investment strategist - kotak securitiesprices. while supply disruptions and rig shutdowns in the us...

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report hasbeen prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrarywith the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

Indian equities ended the month with strong gains, partly driven byimproved earnings by index heavyweights like L&T, SBI and Tata Motors.FII flows also picked up in the latter half of the month, which aided thepositive momentum. Results of assembly elections boosted sentimentsowing to the ruling party's improved performance in state of Assam.Macro data was mixed. While March IIP decelerated and April CPI surgedto 5% plus, the core sector reported a strong 8.5% growth in the monthof April.

US equity benchmarks rose sharply due to upbeat domestic housing dataand a rally in financial, technology, energy and materials shares. Withrecent data on wages, retail sales and auto numbers signaling a recovery,the bets on a June rate hike have risen sharply. Even comments from Fedare indicative of a rate hike in the near term.

There are several important events lined up for the month of June,including the RBI monetary policy meet (likely to hold rates), FOMC,meeting of OPEC leaders and the onset of monsoon. Expectations are for agood monsoon, which will be positive for reviving rural sector demand.On the other hand, rising utilization levels and lower interest rates areexpected to kick start the private sector capex in medium to long term.Even recent interactions with major corporates indicate an improvementin business outlook compared to previous fiscal.

We maintain a positive stance on the markets and on domesticinfrastructure and interest-rate sensitive sectors, with a medium termperspective, subject to short term and intermittent bouts of profitbooking. Our preference stays for companies having strong balance sheetsand ethical managements. We are also positive on select large cap export-oriented stocks. Key risks to our recommendation would come from geo-political concerns globally, decline in foreign inflows, sharp currencymovements and further spike in oil prices.

Benchmark indices - India

Source: Bloomberg

Market performance - sector wise (May 2016)

Source: Bloomberg

2600

4350

6100

7850

9600

14,000

18,000

22,000

26,000

30,000Sensex (LHS)Nifty (RHS)

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

MONTHLY FUNDAMENTAL OUTLOOK

Global events to watch out for

Probability of a rate hike has increased in June meeting of FOMC

Although the Fed had deferred rate increase in April, recent comments andmacro data have raised the probability of a rate increase in June. US retail salesin April recorded their biggest increase in a year led by automobiles sales, sug-gesting the economy was regaining momentum after growth almost stalled inthe first quarter. New US single-family home sales surged to a more than eight-year high in April and prices hit a record high, offering further evidence of apick-up in economic growth. The latest estimate pegs GDP growth at 0.8 per-cent in Q1CY16, up from the initial report of just 0.5 percent.

In minutes of the April meeting, the Federal Open Market Committee said,"Most participants judged that if incoming data were consistent with economicgrowth picking up in the second quarter, labor market conditions continuing tostrengthen, and inflation making progress toward the Committee's 2% objec-tive, then it likely would be appropriate for the Committee to increase the tar-get range for the federal funds rate in June".

With increasing evidence of strengthening US GDP growth, the chances of a ratehike in June or July has increased in recent weeks. In this context, the May jobsreading on June 3 and subsequent keynote speech by the Fed Guv would beclosely watched. A rate hike may lead to appreciation of the USD against othercurrencies, weakness in commodity prices and some pullout in emerging marketfunds. However, on a more fundamental basis, a stronger US economy will pro-vide support to the global economy, which is slowing down. It will also help In-dian exports, which have seen consistent de-growth in past several quarters,which will be a medium-term positive.

Risk of Market and Currency volatility leading upto Brexit referendum in June

On June 23, voters in the United Kingdom will decide whether to remain part ofthe European Union or withdraw from it. The possibility of a British EU exit -"Brexit" - has left investors worried. The OECD has warned Britons would be fi-nancially worse off if they voted to leave the European Union in June. BOE Gov-ernor Mark Carney has said a so-called Brexit threatens UK's financial stabilityand could lead to slower economic growth. These fears have already started toweigh on UK markets as well as on its growth outlook. Brexit could lead to cur-rency volatility especially between GBP-Euro and GBP-USD. This could have itsimplications on the Indian companies having meaningful exposure to the UKmarket.

Crude continued to strengthen

After a sharp rise in the earlier months, crude prices consolidated gains in Mayand closed at USD 49 per barrel level, close to their highs in 2016. Larger-than-expected reduction in US crude inventories coupled with worries about moresupply outages from Nigeria's main crude oil terminal, have led to rally in crudeprices.

While supply disruptions and rig shutdowns in the US have led the rebound incrude prices in recent months, the demand outlook has not improved, especiallyin China, and this may weigh on the prices. China has reported low factory ac-tivity data. Car sales in China, an important gauge for gasoline and, by exten-sion, crude oil demand, have also fallen by almost a quarter since the end of2015 to 2.12 million new registered vehicles in April.

Needless to say that any sharp hike in crude prices could be negative for India asit could upset the inflation trajectory and have a negative impact on the fiscaldeficit number, with repercussions on interest rates. From a stock point of view,firm crude prices are positive for upstream companies like HOEC, Selan Explora-tion, OIL, Cairn and ONGC. Profit gains for these companies would be partly off-set by higher cess based on advalorem rate.

Brent Crude (US$/bl)

Source: Bloomberg

Rupee/US$

Source: Bloomberg

20

55

90

125

34.0

44.0

54.0

64.0

74.0


Domestic events to watch out for in near termMarkets started May on a rather tepid note. Weak rupee and concerns on SEBI'srevised norms on investments made through participatory notes (P-notes)weighed on the market. However, the sentiment improved after the results ofassembly elections in which the ruling party won the elections in state of Assam.

Monsoon Session - GST bill to be taken up

In the upcoming monsoon session, the government is hopeful of making a break-through on the GST bill front. The GST Bill was passed by the Lok Sabha but isstuck in the Upper House, where the ruling NDA does not have a majority and isdependent on the support of the Congress for its passage. The Constitutionamendment Bill needs two-third majority or 162 votes in the 242-member RajyaSabha. The Congress, the original author of the GST reform, has refused to sup-port the Constitution amendment Bill in its present form. One of the issues thatthe congress is demanding is a ceiling of 18% on GST to be enshrined in theconstitution. The NDA's viewpoint is that the GST rate needs to be flexible.

Core sector data continued to strengthen, while CPI / IIP disappointed

Markets were letdown by the IIP reading of 0.1% for the month of March (vsconsensus estimates of 2.5-3%). It also signalled a deceleration from the 2%level for February. The print came as a surprise as activity indicators like cementand car sales were signaling a pickup. The culprit was the Capital Goods Index(down 15%) which pulled down the manufacturing index. There was further dis-appointment awaiting investors as the CPI surged unexpectedly to 5.4% in Aprilafter rising 4.8% in March. The increase in the headline print was largely onaccount of food inflation, along with a mild unfavorable base effect.

However, core sector data continued on its positive trajectory for the fifthstraight month, with April growth accelerating the fastest in 17 months at 8.5%.Positive growth was seen in Cement, fertilizers and steel at 4.4%, 7.8% and6.1% respectively. We remain hopeful of improved economic growth goingahead and also expect food inflation to cool off due to the expected good mon-soons.

RBI expected to HOLD rates

The RBI had cut its policy rate by 25 bps at its monetary policy meet in April. Atits upcoming monetary policy meeting on June 7, we expect the RBI to "Hold"rates as it takes cognizance of the recent resurgence of inflationary pressures.RBI will also monitor the progress of monsoon and consequent policy response incase of subpar monsoons. Additionally, RBI will also await clarity on monetarypolicy transmission given the introduction of MCLR, revised liquidity manage-ment framework and reduction in small savings rates. Given that the CPI is hov-ering around 5% and RBI's desire to maintain a 100-150 bps real rate of return,there is limited scope for further cut in rates unless the inflationary pressuressubside meaningfully, we believe.

A rate cut, if at all, may only materialize in the second half of CY16 as weakdemand conditions (as seen from the tepid IIP reading for March) may providesome room for the RBI to increase its accommodative stance.

Better monsoons this year - Agri related stocks in favour

In its second long-range forecast for the year, the IMD has reiterated that, thereare 96% chances of rainfall to be normal - to - excess, this fiscal. The rainfallthis year will be 106 percent of the long period average, it said. It had earliersaid that, rains in 2016 would be between 104 and 110 per cent of the long-term average. El Nino conditions have turned 'neutral to negative' and La Ninaconditions are likely to develop in the latter half of the monsoon, it said. Therainfall in July will be 107 percent of long period average and 104 percent inAugust. It also added that rainfall in the second half of June to be better thanthe first half.

IIP growth (%)

Source: Bloomberg; Note: IIP growth sinceApril 2009 has been recompiled using newseries of WPI

(8.0)

(4.0)

-

4.0

8.0

12.0

16.0

20.0


The forecast has brought relief to the policymakers and the citizens alike giventhe unprecedented drought-like conditions being faced in large parts of thecountry. This could bring relief to the 10 states that are suffering from the worstdrought in decades. Apart from the kharif season, the impact of the monsoon isalso crucial for rabi crops as it has an impact on the ground water and also res-ervoirs which are critical for rabi crops irrigation. Although, the contribution ofAgriculture in gross domestic product (GDP) has declined in recent years, ruralincomes continue to remain a strong demand driver for Tractors, 2W, FMCG andCement sectors. Expectedly, these sectors are witnessing strong investor inter-est post the monsoon forecast by IMD. We expect these sectors to witness con-tinued interest in the coming weeks. However, the progress of the monsoonswould be closely tracked by the market.

FII's turned net buyers for the month

FIIs were net buyers for the month of May 2016 on positive global cues andhopes of an economic turnaround. FIIs were net buyers to the tune of Rs. 25.8bnduring May, while they are buyers to the tune of Rs.143.7bn YTD CY2016. Mu-tual funds turned net buyers for the month and bought stocks worth Rs.60bnduring May 2016 while CYTD, MFs are buyers to the tune of Rs.85.9 bn.

FII & Mutual Fund investment (Rs Cr)

Source: Bloomberg

Recommendation

We maintain a positive stance on the markets and on domestic infrastructureand interest-rate sensitive sectors, with medium term perspective, subject toshort term and intermittent bouts of profit booking. Our preference stays forcompanies having strong balance sheets and ethical managements. We are alsopositive on select large cap export-oriented stocks. Key risks to our recommen-dation would come from geo-political concerns globally, decline in foreign in-flows, sharp currency movements and further spike in oil prices.

-20,000

-10,000

0

10,000

20,000

30,000 FII MF


Preferred picks

Domestic Cyclicals / Investment oriented sectors

Sector Stocks

Automobiles Tata Motors, Mahindra & Mahindra

Banking, NBFCs Axis Bank, ICICI Bank, SBI, IDFC Bank

Capital Goods, Engineering L&T, Blue Star, Praj Industries, Voltamp

Cummins India, Engineers India Ltd, Greaves Cotton

Cement Grasim Industries, Ultratech Cements, India Cements

Construction IRB Infra, NCC, PNC Infratech, NBCC

FMCG ITC, Dabur India

Logistics, Transportation Adani Port, Allcargo, GDL

Metals Hindustan Zinc

Midcap Greenply Industries, Century Plyboards, MT Educare

Oil & Gas GSPL, Indraprastha Gas, Petronet LNG

Real Estate Phoenix Mills

Source: Kotak Securities - Private Client Research

Export oriented / Defensive sectors

Sector Stocks

IT Infosys, TCS, NIIT Ltd

Media TV18 Broadcast

Pharmaceuticals Alembic Pharma, Natco Pharma



Nifty : 8160

Stock Weight MCap Current PE (x) / PABV (x)*(%) (Rs mn) Price FY16E FY17E Comment

(Rs)

Infosys 10 2,883,317 1249 21.2 18.1 We believe that, the new strategy should allow Infosys toimprove growth rates over the long term with sustainedmargins.

Infosys has already made significant progress towardsnext-generation services and delivery mechanisms.

Axis Bank 10 1,221,282 515 2.6 2.3 Strong Liability franchise - CASA mix at 43-44%, one ofthe best in the Industry

Bank has fully recognized the necessary impairments as perthe RBI assessment in Q3FY16 itself, which partly clears theasset quality overhang on the stock.

Healthy asset quality - GNPA/NNPA at 1.68%/0.75%,respectively with strong coverage ratio (~72%)

Cummins India 10 269,600 800.0 29.5 27.2 Recovery in domestic business led by power generation andindustrial division augers well for Cummins business.

Alembic Pharma 10 101,304 536 27.2 22.7 Alembic Pharma's last few quarters were robust led by USone offs, this has made the balance sheet stronger

In the mid cap space, Alembic Pharma looks interesting withno USFDA regulatory issues pending as well as goodpipeline.

Escorts Limited 9 21,455 175 23.0 13.7 In the near term, good monsoons and government supportto the farm sector will be the key for company'sperformance

We believe that Escorts EBITDA margin has substantial scopefor improvement from the current levels.

BEL 9 28,361 1182 20.7 18.5 Robust order book Strong balance sheet

Hindustan Zinc 9 722,526 171 8.9 10.1 Like HZL for its strong fundamentals backed by a strongoutlook on zinc prices, quality assets and attractivevaluations with favourable risk-reward.

NIIT Ltd 9 12,917 78.0 20.0 12.0 The initiatives taken by the new management have led toearlier-than-expected benefits on margins.

We remain optimistic on the future prospects of NIIT.

NBCC 8 113,760 948 36.5 27.8 NBCC had a strong order book of Rs 370 bn (excludingredevelopment orders in pipeline to the tune of ~Rs 350 bn)at the end of Q4FY16.

The inflow of large size redevelopments orders wouldfurther strengthen company's order book and would bepositive for future growth in financials.

NCC 8 40,922 74 18.4 15.3 Order inflow is likely to ramp up sharply going forward forthe companyCompany also likely to benefit from large EPC projects fromNHAI and debt reduction from stake sale in projects

Stock is available at attractive valuations

PLNG 8 205,200 273.6 22.4 17.3 Dahej LNG expansion (50% capacity addition to 15 mmtpa)is going on as per schedule and will be completed by Nov/Dec’16.

We expect FY18E to be better, driven by acceleration involume growth, supported by expansion.

Source : Kotak Securities - Private Client research; * P/ABV ratio for Axis Bank

ONE MONTH PORTFOLIO - JUNE

Stock Recommendations

Latest Price Price as Latest Upside/ Latest Mkt EPS (Rs) PE (x) RoE (%) P/ABV (x)Name of the Company Reco ^ as on on latest price (Down- Report Cap

31-May Report target^ side) Date (Rs mn) FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E(Rs) (Rs) (Rs) (%)

Banking

Allahabad Bank SELL 53 51 45 (15.3) 17-May-16 26,575 NM 8.1 NM 6.6 NM 4.4 3.4 1.5

Andhra Bank SELL 50 52 50 (0.5) 10-May-16 28,119 7.9 9.5 6.4 5.3 5.5 6.1 0.8 0.8

Axis Bank BUY 515 480 540 4.8 27-Apr-16 1,221,282 34.7 38.8 14.8 13.3 17.6 17.6 2.6 2.3

Bank of Baroda SELL 143 155 142 (0.6) 16-May-16 294,454 NM 6.2 NM 23.0 NM 4.4 2.6 2.3

DCB Bank BUY 94 88 103 9.4 20-Apr-16 23,566 6.9 7.0 13.6 13.5 11.6 10.6 1.6 1.5

HDFC Bank ACCUMULATE 1,182 1,092 1,200 1.5 25-Apr-16 2,812,213 48.6 58.6 24.3 20.2 18.7 19.9 4.4 3.8

ICICI Bank BUY 245 237 314 28.3 02-May-16 1,410,322 16.8 17.4 14.6 14.1 11.6 11.2 1.9 1.8

IDFC Bank BUY 48 50 78 62.0 28-Apr-16 163,036 2.0 1.9 NM 25.7 NM 4.5 1.3 1.3

Indian Bank BUY 91 86 110 21.1 13-May-16 39,045 14.8 12.4 6.1 7.3 5.6 4.5 0.6 0.5

Jammu & Kashmir Bank BUY 57 58 83 44.9 30-May-16 27,791 8.6 9.5 6.7 6.0 6.6 6.9 0.6 0.6

Punjab National Bank REDUCE 79 88 90 13.9 10-Feb-16 133,984 6.0 11.5 13.2 6.9 2.9 5.5 1.7 0.8

State Bank of India BUY 205 196 260 26.9 30-May-16 1,375,296 13.0 15.8 15.8 13.0 7.4 8.3 1.8 1.7

Union Bank of India ACCUMULATE 118 116 125 5.6 16-May-16 65,179 19.7 22.4 6.0 5.3 6.9 7.2 1.2 1.2

NBFCs

HDFC Ltd BUY 1,238 1,093 1,380 11.5 03-May-16 1,819,295 44.9 46.7 27.6 26.5 21.8 20.5 6.1 5.5

IDFC BUY 52 43 77 49.4 03-May-16 81,965 NM NM NM NM NM 7.6 0.8 0.8

LIC Housing Finance BUY 471 468 550 16.8 21-Apr-16 223,606 32.9 36.3 14.3 13.0 19.5 18.5 2.7 2.3

M&M Financial Services SELL 322 298 285 (11.4) 26-Apr-16 153,862 11.8 13.7 27.3 23.5 11.2 11.9 3.6 3.4

Shriram Transport Finance Co BUY 1,180 944 1,080 (8.5) 02-May-16 264,410 62.2 74.5 19.0 15.8 15.5 16.6 3.0 2.7

S

FUNDAMENTAL STOCK RECOMMENDATION


Latest Price Price as Latest Upside/ Latest Mkt EPS (Rs) PE (x) RoE (%) EV/EBIDTA (x)Name of the Company Reco^ as on on latest price (Down- Report Cap


Auto & Auto Ancillary

Apollo Tyres BUY 156 159 185 18.2 13-May-16 78,851 20.8 22.7 7.5 6.9 18.9 17.4 4.3 4.5

Ashok Leyland ACCUMULATE 109 104 115 5.6 27-May-16 289,916 3.8 4.6 28.7 23.7 20.2 21.8 14.4 12.2

Bajaj Auto Ltd ACCUMULATE 2,618 2,505 2,720 3.9 27-May-16 757,750 126.2 133.9 20.7 19.6 31.8 29.0 13.8 12.9

Eicher Motors Ltd # REDUCE 18,486 19,687 20,054 8.5 06-May-16 499,118 471.5 619.7 39.2 29.8 42.7 40.5 19.3 15.2

Escorts Ltd BUY 175 174 196 12.2 26-May-16 21,366 7.6 12.8 23.0 13.6 4.9 7.9 16.1 9.9

Hero MotoCorp Ltd ACCUMULATE 3,099 2,894 3,134 1.1 06-May-16 619,780 156.9 170.7 19.8 18.2 43.2 39.8 13.2 12.1

Mahindra & Mahindra ACCUMULATE 1,322 1,331 1,447 9.4 31-May-16 814,537 51.6 57.0 25.6 23.2 15.2 15.2 17.9 15.7

Maruti Suzuki India Ltd ACCUMULATE 4,162 3,872 4,154 (0.2) 27-Apr-16 1,256,803 151.3 187.9 27.5 22.1 18.0 19.5 12.4 10.6

Motherson Sumi Systems Ltd REDUCE 285 290 298 4.7 18-May-16 376,724 9.6 11.5 29.7 24.8 34.0 31.8 10.6 8.3

Tata Motors BUY 460 421 488 6.2 31-May-16 1,458,929 37.1 41.6 12.4 11.0 16.1 16.7 4.7 4.1

TVS Motors SELL 285 287 271 (4.8) 04-May-16 135,237 9.1 12.9 31.3 22.1 24.1 28.3 18.8 13.2

Building Material

Century Plyboards (India) Ltd BUY 163 173 204 25.2 13-May-16 36,268 7.6 8.8 21.4 18.5 35.6 30.1 16.8 12.3

Greenply Industries Ltd BUY 213 197 224 5.0 25-May-16 25,735 10.7 12.2 19.9 17.5 23.7 21.8 11.4 10.2

Kajaria Ceramics Ltd ACCUMULATE 1,092 1,061 1,120 2.6 29-Apr-16 82,533 28.8 37.9 37.9 28.8 27.5 28.6 9.6 15.5

Supreme Industries Ltd ACCUMULATE 992 798 846 (14.7) 22-Apr-16 125,984 16.8 31.2 59.0 31.8 18.2 29.4 27.7 16.3

Capital Goods & Engineering

ABB Ltd * SELL 1,237 1,292 1,113 (10.0) 27-Apr-16 262,133 14.2 25.9 87.1 47.8 10.3 17.0 36.6 25.4

AIA Engineering SELL 941 919 918 (2.5) 26-May-16 88,473 45.0 49.1 20.9 19.2 19.4 18.9 13.0 11.8

Bajaj Electricals Ltd ACCUMULATE 235 236 270 14.7 31-May-16 23,258 9.7 13.9 24.3 16.9 13.3 17.1 8.6 6.9

Bharat Electronics ACCUMULATE 1,178 1,190 1,277 8.4 31-May-16 282,780 57.0 63.8 20.7 18.5 16.6 16.9 15.3 17.9

BHEL REDUCE 121 128 130 7.9 30-May-16 294,864 NM 4.4 NM 27.4 NM 3.2 NM 9.3

Blue Star Ltd BUY 417 356 404 (3.1) 17-Mar-16 37,484 9.9 15.4 42.1 27.1 14.3 20.1 22.5 16.5

Carborundum Universal Ltd ACCUMULATE 226 202 215 (4.7) 06-May-16 42,169 8.2 9.9 27.5 22.8 13.6 14.9 13.3 11.2

Crompton Greaves ACCUMULATE 66 68 76 15.1 31-May-16 42,378 1.1 3.8 60.0 17.4 NM 5.2 16.3 12.6

Cummins India BUY 800 807 970 21.3 27-May-16 221,760 27.1 29.4 29.5 27.2 24.8 24.7 28.6 25.6

Elgi Equipment Ltd SELL 174 125 110 (36.9) 09-Feb-16 27,555 3.1 5.2 56.3 33.5 10.0 15.5 24.3 16.8

Engineers India Ltd BUY 179 182 210 17.1 27-May-16 60,441 7.7 11.1 23.3 16.2 9.9 13.6 20.2 9.8

Greaves Cotton BUY 136 138 160 17.7 10-May-16 33,180 7.1 8.6 19.1 15.8 20.7 22.7 10.4 9.0


Havells India Ltd SELL 365 341 330 (9.5) 13-May-16 227,486 8.2 9.5 44.5 38.4 27.4 28.6 34.7 29.8

Larsen & Toubro BUY 1,474 1,291 1,471 (0.2) 26-May-16 1,359,350 51.2 58.4 28.8 25.2 11.1 11.8 17.5 16.2

Praj Industries Ltd ACCUMULATE 85 86 92 8.0 24-May-16 15,080 3.9 3.9 21.8 21.8 10.7 10.2 11.3 10.8

Siemens India * * SELL 1,204 1,151 1,130 (6.2) 19-May-16 398,590 17.5 29.7 68.8 40.5 10.8 15.6 30.5 23.5

Suzlon Energy RATING SUSPENDED 16 23 NA - 03-Jun-15 23,801 NM NM NM NM NM NM NM NM

Thermax ACCUMULATE 732 739 791 8.1 27-May-16 87,054 23.1 23.3 31.7 31.4 9.0 9.8 18.2 17.3

Time Technoplast Ltd BUY 48 49 69 44.4 19-Feb-16 9,990 5.7 6.9 8.4 6.9 11.0 12.0 5.0 4.3

Va Tech Wabag Ltd ACCUMULATE 578 555 595 3.0 30-May-16 30,618 17.0 23.3 34.0 24.8 9.4 12.2 12.9 10.6

Voltamp Ltd BUY 800 802 939 17.4 11-Feb-16 8,075 41.0 47.0 19.5 17.0 10.0 12.0 16.5 12.5

Voltas Ltd ACCUMULATE 336 323 347 3.3 20-May-16 111,015 10.4 13.1 32.3 25.6 15.2 16.9 23.3 18.9

Cement

ACC ## REDUCE 1,529 1,437 1,441 (5.8) 29-Apr-16 287,201 31.5 50.9 48.5 30.0 7.1 10.8 22.5 17.3

Grasim Industries BUY 4,347 4,144 4,663 7.3 10-May-16 398,592 252.9 331.3 17.2 13.1 9.8 11.6 6.5 4.9

India Cements BUY 94 93 105 11.5 27-May-16 28,919 4.5 4.9 20.9 19.2 3.8 3.9 5.9 5.2

Shree Cement ACCUMULATE 13,130 12,950 13,604 3.6 27-May-16 457,447 130.6 NM 100.5 NM 8.7 17.8 33.5 18.2

UltraTech Cement ACCUMULATE 3,227 3,278 3,480 7.9 26-Apr-16 884,116 79.3 112.0 40.7 28.8 11.0 13.9 20.3 14.1

Construction

IL&FS Transportation Network REDUCE 69 73 76 10.5 16-May-16 13,366 9.5 7.1 7.2 9.7 5.0 3.4 9.2 8.6

IRB Infrastructure Developers BUY 221 219 297 34.7 20-May-16 73,285 18.1 18.3 12.2 12.0 13.7 12.4 7.1 6.7

KNR Construction BUY 555 453 595 7.1 16-Feb-16 15,607 29.6 36.0 18.8 15.4 18.0 14.9 0.6 NM

Nagarjuna Construction BUY 74 71 95 29.1 25-May-16 40,917 4.0 4.8 18.4 15.3 6.7 7.6 8.9 7.7

NBCC BUY 948 978 1,144 20.7 17-May-16 120,390 26.0 34.1 36.5 27.8 22.0 25.0 27.5 21.2

PNC Infratech Ltd BUY 568 573 671 18.1 31-May-16 29,136 31.5 37.4 18.0 15.2 15.6 13.0 11.0 9.3

Simplex Infrastructures BUY 274 236 292 6.6 16-Feb-16 13,610 14.9 24.4 18.4 11.2 4.9 7.6 6.2 5.5

Education

MT Educare Ltd BUY 185 191 239 29.5 19-May-16 7,343 8.1 11.2 22.8 16.5 23.6 27.0 12.7 9.2





FMCG

Colgate Palmolive (India) Ltd ACCUMULATE 861 834 927 7.6 25-May-16 234,287 22.3 23.1 38.6 37.3 54.2 56.0 24.4 21.9

Dabur India Ltd BUY 290 269 305 5.3 29-Apr-16 503,499 7.1 8.3 40.8 34.9 30.1 29.4 33.4 28.1

Godrej Consumer Products Ltd REDUCE 1,483 1,366 1,400 (5.6) 04-May-16 479,771 33.7 39.0 44.0 38.0 22.5 23.7 29.5 24.6

Hindustan Unilever REDUCE 848 846 852 0.4 10-May-16 1,832,112 19.1 21.9 44.4 38.7 111.2 124.8 31.1 26.9

ITC Ltd BUY 351 330 388 10.5 23-May-16 2,716,425 12.2 14.0 28.8 25.1 30.8 33.8 18.9 16.3

Marico Ltd REDUCE 249 259 267 7.1 02-May-16 320,970 5.6 6.5 44.5 38.3 35.2 34.9 29.7 25.4

Nestle India Ltd ACCUMULATE 6,097 5,710 6,000 (1.6) 13-May-16 587,906 58.4 127.8 104.4 47.7 34.2 37.8 36.8 25.8

Pidilite Industries SELL 706 653 630 (10.8) 23-May-16 358,775 14.9 17.2 47.4 41.1 29.9 28.7 29.9 26.9

Information Technology

Cyient Ltd (Infotech) REDUCE 483 482 497 2.9 22-Apr-16 53,656 29.8 36.2 16.2 13.3 17.5 19.4 10.5 7.8

Geometric Ltd RATING SUSPENDED 218 208 NA - 09-May-16 13,634 16.2 17.2 13.4 12.6 23.9 21.3 6.4 5.2

HCL Technologies REDUCE 740 800 838 13.3 29-Apr-16 1,044,598 40.3 57.4 18.4 12.9 18.7 17.3 13.0 8.7

Infosys Technologies BUY 1,249 1,173 1,371 9.8 18-Apr-16 2,856,890 59.0 69.0 21.2 18.1 23.2 24.6 16.0 13.3

KPIT Technologies BUY 181 161 183 1.1 29-Apr-16 34,607 15.0 16.5 12.1 11.0 21.0 20.4 7.0 6.1

Mphasis Ltd REDUCE 524 455 468 (10.7) 05-Apr-16 109,427 33.3 38.2 15.7 13.7 12.5 13.6 9.5 8.4

NIIT LTD BUY 78 84 96 23.4 11-May-16 12,814 3.9 6.5 19.9 12.0 8.5 12.7 18.0 13.6

NIIT Technologies ACCUMULATE 486 483 535 10.2 09-May-16 28,480 46.0 49.4 10.6 9.8 19.1 17.7 5.3 4.5

Oracle Financial Services Soft ACCUMULATE 3,466 3,497 3,685 6.3 19-May-16 290,273 142.6 163.0 24.3 21.3 33.4 35.8 15.7 13.7

Tata Consultancy Services (TCS) ACCUMULATE 2,569 2,522 2,725 6.1 20-Apr-16 5,029,344 122.1 135.6 21.0 18.9 42.9 41.1 15.3 13.4

Wipro Technologies SELL 545 602 583 6.9 21-Apr-16 1,334,553 36.0 39.3 15.2 13.9 21.3 20.6 8.8 7.5

Zensar Technologies REDUCE 952 947 958 0.6 26-Apr-16 41,047 69.3 75.4 13.7 12.6 23.9 21.5 8.5 7.2

Logistics

Adani Port & Special Eco Zone BUY 192 235 320 66.5 04-May-16 384,973 13.9 17.8 13.8 10.8 22.1 22.6 11.4 9.6

Allcargo Global Logistics BUY 161 160 200 24.1 25-May-16 44,155 11.1 12.1 14.5 13.3 12.8 12.4 9.0 8.3

Blue Dart Express SELL 5,438 6,249 5,655 4.0 20-Apr-16 128,888 79.7 87.9 68.2 61.9 44.6 35.6 38.9 36.0

Container Corporation of India SELL 1,436 1,360 1,260 (12.3) 27-May-16 280,020 40.6 45.7 35.4 31.4 9.8 10.2 23.2 20.7

Gateway Distriparks Ltd BUY 295 299 365 23.9 28-Apr-16 31,811 9.5 13.9 31.0 21.2 9.6 12.8 14.2 11.2

Gujarat Pipavav Port Ltd (GPPL) BUY 160 156 175 9.3 20-May-16 67,904 3.6 4.9 14.5 16.5 9.5 11.7 17.4 15.8





Media

Dish TV India Ltd ACCUMULATE 88 87 94 6.5 24-May-16 93,951 6.5 2.4 13.6 36.8 NM NM 10.4 8.5

Entertainment Network (ENIL) ACCUMULATE 760 673 725 (4.6) 24-May-16 36,250 21.0 17.5 36.2 43.4 13.9 10.3 21.2 20.6

HT Media NR 81 - - - - 18,926 NM NM NM NM NM NM NM NM

Hindustan Media Ventures Ltd BUY 263 266 336 27.7 26-May-16 19,309 24.6 28.4 10.7 9.3 21.9 20.7 8.2 6.4

Sun TV Network ACCUMULATE 375 383 414 10.4 30-May-16 147,730 22.7 24.4 16.5 15.4 25.5 29.7 7.5 6.9

TV18 Broadcast BUY 41 39 56 37.3 22-Apr-16 69,768 1.1 1.5 37.1 27.2 5.1 7.0 28.5 17.6

Zee Entertainment Ent ACCUMULATE 443 418 450 1.5 11-May-16 433,596 10.9 13.0 40.7 34.1 18.0 19.0 27.8 22.7

Metals & Mining

Hindustan Zinc ACCUMULATE 171 172 185 8.3 25-Apr-16 721,473 19.3 17.0 8.8 10.0 21.8 16.9 5.7 4.5

JSW Steel ACCUMULATE 1,389 1,304 1,370 (1.4) 19-May-16 335,758 NM 100.3 NM 13.8 NM 10.1 11.5 6.5

National Aluminium Co REDUCE 43 42 44 2.6 31-May-16 110,553 2.7 2.8 15.9 15.3 7.5 8.3 5.6 5.6

Tata Sponge Iron Ltd BUY 586 547 625 6.7 28-Apr-16 9,022 20.1 47.9 29.1 12.2 3.8 8.5 15.8 3.3

Oil & Gas

Aban Offshore Ltd SELL 197 197 151 (23.2) 24-May-16 11,403 7.3 24.0 26.9 8.2 0.8 2.5 8.0 8.1

Cairn India Ltd SELL 145 144 131 (9.7) 26-Apr-16 272,136 NM 6.1 NM 23.8 4.1 2.3 4.7 3.7

Castrol India Ltd * * ACCUMULATE 375 411 457 21.9 06-May-16 185,436 11.9 14.0 31.5 26.8 73.8 75.2 19.4 16.8

Chennai Petroleum Corporation BUY 200 203 235 17.3 24-May-16 29,860 45.0 48.3 4.5 4.1 33.9 27.8 5.3 4.1

Gujarat State Petronet Ltd (GSPL) ACCUMULATE 133 136 150 13.2 20-May-16 74,333 8.2 10.2 16.2 13.0 12.0 13.0 9.2 7.3

Indraprastha Gas (IGL) ACCUMULATE 559 568 602 7.8 16-May-16 78,197 29.7 33.3 18.8 16.8 18.0 18.0 9.7 9.3

MRPL ACCUMULATE 68 70 77 13.5 13-May-16 118,873 4.1 4.9 16.8 14.0 12.7 13.4 12.0 6.4

Oil India Ltd BUY 350 348 412 17.7 30-May-16 210,385 37.5 42.0 9.3 8.3 7.8 10.4 4.0 3.5

Petronet LNG ACCUMULATE 274 279 294 7.5 18-May-16 205,163 12.2 15.8 22.4 17.3 14.9 17.0 13.9 9.8

Paints

Asian Paints Ltd REDUCE 985 907 925 (6.1) 12-May-16 944,471 19.1 21.9 51.6 45.0 32.7 31.7 32.6 28.5

Berger Paints SELL 283 277 275 (2.8) 09-Feb-16 195,980 5.7 7.0 49.6 40.4 22.9 22.6 29.3 24.2

Kansai Nerolac Paints Ltd SELL 292 295 290 (0.8) 29-Apr-16 157,523 6.6 7.7 44.3 38.0 21.9 22.0 26.9 23.5





Pharmaceuticals

Alembic Pharma BUY 536 619 700 30.6 28-Apr-16 101,304 19.7 23.6 27.2 22.7 57.9 25.1 9.8 16.7

Cadila Healthcare Ltd ACCUMULATE 336 327 360 7.0 16-May-16 344,373 14.7 15.4 22.9 21.8 28.1 24.0 14.9 14.5

Cipla SELL 473 495 480 1.6 25-May-16 380,011 18.7 19.9 25.3 23.8 13.3 12.7 14.8 12.0

Dr Reddy's Laboratories Ltd SELL 3,183 2,960 2,640 (17.1) 10-Feb-16 541,764 143.9 132.2 22.1 24.1 22.9 17.8 12.9 13.6

Lupin REDUCE 1,475 1,665 1,680 13.9 20-May-16 661,278 50.4 68.3 29.3 21.6 22.9 25.0 16.6 11.9

Natco Pharma Ltd BUY 482 469 608 26.0 30-May-16 84,034 8.9 23.9 54.2 20.2 12.0 24.3 30.9 14.0

Sun Pharmaceuticals ACCUMULATE 763 848 923 21.0 15-Feb-16 1,835,177 22.9 37.1 33.3 20.6 16.6 24.4 20.4 12.7

Torrent Pharmaceuticals SELL 1,342 1,333 1,320 (1.6) 24-May-16 226,756 101.7 64.1 13.2 20.9 62.4 28.6 9.1 14.7

Power

NTPC ACCUMULATE 143 143 160 11.8 31-May-16 1,180,415 12.5 12.1 11.5 11.8 12.3 11.7 11.1 10.9

Tata Power Company Ltd BUY 74 72 84 13.9 25-May-16 175,009 8.0 8.5 9.2 8.7 6.4 15.4 5.6 5.2

Real Estate

Phoenix Mills Ltd BUY 302 313 366 21.3 18-May-16 43,716 5.3 11.3 56.9 26.7 4.6 9.0 5.9 5.1

Shipping

GE Shipping Company SELL 308 317 300 (2.4) 06-May-16 46,740 70.4 73.8 4.4 4.2 12.5 11.8 3.2 3.3

Reliance Defence & Engg Ltd ACCUMULATE 60 65 70 17.4 17-May-16 41,196 NM NM NM NM NM NM NM NM

Shipping Corporation of India SELL 69 67 66 (4.3) 22-Mar-16 29,222 11.2 11.0 6.2 6.3 7.7 7.0 6.1 5.9


^ All recommendations are with a 9-12 month perspective from the date of the report/update. Investors are requested to use their discretion while deciding the timing, quantity of investment as wellas the exit.

* Figures for CY15 & CY16** Figures for CY16 & CY17# Figures for CY15 & FY17 (15 month period)## Figures for CY16 & CY17 - September year endingNR = 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 circum-

stances 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.NM= Not Meaningful





BUY

Current Market Price (Rs) 52 Week H/L (Rs) Mkt Cap (Rs mn)

800 1248 / 746 221760

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 47,243 51,100 58,209 Growth (%) 7.2 8.2 13.9EBITDA 7,604 8,440 9,438 EBITDA margin (%) 16.1 16.5 16.2 PBT 9,064 9,813 10,811 Net profit 7,517 8,145 8,973 EPS (Rs) 27.1 29.4 32.4 Growth (%) 8.1 8.4 10.2 CEPS (Rs) 30.0 32.5 35.5 BV (Rs/share) 114.4 123.9 135.2 Dividend/share (Rs) 14.0 17.0 18.0 Source: Company, Kotak Securities - Private Client Research

ROE (%) 24.8 24.7 25.0 ROCE (%) 23.2 23.2 23.7 Net cash (debt) 873 498 389 NW Capital (Days) 51.6 56.0 48.1

VALUATION PARAMETERS FY16 FY17E FY18EP/E (x) 29.5 27.2 24.7

P/BV (x) 7.0 6.5 5.9

EV/Sales (x) 4.6 4.3 3.8

EV/EBITDA (x) 28.6 25.9 23.2

PRICE PERFORMANCE (%) 1M 3M 6M(10.9) (9.2) (20.3)

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company

Last report at Rs.807 on 27 May 2016

CUMMINS INDIA LTD

Target Price (Rs)

970

Revenue mix (%)

Potential Upside (%)

21.3%

1 Year Performance

Share Holding Pattern (%)

Export Sales (Rs bn)

Promoter51.0%

FII17.1%

DII17.7%

Others14.2%

0

10

20

30

40

50

60

Q2 FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q3FY17

Power44%

Industrial18%

Automotive6%

Distribution32%

50

100

150

200

250

Dec‐13

Jan‐14

Feb‐14

Mar‐…

Apr‐14

May‐…

Jun‐14

Jul‐14

Aug‐14

Sep‐14

Oct‐14

Nov‐…

Dec‐14

Jan‐15

Cummins India Ltd Nifty

INVESTMENT ARGUMENT CIL reported 7.2% YoY revenue growth in FY16 on back of

recovery in domestic market. Company is well poised to benefit from recovery in the

infrastructure spending in the country. Commencement of mega production site at Phaltan is likely to

ease out capacity constraints and would add to cash flowgeneration in future. Company has committed a Capex of USD300 mn funded mainly through internal accruals.

We recommend 'BUY' on company's stock with a DCF basedprice target of Rs 970.

RISKS & CONCERNS Slowdown in industrial production and core sector growth

Rising interest rate scenario can put further pressure on domesticcapex cycle.

COMPANY BACKGROUND A Cummins Inc subsidiary. Significant player in domestic market Diversified across power, industrial and automotive sector.

SECTOR BACKGROUND Oil engines (backup power) sales is expected to grow with the

overall economic growth going ahead. Indian Low KVA oil engines market is highly competitive. Mid/High

KVA engines space is dominated by few players.

BUY


136 163 / 113 33212

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 16,162 17,573 19,459 Growth (%) (4.3) 8.7 10.7 EBITDA 2,686 2,967 3,297 EBITDA margin (%) 16.6 16.9 16.9 PBT 2,915 2,924 3,331 Net profit 1,737 2,106 2,398 EPS (Rs) 7.1 8.6 9.8 Growth (%) 17.8 21.2 13.9 CEPS (Rs) 9.0 10.6 12.0 Book value (Rs/share) 33.0 38.7 45.6 Dividend per share (Rs) 5.5 2.5 2.5 Source: Company, Kotak Securities - Private Client Research

ROE (%) 20.7 22.8 22.2 ROCE (%) 20.5 20.4 20.0 Net cash (debt) 206 669 505

Net Working Capital (Days) 45 36 38


P/BV (x) 4.1 3.5 3.0

EV/Sales (x) 1.8 1.6 1.4

EV/EBITDA (x) 11.1 9.4 8.1

PRICE PERFORMANCE (%) 1M 3M 6M2.7 9.1 (8.3)


Revenue mix (%)


17.6%

1 Year Performance


Growth rate in 3W industry


GREAVES COTTON LTD

Target Price (Rs)

160

Promoter51.0%

FII4.9%

DII32.8%

Others11.4%

‐10%

0%

10%

20%

30%

40%

FY11 FY12 FY13 FY14 FY15 FY16

Auto 66%

DG Sets17%

Agriculture17%

50

110

170

230

290

350

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

Greaves Cotton Ltd Nifty

INVESTMENT ARGUMENT The company is the sole supplier of light diesel engines to OEMs

like Piaggio, M&M and Atul Auto. Piaggio is the prime clientaccounting for the bulk of automotive engines revenue.

We estimate 3W's to account for roughly 70-80% of auto revenues and around 50% of total revenue for the company and hence is animportant variable to monitor. The company is thus a play on the 3Wsegment (passenger and cargo) which in turn is driven by risingurbanization and usage of light cargo vehicles for intra-city transportation.

Revenue growth dependent on success in making further inroads into OEMs like Tata Motors, M&M, Piaggio and TVS.

The company enjoys high return ratios.

RISKS & CONCERNS High dependence on single client

COMPANY BACKGROUND Greaves Cotton Limited was established in 1859 and is one of

India's reputed engineering companies. The company is part of the B M Thapar group with Mr Karan Thapar

as the Non-Executive Chairman of the company It manufactures a wide range of industrial products including Diesel /

Petrol Engines, Gensets, Pumpsets and Construction Equipment.

SECTOR BACKGROUND The sector is a play on the growth of 3W demand which in turn is a

play on the economic activity in the country. Manufacturing sector has in the recent years been bogged down by

high interest rates and delay in decision making at government level.

BUY


245 321 / 181 0

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18EInterest income 527 592 681 Interest expense 315.2 354.7 407.5Net interest income 212 237 274 Growth (%) 11.5% 11.7% 15.4%Other income 153 141 155 Gross profit 239 235 262 Net profit 97.3 101.3 121.5 Growth (%) -13.0% 4.2% 19.9%Gross NPA (%) 6.6 6.2 5.8 Net NPA (%) 3.0 2.4 1.7 Net interest margin (%) 3.4 3.3 3.4 Source: Company, Kotak Securities - Private Client Research

CAR (%) 17.0 16.0 14.9 RoE (%) 11.6 11.2 12.5 RoAA (%) 1.4 1.3 1.4 Dividend per share (Rs) 5.0 5.5 6.0 EPS (Rs) 16.8 17.4 20.9 Adjusted BVPS (Rs) 127.2 139.6 157.8


P/BV (x) 1.9 1.8 1.6



Trend in Asset Quality


28.2%

1 Year Performance


Trend in earnings (Rs bn)


ICICI BANK LTD

Target Price (Rs)

314

Promoter0.0%

FII51.1%DII

36.4%

Others12.5%

70

90

110

130

150

170

190

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

ICICI Bank Ltd Nifty

INVESTMENT ARGUMENT We like the quality of liability franchise - CASA mix at ~46% (Q4FY16),

one of the best in the industry. NIM has been strong on back of strong accretion to low cost deposits as

well as better ALM. Lower risk on SME portfolio (~5% of total portfolio). While retail piece has

witnessed insignificant net slippage, corporate segment continues toperform well.

RoA is likely to remain stronger at 1.8% (FY17/18E), driving up the RoEto 15%+ (FY18). Management focus on stable growth with improvingstructural profitability reinforces our existing positive outlook on the stock.

We have used SOTP method to value the stock, where standalonebusiness comes to Rs.237 (1.5x FY18E ABV) and subsidiaries arevalued at Rs.77 (holding co discount: 20%).

RISKS & CONCERNS Retail book stands at ~47% of total book, highly vulnerable to system-

wide deterioration in retail asset quality.

Fresh slippage spiked under RBI’s new directive to ~7% during H2FY16.

Deregulation of interest rates on saving deposits (31-32% of deposits)might increase the funding costs and in turn impacting its NIM.

COMPANY BACKGROUND Largest private sector banks (4450 branches in Q4FY16) with 4.2%

market share in domestic loans. After conscious strategy of de-growing their B/S post Lehman collapse,

bank has started focusing on profitable growth

SECTOR BACKGROUND Easing bond yield is positive for wholesale funded entities and is likely to

result into higher trading gains for banks. Retail segment continues to drive loan growth. Prefer private sector

banks and remain cautious on PSU banks.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16

NII PAT

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

90

140

190

240

290


Gross NPA (Rs bn ‐ LHS)

Gross NPA (% ‐ RHS)

BUY


351 362 / 267 2824570

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 364,435 404,804 453,035 Growth (%) 1.0 11.1 11.9 EBITDA 138,444 158,508 179,632 EBITDA margin (%) 38.0 39.2 39.7 PBT 149,267 169,837 197,156 Net profit 98,130 112,093 130,123 EPS (Rs) 12.2 14.0 16.2 Growth (%) 2.1 14.2 15.6 CEPS (Rs) 13.5 15.3 17.6 Book value (Rs/share) 41.1 41.7 50.1 Dividend per share (Rs) 8.5 6.5 6.5 Source: Company, Kotak Securities - Private Client Research

ROE (%) 30.8 33.8 35.3 ROCE (%) 25.1 27.7 30.2 Net cash (debt) 65,640 111,500 163,695 Net Working Capital (Days) 213 192 213


P/BV (x) 8.5 8.4 7.0

EV/Sales (x) 7.6 6.7 5.9

EV/EBITDA (x) 19.9 17.1 14.8

PRICE PERFORMANCE (%) 1M 3M 6M12.8 12.0 3.8



ITC LTD

Target Price (Rs)

388

Cigarette EBIT Growth (%, y/y)


10.5%

1 Year Performance


Cigarette Volume Growth (Est., %, y/y)

Promoter0.0% FII

15.1%

DII40.6%

Others44.3%

80

90

100

110

120

130

140

150

160

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

ITC Ltd Nifty

INVESTMENT ARGUMENT Trend of cigarette volume growth suggests that, after a reshuffle in

cigarette consumption patterns, there is stability in the cigarettemarket. ITC, which has c.80% market share in the cigarette market,is likely to see a fair degree of stability in revenue growth goingforward.

The cigarette industry has been able to combat structural negativeswith a higher mix of <65mm cigarettes. In ITC’s own product mix,<65mm cigarettes now contribute close to 20% (as per our channelchecks)

12-13% growth in cigarette EBIT is now the base-case scenario,unless tax trajectory changes significantly. Moreover, other divisionsof ITC (paper, hotels, agri-business) have a weak base, and couldsurprise positively.

Valuations of ITC are attractive relative to large-cap FMCG plays, aswell as ITC’s own historical bands.

RISKS & CONCERNS Significant changes in tax trajectory, including potential negatives

from GST rollout

COMPANY BACKGROUND ITC is India's largest cigarette company, with c.80% market share.

The company is also involved in several other segments, whichinclude non-cigarette FMCG goods, paper, paperboards, andpackaging, hotel, and agri-business.

SECTOR BACKGROUND Indian FMCG sector’s size is pegged at Rs 2 Trillion with rural India

contributing to about a third of the revenues.

‐20

‐15

‐10

‐5

0

5

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

ACCUMULATE


1322 1442 / 1091 821084

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 408,850 461,851 529,106 Growth (%) 5.0 13.0 14.6EBITDA 45,702 50,868 60,457 EBITDA margin (%) 11.2 11.0 11.4 PBT 42,299 46,389 54,729 Net profit 31,675 35,023 41,320 EPS (Rs) 51.6 57.0 67.3 Growth (%) (4.6) 10.6 18.0 CEPS (Rs) 69.6 76.8 89.9 Book value (Rs/share) 353.5 395.4 449.2 Dividend per share (Rs) 12.0 12.0 12.0 Source: Company, Kotak Securities - Private Client Research

ROE (%) 15.2 15.2 15.9 ROCE (%) 18.6 18.9 19.7 Net cash (debt) 28,292 6,252 17,483 Net Working Capital (Days) (14.0) (9.1) (7.9)


P/BV (x) 3.7 3.3 2.9

EV/Sales (x) 1.9 1.8 1.5

EV/EBITDA (x) 17.3 16.0 13.3



Tractor Sales Volume (Nos)


9.5%

1 Year Performance


Auto Sales Volumes (Units)


MAHINDRA & MAHINDRA LTD

Target Price (Rs)

1447

Promoter26.9%

FII31.7%

DII27.0%

Others14.3%

0

100,000

200,000

300,000

400,000

500,000

600,000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

0

50000

100000

150000

200000

250000

300000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

80

100

120

140

160

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

Mahindra & Mahindra Ltd Nifty

INVESTMENT ARGUMENT We expect M&M's automotive segment volume to grow at a robust pace in

FY17, led by new product launches.

In the tractor segment, monsoon and government assistance to theagriculture sector will be the key volume growth driver in FY17.

While volume growth outlook looks positive, operating margin can stay a bitunder pressure in the near term. We see pressure on margins emanatingfrom completion of Haridwar incentive, firming up of commodity prices andrising competitive pressure in the UV segment. Benefits of operatingleverage will lower the impact on margins to certain extent.[

RISKS & CONCERNS Lower than expected performance of new launches

Delay in expected pick-up of tractor demand

COMPANY BACKGROUND Mahindra & Mahindra is the flagship company of the Mahindra Group.

M&M is amongst the top names in India automobile industry and marketleader in the tractor business.

SECTOR BACKGROUND India’s passenger vehicle industry sold ~3mn vehicles in FY15. While 80%

of sales happened in the domestic market, balance 20% were exported.Top five players account for ~80% of industry sales volumes.

Tractor sales in the domestic market, in the past decade, grew by 12.6%CAGR. Domestic tractor demand is dependent on factors like monsoons,crop production, MSP, credit flow, govt schemes (regular and one-time)and the general state of the rural economy

BUY


185 200 / 101 7367

Source: Bloomberg

Source: Company

FINANCIALS (RS MN) FY16 FY17E FY18ESales 2,871 3,843 4,609 Growth (%) 26.5 33.8 19.9EBITDA 579 776 940 EBITDA margin (%) 20.2 20.2 20.4 PBT 475 651 774 Net profit 323 444 528 EPS (Rs) 8.1 11.2 13.3 Growth (%) 25.3 37.4 18.9 CEPS (Rs) 12.1 15.9 19.1 Book value (Rs/share) 34.5 41.3 49.9 Dividend per share (Rs) 2.0 2.8 3.3 Source: Company, Kotak Securities - Private Client Research

ROE (%) 23.6 27.0 26.6 ROCE (%) 28.3 32.1 34.5 Net cash (debt) (235) (13) 54 Net Working Capital (Days) 1.3 0.5 2.5


P/BV (x) 5.4 4.5 3.7

EV/Sales (x) 2.6 1.9 1.6

EV/EBITDA (x) 13.1 9.5 7.8




MT EDUCARE (MT)

Target Price (Rs)

239

RoE & RoCE (%)


29.2%

1 Year Performance


Revenue growth driven by Robomate, Science and Gayatri

Promoters & Top

Management52.0%

FII23.0%

DII5.0%

Others20.0%

70

100

130

160

190

220

250

Dec‐13

Feb‐14

Apr‐14

Jun‐14

Aug‐14

Oct‐14

Dec‐14

Feb‐15

Apr‐15

Jun‐15

Aug‐15

Oct‐15

Dec‐15

Feb‐16

Apr‐16

Jun‐16

MT Educare (MT) Nifty

INVESTMENT ARGUMENT MT Educare (MT) differentiates itself from other players in the sector by

focusing on technology driven coaching services through Robomate whichhelps company to position itself as a niche player in highly unorganizedindustry with low entry barriers.

MT has entered into product business by selling Robomate to Non-MTstudents which is relatively higher margin business.

MT is increasing its focus on national level exams such as CA, IIT JEEAdvanced, JEE Mains, CAT, CMAT, CBSE, ICSE, etc, in order to achievehigher scale.

MT has track record of generating 25% plus RoCE with strong cashflowsand the business does not need high amount of capital.

We are positive on the education sector and believe that MT positioningitself as a niche player through focus on technology and new geographieswhich would expand its scale of operation in the longer run.

RISKS & CONCERNS MT is present in low entry barrier coaching business. However the

company has started creating entry barrier through introduction ofRobomate and technology

COMPANY BACKGROUND MT Educare is engaged in the business of providing educational support

and coaching services. The company was promoted by Mr. Mahesh Shettyin 1988 and has been providing coaching services under the brand name‘Mahesh Tutorials’.

SECTOR BACKGROUND The Indian coaching sector has strong growth outlook based on rising

disposable income, increasing spend on education and infrastructurebottlenecks for formal education. Coaching business is one of the bestplays on India’s growing urban consumption.

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BUY


482 624 / 372 83952

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 10,884 18,192 26,225 Growth (%) 42.0 67.1 44.2EBITDA 2,697 5,904 7,305 EBITDA margin (%) 23.6 31.1 26.9 PBT 2,066 5,181 6,477 Net profit 1,552 4,160 5,068 Reported EPS (Rs) 8.9 23.9 29.1 Core EPS (Rs) 8.9 18.1 22.4 Growth (%) 15.3 168.0 21.9 CEPS (Rs) 11.8 27.9 33.9 Book value (Rs/share) 74.6 98.4 127.5 Dividend per share (Rs) 1.0 1.5 2.0 Source: Company, Kotak Securities - Private Client Research

ROE (%) 12.0 24.3 22.8 ROCE (%) 12.6 22.1 21.6 Net cash (debt) 532 669 460 Net Working Capital (Days) 64.4 78.5 59.0


P/BV (x) 6.5 4.9 3.8

EV/Sales (x) 7.8 4.6 3.2

EV/EBITDA (x) 31.4 14.1 11.3



Revenue (Rs mn) and EBIDTA margin (%) trajectory


26.1%

1 Year Performance


Revenue break up (%)


NATCO PHARMA LTD

Target Price (Rs)

608

Promoter51.3%

FII10.9%

DII14.5%

Others23.4%

Domestic ‐Onco, 25.6

Domestic ‐Non Onco,

7.7

US form, 11.0APIs, 33.8

Retail Pharmacies,

12.4

RoW form, 9.5

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Natco Pharma Nifty

INVESTMENT ARGUMENT Domestic formulations segment is the largest contributor to revenues at 55% and is

expected to post 40% CAGR over FY15-18E led by ~15% CAGR in Onco segment(23% of total revenues) and 55% CAGR in Non onco (mainly Hep C portfolio). TheNon onco segment is 32% of total revenues.

The US which is a mere 7% of revenues at US$ 12mn and is expected to post225% CAGR over FY16-18E. It will account for 32% of revenues by FY18E.

Strong cash flows from limited competition opportunities would not only lead to aleaner balance sheet but also augur well for future R&D expenses. We stronglybelieve that if the cash flows from these one off opportunities are channelized well,Natco has the potential to be amongst the big pharma companies over the next fewyears.

RISKS & CONCERNS We have built our model assuming approvals of key products like gCopaxone in

2HFY17E. If there is a delay in the approval from USFDA, it impact our revenueassumptions.

Like any Pharma company, Natco too is prone to adverse events like a WarningLetter or an Import alert from the regulatory bodies, especially, USFDA.

COMPANY BACKGROUND Natco Pharma was incorporated in Hyderabad in 1981 with an initial investment of

Rs 3.3mn and a single unit with mere 20 employees. Today, Natco Pharma Limitedis a research and development (R&D)-focused pharmaceutical company with fivemanufacturing facilities and an employee strength of 3,200. The Company is mainlyengaged in developing, manufacturing and marketing finished dosage formulationsand active pharmaceutical ingredients (APIs).

SECTOR BACKGROUND Indian Pharma Market (IPM) stood at US$ 14.6 bn and is expected to post 13-15%

CAGR over the next 4-5 years. Moreover, US, is the largest pharma market at~US$390 bn, is expected to witness US$ 44bn worth drugs going off patent whichwill provide further fillip to Indian companies

BUY


78 107 / 36 12909

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 10,069 11,202 12,449 Growth (%) 5.2 11.3 11.1EBITDA 711 901 1,156 EBITDA margin (%) 7.1 8.0 9.3 PBT (1,852) 260 459 Net profit 652 1,068 1,352 EPS (Rs) 3.9 6.5 8.2 Growth (%) (147.0) 63.7 26.5 CEPS (Rs) 6.9 9.5 11.3 Book value (Rs/share) 48.6 53.2 59.3 Dividend per share (Rs) 1.8 1.8 2.0 Source: Company, Kotak Securities - Private Client Research

ROE (%) 8.5 12.7 14.5 ROCE (%) 1.3 6.7 9.4 Net cash (debt) (918) 207 1,344 Net Working Capital (Days) 24.4 15.7 16.8


P/BV (x) 1.6 1.5 1.3

EV/Sales (x) 1.3 1.2 1.0

EV/EBITDA (x) 18.9 14.3 10.7



Share of non-IT revenues in Skills & Career business (%)


23.1%

1 Year Performance


Revenue breakup (%)


NIIT LTD

Target Price (Rs)

96

Promoter34.1%

FII9.1%DII

14.4%

Others42.4%

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NIIT Ltd Nifty

INVESTMENT ARGUMENT The initiatives taken by the new management have led to earlier-than-

expected benefits on margins. We are optimistic about the growth in CLS as well as on the S&C business. While we have upgraded our estimates for the CLS and S&C businesses,

we await more clarity on growth prospects and the correspondingprofitability in the Skills business.

RISKS & CONCERNS A slower-than-expected recovery in the global economy could impact

revenue growth of NIIT.

Steep rupee appreciation v/s major global currencies may impact thefinancials of NIIT.

COMPANY BACKGROUND NIIT was set up in 1981 to meet the HR challenges of the IT industry.

Today, it is one of the world’s leading talent development companiesoffering learning solutions to Individuals, Enterprises and Institutions across38 countries.

The company offers training courses in diverse areas like IT, BusinessProcess Outsourcing, Banking, Finance and Insurance, ExecutiveManagement Education, and Communication and Professional Life Skills.

SECTOR BACKGROUND IT services exports are expected to amount to nearly $110bn in FY16. Indian companies provide services to several Fortune 500 companies. Banking & Financial services sector accounts for the largest revenues and

USA is the largest geography for the industry

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BUY


568 613 / 352 29143

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 20,142 24,187 30,419 Growth (%) 29.0 20.1 25.8EBITDA 2,660 3,157 4,036 EBITDA margin (%) 13.2 13.1 13.3 PBT 2,004 2,429 2,909 Net profit 1,618 1,919 2,036 EPS (Rs) 31.5 37.4 39.7 Growth (%) 61.2 18.6 6.1 CEPS (Rs) 41.8 47.8 52.1 Book value (Rs/share) 265.5 308.5 343.6 Dividend per share (Rs) 2.9 4.3 4.6 Source: Company, Kotak Securities - Private Client Research

ROE (%) 15.6 13.0 12.2 Core ROCE (%) 30.5 25.5 24.7 Net cash (debt) 910 (1,323) (2,098) Net Working Capital (Days) 112 153 151


P/BV (x) 2.1 1.8 1.7

EV/Sales (x) 1.4 1.3 1.0

EV/EBITDA (x) 10.6 9.7 7.7


Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Industry


PNC INFRATECH LTD (PNC)

Target Price (Rs)

671

NHAI road projects awarding


18.1%

1 Year Performance


Order Book & Order Inflows trend (Rs bn)

Promoter56.1%

FII6.4%

DII15.8%

Others21.8%

INVESTMENT ARGUMENT PNC has long history in the roads sector with over 15 years of experience

in executing NHAI projects. PNC has track record of timely and beforeschedule completion of projects and received early completion bonus.

PNC has added Rs 39.72 bn of new orders in FY16 against guidance ofRs 25-30bn which took its order book to Rs 55.4 bn, which gives highrevenue growth visibility.

PNC has already infused Rs 4.6 bn of its equity in BOT projects and doesnot have any further equity commitment. It has negligible debt atstandalone level and maintains high core RoCE of 25% plus.

RISKS & CONCERNS Slowdown in road sector

Aggressive bidding of projects

Inflows of large size BOT projects

COMPANY BACKGROUND PNC Infratech Ltd (PNC) is a north India based construction company with

track record of more than 15 years in developing road projects, whichcontribute 99% of its current order book. PNC is currently executing 21projects on an EPC contract basis and is developing/operating 6 BOTprojects and 1 OMT project. It reported decent CAGR of 12% in its salesand 18% in PAT in FY11-16, despite highly competitive and challengingbusiness environment.

SECTOR BACKGROUND Awarding activity in road sector has picked up pace in the past two years

and is expected to remain firm in the next 2-3 years. In FY16, thegovernment awarded 10000 km of road projects and in the currentfinancial year, it targets to award over 25000 km or Rs 3 trillion of roadprojects. This trend is expected to continue in the coming years.

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PNC Infratech Ltd Nifty

BUY


205 292 / 148 1561728

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18EInterest income 1,637 1,761 1,952 Interest expense 1,068.0 1147.1 1278.6Net interest income 569 614 673 Growth (%) 3.4% 7.9% 9.6%Other income 282 274 301 Gross profit 433 431 487 Net profit 99.5 121.0 142.0 Growth (%) -20.3% 21.6% 17.3%Gross NPA (%) 6.5 6.6 6.0 Net NPA (%) 3.8 3.8 3.1 Net interest margin (%) 3.0 2.9 2.9 Source: Company, Kotak Securities - Private Client Research

CAR (%) 13.1 13.2 12.5 RoE (%) 7.4 8.3 9.0 RoAA (%) 0.5 0.5 0.5 Dividend per share (Rs) 2.6 3.0 3.0 EPS (Rs) 13.0 15.8 18.5 Adjusted BVPS (Rs) 112.0 117.2 137.3


P/BV (x) 1.8 1.7 1.5



Trend in Asset Quality


26.8%

1 Year Performance


Trend in earnings (Rs bn)


STATE BANK OF INDIA

Target Price (Rs)

260

Promoter61.3%FII

10.4%

DII18.0%

Others10.3%

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State Bank of India Nifty

INVESTMENT ARGUMENT Largest Indian bank - proxy to India growth story. New management has been

focusing on profitable growth as against earlier strategy of garnering market share,even if it came at some margin sacrifice.

Liability franchise is amongst best-in-the-class - CASA mix at ~44% (FY16) withlower dependence on bulk deposits.

Sharp rise in fresh slippage during H2FY16 has come on the back of RBI’s AQR.Large corporate and mid-corporate segments largely contributed to the sharp risein NPLs.

Although there is a systemic pressure on NIM as bargaining power is shifting infavor of borrowers along with shift in the loan mix towards lower yielding retailassets, SBI is likely to maintain its NIM at current levels on back of lower incomede-recognition pressure arising from fresh delinquencies.

Better play amongst PSU banks in likely improvement in the macro-economicenvironment, with peaking NPL cycle, comfortable capital, well-managed opex andreasonable valuation.

Based on SOTP methodology: standalone business at Rs.206 (1.5x FY18E ABV)and value of subsidiaries at Rs.54 (Holdco discount: 20%).

RISKS & CONCERNS Large corporate and mid-corporate segments largely contributed to the sharp rise

in NPLs during H2FY16.

Deregulation of interest rates on saving deposits (~36% of domestic deposits)might increase the funding costs.

COMPANY BACKGROUND Largest bank in India with 16,784 branches and business of Rs.32.4 tn.

GOI owns 61.3% stake.

SECTOR BACKGROUND Easing bond yield is positive for wholesale funded entities and is likely to result into

higher trading gains for banks.

Retail segment continues to drive loan growth. Prefer private sector banks andremain cautious on PSU banks.

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investment strategist - kotak securitiesprices. while supply disruptions and rig shutdowns in the us...

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