Analyst Top Ideas (Nov'21) : Strategy

EQUITY RESEARCH
India | Equity Strategy
Strategy
Analyst Top Ideas (Nov'21)
22 November 2021
Key Takeaway
Our India stock analyst team has come up with top Buy and UPF ideas from our
coverage universe. The team adds TVS, HUL, Infosys, Fortis and Max Health to
top Buy, while removing BHFC, Britannia and Tata Steel. The top Buy that remain
unchanged are ICICI, HDFC, I Pru Life, Tata Motors, Maruti, RIL, Guj Gas, L&T, Concor,
Godrej Prop, DLF, Apollo, Bharti, Crompton and Supreme. We add Motherson and
This report is intended for jefferieshk@edelman.com. Unauthorized distribution prohibited.

Lupin to top UPF ideas while retaining M&M, Cummins and Tata Power.
Top Buy ideas

Financials
ICICI Bank (ICICIBC IN; Mcap: US$ 70bn; Buy; PT: Rs 1000; Upside 33%)
• Progressing well on the Beta-to-Alpha trade, as it has been able to manage
its asset quality better than feared and its operating profit has compounded
at a strong 19% over past 3 years. We believe that this transition will be the
bedrock for further compounding & re-rating in the stock.
• Credit costs have averaged at 3% of loans over FY16-21, which we now
see coming down to 1.4% of loans over FY22-24E, as stress on the legacy
corporate portfolio has largely been recognized and retail stress should be
manageable. Moreover, company also carries healthy provision buffer at
1.3% of loans, which provides comfort on asset quality.
• As a result, RoEs have bounced back, and bank delivered 13% RoE in FY21
despite the pandemic. We believe ICICI is well-placed to deliver RoE of
14-15% over FY22-24 & EPS CAGR of 22% over FY21-24.
• ICICI is now a retail-heavy franchise, with retail loans contributing 65%+ of
mix (vs 47% in FY16). SME & business-banking are seeing healthy growth,
reflecting ramp-up of recent initiatives in this segment. On the deposit front,
CASA is now at a strong 46% of deposits, while funding cost at ~4% is among
the best-in-class.
• Valuations at 2.5x 1-yr fwd adj BVPS are at ~37% premium to 5-year average.
However, the sharp improvement in Ibank’s return profile warrants this, and
we believe there is scope for further re-rating (IBank still at ~20% / 38% disc
to HDFCB / Kotak). Our 12-m PT of Rs 1,000 values the bank at 2.8x Sep-23
adj. PB, with subsidiaries contributing another ~Rs 200/share.
• Key risks – Elevated slippages, higher slippages arising out of Covid
restructured book.
HDFC Ltd (HDFC IN; Mcap: US$ 70bn; Buy; PT: Rs 3480; Upside 20%)
• As the largest pure play on mortgages in India, HDFC Ltd. is well-poised
to benefit from improved demand in housing arising from improved
affordability, low interest rates, limited impact of Covid on jobs, and superior
access to funds. Also, HDFC is largely exposed to formal segments where Mahesh Nandurkar *
Equity Analyst
the economic impact of COVID has been low. 78% of the loan book is toward +91 224224 6120
retail mortgages, of which c.80% is toward the salaried segment. As a result, mnandurkar@jefferies.com
we believe HDFC Ltd is best placed among lenders on both asset quality &
Abhinav Sinha *
growth going forward. Equity Analyst
+91 22 4224 6121
abhinav.sinha@jefferies.com
^Prior trading day closing price unless
otherwise noted.
Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on
pages 12 to 17 of this report.
* Jefferies India Private Limited
EQUITY RESEARCH
• Mortgages have very low penetration in India (11% of GDP vs 18% / 52% in
China / US). Moreover, 66% of India’s population is <35 years of age vs 38 years
being the average age of a homebuyer in India. HDFC is a leveraged play on
housing in India — during the previous property upcycle (FY03-13), loan book /
EPS grew at 23%/19% CAGR. This slowed to a 14%/10% CAGR over FY13-21.
With the outlook on property cycle improving, we think HDFC is best placed to
gain.
• In fact, home loan disbursements have grown strongly at 44% YoY in 2QFY22,
after the opening of lockdowns induced by COVID 2.0. We believe HDFC is best
placed to capture pent-up demand for housing once economy normalizes.
• HDFC Ltd has the strongest balance sheet among peers to capitalize on the
growth opportunity — buffer provisions are at 1.3% of loans, and Tier-1 CAR is
very healthy at 22%, bolstered by capital raise some time back
• We believe HDFC Ltd deliver sustainable RoEs of ~13% over FY22-24E, and
uptick in growth should aid valuation re-rating, which is at 2.7x 1-yr fwd adj
BVPS (~15% above the 5-yr avg). Our SOTP-based price target of Rs 3480 (+18%
upside), values the company 2.7x Sep-23 P/ABV, with subs contributing ~Rs
1770/share.
IPRU Life (IPRU IN; Mcap: US$ 12bn; Buy; PT: Rs 830; Upside 34%)
• ICICI Pru Life is well-placed to benefit from new banca partnerships, a better
product mix, a benign base and improving margin profile. Stock trades at 2.5x
FY23E EV (40% discount to HDFC Life). Buy with a PT of INR830
• We believe its discount to sector leader should narrow, as its margin and mix
gap vs. sector leader has also shrunk (VNB margin moved from 17% to 25%
during FY18-21 vs. a 23% to 26% move for HDFC Life)
• IPRU Life is coming out of multiyear weakness in growth (FY19-21 APE CAGR of
-6%, led by -21% CAGR for ULIP). This should give way to healthy 19% CAGR over
FY21-24 as new banca partnerships gain scale, focus on non-par sustains (non-
par savings est CAGR of 30%, protection est CAGR of 20%), and ULIP growth
also revives (16% est CAGR) on low base
• Its recent banca partners (IIB, IDFC First, Au SFB, and RBL) should help expand
bank customer base by 40% and lower reliance on ICICI Bank. Share of non-
ICICI Bank partners has moved up to 11% in FY21 and should rise further as
new banca partners gain scale
• Worst of Covid claims is likely behind. IPRU witnessed lagged claim flows on
Covid wave 2.0 with INR3.6bn of claims settled + intimated in 2Q (vs. INR5bn
Covid claims in 1Q). However, end 2Q Covid reserves stood at INR4.1bn – on
top of INR8.6bn claims paid (& intimated) over 1HFY22. Given declining Covid
infections and deaths (2Q cases/ deaths at 20% of 1Q levels), and vaccination
in full swing, reserves should be adequate for the rest of the year, barring an
unexpected wave-3 claims surge
• Pricing adjustment led slowdown in protection sales is behind, and segment
growth should normalize 2HFY22 onwards. Mgmt is confident of doubling FY19
VNB by FY23, which, if achieved, could provide ~7% upside to our FY23 VNB est
• The stock currently trades at 2.6x 1yr fwd PEV which is ~5% premium to past 5-
year average but does not fully factor in the improved business fundamentals
in our view. We value the stock at 2.9x Sep-23 P/ EV for FY21-24 VNB CAGR of
21%, yielding PT of INR830, with upside risk from attainment of its FY23 VNB
target. Slower growth and weaker mix are key downside risks.
22 November 2021 2
Please see important disclosure information on pages 12 - 17 of this report.
EQUITY RESEARCH
Autos
Tata Motors (TTMT IN; Mcap: US$ 24bn; Buy; PT: Rs 625; Upside 27%)
• An improved strategy and cyclical recovery should drive a strong turnaround in
Tata's India business
• Tata is regaining its lost market share in both trucks and passenger vehicles;
its 1HFY22 shares were at 7-9 year high. We expect strong volume growth and
improving margins for India business
• Tata’s a new sub-compact SUV, Punch, launched in October’21, holds strong
volume potential as it brings SUV body style to a lower price range. (An
Impressive Punch)
• Tata has taken an early leadership in EVs in India passenger vehicle space
with ~70% market share. Stake sale in India EV business to TPG values the
business at US$7-9bn which provides a big value boost to an underappreciated
opportunity and the balance sheet strength to drive portfolio electrification.
Tata plans to spend US$2bn over next five years and expand its portfolio from
2EVs presently to 10 models by FY26. (Big EV Impetus and a Truckload of
Catalysts)
• JLR is focused on improving profit and cash flow with an emphasis on
selling higher-margin SUVs and reducing break-even and warranty costs. Chip
shortages are impacting volumes but should ease gradually. JLR is seeing
good demand, has strong order book and RR/RR-Sport launches should boost
volumes. JLR is lagging peers on electrification but has embarked on a new
roadmap giving it a fresh chance to catch up
• Despite the near-term headwinds, by FY24, we see EBITDA rising ~95% from
FY21, EPS nearing its past peak, and net auto debt falling 85% from FY21
• In our Rs625 PT, we assign Rs350/sh to standalone at 5.8x Sep’23E PB
(15x Sep’23E EV/EBITDA), Rs208/sh to JLR at 2.5x Sep’23E R&D-adjusted EV/
EBITDA and India EV business at Rs67/sh (0.5x transaction value in stake sale
to TPG). On FY24 basis, we see value of Rs700
• Recent report: Weak but In-line 2Q EBITDA; Worst at JLR Behind
TVS Motors (TVSL IN; Mcap: US$ 4bn; Buy; PT: Rs 800; Upside 13%)
• Rising vehicle prices and Covid have pushed Indian 2W industry into its worst
slowdown of four decades. However, we expect a gradual recovery with industry
volumes already at an abnormal cyclical trough
• TVS has gained share in both scooters and premium motorcycles on the back of
good products. Its market share in scooters is up from 14.7% inn FY17 to 19.3%
in 1HFY22, and in premium (125cc+) motorcycles has risen from 10.9% to 20.5%
in over this period. The company is also doing well in overseas markets with its
share in India’s 2W exports rising risen from 11% in FY13 to 25% in 1HFY22
• Improving franchise has helped TVS improved margins in the period of intense
commodity cost inflation. Its EBITDA margin is up from 6.9% over FY10-19 to
8.8% in 1HFY22 and we expect further improvement to 12.0% in FY23-24.
• We expect TVS to deliver 13% volumes, 34% EBITDA and 48% EPS CAGR over
FY21-24
• TVS is also turning more aggressive on EVs and is creating a separate
subsidiary to house the business. The company has earmarked Rs10bn
investments for products and capacity. Potential entry of strategic or financial
investor in the EV subsidiary can drive value unlocking
• Stock is trading at 21x FY23E PE which we find attractive given the strong
earnings growth outlook
• Recent report: Margin Beat and Rising EV Focus
22 November 2021 3
EQUITY RESEARCH
Maruti (MSIL IN; Mcap: US$ 32bn; Buy; PT: Rs 8600; Upside 9%)
• India's PV industry is recovering from its worst downturn in four decades.
PVs are also at cusp of a replacement cycle with average age of vehicles at
multidecade high. Expect industry volumes to grow at 17%/23%/10% YoY in
FY22/FY23/FY24
• Chip constraints are easing, with sequential improvement expected through
Sep to Nov. The company has 200K+ order book, which is ~1.2 months of
volumes on our 2H estimate. Its channel stocks are down to ~60K units, ~1.5
weeks vs normal 4-5 weeks
• We expect margins to recover sequentially as commodity cost pressures are
showing signs of peaking out and higher volumes drive operating leverage
benefit
• A weaker presence in SUVs is a headwind, but the company is likely to launch
a new SUV next year and market share has an upside potential. Potential
upgrades of key models, such as premium hatchback Baleno, should also boost
volumes
• Maruti’s strong CNG focus is a tailwind amid increasing CNG availability and
rising petrol prices
• On a 3 to 5-year view, MSIL’s SUV and electrification strategy would be key for
its franchise
• Expect 18% volume and 43% EPS Cagr in FY21-24E. Stock is trading at a
reasonable 24x FY23E PE
• Recent report: Weak but In-Line 2Q; Better Times Ahead
IT
Infosys (INFO IN; Mcap: US$ 99bn; Buy; PT: Rs 2010; Upside 14%)
• Strong industry growth outlook: Growth in IT spends is set to accelerate driven
by cloud adoption and digital transformation, pick up in IT outsourcing and a
shift of IT spends from Hardware to Software and Service and further from
Software to Services. Gartner thus expects growth in IT services spending to
pick up to 6.3% CAGR in 2021-25 vs 4.1% CAGR in 2015-19
• Infosys well positioned for Industry leading growth: Infosys' timely scale-up of
its digital capabilities and focus on large deals has helped deliver sector-leading
growth over FY18-21 and will continue to drive its growth leadership with 11.8%
cc CAGR over FY22-24E. In addition to this, vendor consolidation and growing
presence in Europe should drive further market share gains
• Credible margin defense: Despite near-term supply side pressure, Infosys has
delivered strong margin performance and its 2Q performance does inspire
confidence in company’s ability to manage its margins. We thus expect margins
to be resilient and to be fairly steady over FY22-24E, leading to a 14% EPS CAGR
over FY22-24E
• Valuations rich but justified: Infosys is currently trading at 31x 12m-fwd P/E
and has re-rated sharply over the last year. However, valuation is justified given
its growth leadership amongst Indian Tier-1 IT services firms. Infosys is trading
at the same multiple as TCS but provides a higher FY22-24E 14% EPS Cagr vs
10% EPS Cagr for TCS, on our estimates.
• Recent Note: 2QFY22 Review: Positive Surprise Continues;
22 November 2021 4
EQUITY RESEARCH
Oil & Gas

Reliance (RIL IN; Mcap: US$ 208bn; Buy; PT: Rs 2880; Upside 22%)
• Retail will show strong sequential growth over 2HFY22 on a strong festive
season and addition of c 25% (1000+ stores) to the existing core B&M network
over 2Q-3QFY22. Margins will improve in 2HFY22 over 1H due to operating
leverage. Proposed new E-Comm rules in the country favor RR over Amazon,
Flipkart and the Tatas. If Future Group is allowed to merge with RR, then it will
create strong omni-channel advantage
• Digital revenues ($2.8bn annualized 2QFY22 GMV) including B2B and B2C
showing strong traction
• Jio’s subscriber decline disappointed. A likely tariff hike induced by the Govt in
2HFY22 to ensure a three player market along with a repricing of the JioPhone
Next’s tariff plans are key triggers to watch out for
• O2C profitability is improving as refining margins recover on Chinese climate
related restrictions and petchem margins sustain at current levels
• Balance sheet strong with less than $10bn net debt by end-FY22, positioning it
well for strong growth in consumer businesses when pandemic passes
• Our PT implies 22% upside. We value Jio at $90bn including $15bn for digital
services, Retail at $104bn including $20bn for e-comm, O2C at $87bn including
$7bn for Upstream gas production JV with BP and the Renewables business
at $ 17bn
Gujarat Gas (GUJGA IN; Mcap: US$ 6bn; Buy; PT: Rs 830; Upside 33%)
• We expect Gujarat Gas to clock a volume CAGR of 14% over FY20-24E, driven
by pickup in ceramic exports driving Morbi volumes (~60% of overall Gujarat
Gas volumes)
• Stronger pricing power (lower competition from polluting fuels) leads to decent
margin outlook while repayment of debt is resulting in lower interest cost
• We thus build in a 26% adjusted EPS CAGR over FY20-24E for GUJGA. A lot
of potential upside optionality exists from a volume perspective which could
result in volumes potentially doubling from current levels
• GUJGA is trading at ~22x FY23E P/E, which is not cheap (Historical 1 year fwd
P/E ~ 20x), but we expect the stock to trade at a premium, given improving
outlook, potential upside optionality, and low volatility in earnings despite much
higher industrial exposure than peers
• We have a PT of Rs 830 based on a 26x P/E
22 November 2021 5
EQUITY RESEARCH
Capital Goods & Logistics

L&T (LT IN; Mcap: US$ 35bn; Buy; PT: Rs 2405; Upside 29%)
• L&T’s E&C revenue and EBITDA rose at 12% and 10% CAGR in FY10-19, despite
the weak capex environment
• Feb 2021 budget directionally talking of growth, and overall spend seeing higher
rise, benefits L&T as they should be able to choose higher margin projects
• Housing sector upturn (house call) will also be beneficial for L&T as Buildings
and factories was 28% of announced order flows at the peak, and is currently
less than 10%
• We believe the peak of non-core investments in behind and L&T has potential
to surprise on execution and order flow expectations
• Prudent capital allocation and ROE improving to 16% in FY24E from 11% in FY21
(14% in FY20) are other triggers
• Our SOTP based PT of Rs2,405/sh, is based on 10x EV/EBITDA Sept. 23E for the
core E&C business, implying 13-14x PE for a business growing at 20%+ CAGR
in FY21-24E and core ROE over 15%
Concor (CCRI IN; Mcap: US$ 5bn; Buy; PT: Rs 870; Upside 39%)
• Limited volume loss despite 10-12% realization hike at Tughlakabad terminal
highlights company’s pricing power
• Land License Fees overhang removed with 35-year land purchase deal
agreement on the anvil
• Our 22% volume CAGR assumption for Concor in FY21-25E (traffic rising 2.2x)
factors the company maintaining its 73-75% mkt share as traffic from road
moves to rail with DFC commissioning
• Privatisation and outflow for land lease agreement vs our outflow expectation
of Rs75 bn are triggers
• Our Rs870 PT is DCF based and implies 17.8x EV/EBITDA Sept. 23E – discount
to the 7-yr average of 20.5x
Real Estate
Godrej Properties (GPL IN; Mcap: US$ 8bn; Buy; PT: Rs 2750; Upside 30%)
• The Indian residential real estate cycle turn-around after an 8-year-long
downturn is now apparent. Vols are off lows but still much lower than previous
peaks. Residential inventory is at 7-year lows, which along with cycle-best
affordability, is providing pricing power for developers.
• The residential market is highly fragmented with large unorganized (~80%)
presence. Regulation, financing, and customer choice is driving consolidation
— and thus major market share gains for listed developers.
• Godrej Properties is India’s largest developer by residential sales. It's also the
only large developer with a significant national presence, evenly distributed
among leading metros. Co. gets ~100% of its value from resi business.
• We expect GPL sales to nearly double over three years, with potential for
positive surprises. Company's balance sheet is almost net cash, which will be
deployed into new project acquisition.
• Our price target of Rs2,750 is based on 50x multiples to normalized profit
margins to sales. New project acquisitions, strong cycle and higher pricing can
drive upsides to sales and earnings estimates.
• Recent report: Strong Sales Performance, Set to Sustain
22 November 2021 6
EQUITY RESEARCH
DLF (DLFU IN; Mcap: US$ 13bn; Buy; PT: Rs 461; Upside 15%)
• A turnaround in India’s housing cycle is driving a strong upturn in the NCR
housing market, which is one of the more cyclical markets.
• DLF is India’s largest listed developer by market cap and has a large, premium
land-bank in NCR. ~70% of its valuation comes from the development company.
• The NCR market has seen significant disruption and consolidation over the
years, and DLF is among the very few survivors. Low inventory and competition
has already helped DLF achieve 10%+ pricing gains in its key NCR micro-
markets.
• Low gearing (0.1x) makes DLF well-placed to go for aggressive launch cycle and
possible new project acquisitions, though management is far more disciplined
now than in the previous cycle.
• Our SOTP-based price target for DLF is at Rs461. We value ongoing and
completed projects on DCF basis and remaining land basis market value of
land.
• Progress on new launches and possible pricing improvement in housing
markets are key triggers for DLF.
• Recent report: Pricing Improvements on High Resi Demand
FMCG
HUL (HUVR IN; Mcap: US$ 75bn; Buy; PT: Rs 2900; Upside 21%)
• HUL stock has underperformed peers over the past 12M due to twin impact of:
a) pressures on discretionary portfolio; b) margin headwinds due to sharp input
inflation
• We expect gradual improvement on both these fronts over the coming quarters.
Demand outlook for HUL is improving as discretionary portfolio makes a come-
back on a low base
• Recovery in discretionary/ OOH, along with product price hikes taken to offset
inflation, should drive a double-digit growth revenue growth in 2HFY22 and
FY23. Volume growth however is likely to remain muted in the near term
• Input inflation for HUL is a mixed bag. While palm, crude and packaging
continues to stay elevated, tea prices have corrected from peak. This, along
with pricing action taken by the company should help margin recovery. HUL, in
fact saw a ~100bps QoQ improvement in gross margins in 2Q; and we expect
a further improvement in 2HFY22.
• Ebitda margin, after staying flattish in FY21 and FY22e, is likely to see to YoY
expansion in FY23e, assuming RM headwinds stabilize. A sharp decline in RM
costs would be an upside risk. We expect a 13% EPS Cagr over FY21-24e
• HUL also leads peers in adoption of new-age channels including B2C e-tail, D2C
and e-B2B (Shikhar). It has ramped up its initiatives on digital-first brands and
a separate premium-beauty unit has been established
• At CMP, the stock is trading at 55x FY23e EPS, close to 5-year average. We have
a Buy rating with a PT of Rs2,900
22 November 2021 7
EQUITY RESEARCH
Pharma & Healthcare

Fortis (FORH IN; Mcap: US$ 3bn; Buy; PT: Rs 326; Upside 22%)
• Fortis will be adding 200-300 new beds each year adding a total of 1,000+ in
next 3-4 years.
• Price hikes and return of international patients will help to sustain high ARPOB
levels
• Diagnostics margin have recovered from ~20% to over 25% and will remain in
23-25% levels. Management remains confident of double-digit growth for the
division in mid-term/long term
• Management plans to continue their cost reduction & optimization programs;
turnaround of low margin hospitals can add further margin tailwinds
• We value Fortis using SOTP method with hospitals division at 24x FY23 EBITDA
and Diagnostics at 30x FY23 EBITDA. Our price target is INR326.
Max Healthcare (MAXHEALT IN; Mcap: US$ 4bn; Buy; PT: Rs 427; Upside
25%)
• Max has industry-leading EBITDA margins despite low-paying patient being
32% of the total. The company plans to decrease their bed share to 15% in next
2-3 years
• International patients which have 40% higher ARPOB and added 10% of the
total revenue pre-pandemic are currently contributing just 3%. Max aims to take
international patients’ contribution to double and higher than pre-pandemic
levels
• Max healthcare will be adding more than ~2,300 beds in next 5 years on a
current base of ~3,250 operational beds which is the largest expansion plans
among Indian hospital names. The capex program will be funded from internal
accruals
• Max healthcare has reduced leverage from over ~4x net debt/EBITDA to less
than 0.2x in less than 18 months
• We value Max Healthcare at 27x FY23 EBITDA with PT of INR427
Apollo Hospitals(APHS IN; MCap: US$ 11bn; Buy; PT: Rs 6510; Upside 20%)
• Key driver for Apollo hospitals is the newly formed Apollo Healthco Limited
which will house both Pharmacy Back-end and the new digital business 24/7
• Apollo pharmacy continues to add stores aggressively and is expected to
grow topline at 18-20% per annum in the foreseeable future. Apollo pharmacy
is India largest organized pharma retail chain and still accounts for <1% of
total pharmacies in India, showcasing low penetration of organized retail in
pharmacies in India
• Apollo’s digital foray 24/7 aims to do USD60mn sales in FY22, primarily led
by ePharmacy business. The competitor in this space is Pharmeasy which is
the largest ePharmacy in India. However, the overall eHealth space in India is
nascent with opportunity to grow in double digits over the next decade
• Hospital division has room for improvement as international patients come
back which have higher profitability
• We value Apollo Hospitals using SOTP method with hospital EV at USD7.2bn
and HealthCo EV at USD5.5bn
22 November 2021 8
EQUITY RESEARCH
Telecom
Bharti Airtel (BHARTI IN; Mcap: US$ 57bn; Buy; PT: Rs 925; Upside 25%)
• Focus shifting towards boosting realizations: Bharti's 20-25% hike in the
prepaid tariffs reflects that its focus is moving towards boosting realizations
as against gaining market share aggressively. We believe Reliance Jio may hike
tariffs too as Bharti's 20-50% premium offers significant headroom for Reliance
Jio to raise tariffs
• Subscriber market share gains to continue: While the government’s relief
measures have ensured VIL’s survival in the medium term, subscriber market
share gains in favour of Bharti Airtel will continue to play out, in our view
• Strong traction in Non-mobile segment: Airtel has continued to surprise
positively on Homes and Enterprise segment. Management continues to
expand its presence in the Homes segment and is confident of growth in
connectivity-related solutions and CPaaS solutions in the Enterprise segment.
This should help complement strong growth in India mobile business
• Improving Cash flows: Tariff hikes would result in significant improvement in
Bharti’s cashflows. Despite our projection of US$11bn capex including US$2bn
for 5G spectrum, we expect Bharti to deliver US$5.3bn of cumulative FCF over
FY23-24
• Recommend Buy: Over FY22-24, we expect Bharti Airtel to deliver 17% CAGR in
revenues and 21% CAGR in EBITDA assuming no further tariff hikes till 4QFY24.
Our PT implies a consolidated EV/Ebitda of 8.8x, largely in line with Bharti's 3-
yr average of 8.6x
• Recent Report: Taking the lead on tariff hikes; Maintain BUY
Midcaps
Crompton Consumer (CROMPTON IN; Mcap: US$ 4bn; Buy; PT: Rs 580;
Upside 30%)
• Crompton is the market leader in Fans (27% share in Q2FY22). Company’s
sales (dealers, retailers), manufacturing and logistics continued to function
smoothly in Q2. Alternate channels, rural (+196%YoY) and Ecommerce (+45%),
aided growth. Crompton’s key segmental market share currently is as follows
- Fans 27% (+180bps), B2C LED Lighting 9% and Geysers ~15%. Company has
strengthened its distribution and is now able to track ~83% of its secondary
sales
• Crompton mgmt foresees that healthy OPM could sustain, driven by three key
levers – price hikes, cost control and premiumization. Price hikes at 6-7% YTD
(+3-4% in Q2). Company achieved cost saving of Rs480mn during July-Sept’21
via 'Unnati' Project. Also, in view of the inflationary pressures, Crompton has
booked advance contracts in commodities. Net Cash at Rs8.9bn as of Q2. Also,
the company embarks on an asset-light model, with a judicious mix of in-house
manufacturing and outsourcing (around 50:50 blended mix now). This asset-
light strategy supports the high RoCE (~40%) for the company
• We have a Buy on the stock with PT of Rs 580, +26% upside from CMP; Target PE
is at 45x (premium to historical average), in view of the robust category growth
prospects, as well as numerous initiatives embarked upon by the company
(cost savings, distribution etc.). Over FY20-24e, we estimate +19% PBT CAGR,
with +230bps op-margin expansion, driven by premiumization, cost savings
('Unnati'), potential share gains, launches, GTM, and a sturdy balance sheet
22 November 2021 9
EQUITY RESEARCH
Supreme Industries (SI IN; Mcap: US$ 4bn; Buy; PT: Rs 3140; Upside 45%)
• Supreme is the leader in Indian PVC plastic pipes, on the back of a diversified
portfolio (~8,000 SKUs in pipes), formidable market share, array of value-
added product launches (40%+ of sales mix in FY21), expansive manufacturing
(25+plants), and distribution (3,400+ channel partners). SI has been gaining
good traction in this margin-accretive segment, and posted growth of +42% in
Q2 at Rs7.5bn. In FY21, VAS was ~40% of SI's sales (38% in FY20). Higher VAS
aids margin expansion
• SI enjoys an entrenched pan-India manufacturing and distribution network and
is adding further capex as well. SI's FY22 outlay pegged at Rs5.2bn including
carry forward from last year. The bulk of this capex would be towards appending
capacities in Pipes (+38K MT) and Packaging. Plants in Guwahati, Erode and
Cuttack are likely to be operational sometime in Jan May'22. SI's cumulative
capacity in FY21 stood at 697K MT and could increase by +50K MT in FY22
• Over FY20-24e, we estimate SI's sales/ PAT could register +15%/27% CAGR,
aided by industry opportunity, higher value-added mix, new launches, cost
control, and op leverage (pipes volume growth at +7% CAGR). We have a Buy on
Supreme with PT of Rs 3,140, implying +39% upside to CMP. Target P/E at 35x,
a ~20% premium to historical 5-year avg, in view of superior earnings growth
vs. past 5 years and buoyant industry opportunity
Top UPF ideas

Autos
M&M (MM IN; Mcap: US$ 15bn; UPF; PT: Rs 670; Downside 26%)
• Tractor demand is weakening after double-digit growth in four of the last five
years (FY16-21 CAGR: 13%). Registration fell ~20% YoY in Sep-Oct; wholesales
fell 16% in Aug-Sep and were flattish in Oct. We see MM’s tractor volumes rising
just 3% in FY22 (implies 14% decline in Nov-Mar) and falling 5% in FY23.
• MM’s SUV market share has fallen from 55% in FY12 to just 14% in 1HFY22
despite multiple launches. The new Thar and XUV7OO are getting good
response though; MM has SUV order book of 160K+ units (~8x Oct volumes).
We recognize the good traction for MM’s new SUVs but believe SUVs alone are
insufficient to drive the stock up.
• After a few prudent capital decisions in 2020, we find MM's capital discipline
loosening again. Gross investments, excl. Ssangyong & MVML, rose 32%
YoY to Rs218bn (Report link: Annual Report Analysis). MM plans to spend
Rs170bn over FY22-24, similar to FY18-20; this will include Rs15bn in auto/
farm subsidiaries including a luxury EV Battista and Rs35bn in growth gems
(includes solar & steel processing) and digital platforms.
• We are also skeptical of MM's ability to deliver on its target of 15-20% revenue
and EPS CAGR over FY21-25; we have flattish earnings over FY21-23.
• Even if one ignores losses in unlisted subsidiaries and values listed ones at
market prices (25% hold-co discount), core business is at 17x FY23E PE vs long-
term average of 15x despite tractors at cyclical high.
• Recent report: Decent 2Q but Tractor Outlook Deteriorating
Motherson Sumi (MSS IN; Mcap: US$ 10bn; UPF; PT: Rs 190; Downside 17%)
• Easing of chip shortages should drive a sequential pickup in Motherson’s
financial performance.
• However, even after factoring in strong top-line growth and all-time high
margins at SMP/SMR, our FY22-24 EPS is 13-23% below consensus. FY22-23E
22 November 2021 10
EQUITY RESEARCH
consensus EPS has been cut by 11-25% in the last six months, and we expect
street earning downgrades to continue.
• Stock is trading at a rich 28x FY23E versus long-term average of 20x and
2015/2017 peaks of 28-29x.
• Our PT of Rs190 is based on 27x Sep-23E PE for India operations and 13x
Sep-23 PE for overseas subsidiaries.
• Recent report: Big Miss in 2Q; Street Estimates and Valuations Too High
Pharma & Healthcare

Lupin (LPC IN; Mcap: US$ 5bn; UPF; PT: Rs 836; Downside 4%)
• Lupin has three USFDA non-compliant facilities that are not generating enough
asset turns, Goa facility was recently inspected and resulted in 8 observations
• Albuterol revenue to peak out in 3QFY22 but US portfolio suffers high
competition and high single digit erosion
• A large chunk of Lupin’s US and India portfolio consists of licensed products
that are low margin products with low growth potential
• Increasing raw material costs, operating and royalty expenses to pose
challenges to near term earnings
• We value Lupin at 23x FY23 EPS with PT of INR836
Capital Goods & Power

Cummins (KKC IN; Mcap: US$ 3bn; UPF; PT: Rs 590; Downside 33%)
• Cummins is not the company of 2008 as it is facing aggressive competition
particularly from global major Perkins which set up its India factory in 2015-16
• Pricing power has weakened drastically which reflects in the 290 bps margin
decline from 18.2% in FY13 to 15.3% in FY19, despite FY16 and FY19 seeing
19% YoY growth in domestic genset sales
• CPCB upgrade linked cost increases should reflect in margins going lower as
price increases will be difficult
• Ministry of Power draft amendment discouraging the use of DG sets clouds
medium growth outlook
• Gross block rose 4x in FY09-19, while sales is up only 1.7x. We believe the
expansion plans factored stronger domestic and export growth vs the reality
that panned out
• Return ratios will bear the brunt of the demand overestimation, capping ROE to
18% levels despite recovery in FY22E
• Our PT of Rs590 values the company at 18x PE Sept. 23E, which reflects the no
earnings growth in FY22E-23E
Tata Power (TPWR IN; Mcap: US$ 10bn; UPF; PT: Rs 112; Downside 51%)
• Management outlined a plan for 15% revenue and 25% profit CAGR between
FY20-25E and 12% ROE by FY25E from 6%
• Our concern remains that a competitive landscape and capex will keep ROE
below 13% in the medium term
• Renewable energy asset monetization is key for debt reduction and plans are
seeing delays
• Mundra tariff hike resolution is not seeing a favorable stance from SEBs yet
• Our SOTP based PT of Rs112, values the Power business at 9x EV/EBITDA
FY23E (premium to our PT multiple for NTPC). This implies a consolidated 11.9x
PE Sept 23E given the limited growth expectations and muted ROE.
22 November 2021 11
EQUITY RESEARCH
We would like to thank Amol Bhoir, employee of Evalueserve Inc., for providing research support services to our preparation of
this report.
Company Valuation/Risks
For Important Disclosure information on companies recommended in this report, please visit our website at https://
javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.
Analyst Certification:
I, Mahesh Nandurkar, certify that all of the views expressed in this research report accurately reflect my personal views about the
subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly,
related to the specific recommendations or views expressed in this research report.
I, Abhinav Sinha, certify that all of the views expressed in this research report accurately reflect my personal views about the subject
security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related
to the specific recommendations or views expressed in this research report.
Registration of non-US analysts: Mahesh Nandurkar is employed by Jefferies India Private Limited, a non-US affiliate of Jefferies
LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies
LLC, a FINRA member firm, and therefore may not be subject to the FINRA Rule 2241 and restrictions on communications with a
subject company, public appearances and trading securities held by a research analyst.
Registration of non-US analysts: Abhinav Sinha is employed by Jefferies India Private Limited, a non-US affiliate of Jefferies LLC
and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC,
a FINRA member firm, and therefore may not be subject to the FINRA Rule 2241 and restrictions on communications with a subject
company, public appearances and trading securities held by a research analyst.
Registration of non-US analysts: Amol Bhoir is employed by Jefferies India Private Limited, a non-US affiliate of Jefferies LLC and
is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a
FINRA member firm, and therefore may not be subject to the FINRA Rule 2241 and restrictions on communications with a subject
company, public appearances and trading securities held by a research analyst.
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in
this report receives compensation based in part on the overall performance of the firm, including investment banking income. We
seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry
reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's
judgement.
Investment Recommendation Record

(Article 3(1)e and Article 7 of MAR)
Recommendation Completion November 22, 2021 , 11:16 ET.
Recommendation Distributed November 22, 2021 , 11:16 ET.
Company Specific Disclosures

Jefferies acted as Sole Financial Advisor to Tikona on the Sale of its 4G Business including the Broadband Wireless Access spectrum
and 350 sites in five telecom circles to Bharti Airtel
Jefferies is acting as an exclusive financial advisor to Unison Capital Partners IV, LPS and Unison Capital IV(F), L.P. (collectively
“Unison”) on the acquisition of all of the common shares of Kyowa Pharmaceutical Industry Co., Ltd. (“Kyowa” or the “Company”)
held by Lupin Limited (“Lupin”).
Jefferies is acting as an exclusive financial advisor to Unison Capital Partners IV, LPS and Unison Capital IV(F), L.P. (collectively
“Unison”) on the acquisition of all of the common shares of Kyowa Pharmaceutical Industry Co., Ltd. (“Kyowa” or the “Company”)
held by Lupin Limited (“Lupin”).
Daniel T. Fannon holds a long equity position in KKR & Co
Ranjeet Kumar Jaiswal has a personal holding in Tata Motors (TTMT IN) securities.
Jefferies Group LLC makes a market in the securities or ADRs of Hindustan Unilever.
Jefferies Group LLC makes a market in the securities or ADRs of ICICI Bank.
Jefferies Group LLC makes a market in the securities or ADRs of Infosys.
Jefferies Group LLC makes a market in the securities or ADRs of ICICI Prudential Life Insurance Company.
Jefferies Group LLC makes a market in the securities or ADRs of Max Healthcare Institute Ltd.
Within the past 12 months, Jefferies Group LLC, its affiliates or subsidiaries has received compensation from investment banking
services from Godrej Properties Ltd.
22 November 2021 12
EQUITY RESEARCH
Within the past twelve months, Godrej Properties Ltd has been a client of Jefferies LLC and investment banking services are being
or have been provided.
Jefferies Group LLC, its affiliates or subsidiaries is acting as a manager or co-manager in the underwriting or placement of securities
for Housing Development Finance Corp. Ltd. or one of its affiliates.
Within the past twelve months, Housing Development Finance Corp. Ltd. has been a client of Jefferies LLC and investment banking
services are being or have been provided.
for ICICI Bank or one of its affiliates.
for ICICI Prudential Life Insurance Company or one of its affiliates.
Jefferies Group LLC, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services
from Max Healthcare Institute Ltd within the next three months.
for Max Healthcare Institute Ltd or one of its affiliates.
Within the past twelve months, Max Healthcare Institute Ltd has been a client of Jefferies LLC and investment banking services
are being or have been provided.
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services to Max Healthcare Institute Ltd.
For Important Disclosure information on companies recommended in this report, please visit our website at https://
javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.
Explanation of Jefferies Ratings

Buy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month
period.
Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within
a 12-month period.
Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less
within a 12-month period.
The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below
$10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold
rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is
plus or minus 20% within a 12-month period. For Underperform rated securities with an average security price consistently below
$10, the expected total return (price appreciation plus yield) is minus 20% or less within a 12-month period.
NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable
regulations and/or Jefferies policies.
CS - Coverage Suspended. Jefferies has suspended coverage of this company.
NC - Not covered. Jefferies does not cover this company.
Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable
securities regulations prohibit certain types of communications, including investment recommendations.
Monitor - Describes securities whose company fundamentals and financials are being monitored, and for which no financial
projections or opinions on the investment merits of the company are provided.
Valuation Methodology
Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and
expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are
not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF),
free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/
average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months.
Jefferies Franchise Picks

Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month
period. Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction,
22 November 2021 13
EQUITY RESEARCH
differentiated analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies
Franchise Picks will include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion.
Stocks will be added as new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired
return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility in the bottom quartile of S&P
stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intended to represent
a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment
style such as growth or value.
Risks which may impede the achievement of our Price Target

This report was prepared for general circulation and does not provide investment recommendations specific to individual investors.
As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own
investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors
as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an
indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this
report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument
is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of,
value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs,
whose values are affected by the currency of the underlying security, effectively assume currency risk.
Other Companies Mentioned in This Report
• Apollo Hospitals Enterprise Limited (APHS IN: INR5,589.15, BUY)
• Bharti Airtel (BHARTI IN: INR714.20, BUY)
• Container Corporation of India Ltd. (CCRI IN: INR653.00, BUY)
• Crompton Greaves Consumer Electricals Limited (CROMPTON IN: INR451.70, BUY)
• Cummins India Limited (KKC IN: INR915.20, UNDERPERFORM)
• DLF Limited (DLFU IN: INR416.05, BUY)
• Fortis Healthcare Ltd. (FORH IN: INR283.30, BUY)
• Godrej Properties Ltd (GPL IN: INR2,182.30, BUY)
• Gujarat Gas Ltd. (GUJGA IN: INR638.10, BUY)
• Hindustan Unilever (HUVR IN: INR2,397.65, BUY)
• Housing Development Finance Corp. Ltd. (HDFC IN: INR2,924.85, BUY)
• ICICI Bank (ICICIBC IN: INR763.20, BUY)
• ICICI Prudential Life Insurance Company (IPRU IN: INR640.70, BUY)
• Infosys (INFO IN: INR1,780.70, BUY)
• Larsen & Toubro (LT IN: INR1,898.05, BUY)
• Lupin Ltd. (LPC IN: INR899.40, UNDERPERFORM)
• Mahindra & Mahindra Limited (MM IN: INR923.80, UNDERPERFORM)
• Maruti Suzuki India Limited (MSIL IN: INR8,112.80, BUY)
• Max Healthcare Institute Ltd (MAXHEALT IN: INR357.15, BUY)
• Motherson Sumi Systems Ltd (MSS IN: INR237.55, UNDERPERFORM)
• Reliance Industries (RIL IN: INR2,472.75, BUY)
• Supreme Industries Limited (SI IN: INR2,231.05, BUY)
• Tata Motors (TTMT IN: INR509.90, BUY)
• Tata Power (TPWR IN: INR236.95, UNDERPERFORM)
• TVS Motor Company Limited (TVSL IN: INR723.55, BUY)
Distribution of Ratings
Distribution of Ratings
IB Serv./Past12 Mos. JIL Mkt Serv./Past12 Mos.
Count Percent Count Percent Count Percent
BUY 1913 63.30% 155 8.10% 20 1.05%
HOLD 979 32.40% 30 3.06% 6 0.61%
UNDERPERFORM 130 4.30% 1 0.77% 0 0.00%
22 November 2021 14
EQUITY RESEARCH
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22 November 2021 15
EQUITY RESEARCH
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22 November 2021 16
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EQUITY RESEARCH

India | Equity Strategy

This report is intended for jefferieshk@edelman.com. Unauthorized distribution prohibited.

Top Buy ideas

Oil & Gas

Capital Goods & Logistics

Pharma & Healthcare

Top UPF ideas

Pharma & Healthcare

Capital Goods & Power

Investment Recommendation Record

Company Specific Disclosures

Explanation of Jefferies Ratings

Jefferies Franchise Picks

Risks which may impede the achievement of our Price Target

IB Serv./Past12 Mos. JIL Mkt Serv./Past12 Mos.

Count Percent Count Percent Count Percent

BUY 1913 63.30% 155 8.10% 20 1.05%

HOLD 979 32.40% 30 3.06% 6 0.61%

UNDERPERFORM 130 4.30% 1 0.77% 0 0.00%

Other Important Disclosures

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