oct-10
Aug-09

Aug-16
Nov-14
Jan-09

Jan-16
May-11

P/E (x) 26.2 25.1 29.7 23.6 19.6

Stock Performance % Recent Development : Key Highlights of Result Update

1Mn 1Yr YTD  Operating profit continued to buoyant with a healthy growth of 37% backed by
Absolute 2.3 44.0 30.9 overall strong growth in revenue and controlled operating expenses despite of
Rel.to Nifty (0.2) 15.0 11.3
aggressive branch expansion. NIM expanded due to decline in cost.
150 INDUSINDBK NIFTY  Other Income continued to support the revenue with its strong growth of 33%
140 YoY.
 However PAT got impacted by one off huge provisioning of Rs 122 Cr as per
130

120
direction of RBI on one specific cement company.
110

100  Once again advances growth was healthy at 28% YoY backed by strong
90 growth in corporate loan book. CASA was maintained at 37% level with 6%
80 QoQ growth after demonetization.
Dec-16
Jun-16

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

Apr-17
Sep-16

Feb-17
Mar-17
Jan-17
Aug-16
May-16

 Assets quality was stable, although there was spike in slippages but huge
write off and ARC sale managed the GNPA to stabilize.
DEEPAK KUMAR  CRAR remain healthy at 15.3% with Tier I of 14.7%.
Deepak.kumar@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
 Quarterly Performance
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Interest Inc. 3,132 3,292 3,469 3,699 3,830 22.3% 3.5% 11,581 14,406 24.4%
One -off Interest Exp. 1,863 1,935 2,009 2,121 2,163 16.0% 2.0% 7,064 8,343 18.1%
provisioning NII 1,268 1,356 1,460 1,578 1,667 31.5% 5.6% 4,517 6,063 34.2%
impacted the Other Income 913 973 970 1,017 1,211 32.7% 19.1% 3,297 4,171 26.5%
PAT growth
Total Income 2,181 2,329 2,431 2,595 2,879 32.0% 10.9% 7,814 10,234 31.0%
Ope Exp. 1,030 1,096 1,149 1,232 1,307 26.9% 6.1% 3,672 4,783 30.3%
PPP 1,151 1,234 1,282 1,363 1,572 36.6% 15.3% 4,141 5,451 31.6%
Provisions 214 230 214 217 430 101.3% 98.4% 672 1,091 62.4%
PBT 938 1,003 1,068 1,146 1,142 21.8% -0.4% 3,469 4,360 25.7%
Tax 317 342 364 396 390 23.1% -1.4% 1,183 1,492 26.1%
Net Profit 620 661 704 751 752 21.2% 0.1% 2,286 2,868 25.4%

Operating profit was in line with expectation, One-off provisioning hit bottom line.
 Net Interest income grew with a healthy rate of 32% YoY backed by robust NIM expansion and healthy
loan growth.
 Other income grew by by 33% YoY supported by both fee income and treasury income growth. Fee
income remained healthy with 29% YoY growth whereas treasury income reported a growth of 55% YoY.

 Operating expenses grew by only 27% YoY which led the cost to income ratio decline to 45.4% against
47.2% a year back.
 Overall operating profit grew by a healthy rate of 36.65 YoY backed by all round strong performance in
terms of NII, other income and C/I ratio.
 However despite robust operating profit, PAT grew by only 21% YoY hit by one off provisioning on
standard assets of Rs 122 Cr on one of the exposure of bank in cement industry. Provisioning was done
pursuant to specific RBI advice in this regard.

Profitability Metrix 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY %
C/I Ratio % 47.2 47.0 47.3 47.5 45.4 -1.83 -2.08 50.4 60.9 10.57
Empl. Cost/ Tot. Exp. % 32.7 32.6 32.7 32.0 30.2 -2.49 -1.81 33.7 31.8 -1.86
Continued Other Exp/Tot. Exp.% 67.3 67.4 67.3 68.0 69.8 2.49 1.81 66.3 68.2 1.86
healthy growth in Provision/PPP % 18.6 18.7 16.7 15.9 27.4 8.80 11.45 16.2 20.0 3.79
NII
Tax Rate % 33.8 34.1 34.0 34.5 34.2 0.36 -0.34 34.1 34.2 0.12
Int Exp./Int Inc. (%) 59.5 58.8 57.9 57.3 56.5 -3.04 -0.87 61.0 57.9 -3.08
Other Inc./Net Inc. % 41.9 41.8 39.9 39.2 42.1 0.23 2.90 42.2 40.8 -1.43
PAT/ Net Income % 28.4 28.4 29.0 28.9 26.1 -2.33 -2.82 29.3 28.0 -1.24
PAT Growth % 25.3 26.0 25.8 29.2 21.2 -4.10 -8.03 27.5 25.4 -2.04
NII Growth % (YoY) 37.1 38.3 33.4 34.5 31.5 -5.60 -3.03 32.1 34.2 2.18
Operating Profit Growth 35.4 33.7 27.3 28.5 36.6 1.22 8.08 33.7 31.6 -2.05
YoY
RoE %
% 14.6 15.1 15.4 15.7 15.1 0.56 -0.60 16.6 15.3 -1.33
RoA % 1.9 1.9 1.9 1.9 1.7 -0.16 -0.14 1.9 2.0 0.03

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 NIM expanded, benefitting from declining cost
NIM has improved by 6bps YoY to 4% but remain flat QoQ. Improvement in NIM was backed by decline
in cost of fund.
Cost of fund declined by 54bps YoY to 5.19%. Cost of deposits fall by 98 bps YoY to 6.08% as on 4Q
FY17. Decline in cost of deposits may be attributed to higher CASA ratio which increased due to
demonetization.
Overall Yield of Indusindbk declined by 48bps to 9.19%. Yield on advances declined by 41 bps YoY to
11.41%. Yield on consumer finance division declined by 98 YoY bps whereas corporate portfolio saw as
decline of 98 bps YoY in its Yield.

Declining Cost of Margin Performance

Margin % 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY %
fund coupled
with focus on Yield on Advances 12.0 12.1 11.9 11.7 11.4 -0.63 -0.32 12.3 11.8 -0.53

higher yield Yield (Corp. Loan) 10.1 10.2 9.9 9.8 9.1 -0.98 -0.66 10.1 9.8 -0.39
product is Yield (Ret. Loans) 14.9 14.6 14.6 14.5 14.5 -0.41 -0.04 15.3 14.6 -0.72
helping NIM to Yield (Total Assets) 9.7 9.6 9.5 9.3 9.2 -0.48 -0.08 9.8 9.4 -0.42
expand. Cost of Deposits 7.1 6.9 6.6 6.4 6.1 -0.98 -0.27 7.3 6.5 -0.81
Cost Of Funds 5.7 5.7 5.5 5.3 5.2 -0.54 -0.08 6.0 5.4 -0.56
NIM 3.9 4.0 4.0 4.0 4.0 0.06 0 3.9 4.0 0.14

Yield on Total Assets Cost Of Funds NIM

4.00 4.00 4.00

3.97
3.94
3.91
10.13

10.09

3.88
9.80

9.71

9.67

9.64

9.51

9.27

9.19
6.45

6.41

3.68 3.68
5.92

5.80

5.73

5.67

5.51

5.27

5.19

Healthy Advances growth was backed by strong corporate loan book growth.
 Strong loan growth momentum continued in this quarter also with 28% YoY growth backed by healthy
growth in corporate loan book.
 Corporate loan book grew by 30% YoY and consumer finance book grew by 25% YoY. Management
highlighted that corporate book grew due to strong working capital demand as pricing of INDUSINDBK is
now competitive and also they have added some new client.

 Vehicle finance book grew by 19% YoY whereas non vehicle book grew by 365 YoY. Credit card showed
strong growth of 425 YoY, LAP grew by 54% YoY, car loan grew by 19% and equipment financing grew
by 27%.

 Now management has shifted to PLANNING-4 stage from FY18 FY20 under which it intends loan mix
between corporate and consumer to be 50:50 and within consumer loan book mix would be 50:50
between vehicle finance and other retail book. This strategy will support the NIM due to higher yield in
consumer finance book.

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
  Deposits grew by 36% YoY mainly due to demonetization effect. CASA grew by 43% YoY which led the
CASA ratio to 37%. SA increased by 57% and CA increased by 27% YoY.
 Management highlighted that the increase in CASA can be attributed equally to both- customer
acquisition as well as demonetization.
 Under PLANNING-4 stage management intends to reach CASA ratio of 40%.

Higher write offs led the stable assets quality

 Slippages increased by 126% QoQ led to two large corporate accounts. However management wrote off
huge chunk of it and sold Rs 192 of it to ARC and provided the loss fully in current quarter itself and
decided not to amortize it. Slippage in corporate book was Rs 457 Cr against Rs 111 Cr in 3Q FY17.
While slippage in Consumer book was Rs 177 Cr against Rs 170 Cr on 3Q FY17.

 Due to huge write off GNPA declined by 1 bps to 93 bps and NNPA remained stable at 39 bps QoQ.
Restructured assets declined to 37 bps against 41 bps on 3Q FY17. The decline was due to slip of some
accounts into NPA.
 PCR decline to 58% from 59% a quarter back. Credit cost was 23 bps for the quarter and it was 68 bps
for FY17
 Due to specific RBI advice in one of the Cement company which is in process of Merger & Acquisition,
Indusindbk has made standard assets provisioning of Rs 122 Cr on it. However management is hopeful
for full repayment from this account in june quarter and will write back some part of provisioning on it.
4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY %
GNPA (Rs) 777 861 899 971 1,055 35.8% 8.7% 777 1,055 35.8%
GNPA % 0.9 0.9 0.9 0.9 0.9 0.06 -0.01 0.9 0.9 0.06
NNPA (Rs) 322 356 369 401 439 36.4% 9.5% 322 439 36.4%
NNPA % 0.4 0.4 0.4 0.4 0.4 0.03 0.00 0.4 0.4 0.03
Slippages (Rs) 274 253 261 281 634 131.4% 125.6% 848 1,429 68.5%
Restructured Assets % 0.5 0.5 0.4 0.4 0.4 -0.16 -0.04 0.5 0.4 -0.16
Total Stress Assets (Rs) 471 461 438 424 421 -10.7% -0.7% 471 421 -10.7%
(GNPA+Std.
Specific PCR Rest.)
% 58.6 58.7 59.0 58.7 58.4 -0.20 -0.31 58.6 58.4 -0.20

GNPA
Composition – 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY %
Commercial Vehicle 1.0 1.1 1.1 1.0 1.0 -0.03 -0.05 1.0 1.0 -0.03
Utility 1.2 1.3 1.2 1.1 1.1 -0.09 0.05 1.2 1.1 -0.09
Construction Equipment 1.3 1.4 1.4 1.2 1.2 -0.08 -0.06 1.3 1.2 -0.08
Small CV 1.0 1.1 1.0 0.8 0.9 -0.08 0.07 1.0 0.9 -0.08
TW 3.0 3.2 3.6 3.6 3.5 0.50 -0.08 3.0 3.5 0.5
Cars 0.5 0.5 0.5 0.8 0.7 0.16 -0.09 0.5 0.7 0.16
LAP/HL/PL 0.7 0.7 0.7 0.8 0.9 0.22 0.06 0.7 0.9 0.22
Tractor - 0.2 0.5 0.3 0.4 0.37 0.09 - 0.4 0.37
Cards 1.5 1.7 1.7 1.6 1.3 -0.11 -0.28 1.5 1.3 -0.11
Total 1.1 1.1 1.2 1.2 1.1 0.04 -0.04 1.1 1.1 0.04

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 GNPA % NNPA % Specific PCR % Prov/Avg Adv% (Annl.)

63 1.80
62 1.60
1.40
61
1.20
60 1.00
59 0.80
0.60
58
0.40
0.31

0.31

0.33

0.91
0.38

0.90
0.37

0.94
0.31

0.87
0.81

0.79

0.77

0.82

0.39

0.39
0.36

0.93
57 0.20

63

60

60

59

59

59

58
61

59
56 -

Granular fee income and treasury income remain healthy.

 Other income grew by by 33% YoY supported by both fee income and treasury income growth. Fee
income remained healthy with 29% YoY growth whereas treasury income reported a growth of 55% YoY.
 Under the fee income distribution fees has grown by 74% YoY as management said that they earned a
good income from mutual fund distribution due to flow of excess fund from banks to mutual fund industry.
Investment banking fee grew by 30% YoY.

Other Income Break Up 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
Trade and Remit. 97 109 103 106 121 24.4% 14.0% 323 439 36.0%
Foreign Exchange Income 140 151 156 179 170 21.4% -5.2% 639 656 2.6%
Distribution Fees 138 137 156 181 241 74.2% 33.0% 491 715 45.7%
General Banking Fees 48 56 49 64 63 30.4% -1.1% 185 232 25.3%
Loan Processing fees 228 215 201 195 243 6.6% 24.9% 663 854 28.9%
Investment Banking 122 114 161 160 159 30.1% -0.5% 472 594 25.8%
Total Fee-Based In. 774 782 826 885 997 28.8% 12.7% 2,772 3,489 25.9%
Securities/MM/FX 139 191 145 132 215 55.1% 62.9% 487 683 40.1%
Trading/Others
Total Other Income 913 973 970 1,017 1,212 32.8% 19.2% 3,260 4,172 28.0%

Fee Income/ Advances % Other Income/ Total Income %

42.5
0.90
42.1
41.7 41.7 41.9 41.8
0.88
0.88
0.86 0.86
0.85 39.9
39.6
0.83 0.83
0.83 39.2

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 View and Valuation
Among the mid size private bank, Indusind bank remains one of the consistent performers in growth
and profitability parameter. Superior loan book growth, diversified fee income profile and low credit cost
are the key drivers of the bank. We expect the IIB to maintain 25%+ loan growth backed by revival in
economic environment and declining interest rate. We expect the consumer loan demand to pick up
with improving vehicle financing and card business giving the boost. Spike in CASA ratio and focus on
consumer finance segment will help to maintain the NIM at 4%. With healthy capitalization of Tier 1 at
14.7% we expect the RoA of 1.9%+, RoE of 16%-17%. The stock trades at 3.1x FY19E P/BV which
gives us limited upside of 4% at target price of 1480, hence we are 'NUETRAL'.

Concall Highlights :
 Rs 122 Cr provisions have been made as per RBI directory on standard assets, management is
hopeful of reversal in 1Q FY18.
 There was surge in working capital loan demand due to competitive pricing and acquisition of new
 client.
Guidance for Planning Phase-4 till FY20- Loan growth of 25%, CASA to reach 40%, double the client
base, Branch target of 2000.
 Looking option for inorganic growth.
 Two large accounts slipped into NPA. Management wrote off it and sold Rs 192 Cr to ARC.
 Will reduce C/I ratio by 2% in next 3 years.
 Will reach 20% RoE in 3 years.
 Moving to new concept of RORWA and has a benchmark of 2.4%.
 Distribution income surged due to higher fee income from mutual funds.

Advances Performance
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Net Advances (Rs in Cr) 68,788 72,243 78,294 82,167 88,419 93,678 98,949 102,770 113,081
Adv. Growth YoY % 24.8 23.1 30.6 28.7 28.5 29.7 26.4 25.1 27.9
>> Growth QoQ % 7.7 5.0 8.4 4.9 7.6 5.9 5.6 3.9 10.0

Sectoral Breakup %
Corporate Banking% 58.7 58.5 59.2 58.3 58.7 58.8 59.0 58.3 59.7
Consumer Finance% 41.3 41.5 40.8 41.7 41.3 41.2 41.0 41.7 40.3

Deposits Performance
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Deposits (Rs in Cr) 74,134 77,693 80,841 86,423 93,000 101,768 112,313 119,218 126,572
>> Growth YoY % 22.5 21.6 22.5 24.6 25.4 31.0 38.9 37.9 36.1
>> Growth QoQ % 6.9 4.8 4.1 6.9 7.6 9.4 10.4 6.1 6.2
CASA (Rs) 25,300 26,945 28,085 30,232 32,724 35,043 41,034 44,162 46,646
>>CASA Growth YoY % 28.5 26.5 25.6 27.9 29.3 30.1 46.1 46.1 42.5
>> Growth QoQ % 7.0 6.5 4.2 7.6 8.2 7.1 17.1 7.6 5.6
CASA % 34.1 34.7 34.7 35.0 35.2 34.4 36.5 37.0 36.9
CA % 16.7 16.6 16.1 16.3 16.6 15.7 18.2 15.9 15.5
SA % 17.5 18.0 18.6 18.7 18.5 18.8 18.3 21.1 21.4
Credit Deposit Ratio 92.8 93.0 96.8 95.1 95.1 92.1 88.1 86.2 89.3

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 Advances Growth remained healthy Mix remained balanced
Net Advances (Rs in Cr) Adv. Growth YoY % Corporate Banking % Consumer Finance %

1,20,000 35.00
58.7 58.5 59.2 58.3 58.7 58.8 59.0 58.3 59.7
1,00,000 30.00
25.00 41.3 41.5 41.7 41.3 41.2 41.0 41.7
80,000 40.8 40.3
20.00
60,000
15.00
40,000
10.00
20,000 5.00
- -

Healthy deposit growth CASA spiked led by demonetization

Deposits (Rs in Cr) Growth YoY % CASA % CASA Growth YoY %

1,40,000 45.00
1,20,000 40.00
35.00
1,00,000
30.00
80,000 25.00
60,000 20.00
15.00
40,000
10.00
20,000
34.7

35.2

37.0

36.9
34.7
34.1

35.0

34.4

36.5
5.00
- -

CD Ratio remained in higher range Stringent control on C/I ratio

Empl. Cost/ Tot. Exp. % Other Exp/Tot. Exp.%
Credit Deposit Ratio
C/I Ratio %

46.3 45.9 46.4 47.3 47.2 47.0 47.3 47.5 45.4

65.2

34.5
65.5

34.3
65.7

32.6

32.7

32.0
36.2
63.8

34.8

32.7

67.4

67.3

68.0

30.2
69.8
67.3

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 Financials Snap Shot
Balance Sheet Rs in Crores Key Ratios & Assumptions
Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Share Capital 595 598 598 598 Balance Sheet Metrics
>> Equity Capital 595 598 598 598 Loan Growth (%) 28.5 27.9 22.2 25.0
>> Preference Capital - - - - Deposit Growth (%) 25.4 36.1 21.3 25.0
Reserves & Surplus 17,101 20,048 23,110 26,793 C/D Ratio (%) 95.1 89.3 90.0 90.0
Networth 17,301 20,250 23,311 26,994 CASA (%) 35.2 36.9 37.0 38.0
Deposits 93,000 126,572 153,506 191,882 Investment/Deposit (%) 33.6 29.0 31.0 31.0
Change (%) 25.4 36.1 21.3 25.0 CRAR (%) 15.5 15.3 13.5 12.6
>> CASA Deposits 88,097 112,642 140,699 175,785 >> Tier 1 (%) 14.9 14.7 13.1 12.2
Change (%) 29.3 27.9 24.9 24.9 >> Tier 2 (%) 0.6 0.6 0.4 0.3
Borrowings 22,156 22,454 29,407 36,759 Assets Quality Metrics
Other Liabilities & Provisions 7,205 8,976 11,329 14,161 Gross NPA 777 1,055 1,421 1,865
Total Liabilities 140,057 178,648 217,950 270,193 Gross NAP (%) 0.87 0.93 1.00 1.05
Cash & Bank 10,112 18,628 18,044 21,771 Net NPA 322 439 583 765
Investments 31,214 36,702 47,562 59,452 Net NPA (%) 0.36 0.39 0.42 0.44
Change (%) 36.4 17.6 29.6 25.0 Slippges (%) 0.95 1.26 1.07 1.07
Advances 88,419 113,081 138,155 172,694 Provision Coverage (%) 58.6 58.4 59.0 59.0
Change (%) 28.5 27.9 22.2 25.0 Provision/Average Advances (%) 0.86 1.08 0.90 0.90
Fixed Assets 1,255 1,335 1,384 1,453 Margin Metrics
Other Assets 9,057 8,902 12,805 14,823 Yield On Advances (%) 11.8 11.4 10.7 10.4
Total Assets 140,057 178,648 217,950 270,193 Yield On Investment (%) 6.6 7.3 7.0 6.9
Yield on Earning Assets (%) 9.8 9.7 9.1 8.9
Income Statement Rs in Crores Cost Of Deposits (%) 6.8 6.5 5.8 5.6
Y/E March FY16 FY17 FY18E FY19E Cost Of Funds (%) 6.5 6.1 5.7 5.5
Interest income 11,581 14,406 16,896 20,489 Spread (%) 3.3 3.5 3.4 3.5
Interest expended 7,064 8,343 9,712 11,661 NIM (%) 3.8 4.1 3.9 3.8
Net Interest Income 4,517 6,063 7,184 8,829 Profitability & Effeciency Metrics
Change (%) 32.1 34.2 18.5 22.9 Int. Expense/Int.Income (%) 61.0 57.9 57.5 56.9
Other Income 3,297 4,171 5,350 6,343 Fee Income/NII (%) 61.4 57.6 63.7 64.8
Change (%) 24.3 26.5 28.3 18.5 Cost to Income (%) 50.4 50.1 49.9 48.8
>> Core Fee Income 2,772 3,489 4,577 5,721 Cost on Average Assets (%) 3.1 3.2 3.2 3.1
>> Treasury Income 487 683 773 621 Tax Rate (%) 34.1 34.2 35.0 35.0
>> Others 37 (1) - (0) Valuation Ratio Metrics
Total Net Income 7,814 10,234 12,534 15,171 EPS (Rs) 38.4 48.0 60.2 72.5
Operating Expenses 3,672 4,783 5,865 7,099 Change (%) 13.4 24.8 25.6 20.3
Change (%) 34.7 30.3 22.6 21.0 ROAE (%) 16.6 15.3 16.5 17.2
>> Employee Expenses 1,236 1,521 1,870 2,263 ROAA (%) 1.9 1.9 1.9 1.9
Pre-provisioning Profit 4,141 5,451 6,670 8,073 Dividend Payout (%) 14.1 15.0 15.0 15.0
Change (%) 33.6 31.6 22.4 21.0 Dividend yield (%) 0.5 0.4 0.5 0.6
Provisions 672 1,091 1,127 1,406 Book Value (Rs) 291 339 390 451
Change (%) 72.7 62.4 3.3 24.7 Change (%) 50.3 16.5 15.1 15.8
PBT 3,469 4,360 5,542 6,667 P/B (X) 3.32 4.20 3.65 3.15
Tax 1,183 1,492 1,940 2,333 P/E (X) 25.11 29.67 23.62 19.64
Profit After Tax 2,286 2,868 3,602 4,334
Change (%) 27.4 25.4 25.6 20.3

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 INDUSTRY - BANKING
BSE Code - 532772
NSE Code - DCBBANK
19-Apr-17 NIFTY - 9105

Comapany Data Key Highlights of the report:

CMP 177  Net Interest Income growth remained healthy over 25% plus since last 7
Target Price 205 quarters. While the margins are near to peak.
Previous Target Price N/A  Strong loan growth of 22.4% remained better than its peers. Assets quality
Upside 16% seems to stabilize with no major concerns on it due to retail focused. CASA
Change from Previous N/A has shown impressive growth despite majority of branches is newly opened.
52wk Range H/L 184/87  DCB Bank has shown aggressiveness in branch expansion as a major
Mkt Capital (Rs Cr) 5060 strategy to expand its reach. But on the other hand, increased operating
Av. Volume (,000) 531 expenses have resulted in lower return ratios.

Share Holding Pattern %  DCB Bank is planning to raise Rs 400 equity capital to strengthen it Tier 1
4QFY17 3QFY17 2QFY17 CRAR ratio to support the loan growth momentum.
Promoters 16.2 16.2 16.2  We value DCB Bank at (2.2x P/B and 10.4x EPS at FY19) Rs 205 and
DII 14.9 15.3 15.9 maintain ‘BUY’.
FII 23.6 22.2 20.0
Others 45.3 46.3 47.9 Financials/Valuation FY15 FY16 FY17 FY18E FY19E
NII 508 620 797 1,033 1,212
DCB is trading at its higher range of PPP 277 349 418 536 672
P/B PAT 191 195 200 253 321
3.00 NIM % 3.7 3.7 3.9 4.2 4.0
2.50 EPS (Rs) 6.8 6.8 7.0 8.2 10.4
2.00 EPS growth (%) 12% 1% 2% 17% 27%
1.50 ROE (%) 13.9% 11.5% 10.7% 11.2% 11.8%
1.00 ROA (%) 1.4% 1.2% 1.0% 1.0% 1.1%
0.50 BV 56 63 68 84 93
- P/B (X) 2.0 1.3 2.5 2.1 1.9
4QFY09
2QFY10
4QFY10
2QFY11
4QFY11
2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17

P/E (x) 16.4 11.6 24.3 21.7 17.1

Stock Performance % Recent Development : Key Highlights of Result Update

1Mn 1Yr YTD  PAT declined by 24% led by tax payment @ 35% against nil tax payment YoY.
Absolute 8.3 112.9 62.0 Thus, PBT grew by 17% YoY to Rs 81 Cr.
Rel.to Nifty 8.6 96.9 50.6  Operating profit remained healthy at 19% growth YoY led by robust net interest
200
income growth of 31% YoY.
DCBbank NIFTY
180  C/I ratio remain elevated at 59.4% due to aggressive branch expansion
160
strategy.
140  NIM expanded by 12 bps YoY led by decline in cost of funds.
120  Loan growth remained healthy with 22.4% YoY growth. CASA ratio declined
100
QoQ led by withdrawal of cash limit in banks by RBI. Assets quality stabilizes
and remained healthy.
80

 Tier 1 ratio at 11.9%, management plans to raise Rs 400 Cr through QIP in

FY18.
DEEPAK KUMAR
Deepak.kumar@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
 Quarterly Performance
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Interest Inc. 448 471 506 550 549 23% 0% 1,698 2,076 22%
Interest Exp. 279 294 316 341 329 18% -4% 1,079 1,279 19%
NII 169 177 190 209 220 31% 5% 620 797 29%
Other Income 61 60 62 64 64 3% -1% 220 249 13%

Adjusted for tax Total Income 230 237 252 274 284 23% 4% 840 1,047 25%
in 4Q FY16, PAT Ope Exp. 133 144 151 164 169 27% 3% 491 628 28%
would have PPP 97 93 101 109 115 19% 6% 349 418 20%
grown by 14% Provisions 27 21 26 31 34 25% 11% 88 111 27%
YoY in 4Q FY17. PBT 70 72 74 79 81 17% 3% 261 307 17%
Tax 0 25 26 27 29 N/A 4% 67 107 61%
Net Profit 70 47 48 51 53 -24% 3% 195 200 3%

Operating Profit Remained Healthy. Higher Cost dented the profitability

 Net interest income grew by healthy rate of 30.6% YoY led by strong loan growth and NIM expansion.
 Other income growth was tepid to 3.5% due to lower fee income.
 Operating expenses grew by 26.6% YoY led by aggressive branch expansion mode. This led the C/I ratio
59.4% against 57.8% a year back.
 Hence operating profit grew by 18.9% YoY mainly impacted by higher operating expenses and lower
treasury gain.
 Provisions grew by 24.5% YoY.
 PAT declined by 24% YoY led by taxes paid @ of 35% in current quarter, as DCB paid nil tax in
corresponding quarter of previous year due to accumulated tax benefits. If we adjust tax in 4Q FY16
then, then PAT would have grown by 14% YoY in 4Q FY17.

Aggressive Expansion mode led to higher C/I ratio

 Cost to income ratio increased to 59.4% against 57.8% a year back mainly due to branch expansion
strategy.
 Employee expenses grew by 24% and other expenses grew by 29% YoY. DCB opened 12 new branches
in 4Q FY17.
 Total branches are 262 as on FY17 which management intends to reach 300 branches till 3Q FY18 as
C/I Ratio will per earlier guidance. Afterwards management will slow the pace of opening new branches which will
remain elevated lead to decline in C/I ratio.
in FY18 due to
expansion
PL Ratio Analysis 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
strategy.
C/I Ratio % 57.8 60.9 60.0 60.1 59.4 1.52 -0.70 61.5 62.8 1.23
Empl. Cost/ Tot. Exp. % 49.3 50.3 49.5 48.1 48.4 -0.93 0.31 49.9 49.1 -0.87
Other Exp/Tot. Exp. % 50.7 49.7 50.5 51.9 51.6 0.93 -0.31 50.1 50.9 0.87
Provision/PPP % 28.1 22.2 26.2 27.9 29.4 1.33 1.47 25.2 26.7 1.47
Tax Rate % 0.3 34.9 34.8 34.8 35.1 34.74 0.24 25.5 34.9 9.39
Int Exp./Int Inc. (%) 62.4 62.4 62.4 61.9 59.9 -2.47 -2.04 63.5 61.6 -1.92
Other Inc./Net Inc. % 22.7 26.7 25.4 24.5 23.4 0.70 -1.03 26.2 23.8 -2.41
PAT/ Net Income % 30.2 19.8 19.2 18.8 18.6 -11.59 -0.13 23.2 19.1 -4.08

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 Margins expanded benefitted from declining cost of funds, sees limited scope of
improvement going forward.
 Calculated NIM for 4Q FY17 improved to 4.22% against 4.09% a year back. Yield on earning assets
declined by 43 bps YoY to 10.57%. Cost of fund declined by 50 bps YoY to 6.57%.

NIM has Picked.

Sees limited Margin Performance
Margin % 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
scope to expand.
Avg Yield on Advances 12.5 12.5 12.3 12.3 11.9 -0.66 -0.47 11.6 11.5 -0.11
Avg Yield on Er. Assets 11.0 10.9 11.0 10.9 10.6 -0.43 -0.36 10.3 10.3 -0.02
Avg Cost of Funds 7.1 7.2 7.3 7.2 6.6 -0.50 -0.59 6.9 6.7 -0.23
Avg NIM (calculated) 4.1 4.1 4.1 4.2 4.2 0.12 -0.02 3.7 3.9 0.19

Avg. Yield on Advances Avg. Cost of Funds Avg. NIM (calculated)

4.2 4.2
4.1
4.1 4.1
4.1

3.9 4.0

3.9
12.9

12.5

12.7

12.5

12.5

12.3

11.9
13.1

12.3
7.9

7.5

7.2

7.1

7.2

7.2

6.6
7.3
7.7

Focus on
Priority Sector Fee Income Growth will remain moderate in near to mid-term.
lending gives an  Other Income growth remained muted to 3.5% YoY mainly due to lower fee income growth of 9% YoY.
opportunity to Treasury income was flat YoY at Rs 4 Cr.
generate fees
from PLCs.
 We expect fee income growth to remain muted in near term as most of the branches are newly opened
and immature which will take much time to generate any significant fee income growth.

Other Income Break Up

4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
Comm./Exch/Brok. fee 40 38 42 40 45 14.4% 12.2% 141 166 17.8%
Profit on Exch Trans. 3 3 4 2 1 -67.9% -59.1% 11 10 -8.8%
Profit on Sale of Invtt. 4 17 12 13 4 2.5% -67.2% 42 45 7.6%
Miscellaneous Income 15 2 4 9 13 -11.6% 47.3% 26 28 6.8%
Total Other Income 61 60 62 64 64 3.5% -0.8% 220 249 13.1%

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 Fee Income/Advances % Other Income/Total Net Income %

0.36 0.34 31.0

0.33
0.32 0.31 0.32 0.29 0.29 26.3 26.7 25.4
0.29 24.5 24.5 23.4
22.7 22.4

Assets Quality
 Assets Quality largely remained stable with GNPA at 1.59% against 1.55% and NNPA at 0.79% against
stabilizes
0.74% a quarter back.
 Slippages declined by 6% QoQ while the slippage ratio was 51 bps against 55 bps on 3Q FY17.
GNPA at corporate book was higher at Rs 86 Cr against Rs 65 Cr in 3Q FY17. GNPA at mortgage book
was at Rs 72 Cr against Rs 67 in 3Q FY17. While it declined in SME book from Rs 37 Cr to Rs 32 Cr.
 PCR including technical write offs remained strong at 74%.
4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
GNPA (Rs) 197 231 255 228 254 28.6% 11.4% 197 254 28.6%
GNPA % 1.51 1.72 1.75 1.55 1.59 0.08 0.04 1.5 1.6 0.08
NNPA (Rs) 98 116 121 108 124 27.6% 15.2% 98 124 27.6%
NNPA % 0.75 0.87 0.84 0.74 0.79 0.04 0.05 0.8 0.8 0.04
Slippages (Rs) 51 58 50 79 74 45.8% -6.4% 225 261 16.0%
PCR% (In. Tech Write offs) 77.6 75.3 75.4 75.6 73.8 -3.75 -1.84 77.6 73.8 -3.75
Prov/Avg Adv% (Annl.) 0.88 0.63 0.76 0.84 0.89 0.01 0.05 0.75 0.78 2.4%

GNPA Composition (Rs in Crore)

4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
Mortgages 46.4 62.6 74.3 66.9 71.7 54.5% 7.2% 46.4 71.7 54.5%
AIB 28.8 40.4 37.7 32.4 36.6 27.1% 13.0% 28.8 36.6 27.1%
Corporate 86.1 86.1 86.1 65.2 85.9 -0.2% 31.7% 86.1 85.9 -0.2%
SME+MSME 24.5 27.9 36.7 36.8 32.4 32.2% -12.0% 24.5 32.4 32.2%
Gold Loans 2.2 2.8 5.5 5.5 2.2 0.0% -60.0% 2.2 2.2 0.0%
CV/CE/STVL 9.2 11.1 13.4 17.6 20.0 117.4% 13.6% 9.2 20.0 117.4%

GNPA % NNPA % PCR % (Inc. Technical Write offs) Provisions/Avg. Advances % (Annualised)
3.00 90.0
74.7 75.3 75.4 75.6 73.8 0.9 0.9
71.9 72.2 72.8 80.0 0.8
77.6 0.8
2.50 0.8
70.0
0.7 0.7
60.0 0.6
2.00 0.6
50.0
1.50 40.0
30.0
1.00
1.76
1.01

1.22

1.99
1.16

1.12

1.51

1.72
0.87

1.75
0.84

1.55
0.74

1.59
0.79
1.96

1.98

0.75

20.0
0.50 10.0

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 Advances growth remained healthy, Demonetization helped CASA pick up
 Advances grew by a healthy rate of 22.5% YoY and 8% QoQ led by strong growth in corporate book and
agri book which grew by 31% YoY and 30% YoY respectively.
 Mortgage and SME book grew by 22% YoY each.
The loan growth was temporarily impacted by demonetization in 3Q FY17 which has picked up in current
quarter.
 DCB bank is largely focused on mortgage finance which constitutes 43% of the total loan book.
Management does not want to grow corporate book beyond 20% of the loan book and intends to focus
on retail and low ticket size loans.

 Deposits grew by 29.2% YoY led by demonetization impact. CASA grew by 34.4% YoY, however it
declined by 3.7% QoQ as per expected due to cash limit withdrawal by RBI.
 Thus CASA ratio declined to 24.3% against 25.9% on 3Q FY17. CD ratio improved to 82% from 77.4% in
previous quarter.

Concall Highlights:
 After FY19 C/I ratio will be below 55%.
 Comfortable to grow loan book at 20%.
 Competition is intensive from every finance companies.
 Comfortable for NIM around 3.7%.
 See PLC certificate as an opportunity to grow fee income.
 15% fee income growth is possible if branches get matured.
 QIP will be raised till Dec, 2017.
 Not to grow corporate book beyond 20%. Focus on retail, SME and small ticket size loan.
 Added personal loan product recently and expect it to be 5% of the book within a year.
 After reaching 300 branches in oct or dec qtr, pace of adding new branches will decline. Only 10 to 12
branches will be added per year.
 Hold Rs 40 cr of floating provisions in BS.
 Total employee count is 4979.
 Rs 45 Cr restructured assets outstanding in 3 accounts.

View & Valuation

With the focus on retail book, DCB Bank is well placed to grow in the range of 20%-23% in near to mid-
term. Assets Quality of DCB Bank will remain healthy due to retail centric. Net Interest income will
remain healthy but extensive branch addition will result in higher operating expenses. Due to new
branches and low focus on corporate loans fee income will remain muted but new opportunity in Fee
income from PSLCs will provide some relief. Tier 1 at 11.9% DCB has planned to raise Rs 400 Cr in
FY18. We estimate NIM in the range of 4-4.2%. Factoring equity dilution we estimate RoE of 11-12%
and RoA of 1-1.1%. We value DCB Bank at (2.2x P/B and 10.4x EPS at FY19) Rs 198 and maintain
‘BUY’.

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 Advances Performance
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Net Advances (Rs in Cr) 10465 10426 11181 11736 12921 13337 14436 14584 15818
Adv. Growth YoY % 28.6 25.7 27.2 23.7 23.5 27.9 29.1 24.3 22.4
>> Growth QoQ % 10.3 -0.4 7.2 5.0 10.1 3.2 8.2 1.0 8.5

Advances Sectoral Breakup %

4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Mortgages 43.0 45.2 45.0 45.0 43.0 44.0 43.0 44.0 43.0
AIB 15.0 15.7 15.0 17.0 17.0 17.0 17.0 17.0 18.0
Corporate Banking 23.0 20.7 20.0 17.0 15.0 15.0 16.0 16.0 16.0
SME + MSME 13.0 11.9 12.0 12.0 12.0 11.0 11.0 11.0 12.0
Gold Loans 3.0 3.0 3.0 2.0 2.0 2.0 2.0 2.0 2.0
Construction Finance 0.0 0.0 0.0 0.0 2.0 2.0 2.0 2.0 3.0
Commercial Vehicle 2.0 2.9 3.0 3.0 4.0 4.0 4.0 4.0 4.0
Others (PL, Auto, Others) 1.0 0.6 2.0 4.0 5.0 5.0 5.0 4.0 2.0

Deposits Performance
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Deposits (Rs in Cr) 12609 13269 13557 14084 14926 15680 17685 18840 19289
Growth YoY % 22.1 25.8 24.4 18.9 18.4 18.2 30.4 33.8 29.2
>> Growth QoQ % 6.4 5.2 2.2 3.9 6.0 5.0 12.8 6.5 2.4
CASA (Rs) 2950 3057 3267 3218 3490 3619 3875 4871 4689
CASA Growth YoY % 14.3 14.1 17.7 14.2 18.3 18.4 18.6 51.4 34.4
>> Growth QoQ % 4.7 3.6 6.9 -1.5 8.5 3.7 7.1 25.7 -3.7
CASA % 23.4 23.0 24.1 22.8 23.4 23.1 21.9 25.9 24.3
Credit Deposit Ratio 83.0 78.6 82.5 83.3 86.6 85.1 81.6 77.4 82.0

Other Status
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Branches 154 157 160 176 198 205 228 248 262
ATM 328 343 373 397 410 442 490 496 515
Business (In Cr) 23074 23695 24738 25820 27847 29017 32121 33424 35107
Busi. Per Branch (Cr) 150 151 155 147 141 142 141 135 134
Business Growth % YoY 25.0 25.7 25.6 21.0 20.7 22.5 29.8 29.5 26.1

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 Advances Growth remained Healthy Robust Deposits Growth
Net Advances (Rs in Cr) Adv. Growth YoY % Deposits (Rs in Cr) Growth YoY %
18,000 35.0 25,000 40.0
16,000 28.6
27.2 27.9 29.1 33.8
25.7 30.0 30.4 35.0
14,000 23.7 23.5 24.3 29.2
22.4 20,000
25.0 25.8 24.4 30.0
12,000 22.1
10,000 20.0 15,000 18.9 18.4 18.2
25.0
8,000 15.0 20.0
6,000 10,000 15.0
10.0
10,426

11,181

11,736

12,921

13,337

14,436

15,818
10,465

14,584
4,000 10.0

13,269

13,557

14,084

14,926

15,680

17,685

19,289
12,609

18,840
5.0 5,000
2,000 5.0
- - - -

Advances Breakup % (FY17) Demonetization led higher CASA

4.0
2.0 5.0
2.0 CASA % CASA Growth YoY %

51.4
12.0 43.0

34.4

15.0
17.7 18.3 18.4 18.6
14.3 14.1 14.2
17.0
23.4

23.0

22.8

23.4

23.1

25.9

24.3
24.1

21.9
Mortgages AIB
Corporate Banking SME + MSME
Gold Loans Construction Finance
Commercial Vehicle Others (PL, Auto, Others)

Recent aggressive branch expansion

led to decline in Business per branch Robust Business Growth

Business Per Branch (Rs in Cr) Business Growth % YoY

155 29.84 29.45
150 151
24.96 25.75 25.62 26.07
147
22.46
20.99 20.69
141 142 141

135 134

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 Financials Snap Shot
Balance Sheet Rs in Crores Key Ratios & Assumptions
Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Share Capital 284 285 308 308 Balance Sheet Metrics
>> Equity Capital 284 285 308 308 Loan Growth (%) 23.5 22.4 22.5 20.0
>> Preference Capital - - - - Deposit Growth (%) 18.4 29.2 18.9 20.7
Reserves & Surplus 1,508 1,920 2,520 2,811 C/D Ratio (%) 86.6 82.0 84.5 84.0
Networth 1,792 1,946 2,569 2,859 CASA (%) 23.4 24.3 24.3 24.3
Deposits 14,926 19,289 22,937 27,688 Investment/Deposit (%) 29.0 30.2 30.2 30.2
Change (%) 18.4 29.2 18.9 20.7 CRAR (%) 14.1 13.8 15.7 14.3
>> CASA Deposits 12,836 15,694 19,221 23,050 >> Tier 1 (%) 12.8 11.9 14.8 13.6
Change (%) 18.3 22.3 22.5 19.9 >> Tier 2 (%) 1.3 1.9 0.8 0.7
Borrowings 1,148 1,276 1,626 1,954 Assets Quality Metrics
Other Liabilities & Provisions 1,252 1,276 1,637 1,976 Gross NPA 197 254 319 399
Total Liabilities 19,119 24,046 29,027 34,737 Gross NAP (%) 1.51 1.59 1.63 1.70
Cash & Bank 892 1,192 1,334 1,532 Net NPA 98 124 146 179
Investments 4,333 5,818 6,918 8,351 Net NPA (%) 0.75 0.79 0.75 0.77
Change (%) 9.4 34.3 18.9 20.7 Slippges (%) 2.17 2.04 2.16 2.16
Advances 12,921 15,818 19,382 23,258 Spec.Provision Coverage (%) 50.6 51.0 54.3 55.1
Change (%) 23.5 22.4 22.5 20.0 Provision/Avg Advances (%) 0.75 0.78 0.87 0.87
Fixed Assets 248 489 513 539 Margin Metrics
Other Assets 724 730 881 1,057 Yield On Advances (%) 11.6 11.5 11.0 10.7
Total Assets 19,119 24,046 29,027 34,737 Yield On Investment (%) 7.4 7.8 7.7 7.6
Yield on Earning Assets (%) 10.3 10.3 9.9 9.7
Income Statement in Rs Crores Cost Of Deposits (%) 7.3 7.1 6.3 6.2
Y/E March FY16 FY17 FY18E FY19E Cost Of Funds (%) 6.9 6.7 6.0 6.0
Interest income 1,698 2,076 2,458 2,899 Spread (%) 3.4 3.6 3.8 3.7
Interest expended 1,079 1,279 1,425 1,687 NIM (%) 3.7 3.9 4.2 4.0
Net Interest Income 620 797 1,033 1,212 Profitability & Effeciency Metrics
Change (%) 21.9 28.7 29.6 17.3 Int. Expense/Int.Income (%) 63.5 61.6 58.0 58.2
Other Income 220 249 282 342 Fee Income/NII (%) 24.5 22.1 20.4 21.2
Change (%) 33 13.1 12.9 21.4 Cost to Income (%) 61.5 62.8 60.9 58.3
>> Core Fee Income 152 176 211 256 Cost on Average Assets (%) 3.0 3.1 3.1 2.9
>> Treasury Income 42 45 36 43 Tax Rate (%) 25.5 34.9 34.0 34.0
>> Others 26 28 35 43 Valuation Ratio Metrics
Total Net Income 840 1,047 1,315 1,554 EPS (Rs) 6.8 7.0 8.2 10.4
Operating Expenses 491 628 779 882 Change (%) 1.0 2.3 17.4 26.9
Change (%) 23.82 28.0 24.0 13.1 ROAE (%) 11.5 10.7 11.2 11.8
>> Employee Expenses 245 308 377 431 ROAA (%) 1.2 1.0 1.0 1.1
Pre-provisioning Profit 349 418 536 672 Dividend Payout (%) - 8.6 8.8 8.6
Change (%) 25.8 19.8 28.1 25.5 Dividend Per share (Rs) - 0.5 0.6 0.8
Provisions 88 111 153 186 Book Value (Rs) 63 68 84 93
Change (%) 26.56 26.8 37.0 22.0 Change (%) 11.9 8.2 22.5 11.3
PBT 261 307 383 486 P/B (X) 1.26 2.50 2.13 1.91
Tax 67 107 130 165 P/E (X) 11.59 24.33 21.67 17.08
Profit After Tax 195 200 253 321
Change (%) 1.75 2.7 26.5 26.9

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 BOOK PROFIT
JYOTHY LABORATORIES LTD 18th April. 2017

Company Update JYOTHYLAB’s result for Q3FY17 was better than our expectations
CMP 399 considering tough demand environment. Overall volume for this quarter
grew by 3.6% YoY led by proactive measure of the management like
Target Price 410
switching production plans to maximize small sku’s production, helping
Previous Target Price NA reduce payment burden on retailers etc. Going forward, management is
Upside 3% confident of demand revival as demonetization effect will ease of. As far as
Change from Previous NA margin is concern, the company is looking to increase prices by 5-7% going
ahead which gives us confidence that company may protect margin going
forwards. Implementation of GST may be game changer for Organized
Market Data FMCG players. It may boost market share of the company in times to come.
BSE Code 532926 Lastly, JYOTHYLAB gets large chunk of its revenue from South market and
NSE Symbol JYOTHYLAB South market conditions are improving rapidly which is positive for this
52wk Range H/L company. We initiated `BUY’ on JYOTHYLAB on 27th Jan2017 at Rs356
427/270
with a target price of Rs 410. As company has achieved our target and
Mkt Capital (Rs Cr) 7,256 considering GST related hiccups going forward, we recommend to
Av. Volume(,000) 172 `BOOK PROFIT’ for now.
Nifty 9,139 Q3FY17_Result Update

Stock Performance JYOTHYLAB’s sales for this quarter grew by 3% YoY to Rs400 cr led by
1M 3M 12M 3.6% YoY volume improvement. EBITDA declined by 1.3% led by inflation
in key input prices. Gross margin for this quarter, declined by 293 bps YoY
Absolute 9.0 17.0 31.0
led by increase in major raw material prices. In spite of sharp increase in
Rel.to Nifty 9.0 8.0 12.0 input prices, the company managed other cost items efficiently and
controlled EBITDA margin decline to 55 bps YoY which is commendable.
Share Holding Pattern-% PAT margin improved by 18 bps YoY to 5.4% in Q3FY17. PAT grew by7%
3QFY17 2QFY17 1QFY17 YoY to Rs 22 cr.

Promoters 66.9 66.9 66.9 Concall Highlights:

Public 33.1 33.1 33.2 • The company will take Selective price increase (price increase as well as
Others -- -- -- reduction of promotion) in Q4FY17 to achieve desired gross margin levels.
Going forward, the company is looking for 5-7% price hike.
Total 100 100 100
• In the month of Jan till date company is witnessing double digit growth.
• Expected Tax Rate: Q4FY17: 21%, FY18:21% (MAT credit)
Company Vs NIFTY • Approx. 75% of the business in South is back to normal.
• North and East are still struggling.
140 JYOTHYLAB NIFTY
• From 4QFY17 on wards ad expenses will be back to the normal.
130 • Next year ad and promotion expenses will be in the range of 15% of the
120 sales.
• Margin will back to the normal going forward.
110
Rs,Cr
100 Financials 2015 2016 2017E 2018E 2019E
90 Sales 1515 1647 1758 1958 2161
80 EBITDA 163 220 261 270 288
Net Profit 121 158 133 147 161
EPS 7 9 7 8 9
Rajeev Anand ROE 16% 19% 15% 16% 18%
rajeev.anand@narnolia.com
Narnolia Securities Ltd 18
Please refer to the Disclaimers at the end of this Report
Overall volume growth(%)
16%
Overall volume growth(%) 14%
14%

12%
10% 10%
10% 9% 9% 9%
8%
8%
6%
6%
4%
4%

2%

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

Net Sales and PAT(in cr.)

500 46 50
Sales PAT
450 45
39
400 36 40
350 32 35
300 26 27 26 30
250 22 25
20
200 20
150 15
100 10
50 5
361 401 404 407 385 445 440 434 400
0 0
3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

EBITDA and NPM (%)

20.0%
18.0%
EBITDA % NPM%
18.0%
16.0% 14.4% 14.7%
14.1%
13.2%
14.0% 12.2% 12.7%
12.0% 10.3% 10.1% 10.4%
10.1%
10.0%
8.0%
7.3% 7.4%
8.0% 6.7% 6.4%
4.9% 5.4%
6.0%
4.0%
2.0%
0.0%
3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Narnolia Securities Ltd 19

Please refer to the Disclaimers at the end of this Report

 Financials Snap Shot
INCOME STATEMENT RATIOS
FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Revenue 1647 1758 1958 2161 EPS 8.7 7.4 8.1 8.9
Other Income 15 11 11 11 Book Value 46.7 48.1 49.6 50.7
Total Revenue 1661 1769 1969 2172 DPS 4.8 6.0 6.6 7.8
COGS 799 883 990 1102 Payout (incl. Div. Tax.) 55% 82% 81% 88%
GPM 51.5% 49.8% 49.5% 49.0% Valuation(x)
Other Expenses 461 431 487 537 P/E 36 48 44 40
EBITDA 220 261 270 288 Price / Book Value 6.7 7.4 7.1 7.0
EBITDA Margin (%) 13.4% 14.8% 13.8% 13.3% Dividend Yield (%) 1.5% 1.7% 1.9% 2.2%
Depreciation 31 30 33 33 Profitability Ratios
EBIT 189 231 237 256 RoE 18.7% 15.3% 16.3% 17.5%
Interest 6 61 58 58 RoCE 22.1% 26.3% 26.2% 27.6%
PBT 197 181 190 209 Turnover Ratios
Tax 39 48 44 48 Asset Turnover (x) 0.9 1.0 1.1 1.1
Tax Rate (%) 19.9% 26.6% 23.0% 23.0% Debtors (No. of Days) 21 24 23 22
Reported PAT 158 133 147 161 Inventory (No. of Days) 83 85 83 82
Dividend Paid 87 109 119 141 Creditors (No. of Days) 36 39 36 36
No. of Shares 18 18 18 18 Net Debt/Equity (x) 0.0 0.0 0.0 0.0

BALANCE SHEET CASH FLOW STATEMENT

FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Share Capital 18 18 18 18 OP/(Loss) before Tax 197 181 190 209
Reserves 828 853 880 899 Depreciation 31 30 33 33
Net Worth 846 871 898 917 Direct Taxes Paid -52 -48 -44 -48
Long term Debt 7 7 7 7 Oper. Prof. bef. WC chang. 240 272 281 299
Short term Debt 0 45 30 15 CF from Op. Activity 191 174 223 257
Deferred Tax 25 25 25 25 Non Current investments 0 0 0 0
Capital Employed 853 878 905 925 Capital expenditure -27 -50 0 0
Net Fixed Assets 1076 1096 1063 1030 CF from Inv. Activity 0 -49 0 0
Capital WIP 6 6 6 6 Repaym. of LT Borrowings 0 0 0 0
Debtors 94 116 123 130 Interest Paid -10 -61 -58 -58
Cash & Bank Balances 61 61 90 131 Divd Paid (incl Tax) -174 -109 -119 -141
Trade payables 161 188 193 213 CF from Fin. Activity -302 -125 -194 -216
Total Provisions 75 80 82 87 Inc/(Dec) in Cash -111 0 29 41
Net Current Assets -411 -341 -294 -252 Add: Opening Balance 218 61 61 90
Total Assets 1767 1817 1843 1882 Closing Balance 107 61 90 131

Narnolia Securities Ltd 20

Please refer to the Disclaimers at the end of this Report

 HOLD
Bajajcorp 18th April. 2017

Company Update Q4FY17 Result Update:

CMP 402 BAJAJCORP’s Q3FY17 result is largely in line to our estimates. The
Target Price 455 company reported Sales of Rs 205 cr, declined by 2% YoY(Vs our estimate
Rs204 cr) led by 7% volume growth QoQ and 2%QoQ realization
Previous Target Price 490
growth.PAT for this quarter remained Rs 53 cr, decline by 3% YoY(Vs our
Upside 13% estimates Rs 51 cr).
Change from Previous -7% Gross Margin expansion: Positive surprise came from expansion of gross
margin in Q4FY17. Gross margin expanded by 287 bps YoYto 67.3% from
64.4%. LLP prices remained flat in this quarter whereas refined oil declined
Market Data
by 5% YoY.
BSE Code 533229
NSE Symbol BAJAJCORP EBITDA margin declined: EBITDA margin declined by 381 bps YoY to
52wk Range H/L 436/340 32.4% led by higher employee cost and other expenses. Employee cost
increased by 167 bps YoY led by hiring of competent people for different
Mkt Capital (Rs Cr) 5,929
functional area. Other expense for this quarter increased by 456 bps YoY to
Av. Volume(,000) 126 20.5% led by higher direct distribution expenses. Ad and promotion
Nifty 9,139 expenses have shown increment of 45 bps to 6.9%.
Decline in volume: The overall volume declined by 6.95% YoY led by
Stock Performance 7%YoY decline in the volume of BAJAJ Almond Oil(BAO). However,
company’s Overall volume improved after demonetization if we compare
1M 3M 12M
QoQ. It went up by 7.33% QoQ led by better volume growth 5.7% QoQ in
Absolute 9.8 2.3 -2.9 BAO. Nomark’s volume also improved by 18% QoQ; after four quarters of
Rel.to Nifty 10.0 -6.3 -21.5 continuous decline. Overall realization in Q4FY17 improved by 2% QoQ on
the back of better realization from Almond Drops Hair Oil, Kailash Parvat
Cooling Oil and Nomarks.
Share Holding Pattern-%
4QFY17 3QFY17 2QFY17 Higher provisioning of Tax Rate: Provisioning for Tax has increased by
Promoters 66.9 66.9 66.9 301 bps to 21.3% from 18.2% in Q4FY16.
Public 33.1 33.1 33.1 View and Valuation
Others - - - The company’s Q4FY17 result is largely in line to our estimates. Volume
Total 100.0 100.0 100.0 growth remained subdued in this quarter but improved after demonetization
QoQ. Based on management’s recent commentary, we see pressure in
volume of BAJAJ Almond Hair Oil for next 2-3 quarters considering
Company Vs NIFTY destocking led by confusion regarding GST. Earlier we were expecting EPS
125 BAJAJCORP NIFTY for BAJAJCORP in FY18E and FY19E, Rs 15 and Rs 16 respectively. But
120 after recent management’s commentary we have changed over estimates of
115 EPS for FY18E and FY19E by 5% and 8% downward respectively. Based
110 on change in our EPS estimates we have changed our rating on this stock
105 from `BUY’ to `HOLD’ and accordingly we have lowered our target price
100 from Rs 490 to Rs 455.
95 Rs,Cr
90 Financials FY15 FY16 FY17E FY18E FY19E
85 Sales 826 876 797 803 856
80
EBITDA 239 274 264 242 252
Net Profit 173 196 218 209 218
EPS 12 13 15 14 15
Rajeev Anand ROE 35% 41% 44% 41% 42%
rajeev.anand@narnolia.com
Narnolia Securities Ltd 21
Please refer to the Disclaimers at the end of this Report
BAJAJCORP

Almond Drop Hair Oil (ADHO) Volume gr % YoY: Quarterly Sales and PAT(in cr)

ADHO (Volume gr%YOY) Sales (in cr) PAT(in cr)

8% 250
6%
6% 208 209 204 205
196 197
200 187
4%
2.20%
1.60%
2% 1% 150

0%
100
2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 58 58
-2% 49 54 52 53
47
-4.30% -4.20% 50
-4%

-6% -7.08% 0
2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
-8%

Q4FY17 Result Concall Highlights

• Demand environment is still subdued.

• Revival of hair oil market witnessed more on urban than rural. Rural market will yet to pick up.
• Witnessed Improvement in market share of BAJAJ Almond Hair Oil. Market share as on Feb17 was 61.3% in value term.
• Strain in primary sales volume is due to destocking in the whole sale level as well as in rural market and it will continue in Q1FY18.
• Total overall Distribution of Bajaj Almond Hair is 37.19 lakh outlets. The company is targeting to expand direct reach at least 20%
of overall distribution at the first half of the financial year.
• 50Ml,100ML and200ML is under 50% of sales and still in glass bottles and company was working on making glass cheaper for
one and half year which will be implemented in this year. .
• NOMARKS: already started expanding in different markets and it will expand to 4 sates till May-June of this year.
• New facility in Guwahati has started functioning and will strengthen distribution of its flagship brand in eastern market.
• BAJAJCORP's 47% of sales comes from Wholesales and it will drop to sub 40% in one and half year.
• The company is planning to improve market share of BAJAJ Almond Oil in West Bengal and Rajasthan.
• Current indirect tax : 18.9%.
• Modern trade grew by 24% in this quarter.
• Other expenses: Went up due to expenses related to direct distribution.
About The Company

BAJAJ CORP is engaged in the business activity of trading and manufacturing of cosmetics, toiletries and other personal care
products. It is a fast moving consumer goods (FMCG) company. The Company's products include Bajaj Kailash Parbat Thanda Tel,
Bajaj Almond Drops Hair Oil, Bajaj Brahmi Amla Hair Oil, Bajaj Jasmine Hair Oil, Bajaj Nomark Oily Skin Face Wash, Bajaj Nomarks
Herbal Scrub Soap, Bajaj Nomark Oily Skin Cream, Bajaj Nomarks Neem Soap, Bajaj Nomarks Oil Control Soap and others. The
Company has approximately nine Factory, of which four units are situated in Himachal Pradesh , three units are situated in
Uttrakhand for manufacturing of various variants of hair oils and Nomarks and other unit is situated in Guwahati and one unit
Bangladesh.The company reaches consumers through 3.6mn retail outlets serviced by 7707 distributors and 11500 wholesalers.

Narnolia Securities Ltd 22

Please refer to the Disclaimers at the end of this Report

BAJAJCORP

Financials Snap Shot

INCOME STATEMENT RATIOS
FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E
Revenue 876 797 803 856 EPS 13.3 14.8 14.2 14.8
Other Income 29 39 33 34 Book Value 32.6 33.5 34.5 35.5
Total Revenue 905 836 836 890 DPS 13.8 13.8 13.2 13.8
COGS 298 269 281 306 Payout (incl. Div. Tax.) 104% 93% 93% 93%
GPM 66.0% 66.2% 65.0% 64.3% Valuation(x)
Other Expenses 257 203 220 235 P/E 29 27 29 27
EBITDA 274 264 242 252 Price / Book Value 11.8 12.1 11.7 11.4
EBITDA Margin (%) 31% 33% 30% 29% Dividend Yield (%) 3.0% 2.8% 2.7% 2.8%
Depreciation 5 5 6 6 Profitability Ratios
EBIT 269 258 236 246 RoE 41% 44% 41% 42%
Interest 0 1 1 1 RoCE 56% 52% 46% 47%
PBT 297 297 268 279 Turnover Ratios
Tax 54 60 59 61 Asset Turnover (x) 1.5 1.4 1.4 1.4
Tax Rate (%) 18% 20% 22% 22% Debtors (No. of Days) 11 12 11 11
Reported PAT 196 218 209 218 Inventory (No. of Days) 61 22 21 21
Dividend Paid 204 204 195 203 Creditors (No. of Days) 18 18 18 18
No. of Shares 15 15 15 15 Net Debt/Equity (x) 0 0 0 0

BALANCE SHEET CASH FLOW STATEMENT

FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E
Share Capital 15 15 15 15 OP/(Loss) before Tax 297 278 268 279
Reserves 466 479 495 509 Depreciation 5 5 6 6
Net Worth 481 494 510 524 Direct Taxes Paid -53 -60 -59 -61
Long term Debt 0 0 0 0 Oper. Prof. bef. WC chang. 274 285 275 286
Short term Debt 10 15 15 15 CF from Op. Activity 193 226 227 224
Deferred Tax 1 1 1 1 Capital expenditure -17 -46 21 -7
Capital Employed 481 494 510 524 CF from Inv. Activity 6 -95 40 -37
Net Fixed Assets 97 119 91 92 Divd Paid (incl Tax) -204 -204 -195 -203
Capital WIP 1 0 0 0 CF from Fin. Activity -194 -200 -196 -204
Debtors 25 27 23 25 Inc/(Dec) in Cash 5 -69 70 -17
Cash & Bank Balances 58 12 52 37 Add: Opening Balance 4 58 12 52
Trade payables 44 40 40 43 Closing Balance 9 -11 83 37
Total Provisions 0 0 0 0
Net Current Assets 340 346 383 399
Total Assets 566 590 587 608

Narnolia Securities Ltd 23

Please refer to the Disclaimers at the end of this Report

 Hold
INDIAN OIL CORPORATION LTD. 18-Apr-17

Company Update Recently Indian Oil Corporation has confirmed that it has received nod from
CMP 424 National Green Tribunal to carry on its LPG import terminal project at
Puthuvypeen, Kochi. The project work has been stalled since February
Target Price 445
2015 due to protests, alleging that Indian Oil is violating NGT order. This
Previous Target Price 410 project also includes LPG pipeline from the Jetty to Kochi refinery and the
Upside 5% expected cost of the project is around Rs. 2200 Cr. This project will help the
Change from Previous - company to cater the growing demands of LPG by 2020. Further IOC’s
management indicated merger with Chennai Petroleum, but refrains from
giving any timeline. Post merger management expects volume growth
Market Data between 3- 4 million tonne for the year.
BSE Code 530965
Q3FY17_Result Update
NSE Symbol IOC
52wk Range H/L 431/196 • Profit after tax has increased by 29% to Rs. 3995 Cr in 3QFY17 as
Mkt Capital (Rs Cr) 206,133 compared to Rs. 3096 Cr in the same quarter in FY16.
Av. Volume(,000) 452 • Revenue from sale of Petroleum products has increased from Rs. 93261
Nifty 9,139 Cr to Rs. 111212 Cr in 3QFY17.
• Revenue from sale of Petrochemicals has increased from Rs. 4205 Cr to
Rs. 4714 Cr in 3QFY17.
Stock Performance
1M 3M 12M • Revenue from Other business activities has increased from Rs. 2758 Cr to
Absolute 12.9 104.5 59.4 Rs. 2940 Cr in 3QFY17.
Rel.to Nifty 13.2 85.9 53.9 • The effective tax rate for 3QFY17 is 35.5% and the company pays total tax
of Rs. 2196 Cr.

Share Holding Pattern-%

3QFY17 2QFY17 1QFY17 Outlook

Promoters 57.3 58.3 58.3 Indian Oil Corporation has plans to come up with a 15 MT refinery, with an
Public 42.7 41.7 41.7 investment of about Rs 40,000 Cr. at Nagapattinam in Tamil Nadu.
Others Currently, Nagapattinam has a 1 MT plant operated by IOC’s subsidiary
Total 100 100 100 Chennai Petroleum Corporation. This will improve the volume of the
company up-to a large extent. IOC has equipped with BS VI standard HSD
and BS VI standard motor spirit and by October 2017, a new unit will go on
Company Vs NIFTY
stream at the refinery, where only BS VI standard HSD and high quality
200 IOC NIFTY motor spirit will be produced on a mass scale. Recently IOC stock has
180 rallied and achieved our previous recommended price of Rs. 410, but
considering upside potential we recommend “HOLD” rating in this stock
160
while revising our target price to Rs. 445.
140
Rs,Cr
120 Financials 2012 2013 2014 2015 2016
100 Sales 408924 461780 488345 449509 355927
80 EBITDA 19450 13800 17141 10550 23197
Jul-16

Feb-17
Sep-16

Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16

Apr-17
Mar-17

Net Profit 10914 4449 7086 4912 11219

EPS 45 18 29 20 46
Aditya Gupta P/E 5.8 15.4 9.7 18.2 8.5
aditya.gupta@narnolia.com
Narnolia Securities Ltd 24
Please refer to the Disclaimers at the end of this Report
 Recent Events
16 April 2017- NGT has confirmed its order dated August 2, 2016, permitting IndianOil to “go ahead” with its LPG import terminal
project at Puthuvypeen . IOCL is constructing a LPG Import Terminal of six lakh tonne capacity a year at Kochi in Puthuvypeen SEZ of
Cochin Port Trust
16 April 2017- Petrol price hiked by Rs1.39 per litre, diesel up by Rs1.04
2 March 2017- Indian Oil plans Rs 40K-crore mega refinery at Nagapattinam. Currently, Nagapattinam has a 1-mt plant operated
by Chennai Petroleum Corporation (CPCL), an IOC subsidiary.
27 Dec 2016- IOC's Mathura refinery has despatched BS VI high-speed diesel (HSD) to two auto companies to test viability and
compatibility as part of its efforts to provide cleaner fuel for an eco-friendly environment. Though the government has set a very
stringent target of April 2017 for meeting BS IV and April 2020 for BS VI standard fuel quality, the Mathura refinery has completed the
target ahead of the set deadline
Gross Refining Margin

IOC GRM Singapore GRM

9.1 8.7 8.6 8 8.00 7.70

6.7 6.6 6.6 6.2 5.8 6.3 6.3 6.70
5.4 4.7 10.80 5.00 5.10
4.3 9.98
8.80
6.60 7.36
5.20 6.20 4.80 2.30
6.00
4.30
2.40 1.70 2.20 3.00
0.90

(2.00)
(4.80)
(7.70)

Business Model
Indian Oil Corporation Limited is an India-based oil company. The
Company’s segments include Sale of Petroleum Products, Sale of
Petrochemicals and Other businesses, which consist of sale of
gas, explosives and cryogenics, wind mill and solar power
generation and oil and gas exploration activities.The Company’s
subsidiaries include Indian Oil (Mauritius) Ltd, IOC Middle East
FZE, IOC Sweden AB, IOCL (USA) INC., Chennai Petroleum
Corporation Ltd and Lanka IOC PLC.It is the largest refining and
marketing company in India. It operates 8 refineries (incl BRPL)
with a capacity of 54.2mmtpa and has a 52% stake in CPCL
(11.5mmt refining capacity). The company controls a refining
capacity of 65.7 mmtpa. It has a pipeline network of >10,300km
(62mmtpa capacity), has 22,372 petrol/diesel outlets and has
interests in petrochemicals and upstream oil and gas. IOC is a
Public Sector Company with 78.9% Government stake.

Narnolia Securities Ltd 25

Please refer to the Disclaimers at the end of this Report
 Financials Snap Shot
INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Net Revenue 461780 488345 449509 355927 EPS 18.32 29.19 20.23 46.21
Other Income 3512 3442 4204 2246 Book Value 260 280 283 313
Total Revenue 465291 491787 453713 358173 DPS 5 6 9 12
COGS 414541 432541 399121 289225 Payout (incl. Div. Tax.) 27% 21% 43% 26%
GPM 10% 11% 11% 19% Valuation(x)
Other Expenses 25655 31525 32175 35277 P/E 15 10 18 9
EBITDA 13800 17141 10550 23197 Price / Book Value 1.1 1.0 1.3 1.3
EBITDA Margin (%) 3% 4% 2% 7% Dividend Yield (%) 2% 2% 2% 3%
Depreciation 5692 6360 5219 5919 Profitability Ratios
EBIT 8108 10781 5331 17278 RoE 7% 10% 7% 15%
Interest 7119 5908 4175 3630 RoCE 9% 10% 5% 16%
PBT 4504 8232 5346 15894 Turnover Ratios
Tax 877 3,011 2,143 5,653 Asset Turnover (x) 4.92 4.42 3.84 2.77
Tax Rate (%) 19% 37% 40% 36% Debtors (No. of Days) 10 9 6 9
Reported PAT 4449 7086 4912 11219 Inventory (No. of Days) 53 54 41 43
Dividend Paid 1492 1850 2471 3437 Creditors (No. of Days) 27 30 26 26
No. of Shares 243 243 243 243 Net Debt/Equity (x) 0 1 1 0

BALANCE SHEET CASH FLOW STATEMENT

FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 2428 2428 2428 2428 OP/(Loss) before Tax 4504 9978 7014 17259
Reserves and surplus 60608 65485 66404 73566 Depreciation 5710 6369 5190 5865
Shareholders' funds 63036 67913 68832.3 75994 Direct Taxes Paid 1169 1896 2344 3250
Long term Debt 35865 36796 30367 42367 OP before Wc 14961 20649 13425 26295
Total Borrowings 88933 58154 50850 71622 CF from Op. Activity 9340 24204 45976 27020
Non Current liabilities 18206 20592 22814 30112 Current investments 784 1120 587 629
Long term provisions 421 443 476 2476 Capex -4178 -8865 -4627 -4183
Short term Provisions 21913 26661 27601 29633 CF from Inv. Activity -9294 -18594 -10177 -13805
Current liabilities 72430 88071 82870 83614 Repayment of Debt 3958 14543 1268 -3309
Total liabilities 241725 266679 233743 241984 Interest Paid -7824 -6872 -5188 -4661
Net Fixed Assets 93927 110527 117088 128434 Divd Paid (incl Tax) -1492 -1850 -2609 -3590
Non Current Investments 3694 8566 8761 8667 CF from Fin. Activity 352 -3125 -38283 -12426
Other non Current assets 1282 1353 202 146 Inc/(Dec) in Cash 398 2485 -2483 789
Current assets 137383 141166 101086 94474 Add: Opening Balance 822 1220 3705 1225
Total Assets 241725 266679 233743 241984 Closing Balance 1220 3705 1221 2014

Narnolia Securities Ltd 26

Please refer to the Disclaimers at the end of this Report

 INDUSTRY - CHEMICAL
BSE Code - 509480
NSE Code - BERGEPAINT
17-Apr-17 NIFTY - 9151

Comapany Data Key Highlights of the report:

CMP 236
Target Price 267  Despite demonetization and price dip effects, the decorative segment
Previous Target Price registered a double digit volume growth (10%). Many new products were
Upside
launched which witnessed good growth amid demonetisation.
Change from Previous  Margins are expected to recover as the company took 3% price hike in
52wk Range H/L 277/174 decorative business with effect from Mar 1, 2017.
Mkt Capital (Rs Cr) 22,925  Recently, the company commences operations at Assam plant. With the
Av. Volume (,000) 745 commencement of Assam Plan tax rate will decline. The company will enjoy a
10 year tax holiday at new plant and will also benefit from VAT exemption for
Share Holding Pattern %
sales in Assam.
4QFY17 3QFY17 2QFY17
Promoters 74.99 74.99 74.99  With the Commencement of Assam Plant and other key benficiaries (Urban
Public 25.01 25.01 25.01 recovery, GDP revival, GST, increased infrastructure spending) We
Others recommend "BUY" on the stock with the target price of Rs 267.
Total 100.0 100.0 100.0
Financials/Valuation FY12 FY13 FY14 FY15 FY16
Net Sales 2,948 3,346 3,870 4,322 4,634
ROE %
EBITDA 303 371 431 511 655

25 EBIT 256 314 361 418 555

26
PAT 180 218 249 265 370
24 23 23
22 EPS (Rs) 5 6 7 4 5
22 21 ROE (%) 23 23 22 21 25
ROCE (%) 15 15 14 14 20
20
BV 98 92 88 85 99
18 P/B (X) 5 7 7 12 12
FY12 FY13 FY14 FY15 FY16 P/E (x) 20 31 32 55 46

Stock Performance % Recent Development :

1Mn 3Mn 1Yr
Absolute 2.1 6.1 30.9  BERGEPAINT commences operations at Assam plant :
Rel.to Nifty 2.1 2.2 15.3 The company has commenced commercial operations of their integrated paint
170 BERGEPAINT NIFTY
and putty plant at Nagaon in Assam. The plant has an annual capacity of
48,000 kilolitres per annum of water based paints and 24 kilolitres of solvent
150
based paints. It would also manufacture 14,000 mt of resin and 24,000 mt of
130 wall putty With this, Company will have two plants in Assam, the other one
110 being at Nalbari.
90

70
 BERGEPAINT signs MoU with Chugoku Marine Paints :
The company has entered into an MoU with Chugoku Marine Paints of Japan
50
for “cooperation and collaboration” in the field of marine and related industrial
Jul-16
Apr-16

Feb-17

Apr-17
Sep-16

Mar-17
Jan-17
Dec-16
Jun-16

Aug-16

Oct-16
May-16

Nov-16

paints. The plan is to establish a joint venture company. The MoU also allows
for joint efforts in marketing, supply, purchasing marine related industrial
BINEETA KUMARI paints.
bineeta.kumari@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
 Quarterly Performance
Other expenses Financials 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY % QoQ% FY15 FY16 YoY %
saw one-time Net Sales 1,235 1,139 1,246 1,271 1,297 5% 2% 4,322 4,634 7%
hit, which put Other Income 7 11 10 18 8 9% -56% 36 34 -4%
pressure on
COGS 643 575 621 644 684 6% 6% 2,531 2,573 2%
margins though
will not be Employee Cost 71 69 75 76 80 12% 5% 253 281 11%
impacted going Other Expenses 210 225 227 248 227 8% -8% 1,027 1,125 10%
forward. EBITDA 192 156 195 179 184 -4% 3% 511 655 28%
Depreciation 25 24 26 27 27 7% 0% 93 100 8%
Interest 6 5 3 5 4 -23% -13% 50 29 -42%
PBT 168 138 176 165 160 -5% -3% 404 561 39%
Tax 56 47 59 73 52 -7% -28% 139 191 37%
PAT 112 93 120 137 110 -2% -20% 265 370 40%

Volume Growth Remained Healthy despite challenges.

 Net sales grew by 5% YoY to Rs 1297 Cr against Rs 1235 Cr in 3QFY16. Decorative segment show
reasonable growth despite demonetization and price dip.
 Volume growth stood in double digits (10%) led by improvement in product mix, strong monsoon, and
new product launch.
 Reported PAT for the quarter stood at Rs110 Cr (-2% YoY) against Rs 112 Cr in 3QFY16.

Sales Growth % Volume growth %

12% 11% 16%
11% 14%
14%
10% 14%
10% 9% 12%
12% 11% 10% 10%
8% 10%
10%
6% 6%
6% 5% 8%
6%
4%
4%
2%
2%
0% 0%
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Margin Performance
Margin % 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY(+/-) QoQ(+/-) FY15 FY16 YoY(+/-)
Gross Margin 48% 50% 50% 49% 47% -1% -2% 41% 44% 3%
EBITDA Margin 16% 14% 16% 14% 14% -1% 0% 12% 14% 2%
PAT Margin 9% 8% 10% 11% 8% -1% -2% 6% 8% 2%

 Gross margin down 65 bps impacted by increase in input cost while EBITDA margin was down by 137
bps due to high employee costs (12% YoY) and one time hit of other expenses (8% YoY).
 To offset the impact of increase in input cost the company have initiated 3% hike in decorative prices.
 The impact of rising crude prices was lower in Decorative segment due to increase in no. of share of
water based paint rather than solvent based paint.
 PAT margin down by 100bps YoY due to lower gross margin.

Please refer to the Disclaimers at the end of this Report

Narnolia Securities Ltd
 EBITDA (Rs/Cr) EBIDTAM % PAT (Rs/Cr) PATM%
250 16% 16% 16% 160 12%
11%
16% 140 10%
9% 10%
200 15% 8%
120 8%
8%
14% 14% 15% 7% 8%
150 100
14% 14%
13% 13% 80 6%
14% 137

195
192
100

184
179
60 112 120

156
110
154
13% 4%
149

89 93
13% 40 77
50
2%
12% 20
- 12% 0 0%
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Concall Highlights:
 Volume growth stood in double digits (10%).
 Expects demand to improve going forward.
 Confident of volume growth to in the range of 1.5-1.6x to GDP growth.
 Tier 1 and 2 cities were impacted more than tier 3 for the company. Tier 3 was better because
favourable monsoon has started showing results.
 Growth will be driven by semi urban and rural markets, expansion of distribution network,
innovations and new product launches.
 Both in standalone and JV (joint venture) businesses the company added new clients in auto
segment. More clients are expected to be added in the JV.
 Berger signed an MoU with Promat (USD3bn company of Belgium) for co-operation in the field
of fire protection and high performance insulation coating in India, Nepal and Bangladesh,
which entails production, distribution and supply of specialised fire resistant coatings. The
segment is very small in the overall industrial business of the company.

 Expects both gross and EBITDA margins to be stable.

 FY17 capex guidance of Rs 150Cr.

View & Valuation

The implementation of One Rank One Pension (OROP), Seventh Pay Commission, revival of
MGNREGA scheme, setting up of smart cities and strong govt. initiatives on infrastructure
development are likely to enhance demand both in rural and urban markets. Government’s
ambitious plan ``Housing for All by 2022” will be major growth driver for the company.
Implementation of GST will boost company’s market share going forward. With the
commencement of Assam Plant the company will enjoy a 10 year tax holiday at new plant
and will also benefit from VAT exemption for sales in Assam. Recent MoU with Chugoku
Marine Paints of Japan will help to expand company’s footprint in industrial paint segment.
Thus, considering strong revival in Urban and rural demand, GST implementation and
commencement of Assam Plant, We remain positive on the stock and recommend "BUY"
with the target Price of Rs 267.

Please refer to the Disclaimers at the end of this Report

Na
 Narnolia Securities Ltd
201 | 2nd Floor | Marble Arch Building | 236B-AJC Bose Road |
Kolkata-700 020 , Ph : 033-40501500
email: narnolia@narnolia.com, website
: www.narnolia.com

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