india daily, july 31, 2018 - kotak securities · 2018-07-31 · july 31, 2018 result coverage view:...

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL.

Contents

Daily Alerts

Results

Axis Bank: Not yet there but heading towards normalization

Avenue Supermarts: Healthy quarter, as usual

Shree Cement: A weak quarter

Tech Mahindra: Clear skies visible

InterGlobe Aviation: 1QFY19: continued turbulence

GSPL: Higher tax offsets robust volumes

Prestige Estates Projects: Consolidating its rental portfolio

Escorts: Benefitting from upcycle in its core segments

Results, Change in Reco

HDFC: Growth on track, stressed loans under focus

Godrej Consumer Products: In-line quarter - India shines, international weak

INDIA DAILY July 31, 2018 India 30-Jul 1-day 1-mo 3-mo

Sensex 37,494 0.4 5.8 6.6

Nifty 11,320 0.4 5.6 5.4

Global/Regional indices

Dow Jones 25,307 (0.6) 4.3 4.7

Nasdaq Composite 7,630 (1.4) 1.6 8.0

FTSE 7,701 (0.0) 0.8 2.6

Nikkei 22,391 (0.7) 0.4 (0.3)

Hang Seng 28,733 (0.2) (0.8) (6.7)

KOSPI 2,292 (0.1) (1.5) (8.9)

Value traded – India

Cash (NSE+BSE) 369 328 330

Derivatives (NSE) 5,157 4,366 4,400

Deri. open interest 3,325 3,022 3,569

Forex/money market

Change, basis points

30-Jul 1-day 1-mo 3-mo

Rs/US$ 68.7 2 2 223

10yr govt bond, % 8.1 1 (5) 15

Net investment (US$ mn)

27-Jul MTD CYTD

FIIs 82 97 (524)

MFs (29) 802 11,353

Top movers

Change, %

Best performers 30-Jul 1-day 1-mo 3-mo

SBIN IN Equity 297 3.7 14.7 20.7

RIL IN Equity 1,151 1.9 18.4 19.5

APNT IN Equity 1,430 (0.3) 13.1 19.0

GCPL IN Equity 1,311 0.2 6.9 17.3

GAIL IN Equity 378 (0.2) 11.0 16.2

Worst performers

HDIL IN Equity 20 3.1 (2.9) (39.4)

AL IN Equity 113 0.1 (10.2) (31.3)

UT IN Equity 4 (1.2) (1.2) (28.7)

VEDL IN Equity 225 2.3 (4.8) (24.6)

TTMT/A IN Equity 147 (1.6) (7.5) (23.3)

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

High credit cost and drop in non-interest income drag earnings

Reported earnings decreased 46% yoy in 1QFY19 driven by 2% drop in non-interest income

and high credit cost at 2.8% (provisions up 43% yoy). NII growth at 12% yoy was backed by

interest realization from recovery in 1 IBC account, partly offset by Rs2.5 bn of interest reversals.

Drop in treasury gains at 90% yoy and muted fee income rise at 6% yoy led to decline in other

income. Operating expense growth was robust at 12% yoy as the company continued to invest

in business expansion (net branches up 75 in 1QFY19). Loan growth was modest at 14% yoy;

retail maintained pace at 21% yoy. Unsecured loans were up 300 bps yoy to 15% of the retail

mix. Deposit growth stood at 14% yoy with CASA (on average balance) stable at 46% qoq.

Earnings to remain volatile as movement of provisions likely to be uncertain

The decline in gross NPLs by 5% qoq on absolute basis or 25 bps qoq to 6.5% gives some

comfort on the direction of NPLs from here. Coverage ratio increased ~300 bps qoq to 54%.

Slippages were higher than expected but we believe that upgradations and write-offs would

still remain higher than slippages, giving comfort that the decline in NPLs looks like a strong

outcome. The pace of decline is still hard to estimate given the size of corporate NPLs. The share

of ‘BB and below’ accounts is ~4% of loans and this quantum is only marginally higher than the

previous quarter, suggesting that this long and painful corporate impairment cycle seems to be

getting closer to its end. The two near-term challenges would be (1) estimating credit losses on

these NPLs and (2) path to recovery of normalized RoE led by healthy operating profit growth.

There is very little evidence to give a convincing argument on the timing of either of the two

outcomes. At these levels of profitability, we expect volatile revisions to earnings.

Valuation comfort still exists; maintain ADD with TP of `600 (unchanged)

At our target price, the stock would trade at 2.2X book and 15X March 2020E EPS for RoEs in

the range of 13-14%. In our view, there is much greater comfort in assigning relatively higher

multiples on a cleaner book with potential to return to mid-teen RoEs in the medium term.

Fundamental strengths such as high CASA ratio, distribution network and high and growing

share of retail loans are key positives. Key risks: (1) path to RoE improvement can be prolonged

if NPL resolution results in higher-than-expected credit costs and (2) senior management changes.

Axis Bank (AXSB) Banks

Not yet there but heading towards normalization. Axis Bank reported ~45% yoy

earnings decline on the back of 2% yoy growth in operating profits and ~45% yoy

growth in provisions. Outstanding bad loans were unchanged at ~11% of loans but

gross NPLs form ~65% of these loans. Directionally there were no new negative

surprises and the decline in gross NPLs qoq should give greater comfort as the business

moves back to normalized levels in the next few quarters. The change in senior

management is a key event to watch. ADD remains (TP unchanged at `600).

ADD

JULY 31, 2018

RESULT

Coverage view: Attractive

Price (`): 570

Target price (`): 600

BSE-30: 37,494

QUICK NUMBERS

NII up 12% yoy; PAT

dropped 46% yoy

GNPL NPLs down 25

bps qoq to ~6.5% of

loans and net NPLs

down ~30 bps qoq

to 3.1% of loans

Maintain ADD; TP at

`600 (unchanged)

M B Mahesh CFA

Nischint Chawathe

Axis Bank

Stock data Forecasts/Valuations 2018 2019E 2020E

52-week range (Rs) (high,low) EPS (Rs) 1.1 18.0 40.1

Market Cap. (Rs bn) EPS growth (%) (92.6) 1,577.6 122.3

Shareholding pattern (%) P/E (X) 530.3 31.6 14.2

Promoters 26.4 NII (Rs bn) 186.2 208.5 245.9

FIIs 52.2 Net profits (Rs bn) 2.8 47.1 104.6

MFs 8.3 BVPS 205.8 233.2 276.5

Price performance (%) 1M 3M 12M P/B (X) 2.8 2.4 2.1

Absolute 11.5 10.1 10.6 ROE (%) 0.5 7.1 14.1

Rel. to BSE-30 5.4 3.3 (4.7) Div. Yield (%) 0.9 0.5 1.1

Company data and valuation summary

628-448

1,462.8

Axis Bank Banks

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Exhibit 1: Axis Bank quarterly results, key parameters March fiscal year-ends, 1QFY18-1QFY19 (` mn)

Notes (a) Loan portfolio has been reclassified with exposure to agriculture split under retail and SME loans since 1QFY18.

Source: Company, Kotak Institutional Equities

1QFY19 1QFY19E 1QFY18 4QFY18 1QFY19E 1QFY18 4QFY18 2019E 2018 2020E

Interest income 127,770 123,284 110,525 117,712 3.6 15.6 8.5 530,469 457,803 15.9 617,025

Advances 96,116 90,884 82,106 87,530 5.8 17.1 9.8 392,605 341,375 15.0 456,480

Investments 26,825 27,787 24,179 25,744 (3.5) 10.9 4.2 118,749 99,833 18.9 138,225

Balance with RBI 1,246 1,187 1,127 1,079 5.0 10.5 15.5 19,115 16,595 15.2 22,320

Interest expenses 76,102 74,793 64,364 70,407 1.8 18.2 8.1 321,987 271,626 18.5 371,085

Net interest income 51,668 48,491 46,161 47,305 6.6 11.9 9.2 208,482 186,177 12.0 245,940

Non-interest income 29,250 31,498 29,998 27,887 (7.1) (2.5) 4.9 117,828 109,671 7.4 137,364

Treasury income 1,030 500 8,240 2,180 106.0 (87.5) (52.8) 9,000 13,252 (32.1) 15,000

Income excl treasury 28,220 30,998 21,758 25,707 (9.0) 29.7 9.8 108,828 96,419 12.9 122,364

Total income 80,918 79,989 76,160 75,191 1.2 6.2 7.6 326,310 295,848 10.3 383,303

Operating expenses 37,198 38,809 33,248 38,469 (4.2) 11.9 (3.3) 160,195 139,903 14.5 182,920

Employee cost 12,278 11,971 10,883 10,789 2.6 12.8 13.8 47,434 43,130 10.0 53,303

Other operating cost 24,920 26,838 22,365 27,680 (7.2) 11.4 (10.0) 112,761 96,774 16.5 129,617

Pre-prov profit 43,720 41,180 42,912 36,722 6.2 1.9 19.1 166,115 155,945 6.5 200,383

Provisions 33,377 40,923 23,419 71,795 (18.4) 42.5 (53.5) 96,901 154,729 (37.4) 47,609

Loan loss 30,660 30,928 21,830 77,320 (0.9) 40.4 (60.3) 89,401 161,566 (44.7) 42,909

Profit before tax 10,343 256 19,492 (35,073) 3,934.2 (46.9) NM 69,215 1,216 5,593.4 152,773

Tax 3,333 86 6,436 (13,186) 3,763.0 (48.2) NM 22,149 (1,541) NM 48,124

Profit after tax 7,011 170 13,056 (21,887) 4,021.0 (46.3) NM 47,066 2,757 1,607.3 104,650

Tax rate (%) 32.2 34 33.0 NM 32.0 (126.8) 31.5

PBT- treasury gains 9,313 (244) 11,252 (37,253) NM (17.2) NM 60,215 (12,036) NM 137,773

PBT- treasury gains+provisions 42,690 40,680 34,672 34,542 4.9 23.1 23.6 157,115 142,693 10.1 185,383

EPS (Rs) 3 5 (9) 18 1 1,577.6 40

Key balance sheet items (Rs bn)

Deposits 4,471 4,627 3,937 4,536 (3.4) 13.5 (1.4) 5,296 4,536 16.7 6,148

Demand deposits 2,096 1,936 2,439 8.3 (14.0) 2,890 2,439 18.5 3,376

Savings 1,414 1,220 1,482 15.9 (4.6) 1,760 1,482 18.8 2,049

Current 683 716 957 (4.6) (28.6) 1,130 956 18.1 1,327

Term deposits 2,374 2,002 2,098 18.6 13.2 2,406 2,098 14.7 2,772

CASA ratio (%) 46.9 49.2 53.8 -227 bps -687 bps 54.6 53.8 82 bps 54.9

Loans 4,411 4,484 3,855 4,397 (1.6) 14.4 0.3 5,014 4,397 14.0 5,713

Retail loans 2,116 1,753 2,065 20.7 2.5

Housing 1,016 911 991 11.5 2.5

Non-retail loans 2,294 2,102 2,332 9.1 (1.6)

SME loans 570 479 587 18.9 (3.0)

Corporate loans 1,724 1,623 1,744 6.3 (1.1)

Investments 1,546 1,570 1,418 1,539 (1.5) 9.0 0.5 1,864 1,539 21.1 2,214

Key calculated ratios

NIM 3.5 3.6 3.3 -11 bps 20 bps 3.0 3.1 -9 bps 3.1

Cost of funds 6.8 6.4 6.5 39 bps 23 bps 4.9 4.8 12 bps 4.9

Yield on advances 8.7 8.7 8.1 7 bps 59 bps 8.3 8.4 -6 bps 8.5

Yield on investments 7.0 7.1 7.0 -19 bps 0 bps 7.0 7.1 -9 bps 6.8

Cost to income 46.0 43.7 51.2 231 bps -519 bps 49.1 47.3 180 bps 47.7

Cost to average assets 2.2 2.2 2.3 -5 bps -15 bps 2.2 2.2 -1 bps 2.1

CD ratio 98.7 97.9 96.9 75 bps 174 bps 94.7 96.9 -224 bps 92.9

Credit cost 2.8 2.3 7.2 48 bps -440 bps 1.9 4.0 -208 bps 0.8

Asset quality

Gross stressed loans (Rs bn) 501.0 529.4 485.5 (5.4) 3.2

Gross stressed loans (%) 11.4 13.7 11.0

Gross NPL (Rs bn) 326.6 220.3 342.5 48.3 (4.6) 310.1 321.1 (3.4) 272.5

Net NPL (Rs bn) 149.0 97.7 165.9 52.6 (10.2) 140.1 160.0 (12.5) 98.2

Gross NPL (%) 6.5 5.0 6.8 5.9 7.0 4.5

Gross NPL / gross stressed loans (%) 65.2 41.6 70.5

Net NPL (%) 3.1 2.3 3.4 2.8 3.6 1.7

Sub-investment grade (Rs bn) 104.0 194.6 89.9

Slippages (Rs bn) 43.4 35.2 165.4 23.2 (73.8) 109.9 306.8 (64.2) 50.1

Slippages (%) 3.9 3.8 15.7 2.5 8.2 1.0

Write-off (%) 5.4 3.0 6.9

Provision coverage (calc, %) 54.4 55.7 51.6 54.8 50.2 64.0

Capital adequacy (%)

CAR 16.7 17 17

Tier-I 13.2 13 13

Key business parameters (#)

Branches 3,779 3,385 3,703 11.6 2.1 4,003 3,703 8.1 4,303

ATM 15,786 14,311 13,814 10.3 14.3 14,314 13,814 3.6 14,814

(% chg.)

(% chg.)

Banks Axis Bank

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Exhibit 2: Balance sheet snapshot March fiscal year-ends, 1QFY18-1QFY19 (` bn)


Exhibit 3: Drag on earnings owing to higher credit cost Revenue and earnings growth, March fiscal year-ends, 2010-1QFY19 (%)


1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19

Balance sheet

Capital 5 5 5 5 5 5 5 5 5

Reserves 544 533 540 553 566 557 650 629 637

Deposits 3,579 3,802 3,708 4,144 3,937 4,164 4,090 4,536 4,471

Borrowings 1,062 1,004 1,324 1,050 1,295 1,354 1,409 1,480 1,522

Other Liab & prov 157 232 211 263 263 273 285 262 292

Total liabilities 5,346 5,577 5,788 6,015 6,067 6,353 6,439 6,913 6,927

Cash 308 372 517 503 319 322 284 435 398

Investments 1,233 1,246 1,365 1,288 1,418 1,442 1,424 1,539 1,546

Loans 3,449 3,532 3,472 3,731 3,855 4,102 4,209 4,397 4,411

Fixed Assets 36 36 36 37 39 39 39 40 40

Other Assets 320 391 398 456 436 449 483 504 532

Total assets 5,346 5,577 5,788 6,015 6,067 6,353 6,439 6,913 6,927

RoE decomposition (%)

NIM 3.4 3.3 3.1 3.2 3.1 2.9 3.0 2.8 3.0

Non interest income 2.1 1.9 2.4 2.0 2.0 1.7 1.6 1.7 1.7

Total income 5.5 5.2 5.4 5.2 5.0 4.6 4.6 4.5 4.7

Opex 2.1 2.2 2.2 2.3 2.2 2.2 2.2 2.3 2.2

Provisions 1.6 2.7 2.7 1.7 1.6 2.0 1.8 4.3 1.9

PBT 1.8 0.3 0.6 1.2 1.3 0.4 0.7 (2.1) 0.6

Tax 0.6 0.1 0.2 0.4 0.4 0.1 0.2 (0.8) 0.2

RoA 1.2 0.2 0.4 0.8 0.9 0.3 0.5 (1.3) 0.4

Leverage 9.8 10.0 10.5 10.7 10.7 11.0 10.5 10.4 10.8

RoE 11.5 2.3 4.3 8.9 9.3 3.1 4.8 (13.6) 4.4

2010 2011 2012 2013 2014 2015 2016 2017 2018 1QFY19

Revenue growth

Net interest income 35.8 31.1 22.2 20.6 23.6 19.0 18.3 7.5 2.9 11.9

Non interest income 36.2 17.4 17.0 20.9 13.0 13.0 12.0 24.8 (6.2) (2.5)

Total revenue 36.0 25.1 20.0 20.7 19.4 16.7 16.0 13.7 (0.7) 6.2

Loans 27.9 36.5 19.2 16.0 16.8 22.2 20.5 10.1 17.8 14.4

Balance sheet 22.3 34.4 17.7 19.2 12.5 20.5 13.8 14.5 14.9 14.2

Earnings growth 38.5 34.8 25.2 22.1 20.0 18.3 11.8 (57.7) (92.1) (46.3)

Axis Bank Banks


Exhibit 4: Improvement in NII growth NII growth, March fiscal year-ends, 1QFY17-1QFY19 (%)


Exhibit 5: Higher credit cost drags earnings Earnings growth, March fiscal year-ends, 1QFY17-1QFY19 (%)


Marginal improvement in asset quality

Axis Bank reported 6.5% gross NPL (down 25 bps qoq) and 3.1% (down 31 bps qoq) net

NPL in 1QFY19. Slippages remained high at 3.9%, albeit qoq decline. The company has

increased its provision coverage by 280 bps qoq to 54.4% in 1QFY19. New NPL

formation in the corporate book continues to be from BB and below book (~88%). The

bank has indicated that it had significantly tightened its retail NPL recognition platform in

recent quarters, which has resulted in higher-than-normalized slippages.

The company provided additional disclosure on power sector advances. 43% of the total

advances is NPL as of 1QFY19. The company maintains 42% coverage on these assets.

21% of the total book is rated BB and below.

The total share of loans in the BB and below corporate book increased to 2.1% in

1QFY19 (up 20 bps qoq). This portfolio continues to witness additions to the portfolio

even as recognition remains elevated. Management highlighted that this has broadly

stabilized and new additions are unlikely.

We expect credit cost of190 bps (as % of net loans) in FY2019E, reducing to 80 bps in

FY2021E. This reflects decline in gross NPL ratio to ~3.5% but improving coverage ratio

on the back of lower slippages (down to 2.5% in FY2019E and 1.2% by FY2021E).

11 11

4 4 2 1 9

0

12

14 16

19

7 5

1

(5)

(3)

6

(6)

-

6

12

18

24

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

NII growth Revenue growth

21 1810 10 12 16 21 18 14

-21

-83-73

-43

-16

3625

-46

(120)

(80)

(40)

-

40

80

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

Loan growth Earnings growth

Banks Axis Bank


Exhibit 6: Net unrecognized stress is about 3% Details of stress loans March fiscal year-ends, 1QFY17-1QFY19 (Rs bn)


Exhibit 7: Sub-investment grade portfolio increased qoq Movement of sub-investment grade loans, March fiscal year-ends, 1QFY17-1QFY19 (` mn)



Movement of NPL

Opening NPLs 61 96 164 205 213 220 274 250 342

Additions to NPLs 36 88 46 48 35 89 44 165 43

Upgradation/recoveries 1 11 4 28 3 10 40 34 29

Write-offs 0 9 1 12 25 25 28 39 30

Closing NPLs 96 164 205 213 220 274 250 342 327

Gross NPL (%) 2.5 4.2 5.2 5.0 5.0 5.9 5.3 6.8 6.5

Net NPL (%) 1.1 2.0 2.2 2.1 2.3 3.1 2.6 3.4 3.1

Slippages (%) 4.3 10.2 5.2 5.5 3.8 9.3 4.3 15.7 3.9

Stress loans break-up

Gross NPL 96 164 205 213 220 274 250 342 327

Sub investment grade 274 299 208 197 195 158 161 90 104

Security receipts 7 14 14 15 30 30 30 30 30

Other dispensation - - 25 28 32 16 13 1 18

Non-fund based exposures - - - - - 40 50 52 52

Outstanding stock of bad loans 377 477 452 453 476 518 504 515 530

Advances 3,449 3,532 3,472 3,731 3,855 4,102 4,209 4,397 4,411

Gross stress (% of loans) 10.9 13.5 13.0 12.1 12.4 12.6 12.0 11.7 12.0

Non-NPL stress (%) 8.2 8.9 6.4 5.7 5.8 4.6 4.5 2.7 3.0

Gross NPL / gross stress loans (%) 25 34 45 47 46 53 50 66 62

Notes:

(1) There is Rs24 bn of non-fund based exposure to BB and below portfolio and Rs28 bn of exposure in gross NPLs

(2) Disclosure of sub-investment grade loans is available from 1QFY17 onwards.

(3) Large share of restructured loans is included in sub investment grade portfolio.


Opening sub-investment grade NA 274 299 208 197 195 158 161 90

Fresh additions or upgrades NA 102 -58 28 15 23 31 54 34

Reductions 29 77 33 39 17 59 28 125 20

Closing sub investment grade loans 274 299 208 197 195 158 161 90 104

(% of loans) 7.9 8.5 6.0 5.3 5.0 3.9 3.8 2.0 2.4

(% of corporate loans) 17.3 18.9 13.5 12.6 12.0 9.1 9.3 5.2 6.0

(% of slippages from corporate loans) 98 94 90 91 73 73 93 90 88

Corporate slippages 29 82 37 43 23 81 30 139 22

Fresh additions (% of loans, annualised) 35.1 11.6 -6.7 3.0 1.5 2.2 2.9 4.9 3.0

Fresh additions (% of corporate loans, annualised) 76.5 25.9 -15.1 7.3 3.6 5.3 7.1 12.4 7.8

Axis Bank Banks


Exhibit 8: We expect gross NPLs to decline in the medium term Gross and net NPL ratios, March fiscal year-ends, 2011-2021E (%)


Exhibit 9: Loan-loss provisions to decline from 2HFY19 Slippages and LLP, March fiscal year-ends, 2011-2021E (%)


Exhibit 10: Share of working capital loans dropped in 1QFY19 Non-retail loan break-up, March fiscal year-ends, 2010-1QFY19

Source: Company

Retail drives loan growth; corporate loan growth muted

Loan growth modest at 14% yoy. Loan growth was modest at 14% yoy driven by

strong growth in retail loans at 21% yoy in 1QFY19. Loan growth dropped for the

second quarter in a row. Retail loans continued to deliver strong growth on the back of

robust growth in vehicle loans and unsecured loans. The share of retail loan has increased

to ~50% (up 260 bps yoy and 110 bps qoq). Growth in non-retail loans was low at 9%

as corporate loan growth was muted at 6% yoy. SME loans, however, maintained

momentum (up 19% yoy); a trend observed since 2QFY18.

Retail maintains strong pace. The bank maintained a strong growth in retail loans, up

21% yoy and 3% qoq. The majority of growth in the retail space was driven by

unsecured loans on a low base. Personal loans and credit cards increased 66% and 21%

yoy, respectively. The share of unsecured loans increased to 15% (up 300 bps yoy). Auto

loans witnessed strong growth at 21% yoy. Growth in housing loans, however,

witnessed a decline (down for the fifth quarter in a row) to 11% yoy in 1QFY19.

Stable loan growth going ahead. We expect loan growth to remain above industry

average, ~14% CAGR in FY2018-2021E. The primary drivers of robust loan growth will

be rapidly expanding retail book and pickup in momentum in SME loans. Corporate loans

will additionally show marginal improvement.

1.1 1.0 1.2 1.3 1.4 1.7

5.2

7.0

5.9

4.5

3.5

0.3 0.3 0.4 0.4 0.5 0.7

2.3

3.6

2.8

1.7

1.0

4.5

6.6

2.3

3.4

-

1.6

3.2

4.8

6.4

8.0

2011

2012

2013

2014

2015

2016

2017

2018

2019E

2020E

2021E

Gross NPL Net NPL

Gross NPL (divergence) Net NPL (divergence)

1.4 1.2 1.2 1.2 1.2

2.6

5.8

8.2

2.5

1.0 1.2

0.9 0.7 1.0 1.0 0.9 1.5 3.3 4.0 1.9 0.8 0.8 0

2

4

6

8

10

2011

2012

2013

2014

2015

2016

2017

2018

2019E

2020E

2021E

Slippages Loan loss provisions

Non retail loans including SME (Rs bn) (% of total)

2010 2014 2015 2016 2017 2018 1QFY19 2010 2014 2015 2016 2017 2018 1QFY19

WC finance 286 650 597 688 732 1,015 951 34.2 41.8 35.3 34.3 35.7 43.5 41.5

Project/corporate finance 549 905 1,095 1,315 1,319 1,317 1,343 65.8 58.2 64.7 65.7 64.3 56.5 58.5

Total 835 1,556 1,692 2,003 2,051 2,332 2,294

Banks Axis Bank


Exhibit 11: Share of lending to retail has been rising in recent years Break-up of loans, March fiscal year-ends, 2010-1QFY19 (%)

Notes: (1) There has been a change in the definition of retail and SME loans in FY2015. Exposure in agriculture has been divided into SME and retail. Under retail, this has been included under others.


CASA ratio (daily average) stable at 46%; CA growth declines sharply qoq

Overall deposit growth was robust at 14% yoy (down 1% qoq). CASA deposits on a

cumulative daily average balance basis grew 15% yoy and constituted 46% of total

deposits. Saving deposits on average balance basis grew 18% yoy. The share of CASA and

retail term deposits to total deposits stood at 81% as of 1QFY19. We forecast 17% CASA

(period ending) CAGR over FY2018-2021E driven by 16% CAGR in overall deposits over the

same period. Sequentially there has been a sharp decline in CA balances, which we believe is

a bit more seasonal in nature.

Exhibit 12: Axis Bank’s savings account balance is lower compared to peers Growth (absolute) in savings account balances, March fiscal year-ends, 2011-1QFY19 (` bn)


Exhibit 13: CASA ratio is higher comparative to peers March fiscal year-ends, 1QFY17-1QFY19 (%)


2010 2011 2012 2013 2014 2015 2016 2017 2018 1QFY19

Retail loans 20.0 19.5 22.1 27.4 32.7 39.8 40.9 45.0 47.0 48.0

Housing 14.1 13.3 16.6 19.7 22.1 21.9 21.7 23.4 22.5 23.0

Auto 2.6 2.1 2.9 3.8 3.3 3.2 3.7 4.5 4.7 4.8

Personal 1.9 2.7 1.3 1.9 2.4 3.6 4.5 5.4 7.0 7.2

Others 1.3 1.4 1.3 1.9 4.8 11.2 11.0 11.7 12.7 13.0

Non retail loans 80.0 80.5 77.9 72.6 67.3 60.2 59.1 55.0 53.0 52.0

SME 17.5 15.0 14.0 15.2 14.9 14.8 13.2 13.2 13.4 12.9

Corporate 50.3 53.3 53.6 49.9 46.1 45.4 45.9 41.8 39.7 39.1

Agriculture 12.2 12.2 10.2 7.5 6.3 — — — — —

2011 2012 2013 2014 2015 2016 2017 2018 1QFY19

Axis Bank 70 108 121 58 105 175 203 222 193

HDFC Bank 136 106 142 149 218 230 457 302 336

ICICI Bank 137 92 96 135 157 194 376 291 297

CASA (%) Cost of deposits (%)

1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19

Axis 43.4 44.7 47.6 51.4 49.2 50.4 49.3 53.8 46.9 5.8 5.7 5.5 5.4 5.2 5.2 5.1 5.1 5.2

HDFCB 39.9 40.4 45.4 48.0 44.0 42.9 43.9 43.5 41.7 5.6 5.5 5.4 5.1 5.0 5.1 5.2 5.0 5.1

ICICI 45.1 45.7 49.9 50.4 49.0 49.5 50.4 51.7 49.5 5.5 5.5 5.3 4.8 5.0 4.9 4.8 4.6 4.7

IndusInd 34.4 36.5 37.1 36.9 37.8 42.3 42.9 44.0 43.4 6.9 6.6 6.4 6.1 6.2 5.9 5.9 6.0 6.2

Yes 29.6 30.3 33.3 36.3 36.8 37.2 38.0 36.5 35.1 7.0 6.8 6.8 6.3 6.2 6.1 6.0 6.0 6.3

Axis Bank Banks


Exhibit 14: Average ticket size of savings deposits is around `54,000 Saving deposits and number of accounts, March fiscal year-ends, 1QFY17-1QFY19


Non-interest income down 2% yoy; corporate fees and treasury gains drop yoy

Non-interest income dropped 2% yoy on the back of muted growth in fee income at 6%

yoy and 90% yoy decline in treasury gains (high market to market losses). Retail fees were

strong at 34% yoy. 61% of total fee was from retail banking. Retail fees from the card

business witnessed strong traction (up 31% yoy). Corporate banking fees dropped 24%

yoy. Corporate fees have been under pressure for multiple quarters now due to shift to

better rated corporates. Other income from miscellaneous items was higher in the quarter

owing to rise in recoveries (~`4 bn in 1QFY19).

Exhibit 15: Contribution on retail banking to fee income increased in recent quarters Break-up of fee income, March fiscal year-ends, 2011-1QFY19 (%)

Notes:

(a) Part of FX fees were reclassified in 1QFY16, from treasury fees to transaction banking.


Exhibit 16: Axis Bank’s share of fee income to assets has been declining in recent years Fee income to assets, March fiscal year-ends, 2010-20E (%)


Margin recovery owing to interest realization from recovery of IBC account

NIM (calculated) increased 21 bps qoq to 3.5% on the back of improvement in yields.

Calculated yield on advances improved 59 bps qoq to 8.7% on the back of interest

realization from recovery of an IBC account even when interest reversals were high at Rs2.5

bn. There was additional pressure from cost of funds, which increased 23 bps qoq to 6.8%.

We forecast marginal compression in NIM in the near term driven by high interest reversals

and change in loan mix towards higher share of low-yielding retail products. NIM will drop 8

bps in FY2019E to 3% and further moderate to 3.1% by FY2021E.


Saving Deposits (Rs bn) 1,002 1,078 1,181 1,260 1,220 1,303 1,312 1,482 1,414

No of accounts (# mn) 18 19 21 22 23 24 25 25 26

Estimated avg. ticket size of saving deposits (Rs) 55,388 57,846 57,515 56,233 52,608 54,600 53,507 59,890 53,750

2010 2011 2012 2013 2014 2015 2016 2017 2018 1QFY19

Corporate banking/credit 28.0 31.8 33.7 30.7 26.8 27.0 25.6 23.3 18.5 13.0

Business/transaction Banking 12.0 9.4 8.5 7.7 7.3 8.3 18.5 19.8 19.8 20.0

Capital markets 1.6 1.7 1.1 1.0 - - - - - -

Retail banking 27.3 24.5 25.1 29.4 29.3 38.4 40.3 50.1 55.0 61.0

Agri & SME banking 7.3 5.9 5.8 6.1 5.8 5.5 5.0 5.1 4.8 4.0

Treasury and debt capital mkts 17.5 18.6 19.1 20.2 20.0 20.8 9.2 1.7 2.0 2.0

Others 6.3 8.1 6.6 5.0 10.9 (0.1) 1.3 - (0.0) -

Total (Rs bn) 31 41 51 58 67 68 75 79 89 21

% of average assets 1.9 2.0 1.9 1.9 1.8 1.6 1.5 1.4 1.4 1.3

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E

Axis Bank 1.6 1.6 1.7 1.7 1.5 1.5 1.4 1.3 1.3 1.3 1.3 1.2

HDFC Bank 1.5 1.5 1.5 1.5 1.4 1.3 1.2 1.2 1.2 1.2 1.1 1.1

ICICI Bank 1.4 1.5 1.3 1.2 1.2 1.2 1.2 1.2 1.1 1.3 1.3 1.3

IndusInd Bank 0.7 0.7 1.4 1.5 1.5 1.8 1.9 1.9 1.8 1.8 1.7 1.7

Yes Bank 1.3 1.3 1.2 1.3 1.3 1.7 1.7 1.8 1.7 1.5 1.4 1.3

Banks Axis Bank


Other highlights for the quarter

Cost pressure looms in medium term. Cost-income for the quarter increased ~230 bps

yoy 46% driven by 12% yoy growth in operating expenses in 1QFY19. Branch addition

remains high as the company focuses on expanding geographic presence (net addition of

76 branches in 1QFY19). We forecast cost-income ratio to remain high at 48% by

FY2021E driven by 14% CAGR in operating expenses over the same period.

RWA growth is lower than loan growth. Overall capital adequacy stands comfortable

at 16.7% with CET-1 at 11.9%, as per Basel-3 guidelines. RWA/total assets dropped

~600 bps yoy to 74% in 1QFY19.

Exhibit 17: Axis Bank: estimate changes March fiscal year-ends, 2019-2021E (` mn)

Source: Company, Kotak Institutional Equities estimates

Exhibit 18: Axis Bank trading at 2.3X one-year forward book One-year forward trading PER and PBR, July 2010- July 2018 (X)

Source: Company, Bloomberg, Kotak Institutional Equities estimates

Exhibit 19: Axis Bank is trading at a discount to peers

Axis Bank trading premium to peers, July 2010- July 2018 (X)


New estimates Old estimates Change (%)

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Net interest income 208,482 245,940 279,077 201,213 247,515 280,612 3.6 (0.6) (0.5)

NIM (%) 3.0 3.1 3.1 2.9 3.1 3.1 11 bps -2 bps -2 bps

Customer assets 5,320,623 6,019,789 6,784,805 5,320,623 6,019,789 6,784,805 - - -

Loan loss provisions 89,401 42,909 48,766 82,343 42,909 48,766 8.6 - -

Other income 117,828 137,364 153,604 124,555 137,744 152,594 (5.4) (0.3) 0.7

Fee income 88,894 99,561 111,508 86,575 96,964 108,599 2.7 2.7 2.7

Treasury income 9,000 15,000 16,000 18,500 18,500 18,500 (51.4) (18.9) (13.5)

Operating expenses 160,195 182,920 208,967 160,195 187,255 216,664 - (2.3) (3.6)

Employee expenses 47,434 53,303 57,888 47,434 53,303 57,888 - - -

PBT 69,215 152,773 170,248 75,730 150,394 163,075 (8.6) 1.6 4.4

Tax 22,149 48,124 52,777 24,234 47,374 50,553 (8.6) 1.6 4.4

Net profit 47,066 104,650 117,471 51,496 103,020 112,522 (8.6) 1.6 4.4

1

2

2

3

3

4

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

0.5

0.7

0.9

1.1

1.3

1.5

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Axis Bank Banks


Exhibit 20: Axis Bank – key financial ratios and growth rates March fiscal year-ends, 2016-2021E (%)


2016 2017 2018 2019E 2020E 2021E

Growth rates (%)

Net loan 20.5 10.1 17.8 14.0 13.9 13.4

Total Asset 13.8 14.5 14.9 14.9 14.8 14.4

Deposits 11.0 15.8 9.5 16.7 16.1 15.5

Current 13.4 36.7 9.9 18.1 17.5 16.9

Savings 19.8 19.1 17.6 18.8 16.4 15.8

Fixed 5.9 6.8 4.2 14.7 15.2 14.7

Net interest income 18.3 7.5 2.9 12.0 18.0 13.5

Loan loss provisions 110.9 152.3 37.0 (44.7) (52.0) 13.6

Total other income 12.0 24.8 (6.2) 7.4 16.6 11.8

Net fee income 9.6 4.8 10.0 15.0 12.0 12.0

Net capital gains 2.4 211.6 (58.2) (32.1) 66.7 6.7

Net exchange gains 29.6 (15.3) 32.3 (3.5) 13.0 13.0

Operating expenses 9.7 20.8 14.7 14.5 14.2 14.2

Employee expenses 8.4 15.3 10.8 10.0 12.4 8.6

Key ratios (%)

Yield on average earning assets 8.8 8.5 7.7 7.7 7.8 7.8

Yield on average loans 9.7 9.3 8.4 8.3 8.5 8.5

Yield on average investments 7.9 7.8 7.1 7.0 6.8 6.6

Average cost of funds 5.6 5.4 4.8 4.9 4.9 4.9

Interest on deposits 5.4 5.1 4.4 4.4 4.4 4.4

Difference 3.3 3.2 2.9 2.8 2.9 2.8

Net interest income/earning assets 3.6 3.5 3.1 3.0 3.1 3.1

New provisions/average net loans 1.5 3.3 4.0 1.9 0.8 0.8

Interest income/total income 64.2 60.7 62.9 63.9 64.2 64.5

Fee income/total income 25.6 23.6 26.1 27.2 26.0 25.8

Operating expenses/total income 38.5 41.0 47.3 49.1 47.7 48.3

Tax rate 33.6 36.3 (126.8) 32.0 31.5 31.0

Dividend payout ratio 14.5 34.4 465.5 15.0 15.0 15.0

Share of deposits

Current 17.8 21.0 21.1 21.3 21.6 21.8

Fixed 52.7 48.6 46.2 45.4 45.1 44.8

Savings 29.6 30.4 32.7 33.2 33.3 33.4

Loans-to-deposit ratio 94.6 90.0 96.9 94.7 92.9 91.2

Equity/assets (EoY) 10.1 9.3 9.2 8.8 8.6 8.5

Dupont analysis (%)


Loan loss provisions 0.9 2.1 2.5 1.2 0.5 0.5

Net other income 1.9 2.1 1.7 1.6 1.6 1.6


(1- tax rate) 66.4 63.7 226.8 68.0 68.5 69.0

ROA 1.7 0.6 0.0 0.6 1.2 1.2

Average assets/average equity 10.1 10.3 10.8 11.1 11.5 11.7

ROE 16.8 6.4 0.5 7.1 14.1 14.1

Banks Axis Bank


Exhibit 21: Axis Bank – income statement and balance sheet March fiscal year-ends, 2016-2021E (` mn)


2016 2017 2018 2019E 2020E 2021E

Income statement (Rs mn)

Total interest income 409,880 445,422 457,803 530,469 617,025 705,864

Loans 300,406 331,250 341,375 392,605 456,480 520,458

Investments 93,776 96,228 99,833 118,749 138,225 159,149

Total interest expense 241,551 264,490 271,626 321,987 371,085 426,788

Deposits from customers 185,402 196,396 191,735 216,616 253,069 294,610

Net interest income 168,330 180,931 186,177 208,482 245,940 279,077

Loan loss provisions 46,757 117,960 161,566 89,401 42,909 48,766

Net interest income (after prov.) 121,573 62,971 24,612 119,081 203,030 230,310

Other income 93,715 116,913 109,671 117,828 137,364 153,604

Net fee income 67,076 70,283 77,299 88,894 99,561 111,508

Net capital gains 10,186 31,738 13,252 9,000 15,000 16,000

Net exchange gains 12,751 10,802 14,287 13,794 15,587 17,613

Operating expenses 101,008 121,999 139,903 160,195 182,920 208,967

Employee expenses 33,760 38,919 43,130 47,434 53,303 57,888

Depreciation on investments 840 2,387 (2,110) 6,500 3,500 3,500

Other provisions (10,498) 822 (4,726) 1,000 1,200 1,200

Pretax income 123,937 54,676 1,216 69,215 152,773 170,248

Tax provisions 41,700 19,868 (1,541) 22,149 48,124 52,777

Net Profit 82,237 34,808 2,757 47,066 104,650 117,471

% growth 12 (58) (92) 1,607 122 12

PBT+provisions-treasury 150,850 144,107 142,693 157,115 185,383 207,714

% growth 13 (80) (152) (600) 129 12

Balance sheet (Rs mn)

Cash and bank balance 333,254 502,562 434,549 473,914 541,118 616,825

Cash 41,205 63,579 52,580 63,096 75,716 90,859

Balance with RBI 182,407 245,000 302,230 315,131 350,579 388,178

Balance with banks 1,956 21,018 32,187 38,624 46,349 55,619

Net value of investments 1,220,062 1,287,934 1,538,761 1,863,962 2,213,599 2,623,865

Govt. and other securities 850,430 905,981 1,013,546 1,341,002 1,689,713 2,098,822

Shares 12,439 13,228 15,255 15,255 15,255 15,255

Debentures and bonds 229,119 264,849 306,538 306,538 306,538 306,538

Net loans and advances 3,387,737 3,730,693 4,396,503 5,014,085 5,713,251 6,478,267

Fixed assets 35,232 37,469 39,717 38,172 36,727 35,356

Net owned assets 35,232 37,469 39,717 38,172 36,727 35,356

Other assets 278,391 456,019 503,766 556,513 614,783 679,154

Total assets 5,254,676 6,014,677 6,913,296 7,946,646 9,119,478 10,433,467

Deposits 3,579,676 4,143,788 4,536,227 5,296,030 6,148,369 7,103,188

Borrowings and bills payable 1,028,718 1,089,834 1,529,337 1,712,858 1,918,400 2,148,609

Other liabilities 114,634 223,429 213,279 238,873 267,537 299,642

Total liabilities 4,723,027 5,457,051 6,278,843 7,247,760 8,334,307 9,551,439

Paid-up capital 4,766 4,790 5,133 5,224 5,224 5,224

Reserves & surplus 526,883 552,835 629,320 693,662 779,948 876,804

Total shareholders' equity 531,649 557,625 634,453 698,886 785,171 882,028


Strong revenue growth, unfavorable base notwithstanding

Dmart reported solid 27% yoy revenue growth, 3% ahead of estimates, led by 21% yoy

increase in retail trading area and 5% increase in revenue per sq. ft. 1QFY18 was a pre-GST

quarter and actual revenue growth on a like-to-like basis would thus have been higher. We

note that 1Q is typically a strong quarter for Dmart, second only to 3Q.

Gross margin expansion a tad lower than expected

Dmart’s reported gross margins have expanded post GST implementation on account of lower

product pricing and relatively unchanged absolute margins. Gross margins of 15.6% (+16 bps

yoy) were thus lower than expected, possibly on account of higher sales of lower-margin

products such as food. Higher-than-expected revenues, however, offset the impact of lower-

than-expected gross margins, and led to an in-line EBITDA performance. Depreciation charge

declined sequentially and was the key driver of the PAT beat.

Store addition to pick up pace in 2HFY19; store size on the rise

Dmart added two new stores in 1QFY19, with store addition pace to pick up in 2HFY19 (a

majority of stores are typically added in 4Q). We note the company is also adding larger sized

stores – the average store was 30,500 sq. ft in size in 3QFY17, which increased to 31,850 sq. ft

in 1QFY19. We believe this trend can continue, as Dmart builds higher capacities to cater to

rising footfalls, and quick ramp-up of revenue growth of new stores.

Execution on track, but more than priced into valuations

Dmart continues to execute on store expansion as well as growth from old stores while

sustaining margins. We believe our forward assumptions adequately factor in this growth – we

model SSSG of 17-18% and store additions of 27/30/30 over FY2019-21. Current valuations

impute either a strong growth or margin surprise – both seem difficult in our view. SELL stays

with an unchanged TP of `860.

Avenue Supermarts (DMART) Others

Healthy quarter, as usual. Dmart reported healthy 1QFY19 performance with revenue

growth of 27% yoy, despite an unfavorable base (pre-GST 1QFY18) quarter. EBITDA of

`4.2 bn was in line, while PAT of `2.5 bn was 2% ahead of estimates. The company

added two new stores in 1Q, and the pace of store addition should pick-up in 2HFY19.

Rich valuations adequately price in Dmart’s strong execution capabilities, SELL.

SELL

JULY 31, 2018

RESULT

Price (`): 1,593


BSE-30: 37,494

Garima Mishra

Avenue Supermarts



Market Cap. (Rs bn) EPS growth (%) 47.9 28.6 26.4


Promoters 82.2 Sales (Rs bn) 150.1 196.2 249.8


MFs 3.4 EBITDA (Rs bn) 13.4 17.5 22.3

Price performance (%) 1M 3M 12M EV/EBITDA (X) 74.2 56.8 44.6

Absolute 7.2 6.8 77.2 ROE (%) 18.5 19.6 20.3

Rel. to BSE-30 1.3 0.2 52.7 Div. Yield (%) 0.0 0.0 0.0


1,623-860

993.9

Others Avenue Supermarts


Exhibit 1: Standalone quarterly financials of Avenue Supermarts, March fiscal year-ends, (Rs mn) Standalone quarterly financials of Avenue Supermarts, March fiscal year-ends, (Rs mn)


Exhibit 2: Revenue throughput continued to improve Revenue per sq. ft trend, March fiscal year-ends (Rs 000/sq. ft)


Yoy growth

1QFY19 1QFY19E 1QFY18 4QFY18 KIE yoy qoq FY2019E FY2018 (%)

Net revenues 45,594 44,154 35,981 38,100 3.3 26.7 19.7 196,240 150,112 30.7

Purchase of stock-in-trade (39,265) (37,001) (30,414) (33,695) 6.1 29.1 16.5 (165,290) (128,651) 28.5

Changes in inventory of stock in trade 791 — (6) 1,263 nm (37) - 2,139 (100.0)

Employee expenses (770) (751) (640) (724) 2.5 20.2 6.3 (3,627) (2,766) 31.1

Other operational costs (2,124) (2,164) (1,889) (1,999) (1.8) 12.5 6.3 (9,832) (7,461) 31.8

Total expenses (41,367) (39,915) (32,949) (35,155) 3.6 25.6 17.7 (178,748) (136,738) 30.7

EBITDA 4,227 4,239 3,032 2,945 (0.3) 39.4 43.5 17,492 13,374 30.8

Finance costs (100) (113) (243) (132) (10.9) (58.8) (24.0) (420) (594) (29.3)

Depreciation and amortization expense (403) (506) (337) (465) (20.2) 19.7 (13.3) (2,064) (1,547) 33.4

Other income 143 144 228 149 (0.9) (37.6) (4.4) 510 726 (29.7)

PBT 3,866 3,764 2,680 2,497 2.7 44.2 54.8 15,519 11,959 29.8

Tax expense (1,360) (1,318) (932) (826) 3.2 45.8 64.6 (5,432) (4,112) 32.1

Net profit 2,506 2,447 1,748 1,671 2.4 43.4 50.0 10,087 7,847 28.6

Operational metrics

Period-ending retail trading area (mn sq. ft) 5.0 5.0 4.1 4.9 0.8 21.1 2.0 5.9 4.9 20.9

Revenue per sq. ft (Rs) 36,475 35,608 34,849 31,102 2.4 4.7 17.3 36,192 33,680 7.5

Store count (#) 157 157 132 155 - 18.9 1.3 182 155 17.4

Costs as proportion of revenue (%)

COGS 84.4 83.8 84.5 85.1 84.2 84.3

Employee expense 1.7 1.7 1.8 1.9 1.8 1.8

Other operational cost 4.7 4.9 5.2 5.2 5.0 5.0

Other ratios (%)

Gross margin 15.6 16.2 15.5 14.9 -58 bps 16 bps 74 bps 15.8 15.7 5 bps

EBITDA margin 9.3 9.6 8.4 7.7 -33 bps 84 bps 154 bps 8.9 8.9 0 bps

PAT margin 5.5 5.5 4.9 4.4 -5 bps 64 bps 111 bps 5.1 5.2 -9 bps

Tax rate 35.2 35.0 34.8 33.1 17 bps 38 bps 209 bps 35.0 34.4 61 bps

Change (%)

15

20

23

26 28

31 33

36

5

10

15

20

25

30

35

40

2012 2013 2014 2015 2016 2017 2018 1QFY19

(Rs 000)Revenue per sq. ft (Rs 000)

Avenue Supermarts Others


Exhibit 3: Dmart added 2 new stores in 1QFY19 Period-ending store count of Dmart, March fiscal year-ends


Exhibit 4: DCF valuation of Dmart, March fiscal year-ends, 2018-40E (Rs mn)

Source: Kotak Institutional Equities

5562

75

89

110

131

155 157

10

30

50

70

90

110

130

150

170

2012 2013 2014 2015 2016 2017 2018 1QFY19

Store count (#)

2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2035E 2040E

Net Sales 150,112 196,240 249,765 312,856 387,075 471,187 563,561 663,925 770,465 883,436 1,000,681 1,125,277 1,251,047 1,948,121 2,633,415

Yoy growth (%) 26 31 27 25 24 22 20 18 16 15 13 12 11 8 5

EBIT 11,827 15,428 19,683 25,042 30,915 37,735 45,170 53,165 61,696 70,742 80,131 90,108 100,179 155,998 210,874

EBIT margin (%) 7.9 7.9 7.9 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0

EBIT*(1-tax rate) 7,760 10,028 12,794 16,277 20,095 24,528 29,360 34,557 40,102 45,983 52,085 58,570 65,117 101,399 137,068

Depreciation/Amortisation 1,547 2,064 2,603 3,215 3,918 4,698 5,534 6,428 7,384 8,399 9,475 10,616 11,821 13,796 15,694

(Inc.)/Dec. in working capital (3,404) (3,620) (3,983) (4,695) (5,523) (6,259) (6,874) (7,468) (7,928) (8,406) (8,724) (9,271) (9,359) (10,758) (9,436)

Capital expenditure (8,383) (10,131) (11,457) (13,027) (15,071) (16,141) (17,283) (18,502) (19,724) (20,859) (22,202) (23,443) (24,754) (6,702) (8,554)

Free cash flows (2,480) (1,659) (42) 1,771 3,419 6,826 10,737 15,015 19,835 25,115 30,634 36,472 42,825 97,734 134,772

Years discounted — — 1 2 3 4 5 6 7 8 9 10 11 16 21

Discount factor - 0.92 0.83 0.75 0.68 0.61 0.55 0.49 0.45 0.40 0.36 0.33 0.19 0.11

Discounted cash flow — - (39) 1,475 2,566 4,615 6,540 8,240 9,806 11,186 12,292 13,185 13,947 18,889 15,458

Risk free rate (%) 6.0

Risk premium (%) 5.0

Beta (X) 1.0

Cost of equity (%) 11.0 580 10.0 10.5 11.0 11.5 12.0

WACC (%) 11.0 4.0 998 886 792 712 643

Terminal growth rate (%) 5.0 4.5 1,047 925 822 736 663

Sum of free cash flow (Rs mn) 266,953 5.0 1,107 970 858 764 684

Terminal value (Rs mn) 270,511 5.5 1,180 1,025 899 796 710

Enterprise value (Rs mn) 537,464 6.0 1,272 1,092 949 834 739

Investments (Rs mn) —

Net debt (Rs mn) 2,292

Equity value (Rs mn) 535,172

No. of shares (mn) 624

Equity value per share (Rs) 858

WACC (%)

Terminal

growth

rate (%)

Others Avenue Supermarts


Exhibit 5: Key assumptions for Dmart, March fiscal year-ends, 2012-21E


Exhibit 6: Consolidated income statement, balance sheet and cash flow, March fiscal year-ends, 2012-2021E (Rs mn)


2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E

Revenue

Net revenues (Rs mn) 22,086 33,409 46,865 64,394 85,838 118,977 150,112 196,240 249,765 312,856

Yoy growth (%) 51 40 37 33 39 26 31 27 25

SSSG (%) 20 32 26 22 21 21 14 18 18 17

Revenue per sq. ft (Rs) 15,324 20,116 23,419 26,388 28,136 32,116 33,680 36,192 38,878 42,269

Margins

Gross margin (%) 14.7 14.5 15.0 14.8 14.9 15.3 15.7 15.8 15.8 15.8

EBITDA margin (%) 6.2 6.4 7.3 7.1 7.7 8.2 8.9 8.9 8.9 9.0

Capital expenditure

Period-ending store count (#) 55 62 75 89 110 131 155 182 212 242

New store additions (#) 10 7 13 14 21 21 24 27 30 30

Retail trading area (mn sq. ft) 1.6 1.8 2.1 2.7 3.3 4.1 4.9 5.9 6.9 7.9

Capital expenditure (Rs mn) 2,086 1,863 2,999 4,333 3,654 7,108 8,543 10,131 11,457 13,027

Working capital

Inventory days (#) 32 30 29 31 29 29 28 28 28 28

Debtor + loans and advances days (#) 10 10 8 8 8 7 7 7 7 7

Creditor days (#) 19 16 14 11 14 13 8 8 8 8

2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E

Income statement

Net revenues 22,086 33,409 46,865 64,394 85,838 118,977 150,112 196,240 249,765 312,856

Gross profit 3,246 4,834 7,021 9,522 12,802 18,167 23,600 30,950 39,392 49,343

EBITDA 1,380 2,150 3,418 4,590 6,636 9,812 13,374 17,492 22,286 28,257

Depreciation (375) (458) (570) (815) (984) (1,278) (1,547) (2,064) (2,603) (3,215)

EBIT 1,006 1,692 2,848 3,775 5,652 8,534 11,827 15,428 19,683 25,042

Other income 139 143 158 183 179 286 726 510 253 244

Financial charges (260) (426) (557) (724) (913) (1,220) (594) (420) (315) (270)

Pre-tax profit 884 1,409 2,449 3,233 4,918 7,600 11,959 15,519 19,621 25,016

Taxation (282) (472) (835) (1,109) (1,715) (2,683) (4,112) (5,432) (6,867) (8,756)

Net income 602 937 1,614 2,124 3,203 4,917 7,847 10,087 12,753 16,260

Prior period items (7) 2 (0) (5) — — — — — —

Minority interest & associate profits — — — (0) (1) (129) — — — —

Reported net income 594 939 1,614 2,119 3,202 4,788 7,847 10,087 12,753 16,260

Year-ending number of shares - diluted (mn) 506 538 546 547 562 563 624 624 624 624

EPS (Rs) 1.2 1.7 3.0 3.9 5.7 8.5 12.6 16.2 20.4 26.1

Balance sheet

Shareholders' funds 6,811 7,890 9,550 11,989 15,204 38,418 46,427 56,514 69,268 85,528

Minority interest 3 3 0 1 1 1 — — — —

Total debt 3,807 5,261 6,408 9,043 11,923 14,973 5,837 3,500 3,500 2,500

Deferred tax liability 131 203 267 305 399 505 463 463 463 463

Total shareholders' funds + liabilities 10,752 13,356 16,226 21,337 27,527 53,898 52,727 60,477 73,231 88,491

Net fixed assets 8,640 10,428 12,605 16,262 21,752 27,033 33,869 41,937 50,790 60,601

Investments 227 160 155 152 293 532 1,458 1,858 2,158 2,458

Cash balances 479 616 554 380 351 18,843 5,565 1,228 845 1,299

Net current assets excluding cash 1,406 2,153 2,911 4,542 5,220 7,579 10,983 14,602 18,585 23,280

Total assets 10,752 13,356 16,226 21,337 27,527 53,898 52,727 60,477 73,231 88,491

Key ratios (%)

Revenue growth NA 51.3 40.3 37.4 33.3 38.6 26.2 30.7 27.3 25.3

EBITDA growth NA 55.8 59.0 34.3 44.6 47.9 36.3 30.8 27.4 26.8

EPS growth NA 48.5 69.4 31.1 47.2 49.1 47.9 28.6 26.4 27.5

Gross margin 14.7 14.5 15.0 14.8 14.9 15.3 15.7 15.8 15.8 15.8

EBITDA margin 6.2 6.4 7.3 7.1 7.7 8.2 8.9 8.9 8.9 9.0

Tax rate 31.9 33.5 34.1 34.3 34.9 35.3 34.4 35.0 35.0 35.0

Debt/equity (X) 0.6 0.7 0.7 0.8 0.8 0.4 0.1 0.1 0.1 0.0

RoE 13 19 20 24 18 18 20 20 21

RoCE 10 13 14 16 14 15 18 19 20

Cash flow

Operating profit before working capital changes 1,236 1,821 2,741 3,663 5,101 7,286 9,987 12,571 15,672 19,746

Change in working capital/ other adjustments (510) (746) (759) (1,631) (678) (2,358) (3,404) (3,620) (3,983) (4,695)

Capital expenditure (1,833) (2,246) (2,747) (4,473) (6,474) (6,559) (8,383) (10,131) (11,457) (13,027)

Free cash flow (1,106) (1,171) (765) (2,440) (2,052) (1,631) (1,800) (1,180) 232 2,024


1QFY19 earnings—weak due to rising cost pressure of fuel, freight and Fx loss

Shree Cement’s 1QFY19 earnings were weak—the company reported revenues of Rs30.7 bn

(+21% yoy, +9% qoq), EBITDA of Rs5.8 bn (-15% yoy, -9% qoq) and net-income of Rs2.8 bn (-

36% yoy, -30% qoq) against our estimates of Rs28 bn, Rs6 bn and Rs3.1 bn, respectively. We

believe earnings were also impacted by Fx losses on foreign currency liabilities due to a 5%

declined in INR/USD rate—SRCM had Rs21.3 bn of such liabilities as on March 2018. The

cement volumes increased 19% yoy to 7 mn tons (+8% qoq) aided by 12% volume growth in

the North and 37% volume growth in East (on a low base), as per management.

Earnings were subdued as costs increased for (1) fuel by 8% qoq to Rs1,015/ton (+31% yoy)

led by higher pet-coke prices, and (2) freight by 2% qoq to Rs1,220/ton (+14% yoy) due to

higher diesel costs. Other expenses increased to Rs5.2 bn (+32% yoy) due to Fx losses.

Realizations subdued due to lower prices in North; expect moderate improvement in 2QFY19E

Cement realizations declined 1% qoq to Rs4,107/ton (-1% yoy)—management stated that

prices were sharply down on yoy basis in the North markets but were up in the East. As per our

checks, cement prices declined by Rs10/bag in the North market but increased by Rs1/bag in

the East. EBITDA/ton (adjusted for power sales) declined 25% qoq to Rs722 (-38% yoy)—we

estimate cement costs to have increased by 6% qoq to Rs3,390/ton (+14% yoy).

The subdued realizations and cost pressure will likely result in only a modest improvement in

FY2019E earnings after EBITDA declined by 1% in FY2018—SRCM’s EBITDA was down 15%

yoy in 1QFY19. If current price trends were to stay, (prices are up Rs8-13/bag in North, East

markets in 2QFY19) we expect moderate earnings improvement due to cost pressures.

Sustenance of premium valuations hard without commensurate earnings performance

SRCM trades at EV/EBITDA of 19X/14X on FY2019/2020E financials—the company commands

a premium to peers largely on the back of its aggressive growth track record in domestic

markets. We factor in volume growth at 15% CAGR over the next three years and EBITDA/ton

improving by 17% over FY2018-2021E to Rs1,260/ton (Rs722/ton in 1QFY18)—the stock is

expensive at 41X/27X earnings on FY2019/2020E financials despite factoring in sharp earnings

improvement. We cut our estimates by 2-13% and TP to Rs12,500 (from Rs12,700 earlier).

Maintain SELL rating.

Shree Cement (SRCM) Cement

A weak quarter. SRCM’s EBITDA declined 15% yoy to Rs5.8 bn (-9% qoq) due to

subdued realizations and rising cost of fuel and freight. We understand that the

company also incurred Fx loss due to lower closing INR/USD rate on foreign currency

liabilities. After the fall in EBITDA in FY2018 (-1%) and 1QFY19 (-15%), we expect only

a moderate improvement in FY2019E earnings only if cement prices improve amid rising

cost pressure. The stock is expensive at 19X/14X FY2019-2020E EBITDA even on

factoring in volume growth at 15% CAGR and improvement in EBITDA/ton by 17%.

SELL stays.

SELL

JULY 31, 2018

RESULT

Coverage view: Cautious

Price (`): 17,175

Target price (`): 12,500

BSE-30: 37,494

Abhishek Poddar

Murtuza Arsiwalla

Samrat Verma

Shree Cement







MFs 5.8 EBITDA (Rs bn) 24.7 29.9 38.6


Absolute 10.4 1.4 (1.8) ROE (%) 16.7 15.4 19.7

Rel. to BSE-30 4.3 (4.9) (15.4) Div. Yield (%) 0.3 0.3 0.3


19,849-14,980

598.3

Cement Shree Cement


Exhibit 1: Shree Cement's 1QFY19 EBITDA was weak due to higher fuel, freight costs & Fx losses Interim results of Shree Cement, March fiscal year-ends, 2017-2019E (Rs mn)


Changes in our estimates

Exhibit 6 highlights key changes in our estimates.

We keep our volume assumption unchanged at 25.8 mn tons, 30.4 mn tons for and 34.6

mn tons for FY2019E, FY2020E and FY2021E, respectively. We factor in a 15% CAGR

volume growth for SRCM over the next three years, assuming the company’s strong

execution track record and new projects being commissioned. We cut our realization by 1-

3% resulting in a cut in our EBITDA/ton (adjusted for power sales) by 0-7% to Rs1,100/ton,

Rs1,214/ton and Rs1,262/ton.

This results in a cut in our EBITDA estimate by 0-7% to Rs30 bn, Rs38.6 bn and Rs45.3 bn

for FY2019E, FY2020E and FY2021E. Our EPS estimate is lowered by 2-13% to Rs421,

Rs630 and Rs760 for FY2019E, FY2020E and FY2021E.

(% chg.)

1QFY19 1QFY19E 1QFY18 4QFY18 1QFY19E 1QFY18 4QFY18 FY2018 FY2017 (% chg.) FY2019E

Net sales 30,699 27,672 25,363 28,111 11 21 9 98,331 85,943 14 115,593

Raw material costs 2,408 2,225 2,259 2,295 8 7 5 7,704 6,272 8,824

Power & fuel costs 7,083 6,259 4,573 6,051 13 55 17 19,797 14,443 23,068

Freight costs 8,519 7,650 6,288 7,677 11 35 11 25,249 18,740 30,976

Personnel costs 1,707 1,545 1,472 1,489 10 16 15 5,881 5,372 6,633

Other costs 5,229 4,043 3,971 4,306 29 32 21 14,974 15,985 16,154

Total expenditure (24,947) (21,723) (18,563) (21,817) 15 34 14 (73,603) (60,811) (85,655)

EBITDA 5,752 5,949 6,800 6,294 (3) (15) (9) 24,728 25,132 (2) 29,938

EBITDA (%) 19 21 27 22 25 29 26

Other income 936 1,069 1,307 1,049 (12) (28) (11) 3,891 3,617 5,112

Interest (562) (432) (329) (437) 30 71 29 (1,353) (1,294) (3,427)

Depreciation (3,055) (2,400) (2,312) (2,330) 27 32 31 (8,994) (12,146) (12,064)

Pre-tax profits 3,071 4,186 5,466 4,576 (27) (44) (33) 18,272 15,308 19,559

Tax (276) (1,047) (1,065) (584) (74) (74) (53) (4,466) (3,263) (3,912)

Deferred tax — — — — 36 1,346 (978)

Net income 2,795 3,140 4,401 3,992 (11) (36) (30) 13,842 13,391 3 14,669

Extraordinary — — — — — — —

Reported income 2,795 3,140 4,401 3,992 (11) (36) (30) 13,842 13,391 3 14,669

EPS (Rs/share) 80.2 90.1 126.3 114.6 397.3 384.4 421.0

Segment results

Revenues

Cement 28,695 24,405 26,789 18 7 97,265 78,568 24 109,966

Power 5,105 3,557 4,114 44 24 14,501 14,559 (0) 17,325

Gross turnover 33,799 27,962 30,903 21 9 111,766 93,126 20 127,292

Inter segment (3,100) (2,599) (2,793) 19 11 (10,171) (8,835) 15 (11,699)

Net sales 30,699 25,363 28,110 21 9 101,595 84,292 21 115,593

EBIT

Cement 600 3,132 2,401 (81) (75)

Power 2,108 1,723 1,960 22 8

Total 2,708 4,856 4,361 (44) (38)

Interest (562) (329) (437) 71 29

Others 925 939 652 (2) 42

PBT 3,071 5,466 4,576 (44) (33)

EBIT margin (%)

Cement 2 13 9

Power 41 48 48

Total 9 19 16

Shree Cement Cement


Key highlights from 2QFY19 results

Commissioning of new grinding plants. The company commissioned a 3 mtpa cement

plant at Gulbarga, Karnataka during the quarter. We estimate the company’s grinding

capacity to have increased to 37.9 mtpa with the commissioning of this plant from 34.9

mtpa in March 2018.

External power sales increased 31% qoq. The company’s external power sales

increased by 31% qoq to 451 mn units—we estimate external power EBITDA at `717 mn

(+46% qoq).

Volume growth at 19% yoy. Cement volumes increased 19% yoy to 7 mn tons (+8%

qoq) aided by about 12% volume growth in North region and 37% volume growth in

East (which has a low base and is in ramp-up phase), per management.

Realization and EBITDA/ton. Cement realizations declined 1% qoq to Rs4,107/ton (-

1% yoy)—management stated that prices were sharply down (on yoy basis) in the North

markets but were up in the East. Cement EBITDA/ton (adjusted for external power sales)

declined 25% qoq to Rs722 (-38% yoy)—we estimate cement costs to have increased by

6% qoq to Rs3,390/ton (+14% yoy). Overall, we estimate cement EBITDA (adjustment

for external power sales) to have declined by 19% qoq to Rs5.1 bn (-27% yoy) while

external power EBITDA to have increased by 46% qoq to Rs717 mn (+141% yoy) on the

back of an increase in external power sales by 31% qoq to 451 mn units (+58% yoy).

Net-income impacted due to changes in depreciation charge, tax rate. The net-

income of Rs2.8 bn (-36% yoy) was impacted due to (1) an increase in the depreciation

charge to Rs3.1 bn (+32% yoy, +31% qoq), but was partially offset by (2) lower effective

tax rate of 9% (24% for FY2018). The company’s depreciation and tax rates continue to

oscillate in a wide range.

Exhibit 2: SRCM's cement volume increased 19% yoy while external power sales improved by 58% yoy Key operational metrics of SRCM for cement and power business, March fiscal year-ends, 2017-2019E (Rs mn)


1QFY19 1QFY18 4QFY18 yoy qoq FY2018 FY2017 Change (%) FY2019E

Cement

Sales (mn tons) 7.0 5.9 6.4 19 8 22.5 20.6 9 25.8

Revenues (Rs mn) 28,695 24,405 26,789 18 7 97,265 78,568 24 109,966

EBITDA (Rs mn) 5,046 6,870 6,199 (27) (19) 23,956 23,039 4 28,421

Realization (Rs/ton) 4,107 4,146 4,157 (1) (1) 4,316 3,817 13 4,256

Adjusted profitability (Rs/ton) 722 1,167 962 (38) (25) 1,063 1,119 (5) 1,100

Power

External sale (mn units) 451 284 345 58 31 1,174 1,600 (27) 1,494

Realization (Rs/kwh) 4.4 3.4 3.8 32 16 3.7 3.6 4 3.8

External EBITDA (Rs mn) 717 297 492 141 46 1,400 2,263 (38) 1,517

Note: Realization of power sale has been calculated after adjusting for estimated power trading revenue

Growth (%)

Cement Shree Cement


Exhibit 3: Shree Cements’ EBITDA/ton declined sequentially in 1QFY19 due to cost increases EBITDA/ton and cost/ton for Shree Cements, March fiscal year-ends, 2015-19 (Rs/ton)


Exhibit 4: Prices in SRCM’s key markets in North declined by Rs 10/qoq in 1QFY19; expect moderate price increases in 2QFY19E Quarterly cement prices across regions in India, 2QFY17- 2QFY19E (Rs per 50 kg bag)


2,9

00

2,8

77

2,8

88

2,7

89

2,8

18

2,8

74

2,7

50

2,6

18

2,6

19

2,6

15

2,7

07

2,9

14

2,9

79

3,0

76

3,0

78

3,1

95

3,3

85

1,1

09

778

65

9

75

5

670

774

75

4

745

1,2

87

1,3

51

98

9

85

6

1,1

67

1,0

94

1,0

41

96

2

722

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

Cost/ton EBITDA/ton

2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19E

North 315 303 304 327 314 310 307 297 310

Central 321 309 307 330 316 316 322 322 344

East 333 326 321 347 344 329 335 336 344

West 284 304 283 325 320 304 306 319 322

South 354 359 348 376 369 338 347 350 347

All India average 326 326 318 346 338 322 327 328 335

Change per bag (Rs, qoq)

North 10 (12) 1 23 (14) (4) (3) (10) 13

Central 16 (12) (2) 23 (14) (0) 6 1 21

East 2 (6) (6) 26 (3) (15) 6 1 8

West (2) 20 (21) 42 (5) (16) 1 13 4

South 12 5 (11) 28 (7) (32) 10 3 (3)

All India average 9 (0) (8) 28 (8) (16) 5 2 7

Change per bag (Rs, yoy)

North 35 32 38 22 (2) 7 3 (30) (3)

Central 25 32 28 25 (5) 7 15 (7) 28

East (18) (14) (10) 16 12 3 15 (10) 0

West (4) 32 14 39 36 0 22 (6) 2

South (11) 3 1 34 15 (21) (1) (26) (23)

All India average 4 16 13 29 12 (4) 9 (18) (2)

Shree Cement Cement


Exhibit 5: Increase in pet-coke prices and weakening INR/US$ will continue to pressure costs US pet coke prices (CFR basis), June 2016 –2018 (US$/ton)


Exhibit 6: Shree Cement, changes in estimates, March fiscal year ends, FY2019-2021E


Exhibit 7: We factor in a 15% CAGR volume growth for SRCM over the next three years Key assumptions in the earnings model for SRCM, March fiscal year-ends, 2017-21E


4550

65

75 7680

8488

8588

78

88

97 9794

83

93 9599

105

90

112113107

110112112

20

30

40

50

60

70

80

90

100

110

120

Apr-

16

Jun-1

6

Aug-1

6

Oct

-16

Dec

-16

Feb-1

7

Apr-

17

Jun-1

7

Aug-1

7

Oct

-17

Dec

-17

Feb-1

8

Apr-

18

Jun-1

8

US Petcoke prices (US$/ton) (CFR)

Revised estimate Previous estimate Change (%)

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Volume and realizations (mn tons, Rs/ton)

Cement sales (mn tons) 25.8 30.4 34.6 25.8 30.4 34.6 0 0 0

Realization (Rs/ton) 4,256 4,456 4,606 4,396 4,536 4,656 (3) (2) (1)

Adjusted EBITDA (Rs/ton) 1,100 1,214 1,262 1,181 1,243 1,265 (7) (2) (0)

Earnings estimates (Rs mn)

Revenues 115,593 141,593 165,376 119,065 143,880 166,960 (3) (2) (1)

EBITDA 29,938 38,631 45,321 32,031 39,500 45,422 (7) (2) (0)

PAT 14,669 21,964 26,477 16,934 23,068 27,044 (13) (5) (2)

EPS 421 630 760 486 662 776 (13) (5) (2)

Growth (%)

2017 2018 2019E 2020E 2021E 2017 2018 2019E 2020E 2021E

Cement segment

Volumes (mn tons) 20.6 22.5 25.8 30.4 34.6 11 9 15 18 14

Realization (Rs/ton) 3,817 4,316 4,256 4,456 4,606 9 13 (1) 5 3

Total revenues (Rs mn) 85,943 98,331 115,593 141,593 165,376 18 14 18 22 17

EBITDA (Rs mn) 25,132 24,728 29,938 38,631 45,321 50 (2) 21 29 17

Adjusted profitability (Rs/ton) 1,125 1,077 1,100 1,214 1,262 46 (4) 2 10 4

Cement Shree Cement


Exhibit 8: Our fair value of Rs12,500/share is based on 10X FY2020E EBITDA Shree Cement, Valuation details, March 2020E financials


Exhibit 8: Shree Cement, Profit model, balance sheet and cash flow model, March fiscal year-ends, 2016-2021E (Rs mn)


FY2020E

Cement

Adjusted EBITDA (Rs mn) 36,916

EV/EBITDA (X) 10

EV (Rs mn) 378,424

Net cash (Rs mn) 48,801


Power


Total (Rs mn) 435,500

No. of shares 34.8

Value (Rs/share) 12,500

2016 2017 2018 2019E 2020E 2021E

Profit model (Rs mn)

Net sales 55,678 85,943 98,331 115,593 141,593 165,376

EBITDA 13,203 25,132 24,728 29,938 38,631 45,321

Other income 1,201 3,617 3,891 5,112 7,354 8,497

Interest (751) (1,294) (1,353) (3,427) (3,427) (3,427)

Depreciaton (9,084) (12,146) (8,994) (12,064) (13,273) (15,087)

Profit before tax 4,569 15,308 18,272 19,559 29,285 35,303

Extra-ordinary items 530 — — — — —

Current tax (1,231) (3,263) (4,466) (3,912) (5,857) (7,061)

Deferred tax 682 1,346 36 (978) (1,464) (1,765)

Net profit 4,550 13,391 13,842 14,669 21,964 26,477

Adjusted PAT 4,019 13,391 13,842 14,669 21,964 26,477

Earnings per share (Rs) 115.4 384.4 397.3 421.0 630.4 760.0


Equity 61,802 76,981 88,968 101,565 121,457 145,862

Borrowings 8,629 12,926 34,030 34,030 34,030 34,030

Current liabilities 17,459 21,753 28,420 28,311 33,960 39,127

Total liabilities 87,889 111,661 151,418 163,906 189,446 219,018

Fixed assets 33,147 33,096 50,163 50,099 48,826 45,739

Goodwill — — — — — —

Investments 23,661 42,426 56,343 61,343 66,343 71,343

Cash 2,830 1,110 1,209 3,485 16,488 36,657

Other current assets 25,617 29,953 38,572 44,826 55,101 64,357

Deferred tax asset 2,634 5,077 5,131 4,153 2,688 923

Total assets 87,889 111,661 151,418 163,906 189,446 219,018

Free cash flow (Rs mn)

Operating cash flow excl. working capital 12,374 25,292 26,350 27,711 36,701 43,330

Working capital changes (2,059) (509) (1,131) (6,363) (4,626) (4,088)

Capital expenditure (7,348) (12,947) (25,263) (12,000) (12,000) (12,000)

Free cash flow 2,968 11,836 (43) 9,348 20,075 27,241

Ratios

Book value (Rs/share) 1,774 2,210 2,554 2,915 3,486 4,187

RoAE (%) 7.0 19.3 16.7 15.4 19.7 19.8

RoACE (%) 5.6 14.2 11.2 10.4 13.1 13.5

CRoCI (%) 13.2 29.8 32.1 29.0 30.3 31.2


Headline outperformance, composition weak

TM’s reported revenues declined 1.6% qoq to US$1,224 mn (+ 7.6% yoy), marginally higher

than our estimate. C/c revenues grew 0.3% qoq against our expectation of decline of

1%. Revenue growth was led by the enterprise segment that grew 3.8% qoq in c/c. Revenue

growth was led by public services, financial services and manufacturing verticals. EBIT margin

decline was restricted to 80 bps; impact of wage revision (-40 bps), higher visa cost (-60 bps),

lower utilization (-60 bps) and Comviva (-90 bps) was offset to some extent by rupee

depreciation (+80 bps) and operational efficiencies (+90 bps). Despite 56% yoy EBIT growth,

net profit growth of 12.4% to `8.98 bn was muted due to 94% decline in Fx gains to `147

mn. Net profit was aided by a low tax rate of 21.2%.

Sharp decline in telecom revenues but revival ahead

Telecom revenues declined 6.5% qoq and 5.8% yoy to US$485 mn and accounted for 39.8%

of revenues. The revenue decline can be attributed to – (1) US$16-17 mn loss from sequential

decline in Comviva revenues, (2) US$10-12 mn impact from currency headwinds and (3) US$5-6 mn

decline due to weakness in the key large telecom client. Telecom vertical growth over the past

few quarters has been impacted by –(1) rationalization of LCC portfolio and weak Comviva,

(2) pricing revision by the largest client and (3) rationalization of low-margins contracts in

telecom. We expect revival of telecom growth ahead. The near-term catalyst is signing of LOIs

with two customers with estimated deal value of over US$200 mn. Ramp-ups from high quality

accounts signed in the past 18 months will power medium-term growth. Finally, TM could be a

beneficiary from potential 5G capex that could possibly pick up pace towards end-FY2020E. All

combined, we expect 3% revenue growth in FY2019E with acceleration in FY2020E and

FY2021E.

Stock at 12X FY2020E earnings is cheap; stay constructive

Steady revenue growth with potential of acceleration, progress on efficiency-led margin expansion

and an improving mix of business keep us constructive on the stock. TM stock trades at inexpensive

12X FY2020E earnings. We incorporate KIE economists’ revised INR/USD rate resulting in 0.2%-

3.8% upgrade in EPS. Target price of `785 is based on ~14X June 2020E earnings.

Tech Mahindra (TECHM) Technology

Clear skies visible. Tech Mahindra (TM) reported better-than-expected results on

lowered expectations. Telecom revenues declined sharply, while the enterprise segment

did all the heavy lifting again in the quarter. Result quality was weak with increase in

receivables days and revenue decline from large clients. Outlook remains promising on

the back of new deal closures in the telecom vertical and sustained revenue momentum

from the enterprise segment. We raise FY2019-21E EPS on the back of revision in

INR/USD rate. Target price of `785 is based on ~14X June 2020E earnings.

ADD

JULY 31, 2018

RESULT


Price (`): 655


BSE-30: 37,494

Kawaljeet Saluja

Jaykumar Doshi

Tech Mahindra







MFs 6.8 EBITDA (Rs bn) 47.2 60.4 70.1


Absolute 0.0 (2.3) 71.9 ROE (%) 21.5 20.2 20.5

Rel. to BSE-30 (5.5) (8.3) 48.1 Div. Yield (%) 2.2 1.4 1.6


730-379

578.5

Technology Tech Mahindra


New deal signings in telecom to contribute to improvement in growth

TM has signed LOIs of over US$200 mn+ since June 2018 quarter close. These LOIs will start

translating into revenues in September 2018 and December 2018 quarters. This provides

immediate impetus to growth after disappointment in June 2018 quarter. The company has

started investing in people (senior leadership from global competitors), partnerships

(Altiostar among others) and training to prepare for the 5G opportunity. Deal momentum

will start picking up in FY2020E. TM believes that it is engaged in conversations and wining

deals across all three dimensions of the market, i.e. (1) transformation of network

infrastructure, (2) transformation of underlying software architecture and (3) transformation

of around the market type, whether it enterprise or consumer in terms of service lines.

Enterprise segment continues to impress

The enterprise segment grew 1.9% qoq and 18.5% yoy to US$739 mn. On organic basis

revenues grew ~16%. On sequential basis revenues grew 1.9% in US$ terms and 3.8% in

c/c. Revenue growth was led by – (1) manufacturing vertical that grew 2.5% qoq and

28.9% yoy to US$246 mn, (2) BFSI vertical that grew 2.9% sequentially to US$166 mn but

reported modest growth on yoy comparison and (3) other segment comprising HCI

acquisition and public sector that grew 4.6% sequentially. Revenue growth in ‘others’

segment appears high on yoy comparison since the base quarter last year had revenues for

only two months from HCI acquisition. In addition, HCI’s revenue run-rate is materially

above the run-rate at the time of acquisition. We expect enterprise segment to grow ~11%

in FY2019 and around 10% in constant currency. Growth will be led by healthcare,

manufacturing and tech & media verticals.

EBITDA margins—expect further improvements though moderate

TM’s EBITDA margin increased 140 bps yoy to 16.3% in the quarter. We expect EBITDA

margin for FY2019E to land at 17.3% and 18.4% in FY2020E. Improvement will be led by—

(1) operational efficiencies. Utilization has already improved to 81%. The company has hired

freshers that shall aid in pyramid management, (2) improvement in performance of

subsidiaries, (3) yield optimization and (4) some benefits of rupee deprecation. After a strong

improvement demonstrated in the past four quarters, the pace of increase will moderate.

Key highlights from 1QFY19 results and earnings call

Performance of top accounts. Revenues from top five clients declined by 7.1% qoq.

The management attributed the decline to telecom heavy nature of top five clients (four

of five top clients belong to the telecom vertical) of which three clients are non-

US$ billing. In addition, these clients have billings from Comviva, which typically declines

in the June quarter.

Deal wins. TCV of deal wins was muted at US$270 mn split equally between enterprise

segment and telecom.

Net profit. Sequential decline in net profit can be attributed to a sharp 75.3% sequential

decline in other income. 4QFY18 had US$14 mn gain from sale of land. Further Fx gains

dipped to US$2 mn in 1QFY19, down from US$27 mn in the previous quarter. Finally

other income was lower due to MTM impact from strengthening of yield curve.

Margin walk-through. EBIT margin declined 80 bps sequentially to 13.0% in the

quarter due to (1) 90 bps headwind from seasonality in telecom vertical, (2) 60 bps

negative impact from visa costs, (3) 50-60 bps headwind from lower utilisation, (4) 40 bps

headwind from wage hikes partially offset by (5) 80 bps tailwind from rupee depreciation,

and (6) 90-100 bps tailwind from productivity and efficiency improvements.

Tech Mahindra Technology


Margin levers. The company reported gradual recovery in margins over the medium

term. Margin levers include (1) efficiencies from adoption of AI and automation in

internal and external processes, (2) revenue and profit margin improvements in portfolio

companies, (3) utilisation improvements and (4) pyramid corrections.

Enterprise vertical commentary. Enterprise segment reported 1.9% sequential growth

to US$739 mn. Growth was powered by public services segment (captured in others

category), manufacturing (+2.5% qoq) and BFSI (+2.9% qoq).

Outlook on manufacturing vertical. TechM is focused on digital manufacturing. The

company creates differentiated offerings in the market by overlaying analytics on top of

smart products incorporating IoT. Management believes that its new offerings

underpinned by digital customers' journey to building smarter factories, smarter products,

leveraging analytics to deliver new world services, and converting capex to opex models

will boost growth in the vertical.

Telecom vertical commentary. The company reported that decline in telecom vertical

revenues were due to seasonal weakness in Comviva and pricing pressure from top client.

Management was positive on future outlook for the vertical on the back of robust deal

wins in 2QFY19. TechM has signed significant deals of over US$200 mn in TCV in the

vertical and claimed to be in advanced stage for further deals in 2QFY19.

Other segment commentary. Other segments posted sequential revenue growth of

4.6%. Apart from revenues from HCI acquisition, strong revenue growth in healthcare &

life sciences and public sector verticals contributed to growth in other segments.

5G outlook. The company reported greenshoots around network modernization on 5G.

Rollout, deployment and implementation of 5G will be non-uniform and has the potential

to not only disrupt the network but also the entire infrastructure, processes, systems and

services around the network. Management indicated that they would be able to provide

more visibility into the company’s 5G deals in the next couple of quarters.

Commentary on Altiostar. Tech Mahindra has a 20% minority stake in Altiostar.

Primary reasons for the investment in Altiostar are strategic and include (1) ability to

participate in the disruption in telecom networks caused by virtual RAN technology,

which provides more flexibility in procurement to them by disaggregating software and

hardware and (2) ability to participate in deals involving modernization of networks to 4G

and 5G.

Client metrics. TechM incrementally added 3 clients to the US$20 mn bucket and 1

client to the US$10 mn bucket.

Tax rate. TechM reported low effective tax rate of 21.2% for the quarter aided by tax

write-back of earlier years. Management maintained tax rate guidance for FY2019 at

24.5%.

Wage hike. TechM announced that employee wage hike is spread over 1QFY19 and

2QFY19. Salary hike in the second quarter will have slightly lesser impact on margins than

the 40 bps impact in the current quarter. The company does not plan to address rising

attrition through increase in wages.

Digital revenues. The company reported that 26-27% of its revenues are from digital.

Digital revenues have grown around 30% yoy in the quarter.



Exhibit 1: Tech Mahindra 1QFY19 - March fiscal year-ends, Ind-AS (Rs mn)


Exhibit 2: Tech Mahindra: Key changes to estimates, 2019E-21E

Source: Kotak Institutional Equities estimates

1QFY19 1QFY19E 1QFY18 4QFY18 KIE yoy qoq FY2018 FY2019E % chg.

Revenues (US$ mn) 1,224 1,220 1,138 1,244 0.3 7.6 (1.6) 4,771 5,059 6.1

USD INR 67.6 67.2 64.5 64.7 0.7 4.9 4.4 64.5 68.9 6.8

Revenues 82,763 81,917 73,361 80,545 1.0 12.8 2.8 307,730 348,702 13.3

Direct costs (57,340) (56,657) (52,818) (54,885) 1.2 8.6 4.5 (215,299) (236,365) 9.8

Gross profit 25,423 25,260 20,543 25,660 0.6 23.8 (0.9) 92,431 112,337 21.5

SG&A expenses (11,854) (12,370) (11,196) (11,541) (4.2) 5.9 2.7 (45,261) (51,916) 14.7

EBITDA 13,569 12,891 9,347 14,119 5.3 45.2 (3.9) 47,170 60,420 28.1

Depreciation (2,808) (2,788) (2,468) (2,986) 0.7 13.8 (6.0) (10,849) (11,879) 9.5

EBIT 10,761 10,103 6,879 11,133 6.5 56.4 (3.3) 36,321 48,541 33.6

Other income 1,114 1,654 4,106 4,513 (32.7) (72.9) (75.3) 14,092 7,265 (48.4)

Finance costs (305) (355) (370) (527) (14.1) (17.6) (42.1) (1,624) (1,510) (7.0)

PBT 11,570 11,403 10,615 15,119 1.5 9.0 (23.5) 48,789 54,296 11.3

Taxes (2,457) (2,794) (2,698) (2,810) (12.1) (8.9) (12.6) (10,925) (12,895) 18.0

PAT 9,113 8,609 7,917 12,309 5.9 15.1 (26.0) 37,864 41,401 9.3

Minority interest (16) 51 68 (88) 136 (221)

Net income 8,979 8,660 7,985 12,221 3.7 12.4 (26.5) 38,000 41,180 8.4

Exceptional items — — — — — —

Net income (after extraordinary) 8,979 8,660 7,985 12,221 3.7 12.4 (26.5) 38,000 41,180 8.4

# of shares (mn) - ex treasury 887 891 883 883 882 891

Recurring EPS (Rs)- ex treasury 10.1 9.7 9.0 13.8 4.2 12.0 (26.9) 43.1 46.2 7.2

Margins (%)

Gross profit 30.7 30.8 28.0 31.9 30.0

SG&A expenses 14.3 15.1 15.3 14.3 14.7

EBITDA 16.4 15.7 12.7 17.5 15.3

EBIT 13.0 12.3 9.4 13.8 11.8

PBT 14.0 13.9 14.5 18.8 15.9

Net income after MI, before EO items 10.8 10.6 10.9 15.2 12.3

Tax rate (as % of PBT) 21.2 24.5 25.4 18.6 22.4

% chg.

New Old Change (%)

2019E 2020E 2021E 2019E 2020E 2020E 2019E 2020E 2021E

Revenue (US$ mn) 5,059 5,481 5,929 5,138 5,571 6,027 (1.5) (1.6) (1.6)

Revenue (Rs mn) 348,702 380,933 412,036 347,477 378,801 415,882 0.4 0.6 (0.9)

EBITDA (Rs mn) 60,420 70,144 76,346 58,697 67,374 75,953 2.9 4.1 0.5

EPS (Rs/share) 46.2 54.6 60.6 45.5 52.6 60.5 1.6 3.8 0.2

US$ revenue growth (%) 6.1 8.3 8.2 7.7 8.4 8.2

EBITDA margin (%) 17.3 18.4 18.5 16.9 17.8 18.3 43 bps 63 bps 27 bps

EBIT margin (%) 13.9 15.0 15.2 13.5 14.4 14.9 45 bps 65 bps 23 bps

USD INR rate 68.9 69.5 69.5 67.6 68.0 69.0 1.9 2.2 0.7



Exhibit 3: Tech Mahindra revenues by segment (June 2018 quarter)


Exhibit 4: Tech Mahindra's acquisitions in the past few years


Contribution to

Jun-18 qoq yoy revenues (%)

Revenues (US$ mn) 1,224 (1.6) 7.6 100

Revenues by geography (US$ mn)

Americas 590 0.0 10.8 48.2

Europe 367 (0.3) 8.3 30.0

RoW 268 (6.3) 0.7 21.9

Revenue by verticals (US$ mn)

Telecom 485 (6.4) (5.8) 39.6

Manufacturing 246 2.5 12.0 20.1

Tech, Media & Entertainment 88 (3.0) 29.1 7.2

BFSI 166 2.9 1.6 13.6

Retail, transport, logistics 75 (3.2) (3.5) 6.1

Others 164 4.6 73.6 13.4

Client contribution (US$ mn)

Top 5 clients 268 (7.1) (9.1) 21.9

Top 10 clients 398 (2.2) (3.7) 32.5

Top 20 clients 566 (0.5) 2.5 46.2

Excluding top 5 clients 956 0.0 13.4 78.1

Revenue by services (US$ mn)

IT services 1,133 (1.7) 6.4 92.6

BPO 91 (0.5) 24.0 7.4

Growth (%)

Deal size Revenue run

Target Acquired in (US$ mn) rate (US$ mn) Upfront Earn-outs Earn-outs Comments

vCustomer Mar-12 27.0 10.0 21.0 6.0 After 9 months 100% acquisition

Hutchison Global Services Sep-12 87.1 160.0 87.1 — NA 100% acquisition

Comviva Sep-12 48.1 70.0 23.1 25.0 Over 5 years 51% stake acquired

Complex IT Feb-13 23.0 45.0 6.5 16.5 After 18 months 51% stake acquired

Mahindra Engg Services Nov-13 115.1 45.0 115.1 — NA 100% acquisition

LCC Nov-14 240.0 430.0 240.0 — NA 100% acquisition

SOFGEN Jan-15 ~30.0 45.0 20.0 10.0 Over 2 years 100% acquisition

Pininfarina Dec-15 EUR81 mn EUR80 mn EUR25.3 mn — NA 76% through 60:40 JV (TM:M&M)

Target Group May-16 GBP112 mn GBP51 mn GBP89 mn GBP23 mn Over 4 years 100% acquisition

The Bio Agency Jun-16 GBP40 mn GBP12.5 mn GBP22 mn GBP18 mn Over 3 years 100% acquisition

HCI Group Mar-17 110.0 130.0 89.5 20.5 Over 3 years 84.7% acquisition

IP deal Sep-17 140.0 NA 35.0 105.0 Over 12 quarters 100% acquisition

Comviva IT Dec-17 51.4 100.0 NA NA NA Additional 32.1% acquired

Altiostar Networks Jan-18 15.0 NA 15.0 — NA 17.5% stake acquired

Deal structure (US$ mn)



Exhibit 5: Top accounts continue to deliver tepid growth


Exhibit 6: Subsidiaries' profitability performance has stabilized


Exhibit 7: Subcontracting costs as % of revenues drops substantially


4 qtr CQGR

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 (%)

Revenue (US$ mn)

Top 5 clients 284 285 297 306 310 301 295 292 281 289 268 (2.3)

Top 10 clients 406 399 413 428 429 425 413 414 401 407 398 (0.9)

Top 20 clients 528 531 543 554 564 554 552 545 544 569 566 0.6

Total 1,015 1,023 1,032 1,072 1,116 1,131 1,138 1,179 1,209 1,244 1,224 1.8

Growth (qoq %)

Top 5 clients (12.2) 0.4 4.1 2.9 1.5 (3.0) (2.0) (0.8) (4.1) 2.9 (7.1)

Top 10 clients (6.6) (1.8) 3.5 3.7 0.2 (0.8) (2.9) 0.2 (3.0) 1.4 (2.2)

Top 20 clients (6.8) 0.6 2.2 2.2 1.7 (1.7) (0.4) (1.3) (0.1) 4.5 (0.5)

Total 0.4 0.7 0.9 4.0 4.1 1.4 0.6 3.6 2.5 2.9 (1.6)

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Consolidated

Revenues 61,168 62,938 66,155 67,011 68,837 69,209 71,674 75,575 74,950 73,361 76,064 77,760 80,545 82,763

EBITDA 9,286 9,049 11,010 11,358 11,510 10,290 10,701 11,865 8,987 9,347 11,047 12,646 14,119 13,569

EBITDA margin (%) 15.2 14.4 16.6 16.9 16.7 14.9 14.9 15.7 12.0 12.7 14.5 16.3 17.5 16.4

Standalone

Revenues 47,072 50,163 51,815 51,527 54,669 56,468 56,822 59,129 59,236 58,535 59,194 59,677 60,206 62,869

EBITDA 6,315 7,071 8,558 8,391 9,201 9,317 9,165 10,215 8,021 7,763 10,533 9,855 10,951 11,086

EBITDA margin (%) 13.4 14.1 16.5 16.3 16.8 16.5 16.1 17.3 13.5 13.3 17.8 16.5 18.2 17.6

Subsidiaries

Revenues 14,097 12,775 14,341 15,485 14,169 12,741 14,852 16,446 15,714 14,826 16,870 18,083 20,339 19,894

EBITDA 2,971 1,978 2,453 2,967 2,309 973 1,537 1,650 966 1,584 514 2,791 3,168 2,483

EBITDA margin (%) 21.1 15.5 17.1 19.2 16.3 7.6 10.3 10.0 6.1 10.7 3.0 15.4 15.6 12.5

7.9

10.4 10.2

11.5

12.7 13.2 12.9

14.5 13.7 13.6

12.2 12.6 12.2 11.8 12.9

12.4 12.3 12.6 13.2

11.7

0

2

4

6

8

10

12

14

16

-

2,000

4,000

6,000

8,000

10,000

12,000

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8Subcontracting costs (LHS, Rs mn) As % of revenues (RHS)



Exhibit 8: Telecom vertical under pressure


Exhibit 9: Enterprise segment revenue growth makes up for weakness in telecom


31

25

22 23 21

29

24

32

22

14

11

(4)(3) (3)

1.4 0.6 1.4 (0.7)

(2.0)(1.2)

(5.8)

(10)

(5)

-

5

10

15

20

25

30

35

-

100

200

300

400

500

600

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Telecom revenues (LHS, US$) Growth (RHS, yoy %)

7.2

11.2 12.9 13.6

15.8

9.6 10.4

6.6

9.4 10.2 8.8

14.2 12.0

16.2

18.9 21.0

19.0 19.9 17.6

19.6 18.5

0

5

10

15

20

25

30

35

40

-

100

200

300

400

500

600

700

800

Jun-1

3

Sep

-13

Dec-

13

Mar-

14

Jun-1

4

Sep

-14

Dec-

14

Mar-

15

Jun-1

5

Sep

-15

Dec-

15

Mar-

16

Jun-1

6

Sep

-16

Dec-

16

Mar-

17

Jun-1

7

Sep

-17

Dec-

17

Mar-

18

Jun-1

8

Enterprise segment revenues (LHS, US$) Growth (RHS, yoy %)



Exhibit 10: TM's EBIT margin drops mainly on account of seasonal factors(%)


7.7

10.9

18.4

23.4

19.8

24.2

21.6

16.8

12.6

17.8

19.4

15.2

17.4 17.7

12.4 12.1

13.7 14.4

13.7 12.0 11.5

12.4

8.2 9.4

11.0

12.713.8

13

5

10

15

20

25

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

EBIT margin (%)



Exhibit 11: Tech Mahindra operating metrics


Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Revenues (US$ mn) 1,032 1,072 1,116 1,131 1,138 1,179 1,209 1,244 1,224

Revenues (Rs mn) 69,209 71,674 75,575 74,950 73,361 76,064 77,760 80,545 82,763

Exchange rate (Rs mn) 67.1 66.8 67.7 66.3 64.5 64.5 64.3 64.7 67.6

Revenues by geography (%)

Americas 49.0 48.3 46.7 45.1 46.8 45.3 46.9 47.4 48.2

Europe 28.3 29.7 29.4 29.6 29.8 30.0 29.8 29.6 30.0

RoW 22.8 22.0 23.9 25.3 23.4 24.7 23.3 23.0 21.9

Revenue by verticals (%) .

Telecom 49.2 48.4 47.3 46.3 45.2 43.7 42.8 41.6 39.6

Manufacturing 18.1 19.2 18.4 19.2 19.3 19.0 19.1 19.3 20.1

Tech, Media & Entertainment 7.5 7.0 6.4 6.2 6.0 5.9 6.5 7.3 7.2

BFSI 11.3 11.7 13.1 14.1 14.4 14.1 13.3 13.0 13.6

Retail, transport, logistics 6.5 6.8 7.6 6.5 6.8 7.2 7.1 6.2 6.1

Others 7.3 6.8 7.1 7.7 8.3 9.9 11.3 12.6 13.4

Revenue by location (IT services)

Onsite 63.4 63.5 63.9 64.3 63.7 64.1 65.8 67.0 66.6

Offshore 36.6 36.5 36.1 35.7 36.3 35.9 34.2 33.0 33.4

Manpower details

Software 73,590 78,404 80,858 82,403 78,996 75,587 73,460 72,437 72,462

BPO 27,236 27,669 29,372 28,414 30,322 35,287 35,496 34,190 34,700

Sales and support 6,300 6,813 6,865 6,876 6,662 6,351 6,285 6,180 6,390

Total 107,216 112,886 117,095 117,693 115,980 117,225 115,241 112,807 113,552

IT attrition (LTM) 21.0 19.0 18.0 17.0 17.0 16.0 17.0 18.0 19.0

Utilization rate (%)

IT utilization 78.0 78.0 77.0 77.0 77.0 81.0 83.0 84.0 81.0

IT utilization (ex-trainees) 80.0 82.0 83.0 81.0 81.0 81.0 83.0 84.0 84.0

Client metrics

No of active clients 818 825 837 843 864 885 903 913 926

Repeat business (%) 96 96 93 94 97 95 93 88 99

Client buckets

>US$1 mn 317 341 356 354 377 390 389 392 396

>US$5 mn 120 120 128 134 139 147 154 156 154

>US$10 mn 64 66 65 71 74 81 83 85 86

>US$20 mn 42 40 38 36 41 40 40 44 47

>US$50 mn 14 14 14 14 14 14 16 16 16

Client contribution (%)

Top client

Top 5 clients 28.8 28.5 27.8 26.6 25.9 24.8 23.2 23.2 21.9

Top 10 clients 40.0 39.9 38.4 37.6 36.3 35.1 33.2 32.7 32.5

Top 20 clients 52.6 51.7 50.5 49.0 48.5 46.2 45.0 45.7 46.2

Receivables (DSO) - including unbilled 106 107 102 95 104 106 105 102 108

Currency-wise billing (%)

USD 50.0 48.9 48.6 45.9 48.6 46.9 47.4 49.4 49.3

GBP 10.4 11.0 12.0 12.3 12.1 12.0 11.4 12.1 11.6

Euro 11.2 12.7 11.5 11.4 11.0 11.2 11.9 11.7 11.4

AUD 4.7 4.6 4.4 4.6 4.8 4.9 4.9 4.6 4.8

Others 23.7 22.7 23.5 25.8 23.4 24.9 24.5 22.2 22.9



Exhibit 12: Consolidated financials for Tech Mahindra, March fiscal year-ends, 2014-21E (Rs mn)


2014 2015 2016 2017 2018 2019E 2020E 2021E

Profit model

Revenues 188,313 224,779 264,942 291,408 307,730 348,702 380,933 412,036

EBITDA 41,836 41,144 43,337 41,843 47,170 60,420 70,144 76,346

Interest (expense)/income (797) (297) (871) (1,286) (1,624) (1,510) (1,036) (1,036)

Depreciation (5,221) (6,079) (7,620) (9,781) (10,849) (11,879) (12,938) (13,890)

Other income 1,129 1,006 5,322 7,775 14,092 7,265 9,148 11,572

Pretax profits 36,947 35,774 40,168 38,551 48,789 54,296 65,319 72,993

Tax (9,791) (9,472) (8,600) (10,021) (10,925) (12,895) (16,003) (18,248)

Minority Interest (336) (310) (387) (402) 136 (221) (215) (216)

Profit after tax (recurring) 26,821 25,992 31,181 28,128 38,000 41,180 49,101 54,529

Exceptional items 3,466 286 — — — — — —

Net profit 30,287 26,278 31,181 28,128 38,000 41,180 49,101 54,529

Recurring EPS (Rs) ex-treasury shares 32.0 30.1 35.8 32.1 42.6 46.2 54.6 60.6

Balance sheet

Total equity 91,819 122,489 143,677 164,372 188,428 220,021 258,369 301,025

Total borrowings 3,525 7,000 10,022 13,662 17,260 17,260 17,260 17,260

Minority interest 1,438 1,601 2,020 4,641 5,091 5,312 5,527 5,743

Current liabilities 42,415 50,546 61,505 54,120 69,618 74,703 76,194 76,805

Other liabilities (incl suspense account) 20,564 22,528 29,635 15,436 15,701 15,701 15,701 15,701

Total liabilities and equity 159,396 198,481 235,070 260,665 304,372 341,270 381,324 424,808

Cash 10,000 19,425 22,337 21,083 25,117 28,660 31,310 33,019

Other current assets (9,843) (19,119) (22,043) (14,624) (19,095) (21,837) (23,855) (24,956)

Fixed assets 53,924 75,955 85,619 97,244 123,164 125,146 123,979 123,050

Investments (incl treasury shares) 2,785 6,593 7,467 6,037 14,857 14,857 14,857 14,857

Other assets 25,038 28,727 34,412 20,147 26,061 28,763 30,889 32,940

Total assets 159,396 198,481 235,070 260,665 304,372 341,270 381,324 424,808

Cash flows

Operating CF, excl. working capital 33,279 32,585 36,924 31,048 32,746 47,525 54,141 58,098

Working capital changes (12,213) (8,498) (4,792) 5,438 (7,832) (12,525) (9,668) (10,014)

Capital expenditure (9,397) (11,397) (8,789) (7,682) (7,902) (10,357) (9,015) (10,301)

Acquisitions — (13,760) (249) (13,795) (10,621) — — —

Other income 1,129 2,168 951 1,172 14,092 7,265 9,148 11,572

Free cash flow 12,798 1,098 24,045 16,181 20,483 31,909 44,607 49,356

Ratios (%)

EBITDA margin 22.2 18.3 16.4 14.4 15.3 17.3 18.4 18.5

EBIT margin 19.4 15.6 13.5 11.0 11.8 13.9 15.0 15.2

Debt/equity 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1

RoAE 33.5 24.3 23.4 18.3 21.5 20.2 20.5 19.5

Key assumptions

Revenues (US$ mn) 3,098 3,663 4,038 4,351 4,771 5,059 5,481 5,929

Revenue growth (US$ terms) (%) 17.7 18.2 10.2 7.8 9.6 6.1 8.3 8.2

INR/USD rate 60.8 61.4 65.6 67.0 64.5 68.9 69.5 69.5


Weak pricing environment leads to poor operating performance

Indigo reported another weak quarter with EBITDAR (adjusted for forex loss) coming in 12%

below estimates on account of 1% miss in both passenger volumes and average ticket price, as

well as higher maintenance expense on account of bunching up of shop visits of older A320ceo

aircraft. Reported PAT of `278 mn was sharply below estimates on account of the EBITDAR

miss as well as `2.5 bn of forex loss (non-cash loss booked on US$-denominated liabilities).

Capacity addition momentum to pick up

Indigo’s capacity grew by 18% yoy in 1QFY19. The company has maintained its guidance of

increasing capacity by 25% yoy, with 2QFY19 to see a capacity increase of 28%. Further, while

issues with A320neo aircraft persist, management mentioned that Pratt & Whitney seems to

have solved one of the two issues of seal and combustor chamber, and deliveries in 2HCY18

should see a pickup.

Pricing pressure on near-term yields continues

We remain surprised by the extent of pressure on yields – Indigo management mentioned that

the 0-15 day bucket, accounting for ~40% of bookings, remained under pressure in 1QFY19.

This commentary had surprised us in 4QFY18 as the near-term booking window is typically price

insensitive. The unchanged situation in 1QFY19 reflects the intense competitive condition of the

industry.

Sharp earnings cut for FY2019; mid-cycle margin estimates for FY2020-21 drive a BUY

The extent of mismatch between costs and yields has taken us by surprise, and is the key reason

for a sharp 30% cut in FY2019E EPS. We believe current yield levels would, with time, put

pressure on competition to either increase prices or cut capacity – either scenario should be

positive for Indigo. We, thus, factor in mid-cycle margin assumptions (based on average of

FY2014-18 margins) for FY2020 and FY2021, which still result in 14-18% EPS cut for those

years, and a reduction in TP to `1,220.

InterGlobe Aviation (INDIGO) Others

1QFY19: continued turbulence. Indigo reported another set of weak results with

adjusted EBITDAR of `12.8 bn coming in 12% below estimates. While the impact of

crude prices and weaker rupee was well known, the results missed estimates due to

lower RPKs and lower yields. Continued weakness in yields, particularly in the face of

rising costs is a negative and drives a sharp 30% cut in FY2019E EPS. Lower yield

assumptions also drive a 14-18% cut in FY2020-21E EPS and lead to a revised TP of

`1,220 (`1,430 earlier) based on 14X June 2020E P/E. BUY stays as pricing discipline or

consolidation or both should lead to normalized margins over the medium term.

BUY

JULY 31, 2018

RESULT

Coverage view:

Price (`): 1,004


BSE-30: 37,494

Garima Mishra

InterGlobe Aviation



Market Cap. (Rs bn) EPS growth (%) 32.1 (17.9) 65.3




MFs 7.4 EBITDA (Rs bn) 30.0 26.0 45.2


Absolute (7.7) (28.4) (21.9) ROE (%) 42.9 24.1 31.1

Rel. to BSE-30 (12.8) (32.9) (32.7) Div. Yield (%) 0.6 0.5 0.8


1,520-992

386.0

Others InterGlobe Aviation


Exhibit 1: Weak yields and forex loss adversely impact 4QFY18 performance Results snapshot of Indigo, March fiscal year-ends (Rs mn)


Change

1QFY19 1QFY19E 4QFY18 1QFY18 KIE est Yoy Qoq FY2019E FY2018 (%)

ASKs (mn) 17,800 18,096 17,072 15,080 (2) 18 4 79,395 63,512 25

RPKs (mn) 15,900 16,588 15,182 13,270 (4.1) 20 5 69,125 55,522 25

Passengers (mn) 15 15 14 12 (1.1) 25 5 65 52 25

Average ticket price (Rs) 3,823 3,854 3,503 4,191 (0.8) (8.8) 9 3,957 3,842 3

Total income 65,120 66,990 57,991 57,529 (3) 13 12 293,681 230,209 28

Total expenditure (54,807) (52,470) (47,171) (38,022) 4 44 16 (222,508) (164,092) 36

Fuel cost (27,480) (27,498) (23,677) (17,929) (0) 53 16 (119,509) (78,853) 52

Employee expense (6,536) (7,239) (6,566) (5,843) (10) 12 (0) (29,560) (24,551) 20

Forex gains (2,461) 0 (925) 66

Other expenditure (18,330) (17,734) (16,003) (14,316) 3 28 15 (73,439) (60,688) 21

EBITDAR 10,313 14,519 10,821 19,507 (29) (47) (5) 71,173 66,117 8

EBITDAR (%) 15.8 21.7 18.7 33.9 24.2 28.7

Adjusted EBITDAR 12,774 14,519 11,745 19,441 (12) (34) 9

Aircraft and engine rentals (net) (10,424) (10,951) (9,931) (8,537) (5) 22 5 (45,173) (36,102) 25

EBITDA (111) 3,568 890 10,970 (103) (101) (112) 25,999 30,015 (13)

Depreciation (1,553) (1,351) (1,286) (983) 15 58 21 (5,995) (4,369) 37

Interest (1,087) (927) (927) (770) 17 41 17 (2,690) (3,398) (21)

Other income 3,064 2,869 2,986 2,026 7 51 3 9,421 9,877 (5)

PBT 313 4,159 1,662 11,243 (92) (97) (81) 26,736 32,125 (17)

Exceptional items — — — — — —

Tax expense (36) (1,206) (486) (3,132) (97) (99) (93) (7,620) (8,843) (14)

PAT 278 2,953 1,176 8,111 (91) (97) (76) 19,116 23,282 (18)

EPS (Rs) 0.7 7.7 3.1 22.5 (91) (97) (76) 49.9 60.8 (18)

Key ratios (as % of sales)

Fuel cost 42.2 41.0 40.8 31.2 40.7 34.3

Employee expense 10.0 10.8 11.3 10.2 10.1 10.7

Other expenditure 28.1 26.5 27.6 24.9 25.0 26.4

Aircraft and engine rentals (net) 16.0 16.3 17.1 14.8 15.4 15.7

Change (%)

InterGlobe Aviation Others


Exhibit 2: Strong capacity growth offset by lower-than-expected yields Trend in operating parameters for IndiGo, March fiscal year-ends


xx


Capacity and volumes

Metrics

Passenger volumes (mn) 9.9 10.5 11.5 10.8 12.1 12.0 13.5 14.3 15.1

ASKs (mn) 12,710 13,370 14,390 14,120 15,080 15,100 16,260 17,072 17,800

RPKs (mn) 10,580 10,980 12,560 12,160 13,270 12,680 14,390 15,182 15,900

Load factor (%) 83 82 87 86 88 84 88 89 89

Yoy growth (%)

Passenger volumes 20 37 38 21 23 15 17 32 25

ASKs 25 27 34 24 19 13 13 21 18

RPKs 18 33 38 26 25 15 15 25 20

Load factor (bps) -470 bps 369 bps 272 bps 107 bps 476 bps 185 bps 121 bps 281 bps 133 bps

Operating metrics (Rs/ASK)

Metrics

RASK 3.6 3.1 3.5 3.4 3.8 3.5 3.8 3.4 3.7

CASK 3.1 3.1 3.2 3.2 3.2 3.1 3.3 3.5 3.8

RASK-CASK 0.5 0.0 0.3 0.2 0.6 0.4 0.5 (0.1) (0.2)

Fuel CASK 1.1 1.2 1.2 1.2 1.2 1.1 1.2 1.4 1.5

CASK (ex-fuel) 2.1 1.9 2.0 2.0 2.0 2.0 2.1 2.1 2.3

RASK-CASK ex-fuel 1.5 1.2 1.5 1.5 1.8 1.5 1.7 1.3 1.4

CASK (ex-fuel, ex-forex) 2.1 1.9 2.0 2.0 2.0 2.0 2.1 2.1 2.1

RASK-CASK ex-fuel, ex-forex 1.5 1.2 1.5 1.5 1.8 1.5 1.7 1.3 1.5

Yoy growth (%)

RASK (13) (7) (13) (5) 6 12 10 (1) (4)

CASK (6) (6) (3) 5 2 1 4 8 19

RASK-CASK (43) (80) (60) (59) 33 2,993 65 (134) (125)

Fuel CASK (19) (1) 7 38 8 (6) 7 10 31

CASK (ex-fuel) 2 (8) (7) (8) (1) 5 3 7 12

RASK-CASK ex-fuel (28) (5) (20) 1 16 24 19 (12) (23)

CASK (ex-fuel, ex-forex) 2 (8) (7) (8) (1) 5 3 4 5

RASK-CASK ex-fuel, ex-forex (28) (5) (20) 1 16 24 19 (8) (15)

Pricing and margins

Metrics

EBITDAR margins ex-fuel cost (%) 64.0 61.3 63.1 64.1 65.1 61.2 64.5 59.5 58.0

Average ticket price (Rs) 4,032 3,442 3,797 3,928 4,191 3,779 3,944 3,503 3,823

Yield (Rs per RPK) 4.3 3.8 4.0 4.0 4.3 4.2 4.3 3.8 4.1

Yoy growth (%)

EBITDAR margins ex-fuel cost (bps) -594 bps 80 bps -365 bps 136 bps 109 bps -13 bps 139 bps -457 bps -704 bps

Average ticket price (11) (14) (16) (1) 4 10 4 (11) (9)

Yield (8) (11) (16) (6) 0 10 8 (4) (6)



Exhibit 3: ATF prices have inched up over the past six months Trend in monthly ex-Delhi ATF price (Rs per liter)

Source: IOCL, Kotak Institutional Equities

1QFY19 results call: key highlights

Engine update. There have been sporadic groundings of aircraft in 1QFY19 on account

of insufficient spare engines. However, P&W seems to be on track to resolve the major

issues surrounding the engines – the seal issue has been resolved, and a comprehensive

solution to the combustion chamber is in works. Both Airbus and P&W are looking to

increase deliveries in 2HCY18, which augurs well for Indigo.

Yields. Company mentioned that the 0-15 day bucket comprises 40% of overall

bookings; this bucket saw heavy competitive intensity. Yield levels seen in 1QFY19 are

unsustainable, particularly in the high fuel price environment. Indigo does not view the

recent yield pressure as a deterrent towards its long-term capacity growth.

Costs. Indigo booked a forex loss of `2.5 bn in 1QFY19 compared to a forex gain of `66

mn in 1QFY18. This loss was primarily on account of unrealized MTM loss foreign-

denominated liabilities. Aggressive focus on cost management continues.

Capacity. Guidance of 28% yoy ASK growth in 2QFY19 and maintained target of 25%

yoy growth in FY2019. Indigo will also look to add wide-bodied aircraft, though timing

on induction of these and commencement of long-haul operations is not clear yet.

Network. Indigo’s network is widening, and it is now flying to ~55 destinations. Indigo

intends to add several new international destinations such as Hong Kong, Male, Kuwait,

Jeddah to the network.

Fleet. Fleet size as of June 2018 was 169, comprising 36 A320neos, 9 ATR and the

remainder A320ceos. Indigo purchased 3 new ATR in 1QFY19. It did not buy Neos as it

had some pre-existing lucrative SLB agreements in place. It will buy some Neos in

2HFY19.

30

35

40

45

50

55

60

65

70

75

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InterGlobe Aviation Others


Lower margin assumption leads to 14-30% cut in FY2019-21E earnings

High crude price environment, currency depreciation and weak pricing environment drive a

relook into our margin assumptions.

FY2019 EPS sees a sharp 30% cut as we bake in the 1QFY19 disappointment as well as

continued pricing weakness into 2QFY19. FY2020-21E EPS also get revised down sharply as

we now bake in mid-cycle spreads – RASK-CASK of `0.35/ASK, in line with average spreads

seen in the FY2014-18 period.

Exhibit 4: Change in estimates for IndiGo, March fiscal year-ends


Exhibit 5: Key assumptions for IndiGo, March fiscal year-ends


xx

2019 2020 2021 2019 2020 2021 2019 2020 2021

Financials

Revenues (Rs mn) 293,681 354,355 418,741 305,086 362,442 426,601 (4) (2) (2)

EBITDAR (Rs mn) 71,173 99,392 119,275 81,971 106,791 126,320 (13) (7) (6)

EBITDA (Rs mn) 25,999 45,175 56,155 36,798 52,574 63,201 (29) (14) (11)

PAT (Rs mn) 19,116 31,590 37,747 27,301 37,530 43,654 (30) (16) (14)

EPS (Rs) 49.9 82.5 98.6 71.3 98.1 114.1 (30) (16) (14)

Operating metrics

ASKs (mn) 79,395 96,549 114,279 79,395 96,549 114,279 — — —

Yield (Rs/ASK) 4.2 4.3 4.3 4.4 4.4 4.4 (4) (2) (2)

Load factor (%) 87 86 85 87 86 85 — — —

RASK-CASK (Rs/ASK) 0.22 0.35 0.37 0.35 0.43 0.43 (38) (18) (14)

Change (%)New estimates Old estimates

2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E

USD/INR rate 48 54 61 61 66 67 65 67 68 68

Crude price, Dated Brent (US$/bbl) 114 111 108 86 47 49 57 73 68 65

Indigo's fleet size 55 66 77 94 107 131 159 204 244 286

Indigo's ASKs (mn units) 18,006 24,977 29,968 35,327 42,826 54,583 63,512 79,395 96,549 114,279

Yoy growth (%) 44 39 20 18 21 27 16 25 22 18

Indigo RPKs (mn units) 14,826 20,260 23,135 28,177 35,968 46,288 55,522 69,125 82,950 97,052

Yoy growth (%) 39 37 14 22 28 29 18 25 20 17

Load factor (%) 82 81 77 80 84 85 87 87 86 85

Average ticket price (Rs) 3,911 4,895 5,071 4,882 4,248 3,721 3,842 3,957 3,979 4,019

Yoy growth (%) 9 25 4 (4) (13) (12) 3 3 1 1

Yield (Rs per RPK) 3.8 4.5 4.8 4.9 4.5 4.0 4.1 4.2 4.3 4.3

Yoy growth (%) 4 21 6 3 (9) (11) 3 2 1 1

Ancilliary revenues (as % of ticket revenues) 11.6 11.3 12.0 13.3 14.8 14.7 15.4 14.8 14.8 14.8

RASK-CASK (Rs) (0.0) 0.3 0.1 0.4 0.5 0.2 0.4 0.2 0.4 0.4

EBITDAR margins ex-fuel cost (%) 66.9 71.3 69.2 68.7 64.5 62.5 62.4 64.4 64.5 63.9



Exhibit 6: Summary financials of Indigo Profit and loss model, balance sheet and cash flow statement for Indigo, March fiscal year-ends (Rs mn)


2012 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E


Sales 55,647 92,031 111,166 139,253 161,399 185,805 230,209 293,681 354,355 418,741

EBITDAR 8,496 22,498 21,769 38,219 56,247 52,687 66,117 71,173 99,392 119,275

EBITDA 489 8,936 5,066 18,697 30,125 21,432 30,015 25,999 45,175 56,155

Other income 1,440 2,371 3,155 3,838 5,151 7,891 9,877 9,421 10,036 10,517

Interest (514) (578) (1,226) (1,155) (3,041) (3,308) (3,398) (2,690) (2,690) (2,690)

Depreciation (665) (856) (2,260) (3,022) (5,055) (4,573) (4,369) (5,995) (8,339) (11,190)

Profit before tax 749 9,873 4,736 18,357 27,181 21,443 32,125 26,736 44,182 52,793

Tax expense 657 (2,040) 9 (5,402) (8,373) (4,852) (8,843) (7,620) (12,592) (15,046)

Extraordinary items — — — — — — — — — —

PAT 1,406 7,834 4,744 12,956 18,807 16,591 23,282 19,116 31,590 37,747

Year-end number of shares 307 307 307 307 360 360 383 383 383 383

Fully diluted number of shares 344 344 344 344 351 360 383 383 383 383

EPS-fully diluted (Rs) 4.1 22.8 13.8 37.7 53.6 46.0 60.8 49.9 82.5 98.6


Equity 2,433 3,890 4,076 4,207 27,232 37,792 70,774 87,621 115,461 148,727

Total borrowings 10,156 18,004 33,462 39,262 30,071 23,957 22,414 22,414 22,414 22,414

Deferred incentives 11,804 15,304 17,533 17,516 15,832 21,838 26,017 33,712 40,959 47,790

Other long term liabilities 2,952 8,004 13,869 24,784 20,302 25,602 36,297 43,475 49,535 55,248

Current liabilities and provisions 9,126 13,322 22,075 21,914 32,750 42,908 55,791 68,726 73,082 74,729

Total liabilities 36,471 58,525 91,015 107,682 126,187 152,098 211,293 255,948 301,451 348,908

Net fixed assets 8,860 17,713 39,560 48,765 47,794 38,190 46,113 94,575 128,667 167,021

Investments 4,523 10,105 22,309 27,237 22,318 19,443 18,865 22,596 25,746 28,715

Cash & cash equivalent 18,322 24,789 23,730 25,161 47,048 83,459 129,245 115,809 119,324 120,423

Loans and advances/other current assets 4,765 5,917 5,417 6,519 9,027 11,005 17,070 22,968 27,713 32,749

Total assets 36,471 58,525 91,015 107,682 126,187 152,098 211,293 255,948 301,451 348,908


Operating cash flow 422 7,717 4,604 15,966 19,730 16,582 21,172 18,380 32,583 41,109

Working capital changes 8,535 9,696 11,309 7,765 7,082 22,361 22,269 18,179 9,767 6,187

Capital expenditure (331) (9,153) (23,237) (10,170) (4,084) 5,031 (12,291) (54,456) (42,432) (49,544)

Free cash flow 8,626 8,260 (7,324) 13,561 22,728 43,974 31,150 (17,897) (81) (2,248)

Ratios (%)

EBITDAR 15.3 24.4 19.6 27.4 34.8 28.4 28.7 24.2 28.0 28.5

EBITDA margin 0.9 9.7 4.6 13.4 18.7 11.5 13.0 8.9 12.7 13.4

Net debt/equity (X) (0.0) 0.8 4.1 6.6 (0.1) (1.5) (0.7) (0.3) (0.3) (0.2)

Book value (R/share) 7.1 11.3 11.9 12.2 77.7 104.9 184.9 228.9 301.7 388.6

ROAE 57.8 201.4 116.4 308.0 72.9 43.9 32.9 21.8 27.4 25.4

ROACE 20.7 85.6 13.4 32.3 71.9 NM NM NM NM NM


GSPL—in-line net income, as robust 7% qoq growth in volumes was offset by higher tax rate

GSPL reported 19% sequential increase in EBITDA to `3.4 bn in 1QFY19, 8% above our

estimate, driven by 7% qoq growth in volumes to 36.5 mcm/d and lower operating expense

perhaps due to lower system use gas. Blended tariffs increased marginally to ₹1.14/scm. Net

income declined 8% qoq to `1.45 bn (EPS of `2.6) though, in line with our estimate, being

impacted by a sharp increase in tax rate to 41%. The company indicated that the tax rate may

remain elevated over the next few years, as interest cost on debt pertaining to the acquisition of

stake in Gujarat Gas is not tax deductible; the company plans to repay the acquisition-related

debt by refinancing it with borrowings for incremental capex.

Gujarat Gas—muted start with 8% yoy decline in EBITDA amid modest 5% growth in volumes

Gujarat Gas started the year on a muted note in 1QFY19 with (1) overall volumes increasing by

a modest 5% yoy to 6.4 mcm/d (-5% qoq) and (2) unit EBITDA declining a sharp 12% yoy to

`4.2/scm (+16% qoq). The company delivered 11% yoy growth in CNG volumes and modest

4.6% growth in industrial volumes, which were partially offset by surprising sharp decline in

residential PNG volumes. Reported EBITDA declined 8% yoy to `2.5 bn, while adjusted net

income was 14% lower at `898 mn (EPS of `6.5). Reported net income of `1.2 bn included a

one-off gain of `489 mn in other income, pertaining to the interest on income tax refund.

Raise standalone EPS estimates by 1-5% and SoTP-based TP to `175 from `170

We raise our standalone EPS estimates for GSPL to `11.1 (+0.6%) in FY2019 and `11.1 (+5%)

in FY2020, to factor in (1) lower-than-expected interest cost on debt pertaining to Gujarat Gas

acquisition offset by higher tax rate, (2) higher volumes and (3) other minor changes. Our SoTP-

based TP, including value of Gujarat Gas at CMP, increases to `175 from `170 previously. We

model 20% increase in regulated tariff to `1.38/scm for FY2020-24E and ~10% reduction

subsequently to offset higher volumes in the medium term; our assumptions result in

reasonable CRoCI of ~12-14% in the long run. We do see a possibility of downside risk to

regulated tariffs, if PNGRB were to consider GSPL’s recent volumes, which are substantially

higher than its rated capacity as well as earlier volume divisors of 30.5 mcm/d used in tariff

calculation. On the other hand, if the imminent revision in tariffs surprises on the upside versus

our assumption of 20% increase, GSPL’s NPV may not change materially, as the regulated

tariffs will be cut in the subsequent review to reflect elevated volumes.

GSPL (GUJS) Energy

Higher tax offsets robust volumes. GSPL’s strong volume-led operating performance

was offset by higher tax due to lack of deduction for interest cost on debt pertaining to

acquisition of stake in Gujarat Gas. Gujarat Gas reported yoy decline in EBITDA as

modest growth in volume was offset by weaker margins. GSPL stock is already pricing

in imminent upward revision in regulated tariff, while ignoring the risk to volumes from

ramp-up of RIL’s petcoke gasifiers. We reiterate SELL with TP of `175 (`170 earlier).

SELL

JULY 30, 2018

RESULT

Coverage view: Attractive

Price (`): 195


BSE-30: 37,494

Tarun Lakhotia

Akshay Bhor

GSPL



Market Cap. (Rs bn) EPS growth (%) 34.5 (6.5) (0.5)




MFs 15.1 EBITDA (Rs bn) 11.5 13.9 13.0


Absolute 8.3 9.2 1.6 ROE (%) 14.0 11.7 10.7


Co mpan y d a ta an d va lua t io n s ummary

236-165

109.9

Energy GSPL


Exhibit 1: Interim results of GSPL, March fiscal year-ends (Rs mn)


(% chg.)

1QFY19 1QFY19E 1QFY18 4QFY18 1QFY19E 1QFY18 4QFY18 FY2019E FY2018 (% chg.)

Net sales 3,912 3,693 2,963 3,504 6.0 32.0 11.7 16,150 13,317 21.3

Total expenditure (474) (498) (204) (612) (4.8) 132.6 (22.5) (2,300) (1,839) 25.0

Operating costs (387) (403) (123) (506) (4.0) 214.0 (23.5) (1,835) (1,407) 30.4

Staff cost (87) (95) (81) (106) (8.3) 8.2 (17.9) (464) (432) 7.5

EBITDA 3,438 3,195 2,760 2,892 7.6 24.6 18.9 13,851 11,478 20.7

OPM (%) 87.9 86.5 93.1 82.5 85.8 86.2

Other income 55 125 164 171 (56.3) (66.8) (68.1) 870 735 18.5

Interest (579) (657) (106) (103) (11.9) 448.0 461.8 (2,341) (354) 561.2

Depreciation (448) (456) (430) (440) (1.7) 4.3 1.7 (1,825) (1,750) 4.3

Pretax profits 2,466 2,207 2,389 2,520 11.7 3.2 (2.1) 10,555 10,108 4.4

Extraordinaries — — — — — —

Current tax (991) (752) (800) (826) (4,174) (3,156)

Deferred tax (30) (20) (64) (119) (131) (268)

Net income 1,445 1,434 1,525 1,574 0.7 (5.3) (8.2) 6,250 6,684 (6.5)

Adjusted net income 1,445 1,434 1,525 1,574 0.7 (5.3) (8.2) 6,250 6,684 (6.5)

Earnings per share (Rs) 2.6 2.5 2.7 2.8 0.7 (5.3) (8.2) 11.1 11.9 (6.5)

Other comprehensive income 7 (2) 7

Total comprehensive income 1,452 1,523 1,581

Income tax rate (%) 41.4 35.0 36.2 37.5 40.8 33.9

Operating details

Gas transmission volumes (mcm) 3,322 3,140 2,447 3,073 5.8 35.7 8.1 13,688 11,511 18.9

Gas transmission volumes (mcm/d) 36.5 34.5 26.9 34.1 5.8 35.7 6.9 37.5 31.5 18.9

Implied transmission tariff (Rs/scm) 1.14 1.13 1.16 1.13 0.9 (1.5) 1.2 1.15 1.13 1.9

Segment revenues

Gas transportation 3,786 2,832 3,462 33.7 9.4 15,741 12,986 21.2

Sale of electricity 136 144 51 410 373

Segment EBIT

Gas transportation 2,995 2,323 2,579 28.9 16.1 12,709 10,074 26.2

Sale of electricity 90 94 3 187 170

GSPL Energy


Exhibit 2: Interim results of GGL, March fiscal year-ends (Rs mn)


Exhibit 3: We compute fair value of GSPL at Rs175 including investments SoTP valuation of GSPL, March fiscal year-end, 2020E (Rs mn)


(% chg.) yoy

1QFY19 1QFY18 4QFY18 1QFY18 4QFY18 FY2019E FY2018 (% chg.)

Net sales 17,651 14,780 17,336 19.4 1.8 77,758 61,743 25.9

Total expenditure (15,166) (12,082) (15,110) 25.5 0.4 (66,220) (52,793) 25.4

Raw material (13,504) (10,617) (13,551) 27.2 (0.3) (59,426) (46,780) 27.0

Staff cost (360) (391) (330) (7.8) 9.1 (1,564) (1,390) 12.5

Other expenditure (1,301) (1,074) (1,228) 21.1 5.9 (5,230) (4,623) 13.1

EBITDA 2,486 2,698 2,227 (7.9) 11.6 11,539 8,951 28.9

Other income 95 78 99 21.3 (4.0) 382 357 7.0

Interest (486) (496) (479) (2.0) 1.4 (1,893) (1,961) (3.4)

Depreciation (707) (666) (682) 6.1 3.7 (3,080) (2,718) 13.3

Pre-tax profits 1,389 1,615 1,165 (14.0) 19.2 6,948 4,628 50.1

Tax (534) (412) (351) (2,068) (1,212)

Exceptional gains/(loss) 489 — — 489 —

Net income 1,214 1,044 660 16.3 84.1 4,841 2,914 66.2

Adjusted net income 898 1,044 660 (14.0) 36.1 4,523 2,914 55.2

Adjusted EPS (Rs) 6.5 7.6 4.8 (14.0) 36.1 32.9 21.2 55.2

Tax rate (%) 35.3 35.4 43.4 34.9 37.0

Other details

Sales (mn scm/d) 6.4 6.1 6.8 5.2 (4.7) 7.2 6.2 15.0

CNG (mcm) 128 115 122 11.3 4.9 519 471 10.2

Residential PNG (mcm) 38 40 55 (5.0) (30.9) 197 185 6.5

Commercial PNG (mcm) 9 9 10 0.0 (10.0) 42 38 10.0

Industrial PNG (mcm) 411 393 421 4.6 (2.4) 1,853 1,577 17.5

Total (mcm) 586 557 608 5.2 (3.6) 2,611 2,271 15.0

Net realization (Rs/scm) 30.1 26.5 28.5 13.5 5.6 29.8 27.2 9.5

Raw material cost (Rs/scm) (23.0) (19.1) (22.3) 20.9 3.4 (22.8) (20.6) 10.5

Gross margin (Rs/scm) 7.1 7.5 6.2 (5.3) 13.7 7.0 6.6 6.6

Other operating costs (Rs/scm) (2.8) (2.6) (2.6) 7.8 10.6 (2.6) (2.6) (1.7)

Operating profit (Rs/scm) 4.2 4.8 3.7 (12.4) 15.8 4.4 3.9 12.1

Valuation basis (Rs mn) (Rs/share)

Gujarat state pipeline network DCF valuation 70,035 124

Gujarat Gas (54.2% stake) 20% discount to CMP 46,535 83

Sabarmati Gas (27.5% stake) 4X book value 2,696 5

Other investments 0.8X book value 5,644 10

Net debt 26,460 47

Fair value of GSPL (Rs) 98,450 175

Fair value

Energy GSPL


Exhibit 4: Standalone financial summary of GSPL, March fiscal year-ends, 2014-21E (Rs mn)


2014 2015 2016 2017 2018 2019E 2020E 2021E


Net sales 10,507 9,766 9,919 10,276 13,317 16,150 15,087 15,816

EBITDA 9,289 8,400 8,660 8,883 11,478 13,851 12,999 13,513

Other income 552 520 656 882 735 870 1,072 1,233

Interest (1,418) (1,178) (799) (596) (354) (2,341) (2,023) (1,832)

Depreciation (1,839) (1,892) (1,829) (1,791) (1,750) (1,825) (1,894) (1,969)

Pretax profits 6,583 5,850 6,688 7,378 10,108 10,555 10,154 10,945

Extraordinaries — 754 — — — — — —

Current tax (2,056) (2,198) (1,994) (2,107) (3,156) (4,174) (3,801) (3,875)

Deferred tax (336) (301) (241) (305) (268) (131) (133) (112)

Adjusted net profits 4,192 3,635 4,454 4,966 6,684 6,250 6,220 6,958

Adjusted EPS (Rs) 7.4 6.5 7.9 8.8 11.9 11.1 11.0 12.3


Total equity 32,948 36,231 40,692 44,960 50,650 55,772 60,869 66,571

Deferred tax liability 4,202 4,504 4,723 4,719 4,984 5,115 5,248 5,360


Currrent liabilities 2,357 2,852 2,373 2,350 1,662 1,679 1,645 1,656


Cash 4,992 4,352 5,529 8,026 3,645 729 714 899

Current assets 5,031 6,146 6,708 4,132 3,926 4,602 4,476 4,563

Total fixed assets 38,154 38,419 38,910 38,521 40,101 40,110 39,946 39,501

Investments 5,850 6,487 7,311 7,655 41,814 44,314 46,814 48,314

Total assets 54,028 55,403 58,458 58,334 89,485 89,755 91,950 93,276


Operating cash flow, excl. working capital 5,719 5,751 5,469 5,863 8,067 7,211 7,059 7,806

Working capital changes (869) (871) (650) 2,534 (482) (660) 92 (75)


Investments (4,581) 157 (2,027) (3,323) (34,159) (2,500) (2,500) (1,500)

Other income 516 476 589 699 735 870 1,072 1,233

Free cash flow 2,965 3,199 3,579 8,042 5,079 5,712 6,608 7,441

Ratios (%)

Debt/equity 39.1 29.0 23.5 12.7 57.9 44.7 36.6 27.4

Net debt/equity 28.1 22.5 19.0 11.3 36.7 30.9 26.8 21.5

RoAE 11.9 9.3 10.3 10.4 12.7 10.7 9.8 10.1

RoACE 10.9 9.0 9.7 10.2 10.0 8.9 8.5 9.1

CROCI 13.6 11.3 11.7 12.1 14.6 14.8 13.6 14.0

GSPL Energy


Exhibit 5: Consolidated financial summary of GSPL, March fiscal year-ends, 2017-21E (Rs mn)


2017 2018 2019E 2020E 2021E


Net sales 59,013 72,610 93,827 104,690 114,934

EBITDA 16,418 20,439 25,540 26,125 27,956

Other income 1,040 964 847 925 999

Interest (2,776) (2,416) (4,318) (3,823) (3,411)

Depreciation (4,365) (4,469) (4,905) (5,235) (5,564)

Pretax profits 10,317 14,519 17,164 17,991 19,980

Extraordinaries — — — — —

Current tax (2,756) (4,369) (6,284) (6,354) (6,848)

Deferred tax (519) (819) (370) (397) (401)

Net profits 7,042 9,331 10,511 11,241 12,731

Associate income 140 254 279 307 337

Minority interest (1,006) (1,335) (2,090) (2,506) (2,902)

Consolidated net profits 6,176 8,249 8,700 9,041 10,166

Consolidated EPS (Rs) 11.0 14.6 15.4 16.0 18.0


Total equity 57,606 32,839 41,539 50,788 61,298

Deferred tax liability 14,892 15,670 15,417 15,813 16,215

Total borrowings 40,270 65,859 48,778 43,278 36,278

Other liabilities 5,315 5,259 18,018 19,442 20,720

Total liabilities and equity 118,082 119,626 123,751 129,322 134,510

Cash 8,671 5,046 1,558 2,113 3,774

Other assets 12,115 12,857 14,732 15,509 16,315

Total fixed assets 92,607 95,824 99,062 100,801 102,022

Investments 4,689 5,899 8,399 10,899 12,399

Total assets 118,082 119,626 123,751 129,322 134,510

Ratios (%)

Debt/equity 55.5 135.8 85.6 65.0 46.8

Net debt/equity 43.6 125.4 82.9 61.8 41.9

RoAE 9.7 15.4 19.9 18.2 17.7

RoACE 11.6 14.9 19.5 20.2 20.9

CROCI 14.5 16.2 21.8 21.8 22.8


Sales and collection profile show a marked improvement off a favorable base

Sales for the quarter (Prestige’s share) increased by 69% yoy to `7.6 bn with total area sold at

1.11 mn sq. ft. Collections for the quarter were also at `7.6 bn, gross collections at `9.6 bn met

26% of the annual guidance of FY2019. PEPL launched an area of 1 mn sq. ft in Bengaluru and

Kochi, though still short of the 10 mn sq. ft target for FY2019. However, with a total of 7-8

projects to be launched in the coming quarters the company is hopeful of achieving the same.

Debt increase attributable to acquisition of stake and consolidation of mall portfolio

PEPL net debt increased by `8.2 bn qoq to `72.8 bn in 1QFY19 (`54.7 bn in 1QFY18). Of this,

`3.4 bn is attributable to the acquisition of CapitaLand’s stake in various mall entities while

another `2.8 bn is on account of consolidation of debt of the mall entities. Management

expects debt to come down significantly (25-30%) as cash flows from this new acquisition and

launches start to flow in.

Lease portfolio continues to show favorable trends, stake acquisition in mall portfolio positive

Earnings from PEPL’s annuity portfolio continue to remain impressive as rental income increased

by 24% yoy to `1.8 bn in 1QFY19 (exit rental at `8.6 in FY2019) with total leased area at 10.1

mn sq. ft. The company looks well poised to achieve its target of `1 bn in rentals by FY2020

through stake acquisition and project completions.

Strong annuity portfolio coupled with bouquet of product launches augur well, BUY

A large and stable annuity portfolio gives earnings predictability for Prestige, even as product

launches under the new platform with HDFC will likely drive volumes. Maintain positive stance

with target price of `315/share.

Prestige Estates Projects (PEPL) Real Estate

Consolidating its rental portfolio. Prestige Estates continues to post improving

operating metrics for its residential portfolio with 69% yoy growth (off a favorable

base) in sales at `7.6 bn. Net debt increase is attributable to payment for stake of

CapitaLand in the mall portfolio as well as consolidation of debt of the SPVs.

Accounting under Ind-AS 115 does distort reported financials, even as underlying cash

flows remain robust, especially driven by a large annuity portfolio. Maintain ADD and TP

of `315/share.

ADD

JULY 31, 2018

RESULT

Coverage view: Neutral

Price (`): 264


BSE-30: 37,494

Murtuza Arsiwalla

Samrat Verma

Prestige Estates Projects







MFs 1.5 EBITDA (Rs bn) 10.9 11.3 11.6


Absolute (2.3) (13.7) 3.1 ROE (%) 10.3 7.3 7.5

Rel. to BSE-30 (7.7) (19.1) (11.1) Div. Yield (%) 0.6 0.6 0.6


357-221

98.9

Prestige Estates Projects Real Estate


Ind-AS 115—the new accounting standard distorts earnings estimates

From 1QFY19, the company has adopted Ind-AS 115 resulting in recognition of revenues

based on project completion instead of percentage completion under Ind-AS for its financial

reporting. As a result, PEPL has reversed revenues of `74.6 bn in 1QFY19. After taking net

profit margins at 13%, retained earnings (net of tax) have been reversed by `10.1 bn. We

will revise our earnings estimates to factor in the change in accounting method to project

completion, once we have reviewed project completion schedules across the 40 residential

projects currently being pursued by the company.

Exhibit 1: Adoption of Ind-AS 115 led to lower revenue recognition during the quarter Prestige: 1QFY19 results snapshot, March fiscal year-ends (Rs mn)


Exhibit 2: Debt increases to fund stake buy-outs as well as consolidation of debt of the mall assets Prestige: Debt, March fiscal year-ends, 2010-3QFY18 (Rs mn)


1QFY19 1QFY19E 1QFY18 4QFY18 1QFY19E 1QFY18 4QFY18 FY2019E FY2018 % change

Net sales 8,613 12,310 12,796 18,846 (30) (33) (54) 49,241 54,986 (10)

Operating costs (6,051) (10,111) (10,154) (15,144) (40) (40) (60) (37,990) (44,046) (14)

EBITDA 2,562 2,199 2,642 3,702 17 (3) (31) 11,251 10,940 3

Other income 314 365 222 130 1,461 679 115

Interest costs (1,583) (1,166) (820) (1,266) (4,662) (3,827) 22

Depreciation (582) (450) (376) (387) (2,401) (1,547) 55

PBT 711 948 1,668 2,179 (25) (57) (67) 5,649 6,245 (10)

Taxes (376) (284) (533) (687) (1,808) (2,135) (15)

PAT 335 664 1,135 1,492 (50) (70) (78) 3,841 4,110 (7)

Consolidated PAT 322 595 939 1,431 (46) (66) (77) 3,565 4,703

EPS - - 2.5 3.8 9.5 12.5

Key ratios

EBITDA margin (%) 29.7 17.9 20.6 19.6 22.8 19.9

PAT margin (%) 3.9 5.4 8.9 7.9 7.8 7.5

Effective tax rate (%) 52.9 30.0 32.0 31.5 32.0 34.2

% change

IndAS

Standalone 2011 2012 2013 2014 2015 2016 1QFY17 2QFY17 3QFY17 4QFY17 1FYFY18 2QFY18 3QFY18 4QFY18 1QFY19

Secured loans 9.9 11.6 14.6 17.9 23.0 30.8 31.4 31.3 31.0 26.8 27.8 28.0 32.5 37.1 39.3

Project and working capital 2.9 7.2 10.6 13.8 10.6 14.4 14.5 13.4 13.4 13.2 13.6 14.6 15.7 21.5 23.5

Capex loans - hotels 0.5 0.5 1.0 1.9 2.3 2.5 2.5 2.3 2.4 — — — — — —

Capex loans - office — — — 0.8 1.4 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.2 0.9 0.9

Lease rent discounting (LRD) 2.7 2.1 1.5 1.2 1.9 3.5 3.4 3.4 3.3 1.2 1.2 1.1 1.1 2.3 2.3

Receivables discounting 3.8 1.8 1.6 0.3 6.7 8.5 9.0 10.3 9.9 10.4 11.1 10.3 13.4 12.3 12.5

Unsecured loans 0.2 0.2 0.1 — — — — — — — — — — — —

Gross debt 10.1 11.7 14.8 17.9 23.0 30.8 31.4 31.3 31.0 26.8 27.8 28.0 32.5 37.1 39.3

Less: Cash and bank balances 3.1 1.4 4.8 4.2 4.6 3.7 3.2 2.7 1.5 2.3 2.3 2.6 5.9 5.5 3.0

Net debt 7.0 10.3 10.0 13.7 18.4 27.1 28.1 28.6 29.5 24.5 25.5 25.4 26.6 31.6 36.3

Consolidated

Secured loan 14.7 18.1 23.7 30.7 38.1 56.8 55.8 55.0 55.3 56.8 60.2 60.5 66.6 71.9 79.4

Project and working capital 3.2 8.0 11.4 15.9 13.9 17.4 17.7 14.2 14.2 14.3 16.2 17.2 19.6 25.4 29.8

Capex loans - hotels 0.7 1.0 1.8 2.7 4.1 4.8 5.2 5.3 5.6 6.5 7.2 7.4 7.7 8.0 8.0

Capex loans - office — 0.7 2.3 3.0 1.4 2.0 2.0 2.9 3.1 3.1 3.4 3.6 3.9 3.2 3.3

Capex loans - retail mall — 0.7 0.3 1.0 0.3 0.9 0.6 0.8 0.8 0.8 0.9 1.0 1.1 1.3 1.3

Lease rent discounting (LRD) 7.0 5.9 6.3 7.9 11.7 23.3 21.3 21.6 21.8 21.6 21.4 21.0 20.8 21.7 24.4

Receivables discounting 3.8 1.8 1.6 0.3 6.7 8.5 9.0 10.3 9.9 10.4 11.1 10.3 13.4 12.3 12.5

Unsecured loan 0.5 0.3 0.2 — — — — — — — — — — — —

Gross debt 15.2 18.4 23.9 30.7 38.1 56.8 55.8 55.0 55.3 56.8 60.2 60.5 66.6 71.9 79.4

Less: Cash and bank balances 3.7 2.5 6.0 5.4 5.9 5.7 5.2 4.0 3.9 4.7 5.5 4.5 8.5 7.4 6.6

Net debt 11.5 15.9 17.9 25.2 32.2 51.1 50.6 50.9 51.4 52.1 54.7 56.0 58.1 64.6 72.8

IGAAP

Real Estate Prestige Estates Projects


Exhibit 3: Sales metrics showed strong growth off a favorable base Prestige: Sales, cash flow, March fiscal year-ends, 2015-1QFY19


Exhibit 4: No new launches reflect in reducing cash flow from ongoing projects Prestige: Receivables profile, March fiscal year-ends, 2012-1QFY19


Exhibit 5: Rentals inching up Prestige: Rentals, March fiscal year-ends, 1QFY17-3QFY18


2015 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19

Sales (mn sq. ft) 6.7 0.8 1.0 0.9 1.5 0.8 1.0 0.6 0.7 0.7 0.8 0.8 1.6 1.1

Total sales 43,624 5,266 6,051 5,122 9,889 5,098 5,988 3,465 5,249 4,511 5,277 5,231 10,482 7,638

Yearly sales 43,624 26,328 19,800 25,501

Realizations (Rs/sq. ft) 6,507 6,583 5,932 5,629 6,421 6,217 6,173 6,300 7,190 6,538 6,596 6,706 6,763 6,881

Collections 32,316 8,445 7,755 7,976 8,624 10,034 6,880 8,159 9,991 10,050 6,588 9,469 8,363 7,546

Avg. qrtly. collections 8 ,0 79 8 ,20 0 8 ,76 6 8 ,6 18 7,5 46

Receivables profile 2012 2013 2014 2015 2016 2017 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19

Area (mn sq. ft)

Total area

Developable 26.1 33.2 47.0 59.6 64.7 64.6 64.5 64.2 64.1 72.3 75.2

Car park 4.4 6.3 7.8 12.7 14.9 15.2 15.3 15.2 15.1 17.7 19.5

Saleable 21.7 26.9 39.2 46.8 49.7 49.4 49.2 48.9 49.0 54.5 55.7

Prestige's share

Saleable area 18.5 21.5 30.5 35.7 38.0 37.4 37.0 36.9 37.0 40.7 42.0

Share (%) 85.2 80.2 77.8 76.2 76.4 75.7 75.2 75.5 75.5 74.6 75.4

Revenue (Rs bn)

Estimated value 101 125 173 223 241 234 237 238 238 258 270

Sales achieved 51 72 102 140 155 164 169 173 176 186 191

Unsold area 50 52 71 84 86 70 68 65 61 72 79

Collections (Rs bn)

Collected 21 30 49 74 97 119 127 133 140 152 157

Collections (%) 40 41 48 53 62 72 75 77 79 81 82

Costs (Rs bn)

Budgeted 43 66 103 125 146 153 154 156 157 175 181

Incurred 7 22 40 52 78 97 108 116 119 127 130

Gross cash flow (Rs bn) 44 51 61 76 76 60 64 64 61 59 62

Prices (Rs/sq. ft)

Sales achieved 4,771 5,020 5,300 6,124 5,819 6,284 6,533 6,676 6,823 6,097 6,079

Unsold area 6,435 7,335 6,288 6,501 7,525 6,242 6,097 5,870 5,543 7,103 7,504

Costs estimated 1,661 1,983 2,183 2,104 2,260 2,365 2,388 2,437 2,448 2,416 2,402

1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19

Area leased (mn sq. ft) 6.69 6.73 8.12 8.48 8.60 8.63 8.70 8.63 8.67 8.80 8.79 8.90 10.08

Rents per quarter (Rs mn) 990 1,002 1,215 1,261 1,312 1,379 1,354 1,384 1,480 1,500 1,641 1,570 1,838

Annualised (Rs mn) 4,027 4,048 4,974 5,141 5,210 5,395 5,589 5,717 5,916 6,110 6,110 6,194 7,145

Blended rentals (Rs /sq. ft) 50 50 51 51 50 52 54 55 57 58 58 58 59

Prestige Estates Projects Real Estate


Exhibit 6: Prestige likely to miss guidance for the third year in a row Prestige: Guidance versus performance


Guidance Achieved Guidance Achieved Guidance Achieved Guidance Achieved

Sales (Rs mn) (b) 15,000 21,127 25,000 31,221 43,000 44,348 50,000 50,135

Turnover (Rs mn) 7,500 7,992 15,000 16,064 20,000 21,525 27,000 35,134

Collections (Rs mn) (b) 12,000 13,354 15,000 19,695 23,000 24,753 29,000 32,317

Launches (mn sq. ft) (b) 10.0 12.9 8.0 10.4 14.0 15.7 15.0 14.6

Leasing (mn sq. ft) (b) 3.0 3.1 2.5 2.1 2.0 2.7 2.0 2.7

Exit rental (Rs mn) (a) 1,600 1,870 2,250 2,289 3,200 2,950 3,800 3,840

Avg selling price (Rs/sq. ft) 4,302 5,212 5,920 6,500

Consolidated Net D/E (c)

Guidance Achieved Guidance Achieved Guidance Achieved Guidance Achieved

Sales (Rs mn) (b) 57,500 31,498 35,000 24,585 35,000 33,137 35,000 9,811

Turnover (Rs mn) 40,000 46,344 40,000 47,745 40,000 55,665 35,000 8,927

Collections (Rs mn) (b) 37,500 32,800 40,000 41,232 42,500 42,684 37,500 9,665

Launches (mn sq. ft) (b) 12.0 8.4 10.0 2.0 10.0 7.1 10.0 1.0

Leasing (mn sq. ft) (b) 1.5 1.3 1.5 1.3 2.5 1.4 2.0 0.6

Exit rental (Rs mn) (a) 4,500 5,141 6,000 5,589 6,750 6,255 8,000 8,607

Avg selling price (Rs/sq. ft)

Consolidated Net D/E (c) 0.9 1.1 1.3 1.1 1.2 1.3 1.3 1.8

Notes:

(a) Exit rental is not equal to yearly rental.

(b) Gross, Prestige share is lesser.

(c) Taken the lower end of the band for all but debt, where taken higher end of the band.

(d) Achievment for FY2018.

2015

2016 2017 2018

2012 2013 2014

2019

Real Estate Prestige Estates Projects


Exhibit 7: We expect debt to increase in near-term on acquisitions and consolidation Prestige: Profit model, balance sheet, cash flow model, March fiscal year-ends, 2016-20E (Rs mn)


2016 2017 2018 2019E 2020E

Profit model

Net sales 55,310 47,745 54,986 49,241 46,779

EBITDA 10,663 9,197 10,940 11,251 11,632

Other income 2,831 872 679 1,461 1,388

Interest (3,462) (3,160) (3,827) (4,662) (4,429)

Depreciation (1,274) (1,637) (1,547) (2,401) (2,521)

Pre-tax profits 8,757 5,273 6,245 5,649 6,069

Tax (2,131) (2,299) (2,188) (1,808) (2,003)

Net income 6,465 3,672 4,110 3,841 4,066

Adjusted net income 6,527 3,783 4,703 3,565 3,866

Earnings per share (Rs) 17.4 10.1 12.5 9.5 10.3

Balance sheet

Total Equity 41,439 44,148 47,327 50,216 53,407

Minority interests 3,234 2,027 2,300 2,300 2,300

Gross debt 64,933 56,410 69,078 67,800 72,348

Non-current liabilities 2,149 4,507 4,297 4,297 4,297

Current liabilities 32,749 62,224 66,714 24,873 17,006

Total liabilities and equity 144,503 169,316 189,716 149,486 149,358

Net fixed assets 46,964 54,175 76,429 70,185 73,889

Other non-current assets and advances 15,070 16,786 18,622 18,642 18,179

Current assets 77,790 94,804 90,319 56,317 52,947

Investments 4,679 3,551 4,346 4,342 4,344

Total assets 144,503 169,316 189,716 149,486 149,358

Free cash flow

Operating cash flow, excl. working capital 7,750 7,180 6,271 6,650 6,388

Working capital changes (16,331) 10,351 10,429 (20,450) (6,193)

Capital expenditure (10,382) (8,848) (23,801) 3,842 (6,225)

Investments (1,892) 1,128 (795) 4 (2)

Free cash flow (20,855) 9,812 (7,896) (9,954) (6,032)

Ratios (%)

Debt/equity 157 128 146 135 135

Net debt/equity 145 119 130 144 148

RoE (%) 16.4 8.6 9.7 7.0 7.1

RoCE (%) 10.0 4.5 5.9 5.9 5.7

Book value per share (Rs) 111 118 126 134 142


1QFY19 results: significantly better than expected led by higher revenues

Escorts reported 1QFY19 EBITDA of `1.86 bn (+90% yoy), which was 10% above our estimates

due to higher-than-expected revenues in construction and railway divisions. Net revenues

increased by 32% yoy led by (1) 39.5% yoy increase in tractor volumes, (2) 64% yoy increase in

construction equipment revenues and (3) 49% yoy increase in railway division revenues in

4QFY18. Yoy comparison of revenues is distorted due to GST changes. Revenues were 8%

higher than our estimates led by significant improvement in construction and railway equipment

revenues. Construction equipment volumes for the company grew by 51.8% yoy to 1,345

machines in 1QFY19. EBITDA increased by 90% yoy in 1QFY19, which was 10% higher than

our estimates. EBITDA margin improved by 373 bps yoy to 12.3% in 1QFY19. Gross margin

improved by 70 bps yoy while operating leverage benefit was 310 bps yoy in 1QFY19.

In terms of segments, EBIT margin in the tractor segment was 14.2% (+340 bps yoy, -90 bps

qoq), which was lower than our estimate of 14.6%. EBIT margin in the tractor division was

impacted by `100 mn charge in staff cost due to change in actuarial assumptions (-80 bps qoq

impact). EBIT margin in the construction equipment segment declined to 2.4% in 1QFY19

(versus +5.1% in 4QFY18) led by an inferior product mix. EBIT margin in the railways segment

increased to 25.3% in 1QFY19 (versus 15.9% in 4QFY18) led by a richer product mix. The

company reported net profit of `1,196 mn (+90.7% yoy), which was 8% above our estimates

largely due to outperformance at the EBITDA level.

Increase our earnings estimates by 3-12% over FY2019-21

We have increased our earnings estimates by 3-12% over FY2019-21 mainly led by increase in

revenues in the construction and railway equipment divisions. We believe the company’s

EBITDA margin can improve further led by cost-reduction initiatives and operating leverage

benefit in FY2019/20. We have increased our target price to `1,200 (from `1,170 earlier) due

to increase in our earnings estimates. We value the stock at 17X on March 2020E EPS. The

stock trades at 13X on FY2020E EPS, which we believe is inexpensive due to strong earnings

growth (26% CAGR) over FY2018-21E.

Escorts (ESC) Automobiles

Benefitting from upcycle in its core segments. Escorts reported 90% yoy increase in

EBITDA led by 32% yoy growth in revenues and 373 bps yoy improvement in EBITDA

margin in 1QFY19. Reported EBITDA was 10% ahead of our expectations led by higher-

than-expected revenues. The company continues to benefit from strong demand in its

business segments. We maintain BUY rating on the stock and increase our target price

to `1,200 (from `1,170 earlier) based on 3-12% increase in our earnings estimates led

by rise in construction equipment and railway revenues.

BUY

JULY 31, 2018

RESULT


Price (`): 908


BSE-30: 37,494

Hitesh Goel

Nishit Jalan

Escorts







MFs 5.1 EBITDA (Rs bn) 5.6 7.6 8.9


Absolute 4.2 (9.6) 35.7 ROE (%) 13.5 17.6 18.0

Rel. to BSE-30 (1.6) (15.2) 16.9 Div. Yield (%) 0.4 1.0 1.2


1,018-544

77.4

Automobiles Escorts


Conference call takeaways

Tractor segment – company expects domestic tractor industry to grow at 12-15%

yoy in FY2019 (increased from 9-11% earlier). The share of Powertrac brand was

60% in 1QFY19 while the share of Farmtrac brand in tractor volumes was 40% in

1QFY19. The company expects to increase market share in the tractor segment in FY2019

led by new launches in South market and launch of lower HP range tractors in its

stronger markets. The company indicated that 8-10% of domestic tractor industry

volumes is influenced by government subsidies, which has increased in FY2019 versus

FY2018. The company expects 100 bps yoy improvement in tractor EBIT margin in

FY2019E.

Tractor exports. The company expects to reach export volumes of 3,000 units in

FY2019. The company believes it is on track to reach export volumes of 8,000-10,000

units in next 4-5 years.

Construction equipment segment. The construction equipment volumes for Escorts

grew by 51.8% yoy to 1,345 units in 1QFY19 and the company expects construction

equipment industry volumes to grow by 16-18% yoy in FY2019. The company achieved

an EBIT margin of 2.4% in 1QFY19 and targets to achieve 4-5% in FY2019.

Railways segment. Revenue in the railway division grew by 49% yoy in 1QFY19 (after

adjusting for excise duty changes). EBIT margin improved to 25.3% in 1QFY19 (from

15.9% in 4QFY18) led by a richer product mix, increase in export revenues and sales of

higher margin spare parts. The company expects to achieve EBIT margin of 17-18% in

FY2019. The company has an order book of `3 bn, which will be executed in 11-12

months. The company indicated that this order book is from existing products and new

products will start contributing to revenues in the next six months.

The company plans to spend `1 bn in expanding capacity for tractors in FY2019.

Escorts Credit financed 3,000 tractors of Escorts in 1QFY19. Escorts Credit is present in

6-7 states currently and will likely cover 70% of states where Escorts is present in by the

end of FY2019.

Escorts Automobiles


Exhibit 1: Escorts’ 1QFY19 EBITDA was 10% above our estimates led by higher revenues Escorts, standalone interim results, March fiscal year-ends (₹ mn)


Exhibit 2: We have increased our FY2019-21E earnings estimates by 3-12% on higher revenue assumptions Earnings revision table, March fiscal year-ends, 2019-21 (₹ mn, %)


1QFY19 1QFY19E 1QFY18 4QFY18 1QFY19E 1QFY18 4QFY18 FY2019E FY2018 Yoy (%)

Tractor volumes (units) 24,494 24,494 17,561 23,568 — 39.5 3.9 93,151 80,405 15.9

Tractor ASPs (Rs) 480,610 468,856 536,467 464,214 2.5 (10.4) 3.5 467,959 441,660 6.0

Total Income 15,113 13,993 11,423 14,361 8.0 32.3 5.2 61,523 49,951 23.2

Total Expenditure (13,257) (12,308) (10,447) (12,623) 7.7 26.9 5.0 (53,899) (44,379) 21.5

Raw materials (10,219) (9,417) (7,802) (9,676) 8.5 31.0 5.6 (41,528) (33,578) 23.7

Employee expense (1,211) (1,147) (1,153) (1,093) 5.5 5.0 10.8 (4,829) (4,311) 12.0

Other expenditure (1,828) (1,743) (1,492) (1,855) 4.8 22.5 (1.5) (7,542) (6,490) 16.2

EBITDA 1,855 1,685 976 1,738 10.1 90.1 6.8 7,624 5,572 36.8

Depreciation (206) (188) (178) (188) 9.2 15.6 9.2 (782) (725)

Interest (29) (63) (80) (63) (54.4) (63.9) (54.4) (80) (286)

Other income 170 226 205 226 (24.7) (17.2) (24.7) 956 594

PBT 1,791 1,659 923 1,712 7.9 93.9 4.6 7,717 5,156 49.7

Exceptional items — — — — — (68)

Tax expense (595) (548) (297) (586) 8.7 100.7 1.5 (2,470) (1,641)

Reported net profit 1,196 1,112 627 1,126 7.5 90.7 6.2 5,248 3,447 52.3

Number of shares (mn) 89 89 89 89 89 89

EPS 13.5 12.5 7.1 12.7 90.7 6.2 59.1 38.8 52.3

Ratios (%)

RM as % of sales 67.6 67.3 68.3 67.4 67.5 67.2

Employee cost as % of sales 8.0 8.2 10.1 7.6 7.8 8.6

Other expenditure as % of sales 12.1 12.5 13.1 12.9 12.3 13.0

EBITDA margin (%) 12.3 12.0 8.5 12.1 12.4 11.2

Effective tax rate 33.2 33.0 32.1 34.3 32.0 31.8

Segmental revenues

Tractor 11,772 11,484 9,421 10,941 2.5 25.0 7.6 43,591 35,512 22.8

Construction 2,460 1,800 1,500 2,660 36.7 64.0 (7.5) 9,945 7,650 30.0

Railways 881 708 590 760 24.5 49.4 15.9 3,513 2,810 25.0

Unallocated — — 1 — — (88)

Traded Revenues 4,474 4,067

Less: Intersegmental — 1 (88) 1 — —

Total revenues 15,113 13,993 11,423 14,362 8.0 32.3 5.2 61,523 49,951 23.2

Segmental EBIT

Tractor 1,666 1,677 1,018 1,657 (0.6) 63.8 0.6 7,210 5,399 33.5

Construction 59 54 (35) 136 9.1 (269.7) (56.6) 348 150

Railways 223 110 64 121 102.7 246.3 85.1 597 397 50.4

Unallocated (129) (120) (45) (139) 7.3 186.9 (7.1) (187) (88) 112.5

Total EBIT 1,820 1,721 1,002 1,775 5.7 81.5 2.5 7,968 5,858 36.0

EBIT margin (%)

Tractor 14.2 14.6 10.8 15.1 15.0 13.6

Construction 2.4 3.0 (2.3) 5.1 3.5 2.0

Railways 25.3 15.5 10.9 15.9 17.0 14.1

Overall EBIT margin 12.0 12.3 8.8 12.4 13.0 11.7

(% chg.)

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Tractor volumes (units) 93,151 99,131 104,969 89,229 99,237 105,175 4.4 (0.1) (0.2)

Net sales 61,523 68,655 75,993 56,771 65,255 72,995 8.4 5.2 4.1

EBITDA 7,624 8,905 9,788 6,978 8,643 9,509 9.3 3.0 2.9

EBITDA margin (%) 12.4 13.0 12.9 12.3 13.2 13.0

Reported net profit 5,248 6,290 6,934 4,701 5,957 6,749 11.6 5.6 2.7

EPS (Rs) 59.1 70.8 78.0 52.9 67.0 75.9 11.6 5.6 2.7

Change (%)Old estimatesNew estimates

Automobiles Escorts


Exhibit 3: Escorts has gained 20 bps market share in FY2018 led by share gain in Central and Western states Region-wise and overall domestic market share of key tractor players, March fiscal year-ends, 2011-18 (%)

Source: Tractor Manufacturer’s Association, Kotak Institutional Equities

2011 2012 2013 2014 2015 2016 2017 2018

North

M&M (with PTL) 33.7 34.1 34.4 36.6 36.5 34.8 36.0 36.2

TAFE (with Eicher Motors) 25.3 29.4 29.4 29.8 29.5 28.9 25.9 24.4

Escorts Ltd 20.0 17.2 16.3 15.8 15.4 15.4 16.5 16.4

Sonalika 10.8 9.7 10.9 11.8 13.7 12.6 12.8 13.4

Others (John Deere, New Holland etc) 10.2 9.5 9.0 6.0 4.9 8.3 8.8 9.6

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Central

M&M (with PTL) 38.9 38.8 38.8 38.9 37.3 36.0 38.7 37.7


Escorts Ltd 15.2 13.5 12.3 11.7 11.2 11.8 13.0 13.5

Sonalika 9.8 9.8 10.8 11.1 13.2 14.1 13.4 13.8


Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

West

M&M (with PTL) 47.1 47.2 45.6 45.5 45.1 44.4 45.3 45.2


Escorts Ltd 8.5 6.1 5.8 4.9 4.2 4.8 5.2 6.4

Sonalika 7.1 6.8 8.5 9.6 10.9 11.5 11.0 10.7


Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

East

M&M (with PTL) 50.2 47.1 47.1 43.0 41.7 49.3 51.0 50.7


Escorts Ltd 12.3 11.2 11.4 9.9 9.7 10.5 11.2 11.5

Sonalika 11.1 11.6 10.9 11.2 12.7 15.0 15.6 15.7


Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

South

M&M (with PTL) 49.3 48.9 48.4 48.4 46.9 48.4 48.6 48.8


Escorts Ltd 5.0 4.8 4.6 3.6 4.1 4.0 4.2 3.7

Sonalika 3.8 4.1 4.8 5.3 6.9 6.8 7.2 7.2


Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

India overall

M&M (with PTL) 42.2 41.8 40.6 41.0 40.3 41.3 42.8 42.7


Escorts Ltd 13.2 11.4 11.6 10.7 10.4 10.3 10.8 11.0

Sonalika 8.6 8.3 9.6 10.3 12.0 11.9 11.9 12.1


Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Escorts Automobiles


Exhibit 4: Northern states have outperformed while Central states have underperformed in FY2018 Regional tractor industry volume mix, March fiscal year-ends, 2011-18 (%)


Exhibit 5: Over the past few years, Escorts has gained share in states where it has relatively strong

presence Escorts’ market share in domestic tractor market across key states, March fiscal year-ends, 2011-18 (%)


2011 2012 2013 2014 2015 2016 2017 2018

North 35.0 36.1 40.0 38.4 39.7 36.0 33.4 34.3

Central 12.7 11.9 16.4 17.7 15.2 13.2 13.9 13.0

West 19.6 21.2 16.6 17.7 17.5 16.5 17.1 17.2

East 12.8 12.1 13.1 12.8 13.4 15.8 15.5 15.7

South 19.8 18.7 14.0 13.4 14.3 18.5 20.3 19.8

2011 2012 2013 2014 2015 2016 2017 2018

Andhra Pradesh 3.8 3.4 4.6 3.7 4.6 5.0 4.9 4.4

Bihar 15.9 15.7 16.0 14.8 13.8 15.3 15.2 16.0

Chattisgarh 7.5 6.2 6.3 6.4 7.1 7.1 7.9 8.5

Gujarat 8.9 6.6 5.6 5.0 5.2 6.2 7.1 8.6

Haryana 25.1 21.0 19.1 17.5 16.6 18.4 18.5 19.9

Karnataka 5.1 5.8 5.0 3.1 3.5 3.1 2.9 2.7

Madhya Pradesh 17.2 15.4 13.7 13.2 12.6 13.4 14.4 14.8

Maharashtra 8.3 5.6 6.0 4.8 3.3 3.4 3.5 5.0

Orissa 3.8 2.6 2.0 1.2 1.5 1.8 2.8 4.7

Punjab 16.8 12.3 13.5 12.0 13.5 12.6 13.0 10.1

Rajasthan 17.0 16.2 15.3 14.6 13.9 13.4 14.8 14.8

Tamil Nadu 7.5 5.7 3.5 4.1 4.0 3.0 3.8 3.0

Uttar Pradesh 20.9 18.4 17.4 17.4 16.4 17.4 18.6 17.6

West Bengal 13.6 10.3 9.0 8.3 10.6 10.1 11.5 9.5

Others 11.8 10.3 9.5 7.9 8.6 7.1 8.4 11.4

Total 13.2 11.4 11.6 10.7 10.4 10.3 10.8 11.0

Automobiles Escorts


Exhibit 6: Escorts has gained share in 30-40 HP and >51 HP segments in FY2018 HP-wise volumes and domestic market share of key tractor players, March fiscal year-ends, 2011-18 (%)


Exhibit 7: We expect tractor volumes to grow at 9% CAGR over FY2018-21E Tractor volume and yoy growth assumptions, March fiscal year-ends, 2011-21 (units, %)


Volumes (units) 2011 2012 2013 2014 2015 2016 2017 2018 Market share (%) 2011 2012 2013 2014 2015 2016 2017 2018

Upto 30 HP Upto 30 HP

M&M 35,478 41,332 36,996 38,092 30,815 26,582 26,986 33,324 M&M 49.5 50.3 55.7 53.8 51.5 50.0 49.9 49.3

TAFE 19,833 22,386 17,757 18,205 13,346 9,609 8,228 11,336 TAFE 27.7 27.2 26.7 25.7 22.3 18.1 15.2 16.8

Escorts 8,940 8,649 1,260 549 591 1,016 1,122 2,341 Escorts 12.5 10.5 1.9 0.8 1.0 1.9 2.1 3.5

Sonalika 1,712 1,570 2,849 4,420 5,734 5,049 5,445 6,609 Sonalika 2.4 1.9 4.3 6.2 9.6 9.5 10.1 9.8

John Deere — — — — — — — — John Deere — — — — — — — —

Others 5,649 8,282 7,587 9,543 9,380 10,859 12,333 14,005 Others 7.9 10.1 11.4 13.5 15.7 20.4 22.8 20.7

Total 71,612 82,219 66,449 70,809 59,866 53,115 54,114 67,615 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

30-40 HP 30-40 HP

M&M 96,810 98,844 69,892 81,762 73,696 69,104 82,792 95,117 M&M 44.0 40.4 36.3 36.6 36.4 38.3 41.0 37.3

TAFE 67,892 89,481 57,545 66,911 60,137 53,505 54,108 71,971 TAFE 30.9 36.6 29.9 30.0 29.7 29.6 26.8 28.2

Escorts 19,977 18,616 27,329 31,821 28,899 23,574 25,437 36,977 Escorts 9.1 7.6 14.2 14.3 14.3 13.1 12.6 14.5


John Deere 7,070 8,312 7,555 7,532 5,418 4,920 9,124 15,788 John Deere 3.2 3.4 3.9 3.4 2.7 2.7 4.5 6.2

Others 8,824 8,213 8,308 8,150 8,049 6,717 5,159 5,748 Others 4.0 3.4 4.3 3.6 4.0 3.7 2.6 2.3

Total 219,787 244,431 192,622 223,304 202,452 180,581 201,856 254,770 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

40-50 HP 40-50 HP

M&M 37,569 43,258 102,286 132,654 109,276 98,995 128,141 161,367 M&M 28.6 30.2 42.7 43.0 42.6 43.7 44.9 48.1

TAFE 9,865 13,096 56,093 71,416 60,186 49,024 55,996 51,242 TAFE 7.5 9.2 23.4 23.1 23.5 21.7 19.6 15.3

Escorts 34,531 33,721 30,981 33,693 24,897 24,142 33,315 34,979 Escorts 26.2 23.6 12.9 10.9 9.7 10.7 11.7 10.4



Others 20,773 23,803 18,546 23,739 19,240 14,768 14,965 17,914 Others 15.8 16.6 7.7 7.7 7.5 6.5 5.2 5.3

Total 131,563 143,102 239,415 308,810 256,290 226,398 285,261 335,607 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

> 51 HP > 51 HP

M&M 33,774 40,850 5,198 7,399 8,547 9,053 11,764 14,211 M&M 57.0 60.8 17.8 23.7 26.0 27.6 28.3 26.6

TAFE 1,017 753 292 520 902 1,188 1,146 1,719 TAFE 1.7 1.1 1.0 1.7 2.7 3.6 2.8 3.2

Escorts — — 1,712 1,997 3,178 1,966 2,825 4,149 Escorts — — 5.8 6.4 9.7 6.0 6.8 7.8



Others 1,193 1,203 5,312 4,681 4,699 3,933 5,057 6,635 Others 2.0 1.8 18.1 15.0 14.3 12.0 12.2 12.4

Total 59,294 67,134 29,276 31,228 32,855 32,838 41,613 53,486 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Overall volumes Total

M&M 203,631 224,284 214,372 259,907 222,334 203,734 249,683 304,019 M&M 42.2 41.8 40.6 41.0 40.3 41.3 42.8 42.7

TAFE 98,607 125,716 131,687 157,052 134,571 113,326 119,478 136,268 TAFE 20.4 23.4 25.0 24.8 24.4 23.0 20.5 19.2

Escorts 63,448 60,986 61,282 68,060 57,565 50,698 62,699 78,446 Escorts 13.2 11.4 11.6 10.7 10.4 10.3 10.8 11.0



Others 36,439 41,501 39,753 46,113 41,368 36,277 37,514 44,302 Others 7.6 7.7 7.5 7.3 7.5 7.4 6.4 6.2

Total 482,256 536,886 527,762 634,151 551,463 492,932 582,844 711,478 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

2011 2012 2014 2015 2016 2017 2018 2019E 2020E 2021E

Tractor volumes

Domestic 58,227 61,344 105,305 57,565 50,698 62,699 78,446 90,213 94,724 99,460

Exports 1,590 1,989 1,252 2,214 757 1,087 1,959 2,939 4,408 5,510

Total volumes 59,817 63,333 106,557 59,779 51,455 63,786 80,405 93,151 99,131 104,969

Tractor capacity 98,940 98,940 98,940 98,940 98,940 98,940 98,940 98,940 113,940 113,940

Capacity utilization (%) 60.5 64.0 71.8 60.4 52.0 64.5 81.3 94.1 87.0 92.1

Yoy (%)

Domestic 0.3 5.4 71.7 (45.3) (11.9) 23.7 25.1 15.0 5.0 5.0

Exports (21.2) 25.1 (37.1) 76.8 (65.8) 43.6 80.2 50.0 50.0 25.0

Total volumes (0.4) 5.9 68.2 (43.9) (13.9) 24.0 26.1 15.9 6.4 5.9

Notes:

(a) 2011-12 volumes are for year-ending September period.

(b) FY2014 volumes are for 18-month period (September 2012 to March 2014).

(c) Volumes for 2015-20 are for year-ending March period.

Escorts Automobiles


Exhibit 8: We expect tractor segment EBIT margins to improve to 15% by FY2019E Segmental revenue and EBIT assumptions, March fiscal year-ends, 2014-21 (` mn, %)


2014 2015 2016 2017 2018 2019E 2020E 2021E

Segmental revenues (Rs mn)

Tractors (includes traded revenues) 51,333 31,883 27,269 33,460 39,579 48,065 53,003 57,782

Railways 2,055 2,463 2,370 2,445 2,810 3,513 4,215 5,058

Construction 7,395 5,069 4,965 6,068 7,650 9,945 11,437 13,152

Auto component 1,893 967 1,005 513 — — — —

Inter-segment eliminations — — (217) (297) (88) — — —

Gross revenues 62,676 40,381 35,392 42,189 49,951 61,523 68,655 75,993

Yoy growth in revenues (%)

Tractors (includes traded revenues) (37.9) (14.5) 22.7 18.3 21.4 10.3 9.0

Railways 19.8 (3.8) 3.2 14.9 25.0 20.0 20.0

Construction (31.5) (2.0) 22.2 26.1 30.0 15.0 15.0

Auto component (48.9) 4.0 (48.9)

Gross revenues (35.6) (12.4) 19.2 18.4 23.2 11.6 10.7

Segmental EBIT (Rs mn)

Tractors 4,964 2,293 2,236 3,446 5,399 7,210 7,950 8,667

Railways 146 175 224 307 397 597 717 860

Construction (322) (248) (257) (138) 150 348 686 921

Auto component (296) (237) (170) (103) — — — —

Others (including unallocable expenses and exceptional items) (697) (730) (329) (574) (88) (187) (141) (124)

Overall EBIT 3,794 1,254 1,703 2,938 5,858 7,968 9,212 10,324

Segmental EBIT margin (%)

Tractors 9.7 7.2 8.2 10.3 13.6 15.0 15.0 15.0

Railways 7.1 7.1 9.5 12.5 14.1 17.0 17.0 17.0

Construction (4.4) (4.9) (5.2) (2.3) 2.0 3.5 6.0 7.0

Auto component (15.7) (24.5) (16.9) (20.0)

Overall EBIT margin 6.1 3.1 4.8 7.0 11.7 13.0 13.4 13.6

Notes:

(a) FY2014 financials are for 18-month period (September 2012 to March 2014).

(b) Financials for 2015-20 are for year-ending March period.

Automobiles Escorts


Exhibit 9: We expect EPS to grow at 26% CAGR over FY2018-21E Financial summary of Escorts, March fiscal year-ends, 2011-21 (` mn, %)


2011 2012 2014 2015 2016 2017 2018 2019E 2020E 2021E


Net sales 32,382 38,939 62,915 39,858 33,668 40,932 49,951 61,523 68,655 75,993

EBITDA 1,481 1,822 3,812 1,299 1,767 3,237 5,572 7,624 8,905 9,788

Other income 417 489 814 606 558 435 594 956 1,219 1,482

Interest (558) (964) (1,107) (571) (495) (311) (286) (80) — —

Depreciation (380) (484) (832) (661) (575) (631) (725) (782) (873) (1,074)

Profit before tax 960 863 2,688 674 1,255 2,730 5,156 7,717 9,250 10,197

Extraordinary income/(losses) 47 17 36 (306) (123) 38 (68) — — —

Tax 195 (183) (275) 65 (125) (756) (1,641) (2,470) (2,960) (3,263)

Reported net profit 1,201 696 2,449 432 1,007 2,011 3,447 5,248 6,290 6,934

Adjusted net profit 1,168 684 2,423 647 1,093 1,985 3,494 5,248 6,290 6,934

Earnings per share (Rs) 13.5 7.8 27.6 4.9 11.3 22.6 38.8 59.1 70.8 78.0


Equity 17,985 16,139 18,314 17,963 18,377 19,912 25,481 29,784 34,942 40,628

Total borrowings 2,858 4,599 3,504 4,084 3,076 2,117 137 — — —

Other liabilities 10,528 13,562 13,109 11,824 11,229 13,103 17,077 19,484 21,512 23,625

Total liabilities 31,371 34,301 34,927 33,871 32,682 35,132 42,695 49,268 56,454 64,253

Net fixed assets 15,072 16,527 16,800 16,385 16,175 16,122 16,478 16,896 19,022 19,949

Investments 3,658 3,823 3,815 3,834 4,155 5,875 8,943 8,943 8,943 8,943

Cash 2,034 1,306 2,619 2,364 313 545 3,119 6,490 9,518 14,249

Other current assets 10,608 12,645 11,692 11,288 12,040 12,590 14,154 16,939 18,970 21,113

Total assets 31,371 34,301 34,927 33,871 32,682 35,132 42,695 49,268 56,454 64,253


Operating cash flow excl. working capital 1,415 1,457 3,230 1,180 1,860 2,610 4,927 6,110 7,164 8,008

Working capital changes 324 (1,483) (155) (1,195) 357 398 2,060 (378) (3) (29)

Capital expenditure (931) (1,063) (1,184) (517) (465) (528) (1,081) (1,200) (3,000) (2,000)

Free cash flow 334 (1,893) 960 (1,026) 1,305 2,202 5,622 4,452 4,160 5,979

Ratios

EBITDA margin (%) 4.6 4.7 6.1 3.3 5.2 7.9 11.2 12.4 13.0 12.9

PAT margin (%) 3.7 1.8 3.9 1.1 3.0 4.9 6.9 8.5 9.2 9.1

Net debt/equity (X) 0.0 0.2 0.0 0.1 0.2 0.1 (0.1) (0.2) (0.3) (0.4)

Book value (Rs/share) 202 182 206 202 207 224 287 335 393 457

RoAE (%) 6.7 4.3 13.4 2.4 5.5 10.1 13.5 17.6 18.0 17.1

RoACE (%) 4.1 4.9 10.8 2.3 4.1 8.6 15.4 20.9 23.1 23.6

Notes:

(a) Financials for 2011-12 are for year-ending September period

(b) FY2014 financials are for 18-month period (September 2012 to March 2014)

(c) Financials for 2015-20 are for year-ending March period


Core earnings up 18% yoy

HDFC reported PAT (Ind-AS) of `21.9 bn, 54% yoy. Core earnings (PBT excluding capital gains,

dividend income and provisions) rose 18% yoy. AUMs were up 18% yoy to `4.18 tn. NIM

(calculated) was 2.92% versus 2.82% in 1QFY18; expansion in NIM likely due to surplus funds

on balance sheet post recent capital issuance. Reported spread was 2.28% versus 2.29% in

1QFY18. The company recognized dividend income of `5.8 bn in 1QFY19 versus `599 mn in

1QFY18-dividend income from HDFC Bank was booked in 1QFY19 versus 2Q in FY2018. This

was the key reason for high yoy growth in earnings.

Ind-AS migration – Three points of reckoning

HDFC, like other non-banks, migrated to Ind-AS in 1QFY19. There are key items for reckoning:

(1) HDFC will need to pass premium on redemption of debentures for ZCB from the P&L; the

company adjusted `3.84 bn of such premium with share premium account last year- this will

put pressure on its reported earnings hereafter. (2) The company has identified stressed loans of

2.5% (~`85 bn of loans) which are classified as standard loans under stage 3- these, according

to the management, are loans reckoned as stressed internally and include individual and non-

individual loans. (3) Deferred tax liability created under section 36 (1) (viii) of Income Tax Act for

about 20% of its tax liability will be added back to its net worth; we have anyways considered

this in calculating our book value estimates.

Downgrade to ADD; TP of `2,075

We are revising our estimates to incorporate Ind-AS in our forecasts and cut our rating to ADD

from BUY. We expect the company to deliver 18% in core earnings during FY2018-21E and

about 16-18% medium-term core RoEs. At our SOTP of `2,075, we value (1) the core business

at 2.9X book, (2) HDFC Bank at our TP of `2,000 and (3) HDFC Life at our out TP of `405; we

assign 10% holding-company discount to the value of listed subsidiaries. Key sensitivities

include (1) trends in stressed loans, (2) NIM trajectory in a rising rate cycle and (3) growth in

subsidiaries that contribute to about 50% of the SOTP.

HDFC (HDFC) NBFCs

Growth on track, stressed loans under focus. HDFC delivered 18% growth in

individual loans, in line with previous periods. Reported spreads were stable though

NIM expanded yoy likely due to surplus funds on balance sheet post recent capital

issuance. While NPLs remain low, trends in standard stressed loans (disclosed under

stage 3 exposures of Ind-AS) at 2.5% of the loan book remain crucial. The stock is

trading close to our price target (unchanged at `2,075); we hence downgrade our

rating by a notch to ADD from BUY.

ADD

JULY 31, 2018

RESULT, CHANGE IN RECO.


Price (`): 2,028


BSE-30: 37,494

QUICK NUMBERS

PAT up 54% yoy

based on Ind-AS

AUM increased 18%

yoy in 1QFY19

Calculated NIM up

10 bps yoy to 2.9%

based on Ind-AS

Nischint Chawathe

M B Mahesh CFA

Dipanjan Ghosh

Shrey Singh

HDFC





Promoters 0.0 NII (Rs bn) 92.8 99.7 125.0


MFs 6.0 BVPS 380.3 438.3 480.0

Price performance (%) 1M 3M 12M P/B (X) 5.3 4.6 4.2

Absolute 6.3 7.7 13.6 ROE (%) 23.9 13.8 14.5



2,053-1,638

3,427.9

NBFCs HDFC


Exhibit 1: HDFC - quarterly data Mach fiscal year-ends, 1QFY18-1QFY19 (` mn)


Exhibit 2: Reconciliation of profit as per Ind-AS

Source: Company

Ind-AS IGAAP Ind-AS IGAAP Ind-AS IGAAP Ind-AS

1QFY19 1QFY19E 1QFY18 4QFY18 1QFY19E 1QFY18 4QFY18 2019E 2018 (% chg.) 2020E

Operating income 99,407 95,380 82,791 96,284 4 20 3 434,340 404,421 7 515,308

Interest on loans 90,627 88,000 80,688 87,750 3 12 3 386,898 315,197 23 467,696

Fees and other charges 215 450 255 649 (52) (16) (67) 3,099 1,448 114 2,738

Dividend 5,859 5,850 599 3,315 0 878 77 12,951 10,793 20 15,542

Sale of investment 2 30 18 3,006 (93) (88) (100) 9,000 56,350 (84) 9,900

Other op income 2,704 1,050 1,231 1,565 158 120 73 22,369 20,608 9 19,411

Interest expense 63,527 60,000 57,543 57,109 6 10 11 287,183 222,350 29 342,689

Net operating income 35,880 35,380 25,248 39,176 1 42 (8) 147,157 182,071 (19) 172,618

Op. inc. excl. gains, capital gains and

lease income 30,019 29,500 24,631 32,855 2 22 (9) 138,134 125,695 10 162,698

Net Fund based income 35,665 34,930 24,994 38,527 2 43 (7) 144,058 180,623 (20) 169,880

Net Fund based income (int income less

int exp) 27,101 28,000 23,145 30,641 (3) 17 (12) 122,084 113,455 8 144,418

Expenses 4,966 3,220 3,379 2,196 54 47 126 10,263 8,858 16 10,929

Staff expenses 3,243 1,100 2,075 959 195 56 238 5,667 4,255 33 6,359

Other expenses 1,724 2,120 1,303 1,237 (19) 32 39 4,596 4,604 (0) 4,571

PBDT 30,717 31,480 20,233 35,180 (2) 52 (13) 130,056 152,685 (15) 154,735

Depreciation 130 125 119 125 4 9 4 500 492 2 525

Other income 113 120 109 117 (6) 4 (4) 463 463 0 463

Provisions 197 1,636 1,800 (88) (89)

PBT 30,700 31,475 20,224 35,172 (2) 52 (13) 130,018 152,656 (15) 154,673

Tax 8,460 6,663 6,531 5,357 27 30 58 34,195 26,300 30 40,679

PAT before DTL/normalised 22,240 24,813 13,693 29,816 (10) 62 (25) 95,824 126,356 (24) 113,994

DTL 340 2,306 (552) 1,353 (85) NM (75) - 4,700 (100) -

PAT 21,900 22,506 14,245 28,462 (3) 54 (23) 95,824 121,656 (21) 113,994

PBT before capital gains, dividend and

provisions25,036 25,595 21,243 30,651 (2) 18 (18)

Other details

AUM (Rs bn) 4,188 3,549 3,988 18 5 4,722 3,988 18 5,602

NIM-KS (%) 2.92 2.92 2.82 3.33 0 bps 10 bps -41 bps 2.5 2.8 2.6

Gross NPL ratio (%) 1.18 1.12 1.11 6 bps 7 bps 1.11 1.11 1.12

CAR (%) 16.3 14.7 19.2 160 bps -290

Tier I (%) 15.00 12.10 17.30 290 bps -230

Avg spread - reported (%) 2.28 2.29 2.29 -1 bps -1 bps

Cost-income (%) 14 14 6 37 bps 825 bps

Balance sheet (Rs bn)

Sharecapital 3,367 3,186 3,352 6 0 3,425 3,352 2 3,425

Loans 3,720 3,136 3,594 19 3 4,301 3,594 20 5,147

Individuals 2,570 2,158 2,515 19 2 3,011 2,515 20 3,603

Corporate bodies 1,090 929 1,024 17 6

Others 60 48 56 24 7

Loan book calculations

Loan on balance sheet 3,720 3,680 3,136 3,594 1 19 3 4,301 3,594 20 5,147

Loans outside balance sheet 468 413 394 13 19 421 394 7 455

Loans under management 4,188 3,549 3,988 18 5 4,722 3,988 18 5,602

Individual loans 3,038 2,571 2,908 18 4 3,432 2,908 18 4,058

Other loans 1,150 978 1,080 18 6 1,290 1,080 20 1,544

(% chg.)

1QFY18

PAT as per IGAAP 15,524

Adjustment on account of effective interest rate / forex

valuation / net interest on credit impaired loans (1,063)

Adjustment on account of expected credit loss (506)

Adjustment due to fair valuation of employee stock options (952)

Fair value change in investments 175

Reversal of deferred tax liability for the quarter 1,052

Other adjustments 14

Net adjustment (1,280)

Net profit after tax as per Ind-AS 14,245

HDFC NBFCs


Exhibit 3: Comparison of profits under Ind-AS and IGAAP March fiscal year-ends, 1QFY18 (Rs mn)

Source: Company

AUM growth maintains momentum; up 18% yoy

Strong AUM growth in 1QFY19. HDFC reported 18% yoy AUM growth in 1QFY19

driven by similar yoy growth in individual and non-individual segment. Individual segment

continued to witness robust growth for the third quarter in a row (>16% yoy growth).

Individual loan disbursements grew by 17% yoy in 1QFY19, compared to 10% yoy

growth in FY2017 and 27% yoy in FY2018. This led to robust individual loan AUM at

18% yoy. Growth has mostly been driven by strong volume as the average ticket size is

broadly constant at `2.7 mn (similar to the average ticket size for individual loans for the

last 7-8 quarters). A large portion of the incremental growth is coming from tier-II and

lower cities as the company has increased its focus on affordable housing. Non-individual

AUM also recorded growth at 17.6% yoy in 1QFY19, lower than 21-23% over the

previous four quarters. The company has been selective in lending to this segment.

Affordable housing disbursements pick pace. HDFC has increased its focus towards

the economically weaker section (EWS) and low income group (LIG) segments. These

segments contributed 37% of home loans approved in volume terms and 19% in value

terms during 1QFY19. The average home loan to the EWS and LIG segment stood at

`1.01 mn and `1.76 mn respectively; stable qoq. Going ahead, the company is expected

to ramp up business expansion in these segments.

Loan sell down saw a sharp spike in 1QFY19. HDFC sold `97 bn of loans to HDFC

Bank (`29 bn in 1QFY18). The increase in the amount of loans assigned to HDFC Bank in

1QFY19 was due to the fact that no loan assignments were done since August 2017.

Thus, the entire loan assignments during 1QFY19 pertained to the backlog under the

arrangement. The company will continue to accrue net spread of 1.25% on these loans

YoY

IGAAP Ind-AS (%)

Operating income 81,316 82,791 2

Interest income 79,259 80,688 2

Interest on loans 76,141 77,570 2

Other interest 3,118 3,118 0

Fees and other charges (net of commission) 377 255 (32)

Dividend 599 599 0

Profit on sale of investment 21 18 (13)

Other operating income 1,060 1,231 16

Interest expenses 54,444 57,543 6

Net operating income 26,872 25,248 (6)

NII 24,815 23,145 (7)

Other income 109 109 (0)

Total income 26,981 25,357 (6)

Operating expenses 2,577 3,497 36

Staff expenses 1,155 1,124 (3)

Adjustment due to fair value stock options 0 952

Establishment expenses 328 328 0

CSR expenses 0 0

Depreciation 119 119 0

Others 976 976 0

PPOP 24,404 21,860 (10)

Provisions 850 1,636 93

PBT 23,554 20,224 (14)

Tax 8,030 5,979 (26)

PAT 15,524 14,245 (8)

Tax rate (%) 34 30 -453 bps

Cost-income (%) 10 14 424 bps

NBFCs HDFC


in its P&L through the tenure of the loan. Notably, other NBFCs have followed a policy of

up fronting income on loan sell assignments in the Ind-AS framework; HDFC has not yet

taken a call on the same.

We forecast 19% AUM CAGR over FY2018-21E. We forecast 19% AUM CAGR over

FY2018-2021E driven by gradual revival in demand, rapid expansion in lending to

affordable housing segment and a rise in interest rates (up ~5-20 bps in the last few

months for most major players). Additionally, larger players like HDFC are better-placed to

participate in the expected consolidation in the construction finance space.

Exhibit 4: Average ticket size of individual loans is `2.6 mn; broadly constant over the last few

quarters HDFC individual segment loan size, 1QFY16-1QFY19 (Rs mn)

Source: Company

Exhibit 5: Individual loan growth maintains steady pace; up 185

yoy in 1QFY19 March fiscal year-end, 1QFY14-1QFY19 (%)

Note: 1) 1QFY18 and 1QFY19 numbers are based on Ind-AS.


Exhibit 6: Non-individual loan growth has dropped in last few

quarters March fiscal year-end, 1QFY14-1QFY19 (%)

Note: 1) 1QFY18 and 1QFY19 numbers are based on Ind-AS.


2.34 2.36

2.50

2.33

2.532.57 2.57 2.56

2.63 2.60 2.62 2.64 2.67

2.0

2.2

2.4

2.6

2.8

3.0

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

Average ticket size (Rs mn)

15

17

19

21

23

25

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

5

9

13

17

21

25

1Q

FY14

2Q

FY14

3Q

FY14

4Q

FY14

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2Q

FY18

3Q

FY18

4Q

FY18

1Q

FY19

HDFC NBFCs


Exhibit 7: Affordability has improved over the past few years Price-to-income trend in Bangalore, March fiscal year-ends, 2010-2020E


Exhibit 8: Sourcing through HDFC bank has increased in last few years AUM origination mix, March fiscal year-ends, 2014-2018 (%)


Calculated NIM expands, compression built in our forecasts

Surplus funds boost NIM in 1QFY19. HDFC’s calculated NIM increased ~10 bps yoy to

2.9% in 1QFY19. Reported spreads on loans were broadly stable at 2.3% in 1QFY19

(marginally up 4 bps yoy). Surplus funds post recent capital issuance were parked as

short-term investments leading to higher income on liquid funds. The company has

infused `85 bn (out of total of `130 bn) in HDFC Bank in July 2018; the balance will be

deployed over the next few quarters in other strategic investments.

NIM compression in our forecasts. We expect lending spreads to cumulatively decline

by ~50 bps over FY2018-21E, driven by rise in cost of funds.

Inaccurate to compare NIM with FY2018. It would be inaccurate to compare NIM

between FY2018 and FY2019-21E as the latter is under Ind-AS which has two key

adjustments viz. (1) fee income (net of DSA expenses) is deferred over the tenure of the

loan unlike upfront booking earlier; since the DSA expenses were higher than fees

charged to customers, this will have a positive impact on realization under Ind-AS as

compared to IGAAP and (2) premium on redemption of ZCBs (about `1 bn/quarter) will

be added to interest expenses; this was earlier adjusted with share premium account.

Rise in home loan rate to provide some comfort on yields. Despite a highly

competitive environment, most HFCs and banks have increased their home loan rate in

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E

Gross average household income In Bangalore (for households

with annual income > Rs200,000) (a)994,955 1,044,702 1,149,173 1,279,029 1,414,606 1,560,311 1,727,264 1,882,718 2,052,162 2,236,857 2,438,174

Income growth (%) (a) 5.0% 5.0% 10.0% 11.3% 10.6% 10.3% 10.7% 9.0% 9.0% 9.0% 9.0%

Blended average pricing of area sold (a) 3,339 3,542 4,618 4,865 5,668 5,920 5,626 5,738 5,853 5,970 6,090

Price of a 1,200 sq. ft house (Rs mn) (including taxes and incidentals) 5.0 5.3 7.0 7.3 8.4 8.7 8.3 8.5 8.6 8.8 8.9

Price/income ratio (X) 5.0 5.1 6.1 5.7 5.9 5.6 4.8 4.5 4.2 3.9 3.7

Notes:

(a) Media reports, studies and discussion with industry participants.

(b) Blended average pricing of Brigade, Prestige, Purvankara and Sobha.

46 49 49 50 51

2424 26 25 27

1818 17 18 16

12 9 8 7 6

0

20

40

60

80

100

2014 2015 2016 2017 2018

HDFC sales HDFC bank Other direct selling agents Direct walk-ins

NBFCs HDFC


the last two months (HDFC raised its home loan rates by ~20 bps on the retail side).

Going ahead, the rise in home loan rates will provide comfort to yields.

Bond yields rise, shift to term loans. Given the rising bond borrowing rates since

3QFY18, there is a slight increase (up 440 bps yoy and 140 bps qoq) in the share of term

loans in the borrowing mix. Notably, bond borrowing cost for HDFC had increased by

~90 bps in March 2018 to 7.9% from trough levels seen in August.

Bond yields may not rise hereon. Our economist does not expect debt market

dynamics to change dramatically in either direction for the bond markets. We hence

believe that overall bond yields for HDFC will not increase from hereon even as weighted

average cost of funds catches up with marginal rates.

Exhibit 9: HDFC has increased share of bank borrowings in the last few quarters Calculated rate of interest on borrowings, March fiscal year-ends, 1QFY17-1QFY19 (%)


Exhibit 10: Cost of bond borrowings increased since 3QFY18 Cost of bond borrowings, March fiscal year-ends, March 2014-July 2018 (%)

Source: Company, Kotak Institutional Equities, Prime database

IGAAP IGAAP IGAAP IGAAP Ind-AS IGAAP IGAAP IGAAP Ind-AS


Total borrowings (Rs bn) 2,474 2,555 2,636 2,805 2,864 3,003 3,080 3,207 3,325

Term loans 344 296 314 373 332 390 409 468 534

Bonds/debentures/CPs 1,313 1,416 1,468 1,567 1,679 1,711 1,719 1,816 1,797

Deposits 816 843 854 866 853 902 951 922 994

% share

Term loans 13.9 11.6 11.9 13.3 11.6 13.0 13.3 14.6 16.0

Bonds/debentures/CPs 53.1 55.4 55.7 55.9 58.6 57.0 55.8 56.6 54.1

Deposits 33.0 33.0 32.4 30.9 29.8 30.0 30.9 28.8 29.9

Borrowing costs (%) 8.4 8.3 8.1 7.7 8.1 7.5 7.3 7.3 8.4

Term loans (%) 8.4 7.2 7.0 6.4 6.4 6.6 6.4 6.8 6.5

Bonds/debentures/CPs (%) 8.1 8.0 7.9 7.5 8.2 7.3 7.0 7.0 7.8

Deposits (%) 8.9 9.1 8.7 8.4 8.5 8.3 8.0 7.8 8.2

6.5

7.3

8.1

8.9

9.7

10.5

Mar-

14

Jun-1

4

Sep-1

4

Dec

-14

Mar-

15

Jun-1

5

Sep-1

5

Dec

-15

Mar-

16

Jun-1

6

Sep-1

6

Dec

-16

Mar-

17

Jun-1

7

Sep-1

7

Dec

-17

Mar-

18

HDFC NBFCs


Exhibit 11: Yields on AAA and AA rated bonds have increased in recent months Yield on 5-year AAA, AA corporate bonds and 10-year G-Sec bonds, July 2012-July 2018 (%)

Source: Bloomberg, Kotak Institutional Equities

Exhibit 12: Increase in home loan rates for most companies Home loan rates for loans below `7.5 mn (%)

Source: Company, Public documents, Kotak Institutional Equities

HDFC discloses standard stressed loans under stage 3

HDFC’s GNPL ratio was broadly stable at 1.18% in 1QFY19 (Ind-AS) as compared to

1.11% in 4QFY18 (IGAAP) and 1.12% in 1QFY18 (Ind-AS). GNPLs in individual loans

were 0.66% (0.65% in 1QFY18 and 0.64% in 4QFY18) and in non-individual loans were

2.32% (2.09% in 1QFY18 and 2.18% in 4QFY18).

On migration to Ind-AS, HDFC disclosed the break-up of its loans under stage 1,2 and 3.

Stage 1 loans were 94.76% of portfolio in 1QFY18 and stage 2 loans of 1.54%- on

expected lines.

HDFC has identified standard stressed loans of 2.5% under stage 3 in additional to stage

3 NPLs. According to the management, these are loans exposure in the individual and

non-individual segments which are internally classified as stressed although these loans

may be performing currently. The company has made provisions of 28% on all stage 3

loans.

6

7

8

9

10

11

Jul-12

Jan-1

3

Jul-13

Jan-1

4

Jul-14

Jan-1

5

Jul-15

Jan-1

6

Jul-16

Jan-1

7

Jul-17

Jan-1

8

Jul-18

5-Year AAA 5-Year AA 10-Year G Sec

Jan-17 Apr-17 May-17 Jul-17 Oct-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18

HFCs - home loan rates

HDFC 8.70 8.50 8.30 8.30 8.35 8.35 8.35 8.35 8.35 8.45 8.45 8.55

LIC Housing Finance 8.70 8.60 8.50 8.25 8.35 8.35 8.35 8.35 8.35 8.55 8.55 8.55

PNBHF 8.60 8.55 8.50 8.60 8.50 8.50 8.50 8.50 8.60 8.60 8.60 8.75

Banks

ICICI Bank

Home loan rates 8.70 8.50 8.30 8.30 8.35 8.35 8.35 8.35 8.45 8.45 8.45 8.50

Base rate / 1 year MCLR 8.20 8.20 8.20 8.20 8.20 8.20 8.20 8.20 8.30 8.30 8.30 8.40

Spread 0.50 0.30 0.10 0.10 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.10

SBI

Home loan rates 8.65 8.65 8.30 8.30 8.35 8.35 8.35 8.35 8.40 8.40 8.40 8.50

Base rate / 1 year MCLR 8.00 8.00 8.00 8.00 8.00 7.95 7.95 7.95 8.15 8.15 8.15 8.25

Spread 0.65 0.65 0.30 0.30 0.35 0.40 0.40 0.40 0.25 0.25 0.25 0.25

Notes:

(a) For ICICI Bank and SBI base rate from April 2016 onwards refers to 1 year MCLR.

(b) Data for HDFC is for home loan rates of less than Rs3 mn. The home loan rate for 0.3 mn-7.5 mn is 8.6% as of April 2018 (increased from 8.45% earlier).

NBFCs HDFC


Exhibit 13: ECL computation under Ind-AS March fiscal year-ends, 1QFY18, 1QFY19 (Rs bn)

Source: Company

Exhibit 14: Classification of assets for computation of expected credit loss (ECL) March fiscal year-ends, 1QFY18-1QFY19

Source: Company

Other highlights of the quarter

Cost-income ratio increases 40 bps yoy to 14.2%. Cost-income ratio increased 40 bps

yoy to 14.2% in 1QFY19 driven by sharp spike in operating expenses. Operating expenses

were up 46% yoy, largely due to higher cost of ESOPs; excluding the increase in cost of

ESOPs, expenses were up 17% yoy and cost-income ratio was down to ~11%. Notably,

cost of ESOPs needs to be expensed from P&L under Ind-AS.

Fee income declines sharply. Fee income (net of commissions paid) declined 16% yoy

in 1QFY19, as growth in fee at 11% yoy was lower than the growth in commissions at

18% yoy in 1QFY19.

YoY

1QFY18 1QFY19 (%)

Gross stage 3 82 139 69

ECL provision stage 3 24 39 61

Net stage 3 58 100 72

Coverage on stage 3 loans (%) 29.14 27.86 -128 bps

Gross stage 1 and 2 3,083 3,607 17

ECL provision on stage 1 and 2 5.9 5.7 (4)

Net stage 1 and 2 3,077 3,602 17

ECL provision on stage 1 and 3 0.19 0.16 -3 bps

YoY

1QFY18 1QFY19 (%) 2018

Exposure at default (%)

Stage 1 94.90 94.76 -14 bps 94.17

Stage 2 2.50 1.54 -96 bps 1.48

Stage 3

Standard, stressed assets 1.49 2.52 103 bps 3.24

NPL 1.11 1.18 7 bps 1.11

HDFC NBFCs


Exhibit 15: HDFC is trading at ~4.5X one-year forward book HDFC: Rolling PER and PBR, July 2011- July 2018 (X)

Source: Kotak Institutional Equities estimates, Company

Exhibit 16: HDFC’s core valuation is 2.4X FY2020E core book March fiscal year-end, 2017-2021E


Exhibit 17: Subsidiaries/investments add 50% to the SOTP Sum-of-total-parts of HDFC, March fiscal year-end, 2020E


0.0

1.4

2.8

4.2

5.6

7.0

10

16

22

28

34

40

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Rolling PER (X) (LHS) Rolling PBR (X) (RHS)

Profit after

tax EPS EPS core P/E

PE on core

operations BVPS BVPS Core P/B

P/B on core

operations RoE Core RoE

Year (Rs mn) (Rs) (Rs) (X) (X) (Rs) (Rs) (X) (X) (%) (%)

2017 78,742 50 38 41 22.6 265 207 7.7 4.1 20.4 21.4

2018 126,356 75 35 27 24.0 380 327 5.3 2.6 23.9 16.9

2019E 99,275 58 49 35 17.4 439 311 4.6 2.7 14.3 15.2

2020E 114,338 67 56 30 15.2 482 354 4.2 2.4 14.5 16.7

2021E 138,804 81 68 25 12.4 535 407 3.8 2.1 15.9 17.9

HDFC's

holding

Value of

companies

Value

per

share

Business/subsidiaries (%) (Rs bn) (Rs) Comments

HDFC 1,019 Based on residual growth model; 2.9X book

Value of subsidiaries and associates 1,017

HDFC Bank 21.7 5,442 621 Based on HDFC Bank's price target; 10% holding-company

discount

Life insurance 51.4 809 218 3.5X EV; 10% holding company discount

Others 178

Equity investments 31

BVPS of non-strategic investments - - 4

Others 100 45 26 Recent capital issuance at 1X

Total value per share 2,067

NBFCs HDFC


Exhibit 18: HDFC – change in estimates March fiscal year-ends 2019- 2021E (` mn)


Exhibit 19: HDFC – key ratios and growth rates March fiscal year-ends, 2016-2021E (%)


New estimates Old estimates % change

2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

NIM (post provisions - %) 3.14 3.15 3.23 3.22 3.12 3.20 -9 bps 3 bps 3 bps

Loan book (Rs bn) 4,301 5,147 6,133 4,301 5,147 6,133 - - -

Operating income 431,242 512,570 608,949 426,822 500,821 594,636 1.0 2.3 2.4

Interest income 386,898 467,696 558,381 390,846 462,972 552,741 (1.0) 1.0 1.0

Capital gains 9,000 9,900 11,979 2,500 2,875 3,306 260.0 244.3 262.3

Interest expense 287,183 342,689 404,989 280,198 333,085 393,026 2.5 2.9 3.0

Net operating income 144,058 169,880 203,960 146,623 167,735 201,609 (1.7) 1.3 1.2

Net operating inc. excl. gains 135,058 159,980 191,981 144,123 164,860 198,303 (6.3) (3.0) (3.2)

Loan loss provisions 6,392 6,261 6,421 5,096 5,606 6,166 25.4 11.7 4.1

Fee income 3,099 2,738 2,712 2,847 3,214 3,657 8.9 (14.8) (25.8)

Operating expenses 10,710 11,622 12,630 9,636 10,142 10,675 11.1 14.6 18.3

Employee expenses 5,667 6,359 7,134 4,583 4,857 5,147 23.6 30.9 38.6

PBT 130,018 154,673 187,532 134,701 155,139 188,337 (3.5) (0.3) (0.4)

Net profit 95,824 113,994 138,211 92,189 106,177 128,898 3.9 7.4 7.2

PBT bef cap gains 121,018 144,773 175,553 132,201 152,264 185,030 (8.5) (4.9) (5.1)

2016 2017 2018 2019E 2020E 2021E

Spread calculation

Average yield on assets (incl fees) 11.4 10.6 11.0 9.9 9.9 10.0

Average cost of funds 8.7 8.1 7.4 8.2 8.2 8.2

Overall spread 2.7 2.6 3.6 1.7 1.7 1.8

Spread on housing loans 2.2 2.4 2.2 1.6 1.7 1.7

NIM (pre provisions) 4.1 3.8 4.9 3.3 3.3 3.3

Other ratios

Tax rate 26.1 26.6 17.2 26.3 26.3 26.3

Tax rate (incl DTL) 31.3 31.9 20.7 26.3 26.3 26.3

Provisions to net loans 0.08 0.29 0.25 0.62 0.16 0.13

Divd payout ratio 37.9 38.4 27.5 38.0 38.0 38.0

Cost to income (%) 6.3 6.6 5.0 7.4 6.8 6.2

Provision / PBT (%) 7.1 6.5 13.3 4.9 4.0 3.4

Du Pont analysis

Net total income 4.1 3.8 4.9 3.3 3.3 3.3


Capital gains 0.6 0.3 1.5 0.2 0.2 0.2

Dividend income 0.3 0.3 0.3 0.3 0.3 0.3

Net other income 0.2 0.1 0.1 0.1 0.1 0.1


ROA 2.6 2.3 3.3 2.2 2.2 2.3

Average assets/average equity 8.3 8.5 7.3 6.4 6.6 7.1

ROE 21.3 19.8 24.0 14.0 14.5 16.0

ROE before DTL/normalised 22.3 20.4 23.9 13.8 14.5 16.0

Growth (%)

Net loans 13.6 14.4 21.2 19.7 19.7 19.2

Total assets 13.7 16.5 19.4 18.9 17.7 17.6

PBT 17.2 6.1 42.3 (14.8) 19.0 21.2

PAT (before DTL/normalised) 17.6 5.4 60.5 (24.2) 19.0 21.2

HDFC NBFCs


Exhibit 20: HDFC - income statement and balance sheet March fiscal year-ends, 2016-2021E


2016 2017 2018 2019E 2020E 2021E

Income statement

Total income excluding fee income 305,309 327,665 402,973 431,242 512,570 608,949

Interest on Housing Loans 264,672 289,207 315,197 386,898 467,696 558,381

Dividends 8,069 9,091 10,793 12,951 15,542 18,650

Lease rentals 32 28 26 23 21 19

Other operating income 32,536 29,339 76,958 31,369 29,311 31,899

Income from investments 12,754 14,537 15,366 17,077 13,717 13,717

Capital gains 16,478 10,017 56,350 9,000 9,900 11,979

Interest payable 193,745 208,962 222,350 287,183 342,689 404,989

Net Income before provision 111,564 118,703 180,623 144,058 169,880 203,960

Provision 7,150 7,000 20,300 6,392 6,261 6,421

Fee income 3,742 3,462 1,448 3,099 2,738 2,712

Total income 309,051 331,128 404,421 434,340 515,308 611,661

Total expenses 7,047 7,808 9,086 10,710 11,622 12,630

Depreciation 543 560 492 500 525 551

Other income 515 468 463 463 463 463

Profit before tax 101,081 107,266 152,656 130,018 154,673 187,532

Tax 26,360 28,524 26,300 34,195 40,679 49,321

Deferred tax 3,790 4,316 4,700 0 0 0

PAT 70,931 74,426 121,656 95,824 113,994 138,211

PAT (before DTL/normalised) 74,721 78,742 126,356 95,824 113,994 138,211

% growth 17.6 5.4 60.5 (24.2) 19.0 21.2

Dividend 26,857 28,596 33,457 36,413 43,318 52,520

Dividend tax 4,522 5,821 5,686 6,188 7,362 8,926

DPS 17.0 18.0 20.0 21.3 25.3 30.7

Wtdg. Avg. Equity 1579.9 1588.7 1675.9 1712.4 1712.4 1712.4

EPS 45 47 73 56 67 81

EPS (core) 32 38 35 43 52 63

BVPS 216 250 366 438 480 531

BVPS (core) 166 207 327 311 352 403

BVPS (before DTL/ normalised) 222 265 380 438 480 531

Balance sheet

Net loans 2,592,240 2,964,720 3,594,420 4,301,461 5,146,949 6,133,472

Total Investments 153,454 204,101 305,325 358,903 358,903 358,903

In equity 88,218 90,894 88,697 218,698 218,698 218,698

Fixed assets owned 6,656 6,382 6,445 6,961 7,517 8,119

Total assets 2,887,528 3,363,579 4,016,744 4,777,879 5,623,923 6,611,048

Total Borrowings 2,381,930 2,805,340 3,206,560 3,811,307 4,531,951 5,364,036

Current liabilities 155,366 137,899 172,823 216,029 270,036 337,545

Deferred tax liability 9,022 23,886 23,336 0 0 0

Total borowings and CL 2,546,318 2,967,125 3,402,719 4,027,336 4,801,987 5,701,581

Share capital 3,160 3,177 3,352 3,425 3,425 3,425

Reserves 338,051 393,277 610,674 747,118 818,511 906,042

Shareholders fund 341,211 396,454 614,025 750,543 821,936 909,467


1QFY19 earnings print – a tale of two parts

GCPL’s 1QFY19 earnings print was largely in line with expectations. Consolidated revenues

grew 13% yoy to `24.76 bn (KIE: `24.79 bn; 2-year CAGR at 8%), EBITDA grew 27% yoy (off

a low base; 2-year CAGR at 8%) to `4.44 bn (KIE: `4.69 bn) and recurring PAT grew 28% yoy

to `2.97 bn (8% below estimate; 2-year CAGR at 8%). Reported PAT was higher at `4.05 bn

on account of a large deferred tax recognition (we have treated this as extraordinary as it

pertains to sale of certain group brands, a non-recurring event, per the press release).

Standalone business (primarily India) posted a better earnings print with revenues up 19% yoy

to `13.1 bn (2-year CAGR at 11%), EBITDA up 42% yoy to `2.86 bn (2-year CAGR at 17%)

and recurring PAT up 47% yoy to `2.2 bn (2-year CAGR at 20%). The 2-year CAGR numbers

are healthy on their own and even more so in comparison to what the peer set has reported

thus far.

Subsidiary (consolidated less standalone) performance was a drag with a weak aggregate

EBITDA growth of 7% yoy off a low base. International business grew a modest 7% yoy in c/c

while margins declined 50 bps yoy.

Segmental performance – mixed bag, again

India business – HI saw 17% LFL growth on a weak 4% base, soaps business grew 10% in value

and slightly higher in volume terms, hair colors posted 12% sales growth, again off a weak

base while other branded products in India grew 21% yoy. On the international front,

Indonesia saw a reversal in trend with revenues growing (+10% yoy c/c off a -11% base) after a

few quarters of decline. Africa was weak with 5% c/c growth and dip in margins with others

(LatAm, Europe and South Asia) grew 8% in c/c with flattish margins.

Stock remains overvalued; recent sharp run-up prompts a downgrade to SELL

We downgrade the stock to SELL (from REDUCE); the sharp recent run-up has increased the

downside to our fair value target (now at `1,100 versus `1,020 earlier). Estimates see minor

tweaks (see Exhibit 1 for the key changes to forecasts).

Godrej Consumer Products (GCPL) Consumer Products

In-line quarter – India shines, international weak. GCPL’s 1QFY19 headline

financials were broadly in line with our expectations. India business did well, as expected.

International business, however, saw another weak print despite expected uptick in

growth trajectory in Indonesia. Africa business performance was the key disappointment.

We raise our EPS forecasts for FY2019-21E marginally and increase our fair value target

to `1,100 (`1,020 earlier). Downgrade to SELL (from REDUCE) noting higher downside

to fair value target post the recent sharp rally.

SELL

JULY 31, 2018

RESULT, CHANGE IN RECO.


Price (`): 1,312


BSE-30: 37,494

Rohit Chordia

Jaykumar Doshi

Aniket Sethi

Godrej Consumer Products







MFs 0.7 EBITDA (Rs bn) 20.7 24.2 27.5


Absolute 7.0 17.4 24.5 ROE (%) 25.2 25.4 24.8

Rel. to BSE-30 1.1 10.1 7.3 Div. Yield (%) 0.5 0.6 0.7


1,379-859

893.8

Godrej Consumer Products Consumer Products


Key highlights from results and earnings call

Key data points— (1) urban growth was 13% and rural growth was 17%, and (2) GCPL

has taken price hike in fair care and toiletries towards the end of 1QFY19. There is no

room for price increase in soaps as palm oil pricing is still low

Profit growth to be higher than revenue growth. GCPL management indicated that

profit growth in FY2019 would be ahead of sales growth. It is working on a number of

cost optimization projects that will deliver results in 2HFY19.

HI segment delivered robust 17% yoy growth in revenues (2-year CAGR at 11%) driven

by a good season and new product launches. GCPL recently launched (1) Power Chip to

up-trade coil users. It is more efficient, efficacious and aspirational product among rural

consumers, (2) Goodknight Activ+ liquid vaporizer with 50% more power and (3) low-

unit packs in coils (4-coil pack for `10).

NPD pipeline. GCPL management reiterated that its new launch pipeline for FY2019 is

solid. During the quarter, it (1) launched herbal-based powder product under the brand

Nupur and at `10 pack. Opportunity size of this market is about `10 bn; about 25% hair

color market in India is henna-based, (2) introduced African Pride moisture miracle in the

US. The management indicated that 3-4 new launches are planned in the next few

months

Africa. Africa, the US and Middle East revenue growth was weak at 5% in c/c led entirely

by volumes. Adjusted EBITDA margin declined 250 bps yoy to 13%. The management

attributed weak margins to lag between (1) increase of input costs and price hikes and

(2) upfront marketing investments to scale up wet hair care business. Further, the

management indicated that weakness in margins in the recent past were also partly due

to currency headwinds, investments in talent addition at Dubai center and upgradation of

IT systems. GCPL management indicated that West Africa and Kenya are doing well and

key challenge is in the South Africa. GCPL remain optimistic about the long-term

opportunity and recovery in Africa and is focused on impending launch of wet hair care.

Soaps delivered 10% yoy growth in revenues (we estimate 12% volume growth and

negative impact of pricing/mix change). Deceleration in growth rates was largely on

account of base catching up. There is no room for pricing increase as palm oil price is still

low. GCPL’s initiatives around micro marketing are yielding results. The management

highlighted that growth was driven by sustained market share gains for both Cinthol and

Godrej No1. GCPL has gained share in select states on which the company has focused.

Indonesia. Revenues grew 9% yoy in reported terms (10% c/c) and adjusted EBITDA

margin expanded 220 bps yoy. GCPL management indicated that even as the

environment remains challenging, its recovery was led by effective marketing and share

gains in the HI segment. Margin expansion was driven by cost savings, lower overheads

and better optimization.

M&A in Africa. GCPL management indicated that it intends foray into the HI market in

Africa following launch of the wet hair portfolio. At present, it is not looking at M&A and

is more keen on organic route as acquisitions tend to have lower RoIs.

Consumer Products Godrej Consumer Products


Exhibit 1: Interim consolidated results of Godrej Consumer Products (as per Ind-AS), March fiscal year-ends (Rs mn)


Exhibit 2: Interim standalone results of Godrej Consumer Products (as per Ind-AS), March fiscal year-ends (Rs mn)


1QFY19 1QFY19E 1QFY18 4QFY18 KIE Est yoy qoq FY2019E FY2018 (% chg.) 1QFY17

Net sales 24,485 24,716 21,728 24,944 (1) 13 (2) 109,428 97,680 12 21,144 8

Other operating income 275 70 46 345 (5) 27 (26) 858 753 17 26

Net operating revenues 24,760 24,786 21,773 25,289 (0) 14 (2) 110,286 98,433 12 21,170 8

Material cost (10,946) (10,837) (10,133) (10,376) 1 8 5 (47,534) (42,744) 11 (9,826)

Gross Profit 13,814 13,949 11,640 14,913 (1) 19 (7) 62,751 55,689 13 11,343 10

Gross Margin (%) 55.8 56.3 53.5 59.0 -49 bps 233 bps -318 bps 56.9 56.6 32 bps 53.6

Employee cost (2,962) (2,780) (2,404) (2,748) 7 23 8 (11,672) (10,574) 10 (2,416)

Advertising and promotion (2,090) (2,156) (1,906) (1,816) (3) 10 15 (9,006) (8,103) 11 (1,679)

Other expenditure (4,321) (4,326) (3,836) (4,381) (0) 13 (1) (17,857) (16,341) 9 (3,416)

Total expenditure (20,319) (20,099) (18,279) (19,320) 1 11 5 (86,069) (77,762) 11 (17,338)

EBITDA 4,442 4,687 3,494 5,969 (5) 27 (26) 24,216 20,671 17 3,832 8

EBITDA margin (%) 17.9 18.9 16.0 23.6 -98 bps 188 bps -567 bps 22.0 21.0 95 bps 18.1

Other income 310 260 237 290 19 31 7 1,268 1,076 18 150

Interest (477) (375) (397) (422) 27 20 13 (1,517) (1,607) (6) (326)

Depreciation (421) (406) (374) (401) 4 13 5 (1,729) (1,557) 11 (327)

Pretax profits 3,853 4,166 2,960 5,435 (8) 30 (29) 22,238 18,582 20 3,330 8

Tax (880) (945) (634) (1,204) (7) 39 (27) (4,969) (4,047) 23 (770)

PAT 2,973 3,221 2,326 4,231 (8) 28 (30) 17,269 14,535 19 2,559 8

Minority interest 2 (5) 1 3 (146) 92 (21) 11 11 0 (6)

PAT after MI 2,975 3,216 2,327 4,234 (7) 28 (30) 17,280 14,546 19 2,553

Extraordinary items 1,075 — (75) 1,938 1,075 1,796 (95)

Net profit (reported) 4,050 3,216 2,252 6,172 26 80 (34) 18,355 16,342 12 2,458 28

EPS (Rs) 4.4 4.7 3.4 6.2 (8) 28 (30) 25.4 21.4 19 3.7 8

Income tax rate (%) 22.8 22.7 21.4 22.2 15 bps 140 bps 68 bps 22.3 21.8 56 bps 23.1

Costs as a % of sales

Material cost 44.2 43.7 46.5 41.0 48 bps -234 bps 317 bps 43.1 43.4 -33 bps 46.4

Employee cost 12.0 11.2 11.0 10.9 74 bps 92 bps 109 bps 10.6 10.7 -16 bps 11.4

Advertising and promotion 8.4 8.7 8.8 7.2 -26 bps -32 bps 126 bps 8.2 8.2 -7 bps 7.9

Other expenditure 17.5 17.5 17.6 17.3 -1 bps -17 bps 12 bps 16.2 16.6 -41 bps 16.1

(% chg.) 2-year

CAGR (%)

1QFY19 1QFY19E 1QFY18 4QFY18 KIE Est yoy qoq FY2019E FY2018 (% chg.) 1QFY17

Net sales 12,785 12,723 10,917 13,293 0 17 (4) 58,483 51,626 13 10,424 11

Other operating income 314 150 106 405 109 198 (22) 1,102 984 12 157

Net operating income 13,100 12,873 11,022 13,698 2 19 (4) 59,586 52,610 13 10,582 11

Material cost (5,461) (5,260) (5,074) (5,366) 4 8 2 (24,358) (21,786) 12 (4,771)

Gross Profit 7,639 7,613 5,948 8,332 0 28 (8) 35,228 30,824 14 5,811 15

Gross Margin (%) 58.3 59.1 54.0 60.8 -83 bps 434 bps -252 bps 59.1 58.6 53 bps 54.9

Employee cost (1,138) (885) (681) (1,025) 29 67 11 (3,982) (3,555) 12 (723)

Advertising and promotion (1,499) (1,609) (1,430) (1,387) (7) 5 8 (6,674) (6,050) 10 (1,240)

Other expenditure (2,141) (2,046) (1,817) (2,016) 5 18 6 (8,772) (7,916) 11 (1,765)

Total expenditure (10,239) (9,800) (9,002) (9,794) 4 14 5 (43,785) (39,307) 11 (8,498)

EBITDA 2,860 3,074 2,020 3,904 (7) 42 (27) 15,801 13,303 19 2,084 17

EBITDA margin (%) 21.8 23.9 18.3 28.5 -205 bps 350 bps -667 bps 26.5 25.3 123 bps 19.7

Other income 246 210 190 214 17 30 15 826 739 12 128

Interest (137) (125) (133) (126) 9 2 8 (499) (519) (4) (71)

Depreciation (169) (176) (150) (163) (4) 13 4 (730) (633) 15 (137)

Pretax profits 2,801 2,983 1,927 3,828 (6) 45 (27) 15,398 12,890 19 2,004 18

Tax (597) (686) (432) (877) (13) 38 (32) (3,465) (2,891) 20 (476)

PAT 2,204 2,297 1,496 2,951 (4) 47 (25) 11,933 9,999 19 1,529 20

Extraordinary items — — — — — — —

Net profit (reported) 2,204 2,297 1,496 2,951 (4) 47 (25) 11,933 9,999 19 1,529 20

EPS (Rs) 3.2 3.4 2.2 4.3 (4) 47 (25) 17.5 14.7 19 2.2 20

Income tax rate (%) 21.3 23.0 22.4 22.9 -170 bps -109 bps -160 bps 22.5 22.4 6 bps 23.7

Costs as a % of sales

Material cost 41.7 40.9 46.0 39.2 82 bps -435 bps 251 bps 40.9 41.4 -54 bps 45.1

Employee cost 8.7 6.9 6.2 7.5 181 bps 251 bps 120 bps 6.7 6.8 -8 bps 6.8

Advertising and promotion 11.4 12.5 13.0 10.1 -105 bps -153 bps 131 bps 11.2 11.5 -31 bps 11.7

Other expenditure 16.3 15.9 16.5 14.7 44 bps -15 bps 162 bps 14.7 15.0 -33 bps 16.7

(% chg.) 2-year

CAGR (%)



Exhibit 3: Key changes to consolidated earnings (Ind-AS), GCPL, March fiscal year-ends, 2019-21E


Exhibit 4: Soaps posted double-digit volume growth GCPL’s soaps volume growth trends (%)


Exhibit 5: Soaps segment revenue up 10% GCPL's soaps value growth trends (%)


Exhibit 6: Hair colors grew at 12% yoy GCPL's hair colors revenue growth trend (%)


2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Revenues (Rs mn) 109,428 122,045 135,765 109,654 122,295 136,040 (0.2) (0.2) (0.2)

EBITDA (Rs mn) 24,216 27,533 31,018 24,028 27,174 30,488 0.8 1.3 1.7

EBITDA (%) 22.1 22.6 22.8 21.9 22.2 22.4

PAT (Rs mn) 17,280 19,647 22,147 17,107 19,388 21,793 1.0 1.3 1.6

EPS (Rs/share) 25.4 28.8 32.5 25.1 28.5 32.0 1.0 1.3 1.6

EarlierRevised Change (%)

(3)

4 4

7

10

5 6

11 10

(5) (8)

5

(8)

15 15

12

12

(10)

(5)

-

5

10

15

20

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

2

13 11

15 13

3

2 (6)

1

(10)

(6)

9 7

26 24

19

10

(15)

(10)

(5)

-

5

10

15

20

25

30

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

14

9 10 12 12

17

(1)

7 4

-

(2)

13

5 4

33

3

12

(5)

-

5

10

15

20

25

30

35

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9



Exhibit 7: Household insecticides (HI) posted strong 17% growth in revenues GCPL's HI revenue growth trend (%)


Exhibit 8: Overall IBD revenues up 9% yoy (7% c/c growth); Africa was a drag on growth GCPL’s geography-wise IBD revenue breakup (Rs mn)


9

2

16

11

15

13

15

10

(11)

18

(2) 4 4

4 5

(5)

17

(15)

(10)

(5)

-

5

10

15

20

1Q

FY1

5

2Q

FY1

5

3Q

FY1

5

4Q

FY1

5

1Q

FY1

6

2Q

FY1

6

3Q

FY1

6

4Q

FY1

6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

2Q

FY1

8

3Q

FY1

8

4Q

FY1

8

1Q

FY1

9

3,530

5,640

2730

3,239

5,127

2,575 3,450

5,170

3,260

-

1,000

2,000

3,000

4,000

5,000

6,000

Indonesia (Megasari) GAUM (Africa, USA and ME) Others (LATAM, EU and SAARC)

1QFY19 1QFY18 4QFY18



Exhibit 9: IBD margins a mixed bag GCPL's geography-wise IBD margins (%)


Exhibit 10: Currency headwinds drag reported growth in Indonesia and ‘others’ market GCPL's international business revenue growth trends, yoy (%)


22.0

13.0

6.0

19.8

15.5

6.1

-

5

10

15

20

25

Indonesia (Megasari) GAUM (Africa, USA and ME) Others (LATAM, EU and SAARC)

1QFY19 1QFY18


Reported growth

Indonesia 8.0 6.0 7.0 1.0 (14.0) (12.0) (8.0) (11.0) 9.0

GAUM (Africa, US & ME) 46.0 60.0 41.0 47.0 13.0 8.0 6.0 5.0 10.0

Others 6.0

- LatAm (16.0) (12.0) (4.0) 17.0 (5.0) 13.0 (7.0) 8.0

- Europe (5.0) (15.0) (5.0) (18.0) 6.0 11.0 14.0 20.0

Constant currency growth

Indonesia 3.0 (2.0) — — (11.0) (7.0) (2.0) (6.0) 10.0

GAUM (Africa, US & ME) 52.0 75.0 54.0 61.0 26.0 13.0 10.0 7.0 5.0

Others 8.0

- LatAm 10.0 20.0 24.0 19.0 4.0 30.0 5.0 28.0

- Europe (3.0) (2.0) 16.0 (5.0) 24.0 15.0 9.0 11.0

Exchange rate impact

Indonesia 5.0 8.0 7.0 1.0 (3.0) (5.0) (6.0) (5.0) (1.0)

GAUM (Africa, US & ME) (6.0) (15.0) (13.0) (14.0) (13.0) (5.0) (4.0) (2.0) 5.0

Others (2.0)

- LatAm (26.0) (32.0) (28.0) (2.0) (9.0) (17.0) (12.0) (20.0)

- Europe (2.0) (13.0) (21.0) (13.0) (18.0) (4.0) 5.0 9.0

Notes:

(1) GAUM includes Africa, USA and Middle East.

(2) Others include LATAM, Europe and SAARC; separate disclosure discontinued from 1QFY19.



Exhibit 13: SoTP valuation for GCPL, March fiscal year-end, June 2020E


Exhibit 14: GCPL: Consolidated Profit model, balance sheet, cash flow model (Ind-AS), March fiscal year-ends, 2014-2020E (Rs mn)


EBITDA (Rs mn) EBITDA multiple (x) EV

Geography Jun-20E Jun-20E (Rs mn)

Domestic 18,499 30 545,735

Africa 3,082 22 68,181 25% discount to domestic business

Indonesia 3,163 24 74,649 20% discount to domestic business

Latam 1,532 21 31,645 30% discount to domestic business

US/Africa (SON) 1,449 21 29,923 30% discount to domestic business

UK 804 18 14,237 40% discount to domestic business

EV (Rs mn) 764,370

Less: Net debt (Rs mn) 15,539


Price per share (Rs) 1,100

2014 2015 2016 2017 2018 2019E 2020E 2021E


Net revenues 75,826 82,422 84,132 92,428 97,680 109,428 122,045 135,765

EBITDA 11,503 13,684 16,358 18,977 20,671 24,216 27,533 31,018

Other income 826 839 946 1,004 1,828 2,126 2,594 3,103

Interest expense (1,074) (1,032) (1,190) (1,452) (1,607) (1,517) (1,433) (1,350)

Depreciation (819) (908) (1,006) (1,416) (1,557) (1,729) (1,933) (2,152)

Extraordinary items 58 260 (3,335) 1 1,796 1,075 — —

Pretax profits 10,495 12,843 11,772 17,114 21,131 24,171 26,761 30,619

Tax (2,104) (2,737) (3,361) (3,792) (4,047) (4,969) (6,154) (7,386)

Minority Interest (595) (693) (29) (31) 11 11 11 11

Net Income 7,796 9,413 8,383 13,292 17,094 19,212 20,618 23,244

PAT after MI but before EO/Norm tax 7,539 8,811 11,611 13,040 14,546 17,280 19,647 22,147

Earnings per share (Rs) 11.1 12.9 17.1 19.1 21.4 25.4 28.8 32.5


Total shareholder's equity 37,754 43,107 42,670 53,020 62,583 73,440 84,770 97,369


Other financial liabilities — — 672 9,112 7,540 7,540 7,540 7,540

Deferred tax liability (203) (312) 1,362 1,898 2,047 2,047 2,047 2,047

Minority Interest 2,251 1,620 100 — — — — —


Net fixed assets incl CWIP 52,884 57,756 59,751 81,864 83,989 83,563 83,030 82,324

Investments 1,363 1,857 1,895 9,335 9,973 9,973 9,973 9,973

Cash 7,048 8,942 7,538 9,127 9,602 18,753 28,510 39,638

Net current assets 2,241 3,032 4,531 3,714 (6,186) (5,754) (5,348) (4,872)

Total assets 63,536 71,587 73,715 104,040 97,378 106,535 116,164 127,064


Operating cash flow (excl working capital) 9,600 11,246 13,328 14,688 16,996 19,670 21,860 24,163

Working capital 1,565 (721) (4,645) 3,563 76 (432) (406) (476)


Free cash flow 4,670 2,101 128 2,135 13,929 17,407 19,527 21,712

Key ratios (%)

Sales growth 18.5 8.7 2.1 9.9 5.7 12.0 11.5 11.2

EPS growth 9.3 16.9 31.8 12.3 11.6 18.8 13.7 12.7

EBITDA margin 15.1 16.5 19.4 20.5 21.0 22.0 22.4 22.7

Gross margin 53.2 53.6 54.1 55.4 56.6 56.9 56.9 57.0

Ad spends (% of sales) 11.0 11.0 7.9 7.7 8.2 8.2 8.1 8.1

ROE (%) 21.3 21.8 27.1 27.3 25.2 25.4 24.8 24.3

ROCE (%) 17.3 18.8 21.0 19.7 18.9 21.9 22.9 23.6

Notes:

(a) FY2016 P&L and forecasts based on IND-AS and hence not strictly comparable to pre-FY2016 P&L which were based on IGAAP.

IGAAP Ind-AS


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June 2018: Results calendar

Source: NSE, Kotak Institutional Equities

Mon Tue Wed Thu Fri Sat Sun

30-Jul 31-Jul 1-Aug 2-Aug 3-Aug 4-Aug 5-Aug

Avenue Supermarts Ajanta Pharma Aditya Birla Fashion Godrej Properties Berger Paints Divi's Laboratories P I Industries

Axis Bank Astral Poly Technik Apollo Tyres Indiabulls Housing Carborundum Universal

Central Bank of India Bank of India Emami JK Lakshmi Cement CG Pow er and Industrial

Century Textile Bharat Electronics Exide Industries Mahindra Logistics KEC International

Escorts Castrol India Gatew ay Distriparks Manpasand Beverages Laurus Labs

GIC Dabur India Orient Cement Marico SAIL

Godrej Consumer Products IIFL Holdings Pidilite Industries Narayana Hrudayalaya Titan Company

GSPL Jagran Prakashan Reliance Infrastructure ONGC

HDFC Mahanagar Gas Tata Global Beverages The Ramco Cement

Idea Pow er Grid Torrent Pow er Torrent Pharmaceuticals

IDFC Bank Supreme Industries

Interglobe Aviation Tata Motors

New India Assurance UPL

NHPC Vedanta

6-Aug 7-Aug 8-Aug 9-Aug 10-Aug 11-Aug 12-Aug

Adani Port and SEZ Adani Transmission BPCL 3M India Apollo Hospitals Amara Raja Batteries

Adani Pow er AU Small Finance Cipla AIA Engineering Dhanuka Agritech India Cements

Arvind GlaxoSmithkline Consumer City Union Bank Aurobindo Pharma Dr Lal Pathlabs IOCL

Britannia Industries Kalpataru Pow er Transmission HPCL Bharat Forge Endurance Technologies MRPL

Max Financial Services Mahindra & Mahindra Lupin Coffee Day Enterprises GAIL (India) NBCC

Ujjivan Financial Services Motherson Sumi Systems Natco Pharma Gujarat Pipavav Port Glenmark Pharmaceuticals

Mphasis NMDC HCG Hindalco Industries

Punjab National Bank PNB Housing Finance MRF PC Jew eller

Sobha Thermax Page Industries Sun TV Netw ork

SRF S H Kelkar and Company Timken

TVS Motor Tata Communications Union Bank

Whirlpool United Brew eries

Voltas

13-Aug 14-Aug 15-Aug 16-Aug 17-Aug 18-Aug 19-Aug

Cadila Healthcare Grasim Industries

Dew an Housing Finance Sun Pharmaceuticals

Godrej Industries


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Kotak Institutional Equities: Valuation summary of KIE Universe stocks


Target O/S ADVT

Price (Rs) price Upside Mkt cap. shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) 3mo

Company Rating 30-Jul-18 (Rs) (%) (Rs bn) (US$ bn) (mn) 2018 2019E 2020E 2018 2019E 2020E 2018 2019E 2020E 2018 2019E 2020E 2018 2019E 2020E 2018 2019E 2020E 2018 2019E 2020E (US$ mn)

Automobiles

Amara Raja Batteries REDUCE 806 780 (3.2) 138 2.0 171 28 33 39 (1.6) 21.2 15.5 29.2 24.1 20.8 15.5 12.8 11.0 4.7 4.0 3.5 17.0 18.0 18.0 0.5 0.6 0.7 6.0

Apollo Tyres BUY 289 340 17.5 166 2.4 541 13 20 25 (38.0) 48.3 25.0 21.6 14.6 11.7 12.0 8.5 7.1 1.6 1.5 1.4 8.5 11.1 12.5 1.0 1.0 1.0 10.3

Ashok Leyland BUY 113 160 41.6 332 4.8 2,926 5.4 6.2 8.9 8.0 15.3 43.2 21.0 18.2 12.7 12.1 9.2 6.6 4.6 4.0 3.3 23.7 23.4 28.4 2.2 1.6 2.4 44.9

Bajaj Auto SELL 2,673 2,500 (6.5) 774 11.3 289 140 148 161 6.0 5.4 9.0 19.1 18.1 16.6 12.9 12.4 11.0 4.0 3.6 3.3 22.9 21.2 20.7 2.2 2.2 2.4 31.1

Balkrishna Industries REDUCE 1,202 1,260 4.8 232 3.4 193 37 50 63 4.8 34.8 25.0 32.1 23.8 19.1 17.1 13.1 10.5 5.7 4.7 3.9 19.0 21.6 22.2 0.4 0.5 0.5 8.2

Bharat Forge SELL 627 600 (4.3) 292 4.2 466 16 23 27 10.1 43.0 16.8 38.7 27.1 23.2 18.6 15.3 13.2 6.3 5.4 4.6 17.3 21.5 21.4 0.7 0.8 0.9 10.4

CEAT ADD 1,385 1,500 8.3 56 0.8 40 65 99 108 (29.5) 53.7 8.3 21.4 13.9 12.9 10.4 8.8 7.6 2.2 1.9 1.7 10.4 14.4 13.8 0.8 0.7 0.7 14.5

Eicher Motors SELL 28,595 26,000 (9.1) 780 11.3 27 792 995 1,200 29.3 25.5 20.6 36.1 28.7 23.8 26.1 21.0 17.1 14.5 10.5 7.8 46.4 42.3 37.5 0.1 0.1 0.1 18.7

Escorts BUY 908 1,200 32.2 77 1.6 89 39 59 71 71.3 52.3 19.9 23.4 15.4 12.8 13.4 9.3 7.6 3.2 2.7 2.3 13.5 17.6 18.0 0.4 1.0 1.2 16.4

Exide Industries SELL 275 225 (18.3) 234 3.4 850 8 10 11 0.6 23.7 10.9 33.5 27.1 24.4 18.8 15.8 14.0 4.3 3.9 3.6 13.5 15.2 15.3 0.9 1.1 1.3 8.4

Hero Motocorp SELL 3,210 3,000 (6.5) 641 9.3 200 185 183 204 9.5 (0.9) 11.4 17.3 17.5 15.7 10.7 10.4 9.2 5.4 4.8 4.3 33.8 29.3 29.1 2.6 2.9 3.2 22.2

Mahindra CIE Automotive ADD 259 290 11.8 98 1.4 378 10 14 16 107.0 45.0 12.7 27.0 18.6 16.5 13.2 9.3 8.3 2.6 2.3 2.0 10.4 13.2 13.1 — — — 3.2

Mahindra & Mahindra BUY 933 1,015 8.8 1,160 16.9 1,138 38 44 50 22.0 15.6 14.8 24.6 21.3 18.5 16.2 13.8 11.9 3.5 3.1 2.7 15.1 15.4 15.7 0.8 0.9 1.1 31.8

Maruti Suzuki ADD 9,382 10,000 6.6 2,834 41.3 302 256 323 393 5.1 26.4 21.8 36.7 29.0 23.8 20.6 16.8 13.3 6.8 5.8 5.0 19.8 21.6 22.5 0.9 0.9 1.0 63.6

Motherson Sumi Systems SELL 325 265 (18.4) 684 10.0 2,105 8 11 14 6.1 37.7 21.7 39.7 28.9 23.7 14.8 11.4 9.5 6.9 5.9 5.0 19.0 22.1 22.9 0.7 0.8 1.0 13.8

MRF REDUCE 79,931 76,000 (4.9) 339 4.9 4 2,669 3,896 4,447 (23.9) 46.0 14.1 29.9 20.5 18.0 13.7 10.1 8.7 3.5 3.0 2.6 12.3 15.7 15.4 0.1 0.1 0.1 7.2

Schaeffler India BUY 5,284 6,000 13.5 88 1.3 17 143 156 199 22.0 9.0 27.3 36.9 33.9 26.6 21.7 20.6 15.6 5.2 4.6 4.1 15.0 14.5 16.4 0.3 0.6 0.8 0.6

SKF ADD 1,674 1,800 7.5 86 1.3 51 58 69 82 24.6 19.7 18.5 29.0 24.2 20.5 17.9 15.4 12.7 4.7 4.1 3.5 16.1 16.7 17.1 0.6 0.7 0.8 0.4

Tata Motors BUY 268 445 66.4 908 12.3 3,396 20 23 38 (28.0) 15.9 63.8 13.4 11.6 7.1 3.9 3.6 3.0 1.0 0.9 0.8 8.8 7.9 11.7 — — — 57.2

Timken SELL 724 660 (8.8) 49 0.7 68 14 19 25 (5.3) 42.3 27.5 53.5 37.6 29.5 29.8 20.8 16.6 7.0 6.0 5.0 13.9 17.1 18.5 0.1 0.1 0.1 0.3

TVS Motor SELL 514 410 (20.2) 244 3.6 475 14 18 22 18.7 26.8 21.8 36.8 29.1 23.9 22.5 17.0 14.1 8.5 7.1 6.0 25.1 26.7 27.3 0.6 1.0 1.3 11.8

WABCO India SELL 6,698 6,350 (5.2) 127 1.8 19 144 169 222 27.8 17.8 31.3 46.6 39.5 30.1 30.2 25.7 19.5 8.3 7.0 5.7 19.5 19.2 20.9 0.1 0.2 0.2 0.5

Automobiles Neutral 10,339 150 (0.9) 20.5 26.2 26.5 22.0 17.4 11.7 9.9 8.2 3.8 3.3 2.9 14.2 15.2 16.7 0.9 0.9 1.1 381.5

Banks

Axis Bank ADD 570 600 5.3 1,463 21.3 2,567 1 18 40 (92.6) 1,577.6 122.3 530.3 31.6 14.2 — — — 2.8 2.4 2.1 0.5 7.1 14.1 0.9 0.5 1.1 53.6

Bank of Baroda NR 152 — — 402 5.9 2,652 (9) 21 26 (253.2) 323.7 26.4 (16.6) 7.4 5.9 — — — 1.6 1.3 1.0 (5.8) 12.7 14.0 — — — 32.7

Bank of India ADD 103 120 16.2 180 2.6 1,744 (35) (6) 16 (134.7) 82.2 366.7 (3.0) (16.8) 6.3 — — — 1.5 2.0 1.2 (21.3) (3.6) 9.5 — (1.2) 3.2 11.4

Canara Bank ADD 289 300 3.7 212 3.1 733 (58) (5) 51 (406.6) 91.6 1,147.0 (5.0) (59.7) 5.7 — — — 1.8 1.7 1.0 (12.2) (1.0) 10.1 — — — 28.7

City Union Bank ADD 169 190 12.3 124 1.8 665 9 10 12 6.4 16.2 13.0 19.0 16.4 14.5 — — — 2.9 2.5 2.2 15.3 15.5 15.5 0.2 1.1 1.2 1.9

DCB Bank ADD 168 205 22.0 52 0.8 308 8 10 12 13.8 28.2 21.0 21.1 16.5 13.6 — — — 2.1 1.9 1.7 10.9 11.7 12.7 — 0.6 0.7 4.5

Equitas Holdings BUY 139 190 36.7 47 0.7 340 0.9 4.4 8.4 (80.3) 378.4 89.9 149.7 31.3 16.5 — — — 2.2 2.0 1.8 1.4 6.4 11.2 — — — 5.0

Federal Bank BUY 90 130 44.0 179 2.6 1,972 4.4 5.7 7.9 (9.3) 29.5 39.5 20.7 16.0 11.4 — — — 1.6 1.5 1.3 8.2 8.8 11.4 1.1 1.4 2.0 20.7

HDFC Bank REDUCE 2,170 2,000 (7.8) 5,651 82.2 2,595 67 77 93 18.7 14.1 21.1 32.2 28.2 23.3 — — — 5.4 4.1 3.6 17.9 16.5 16.2 0.6 0.7 0.8 85.0

ICICI Bank BUY 307 400 30.1 1,977 28.8 6,429 11 8 26 (31.1) (19.6) 209.1 29.2 36.3 11.7 — — — 2.4 2.1 1.7 6.6 5.1 14.5 0.5 0.6 1.7 91.7

IDFC Bank NR 41 — — 141 2.0 3,404 2.5 1.6 3.3 (16.0) (38.5) 109.8 16.4 26.6 12.7 — — — 0.9 0.9 0.9 5.7 3.4 6.9 1.2 0.8 1.6 9.3

IndusInd Bank REDUCE 1,970 1,900 (3.6) 1,183 17.2 600 60 71 87 25.3 17.5 23.6 32.8 27.9 22.6 — — — 5.1 4.2 3.6 17.1 17.6 16.8 — 0.4 0.5 31.6

J&K Bank BUY 57 100 75.7 32 0.5 557 4 7 11 111.6 82.4 63.8 15.6 8.6 5.2 — — — 0.7 0.7 0.6 3.4 5.9 9.1 — 2.3 3.8 0.4

Karur Vysya Bank ADD 98 110 12.2 72 1.0 727 5 3 13 (52.2) (32.3) 306.7 20.6 30.4 7.5 — — — 1.4 1.4 1.2 6.1 3.7 14.1 0.6 0.8 3.3 1.8

Punjab National Bank ADD 86 90 4.8 237 3.5 2,761 (44) (39) 9 (814.7) 13.4 124.1 (1.9) (2.2) 9.3 — — — 5.1 (3.9) (14.6) (32.4) (31.3) 8.2 — (9.7) 2.3 32.4

RBL Bank SELL 563 475 (15.6) 238 3.5 420 15 22 29 27.3 48.1 31.5 37.2 25.1 19.1 — — — 3.6 3.3 2.9 11.5 13.3 15.5 0.4 0.6 0.8 12.9

State Bank of India BUY 297 370 24.4 2,654 38.6 8,925 (7) 18 37 (155.8) NM 106.1 NM 16.5 8.0 — — — 2.4 1.8 1.3 (3.2) 7.1 13.2 - 0.1 0.1 78.5

Ujjivan Financial Services REDUCE 389 420 8.0 47 0.7 121 1 22 29 (96.5) 3,564.0 30.0 644.7 17.6 13.5 — — — 2.8 2.4 2.1 0.4 14.2 16.1 0.0 0.6 0.8 6.8

Union Bank ADD 88 130 47.5 103 1.5 1,169 (45) 1 24 (655.5) 101.4 3,896.2 (2.0) 144.0 3.6 — — — 1.5 1.3 0.8 (23.6) 0.3 11.8 — 0.1 4.2 9.6

YES Bank SELL 369 335 (9.3) 852 12.4 2,303 18 20 22 25.7 8.1 9.5 20.1 18.6 17.0 — — — 3.4 3.0 2.6 17.7 16.6 15.9 0.6 0.9 1.0 59.5

Banks Attractive 15,845 231 (101.3) 8,875.1 124.7 (2,537.7) 28.9 12.9 2.0 1.8 1.6 (0.1) 6.4 12.7 0.4 0.4 0.9 577.9

Dividend yield (%)P/B (X) RoE (%)


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Target O/S ADVT



NBFCs

Bajaj Finance SELL 2,678 2,000 (25.3) 1,548 22.5 575 43 68 90 29.2 56.6 31.9 61.7 39.4 29.9 — — — 9.8 8.0 6.5 19.7 22.4 24.0 0.1 0.3 0.3 56.0

Bajaj Finserv REDUCE 6,896 6,100 (11.5) 1,097 16.0 159 176 245 307 10.3 39.7 25.2 39.3 28.1 22.5 — — — 5.5 4.5 3.7 15.6 17.5 18.1 0.2 0.2 0.2 18.3

Bharat Financial Inclusion NA 1,199 — — 167 2.4 139 33 43 54 55.5 31.1 27.2 36.7 28.0 22.0 — — — 5.6 4.5 3.7 16.7 17.9 18.5 — — — 10.0

Cholamandalam REDUCE 1,440 1,500 4.2 225 3.3 156 62 77 93 35.5 23.5 21.4 23.1 18.7 15.4 — — — 4.6 3.8 3.2 20.6 21.2 21.4 0.5 0.6 0.8 7.7

HDFC ADD 2,029 2,075 2.3 3,429 49.9 1,676 75 56 67 52.1 (25.8) 19.0 26.9 36.3 30.5 — — — 5.3 4.6 4.2 23.9 13.8 14.5 1.0 1.0 1.2 71.1

HDFC Standard Life Insurance SELL 495 405 (18.2) 997 14.5 2,007 6 6 7 24.4 14.8 10.9 89.5 78.0 70.3 — — — 23.1 20.7 18.5 27.3 28.0 27.7 0.3 0.3 0.4 12.0

ICICI Lombard SELL 762 620 (18.6) 346 5.0 454 19 26 32 22.0 37.1 21.5 40.1 29.3 24.1 — — — 7.6 6.4 5.4 20.8 23.8 24.2 0.5 0.8 1.0 2.3

ICICI Prudential Life BUY 421 500 18.7 605 8.8 1,436 11 12 13 (3.7) 10.1 7.0 37.3 33.9 31.7 — — — 9.2 7.6 6.3 25.0 24.5 21.8 1.3 0.5 0.5 10.9

IIFL Holdings SELL 675 625 (7.4) 215 3.1 319 29 34 41 32.4 17.3 21.4 23.6 20.2 16.6 — — — 4.3 3.7 3.1 19.0 19.3 20.0 0.9 1.1 1.3 1.4

L&T Finance Holdings ADD 178 190 6.6 356 5.2 1,996 7 13 14 23.7 70.9 12.3 24.3 14.2 12.7 — — — 2.8 2.6 2.2 14.2 18.9 18.8 1.0 1.1 1.4 12.5

LIC Housing Finance BUY 532 610 14.6 269 3.9 505 44 50 58 3.2 13.8 17.5 12.2 10.7 9.1 — — — 2.0 1.7 1.5 14.5 14.3 14.4 1.3 1.5 1.7 12.2

Magma Fincorp BUY 156 200 28.5 42 0.6 237 10 12 15 1,014.5 24.6 25.8 16.0 12.9 10.2 — — — 1.6 1.5 1.4 10.2 12.9 14.1 0.5 1.2 1.5 1.6

Mahindra & Mahindra Financial REDUCE 513 500 (2.6) 317 4.6 614 15 23 28 105.0 58.4 23.2 35.4 22.3 18.1 — — — 3.6 3.2 2.9 11.3 14.3 15.8 0.8 1.2 1.5 10.7

Max Financial Services BUY 480 650 35.6 129 1.9 268 5 6 6 (20.4) 36.9 1.8 104.6 76.4 75.1 — — — — — — 6.5 8.3 8.0 — 0.5 0.5 4.6

Muthoot Finance ADD 410 480 17.0 164 2.4 400 43 38 40 45.6 (10.8) 4.0 9.5 10.7 10.3 — — — 2.1 1.8 1.6 24.1 18.4 16.9 2.4 2.2 2.2 4.8

PNB Housing Finance REDUCE 1,316 1,375 4.5 220 3.2 167 50 61 77 57.8 23.0 25.3 26.4 21.5 17.2 — — — 3.5 3.2 2.8 14.0 15.2 16.8 0.7 0.3 0.3 10.2

SBI Life Insurance ADD 689 785 13.9 689 10.0 1,000 12 15 18 20.8 26.0 22.9 59.8 47.4 38.6 — — — 10.7 9.0 7.5 19.4 20.6 21.3 0.3 0.3 0.4 4.1

Shriram City Union Finance ADD 1,933 2,250 16.4 127 1.9 66 101 141 174 19.6 40.4 22.7 19.2 13.7 11.1 — — — 2.4 2.2 1.9 12.5 15.8 16.9 0.9 0.9 1.1 0.6

Shriram Transport ADD 1,416 1,550 9.5 321 4.7 227 69 114 130 24.7 64.4 14.3 20.5 12.5 10.9 — — — 2.7 2.2 1.9 13.1 18.3 17.5 0.8 1.1 1.3 30.7

NBFCs Neutral 11,264 164 36.9 13.8 19.6 32.9 28.9 24.2 5.5 4.6 4.0 16.8 16.1 16.7 0.6 0.7 0.8 577.9

Cement

ACC SELL 1,504 1,270 (15.5) 282 4.1 188 49 62 70 32.7 27.0 13.8 30.9 24.3 21.4 16.5 13.4 11.5 3.0 2.8 2.6 10.1 11.9 12.5 1.1 1.1 1.1 15.2

Ambuja Cements REDUCE 227 210 (7.5) 451 6.6 1,986 8 9 11 29.7 14.5 23.2 30.2 26.4 21.4 10.1 8.9 7.3 2.2 2.1 2.0 7.4 8.1 9.5 1.6 1.6 1.6 11.6

Dalmia Bharat ADD 2,621 2,900 10.7 234 3.4 89 60 98 128 55.4 62.6 30.3 43.4 26.7 20.5 13.4 10.2 8.4 3.8 3.4 2.9 9.7 13.4 15.2 0.1 0.1 0.1 5.2

Grasim Industries BUY 1,021 1,275 24.9 671 9.8 657 47 52 69 (30.1) 9.1 32.8 21.5 19.7 14.9 12.2 7.5 6.8 1.2 1.1 1.0 7.0 5.8 7.2 0.5 0.5 0.5 14.5

India Cements REDUCE 117 135 15.3 36 0.5 308 3 5 9 (42.5) 56.2 84.4 35.9 23.0 12.4 9.8 8.4 6.6 0.7 0.7 0.6 2.0 3.0 5.3 0.9 0.9 0.9 7.7

J K Cement REDUCE 772 1,000 29.6 54 0.8 70 43 51 83 25.1 17.0 65.0 17.8 15.3 9.2 9.5 10.2 8.3 2.7 2.4 1.9 16.2 16.7 23.2 1.0 1.0 1.0 0.7

JK Lakshmi Cement ADD 336 425 26.6 40 0.6 118 4 18 33 (35.7) 311.2 79.6 75.1 18.3 10.2 13.8 8.3 5.9 2.7 2.4 2.0 3.7 14.1 21.5 0.6 0.6 0.6 0.4

Orient Cement ADD 128 165 28.9 26 0.4 205 2 8 12 237.8 250.7 64.8 59.3 16.9 10.3 12.6 8.1 5.9 2.6 2.3 1.9 4.4 14.3 20.6 0.6 1.2 1.6 0.2

Shree Cement SELL 17,177 12,500 (27.2) 598 8.7 35 397 421 630 3.4 6.0 49.7 43.2 40.8 27.2 23.2 19.0 14.2 6.7 5.9 4.9 16.7 15.4 19.7 0.3 0.3 0.3 5.4

UltraTech Cement SELL 4,243 2,950 (30.5) 1,165 17.0 275 88 126 162 (7.8) 42.7 28.9 48.2 33.7 26.2 23.7 17.6 14.5 4.5 4.0 3.5 9.7 12.6 14.3 0.2 0.2 0.2 19.3

Cement Cautious 3,558 52 5.9 24.9 33.2 34.3 27.5 20.6 15.4 10.9 9.2 2.6 2.4 2.2 7.5 8.7 10.6 0.6 0.6 0.6 80.1



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Consumer products

Asian Paints REDUCE 1,430 1,325 (7.4) 1,372 20.0 959 21 27 33 2.9 32.1 20.3 69.7 52.7 43.9 42.6 33.1 27.4 16.3 14.2 12.4 24.6 28.8 30.3 0.6 0.8 1.0 21.5

Bajaj Corp. ADD 409 470 15.0 60 0.9 148 14 15 17 (9.4) 7.8 10.3 28.6 26.5 24.0 22.5 21.2 18.1 12.2 12.3 12.3 42.8 46.3 51.2 2.9 3.2 3.4 0.4

Britannia Industries ADD 6,331 6,000 (5.2) 760 11.1 120 84 104 126 13.5 24.4 21.5 75.7 60.8 50.1 50.0 39.3 32.3 22.3 17.7 14.3 32.9 32.4 31.6 0.4 0.6 0.7 9.8

Coffee Day Enterprises REDUCE 262 340 29.7 55 0.8 211 3 8 13 49.1 149.7 59.4 78.4 31.4 19.7 13.3 — — 2.3 2.2 2.0 3.1 7.2 10.4 — — — 1.0

Colgate-Palmolive (India) ADD 1,123 1,250 11.3 305 4.4 272 24 27 32 15.2 14.7 15.6 47.2 41.2 35.6 27.0 23.7 20.6 20.0 20.2 17.2 46.2 48.8 52.2 2.1 1.4 1.7 8.3

Dabur India REDUCE 393 350 (11.0) 695 10.1 1,762 8 9 10 7.2 16.1 11.7 50.6 43.6 39.0 42.8 37.1 32.5 12.1 12.2 10.6 25.9 27.9 29.1 1.9 1.0 1.1 10.6

GlaxoSmithKline Consumer ADD 6,514 6,750 3.6 274 4.0 42 166 189 211 6.6 13.3 11.9 39.1 34.5 30.9 27.0 23.1 19.9 7.9 7.2 6.6 21.2 21.7 22.2 1.2 1.4 1.6 2.1

Godrej Consumer Products SELL 1,311 1,100 (16.1) 893 13.0 681 21 25 29 11.5 18.8 13.7 61.4 51.7 45.5 43.5 36.7 31.8 14.3 12.2 10.5 25.2 25.4 24.8 0.5 0.6 0.7 9.6

Hindustan Unilever REDUCE 1,689 1,570 (7.0) 3,655 53.2 2,160 25 29 33 25.0 19.5 13.2 68.8 57.6 50.9 49.4 39.9 35.1 51.6 45.1 38.3 78.1 83.5 81.4 1.2 1.2 1.4 34.8

ITC ADD 301 330 9.6 3,678 53.5 12,275 9 10 11 7.8 8.2 12.3 33.8 31.2 27.8 22.2 20.2 17.8 7.2 6.8 6.4 19.4 20.4 22.2 1.7 1.9 2.2 48.2

Jubilant Foodworks BUY 1,420 1,650 16.2 187 2.7 132 15 25 35 191.7 73.6 37.5 97.6 56.2 40.9 41.7 28.1 21.2 19.4 13.9 10.6 21.7 28.9 29.5 0.1 0.1 0.2 40.4

Jyothy Laboratories ADD 218 240 10.0 79 1.2 364 4 6 7 (26.4) 27.6 16.7 49.5 38.8 33.3 30.4 25.9 22.0 6.9 6.0 5.2 14.4 16.6 16.8 0.2 0.5 0.7 1.6

Marico ADD 364 345 (5.2) 470 6.8 1,291 6 7 8 7.4 16.7 13.7 58.0 49.7 43.7 40.9 34.4 30.0 18.5 17.1 15.8 33.2 35.7 37.5 1.1 1.3 1.5 9.7

Nestle India ADD 10,122 9,500 (6.1) 976 14.2 96 127 168 191 21.1 32.5 13.4 79.7 60.1 53.1 43.8 34.1 30.0 28.5 26.2 24.1 36.6 45.5 47.3 0.8 1.1 1.3 8.2

Page Industries SELL 29,217 21,000 (28.1) 326 4.7 11 311 392 482 32.5 26.1 22.9 93.9 74.5 60.6 59.8 47.3 38.9 38.5 30.1 24.0 45.9 45.3 44.0 0.4 0.6 0.7 7.9

Pidilite Industries REDUCE 1,118 1,050 (6.1) 568 8.3 508 18 22 26 7.5 20.4 20.4 62.0 51.5 42.7 41.5 34.5 28.4 15.9 13.3 11.2 26.0 28.2 28.5 0.5 0.6 0.7 13.6

S H Kelkar and Company BUY 200 315 57.8 29 0.4 145 7 8 11 2.1 11.8 28.4 27.0 24.1 18.8 18.8 15.8 12.3 3.4 3.1 2.7 12.8 13.3 15.3 0.9 0.9 1.0 0.3

Tata Global Beverages REDUCE 242 285 17.7 153 2.2 631 7 10 11 20.7 29.4 19.1 33.0 25.5 21.4 17.3 14.6 12.5 2.2 2.1 1.9 7.0 8.3 9.4 1.0 1.2 1.4 13.0

Titan Company SELL 892 800 (10.3) 792 11.5 888 13 16 20 43.3 26.7 20.6 69.8 55.0 45.7 47.8 36.5 29.2 15.6 13.1 11.0 24.3 25.8 26.2 0.4 0.5 0.6 35.9

United Breweries SELL 1,119 1,000 (10.7) 296 4.3 264 15 19 24 71.6 29.7 23.4 75.0 57.8 46.9 33.0 27.5 23.8 11.0 9.4 8.1 15.7 17.6 18.6 0.2 0.3 0.3 10.4

United Spirits REDUCE 600 590 (1.7) 436 6.3 727 8 10 13 39.1 34.7 30.9 78.9 58.6 44.7 45.4 34.0 27.6 17.4 12.0 8.8 24.9 24.2 22.7 — — 0.3 18.8

Varun Beverages ADD 697 750 7.5 127 1.9 183 12 17 22 377.8 45.4 29.8 60.6 41.6 32.1 18.7 15.0 12.9 7.2 6.2 5.3 12.1 16.0 17.7 — — 0.1 1.6

Consumer products Cautious 16,201 236 14.6 18.2 15.7 53.5 45.3 39.1 34.9 29.1 25.1 13.1 11.8 10.5 24.5 26.1 26.9 1.1 1.1 1.3 311.5

Energy

BPCL REDUCE 396 390 (1.5) 858 12.5 1,967 40 39 41 (1.5) (3.6) 5.3 9.8 10.2 9.7 8.0 7.5 6.9 2.3 2.0 1.8 24.8 21.1 20.0 5.3 3.9 4.1 31.9

Castrol India ADD 172 215 25.0 170 2.5 989 7 8 9 3.3 13.6 10.9 25.0 22.0 19.9 15.7 13.8 12.5 16.7 15.8 15.4 67.9 73.6 78.6 2.8 3.5 4.1 4.3

GAIL (India) BUY 378 410 8.5 852 12.4 2,255 20 25 27 21.8 23.2 8.3 18.5 15.0 13.9 11.6 9.6 8.9 2.1 1.9 1.8 11.7 13.5 13.5 1.9 2.3 2.4 22.5

GSPL SELL 195 175 (10.2) 110 1.6 564 12 11 11 34.5 (6.5) (0.5) 16.4 17.6 17.7 8.4 6.6 6.7 2.2 2.0 1.8 14.0 11.7 10.7 0.9 0.9 0.8 1.5

HPCL REDUCE 288 320 11.3 438 6.4 1,524 42 32 33 (3.2) (23.4) 3.4 6.9 9.0 8.7 6.0 7.7 7.9 1.8 1.7 1.5 28.7 19.3 18.2 5.9 4.5 4.7 29.5

Indraprastha Gas SELL 298 240 (19.4) 209 3.0 700 10 12 13 19.0 16.5 12.0 28.9 24.8 22.1 18.2 15.9 14.0 5.9 5.1 4.5 22.4 22.2 21.5 0.7 0.8 1.0 10.7

IOCL REDUCE 166 160 (3.9) 1,617 23.5 9,479 21 17 18 (24.8) (17.9) 7.4 8.1 9.9 9.2 4.7 5.5 5.0 1.4 1.3 1.2 18.5 14.0 14.0 6.9 4.0 4.3 25.6

Mahanagar Gas ADD 899 850 (5.4) 89 1.3 99 48 52 54 21.5 6.5 5.3 18.6 17.4 16.6 11.3 10.1 9.5 4.2 3.8 3.4 24.3 22.8 21.4 2.1 2.3 2.4 4.4

ONGC ADD 164 200 21.9 2,106 30.7 12,833 17 21 21 3.1 19.6 (1.3) 9.4 7.9 8.0 5.0 4.0 3.8 0.9 0.9 0.8 9.9 11.5 10.7 4.0 4.3 4.3 18.2

Oil India SELL 212 220 3.9 240 3.5 1,135 25 24 24 22.6 (1.3) (0.7) 8.6 8.7 8.7 6.6 6.0 6.0 0.9 0.8 0.8 9.8 9.7 9.2 4.9 5.2 5.1 3.1

Petronet LNG BUY 229 280 22.2 344 5.0 1,500 14 16 18 22.1 16.7 13.1 16.5 14.1 12.5 11.0 9.5 8.0 3.5 3.1 2.7 23.3 23.3 23.2 2.0 2.5 3.2 12.6

Reliance Industries SELL 1,151 985 (14.5) 6,814 99.2 5,922 59 69 78 16.9 17.6 12.4 19.5 16.6 14.8 14.3 11.4 9.7 2.3 2.1 1.8 11.6 12.2 12.1 0.5 0.5 0.6 117.2

Energy Attractive 13,846 202 1.0 6.7 6.8 13.4 12.6 11.8 8.7 7.7 7.1 1.8 1.6 1.5 13.3 12.9 12.6 2.5 2.1 2.2 281.5



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Target O/S ADVT

Price (Rs) price Upside shares 3mo


Industrials

ABB SELL 1,210 1,020 (15.7) 256 3.7 212 20 26 29 12.1 30.1 14.2 61.0 46.9 41.1 33.6 27.4 24.6 7.1 6.5 5.9 12.2 14.5 15.1 0.3 0.7 0.7 1.3

BHEL REDUCE 73 78 6.4 269 3.9 3,671 2.2 2.6 5.0 62.7 16.5 95.3 33.4 28.6 14.7 8.1 7.6 4.0 0.8 0.8 0.8 2.5 2.9 5.6 2.5 2.9 5.6 10.2

Carborundum Universal SELL 370 310 (16.2) 70 1.0 189 11 14 17 22.8 25.4 20.2 32.4 25.9 21.5 17.5 13.0 11.2 4.5 4.0 3.6 14.6 16.4 17.6 0.6 1.2 1.4 0.3

CG Power and Industrial BUY 64 65 1.8 40 0.6 627 0.8 3.1 4.3 (72.2) 275.7 40.5 78.2 20.8 14.8 11.4 8.6 7.0 1.5 1.6 1.5 1.5 7.3 10.4 — — — 7.4

Crompton Greaves Consumer SELL 239 215 (10.2) 150 2.2 627 5.2 6.2 7.5 13.3 19.5 20.7 46.3 38.8 32.1 28.4 24.1 20.4 19.0 13.2 10.2 49.5 40.4 35.8 0.6 0.8 1.0 2.8

Cummins India REDUCE 680 680 0.1 188 2.7 277 24 28 32 (7.8) 16.1 13.9 28.1 24.2 21.2 24.7 21.2 17.6 4.7 4.4 4.1 17.4 18.9 20.1 2.2 2.1 2.5 3.6

Havells India SELL 626 485 (22.5) 391 5.7 625 11 14 17 16.6 26.6 20.5 56.5 44.6 37.0 36.1 28.5 23.2 10.5 9.2 8.1 19.8 22.0 23.2 0.6 0.8 0.9 13.1

Kalpataru Power Transmission BUY 370 530 43.2 57 0.8 153 19 24 34 36.5 24.3 39.8 19.1 15.4 11.0 8.2 6.8 5.4 2.1 1.9 1.6 11.7 13.1 16.1 0.7 0.7 0.7 0.6

KEC International BUY 335 430 28.4 86 1.3 257 18 22 29 51.1 22.0 34.4 18.7 15.3 11.4 10.1 8.4 6.7 4.3 3.5 2.8 25.7 25.2 27.1 0.7 0.9 1.2 2.9

L&T BUY 1,295 1,600 23.5 1,815 26.4 1,401 52 63 70 22.4 21.7 10.9 25.0 20.6 18.6 20.7 16.4 15.8 3.6 3.3 3.0 15.0 16.8 16.8 1.2 1.8 2.0 44.3

Siemens SELL 979 975 (0.4) 349 5.1 356 24 30 37 22.5 23.0 23.2 40.5 32.9 26.7 22.9 18.3 14.6 4.3 4.0 3.7 10.9 12.6 14.5 1.0 1.2 1.5 3.5

Thermax REDUCE 1,165 1,065 (8.6) 139 2.0 113 21 30 42 (3.6) 44.2 42.8 56.5 39.2 27.4 34.4 24.5 17.5 4.8 4.5 4.0 8.8 11.8 15.3 0.5 0.7 0.8 0.7

Voltas SELL 568 525 (7.6) 188 2.7 331 17 19 22 12.6 8.3 15.6 32.8 30.3 26.2 27.3 23.2 19.3 4.8 4.3 3.8 15.9 15.0 15.5 0.7 0.8 0.9 14.1

Industrials Neutral 3,999 58 19.8 22.7 20.7 31.1 25.4 21.0 20.4 16.5 14.4 3.4 3.1 2.9 10.8 12.4 13.8 1.1 1.5 1.8 104.8

Infrastructure

Adani Ports and SEZ BUY 391 470 20.3 809 11.8 2,071 20 20 23 6.1 (0.2) 14.7 19.5 19.5 17.0 13.8 13.4 11.7 3.8 3.3 2.8 21.5 18.1 17.9 0.5 0.6 0.8 24.4

Ashoka Buildcon BUY 151 210 39.1 42 0.6 282 8 8 9 34.6 0.5 5.2 17.9 17.9 17.0 14.5 12.2 10.8 2.2 1.9 1.7 13.0 11.4 10.7 0.7 1.1 0.7 0.7

Container Corp. SELL 661 635 (4.0) 322 4.7 487 18 21 25 7.1 17.4 20.9 37.5 31.9 26.4 24.8 19.7 15.6 3.4 3.2 2.9 9.4 10.3 11.6 2.6 1.3 1.6 8.5

Dilip Buildcon BUY 771 1,220 58.3 105 1.5 137 46 54 69 76.5 16.1 28.0 16.6 14.3 11.2 9.4 6.8 5.6 4.3 3.3 2.5 29.5 25.9 25.4 — — — 8.2

Gateway Distriparks BUY 170 250 47.3 18 0.3 109 8 8 9 12.1 (1.2) 17.5 22.2 22.5 19.1 21.2 10.5 8.8 1.8 3.6 3.2 8.2 10.8 17.6 4.1 — 1.8 0.8

Gujarat Pipavav Port BUY 116 170 46.9 56 0.8 483 4.1 5.9 7.2 (20.6) 43.7 22.5 28.2 19.6 16.0 13.8 11.4 9.0 2.8 2.7 2.7 9.8 14.0 16.8 2.9 4.2 5.1 0.8

IRB Infrastructure BUY 203 320 58.0 71 1.0 351 23 31 33 10.8 36.8 7.1 9.0 6.6 6.1 7.0 6.7 7.1 1.3 1.1 0.9 14.5 17.6 16.3 1.1 1.5 2.0 8.0

Mahindra Logistics BUY 587 540 (8.0) 42 0.6 71 10 14 18 16.2 42.8 31.2 59.9 41.9 31.9 34.5 23.2 17.6 10.0 8.3 6.9 18.2 21.6 23.5 — — — 0.8

Sadbhav Engineering BUY 274 440 60.8 47 0.7 172 13 18 18 17.4 38.4 2.2 21.3 15.4 15.0 14.9 11.8 9.2 2.5 2.2 1.9 12.5 15.2 13.7 — — — 0.8

Infrastructure Attractive 1,514 22 10.9 10.2 15.4 20.9 19.0 16.4 13.3 11.8 10.3 3.3 2.9 2.5 15.8 15.3 15.5 1.1 0.9 1.1 53.2

Internet

Info Edge ADD 1,350 1,425 5.6 165 2.4 122 23 26 33 33.3 14.9 27.5 60.0 52.2 40.9 50.1 39.2 29.6 7.8 6.2 5.6 13.4 13.2 14.3 0.4 0.6 0.6 2.4

Just Dial ADD 572 610 6.6 39 0.6 67 21 26 30 21.7 23.0 15.0 26.9 21.9 19.0 16.1 12.4 10.1 3.9 3.4 2.9 15.2 16.7 16.6 — 0.5 0.5 51.3

Internet Cautious 203 3 28.0 17.6 23.0 48.7 41.4 33.7 38.0 29.9 23.5 6.6 5.4 4.8 13.5 12.9 14.2 0.3 0.6 0.6 53.8

Media

DB Corp. REDUCE 246 270 9.8 45 0.7 184 18 20 23 (14.1) 14.9 12.3 14.0 12.1 10.8 7.4 6.6 5.8 2.7 2.5 2.4 19.9 20.7 22.3 5.3 6.8 8.6 0.6

DishTV ADD 66 90 35.5 122 1.8 1,925 (0.4) 1.8 3.4 (143.0) 514.6 88.2 NM 36.3 19.3 11.0 5.7 4.5 1.9 1.8 1.6 (2.3) 5.1 8.9 — — — 7.8

Jagran Prakashan REDUCE 123 168 36.6 38 0.6 311 10 12 14 (6.0) 21.7 15.3 12.3 10.1 8.8 5.5 4.9 4.2 1.9 1.9 1.8 14.8 18.1 20.9 2.4 4.1 7.3 0.5

PVR ADD 1,128 1,210 7.3 53 0.8 47 27 33 42 25.5 21.5 27.7 42.0 34.6 27.1 14.4 12.8 11.0 4.9 4.4 3.8 12.3 13.3 15.0 0.2 0.3 0.4 9.3

Sun TV Network REDUCE 775 925 19.4 305 4.4 394 29 35 39 10.2 20.7 10.9 26.9 22.3 20.1 18.0 15.1 13.2 6.6 5.9 5.3 26.3 28.1 27.9 1.3 2.3 2.6 21.8

Zee Entertainment Enterprises ADD 524 600 14.5 503 7.3 960 15 17 20 7.8 11.3 17.0 34.9 31.3 26.8 22.6 19.5 16.5 6.7 5.9 5.2 20.3 19.9 20.6 0.5 0.9 1.0 17.7

Media Attractive 1,067 16 (1.5) 28.9 20.8 32.8 25.4 21.1 15.8 12.1 10.4 4.5 4.2 3.8 13.7 16.3 17.8 0.9 1.5 1.8 57.7

Dividend yield (%)P/B (X) RoE (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X)


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Metals & Mining

Coal India ADD 263 326 24.2 1,629 23.7 6,207 11 27 28 (24.2) 138.2 3.0 23.2 9.7 9.5 17.2 6.2 5.8 6.7 6.2 6.4 26.7 66.1 66.4 6.3 7.6 9.5 13.8

Hindalco Industries BUY 211 305 44.4 474 6.9 2,229 22 27 31 155.4 23.9 13.6 9.7 7.8 6.9 6.2 5.3 4.6 0.9 0.8 0.7 9.7 10.5 10.7 0.6 0.6 0.6 34.4

Hindustan Zinc ADD 275 290 5.5 1,162 16.9 4,225 22 22 26 9.3 3.7 14.7 12.8 12.3 10.7 7.8 7.1 5.8 3.2 2.8 2.4 27.2 24.4 24.2 2.9 2.9 2.9 8.5

Jindal Steel and Power REDUCE 203 255 25.8 196 2.9 968 (8) 8 18 59.3 194.2 129.1 (23.9) 25.3 11.1 9.5 6.8 5.8 0.6 0.6 0.6 (2.7) 2.6 5.7 — — — 30.0

JSW Steel ADD 328 350 6.8 792 11.5 2,417 27 30 27 83.9 10.2 (8.7) 12.2 11.1 12.2 7.9 6.9 7.6 2.8 2.3 2.0 24.8 22.4 17.3 1.0 1.0 1.0 20.2

National Aluminium Co. ADD 61 85 38.7 118 1.7 1,933 4 7 7 12.7 63.0 11.1 14.8 9.1 8.2 6.0 4.0 3.6 1.1 1.1 1.1 7.7 12.4 13.6 9.3 9.0 9.0 9.5

NMDC REDUCE 105 125 19.2 332 4.8 3,164 12 10 10 43.3 (16.5) 3.6 8.9 10.7 10.3 4.9 6.5 6.3 1.4 1.3 1.3 15.8 12.5 12.4 5.2 5.2 5.2 3.5

Tata Steel ADD 553 700 26.6 632 9.2 1,205 67 69 82 62.6 3.1 18.4 8.2 8 6.7 6.2 6.1 6.2 1.1 1.0 0.9 17.2 13.1 13.9 1.7 1.8 1.8 70.0

Vedanta BUY 225 415 84.5 836 12.2 3,717 22 37 43 9.6 71.9 16.9 10.4 6.1 5.2 5.7 4.2 3.5 1.3 1.2 1.0 12.9 20.6 21.4 3.6 5.0 5.8 52.6

Metals & Mining Attractive 6,173 90 32.3 41.1 10.9 13.1 9.3 8.3 7.4 5.8 5.3 1.9 1.7 1.5 14.3 18.0 18.3 3.5 4.0 4.7 242.6

Pharmaceutical

Apollo Hospitals ADD 931 1,090 17.0 130 1.9 139 8 19 26 (46.9) 124.3 38.0 110.4 49.2 35.6 20.3 17.3 14.6 4.0 3.8 3.5 3.4 7.9 10.2 0.2 0.5 0.7 7.3

Aster DM Healthcare BUY 170 240 40.8 86 1.3 505 3 5 7 163.1 64.2 59.2 61.9 37.7 23.7 17.1 12.7 10.2 3.0 2.8 2.6 5.9 7.8 11.4 - - - 0.4

Aurobindo Pharma ADD 604 640 6.0 354 5.2 584 42 45 51 6.0 7.0 13.5 14.5 13.5 11.9 10.1 9.4 8.1 3.0 2.5 2.1 23.2 20.3 17.9 0.7 0.9 1.0 20.4

Biocon SELL 583 330 (43.4) 350 5.1 601 6 8 15 (39.2) 35.9 75.7 94.0 69.2 39.4 42.2 30.1 20.2 6.2 5.8 5.2 6.9 8.7 13.9 0.2 0.5 0.9 23.3

Cipla BUY 634 650 2.5 511 7.4 805 18 24 32 40.2 36.3 35.1 36.2 26.6 19.7 18.8 14.7 11.5 3.5 3.2 2.8 10.2 12.5 15.2 0.6 0.8 1.1 23.6

Dr Lal Pathlabs REDUCE 935 865 (7.4) 78 1.1 83 20 25 29 7.0 20.8 18.5 45.7 37.8 31.9 27.8 23.3 19.5 9.9 8.2 6.9 23.5 23.7 23.4 0.5 0.5 0.6 1.5

Dr Reddy's Laboratories REDUCE 2,067 2,150 4.0 343 5.0 166 59 89 118 (18.5) 50.2 32.8 35.0 23.3 17.6 16.3 11.8 8.3 2.7 2.5 2.2 7.8 11.1 12.6 1.2 0.7 0.9 35.0

HCG REDUCE 275 305 10.9 24 0.4 85 2 3 5 (40.0) 120.9 57.3 175.9 79.6 50.6 23.2 18.1 15.4 4.5 4.3 4.0 2.8 5.5 8.1 — — — 0.2

Laurus Labs ADD 452 540 19.5 48 0.7 106 16 22 34 (11.9) 37.3 54.4 28.5 20.8 13.4 14.0 11.4 8.4 3.2 2.8 2.3 11.9 14.4 18.8 — — — 0.4

Lupin REDUCE 820 800 (2.5) 371 5.4 450 38 36 48 (32.9) (5.1) 33.7 21.5 22.7 17.0 13.3 11.5 9.0 2.7 2.5 2.2 12.6 11.4 13.7 1.1 0.7 0.9 34.9

Narayana Hrudayalaya ADD 256 275 7.6 52 0.8 204 3 4 7 (38.1) 52.2 76.9 101.6 66.8 37.7 27.9 21.1 15.4 5.0 4.7 4.2 5.1 7.3 11.7 — — — 0.4

Sun Pharmaceuticals REDUCE 563 500 (11.1) 1,350 19.7 2,406 15 17 24 (47.5) 12.0 42.0 37.1 33.1 23.3 21.9 17.9 13.2 3.6 3.2 2.9 9.8 10.2 13.1 0.4 0.6 0.9 52.8

Torrent Pharmaceuticals NR 1,487 — — 252 3.7 169 40 46 62 (27.4) 16.0 33.3 37.1 32.0 24.0 20.7 14.7 12.3 5.4 4.8 4.2 15.1 15.0 17.4 1.1 0.7 1.0 5.0

Pharmaceuticals Neutral 3,948 57 (25.8) 18.0 34.9 33.2 28.1 20.8 18.2 14.8 11.4 3.6 3.2 2.8 10.7 11.4 13.7 0.6 0.6 0.9 205.3

Real Estate

Brigade Enterprises BUY 188 340 81.1 26 0.4 136 11 9 9 (17.7) (15.1) (1.6) 16.9 20.0 20.3 10.7 10.9 10.7 1.1 1.1 1.0 7.6 5.5 5.2 1.3 1.3 1.3 0.2

DLF RS 189 — — 337 4.9 1,784 19.6 6.5 3.9 403.9 (66.9) (39.6) 9.6 29.1 48.2 28.7 12.5 12.3 1.0 0.9 0.9 11.7 3.2 1.9 1.1 1.1 1.1 16.1

Godrej Properties SELL 715 400 (44.0) 164 2.4 216 11.6 16.8 19.2 21.9 43.9 14.9 61.3 42.6 37.1 153.4 109.1 77.5 6.9 5.9 5.1 11.8 14.9 14.7 — — — 2.7

Oberoi Realty BUY 491 560 14.1 178 2.6 340 13 62 44 14.0 385.4 (28.1) 38.6 7.9 11.1 28.8 11.0 13.8 2.7 1.8 1.6 7.3 27.4 15.2 0.4 0.4 0.4 2.6

Prestige Estates Projects ADD 264 315 19.3 99 1.4 375 13 10 10 24.3 (24.2) 8.4 21.1 27.8 25.6 14.7 15.2 15.3 2.1 2.0 1.9 10.3 7.3 7.5 0.6 0.6 0.6 1.1

Sobha REDUCE 464 510 9.8 44 0.6 95 22 20 23 30.9 (7.5) 14.8 21.3 23.0 20.0 12.9 13.1 12.3 1.6 1.5 1.5 7.6 6.8 7.4 1.5 1.5 1.5 1.5

Sunteck Realty REDUCE 409 330 (19.3) 60 0.9 140 15 18 20 4.8 20.2 6.9 26.8 22.3 20.8 17.2 18.8 17.5 2.2 2.0 1.8 9.7 9.4 9.2 0.3 0.2 0.2 1.6

Real Estate Neutral 908 13 140.1 (12.6) (20.2) 17.4 19.9 24.9 24.2 14.7 15.1 1.6 1.5 1.4 9.3 7.5 5.7 0.7 0.7 0.7 25.8

Dividend yield (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%)


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Technology

HCL Technologies REDUCE 947 1,025 8.2 1,319 19.2 1,409 62 70 74 5.3 12.8 5.0 15.2 13.5 12.8 10.7 8.8 8.0 3.7 3.0 2.6 24.8 24.2 21.8 0.9 0.9 3.3 35.0

Hexaware Technologies SELL 459 435 (5.1) 136 2.0 302 17 20 23 20.2 18.4 18.0 27.7 23.4 19.8 19.9 17.4 13.8 6.9 6.0 5.1 26.6 27.4 27.8 0.9 1.7 1.7 15.4

Infosys ADD 1,351 1,400 3.6 2,951 42.9 2,175 65 71 78 3.0 9.7 10.4 20.9 19.1 17.3 14.5 13.0 11.7 4.5 4.3 3.9 21.8 23.0 23.5 2.1 3.2 2.9 78.7

L&T Infotech ADD 1,824 2,000 9.7 315 4.6 175 64 83 94 13.9 30.5 13.0 28.7 22.0 19.5 25.3 16.9 14.2 8.3 6.6 5.4 31.8 33.5 30.7 0.9 1.3 1.4 4.3

Mindtree ADD 916 1,115 21.8 150 2.2 165 35 43 53 37.8 24.9 23.6 26.5 21.2 17.2 19.2 13.2 10.6 5.5 4.7 4.0 21.4 23.9 25.2 1.2 1.4 1.7 26.3

Mphasis SELL 1,108 760 (31.4) 214 3.1 193 44 52 56 14.4 18.3 8.2 25.3 21.4 19.7 18.2 14.8 13.2 3.9 3.6 3.2 14.6 17.4 17.1 1.8 1.8 1.8 11.4

TCS REDUCE 1,945 1,790 (8.0) 7,445 108.4 3,829 67 82 89 1.1 21.2 8.8 28.8 23.8 21.8 21.4 17.4 16.0 8.5 7.5 7.3 29.4 33.4 33.8 1.3 2.1 3.7 100.5

Tech Mahindra ADD 655 785 19.8 579 8.4 891 43 46 55 33.1 8.3 18.2 15.4 14.2 12.0 11.3 8.4 6.8 3.1 2.7 2.3 21.5 20.2 20.5 2.2 1.4 1.6 34.8

Wipro REDUCE 273 295 8.0 1,236 18.0 4,507 17 19 22 (3.1) 11.8 14.6 16.1 14.4 12.6 10.2 9.0 7.8 2.5 2.2 2.0 16.0 16.4 16.8 0.4 0.5 3.7 12.8

Technology Cautious 14,345 209 1.6 13.1 9.7 22.4 19.8 18.1 16.3 13.6 12.2 5.3 4.7 4.4 23.7 23.8 24.1 1.4 2.0 3.2 319.2

Telecom

Bharti Airtel ADD 383 445 16.1 1,532 22.3 3,997 5 (6) (4) (42.9) (221.5) 28.8 81.0 (66.6) (93.6) 8.4 9.8 8.3 2.2 2.3 2.4 2.8 (3.4) (2.5) 1.4 0.3 (0.2) 31.3

Bharti Infratel REDUCE 289 285 (1.4) 535 7.8 1,850 14 13 12 (7.4) (4.8) (8.5) 21.0 22.1 24.1 7.6 8.2 8.7 3.2 3.3 3.3 15.7 14.6 13.7 5.0 3.6 3.4 13.1

IDEA REDUCE 58 75 28.4 255 3.7 4,359 (10) (15) (14) (656.8) (54.9) 6.4 (6.1) (3.9) (4.2) 12.6 23.0 17.1 0.9 1.2 1.7 (16.0) (26.9) (34.0) — — — 17.1

Tata Communications ADD 578 725 25.4 165 2.4 285 2 4 8 (84.3) 121.9 117.7 351 158.3 72.7 10.6 9.5 8.3 33.0 26.6 19.2 4.5 18.6 30.7 1.1 1.1 1.3 4.6

Telecom Cautious 2,486 36 (94.7) (2,080.4) 15.9 790.5 (39.9) (47.5) 9.0 10.7 9.3 2.2 2.4 2.6 0.3 (6.0) (5.4) 1.9 0.9 0.6 66.1

Utilities

CESC BUY 947 1,180 24.5 126 1.8 133 87 115 128 67.1 31.7 11.6 10.9 8.3 7.4 7.8 5.8 5.1 0.9 0.8 0.7 7.9 10.0 10.4 1.3 1.4 1.3 6.1

JSW Energy REDUCE 66 70 6.5 108 1.6 1,640 3.1 5.1 6.5 (19.2) 65.9 26.8 21.4 12.9 10.2 6.8 5.6 4.6 1.0 0.9 0.8 4.7 7.2 8.5 - - - 1.8

NHPC ADD 24 30 24.7 247 3.6 10,260 2.4 3.1 3.2 (17.3) 26.9 1.8 9.9 7.8 7.6 9.1 7.2 7.0 0.8 0.8 0.8 8.5 10.4 10.2 5.8 7.2 7.3 2.1

NTPC BUY 156 190 21.9 1,285 18.7 8,245 11 15 16 (7.6) 30.9 4.4 13.7 10.5 10.0 11.1 8.6 8.0 1.3 1.2 1.1 9.5 11.6 11.3 3.6 2.9 3.0 14.0

Power Grid BUY 183 250 36.5 958 14.0 5,232 16 19 21 9.6 19.3 13.6 11.6 9.7 8.6 8.4 7.1 6.5 1.8 1.6 1.4 15.8 17.1 17.5 2.9 3.4 3.9 31.2

Reliance Power SELL 34 43 28.2 94 1.4 2,805 3.5 5.1 5.2 (16.4) 45.6 2.7 9.6 6.6 6.4 7.9 6.8 6.6 0.4 0.4 0.4 4.5 6.1 5.9 — — — 4.2

Tata Power BUY 74 90 21.9 200 2.9 2,705 5.3 6.0 7.0 (9.6) 12.7 15.6 13.8 12.3 10.6 10.3 10.7 10.3 1.3 1.2 1.1 10.7 10.1 10.6 — — — 5.4

Utilities Attractive 3,018 44 (2.4) 26.8 8.6 12.5 9.8 9.1 9.3 7.7 7.1 1.2 1.1 1.0 9.7 11.4 11.4 3.0 3.0 3.2 64.7

P/B (X) RoE (%) Dividend yield (%)Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X)


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Others

Astral Poly Technik SELL 1,112 625 (43.8) 133 1.9 120 15 19 23 20.8 28.0 23.0 75.8 59.2 48.1 42.6 33.0 26.9 13.1 10.8 8.9 18.8 20.0 20.3 0.1 0.1 0.1 1.1

Avenue Supermarts SELL 1,595 860 (46.1) 995 14.5 624 13 16 20 47.9 28.6 26.4 126.8 98.7 78.0 74.3 56.9 44.7 21.4 17.6 14.4 18.5 19.6 20.3 — — — —

Bayer Cropscience REDUCE 4,488 4,100 (8.7) 177 2.6 34 88 106 130 6.4 20.5 23.1 51.3 42.5 34.6 42.3 31.3 25.5 8.7 7.5 6.4 15.7 18.9 20.0 0.4 0.5 0.6 0.5

Dhanuka Agritech ADD 548 690 25.9 27 0.4 49 26 28 32 7.7 8.9 15.4 21.3 19.6 17.0 15.6 13.4 11.2 4.2 3.7 3.2 21.9 20.1 20.0 1.0 1.1 1.3 0.2

Godrej Agrovet ADD 636 650 2.1 122 1.8 189 12 16 20 6.9 39.8 24.6 55.3 39.5 31.7 28.4 21.9 17.7 7.1 6.2 5.2 14.7 16.9 17.9 0.3 0.4 0.5 1.5

Godrej Industries RS 643 — — 216 3.1 336 15 16 20 6.8 8.9 24.2 44.1 40.5 32.6 38.8 32.8 35.7 6.0 5.3 4.6 14.4 13.9 15.1 0.3 0.3 0.3 4.7

InterGlobe Aviation BUY 1,005 1,220 21.4 386 5.6 383 61 50 83 32.1 (17.9) 65.3 16.5 20.1 12.2 9.3 11.3 6.4 5.4 4.4 3.3 42.9 24.1 31.1 0.6 0.5 0.8 24.2

Kaveri Seed SELL 612 470 (23.2) 40 0.6 66 32 31 33 18.4 (3.7) 6.1 19.1 19.9 18.7 16.4 16.9 15.3 5.2 4.4 3.8 23.6 24.0 21.9 1.0 1.3 1.6 5.1

PI Industries BUY 811 900 11.0 112 1.6 138 27 33 41 (20.0) 25.0 23.2 30.5 24.4 19.8 22.5 17.7 14.1 5.8 4.8 4.0 20.7 21.7 22.1 0.4 0.5 0.6 1.4

Rallis India ADD 198 220 11.2 38 0.6 195 9 10 12 (1.5) 17.2 19.4 23.0 19.6 16.4 14.3 12.9 10.9 3.2 3.0 2.7 14.6 15.8 17.1 1.7 1.8 2.0 0.8

SIS REDUCE 1,080 1,130 4.7 79 1.2 73 22 33 40 43.3 48.5 21.1 48.1 32.4 26.8 25.9 20.3 17.0 7.6 6.4 5.3 20.1 21.8 21.7 0.2 0.3 0.3 0.8

SRF BUY 1,720 2,110 22.7 99 1.4 57 80 92 123 (10.4) 14.4 33.6 21.4 18.7 14.0 13.0 10.3 8.4 2.8 2.5 2.1 13.7 14.0 16.4 0.7 0.8 0.9 11.3

Tata Chemicals ADD 685 760 10.9 175 2.5 255 51 46 52 6.5 (11.2) 13.6 13.3 15.0 13.2 7.3 6.3 5.3 1.6 1.4 1.3 13.8 10.0 10.5 3.2 2.2 2.5 8.4

TeamLease Services SELL 2,696 1,785 (33.8) 46 0.7 17 43 58 75 28.0 34.2 29.0 62.5 46.6 36.1 65.1 47.2 35.9 10.4 8.5 6.9 18.2 20.1 21.1 — — — 1.7

UPL ADD 643 640 (0.4) 327 4.8 510 43 47 53 20.9 9.0 13.5 15.0 13.7 12.1 10.3 9.0 7.6 3.6 3.0 2.5 26.4 23.6 22.4 1.2 1.5 1.7 22.3

Vardhman Textiles ADD 1,210 1,400 15.7 70 1.0 56 103 130 140 (8.0) 26.4 7.4 11.7 9.3 8.7 9.9 7.3 6.6 1.4 1.3 1.1 12.7 14.3 13.8 1.2 1.7 2.5 0.9

Whirlpool SELL 1,701 1,240 (27.1) 216 3.1 127 28 37 45 13.0 33.9 22.5 61.5 45.9 37.5 36.6 28.2 22.8 12.0 10.0 8.3 21.4 23.7 24.1 0.2 0.4 0.5 1.1

Others 3,259 47 16.1 6.6 26.7 31.6 29.7 23.4 20.5 18.1 14.3 5.8 5.0 4.2 18.3 16.7 18.1 0.5 0.5 0.7 85.9

KIE universe 111,971 1,629 (6.2) 29.2 26.1 27.8 21.5 17.0 12.8 10.8 9.6 3.0 2.8 2.5 11.0 12.8 14.7 1.3 1.3 1.7

KIE universe (ex-energy) 98,125 1,428 (8.4) 36.9 31.2 32.7 23.9 18.2 14.2 11.8 10.4 3.4 3.1 2.8 10.4 12.8 15.2 1.1 1.2 1.6

Notes:

(a) We have used adjusted book values for banking companies.

(b) 2018 means calendar year 2017, similarly for 2019 and 2020 for these particular companies.

(c) Exchange rate (Rs/US$)= 68.70

Mkt cap. EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%)

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Disclosures

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our target prices are also on a 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following

designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)

and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction

involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient

fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock

and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

Kotak Institutional Equities Research coverage universe

Distribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of June 30, 2018

Percentage of companies covered by Kotak Institutional

Equities, within the specified category.

* The above categories are defined as follows: Buy = We

expect this stock to deliver more than 15% returns over

the next 12 months; Add = We expect this stock to

deliver 5-15% returns over the next 12 months; Reduce

= We expect this stock to deliver -5-+5% returns over

the next 12 months; Sell = We expect this stock to deliver

less than -5% returns over the next 12 months. Our

target prices are also on a 12-month horizon basis.

These ratings are used illustratively to comply with

applicable regulations. As of 31/03/2018 Kotak

Institutional Equities Investment Research had

investment ratings on 207 equity securities.

Percentage of companies within each category for

which Kotak Institutional Equities and or its affiliates has

provided investment banking services within the

previous 12 months.

21.4%

31.3%

25.4%21.9%

2.0%5.0% 4.5%

0.5%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

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We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise letters or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to primarily institutional investors and their employees, directors, fund managers, advisors who are registered with us Details of Associates are available on our website i.e. www.kotak.com Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months. YES We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: YES Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the"three years" icon in the price chart). Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com / www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSE INE 260808130/INB 260808135/INF 260808135, AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected]. Investments in securities market are subject to market risks, read all the related documents carefully before investing. In case you require any clarification or have any concern, kindly write to us at below email ids: Level 1: For Trading related queries, contact our customer service at ‘[email protected]’ and for demat account related queries contact us at [email protected] or call us on:

Toll free numbers 18002099191 / 1800222299 and 18002099292 Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at [email protected] or call us on 022-42858445 and if you feel you are

still unheard, write to our customer service HOD at [email protected] or call us on 022-42858208. Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Name: Mr. Manoj Agarwal) at

[email protected] or call on 91- (022) 4285 8484.

Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at [email protected] or call on 91-(022) 4285 8301.

First Cut notes published on this site are for information purposes only. They represent early notations and responses by analysts to recent events. Data in the notes may not have been verified by us and investors should not act upon any data or views in these notes. Most First Cut notes, but not necessarily all, will be followed by final research reports on the subject. There could be variance between the First cut note and the final research note on any subject, in which case the contents of the final research note would prevail. We accept no liability for the contents of the First Cut Notes.

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india daily, july 31, 2018 - kotak securities · 2018-07-31 · july 31, 2018 result coverage view:...

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