1. Healthcare

Country
India I Equities
Daily
29 January 2015
India Morning Bell
Sensex: 29559
All the latest research and data
Nifty: 8914
Titan Industries – Jewellery sparkles, watch volumes under stress;
Buy. Titan Industries’ 3QFY15 revenue increased 9.2% yoy to `29.2bn,
below the `32.3bn we expected. The jewellery division posted decent,
11% yoy, growth, boosted by Gold plus growing 30% yoy, though sales
of Tanishq declined 4% yoy. We are sanguine about the stock, given the
healthy growth in the jewellery division and on looking at early signs of
improving consumer sentiment. We value Titan at 29x PE on FY17e
EPS of `15.4 and arrive at a target price of `450. Manish Valecha,
India Research Team
+9122 6626 6666
[email protected]
[email protected] ►
Cholamandalam Investment and Finance – Improving core;
upgrading to a Buy. Cholamandalam Investment and Finance’s AUM
rose 12.4% yoy (1.1% qoq), to `247.3bn, led by healthy growth in the
home equity vertical. Disbursements were dragged down 7.6% on
account of an 11% fall in the vehicle-finance division. On the expected
improving CV cycle and higher RoEs, we raise our target price to `670
(from `540 earlier) and value the NBFC at 2.3x FY17e BV (earlier 2.2x
FY16). Higher core income and better asset quality could lead to greater
profitability (a 32% CAGR over FY14-17) and a higher RoE of 20% by
FY17. We upgrade our recommendation on the stock to a Buy. Our
target is based on the two-stage DDM (CoE: 15%; earlier 16%). Kaitav
Shah, [email protected] ►
Chart of the day
India: While non-food continued to slide, food increased to 5%
Markets
28 Jan ’15
Sensex
Nifty
Dow Jones
S & P 500
FTSE
Nikkei*
Hang Seng*
1 Day
0.0%
0.0%
-1.1%
-1.3%
0.2%
-0.5%
-0.6%
YTD
7.5%
7.6%
-3.5%
-2.8%
4.0%
1.5%
4.7%
645
3,665
92,826
1 Day
1.8%
4.8%
45.8%
Avg '15
558
2,827
40,794
28 Jan ’15*
MTD
YTD
1,178
898
281
83,278
74,601
1,417
83,278
74,601
1,417
11,217
11,491
-274
73,631
71,418
2,213
73,631
71,418
2,213
234
445
-211
2,390
2,171
218
2,390
2,171
218
28 Jan ’15
1 Day
YTD
48.7
1,281.5
530.0
61.4
1.1
117.7
6.9%
7.7%
432.71
0.4%
-0.2%
0.0%
0.0%
0.0%
-0.1%
-95.bps
0.bps
9.8bps
-16.4%
8.2%
-4.5%
2.7%
7.2%
1.8%
-185.bps
-15.1bps
45.3bps
29559
8914
17191
2002
6826
17716
24710
Volumes (US$m)
28 Jan ’15
Cash BSE
Cash NSE
Derivatives (NSE)
Flows (US$m)
FII – Cash
Buy
Sell
Net
FII - Derivatives
Buy
Sell
Net
DII – Cash
Buy
Sell
Net
Others
Source: Government of India
Oil Brent (US$/bbl)*
Gold (US$/oz)*
Steel (US$/MT)
`/US$
US$/Euro*
Yen/US$*
Call Rate
10-year G-Secs
EMBI spreads
@7:30am *Provisional Source: BSE, Bloomberg
Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely
of ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in Appendix.
Anand Rathi Research
India Equities
29 January 2015
India Morning Bell
Market Data
Large Caps
Mid Caps
Small Caps
(>US$1bn)
(US$250m-1bn)
(US$100m-250m)
Price Performance
Top-5 gainers
Company
Price Performance
CMP (INR)
1 wk (%)
1 Mth (%)
383
61.1
112.1
SUN PHARMA ADV
MAX INDIA LTD
APOLLO HOSPITALS
Top-5 gainers
Company
Price Performance
1 wk (%)
1 Mth (%)
HITACHI HOME & L
1163
19.4
40.8
DISHMAN PHARMACE
CMP (INR)
1 wk (%)
161
24.8
1 Mth (%)
32.4
498
16.6
30.3
SUNDARAM CLAYTON
1978
15.2
23.0
GEOJIT BNP PARIB
45
19.0
27.1
1422
16.1
25.9
TEXMACO RAIL & E
159
14.4
23.9
TRINITY TRADELIN
29
18.9
88.6
188
13.4
13.5
WALCHANDNAGAR
253
15.4
64.6
87
12.2
28.1
INDIABULLS SEC
32
12.3
36.3
CMP (INR)
1 wk (%)
1 Mth (%)
CMP (INR)
1 wk (%)
1 Mth (%)
261
(12.8)
9.3
SULABH ENGR & SV
91
(44.5)
(46.4)
69
(10.7)
4.9
CENTRUM CAP LTD
18
(18.4)
(5.3)
(6.8)
PMC FINCORP LTD
41
(17.2)
(58.0)
TILAK FINANCE LT
ALSTOM T&D INDIA
541
14.4
16.9
IIFL HOLDINGS LT
DLF LTD
163
13.5
19.7
HOUSING DEVELOPM
CMP (INR)
1 wk (%)
1 Mth (%)
VEDANTA RESOURCE
363
(10.9)
(36.1)
GRUH FINANCE LTD
276
(10.5)
9.3
UNION BANK INDIA
227
(8.4)
(6.0)
REDINGTON INDIA
124
(9.0)
IPCA LABS LTD
644
(8.0)
(12.5)
KITEX GARMENTS
513
(7.5)
1.2
M&M FIN SERVICES
249
(6.8)
(17.8)
BOMBAY BURMAH TR
442
(6.7)
18.4
Top-5 losers
Company
Top-5 gainers
Company
CMP (INR)
Top-5 losers
Company
GATI LTD
CORPORATION BANK
Top-5 losers
Company
ZUARI AGRO CHEMI
Volume
Volume
Volume
Volume spurts
Company
Volume spurts
Company
Volume spurts
Company
64
(17.0)
(76.2)
232
(16.7)
(7.8)
CMP (INR)
1 wk avg
1/4 wk (%)
135
19
300.0
39
45
239.6
CMP (INR)
1 wk avg
1/4 wk (%)
CMP (INR)
1 wk avg
1/4 wk (%)
COROMANDEL INTER
293
1,116,994
205.8
GUJARAT STATE F
102
5,239,391
181.4
GLOBUS CONSTRUCT
SUN PHARMA ADV
383
11,851,486
191.4
ESSAR PORTS LTD
106
1,377,962
168.7
NEWTIME INFRASTR
MAX INDIA LTD
498
3,331,326
173.1
KAVERI SEED
736
556,032
154.7
MATRA KAUSHAL EN
36
78,047
215.0
IPCA LABS LTD
644
865,781
151.8
EDELWEISS FIN SE
72
9,214,448
143.4
SOMANY CERAMICS
344
143,169
205.5
ALSTOM T&D INDIA
541
259,911
136.5
STERLITE TECH LT
62
3,931,137
142.3
DHANLEELA INVEST
137
2,100
200.0
CMP (INR)
200D Avg
(%)
CMP (INR)
200D Avg
(%)
CMP (INR)
200D Avg
(%)
SUN PHARMA ADV
383
184
106.7
FORBES & CO LTD
2,372
965
147.0
SHREYAS SHIPPING
333
97
245.1
BAJAJ FINANCE LT
ASHOK LEYLAND
4,323
68
2,607
41
65.5 #
65.3 #
HITACHI HOME & L
ISGEC HEAVY ENGI
1,163
5,691
526
3,050
119.8
87.1
PODDAR DEVELOPER
TAKE SOLUTIONS
1,526
99
519
43
192.7
131.6
62.2 #
BOMBAY BURMAH TR
442
252
76.0
EINS EDUTECH LTD
451
195
130.8
61.2
CCL PRODUCTS IND
186.8
106.7
74.6
INDO COUNT INDS
414
183
125.9
Technicals
Above 200 DMA
Company
Technicals
WHIRLPOOL OF IND
726
447
BHARAT ELECTRON
3,408
2,121
Below 200 DMA
Company
CMP (INR)
200D Avg
(%)
VEDANTA RESOURCE
363
900
(59.6)
JINDAL STEEL & P
Above 200 DMA
Company
Below 200 DMA
Company
JAIN IRRIGATION
Technicals
CMP (INR)
200D Avg
(%)
66
91
(27.6)
Above 200 DMA
Company
Below 200 DMA
Company
CMP (INR)
200D Avg
(%)
TILAK FINANCE LT
64
277
(76.9)
(73.0)
155
225
(30.6)
JAIPRAKASH POWER
12
16
(27.1)
PMC FINCORP LTD
41
150
RELIANCE COMMUNI
80
114
(30.0)
RISA INTERNATION
185
253
(26.7)
SULABH ENGR & SV
91
229
(60.3)
RELIANCE INFRAST
481
640
(24.5)
JAYPEE INFRATECH
20
27
(25.9)
PINE ANIMATION L
39
83
(53.5)
CAIRN INDIA
236
306
(22.9)
UNITECH LTD
17
23
(25.4)
TRINITY TRADELIN
29
57
(49.3)
Source: Bloomberg
Anand Rathi Research
India Equities
Retail
India I Equities
Result Update
Change in Estimates  Target  Reco 
29 January 2015
Titan Industries
Rating: Buy
Target Price: `450
Share Price: `400
Jewellery sparkles, watch volumes under stress; Buy
Key takeaways
Key data
TTAN IN / TITN.BO
`424 / `203
29559 / 8914
US$6.89m
`355.12bn / US$6bn
887.8m
52-week high / low
Sensex / Nifty
3-m average volume
Market cap
Shares outstanding
Jewellery revenue offsets declining watch volumes. Titan Industries’
3QFY15 revenue increased 9.2% yoy to `29.2bn, below the `32.3bn we
expected. The jewellery division posted decent, 11% yoy, growth, boosted
by Gold plus growing 30% yoy, though sales of Tanishq declined 4% yoy.
The watch division reported a 2% yoy drop in revenue due to a 4% dip in
volumes, chiefly because of poor consumer sentiment during the festival
season and of higher prices.
Shareholding pattern (%)
Dec ’14
Sep ’14
Jun ’13
53.05
53.05
53.05
-
-
-
Free Float
46.95
46.95
46.95
- Foreign Institutions
21.57
21.52
21.51
2.92
3.05
2.84
22.46
22.38
22.60
FY15e
FY16e
FY17e
(3.9)
(4.1)
(4.2)
(3.5)
(3.6)
(3.6)
(1.7)
(2.4)
(2.4)
Promoters
- of which, Pledged
Suspension of the 80:20 scheme. Despite the RBI withdrawing the
restrictions on gold imports by scrapping the controversial 80:20 scheme,
clarity from custom authorities is lacking regarding restrictions on imports
on lease. The benefit from the removal of the 80:20 scheme will start
flowing in from 4QFY15.
- Domestic Institutions
- Public
Estimates revision (%)
Improved EBITDA. The EBITDA margin was in step with our estimated
9.4%. The 3QFY15 EBIT margin of the jewellery division, at 9.6% (9.5% a
year back, 9.2% the previous quarter), was low because of the greater
contribution from Gold Plus stores. The EBIT margin of the watch
division slipped from 10.4% a year ago to 9.7% in 3QFY15 following the
volume decline and keener e-commerce competition. PAT came in at
`1.9bn, up 15% yoy, primarily because of the operating performance and
lower tax rate. The 100% rebate will continue for the next two years.
Sales
EBITDA
PAT
Financials (YE Mar)
Sales (` m)
Net profit (` m)
FY17e
176,444
11,600
13,711
13
15
Growth (%)
25.5
18.2
PE (x)
30.6
25.9
PBV (x)
8.6
6.7
RoE (%)
31.5
29.1
RoCE (%)
35.2
34.2
EPS (`)*
` take. We are sanguine about the stock, given the healthy growth in the
Our
jewellery division and on looking at early signs of improving consumer
sentiment. We value Titan at 29x PE on FY17e EPS of `15.4 and arrive at a
target price of `450. Risks: Regulatory hurdles and volatility in gold prices.
FY16e
152,659
Dividend yield (%)
Net gearing (%)
0.6
0.6
(18.8)
(13.5)
Source: Anand Rathi Research
Quarterly results (YE Mar)
Sales (` m)
EBITDA (` m)
EBITDA margin (%)
Interest (` m)
Depreciation (` m)
Other income(` m)
PBT (` m)
Tax (` m)
Tax rate (%)
PAT (` m)
3QFY14
3QFY15
% yoy
9MFY14
9MY15
26,758
29,225
9.2
81,124
94,070
% yoy
16.0
2,452
2,758
12.5
7,519
8,833
17.5
12bps
9.2
9.4
27bps
9.3
9.4
274
211
(23.0)
644
669
4.0
157
232
48.2
452
672
48.8
261
115
(55.8)
947
544
(42.5)
Manish Valecha
2,282
2,431
6.5
7,370
8,036
9.0
+9122 6626 6552
[email protected]
639
524
(17.9)
2,063
1,982
(3.9)
28.0
21.6
-643bps
28.0
24.7
-333bps
1,656
1,907
15.2
5,347
6,078
13.7
Source: Company
Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in Appendix.
Anand Rathi Research
India Equities
29 January 2015
Titan Industries - Jewellery sparkles, watch volumes under stress; Buy
Quick Glance – Financials and Valuations
Fig 2 – Balance sheet (` m)
Fig 1 – Income statement (` m)
Year-end: Mar
Net revenues
Revenue growth (%)
- Oper. expenses
EBIDTA
EBITDA margins (%)
- Interest
- Depreciation
+ Other income
PBT
Income taxes
Extra-ordinary items
Reported net profit
Adjusted net profit
PAT growth (%)
Adj. FDEPS (`/sh)
Adj. FDEPS growth (%)
FY13
FY14
FY15e
FY16e
FY17e
101,127
15.6
91,021
10,106
10.0
506
545
1,008
10,063
2854
7,252
7,252
20.8
8.2
20.8
109,158
7.9
98,674
10,484
9.6
871
656
1,202
10,159
2630
7,411
7,411
2.2
8.3
2.2
129,071
18.2
116,243
12,829
9.9
800
750
1,300
12,579
3333
9,245
9,245
24.7
10.4
24.7
152,659
18.3
136,726
15,933
10.4
700
850
1,400
15,783
4182
11,600
11,600
25.5
13.1
25.5
176,444
15.6
157,540
18,904
10.7
850
900
1,500
18,654
4943
13,711
13,711
18.2
15.4
18.2
FY13
FY14
888
18,761
19,649
(80)
19,568
4,903
185
888
24,352
25,240
8,063
(94)
33,209
6,291
266
FY15e
888
888
888
31,325 40,550 51,885
32,213 41,438 52,773
7,063 5,063 6,063
(94)
(94)
(94)
39,182 46,407 58,743
7,541 9,191 11,291
266
266
266
FY16e
FY17e
3,115
11,365
19,568
(0.6)
7
22
17,763
8,889
33,209
(0.0)
35
28
20,103 24,089 33,992
11,273 12,861 13,194
39,182 46,407 58,743
(0.1)
(0.2)
(0.1)
54
53
60
36
47
59
Fig 4 – Ratio analysis @ `400
Fig 3 – Cash-flow statement (` m)
PAT
Non-csh items
Cash profit
Incr. /(Decr.) in WC
Operating cash-flow
Capex
Free cash-flow
Dividend
Equity raised
Debt raised
Investments
Miscellaneous items
Net cash-flow
Opening cash
Closing cash
Share capital
Reserves & surplus
Net worth
Total debt
Minority interest
Def. tax liab. (net)
Capital employed
Net fixed assets
Investments
- of which, Liquid
Working capital
Cash
Capital deployed
Net debt/equity (%)
W C turn (days)
Book value (`/sh)
Source: Company, Anand Rathi Research
Source: Company, Anand Rathi Research
Year-end: Mar
Year-end: Mar
FY13
FY14
FY15e
FY16e
FY17e
7,252
502
7,754
2,296
5,458
1,512
3,946
1,796
(59)
25
306
1,760
9,605
11,366
7,411
643
8,054
14,648
(6,594)
2,044
(8,638)
2,169
0
8,063
81
(348)
(2,476)
11,366
8,889
9,245
750
9,995
2,340
7,656
2,000
5,656
2,272
(1,000)
2,383
8,889
11,273
11,600
850
12,450
3,987
8,464
2,500
5,964
2,375
(2,000)
1,588
11,273
12,861
13,711
900
14,611
9,903
4,708
3,000
1,708
2,375
1,000
333
12,861
13,194
Year-end: Mar
FY13
FY14
FY15e
FY16e
FY17e
P/E (x)
Cash P/E (x)
EV/EBITDA (x)
EV/sales (x)
P/B (x)
RoE (%)
RoCE (%)
Dividend yield (%)
Dividend Payout(%)
Debt to equity (x)
Debtor days
Inventory days
Payables days
Working capital days
Fixed asset T/O (x)
49.0
45.8
34.0
3.4
18.1
42.5
56.1
0.4
21.3
(0.6)
6
133
53
7
22.9
47.9
44.1
33.8
3.2
14.1
33.0
37.2
0.5
25.2
(0.0)
5
129
51
35
19.5
38.4
35.5
27.4
2.7
11.0
32.2
33.4
0.6
21.1
(0.1)
5
120
48
54
18.7
30.6
28.5
21.8
2.3
8.6
31.5
35.2
0.6
17.6
(0.2)
5
115
43
53
18.2
25.9
24.3
18.4
2.0
6.7
29.1
34.2
0.6
14.9
(0.1)
5
110
35
60
17.2
Source: Company, Anand Rathi Research
Source: Company, Anand Rathi Research
Fig 5 – PE band
Fig 6 – 3QFY15 revenue break-up
(`)
500
36.0
450
Others
4.6%
32.0
400
28.0
350
300
24.0
250
20.0
Un allocated
0.4%
Watches
15.1%
200
150
100
Jewellery
80.0%
Source: Bloomberg, Anand Rathi Research
Anand Rathi Research
Jan-15
Jul-14
Oct-14
Apr-14
Jan-14
Jul-13
Oct-13
Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Jan-12
Jul-11
Oct-11
Apr-11
Jan-11
50
Source: Company
2
29 January 2015
Titan Industries - Jewellery sparkles, watch volumes under stress; Buy
Result Highlights
Fig 7 – Estimates vs Actuals
Quarterly results (YE Mar)
3QFY15
3QFY15e
% var
2QFY14
% yoy
1QFY15
% qoq
Sales (`m)
29,225
32,398
(9.8)
26,758
9.2
35,931
(18.7)
2,758
3,049
(9.5)
2,452
12.5
3,332
(17.2)
EBITDA margin (%)
9.4
9.4
3bps
9.2
27bps
9.3
17bps
Interest (`m)
211
120
75.7
274
(23.0)
109
93.8
Depreciation (`m)
232
200
16.0
157
48.2
197
17.9
Other income(`m)
115
200
(42.4)
261
(55.8)
175
(34.2)
PBT (`m)
2,431
2,929
(17.0)
2,282
6.5
3,201
(24.1)
Tax (`m)
524
732
(28.4)
639
(17.9)
796
(34.1)
EBITDA (`m)
Tax rate (%)
21.6
25.0
-342bps
28.0
-643bps
24.9
-330bps
PAT (`m)
1907
2,197
(13.2)
1,656
15.2
2,399
(20.5)
Source: Company, Anand Rathi Research
Fig 9 – PBIT and PBIT margin: Jewellery
Fig 8 – Sales and sales growth: Jewellery
(`m)
35,000
(%)
70
(%)
40
(`m)
2,500
60
35
50
40
2,000
20,000
30
20
1,500
15,000
10
0
1,000
-10
500
-20
-30
0
15
10
5
Sales growth
PBIT
Source: Company, Anand Rathi Research
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
0
Dec-11
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Jun-13
Sales
Sep-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
0
20
Dec-12
5,000
25
Jun-12
10,000
30
Sep-12
25,000
Mar-12
30,000
PBIT Margin (RHS)
Source: Company, Anand Rathi Research
Fig 10 – Sales & sales growth: Watches
Fig 11 – PBIT and PBIT margin: Watches
(`m)
5,500
(%)
5,000
(`m)
800
(%)
140
25
700
120
20
600
15
500
10
400
5
300
0
200
2,500
-5
100
2,000
-10
Sales
Source: Company, Anand Rathi Research
Anand Rathi Research
Sales growth
40
20
PBIT
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
0
Mar-13
0
Dec-12
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
3,000
60
Sep-12
3,500
80
Jun-12
4,000
100
Mar-12
4,500
Dec-11
30
PBIT Margin (RHS)
Source: Company, Anand Rathi Research
3
29 January 2015
Titan Industries - Jewellery sparkles, watch volumes under stress; Buy
Fig 12 – No. of stores: Jewellery
Fig 13 – No. of stores: Watches
(no's)
(no's)
200
700
180
600
160
140
500
120
400
100
80
300
60
200
40
100
20
World of Titans
Gold plus
Fasttrack Outlets
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Mar-12
Dec-11
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Tanishq
Jun-12
0
0
Helios Outlets
Source: Company, Anand Rathi Research
Source: Company, Anand Rathi Research
Fig 14 – OPM and NPM
(%)
11.5
10.5
9.5
8.5
7.5
6.5
OPM
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
5.5
NPM
Source: Company
Valuations
We are sanguine about the stock, given the healthy growth of the jewellery
division and on looking at early signs of improving consumer sentiment.
We value Titan Industries at 29x PE on FY17 EPS of `15.4 and arrive at a
target price of `450.
Fig 15 – 12-month-forward PE: Standard deviation and Mean
(x)
40
+2SD
35
+1SD
30
Mean
25
-1SD
20
-2SD
Jan-15
Jul-14
Oct-14
Apr-14
Oct-13
Jan-14
Jul-13
Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Jan-12
Jul-11
Oct-11
Apr-11
Jan-11
15
Source: Anand Rathi Research
Risks
Anand Rathi Research

Regulatory hurdles

Volatility in gold prices.
4
BFSI
India I Equities
Result Update
Change in Estimates  Target  Reco 
29 January 2015
Cholamandalam Investment and Finance
Rating: Buy
Target Price: `670
Share Price: `520
Improving core; upgrading to a Buy
Key takeaways
Modest loan growth, driven by home equity. Cholamandalam
Investment and Finance’s AUM rose 12.4% yoy (1.1% qoq), to `247.3bn,
led by healthy growth in the home equity vertical. Disbursements were
dragged down 7.6% on account of an 11% fall in the vehicle-finance
division. Management believes that the CV business is closer to bottoming
out. Increasing penetration and a diversified product mix could drive a 22%
loan CAGR over FY14-17.
NIM improves, stable productivity. Calculated NIM on AUM increased
30bps yoy to 8% through higher yields on account of the changing product
mix, with a tilt toward higher-yielding assets. We expect this trend to
continue. Cost-to-assets was a stable 3.4% yoy as Cholamandalam focuses
on leveraging its existing network. This came about despite a 10% yoy rise in
its branch network (to 575). In FY15-16, we expect cost-assets to improve
to 2.8% (from 3.4% in FY14) as the NBFC better leverages its present setup.
Asset quality slips; closer to bottoming out. GNPA increased 20bps qoq
to 2.8% as the NBFC saw higher delinquencies in its CV portfolio. Portfolio
quality in the home-equity segment, however, is stable. Management has
seen, however, collection efficiencies improve. We have built in an 85-bp
credit cost over FY16/17.
Our take. On the expected improving CV cycle and higher RoEs, we raise
our target price to `670 (from `540 earlier) and value the NBFC at 2.3x
FY17e BV (earlier 2.2x FY16). Higher core income and better asset quality
could lead to greater profitability (a 32% CAGR over FY14-17) and a higher
RoE of 20% by FY17. We upgrade our recommendation on the stock to a
Buy. Our target is based on the two-stage DDM (CoE: 15%; earlier 16%).
Risks. Persistent slowdown in the rural economy, higher NPAs.
Key data
CIFC IN / CHLA.BO
`548/`224
52-week high / low
Sensex / Nifty
3-m average volume
Market cap
Shares outstanding
29559 / 8914
US$1.6m
`77bn/US$1254m
143.6m
Shareholding pattern (%)
Dec-14 Sep-14
Promoters
- of which, Pledged
Free Float
- Foreign Institutions
- Domestic Institutions
- Public
57.7
42.3
27.1
6.5
8.7
Financials (YE: Mar)
Jun-14
57.8
42.2
27.1
6.5
8.7
57.7
42.3
25.5
8.2
8.6
FY15e
FY16e
17,496
21,414
4,547
6,496
EPS (`)
31.7
41.8
Growth (%)
24.9
31.6
PE (x)
16.4
12.5
Net interest income (` m)
Net profit (` m)
PABV (x)
3.8
2.3
RoE (%)
16.7
18.9
RoA (%)
1.9
2.2
Dividend yield (%)
0.8
1.0
Net NPA (%)
1.0
0.8
Source: Anand Rathi Research
Quarterly results (YE: Mar)
3QFY14
3QFY15
% yoy
9MFY14
9MFY15
Net interest income (` m)
3,571
4,584
28.4
10,399
12,541
20.6
Non-interest income (` m)
172
65
(62.2)
581
248
(57.4)
Operating expenses (` m)
1,649
1,965
19.2
4,863
5,585
14.8
44.0
42.3
(177)bps
44.3
43.7
(62)bps
2,095
2,684
28.1
6,117
7,204
17.8
Cost-to-income (%)
Pre-provisioning profit (` m)
% yoy
699
997
42.6
1,991
2,666
33.9
Kaitav Shah
PBT (` m)
1,396
1,687
20.9
4,126
4,538
10.0
Tax (` m)
474
574
21.1
1,393
1,543
10.8
+9122 6626 6545
[email protected]
PAT(` m)
922
1,113
20.7
2,733
2,995
9.6
EPS (`)
6.4
7.7
20.4
16.7
19.1
14.6
Provisions (` m)
Source: Company, Anand Rathi Research
Anand Rathi Shares and Stock Brokers Limited (hereinafter “ARSSBL”) is a full service brokerage and equities research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in Appendix.
Anand Rathi Research
India Equities
29 January 2015
Cholamandalam Investment and Finance – Improving core; upgrading to a Buy
Quick Glance – Financials and Valuations
Fig 1 – Income statement (` m)
Source: Company, Anand Rathi Research
Share capital
Reserves & surplus
Borrowings
Current liab. & prov.
Minority Interest
Total liabilities
500
10x
400
8x
300
6x
CIFC
200
4x
100
Jan-15
Jul-14
Jan-14
Jul-13
0
Source: Bloomberg, Anand Rathi Research
Fig 2 – Balance sheet (` m)
Year-end: Mar
600
Jan-13
26,454
23.5
501
26,955
23.5
11,591
15,364
23.5
2,922
12,443
4,143
8,299
27.8
53.4
5.0
Jul-12
21,414
22.4
412
21,827
22.4
9,385
12,441
24.5
2,702
9,739
3,243
6,496
42.9
41.8
5.0
Jan-12
17,496
20.3
342
17,838
19.6
7,849
9,989
19.8
3,351
6,638
2,091
4,547
24.9
31.7
4.0
Jul-11
14,548
32.1
370
14,918
31.1
6,582
8,335
44.9
2,833
5,502
1,862
3,640
18.7
25.4
3.5
Jul-10
11,014
48.4
367
11,381
45.0
5,630
5,751
58.3
1,243
4,508
1,443
3,065
77.7
21.4
3.3
Jan-11
FY17e
Jul-09
FY16e
Jan-10
FY15e
Jul-08
FY14
Jan-09
Net interest income
NII growth (%)
Non-interest inc
Total income
Total Inc, growth (%)
Oper. expenses
Operating profit
Oper. profit growth (%)
Provisions
PBT
Tax
PAT
PAT growth (%)
FDEPS (`/sh)
DPS (`/sh)
Fig 4 – PE band
FY13
Jan-08
Year-end: Mar
Fig 5 – Price-to-book band
FY13
FY14
FY15e
1,432
18,216
152,890
9,310
181,848
1,433
21,514
182,091
10,430
215,468
1,433
30,168
218,071
15,734
265,405
FY16e
FY17e
1,555
1,555
35,647 43,052
258,783 318,731
20,454 26,591
316,439 389,928
600
500
2.0x
400
CIFC
1.5x
300
Jul-14
Dec-14
Jan-15
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Nov-14
550
CIFC
500
450
400
350
Bankex
300
250
200
Jan-15
7.7
1.9
43.0
56.7
9.4
91.1
n.a
1.5
0.7
286.8
270.4
17.5
20.3
2.3
1.0
Oct-14
7.6
1.9
43.0
58.7
12.0
91.0
n.a
1.8
0.8
239.2
223.9
17.6
20.4
2.2
1.0
Sep-14
7.6
1.9
44.0
62.9
12.6
93.5
n.a
2.3
1.0
185.7
135.2
18.0
18.4
1.9
0.8
Aug-14
7.7
2.5
44.1
60.9
13.8
93.7
n.a
2.4
1.0
160.2
146.2
17.4
17.1
1.8
0.7
Jul-14
7.2
3.2
49.5
73.9
15.5
92.0
n.a
0.9
0.3
137.2
134.1
17.7
18.1
1.9
0.6
Jun-14
FY17e
May-14
FY16e
Apr-14
FY15e
Mar-14
FY14
Feb-14
FY13
Source: Company, Anand Rathi Research
Anand Rathi Research
0
Fig 6 – Chola vs. Bankex
Fig 3 – Key ratios
NIM (%)
Other inc / total inc (%)
Cost-income (%)
Provision coverage (%)
Dividend payout (%)
Credit-Borrowings (%)
Investment-deposit (%)
Gross NPA (%)
Net NPA (%)
BV (`)
Adj BV (`)
CAR (%)
RoE (%)
RoA (%)
Dividend yield (%)
0.5x
100
Source: Bloomberg, Anand Rathi Research
Source: Company, Anand Rathi Research
Year-end: Mar
1.0x
200
Jul-09
284,428 349,846
1,294
1,594
28,578 35,891
2,139
2,598
316,439 389,928
156
156
18.7
23.2
22.0
23.0
Jan-09
233,137
1,090
29,390
1,788
265,405
143
19.8
20.0
Jul-08
194,281
824
12,215
8,147
215,468
143
19.1
16.9
Jan-08
166,259
2,245
10,882
2,461
181,848
143
33.6
34.8
Jan-14
Advances
Investments
Cash & bank bal
Fixed & other assets
Total assets
No. of shares (m)
Borrowings growth (%)
Advances growth (%)
Source: Bloomberg
2
29 January 2015
Cholamandalam Investment and Finance – Improving core; upgrading to a Buy
Result Highlights
Fig 7 – 3QFY15 Results vs Expectations
(` m)
Net interest income
Pre-provisioning profits
PAT
3QFY15
3QFY15e
Var %
3QFY14
YoY %
2QFY15
QoQ %
4,584
2,684
1,113
4,219
2,402
1,024
8.7
11.7
8.7
3,571
2,095
922
28.4
28.1
20.7
4,113
2,305
951
11.5
16.5
17.0
Source: Company, Anand Rathi Research
Fig 8 – 3QFY15 Results
(` m)
3QFY15
3QFY14
% Chg
9MFY15
9MFY14
% Chg
4,584
65
1,965
2,684
1,113
3,571
172
1,649
2,095
922
28.4
(62.2)
19.2
28.1
20.7
12,541
248
5,585
7,204
2,995
10,399
581
4,863
6,117
2,733
20.6
(57.4)
14.8
17.8
9.6
Net interest income
Non-interest income
Operating costs (%)
Pre-provisioning profits
PAT
AUM
Disbursements
Gross NPA %
Net NPA %
NPA coverage%
Capital adequacy %
Tier-1 %
3QFY15
3QFY14
YoY
2QFY15
QoQ
247,363
30,820
2.8
1.50
46.4
20.9
12.7
220,069
33,360
1.7
0.70
58.8
18.2
11.1
12.4
(7.6)
110bps
80bps
(1,239)bps
272bps
160bps
244,685
30,280
2.6
1.40
46.2
19.8
12.6
1.1
1.8
20bps
10bps
27bps
114bps
9bps
Source: Company,
Fig 9 – AUM growth modest as . . .
Fig 10 – . . . disbursement growth slows down
(`bn)
(Nos)
(`bn)
260
600
40
(%)
80.0
35
70.0
240
550
220
60.0
30
200
500
180
450
160
140
400
50.0
25
40.0
20
30.0
15
20.0
10.0
10
AUM
Branches
5
5
6
6
6
6
6
6
7
8
8
80%
27
29
29
32
33
32
27
28
28
29
29
29
56.0
14
13
13
12
6
11
7
12
11
12
52.0
8
8
9
9
10
10
48.0
38
39
37
36
44.0
15
4
11
7
40%
46
45
44
43
42
11
7
41
45
44
42
41
0
29
28
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
(%)
5.0
4.5
4.0
3.5
Tractor
Anand Rathi Research
HCV
Car
Used CV
MUV
Cost-income
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
LCV
Source : Company
3.0
2QFY12
40.0
0%
1QFY12
20%
11
6
0
(%)
60.0
5
15
3
2QFY13
Fig 12 – Cost-assets trending lower
100%
2
Disbursement growth
Source: Company, Anand Rathi Research
Fig 11 – AUM mix – Share of tractors improving
17
1QFY13
Disbursement
Source: Company, Anand Rathi Research
60%
4QFY12
(20.0)
1QFY12
(10.0)
0
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
300
1QFY12
80
-
5
3QFY12
350
100
2QFY12
120
Cost-assets
Source : Company, Anand Rathi Research
3
29 January 2015
Cholamandalam Investment and Finance – Improving core; upgrading to a Buy
Fig 13 – NPA coverage falls
(%)
3.4
(%)
90
85
80
75
70
65
60
55
50
45
40
2.9
2.4
1.9
1.4
0.9
GNPA(% of advances)
3QFY15
2QFY15
1QFY15
4QFY14
3QFY14
2QFY14
1QFY14
4QFY13
3QFY13
2QFY13
1QFY13
4QFY12
3QFY12
2QFY12
0.4
NPA coverage (RHS)
Source: Company
Valuations
On the improving RoEs, we raise our target price to `670 (from `540
earlier) and value the NBFC at 2.3x FY17e BV (earlier 2.2x FY16). Healthy
asset growth, stable NIM and better productivity could lead to greater
profitability (a 32% CAGR over FY14-17) and higher RoE of 20% by
FY17. We upgrade our recommendation on the stock to a Buy. Our target
is based on the two-stage DDM (CoE: 15%; earlier 16%).
Fig 14 – Past one-year-forward P/BV
3.0
2.5
+2SD
2.0
CIFC
+1SD
1.5
Mean
1.0
- 1SD
0.5
- 2SD
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
0.0
Source: Bloomberg, Anand Rathi Research
Risks
Anand Rathi Research

Persistent slowdown in economy could hit the rural sector, leading to
slower loan growth and higher delinquencies.

NBFCs being highly-regulated entities, regulatory constraints could
impact profitability.
4
29 January 2015
Cholamandalam Investment and Finance – Improving core; upgrading to a Buy
Financials
We expect a 22% CAGR in AUM over FY14-17, with a 32% CAGR in net
profit over the same period.
Fig 15 – Income Statement
Year-end: Mar (` m)
FY13
FY14
FY15e
FY16e
FY17e
Interest income
25,187
32,259
37,504
44,780
54,753
Interest expended
14,173
17,711
20,008
23,366
28,298
Net interest income
11,014
14,548
17,496
21,414
26,454
Growth (%)
48.4
32.1
20.3
22.4
23.5
Non-interest income
367
370
342
412
501
11,381
14,918
17,838
21,827
26,955
Total income
Non-interest income / total income (%)
3.2
2.5
1.9
1.9
1.9
Operating expenses
5,630
6,582
7,849
9,385
11,591
Employee expenses
1,531
2,106
2,512
3,003
3,709
Other expenses
4,100
4,476
5,337
6,382
7,882
Pre-provisioning profit
5,751
8,335
9,989
12,441
15,364
58.3
44.9
19.8
24.5
23.5
Provisions
Growth (%)
1,243
2,833
3,351
2,702
2,922
Profit before tax
4,508
5,502
6,638
9,739
12,443
Taxes
1,443
1,862
2,091
3,243
4,143
Tax rate (%)
32.0
33.8
31.5
33.3
33.3
Profit after tax
3,065
3,640
4,547
6,496
8,299
Growth (%)
77.7
18.7
24.9
42.9
27.8
Number of shares (m)
143
143
143
156
156
Earnings per share (`)
21.4
25.4
31.7
41.8
53.4
Source : Company, Anand Rathi Research
Fig 16 – Balance Sheet
Year-end: Mar (` m)
Share capital
Reserves and Surpluses
FY13
FY14
FY15e
FY16e
1,432
1,433
1,433
1,555
FY17e
1,555
18,216
21,514
30,168
35,647
43,052
Net worth
19,648
22,947
31,600
37,202
44,607
Borrowings
152,890
182,091
218,071
258,783
318,731
Minority Interest
-
-
-
-
-
Total loans
152,890
182,091
218,071
258,783
318,731
Total liabilities
181,848
215,468
265,405
316,439
389,928
Advances
349,846
166,259
194,281
233,137
284,428
Investments
2,245
824
1,090
1,294
1,594
Cash & bank balances
3,890
8,008
23,883
22,520
29,227
Fixed & other assets
9,454
6,089
7,295
8,197
9,261
181,848
215,468
265,405
316,439
389,928
Total assets
Source : Company, Anand Rathi Research
Anand Rathi Research
5
Appendix
Analyst Certification
The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research
analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange
Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have
no bearing whatsoever on any recommendation that they have given in the Research Report.
Important Disclosures on subject companies
Rating and Target Price History (as of 29 January 2015)
470
440
1
2
3
4
5
6
7
Date
Rating
15-Jan-13
Buy
01-Nov-13
Buy
30-Jan-14
Buy
09-Apr-14
Buy
08-May-14
Buy
05-Aug-14
Buy
03-Nov-14
Buy
TP
(`)
325
316
270
316
342
375
459
Share
Price (`)
272
266
215
262
272
337
397
1
2
3
4
5
6
7
Date
Rating
12-Dec-11 Buy
25-Sep-12 Buy
21-Jan-13 Buy
25-Feb-13 Buy
31-Oct-13 Buy
30-Jan-14 Buy
04-Aug-14 Buy
TP
(`)
181
269
343
351
309
325
450
Share
Price (`)
133
217
282
286
230
256
405
Titan
410
380
350
7
6
2
5
4
3
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
320
290
260 1
230
200
620
CIFC
520
420
7
4
320
3
220
5
6
2
120
1
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
20
Anand Rathi Ratings Definitions
Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide
Large Caps (>US$1bn)
Mid/Small Caps (<US$1bn)
Buy
>15%
>25%
Anand Rathi Research Ratings Distribution (as of 29 January 2015)
Buy
60%
Anand Rathi Research stock coverage (196)
% who are investment banking clients
4%
Hold
5-15%
5-25%
Sell
<5%
<5%
Hold
27%
0%
Sell
13%
0%
Research Disclaimer and Disclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014
Anand Rathi Share and Stock Brokers Ltd. (hereinafter refer as ARSSBL) (Research Entity) is a subsidiary of Anand Rathi Financial Services Ltd. ARSSBL is a
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