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Feb 02,2017 UNION BUDGET REVIEW & POST BUDGET PORTFOLIO PICKS

Finance Minister Arun Jaitley presented his annual budget on Wednesday, 1st of Feb 2017. The budget was broadly focused primarily on 10 issues — farming, rural population, youth, poor and underprivileged health care, infrastructure, financial sector for stronger institutions, speedy accountability, public services, prudent fiscal management and tax administration for the honest. After going through the entire budget speech documents, we feel that, on most of the counts, the FM delivered a decent budget. While some people may feel unhappy about 3.2% fiscal deficit, the FM needed to take this leeway of 20 bps considering the need to accelerate growth under the present circumstances. We know that this Budget was introduced amidst uncertainties on revenue front due to impending GST introduction, on speed of economic revival post demonetization, on receipts from demonetization surplus or from IDS II. In view of the upcoming state elections, the FM has not announced any major populist schemes.

Soon after the completion of the budget speech, why we saw a rise in stock market indices post the budget speech? Well some of the reasons could be

There is no Increase in LTCG on listed shares or no increase in the period of holding listed shares There is no increase in service tax to bring it in line with proposed GST rates Budget was not an anti rich and pro poor Budget

The Govt managed to tread carefully between the need for stimulating demand in a weak economic environment after demonetisation and continuing on the path of fiscal consolidation. They also needs to be complemented for bringing in more transparency in political funding and relaxing the domestic transfer pricing rules. It has allocated higher sums for farmers, rural population, youth, poor & underprivileged, infrastructure etc which will have a ripple effect on the formal economy with a lag.

Now lets look have a look at the tax part. On Indirect tax, since we are closing in on the introduction of GST, the govt has chosen to make very few changes. The excise duty hike on cigarettes was lower than expected, some changes have been made in import duty on PVC, PVC Resins, there is a reduction in import duty on select HR and CR coils, and on LNG and nickel. Export duty has been introduced on export of Aluminium ores and concentrates. On the direct taxes front, the FM has taken the fight against black money ahead. Cash receipt of more than Rs.3 lacs will be penalised, deduction as expense will not be allowed if paid in cash over Rs.10,000 vs Rs.20,000 earlier, Search & Seizure provisions have been made stricter, provisions have been introduced to collect higher TCS if no PAN number furnished, TDS provisions have been extended, provisions have introduced to take stamp duty valuation in case of sale of assets in certain cases etc.

As far as capital market participants are concerned, there are several positives;

No hike in LTCG on listed shares or no increase in the period of holding listed shares. Interest rates could inch lower as net market borrowings have been cut from Rs.3.66 lac cr to Rs.3.48 lac cr for FY18. This will benefit existing investors in the debt

and equity markets. A new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18. Government will put in place a revised mechanism and

procedure to ensure time bound listing of identified CPSEs on stock exchanges. The shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges. Hence investors will get an opportunity to invest in these relatively safe

issues.As a result of the cut in income tax in the first slab from 10% to 5%, we could see an increase in consumption or in savings (benefitting the equity markets/debt markets).

Investors will have the option to invest full or part of the Rs.12,500 saved due to the cut in the first slab rate from 10% to 5%.

If we compare this year budget with that of prior periods, we see that a lot of the things are missing. So what we think is that most of that are missing in the Budget may be done outside the Budget. So, after this fair budet, street is now awaiting the response to this from foreign investors.

Farming/Agriculture

Target for agricultural credit in 2017-18 has been fixed at a record level of Rs.10 lakh crores. Farmers will also benefit from 60 days’ interest waiver announced on 31 Dec 2016.

To ensure flow of credit to small farmers, Government to support NABARD for computerisation and integration of all 63,000 functional Primary Agriculture Credit Societies with the Core Banking System of District Central Cooperative Banks. This will be done in 3 years at an estimated cost of Rs.1,900 crores.

Dedicated Micro Irrigation Fund in NABARD to achieve ‘per drop more crop’ with an initial corpus of Rs.5,000 crores. Coverage under Fasal Bima Yojana scheme will be increased from 30% of cropped area in 2016-17 to 40% in 2017-18 and 50% in 2018-19 for which a budget

provision of Rs.9000 crore has been made.

Automobile

Farmers income to double in 5 years from Apr 16. Allocation of Rs 19,000cr for PMGSY(Pradhan Mantri Gram Sadak Yojna). Excise duty on certain motor vehicles for transport of not more than 13 persons, including the driver :reduced from 27% to 12.5% wef Jan 01, 2017 Higher allocation for highways by 12% and 2000 km of coastal connectivity.

Real Estate

Exemption from capital gain tax for persons holding land on 2.6.2014, the date on which the State of Andhra Pradesh was reorganised, and whose land is being pooled for creation of capital city of Andhra Pradesh under the Government scheme.

Under the scheme for profit-linked income tax deduction for promotion of affordable housing, carpet area instead of built up area of 30 and 60 Sq.mtr. will be counted.

The 30 Sq.mtr. limit will apply only in case of municipal limits of 4 metropolitan cities while for the rest of the country including in the peripheral areas of metros, limit of 60 Sq.mtr. will apply.

For builders for whom constructed buildings are stock-in-trade, tax on notional rental income will only apply after one year of the end of the year in which completion certificate is received.

Reduction in the holding period for computing long term capital gains from transfer of immovable property from 3 years to 2 years. Also, the base year for indexation is proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property.

For Joint Development Agreement signed for development of property, the liability to pay capital gain tax will arise in the year the project is completed.

Infrastructure

For transportation sector as a whole, including rail, roads, shipping, provision of Rs.2,41,387 crores has been made in 2017-18. For 2017-18, the total capital and development expenditure of Railways has been pegged at Rs.1,31,000 crores. This includes Rs.55,000 crores provided by the

Government. For passenger safety, a Rashtriya Rail Sanraksha Kosh will be created with a corpus of Rs.1 lakh crores over a period of 5 years. Unmanned level crossings on Broad Gauge lines will be eliminated by 2020. 500 stations will be made differently abled friendly by providing lifts and escalators. It is proposed to feed about 7,000 stations with solar power in the medium term For creating an eco-system to make India a global hub for electronics manufacturing a provision of Rs.745 crores in 2017-18 in incentive schemes like M-SIPS

and EDF. A new and restructured Central scheme with a focus on export infrastructure, namely, Trade Infrastructure for Export Scheme (TIES) will be launched in 2017-

18 Proposed to set up strategic crude oil reserves at 2 more locations, namely, Chandikhole in Odisha and Bikaner in Rajasthan. This will take our strategic reserve

capacity to 15.33 MMT. Allocation for roads and highways increased from Rs 64000 crore to Rs 57676 crore. Good for the road sector as the surface transport ministy intends to speed

up implementation from 30 km/day to 40 km/day. Select airports in Tier 2 cities will be taken up for operation and maintenance in the PPP mode.

Financial Sector

Foreign Investment Promotion Board to be abolished in 2017-18 and further liberalisation of FDI policy is under consideration. Bill relating to curtail the menace of illicit deposit schemes will be introduced. A bill relating to resolution of financial firms will be introduced in the current

Budget Session of Parliament. This will contribute to stability and resilience of our financial system. In line with the ‘Indradhanush’ roadmap, Rs.10,000 crores for recapitalisation of Banks provided in 2017-18. Propose to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas

companies. Government will put in place a revised mechanism and procedure to ensure time bound listing of identified CPSEs on stock exchanges. The shares of Railway

PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges. A new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18. Lending target under Pradhan Mantri Mudra Yojana to be set at Rs.2.44 lakh crores. Priority will be given to Dalits, Tribals, Backward Classes and Women. PM Mudra Yojana allocation to be doubled to Rs 121000 crore. This scheme has become one of the main source of funding in the economy as banks have

stopped funding on account of stress in their banking system.

Income Tax

Existing rate of taxation for individual assesses between income of Rs.2.5 lakhs to 5 lakhs reduced to 5% from the present rate of 10%. Surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between Rs.50 lakhs and Rs.1 crore. Simple one-page form to be filed as Income Tax Return for the category of individuals having taxable income upto Rs.5 lakhs other than business income.

GST

The GST Council has finalised its recommendations on almost all the issues based on consensus on the basis of 9 meetings held. Preparation of IT system for GST is also on schedule. The extensive reach-out efforts to trade and industry for GST will start from 1st April, 2017 to make them aware of the new taxation system.

Other Highlights

MAT credit is allowed to be carried forward up to a period of 15 years instead of 10 years at present. In order to make MSME companies more viable, income tax for companies with annual turnover upto Rs.50 crore is reduced to 25%. Allowable provision for Non-Performing Asset of Banks increased from 7.5% to 8.5%. Interest taxable on actual receipt instead of accrual basis in respect of NPA

accounts of all non-scheduled cooperative banks also to be treated at par with scheduled banks. Basic customs duty on LNG reduced from 5% to 2.5%. Maximum amount of cash donation, a political party can receive, will be Rs.2000/- from one person. Threshold limit for audit of business entities who opt for presumptive income scheme increased from Rs.1 crore to Rs.2 crores. Similarly, the threshold for

maintenance of books for individuals and HUF increased from turnover of 10 lakhs to 25 lakhs or income from 1.2 lakhs to 2.5 lakhs. Foreign Portfolio Investor (FPI) Category I & II exempted from indirect transfer provision. Indirect transfer provision shall not apply in case of redemption of

shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India. Under scheme for presumptive taxation for professionals with receipt upto Rs.50 lakhs p.a. advance tax can be paid in one instalment instead of four. Time period for revising a tax return is being reduced to 12 months from completion of financial year, at par with the time period for filing of return. Also the

time for completion of scrutiny assessments is being compressed further from 21 months to 18 months for Assessment Year 2018-19 and further to 12 months for Assessment Year 2019-20 and thereafter.

Defence expenditure at Rs 2.74 lakh crore is positive for the sector as the number excludes pensions. For startups there is good news as they will be taxed for 2 years out of 7 as compared to 5 years earlier.

Our Post Budget Picks

Asian Granito (Asian Tiles)

cmp: Rs.271 Averaging band: Rs.240-Rs.248 Sequential Targets:Rs.305-Rs.328

Asian Granito India (AGIL) is engaged in the manufacturing and sale of ceramic wall, ceramic floor, vitrified tiles, digital polished glazed vitrified tiles, digital wall tiles, marble, and quartz. The company offers more than 1,200 designs and exports its products in 50+ countries. It has eight manufacturing facilities spread across Gujarat and the current combined capacity is 100,000 sq. mtrs per day.

Investment Rationale

AGIL’s current, vitrified sales (35%) are lower as compared to its peers like Somany Ceramics (47%) and Kajaria Ceramics (61%). Recently, AGIL has launched various products in premium segments like Imperio, Jumbo – Double Charge, CARARRA White, XXL – Polished Glazed Vitrified Tiles, Polished Vitrified Tiles (Double Charge) etc. It is expected to reach up to 50% in next 2-3 years on the back of various initiatives taken by AGIL to increase direct interaction with customers like strengthening distribution network, opening exclusive brand showrooms, trade schemes on high value products, participation in key trade exhibition, etc.

AGIL has an extensive marketing and distribution network. It comprises of more than 4,500 dealers and sub-dealers (~27% grew over last two years) and more than 80 exclusive dealer showrooms covering each and every state of the country. This helps the company in promoting its range of products in the market and hence is planning to open 200 more exclusive dealer showrooms. Going forward, we expect the company to continue to expand its network through dealers & sub-dealers. Also, the company is opening 16 large format exclusive corporate display stores for dealers and architects.

The Company entered into a joint venture with Panaria which will provide technical know-how to enhance product quality and access to global markets through its proprietary distribution network while Asian Granito will continue providing world-class products around a competitive price-value proposition.

The company is targeting its revenue to grow to Rs 1,000 crore in FY17 and expects lower fuel costs to aid margin expansion to 15-16 percent from the current 7.5 percent. the view that the anti-dumping duty levied by the government on Chinese tiles is below expectations and is only a temporary relief for the industry.

Recommendation and price targets

We recommend a BUY on this stocks at the cmp(Rs.271) and further add on declines between Rs.240 and Rs.248. for sequential targets of Rs.305 and Rs.328 over the next 1 year.

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Sadbhav Engineering

cmp: Rs.282.95 Averaging band: Rs.270-Rs.275 Target:Rs.320

Sadbhav Engineering Limited, established in 1988, is counted among the leading Infrastructure companies of India. Sadbhav’s business currently focuses on Infrastructure projects which include Construction of Roads & Highways, Bridges, Irrigation supporting infrastructure and Mining.


SEL saw debt levels increased to ~Rs12bn at the end of H1FY17 from ~Rs10bn at the end of FY16. Increase in working capital due to cash flow mismatch in EPC projects has led to increase in working capital requirement, which, in turn, has increased debt. SEL expects debtors to decline in Q4FY17 as the company reaches its targets. Mobilization advance for HAM project from Sadbhav Infra projects update (SIPL) should also improve the working capital situation and help reduce gross debt levels to ~Rs9.5‐10bn going forward.

Order book, excluding the HAM project recently won by SIPL (~EPC value Rs31bn), at the end of H1FY17 stood at Rs62.5bn, down 33% YoY. Order book, including HAM projects, stand at a healthy Rs93.6bn. SEL expects to bag orders worth Rs50‐70bn in FY17 as against Rs29bn in FY16. In road sector, bidding activity continues to be healthy; ~58 projects worth Rs630bn are up for bidding in the next few months. In the Mining segment, around nine projects are up for bidding in the next two quarters. In Irrigation, projects worth Rs22bn are up for bidding in the near term. SEL is also looking at railway station as a potential opportunity.

SIPL saw a traffic growth of ~6‐7% across projects. The company has recently won five HAM projects. Net equity commitment for these five projects is ~Rs1.6bn which it expects to fund through internal accruals. SIPL expects equity IRR of ~20% on HAM projects. The company’s projects are expected to generate cash profit of ~Rs7bn over FY17‐19E which would be used to fund growth. SIPL is also looking at monetising assets from the current portfolio.


We recommend a BUY on this stock at the cmp (Rs.282.95) and further add on declines between Rs.270 and Rs.275 for a target of Rs.320 over the next 1 year.

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Sterlite Technologies


Sterlite is one of the leading fully integrated players in the optical fibre/cable space with an optic fibre capacity of 20.0 mn km and optical fibre cable capacity of 15.0 mn km (ramped up from 8.0 mn km in FY16). It has ~25-30% market share in the domestic optical fibre cable market. The company intends to become an end-to-end broadband infrastructure provider. Investment Rationale

Sterlite Technologies would be a significant contributor to the National Optic Fibre Network (NoFN) initiative wherein the government intends to connect 250000 Gram Panchayats with ~60 mn km of fibre cables. Sterlite is also expected to benefit from the unprecedented capital investments planned over the next five years by telcos, government and be a significant contributor to “Digital India”, “Make in India” and “Smart Cities” initiatives.

Expanded services portfolio with Elitecore acquisition the services segment accounts for ~28% of the overall topline of Sterlite Technologies. The management remains extremely bullish on the growth prospects of the services pie. The company has, thus, strengthened its services offerings with the acquisition of telecom software services company Elitecore Technologies, a pure play business support and operations support systems player, for an enterprise value of | 180 crore. Post the acquisition, the services portfolio is now inclusive of solutions and software offerings in terms of network integration (NI), system integration (SI), operating support software (OSS), business support software (BSS), etc. Elitecore has a rich product portfolio, robust technology platform, strong customer track record and excellent partnerships. Elitecore is servicing 11 out of the top 30 telco players.

Executed 7,000 Mn worth orders in Q3 and added INR 10,000 Mn worth new orders (ii) Completed INR 1600 Mn of the expected INR 2200 Mn capex for FY17E (iii) Order inflow momentum is sustainable due to healthy demand environment (iv) Software business (as under EliteCore) is recorded annual revenue run rate of INR 2,000 Mn, an increase of 33% from when it was acquired (v) Expected annual maintenance revenue of ~INR 850 Mn from completed smart city projects by SOTL.


We recommend a BUY on this stocks at the cmp(Rs.129.20) and further add on declines between Rs.110 and Rs.115 for a target of Rs.150 over the next 1 year.

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Century Textiles

cmp: Rs.877 Averaging band: Rs.840 Target:Rs.960

Century Textiles and Industries Ltd (Century) is promoted by Mr. B K Birla, and remains the flagship company of the B K Birla group. Century has a diversified business risk profile and has presence across three core business segments, namely, cement, textiles and, pulp, paper and paper board. Investment Rationale

Century Pulp & Paper has set up a 500-tonnes per day (1,80,000 tonnes per annum) multilayer packaging board plant adjacent to its existing pulp and paper plant at Lalkua, Uttarakhand.

Cement division is the main contributor to Century’s revenue while Textile and Paper division play a relatively minor role. In Textiles, it has presence in manufacture of cotton textiles and denim and also in Viscose Filament yarn and Tyre yarn.

Century has a vertically integrated plant at Bharuch for manufacturing cotton fabrics. The cotton division manufactures a wide range of premium textiles and supplies to many international players, including Royale Linen, Ralph Lauren, DKNY, Belk and US Polo.

Century Textiles and Industries Ltd is amongst the top 10 cement producers in India with an installed capacity of 12.8 mn tonnes. In Cement, the company caters to high growth markets like East (40%) and West (40%) and others (20%).


We recommend a BUY on this stocks at the cmp(Rs.877) and further add on declines to Rs.840 for a target of Rs.960 over the next 1 year.

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Rallis India

cmp: Rs.243.95 Averaging band: Rs.225-Rs.233 Sequential Targets:Rs.273-Rs.310

Rallis is one of the oldest and second largest pesticide agrichemical companies in the country with a market share of around 13% and belongs to the Tata Group. The company also has a credible presence in the international market. Contribution from the domestic business stands at ~70%, while exports account for the balance.


India's overall pesticide consumption is one of the lowest in the world and has a huge potential to grow. It is well placed to seize this opportunity on the back of its wide distribution network, strong brands, and a robust new-product pipeline. According to industry estimates, the unorganized market accounts for 50% of the

industry. Rallis is in a position to wrest market share as well as charge a premium for its products. FY2016 had been challenging on back of poor monsoons but the outlook for FY2017 is favorable and should bode well for domestic sales growth. A lower base would result in 17.3% CAGR in the domestic business during FY2016-18E.

After the acquisition of Metahelix’ seeds business in 2010, the seeds business forms a major part of the domestic business of the company. During FY2016, Rallis’ seed business (under Metahelix) reported a decent growth of 8% yoy to Rs.334cr (almost 23% of the domestic business) on the back of increased market share, and despite significant reduction in acreages for some of the key crops such as paddy and corn. The company is also strengthening its cotton portfolio and will be launching a new product to take on the market leaders in this crop. The management remains confident of Metahelix achieving 12-14% margin in a good monsoon year. During FY2016, the company increased its stake in Metahelix to 100%.

Rallis India results were in‐line with growth coming back in agrochemical exports led by Brazil. Domestic Pesticides business was stable with products like Origin, Contaf series; Takumi, Ergon and high margin PGN such as Tata Bahaar continue to do well. Seeds segment reported flattish revenues YoY primarily due to lower traction in paddy and coarse cereals which is reflected in Rabi sowing data as well. Also, there were more than expected sale returns in Maize seeds, which affected financials.

Rallis has seen its exports picking back after a sub‐dued FY16. Both its CRAM molecules PEKK manufactured for CYTEC Engg Material US, used in Aircrafts manufacturing and Metconazole (Fungicide supplied to Kureha Chemicals) are doing well. Also, B2B technical grade pesticides like Acephate, Hexaconazole, Metalaxyl, Pendimethalin etc have seen pick up in volumes.


We recommend a BUY on this stocks at the cmp(Rs.243.95) and further add on declines between Rs.225 and Rs.233 for sequential targets of Rs.273 and Rs.310 over the next 1 year.

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Heritage Foods

cmp: Rs.1062 Averaging band: Rs.1000 Target:Rs.1172

Heritage Food is one the leading private dairy company of South India. It is headquartered at Hyderabad, with a extensive presence across 10 states, providing high quality & nutritious dairy products to customers. It operates in five divisions namely: Dairy, Retail, Agri, Bakery & Renewable energy. Company operates 14 processing plants, 140 bulk coolers & chilling plants, 1515 dairy parlours & 112 retail stores. Company’s sales is facilitated by 26 sales offices, 5900 distributors & 113000 outlets which caters to 1.14mn household daily.


Retail business to turn EBITDA positive by FY17 end Retail division operates 112 stores as on 30th June 2016. Retail stores are run under “Heritage Fresh” brand which caters to household daily needs like grocery, processed foods, fresh fruits & vegetables, bakery & general merchandise. This stores are concentrated around South India. In last five years, revenue from retail business has grown at a CAGR of 18%. However, this division is incurring losses due to higher regional & corporate overheads.

Strong financial performance & improving margins In last five years i.e. from FY12 to FY16, company’s revenue & profitability has grown at CAGR of 14% & 56% respectively. Also, during the same period, EBITDA has grown at CAGR of 27%. Further, in last five years, Operating margin has improved by almost 200bps from 3.8% in FY12 to 5.7% in FY16 led by improving product mix & rationalizing retail business. Also, leveraged ratio has improved substantially from 1x in FY12 to 0.3x in FY16 due to strong cash flow generation. Management also aim to foray into new markets & penetrate deeper into existing markets, primarily in tier II & tier III cities.

Heritage is aggressively focusing on improving its product mix in favor of VADP which will not only enhance its operating margins but also help grow its brand. The Share of value added products in the dairy revenue is expected to rise significantly to 28% by FY18 from the existing 22% in FY16. The Jump in the share of value

added dairy products would simultaneously improve the overall EBITDA from Rs 84 cr in FY15 to Rs 216 cr in FY18. Heritage Agri was started with the aim of sourcing fresh fruits and vegetables from farmers. A team of agriculturists works closely with the farmers to transform

agricultural lands into productive farms with respect to output-per-unit of land and energy. Heritage has also established a few advanced, fully integrated Pack Houses to handle fresh produce. Revenues from the Agri division are expected to grow at a flourishing rate of 26.6% from Rs 43 cr in FY15 to Rs 88 cr in FY18.


We recommend a BUY on this stocks at the cmp(Rs.1062) and further add on declines towards Rs.1000 for a target of Rs.1172 over the next 1 year.

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GAIL


GAIL (India) Limited, India’s largest Natural Gas Company is one of the seven Maharatna Public Sector Undertakings (PSUs) and the youngest PSU to be accorded Maharatna status. Investment Rationale

GAIL faced challenging times during FY14-16 given the plunge in gas volumes and lower profits in petchem/LPG segments (lower realisation and higher gas cost). As a result, EBITDA and PAT have declined 20% and 25% CAGR over the period. FY17 is turning to be a complete turnaround year for GAIL. There will be boost in profitability across all segments led by (1) Lower RLNG/domestic gas prices will improve profits of petchem/LPG. Strong crude prices will lead to firm realisations for petchem and LPG.

GAIL’s base pipeline tariffs could improve by ~20% on average, considering the PNGRB tariff reviews due in FY17. Rather, we see a structural uptrend in pipeline tariffs until 2020, as actual returns would continue to trace 12% IRR assured as per PNGRB regulations (as 75% utilisation or ~175msmcmd volumes are unlikely to materialise until FY20).

Two state owned companies, oil refiner Hindustan Petroleum Corp Ltd (HPCL) and gas producer GAIL India Ltd, inked an agreement with the Andhra Pradesh Government to set up a Rs 40,000 crore petrochemical facility. The joint venture will put up a 1.5 million tons ethylene derivatives plant, to produce a varied range of petrochemical raw materials.

GAIL has doubled its PE capacity. Robust domestic demand, muted LNG prices and strong crude prices, all will work in favour of GAIL. The board has recommended the issuance of one bonusshare of Rs 10 for existing three equity shares of Rs 10/- each fully paid up, subject to the shareholders

approval,” Gail (India) said in a statement. The board has also approved payment of interim dividendfor the FY 2016-17 @ 85% (Rs 8.5 per equity share) on the paid-up equity share capital of the Company


We recommend a BUY on this stocks at the cmp(Rs.476.15) and further add on declines between Rs.450 and Rs.460-Rs. for a target of Rs.550 over the next 1 year.

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Ashiana Housing


Ashiana Housing Ltd. (AHL) is an Indian real estate development company established in 1979 with its head office in New Delhi, India. Ashiana Housing is a mid-income housing developer with primary focus on Senior Living and Care Homes (i.e. assisted living) for the elderly. In recent times, the company has expanded its reach from group housing to facility management, retail and hotels, as well as maintenance and resale of property after possession.


Ashiana Housing has a “unique asset-light business model” where it does not own the land. Ongoing project of 43 lakhs sq. ft. (24.68 lakhs sq. ft. already booked) Future projects of 98 lakhs sq. ft. (0.37 lakhs sq. ft. already booked) Strong revenue visibility - saleable value of area sold in ongoing project : Rs. 524 Crore (AHL projects) Saleable value of area sold in partnership : Rs. 220 Crore It has zero/ marginal debt (Debt:equity ratio is 0.03x) Ashiana Housing, which focuses on tier-2/3 cities and homes for senior citizens, operates in one of the more promising niches in this sector. Earnings grew 40 per

cent in the September quarter while constructed area recorded 40 per cent growth. Low leverage makes this company superior to its peers in the sector. With an aim to achieve housing for all by 2020, the affordable housing was given infrastructural status, which will be positive for stocks like Ashiana. Beyond the rural housing scheme, for which the government will provide financial aid, a cheaper lending rate will boost housing demand, especially in the

affordable segment. Real estate buying would get a boost the moment interest rates come down.


We recommend a BUY on this stocks at the cmp(Rs.166.05) and further add on declines between Rs.150 and Rs.156 for sequential targets of Rs.200 and Rs.240 over the next couple of years.

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HDFC


India’s premier housing finance company, Housing Development Finance Corporation Limited was established in 1977 with the primary objective of meeting a social need of encouraging home ownership by providing long-term finance to households. HDFC’s product range includes loans for purchase and construction of a residential unit, purchase of land, home improvement loans, home extension loans, non-residential premises loans for professionals and loan against property, while its flexible repayment options include Step Up Repayment Facility (SURF) and Flexible Loan Installment Plan (FLIP).


The Company has maintained an average dividend yield of 1.42% over the last 5 financial years. HDFC’s average interest coverage ratio over the last 5 financial years has been 1.26 times which is optimal for a Company which is in the business of finance and

lending. With an aim to achieve housing for all by 2020, the affordable housing will be given infrastructural status, which will be positive for real estate companies and also

for housing finance companies that caters to this segment.

The incremental demand from the affordable housing space could also offset the concerns on moderating of loan book growth for most HFCs.


We recommend a BUY on this stocks at the cmp(Rs.1401.30) and further add on declines between Rs.1325 and Rs.1350 for a target of Rs.1550 over the next 1 year.

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Lloyd Electric and Engineering


Incorporated in 1989, Lloyd has evolved as a dependable supplier of high quality coils to original equipment manufacturers (OEMs) of heating, ventilation and air conditioning (HVAC) equipments. It provides end-to-end solutions in the HVAC industry, right from manufacturing the physical components and air conditioners (ACs) to selling to OEMs and to the end customers.


Driven by its aggressive marketing initiatives in the AC and TV segments, the Consumer Durable business has grown multifold over FY2012-16. Earlier, over the last 2-3 years, the company was focusing on Tier-1 and Tier-2 cities and was investing in the businesses through setting up of back end operations.

Lloyd also offers LED TVs and Washing Machines in its consumer durable bouquet, the volume growth for LED TVs was 111% YoY and that for washing machine was 33% YoY (though both on a low base). As the brand of ‘Lloyd’ is getting stronger with a robust dealer base and a pull factor has now come in place, the difference in margins of ACs and TVs is getting smaller and with the expected rise in volumes, expenses as a percentage to sales will get reduced.

It entered into the Consumer Durables segment in 2011 by purchasing the consumer product division and the Lloyd brand of Fedders Lloyd for a total consideration of Rs. 13.9 crore.With this acquisition, the company moved its focus from the business-to-business (B2B) segment to the business-to-consumer (B2C) segment, which now contributes (as per FY16) 58% to the standalone revenues and this is expected to improve in the coming quarters.

There is a clear shift toward five-star and inverter ACs that comprise 20% and 10%, respectively, of overall industry volumes. BEE has mandated compulsory rating of inverter ACs from 2018; thus, the rating for fixed and variable compressors will be merged a four or five-star rated AC would be primarily considered an inverter, while a current five-star rated AC would be graded as three-star. The split AC market is expected to move toward split inverter ACs over the next few years; inverters are projected to reach 30-35% of the market by FY18 and 50% by 2020.


We recommend a BUY on this stocks at the cmp(Rs.303.30) and further add on declines between Rs.280 and Rs.285 for sequential targets of Rs.340 and Rs.370 over the next 1 year.

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Mahindra & Mahindra


Mahindra and Mahindra Limited is engaged in the manufacture of passenger cars, commercial vehicles and tractors. The Company's segments include Automotive, IT Services, Financial Services, Hospitality and other related products and services; Two wheelers, which consists of sale of two wheelers, spare parts and related services, and Others, which includes logistics, after-market and investments.


Management expects tractors to rebound on better monsoons, lower base, and latent demand. It pegs this industry’s growth at 10% with the possibility of a positive surprise. A pick up in mining and infrastructure activities will aid tractor growth; a slowdown in these segments has aggravated the industry’s decline over the last two years.

M&M’s recent acquisition of a 35% stake in Finnish firm Sampo Rosenlew is with a perspective of increasing sales of implements in its farm equipment segment. The company is largely done with its new launch cycle and most of its FY17 launches would be refreshes. It expects to launch petrol engine variants of Scorpio and

XUV500 in the next 12 months and is looking at offering petrol variants across mainstream models by FY18. It is currently working on new 1.2/1.5/2.2‐litre turbocharged petrol engines and is also exploring accessing Ssangyong’s 1.6/2.0‐litre engines. It plans to launch a sub‐4‐meter Bolero in FY17 in order to mitigate some impact of the Haridwar excise‐benefit expiry, and plans to strengthen its CV portfolio by launching products in the 9‐16 tonne category by FY18‐end.

Presently, M&M’s market share stands at ~41% in the domestic tractor segment. M&M has a strong presence in the entry segment as well as high‐end segment (over 50 HP). On the back of strong brand name, robust distribution network and impressive performance track record M&M has enjoyed undisputed leadership in domestic tractor segment. Again, the acquisition of Punjab Tractors resulted in very high market shares due to higher combined volume.


We recommend a BUY on this stocks at the cmp(Rs.1266) and further add on declines between Rs.1200 and Rs.1150 for sequential targets of Rs.1400 and Rs.1500 over the next 1 year.

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Century Plyboards


Century Plyboards the brand leader in the Indian plywood industry CPBI is the leader in the organized plywood market with 25% market share. They offer plywood, block-board, veneer, and timber; various laminates, including decorative laminates and pre laminated boards; and ferro alloys comprising ferro silicon. They also engage in power generation; offer cement and clinker; and provide adhesives and chemicals, as well as involves in logistic activities.


CPIL is likely to be a key beneficiary with rollout of GST (currently getting delayed though) as the organised market accounts for only ~30% of the total market. With GST in place, pricing difference between organised & unorganised players due to tax inequalities is likely to narrow down providing a level playing field to organised players like CPIL. Consequently, we expect the plywood division revenues to grow at a CAGR of 12.3% in FY16-18E.

CPIL recognised the need to cater to customers with a growing supply of varied interior products. Hence, the company extended from manufacture of plywood to laminates, decorative veneers etc, facilitating cross sale, superior leverage of existing brand and a better use of a robust dealer network. Recently, CPIL augmented its laminate capacity from 2.4 to 4.8 million sheets, making it the third largest producer of laminates in India.

India’s INR200b plywood market is largely unorganized – fragmented players account for 77% of the market. Century Plyboards (CPBI) and Greenply Industries (MTLM) dominate the organized market. They are the only pan-India players and enjoy ~25% share each of the organized plywood market. While the overall plywood market is growing at 5-7%, organized players are growing at 10-15%. There is a shift from the unorganized to the organized segment (estimated at 200bp annually), largely driven by (1) superior quality (organized players offer warranties and termite/borer-resistant products), (2) wider product range (1,600 SKUs against unorganized players’ 400 SKUs), (3) better product aesthetics, and (4) brand pull (aggressive advertising campaigns).

With brand leadership in a duopoly market coupled with minimal penetration of organized players, we believe CPBI is well-placed to capture the strong growth potential of India’s plywood and laminates market. Brand pull, along with likely implementation of reforms like GST would further accelerate growth, in our view. Given strong return ratios (20% RoCE in FY18), huge opportunity size, we believe CPBI deserves multiples in line with similar building product leaders.


We recommend a BUY on this stocks at the cmp(Rs.206) and further add on declines between Rs.180 and Rs.170 for sequential targets of Rs.240 and Rs.265 over the next 1 year.

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2016 budget portfolio performance

Stock Reco Pr Peak from Reco Return (%)

Finolex Industries 360 504 40.0%

Supreme Industries 758 1025 35.2%

Vankrangee 198 312 57.6%

Kwality 101 159 57.4%

LIC Housing Finance 448 624 39.3%

Sagar Cements 373 835 123.9%

TCI 277 388 40.1%

Lloyd Eletric 203 340 67.5%

Pidilite 595 769 29.2%

Godrej Properties 277 388 40.1%

Bharat Forge 742 1008 35.8%

2017 pre- budget portfolio performance (Report issued on 02nd Jan 2017)

Stock Reco Pr Peak from Reco % Return

Balrampur Chini 122.7 148 20.62%

BEML 1000.6 1324 32.32%

India Cements 116.6 164 40.65%

Jain Irrigation 88.1 97 10.10%

Coromandel International 292.45 347 18.65%

CCL Products 265.45 321 20.93%

Tata Chem 503 568 12.92%

Tech Mahindra 488.9 487.9 -0.20%

Bajaj Finance 2895 3345 15.54%

Our 2016 budget portfolio has delivered a return of 51.50%

Our pre-budget portfolio issued on 02nd Jan 2017 has delivered

a return of 19.06%

http://research.adityatrading.com/Reports/Model%20Portfolio-Mar%202016.pdf

http://research.adityatrading.com/Reports/Budget%20Portfolio.pdf

Authors of this report:

Rethish Varma S, Head of Research, Email: [email protected] Varun Gopal Equity Research Analyst Email: [email protected]

Disclosure: We, Rethish Varma S, (B.E, MBA) and Varun Gopal (MBA) authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or Aditya Trading Solutions Pvt Ltd or ATS Wealth Managers Pvt Ltd or its group companies does not have any financial interest in the subject company. Also Research Analyst or his relative or Aditya Trading Solutions Pvt Ltd or ATS Wealth Manages Pvt Ltd or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or Aditya Trading Solutions Pvt Ltd or ATS Wealth Managers Pvt Ltd or its associate does not have any material conflict of interest. Disclaimer: This report is only for the information of our customers. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided herein is not to be constructed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information.

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