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For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy
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&
Value Invest
Wealth Maximizer
Market Cap CMP* Target Price Upside
NSE Symbol Sector
(Rs. Mn.) (Rs.) (Rs.) (%)
CADILAHC Pharma 433350 423 506 20
Value Invest
Market Cap CMP* Target Price Upside
NSE Symbol Sector
(Rs. Mn.) (Rs.) (Rs.) (%)
APARINDS Electrical Equipment 31518 811 935 15
30
33.3
29.3
25
27.6
20
21.8
21.7
20.8
19.7
19.3
15
17.6
16.3
14.9
10
13.8
13.6
13.3
13.3
12.7
10.1
9.1
5
8.0
7.0
6.3
6.0
5.7
5.5
5.4
5.4
0
SOUTH KOREA KOSPI
MEXICO BOLSA
HONGKONG HANGSENG
SPAIN IBEX35
THAILAND SE THAI
GERMANY DAX
BRAZIL BOVESPA
SWEDEN OMX 30
NETHERLANDS AEX
EURO STOXX 50
US NASDAQ
INDONESIA JAKARTA
UK FTSE100
TAIWAN TAIEX
CANADA TSX
CHINA SHANGHAI
ITALY MIB
US S&P 500
TIMES
Source: Bloomberg, Karvy Research, Note: Data from Jan 1, 2017 till Dec 20, 2017
25 27.6
20
19.7
15
10
10.3 10.1
5
1.6
0
Nifty S&P 500 Gold Brent Crude Silver
Source: Bloomberg, Karvy Research, Note: Data from Jan 1, 2017 till Dec 21, 2017
Outlook
In this report, we present some of the key national and for Indian markets against volatility associated with FII
international developments which can impact markets movements. This change in asset allocation by Indians
and also some of our top stock picks from large cap in has resulted in Mutual Fund AAUM (Average Assets
Wealth Maximizer and mid-cap stocks in Value Invest. under Management) to surpass Rs. 22.73 lakh crore.
(Rs. 22.73 Tn) as of November 2017, which is quite a
We believe India is presenting an extraordinary opportunity
substantial achievement. Out of which, equity AUM has
to investors for wealth creation. The Indian Government
surpassed Rs. 7.33 lakh crore.
is adopting several structural reforms, which may prove
to elevate Indian image at the global stage. Emergence of Further, booming IPO market is also quite encouraging
Indian investors’ confidence in increasing their allocation for new investors to enter the capital markets. The current
of their savings towards financial assets (as against exciting IPO market with series of quality IPOs is also
traditional physical assets like gold and real estate) is playing its constructive role in wealth creation for the
quite encouraging. investors.
Further, even amongst financial assets, Indians have We, at Karvy, congratulate all those who are participating
started to allocate more towards capital market equity in this feast of Indian wealth creation and invite those who
instruments such as Mutual Funds (as against traditional are waiting to join this party.
bank FDs), which is offering additional cushion and buffer
2017 has been a year of major tax reform when issues bonds and banks subscribe to it. These funds are
all important Goods and Services Tax (GST) was infused into banks which expand their capital base thereby
implemented. GST is perceived to be the most improving capital adequacy ratios. This allows banks
wide-ranging indirect tax reform which aims at making to lend fresh loans and raise funds from other sources
India a One-Nation, One-tax and One-market nation. It is at attractive rates. Thus, fresh capital made available to
widely expected that Indian economy would attract huge entrepreneurs would help generate productive assets,
investment post GST which will lead to faster economic jobs and create demand.
growth. The decision of implementing GST was preceded
Government initiatives like enhanced spending on
by the decision of demonetisation wherein high value
infrastructure (building highways, railways, inland water
notes of Rs.1000 and Rs. 500 were withdrawn, which
ways, sagarmala, bharatmala), Make-in-India, incentives
squeezed liquidity by 86%. Implementation of these
to SME sector, housing for all, building of 100 smart
two policies derailed economic activities momentarily,
cities, 100% FDI under automatic route, shipping subsidy,
bringing down GDP growth rate to 5.7% during Q1FY18.
incentive to coastal and inland water movements, port
Going forward, these policy changes are going to have with superior cargo handling infrastructure etc. create
far reaching impact on formalising the whole economy more employment opportunities which in turn will lead
ensuring long term sustainable economic growth. With to higher income and consumption. The policy decision
the implementation of GST, businesses are expected with regard to 100% FDI in most of the sectors including
to become more tax compliant and create a multiplier defence creates an investment friendly environment, which
impact on the overall revenue collection once the is expected to drive economy on the path globalisation.
policies are streamlined. Demonetisation has had its
There have been several developments on economic
share in formalising economy in terms of encouraging
front in the recent times which augur well for growth
digital payments and changing investment style of
prospects. First, capital raised from the primary market
investors. People for long have been investing in low
has increased significantly after several years of sluggish
yielding and less liquid physical assets. Now, financial
activities. As capital raised is deployed to set up new
instruments have become favourable investment tool.
projects, it will add to demand and boost the growth
The stock market boom, rise in bank deposits and rise
potential of the economy. Second, the improvement in
in equity and debt AUMs are towards confirmation of
the ease of doing business ranking should help sustain
shift in investment patterns. According to data from the
foreign direct investment in the economy. Third, large
Association of Mutual Funds in India (AMFI), the Assets
distressed borrowers are being referenced to the
Under Management (AUM) of the mutual fund industry
insolvency and bankruptcy code and public sector banks
touched an all-time high of Rs. 22.73 Tn in Nov, 2017.
are being recapitalised which should enhance allocation
The robust performance of the industry comes on the
efficiency. Besides, there has been some pick-up in
back of growing investor awareness, demonetisation and
credit growth in recent months and recapitalisation of
declining interest rate.
public sector banks may boost it further. While there has
Banks in India have been dealing with twin issues of been weakness in some components of service sectors,
low deposits and high NPAs which impacted their the RBI survey indicates that services and infrastructure
credit lending ability resulting in low capital formation. sectors are expecting some improvement in demand and
Post-demonetisation, banks witnessed a significant business situations. As regard to IIP (Nov 2017 at 2.2%)
surge in deposits resulting in higher CASA ratio. Further, and Manufacturing PMI (Nov. 2017 at 52.6), it has been
the government has taken decision with regard to a roller-coaster ride. Inflation, as measured by Consumer
recapitalising public sector banks by way of issuing Price Index (CPI) (Nov. 2017 at 4.9%), has been consistently
‘Recapitalisation Bonds’. Under this scheme, government picking up since June 2017. The Wholesale Price Index
Rs. 35,000 -
Logistics cost saving per annum
40,000 Cr
50 329
250
Thermal Coal POL Iron Ore & Steel Cement Others Total
MTPA, 2025
380
220
320
100
1550
Sagarmala is an ambitious project, geared towards making domestic manufacturing and EXIM more competitive
and uplifting coastal communities. The programme will have a profound impact and could act as a model for India’s
development.
Firsts in IPO Markets in India: Leading IPOs for which SEBI Approval Received, yet to
yyGovernment of India, towards its disinvestment be Listed
policy, came out with the IPO of General Insurance
Sr. No Company
Corporation (GIC) in 2017. GIC is the first PSU
insurer to tap the capital markets. The issue size was 1 ACME Solar
~Rs. 114 Bn, making it the third largest IPO of India. 2 Hindustan Aeronautics
Also, the IPO was the first instance of public offering by
3 Reliance General Insurance Ltd
a reinsurance player in the country.
yyThe shares of ICICI Lombard General Insurance Co. 4 Aster DM Healthcare Ltd.
were listed on the bourses in September 2017, making 5 CMS Info Systems
it the first non-life insurance company to list on the
6 Nakshatra World
stock exchange.
yyIRB Infrastructure-backed IRB InvIT Fund came out 7 Gandhar Oil Refinery (India) Ltd
with an IPO this year, which made it the first Real 8 Amber Enterprises
Investment Trust (ReIT) to list on stock exchange.
9 Genesis Colors Ltd.
yyBSE Ltd, the oldest bourse in Asia, came out with its
IPO in 2017 making it the first ever stock exchange to 10 Newgen Software Technologies Ltd
be listed in India. The issue was oversubscribed by 51 11 G.R.Infraprojects Ltd.
times.
12 HG Infra Engineering
yyCentral Depository Services Ltd (CDSL) became the
first depository in India to get its shares listed on the 13 Apollo Micro Systems
stock exchange. The issue had a 170 times over 14 Astron Paper & Board Mill*
subscription. Source: SEBI, Karvy Research, *Issues are open, but yet to be listed
9 Mazagon Dock Shipbuilders Ltd yyMF industry has been adding about 9.05 lakh SIP
accounts each month on an average during the
10 TCNS Clothing
current financial year, with an average SIP size of about
11 Energy Efficiency Services Ltd Rs. 3,250 per SIP account in November 2017.
12 Aakash Education Services yyTotal amount collected through SIP per month during
Source: Karvy Research
November 2017 was at Rs. 5,893 Cr. (Rs. 58.93 Bn).
13.5
13.5
13.6
13.9
14.5
14.9
15.7
16.1
16.5
16.9
16.9
17.1
17.8
18.5
18.6
19.1
19.5
19.9
20.4
21.0
21.5
21.8
22.7
10 4
Oct-16
Oct-17
Dec-15
Nov-16
Dec-16
Nov-17
Jan-16
Jun-16
Jan-17
Jun-17
May-16
May-17
Jul-16
Jul-17
Feb-16
Mar-16
Feb-17
Mar-17
Apr-16
Apr-17
Aug-16
Sep-16
Aug-17
Sep-17
Source: Association of Mutual Funds in India (AMFI), Karvy Research, *Data available in quarterly intervals
Another related risk is that of EV charging leading to a The bill also includes tax cuts for individuals and families
surge in electricity demand, which in turn may put at risk of all income levels, with the largest breaks going to the
India’s already stretched electricity distribution networks. wealthiest Americans. The individual tax cuts are slated
The utility, which distributes electricity in North Delhi, to expire in 2025; a move to comply with Senate budget
plans to invest Rs. 1 Bn to set up 1,000 charging stations rules, but Republicans said a future Congress would
in the next five years. extend them.
This calls for careful planning in the backdrop of India’s Democrats were excluded from the sessions where the
worst blackout that left nearly 620 Mn people across 19 plan was crafted. They have sharply criticised the measure
states and three union territories without electricity for as a benefit bias to the wealthy and corporations, and
hours together in July and August of 2012. promised to use it as a whip lash against Republicans in
the 2018 midterms.
While the NDA government plans to put an EV policy in
place by the year end, its overtures to electric car maker Republicans have long pushed tax reform as a way to
Tesla Inc. to set up a factory in the country have failed simplify the U.S tax code, but the proposal would keep
to deliver results. The Palo Alto, U.S-based company, all seven existing tax brackets for individuals. The bill
which has been cool to India’s offer of land near a major has faced significant criticism because it would limit tax
port to facilitate exports, has decided to set up its own deductions for home mortgages and state and local
manufacturing facility in China. taxes, as well as adding over a trillion dollars to the
budget deficit.
U.S TAX BILL
Beneficiaries & Others:
Effects: The tax reform is a good news for businesses, particularly
yyCorporate taxes now at 21%, compared to a previous multinational corporations and the commercial property
rate of 35%. industry. The extremely wealthy are set to benefit.
However, families living in high-tax, high-cost states
yyThe bill will also lower individual tax rates temporarily.
could lose out, so could those paying for their own health
insurance. In the immediate future, the plan will see the
Other key elements include:
vast majority of tax payers having lower tax bills, but the
yyLess inheritance tax. cuts expire in 2025.
yyAn expanded child tax credit.
Near Future:
The Senate approved the $1.5 trillion tax bill, which
The bill’s final passing hit a last-minute hurdle when it was
includes permanent tax breaks for corporations and
found that three procedural rules had been violated. As
temporary tax cuts for individuals.
small changes to the words were made, it has return to
the House of Representatives and has been approved.
Strong Traction in gLialda to Continue During Excl. Period: Shareholding Pattern (%)
We expect strong sales from gLialda during Q3FY18E, just like during Promoters 74.8
Q2FY18. The 180-day exclusivity of CDH ends in Jan 2018. Teva is FIIs 9.8
the sole player having tentative approval and is expected to launch in DIIs 7.4
Jan 2018. We expect gLialda to remain a limited competition product Others 8.0
during FY19E because of difficult and lengthy litigation process and since Stock Performance (%)
already two generics are approved, U.S FDA may not fast track approval 1M 3M 6M 12M
of another generic. This would lead to leading to a smaller price erosion. Absolute (4) (13) (19) 19
Relative to Sensex (5) (19) (26) (9)
Increasing Focus on Complex and Differentiated Generics:
Source: Bloomberg
CDH has approx. 157 ANDAs pending approval, of which about 65 are
Para IV filings. Of these 30 are oral modified release, 12 injectables, 7 Relative Performance*
159
transdermal and 15 topicals and 4 oral controlled substances. These are
136
all complex products and thus are expected to have limited competition. 113
Some near term opportunities are gToprol XL and gPrevacid ODT. 90
Another significant product is gExelon Patch (transdermal) because only
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 86,513 96,169 96,253 127,060 144,246
EBITDA 17,556 23,304 19,036 31,619 35,708
EBITDA Margin (%) 20.3 24.2 19.8 24.9 24.8
Adj. Net Profit 11,503 19,338 15,168 20,975 24,806
EPS (Rs.) 11.3 18.9 14.8 20.5 24.2
RoE (%) 29.1 38.8 22.5 25.4 24.8
PE (x)* 30.8 16.8 29.9 20.6 17.5
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
yyDelay in launches of significant opportunities in U.S. Steep pricing pressure in U.S market.
yyU.S FDA inspection with an adverse outcome.
CADILAHC for the year as on date, the stock has gained nearly 20%, and has significantly outperformed its sectoral
benchmark of NIFTY PHARMA, which has lost nearly 10%, indicating that CADILA is one of the strongest stocks in
the weakest space. During the first half of the year, the stock has seen a strong rally from the lows of sub Rs. 320
to the June-July highs of Rs. 560, thereby giving a move of near 75% from the said levels. However, over last few
months the stock has retraced most part of the said move and has approached to the levels of its previous major
swing highs or break out zone of Rs. 380-400. The said support levels also coincide with the medium and long term
moving averages on the weekly charts. The two thirds retracement levels of the above stated move also coincide
with the current zone of Rs. 400. Over last few days price and volume action suggest that some kind of value buying
is seen. Hence, investors with a long term view may look to add into their portfolio as one of the preferred picks from
Pharma space and may look for target of all time highs zone. For now the stock has support at Rs. 370-390 levels
and below it at Rs. 310-320 zones, while resistance can be assumed at Rs. 520-530 levels and above it at all time
highs to Rs. 600 levels.
a growth of 9.6% and 17.5% YoY during YTD FY18 in the domestic and 130
110
export segment respectively. Further, the domestic motorbike segment
90
grew at 7.6%, which constitutes ~62.1% of the overall 2W domestic sales
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 284427 284750 319745 355479 385910
EBITDA 44550 46348 52762 57660 61529
EBITDA Margin (%) 15.7 16.3 16.5 16.2 15.9
Adj. Net Profit 31602 33771 37607 41058 44156
EPS (Rs.) 158 169 188 206 221
RoE (%) 41.1 35.7 34.6 32.2 30.7
PE (x) 18.6 18.6 20.1 18.4 17.2
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Key Risks
yyVolatility in raw material costs.
yyStiff competition in pricing.
yyRising commodity prices may impact operating margins.
HERO MOTOCORP witnessed a strong uptrend from the low of Rs. 3410 levels forming higher highs and higher
lows in the daily chart, it can be clearly ascertained that the stock has seen cycles of higher highs and higher lows
on the weekly charts and a breakout above the recent swing high at Rs. 3700 levels can take the stock towards new
52 week high. For the month, the stock has traded in the positive territory generating return of over 3%. Correction
from the higher levels of Rs. 4090 was witnessed in the stock in September. However, the stock has held firmly to its
support level of Rs. 3380-3400 and rebounded from that level making higher highs and higher lows. On the weekly
and monthly charts the stock is trading above all its major moving averages (21, 50, 100 and 200 DEMA), indicating
inherent strength is still intact in the counter. Upside, it has a strong resistance at Rs. 4050-4080, which can restrict
it from rising further. If it breaches this level, it can further move to Rs. 4,500 levels. Downside, Rs. 3,400 is the
immediate support we recommend that declines in the price of the stock must be utilized to average long positions.
optimisation of cost and to provide better service. HUL managed to recover Relative Performance*
quickly from the GST transmission without any major disruption in trade 170
channels on the back of its vast distribution and supply chain network. 145
120
Tactical Move by Entering into E-commerce Business: HUL is 95
planning to enter into the E-commerce business by selling premium tea
May-17
Feb-17
Mar-17
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
and teaware. The company is offering premium range of gourmet teas and
Hindustan Unilever Ltd Sensex
exquisite teaware. The Refreshment segment, including tea and coffee,
Source: Bloomberg; *Index 100
accounts for about 14.0% of the company’s total sales.
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 311997 314610 323670 362241 406131
EBITDA 54137 60200 63400 73245 85584
EBITDA Margin (%) 17.4 19.1 19.6 20.2 21.1
Adj. Net Profit 43631 41390 44760 51129 60377
EPS (Rs.) 20.2 19.0 21.4 23.6 27.9
RoE (%) 115.4 78.1 67.2 76.8 90.7
PE (x) 43.3 45.4 44.0 57.4 48.6
Source: Bloomberg, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
1). Increase in raw material prices. 2). Competition from other players.
The stock has given a breakout on the charts in the month of July 2017 from the consolidation between the range
of Rs. 767-980 levels. Since then the stock has been in an upward journey on the charts. The stock is marking
higher high and higher low on the charts, which suggest that technically the stock has some inherent strength in it.
The stock is currently trading above all of the major moving averages (short, medium and long term), which suggest
that the stock’s uptrend is still intact. When looked in the shorter term time frame the stock has taken a support
around its 21-DEMA in the past, which means that this particular average acts as a strong support for the stock so
any correction towards the levels of Rs. 1050 levels from a short to medium term perspective can be used as an
opportunity to add fresh longs in the counter. Moreover, Hind Unilever is also at a striking distance from its all time
high RSI level of 83.80 levels, currently pegged at 81 levels, after which the stock might witness some correction
on the charts. So any correction between Rs. 1250-1050 levels can be used for an accumulation in the said stock.
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
to 7.87% in Q2FY18. During the same period NNPA declined from 4.86%
to 4.43%. With increased focus from both the government and the ICICI Bank Ltd Sensex
management, we expect GNPA & NNPA to reach 4.5% & 1.8% by FY20E. Source: Bloomberg; *Index 100
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Interest Income 212240 217373 242585 289519 341048
Net Profit 97263 98011 58111 75874 170422
EPS (Rs.) 15.0 15.0 9.0 12.0 27.0
BVPS (Rs.) 140 156 163 173 195
P/E (x)* 19.8 19.7 33.2 26.4 11.7
P/BV (x)* 1.4 1.2 1.2 1.8 1.6
RoE (%) 11.4 10.3 5.7 6.9 14.5
RoA (%) 1.6 1.4 0.8 0.9 1.7
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Company Background
ICICI Bank is India’s largest private sector bank with total consolidated assets of Rs. 10.2 Tn as on Sept 31, 2017 and
profit after tax of Rs. 98.01 bn for the year ended Mar 31, 2017. ICICI Bank currently has a network of 4,850 Branches
and 14,164 ATM’s across India. It offers a wide range of banking products and financial services to corporate and retail
customers through a variety of delivery channels and through its group companies. ICICI Bank was originally promoted in
1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI bank subsidiaries include
ICICI prudential life insurance, ICICI Lombard, ICICI securities, ICICI AMC, ICICI Housing finance etc.
Key Risks
yyPolicy Risk & Regulatory Risk.
yySlower than anticipated economic revival.
The stock has clocked a fresh life time high of Rs. 332.35 levels on Nov 17, 2017, and thereafter the stock witnessed
profit taking at the higher levels, which dragged the stock towards Rs. 300 levels. The overall chart structure of
ICICIBANK suggests formation of cycles of higher tops and higher bottoms on the weekly time-frame, clearly
indicating that the stock is in an uptrend. In the recent past, the stock has also witnessed good buying activity
around consolidation zone Rs. 210-220, suggesting that market participants are expecting the stock to rally towards
Rs. 400-420 over the next few month, once the immediate resistance of Rs. 330 is taken out on a sustainable basis.
As far as technical parameters are concerned, the 14 period RSI on the monthly charts is currently at 64 levels,
showing positive divergence over RSI Average. Technically, the stock is trading above its 50/100/200-DEMA on
the daily, weekly & monthly charts, indicating strength in the counter. It seems that it is undergoing a consolidation
before breaking through its next crucial resistance level at Rs. 325-330. Upside, if it breaches the Rs. 325-330 level
decisively, it can go up to Rs. 400-410 levels. Downside, Rs. 280 is the immediate major support for it.
and is planning to increase it further to compensate for increased cess, O/S Shares(mn) 12188.2
thereby increasing per cigarette realisation & cigarette segment revenue. Face Value (Rs.) 1.0
Shareholding Pattern (%)
Aggressive expansion and focus on Packaged Foods Segment: Promoters 0.0
ITC is aggressively planning to expand in Packaged Foods segment with
FIIs 19.1
numerous variants of small value packs for better penetration and wider
DIIs 36.4
accessibility. ITC is working with an internal target to reach Rs. 1000 Bn
Others 44.5
from Non-Cigarette and Packaged Goods revenues by 2030, of which , it
is expected that contribution from Packaged Foods could reach to Rs. 650 Stock Performance (%)
Bn by FY30. ITC is also planning to strengthen its portfolio in the existing 1M 3M 6M 12M
categories by expanding into adjacent areas and into new food categories Absolute 2 (2) (15) 16
with innovative new products as well to ramp up growth in its branded Relative to Sensex 1 (8) (22) (11)
Packaged Foods segment. It is also entering into Fruits, Vegetables and Source: Bloomberg
other perishable goods. ITC had already come up with Frozen Prawns Relative Performance*
under its Master Chef brand. 150
130
Investment in new hotels may drag return ratios: ITC is planning 110
to invest in 40 new hotels, which includes both company owned as well as 90
managed hotels, adding around 5000 rooms to strengthen the hospitality
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
business. In next three and half years span, ITC is investing Rs. 250 Bn
ITC Ltd Sensex
under this expansion program across different verticals. ITC is expected to
Source: Bloomberg; *Index 100
bid for ‘Taj Mansingh’, which could require further investments.
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 384333 388042 423600 458947 511355
EBITDA 141492 144509 154359 165598 189096
EBITDA Margin (%) 36.8 37.2 36.4 36.1 37.0
Adj. Net Profit 96632 93445 102894 113430 129618
EPS (Rs.) 8.1 8.2 8.5 9.4 10.7
RoE (%) 32.8 25.1 23.1 25.5 29.1
PE (x) 26.9 42.4 33.0 28.1 24.6
Source: Bloomberg, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
yyAny increase in excise duty could affect volumes and realisations.
yyAny weakness in the other verticals of the business could affect the total profit margins of the business.
The stock has been unable to surpass the resistance placed around Rs. 312 levels, which it made after touching
its all time high of Rs. 367 levels. The overall trend on the charts for the stock is showing that stock is having
some inherent strength in it. ITC has currently taken support around Rs. 249 levels, which is also acting as a
decent short term support on the charts. It has also once again tested the consolidation range placed in between
Rs. 182-268 levels from which it had given a breakout on the charts in the month of February 2017. From a long
term perspective Rs. 190 levels is acting a good support for the stock. So any dips from the current levels to
Rs. 190 levels from a medium to long term perspective should be taken as an opportunity to go long in the counter.
If the stock is able to breach Rs. 289 levels and closes above it with above average volumes then one might see
the stock crossing its all time highs.
current order book of Rs. 2575 Bn is well diversified across 6 segments - Relative Performance*
Infrastructure (74%), Hydrocarbon (10%), Heavy Engineering (5%), Power 145
(4%), Electrical & Automation (1%) and Others (6%). Any downturn in a 125
105
particular industry would not significantly hit order inflows and revenues
85
across business cycles. Also, international orders make up 26% of order
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 895,897 1,013,361 1,100,110 1,208,484 1,359,910
EBITDA 114,464 125,041 110,747 130,250 152,932
EBITDA Margin (%) 12.8 10.5 10.3 10.8 11.2
Adj. Net Profit 42,572 41,933 60,287 68,776 78,780
EPS (Rs.) 34.0 30.2 43.1 49.1 56.2
RoE (%) 12.1 9.9 12.8 13.0 13.7
PE (x) 33.7 26.9 24.4 25.8 22.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price,
Key Risks
yySignificant slowdown in the economy could lead to decline in the order book.
yyAny stress in Middle East adversely impacts its Hydrocarbon business.
LT is in a strong uptrend marking higher highs and higher lows on the weekly charts. The counter has generated more
than 40% returns in 2017 till date, indicating strong bullish trend. Stock has witnessed ascending triangle pattern
breakout in the quarterly chart and after retesting the breakout levels started to move again, indicating a fresh leg of
rally in the counter. On the weekly chart, the stock is sustaining above all of its major moving averages suggesting
the strength in the counter for all major time frames. On the other hand, leading indicators such as parabolic
SAR and Heiken candlesticks suggest positive trend in the weekly charts. The supports for the stock is placed at
Rs. 1050-1080 followed by Rs. 950-970 levels on the lower side, while resistance is pegged around Rs. 1600
followed by Rs. 1720 levels. Medium to long term investors may enter the stock at current levels and utilise any dips
as a buying opportunity.
to preserve cash and is working with partner BP for development of KG DIIs 11.7
basin with $6bn of fresh investments. Others 17.1
Jio – delivers mostly on all counts; best is yet to come: Stock Performance (%)
138.6mn subscriber base, Rs.156 of ARPU and depreciation & amortisation 1M 3M 6M 12M
being charged proportional to network utilisation has all contributed Absolute (1) 13 28 75
for Jio to turn EBIT positive in Q2FY18. RIL has invested ~$36bn into Relative to Sensex (2) 6 18 34
telecom expecting to deliver higher teen RoE’s at world betting time with Source: Bloomberg
over 50% of revenue market share and EBITDA margins of over 50%; Relative Performance*
which seems distant at the moment. Nevertheless, phase of subscriber 190
addition and incremental ARPUs are encouraging so far. Management has 165
140
given indications of diversifying revenue base from pure mobile telephony 115
play to digital platform spanning mobile, broadband, entertainment and 90
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
Valuation Summary
YE Mar - Consolidated (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 3754350 2739990 3566579 3994676 4166893
EBITDA 376010 417040 615814 759478 818084
EBITDA Margin (%) 10.0 15.2 17.3 19.0 19.6
Adj. Net Profit 213172 279043 335390 388450 428657
EPS (Rs.) 33.7 44.1 53.0 61.3 67.7
RoE (%) 11.3 13.2 11.5 12.1 12.5
PE (x)* 10.3 10.4 17.4 15.0 13.6
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Company Background
RIL is India’s largest private sector enterprise with businesses in the energy, material and consumer value chain. Its key
business activities span exploration and production of oil & gas, petroleum refining & marketing, petrochemicals, textiles,
retail, telecom, SEZs and others. It operates one of the world’s largest oil-refinery complex at Jamnagar, Gujarat with a
capacity of 1.3 Mn BPD and has Petchem facilities at Jamnagar, Hazira, Patalganga, Vadodara, Nagothane and Nagpur.
It is the second largest producer of polyester fibre/ yarn and 4th largest producer of PTA globally. It operates retail stores
across the country in value and specialty formats. RIL’s subsidiary Reliance Jio provides pan-India 4G telecom services.
It has built next generation all-IP data network with latest 4G LTE technology.
Key Risks
1) Volatility in crude & its derivative could impact realisations. 2) Capex on new verticals could affect consolidated returns.
Reliance has moved nearly 70% this year YTD, as the stock was seen breaking out from its 2009 highs placed at
around Rs. 620-630 levels (post bonus) and clocked a one sided move from there on. The stock has fallen into a
consolidation range from the beginning of November 2017 with the upper band at Rs. 950-960 while the lower end
is at the Rs. 850-860 levels. The price structure has remained above it 100 and 200 day moving averages for most
part of the year and has maintained the higher high and higher low price pattern reiterating the long term secular
trend, as observed on the weekly chart. The stock has immediate support placed at Rs. 850-860 and below that at
Rs. 800-820, while resistance comes in near the all time high of Rs. 960 and above that the psychological level of
Rs. 1000-1020 would open up. At current levels, the stock looks poised to continue its positive momentum making
current levels attractive for accumulation from a medium to long term perspective
NNPA were at 9.8% & 5.4%. As per BASEL III guidelines, SBI has a capital
May-17
Feb-17
Mar-17
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
adequacy ratio of 13.9% with a tier-1 capital of 10.8%, which could aid
State Bank of India Sensex
loan book growth plans over the next couple of years.
Source: Bloomberg; *Index 100
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Interest Income 556923 573576 625481 767947 866755
Net Profit 131016 99507 104841 104506 189857
EPS (Rs.) 17.6 13.0 13.4 12.7 22.1
BVPS (Rs.) 172.0 185.9 236.1 250.4 267.0
P/E (x)* 11.7 20.4 21.8 25.3 14.5
P/BV (x)* 1.2 1.4 1.2 1.3 1.2
RoE (%) 10.6 7.3 6.3 5.7 8.7
RoA (%) 0.5 0.5 0.4 0.3 0.5
Source: Bloomberg, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Company Background
State Bank of India is India’s largest bank offering personal banking, agricultural banking, corporate banking and NRI
banking with a consolidated balance sheet close to Rs. 33.8 lakh crore (Rs. 33.8 Tn). SBI employs over 269,219
employees and operates through a network of 24017 branches and over 58916 ATMs serving over 420 Mn customers.
SBI, along with its merged subsidiaries, provides various services like deposits, retail loans for Home, Automobile,
Education, other personal loans and corporate loans. SBI has various non-banking subsidiaries: SBI Life insurance
Company, SBI Capital Markets, SBI Funds Management and SBI Cards & Payments.
Key Risks
yyPolicy & regulatory risks.
yyHeadwinds in realizing the synergies through associated merger.
SBI after clocking an all time high of Rs. 351.30 levels on October 26, 2017, the stock witnessed sharp correction
towards Rs. 300.40 levels on December 18, 2017. The stock slipped more than 14% in a span of two and a half
months. The stock took support around Rs. 300-304 levels and bounced back sharply. The counter stayed stuck
in a range of Rs. 300-350 levels for around two months. The stock is trading well above all of its major moving
averages, which indicate long term up trend remains intact in the counter. On indicator front, 14 periods monthly
RSI is trading above its 9 period signal line, which indicates bullish bias in the long term. On the longer term charts,
the stock has shown no sign of weakness in the mentioned up move, indicating any minor correction in the counter
may be utilised as a buying opportunity for the medium to long term perspective. The stock has support placed at
Rs. 280 and below that at Rs. 260, while resistance comes in near the all time high of Rs. 351.50 and above that
the around Rs. 380 would open up. Thus, the stock is likely to continue the positive trend and we recommend
accumulating the scrip from a medium to long term perspective.
US$ 752Mn bonds having maturity dates during 2019 and 2021. This is
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 687226 737286 887529 1006303 1099230
EBITDA 149530 204230 254813 308305 332777
EBITDA Margin (%) 21.8 27.7 28.7 30.6 30.3
Adj. Net Profit 22678 56294 99454 135887 164378
EPS (Rs.) 6.5 16.2 28.6 39.1 47.3
RoE (%) 5.2 10.5 16.2 19.7 20.7
PE (x)* 14.1 17.0 11.1 8.1 6.7
Source: Bloomberg, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price,
Key Risks
yyCommodity price changes.
yyExchange rate fluctuations.
yyHighly leveraged.
VEDL has witnessed a huge recovery in the prices in past 2 years and has generated over 5.5x from its low
of 58.15 levels. After the surge it has witnessed a consolidation breakout around 245-250 levels from where it
showed one side movement to reach its fresh 52 weeks high of Rs. 346.40 levels. However in the recent past the
stock corrected approximately 18% from its recent high and has taken support near its previous swing high of
Rs. 275-280 levels and started to surge higher, indicating it to be a strong support for the counter. On the daily
chart, the stock has reverted after testing is 200 DEMA placed around Rs. 275-280 levels and is currently placed
above all its major moving averages making it a very good opportunity for accumulation. Technically, the stock is
placed around its upper band of the Bollinger (20,2) which is even supported by the parabolic SAR. The immediate
resistance for the counter is placed around Rs. 346-348 levels, sustaining which it is expected to surge higher
towards Rs. 360 levels from medium to long term perspective.
on the back of robust loan book growth of 34.9% and NIM expansion of Shareholding Pattern (%)
30 bps YoY. We expect the bank’s CASA ratio to touch ~38% by FY19E, Promoters 20.1
which could aid the bank to compete and gain market share in the lower FIIs 46.0
yield/low risk segment of corporate market. DIIs 24.6
Others 9.4
Asset quality divergence remains a key challenge: For the past
five years, Yes Bank has increased its loan book at a CAGR of 28.4% while Stock Performance (%)
maintaining lowest nonperforming loan (NPL) ratio. However, the bank’s 1M 3M 6M 12M
asset quality has deteriorated in the last one year, with its gross NPLs Absolute 0 (14) 7 38
increasing 170% in FY17. Slippages increased to ~Rs. 20 Bn, as accounts Relative to Sensex (1) (19) (2) 5
worth ~Rs. 12.2 Bn were recognized as NPA on divergence with RBI’s Source: Bloomberg
inspection, driving GNPA ratio higher to 1.8% in Q2FY18 from 0.8% YoY. Relative Performance*
Rapidly expanding franchise, focusing on corporate banking: 170
150
Over the past few years, Yes Bank has focused on building its branch 130
110
network and its retail banking franchise. As of the end of Sep 2017, the 90
bank had 1040 branches, which expanded from 109 in 2009. Yes Bank’s
May-17
Feb-17
Mar-17
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
of loans to retail, SME, micro SME and mid-sized corporate. Source: Bloomberg; *Index 100
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Interest Income 45,667 57,973 75,573 99,988 126,951
Net Profit 25,394 33,301 37,834 51,626 68,309
EPS (Rs.) 12.0 15.0 17.0 23.0 30.0
BVPS (Rs.) 66 97 110 129 153
P/E (x)* 25.6 21.2 18.6 13.5 10.3
P/BV (x)* 4.7 3.2 2.8 2.4 2.0
RoE (%) 1.8 1.9 1.7 1.8 1.8
RoA (%) 19.9 18.6 16 18.9 21.2
Source: Company, Karvy Research, *Represents multiples for FYFY16 & FY17 are based on historic market price
Key Risks
yySignificantly higher-than-expected deterioration in the asset quality.
yyLow proportion of retail loan book.
The stock is trading in the broad range of Rs. 330- 296 levels from last couple of weeks. Prior to that, the stock
has seen profits taking from life time high of Rs. 382.90 levels, which has dragged the stock to the low of around
296 levels. Thereafter, the stock entered in the consolidation phase. The stock is in an uptrend and historical price
action suggests that every dip in the stock attract market participants. Currently, the stock is trading near 200
DEMA on the daily charts and bounce above the said rage of Rs. 330 levels will be fresh trigger for the stock. On
technical setup, the 14 period RSI is pointing northwards and showing comfortable trade on the daily charts. The
parabolic SAR is trading below the price, which reflects strength in the consolidation range. Going ahead the stock
is expected to find immediate support around Rs. 296 levels below that Rs. 275 levels. Whereas, resistance is
placed at Rs. 330 levels and above that is around Rs. 380- 400 levels.
Focus on premium products to propel growth: The company is Stock Performance (%)
majorly focusing on premium products like High Efficiency Conductors 1M 3M 6M 12M
(HEC) in conductors segment, auto lubes in specialty oil segment and Absolute 5 6 3 43
elastomeric cables in cables segment. All these products are premium Relative to Sensex 4 (0) (5) 10
products and high margin earning products. Apar has suffered a dip Source: Bloomberg
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 51219 55514 52888 53018 60692
EBITDA 2520 3620 4037 3817 5037
EBITDA Margin (%) 4.9 6.5 7.6 7.2 8.3
Adj. Net Profit 495 1202 1763 1424 2335
EPS (Rs.) 12.9 31.2 45.8 37.4 61.4
RoE (%) 6.8 14.1 17.0 11.0 15.9
PE (x)* 28.8 14.9 16.4 21.7 13.2
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
yyCyclical nature of power business.
yyProject delays from customer side.
yyVolatility in raw material prices mainly with respect to exports.
APAR Industries’ stock price over the last few years has seen a vertical rally from the levels of sub Rs. 82 in the month
of August 2013 to the recent life time highs of Rs. 908 in the month of May 2017, making it as one of the multi baggers
in the recent times. The said price move has generated a whopping 10x returns over the last few years. However, in
the recent past, the stock after clocking its life time high of Rs. 908 in the month of May 2017 has corrected nearly
18% from the said highs and was trading in the range of Rs. 760-770 levels and given breakout from the same in the
month of December 2017. In its recent consolidation the stock was finding support near 100 and 200 simple moving
averages, indicating long term bullish bias. Going forward, the stock has support near Rs. 700-750 zone where it
consolidated for 2-3 months and below it at around Rs. 650-670 levels, while resistances are placed at Rs. 900- 930
zone and above it at around psychological Rs. 1000 -1050 zone.
Growth Crawls Back Post Three Major Disruptions; Revenues Stock Performance (%)
1M 3M 6M 12M
to grow by 8.8% in FY17-20E: Post demonetisation, switch from
Absolute 7 (5) (19) 9
BSIII to BSIV emission standards and GST, revenue grew by 2.3% on a
Relative to Sensex 6 (11) (26) (16)
YoY basis to Rs. 8,587mn in H1FY18. We believe the same is estimated
Source: Bloomberg
to grow by 8.8% during FY17-20E to Rs. 21,068mn with EBITDA and PAT
margin reaching to 15.2% and 10.7% by FY20E. Relative Performance*
150
Strengthening of Distribution Network and New Service Line 130
Design: ‘Greaves Auto Care’ - A one stop shop is being shaped-up and 110
90
the estimated market size for spare parts business is at Rs. 140 bn to
May-17
Feb-17
Mar-17
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
multi-brand spare parts business segment, which at present stands at 65% Source: Bloomberg; *Index 100
Company Background
Greaves Cotton Ltd. (GCL) is a leading diversified engineering company manufacturing machinery and equipment.
Greaves business is organised as Auto engines, Auxiliary Power Solutions, Farm Equipment Business and After-Market
business. The company has 6 manufacturing facilities and 3,500+ customer touch points spread across India. Over the
years Greaves has increased its investments in R&D and the spending has averaged to the tune of ~1.5% of sales during
FY08-FY17 peaking in the fiscals before CPCB norms came into force. In future, Greaves is committed to transform itself
into fuel agnostic engineered solutions provider encompassing both manufacturing and service business lines.
Key Risks
yySlowdown in the revival of economic activity could significantly impact volumes.
yyRising costs could reduce margins further.
GREAVESCOT has been in a secular bull trend from last many years making higher highs & higher lows on the
chart, indicating strength in the counter. After clocking a high of Rs. 175 odd levels in April 2017, stock has been
on a corrective phase & is currently available near to its 200-weekly moving average, which is placed around
Rs. 125 levels, which should be utilised as good opportunity for long term investors to accumulate the stock at
current levels. Also key swing support rest around Rs. 100 levels, indicating bullish bias. Technically, the stock has
support around Rs. 100-90 zone and resistance around Rs. 135 -145 zone. Going forward, the corrective phase
in the stock might get arrested around current levels & stock may again continue its long term bullish trend & head
towards its all time high levels. We believe the stock at current levels provides excellent opportunity & long term
investors can consider accumulating the stock.
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Division, about Rs. 7700 Mn for Plastic division and more than Rs. 10000Mn
is for Food Processing Division. Jain Irrigation Systems Ltd Sensex
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 61527 64865 69393 74951 81910
EBITDA 7797 8183 9402 9744 10648
EBITDA Margin (%) 12.4 12.6 13.5 13.0 13.0
Adj. Net Profit 554 487 1762 1874 2297
EPS (Rs.) 1.2 1.1 3.3 3.9 4.8
RoE (%) 1.9 1.3 4.3 4.4 5.2
PE (x)* 51.4 57.4 28.5 32.4 26.4
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
yyMIS and Agro Processing business are subject to risk associated with the vagaries of nature.
yyFx-fluctuation risk.
JISLJALEQS has continued to move higher from the levels of Rs. 74-75 and the stock is exhibiting a strong upward
momentum. For the month the stock has generated over 7% return and continues to move higher on significant
volume. The recent breakout from the lower level of Rs. 110 to the higher level of Rs. 128-129 and come on above
average volume. After breakout, consolidation is witnessed in the stock on the account of minor profit bookings
from the higher levels. Overall, the stock is in upward trajectory and the medium and long term moving averages
suggest the same as JISLJALEQS is trading above all medium and long term moving average. Immediate support
of the stock is seen around Rs. 122 followed by Rs. 110. Immediate resistance for the stock is witnessed at
Rs. 132 and above that it could scale levels of Rs. 160 Investors should utilise any dip in the stock to take fresh
position or accumulate the stock.
net Debt/Equity to drop to ~0.2x by FY19E from 0.5x (FY17). Relative Performance*
Govt’s increasing focus on textile exports: Government of India 156
134
has taken steps recently to promote the industry via permission for 100% 112
Foreign Direct Investment (FDI) under the automatic route, Rs. 60,000 Mn 90
package to boost textile exports and road shows in India, U.S.A and UK to
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 25765 26005 28166 31972 33113
EBITDA 4373 4696 5633 6322 6947
EBITDA Margin (%) 17.0 18.1 20.0 19.8 21.0
Adj. Net Profit 1735 2107 2868 3322 3781
EPS (Rs.) 23.1 28.0 38.8 44.9 51.2
RoE (%) 16.1 17.0 17.7 20.4 20.0
PE (x)* 20.9 29.7 17.0 17.4 15.2
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price,
Key Risks
yyVolatility in price of raw materials.
yyDelay in the implementation of the strategy for Thane land bank.
KPRMILLS has seen a correction of over 22%-23% from its all time high levels of Rs. 884 in past half year.
However, the stock is in stellar Bull Run and has generated over 36%-37% of return on yearly basis inspite
of the correction in between. The stock has consolidated near its recent swing low and has reverted back
towards the higher levels. On the Fibonacci retracement drawn from its all time of Rs. 884 to the recent
swing low of Rs. 685 level, the stock has retraced over 38.20% and is looking strong. Also the price volume
chart is placed at the upper band of the Bollinger (20, 2) suggesting inherent strength in the counter. On
the oscillator front, 14 period RSI has bounced from the lows of 41-48 levels and is currently placed around
50-56 levels suggesting more upside room in the counter. Even the counter has tested its 200 DEMA (around
Rs. 700-710) on the daily chart and surged higher, suggesting it to be a strong support and affirming our
bullish stance in the counter. Hence, considering all the factual data mentioned above the stock is looking
pretty decent and is expected to surge towards its all time high once again, sustenance of which it may move
to the uncharted territory of Rs. 900 levels.
regular orders from these countries except Iran whose policy has not been Stock Performance (%)
very consistent. However, there is likelihood that Iran might start importing 1M 3M 6M 12M
rice from India around Dec’17 which could be big positive for KRBL on Absolute (5) 28 55 117
being one of the largest players in the region. Relative to Sensex (6) 21 43 66
Source: Bloomberg
Integrated business model: The company follows backward
Relative Performance*
integration through partnership with farmers which enable company to
230
have control on quality and quantity of produce. 195
160
Diversified sources of earnings: The company is also into renewable 125
90
energy of solar power, wind power and bio-mass. It uses rice husks for
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 31597 33628 31490 33045 35318
EBITDA 4882 4468 6435 7404 8390
EBITDA Margin (%) 15.5 13.3 20.4 22.4 23.8
Adj. Net Profit 3217 2931 3994 4740 5416
EPS (Rs.) 13.7 12.5 17.0 20.1 23.0
RoE (%) 27.6 21.1 23.5 22.4 21.0
PE (x)* 12.2 17.9 24.3 30.2 26.4
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
yyCompetition risk.
yyFx-fluctuations risk.
yyEconomic slowdown risk.
The stock is in a secular uptrend. The stock is continuing its stellar rally from the levels of around 20 towards Rs.
675 levels in a span of less than five years. KRBL has given a spectacular return, multiplying almost 34 times to what
it was half a decade ago. The stock after clocking fresh highs, witnesses profit booking and takes support around
the lower levels. The accumulation and consolidation in the counter is witnessed in the stock before resuming its
fresh up move. In the recent rally, the stock witnessed profit booking around Rs. 675 levels which dragged the stock
towards Rs. 587 levels. The stock has been consolidating since then and is all set to resume its fresh up move
sooner than later. The stock is trading above its 100/200-DEMA on the daily and weekly charts. The stock is trading
with decent volumes, suggesting accumulation in the counter around the current levels. The support for the stock is
seen to be around Rs. 550 levels below which it may slip towards Rs. 490. Whereas, on the higher side, the stock
is likely to move in the uncharted territory towards Rs. 750-800 on sustaining and closing above Rs. 675 mark.
3.9% QoQ to Rs. 424 Mn with a corresponding margin expansion of 254 130
90
bps YoY on the back of increased Indian Branded Footwear (RedTape)
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
Sales at Rs. 1700 Mn for H1FY18 increasing by 95% YoY and further
aided by favourable changes in inventories. UK, U.S, RoW (Rest of the Mirza International Ltd Sensex
World) sold 90 Mn, 25 Mn and 5 Mn pairs. PAT for Mirza International rose Source: Bloomberg; *Index 100
by 18.3% YoY to Rs. 193 Mn in Q2FY17 as against Rs. 164Mn on YoY.
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 9190 9287 9357 10932 12429
EBITDA 1426 1735 1605 2163 2612
EBITDA Margin (%) 15.5 18.7 17.2 19.8 21.0
Adj. Net Profit 512 781 712 1090 1364
EPS (Rs.) 5.5 7.2 5.9 9.1 11.3
RoE (%) 17.1 20.6 15.0 19.6 20.3
PE (x)* 15.7 13.4 27.2 17.7 14.2
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
yySlowdown in U.S and UK economies due to political risks.
yyLower realizations.
yyIncrease in price of raw materials.
MIRZAINT gave breakout from the downward sloping trend line in the month of April this year and since then the
stock has been in upward trajectory. Year to date, the stock has generated the return of over 90% and in the past
six months the stock has seen upside of over 6%. The stock has largely remained in the range of Rs. 170-150
over past six months. Overall, the stock is looking positive from medium to long term perspective. On the weekly
chart, it is trading above all near term moving averages providing credence to the upward momentum. Immediate
resistance is seen around 165 followed by Rs. 170. Above the level of Rs. 170, the stock could clock the levels of
Rs. 177-180. Immediate support is seen around Rs. 156 followed by Rs. 148.
Recommendation (Rs.)
Inorganic Growth an Appropriate Path Ahead CMP (as on Dec 22, 2017) 648
Zero Debt, Strong Balance sheet with Healthy Free Cash Flows: Target Price 777
MPS Ltd’s ability to maintain its high operating margins, with minimal Upside (%) 20
Capex requirements, has lead to healthy free cash flows, resulting in the Stock Information
strong financial position for the company over the years. The company has Mkt Cap (Rs.Mn/US$ Mn) 12008 / 187
zero debt on its book and we expect the company to maintain the same 52-wk High/Low (Rs.) 775 / 554
during FY18E-19E. 3M Avg.daily volume 27626
Expecting Healthy revenue growth and margin expansion in Beta (x) 0.5
Sensex/Nifty 33940 / 10493
FY18-FY19E: MPS has posted 16.2% revenue CAGR along with 900 bps
O/S Shares(mn) 18.6
margin expansion over FY13-16. In FY17, the margins witnessed pressure
Face Value (Rs.) 10.0
due to operating loss in Magplus. We believe company to continue the
growth momentum and expect to post 8-9% CAGR over FY17-FY19E Shareholding Pattern (%)
mainly driven by its U.S business and acquisitions. We expect 90-100 bps Promoters 67.8
margin expansion, profitability at a CAGR of ~8% and EPS will expand to FIIs 7.5
DIIs 5.7
Rs. 40-45 for the period of FY18E-19E.
Others 19.0
Underwent restructuring, post acquisition: Successful turnaround
Stock Performance (%)
with improved operating efficiency by downsizing its service locations and
1M 3M 6M 12M
increasing the employee count at its low cost Dehradun facility benefited
Absolute 10 12 9 (5)
MPS. Overall, the building blocks are in place and is poised to capture
Relative to Sensex 9 5 0 (27)
incremental opportunities in the outsourced publishing space. Source: Bloomberg
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
not been served through different platforms. MPS has developed a broad
MPS Ltd Sensex
range of customized products and service offerings in order to address
Source: Bloomberg; *Index 100
the varied and expanding requirements of small and medium publishers.
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 2239 2572 2887 3075 3383
EBITDA 804 910 931 984 1120
EBITDA Margin (%) 35.9 35.4 32.2 32.0 33.1
Adj. Net Profit 614 712 700 725 815
EPS (Rs.) 33.0 38.3 39.8 39.0 43.8
RoE (%) 35.3 26.6 23.6 18.9 17.7
PE (x)* 28.6 17.2 17.2 16.6 14.8
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
yyConcentration risk due to dependability on few clients.
yyCurrency volatility could impact revenue estimates.
yyOutcome of inorganic growth.
MPSLTD is in a structural bullish trend making repeated cycles of higher highs and higher lows on the weekly charts.
The counter has generated strong returns for the medium to long term investors where the stock has rallied from
40 odd levels and made all time highs of 1095 levels in the month of April 2015 in a short term time frame of three
years. On the longer term charts, the stock has shown no sign of weakness in the mentioned up move indicating
any correction in the counter may be utilised as a buying opportunity for the medium to long term perspective.
On the other hand, after making all time highs of Rs. 1095 levels, the stock has witnessed a steep round of profit
booking which dragged the stock towards the lower support zone of Rs. 570-600 levels which may be utilised to
enter the counter for long term period. The supports for the stock is placed at Rs. 600-620 followed by Rs. 550
levels on the lower side while resistance is pegged around Rs. 730-750 followed by Rs. 900 levels. Medium to long
term investors may enter the stock at current levels and utilize any dips as a buying opportunity.
partner Lupin became the first to launch gFosrenol in Q2 FY18. Lupin Relative Performance*
200
is expected to be the sole generic in the foreseeable future. The market
170
size is $122 Mn. According to our estimates, Natco is expected to 140
110
make Rs.444 Mn and Rs.761 Mn in profit share for FY18E and FY19E 80
respectively. Natco’s partner Dr.Reddy’s is the second generic in the
May-17
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Apr-17
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Jan-17
Jun-17
Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Net Sales 8,253 11,416 20,650 27,367 33,142
EBITDA 2,134 2,697 6,834 10,612 12,504
EBITDA Margin (%) 25.9 23.6 33.1 38.8 37.7
Adj. Net Profit 1,195 1,552 4,860 7,751 9,091
EPS (Rs.) 8.1 9.1 27.8 42.1 49.3
RoE (%) 17.0 14.4 32.9 39.9 35.3
PE (x) 51.9 45.3 30.6 23.4 20.0
Source: Company, Karvy Research, *Represents multiples for FY15, FY16 & FY17 are based on historic market price
Key Risks
yyU.S Courts ruling against Mylan on any of the 5 Copaxone patents.
yyEarly approvals and launch of both gCopaxone 20mg and 40mg in U.S by Reddy’s and Synthon/Pfizer.
yyEarly approvals and launch of gTamiflu suspension by Lupin, Amneal Pharms and MacLeods Pharms.
yyForm 483 with major observations on any of the Natco’s facility upon inspection by U.S FDA.
DAAWAT: Technical View
NATCOPHARM: Technical View
NATCOPHARMA has witnessed a V-shaped recovery of its fall from the all time high of Rs. 1090 to Rs. 671 levels
which is around 61.8% Fibonacci retracement level from its rally which started around Rs. 389 levels on the weekly
charts and settled above a huge runway gap (Rs. 813-929). The counter has generated more than 68 % returns
in 2017 till date, indicating strong bullish trend. On the weekly chart, the stock is sustaining above all of its major
moving averages suggesting the strength in the counter in all the major time frames. On the other hand, leading
indicators such as parabolic SAR and Heiken candlesticks suggest a positive trend in the weekly charts. The
supports for the stock is placed at Rs. 760-790 followed by Rs. 670-690 levels on the lower side while resistance is
pegged around Rs. 1308 followed by Rs. 1420 levels. Medium to long term investors may enter the stock at current
levels and utilise any dips as a buying opportunity.
Recommendation (Rs.)
Increased Infrastructure Spending and Improving
CMP (as on Dec 22, 2017) 939
Global Macro to Revive Steel Sponge Demand Target Price 1140
Stimulate Sale: Tata Sponge Iron Limited generated higher volume and Stock Information
higher operating profit in FY17 on the back of its continuous efforts to Mkt Cap (Rs.Mn/US$ Mn) 14529 / 227
enhance the value of the product and efficient business and operating 52-wk High/Low (Rs.) 989 / 540
processes. The company produced 3,90,000 MT Sponge iron in FY17 3M Avg.daily volume (Mn) 0.3
as compared to 3,60,446 MT in FY16 which is higher by 8.2% and in Beta (x) 1.2
the process achieved 100% capacity utilisation. Power generation at Sensex/Nifty 33940 / 10493
185.47 MKWH in FY17 vs. 162.83 MKWH in FY16 was higher by 13.9%. O/S Shares(mn) 15.4
The turnover of Rs. 6152 Mn in FY17 has been lower by 2.8% than the Face Value (Rs.) 10.0
previous FY16 turnover. However, with improved margin, the net profit Shareholding Pattern (%)
increased by 84.0% to Rs. 588 Mn. Going forward, the various policy Promoters 54.5
measures announced by the government such as increased spending in FIIs 7.0
infrastructure, affordable housing, smart cities, etc. will generate positive DIIs 0.8
demand for steel and sponge iron. Given this backdrop, we believe that Others 37.7
revenue and net profit margin for TSIL may grow at CAGR of 8.0% and Stock Performance (%)
10.2% respectively during FY17-20E. 1M 3M 6M 12M
Absolute (0) 7 15 70
Greater Collaboration with Tata Steel: The company uses Relative to Sensex (1) 1 6 30
coke-coal and iron ore for production of sponge iron. While it sources Source: Bloomberg
close to 100% of iron ore requirements from its parent company called Relative Performance*
Tata steel, it imports good quality coke-coal from South Africa. In view 175
155
of firming imported Coking-coal prices, the company might follow blend 135
strategy with semi-coking coal which is sourced domestically without 115
95
compromising on quality. The company generates surplus power which
Mar-17
Jul-17
Aug-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
May-17
Feb-17
Sep-17
is sold out to Tata Steel and thus, realization in power business, is given.
Tata Sponge Iron Ltd Sensex
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 6330 6152 7375 7511 7755
EBITDA 240 616 761 778 801
EBITDA Margin (%) 3.8 10.0 10.3 10.4 10.3
Adj. Net Profit 319 588 746 762 787
EPS (Rs.) 20.7 38.2 48.4 49.5 51.1
RoE (%) 3.9 7.0 8.4 8.0 7.8
PE (x)* 22.6 18.3 19.0 19.0 18.4
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Key Risks
yySponge iron industry has to compete against relatively cheaper scrap.
yyNon-availability of suitable grade raw materials.
The stock has resumed its strong up move after making low of around Rs. 338 levels. The uptrend from the said
lower levels has seen making higher high and higher lows on daily charts. Currently the stock is trading in the broad
range of Rs. 900-985 levels with a positive bias. The stock is sustaining well above all its major moving averages
of 50, 100 and 200 DEMA on the daily charts. On technical setup, the 14 period RSI is pointing northwards and
showing comfortable trade on the daily charts. Going ahead the stock is expected to find support around Rs. 900
levels and below that are Rs. 777 levels. Whereas, the resistance is placed around Rs. 985 levels and above that is
Rs. 1020-1050 levels. The recent price action in the stock suggests that every dip in the stock attract market
participants and sustainability above the Rs. 980-985 levels will enhance the confidence amongst the market
participants.
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Apr-17
Oct-17
Jan-17
Jun-17
expansion, the company has allocated capex outlay of Rs. 1000 Mn,
which will be funded largely through internal accruals. With this, the Visaka Industries Ltd Sensex
company will be able to take care of growing demand in this segment. Source: Bloomberg; *Index 100
Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 10049 9667 10130 10960 12145
EBITDA 952 1148 1247 1450 1645
EBITDA Margin (%) 9.5 11.9 12.3 13.2 13.5
Adj. Net Profit 244 408 436 592 739
EPS (Rs.) 15.4 25.7 27.4 37.2 46.5
RoE (%) 7.0 10.5 10.2 12.3 13.4
PE (x)* 6.9 10.5 22.9 16.8 13.5
Source: Company, Karvy Research, *Represents multiples for FY16 & FY17 are based on historic market price
Key Risks
yyStiff competition from alternative products like colour coated sheets, etc.
yySlowdown in industry.
yyShortage of raw materials & currency fluctuation.
The stock price witnessed stellar rally from the lows of 88 levels to an all time high of Rs. 734 made in recent
past, mid of Oct’17, gained more than seven times in less than two years time frame, exhibiting extraordinary
performance of the stock. After placing an all time high stock price entered in to a consolidation mode wherein price
correction remained limited. Technically, stock price is hovering near its 21 & 50-DEMA which is currently placed near
Rs. 630-633 levels, while stock is well poised above its long term moving average 200-DEMA (518). On the weekly
momentum setup 14-period RSI tested 90-levels, post which in recent price correction it managed to holds above
equilibrium levels, which depicts that bulls are still in control of the counter, and possibly accumulation happening
at lower levels. Technically, stock has an immediate support near Rs. 580 levels, followed by Rs. 500-520 levels,
below which next support lies near Rs. 400-410 levels. While on the higher side stock may find immediate resistance
near its all time high of Rs. 734, above which it will march in an uncharted territory over Rs. 780-800 levels where it
is likely to find next resistance, over coming months.
Value Invest - Midcap (VI) is an investment product of Karvy Stock Broking Ltd formulated by our
Equity Fundamental & Technical Research, based on Techno-Funda Analysis. It enlists 10 stocks from the
Karvy Mid-cap stock universe.
The objective of ‘Value Invest - Midcap’ is to deliver superior returns over an extended time frame. The
investment philosophy works on simple but superior fundamental and technical research.
The 10 midcap companies in this product in our opinion reflects superior businesses with consistent future
cash flows, run competently and have potential for exponential stock price growth.
We also track short-term price distortions that create long-term value, driven by sound economic
fundamentals of the company. This reflects stocks that have margin of safety will converge to their intrinsic
value over a period of time and will reflect superior returns.
This is also a part of managing the overall risk, the objective is to attain higher risk adjusted returns and
deliver consistent out-performance.
The stocks performance will be assessed on an ongoing basis and the composition of the stocks in the
product will be altered based on target achievement, changes in the fundamentals of the stocks, industry
position, market performance and broad macro-economic factors.
The product is being given to the clients in the form of non-binding investment recommendations so that
they can decide to capitalise on the robust fundamentals and future plans of the company, which is being
discussed in the report.
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