Index. Stock Update >> Triveni Turbines. Stock Update >> Corporation Bank. Visit us at November 18, 2015

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1 Visit us at November 18, 2015 Index Stock Update >> Triveni Turbines Stock Update >> Corporation Bank For Private Circulation only REGISTRATION DETAILS Regd Add: Sharekhan Limited, 10th Floor, Beta Building, Lodha ithink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai , Maharashtra. Tel: Sharekhan Ltd.: SEBI Regn. Nos. BSE - INB/INF ; BSE- CD ; NSE - INB/ INF ; CD-INE ; MSEI - INB/INF ; CD-INE ; DP - NSDL-IN-DP-NSDL ; CDSL-IN-DP-CDSL ; PMS- INP ; Mutual Fund-ARN ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX ; (MCX/TCM/CORP/0425) ; NCDEX ; (NCDEX/TCM/CORP/0142) ; NCDEX SPOT-NCDEXSPOT/116/CO/11/20626 ; For any complaints at igc@sharekhan.com ; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and Do s & Don ts by MCX & NCDEX and the T & C on before investing.

2 Triveni Turbines Reco: Buy Stock Update Strong Q2 but joint venture order intake weak; PT revised to Rs135 CMP: Rs110 Price target: Market cap: Company details Shareholding pattern Rs135 Rs3,629 cr 52 week high/low: Rs152/90 NSE volume: 62,205 BSE code: NSE code: Sharekhan code: Free float: TRITURBINE TRITURBINE 9.9 cr Key points Pick-up in order execution drives Q2 growth: For Q2FY2016, Triveni Turbines Ltd (TTL) reported a 14% Y-o-Y growth in revenue led by a strong 21% growth in product sales. The aftermarket segment has reported a marginal fall in revenue mainly due to unfavourable base effect. Lower raw material cost led to a 110- BPS improvement in operating profit margin to 23.5%, highest in the past ten quarters. Overall, the net profit rose by 16% to Rs27.7 crore. Order booking robust in stand-alone business, sluggish intake in GE joint venture: In Q2FY2016, it reported an order intake of Rs200 crore (up 40% YoY) taking the stand-alone order book to Rs680 crore (up 13% YoY and 10% QoQ). The consolidated order book stood almost flattish at Rs790 crore as its joint venture (JV) with GE did not have any order finalisation during H1FY2016. Since the major overseas orders would be executed by FY2016 itself, the JV would need to pick up its order booking pace to achieve the required growth rate in FY2017. Estimates downgraded, price target revised to Rs135: We have downgraded our earnings estimates for FY2016 and FY2017 by 7% and 11% respectively mainly in view of slow order booking in its JV with GE. We have also introduced our FY2018 estimates in this note. We expect net profit to double (CAGR of 26%) in three years, FY We like the stock for its strong competitive positioning, international marketing efforts, margin profile and healthy balance sheet (it is a debt-free company with superior return ratios). Any major order win in the GE JV in the near term would be a positive trigger for the stock. We have maintained our Buy rating on the stock with a revised price target of Rs135. Price chart Price performance (%) 1m 3m 6m 12m Absolute Relative to Sensex Results Particulars Q2FY16 Q2FY15 YoY % Q1FY16 QoQ % Operational income Total expenditure Operating profit Other income EBIDTA Interest Depreciation PBT Tax Adjusted PAT Ratio (%) BPS BPS Operating margin PAT margin Tax rate Sharekhan 2 November 18, 2015

3 Valuations (consolidated) Particulars FY14 FY15 FY16E FY17E FY18E Net sales () , ,203.2 Y-o-Y growth (%) Net profit () Adjusted EPS (Rs) Y-o-Y growth (%) PER (x) P/B (x) EV/EBIDTA (x) RoCE (%) RoNW (%) Expenditure analysis Particulars Q2 Q2 YoY Q1 QoQ FY16 FY15 % FY16 % Consumption of RM as % of sales Incr/decr in stock (24.3) (7.4) (6.9) as % of sales Raw material cost as % of sales Employee expenses as % of sales Other expenses as % of sales Total expenditure Strong order booking but GE JV lags: The stand-alone order inflow remained strong at Rs200 crore (up 40% year on year [YoY]) taking the stand-alone order book to Rs680 crore (up 13% YoY and 10% quarter on quarter [QoQ]). The high-margin after-market (AM) segment accounted for 34% of the order inflow and 15% for the stand-alone order book for the quarter. The share of exports in the stand-alone order book went over 41%. On the domestic front, the order booking in up to 30MW showed some improvement, specifically from the sugar and agro-based industries and from some specific-process co-generation segments. The consolidated order book stood flattish at Rs790 crore as its JV with GE did not have any order finalisation during H1FY2016. However, the company expects to bag five orders in H2FY2016. The revenue from its JV, GE Triveni, in Q2FY2016 stood at Rs2 crore versus Rs41 crore in Q1FY2016. Since the major overseas order would be executed by FY2016 itself, the JV would need to pick up its order booking pace to achieve the required growth rate in FY2017. Estimates downgraded: We have downgraded our earnings estimates for FY2016 and FY2017 by 7% and 11% respectively mainly in view of slow order booking in its JV with GE. Also, sluggish pick up in domestic capital expenditure (capex) cycle remains a worry for stand-alone business growth outlook. We have also introduced our FY2018 estimates in this note and we are expecting a compounded annual growth rate (CAGR) of 29% in revenue and 26% in earnings over FY Any major order win in the GE JV in the near term would be a positive trigger for the stock. Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. Sharekhan 3 November 18, 2015

4 Corporation Bank Reco: Hold Stock Update Inexpensive valuation though performance lags, PT revised to Rs48 CMP: Rs42 Price target: Market cap: Company details Shareholding pattern Price chart Price performance Rs48 Rs4,151 cr 52 week high/low: Rs79/42 NSE volume: 2.3 lakh BSE code: NSE code: Sharekhan code: Free float: CORPBANK CORPBANK 30.7 cr (%) 1m 3m 6m 12m Absolute Relative to Sensex Key points Earnings up 17.5% YoY: For Q2FY2016, Corporation Bank reported betterthan-expected numbers on PAT front (up 17.5% YoY to Rs188.6 crore) led by a reversal of the surplus employee related provisions to the tune of Rs59.4 crore. The net interest income growth was healthy (up 18.1% YoY) partly led by oneoff income of Rs35 crore (interest on income tax refund) and better margin (2.29% vs 2.00% in Q2FY2015). The non-interest income grew by 49.4% YoY led by healthy growth in fee and forex income which cushioned the earnings. Asset quality improves, sustainability is the key: During Q2FY2016, the asset quality improved (QoQ) as fresh NPA additions were lower at Rs821 crore (vs Rs1,559 crore in Q1FY2016). In addition, the write-offs were high (Rs695 crore in Q2FY2016) which contributed to a decline in NPA ratio. While the bank has not sold any loans to ARC, the restructured book (6.25% of loans) and higher exposure to corporate sector remains a concern on asset quality. PT revised to Rs48: We believe Corporation Bank s return ratio (RoA) will remain subdued ( %) due to weak deposit base (its CASA ratio at sub 20% is one of the lowest in the sector), higher dependence on wholesale business and stress on asset quality. While, the valuations at 0.4x its FY2016E BV (factored dilution due to government s capital infusion) seems inexpensive, we expect sluggish operational performance to leave little room for upgradation in valuation multiples in near term. We have revised our price target to Rs48 (change in valuation multiple to 0.5x its FY2016E BV) and maintained our Hold rating on the stock. Results Particulars Q2FY16 Q2FY15 YoY % Q1FY16 QoQ % Interest income 5, , , Interest expense 3, , , Net interest income 1, , Non-interest income Net total income 1, , , Operating expenses Employee expenses Other operating expenses Pre-provisioning profit Provisions Profit before tax Tax Profit after tax Asset quality Gross NPLs 7, , , Gross NPLs (%) BPS BPS Net NPLs 5, , , Net NPLs (%) BPS BPS Capital adequacy (%) CAR BPS BPS Tier I BPS BPS Key reported ratios (%) NIM BPS BPS CASA BPS BPS Sharekhan 4 November 18, 2015

5 Asset quality shows marginal improvement Corporation Bank s asset quality showed slight improvement as gross non-performing assets (NPAs) declined by 11 basis points (BPS) sequentially and stood at 5.32% versus 5.43% quarter on quarter (QoQ), while the net (NPAs) were almost flat (down 1BPS to 3.54% QoQ). This was due to lesser fresh NPA additions (Rs821 crore vs Rs1,559 crore in Q1FY2016) compared with the preceding quarter. The incremental NPAs came in from large and medium industry and wholesale trade. On the other hand, the outstanding restructured loans stood at 6.25% of the loan book. loans which is witnessing the slowdown, the balance sheet growth may lag peer banks. Fee and forex income drive strong growth in noninterest income: The non-interest income showed a strong growth of 49.4% YoY which was mainly driven by higher growth in foreign exchange (forex) income and treasury profits. The forex income grew by 66.6% YoY to Rs36 crore while treasury income stood at Rs67 crore (vs a loss of Rs30 crore in Q2FY2015). During Q2FY2016 the bank reversed Rs 59.4 crore of of excess employee related provisions (Rs59.4 crore) which cushioned the profitability. Asset quality (%) Non-interest income () NII up 18.1%, margins expand The net interest income (NII) grew by 18.1% largely supported by an uptick in margins (2.29% vs 2.00% in Q2FY2015). However excluding the one-off income of Rs35 crore from interest on IT refund the NII growth was inline with estimates.the dip in cost of funds (down 14BPS QoQ and 46BPS year on year [YoY]) contributed to the margin improvement. Advances growth during the quarter was tepid at 4.8% though retail and agricultural advances grew at a relatively better rate (up 10.8% and 15.96% respectively). The small and medium enterprises (SME) and corporate loan book growth remained muted. Going ahead, given the bank s higher dependence on corporate NIM (%) Valuation and outlook We believe Corporation Bank s return ratio (RoA) will remain subdued ( %) due to weak deposit base (its CASA ratio at sub 20% is one of the lowest in the sector), higher dependence on wholesale business and stress on asset quality. While, the valuations at 0.4x its FY2016E BV (factored dilution due to government s capital infusion) seems inexpensive, we expect sluggish operational performance to leave little room for upgradation in valuation multiples in near term. We have revised our price target to Rs48 (change in valuation multiple to 0.5x its FY2016E BV) and maintained our Hold rating on the stock. One-year forward P/BV band Sharekhan 5 November 18, 2015

6 Financials Profit and loss statement Key ratios Particulars FY13 FY14 FY15 FY16E FY17E Net interest income 3,426 3,784 4,070 4,415 4,918 Non-interest income 1,608 1,648 1,482 1,852 2,153 Net total income 5,034 5,431 5,553 6,267 7,071 Operating expenses 1,997 2,392 2,526 2,876 3,283 Pre-provisioning profit 3,037 3,039 3,027 3,392 3,788 Provisions 1,351 2,798 2,552 2,450 2,497 Profit before tax 1, ,291 Tax Profit after tax 1, Balance sheet Particulars FY13 FY14 FY15E FY16E FY17E Liabilities Networth 9,566 10,085 10,484 11,893 12,644 Deposits 166, , , , ,129 Borrowings 12,899 13,021 10,415 11,841 14,468 Other liabilities 4,972 5,549 5,748 5,187 4,531 & provisions Total liabilities 193, , , , ,772 Assets Cash & balances 8,848 13,740 10,149 10,980 12,056 with RBI Balances with 3, ,590 2,978 3,425 banks & money at call Investments 58,165 66,191 63,412 66,187 72,499 Advances 118, , , , ,678 Fixed assets Other assets 3,435 4,066 4,249 5,347 5,429 Total assets 193, , , , ,772 Particulars FY13 FY14 FY15E FY16E FY17E Per share data (Rs) Earnings Dividend Book Value Adj. book value Spreads (%) Yield on advances Cost of deposits Net interest margins Operating ratios (%) Credit to deposit Cost to income CASA Non-interest income/ Total income Assets/Equity (x) Return ratios (%) RoE RoA Asset quality ratios (%) Gross NPA Net NPA Growth ratios (%) Net interest income Pre-provisioning profit Profit after tax Advances Deposits Valuation ratios (%) P/E P/BV P/ABV Capital adequacy (%) CAR Tier I Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. Sharekhan 6 November 18, 2015

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