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India Strategy 4qfy17 20170410 Mosl RP Pg292
India Strategy 4qfy17 20170410 Mosl RP Pg292
India Strategy 4qfy17 20170410 Mosl RP Pg292
India Strategy
Flows
NPAs
Demon impact
Dry private capex
?
GST
Markets at Currency
record Monsoon
high 3 years of
flat
earnings
Note: All stock prices and indices for companies as on 5 April 2017, unless otherwise stated
Investors are advised to refer through important disclosures made at the last page of the Research Report.
India Strategy | The Great Divide
India Strategy
BSE Sensex: 29,974 S&P CNX: 9,265
Sources of exhibits in this report include RBI, CMIE, Bloomberg, IMF, Industry, Companies, and MOSL database
April 2017 3
India Strategy | The Great Divide
April 2017 4
India Strategy | The Great Divide
April 2017 5
India Strategy | The Great Divide
April 2017 6
India Strategy | The Great Divide
Private Banks (18%), Capital Goods (15%), Consumer (5%), NBFC (11%),
Healthcare (6%) and Utilities (1%) are expected to post PAT growth.
Defensives share in MOSL universe earnings would continue declining to 34%
(recent high was 47% in 4QFY16); the share of Global Cyclicals would be 30% in
4QFY17, up from 24% in 2QFY17.
Nifty sales are estimated to grow 12% YoY, the highest in 11 quarters. PAT is
likely to grow 10% YoY, the second consecutive quarter of double-digit growth.
EBITDA is likely to post muted 2.4% YoY growth. Nifty aggregates would be
influenced by Cyclicals excluding PSU Banks and Metals, Nifty sales are
expected to increase by 12% YoY, EBITDA by 3% YoY and PAT by 1% YoY.
Our Sensex EPS estimates are revised downwards by 4% each for FY18/FY19 at
INR1,572/1,904. Among Sensex components, we have cut EPS estimates of
seven companies by >5% and upgraded estimates of RIL by >5%.
Nifty EPS estimates are however largely unchanged for FY18/FY19 to
INR498/599 (from INR497/605) owing to change in composition of Nifty
constituents. BHEL and Idea Cellular were replaced with IOC and Indiabulls
Housing Finance w.e.f. 31 March 2017.This has offset the negative impact of
earnings revision in other constituents in FY18/19. For FY17, Nifty estimates are
revised upwards by 3% to INR 417.
April 2017 7
India Strategy | The Great Divide
Exhibit 2: Sales growth for MOSL universe to come in at Exhibit 3: but sales growth for Defensives to moderate
11-quarter high sharply; lowest in multiple quarters
24.9
18.5
22.9
15.9 14.4 13.6
18.9
18.7
12.3
17.7
17.7
9.9 11.3
8.1
15.2
7.6 6.7 11.7
13.1
12.6
4.5
11.7
11.6
2.9
10.9
10.6
0.4
9.4
8.9
8.6
8.0
7.7
5.7
-0.7 -2.2
1.9
-6.2 -7.4
-11.0 -8.0
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17E
Mar-17E
Source: MOSL Source: MOSL
Exhibit 4: 4QFY17 EBITDA margin (ex-OMCs, Financials) at Exhibit 5: PAT growth for MOSL universe will be boosted by
19.8% (-40bp YoY) low base in cyclicals; PSU Banks provide 80% of delta PAT
MOSL Universe EBITDA 96.8
22.4
21.3
69.5
21.1
20.2
20.0
20.0
19.8
19.8
18.9
11.9
18.8
18.7
18.7
18.6
21.6
18.4
18.1
19.9
20.0
-3.0 -1.2
18.8
19.1
-3.3
4Q 18.4
3Q 18.8
1Q 18.0
3Q 18.6
3Q 18.3
-9.2 -11.8
4Q 18.5
1Q 18.1
-18.4
2Q 18.0
-37.2
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17E
2Q
3Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
1Q
3Q
4Q
2Q
4Q
1Q
2Q
4Q
1Q
2Q
4Q
1Q
2Q
3Q
4QE
Exhibit 6: Worst PAT performance for Defensives in multiple Exhibit 7: 4QFY17 PAT margin (ex-OMCs, Financials) would
quarters contract 100bp to 9.9%, dragged by Autos, O&G and IT
14.0
12.6
28.5
28.3
23.8
11.8
11.8
11.7
21.1
19.4
11.4
16.2
11.3
11.1
10.4
10.9
10.9
12.5
12.2
9.9
11.3
10.4
10.3
12.5
10.2
10.4
10.1
12.4
9.9
9.9
9.7
9.9
6.0
5.5
12.0
9.6
5.2
11.5
11.3
10.9
10.4
10.6
10.3
10.1
10.1
10.1
10.0
Dec-16 -0.5
9.8
9.6
9.2
9.4
Mar-17E -6.5
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
April 2017 8
India Strategy | The Great Divide
Cement 26 20 16 20 19 11 11 18 16 14 9 15 14 16 16 20 25 21 16 16
Consumer 42 42 47 45 47 49 54 50 53 56 60 57 58 58 64 62 65 65 65 65
Financials 171 166 177 191 187 164 170 197 205 191 184 199 198 191 109 -16 171 192 184 185
Private Banks 54 57 67 71 70 72 80 85 82 85 95 100 91 98 106 83 94 94 97 98
PSU Banks 92 83 82 83 87 61 59 73 90 72 54 57 71 54 -39 -146 33 49 38 34
NBFC 25 26 29 37 30 32 32 39 33 34 35 43 36 40 41 46 43 48 47 51
Healthcare 21 28 36 30 32 42 50 43 46 51 34 38 54 52 49 53 57 58 53 55
Logistics 3 3 3 3 3 3 3 3 4 3 4 4 3 3 3 2 3 2 3 3
Media 4 5 5 4 5 5 6 5 5 5 8 6 7 7 8 12 7 8 8 8
Metals 75 54 42 76 60 57 57 71 67 73 61 33 36 51 -8 22 32 29 40 59
Oil & Gas -290 319 186 378 63 169 109 315 160 130 58 242 243 125 185 184 275 205 228 213
Oil & Gas Ex OMCs 116 149 135 108 107 140 146 135 122 126 82 129 139 121 134 131 145 153 150 147
Retail 2 2 2 2 2 2 2 2 2 3 2 2 2 2 3 2 2 2 3 2
Technology 90 93 97 97 106 121 129 134 132 137 144 141 141 152 153 158 153 158 164 150
Telecom 11 9 7 12 15 13 15 24 23 27 28 29 23 26 26 28 27 24 8 4
Utilities 81 63 88 99 76 68 84 99 77 57 73 89 77 68 78 90 78 53 72 90
Others 6 6 5 4 7 6 7 5 9 7 7 6 10 7 7 8 10 9 8 8
MOSL Univ 329 891 7901,100 691 807 8021,102 909 851 772 968 976 840 782 776 998 934 933 982
MOSL Univ Ex Metals, Oil & PSU Bks 451 435 480 564 481 520 578 642 592 576 598 636 626 611 643 716 659 652 626 676
April 2017 9
India Strategy | The Great Divide
April 2017 10
India Strategy | The Great Divide
Exhibit 11: 4QFY17 sectoral sales growth (%): highest in 11 Exhibit 12: 4QFY17 sectoral PAT growth (%): Entirely led by
quarters for MOSL universe cyclicals
28 28 LP
176
20
14 14 28
18 16 15 14 11
8 8 6 5 1 1
5 5 3 2 2 2
-5 -12
-22
-1 -31 -32
-11 -85
MOSL Univ
Banks - PSU
Utilities
Telecom
Metals
NBFC
Health Care
Banks - Pvt
Logistics
Consumer
Sensex
Cap. Goods
Technology
Cement
Auto
Media
Oil & Gas
Retail
MOSL Univ
Utilities
Metals
Health Care
Telecom
Consumer
Cap Goods
Technology
Cement
Auto
Logistics
Media
Oil & Gas
Retail
Financials
Exhibit 13: Weakening earnings breadth; almost half of the universe to report YoY PAT decline
Earnings Gr. >30% >15-30% >0-15% <0% Ex OMCs (%)
24 20 -15 -11 42 22 9 11 18 9 0 8 9 7 -9 -2 -10 6 28
15 26 -8 -15 23 26 24 13 4 11 6 -3 12 17 -7 -3 -10 -2 20
21 24 23 26 27
42 41 32 35 31 30 27 25 24 31 34 31 36
26
35 38 47 36 40 36 33 32 34
42 40 38 39 42 40 37 38
45 45
% of MOSL Universe companies
14
19 24 9 10 18
26 20 18 14 14
9
27
21 13 24 19 13 27 17 22 18 15 18 20 23
11 17 16 19 25
18 22 18 16 17 22 24 25 22
18 22 10 23 16 20
22 21 19
18 17 20 21 14
10
14 24 25 18 22 17 19 16 18
14 20 22 20 23 16 27 14
20 13
51 18 13
44 45 41 43
35 30 38 32 39 35
26 27 32 21 21 24 25 25
28 26 24 26 24 26 25 29 28 28 29 22
19 19 20 18 21 21 20
Dec 07
June 08
June 09
June 10
June 11
June 12
June 13
June 14
June 15
June 16
Mar 08
Sep 08
Dec 08
Mar 09
Sep 09
Dec 09
Mar 10
Sep 10
Dec 10
Mar 11
Sep 11
Dec 11
Mar 12
Sep 12
Dec 12
Mar 13
Sep 13
Dec 13
Mar 14
Sep 14
Dec 14
Mar 15
Sep 15
Dec 15
Mar 16
Sep 16
Dec 16
Mar 17E
April 2017 11
India Strategy | The Great Divide
65 5
55 0
45 -5
-5.4 -5.6 -5.0 -4.5
-6.4
35 -10
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Source: MOSL, Bloomberg
April 2017 12
India Strategy | The Great Divide
In IT, the growth has slowed down materially owing to structural changes in
business model in favor of digital. Additionally, in the short term the currency
appreciation impact will also hurt IT earnings.
In Pharma the earnings were impacted by regulatory headwinds as sectors finds
itself in the midst of US FDA onslaught. Additionally, the US policy on healthcare
and pricing as well as currency appreciation is also adding to uncertainty.
For Consumer sector, the moderation in consumption growth over the past two
years coupled with rising competitive intensity from new players like Patanjali
has resulted in earnings moderation.
In Private Banks, there has been a clear value migration from large corporate
oriented banks (ICICI, Axis) to Retail banks (HDFC, Kotak, Indusind, Yes). The
share of ICICI + Axis in overall Private Banks earning pool has come down from
68% in FY05 to 33% in FY17 and we expect it to stay there in FY19E.
Exhibit 15: Contribution of select sectors to MOSL earnings has gone up substantially over
FY05-FY16
CAGR Contribution of Tech, Healthcare, Pvt Banks to MOSL earnings (%)
FY05-15: 25%
FY15-17: 6%
34 31
27 29
23
17 17 18 19
14 15 15
12
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E
Source: MOSL
63 93 138 163 189 224 262 301 384 505 563 597 634
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E
Source: MOSL
April 2017 13
India Strategy | The Great Divide
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E
Source: MOSL
Exhibit 18: Even Private Banks earnings growth has come off over FY15-17
CAGR PAT (INR b) PAT Growth YoY (%)
FY05-15: 27%
FY15-17: 3% 46
32 406
45 26 28 28 27 409
20
15
11
34 6
-1 -1
50 63 92 102 130 172 220 280 335 385
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E
Exhibit 19: Value migration from Corporate oriented Private banks to Retail oriented ones
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
April 2017 14
India Strategy | The Great Divide
22.4
21.7
21.6
21.6
Margin LPA: 19.5%
21.3
21.1
20.0
20.0
20.2
19.8
19.9
19.1
21.6
18.9
18.4
18.8
19.8
18.7
18.3
18.4
20.8
20.8
18.1
20.0
19.4
18.8
18.6
18.6
18.8
18.7
3Q 18.3
4Q 18.5
3Q 18.2
1Q 18.1
3Q 18.0
3Q 18.0
1Q
2Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
4Q
1Q
2Q
4Q
2Q
3Q
4Q
1Q
2Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4QE
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Exhibit 21: PAT margins to contract after seven consecutive quarters of expansion
14.0
MOSL Universe
12.6
10.9
11.1
10.9
10.9
10.6
10.4
10.4
12.5
12.4
9.9
9.9
9.9
12.0
11.8
11.4
11.7
11.5
11.3
10.4
10.1
10.3
10.1
10.1
10.4
10.1
10.0
9.8
9.7
9.6
9.4
9.6
9.2
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Exhibit 22: Auto EBITDA margin (%) Exhibit 23: Consumer EBITDA margin Exhibit 24: Cement EBITDA margin
16.9
23.3
26.8
23.1
22.9
22.8
22.7
22.6
22.5
15.3
22.2
14.7
14.5
25.4
25.125.1
14.0
13.9
13.7
21.3
13.5
24.5 24.3
13.1
13.1
20.9
20.7
20.5
12.9
23.923.9
11.8
23.223.523.1
20.0
23.3
11.0
22.9
Jun-14
Jun-15
Jun-16
Jun-14
Jun-15
Jun-16
Jun-14
Jun-15
Jun-16
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17E
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17E
Mar-17E
April 2017 15
India Strategy | The Great Divide
teething troubles in the initial stages of implementation. This could impact our
earnings estimates or FY18.
Apart from these big policy reforms, we also note that several other policy
changes viz. Ban on selling of liquor within 500m of proximity of state and
national highways, judicial pronouncements pertaining to BS-III to BS-IV
switchover for Auto sector have also added to element of uncertainty in
earnings forecast.
Exogenous factors like progress of monsoons bring in their own set of unique
challenges.
Overall, the pace, frequency and magnitude of policy changes have clouded the
earnings predictability at the margin.
32
15 14 13 12 10 7
6 3 2 1 0 18
6 3 1 1 1 0 0
-1 -3
-11
-24 0 -1 -1 -1 -1
-35 -10 -15
Healthcare
Capital Goods
Healthcare
Utilities
NBFC
Utilities
Capital Goods
Banks-PSU
NBFC
Others
Telecom
Others
Metals
Banks-PSU
Metals
Telecom
Consumer
Consumer
Logistics
Technology
Cement
Logistics
Cement
Banks-Pvt
Media
Banks-Pvt
Technology
Media
Automobiles
Automobiles
Oil & Gas
Retail
Retail
April 2017 16
India Strategy | The Great Divide
Exhibit 26: Cyclical growth expected to significantly exceed MOSL Universe average growth in 2HFY17
60 1HFY17 PAT growth (%) LP 2HFY17 PAT growth (%)
43 539
30 29
21
14 12 7
7 6 5 4 2
47 25 20 13 5 3 3 1 0
-2
-10 -1 -3 -8 -13 -18 -31
-21 -27 -77
-34
Utilities
Capital Goods
Healthcare
Capital Goods
Healthcare
Telecom
Metals
Banks-PSU
Banks-PSU
Metals
NBFC
Utilities
Telecom
NBFC
Others
Others
Logistics
Cement
Consumer
Consumer
Logistics
Technology
Banks-Pvt
Media
Automobiles
Cement
Banks-Pvt
Technology
Media
Automobiles
MOSL
MOSL
Oil & Gas
Oil & Gas
Retail
Retail
Source: MOSL Source: MOSL
58 29 15 7 5 3 3 1 0
180 -0 -3 -4 -4 -9 -24 -34
803
1,028
PSU Banks
Capital Goods
Healthcare
NBFC
Utilities
Metals
Others
Telecom
PVT Banks
Consumer
Logistics
Media
Cement
Technology
Auto
MOSL 4QFY16
MOSL 4QFY17E
Oil & Gas
Retail
PAT (INRb)
PAT (INRb)
Source: MOSL
April 2017 17
India Strategy | The Great Divide
Share of defensives comes off further; Global cyclicals contribution keeps inching up
Exhibit 28: PAT share of global cyclicals to see sharp sequential pick-up
100%
Defensives
33 27 24 28
36 39 40 39 38 34
75%
Global cyclicals 30
25 33 40 43 38 34 27
50% 34 26 25 26 23
Domestic cyclicals 34 38 35 35
25%
42 38 35 36 36 38 35
33 34
0%
June-09
June-10
June-11
June-12
June-13
June-14
June-15
June-16
Mar-09
Sep-09
Dec-09
Mar-10
Sep-10
Dec-10
Mar-11
Sep-11
Dec-11
Mar-12
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17E
Defensives includes Consumer, Healthcare, Technology, Telecom and Utilities
Global cyclicals includes Metals, Oil & Gas and JLR
Domestic cyclicals includes Automobiles, Banks, Capital Goods, Cement, Media, NBFCs, Real Estate and Retail
-1 0
-4 -6 -6 -5
-8 -9
-12
1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
April 2017 18
India Strategy | The Great Divide
Exhibit 30: 4QFY17 Nifty PAT to grow 10% YoY, second consecutive quarter of double-digit growth
65
38 36
34 29 LPA: 11%
22 21 27 24 24
20 16 16 19 20
13 12 11 19 16 10 12 11
7 10 10
4 5 5 9 9
0 2 4 1 1 0 3
-1 0 -5
-7 -8 -5 -7
-15 -12
-20
1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Exhibit 31: 4QFY17 Nifty EBIDTA to grow muted 2% YoY, lowest in six quarters
47
35 37
31 LPA: 12%
25 26 29
20 21 20
17 17 17 16 15 18 18 15 13 17
13 10 13 10 11 13 11 6 13 8 9 10
5 6 3 4 5 3 0 3
1 2
-4 -2
-5 -5
-8 -10
1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Healthcare
Nifty
NBFC
Telecom
Banks-PSU
Metals
Consumer
Media
Technology
Cement
Auto
Banks-Pvt
Cap Goods
Oil & Gas
Infra
April 2017 19
India Strategy | The Great Divide
April 2017 20
India Strategy | The Great Divide
April 2017 21
India Strategy | The Great Divide
April 2017 22
India Strategy | The Great Divide
Private Banks Mixed picture expected with sustained 10.6 0.5 17.9 -8.5 Prefer YES and ICICIBC
earnings pressure at corporate lenders like among corporate lenders;
ICICIBC and AXSB (led by asset quality strain) KMB and IIB top picks among
and sustained growth trajectory at lenders retail lenders.
like YES, IIB and RBL. Loan growth is yet to
April 2017 23
India Strategy | The Great Divide
Healthcare With respect to the US market, Glenmark 8.1 12.2 6.2 0.9 GNP (+ve; gFTF launch
(GNP) is expected to exhibit strong growth, should help drive growth and
led by Zetia FTF and series of other generic margins).
launches.
Sun should continue to see sequential decline ARBP (+ve; should report
in the US business on the back of competition double-digit growth in the
in key products. Aurobindo (ARBP) should US, despite key launches
report stable US sales on the back of key getting deferred and pricing
launches, including Crestor. pressure).
Healthcare companies should continue to Sun (-ve; should report
witness impact of demonetization (albeit sequential decline in US sales
impact should be lower) in 4QFY17. on the back of competition in
key products).
Logistics EXIM originating container rail volume was -0.5 23.1 13.7 2.9 Concor and GDL would
up ~2% YoY in January-February 2017, report good volume growth
indicating positive volume growth for the on YoY basis due to higher
quarter. We expect overall container rail transhipment volumes.
volumes for 4QFY17 to grow by 2% YoY and
expect margins to remain flat QoQ.
April 2017 24
India Strategy | The Great Divide
Media We expect our universe ad revenue to grow 2.0 6.3 -31.1 1.2 Zee Ent: 13%/17%
at a meager ~3% YoY, lower than 7-13% in ad/domestic subscription
the preceding four to five quarters. The CAGR over FY16-19E.
recovery is expected to be slower for print 19% EPS CAGR (adjusted for
companies given higher reliance on preference dividend) over
local/retail advertisers FY16-19.
Within broadcasters, Zees ad growth is
expected to moderate to ~2% YoY after four
quarters of strong ad revenues (ex 3Q). The
sluggish performance is likely to be a function
of (1) slower-than- expected recovery from
demonetization, and (2) one month impact
on ad revenue from sports biz sale to Sony.
Like-to-like ad growth is estimated to be ~4%.
SUN TVs ad recovery too is expected to be
gradual.
Full recovery from demonetization could be
expected by 1QFY18.
DTH companies are expected take a hit in
fresh seeding, as demonetization hangover
continues. This coupled with a seasonally
weak quarter is expected to keep
subscription revenue growth subdued.
ARPU is expected to be flat QoQ for Dish TV
and net additions are estimated at 230k.
One can expect cable companies to step up
their seeding rates from 1H levels, as the
Delhi HC has quashed all stay orders
pertaining to DAS-III implementation. Phase-
III monetization remains a key concern for all
stakeholders. Monetization is expected to
improve in 4QFY17.
Metals Expect across-the-board increase in 27.7 103.3 175.9 7.1 Nalcos EBITDA is likely to
commodity prices. Aluminum/zinc/lead almost double QoQ to
average LME up 8/11/6%. ~INR5b on higher aluminum
and alumina prices, and
alumina volumes.
EBITDA for our coverage universe is expected Tata Steels EBITDA is likely
to increase 17% QoQ (1.7x YoY) on higher to increase 31% QoQ to
realization and volume increase. INR46b on higher margins in
EU and India volumes.
Nalco, Tata Steel and Vedanta should report Vedanta should report 23%
strong performance. QoQ EBITDA increase, led by
strong volume and price
growth in zinc and
aluminum.
Oil & Gas Singapore complex GRM declined to 27.9 25.2 15.7 -0.3 BPCL, HPCL and IOCL (+ve).
USD6.4/bbl in 4QFY17 from USD6.7/bbl in
3QFY17 and USD7.7/bbl in 4QFY16. Reported
refining earnings are likely to decline QoQ, as
inventory gains had boosted 3Q earnings.
April 2017 25
India Strategy | The Great Divide
April 2017 26
India Strategy | The Great Divide
April 2017 27
India Strategy | The Great Divide
April 17 28
India Strategy | The Great Divide
FY17 to be another year of flat Sensex EPS; several sectors to report multi-
year low earnings growth
The 1HFY17 positive narrative for FY17 (normal monsoon, 7th Pay Commission
awards, softening interest rates) was marred by demonetization in 2HFY17.
This is reflected in our earnings estimates for FY17. Post demonetization, we
now expect another flat year of Sensex EPS down 1% YoY v/s 14% YoY growth
prediction we began with.
Several sectors are expected to report multi-year low earnings growth in FY17
Autos, Consumer, Private Banks, Telecom, Technology and Utilities. Technology,
Utilities and Telecom are impacted by sector-specific issues, while deceleration
in earnings growth for Autos, Consumer and Private Banks can be largely
attributed to demonetization.
Exhibit 35: Sensex EPS expect rebound in FY17-19 with 21% CAGR (v/s 5% CAGR during FY08-17)
FY17-19E: 21%
FY93-FY17: 21% CAGR 1,904
12% CAGR FY08-17: 20%
5% CAGR -1% 1,572
FY01-08: 1,330 1,351 1,324 1,309
21% CAGR 1,111 1,180
1,024
833 820 834
720
540
361 446
216 236 272
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
E
E
Exhibit 36: Nifty EPS expect rebound in FY17-19 with 20% CAGR (v/s 4% CAGR during FY08-17)
FY17-19E:
20% CAGR 20%
20%
FY08-17: 599
4% CAGR 498
6%
FY01-08: 404 413 394 417
349 369
21% CAGR 315
281 251
236 247
169 184
131
73 78 92
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
April 17 29
India Strategy | The Great Divide
Exhibit 37: Top Sensex companies EPS upgrade/downgrade since 3QFY17 review (%)
Company FY17 Company FY18
Tata Steel 8.6 Reliance Ind. 5.5
Power Grid 6.8 Adani Ports 3.9
Adani Ports 1.8 Power Grid 3.9
M&M 1.7 HDFC Bank -2.3
Asian Paints 1.3 Hero Moto -2.9
Cipla -1.5 Bajaj Auto -3.6
Hero Moto -1.7 Axis Bank -4.5
Axis Bank -1.8 Sun Pharma -7.3
Bajaj Auto -1.9 Cipla -8.8
Dr Reddys -2.1 Tata Steel -10.1
Bharti -2.5 Dr Reddys -14.3
TCS -2.8 Tata Motors -17.0
ONGC -3.0 SBI -21.7
GAIL -9.2 ONGC -23.4
Tata Motors -9.7 Bharti -35.5
Estimate Nifty PAT CAGR at 20%, sales CAGR at 13% over FY17-19
Around 50% of the Nifty universe is expected to post 20%+ PAT CAGR over FY17-
19.
Only IOCL and Bharti Airtel are expected to report negative PAT CAGR over
FY17-19.
EBITDA margin for the Nifty is expected to contract 20bps YoY to 22.8% for FY18
and expand 40bp to 23.2% in FY19. PAT margin is likely to expand 50bp in FY18
to 11.1% and another 60bp in FY19 to 11.7%.
April 17 30
India Strategy | The Great Divide
April 17 31
NIFTY FY17E NIFTY FY16 2892
3111
April 17
SBI IOC
11471
Tata Motors BOB
64 61 51
ONGC Maruti
Reliance Ind. HCL Tech.
BOB HDFC Bank
HDFC Bank Power Grid 30 24 22 20
42 26 26 24
Axis Bank Reliance Ind.
NTPC Sun Pharma
Tata Steel TCS
TCS GAIL
Maruti Kotak Mah. Bk
Coal India Hindalco
Sun Pharma Tata Steel
Power Grid Grasim
Hindalco L&T
GAIL Yes Bank
20 20 18 16 16 13 13 13 12 12
ITC ITC
Kotak Mah. Bk Adani Ports
19 18 17 14 14 13 11 9 8 8 8 7 7
Infosys Infosys
Wipro Bharti Infratel
L&T IndusInd Bk
HCL Tech. Indiabulls HSG
Exhibit 40: Nifty stock absolute FY18E PAT change (INR b)
Exhibit 39: Nifty stock absolute FY17E PAT change (INR b)
Grasim Lupin
M&M M&M
Ultratech Tata Power
HDFC Aurobindo
Lupin ICICI Bank
Yes Bank Ultratech
Eicher Mot. Eicher Mot.
Indiabulls HSG Zee Ent.
Bajaj Auto HDFC
IndusInd Bk Hero Moto
Bosch Asian Paints
Dr Reddys Ambuja Cem
HUL BPCL
Aurobindo Bajaj Auto
6 6 6 5 5 4 4 3 3 3 3 3 3 2 1 1 1 0
Cipla Bosch
ICICI Bank Cipla
Tech Mah. Tech Mah.
Tata Power Bharti Airtel
Hero Moto NTPC
ACC Wipro
Bharti Infratel Dr Reddys
Asian Paints ONGC
1 1 1 2 3 4 8 101837
3 3 3 3 2 2 2 0
32
India Strategy | The Great Divide
India Strategy | The Great Divide
Exhibit 41: Over FY07-17, Indian markets recorded CAGR of Exhibit 42: Nifty QoQ change (%) highest return since June
9.2% in local currency terms and 4.9% in USD terms 2014
12 24 -36 74 11 -9 7 18 27 -9 19 QoQ Return (%)
15 34 -50 96 12 -21 0 7 22 -14 21
15
14 12
CAGR in INR: 9.2%
Trend in Nifty 10
CAGR in USD: 4.9% 8
9,174
7
8,491
6 5
7,738
4 4 3 4
3
6,704
5,834
5,683
5,296
5,249
4,735
0 0
3,822
-1
3,021
-2 -3
-4 -5 -5
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Jun-12
Jun-14
Jun-15
Jun-16
June-13
Mar-12
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17
April 17 33
India Strategy | The Great Divide
Exhibit 43: World equity indices (FY17) local currency (%) Exhibit 44: World equity indices (FY17) USD (%)
Brazil 30 Brazil 48
UK 19 Russia MICEX 25
Japan 13 Japan 14
Russia MICEX 5 UK 3
Exhibit 45: MSCI EM performance at par with MSCI India over Exhibit 46: MSCI India outperformed MSCI EM by 104% in last
12 months five years
MSCI India Rebased MSCI EM Rebased MSCI India Rebased MSCI EM Rebased
122 230
10 Year CAGR: 5 Year CAGR: 207
115 MSCI India: 7.5% MSCI India: 9.8%
114 185
MSCI EM: 0.3% MSCI EM: -1.6%
115
106 140
103
98 95
90 50
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Mar-17
Sep-16
Jan-17
Feb-17
Oct-16
April 2017 34
India Strategy | The Great Divide
Utilities
Nifty 50
Healthcare
NBFC
Midcap 100
Telecom
Pvt - Banks
Oil
Cement
Auto
Consumer
Media
Real Estate
Cap Goods
Technology
PSU - Banks
Exhibit 48: Sectoral performanceabsolute and relative to Nifty (%) Metal, PSU Banks, Media, Oil top performers
MoM Abs. Performance (%) FY17 Relative to Nifty MoM Performance (%) FY17
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Chg Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Chg
Sector
16 16 16 16 16 16 16 16 16 17 17 17 (%) 16 16 16 16 16 16 16 16 16 17 17 17 (%)
Metal 6 0 7 10 6 -2 6 3 -5 15 2 -1 57 4 -4 6 6 4 0 6 8 -5 11 -2 -4 38
Banks - PSU 0 3 9 6 9 2 1 0 -6 8 4 8 54 -2 0 8 1 7 4 1 5 -6 4 0 4 36
Media 5 5 2 11 7 2 0 -13 1 7 12 7 54 3 1 0 7 6 4 0 -8 1 3 9 4 36
Oil 2 0 4 9 5 3 8 -3 2 6 5 0 48 1 -4 3 5 3 5 8 2 2 1 2 -3 30
NBFC 1 10 2 11 5 -1 0 -7 -3 7 1 11 41 -1 6 0 6 3 1 0 -3 -2 3 -2 7 22
Nifty
Midcap100 3 1 4 7 4 0 3 -6 -4 7 7 4 35 2 -3 2 3 2 2 3 -2 -3 3 3 1 16
Real Estate 10 5 8 5 -4 -2 3 -18 -1 8 9 7 30 9 1 6 1 -6 0 3 -13 -1 4 5 4 12
Utilities 4 1 7 4 1 -5 1 1 -2 9 1 4 28 3 -3 5 0 -1 -3 1 6 -2 4 -2 0 10
CapGoods 3 10 3 4 -2 -4 2 -6 -3 8 4 7 28 1 6 1 0 -3 -2 2 -1 -2 4 0 4 9
Cement 0 4 8 7 10 -4 0 -11 -5 11 3 5 27 -1 0 6 3 8 -2 0 -6 -5 6 -1 1 8
Banks - Pvt 5 5 0 5 4 -3 1 -5 -2 6 6 3 27 3 1 -1 1 2 -1 1 0 -2 2 2 0 8
Auto 3 5 2 7 4 1 0 -9 1 8 -1 2 22 1 1 0 3 3 3 0 -5 1 3 -5 -1 4
Consumer 0 5 5 3 1 -4 1 -5 1 5 3 5 21 -1 1 4 -1 -1 -2 0 -1 1 1 -1 2 2
Healthcare 3 -2 2 5 -1 0 2 -4 -6 0 4 0 1 1 -6 0 1 -3 2 2 0 -6 -4 0 -4 -17
Telecom 5 -4 2 -1 -8 -8 1 0 -6 19 5 -9 -6 4 -8 0 -5 -10 -6 0 5 -5 15 2 -12 -25
Technology -1 2 -3 -3 -3 -2 -2 -2 3 -6 8 0 -9 -2 -2 -5 -8 -5 0 -2 3 4 -10 5 -3 -28
Nifty Chg 1 4 2 4 2 -2 0 -5 0 5 4 3 19
Source: Company, MOSL
April 2017 35
Biocon 135 Hindalco 122
Sun TV 113 IOC 97
JSPL 101
April 2017
Yes Bank 79
Century Text 99 Maruti 62
Federal Bk 98 Indiabulls Hsg 54
L&T Fin. 94 Tata Steel 51
Tata Comm 90 SBI 51
Aditya Bir. Nuv. 85 IndusInd Bk 46
IGL 78 BPCL 44
CESC 78 Power Grid 42
Engineers India 70 GAIL 41
Reliance Cap 67 Tata Power 40
Canara Bk 64 Zee Ent 38
Tata Chem 60 Adani Ports 37
Exide Inds 60 Grasim Ind. 37
MRF 58 HDFC 36
Voltas 49 HDFC Bank 35
Adani Ent. 47 Eicher Motors 34
Arvind 44 L&T 30
BOI 44 ONGC 29
Godrej Ind. 42 NTPC 29
Midcap 50
37
ITC 28
GMR Infra 37 Kotak Mah.Bk 28
IDFC 35 Reliance Ind. 26
TVS Motor 34 UltraTech 24
M&M Fin. 30 Asian Paints 23
Ajanta Pharma 25 Tata Motors 21
SRF 25 Nifty
19
Dish TV 24 BoB 18
Tata Global 24 ICICI Bank 17
IDFC Bank 23 Bajaj Auto 17
Page Inds 20 Cipla 16
Bharat Forge 19 Axis Bank 10
Apollo Tyres 19 Bosch 10
Union Bank 19 Hero Moto 10
Aurobindo (-9%) were the worst performers.
Rel. Comm-23
Maruti (+62%) and Indiabulls Hsg (+54%) were the top performers. Infosys
Infosys -16
36
Source: Company, MOSL
Century Textiles (+99%) and Federal Bank (+98%) were the top performers.
Mindtree (-31%), Wockhardt (-26%), Reliance Comm. (-23%), Jubilant Food (-13%),
Among the Nifty Midcap 50 stocks, Biocon (+135%), Sun TV (+113%), JSPL (+101%),
India Strategy | The Great Divide
India Strategy | The Great Divide
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
April 2017 37
India Strategy | The Great Divide
13 2.3
11.2 1.68
9 1.5
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Exhibit 55: 12-month forward Nifty RoE (%) Exhibit 56: Indias market cap to GDP (%)
20.5
Average of
103
95 78% for the
18.5 88
82 83 period 81 80
10 Year 71 69
16.5 64 66
Avg: 15.7% 55
15.2
14.5
13.2
12.5
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
In FY17, mid-caps delivered 35% positive returns, as against 19% by the Nifty.
Also, over last five years, mid-caps have outperformed the Nifty by 50%.
Mid-caps now trade at just 1% premium to the Nifty on a P/E basis..
Exhibit 58: Mid-caps outperformed large-caps by 50% in last
Exhibit 57: Midcaps outperformed large caps in FY17 five years
Nifty Rebased Nifty Midcap 100 Rebased Nifty Rebased
235
142 5 Year CAGR: 223
135 195 Nifty: 11.6%
130 Midcap: 17.4% 173
155
118 119
106 115
94 75
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
April 2017 38
India Strategy | The Great Divide
Exhibit 59: Mid-caps v/s Nifty P/E (x) 12-month forward Exhibit 60: Mid-caps trading at 1% premium to Sensex
Midcap PE (x) Nifty PE (x) Midcap Vs Nifty PE Prem/(Disc) (%)
25.0 25
Nifty Avg: 17.5x
21.0 10
Midcap Avg: 16.5x 18.1 Average: -5%
18.3 1
17.0 -5
13.0 -20
9.0 -35
Apr-12
Aug-12
Apr-13
Dec-12
Aug-13
Apr-14
Dec-13
Aug-14
Apr-15
Dec-14
Aug-15
Apr-16
Dec-15
Aug-16
Apr-17
Dec-16
Apr-12
Aug-12
Apr-13
Dec-12
Aug-13
Apr-14
Dec-13
Aug-14
Apr-15
Dec-14
Aug-15
Apr-16
Dec-15
Aug-16
Apr-17
Dec-16
Sector valuations: Room for P/E expansion limited; surprise on earnings
growth crucial for further upside
PSU Banks trades at a 15% discount to historical average P/B. It was the second
best-performing sector in FY17 (+54% return), with large trading gains in 3Q
cushioning elevated stress additions for most PSU banks. However, with interest
rates inching up, trading gains are expected to moderate significantly in
comparison to 3QFY17. Sustained traction in large corporate deleveraging and a
reduction in net slippages are the key catalysts for re-rating.
Metals trade at a P/B of 1.4x, implying a 12% discount to historical average.
EV/EBITDA is at 6.8x, a 7% discount to historical average. The sector was the top
performer for FY17, with 57% positive return. Domestic steel long product prices
were higher, but flat product prices declined due to lower global steel prices.
Technology trades at a P/E of 15.2x, below its historical average (6% discount). It
was the worst performing sector in FY17, with 9% negative return. As the
4QFY17 earnings season gets closer, we note that the sharp INR appreciation
seen over last few weeks has started creating worries around margin sustenance
and consequent impact on earnings, offsetting any fizzing out of immediate
regulatory hurdles in the US.
Exhibit 61: Sector valuations - Snapshot
Relative to Nifty Relative to Nifty
PE (x) PB (x)
P/E (%) P/B (%)
Sector
Prem/Disc Prem/Disc
Current 10 Yr Avg Current 10 Yr Avg Current 10 Yr Avg Current 10 Yr Avg
(%) (%)
Auto 19.2 15.0 27.7 5 -13 3.5 3.0 16.0 29 17
Banks - Private 20.4 16.9 20.7 11 -1 2.7 2.2 22.9 0 -15
Banks - PSU 12.8 5.6 129.8 -30 -60 0.9 1.1 -14.6 -66 -59
NBFC 15.2 12.7 19.2 -17 -25 2.6 2.3 14.6 -4 -13
Capital Goods 30.8 26.7 15.2 68 53 3.2 4.1 -22.4 15 51
Cement 25.5 17.8 43.2 40 4 3.1 2.3 32.0 12 -12
Consumer 36.9 29.6 24.8 102 76 11.0 9.7 13.2 302 279
Healthcare 21.6 22.0 -2.0 18 30 3.9 4.1 -3.2 44 57
Media 27.2 22.5 20.7 49 33 6.1 4.4 39.3 124 68
Metals 13.0 12.2 6.6 -29 -28 1.4 1.6 -11.9 -49 -41
Oil & Gas 12.1 11.9 1.3 -34 -28 1.6 1.7 -0.6 -40 -37
Retail 46.9 32.5 44.2 157 92 9.1 9.2 -1.6 232 256
Technology 15.2 16.1 -5.6 -17 -4 3.6 4.3 -15.3 32 63
Telecom Loss 22.4 - - 42 2.1 2.7 -22.7 -23 4
Utilities 11.5 14.8 -22.5 -37 -10 1.5 1.8 -19.3 -46 -29
April 2017 39
India Strategy | The Great Divide
April 2017 40
India Strategy | The Great Divide
April 2017 41
India Strategy | The Great Divide
MOSL Universe:
4QFY17 Highlights
&
Ready Reckoner
Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year
numbers. This is because of differences in classification of account heads in the companys quarterly and annual
results or because of differences in the way we classify account heads as opposed to the company.
All stock prices and indices as on 5 April 2017, unless otherwise stated.
April 2017 42
India Strategy | The Great Divide
21.2%
8.1%
2.9% 11.9%
2.0%
-2.2%
Jun-16 Sep-16 Dec-16 Mar-17E Jun-16 Sep-16 Dec-16 Mar-17E
Sectoral sales growth - quarter ended Mar-17 (%) Sectoral net profit growth - quarter ended Mar-17 (%)
28 28 LP
20 176
14 14
8 8 5 5 3 2 2 2 28 16 15 14
6 5 1
-1
-11 -5 -12 -22 -31 -32
-85
MOSL Univ
Utilities
Metals
Health Care
Telecom
Consumer
Logistics
Cap Goods
Technology
Cement
Auto
Media
Oil & Gas
Retail
Financials
MOSL Univ
Media
Health Care
Retail
Financials
Cap Goods
Cement
Auto
Telecom
Metals
Logistics
Consumer
Utilities
Technology
April 2017 43
India Strategy | The Great Divide
April 2017 44
India Strategy | The Great Divide
Capital Goods
ABB 1,323 Neutral 22,068 10.3 -11.4 2,130 35.6 -24.4 1,014 28.4 -30.9
Bharat Electronics 161 Buy 39,066 21.5 87.2 9,829 -1.6 103.6 8,001 -0.2 114.2
BHEL 171 Sell 129,461 29.4 104.7 14,391 295.6 542.9 10,756 194.3 1049.8
CG Consumer Elect. 220 Buy 10,843 8.3 22.0 1,368 7.6 37.8 809 6.6 41.0
CG Power & Indl. 80 Sell 11,575 2.5 -0.2 674 -24.9 -12.1 257 -77.1 -66.0
Cummins India 968 Neutral 12,606 18.8 -7.0 2,093 18.0 -7.6 1,857 11.2 -6.3
GE T&D India 335 Neutral 11,064 13.9 -4.8 1,119 31.7 55.1 531 77.7 19.8
Havells India 469 Neutral 15,896 7.7 5.5 1,819 -17.1 -4.6 1,255 -23.4 -5.3
Larsen & Toubro 1,697 Buy 370,729 11.8 41.0 44,146 -9.1 75.0 23,974 -0.3 146.5
Siemens 1,308 Neutral 26,750 -3.9 16.6 3,450 12.7 47.6 2,552 43.8 59.5
Thermax 987 Sell 12,847 -0.7 57.9 1,234 4.4 53.0 1,063 -4.5 87.6
Voltas 415 Neutral 19,305 2.2 63.5 1,922 3.7 116.0 1,416 -4.6 73.7
Sector Aggregate 682,210 13.7 43.5 84,175 9.5 83.8 53,483 15.3 123.6
Cement
ACC 1,467 Neutral 30,899 5.6 15.8 2,172 -41.2 13.4 749 -67.7 -17.8
Ambuja Cements 239 Buy 25,594 5.8 16.5 3,218 -24.0 9.2 2,122 -26.5 14.3
Dalmia Bharat 2,062 Buy 18,518 -1.5 7.4 3,904 -13.1 -4.0 614 -35.3 72.0
Grasim Industries 1,067 Neutral 23,980 -4.3 -3.9 4,832 12.4 -5.6 2,492 19.5 -24.8
India Cements 163 Neutral 12,544 9.4 -1.1 1,344 -36.4 -28.7 56 -89.0 -84.1
Ramco Cements 671 Buy 9,961 1.8 6.3 2,659 -14.0 -1.1 1,485 -27.3 -0.9
Shree Cement 17,332 Buy 22,138 9.7 20.1 4,340 -14.1 -7.4 2,288 2.4 -3.7
Ultratech Cement 4,071 Buy 63,927 -0.7 15.4 10,601 -17.5 1.5 5,737 -15.8 1.8
Sector Aggregate 207,560 2.2 11.2 33,070 -17.0 -2.0 15,543 -21.7 -4.6
Consumer
Asian Paints 1,080 Neutral 38,177 4.0 -3.0 7,159 2.7 -7.8 4,891 17.2 4.9
Britannia 3,372 Buy 22,657 7.3 0.0 2,575 -4.2 -12.8 1,924 -3.3 -12.7
Colgate 1,001 Buy 10,057 3.5 16.3 2,620 5.0 22.4 1,567 -17.3 24.5
Dabur 284 Neutral 20,242 2.2 9.6 4,092 -0.5 24.5 3,406 2.7 16.0
Emami 1,038 Buy 5,898 -2.1 -18.8 1,787 -2.9 -30.9 992 -35.6 -51.5
Godrej Consumer 1,701 Neutral 24,452 10.7 2.2 5,040 10.8 -0.5 3,401 6.3 -2.5
GSK Consumer 5,181 Neutral 11,283 -1.3 31.1 2,424 -3.5 44.5 1,666 -1.8 22.1
Hind. Unilever 935 Neutral 80,680 4.5 4.7 14,567 -0.9 7.5 11,025 -1.0 19.9
ITC 279 Buy 98,798 1.3 6.8 36,038 -0.1 1.6 25,781 8.4 -2.6
April 2017 45
India Strategy | The Great Divide
Healthcare
Alembic Pharma 625 Neutral 7,949 27.1 3.2 1,519 6.8 5.1 970 6.5 12.6
Alkem Lab 2,207 Neutral 14,035 22.8 -5.3 2,492 57.7 -7.1 1,936 22.8 -17.0
Ajanta Pharma 1,723 Buy 4,720 10.9 -11.5 1,595 13.5 -10.4 1,163 8.2 -18.4
Aurobindo Pharma 678 Buy 38,463 2.7 -1.5 8,966 1.6 0.2 5,785 3.7 2.6
Biocon 1,122 Sell 10,017 6.0 -2.7 2,440 31.7 -6.5 1,590 114.3 -7.0
Cadila Health 449 Buy 25,075 2.4 8.5 5,043 -13.3 24.7 3,379 -12.9 20.0
Cipla 593 Neutral 38,060 16.5 4.4 7,191 62.7 6.1 3,661 20.4 -2.3
Divis Labs 632 Neutral 11,030 0.9 14.9 3,836 -3.1 1.6 2,891 -10.3 7.8
Dr Reddy s Labs 2,736 Neutral 37,574 0.0 1.4 8,567 3.9 0.5 4,650 23.6 -1.1
Fortis Health 190 Buy 11,771 8.2 3.9 1,245 LP 10.8 402 LP -21.8
Glenmark Pharma 877 Neutral 30,012 38.0 21.9 9,890 406.8 42.7 6,154 313.7 29.0
Granules India 142 Buy 3,466 -6.9 -3.6 721 -8.0 -5.5 364 9.6 -6.7
GSK Pharma 2,738 Neutral 7,292 6.3 5.8 1,033 -15.3 194.9 881 -1.9 151.3
IPCA Labs. 647 Neutral 7,946 27.2 7.4 1,172 84.6 6.2 515 27.1 13.6
Lupin 1,453 Buy 45,350 8.7 1.2 11,409 -12.6 -6.2 6,345 -15.2 0.2
Sanofi India 4,755 Buy 6,020 10.6 1.7 1,327 2.8 23.7 798 -1.0 58.1
Sun Pharma 691 Buy 78,110 2.3 -1.3 24,815 -1.5 1.2 14,613 -14.7 -0.7
Torrent Pharma 1,477 Buy 14,998 0.1 6.1 3,440 -28.9 8.9 2,294 -35.7 0.2
Sector Aggregate 391,889 8.1 2.8 96,699 12.2 5.4 58,392 6.2 3.8
Logistics
Allcargo Logistics 179 Buy 13,809 -1.2 -1.7 1,106 -9.1 11.4 466 -32.6 -5.2
Concor 1,012 Neutral 13,919 -1.6 4.6 2,952 49.5 13.0 2,016 43.0 8.4
Gateway Distriparks 255 Buy 2,820 9.5 -1.9 569 0.0 -3.0 208 -21.5 -16.1
Sector Aggregate 30,549 -0.5 1.0 4,627 23.1 10.4 2,689 13.7 3.5
Media
D B Corp 391 Buy 5,399 5.0 -13.9 1,197 4.8 -39.6 646 0.5 -45.3
Dish TV 103 Buy 7,540 -5.7 0.8 2,441 -6.4 -2.2 164 -96.6 -38.5
HT Media 85 Neutral 6,718 6.5 3.4 1,037 48.7 -6.2 406 8.0 -55.5
Jagran Prakashan 185 Buy 4,865 10.0 -2.8 1,336 18.8 -13.8 738 21.6 -17.2
PVR 1,520 Buy 4,580 11.0 -14.8 517 11.4 -41.8 12 LP -94.8
Siti Networks 38 Neutral 3,103 -13.0 4.0 693 -27.2 26.0 -299 PL Loss
Sun TV 796 Neutral 6,125 7.3 3.9 4,557 6.8 3.6 2,457 4.1 2.3
Zee Entertainment 543 Buy 15,326 0.1 -6.5 4,589 10.9 -11.0 3,867 48.4 54.2
Sector Aggregate 53,656 2.0 -4.0 16,367 6.3 -9.7 7,990 -31.1 -1.8
Metals
Hindalco 198 Buy 272,750 10.9 10.9 31,821 2.6 7.2 9,995 -2.7 36.4
Hindustan Zinc 291 Neutral 61,059 94.9 22.6 35,844 174.0 28.8 29,026 35.0 25.1
JSPL 124 Buy 63,061 24.1 13.0 15,105 68.5 18.3 -4,363 Loss Loss
April 2017 46
India Strategy | The Great Divide
Retail
Jubilant Foodworks 1,094 Neutral 6,693 8.3 1.6 647 -9.2 1.1 206 -26.0 3.1
Titan Company 491 Neutral 30,044 23.3 -22.4 2,667 36.2 -24.4 1,717 -9.4 -33.0
Sector Aggregate 36,737 20.2 -18.9 3,314 24.1 -20.5 1,923 -11.5 -30.4
Technology
Cyient 488 Buy 9,342 14.5 1.9 1,200 12.9 -2.2 816 -3.3 -13.2
HCL Technologies 853 Buy 120,518 12.7 2.0 26,386 10.9 0.4 19,706 2.4 -4.8
Hexaware Tech. 215 Neutral 9,323 13.7 -0.9 1,541 29.1 -5.1 1,086 29.0 -10.7
Infosys 995 Buy 172,489 4.2 -0.1 46,775 0.8 -1.9 34,218 -4.9 -7.7
KPIT Tech. 131 Neutral 8,284 -1.5 -0.3 830 -37.1 -1.9 451 -49.0 -5.0
L&T Infotech 716 Buy 16,605 4.2 -0.4 3,035 -5.3 0.5 2,219 -16.1 -10.5
Mindtree 455 Neutral 12,937 -2.3 -0.1 1,733 -23.3 -0.4 972 -37.7 -5.8
MphasiS 569 Neutral 15,064 -0.6 -1.9 2,315 -1.2 -3.4 1,973 2.7 -3.5
NIIT Tech. 432 Neutral 6,982 2.0 0.9 1,219 -3.3 4.4 667 -15.6 -7.4
Persistent Systems 581 Neutral 7,362 8.7 -1.3 1,116 3.9 -6.0 706 -12.6 -13.8
Tata Elxsi 1,507 Buy 3,380 15.0 9.3 794 18.3 7.5 501 22.0 9.3
TCS 2,403 Neutral 299,935 5.4 0.9 81,880 3.6 -0.5 61,965 -2.3 -8.6
Tech Mahindra 447 Buy 75,399 9.5 -0.2 11,605 0.8 -2.2 7,302 -14.9 -14.7
Wipro 511 Neutral 136,157 -0.1 -0.5 27,160 -3.2 -2.6 18,983 -15.1 -10.0
Zensar Tech 926 Buy 8,037 7.7 1.5 1,176 27.6 7.9 684 -2.7 -15.7
Sector Aggregate 901,814 5.4 0.4 208,767 2.3 -1.1 152,248 -5.4 -8.4
Telecom
Bharti Airtel 345 Buy 222,371 -10.9 -4.7 76,193 -16.4 -10.2 6,772 -54.7 17.3
Bharti Infratel 338 Buy 35,043 10.1 3.0 15,246 5.2 3.0 7,230 0.6 16.5
Idea Cellular 88 Buy 80,803 -14.8 -6.7 18,512 -48.8 -14.5 -9,919 PL Loss
Tata Comm 727 Buy 44,554 -13.4 2.2 6,254 -22.9 9.9 174 -33.4 2248.8
Sector Aggregate 382,772 -10.5 -3.7 116,206 -22.5 -8.5 4,257 -84.9 -47.7
April 2017 47
India Strategy | The Great Divide
Others
Arvind 407 Buy 24,889 7.3 6.6 2,987 0.7 26.0 1,287 16.6 66.0
Bata India 565 Buy 5,556 2.0 -13.3 611 10.4 -19.3 348 25.0 -41.4
Castrol India 428 Buy 8,619 1.2 10.6 2,569 2.1 18.7 1,752 1.6 12.4
Coromandel International 315 UR 30,511 1.0 34.4 2,471 23.3 4.2 1,286 38.8 14.7
Delta Corp 203 Buy 1,109 8.0 7.1 360 1.6 15.1 152 -5.6 45.4
Indo Count Inds. 199 Buy 5,460 4.0 8.6 1,174 0.9 15.2 669 1.4 19.1
Info Edge 837 Buy 1,996 -2.2 7.3 541 -13.2 15.0 516 -9.8 9.5
Inox Leisure 294 Sell 2,729 8.6 -8.4 177 17.7 -44.0 -76 PL PL
Interglobe Aviation 1,044 Neutral 49,477 20.9 0.1 10,835 -28.0 -22.5 1,854 -68.0 -61.9
Just Dial 555 Buy 1,931 7.5 7.1 292 -35.2 13.3 244 -31.1 -11.2
Kaveri Seed 555 Buy 482 10.0 -29.0 -29 Loss PL -36 Loss PL
MCX 1,186 Buy 574 3.3 -9.5 128 -6.6 -9.3 296 3.0 -12.8
Manpasand Beverages 717 Buy 3,272 42.0 219.3 605 41.4 195.0 430 68.2 493.8
Navneet Education 153 Buy 2,026 10.0 29.4 243 0.0 19.9 130 7.3 2.9
P I Industries 833 Buy 6,064 3.7 24.3 1,300 21.2 25.8 935 0.1 -0.5
SRF 1,655 Buy 12,354 10.8 9.0 2,533 13.5 9.3 1,161 11.4 7.2
S H Kelkar 298 Buy 2,844 7.0 22.6 483 7.8 22.3 302 16.6 19.0
TTK Prestige 6,066 Neutral 3,714 20.7 -20.5 390 15.6 -29.7 241 11.3 -30.6
Sector Aggregate 163,608 10.0 9.4 27,671 -9.8 -4.3 11,491 -22.2 -15.3
PL: Profit to Loss; LP: Loss to Profit; UR: Under Review
April 2017 48
India Strategy | The Great Divide
April 2017 49
India Strategy | The Great Divide
Capital Goods
ABB 1,323 Neutral 18.4 26.1 32.6 71.8 50.7 40.6 36.1 25.6 21.2 11.9 14.4 15.9
Bharat Electronics 161 Buy 6.5 7.3 8.5 25.0 22.1 19.0 17.7 16.0 13.5 20.4 18.8 19.1
BHEL 171 Sell 5.5 5.7 5.8 30.9 29.9 29.5 16.6 13.3 15.1 4.0 4.0 4.0
CG Consumer Elect. 220 Buy 4.6 5.5 6.7 48.3 40.3 32.6 29.3 25.2 20.8 94.3 73.3 66.1
CG Power & Indl. 80 Sell 3.6 3.9 4.5 22.0 20.6 18.0 18.3 13.6 12.4 5.4 5.5 6.0
Cummins India 968 Neutral 26.6 30.5 36.5 36.3 31.8 26.5 32.4 27.1 22.1 22.6 23.2 25.3
GE T&D India 335 Neutral 6.0 11.0 11.4 55.7 30.3 29.5 39.5 17.2 15.4 11.7 20.7 19.2
Havells India 469 Neutral 8.9 12.1 14.1 52.5 38.9 33.2 36.9 24.6 20.7 20.3 24.6 25.1
Inox Wind 183 Neutral 17.5 16.6 17.7 10.5 11.0 10.3 7.0 7.8 7.1 19.2 15.7 14.6
K E C International 219 Buy 10.5 12.3 13.5 20.9 17.9 16.2 10.1 8.8 7.9 16.6 16.8 16.2
Larsen & Toubro 1,697 Buy 53.6 63.6 74.4 31.7 26.7 22.8 21.7 16.7 15.1 10.9 11.9 12.7
Siemens 1,308 Neutral 17.0 25.7 33.5 76.9 50.9 39.0 44.1 33.6 26.1 9.2 11.9 14.2
Solar Inds. 814 Neutral 19.0 22.3 26.5 42.8 36.5 30.7 23.1 19.9 16.9 18.4 18.6 19.0
Thermax 987 Sell 23.5 28.4 31.5 41.9 34.8 31.3 28.1 22.2 19.4 11.6 12.9 13.2
Va Tech Wabag 695 Buy 26.5 34.5 40.3 26.3 20.1 17.2 13.4 10.4 9.0 8.9 16.7 17.3
Voltas 415 Neutral 13.6 14.9 16.9 30.6 27.8 24.6 21.6 22.0 18.9 17.6 17.1 17.1
Sector Aggregate 35.1 29.8 25.7 22.9 18.2 16.2 10.3 11.1 11.8
Cement
ACC 1,467 Neutral 33.7 46.7 58.6 43.5 31.4 25.0 21.9 17.0 14.2 7.5 10.4 13.2
Ambuja Cements 239 Buy 4.9 6.7 7.2 48.8 35.5 33.2 20.4 18.5 16.4 5.0 6.8 7.1
Birla Corporation 748 Buy 21.5 41.2 54.4 34.7 18.1 13.7 15.2 9.9 7.4 6.0 10.9 13.2
Dalmia Bharat 2,062 Buy 30.7 47.5 70.1 67.3 43.4 29.4 14.3 12.0 11.3 6.8 9.8 12.9
Grasim Industries 1,067 Neutral 68.7 86.6 111.1 15.6 12.3 9.6 10.6 8.5 9.5 11.7 13.2 14.8
India Cements 163 Neutral 5.1 8.7 11.9 31.9 18.7 13.7 10.8 9.7 8.5 4.0 6.2 7.7
J K Cements 935 Buy 32.6 37.2 49.3 28.7 25.1 19.0 14.8 12.6 11.2 13.3 13.6 16.0
JK Lakshmi Cem. 458 Buy 5.9 12.2 17.8 77.3 37.4 25.7 18.6 14.7 12.2 5.2 10.5 14.7
Orient Cement 145 Buy -1.8 3.2 5.8 -81.4 45.8 24.8 24.1 13.5 9.5 -3.7 6.6 11.3
Prism Cement 103 Buy -0.6 2.6 4.8 -170.1 39.3 21.4 30.1 17.8 13.0 -3.1 13.1 20.8
Ramco Cements 671 Buy 27.8 30.1 36.2 24.1 22.3 18.5 14.8 13.6 11.3 19.6 18.0 18.5
Shree Cement 17,332 Buy 363.2 480.6 642.3 47.7 36.1 27.0 25.0 20.3 16.2 19.2 21.7 23.5
Ultratech Cement 4,071 Buy 91.6 120.5 151.6 44.4 33.8 26.8 24.1 20.8 16.8 11.5 13.6 15.1
Sector Aggregate 36.0 26.7 21.0 16.9 14.0 11.4 9.7 11.9 13.6
April 2017 50
India Strategy | The Great Divide
Consumer
Asian Paints 1,080 Neutral 20.5 22.6 26.7 52.7 47.8 40.5 33.6 31.0 26.4 32.8 31.8 32.4
Britannia 3,372 Buy 72.2 83.3 101.7 46.7 40.5 33.2 34.4 29.4 23.2 43.1 39.2 38.0
Colgate 1,001 Buy 21.7 25.8 31.6 46.2 38.8 31.6 28.0 23.3 19.2 54.9 60.1 68.5
Dabur 284 Neutral 7.3 8.3 9.7 38.9 34.3 29.3 32.0 28.2 24.0 28.3 27.2 27.1
Emami 1,038 Buy 24.5 29.8 36.0 42.4 34.8 28.8 31.1 27.0 22.8 33.8 33.0 33.2
Godrej Consumer 1,701 Neutral 37.1 42.9 49.8 45.8 39.6 34.2 32.8 28.7 25.1 22.5 22.2 21.9
GSK Consumer 5,181 Neutral 153.9 173.1 190.8 33.7 29.9 27.1 22.3 19.4 17.3 24.6 24.0 23.1
Hind. Unilever 935 Neutral 19.3 21.5 24.8 48.6 43.5 37.7 33.7 30.6 26.5 67.6 78.4 92.5
ITC 279 Buy 8.4 9.3 11.0 33.3 29.8 25.3 22.5 20.0 16.6 28.4 27.6 28.7
Jyothy Labs 342 Neutral 8.0 9.0 10.5 42.8 38.0 32.6 24.0 22.0 19.5 16.4 17.1 18.1
Marico 298 Buy 6.1 7.0 8.4 49.0 42.5 35.4 34.2 29.8 24.9 33.3 32.1 34.6
Nestle 6,622 Neutral 118.7 144.0 171.0 55.8 46.0 38.7 34.4 27.4 23.1 38.8 42.3 42.3
P&G Hygiene 7,388 Buy 145.7 167.7 198.8 50.7 44.1 37.2 32.9 28.1 23.4 29.0 28.8 29.5
Page Industries 14,596 Buy 235.6 305.1 388.4 62.0 47.8 37.6 39.5 30.4 24.0 41.3 42.2 43.2
Parag Milk Foods 242 Neutral 0.8 6.9 12.5 298.4 34.8 19.4 27.6 15.1 10.3 1.3 8.2 13.2
Pidilite Inds. 714 Neutral 16.6 18.3 20.5 43.0 39.1 34.8 28.8 25.4 22.2 27.9 25.4 23.4
United Breweries 762 Buy 10.7 14.3 18.4 71.4 53.2 41.5 29.5 26.2 20.6 12.6 15.0 16.8
United Spirits 2,028 Buy 28.6 42.2 58.7 70.8 48.1 34.6 34.1 27.3 21.2 20.8 22.1 23.8
Sector Aggregate 42.6 37.4 31.6 28.6 25.2 21.1 29.6 29.6 30.4
Healthcare
Alembic Pharma 625 Neutral 21.6 28.5 35.8 28.9 22.0 17.5 18.5 14.5 11.4 23.3 25.5 26.0
Alkem Lab 2,207 Neutral 79.3 85.7 100.0 27.8 25.7 22.1 23.4 19.6 15.5 24.4 22.0 21.7
Ajanta Pharma 1,723 Buy 56.0 63.8 79.6 30.7 27.0 21.6 22.3 19.4 15.6 35.9 30.9 29.9
Aurobindo Pharma 678 Buy 40.1 47.0 54.6 16.9 14.4 12.4 11.9 9.8 8.2 28.8 26.0 23.9
Biocon 1,122 Sell 32.2 34.1 42.7 34.9 32.9 26.3 23.0 19.9 15.5 14.3 13.6 15.3
Cadila Health 449 Buy 12.0 17.7 23.0 37.4 25.4 19.5 24.3 16.6 12.9 21.4 26.5 27.9
Cipla 593 Neutral 17.9 22.0 28.5 33.2 27.0 20.8 18.8 15.3 12.3 11.0 12.2 13.8
Divis Labs 632 Neutral 43.0 32.9 38.6 14.7 19.2 16.4 10.1 12.5 10.3 25.4 17.7 18.8
Dr Reddy s Labs 2,736 Neutral 76.1 110.9 147.2 35.9 24.7 18.6 17.5 13.3 9.9 9.8 12.9 15.2
Fortis Health 190 Buy 2.6 3.2 6.5 73.0 59.7 29.2 21.7 11.7 9.0 3.0 3.3 6.1
Glenmark Pharma 877 Neutral 40.6 49.2 60.5 21.6 17.8 14.5 11.2 9.8 9.3 20.1 19.0 19.1
Granules India 142 Buy 6.8 7.7 11.3 20.8 18.4 12.5 12.5 10.6 7.5 18.8 15.8 18.3
GSK Pharma 2,738 Neutral 34.5 55.5 64.4 79.3 49.3 42.5 67.8 41.9 34.3 22.4 43.0 56.9
IPCA Labs. 647 Neutral 15.8 27.9 37.3 40.9 23.2 17.4 17.9 13.6 10.6 8.4 13.5 15.9
Lupin 1,453 Buy 61.4 78.6 88.8 23.6 18.5 16.4 14.7 11.9 10.1 22.8 23.8 22.1
Sanofi India 4,755 Buy 129.0 157.8 189.9 36.9 30.1 25.0 19.3 16.3 13.4 16.2 18.1 19.4
Sun Pharma 691 Buy 27.1 32.5 38.7 25.5 21.2 17.9 15.3 13.5 11.1 19.8 20.9 21.0
Torrent Pharma 1,477 Buy 56.6 76.3 93.4 26.1 19.4 15.8 17.9 13.8 11.0 25.9 29.3 29.6
Sector Aggregate 27.0 22.1 18.1 16.7 13.9 11.3 17.6 18.3 18.9
Logistics
Allcargo Logistics 179 Buy 9.0 10.9 12.3 19.8 16.4 14.5 9.2 7.8 6.7 11.5 14.8 14.8
Concor 1,012 Neutral 29.7 39.9 44.9 34.1 25.4 22.5 20.5 16.4 14.8 8.8 11.2 11.8
Gateway Distriparks 255 Buy 8.3 15.7 20.1 30.7 16.3 12.7 11.7 8.9 7.2 7.2 12.9 15.3
Sector Aggregate 30.7 22.5 19.7 16.3 13.3 11.8 9.1 11.5 12.2
Media
D B Corp 391 Buy 20.4 23.0 26.5 19.1 17.0 14.7 10.7 9.6 8.3 26.2 26.2 26.8
Den Networks 92 Neutral -3.6 2.2 8.5 -25.2 41.7 10.8 13.8 5.4 3.3 -4.1 2.5 8.8
Dish TV 103 Buy 1.4 2.7 4.3 71.6 38.8 24.0 11.5 9.1 7.3 33.6 42.0 43.9
April 2017 51
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April 2017 52
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Utilities
CESC 848 Buy 50.4 74.7 82.2 16.8 11.4 10.3 7.2 6.2 5.8 11.1 15.8 15.2
Coal India 290 Neutral 17.0 19.6 22.1 17.1 14.8 13.1 12.7 10.1 8.8 41.1 47.4 53.2
JSW Energy 67 Buy 3.9 2.3 0.8 17.2 29.1 87.5 7.5 8.4 9.1 7.3 4.3 1.4
NTPC 166 Buy 11.9 14.3 17.3 14.0 11.6 9.6 11.2 9.2 7.3 10.6 11.9 13.3
Power Grid Corp. 195 Buy 15.3 17.7 20.7 12.8 11.0 9.4 9.2 8.0 7.1 17.3 17.5 17.7
Sector Aggregate 14.9 12.7 11.0 10.3 8.7 7.5 16.0 17.3 18.3
Others
Arvind 407 Buy 13.5 21.8 28.6 30.1 18.7 14.2 12.6 9.9 8.1 10.4 14.0 16.3
Bata India 565 Buy 10.9 14.2 17.7 52.0 39.8 32.0 28.9 22.5 17.9 11.3 13.4 15.0
Castrol India 428 Buy 13.6 14.9 15.2 31.4 28.8 28.2 20.3 18.4 18.0 110.9 108.6 100.4
Century Plyboards 259 Buy 7.7 8.6 11.4 33.5 30.0 22.7 21.6 17.3 13.9 28.9 26.5 28.6
Coromandel International 315 UR 15.9 19.6 25.1 19.7 16.0 12.6 10.5 9.1 7.5 18.2 20.1 22.7
Delta Corp 203 Buy 3.3 6.9 7.6 62.2 29.6 26.5 28.4 17.2 12.9 9.0 15.7 17.0
Dynamatic Tech. 2,844 Buy 67.6 112.9 166.7 42.1 25.2 17.1 13.1 10.6 8.5 15.1 20.7 24.3
Eveready Inds. 277 Buy 11.4 13.9 16.9 24.3 20.0 16.4 16.9 14.3 11.8 34.7 33.0 32.4
Indo Count Inds. 199 Buy 13.7 17.5 21.1 14.6 11.4 9.4 8.4 6.9 5.6 33.8 30.8 27.3
Info Edge 837 Buy 16.9 17.9 21.0 49.6 46.7 39.9 42.8 38.2 31.9 11.1 10.9 11.9
Inox Leisure 294 Sell 2.5 8.2 11.5 117.6 36.0 25.5 22.4 13.4 10.5 3.8 11.5 14.3
Interglobe Aviation 1,044 Neutral 39.0 64.7 78.0 26.8 16.1 13.4 7.4 4.7 3.9 72.2 104.1 106.3
Jain Irrigation 102 UR 5.5 7.6 10.0 18.5 13.5 10.2 7.7 6.3 5.4 8.6 11.7 14.8
Just Dial 555 Buy 17.2 18.5 22.1 32.3 30.1 25.1 28.9 30.1 19.5 16.5 15.5 16.2
Kaveri Seed 555 Buy 23.4 28.6 36.1 23.7 19.4 15.4 20.1 15.4 12.0 17.3 19.8 22.9
Kitex Garments 438 Buy 26.0 31.0 36.7 16.8 14.1 11.9 9.4 7.6 5.9 29.9 28.7 27.7
MCX 1,186 Buy 26.3 30.0 42.5 45.0 39.5 27.9 86.6 54.8 30.2 10.6 11.3 15.0
Manpasand Beverages 717 Buy 14.9 23.1 38.3 48.0 31.0 18.7 23.7 17.1 10.0 8.6 9.6 16.3
Monsanto India 2,508 Buy 72.9 89.3 109.3 34.4 28.1 22.9 29.2 23.9 19.5 30.4 35.9 39.6
Navneet Education 153 Buy 6.6 8.6 10.5 23.0 17.8 14.5 14.5 11.1 9.0 26.0 30.0 30.9
P I Industries 833 Buy 30.4 34.8 43.6 27.4 23.9 19.1 21.5 16.6 12.9 30.9 27.9 27.8
Piramal Enterprises 1,960 Buy 74.5 127.1 164.7 26.3 15.4 11.9 15.2 10.2 8.4 10.0 15.7 18.2
S H Kelkar 298 Buy 7.7 10.3 13.3 38.7 28.9 22.5 23.4 18.0 14.0 13.9 16.8 19.1
SRF 1,655 Buy 82.4 99.9 125.1 20.1 16.6 13.2 11.1 9.6 7.7 16.5 17.4 19.1
Symphony 1,521 Sell 27.0 35.1 42.9 56.3 43.3 35.4 42.1 32.4 26.3 56.8 65.0 66.3
TTK Prestige 6,066 Neutral 106.9 137.7 176.0 56.7 44.0 34.5 35.0 26.7 21.6 16.5 19.4 22.2
V-Guard Inds 177 Neutral 3.7 4.6 5.4 47.8 38.6 32.9 32.4 26.3 22.4 29.4 29.1 27.6
Wonderla Holiday 393 Buy 7.0 11.9 16.0 56.2 32.9 24.5 26.1 16.6 12.8 9.5 14.8 17.5
Sector Aggregate 29.9 21.2 17.0 14.4 10.6 8.7 17.3 21.4 23.4
UR: Under Review
April 2017 53
India Strategy | The Great Divide
April 2017 54
India Strategy | The Great Divide
Note: In our quarterly performance tables, our four-quarter numbers may not always add up to the full-year
numbers. This is because of differences in classification of account heads in the companys quarterly and
annual results or because of differences in the way we classify account heads as opposed to the company.
All stock prices and indices as on 5 April 2017, unless otherwise stated.
April 2017 55
March 2017 March
Results2017
Preview | Sector:
Results Automobiles
Preview | April 2017
Automobiles
Company name Quarter of uncertainty
Amara Raja Batteries 2Ws likely to see decline; CVs to be flat, while PVs relatively well placed
Ashok Leyland
4QFY17 should be a quarter of uncertainty for the auto OEMs, as we see impact of a)
Bajaj Auto
BS3 verdict of the SC on 2W/CV players, b) Gujarat plant commissioning on Maruti and
Bharat Forge
c) increase in yields on cash-rich players.
BOSCH
CEAT We believe 2W/3W players are likely to be the worst hit, as the rural segment has still
Eicher Motors not fully recovered from the impact of demonetization. We estimate 2W/3W volumes
Escort
to decline by ~2%/16% YoY. Volumes of PVs are expected to grow by 7% YoY in
Exide Industries
4QFY17, while those of CVs should remain flat (despite pre-buying).
EBITDA margin for our auto OEM (ex-JLR) universe is likely to hit an 8-quarter low,
Hero MotoCorp
declining 120bp YoY (-30bp QoQ) to 12.5%. The CV pack (due to uncertainty on impact
Mahindra & Mahindra
of BS-III ban and lower-than-expected pre-buying), along with MSIL (due to impact of
Maruti Suzuki
commissioning of Gujarat plant) and BJAUT, is expected to see margin contraction.
Tata Motors
We have lowered our FY17 EPS estimates for AL (-12%), TVSL (-6%), BOS (-3%) and
TVS Motor Company
HMCL (-2%), and increased for EXID (+2%) and MM (+2%).
Our top picks are MSIL and TTMT among large caps, and AMRJ among mid-caps. We
also believe that MM is the best play on a rural market recovery.
2W/3Ws to see decline; CVs to be flat, while PVs relatively well placed
2W sales are expected to decline ~2% in 4QFY17. Sales growth in PVs is expected to
be at 7.5%, while that in UVs is expected to moderate to 6%. PVs were less
impacted, primarily due to waiting periods in many models of OEMs as well as lower
cash component. CV volumes are expected to be flat, with LCVs volumes declining
by 1% and M&HCV volumes growing by ~3%. Many fleet operators have postponed
their purchases (despite shift from BS-III to BS-IV) on account of liquidity crunch post
demonetization and also in anticipation of benefits from the looming GST
implementation.
EBITDA margins at 8-quarter low; to decline 120bp YoY
EBITDA margin for our Auto OEM (ex-JLR) coverage universe is likely to contract
120bp YoY (+90bp QoQ), with BS-III vehicle ban leading to heavy discounts by
2W/CV players and also considering the impact of Gujarat plant commissioning for
MSIL. Also, pre-buying has not been as expected. We expect margins to shrink for
the CV pack, with TTMT S/A (-490bp YoY), AL (-110bp), VECV (-160bp), BJAUT (-
100bp YoY) and MSIL (-80bp YoY) witnessing contraction and EIM (+240bp) seeing
expansion.
Volumes for CVs/2Ws to moderate with BS-IV implementation
We believe volumes are likely to soften, with the apex courts ban on BS-III vehicles
post 31 March 2017 leading to preponement of buying (as many CV/2W players
offered aggressive discounts).
Valuation and view
We are lowering our FY17 EPS estimates for AL (-12%), TVSL (-6%), BOS (-3%) and
HMCL (-2%), while raising our estimates for EXID (+2%) and MM (+2%). Demand
environment and changing competitive landscape would be the key determinants of
the stock performance. Our top picks are Tata Motors, Maruti Suzuki and Amara
Raja. We also believe MM is the best play on a rural market recovery.
Jinesh Gandhi (Jinesh@MotilalOswal.com); +91 22 3982 5416
Jigar Shah (Jigar.Shah@MotilalOswal.com); +91 22 3982 5402
April 2017 56
March 2017 Results Preview | Sector: Automobiles
Exhibit 3: Trend in segment-wise EBITDA margins (%) Exhibit 4: Commodity prices remain at higher levels
4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
106
137
130
100
103
121
116
129
100
113
113
100
113
113
118
129
99
98
97
April 2017 57
March 2017 Results Preview | Sector: Automobiles
Exhibit 5: Trend in key currencies v/s INR Exhibit 6: Continued improvement in EBITDA margins (%)
USD GBP JPY Aggregate (excld JLR) Aggregate (incl JLR)
150
17
130
14
110 11
90 8
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Sep-11
Dec-11
Mar-12
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
Source: Bloomberg, MOSL Source: Company, MOSL
April 2017 58
March 2017 Results Preview | Sector: Automobiles
Exhibit 8: Relative performance Three months (%) Exhibit 9: Relative performance One year (%)
Sensex Index MOSL Automobiles Index
Sensex Index MOSL Automobiles Index
112 130
125
120
106 115
110
105
100 100
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Mar-17
Sep-16
Jan-17
Feb-17
Oct-16
Dec-16
Jan-17
Feb-17
Mar-17
Source: Bloomberg, MOSL Source: Bloomberg, MOSL
April 2017 59
March 2017 Results Preview | Sector: Automobiles
Quarterly Performance
Y/E March (INR m) FY16 FY17 FY16 FY17E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Net Sales 11,376 11,511 12,123 11,697 13,208 13,455 13,283 13,448 46,907 53,395
YoY Change (%) 10.5 8.6 13.7 9.7 16.1 16.9 9.6 15.0 11.4 13.8
RM Cost (% of sales) 64.6 64.4 61.8 62.7 66.2 64.3 65.1 65.0 63.2 65.2
Staff Cost (% of sales) 4.9 5.0 5.1 5.3 5.0 5.2 5.4 5.3 4.6 4.7
Other Exp (% of sales) 13.0 13.2 14.2 15.7 11.6 13.5 14.1 13.6 13.3 13.9
EBITDA 1,988 1,999 2,300 1,908 2,273 2,297 2,040 2,156 8,169 8,765
Margins (%) 17.5 17.4 19.0 16.3 17.2 17.1 15.4 16.0 17.4 16.4
Depreciation 328 343 355 372 441 457 469 493 1,399 1,859
Interest 13 13 16 1 14 15 14 16 5 58
Other Income 136 112 114 97 90 120 133 133 457 475
PBT 1,782 1,756 2,043 1,632 1,908 1,945 1,689 1,781 7,222 7,323
Rate (%) 32.1 29.7 33.0 33.5 31.5 29.9 33.7 32.0 32.2 31.7
Adj PAT 1,210 1,234 1,368 1,086 1,307 1,363 1,121 1,211 4,894 5,001
YoY Change (%) 14.2 23.1 33.7 6.2 8.0 10.4 -18.1 11.5 24.8 2.2
E: MOSL Estimates
April 2017 60
March 2017 Results Preview | Sector: Automobiles
Ashok Leyland
Bloomberg AL IN CMP: INR84 TP:INR94 (+12 %) Buy
Equity Shares (m) 2845.9
Volumes grew by 8% YoY (+45% QoQ), as M&HCV and LCV sales
M. Cap. (INR b)/(USD b) 242 / 4
grew 10% and 3% YoY respectively, led by lower than expected
52-Week Range (INR) 113 / 74
1,6,12 Rel Perf. (%) -7 / -2 / -42
pre buying before BS-IV implementation.
We expect realization to decline by 1.6% YoY (-1.3% QoQ) led by
continuous higher discounts due to lower demand.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
Net revenue is likely to grow 6.5% YoY (+43% QoQ), led by growth
Sales 188.2 196.6 217.9 249.2
in volume and decline in realization.
EBITDA 21.7 22.0 24.8 29.9 EBITDA margin is likely to contract 110bp YoY (expand 120bp
NP 11.1 12.0 14.7 18.8 QoQ), driven by higher costs in RM, staff and others YoY.
Adj. EPS (INR) 3.9 4.2 5.2 6.6 EBITDA should decline 3% YoY (+61% QoQ) to ~INR7.3b.
EPS Gr. (%) 375.1 8.3 22.2 27.7 Further, lower other income and higher tax would decline
BV/Sh. (INR) 19.4 21.8 24.5 28.4 adjusted PAT growth by ~7% YoY (+129% QoQ) to INR4.2b.
RoE (%) 20.9 20.6 22.3 24.9 We are reducing EPS estimates of FY18E/FY19E by 19%/20% led
RoCE (%) 12.8 15.0 17.5 20.1 by subdued growth expectations for M&HCV segment in FY18.
Payout (%) 25.6 35.5 38.7 34.1 The stock trades at an EV of 9.7x FY18E and 7.6x FY19E EBITDA.
Valuations Buy.
P/E (x) 21.4 19.8 16.2 12.7
P/BV (x) 4.3 3.8 3.4 2.9
Key issues to watch
EV/EBITDA (x) 11.5 11.1 9.6 7.6 Unsold inventory post ban on sale of BS-III vehicles and impact
Div. Yield (%) 1.2 1.8 2.4 2.7 on financials.
Raw material cost outlook and margin guidance for FY1718.
Capex and investment guidance for FY18.
Quarterly Performance
FY16 FY17E FY16 FY17E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Total Volumes (nos) 28,154 37,369 30,928 43,994 31,163 33,446 32,838 47,621 145,068 32,838
Growth % 41.2 47.3 21.8 28.8 10.7 -10.5 6.2 8.2 3.3 6.2
Realizations (INR '000) 1,379 1,329 1,330 1,354 1,367 1,382 1,349 1,332 1,355 1,386
% change 11.0 4.8 0.5 2.6 -0.9 4.0 1.4 -1.6 0.4 4.9
Net operating revenues 38,831 49,672 41,138 59,553 42,588 46,224 44,309 63,434 196,556 46,272
RM/sales % 68.4 69.7 69.9 71.0 68.7 67.8 70.7 71.3 69.8 68.3
Staff/sales % 8.5 7.6 8.4 5.7 8.4 8.0 8.2 6.1 7.5 7.8
Other exp/sales % 13.0 10.2 10.7 10.7 11.6 12.6 10.9 11.1 11.5 13.0
EBITDA 3,925 6,240 4,493 7,531 4,820 5,365 4,543 7,307 22,035 5,021
EBITDA Margins(%) 10.1 12.6 10.9 12.6 11.3 11.6 10.3 11.5 11.2 10.9
Other Income 78 454 298 320 385 316 235 273 1,210 475
Interest 701 631 603 602 338 339 311 338 1,327 425
PBT before EO Item 1,984 4,754 2,976 6,071 4,154 4,146 2,637 6,026 16,964 3,846
EO Exp/(Inc) 1,570 50 3,793 0 0 0 0 0
Effective Tax Rate (%) 36.3 45.9 27.0 66.2 30.0 29.0 29.5 29.5 29.5 27
Adj. PAT 1,264 2,571 2,174 4,563 2,908 2,944 1,859 4,249 11,959 2,808
Change (%) -364 527 577 93 130 14 -14 -7 1.6 38.1
E: MOSL Estimates
April 2017 61
March 2017 Results Preview | Sector: Automobiles
Bajaj Auto
Bloomberg BJAUT IN CMP: INR2,801 TP:INR3,282 (+17%) Buy
Equity Shares (m) 289.4
Overall volume declined ~10% YoY (-7.5% QoQ) to 788k units due
M. Cap. (INR b)/(USD b) 799 / 12
to a ~14% YoY decline in domestic volume, while Exports declined
52-Week Range (INR) 3122 / 2350
by ~3% YoY due to the impact of demonetization and transition to
1,6,12 Rel Perf. (%) -6 / -10 / -5
BS-IV from BS-III. Total 2W sales declined by ~7% in 4QFY17, while
3W volumes fell sharply by 28% YoY led by both domestic and
Financial Snapshot (INR b) exports falling by 30% & 25% respectively led by demonetization
Y/E MAR 2016 2017E 2018E 2019E and currency issues in African markets continued.
Sales 225.9 217.8 248.5 282.9 We expect realization to grow by 1.4% YoY (+5% QoQ) led by
EBITDA 47.8 45.2 50.9 58.1 improvement in mix of premium segment motorcycles though
NP 38.1 38.7 44.8 50.4 partly offset by decline in 3Ws segment, as a result net revenues
Adj. EPS (INR) 131.8 133.7 154.8 174.0 are expected to decline by 8% YoY.
EPS Gr. (%) 25.1 1.4 15.9 12.4 EBITDA margin should contract 100bp YoY (-10bp QoQ) to 20.5%
BV/Sh. (INR) 424.8 480.3 545.0 614.6 due to higher commodity prices and staff cost.
RoE (%) 33.2 29.5 30.2 30.0 We expect PAT to decline ~11% YoY (-9% QoQ) to INR8.4b.
RoCE (%) 32.3 28.8 29.4 29.2 We have lowered our total volume estimates by 3.5% and lower
Payout (%) 50.2 58.5 58.2 60.0 USD/INR realization to 67 from 70 in FY18, resulting in EPS cut of
Valuations 4%/5% for FY18E/FY19E respectively.
P/E (x) 21.5 21.2 18.3 16.3 The stock trades at 18.1x FY18E and 16.1x FY19E EPS; maintain Buy.
P/BV (x) 6.7 5.9 5.2 4.6
EV/EBITDA (x) 15.0 15.0 12.9 10.9 Key issues to watch
Div. Yield (%) 1.9 2.3 2.6 3.2 Update on demand of new launches, channel inventory post BS-
III ban; outlook for FY18 based on impact of demonetization.
Outlook for export demand and pricing, especially the Nigerian
market (sharp currency depreciation); outlook for FY18.
Quarterly Performance (INR Million)
FY16 FY17 FY16E FY17
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Volumes ('000 units) 1,013 1,057 951 872 995 1,032 852 788 3,894 3,666
Growth YoY (%) 2.5 0.1 -3.4 11.5 -1.8 -2.3 -10.5 -9.7 2.2 (5.8)
Realization (INR/unit) 55,273 57,543 58,306 61,467 57,784 58,676 59,495 62,344 58,269 59,412
Growth YoY (%) 4.0 1.9 1.5 1.5 4.5 2.0 2.0 1.4 2.8 2.0
Net Sales 55,993 60,799 55,478 53,627 57,480 60,545 50,669 49,109 226,876 217,802
Change (%) 6.6 2.0 -1.9 13.2 2.7 -0.4 -8.7 -8.4 5.0 -4.0
RM/Sales % 67.4 66.7 66.6 65.9 67.2 67.0 66.8 66.5 66.3 66.9
Staff cost/Sales % 4.3 4.0 4.1 3.8 4.7 4.3 4.8 5.2 4.0 4.7
Oth. Exp./Sales % 8.0 7.7 8.2 8.9 7.7 7.4 7.9 7.8 8.2 7.7
EBITDA 11,402 13,167 11,716 11,534 11,763 12,961 10,439 10,084 48,835 45,247
EBITDA Margins (%) 20.4 21.7 21.1 21.5 20.5 21.4 20.6 20.5 21.5 20.8
Other Income 3,063 2,680 2,425 2,569 2,671 3,420 3,193 2,475 10,736 11,759
Interest 1 3 2 4 2 7 3 -3 11 9
Depreciation 784 780 746 761 775 770 772 778 3,072 3,094
PBT 13,680 15,063 13,392 13,338 13,657 15,605 12,858 11,784 56,488 53,904
Tax 4,106 4,540 3,686 3,844 3,873 4,378 3,612 3,365 17,328 15,228
Effective Tax Rate (%) 30.0 30.1 27.5 28.8 28.4 28.1 28.1 28.6 30.7 28.3
Adj. PAT 9,574 10,524 9,706 9,493 9,784 11,228 9,246 8,419 39,124 38,676
Change (%) 29.4 26.4 12.7 52.7 2.2 6.7 (4.7) (11.3) 28.4 -1.1
April 2017 62
March 2017 Results Preview | Sector: Automobiles
Bharat Forge
Bloomberg BHFC IN CMP: INR1,089 TP: INR1,182 (+9%) Buy
Equity Shares (m) 232.8
We expect BHFCs shipment tonnage to remain flat YoY to 52,649
M. Cap. (INR b)/(USD b) 250 / 4
tons, which is a an improvement from decline in the previous
52-Week Range (INR) 1094 / 687
1,6,12 Rel Perf. (%) -1 / 10 / 9
quarters as demand for class 8 trucks are showing signs of
improvements along with revival in industrial segments. Net
realization is likely to increase ~7% YoY to ~INR205.1k/ton.
Financial Snapshot (INR b)
Y/E Mar 2016 2017E 2018E 2019E
As a result net revenue would increase 7% YoY (+14% QoQ) to
76.5 73.8 82.3 95.3
~INR10.8b.
Sales
EBITDA 14.2 13.5 16.5 20.9 EBITDA margin is likely to decline 100bp YoY (+100bp QoQ) to
EPS (INR) 6.6 5.9 8.7 11.8 28.6%.
EPS Gr. (%) 28.1 25.3 37.2 50.6 PAT is likely to decline slightly ~2% YoY (+26% QoQ) to INR1.6b.
BV/Sh. (INR) -10.9 -10.2 47.2 36.2 We have increased our revenue estimate by 4% with better
RoE (%) 153.6 169.2 194.4 233.0 outlook on US class 8 truck market and Oil and Gas rebound,
RoCE (%) 18.7 15.7 20.5 23.7 resulting in EPS increase of 8% for FY19E.
Valuations 12.5 10.8 14.7 18.0 The stock trades at 28x FY18E and 20.6x FY19E EPS; maintain Buy.
P/E (x)
P/BV (x) 37.9 42.2 28.7 21.1
Key issues to watch
EV/EBITDA (x) 6.9 6.3 5.5 4.6
Outlook for US Class 8 Trucks for CY17.
EV/Sales (x) 18.9 19.6 15.6 12.0
Outlook for oil & gas and mining segments, primarily with
Consolidated
regard to price recovery.
Update on ramp-up of new orders under commercial vehicles,
PVs, aerospace and rail.
April 2017 63
March 2017 Results Preview | Sector: Automobiles
Bosch
Bloomberg BOS IN CMP: INR22,843 TP: INR22,924 (+0.4%) Neutral
Equity Shares (m) 31.4
Net revenue is likely to grow ~13% YoY (+4.4% QoQ) to INR27.9b
M. Cap. (INR b)/(USD b) 719 / 11
led by pre buying sales before implementation of BS-IV in
52-Week Range (INR) 25650 / 18005
1,6,12 Rel Perf. (%) 4 / -6 / -5
commercial vehicle and higher PV sales.
EBITDA margin is expected to remain flat YoY, led by lower gross
margin due to higher trading content and higher commodity
Financial Snapshot (INR b)
Y/E Mar FY16 FY17E FY18E FY19E
prices.
Sales 96.6 105.9 129.6 145.9
EBITDA is projected to grow 13% YoY to ~INR6.2b.
EBITDA 18.2 18.1 26.0 30.8 Adjusted PAT is likely to decline 9% YoY to INR4.3b on lower other
NP 15.2 14.4 20.4 23.3 income and higher depreciation.
EPS (INR) 483.3 472.3 667.8 764.1 We have slightly increased our EPS estimate by 4% for FY19. We
EPS Gr. (%) 11.8 -2.3 41.4 14.4 maintain our neutral outlook led by CV cycle reversal in FY18.
BV/Sh. (INR) 2,639.8 2,477.2 2,978.1 3,551.2 The stock trades at 34.1x FY18E and 29.8x FY19E EPS; maintain
RoE (%) 19.4 18.2 24.5 23.4 Neutral.
RoCE (%) 26.5 25.6 34.0 32.1
Valuations Key issues to watch
P/E (x) 47.1 48.2 34.1 29.8 Rollout of BS-IV emission norms and implication on Boschs
P/BV (x) 8.6 9.2 7.6 6.4 revenue.
EV/EBITDA(x) 38.3 36.6 24.9 20.7 Implementation of BS-VI norms for 2-wheelers and underlying
EV/Sales (x) 7.2 6.2 5.0 4.4
opportunity for Bosch.
Consolidated Advancement of BS-VI implementation and its impact on Bosch.
Capex plans for BS VI norms.
April 2017 64
March 2017 Results Preview | Sector: Automobiles
Ceat Ltd
Bloomberg CEAT IN CMP: INR1,381 TP: INR1,406 (+2%) Buy
Equity Shares (m) 40.5
We expect revenue to grow 2% YoY (QoQ up 6%) to INR16.5b in
M. Cap. (INR b)/(USD b) 54 / 1
4QFY17. Revenue growth will be subdued on account of volumes
52-Week Range (INR) 1422 / 731
1,6,12 Rel Perf. (%) 11 / -10 / 7
decline in Truck and Bus segment, and a fall in realizations.
Margins are likely to contract 230bp YoY to 9% on account of
volatility in raw material prices. EBITDA is expected to decline
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
19% YoY to INR1,488m.
Sales 63.8 64.5 71.1 79.1
Thus, we estimate adjusted PAT at INR777m, as against PAT of
EBITDA 8.2 6.7 7.8 9.5 INR1,047m in 4QFY16. Buy.
NP 4.5 3.6 4.4 5.7
EPS (INR) 112.3 89.9 107.6 140.6
Key issues to watch for
EPS Gr. (%) 63.5 -20.0 19.8 30.6
Update on capex plans.
BV/Sh(INR) 510.4 588.6 682.0 804.0
Price increase to counter higher raw material costs.
RoE (%) 12.3 15.4 12.8 9.8
Impact of demonetization and Chinese import of tyres.
RoCE (%) 2.7 2.3 2.0 1.7
Valuations
P/E (x) 12.3 15.4 12.8 9.8
EV/EBITDA (x) 7.5 9.3 7.7 6.0
EV/Sales (x) 1.0 1.0 0.9 0.7
Eicher Motors
Bloomberg EIM IN CMP: INR25,450 TP: INR28,811 (+13%) Buy
Equity Shares (m) 27.2
Royal Enfields volumes grew by 20% YoY (+2.5% QoQ) to 173,838
M. Cap. (INR b)/(USD b) 697 / 11
units, insulated by demonetization as it has an average waiting
52-Week Range (INR) 26602 / 18006
1,6,12 Rel Perf. (%) 7 / -8 / 17
period of 2-3 months. Net realization is expected to improve by
1.8% YoY (+0.6 QoQ), supported by price hikes. EBITDA margin
Financial Snapshot (INR b) should expand 240bp YoY to 32% (+50bp QoQ), driven by
FY16 operating leverage.
Y/E Dec FY17E FY18E FY19E
(15m)
Net Income 61.7 70.4 90.5 107.3 VECVs volume increased by ~11% YoY (+46.2% QoQ) due to pre
EBITDA 16.9 22.2 29.6 35.8 buying before BS-IV implementation. Net realization should
Net Profit 13.4 16.7 23.2 28.5 increase by 5% YoY (-6% QoQ) led by favorable mix. Margin is
Adj. EPS (INR) 492.9 615.4 854.5 1,047.6 expected to be at 6.4%, down 160bp YoY (-50bp QoQ).
EPS Gr. (%) 73.7 56.1 38.9 22.6 Consolidated revenue would increase 24% YoY (+3.5% QoQ) to
BV/Sh. (INR) 1,276 1,751 2,430 3,272 INR19b. Consolidated margin is likely to be 33%. Consolidated PAT
RoE (%) 35.8 40.7 40.9 36.7 is estimated to rise 29% YoY (+11% QoQ) to INR4.6b.
RoCE (%) 21.3 27.6 31.0 29.7 The stock trades at 30x FY18E and 24.5x CY18E EPS. Maintain Buy.
Payout (%) 0.4 0.5 0.6 0.7
Valuations Key issues to watch
P/E (x) 52.3 41.9 30.2 24.6
Demand for RE at the retail level to access the impact post BS-III
P/BV (x) 20.2 14.7 10.6 7.9
ban and demonetization on order book.
EV/EBITDA (x) 32.5 26.3 19.8 15.9
Update on current demand trends for commercial vehicles,
Div. Yield (%) 0.4 0.5 0.6 0.7
discount levels and channel inventory post BS-III ban.
April 2017 66
March 2017 Results Preview | Sector: Automobiles
Escorts
Bloomberg ESC IN CMP: INR538 TP: INR608(+13%) Buy
Equity Shares (m) 122.6
We expect 22% YoY growth in revenue to INR9.8b, led by strong
M. Cap. (INR b)/(USD b) 66 / 1
performance in the tractor division. Construction equipment
52-Week Range (INR) 549 / 138
1,6,12 Rel Perf. (%) 6 / 27 / 258
division is also expected to perform well along with railways.
EBITDA margin is likely to improve 350bp YoY to 8.3%, translating
into EBITDA growth of 110% YoY to INR815m.
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
We expect PAT to grow 69% YoY to INR513m. Buy.
Sales 35.4 41.8 47.5 52.5
EBITDA 1.5 3.2 4.5 5.4
NP 0.9 1.9 2.8 3.6
Adj EPS (INR) 11.1 23.2 34.1 43.4
Key issues to watch for
EPS Gr. (%) -16.7 108.9 46.9 27.3
Tractor business outlook for FY18.
BV/Sh. (INR) 184.1 199.9 229.2 266.6
Updates on VRS planned.
RoE (%) 6.1 12.1 15.9 17.5
Outlook for construction equipment business.
RoCE (%) 7.4 10.8 15.4 17.5
Valuations
P/E (x) 47.8 22.9 15.6 12.2
P/BV (x) 2.9 2.7 2.3 2.0
EV/EBITDA (x) 42.2 18.7 12.9 10.1
EV/Sales (x) 1.7 1.4 1.2 1.0
Exide Industries
Bloomberg EXID IN CMP: INR230 TP:INR270 (+17%) Buy
Equity Shares (m) 850.0
We expect net revenue to grow 13% YoY (+15% QoQ) to INR19.9b
M. Cap. (INR b)/(USD b) 194 / 3
as better replacement demand recovery post demonetization and
52-Week Range (INR) 232 / 130
1,6,12 Rel Perf. (%) 4 / 11 / 49
higher OEM demand too.
EBITDA margin is likely to remain flat YoY (+180bp QoQ) to 15.1%
as replacement price has been increased by 10% from Nov 16 to
Financial Snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
Mar 17 due to increase in Lead prices.
Net Sales 68.4 76.5 86.3 98.8 Lead prices have gone down by ~4% QoQ in 3QFY17, the effect of
EBITDA 10.3 11.4 13.1 15.4 which will be reflected in 4Q raw material costs.
Adj. PAT 6.3 7.1 8.3 10.1 EBITDA is estimated to increase 13.5% YoY (+31% QoQ) to
Adj. EPS (INR) 7.4 8.4 9.8 11.9 ~INR3b.
EPS Gr. (%) 14.8 13.9 16.7 21.5 PAT is likely to increase by 4% YoY (+22% QoQ) to INR1.9b led by
BV/Sh. (INR) 52.2 58.0 65.2 74.6 lower other income, higher depreciation and higher tax rate.
RoE (%) 14.1 14.5 15.0 16.0 The stock trades at 23.3x FY18E and 19.2x FY19E EPS; We have
RoCE (%) 14.6 15.0 15.7 16.8 increased the multiple to 20x from 18x reducing discount to 20%
Payout (%) 32.5 26.2 22.4 18.5 to Amara Raja lead by corrective actions taken by management
Valuations and maintain Buy.
P/E (x) 30.5 26.8 22.9 18.9
Key issues to watch
P/BV (x) 4.3 3.9 3.4 3.0
Update on demand environment for OEMs, auto replacement
EV/EBITDA (x) 16.1 14.5 12.4 9.9
and industrial battery segments post demonetization.
Div. Yield (%) 1.1 1.0 1.0 1.0
Update on market share in autos and non-autos.
Outlook for raw material cost trend, recent pricing action and
currency hedges, if any.
Update on technological upgradation.
Update on capacity expansion plans across product segments.
April 2017 68
March 2017 Results Preview | Sector: Automobiles
Hero MotoCorp
Bloomberg HMCL IN CMP: INR3,201 TP:INR3,390 (+6%) Neutral
Equity Shares (m) 199.7
Sales volume declined ~6% YoY (+10% QoQ) to 1.62m units, led by
M. Cap. (INR b)/(USD b) 638 / 10
gradual recovery post demonetization impact derailed November
52-Week Range (INR) 3740 / 2829
1,6,12 Rel Perf. (%) -6 / -15 / -12
and December sales volumes. Also due to higher inventory at
dealer level of BS-III vehicle post ban by apex court, the focus was
to clear the inventory at dealer level. The retail sale for March
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
2017 was 15% higher than wholesale for the month.
Sales 284.4 284.0 309.7 333.5
Realization should decline by 3% YoY (-2% QoQ) to
EBITDA 44.6 48.0 50.9 50.7 INR42,198/unit.
NP 31.6 34.4 37.0 37.6 Net revenue is likely to decline 9% YoY (+8% QoQ) to INR68.4b.
Adj. EPS (INR) 158 172 185 188 EBITDA margin is expected to increase by 40bp YoY (-130bp QoQ)
EPS Gr. (%) 26.6 8.8 7.5 1.7 to 16.3% led by benefits of cost reduction initiatives.
BV/Sh. (INR) 398 474 550 630 EBITDA is likely to decline 6% YoY (+4% QoQ) to ~INR11.2b.
RoE (%) 43.6 39.5 36.2 31.9 We expect PAT to decline 7% YoY (+1% QoQ) to INR7.8b.
RoCE (%) 42.9 38.6 35.4 31.3 We have reduced EPS estimate for FY18E/FY19E by 3%/5.5% and
Payout (%) 52.3 53.4 55.9 55.0 at the same time increased the multiple from 16x to 18x. The
Valuations stock trades at 17.3x FY18E and 17x FY19E EPS; maintain Neutral.
P/E (x) 20.3 18.7 17.4 17.1 Key issues to watch
P/BV (x) 8.1 6.8 5.8 5.1 Update on demand environment (especially rural areas) at the
EV/EBITDA (x) 13.4 12.2 11.3 11.2
retail level, channel inventory to access the impact of
Div. Yield (%) 2.2 2.5 2.8 2.8
demonetization.
Guidance on export plans and new launches along with
timelines.
Update on cost saving initiatives.
April 2017 69
March 2017 Results Preview | Sector: Automobiles
April 2017 70
March 2017 Results Preview | Sector: Automobiles
Maruti Suzuki
Bloomberg MSIL IN
CMP: INR6,285 TP:INR7,299 (+16%) Buy
Equity Shares (m) 302.1
Volume grew by ~15% YoY (+7% QoQ) in 4QFY17 to ~414,439
M. Cap. (INR b)/(USD b) 1915 / 29
52-Week Range (INR) 6356 / 3419
units, led by continuous better performance from Baleno and
1,6,12 Rel Perf. (%) 4 / 5 / 58 Brezza, with ongoing high waiting period.
Net realization is likely to improve 6% YoY (+3.3% QoQ) to
Financial Snapshot (INR b)
INR449,769 per unit, boosting net revenue by ~22% YoY (+10.5%
Y/E MARCH 2016 2017E 2018E 2019E QoQ) to INR186.4b. Growth in realization is likely to be driven by
Sales 576.5 682.7 816.1 945.3 improvement in product mix due to compact UV, Vitarra Brezza,
EBITDA 89.0 104.6 130.7 156.0 and premium hatchback, Baleno.
Adj. PAT 53.7 74.5 91.2 111.2 We expect margin to decline 80 bp YoY (-20bp QoQ) to 14.6% led
Con.adj.EPSINR 155.5 253.2 307.6 374.1 by impact of commissioning of Gujarat plant and higher fixed cost
EPS Gr. (%) 23.4 62.8 21.5 21.6 due to same. Higher commodity prices are likely to be offset by
BV/Sh. (INR) 894.0 1,083 1,313 1,597 hike in prices.
RoE (%) 19.9 22.4 23.0 23.1 EBITDA is estimated to grow by 15% YoY (+9% QoQ) at INR27.2b.
RoCE (%) 27.2 30.7 30.9 30.5 We expect PAT to grow ~17% YoY (+5% QoQ) to INR18.2b led by
Payout (%) 23.7 22.2 23.9 22.9 pre- operative expenses of Gujarat plant taken as extraordinary
Valuations item and lower other income due to higher yield.
P/E (x) 40.3 24.7 20.4 16.7 The stock trades at 16.8x FY18E and 14.7x FY19E EPS. Maintain
P/CE (x) 25.2 18.5 15.4 12.9
Buy.
EV/EBITDA (x) 19.3 16.0 12.2 9.7
Key issues to watch
Div. Yield (%) 0.6 0.7 1.0 1.1
Update on demand scenario, channel inventory, discounting
*Consol. & adjusted
trends and new launches.
Gujarat plant product pipeline.
Quarterly Performance (INR Million)
FY16 FY17E FY16 FY17E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Total Volumes (nos) 341,329 353,335 374,182 360,354 348,443 418,470 387,251 414,439 1,429,200 1,568,603
Change (%) 13.8 9.8 15.5 3.9 2.1 18.4 3.5 15.0 10.6 9.8
Realizations (INR/car) 391,907 392,013 401,227 425,002 428,202 426,382 435,500 449,769 403,394 435,217
Change (%) 2.8 2.5 3.1 8.1 9.3 8.8 8.5 5.8 4.3 7.9
Net operating revenues 133,769 138,512 150,132 153,151 149,204 178,428 168,648 186,402 576,530 682,682
Change (%) 17.1 12.5 19.1 12.4 11.5 28.8 12.3 21.7 15.4 18.4
RM Cost (% of sales) 67.4 66.9 68.6 65.9 67.9 67.7 69.2 68.8 67.4 68.4
Staff Cost (% of sales) 3.5 3.0 3.3 3.9 3.9 2.9 3.7 3.7 3.4 3.5
Other Cost (% of sales) 12.9 13.9 13.8 14.7 13.4 12.4 12.4 12.9 13.8 12.7
EBITDA 21,673 22,457 21,452 23,594 22,157 30,374 24,890 27,209 88,962 104,630
EBITDA Margins (%) 16.2 16.2 14.3 15.4 14.9 17.0 14.8 14.6 15.4 15.3
Non-Operating Income 2,065 4,736 2,425 5,384 4,833 8,126 5,919 5,080 14,610 23,958
Interest 190 178 244 203 181 197 290 207 815 875
Depreciation 6,716 6,694 7,221 7,608 6,389 6,300 6,349 6,929 28,239 25,967
PBT 16,832 20,321 16,412 21,167 20,420 32,003 24,170 23,669 74,518 100,262
Effective Tax Rate (%) 28.2 26.3 27.9 26.3 27.2 25.1 27.8 27.5 28.0 26.8
Adjusted PAT 12,081 14,973 11,830 15,602 14,862 23,980 17,445 18,231 53,654 74,529
Change (%) 58.5 73.6 42.7 21.5 23.0 60.2 47.5 16.8 44.6 38.9
E:MOSL Estimates
April 2017 71
March 2017 Results Preview | Sector: Automobiles
Tata Motors
Bloomberg TTMT IN CMP: INR473 TP:INR609 (+29%) Buy
Equity Shares (m) 3395.9
We expect JLRs (incl JV) volume to be ~6% YoY (+13% QoQ) led by
M. Cap. (INR b)/(USD b) 1608 / 25
phasing out of Discovery volume. Net realization should increase
52-Week Range (INR) 599 / 368
by ~14% YoY (flat QoQ) led by ramp up of F-Pace and increase in
1,6,12 Rel Perf. (%) -1 / -21 / 7
share of China. EBITDA margin would decline 550bp YoY (+140bp
QoQ) to 10.7% led by GBP650m of forex hedge loss estimated for
Financial Snapshot (INR b) the quarter along with phasing out cost of Discovery. Adjusted
Y/E March 2016 2017E 2018E 2019E PAT likely to decline ~41% YoY (+200% QoQ) to GBP333m.
Net Sales 2,756 2,783 3,066 3,812 S/A volume grew 1.2% YoY (+12% QoQ), led by a 23% rise in PVs
EBITDA 402.4 295.8 406.5 582.5 due to Tiago and newly launched Hexa while CVs declined by ~5%
NP 125.2 39.1 100.0 210.4 due to lower than expected pre buying of BS-III vehicles. Margin
Adj. EPS (INR) 36.9 11.5 29.4 62.0 likely to decline 480bp YoY (+180bp QoQ) to 3.3%, as the share of
EPS Gr. (%) -15.5 -68.8 155.6 110.5 CVs decrease & higher commodity cost. Adjusted PAT is likely to
BV/Sh. (INR) 237.9 248.7 274.9 333.6 be INR-6.8b (vis--vis INR5b in 4QFY16) led by higher interest cost
RoE (%) 18.3 4.7 11.2 20.4 & higher depreciation.
RoCE (%) 14.3 4.4 9.3 15.8 We have reduced EPS estimate of FY18E/FY19E by 18%/12%, led
Payout (%) 0.7 31.4 16.4 7.8 by higher interest cost & depreciation at standalone level, and
Valuations expected moderation in CV growth.
P/E (x) 12.7 40.6 15.9 7.6 The stock trades at 10.7x FY18E and 10.8x FY19E EPS. Buy.
P/BV (x) 2.0 1.9 1.7 1.4 Key issues to watch
EV/EBITDA (x) 4.2 6.1 4.5 2.7 Impact of Brexit on JLR business.
Div. Yield (%) 0.0 0.6 0.9 0.9 Current demand trends for JLR and outlook, particularly in China
and the US.
Update on Chery JV operations and CV business outlook.
Quarterly Performance [Consol]
Y/E March FY16 FY17 FY17E
(Consolidated) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
JLR vols. (incl JV) 114,452 116,745 150,461 162,427 134,334 139,227 152,245 171,471 597,277
JLR Realizations (GBP/unit) 45,206 43,460 42,004 43,991 45,216 47,937 49,935 49,966 48,398
JLR EBITDA (%) 16.4 12.2 14.4 16.2 12.3 10.3 9.3 10.7 10.6
JLR PAT (GBP m) 492 52 414 560 265 245 111 333 943
S/A vol. (units) 117,160 117,439 123,176 146,766 126,839 134,397 132,553 148,533 542,322
S/A Realizations (INR/unit) 795,852 910,574 815,239 856,454 813,594 768,057 771,001 803,228 2
S/A EBITDA (%) 6.1 8.2 6.0 8.1 6.8 3.6 1.5 3.3 3.8
S/A PAT (INR m) 333 351 236 5,014 996 -6,621 -10,451 -6,816 -22,533
Net Op Income 604,009 615,240 705,921 806,844 658,950 659,004 675,313 790,204 2,783,471
Growth (%) -6.6 1.5 0.9 19.4 9.1 7.1 -4.3 -2.1 1.0
EBITDA 110,068 65,189 88,545 113,872 76,220 62,826 51,612 71,424 262,082
EBITDA Margins (%) 18.2 10.6 12.5 14.1 11.6 9.5 7.6 9.0 9.4
Depreciation 37,416 43,618 42,620 44,239 45,508 44,540 42,300 45,440 177,788
Other Income 2,241 2,568 1,928 2,486 1,736 1,794 1,674 2,177 7,381
Interest Expenses 11,496 12,228 11,383 12,552 11,785 10,249 8,707 10,130 40,870
PBT before EO Exp 63,398 11,911 36,470 59,567 20,663 9,831 2,280 18,032 50,805
EO Exp/(Inc) -6,338 33,411 2,332 -6,044 -4,851 -162 -3,706 0 -8,719
PBT after EO Exp 69,736 -21,500 34,138 65,611 25,514 9,993 5,986 18,032 59,525
Tax 16,485 -4,291 6,690 13,546 7,200 4,246 8,670 8,707 28,823
Tax rate (%) 23.6 20.0 19.6 20.6 28.2 42.5 144.8 48.3 48.4
PAT 53,251 -17,209 27,449 52,065 18,314 5,747 -2,684 9,325 30,702
Minority Interest -232 -214 -186 -383 -240 -198 -178 -355 -971
Share in profit of Associate -708 -139 2,078 89 4,290 2,735 3,799 3,055 13,879
Adj PAT 47,470 9,180 31,216 46,975 18,882 8,191 2,599 12,025 39,113
Growth (%) (10.9) (72.0) (19.2) 158.4 (60.2) (10.8) (91.7) (74.4) -68.8
E: MOSL Estimates
April 2017 72
March 2017 Results Preview | Sector: Automobiles
April 2017 73
March
March2017
2015 Results
2016March Preview
Results2017
Preview || Sector:
ResultsSector:
PreviewCapital
Capital Goods
| April
Goods
2017
Technology
Capital Goods
Demonetization weathered; revival underway
Company name
Impending structural reforms to rekindle investment cycle
ABB
Bharat Electronics Domestic capex cycle reviving; exports hamstrung by weak global demand
BHEL The domestic capex cycle appears to have bounced back post demonetization. CMIE
data indicates that new investment proposals by India Inc stood at INR2.6t (+82%
Crompton Greaves
QoQ) for the March quarter against an average of INR2.3t per quarter in the
Crompton Greaves Consumer preceding 10 quarters. Though the near-term outlook remains subdued, policy
Cummins India initiatives and efforts are underway to (i) expedite regulatory approvals, and (ii)
GE T&D establish monetary conditions conducive to industrial revival in the medium term.
Havells India We believe investment revival would be triggered by: (i) sustained recovery in
Larsen & Toubro consumption demand, and thus, capacity utilization, and (ii) investment push by
the public sector, leading to a virtuous cycle of cash flow generation.
Siemens
Simultaneously, sustained progress in reviving stalled projects is imperative to
Thermax attract new investments and stimulate aggregate demand.
Voltas By initiating GST, labor and energy sector reforms, the government has partly
addressed concerns on the pace and extent of reforms. Implementation of
substantive reforms is essential for structured investment growth.
Indian machinery exports have decelerated due to factors such as weak global
demand, geopolitical concerns and sharp currency volatility across several
markets. Also, falling crude prices had an adverse impact on global trade, and
thus, investment demand. Project awards in the Middle East have been muted
in fact, revenue estimates for global industrial players suggest that sluggishness
has continued for around nine quarters.
17.9
16.3
16.1
16.0
15.5
14.5
16.9
14.0
13.5
13.5
16.3
12.3
16.1
12.1
12.0
12.0
12.0
16.0
11.6
11.6
11.3
11.0
15.5
10.2
10.0
10.0
14.5
9.9
9.2
14.0
8.7
8.6
16.6 8.4
8.3
13.5
13.5
4.1 7.7
2.8 7.2
12.3
12.1
12.0
12.0
12.0
3.1 4.3
11.6
11.6
11.3
11.0
10.2
22.0
12.8
21.7
28.8
16.4
16.8
19.6
18.2
20.9
15.6
15.3
26.3
11.7
10.0
10.0
9.9
9.2
7.5
3.7
6.6
1.3
2.7
2.8
8.5
1.1
9.2
8.7
8.6
8.4
8.3
7.7
7.2
4.3
3QFY13 -5.2
-3.5
-1.0
3QFY15 -0.8
-1.4
1QFY10
3QFY10
1QFY11
3QFY11
1QFY12
3QFY12
1QFY13
3QFY13
1QFY14
3QFY14
1QFY15
3QFY15
1QFY16
3QFY16
1QFY17
3QFY17
1QFY10
3QFY10
1QFY11
3QFY11
1QFY12
3QFY12
1QFY13
1QFY14
3QFY14
1QFY15
1QFY16
3QFY16
1QFY17
3QFY17
April 2017 75
March 2017 Results Preview | Sector: Capital Goods
58
56
3.3
3.3
52
3.3
3.2
3.2
3.2
3.1
3.1
3.0
39
2.9
2.6
2.6
31
22
17
15
2.4
2.4
2.3
2.3
2.3
20
2.3
2.2
14
2.2
2.1
6
-20
0
3,263
3,112
3,168
3,127
2,964
2,893
2,958
2,989
3,028
2,943
3,230
3,482
3,594
3,605
3,813
3,717
3,641
3,842
3,839
3,933
3,865
-1
-1
-2
-20
-11
-24
3QFY12 -34
-47
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
1QFY13
3QFY13
1QFY14
3QFY14
1QFY15
3QFY15
1QFY16
3QFY16
1QFY17
3QFY17
Source: MOSL, Company Source: MOSL, Company
Exhibit 6: Relative performance Three-month (%) Exhibit 7: Relative performance One-year (%)
Sensex Index MOSL Capital Goods Index Sensex Index MOSL Capital Goods Index
122 130
116 122
110 114
104 106
98 98
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Jan-17
Feb-17
Mar-17
April 2017 76
March 2017 Results Preview | Sector: Capital Goods
ABB
Bloomberg ABB IN
CMP: INR1,323 TP: INR1,190 (-10%) Neutral
Equity Shares (m) 211.9
M. Cap. (INR b)/(USD b) 280 / 4
ABB has received an order of INR43.5b from PGCIL to set up a
52-Week Range (INR) 1433 / 950 transmission link between Raigarh and Pugular with 800KV HVDC
1,6,12 Rel Perf. (%) 4 / 7 / -17 systems.
ABB continues to focus on increased localization and cost
Financial Snapshot (INR b)
optimization. Its direct RM costs have declined to 64.5% of revenue
Y/E Dec 2016 2017E 2018E 2019E from a peak of 81% in 4QCY10, well below its internal target of
Net Sales 86.5 100.3 114.2 124.6 65%. This has aided margins, despite negative operating leverage.
EBITDA 7.6 10.9 13.1 15.0 We expect revenue to grow 10% YoY led by execution ramp-up in
Adj PAT 3.8 5.5 6.9 8.1 the project segment. Operating margin is likely to decline 180bp
Adj EPS (INR) 18.4 26.1 32.6 38.3 YoY to 9.7%. Net profit should grow 28% YoY to INR1.01b.
EPS Gr (%) 16.9 41.6 25.0 17.3 Maintain Neutral.
BV/Sh (INR) 154.9 181.0 204.7 232.5
RoE (%) 11.9 14.4 15.9 16.5
RoCE (%) 17.4 22.6 24.6 25.5
Payout (%) 22.7 23.5 23.5 23.5 Key issues to watch
Valuations Management commentary suggests cautious optimism.
P/E (x) 71.8 50.7 40.6 34.6 Continued focus on exports and services to be an important driver
P/BV (x) 8.5 7.3 6.5 5.7 of projected strong double-digit revenue and profit growth.
EV/EBITDA (x) 29.4 22.6 17.2 12.8 Continued preference for cash generation vis--vis profits.
Div. Yield (%) 0.3 0.5 0.6 0.7
April 2017 77
March 2017 Results Preview | Sector: Capital Goods
Bharat Electronics
Bloomberg BHE IN CMP: INR161 TP: INR180 (+12%) Buy
Equity Shares (m) 2233.6
Bharat Electronics (BHE) has received an offset contract from Elbit
M. Cap. (INR b)/(USD b) 361 / 6
52-Week Range (INR) 167 / 108
Systems for supply of 10 units of CoMPASS systems for use in the
1,6,12 Rel Perf. (%) 4 / 21 / 16
light combat helicopters being manufactured by HAL.
BHE has launched a remote-controlled weapon system for MBT
Arjun MK II, a weapon control system for 12.7mm gun of MBT
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E Arjun MK II battle tank.
Net Sales 73.0 85.7 97.1 110.5 BHE registered provisional revenue of INR88b in FY17, led by
EBITDA 14.6 17.5 18.9 21.4 execution of key orders in hand, like Akash missile, WLR, hand-held
NP 13.7 15.5 16.3 18.9 thermal device, tactical control radar, etc.
EPS (INR) 5.7 6.5 7.3 8.5
BHE plans to explore opportunities in critical infrastructure
EPS Gr. (%) 17.1 13.7 12.9 16.1
BV/Sh (INR) 36.4 34.0 38.8 44.3
protection, air traffic management radars, intelligent traffic
RoE (%) 15.6 20.4 18.8 19.1 management systems, solar power plants and smart city elements.
RoCE (%) 16.5 19.0 20.1 20.4 BHE has planned capex of INR23b over the next five years toward
Valuations modernization and expansion of existing facilities to support the
P/E (x) 26.6 21.8 20.7 17.8 governments Make in India initiative. Majority of the capex
P/BV (x) 4.2 4.4 3.9 3.4
would be spent on developing BMS test bed, TCS test bed, test bed
EV/EBITDA (x) 19.9 16.4 14.7 12.4
for missile system, etc. Maintain Buy.
April 2017 78
March 2017 Results Preview | Sector: Capital Goods
BHEL
Bloomberg BHEL IN CMP: INR171 TP: INR115 (-33%) Sell
Equity Shares (m) 2447.6
We expect revenue to grow 29% YoY. We estimate operating profit
M. Cap. (INR b)/(USD b) 419 / 6
52-Week Range (INR) 172 / 112
at INR14.4b against INR3.6b in 4QFY16 growth would be driven
1,6,12 Rel Perf. (%) 4 / 19 / 31
by better operating leverage and lower other expenses. We
estimate net profit at INR10.8b against INR3.6b in 4QFY16.
During the quarter, BHEL bagged an order worth INR13.6b for
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E setting up 800KV Raigarh Pugular multi-terminal HVDC link in JV
Net Sales 256.3 315.6 315.5 344.4 with ABB. BHEL will supply converter transformers, shunt reactors,
EBITDA -19.6 18.9 18.8 19.0
filter bank capacitors and instrument transformers.
PAT -9.1 13.6 14.0 14.2
BHEL also secured an EPC order for the installation of solar
photovoltaic rooftop systems totaling to 3.6MW from Surat
EPS (INR) -3.7 5.5 5.7 5.8
Municipal Corporation.
EPS Gr. (%) -163.6 -249.2 3.3 1.3
BHEL is L1 in 6.6GW of orders, of which it expects 5GW of orders to
BV/Sh. INR 135.0 139.3 143.7 148.2
be finalized in FY17.
RoE (%) -2.7 4.0 4.0 4.0
RoCE (%) -4.1 2.5 2.4 2.0
Payout (%) -10.8 20.0 20.0 20.0
Valuations
Key issues to watch
P/E (x) -46.2 30.9 30.0 29.6
Continued constraint on execution due to operational issues.
P/BV (x) 1.3 1.2 1.2 4.0 Trends in provisions, particularly for liquidated damages on
EV/EBITDA (x) -16.3 16.9 13.7 15.5 project completion.
Div Yield (%) 0.2 0.6 0.7 0.7
* Consolidated
April 2017 79
March 2017 Results Preview | Sector: Capital Goods
April 2017 80
March 2017 Results Preview | Sector: Capital Goods
CG Consumer Electricals
Bloomberg CROMPTON IN CMP: INR220 TP: INR221 (0%) Buy
Equity Shares (m) 626.8
We expect sales to grow 8% YoY, driven by 9% YoY growth in the
M. Cap. (INR b)/(USD b) 138 / 2
consumer durables segment and 6% YoY growth in the lighting
52-Week Range (INR) 239 / 126
1,6,12 Rel Perf. (%) -
segment.
We expect operating profit of INR1.4b in 4QFY17, an improvement
of 8% YoY, and stable EBITDA margin of 12.6%.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E Net profit is expected to be INR809m in 4QFY17 as against
Net Sales 18.1 39.8 44.3 49.9 INR759m in 4QFY16, a growth of 6.6% YoY.
EBITDA 2.1 4.9 5.6 6.7
Adj PAT 1.1 2.9 3.4 4.2
EPS (INR) 1.9 4.6 5.5 6.7
EPS Gr. (%) (70.3) 139.7 19.7 23.8
BV/Sh. (INR) 3.6 6.0 8.9 11.6
RoE (%) 52.1 94.3 73.3 66.1
RoCE (%) 27.4 35.1 34.1 35.8
Key issues to watch
Details of segmental sales, as CROMPTON intends to improve
Payout (%) - 40.0 40.0 50.0
sales of premium category products.
Valuations
Ad spends incurred by the company during the quarter, as
P/E (x) 115.7 48.3 40.3 32.6
CROMPTON intends to position itself as an electrical consumer
P/BV (x) 60.3 36.5 24.8 19.0
durables brand as against its current positioning as a fans brand.
EV/EBITDA, x 68.8 29.4 25.4 20.9
Div Yield (%) - 0.8 1.0 1.5
* Consolidated
April 2017 81
March 2017 Results Preview | Sector: Capital Goods
Cummins India
Bloomberg KKC IN CMP: INR968 TP: INR990 (+2%) Neutral
Equity Shares (m) 277.2
We expect revenue to grow 19% YoY, supported by growth in the
M. Cap. (INR b)/(USD b) 268 / 4
industrial (23%) and automotive (12%) segments. Industrial
52-Week Range (INR) 973 / 747
1,6,12 Rel Perf. (%) 6 / -3 / -5
segment growth would be driven by a pick-up in infrastructure
(roads and metros) and data center segments.
Pick-up in the domestic demand environment and various pricing
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E actions taken by KKC would help it to regain lost market share post
Net Sales 47.0 50.0 56.6 65.5 CPCB-2 compliance.
EBITDA 7.7 7.7 9.2 11.3 Domestic revenue should grow 11% YoY in 4QFY17.
Adj PAT 7.5 7.2 8.4 10.1 We expect export revenue to improve 24% YoY to INR4.1b in
EPS (INR) 27.2 26.0 30.2 36.3
4QFY17 given low base of 4QFY16.
EPS Gr. (%) -4.0 -4.6 16.4 20.0
BV/Sh. (INR) 114.4 124.8 136.9 151.5
EBITDA margin is expected to remain stable YoY at 16.6%; net
RoE (%) 24.9 22.0 23.1 25.2 profit should grow 13% YoY to INR1.9b. Maintain Neutral.
RoCE (%) 25.2 21.9 23.3 25.4
Payout (%) 51.5 51.5 51.5 51.5 Key issues to watch
Valuations
Cost optimization possibilities in power gen business, given
P/E (x) 29.7 31.1 26.8 22.3
increased localization due to a significant decline in imports post
P/BV (x) 7.1 6.5 5.9 5.3
EV/EBITDA, x 28.9 29.0 24.0 19.5 CPCB-2 implementation.
Div Yield (%) 1.7 1.7 1.9 2.3 Performance of export segment, as exports which remained
weak, led by poor demand in LatAm, Europe and China have
shown some signs of picking up from 3QFY17.
April 2017 82
March 2017 Results Preview | Sector: Capital Goods
GE T&D
Bloomberg GETD IN CMP: INR335 TP: INR340 (+1%) Neutral
Equity Shares (m) 256.1
We expect GETD to register robust revenue growth of 14% YoY to
M. Cap. (INR b)/(USD b) 86 / 1
INR11.1b in 4QFY17. Revenue growth would be driven by
52-Week Range (INR) 459 / 277
1,6,12 Rel Perf. (%) 10 / -10 / -41
execution of the Champa-Kurukshetra Phase-I project.
We expect operating profit of INR1.1b in 4QFY17 as against
INR850m in 4QFY16. Gross margin is likely to expand 30bp to
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E 32.9% from 32.6% in 4QFY16.
Net Sales 34.1 39.6 45.3 50.2 GETD is expected to book net profit of INR531m as against profit
EBITDA 2.3 2.2 5.0 5.5 of INR299m in 4QFY16. Maintain Neutral.
Adj PAT 0.8 1.5 2.8 2.9
EPS (INR) 3.0 6.0 11.0 11.4
EPS Gr. (%) -35.7 98.6 83.5 3.0
BV/Sh. (INR) 52.1 50.5 56.2 62.1
RoE (%) 5.9 11.7 20.7 19.2
RoCE (%) 10.1 13.8 23.3 22.7
Payout (%) 59.5 40.0 40.0 40.0
Valuations
P/E (x) 110.7 55.7 30.4 29.5
P/BV (x) 6.4 6.6 6.0 5.4
Key issues to watch
EV/EBITDA (x) 38.8 39.6 17.2 15.4
Progress in the Champa-Kurukshetra Phase-I project.
EV/ Sales (x) 2.6 2.2 1.9 1.7
Div Yield (%) 0.5 -0.4 1.3 1.4
April 2017 83
March 2017 Results Preview | Sector: Capital Goods
Havells India
Bloomberg HAVL IN CMP: INR469 TP: INR425 (-9%) Neutral
Equity Shares (m) 624.6
During the quarter, Havells acquired the consumer durables
M. Cap. (INR b)/(USD b) 293 / 5
segment of Lloyd Electric and Engineering Limited for an enterprise
52-Week Range (INR) 475 / 304
1,6,12 Rel Perf. (%) 7 / -1 / 28
value of INR16b on a debt-free, cash-free basis. Lloyds consumer
durables arm has an annual turnover of INR12.4b.
Standalone revenue is expected to register growth of 8% YoY. We
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E expect the cables segment, which contributes 41% of the
Net Sales 77.1 63.1 96.7 112.8 companys revenue, to register 5% YoY growth, led by
EBITDA 8.0 7.9 11.8 14.0 improvement in the prices of the copper (+11% YoY). Electrical
Adj PAT 4.8 5.6 7.5 8.8 consumer durables (+1.2% YoY) and lighting (+2.5% YoY) divisions
Adj EPS (INR) 7.8 8.9 12.1 14.1 are likely to report muted growth.
EPS Gr. (%) -6.0 15.0 35.0 17.0 We expect operating margin to shrink 230bp YoY to 11.4% in
BV/Sh(INR) 41.0 44.1 49.1 56.2 4QFY17, led by increase in staff cost.
RoE (%) 19.0 20.3 24.6 25.1 Net profit is expected to decline 23.5% YoY. Maintain Neutral.
RoCE (%) 20.4 18.1 22.5 24.1
Payout (%) 93.0 65.5 58.2 49.7
Valuations Key issues to watch
P/E (x) 60.4 52.5 38.9 33.2 Commentary on the integration of consumer durables arm of
P/BV (x) 11.4 10.6 9.6 8.3 Lloyd Electric with itself.
EV/EBITDA (x) 34.6 36.9 24.6 20.7 Commentary on the demonetization-led impact on the sales and
Div Yield (%) 0.9 1.1 1.3 1.3 guidance for FY18.
April 2017 84
March 2017 Results Preview | Sector: Capital Goods
April 2017 85
March 2017 Results Preview | Sector: Capital Goods
Siemens
Bloomberg SIEM IN CMP: INR1,308 TP: INR1,340 (2%) Neutral
Equity Shares (m) 356.1
During the quarter, SIEM in JV with Sumitomo Electric Industries
M. Cap. (INR b)/(USD b) 466 / 7
has been awarded an order from Power Grid to supply HVDC
52-Week Range (INR) 1355 / 1011
1,6,12 Rel Perf. (%) 6 / -2 / -2
transmission system for the Pugalur-Thrissur line. The total order
size is USD520m (INR34.3b), of which SIEMs share is INR16.8b.
SIEM received an order from Delhi Transco to install 220/66/33KV
Financial Snapshot (INR b)
Y/E September 2015 2016 2017E 2018E GIS substation at RK Puram.
Net Sales 108.1 109.8 130.5 141.0 SIEM has received an order from Sterlite Power Grid Ventures for
EBITDA 9.7 12.5 15.9 18.2 supply of 765/400kv AIS substation at Khandwa (Madhya Pradesh)
Adj PAT 6.1 9.2 11.9 13.6 and an order for 765KV AIS bay extension equipment at Dhule from
Adj EPS (INR) 17.0 25.7 33.5 38.3 Khargone Transmission.
EPS Gr (%) 0.4 51.2 30.4 14.3 We expect SIEM to register YoY revenue decline of 4% to INR26.8b,
BV/Sh. (INR) 184.9 215.4 236.8 216.5 as it sold the healthcare division in 3QFY16. Excluding healthcare,
RoE (%) 9.2 11.9 14.2 16.9 we expect robust revenue growth of 14% YoY, led by strong
RoCE (%) 14.6 17.3 19.9 17.8 performance by the industrial and energy segments.
Payout (%) 30.1 41.3 40.0 30.0 Maintain Neutral.
Valuations
P/E (x) 70.7 46.7 35.8 34.1 Key issues to watch
P/BV (x) 6.5 5.6 5.1 6.0 Raw material imports account for 55% of raw material cost;
EV/EBITDA (x) 40.4 30.7 23.9 20.2 Siemens AGs network comprises 82% of imports; EUR
Div. Yield (%) 2.8 0.9 0.8 1.7 appreciating 4% YoY v/s INR could impact margin profile.
April 2017 86
March 2017 Results Preview | Sector: Capital Goods
Thermax
Bloomberg TMX IN CMP: INR987 TP: INR781 (-21%) Sell
Equity Shares (m) 119.2
During the quarter, Thermax through its step-down subsidiary,
M. Cap. (INR b)/(USD b) 118 / 2
has agreed to acquire 100% stake in Barite Investments, Poland.
52-Week Range (INR) 1008 / 691
1,6,12 Rel Perf. (%) 9 / 2 / 11
The Polish company manufactures boilers and the acquisition
would provide Thermax additional manufacturing capacity and
help advance its business in the Eastern Europe region.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
Revenue is likely to register muted decline of 1% YoY, led by
Net Sales 52.6 45.2 48.8 54.9
constrained execution environment prevailing in the energy
EBITDA 4.1 3.8 4.8 5.4
segment and lower order book available for execution. Operating
Adj PAT 2.8 2.8 3.4 3.8
margin is expected to decline 130bp YoY to 12.1%.
EPS (INR) 23.5 23.5 28.4 31.5
Ordering activity remains muted in a weak macro environment.
EPS Gr. (%) 8.2 0.0 20.7 11.1 We believe domestic orders have remained at the base level
BV/Sh. (INR) 197.7 211.3 228.8 248.3 (INR5b-7b per quarter), as the company has not announced any
RoE (%) 12.5 11.6 12.9 13.2 meaningful order during the quarter.
RoCE (%) 11.3 9.9 12.4 12.6 Maintain Sell.
Payout (%) 32.9 36.0 32.8 32.5
Valuations
P/E (X) 41.9 41.9 34.8 31.3
Key issues to watch
P/BV (X) 5.0 4.7 4.3 4.0
Demand environment in domestic and overseas markets.
EV/EBITDA (X) 29.3 30.7 24.2 21.2
Sustainability of margins in energy (9.6% in 3QFY17) and
Div Yield (%) 0.8 0.9 0.9 1.0
environment (13.6% in 3QFY17) segments.
April 2017 87
March 2017 Results Preview | Sector: Capital Goods
Voltas
Bloomberg VOLT IN CMP: INR415 TP: INR374 (-10%) Neutral
Equity Shares (m) 330.8
Unitary cooling division (UCP) is likely to report revenue growth of
M. Cap. (INR b)/(USD b) 137 / 2
8% YoY, given primary channel filling, driven by a strong summer
52-Week Range (INR) 425 / 267
1,6,12 Rel Perf. (%) 8 / -1 / 31
and LG vacating the fixed-speed air conditioning segment.
We expect revenue growth of 6% YoY in the MEP segment, led by
high base effect (37% YoY growth in 4QFY16). However, the key
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E monitorable would be sustainability of margins in the segment.
Net Sales 58.6 59.3 67.2 75.7 VOLT had booked EBIT margin of 3.9% in 4QFY16 on positive
EBITDA 4.4 5.5 5.3 6.1 closure of certain old projects, provision reversal and higher
Adj PAT 3.9 4.5 4.9 5.6 margin new projects getting executed.
EPS(INR) 11.7 13.6 14.9 16.9
Prevailing weak crude prices have raised apprehensions over the
EPS Gr. (%) 14.0 16.6 9.9 12.8
BV/Sh. (INR) 72.4 82.1 92.8 104.8
pace of order awards and also execution in the Middle East. Even
RoE (%) 15.3 17.6 17.1 17.1 in the domestic market, new project awards remain constrained.
RoCE (%) 14.8 17.0 16.5 16.5 Maintain Neutral.
Payout (%) 28.6 28.6 28.6 28.6
Valuations
P/E (x) 39.9 30.6 27.8 24.7
P/BV (x) 5.7 5.1 4.5 4.0 Key issues to watch
EV/EBITDA (x) 31.6 24.4 24.9 21.5 Impact of LG vacating the fixed-speed air conditioning segment
Div Yield (%) 0.6 0.8 0.9 1.0 on VOLTs market share and sales.
*Consolidated Sustainability of profitability in the MEP segment and also
capital employed in MEP business.
April 2017 88
March 2017 Results Preview | April 2017
Technology
Cement
Company name Profitability impacted by cost push and weak realization
ACC Exit realizations much better than average realizations for 4QFY17
Ambuja Cements
Volume growth trajectory normalizing post demonetization
Dalmia Cement
All-India production dropped sharply by 14% YoY during January-February 2017;
Grasim Industries
however, we expect the pace of decline to ease to 4% YoY in March, led by a
India Cements meaningful improvement in volumes. Consequently, FY17 volumes for all-India
Shree Cement cement could be lower by just ~1% YoY. Region-wise, the north and central markets
Ramco Cement witnessed a sharp improvement in volumes in 4QFY17 (v/s December levels), while
the southern markets saw some slowdown due to water shortage in Tamil Nadu and
UltraTech Cement
Kerala. However, the AP/Telangana markets continue driving demand growth.
We expect the MOSL cement universe to record volume growth of ~2% YoY (+17%
QoQ). We expect: (a) pan-India players to report volume growth of 0-2% YoY, (b)
players with capacity headroom (SRCM, JKLC) to deliver 5-11% YoY increase in
volumes, (c) moderation in volumes growth for south-based companies to 5% YoY
due to a high base as well as slowdown in Tamil Nadu and Kerala.
For 1QFY18, we expect industry volumes to show modest growth YoY due to a
relatively strong base. However, in 2HFY18, we expect volume growth to be strong,
considering the favorable base (2HFY17 volumes estimated to lower by 6% YoY).
8.9
8.3
16.3
6.3
5.7
5.5
5.1
1.3
3.7
3.2
42
2.5
1.8
1.7
1.6
1.6
1.2
0.4
-1.3
-5.0
39 36 38 42 39 37 38 44 43 39 40 43 40 42 49 47 41 43 50
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17E
78
78
77
76
76
73
73
72
71
71
71
70
72
70
68
68
67
67
68
66
65
65
65
65
65
65
65
331
329
317
299
298
298
298
297
297
296
293
293
298
291
289
289
288
293
282
287 288
278
283 277
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17E
April 2017 90
March 2017 Results Preview | Sector: Cement
Exhibit 5: MOSL coverage realization to decline 2% QoQ in Exhibit 6: Profitability to decline 13% QoQ, led by weak
4QFY17 realization and higher cost
Realization (INR/ton) EBITDA (INR/ton)
4,352
4,321
4,294
4,259
4,237
4,236
4,229
4,206
4,200
4,190
4,176
4,147
4,100
1,010
4,028
4,017
4,000
3,989
3,975
3,962
3,946
3,873
3,841
966
948
3,777
3,617
857
3,566
837
808
806
802
793
764
759
3,220
750
747
724
714
698
687
683
667
498
526
571
552
528
578
471
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17E
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17E
Source: Company, MOSL Source: Company, MOSL
Exhibit 7: Relative performance3 months (%) Exhibit 8: Relative performance1 year (%)
Sensex Index MOSL Cement Index Sensex Index MOSL Cement Index
160
122
140
116
110 120
104 100
98 80
Dec-16
Jan-17
Feb-17
Mar-17
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Source: Bloomberg, MOSL
April 2017 91
March 2017 Results Preview | Sector: Cement
April 2017 92
March 2017 Results Preview | Sector: Cement
ACC
Bloomberg ACC IN CMP: INR1,467 TP: INR1,339 (-10%) Neutral
Equity Shares (m) 188.0
Dispatches in 1QCY17 are estimated at 6.49mt (+2% YoY), led by
M. Cap. (INR b)/(USD b) 276 / 4
52-Week Range (INR) 1738 / 1257
capacity ramp-up at Jamul. Average realizations are expected to be
1,6,12 Rel Perf. (%) 1 / -17 / -15
lower by 2% QoQ (+3% YoY) at INR4,297/ton due to weak
realizations in the east and north markets.
Revenues are expected to increase 6% YoY to INR30.9b. EBITDA
Financial Snapshot (INR Billion)
Y/E Dec 2015 2016E 2017E 2018E
margin is expected to be 7.0%, down 0.2pp QoQ (-5.6pp YoY).
Sales 114.3 109 121 135 EBITDA/ton is estimated at INR293 (-INR288 YoY, -INR49 QoQ).
EBITDA 11.7 12 15 18 Pure cement EBITDA/ton is estimated at INR311 (-INR231 QoQ)
NP 6.0 6 9 11 due to weak realization. PAT is likely to decline 68% YoY to
Adj. EPS (INR) 32.0 34 47 59 INR749m.
EPS Gr. (%) -30.3 -10 38 26 The stock trades at 32x CY17E EPS, 17x CY17E EV/EBITDA, and CY17
BV/Sh (INR) 449.3 451 444 442 EV/ton of USD118. Maintain Neutral.
RoE (%) 7.2 7 10 13
RoCE (%) 7.4 8 10 13
Payout (%) 65.1 94 116 103
Valuations Key issues to watch out for:
P/E (x) 41 44 32 25 Cement pricing recovery.
P/BV (x) 3 3 3 3 Volume growth and demand revival.
EV/EBITDA (x) 19 22 17 14
Ramp-up of new plant in east.
EV/Ton (x) 107 118 118 113
April 2017 93
March 2017 Results Preview | Sector: Cement
Ambuja Cements
Bloomberg ACEM IN CMP: INR239 TP: INR277 (+16%) Buy
Equity Shares (m) 1985.3
Dispatches in 1QCY17 are estimated to increase 1% YoY to 6.00mt.
M. Cap. (INR b)/(USD b) 474 / 7
Average realizations are expected to decline 1% QoQ to
52-Week Range (INR) 282 / 191
1,6,12 Rel Perf. (%) 2 / -13 / -15
INR4,266/ton. Revenue is estimated at INR25.6b (+6% YoY).
EBITDA margin is expected to be 12.6% (-0.8pp QoQ, -4.9pp YoY).
EBITDA/ton is estimated at ~INR536 (-INR43 QoQ, -INR173 YoY).
Financial Snapshot (INR Billion)
Y/E DEC 2015 2016E 2017E 2018E
Adjusted PAT is estimated to decline 27% YoY to INR2.1b due to
weak profitability.
Sales 93.7 91.6 99.7 111.5
EBITDA 14.4 15.8 18.4 20.6
The stock trades at 24x CY17E EPS, 16x CY17E EV/EBITDA, and
NP 8.5 9.7 14.6 15.6 CY17E EV/ton of USD149. Maintain Buy.
Adj. EPS (INR) 5.5 4.9 7.3 7.9
EPS Gr. (%) -35.9 -10.5 50.4 6.8
BV/Sh. (INR) 66.9 97.4 101.2 103.9
RoE (%) 8.3 5.0 7.4 7.7
RoCE (%) 8.9 6.9 7.6 7.9
Payout (%) 44.9 29.6 47.8 65.7
Key issues to watch out for:
Valuations
Volume growth recovery and outlook.
P/E (x) 38.8 35.9 23.9 22.4
Cement pricing outlook and sustainability.
P/BV (x) 3.2 1.8 1.7 1.7
Post-demonetization volume demand.
EV/EBITDA (x) 22.3 20.4 18.5 16.4
EV/Ton (USD) 138 156 149 141
April 2017 94
March 2017 Results Preview | Sector: Cement
Dalmia Cement
Bloomberg DBEL IN CMP: INR2,062 TP: INR2,392(+16%) Buy
Equity Shares (m) 88.8
4QFY17 cement volumes are estimated to increase 1% YoY to
M. Cap. (INR b)/(USD b) 183 / 3
3.93mt due to a high base. Realizations are estimated to decline 3%
52-Week Range (INR) 2099 / 786
1,6,12 Rel Perf. (%) 6 / 1 / 138
YoY/QoQ to INR4,717/ton.
We estimate cement EBITDA/ton at INR994 (-INR147/ton QoQ) due
Financial Snapshot (INR Billion)
to weak realizations. EBITDA margin is expected to contract 3.0pp
Y/E March 2016 2017E 2018E 2019E QoQ to 21%.
Sales 33.7 63.7 70.2 79.3 EBITDA is estimated to decline 13% YoY to INR3.9b, translating into
EBITDA 4.5 15.1 16.8 19.5 PAT decline of 35% YoY to INR614mn.
NP 0.1 1.9 2.7 4.2 The stock trades at 41x FY18E EPS, 12x FY18E EV/EBITDA, and FY18E
Adj EPS(INR) 1.1 21.5 30.7 47.5 EV/ton of USD158. Maintain Buy.
EPS Gr. (%) -209 1,802.4 42.7 55.0
BV/Sh (INR) 378 434 463 508
RoE (%) 0.3 5.5 6.8 9.8
RoCE (%) 25.3 4.9 6.2 7.5
Payout (%) NM 8.1 7.6 4.9
Valuation Key issues to watch out for:
P/E (x) 1,728.2 90.8 63.7 41.1 Volume growth recovery and outlook.
P/BV (x) 5.2 4.5 4.2 3.8 Cement pricing outlook and sustainability.
EV/EBITDA (x) 57.0 16.7 14.6 12.4 Update on restructuring timelines
EV/Ton (USD) 152 166 163 158
April 2017 95
March 2017 Results Preview | Sector: Cement
Grasim Industries
Bloomberg GRASIM IN CMP: INR1067 TP: INR1067 (+0%) Neutral
Equity Shares (m) 466.8
We expect VSF volumes to decline 4% YoY to 124,406 tons in
M. Cap. (INR b)/(USD b) 498 / 8
4QFY17, while realizations are expected to fall 1% YoY to
52-Week Range (INR) 1098 / 765
1,6,12 Rel Perf. (%) 1 / 2 / 19
INR124,271/ton. Standalone revenues are likely to decline 4% YoY
to INR23.98b.
Standalone EBITDA margin is estimated at 20.1% (+2.9pp YoY, -
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
0.4pp QoQ).
EBITDA is estimated to increase 12% YoY to INR4.8b, translating
Sales 365.9 375.1 400.9 444.4
into PAT of INR2.5b (+20% YoY).
EBITDA 60.2 69.9 82.1 98.4
The stock trades at 9.6x FY19E consolidated EPS, 9.5x FY19E
Adj. PAT 22.6 32.1 40.4 51.8
EV/EBITDA, and implied cement EV/ton of USD135.
Adj. EPS (INR) 48.3 68.7 86.6 111.1
EPS Gr. (%) 26.8 42.1 26.2 28.2
BV/Sh. (INR) 553.4 616.7 698.4 804.5
RoE (%) 9.2 11.7 13.2 14.8
RoCE (%) 10.0 11.9 13.9 16.2
Key issues to watch out for:
Payout (%) 11.0 7.7 5.8 4.5
Pick-up in cement demand and pricing thereon.
Valuations
Outlook on VSF business, and strategy to utilize upcoming
P/E (x) 22.1 15.6 12.3 9.6
capacities globally.
P/BV (x) 1.9 1.7 1.5 1.3
EV/EBITDA (x) 12.4 10.6 8.5 9.5
Impact of demonetization on caustic soda demand.
EV/Ton (x) 165 149 140 135
April 2017 96
March 2017 Results Preview | Sector: Cement
India Cements
Bloomberg ICEM IN
CMP: INR163 TP: INR152 (-7%) Neutral
Equity Shares (m) 307.2
M. Cap. (INR b)/(USD b) 50 / 1 India Cements volumes are expected to decline 4% YoY to 2.4mt in
52-Week Range (INR) 174 / 83 4QFY17 on account of a high base. We expect realizations to
1,6,12 Rel Perf. (%) -6 / -3 / 73 decline 4% QoQ to INR5,175/ton. Revenue is estimated at INR12.5b
(+9% YoY).
Financial Snapshot (INR Billion) EBITDA is estimated at INR1.34b, and EBITDA margin is likely to
Y/E March 2016E 2017E 2018E 2019E contract 4.2pp QoQ to 10.7%, translating into blended EBITDA/ton
Sales 42.3 50.3 56.4 64.2 of INR563 (-INR240 QoQ). PAT is expected to be INR56m (v/s
EBITDA 7.7 7.5 8.4 9.5 INR512m in 4QFY16).
NP 1.4 1.5 2.4 3.2 Valuations stand at 19x FY18E EPS and 9x FY18E EBITDA. The stock
Adj. EPS (INR) 4.4 5.1 8.7 11.9 trades at EV/ton of USD81/t on FY18E replacement cost. Maintain
EPS Gr. (%) -11,446 16.1 70.8 36.5
Neutral.
BV/Sh (INR) 118.8 122.4 129.1 139.4
RoE (%) 3.9 4.0 6.2 7.7
RoCE (%) 5.9 5.5 6.6 7.4
Payout (%) 25.9 24.2 14.8 0.0
Valuations Key issues to watch out for:
P/E (x) 37.3 32.1 18.8 13.8
Visibility on AP demand recovery.
P/BV (x) 1.4 1.3 1.3 1.2
Demand, especially in south India, post demonetization.
EV/EBITDA(x) 10.2 10.1 8.8 7.6
EV/Ton (USD) 81 81 81 80
Pricing outlook in south India.
April 2017 97
March 2017 Results Preview | Sector: Cement
Ramco Cements
Bloomberg TRCL IN CMP: INR671 TP: INR815 (+22%) Buy
Equity Shares (m) 238.0
4QFY17 volumes are estimated to grow 6% YoY to 2.2mt on account
M. Cap. (INR b)/(USD b) 160 / 2
52-Week Range (INR)
of high base and growth in the eastern markets. Average realizations
728 / 400
1,6,12 Rel Perf. (%) -2 / 1 / 44
are expected to decline 10% YoY (-2% QoQ) to 4,573/ton due to a fall
in realizations in the southern market.
EBITDA margin is likely to contract 4.9pp QoQ to 26.7%. EBITDA/ton
Financial Snapshot (INR Billion)
(ex-windmill) is estimated at INR1,222 (-INR117 QoQ, -INR270 YoY)
Y/E MARCH 2016 2017E 2018E 2019E
due to an increase in power/fuel cost and lower realizations.
Sales 35.9 39.1 42.3 48.3 Interest cost is likely to decline 44% YoY due to debt repayment and
EBITDA 10.5 11.8 12.4 14.3 also re-pricing of debt at a lower rate.
NP 5.6 6.6 7.2 8.6 PAT is estimated to decline 27% YoY to INR1.48b.
Adj EPS (INR) 23.4 27.8 30.1 36.2
The stock trades at 23x FY18E EPS, 13.6x FY18E EBITDA, and FY18E
EPS Gr. (%) 130.3 18.4 8.4 20.3
EV/ton of USD158. Maintain Buy.
BV/Sh. (INR) 129.9 154.2 179.6 211.2
RoE (%) 19.5 19.6 18.0 18.5
RoCE (%) 13.2 13.7 13.8 15.3
Payout (%) 14.9 12.6 15.4 12.8
Valuations
P/E (x) 29.0 24.5 22.6 18.8
P/BV (x) 5.2 4.4 3.8 3.2
Key issues to watch out for:
EV/EBITDA (x) 17.3 14.9 13.6 11.3 Volume growth recovery and outlook.
EV/Ton (USD) 176 164 158 150 Cement pricing outlook and demand sustainability in south (AP and
Tamil Nadu).
April 2017 98
March 2017 Results Preview | Sector: Cement
Shree Cement
Bloomberg SRCM IN CMP: INR17,332 TP: INR20,072(+16%) Buy
Equity Shares (m) 34.8
We expect 4QFY17 cement volumes to grow 11% YoY to 5.95mt
M. Cap. (INR b)/(USD b) 604 / 9
(including clinker), led by ramp-up of new capacity in the eastern
52-Week Range (INR) 18519/12001
1,6,12 Rel Perf. (%) 5 / -9 / 23
market. Realizations are expected to decline by 3% QoQ to
INR3,590/ton due to lower realizations in the focus markets.
Merchant power sale is expected to be meaningfully lower at 100m
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
units due to a sharp decline in merchant power rates. Power
Sales 72.9 83.4 101.1 119.9
EBITDA is estimated to be negligible.
EBITDA 16.7 23.7 30.5 36.8 Revenue is estimated at INR22.1b (+10% YoY) and EBITDA at
NP 5.9 13.0 20.3 25.7 INR4.34b, translating into margin of 19.6% (-5.8pp QoQ,). Adjusted
Adj EPS (INR) 168.0 374.6 581.4 737.1 PAT is likely to be INR2.28b (+2.4% YoY).
EPS Gr. (%) 26.1 57.0 55.2 26.8 Valuations stand at 30x FY18E EPS, 18.3x FY18E EBITDA, and FY18E
BV/Share (INR) 1,774 2,013 2,548 3,239 EV/ton of USD277. Maintain Buy.
RoE (%) 10.2 19.8 25.5 25.5
RoCE (%) 10.6 19.4 24.5 24.9
Payout (%) 17.4 36.0 8.0 6.3
Valuation
P/E (x) 70.3 46.9 30.2 23.8
P/BV (x) 8.0 8.7 6.9 5.4 Key issues to watch out for:
EV/EBITDA (x) 27.9 24.4 18.3 14.6
Volume and pricing recovery for north India.
EV/Ton (USD) 267 309 277 199
Update on scale-up of recently commissioned units in east.
New expansion plans.
April 2017 99
March 2017 Results Preview | Sector: Cement
UltraTech Cement
Bloomberg UTCEM IN CMP: INR4,071 TP: INR4,734 (+16%) Buy
Equity Shares (m) 274.4
4QFY17 cement volumes are estimated to decline 0.3% YoY to
M. Cap. (INR b)/(USD b) 1117 / 17
13.56mt due to a high base. Realizations are estimated to increase
52-Week Range (INR) 4130 / 3050
1,6,12 Rel Perf. (%) 3 / -5 / 11
0.7% YoY (-2.2% QoQ) to INR3,972/ton.
We estimate grey cement EBITDA/ton at INR654 (-INR125/ton QoQ)
Financial Snapshot (INR Billion)
due to weak realizations. EBITDA margin is expected to contract
Y/E March 2016 2017E 2018E 2019E 2.3pp QoQ to 16.6%.
Sales 238.4 235.1 257.2 288.4 EBITDA is estimated to decline 17.5% YoY to INR10.6b, translating
EBITDA 43.5 45.7 52.2 63.2 into PAT decline of 16% YoY to INR5.74b.
NP 21.7 25.1 33.0 41.6 The stock trades at 34x FY18E EPS, 20x FY18E EV/EBITDA, and FY18E
Adj EPS (INR) 79.3 91.6 120.5 151.6 EV/ton of USD235. Maintain Buy.
EPS Gr. (%) 7.9 15.6 31.5 25.9
BV/Sh (INR) 755.8 835.8 938.8 1,067.2
RoE (%) 11.0 11.5 13.6 15.1
RoCE (%) 9.3 9.9 11.6 13.0
Payout (%) 13.9 12.7 14.5 15.3
Valuations Key issues to watch out for:
P/E (x) 51.4 44.4 33.8 26.8 Volume growth recovery and outlook.
P/BV (x) 5.4 4.9 4.3 3.8 Cement pricing outlook and sustainability.
EV/EBITDA (x) 25.4 23.8 20.1 15.9 Update on JPA acquisition
EV/Ton (USD) 248 244 235 225
Consumer
Another quarter of muted revenue growth
Company name Rising raw material costs likely to hurt margins
Asian Paints
Britannia Industries Subdued quarter with pressure on margins
Colgate We expect our consumer universes revenues to increase 4.5% YoY in 4QFY17, with
Dabur PAT growth of 5.3%. The lingering effects of demonetization are likely to continue
Emami impacting the companies, particularly those with higher proportion of wholesale
Godrej Consumer trade and greater exposure to rural as well as north and east regions. The MOSL
GSK Consumer consumer universes EBITDA is likely to increase by only 2.6% YoY, with 40bp margin
Hindustan Unilever contraction. Barring Nestle, United Spirits and Jyothy Labs, we expect near
ITC
flattish/or a decline in YoY EBITDA margin for all other FMCG companies due to
Jyothy Labs
weak sales growth and favorable base of commodity costs coming off (with prices of
many commodities sharply increasing YoY). Moreover, ad spends are unlikely to
Marico
decline steeply enough to protect margins for most companies. We expect ITCs
Nestle India
sales to increase by 1.3% YoY (with a 4% decline in cigarette volumes) and PAT by
Page Industries
8.4% (mainly due to high 36% tax rate in the base quarter). HUVRs sales growth is
Parag Milk Foods
estimated at 4.5% (volume decline of 0.5%), with 100bp EBITDA margin contraction.
Pidilite Industries
Nine of the 18 companies under our coverage are likely to report a decline in EBITDA
P&GHH
YoY, with five others estimated to report EBITDA growth in the range of 0-5%.
United Breweries
Nestle, United Spirits and Jyothy Labs are likely to report double-digit EBITDA
United Spirits
growth, mainly due to a low margin base. GCPL too is expected to do well as only
half of its business comes from India. Mainly due to lower/higher-than-usual tax
rates in 4QFY16, PAT growth variance may be higher/lower than EBITDA growth for
some companies.
Sensex Index MOSL Consumer Index Sensex Index MOSL Consumer Index
116
118
110 113
108
104
103
98 98
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Jan-17
Feb-17
Mar-17
Exhibit 5: PFAD prices up 28.3% YoY and 6.6% QoQ Exhibit 6: Palm oil prices rise 29.8% YoY and 6.1% QoQ
Palm Fatty Acid price (INR/MT) Palm Oil (Malaysian Ringgit Per Metric Tonne)
3,500
51,000
Malaysian Ringgit\MT
3,000
42,000
43,702 2,866
33,000 2,500
24,000 2,000
15,000 1,500
Jul-14
Jul-15
Jul-16
Nov-14
Nov-15
Nov-16
Mar-14
Mar-15
Mar-16
Mar-17
Jul-14
Jul-15
Jul-16
Nov-14
Nov-15
Nov-16
Mar-14
Mar-15
Mar-16
Mar-17
Source: Bloomberg, MOSL Source: Bloomberg, MOSL
Exhibit 7: Mentha prices up 11% YoY and 9% QoQ Exhibit 8: TiO2 prices up 13.1% YoY and 6.0% QoQ
230
1,000 1,080
750 190
500 150
Jun-14
Jun-15
Jun-16
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17
Jul-14
Jul-15
Jul-16
Nov-14
Nov-15
Nov-16
Mar-14
Mar-15
Mar-16
Mar-17
Source: Bloomberg, MOSL Source: Bloomberg, MOSL
Asian Paints
Bloomberg APNT IN CMP: INR1,080 TP: INR1,145 (+6%) Neutral
Equity Shares (m) 959.2
We expect revenue to grow 4% to INR38.2b in 4QFY17, with ~3%
M. Cap. (INR b)/(USD b) 1036 / 16
rise in domestic decorative volumes.
52-Week Range (INR) 1230 / 843
1,6,12 Rel Perf. (%) 3 / -17 / 4 We note crude prices are up 8% QoQ in 4QFY17. The magnitude of
price movement in crude derivatives is lower vis--vis crude prices.
Financial Snapshot (INR b) Operating margin is however likely to contract 20bp to 18.8% in
Y/E March 2016 2017 2018E 2019E 4QFY17. We estimate 17% PAT growth for 4QFY17, led by a lower
Sales 142.8 151.6 171.6 198.1 tax rate of 25% in 4QFY17 (vs. 35% in 4QFY16).
EBITDA 27.7 30.3 32.6 38.1
Adj. PAT 18.0 19.7 21.7 25.6 The stock trades at 40.5x FY19E EPS of INR26.7; maintain Neutral.
Adj. EPS.INR 18.7 20.5 22.6 26.7
EPS Gr. (%) 26.3 9.5 10.2 18.0
BV/Sh.(INR) 58.4 66.5 75.6 88.9
RoE (%) 34.7 32.8 31.8 32.4
RoCE (%) 30.6 29.5 28.6 29.4
Payout (%) 40.4 48.8 50.9 43.1
Key issues to watch for:
Valuations
Volume growth trends and demand scenario in urban and rural
P/E (x) 57.7 52.7 47.8 40.5
geographies.
P/BV (x) 18.5 16.2 14.3 12.2
EV/EBITDA (x) 36.6 33.4 30.8 26.2
Demand outlook for industrial paints.
Div. Yield (%) 0.8 1.1 1.2 1.2 Outlook for raw materials/pricing actions.
Britannia Industries
Bloomberg BRIT IN CMP: INR3,372 TP: INR4,065 (+21%) Buy
Equity Shares (m) 120.0
We estimate Britannias (BRIT) sales to grow 7.3% YoY to INR22.7b,
M. Cap. (INR b)/(USD b) 404 / 6
with ~3% base business volume growth.
52-Week Range (INR) 3575 / 2524
1,6,12 Rel Perf. (%) 5 / -9 / 7 Higher wheat and sugar prices YoY will continue to affect margins.
We expect 130bp contraction in operating margin YoY, and EBITDA
Financial Snapshot (INR b) and PAT to decline 4% and 3%, respectively.
Y/E March 2016 2017E 2018E 2019E
Sales 83.3 90.0 102.6 119.6 The stock trades at 33.2x FY19E EPS of INR101.7; maintain Buy.
EBITDA 11.5 11.5 13.2 16.5 Britannia is one of our top picks in the tier-II consumer space.
Adj. PAT 8.4 8.7 10.0 12.2
Adj. EPS. INR 70.1 72.2 83.3 101.7
EPS Gr. (%) 46.3 3.0 15.5 22.0
BV/Sh.(INR) 147.2 188.0 237.5 297.8
RoE (%) 55.9 43.1 39.2 38.0
RoCE (%) 46.0 35.1 32.3 32.0
Payout (%) 28.5 35.0 35.0 35.0
Valuations
P/E (x) 48.1 46.7 40.5 33.2
Key issues to watch for:
P/BV (x) 22.9 17.9 14.2 11.3
Volume growth in biscuits.
EV/EBITDA (x) 34.4 34.3 29.4 23.2 Outlook for raw materials.
Div. Yield (%) 0.6 0.7 0.9 1.1 Performance of subsidiaries.
Colgate
Bloomberg CLGT IN CMP: INR1,001 TP: INR1,200 (+20%) Buy
Equity Shares (m) 272.0
We expect Colgates (CLGT) sales to grow 3.5% YoY to INR10.1b, with
M. Cap. (INR b)/(USD b) 272 / 4
a 2% decline in toothpaste volumes.
52-Week Range (INR) 1033 / 788
1,6,12 Rel Perf. (%) 6 / -4 / 0 We estimate gross and EBITDA margin expansion of 160bp and 40bp
Financial Snapshot (INR b) to 59.1% and 25.5%, respectively. Hence, we have modeled EBITDA
Y/E March 2016 2017E 2018E 2019E growth of 5% and adjusted PAT decline of 17.3% for the quarter
Sales 38.0 39.2 44.5 51.3 mainly due to low tax rate base of 15.8% in the base quarter.
EBITDA 9.5 9.6 11.5 13.8
The stock trades at 31.6x FY19E EPS of INR31.6; we have a Buy rating
Adj. PAT 6.2 5.9 7.0 8.6
on the stock.
Adj. EPS (INR) 22.7 21.7 25.8 31.6
EPS Gr. (%) 10.4 -4.4 18.9 22.7
BV/Sh.(INR) 37.5 41.5 44.3 48.1
RoE (%) 68.9 54.9 60.1 68.5
RoCE (%) 68.0 53.8 59.0 67.3
Payout (%) 48.4 70.0 70.0 70.0 Key issues to watch for:
Valuations Volume growth in toothpaste and market share movement.
P/E (x) 44.1 46.2 38.8 31.6
Ad spends and competitive intensity in toothpaste, especially from
P/BV (x) 26.7 24.1 22.6 20.8
Patanjali.
EV/EBITDA (x) 28.4 28.0 23.3 19.2
Div. Yield (%) 1.1 1.5 1.8 2.2
Dabur
Bloomberg DABUR IN CMP: INR284 TP: INR310 (+9%) Neutral
Equity Shares (m) 1761.5
We expect sales to grow by 2.2% YoY to INR20.2b, led by ~4%
M. Cap. (INR b)/(USD b) 500 / 8
domestic organic volume growth.
52-Week Range (INR) 320 / 245
1,6,12 Rel Perf. (%) -2 / -6 / -5 We expect EBITDA margin to contract 60bp YoY to 20.2% in
4QFY17.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E Hence, we have modeled EBITDA decline of 0.5% YoY, while PAT is
Sales 77.6 77.7 86.4 98.5 likely to grow 2.7% in the quarter.
EBITDA 15.0 14.8 16.5 19.1 The stock trades at 29.3x FY19E EPS of INR9.7; maintain Neutral.
Adj. PAT 12.5 12.8 14.5 17.0
Adj. EPS (INR) 7.1 7.3 8.3 9.7
EPS Gr. (%) 17.2 2.7 13.3 16.9
BV/Sh.(INR) 23.6 28.0 32.8 38.6
RoE (%) 33.3 28.3 27.2 27.1
RoCE (%) 27.7 24.2 23.4 24.1
Payout (%) 28.0 35.0 35.0 35.0
Valuations
Key issues to watch for:
P/E (x) 39.9 38.9 34.3 29.3 Domestic volume growth and outlook for rural demand.
P/BV (x) 12.0 10.1 8.6 7.4 Update on project CORE.
EV/EBITDA (x) 32.0 31.9 28.2 23.9 Margin performance in international business.
Div. Yield (%) 0.7 0.9 1.0 1.2 Competitive intensity, especially from Patanjali.
Emami
Bloomberg HMN IN CMP: INR1,038 TP: INR1,295 (+25%) Buy
Equity Shares (m) 227.0
We project Emamis (HMN) sales to decline 2% YoY to INR5.9b, with
M. Cap. (INR b)/(USD b) 236 / 4
~4% volumes decline.
52-Week Range (INR) 1261 / 916
1,6,12 Rel Perf. (%) -4 / -17 / -9 We expect gross margin to contract 50bp to 63.1% and EBITDA
margin to shrink 30bp to 30.3%. Thus, EBITDA is likely to decline
Financial Snapshot (INR b) 2.9% YoY to INR1.8b.
Y/E March 2016 2017E 2018E 2019E
Sales 23.9 25.4 29.1 33.8
PAT is expected to decline 35.6% YoY to INR1b due to a high tax rate
EBITDA 6.8 7.6 8.6 10.1 of 38.2% (full year tax rate taken at MAT) compared to 5.2% in base
NP 5.7 5.6 6.8 8.2 quarter 4QFY16.
EPS (INR) 25.2 24.5 29.8 36.0 The stock trades at 28.8x FY19E EPS of INR36; maintain Buy.
EPS Gr. (%) 17.7 -2.9 22.0 20.6
BV/Sh. (INR) 61.8 82.8 97.8 118.9
RoE (%) 43.4 33.8 33.0 33.2
RoCE (%) 37.9 31.5 35.0 38.7
Payout (%) 27.9 45.0 40.2 33.3
Valuations
P/E (x) 41.2 42.4 34.8 28.8
Key issues to watch for:
P/BV (x) 16.8 12.5 10.6 8.7
Volume growth and broad consumer demand across categories.
EV/EBITDA (x) 35.2 31.1 27.0 22.7 Outlook for mentha oil prices.
Div. Yld (%) 0.8 1.1 1.2 1.2 Competitive intensity, especially from Patanjali.
Godrej Consumer
Bloomberg GCPL IN CMP: INR1,701 TP: INR1,740 (+2%) Neutral
Equity Shares (m) 340.5
We expect Godrej Consumers revenue to rise 10.7% YoY to
M. Cap. (INR b)/(USD b) 579 / 9
INR24.5b.
52-Week Range (INR) 1749 / 1286
1,6,12 Rel Perf. (%) 2 / -1 / 5 Demand trends in international business remain weak, primarily
driven by macroeconomic trends.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E We estimate operating margin to remain flat YoY at 20.6%.
Sales 89.7 93.1 105.1 120.7 We have modeled 10.8% EBITDA growth, and expect PAT to grow
EBITDA 16.2 18.5 21.0 23.8 by 6.3% YoY.
Adj. PAT 11.3 12.6 14.6 16.9
Adj. EPS (INR) 33.2 37.1 42.9 49.8 The stock trades at 34.2x FY19E EPS of INR49.8. We have a Neutral
EPS Gr. (%) 24.4 11.9 15.6 15.9 rating on the stock.
BV/Sh.(INR) 152.2 177.4 208.6 246.6
RoE (%) 23.4 22.5 22.2 21.9
RoCE (%) 16.7 15.4 15.3 15.7
Payout (%) 29.3 31.8 27.5 23.7
Key issues to watch for:
Valuations Growth trend in soap volumes.
P/E (x) 51.3 45.8 39.6 34.2 Competitive intensity across categories.
P/BV (x) 11.2 9.6 8.2 6.9 Currency guidance
EV/EBITDA (x) 37.0 32.9 28.7 25.1 Outlook for international business demand outlook in Indonesia
Div. Yield (%) 0.6 0.7 0.7 0.7 and margin guidance for LatAm.
GSK Consumer
Bloomberg SKB IN CMP: INR5,181 TP: INR5,410 (+4%) Neutral
Equity Shares (m) 42.1
We expect GSK Consumer to report net sales of INR11.3b, down
M. Cap. (INR b)/(USD b) 218 / 3
1.3% YoY, led by a 5% volume decline in HFD. In our view,
52-Week Range (INR) 6584 / 4650
1,6,12 Rel Perf. (%) -4 / -23 / -35
discretionary demand in the core HFD category is yet to witness an
uptrend.
Financial Snapshot (INR b) We estimate EBITDA margin to contract 50bp YoY to 21.5%, and
Y/E December 2016 2017E 2018E 2019E
PAT decline of 1.8% YoY.
Sales 42.0 40.1 45.7 51.2
EBITDA 8.8 8.6 9.7 10.6 The stock trades at 27.1x FY19E EPS of INR190.8. We have a Neutral
Adj. PAT 6.6 6.5 7.3 8.0 rating on the stock.
Adj. EPS (INR) 156.5 153.9 173.1 190.8
EPS Gr. (%) 12.8 -1.7 12.5 10.3
BV/Sh. (INR) 581.5 672.3 770.4 880.4
RoE (%) 28.9 24.6 24.0 23.1
RoCE (%) 28.9 24.6 24.0 23.2
Payout (%) 33.7 35.0 40.0 40.0
Valuations Key issues to watch for:
P/E (x) 33.1 33.7 29.9 27.1 Growth in HFD volume.
P/BV (x) 8.9 7.7 6.7 5.9 Outlook for market growth and raw materials.
EV/EBITDA (x) 20.7 27.2 23.6 21.2 Guidance on price increases
Div. Yield (%) 1.1 1.0 1.2 1.3 Comment on increasing competitive intensity.
Hindustan Unilever
Bloomberg HUVR IN CMP: INR935 TP: INR945 (+1%) Neutral
Equity Shares (m) 2163.5
We expect Hindustan Unilevers revenue to grow by 4.5%, with an
M. Cap. (INR b)/(USD b) 2024 / 31
underlying ~0.5% volume decline.
52-Week Range (INR) 954 / 783
1,6,12 Rel Perf. (%) 3 / 1 / -13 PFAD prices have gone up by 28% YoY and LAB prices are up 14%
YoY.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E We expect operating margin to contract 100bp YoY to 18.1% in
Sales 305.0 311.3 338.2 376.9 4QFY17.
EBITDA 57.3 58.5 64.5 74.2 We estimate EBITDA and PAT decline of 1% YoY.
Adj. PAT 41.2 41.7 46.5 53.7 The stock trades at 37.7x FY19E EPS of INR24.8; maintain Neutral.
Adj. EPS (INR) 19.0 19.3 21.5 24.8
EPS Gr. (%) 12.9 1.1 11.7 15.4
BV/Sh.(INR) 29.0 28.0 26.9 26.8
RoE (%) 82.4 67.6 78.4 92.5
RoCE (%) 108.1 88.5 102.0 120.9
Payout (%) 84.0 98.6 95.3 90.7
Valuations
Key issues to watch for:
P/E (x) 49.1 48.6 43.5 37.7
Comments on volume growth and consumer demand
P/BV (x) 32.2 33.4 34.8 34.9
EV/EBITDA (x) 34.8 34.1 30.9 26.8
environment.
Div. Yield (%) 1.7 2.0 2.2 2.4
ITC
Bloomberg ITC IN CMP: INR279 TP: INR320 (+15%) Buy
Equity Shares (m) 12070.8
We expect net sales to grow by 1.3% YoY to INR98.8b; with
M. Cap. (INR b)/(USD b) 3367 / 52
cigarette volume declining by 4% YoY (base quarter saw flat
52-Week Range (INR) 292 / 204
1,6,12 Rel Perf. (%) 3 / 10 / 8
volumes).
We expect cigarette EBIT to grow 1.9% YoY. We have factored in
Financial Snapshot (INR b) EBITDA decline of 0.1% YoY to INR36b for the company.
Y/E March 2016 2017E 2018E 2019E We expect Other FMCG to post revenue growth of ~4% YoY.
Sales 362.2 384.4 430.9 494.4 We estimate PAT growth of 8.4% YoY to INR25.8b higher than
EBITDA 137.2 143.1 159.5 189.5 EBITDA growth mainly due to high tax rate in base quarter 4QFY16.
Adj. PAT 93.1 101.1 112.8 133.2 The stock trades at 25.3x FY19E EPS of INR11; maintain Buy.
Adj. EPS (INR) 7.7 8.4 9.3 11.0
EPS Gr. (%) -3.5 8.6 11.6 18.1
BV/Sh.(INR) 27.3 31.6 36.0 40.8
RoE (%) 29.3 28.4 27.6 28.7
RoCE (%) 27.8 27.3 27.0 28.5
Payout (%) 88.4 64.4 64.4 64.4
Valuations
P/E (x) 36.2 33.3 29.8 25.3 Key issues to watch for:
P/BV (x) 10.2 8.8 7.7 6.8 Trends in cigarette volume.
EV/EBITDA (x) 23.1 22.0 19.5 16.2 Demand outlook for FMCG categories and segmental profitability.
Div. Yield (%) 2.4 1.9 2.2 2.5
Jyothy Labs
Bloomberg JYL IN
CMP: INR342 TP: INR380 (+11%) Neutral
Equity Shares (m) 181.0
We expect Jyothy Labs net sales to grow 9.6% to INR5.4b.
M. Cap. (INR b)/(USD b) 62 / 1
52-Week Range (INR) 383 / 270
EBITDA margin is likely to expand by 130bp YoY to 14.1%.
1,6,12 Rel Perf. (%) -10 / -12 / -6
We have factored in EBITDA growth of 21.3% YoY to INR765m.
The stock trades at 19.5x FY19E EV/EBITDA. Speculation around
Financial Snapshot (INR b) Henkel deal (deadline for which has been extended till October 31st)
Y/E March 2016 2017E 2018E 2019E will overshadow fundamentals in FY18, in our view.
Net Sales 16.6 17.8 20.1 23.2
EBITDA 2.2 2.7 2.9 3.3
Adj PAT 0.7 1.4 1.6 1.9
Adj PAT for NCD 0.1 0.8 1.0 1.2
Adj.EPS (INR) 4.1 8.0 9.0 10.5
EPS Gr. (%) -41.7 94.5 12.8 16.5
BV/Sh (INR) 46.7 50.2 54.8 60.8
RoE (%) 9.1 16.4 17.1 18.1
RoCE (%) 7.2 12.9 13.8 14.6
Valuations
P/E (x) 83.3 42.8 38.0 32.6
Key issues to watch for:
P/BV (x) 7.3 6.8 6.2 5.6
Update on new launches and innovations.
EV/EBITDA 29.9 24.1 22.0 19.5 Update on Henkel call option.
Dividend Yield (%) 1.2 1.2 1.2 1.2 Pick-up in Henkel brands performance.
Marico
Bloomberg MRCO IN CMP: INR298 TP: INR340 (+14%) Buy
Equity Shares (m) 1289.6
We expect sales to grow by 4.4% YoY to INR13.4b, with 7% increase
M. Cap. (INR b)/(USD b) 384 / 6
in domestic volumes. In our opinion, Parachute volumes would
52-Week Range (INR) 307 / 235
1,6,12 Rel Perf. (%) 3 / -2 / 1
grow in low-double-digit, while Saffola and VAHO volumes would
grow in mid-single-digit (in the base quarter, Saffola and VAHO
Financial Snapshot (INR b) volumes grew by 10% and 15% respectively).
Y/E March 2016 2017E 2018E 2019E We observe that copra prices are up 49% YoY (data available till
Sales 60.1 59.5 67.9 78.1 Feb-2017) and kardi oil prices are up 10% YoY. We are modeling
EBITDA 10.4 11.0 12.5 15.0 300bp YoY gross margin contraction and 40bp EBITDA margin
Adj. PAT 7.2 7.8 9.0 10.9 contraction for 4QFY17.
Adj. EPS (INR) 5.6 6.1 7.0 8.4 PAT is projected to grow by 6.2% YoY to INR1.4b.
EPS Gr. (%) 26.1 8.5 15.3 20.1 The stock trades at 35.4x FY19E EPS of INR8.4; maintain Buy. We
BV/Sh.(INR) 16.3 20.2 23.4 25.3 like MRCOs franchise, portfolio strength, management quality and
RoE (%) 36.9 33.3 32.1 34.6
its multiple growth driver models.
RoCE (%) 31.4 29.4 28.5 30.7
Payout (%) 60.2 49.3 45.6 65.3
Valuations Key issues to watch for:
P/E (x) 53.2 49.0 42.5 35.4
Comments on volume growth trends across key categories.
P/BV (x) 18.3 14.7 12.7 11.8
Outlook for raw materials.
EV/EBITDA (x) 36.5 34.2 29.9 24.9
Margin expansion and guidance for the international business.
Div. Yield (%) 1.1 1.0 1.1 1.8
Nestle India
Bloomberg NEST IN CMP: INR6,622 TP: INR7,010 (+6%) Neutral
Equity Shares (m) 96.4
We expect Nestle Indias net sales to grow 20% YoY to INR27.5b,
M. Cap. (INR b)/(USD b) 638 / 10
largely owing to some impact of Maggi issue in the base. Maggi re-
52-Week Range (INR) 7390 / 5360
launch has been successful, with several new variants. It has already
1,6,12 Rel Perf. (%) 3 / -8 / -5
clawed back to >60% market share.
Financial Snapshot (INR b) We estimate EBITDA margin to expand by 150bp YoY to 24.1%.
Y/E December 2015 2016E 2017E 2018E EBITDA and PAT are projected to grow by a healthy 28% YoY (to
Sales 81.2 91.6 109.0 125.0 INR6.6b) and 35% YoY (to INR4b), respectively.
EBITDA 15.9 18.0 22.2 25.9 The stock trades at 38.7x CY18E EPS; maintain Neutral.
Adj. PAT 11.6 11.4 13.9 16.5
Adj. EPS (INR) 119.9 118.7 144.0 171.0
EPS Gr. (%) -7.3 -1.0 21.3 18.8
BV/Sh.(INR) 292.3 315.7 365.5 443.5
RoE (%) 40.9 38.8 42.3 42.3
RoCE (%) 40.7 38.6 42.3 42.3
Payout (%) 40.5 53.1 45.1 38.6
Valuations
Key issues to watch for:
P/E (x) 55.2 55.8 46.0 38.7
Volume trends and management commentary on demand
P/BV (x) 22.7 21.0 18.1 14.9
EV/EBITDA (x) 38.9 34.2 27.3 22.9
environment.
Div. Yield (%) 0.7 1.0 1.0 1.0 Recovery in sales and market share of Maggi.
Page Industries
Bloomberg PAG IN CMP: INR14,596 TP: INR17,480 (+20%) Buy
Equity Shares (m) 11.2
We expect Page to report net sales of INR4.8b, up 13.8% YoY, led by
M. Cap. (INR b)/(USD b) 163 / 3
10% volume growth.
52-Week Range (INR) 17351 / 11777
-1 / -14 / 0
We expect EBITDA margin to decline YoY by 170bp to 20.2% (mainly
1,6,12 Rel Perf. (%)
due to mix impact and PAT to post 6.9% YoY growth to INR637m.
Financial Snapshot (INR b) The stock trades at 37.6x FY19E EPS of INR388.4; maintain Buy.
Y/E March 2016 2017E 2018E 2019E
Sales 17.8 21.2 26.3 32.3
EBITDA 3.8 4.1 5.4 6.7
Adj. PAT 2.3 2.6 3.4 4.4
Adj. EPS (INR) 208.6 235.6 305.1 388.4
EPS Gr. % 18.7 12.9 29.5 27.3
FCF to PAT 0.8 0.6 0.6 0.9
BV/Sh.INR 453.0 570.8 723.3 898.1
RoE (%) 46.0 41.3 42.2 43.2
RoCE (%) 42.6 38.6 40.6 44.4 Key issues to watch for:
Payout (%) 49.1 50.0 50.0 55.0 Volume trends and management commentary on demand
Valuations environment.
P/E (x) 70.0 62.0 47.8 37.6 Update on foray into the kidswear segment.
EV/EBITDA (x) 43.3 39.5 30.4 24.0 GST impact.
Quarterly Performance 25% 26% 25% 24% 27% 25% 25% 23% (INR Million)
Y/E MARCH FY16 FY17 FY16 FY17E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Net Sales 4,489 4,663 4,432 4,257 5,719 5,378 5,283 4,843 17,840 21,222
YoY Change (%) 27.4 15.3 19.2 13.8 15.6 19.0
COGS 1,783 1,808 1,650 1,673 2,570 2,156 2,131 1,980 6,913 8,837
Gross Profit 2,705 2,855 2,782 2,584 3,149 3,222 3,151 2,862 10,927 12,385
Gross margin (%) 60.3 61.2 62.8 60.7 55.1 59.9 59.7 59.1 61.2 58.4
Other Expenditure 1,701 1,844 1,953 1,651 2,057 2,147 2,160 1,885 7,150 8,249
% to sales 37.9 39.6 44.1 38.8 36.0 39.9 40.9 38.9 40.1 38.9
EBITDA 1,004 1,011 829 933 1,092 1,075 991 977 3,776 4,136
Margins (%) 22.4 21.7 18.7 21.9 19.1 20.0 18.8 20.2 21.2 19.5
YoY Change 8.8 6.3 19.6 4.8 18.5 9.5
Depreciation 56 58 58 66 59 60 62 57 238 239
Interest 50 37 35 31 39 40 45 46 153 170
Other Income 56 9 6 4 59 62 20 29 62 170
PBT 953 926 742 840 1,053 1,037 904 904 3,448 3,897
Tax 327 323 222 244 373 350 275 267 1,116 1,265
Rate (%) 34.3 34.9 29.9 29.1 35.5 33.8 30.4 29.5 32.4 32.5
PAT 626 602 520 596 679 687 629 637 2,332 2,632
YoY Change (%) 8.5 14.0 20.9 6.9 19.0 12.9
E: MOSL Estimates
PBT 1,038 2,199 1,439 1,677 1,605 2,320 1,425 1,773 6,353 7,122
Tax 343 733 468 585 561 814 477 534 2,129 2,386
Rate (%) 33.0 33.4 32.5 34.9 34.9 35.1 33.5 30.1 33.5 33.5
Reported PAT 696 1,465 971 1,092 1,044 1,506 947 1,238 4,223 4,736
Adj PAT 696 1,465 971 1,092 1,044 1,506 947 1,238 4,223 4,736
YoY Change (%) 61.6 11.7 2.0 50.1 2.8 -2.4 13.4 22.0 12.1
Margins (%) 12.9 22.2 17.9 20.5 17.4 23.4 16.0 20.1 18.6 19.3
E: MOSL Estimates
Pidilite Industries
Bloomberg PIDI IN CMP: INR714 TP: INR740 (+4%) Neutral
Equity Shares (m) 512.7
We expect Pidilites (PIDI) revenue to remain flat YoY, led by
M. Cap. (INR b)/(USD b) 366 / 6
flattish volumes in Consumer and Bazaar segment.
52-Week Range (INR) 770 / 569
1,6,12 Rel Perf. (%) 2 / -9 / 1
EBITDA margin is expected to contract 60bp YoY to 18.6%. Base
quarter 4QFY16 had witnessed 640bp EBITDA margin expansion
Financial Snapshot (INR b) YoY.
Y/E March 2016 2017E 2018E 2019E We expect EBITDA and PAT to decline by 3% and 8% YoY,
Sales 54.1 55.6 63.5 73.6 respectively.
EBITDA 12.2 12.4 13.8 15.5 While we like the business franchise and the long-term growth
Adj. PAT 7.6 8.5 9.4 10.5 prospects, fair valuations at 34.8x FY19E EPS of INR20.5 led us to
Adj. EPS (INR) 14.8 16.6 18.3 20.5 revise our rating post the 3QFY17 result to Neutral from Buy.
EPS Gr. (%) 47.3 12.5 10.1 12.3
BV/Sh.(INR) 54.3 64.5 79.3 96.3
RoE (%) 29.9 27.9 25.4 23.4
RoCE (%) 28.5 26.5 24.3 22.5
Payout (%) 28.5 29.2 16.4 14.6
Valuations
Key issues to watch for:
P/E (x) 48.4 43.0 39.1 34.8 Volume growth in Fevicol.
P/BV (x) 13.2 11.1 9.0 7.4 Outlook for VAM prices.
EV/EBITDA (x) 29.5 28.8 25.4 22.2 Outlook for industrial and construction chemical segments.
Div. Yield (%) 0.6 0.7 0.4 0.4 Progress on Elastomer project (if any).
PBT 3,290 2,932 2,813 2,150 3,887 3,209 2,814 2,237 10,737 12,147
Tax 948 893 829 637 1,174 912 793 766 3,221 3,645
Rate (%) 28.8 30.5 29.5 29.6 30.2 28.4 28.2 34.2 30.0 30.0
Adj PAT 2,333 2,053 1,992 1,547 2,717 2,309 2,063 1,417 7,564 8,506
YoY Change (%) 35.5 49.6 58.6 83.9 16.4 12.4 3.6 -8.4 45.7 12.5
Margins (%) 15.9 15.6 14.9 12.5 17.3 16.3 15.5 11.4 14.0 15.3
E: MOSL Estimates
United Breweries
Bloomberg UBBL IN CMP: INR762 TP: INR1,030 (+35%) Buy
Equity Shares (m) 264.4
We expect United Breweries revenue to decline by 4.7% YoY to
M. Cap. (INR b)/(USD b) 201 / 3
INR11.6b.
52-Week Range (INR) 976 / 690
1,6,12 Rel Perf. (%) -6 / -26 / -28
We build in EBITDA margin expansion of 30bp YoY to 10.8%, and
1.9% EBITDA decline YoY to INR1.2b.
Financial Snapshot (INR b) We estimate 16.9% PAT growth in 4QFY17, mainly due to low
Y/E March 2016 2017E 2018E 2019E interest costs and higher other income compared to base quarter.
Sales 48.4 47.9 53.2 61.2 The stock trades at 41.5x FY19E EPS of INR18.4. Maintain Buy.
EBITDA 6.9 6.8 7.8 9.7
PAT 3.0 2.8 3.8 4.9
EPS (INR) 11.3 10.7 14.3 18.4
EPS Gr. (%) 14.7 -5.4 34.3 28.2
BV/Sh.(INR) 79.8 89.5 101.3 117.0
RoE (%) 15.1 12.6 15.0 16.8
RoCE (%) 13.4 11.7 13.3 15.1
Valuations
Key issues to watch for:
P/E (x) 67.6 71.4 53.2 41.5
Trends in volume growth and margins.
P/BV (x) 9.5 8.5 7.5 6.5
Price trend and outlook for raw materials.
EV/EBITDA (x) 29.9 29.5 26.2 20.6
Comment on highway ban impact on stores with 500m proximity.
EV/Sales (x) 4.2 4.2 3.8 3.3
United Spirits
Bloomberg UNSP IN CMP: INR2,028 TP: INR2,520 (+24%) Buy
Equity Shares (m) 145.3
We expect United Spirits (UNSP) revenue to grow by 6.4% YoY to
M. Cap. (INR b)/(USD b) 295 / 5
INR22.6b and have built in flat volumes.
52-Week Range (INR) 2729 / 1775
1,6,12 Rel Perf. (%) -15 / -27 / -38
We build in EBITDA margin expansion of 230bp YoY to 10.9% (in the
base quarter, margin stood at a low 8.6%).
Financial Snapshot (INR b) We estimate PAT of INR937m in 4QFY17, a decline YoY mainly due
Y/E March 2016 2017E 2018E 2019E to a higher tax rate compared to the base quarter.
Sales 83.4 88.8 96.1 111.8 Maintain Buy.
EBITDA 8.8 9.6 11.8 15.1
PAT 2.4 4.2 6.1 8.5
EPS (INR) 16.7 28.6 42.2 58.7
EPS Gr. (%) LP 71.2 47.2 39.1
BV/Sh.(INR) 123.1 151.8 191.0 246.8
RoE (%) 19.8 20.8 22.1 23.8
RoCE (%) 8.5 11.5 14.4 17.3
Payout (%) 0.0 0.0 5.9 4.3
Valuations
Key issues to watch for:
P/E (x) 121.2 70.8 48.1 34.6 Trends in volume growth, premiumization and margins.
P/BV (x) 16.5 13.4 10.6 8.2 Price trend and outlook for ENA.
EV/EBITDA (x) 34.8 31.1 24.8 19.2 Impact of ban on alcohol in certain states.
Div. Yield (%) 0.0 0.0 0.1 0.1 Comment on highway ban impact on stores with 500m proximity.
Financials - Banks
Technology
Company name Earnings pressure continues
Axis Bank Loan growth moderate I NIM and fees under pressure I High provisioning
Bank of Baroda
Bank of India
Moderate loan growth, excess liquidity chasing quality credit (pressure on
Canara Bank
NIMs), sharp sequential increase in yields till Mid-March (decline in trading gains
DCB Bank
QoQ) and lack of resolution of NPAs would dent earnings for Financials.
Equitas Holdings
On a sequential basis, we expect profits to decline for PSBs (Public Sector Banks)
Federal Bank
as a whole due to decline in trading gains and higher provisions. YoY growth is
HDFC Bank
expected to be strong, as the base quarter was impacted by RBI AQR. We expect
ICICI Bank
balance sheet clean-up for ICICIBC and AXSB to continue in 4Q, impacting their
IDFC Bank
profitability.
Indian Bank
Mid-sized private banks would continue to outshine peers due to continue
IndusInd Bank market share gains (loan growth of 4-5x system), stable asset quality and stable
Kotak Mahindra Bank to improving margins (sharp fall in bulk deposits). We expect IIB, YES, RBL and
Oriental Bank of Commerce KMB to report a PAT growth of 29% YoY.
Punjab National Bank Last quarter, banks parked excess liquidity (collected due to demonetization) in
RBL Bank G-Sec, and with reversal of yields (+19/19/17bps QoQ for 3/5/10 years), chances
State Bank of India of MTM provision on investment portfolio have increased. Further, banks would
Union Bank of India continue to see ageing-related NPA provisions (RBI AQR led to bulk of NPAs in
Yes Bank 2HFY16). Hence, overall provisions would continue to dent earnings.
We expect pressure on asset quality to continue as (a) expected resolution in
the steel sector is delayed; (b) some large accounts may be recognized as NPA,
and (c) the lag impact of demonetization results in slippages from small value
accounts. RBI AQR in FY16 led to high NPAs, and due to weak recoveries till
date, provision levels are likely to remain elevated (ageing of NPAs).
We expect healthy growth in retail products like housing loans, vehicle loans
(push towards end of the quarter due to BS-III vehicle ruling by the Supreme
Court), and continued traction in unsecured personal loans and credit cards.
The big impact of demonetization would be shift in market share from
unorganized to organized credit. This along with low interest rates and
improvement in resolution process for stress loans would benefit Financials.
We are rolling forward our target price by a quarter. We also adjust cut earnings
estimates to factor in moderation in loan growth and delayed recoveries. Any
concrete announcement related to stress assets resolution by RBI/GOI
announcement will be the key positive. Our top picks amongst corporate
lenders are ICICIBC, SBIN and PNB. Amongst mid-sized banks we like YES and
Equitas.
`
Prefer mid-sized private banks; ICICIBC and SBIN top large-cap picks
Delayed resolution of stress assets, lack of growth capital, and increasing
competition from private banks continue to mar performance of PSBs. In our view,
concrete steps by RBI/GOI to resolve stress loans would be the key to stock
performance for corporate lenders. In the meanwhile, mid-sized private banks with
significant excess capacity in place would continue to report strong core earnings
growth. We expect market share gains to accelerate for them.
Exhibit 1: State-owned banksone-year forward P/BV Exhibit 2: Private sector banksone-year forward P/BV
PSU Banks Sector PB (x) LPA (x) Pvt Banks Sector PB (x) LPA (x)
2.0 1.9 3.5 3.3
2.8
1.4 2.5 2.2
1.1
0.9
0.8 1.5
0.6 0.9
0.2 0.5
Jun-08
Jun-13
Jun-08
Jun-13
Mar-07
Sep-09
Dec-10
Mar-12
Sep-14
Dec-15
Mar-17
Mar-07
Sep-09
Dec-10
Mar-12
Sep-14
Dec-15
Mar-17
5.0
6.4
7.8
9.2
10.6
4QFY12 1.1
April 2017
1QFY13 2.7 Jan-07 4QFY13 53.5 14.0
2QFY13 2.7 1QFY14 54.0 13.5
Dec-16 3QFY13 2.0 Jan-08 2QFY14 56.5 17.5
4QFY13 1.1
3QFY14 57.6 14.5
1QFY14 3.3 Jan-09
2QFY14 1.9 4QFY14 60.1 14.3
Sensex Index
3QFY14 2.1 1QFY15 61.2
Jan-17 4QFY14 1.1 2QFY15 62.7 11.0
Jan-11
Loans (INR t)
1QFY16 2.0
2QFY16 2.5 Jan-14 3QFY16 69.9 10.6
3QFY16 8.4 4QFY16 72.5 10.9
90
105
120
135
150
40
Q1 2014 1QFY13 3.0 3QFY13
3.6 64.7 11.0
Q2 2014 2QFY13 3.0 4QFY13 69.0
Mar-16 3.7 13.1
3QFY13 3.0 1QFY14
3.7 70.7
PBs
Q3 2014 13.5
Apr-16 2.9
4QFY13 3.8 2QFY14 73.3 14.4
55 55 60
Q4 2014 2.8
May-16 1QFY14 3.8
20 17 11 13 13
3QFY14 75.0 15.9
37
Q1 2015 2QFY14 2.8
Jun-16 3.8 4QFY14 77.4 14.6
2.8
of state-owned banks
Q2 2015 3QFY14
16
PSBs
3.8 1QFY15 79.5 12.4
Jul-16 4QFY14 2.7
Sensex Index
51 59
Q3 2015 3.8 2QFY15 82.9 13.1
Aug-16 1QFY15 2.7
3.9
74
PSU
2QFY15 4.1
Sep-16
51
Q1 2016 3QFY15 2.7 4QFY15 85.3 10.7
4.1
Oct-16 2.6 1QFY16 87.1 11.0
62
Q2 2016 4QFY15 4.0
Private
14 17 21 17 24
Nov-16 Q3 2016
130 4.1
Exhibit 6: Deposit growth remains healthy
4.0
2.4
48
Q2 2017 1QFY17 4.0 2QFY17 102.1 12.0
Feb-17
2QFY17 2.5
37
2.4
Exhibit 10: Provisions to PPoP (%) to remain elevated in case
126
Source: MOSL, Company
4QFY17E 3.9
March 2017 Results Preview | Sector: Financials - Banks
December
March
March 2017 2015 Results
2017 Results
Results Preview
Preview
Preview | Sector:
|| Sector:
Sector: Financials
Financials
Financials -- Banks
Banks
Axis Bank
Bloomberg AXSB IN CMP: INR507 TP: INR510 (0%) Neutral
Equity Shares (m) 2382.8
Led by significant NPA addition, FCNR redemption, and increased
M. Cap. (INR b)/(USD b) 1207 / 19
risk aversion, we expect AXSB to report mid-to-high single-digit loan
52-Week Range (INR) 638 / 418
-5 / -12 / -3
growth. Overall deposit growth would be moderate (8% YoY) owing
1,6,12 Rel Perf. (%)
to partial redemption of CASA deposits accumulated post
Financial Snapshot (INR b) demonetization and large-scale FCNR deposits redeemed in 3Q.
Y/E March 2016 2017E 2018E 2019E Yield on loans would remain under pressure following MCLR cuts/
NII 168.3 179.1 204.9 243.5 aggressive competition in refinance market. Margins in 3Q were
OP 161.0 177.4 188.1 218.4 impacted by ~23bp on account of interest income reversals and we
NP 82.2 32.9 56.8 100.5 expect margins to normalize by ~13bp QoQ to 3.6%.
NIM (%) 3.8 3.7 3.7 3.6 Bulk of the slippages are expected to be arising from the watch-list
EPS (INR) 34.5 13.8 25.5 46.6
(INR127.1b) and the proportion of corporate non-watch-list
EPS Gr. (%) 11.2 -60.0 72.8 76.9
slippages would be a key monitorable. While slippages should
BV/Sh. (INR) 216.8 230.6 251.6 290.0
moderate in 4Q, we expect them to remain at elevated levels (4.5%
ABV/Sh. (INR) 209.9 207.1 227.0 264.4
annualized slippage ratio), leading to higher credit costs.
RoE (%) 17.1 6.2 10.6 17.2
We estimate PAT at INR8.3b (v/s INR5.8b in 3Q), but subdued on a
RoA (%) 1.7 0.6 0.9 1.4
Payout (%) 15.0 0.0 17.6 17.6
YoY basis owing to high NPA provisioning.
Valuations AXSB trades at 1.8x FY19E BV and 12x FY19E EPS. Neutral.
P/E(X) 14.7 36.7 21.2 12.0 Key issues to watch for
P/BV (X) 2.3 2.2 2.0 1.8 Quantum of corporate slippages from non-watch list accounts
P/ABV (X) 2.4 2.4 2.2 1.9 Quantum of loans rescheduled under the 5:25, SDR and S4A
Div. Yield (%) 1.0 0.0 0.7 1.2 schemes.
Bank of Baroda
Bloomberg BOB IN CMP: INR174 TP: INR224 (+29%) Buy
Equity Shares (m) 2310.5
We expect balance sheet consolidation to continue, with 7.5% YoY
M. Cap. (INR b)/(USD b) 403 / 6
decline in loans in absolute terms. Portfolio rebalancing towards
52-Week Range (INR) 192 / 128
5 / -3 / 0
granular loans and SEB loan conversion could weigh on growth.
1,6,12 Rel Perf. (%)
After several quarters of decline in deposit intake in FY16, deposit
growth has picked up in the previous quarter. We expect BOB to
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
show 3% QoQ /6% YoY increase in deposits, given the low base.
NII 127.4 133.8 155.7 188.5 We expect margins to improve ~17bp QoQ, since 3QFY17 NIMs
OP 88.2 101.8 115.2 136.3 were impacted by interest income reversals.
NP -54.0 17.4 43.8 60.3 We expect slippages to remain elevated. However, higher
NIM (%) 2.0 2.2 2.4 2.5 recoveries are expected to provide some cushion to asset quality.
EPS (INR) -23.4 7.5 19.0 26.1
We expect only a marginal increase in GNPAs in 4QFY17.
EPS Gr. (%) NA NA 152.0 37.7
BV/Sh. (INR) 146 152.2 166.7 186.8
Muted fee income growth and significantly lower non-core income
ABV/Sh. (INR) 92 98.6 127.9 165.5 could see non-interest income falling from the highs of 2Q.
RoE (%) -15.3 5.0 11.9 14.8 PAT should increase ~100% sequentially, although from a low base;
RoA (%) -0.8 0.3 0.6 0.7 return ratios would still remain sub-optimal.
Div. Payout (%) 0.0 23.2 23.2 23.2 The stock trades at 0.9x FY19E BV and 6.7x FY19 EPS. Buy.
Valuations
P/E(X) NA 23.2 9.2 6.7 Key issues to watch for
P/BV (X) 1.2 1.1 1.0 0.9
Stress addition, mainly from international book.
P/ABV (X) 0.0 1.8 1.4 1.1
Guidance on loan growth, margins and operating expenses.
Div. Yield (%) 0.0 0.9 2.2 3.0
Bank of India
Bloomberg BOI IN CMP: INR143 TP: INR129 (-9%) Neutral
Equity Shares (m) 1055.4
Continued asset quality strain and capital conservation efforts have
M. Cap. (INR b)/(USD b) 151 / 2
led to six consecutive quarters of decline in loan growth. We expect
52-Week Range (INR) 144 / 79
10 / 13 / 31
4QFY17 loan growth to be flat QoQ (+2% YoY). Deposit growth may
1,6,12 Rel Perf. (%)
decline QoQ due to redemption of CASA intake.
Financial Snapshot (INR b) We expect NIM to remain largely stable QoQ at ~2% (-27bp YoY).
Y/E March 2016 2017E 2018E 2019E Overall NII is expected to de-grow 9%.
NII 117.2 112.6 134.6 165.9
While non-interest income is likely to contribute strongly to total
OP 60.4 87.4 100.3 120.1
income (~35%), it would be lower than in 3QFY17 owing to lower
NP -60.9 -6.0 15.3 25.0
NIM (%) 2.1 2.0 2.2 2.4 trading gains. Fee income is expected to remain muted.
EPS (INR) -74.5 -5.7 14.5 23.7 We expect stress additions to remain high during the quarter
EPS Gr. (%) NM NM NM 63.6 (slippage ratio ~4%), leading to elevated provisioning.
ROE (%) -24.5 -2.5 6.0 9.2 We expect operating profit to decline 13% QoQ (but grow 46% YoY)
ROA (%) -1.0 -0.1 0.2 0.3 as a result of lower non-core income growth.
BV/Sh. (INR) 283 238 249 267
BOI trades at 0.5x FY19E BV and 6x FY19E EPS. Maintain Neutral.
ABV/Sh. (INR) 61 79 130 199
Div. Payout (%) 0.0 0.0 23.2 23.2
Valuations Key issues to watch for
P/E(X) -1.9 -25.2 9.9 6.0 Stress addition trends and outlook for FY18.
P/BV (X) 0.50 0.60 0.57 0.54 Upgrade/recovery trends.
P/ABV (X) 2.35 1.80 1.10 0.72 Quantum of loans rescheduled under the 5:25 scheme.
Div. Yield (%) 0.0 0.0 2.0 3.3 Outlook on balance sheet growth and further capital infusion.
Canara Bank
Bloomberg CBK IN CMP: INR311 TP: INR310 (0%) Neutral
Equity Shares (m) 543.0
We expect slippages to remain elevated (3.5% of loans). Continued
M. Cap. (INR b)/(USD b) 169 / 3
fresh slippages and ageing of NPLs are expected to keep credit costs
52-Week Range (INR) 330 / 171
4 / -11 / 51
high (we factor in 2.4% credit costs in 4QFY17).
1,6,12 Rel Perf. (%)
We expect loan growth to pick up marginally, yet remain muted
Financial Snapshot (INR b) (3/5% QoQ/YoY). Deposit growth is expected to be flat QoQ, but
Y/E March 2016 2017E 2018E 2019E grow 7.5% YoY owing to strong CASA inflows in 3QFY17.
NII 97.6 98.3 107.2 122.7
NIM should increase ~13bp QoQ (+10bp YoY) from a low base,
OP 71.5 87.6 92.1 110.5
leading to 12% NII growth.
NP -28.1 13.7 19.5 31.3
NIM (%) 1.9 1.9 1.9 1.9 Fee income growth is expected to remain muted. Non-core income
EPS (INR) -51.8 25.2 35.9 57.6 is expected to come in strong, considering that the bank had only
EPS Gr. (%) NM NM 42.6 60.4 booked 40% of the available trading gains in 3Q, with the balance
BV/Sh. (INR) 477 497 525 569 likely to be booked in this quarter. Also, CBK had sold 13.5% stake
ABV/Sh. (INR) 227 230 278 356 in CANFIN, which would lead to capital gains of INR7b.
RoE (%) -10.8 5.2 7.0 10.5
We expect PAT growth of 42% QoQ. The banking business trades at
RoA (%) -0.5 0.2 0.3 0.4
Div. Payout (%) 0.0 20.9 23.2 23.2 0.5x FY19E BV and 4.9x FY19E EPS. Maintain Neutral.
Valuations
Key issues to watch for
P/E (x) -5.5 11.3 7.9 4.9
Quantum of loans rescheduled under the 5:25, SDR and S4A
P/BV (x) 0.60 0.57 0.54 0.50
P/ABV (x) 1.25 1.23 1.02 0.80 schemes.
Div. Yield (%) 0.0 1.6 2.5 4.1 Outlook on balance sheet growth.
DCB Bank
Bloomberg DCBB IN CMP: INR171 TP: INR158 (-8%) Neutral
Equity Shares (m) 284.4
Loan growth (22% YoY) and deposit growth (28% YoY) are expected
M. Cap. (INR b)/(USD b) 49 / 1
to be significantly above industry average. We expect NII to grow
52-Week Range (INR) 173 / 78
24% YoY, led by strong loan growth, although margins are expected
1,6,12 Rel Perf. (%) 6 / 30 / 90
to contract ~10bp QoQ/YoY owing to pressure on yields.
Non-interest income is expected to grow by ~22% YoY, led by
Financial Snapshot (INR b)
healthy fee income and trading gains.
Y/E MARCH 2016 2017E 2018E 2019E
NII 6.2 7.9 9.5 11.7 Overall, we expect revenue growth to remain strong at 24% YoY
OP 3.5 4.2 4.9 6.1 and PPP growth to be 22% YoY. We model opex growth of 25% YoY,
NP 1.9 2.0 2.4 3.1 led by branch expansion strategy (300+ targeted by 2Q/3QFY18).
NIM (%) 3.9 4.0 3.9 3.9 Credit costs may be elevated owing to potential stress in the retail
EPS (INR) 6.8 7.1 8.6 10.9 and SME segment (we factor in 2.7% slippage ratio). We expect PBT
EPS Gr. (%) 0.9 3.7 21.4 26.3
growth of 21% YoY.
BV/Sh. (INR) 61.6 68.7 77.3 88.2
DCBB trades at 1.9x FY19E BV and 15.8x FY19E EPS. On the back of
ABV/Sh. (INR) 59.2 65.6 73.9 84.1
RoE (%) 11.8 10.9 11.8 13.1 improved visibility we increase target multiple to 1.8x v/s 1.6x
RoA (%) 1.1 0.9 0.9 1.0 earlier. We also roll forward TP by one quarter. Maintain Neutral.
Valuations Key issues to watch for
P/E (x) 25.1 24.2 19.9 15.8 Management commentary on slippages in SME segment.
P/BV (x) 2.8 2.5 2.2 1.9
Update and commentary on balance sheet growth strategy.
P/ABV (X) 2.9 2.6 2.3 2.0
CASA ratio and NIM performance.
Equitas Holdings
Bloomberg EQUITAS IN CMP: INR170 TP: 220 (+29%) Buy
Equity Shares (m) 335.7
We expect NII growth of 46% YoY, led by change in balance sheet
M. Cap. (INR b)/(USD b) 57 / 1
profile towards higher proportion of interest-earning assets (loans +
52-Week Range (INR) 206 / 134
investments) and recalibration in liability side (sufficient availability
1,6,12 Rel Perf. (%) -6/-15/-
of funds). Loan growth is expected to be healthy at ~20% YoY.
Financial Snapshot (INR b)
NIM is expected to contract ~160bp QoQ due to shift from higher
Y/E March 2016 2017E 2018E 2019E
yielding MFI loans to lower yielding secured products. This would
NII 5.1 8.7 11.1 13.2
OP 3.2 4.3 4.5 5.3 be negated to some extent by a fall in COF, with bank borrowings to
NP 1.7 1.9 2.1 2.5 be grandfathered and largely replaced by bulk deposits.
NIM (%) 11.6 13.8 12.2 10.4 Opex is expected to grow by ~82% YoY (v/s 46% YoY growth in total
EPS (INR) 6.2 5.7 6.2 7.4 income), driven by greater employee and other expenses as a result
EPS Gr. (%) 56.1 -8.2 8.9 18.7 of liability-side branch set-up and hiring.
BV/Sh. (INR) 50 67 73 80
PAR >1 day stands at ~5% of MFI loans. Collection trends in Tamil
ABV/Sh. (INR) 49 65 71 78
RoE (%) 13.3 10.7 8.9 9.6
Nadu, Maharashtra and Karnataka remain a key monitorable. We
RoA (%) 3.0 2.4 1.9 1.7 factor in provisions of INR298m during the quarter.
Div. Payout (%) 0.0 0.0 0.0 0.0 The stock trades at 2.1x FY19E BV. Maintain Buy.
Valuations
P/E(X) 27.5 29.9 27.5 23.2 Key issues to watch for
P/BV (X) 3.4 2.6 2.3 2.1 Update on the transition progress.
P/ABV (X) 3.5 2.6 2.4 2.2 Commentary on growth and asset quality in MFI.
Div. Yield (%) 0.0 0.0 0.0 0.0
Federal Bank
Bloomberg FB IN CMP: INR91 TP: INR108 (+19%) Buy
Equity Shares (m) 1719.0
We expect FB to report ~25% YoY (4% QoQ) loan growth, aided by
M. Cap. (INR b)/(USD b) 156 / 2
greater focus on corporate growth. Traction in SME and retail loans
52-Week Range (INR) 92 / 43
3 / 16 / 87
would be maintained. We expect NIM to contract by 10bp QoQ.
1,6,12 Rel Perf. (%)
Other income growth is likely to moderate to 4% YoY v/s 44% YoY in
Financial Snapshot (INR b)
3Q owing to lower trading gains in a rising interest rate scenario.
Y/E Mar 2016 2017E 2018E 2019E
Fee income growth would be flat YoY on a high base; however,
NII 25.0 30.1 35.2 42.0
OP 14.2 18.1 21.1 25.7 traction in corporate segment could throw a positive surprise.
NP 4.8 7.6 9.0 11.5 Overall PPoP growth is expected to be muted due to lower share of
NIM (%) 3.2 3.3 3.1 3.0 non-interest income and declining margins.
EPS (INR) 2.8 4.4 5.2 6.7 We expect slippages to remain largely in line with 3Q (at ~2%),
EPS Gr. (%) -52.9 59.1 19.1 27.2
owing to stress in the SME segment. GNPA in % terms is expected
BV/Sh. (INR) 47 50 54 60
to remain largely stable at less than 3%.
ABV/Sh. (INR) 43 47 51 56
ROE (%) 6.0 9.0 10.0 11.7 We expect PAT of INR1.8b v/s INR103m in 4QFY16 and ~INR2b in
ROA (%) 0.5 0.7 0.7 0.7 3QFY17. FB trades at 1.5x FY19E BV and 13.6x FY19E EPS. Buy.
Payout (%) 29.3 23.2 23.2 23.2
Valuations
Key issues to watch for
P/E(X) 32.9 20.7 17.3 13.6
Outlook on asset quality.
P/BV (X) 1.9 1.8 1.7 1.5
P/ABV (X) 2.1 2.0 1.8 1.6 Strategy on balance sheet growth, particularly corporate growth.
Div. Yield (%) 0.8 1.0 1.2 1.5
HDFC Bank
Bloomberg HDFCB IN CMP: INR1,433 TP: INR1,670 (+16%) Buy
Equity Shares (m) 2555.4
Loan growth will be moderate at 12% YoY, in line with the
M. Cap. (INR b)/(USD b) 3663 / 56
moderate growth environment in the system (still ~2x system
52-Week Range (INR) 1478 / 1043
0 / 5 / 15
growth). We expect healthy deposit growth of ~18% YoY led by
1,6,12 Rel Perf. (%)
strong CASA inflows in 3Q, despite USD3b of FCNR (B) redemption
Despite pressure on yields, COF decline would help HDFCB to report
Financial Snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
stable NIM QoQ at 4.5%. NII is expected to grow at 14% YoY.
NII 275.9 326.1 382.4 452.3 Opex growth would largely be in line with growth in total income at
OP 213.6 251.0 295.5 351.3 ~16% YoY. Hence, C/I ratio would remain stable QoQ.
NP 123.0 144.6 170.4 201.8 Moderate PPoP growth would lead to 16% YoY PAT growth, lower
NIM (%) 4.7 4.7 4.6 4.5 than the trend rate of 20%. Asset quality trends would remain
EPS (INR) 48.6 56.6 68.3 81.5
stable with GNPAs at ~1%.
EPS Gr. (%) 19.3 16.3 17.9 18.4
BV/Sh. (INR) 287 327.7 380.1 442.6
HDFCB trades at 3.3x FY19E BV and 18.2x FY19E EPS. Comfort on
ABV/Sh. (INR) 284 323.6 373.2 430.8 earnings (~18% CAGR over FY16-19) remains high. Maintain Buy.
RoE (%) 18.3 18.5 19.3 19.8
RoA (%) 1.9 1.9 1.8 1.8
Key issues to watch for
Payout (%) 22.9 23.4 23.4 23.4
Performance in retail loan/SME portfolioespecially in segments
Valuations
P/E(X) 29.6 25.5 21.6 18.2 like CV/CE.
P/BV (X) 5.0 4.4 3.8 3.3 Trends in digital banking/payment industry and various initiatives
P/ABV (X) 5.1 4.5 3.9 3.3 by the bank.
Div. Yield (%) 0.7 0.8 0.9 1.1 Overall B/S growth outlook and economic recovery.
ICICI Bank
Bloomberg ICICIBC IN CMP: INR285 TP: INR350 (+23%) Buy
Equity Shares (m) 5813.3
We expect loan growth to improve to 9% YoY (+4% QoQ), led by
M. Cap. (INR b)/(USD b) 1656 / 26
continued growth in retail loans, which have shown a steady pick-
52-Week Range (INR) 298 / 213
up in the last two years. Corporate loan growth would be moderate
1,6,12 Rel Perf. (%) -1 / 5 / 6 and international loan exposure would continue to decline. Slower
growth coupled with a YoY decline in NIM (due to lower C-D ratio)
Financial Snapshot (INR b) should lead to moderate growth in NII on a YoY basis.
Y/E March 2016 2017E 2018E 2019E Fee income growth would remain muted. We have factored in ~8%
NII 212.2 212.1 244.0 279.2 YoY growth in fee income, led by low corporate fees. Moderate
OP 238.6 264.2 229.5 258.6 trading gains and one-off stake sale in previous quarters would
NP 97.3 100.7 103.7 119.0
reflect in lower overall non-interest income growth on a QoQ/YoY
NIM (%) 3.6 3.2 3.3 3.3
basis. Overall, we expect non-interest income to decline ~30% YoY.
EPS (INR) 16.7 17.3 17.8 21.6
Gross slippages are expected to remain high in 4QFY17, with
EPS Gr (%) -13.2 3.5 3.0 14.8
BV/Sh (INR)* 132.9 145.2 158.0 173.2
slippage ratio estimated at 6.5%. Bulk of the corporate slippages
ABV/Sh (INR)* 117.3 119.1 129.5 148.2 would be from within the watch list. Outstanding watch list (fund-
RoE (%) 11.3 10.5 9.8 10.5 based and non-fund-based) stood at INR275.4b in 3QFY17.
RoA (%) 1.4 1.3 1.2 1.2 We expect PAT to decline 6% QoQ, led by muted total income
Valuations growth. Provisions are expected to remain elevated.
AP/E (x) 13.0 12.4 11.3 9.0 ICICIBC trades at 1.1x FY19E core BV and 9x FY19E EPS. Buy.
AP/BV (x) 1.6 1.5 1.3 1.1 Key issues to watch for
AP/ABV (x) 1.9 1.8 1.6 1.2 Movement of watch list accounts.
Div. Yield (%) 1.8 1.6 1.6 1.9 Plans on monetization of stakes in various ventures.
* BV adj for invt in subsidiaries
Outlook on asset quality and trend on further relapse from RL.
Quantum of loans rescheduled under the 5/25 scheme.
ICICI Bank: Quarterly Performance
FY16 FY17 FY16 FY17E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Interest Income 128,126 130,989 133,461 134,819 133,303 136,394 136,181 135,953 527,394 541,830
Interest Expense 76,975 78,474 78,931 80,774 81,717 83,861 82,548 81,625 315,154 329,751
Net Interest Income 51,151 52,515 54,530 54,045 51,585 52,533 53,634 54,328 212,240 212,079
% Change (YoY) 13.9 12.8 13.3 6.4 0.8 0.0 -1.6 0.5 11.5 -0.1
Other Income 29,899 30,074 42,169 51,089 34,293 91,197 39,383 36,289 153,231 201,161
Net Income 81,050 82,588 96,698 105,134 85,878 143,730 93,017 90,617 365,471 413,241
Operating Expenses 30,672 31,004 31,100 34,059 33,731 37,369 37,777 40,155 126,836 149,032
Operating Profit 50,378 51,584 65,598 71,075 52,147 106,361 55,239 50,462 238,635 264,209
% Change (YoY) 11.5 9.8 30.2 30.0 3.5 106.2 -15.8 -29.0 21.0 10.7
Other Provisions 9,554 9,422 28,441 69,262 25,145 70,827 27,127 22,643 116,678 145,743
Profit before Tax 40,824 42,163 37,158 1,813 27,002 35,534 28,112 27,818 121,957 118,466
Tax Provisions 11,063 11,862 6,976 -5,206 4,679 4,511 3,694 4,886 24,694 17,770
Net Profit 29,762 30,301 30,181 7,019 22,324 31,023 24,418 22,932 97,263 100,696
% Change (YoY) 12.1 11.9 4.5 -76.0 -25.0 2.4 -19.1 226.7 -13.0 3.5
Operating Parameters
NIM (Reported,%) 3.5 3.5 3.5 3.4 3.2 3.1 3.1 3.5
NIM (Cal, %) 3.7 3.7 3.7 3.5 3.3 3.3 3.3 3.2 3.6 3.3
Deposit Growth (%) 9.6 9.2 14.6 16.6 15.3 16.8 14.2 14.7 16.6 14.7
Loan Growth (%) 15.2 13.3 15.8 12.3 12.4 10.9 5.2 8.9 12.3 8.9
Tax Rate (%) 27.1 28.1 18.8 -287.2 17.3 12.7 13.1 17.6 29.1 29.1
Asset Quality
OSRL (INR b) 126.0 118.7 112.9 85.7 72.4 63.4 64.1 85.7
OSRL (%) 3.2 2.9 2.6 2.0 1.6 1.4 1.4 2.0
Gross NPA (INR b) 151.4 158.6 211.5 262.2 271.9 321.8 377.2 424.2 262.2 424.2
Gross NPA (%) 3.7 3.8 4.7 5.8 5.9 6.8 7.9 8.6 5.8 8.6
E: MOSL Estimates; Note: We have factored in IPRU stake sale gain in 3QFY17 and reversal of contingency provisions in 2QFY17.
IDFC Bank
Bloomberg IDFCBK IN CMP: INR61 TP: INR63 (+4%) Neutral
Equity Shares (m) 3392.6
We expect moderate loan growth of 6% YoY (+3% QoQ), with
M. Cap. (INR b)/(USD b) 206 / 3
incremental growth to be driven by the retail segment (acquisition
52-Week Range (INR) 83 / 44
of portfolio for PSL), as the bank is conservative on corporate
1,6,12 Rel Perf. (%) -4 / -27 / 0
growth. During the quarter, the bank has sold a substantial part of
stress loans to ARC, which would also impact reported loan growth.
Financial Snapshot (INR b)
Y/E March 2H2016 2017E 2018E 2019E Yields are expected to remain under pressure and we expect flat
NII 8.5 20.4 25.0 30.9 margins at ~2% in 4QFY17.
OP 7.4 19.0 21.9 27.1
Non-interest income would be INR2.5b (down 25% QoQ, but up
NP 4.7 10.0 13.0 16.1
83% YoY), led by moderate fee income growth and lower trading
NIM (%) 2.5 2.3 2.3
EPS (INR) 3.0 3.8 4.8 gains than in 3Q.
EPS Gr. (%) 30.1 23.9 Opex is likely to grow 27% YoY, driven by costs associated with
BV/Sh. (INR) 40.2 42.4 45.4 49
expansion of retail and rural banking franchise. Strong total income
ABV/Sh. (INR) 37.8 39.9 42.4 46
growth of 40% YoY would lead to 56% YoY growth in PPoP.
RoE (%) 7.1 8.7 10.1
RoA (%) 1.1 1.0 1.1 Stress additions would keep credit costs elevated and we expect
Payout (%) 20.0 20.0 20.0 20.0 high provisioning at INR1.7b. We expect PAT decline of ~5% YoY.
Valuations
P/E(X) 20.5 15.8 12.7
The stock trades at 1.2x FY19E BV and 12.7x FY19E EPS. Neutral.
P/BV (X) 1.4 1.3 1.2
Key issues to watch for
P/ABV (X) 1.5 1.4 1.3
Div. Yield (%) 1.0 1.3 1.6 Outlook on balance sheet growth and costs.
Retail franchise building plans and update.
Quarterly
(INR Million)
Performance
FY16 FY17E 2HFY16 FY17E
3Q 4Q 1Q 2Q 3Q 4QE
Net Interest Income 3,863 4,168 4,989 4,956 5,208 5,264 8,031 20,416
% Change (Y-o-Y) 34.8 26.3 NA
Other Income 2,179 1,377 2,128 4,101 3,350 2,520 3,556 12,100
Net Income 6,042 5,545 7,117 9,057 8,558 7,784 11,587 32,516
Operating Expenses 2,153 2,947 2,768 3,234 3,798 3,727 5,100 13,527
Operating Profit 3,889 2,598 4,349 5,823 4,760 4,057 6,487 18,990
% Change (Y-o-Y) 22.4 56.2 NA
Other Provisions 123 119 236 223 2,318 1,701 242 4,478
Profit before Tax 3,766 2,479 4,113 5,600 2,443 2,356 6,246 14,511
Tax Provisions 1,345 829 1,465 1,722 530 781 2,173 4,499
Net Profit 2,422 1,651 2,648 3,878 1,913 1,575 4,072 10,013
% Change (Y-o-Y) NA NA NA NA -21.0 -4.6 NA
Operating Parameters
NIM (Reported,%) 2.0 2.1 2.4 2.2 2.1
NIM (Cal, %) 2.1 2.3 2.4 2.0 2.0 2.0 2.2 2.5
E: MOSL Estimates
Indian Bank
Bloomberg INBK IN CMP: INR283 TP: INR331 (+17%) Buy
Equity Shares (m) 480.3
Net loan growth is expected to be a muted ~4% QoQ (-2% YoY),
M. Cap. (INR b)/(USD b) 136 / 2
after three consecutive quarters of sequential decline. Deposit
52-Week Range (INR) 310 / 85
-5 / 22 / 156
growth is expected be flat (+1% QoQ, +4% YoY), led by redemption
1,6,12 Rel Perf. (%)
of CASA deposits accumulated in the previous quarter.
Financial Snapshot (INR b) Calculated NIMs are expected to improve ~20bp QoQ (+35bp YoY),
Y/E March 2016 2017E 2018E 2019E as 3QFY17/4QFY16 were impacted by interest income reversals.
NII 44.5 51.1 55.0 65.3
This would drive NII growth of 19% YoY (and 9% QoQ).
OP 30.3 38.9 40.6 46.0
NP 7.1 13.0 14.5 17.3
Fee income would be subdued. Significantly lower trading gains
NIM (%) 2.5 2.7 2.7 2.8 would lead to 5% QoQ decline (but 8% YoY growth) in non-interest
EPS (INR) 14.8 27.1 30.1 35.9 income. We expect slippage ratio to remain elevated at 2.6% and
EPS Gr. (%) -29.2 82.7 11.2 19.4 credit costs to remain high at 1.75% (1.78% in 3QFY17), as INBK
BV/Sh. (INR) 281 301 324 352 looks to improve provision coverage.
ABV/Sh (INR) 202 216 238 270
INBK trades at 0.8x FY19E BV and 7.9x FY19E EPS. Maintain Buy.
RoE (%) 5.5 9.3 9.6 10.6
RoA (%) 0.4 0.6 0.6 0.7
Key issues to watch for
Div. Payout (%) 23.2 23.2 23.2 23.2
Outlook on business growth and asset quality remains the key
Valuations
P/E (x) 19.1 10.5 9.4 7.9 factor to monitor.
P/ BV (x) 1.0 0.9 0.9 0.80 Quantum of loans rescheduled under the 5/25 scheme.
P/ABV (x) 1.4 1.3 1.2 1.05 View on margins with an improvement in liquidity and lower
Div. Yield (%) 0.5 1.9 2.1 2.5 interest rates.
IndusInd Bank
Bloomberg IIB IN CMP: INR1,400 TP: INR1,685 (+20%) Buy
Equity Shares (m) 595.0
We expect strong loan growth of ~24% in 4QFY17 significantly
M. Cap. (INR b)/(USD b) 833 / 13
ahead of system loan growth. Deposit growth would be strong at
52-Week Range (INR) 1440 / 935
4 / 9 / 27
32% YoY, aided by demonetization in 3Q. Continued market share
1,6,12 Rel Perf. (%)
gains in VF would remain a key factor to monitor.
Financial Snapshot (INR Billion) NIM is likely to decline marginally (by 5bp QoQ), but would remain
Y/E MARCH 2016 2017E 2018E 2019E at 3.8-3.9%. The quantum of CASA retained would be a key factor.
NII 45.2 60.2 71.8 87.4
We expect non-interest income to grow ~20%, supported by
OP 41.4 52.4 62.8 75.9
healthy fee income growth of ~24%. The management expects
NP 22.9 28.8 34.9 42.4
NIM (%) 4.0 4.3 4.3 4.3 stronger contribution of third-party distribution fees owing to
EPS (INR) 38.4 48.4 58.7 71.2 increased inflows into MFs and insurance industry.
EPS Gr. (%) 13.4 25.9 21.3 21.3 Opex growth would remain high at ~30%+ YoY v/s 25% growth in
BV/Sh. (INR) 291 333 383 444.3 total income. Healthy PPP growth (+19% YoY) and controlled credit
ABV/Sh. (INR) 288 328 377 437.1 costs would keep earnings growth strong at 22%+ YoY.
RoE (%) 16.6 15.5 16.4 17.2
IIB trades at 3.2x FY19E BV and 19.7x FY19E EPS, with best-in-class
RoA (%) 1.8 1.9 1.9 1.9
Payout (%) 18.5 14.0 14.0 14.0 RoA of ~1.9% and RoE of 17-18%. Buy.
Valuations
Key issues to watch for
P/E (X) 36.4 28.9 23.9 19.7
Continued CV/CE growth would be the key for CFD growth.
P/BV (X) 4.8 4.2 3.7 3.2
P/ABV (X) 4.9 4.3 3.7 3.2 Corporate asset quality a key monitorable.
Div. Yield (%) 0.3 0.4 0.5 0.6 Traction in the non-vehicle consumer lending portfolio.
Quarterly Performance
FY16 FY17 FY16 FY17E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Interest Income 27,235 27,978 29,277 31,317 32,917 34,857 36,993 38,480 115,807 143,247
Interest Expense 17,428 17,035 17,543 18,635 19,353 20,254 21,209 22,275 70,641 83,091
Net Interest Income 9,807 10,943 11,734 12,682 13,564 14,603 15,784 16,205 45,166 60,157
% Change (YoY) 22.5 31.3 36.2 37.1 38.3 33.4 34.5 27.8 32.1 33.2
Other Income 7,616 7,835 8,390 9,128 9,730 9,704 10,168 11,010 32,970 40,612
Net Income 17,423 18,778 20,124 21,810 23,294 24,307 25,952 27,215 78,135 100,768
Operating Expenses 8,196 8,713 9,514 10,298 10,956 11,491 12,319 13,572 36,721 48,337
Operating Profit 9,227 10,065 10,610 11,512 12,338 12,816 13,633 13,643 41,414 52,431
% Change (YoY) 23.2 38.9 37.1 35.4 33.7 27.3 28.5 18.5 33.7 26.6
Other Provisions 1,233 1,581 1,771 2,137 2,305 2,139 2,169 2,148 6,722 8,760
Profit before Tax 7,994 8,484 8,839 9,375 10,033 10,677 11,465 11,495 34,693 43,671
Tax Provisions 2,744 2,884 3,029 3,172 3,419 3,635 3,959 3,879 11,828 14,892
Net Profit 5,250 5,600 5,810 6,204 6,614 7,042 7,506 7,617 22,865 28,779
% Change (YoY) 24.7 30.2 29.9 25.3 26.0 25.7 29.2 22.8 27.5 25.9
Operating Parameters
NIM (Reported,%) 3.7 3.9 3.9 3.9 4.0 4.0 3.9
NIM (Cal, %) 3.5 3.7 3.7 3.7 3.8 3.8 3.9 3.8 3.7 3.8
Deposit Growth (%) 21.6 22.5 24.6 25.4 31.0 38.9 37.9 32.0 25.4 32.0
Loan Growth (%) 23.1 30.6 28.7 28.5 29.7 26.4 25.1 24.0 28.5 24.0
CD Ratio (%) 93.0 96.8 95.1 95.1 92.1 88.1 86.2 89.3 95.1 89.3
CASA Ratio (%) 34.7 34.7 35.0 35.2 34.4 36.5 37.0 35.2 36.1
Tax Rate (%) 34.3 34.0 34.3 33.8 34.1 34.0 34.5 33.7 34.1 34.1
Asset Quality
OSRL (INR b) 4.6 4.9 4.8 4.7 4.6 4.4 4.7
OSRL (%) 0.6 0.6 0.6 0.5 0.5 0.4 0.5
Gross NPA (INR b) 5.7 6.0 6.8 7.8 8.6 9.0 9.7 10.7 7.8 10.7
Gross NPA (%) 0.8 0.8 0.8 0.9 0.9 0.9 0.9 1.0 0.9 1.0
E: MOSL Estimates; Quarterly calculated margins based on total assets, yearly on interest earning assets
Quarterly Performance
Y/E March FY16 FY17E FY16 FY17E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Kotak Bank (standalone)
Net Interest Income 15,982 16,787 17,662 18,572 19,191 19,954 20,503 21,008 69,004 80,656
% Change (Y-o-Y) 59.5 61.6 66.7 65.4 20.1 18.9 16.1 13.1 63.4 16.9
Operating Profit 5,970 10,448 12,052 11,942 13,150 14,401 15,277 15,312 40,411 58,140
% Change (Y-o-Y) -10.3 42.4 63.4 38.7 120.3 37.8 26.8 28.2 34.8 43.9
Net Profit 1,898 5,695 6,347 6,958 7,420 8,133 8,798 8,878 20,898 33,228
% Change (Y-o-Y) -55.8 28.1 36.6 32.0 291.0 42.8 38.6 27.6 12.0 59.0
Other Businesses
Kotak Prime 1,190 1,270 1,260 1,300 1,200 1,300 1,330 1,393 5,025 5,223
Kotak Mah. Investments 300 360 390 500 400 530 480 497 1,540 1,907
Kotak Mah. Capital Co 30 70 60 170 230 50 70 74 320 424
Kotak Securities 670 780 550 510 600 960 850 846 2,515 3,256
International subs 250 320 260 220 130 310 220 240 1,050 900
Kotak Mah. AMC & Trustee Co. 200 230 40 250 190 70 160 170 720 590
Kotak Investment Advisors 0 0 -10 50 110 10 0 5 50 125
Kotak OM Life Insurance 660 480 600 770 710 630 680 804 2,510 2,824
Con.adj and MI -30 230 -40 -180 -240 30 80 -190 -19 -320
Conso. PAT 5,168 9,435 9,457 10,548 10,750 12,023 12,668 12,716 34,608 48,156
% Change (Y-o-Y) -25.9 31.5 32.0 15.5 108.0 27.4 33.9 20.6 13.7 39.1
E: MOSL Estimates, Quarterly numbers vary from full year number due to difference in reporting
RBL Bank
Bloomberg RBK IN CMP: INR535 Under Review
Equity Shares (m) 361.7
Loan growth (+10% QoQ) and deposit growth (+38% YoY) would be
M. Cap. (INR b)/(USD b) 193 / 3
significantly above industry average.
52-Week Range (INR) 547 / 274
We expect NII to grow 44% QoQ, led by strong loan growth and
1,6,12 Rel Perf. (%) 13/69/-
stable NIMs, and helped by strong CASA inflows and fall in bulk
deposit rates.
Financial Snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
Overall non-interest income is expected to grow by ~44% YoY, led
NII 8.2 12.1 15.8 20.8 by strong growth in fee income and digital initiatives. We expect
OP 5.4 9.0 12.4 16.6 opex growth of 31%, led by continued capacity expansion.
NP 2.9 4.6 6.7 8.8 However, opex is expected to trail total income growth of 44%,
NIM (%) 2.7 3.0 3.1 3.2 driving 62% YoY increase in PPoP.
EPS (INR) 9.0 12.7 18.5 24.3
Asset quality is expected to remain largely stable in 4QFY17, though
EPS Gr. (%) 27.6 41.3 45.4 31.2
BV/Sh. (INR) 92.0 114.7 129.6 149.2
some stress could materialize, particularly in the MFI segment.
ABV/Sh. (INR) 89.5 114.1 128.8 148.1 Credit costs would largely be under control.
RoE (%) 11.2 12.9 15.2 17.4 We expect PAT growth of 12% QoQ and 72% YoY. RBK trades at 3.6x
RoA (%) 0.9 1.1 1.2 1.3 FY19E BV and 22x FY19E EPS. We await management commentary
Valuations on asset quality and growth outlook, and change our rating to
P/E(X) 59.4 42.0 28.9 22.0
Under Review.
P/BV (X) 5.8 4.7 4.1 3.6
P/ABV (X) 6.0 4.7 4.2 3.6 Key issues to watch for
Div. Yield (%) 0.3 0.4 0.6 0.7 Management commentary on slippages in SME segment.
Update and commentary on balance sheet growth strategy.
CASA ratio and traction on NIMs.
Yes Bank
Bloomberg YES IN CMP: INR1,567 TP: INR2110 (+35%) Buy
Equity Shares (m) 421.1
We expect loan growth to be significantly ahead of system
M. Cap. (INR b)/(USD b) 659.8 / 9.7
average at 25% YoY (nearly 5x industry growth rate) on the back
52-Week Range (INR) 1575 / 830
of refinancing opportunities and strong growth in retail banking.
1,6,12 Rel Perf. (%) 5/16/68
We expect NIM to remain largely stable with falling yields
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
negated by lower cost of funds on account of CASA inflows post
NII 45.7 58.6 76.3 96.3 demonetization and re-pricing of bulk deposits. Consequently, NII
OP 43.0 56.3 73.3 92.2 growth is expected to be healthy at 28% YoY, one of the best
NP 25.4 33.3 43.4 54.6 among peers.
NIM (%) 3.4 3.6 3.8 3.8 Non-interest income growth is likely to be ~23% YoY, led by
EPS (INR) 60.4 73.5 95.7 120.3
strong growth from third-party distribution, continued
EPS Gr. (%) 25.8 21.6 30.3 25.7
BV/Sh. (INR) 327.8 469.3 545.5 641.2
momentum in financial advisory and higher trading gains.
ABV/Sh. (INR) 323.4 463.6 539.3 632.1 Led by aggressive franchise expansion, we expect opex growth to
RoE (%) 19.9 19.0 18.9 20.3 remain high (33%+ YoY).
RoA (%) 1.7 1.8 1.9 2.0 Asset quality performance so far has been significantly better
Valuations than industry; we expect this trend to continue. YES trades at 2.4x
P/E(X) 25.9 21.3 16.4 13.0
FY19E BV and 13x FY19E EPS. Return ratios also remain strong
P/BV (X) 4.8 3.3 2.9 2.4
(RoA of 1.8% and RoE of 20%+). Maintain Top Pick .
P/ABV (X) 4.8 3.4 2.9 2.5
Div. Yield (%) 0.6 0.8 1.1 1.3 Key issues to watch for
Implementation of retail strategy on assets and liabilities sides.
Performance on asset quality and quantum of loans rescheduled
under 5:25 scheme/sale to ARCs.
Financials - NBFCs
Company name Divergent performance
Recovery in growth/asset quality; MFI segment remains a concern
Bajaj Finance
Bharat Financial Inclusion We expect NBFCs under our coverage to report PAT growth of 11% YoY in 4QFY17.
While there has been some pick-up in February/March due to various reasons (lifting
Dewan Housing
of cash withdrawal limits by the RBI, pre-buying of vehicles due to BS-III/IV norms,
GRUH Finance
pent-up demand), we expect disbursement recovery to continue.
HDFC We expect the true impact of demonetization on asset quality to be felt in 4QFY17/
Indiabulls Housing 1QFY18 for accounts that turned overdue in November/December, the
LIC Housing Fin 90dpd/120dpd would fall in 1HCY17. In our view, HFCs are best placed on asset
quality. There could be some pain in vehicle finance and MSME/LAP segments, though
M & M Financial
collection efficiency is picking up.
Muthoot Finance We would closely look at the margin performance of HFCs, considering the sharp
Repco Home Fin MCLR cuts and the significant proportion of incremental funding from bonds. We
Shriram City Union Fin expect sequential decline in incremental spreads for HFCs.
Within our NBFC coverage universe, BAF is likely to post 40%+ PAT growth, driven by
Shriram Transport Fin.
strong performance in CDs and 2W financing. Among HFCs, DEWH and IHFL are likely
to post earnings growth of 25%+ YoY, which is commendable. Repco Home Finance
and Bharat Financial Inclusion could report subdued performance.
Housing finance companies: Barring Repco Home Finance, all HFCs under our
coverage are likely to post AUM growth in line with past trends. Loan growth in
Repco is likely to slow down due to the regulatory environment in Tamil Nadu;
however, with the recent Madras High Court order, growth should pick up in FY18.
Continued reduction in cost of funds remains a key positive. HFCs with large share of
bank borrowings, such as Repco, should start to witness the benefit of the MCLR
cuts by banks announced in January. Commentary on recent interest subvention
schemes would be the key thing to look out for in the affordable housing finance
segment. Players with a high share of self-employed customers and LAP/builder
loans are likely to witness slowdown in disbursements. Asset quality performance in
these players is a key thing to watch out for.
Sensex Index MOSL Financials Index Sensex Index MOSL Financials Index
122 160
116 140
110 120
104 100
98 80
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Bajaj Finance
Bloomberg BAF IN CMP: INR1,173 TP: INR1,448 (+23%) Buy
Equity Shares (m) 535.5
We expect AUM growth of 36.5% YoY and 4.8% QoQ in 4QFY17,
M. Cap. (INR b)/(USD b) 628 / 10
driven by strong growth in consumer and commercial lending.
52-Week Range (INR) 1205 / 677
1,6,12 Rel Perf. (%) 8 / 3 / 51
Management commentary on 2W and CD financing is sanguine.
NII should grow 39% YoY; margins are likely to improve marginally
on a YoY basis.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E We expect 50bp C/I ratio improvement on a YoY basis to 43.4%
NII 40.3 54.3 73.8 97.7 Asset quality is likely to remain stable. As of December 2016, GNPAs
PPP 25.1 35.5 49.1 65.6 were at 1.47% and NNPAs at 0.39%.
PAT 12.8 18.4 25.4 34.3 We expect provisions of INR2b as against INR1.8b in 3QFY17 and
EPS (INR) 24 34.4 47.5 64.0
INR1.6b in 4QFY16.
EPS Gr. (%) 33 44.1 38.0 34.8
BV/Sh. (INR) 137 166.2 206.7 261.3 Net profit is likely to grow 44% YoY to INR4.5b.
RoA on AUM (%) 3.2 3.4 3.6 3.7 The stock trades at 5.7x FY18E and 4.5x FY19E BV. We are increasing
RoE (%) 21.1 22.7 25.5 27.3 our target price to INR1,448 on account of greater earnings visibility.
Payout (%) 12.7 14.0 14.0 14.0 Maintain Buy.
Valuations
P/E (x) 49.1 34.1 24.7 18.3 Key issues to watch for
P/BV (x) 8.6 7.1 5.7 4.5 Commentary on business growth momentum due to the impact of
Div. Yield (%) 0.2 0.2 0.3 0.4
demonetization.
Guidance on margins due to changing product mix.
Asset quality trends, especially in LAP and 2W/3W businesses.
Performance of businesses such as rural SME lending, lifestyle
financing and e-commerce financing.
Gruh Finance
Bloomberg GRHF IN
CMP: INR394 TP: INR373 (-5%) Neutral
Equity Shares (m) 363.7
We expect loan growth to moderate to 18% YoY from 19% YoY in
M. Cap. (INR b)/(USD b) 143 / 2
52-Week Range (INR) 436 / 238
3QFY17.
1,6,12 Rel Perf. (%) 1 / 7 / 37
Margins are likely to remain largely unchanged on a YoY basis.
NII is likely to grow 19% YoY to INR1.8b.
Operating expenses are likely to grow 6% YoY, resulting in 14.3%
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E C/I ratio compared to 14.5% in 3QFY17.
NII 4.2 5.4 6.4 7.6 We expect asset quality to remain stable. GRUH took an INR327m
PPP 3.8 4.9 5.9 7.0 provision charge in 3QFY17 and reduced net NPLs to zero. We
PAT 2.4 2.9 3.7 4.4 expect provisions of INR77m for the quarter.
EPS (INR) 6.7 8.0 10.1 12.0
Net profit is likely to grow 18% YoY to INR1.04b.
EPS Gr. (%) 19.4 19.1 26.1 19.3
BV/Sh. (INR) 23.0 27.8 33.8 41.0 The stock trades at 11.8x FY18E and 9.7x FY19E BV. Maintain
ABV/Sh. (INR) 23.0 27.8 33.8 41.1 Neutral.
RoA (%) 2.4 2.3 2.5 2.4
RoE (%) 31.5 31.4 32.7 32.0
Key issues to watch for
Payout (%) 34.3 34.0 34.0 34.0
Valuations Business outlook; loan growth in various geographies.
P/E (x) 58.8 49.4 39.2 32.8 Movement in borrowing costs and margins.
P/BV (x) 17.2 14.2 11.6 9.6 Outlook on asset quality.
Div. Yield (%) 0.6 0.7 0.9 1.0 Managements outlook on developments in the affordable
housing space.
Commentary on government schemes in the affordable housing
space.
HDFC
Bloomberg HDFC IN
CMP: INR1,490 TP: INR1,752 (+18%) Buy
Equity Shares (m) 1574.7
We estimate AUM growth of 16%, marginally below the growth in
M. Cap. (INR b)/(USD b) 2346 / 36
the prior quarter. We expect growth to be driven by the retail
52-Week Range (INR) 1536 / 1060
1,6,12 Rel Perf. (%) 5 / -1 / 15
segment.
With largely stable margins, NII is expected to grow 17% YoY
Cost-to-income ratio will remain largely stable. We expect 14%
Financial Snapshot (INR b)
YoY opex growth.
Y/E March 2016 2017E 2018E 2019E
NII 87.0 99.6 106.5 119.9
Asset quality has remained healthy over past several quarters,
PAT 70.9 73.9 81.7 92.6 and the trend is likely to continue. Asset quality in the corporate
Adj. EPS (INR) 32.6 36.0 38.4 43.2 loan book would be a key monitorable.
EPS Gr. (%) 2.7 10.6 6.5 12.6 We estimate provisions of INR1,180m, as against INR1,170m in
BV/Sh. (INR) 227.8 250.7 276.4 333.5 3QFY17 and INR950m in 4QFY17 (excluding special provision).
ABV/Sh. (INR) 176.6 199.6 225.3 283.5 We expect 2% YoY PAT growth in 4QFY17 (adjusted for one-offs).
RoAA (%) 2.6 2.4 2.3 2.4
The stock trades at 4x FY18E AP/ABV and 2.9x FY19E AP/ABV
Core RoE (%) 20.0 19.1 18.1 17.1
Payout (%) 43.9 43.5 43.5 43.5 (price adjusted for value of other businesses and book value
Valuation adjusted for investments made in those businesses). Buy.
AP/E (x) 31.9 27.2 21.6 16.9
P/BV (x) 6.5 5.9 5.4 4.5
AP/ABV (x) 5.9 4.9 3.7 2.6
Div. Yield (%) 1.1 1.2 1.3 1.4 Key issues to watch for
Loan growth and uptick in corporate loans.
Impact of demonetization on real estate demand.
Movement in spreads and margins (on individual loans) and
asset quality trends.
Indiabulls Housing
Bloomberg IHFL IN CMP: INR986 TP: INR1,150 (+17%) Buy
Equity Shares (m) 421.3
We expect strong loan growth to continue, driven by retail home
M. Cap. (INR b)/(USD b) 415 / 6
loans. We estimate 8% QoQ and 28% YoY loan growth.
52-Week Range (INR) 1002 / 600
1,6,12 Rel Perf. (%) 13 / 8 / 40 Margins are expected to remain largely stable. Net income should
grow 27% YoY.
Financial Snapshot (INR b) Expenses are likely to grow 22% YoY, resulting in modest decline in
Y/E March 2016 2017E 2018E 2019E cost-income ratio.
Net Fin inc 28.7 39.3 46.5 56.6
PPP 36.4 46.6 55.7 68.2
Asset quality is expected to remain stable. In 3QFY17, GNPAs were
EPS (INR) 55.7 69.3 84.4 102.7 at 0.85% and NNPAs at 0.36%.
EPS Gr. (%) 4.1 24.4 21.9 21.7 PAT is likely to grow 26% YoY to INR8.6b during the quarter.
BV/Sh. (INR) 254 281 316 358
RoA on AUM (%) 3.3 3.1 2.9 2.7
The stock trades at 3.1x FY18E and 2.7x FY19E BV. Maintain Buy.
RoE (%) 27.1 25.9 28.3 30.5
Payout (%) 76.0 52.5 50.0 50.0
Valuations
Key issues to watch for
P/E (x) 17.7 14.2 11.7 9.6 AUM growth trend and growth guidance post demonetization.
P/BV (x) 3.9 3.5 3.1 2.8 Movement in incremental spreads and margins, especially given
P/ABV (x) 3.9 3.5 3.1 2.8 the sharp home loan rate cuts.
Div. Yield (%) 4.6 3.7 4.3 5.2 Asset quality trends in the corporate and loans against property
segments.
Muthoot Finance
Bloomberg MUTH IN CMP: INR396 TP: INR465 (+18%) Buy
Equity Shares (m) 399.0
AUM is expected to grow 13% YoY and 2.6% QoQ to INR277b.
M. Cap. (INR b)/(USD b) 158 / 2
Calculated margins are likely to improve sequentially to ~12% led
52-Week Range (INR) 405 / 176
1,6,12 Rel Perf. (%) 10 / 8 / 102
by better auction realization and decline in funding costs.
However, due to high base, NII is expected to decline 3%YoY to
INR14b.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E Asset quality is likely to improve marginally with GNPL of 2.75% in
NII 25.4 30.0 34.6 39.3 4QFY17 v/s 2.92% in 3QFY17.
PPP 14.8 18.9 21.9 25.1 We estimate provisions of INR339m, as against INR39m in 3QFY17
PAT 8.1 11.8 13.8 16.0 and INR1,299m in 4QFY16.
EPS (INR) 20.3 29.7 34.5 40.0 PAT is expected to grow 23% YoY and 12% QoQ to INR3.3b
BV/Sh.(INR) 140.8 159.7 181.7 207.2
The stock trades at 2.2x FY18E and 1.9x FY19E BV. Maintain Buy.
RoA on AUM (%) 3.4 4.5 4.6 4.7
RoE (%) 15.1 19.7 20.2 20.6
Div. Yld. (%) 1.5 2.2 2.6 3.0
P/E (x) 19.5 13.4 11.5 9.9 Key issues to watch for
P/BV (x) 2.8 2.5 2.2 1.9 Management commentary on business growth and steps taken to
sustain AUM growth in the wake of demonetization.
Plan of branch expansion.
Movement in yields and margins, with declining cost of funds.
Progress in gold auctions.
Healthcare
Company name Pricing pressure in the US to keep growth under check
Ajanta Pharma
Alembic Pharmaceuticals We expect our pharma universe to report low double digit EBITDA growth in
Alkem Labs 4QFY17, largely led by pricing pressure and higher R&D expenditure. Also,
Aurobindo Pharma increased US regulatory scrutiny is resulting in higher remediation expenses and
Biocon de-risking of key products. This, in turn, should weigh down on operating
Cadila Healthcare margins for our coverage universe.
Cipla
Glenmark is expected to exhibit strong growth in the US, led by Zetia FTF and a
Divi's Laboratories
series of other generic launches. Aurobindo should report stable US sales, driven
Dr Reddy s Labs
by key launches (including Crestor). On the other hand, Sun and Lupin should
Fortis Healthcare
Glenmark Pharma
continue witnessing a sequential decline in the US business on the back of
Granules India competition in key products.
GSK Pharma After a strong 1HFY17, the domestic pharma business is expected to face
Ipca Laboratories headwinds from seasonal weakness and demonetization. Although the chronic
Lupin business may benefit at the margin due to demonetization, the acute segment
Ranbaxy Labs may be see some impact in the near term.
Sanofi India Among MNCs, Sanofi is likely to report better numbers, while GSK should face
Sun Pharma some pressure from the ongoing supply issues.
Torrent Pharmaceuticals
The pace of approvals has picked up at the US FDA. However, the lack of key
approvals, higher R&D spends and regulatory concerns in the domestic/US
markets are likely to keep growth under check.
We maintain our top picks Aurobindo, Sun Pharma, Fortis and Granules.
110 110
106 100
102 90
98 80
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Ajanta Pharma
Bloomberg AJP IN CMP: INR1,723 TP:INR2,028 (+18%) Buy
Equity Shares (m) 88.5
We expect Ajanta Pharma (AJP) to post 10.9% YoY sales growth to
M. Cap. (INR b)/(USD b) 152 / 2
INR4.7b in 4QFY17.
52-Week Range (INR) 2150 / 1351
-4 / -20 / 1
We expect US sales to maintain momentum in terms of YoY growth
1,6,12 Rel Perf. (%)
rate, with revenues of INR528m compared to INR50m in 4QFY16.
We expect domestic formulation sales to grow 16% YoY, led by
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
superior YoY growth in the cardiology and dermatology segments.
Sales 17.4 20.1 22.6 27.5
We expect emerging market sales to decline 11.9% to INR2.6b,
EBITDA 6.0 6.8 7.7 9.4 partly on higher base of past year and currency headwinds in Asia.
NP 4.2 5.0 5.6 7.0 We expect 77bp expansion in EBITDA margin on a superior product
EPS (INR) 47.1 56.0 63.8 79.6 mix. R&D spend as % of sales stood at 8.5% in 4QFY16. We expect it
EPS Gro. (%) 27.3 18.9 13.8 24.9 to remain at 7.5% of net sales for the quarter.
BV/Sh. (INR) 132.5 179.5 233.0 299.9 We expect PAT to come in at INR1.1b, up 8.2% YoY.
RoE (%) 41.4 35.9 30.9 29.9 The stock trades at 222.5x FY19E EPS. We maintain Buy, with a
RoCE (%) 38.6 34.0 29.6 28.9 target price of INR2,028 (25x FY19E EPS).
Valuations
P/E (x) 37.1 31.2 27.4 22.0
P/BV (x) 13.2 9.8 7.5 5.8
EV/EBITDA (x) 26.0 22.7 19.8 15.9
Key issues to watch out
EV/Sales (x) 8.9 7.7 6.7 5.4
Growth in sales from US and domestic formulation market.
Dividend Yield 0.5 0.5 0.5 0.7 Outlook on future ANDA launches/filings.
(%)
Alembic Pharma
Bloomberg ALPM IN CMP: INR625 TP:INR630(+1%) Neutral
Equity Shares (m) 188.5
In 4Q FY17, we expect Alembic Pharma (ALPM) to post 27.1% YoY
M. Cap. (INR b)/(USD b) 118 / 2
growth in reported sales to INR7.9b. International business is
52-Week Range (INR) 709 / 516
1,6,12 Rel Perf. (%) 0 / -14 / -14
expected to remain flat QoQ owing to lower contribution from
gAbilify partially offset by new launches including Pristiq generic
launch. India business is expected to witness recovery in growth
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
post muted performance in 3Q due to demonetisation.
Sales 31.5 31.6 37.4 43.7
Reported EBITDA is likely to increase 6.8% YoY to INR1.5b, with
EBITDA 10.0 6.3 8.0 10.1
EBITDA margin contracting 360bp YoY, primarily on account of
NP 4.9 4.1 5.4 6.8
lower gAbilify sales in 3QFY17 numbers.
EPS (INR) 38.2 21.6 28.5 35.8
We expect reported PAT to increase 6.5% YoY to INR970m, in line
EPS Gro. (%) 154.6 -43.3 31.6 25.6 with operational performance.
BV/Sh. (INR) 84.9 100.5 123.0 152.8 We believe intensifying competition in gAbilify, high R&D expense
RoE (%) 39.6 23.3 25.5 26.0 and rise in depreciation due to planned capex of INR15b over next
RoCE (%) 50.6 22.0 24.4 25.2 2-3 years, should keep profit growth under check. We maintain our
Valuations Neutral rating with a target price of INR630 @20x 1HFY19E EPS.
P/E (x) 16.4 28.9 22.0 17.5
P/BV (x) 7.4 6.2 5.1 4.1 Key issues to watch out
EV/EBITDA (x) 11.4 18.5 14.5 11.4 Contribution of Chronic portfolio and growth strategy.
EV/Sales (x) 3.6 3.7 3.1 2.6 Performance of US operations amid market pressure.
D. Yield (%) 0.6 0.8 0.8 0.8 Outlook on future ANDA launches/filings.
Alkem Labs
Bloomberg ALKEM IN CMP: INR2,207 TP: INR1,850 (-16%) Neutral
Equity Shares (m) 119.6
After growing strongly (~20% YoY) in 9M FY17, we expect
M. Cap. (INR b)/(USD b) 264 / 4
revenues to decline QoQ. The slowing pace of growth can be
52-Week Range (INR) 2238 / 1175
attributed to seasonal weakness and demonetization. Additionally,
1,6,12 Rel Perf. (%) -1 / 26 / 45
we expect revenues to be weighed down by NPPA-led downward
price erosions.
Financial Snapshot (INR Billion)
EBITDA margin is expected to increase 390bp YoY and decline
Y/E March 2016 2017E 2018E 2019E
30bp QoQ on the back of high base effect, seasonality factor and
Sales 49.9 60.0 69.1 81.7
demonetisation.
EBITDA 8.5 11.0 12.7 15.5
NP 7.7 9.5 10.3 12.0
We expect adj PAT to grow ~23% YoY, while tax rate is expected to
EPS (INR) 64.7 79.3 85.7 100.0
inch up to ~23% from mid-single-digit in 9MFY17.
EPS Gro. (%) 67.4 22.5 8.1 16.7
ALKEM's US business could potentially double from ~USD150m in
BV/Sh. (INR) 293.0 356.4 422.8 500.3
FY16 to ~USD300m over next 3-4 years, driven by a strong pipeline
RoE (%) 23.8 24.4 22.0 21.7
of ~50 pending ANDAs.
RoCE (%) 17.6 22.5 20.4 25.2
We continue believing that ALKEM is the best way to play the
Valuations
domestic growth story (>70% of revenue and >85% of EBIDTA
P/E (x) 34.1 27.8 25.7 22.1
came from India in FY17). Our TP if INR1,850 is based on
P/BV (x) 7.5 6.2 5.2 4.4
20x1HFY19E PER. Neutral.
EV/EBITDA (x) 30.9 23.7 20.0 15.8
Key issues to watch out
Impact of demonetization.
Update on visibility of approval post EIR at Ankleshwar facility.
Pick-up in chronic business.
Aurobindo Pharma
Bloomberg ARBP IN CMP: INR678 TP:INR915 (+35%) Buy
Equity Shares (m) 585.2
We expect Aurobindo (ARBP) to post 2.7% YoY sales growth to
M. Cap. (INR b)/(USD b) 397 / 6
INR38.5b in 4QFY17, aided by sustained traction in the US.
52-Week Range (INR) 895 / 622
1,6,12 Rel Perf. (%) -3 / -28 / -30
We expect US business (~56% of formulation sales) to grow ~9% YoY
in 4Q. Europe and RoW sales are expected to exhibit modest 3% YoY
growth, while API sales are estimated to grow ~3% YoY in 4Q.
EBITDA margin is likely to be at the same level YoY at ~23.3%
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E (decrease 20bps sequentially). Overall EBITDA is estimated to
Sales 139.0 152.9 181.0 205.6 increase marginally by ~2% to INR9b. We expect adj. PAT at INR5.8b,
EBITDA 32.1 36.1 43.1 49.3 compared to INR5.6b in the corresponding quarter last year.
NP 19.8 23.5 27.5 32.0 At its CMP, ARBP trades at 14x FY18E, at >20% discount to its peers.
EPS (INR) 33.9 40.1 47.0 54.6 The valuation gap is expected to narrow down on account of the
EPS Gro. (%) 25.5 18.5 17.0 16.3
companys increasing profitability, strong earnings growth trajectory
BV/Sh. (INR) 120.6 158.2 202.7 254.8
RoE (%) 32.5 28.8 26.0 23.9
(17% CAGR till FY19E) and improving free cash flow. ARBP remains
RoCE (%) 20.8 19.7 19.9 19.5 one of our top picks in the sector with a target price of INR915 @
Valuations 18x 1HFY19E PER.
P/E (x) 20.0 16.9 14.4 12.4
P/BV (x) 5.6 4.3 3.3 2.7 Key issues to watch out
EV/EBITDA (x) 13.2 11.7 9.6 8.0 Debt reduction during the quarter.
EV/Sales (x) 3.0 2.8 2.3 1.9 Outlook on US business (~35-40 launches expected over next 12
Dividend Yield 0.2 0.3 0.3 0.4 months).
(%)
Profitability of acquired Actavis business in Europe.
Biocon
Bloomberg BIOS IN CMP: INR1122 TP: INR800 (-29%) Sell
Equity Shares (m) 200.0
Biocons revenue is likely to increase 6% YoY to INR10b, driven by
M. Cap. (INR b)/(USD b) 224 / 3
muted growth in CRO division, 13% growth in bio-pharma sales and
52-Week Range (INR) 1162 / 482
licensing income at INR67m.
1,6,12 Rel Perf. (%) 1 / 11 / 92
EBITDA is expected to increase 32% YoY to INR2.4b, with EBITDA
margins at 24.6%.
Financial Snapshot (INR Billion) We expect PAT to decline to INR1.6b, primarily owing to one time
Y/E MARCH 2016 2017E 2018E 2019E gain in 4Q FY16. The key thing to watch would be the impact of fire
Sales 34.5 40.8 49.5 61.7 at the R&D center of Syngene.
EBITDA 7.9 10.2 11.9 15.1 Key growth drivers for FY17E/18E will be 1) commercialization and
NP 4.6 6.7 7.1 8.9 ramp-up of the insulin plant in Malaysia, 2) ramp-up in CRO
EPS (INR) 23.2 33.5 35.6 44.5 division, 3) contribution from API/immuno-suppressants supplies to
EPS Gro. (%) 15.5 44.1 6.2 25.0 partners and 4) branded formulations in India. However, capex for
BV/Sh. (INR) 202.7 226.4 251.6 283.0 long-term initiatives is likely to exert pressure on profitability and
RoE (%) 11.5 14.8 14.1 15.7 return ratios in the near term.
RoCE (%) 15.9 10.0 10.1 14.6 The recent run-up in the stock price primarily on the back of
Valuations positive developments in the Biosimilars portfolio. Although the
P/E (x) 48.3 33.5 31.6 25.2 progress is impressive, we believe there are still uncertainties that
P/BV (x) 5.5 5.0 4.5 4.0 cap the upside potential. In the near term, commissioning of the
EV/EBITDA (x) 28.7 22.3 19.3 15.0 Malaysia plant would exert pressure on profits. We maintain Sell
Div. Yield (%) 0.4 0.7 0.8 1.0 with a TP of INR800 @ 20x 1HFY19E EPS
Key issues to watch out
Update on Middle-East problems.
Progress on Rh-Insulin/Glargine in Europe/US and other out-
licensing opportunities.
Cadila Healthcare
Bloomberg CDH IN
CMP: INR449 TP:INR510(+14%) Buy
Equity Shares (m) 1023.7
459 / 7 Cadila Healthcare's (CDH) 4QFY17 revenue is likely to grow 2.4% YoY
M. Cap. (INR b)/(USD b)
52-Week Range (INR) 460 / 305 to INR25b, driven by muted growth in the US formulations business.
1,6,12 Rel Perf. (%) 0 / 9 / 21 US sales growth is expected to pick-up going forward post recent
clearance of Moraiya facility.
Financial Snapshot (INR Billion) Overall export formulations are expected to grow 2% YoY to
Y/E MARCH 2016 2017E 2018E 2019E INR12.4b, while domestic formulation is likely to grow 15% YoY to
Sales 97.5 94.6 117.4 141.7 INR10.9b.
EBITDA 23.0 19.5 28.2 35.4 We expect EBITDA to decline 13% YoY to INR5b and the margin to
NP 15.8 12.3 18.1 23.6 contract 360bp. Adj. PAT is also likely to decline ~13% YoY to
EPS (INR) 15.4 12.0 17.7 23.0 INR3.4b.
EPS Gro. (%) 37.7 -22.2 47.2 30.4 We believe CDH has made investments in the right areas, and will
BV/Sh. (INR) 52.3 59.9 73.2 91.9 start accruing benefits over next 2-3 years. We expect sharp ramp-
RoE (%) 32.8 21.4 26.5 27.9 up in the US business post successful remediation of Moraiya
RoCE (%) 23.3 14.9 18.3 20.6 warning letter. We expect strong EPS growth from FY17-19E (38%
Valuations CAGR) on the back of Moraiya resolution and strong launch pipeline
P/E (x) 29.1 37.4 25.4 19.5
in US, with better return ratios over next two years.
P/BV (x) 8.6 7.5 6.1 4.9
Moraiya resolution is a significant positive for CDH as all the key
EV/EBITDA (x) 20.5 24.3 16.6 12.9
oral, injectable and transdermal fillings are from this facility. We
Div. Yield(%) 0.0 0.0 0.0 0.0
maintain our Buy Rating with a target price of INR510 @22x FY19E
PER.
Cipla
Bloomberg CIPLA IN CMP: INR593 TP: INR550 (-7%) Neutral
Equity Shares (m) 802.9
We expect Ciplas revenues to grow 16.5% YoY to INR38b in 4QFY17.
M. Cap. (INR b)/(USD b) 476 / 7
Export formulation business is expected to grow at robust pace of
52-Week Range (INR) 622 / 458
~20% YoY on the back of recent launches Domestic business is also
1,6,12 Rel Perf. (%) -3 / -6 / -3
expected to grow at low teens growth YoY driven by traction in
Respiratory business. Impact of demonetization will be the key to
Financial Snapshot (INR Billion) watch. Export API sales are expected to report 12% YoY growth to
Y/E MARCH 2016 2017E 2018E 2019E INR2.4b.
Sales 136.8 148.5 171.8 198.2 EBITDA is likely to grow 63% YoY to INR7.2b, with margin expansion
EBITDA 25.0 26.9 32.5 39.4 of 540bp to 18.9%, on back of lower raw material cost (as % of sales)
NP 15.1 14.3 17.6 22.9 by 540bps and staff cost (as % of sales) lower by 280bps. We expect
EPS (INR) 18.8 17.9 22.0 28.5 reported PAT to increase 20.4% YoY to INR3.7b.
EPS Gro. (%) 34.0 -5.1 22.9 29.9 We see limited downside in the stock from current levels. Maintain
BV/Sh. (INR) 147.4 161.6 180.5 206.0 Neutral with a TP of INR550 @20x 1HFY19E PER. Our target multiple
RoE (%) 12.8 11.0 12.2 13.8 of 20x (in line with peers) is based on normalization of margins at
RoCE (%) 10.6 8.9 9.7 11.4 >18% and impressive ramp up of own US business. Having said that,
Valuations Invagen is yet to exhibit meaningful growth. We believe Cipla is well
P/E (x) 31.5 33.2 27.0 20.8 poised to deliver robust growth in the US due to a significant pick up
P/BV (x) 4.0 3.7 3.3 2.9 in the filling quality/rate and a lower base
EV/EBITDA (x) 20.8 19.1 15.6 12.5
Div. Yield (%) 0.3 0.4 0.4 0.4
Key issues to watch out
Launch of combination inhaler in UK market (USD450m market
size).
Margin improvement in Medpro operations (acquired in July
2014).
Sustained strong growth in domestic formulations (38% of sales).
Divis Laboratories
Bloomberg DIVI IN CMP: INR632 TP:INR600 (-5%) Neutral
Equity Shares (m) 265.5
Divis Laboratories (DIVI) is likely to register marginal growth of 0.9%
M. Cap. (INR b)/(USD b) 168 / 3
YoY in 4QFY17 revenue to INR11b on the back higher base effect.
52-Week Range (INR) 1380 / 612
Adjusted EBITDA is likely to decline ~3% YoY to INR3.8b, as margins
1,6,12 Rel Perf. (%) -20 / -57 / -58
are expected to contract 140bps to 34.8%.
PAT is expected to decline 10.3% YoY to INR2.9b due to increase in
Financial Snapshot (INR Billion) depreciation.
Y/E MARCH 2016 2017E 2018E 2019E Management expects FY17 revenue to grow at low-to-mid-teens,
Sales 37.7 40.6 37.2 43.5 with EBITDA margin sustaining at 37%.
EBITDA 14.1 15.3 12.1 14.6 We expect the stock to remain range bound till further clarity
NP 11.1 11.4 8.7 10.3 emerges on the 483 observations. We maintain Neutral with a
EPS (INR) 41.9 43.0 32.9 38.6 target price of INR600. On a going concern basis also large capex
EPS Gro. (%) 30.6 2.7 -23.6 17.5 addition and delay in commencement of facility would keep growth
BV/Sh. (INR) 161.5 177.1 195.2 216.4 under check till FY19. However strong balance sheet (net cash
RoE (%) 28.6 25.4 17.7 18.8 surplus) and high return ratios (RoE at ~29%) provide valuation
RoCE (%) 28.4 25.3 17.6 18.7 cushion
Valuations The stock trades at 14.8x FY18E earnings. Maintain Neutral.
P/E (x) 15.1 14.7 19.2 16.4
P/BV (x) 3.9 3.6 3.2 2.9 Key issues to watch out
EV/EBITDA (x) 11.9 10.7 13.2 10.8 Clarity on Unit 2 483s.
Div. Yield (%) 2.5 2.5 2.0 2.3 Ramp-up at Vizag SEZ.
Outlook for growth beyond FY18.
Dr Reddys Labs
Bloomberg DRRD IN CMP: INR2,736 TP:INR3,050 (+11%) Neutral
Equity Shares (m) 170.5
Dr Reddys Lab is expected to report flattish growth in 4QFY17 YoY,
M. Cap. (INR b)/(USD b) 467 / 7
with revenue at INR37.6b.
52-Week Range (INR) 3689 / 2560
-9 / -19 / -29
US business is likely to decline 17% YoY to INR15.6b, while Russia
1,6,12 Rel Perf. (%)
and CIS region sales are expected to decline in single-digits due to
currency devaluation. However, India business is expected to report
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
robust growth in 4QFY17
EBITDA is expected to marginally increase ~4% YoY to INR8.6b and
Sales 154.7 142.3 163.6 190.4
EBITDA 39.1 26.3 34.3 45.3
the margin to increase 80bp YoY to 22.8%.
NP 22.6 13.0 18.9 25.1 PAT is expected to increase 23.6% YoY to INR4.7b, on back of lower
EPS (INR) 132.3 76.1 110.9 147.2 tax rate of 22.2% as against 70% in 3QFY16.
EPS Gro. (%) 1.7 -42.5 45.7 32.7 Though long term fundamentals remain intact, the stock would be
BV/Sh. (INR) 752 808 905 1,033 range bound in the near term due to regulator concerns. We value
RoE (%) 18.8 9.8 12.9 15.2 DRRD at 21x 1HFY19E EPS (in-line with sector average), given its
RoCE (%) 13.9 7.2 10.1 12.7 robust balance sheet, expectation of US FDA resolution over the
Valuations next six months and rich product pipeline, We maintain Neutral;
P/E (x) 20.7 35.9 24.7 18.6 our target price is INR3,050.
P/BV (x) 3.6 3.4 3.0 2.6
EV/EBITDA (x) 11.7 17.5 13.3 9.9
Key issues to watch out
Dividend Yield 0.6 0.4 0.6 0.8
Update on USFDA resolution of warning letters for Srikakulam,
(%) Duvvada and Miryalaguda API plants.
FY18 outlook for both generics and PSAI businesses.
Fortis Healthcare
Bloomberg FORH IN CMP: INR190 TP:INR240 (+26%) Buy
Equity Shares (m) 463.1
We Fortis to deliver high single digit revenue growth on the back of
M. Cap. (INR b)/(USD b) 88 / 1
steady growth in core businesses (Hospitals & Diagnostics) partially
52-Week Range (INR) 205 / 143
-2 / 3 / -14
impacted by demonetization effect.
1,6,12 Rel Perf. (%)
EBITDA margins will continue to expand sequentially despite
seasonality impact on the back of better efficiency coupled with
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
reducing impact of demonetization.
Sales 42.7 46.3 52.5 59.6
We expect hospital EBITDA to grow more than 10x by FY19E (from
EBITDA 2.2 4.0 6.5 8.1 FY16 base) on the back of lower base, coupled with strong high
NP -0.9 1.2 1.5 3.0 teen growth in EBITDAC, relatively flattish BT cost (at normalized
EPS (INR) -1.9 2.6 3.2 6.5 level) and FHTL transaction.
EPS Gro. (%) -58.3 -196.1 -265.7 149.9 We expect EBITDA margins for the diagnostics business to improve
BV/Sh. (INR) 86.3 88.9 104.2 110.6 by ~200bp by FY19E on the back of deeper penetration in existing
RoE (%) -2.2 3.0 3.3 6.1 markets, rationalization of low-margin centers, growth in samples
RoCE (%) 1.1 4.4 3.9 5.3 tested and higher share from the O&M model.
Valuations Currently FORH is trading at >30% discount to peers. We argue for a
P/E (x) -99.0 73.0 59.7 29.2 multiple re-rating in the stock on the back of multifold increase in
P/BV (x) 2.2 2.1 1.8 1.7 hospital business EBITDA, SRL demerger, asset light expansion
EV/EBITDA (x) 44.1 27.3 15.1 11.8 strategy and FHTL transaction. FORH remains our top pick in the
EV/Sales (x) 2.2 2.4 1.9 1.6
healthcare delivery space with TP of INR240.
Di. Yield (%) 0.0 0.0 0.0 0.0
Key issues to watch out
SRL Demerger.
Possibility of capital infusion and usage of capital.
PAT breakeven of hospitals business.
Glenmark Pharma
Bloomberg GNP IN
CMP: INR877 TP:INR990 (+13%) Neutral
Equity Shares (m) 271.3
238 / 4
We expect Glenmark Pharmaceuticals (GNP) to report robust 38%
M. Cap. (INR b)/(USD b)
52-Week Range (INR) 993 / 729 YoY growth in overall revenues to INR30b, driven by buoyant
1,6,12 Rel Perf. (%) -7 / -12 / -9 performance in the US and India market.
The India branded business is likely to grow 15% YoY, while the US
Financial Snapshot (INR Billion) generic segment is expected to driven strong growth, primarily
Y/E MAR 2016 2017E 2018E 2019E aided by the gZetia launch. LatAm business is expected to show
Sales 75.9 95.2 108.3 124.2 stable growth as the currency headwinds are behind us. We also do
EBITDA 13.7 24.0 26.5 27.1 not factor any out-licensing income in our 4QFY17 assumptions.
NP 7.0 11.5 13.9 17.1 EBITDA is likely to increase 407% YoY to INR9.9b. We expect
EPS (INR) 24.9 40.6 49.2 60.5 margins to increase to 33% on the back of Zetia launch in Dec-16.
EPS Gro. (%) 42.0 63.4 21.1 23.0 Adjusted PAT is expected at INR6.2b, up 313.7.9% YoY, aided by
BV/Sh. (INR) 151.3 202.2 259.5 316.4 lower tax expenses.
RoE (%) 16.4 20.1 19.0 19.1 FY17/18 should be one of the best years for Glenmark in terms of
RoCE (%) 12.7 20.7 19.0 17.1 growth due to gZetia exclusivity and other key launches lined up in
Valuations the US. Having said that, weak cash flow conversion and high net
P/E (x) 35.3 21.6 17.8 14.5 debt remain key concern for GNP. Maintain Neutral with a TP of
P/BV (x) 5.8 4.3 3.4 2.8
INR990 @ 18x 1HFY19E EPS. Any big in-licensing deal in the
EV/EBITDA (x) 19.7 11.2 9.8 9.3
innovation business could act as a positive catalyst.
D. Yield (%) 0.2 0.3 0.3 0.3
Granules India
Bloomberg GRAN IN CMP: INR142 TP:INR160(+13%) Buy
Equity Shares (m) 216.7
We expect Granules India sales to decline 6.9% YoY to INR3.5B. We
M. Cap. (INR b)/(USD b) 31 / 0
expect one month of disruption in EU formulations sales due to
52-Week Range (INR) 151 / 91
6 / 10 / 0
remediation measures taken at Gagilapur formulations plant.
1,6,12 Rel Perf. (%)
EBIDTA is also expected to decline 8% YoY to INR721m with slight
decline in margin of 20bps to 20.8%, primarily owing to lower raw
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
material costs and better business mix.
Sales 14.3 14.2 17.0 24.3
However, we expect to increase ~40% YoY to INR364m on back of
EBITDA 2.8 2.9 3.5 5.2 profit from minority interest and lower tax rate at 30.8% as against
NP 1.2 1.6 1.9 2.8 36.7% in 4QFY16.
EPS (INR) 5.5 6.8 7.7 11.3 GR trades at 12.5x FY19E EPS. We believe the stock has the
EPS Gro. (%) 22.8 24.4 13.3 47.1 potential to deliver >50% return over next 12-18 months, led by
BV/Sh. (INR) 30.7 43.1 57.7 66.3 multiple re-rating (to >15x forward earnings) and strong EPS CAGR
RoE (%) 21.6 18.8 15.8 18.3 of ~30%. Out TP is based on16x 1HFY19E PER.
RoCE (%) 14.0 11.2 9.3 11.4
Valuations
Key issues to watch out
P/E (x) 25.9 20.8 18.4 12.5
Contribution of Auctus portfolio and outlook on ANDA filings.
P/BV (x) 4.6 3.3 2.5 2.1
Performance of Omnichem JV operations.
EV/EBITDA (x) 11.0 11.3 9.6 6.8
Outlook for growth beyond FY18E.
Di. Yield (%) 2.1 2.3 2.0 1.5
GSK Pharma
Bloomberg GLXO IN
CMP: INR2,738 TP:INR2,700(-1%) Neutral
Equity Shares (m) 84.7
In 4QFY17, we expect GlaxoSmithKline Pharmaceuticals (GLXO) to
M. Cap. (INR b)/(USD b) 232 / 4
3838 / 2600
report modest 6.3% YoY increase in revenues to INR7.3b.
52-Week Range (INR)
1,6,12 Rel Perf. (%) -3 / -11 / -46 EBITDA is expected to decline 15% YoY to INR1b, with the margin
contracting 360bp YoY to 14.2%.
Financial Snapshot (INR Billion)
Decline in EBITDA margin will impact Adj. PAT, which is expected to
Y/E MARCH 2016 2017E 2018E 2019E decline ~2% YoY to INR881m. Growth and profitability are expected
Sales 27.4 28.9 32.5 36.4 to gradually improve with volume ramp-up in key NLEM products.
EBITDA 4.5 3.3 5.4 6.7 We believe GLXO has strong parent support, superior brand
NP 3.7 2.9 4.7 5.5 portfolio (competitive advantage), high payout ratio (>100%) and
EPS (INR) 44.2 34.5 55.5 64.4 industry leading return ratios (RoCE of ~50%). However, current
EPS Gro. (%) -29.2 -21.9 60.9 15.9 valuations at 49x FY18E is on the higher side of historical P/E.
BV/Sh. (INR) 200.2 154.3 129.3 113.2 Maintain Neutral with TP of INR2,700 @ 45x 1HFY19E PER.
RoE (%) 22.1 22.4 43.0 56.9
RoCE (%) 21.2 19.5 39.1 53.0
Valuations
P/E (x) 62.0 79.3 49.3 42.5
P/BV (x) 13.7 17.8 21.2 24.2
EV/EBITDA (x) 48.4 67.8 41.9 34.3
Key issues to watch out
D. Yield (%) 2.4 2.6 2.6 2.6 New product introductions in FY17-18E.
Market performance of products impacted by DPCO 2013.
Ipca Laboratories
Bloomberg IPCA IN CMP: INR647 TP:INR540 (-17%) Neutral
Equity Shares (m) 126.2
We expect Ipca Laboratories (IPCA) to witness 27.2% YoY growth in
M. Cap. (INR b)/(USD b) 82 / 1
overall revenues to INR7.9b, aided by recovery in domestic
52-Week Range (INR) 656 / 402
14 / -2 / -4
business. US business will continue to deliver muted performance
1,6,12 Rel Perf. (%)
due to import alert on key plants.
EBITDA is likely to grow 84.6% YoY to INR1.2b, with margin
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
improving 460bp YoY to 14.7% in 4QFY17. However, profitability is
32.5 37.9 44.3
still lower due to negative operating leverage (US import alerts and
Sales 28.9
EBITDA 3.4 4.8 6.3 8.0 weak traction in institutional business).
NP 1.3 2.0 3.5 4.7 We expect reported PAT to improve to INR515m, growth of 27.1%
EPS (INR) 10.5 15.8 27.9 37.3 YoY with taxes at 28.6% in 4QFY17.
EPS Gro. (%) -46.9 50.4 76.6 33.3 At CMP, the stock trades at 40.9x FY17E and 23.2x FY18E EPS, which
BV/Sh. (INR) 181.0 194.4 218.2 249.8 is at a discount to three year average P/E. Despite the stocks
RoE (%) 5.9 8.4 13.5 15.9 attractive valuations, we believe regulator overhang will keep
RoCE (%) 5.5 7.3 11.6 13.7 multiples under check over near term. Maintain Neutral with a TP
Valuations of INR540 (16x 1HFY19E, marking discount of 20% to peers)
P/E (x) 61.5 40.9 23.2 17.4
P/BV (x) 3.6 3.3 3.0 2.6
EV/EBITDA (x) 15.1 11.9 11.9 0.0
D. Yield (%) 0.0 0.4 0.7 0.9 Key issues to watch out
Update on resolution of USFDA regulatory issues.
Outlook for institutional tender business.
Impact of emerging market currency weakness.
Lupin
Bloomberg LPC IN
CMP: INR1,453 TP:INR1,850 (+27%) Buy
Equity Shares (m) 447.5
650 / 10
We expect Lupin's (LPC) 3QFY17 revenue to grow 8.7% YoY to
M. Cap. (INR b)/(USD b)
1750 / 1384 IN45.4b, aided by buoyant performance in US generic segment
52-Week Range (INR)
1,6,12 Rel Perf. (%) -5 / -9 / -21 (gGlumetza and gFortamet sales, consolidation of Gavis financials).
India business is expected to exhibit 13% YoY growth to INR9.8b.
Financial Snapshot (INR Billion)
Japan sales are expected to improve 20.3% YoY to INR4.5b in
Y/E MARCH 2016 2017E 2018E 2019E 3QFY17, aided by currency tailwinds.
Sales 142.1 177.8 209.2 236.1 EBITDA is estimated to decline 13% YoY to INR11.4b, with EBITDA
EBITDA 37.5 46.9 56.1 63.7 margin at 25.2%.
NP 22.7 27.7 35.4 40.0 Reported PAT is likely to decline 15.2% YoY to IN6.3b, even though
EPS (INR) 50.4 61.4 78.6 88.8 tax rate is expected to decline to 28.3% as against35.8% in 3QFY16
EPS Gro. (%) -5.7 21.9 27.9 13.1 which is offset by decline in EBITDA margins by 610bps.
BV/Sh. (INR) 243.8 295.5 363.6 441.9 Glumetza/Fortamet continues to be the key contributors to profits.
RoE (%) 22.9 22.8 23.8 22.1 Glumetza may continue to see limited competition in near term.
RoCE (%) 16.8 15.3 16.7 16.3 Along with this, strong pipeline and ramp-up of Metergen sales can
Valuations help drive US business over near term. Maintain Buy with TP of
P/E (x) 28.8 23.6 18.5 16.4 INR1,850 @ 22x 1HFY19E PER.
P/BV (x) 6.0 4.9 4.0 3.3
EV/EBITDA (x) 19.0 14.7 11.9 10.1 Key issues to watch out
D. Yield (%) 0.5 0.6 0.6 0.6 Gavis sales ramp-up.
Outlook on future ANDA launches and Gavis integration.
Impact of new competition in Glumetza and Fortamet.
Outlook on inorganic growth initiatives.
Sanofi India
Bloomberg SANL IN CMP: INR4,755 TP:INR5,000 (+5%) Buy
Equity Shares (m) 23.0
We expect Sanofi India's (SANL) revenue to grow 9.8% YoY in
M. Cap. (INR b)/(USD b) 110 / 2
4QCY17 to INR6.5b. High growth of brands like Lantus, Allegra,
52-Week Range (INR) 4930 / 4005
7 / 7 / -7
Amaryl M, Enterogermina, Avila, Vaxlgrip and Cardace, and new
1,6,12 Rel Perf. (%)
product launches should drive SANLs revenue growth.
EBITDA is also likely to grow 50% YoY to INR1.6b during this quarter.
Financial Snapshot (INR Billion)
Y/E Dec 2015 2016 2017E 2018E
We expect PAT to increase 89% YoY to INR956m.
Sales 21.9 23.7 26.1 29.5
We have modeled 12% sales growth, 17% EBIDTA growth and 25%
EBITDA 4.6 5.3 6.1 7.2 earnings growth over CY16-18. We maintain our Buy rating. Our
Net Profit 2.4 3.0 3.6 4.4 target price is INR5,000 @ 28x 1HCY18E EPS.
Adj. EPS (INR) 103.2 129.0 157.8 189.9
EPS Gr. (%) 20.6 25.0 22.4 20.4
BV/Sh. (INR) 725.2 796.2 872.8 981.5
RoE (%) 14.2 16.2 18.1 19.4
RoCE (%) 16.1 16.2 18.1 19.7 Key issues to watch out
Payout (%) 41.6 45.0 51.5 42.8 Amortization of goodwill and brands acquired from Universal
Valuations Medicare.
P/E (x) 46.1 36.9 30.1 25.0
Clarity on nature of reversal of recently withdrawn NPPA
P/BV (x) 6.6 6.0 5.4 4.8
guidelines.
EV/EBITDA (x) 22.6 19.3 16.3 13.4
Div. Yield (%) 1.1 1.1 1.5 1.5
Quarterly Performance
Y/E December CY16E CY17E CY17E CY18E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Net Sales 5,444 6,080 6,242 5,920 6,020 6,675 6,869 6,501 26,065 29,469
YoY Change (%) 11.4 10.6 6.6 4.1 -1.0 6.9 16.0 9.8 10.0 13.1
EBITDA 1,291 1,458 1,447 1,073 1,327 1,561 1,597 1,612 6,097 7,184
Margins (%) 23.7 24.0 23.2 18.1 22.0 23.4 23.2 24.8 23.4 24.4
Depreciation 301 300 300 412 325 325 325 330 1,305 1,413
Interest 1 7 3 4 4 4 4 3 15 15
Other Income 256 164 148 152 200 200 200 213 813 974
PBT before EO Items 1,245 1,315 1,292 809 1,198 1,432 1,468 1,493 5,591 6,729
Extra-Ord Expense 0 0 0 0 0 0 0 0 0 0
PBT after EO Items 1,245 1,315 1,292 809 1,198 1,432 1,468 1,493 5,591 6,729
Tax 439 462 486 304 400 500 520 537 1,957 2,355
Effective tax Rate (%) 35.3 35.1 37.6 37.6 33.4 34.9 35.4 36.0 35.0 35.0
Reported PAT 806 853 806 505 798 932 948 956 3,634 4,374
Adj PAT 806 853 806 505 798 932 948 956 3,634 4,374
YoY Change (%) 66.5 32.9 11.2 -28.3 -6.4 15.6 87.7 89.4 22.4 20.4
Margins (%) 14.8 14.0 12.9 8.5 13.3 14.0 13.8 14.7 13.9 14.8
E: MOSL Estimates
Sun Pharma
Bloomberg SUNP IN
CMP: INR691 TP:INR850 (+23%) Buy
Equity Shares (m) 2399.3
Sun Pharmaceuticals (SUNP) is likely to register subdued 2.3% YoY
M. Cap. (INR b)/(USD b) 1657 / 26
855 / 572
growth in revenues to INR78.1b, primarily on the back of
52-Week Range (INR)
-3 / -15 / -34
competition in key products and few new launches.
1,6,12 Rel Perf. (%)
India business is expected to grow 9% YoY, while the US business is
likely to report 11.1% YoY jump in revenues.
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
We expect margin to decline by ~125bps YoY to 31.8% which will
Sales 277.4 309.3 322.0 360.3 impact the EBITDA. Overall EBITDA is expected to decline 2% YoY to
EBITDA 79.6 97.2 104.3 120.5 INR24.8b.
NP 47.1 72.0 78.3 93.0 PAT is expected to decline 14.7% YoY to INR14.6b due to increase in
EPS (INR) 19.6 29.9 32.5 38.7 depreciation by 19% YoY and higher tax rate at 18.6% as against 8%
EPS Gro. (%) -0.7 53.0 8.7 18.8 in 4QFY16.
BV/Sh. (INR) 130.5 142.9 168.4 200.0 We believe the current stock price does not reflect key positive like
RoE (%) 16.5 19.8 20.9 21.0 RBXY integration benefit, Halo/Mohali plant resolution and
RoCE (%) 18.7 21.9 22.3 22.8 investments in specialty business. We see the current weakness in
Valuations the stock as an opportunity to buy the stock. SUNP remains an
P/E (x) 35.3 25.5 21.2 17.9 attractive Indian play on specialty business in the US. We maintain
P/BV (x) 5.3 4.8 4.1 3.5 Buy rating with a TP of INR850, based on 22x 1HFY19E.
EV/EBITDA (x) 20.0 15.4 13.6 11.2
D.Yield (%) 0.0 0.9 0.9 0.9 Key issues to watch out
Update on resolution of USFDA warning letter and 483
observations on Halol.
Turnaround of Ranbaxys business.
Outlook on competitive landscape for Taros products.
Torrent Pharmaceuticals
Bloomberg TRP IN CMP: INR1,477 TP:INR1,700 (+15%) Buy
Equity Shares (m) 169.2
We expect Torrent Pharmaceuticals (TRP) to post 2.5% YoY decline
M. Cap. (INR b)/(USD b) 250 / 4
in 4QFY17 reported sales to INR15b. US business is expected to
52-Week Range (INR) 1768 / 1186
6 / -17 / -15
decline owing to lower contribution from gAbilify, while India
1,6,12 Rel Perf. (%)
business is expected to witness low teens growth with successful
integration of Elders portfolio.
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
Reported EBITDA is likely to decline 29% YoY to INR3.4b, with
66.8 59.5 69.1 80.1
EBITDA margin contracting 930bp YoY, primarily on account of
Sales
EBITDA 27.2 14.3 18.0 21.6 lower gAbilify sales in 4QFY17 numbers.
NP 10.1 9.6 12.9 15.8 We expect reported PAT to decrease 34.1% YoY to INR2.3b, in line
EPS (INR) 59.7 56.6 76.3 93.4 with operational performance.
EPS Gro. (%) 78.9 -5.3 34.9 22.4 Strong domestic market franchise, coupled with investment in US
BV/Sh. (INR) 200.3 236.4 285.2 344.8 business (R&D as % of sales doubled in FY17), should help drive
RoE (%) 34.4 25.9 29.3 29.6 growth. Maintain Buy with a TP of INR1,700 @ 20x 1HFY19E PER.
RoCE (%) 40.7 18.2 24.9 27.2
Valuations
P/E (x) 24.7 26.1 19.4 15.8
P/BV (x) 7.4 6.2 5.2 4.3 Key issues to watch out
EV/EBITDA (x) 9.6 17.9 13.8 11.0 Contribution of Elder Pharma portfolio and growth strategy.
D. Yield (%) 2.4 1.1 1.5 1.9 Performance of Brazilian operations amid market pressure.
Outlook on future ANDA launches.
Logistics
Company name EXIM container volumes to recover
Allcargo Domestic container volumes up 24% YoY
Concor
EXIM originating container rail volume grew ~2% YoY in January-February 2017,
Gateway Distriparks
indicating positive volume growth for the quarter.
Margins are unlikely to improve meaningfully, given increased competitive intensity.
Sequential improvement in earnings for CCRI would be due to low base in 4QFY16.
GDPLs earnings are likely to face downward pressure.
24 27
10 13 6 14 9
21
4
(1) 3 3 6 4
(6) (9) (4) (4) (4) (2)
(2) (2) (5) (6) (8) (2) 0 4 4
(12) (5) (10)(9) (6) (8)
(16)
(19) (15)(18)(17)(11)(20)(11) (18)(20)(16)
0.77
0.80
0.83
0.79
0.71
0.71
0.71
0.66
0.76
0.75
0.75
0.82
0.63
0.64
0.70
0.73
0.74
0.74
0.88
0.75
0.83
0.95
0.91
2.9
3.1
3.2
3.1
3.1
3.2
3.2
2.8
3.3
3.2
2.8
3.2
3.2
3.5
3.0
3.2
3.2
3.1
2.9
3.0
3.2
3.2
2.9
Jul-15
Jul-16
Jul-15
Jul-16
Jun-15
Jun-16
Nov-15
Nov-16
Jun-15
Jun-16
Nov-15
Nov-16
Apr-15
May-15
Apr-16
May-16
Aug-15
Dec-15
Aug-16
Dec-16
Apr-15
May-15
Apr-16
May-16
Aug-15
Dec-15
Aug-16
Dec-16
Sep-15
Jan-16
Feb-16
Mar-16
Sep-16
Jan-17
Feb-17
Sep-15
Jan-16
Feb-16
Mar-16
Sep-16
Jan-17
Feb-17
Oct-15
Oct-16
Oct-15
Oct-16
Source: Indian Rail, MOSL Source: Indian Rail, MOSL
Exhibit 3: EXIM lead distance declined YoY in January- Exhibit 4: Domestic lead distance flat YoY for January-
February 2017 February 2017
EXIM average lead (kms) YoY (%) Domestic average lead (kms) YoY (%)
(0) (2) (0) (3) (2) (2) 1 4 6 3 3 5
(4) (5) (4) (3) (2) (3) (7) 2 0
(7) (6) (7) (7) (5) (8) (6) (7) (8) (4) (4) (5) (3) (2) 1 (4) (4) (6)
(8) (6)(10)(7) (7) (10)(11)
1,362
1,381
1,364
1,375
1,369
1,382
1,418
1,295
1,287
1,368
1,388
1,452
1,446
1,419
1,334
1,390
1,393
1,386
1,359
1,337
1,354
1,312
1,304
948
907
921
923
932
926
917
927
908
910
913
930
882
857
890
861
864
860
871
856
851
844
836
Jul-15
Jul-16
Jul-15
Jul-16
Jun-15
Jun-16
Nov-15
Nov-16
Jun-15
Jun-16
Nov-15
Nov-16
Apr-15
May-15
Apr-16
May-16
Aug-15
Dec-15
Aug-16
Dec-16
Apr-15
May-15
Apr-16
May-16
Sep-16
Jan-17
Feb-17
Aug-15
Dec-15
Aug-16
Dec-16
Sep-15
Jan-16
Feb-16
Mar-16
Sep-15
Jan-16
Feb-16
Mar-16
Sep-16
Jan-17
Feb-17
Oct-15
Oct-16
Oct-15
Oct-16
Source: Indian Rail, MOSL Source: Indian Rail, MOSL
Jul-16
Nov-15
Nov-16
May-15
May-16
Jan-15
Mar-15
Sep-15
Jan-16
Mar-16
Sep-16
Jan-17
Jul-15
Jul-16
Nov-15
Nov-16
May-15
May-16
Jan-15
Mar-15
Sep-15
Jan-16
Mar-16
Sep-16
Jan-17
Allcargo
Bloomberg AGLL IN CMP: INR179 TP: INR203 (+14%) Buy
Equity Shares (m) 252.1
We expect AGLL to report EBITDA of INR1.1b (-9% YoY, +11% QoQ)
M. Cap. (INR b)/(USD b) 45 / 1
52-Week Range (INR) 222 / 143
and PAT of INR466m (-33% YoY, -5% QoQ), led by lower volume
1,6,12 Rel Perf. (%) 3 / -8 / -5
growth.
We estimate MTO volumes at 122k TEU (-8% QoQ, +9% YoY) and
Financial snapshot (INR b)
CFS volumes at 81k TEU (-5% QoQ, +8% YoY).
Y/E March 2016 2017E 2018E 2019E We estimate 5% EBITDA CAGR and 10% PAT CAGR over FY16-18,
Sales 56.6 56.5 60.8 65.5 and expect return ratios to improve from ~13% to ~17%, driven by
EBITDA 5.2 4.7 5.0 5.3 margin expansion and reduction in capex intensity in the business.
NP 2.7 2.3 2.8 3.1 The stock trades at 14.5x FY19E EPS of INR12.3. Maintain Buy.
EPS (INR) 10.8 9.0 10.9 12.3
EPS Growth (%) 17.2 (13.8) 20.8 13.0
BV/Share (INR) 87.5 69.7 78.2 87.9
RoE (%) 13.2 11.5 14.8 14.8
RoCE (%) 11.2 9.4 11.9 12.4
Valuations
P/E (x) 16.6 19.8 16.4 14.5 Key issues to watch for
P/BV (x) 2.0 2.6 2.3 2.0 (a) Volume data, and (b) set up of logistics park in Jhajjar.
EV/EBITDA (x) 9.4 9.5 8.1 7.0
Concor
Bloomberg CCRI IN CMP: INR1,012 TP: INR1,042(+3%) Neutral
Equity Shares (m) 243.7
We expect CCRI to report net sales of INR13.9b (-2% YoY, +5%
M. Cap. (INR b)/(USD b) 247 / 4
QoQ), led by (a) realization decline of 11% YoY (flat QoQ), and (b)
52-Week Range (INR) 1235 / 844
1,6,12 Rel Perf. (%) -2 / -16 / -19
volume growth of 11% YoY (+4% QoQ).
We expect EXIM volumes to improve 12% YoY and expect domestic
Financial snapshot (INR b) volumes to grow 3% YoY.
Y/E March 2016 2017E 2018E 2019E We estimate EBITDA at INR2.9b (+50% YoY, +13% QoQ) and PAT at
Sales 63.1 59.8 65.0 73.0
INR2.1b (+43% YoY, +8% QoQ).
EBITDA 11.6 10.5 13.0 14.4
The stock trades at 17x/15.3x FY18E/FY19E EV/EBITDA. CCRI
NP 7.9 7.2 9.7 10.9
remains a direct play on the upcoming dedicated freight corridor
EPS (INR) 40.6 29.7 39.9 44.9
(DFC) project, which will multiply its asset turnover and
EPS Gr. (%) -24.9 -7.5 34.4 12.5
significantly improve profitability. Neutral.
BV/Sh (INR) 409.4 344.9 368.7 395.4
RoE (%) 10.2 8.8 11.2 11.8
RoCE (%) 9.8 8.3 10.5 11.1
Payout (%) 40.0 40.5 40.5 40.5
Valuations Key issues to watch for
P/E (x) 28.3 34.1 25.4 22.5 EXIM and domestic volumes, and realizations.
P/BV (x) 2.8 2.9 2.7 2.6 Progress on MMLPs and DFC projects.
EV/EBITDA (x) 17.1 21.2 17.0 15.3
Div. Yield (%) 1.2 1.0 1.3 1.5
Gateway Distriparks
Bloomberg GDPL IN CMP: INR255 TP: INR314 (+23%) Buy
Equity Shares (m) 108.6
We expect GDPL to report net sales of INR2.8b (+10% YoY, -2%
M. Cap. (INR b)/(USD b) 28 / 0
52-Week Range (INR) 325 / 209
QoQ), led by increased volumes in Rail and CFS businesses.
1,6,12 Rel Perf. (%) -2 / -9 / -28
We estimate EBITDA at INR569m (flat YoY, -3% QoQ) and EBITDA
margin at 20.2%. We estimate adjusted PAT at INR209m (-12% YoY,
Financial snapshot (INR b) -19% QoQ).
Y/E March 2016 2017E 2018E 2019E The stock trades at 14.1/11.6x FY18E/FY19E adjusted EV/EBITDA.
Sales 10.5 11.3 12.6 14.4 GDPL remains a direct play on the upcoming dedicated freight
EBITDA 2.5 2.3 2.9 3.5 corridor project, which will multiply its asset turnover and
NP 1.2 0.9 1.7 2.2 significantly improve profitability. Buy.
EPS (INR) 11.4 8.3 15.7 20.1
EPS (INR)* 8.7 6.5 11.7 14.3
EPS Gr. (%)* -31.3 -24.8 79.6 22.4
RoE (%) 10.1 7.2 12.9 15.3
RoCE (%) 7.5 7.1 10.8 12.8
Payout (%) 81.7 63.0 45.1 45.4
Valuations
P/E (x) 22.4 30.7 16.3 12.7
Key issues to watch for
Adj. P/E (x) Volume growth, realization and per TEU profitability.
29.4 39.1 21.8 17.8
EV/EBITDA (x) 11.8 13.0 9.9 8.0
EV/EBITDA (x)* 16.6 18.4 14.1 11.6
Div. Yield (%) 2.7 1.7 2.3 3.0
* Adjusted for Blackstones stake
Media
Company name Demonetization hangover receding, albeit gradually
D B Corp Adjusted aggregate earnings to grow 12% YoY
Dish TV India
Hathway Cable & Datacom Expect subdued ad revenue growth: We expect ad revenue for our Media universe
HT Media to grow at a meager ~3% YoY, lower than the 7-13% growth in the preceding 4-5
Jagran Prakashan quarters (ex 3Q). The demonetization hangover is expected to recede slower-than-
PVR earlier expected. The recovery would be slower for Print companies, given higher
Sun TV
reliance on local/retail advertisers, who are most impacted by the cash squeeze.
Zees ad growth is expected to moderate to ~2% YoY after four quarters of strong ad
Zee Entertainment
revenues (ex 3Q). The sluggish performance is expected to be a function of (1)
slower-than- expected recovery from demonetization, and (2) one month impact on
ad revenue from sale of sports business to Sony. Like-to-like ad growth is estimated
to be ~4%. Sun TVs ad recovery too is expected to be gradual. Recovery is expected
to be even slower for niche channels and publishers. Our industry interactions
suggest that a full recovery is likely by 1QFY18.
Expect adjusted aggregate Media universe earnings to grow 12% YoY: While
aggregate earnings are expected to decline 27%, adjusted aggregate Media sector
earnings (adjusted for a one-time deferred tax reversal of INR4b by Dish TV in
4QFY16) are expected to grow 12% YoY, largely driven by broadcasters. Print
earnings are likely to remain flat YoY and distribution platforms should see a decline
in profitability, largely contributed by Dish TV. Zee/Sun TV are expected to clock
earnings growth of 48%/4% YoY. Within the print pack, earnings of DB Corp, Jagran
and HT Media are expected to grow 1%, 8% and 6%, respectively. The hangover of
demonetization is likely to partially impact gains from the UP elections for JAGP and
smaller rivals, HT Media and HMVL. Dish TV too is expected to see an impact on
profitability, as 4Q is a seasonally weak quarter and recovery from the impact of
demonetization has been slower than expected, especially on box deployment.
Expect monetization to improve over the next two quarters for Pay TV operators;
increased activity likely toward phase-III seeding: We expect monetization for Pay
TV operators to improve over the next two quarters, as all stay orders on DAS-III
implementation have been lifted by the Delhi High Court. This should drive
increased MSO share in digital cable revenue, the key to improve economics of
MSOs as well as pricing for broadcasters and DTH operators. However, with phase-
I/II monetization remaining sub-par, we expect MSOs to be more cautious in phase-
III markets. We expect subscriber additions of 230k for Dish TV and model 0.6m
gross additions for the quarter.
Digitization upside, ad growth revival remain key themes: Subscriber-level ARPU
increases in phase-I/II markets and phase-III digitization are key growth triggers.
MSOs are likely to witness profitability improvement, as they continue to drive
monetization efforts in phase-I/II/III. FMCG-led ad spend outlook remains weak;
however, any revival in the same coupled with renewed spends by Telecom and
Auto over the next two quarters could keep ad growth healthy. Broadcasters as well
as print companies would be the key beneficiaries of the same, in our view.
3
2
2
1
6
3
2
-6
-6
DB Corp Sun TV Dish TV HT Media JAGP ZEEL
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17E
36,000 650
29,000 500
22,000 350
15,000 200
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Sep-08
Dec-08
Mar-09
Sep-09
Dec-09
Mar-10
Sep-10
Dec-10
Mar-11
Sep-11
Dec-11
Mar-12
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17
Sensex Index MOSL Media Index Sensex Index MOSL Media Index
130
150
122
135
114
120
106 105
98 90
Dec-16
Jan-17
Feb-17
Mar-17
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Source: Bloomberg, MOSL Source: Bloomberg, MOSL
D B Corp
Bloomberg DBCL IN CMP: INR391 TP: INR450 (+15%) Buy
Equity Shares (m) 183.4
While the demonetization hangover is expected to continue on
M. Cap. (INR b)/(USD b) 72 / 1
Print media companies, given that they derive~55% of ad revenues
52-Week Range (INR) 448 / 300
1,6,12 Rel Perf. (%) -1 / -7 / 8
from local advertisers that have been most impacted.
Despite low base, we expect weak 2% YoY ad growth (~INR3.24b)
for DBCL in 4QFY17. Circulation revenue is likely to grow 9% YoY to
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
INR1.24b.
Net Sales
DBCLs aggregate revenue is likely to grow 5% YoY to INR5.4b, as
20.5 22.7 25.1 27.9
EBITDA 5.4 6.5 7.1 7.9
print ad revenue, which accounts for ~65% of overall revenue,
Adj. Net Profit 3.0 3.8 4.2 4.9
remains under pressure.
Adj. EPS (INR) 16.2 20.4 23.0 26.5 Raw material cost is expected to increase 5% YoY, largely led by
Adj. EPS Gr. (%) -7.4 26.0 12.6 15.3 escalation in newsprint prices.
BV/Sh (INR) 73.3 82.5 92.8 104.8 We expect EBITDA margin to remain flat YoY at 22.2%.
RoE (%) 22.6 26.2 26.2 26.8 We estimate net profit at INR646m, flat YoY.
RoCE (%) 20.0 23.4 23.7 24.5 We revise our target price to INR450 (17x FY19E EPS). The stock
Div. Payout (%) 81.5 55.0 55.0 55.0 trades at 16.7x FY18E and 14.5x FY19E EPS. Buy.
Valuations
P/E (x) 24.1 19.1 17.0 14.7
P/BV (x) 5.3 4.7 4.2 3.7
Key things to watch for
EV/EBITDA (x) 13.4 10.8 9.6 8.3
YoY ad growth (flat)
Div. Yield (%) 2.8 2.4 2.7 3.1
EBITDA margin (we expect 22%).
Dish TV India
Bloomberg DITV IN CMP: INR103 TP: INR115 (+12%) Buy
Equity Shares (m) 1064.8
We expect DITVs revenue to largely be flat QoQ at INR7.54b.
M. Cap. (INR b)/(USD b) 110 / 2
Subscription revenue is expected to increase 1% QoQ to INR7b, as
52-Week Range (INR) 111 / 77
1,6,12 Rel Perf. (%) 5/0/2
demonetization continues to impact fresh set-top box seeding.
We expect gross additions of 0.65m and net additions of 0.23m.
ARPU is expected to be flat QoQ at INR151 per subscriber per
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
month, as 4Q is typically a seasonally weak quarter, given fewer
Net Sales
days in February. Also, the recovery from demonetization has been
30.6 30.6 34.3 38.9
EBITDA 10.2 10.2 12.3 14.8
slower than earlier expected.
Adj. NP 6.9 1.5 2.8 4.6 EBITDA margin is expected to dip 100bp QoQ to 32.4%.
Adj. EPS (INR) 6.5 1.4 2.7 4.3 We expect net profit of INR164b in 4QFY17.
Adj. EPS Gr.(%) NA -77.8 84.7 61.8 The stock trades at EV/EBITDA of 9x FY18E and 7.2x FY19E. Buy.
BV/Sh (INR) 3.6 5.0 7.7 12.0
RoE (%) NA 34 42 44
RoCE (%) 12.7 10.5 12.1 15.4
Div. Payout(%) NA NA NA NA
Valuations
P/E (x) Key things to watch for
16 71 38 24
P/BV (x) Quarterly gross adds (we expect 0.65m).
NA 20.5 13.4 8.6
EV/EBITDA (x) 11.4 11.3 9.0 7.2
ARPU (we expect INR151).
EV/Sub (INR) 8,083 7,423 6,382 5,684 EBIDTA margin (we expect 32.4%).
HT Media
Bloomberg HTML IN CMP: INR85 TP: INR90 (+6%) Neutral
Equity Shares (m) 232.8
We expect revenue to grow 6% YoY to INR6.6b.
M. Cap. (INR b)/(USD b) 20 / 0
Print ad revenue is likely to grow at a weak 3% YoY to INR4.47b,
52-Week Range (INR) 96 / 70
1,6,12 Rel Perf. (%) -1 / -9 / -9
despite the UP elections, as slow recovery from demonetization is
expected to partially take away election-led gains.
Languishing English print ad growth is expected to remain flat YoY,
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
given the low base.
Net Sales
Hindi ad revenue is expected to grow 7% YoY to INR1.8b.
25.0 25.3 27.7 29.7
EBITDA 3.1 3.2 3.6 3.7
Radio ad revenue growth is expected to remain strong at 30%+ YoY
Adj. NP 1.7 1.8 1.8 1.9 (INR405m).
Adj. EPS (INR) 7.3 7.9 7.9 8.2 We expect circulation revenue to increase 3% YoY to INR0.78b.
Adj. EPS Gr. (%) -16.2 8.5 -0.4 4.6 EBITDA margin is expected to expand by 440bp YoY to 15.4%.
BV/Sh (INR) 99.2 109.4 119.0 129.3 Adjusted net profit is likely to remain flat YoY to INR0.4b, primarily
RoE (%) 7.7 7.6 6.9 6.6 led by higher interest outgo related to new radio licenses and
RoCE (%) 8.7 9.0 8.3 8.4 higher tax outgo.
Div. Payout (%) 4.3 4.3 4.3 4.3 The stock trades at 10.8x FY18E and 10.3x FY19E EPS. We revise
Valuations our target price to INR90 (11x FY19E EPS). Neutral.
P/E (x) 11.7 10.8 10.8 10.3
P/BV (x)
Key things to watch for
0.9 0.8 0.7 0.7
EV/EBITDA (x)* 5.6 4.5 3.4 2.6
YoY English ad growth (we expect flat ad growth).
Div. Yield (%) 0.4 0.4 0.4 0.4
Hindi ad growth (we expect 7% YoY de-growth).
* Proportionate EBITDA margin (we expect 15.4%).
Jagran Prakashan
Bloomberg JAGP IN CMP: INR185 TP: INR225 (+22%) Buy
Equity Shares (m) 326.9
We expect advertising revenue (Print+Radio) to grow 6% YoY to
M. Cap. (INR b)/(USD b) 60 / 1
INR4.13b.
52-Week Range (INR) 213 / 156
1,6,12 Rel Perf. (%) -7 / -16 / -4
Print ad revenue is expected to grow 5% YoY to INR3.48b. We
expect circulation revenue to grow 6% YoY to INR1.12b.
We estimate Radio revenue at INR0.64b and EBITDA at INR0.18b.
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
Aggregate revenue is expected to grow 8% YoY to INR5.74b.
Net Sales 21.1 22.9 25.4 28.3 We estimate EBITDA at INR1.57b and EBITDA margin at 27.4%.
EBITDA 6.0 6.3 7.1 8.0 Adjusted earnings are expected at INR0.86b, up 8% YoY.
Adj. NP 3.4 3.5 4.0 4.5 We revise our TP to INR225 (16x FY19E EPS). The stock trades at
Adj. EPS (INR) 10.5 10.8 12.2 13.9 15.4x FY18E and 13.5x FY19E EPS. Buy.
Adj.EPS Gr (%) 44.6 2.7 13.8 14.0
BV/Sh (INR) 49.3 55.4 63.5 73.4
RoE (%) 24.7 20.7 20.6 20.4
RoCE (%) 24.8 16.6 16.9 17.1
Div. Payout (%) 40.5 38.1 33.5 29.4
Valuations
P/E (x) 17.6 17.2 15.1 13.2
P/BV (x) 3.7 3.3 2.9 2.5 Key things to watch for
EV/EBITDA (x) 10.3 9.3 8.1 7.0 YoY Print ad growth (we expect 5%).
Div. Yield (%) 1.9 1.9 1.9 1.9 YoY ad growth (Print+Radio) (we expect ~6%).
EBITDA margin (we expect 27.4%).
PVR
Bloomberg PVRL IN CMP: INR1,520 TP: INR1,667(+10%) Buy
Equity Shares (m) 46.7
We expect 11% revenue growth to INR4.6b in 4QFY17; EBITDA is
M. Cap. (INR b)/(USD b) 71 / 1
expected to increase 11.4% to INR517m, while margins are
52-Week Range (INR) 1571 / 722
1,6,12 Rel Perf. (%) 12 / 19 / 85
expected to remain flattish at 11.3%.
We expect PAT of INR12m as against loss of INR66m in 4QFY16.
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
Key things to watch for
Sales 18.7 21.2 26.0 32.8
EBITDA 3.3 3.5 4.8 6.2
Footfalls, occupancy rate during the quarter.
NP 1.2 1.0 1.7 2.7
ATP and SPH growth.
Adj EPS (INR) 25.5 20.8 35.7 56.8 Content pipeline ahead.
EPS Gr. (%) 664.3 -18.7 71.8 59.2
BV/Sh. (INR) 186.2 204.3 234.6 283.0
RoE (%) 18.7 10.6 16.3 22.0
RoCE (%) 14.5 9.1 12.3 17.7
Valuations
P/E (x) 60.7 74.6 43.4 27.3
P/BV (x) 8.3 7.6 6.6 5.5
EV/EBITDA (x) 23.5 22.6 15.9 11.9
Div yield(%) 0.2 0.3 0.5 0.8
SITI Network
Bloomberg SITINET IN CMP: INR38 TP: INR40 (+5%) Buy
Equity Shares (m) 794.0
We expect reported revenue to grow 4% QoQ to INR3.1b.
M. Cap. (INR b)/(USD b) 30 / 0
52-Week Range (INR) 41 / 31
Cable subscription revenue is expected to grow 6% QoQ to
1,6,12 Rel Perf. (%) -4 / -1 / -13
~INR1.56b, as monetization in phase-III gradually picks up.
Activation revenue is expected to grow 16% QoQ to INR0.54b in
4QFY17, as seeding picks up post a subdued 9 months. We have
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
factored in set-top box seeding of ~0.8m for 4Q.
Net Sales Carriage revenue is expected to decline 10% QoQ to INR0.65b in
11.9 11.8 14.9 18.7
EBITDA 3.0 2.1 4.1 6.3
4Q, as the base included a few one-off carriage receivables.
EBITDA# 0.9 0.4 3.3 5.6 EBITDA is expected to grow 22% QoQ to INR0.69b, primarily led by
Adj. NP 0.0 -1.6 0.0 1.1 higher subscription, activation and broadband revenue. On an ex-
Adj. EPS (INR) 0.0 -1.8 0.0 1.2 activation basis, EBITDA is expected to improve to INR151m in 4Q
Adj. EPS Gr. (%) NM NM NM NM from INR82m in 3QFY17.
BV/Sh (INR) 9.1 8.5 10.0 11.4 We expect net loss of INR316m v/s net loss of ~INR335m in 3Q.
RoE (%) 0.1 -21.7 0.0 11.1 The stock trades at attributable EV/EBITDA (ex-activation) of 6.7x
RoCE (%) 6.4 -3.7 4.6 10.1 FY18E. Maintain Buy with a DCF-based target price of INR45.
Valuation
P/E (x) NM NM NM 31.7
EV/EBITDA (x)* 13.7 20.0 10.7 7.1 Key things to watch for
EV/ EBITDA 47.9 112.2 13.4 8.0 Subscription revenue growth (6% QoQ).
(x)*
EV/Sub (INR)* 3,342 3,498 3,615 3,668 Activation revenue (we expect INR0.76b).
* Based on attributable EBITDA and subs post EBITDA margin (we expect 28.6%).
minority stake; # (ex-activation)
Sun TV
Bloomberg SUNTV IN CMP: INR796 TP: INR800 (+1%) Neutral
Equity Shares (m) 394.1
We expect Sun TVs revenue to grow 7% YoY to INR6.13b.
M. Cap. (INR b)/(USD b) 314 / 5
Advertising and broadcasting revenue is expected to grow at a
52-Week Range (INR) 802 / 334
1,6,12 Rel Perf. (%) 6 / 45 / 101
weak 1% YoY to INR3.16b, as recovery from demonetization and
improvement in ad monetization in non-Tamil markets is expected
to be gradual. The newly-commissioned show, Nandini in Tamil has
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
gained decent traction in viewership share. Monetization of the
Net Sales
same could be with a lag.
24.0 25.9 30.0 33.6
EBITDA 17.0 18.0 21.1 24.0
We expect domestic subscription revenue to grow 4% QoQ to
Adj. Net Profit 8.3 9.9 11.7 13.6
INR2.52b.
Adj. EPS (INR) 21.0 25.1 29.7 34.5 Sun TVs EBITDA/EBIT is estimated to grow ~7%/8% YoY to
Adj. EPS Gr. (%) 12.3 19.6 18.5 16.1 INR4.55b/INR3.75b. PAT is expected to grow 4% YoY to INR2.46b.
BV/Sh (INR) 92.1 99.9 108.8 119.1 The stock trades at 20.6x FY17E and 17.3x FY18E EPS. Neutral
RoE (%) 23.3 25.1 27.3 29.0
RoCE (%) 24.0 26.0 28.4 30.2
Div. Payout (%) 59.3 59.8 60.5 60.8
Valuations
P/E (x) 37.9 31.7 26.8 23.0 Key things to watch for
P/BV (x) 8.6 8.0 7.3 6.7 YoY ad growth (we expect 1%).
EV/EBITDA (x) 17.7 16.5 13.9 12.2 QoQ domestic subscription growth (we expect 4%).
Div. Yield (%) 1.6 1.9 2.3 2.6
Zee Entertainment
Bloomberg Z IN CMP: INR543 TP: INR610 (+12%) Buy
Equity Shares (m) 960.4
We expect advertising revenue to grow 2% YoY to INR8.81b, which
M. Cap. (INR b)/(USD b) 522 / 8
52-Week Range (INR) 589 / 382
factors in the impact of only two months of sports business
1,6,12 Rel Perf. (%) 4 / -10 / 21
absence (sports business sold to Sony).
Zee introduced two new shows each on its flagship Zee TV and
&TV, and consequently increased its original programming hours.
Financial Snapshot (INR Billion)
Y/E MARCH 2016 2017E 2018E 2019E
This can be seen in the consistent increase in viewership of Zee TV
Net Sales 58.3 64.4 74.0 85.5 over the last three months (~25% increase in impressions from
EBITDA 15.0 19.2 22.8 27.2 January to March). The regional portfolio too, especially the Tamil
Adj. NP 10.2 13.2 16.5 19.7 offering, has held up its viewership share.
Adj. EPS (INR) 10.6 11.4 17.3 20.6 Subscription revenue is likely to decline 6% YoY to INR5.61b.
Adj. EPS Gr. (%) 3.9 7.5 52.0 19.2 (Domestic subscription expected to decline 3% YoY to INR4.54b).
EPS ex-&TV (INR) 11.8 12.1 18.4 21.0 Only two months of sports-led subscription income would be
RoE (%) 27.0 29.1 30.3 29.4 booked in 4Q. Also, base quarter includes some catch up revenue.
RoCE (%) 17.7 19.3 23.2 24.6 Total revenue is expected to remain flat YoY (INR15.3b).
Div. Payout (%) 21.3 19.8 18.8 19.9 We expect EBITDA margin to be up 290bp YoY at 29.9%.
Valuations Adjusted PAT is expected to grow ~48% YoY to INR3.87b.
P/E (x) 51.3 47.7 31.4 26.3 Our revised TP is INR610 (29x FY19E EPS (ex-&TV) plus INR19/share
P/E ex-&TV (x) 46.0 45.0 29.4 25.8 towards &TV DCF less INR19/share towards preference share
EV/EBITDA (x) 35.0 25.7 21.4 17.2
liability). The stock trades at 31.4 FY18E and 26.3x FY18E EPS. Buy.
Div. Yield (%) 0.4 0.4 0.6 0.8
Key things to watch for
YoY ad growth (we expect 2%).
YoY domestic subscription (we expect 6% decline).
Metals
Company name Metals 4QFY17 preview
Hindalco Another strong quarter as prices/volumes increase
Hindustan Zinc Nalco, Tata Steel and Vedanta lead the pack
Jindal Steel & Power
Another strong quarter driven by higher prices and volumes
JSW Steel
Our metals coverage universe is expected to report another strong quarter, with the
Nalco
companies benefiting from higher commodity prices and volume growth. Retail flat
NMDC steel prices were up ~8% QoQ or INR3,000 per ton in 4QFY17, driven by higher exit
SAIL prices in 3Q. Flat steel product prices increased by ~INR2,000/t at the beginning of
Tata Steel the quarter, but lost momentum in the subsequent months due to weak domestic
Vedanta demand and lower input product prices. Long steel product prices recovered from
the impact of demonetization. Realized price for steel mills would be lower due to
discounts and higher share of exports. Among base metals, aluminum LME was up
8% QoQ to USD1,848/t, primarily led by higher input cost of coal and alumina for
Chinese smelters. Spot premiums also moved up, leading to an all-in aluminum
increase of 12% QoQ to USD1,951/t. Alumina price average was up ~12% QoQ to
USD341/t. Zinc LME increased 11% QoQ to USD2,777/t, led by favorable supply
dynamics. Silver prices were unchanged QoQ at INR41,447/kg. Sales volume for our
coverage universe: (a) steel up 8% QoQ/YoY led by an increase in exports and (b)
aluminum up 20% QoQ led by ramp-up at Vedantas smelters.
Price gains offset by cost increase for steel companies; Tata Steel to outperform
The increase in domestic steel prices would be offset by higher input product prices
and costs associated with higher exports. As a result, we estimate margins for
domestic mills to be broadly flat QoQ. Tata Steel is expected to outperform with an
EBITDA +91
Sanjay Jain (SanjayJain@motilaloswal.com); increase of 5412
22 3982 31% QoQ to INR46b, driven by a recovery in margins at Europe
Dhruv Muchhal (Dhruv.Muchhal@MotilalOswal.com); +91 22 3027 8033
April 2017 197
March 2017 Results Preview | Sector: Metals
from USD38/t QoQ to USD58/t. Tata Steels 3Q was also impacted by ~INR3b of FX
adjustment. JSW Steels EBITDA is estimated to be broadly flat QoQ at INR29b, as
margins are expected to be lower QoQ (to INR6,945/t) due to higher coking and iron
ore cost and certain one-time by-product sales benefit in the previous quarter. JSPs
EBITDA is estimated to increase 3% QoQ to ~INR58b.
Revising aluminum LME estimate; TP for HZL and VEDL revised to factor in
dividend payment
We revise our USD/INR estimate from 70 to 68.6/70.9 for FY18/19. LME aluminum is
revised from USD1,700/t to USD1,750/t, led by strong cost support. Tata Steels
target price is upgraded by 12% to INR440/share on currency and margin upgrade in
EU maintain Sell. Hindustan Zinc and Vedantas target price is cut to factor in
dividend payment. Our revised TPs are presented in Exhibit 15, Exhibit 16 and
Exhibit 17.
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Feb-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Exhibit 4: China steel spreads with raw material
HRC Rebar
315
Chinese steel mills product
spreads have improved on 270
rise in steel prices 225
180
135
90
Jun-13
Jun-14
Jun-15
Jun-16
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Sep-16
Dec-16
Mar-17
Source: MOSL, Company
Exhibit 5: Domestic steel demand growth trailing 12-month (YoY %)
Domestic steel
Cons. (mt) Trailing 12m Growth (%)
consumption grew by a 10.0
8.1
modest ~3.7% YoY for
7.4
7.4
7.3
7.3
7.3
7.3
7.2
7.2
7.1
7.1
7.1
7.0
6.9
6.9
6.9
6.9
6.9
6.8
6.7
6.7
6.7
6.7
6.7
6.6
6.6
6.6
6.6
6.5
6.5
8.0
6.3
6.3
6.3
6.2
6.2
6.1
5.9
5.9
5.9
5.9
5.5
5.4
5.1
5.1
6.0
2017
4.0
2.0 3.7
0.0
-2.0
Jun-13
Jun-14
Jun-15
Apr-13
Jun-16
Aug-13
Apr-14
Dec-13
Apr-15
Feb-14
Aug-14
Dec-14
Apr-16
Feb-15
Aug-15
Dec-15
Feb-16
Aug-16
Dec-16
Oct-13
Feb-17
Oct-14
Oct-15
Oct-16
Jun-13
Jun-14
Apr-12
Jun-15
Apr-13
Jun-16
Feb-12
Aug-12
Dec-12
Apr-14
Feb-13
Aug-13
Dec-13
Feb-14
Aug-14
Apr-15
Dec-14
Feb-15
Aug-15
Apr-16
Dec-15
Oct-12
Feb-16
Aug-16
Dec-16
Oct-13
Feb-17
Oct-14
Oct-15
Oct-16
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
Source: MOSL, Company
15,000
10,000
5,000
-5,000
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
Source: MOSL, Company
50
45
40
35
30
25
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
Exhibit 11: Global aluminum production trend Exhibit 12: China aluminum production trend
Production YoY Production YoY
5,400 23.0 2.9 50
m tons
2.3 30
4,200 5.0
2.0 20
3,600 -4.0
1.7 10
3,000 -13.0 1.4 0
Jul-15
Jul-16
Apr-15
Apr-16
Jan-15
Jan-16
Jan-17
Oct-15
Oct-16
Jul-15
Jul-16
Apr-15
Apr-16
Jan-15
Jan-16
Jan-17
Oct-14
Oct-15
Oct-16
1,850 3.1
USD/t
m tons
1,700 2.6
1,550 2.2
1,400 1.7
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Exhibit 18: Relative performance three-month (%) Exhibit 19: Relative performance one-year (%)
Sensex Index MOSL Metals Index
Sensex Index MOSL Metals Index
124 180
160
118
140
112
120
106 100
100 80
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Jan-17
Feb-17
Mar-17
Hindalco
Bloomberg HNDL IN CMP:INR198 TP:INR235 (+19%) Buy
Equity Shares (m) 2065.2
Standalone: We estimate standalone EBITDA to increase by 9%
M. Cap. (INR b)/(USD b) 409 / 6
QoQ (+11% YoY) to INR12.8b, led by higher aluminum and copper
52-Week Range (INR) 202 / 84
-4 / 20 / 113
volumes. LME gains are offset by an increase in alumina prices,
1,6,12 Rel Perf. (%)
which is captured at its Utkal subsidiary. We estimate Utkals
Financial Snapshot (INR Billion)
EBITDA to increase from INR1.4b in 3QFY17 to INR4b in 4Q on
Y/E March 2016 2017E 2018E 2019E
higher alumina transfer price. Aluminum segment EBITDA is
Sales 1,000.5 1,018 1,083 1,099
estimated to increase by 7% QoQ to INR9.1b on ~6% QoQ volume
EBITDA 106.1 132.1 142.1 147.5
increase to 330kt. Copper volumes are estimated to increase by
NP 24.7 38.0 50.7 57.0
13% QoQ to 110kt, driving a similar increase in copper EBITDA to
Adj. EPS (INR) 12.0 16.9 22.6 25.4
EPS Gr(%) -11.5 41.5 33.6 12.4
INR3.7b.
BV/Sh. (INR) 101.8 118.6 139.7 163.7 Novelis: We estimate Novelis to report adjusted EBITDA of
RoE (%) 11.6 15.4 17.5 16.8 USD273m, up 7% QoQ. Adj. EBITDA/t is estimated at USD350 (v/s.
RoCE (%) 5.9 8.1 8.7 9.0 USD340 in 3QFY17). Volumes are estimated to decline 1% YoY to
Payout (%) 13.7 9.7 7.2 6.4 780kt.
Valuations
P/E (x) 16.4 11.6 8.7 7.7 Key issues to watch for:
P/BV 1.9 1.7 1.4 1.2 Lower margins in aluminum.
EV/EBITDA (x) 9.0 7.0 6.2 5.5 Foreign exchange rate impact at Novelis.
Div. Yield (%) 0.7 0.7 0.7 0.7
Hindustan Zinc
Bloomberg HZ IN CMP:INR291 TP: INR268 (-8%) Neutral
Equity Shares (m) 4225.3
We expect HZLs EBITDA to increase 29% QoQ (+2x YoY) to
M. Cap. (INR b)/(USD b) 1231 / 19
INR35.8b on higher prices and volumes. Zinc LME is up 10% QoQ
52-Week Range (INR) 333 / 158
1,6,12 Rel Perf. (%) -11 / 9 / 35
to USD2,777/t, while lead LME is up 6% QoQ to USD2,276/t. Mine
production is estimated to increase by 11% QoQ to 305kt. Refined
Financial Snapshot (INR Billion) zinc sales volumes, however, are estimated to be flat QoQ at
Y/E March 2016 2017E 2018E 2019E 210kt as company sold concentrates. We expect ~25kt of
Sales 142.3 171.4 234.2 249.1
concentrate sales during the quarter.
EBITDA 67.8 95.8 141.4 150.4
NP 83.6 81.6 108.6 118.3 We estimate PAT to increase 25% QoQ to INR29b.
Adj. EPS (INR) 19.8 19.3 25.7 28.0
EPS Gr(%) 2.1 -2.4 33.1 8.9 Key issues to watch for:
BV/Sh. (INR) 88.5 72.3 89.5 109.1 Decline in global zinc prices.
RoE (%) 20.7 24.0 31.8 28.2
Production issues.
RoCE (%) 20.6 28.3 37.2 33.5
Payout (%) 164.9 183.8 32.9 30.2
Valuations
P/E (x) 14.7 15.1 11.3 10.4
P/BV (x) 3.3 4.0 3.3 2.7
EV/EBITDA (x) 12.9 11.3 7.2 6.3
Div. Yield (%) 9.6 10.1 2.4 2.4
JSW Steel
Bloomberg JSTL IN CMP: INR195 TP: INR222 (+14%) Buy
Equity Shares (m) 2417.2
Consolidated EBITDA is estimated to be broadly flat QoQ at
M. Cap. (INR b)/(USD b) 472 / 7
INR29b. Standalone steel sales volumes would increase by 8%
52-Week Range (INR) 201 / 124
1,6,12 Rel Perf. (%) 2 / 3 / 35
QoQ (20% YoY) to 3,940kt. Steel realization is estimated to
increase by 5% QoQ to INR38,252/t. However, higher coking coal
Financial Snapshot (INR Billion)
and iron ore cost would offset the volume and price gains.
Y/E March 2016 2017E 2018E 2019E 3QFY17 also included certain one-offs pertaining to by-product
Sales 418.8 562.9 636.6 654.5 sales which would impact the QoQ performance. We estimate
EBITDA 60.7 120.0 136.6 144.1 standalone EBITDA/t of INR6,945/t, down from INR7,717/t in 3Q.
Adj. PAT -0.1 32.8 44.2 49.6
Adj. EPS (INR) 0.0 13.6 18.3 20.5 Key issues to watch for:
EPS Gr(%) -100.5 34.7 12.3 Steel price hikes and impact of coking coal.
BV/Sh. (INR) 77.5 89.7 105.4 123.4 Domestic steel demand growth.
RoE (%) 0.0 16.2 18.7 17.9
RoCE (%) 2.7 7.8 8.8 8.8
Payout (%) -36.6 10.9 8.2 7.2
Valuation
P/E (x) 14.4 10.7 9.5
P/BV 2.5 2.2 1.8 1.6
EV/EBITDA (x) 16.1 7.9 6.6 5.8
Div. Yield (%) 0.6 0.6 0.6 0.6
Nalco
Bloomberg NACL IN CMP: INR76 TP: INR83 (+9%) Buy
Equity Shares (m) 1932.9
We estimate EBITDA to more than double QoQ to INR5.3b on
M. Cap. (INR b)/(USD b) 147 / 2
higher aluminum/alumina realization and higher alumina
52-Week Range (INR) 80 / 38
1,6,12 Rel Perf. (%) -7 / 51 / 78
volumes.
LME aluminum is up 8% QoQ to USD1,848/t. Alumina realization
Financial Snapshot (INR Billion)
is estimated to increase 22% QoQ to USD330/t.
Y/E March 2016 2017E 2018E 2019E Aluminum sales volume is estimated to increase marginally QoQ
Sales 68.2 75.5 82.4 84.3 to 101kt.
EBITDA 9.4 11.8 18.4 19.5 Alumina sales volumes are estimated to increase by 17% QoQ to
NP 7.0 7.5 10.3 11.3 363kt on inventory sales.
Adj. EPS (INR) 2.7 3.9 5.3 5.8
EPS Gr(%) -43.4 44.2 37.2 9.0 Key issues to watch for:
BV/Sh. (INR) 50.1 53.9 57.1 60.9 Availability of coal for captive power plant.
RoE (%) 5.4 7.5 9.6 9.9 LME price trend, utilization of smelter.
RoCE (%) 7.5 8.5 12.9 13.4
Payout (%) 74.0 54.0 39.3 36.1
Valuations
P/E (x) 28.1 19.5 14.2 13.0
P/BV 1.5 1.4 1.3 1.2
EV/EBITDA (x) 14.7 9.9 6.0 5.3
Div. Yield (%) 2.3 2.3 2.3 2.3
NMDC
Bloomberg NMDC IN CMP: INR136 TP: INR178 (31%) Buy
Equity Shares (m) 3163.9
NMDCs EBITDA is estimated to increase 12% QoQ to INR15.9b on
M. Cap. (INR b)/(USD b) 430 / 7
higher realization.
52-Week Range (INR) 153 / 85
1,6,12 Rel Perf. (%) -11 / 16 / 19
Iron ore sales volumes are estimated to increase by 1% QoQ (19%
YoY) to 10mt, aided by an increase in domestic demand.
Financial Snapshot (INR Billion)
Domestic iron ore realization would be up 8% QoQ to INR2,606/t
Y/E March 2016 2017E 2018E 2019E on price hikes taken amid an increase in international iron ore
Sales 64.6 87.1 99.1 104.3 prices and strong domestic demand.
EBITDA 32.3 46.5 57.5 60.7 Adj. PAT is estimated to increase 9% QoQ to INR11.3b.
Adj. PAT 33.2 38.2 38.9 41.1
Adj. EPS (INR) 8.4 12.1 12.3 13.0 Key issues to watch for:
EPS Gr(%) -49.7 44.3 1.8 5.9 Increase in global iron ore prices.
BV/Sh. (INR) 75.9 76.0 81.1 86.9 Stronger-than-expected iron ore demand.
RoE (%) 15.9 13.4 15.5 15.1
RoCE (%) 15.6 12.4 14.6 14.2
Payout (%) 177.0 59.7 58.6 55.4
Valuation
P/E (x) 16.3 11.3 11.1 10.5
P/BV 1.8 1.8 1.7 1.6
EV/EBITDA 12.6 8.2 7.0 6.6
(x)
Div. Yield (%) 8.1 4.4 4.4 4.4
SAIL
Bloomberg SAIL IN CMP: INR65 TP: 30 (-54%) Sell
Equity Shares (m) 4130.4
We estimate SAIL will just manage to break-even at EBITDA due
M. Cap. (INR b)/(USD b) 270 / 4
to higher coking coal cost. The price hikes in January were offset
52-Week Range (INR) 68 / 38
1,6,12 Rel Perf. (%) 1 / 28 / 34
by decline in February and March. While higher share of exports
implies costs would be higher and realization lower than the
trend in the domestic market. We estimate EBITDA of INR0.3b in
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
4QFY17.
Sales 395.0 453.6 542.4 652.2 We estimate steel sales volumes to increase 6% QoQ to 3.5mt in
EBITDA -28.6 8.3 12.5 71.9 4QFY17, led by an increase in exports.
NP -37.0 -30.7 -51.9 1.5 PAT loss is estimated at INR13.2b.
Adj. EPS (INR) -9.0 -7.4 -12.6 0.4
EPS Gr(%) -271.5 -17.0 68.8 -103.0 Key issues to watch for:
BV/Sh. (INR) 95.5 87.7 75.2 75.5 Commissioning of ISP and Bhilai capacity expansion.
RoE (%) -8.8 -8.1 -15.4 0.5
RoCE (%) -6.0 -2.3 -2.7 4.3
Payout (%)
Valuation
P/E (x) -7.3 -8.7 -5.2 174.2
P/BV 0.7 0.7 0.9 0.9
EV/EBITDA (x) -21.8 85.9 59.6 10.5
Div. Yield (%)
Tata Steel
Bloomberg TATA IN CMP: INR492 TP: 440 (-11%) Sell
Equity Shares (m) 971.4
India: We estimate Tata Steels standalone EBITDA to increase 6%
M. Cap. (INR b)/(USD b) 479 / 7
QoQ to INR35.7b on higher volumes. The increase in realization of
52-Week Range (INR) 508 / 297
1,6,12 Rel Perf. (%) -4 / 20 / 38
~7% QoQ would be largely offset by higher coking coal cost. The
benefit of higher realization in the ferro chrome business would
Financial Snapshot (INR Billion)
be offset by delayed impact of royalty. Volumes would increase
Y/E March 2016 2017E 2018E 2019E 6% QoQ (17% YoY) to 3,177kt on Kalinganagar ramp-up.
Sales 1,172 1,135 1,266 1,296 Standalone EBITDA/t is estimated at INR11,239, broadly flat QoQ.
EBITDA 76 144 173 183 Europe: EU steel margin is estimated to expand from USD38/t in
Adj. PAT 7 18 47 54 3QFY17 to USD58/t on higher steel spreads. Q3 also had the
Adj. EPS (INR) 7.7 18.9 48.6 55.1 impact of maintenance shutdown. Volumes are estimated at
EPS Gr(%) 168.6 145.6 157.9 13.3 2.6mt. EBITDA is estimated at INR10.3b, up from INR6.1b in 3Q.
BV/Sh. (INR) 152 125 164 209 Consolidated EBITDA is estimated at INR46b, an increase of 31%
RoE (%) 4.6 13.6 33.7 29.5 QoQ on higher margins in EU. 3Q also had an FX impact of INR3b,
RoCE (%) 5.4 7.7 9.5 9.8 which is aiding QoQ improvement in EBITDA. PAT is estimated at
Payout (%) -28.6 -63.8 18.5 16.4 INR15.8b.
Valuation
P/E (x) 65.4 26.6 10.3 9.1
Key issues to watch out:
P/BV 3.3 4.0 3.1 2.4
Imports from China and global iron ore prices.
EV/EBITDA (x) 16.6 9.2 7.6 6.9
Div. Yield (%) 1.6 1.6 1.6 1.6
Vedanta
Bloomberg VEDL IN CMP:INR272 TP: INR250 (-8%) Neutral
Equity Shares (m) 3717.0
We estimate VEDLs EBITDA to increase 23% QoQ to INR73.5b on
M. Cap. (INR b)/(USD b) 1014 / 16
higher prices and volumes in zinc, aluminum and crude oil.
52-Week Range (INR) 278 / 85
1,6,12 Rel Perf. (%) -2 / 36 / 197
Ex-Cairn and HZL, we estimate EBITDA to increase by 16% QoQ to
INR24.6b, driven by an increase in aluminum volumes and higher
Financial Snapshot (INR Billion)
LME. LME gains are partially offset by higher alumina cost. Iron
Y/E March 2016 2017E 2018E 2019E ore EBITDA is estimated to be broadly flat QoQ at INR4.9b. Iron
Sales 644.3 732.2 889.6 967.4 ore volumes are benefiting from the increase in mining limit at
EBITDA * 110.4 177.2 224.9 240.8 Goa and sale of inventory.
NP 31.9 66.5 105.2 116.9 HZL EBITDA is estimated to increase by 29% QoQ to INR35.8b on
Adj. EPS (INR) 10.8 17.9 28.3 31.4 higher zinc/lead prices.
EPS Gr (%) -37.3 -10.8 162.9 75.7 Cairn India EBITDA is estimated to increase by 21% QoQ to
BV/Sh. (INR) 151.8 159.3 174.3 191.9 INR13.1b on higher oil realization and as volumes improve post
RoE (%) 7.9 11.5 17.0 17.2 maintenance shutdown in 3Q.
RoCE (%) 7.4 12.1 15.3 15.5
Payout (%) 48.9 127.1 18.6 16.7 Key issues to watch for:
Valuation Progress on ramp-up of 1.25mtpa smelter.
P/E (x) 25.3 15.2 9.6 8.7
Movement in base metal prices.
P/BV 1.6 1.6 1.4 1.3
EV/EBITDA, x* 10.8 7.9 6.0 5.2
Div. Yield (%) 1.7 7.2 1.7 1.7
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Jan-17
Feb-17
Mar-17
On QoQ basis, Brent up 8%, GRM down 4%, light/heavy spreads rise
Exhibit 5: Brent crude price was up 8% QoQ and 57% YoY to Exhibit 6: Premium of Brent over WTI increased YoY/QoQ to
an average of USD54.1/bbl in 4QFY17 USD2.3/bbl in 4QFY17
Brent Crude Price (USD/bbl) Brent less WTI (USD/bbl)
140 24
105 16
70 8
35 0
0 (8)
2QFY05
3QFY06
4QFY07
1QFY09
2QFY10
3QFY11
4QFY12
1QFY14
2QFY15
3QFY16
4QFY17
2QFY05
3QFY06
4QFY07
1QFY09
2QFY10
3QFY11
4QFY12
1QFY14
2QFY15
3QFY16
4QFY17
Source: Bloomberg, MOSL Source: Bloomberg, MOSL
LPG
Fuel Oil
Diesel
Jet/Kero
Naphtha
2QFY05
3QFY06
4QFY07
1QFY09
2QFY10
3QFY11
4QFY12
1QFY14
2QFY15
3QFY16
4QFY17
3QFY06
4QFY07
1QFY09
2QFY10
3QFY11
4QFY12
1QFY14
2QFY15
3QFY16
4QFY17
Exhibit 11: Polymer spreads declined (INR/kg): PE , PP, PVC Exhibit 12: POY spreads up 7% QoQ; PSF spreads up 8.5%
spreads change -12.7%/-3.2%/-3% QoQ QoQ (INR/kg)
PE PP PVC POY PSF
80 80
60
60
40
40
20
0 20
2QFY11
4QFY11
2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
2QFY11
4QFY11
2QFY12
4QFY12
2QFY13
4QFY13
2QFY14
4QFY14
2QFY15
4QFY15
2QFY16
4QFY16
2QFY17
4QFY17
Source: Bloomberg, Company, MOSL Source: Bloomberg, Company
Exhibit 13: We model nil subsidy for OMCs in FY17, FY18 and FY19
(INR b) FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Fx Rate (INR/USD) 46.0 47.5 45.6 47.9 54.5 60.6 61.1 65.5 67.1 68.5 70.0
Brent (USD/bbl) 85 70 86 114 111 108 86 48 49 55 60
Product-wise Gross Under recoveries (INRb)
Petrol 52 52 27 0 0 0 0 0 0 0 0
Diesel 523 93 348 819 915 628 109 0 0 0 0
Kerosene 282 174 200 278 296 306 248 116 91 145 170
LPG 176 143 205 284 399 465 366 161 142 212 311
Total 1,033 461 780 1,385 1,610 1,399 723 276 233 356 480
Sharing of Gross Under recoveries (INR b)
Government 713 260 410 829 1,000 707 273 263 233 356 480
Upstream 329 145 303 552 600 671 428 13 0 0 0
OMC's (9) 56 67 0 10 21 22 0 0 0 0
Total 1033 461 780 1,385 1,610 1,399 723 276 233 356 480
Sharing of Gross Under recoveries (%)
Government 69 56 53 60 62 51 38 95 100 100 100
Upstream 32 31 39 40 37 48 59 5 0 0 0
OMC's (1) 12 9 0 1 2 3 0 0 0 0
Total 100 100 100 100 100 100 100 100 100 100 100
*LPG includes DBTL component Source: Company, MOSL
Exhibit 14: Petrol-diesel price difference (INR/liter) Exhibit 15: Diesel in over-recovery zone post deregulation
35 Diesel (under)/over recovery (INR/ltr)
3
Petrol - Diesel price
difference (INR/ltr)
25 2
1
15
0
5 (1)
Jun-15
Jun-16
Nov-15
Nov-16
May-15
May-16
Dec-14
Aug-15
Feb-15
Mar-15
Sep-15
Dec-15
Aug-16
Jan-16
Mar-16
Sep-16
Dec-16
Feb-17
Mar-17
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Dec-10
Mar-11
Sep-11
Dec-11
Mar-12
Sep-12
Dec-12
Mar-13
Sep-13
Dec-13
Mar-14
Sep-14
Dec-14
Mar-15
Sep-15
Dec-15
Mar-16
Source: PPAC, MoPNG, MOSL Source: PPAC, MoPNG, MOSL
Exhibit 16: With almost nil subsidy, model ONGCs net Exhibit 17: Expect higher LNG volumes in 4QFY17 (mmscmd)
realization for 4QFY17 at USD55/bbl and lower production in RILs KG-D6
Net Realization Subsidy Burden Gross Realization RIL KG-D6 PLNG GAIL India GSPL
104
97 95 96 101 103
114
96 95 97 91
110
110
110
109
109
108
107
94 86 87 90
103
102
75 75
61
76
46 44 48 43 46 50
59 5 64
38 36 43
63
40
62
63
62
63
62
64
56
55 0 55
52 0 52
49 2 51
61
63
74
48 0 48
29
46 0 46
25 26 27
44 0 44
24 24 25 24 25
35 0 35
24 23
40
20 21 22 23
56
51
48
47
47
47
46
45
12 14 13 13 12 12 12 11 11 10
41
40
36
33
9 8 8 8
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
11.5
10.8
10.8
10.6
10.4
10.2
10.1
10.1
10.1
9.6
9.5
9.3
8.7
8.4
8.3
7.7
7.6
7.6
7.3
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
FY13 FY14 FY15 FY16 FY17
BPCL
Bloomberg BPCL IN
CMP: INR638 TP: INR763 (+20%) Buy
Equity Shares (m) 1446.2
M. Cap. (INR b)/(USD b) 922 / 14
We expect OMCs (IOCL, BPCL, HPCL) core earnings to decline
52-Week Range (INR) 735 / 440 YoY/QoQ, led by lower refining and marketing margins in 4QFY17.
1,6,12 Rel Perf. (%) -3 / -8 / 23 We model nil subsidy sharing for OMCs; the subsidy in 4QFY17
would entirely be borne by the government.
Financial snapshot (INR b) We peg BPCLs refinery throughput at 6.4mmt for 4QFY17 v/s
Y/E March 2016 2017E 2018E 2019E 6.2mmt in 4QFY16 and 6.8mmt in 3QFY17.
Sales 1884.5 2010.5 1980.6 2224.9 We model GRM of USD5.5/bbl (inclusive of inventory gain/loss) for
EBITDA 142.1 140.6 148.4 154.8 BPCL during 4QFY17.
Adj. PAT 79.8 80.8 77.6 84.5
We expect BPCL to report EBITDA of INR22.4b (-33% QoQ, -35%
Adj. EPS (INR) 55.2 55.9 53.7 58.4
YoY) in 4QFY17.
EPS Gr.% 104.1 68.1 -2.8 4.6
BV/Sh.INR 193.8 218.6 253.9 292.6
We estimate PAT at INR14.5b (-34% QoQ, -43% YoY) for 4QFY17.
RoE (%) 31.6 27.1 22.7 21.4 BPCL trades at 10.9x FY19E EPS of INR58.4 and 2.2x FY19E BV
RoCE (%) 18.8 16.3 14.9 15.1 (adjusted for investments), with ~3% dividend yield. Buy.
Payout*(%) 33.0 55.6 34.2 33.7
Valuation Key issues to watch for
P/E (x) 11.6 11.4 11.9 10.9 (a) Inventory and forex change impact, (b) GRM, (c) Kochi refinery
P/BV (x) 3.3 2.9 2.5 2.2
expansion, and (d) update on Mozambique/Brazil E&P blocks.
EV/EBITDA (x) 8.0 8.3 7.9 7.3
Div. Yld (%) 2.4 4.2 2.5 2.6
*Based on standalone
GAIL
Bloomberg GAIL IN
CMP: INR383 TP: INR349 (-9%) Neutral
Equity Shares (m) 1693.4
M. Cap. (INR b)/(USD b) 648 / 10
We expect GAIL to report a PAT of INR11b (+44% YoY and +12%
52-Week Range (INR) 401 / 251 QoQ). We model nil subsidy sharing for GAIL in 4QFY17 (v/s nil in
1,6,12 Rel Perf. (%) -6 / 21 / 29 4QFY16 and 3QFY17).
We estimate EBITDA at INR18.3b in 4QFY17 v/s INR11.2b in 4QFY16
Financial snapshot (INR b) and INR17b in 3QFY17.
Y/E March 2016 2017E 2018E 2019E We model Brent crude price of USD49/bbl for FY17, USD55/bbl for
Sales 515.9 504.8 538.3 620.6 FY18 and USD60/bbl for the long term.
EBITDA 39.5 66.2 81.9 87.6 Segmental EBIT (pre-subsidy) is expected to be INR17.7b, up 51%
Adj. PAT 22.8 36.7 48.9 55.0
YoY, led by turnaround in petchem division profitability and likely
Adj. EPS (INR) 13.5 21.7 28.9 32.5
higher gas transmission profitability.
EPS Gr. (%) -23.9 61.1 33.2 12.4
BV/Sh.(INR) 180.6 197.2 215.5 236.0
GAIL trades at 11.8x FY19E EPS of INR32.5. Maintain Neutral.
RoE (%) 7.6 13.0 14.0 14.4
RoCE (%) 6.4 9.7 11.5 12.0 Key issues to watch for
Payout (%) 36.8 32.5 36.8 36.8 (a) Petchem profitability, (b) profitability in gas trading business,
Valuations (c) progress of pipeline projects, (d) pending tariff revisions for key
P/E (x) 28.4 17.6 13.2 11.8 pipelines, and (e) visibility on placement of US contracts.
P/BV (x) 2.1 1.9 1.8 1.6
EV/EBITDA (x) 11.6 9.6 7.5 6.6
Div. Yield (%) 1.1 1.7 2.3 2.6
HPCL
Bloomberg HPCL IN
CMP: INR523 TP: INR604 (+16%) Buy
Equity Shares (m) 1017.0
M. Cap. (INR b)/(USD b) 531 / 8
We expect OMCs (IOCL, BPCL, HPCL) core earnings to decline
52-Week Range (INR) 584 / 259 YoY/QoQ, led by lower refining and marketing margins during
1,6,12 Rel Perf. (%) -4 / 14 / 76 4QFY17.
We model nil subsidy sharing for OMCs; the subsidy in 4QFY17
Financial snapshot (INR b) would entirely be borne by the government.
Y/E MARCH 2016 2017E 2018E 2019E We peg HPCLs refinery throughput at 4.3mmt for 4QFY17 v/s
Sales 1,793 1,873 1,755 1,952 4.7mmt in 4QFY16 and 4.7mmt in 3QFY17.
EBITDA 76.2 99.9 94.7 98.9 We model GRM of USD5.6/bbl (inclusive of inventory gain/loss) for
Adj. PAT 38.6 54.5 45.7 46.6 HPCL during 4QFY17.
Adj. EPS (INR) 38.0 53.5 44.9 45.8
We expect HPCL to report EBITDA of INR20.4b (-29% QoQ, -21%
EPS Gr. (%) 41.3 41.0 (16.1) 1.9
YoY) in 4QFY17.
BV/Sh.(INR) 182.1 202.7 231.8 261.5
RoE (%) 22.4 27.8 20.7 18.6
We estimate PAT at INR10.8b (-32% QoQ, -30% YoY) for 4QFY17.
RoCE (%) 13.0 14.7 10.7 9.5 HPCL trades at 11.4x FY19E EPS of INR45.8 and 2x FY19E BV
Payout (%) 36.4 58.5 35.2 35.2 (adjusted for investments), with ~3% dividend yield. Buy.
Valuations
P/E (x) 13.8 9.8 11.6 11.4 Key issues to watch for
P/BV (x) 2.9 2.6 2.3 2.0 (a) GRM,
EV/EBITDA (x) 8.9 7.7 7.7 7.7
(b) impact of forex and inventory change, and
Div. Yield (%) 2.2 5.1 2.6 2.6
(c) Bhatinda refinery profits.
Indraprastha Gas
Bloomberg IGL IN CMP: INR1,014 TP: INR1,023 (+1%) Neutral
Equity Shares (m) 140.0
We expect IGL to report volumes of 4.68mmscmd and assume
M. Cap. (INR b)/(USD b) 142 / 2
EBITDA/scm at INR6.0 during 4QFY17.
52-Week Range (INR) 1071 / 537
1,6,12 Rel Perf. (%) -7 / 16 / 60
We expect 4QFY17 CNG volumes at 3.51mmscmd (+11% YoY, flat
QoQ) and PNG volumes at 1.17mmscmd (+24% YoY, +3% QoQ). We
model total volumes of 4.56/5.07/5.54mmscmd in FY17/FY18/FY19.
Financial Snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
We expect IGL to report EBITDA of INR2.5b (+32% YoY, +2% QoQ)
Sales 36.7 37.2 43.6 48.4
for 4QFY17.
EBITDA 7.6 10.2 10.4 11.4 We expect profitability to improve YoY and remain flat QoQ, driven
Adj. PAT 4.2 6.1 6.1 6.9 by price hike taken during Dec-16 and flat gas cost.
Adj. EPS (INR) 29.7 43.3 43.8 49.4 We expect IGL to report PAT of INR1.5b (+41% YoY, +5% QoQ)
EPS Gr. (%) -4.9 45.5 1.2 12.8 The stock trades at 20.5x FY19E EPS of INR49.4. Neutral.
BV/Sh.(INR) 172.6 205.3 238.6 276.3
RoE (%) 18.4 22.3 19.7 19.2 Key issues to watch for
RoCE (%) 17.1 21.6 18.7 18.4 (a) Likely increase in volumes following lower gas prices, and
Payout (%) 20.2 18.5 20.6 20.2 (b) EBITDA margin.
Valuation
P/E (x) 34.1 23.4 23.1 20.5
P/BV (x) 5.9 4.9 4.2 3.7
EV/EBITDA (x) 18.1 13.2 12.5 11.0
Div. Yield (%) 0.6 0.8 0.9 1.0
IOC
Bloomberg IOCL IN CMP: INR381 TP: INR441 (+16%) Buy
Equity Shares (m) 4855.9
We expect OMCs (IOCL, BPCL, HPCL) core earnings to decline
M. Cap. (INR b)/(USD b) 1852 / 29
YoY/QoQ, led by lower refining and marketing margins during
52-Week Range (INR) 404 / 196
1,6,12 Rel Perf. (%) -2 / 18 / 70
4QFY17.
We model nil subsidy sharing for OMCs; the subsidy in 4QFY17
would entirely be borne by the government.
Financial snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
We peg IOCLs refinery throughput at 16.3mmt for 4QFY17 v/s
Sales 3544.3 3654.2 3835.8 4421.6
15mmt in 4QFY16 and 16.4mmt in 3QFY17 higher due to
EBITDA 217.0 366.4 362.6 378.3 contribution from Paradip refinery.
Adj. PAT 98.5 212.1 191.1 199.3 We model GRM of USD6/bbl (inclusive of inventory gain/loss) for
Adj. EPS (INR) 20.3 43.7 39.4 41.0 IOCL during 4QFY17.
EPS Gr. (%) 203.8 115.2 -9.9 4.3 We expect IOCL to report EBITDA of INR77.9b (+4% QoQ, +116%
BV/Sh.(INR) 156.5 179.8 205.2 230.3 YoY) in 4QFY17.
RoE (%) 13.6 26.0 20.4 18.8 We estimate PAT at INR40.5b (+1% QoQ, +228% YoY) in 4QFY17.
RoCE (%) 10.3 18.2 14.6 14.0 IOCL trades at 9.3x FY19E EPS of INR41 and at 1.7x FY19E BV.
Payout (%) 36.4 34.5 34.8 34.7 Dividend yield is ~4%. Buy.
Valuations
P/E (x) 18.8 8.7 9.7 9.3 Key issues to watch for
P/BV (x) 2.4 2.1 1.9 1.7 (a) Update on Paradip refinery, (b) GRM, (c) capex plans, and (d)
EV/EBITDA (x) 10.8 6.5 6.6 6.2
forex/inventory changes.
Div. Yield (%) 1.8 3.4 3.1 3.2
MRPL
Bloomberg MRPL IN CMP: INR110 TP: INR114 (+4%) Neutral
Equity Shares (m) 1752.7
We expect MRPL to report EBITDA of INR9.2b (v/s INR11.5b in
M. Cap. (INR b)/(USD b) 192 / 3
3QFY17). We estimate adjusted PAT at INR4.4b (v/s INR5.6b in
52-Week Range (INR) 116 / 63
1,6,12 Rel Perf. (%) 0 / 16 / 45
3QFY17).
Regional benchmark Reuters Singapore GRM is down 17% YoY and
5% QoQ to USD6.4/bbl. We model MRPLs GRM at USD6.07/bbl v/s
Financial snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
USD5.1/bbl in 3QFY17 and USD9.01/bbl in 4QFY16.
Sales 396.3 418.5 498.6 551.8
We expect refinery throughput at 4mmt v/s 4.4mmt in 4QFY16 and
EBITDA 29.6 40.8 40.7 42.8 4.2mmt in 3QFY17.
Adj. PAT 12.9 21.4 20.1 22.4 For MRPL, we model GRM of ~USD6.5bbl for FY18/FY19. The stock
Adj. EPS (INR) 7.4 12.2 11.4 12.8 trades at 8.6x FY19E EPS of INR12.8, and at an EV of 4.6x FY19E
EPS Gr. (%) NA 61.4 (6.4) 11.5 EBITDA. Neutral.
BV/Sh.(INR) 36.6 46.0 54.8 64.5
RoE (%) 22.1 29.6 22.7 21.4 Key issues to watch for
RoCE (%) 14.3 17.8 15.4 16.2 (a) GRM, (b) forex fluctuations, and (c) inventory changes.
Payout (%) - 23.4 23.4 23.4 Updates on foray into petrol and diesel marketing.
Valuation Payment of outstanding dues to Iran.
P/E (x) 14.6 9.0 9.6 8.6
P/BV (x) 2.9 2.4 2.0 1.7
EV/EBITDA (x) 4.0 5.9 5.8 4.6
Div. Yield (%) - 2.2 2.1 2.3
Oil India
Bloomberg OINL IN CMP: INR332 TP: INR382 (+15%) Buy
Equity Shares (m) 801.5
We expect OINL to report adjusted PAT of INR5.7b (v/s INR8.5b in
M. Cap. (INR b)/(USD b) 266 / 4
4QFY16 and INR5.7b in 3QFY17).
52-Week Range (INR) 367 / 234
1,6,12 Rel Perf. (%) -4 / 1 / 20
We estimate EBITDA at INR7b (up 10% YoY and 5% QoQ). We
estimate gross and net realization at USD52.8/bbl, with no subsidy
sharing burden.
Financial snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
Our Brent price assumption is USD55/60/bbl for FY18/19.
Sales 92.7 92.7 106.7 118.2
The stock trades at 8.8x FY19E EPS of INR37.8. We remain positive
EBITDA 31.1 31.9 39.1 45.3 on OINL due to attractive valuations and high dividend yield of
Adj. PAT 23.0 22.9 26.5 30.3 ~4%. Buy.
Adj. EPS (INR) 28.7 28.6 33.1 37.8
EPS Gr. (%) -8.3 -0.5 15.6 14.5 Key issues to watch for
BV/Sh.(INR) 282.7 297.9 315.4 335.5 (a) Subsidy sharing, (b) DD&A charges, and (c) oil & gas
RoE (%) 10.4 9.8 10.8 11.6 production volumes.
RoCE (%) 8.2 7.0 8.0 8.7
Payout (%) 50.3 46.9 46.9 46.9
Valuations
P/E (x) 11.5 11.6 10.0 8.8
P/BV (x) 1.2 1.1 1.1 1.0
EV/EBITDA 8.6 8.4 6.9 6.0
(x)
Div. Yield (%) 3.6 3.3 3.9 4.5
ONGC
Bloomberg ONGC IN CMP: INR186 TP:INR172 (-8%) Neutral
Equity Shares (m) 12833.3
We expect ONGC to report adjusted PAT of INR45b in 4QFY17 (v/s
M. Cap. (INR b)/(USD b) 2390 / 37
INR43.5b in 3QFY17 and INR27.5b in 4QFY16).
52-Week Range (INR) 212 / 133
1,6,12 Rel Perf. (%) -7 / -1 / 15
We estimate EBITDA at INR107.7b (v/s INR103b in 3QFY17 and
INR59.6b in 4QFY16).
We estimate gross and net realization at USD55.1/bbl, as we
Financial snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
expect the entire subsidy to be borne by the government.
Sales 1293.0 1422.2 1619.4 1741.9
We may see one-time royalty hit of INR25b during the quarter.
EBITDA 451.6 549.1 635.8 678.1 The stock trades at 10.8x FY19E consolidated EPS of INR17.3, with
Adj. PAT 174.5 156.5 207.2 221.5 implied dividend yield of 3-4%. Neutral.
Adj. EPS 13.6 12.2 16.1 17.3
(INR)
EPS Gr. (%) -5.0 -10.3 32.4 6.9 Key issues to watch for
BV/Sh.(INR) 144.0 145.1 146.7 148.4 (a) Subsidy sharing, (b) DD&A charges, (c) oil & gas production
RoE (%) 9.6 8.4 11.1 11.7 volumes, and (d) development plan for KG Basin.
RoCE (%) 8.8 7.5 9.3 9.7
Payout (%) 54.1 90.4 90.4 90.4
Valuation
P/E (x) 13.7 15.3 11.5 10.8
P/BV (x) 1.3 1.3 1.3 1.3
EV/EBITDA 3.8 3.8 3.5 3.3
(x)
Div. Yield (%) 4.6 7.6 10.0 10.7
Petronet LNG
Bloomberg PLNG IN CMP: INR408 TP: INR454 (+11%) Buy
Equity Shares (m) 750.0
We expect PLNG to report PAT of INR3.9b (+66% YoY, flat QoQ) and
M. Cap. (INR b)/(USD b) 306 / 5
EBITDA of INR6.3b (+42% YoY, +4% QoQ) for 4QFY17.
52-Week Range (INR) 417 / 237
1,6,12 Rel Perf. (%) 0 / 4 / 47
We model Dahej LNG volumes at 3.7mmt with 98% utilization in
4QFY17.
Dahej terminal utilization is at ~98% and long-term growth would
Financial snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
depend on Dahejs ramp-up and Kochi terminals pipeline
Sales 271.3 259.9 318.0 410.6
connectivity.
EBITDA 15.9 26.1 30.1 40.4 As against 15mmt capacity, PLNG has ~16mmt long-term take-or-
Adj. PAT 8.4 16.7 19.9 27.1 pay contracts.
Adj. EPS (INR) 11.2 22.2 26.5 36.2 The stock trades at 11.3x FY19E EPS of INR36.2. Maintain Buy.
EPS Gr. (%) 12.2 98.1 19.2 36.5
BV/Sh.(INR) 85.0 101.0 120.1 146.1 Key issues to watch for
RoE (%) 14.0 23.9 24.0 27.2 (a) Utilization at Dahej terminal, (b) progress on Kochi-Mangalore
RoCE (%) 11.0 17.9 20.2 25.5 pipeline, (c) spot volumes and marketing margin on spot volumes.
Payout (%) 24.0 28.1 28.1 28.1 Petronet LNGs earnings are largely protected due to take-or-pay
Valuation contracts with off-takers.
P/E (x) 33.4 18.4 15.4 11.3
P/BV (x) 4.4 4.0 3.4 2.8
EV/EBITDA (x) 1.1 1.2 0.9 0.6
Div. Yield (%) 0.7 1.3 1.6 2.1
Reliance Industries
Bloomberg RIL IN CMP: INR1,415 TP: INR1,259 (-11%) Neutral
Equity Shares (m) 3240.0
We expect RIL to report GRM of USD10.2/bbl v/s USD10.8/bbl in
M. Cap. (INR b)/(USD b) 4584 / 71
3QFY17 and USD10.8/bbl in 4QFY16.
52-Week Range (INR) 1418 / 926
1,6,12 Rel Perf. (%) 8 / 24 / 17
RILs refining segment profit is likely to remain subdued due to
decline in GRMs. Petchem profitability is expected to increase YoY,
led by improved deltas.
Financial snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
We expect RIL to report EBITDA of INR106.7b v/s INR106.2b in
Net Sales 2,331.6 2,436.0 3,696.1 3,989.7 3QFY17 and INR95.1b in 4QFY16.
EBITDA 401.4 426.5 482.1 497.7 We expect RIL to report standalone PAT of INR75b (+3% YoY).
Net Profit 274.2 293.5 335.8 363.3 Reported consolidated numbers would include shale gas business,
Adj. EPS 93.0 99.6 113.9 123.2 but with a one-quarter lag.
(INR) RIL trades at 11.5x FY19E adjusted EPS of INR123. RIL's new
EPS Gr. (%) 20.5 7.1 14.4 8.2
BV/Sh. (INR) 814.7 900.0 997.5 1,103.0 refining/petchem projects are likely to add to earnings from
RoE (%) 12.0 11.6 12.0 11.7 2HFY18/FY19, but Telecom business would be a drag on
RoCE (%) 8.9 9.2 10.1 10.3 profitability. Maintain Neutral.
Payout (%) 13.5 14.4 14.4 14.4
Valuations Key issues to watch for
P/E (x) 11.5 14.2 12.4 11.5 GRM.
P/BV (x) 1.3 1.6 1.4 1.3 Petchem margins.
EV/EBITDA 1.8 11.2 8.5 7.3
(x)
Progress on core expansions.
EV/Sales (x) 10.3 2.0 1.1 0.9
Update on Telecom venture.
Retail
Company name Contrasting fortunes for companies under coverage
Jubilant Foodworks Sales likely to be anemic for Jubilant, healthy for Titan
Titan Company
Retail coverage to grow sales at 20.2%
We expect our retail coverage universe to report healthy 20.2% revenue growth in
4QFY17, but PAT is expected to decline 11.5%. EBITDA is likely to increase by 24.1%
YoY. We expect Titans jewelry retail revenue to grow 26% YoY, led by benefits from
shift in trade from unorganized to organized (following demonetization) and low
base quarter segment sales (-11% YoY in 4QFY16). Watches segment sales via trade
channel (50% of watches segment sales) have recovered, while retail segment
reported high-single-digit sales growth. For Titan, EBITDA growth is likely at 36%, but
extremely low tax rate of 7.6% in the base quarter means that PAT is likely to
decline YoY. We expect Jubilant Foodworks sales to increase 8%, with same-store
sales (SSS) growing 2% due to continued slowdown in discretionary consumption
and lingering impact of demonetization on delivery sales (which management had
mentioned is likely to continue, possibly until 1QFY18). With SSS growth far below
cost increases, 4QFY17 is likely to be another quarter of EBITDA and PAT decline
(9.2% and 26%, respectively) for Jubilant Foodworks.
Exhibit 2: Tanishqs LTL sales grew 15% in 3QFY17 Exhibit 3: Titan: Jewelry grammage grew 4% in 3QFY17
Jewelry volume growth (%)
Tanishq- LTL Growth (%)
75
68 67
29 30 28
15 25
10 8 6 3 4 12 9 15
(12) 6 4
(2)
(4)
(7) (15) (13) (8) (5)
(25) (40) (21) (24) (11)(10)(10) (32)
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: Company, MOSL Source: Company, MOSL
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
Source: Company, MOSL
Exhibit 5: Jubilant Foodworks SSS to grow by 2% in 4QFY17 Exhibit 6: Dominos is expected to add 27 stores in 4QFY17
1107
1081
1049
1026
990
950
911
876
838
16.1
797
761
7.7
6.3
6.6
1.9
6.6
4.6
3.2
2.0
2.9
4.2
726
679
632
602
576
552
515
489
465
439
-3.3
-2.6
-3.4
-2.4
-5.3
-3.2
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Exhibit 7: Relative performance three months (%) Exhibit 8: Relative performance one-year (%)
Sensex Index MOSL Retail Index
Sensex Index MOSL Retail Index
140 130
120
130
110
120
100
110 90
100 80
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Jan-17
Feb-17
Mar-17
Source: Bloomberg, MOSL Source: Bloomberg, MOSL
Jubilant Foodworks
Bloomberg JUBI IN CMP: INR1,094 TP: INR1,110 (+1%) Neutral
Equity Shares (m) 65.8
We expect JUBIs revenue to grow by 8% YoY. 4QFY17 SSSG is
M. Cap. (INR b)/(USD b) 72 / 1
likely to be ~2%. Discretionary spending has still not recovered
52-Week Range (INR) 1348 / 761
1,6,12 Rel Perf. (%) 0 / 4 / -31
fully post demonetization. Commodity inflation continues.
We expect EBITDA margin to contract 190bp YoY to 9.7%, and
EBITDA to decline by 9.2% YoY to INR647m.
Financial Snapshot (INR b)
Y/E March 2016 2017E 2018E 2019E
We estimate PAT to decline by 26% to INR206m.
Sales 24.4 26.0 31.7 38.3
The stock trades at 37.6x FY19E EPS of INR29.1. Maintain Neutral.
EBITDA 2.6 2.5 3.7 4.7
Adj. PAT 1.0 0.8 1.4 1.9 Key issues to watch for:
Adj. EPS (INR) 15.0 12.3 21.7 29.1 Demand outlook for QSR and Pizza space, as well as
EPS Gr. (%) -11.7 -17.6 76.4 34.0 competition.
BV/Sh.(INR) 111.3 122.5 111.5 117.2 Performance of Dunkin Donuts and margin guidance.
RoE (%) 13.4 10.1 19.5 24.9 Changes in expansion and capex strategy (if any).
RoCE (%) 14.1 10.5 18.5 25.4
Payout (%) 16.7 20.3 69.0 68.6
Valuations
P/E (x) 73.2 88.8 50.3 37.6
P/BV (x) 9.8 8.9 9.8 9.3
EV/EBITDA (x) 26.8 28.2 19.2 14.6
Div. Yield (%) 0.2 0.2 1.4 1.8
Titan Company
Bloomberg TTAN IN CMP: INR491 TP: INR485 (-1%) Neutral
Equity Shares (m) 887.8
We expect TTANs revenue to increase 23.3% to INR30b.
M. Cap. (INR b)/(USD b) 436 / 7
52-Week Range (INR) 495 / 296 2HFY17 was much better than the company had expected despite
1,6,12 Rel Perf. (%) 8 / 15 / 22 demonetization, as consumer demand recovered significantly and
sales were healthy across divisions.
Financial Snapshot (INR b)
Jewelry division had a very good quarter, led by studded jewelry
Y/E March 2016 2017E 2018E 2019E
activation and favorable base. Tanishq saw retail growth that was
Sales 111.8 122.9 142.6 164.0
40% higher than the companys expectation at the beginning of
EBITDA 8.6 11.6 13.0 14.9
4QFY17.
Adj. PAT 7.1 8.4 9.3 10.5
Adj. EPS (INR) 8.0 9.4 10.4 11.8 During the quarter, TTAN added only 7 Tanishq stores (28ksf).
EPS Gr. (%) -13.4 17.1 10.8 13.5
We factor in EBITDA growth of 36% in 4QFY17, with underlying
BV/Sh.(INR) 40.4 47.0 54.1 62.2
margin expansion of 90bp to 8.9%. PAT is expected to decline by
RoE (%) 21.3 21.5 20.6 20.3
RoCE (%) 21.8 21.6 20.5 20.2
9.4% YoY due to a higher tax rate.
Payout (%) 30.0 30.0 30.0 30.0 The stock trades at 41.6x FY19E EPS of INR11.8; maintain Neutral.
Valuation
P/E (x) 61.2 52.2 47.1 41.6 Key issues to watch for:
P/BV (x) 12.2 10.5 9.1 7.9 Comments on consumer demand for Jewelry and Watches.
EV/EBITDA (x) 50.6 37.6 33.3 28.7 Expansion initiatives.
Div. Yield (%) 0.5 0.6 0.6 0.7 Update on the new Golden Harvest Scheme.
Technology
Company Name Can growth recover next fiscal?
Cyient Amid some H-1B reprieve and BFSI hopes, INR appreciates
HCL Tech
Hexaware Keeping 4Q expectations in check amid limited signs of momentum pick-up
Infosys The usual seasonality of the fourth quarter, compounded with (a) sporadic citation
KPIT Tech
of concerns around budget and decision-making delays, and (b) problems in some
L&T Infotech
key accounts, keeps us from building any recovery in growth momentum in 4Q or in
Mindtree
the immediate future. Yet, there are a few potential positives to note:
Overall positive messaging in terms of deal wins, BFSI environment and client
Mphasis
NIIT Tech
conversations, especially by tier-I IT.
Likely postponement of any developments around H-1B visas, with fresh
Persistent
TCS
applications being accepted for the next year, starting early April. That said,
TechM
recent overrule of programming jobs automatic qualification under specialty
occupation may not have a substantive impact, but does call for more scrutiny
Wipro
Zensar
going forward.
Traction in change-the-business side of the business, which has been the key
additive factor for revenue growth, though not enough on current base.
These may aid gradual improvement in growth through the course of FY18
rather than a sudden pick-up in growth.
Watch out for the performance in top clients at INFO following a shocker in 3Q,
over which the management alleviated investor concerns by terming it as a one-
off without any significant concerns on the same.
Watch out for guidance from HCLT and outlook from TCS too. Double-digit
growth at HCLT looks more-or-less in the bag, given healthy traction in IMS and
contribution from acquisitions. At TCS, while the commentary has remained
very positive, it remains to be seen in revenue growth. Our estimate of 9.5% CC
growth in FY18 implies a CC CQGR of 2.5% in FY18.
Healthcare exposure will hurt WPRO and we expect guidance of 1.5% to 2.5%
QoQ CC for 1QFY18.
Recent trend in INR may spell a fresh challenge for the industry
The INR has marched since the turn of the year to close below INR65/USD,
compared to last quarters close at ~INR68/USD. Were this to sustain, expect
another round of moderation in earnings estimates, this time led by currency.
Top-tier IT has seen stock returns over last five years being led by earnings
growth rather than P/E multiple expansion (ex-HCL Tech), and that has in turn
been boosted by INR depreciation. The impact of INR64.5-65/USD on earnings is
not yet factored in estimates, in our view. Various industry participants have
already shared expectations of moderate wage hikes next year, which was
before the recent trend in INR.
The range of margin movements QoQ is -30bp to -65bp across tier-I and -80bp
to +80bp across tier-II. PSYS could suffer from seasonal revenue decline in its
Alliance segment, most of which should flow to EBITDA.
Currency and lack of growth visibility keeps valuations on edge
Revenue growth for the industry still remains a challenge, with little, if any, clear
signs of acceleration after a tepid 2016. There is hope from deregulation in the
US and a new taxation regime, but there remain counterbalancing forces on the
other hand, mainly from potential moves on Trump tax / H-1B immigration.
Add to that, we see a gradual uptick in costs, impacting earnings in varying
degrees across tier-I and tier-II IT for a couple of years (150-200bp potential
negative impact on profitability that would need to be offset), as the model of
operating at onsite changes. The business model changes at onsite have been
underway for a while, and the higher costs have more-or-less been absorbed so
far. But the recent direction of the INR v/s the USD might just end up being an
additional headwind to thwart any assumptions of sanguine performance
around profitability.
We believe tier-I companies (INFO, TCS, WPRO, HCLT) would be better placed to
adapt to these changes, given their brand to attract talent, wider reach and war-
chest to absorb shocks on a higher margin base. Absolute numbers in the US are
a single-digit percentage of the overall workforce. Our pecking order in the
group is INFO and HCLT, followed by TCS and WPRO. Notwithstanding the
regulatory developments, we see greater comfort in the earnings performance
at TECHM, with gradual recovery in Telecom and levers to improve margins. In
tier-II, we prefer CYL, ZENT and LTI. We see gradual recovery at MTCL, but
current valuations factor more than that, in our view.
Exhibit 1: Double-digit organic USD revenue growth (YoY) seen only in HCLT amongst tier-I
Revenue (USD m) Revenue (INR b)
Company 4QFY17E 4QFY16 YoY (%) 3QFY17 QoQ (%) 4QFY17E 4QFY16 YoY (%) 3QFY17 QoQ (%)
TCS 4,504 4,207 7.0 4,387 2.7 300 284 5.4 297 0.9
Infosys 2,590 2,446 5.9 2,551 1.5 172 166 4.2 173 (0.1)
Wipro 1,944 1,882 3.3 1,903 2.2 136 136 (0.1) 137 (0.5)
HCLT 1,810 1,587 14.0 1,745 3.7 121 107 12.7 118 2.0
TECHM 1,132 1,023 10.7 1,116 1.4 75 69 9.5 76 (0.2)
Aggregate 11,979 11,145 7.5 11,702 2.4 804 762 5.6 801 0.5
EBITDA Margin (%) PAT (INR b)
Company 4QFY17E 4QFY16 YoY (bp) 3QFY17 QoQ (bp) 4QFY17E 4QFY16 YoY (%) 3QFY17 QoQ (%)
TCS 27.3 27.8 (50) 27.7 (40) 62 63 (2.3) 68 (8.6)
Infosys 27.1 28.0 (90) 27.6 (50) 34 36 (4.9) 37 (7.7)
Wipro 19.9 20.6 (60) 20.4 (40) 19 22 (15.1) 21 (10.0)
HCLT 21.9 22.2 (30) 22.2 (40) 20 19 2.4 21 (4.8)
TECHM 15.4 16.9 (150) 15.7 (31) 7 9 (18.6) 9 (14.7)
Aggregate 24.1 24.8 (70) 24.5 (39) 142 150 (5.2) 155 (8.4)
Source: Company, MOSL
Exhibit 2: PAT decline across the sector can be attributed to translation losses
Revenue (USD m) Revenue (INR b)
Company 4QFY17E 4QFY16 YoY (%) 3QFY17 QoQ (%) 4QFY17E 4QFY16 YoY (%) 3QFY17 QoQ (%)
Persistent Systems 111 100 10.1 110 0.5 7.4 6.8 8.7 7.5 (1.3)
Hexaware 140 122 15.0 139 0.8 9.3 8.2 13.7 9.4 (0.9)
KPIT Tech. 124 124 0.2 123 1.2 8.3 8.4 (1.5) 8.3 (0.3)
Mindtree 194 196 (0.7) 192 1.1 12.9 13.2 (2.3) 13.0 (0.1)
Mphasis 227 225 0.8 225 1.1 15.1 15.2 (0.7) 15.4 (1.9)
Cyient 140 121 16.0 136 3.3 9.3 8.2 14.5 9.2 1.9
NIIT Tech 105 102 3.2 103 2.2 7.0 6.8 2.0 6.9 0.9
Zensar 121 111 9.2 118 2.7 8.0 7.5 7.7 7.9 1.5
LTI 249 230 8.5 245 1.7 16.6 15.9 4.2 16.7 (0.4)
Aggregate 1,415 1,330 6.4 1,390 1.8 93.9 90.2 4.1 94.2 (0.2)
EBITDA margin (%) PAT (INR b)
Company 4QFY17E 4QFY16 YoY (bp) 3QFY17 QoQ (bp) 4QFY17E 4QFY16 YoY (%) 3QFY17 QoQ (%)
Persistent Systems 15.2 15.9 (70) 15.9 (80) 0.7 0.8 (12.6) 0.8 (13.8)
Hexaware 16.5 14.6 200 17.3 (70) 1.1 0.8 29.0 1.2 (10.7)
KPIT Tech. 10.0 15.7 (570) 10.2 (20) 0.1 0.1 (0.5) 0.1 (5.0)
Mindtree 13.4 17.1 (370) 13.4 - 1.0 1.6 (37.7) 1.0 (5.8)
Mphasis 15.4 15.4 (10) 15.6 (20) 2.0 1.9 5.8 2.0 (3.5)
Cyient 12.8 13.0 (20) 13.4 (50) 0.8 0.8 (3.3) 0.9 (13.2)
NIIT Tech 17.5 18.4 (100) 16.9 60 0.7 0.8 (15.6) 0.7 2.1
Zensar 14.6 12.4 230 13.8 90 0.7 0.7 (2.7) 0.8 (15.7)
LTI 18.3 20.1 (180) 18.1 20 2.2 2.6 (16.1) 2.5 (10.5)
Aggregate 15.2 16.4 (130) 15.4 (20) 9.3 10.2 (9.2) 10.1 (8.7)
Source: Company, MOSL
-0.3
TCS INFO WPRO HCLT TECHM
Source: Company, MOSL
Exhibit 4: YoY traction seen picking up only at HCLT, led by Volvo IT acquisition and IBM partnerships (YoY, CC, %)
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
15.8
12.0
10.3
10.8
14.0
12.4
15.0
12.0
15.8
13.6
11.4
13.1
14.1
16.1
22.6
18.9
14.7
10.6
10.1
9.8
9.9
6.8
8.4
8.3
8.9
7.4
6.4
8.3
8.4
6.0
7.6
9.5
7.2
6.3
5.1
9.2
8.1
5.9
6.0
6.2
TCS INFO WPRO HCLT TECHM
Source: Company, MOSL
Exhibit 5: HCLT to outperform peers organically in 4Q (Revenue growth, QoQ, USD, %)
6.8
4.8 3.7
2.7 2.2
2.8 1.5 1.4
0.8
-1.2 -0.7
1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Source: Company, MOSL
Exhibit 6: Incremental revenue higher for all other than TECHM; cross-currency tailwinds this quarter
TCS Infosys Wipro HCL Tech Tech Mahindra Cross currency impact on USD revenues (bp)
0 (40)
(50)
-60
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
NITEC
TCS
MPHL
KPIT
CYL
INFO
MTCL
PSYS
TECHM
WPRO
LTI
HEXW
ZENT
HCLT
Exhibit 7: Margins lower across the board in YoY terms (EBITDA margin, %)
22 21.9
19.9
18
15.4
14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17
Source: Company, MOSL
Exhibit 8: Sequential improvement seen in some mid-caps due to company-specific
dynamics (Revenue growth, QoQ, USD, %)
4.6
3.5
2.7 3.3 2.7
1.1 2.2 2.3
1.7
0.5 1.2 1.1 1.3
0.2
Persistent Hexaware KPIT Tech. Mindtree Mphasis Cyient NIIT Tech Zensar LTI
Systems
Exhibit 12: Relative performance3m (%) Exhibit 13: Relative performance1Yr (%)
Sensex Index MOSL Technology Index Sensex Index MOSL Technology Index
125
120
115
110
100 105
90 95
80 85
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Jan-17
Feb-17
Mar-17
Source: Bloomberg, MOSL Source: Bloomberg, MOSL
Cyient
Bloomberg CYL IN CMP: INR467 TP: INR600 (+28%) Buy
Equity Shares (m) 112.2
We expect CYLs USD revenue to grow 3.3% QoQ in 4QFY17 (+2.7%
M. Cap. (INR b)/(USD b) 52 / 1.0
QoQ in CC).
52-Week Range (INR) 555 / 416
In the core services business, CYLs revenue is expected to increase
1,6,12 Rel Perf. (%) -4 / -9 / -18
by 1.9% QoQ. Revenue growth is expected to pick up post the
seasonal weakness witnessed in the previous quarter.
Financial Snapshot (INR b)
We expect USD17m in revenue in Rangsons, which would imply
Y/E June 2016 2017E 2018E 2019E
Sales 31.0 36.0 40.8 46.2
annual revenue of USD55m; +42% YoY, short of the 50% guidance
EBITDA 4.2 4.8 5.7 6.4
by ~USD3m.
PAT 3.3 3.5 4.2 4.8 Margins are expected to decline by 60bp QoQ to 12.8% because of
EPS (INR) 30.7 30.9 37.6 43.1 INR depreciation and higher incremental revenue from lower-
EPS Gr. (%) (1.9) 0.7 21.6 14.6 margin Rangsons.
BV/Sh. (INR) 186.6 208.3 234.6 264.7 While we expect margins in the services business to decline by 50bp
RoE (%) 16.5 14.8 16.0 16.3 to 14.3%, we anticipate flat margins in Rangsons at 2%.
RoCE (%) 15.1 14.0 15.0 15.4 PAT estimate for the quarter is INR816m, -13.2% QoQ. Lower other
Payout (%) 22.8 30.0 30.0 30.0 income is a function of translation losses in 4Q.
Valuation The stock trades at 12.5x FY18E and 10.9x FY19E EPS. Maintain Buy.
P/E (x) 15.3 15.2 12.5 10.9 Key issues to watch for
P/BV (x) 2.5 2.3 2.0 1.8
Update on problem verticals like Semiconductor and Energy.
EV/EBITDA (x) 10.8 9.2 7.4 6.2
Outlook for Rangsons for FY18 and progress on synergy through
Div yld (%) 1.5 2.0 2.4 2.8
DLM.
Margin trajectory going ahead.
Quarterly Performance (INR m)
Y/E March FY16 FY17E FY16 FY17E
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QE
Revenue (USD m) 114 118 118 121 125 137 136 140 472 537
QoQ (%) -2.6 3.6 0.0 2.1 3.1 9.5 -0.5 3.3 5.6 13.8
Revenue (INR m) 7,263 7,717 7,818 8,158 8,349 9,136 9,171 9,342 30,955 35,998
YoY (%) 16.8 14.8 9.8 11.7 15.0 18.4 17.3 14.5 13.1 16.3
GPM (%) 35.4 36.6 34.4 34.2 35.0 34.4 34.0 33.3 35.1 34.1
SGA (%) 22.7 21.6 20.3 21.1 22.0 20.4 20.6 20.4 21.4 20.8
EBITDA 918 1,164 1,102 1,063 1,090 1,283 1,228 1,200 4,247 4,801
EBITDA Margin (%) 12.6 15.1 14.1 13.0 13.1 14.0 13.4 12.8 13.7 13.3
EBIT Margin (%) 10.1 12.6 11.3 9.4 10.4 11.5 10.7 10.7 10.8 10.8
Other income 298 299 246 222 116 184 309 50 1,065 659
ETR (%) 28.7 23.5 20.8 20.4 25.5 22.6 25.8 23.5 23.4 24.3
PAT 748 985 869 844 740 973 940 816 3,446 3,470
QoQ (%) -20.3 31.7 -11.8 -2.8 -12.3 31.5 -3.4 -13.2
YoY (%) 9.2 9.2 -13.9 -10.1 -1.1 -1.2 8.3 -3.3 -1.9 0.7
EPS (INR) 6.7 8.8 7.7 7.5 6.6 8.7 8.4 7.3 30.7 30.9
Headcount 11,507 11,311 11,481 11,569 12,297 12,797 12,747 12,877 11,569 12,877
Util incl. trainees (%) 75.4 76.1 76.7 73.3 75.5 77.2 74.8 76.4
Attrition (%) 18.8 21.6 20.6 18.4 19.9 22.7 22.6
Offshore rev. (%) 44.7 44.6 43.3 41.0 42.9 42.4 42.6 43.5
E: MOSL Estimates
HCL Technologies
Bloomberg HCLT IN CMP: INR865 TP:INR1,000 (+16%) Buy
Equity Shares (m) 1412.9
We expect HCLTs USD revenue to grow 3.7% QoQ in 4QFY17 and
M. Cap. (INR b)/(USD b) 1222 / 19
3.4% QoQ on a constant currency basis.
52-Week Range (INR) 890 / 707
It is expected to be divided as follows: Organic: 1.5pp, new IBM
1,6,12 Rel Perf. (%) -2 / 0 / -18
partnership: 0.6pp (USD10m), and Butler: 1.3pp (USD23m).
We expect momentum to continue in the IMS business. Deal
Financial Snapshot (INR b)
signings over the last many quarters and growth so far provide
Y/E JUNE 2016 2017E 2018E 2019E
Sales
visibility and confidence in execution of its 12-14% revenue growth
311.4 467.2 523.9 583.9
EBITDA
guidance.
68.2 103.0 113.2 124.9
PAT EBIT margins are likely to decline by 20bp to 20.2% because of
56.7 81.0 89.7 98.2
EPS (INR) 40.1 57.2 64.3 70.3
continued investments in the business, integration of lower margin
EPS Gr. (%) -20.3 42.5 12.4 9.3 businesses and increased depreciation, led by amortization of
BV/Sh. (INR) 200.2 227.8 233.1 264.7 investments made in the IBM partnerships.
RoE (%) 21.5 27.0 27.8 28.1 With this, we expect 20.3% EBIT margin for FY17 towards the
RoCE (%) 19.9 25.2 25.5 26.1 higher-end of the 19.5-20.5% guidance range.
Payout (%) 42.4 42.0 43.6 45.5 PAT estimate for the quarter is INR19.7b, -4.8% QoQ, on the back of
Valuation lower margins and lower other income.
P/E (x) 21.7 15.2 13.6 12.4 The stock trades at 13.6x FY18E and 12.4x FY19E EPS. Maintain Buy.
P/BV (x) 4.4 3.8 3.7 3.3
EV/EBITDA 12.2 10.6 9.7 8.5
(x) Key issues to watch for
Div yld (%) 2.0 2.8 3.2 3.7
Commentary on performance expectations for FY18.
Deal signings.
Organic growth in IMS and traction in Engineering.
Hexaware Technologies
Bloomberg HEXW IN CMP: INR215 TP: INR220 (+2%) Neutral
Equity Shares (m) 301.8
We expect USD revenue to grow 0.8% QoQ to USD140m (0.5% QoQ
M. Cap. (INR b)/(USD b) 65 / 1
CC).
52-Week Range (INR) 273 / 178
Although QoQ growth is expected to be soft, the quarter would
1,6,12 Rel Perf. (%) -7 / 7 / -35
strike 15% YoY growth, signifying strong momentum in the
business.
Financial Snapshot (INR b)
EBITDA margins have been steady over the last two quarters
Y/E DEC 2015 2016 2017E 2018E
Sales
despite wage hike, resulting out of strong volume growth and
31.2 35.3 39.0 43.4
EBITDA improvement in operational efficiencies.
5.4 5.7 6.4 7.1
PAT 3.9 4.2 4.5 5.0
However, in 1Q, we expect EBITDA margins to decline by 80bp QoQ
EPS (INR) 12.9 13.7 14.9 16.3 to 16.5%, as utilization gets aligned to comfortable levels, and
EPS Gr. 22.1 5.8 8.9 9.1 because of INR appreciation against the USD.
(%)
BV/Sh. Our PAT estimate for the quarter is INR1,086m, down 10.7% from
47.4 56.3 66.3 77.3
(INR) the previous quarter, on the back of lower other income led by
RoE (%) 28.9 26.5 24.4 22.7
RoCE (%) 27.7 24.2 22.8 21.7 translation losses.
Payout (%) 64.5 38.6 25.8 23.6 The stock trades at 14.4x CY17E and 13.2x CY18E earnings. Neutral.
Valuation
P/E (x) 16.6 15.7 14.4 13.2
Key issues to watch for
P/BV (x) 4.5 3.8 3.2 2.8 Large deal pipeline and traction post the increased S&M spend.
EV/EBITDA 11.0 10.2 9.2 8.0 Commentary on sustenance of revenue growth.
(x) Health of top customers and outlook over CY17E.
Div yld (%) 4.0 2.6 1.9 1.9
Infosys
Bloomberg INFO IN CMP: INR1,009 TP: INR1,250 (+24%) Buy
Equity Shares (m) 2285.6
In 3Q, INFO narrowed its guidance band to 8.4-8.8% YoY CC,
M. Cap. (INR b)/(USD b) 2307 / 35
implying 4Q revenue growth of 0.3-1.8% QoQ (mid-point of 0.1%).
52-Week Range (INR) 1278 / 900
In CC terms, our revenue growth estimate is 1% QoQ on the back of
1,6,12 Rel Perf. (%) -6 / -9 / -37
improvement in top clients after the sharp fall seen in 3Q and the
RBS ramp-down being behind. Cross-currency tailwinds of 50bp
Financial Snapshot (INR b)
would result in USD revenue growth of 1.5%.
Y/E MAR 2016 2017E 2018E 2019E
Given the lower exit rate for FY17 and expected conservatism in
Sales 624.4 686.1 747.4 825.1
EBITDA
initial guidance to avoid three revisions like the previous year, we
170.8 186.2 200.2 220.8
PAT 134.9 141.8 152.2 167.5
expect INFO to guide for 7-9% YoY CC growth for FY18. This would
EPS (INR)* 59.0 62.0 66.6 73.3 result in a CQGR ask rate of 2.2-3%.
EPS Gr. (%) 9.4 5.1 7.4 10.0 We expect EBITDA margin to decline by 50bp QoQ to 27.1%, led by
BV/Sh. (INR) 270.3 300.7 331.0 365.5 INR appreciation and the absence of certain tailwinds that INFO
RoE (%) 24.7 23.0 22.1 22.1 benefited from in the previous quarter (higher leave utilization,
RoCE (%) 23.2 21.7 21.1 21.0 lapse of leaves and lower leave liabilities).
Payout (%) 41.9 50.0 45.1 46.4 Our PAT estimate is INR34.2b, -7.7% QoQ led by lower profitability
Valuations and translation losses.
P/E (x) 17.4 16.5 15.4 14.0 The stock trades at 15.4x FY18E and 14x FY19E earnings. Buy.
P/BV (x) 3.8 3.4 3.1 2.8
EV/EBITDA (x) 11.7 10.4 9.4 8.3 Key issues to watch for
Div Yield (%) 2.4 3.0 2.9 3.3 TCV of deal wins during the quarter.
Commentary around contribution of newly launched services.
Commentary around macro, verticals, margins and pricing.
KPIT Technologies
Bloomberg KPIT IN CMP: INR130 TP: INR150 (+16%) Neutral
Equity Shares (m) 200.2
Revenue performance has been lumpy for KPIT, with guidance of a
M.Cap. (INR b) /(USD b) 26.2/0.4
better 2H compared to 1H.
52-Week Range (INR) 197/121
1, 6, 12 Rel. Per (%) -7/-5/-32
However, the impact of seasonal weakness and pressure in ERP
implementation continue weighing on overall performance.
Expect revenue of US124m, 1.2% QoQ growth in USD terms and
Financial Snapshot (INR b)
Y/E MAR 2016 2017E 2018E 2019E
0.8% QoQ CC.
Sales 32.2 32.9 35.2 38.4
While the companys drive has been to increase profitability,
EBITDA 4.4 3.4 4.2 4.7 excessive fresher hiring led to operational inefficiencies, negatively
PAT 3.0 2.0 2.8 3.0 impacting profitability. We expect margins to be subdued till there
EPS (INR) 14.1 11.5 13.8 15.0 is a sustained uptick in revenue growth momentum, which remains
EPS Gr. (%) 19.0 -18.4 19.8 9.2 elusive.
BV/Sh. (INR) 69.0 79.6 93.4 108.4 Our PAT estimate is INR451m, -5% QoQ because of the
RoE (%) 21.0 13.7 15.9 14.9 compounding of lower margins and translation losses.
RoCE (%) 24.3 15.8 17.8 17.3 KPIT trades at 9.5x FY18E and 8.7x FY19E earnings. Maintain
Payout (%) 10.6 17.4 14.5 13.3 Neutral.
Valuations
Key issues to watch for
P/E (x) 9.3 11.4 9.5 8.7
Growth in IES, Engineering Services and top client.
P/BV (x) 1.9 1.6 1.4 1.2
Margin performance and guidance.
EV/EBITDA (x) 5.1 5.9 4.3 3.4
Commentary on deal wins across segments.
Div yld (%) 1.1 1.5 1.5 1.5
Plan to recoup revenue growth and profitability.
L&T Infotech
Bloomberg LTI IN CMP: INR711 TP: INR800 (+12%) Buy
Equity Shares (m) 170.5
LTI saw revenue growth of 3.8% QoQ CC despite 3Q being a
M. Cap. (INR b)/(USD b) 123 / 2
seasonally weak quarter. This was largely attributed to the ramp-up
52-Week Range (INR) 725 / 595
of deals won earlier during the year.
1,6,12 Rel Perf. (%) -1/-11/-
Led by the higher base, and expectations of new ramp-ups
beginning in FY18, we expect CC growth of 1.3% QoQ. A 40bp
Financial Snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
tailwind during the quarter would result in 1.7% USD revenue
Sales
growth.
58.5 64.8 70.7 77.6
EBITDA 10.4 12.1 12.5 13.3
Expect 20bp expansion in EBITDA margin to 18.3% as 3Q was
PAT 9.2 9.4 10.2 10.6
negatively impacted by seasonality and increased share of India in
EPS (INR) 52.4 53.6 58.0 60.8 the overall portfolio. This would be partly offset by INR appreciation
EPS Gr. (%) 21.5 2.3 8.2 4.8 and continued investments in the business.
BV/Sh. (INR) 115.6 143.5 173.7 205.3 Our PAT estimate for the quarter is INR2.2b, which implies 10.5%
RoE (%) 45.3 41.4 36.6 32.1 QoQ decline, largely led by translation losses offsetting hedge gains
RoCE (%) 39.9 44.3 36.4 33.7 and resulting in lower other income.
Payout (%) 59.6 40.0 40.0 40.0 The stock trades at 12.3x FY18E and 11.7x FY19E earnings. Neutral.
Valuation
P/E (x) Key issues to watch for
13.6 13.3 12.3 11.7
P/BV (x) 6.2 5.0 4.1 3.5
Deal wins and ramp-up schedule for FY18.
EV/EBITDA 11.9 9.9 9.4 8.6 Margin trajectory, going forward, given the increased
(x) investments.
Div Yld (%) 4.4 3.0 3.3 3.4
Growth in Digital.
MindTree
Bloomberg MTCL IN CMP: INR452 TP: INR530 (+17%) Neutral
Equity Shares (m) 167.7
MTCLs performance has been impacted since the last couple of
M. Cap. (INR b)/(USD b) 77 / 1
quarters because of softness in top accounts, project cancellations,
52-Week Range (INR) 758 / 400
delays in decision making and deterioration in the performance of
1,6,12 Rel Perf. (%) -5 / -14 / -51
acquisitions.
These factors are expected to play on performance in 4Q as well,
Financial Snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E
restricting signs of a revival. While we expect 1.5% QoQ CC growth,
Sales 46.9 52.1 57.1 63.7
we expect a headwind of 40bp due to cross-currency headwinds,
EBITDA 8.3 7.0 8.1 9.1 resulting in 1.1% QoQ growth.
PAT 6.0 4.2 5.8 6.6 Note, for MTCL, rates at the beginning of the month are considered
EPS (INR) 35.9 24.9 34.6 39.4 while billing, resulting in a headwind versus a tailwind for peers.
EPS Gr. (%) 14.2 -30.6 39.0 14.0 Although margins have bottomed out, we dont see a material pick-
BV/Sh. (INR) 142.4 151.0 171.1 192.4 up till organic growth momentum increases or acquisitions turn
RoE (%) 27.4 17.0 21.5 21.7 around. We assume flat EBITDA margins in 4Q at 13.4%.
RoCE (%) 30.6 19.5 21.1 21.0 Our PAT estimate for the quarter is INR972m, which implies 5.8%
Payout (%) 29.3 48.2 34.7 38.0 QoQ decline.
Valuation The stock trades at 13.1x FY18E and 11.5x FY19E earnings. Neutral.
P/E (x) 12.6 18.2 13.1 11.5
Key issues to watch for
P/BV (x) 3.2 3.0 2.6 2.4
Update on top clients, pricing pressure and outlook.
EV/EBITDA (x) 8.6 10.0 8.5 7.3
Margin trajectory, going forward, given the increased investments
Div Yld (%) 2.3 2.6 2.6 3.3
and revenue growth issues.
Deal wins during the quarter and growth in Digital.
Mphasis
Bloomberg MPHL IN CMP: INR578 TP: INR550 (-5%) Neutral
Equity Shares (m) 210.1
In 3QFY17, HP channel revenue grew for the second consecutive
M. Cap. (INR b)/(USD b) 120 / 2
time in 20 quarters. This is expected to remain stable with the
52-Week Range (INR) 622 / 425
renewed MSA coming into effect, after the completion of the
1,6,12 Rel Perf. (%) -7 / -2 / 6
transaction between HPE and Blackstone.
We expect revenue growth of 1.1% QoQ (0.7% QoQ CC), driven by
Financial Snapshot (INR b)
Y/E MAR 2016 2017E 2018E 2019E
stability in HP channel and Digital Risk and continued traction in the
Sales 60.9 60.8 65.7 72.3 Direct International business.
EBITDA 9.0 9.6 10.2 11.2 Margins are likely to be stable (+20bp QoQ), as wage hike pressures
PAT 7.2 8.2 8.3 8.7 are now behind, and there is stability seen in the HP channel.
EPS (INR) 34.5 42.7 43.0 44.9 MPHL had raised its EBIT margin guidance by 100bp at the end of
EPS Gr. (%) 6.8 23.9 0.8 4.4
BV/Sh. (INR)
4QFY16 to 14-16% for FY17, and expressed confidence in achieving
299.4 280.1 296.7 315.3
RoE (%) 12.3 14.1 14.9 14.7 the higher end of the range. Looking at the traction so far, this
RoCE (%) 11.2 13.1 14.2 14.3 seems achievable.
Payout (%) 58.0 124.2 51.1 49.0 Our PAT estimate is INR1.97b (-3.5% QoQ).
Valuations
The stock trades at 12.2x FY17E and 9.5x FY18E EPS. Neutral.
P/E (x) 16.8 13.6 13.5 12.9
P/BV (x) 1.9 2.1 2.0 1.8 Key issues to watch for
EV/EBITDA(x) 10.8 9.9 9.0 8.0 Outlook for Digital Risk given an interest rate cycle reversal.
Div yld (%) 3.5 9.1 3.8 3.8 Strategy changes and roadmap under the new leadership.
Performance in Direct International business, and outlook for the
year.
Persistent Systems
Bloomberg PSYS IN CMP: INR596 TP: INR730 (+23%) Neutral
Equity Shares (m) 80.0
Revenue growth is expected to be led by the Enterprise segment,
M. Cap. (INR b)/(USD b) 47 / 1
whereas revenue from the IBM Watson deal would decline, as 3Q is
52-Week Range (INR) 782 / 501
the strongest quarter for IBM seasonally.
1,6,12 Rel Perf. (%) -12 / -21 / -41
Growth in ISVs is likely to continue following the same trajectory as
earlier. Aided by these factors, we expect 4QFY17 revenue to grow
Financial Snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E 0.3% QoQ CC to USD110.5m.
Sales 23.1 28.9 32.5 36.4 Cross-currency movements are likely to result in a tailwind of 20bp
EBITDA 4.2 4.5 5.3 6.2 during the quarter, leading to 0.5% USD growth.
Adj. PAT 3.0 3.0 3.5 4.0 EBITDA margins are expected to decline, as revenue from the IBM
Adj. EPS (INR) 37.2 37.4 43.4 50.5 Watson IoT deal would decline during the quarter. This is likely to
EPS Gr. (%) 2.3 0.6 16.0 16.4
result in a 70bp reduction in EBITDA margins to 15.2%.
BV/Sh.(INR) 211.0 244.4 254.2 264.6
RoE (%) 19.5 16.9 17.9 20.1 Our PAT estimate for the quarter is INR706m, down 14% QoQ
RoCE (%) 18.9 16.7 15.3 17.1 owing to lower other income. Translation losses due to the USD
Valuations closing at INR65/USD would lead to pressure on PAT.
P/E (x) 16.0 15.9 13.7 11.8 The stock trades at 13.7x FY18E and 11.8x FY19E earnings. Neutral.
P/BV (x) 2.8 2.4 2.3 2.3
EV/EBITDA (x) 9.3 8.6 7.0 5.9 Key issues to watch for
Div. Yield (%) 1.8 2.0 2.0 2.0 Performance and outlook for top clients in ISV (ex-IBM).
Commentary on traction with Enterprise customers and potential
of winning large deals.
Outlook on sustainable profit margins in the near to medium
term.
NIIT Technologies
Bloomberg NITEC IN CMP: INR 436 TP: INR470 (+8%) Neutral
Equity Shares (m) 61.2
We expect revenue growth for NITEC to pick up in 4Q (2% QoQ CC),
M. Cap. (INR b)/(USD b) 27 / 0
led by stability in top clients and ramp-up of new deals won earlier
52-Week Range (INR) 588 / 370
in the year.
1,6,12 Rel Perf. (%) 1 / -4 / -32
However, bookings using the start date of the month would result
in 50bp of a headwind on account of cross-currency movement,
Financial Snapshot (INR b)
Y/E MARCH 2016 2017E 2018E 2019E which has been a tailwind for peers.
Sales 26.8 27.5 29.3 31.9 We expect EBITDA margin to expand by 60bp QoQ to 17.5%, aided
EBITDA 4.7 4.5 5.0 5.5 by higher international revenue and increased traction in Digital.
PAT 2.8 2.6 2.9 3.3 Our PAT estimate is INR667m, down 7.4% QoQ, driven by lower
EPS (INR) 45.7 36.2 46.8 52.9
other income, led by translation losses.
EPS Gr. (%) 143.7 -20.9 29.3 13.1
BV/Sh. (INR) 259.8 278.0 311.6 350.1 The stock trades at 9.3x FY18E and 8.2x FY19E earnings. Neutral.
RoE (%) 19.0 13.5 15.9 16.0
RoCE (%) 18.6 15.3 14.9 14.8
Payout (%) 21.9 30.4 23.5 22.7 Key issues to watch for
Valuations Traction in the international business.
P/E (x) 9.5 12.1 9.3 8.2 Demand environment and update on ramp-up delays.
P/BV (x) 1.7 1.6 1.4 1.2
Deal wins.
EV/EBITDA (x) 4.9 5.0 4.3 3.5
Div Yld (%) 2.3 2.5 2.5 2.7
TCS
Bloomberg TCS IN CMP: INR2,431 TP: INR2,550 (+5%) Neutral
Equity Shares (m) 1970.4
Revenue growth for TCS in 3Q was 2% QoQ CC, which included a
M. Cap. (INR b)/(USD b) 4755 / 73
tailwind of ~USD27m from a deferment of revenue in an India-based
52-Week Range (INR) 2740 / 2055
contract.
1,6,12 Rel Perf. (%) -7 / -5 / -22
We expect momentum to continue in 4Q, and hence, expect 2% QoQ
CC growth.
Financial Snapshot (INR b)
However, cross-currency movement would provide a tailwind of
Y/E MAR 2016 2017E 2018E 2019E
Sales
70bp, resulting in revenue of USD4,504m, a growth of 2.7%.
1,086.5 1,183.2 1,303.9 1,442.2
EBITDA Our EBIT margin estimate for 4Q stands at 25.6% QoQ (-40bp QoQ),
306.8 323.7 348.8 379.5
PAT below the lower end of the guided range of 26-28%. There is a
242.1 258.8 277.0 296.2
EPS (INR) 123.2 131.3 144.7 154.7
possibility of TCS margins being lower than the range for FY17, lest
EPS Gr. (%) 11.5 6.6 10.2 6.9 there is a material beat on profitability in 4Q.
BV/Sh. (INR) 371.4 423.8 417.1 494.0 Our PAT estimate stands at INR62b (-8.6% QoQ). The decline is led
RoE (%) 37.1 33.0 33.4 33.0 by lower other income, resulting out of a translation loss, led by
RoCE (%) 36.8 31.9 28.7 26.2 USD/INR appreciation on a closing basis.
Payout (%) 35.2 35.4 93.9 39.3 The stock trades at 16.7x FY18E and 15.6x FY19E earnings. Neutral.
Valuation
P/E (x) Key issues to watch for
19.6 18.4 16.7 15.6
P/BV (x) Outlook on revenue from TCS Japan and Diligenta.
6.5 5.7 5.8 4.9
EV/EBITDA (x) 14.6 13.7 12.9 11.6
Traction in new Digital initiatives (automation/solutions).
Div. yield (%) 1.8 1.9 5.6 2.5 Outlook for BFSI vertical going ahead.
Tech Mahindra
Bloomberg TECHM IN CMP: INR460 TP: INR550 (+20%) Buy
Equity Shares (m) 984.7
We expect 0.8% QoQ CC growth in TECHM in 4QFY17. Our
M. Cap. (INR b)/(USD b) 446 / 7
expectations are led by 0.6% growth in Telecom and 0.9% in
52-Week Range (INR) 564 / 405
Enterprise.
1,6,12 Rel Perf. (%) -14 / 1 / -22
The seasonal strength in Comviva is expected to be offset by the
pressure in LCC, resulting in subdued performance in Telecom.
Financial Snapshot (INR b)
Organic CC growth in Enterprise exceeded 4% QoQ in 3Q, and thats
Y/E MARCH 2016 2017E 2018E 2019E
Sales
likely to moderate growth in the current quarter. Cross-currency
264.9 291.9 324.9 358.4
EBITDA
tailwinds of 60bp are likely to result in USD revenue growth of 1.4%.
43.4 44.5 48.9 54.7
Adj. PAT 31.2 29.8 31.7 35.7
We expect EBITDA margin to decline by 30bp to 15.4%. The benefits
Adj. EPS (INR) 35.1 33.6 35.7 40.2 of higher profitability in Comviva are expected to be offset by INR
EPS Gr. (%) 18.4 -4.2 6.2 12.7 appreciation during the quarter.
BV/Sh.(INR) 165.6 175.1 197.2 227.7 Expect PAT to decline 14.7% QoQ to INR7.3b, led by lower other
RoE (%) 23.4 20.1 19.5 19.2 income.
RoCE (%) 20.1 16.6 16.6 16.7 The stock trades at 12.9x FY18E and 11.4x FY19E earnings. Buy.
Payout (%) 34.2 36.9 33.6 21.8 Key issues to watch for
Valuation
Performance of the Telecom segment.
P/E (x) 13.1 13.7 12.9 11.4
Comments on profitability including LCC.
P/BV (x) 2.8 2.6 2.3 2.0
TCV of deal wins in the Enterprise segment.
EV/EBITDA (x) 8.3 8.8 7.6 6.2
Div. Yield (%) 2.6 2.6 2.6 1.9
Wipro
Bloomberg WPRO IN CMP: INR515 TP: INR540 (+5%) Neutral
Equity Shares (m) 2466.0
In the previous quarter, Wipro had guided 1-2% QoQ CC growth for
M. Cap. (INR b)/(USD b) 1251 / 19
4Q. However, this would include ~7 weeks of additional revenue
52-Week Range (INR) 607 / 410
from the integration of Appirio (~1.5%). Excluding this, the guidance
1,6,12 Rel Perf. (%) -1 / 0 / -30
of organic growth is -0.5% to +0.5% QoQ CC.
Financial Snapshot (INR b) We expect organic growth to be flat in 4Q, Appirio is likely to add
Y/E MAR 2016 2017E 2018E 2019E 1.5pp and cross-currency tailwinds to add 0.7pp, resulting in 2.2%
Sales 512.4 546.7 580.6 633.8 USD revenue growth.
EBITDA 108.1 108.1 118.9 133.9 We expect EBIT margin in IT Services to decline by 65bp because of
PAT 88.9 81.3 90.8 103.9
flattish organic revenue, the integration of lower margin Appirio
EPS (INR) 36.1 33.0 37.5 42.9
and INR depreciation during the quarter.
EPS Gr. (%) 2.9 -8.6 13.6 14.3
BV/Sh. (INR) 189.7 204.1 229.3 254.1 We expect overall EBIT margins to decline by 20bp, led by improved
RoE (%) 20.3 16.8 17.2 17.8 profitability in the Products business.
RoCE (%) 16.7 13.6 13.9 14.9 Our PAT estimate is INR19b, -10% QoQ on account of lower other
Payout (%) 16.6 29.8 34.7 35.0 income, resulting from translation losses.
Valuations
The stock trades at 13.8x FY18E and 12x FY19E earnings. Neutral.
P/E (x) 14.3 15.6 13.8 12.0
P/BV (x) 2.7 2.5 2.2 2.0 Key issues to watch for
EV/EBITDA (x) 10.6 10.7 9.3 8.0 Revenue growth guidance for 1QFY18.
Div Yld (%) 1.2 1.9 2.5 2.9 Commentary on the Healthcare vertical.
Commentary on large deal wins and ramp-up schedule.
Zensar Technologies
Bloomberg ZENT IN CMP: INR925 TP: INR1,200 (+30%) Buy
Equity Shares (m) 45.4
We expect revenue of USD121m, representing growth of 2.7% QoQ.
M. Cap. (INR b)/(USD b) 42 / 1
This would translate into 2% QoQ CC growth. 5% appreciation in
52-Week Range (INR) 1136 / 865
USD/ZAR would result in a cross-currency tailwind of 70bp for ZENT.
1,6,12 Rel Perf. (%) -3 / -14 / -24
The quarter will also include about one month of revenue from the
Financial Snapshot (INR b) acquisition of Foolproof. Organic revenue growth is likely to be
Y/E MAR 2016 2017E 2018E 2019E 1.2% QoQ CC.
Sales 29.6 31.4 35.9 40.7 With the pruning of non-core/low-yield business, we expect EBITDA
EBITDA 4.3 4.4 5.2 6.0 margins to expand 80bp QoQ to 14.6%. Seasonality and
PAT 3.1 2.9 3.7 4.2 investments in the business had resulted in 30bp decline in margins
EPS (INR) 68.2 65.3 81.4 92.0
in the previous quarter.
EPS Gr. (%) 17.0 -4.8 24.6 13.1
BV/Sh. (INR) 314.4 367.4 431.7 502.4 Our PAT estimate is INR684m, -15.7% QoQ on account of a decline
RoE (%) 24.0 19.1 20.4 19.7 in other income (translation losses).
RoCE (%) 28.5 25.0 25.4 25.2 The stock trades at 11.4x FY18E and 10x FY19E earnings. Buy.
Payout (%) 17.6 18.1 18.0 19.8
Valuations Key issues to watch for
P/E (x) 13.6 14.2 11.4 10.0 Traction in Digital, large deals and other new initiatives.
P/BV (x) 2.9 2.5 2.1 1.8 Margin outlook, given the need for reinvestment.
EV/EBITDA (x) 9.3 8.7 7.2 5.8 Progress on restructuring.
Div Yld (%) 1.3 1.3 1.6 2.0
Telecom
Company name Hyperactive market conditions continue
Bharti Airtel
RJios subscriber growth impact incumbent earnings
EBITDA margin shrinking: With revenue declining for the second consecutive
quarter, we expect telcos to cut discretionary expenses to curtail the impact on
EBITDA. However, the increase in network cost led by data network rollout should
continue to hurt earnings. In 4QFY17, Ideas EBITDA is likely to decline 15% QoQ
(49% YoY) to INR18.5b against a drop of 24% QoQ in 3QFY17. This implies a decline
of 210bp QoQ (1,530bp YoY) in EBITDA margin against a decline of 550bp on QoQ in
3QFY17. Bhartis EBITDA is expected to drop 15% QoQ (24% YoY) to INR44.8b
against a drop of 16% QoQ in 3QFY17. This implies a decline of 320bp QoQ (530bp
YoY) in EBITDA margin against a decline of 440bp QoQ in 3QFY17.
Our view
We expect Bharti and Ideas EBITDA to decline 15-16% in 4QFY17. The industry faces
a hyper-competitive scenario led by RJios free offering. Bharti Infratel should
benefit from sustainable tenancy growth, led by the capex-intensive phase in the
telecom market. Tata Communications should see clean-up after the sale of data
center and Neotel, with healthy organic growth.
10 8 8 9 8 7 6 7 9 7
5 6 5 7 5 4 6 6 5 7 3 2 5 2 5 4
1 3 3 2 1 1
-1
-6 -3 -5
Jul-14
Jul-15
Jul-16
Jun-14
Jun-15
Jun-16
Nov-15
Nov-16
Nov-13
Nov-14
Apr-16
May-16
Apr-14
May-14
Apr-15
May-15
Aug-15
Dec-15
Aug-16
Dec-16
Dec-13
Aug-14
Dec-14
Sep-15
Jan-16
Feb-16
Mar-16
Sep-16
Sep-13
Jan-14
Feb-14
Mar-14
Sep-14
Jan-15
Feb-15
Mar-15
Oct-15
Oct-16
Oct-13
Oct-14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17E
54.0
46.0
38.0
30.0
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
4QFY17E
-1.2 -1.1
-1.9 -2.4
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
Source: Company, MOSL
110 115
106 105
102 95
98 85 Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
Dec-16
Jan-17
Feb-17
Mar-17
Comparative valuation
Sector / CMP Reco EPS (INR) PE (x) EV/EBIDTA (x) RoE (%)
Companies (INR) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Telecom
Bharti Airtel 345 Buy 11.0 5.1 9.4 31.2 67.6 36.5 6.6 7.1 5.9 6.5 2.9 5.2
Bharti Infratel 338 Buy 15.5 16.7 19.9 21.8 20.2 17.0 9.8 8.4 7.1 15.7 15.9 16.7
Idea Cellular 88 Buy -3.0 -15.4 -16.9 -29.7 -5.7 -5.2 8.7 10.8 10.3 -4.2 -25.3 -37.1
Tata Comm 727 Buy 6.2 25.6 44.1 117.3 28.4 16.5 10.0 8.8 6.5 -50.2 924.0 117.3
Sector Aggregate 39.7 825.9 96.4 7.5 8.0 6.8 5.7 0.3 2.3
Bharti Airtel
Bloomberg BHARTI IN CMP: INR344 TP: INR410 (+19%) Buy
Equity Shares (m) 3997.4
We expect consolidated revenue to decline 4.7% QoQ (and 10.9%
M. Cap. (INR b)/(USD b) 1378 / 21
YoY) to INR222.4b, impacted by RJios free offer. We expect India
52-Week Range (INR) 401 / 284
wireless revenue to decline 6.7% QoQ (and 11.9% YoY) to
1,6,12 Rel Perf. (%) -7 / 1 / -16
INR129.1b and Africa revenue to decline 1.9% QoQ to ~USD901b.
Financial Snapshot (INR Billion) Consolidated EBITDA margin is likely to decline 190bp QoQ to
Y/E March 2016 2017 2018E 2019E 34.3%, led by 330bp contraction in India wireless margin to
Net Sales 965.3 957.7 946.5 1,041.6 34.7%, partly offset by 20bp expansion in Africa EBITDA margin to
EBITDA 340.1 350.9 325.5 367.5 23.9%.
NP 47.5 44.1 20.4 37.7 Consolidated net profit of INR6.8b is expected to grow 34% QoQ
EPS (INR) 11.9 11.0 5.1 9.4 (but decline 49% YoY).
EPS Gr. (%) 72.5 -21.0 -57.1 -14.4
We expect India wireless ARPU to decline 8.9% QoQ (and 19.3%
BV/Sh. (INR) 164.2 172.8 176.3 184.1
YoY) to INR156.7, with voice ARPU shrinking 6% QoQ and data
RoE (%) 7.4 6.5 2.9 5.2
ARPU declining 13% QoQ.
RoCE (%) 5.9 5.3 4.1 4.8
Bharti trades at proportionate EV/EBITDA of 6.9x FY17E and 7.4x
Div. Pay. (%) 11.9 15.9 32.1 17.3
FY18E. Maintain Buy.
Valuations
P/E (x) 28.8 31.0 67.1 36.2
Key monitorables
P/BV (x) 2.1 2.0 1.9 1.9
Consolidated revenue (expect 4.7% decline QoQ).
EV/EBITDA (x) 6.7 6.9 7.4 6.2
India wireless revenue (expected to decline 6.7% YoY).
Div. Yield (%) 0.4 0.4 0.4 0.4
Consolidated EBITDA margin (expected at 34.3%, -190bp QoQ).
India wireless EBITDA margin (expected at 34.7%, -330bp QoQ).
Bharti Infratel
Bloomberg BHIN IN CMP: INR338 TP: INR435 (+29%) Buy
Equity Shares (m) 1896.7
We expect consolidated revenue to grow 10.1% YoY (and 3%
M. Cap. (INR b)/(USD b) 641 / 10
QoQ) to INR35b.
52-Week Range (INR) 413 / 283
Consolidated rental revenue is likely to be INR21.8b, up 2.8% QoQ
1,6,12 Rel Perf. (%) 6 / -16 / -30
and 7.1% YoY. We expect energy and other reimbursements to
grow 3.4% QoQ.
Financial Snapshot (INR Billion)
We expect consolidated EBITDA to improve 3% QoQ to INR15.2b.
Y/E March 2016 2017 2018E 2019E
EBITDA margin is likely to remain flat at 43.5% despite the healthy
Net Sales 123.3 134.1 149.7 163.6
EBITDA 54.1 58.5 64.9 71.1
tenancy addition owing to pressure on rental rates from revised
NP 22.5 28.7 31.0 36.8 agreements.
EPS (INR) 11.8 15.5 16.7 19.9 We expect PAT to grow 16.5% QoQ to INR7.2b.
EPS Gr. (%) 48.1 47.9 41.3 28.1 Bharti Infratel trades at an attractive EV/EBITDA of 9.6x FY17E
BV/Sh. (INR) 96.7 96.8 108.6 123.5 and 8.2x FY18E. Maintain Buy.
RoE (%) 12.7 15.7 15.9 16.7
RoCE (%) 11.2 12.7 13.0 12.9
Payout (%) 39.0 29.9 27.7 23.3
Key monitorables
Valuations
Consolidated co-location additions (we expect a steady ~6,100 in
P/E (x) 26.3 20.1 18.6 15.7
line with the high tenancy addition in 3QFY17).
P/BV (x) 3.2 3.2 2.9 2.5
EV/EBITDA 10.6 9.6 8.2 7.0
Consolidated revenue per sharing operator (expected to decline
Div. Yld (%) 1.3 1.2 1.2 1.2 0.2% QoQ due to tenancy renewal risks).
Idea Cellular
Bloomberg IDEA IN CMP: INR88 TP: INR120 (+36%) Buy
Equity Shares (m) 3600.5
We expect consolidated revenue to decline 6.9% QoQ (and 14.9%
M. Cap. (INR b)/(USD b) 316 / 5
YoY) to INR80.7b.
52-Week Range (INR) 128 / 66
Voice RPM is likely to drop 8% on increased promotional offers to
1,6,12 Rel Perf. (%) -25 / 3 / -40
match RJios price plans and unfavorable mix of
Financial Snapshot (INR Million)
incoming/outgoing minutes due to RJios free offering.
Y/E March 2016 2017 2018E 2019E Voice traffic is likely to grow 3.6% QoQ (8.1% YoY). MoU per
Net Sales 359.8 355.3 336.8 360.0 subscriber per month should grow 1% QoQ (flat YoY) to 389.
EBITDA 130.3 99.3 83.5 90.5 EBITDA margin is expected to contract ~210bp QoQ/1,530bp YoY
NP 30.8 -10.6 -55.6 -60.8 to 22.9% due to weak revenue and increased network cost.
EPS (INR) 8.6 -3.0 -15.4 -16.9 We expect Idea to continue to report net loss at INR10b against
EPS Gr. (%) 56.5 -133.3 -280.4 471.2 INR3.8b in 3QFY17 and INR5.8b in 4QFY16.
BV/Sh. (INR) 71.6 68.6 53.2 37.8 Idea trades at an EV/EBITDA of 8.8x FY17E and 11x FY18E.
RoE (%) 12.6 -4.2 -25.3 -37.1
RoCE (%) 7.1 2.6 -1.1 -1.0
Payout (%) 8.4 0.0 0.0 0.0
Key monitorables
Valuations
Voice RPM trajectory (we expect RPM to decline 8% QoQ); voice
P/E (x) 10.2 -29.7 -5.7 -5.2
traffic (we expect 3.6% QoQ growth).
P/BV (x) 1.2 1.3 1.6 2.3
Data revenue performance (we expect 18% decline QoQ).
EV/EBITDA,x 5.5 8.9 11.0 10.4
EBITDA margin (we expect ~210bp contraction QoQ).
Div. Yield (%) 0.7 0.0 0.0 0.0
Tata Communications
Bloomberg TCOM IN CMP: INR727 TP: INR811 (+12%) Buy
Equity Shares (m) 285.0
Tata Communications core revenue is expected to grow by a
M. Cap. (INR b)/(USD b) 207 / 3
meager 1% to INR44.6b.
52-Week Range (INR) 784 / 373
Data revenue should grow 1.9% to INR28.2b, adjusting for the
1,6,12 Rel Perf. (%) -6 / 13 / 68
impact of sale of data center business.
Financial Snapshot (INR Million) Core EBITDA is likely to grow 6% to INR6.3b on the back of 60bp
Y/E March 2016 2017 2018E 2019E improvement in EBITDA margin to 14%.
Sales 205.5 183.6 187.4 201.0 Data segment is expected to grow 5% to INR5.3b, led by 70bp
EBITDA 31.0 27.2 30.2 38.6 improvement in data EBITDA margin to 19%.
NP 0.4 1.8 7.3 12.6 The stock trades at an EV/EBITDA of 10.7x FY17E and 9.4x FY18E.
EPS (Rs) 1.6 6.2 25.6 44.1
EPS Gr. (%) 1,986.6 298.9 312.8 72.6
BV/Sh (INR) -14.7 -10.0 15.6 59.7
RoE (%) -91.6 -50.2 924.0 117.3 Key monitorables
RoCE (%) 0.9 2.9 8.7 12.9 Data revenue performance (we expect 5% QoQ growth).
RoIC (%) 1.0 3.8 14.1 23.3 Data EBITDA margin (we expect ~70bp QoQ improvement).
Valuations
P/E (x) 471.5 118.2 28.6 16.6
P/BV (x) -49.9 -73.1 47.1 12.3
EV/EBITDA 10.7 10.7 9.4 7.0
(x)
EV/Sales (x) 1.6 1.6 1.5 1.3
PBT 1,367 1,061 69 -1,738 1,216 1,750 924 264 2,650 4,153
Tax 931 998 -154 695 793 899 923 87 2,386 2,701
Rate (%) 68.1 94.1 -224.1 -40.0 65.2 51.4 99.9 33.0 90.0 65.0
MI & Profit/Loss of Asso. Cos. 3 3 3 5 6 6 -7 3 14 8
Reported PAT 433 60 219 -2,438 418 845 7 174 250 1,444
Adj PAT 433 60 219 261 738 845 7 174 443 1,766
YoY Change (%) -302.5 -93.5 -79.8 -78.8 70.5 1,303.7 -96.6 -33.4 1,986.6 298.9
Margins (%) 0.8 0.1 0.4 0.5 1.5 1.9 0.0 0.4 0.2 1.0
Utilities
Company name
Utilities 4QFY17 preview
Coal India
Power Grid to outperform led by strong capitalization momentum
NTPC
Power Grid Corporation Within our utility sector coverage universe, we expect Power Grid to report strong
set of numbers, while other companies at best would report muted profit growth.
Power Grid is likely to meet its full-year capitalization guidance of INR280b with the
commissioning of the Champa-Kurukshetra HDVC transmission line.
NTPCs PAT is estimated to decline ~4% YoY to INR24.5b due to lower other income,
impact of change in measurement of GCV and lower incentive income. NTPCs
consolidated commercial capacity increased 1.1GW QoQ to 47GW by end-FY17. PLFs
of JSW Energys Vijaynagar plant have improved QoQ led by short-term PPA with
Karnataka, but the gains are likely to be offset by higher fuel cost and lower hydro
generation. CESCs PAT is estimated to be broadly flat YoY at INR2.5b, with gains
from higher regulated equity base offset by the impact from negative bid for the
captive coal block.
Coal India is estimated to disappoint, with EBITDA (ex-OBR) decline of ~3% YoY to
INR60b on account of higher cost. Realization is estimated to increase 6% YoY to
INR1,511/t, while volumes are likely to grow 4% YoY to 150.9mt. Provisioning for
wage hike should impact profitability.
100
YoY
88
99
99
98
97
97
96
96
95
95
95
94
94
94
93
92
92
90
90
90
89
89
89
89
89
87
87
86
86
86
82
86
85
85
85
84
84
83
81
79
79
79
78
77
77
76
16
14 15
13
12 12 1213 12 12
10 9 10
86 8 9
7 6 7 7 6
6 5 5 6 6 6 5
4 4 5 4 4
3 3 2
1 2 1 2
0 1 0 1 0
Jun-13 -1
Jun-14
Jun-15
Apr-13
Jun-16
Aug-13
Apr-14
Dec-13
Apr-15
Feb-14
Aug-14
Dec-14
Feb-15
Aug-15
Apr-16
Dec-15
Feb-16
Aug-16
Dec-16
Oct-13
Feb-17
Oct-14
Oct-15
Oct-16
Source: MOSL, CEA
PLF was +55/-182bp YoY in Exhibit 3: NTPC coal-based power plants monthly PLF (%)
Jan/Feb.
NTPC coal-based monthly PLF - %
89.6
88.9
87.4
87.2
85.3
83.9
83.1
82.5
82.2
81.7
81.7
81.6
81.5
81.5
81.3
80.9
80.4
80.3
79.4
79.4
79.1
79.0
78.5
78.2
78.0
77.8
77.7
77.1
76.7
76.5
76.2
75.7
74.0
73.7
73.6
72.3
72.3
69.8
Jul-14
Jul-15
Jul-16
Nov-14
Nov-15
Nov-16
May-14
May-15
May-16
Jan-14
Mar-14
Sep-14
Jan-15
Mar-15
Sep-15
Jan-16
Mar-16
Sep-16
Jan-17
Source: MOSL, CEA
1565
1160 1255
1105 1105
675 800 525 800
565 650 660
500 450
500
99 110 2020 15 0 0 0
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
Source: MOSL, Company
120
99
71 68 64 67 68
58 50 51 51 51 50 56 53 53 58
49 47 49 45 45
25
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17E
Source: MOSL, Company Data
110
120
106
100
102
98 80
Dec-16
Jan-17
Feb-17
Mar-17
Jul-16
Jun-16
Nov-16
Apr-16
May-16
Aug-16
Dec-16
Mar-16
Sep-16
Jan-17
Feb-17
Mar-17
Oct-16
CESC
Bloomberg CESC IN
CMP: INR848 TP: INR970 (+14%) Buy
Equity Shares (m) 133.2
We estimate CESCs PAT to be broadly flat YoY at INR2.5b, as
M. Cap. (INR b)/(USD b) 113 / 2
steady increase in capitalization is offset by impact of negative bid
52-Week Range (INR) 886 / 467
-1 / 32 / 59
on the captive coal block.
1,6,12 Rel Perf. (%)
Sales volume growth is estimated at 11% YoY to 2,284MU.
Financial Snapshot (INR Million)
Y/E MARCH 2016 2017E 2018E 2019E
Sales 119.0 139.8 153.8 162.4
EBITDA 28.5 34.5 38.3 39.6
NP 3.7 6.7 10.0 10.9
EPS (INR) 27.8 50.4 74.7 82.2
EPS Gr. (%) 86.6 81.3 48.2 10.0
BV/Sh. (INR ) 470.5 441.4 504.1 574.3
RoE (%) 6.0 11.1 15.8 15.2
RoCE (%) 9.1 10.2 11.4 11.4
Payout (%) 36.0 19.8 13.4 12.2
VALUATION
P/E (x) 17.0 16.6 11.2 10.2 Key issues to watch for:
P/BV (x) 1.0 1.9 1.7 1.5 Performance of Spencer.
EV/EBITDA (x) 7.2 7.5 6.6 6.2 Commissioning of full 187MW PPA with Noida.
Div. Yield (%) 2.1 1.2 1.2 1.2
Coal India
Bloomberg COAL IN
CMP: INR290 TP: INR307 (+6%) Neutral
Equity Shares (m) 6207.4
We estimate Coal Indias EBITDA (ex-OBR) to decline 3% YoY to
M. Cap. (INR b)/(USD b) 1800 / 28
INR60b as cost is expected to rise on wage hike provisioning. We
52-Week Range (INR) 350 / 272
-14 / -16 / -15
estimate blended realization to increase 6% YoY to INR1,511/t on
1,6,12 Rel Perf. (%)
higher e-auction and washed coal prices.
Financial Snapshot (INR Million) Dispatches are up 4% YoY to 150.9mt. FSA volumes are estimated
Y/E March 2016 2017E 2018E 2019E to decline 5% YoY to 113.5mt on weak power sector demand. E-
Sales 756.4 759.4 838.2 900.8 auction volumes are up ~56% YoY to ~31mt.
EBITDA 187.5 141.5 187.3 213.1 FSA realizations are estimated to increase 3% YoY to INR1,392/t
EPS Gr. (%) 4.0 -24.8 15.5 12.6 on price hikes by BCCL.
BV/Sh. (INR) 53.6 41.4 41.4 41.5 E-auction realization is estimated to increase 10% QoQ to
RoE (%) 42.2 41.1 47.4 53.2 INR1,1723/t on higher international coal prices driving demand
RoCE (%) 40.0 38.1 51.3 57.6
for COALs higher-grade coal.
Payout (%) 145.5 143.0 99.6 99.6
PAT is estimated to decline 6% YoY to INR39.9b.
Valuations
P/BV (x) 5.3 6.8 6.8 6.8
Key issues to watch for:
EV/EBITDA (x) 6.2 8.6 6.8 6.1
E-auction volumes and realization.
Div. Yield (%) 9.7 7.0 5.8 6.5
Global coal prices.
JSW Energy
Bloomberg JSW IN
CMP: INR67 TP: INR73 (+9%) Buy
Equity Shares (m) 1640.1
We estimate JSW Energys EBITDA to decline marginally QoQ to
M. Cap. (INR b)/(USD b) 109 / 2
INR6.5b. While Vijaynagars PLF improved on short-term PPA with
52-Week Range (INR) 86 / 54
3 / -17 / -19
Karnataka, the higher cost on account of an increase in thermal
1,6,12 Rel Perf. (%)
coal prices offset the benefit.
Financial Snapshot (INR Million) Vijaynagars PLF is estimated to improve to 68% v/s 53% in 3QFY17
Y/E March 2016 2017E 2018E 2019E and 99% in 4QFY16.
Sales 996.9 837.1 901.6 1,037.3 Imported coal price average is estimated to increase by ~USD8/t
EBITDA 41.4 33.9 32.3 33.3 QoQ to USD80/t.
NP 12.5 6.3 3.8 1.2
EPS (INR) 7.6 3.9 2.3 0.8
EPS Gr. (%) -10.0 -49.1 -40.8 -66.7
BV/Sh. (INR ) 52.0 53.6 53.6 52.1
RoE (%) 15.5 7.3 4.3 1.4
RoCE (%) 12.5 9.2 8.4 7.7
Payout (%) 26.3 51.7 87.4 262.5
Valuation
P/E (x) 9.2 17.5 29.5 88.7 Key issues to watch for:
P/BV (x) 1.3 1.3 1.3 1.3 International coal prices.
EV/EBITDA (x) 6.8 7.5 8.4 9.2 Short-term power market prices.
Div. Yield (%) 2.9 3.0 3.0 3.0
PBT 4,239 6,629 5,035 4,610 4,899 3,316 407 571 20,513 9,193
Tax 1,155 1,537 1,816 1,543 1,248 1,167 249 -90 6,051 2,574
Rate (%) 27.2 23.2 36.1 33.5 25.5 35.2 61.2 -15.7 29.5 28.0
Minority Interest & Profit/
Loss of Asso. Cos. 310 172 12 12 -14 -25 -56 370 507 276
Reported PAT 2,775 4,920 3,206 3,054 3,665 2,174 214 290 13,955 6,343
Adj PAT 2,775 3,767 3,206 3,054 3,665 2,174 214 290 12,897 6,343
YoY Change (%) -15.2 16.4 -19.0 -5.9 32.1 -42.3 -93.3 -90.5 -6.0 -50.8
E: MOSL Estimates
NTPC
Bloomberg NTPC IN
CMP: INR166 TP: INR199 (+20%) Buy
Equity Shares (m) 8245.5
We estimate adjusted PAT to decline ~4% YoY to INR24.5b on
M. Cap. (INR b)/(USD b) 1372 / 21
impact of GCV due to change in measurement methodology and
52-Week Range (INR) 178 / 125
3 / 3 / 11
lower PLF incentives.
1,6,12 Rel Perf. (%)
It has commercialized 660MW of Mouda Unit-II in 4Q; however,
Financial Snapshot (INR Million) being back-ended, the contribution to PAT would be insignificant.
Y/E MARCH 2016 2017E 2018E 2019E Commercial capacity is 47GW by end of FY17, while installed
Sales 787.1 825.4 963.5 1,107.2 capacity is 50.4GW. NTPC has commissioned 2.4GW capacity
EBITDA 191.6 230.7 300.4 381.4 4QFY17.
NP 101.6 97.9 117.9 142.4 NTPC shifted to coal sampling at wagon from at secondary
EPS (INR) 12.3 11.9 14.3 17.3 crusher. The impact of this change will be a key variable to watch
EPS Gr. (%) 1.7 -3.6 20.4 20.8 for.
BV/Sh. (INR ) 108.2 115.3 124.2 135.4
RoE (%) 11.9 10.6 11.9 13.3
RoCE (%) 7.3 6.9 8.1 9.5
Payout (%) 27.2 33.7 31.5 28.9
Valuations
P/E (x) 10.5 14.0 11.6 9.6
P/BV (x) 1.2 1.4 1.3 1.2
Key issues to watch for:
EV/EBITDA (x) 11.1 11.2 9.2 7.3 PLF for coal-based projects and generation loss.
Div. Yield (%) 2.4 2.7 3.0 3.6 Core RoE and incentives.
Impact of shift in GCV determination.
Arvind
Bloomberg ARVND IN CMP: INR407 TP: INR430 (+6%) Buy
Equity Shares (m) 258.2
We expect Brand and Retail to maintain margins at ~25% in
M. Cap. (INR b)/(USD b) 105 / 2
4QFY17, while Textile is expected to see some impact due to an
52-Week Range (INR) 424 / 257
1,6,12 Rel Perf. (%) 1 / 9 / 36
increase in cotton prices. Additionally, exports are expected to see
some impact due to appreciation of INR against USD.
Financial Snapshot (INR Billion) We expect ARVNDs revenue to grow 7.3% YoY (7% QoQ) to
Y/E March 2016 2017E 2018E 2019E INR24.9b in 4QFY17, driven by the Brand and Retail segments.
Sales 84.5 92.6 109.6 127.4
We expect EBITDA margin to contract 80bp YoY (+190bp QoQ) to
EBITDA 10.7 10.1 12.7 15.3
12%, and estimate EBITDA of INR2.98b, which is expected to remain
NP 3.6 3.5 5.6 7.4
flat. Consequently, we expect adjusted PAT to grow 17% to
EPS (INR) 14.0 13.5 21.8 28.6
INR1.3b. Buy.
EPS Gr. (%) 6.3 -3.7 61.0 31.4
BV/Sh. (INR) 112.8 147.6 164.5 187.1
RoE (%) 12.9 10.4 14.0 16.3
RoCE (%) 10.5 9.1 11.3 13.2
Div Payout (%) 20.5 31.6 22.7 21.4 Key things to watch for
Valuations Impact of cotton price on the Textile business.
P/E (x) 28.8 29.9 18.6 14.1 Performance of newly acquired brands and newer formats.
P/BV (x) 3.6 2.7 2.5 2.2
EV/EBITDA (x) 12.7 12.5 9.9 8.1
Div Yield (%) 0.6 0.9 1.0 1.2
Bata India
Bloomberg BATA IN CMP: INR565 Under Review
Equity Shares (m) 128.5
We expect revenue to grow 2% YoY (-13% QoQ) to INR5.5b in
M. Cap. (INR b)/(USD b) 73 / 1
4QFY17. In our view, despite demonetization, the launch of new
52-Week Range (INR) 614 / 400
1,6,12 Rel Perf. (%) 10 / 9 / -10
designs and the focus on ladies/kids footwear are expected to drive
revenues.
Financial Snapshot (INR Billion) EBITDA is likely to improve 11% to INR540m, with the margin
Y/E March 2016 2017E 2018E 2019E contracting 340bp to 9.5%.
Sales 24.3 24.5 27.6 31.3
On a high base, adjusted PAT is expected to de-grow 30% YoY to
EBITDA 2.7 2.7 3.2 3.9
INR314m.
NP 1.4 1.7 2.0 2.5
EPS (INR) 11.2 13.5 15.6 19.3
EPS Gr. (%) -31.2 20.2 16.0 24.0
BV/Sh.(INR) 92.0 101.9 113.8 129.0
RoE (%) 13.1 13.9 14.5 15.9
Key things to watch for
RoCE (%) 13.2 14.0 14.6 16.0
SSS growth during the quarter.
Payout (%) 25.4 19.6 23.2 21.8
Share of accessories in total revenue.
Valuations
Impact on margins due to promotional campaigns.
P/E (x) 49.9 41.5 35.8 28.9
P/BV (x) 6.1 5.5 4.9 4.3
New store additions.
EV/EBITDA (x) 25.3 24.7 20.9 16.6
Dividend yield 0.6 0.4 0.5 0.6
Coromandel International
Bloomberg CRIN IN CMP: INR315 Under Review
Equity Shares (m) 291.3
We expect revenue to remain flat YoY at INR30.5b in 4QFY17,
M. Cap. (INR b)/(USD b) 92 / 1
mainly due to a decline in realizations.
52-Week Range (INR) 358 / 188
1,6,12 Rel Perf. (%) -7 / 17 / 44 Margins are likely to expand 150bp YoY to 8.1%. EBITDA should
grow 23% YoY to INR2.47b.
Financial Snapshot (INR Billion)
We expect adjusted PAT to grow 39% YoY to INR1,286m.
Y/E March 2016 2017E 2018E 2019E
Sales 115.2 109.6 121.9 134.4
EBITDA 7.7 9.6 10.0 11.8
NP 3.4 4.6 5.3 6.9
EPS (INR) 11.8 16.0 18.3 23.6
EPS Gr. (%) -14.9 35.1 14.8 28.6
BV/Sh. (INR) 83.2 92.0 101.9 115.3
RoE (%) 14.9 18.2 18.9 21.7
RoCE (%) 10.8 13.5 14.6 17.9
Valuations
Key issues to watch for
P/E (x) 26.7 19.8 17.2 13.4
P/BV (x) 3.8 3.4 3.1 2.7
Performance of exports in the non-subsidy business.
EV/EBITDA (x) 14.5 10.7 9.9 8.2 Update on subsidy clearance.
EV/Sales (x) 1.0 0.9 0.8 0.7 Water resovior leves in South.
Castrol (India)
Bloomberg CSTRL IN CMP: INR428 TP: INR532 (+24%) Buy
Equity Shares (m) 494.6
We expect revenue to remain flat YoY (and grow +10% QoQ) at
M. Cap. (INR b)/(USD b) 212 / 3
INR8.5b led by volume growth of ~1% YoY and realization at
52-Week Range (INR) 495 / 354
1 / -18 / -6
INR169/liter (flat YoY, +2% QoQ).
1,6,12 Rel Perf. (%)
We expect CSTRL to report EBITDA of INR2.3b (-7% YoY, +8% QoQ).
Financial Snapshot (INR b) EBITDA margin would be 27.4%, lower than 29.5% in 1QCY16.
Y/E Dec 2015 2016 2017E 2018E
We estimate net profit at INR1.6b (-7% YoY, +2% QoQ).
Sales 33.0 33.6 36.0 38.5
EBITDA 9.3 9.9 10.8 11.0 The stock trades at 28.8x CY17E and 28.2x CY18E EPS. Buy.
Adj. PAT 6.4 6.7 7.4 7.5
Adj. EPS (INR) 12.8 13.6 14.9 15.2
EPS Gr. (%) 33.8 6.3 9.0 2.3
BV/Sh.(INR) 11.6 13.0 14.4 15.9
RoE (%) 118.4 110.9 108.6 100.4
RoCE (%) 118.5 111.1 108.8 100.5
Payout (%) 87.1 90.3 90.3 90.3
Valuations Key issues to watch for
P/E (x) 33.3 31.4 28.8 28.2 (a) Volume growth.
P/BV (x) 36.8 33.0 29.7 26.9 (b) Operating margin expansion.
EV/EBITDA (x) 22.1 20.3 18.4 18.0 (c) Launch of new products.
Div. Yield (%) 2.1 2.4 2.6 2.7 (d) Competitive pressure from other players.
Delta Corp
Bloomberg DELTA IN CMP: INR203 TP: INR229 (+13%) Buy
Equity Shares (m) 230.7
We expect revenue to increase 8% YoY to INR1,109m, driven by the
M. Cap. (INR b)/(USD b) 47 / 1
casino business in Goa and the commencement of Sikkim casino.
52-Week Range (INR) 218 / 66
1,6,12 Rel Perf. (%) 28 / 8 / 170
We expect that the impact of demonetization would have
continued till January 2017.
Financial Snapshot (INR Billion) EBITDA margins are likely to contract 200bp to 32.5%, largely on
Y/E March 2016 2017E 2018E 2019E account of lower revenue growth.
Sales 3.8 4.6 6.7 8.4
Net profit is likely to decline 5% YoY to INR152m, mainly due to
EBITDA 1.2 1.7 2.7 3.5
contraction in EBITDA margin. Buy.
Adj. PAT 0.4 0.8 1.6 2.0
Adj. EPS (INR) 1.5 3.3 6.9 7.6
EPS Gr. (%) -341.6 110.7 110.3 11.4
BV/Sh.(INR) 34.8 37.5 50.0 46.4
RoE (%) 4.6 9.0 15.7 17.0
RoCE (%) 5.5 9.4 14.9 16.5
Payout (%) 13.0 19.6 21.1 20.5
Valuations
P/E (x) 119.6 56.8 27.0 24.2
Key issues to watch for
P/BV (x) 5.3 4.9 3.7 4.0
Increase in visitations in Goa and ramp-up of Sikkim casino.
EV/EBITDA (x) 33.6 24.3 14.7 11.0 Expansion plans and integration of online business.
Div. Yield (%) 0.1 0.3 0.6 0.7 Update on approval of Daman casino.
Info Edge
Bloomberg INFOE IN CMP: INR837 TP: 1,000 (+19%) Buy
Equity Shares (m) 121.7
We expect standalone revenue to decline 2.2% YoY to INR2b.
M. Cap. (INR b)/(USD b) 102 / 2
Recruitment segment (~75% of business) is estimated to decline
52-Week Range (INR) 1012 / 710
-4 / -17 / -12
1.9% YoY to INR1.46b.
1,6,12 Rel Perf. (%)
We estimate real estate portal 99acres.coms revenue at INR317m
(flat YoY) and that of matrimonial portal Jeevansathi.com at
Financial Snapshot (INR Billion)
Y/E March 2016 2017E 2018E 2019E
INR155m (up 15% YoY).
Sales 7.2 7.9 8.9 10.1
Revenue growth in Naukri.com has been under pressure because of
EBITDA 1.6 2.2 2.4 2.8 demonetization, early signs of a slowdown in IT hiring and a policy
PAT 1.4 2.2 2.2 2.6 change in the sales incentive structure. 99acres.com continues to
EPS (INR) 13.0 16.9 17.9 21.0 be impacted by the slowdown in the real estate market.
EPS Gr. (%) -5.3 30.1 6.2 17.1 Our EBITDA margins estimate for the quarter stands at 27.1%
BV/Sh. (INR) 145.3 159.4 169.6 182.3 compared to 25.3% in the previous quarter, and 30.5% in 4QFY16.
RoE (%) 9.2 11.1 10.9 11.9 Consequently, we expect PAT of INR516m (down 9.8% YoY).
RoCE (%) 9.2 11.1 10.9 11.9
Payout (%) 37.0 38.6 42.8 39.4
Key things to watch for
Valuation
Impact of consolidation in the real estate segment, and outlook on
P/E (x) 61.6 47.4 44.6 38.1
ad spends given state of competitive dynamics
EV/EBITDA (x) 50.7 36.7 32.7 27.2
Traction in the recruitment business from segments other than IT
Commentary around monetization in Zomato.com.
Inox Leisure
Bloomberg INOL IN CMP: INR294 TP: INR230 (-22%) Sell
Equity Shares (m) 96.2
We expect revenue to grow 9% YoY to INR2.7b in 4QFY17.
M. Cap. (INR b)/(USD b) 28 / 0
52-Week Range (INR) 305 / 191 Margins are likely to improve by 50bp YoY to 6.5%. We expect
1,6,12 Rel Perf. (%) 21 / 4 / 29 EBITDA to improve by 18% to INR177m.
We expect loss of INR76m, as against profit of INR161m in 4QFY16.
Financial Snapshot (INR Billion)
Maintain Sell.
Y/E March 2016 2017E 2018E 2019E
Sales 11.6 12.2 14.5 17.2
EBITDA 1.9 1.7 2.4 2.8
NP 0.8 0.4 0.8 1.0
EPS (INR) 8.4 4.1 8.6 10.9
EPS Gr. (%) 284.0 -51.2 108.3 27.0
BV/Sh. (INR) 61.4 65.4 73.6 84.0
RoE (%) 14.9 6.2 11.8 13.2
RoCE (%) 13.2 6.6 10.4 11.6
Key things to watch for
Valuations
Footfalls during the quarter and pick-up post demonization.
P/E (x) 35.2 118.9 36.4 25.8
Number of screen additions.
P/BV (x) 4.8 4.7 4.1 3.6
Pick up in ad revenue.
EV/EBITDA (x) 13.8 19.5 11.6 9.1
InterGlobe Aviation
Bloomberg INDIGO IN
360.4
CMP: INR1044 TP: INR1,092 (+5%) Neutral
Equity Shares (m)
376 / 6 We expect INDIGO to report revenue of INR49.5b in 4QFY17 (+21%
M. Cap. (INR b)/(USD b)
52-Week Range (INR) 1095 / 790 YoY, flat QoQ) and EBITDAR of INR10.8b (-28% YoY, -22% QoQ).
1,6,12 Rel Perf. (%) 18 / 4 / -13 We model ticket yield at INR3.35 (-8% YoY, -4% QoQ) and RPK at
12.7b (+32% YoY). Any deviation in yield would have a meaningful
Financial Snapshot (INR Billion) impact on our estimates.
Y/E March 2016 2017E 2018E 2019E We model ATF at INR55.4/liter (+38% YoY, +10% QoQ) for 4QFY17
Sales 161.4 186.4 258.5 314.0 and expect INDIGO to report net profit of INR1.8b.
EBITDA 30.1 18.6 34.4 37.8 We model INDIGOs fleet at 133 aircraft as at end-4QFY17 (v/s 107
NP 19.9 14.0 23.3 28.1 aircraft as at end-FY16), and at 133/154/174 aircraft by end-
EPS (INR) 55.2 39.0 64.7 78.0 FY17/FY18/FY19.
EPS Gr. (%) 52.1 -29.4 66.0 20.6
We model ASK at 54.9b/68.1b/82.4b in FY17/FY18/FY19 v/s 42.8b
BV/Sh (INR) 50.9 57.0 67.2 79.5 in FY16, and RPK at 46.8b/57.7b/70b in FY17/FY18/FY19 v/s 35.9b
RoE (%) 176.5 72.2 104.1 106.3 in FY16, driven by an increase in fleet size.
RoCE (%) 42.9 33.6 51.4 70.2
The stock trades at 16.1x/13.4x FY18E/FY19E reported EPS of
Payout (%) 93.4 84.3 84.3 84.3
INR64.7/INR8 and at an EV of 8.6x/8.1x FY18E/FY19E adjusted
Valuations
EBITDAR. Maintain Neutral.
P/E (x) 18.9 26.8 16.1 13.4
P/BV (x) 20.5 18.3 15.5 13.1 Key issues to watch for
Adj.EV/EBITDAR(x) 9.8 11.9 8.6 8.1 Induction of new aircraft in the fleet.
Div. Yield (%) 4.1 2.6 4.3 5.2 Fuel costs and their impact on yields.
Just Dial
Bloomberg JUST IN CMP: INR555 Under Review
Equity Shares (m) 70.2
JD Omni has temporarily shut down, while paid campaign additions
M. Cap. (INR b)/(USD b) 39 / 1
are expected to be impacted by demonetization. Advertisement
52-Week Range (INR) 903 / 318
1,6,12 Rel Perf. (%) -2 / 22 / -45
campaigns are expected to start from 4QFY17.
We expect revenue growth of 7.5% YoY to INR1.9b in 4QFY17.
Financial Snapshot (INR Billion)
We expect EBITDA margin to contract 1000bp YoY to 15.1%.
Y/E March 2016 2017E 2018E 2019E
Consequently, we estimate EBITDA to de-grow 35% to INR292m.
Sales 6.9 7.3 8.4 9.6
EBITDA 1.7 1.1 1.0 1.4 PAT should decline by 31% to INR244m, as against INR353m in
NP 1.4 1.2 1.3 1.5 4QFY16.
EPS (INR) 20.4 17.2 18.5 22.1
EPS Growth (%) 3.7 -15.9 7.5 19.8
BV/Sh (INR) 96.7 111.5 127.1 146.3
RoE (%) 21.1 16.5 15.5 16.2
RoCE (%) 21.1 16.5 15.5 16.2
Payout (%) 6.9 7.3 8.4 9.6
Key things to watch for
Valuations
Performance of Search Plus.
P/E (x) 25.8 30.7 28.5 23.8
Addition of paid campaigns, impact of demonetization on those.
P/BV (x) 5.5 4.7 4.1 3.6
EV/EBITDA (x) 18.1 28.2 29.3 19.0
Promotional campaigns.
Div Yield (%) 0.0 0.5 0.6 0.6 Employee addition.
Kaveri Seed
Bloomberg KSCL IN CMP: INR555 TP: INR649 (+17%) Buy
Equity Shares (m) 69.1
We expect revenue to grow 10% YoY to INR482m. Cotton revenue
M. Cap. (INR b)/(USD b) 38 / 1
52-Week Range (INR) 568 / 325
is expected to be strong in FY18 due to increase in cotton prices.
1,6,12 Rel Perf. (%) 9 / 29 / 27 We expect EBITDA loss at INR29m v/s loss of INR47m in 4QFY16.
We expect adjusted PAT loss of INR36m in 4QFY17, as against loss
Financial Snapshot (INR Billion)
of INR75m in the year-ago period. Buy.
Y/E March 2016 2017E 2018E 2019E
Sales 8.9 6.8 8.4 10.1
EBITDA 1.9 1.6 2.1 2.6
NP 1.7 1.6 2.0 2.5
EPS (INR) 24.9 23.4 28.6 36.1
EPS Gr. (%) -42.9 -6.1 21.9 26.3
BV/Sh (INR) 131.3 139.1 149.7 165.4
RoE (%) 20.7 17.3 19.8 22.9
RoCE (%) 22.2 19.3 21.4 24.8
Payout (%) 8.9 6.8 8.4 10.1
Key things to watch for
Valuations
Inventory and guidance for FY18.
P/E (x) 22.0 23.5 19.3 15.3
Impact on cotton acreages due to reduced sowing.
P/BV (x) 4.2 4.0 3.7 3.3
Cotton yields.
EV/EBITDA (x) 20.1 22.9 17.6 13.7
Div Yield (%) 1.8 2.4 2.7 3.1
Any write-offs.
Manpasand Beverages
Equity Shares (m) 57.1 CMP: INR717 TP: INR843 (+18%) Buy
M. Cap. (INR b)/(USD b) 41 / 1
We expect revenue to grow 42% YoY to INR3,272m in 4QFY17, with
52-Week Range (INR) 776 / 450
traction in Fruits Up, especially post commissioning of Ambala
1,6,12 Rel Perf. (%) -7 / -12 / 37
Equity Shares (m) 57.1
Plant.
Margins are likely to remain flattish at 18.5%. EBITDA is expected to
Financial Snapshot (INR Billion) grow 41% YoY to INR605m.
Y/E March 2016 2017 2018E 2019E
Out of the four new plants where capex is planned, three are on
Sales 5.6 7.7 11.9 20.0
schedule expected timelines are: Gujarat Dec 2017, Varanasi
EBITDA 1.1 1.5 2.3 4.0
and South Mar 2018. The 4th plant in Orissa is expected to
NP 0.5 0.9 1.3 2.2
Adj EPS (INR) 10.1 14.9 23.1 38.3
commission post 2HFY18.
EPS Gr. (%) 26.7 47.6 55.0 65.7 We estimate PAT at INR430m, as against INR256m in 4QFY16,
BV/Sh. (INR) 120.2 204.6 221.9 248.8 growth of 68%. Buy.
RoE (%) 11.4 8.6 9.6 16.3
RoCE (%) 12.2 9.7 10.8 18.3
Valuations
Key issues to watch for
P/E (x) 72.1 48.8 31.5 19.0
Update on capex plans post fund raising.
P/BV (x) 6.1 3.6 3.3 2.9
Update on advertisement campaigns and plans ahead.
EV/EBITDA (x) 32.2 24.2 17.3 10.2
EV/Sales (x) 6.4 4.7 3.4 2.0
Fruits Up performance and outlook for 4QFY17.
MCX
Bloomberg MCX IN CMP: INR1,186 TP: 1,400 (+18%) Buy
Equity Shares (m) 51.0
Total volumes at MCX traded during the quarter stood at INR12.4t,
M. Cap. (INR b)/(USD b) 60 / 1
down 10.3% QoQ and up 16.5% YoY.
52-Week Range (INR) 1420 / 814
Volumes at MCX have been severely impacted post
1,6,12 Rel Perf. (%) 2 / -16 / 23
demonetization. Gold volumes in 4QFY17 are down 10.9% QoQ and
51.3% YoY.
Financial Snapshot (INR Billion) However, MCX had taken a 25% price hike last quarter. This drives
Y/E MAR 2016 2017E 2018E 2019E our revenue growth estimate of -9.5% QoQ/+3.3% YoY.
Sales 2.1 2.4 2.8 3.7 Our EBIT margin estimate for the quarter is 14.4%, down 70bp QoQ
EBITDA 0.6 0.6 1.0 1.8 and compares with 14.8% in 4QFY16.
PAT 0.4 1.3 1.6 2.2 There were several one-off costs in 3Q, which we expect to be
EPS (INR) 23.4 26.3 30.0 42.5 absent in 4Q; leading to some support on margins despite the
EPS Gr. (%) -5.0 12.7 13.9 41.9 volume decline.
BV/Sh. (INR) 236.1 257.8 273.0 294.7 One-off costs of ~INR50m in 3Q included three quarters charge on
RoE (%) 3.5 10.6 11.3 15.0 variable compensation for employees, revamp of website, shift of
RoCE (%) 8.8 10.4 11.1 14.8 premises and one-time audit undertaken on the advice of SEBI.
Payout (%) 0.0 69.0 80.6 56.8 Our PAT estimate is INR296m, down 12.8% QoQ and up 3.0% YoY.
Valuation
P/E (x) 50.9 45.2 39.7 28.0
Key issues to watch for
P/BV (x) 5.0 4.6 4.4 4.0 Any move to enter the commodities space by potential
EV/EBITDA (x) 85.8 75.2 49.2 26.5 competitors like NSE
Expectations of volume revival
Pace of reforms under SEBI
Navneet Education
Bloomberg NELI IN CMP: INR168 TP: INR210 (+25%) Buy
Equity Shares (m) 233.5
We expect 10% revenue growth to INR2.03b in 4QFY17, and EBITDA
M. Cap. (INR b)/(USD b) 39 / 1
to remain flat at INR243m with 120bp YoY contraction in margins to
52-Week Range (INR) 175 / 82
12%.
1,6,12 Rel Perf. (%) 12 / 59 / 83
Typically, 1Q is the largest quarter for Navneet as schools of SSC
Financial Snapshot (INR Billion) boards open in 1Q. Thus, in 4Q revenue is largely driven by the
Y/E March 2016 2017E 2018E 2019E stationary division.
Sales 9.5 10.9 13.7 16.1
We expect adjusted PAT to increase by 7% to INR130m in 4QFY17.
EBITDA 2.1 2.5 3.3 4.0
Buy.
NP 1.0 1.6 2.0 2.5
Adj. EPS (INR) 4.3 6.6 8.6 10.5
Adj. EPS Gr. (%) -20.7 53.2 29.3 22.6
BV/Sh(INR) 24.5 26.2 31.0 37.1
RoE (%) 18.3 26.0 30.0 30.9
RoCE (%) 18.4 21.1 23.7 25.8
Valuations
P/E (x) 38.3 25.0 19.3 15.8
P/BV (x) 6.8 6.3 5.3 4.5
Key issues to watch for
EV/EBITDA (x) 19.3 15.8 12.1 9.9 Update on Britannica acquisition.
EV/Sales (x) 4.2 3.7 2.9 2.4 Outlook for FY18 considering syllabus change.
PI Industries
Bloomberg PI IN CMP: INR833 TP: INR1046 (+25%) Buy
Equity Shares (m) 136.6
We expect revenue to grow 4% YoY to INR6b, with slowdown in
M. Cap. (INR b)/(USD b) 114 / 2
CSM business on account of pain in global agri-chem.
52-Week Range (INR) 950 / 553
1,6,12 Rel Perf. (%) -2 / -6 / 28 We estimate 310bp margin expansion to 21.4%, and expect EBITDA
to grow 22% YoY to INR1.28b.
Financial Snapshot (INR Billion)
We estimate adjusted PAT at INR935m, as against INR934m in
Y/E March 2016 2017E 2018E 2019E
4QFY16. Buy.
Sales 21.0 23.5 28.5 34.0
EBITDA 4.3 5.3 6.7 8.3
NP 3.0 4.1 4.8 6.0
EPS (INR) 22.1 30.4 34.8 43.6
EPS Gr. (%) 22.8 37.4 14.6 25.2
BV/Sh. (INR) 85.8 110.7 138.8 174.4
RoE (%) 29.2 30.9 27.9 27.8
RoCE (%) 26.8 29.6 27.7 27.8
Key things to watch for
Valuations
CSM growth and order book.
P/E (x) 37.7 27.5 24.0 19.1
Agrochemical business updates for FY18.
P/BV (x) 9.7 7.5 6.0 4.8
EV/EBITDA (x) 27.6 22.5 17.4 13.6
EV/Sales (x) 5.7 5.1 4.1 3.3
SH Kelkar
Equity Shares (m) 144.6 CMP: INR298 TP: INR371 (+24%) Buy
M. Cap. (INR b)/(USD b) 43 / 1
We expect revenue to grow 7% YoY to INR2.8b in 4QFY17, with
52-Week Range (INR) 362 / 201
some impact of demonetization on customers, which is expected to
1,6,12 Rel Perf. (%) -1 / -8 / 10
Equity Shares (m) 144.6
lead to lower new launches.
Margins are likely to remain flattish at 17%. EBITDA is expected to
Financial Snapshot (INR Billion) grow 8% YoY at INR483m.
Y/E March 2016 2017 2018E 2019E
We estimate PAT at INR302m, as against INR260m in 4QFY16,
Sales 9.3 10.2 12.2 14.3
growth of 17%. Buy.
EBITDA 1.5 1.8 2.3 2.9
NP 0.8 1.1 1.5 1.9
Adj EPS (INR) 5.5 7.5 10.2 13.1
EPS Gr. (%) 4.2 36.0 34.8 28.7
BV/Sh. (INR) 52.7 57.8 64.7 73.5
RoE (%) 12.6 13.6 16.6 18.9
RoCE (%) 16.9 19.9 25.0 28.7
Valuations Key issues to watch for
P/E (x) 54.3 39.9 29.6 23.0 Growth in HTT, which was acquired in flavor business.
P/BV (x) 5.7 5.2 4.7 4.1 Management commentary on new client acquisition, and shift of
EV/EBITDA (x) 28.1 24.3 18.6 14.5 production from the Netherlands to Vapi.
EV/Sales (x) 4.7 4.3 3.5 3.0
SRF
Bloomberg SRF IN CMP: INR1,655 TP: INR1,825 (+10%) Buy
Equity Shares (m) 57.4 Flouro chemicals (refrigerants) business is expected to post a strong
M. Cap. (INR b)/(USD b) 95 / 1
quarter backed by exports business. We expect company to achieve
52-Week Range (INR) 1970 / 1166
9000t for full-year FY17.
1,6,12 Rel Perf. (%) 1 / -20 / 14
Specialty chemicals continue to remain under pain in 4QFY17. We
Financial Snapshot (INR Billion) reiterate that structurally there are no issues with the company.
Y/E March 2016 2017E 2018E 2019E
We expect SRFs revenue to grow 11% YoY to INR12.3b, and EBITDA
Sales 46.0 47.3 55.2 63.8
to increase 13% YoY to INR2.5b. We expect EBITDA margin to
EBITDA 9.6 10.0 11.6 13.8
NP 4.2 4.7 5.7 7.3
improve 50bp YoY to 20.5%, and adjusted PAT to grow 11% YoY to
EPS (INR) 73.7 82.4 99.9 125.1
INR1.16b. Buy.
EPS Gr. (%) 39.7 11.8 21.3 25.3
BV/Sh. (INR) 456.8 523.8 603.4 705.4
RoE (%) 17.0 16.5 17.4 19.1
RoCE (%) 19.4 18.4 20.8 24.5
Valuations Key things to watch for
P/E (x) 22.4 20.0 16.5 13.2 Growth in chemicals segment (particularly specialty chemicals).
P/BV (x) 3.6 3.1 2.7 2.3 Client additions and capex plans in specialty chemicals.
EV/EBITDA (x) 11.6 11.2 9.7 7.8 Margins in technical textile and packaging segment.
EV/Sales (x) 2.4 2.4 2.0 1.7
TTK Prestige
Bloomberg TTKPT IN CMP: INR6,066 TP: INR5281 (-15%) Neutral
Equity Shares (m) 11.7
We expect revenue to bounce back and grow by 21% YoY to
M. Cap. (INR b)/(USD b) 71 / 1
INR3.7b in 4QFY17, including revenue from Horwood acquisition.
52-Week Range (INR) 6550 / 4212
1,6,12 Rel Perf. (%) 6 / 8 / 20
The impact of demonetization is behind us, and TTK is expected to
see gradual revenue pick up.
Financial Snapshot (INR Billion) We expect EBITDA margin to contract 50bp YoY to 10.5%.
Y/E March 2016 2017E 2018E 2019E Consequently, we expect EBITDA to increase 15% YoY to INR390m.
Sales 15.3 17.2 20.0 22.6
Thus, we expect adjusted PAT to grow by 11% to INR241m. Neutral.
EBITDA 1.8 2.0 2.6 3.2
NP 1.2 1.2 1.6 2.1
EPS (Rs) 100.7 106.9 137.7 176.0
EPS Gr. (%) 29.6 6.1 28.8 27.8
Sales 620.3 674.2 745.7 843.5
RoE (%) 17.2 16.5 19.4 22.2
Key things to watch for
RoCE (%) 17.3 16.1 18.5 21.9
Performance of the appliances division post demonetization.
Valuations
Outlook on exports and recent acquisition of Horwood
P/E (x) 61.3 57.8 44.9 35.1
Homeware.
P/BV (x) 10.0 9.2 8.3 7.3
EV/EBITDA (x) 39.3 36.0 27.4 22.2
EV/Sales (x) 4.7 4.2 3.6 3.2
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indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive
compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement Companies where there is interest
Analyst ownership of the stock No
Served as an officer, director or employee No
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