IEA Report 15th February

IEA Report
15th Feb 2017

BRITANNIA "BUY" 15th Feb 2017
BRITANNIA will keep investing in its direct distribution reach with the plan to add 200000 outlets every year. Management expects volume to be
normal in next 3-6 months going forward and guided mid single digit volume growth after normalization . For the protection of margins, the
company is planning to increase prices by 6-7% in FY18. Considering managements proactive approach towards maintaining margin, thrust on
expansion of direct distribution reach and improving general market conditions we maintain `BUY rating on BRITANNIA with a target price of Rs
3700. ............................................................ ( Page : 2-4)
GODREJCP "BUY" 14th Feb 2017

Going forward, managements initiatives for expanding direct reach will not only strengthen the brand further but also improve Market share in
less penetrated market. Management indicated that there is more headroom for margin improvement from international business in medium to
long term . Considering strong innovation pipeline, companys thrust on EBITDA growth better than sales growth and expectation of improvement
in international business, we still hold positive view on GODREJCP and recommend BUY with a target price of Rs 1760.
...................................................... ( Page : 5-7)
ASHOKLEY "BUY" 13th Feb 2017

Going forward, We assume that the upcoming emission norms BS-IV to BS-VI, improvement in demand from infrastructure segment and
government's initiative to develop defense products in the country can be volume boosters for the company in FY17. Ashok Leyland is also working
towards a renewed thrust in the international markets, with network expansion and dedicated products. We expect that the company will maintain
a healthy ROE of over 20% going ahead. We maintain 'BUY' on Ashok Leyland considering the huge growth potential going ahead for a target price
of Rs.110. ...................................................... ( Page : 8-10)
HEROMOTOCO "BUY" 10th Feb 2017

We expect improvement in demand scenario in the domestic market after the demonetization, upcoming marriage season, increasing finance
penetration in rural & semi-urban areas and seventh pay commission payout will drive the volumes and implementation of cost cutting initiative
LEAP to boost margins further by 100 bps going ahead. It has a healthy dividend payout of 54%, which provides a cushion to the investors to invest
in the company for long term. The company is trading at 7 times of FY17 expected book value with a RoE of 36%. We maintain "BUY" rating on this
stock with a target price of Rs.3830. ........................................................ ( Page : 11-13)
IRB "BUY" 9th Feb 2017

Encouraging traffic growth in Q3FY17 and strong recovery in economic activity nullify the demonetization impact. Most of the project has seen
improvement in traffic especially in a western part of the country. We expect 5-6% traffic growth in near term. Recent development (regarding
Mumbai Pune express) does not change our growth estimate. We continue to expect 11% revenue growth in FY17E and robust 40-45% revenue
growth in FY18E. The introduction of InvIT will help IRB to grow higher. Hence, we maintain BUY rating on the stock with unchanged target price of
265/- . ...................................... ( Page : 14-18)
DRREDDY "Neutral" 8th Feb 2017

Management expects that global business to gain traction from FY18 on the back of currency stabilization in emerging markets geographies, stable
macro economics and institutional business launches. In Q3FY17, company commercialized 2 In-licensed products from the strategic collaboration
with Amazon. Remediation process at Srikakulam, Mriyalguda and Duvvada facilities are over and the management expects inspection at these
facilities are expected in Feb/ Mar-17. Considering near term uncertainties we recommend NEUTRAL rating in this stock with a target price of Rs
3325. ......................................... ( Page : 19-21)
ONGC "HOLD" 7th Feb 2017

Gas production in ONGC is expected to increase further on completion of development projects. Management has guided for Oil production of 26.2
MMT and 25.63 BCM Gas in FY18. Management is optimistic about spurt in oil and gas prices in FY18. The company is on track to achieve
production volumes of 25.73 MT for FY17. Since no subsidy has been decided by the government for FY17, the benefits of higher crude would flow
into the company. Considering above arguments, we are optimistic on long-term growth in this stock, hence we recommend HOLD rating in this
stock while maintaining our previous target price of Rs. 243. ................. ( Page : 22 -24)
Narnolia Securities Ltd IEA Edition No.- 956

BUY
BRITANNIA 15th Feb. 2017
Company Update Improvement in general business after demonetization

CMP 3220 BRITANNIAs number for Q3FY17 is largely in line to our estimates. Sales
Target Price 3700 for this quarter grew by 6%in spite of headwinds of demonetization.
EBITDA remained flat to Rs 313. Cr. Gross margin declined by 193 bps
Previous Target Price 3700
YoY but management has restricted decline of EBITA margin to 74 bps
Upside 15% YoY which is commendable considering inflationary environment. The
Change from Previous NA company clocked approx. 2% of volume growth in the core business on the
back of larger direct distribution coverage. It has also strengthened its
Market Data market share in Q3FY17. BRITANNIA will keep investing in its direct
distribution reach with the plan to add 200000 outlets every year.
BSE Code 500825 Management expects volume to be normal in next 3-6 months going
NSE Symbol BRITANNIA forward and guided mid single digit volume growth after normalization . For
52wk Range H/L 3575/2523 the protection of margins, the company is planning to increase prices by 6-
Mkt Capital (Rs Cr) 38,643 7% in FY18. Considering managements proactive approach towards
maintaining margin, thrust on expansion of direct distribution reach and
Av. Volume(,000) 166
improving general market conditions we maintain `BUY rating on
Nifty 8,792 BRITANNIA with a target price of Rs3700.
Result Update(Q3FY17)
Stock Performance
1M 3M 12M Sales grew by 6% YoY to Rs 2355 cr led by pricing growth of 5.5-6% in
Absolute 9.6 4.7 22.0 Q3FY17.EBITDA remained flat in this quarter to Rs 313 cr. Gross margin
declined by 193 bps YoY to 39.8% led by inflation in flour (12%),Sugar
Rel.to Nifty 4.9 -1.3 -4.0
(40%), palm oil (20%) and milk(19%) in Q3FY17.EBITDA margin declined
by 74 bps YoY to 13.3%. PAT margin declined by 13 bps YoY to 9.4%.PAT
Share Holding Pattern-% for this quarter grew by 5% YoY to Rs 220 cr.
3QFY17 2QFY17 1QFY17
Promoters 50.7 50.7 50.7 Concall Highlights(Q3FY17)
Public 49.3 49.3 49.3
Market will be back to normal in 3 to 6 months.
Others -- -- -- In next to 2-3 months the company will restart pricing action in different
Total 100 100 100 SKU. The company is planning to 6 to 7% price hike in FY18.
Capex: Rs 350-400 cr Capex in next 18 months which includes plants,
company is putting up in Maharashtra and other places but excluding dairy
Company Vs NIFTY
business.
130 BRITANNIA NIFTY Management expects similar type of volume growth in Q4FY17.Expects to
125
clock mid single digit volume growth after demonetization effect ease off.
120
115
Tax rate: 31% for next quarters than it will resume to normal levels.
110 The company is looking to launch a new category of product.
105
100
Rs,Cr
95 Financials 3QFY17 2QFY17 (QoQ)-% 3QFY16 (YoY)-%
90
85
Sales 2355 2456 -4% 2220 6%
80 EBITDA 313 339 -8% 311 0%
Net Profit 220 234 -6% 211 5%
EBITDA% 13% 14% (53 Bps) 14% (74 Bps)
Rajeev Anand PAT% 9% 10% (17 Bps) 9% (13 Bps)
rajeev.anand@narnolia.com
Narnolia Securities Ltd 2
Please refer to the Disclaimers at the end of this Report
Concall Highlights(Q3FY17)
Wholesale and rural was impacted.

The companys effort of expansion of direct reach is paid off. BRITANNIA has lower dependency on whole sale among other
FMCG players.
Volume growth in the core business remained approx. 2% and company gained market share in Q3FY17.
The company witnessed inflation in Flour (12%), Sugar (40%), Palm oil (20%) and Milk (19%) in Q3FY17.
Pricing action has been limited due to impact of demonetization in Q3FY17.
Dairy subsidiary businesss Bottom line impacted negatively due to high milk prices and normal tax rate.
International business is facing headwinds.
Middle East business is showing serious down trend.
The company is focusing on Rusk and Cake business. The company has put up one line in Tamil nadu factory for value added
Rusk manufacturing.
BRITANNIA is looking to set up factory in Nepal in 2017. The company is also assessing opportunities in Africa. The company is
fully concentrating on international business in Next 2years.
BRITANNIA is setting up manufacturing hub in Maharashtra which will house some of Innovation and new product lines other
than serving the demand requirement of base business. It will also serve as hub for dairy business.
Other expenses: company will maintain other expenses at level of 19.62%(Q3FY17 level).
Net Sales and PAT(in cr.)
3000 300
Sales(in cr) PAT(in cr)
270
2500 250
234
219 219 220
211
2000 200
190 190
167
1500 150
137
108 114
1000 98 101 100
89
500 50
1552
1756
1793
1812
1787
1975
2033
2064
2019
2209
2220
2211
2197
2456
2355
0 0
EBITDA and PAT(%)

18.0%
16.0%
14.3% 14.7% 14.0% 14.4%
13.7% 13.8%
13.2% 13.3%
14.0% 12.3%
12.0% 11.1% 10.8%
9.9% 10.0% 9.5%
9.2% 9.3% 9.5% 9.4% 9.5% 9.4%
10.0% 8.9% 8.9% 8.6%
8.1%
8.0% 6.4% 6.8%
5.8% 5.6% 5.6% 5.9%
6.0%
4.0% EBITDA margin PAT margin

2.0%
0.0%
1QFY142QFY143QFY144QFY141QFY152QFY153QFY154QFY151QFY162QFY163QFY164QFY161QFY172QFY173QFY17

Financials Snap Shot
INCOME STATEMENT RATIOS
FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Revenue 8679 9352 10448 11681 EPS 67 71 69 77
Other Income 100 117 127 170 Book Value 147 190 232 278
Total Revenue 8779 9469 10575 11851 DPS 20 24 23 25
COGS 4999 5609 6426 7149 Payout (incl. Div. Tax.) 30% 33% 33% 33%
GPM 42.4% 40.0% 38.5% 38.8% Valuation(x)
Other Expenses 2117 2113 2375 2656 P/E 40 45 46 42
EBITDA 1227 1279 1256 1439 Price / Book Value 18.1 16.9 13.9 11.6
EBITDA Margin (%) 14.1% 13.7% 12.0% 12.3% Dividend Yield (%) 0.8% 0.7% 0.7% 0.8%
Depreciation 113 126 148 244 Profitability Ratios
EBIT 1113 1153 1107 1195 RoE 45.6% 37.5% 29.9% 27.6%
Interest 5 5 4 4 RoCE 61.6% 49.8% 39.4% 35.6%
PBT 1208 1266 1230 1361 Turnover Ratios
Tax 392 411 399 442 Asset Turnover (x) 3 2 2 2
Tax Rate (%) 32.4% 32.4% 32.4% 32.4% Debtors (No. of Days) 7 9 7 7
Reported PAT 806 855 831 920 Inventory (No. of Days) 32 35 32 32
Dividend Paid(including dividend
231 tax) 339 329 364 Creditors (No. of Days) 31 30 30 30
No. of Shares 12 12 12 12 Net Debt/Equity (x) 0 0 0 0
BALANCE SHEET CASH FLOW STATEMENT

FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Share Capital 24 24 24 24 OP/(Loss) before Tax 1,198 1,266 1,230 1,361
Reserves 1742 2259 2758 3313 Depreciation 113 126 148 244
Net Worth 1766 2283 2782 3337 Direct Taxes Paid 403 411 399 442
Long term Debt 41 33 26 18 Oper. Prof. bef. WC change 1,229 1,396 1,379 1,609
Short term Debt 86 86 86 86 CF from Op. Activity 961 823 1,027 1,142
Deferred Tax 0 0 0 0 Non Current investments (211) - - -
Capital Employed 1807 2316 2807 3356 Capex (251) (269) (572) (270)
Net Fixed Assets 924 1068 1491 1517 CF from Inv. Activity (705) (446) (747) (765)
Capital WIP 90 90 90 90 Repayment of LT Borrowings (1) - - -
Debtors 171 231 212 234 Interest Paid (5) (5) (4) (4)
Cash & Bank Balances 88 113 53 55 Divd Paid (incl Tax) (231) (339) (329) (364)
Trade payables 742 769 859 960 CF from Fin. Activity (248) (351) (341) (376)
Total Provisions 509 595 716 858 Inc/(Dec) in Cash 8 25 (60) 2
Net Current Assets 175 291 114 387 Add: Opening Balance 43 88 113 53
Total Assets 3457 4101 4840 5672 Closing Balance 51 113 53 55

BUY
GODREJ CONSUMER PRODUCTS LTD 14th Feb. 2017
Company Update
Recent Update
CMP 1553
Target Price 1760 GODREJCPs management is hopeful of better FMCG industry growth in
Previous Target Price 1760 FY18. Implementation of GST will lead to improvement in GDP by 1.50 to
2% considering every things being equal. After the headwinds of
Upside 13% demonetization, management is expecting better industrys performance in
Change from Previous NA FY18 supported by a pro-growth budget with adequate government
initiatives. For GODREJCP, management expects strong performance in
Market Data Q4FY17. Management has indicated that recovery after demonetization is
better than expected with approx. 2% of secondary sales growth.
BSE Code 532424 Management is looking for investment in market of Myanmar to expand its
NSE Symbol GODREJCP international footprints.
52wk Range H/L 1710/1138
Mkt Capital (Rs Cr) 52,895 International Business
Nifty 8,805 Indonesian business posted flat YoY constant currency (CC) growth for
Q3FY17. HI growth impacted due to seasonality and relatively higher
Stock Performance competitive intensity. Africa business (including Strength of Nature)
delivered a strong CC growth of 54% with temporary decline of 160 bps
1M 3M 12M
margin driven by currency depreciation. For Latin American business, CC
Absolute -1.6 7.3 30.8 growth remained robust 24%. Europe business delivered strong CC growth
Rel.to Nifty -6.3 1.2 4.6 of 16% in Q3FY17.
Outlook and Valuation
Share Holding Pattern-%
3QFY17 2QFY17 1QFY17 Company's resilient performance in spite of tough demand scenario and
company's thrust on innovation gives us confidence about better growth
Promoters 63.3 63.3 63.3
going forward. Although Indonesian business was subdued in this quarter but
Public 36.7 36.7 36.7 company has improved Market share in home insecticide (HI) segment and
Others -- -- -- grew double digit in non HI. Management sees better traction from
Total 100 100 100 Indonesian business next year. Going forward, managements initiatives for
expanding direct reach will not only strengthen the brand further but also
improve Market share in less penetrated market. Management indicated that
Company Vs NIFTY there is more headroom for margin improvement from international business
140 GODREJCP NIFTY in medium to long term. Considering strong innovation pipeline, companys
thrust on EBITDA growth better than sales growth and expectation of
130
improvement in international business, we still hold positive view on
120 GODREJCP and recommend BUY with a target price of Rs 1760.
110
Rs,Cr
100 Financials 3QFY17 2QFY17 (QoQ)-% 3QFY16 (YoY)-%
90 Sales 2486 2439 2% 2286 9%
80 EBITDA 517 466 11% 455 14%
Net Profit 352 318 11% 368 -4%
EBITDA% 21% 19% 169 Bps 20% 91 Bps
Rajeev Anand PAT% 14% 13% 111 Bps 16% (194 Bps)
rajeev.anand@narnolia.com
Concall Highlights(Q3FY17)
Positive growth in Dec and build momentum from here. Confident to outpace industry growth going forward.
Indonesian business: Management is hopeful for better growth from Indonesia next year.
African business grew by double digit. Facing headwind in terms of currency devaluation in Nigeria. Management is planning to
localize production facility in CY17.
Management is confident of EBITDA growth ahead of the sales growth.
After demonetization, recovery is much faster than what was expected. It will be back to normal in couple of months.
A&P Expenses will be in the range of 11% of the sales.
Modern Trade (MT) grew by 33% in this quarter.
Going forward, the company will maintain innovation, launch new products, intensify introduction on LUP(Lower Unit Pack),
expand direct reach and work for brand building.
Soap volume growth will be better in Q4FY17 than Q3FY17.
Major Margin Drivers GCPL: Product portfolio, Launch of premium products and cost cutting measure.
International Business( Volume growth): Indonesia(3.5%), Africa( early double digit),Latin America (dip ),Europe( early double
digit). Approx. 66% of growth from International business came by volume.
Gained market share in Cinthol.
Net Sales and PAT(in cr.)

3000 400
Sales(in cr) 368 PAT(in cr)
352350
2500
310 318
290 300
2000 277
252 244 250
222
1500 200
157 150
1000
117
100
500
1889
2060
2236
2092
1988
2197
2286
2269
2123
2439
2486
50
0 0
EBITDA and NPM (%)

25% EBITDA Margin% PAT Margin%
20.8%
19.9% 19.8%
19% 19% 19.1%
20% 18% 17.9%
16% 16% 16%
14% 14%
15% 13% 13% 13% 13%
12%
12%
10%
10% 8%
6%
5%
0%
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Revenue 7602 8276 8968 9610 EPS 22.3 26.6 32.9 38.5
Other Income 63 92 67 66 Book Value 110.9 126.6 149.7 179.7
Total Revenue 7665 8368 9035 9675 DPS 5.8 6.2 6.9 7.2
GPM 53.2% 53.6% 57.1% 56.4% Valuation(x)
Other Expenses 2149 2293 2523 2520 P/E 38 30 44 38
EBITDA Margin (%) 15.1% 16.5% 18.3% 19.7% Dividend Yield (%) 0.7% 0.8% 0.5% 0.5%
EBIT 1068 1275 1536 1755 RoE 20.1% 21.0% 22.0% 21.4%
Interest 107 100 100 141 RoCE 19.9% 20.1% 20.4% 17.0%
Tax 210 272 317 370 Asset Turnover (x) 0.9 0.9 0.9 0.7
Tax Rate (%) 20.5% 21.5% 21.1% 22.0% Debtors (No. of Days) 34 35 46 52
Reported PAT 760 907 1119 1311 Inventory (No. of Days) 111 102 124 130
Dividend Paid 199 211 235 245 Creditors (No. of Days) 59 48 42 42
No. of Shares 34 34 34 34 Net Debt/Equity (x) 0.4 0.5 0.5 0.7

Share Capital 34 34 34 34 OP/(Loss) before Tax 1,024 1,266 1,503 1,680
Net Worth 3775 4311 5098 6117 Direct Taxes Paid (238) (257) (336) (370)
Long term Debt 1590 2023 2449 4227 O.Profit. befor WC changes 1,162 1,400 1,678 1,960
Short term Debt 111 147 182 207 CF from Op. Activity 1,129 1,005 839 1,179
Deferred Tax 5 3 2 2 Non Current investments 34 34 34 34
Total Capital Employed 5366 6334 7547 10344 Capex (133) (190) (208) (2,109)
Net Fixed Assets 1736 1732 1780 3750 CF from Inv. Activity (495) (1,214) (495) (2,410)
Capital WIP 167 225 41 0 Repaym. of LT Borrowings
Debtors 711 805 1118 1356 Interest Paid (113) (119) (119) (141)
Trade payables 1234 1087 1037 1106 CF from Fin. Activity (633) (12) (187) 1,416
Total Provisions 80 124 100 115 Inc/(Dec) in Cash 1 (221) 157 185

BUY
ASHOK LEYLAND LTD. 13-Feb-17
Result Update
CMP 93 The commercial vehicle giant has posted Rs.4431 crore of net revenue with
Target Price 110 a growth of 7.7% YoY in the 3QFY17. M&HCV volumes grew by 9%YoY on
account of increased infra activity in the country. LCV volumes declined by
Previous Target Price
3% due to the vast presence in rural areas, which were affected most by
Upside 18% demonetization. Realization also declined by 2%QoQ to Rs.1349300
Change from Previous - because of higher discounts in the industry. Discounts have gone up to
Rs.300000 per unit from Rs.225000-250000 per unit but further price
Market Data increases will net off this effect. M&HCV segment market share stood at
33.7% (+370bps YoY) during the quarter despite the demonetization issue.
BSE Code 500477 Exports revenue grew by 11%QoQ to Rs.388 crore for the quarter. The
NSE Symbol ASHOKLEY company has a healthy order book of export orders. Hinduja Foundries
52wk Range H/L 113/74 Limited (HFL), which fulfills casting requirements of Ashok Leyland, has also
shown EBITDA positive for consecutive second quarters. Management
Mkt Capital (Rs Cr) 26,452
anticipates that in two years time the HFL will be accretive to Ashok Leyland.
Av. Volume 1201241 Recently, Ashok Leyland opened a new assembly plant in Bangladesh as it
Nifty 8,794 aims to make further inroads into the neighboring countries.
Stock Performance
1Month 3Month 1Year
3QFY17 Result Highlights
Absolute 9.9 6.4 14.6 Revenue stood Rs.4431 crore with a groowth of 8%YoY on account of
Rel.to Nifty 5.2 0.4 -11.4 6%YoY growth in Volumes and 2%YoY growth in realization in 3QFY17.
EBITDA margin contracted by 60 bps YoY due to 80bps rise in commodity
Share Holding Pattern-% prices during the quarter.
3QFY17 2QFY17 1QFY17 PAT margin declined by 120 bps to 4.1% due to forex loss of Rs.64 crore
Promoter 50.4 50.4 50.4 during the quarter.
Public 49.6 49.6 49.6
Outlook
Others -- -- --
Total 100.0 100.0 100.0
Going forward, We assume that the upcoming emission norms BS-IV to BS-
VI, improvement in demand from infrastructure segment and government's
Company Vs NIFTY initiative to develop defense products in the country can be volume boosters
130
ASHOKLEY NIFTY for the company in FY17. Ashok Leyland is also working towards a renewed
125 thrust in the international markets, with network expansion and dedicated
120 products. We expect that the company will maintain a healthy ROE of over
115 20% going ahead. We maintain 'BUY' on Ashok Leyland considering the
110 huge growth potential going ahead for a target price of Rs.110.
105
100 Rs. In crore
95
90
Financials 3QFY17 2QFY17 3QFY16 QoQ YoY
85 Sales 4431 4622 4114 -4% 8%
80 EBITDA 454 536 449 -15% 1%
Jul-16
Feb-16
Sep-16
Feb-17
Jan-17
Dec-16
Jun-16
Aug-16
May-16
Oct-16
Nov-16
Apr-16
Mar-16
Net Profit 180 294 217 -39% -17%

EBIDTA% 10.3% 11.6% 10.9%
Naveen Kumar Dubey PAT % 4.1% 6.4% 5.3%
naveen.dubey@narnolia.com
ASHOKLEY
Investment Arguments
The country would be moving to BS-IV norms in April, 2017 and a significant amount of pre-buying expected, especially in the
fourth quarter of FY17. Ashok Leyland's subsidiary, Albonair, holds a significant potential moving forward because Albonair does
exhaust emission systems, selective catalytic reduction emission systems which are necessary for being BS-IV compliant.
Export is only 12% of total volumes, therefore the company is targeting the African and Middle East countries to expand its
export contribution by setting up own assembly plants in these countries under the company's global expansion project. The
exports is an important part of Ashok Leyland's strategic intent to globalise its product portfolio and derisk itself from supplying
only into India.
The management expects its defence business to log four-fold jump in revenues at over Rs 2,000 crore in next five years as it
gears up to provide an entire range of mobility solutions, including missile carrying vehicles to the armed forces. Ashok Leyland is
the largest supplier of logistics vehicles to the Indian Army.
The management has focused approach towards its core commercial vehicle business. We expect that the company will be
benefitting from recovery in the M&HCV demand and its EBITDA margin will expand on account of operating leverage. The
company is also working on to reduce its debt and generate more cash to fulfill its future expansion requirements.
Concall Highlights
Management expects Q4 to be promising due to the implementation of BS-IV norms.

Capex for FY17 is Rs.500 crore and for FY18 in the range of Rs.500-750 crore.
If there is economic growth in the country CV industry will move ahead. Going ahead we see CV industry to grow about 12-15%
annually.
33.7% market share in M&HCV space and in south region overall market share is 51%.
Domestic truck business contributes 50-55 percent of total revenue.
Some cost pressure would be in 4QFY17 becasue of rising commodity prices.
Net debt stood at Rs.1520 crore.
Price increase of 4% in truck and bus segment in 4QFY17..
Ashok Leyland have acquired 100% ownership of the JVs, we will continue to be associated with Nissan for the technology of
the existing Dost, Partner, and Mitr models.
The management is focusing on to improve profitability and ROCE of the company going ahead.
Defence Revenue to be close to around Rs 1,500 crore by FY18.
M&HCV volume and growth trend
M&HCV Growth YoY
40000 71% 80%

35246
35000 29840 70%
60%
30000 26262 44% 25346 25,284 50%
64% 23232 24025
25000 21489 34% 40%
18207 18279 40% 27%
20000 30%
14908 14%
15000 12% 9% 20%
0% 10%
10000
0%
5000 -15%
-10%
0 -20%
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

ASHOKLEY

Net Revenue 11,487 15,341 20,659 21,850 EPS (1) 0 4 4
Total Revenue 11,579 15,530 20,811 22,021 DPS - 0.5 1.1 1.1
COGS 8,138 10,443 13,558 14,312 Payout (incl. Div. Tax.) 0% 112% 30% 30%
GPM 71% 68% 66% 66% Valuation(x)
Other Expenses 1,581 1,845 2,396 2,513 P/E -38.4 73.2 9.2 9.1
EBITDA 422 1,517 2,932 3,151 Price / Book Value 1.6 2.2 2.0 1.7
EBITDA Margin (%) 4% 10% 14% 14% Dividend Yield (%) 0.00% 1.53% 3.23% 3.24%
EBIT (108) 937 2,408 2,633 RoE -4% 3% 21% 19%
Interest 805 872 968 1,194 RoCE -1% 9% 19% 20%
PBT (821) 254 1,592 1,610 Turnover Ratios
Tax (68) 172 528 534 Asset Turnover (x) 0.7 0.8 0.9 0.9
Tax Rate (%) 8% 68% 33% 33% Debtors (No. of Days) 43.9 32.2 26.8 26.8
Reported PAT (164) 134 1,071 1,077 Inventory (No. of Days) 69.2 54.8 55.5 55.5
Dividend Paid - 150 316 318 Creditors (No. of Days) 82.4 73.3 52.4 50.0

Share Capital 266 285 285 285 OP/(Loss) before Tax (300) (42) 1,627 1,610
Reserves 3,723 4,227 4,708 5,466 Depreciation 530 580 524 519
Net Worth 3,989 4,511 4,992 5,751 Direct Taxes Paid (97) (112) (545) (534)
Long term Debt 5,491 6,219 7,597 7,217 OP before WC changes 195 1,725 2,431 3,322
Short term Debt 1,264 827 1,093 874 CF from Op. Activity (104) 496 (952) 2,605
Deferred Tax 411 510 536 536 - - - -
Total Capital Employed 9,480 10,731 12,589 12,968 Capex (408) (251) (212) -
Net Fixed Assets 7,087 6,060 5,894 5,871 CF from Inv. Activity (377) (126) 552 (652)
Capital WIP 270 166 162 162 Repayment of Long Term Borrowings
(1,586) (1,996) (2,362) (380)
Debtors 1,381 1,354 1,515 1,603 Interest Paid (499) (803) (316) (1,194)
Cash & Bank Balances 113 905 1,758 1,600 Divd Paid (incl Tax) (187) - (154) (318)
Trade payables 2,592 3,082 2,966 2,993 CF from Fin. Activity 461 381 1,246 (2,111)
Total Provisions 256 599 1,081 1,069 Inc/(Dec) in Cash (20) 751 846 (158)
Net Current Assets 400 522 1,016 1,035 Add: Opening Balance 127 106 858 1,758
Total Assets 17,534 19,525 22,963 23,157 Closing Balance 106 858 1,718 1,600

BUY
Hero Motocorp Limited 10-Feb-17
Result Update
Results in-line; with stable EBITDA margin
CMP 3264
Target Price 3830 Hero Motocorp posted 3QFY17 results in-line with our expectation. Net
Previous Target Price 3179 revenue de-grew by 12%YoY to Rs. 6365 crore in 3QFY17. Volumes
Upside 17% declined by 13%YoY because of demonetization issue during the quarter.
Rural areas have witnessed severe hit due to currency crunch which
Change from Previous 20%
accounts for 60% of the Hero Motocorp volumes. Motorcycle sales were
down by 15% in the month of November and December. Realization stood
Market Data flat because the company took price hike during the quarter. In the month of
BSE Code 500182 January, Hero sold 487000 vehicles with a growth of 48% MoM which
NSE Symbol shows a sharp recovery in the demand. Management expects high single
HEROMOTOCO digit growth for the first half and better second half of next financial year in
52wk Range H/L 3740/2440 volume terms. LEAP, the cost cutting initiative, has supported the company
Mkt Capital (Rs Cr) 65,185 to post EBITDA margin over 16% despite rising commodity prices.
Av. Volume 37142
3QFY17 Results Update
Nifty 8778
>>Revenue declined by 12% YoY to Rs.6365 crore in 3QFY17 because of
Stock Performance 13%YoY decline in volumes.
1Month 3Month 1Year >>Gross margin improved by 270 bps YoY to 35.1% driven by cost cutting
Absolute 6.6 3.8 26.5 initiative LEAP and lower commodity price benefit.
Rel.to Nifty 0.7 0.8 6.3 >>EBITDA margin expanded by 130 bps YoY by lower advertising and
promotional expenses.
Share Holding Pattern-% >>PAT margin improved by 115 bps YoY due to higher other income during
3QFY17 2QFY17 1QFY17 the quarter.
Promoter 34.6 34.6 34.6
Outlook and Valuation
Public 65.4 65.4 65.4
Others -- -- -- We expect improvement in demand scenario in the domestic market after
Total 100.0 100.0 100.0 the demonetization, upcoming marriage season, increasing finance
penetration in rural & semi-urban areas and seventh pay commission payout
will drive the volumes and implementation of cost cutting initiative LEAP to
Company Vs NIFTY
boost margins further by 100 bps going ahead. It has a healthy dividend
150
HEROMOTOCO NIFTY payout of 54%, which provides a cushion to the investors to invest in the
140 company for long term. The company is trading at 7 times of FY17 expected
130 book value with a RoE of 36%. We maintain "BUY" rating on this stock with
a target price of Rs.3830.
120
110
Rs. In crore
100
Financials 3QFY17 2QFY17 3QFY16 QoQ YoY
90
Sales 6365 7796 7224 -18.4% -11.9%
EBITDA 1080 1369 1131 -21.1% -4.5%
80
Net Profit 772 1004 793 -23.1% -2.7%
Jul-16
Feb-16
Sep-16
Feb-17
Jan-17
Dec-16
Jun-16
Aug-16
May-16
Oct-16
Nov-16
Apr-16
Mar-16
EBIDTA% 17.0% 17.6% 15.7%

Naveen Kumar Dubey PAT % 12.1% 12.9% 11.0%
naveen.dubey@narnolia.com
HEROMOTOCO
Investment Arguments
Improving demand scenario after demonetization impact- 2 wheelers industry have shown strong recovery after the cash
crunch issue. Hero itself posted 48%MoM growth in January sales numbers. Certain parts of South and West India have not
recovered till yet but we expect domestic market to fully recover by February end.
Increasing finance penetration- We expect that the increasing penetration of finance in the urban as well as in rural areas
aided by favorable interest rates will support the demand going ahead.
Focus on premium segment- HMCL has increased its R&D expenditure to develop technologically advanced in house
products. R&D team will focus on premium products where Hero has minimal presence and this segment has huge growth
potential. Hero has only 6% market share in this segment.
Cost cutting initiative to drive margins up- LEAP, the cost cutting initiative of Hero Motocorp has supported company to post
better margins despite rising commodity pressure. Management is targeting approx. 90 bps saving from this program in FY17.
Healthy dividend payout- Hero Motocorp is a debt free and cash rich company. It has a healthy dividend payout of 54%, which
provides cushion to the investors to invest in the company for long term.
Seventh Pay commission to boost demand- We expect approx.4.7mn government employees will be benefited in this
seventh pay commission pay-out. This will improve the living standard and will drive urban and rural demand for two wheelers
going forward. We expect as a market leader Hero can be bigger beneficiary after the implementation of 7th pay commission.
Concall Highlights
Management expects good single digit growth for first half and better second half for next financial.
Capex guidance for FY17: Rs 1200-1500 crore and Rs.1000-1100 crore for FY18.
Rs.350-400 crore of capex for Andhra Pradesh plant in FY18.
Rs.2000 crore of capex in FY18 for phase-II & III of Halol Plant, If the robust demand comes in.
Price hike in Janauary 2017 in the range of Rs.500-1500 covering rising commodity prices and BS-IV compliance.
EBITDA margin guidance above 15% in FY17.
Target of Rs.255 crore benefit from cost cutting program LEAP in FY17.
Other income for FY17 would be higher by 8-9 percent on an average.
The tax benefit for plants in Rajasthan and Gujarat will last for 7 years; and the benefit is restricted to the extent of investment
Scooters to continue outpace motorcycle growth going forward in FY17. Market share is 14%.
Dealer Inventory remained at 6-7 weeks.
Effective tax rate for FY17 will be slightly higher than FY16
Advertising and Promotion expenses stood 2.4-2.5% of total sales.
Plant Details
Plant Location Capacity
Haridwar 3060000
Gurgaon 2340000
Dharuhera 2340000
Neemrana 450000
Halol 1800000
Gujarat Plant- capacity expansion will include an initial capacity of 1.2 million (mn) units (phase 1: 0.75 mn units by Q3FY17;
phase 2: 0.45 mn units by FY17 end) & a final addition of 0.6 mn (phase 3) by FY18 beginning.
The Haridwar operations currently contribute towards 38% of HMCLs volumes. Once the excise benefits expire in FY18 end,
there will be a 100 bps impact on the EBITDA margins.

HEROMOTOCO

FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Net Revenue 25,275 27,538 28,614 28,807 EPS 105 118 155 172
Total Revenue 25,720 28,030 29,003 29,338 DPS 76 70 84 93
COGS 18,230 19,715 19,313 19,096 Payout (incl. Div. Tax.) 72% 59% 54% 54%
GPM 28% 28% 33% 34% Valuation(x)
Other Expenses 2,576 3,147 3,575 3,442 P/E 22 22 19 20
EBITDA 3,539 3,497 4,382 4,853 Price / Book Value 8 8 7 7
EBITDA Margin (%) 14% 13% 15% 17% Dividend Yield (%) 3% 3% 3% 3%
Depreciation 1,107 540 447 571 Profitability Ratios
EBIT 2,432 2,956 3,935 4,282 RoE 37% 36% 39% 36%
Interest 12 12 12 6 RoCE 43% 45% 49% 44%
PBT 2,864 3,437 4,312 4,806 Turnover Ratios
Tax 758 943 1,262 1,377 Asset Turnover (x) 2 3 2 2
Tax Rate (%) 26% 27% 29% 29% Debtors (No. of Days) 13 18 16 16
Reported PAT 2,103 2,365 3,094 3,429 Inventory (No. of Days) 13 16 14 14
Dividend Paid 1,519 1,402 1,682 1,864 Creditors (No. of Days) 33 38 36 36
BALANCE SHEET
Share Capital 40 40 40 40 OP/(Loss) before Tax 2864 3329 4312 4806
Reserves 5,583 6,500 7,913 9,477 Depreciation 1107 540 447 571
Net Worth 5,623 6,540 7,953 9,517 Direct Taxes Paid (649) (1000) (1104) (1377)
Long term Debt 24 12 146 146 Op before WC 3557 3586 4508 5330
Short term Debt - 88 84 85 CF from Op. Activity 2963 2250 3796 3981
Deferred Tax - - 228 228 Purchase of investment (9) 1354 26973 (142)
Total Capital Employed 5,647 6,552 8,099 9,663 Capex (941) (1156) (1708) (1151)
Net Fixed Assets 3,102 3,671 4,689 5,270 CF from Inv. Activity (1618) 12 (2286) (1780)
Capital WIP 855 719 653 653 Repayment of Borrowings
Debtors 921 1,372 1,282 1,291 Interest Paid (12) (11) (11) (6)
Trade payables 2,291 2,855 2,792 2,811 CF from Fin. Activity (1414) (2231) (1561) (1870)
Total Provisions 1,594 801 884 890 Inc/(Dec) in Cash (69) 32 (50) 330
Net Current Assets 1,135 1,481 1,999 2,790 Add: Opening Balance 135 66 155 179
Total Assets 10,122 10,654 12,672 14,212 Closing Balance 69 98 104 510

Maintain BUY
IRB Infrastructure Developers Ltd. 9-Feb-17
Result Update Recent Update :-

CMP 235 Recently, the group of the social activist had advocated stopping toll
Target Price 265 collection on Mumbai-Pune Expressway, which contributes ~28% of the IRB
Previous Target Price 235 toll collection revenue. It was the relevant concern but MSRDC the awarding
authority of the project has scrapped the appeal raised by activist and stated
Upside 13%
that IRB Infrastructure is liable to collect toll as per the concession
Change from Previous 13% agreement.
Market Data IRB has collected Rs. 2880 Cr till November 2016 against the projection of
BSE Code 532947 Rs. 2869 Cr on Mumbai-Pune Expressway. But as per the concession
NSE Symbol IRB agreement, IRB has right to collect toll till August 2019. There is no such
clause in concession agreement to terminate the contract. Hence, it will not
52wk Range H/L 266/177
change our revenue estimate.
Mkt Capital (Rs Cr) 8,208
Av. Volume 287591
Nifty 8769
Strong Performance, nullify Demonetization Impact :-
Stock Performance IRB has reported better number than our expectation in Q3FY17. Net sales
1Month 3 Month 1Year grew by 5.8% YoY to Rs. 1411 Cr as compared to Rs.1333 Cr in the
Absolute 8.9 10.1 -0.5 corresponding quarter previous year despite of demonetization which led to
suspension of toll collection for 23 days. But on the contrary, average daily
Rel.to Nifty 2.4 6.1 -17.6
toll collection for December month (from 3rd Dec to 31st Dec) has grown by
3% to 7.79 Cr compare to 7.53 in October month. Total income from toll
Share Holding Pattern-% collection grew by 16% YoY (including 150 Cr of claim against toll loss during
3QFY17 2QFY17 1QFY17 the suspension of 23 days) compared to Q3FY16. While EPC revenue has
Promoters 57% 57% 57% grown by 3% YoY to Rs. 834 Cr. Things are improving faster post the
Public 43% 43% 43% demonetization and management has envisaged 5-6% traffic growth in next 3-
6 months which provides strong recovery in toll collection. We expect robust
revenue growth in EPC segment based on healthy order book (3.45x of TTM
construction revenue).
Company Vs NIFTY Actual toll collection for the Q3FY17 was Rs. 517 Cr and company has raised
130 a claim of Rs. 150 Cr for the revenue loss during the suspension period.
IRB NIFTY
120 Revenue and profitability loss on the state highways will compensate in cash
110 by the respective state authorities but NHAI compensates only for interest
100 and O&M expenses incurred during the period in cash for national highways.
90 Principal and profitability on national highways will compensate by way of
80 extension of the concession period.
70 In Rs. Cr
60 Financials Q3FY16 Q2FY17 Q3FY17 YoY (+/-) QoQ (+/-)
50 Sales 1333 1291 1411 6% 9%
40
EBITDA 688 709 743 8% 5%
PAT 170 142 184 8% 30%
EBIDTA% 51.6% 54.9% 52.7% 110 bps (220) bps
Sandip Jabuani PAT 12.7% 11.0% 13.1% 40 bps 210 bps
sandip.jabuani@narnolia.com
Investment Argument:-
Robust construction revenue visibility:-
Currently, 5 projects are under construction and in next 8-10 months time period another 3 projects in Rajasthan namely
Gujarat/Rajasthan, Kishangarh - Udaipur and Kishangarh - Gulabpura will come under execution. Order book stands at Rs. 12011
Cr i.e. 3.45x of TTM EPC revenue. All the projects are well on track and management confident to complete projects on time.
Current on-going projects will drive the revenue growth and we expect revenue growth of 40-45% in FY18E.
Strong Recovery in Toll Collection:-

IRB has witnessed encouraging traffic growth post the demonization. Average daily toll collection in month of December has
grown by 3% to Rs. 7.79 Cr compared to Rs. 7.53 Cr in month of October. IRB's most of the operation road projects are in
western part of the country which is seeing good recovery in traffic movement. Management expects 10-12% growth in BOT
revenue including 5-6% traffic growth.
InvIT will unlock Value:-

IRB has filed DRHP (Draft Red Hiring Prospectus) for its InvIT with SEBI and company is in an advanced stage to get approval.
IRB expect it to launch before March 2017. IRB is in the process to raise Rs. 4300 Cr through InvIT IPO. These proceed will be
utilized for the debt reduction and for the future projects.
Concall Highlights :-
Traffic growth is encouraging despite demonization.
December toll collection is up by 3% compare to October month.And management expect 5-6% traffic growth in next 3-6 months
Suspension of toll collection led to low depreciation and amortization as the company follows revenue pattern based policy.
One of the road projects reported 10% reduction in traffic growth due to demonization.
IRB is pre- qualified for the 11738 Cr worth of projects.
Q4FY17 will be much more promising than Q3FY17 in terms of traffic growth.
IRB has raised claim of Rs.150 Cr as toll collection was suspended for the 23 days.
Sufficient cash surplus for funding equity requirement of on-going and up-coming projects
Equity requirement is Rs.1700 Cr including 3 new projects over period of 4 years. ( Rs.170 cr in FY17, 500 cr each in
FY18,FY19 and FY20)
No major impact of demonization on EPC segment.
Work on Udaipur to Rajsthan/Gujarat border project will start from April, on Kishangarh Udaipur- Ahemdabad from June and
recently won project Kishangarh Gulabpura by October
Current average toll collection of 30lakh/day on Agra- Ethwah
IRB has received 139 Cr grant in Yedeshi Aurngabad during the quarter and it will complete before monsoon.
Waiting for SEBI approval for InvIT and expect to launch it before March 2017.
Outlook and Valuation :-

Encouraging traffic growth in Q3FY17 and strong recovery in economic activity nullify the demonetization impact. Most of the
project has seen improvement in traffic especially in a western part of the country. We expect 5-6% traffic growth in near term.
Recent development (regarding Mumbai Pune express) does not change our growth estimate. We continue to expect 11%
revenue growth in FY17E and robust 40-45% revenue growth in FY18E. The introduction of InvIT will help IRB to grow higher.
Hence, we maintain BUY rating on the stock with unchanged target price of 265/-

Quartely Performance 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Net Sales 883 964 990 1,109 1,149 1,333 1,537 1,517 1,291 1,411 6% 9%
Other Operating Income - - - - - - - - - -
Net Sales 883 964 990 1,109 1,149 1,333 1,537 1,517 1,291 1,411 6% 9%
Contarct Site Exp 193 240 239 273 314 488 597 553 379 447 -8% 18%
RM Cost 75 75 103 126 138 64 51 76 82 85 31% 3%
COGS 268 314 341 399 452 552 648 629 461 532 -4% 15%
Employee Expenses 50 45 53 48 60 57 81 64 60 67 17% 11%
Other Expenses 42 49 25 33 32 36 68 50 60 69 89% 14%
Total Expenditure 360 408 420 480 544 646 797 743 582 667 3% 15%
EBITDA 523 555 571 629 605 688 740 774 709 743 8% 5%
Depreciation 180 179 172 202 203 226 222 221 227 180 -20% -21%
EBIT 343 377 399 427 402 461 517 553 482 563 22% 17%
Intreset 227 237 251 235 240 264 327 328 340 339 28% 0%
PBT 145 169 176 220 192 229 225 256 176 254 11% 45%
Tax 23 35 40 55 43 61 73 74 33 70 15% 109%
PAT 122 133 138 165 150 170 151 182 142 184 9% 30%
Margin Profile YoY (+/-) QoQ (+/-)

Gross Margin 69.60% 67.38% 65.53% 63.99% 60.65% 58.57% 57.86% 58.54% 64.28% 62.31% 374 (197)
EBIDTA 59.2% 57.6% 57.6% 56.7% 52.7% 51.6% 48.1% 51.0% 54.9% 52.7% 110 (220)
EBIT 38.9% 39.1% 40.2% 38.5% 35.0% 34.6% 33.7% 36.5% 37.3% 39.9% 530 260
PAT 13.8% 13.8% 14.0% 14.9% 13.0% 12.7% 9.8% 12.0% 11.0% 13.1% 40 210
Opearting Matrix YoY% QoQ%

Construction Order 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Ongoing BOT Projects 4,254 3,776 3,219 8,136 7,503 6,675 5,810 4,818 5,634 4,826 -28% -14%
Construction yet to comm. 5,402 5,403 7,551 2,133 2,133 8,828 2,133 2,133 3,987 5,436 -38% 36%
9,656 9,178 10,770 10,269 9,636 15,503 7,943 6,951 9,621 10,262 -34% 7%
BOT Projects in O&M 1,932 3,776 1,861 1,847 1,832 1,818 1,803 1,788 1,773 1,750 -4% -1%
Total 11,587 12,954 12,631 12,116 11,468 17,321 9,746 8,739 11,394 12,011 -31% 5%
Toll Collection at Major Projects YoY% QoQ%

Munbai- Pune 136 147 149 160 146 162 165 188 173 137 -15% -21%
Surat - Dahisar 131 145 147 151 145 156 162 161 148 111 -29% -25%
Tumkar Chitradurga 45 47 48 50 49 51 51 53 50 40 -22% -20%
Baruch - Surat 45 49 48 49 45 49 50 49 47 37 -25% -21%
Ahem.-Vadodra (NE-1) 35 42 43 44 37 53 86 88 83 69 31% -16%
Jaipur - Deoli 24 27 29 33 26 29 32 32 27 22 -24% -16%
Pathankot - Amritsar - 8 21 23 22 27 27 29 28 24 -12% -15%
Thane- Bhiwandi Bypass 17 19 19 20 19 20 21 20 19 15 -24% -19%
Omalur Salem Namakkal 19 21 19 19 18 17 21 20 19 15 -11% -22%
Talegaon Amravati 10 11 12 12 10 12 13 13 12 10 -15% -13%

Order Book
Order book Book to bill
20,000 17,321 20
15,000 12,954 12,631 15

11,587 12,116 11,468 11,394 12,011
9,746
10,000 8,739 10
5,000 5
- -
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Order Book break up project wise
Yedeshi Aurangabad
6% 4%
9%
2% Kaithal Rajasthan Border
12% 2%
Solapur Yedeshi
Sindhudurg Airport
Agra Etawah
15% 17%
Gulabpura -Chittorgarh
Udaipur -Gj Border
O & M Contracts
17% 16% Kishangarh Gulabpura
Goa Kundapur
Revenue Mix

Net Revenue 3732 3847 5130 5694 EPS 14 15 18 18
Total Revenue 3853 3960 5254 5812 DPS 6 5 5 5
EBITDA 1754 2212 2661 3041 Payout (incl. Div. Tax.) 42% 30% 26% 26%
EBITDA Margin (%) 47% 57% 52% 53% Valuation(x)
Depreciation 477 707 853 935 P/E 7 15 13 15
EBIT 1277 1505 1807 2106 Price / Book Value 1 2 2 2
Interest 756 931 1063 1346 Dividend Yield (%) 6% 2% 2% 2%
PBT 642 686 868 878 Profitability Ratios
Tax 182 144 232 246 RoE 13% 12% 13% 12%
Tax Rate (%) 28% 21% 27% 28% RoCE 9% 10% 10% 10%
Reported PAT 459 543 636 633 Turnover Ratios
Dividend Paid 194 164 164 164 Asset Turnover (x) 0.2 0.1 0.1 0.1
No. of Shares 33 35 35 35 Debtors (No. of Days) 1 0 7 7
Inventory (No. of Days) 59 73 55 55
Creditors (No. of Days) 40 22 22 22
Net Debt/Equity (x) 2.64 2.48 2.62 2.68
BALANCE SHEET CASH FLOW

Net Worth 3561 4361 4827 5293 Direct Taxes Paid 232 216 312 246
Long term Debt 9398 10804 12652 14192 Op. before WC change 1749 2216 2719 3159
Short term Debt 897 631 1189 1189 CF from Op. Activity 1656 1823 2342 2104
Deferred Tax 22 19 16 16 Non Current Investment 0 1 0 0
Total CE 12959 15165 17479 19485 Capex 3002 2311 3161 2261
Net Fixed Assets 13041 36599 39169 40494 CF from Inv. Activity (2743) (2295) (3175) (2261)
Capital WIP 48 80 78 78 Repayment of LTB 888 794 1140 0
Debtors 6 5 104 115 Interest Paid 740 1317 1435 1346
Cash Balances 1501 1580 1559 0 Divd Paid (incl Tax) 194 78 254 164
Trade payables 408 234 305 339 CF from Fin. Activity 1274 474 667 30
Total Provisions 289 219 169 324 Inc/(Dec) in Cash 186 2 (165) (127)

Neutral
DR.REDDY'S LABORATORIES LTD 8th Feb 2017
Company Update Dr. Reddy has reported revenue of Rs. 3707 Cr (decline by 7% YoY) in
CMP 3066 Q3FY17 from Rs. 3967 Cr in Q3FY16. Revenue from Global generics
Target Price 3325 segment declined by 9% YoY led by the lower contribution from North
Previous Target Price 3815 America and Venezuela. Revenue from US business has come down by
15% YoY on account of increased competition and pricing pressure. Delay
Upside 8%
in new launches and erosion in base business is a major area of concern
Change from Previous -13% in US business. During the quarter, company launched 5 new relatively
small products in the US market and management expects meaningful
Market Data launches in US market in coming fiscal.
BSE Code 500124 Business Highlights
NSE Symbol DRREDDY
52wk Range H/L 3689/2813 Sales from US business stood at ~Rs. 1659 Cr. in Q3FY17 vs Rs. 1942
Mkt Capital (Rs Cr) 50762 Cr. in Q3FY16. Limited meaningful launches in 9M FY17 coupled with
pricing pressure in 1HFY17 in key products has led to muted growth in US
Av. Volume(,000) 26.83
business in FY17.
Nifty 8768
Revenue from the Europe Business declines by 10% to Rs. 215 Cr in
Stock Performance Q3FY17 vs Rs. 193 Cr in Q3FY16.
1M 3M 12M In this quarter Domestic business grew to Rs. 595 Cr. from Rs. 580 Cr.
Absolute 3.6 5.6 5.0 Revenue from the Emerging Business declines by 7% to Rs. 595 Cr in
Rel.to Nifty -3.3 -14.0 -8.6 Q3FY17 vs Rs. 640 Cr in Q3FY16.
During the quarter, 16 DMFs were filed globally of which 1 was filed in
Share Holding Pattern-% US.Cumulative number of filings as on 31 Dec. 2016 was 782.
3QFY17 2QFY17 1QFY17 Net Debt/Equity is 0.31 as on 31 dec 2016.
Promoters 26.8 26.7 25.6
Public 73.2 73.3 74.4 Business Highlights
Others
Total 100.0 100.0 100.0 Management expects that global business to gain traction from FY18 on
the back of currency stabilization in emerging markets geographies, stable
Company Vs NIFTY macro economics and institutional business launches. In Q3FY17,
125
company commercialized 2 In-licensed products from the strategic
DRREDDY NIFTY
120
collaboration with Amazon. Remediation process at Srikakulam,
115
Mriyalguda and Duvvada facilities are over and the management expects
110 inspection at these facilities are expected in Feb/ Mar-17. Considering near
105 term uncertainties we recommend NEUTRAL rating in this stock with a
100 target price of Rs 3325.
95 in(Rs Cr) 2012 2013 2014 2015 2016
90
85
Sales 9815 11896 13415 15023 15698
80 EBITDA 2431 2720 3251 3494 3921
Jul-16
Feb-16
Sep-16
Jan-16
Jan-17
Dec-16
Jun-16
Aug-16
May-16
Oct-16
Nov-16
Apr-16
Mar-16
Net Profit 1301 1527 1963 2336 2151

EPS 77 90 115 137 126
Aditya Gupta ROE 26% 24% 25% 24% 18%
aditya.gupta@narnolia.com
Earnings Call Highlights of Q3FY17
During this quarter 5 relatively small products were launched. Management does not expect any benefit from meaningful launch
in Q4 but expects to launch 15+ launches in FY18.
Working Capital increases by ~Rs. 400 Cr due to new product inventory build-up and increase in receivables in some
geographies
R&D expenditure for the quarter is ~Rs. 498 Cr representing 13.4% of revenues.
Management expects 15 new launches in FY18 (including 4-5 meaningful launches).
Substantially ramped up R&D productivity and filed 9 ANDAs in this quarter and with this cumulative filing at the end of FY17
will be 25.
Business Overview
The Company is organized into the following businesses which are reportable segments:
Pharmaceutical Services and Active Ingredients: This segment includes active pharmaceutical ingredients and intermediates, also
known as active pharmaceutical products or bulk drugs, which are the principal ingredients for finished pharmaceutical products.
Active pharmaceutical ingredients and intermediates become finished pharmaceutical products when the dosages are fixed in a form
ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes
contract research services and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the
specific customer requirements.
Global Generics: This segment consists of finished pharmaceutical products ready for consumption/ use by the patient, marketed
under a brand name (Branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations
(generics). This segment includes the operations of the Companys biologics business.
Proprietary Products: This segment consists of the Companys differentiated formulations business, New Chemical Entities (NCEs)
business, and the dermatology focused specialty business operated through Promius Pharma.
Others: This includes the operations of the Companys wholly-owned subsidiary, Aurigene Discovery Technologies Limited, a
discovery stage biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation and
which works with established pharmaceutical and biotechnology companies in early-stage collaborations, bringing drug candidates
from hit generation through Investigational New Drug (IND) filing.

Update on ongoing US FDA matters
Key Risk to Target Price

Key Momentum For
Upside Risk Downside Risk
Stock
Clearance of Form 483
issues at Srikakulam API Regulatory delays
facility Margin improvement despite
affecting key US
increase in R&D
launches
Launch of key products Stabilisation of emerging market

like gCopaxone, economies/currency, mainly
Adverse foreign
gNexium, etc Russia/CIS (12% of sales)
exchange fluctuation
R&D investment breakup (FY16)
Generics Proprietary products Biologics R&D costs increasing.
3%
DRReddy remains committed to investing
14%
aggressively in R&D, to help build a robust
pipeline of complex generics and products
with significant entry barriers lending
83% competitive advantage over the long run.
R&D guidance is around 12% of sales as

About the Company per planned scale up in development
activities
Dr. Reddys is one of the largest Indian generic companies in the world with presence in more than 40 countries. USA is its
largest market and contributes more than 40% of its revenues. It has one of the largest portfolios among Indian generic players
and has enabled it to become a prominent generic player in the US. Russia and India are the two other key geographies, where it
has significant presence. Apart from strengths in developing niche generic products, vertical integration into APIs has enabled it
to become a global generic powerhouse. It operates 16 manufacturing bases (10 USFDA approved) and is actively supported by
an extensive R&D programme. It also has one of the deepest pipelines of biosimilars amongst leading global generic companies,
addressing global brand sales of USD30bn.The key therapeutic focus is on gastro-intestinal, cardiovascular, diabetology,
oncology, pain management, anti-infective and paediatrics.

Revenue 11896 13415 15023 15698 EPS 90 115 137 126
Total Revenue 12046 13585 15297 15967 DPS 16.0 17.5 21.1 23.4
GPM 29% 24% 25% 23% Payout
Other Expenses 2751 2944 2995 4805 P/E 19.6 22.2 25.4 24.0
EBIT 2169 2603 2734 2950 RoE 24% 25% 24% 18%
Interest 100 127 108 82 RoCE 28% 26% 24% 23%
Tax 638 683 563 524 Asset Turnover (x) 0.88 0.84 0.81 0.78
Tax Rate (%) 29% 26% 19% 17% Debtors (No. of Days) 98.0 90.0 100.0 97.0
Reported PAT 1527 1963 2336 2151 Inventory (No. of Days) 67.0 66.0 62.4 60.0
Dividend Paid 272 298 359 399 Creditors (No. of Days) 29.6 24.3 21.1 22.0

Reserves and surplus 6284 7780 9768 11616 Depreciation 550 648 760 971
Shareholders' funds 6369 7865 9853 11701 Direct Taxes Paid -555 -714 -546 -710
Long term Debt 1266 2076 1432 1069 OP before Wc 3228 3689 4554 4775
Total Borrowings 3165 4136 3617 3341 CF from Op. Activity 1378 1970 2524 4048
Non Current liabilities 193 299 492 404 Current investments -1156 -2509 -3701 -5516
Long term provisions 51 56 78 95 Capex -756 -1083 -1532 -1388
Short term Provisions 674 816 1144 1195 CF from Inv. Activity -1446 -1694 -2265 -1942
Current liabilities 3760 3730 4636 4565 Repayment of Debt 0 1010 0 0
Total liabilities 13487 16030 18598 20010 Interest Paid -126 -116 -109 -92
Net Fixed Assets 4616 5280 5906 7227 Divd Paid (incl Tax) -272 -298 -359 -411
Non Current Investments 0.40 0.40 145.60 146.00 CF from Fin. Activity -157 -24 -433 -1701
Long term Loans & Advances 149 232 418 519 Inc/(Dec) in Cash -225 251 -174 405
Current assets 8527 10326 11877 11820 Add: Opening Balance 746 611 757 154

Hold
OIL AND NATURAL GAS CORPORATION LTD. 07-Feb-16
Company Update
Oil and Natural Gas Corporation has posted revenue growth of 9% YoY to
CMP 198
Rs. 20014 in 3QFY17. Profit after tax has grown to Rs. 4352 Cr from Rs.
Target Price 243 1466 Cr. (an increment of 197% YoY). In this quarter revenue from the
Previous Target Price 243 crude oil has increased by 21% YoY to Rs. 14768 Cr. The crude realization
Upside 23% rate went up to USD 52.64 per barrel from USD 44.34 per barrel. Revenue
Change from Previous - from the gas has declined by 19% YoY to Rs. 3455 Cr. on account of lower
gas realization of USD 2.5 per MMBTU from USD 3.82 per MMBTU.
Market Data
Q3FY17_Result Update
BSE Code 500312
NSE Symbol ONGC 16 Oil and gas discoveries notified till date in FY17.
52wk Range H/L 211/125
Crude oil production has slightly declined to 6.405 MMT from 6.527 MMT.
Mkt Capital (Rs Cr) 256985
Gas production has increased from 5.771 BCM to 6.025 BCM in 3QFY17.
Nifty 8801
Gross realization in crude oil has increased from USD 44.34 per BBL to
Stock Performance USD 51.8 per BBl.
1M 3M 12M Subsidy burden for FY17 is NIL.
Absolute 2.3 42.6 47.1 In this quarter revenue from the LPG is Rs. 914 Cr vs Rs. 949 Cr in
Rel.to Nifty -4.6 23.1 33.5 3QFY16.
Royalty has increased to Rs. 2392 Cr in 3QFY17 from Rs. 1984 Cr in
3QFY16.
Share Holding Pattern-%
3QFY17 2QFY17 1QFY17 Effective tax rate in 3QFY17 is 30.4%
Promoters 69 69 69
Outlook
Public 31 31 31
Others Gas production in ONGC is expected to increase further on completion of
Total 100 100 100 development projects. Management has guided for Oil production of 26.2
MMT and 25.63 BCM Gas in FY18. Management is optimistic about spurt
in oil and gas prices in FY18. The company is on track to achieve
Company Vs NIFTY production volumes of 25.73 MT for FY17. Since no subsidy has been
150 ONGC NIFTY decided by the government for FY17, the benefits of higher crude would
140 flow into the company. Considering above arguments, we are optimistic on
130
long-term growth in this stock, hence we recommend HOLD rating in this
stock while maintaining our previous target price of Rs. 243.
120
110 Rs,Cr
100
Financials 2012 2013 2014 2015 2016
90 Sales 147285 162403 174477 160890 131517
80 EBITDA 48491 43499 49725 42301 41261
Net Profit 28144 24220 26507 18334 14123
Jul-16
Feb-16
Sep-16
Jan-16
Jan-17
Dec-16
Jun-16
Aug-16
May-16
Oct-16
Nov-16
Apr-16
Mar-16
EPS 33 28 31 21 17
Aditya Gupta P/E 8.2 11.0 10.3 14.3 13.2
aditya.gupta@narnolia.com
Management Speak/ Key take aways From Management Interview
OVL production is estimated at ~14mmt in FY18 v/s 8.9mmt in FY16, led by addition from recent acquisitions.
Management has maintained capex guidance of Rs. 29000 Cr in FY17
Management has guided for debt guidance of 400 Cr increment from FY16 level.
Royalty paid on crude oil in 9 months of FY17 is Rs. 6720 Cr and Rs. 439 Cr in Natural gas
Management is optimistic about spurt in oil and gas prices in FY18
Subsidy
Subsidy Burden
16202
Government has decided
13641
12622
1379613764 13200 no subsidy for FY17, and
9458 benefits will flow to the
company
1096
0 0 0 0 0 0 0
Operational Highlights
Volume Trend
Oil production (incl. JV)(MMT) Gas production (incl. JV)(BCM)
7.0 6.5 6.5 6.4 6.4 6.6 6.5 6.5 6.6 6.5 6.3 6.3 6.4 6.4
6.0
6.3 6.2 6.0 6.0 6.0
5.0 5.7 5.8 5.8 5.7 5.8 5.5 5.8
5.2
4.0
3.0
2.0
1.0
0.0
About the Company Business Segment Overview

ONGC is Indias largest national oil & gas company, primarily
engaged in the exploration, development and production of crude
oil and natural gas in both India and abroad. ONGC, through its
wholly owned subsidiary ONGC Videsh Ltd, has presence across
14 countries in E&P activities. The company is also present in
downstream refining and marketing operations in India through
its subsidiary MRPL, which operates a refinery with an installed
capacity of 15 MMTPA.ONGC dominates Indias oil & gas
production with more than two third share of the countrys
production of oil and oil equivalent gas. It contributes ~78% and
~73% to total oil and gas production, respectively, in India.
ONGC has 969 mmtoe of proved reserves and 1451 mmtoe of
2P reserves at FY13 end. Its total domestic production for FY13
aggregated 51.5 mmtoe.

Revenue (Net of Excise Duty) 1,62,403 1,74,477 1,61,212 1,31,498 EPS 28 31 21 17
Other Income 5,491 6,894 5,925 7,023 Book Value 178 201 211 216
Total Revenue 1,67,893 1,81,371 1,67,137 1,38,521 DPS 11 11 11 7
COGS (1,120) (719) 1,723 725 Payout (incl. Div. Tax.) 39% 36% 51% 41%
GPM -1% 0% 1% 1% Valuation(x)
Other Expenses 1,06,755 1,16,169 1,04,795 82,414 P/E 11 10 14 13
EBITDA 43,499 49,725 42,342 42,051 Price / Book Value 2 2 1 1
Depreciation 11,763 16,581 18,033 18,009 Profitability Ratios
EBIT 31,735 33,144 24,309 24,042 RoE 16% 15% 10% 8%
Interest 484 624 2,864 2,157 RoCE 20% 16% 11% 10%
PBT 36,742 39,413 27,370 22,718 Turnover Ratios
Tax 12,752 12,760 9,697 8,417 Asset Turnover (x) 0.64 0.54 0.48 0.37
Tax Rate (%) 35% 32% 35% 37% Debtors (No. of Days) 35 34 43 27
Reported PAT 24,220 26,507 18,334 14,124 Inventory (No. of Days) 29 31 24 28
Dividend Paid 9,509 9,509 9,259 5,756 Creditors (No. of Days) 42 64 69 94
No. of Shares 856 856 856 856 Net Debt/Equity (x) 0 0 0 0

Share Capital 4,278 4,278 4,278 4,278 OP/(Loss) before Tax 36,742 39,413 27,370 22,718
Reserves and surplus 1,48,250 1,67,873 1,76,177 1,80,467 Depreciation 12,094 16,581 18,033 18,009
Shareholders' funds 1,52,528 1,72,151 1,80,454 1,84,744 Direct Taxes Paid 12,416 10,567 9,029 7,626
Long term Debt 8,843 31,681 47,575 46,272 OP before Wc 58,306 59,570 54,535 46,960
Total Borrowings 11,527 13,907 5,345 7,321 CF from Op. Activity 39,874 53,270 33,950 52,777
Non Current liabilities 14,849 18,552 19,357 21,547 Current investments (83) - - -
Long term provisions 161370 203832 228030 231016 Capex (17,961) (14,939) (16,906) (11,324)
Short term Provisions 1,64,703 2,09,603 2,23,186 2,36,529 CF from Inv. Activity (41,220) (63,633) (30,320) (37,977)
Current liabilities 39,745 53,827 32,660 32,508 Repayment of Debt 10,432 33,199 17,078 5,522
Total liabilities 15,396 16,028 18,816 9,687 Interest Paid (687) (709) (1,199) (1,466)
Net Fixed Assets 19,619 24,480 16,097 25,784 Divd Paid (incl Tax) 11,002 9,762 9,495 5,920
Non Current Investments 18,615 30,678 30,466 33,886 CF from Fin. Activity (6,927) 15,225 (10,641) (6,223)
Other non Current assets 26,350 31,357 35,039 40,937 Inc/(Dec) in Cash (8,273) 4,862 (7,010) 8,578
Current assets 27,400 19,941 20,191 15,227 Add: Opening Balance 27,874 19,601 12,727 5,720
Total Assets 2,53,461 3,24,911 3,38,292 3,56,211 Closing Balance 19,601 24,463 5,717 14,298

N arnolia Securities Ltd
201 | 2nd Floor | Marble Arch Bu ild ing | 236B-AJC Bose
Road | Kolkata-700 020 , Ph : 033-40501500
email: narnolia@narnolia.com,
w ebsite : w w w .narnolia.com
Risk Disclosure & Disclaimer: This report/message is for the personal information of
the authorized recipient and does not construe to be any investment, legal or taxation
advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any
action based upon it. This report/message is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or
redistributed to any other person in any from. The report/message is based upon publicly
available information, findings of our research wing East wind & information that we
consider reliable, but we do not represent that it is accurate or complete and we do not
provide any express or implied warranty of any kind, and also these are subject to change
without notice. The recipients of this report should rely on their own investigations,
should use their own judgment for taking any investment decisions keeping in mind that
past performance is not necessarily a guide to future performance & that the the value of
any investment or income are subject to market and other risks. Further it will be safe to
assume that NSL and /or its Group or associate Companies, their Directors, affiliates
and/or employees may have interests/ positions, financial or otherwise, individually or
otherwise in the recommended/mentioned securities/mutual funds/ model funds and
other investment products which may be added or disposed including & other mentioned
in this report/message.

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IEA Report 15th February

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IEA Report

15th Feb 2017

GODREJCP "BUY" 14th Feb 2017

ASHOKLEY "BUY" 13th Feb 2017

HEROMOTOCO "BUY" 10th Feb 2017

IRB "BUY" 9th Feb 2017

DRREDDY "Neutral" 8th Feb 2017

ONGC "HOLD" 7th Feb 2017

Narnolia Securities Ltd IEA Edition No.- 956

Company Update Improvement in general business after demonetization

Wholesale and rural was impacted.

EBITDA and PAT(%)

4.0% EBITDA margin PAT margin

Narnolia Securities Ltd 3

Please refer to the Disclaimers at the end of this Report

BALANCE SHEET CASH FLOW STATEMENT

Narnolia Securities Ltd 4

Please refer to the Disclaimers at the end of this Report

Net Sales and PAT(in cr.)

EBITDA and NPM (%)

Narnolia Securities Ltd 6

Please refer to the Disclaimers at the end of this Report

BALANCE SHEET CASH FLOW STATEMENT

Narnolia Securities Ltd 7

Please refer to the Disclaimers at the end of this Report

Net Profit 180 294 217 -39% -17%

Management expects Q4 to be promising due to the implementation of BS-IV norms.

M&HCV volume and growth trend

M&HCV Growth YoY

40000 71% 80%

Narnolia Securities Ltd 9

Please refer to the Disclaimers at the end of this Report

Financials Snap Shot

BALANCE SHEET CASH FLOW STATEMENT

Narnolia Securities Ltd 10

Please refer to the Disclaimers at the end of this Report

EBIDTA% 17.0% 17.6% 15.7%

Please refer to the Disclaimers at the end of this Report

Financials Snap Shot

Narnolia Securities Ltd 13

Please refer to the Disclaimers at the end of this Report

Result Update Recent Update :-

Strong Recovery in Toll Collection:-

InvIT will unlock Value:-

Outlook and Valuation :-

Narnolia Securities Ltd 15

Margin Profile YoY (+/-) QoQ (+/-)

Opearting Matrix YoY% QoQ%

Toll Collection at Major Projects YoY% QoQ%

Narnolia Securities Ltd 16

Please refer to the Disclaimers at the end of this Report

15,000 12,954 12,631 15

Order Book break up project wise

Narnolia Securities Ltd 17

BALANCE SHEET CASH FLOW

Narnolia Securities Ltd 18

Please refer to the Disclaimers at the end of this Report

Net Profit 1301 1527 1963 2336 2151

Narnolia Securities Ltd 20

Key Risk to Target Price

Launch of key products Stabilisation of emerging market

R&D investment breakup (FY16)

Generics Proprietary products Biologics R&D costs increasing.

R&D guidance is around 12% of sales as