Sharekhan Q3FY23 Results Review

Sharekhan Special
February 22, 2023
Index
Q3FY2023 Results Review
Automobiles •
Banks •
NBFC/AMC/Insurance •
Capital Goods & Power •
Consumer Discretionary •
Consumer Goods •
Cement •
Infra/Building Materials/Logistics/Realty •
IT •
Oil & Gas •
Agri Inputs and Specialty Chemical •
Miscellaneous •
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Results Review
Modest growth driven by banks/auto; Metals laggard
Summary:
Aggregate earnings of Nifty 50 companies grew by ~11% y-o-y (slightly below our estimates of 14% growth) in Q3FY2023. Banks/
Autos continued to remain bellwether, while commodities (such as metal/cement) were laggards. Excluding BFSI, Nifty 50 earnings
grew by just 1% as compared to Q3FY2022.
Of the Nifty 50 companies, 50% beat PAT estimates, while 40% missed estimates. For SK’s Coverage universe, earnings growth of
12% was marginally ahead of our estimate of 11% during the quarter.
Margin pressure continued for sectors such as cement, metals, healthcare, and oil and gas. Excluding BFSI, EBITDA margins of
Nifty 50 companies declined by 184 bps y-o-y due to reduction in gross margin amid higher input cost.
Management commentary hints at weakness in consumer demand in January but expects it to improve gradually with easing
inflationary pressures and decent Rabi season. On the brighter side, order inflow and demand outlook by capex-driven companies
have been encouraging during the quarter. Moreover, consensus earnings estimates for FY2024 have largely remained stable in
the result season.
Nifty’s valuation stands at 18x FY2024E EPS, which is at a discount to 10-year average. Moreover, the premium of the Indian market
over the Chinese market has also narrowed down to long-term average of 110-115% premium now. Thus, Nifty is at a comfortable
valuation level now both from absolute and relative perspective. However, the global environment has turned negative lately
with better-than-expected economic data in the U.S. and Europe are fuelling of an extended rate hike cycle and the global equity
markets are adjusting accordingly. From an investor’s perspective, the rangebound movement could continue for some more time
and offer a great opportunity to accumulate good-quality stocks at reasonable prices for handsome gains over 12-24 months.
High-conviction investment ideas:
o Large-caps: Infosys, Bharti Airtel, Axis Bank, SBI, ITC, UltraTech, M&M, and L&T
o Mid-caps: Varun Beverages, Bluestar, HAL, APL Apollo, Persistent Systems, PI Industries, Trent, and Macrotech
o Small-caps: Gujarat Fluoro, Jyothy Labs, Lemon Tree, Finolex Cables, Himatsingka Seide, KSB, and Greaves Cotton
Q3FY2023 earnings review: Nifty’s earnings marginally below estimates; SK universe’s earnings posted marginal beat
Aggregate revenue/EBITDA/PAT growth for Nifty companies came in at 18%/13%/11% y-o-y vs. our estimates of 16%/12%/14% y-o-y
growth. Revenue growth surprised positively and was above estimates. Excluding metals and OMCs, earnings of Nifty 50 companies
grew strongly by 28% y-o-y. Around ~50% of the Nifty 50 companies reported earnings beat, while 42% companies missed estimates
and 8% reported in-line earnings. Nifty 50 earnings have been marginally tweaked downward for FY2023E but have been maintained
for FY2024E.
Within the Sharekhan coverage universe, Q3FY2023 aggregate revenue/PAT grew by 19%/12% y-o-y, both were marginally above
estimates versus expectation of 18%/11% y-o-y growth. Earnings growth was driven by banks, NBFCs, auto, capital goods, power
utilities, and consumer goods offsetting earnings decline from metals, O&G, cement, consumer discretionary, and specialty chemical.
Key Sector Watch:
Earnings growth of BFSI companies, especially for banks, was led by continued strong loan growth momentum, margin expansion,
and benign credit costs.
Auto sector’s growth was led by strong volume growth (except for 2W), led by sustained healthy demand from PVs and CVs as
supply-side issues are largely over, along with moderating commodity cost inflation, which supported margins. However, export
demand was muted.
Sectors including cement, metals, oil and gas, chemical, consumer discretionary, and infrastructure continued to see EBITDA margin
contraction due to higher input costs.
Consumer discretionary demand moderated during the quarter on account of some moderation in urban demand; while for consumer
goods, volume growth remained muted due to weak rural demand. However, commentary remained positive about rural demand
picking up going forward.
For the oil and gas sector, GRMs remained strong as well as gross marketing margin turned positive for OMCs. Upstream PSUs
benefited from gas price hike and operational performance was largely in-line. CGDs/gas utilities disappointed with sharp earnings
miss due to weak margins and gas sales volume were also subdued.
The IT sector’s revenue growth and deal pipeline remained healthy, and margins improved sequentially. Supply-side issue is expected
to ease further, which would provide headroom for margins in the near to medium term. Going forward, commentary on the potential
deals depending upon IT budget spends taking into consideration the global macro environment would be the key monitorable.
Outlook
Demand recovery key to corporate earnings growth: Moderation in urban consumption and sluggish rural demand amid high inflation
has been a concern in 9FY2023. Thus, corporate earnings would largely be a function of demand recovery, which we believe has legs
for improvement and would get support from a likely decline in CPI and higher government spends, as it is a pre-general election year
(CY2023). A sustained recovery in demand and capex investment revival would aid recovery in economic growth (7% plus GDP growth)
and drive sustained earnings growth momentum for corporate earnings.
Overweight sectors - Banks, capital goods, industrial/engineering, autos, consumer discretionary, and IT services
Underweight sectors - Metals, oil and gas, and pharma
Valuation
Look beyond volatility: The benchmark indices – Nifty and Sensex have corrected by 4 and 2%, respectively, in CY2023 YTD and
are expected to remain volatile in the near term as global inflation provides a limited scope for interest rate cuts by large central
banks. Despite a challenging global back drop, India continues to remain the fastest-growing economy and corporate earnings growth
is resilient (expect a 14% CAGR in earnings of Nifty 50 over FY2022-FY2024E and over 20% growth in BSE 500 companies). Nifty’s
valuation of 21x/18x/16x its FY2023E/FY2024E/FY2025E EPS is at a discount to 10-year average multiple. Investors should utilise every
dip in the market to accumulate quality companies with a strong earnings outlook (See Preferred Picks), where we find strong earnings
visibility over the next 2-3 years and they are available at relatively reasonable valuations.
Key risks:
Slower-than-expected earnings growth in FY2024/FY2025 and a possible downgrade in consensus earnings estimates with global
uncertainties, geopolitical tensions, and input cost pressure on rising inflationary trends across most sectors.
February 22, 2023 2

Results Review
Sector wise Q3FY2023 review snapshot
Agri Inputs & Specialty Chemicals Sector view: Positive
Agri input companies posted phenomenal earnings growth in Q3FY2023, primarily led by price hikes. Sumitomo Chemical
was the sole underperformer. Growth guidance is maintained by most companies.
Speciality chemical players disappointed as revenue was under pressure due to subdued demand, but margins improved
on lower cost pressures.
Near-term demand concerns persist for speciality chemical players with high exposure to exports/discretionary sectors,
given talks of global economic slowdown. Having said that, recent plant closures in Europe provide a ‘Europe +1’
opportunity and scope for market share gain for Indian chemical players, given the massive capex plan. Long-term
earnings growth for the sector remains intact, and recent market volatility provides an opportunity to invest in quality
companies.
Preferred picks: UPL, PI Industries, Sumitomo Chemical India, SRF, NOCIL, Vinati Organics and Gujarat Fluorochemical
Automobiles Sector view: Positive
Soft RM basket and improvement in semiconductor chips availability led to a strong operating performance as our auto
universe (ex. TML) registered 137 bps y-o-y and 73 bps q-o-q improvement in operating margin.
Tata Motors, M&M, Bajaj Auto, and Amara Raja surprised positively, while BKT, Greaves Cotton, Escorts, and VST Tillers
surprised negatively.
We continue to remain positive on the auto sector in expectation of cyclical uptick in demand and correcting RM
basket, though the wholesales volume performance in Q4FY2023 is subjected to dealer inventory management due to
introduction of OBD2 norms from April 2023 rather than available demand in the premium segment
Preferred picks: OEMs: Ashok Leyland, M&M, Maruti, TVS Motors, and Tata Motors
Auto-Ancillaries: Bosch, Amara Raja Batteries, Greaves Cotton, Lumax Auto Technologies, Schaeffler India, and Gabriel
India
Banks Sector view: Private Banks - Positive; PSU Banks – Positive
Banks in our coverage universe reported healthy loan growth of 19% y-o-y/4% q-o-q in Q3FY23. Credit growth remained
healthy, with large private banks reporting 18% y-o-y/3% q-o-q growth. Mid-tier and small private banks reported 21%
y-o-y/5% q-o-q and 26% y-o-y/5% q-o-q growth in advances, respectively, while PSU banks reported 19%y-o-y/4% q-o-q
growth in advances.
Deposit growth remained tepid, rising 2% q-o-q, but private banks performed better at 4% q-o-q, mainly led by higher
term deposits, while CASA growth remained weak across banks. Overall operating profit for our universe grew by 31%
y-o-y/15% q-o-q. Robust operating performance was driven by strong NII growth, which in turn was driven by healthy
loan growth and margin expansion. For PSBs, higher treasury profits boosted operational performance besides strong
NII growth.
Asset quality improved, while the restructured book shrunk. In absolute terms, GNPAs and NNPAs fell by 15% y-o-y/5%
q-o-q and 29% y-o-y/6% q-o-q, respectively, for our coverage, led by lower slippages, higher recoveries, upgrades, and
contained write-offs.
Top preferred picks: Large Private Banks – ICICI Bank, Axis Bank, HDFC Bank, and Kotak; Mid-tier Private Banks –
Federal Bank; Small Private Banks – AUSFB; PSBs – SBI and PNB remain our top preferred picks.
NBFC, Insurance, AMC Sector view: NBFC - Positive; Insurance – Neutral; AMC - Neutral
NBFCs – Loan growth continued to remain strong across our NBFC coverage universe (barring LICHF), driven by strong
demand across product segments (vehicle loans demand was especially robust due to the festive season). Margin
compression was lower than expected, as most lenders managed to pass on the rates and manage better ALM mix.
We believe the interest rate cycle is close to its peak, which should benefit these lenders. Most lenders reported an
improvement (or stability) in asset quality.
Insurance – APE growth remained lower for most players, but VNB margins improved, driven by a favourable product
mix. Non-PAR savings and the annuity segment reported strong growth for life insurers. Group protection saw healthy
trends, while retail protection revived on a q-o-q basis. For general insurers, GDPI growth was strong, driven by health
and commercial lines, although earnings were impacted by lower investment yield q-o-q and higher claims y-o-y.
AMCs –NAM India reported stable numbers. Top-line yields improved sequentially by 1 bps. QAAUM grew by 4%
y-o-y/3% q-o-q. However, yield compression going forward poses a challenge.
Top Preferred picks: NBFCs: HDFC Limited, Chola, M&M Finance, Can Fin Homes Limited, and Bajaj Finance
February 22, 2023 3

Results Review
Capital Goods/Power Sector view: Positive
Revenue of project-based companies rose by 15.8%, led by an all-time high order book. However, operating profit and
net profit lagged expectations, rising by 6.3% y-o-y and 19.3% y-o-y, respectively, while OPM fell by 106 bps y-o-y/118
bps q-o-q. Project-based companies were optimistic on the future domestic order pipeline but were watchful on exports.
Product-based companies’ revenue growth lagged expectations at 6.5% y-o-y, as few companies under coverage faced
demand challenges. OPM, however, increased by 113 bps y-o-y/128 bps q-o-q as raw-material costs and other expenses
declined. Net profit rose by 27.7% y-o-y due to healthy operating performance and overall steady growth in other income
and taxation.
Power PSUs’ earnings beat expectations with 18%/11% y-o-y PAT growth for NTPC/Power Grid. Tata Power’s PAT also rose
122% y-o-y, led by strong coal/standalone profit and exceptional income. NTPC’s strong commercialisation guidance
bodes well for earnings growth, while Power Grid’s works in hand of Rs. 47,600 crore provide it decent growth visibility.
Asset monetisation by power PSUs provides scope for higher dividend payout.
Preferred picks:
Project-based: L&T, HAL, Cummins India, CUMI, Honeywell Automation, and KOEL
Product-based: Blue Star, Polycab India, KEI Industries, and Finolex Cables
Power: NTPC, Power Grid, and Tata Power
Cement Sector view: Positive
For Q3FY2023, the cement sector reported a 17.1% y-o-y rise in revenue, aided by an 11.5% y-o-y volume growth and 4.6%
y-o-y rise in realisations.
EBITDA/tonne, although down 14% y-o-y, remained in line with estimates. Power and fuel costs per tonne softened q-o-q
and are expected to decline in Q4.
The cement sector continues to attempt price hikes in the fag end of February. Possible GST rationalisation remains on
the card, which can enable incremental volumes. Capacity expansion plans remain on track.
Preferred picks: UltraTech, Grasim Industries, Dalmia Bharat, and The Ramco Cements
Consumer Discretionary Sector view: Positive
Q3FY2023 was mixed for discretionary companies as hotel companies posted strong performance with robust revenue
growth and higher margins, driven by high room demand, while muted same-store-sales growth affected the performance
of retail/QSR companies under coverage.
Textile companies posted another quarter of weak performance in Q3FY2023, as sustained slowdown in export demand
affected revenue growth and higher input prices and lower operating leverage affected profitability.
Hotel companies are expected to maintain strong growth momentum due to robust room demand, while the wedding
season will lead to an uptick in Titan’s jewellery sales. There is a near-term blip for textile and retail companies, but long-
term growth prospects stay intact.
Preferred picks:
Branded apparel and retail: Aditya Birla Fashion and Retail Limited (ABFRL) and Trent
Textiles: SP Apparels and KPR Mill
Out-of-home discretionary: Lemon Tree Hotels, Indian Hotels Company Limited (IHCL), Wonderla Holidays, and Devyani
International
Consumer Goods Sector view: Neutral
As anticipated, our consumer goods universe posted yet another quarter of soft performance, with slowdown in rural
consumption and high input prices affecting the sector’s earnings growth in Q3FY2023.
Our consumer goods universe’s revenue and PAT (ex-ITC) grew by 10% and 9% y-o-y, respectively; OPM fell 48 bps,
affected by raw-material inflation and higher media spends.
Stable input prices after a recent correction in the prices of key inputs would drive up margins q-o-q; rural slowdown has
bottomed out. Demand is likely to improve in 2-3 quarters with falling consumer inflation.
Preferred picks: ITC, HUL, Marico, Britannia Industries, Jyothy Labs, and Varun Beverages.
February 22, 2023 4

Results Review
IT Services Sector view: Neutral
Tier-1 IT companies reported 0.6-5% q-o-q constant currency revenue growth for Q3FY2023. However, y-o-y growth
rates continued to moderate, driven by weak sentiments, tech layoffs besides getting impacted by higher furloughs, and
lower working days during the quarter.
EBIT margins of IT companies under coverage improved due to easing of supply-side pressures, moderation in attrition,
and higher utilisation of billable employees. Deal wins continued to be robust with most companies under coverage (Ex-
LTIM) reporting healthy deal wins, up 4.3% q-o-q and 13% y-o-y.
Strong deal pipeline coupled with cost take-out deals and vendor consolidation would aid revenue momentum in Q4;
however, FY2024E revenue trajectory still seems modest and will get more clarity post Q4 numbers.
We currently have a Neutral stance on the IT sector and will take a more constructive investment view on the sector post
March quarter’s earnings. Although, tactical long trade in the near term still seems possible, owing to reasonable risk
reward. However, the global macro print would continue to create volatility in stock performance.
Preferred picks:
Large caps: Pecking order: Infosys, HCL Tech, Tech Mahindra, and TCS
Mid-caps: Pecking order: Persistent Systems and Coforge
Infra/Building Materials/Logistics/Realty Sector view: Positive
For Q3FY2023, building materials companies reported marginally higher revenue, while OPM contraction led to a 12%
y-o-y decline in net earnings. Piping companies drove overall performance, while wood panel and tile companies lagged.
The logistics sector reported largely in-line revenue, while lagging on net earnings due to pressure on OPM. Express
players underperformed. Infrastructure players reported 34% y-o-y net earnings growth, although they were marginally
short of expectations.
Real estate players saw an 11% y-o-y decline in pre-sales, owing to weak performance by Oberoi and Prestige. The realty
universe reported 26.4%/28.6%/8.8% y-o-y revenue/operating profit/net profit growth, which was largely in line.
Preferred picks: KNR Construction, PNC Infratech, Century Plyboards, Greenlam Industries, Supreme Industries, APL
Apollo, TCI Express, TCI Limited, Mahindra Lifespaces, DLF, Oberoi Realty, Prestige Estates, and Macrotech Developers.
Oil & Gas Sector view: Neutral
OMCs’ earnings recovered strongly in Q3FY2023 (versus steep losses in H1FY2023), led by robust GRMs and positive
gross marketing margins. Upstream PSUs’ EBITDA grew y-o-y/q-o-q, led by higher gas price, but operational performance
was mixed with in-line oil and gas realisations, while sales volume missed estimates.
CGDs’ (IGL/MGL) earnings sharply missed our estimates primarily due to weak margins; gas sales volume was also
subdued. Gas utilities also missed the mark as volumes continued to decline, given high spot LNG prices in Q3FY2023.
A likely cap on domestic gas price, potential normalisation of international gas price benchmarks, and softening of spot
LNG price to remove high gas cost overhang would improve volume/margin visibility for CGDs. A steep fall in crude oil
price to improve earnings outlook for OMCs.
Preferred picks: RIL, IGL, MGL, and GSPL
February 22, 2023 5

Results Review
Q3FY2023 results performance for Nifty and Sensex: Marginally below expectations
Q3FY2023 revenue of Nifty grew by 18% y-o-y as most of the sectors (excluding metals) were largely led by strong pricing
growth, while volume was subdued as demand challenges persisted due to the inflationary environment.
Nifty companies (excluding BFSI) witnessed EBITDA margin contraction of 184 bps y-o-y with a major decline of 1,346 bps
y-o-y for metals, 352 bps y-o-y for cement, 139 bps y-o-y for oil and gas, 276 bps y-o-y for consumer discretionary, 122 bps
y-o-y for infrastructure, and 141 bps y-o-y for agrochemical.
Q3FY2023 net profit of both Nifty and Sensex companies grew by 11% y-o-y and 13% y-o-y, respectively, marginally below
estimates. A large part of earnings growth was driven by banks, autos, and upstream PSUs, while metals were laggards.
Big earnings beat was from Kotak Mahindra Bank, Bajaj Finserv, SBI, Axis Bank, Tata Motors, Hero MotoCorp, Eicher Motors,
Maruti, Dr. Reddy’s Lab, BPCL, Power Grid, NTPC, and UPL, while major earnings miss was from Tata Steel, Hindalco, M&M,
Divis, Asian Paints, Bharti Airtel, SBI Life, HDFC Life, Grasim, L&T, and Titan.
Q3: Nifty revenue growth (y-o-y) by sector
35 30
30 28
23 22 24
25 20 20 21
19 19 18 18
20 17 16
15 11
8
10
5 0
-
Agro-chemcial
Nifty
IT
Cement
Discretionary
FMCG
Metal
Telecom
Capital Goods
BFSI
Diversified
Energy
Infrastructure
Auto
Pharma
Power
Oil & Gas
Consumer
Source: Bloomberg; Sharekhan Research
Q3: Nifty EBITDA growth (y-o-y) by sector
60 54 52
40 23 26 27
15 17 19 12 15 14 13
20 8 8
-
(20) (3) (7)
(40)
(60)
(80) (62)
Telecom
Capital Goods
Agro-chemcial
Nifty
Infrastructure
IT
Cement
Pharma
Discretionary
FMCG
Metal
BFSI
Diversified
Energy
Auto
Power
Oil & Gas
Consumer
Q3: Nifty earnings growth ( y-o-y) by sector
300 249
250
200
150 97
100 70
17 39 18
50 1 11 14 12 4 12 11
-
(50) (9) (16) (10)
(100)
(150) (96)
FMCG
Metal
Capital Goods
Agro-chemcial
BFSI
Diversified
Energy
Infrastructure
IT
Cement
Pharma
Discretionary
Telecom
Nifty
Auto
Power
Oil & Gas
Consumer
Source: Bloomberg; Sharekhan Research; Note: Metals sector posted loss in Q3FY23 versus profits in Q3FY22
February 22, 2023 6

Results Review
Q3: Nifty 50 companies witnessed margin contraction across metal, cement, oil and gas, consumer discretionary, and infrastructure
Sectors Q3FY23A Q3FY22A YoY (%) Q2FY23A QoQ (%) Q3FY23E Variance
Pharma 24.8 25.6 -76.7 26.5 -165.1 23.9 85.4
IT 22.6 24.9 -225.1 23.0 -36.5 23.8 -114.6
FMCG 26.2 24.6 161.5 24.4 174.3 24.6 154.1
Metal 8.3 21.7 -1346.3 8.4 -11.5 23.4 -1514.5
Auto 12.5 10.0 250.1 9.4 305.8 11.1 140.3
Power 43.4 45.7 -235.9 35.8 760.2 39.2 413.3
Oil and Gas 15.6 17.0 -139.3 9.6 604.8 15.4 22.8
Telecom 51.5 49.2 231.1 51.0 58.2 51.7 -17.1
Cement 14.3 17.8 -352.2 12.7 156.3 15.1 -82.5
BFSI 74.0 71.2 272.8 73.0 99.9 71.6 233.7
Energy 29.5 24.0 553.4 24.4 514.0 31.6 -210.3
Diversified 14.9 15.0 -4.0 12.4 256.0 14.6 31.4
Capital Goods 10.9 11.5 -51.5 11.5 -52.2 11.7 -76.4
Infrastructure 62.9 64.1 -122.5 62.6 35.0 62.5 41.9
Consumer Discretionary 11.6 14.4 -276.4 13.6 -200.6 13.3 -169.8
Agrochemical 22.2 23.6 -141.0 22.4 -26.7 21.5 68.0
Nifty aggregate EBITDA margin 24.6 25.7 -115.0 21.8 274.3 25.9 -128.4
Nifty aggregate EBITDA margin
18.5 20.4 -183.6 16.1 240.7 20.0 -144.8
(excluding BFSI)
Q3: Actual sector-wise contribution to Nifty’s earnings growth
0.0 0.0 0.0

0.5 0.5 0.3 0.1 0.0 0.0 Q3FY2023 earnings growth of Nifty at 11%
1.0 1.0 0.7
1.8 y-o-y was marginally below expectations
2.2
due to sharp earnings miss from metals,
4.9 telecom, infrastructure, consumer
11.4 discretionary, and diversified sectors.
10.7
Big earnings beat was from Kotak
Mahindra Bank, Bajaj Finserv, SBI, Axis
Bank, Tata Motors, Hero MotoCorp, Eicher
Motors, Maruti, Dr. Reddy’s Lab, BPCL,
Power Grid, NTPC, and UPL.
Cons. Disc.
FMCG
Metal
Telecom
Agro-chemcial
Nifty
BFSI
Diversified
Energy
Infrastructure
Auto
IT
Cap. Goods
Cement
Power
Pharma
Oil & Gas
Major earnings miss was from Tata Steel,

Hindalco, M&M, Divis, Asian Paints, Bharti
Airtel, SBI Life, HDFC Life, Grasim, L&T,
and Titan.
Q3: Sensex earnings growth was above estimate
80
66
70
60
50 41
40 35
30 25 25 24
%
20 12 13
8
10 2
0
-10
-20
-30 -21
Jun-20
Jun-21
Jun-22
Sep-20
Dec-20
Mar-21
Sep-21
Dec-21
Mar-22
Sep-22
Dec-22
February 22, 2023 7

Results Review
Q3: Nifty earnings growth beats estimate
120 112
100
100
80
60
37
40 27
%
21 24 22 23
20 9 11
0
-20
-40 -25
Jun-20
Jun-21
Jun-22
Sep-20
Dec-20
Mar-21
Sep-21
Dec-21
Mar-22
Sep-22
Dec-22
Q3: 62% of Nifty companies reported beat in revenue
Q3: 44% of Nifty companies reported beat in EBITDA
February 22, 2023 8

Results Review
Q3: Nifty earnings growth of 11%, largely led by BFSI, autos, power utilities; while metals and cement were laggards
50% of Nifty companies beat PAT estimates 43% of SK universe companies beat PAT estimates
100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
Revenues EBITDA PAT Revenues EBITDA PAT
Inline 18% 24% 10% Inline 15% 13% 8%
Below 20% 32% 40% Below 39% 43% 47%
Above 62% 44% 50% Above 46% 44% 45%
Source: Bloomberg; Sharekhan Research Source: Company; Sharekhan Research
February 22, 2023 9

Results Review
Key highlights of Sharekhan universe earnings performance
Q3FY2023 highlights: Aggregate revenue/PAT grew by 19%/12% y-o-y, both were marginally above estimates versus
expectation of 18%/11% y-o-y growth. Earnings growth was driven by banks, NBFCs, auto, capital goods, power
utilities, and consumer goods offsetting an earnings decline from metals, O&G, cement, consumer discretionary, and
specialty chemicals.
Banks: Earnings momentum continued to remain strong, led by healthy loan growth, margin expansion, and benign
credit cost. Overall, asset-quality outlook remains stable to positive for the sector. Deposit growth was supported by
term deposits, while SA growth moderated across banks, leading to a sequential decline in the CASA mix.
NBFCs: Strong AUM growth, lower credit cost, and better-than-expected margin profile fuelled overall performance.
Asset quality continues to see consistent improvement.
Insurance: APE growth trend was mix. However, VNB margins improved, driven by a favourable product mix. Retail
protection saw pick-up on a sequential basis.
Automobiles: The auto sector reported strong operating print in Q3FY2023, led by gross margin expansion. Our auto
universe reported EBITDA margin expansion on a y-o-y as well as q-o-q basis. Post reporting healthy performance,
management commentary has been optimistic on account of sequential recovery in volumes in Q4FY2023 and RM
cost tailwind.
Cement: The cement sector reported a 17.1% y-o-y rise in revenue, aided by 11.5% y-o-y volume growth and 4.6% y-o-y
rise in realisations. EBITDA/tonne, although down 14% y-o-y, remained in line with estimates. The sector continues to
attempt price hikes, while capacity expansion plans stay put.
Oil and gas: OMCs’ earnings recovered strongly in Q3FY2023 (versus steep losses in H1FY2023), led by robust
GRMs and positive gross marketing margins. Upstream PSUs EBITDA grew y-o-y/q-o-q, led by higher gas price, but
operational performance was mixed with in-line oil and gas realisations, while sales volume missed estimates. CGDs’
(IGL/MGL) earnings sharply missed our estimates primarily due to weak margins and subdued gas sales volume. Gas
utilities earnings also missed the mark, as volumes continued to decline, given high spot LNG prices in Q3FY2023.
Metals: Steel companies under our coverage witnessed sequential improvement in margin, led by some moderation
in coking coal price, but they still missed our estimates due to lower-than-expected steel realisations. Domestic steel
demand remained strong during Q3FY2023.
Power: Power PSUs earnings were above expectation with 18%/11% y-o-y PAT growth for NTPC/Power Grid. NTPC’s
earnings growth was led by 7% y-o-y rise in regulated equity base, fixed cost over recovery, and higher incentive
income, while that of Power Grid was supported by higher dividend income and lower tax rate, which offsets muted
asset capitalisation. Tata Power’s PAT was also up 122% y-o-y, led by strong coal/standalone profit and exceptional
income. Asset monetisation by power PSUs provides scope for higher dividend payout.
Agri-inputs: Posted phenomenal earnings growth in Q3FY2023, primarily led by strong growth in exports markets
(higher price and volume). However, Sumitomo Chemical India was the sole underperformer with revenue degrowth
in export market, which may be attributed to inventory destocking in Latin American markets. UPL/PI maintained its
growth guidance.
Specialty chemicals: Disappointed on revenue growth as demand, especially from discretionary end-user segments,
was under pressure; however, margins improved on a q-o-q basis on account of lower cost pressures.
Infra/Logistics/BM/Realty: Building materials lagged on net earnings due to OPM pressure, although piping players
outperformed. Logistics reported in-line revenue, while lagging on net earnings as express players underperformed.
Infrastructure reported strong 34% y-o-y PAT growth, although it came in short of expectations. Real estate remained
a mixed bag, with most players reporting healthy pre-sales growth on a y-o-y basis.
Consumer Goods: Q3 was yet another muted quarter for consumer goods companies as slowdown in rural demand
resulted in lower revenue growth, while higher input prices and ad-spends affected the profitability of companies
under our coverage. However, sequential improvement in gross margin due to the recent correction in commodity
prices is the only silver lining for consumer goods companies.
Consumer Discretionary: Q3FY2023 was mixed for discretionary companies as hotel companies posted strong
performance with robust revenue growth and higher margins, driven by high room demand, while muted same-store-
sales growth affected the performance of retail/QSR companies under coverage.
Capital Goods: Q3 results were a mixed bag, wherein revenue and net profit were broadly in-line with expectations,
while OPM fell on a y-o-y/q-o-q basis due to high input cost and rise in expenses. Project-based companies were
optimistic on the future domestic order pipeline but were watchful on exports. Product-based companies are hopeful
of better Q4, as channels have started stocking inventory in anticipation of summer-led demand.
IT: Decent quarter for Tier-1 and mixed bag for Tier-2 IT companies in a seasonally weak quarter. EBIT margin continued
to improve as supply-side pressure eased and attrition moderated, while deal wins continued to be robust during the
quarter. Management commentaries indicated apprehensions in the near term due to macro-overhang. Strong deal
pipeline coupled with cost take-out deals and vendor consolidation would aid revenue momentum in Q4; however,
FY2024E revenue trajectory still seems modest and will get more clarity post Q4 numbers.
February 22, 2023 10

Results Review
Nifty’s one-year forward P/E band Sensex’s one-year forward P/E band
31.0 31.0
28.0 28.0
25.0 25.0
22.0 22.0
19.0 19.0
16.0 16.0
13.0 13.0
10.0 10.0
Jul-19
Jul-21
Jun-17
Jun-22
Nov-16
Nov-18
Nov-21
Apr-18
May-20
Apr-21
Aug-18
Feb-17
Sep-17
Jan-18
Mar-19
Feb-20
Sep-20
Dec-20
Feb-22
Jan-23
Oct-19
Oct-22
Jul-19
Jul-21
Jun-17
Jun-22
Nov-16
Nov-18
Nov-21
Apr-18
May-20
Apr-21
Aug-18
Feb-17
Sep-17
Jan-18
Mar-19
Feb-20
Sep-20
Dec-20
Feb-22
Jan-23
Oct-19
Oct-22
+1 sd PER Avg PER -1 sd +1 sd PER Avg PER -1 sd
Source: Bloomberg; Sharekhan Research Source: Bloomberg; Sharekhan Research
Nifty’s one-year forward P/B band Sensex’ one-year forward P/B band
4.0 4.0
3.5 3.5
3.0 3.0
2.5 2.5
2.0 2.0
1.5 1.5
1.0 1.0
Jul-21
Jul-22
Jun-19
Jun-20
Nov-16
Nov-17
May-17
May-18
Apr-21
Apr-22
Aug-17
Aug-18
Feb-17
Feb-18
Dec-18
Mar-19
Sep-19
Dec-19
Mar-20
Sep-20
Dec-20
Jan-22
Jan-23
Oct-21
Oct-22
Jul-19
Jul-21
Jun-17
Jun-22
Nov-16
Nov-18
Nov-21
Apr-18
May-20
Apr-21
Aug-18
Feb-17
Sep-17
Jan-18
Mar-19
Feb-20
Sep-20
Dec-20
Feb-22
Jan-23
Oct-19
Oct-22
+1 sd BPS Avg BPS -1 sd +1 sd PER Avg PER -1 sd

Source: Bloomberg; Sharekhan Research Source: Bloomberg; Sharekhan Research
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Sector Update
Automobiles
Robust performance, Sanguine Outlook
Summary
Soft RM basket and improvement in semiconductor chips availability led to strong operating
performance as our auto universe (ex TML) registered 137 bps y-o-y and 73 bps q-o-q improvement
Sector: Automobiles in operating margin.
Tata Motors, M&M, Bajaj Auto and Amara Raja surprised positively, while BKT, Greaves Cotton,
Sector View: Positive Escorts and VST Tillers surprised negatively.
We continue to remain positive on the auto sector in expectation of cyclical uptick in demand
and correcting RM basket, though the wholesales volume performance in Q4FY23 is subjected
Our coverage universe to dealer inventory management due to the introduction of OBD2 norms from April 2023 rather
than available demand in the premium segment.
CMP
Companies Reco. PT (Rs) Preferred Picks –
(Rs)
OEMs: Ashok Leyland, M&M, Maruti, TVS Motors and Tata Motors.
Alicon Castalloy Auto Ancillaries: Amar Raja Batteries, Bosch Greaves Cotton, Lumax Auto Technologies,
852 BUY 1,159
Limited # Schaeffler India and Gabriel India.
Amara Raja Batteries 565 BUY 696
Our auto universe reported robust performance as the auto universe (ex-Tata Motors) reported 46.4%
Apollo Tyres 328 BUY 372 y-o-y growth in adjusted EBITDA and 137 bps y-o-y improvement in EBITDA margin led by an increase
in production due to the ease of semiconductor chip situation on a y-o-y basis and favourable RM
Ashok Leyland 143 BUY 181 cost trend. Despite weakness in volumes on a q-o-q basis our universe (ex-Tata Motors) reported
Bajaj Auto 3,842 BUY 4,151 73 bps q-o-q improvement in EBITDA margin due to better cost management. The export volumes
performance is still subdued but appears to be at the bottom and likely to be improve from Q1FY24
Balkrishna Industries 2,061 Hold 2,163 onwards. Post a result most of the management have shared their positive outlook and preparedness
for the implementation of OBD2 norms from April 2023. We continue to maintain our positive stance
Bosch 18,315 BUY 19,795 on automobile sector as (1) demand in the PV segment is higher than supply – reflected in high order
book (2) the premiumization trend is continue in PV as well as in two-wheeler sector (3) despite the
Eicher Motors 3,248 BUY 3,579 high base tractor segment has been performing well and (4) CV segment is following the overall
Escorts Kubota 2,081 Positive 2,278
improvement in macros. Entry-level two-wheeler segment is laggard and likely to improve once the
rural segment would register an uptick. EV segment is continuously gaining traction and offering a
Exide Industries $ 173 BUY 215 reason to replace an old vehicle.
Strong y-o-y performance: The auto sector ended Q3FY23 on a strong note as our auto universe (ex-
Gabriel India 159 BUY 217 Tata Motors) registered 22.5% y-o-y growth in topline and 46.4% y-o-y growth in AEBITDA. A benign raw
GNA Axles 919 BUY 930 material cost trend translated into healthy operating performance as our auto universe (ex-Tata Motors)
reported 137 bps y-o-y expansion in EBITDA margin to 12.4%.
Greaves Cotton 130 BUY 183 Healthy operating performance, despite feeble volume performance on q-o-q: Given post festive
demand moderation and subsequent dealer inventory correction led the sequential decline in volumes
Hero Motocorp 2,498 BUY 3,006 and hence our auto universe (ex-Tata Motors) registered 1.8% q-o-q decline in revenue. Despite q-o-q
Lumax Auto decline in revenue, our auto universe (ex-Tata Motors) registered 73 bps q-o-q improvement in EBITDA
270 BUY 288 margin on account of RM cost-benefit and operating leverage, given 60% of the companies (in our
Technologies#
universe) had reported sequential improvement in EBITDA margin.
M&M @ $ 1,318 BUY 1,550
Key positives: Most of the players have reported gross margin expansion and improvement in operating
Mahindra CIE performance. The key notable reporting were (1) Tata Motors: All three verticals (JLR, domestic PV and
383 Positive 457 domestic CV) registered q-o-q improvement simultaneously (2) M&M: Farm equipment and Automotive
Automotive
both reported sequential improvement in operating performance. (3) Apollo Tyres: Reported sharp
Maruti Suzuki 8,654 BUY 10,965 improvement in EBITDA margin on a q-o-q basis led by gross margin expansion (4) Bajaj Auto : Despite
Ramkrishna Forgings 266 BUY 329
weak performance at the volume front the operating performance was strong (5) Amara Raja Batteries:
Strong operating performance led by gross margin expansion
Schaeffler India 2,976 BUY 3,328 Key negatives: Balkrishna Industries, Greaves Cotton, VST Tiller and Lumax Auto Technologies have
reported major fall in absolute EBITDA on the q-o-q basis as (1) BKT registered sequentially weakness in
Sundram Fasteners # 983 BUY 1,110 EBITDA margin due to lack of gross margin expansion as it is carrying high-cost inventory, (2) Greaves
Suprajit Engineering # 351 BUY 403 cotton’s weak performance was one off as E mobility segment was impacted due to change in regulatory
norms (3) Lumax Auto Technologies reported weak performance on q-o-q due to decline in production
Tata Motors # 429 BUY 516 at its customer’s end and (4) VST Tiller’s EBITDA margin was impacted due to increase in expenses on
branding activities
TVS Motors $ 1,113 BUY 1,303 Things to watch out for Q4FY23: The volumes were subdued in Q3FY23 on a sequential basis due to
VST Tillers and post-festive seasonality but a correction in RM basket supported the overall improvement in operating
2,270 Neutral 2,445 performance. We believe the cyclical uptick in demand is given though the volume performance in
Tractors Limited
Q4FY23 would be dependent on (1) dealer inventory management due to implementation of OBD2 norms
Source: Company data, Sharekhan estimates from April 2023 (2) recovery in rural sales and (3) return of entry-level customers. The export volumes are
@ MM & MVML; # Consolidated; expected to remain steady in Q4FY23 and are likely to improve from Q1FY24. The steady raw material
$ core business valuation; UR Under Review
cost, better availability of semiconductor chips and partial retention of soft RM cost benefit would support
the overall operating performance in Q4FY23.
Valuation
Sector view - We believe that the automobile sector is in a cyclically uptick face supported by a sharp
recovery in urban demand and continued shift in preference towards personal mobility. PV, Tractor
CV, and premium two-wheeler segment has already been showing strong traction and it is expected
Price chart that rural recovery would drive the volume growth in entry level two-wheeler segment also. Similarly
strong traction in EV segment augurs well for listed players as almost all the key players has begun
180.0
participating in EV space. While export volumes have been facing headwinds, but export volumes are
160.0 likely to remain steady in near term and would pick up from Q1FY24 onwards.
140.0 Key risks
120.0 Rising inflation, increase in interest rates and delayed recovery in rural economy may impact replacement
demand.
100.0
Q3FY2023 Leaders: Apollo Tyres, Amara Raja Batteries,Ashok Leyland,Tata Motors, Bajaj Auto Bosch.
May-21
May-22
Feb-21
Feb-22
Feb-23
Nov-20
Nov-21
Aug-21
Nov-22
Aug-22
Q3FY2023 Laggards: VST Tillers and Tractors,BKT, Greaves Cotton,Lumax Auto Technologies.
Nifty 50 Nifty Auto Preferred Picks:
Source: NSE India, Sharekhan Research OEMs: Ashok Leyland, M&M, Maruti, TVS Motors and Tata Motors.
Auto Ancillaries: Amar Raja Batteries, Bosch, Greaves Cotton, Lumax Auto Technologies, Schaeffler India
and Gabriel India.

Sector Update
Q3FY2023 results snapshots
Sales (Rs cr) EBITDA margins (%) PAT (Rs cr)
Company Q3 Q3 YoY QoQ Q3 Q3 YoY QoQ Q3 Q3 YoY QoQ
FY23 FY22 % % FY23 FY22 bps bps FY23 FY22 % %
Alicon Castalloy Limited # 361.3 279.0 29.5 (4.2) 11.5 11.9 (35) 17 15.6 12.1 28.9 1.7
Amara Raja Batteries 2,637.0 2,365.0 11.5 (2.3) 15.1 12.0 305 171 223.0 145.0 53.8 10.3
Apollo Tyres # 6,423.0 5,707.0 12.5 7.8 14.2 13.0 120 225 292.0 224.0 30.4 50.2
Ashok Leyland 9,030.0 5,535.0 63.1 9.2 8.8 4.0 478 232 354.0 (36.0) (1,083.3) 85.3
Bajaj Auto 9,315.0 9,021.7 3.3 (8.7) 19.1 15.2 387 183 1,491.0 1,214.2 22.8 (2.5)
Balkrishna Industries 2,142.0 2,030.0 5.5 (20.8) 12.0 21.8 (984) (444) 100.0 328.6 (69.6) (75.2)
Bosch 3,659.9 3,109.0 17.7 (0.0) 13.5 11.5 199 171 319.7 235.0 36.0 (14.4)
Eicher Motors 3,721.0 2,881.0 29.2 5.7 23.0 20.2 283 (32) 741.0 456.0 62.5 12.8
Escorts Kubota 2,264.0 1,957.5 15.7 20.2 8.4 13.5 (513) 28 186.0 201.5 (7.7) 15.9
Exide Industries 3,405.3 3,197.0 6.5 (8.4) 11.8 11.7 11 67 223.2 204.1 9.4 (9.4)
Gabriel India 711.0 606.0 17.3 (11.4) 7.2 6.9 30 (13) 29.1 25.7 13.2 (20.4)
GNA Axles 404.2 301.0 34.3 (3.7) 15.5 12.8 275 123 35.8 16.7 114.4 7.2
Greaves Cotton 513.5 486.0 5.7 (26.5) 0.6 2.8 (219) (553) (3.5) (3.8) (7.9) (110.4)
Hero Motocorp 8,031.0 7,883.3 1.9 (11.5) 11.5 12.2 (67) 6 711.0 686.1 3.6 (0.7)
Lumax Auto Technologies # 445.0 427.6 4.1 (8.6) 10.6 10.5 2 (167) 23.0 25.4 (9.5) (21.0)
M&M @ # 21,654.0 15,238.8 42.1 3.9 13.0 11.9 115 101 1,528.0 1,353.1 12.9 (26.9)
Maruti Suzuki 29,044.0 23,246.0 24.9 (3.0) 9.8 6.7 305 50 2,351.0 1,011.3 132.5 14.0
Ramkrishna Forgings 752.3 606.0 24.1 (1.3) 22.1 23.1 (100) (19) 57.6 45.1 27.7 (9.9)
Schaeffler India 1,795.0 1,523.0 17.9 2.2 19.2 18.8 38 105 231.0 191.0 20.9 7.3
Sundram Fasteners 1,403.0 1,207.5 16.2 0.1 14.0 15.8 (183) (61) 118.1 103.3 14.3 1.1
Suprajit Engineering # 692.0 479.0 44.5 (3.4) 11.7 11.3 43 71 38.0 32.0 18.8 (16.9)
Tata Motors # 88,489.0 72,229.3 22.5 11.2 12.2 9.4 286 522 2,958.0 (1,916.1) (254.4) (335.3)
TVS Motors 6,545.4 5,706.0 14.7 (9.3) 10.1 10.0 11 (13) 352.8 288.3 22.4 (13.4)
VST Tillers & Tractors 213.7 208.0 2.7 (8.7) 10.9 14.4 (352) (286) 19.4 21.1 (8.1) (14.7)
AUTO UNIVERSE 2,03,652 1,66,230 22.5 3.4 12.3 10.3 202 254 12,394.8 4,863.8 154.8 44.3
AUTO UNIVERSE - excl

1,15,163 94,000 22.5 (1.8) 12.4 11.1 137 73 9,436.8 6,779.8 39.2 (4.2)
Tata Motors
Source: Company data, Sharekhan estimates; Note: @ MM & MVML; # Consolidated; $ core business valuation; UR Under Review

Sector Update
Valuations
CMP EPS (Rs) P/E (x)
Company Reco PT (Rs.)
(Rs) FY22 FY23E FY24E FY22 FY23E FY24E
Alicon Castalloy Limited # 852 BUY 1,159 15.0 34.6 59.7 56.8 24.6 14.3
Amara Raja Batteries 565 BUY 696 29.9 36.8 44.9 18.9 15.4 12.6
Apollo Tyres 328 BUY 372 10.1 15.4 23.8 32.4 21.3 13.8
Ashok Leyland 143 BUY 181 1.8 3.3 6.6 77.5 43.4 21.8
Bajaj Auto 3,842 BUY 4,151 162.6 197.2 225.8 23.6 19.5 17.0
Balkrishna Industries 2,061 Hold 2,163 73 61 76 28.2 33.7 27.1
Bosch 18,315 BUY 19,795 413 491 644 44.4 37.3 28.4
Eicher Motors 3,248 BUY 3,579 61 103 122 52.9 31.5 26.7
Escorts Kubota 2,081 Positive 2,278 73.0 58.7 75.4 27.8 34.6 27.6
Exide Industries $ 173 BUY 215 9 11 12 15.4 15.5 14.0
Gabriel India 159 BUY 217 6 9 13 25.5 17.4 12.5
GNA Axles 919 BUY 930 41 59 71 22.2 15.5 12.9
Greaves Cotton 130 BUY 183 -2 3 6 NA 39.0 20.9
Hero Motocorp 2,498 BUY 3,006 124 135 172 20.2 18.5 14.5
Lumax Auto Technologies# 270 BUY 288 12 15 18 22.9 18.5 15.3
M&M @ $ 1,318 BUY 1,550 43 62 71 25.4 17.8 18.5
Mahindra CIE Automotive 383 Positive 457 10.4 17.4 24.4 32.1 19.1 15.7
Maruti Suzuki 8,654 BUY 10,965 256 346 392 33.8 25.0 22.1
Ramkrishna Forgings 266 BUY 329 15 21 27 17.8 12.9 9.7
Schaeffler India 2,976 BUY 3,328 40 56 66 73.9 52.9 45.4
Sundram Fasteners # 983 BUY 1,110 24 33 42 40.8 29.7 23.5
Suprajit Engineering # 351 BUY 403 11 14 20 30.9 24.3 17.4
Tata Motors # 429 BUY 516 -28.0 4.6 32.8 NA 93.3 13.1
TVS Motors $ 1,113 BUY 1,303 32 42 47 33.7 25.6 23.9
VST Tillers and Tractors

2,270 Neutral 2,445 96 124 153 23.1 17.9 14.9
Limited
Source: Company, Sharekhan Research; @ MM & MVML; # Consolidated; $ core business valuation; UR Under Review

Sector Update
Banks
Another strong quarter
Summary
Banks in our coverage reported a healthy loan growth of 19% y-o-y/4% q-o-q in Q3FY23. Credit growth
Sector: Banks remained healthy, with large private banks reporting an 18% y-o-y/3% q-o-q growth. Mid-tier and small
private banks reported 21% y-o-y/5% q-o-q and 26% y-o-y/5% q-o-q growth in advances, respectively,
Sector View: Positive while PSU banks reported a 19%y-o-y/4% q-o-q growth in advances.
Deposit growth remained tepid, rising 2% q-o-q, but private banks did better at 4% q-o-q, mainly led by
Coverage universe higher term deposits while CASA growth remained weak across banks. Overall operating profits for our
universe grew by 31% y-o-y/15% q-o-q. Robust operating performance was driven by strong NII growth,
Banks CMP Reco. PT (Rs) which in turn was driven by healthy loan growth and margin expansion. For PSBs, higher treasury profits
(Rs) boosted operational performance besides strong NII growth.
Large Private Banks Asset quality improved, while the restructured book shrunk as well. In absolute terms, GNPAs and NNPAs
fell by 15% y-o-y/5% q-o-q and 29% y-o-y/6% q-o-q, respectively, for our coverage, led by lower slippages,
HDFC Bank 1,658 Buy 1,920 higher recoveries, upgrades, and contained write-offs.
ICICI Bank 851 Buy 1,120 Top preferred picks: Large Private Banks – ICICI Bank, Axis Bank, HDFC Bank, and Kotak; Mid-tier Private
Banks – Federal Bank; Small Private Banks – AUSFB; PSBs – SBI and PNB remains our top preferred picks
Axis Bank 859 Buy 1,140
Banks under our coverage reported strong earnings growth of 41% y-o-y/11% q-o-q driven by robust
Mid-Tier Private Banks
operating profits growth and benign credit cost. Net interest income (NII) grew strongly by 27% y-o-y/9%
Kotak Mahindra q-o-q, led by healthy loan growth and net interest margin (NIM) expansion (above expectation). Both
1,774 Buy 2,250 Private as well as PSBs reported robust growth in NII at 28% y-o-y and 26% y-o-y, respectively. Margin
Bank
outlook continues to be stable/ positive with upward bias. However, the quantum of margin expansion is
Indusind Bank 1,157 Buy 1,500 expected to be lower compared to the previous quarters due to increased cost of deposits to garner a higher
share of retail liabilities. We believe margins should probably peak out by H1FY24 taking a base case of
Federal Bank 130 Buy 170 another 25 bps last rate hike in April 2023 MPC meeting. Core fee income grew by 20% y-o-y/7% q-o-q for
private banks; however, PSBs reported muted growth in core fee income. Opex growth remained higher by
Small Private Banks
19% y-o-y/6% q-o-q for private banks under our coverage due to higher technology spends, investments
AU SFB 635 Buy 800 in branches and increased business volumes, while PSBs also saw uptick in opex growth at 16% y-o-y/
8% q-o-q led by higher provisions related to wage revision on account of bipartite agreement and pension
CUBK 135 Hold 176 liabilities. PSBs saw 37% y-o-y/19% q-o-q growth in operating profit driven by strong NII growth and higher
treasury income. Large and mid-tier private banks saw 26% y-o-y/13% q-o-q and 29% y-o-y/6% q-o-q
PSBs growth in operating profit, respectively, while operating profit of small private banks also grew by 27%
y-o-y/10% q-o-q. Robust operating profit growth along with benign credit cost helped to boost profitability
SBI 538 Buy 710 across banks. PAT grew by 41% y-o-y/11% q-o-q for our coverage. Private banks saw a 33% y-o-y/12% q-o-q
growth in earnings, while PSBs saw 55% y-o-y/11% q-o-q growth in earnings.
PNB 50 Buy 64
Credit growth remains resilient but expected to normalise: Overall loan growth remained healthy
BOI 79 Hold 102 across banks, driven by continued traction in retail (especially unsecured loans, home loans, vehicle
Source: Company data, Sharekhan estimates loans) however some moderation was seen in home loans while SME and corporate segment is showing
CMP as on Feb 13, 2023 sustained improvement in demand. We believe credit growth is expected to normalize at 14-15% at
system level in FY24 due to higher base, slower retail deposit mobilization and higher credit-deposit
ratio across banks barring some PSU banks. Large private banks such as HDFC Bank, ICICI Bank and
Axis Bank reported healthy loan growth of 20% y-o-y, 20% y-o-y, and 15% y-o-y, respectively. Among
Mid-tier Private banks, Kotak Mahindra Bank reported a robust loan growth at 23% y-o-y, led by retail
(including secured as well as unsecured), microfinance, SME, and CVs/CEs. IndusInd and Federal Bank
also reported healthy loan growth of 19% y-o-y each. Among Small Private banks, AU SFB was the
outperformer (38% y-o-y). PSB`s also reported solid loan growth at ~19% yoy. Banks guided that there is
good demand visibility in retail, strong pipeline across SME and corporate loans however deposit growth
remains key monitorable. HDFCB and Federal Bank were the only banks where deposit growth was
ahead of advances growth sequentially. Majority of the banks saw an improvement in NIM y-o-y as well
as sequentially. Margin outlook continues to be stable/ positive with upward bias. However, the quantum
of margin expansion is expected to be lower compared to the previous quarters due to increased cost of
deposits to garner a higher share of retail liabilities. We believe margins should probably peak out by
H1FY24 taking a base case of another 25 bps last rate hike in the April 2023 MPC meeting.
Asset quality outlook stable: Asset quality saw further improvement for banks under our coverage along
with a reduction in the restructured book. In absolute terms, GNPAs and NNPAs fell by 15% y-o-y/5%
q-o-q and 29% y-o-y/6% q-o-q, respectively, for the banks under our coverage. This was mainly aided by
lower slippages, higher recoveries upgrades, and contained write-offs. Provisioning coverage ratio (PCR)
improved by ~30 bps q-o-q to 75.5% in Q3FY2023 versus 75.2% in Q2FY2023 and 70.9% in Q3FY2022
for our coverage banks. Gross NPA ratios of Private banks in our coverage stands at 2.2% in Q3FY2023
vs. 2.3% in Q2FY2023 and 2.8% in Q3FY2022. For PSBs, it stood at 5.0% in Q3FY2023 versus 5.6%
in Q2FY2023 and 7.2% in Q3FY2022. Net NPA ratio for Private banks under our coverage stands at
0.5% in Q3FY2023, stable q-o-q and 0.7% in Q3FY2022. For PSBs, it stood at 1.3% in Q3FY2023 vs.
1.4% in Q2FY2023 and 2.2% in Q3FY2022. We expect run down of restructured book by H1FY24 while
performance of ECLGS book will be closely monitored. We do not expect systemic risk arising in the
banking sector due to a conglomerate exposure. We expect credit cost to remain under control, while the
balance sheet strengthens further.
Price chart Our view
46,000 On a strong footing, outperformance to continue: Most banks reported beat in earnings for Q3FY2023,
44,000 driven by healthy loan growth, margin expansion and lower credit cost along with improvement in asset-
42,000 quality matrix. We believe credit growth is expected to normalize at 14-15% at system level in FY24 due to
40,000
38,000 a high base, slower retail deposit mobilization and higher CD ratio across banks barring some PSU Banks.
36,000 Margin outlook continues to be stable/ positive with an upward bias. However, the quantum of margin
34,000 expansion is expected to be lower compared to the previous quarters due to higher cost of deposits to garner
32,000 a higher share of retail liabilities. We believe margins should probably peak out by H1FY24 taking a base
30,000 case of another 25 bps last rate hike in April 2023 MPC meeting. Overall asset quality outlook remains stable
Jun-22
Feb-22
Feb-23
Oct-22
to positive for the sector. We believe additional contingent provision buffers, higher PCR levels, increased
capital buffers, lower stressed assets augur well for banking sector outlook. The current volatility in stock
performance owing to Adani saga, provide good entry point for long term investment. We maintain our
Nifty Bank overweight stance on the sector.
Source: NSE India, Sharekhan Research Leaders for Q3FY2023: Kotak Mahindra Bank, IndusInd Bank, Federal Bank, SBI, and PNB
Laggards for Q3FY2023: City Union Bank
Top Preferred Picks: Large Private Banks – ICICI Bank, Axis Bank, HDFC Bank, and Kotak Bank; Mid-tier
Private Banks – Federal Bank; Small Private Banks – AUSFB; and within PSBs, SBI and PNB remain our top
preferred picks.

Sector Update
Q3FY2023 Result Snapshot (Standalone)
NII (Rs. cr) PPoP (Rs. cr) PAT (Rs. cr
Banks Q3 Q3 Q2 y-o-y q-o-q Q3 Q3 Q2 y-o-y q-o-q Q3 Q3 Q2 y-o-y q-o-q
FY23 FY22 FY23 (%) (%) FY23 FY22 FY23 (%) (%) FY23 FY22 FY23 (%) (%)
Large Private Banks
HDFC Bank 22,988 18,443 21,021 24.6 9.4 19,024 16,776 17,392 13.4 9.4 12,259 10,342 10,606 18.5 15.6
ICICI Bank 16,465 12,236 14,787 34.6 11.3 13,271 10,148 11,680 30.8 13.6 8,312 6,194 7,558 34.2 10.0
Axis Bank 11,459 8,653 10,360 32.4 10.6 9,277 6,162 7,716 50.6 20.2 5,853 3,614 5,330 62.0 9.8

Kotak Mahindra
5,653 4,334 5,099 30.4 10.9 3,850 2,701 3,568 42.5 7.9 2,792 2,131 2,581 31.0 8.2
Bank
Indusind Bank 4,495 3,794 4,302 18.5 4.5 3,680 3,205 3,520 14.8 4.5 1,959 1,161 1,787 68.7 9.6
Federal Bank 1,957 1,539 1,762 27.2 11.1 1,274 914 1,212 39.4 5.1 804 522 704 54.0 14.2
Small Private Banks
AU SFB 1,153 820 1,083 40.6 6.5 556 458 499 21.4 11.4 393 302 343 30.1 14.6
CUBK 556 490 568 13.5 -2.1 497 370 456 34.3 9.0 218 196 276 11.2 -21.0
PSBs
SBI 38,069 30,687 35,183 24.1 8.2 25,219 18,522 21,120 36.2 19.4 14,205 8,432 13,265 68.5 7.1
PNB 9,179 7,803 8,271 17.6 11.0 5,716 5,076 5,567 12.6 2.7 629 1,127 411 -44.2 53.0
BOI 5,585 3,408 5,084 63.9 9.9 3,652 2,096 3,374 74.2 8.2 1,151 1,027 960 12.1 19.9
Source: Company, Sharekhan Research
Valuations (As on Feb 13, 2023)

RoA (%) RoE (%) P/E (x) P/B (x)
Banks Reco CMP (Rs) PT (Rs)
FY23E FY24E FY23E FY24E FY23E FY24E FY23E FY24E
Large Private Banks
HDFC Bank Buy 1,658 1,920 2.0 1.9 17.0 16.7 19.9 17.3 3.1 2.7
ICICI Bank Buy 851 1,120 2.1 2.1 16.9 16.2 15.4 13.6 2.4 2.0
Axis Bank Buy 859 1,140 1.7 1.8 17.1 16.6 11.5 10.0 1.8 1.5
Kotak Mahindra Bank Buy 1,774 2,250 2.3 2.3 13.5 13.5 22.3 19.4 2.8 2.5
IndusInd Bank Buy 1,157 1,500 1.7 1.9 14.6 15.7 11.9 9.5 1.6 1.4
Federal Bank Buy 130 170 1.3 1.3 14.8 14.6 9.1 8.0 1.3 1.1
Small Private Banks
AU SFB Buy 635 800 1.7 1.8 15.1 15.2 30.2 26.0 3.9 3.5
CUBK Hold 135 176 1.5 1.4 13.3 12.3 10.6 10.2 1.5 1.3
PSBs
SBI Buy 538 710 0.9 1.0 16.1 15.7 6.6 5.7 1.0 0.8
PNB Buy 50 64 0.2 0.7 3.0 10.5 18.9 5.1 0.7 0.6
BOI Hold 79 102 0.5 0.7 7.0 8.7 8.2 6.3 0.6 0.6

Sector Update
NBFC/Insurance/AMC
NBFC – Steady Performance, Insurance – Mixed bag,
AMC – Stable quarter
Summary
NBFCs: Loan growth continued to remain strong across our NBFC coverage universe (barring
Sector: NBFC/Insurance/AMC LICHF) driven by strong demand across product segments (especially vehicle loans demand
Sector View: Positive/Neutral/ was robust due to festive season). Margin compression was relatively lower than expected as
most of lenders managed to pass on the rates and manage better ALM mix. We believe interest
Neutral rate cycle is close to its peak which should benefit these lenders. Most lenders reported an
improvement (or stability) in asset quality.
Insurance: APE growth remained lower for most players, but VNB margins improved, driven
by a favourable product mix. Non-PAR savings and annuity segment clocked strong growth
for life insurers. Group protection saw healthy trends, while retail protection revived q-o-q. For
General insurers, GDPI growth was strong, driven by health and commercial lines, although
Our Coverage Universe earnings were impacted by lower investment yield q-o-q and higher claims y-o-y.
Companies CMP Reco./ PT AMC: NAM India reported stable numbers. Top-line yields improved sequentially by 1 bps.
(Rs) View (Rs)
QAAUM grew by 4% y-o-y/3% q-o-q. However, yield compression going forward pose a
NBFCs challenge.
HDFC Ltd 2,700 Buy 3,225 Top Preferred Picks
LIC Housing Finance 370 Buy 435 NBFCs: HDFC Limited, Chola, M&M Finance, Can Fin Homes and Bajaj Finance
Canfin Homes 591 Buy 670 Disbursements remained healthy, driven by strong festive demand and sectoral tailwinds. We
believe AUM growth is expected to moderate from here on as disbursements growth moderates
Chola 771 Buy 900 due to higher base. There are no demand concerns but some of the management commentary
indicated about higher competition. Our coverage universe of NBFCs for Q3FY2023 saw a NII,
Mahindra Finance 260 Buy 290 PPoP, and PAT growth of ~17% y-o-y, 13% y-o-y, and 13% y-o-y, respectively. Barring LICHF,
Bajaj Finance 6,346 Buy 7,500 all NBFCs reported strong in-line performance. Overall asset-quality outlook remains stable to
positive, given benign credit cycle. This should help sustain lower credit costs in near to medium
Bajaj Finserv 1,389 Buy 1,650 term. Moreover, interest rate cycle is close to its peak which should benefit these lenders.
Insurance companies reported a mixed quarter with higher VNB margins led by better product
L&T Finance mix; however, APE growth remained tepid for most players. In AMC, NAM India reported stable
93 Hold 105
Holdings performance.
Insurance NBFC: NBFCs in our coverage reported healthy AUM growth (16% y-o-y/3% q-o-q), led by strong
disbursements growth. Among HFCs, Can Fin Homes (20% y-o-y/4% q-o-q) was the outperformers
HDFC Life 515 Buy 720 while HDFC Ltd also reported healthy trends in retail housing loans but in the wholesale segment,
ICICI Pru 437 Buy 660 growth was tepid for HDFC Ltd thus overall growth moderated to 13% y-o-y/2% q-o-q. In the vehicle
finance segment, Cholamandalam Finance (31% y-o-y, 13% q-o-q) and M&MFS (21% y-o-y, 5% q-o-q)
Max Financial 737 Buy 950 were the outperformers. BAF also reported moderation in AUM growth (27% y-o-y/6% q-o-q) due
to stiff competitive intensity. NIMs were largely stable for HDFC Ltd and BAF. LICHF saw margin
ICICI Lombard 1,143 Buy 1,400 recovery from last quarter due to one off in the last quarter, while Can Fin Homes witnessed lower
margins sequentially. Vehicle financiers reported relatively lesser fall in margins sequentially,
AMC as they managed to increase the disbursements yield on vehicle book and pass on incremental
Nippon Life India rates on floating rate book in other product segment along with managing better ALM mix. We
222 Hold 265 believe interest rate cycle is close to its peak which should benefit these lenders. Opex was higher
AMC
Source: Company, Sharekhan Research due to increased investments in technology, building digital platforms, and collections. Earnings
CMP as on Feb 13, 2023 trajectory was strong, mainly led by lower credit cost. Asset quality improved across NBFCs with
improvement in GS2/GS3/NS3. We expect a further decline in gross stage-2 and gross stage-3
loans. This should keep credit cost lower and drive earnings growth. Moratoriums on restructured
loans have largely ended and repayments have resumed barring in case of LICHF.
Insurance: For life insurers under our coverage, APE growth remained lower for most players.
However, VNB margins improved, driven by a favourable product mix. Life insurers reported strong
trends in non-PAR savings and the annuity segment. Group protection saw healthy trends, while
retail protection segment saw a revival, as it improved q-o-q. Persistency trends were stable for
all the players. For general insurers, GDPI growth was healthy, driven by, health, and commercial
lines, although earnings were impacted by higher claim ratio on yoy basis and lower investment
yield on sequential basis.
AMCs: NAM India reported stable numbers. Topline yields improved sequentially by 1 bps. QAAUM
grew by 4% y-o-y/3% q-o-q. SIP flow market share improved to 7.6% (+70 bps q-o-q). However, yield
compression going forward pose a challenge.
Valuation
NBFCs: NBFCs under our coverage reported healthy performance, driven by strong AUM growth,
lower credit cost and better than expected margin profile. Asset-quality performance also improved
further as collections stay strong amid modest slippages. Overall asset quality outlook remains
stable to positive. We believe interest rate cycle is close to its peak which should further benefit
these lenders.
Life insurance: Growth in non-par savings product segment is expected to slow down as business
flows would get impacted in this segment due to the Union Budget’s proposal of taxing income from
Price chart insurance policies with a premium of greater than Rs. 5 lakh p.a which is expected to lower APE and
VNB growth going forward. We have factored this into our estimates and also we have changed our
20,000 sector outlook to Neutral from Positive.
19,000 General insurance: GDPI growth is likely to remain healthy, driven by health/motor and commercial
18,000 lines. Gradual improvement in the combined ratio is expected and the higher bond yields should
17,000 boost investment yields and profitability going forward.
16,000 AMCs: SEBI’s upcoming review of mutual fund fees and expenses is a key monitorable, and any
15,000 downward revision of TER caps will further hamper operating leverage. Also, we believe the topline
14,000 yields could remain slightly compressed in the near to medium term. Higher volatility in the capital
Jun-22
Feb-22
Feb-23
Oct-22
market, higher intensity of competition in the industry, and yield compression going forward pose
a challenge to NAM.
Nifty Financial Services Key risks: Economic slowdown could lead to slower growth and exert pressure on asset quality for
the lending business. For Insurance & AMCs, Regulatory policies pose a key risk
Top Preferred Picks:
NBFCs: HDFC Limited, Chola, M&M Finance, Can Fin Homes and Bajaj Finance

Sector Update
Q3FY2023 result snapshot
NII (Rs. cr) PPoP (Rs. cr) PAT (Rs. cr)
Companies Q3 Q3 Q2 y-o-y q-o-q Q3 Q3 Q2 y-o-y q-o-q Q3 Q3 Q2 y-o-y q-o-q
FY23 FY22 FY23 (%) (%) FY23 FY22 FY23 (%) (%) FY23 FY22 FY23 (%) (%)
NBFCS
HDFC Ltd 4,840 4,284 4,639 13.0 4.3 4,545 4,112 4,376 10.5 3.8 3,691 3,261 4,454 13.2 -17.1
LIC Housing Finance 1,606 1,455 1,163 10.4 38.1 1,356 1,317 945 2.9 43.5 480 767 305 -37.4 57.5
Can Fin Homes 252 206 251 22.2 0.2 213 172 216 23.8 -1.5 151 116 142 31.0 6.8
Chola 1,598 1,363 1,489 17.2 7.4 1,080 953 1,036 13.4 4.2 684 524 563 30.7 21.5
Mahindra Finance 1,553 1,535 1,448 1.1 7.3 998 1,062 864 -6.0 15.6 629 894 448 -29.6 40.3
Bajaj Finance 5,922 4,728 5,538 25.3 6.9 4,853 3,919 4,487 23.8 8.2 2,973 2,125 2,781 39.9 6.9
LTFH 1,821 1,468 1,648 24.1 10.5 1,248 1,111 1,132 12.3 10.2 453 308 406 47.0 11.6
Net Premium Income (Rs Cr.) PAT (Rs. cr)
Companies Q3 Q3 Q2 y-o-y q-o-q Q3 Q3 Q2 y-o-y q-o-q
FY23 FY22 FY23 (%) (%) FY23 FY22 FY23 (%) (%)
Insurance
HDFC Life 14,402 12,147 13,138 18.6 9.6 316 275 329 14.8 -4.0
ICICI Prudential 9,465 9,074 9,582 4.3 -1.2 222 312 200 -29.0 10.7
Max Financial # 6,284 5,600 5,801 12.2 8.3 294 115 53 155.7 454.7
ICICI Lombard 3,792 3,312 3,837 14.5 -1.2 346 318 591 9.0 -41.4
# Gross written Premium & PBT

Total Income (Rs. Cr) PAT (Rs. Cr)
Companies
Q3 Q3 Q2 y-o-y q-o-q Q3 Q3 Q2 y-o-y q-o-q
FY23 FY22 FY23 (%) (%) FY23 FY22 FY23 (%) (%)
Bajaj Finserv Ltd 21,755 17,620 20,803 23.5 4.6 1,782 1,256 1,557 41.9 14.5
Core Revenue (Rs. Cr) PAT (Rs. Cr)
Companies Q3 Q3 Q2 y-o-y q-o-q Q3 Q3 Q2 y-o-y q-o-q
FY23 FY22 FY23 (%) (%) FY23 FY22 FY23 (%) (%)
AMC
Nippon Life India AMC 354 339 332 4.5 6.7 205 174 206 17.9 -0.4

PT RoA (%) RoE (%) P/E (x) P/B (x)
Companies Reco CMP (Rs)
(Rs) FY23E FY24E FY23E FY24E FY23E FY24E FY23E FY24E
HDFC Ltd Buy 2,700 3,225 2.3 2.6 13.0 13.4 12.7 9.8 1.6 1.4
LIC HF Buy 370 435 0.9 1.0 9.5 11.4 8.4 6.4 0.8 0.7
Can Fin Homes Buy 591 670 2.0 1.8 18.0 16.8 13.0 11.7 2.1 1.8
Chola Buy 771 900 2.8 3.0 19.4 19.4 23.6 20.8 4.4 3.7
Mahindra Finance Buy 260 290 2.1 2.3 11.2 12.7 14.7 10.6 1.9 1.7
Bajaj Finance Buy 6,346 7,500 4.8 4.7 23.3 22.4 33.9 28.5 7.1 5.8
LTFH Hold 93 105 1.5 1.8 7.9 9.5 14.2 10.9 1.1 1.0
Life Insurance Co.`s ROEV (%) P/EV (x) P/VNB (x)
PT
Reco CMP (Rs)
(Rs) FY23E FY24E FY23E FY24E FY23E FY24E
HDFC Life Buy 515 720 20.2 18.5 2.8 2.4 35.0 29.0
ICICI Pru Buy 437 660 16.7 16.5 1.8 1.5 25.0 22.0
Max Financial Buy 737 950 20.3 20.5 1.9 1.6 18.0 19.3
General Insurance Co. RoE (%) P/E (x) P/B (x)

FY23E FY24E FY23E FY24E FY23E FY24E
ICICI Lombard Buy 1,143 1,400 19.3 18.2 29.7 27.2 5.3 4.6
AMC RoE (%) P/E (x) P/B (x)
PT
Reco CMP (Rs)
Nippon Life India AMC Hold 222 265 20.6 21.2 18.6 16.8 3.7 3.4

Sector Update
Capital Goods & Power
Strong order and execution momentum to sustain
Summary
Q3FY2023 Results Review Project-based companies’ revenues rose by 15.8% led by an all-time high order book. However, operating profit and net
profit lagged expectations, rising by 6.3% y-o-y and 19.3% y-o-y, while OPM fell by 106 bps/118 bps y-o-y/q-o-q. Project-
Sector: Capital Goods & Power based companies were optimistic on the future domestic order pipeline but were watchful on exports.
Product-based companies’ revenue growth lagged expectations at 6.5% y-o-y as few companies under coverage faced
Sector View: Positive demand challenges. OPM, however, increased by 113 bps y-o-y/128 bps q-o-q as raw material costs and other expenses
declined. Net profit rose by 27.7% y-o-y due to healthy operating performance and overall steady growth in other
income and taxation.
Power PSUs’ earnings beat expectations with 18%/11% y-o-y PAT growth for NTPC/Power Grid. Tata Power’s PAT also
rose 122% y-o-y led by strong coal/standalone profit and exceptional income. NTPC’s strong commercialization
Our Coverage Universe guidance bodes well for earnings growth while Power Grid’s works in hand of Rs 47,600 crore provides it decent growth
CMP Reco./ PT visibility. Asset monetization by power PSUs provide scope for higher dividend payout.
Companies Preferred picks - Among project-based companies, we prefer L&T, HAL, Cummins India, CUMI, Honeywell Automation,
(Rs) View (Rs)
KOEL; in product based companies we prefer Blue Star, Polycab India, KEI Industries and Finolex Cables. In the power
Capital goods sector, we choose NTPC, Power Grid, and Tata Power.
L&T 2,229 Buy 2,455
Our capital goods universe’s revenue and net profit growth was broadly in line with estimates. However, OPM
Bharat Electronics 96 Buy 120 was a let-down and declined y-o-y as compared to our estimate of reasonable increase, as margin either declined
Finolex cables 683 Buy UR or expanded lesser than expectations for companies like L&T, BEL, HAL, Carborundum Universal (CUMI) and
Honeywell Automation. L&T, the largest company in our universe, reported a ~17%/~18% y-o-y growth in revenue/
KEC International 477 Buy 525 profit. Excluding L&T, revenue grew by 11.2% y-o-y, OPM was down 80 bps y-o-y, while net profit increased by
22.1% y-o-y. Project-based companies reported 15.8% y-o-y revenue growth (pick-up in execution), but OPM
Kalpataru Power 506 Buy 590 declined on both y-o-y/q-o-q basis and net profit increased by 19% y-o-y. Most project-based companies such as
Ratnamani Metals 2,205 Buy 2,500 L&T, KEC International, Kalpataru Power Transmission (KPTL), Triveni Turbine and Thermax recorded remarkable
order inflows across various industries and indicated that the yearly order intake guidance provided by them for
Thermax 2,000 Buy 2,790 FY2023 would be easily achievable. Inflows were driven by construction, power, T&D, hydrocarbon, renewable
Triveni Turbines 306 Buy 325 energy, water, steel, cement and the pharmaceuticals industry. All project-based companies believe that order
award environment is conducive given the government spend on infrastructure, renewable energy and water
V-Guard 251 Buy 320 and the recent budgetary announcements w.r.t. public capex corroborates the same. There are some weak spots
like petrochemicals, refinery, cement and steel wherein the order pipeline for large-sized orders is reducing as
KEI Industries 1,669 Buy 1,895 compared to last year. Product-based companies’ revenues grew at a slow pace at 6.5% y-o-y revenue growth
Polycab India 3,041 Buy 3,320 as Dixon Technologies and V-Guard Industries’ revenues lagged expectations. However, profitability of product-
based companies improved considerably as they clocked in OPM of 9.1% (up 113 bps/128 bps on a y-o-y/ q-o-q
Dixon Technologies 2,723 Hold 3,770 basis) and net profit grew by 27.7% y-o-y. Most of the companies were optimistic on demand environment going
Amber Enterprises 1,916 Buy 2,360 forward and stated that channel inventory is rising in anticipation of good demand in summer-related products
in Q4FY2023.
Cummins India 1,578 Buy 1,820 Sanguine order pipeline: Our universe of project-based companies performed better than ours and the street’s
Blue star Limited 1,414 Buy 1,465 estimates on the revenue and order-booking fronts but fell short of OPM and net profit expectations. An all-time
high order book and pick up in execution led to 16% y-o-y growth in revenue primarily led by L&T, KEC International,
Carborundum Thermax, Cummins India, Honeywell Automation and CUMI. Order prospects for L&T for Q4FY2023 stands at an
983 Buy 1,125
Universal encouraging level of Rs 4.87 lakh crore. Apart from L&T, companies such as KEC, Triveni Turbine, KPTL and VA Tech
Wabag are bullish on order prospects. Further, defence players like HAL and BEL which had tepid order inflows in
Honeywell Q3FY2023 are bullish on some of the large orders getting closed in Q4FY2023 and thus hopeful of achieving the
35,992 Buy 45,000
Automation order intake guidance for FY2023. Thermax despite having a promising pipeline from power, pharmaceuticals,
Va Tech Wabag 323 Buy 420 distilleries, and paper & pulp industries, continues to remain skeptical on large orders from petrochemicals, refinery
and cement in the domestic market. On the exports front, while the MENA region is still promising, signs of slowdown
Soft Coverage have begun to emerge in some parts of Europe and therefore companies like Cummins India and KOEL have provided
cautiously optimistic outlook for exports in the short to medium term. OPM declined by 106 bps/118 bps on y-o-y/q-
ISGEC Heavy o-q basis to 11.8% as L&T, BEL, KEC, Triveni Turbine, CUMI and Honeywell Automation’s margin dipped on y-o-y basis;
445 Neutral 540
Engineering while net profit was up 19% y-o-y.
Kirloskar Oil Strong margin recovery, promising outlook for Q4FY2023: Our universe of product-based companies’ revenue
332 Positive 372 grew by 6.5% y-o-y, while OPM increased by 113 bps/128 bps on y-o-y/q-o-q basis led by increase in volumes, price
Engines
hikes and decline in input cost. Net profit also increased significantly by 27.7% y-o-y. All leading Cables & Wires
KSB Ltd. 1,841 Positive 2,170 (C&W) companies such as Polycab India, KEI Industries and Finolex Cables posted healthy volume growth. AC,
Symphony Limited 1,110 Neutral 1,153 stabilizer and fans companies had a timid quarter as the demand was weak after Diwali. However, companies are
hopeful of better Q4FY2023 as the channels have started stocking inventory in anticipation of summer-led demand.
Hindustan Hence, most companies expect margins to further improve in Q4FY2023, as volume improvement and declining input
2,622 Positive 2,978 cost will boost growth.
Aeronautics Ltd.
Power Power sector – Strong growth momentum continues: Power PSUs posted good numbers and earnings were above
our estimates with double digit PAT growth of 18%/11% y-o-y for NTPC/Power Grid in Q3FY23. NTPC’s earnings
NTPC 173 Buy 200 growth was led by a 7% y-o-y rise in regulated equity base, fixed cost over recovery and higher incentive income
while that of Power Grid was supported by higher dividend income and lower tax rate, which offsets muted asset
Power Grid 217 Buy 265 capitalization. Tata Powers’ consolidated reported PAT grew by 122% y-o-y to Rs. 945 crore supported by revenue
Tata Power 208 Buy 245 booking of Rs. 439 crore for earlier quarters given favourable CERC order for Mundra UMPP, higher y-o-y coal profit
offset by lower profitability for solar EPC and a sharp decline in profits from Odisha discoms. CESC’s consolidated
CESC 77 Buy 95 PAT declined by 3% y-o-y to Rs319 crore as sharp earnings fall from Haldia and continues loss at RJ DF offset steady
Source: Company, Sharekhan Research, standalone PAT and strong growth from Noida/Crescent Power. NTPC’s commercialisation pipeline is strong with
UR - Under Review target of 5-6 GW p.a. of capacities over FY23E-25E, which would drive growth in regulated equity base and provides
CMP as on Feb 21, 2023 earnings growth visibility. Furthermore, NTPC plans to monetise up to a 20% stake in its subsidiary NTPC Green
Energy by March 2023 and same could unlock value from RE portfolio. Power Grid’s asset capitalisation guidance to
Rs. 10,000-12,000 crore, projects worth Rs. 47,600 crore and strong transmission bid pipeline of Rs. 40,000-50,000
crore provides decent earnings growth visibility. This coupled with asset monetization target would result in high
dividend payout from power PSUs.
Outlook and Valuation
Sector tailwinds in terms of strong order prospects and margin expansion: We believe that the capex upcycle in
capital goods sector would continue to witness investments in infrastructure, power, renewable, petrochemicals and
Price chart defence for the next 2-3 years. Further, private capex in pharmaceuticals, beverages, food processing and automation
65000 38500
industries is on rise. Hence, we are bullish on the sector from a long-term perspective and prefer companies with
strong and diversified order book and scope for margin expansion. For product-based companies, demand outlook
60000 34500 remains buoyant given low penetration of white goods in small towns and cities, increasing spends and lifestyle
changes. Moreover, price hikes, operating leverage, and declining commodity prices will aid in improving OPM.
55000 30500 In the product (consumer electronics) segment, we prefer companies with diversified product portfolio, scope for
50000 26500 margin expansion and healthy cash generation with short working capital cycle. Among project-based companies,
we prefer Larsen & Toubro (L&T), HAL, Cummins India, CUMI, Honeywell Automation, KOEL. While among product-
45000 22500 based firms, we prefer Blue Star, Polycab India, KEI Industries and Finolex Cables. We prefer NTPC, Power Grid, and
40000 18500 Tata Power in the power sector.
Oct-22
Feb-22
Mar-22
Sep-22
Feb-23
Jan-23
Nov-22
Nov-22
May-22
Jun-22
Apr-22
Jul-22
Aug-22
Dec-22
Key risks
If order awards are delayed and demand environment is not conducive, it could impact order inflows of the sector.
BSE Sensex S&P BSE Capital Goods Further, increase in commodity prices may impact profitability.
Source: BSE; Sharekhan Research Leaders: L&T, Triveni Turbine, CUMI, Cummins India, Polycab India, Blue Star, KOEL, Finolex Cables, NTPC.
Laggards: KEC International, BEL, HAL, Dixon Technologies.
Preferred Picks: L&T, HAL, Cummins India, CUMI, Honeywell Automation, KOEL, Blue Star, Polycab India, KEI
Industries and Finolex Cables. In power, we prefer NTPC, Power Grid, and Tata Power.

Sector Update
Revenue (Rs. cr) OPM (%) Net profit (Rs. cr)
Coverage Q3 Q3 y-o-y q-o-q Q3 Q3 y-o-y q-o-q Q3 Q3 y-o-y q-o-q
FY23 FY22 (%) (%) FY23 FY22 (bps) (bps) FY23 FY22 (%) (%)
Capital goods
L&T 46,390 39,563 17.3 8.5 10.9 11.5 -52 -52 2,417 2,055 17.6 8.4
Bharat Electronics 4,153 3,702 12.2 4.8 20.8 22.4 -161 -113 613 596 2.9 -1.7
Limited
Finolex Cables 1,150 973 18.2 5.5 12.3 11.2 111 377 135 95 41.7 -1.4
KEC International 4,375 3,340 31.0 7.6 4.6 7.2 -259 19 18 94 -81.2 -68.1
Kalpataru Power 3,509 3,196 9.8 6.6 8.7 7.6 112 31 111 73 52.1 6.7
Transmission
Ratnamani Metals 1,099 927 18.5 22.1 18.1 14.1 403 202 134 89 50.5 35.7
Thermax 2,057 1,615 27.4 -0.9 7.5 7.0 50 73 116 79 46.5 6.7
Triveni Turbine 326 225 44.7 11.2 19.4 20.0 -64 37 53 36 47.4 13.7
V-Guard Industries 977 961 1.7 -0.3 6.1 8.8 -267 -109 36 53 -31.8 -17.0
KEI Industries 1,784 1,564 14.1 11.0 10.2 10.0 18 22 129 101 27.0 20.3
Polycab India 3,715 3,372 10.2 11.5 13.6 10.7 284 73 358 247 45.0 33.6
Dixon Technologies 2,405 3,073 -21.8 -37.8 4.6 3.4 127 87 52 46 11.9 -32.8
Amber Enterprises 1,348 974 38.4 79.7 5.8 7.6 -173 94 14 32 -55.9 NM
Cummins India 2,181 1,735 25.7 11.8 18.9 15.6 331 402 360 241 49.5 42.7
Blue Star Limited 1,788 1,506 18.7 13.4 5.9 6.0 -16 43 58 48 23.0 37.0
Carborundum Universal 1,187 899 32.0 5.3 14.4 17.5 -312 -5 109 102 7.4 22.6
Honeywell Automation 1,017 860 18.3 28.1 12.8 14.2 -138 -328 106 90 18.0 -10.2
Va Tech Wabag 652 745 -12.6 -13.2 11.5 10.2 126 433 47 43 8.6 1.0
Soft Coverage
ISGEC Heavy 1,597 1,396 14.4 5.6 8.0 7.7 33 200 63 47 33.9 112.9
Engineering
Kirloskar Oil Engines 1,000 837 19.5 -1.0 10.9 6.1 483 -53 68 25 169.8 -6.1
Symphony Limited 277 205 35.1 1.1 15.9 14.6 125 238 39 21 85.7 18.2
Hindustan Aeronautics 5,666 5,894 -3.9 10.1 17.5 24.4 -690 -1432 1,155 933 23.8 -5.4
Ltd.
Total 88,652 77,562 14.3 6.7 11.4 12.1 -68 -76 6,191 5,145 20.3 6.7
Ex-L&T 42,263 37,999 11.2 4.7 11.9 12.7 -82 -99 3,774 3,091 22.1 5.7
Project based 75,207 64,933 15.8 8.0 11.8 12.9 -106 -118 5,370 4,503 19.3 5.4
Product based 13,445 12,628 6.5 -0.3 9.1 8.0 113 128 820 643 27.7 16.5
Project based ex-L&T 28,817 25,371 13.6 7.2 13.2 15.1 -187 -222 2,953 2,448 20.6 3.0
Power
NTPC 41,411 30,266 36.8 1.0 32.0 32.1 -16 876 4,424 3,758 17.7 23.1
Power Grid 10,746 10,002 7.4 0.9 87.3 86.9 40 321 3,702 3,349 10.5 1.4
Tata Power 14,129 10,913 29.5 0.7 16.5 15.0 155 398 617 426 44.8 -12.7
CESC 1,939 1,863 4.1 -21.6 23.5 22.2 135 209 186 184 1.1 -23.5
Total 68,225 53,044 28.6 0.1 37.2 38.6 -133 678 8,928 7,717 15.7 8.9

Sector Update
Price EPS (Rs) P/E (x)
CMP Reco/
Company Target
(Rs) View FY22 FY23E FY24E FY22 FY23E FY24E
(Rs)
Capital goods
L&T 2,229 Buy 2,455 61.2 73.5 92.1 36.5 30.3 24.2
Bharat Electronics Limited 96 Buy 120 3.3 3.7 4.4 29.1 25.6 21.7
Finolex Cables 683 Buy UR 26.5 30.2 36.2 25.8 22.6 18.9
KEC International 477 Buy 525 14.6 6.2 16.2 32.6 77.3 29.5
Kalpataru Power Transmission 506 Buy 590 32.2 30.7 42.3 15.7 16.5 12.0
Ratnamani Metals 2,205 Buy 2,500 46.0 61.2 75.8 47.9 36.0 29.1
Thermax 2,000 Buy 2,790 26.2 33.1 47.5 76.3 60.4 42.1
Triveni Turbine 306 Buy 325 3.8 5.7 7.5 80.3 53.4 40.6
V-Guard Industries 251 Buy 320 5.3 4.5 6.7 47.7 56.3 37.2
KEI Industries 1,669 Buy 1,895 41.8 51.3 62.6 40.0 32.5 26.7
Polycab India 3,041 Buy 3,320 56.7 81.2 92.9 53.7 37.5 32.7
Dixon Technologies 2,723 Hold 3,770 32.1 39.9 64.9 84.9 68.2 41.9
Amber Enterprises 1,916 Buy 2,360 32.3 33.8 50.8 59.4 56.6 37.7
Cummins India 1,578 Buy 1,820 28.6 38.4 44.6 55.1 41.1 35.4
Blue Star Limited 1,414 Buy 1,465 17.4 22.9 32.8 81.0 61.6 43.1
Carborundum Universal 983 Buy 1,125 17.6 20.0 26.4 56.0 49.1 37.3
Honeywell Automation 35,992 Buy 45,000 383.6 492.0 682.6 93.8 73.2 52.7
Va Tech Wabag 323 Buy 420 21.2 25.7 31.1 15.2 12.6 10.4
Soft Coverage
ISGEC Heavy Engineering 445 Neutral 540 15.6 21.5 25.4 28.4 20.7 17.5
Kirloskar Oil Engines 332 Positive 372 10.8 15.2 18.0 30.8 21.8 18.4
KSB Ltd. 1,841 Positive 2,170 42.9 51.7 65.3 42.9 35.6 28.2
Symphony Limited 1,110 Neutral 1,153 17.1 21.8 27.6 64.8 51.0 40.2
Hindustan Aeronautics Ltd. 2,622 Positive 2,978 99.4 150.0 150.1 26.4 17.5 17.5
Power
NTPC 173 Buy 200 15.2 17.0 20.4 11.1 9.9 8.2
Power Grid 217 Buy 265 19.4 21.2 22.3 11.2 10.3 9.7
Tata Power 208 Buy 245 5.4 9.3 10.7 38.3 22.5 19.5
CESC 77 Buy 95 6.2 6.1 7.2 12.6 12.7 10.7
Source: Company, Sharekhan Research, UR-Under Review

Sector Update
Consumer Discretionary
Mixed Q3; Long-term growth outlook intact
Summary
Q3FY2023 was mixed for discretionary companies as hotel companies posted strong performance with
Sector: Consumer Discretionary strong revenue growth and higher margins, driven by high room demand, while muted same-store-sales
growth affected the performance of retail/QSR companies under coverage.
Sector View: Positive Textile companies posted another quarter of weak performance in Q3FY2023, as sustained slowdown in
export demand affected revenue growth and higher input prices and lower operating leverage affected
profitability.
Hotel companies are expected to maintain strong growth momentum due to strong room demand, while
the wedding season will lead to uptick in jewellery sales for Titan. There is near-term blip for textile and
retail companies, but long-term growth prospects stay intact.
Our Coverage Universe Preferred Picks –
CMP Reco./ PT
Companies Branded apparel and retail: Aditya Birla Fashion and Retail (ABFRL) and Trent
(Rs) View (Rs) Textile: SP Apparels and KPR Mill
Aditya Birla Out-of-home discretionary: Lemon Tree Hotels, Indian Hotels Company Limited (IHCL), Wonderla
234 Buy 320 Holidays, and Devyani International
Fashion and Retail
Shoppers Stop 643 Positive 773 Q3FY2023 was a mixed quarter for the consumer discretionary sector with branded apparel/footwear/QSR
companies witnessing slowdown in consumption post the festive season, thereby impacting same-store-
Trent 1,350 Buy 1,550 sales, while strong room demand boosted the performance for hotel companies under coverage. Revenue
of Sharekhan’s branded apparel/retail grew by 19% (largely led by store addition), while EBIDTA margin
Titan Company 2,424 Buy 2,950 of most companies remained lower y-o-y due to normalisation of rental cost and higher advertisement
spends. Further, inflation had an impact on QSR performance with a decline in average daily sales on a y-o-y
basis, while margins remained weak due to higher input cost inflation. Same-store-sales (SSSG) of retail/
Bata India 1,425 Buy 1,775 QSR companies was muted as the consumption trend was weak post the festive season. Hotel companies
outperformed in Q3FY2023, delivering strong revenue growth and sustained margin expansion. Q3FY2023
Relaxo Footwear 784 Buy 930 was yet another weak quarter for textile companies as a sustained slowdown in demand from export markets
affected revenue performance, while higher input prices and lower operating leverage continued to impact
Jubilant margins.
452 Buy 600
Foodworks Branded Apparel/retail – Muted SSSG; New stores drove revenue growth, weak margins: Sharekhan’s
Devyani branded apparel, retail, and footwear universe registered y-o-y revenue growth of 18.8% in Q3FY2023
152 Buy 215 (three-year CAGR of 17.4%), driven by aggressive store additions, while the same-store-sales moderated
International
due to weak consumer sentiments (especially after the festive season), resulting in lower same store sales
Restaurant Brands for retail companies. Trent registered industry outperformance with revenue growth reported at 61% y-o-y,
98 Buy 135
Asia aided by 17% LFL growth in Westside and aggressive Zudio store expansion. Footwear companies – Bata
India and Relaxo Footwear were impacted by the slowdown in the mass category and reported muted
Indian Hotels performance in Q3FY2023. EBIDTA margin of our branded apparel, retail, and footwear universe was down
300 Buy 380
Company by 351 bps y-o-y mainly on account of normalisation of rental cost, increased advertisement spends, and
higher input prices. Despite strong revenue growth, adjusted PAT for the universe was down by 19% y-o-y
Lemon Tree Hotels 73 Positive 108 due to a sharp decline in margins.
QSR and hospitality – QSR weak performance; hospitality outperforms: Sharekhan’s QSR and hospitality
Wonderla Holidays 415 Buy 475 universe registered strong y-o-y revenue growth of 31.2% in Q3FY2023 (three-year CAGR of 20%). Double-
digit revenue growth for QSR companies was largely driven by store additions, while SSSG remained
Arvind 81 Hold 95 muted in Q3, impacted by weak consumer sentiments. On the other hand, higher demand from domestic
leisure travel, recovery in corporate, and MICE aided hospitality companies to post strong growth in Q3
Himatsingka Seide 77 Neutral 81 with occupancy and ARR improving on a y-o-y basis. Hotel companies such as Indian Hotels Company and
Lemon Tree Hotels posted strong y-o-y revenue growth of 52% and 63%, respectively, while amusement
KPR Mill 590 Buy 640 park players such as Wonderla Holidays posted stellar numbers in Q3 with revenue growing by 2.3x y-o-y,
sharp expansion in EBIDTA margins, and PAT growing by 9x y-o-y. EBIDTA margin of QSR companies was
lower, impacted by raw-material inflation and store additions, while hospitality companies witnessed
SP Apparels 313 Positive 355
sharp improvement in profitability due to strong operating leverage and sustained benefits of cost-saving
initiatives.
Welspun India 68 Hold 75
Textile – Weak Q3: Sharekhan’s textile universe posted yet another quarter of weak performance with
revenue declining by 10% y-o-y, affected by demand slowdown in key export markets such as U.S. and
Inox Leisure 508 Buy 606 Europe. KPR Mill delivered 13.6% y-o-y revenue growth, aided by strong double-digit growth in garment
realisation. Margins were low for all textile players on a y-o-y basis, impacted by higher input prices.
PVR 1,624 Buy 2,020 However, with correction in cotton prices, margins have improved on a sequential basis for most companies.
Outlook – Hospitality to maintain momentum; Gradual recovery for QSR and Retail: Q4FY2023 performance
Zee Entertainment 206 Buy 276 will be strong for retail companies due to low base of the corresponding quarter last year impacted by the third
Source: Company, Sharekhan Research; Covid-19 wave (Omicron had affected the performance in January 2022 and early February 2022). Further,
strong wedding season is expected to drive growth for jewellery players like Titan due to strong demand for
wedding jewellery. Organic same-store-sales for retail/QSR companies would be muted due to weak consumer
sentiments and growth in revenue would largely be driven by strong store expansion. We expect discretionary
spends to gradually improve and see strength prior to the next festive season. Hotel companies would continue
to post strong performance as room demand is expected to stay ahead of room supply over the next three to
four years. Textile companies will take another two to three quarters for revival in performance as export orders
will gain momentum once global retail shelves get empty. Margins will improve in the quarters ahead as cotton
and yarn prices have corrected from their high.
Valuation and preferred picks
With a revamped business model focusing on digitisation, giving more thrust on private brands, expanding
Price chart portfolio with fast-growing athleisure/branded ethnic wear, branded apparel and retail companies are
20,000 expected to post consistent growth in the long run. In this space, we like ABFRL and Trent due to strong growth
prospects and relatively better valuations post the recent correction in the stock price. In the hospitality space,
15,000 we continue to prefer Lemon Tree Hotels and Wonderla Holidays with strong industry tailwinds over the next
two to three years and relatively stable balance sheet. In the QSR space, we like Devyani International due to
10,000 its strong brand portfolio and robust expansion strategy. Though near-term headwinds might keep the textile
sector under pressure, the correction in stock price and strong growth prospects in the export garment space
5,000 make KPR Mill and SP Apparels a good bet in the space.
0 Leaders for Q3FY23: Wonderla Holidays, Trent, and KPR Mill
Oct-22
Jun-22
Feb-22
Feb-22
Laggards for Q3FY23: Relaxo Footwear, Welspun India, and ABFRL

Preferred Picks:
Nifty consumption Nifty 50 Branded apparel and retail: ABFRL and Trent
Source: NSE; Sharekhan Research
Textile: SP Apparels and KPR Mill
Out-of-home discretionary: Lemon Tree Hotels, IHCL, Wonderla Holidays, and Devyani International

Sector Update
Q3FY2023 result snapshot Rs. crore
Net sales EBITDA Margin (%) Adjusted PAT
Companies
Q3FY23 Q3FY22 y-o-y (%) Q3FY23 Q3FY22 y-o-y (bps) Q3FY23 Q3FY22 y-o-y (%)
Apparel, Retail & Footwear
Aditya Birla Fashion and Retail 3,588.8 2,987.1 20.1 12.1 19.5 -735 6.7 194.4 -96.6
Shoppers Stop 1,131.7 951.3 19.0 18.7 19.2 -49 47.3 50.2 -5.8
Trent 2,171.5 1,347.8 61.1 15.5 21.6 -619 161.0 132.9 21.1
Titan Company 11,609.0 10,037.0 15.7 11.6 14.4 -276 912.0 1,012.0 -9.9
Bata India 900.2 841.3 7.0 22.9 20.0 285 83.2 72.4 14.9
Relaxo Footwear 681.0 743.5 -8.4 10.6 16.4 -575 30.1 71.5 -57.9
Total 20,082 16,908 18.8 13.0 16.5 -351 1,240 1,533 -19.1
Hospitality & QSR
Jubilant Foodworks 1,316.6 1,193.5 10.3 22.0 26.6 -457 88.7 137.4 -35.4
Devyani International 790.6 624.4 26.6 22.0 23.7 -167 77.5 65.4 18.6
Restaurant Brands Asia 526.3 435.4 20.9 5.6 11.9 -623 -55.9 -26.5 -
Indian Hotels Company 1,685.8 1,111.2 51.7 35.4 29.0 647 352.1 94.5 -
Lemon Tree Hotels 233.5 143.7 62.6 54.2 44.1 - 48.4 -5.6 -
Wonderla Holidays 113.2 48.3 - 50.2 29.5 - 39.3 4.5 -
Total 4,666 3,556 31.2 27.3 25.8 155 550 270 103.9
Textile
Arvind 1,979.8 2,275.7 -13.0 9.4 10.4 -101 77.4 94.2 -17.8
Himatsingka Seide 736.8 790.7 -6.8 14.1 16.4 -233 2.2 27.1 -91.9
KPR Mill 1,431.4 1,260.5 13.6 18.8 24.2 -544 174.6 211.8 -17.6
SP Apparels 251.1 250.3 0.3 12.3 15.0 -263 13.4 24.6 -45.7
Welspun India 1,869.2 2,418.2 -22.7 10.4 12.8 -243 43.8 167.0 -73.8
Total 6,268 6,995 -10.4 12.5 14.6 -207 311 525 -40.6
Media & Entertainment
Inox Leisure 515.6 296.5 73.9 33.0 44.4 - 27.3 -1.3 -
PVR 940.7 614.2 53.2 30.7 26.9 385 16.1 -10.2 -
Zee Entertainment 2,111.2 2,112.6 -0.1 16.0 22.7 -668 24.3 298.7 -91.9
Total 3,567 3,023 18.0 22.3 25.7 -333 68 287 -76.4
Grand total 34,584 30,483 13.5 15.8 18.0 -225 2,169 2,615 -17.0

Sector Update
Valuations
EV/EBITDA (x) P/E (x) Price
CMP
Company Reco. Target
(Rs) FY22 FY23E FY24E FY22 FY23E FY24E (Rs.)
Apparel, Retail & Footwear
Aditya Birla Fashion and Retail 234 23.7 14.2 11.6 - 75.7 38.5 Buy 320
Shoppers Stop 643 20.7 11.8 9.7 - 73.4 38.9 Positive 773
Trent 1,350 52.6 30.3 23.8 - 85.9 54.7 Buy 1,550
Titan Company 2,424 64.6 43.8 37.3 96.2 65.1 55.3 Buy 2,950
Bata India 1,425 39.1 21.8 17.5 - 52.6 37.2 Buy 1,775
Relaxo Footwear 784 47.1 65.7 44.1 83.7 - 87.2 Buy 930
Hospitality & QSR
Jubilant Foodworks 452 28.3 25.0 20.0 67.1 67.1 45.6 Buy 600
Devyani International 152 38.7 27.1 18.8 - 65.8 44.3 Buy 215
Restaurant Brands Asia 98 44.7 38.9 16.6 - - - Buy 135
Indian Hotels Company 300 98.3 24.7 17.8 - 50.7 35.0 Buy 380
Lemon Tree Hotels 73 49.7 13.6 10.8 - 47.5 33.4 Positive 108
Wonderla Holidays 415 110.9 11.6 10.1 - 19.4 17.5 Buy 475
Textile
Arvind 81 4.7 4.2 3.3 8.6 6.2 5.0 Hold 95
Himatsingka Seide 77 6.6 15.9 7.1 5.4 - 9.4 Neutral 81
KPR Mill 590 17.3 16.4 13.2 24.1 26.0 20.8 Buy 640
SP Apparels 313 6.6 6.1 4.5 9.5 9.8 6.7 Positive 355
Welspun India 68 6.7 13.2 7.1 11.3 62.9 13.5 Hold 75
Media & Entertainment
Inox Leisure 508 40.9 12.9 9.2 - 55.4 22.9 Buy 606
PVR 1,624 - 12.0 8.7 - 90.1 30.7 Buy 2,020
Zee Entertainment 206 12.3 15.1 10.9 18.0 26.8 18.0 Buy 276

Sector Update
Consumer Goods
Demand remains soft; margins improve sequentially
Summary
As anticipated, our consumer goods universe posted yet another quarter of soft performance,
Sector: Consumer Goods with slowdown in rural consumption and high input prices affecting the sector’s earnings growth
in Q3FY2023.
Sector View: Neutral Our consumer goods universe’s revenue and PAT (ex-ITC) grew 10% and 9% y-o-y, respectively;
OPM fell 48 bps, affected by raw-material inflation and higher media spends.
Stable input prices after a recent correction in prices of key inputs would drive up margins q-o-q;
rural slowdown has bottomed out and with falling consumer inflation, demand is likely to improve
in another 2-3 quarters.
Our coverage universe Preferred Picks: ITC, HUL, Marico, Britannia Industries, Jyothy Labs and Varun Beverages
Companies CMP Reco. PT (Rs)
Consumer goods companies posted yet another soft quarter in Q3FY2023 with moderated
(Rs) revenue growth affected by weak rural demand and inflated input prices and higher media
Asian Paints 2,827 Buy 3,300 spends resulting in lower margins for most companies in our coverage. Sales volume growth
Bajaj Consumer 168 Hold 178 of most consumer good companies stood flat to low single digit in Q3FY2023. Home and
personal care categories saw slowdown in volumes due to high inflation and grammage
Care reduction undertaken during inflation of input prices. Food categories posted relatively
Britannia 4,454 Buy 5,285 better performance by achieving better volume growth compared to overall industry. Overall
Industries revenue growth of Sharekhan’s consumer goods universe stood at 8.0% (ex-ITC at ~10%)
with a large part of growth led by price hikes. The universe’s OPM was down by 48 bps
Colgate- 1,452 Reduce 1,345 y-o-y (ex-ITC) as the higher inventory of high-cost raw materials and elevated media spends
Palmolive (India) led to lower OPM y-o-y for most companies (except for Marico, Jyothy Labs and Britannia
Dabur India 535 Buy 640 Industries). However, a fall in input prices from high led to q-o-q improvement in margins. Our
universe’s PAT growth stood at 13.8% (ex-ITC at 9.2%).
Emami 388 Buy 500
Sales volumes remained muted; Price-led topline growth: High consumer inflation
Globus Spirits 788 Neutral 825 continued to affect domestic consumer demand (especially in rural India) in Q3FY2023. The
Godrej 925 Buy 1,055 rural market witnessed high single-digit decline in sales volumes as compared to urban which
Consumer stood in low single digit decline. Value growth was higher in urban markets due to price hikes
Products and improved mix led by premiumization. Thus, revenue growth for most consumer goods
companies under our coverage (except for HUL, Britannia Industries, Jyothy Labs and Nestle)
Hindustan 2,511 Buy 2,900 stood at 0-10%. On the category front, paint companies witnessed moderated growth due to
Unilever high base of corresponding quarter last year (Q3FY2022) coupled with lower demand in the
tier 3-4 towns. Foods companies (including Britannia, Nestle India and ITC FMCG business)
Indigo Paints 1,049 Buy 1,400 posted double-digit revenue growth. Overall, revenue of Sharekhan’s consumer goods
ITC 384 Buy 450 universe revenue grew by 8% (excluding ITC ~10%).
Jyothy Labs 197 Buy 240 Margins remained lower y-o-y; raw material price correction saw sequential improvement:
Q3FY2023 was sixth consecutive quarter of a y-o-y decline in OPM for most companies
Marico 489 Buy 645 under our coverage. This was on account of higher y-o-y raw material prices and elevated
Nestle India 18,815 Buy 22,590 media spends. However, with raw material prices correcting from its high in the past 4-6
months, gross margins have improved or remain flat on sequential basis for most companies
Radico Khaitan 1,105 Hold 1,205 under our coverage. Large companies such as ITC and Britannia Industries saw a stark y-o-y
Tata Consumer 723 Buy 870 improvement in the OPM in the range of 400-600 bps driven by better revenue mix and
Products operating efficiencies while Marico witnessed uptick in margins due to correction in the
copra prices. Overall, for our universe of FMCG companies, OPM improved by 100 bps y-o-y
Varun Beverages 1,308 Positive 1,630 to 24.8% (excluding ITC OPM decreased by 48 bps), while Sharekhan’s FMCG universe PAT
Zydus Wellness 1,445 Buy 1,740 grew by 13.8% y-o-y (excluding ITC grew by 9.2% y-o-y).
Source: Sharekhan Research Outlook – Rural demand recovery key for overall growth; margins to sequentially improve:
CMP as on Feb 20, 2023 Most consumer goods companies believe that slowdown in rural demand has bottomed-
out and expect recovery in rural demand over the next two to three quarters. Better rabi
crop production and moderating consumer inflation augurs well for rural sentiment to see
gradual recovery in the rural consumption in the quarters ahead. On the other hand, urban
demand remained resilient for consumer good products with good pick-up in the modern
trade while momentum in the general trade continues to remain strong for past 2-3 quarters.
Out-of-home, packaged foods and edible oil categories witnessed good growth in the recent
times and will maintain momentum in the coming quarters. With mercury rising in most part
of country, demand for summer products is on rise as trade channels are building up the
Price chart inventory prior to season. On the other hand, stable raw material prices post the recent
correction in some of the key inputs (including crude oil and vegetable oils) will help margins
20,000 to consistently improve in the coming quarters. Overall, we expect Q4FY2023 to be relatively
17,000 better compared to Q3 and the momentum to improve at start of next fiscal.
14,000
11,000
Valuation and Picks
8,000 We remain selective in the consumer goods space and would prefer companies with better
5,000 growth prospects in the near to long term led by strong portfolio of brands, strong cost saving
2,000 strategies and focus on expanding reach in the rural and urban markets. Thus, in large, consumer
goods companies, we like HUL, Britannia Industries and ITC. HUL continued to gain market
Jun-22
Apr-22
Feb-22
Aug-22
Dec-22
Feb-23
Oct-22
share in more than 85% of its product portfolio and, with strong innovation strategy along with
expanding distribution reach, will help the company to achieve good earnings growth in the
Nifty consumption Nifty 50 medium term. Britannia Industries is widening is leadership gap compared to number two player
by consistently gaining market share in core biscuits portfolio, while it is focusing on adjacent
Source: Sharekhan Research; NSE website categories to scale-up fast to support overall growth in the coming years. Discounted valuations
and improved earnings visibility make ITC a better pick in large consumer goods companies.
Marico will continue to reap benefits of lower input prices and fast scale-up in some new
ventures such as foods and digital brands. Varun Beverages has command over 90% of PepsiCo
India’s domestic business and is expected to post consistent strong double-digit revenue and
earning growth led by distribution expansion and realization growth led by premiumization in
the coming years. Sustained broad-based better performance for past several quarters and
discounted valuations makes Jyothy Labs better pick in small cap consumer goods space
Leaders for Q3FY2023: ITC, Britannia Industries, Jyothy Labs and Godrej Consumer Products
Laggards for Q3FY2023: Bajaj Consumer Care, Dabur India, Emami and Globus Spirits
Preferred Picks: HUL, ITC, Britannia Industries, Marico, Jyothy Labs and Varun Beverages

Sector Update
Q3FY2023 results snapshot
Net sales (Rs cr) OPM (%) Adjusted PAT (Rs cr)
Companies 3 yrs
y-o-y y-o-y y-o-y
Q3FY23 Q3FY22 CAGR Q3FY23 Q3FY22 Q3FY23 Q3FY22
(%) (bps) (%)
(%)
Asian Paints 8,636.7 8,527.2 1.3 16.8 18.7 18.1 57 1,066.9 1,016.3 5.0
Bajaj Consumer Care 228.4 228.6 -0.1 2.6 14.4 17.6 -322 33.7 40.0 -15.8
Britannia Industries 4,196.8 3,575.0 17.4 12.1 19.5 15.1 438 571.3 370.9 54.1
Colgate-Palmolive (India) 1,291.3 1,280.1 0.9 4.0 28.0 29.7 -174 243.2 252.3 -3.6
Dabur India 3,043.2 2,941.8 3.4 9.0 20.0 21.3 -129 477.4 504.5 -5.4
Emami 982.7 971.9 1.1 6.5 29.9 35.1 -520 251.1 267.8 -6.2
Globus Spirits 592.4 347.1 70.7 21.7 9.9 16.8 -689 26.9 30.5 -11.7
Godrej Consumer Products 3,598.9 3,302.6 9.0 9.0 21.3 21.2 16 553.0 517.1 6.9
Hindustan Unilever 15,228.0 13,092.0 16.3 15.8 23.2 25.0 -182 2,581.0 2,291.8 12.6
Indigo Paints 281.3 265.5 6.0 17.9 14.4 14.6 -15 26.3 24.3 8.1
ITC 16,225.7 15,862.3 2.3 11.2 38.4 32.2 619 5,031.0 4,156.2 21.0
Jyothy Labs 612.7 539.0 13.7 13.3 13.8 11.3 242 59.8 38.0 57.3
Marico 2,470.0 2,407.0 2.6 10.6 18.5 17.9 56 333.0 317.0 5.0
Nestle India* 4,256.8 3,739.3 13.8 7.4 22.9 23.2 -28 628.5 561.7 11.9
Radico Khaitan 792.2 766.0 3.4 6.9 12.2 15.5 -331 57.0 76.6 -25.6
Tata Consumer Products 3,474.6 3,208.4 8.3 11.7 13.1 14.4 -133 311.3 297.4 4.7
Zydus Wellness 415.6 388.1 7.1 7.7 6.8 8.3 -154 19.6 23.3 -16.1
Grand Total 66,327.1 61,441.8 8.0 12.2 24.8 23.8 100 12,271.0 10,785.8 13.8
Source: Company; Sharekhan research
*Values for Nestle India are for Q4CY22 and Q4CY21
CMP EPS (Rs.) P/E (X) Price

Companies Reco.
(Rs) FY22 FY23E FY24E FY22 FY23E FY24E target (Rs.)
Asian Paints 2,827 33.1 40.4 54.2 85.5 70.0 52.2 Buy 3,300
Bajaj Consumer Care 168 12.3 8.7 10.3 13.7 19.4 16.4 Hold 178
Britannia Industries 4,454 63.0 80.1 92.0 70.7 55.6 48.4 Buy 5,285
Colgate-Palmolive (India) 1,452 39.6 36.0 37.8 36.6 40.4 38.4 Reduce 1,345
Dabur India 535 10.3 10.9 13.6 51.7 48.9 39.4 Buy 640
Emami 388 16.9 17.2 20.1 22.9 22.6 19.3 Buy 500
Globus Spirits 788 65.0 38.2 69.8 12.1 20.6 11.3 Neutral 825
Godrej Consumer Products 925 17.5 17.6 22.1 52.8 52.6 41.8 Buy 1,055
Hindustan Unilever 2,511 37.6 40.6 48.1 66.7 61.8 52.2 Buy 2,900
Indigo Paints 1,049 17.7 23.6 35.0 59.4 44.5 30.0 Buy 1,400
ITC 384 12.3 15.0 16.8 31.1 25.5 22.8 Buy 450
Jyothy Labs 197 4.3 6.2 8.4 45.4 32.0 23.5 Buy 240
Marico 489 9.7 10.8 13.0 50.2 45.2 37.7 Buy 645
Nestle India* 18,815 240.6 247.9 304.6 78.2 75.9 61.8 Buy 22,590
Radico Khaitan 1,105 19.7 18.0 26.0 56.1 61.3 42.4 Hold 1,205
Tata Consumer Products 723 11.4 12.7 15.4 63.2 57.0 47.0 Buy 870
Varun Beverages* 1,308 10.7 23.1 29.1 - 56.6 44.9 Positive 1,630
Zydus Wellness 1,445 48.5 50.2 62.5 29.8 28.8 23.1 Buy 1,740
Source: Company; Sharekhan estimates
*Nestle India and Varun Beverages are calendar year ending companies, so values are for CY21, CY22 and CY23

Sector Update
Cement
A come-back quarter
Summary
For Q3FY2023, the cement sector reported a 17.1% y-o-y rise in revenues aided by an 11.5%
Sector: Cement y-o-y volume growth and 4.6% y-o-y rise in realisations.
Sector View: Positive EBITDA/tonne although down 14% y-o-y, remained in line with estimates. Power & fuel costs
per tonne softened q-o-q and are expected to decline in Q4.
Cement sector continues to attempt price hikes in the fag end of February. Possible GST
rationalisation remains on the card which can enable incremental volumes. Capacity
expansion plans remain on track.
Preferred picks - UltraTech, Grasim Industries, Dalmia Bharat and The Ramco Cements.
For Q3FY2023, the cement sector (ex-Grasim) reported a 17.1% y-o-y rise in revenues, with a
Our Coverage Universe dip of 13.6% y-o-y in EBITDA/tonne and 23.5% y-o-y in net profit, led by a rise in power & fuel
CMP Reco./ PT costs (up 30.7% y-o-y on a weighted average per tonne basis) and raw material costs (up 7.2%
Companies
(Rs) View (Rs) y-o-y). Grasim reported weak operational performance led by a sharp fall in VSF segment’s
Shree Cement 26448 Reduce 21500 OPM. Our universe reported in-line sales volumes (up 11.5% y-o-y) and blended realizations
(up 4.6% y-o-y). Weighed average EBITDA per tonne at Rs. 772 was in line with our estimate
Ultratech of Rs. 772/tonne, while net earnings came in marginally better than estimates. Barring ACC
7427 Buy 8100
Cement and Ambuja Cements, others clocked flattish to marginally lower power & fuel costs per
Grasim tonne q-o-q. The cement demand is expected to remain strong on the back of continued
1631 Buy 1900 demand from government led infrastructure sector while companies have started to attempt
Industries
price hikes during February 2023. We expect healthy cement demand to aid companies in
The Ramco
738 Buy 845 taking price hikes while GST rationalisation can aid in incremental volume offtake. Overall,
Cement
we expect companies’ operational profitability to see sequential improvement in Q4FY2023.
JK Lakshmi
751 Hold 830 Revenues and EBITDA/tonne remained in-line: For Q3FY2023, the cement sector (ex-Grasim)
Cement
reported in-line net revenues (up 17.1% y-o-y) led by 11.5% y-o-y growth in sales volumes and
Dalmia Bharat 1932 Buy 2250 4.6% y-o-y rise in blended realisations. In our coverage universe, The Ramco Cements reported
Source: Company, Sharekhan Research strong revenue beat led by 18.8% y-o-y volume growth along with 8.9% y-o-y rise in blended
CMP as on Feb 20, 2023
realisations. Further, the cement sector’s profitability in terms of weighted average EBITDA/
tonne declined by 13.9% y-o-y (up 42.4% q-o-q) to Rs. 772 (versus our expectation of Rs. 772/
tonne). Higher power and fuel costs per tonne (up 31% y-o-y, down 6% q-o-q) and raw material
costs (up 7% y-o-y, up 4% q-o-q), affected operational profitability y-o-y. Overall, our coverage
universe reported 3.7% y-o-y/17.7% y-o-y dip in operating profit/net profit. The Ramco Cements,
Dalmia Bharat, Shree Cement, ACC and Ambuja Cements reported a beat on net profitability.
UltraTech and JK Lakshmi marginally lagged while Grasim and India Cements reported weak
numbers.
Cement prices hike being attempted: Domestic coal/pet coke prices have marginally come
down during Q3FY2023 which is expected to lead to marginally lower power & fuel costs per
tonne for the cement sector during Q4FY2023. Cement companies is attempting price hike of
Rs. 10-15/bag in the latter half of February 2023 although the absorption of the same is yet to
be seen. Further, the finance ministry has recommended rationalisation of GST on cement from
currently 28% which is expected to be taken up in the next GST meeting. If the GST committee
cuts GST rate on cement, than it will bring incremental volumes for the industry. Recent price
hike undertaken by the cement companies would help it retain the GST cut benefit in case it
passes it on to end-consumers.
Capacity expansion plans remain intact: Cement companies remained optimistic on demand
environment, supported by sustained demand from government led infrastructure investments
and housing sector. Consequently, all the companies reiterated their long-term capacity
addition plans. Ultratech is slated to increase its domestic capacity to 154 mtpa by FY2026 and
200 mtpa by FY2030. Shree Cement is expected to add 9.5 mtpa by December 2024, while
it remains committed to reaching 80 mtpa by 2030. Dalmia Bharat reiterated its commitment
of achieving 75 MT cement capacity by FY2027, 110-130 MT by 2031, while it remains on track
to achieve 49 MT by March 2024. The Ramco Cements’ new brownfield grinding capacity of
0.9 mtpa at Odisha will be operational in nine months, while it awaits approval for Karnataka
greenfield project. Grasim remains on track for its paints expansion and B2B e-commerce
platform launch.
Price chart Cement companies showed sharp revival in operational profitability sequentially as per our
65000 6500 expectations aided by strong volume growth, better realisations and tight control over operating
6000 cost structure. Further, the sector is expected to see sequential improvement in operational
60000
profitability for Q4FY2023. We believe there is further room for upside in some of the stocks
5500
55000 under our coverage. We expect a healthy demand outlook for the cement sector going ahead
5000
and a rise in cement prices and declining coal/pet coke prices being a key tailwind for the
50000 4500 sector. We stay Positive on the sector.
45000 4000
Key risks
Jun-22
Apr-22
Feb-22
Aug-22
Dec-22
Feb-23
Oct-22
Macroeconomic weakness would lower estimates and valuation multiples of companies.

BSE Sensex S&P BSE Commodities Leaders for Q3FY23: Shree Cement, The Ramco Cements, Dalmia Bharat, ACC, Ambuja
Source: BSE; Sharekhan Research Cements
Laggards for Q3FY23: Grasim Industries, JK Lakshmi Cements, India Cements,
Preferred Picks: UltraTech, Grasim Industries, Dalmia Bharat and The Ramco Cements

Sector Update
Q3FY2023 Result Snapshot
Sales (Rs. cr) OPM (%) Adj. PAT (Rs. cr)
Cement Sector
Coverage 32125 27284 17.7% 6.8% 13.8% 17.4% -368 79 1872 2336 -19.8% -9.9%
Shree Cement 4069 3552 14.6% 7.6% 17.4% 23.2% -584 357 277 492 -43.7% 46.0%
UltraTech 15008 12471 20.3% 11.3% 14.3% 17.8% -352 156 994 1096 -9.3% 38.4%
Grasim 6196 5785 7.1% -8.1% 7.7% 15.9% -824 -648 257 522 -50.7% -75.5%
The Ramco Cements 2009 1549 29.7% 12.6% 14.2% 14.9% -73 387 67 83 -18.4% 487.5%
Dalmia Bharat 3355 2734 22.7% 12.9% 19.2% 15.0% 424 644 203 83 144.6% 322.9%
JK Lakshmi Cement 1489 1193 24.7% 14.3% 10.7% 12.3% -155 8 74 59 24.2% 24.8%
Soft coverage 9885 9074 8.9% 10.8% 9.5% 13.5% -409 688 416 657 -36.6% -814.1%
ACC 4537 4226 7.4% 13.8% 8.3% 13.1% -480 795 190 335 -43.4% -353.3%
Ambuja 4129 3740 10.4% 12.3% 15.2% 15.3% -8 684 430 319 35.1% 179.2%
India Cements 1219 1108 10.0% -2.8% -5.7% 9.4% - - -204 3 - -
Grand total 42010 36358 15.5% 7.8% 12.7% 16.5% -372 216 2289 2992 -23.5% 13.3%
Total (ex-Grasim) 35814 30573 17.1% 11.1% 13.6% 16.6% -295 378 2031 2470 -17.7% 109.8%

Price EV/EBITDA (x) P/E (x)
CMP
Company Reco Target
(Rs)
Cement
Shree Cement Reduce 21500 26448 29.8 23.3 18.4 78.3 60.4 47.0
UltraTech Cement* Buy 8100 7427 21.6 16.7 13.5 44.5 33.3 26.2
Grasim Industries* Buy 1900 1631 22.6 19.1 15.8 45.0 42.4 35.6
The Ramco Cement Buy 845 738 21.1 13.6 11.5 63.6 26.0 20.6
Dalmia Bharat Buy 2250 1932 14.6 12.0 11.0 53.2 43.9 40.5
JK Lakshmi Cement Hold 830 751 10.4 8.0 6.5 23.5 17.5 14.7
Soft coverage
ACC Not Rated 1851 14.2 11.1 9.9 37.1 22.3 19.3
Ambuja Cements Not Rated 353 10.2 8.1 6.2 28.0 22.4 19.0
India Cements Not Rated 199 - 19.0 14.7 - - 74.7

Source: Company, Sharekhan Research * Standalone financials

Sector Update
Infra/Logistics/BM/Realty
Piping sector strong, Logistics/Infra subdued; Realty mixed bag
Summary
For Q3FY2023, building materials companies reported marginally higher revenues while OPM
Sector: Infra/Logistics/BM/Realty contraction led to a 12% y-o-y decline in net earnings. Piping companies drove overall performance
while wood panel and tile companies lagged.
Sector View: Positive
Logistics sector reported largely in-line revenues while lagging on net earnings due to pressure on
OPMs. Express players underperformed. Infrastructure players reported 34% y-o-y net earnings growth
Our Coverage Universe although was marginally short of expectations.
CMP Reco./ PT Real estate players saw a 11% y-o-y decline in pre-sales owing to weak performance by Oberoi and
Companies
(Rs) View (Rs) Prestige. Realty universe reported 26.4%/28.6%/8.8% y-o-y revenue/operating profit/net profit growth
which was largely iin line
Infrastructure
Preferred Picks - KNR Construction, PNC Infratech, Century Plyboards, Greenlam Industries, Supreme
KNR
256 Buy 310 Industries, APL Apollo, TCI Express, TCI Ltd., Mahindra Lifespaces, DLF, Oberoi Realty, Prestige Estates
Constructions
and Macrotech Developers.
PNC Infratech 304 Buy 390
Building Materials For Q3FY2023, the building material sector reported marginally higher revenues (up 16.8% y-o-y).
All companies reported a contraction in OPM (ex-APL Apollo) although Hi-tech and Supreme
Century surprised positively. Net earnings were down 12.3% y-o-y although piping players were better
511 Buy 620
Plyboards placed (Hi-tech, Supreme and Astral outperformed). The infrastructure sector reported revenue
Greenlam growth of 7.4% y-o-y, OPM expansion of 64 bps y-o-y and net earnings growth of 34.1% y-o-y
314 Buy 385
Industries although the same were marginally short of our expectations. KNC and PNR retained order inflow
Pidilite Industries 2295 Hold 2515 targets for FY2023 with the expectation of strong project awarding during March 2023. The
logistics sector reported largely in-line revenues (up 12.2% y-o-y) although lagged on net earnings
APL Apollo Tubes 1270 Buy 1425 (flat y-o-y) on account of a miss on operating margins (down 39 bps y-o-y). Weak domestic demand
Hitech pipes 853 Positive 1045 post-festive season along with weak exports impacted the logistics sector’s ability to take price
hikes. Our real estate coverage universe (ex Indiabulls real estate) reported an 11% y-o-y decline
Supreme
2728 Buy 2800 (down 8% q-o-q) on account of weak pre-sales booking done by Oberoi Realty and Prestige Estates.
Industries However, Mahindra Lifespace and Macrotech have reported 141% and 100% of pre-sales done in
Kajaria Ceramics 1058 Hold 1230 FY2022 during 9MFY2023 while DLF and Sobha are at over 90% and Prestige and Puravankara at
Astral 1858 Reduce 1825 87%. Realty universe reported 26.4%/28.6%/8.8% y-o-y revenue/operating profit/net profit growth
which was largely in line. Realty companies remain optimistic on the demand environment despite
Logistics the rise in interest rates.
Gateway
60 Hold 75 Building materials – Piping players outperform: The building material sector reported a 12.2%
Distrparks
y-o-y revenue growth (APL Apollo, Supreme and Astral beat estimates) led by a healthy demand
Gati 117 Positive 170 environment for piping players while the same remained muted for wood panel and tile companies.
Mahindra However, excluding APL Apollo, all companies reported OPM contraction (down 258 bps y-o-y)
379 Hold 502 although Hi-tech and Supreme reported better than estimated OPMs. The wood panel and tile
Logistics
companies suffered due to muted demand, competitive pressures and weak exports. Overall, net
TCI Express 1550 Buy 2070 earnings were down 12.3% y-o-y (marginally below our estimate). Hi-tech and Supreme Industries
TCI 643 Buy 785 surprised positively on net earnings while Century Plyboards and Astral reported marginally higher
Real Estate than expected net earnings. Overall, Piping players reported relatively better performance compared
to wood panel and tile companies.
Mahindra
368 Buy 600
Lifespace Logistics and Infrastructure lagged marginally on net earnings due to OPM pressure: The logistics
Oberoi Realty 842 Positive 1099 sector reported in-line net revenues (up 12.2% y-o-y) led by strong revenue growth in Mahindra Logistics
and Transport Corporation. The OPM (down 39 bps y-o-y) and net profit (flat y-o-y) were marginally
DLF 349 Positive 470 below estimates. Transport Corporation outperformed while express players (Mahindra Logistics,
Prestige Estates Gati and TCI Express) were disappointed due to weak demand and highly competitive environment.
415 Positive 548 The infrastructure sector reported revenue growth of 7.4% y-o-y, OPM expansion of 64 bps y-o-y and
Projects
net earnings growth of 34.1% y-o-y although the same were marginally short of our expectations. Both
Puravankara 82 Positive 115 KNR and PNC Infratech lagged in terms of execution, OPMs and net earnings. However, they retained
Macrotech order inflow targets for FY2023 with the expectation of strong project awarding during March 2023.
850 Positive 1363
Developers
Real Estate – mixed bag: Our real estate coverage universe (excluding Indiabulls Real Estate) reported
Sobha 580 Positive 715 weak residential pre-sales for Q3FY2023, which were down 11% y-o-y (down 8% q-o-q) on account of
Indiabulls Real weak performance by Oberoi (down 68% y-o-y) and Prestige (down 41% y-o-y). However, all other
53 Positive 109 companies (excluding Indiabulls) reported a healthy y-o-y jump in pre-sales booking. Realty universe
Estate
Source: Company, Sharekhan Research reported 26.4%/28.6%/8.8% y-o-y revenue/operating profit/net profit growth which was largely in line.
Realty companies remain optimistic on the demand environment despite the rise in interest rates.
We expect building materials sectors especially piping players to benefit from a healthy demand
environment led by lower raw material prices while wood panel and tile companies are expected to
see near-term weakness due to weak exports and oversupply. For infrastructure, order inflows during
March 2023 would be keenly looked at as the competitive environment remains at its peak. The
logistics space is expected to benefit from a pickup in economic activities and strong growth in the
Auto segment along with key structural triggers playing out like GST, National Logistics Policy and PLI
schemes, among others. The real estate sector is expected to benefit from structural growth drivers in
Price chart the residential segment, although the impact of rising interest rates would be key monitorable.
65,000 6500
Key risks
60,000 6000
Macroeconomic weakness would lead to a lowering of companies’ earnings estimates and valuation
5500
55,000 multiples.
5000
50,000 4500
Leaders for Q3FY23: Transport Corporation of India, Century Plyboards, APL Apollo, Hi-tech Pipes,
Supreme Industries, Astral, and Puravankara
45,000 4000
Laggards for Q3FY23: KNR Constructions, PNC Infratech, Gati, Mahindra Logistics, TCI Express,
Oct-22
Jun-22
Feb-22
Feb-23
Greenlam Industries, Pidilite Industries, Kajaria Ceramics, Macrotech, and Indiabulls Real Estate
BSE Sensex S&P BSE Commodities Preferred Picks: KNR Construction, PNC Infratech, Century Plyboards, Greenlam Industries, Supreme
Industries, APL Apollo, TCI Express, TCI Ltd., Mahindra Lifespaces, DLF, Oberoi Realty, Prestige
Estates and Macrotech Developers.

Sector Update
Q3FY2023 Result Snapshot
Sales (Rs. cr) OPM (%) Adj. PAT (Rs. cr)
Construction
Active coverage
KNR Constructions 830 766 8.3 -2.0 18.8 20.7 -194 -348 86 79 7.8 -20.5
PNC Infratech 1,627 1,522 6.9 4.2 12.8 10.9 191 -47 129 81 59.8 -1.3
Total 2,457 2,288 7.4 2.0 14.8 14.2 64 -162 215 160 34.1 -9.9
Logistics
Gateway Distriparks 341 349 -2.3 -5.0 26.7 26.8 -10 -4 55 48 14.0 -7.2
Gati Limited 441 414 6.7 1.4 4.4 3.4 101 -22 -3 4 - -
Mahindra Logistics 1,330 1,136 17.0 0.2 4.7 4.0 73 -38 1 2 -21.5 -88.6
TCI Express 314 287 9.6 1.5 14.7 16.4 -179 -196 32 35 -8.8 -15.3
Transport Corp of India 967 838 15.4 3.7 11.8 13.0 -120 154 86 82 4.7 18.6
Total 3,393 3,024 12.2 0.9 9.8 10.2 -39 -1 171 171 0.4 -6.8
Building materials
Active coverage
Century Plyboards* 877 848 3.4 -2.6 14.5 17.7 -320 279 83 96 -13.5 6.7
Greenlam Industries 504 450 12.0 -2.8 10.9 11.9 -98 52 28 27 5.1 -3.1
Pidilite Industries 2,998 2,851 5.2 -0.5 16.5 19.3 -272 -6 308 359 -14.3 -8.9
APL Apollo Tubes 4,327 3,230 34.0 9.0 6.3 6.3 6 46 169 128 32.0 12.7
Hi-Tech Pipes 569 440 29.4 -4.9 4.9 5.7 -77 99 13 10 28.0 19.9
Supreme Industries 2,311 1,945 18.8 10.7 13.1 16.3 -321 608 210 246 -14.5 156.1
Kajaria Ceramics 1,091 1,068 2.1 1.2 12.2 17.2 -501 19 74 122 -39.1 1.1
Astral Ltd 1268 1103 15.0 8.2 14.7 17.9 -322 241 93 127 -26.9 34.6
Total 13,944 11,935 16.8 4.6 11.5 14.1 -258 147 979 1,116 -12.3 17.8
Real Estate
Mahindra Lifespace 187 24 667.9 167.8 -6.1 -159.4 - - -1 25 - -
Oberoi Realty 1,629 832 95.8 136.6 57.7 39.9 1786 1263 703 468 50.3 120.5
DLF 1,495 1,550 -3.5 14.8 31.9 33.6 -172 -161 519 604 -14.0 8.8
Prestige Estates 2,317 1,328 74.5 62.3 24.8 27.5 -268 -104 128 87 47.6 -2382.1
Puravankara 392 221 77.3 63.9 28.3 27.2 104 929 23 1 1716.9 -231.4
Macrotech Developers 1,774 2,059 -13.9 0.5 22.8 23.6 -83 -126 405 286 41.7 65.6
Sobha 868 622 39.5 29.6 10.2 24.2 -1392 -392 32 61 -47.9 65.6
Indiabulls Real Estate 133 323 -58.8 -31.5 -184.5 -17.5 - - -237 -87 - -
Total 8,796 6,959 26.4 38.4 26.6 26.1 46 -65 1,571 1,444 8.8 44.7
Source: Company, Sharekhan Research *Consolidated financials

Sector Update
Valuations
Price EV/EBITDA (x) P/E (x)
CMP
Company Reco Target
(Rs)
Infrastructure
KNR Constructions Buy 310 256 10.4 10.5 9.6 20.0 18.4 15.8
PNC Infratech Buy 390 304 9.5 7.9 6.7 17.4 13.2 11.7
Logistics
Gateway Distriparks Hold 75 60 9.3 9.1 7.6 15.7 13.6 12.5
Gati Limited Positive 170 117 48.2 20.7 12.2 - - 37.5
Mahindra Logistics Hold 502 379 13.6 10.4 8.0 155.0 88.5 58.3
TCI Express Buy 2070 1550 33.0 29.2 23.0 46.3 41.4 33.1
Transport Corp of India Buy 785 643 12.1 10.8 9.8 17.2 15.1 13.8
Building Materials
Century Plyboards Buy 620 511 21.6 21.7 17.6 36.6 32.7 27.4
Greenlam Industries Buy 385 314 22.2 19.3 14.6 40.6 35.6 25.5
Pidilite Industries Hold 2515 2295 62.3 55.4 40.9 96.6 86.1 62.0
APL Apollo Tubes Buy 1425 1270 33.8 30.0 19.8 63.2 49.7 32.3
Hi-Tech Pipes Positive 1045 853 12.7 11.5 8.5 26.0 34.3 21.2
Supreme Industries Buy 2800 2728 27.1 29.1 21.3 35.8 41.3 29.2
Kajaria Ceramics Hold 1230 1058 27.1 29.5 21.9 44.7 51.3 37.6
Astral Limited Reduce 1825 1858 48.7 54.2 42.9 77.2 101.0 74.3
Real Estate
Mahindra Lifespace Devs Buy 600 368 - - - 98.5 266.8 115.1
Oberoi Realty Positive 1099 804 26.9 12.7 10.2 27.9 16.5 13.7
DLF Positive 470 349 51.3 48.5 42.7 50.0 43.3 39.3
Prestige Estates Projects Positive 548 423 13.9 13.1 11.5 49.6 76.4 46.5
Puravankara Positive 115 82 20.0 14.0 11.2 13.2 47.5 15.9
Macrotech Developers Positive 1363 1014 27.8 27.5 20.0 40.6 32.4 27.0
Sobha Positive 715 580 13.0 20.5 12.3 33.0 64.6 20.2
Indiabulls Real Estate Positive 109 53 - 31.8 26.2 - 78.6 47.9

Sector Update
IT
Decent quarter amid macro challenges
Summary
Tier1 IT companies reported 0.6-5% q-o-q constant currency revenue growth for Q3FY23. However,
y-o-y growth rates continued to moderate driven by weak sentiments, tech layoffs besides getting
Sector: IT Services impacted by higher furloughs, and lower working days during the quarter.
EBIT margins for IT companies under coverage improved due to easing of supply-side pressures,
Sector View: Neutral moderation in attrition, and higher utilisation of billable employees. Deal wins continued to be robust
with most companies under coverage (Ex-LTIM) reporting healthy deal wins, up 4.3% q-o-q and 13% y-o-y.
Strong deals pipeline coupled with cost take-out deals and vendor consolidation would aid to revenues
momentum in Q4, however FY24E revenues trajectory still seem modest and will get more clarity post
the Q4 numbers.
Our coverage universe We currently have neutral stance on IT sector and will take a more constructive investment view on the
sector post the march quarter earnings. Although, tactical long trade in near term still seems possible,
CMP Reco./ owing to reasonable risk reward. However, global macro print would continue to create volatility in
Companies PT (Rs) stock performance.
(Rs) View
Birlasoft 283 Buy 320 Tier-1 IT companies reported 0.6-5% q-o-q constant currency revenue growth for Q3FY23. However, y-o-y
growth rates continued to moderate, driven by weak sentiments, tech layoffs besides getting impacted by
Coforge 4,339 Buy 4,900 higher furloughs, and lower working days. EBIT margins for IT service companies continued to improve in
Q3FY23 due to easing of supply side pressure, lower subcontracting costs, moderating attrition and higher
Expleo Solutions 1,349 Positive 1,600 utilisation. Deal wins continued to be robust, with most companies under coverage (Ex-LTIM) reporting
healthy deal wins, up 4.3% q-o-q and 13% y-o-y. Net headcount additions were muted during the quarter
HCL with only Infosys and HCL Tech reporting net additions at 1,627 and 2,945, respectively, among Tier-1 IT
1,092 Buy 1,205
Technologies companies. Management commentaries indicate caution in the near term, with companies citing delay in
decision making, vendor consolidation, and cost optimisation as some approaches taken by their clients
Infosys 1,563 Buy 1,730
on account of macro concerns. Infosys (among Tier-1) and Coforge (among Tier-2) were the only companies
Intellect Design 459 Hold 482 under coverage, raising the guidance for FY2023, implying continuing concerns in the near term. Despite
macro-economic concerns plaguing the sector in the near term, we expect revenue growth to remain strong
LTIMindtree 4,805 Buy 4,965 for certain selected IT companies, aided by continued deal wins and ramp-up of earlier deal wins their
diverse capabilities and their ability to be agile in a challenging environment. Further, margin improvement
L&T Tech 3,711 Hold 3,535 due to easing of supply-side pressure and higher from billable employees would provide additional tailwinds.
Mastek Limited 1,638 Hold 1,900 While recession and slowdown fears lurk in the backdrop, recent economic data from US (US retails Sales
in January, Non-farm jobs) seems to assert that there may be fewer signs of recession. We currently have
Persistent neutral stance on IT sector and shall review the same post Q4FY23 results given resilient Q3 performance
5,047 Buy 5,010 despite macro-overhang, continued large deal wins, likelihood of shallow recession as indicated by recent
Systems
US macro data print. We would watch out for global IT spending to take a constructive view on the sector.
Tata Elxsi 6,521 Reduce 6,185 Decent quarter barring weak performance from few Tier-2 IT companies: Revenues of Tier-1 IT companies
TCS 3,401 Buy 3,650 came in line to above expectations. Constant currency revenue growth for Tier-1 companies grew 0.6-5%
q-o-q. However, revenue growth continued to moderate on a y-o-y basis, as sentiments were soured with
Tech Mahindra 1,126 Buy 1,220 recession worries, tech layoffs besides higher furloughs, and lower working days in the quarter. Tier-2 IT
companies reported in-line to below expectations revenue growth, with Persistent Systems and Coforge
Wipro 395 Hold 420 continuing to consistently register stronger growth rates, growing 5.9%/4.9 q-o-q and 45.4%/24% y-o-y,
respectively. BirlaSoft, LTTS, and Intellect Design were laggards, growing 2.5%/2.7%/3.7% q-o-q and
14%/21.4% and 7.6% y-o-y, respectively.
Steady margin improvement: Easing of supply-side pressures, moderation in attrition, and higher utilisation
Price chart of billable employees have resulted in steady improvement in EBIT margin for IT companies under coverage in
120 Q3FY2023. Most companies reported the second consecutive quarter of EBIT margin improvement bouncing
back after hitting recent lows in Q1FY2023. Baring Infosys, which had a slight 4 bps decline, EBIT margin of
105 Tier-1 IT companies improved 52-165 bps q-o-q but continued to lag 50-284 bps y-o-y. HCL Tech reported
sharp improvement in EBIT margin, up 55 bps y-o-y/165 bps q-o-q. Among Tier-2 IT companies, EBITDA
90
margin for Birlasoft was impacted due to the one-time provision taken on account of filing of bankruptcy by
75 one of their major clients – Invacare. The other Tier-2 IT companies reported marginal to moderate uptick in
EBITDA margin for the quarter.
60
Deal wins continue to be robust despite macro-overhang: Most companies under coverage (Ex-LTIM)
Oct-22
Jun-22
Feb-22
Feb-22
reported healthy deal wins, growing 4.3% q-o-q and 13% y-o-y, despite the quarter being a seasonally weak
quarter due to furloughs and lower working days. Among Tier-1 IT companies, Wipro/Infosys/Tech Mahindra/
Nifty IT Nifty HCL Tech, and TCS reported strong deal wins with deal TCV growth at 68%/31%/13%/10%/3% y-o-y; while
among Tier-2 IT companies, Persistent Systems and Coforge reported healthy deal wins, with deal TCV
growth at 32%/20% y-o-y. Management commentaries reflect caution for the near term, with some citing
delay in decision making, vendor consolidation, and cost-optimisation approaches taken by their clients
on account of macro concerns. Among Tier-1 companies, Infosys upped the guidance for FY23 revenue
growth guidance to 16.0-16.5% YoY in CC terms from 15-16% given earlier, while HCL Tech narrowed its earlier
guidance (seasonally weak Q4) and Wipro guided for 11-12.5% CC growth for FY23 implying a soft Q4.
Valuation:
Stay selective: The stock price of Indian IT companies has corrected significantly on y-o-y basis, with CNX
IT Index (down ~10%) underperforming benchmark indices (Nifty up ~3%) by around 13%, owing to the macro-
overhang. While recession and slowdown fears lurk in the backdrop, recent economic data from the U.S.
seems to assert that there may be fewer signs of recession We currently have neutral stance on IT sector
and will take a more constructive investment view on the sector post the march quarter earnings. Although,
tactical long trade in near term is still seemed possible, owing to reasonable risk reward. However, global
macro print would continue to create volatility in stock performance.
Key risks:
1) Rupee appreciation and/or adverse cross-currency movements, macro headwinds, and possible recession
in the U.S. are likely to moderate the pace of technology spending.
Q3FY2023 Leaders: Infosys, HCL Tech, TCS, Persistent Systems, Coforge
Q3FY2023 Laggards: Birlasoft, LTTS, Intellect Design, and Wipro
Preferred Picks:
Large caps: Pecking order: Infosys, HCL Tech, Tech Mahindra, and TCS
Mid-caps: Pecking order: Persistent Systems and Coforge

Sector Update
Sharekhan IT universe: Q3FY2023 results review
EBITDA Net
Revenue q-o-q y-o-y EBITDA q-o-q y-o-y q-o-q y-o-y
Company name margin profit
(Rs. cr) (%) (%) (Rs cr) (BPS) (BPS) (%) (%)
(%) (Rs cr)
Birlasoft 1,221.9 2.5 14.0 7.4 0.6 -1,419.1 -1,458.6 (16.4) -114.2 -114.4
Coforge 2,055.8 4.9 24.0 361.5 17.6 0.8 -62.9 228.2 13.5 24.2
Expleo Solutions 135.1 3.1 27.7 31.5 23.3 266.7 559.5 28.9 155.8 161.0
HCL Technologies 26,700.0 8.2 19.6 6,365.0 23.8 186.3 -31.1 4,097.0 17.4 19.0
Infosys 38,318.0 4.9 20.2 9,367.0 24.4 8.2 -186.1 6,586.0 9.4 13.4
Intellect Design 546.9 3.7 7.6 96.7 17.7 175.9 -848.9 62.0 35.5 -38.5
LTI Mindtree 8,620.0 4.8 25.3 1,374.8 15.9 -393.0 -478.0 1,000.7 -15.8 -4.7
L&T Tech 2,048.6 2.7 21.4 441.2 21.5 52.0 -23.5 303.6 7.5 22.0
Mastek Limited 658.7 5.3 19.3 113.7 17.3 8.8 -386.4 64.2 19.3 -12.8
Persistent Systems 2,169.4 5.9 45.4 401.6 18.5 54.9 167.8 267.6 21.6 51.7
Tata Elxsi 817.7 7.1 28.7 246.9 30.2 50.1 -299.4 194.7 11.7 29.4
TCS 58,229.0 5.3 19.1 15,554.0 26.7 46.6 -76.7 10,846.0 4.0 11.0
Tech Mahindra 13,734.6 4.6 19.9 2,144.0 15.6 49.8 -238.0 1,296.6 -1.0 -5.3
Our View on the coverage universe

PT CMP EPS (Rs) P/E (x)
Particulars Reco (Rs)
Birlasoft Buy 320 283 16.4 12.2 18.2 17.2 23.1 15.5
Coforge Buy 4,900 4,339 109.0 135.1 158.9 39.8 32.1 27.3
Expleo Solutions Positive 1,600 1,349 44.3 79.2 82.5 30.4 17.0 16.4
HCL Technologies Buy 1,205 1,092 49.7 54.3 63.2 22.0 20.1 17.3
Infosys Buy 1,730 1,563 52.6 58.4 62.1 29.7 26.8 25.2
Intellect Design Hold 482 459 25.1 20.7 27.1 18.3 22.1 17.0
LTI Mindtree Buy 4,965 4,805 133.5 146.1 177.8 36.0 32.9 27.0
L&T Tech Hold 3,535 3,711 90.7 108.1 113.3 40.9 34.3 32.8
Mastek Limited Hold 1,900 1,638 103.4 91.4 107.8 15.8 17.9 15.2
Persistent Systems Buy 5,010 5,047 90.3 129.3 149.5 55.9 39.0 33.8
Tata Elxsi Reduce 6,185 6,521 88.3 115.8 123.7 73.9 56.3 52.7
TCS Buy 3,650 3,401 103.6 114.9 125.2 32.8 29.6 27.2
Tech Mahindra** Buy 1,220 1,126 62.8 61.2 67.7 17.9 18.4 16.6
Wipro Hold 420 395 22.3 20.7 22.8 17.7 19.1 17.3
Source: Company, Sharekhan Research; *EPS of Tech Mahindra excludes treasury shares

Sector Update
Oil & Gas
Mixed bag Q3; CGDs to benefit from likely APM gas price cap
Summary
OMCs’ earnings recovered strongly in Q3FY23 (versus steep losses in H1FY23) led by robust
Sector: Oil & Gas GRMs and positive gross marketing margins. Upstream PSUs EBITDA grew y-o-y/q-o-q led by
Sector View: Neutral higher gas price, but operational performance was mixed with in-line oil & gas realisations, while
sales volume missed estimate.
CGDs’ (IGL/MGL) earnings sharply missed our estimates primarily due to weak margins; gas
sales volume was also subdued. Gas utilities also missed mark as volume continued to decline
given high spot LNG prices in Q3FY23.
A likely cap on domestic gas price, a potential normalisation of international gas price
benchmarks, softening of spot LNG price to remove high gas cost overhang and would improve
volume/margin visibility for CGDs. Steep fall in crude oil price to improve earnings outlook for
OMCs.
Our Coverage Universe Preferred picks - RIL, IGL, MGL, GSPL.
Companies CMP Reco./ PT
(Rs) View (Rs) OMCs’ operational performance improved with continued strong refining margins and positive gross
marketing margins supported by over-recovery on petrol margins. Thus, all three OMCs posited positive
RIL 2,415 Buy 3,050
PAT (versus steep loss in H1FY23) but IOCL missed our estimate as its petchem segment posted losses.
Oil India 259 Hold 260 Upstream PSUs clocked strong EBITDA growth but oil & gas realisation was as expected; with earnings
Petronet LNG 216 Buy 248 beat from Oil India was on lower cost while ONGC’s EBITDA was in-line with our estimates. CGDs (IGL/
MGL) witnessed margin pressure with muted volumes and thus earnings missed our estimate; however
MGL 889 Buy 1,010 Gujarat Gas’s robust EBITDA margin (given lower dependence upon spot LNG) led to large beat in its
IOCL 80 Buy 92 earnings. Gas utilities like GAIL, PLNG and GSPL had weak Q3FY23 performance as high spot LNG price
BPCL 326 Buy 400 affected volumes. Reliance Industries (RIL) consolidated EBITDA of Rs. 35,247 crore, up 13% q-o-q, was
largely in-line with our estimate as strong performance from retail/Jio businesses was largely offset by
HPCL 232 Buy 265 miss in standalone EBITDA but consolidated PAT at Rs. 15,792 crore (up 16% q-o-q) missed our estimate
GAIL 96 Hold 100 due to higher depreciation/interest cost and tax rate. Overall, OMCs posted strong earnings; upstream
PSUs posted in-line operational performance while CGDs/gas utilities disappointed with sharp earnings
ONGC 155 Hold 165
miss.
GSPL 272 Buy 342
OMCs – Sings of recovery with strong GRM and positive gross marketing margin: BPCL/HPCL reported
Gujarat Gas 499 Buy 560 better-than-expected results with positive PAT in Q3FY23 (versus net loss in H1FY23) led by resilient refining
IGL 435 Buy 510 margin and positive gross margin marketing margin given steep q-o-q decline in Brent crude oil price.
Source: Sharekhan Research However, IOCL missed estimate due to continued loss in its petchem business, which offsets benefit of beat
CMP as on Feb 20, 2023 in GRM. BPCL/IOCL GRMs were strong at $15.9/$12.9 per bbl while HPCL lagged peers with GRM of $9.1/bbl
in Q3FY23. Overall, IOCL/BPCL/HPCL posted PAT of Rs. 448 crore/Rs. 1,960 crore/Rs172 crore versus net loss
of Rs11,073 crore/Rs. 4,823 crore/ Rs. 6,389 crore in Q2FY23.
Upstream PSUs – Strong growth led by gas price hike: ONGC/Oil India reported robust EBITDA growth
of 9%/54% y-o-y primarily led by benefit of 41% q-o-q rise in the APM gas price to $8.6/mmBtu and 3%
depreciation of INR versus USD. Net oil realisation (post SAED impact of $10/bbl) at $77/bbl each for ONGC
and Oil India was in-line with our estimates, but oil/gas sales volume continues to disappoint. Oil/gas sales
volume of ONGC declined by 7.9%/2.6% y-o-y to 4.7mmt/4.2bcm and that of Oil India by 0.5%/7% q-o-q to
0.77 mmt/0.61 bcm.
Gas players – Weak performance by CGDs; gas utilities impacted by muted volume: City gas distribution
(CGD) players’ earnings continued to see margin pressure and muted volumes and IGL/MGL missed our
estimate. IGL EBITDA margin declined sharply by 19% to Rs. 5.7/scm given absence of CNG price hike and
that of MGL posted minor improvement of 3% q-o-q to Rs. 8.2/scm given higher gas cost as well as per unit
opex which offset benefit of price hike. However, lower dependency of spot LNG led to margin beat for
Gujarat Gas (GGAS) at Rs. 8.7/scm despite I-PNG price cuts. Volume were muted for IGL/MGL/GGAS at 8.1
mmscmd/3.4 mmscmd/7.3 mmscmd, +0.4%/-1.4%/-4.3% q-o-q. Overall, IGL/MGL PAT missed our estimates by
33%/18% but GGAS earnings was 76% above our estimate solely because of sharply higher-than-expected
margin. Among gas utilities, GAIL’s PAT was 77% below our estimate due to earnings erosion for gas trading,
EBITDA loss for petchem/LPG-LHC and weak gas transmission EBITDA owing to extra fuel costs. Petronet
LNG/GSPL also reported weak results with a sharp miss in earnings due to pressure on volumes.

A likely cap on domestic gas prices could remove gas cost overhang in near term for CGDs, while a potential
normalisation of international gas price would mean APM gas price could remain in the range of $4.5-6.5/
mmbtu. This would improve volume growth visibility (supported by widening of pricing gap between CNG
versus petrol) and sustained margin recovery for CGDs and with high exposure to CNG/D-PNG. We thus,
prefer IGL/MGL in CGD space on expectation of earnings revival and valuation is also attractive (IGL trades
Price chart at 16.3x FY25E EPS and MGL at 9.6x FY25E EPS). We prefer RIL among downstream players given strong
120 growth outlook for consumer-centric business (retail and Jio) and likely further value unlocking in digital
and retail businesses would add to shareholders’ returns in the coming years. We prefer GSPL among gas
110 utilities, as they are a play on rising domestic gas demand and are available at attractive valuations. In our
100 view, earnings of upstream PSUs would peak out in FY23 and decline going forward due to likely capping
of domestic gas price and normalisation of crude oil prices. A likely withdrawal of windfall tax and policy
90 clarity remain key to improve investor sentiments for upstream PSUs while lower crude oil price would help
normalise earnings of OMCs over FY24E-25E.
80
Feb-22
Feb-23
Oct-22
Jun-22
Key risks
1) Lower-than-expected gas sales volumes amid demand slowdown amid delay in the development of new
BSE Oil & Gas Sensex GAs, 2) likely margin pressure on CGDs in case of high gas price, and 3) Lower refining margins.
Source: BSE; Sharekhan Research
Leaders for Q3FY2023: Gujarat Gas, Oil India, BPCL, HPCL.
Laggards for Q3FY2023: GAIL, Petronet LNG, IGL, MGL.
Preferred Picks: RIL, IGL, MGL and GSPL.

Sector Update
Q3FY2023 results review (Standalone financials)
Sales (Rs cr) OPM (%) PAT (Rs cr)
Company Q3 Q3 Q3 Q3 YoY QoQ Q3 Q3
YoY (%) QoQ (%) YoY (%) QoQ (%)
FY23 FY22 FY23 FY22 (bps) (bps) FY23 FY22
RIL # 2,17,164 1,85,027 17.4 -5.6 16.2 16.1 18 266 15,792 15,713 0.5 15.6
Oil India 5,879 3,737 57.3 1.8 48.6 33.9 1465 1657 1,746 1,245 40.2 1.5
Petronet LNG 15,776 12,597 25.2 -1.3 5.2 11.0 -575 -210 489 884 -44.6 -34.2
Mahanagar
1,671 1,028 62.6 7.0 15.3 10.0 529 -86 172 57 203.0 4.9
Gas Ltd
IOCL 2,04,740 1,66,788 22.8 -1.3 1.8 5.9 -416 NA 448 5,861 -92.4 NA
BPCL 1,19,158 95,086 25.3 3.8 3.6 5.3 -176 NA 1960 2828 -30.7 NA
HPCL 1,09,222 96,260 13.5 1.1 1.2 1.6 -41 NA 172 869 -80.2 NA
GAIL 35,365 25,770 37.2 -8.1 0.7 16.4 -1567 -385 246 3,288 -92.5 -84.0
ONGC 38,583 28,473 35.5 0.7 52.9 56.1 -318 381 11,045 8,764 26.0 -13.9
GSPL 402 471 -14.6 -7.4 67.1 71.4 -433 -973 171 213 -19.9 -45.6
Gujarat Gas 3,684 5,144 -28.4 -7.3 15.8 4.6 1119 -36 371 122 204.6 -8.1
Indraprastha
3,711 2,215 67.5 4.4 11.5 21.2 -965 -330 278 309 -9.8 -33.1
Gas Ltd
Source: Company, Sharekhan estimates; # Consolidated financials

EPS (Rs) CAGR PE(x)
Price
CMP over
Company Reco Target
(Rs) FY22 FY23E FY24E FY25E FY22- FY22 FY23E FY24E FY25E (Rs)
25E (%)
RIL 2,415 85.5 103.4 131.5 147.4 19.9 28.2 23.4 18.4 16.4 Buy 3,050
Oil India# 259 35.8 58.6 38.7 46.6 9.2 7.2 4.4 6.7 5.6 Hold 260
Petronet LNG# 216 22.3 19.6 23.8 27.8 7.5 9.7 11.0 9.1 7.8 Buy 248
Mahanagar Gas Ltd# 889 60.4 67.3 83.7 92.2 15.1 14.7 13.2 10.6 9.6 Buy 1,010
IOCL# 80 17.1 5.1 17.5 19.1 3.8 4.6 15.6 4.5 4.2 Buy 92
BPCL# 326 45.6 -11.0 42.4 43.3 -1.8 7.1 NA 7.7 7.5 Buy 400
HPCL# 232 45.0 -44.7 69.0 72.2 17.1 5.2 NA 3.4 3.2 Buy 265
GAIL (India)# 96 15.8 9.1 13.3 14.7 -2.3 6.1 10.6 7.2 6.5 Hold 100
ONGC# 155 24.4 38.9 33.1 32.5 10.0 6.3 4.0 4.7 4.8 Hold 165
GSPL 272 17.4 13.7 18.1 19.8 4.5 15.7 19.9 15.1 13.8 Buy 342
Gujarat Gas 499 18.7 21.7 23.2 30.5 17.8 26.7 23.0 21.5 16.3 Buy 560
Indraprastha Gas
435 18.8 20.5 23.2 26.7 12.5 23.2 21.2 18.7 16.3 Buy 510
Ltd#
Source: Company, Sharekhan estimates; # Standalone financials

Sector Update
Agri Inputs and Specialty Chemicals
Agri players performed well; near-term demand concern for
specialty chemicals
Summary
Agri-input companies posted phenomenal earnings growth in Q3FY23, primarily led by the price
Sector: Agri Inputs and Specialty hikes as volume remained subdued given the high channel inventory. Sumitomo Chemical was the
Chemicals sole underperformer. Growth guidance is maintained by most companies.
Speciality chemical players disappointed as revenues were under pressure due to subdued demand,
Sector View: Positive but margins improved q-o-q on lower cost pressures. We have lowered earnings estimates for Atul,
Nocil and Aarti Industries post Q3FY23 results.
Near-term demand concerns persist for specialty chemical players with high exposure to exports/
discretionary sectors given talks of global economic slowdown. Having said that, the recent plant
closures in Europe provide a ‘Europe +1’ opportunity and scope for market share gain for Indian
chemical players, given the massive capex plan. Recent fall in the stock price of quality companies
(SRF, PI, UPL, Vinati Organics) provides a good entry opportunity as long-term earnings growth
outlook remain intact.
Preferred Picks: UPL, PI Industries, Sumitomo Chemical India, SRF, NOCIL, Vinati Organics and
Gujarat Fluorochemical.
Our coverage universe Agri-input players posted yet another quarter of robust revenue/earnings performance but margins
were weak, primarily due to input cost pressures. Speciality chemical companies’ performance was
CMP Reco/ PT impacted by subdued demand across discretionary end-user segments like auto, dyes, and pigment.
Companies (Rs) View (Rs) However, their margins improved q-o-q, primarily due to lower input and operating costs. Aggregate
Agri Inputs PAT for agri-input companies under our coverage grew strongly by 23.4% y-o-y, with underperformance
shown only by Sumitomo Chemical India. Aggregate PAT for speciality chemical companies under our
Coromandel 890 Buy 1,155 coverage decline by 9%/3% y-o-y/q-o-q with earnings beat from SRF/Aarti Industries/Vinati Organics
International while Atul/NOCIL/Sudarshan Chemical missed our estimate.
Insecticides (India) 552 Buy 690 Agri inputs – Strong Q3; Revenue beat partially offset by weak margins: Aggregate revenue
PI Industries 3,231 Buy 4,200 of agri-chemical companies under our coverage grew at an impressive rate of 31.8% y-o-y and
was significantly above our revenue growth estimate of 13.5% y-o-y, primarily led by price hikes.
UPL 739 Buy 930 Coromandel International’s robust revenue growth of 63.8% y-o-y was led by high subsidies and
Sumitomo 462 Buy 550 MRP. Insecticides India revenue growth was led by increased sales of focused Maharatna Products.
Chemical India PI Industries’ CSM export revenues grew by 24% y-o-y led by volume growth and higher prices.
UPL’s 21.1% y-o-y revenue growth was led by continued firmness in product prices across regions,
Speciality Chemicals specifically for insecticide products. Sumitomo chemical reported muted revenue growth of 6.6%
Aarti Industries 526 Hold 590 y-o-y due to high channel inventory in LatAm as well as the domestic market. The aggregate OPM
of our coverage universe declined by 178 bps y-o-y as against the expectation of a 65.5 bps y-o-y
Atul Limited 7,160 Hold 7,700 decline. Coromandel International and Sumitomo Chemical reported weak margins due to higher
NOCIL 230 Buy 275 input costs but this was partially offset by better margin performance of PI Industries, Insecticides
India and UPL on account of superior product mix. The aggregate PAT of agri-input companies in our
SRF 2,274 Buy 2,960 coverage grew strongly by 23.4% y-o-y and significantly beat our expectation of 6.7% y-o-y growth.
Sudarshan 368 Hold 430 Specialty chemicals – In-line Q3; Subdued demand partially offset by resilient margins: Q3
Chemical witnessed demand pressure across our entire coverage of specialty chemical companies. Aggregate
revenues declined by 7.3% q-o-q (up 3.1% y-o-y) versus our expectation of 1.1% q-o-q fall in Q3FY23.
Vinati Organics 1,876 Buy 2,500
Aarti Industries’ revenues declined by 1% q-o-q due to subdued demand from the dyes/pigment
Gujarat 3,015 Positive 3,865 industry. For Atul, both LSC and POC segments’ revenue declined by 14.4%/16.5% q-o-q, respectively.
Fluorochemical Nocil’s sales volumes were down 7.7% q-o-q due to a decline in domestic demand. SRF’s technical
textile segment declined by 8.6% q-o-q on subdued NTCF/polyester industrial yarn demand.
Source: Sharekhan Research
Sudarshan chemicals’ revenues were muted due to subdued demand across geographies and
segments. Vinati Organics revenues were also down 10.2% q-o-q. Aggregate OPM at 19.8% (up 137 bps
q-o-q) was above our estimate by 125 bps. Vinati Organics, SRF and Aarti Industries reported resilient
margins due to benefit of lower input costs and operating expenses but this was partially offset by
weak margin performance of Nocil, Atul and Sudarshan on account of negative operating leverage.
Resultantly, aggregate PAT at Rs. 884 crores (down 3.2% q-o-q) was 1.2% below our estimate.
Near-term demand concern to persist for Indian speciality chemical players; Long-term growth
outlook intact given China/Europe Plus One opportunity: Near-term demand concern to persist
for speciality chemical players with high exposure to exports/discretionary sectors given talks of
weak global macros. Having said that, supply chain disruptions in China and the recent closure of
several chemical plants in Europe due to elevated gas prices provide a tactical opportunity for Indian
speciality chemical players to increase their global market share in the chemical space. Moreover,
global best practices for manufacturing standards, R&D capabilities, and accelerated capex plans of
Indian speciality chemical companies along with the government’s pro-growth policies will act as a
further catalyst for growth and drive sustainable high earnings growth for the sector. Overall, normal
monsoons and high crop prices also bode well for good growth in the earnings of agri-input players.
Valuation
The Indian speciality chemicals sector is well poised to capitalise on global tailwinds and expand its
Price chart global market share to 7-8% in the next few years from 4% currently, supported by structural drivers,
including the China Plus One strategy, import substitution, and opportunities emerging from the recent
115 supply chain disruption in China. Agri-input companies are also well poised to reap the benefits of a
normal monsoon (which would drive agro-chemical demand in the domestic market in the Rabi Season)
105
and buoyant international demand. The recent fall in the stock price of quality companies (SRF, PI, UPL,
95 Vinati Organics) provides a good entry opportunity as the long-term earnings growth outlook remains
intact.
85
Key Risks
75
High raw material costs for agri and speciality chemical companies might affect margins if they are
Mar-22
Jan-23
May-22
Feb-22
Sep-22
Dec-22
Feb-23
Jul-22
Nov-22
Nov-22
Apr-22
Jun-22
Aug-22
Oct-22
unable to pass it on to customers.

Lower demand offtake for products of speciality chemicals players owing to the slowdown in
BSE MidCap Index Sensex economic activity may also affect earnings.
Source: BSE; Sharekhan Research Leaders for Q3FY23: Coromandel, Insecticides, PI Industries, UPL, SRF, Aarti Industries, Vinati Organics.
Laggards for Q3FY23: Sumitomo Chemical India, Atul, NOCIL, Sudarshan Chemical
Preferred Picks: UPL, PI Industries, Sumitomo Chemical India, SRF, NOCIL, Vinati Organics and Gujarat
Fluorochemical.

Sector Update
Sales (Rs cr) OPM (%) PAT (Rs cr)
Companies Q3 Q3 YoY QoQ Q3 Q3 YoY QoQ Q3 Q3 YoY QoQ
Agri Inputs
Coromandel International 8,310 5,074 63.8 -17.8 9.4 10.7 -135 -106 527 382 38.1 -28.9
Insecticides (India) 357 314 13.6 -38.8 6.5 5.9 60 -523 9 8 13.5 -79.1
PI Industries 1,613 1,356 18.9 -8.9 25.7 21.9 387 133 352 223 58.0 5.1
UPL 13,679 11,297 21.1 9.4 22.2 23.6 -141 -27 1,107 989 11.9 29.2
Sumitomo Chemicals 754 707 6.6 -32.8 16.0 17.9 -191 -881 90 89 1.7 -55.1
Agri Inputs Total 24,712 18,748 31.8 -5.3 17.7 19.5 -178 -10 2,085 1,690 23.4 -4.3
Speciality Chemicals
Aarti Industries 1,668 1,445 15.4 -1.0 17.3 17.9 -60 146 137 160 -14.5 9.7
Atul Limited 1,268 1,380 -8.1 -14.7 13.6 18.2 -464 -359 92 155 -40.9 -39.1
NOCIL 326 389 -16.2 -16.3 11.5 13.0 -151 -439 19 30 -37.5 -48.0
SRF 3,470 3,346 3.7 -6.9 24.0 26.3 -232 339 511 506 1.1 6.2
Sudarshan Chemicals 528 602 -12.3 -0.1 7.9 12.3 -439 -23 1 36 -98.4 -87.1
Vinati Organics* 509 369 37.9 -10.2 32.2 25.1 705 598 125 83 50.7 8.1
7,768 7,531 3.1 -7.3 19.8 21.4 -157 137 884 970 -8.9 -3.2
Total
Source: Company; Sharekhan Research, * Standalone
Valuation
EPS (Rs.) CAGR P/E (x)
CMP over Reco/ PT
Companies
(Rs) FY22 FY23E FY24E FY24E FY22- FY22 FY23E FY24E FY24E View (Rs)
24E (%)
Agri Inputs
Coromandel
890 52.1 68.5 76.4 82.1 16.4 17.1 13.0 11.6 10.8 Buy 1,155
International
Insecticides (India) 552 36.3 38.0 52.7 67.2 22.8 15.2 14.5 10.5 8.2 Buy 690
PI Industries 3231 55.0 80.8 98.5 112.7 27.0 58.7 40.0 32.8 28.7 Buy 4,200
UPL 739 51.6 68.4 81.0 93.1 21.7 14.3 10.8 9.1 7.9 Buy 930
Sumitomo Chemicals 462 8.5 10.5 13.0 15.2 21.3 54.4 44.0 35.4 30.5 Buy 550
Aarti Industries 526 18.2 14.4 20.0 23.8 9.3 28.9 36.6 26.2 22.1 Hold 590
Atul 7160 204.1 185.2 256.3 298.4 13.5 35.1 38.7 27.9 24.0 Hold 7,700
NOCIL 230 10.6 8.6 12.6 14.8 11.8 21.7 26.6 18.3 15.6 Buy 275
SRF 2274 63.1 72.9 89.3 101.6 17.2 36.0 31.2 25.5 22.4 Buy 2,960
Sudarshan Chemicals 368 18.8 9.9 22.5 - - 19.6 37.1 16.3 - Hold 430
Vinati Organics* 1876 33.7 46.7 65.0 77.6 32.0 55.6 40.1 28.9 24.2 Buy 2,500
Source: Company; Sharekhan estimate, * Standalone

Results Review
Miscellaneous
Company Net sales (Rs Cr) OPM (%) Adjusted PAT (Rs Cr)
Q3 Q3 YoY QoQ Q3 Q3 YOY QOQ Q3 Q3 YoY QoQ (%)
FY23A FY22 (%) (%) FY23A FY22 (BPS) (BPS) FY23A FY22 (%)
Affle (India) 376.1 339 10.8 6.1 21.4 19.9 142 140 69.0 60 14.8 17.6
Bharti Airtel 35804.4 29,867 19.9 3.7 51.5 49.2 231 58 1588.2 830 91.4 (26.0)
Coal India 35,169 28,433 23.7 17.9 29.5 24.0 553 514 7,756 4,558 70.1 28.3
Info Edge 555.2 416 33.4 4.4 39.1 29.1 1000 445 192 119 62.0 14.2
JSW Steel 39,134 38,071 2.8 (6.3) 11.6 24.0 -1237 743 1,458 4,516 -67.7 (5,707.7)
MOIL Ltd 302 312 -3.2 28.0 18.2 26.0 -775 412 40 60 -33.3 81.8
NMDC 3,720 5,874 -36.7 11.8 30.7 44.5 -1379 509 912 2,050 -55.5 (6.2)
SAIL 25,042 25,247 -0.8 (4.6) 7.9 15.5 -752 514 252 2,187 -88.5 (176.4)
Polyplex Corp 1,863 1,751 6.4 (10.8) 10.9 19.9 -909 (71) 89 144 -38.1 (7.9)
Healthcare Global 425 358 18.6 1.1 19.1 17.8 128 14 13 12 10.0 51.7
Enterprises
Triveni Engineering 1,659 1,235 34.3 12.7 11.7 16.4 -476 857 147 130 13.2 511.2
Balrampur Chini 981 1,212 -19.1 (11.8) 8.1 8.2 -12 954 44 58 -24.7 (237.2)
Mills
Dhampur Sugar 642 630 1.9 (0.3) 13.4 15.9 -251 861 46 58 -20.1 303.5
Mills
Dhampur Bio 594 348 70.7 15.2 5.5 10.2 -475 111 13 18 -26.8 65.8
Organics
Castrol India 1,176 1,091 7.8 4.9 21.3 24.4 -307 (162) 193 189 2.5 3.3
Phillip Carbon 1,463 1,156 26.6 (10.1) 11.5 14.5 -303 (8) 100 111 -9.8 (13.8)
Black
Gravita India 789 557 41.8 15.6 9.0 9.7 -76 (55) 50 39 27.3 12.3
Mold-Tek 155 160 -3.4 (15.2) 18.4 19.7 -136 (29) 16 17 -2.1 (16.0)
Packaging
Source: Company; Sharekhan Research

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Sharekhan Special

February 22, 2023

For Private Circulation only

February 22, 2023 2

February 22, 2023 3

February 22, 2023 4

February 22, 2023 5

Q3: Nifty revenue growth (y-o-y) by sector

Oil & Gas

Q3: Nifty EBITDA growth (y-o-y) by sector

Oil & Gas

Source: Bloomberg; Sharekhan Research

Q3: Nifty earnings growth ( y-o-y) by sector

Oil & Gas

February 22, 2023 6

Q3: Actual sector-wise contribution to Nifty’s earnings growth

0.0 0.0 0.0

 Major earnings miss was from Tata Steel,

Source: Bloomberg; Sharekhan Research

Q3: Sensex earnings growth was above estimate

Source: Bloomberg; Sharekhan Research

February 22, 2023 7

Q3: 62% of Nifty companies reported beat in revenue

Source: Bloomberg; Sharekhan Research

Q3: 44% of Nifty companies reported beat in EBITDA

Source: Bloomberg; Sharekhan Research

February 22, 2023 8

Source: Bloomberg; Sharekhan Research

Source: Bloomberg; Sharekhan Research Source: Company; Sharekhan Research

February 22, 2023 9

February 22, 2023 10

+1 sd BPS Avg BPS -1 sd +1 sd PER Avg PER -1 sd

February 22, 2023 11

February 22, 2023 12

AUTO UNIVERSE - excl

February 22, 2023 13

Balkrishna Industries 2,061 Hold 2,163 73 61 76 28.2 33.7 27.1

Exide Industries $ 173 BUY 215 9 11 12 15.4 15.5 14.0

Gabriel India 159 BUY 217 6 9 13 25.5 17.4 12.5

GNA Axles 919 BUY 930 41 59 71 22.2 15.5 12.9

Greaves Cotton 130 BUY 183 -2 3 6 NA 39.0 20.9

Lumax Auto Technologies# 270 BUY 288 12 15 18 22.9 18.5 15.3

M&M @ $ 1,318 BUY 1,550 43 62 71 25.4 17.8 18.5

Ramkrishna Forgings 266 BUY 329 15 21 27 17.8 12.9 9.7

Schaeffler India 2,976 BUY 3,328 40 56 66 73.9 52.9 45.4

Sundram Fasteners # 983 BUY 1,110 24 33 42 40.8 29.7 23.5

Suprajit Engineering # 351 BUY 403 11 14 20 30.9 24.3 17.4

TVS Motors $ 1,113 BUY 1,303 32 42 47 33.7 25.6 23.9

VST Tillers and Tractors

February 22, 2023 14

February 22, 2023 15

Mid-Tier Private Banks

Small Private Banks

Valuations (As on Feb 13, 2023)

Mid-Tier Private Banks

Small Private Banks

February 22, 2023 16

February 22, 2023 17

Major earnings miss was from Tata Steel,