India Strategy | Get on

June

please !

track

2015

India Strategy

FY03-08:

25% CAGR

FY93-96:

45% CAGR

FY96-03:

1% CAGR

FY93-FY15:

14% CAGR

FY08-15:

8% CAGR

FY15-17E:

20% CAGR

Getting on track!

Research Team (Rajat@MotilalOswal.com)

Contents

India Strategy - Getting on track!

.................................................................................................

1-72

1QFY16 Highlights & Ready Reckoner

......................................................................................

73-85

Sectors & Companies

...............................................................................................................

86-320

1.

Automobiles

Amara Raja Batteries

Ashok Leyland

Bajaj Auto

Bharat Forge

Eicher Motors

Exide Industries

Hero MotoCorp

Mahindra & Mahindra

Maruti Suzuki India

Tata Motors

TVS Motor

2. Capital Goods

ABB

BHEL

Bharat Electronics

Crompton Greaves

Cummins India

Havells India

Larsen & Toubro

Siemens

Thermax

Voltas

3. Cement

ACC

Ambuja Cement

Grasim Industries

India Cements

Ramco Cement

Shree Cement

UltraTech Cement

4. Consumer

Asian Paints

Britannia Industries

Colgate Palmolive

Dabur India

Emami

Godrej Consumer Products

GSK Consumer

Hindustan Unilever

ITC

Jyothy Labs

Marico

Nestle India

Pidilite Industries

Radico Khaitan

United Spirits

5a. Financials - Banks

Axis Bank

Bank of Baroda

Bank of India

DCB Bank

Federal Bank

HDFC Bank

ICICI Bank

Indian Bank

IndusInd Bank

Kotak Mahindra Bank

Punjab National Bank

State Bank of India

Union Bank

87-101

91

92

93

94

95

96

97

98

99

100

101

102-115

106

107

108

109

110

111

112

113

114

115

116-126

120

121

122

123

124

125

126

127-144

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145-163

150

151

152

153

154

155

156

157

158

159

160

161

162

Yes Bank

5b. Financials - NBFC

Bajaj Finance

Dewan Housing

HDFC

IDFC

Indiabulls Housing

LIC Housing Finance

M & M Financial Services

Power Finance Corporation

Repco

Rural Electricfication

Shriram Transport

6. Healthcare

Alembic Pharma

Aurobindo Pharma

Biocon

Cadila Healthcare

Cipla

Divi’s Laboratories

Dr Reddy’s Labs.

Glenmark Pharma

GSK Pharma

IPCA Laboratories

Lupin

Sanofi India

Sun Pharmaceuticals

Torrent Pharma

7. Media

D B Corp

Dish TV

Hathway Cable

HT Media

Jagran Prakashan

PVR

Siti Cable

Sun TV Network

Zee Entertainment

8. Metals

Hindalco

Hindustan Zinc

JSW Steel

Nalco

NMDC

Sesa Sterlite

SAIL

Tata Steel

9. Oil & Gas

BPCL

Cairn India

GAIL

Gujarat State Petronet

HPCL

IOC

Indraprastha Gas

MRPL

Oil India

ONGC

Petronet LNG

Reliance Industries

163

164-176

166

167

168

169

170

171

172

173

174

175

176

177-194

181

182

183

184

185

186

187

188

189

190

191

192

193

194

195-207

199

200

201

202

203

204

205

206

207

208-222

215

216

217

218

219

220

221

222

223-239

228

229

230

231

232

233

234

235

236

237

238

239

10. Real Estate

DLF

Godrej Properties

Indiabulls Real Estate

Mahindra Lifespaces

Oberoi Realty

Phoenix Mills

Prestige Estate Projects

Sobha Developers

11. Retail

Jubilant Food

Shoppers Stop

Titan Company

240-252

245

246

247

248

249

250

251

252

253-258

256

257

258

259-274

264

265

266

267

268

269

270

271

272

273

274

275-283

280

281

282

283

284-297

288

289

290

291

292

293

294

295

296

297

298-316

298

299

300

301

302

303

304

305

306

307

308

309

310

311

312

313

314

315

316

12. Technology

Cognizant Technology

HCL Technologies

Hexaware Technologies

Infosys

KPIT Technologies

Mindtree

MphasiS

Persistent Systems

TCS

Tech Mahindra

Wipro

13. Telecom

Bharti Airtel

Bharti Infratel

Idea Cellular

Reliance Communication

14. Utilities

CESC

Coal India

JSW Energy

NHPC

NTPC

Power Grid Corp.

PTC India

Rattanindia Power

Reliance Infrastructure

Tata Power

15. Others

Arvind

Bata India

Castrol India

Concor

Coromandel International

Dynamatic Tech

Gateway Distripark

Gujarat Pipavav Port

Info Edge

Inox Leisure

Jain Irrigation

Just Dial

Kaveri Seeds

Monsanto India

Sintex Industries

Tata Elxsi

TTK Prestige

UPL

V-Guard Industries

Note:

All stock prices and indices for companies as on 30 June 2015, unless otherwise stated

Investors are advised to refer through disclosures made at the end of the Research Report.

India Strategy | Getting on track!

India Strategy

BSE Sensex: 27,574

S&P CNX: 8,329

Getting on track!

Inflation, INR, Deficits well in control now; Govt spending to drive capex

recovery; Earnings to rebound in FY16/17

1QFY16 PREVIEW: Another quarter of decline! Worst is likely over! |

1QFY16 performance of MOSL Universe: Third consecutive quarter of PAT

de-growth





Motilal Oswal values your

support in the Asiamoney

Brokers Poll 2015 for India

Research, Sales and Trading

team. We

request your ballot.









Our bottom-up estimates indicate a 1% YoY decline in aggregate PAT for the

MOSL Universe (ex-RMs). Sales would remain flat and EBITDA would grow

moderately (4%). The fall in global commodities, delay in revival of the

investment cycle and muted rural consumption continue to impact growth of

corporate India.

Only seven sectors are expected to witness double-digit PAT growth—Media

(36%), Telecom (23%), Capital Goods (18%), Private Banks (17%), Consumer

(14%), Oil (11%) and Retail (11%). Six sectors would likely report PAT de-

growth—Healthcare (-1%), Auto (-7%), Real Estate (-11%), PSU Banks (-27%),

Cement (-33%) and Metals (-52%).

Nifty PAT (ex-BPCL) is likely to remain flat YoY—an improvement over 11% de-

growth in 4QFY15. Sales would marginaly decline (-1%) in 1QFY16 (v/s -6% in

4QFY15).

About one-fourth of the Nifty constituents would report >15% YoY PAT growth;

however, this would be offset by PAT de-growth in more than one-third of the

constituents. Cyclicals and domestic-facing companies would contribute to PAT

de-growth (14 out of 17 PAT de-growth companies are cyclical).

Top PAT growth companies would be Maruti (77%), Tata Power (63%), Cipla

(+41%), ONGC (+41%), Idea (+36%), Yes Bank (+29%), Indusind Bank (+24%) and

Bharti Airtel (+21).

Top PAT de-growth companies would be Punjab National Bank (-58%), Cairn

India (-57%), Bank of Baroda (-44%), NMDC (-42%), Ambuja Cement (-40%),

Grasim (-38%), Hindalco (-38%) and Tata Motors (-31%).

Exhibit 1:

PAT de-growth in 1QFY16; expect rebound in 2H

39

22

25 24 26

10 14 12

5

19

14

7

7

9

16 13

MOSL Universe

Quarterly PAT Growth

16

YoY (%) LPA: 10%

22

30

2

1

8

6

-6 -8

-1

-14

-9

Source: Company, MOSL

July 2015

1

India Strategy | Getting on track!

FY16-17 ESTIMATES: Expect recovery in 2HFY16 | Government-led capex

and low inflation to lead recovery











Delay in domestic recovery and global commodity fall continue be the

headwinds for earnings growth. Other factors such as muted rural consumption,

continuing asset quality woes in PSU banks and adverse cross currency

movements continue to pull down the aggregate growth of corporate India.

However, we believe government-led capital spending and favorable inflation

leading to lower rates will create conducive environment for earnings growth

recovery.

Our bottom-up estimates suggest aggregate PAT of the MOSL Universe (ex-RMs)

to rebound to 17%/23% in FY16/FY17. Sales growth would increase moderately

to 9% in FY16 before jumping to 13% in FY17.

Expect Sensex EPS to grow 15% to 1,561 in FY16 and 22% to 1,907 in FY17. Since

the last preview, three-fourths of the Sensex companies would see an EPS cut—

led by Tata Steel, Sun Pharma, Hindalco, Tata Motors, Coal India and GAIL. Top

upgrade drivers are Maruti, NTPC, ONGC and Bajaj Auto.

One-third of the Sensex companies would contribute more than two-thirds of

FY16 Sensex EPS expansion. Key contributors to the EPS expansion would be

ONGC, Tata Motors, ICICI Bank, HDFC Bank, Tata Steel and Reliance Ind, M&M,

Axis Bank, HDFC and SBI.

PROFIT POOL: Oil share halves, Technology doubles; Public sector dwarfed

| Profit Pool analysis FY03-15: Some interesting trends from the past

India Inc PerforMeter

CAGR %

FY03-FY15

FY03-FY08

FY08-FY15

FY15-17E

PAT

16

27

9

20

Sensex

20

39

9

??





We expect a pick-up in earnings growth for corporate India from the second half

of FY16; this could well be the beginning of the new earnings cycle. While our

EPS CAGR for the next two years is 20%, the earnings cycle has seen higher and

longer-duration growth.



In Phase-1 (FY03-08) of our FY03-15 analysis, PAT CAGR was 27%; it was only 9%

in Phase-2 (FY08-15).



We present some trends to draw from the last 13 years of earnings cycle and

pick where reversion to mean can lead to a change in growth trends.

#1 PUBLIC v/s PRIVATE SECTOR:

The ultimate case study of value migration

#2 CYCLICALS:

Change in PAT orbit

#3 OIL & GAS:

PAT share halves to 17% in the best era of crude prices

#4 FINANCIALS:

Private sector cashes in on public banks' slip

#5 CONSUMER:

Only a foul-weather friend? Not quite

Based on the above, we expect some of the following potential themes to play

out going forward:

#1 FY15-17 PAT GROWTH:

Expect acceleration in growth from 2HFY16, CAGR of

20% over FY15-17.

#2 PRIVATE BANKS, CONSUMER:

Two large profit pools, which can only get

bigger and better (thereby creating several growth opportunities).

#3 OIL & GAS:

Reforms can normalize earnings, resulting in significant growth.

#4 CEMENT:

Early-bird cyclical turnarounds?

#5 CAPITAL GOODS:

Book-to-bill ratio on the rise; govt spending to trigger

growth.

July 2015

2

India Strategy | Getting on track!

Exhibit 2:

FY03-15 India Inc PAT performance: Sector-wise highlights

Sector

PAT (INR b)

PAT CAGR (%)

ROE (%)

(No of Companies) FY03 FY08 FY15 FY17E FY03-15 FY03-08 FY08-FY15 FY15-17E FY03 FY08 FY15 FY17E

Auto (11)

21 85 292 492

24

32

19

30

19 26 22

23

Capital Goods (12)

15 80

99 174

17

40

3

32

12 25 10

14

Cement (14)

7

97

60 146

20

69

-7

56

8

30

6

12

Consumer (15)

48 75 209 304

13

9

16

21

38 35 33

37

Financials (31)

141 341 951 1,395

17

19

16

21

30 14 15

16

Banks-Private (10) 25 90 376 540

26

30

23

20

18 11 15

17

Banks-PSU (10)

87 192 313 491

11

17

7

25

25 18 10

13

NBFC (11)

29 58 263 363

20

15

24

18

48 14 18

19

Healthcare (14)

17 51 169 280

21

25

19

29

25 21 20

22

Media (11)

3

5

21

46

18

10

24

47

25

7

14

22

Metals (9)

27 303 295 283

22

62

0

-2

15 26 10

9

Oil & Gas (12)

265 529 638 1,004

8

15

3

25

25 19 10

13

Real Estate (10)

1

91

26

47

30

142

-16

35

13 30

4

7

Retail (3)

0

2

10

15

41

61

28

23

7

24 22

23

Technology (11)

39 159 548 692

25

32

19

12

36 32 27

25

Telecom (4)

-4 133 110 129

L to P L to P

-3

8

-3 22

8

8

Utilities (10)

67 173 346 457

15

21

10

15

12 14 14

17

Others (25)

6

23

62 107

21

29

15

31

15 17 15

20

MOSL (192)

653 2,146 3,836 5,569

16

27

9

20

20 20 14

16

MOSL Univ. PAT Share (%)

FY03 FY08 FY15 FY17E

3

4

8

9

2

4

3

3

1

5

2

3

7

3

5

5

22

16

25

25

4

4

10

10

13

9

8

9

4

3

7

7

3

2

4

5

0

0

1

1

4

14

8

5

40

25

17

18

0

4

1

1

0

0

0

0

6

7

14

12

-1

6

3

2

10

8

9

8

1

1

2

2

100 100 100 100

Source: Company, MOSL

ECONOMICS: A strong macro at early stage of recovery to create a virtuous

investment cycle | Revenue buoyancy on growth to accelerate fiscal

correction











Tax-GDP ratio increased by around 400bp in the previous upcycle between FY02

to FY08. The current phase of fiscal consolidation is being achieved on the back

of expenditure compression and increased tax effort. However, a repeat of tax

buoyancy seen in the previous upcycle would allow accelerated reduction in

fiscal deficit to as low as 2% by FY20.

Higher revenue, besides fiscal correction, would allow a jump in government

expenditure. Together with an expenditure switch towards capex spend away

from subsidy this would act as a big booster to investments in general.

While many private infrastructure companies came up in the previous cycle

ploughing sizable investments in the economy; the winners of the current cycle

are likely to be those well positioned to benefit from the direction of the

economy that the government is seeking to give in the next five years.

The fiscal discipline and macro stability should bring in its wake a revision in the

rating of India several notches higher than the current investment grade,

particularly when the criteria laid out by S&P in its Sep-14 rating outlook

upgrade have all been satisfied by a comfortable margin and countries with

comparable macro parameters and credit history enjoy much higher ratings.

On the inflation front, government has taken a multitude of measures to ensure

that the backbone of food inflation is broken through a series of intervention

aimed at curbing prices, providing subsidy and other forms of support, improved

co-ordination with the states and smoothing the supply chain to ensure higher

food availability. Other drivers of inflation viz., global commodity and food

prices, rural wage have all eased.

July 2015

3

India Strategy | Getting on track!







The structural decline in inflation can take rates and bond yields to a level even

lower than the low point of previous cycle particularly when net market

borrowing by the government is slated to decline releasing a good deal of

financial savings to be channelized into other forms of investments.

After the bouts of volatility during late 2013, INR has returned to stability to

emerge as one of the best performing currencies. The external stability

parameters have also strengthened on the back of increased capital flows.

Greenshoots of a capex recovery on the back of higher public spend towards

infrastructure are visible already with CMIE capex data, recovery of IIP capital

goods and sectors facing the focus areas of the government showing an

uptrend. However, the biggest silver lining comes from a marked improvement

in credit quality and some decline in the indebtedness of infra companies that

makes them lendable again. With interest rate cycle headed south and selective

push from the government this indeed is a more surefooted recipe for

investment recovery.

Exhibit 3:

Revenue buoyancy of 400bp in FY02-08 economic upcycle – an equivalent jump now would take deficit to new low

Fiscal deficit to GDP (%)

14

12

10

8

6

4

2

0

6.0

11.9

10.3

A period of

stagnation on fiscal

management

Gross tax to GDP (%)

14.1

9.9

8.0

6.0

Rising revenue

helped to correct

the deficit

Post crisis

10.0

Expanding tax net

kept collection

steady and helped

correct deficit too

5.8

4.1

As corporate profit

and buoyancy recovers

tax collections would

spike and deficit to

reach new low

2.5

2.0

Source: Government, MOSL

Exhibit 4:

Government would be a significant catalyst for coming capex cycle

Manohar

Parikkar

Minister of

Defense

(USD250b)

Suresh Prabhu

Minister of Railways

(USD94b)

Drivers of

upcoming

capex cycle

Piyush Goyal

Miniter of

Power and

Coal

(USD78b)

Venkaiah Naidu,

Minister of Urban

Development

(USD31b)

Nitin Gadkari

Minister of Road

Transport and

Highways

(USD78b)

Figures in USDb indicate capex planned over next 5 years

Source: Government, MOSL

July 2015

4

India Strategy | Getting on track!

Exhibit 5:

Credit quality has improved noticeably

4.0

3.0

2.0

1.0

0.0

Credit ratio

Modified credit ratio (RHS)

1.2

1.1

1.0

0.9

0.8

Exhibit 6:

Indebtedness of infra cos. on a decline now

1.2

1.0

0.8

0.6

0.4

0.2

0.0

Net Debt to Equity (x)

D/E (x)

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Source: RBI, Government, MOSL

Source: RBI, Government, MOSL

MARKETS & FLOWS: Indian equities have delivered positive returns for 3

consecutive years

















Indian equities have delivered positive returns for three consecutive years, and

positive returns in five out of the last six years.

Sectoral performances have been very divergent in CY15YTD. Telecom was the

top performer with 14% return and significantly outperformed the Nifty (1%

return); it was followed by Capital Goods (+13%) and Healthcare (+13%). PSU

Banks (-22%) and Metals (-13%) were the top underperformers.

Lupin was the best-performing Sensex stock (32% return) for CY15, followed by

Maruti Suzuki (21%) and HUL (21%). Hindalco, Tata Steel, Sesa Sterlite, Hero

Motocorp, SBI, ITC, ICICI Bank, GAIL and Tata Motors were the top

underperformers (delivering negative returns of 10-30%).

Valuations of Indian equities are near the long-term averages; need growth to

pick-up. The Sensex trades at 16.9x P/E (slightly above its long-period average of

16.2x) and near its 10-year average P/B of 2.8x.

Domestic MFs have turned big buyers in Indian equities for 14 consecutive

months. DII (ex MFs) have also turned net buyers by pumping in USD1.3b in

three months after 13 months of outflows.

FIIs invested another USD6.2b in the first half of CY15 compared with USD16.2b

in CY14. However, FIIs have been net sellers in recent months.

FII holding in BSE-200 companies is at an all-time high of 25.6% compared with

DII at 10.9%. FIIs have bought USD 169b in 23 years. Since Jan 2000, FIIs bought

USD158b compared with DIIs’ USD8.8b. We expect this trend to stabilize as

domestic flows have turned positive now.

Financial savings to increase; higher share toward equities likely.

STRATEGY:

ECONOMIST:

Rajat Rajgarhia

(Rajat@MotilalOswal.com)

Dipankar Mitra

(Dipankar.Mitra@MotilalOswal.com)

Sources of exhibits in this section include RBI, CMIE, Bloomberg, IMF, UN, Rogers International, Industry, Companies, and MOSL database

July 2015

5

India Strategy | Getting on track!

1QFY16 PREVIEW

Another quarter of decline! Worst is likely over!

1QFY16 performance of MOSL Universe: Third consecutive quarter of PAT

de-growth













Our bottom-up estimates indicate a 1% YoY decline in aggregate PAT for the MOSL

Universe (ex-RMs). Sales would remain flat and EBITDA would grow moderately (4%).

The fall in global commodities, delay in revival of the investment cycle and muted

rural consumption continue to impact growth of corporate India.

Only seven sectors are expected to witness double-digit PAT growth—Media (36%),

Telecom (23%), Capital Goods (18%), Private Banks (17%), Consumer (14%), Oil (11%)

and Retail (11%). Six sectors would likely report PAT de-growth—Healthcare (-1%),

Auto (-7%), Real Estate (-11%), PSU Banks (-27%), Cement (-33%) and Metals (-52%).

Nifty PAT (ex-BPCL) is likely to remain flat YoY—an improvement over 11% de-growth

in 4QFY15. Sales would marginaly decline (-1%) in 1QFY16 (v/s -6% in 4QFY15).

About one-fourth of the Nifty constituents would report >15% YoY PAT growth;

however, this would be offset by PAT de-growth in more than one-third of the

constituents. Cyclicals and domestic-facing companies would contribute to PAT de-

growth (14 out of 17 PAT de-growth companies are cyclical).

Top PAT growth companies are Maruti (77%), Tata Power (63%), Cipla (+41%), ONGC

(+41%), Idea (+36%), Yes Bank (+29%), Indusind Bank (+24%) and Bharti Airtel (+21).

Top PAT de-growth companies would be Punjab National Bank (-58%), Cairn India (-

57%), Bank of Baroda (-44%), NMDC (-42%), Ambuja Cement (-40%), Grasim (-38%),

Hindalco (-38%) and Tata Motors (-31%).

Aggregate PAT to decline 1% YoY; sales to remain flat







MOSL Universe’s (ex-RMs) sales and EBITDA would grow marginally (1% each).

Aggregate PAT would decline 1% YoY.



1QFY16 would be the third consecutive quarter of PAT de-growth. Such

consecutive PAT de-growth was last witnessed in Sep-09.



Several domestic cyclicals like Auto, Cement and PSU Banks would de-grow.



Global sectors such as Metals and Healthcare would continue to report PAT

decline; Technology would report one of the lowest PAT growth (7% YoY).



Large sectors that would report growth include Consumer, Private Banks,

NBFCs, Utilities, Oil and Technology.

EBITDA margins (ex-Financials & RMs) would expand ~70bps YoY to 20%, near

its LPA of 20.2%—despite Cap Goods, Cement, Metals well below the LPA level.

This quarter would see continued impact of fall in global commodities and a

consequent negative WPI impact.

MOSL Universe Quarterly PAT

Growth YoY (%) LPA: 10%

Exhibit 7:

PAT de-growth in 1QFY16; expect rebound in 2H

39

22

25 24 26

10 14 12

5

19

14

7

7

9

22

30

16 13 16

2

1

8

-6 -8

-1

6

-14

-9

Source: Company, MOSL

July 2015

6

India Strategy | Getting on track!

Exhibit 8:

Sales to remain muted during 1H

27 26

17

22 21

25 26

21 23

19

MOSL Universe

Quarterly Sales Growth

YoY (%) LPA: 13%

16

19

9

13

10

14 14 12 14

6

5

5

1

0

-5

4

-6 -4

Source: Company, MOSL

Exhibit 9:

1QFY16 EBITDA margin (ex-Financials& RMs) would expand 70bps to 20%; shows signs of bottoming out

23.2

22.3

MOSL Universe EBITDA

Margin LPA: 20.2%

20.7

22.1 22.2 22.0

22.1 21.8

20.0

21.4

19.3

20.7

20.6

20.4

19.7 19.9

19.6

19.9

19.6

19.4

19.4

19.1

19.0 18.8

19.2 19.3

19.1 19.0

19.0

18.8

18.7

18.6

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

Source: Company, MOSL

Exhibit 10:

1QFY16 PAT margin (ex-Financials & RMs) to expand 50bps to 10.5%

14.7

13.3

12.3

MOSL Universe PAT Margin

LPA: 11.3%

10.9 11.0

13.1

12.6

12.6

11.0

12.2

12.211.9

11.9

10.4

10.5

11.8

11.4

10.0

11.2

11.1

10.810.5

10.3

10.7

10.2

10.310.110.610.010.210.5

9.4

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

Source: Company, MOSL

July 2015

7

India Strategy | Getting on track!

Exhibit 11:

Sector-wise 1QFY16 performance of the MOSL Universe

Sector

(No of companies)

High growth sectors

Media (9)

Telecom (4)

Others (18)

Capital Goods (10)

Private Banks (8)

Med/Low growth sectors

Consumer (15)

Oil Excl. RMs (9)

Retail (3)

NBFC (11)

Utilities (10)

Technology (11)

PAT de-growth sectors

Healthcare (14)

Auto (11)

Real Estate (8)

PSU Banks (6)

Cement (7)

Metals (9)

MOSL Excl. RMs (163)

MOSL Ex Oil & Metals (145)

Sensex (30)

Sensex Ex Oil & Metal (24)

Nifty Ex BPCL (49)

Nifty Ex Oil & Metal (41)

Sales

Mar- Var % Var %

15

YoY QoQ

1,131

54

418

171

291

198

3,371

388

1,433

42

120

658

729

2,990

306

1,130

48

273

167

1,066

7,492

4,993

4,812

2,955

5,564

3,660

8

15

7

11

0

18

-1

8

-13

6

16

7

14

0

12

3

8

2

1

-6

1

7

-1

6

-1

7

-13

8

4

-4

-39

3

12

6

23

10

-3

4

5

-3

8

-2

-6

-2

0

-7

1

-2

0

-5

0

-3

EBITDA

Mar- Var % Var %

15

YoY QoQ

387

15

152

29

25

166

841

83

278

4

111

188

178

616

73

167

16

185

25

152

1,845

1,416

1,135

809

1,403

1,051

16

18

15

14

7

18

11

12

6

8

14

19

10

-9

4

-1

-4

0

-14

-29

4

9

5

7

3

8

-9

21

6

4

-60

-6

7

6

21

7

-5

1

3

0

33

12

8

-17

-18

2

1

-2

1

-6

1

-5

Net Profit

PAT

Delta

EBITDA

Margin

Chg bp

YoY

Mar- Var % Var %

Share % Share %

15

YoY QoQ

168

6

30

17

18

96

530

58

166

2

68

97

140

244

46

83

6

57

11

42

943

735

612

455

737

556

19

36

23

18

18

17

10

14

11

11

9

9

7

-25

-1

-7

-11

-27

-33

-52

-1

3

5

4

0

1

-13

28

10

6

-60

-3

6

4

24

-11

-2

-1

0

16

21

40

0

9

-25

2

4

1

7

-2

7

0

18

1

3

2

2

10

56

6

18

0

7

10

15

26

5

9

1

6

1

4

100

363

23

77

37

37

188

630

96

223

3

75

105

128

-1,093

-7

-88

-10

-284

-76

-629

100

222

67

235

45

50

-38

278

85

354

16

-155

292

-102

-220

-177

-64

-388

-83

-240

-453

81

45

136

40

89

33

Source: Company, MOSL

Mixed bag in terms of sectoral performance: Share of global commodities in

aggregate PAT to increase, led by Oil & Gas; Metals drag















Overall, seven sectors would report double-digit PAT growth and six sectors

would report PAT de-growth.

Financials would report PAT de-growth of 1%, a first, primarily driven by poor

performance of PSU banks



PSUs will account for a 37% share in the sector’s profits in 1QFY16 v/s 49%

in 1QFY15

Technology would continue to report mid-single digit growth (7%) for the

second consecutive quarter; Healthcare would continue to witness negative

growth (-3% YoY)

Capital Goods would report 18% growth after 11 consecutive quarters of PAT

decline, thus giving indication of early signs of revival in investment cycle.

Auto, Cement and Metals would continue to report PAT de-growth.

Sectors with record PAT:



Consumer and Telecom would report multi-quarter high PAT numbers



Metals would report its lowest PAT in eight years

Share of commodities in the aggregate PAT would increase in 1QFY16—a

reversal from the last few quarters, primarily led by Oil. Metals would continue

to drag

8

July 2015

India Strategy | Getting on track!

Exhibit 13:

Contribution of global businesses^ would reduce

Exhibit 12:

MOSL Universe ex-Global Commodities PAT gr (%) to 48% in 1QFY16 and to 45% by FY16-end

MOSL Universe Ex Global Commodities PAT growth (%)

18

15

12

12

10

6

3

3

45

-2

44

Global business PAT Share (%)

Others PAT share (%)

55

56

52

55

48

45

Source: Company, MOSL

^ Global businesses include IT, Healthcare, Metals, Oil (Ex

RMs), JLR

Source: Company, MOSL

Exhibit 14:

Sectoral quarterly PAT trend (INR b)

FY12

FY13

FY14

FY15

FY16E

Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar

Auto

50 52 63 80

56 50 47 76

50 71 81 77

89 74 75 59

83 94 99 103

Capital Goods

23 28 34 65

26 27 28 60

17 22 26 55

15 20 22 44

18 25 31

57

Cement

19 12 16 23

25 19 16 20

19 11 11 18

17 14

9

15

11 10 14

20

Consumer

33 36 38 38

40 42 46 44

45 48 52 49

50 54 58 55

58 64 69

66

Financials

129 151 163 193 179 180 190 205 202 182 194 213 223 213 209 222 221 239 265 291

Private Banks

42 45 52 57

54 57 67 71

70 72 80 85

82 85 95 100

96 101 113 119

PSU Banks

51 65 71 91

80 74 71 73

75 52 52 64

78 63 48 52

57 63 72

87

NBFC

36 41 40 45

45 49 51 60

57 58 61 64

62 65 66 69

68 74 79

84

Healthcare

20 22 21 23

22 28 28 31

34 41 45 43

45 52 33 37

44 54 54

61

Media

4

4

4

3

4

5

5

4

5

5

6

5

5

5

8

6

7

7

9

8

Metals

90 72 63 72

78 57 45 78

62 61 61 76

68 74 63 34

25 34 34

50

Oil & Gas

56 38 284 367

-251

342 217 403 95 203 137 346 187 153 71 247 207 209 211 222

Oil & Gas Ex RMs 150 178 139 139 154 173 166 133 139 174 175 165 149 149 95 134 166 155 153 171

Real Estate

6

6

5

6

5

4

6

4

5

4

4

5

5

4

5

5

5

4

9

6

Retail

2

2

2

2

2

2

3

2

2

2

2

3

2

3

2

3

2

3

3

3

Technology

66 67 80 82

89 91 95 95 104 119 127 132 130 135 142 140 140 144 152 159

Telecom

16 15 15 16

12 11

6

6

13 12 12 18

20 24 24 22

25 24 25

27

Utilities

42 41 42 50

50 47 50 48

50 51 52 50

50 51 48 58

56 62 56

62

Others

12 10 10 11

12 10 10 11

12 11 13 14

14 12 14 16

17 16 18

20

MOSL Univ Excl RMs 661 696 696 802 753 745 741 817 760 814 862 922 885 883 808 848 877 935 990 1,103

Comparable Universe, excludes Coal India, Just Dial, Prestige Estate, Bharti Infratel, Alembic Pharma, Vedanta due to merger, RattanIndia

Power, Hathway and Repco Home Fin.

Source: Company, MOSL

Sector

July 2015

9

India Strategy | Getting on track!

Exhibit 15:

Sectoral quarterly PAT growth trend (%)

FY16E

FY12

FY13

FY14

FY15

Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar

Jun Sep Dec Mar

-7

Auto

7

4

30 52

12 -3 -25 -5

-12 41 71

2

79 4

-24

-7 27 32 75

12 -4 -18 -8

Capital Goods

4

1

4

30

-33 -21 -6 -9 -13 -6 -16 -19

18 24 42 30

Cement

5

73 53 15

28 63

-2 -14 -26 -44 -33 -11 -10 26 -12 -16

-33 -25 44 32

14 18 19 19

Consumer

15 19 17 22

24 15 23 18

13 17 12 11 11 12 11

13

-1 12 27 31

Financials

1

18 13 57

39 19 16 6

13

1

2

4

10 17

8

4

17 18 19 20

Private Banks

31 28 27 29

30 27 28 25

29 26 20 20 18 19 19

17

PSU Banks

-22 9

6 124 56 14

0 -19

-6 -30 -27 -12

4 21 -9

-18

-27 1 51 66

9 15 20 22

NBFC

17 23 11 18

23 20 29 34

26 18 20

6

10 11

7

9

Health Care

15

4

8

8

9

27 35 34

57 50 58 42 34 25 -25 -14

-3 4 62 64

32 36 15 36

Media

14

8

-8 -34

-2

8

22 25

26 12 21 13

-5 3

31

17

4

Metals

14

2 -12 -24 -13 -22 -29 8

-20

8 37 -3

9 22

-55

-64 -55 -46 46

Oil & Gas

60 -84 61 96

PL 812 -24 10 -138 -41 -37 -14 97 -25 -48 -29

10 36 197 -10

Oil & Gas Ex RMs

43 25 -11 9

3

-3

19 -4

-10

1

6

24

8 -14 -46 -19

11 4 60 28

Real Estate

-4 -10 -37 -8

-5 -31 11 -29

-6 -10 -34 20

8 -2 16 -11

-17 14 94 29

11 7 32 29

Retail

68 17 13 52

6

14 22 24

15

5 -12 12

-6 24

5

-2

7 7

7 13

Technology

20 13 24 26

35 35 19 15

17 30 34 39 25 13 11

6

25 1

1 24

Telecom

-26 -38 -30 -13 -26 -25 -57 -58

10 13 95 170 53 91 99

26

12 21 16 6

Utilities

8

6

13

3

18 14 19 -4

2

9

4

4

0 1

-8

16

18 39 25 25

Others

30 -10 -1

-6

-1

1

8

-4

2

13 26 30 20 8

11

14

-1 6 22 30

MOSL Univ Excl RMs

14 12

5

19

14

7

7

2

1

9 16 13 16 8

-6

-8

Comparable Universe, excludes Coal India, Just Dial, Prestige Estate, Bharti Infratel, Alembic Pharma, Vedanta due to merger, RattanIndia

Power, Hathway and Repco Home Fin.

Source: Company, MOSL

Sector

Distribution of PAT growth to improve slightly





Nearly one-fifth (21%) of the companies would report >30% PAT growth,

roughly same as in the previous quarter. Companies reporting >15% growth

would increase to 22% from 17% in 4Q.

Less than one-third of the companies would report PAT de-growth, a welcome

change from nearly 40% in 4Q.

Exhibit 16:

Broadbasing of high PAT growth companies

Earnings Growth

>30%

>15-30%

>0-15%

<0%

Ex RMs (%)

55 36 34 25 15 24 26 20 -8 -15 -15 -11 23 42 26 22 24 9 13 11 4 18 11 8 5 0 -2 8 13 10 17 7 -7 -9 -1 6 2231

11 17 14 14

13 13

21 24 23 26

25 24 31

26

28 26

30

11

32 35 31 27 30 27

34

35 39

39 39 42 40 36 37 44 37

11 15

42 41

42 40

11

19 18

14

19

19 24

9 9 10 20 18 18

19 23

22

14 14

26

27

23

28

13

24 19

27

21

28 26

25

17 16 18 21 22 24

17

23

11

18

16 13

22

24

18 23

17

22

18

21

22 10

18

26

21

14

16 15

24 25 18 22 18 16

22

10

60 54

19 21

22 17

19 16 18

52 48

51

44 45

41 43

39 44

38 32 39 35

35 30

32

26 27

21 21 24 25 25 27 26 24 20 26 24 20 19 26 18 20 21 26

PAT Growth Ex RMs (%)

Source: Company, MOSL

July 2015

10

India Strategy | Getting on track!

Nifty PAT would remain flat; de-growth in sales to continue











While Nifty PAT (ex-BPCL) is likely to remain flat YoY, it marks an improvement

over 11% de-growth in 4QFY15. Sales would marginaly decline (-1%) in 1QFY16

(v/s -6% in 4QFY15).

Cyclicals and domestic-facing companies would contribute to PAT de-growth (14

out of 17 PAT de-growth companies are cyclical)

Most of the top PAT growth companies—Tata Power (+63%), Idea (+36%), Cipla

(+41%), ONGC (+41%)—were aided by lower base.

Top PAT growth companies would be Maruti (77%), Tata Power (63%), Cipla

(+41%), ONGC (+41%), Idea (+36%), Yes Bank (+29%), Indusind Bank (+24%) and

Bharti Airtel (+21).

Top PAT de-growth companies would be Punjab National Bank (-58%), Cairn

India (-57%), Bank of Baroda (-44%), NMDC (-42%), Ambuja Cement (-40%),

Grasim (-38%), Hindalco (-38%) and Tata Motors (-31%).

38

LPA: 15%

3

-10

-14

-20

-24

12 11

24

7

16

7 8

-3 -4

10

15 11 18

21

6

-9-11

0

6

Exhibit 17:

1Q Nifty PAT to remain flat YoY—an improvement from de-growth in 3Q/4Q, but significantly below LPA of 15%

36 37 45 51

29

44

20

7

-6

23 26

30 30

23

24 21

21

23 28 25

33

13 14

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

Source: Company, MOSL

Exhibit 18:

Nifty sales to de-grow 1% in 1QFY16—the third consecutive quarter of de-growth

22

26 30 24

32 30 31

19 19

14

19

22

31 31 31 37 31 31

17

8

-2

27 25

21 19 22

25

21 23

LPA: 18%

19

16

12

8

5 2

13 14 12 15

4

-1

-1

3

-6

18

9

-8 -6

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

Source: Company, MOSL

Exhibit 19:

Expect 1QFY16 Nifty (ex-RMs) EBITDA margin to improve and move above LPA of 25.4%

31.3

30.2

30.3 30.5

29.5

27.8

28.9

27.1 26.2

26.0

25.7

25.9

25.4

LPA: 25.4%

26.2

25.4 25.2

25.3 25.4 25.5

25.0 25.0

24.7 24.3

24.0

24.3

25.3

23.6 23.6

25.1

23.122.7 23.323.6 23.9

24.8

23.8

24.1

23.4

23.2

22.5

23.0 22.8

22.3

22.5

27.726.9

27.0 26.6

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

Source: Company, MOSL

July 2015

11

India Strategy | Getting on track!

Exhibit 20:

1QFY16E performance of Nifty companies (INR b)

Sales

EBITDA

PAT

Jun-15 Var % YoY

Jun-15 Var % YoY

Jun-15 Var % YoY

High PAT Growth (12)

1,205

11

458

18

202

31

Maruti Suzuki

132

16

22

62

13

77

Tata Power

95

9

26

46

4

63

Cipla

33

23

7

33

4

41

ONGC

235

8

133

6

67

41

Idea Cellular

89

17

32

29

10

36

Yes Bank

10

40

9

41

6

29

IndusInd Bank

10

22

9

16

5

24

Bharti Airtel

238

4

85

10

13

21

HDFC Bank

63

22

46

20

27

20

Axis Bank

39

17

35

20

20

18

Bajaj Auto

59

11

11

22

9

17

NTPC

202

12

43

31

24

17

Med/Low PAT Growth (20)

2,444

-3

613

11

400

8

Asian Paints

36

8

6

15

4

14

Hero MotoCorp

69

-1

8

16

6

13

TCS

258

17

73

14

57

12

Kotak Mahindra Bank

17

15

11

13

6

12

GAIL

140

5

12

15

7

12

Power Grid Corp.

46

18

40

19

13

12

ICICI Bank

51

15

51

13

30

12

Hind. Unilever

85

11

15

16

11

12

Reliance Inds.

752

-22

89

18

62

10

Larsen & Toubro

109

5

12

7

8

9

Wipro

124

11

28

9

22

7

Dr Reddy’ s Labs

38

9

9

12

6

6

Coal India

190

7

47

11

43

6

ITC

93

0

33

1

23

5

Infosys

141

10

38

9

30

4

Bosch

26

10

5

7

3

2

HDFC

20

16

20

2

14

1

HCL Technologies

97

16

23

3

19

1

State Bank

138

4

92

5

34

1

Zee Entertainment

13

22

3

-10

2

0

Negative PAT Growth (17)

1,915

-4

332

-21

134

-37

Tech Mahindra

62

22

9

1

6

-5

BHEL

45

-12

2

-21

2

-8

Lupin

32

-2

8

-21

6

-10

Vedanta

172

1

43

-24

17

-14

Mahindra & Mahindra

93

-6

11

-20

7

-20

Ultratech Cement

61

7

10

-4

5

-27

ACC

30

0

3

-24

2

-27

Sun Pharma

67

6

17

-8

10

-28

Tata Motors

636

-2

95

-14

37

-31

Hindalco

255

6

22

7

4

-38

Grasim Industries

14

-3

1

-17

1

-38

Ambuja Cements

25

-8

4

-38

2

-40

NMDC

19

-45

12

-50

11

-42

Bank of Baroda

33

0

24

-2

8

-44

Cairn India

27

-39

14

-57

12

-57

Punjab National Bank

40

-8

28

-10

6

-58

Tata Steel

304

-16

27

-36

0

PL

NIFTY Ex BPCL (49)

5,564

-1

1,403

3

737

0

Note: For Financials, Sales represents Net Interest Income, and EBITDA represents Operating Profit

Company

PAT Contbn

(%)

27

2

1

1

9

1

1

1

2

4

3

1

3

54

1

1

8

1

1

2

4

2

8

1

3

1

6

3

4

0

2

3

5

0

18

1

0

1

2

1

1

0

1

5

1

0

0

2

1

2

1

0

100

EBITDA margin

Jun-15 Var (bp)

38

226

16

461

27

688

22

162

57

-104

36

325

86

106

89

-464

36

211

74

-78

90

238

19

167

21

303

25

304

17

107

12

173

28

-58

66

-116

8

70

86

68

99

-138

18

86

12

397

11

23

23

-32

24

50

25

97

36

16

27

-22

18

-51

100

-1,274

23

-298

67

32

21

-750

17

-368

15

-311

4

-43

26

-612

25

-829

12

-209

16

-183

10

-315

26

-410

15

-223

9

9

8

-124

14

-704

63

-650

73

-137

52

-2,174

70

-136

9

-279

25

89

Source: Company, MOSL

July 2015

12

India Strategy | Getting on track!

Some interesting sectoral trends in 1QFY16 earnings

Key PAT growth sectors







All

Capital Goods

companies (except BHEL and Voltas) would report PAT growth.

Except L&T (9%), all companies would report double-digit PAT growth.

All

Consumer and Retail

companies (except United Spirits) would report PAT

growth

All

Pvt Banks and NBFCs

(except DCB Bank) would report PAT growth

Key PAT de-growth sectors







All

PSU Banks

(except SBI and Indian Bank) would report PAT de-growth

All

Metal

companies would report PAT de-growth

All

Cement

companies (except India Cement and Ramco Cement) would report

PAT de-growth

Exhibit 22:

1QFY16 sectoral PAT growth (%)

36

23 18

14 11 11

Exhibit 21:

1QFY16 sectoral sales growth (%)

15 14

12

10

8

8

7

7

6

3

1

1

0

9

7

-1

-1

-1 -7 -11

-33

-52

-6

-13

Source: Company, MOSL

Source: Company, MOSL

Exhibit 23:

1QFY16 sectoral EBITDA margin (%)

36.5 32.5

28.6 27.9

24.4 23.7

Exhibit 24:

1QFY16 sectoral PAT margin (%)

19.2

21.3 20.0 19.4

14.9 14.8 14.7

14.8 14.7 14.2

9.3 8.4

12.0 12.0 11.6

10.5

7.3 7.3 6.7 6.1

5.4 4.0

Source: Company, MOSL

Source: Company, MOSL

July 2015

13

India Strategy | Getting on track!

Other sector

highlights

AUTOS





After an initial spurt last year post elections, demand recovery is losing

momentum, with no improvement in the underlying economic environment.

M&HCV volumes continued to recover in 1QFY16 (third consecutive quarter of

recovery, after nine quarters of decline), with ~15% YoY growth; PV volumes

were up by ~7%. However, other segments witnessed muted demand, with 2W

and LCVs volumes flat YoY.

Margins for our auto OEM (ex JLR) coverage universe are expected to expand

180bp YoY (50bp QoQ) to 11.5%, driven primarily by AL (+460bp) and MSIL

(+460bp), partially offset by MM (-210bp). EBITDA is likely to grow ~31% YoY

(~2.2% QoQ) for our coverage universe (ex JLR), translating into ~19% growth in

PAT. While AL is expected to report its fourth consecutive quarter of PAT at

INR1.4b (v/s ~INR479m loss in 1QFY15), TVS PAT is likely to grow ~46% and EIM

PAT 54%. MM’s PAT is estimated to decline by ~20% YoY. We expect margins to

improve over the next two years, driven by demand recovery-led discount

moderation, soft commodity prices and operating leverage.

Exhibit 25:

EBITDA margin (ex JLR) recovery to continue from

troughs of 4QFY14

Exhibit 26:

Auto aggregate PAT growth constrained by JLR

18

15

12

7

9

-3

6

-25

-5 -12

4

30

52

12

41

2

4

-7

-24

-7

Aggregate (excld JLR)

Aggregate (incl JLR)

Auto PAT growth YoY (%)

Auto Ex JLR PAT growth YoY (%)

112

71

79

Source: Company, MOSL

Source: Company, MOSL

Exhibit 27:

Market share of BJAUT to improve in FY16, driven by CT-100 launch

Economy - MS (%)

Lack of self-start (SS) option in Platina hurt Bajaj Auto

as SS grew tp ~50% of Economy segment

CT100 & Platina Self

40

Start launch

34

30

25

25

24

25

21

27

33

Source: Company, MOSL

CAPITAL GOODS



Managements are expected to guide for cautious optimism, as improved

business sentiment is yet to result in increased tenders, leading to slower pace

of order finalization. For 1QFY16, we expect 2% revenue growth and EBITDA

14

July 2015

India Strategy | Getting on track!





margins improving 80bp to 9%. Order inflows for 1QFY15 would be muted, as

ordering activity from domestic customers is yet to pick up.

Project executing companies are restructuring their balance sheets and infusing

capital to prepare for the next level of growth.

ABB continues to invest in localization initiatives, Voltas continues to bid

cautiously. For Cummins, exports would remain the key growth driver, which

would support operating leverage (current capacity utilization ~50-55%). There

remains a sense of guarded optimism on the near term outlook.

Exhibit 28:

Revenue to witness muted growth led by

constrained execution

Sales (INR b)

Growth (%) YoY

Exhibit 29:

EBITDA margin to improve by 80bps YoY

EBITDA Margin (%)

Source: Company, MOSL

Source: Company, MOSL

Exhibit 30:

Capital Goods revenues flat led by constrained execution; BTB stable at 3.1x

Capital Goods Sales growth (%)

BTB (X)

2.9

3.0

3.1 3.1

2.9 2.8

2.6

2.3 2.3

11

17

2.2 2.2

2.1

6

-5

-2

2.3

2.3 2.4

0

2.3

2.6

15

19

16

0

-4

-1

-4

-4

-7

-13

-7

Source: Company, MOSL

July 2015

15

India Strategy | Getting on track!

CEMENT









Demand momentum slowly improved within 1QFY16 after decline in April, 2-3%

growth in May and a mixed bag trend in June (0-5%) based on regional intensity

of rainfall (lower rainfall in the north led to better volumes than west in June).

Overall, north and east are expected to post relatively better volume growth in

1QFY16 v/s west and south (south showing weakest volume trend with near-

double digit de-growth). We estimate ~1.5% YoY growth for the industry, while

MOSL cement universe to grow by ~3.4% YoY (+5.5% QoQ) due to multiple

instance of new capacity commencement viz. Shree Cement, JK Lakshmi and

Dalmia Bharat. Effective utilizations stood at ~70% (-3pp YoY, -1pp QOQ).

Cement prices (ex-south) are down 4-8% QoQ in 1QFY16—the west and the

north were worst affected, with 7-8% decline QoQ (though select pockets saw

INR10-30/bag uptick during June). East and central regions posted 3-4%QoQ dip

in average prices, while production discipline in south continues to hold prices

QoQ. We are factoring in INR150-200/ton (~4%) QoQ drop in realizations of

MOSL coverage universe, including largely flattish (0-1% QoQ dip) for southern

players. We are factoring in for INR10/INR17 per bag (5%/9%) YoY rise in

realizations in FY16/FY17.

Sharp decline in realization would hurt profitability by INR150-200/ton (4pp

QoQ dip in margins). Cost should remain flattish amidst (a) 3-4% QoQ decline in

imported coal and pet coke prices, (b) 2.7% rise in rail freight and ~3% diesel

cost , (c) rise in packaging cost as crude revived, and (d) marginal positive

operating leverage QoQ.

We expect MOSL universe EBITDA/ton at INR660 in 1QFY16 (-INR189 QoQ, -

INR117 YoY) with southern players likely to post EBITDA/ton of INR900-1,200

(~1pp QoQ dip in margins). We factor in for EBITDA/ton of INR818/1,096 per ton

in FY16/FY17 as against ~INR727 in FY15.

Exhibit 32:

MOSL universe cement volumes to grow 4.7% YoY

in 1QFY16

Aggregate Vol (m ton)

13.8

10.4

9.4

8.4

4.0

3.3

2.7 1.9

1.5

0.4

(2.0)

Volume growth (%)

9.1

5.3 4.4

4.7

Exhibit 31:

Volume growth trend (%) signifies weakness in

cement demand in 1QFY16 (%)

15

10

5

0

-5

-10

MOSL Universe

IIP data

6.1

(5.8)

35 34 36 42 38 35 37 41 38 36 37 43 42 38 39 41 44

Source: Company, MOSL

Source: Company, MOSL

CONSUMER



We expect our Consumer universe to post 7.5% revenue growth and 13.8% PAT

growth in 1QFY16. Broadly, consumption trends continue to remain sluggish

across categories and geographies (rural growth>urban despite incremental

pressure on rural wage growth, given lower salience in overall revenue

July 2015

16

India Strategy | Getting on track!



contribution). We expect clear trends in rural to emerge only post monsoons

and a possible pick-up in government spending.

1QFY16 should see continued benefit of raw material easing. While competitive

intensity has picked up marginally in certain HPC categories, organized players

have been proactive in pre-empting and tackling competition. However, we

believe the price cuts/discounts have not yet changed the volume trajectory

materiall. We expect EBITDA to grow at 12% in 1QFY16 for our coverage.

Exhibit 33:

EBITDA to grow 12% in 1QFY16 aided primarily by

RM softening

Exhibit 34:

Consumer ex-ITC PAT growth healthy

Sales Growth (%)

21.1

20.2

19.8

20.5 20.5

20.2

EBITDA margins (%)

21.3

20.4 20.5

21.6

21.3 21.3

26

17

10

12

19

10

24

Consumer Ex ITC PAT grw YoY (%)

16

9

18

9

5

8

9

12

19

21

21.0 21.2 21.2

19.3 20.3 15.0 16.7 16.4 13.6 10.6 10.3 11.0 11.1 14.6 12.3 7.8 6.6 7.5

Source: Company, MOSL

Source: Company, MOSL

FINANCIALS





PSU banks:

PSU banks’ PPP/PAT is expected to grow 0%/-27% YoY on account of

lower balance sheet growth and continued asset quality troubles. Higher-than-

expected NPAs (especially relapse from RL) will be a drag on earnings. Over the

last year, Indian banks, mainly PSUs, have sold ~INR600b worth assets to ARCs;

we believe write-downs and resultant MTM provisioning for the same (as per

RBI guidelines) would begin over the next one/two quarters.

SBIN

remains our

top pick to play revival in Indian economy.

Private sector banks:

For private banks, healthy core operating performance

and one off income (repatriation of capital) will help to manage earnings. We

expect PPP and PAT growth of ~18% YoY and ~17% YoY. Our top picks are

HDFCB, AXSB, YES and DCBB

in private sector.

Exhibit 35:

Higher opex and provisions would be a drag on

PSU bank’s profitability; healthy growth in profitability for

Private banks to continue (PAT growth % YoY)

Private Banks

29.3

-5.9

-29.7 -26.8

25.8

20.0

19.7

-12.1

18.0

3.5

PSU Banks

20.6

18.6

18.6

-8.9

17.1

-18.3

16.8

Exhibit 36:

Share of PSUs in sector profits will be down to

37% in 1QFY16 vs 49% in 1QFY15

PVT Banks PAT Share (%)

PSU Bank PAT Share (%)

42 40 43 49 42 33 34 37

55 59 58 61 60 56 52 51 52

58 60 57 51 58 67 66 63

45 41 42 39 40 44 48 49 48

-26.8

Source: Company, MOSL

July 2015

Source: Company, MOSL

17

India Strategy | Getting on track!



NBFCs:

We expect the NBFCs under our coverage to deliver 8.8% YoY PAT

growth. For retail NBFCs, the quarter would be marred by seasonal weakness,

translating into lower growth and margin contraction. However, timely onset of

monsoon and sharper focus on recoveries would lead to above trend-line

performance on asset quality. Improving macroeconomic environment, stable

liquidity, easing wholesale rates and reduction in repo rate by the RBI are the

key positives. While incremental data points indicate bottoming-out of the

cycle, growth and asset quality outlook is expected to improve gradually for

NBFCs. Top picks are

IDFC and MMFS.

Exhibit 37:

PAT growth for NBFCs universe expected at 8.8%

28.8

23.4

20.3

32.1

24

15.7

18.8

6.7

9.4

10.9

5.7

8.7

8.8

Source: Company, MOSL

HEALTHCARE









We estimate 14.2% growth in sector revenue in 1Q, supported by strong

performance in domestic market. However, weak quarter in US for few large cap

companies is likely to pull down overall EBITDA margins to 23.7% (-180bp). PAT

is expected to remain flat, mainly on account of higher deprecation during the

quarter. We believe Cipla, Cadila, Torrent Pharma and Alembic Pharma are

likely to deliver strong operational performance in 1Q.

Slow pace of approvals in US and increased pricing pressure is expected to

impact larger players like – Sun Pharma, Lupin and Dr Reddy’s. However, Cipla is

likely to benefit from gNexium supply to its partner Teva (sole gneric player). In

domestic business, all large cap companies are expected to post double digit

growth aided by price increase undertaken in April and continued traction in

specialty therapies. According to NPPA, Indian pharma companies are allowed

to take 3.6% price hike on NLEM products and 10% price hike on Non NLEM

products from April 2015.

In Mid Caps, apart from IPCA, most of the other companies are expected to

benefit from recent surge in ANDA approvals for their US filings. Alembic and

Torrent are expected to deliver strong US numbers on account of gAbilify

launch. Aurobindo and Glenmark are also likely to benefit from recent drug

launches in US market. Cadila would continue to gain from price hike in HCQ and

expected to report good growth in US.

We expect Sun pharma to post muted numbers in 1Q on the back of (1) Ongoing

supply constrains at Halol plant, (2) Lack of approvals in US, (3) Price erosion in

some of the Taro products and (4) Difficulties in Ranbaxy merger.

July 2015

18

India Strategy | Getting on track!





The INR depreciated 8% YoY against the USD in 1QFY16 (63.5 v/s 59 in 1QFY15).

Hence, 1QFY16 net sales of export-oriented companies may be higher than

witnessed in the last 2-3 quarters.

However, emerging market currency crisis will affect companies such as Dr

Reddy’s, Torrent Pharma and Glenmark in our coverage. Similarly, some

negative impact of Euro depreciation would be visible in companies such as

Aurobindo, Torrent Pharma and Cipla, which have a higher proportion of Euro

sales in the overall revenue.

Exhibit 38:

Healthcare: EBITDA Margin to contract by 180bp

EBITDA Margin (%)

22.9

20.7

22.1 22.4

23.0

21.3

23.0

23.7 24.2 24.0

25.5

26.4

24.0

23.7

21.6 22.0

19.4

*4QFY15(excluding sun pharma): 21%

Source: Company, MOSL

MEDIA





We expect 14% aggregate PAT growth in 1QFY16 but 23% growth ex-ZEE.

Earnings growth is expected to be divergent. Among the print companies, DB

corp is expected to see pressure on its advertising revenue led by continued

weakness in demand from key segments. This coupled with increased launch

and start-up expenses are expected to keep PAT under pressure. Print

companies (ex-DB Corp) are also expected to see a flat bottom-line YoY. Benign

newsprint prices will provide some solace. While ZEE’s earnings would be

impacted by increased &TV and sports losses. Earnings are expected to remain

flat for SUNTV led by likely escalation in content costs. Pay TV operators (DISHTV

and HATH) are expected to report improved profitability in the form of lower

losses in the case of Hathway. Dish too is expected to continue its PAT +ve

streak after its PAT turnaround in 4Q.

We expect our universe ad revenue growth to recover to 9% YoY vs 7% each in

4QFY15 and FY15. ZEE would be the only media company to report more than

20% ad growth on the back of its new channel launch. Our industry interactions

indicate that growth remained soft for most of 1QFY16, with likely pick-up in 2H.

July 2015

19

India Strategy | Getting on track!

Exhibit 39:

Media: Quarterly PAT (INR b)

7.4

4.3

4.7

5.3

5.8

4.6

5.9

4.8

4.9

5.6

5.3

5.8

6.4

Source: Company, MOSL

METALS













Although steel demand is gradually improving with single digit growth, the

continuous pressure of imports has been shrinking market for domestic mills.

Post a poor 4QFY15, we expect our Metals coverage universe to post another

weak quarter, with aggregate EBITDA declining 32% YoY (growing 7% QoQ)

amidst lower metal prices (ex-Zinc) and persisting imports.

We have cut EBITDA estimates for steel companies by 3-10% on lower

realizations.

While LME aluminum was largely unchanged QoQ (at USD1,800/ton), spot

premiums came under significant pressure.

Zinc prices were supportive in the quarter, up 5% QoQ / 6% YoY to USD2,192.

Volumes would be up ~30% YoY, but due to more than tripling of royalty YoY

(due to DMF), we expect EBITDA to increase by just 12% YoY for Hindustan Zinc.

We cut our LME (aluminum) assumption from USD1,900/ton to USD1,800/ton

for FY16, and from USD1,950/ton to USD1,900/ton for FY17. Thus, our EBITDA

estimates for Hindalco and Nalco are cut by 5% for FY16 and by 25% for FY17.

Our target prices are cut from INR206 to INR179 for Hindalco, and from INR77 to

INR72 for Nalco. For Vedanta, we cut our EBITDA estimates for FY16 and FY17 by

1%, and trim our target price from INR209 to INR177 on lower aluminum LME

and spot aluminum/zinc premiums, offset by higher INR/USD assumptions.

Exhibit 41:

Steel sales volume to increase

SAIL

9.4

2.4

3.2

2.3

Tata Steel

7.8

2.6

2.6

2.0

8.9

3.1

3.0

2.0

8.9

3.1

3.0

2.1

SAIL

9.7

3.1

3.5

2.4

JSW Steel

8.5

2.9

2.8

2.1

8.8

3.1

2.9

2.1

JSPL

8.7

3.0

2.9

2.1

9.4

3.1

3.2

2.4

9.3

3.0

3.3

2.1

Exhibit 40:

India steel – EBITDA/ton (INR)

Average

20,000

15,000

10,000

5,000

0

JSW Steel

Tata Steel

JSPL

Source: Company, MOSL

Source: Company, MOSL

July 2015

20

India Strategy | Getting on track!

OIL & GAS











Including DBTL, expect 1QFY16 under recoveries at INR91b (-68% YoY). While

the DBTL component will be compensated by government, sharing of non-DBTL

and kerosene subsidy is not yet clear.

Regional benchmark, Reuters Singapore GRM was up 40% YoY but down 6%

QoQ to average at USD8.1/bbl led by higher gasoline cracks.

In petchem, polymer (PE, PP, PVC) as well as polyester (POY, PSF) spreads were

up YoY and QoQ, however polyester QoQ increase was marginal.

OMC’s demonstrate pricing power by tweaking marketing margins, lower QoQ.

While upstream PSU’s are expected to report strong numbers led by almost nil

subsidy, still await clarity on long term subsidy sharing

RIL’s standalone PAT is expected to be up 10% YoY to ~INR62b led by higher

petchem margin and GRM, partly negated by lower E&P profits.

Exhibit 43:

Reuters Singapore GRM was up 40% YoY but down

6% QoQ to average at USD8.1/bbl

Reuters Singapore GRM (USD/bbl)

120

105

90

75

60

45

30

15

0

10

9

8

7

6

5

4

3

2

1

0

1QFY04 1QFY06 1QFY08 1QFY10 1QFY12 1QFY14 1QFY16

Exhibit 42:

Diesel into over recovery zone post deregulation

Diesel (under)/over recovery (INR/ltr)

Brent crude price (USD/bbl) - RHS

6

3

0

(3)

(6)

(9)

(12)

(15)

Jun-12 Dec-12

Jul-13

Jan-14 Aug-14 Feb-15

Source: Bloomberg, MOSL

Source: Bloomberg, MOSL

REAL ESTATE

Economic recovery overhang delays realty pick-up

Over 1QFY16, the BSE Realty index underperformed the broader index by ~14%, as

the muted macro outlook and slow pace of on-ground recovery continued as major

overhangs. Affordability remains a dampener in most markets, led by (a) higher

price, (b) mismatch in product proposition, and (c) delay in economic revival.

Investor participation is weak and the end-consumers’ decision making time is yet to

contract. Prices are range-bound and time correction is underway.

Launch momentum slow; presales to weaken

Launch momentum was slow in 1QFY16; developers continue to wait for approvals

under new regulations (Mumbai, Chennai) or demand pick-up. Select launches by

Godrej Properties (Prime,

Icon

in Mumbai), Sobha Developers (Dream

Acres

in

Bangalore), Lodha (Central in Thane, Mumbai) did well. Broader presales

momentum is slow in all market including Bangalore. QoQ, we expect lower presales

for our coverage universe.

July 2015

21

India Strategy | Getting on track!

The NCR market showed marginal improvement on the residential front, with

approval for Dwarka Expressway expected to drive demand. DLF’s

Camellia

would

post stable momentum. Discount schemes and innovative offerings are in full swing.

Developers like Tata Housing resorted to online property auctions and sales to

offload inventory. Operating cash flows for most companies would remain sub-

normal, resulting in rise in gearing levels.

PE activities strong; commercial market picking up gradually

Though private equity (PE) players remain upbeat on Indian real estate, the quarter

witnessed the exit of key PE players like ASK group and Milestone in certain projects.

The commercial asset class is showing positive signs towards recovery in the NCR

and Bangalore markets, with rentals picking up and demand outpacing supply.

Exhibit 44:

Quarterly Trend in Presales value (INR b)

Presales (INR b)

FY11 FY12 FY13 FY14

NCR Centric developers

102.6 90.9

DLF

59.4 52.9

Unitech

43.2 38.1

Mumbai Centric developers

79.1 39.6

IBREL

48.4 19.5

HDIL

20.7 10.6

ORL

10.1 9.5

Bangalore Centric developers 32.4 46.8

Sobha

10.9 17.4

PEPL

13.8 20.6

Purva

7.6

8.8

Brigade

Diversified

16.9 18.9

MAHLIFE

7.0

6.0

GPL (own stake)

10.0 12.8

66.3

38.2

28.1

38.7

30.0

-

8.7

68.2

22.2

31.1

14.9

7.9

18.8

4.4

14.4

1Q

2Q

FY15

3Q

4Q

21.5

19.8

1.7

21.8

5.5

4.0

12.3

21.2

6.3

10.1

1.3

3.5

4.2

2.5

1.7

FY15 YoY, %

46.9

38.6

8.3

52.1

20.3

14.1

17.7

86.6

21.0

43.7

14.2

14.3

17.7

7.0

10.7

-36

-22

-64

1

-48

89

247

-23

-39

-15

-45

-29

-33

16

-47

55.8 6.5 11.1 7.9

40.7 3.1 9.2 6.5

15.1 3.4 1.9 1.4

39.7 10.0 8.3 12.0

30.7 5.6 4.0 5.2

5.6

3.0 3.3 3.8

3.4

1.4 1.0 3.0

75.7 21.4 23.2 20.9

23.4 4.8 5.6 4.3

36.3 13.1 12.9 7.6

16.0 3.5 4.7 4.8

13.4 2.5 4.1 4.2

16.3 4.1 3.9 5.4

3.7

0.5 0.9 3.1

12.6 3.6 3.0 2.3

TECHNOLOGY







We expect aggregate reported USD revenue growth of 2.6% QoQ across top tier

IT companies in 1QFY16, with TCS leading organic growth at 4.1% QoQ in CC

terms. Energy segment at WPRO and Telecom at TECHM will drag the

performance across those two companies. Tier II IT companies are expected to

fare in a similarly polarized fashion, with aggregate growth estimated at 2.4%

QoQ. PSYS, KPIT, CYL and MPHL all face specific headwinds to their portfolio.

While INR appreciation of ~2.%+ QoQ along with relatively stable global

currencies is a tailwind to margins, wage hikes at TCS, INFO and WPRO, and

growth issues in TECHM will offset the impact from the same. Only HCLT in tier-I

should see expansion in margins.

Across tier I, our aggregate estimate for PAT growth is 7% YoY, led by TCS (12%).

TECHM should lag with YoY decline of 5% due to lower margins. Tier II IT

universe is expected to report a PAT growth of 12% YoY, led by HEXW (+41%

YoY) and MTCL (+18% YoY). KPIT is expected to lag (-17% YoY).

July 2015

22

India Strategy | Getting on track!

Exhibit 45:

WPRO, TECHM to lag peers; expect TCS, CTSH to

benefit from 1Q seasonality

9

7

5

3

1

-1

4.1

3.0

2.7

0.8

(0.1)

TCS

Infosys

Wipro

Exhibit 46:

Tier-II IT performance impacted by several client

specific issues during the quarter

Persistent Systems Hexaware

KPIT Tech.

Mindtree

Mphasis

8.5

7.8

5.6

5.0

4.2 4.1

3.6

4.0

1.4

1.5

1.2

0.3 0.1

0.9

0.6

0.5

-0.4

-3.4

2QFY15

-3.2

-5.6

3QFY15

4QFY15

1QFY16E

Source: Company, MOSL

Source: Company, MOSL

Exhibit 47:

Ex-TECHM, CC YoY revenue growth is not expected

Exhibit 48:

Technology growth is expected to be one of the

to witness deceleration

lowest ever

3QFY15

4QFY15

1QFY16E

Technology PAT grw YoY (%)

35 35

20

13

24 26

19

30

15 17

34

39

25

13 11

6

7

TCS

INFO

WPRO

HCLT

TECHM

CTSH

Source: Company, MOSL

Source: Company, MOSL

TELECOM





YoY earnings rebound to remain strong, with PAT for Bharti/Idea growing

21%/36% YoY. PAT growth for Bharti Infratel should remain healthy at 16%.

We expect ~19/29% YoY India mobile EBITDA growth for Bharti/Idea supported

by wireless traffic growth and continued momentum in data business. Voice

RPM is likely to be under pressure

Exhibit 49:

Telecom: Quarterly PAT (INR b)

Bharti (India)

Idea

19.4

13.9

8.9

2.3

2.1

2.4

2.5

2.3

2.5

10.8

3.8

2.9

14.8

4.9

3.6

14.0

4.5

4.7

5.9

4.7

7.3

4.6

7.6

4.7

7.7

5.1

9.4

23.8

Bharti Infratel

21.8

23.0

25.6

25.5

24.7

15.8

9.9

5.4

2.8 4.1

5.6

Source: Company, MOSL

July 2015

23

India Strategy | Getting on track!

UTILITIES







In April-May 2015, all-India generation grew 3% YoY, led by similar 3% YoY

growth in coal generation, while gas based generation de-grew by 14% YoY.

Generation growth for the month of April stood at 0.3% YoY, while on set of

summer led to rather better generation of 6% YoY in the month of May 2015.

Coal project PLF has remained range-bound at ~63%.

Power demand stood flat YoY for the period April-May 2015, comprising of

demand de-growth in the month of April to the tune of 3.5% YoY offset by 2.3%

YoY improvement in demand in May 2015. Subdued demand growth is partly

led by poor DISCOMs financials, while our interaction with industry indicates

real slowdown too impacting demand. Over the same period, power supply

increased by 1.1% YoY, leading to base deficit of 2.3%, vs 4.1% YoY.

We expect Utilities companies in our coverage to report revenue growth of 7.2%

YoY and PAT growth of 8.7% YoY in 1QFY16. Aggregate PAT would be negatively

impacted by de-growth in PAT for JSW energy, and higher losses for RattanIndia

Power. However, NTPC (up 17% YoY), Powergrid (up 12% YoY), Coal India (up 6%

YoY) and Tata Power (up 63% YoY) would report robust PAT growth.

Exhibit 51:

Monthly generation appears flattish

All India Generation (BUs)

27

13

4 6

6 7

0

1

6 7

0

5

12

16

7

1113

4

Gr (YoY, %)

14 11

6

Exhibit 50:

Coal project PLFs remain range-bound

Coal Generation (BUs)

PLF (%)

10

3

-7

6

0

Source: CEA

Source: CEA

Exhibit 52:

Power demand remain muted (BUs)

FY14

2.3%

FY15

YTDFY16

Gr (%)

Exhibit 53:

Base deficit remains subdued (%)

12

9

6

3

YTD FY16

FY13

FY14

FY15

-3.5%

0

April May June July Aug Sept Oct Nov Dec Jan Feb Mar

Source: CEA

2.2

2.4

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Source: CEA

July 2015

24

India Strategy | Getting on track!

Exhibit 54:

Peak deficit too trends lower (%)

16

13

10

7

4

1

-2

3.5

2.3

YTDFY16

FY13

FY14

FY15

Exhibit 55:

ST prices cool remain soft (INR/unit)

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Source: CEA

Source: IEX

July 2015

25

India Strategy | Getting on track!

Intra-sector 1QFY16 earnings divergence (%)

Sectors

Sector

Growth (%)

+30% Growth

15-30% growth

0-15% growth

-ve earnings

growth (%)

Earnings

momentum

High growth sectors

Media

36

Telecom

Capital Goods

Banks - Private

23

18

17

PVRL: 152%, SUNTV: 40%

DITV: LP

IDEA: 36%

SIEM: 878%, BHE: 117%,

TMX: 54%

JAGP: 27%

Z: 0%

BHARTI: 21%,

BHIN: 16%

ABB: 28%,

CRG: 14%, HAVL: 11%,

KKC: 19%

LT: 9%

YES: 29%, IIB: 24%, FB: 15%, KMB: 12%,

HDFCB: 20%,

ICICIBC: 12%

AXSB: 18%

PIDI: 30%,

DABUR: 26%,

SKB: 19%,

CLGT: 16%

DBCL:-15%,HTML:-49%, 3

1

1

4

HATH:Loss,SCNL:Loss

RCOM: -4%

1

2

0

1

VOLT: -6%,

BHEL: -8%

DCBB: -3%

3

2

3

2

0

4

3

1

Medium/Low growth sectors

Consumer

14

JYL: 59%, GCPL: 52%,

BRIT: 48%, UNSP: LP

Retail

NBFC

11

9

SHOP: 335%,

JUBI: 51%

MRCO: 14%, APNT: 14%,

RDCK: 13%, HUVR: 12%,

HMN: 6%, ITC: 5%,

NEST: 1%

TTAN: 3%

4

4

7

0

2

0

1

0

Utilities

9

Oil & Gas

(Ex Rms)

Technology

7

7

MMFS: 27%,

RECL: 9%, POWF: 7%,

IHFL: 25%,BAF: 24%, SHTF: 4%, HDFC: 1%,

LICHF: 20%,DEWH: 18%,

IDFC: 1%

REPCO: 18%

TPWR: 63%

PTCIN: 28%,

CESC: 14%, PWGR: 12%,

JSW: -24%,

NTPC: 17%

COAL: 6%,NHPC: 3%,

RTPOW: Loss

RELI: 0%

HPCL: 1399%, ONGC: 41%,

GUJS: 25%,

GAIL: 12%, RIL: 10%, IOCL: -9%,BPCL : -11%,

MRPL: LP

OINL: 18%

PLNG: 4%

IGL: -13%, CAIR: -57%

HEXW: 41%

TELX: 21%,

TCS: 12%, WPRO: 7%,

PSYS: -3%,

MTCL: 18%

MPHL: 6%, INFO: 4%,

TECHM: -5%,

HCLT: 1%

KPIT: -17%

ALPM: 126%, CDH: 50%,

CIPLA: 41%, GLXO: 36%

MSIL: 77%, BHFC: 54%,

EIM: 54%, TVSL: 46%,

AL :LP

IBREL: 60%,

OBER: 54%

TRP: 25%,

DIVI: 21%

AMRJ: 19%,

BJAUT: 17%

GPL: 22%,

PEPL: 21%

0

6

5

0

1

2

5

2

3

2

3

4

5

3

1

2

PAT degrowth sectors

Healthcare

-1

Autos

-7

GNP: 10%, DRRD: 6%, SANL:-3%,LPC:-10%,

4

2

ARBP: 6%, BIOS: 1% SUNP:-28%,IPCA:-78%

HMCL: 13%,

MM: -20%,

EXID: 8%

TTMT: -31%

5

2

PHNX: 5%

4

4

2 2

Real Estate

-11

Banks - PSU

-27

Cement

-33

Metals

-52

Earnings momentum:

SOBHA: -5%,

2

2

1

3

DLFU: -14%,

MLIFE: -81%

INBK: 4%,

BOB: -44%,

0

0

SBIN: 1%

UNBK: -48%,

2

4

BOI: -49%, PNB: -58%

TRCL: 234%

UTCEM/ACC: -27%,

1

0

GRASIM: -38%,

0

6

SRCM:-79%ACEM:-40%,

ICEM: Loss

HZ: -3%, VEDL: -14%,

NACL:-18%,HNDL:-38%, 0

0

0

9

NMDC:-42%,JSTL:-90%,

JSP: PL, SAIL: PL,

TATA: PL

Represents number of companies in each of the growth brackets; PL: Profit to Loss; LP: Loss to Profit

July 2015

27