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November 10, 2015

Index
Market Outlook >> Samvat 2072: Low on expectations, high on returns
Stock Update >> Aditya Birla Nuvo
Stock Update >> Oil India
Stock Update >> PTC India Financial Services

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investors eye

market outlook

Market Outlook
Samvat 2072: Low on expectations, high on returns
policy environment remains extremely accommodative in
most developed regions like Europe, Japan and now China.

Samvat 2071; hopes belied: Euphoria is giving way to

nervousness among investors. In Samvat 2071, the hopes
of a fast recovery in economy and corporate earnings have
fallen short of expectations. Critical reforms are stuck in
a political logjam and the pace of recovery in economy is
anaemic despite the majority mandate in the general
election at the centre and the favourable impact of the
softening of commodity prices. Having said this, the
government has done its bit in terms of pushing policy
changes that do not require legislative nod, like coal mine
auctions, restructuring of the power distribution
companies and deregulation of prices of petroleum
products. However, the same is not enough to stimulate
the desired pace of economic recovery; perhaps the
expectations were running ahead of reality.

Valuationsbenchmark indices slip to the lower end of

their multi-month trading band: In the past few months,
the market has been adjusting to a slower than expected
pace of economic recovery and weak corporate earnings
by consolidating in a broad trading range. Recent
unfavourable events have pushed it to the lower end of
the multi-month range (and comfortable valuation of 15x
one-year forward earnings) where the risk-reward ratio
has turned favourable for investors.
Samvat 2072: low on expectations; high on delivery:
Unlike Samvat 2071, the expectations are pretty moderate
for Samvat 2072 though the macro environment is much
better now. The twin deficits (current account deficit
[CAD] and fiscal deficit) and inflation are under control.
The impact of policy rate cuts of 125 basis points (BPS) by
the Reserve Bank of India (RBI) would begin to reflect on
demand and corporate earnings (the base rate of banks is
down by 60-80BPS). Moreover, the possible passage of
some critical pending bills in the forthcoming winter
session of the Parliament could provide the necessary
boost to sentiment. Consequently, we retain our positive
stance on equities.

Earningsmixed trend, no clear signals yet: In terms of

earnings, the Q2FY2016 results season largely seems to
be on the expected lines on an aggregate basis but with
its share of surprises, both positive and negative, in
individual stocks. On the revenue front, a weak demand
and pass-through of soft raw material prices kept the
revenue growth weak but the performance at the
operating level was much better due to an expansion in
the margins. A lower input cost and operating leverage
aided some of the companies to show a better than
expected growth in the earnings. Hopes are pinned on
the H2FY2016 performance since the consensus is still
building in a 10-12% growth in the aggregate earnings of
the Sensex companies in FY2016 despite a rather flattish
earnings performance in H1FY2016. The recovery in
corporate earnings is expected to be driven by a gradual
improvement in consumer demand (driven by moderating
inflation and transmission of low interest rates) along with
a low base effect (H2 of FY2015 was exceptionally weak).

Investment themes: In terms of strategy, we believe that

it would be prudent to turn more selective in defensive
sectors, information technology (IT) services and
pharmaceuticals (pharma). The best performing pockets
could be financials and urban consumption companies.
Lastly, it is likely that mid-caps and bottom-up stories
may outperform the Sensex and the Nifty in this year also.
Sensex one-year forward P/E band

Globally, rate hike uncertainty close to its end: The

recent economic data from the USA provides enough
reasons for the US Federal Reserve (Fed) to finally go ahead
with the unwinding of its zero interest rate policy. Though
there could be some volatility in the run-up to the event,
we believe that the market has had enough time to adjust
to the impending scenario. The markets reaction to the
final unfolding of the withdrawal of quantitative easing
(QE) in the USA or the ruling partys drubbing in Delhi and
Bihar clearly proves the point. Moreover, the monetary

Sharekhan

Source: Bloomberg, Sharekhan Research

November 10, 2015

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investors eye

market outlook

Eye on economic turnaround and reforms: Of late, the

macro data releases like the Index of Industrial Production
(IIP) data (three-month average of ~5%), gross value added
(GVA) and indirect tax revenue mop-up (up 36% in the
year till date) are showing an uptrend even as the pace of
the pick-up has been lower than expected. The inflation
scenario seems to be under control despite weak rainfall
and that has resulted in a revision in the RBIs inflation
estimates and a reduction in the repo rates. Government
spending has increased significantly in the core sectors
and is likely to pick up further in H2FY2016, though a
revival in private investment is necessary for any decisive
growth in the economy. The revival scheme for the power
distribution companies, work on the bankruptcy law and
increased spending on infrastructure (eg roads and
railways) point to the positive intent of the government.
However, the winter session of the Parliament will test
the governments ability to move important legislations
like the Goods and Services Tax (GST) Bill, amendment in
labour laws and subsidy reduction.

in FY2017) partly due to a favourable base. Therefore

going ahead, an easing of interest rates by the RBI, a
pick-up in the economy and the passage of key reforms
(the GST bill) would shape the earnings outlook for
H2FY2016.
Q2FY2016 earnings largely in line with expectations

*based on 28 of 30 Sensex companies

Monetary easing at global level continues: Globally, the

liquidity situation has remained comfortable as the leading
central banks remain on an easing mode in a bid to support
growth in their respective economies. Even as the Fed is
contemplating to raise the rates in December this year,
the monetary easing measures by the other major central
bankers like European Central Bank (ECB; the expansion
of the QE by ECB to a period beyond September 2016),
and stimulus by the Bank of Japan and Peoples Bank of
China will keep liquidity situation comfortable. Some
knee-jerk reaction is not ruled out after a rate hike in the
USA given the weak emerging market sentiment (due to
high CAD, a drop in commodity prices etc) but the same
should adjust as the events get over. Nevertheless, India
stands apart in the emerging markets and is favoured by
foreign investors due to a low CAD and an improving gross

IIP growth improving

Source: Bloomberg, Sharekhan Research

Growth elusive in Q2FY2016 earnings, expect better

growth in H2FY2016: As expected the earnings growth
of the Sensex companies (28 out of the 30 companies)
was on expected lines as the bottom line was flattish
(down 1.4% year on year [YoY] on an aggregate basis).
Subdued commodity prices, weak volumes and a sluggish
demand affected the revenue growth (down to about 5%
YoY). Though there was an improving trend in certain
sectors, the weak outlook for sectors like industrials and
elevated non-performing assets in the financial sector
suggest a need for more triggers on policy front. The
consensus estimate for Sensex companies has been
downgraded by a nominal 1.5% during the Q2FY2016 results
season and expectations are benign for H2FY2016 (an
expectation of a 10-12% growth in FY2016 and a 20% growth

Sharekhan

Source: C-Line, Sharekhan Research

FII outflows have increased in recent months

Source: SEBI, Sharekhan Research

November 10, 2015

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investors eye

market outlook

Macro fundamentals (then and now)

domestic product growth outlook, and foreign institutional

investor inflows have returned after a period of volatility
in August and September.
Outlook: In the near term the market may remain volatile
given the limited triggers for an upside and some scepticism
with respect to the ongoing reforms and the extent of
recovery in the earnings. However, it is noteworthy that
the market was at similar levels (ie 7800-8000) 12 months
back, though the macro-scenario is much better today (refer
to the figure on right) vs last year. This suggests that the
euphoria built on the blue sky scenario is mostly on the
wane and the market is factoring in realistic concerns (viz
a rate hike in the USA, a weaker economic recovery back
home, scepticism with regard to reforms). Therefore, the
consensus earnings estimates for the Sensex, a 10-12%
growth in FY2015 and a 20% growth in FY2017, seem
reasonable and the valuation remain fair (14.3x FY2017E
earnings). We stick to our medium-term investment themes,
ie cyclical (private banks, select non-banking finance
companies), urban discretionary sectors, select IT and
pharma companies, and bottom-up plays.

Then

Now

Oct-14

Nov-15

IIP (avg 3 month)

1.33

4.96

Inflation (CPI)

5.76

3.97

GDP
INR/USD
Crude oil ($/barel)
Repo rate

6.7

65.3

65.2

89

48.5

6.75

Nifty levels close to October 2014 lows despite better fundamentals

Source: Bloomberg, Sharekhan Research

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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November 10, 2015

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stock update

Aditya Birla Nuvo

Reco: Buy

Stock Update

Healthy operating performance; regulatory changes dampen insurance; maintain Buy

Key points

Company details
Price target:

Rs2,500

Market cap:

Rs1,973 cr

52 week high/low: Rs1,518/2,340

NSE volume:
(no. of shares)

CMP: Rs1,952

1.4 lakh

BSE code:

500303

NSE code:

ABIRLANUVO

Sharekhan code:

ABIRLANUVO

Free float:
(no. of shares)

5.6 cr

Shareholding pattern

Q2FY2016 result synopsis: Aditya Birla Nuvo Ltd (ABNL)s consolidated operating
profit grew by 15.7% YoY led by growth in the financial services and manufacturing
verticals. The lifestyle business posted a muted show on account of shift in the
festivals and increased advertisement spends (was up 45% YoY). Also, the life
insurance business, owing to regulatory changes and reduction in the in-force book
due to 20% drop in individual premium, posted a weak performance. Despite a
healthy operating performance, higher interest and depreciation coupled with lower
other income resulted in an 8.4% Y-o-Y decline in the net earnings.
Key business analysis and management thoughts: The company sounded confident
on its NBFC business and continues to nurture its plans to grow the loan book size
(the book continues to grow at a healthy pace of 45% YoY, and now stands at Rs19,738
crore). It has forayed into the housing finance business and has started lending, and
for the quarter its loan book stood at Rs880 crore (+94% on a Q-o-Q basis). On the
life insurance vertical, the company has gained market share and expects steady
growth momentum (though Q2 witnessed a dip in profits owing to decline in individual
premium). While on the lifestyle segment, though it has witnessed good pooja sales
in the eastern zone, yet it believes that consumer demand is still muted. In the
changing dynamics towards online industry, brands would stand to gain and hence is
accelerating its spends on brand building.
Retain Buy with revised PT of Rs2,500: ABNLs strong positioning in each of its
business verticals (life insurance, telecom, lifestyle and asset management) and its
effort towards taking necessary restructuring steps to unlock value for minority
shareholders either through disinvestment of sub-scale businesses (carbon black and
BPO), demerger of growth business and/or consolidation within the group is likely to
enhance the shareholders value in this quality conglomerate business. Thus, we see
a scope for further re-rating of the stock as each of its businesses get valued optimally
and does not suffer holding structure, and has diversified business profile (no holding
discount). Thus, we have retained our positive stance on the stock and maintained
our Buy rating with an unchanged price target of Rs2,500 (arrived using sum-of-theparts approach valuing each business vertical and adjusting the stand-alone debt).

Price chart

Results (consolidated)

Price performance
(%)
Absolute

1m

3m

-9.0 -12.1

Relative -5.8
to Sensex

-5.2

6m 12m
7.2

15.3

10.0

21.3

Rs cr

Particulars

Q2FY16

Q2FY15

YoY %

Q1FY16

QoQ %

Total income from operations

Total expenditure
Operating profit
Other income
Interest
Depreciation
PBT
Tax
Reported PAT before MI
Minority interest
Net profit
Adjusted PAT after MI
EPS
OPM (%)
PATM (%)
Tax rate (%)

7,284.9
5,654.4
1,630.5
82.0
543.5
462.1
706.9
265.5
441.4
27.4
414.0
414.0
30.5
22.4
6.1
37.6

6,597.3
5,187.8
1,409.5
107.0
420.0
381.8
714.7
236.9
477.8
25.7
452.1
452.1
19.1
21.4
7.2
33.2

10.4
9.0
15.7
-23.4
29.4
21.0
-1.1
12.0
-7.6
6.5
-8.4
-8.4

6,820.5
5,241.6
1,578.9
91.7
547.1
457.5
665.9
246.7
419.2
22.6
396.7
396.7
30.5
23.1
6.1
37.0

6.8
7.9
3.3
-10.6
-0.7
1.0
6.2
7.6
5.3
21.5
4.4
4.4

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November 10, 2015

102 BPS
-118 BPS
440 BPS

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-9 BPS
51 BPS

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stock update

Valuations (stand-alone)
Particulars
Revenues (Rs cr)
Net profit (Rs cr)

Business-wise performance

FY13

FY14

9,595.2 8,338.4

FY15

FY16E

FY17E

423.1

484.7

538.3

584.2

639.3

Shares in issue (Cr)

13.0

13.0

13.0

13.0

13.0

Adj. EPS (Rs)

32.5

37.3

41.4

44.9

49.2

Y-o-Y growth (%)

-0.8

14.6

11.1

8.5

9.4

PER (x)

60.1

52.4

47.2

43.5

39.8

527.1

548.0

589.4

634.3

683.5

3.7

3.6

3.3

3.1

2.9

32.4

28.7

26.1

23.7

21.4

RoCE (%)

8.2

8.7

8.7

8.8

8.9

RoNW (%)

6.2

6.8

7.0

7.1

7.2

Book value (Rs)

P/BV (Rs)
EV/EBIDTA (x)

Life insurance business

9,237.3 10,260.1 11,425.8

The net premium income grew by 18% on a year-onyear (Y-o-Y) basis, led by a strong growth from the
group insurance business (which grew by 116% year on
year [YoY]), while the individual business premium was
down by 20% on a Y-o-Y basis.
The share of non-unit linked insurance plan products
has increased from 61% in Q2FY2015 to 66% in Q2FY2016
while participatory product (PAR) accounted for 51% of
the individual new business, as against 38% in Q2FY2015.
During the quarter, despite growth in the premium
income, the profit before interest and tax (PBIT)
declined by 59% YoY, owing to decline in the individual
business premium and reduction in the in-force book.

Consolidated segmental performance

Particulars

Q2
FY16

Q2
FY15

YoY
%

Q1
FY16

QoQ
%

26.4

Asset management business

ABNLs asset management company outgrew the industry
and reported a 36.5% Y-o-Y growth in the asset under
management (AUM) to reach over Rs1.5-lakh crore.

Segment revenue
Branded apparels and
accessories

1,670

1,543

8.2

1,321

Rayon yarn

231

232

-0.5

222

4.2

Insulators

146

150

-3.1

137

6.1

Birla Sun Life Insurance Company continued its market

standing with an overall fourth position. Its revenue
and profit before tax (PBT) grew at 44% and 94% YoY
respectively for the quarter.

Other textiles (spun

yarn & fabrics)

399

351

13.8

403

-0.9

Fertilisers

681

779

-12.6

672

1.3

Financial services

853

627

36.1

841

1.5

Other financial services business

1,290

1,149

12.2

1,182

9.1

ABNL has entered into the housing finance business

and the healthy insurance business via a joint venture
with MMI Holdings.

Life insurance premium income

Telecom

2,019

1,769

14.1

2,047

-1.4

Total revenue

7,285

6,597

10.4

6,824

6.8

Segmental PBIT
Branded apparels
and accessories

102.6

126.3

-18.8

15.2

574.7

Rayon yarn

54.8

46.7

17.4

49.3

11.2

Insulators

27.0

23.5

15.0

20.9

29.6

Other textiles

41.2

36.2

14.0

44.5

-7.4

Fertilisers

57.9

63.3

-8.5

51.4

12.6

196.1

130.1

50.8

221.0

-11.3

39.8

97.3

-59.1

34.1

16.7

Telecom

353.4

306.7

15.2

398.5

-11.3

Total segmental PBIT

872.9

830.0

5.2

834.9

4.6

Financial services
Life insurance

PBIT Margin (%)

Branded apparels
and accessories

BPS
6.1

8.2

-204

1.2

23.7

20.1

362

22.2

149

Insulators

18.6

15.6

293

15.2

337

Other textiles

10.3

10.3

11.0

-72

8.5

8.1

38

7.7

85

23.0

20.8

223

26.3

-330

Financial services
Life insurance

The non-banking finance company (NBFC)s loan book

remained healthy with gross non-performing assets
(NPAs) of 0.9% and net NPAs of 0.27%.
NBFC loan book mix (%)

BPS

Rayon yarn

Fertilisers

The non-banking business loan book grew by 46% on a

Y-o-Y basis. It currently stands at Rs19,738 crore with
20% of the lending towards the capital market. The
management aims to continue to grow this business.

499

3.1

8.5

-538

2.9

20

Telecom

17.5

17.3

17

19.5

-197

Blended

12.0

12.6

-60

12.2

-25

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Strong growth in book size

Led by higher depreciation and interest cost on account

of spectrum cost being built into the financials, the
net earnings declined by 13.1% on a Q-o-Q basis.
The company re-iterated its execution efforts and
maintained a positive stance on the telecom
environment and has continued with its higher
guidance of Rs6,000-6,500 crore for FY2016.
Manufacturing business
Agricultural business: The agricultural business posted
a 12.6% decline in the revenue with a 7% decline in
earnings before interest, tax, depreciation and
amortisation (EBITDA). The decline in results is owing
to lower volumes, coupled with passing on of the gas
price, as a result of gas pooling arrangement.

Lifestyle business (Madura + Pantaloons)

The lifestyle business posted a soft quarter on both
revenue (the overall like-to-like sales was 1% for
Madura and -0.5% for Pantaloons) and profitability
fronts because of: (a) weak consumer sentiment; (b)
shift in the festive timeline this year to October
November from SeptemberOctober of the last year;
(c) early closure of end of season sales (EOSS); (d)
marked 45% Y-o-Y increase in the advertisement spends
to accelerate investment in branding and promotion.

Rayon business: Higher volumes and the new superfine

yarn capacity are driving a profitable growth in the
viscose fibre yarn segment.
Insulators: Owing to disruption of Rishara plant,
(suspension of 42 days), volumes were lower resulting
in low sales. Despite a lower revenue, the profitability
improved and was up 10.7% YoY. The government has
imposed anti-dumping duty, post which order flows
have increased.

Against this backdrop, Madura posted a 6.4% top-line

growth and the operating profit declined by 14.9% year
on year (YoY). Despite the subdued consumer
sentiment, an improvement was witnessed in the
performance of the Pantaloons business whose revenue
grew by 7.9% YoY and its operating profit just
marginally declined by 3.2% on a Y-o-Y basis.

Jayshree Textiles: The revenue increased by 14% on

a Y-o-Y basis, driven by volume growth in the linen
fabric and wool segment. The company is focusing on
high-margin linen fabric in the over-the-counter
segment. Further, the company sounded positive in
its linen business, and thus has lined up capex to double
the capacity from current 3,400mtpa to 6,200mtpa.

The management plans to continue the expansion

spree in the lifestyle business by employing a
combination of physical store reach, a seamless omnichannel network along with tie-ups with the existing
leading fashion online players. It has outlined a capital
expenditure (capex) of Rs160 crore for the expansion
exercise for FY2016.

Revenue
Particulars

Q2FY16

Q2FY15

YoY (%)

Agri

681

779

-12.6

Rayon

231

232

-0.4

Insulators

146

150

-2.7

Telecom business

Jayshree

399

351

13.7

Idea Cellulars consolidated top line for the quarter

declined by 1.2% on a Q-o-Q basis, led by a 3.2% drop
in voice minutes (volumes) and a 0.7% decline in the
average realised rate (both voice as well as data rates
were down sequentially led by change in regulatory
regime coupled with competition).

EBITDA
Agri

66

71

(7.0)

Rayon

65

56

16.1

Insulators

31

28

10.7

Jayshree

49

43

14.0

EBITDA margin
Agri

Led by weak revenue growth and increased spends on

subscriber acquisition and promotion, the operating
profit declined by 5.3% on a Y-o-Y basis.

BPS
9.7

9.1

58

Rayon

28.1

24.1

400

Insulators

21.2

18.7

257

Shree

12.3

12.3

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stock update

Oil India

Reco: Buy

Stock Update

In-line performance; retain Buy with PT of Rs530

Key points

Company details
Price target:

Rs530

Market cap:

Rs23,625 cr

52 week high/low:
NSE volume:
(no. of shares)

CMP: Rs391

Rs627/388
3.1 lakh

BSE code:

533106

NSE code:

OIL

Sharekhan code:

OIL

Free float:
(no. of shares)

19.5 cr

Shareholding pattern

In-line performance, supported by favourable exchange rate: For Q2FY2016, Oil

India Ltd (OIL) reported a decent set of numbers, in line with our estimate, despite
a significant drop in crude oil prices over the last year. On a Y-o-Y basis, revenue
grew by 15% to Rs2,531 crore on account of higher net realisations (insignificant
subsidy burden) and favourable exchange rate (rupee depreciation). The operating
profit grew by 11.7% in line with sales to Rs904 crore and the same trickled down
to net profit which grew by 11% to Rs675 crore. On a sequential basis, however, the
sales declined by 12.2% due to lower net realisations and lower volumes. This
decline in revenue has lead operating profit to decline by 25.7% QoQ. The lower
tax rate however limited the effect of operating profit decline and net profit declined
only 13% QoQ.
Insignificant subsidy burden but soft volume: The net realisations of the company
continued to stay healthy as the subsidiary burden eased substantially. In Q2FY2016,
the total subsidiary burden shared by OIL was insignificant (less than 5% of the
subsidiary burden in Q2FY2015). This has resulted in better net realisations of the
company. The exchange rate has also moved in favour of the company and rupee
depreciated against dollar in Q2FY2016 on both Y-o-Y & Q-o-Q basis. Also, the net
realisation of gas is better than last year. This has further given boost to the revenue;
however, the production remained soft.
Inexpensive valuation; retain Buy: Despite a sharp oil price correction, at the
current level, the net realisation (adjusting subsidy burden) stands largely at the
historical level with negligible effect on earnings. However, any further correction
from this level in crude oil prices could be a challenge for profitability. On the
positive side, the stock is currently trading at an attractive valuation (3x its EV/
EBITDA and 1x its P/BV) and also offers a very high dividend yield (~5%) in the stock
which offer cushion for the investors. Therefore, we have retained our Buy rating
on the stock with an unchanged price target of Rs530, based on SOTP valuation.

Price chart

Results

Rs cr

Particulars

Price performance
(%)

1m

3m

6m 12m

Absolute -12.3 -10.6 -13.7 -31.0

Relative -9.2
to Sensex

-3.6 -11.5 -27.4

Revenue
Total expenditure
Operating profits
Other income
EBIDTA
Interest
PBDT
Depreciation & provision
PBT
Tax
Reported profit after tax
Adjusted PAT
Adj EPS
Margin (%)
OPMs
PAT
Tax rate

Sharekhan

Q2FY16

Q2FY15

YoY %

Q1FY16

QoQ %

2,531
1,627
904
425
1,329
87
1,242
222
1,020
345
675
675
11.2

2,192
1,383
809
430
1,239
78
1,161
194
967
359
608
608
10.1

2,883
1,665
1,217
277
1,494
83
1,412
187
1,225
449
775
775
12.9

35.7
26.7
33.8

36.9
27.7
37.1

15.5
17.7
11.7
-1.1
7.3
11.6
7.0
14.5
5.5
-3.8
10.9
10.9
10.9
BPS
(120)
(109)
(325)

-12.2
-2.3
-25.7
53.3
-11.1
5.4
-12.0
18.9
-16.7
-23.2
-13.0
-13.0
-13.0
BPS
(652)
(24)
(287)

November 10, 2015

42.2
26.9
36.7

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Valuations
Particulars

FY13

FY14

FY15

FY16E

FY17E

Net sales (Rs cr)

9,948

9,609

9,748

9,754

10,988

0.9

-3.4

1.5

0.1

12.7

4,593

4,024

3,530

3,726

4,183

46.2

41.9

36.2

38.2

38.1

3,589

2,977

2,510

2,584

2,857

Growth (%)
EBDITA (Rs cr)
EBDITA margin (%)
Adjusted PAT (Rs cr)
Growth (%)

4.1

-17.0

-15.7

2.9

10.6

59.7

49.5

41.8

43.0

47.5

PE (x)

6.5

7.9

9.3

9.1

8.2

P/BV (x)

1.2

1.1

1.1

1.0

1.0

EV/EBDITA (x)

2.3

2.5

3.3

3.1

2.9

EV/sales (x)

1.1

1.1

1.2

1.2

1.1

Div yield (%)

7.7

5.5

5.1

5.0

4.9

RoE (%)

19.4

14.9

11.9

11.7

12.2

RoCE (%)

26.2

16.8

12.9

13.1

13.8

EPS diluted (Rs)

During Q2FY2016, the production and sale of crude oil

volumes declined both on a Y-o-Y and Q-o-Q basis. The
gross realisation in Q2FY2016 was $48.7 per barrel, 52%
lower than the previous year owing to a decline in global
crude oil prices. However, the net realisation was flattish
YoY due to negligible subsidiary burden. Furthermore,
the Indian Rupee (INR) depreciated by 7% YoY versus US
Dollar (USD) benefiting its revenue which increased by
12% YoY. Sequentially, the decline in crude oil prices
below threshold led to decline in net realisations by 19%.
The INR versus USD exchange rate was also fairly stable
over the quarters. As a result, the revenue declined by
20% QoQ.
Crude oil sales volume (mnbbl)

In-line performance on the back of lower subsidiary

burden: For Q2FY2016, OIL reported a revenue growth
of 15.5% year on year (YoY) to Rs2,531 crore on account
of higher net realisations and favourable exchange rate.
There was a sharp increase in the other expenses leading
to operating profit margin (OPM) contraction of 120 basis
points (BPS) YoY which stood at 35.7%. The effect of sales
growth was translated in operating profit which grew by
11.7% to Rs904 crore YoY. Consequently, the net profit
grew by 11% to Rs675 crore.

Crude oil gross and net realisation

When compared quarter on quarter (QoQ), however,

revenue declined by 12.2% due to lower net realisations
and lower volumes. The effect of revenue decline trickled
down to operating level where expenses were fairly stable
but decline in revenue led to OPM contraction of 650BPS
QoQ. Consequently, the operating profit declined by 25.7%
QoQ. However, the lower tax rate around (287BPS lower)
has limited the net profit decline to 13% QoQ.
Crude oil divisions performance
Particulars

Q2
FY16

Q2
FY15

YoY
%

Q1
FY16

QoQ
%

Production (mnbbl)

6.0

6.4

-6.9

6.2

-2.9

Sales (mnbbl)

5.9

6.3

-5.9

6.2

-4.1

Gross realisation
($/bbl)

48.7

101.3

-51.9

61.9

-21.2

Net realisation ($/bbl) 46.4

45.3

2.6

57.4

-19.1

Rs/USD

60.6

7.2

63.5

2.4

Net realisation
(Rs/bbl)
Revenue
EBIT
EBIT (%)

65.0
3,016.6

2,742.6

1,747

1,559

Natural gas divisions performance

Particulars

Q2
FY16

QoQ
%

0.7

0.7

1.2

0.6

9.3

0.6

0.6

1.1

0.5

12.5

Realisation ($/bcm)

16.59

13.87

19.6

17.00

-2.4

64.97

60.61

7.2

63.47

2.4

840.89

-17.2

12.1

-20.4

Realisation (Rs/bcm)1,077.88

538

454

18.7

858

-37.3

Revenue

30.8

29.1

171

39.1

(828)

EBIT
EBIT (%)

Q1
FY16

Sales (BCM)

10.0 3,644.4

Sharekhan

YoY
%

Production (BCM)

Rs/USD

2,195

Q2
FY15

November 10, 2015

28.2 1,078.73

-0.1

470

29.6

542

12.5

338

247

36.5

264

27.7

55.4

52.6

284

48.8

662

609

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The sales volume of natural gas was flat YoY reflecting

the muted production. However, the realisations have
improved 19% YoY. Furthermore, the rupee also
depreciated against dollar by around 7% magnifying
realisations in rupee terms. The better realisation over
the last year (along with rupee depreciation) helped the

revenue to grow by 30% YoY to Rs609 crore. On sequential

basis, the production and sales saw significant
improvement with production increasing by 9% while sales
increased by 12.5%. The decrease in realisation and
depreciation of rupee off-set the effect of each other. As
a result, the revenue increased by 12.5% QoQ in line with
sales volume.

Natural gas sales volume trend

Inexpensive valuation; retain Buy: Despite a sharp oil

price correction, at the current level, the net realisation
(adjusting subsidy burden) stands largely at a historical
level with negligible effect on earnings. However, any
further correction from this level in crude oil prices could
be a challenge for profitability. On the positive side, the
stock is currently trading at an attractive valuation (3x
its EV/EBITDA and 1x its P/BV) and also offers a very high
dividend yield (~5%) in the stock which offer cushion for
the investors. Therefore, we have retained our Buy rating
on the stock with an unchanged price target of Rs530,
based on sum-of-the-parts (SOTP) valuation.

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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PTC India Financial Services

Reco: Buy

Stock Update

Asset quality disappoints; PT revised to Rs62

Key points

Company details
Price target:

Rs62

Market cap:

Rs2,296 cr

52 week high/low:
NSE volume:
(no. of shares)

Rs73/37
14.2 lakh

BSE code:

533344

NSE code:

PFS

Sharekhan code:

PFS

Free float:
(no. of shares)

CMP: Rs41

22.48 cr

Shareholding pattern

Earnings largely driven by investment gains: PTC India Financial Services (PFS)
reported a 454% growth in net profit largely driven by one-off income of Rs206.9
crore on sale of investment (Ind-Barath stake). However, adjusting for one-off
gains the PBT declined by 9.6% YoY. The provisions increased significantly due to
rise in NPAs and additional provisions on existing stressed accounts which affected
core earnings. The NII growth was slower (up 12.9% YoY) and spreads contracted
(down 81BPS YoY to 3.57%) due to interest reversals on NPAs (Rs15 crore).
Loan growth strong but negative surprise on asset quality: The loan book
grew at 30.2% YoY, driven by strong growth in the renewable segment (up 49%
YoY). The asset quality deteriorated. The company added Rs212-crore-worth
of NPAs in Q2FY2016, taking the gross NPAs to 4.07%. This was contributed by
two major accounts (Konaseema, Surana Power). According to the management,
the Konaseema project (~Rs116-crore exposure, ~30% provisioning done) has
got gas supply under gas bidding programme and may start operations by
December 2015. The company has another Rs400-crore-worth of standard loans
which have been rescheduled (5% provisions has been done) and also raises the
risk of additional slippages in future.
Estimated price target revised downwards: We have revised our price target
downwards to Rs62 after accounting for deterioration in asset quality and lower
target multiple (1.8x from 2.3x earlier to factor in the rising risk of further slippages).
On core business front, PFS loan book growth remains strong given the loan pipeline
(sanctioned) of around Rs5,500 crore (as against the current advances book of
~Rs7,200 crore). Moreover, the outlook for investment in the renewable energy
sector and PFS high capital adequacy ratio (25.2%) provides platform for strong
growth. We believe, the company can deliver RoA in the range of 2.5-3.0% over the
next couple of years given the strong NII growth and lower operating cost. We
therefore have maintained our Buy rating on the stock.

Price chart

Results

Rs cr

Particulars

Price performance
(%)

1m

3m

6m 12m

Absolute

6.1

6.3

-7.6

-9.1

Relative
to Sensex

9.8

14.7

-5.2

-4.4

Interest income
Interest expense
Net interest income
Non-interest income
Net total income
Operating expenses
Pre-provisioning profit
Provisions
Profit before tax
Tax
Profit after tax
Gross NPAs (%)
Loan book
NIM
Spread

Sharekhan

11

Q2FY16

Q2FY15

YoY %

Q1FY16

QoQ %

214.0
119.9
94.1
228.2
322.4
13.9
308.4
47.1
261.4
50.1
211.3
4.07
7,225
5.58
3.57

177.8
94.4
83.4
21.6
105.0
10.1
94.9
34.6
60.2
22.1
38.1
0.08
5,551
6.49
4.38

20.4
27.0
12.9
956.5
207.0
37.5
225.1
35.9
333.9
126.7
454.0
399 bps
30.2
-91 bps
-81 bps

218.0
120.6
97.4
8.6
106.0
11.0
95.0
1.2
93.8
32.5
61.4
1.24
6,582
6.47
4.58

-1.8
-0.5
-3.4
2,552.0
204.0
26.9
224.5
3,809.6
178.5
54.3
244.2
283 bps
9.8
-89 bps
-101 bps

November 10, 2015

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Loan growth remains strong

Asset quality deteriorates: The asset quality of the

company deteriorated. It added Rs212-crore-worth of NPAs
in Q2FY2016, taking the gross NPAs to 4.07%. This was
contributed by two major accounts (Konaseema, Surana
Power). According to the management, the Konaseema
project (~Rs116-crore exposure, 30% provisioning already
done) has got gas supply under gas bidding programme
and may start operations by December 2015. The company
has another Rs400-crore-worth of loans where 5% provisions
(equivalent to restructured loans) have been done.

PFS loan book registered a growth of 30.2% year on year

(YoY) driven by strong growth in the renewable energy
segment (up 49% YoY). Consequently, the proportion of
the renewable energy sector loans increased to 41% from
36% in Q2FY2015. The cumulative sanction book grew by
20% YoY with 51% in the renewable energy sector. Going
ahead, given the strong sanctions pipeline and lending
opportunity in the renewable energy segment, we have
built-in loans growth of 35% compounded annual growth
rate (CAGR) over FY2015-18.

Gross NPA (%)

Loan book break-up (%)

Valuation and outlook

We have revised our price target to Rs62 after accounting
for deterioration in asset quality and lower target multiple
(1.8x from 2.3x earlier to factor in raising risk of further
slippages). On core business front, PFS loan book growth
remained strong given the sanctions of around Rs5,500
crore (as against the current advances book of Rs8,500
crore). Moreover, the outlook for investment in the
renewable energy sector and PFS high capital adequacy
ratio (25.2%) also provides strong growth outlook. We
believe, the company can deliver return on asset (RoA) in
the range of 2.5-3.0% over the next couple of years given
the competitive cost of funds and ratios. We have
therefore maintained our Buy rating on the stock.

NII growth/spreads affected by interest reversals: The

net interest income (NII) grew by 12.9% YoY lower than
our estimates due to the reversal of interest income on
non-performing assets (NPAs). This also contributed to
decline in the spreads (down by 81 basis points [BPS] YoY
to 3.57%) and net interest margin (NIM; down by 91BPS
YoY to 5.58%). Going ahead, with reduction in cost of
funds due to base rate cut by banks, the spreads may
revert around 4% levels.
Net interest margin (%)

One-year forward P/BV SD band

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Financials
Profit and loss statement
Particulars

Key ratios

Rs cr

FY16E

FY17E

FY18E

Earnings

5.1

4.4

9.6

8.6

11.0

Dividend

1.0

1.0

1.9

1.7

2.1

24.0

25.6

30.1

34.1

39.3

11.8

13.2

12.5

12.1

12.0

212

341

425

550

712

Per share data (Rs)

Non-interest income

126

60

280

86

112

Net total income

338

401

705

636

824

36

56

78

71

91

301

345

627

565

733

17

100

87

82

117

285

245

540

483

616

Cost of funds

7.8

9.2

8.5

8.0

7.9

5.9

6.1

5.7

5.4

5.2

Cost to income

10.8

13.9

11.0

11.2

11.0

Non-interest income/
net total income

37.4

15.0

32.0

30.0

30.0

4.0

4.7

5.5

6.5

7.3

RoAE

16.1

11.5

24.2

18.7

20.9

RoAA

5.0

2.6

4.7

3.1

3.0

Gross NPA

0.1

1.3

3.7

3.3

3.0

Net NPA

0.0

1.0

2.3

1.7

1.2

Net interest income

40.9

61.0

24.7

29.4

29.4

Pre-provisioning profit

87.9

14.6

81.6

-9.9

29.7

Profit after tax

99.4

-22.6

135.1

-10.6

27.6

Advances

122.3

28.8

37.4

34.9

32.7

Borrowings

137.6

30.6

45.7

39.0

34.0

Provisions
Exceptional items
Profit before tax

Spreads (%)
Yield on assets

77

84

162

145

185

208

161

378

338

431

Operating ratios (%)

Balance sheet
Particulars

Book value

Net interest margins

Tax
Profit after tax

FY18E

FY15

Net interest income

Pre-provisioning profit

FY17E

FY14

FY15

Operating expenses

FY16E

Particulars

FY14

Rs cr
FY14

FY15

FY16E

FY17E

FY18E

Capital

562

562

562

562

562

Reserves & Surplus

787

875

1,129

1,357

1,647

Shareholders' funds 1,349

1,437

1,691

1,919

2,209

Borrowings

3,770

4,925

7,173

9,969

13,357

25

270

380

437

503

578

5,414

6,750

9,310

12,399

16,152

Assets/Equity (x)

Liabilities

Deferred tax
liabilities (net)
Current liabilities &
provisions
Total liabilities

Return ratios (%)

Asset quality ratios (%)

Growth ratios (%)

Assets
Fixed assets

25

22

25

29

34

Investments

401

340

357

375

393

Advances
Current assets
Total assets

4,914

6,330

8,695

11,728

15,568

73

58

233

267

157

5,414

6,750

9,310

12,399

Valuation ratios (x)

16,152

P/E

8.1

9.4

4.2

4.8

3.7

P/BV

1.7

1.6

1.4

1.2

1.0

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such.
While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information
current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment
decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient
of this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own
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