Voices: This quarterly report contains

Contents

Summary

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

Concall Audio Links

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

Sectors.................................................................................................................................................................................... 9-141

Automobiles

10-18

Ashok Leyland ...............................10

Bajaj Auto .....................................10

Bharat Forge .................................11

BOSCH ...........................................12

Eicher Motors ...............................12

Endurance Tech. ...........................13

Escorts ..........................................14

Hero MotoCorp. ............................15

Mahindra & Mahindra ..................15

Maruti Suzuki ................................16

Tata Motors ..................................17

TVS Motors ...................................18

Capital Goods

19-33

ABB ...............................................19

BHEL ..............................................20

Blue Star........................................21

Crompton Greaves CG ..................22

CG Power Industrials.....................23

Cummins .......................................24

GE T&D India .................................25

Havells India ..................................27

KEC International ..........................28

L&T................................................29

Thermax ........................................30

Va Tech Wabag .............................31

Voltas ............................................32

Cement

34-38

ACC ...............................................34

Birla Corp ......................................35

Dalmia Bharat ...............................35

Grasim Inds ...................................35

India Cements ...............................36

JK Cement .....................................36

JK Lakshmi Cements ......................37

Ultratech Cement .........................37

Consumer

39-54

Asian Paints...................................40

Britannia Inds ................................41

Dabur India ...................................42

Emami .......................................... 43

Godrej Consumer ......................... 44

GSK Consumer.............................. 45

Hindustan Unilever ...................... 47

Jyothy Labs ................................... 47

Manpasand Bev............................ 49

Marico .......................................... 49

Parag Milk Foods .......................... 50

Page Inds ...................................... 51

Pidilite Inds ................................... 51

United Breweries ......................... 52

United Spirit ................................. 53

Financials- Banks

55-67

Axis Bank ...................................... 56

Bank of India ................................ 56

Canara Bank ................................. 57

DCB Bank ...................................... 58

Federal Bank ................................ 58

HDFC Bank.................................... 59

ICICI Bank ..................................... 60

Indian Bank .................................. 61

IndusInd Bank............................... 61

J&K Bank ...................................... 62

Kotak Mahindra Bank ................... 63

State Bank of India ....................... 64

South Indian Bank ........................ 65

Union Bank ................................... 65

Yes Bank ....................................... 66

Financials – NBFC

68-80

Bajaj Finance ................................ 68

Bharat Financial............................ 69

Chola Inv.& Fin ............................. 70

Dewan Housing Finance ............... 71

Equitas Holdings ........................... 72

IndiaBulls Housing Finance ........... 72

L&T Finance .................................. 73

LIC Housing Fin ............................. 74

M&M Financial ............................. 75

Muthoot Finance .......................... 76

PNB Housing................................. 77

Repco Home Fin ........................... 77

Shriram City Union Fin .................. 78

Shriram Transport Finance ........... 79

Healthcare

81-88

Alembic Pharma ........................... 81

Alkem Labs ................................... 82

Aurobindo Pharma ....................... 82

Biocon........................................... 83

Cadila Healthcare ......................... 83

Cipla .............................................. 84

Dr Reddy’s Labs ............................ 85

Glenmark Pharma......................... 85

Lupin ............................................. 86

Sun Pharmaceuticals .................... 87

Strides Shasun .............................. 87

Torrent Pharma ............................ 88

Media

89-104

D B Corp........................................ 89

Entertainment Network ............... 91

Hindustan Media .......................... 93

HT Media ...................................... 94

Jagran Prakashan .......................... 95

Music Broadcast ........................... 97

PVR ............................................... 99

Siti Network .................................. 99

Sun TV Network .......................... 100

Zee Entertainment...................... 102

Metals

103-107

Hindalco Inds .............................. 105

Hindustan Zinc ............................ 106

JSW Steel .................................... 106

Tata Steel .................................... 107

Oil & Gas

108-110

GAIL India ................................... 108

HPCL ........................................... 109

Indian Oil .................................... 109

ONGC .......................................... 109

Reliance Inds .............................. 110

Retail

111-113

Jubilant Foodworks..................... 111

Companies

Indo Count

IndusInd Bank

Info Edge (India)

Infosys

Interglobe Aviation

J&K Bank

Jagran Prakashan

JK Cement

JK Lakshmi Cements

JSW Energy

JSW Steel

Jubilant Foodworks

Jyothy Labs

Kaveri Seed

KEC International

Kotak Mahindra Bank

KPIT Technologies

L&T

L&T Finance

L&T InfoTech

LIC Housing Fin

Lupin

M&M Financial

Mahindra & Mahindra

Manpasand Bev

Marico

Maruti Suzuki

MCX

Mindtree

Mphasis

Music Broadcast

Muthoot Finance

NIIT Technologies

ONGC

Page Inds

Parag Milk Foods

Companies

ABB

ACC

Alembic Pharma

Alkem Labs

Allcargo Logistics

Ashok Leyland

Asian Paints

Aurobindo Pharma

Axis Bank

Bajaj Auto

Bajaj Finance

Bank of India

Bharat Financial

Bharat Forge

Bharti Airtel

Bharti Infratel

BHEL

Biocon

Birla Corp

Blue Star

BOSCH

Britannia Inds

BSE Ltd

Cadila Healthcare

Canara Bank

Castrol

CEAT

CG Power Industrials

Chola Inv.& Fin

Cipla

Container Corp

Crompton Greaves CG

Cummins

Cyient

D B Corp

Dabur India

Index (Alphabetical)

Titan ............................................112

Technology

114-122

Cyient ..........................................115

HCL Tech .....................................115

Hexaware Technologies ..............116

Infosys .........................................116

KPIT Technologies .......................117

L&T InfoTech ...............................117

Mindtree .....................................118

Mphasis ......................................119

NIIT Technologies........................119

Persistent Systems ......................120

TCS ..............................................120

Tech Mahindra ............................121

Wipro ..........................................121

Zensar Technologies ...................122

Telecom

123-131

Bharti Airtel.................................123

Bharti Infratel..............................125

Idea Cellular ................................127

Tata Comm..................................129

Utilities

132-132

JSW Energy .................................132

Others

133-141

Allcargo Logistics.........................133

BSE Ltd ........................................133

Castrol ........................................133

CEAT............................................134

Container Corp............................134

Delta Corp ...................................135

Gateway Distripark .....................136

Indo Count ..................................136

Info Edge (India) ..........................137

Interglobe Aviation .....................138

Kaveri Seed .................................139

MCX ............................................139

PI Industries ................................140

Quess Corp..................................140

Team Lease .................................141

SH Kelkar .....................................141

120

140

110

141

100

129

107

120

141

121

112

373

121

102

122

133

123

125

133

134

115

Companies

Dalmia Bharat

DCB Bank

Delta Corp

Dewan Housing Finance

Dr Reddy's Labs

Eicher Motors

Emami

Endurance Tech

Entertainment Network

Equitas Holdings

Escorts

Federal Bank

GAIL India

Gateway Distripark

GE T&D India

Glenmark Pharma

Godrej Consumer

Grasim Inds

GSK Consumer

Havells India

HCL Tech

HDFC Bank

Hero MotoCorp

Hexaware Technologies

Hindalco Inds

Hindustan Media

Hindustan Unilever

Hindustan Zinc

HPCL

HT Media

ICICI Bank

Idea Cellular

India Cements

IndiaBulls Housing Finance

Indian Bank

Indian Oil

135

108

136

115

116

105

106

109

127

109

136

137

116

138

132

106

111

139

117

139

118

119

109

Companies

Persistent Systems

PI Industries

Pidilite Inds

PNB Housing

PVR

Quess Corp

Reliance Inds

Repco Home Fin

SH Kelkar

Shriram City Union Fin

Shriram Transport Finance

Siti Network

South Indian Bank

State Bank of India

Strides Shasun

Sun Pharmaceuticals

Sun TV Network

Tata Comm

Tata Motors

Tata Steel

TCS

Team Lease

Tech Mahindra

Thermax

Titan

Torrent Pharma

TVS Motors

Ultratech Cement

Union Bank

United Breweries

United Spirit

Va Tech Wabag

Voltas

Wipro

Yes Bank

Zee Entertainment

Zensar Technologies

Note:

All stock prices and indices are as on 20th November 2017, unless otherwise stated.

Voices | 2QFY18

2QFY18 | India Inc on Call

Voices

BSE Sensex: 33,478

S&P CNX: 10,327

Consumption reviving; GST settling down

Commentary turns more optimistic; however, private capex revival still

sometime away



2QFY18 earnings performance and management commentaries indicate tell-

tale signs of demand revival, especially in rural consumption. The first quarter

post GST implementation came with attendant anomalies, especially in

accounting. However, corporate commentaries suggest gradual return of

normalcy in trade channels. As GST settles down further, India Inc expects

demand trends to strengthen in 2HFY18. 2QFY18 has come as breath of fresh

air after many quarters of misses, disappointments and downgrades. Earnings

quality has also improved substantially, as discussed in greater detail in our

recently released

India Strategy.

B2C sectors like Consumer, Retail, Autos, Durables, and Cement benefitted

from re-stocking post GST implementation. Early festive season helped too, as

inventory filling happened in September in CY17 versus October in CY16 (and

hence, captured in 3QFY17 results). Jewelry and Modern Retail were the key

beneficiaries of an early festive season.

In BFSI, slippages declined in 2QFY18, though provisioning costs remain high.

The sharp divergence in loan growth between Private and PSU Banks

continues. Managements across the board have guided significant reduction in

slippages, going forward. Given the recent hardening of bond yields,

incremental benefits from lower cost of funds seem largely behind. NBFCs

delivered another quarter of consistent and broad-based growth, with

continued recovery in MFI post demonetization. Competitive intensity

continues to inch up in Housing Finance.

For Consumer, 2QFY18 was one of the best quarters of broad-based delivery in

recent times, with double-digit profit growth. Management commentaries

point towards ensuing demand revival in 2HFY18, especially in Rural India, as

GST-related glitches recede and trade supply chains revert to normalcy in

wholesale and rural markets. Recent changes in GST rates should lead to

pricing actions, in-turn boosting demand. Most companies also spoke about

cost-cutting projects underway, reflected in widespread savings in other

expenses. In Autos, most OEMs expect volume growth to sustain/improve in

2HFY18. Companies, however, pointed out commodity cost inflation and need

for pricing action.

In Oil & Gas, companies guided strong benchmark refining margins in light of

heavy unplanned shutdowns across the globe. Indian refiners are expected to

benefit. Private players continue to be marginalized in marketing of petroleum

products.

Pharmaceutical companies continued to highlight persistent pricing pressure

in US markets even as domestic business benefitted from re-stocking in

2QFY18. In Metals, management commentary on demand was optimistic.

Government spending is expected to be the key trigger for growth. There is

some renewed optimism in the sector. Companies with strong balance sheets

are evaluating expansion opportunities, including inorganic expansion.

November 2017

Voices | 2QFY18

Capital Goods companies shared a cautious stance on order inflow, given near-

term disruption caused by GST implementation. On the execution front, there

was a slowdown, with GST transition impacting projects under execution.

Execution is expected to pick up in 2HFY18.

Autos



Most OEMs expect an improvement in FY18 volumes, with double-digit growth

in PVs and tractors. The 2W industry should see higher single-digit growth, led

by return of volumes from rural markets, expectations of good monsoon, and

better economic growth. GST impact for most OEMs is neutral on volumes;

however, there is some impact on financial accounting. Higher GST on hybrid

vehicles is resulting in a shift from hybrid to non-hybrid vehicles. Commodity

price inflation could put further pressure in 2HFY18, as the prices of key

commodities are on an uptrend.

Capital Goods



Most Capital Goods companies shared a cautious stance on order inflow, given

near-term disruption caused by GST implementation. Companies expect

ordering activity to pick up gradually. Segments like transmission, renewables,

defense, roads, and railways continue to show traction. On the execution front,

there is a slowdown – GST transition has impacted projects under execution.

Execution is likely to pick up in 2HFY18. Competitive intensity remains high.



In Consumer Durables, restocking has started to pick up gradually. However,

secondary demand remains muted, with advance purchases by customers in

June 2017 on de-stocking discounts given by dealers.

Cement



Companies expect demand revival to begin from 2HFY18, led by pick-up in rural

demand on the back of good monsoon. With no capacity additions coming up

for the next 18-24 months in the North, utilizations are expected to improve,

leading to better prices, and hence, better realizations. The recent increase in

petcoke prices is likely to impact the cost curve of cement companies in 2HFY18.

Additionally, higher diesel prices and busy season surcharge in rail transport

would increase freight cost.

Consumer



Post GST, the trade channels are getting back to normal and consumer off-take

has improved. Rural outlook appears buoyant, with companies like HUL, Marico

and Dabur reporting either similar or faster growth in rural sales compared to

urban sales after a long time. Worries on both the wholesale channel and rural

sales are receding faster than expected. Importantly, rural sales have started

gaining momentum even before the benefits of good monsoon and government

initiatives like DBT, MSP increases and farm loan waivers have started to come

in. The much-vaunted earnings revival in the sector appears poised to come

through, and rural-dependent plays are likely to be at the vanguard.

Financials



The government has announced a PSU Bank recapitalization plan amounting to

INR2.1t, which comprises of(i) front-ended capital infusion of INR1.35t to be

funded via recapitalization bonds, and (ii) INR760b of capital infusion from

budgetary support and proposed capital raising by the PSU Banks, of which

INR180b will be infused in FY18 as part of the ‘Indradhanush’ plan. Operational

performance improved in 2QFY18, with fresh NPL accretion declining for most

PSU and Private Banks (barring divergence-related impact for AXSB and

YES).SMA-2 advances have also moderated. Margins for PSU Banks showed early

signs of stabilization, with most PSU banks reporting modest margin expansion



November 2017

Voices | 2QFY18

on the back of lower interest reversals, as slippages have slowed down. CASA

growth continues uninterrupted despite several large banks lowering their SA

rate, which will drive further reduction in funding cost. However, we are now

watchful of the impact of rising bond yields witnessed over the past one month.

The size of watch list/stressed asset pool has declined and most banks have

suggested a decline in slippages over the medium term. However, near-term

credit cost is likely to stay elevated on (1) NPL ageing-related provisions, and(2)

loan loss towards NPL resolution via NCLT. We expect earnings growth to show a

healthy bounce from 2HFY19, as core income growth revives, margin pressure

eases, and the investment cycle begins to show some recovery.

Healthcare



Post GST, domestic business of Pharma companies has improved on the back of

channel re-filling at stockiest level to near pre-GST level. In 1QFY18, companies

lost ~30 days of sales, as inventory days came down to 17 days from a peak of

43 days. In 2Q, companies recovered almost 15 days of sales and expect further

5-10 days of recovery in 3QFY18. For FY18, although 6-8 days of sales may be

lost, companies expect domestic business to grow in low teens.



As price erosion and channel consolidation continues, companies expect US

business to improve, as intensity of price erosion comes down. Price erosion is

expected to come down from high double-digits to low double-digits, while

some companies expect price erosion to bottom out during the quarter.



US business is expected to improve from 2HFY18,as large companies (including

Sun Pharma, Lupin, Dr Reddy’s) expect approval of key products and resolution

at key facilities.

Media



Marred by demonetization and GST in the previous quarters, our Media

universe witnessed some solace, with the onset of the festive season in 2QFY18.

However, November-December 2017 would be the decisive period –

performance post the festive season would help ascertain whether the ad

growth is sustainable.



Broadcasters within our coverage universe expect to match TV industry ad

revenue growth of 12-14%.



Regulatory uncertainty around the implementation of the new tariff order

continues to be contested in courts. In terms of content, companies are

expected to opt for diverging strategies to protect their viewership shares (for

example, Zee plans to target Kerala and Punjab through green-field organic

expansion and is expected to step up its investment in movies, while Sun TV is

focused on improving its share in Telugu). Within the distribution pack, the

outlook on both ARPU and subscriber addition remains somber. The Print pack is

expected to see a recovery in ad volumes in FY18, as the demonetization and

GST impact is largely behind.

Metals



Management commentary on demand was optimistic. Government spending is

expected to be the key growth trigger. There is renewed optimism in the sector.

Companies with strong balance sheets are evaluating expansion opportunities,

including inorganic expansion. Hindalco and Vedanta are positive on aluminum

prices, given stricter environment measures adopted by China. Vedanta is also

positive on zinc prices, given the closure of large mines and steady demand

growth. In steel, long-product prices are expected to remain weak in the near

term, but improve as domestic demand picks up. GST disruption is largely

behind and volume benefit in 2Q was partly aided by re-stocking following GST

disruption in 1Q.

November 2017

Voices | 2QFY18

Oil & Gas



Gas consumption has begun increasing, led by higher availability of domestic gas

and higher LNG imports. This is expected to continue in the next few quarters.

However, increase in consumption of gas due to absence of sufficient domestic

coal with power producers may wane.



Benchmark refining margins should stay strong, in light of heavy unplanned

shutdowns across the globe. Indian refiners would benefit. Private players

continue to be marginalized in marketing of petroleum products.

Retail



Titan stated that festive season sales were good. Sales from 21st September to

31st October were up 16-17% YoY. If not for PMLA, growth would have been

even better, despite high base of 50% sales growth in the festive season last

year. Management maintained that market share gains were happening across

large, medium and small towns. There was a definite change in the tone of

management commentary – the management is now saying that it would give

up ‘margin expansion’ for growth instead of saying that it might give up

‘margins’ in the quest for growth. Jubilant Foodworks expects store openings to

resume in 3Q and 4Q. It intends to open 30-40 stores this year compared to

earlier guidance of 40-50 stores. There has been healthy growth after product

refreshment in August. The management did not comment on its sustainability

after a couple of months after launch.

Technology



Growth commentary for FY18 looks moderate for most companies on a constant

currency, organic basis. A full-thrust recovery still seems elusive, as the BFSI and

Retail verticals have been soft, though the description of worries around Retail

appears to be better for some players. The profitability surprise in the quarter

was led by favorable currency movement and increased operational efficiencies.

This resulted in optimism going forward too, mainly hinged on to further

headroom on operational parameters.

Telecom



While data volume growth has been buoyant, lower ARPU packs have pulled

down pricing and revenues. The next 2-3 quarters may see high competitive

intensity, but expect ARPU accretion, as RJio has taken four price actions since

turning paid, signaling ARPU accretion, which has been hostage to competition.

Bharti’s capex intensity is likely to remain high in FY18 to continue 4G network

rollout, even though capacity has far outstripped demand. Idea’s capex intensity

has reduced.

Utilities



Overall, electricity demand is expected to improve, driven by measures like

UDAY and focus on ‘Make in India’ and ‘Power for All’. Electricity demand

growth was relatively strong in 2Q. Spot power prices were higher in 2Q due to

domestic coal shortage, but are likely to normalize soon, as coal supply

improves. There is no visibility on long-term PPAs; however, companies are

evaluating opportunities in short-term and medium-term contracts. Power Grid

is positive on future growth opportunities from solar, wind and opening up of

the intra-state transmission network. NTPC expects a pick-up in project

execution.

November 2017

Voices | 2QFY18

VOICES: INDIA INC ON CALL

Concall Audio Links for 179 companies

Key takeaways from the post results management

commentary for 145 companies under coverage

Links to the full earnings call transcripts

Links to our Results Updates on each company

November 2017

CONCALL AUDIO LINK

Automobiles

Ashok Leyland

Amara Raja Batt.

Bajaj Auto

Bharat Forge

Bosch

CEAT

Eicher Motors

Escorts

Endurance Tech.

Hero Motocorp

Kirloskar Oil

Mahindra & Mahindra

Mahindra CIE

Maruti Suzuki

Motherson Sumi

TVS Motor Co.

Banks & Financials

AU Small Finance

Axis Bank

Bajaj Fin.

Bharat Financial

Can Fin Homes

Canara Bank

Cholaman. Inv.& Fn

DCB Bank

Dewan Hsg. Fin.

Equitas Holdings

Federal Bank

HDFC Bank

ICICI Bank

ICICI Lombard General Insurance

ICICI Pru Life

IDFC Bank

IDFC

IIFL Holdings

Indiabulls Hous.

Indian Bank

IndusInd Bank

J & K Bank

Kotak Mah. Bank

LIC Housing Fin.

L&T Fin.Holdings

M & M Fin. Serv.

Manappuram Fin.

Motil. Oswal .Fin.

PNB Housing

RBL Bank

Repco Home Fin.

Shri. City Union.

Shriram Trans.

South Ind. Bank

Union Bank (I)

Yes Bank

Capital Goods

ABB

Blue Star

CG Power & Inds

Crompton Gr. Con

Cummins India

GE T&D India

Engineers India

Havells India

Inox Wind

Larsen & Toubro

Thermax

Va Tech Wabag

Voltas

Cement

Dalmia Bharat

Grasim Inds

India Cements

Heidelberg Cem.

Sagar Cements

UltraTech Cem.

Consumer

Asian Paints

Bajaj Corp

Britannia Inds.

Dabur India

Emami

GlaxoSmith C H L

Godrej Consumer

Hind. Unilever

Jubilant Food.

Jyothy Lab.

Marico

Manpasand Bever.

Parag Milk Foods

Pidilite Inds.

Prabhat Dairy

United Breweries

United Spirits

Healthcare

Alembic Pharma

Alkem Lab

Aurobindo Pharma

Biocon

Cadila Health.

Cipla

Dr Lal Pathlabs

Dr Reddy's Labs

Glenmark Pharma.

Granules India

Jubilant Life

Laurus labs

Lupin

Strides Shasun

Sun Pharma. Inds.

Infrastructure

Ashoka Buildcon

IRB Infra. Devl.

Sadbhav Engg.

KNR Construct.

Media

D B Corp

Den Networks

Ent. Network

Hindustan Media

H T Media

Jagran Prakashan

Music Broadcast

PVR

Siti Networks

Sun TV Network

Zee Entertainment

Metals

Hindalco Inds.

Hind.Zinc

Jindal Steel

Audio Link

JSW Steel

SAIL

Vedanta

Oil & Gas

Castrol India

GAIL (India)

HPCL

IOCL

Mahanagar Gas

ONGC

Petronet LNG

Retail

Jubilant Foods

Titan Company

Real Estate

Oberoi Realty

Godrej Propert.

Mahindra Life.

Technology

BSE

Cyient

HCL Technologies

Hexaware Tech.

Info Edg.(India)

Infosys

KPIT Tech.

L & T Infotech

Mindtree

MphasiS

NIIT Tech.

Persistent Sys

Quess Corp

TCS

Tech Mahindra

Wipro

Zensar Tech.

Telecom

Bharti Airtel

Bharti Infra.

Idea Cellular

Tata Comm.

Utilities

JSW Energy

Tata Power Co.

Others

Allcargo Logist.

Balkrishna Inds

Container Corpn.

Coromandel Inter

Delta Corp

Eveready Inds.

Greaves Cotton

GSFC

Heritage Foods

Interglobe Aviation

Just Dial

Kaveri Seed Co.

Multi Comm. Exc.

P I Inds.

S H Kelkar & Co.

Sterlite Tech.

Transport Corp.

Trident

Vardhman Textile

V-Guard Inds.

NEW

Audio Link

AUTOMOBILE | Voices

Key takeaways from management commentary

AUTOMOBILES

Most OEMs expect an improvement in FY18 volumes, with double-digit growth in PVs and tractors. The 2W

industry should see higher single-digit growth, led by return of volumes from rural markets, expectations of good

monsoon, and better economic growth. GST impact for most OEMs is neutral on volumes; however, there is some

impact on financial accounting. Higher GST on hybrid vehicles is resulting in a shift from hybrid to non-hybrid

vehicles. Commodity price inflation could put further pressure in 2HFY18, as the prices of key commodities are on

an uptrend.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY18



Ashok Leyland



CV industry to grow 5- 10% in FY18.

AL to grow in line with industry.

Regulatory Impact-Volumes



Incremental RM cost pressure yet to reflect

in P&L.

Price increase of 1% from November 2017

in some models.

Impact of GST



Bajaj Auto



Guided growth of ~3% in dom.

motorcycle volumes, growth of ~20% in

2HFY18.

Guided for total 3Wvolume of 570k for

FY18 (growth of ~28%).

Guided 15% CAGR in export volumes

over the next three years.

RE: Producible capacity at ~825k/~900k for

FY18/FY19; can further expand at third plant.

It will continue to add 2-3 dealers/week.

New 650cc Interceptor & Continental GT

would be launched in Apr-18, starting with

Europe & UK.



Further pressure on RM cost in

2HFY18. Price hike of INR500/vehicle

taken in early Nov.

New brand launch in the 125cc

segment, Avenger upgrade in 4QFY18.

In process of launching a modified V.

Estimates market share of 24% in dom.

motorcycle by Mar-18.

Waiting period at 1.5-2 months for Classic

350.

SSG (bookings) is in early teens in top 25

cities.

VECV price hike of 1% for M&HCV in Sep-17.

Discounting levels in M&HCVs are very high.



GST: Savings in

transit time to have

positive impact on

CV demand.



Eicher Motors



GST related

benefits including

input tax credit

passed on to

customers

through price cut.



Hero MotoCorp



Healthy volume growth in urban and

rural markets, with similar growth in 2Q.

Commodity price inflation in 2HFY18,

would take appropriate price increase

(0.6% taken in last week of Sep-17)

New product launches in the premium

motorcycle, scooter segment.

Tractor industry to grow 12-14% (v/s

expectation of 10-12%) in FY18.

PV industry is expected to grow by 10%+

M&HCV industry to remain flat



Impact of loss of excise exemption at

Haridwar (~100bp, partly in FY18 if

State doesn’t compensate) would be

diluted by ramp-up at Halol plant and

Andhra plant

Festive demandwas strong with HMCL

witnessing double-digit retail growth

across its portfolio.

Rural market growth for Auto segment in

2QFY18 remains at 24% while festive

season demand grew 8% for UV and 14%

for tractors. No impact on volume due to

GST was seen.

RM cost pressure to remain in 2HFY18

which can be pass through by price hikes.

Have taken price hike of 1% in UV and 1.5%

in tractors.

With higher GST on hybrid, there is shift

towards non-hybrid variants.

Festival season sales grew double digit.

Inventory levels would be ~2 weeks by end

Oct-17 (normal inventory of 3-4 weeks).

Rural volumes have grown 21.5% in

1HFY18.

JLR’s Fx hedge losses would reduce

substantially from 4QFY18 onwards.

Discounting in M&HCV remains high, with

15-20% increase on YoY basis and marginal

increase on QoQ basis.



Awaits

clarification from

State to claim the

balance 42%

CGST, which is

not compensated

by the Centre.



M&M



Maruti



Tata Motors



Capacities - 2nd line at Gujarat plant will

commission by early CY19.

Guides for producible capacity for FY18 at

1.7m units.

Impact of RM price inflation would reflect in

2HFY18. On YoY basis, commodity prices are

higher by 200bp (% of sales) in 2QFY18.

Maintains 10% retail growth guidance for

FY18 (implied residual growth of 17%) for

JLR.

India business PAT breakeven in FY18.



A shift from hybrid

to non-hybrid

vehicles due to

higher GST



November 2017

AUTOMOBILE | Voices

Ashok Leyland

Current Price INR 115

Click below for

Results Update



Target Price INR 134 | 17% Upside

Buy



Positive outlook maintained:

Domestic CV industry to grow 5-10% in FY18, led

by improving macro situation. AL to grow in line with industry. 3QFY18 to be a

good quarter, but 4QFY18 to have adverse base due to pre-buying in 4QFY17.

iEGR technology

has settled well with customers after initial hiccups. This has

helped AL gain market share in the domestic CV space. 85-90% of AL’s volumes

are iEGR-based.

Price hike:

AL has not taken any price hike during 1HFY18, except BS-IV related

price increase of 8-10%. However, AL took a price hike of ~1% in November to

pass on RM cost increase. Discounts remain high at INR350k on trucks (similar

to1Q). Competitors are offeringINR100k higher discounts. AL stayed away

fromfew deals due to very high discounts.

HFL:

Hinduja Foundries (HFL) turned EBITDA positive, with EBITDA margin

of8.5% in 2QFY18.

LCVs:

LCV business (including three subsidiaries) at EBITDA margin of 8-9%.

Hasturned

PBTpositive for the first time.

Plans to launch 6-7 new products in

next12 months.

Overloading ban in Rajasthan & Uttar Pradesh (UP)

boosting demand.

Otherstates arelooking at stricter implementation of overloading ban.

BS-III inventory:

AL has converted ~85% of total ~12k inventory. ~2k units

havebeenexported and another ~1,500 units would be exported in due course.

Exports

witnessing good profits from Africa and Middle East

markets.Neighboring marketssuch as Sri Lanka and Bangladesh less profitable.

GST:

Savings in transit time will only have positive impact on CV demand.

Capex:

INR5b-6b per annum for balancing/debottlenecking capex. Not lookingat

anygreen-field capacity expansion in the near term.

Net debt of INR21.3b (0.3x

equity). Increase in debt over March 2017 levels

islargely due tohigher working capital requirement, which is expected

tonormalize in due course.

Bajaj Auto



Current Price INR3,243

Click below for

Detailed Concall Transcript &

Results Update



Target Price INR 3,753 | 16% Upside

Buy



Management guided for domestic motorcycle industry growth of ~8-8.5% in

FY18, with BJAUT growing at ~3%. It expects BJAUT to outperform the industry

in 2HFY18, with growth of ~20% in 2HFY18. Consequently, management

estimates a market share of 24% in Mar-18 (v/s 19.5% in Sep 17).

Expects domestic 3W industry growth to clock in ~310k volumes in

FY18(implying

growth of ~22% YoY), led by discontinuation of permits in

Maharashtra, new permits released in Delhi and replacement of 2-stroke

vehicles to 4-stroke vehicles in Bengaluru. Incremental domestic demand of

100k vehicles would be coming from the above-mentioned factors in the next 6-

7 months. The company is deferring 3W export orders in Oct and Nov, and

diverting capacity to the domestic market to meet incremental domestic

demand.

Management has guided for total three wheeler volume of 570k for FY18

(implying growth of ~28% v/s our estimate ~25%).

November 2017

AUTOMOBILE | Voices



Guided for 15% CAGR in export volumes over next three years

on the back of

stability returning in Nigeria, increasing contribution from new/nascent markets,

and substantial growth in Bangladesh and Philippines. Expects exports to clock

1.7m units

in FY18 (v/s our estimate of 1.62m units).

Guided for EBITDA margin to remain in the

20% range

going forward. EBITDA

margin in 2HFY18 to be ~22% (as per company reporting).

Management indicated further pressure on raw material cost in 2HFY18 due to

the continuing uptrend in steel and aluminum prices. Price hike would be taken

as and when management deems appropriate.

On new launches:

A new brand in the 125cc mid-commuter segment would be

launched in 4QFY18. The company would also come out with an Avenger

upgrade and a modified V in 4QFY18.

The company witnessed festive-to-festive retail growth of 25% YoY.

The new /nascent markets currently constitute ~16% of the total export

volumes v/s 10% in FY17. This can go up to 20-22%. These markets are medium

to small geographies with high growth potential. Sales in these markets are

tilted toward higher-end motorcycles.

On the profitability front, management indicated that EBITDA margins in 3W

are ~25%. While Pulsar family margins remain at ~20%, CT100 is EBITDA

negative and Platina has low-single-digit margins. Spares business generates

30% EBITDA margin.

The new Pulsar NS series is doing well and has clocked 42k units in sales in

2QFY18. It has enabled BJAUT to regain 45% market share in the premium (ex

RE) segment.

Management estimates a run-rate of 60k from Pulsar post festive season. It

expects Dominar to sell 7-7.5k units aggregately in the domestic and export

market by Mar 18. They expect the V series and Avenger to register 30k

units/month and 15k units/month respectively, after the new launch in 4QFY18.

Management expects spare parts revenue to grow at 12-15% CAGR over the

next three years.

Tax rate is likely to be 29-30% in H2FY18.

Sales in Nigeria were 23k units in Sep-17 v/s 8k in Apr-17 v/s peak of over 30k.

Sales in Nigeria could average 25k/month in 2HFY18.

BJAUT does not compete with Honda in export market, main competitor is TVS.

Hedging rate would be around INR67/USD for the next one year.

Took price hikes of INR500-1,000/unit in 2W and INR1,500-2,000/unit in 3W in

domestic markets towards the end of May. Export price hike taken on 1st July

and 1st October.

Capex of INR2.5-3b, most of which would be maintenance capex, is outlined for

FY18. No plans of capacity expansion for three wheelers in the near term.

Bharat Forge



Current Price INR698

Click below for

Results Update

Target Price INR 844 | 21% Upside

Buy



The board has appointed Mr. Krishnakumar Srinivasan (ex-President-APAC at

Eaton – vehicle group) to drive new business initiatives.

Outlook remains robust in both automotive and non-automotive segments in

the domestic and exports markets. Growth from foreign subsidiaries remains

November 2017

AUTOMOBILE | Voices

encouraging, given that BHFC’s new aluminum forging capacity is running at

optimum level and that it is witnessing healthy growth from US facility as well.

Outlook for Class 8 trucks: The US class 8 truck build is expected to grow 10-

12% (v/s current run-rate of 270-275k).

The US Oil and Gas exports were flat QoQ; visibility of strong growth based on

several new orders.

The outlook for Aerospace remains positive, as BHFC has secured order for new

platform of aircraft from Boeing.

Its recently acquired US-based subsidiary Walker Forge Tenessee (US), now

hitting a revenue run-rate of ~USD35m (v/s ~USD27m at the time of

acquisition).

Capacity utilization: Capacity utilization at an aggregate level at forging plant

remains at ~70%, while utilization level of machining capacity remains at ~80%.

Management indicated enough scope to sweat existing assets before

committing fresh capex in existing capacities.

Capital expenditure guidance of ~INR3-3.5b for FY18 and FY19 over and above

capex at new AP facility.

BHFC has under taken price increase of INR1,500 per ton in 2Q, and has

indicated price hike in 3Q as well to pass on RM inflation. In exports markets

too, BHFC is negotiating with customers and asking for a price hike of

~EUR100/ton in some cases.

Gaining market share in domestic auto market, led by new products in CV

segment.

Have secured new orders of USD40m across segments over and above orders

secured earlier, the same is currently under ramp-up phase.



Bosch

Click below for

Results Update



Current Price INR 19,388

Target Price INR 19,965 | 3% Upside

Neutral

The management has maintained cautiously optimistic outlook for 2HFY18.

Car multimedia business stopped in 2QFY18 impacting revenues.

Aftermarket marginal negative growth due to GST.

Material cost to remain at this level till localization improves.

Decline in other income was led by lower MTM gains.

EV business would be placed within listed entity, with initial focus on 2W & 3W

segment and later explore other segments.

Eicher Motors

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 30,650

Royal Enfield



Waiting period for best seller Classic 350 model continues remains stable at 1.5-

2 months.



Same-store booking growth is in early teens in top 25 cities.

Target Price INR 34,722 | 13% Upside

Buy

November 2017

AUTOMOBILE | Voices

Capacity expansion update: 3rd plant started operations in Aug-17, and expects

to hit full capacity of ~25k/month by Mar-18. They continue to guide for

producible capacity of ~825k in FY18 and ~900k for FY19 (but has scope to

increase). It can execute line-2 at 3rd plant in 12 months. To ramp-up capacity at

3rd plant, it will have to phase-out capacity at first plant for increasing chrome

plating capacity.

New products Twins 650 (Interceptor and Continental GT)



Would be launched in Apr-18, initially only in Europe and UK market, which

would be gradually ramped up to all other markets internationally as well as in

India (in second half of CY18).



It is hopeful that 650cc twins will boost international business for RE, similar to

what Classic 350 did to India volumes.



Management believes that these products are compelling, differentiated

products and would be the #1 selling products among its offerings in developed

countries. Apart from developed nations, it also targets South East Asia, ASEAN

countries.



Rolling chassis and engine is identical in the twins, difference lies in ergonomics

and styling.



Capacity for new products is fungible, except for engine capacity.



Network expansion: It will continue to add 2-3 dealers/week. Currently it has

~750 dealers in India. Most of it new dealer addition is in small towns, resulting

in lower volumes per dealer and skewed mix towards 350cc.



International network expansion: It opened 1st store in Bali, Indonesia, with this

it has 3 stores in Indonesia (2 in Jakarta). In Oct-17, it opened first store in

Vietnam (4th largest motorcycle market) in Ho Chi Minh City. Also, it opened 1

store each in Austria and France. It now has 30 exclusive stores globally.

VECV



Management indicated marginal loss in market share in the current quarter as a

result of trading off market share for profitability. They expect to regain market

share in coming quarters.



VECV took price increase of ~1% for M&HCV in Sep-17.



MDEP engine volumes at ~9k units – a growth of ~49% YoY (+24% QoQ).



Endurance Technologies

Current Price INR 1,203



Target Price INR 1,334 | 11% Upside

Buy

Click below for

Results Update



Steady growth riding on premiumization, increasing content per vehicle:

Management has guided 8-10% growth in revenues over the next 2-3 years. It

expects growth to flow in, as it targets to increase content per vehicle and

increase share of premium products in its product offerings.

Tie-up with BWI to tap ABS opportunity on track:

ENDU tied up with BWI for

joint development of ABS products for application in two/three wheelers for

which supply should commence by 1QFY20. ENDU is setting up an initial

capacity of 0.5m per annum for which capex of INR600m is outlined. Under the

schedule, prototypes will be sent out to BWI by October 2018, assembly will

start in 3QFY19, and supply will commence from 1QFY20.

Received

direct export order from KTM

for mono shock absorbers, inverted

front forks for 20k-25k bikes for which supply has already commenced.

CVT – next big opportunity:

It would start supplying CVT to HMCL in 1HFY19.

November 2017

AUTOMOBILE | Voices



EV – evolving opportunity for aluminum die-casting products:

Die-casting

business to benefit from EV, as product platform has 20-year lifecycle v/s 7-8

years for IC engines.

Halol plant for HMCL to start by March 2018:

Its Halol plant for supplying front

forks and shock absorbers to HMCL’s Halol plant (100% share) would start

operations by March 2018. Currently, it is supplying from Waluj, as HMCL’s

operations are yet to ramp up. It is manufacturing ~1,200 units a day and

expects to reach ~4,000 units by early 2018.

EU business – new projects improve growth visibility:

EU subsidiaries are

working on five new projects for VW, Daimler and Porsche, which would start

between CY17 and CY20. These projects lend visibility, as booked business is till

2025 for engine components and 2028 for transmission components. ENDU has

recently won an order for EUR45m from Volkswagen for a casting product that

is to be used across all VW brands.

Aftermarket sales:

Aftermarket sales grew by 2.6% YoY in 1HFY18. Management

has indicated aftermarket sales growth of +15% for FY18.

Management has guided for

higher tax rate of ~34.5%

going ahead due to

phasing out of investment allowance.

VSS costs to come in 3QFY18.

Diversification on track:

ENDU’s focus to reduce dependence on Bajaj Auto is

progressing well. Share of Bajaj reduced to 35% of consolidated sales in 1HFY18

v/s 37% in 1HFY17.

Capex guidance:

FY18 capex guidance of INR2.75b for India and EUR15m for EU.

Escorts

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 693

Target Price INR 688 | -1% Downside

Sell



The quarter witnessed INR6.9cr of exceptional item on account of VRS given to

37 employees. Going forward, there is no near term plan to introduce VRS

scheme, hence no exceptional items expected.

The market share in 50HP category has increased from 6% to 8.3% YoY.

The company continues to hold strong order book of INR175cr in railways

segment which is expected to get executed in approximately next 8 months.

The new products launched in tractor segment continue to witness traction with

20% of the total volume for the quarter being contributed by new products

which are ~15% higher margin contributing.

1HFY18 witnessed 21% growth in industry on account of preponement of festive

season. The growth is expected to be ~14% for the full year, hence resulting in a

subdued 2HFY18.

1HFY18 has already witnessed ~2% impact on commodity prices, and going

forward another 1.5-2% increase in commodity prices is expected in 2HFY18.

The company plans to achieve an export volume of ~8000 over the next 4-5

years contributing ~10% of the total revenue.

The margin expansion witnessed was on account of operating leverage playing

out because of preponement of festive season and conscious cost reduction

efforts taken by the company. Additionally, under GST the company avails input

credit against taxes on overheads resulting in reduced other expenses.

November 2017

AUTOMOBILE | Voices

Hero Motocorp



Current Price INR 3,659

Click below for

Results Update



Target Price INR 3,819 | 4% Upside

Neutral



HMCL indicated healthy volume growth in urban and rural markets. While

urban grew faster than rural in 1QFY18, both markets grew at the same pace

in 2QFY18.

Festive demand

was strong, with HMCL witnessing double-digit retail growth

across its portfolio. Management highlighted that it performed better than the

industry, effectively gaining market share in the festive season.

HMCL is targeting market share gain in scooters led by product actions.

Commodity costs:

RM inflation impacted EBITDA margins in 2QFY18. Although it

has not taken any price increase in 2QFY18, it would take appropriate price

hikes to compensate for RM inflation.

Company has accounted for 58% of the GST incentive in Haridwar plant

(INR706.4m) pertaining to Central Government share of CGST. It awaits state

notification on the balance 42% (INR511.5m), which is yet to be accrued.

Impact of loss of excise exemption at Haridwar (~100bp) would be diluted by

ramp-up at Halol plant and Andhra plant (having sales tax incentive).

HMCL’s dealer inventory

stood at normal level of 4-6 weeks post festive season.

Volume decline of Glamour was led by supply-related issues at the company’s

end, which now stands fully resolved. It expects volume recovery for the brand

in the subsequent quarters.

New product launches:

Management believes HMCL is grossly

underrepresented in the premium segment; it has guided for new product

launches to strengthen its foothold in the category.

Capex:

HMCL has guided for capex of INR25b over FY18/19 toward capacity

addition, upgradation, product development and digitization.

Hero Fincorp financed ~9% of HMCL volume v/s ~10% in 1QFY18.

Exports:

HMCL indicated that headwinds in certain exports markets are

gradually going away, and volumes will continue to recover sequentially.

Spare parts revenue grew moderately YoY, but increased by 18% YoY led by

restocking.

Guided effective tax rate of ~29% in FY18E.

HMCL has further invested INR200.5m in Ather Energy Pvt Ltd in the current

quarter.

Mahindra & Mahindra

Current Price INR 1,408



Target Price INR 1,607 | 14% Upside

Buy

Click below for

Results Update



For Tractors,

expects Industry to grow 12-14% in FY18 (v/s guidance of 10-12%

earlier).

For YTD Oct-17 domestic tractor industry grew 15.5%. The positive rural

sentiments and well spread of monsoon to benefit tractor industry in FY19 as well.

Expect long term demand growth at 8-9% CAGR for tractors.

As shared by the

management, Tractor industry can saturate at 1.2-1.3m units, post which it

would be driven by replacement demand.

In farm segment, the product launch pipeline remains strong

with MM

targeting launch of new platform in 2HFY18.

Indicated PV industry to grow at 10% in FY18

(v/s guidance of 7-8% earlier).

MM expects its growth momentum to continue in UV segment led by three

refreshes launches in next two quarter and S201 (MPV) in this year and Tivoli

based vehicle in FY19.

November 2017

AUTOMOBILE | Voices



UV festive season growth for M&M is 8%, LCV 18%, Trucks 96%, Autos overall

9%.

MM has

partially pass through increase in RM by taking ~1% price hike

in UV

segment and ~1.5% price hike in tractors.

Exports in 2QFY18 impacted due to financing issues in Nepal while Sri Lanka

market impacted due to regulation challenges.

Timeline for petrol engine for all SUVs remain intact.

New product S201 will be

launched with petrol. All BS6 models will have petrol variants too. Indicates

three petrol engines (Ex <1ltr). 1) 1.2 ltr (KUV) including Turbocharged and GDI,

2) 1.5ltr including Turbocharged and GDI (joint development with SYMC) and 3)

2ltr including turbo and GDI.

Electric vehicles:

Earmarks capex of INR6b through Mahindra Electrics [EVs] –

for component development, technology and product development.

Indicated investment in battery plant, plant for motor and power electronics

and transmission [with international JV partner].

Participating in full range from 3Ws to buses.

3Ws currently finalizing Li-ion

options for e-Rickshaw and e-3Ws.

Finalized long term sourcing of Li-ion cell, which will help to reduce cost.

Current cost of Li-ion cell cost $200-230/Kwhr, expects it to go down to $120-

125/Kwhr in three years.

Ssangyong:

Volume decline of 2.2% 3QCY17 and 4.5% for 9M. PBT loss at

INR1.03b. Though EBITDA is similar (excluding licensing fees last year).

Setting up green-field capacity in US for off-road vehicle applications.

wheeler segment: Sales INR0.37b, PBT loss at INR0.21b and PAT loss at

INR0.12b. Consol. PBIT losses for 2W business reduced to ~INR590m v/s

~INR1.24b in 2QFY17.

Losses in the CV business reduced substantially over previous years.

Auto exports were impacted due to lower sales in Sri Lanka and Nepal, likely

to recover in 2HFY18.

Maruti Suzuki

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 8,424

Target Price INR 9,466 | 12% Upside

Buy



Management indicated

double-digit retail demand growth during the

festiveseasonof

Navratri and Diwali.

Growth from the rural markets remains

healthy at 21.5% in 1HFY18.

Demand for new models like Baleno, Brezza and new Dzire continues to be

healthy.MSIL witnessed

~25% growth in petrol models.

Commodity inflation:

Impact of commodity price inflation would reflect in

2HFY18.On a YoY basis, commodity prices are higher by 200bp (% of sales)

in2QFY18.

Increase in GST rates for Hybrid vehicles has resulted in customers shifting

toward non-hybrid variants.

Ciaz hybrid share has declined from 70% to

32%,whereas Ertigahas declined from 70% to 50% now.

Customer mix:

First-time buyers improved to 50% (v/s. 42% before two-

threeyears).Fleet formed low-single-digit of its sales, while the share of

governmentemployeesremained at 20%.

Average discounts declined to INR15,200 per unit (v/s INR16,600 in 1QFY18

and INR16,100 in 2QFY17).

November 2017

AUTOMOBILE | Voices



Gujarat plant update:

Contributed ~7% of volumes at 34k units in 2QFY18. To

fullyramp-up by 4QFY18 and phase 2 to begin by 1QFY19. Gujarat plant

iscurrentlyproducing 10,500 units per month, which is expected to

eventuallyramped up to20,000 units per month by 4QFY18.

Royalty

in 2QFY18 was INR11.44b v/s INR8.8b in 1QFY18.

Tax rate

was higher due to lower investment allowance on plant and machinery,

decline in R&D benefits and tax shields. Management guided for tax rate of

29%forFY18.

Capex:

For FY18, it is targeting to invest ~INR4b in capex (v/s ~INR32b in FY17).

MSILhas spent INR14.58b in capex for 1HFY18.

Inventory

level after festive season at ~80-82k units (~14-15 days).

Tata Motors

Click below for

Results Update



Current Price INR 422

Target Price INR 575 | 36% Upside

Buy



Maintains 10% retail growth guidance for FY18:

While outlook for autos in

developed market has deteriorated in last few months, JLR maintained its 10%

retail growth target for FY18 (implying 17% residual growth) driven by new

product launches. Recent launches like Velar and New Discovery enjoys good

customer response. Also, they don't expect substantial drop in volumes of

RR/RR Sport in 3QFY18 despite phase-out for MY18.

Production ramp-up for new models at Solihull would gradual ease, especially

after shift of Discovery to Slovakia plant by 3QFY19.

Competitive intensity remains high,

especially in luxury sedan segment. JLR is

not participating in heavy discounting and would not chase volumes at any

price.

Forex hedge losses would reduce substantially from 4QFY18

onwards.Unrealized current Forex hedge losses have further reduced to

GBP793m as of Sep-17 (v/s GBP1.1b as of Jun-17 v/s GBP1.6b as of Mar-17).

Further, non-current hedge loss (>1yr) now stands at only GBP299m (v/s

GBP564m as of Jun-17 v/s GBP1.1b as of Mar-17).

Targeting 8-10% EBIT margins over medium term:

Guides for EBITDA margins in

FY18 to remain stable over FY17 of ~12%. EBIT margin target of 8-10% in

medium term factors in for lower margins of EVs and higher variable marketing

spend.

JLR is focused on cost efficiencies

(low-cost manufacturing base, significant

material cost reduction etc) to off-set cost of electrification and potential

normalization of China margins.

On the EV side,

JLR to launch plug-in hybrid Range Rover and Range Rover Sport

in 2018 in addition to planned launch of I-Pace battery EV in mid-2018.

JLR Capex:

Guidance maintained at GBP4-4.35b FY18.

November 2017

AUTOMOBILE | Voices

TVS Motors

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR709

Target Price INR 764 | 8% Upside

Neutral



Margin guidance intact:

Management reiterated its aspiration of double-digit

EBITDA margin from 4QFY18, driven by operating leverage benefits and a

favorable product mix.

Price hike to mitigate RM costs:

TVS has taken a price increase of INR250 per

unit in Sep-17 to offset the rise in commodity prices. Management indicated

that it would take necessary price hikes to pass on cost pressures, if necessary.

New launches:

It plans to launch new products in motorcycle and scooter

segments in 2HFY18. New launches include the 310cc motorcycle based on the

BMW platform, 125cc scooter and an electric scooter.

BMW alliance

- supply of BMW G310R in exports markets: Supplies to BMW of

G310R and GX models are at ~2k units per month in YTD FY18. Management has

guided for this to be in the range of 2-2.5k units per month in FY18.

Distribution network:

TVSL has added 150 dealers and sub-dealers from Sep-16

to date. Their distribution network now includes 1.1k main dealers and 3.1k sub

dealers.

Investments in subsidiaries:

TVSL has acquired 100% stake in TVS Motor

Services (holding company for NBFC arm) for ~INR46.2m, in turn TVS Credit

Services (indirect stake of ~85%) has now become subsidiary of TVSL. It has also

invested INR330m in Sundaram Auto Components Ltd, INR321m in PT. TVS

Motor Company, Indonesia, and INR312cr in Emerald Haven Realty Ltd.

Sales from Indonesian subsidiary

are now at ~3k/month. 1HFY18 loss was lower

vis-à-vis 1HFY17. Management expects it to EBITDA break-even in the near

term.

Exports:

Management has guided that it will continue its growth momentum in

exports. They see huge opportunities to grow in LatAM and Middle East. TVSL is

gaining market share in LatAm and Asian markets.

Festive season sales -

Navratras to Diwali season growth has been good and

TVSL has grown faster than the industry. Inventory at normal level of 30-32 days

as at end of October-17.

The Government grant (~INR97m in 1Q) was on account of CST from the state

government, which was a one-time grant given to compensate on loss. TVSL will

have to adjust its selling price in future to recover the loss.

Capex:

It expects to invest ~INR6b as capex in FY18, along with further

investments in subsidiaries.

November 2017

CAPITAL GOODS | Voices

CAPITAL GOODS

Most Capital Goods companies shared a cautious stance on order inflow, given near-term disruption caused by

GST implementation. Companies expect ordering activity to pick up gradually. Segments like transmission,

renewables, defense, roads, and railways continue to show traction. On the execution front, there is a slowdown

– GST transition has impacted projects under execution. Execution is likely to pick up in 2HFY18. Competitive

intensity remains high.

In Consumer Durables, restocking has started to pick up gradually. However, secondary demand remains muted,

with advance purchases by customers in June 2017 on de-stocking discounts given by dealers.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY18



GST Causing Near Term Pain



Domestic Capex Cycle

Infrastructure demand

remains robust

Cummins



Larsen and

Toubro



Has maintained domestic revenue

guidance to grow 5-10% in FY18

export revenue guidance cut to -5

to-10% as against earlier guidance

of 0% to -5% growth in FY18

Order intake guidance: cut to zero

to marginal positive from 12-14%

growth

Revenue guidance: 12% growth

Margin improvement of 25bp YoY

from current 10.1%

GST has impacted revenue in 2QFY18 as

customers face teething issues on GST

transition



GST has impacted execution in the E&C

business

Domestic ordering has been

slowed down in the near term

given GST implementation



Havells



Restocking has not been to the

required levels - trade has become

more efficient and will stock less

Restocking has helped Voltas to register

15% growth in the room AC segment

and has helped them to improve market

share to 23% in 2QFY18

Secondary sales continues to remain

weak given preponement of purchase

that happened during June 2017 on

account of destocking of inventory from

dealers

Voltas



ABB India

Click below for

Results Update

Current Price INR 1,384

Target Price INR 1,230 | -11% Downside

Sell

ABB India: Orders and sales impacted by the GST transition – bounce backover

coming quarters l Key focus areas are Utilities, Industry, Infrastructure,

Exports, Digitalization and Services l Exports at 20% of sales

Orders and sales impacted by GST transition - bounce back over coming quarters



3Q was impacted by GST transition – took a couple of weeks to stabilize internal

processes, and customer also deferred sales as existing contracts were

renegotiated. Impact on orders and sales during Q317 - uncertainty in market,

customers looking for credit so impact on orders.



Sales were deferred in Q317 and will start recovering from Q4; could see

normalization from 1HCY18.



Large orders for rail traction transformer in 3QFY16 (INR10b from Alstom)

absent this quarter; adjusted for the large rail order, orders were flat YoY.

November 2017

CAPITAL GOODS | Voices

More spending on operational efficiencies and strengthening existing

infrastructure leading to brown-field investment - some traction in O&G,

chemicals, cement, metals.



INR300m of forex gain during the quarter was booked.

Key focus areas are Utilities, Industry, Infrastructure, Exports, Digitalization and

Services

Utilities – state and central transmission utilities



State-level utilities are increasing capex - lot of investments planned in this

segment (61% of INR2.6t in 13th plan to be done by state utilities). State

discoms need to invest in transmission for renewables and also strengthen grids

- substations at the 400kv; GIS being used as ROW is a big issue. States will do

400kv and below voltage transmission network.



PGCIL orders are slowing down - capex moving to states; PGCIL working with

states to set up their transmission networks.



ABB continues seeing growth in solar orders (+15% YoY, 13% of Q317 orders);

Solar inverters share at 50% and completed 5GW of deliveries in July.



Slowdown in wind segment on movement to auction v/s FIT earlier - from next

CY expect wind installation to pick up; ABB supplies wind generators to the

biggest manufacturers, 5GW wind generators in Q317.

Industry



Primarily brown-field investments - O&G (+85%), Chemicals, Cement, F&B, Auto.



Due to high NPAs with some of the largest groups in the country, there is very

little new investments - primarily brown-field investments.

Infrastructure



Govt. investment driving rail investments - this doubled during the quarter in

terms of base orders.



Participating in EV chargers tenders - high potential segment for ABB.



Rail – RM, PG and EP division supply to this segment; ABB supplies to the bogeys

which are getting modernized.

Exports and services



Exports now at 20% of sales, while services at 15% of sales.



Have a large installed base and this can be tapped to increase services sales.



BHEL

Click below for

Results Update

Current Price INR 87

Target Price INR 78 | -11% Downside

Sell

22% of order book slow-moving; executable order book at INR769b of the total

INR971b



Executable order book at INR769b, including Yedadari project (INR204b), of the

totalorder book of INR971b.



Focus is on starting stranded projects; Yedadri has started in Q218.

Projectscopeincreased from INR180b to INR204b, as it includes SOX/NOX eqt.,

GST.Civil workscomponents were taken out.



Sales weak in 1H18 as a) expected Yedadari clearance got delayed by six

monthsdueto environment clearance issue; execution to now start in Q318; b)

ExpectL1 ordersof Bhusawal and Panki to be finalized in 2H18.



GST has not had any major impact on execution - impact more on debtors

onamendments to purchase orders.

November 2017

CAPITAL GOODS | Voices

Debtors higher on renegotiation of purchase orders under GST



Marginal increase of INR11b in debtors - this is on PO pending approval

bycustomeron GST-related amendment.



Of total debtors of INR330b, INR190b (same level as in Q1FY18) is the

retentionmoney; purchase order amendment on GST led to delays in payment

and willimprove in coming quarters.

Margins impacted by pay revision and higher contractual obligationprovision



Other expenses higher on a) pay revision of INR2.5b in Q218 and INR5b in

1H18,b)Net creation of INR2.95b for contractual obligation, while Q217 had CO

ofINR-830m.



Other income of INR4.9b on forex gains of INR1.9b.



Do not expect any improvement in pricing; focused on cost optimization

andreducing material costs.

Orders at INR18.8b (+4% YoY) and order book at INR971b



Orders at INR18.8b in Q218; orders primarily from industrial segment, with

averyfew orders in Power segment.



L1 in 6GW of orders, including the Singareni order – expect most of these

orderstobe finalized in FY18. Another ~6GW of tenders already in the market.

Blue Star

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 702

Target Price INR 685 | -2% Downside

Neutral

Unitary Cooling Products – margins seen at 7-7.5% in FY18 on 120-

150bpimpactfrom water purifiers



Room aircon industry growth subdued in 2QFY18 on GST - secondary restocking

had started in September; overall industry grew by 5% in value and Blue Star too

grew at the same pace. Festive season has also been subdued.



FY18 room aircon industry growth was expected at 15%. This will be challenging

as Q1/Q2 were weak and Q3 too is likely to be subdued; normalcy only from

Q4FY18E. Industry seen growing at 10-12% and B Star in line with market for

FY18.



11% share in room aircon; expects to retain share over the next few quarters.



No price hikes were taken post GST - RM prices higher by 8-10%, but still not

revised prices and likely to do in Q4 with the new energy rating norms. Waiting

for some more price stability in the market before taking any price hikes; have

been absorbing the impact in 1H18



Q418 onwards - 5 star and inverters will grow disproportionately; Inverters sales

are rising and will continue over next few years; 40% of sales from inverters/5

star; 25-30% of sales for industry are inverters, and grow to 50% in next 2 years.



Pre-buy could be muted based on weak restocking by the channel till date; can

expect some pre-buy in December, but will wait for this.



Margins: 9-10% excl. water purifiers, and taking into account 120-150bp, the

margin for FY18 is seen at 7-7.5%

Water purifiers



Products have been well received - industry growing but pricing is under

pressure for the industry.



110 town, 450 dealers have B-Star water purifiers.



Results impacted by 120-150bp from investments in water purifiers – this will

continue into FY18 as well.

November 2017

CAPITAL GOODS | Voices

Electro mechanical projects – driven by government projects; private capexabsent



Market demand slowed down on uncertainty of GST and sluggish private capex.



Segments doing well are metro, government funded projects – Blue Star is

already executing projects in Delhi, Bangalore and also a few more in the

pipeline.



Private sector capex still not started - B Star growing as it a) is a complete EMP

player v/s only HVAC, and b) has shown consistent execution capability

Crompton Greaves Consumer Elec

Current Price INR 245

Click below for

Detailed Concall Transcript &

Results Update

Target Price INR 260 | 6% Upside

Buy

Revenue: Growth led by market share gains



Revenue growth (adjusted for excise on manufactured and sourced products)

standsat 15.9%. ECD segment registered 11% growth, whereas lighting

segmentregistered25% growth.



Revenue growth led by product innovation, focused distribution

networkexpansionand provision of quality products at a right price.



Primary sales growth during the quarter is similar to secondary sales growth,

implying low level of restocking in the channel.



Growth driven by the company’s implementation of go-to-market strategy.

GST: Still work in progress



Crompton has witnessed gradual improvement in sales every month post GST

implementation.



GST transition still in progress and expect the transition to complete by

March2018.



Focus on retail distribution; assurance to dealers on protecting them from losses

arising on account of input tax credit denial led to less volatility in sales

forCrompton.



Trade now operating at lower inventory levels and is expected to operate

atsimilarlevels given system efficiency.



Shift from unorganized to organized segment category has not been witnessed

during the quarter.

Fans Segment: Market share gain led growth despite decline in overall market size



Fans market has been declining over the last 8-9 months impacted by GST,

demonetization and a decline in new housing projects.



During the quarter, Fans market has registered decline of 4%; however

Cromptongained 4% market share.



In ceiling fans segment, Crompton’s market share stands at 27%.



Premium fans share in the overall fans segment sales has reached 18%, as

comparedto 7% earlier. Focus continues to remain on increasingpremiumization

categorysales. Anti-dust fans has seen huge success.

Lighting: B2C segment showing strong traction



Strong growth in the B2C segment sales (+30% YoY).



EESL sales during the quarter stood at INR530m, as against INR380m in 2QFY17.



LED now forms 71% of the Lighting category sales. 60% of LED sales comes from

fixtures and balance 40% from LED lights.



Do not expect much change in revenue mix and expect the margins to remain

stablegoing ahead.

Pumps: Weak quarter impacted by seasonality



Agri pump business has witnessed slowdown given seasonality factors.

November 2017

CAPITAL GOODS | Voices

Crompton is a market leader in residential segment, and demand in

segmentcontinues to remain strong.



In the solar pump segment, Crompton does not provide solar panels and

accessories.

Margins: Margins improvement led by premiumization and lower ad spend



Margins improvement led by a focus on premiumization and a reduction on

adspend activity during the quarter.



There was close to zero ad spend during the quarter (given GST implementation)

asagainst average quarterly spend of INR100m.



In 3QFY18, ad spend has come back to normal levels.

New product category plans



New product introduction highly urgent, but expansion will be done on data

analytics basis so as to have assurance on growth potential of the new

markettheyenter into.



Have sent EOI for the Kenstar acquisition.



CG Power Industrial Solutions

Current Price INR 84

Click below for

Results Update



Target Price INR 90 | 7% Upside

Neutral

Margins in Industrial systems have improved significantly.



Indonesia sales have recovered quite well.



Across the board growth seen in transformer, switchgear, rail, drives

andmotors.

Power systems



6-7% growth in Q218, INR6.3b in Q217.



EBITDA margin of 8.7%.



Industry is still quite subdued: transformer is more subdued and price fall

remainssignificant. CG focusing more on margins than sales.



Switchgear - got approvals from customer and will see good growth in coming

quarter.

Industrials



INR4.5b in Q217, +18% YoY growth.



9.6% EBITDA margin v/s historical margin of 12%; have taken care of commodity

hikes, GST.



IE1 to IE2 cut on 1st Sep - first to certify by BEE. Deadline shifted to 1st

January,2018. Dealers got a breather to sell of old inventory and stock-up on

newinventory.



Drives - at INR1b of sales.



Motors - markets growing in single-digits, but CG growing faster on its

reach(+17-18% YoY). Unorganized is losing out to organized sector.



Margin - improvement on price hikes taken.



Expect growth to continue in mid-teens with margins back to historical levels.



Still not taken complete price hikes in this segment and will do so in

comingquarters.



Not seeing any major revival in steel, cement - irrigation, road building etc,

concreteequipment seeing good demand.



Cement - latent demand there, but Power and steel is very subdued



LT motors - CG significantly ahead of competition here.

November 2017

CAPITAL GOODS | Voices

Non India continuing business



Indonesian business and Sweden (Emotron).



Complete recovery from sales lost in Q118 and 15% margin.



US will be in wind-down mode and sales will continue to come down.



INR9.2b in Indonesia of order book and INR0.5b in Sweden of order book; have

a strong order book in Indonesia. Indonesia sales are EUR107m in CY16 and

15%margin.



UK systems have also been wound down; one order got spilt into Q218 and has

been completed.

Divestiture



Target of November 2017 to divest the Hungary business.



Loss of INR4.3b in Q218, of which INR2.7b from GW loss on sale of Hungary;

INR0.3bfrom distribution Jalgaon.



INR1.3b of operating loss in US and Hungary together - in line with Q118.



US - operating loses up to 31st July had to be booked till sold to WEG, and

adjustment made further in Q218 (Rs33cr) and Rs16cr in Q118.



Hungary/Ireland - operating loss in Hungary of INR1b as plant is not working

wellsince getting sold and also legacy issues being sorted off, so INR1b of loss.

Ifsold byNov, will have to book INR1b in Q218 as well and an INR8cr in Ireland.



Ireland will not happen in Q318, so INR8cr will go away - balance INR92cr will

continue.



Systems of US/UK will continue in losses.



Belgium - Strong performance during the quarter; high-teen growth this quarter;

reported +ve EBITDA.



Increase in debt is to prepare for divestment; funding of losses for Hungary.



Net debt of INR13.5b and INR10b as of Mar'17.



Avantha Power undergoing a restructuring - holding of <20% earlier but with

restructuring the share has gone up; therefore booked losses in Q218;

postrestructuring will take a write-back on these losses.



L&A - INR1880cr of loans to subsidiaries after adj. for exchange is INR2.7b,which

isthe increase in debt and amount infused into subsidiaries.

Cummins

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 853

Target Price INR 1,150 | 35% Upside

Buy

For FY18, domestic growth guidance of +5-10% YoY maintained, while exports

guidance cut to -5-10% (from flat to -5% earlier); GST impacted 2QFY18 sales, but

expect a bounce back in the coming quarters.



Keeping the full-year guidance for domestic sales growth at 5-10% for FY18,

Exportsgrowth guidance at -5-10% v/s flat to decline of 5% earlier.



Impact of GST was severe in Q2FY18 (teething issues as customers transition to

GST); already seeing an improvement in Q3FY18; also had supply chain issues

asvendors gear up for CV upsurge (+58% QoQ) as India moved to BS-IV from

Apr17(which affected supplies). 2500 vendors in India - these make

radiators,crankshaftsfor engines across CV (300,000 units for M&H CV market),

and witha surge in DGdemand, this led to lower supplies for DG engines.



Underlying domestic demand very strong; expect a bounce back in the following

quarters – lost INR800m in spares segment and INR200m in power

generation.Another, INR100m of sales lost on price cuts post GST.

November 2017

CAPITAL GOODS | Voices

Gross margins in Q218 will be maintained – cost cuts and better mix

helpingimprove margins



Material margin (excl. other income) has improved significantly: +1.5% QoQ,

+1.2%YoY. Mix was also better during the quarter, which helped margins;

costcut effortstoo offered support. Should be able to maintain material margins

forthe rest of theyear.



Improvement is due to cost-saving efforts and also better mix.



Value Engineering Programme with vendors (ACE) helped them reduce

costs.Mixhas been adverse for them for a long term. Has been favorable in

Q218.

15-20% sales CAGR seen in industrial segment – road and rail driving growth



Road activity is very strong - positive impact on construction and

portablecompressors.



Rail very strong for them: +44% in 1H18.



Marine: Government is building out the navy, coast guard and patrol

ships.Yardsare full with orders and struggling with supply chain issues;

movement isslow.Demand is again very robust.



Defense - small piece for them; potential is there, but slow down due

toprocurement issues.

Exports – HHP engines demand improving, while LHP has bottomed out



Sluggish low kva DG exports: Don’t expect any significant improvement; stay

atthese levels in the near term. Key end-market of Africa is still struggling

atcurrent oilprices, and local governance and cash flows issues are still

there.However, worst isover and medium-term will see improvement. Still

believe cango to INR20b inmedium term from current INR7b.



HHP engines exports are improving, driven by better global demand in

powergeneration markets.



Cut FY18 export growth guidance to -5-10% v/s flat to -5% decline earlier.

Domestic Power Generation - focus on retaining share



Not sure will be able to pass all price hikes, as competitive intensity

remainsveryhigh.



Would like to hold share - cut prices, but save margins via cost cutting.



Underlying demand in power generation is growing 5-10%; not worried from

theQ218 results as this was impacted by GST.

GE T&D

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 405

Overall business environment and GST impact

Target Price INR 440 | 9% Upside

Neutral



CK1 (Pole 2) was commissioned in Q218, transmit 3GW of power via

HVDC;StartingCK2 with 3GW and post commissioning a total of 6GW (INR8.5b).

All orders from the private sector and none from PGCIL/states.

Q218 sales have been flat YoY - GST impacted sales.

Orders coming in from state transmission companies and less from PGCIL in the

next 1-2 years;nottoo many generation companies looking at ordering out.

Solar business is also picking up; will look at BoP orders from here.

Bangladesh HVDC line is being planned.

No substantial nos. from railways at this point.

November 2017

CAPITAL GOODS | Voices

Looking at rail, renewables, Intra state transmission schemes; INR200b/annum

oforders could come through with states capex funded by REC, PFC, WorldBank.



Q217 had large orders and Q218 has seen fewer orders from PGCIL as not much

ordered from here; had more of private orders; would like to grow in

doubledigitsin FY18 and 1H18.



Are already seeing an uptick from the states in order mix; focus more on power

generation companies and state discom orders. Most states are still ordering on

normal tendersand very few on reverse auction.



Competitive intensity is higher in states than in PGCIL, as the ratings are also

lowerin this case.



PGCIL - orders were separately done earlier; now on a single package, which

issamein states; 765kv also coming from power generation companies

/TBCB/states.

Execution



Will be able to recover the sales lost during Q218.



GST-led deferment was evident in Q218 - tried to pick up in September,

butcouldnot make up completely. This will be made up in coming quarters.



CK2 (Pole 3/4) - complete in FY19E.

Margins



Had closure of a large project, which gave them a good margin.



1H18 margins will be sustained - pricing pressures in the market remain,

tryingtooffset these by operational efficiencies.



7-8% EBIT margins are achievable - will try to do it despite pricing pressure

andalsoincrease this margin.



Gross margin could sustain on 33-34% level.

Competition



Need to have a factory in India for transformers and GIS.



GIS - domestic manufacturing has been there for 2 years and is helping them.



State com/SVC - not many tenders floated by PGCIL, but with growing share

ofrenewables, expect this to pick up further; studies being conducted and

tenderstobe issued only post this.



Alstom prequalified for 400/765kv GIS to supply to PGCIL - even states movingto

AISfrom GIS in semi-urban areas.

Working capital and debt reduction



Will sustain at these levels - have been able to bring down loan levels and

willremain at these levels.



Debtors have been bought down - have some sticky orders.

Exports



10-12% of sales are from exports.



Target is to sustain this level.



Would continue to look at exporting products from the Indian entity.

Solar opportunity



Solar is a challenge - falling tariffs; pressurizing equipment suppliers.



15% of overall orders are coming from the solar market.

Rail opportunity



Transformers, circuit breakers, relay panels.

5% of sales is services, while 20% is grid automation.

November 2017

CAPITAL GOODS | Voices

Havells India

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 511

Target Price INR 570 | 12% Upside

Neutral

Restocking slower than expected in 2QFY18 – festive season sales subdued



GST disruption continues and more so in electrical products, where GST rate has

gone to 28% from 18% (Excise + VAT in most states) - trade is delaying

restocking; if rates not reduced, could see unorganized take share.



Restocking has not been to the required levels - trade has become more

efficient and will stock less, more so given the current market conditions.

2HFY18 to be better, but restocking will not go back to normal level.



Construction and industrial end-markets are seeing weak demand, as reflected

in weak sales growth for Havells despite restocking which started in 2QFY18.



Difficult to say when switchgear and cables will resume growth as they are

highly dependent on housing sales; lighting growing on LED switch from CFL;

ECD driven more by replacement than new demand.

Targeting double-digit growth for FY18



Dependent on improvement in the industry conditions. During 2QFY18, 4%

growth in core Havells (ex Lloyd) and 7% including sales from earlier exempted

zones.Lloyd saw 11% sales growth.



Festive uptick has not been as expected - consumers and channel are

stillcautious.

Margin improvement driven by price hikes in cables/wires and withdrawal

ofdealer schemes



During Q218, have been able to pass on all higher RM costs and GST-related

taxchanges to end-consumer; price hikes only in wires/cables on higher

copperprices.



Old copper inventory in cables, decline in ad costs, and gain on sale of tax-

freebonds helped improve margins for the company during 2QFY18.



Margins were hit since demonetization on dealer schemes and then by

highercommodity levels - are coming back to normal levels which are ~13.5-14%

inthenear quarters.



Wires price hiked by 12-13% and cable price by 5-6%; other segment

marginimprovement is primarily on roll back of dealer incentive/schemes.



Ad spends will revert back to 3-3.5% of sales from 3QFY18.

Lloyd Electricals – 11% growth in 2Q18; yet to take any price hikes



Lloyd grew 11% in 2QFY18 and margins were at 7% - controlled costs helped

toincrease margins in 2QFY18.



No price increases taken - implemented singular price across dealers.



70% of total sales to be aircon and balance primarily for TV and then WM.

Cables and wires – price hikes offset volume decline; margins surge on old copper

inventory and higher share of wires



Higher margins in this segment on a) sale of old inventory of copper and

b)positive product mix of domestic cables, which have higher margins - 54%

in2QFY18 v/s 50% in 2QFY17.



Input costs higher, so have taken a few price increases in 3QFY18 as well -

commodity markets are still very volatile.



5% YoY volume decline in wires and 12-14% YoY in cables, while wire price

hikedby 12-13% and cables by 5-6%.

November 2017

CAPITAL GOODS | Voices

KEC International

Current Price INR 296

Click below for

Results Update

Target Price INR 350 | 18% Upside

Neutral

Overall GST and business environment



5% growth excluding GST impact on sales



International grew strongly, while domestic saw a slowdown on deferral by

customers.



GST led to a) tender delays, deferred, and b) solar seeing slowdown, so

lookingatexport markets.



Share of non-PGCIL orders has gone up - SAE has won 2 large EPC projects .



BOT to be commissioned soon.



Orders for FY18 targeted at INR130-140b.



PGCIL - most orders are on TBCB and not nomination; PGCIL likely to win

theseandgive out orders.



SEBs - earlier primarily from South; PGCIL tying up with Bihar, UP, Orissa, North

East,and also Gujarat seeing tenders coming out; FY19 will see better capex

bySEBs.



Civil - doing very well with INR4b order book, PBT breakeven; not seeing any big

jobs. Expects to clock INR10b of sales in civil.



M. East - tendering is improving in Jordon, Egypt. Saudi still doing very low

tendering, but a long tender list. Saudi has cleared all outstanding, and expects

arevival in a few months; should bounce back with oil prices.



Africa - significant growth seen in Q4/Q119 with large projects being planned.



SAARC - Bangladesh, Indonesia too seeing good traction.

Margins



10.1% margins (+130bp YoY).



Don’t expect any significant impact on margins from commodity prices – already

inthe margins as of Q2.



PGCIL margins at 10% at the time of bidding.



Margins will likely be at 10% in FY18, up from 9-9.5%; 9.7% in 1H18. Higher on

account of a) taking only higher-margin orders, b) operational efficiencies,

c)projects completed on schedule, and d) steel is 15-16% of project, so

notaffectedand domestic is pass through



SAE is at 10% margin and improve with the large EPC orders; cables is 5-6%;

T&Disat +10% margin.



Focused on profitable margins and expect margins to expand over the next few

years.



30% of orders have a price variation clause.

Working capital



Receivables higher on delay in making invoices and collection.



Brazil saw delays in one project - this has been restarted.



Higher state orders could lead to higher WC; will take higher margin to

compensate.



Saudi receivables - all approved bills have been paid and no current O/S,

asmoreprojects get completed; retention will be released.



Interest rate is 7-7.5% and has come down with a rating upgrade and lower

interestrate; will maintain at 2.7% of sales.

November 2017

CAPITAL GOODS | Voices

Ordering environment



Domestic at 65% of total, despite PGCIL not contributing; got a large private

sectororder during Q218, and SEBs are also starting to spend. INR40b of L1

andsignificantportion from SEB.



Rail is doing well and upcoming L1 from T&D.



SEBs are 32% of order book and balance 20% from PGCIL and private sector;52%

isIndia order book.

Execution



5% growth if GST impact not there on sales in Q218.



Sales will be in 10-15% in Q218; orders got postponed and so were

execution;5%impact on the Indian business. Delay on account of GST will be

compensatedmorein Q4 and less in Q318.

Working capital



Seeing some stress on cables - went to 28% v/s 18% earlier; is impacting the

WC.Otherwise, no material impact on GST.



Net debt impacted by GST as WC debt taken in Q218; so should come down

toINR20b.



Tax rate at 34-35%.



50% of debt is overseas.

SAE Towers



Was doing INR10b annually and will do a similar no. this year as well; got

intoEPCwith 2 more orders in Q218; sales from these orders will start only

from2H18.



PGCIL also participating in Brazil - Sterlite has already won an order.

Rail



Target is to do INR7-8b in FY18 vs. INR4-5b in FY17; Sales can touch INR20b in

3years.



INR1.4b of orders in railways in Q218; FY18 target is INR20b.



Rail stopped tendering in Q218 on GST; INR70b of bids put in the railways

andexpect good orders in Nov-December.



Rail electrification target at 8,000kms in 3 years; wants to reduce

timelines;4000kms target and KEC is doing 1000kms (25%).



INR1.3b is capex and KEC can potentially do 50% of this opportunity.



DFCC - KEC quoted and will get into this as well.

Larsen & Toubro

Click below for

Results Update

Current Price INR 1,228

Target Price INR 1,450 | 18% Upside

Buy

Execution and sales growth



Earlier 12% growth guidance and can meet this guidance in FY18



Sales growth driven by water, transport infra, Heavy Eng (defense jobs)

andservicesbusiness



GST transition and execution constraints in a few project(13-14 projects)

hamperingrevenue growth in infrastructure; domestic is doing ok but stillseeing

someconstraints but tapering off in Q318



Other segment subdued on low growth in Realty and Valves segment



Industrial off-take is still very soft



Overseas infra is going on as per schedule - no issues in Qatar. Some payment

delaysin Saud Arabia

November 2017

CAPITAL GOODS | Voices



Qatar is INR1400b of the INR700b; disruption in supplies as earlier coming

fromSaudi but this has taken the sea route, Execution continues well

Realty - sales from Powai may not come through this year so realty sales may

dipthis year

Thermax

Current Price INR 1,020

Target Price INR 930 | -9% Downside

Neutral

Click below for

Results Update

GST implementation hurts execution in 2QFY18



GST implementation had an adverse impact on sales – input tax credit for

oldinventory is given to all sectors, except cap goods. Therefore, sales

wereimpacted inJuly. Started billing from second half of July, but still glitches

arethere on matchinginput credit and slowed execution. Have already

bookedINR1b in 2QFY18, whichhad been deferred from 1QFY18.



Sales missed out in 1QFY18 have been booked in 2QFY18 - within July, 75% of

thenormal sales lost, while Aug-Sep also below normalcy.

Cement, refining, fertilizers, F&B seeing pick-up in capex



Cement:

Some +ve movement being seen, and Thermax has won a few WHRG

orders during the quarter; WHRG-based power plants for cement will

continue.Also, expect new fresh capacity to be ordered in 3-4 quarters.



Steel

– is looking up on enquiries, but pricing is subdued. Enquiries coming from

sponge iron from eastern India.



Fertilizers

– three plants coming up for modernization and in PQ stage from

3QFY18.



BS VI

– partially ordered out and Thermax won a few orders. Stage 1 is INR3-

4b,ofwhich Thermax won a sizeable; market size is INR6-8b for stage 2, which

willbeordered out by 1QFY19.



Refinery

– Thermax will bid for boilers, heaters, water treatment, waste water

treatment, air pollution; scope of work of a green-field refinery is INR5b+

forThermax. If there is a CPP as well, then it is INR10b, since the CPP will be INR5b.



Textiles

– 7% of overall orders in SA and also seeing traction.

INR10b+ of sales from new factories in five years



Resins plant, Dahej

- Five years can add INR2.5-3b in resins.



Standard products plant, Indonesian

- currently doing Ph1; Ph2 complete;

fullcapacity can do USD100m of product sales.



Chillers, AP

– 850 nos. overall, with full capacity but 450 nos. initially; within

7years,can do 850 chillers and can add INR3.5-5b.

Chemicals – one-time order in 2QFY18 leads to better margins



Special order leads to better margin; average margin is still above

environmentmargin. Got an order from N America well operators, who are

looking todevelopingcountries for sourcing cheaper ion exchange resin.



Initially a resin maker, but now 55% of chemicals is resin and 45%

isspecialty/performance resins of chemicals.



Resins – with new factory, 12,000 ton capacity v/s earlier 10,000

inMaharashtra;add another 8,000M3 to 20,000M3; can take to INR8b

fromINR1b. Resins isprimarily exports - goes into water treatment; US is USD12-

15m,expect better saleshere.



Specialty chemicals – focus on high performance chemicals, so as to get 10-

12%margins.

November 2017

CAPITAL GOODS | Voices

Va Tech Wabag

Current Price INR 549

Click below for

Results Update

Target Price INR 745 | 36% Upside

Buy

Working capital impacted by GST-related contract amendments



Debtors have seen an increase on GST as: a) Municipal contracts were earlier

exempt on water portion, but now GST is applicable. Earlier at 18% and

thenboughtdown 12%; had to amend contracts - could not bill till contracts

werefinalized. b)Exports - local procurement for exports was earlier tax exempt,

butwith GST, thishas to be paid and refunded. Now has been withdrawn; had

animpact of INR200-250m.



Seeing an improvement in debtors as billing picks up; by 4QFY18, expect

normalcy.



AP Genco - INR5b of receivables; some execution still to be done till Dec'17 and

expect it to be lower by INR1.5b and another INR1.5b in FY19.



NWC - currently at 100 days in Q218; could be brought down to 70-75 days;

payables down as large contracts going on through construction work and

havetopay the contractors readily.

L1 in INR19b of projects; pipeline is strong in SE Asia, M. East and Africa



INR19b in L1 or preferred bidder for project - by January can convert most of

theseorders into firm orders - all EPC/DBO projects.



Nemelli Phase 2 (150MLD) - political uncertainty in T Nadu has delayed

theproject;5 bidders submitted technical bids; Q4 should see price bids

beingopened. OnlyIndian company to submit the bid.



Mumbai STP - change in standards of waste water with relaxation being given;

Expect most of the tenders to be out for bidding and technical bids to

besubmittedin 1-2 quarters.



Namami Gange - N Gadkari has been bought in to resolve issues and bring

tractionin ordering. Few projects coming up for tendering; First 12 projects

onEPC and thenHAM model.

Projects execution continues to be robust



Petronas - Engineering is in completion phase; bulk of the eqt has reached site;

Construction in full swing and 60% of work done; Hydro testing has

started.Mechanical and electrical started.



AP Genco- post synchronization Q1 and COD by Dec 17; residual and

finishingworkto be complete by Q119; INR1.5b should come by Q417; INR1.5-2b

inFY19; 10% ofcontract to be paid 1 year post-handover.



Polghawela, Sri Lanka - design phase with basic engineering approved.

Ordersplaced for long date items and procurement on schedule; 80% land

handedover;civil construction to start in Jan18 and complete by Mar20.



AMAS Bahrain – Engr. complete, civil work in late stage - 90% complete;

Electromechanical to be completed by Dec17; Pre-commissioning by Mar18.



All international projects are going on time - expect execution to remain strong

andmargins should sustain as in 1H18.

November 2017

CAPITAL GOODS | Voices

Voltas

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 629

Target Price INR 550 | -13% Downside

Neutral

Projects

International projects



The situation in GCC countries indicates a slow pickup in economic activity,

mainlytied to the upcoming mega events in the geography.



In the UAE, witnessing award of contracts to the main contractors for Expo 2020

related work at Dubai.



As far as Qatar is concerned, the company remains conscious of the political

impasse and has adopted a cautious approach toward suitably risk-

mitigatedorderbooking.



Have been very prudent in picking up profitable projects - also focusing on

closingprojects and receiving cash on these projects.



INR6b of projects in Qatar - looking at alternative sources for products.

Domestic



GST-related issues have impacted turnover of this business, as contracts getting

renegotiated; this took some time to settle down and hurt execution for

themandwill continue into Q318 as well.



Margin improvement on focus on better-margin orders.



Govt. on infrastructure and electrification projects will drive orders in the



coming quarters



Rural electrification - been able to pick up sizeable jobs, which are suitably risk

mitigated – very selective in states where they are working.



Metros - focus more on underground metros; contracts are there for MEP post

thecivil contracts being awarded.



GST impact to continue in domestic projects in Q3 as well.

UCP



Q2 witnessed restocking of inventory; however, secondary demand was

affecteddue to pre-buying in June and prolonged monsoon.



Voltas brand maintained its No. 1 position in the Room Air-Conditioner

marketandimproved its market share to over 23%.



The early to market festive campaign, combined with customer friendly

promotionaloffers/dealer support measures, met with an encouraging

responsefrom the Trade.



Ramped up our products, with the right mix in the energy efficiency

segment,whichare being well received in the market.



Industry: 20% of inverters and 15% is for Voltas - have launched a no. of SKUs

inQ218 and made available across counters.



Inverters - will grow but not exponentially.



RM prices have been rising - bought the components much in advance and

hasbeensold out of the inventory; so not much impacted by the rising RM

prices.



Festive season - has been muted this year. Q218 is more of restocking

impact,butsecondary sales have been flat for them in Q3.

Market share gain in Q218 - gains driven by overall strategy,



Energy rating norms - too early to comment on pricing of EER models; Voltas

isprepared to launch new models.



Room aircon market was flat YoY.

November 2017

CAPITAL GOODS | Voices

Q4 is very critical - Q3 is a weak quarter and therefore Q4 will determine

overallA/Cgrowth; 1H18 growth is 12% in volume terms.



Top 30 cities contribute to the bulk of A/C sales.



14,000+ touch points for room aircon.



Room aircon industry grew by 12% in 1H18; 2H18 would be dependent

onsummerseason.

Engineering products and services



In the Textile Machinery business, the lingering effects of demonetization

apart,challenges in the GST implementation for the sector have slowed

downinvestmentsin new projects.



Pressure on margins due to the declining yarn prices and residual ambiguity

onimplementation of state-specific policies.



In Mining and Construction Equipment, Mozambique operations contribute

asignificant share to the Division’s performance.

Arcelik JV - launch delayed to 2H19



Locations for manufacturing are being finalized.



Brand logo, imagery have been finalized.



Personnel from both sides appointed across finance, manufacturing.



Working on Go to Market strategy for the durables product.



Will launch with a bouquet of microwave, fridges, washing machines

whichstandout in product quality and do a proper testing before launching

theseproducts.



Likely to launch the products to 2HFY19 - competition will be intense. So

willlaunchvery carefully.



November 2017

CEMENT | Voices

CEMENT

Companies expect demand revival to begin from 2HFY18, led by pick-up in rural demand on the back of good

monsoon. With no capacity additions coming up for the next 18-24 months in the North, utilizations are expected

to improve, leading to better prices, and hence, better realizations. The recent increase in petcoke prices is likely

to impact the cost curve of cement companies in 2HFY18. Additionally, higher diesel prices and busy season

surcharge in rail transport would increase freight cost.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook FY18-19

Volume Growth



The outlook for the sector remains positive due to demand generated



Volumes increased on

by affordable housing, better monsoon and rural demand.

account of ramp up of

Ultratech



Management expects healthy demand from the west due to projects

acquired JPA assets

likeTrans harbor link.



Demand in most of the



Also, the bullet train project will provide significant boost to the

markets was hit by sand

cementsector.

mining ban. However, the ban



Utilization levels for Ultratech stands at 65% north; 50% central; 70%

has now been uplifted in

East;50% south and 70% west

certain states, and demand



Rebranding exercise for acquired assets was completed with pricing at

should gain momentum going

parwith UTCEM.

forward.



Capacity utilization for JPA assets will reach 60% by June 2018



White cement (incl. wall

putty) volume rose 8.5% YoY



FY18 should witness grey cement volume growth of 7%.

to 0.30mt due to GST-led

JK Cement



North is operating at 76% utilization while south is operating at 56%

restocking and Katni unit



Company plans to incur capex of INR2-2.5b, of which INR250m will be

ramp-up.

utilized for putty expansion; INR300-400m for acquiring mining land;



Grey cement volume rose

remaining INR1,050m for maintenance and environmental capex in

17% YoY to 1.93mt due to

existing plants.

higher clinker exports to



Katni expansion will be completed by June 2018, post which capacity of

Nepal and strong growth in

putty will be 0.9mt

north due to market share

gains (led by ramp-down of

Binani Cement)

ACC Ltd

Click below for

Results Update



Current Price INR 1,706

Target Price INR 1,797 | 5% Upside

Neutral



Raw material cost/t increased 14% YoY due to an increase in slag price and

sourcing of fly-ash from long lead distances.

Raw material cost increase was limited to some extent via gypsum and raw mix

optimization.

Power and fuel cost/t increased 7% YoY due to a rise in petcoke prices and

higher cost of domestic coal due to unavailability.

The company could improve energy efficiency to some extent via higher usage

of alternative fuels.

Rail freight cost reduced to lower lead distance.

Road freight was maintained at the same level as of previous year.

Freight cost/t excluding the impact of commercial terms declined 2% YoY due to

lower lead distance of rail.

November 2017

CEMENT | Voices

Birla Corp

Click below for

Results Update



Current Price INR 1,128

Target Price INR 1,435 | 27% Upside

Buy



The subsidiary, Reliance Cement has operated at 67% utilization for 2QFY18. The

utilization for other units was impacted due to weak demand in core markets of

U.P.

Eastern operations witnessed good demand coupled with higher share of

premium products.

Satna unit of Reliance cement witnessed decline in utilization to 67% in 2QFY18

due to weak demand in focus markets.

Higher input cost in form of petcoke prices impacted margins in the segment.

Dalmia Bharat



Current Price INR 3,028

Click below for

Results Update



Target Price INR 3,517 | 16% Upside

Buy



East has grown by 9% YoY in 2QFY18 and 19%YoY in 1HFY18, and should

continue to report robust growth led by favorable demand from affordable

housing.

AP/Telangana should grow at 15-18% for the year having witnessed growth of

18% YoY in 2QFY18. Irrigation projects and upcoming projects in Amravati will

drive growth in this region.

Karnataka should grow at 5-6%YoY for FY18, while North-East is expected to

grow at 4-6% YoY.

Increase in slag and petcoke prices has impacted unitary cost. Slag prices have

increased from INR700/t to INR1,100/t in the last 3-6 months. Consumption rate

for Dalmia is USD 85/t, as against industry average of USD 105/t, while petcoke

is 76% of the fuel mix.

The company has increased its inventory of slag and petcoke, which has led to

an increase in working capital by INR2.5b.

Freight cost increased only 3% YoY, despite a 7% YoY increase in diesel prices, as

lead distance reduced to 270km from 290km earlier.

Net debt has reduced QoQ by INR3.2b. Net debt/EBITDA stands at 2.2x.

The company is likely to complete the commissioning of a 9MW WHRS in Orissa

by March 2018 toward which it will incur capex of INR1b.

OCL merger should be complete by FY18-end.

Grasim Industries

Current Price INR 1,182

Click below for

Results Update

Target Price INR 1,302 | 10% Upside

Neutral

Viscose Industry



Demand for VSF is growing at a double rate than for competing fibers.



VSF prices remained firm during the quarter, led by plants closures/downturn in

China due to environmental factors.



VSF demand in India is growing at ~8% (+200bp higher than global demand).



Grasim will continue to focus on expanding usage and application of VSF in the

domestic textile market by leveraging on the brand LIVA.

November 2017

CEMENT | Voices

Chemical Business



Supply constraints due to environmental considerations in China and weather

disruption in the US led to a sharp increase in international caustic prices.



Demand is expected to stay robust for caustic soda.



The quarter witnessed a recovery in chlorine prices; however, oversupply

situation continues.



New capacity additions will lead to higher caustic supply.



Brownfield expansion at Vilayat from 220K TPA to 365K TPA expected to be

commissioned by 4QFY18.

Financial Services



With the listing of Aditya Birla Capital Ltd, the NBFC achieved a highest-ever

lending book, and the long-term issuer rating was upgraded to ‘AAA’.



AMC business is the 4th largest in India, with highest-ever AUM market share at

10.7%, while domestic equity market share is 9.9% as of 1HFY18.

Cement Business



Acquired assets are expected to cash break even by June 2018.



Higher petcoke prices are affecting energy costs.

India Cement

Click below for

Results Update



Current Price INR 171

Target Price INR 188 | 10% Upside

Neutral



Demand:

Demand in south was affected, with Tamil Nadu declining 12% YoY in

1HFY18 due to political instability and sand mining issues.

AP/Telanganaregisteredgrowth of 4% YoY for the same period. This has resulted

in southrunning atutilization of sub-60%.

Gross debt:

ICEM’s gross debt has increased by ~2.5bn in 1HFY18, led by a

riseofINR2.8b in receivables due to credit extension to trade as it has entered

newmarkets.

Capex:

ICEM intends to incur INR1.5b toward maintenance capex in FY18,

andhasincurred capex of INR700m in for 1HFY18.

Costs:

Fuel mix consists of 81% petcoke, which was priced at USD92 for

2QFY18.Petcoke price increased from USD45 in 1HFY17 to USD90 in 1HFY18 due

to anincrease in power & fuel cost.

Other Expenses:

Other expenses were lower in the quarter due to the

absenceofadvertising and maintenance cost. Maintenance cost was higher in

1QFY18due toshutdown of two kilns.

Other details:

The trade/non trade mix is 63%/37%. PPC/OPC mix is

64%/36%.Southconstitutes 64% of sales mix, while west, north and central

cumulativelycontribute36%.

JK Cement

Click below for

Results Update



Current Price INR 1,031

Target Price INR 1,324 | 28% Upside

Buy



2QFY18 saw clinker sale of 80,000 tonnes, which led to higher grey cement

volumes. FY18 should witness grey cement volume growth of 7%.

North is operating at 76% utilization and south at 56%.

Katni expansion will be completed by June 2018, post which capacity of putty

will be 0.9mt.

Net debt for the company stands at INR17.34b; net debt reduction by INR1.8b in

1HFY18.

November 2017

CEMENT | Voices



Company plans to incur capex of INR2-2.5b, of which INR250m will be utilized

for putty expansion; INR300-400m for acquiring mining land; remaining

INR1,050m for maintenance and environmental capex in existing plants.

Prices have lowered by INR8-10/bag v/s 2QFY18 average prices.

UAE operations are not seeing improvement in profitability due to demand

weakness.

Spot petcoke prices have increased by INR600-700/t from average of 2QFY18

levels.

JK Lakshmi Cement

Current Price INR 408

Click below for

Results Update



Target Price INR 512 | 25% Upside

Buy



Volumes: North registered growth of 6% YoY, while east volumes grew 27% YoY.

East contributes to ~24% of the sales mix. Overall capacity utilization for the

company stands at 65%.

Realization: Realizations in east were affected by a price cap in Chhattisgarh.

Profitability: EBITDA/t differential between north and east operations is around

INR400/t (INR300/t due to cost differential and realization difference of

INR100/t).

Cost-saving initiatives: The company has started a trial run of 7MW Waste Heat

Recovery Plant at Durg, which will be operational in 3QFY18. The plant is likely

to fetch an improvement of INR 40-50/t in power & fuel cost for eastern units.

The 20MW thermal power plant will be completed by 3QFY19.

Debt: Gross debt for standalone operations stood at INR22b, while net debt

stood at INR17b. The company plans to repay INR2b of debt in FY18.

Fuel mix: North consume 85% petcoke, while east consumes 60% petcoke.

Cost: Freight cost/t increased due to a change in commercial terms from Ex to

FOR.

Product mix: Overall mix for the company is 41% OPC; 55% PPC and 5% slag.

Capex: The company plans to incur INR 1.4b of capex for FY18, of which INR1b

has already been deployed in 1HFY18. Capex is expected to be the same in FY19.

Ultratech Cement

Current Price INR 4,193

Target Price INR 4,906 | 17% Upside

Buy

Click below for

Detailed Concall Transcript &

Results Update

New assets EBITDA-accretive



Infused working capital for ramping up of the acquired assets of JPA.



Improved and stabilized quality of plants, and new products have started

gaining market share.



Added new dealers and retailers to its network, and engaged sales and technical

professional in new market.

Demand trend



Demand in most of the markets was hit by sand mining ban. However, the ban

has now been uplifted in certain states, and demand should gain momentum

going forward.



Management expects healthy demand from the west due to projects like trans-

harbor link.



Also, the bullet train project will provide significant boost to the cement sector.

November 2017

CEMENT | Voices

Power & fuel cost and logistics cost on a rise



Increase in petcoke prices has led to higher power & fuel cost.



Average petcoke consumption price for the quarter was USD90 v/s spot prices

of USD105/t.



Raw material cost was up 3% YoY due to an increase in slag prices.



7% YoY increase in diesel cost led to a 4% YoY increase in freight cost.



Freight cost declined 2% QoQ due to rail freight exemption of busy season

surcharge for 2QFY18.

November 2017

CONSUMER | Voices

CONSUMER

Post GST, the trade channels are getting back to normal and consumer off-take has improved. Rural outlook

appears buoyant, with companies like HUL, Marico and Dabur reporting either similar or faster growth in rural

sales compared to urban sales after a long time. Worries on both the wholesale channel and rural sales are

receding faster than expected. Importantly, rural sales have started gaining momentum even before the benefits

of good monsoon and government initiatives like DBT, MSP increases and farm loan waivers have started to come

in. The much-vaunted earnings revival in the sector appears poised to come through, and rural-dependent plays

are likely to be at the vanguard.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Impact of GST



Management comment on Outlook

Rural



Asian Paints



No significant change in cost items

where input tax credit was not

available earlier or vice versa.

Recovery post GST destocking in paints

was witnessed only from September.

Dealer level inventory only partially

back to pre-GST levels.

Disruptions now behind them and

outlook appear to be improving.



Capex will be INR12b in FY18,

including Greenfield expansion

at Mysuru and Vizag (INR10b

combined), both of which will

be commissioned in FY19.

Cost efficiency programs will

generate savings of INR 2.5b in

FY18 (was INR1.5b in FY17). 40%

of the yearly target achieved in

1HFY18.

MENA region performance

would be better from 3QFY18

and particularly from4QFY18.

Gross and EBITDA margins are

likely to be flattish over the near

term as thecompany wants to

rebuild the top line.



Britannia



Rural growth looks

better than urban.

Rural growth at 11%

higher than urban



growth of 10%.

Management believes

ongoing and



subsequent

government schemes

will bebigger driver

compared to monsoon

which has been patchy.

Expect gradual

improvement in rural

demand.



Dabur



5% impact of GST accounting and

currency issues.

Hindustan

Unilever



Company cut prices even in body lotion



to boost growth, despite effective GST

rate for the category at 28%.

Management expects inflation

to continue.

For the domestic business, the

management has maintained its

guidance of 8-10% volume

growth with EBITDA margins of

around 20%.

CSD likely to be normal by

4QFY18. This had an effect on

Saffola sales in 1HFY18.

Management believes it has a

very strong costs program

embedded in the organization

culture to drive up margins in

the long term.



Marico



GST was neutral to positive for Marico.

Reduced prices by 5% in VAHO and

3.5% in Saffola to pass on benefits.



Rural sales grew by

14% and urban sales

grew by 10% in

2QFY18.



November 2017

CONSUMER | Voices

Asian Paints

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 1,168

Target Price INR 1,280 | 10% Upside

Neutral

Demand scenario



Early onset of the festive season led to demand revival (high-single-digit volume

growth). Management did not mention whether or not the early onset of the

festive season was the main reason for apparent revival.



International business affected by material availability and forex issues.



Recovery post GST destocking in paints was witnessed only from September.



Company stated that it did not lose market share to competitors in the states

where it has presence. There is some regional variance in terms of paints

category growth.



Both Essess and Sleek saw sharp a recovery in sales in 2QFY18, compared to

1QFY18, when GST effect on these was far more severe than the paints

business. Essess saw double-digit like-to-like sales growth YoY in 2QFY18.



Very early days to comment on the adhesives business performance.



Part of demand in case of exterior paints had been affected by delayed

monsoon stretching up to October, instead of ending in September.



Dealer addition was weak in 1HFY18. Not sure if they will be able to add 4,000-

5,000 dealers targeted in FY18.

GST



No significant change in cost items, where input tax credit was not available

earlier or vice versa.



Dealer level inventory only partially back to pre-GST levels.

Strategy



Do not plan to have an FMCG-like distribution structure.



If affordable housing is mainly going to be in whitewash and cement base paints,

then APNT will not be a beneficiary, but there may be opportunity for repainting

on purchase of the flats.



Both volume market share and value market share are important for APNT.

Price increases and margins



Raw material prices continue to be high (stable sequentially), and the company

intends to monitor the same to protect margins.



In May, there had been a 2.7% price increase following a 3% rise in March. No

price increase was taken in 2QFY18.



Direct dependence on crude is only related to solvent-based products, which

form 15% of production. The other petroleum-based products are more

dependent on demand and supply rather than crude link.



There was no one-off in other expenses or other income.

Balance sheet and capex



Capex will be INR12b in FY18, including Greenfield expansion at Mysuru and

Vizag (INR10b put together), both of which will be commissioned in FY19.



No tax implication on the profit on sale of Caribbean assets.



Other non-current assets increase was because of capital advances paid on

plants. The increase in the other current assets is more due to GST and will

sustain going forward as well.

November 2017

CONSUMER | Voices

Britannia Inds

Click below for

Results Update

Current Price INR4,758

Target Price INR 5,845 | 23% Upside

Buy

Performance, industry and outlook



Disruptions now behind; outlook appears to be improving.



July sales were flat. Thus, healthy growth was witnessed in the remaining two

months.



Britannia was able to do well in the past two years, despite disruptions in the

form of slowdown in industry, commodity cost inflation and

demonetization/GST-related disruptions, etc.



Kerala distributor disagreement impact: Partial impact during quarter. 95%

stabilized now. 3QFY18 will be normal. Did not end up giving higher margins

unlike other consumer peers.



Domestic volume growth was just under 6% in 2QFY18.



Bread business growth and margins have improved substantially. Price increases

and cost-efficiency measures have helped profitability. ‘Modern bread’ is

looking at profitability under the new PE ownership.

Segmental details



Cakes and rusks growth was higher than domestic average growth.



Dairy would have declined YoY on account of product rationalization. Cheese

sales grew in double-digits.

New/recent initiatives



Launched two products – Good Day Wonderfuls and Treat (Kool Vanilla and

Funky Chocos variants) – in 2QFY18.



Will enter one new geography every year; this year Nepal. New category is

croissants. Both initiatives are being helmed by talent from Britannia.



Attracting outside talent as well. Bread cakes rusk now helmed by Jayant

Kapre,(ex McVities India head) who is in place for four months now.



Individual responsibilities make sure that both growth and profits of each

business are well take care off.



Working on innovative products in cakes, rusks and cheese.

Distribution expansion, regional growth and share



Direct reach: 1.8m outlets now.



Gained 170bp market share in weak states in central India. Shares are still in

early teens in these states, so a long way to go.



Rajasthan was up 27% YoY, MP by 15.5% YoY, UP by 15.1% YoY (big

improvement) and Gujarat by 14.3% YoY in 2QFY18.

Material and operating costs



Except sugar and milk, raw material costs have been stable. Flour and refined

palm oils are actually down. Milk costs are also trending down. Pricing increase

may not be required. Both value and premium segment have started growing at

a similar pace.



Cost-efficiency programs will generate savings of INR 2.5b in FY18 (was INR 1.5b

in FY17). 40% of the yearly target achieved in 1HFY18. Focus will be on distance

reduction, which is currently at 400km and expected to reduce further by 25% in

2-3 years’ time. Wastage reduction is another area of cost saving. Network

optimization will be done under the GST regime over the next 2-3 years; also

negotiating with vendors which have got low rates of GST.

November 2017

CONSUMER | Voices

Capital investment and expansion



Guwahati factory will be operational in six months.



Investing in capacities for the international business as well. Setting up a factory

in Mundra SEZ and another factory in Nepal.



Mix between own and outsourced manufacturing will remain at 65:35 going

forward.

Dairy strategy



Will have an end-to-end supply chain first.



But still in experimental stage on broad procurement strategy. Will finalize in 3-

4months.

Other details



Croissant will be under one of their own brands.



There was a one-off INR170m on employee costs on pension.

Dabur

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 337

Target Price INR 395 | 17% Upside

Buy

Results



5% impact of GST accounting and currency issues.



Saw very little restocking during the quarter.



1.5% increase was due to price and another 0.5% was due to mix. Raw material

inflation benign. There may only be 2%-3% realization growth for the remainder

of the year.



Other expenses declined due to GST accounting and cost savings. Entire

beverage business is now manufactured by them instead of 30% of portfolio

being outsourced earlier.



Urban wholesale not showing signs of revival. Rural wholesales and super

stockiest doing well. Modern trade doing very well. Direct sales increased by 9%

YoY. Modern trade grew by 21%.



CSD declined significantly by 25% YoY. Lower level of CSD sales will be good for

margins (as CSD sales happen at a discounted price) but bad for topline.

Outlook and guidance



International business advertising will go up going forward as recovery is likely.



Honey should post good growth going forward. Chyawanprash too early to call

out as early winter has been warm.



MENA region performance would be better from 3QFY18 and particularly from

4QFY18.



Gross and EBITDA margins are likely to be flattish over the near term as the

company wants to rebuild the top line.

Rural and Urban Growth



Rural growth at 11% higher than urban growth of 10%. We note that after HUL

and Marico, this is the third company in 2QFY18 which has called out either

equivalent or higher growth for rural. It is after a long time that such

momentum is being seen in rural. With benefits of near-normal monsoon and

weak base going forward, rural growth prospects appear to be buoyant.



Expect stimulus ahead of elections, which will drive rural growth. 2013, the year

before the last elections, was a very good year for Dabur.



Management believes ongoing and subsequent government schemes will be

bigger driver compared to monsoon which has been patchy.

November 2017

CONSUMER | Voices

Herbal/Natural space has expanded categories



Herbal/ natural is at least 20% of the oral care category. Combination of market

share gain and new customers coming in toothpaste.



Honey is gaining share from other sweetening products.

Key segmental highlights



Odomos grew double digits, ahead of recent trend.



Honey reported 8% growth, healthy growth after a long time.



Market share in juices grew ~200bp YoY (55% share now). On a sequential basis,

both Tropicana and B Natural have lost share.



Toothpaste market share up 90bp in value; Hair oil little lower YoY in value

terms but higher in volumes.



Down-trading and low unit packs are becoming endemic in the hair oil category

due to low commodity costs, plastics costs coming down and GST rates coming

down.



Almond Oil doing very well. Close to market leader in Modern Trade and

equivalent to market leader in South India, a weak area for the incumbent. As of

now reaches 250,000 outlets.



Coconut Oil- - becoming aggressive as rising Copra prices gives room for

organized players.



Lower-end juices entry under Real Coolers is because of excess capacity in Sri

Lanka and Pantnagar facility. Launch has been in South India, which is a very

underpenetrated market.



Dairy-based beverages bigger competition to beverage portfolio.

Emami

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR1,291

Target Price INR 1,435 | 11% Upside

Buy

Outlook and guidance



Management sees early signs of recovery in the demand environment. For

HMN, wholesale recovery has been better in North India so far compared to

South India, which is surprising. Some parts of North India are still weak.



Winter has started on a good note; hence, good numbers from Boro Plus

already.



Management had stated at the end of 1QFY18 that remaining 9M sales will be

up 16-17% YoY on like-to-like basis. It maintains the same guidance at the end of

2QFY18. New products will contribute 1-1.5% of incremental growth. This new

product contribution is lower than usual levels or earlier levels of 3-4% because

of postponement of some launches in the slowdown period.



Navratna, Boro Plus and Fair & Handsome are seeing good retail off-take, and

rural sentiment is recovering. This and weak base gives HMN confidence on

strong growth in 2HFY18.



Focus is primarily on double-digit volume growth. If high margin products like

Boro Plus continue to do well and Kesh King recovers, then HMN can achieve

strong volume growth with no impact on margins.



HMN has already taken price hikes on the winter portfolio. While mentha prices

are increasing, the growth in other commodity prices is moderate.



HMN maintains that it is likely to be net cash by March 2018.



Capex will be INR 1.5b in FY18, and subsequently, ~INR1b each year.

November 2017

CONSUMER | Voices

Reducing wholesale channel dependence



Added 60,000 outlets in 1HFY18 to reach 780,000 outlets; targeting 830,000 by

March 2018. Surprisingly, despite the problems on wholesale, the management

has not revised upwards the target mentioned at the end of the previous year.



Wholesale sales proportion is 42%, down from 50% earlier; targeting 35% by

March 2019.



Modern trade proportion has increased from 4% in the beginning of the year to

5-5.5% at the end of 2QFY18. Modern trade sales grew 40% YoY in 2QFY18.

Kesh King update



There has been a new campaign on Kesh King to drive growth. But wholesale

channel needs to recover for growth in this product, which has 75% wholesale

dependence. Management expects that by the end of FY18, wholesale channel

should be close to complete normalcy.



The company believes it has actually gained market share on Kesh King despite

the sales decline during the quarter.

New launches/ update on recent launches



HMN targets new offerings in Healthcare with high decibel advertising to drive

growth. These launches will be in OTC, and not prescription-based. It is piloting

some products in 3QFY18 and will subsequently launch nationally.



He is around 10% of the male grooming range in terms of sales with the

remaining coming from Fair & Handsome.



HMN believes that its recent nationally launched women’s hair color product

(Diamond Shine) is better than peers and pricing is also competitive.

Elaboration / Clarifications on results



2QFY18 saw 14% like-to-like sales growth.



Domestic business grew 14% and international business grew 22% in 2QFY18 on

a like-to-like basis.



Like-to-like A&P is 10% higher, unlike reported flat growth, because of service

tax component in the base.



Fair and Handsome saw 4% volume growth and 10% value growth.



Boro Plus saw 33% volume growth.



Navratna saw 16% volume growth in 2QFY18.



Pancharisht reported 13% volume decline in 2QFY18.



Has factored only the central government component as refund in case of excise

free zones.



Sachets contribute 24-25% of sales for the company.

Godrej Consumer

Current Price INR 958

Click below for

Detailed Concall Transcript &

Results Update

Target Price INR 1,015 | 6% Upside

Neutral

Domestic business details



Believe that out of 10% domestic volume growth, 1% was due to restocking.



GCPL was another company after Marico, Dabur and HUL to mention that rural

growth was percentage point higher than urban in 2QFY18.



Post GST, the trade channels are getting back to normal. and consumer off-take

has improved.



Wholesale channel back to 80-85% of normal levels. By end of 3QFY18,

management expects wholesale to be completely back on track.



Will continue to grow direct distribution by around 10% every year.

November 2017

CONSUMER | Voices

Segmental details



4% YoY sales growth in Household Insecticides (HI) was on a very strong base of

18% in 2QFY18. Coil business witnessed de-growth as it is more dependent on

the wholesale channel. Encouraging initial response to personal repellents.



Hair Color: Wholesale business dependence and east dependence of powder

hair color resulted in slower growth. Planning a couple of tactical innovations in

powder over the next two quarters. Have gained shared in Crème sales.

Medium-term focus will be on the value-added and premium segments.



Entire growth in HI and Hair Color was volume led.



Soaps: Gaining share in both Godrej No.1 and Cinthol. 26% growth was on a

weak base of 10% decline in 2QFY17. Gaining share from local and unorganized

players.



In categories like Aer Pockets, penetration is in single-digits, and so new

launches by competitors expand the category.

Overseas business



Indonesia sales performance has improved sequentially. Early signs of recovery

seen. Macro environment in Indonesia still weak. Management changes

successfully made. Regained some lost share in HI in Indonesia.



Kenya and South Africa had macro weaknesses, so pleased with double-digit

sales growth. Investing in wet hair care business and hence EBITDA margin

declined. Out of 13% sales growth, half was volume growth. Expect even better

performance in 2HFY18 in HI in Africa, with launch of wet hair products gaining

traction.



LatAm business was very weak in 1QFY18, so management suggested that

performance should be looked at on a 1HFY18 basis.

Margins



Reason for healthy gross margin growth: Good cover on Palm oil, lower

consumer offers YoY, cost-saving project Pi meant key ingredients in HI were

substituted with cheaper materials. Mix improvement in HI with lower share of

coils also helped.



Have 3-4 months production worth of inventory in palm oil.



Ad spends in India business up by 40-50bp on comparable basis. Might go up by

100bp in 2HFY18.

Targets



HI sales can grow at 11-14% CAGR. Only 50% penetration of the category.

GSK Consumer

Click below for

Results Update

Current Price INR 6,038

Target Price INR 5,400 | -11% Downside

Neutral

Business environment



Like-to-like sales adjusted for GST grew 4.8% YoY. Like-to-like domestic sales

were up 6% YoY while exports declined 26% YoY. Domestic volume growth was

2.5% in 2QFY18 (on the base of 3% decline in 2QFY17) and price increase was

around 4%. Price increase was taken in 1QFY18; no price increase since then.



Market share decline has been arrested sequentially, but YoY share decline and

decline over March 2017 continues.



Category growth was around 5% compared to 4.8% growth in HFD for SKB.



Exports were flattish in 1HFY18.

November 2017

CONSUMER | Voices

Sachet volumes are growing in double digits. Anecdotally, 20% of users upgrade

to larger packs. Sachets constitute 8% of sales and have lower gross margins

compared to large packs.



On CSD, SKB achieved 70% of pre-GST run rate in 2QFY18.



Changed ad agency from JWT to FCB to improve communication.



230m people consume HFD already. Trying to increase amount of purchases per

household as well. Demand goes up during exams and during monsoon; so, not

all 230m customers consume HFD products throughout the year. 20% of

customers consume 60% of volumes, SKB believes.

Material costs and price increases



For 2QFY18, SMP costs were up YoY. SKB sees some softening on SMP prices,

going forward.



Maintains that price increase will be in line with CPI inflation, something that

SKB has been stating for a few quarters now.



Price increases are now 1x CPI; were 1.5x CPI in earlier years.

New opportunities including Growth Plus



In September 2016, SKB had launched Growth Plus (competing with Pedia Sure),

which has been rolled out in five states with advertising support as well now.

Growth Plus is getting increasing share of recommendations from doctors. Will

decide on when to take it national; Abbot took 10 years to scale up Pedia Sure.



Growth Plus still in formative years. Takes time from doctor recommendation to

share gain. Shift happens very slowly, as mothers go through the whole course

of consumption. In states where SKB has launched Growth Plus, it has 25-30%

share in this sub-segment but single-digit share in the segment. Management

believes Growth Plus is a superior product to Pedia Sure and works without

adding weight. Price parity with competition instead of 10% premium.



HFD extensions? Is SKB looking at RTD and flavored milk? Will participate when

it has the products and packaging in place in these categories.



New categories? Focus will be on HFD. Has Biscuits, foodles and oats already as

newer categories. To look at right-to-win and science-based strength in new

areas.

Business auxiliary commission



Business auxiliary income was flat. Pharma channel has taken time to recover

from GST implementation glitches. Focus was more on getting supply of

essential drugs in order rather than OTC, and hence, business auxiliary

commission growth was affected. This channel has recovered in October.



Sensodyne has seen a small increase in share in sensitivity oral care. See a

challenge for further growth in this segment in the near term. More focus will

be on even better communication of benefits rather than a herbal move.

Financials and guidance



Other expenses decline was due to lower royalty YoY, CSR phasing, one-off in

other expenses line (INR100m in 2QFY18).



Earlier indirect tax incidence was slightly lower than current 28% GST rate.



Management is working towards attaining double-digit revenue growth.



November 2017

CONSUMER | Voices

Hindustan Unilever

Current Price INR 1,274

Click below for

Detailed Concall Transcript &

Results Update

Target Price INR 1,440 | 13% Upside

Buy

Outlook



Expect gradual improvement in rural demand.



Rural growth in line with urban growth. Management believes it needs to grow

faster, but as of now, it has recovered from lower levels.



Input costs starting to inflate. Management expects inflation to continue.



Company believes that improvement in oral care sales is a few quarters away. In

our view, the company seems to have given up after yet another re-launch of

Pepsodent; now banking on Lever Ayush oral care products.



MSP increase in wheat is another significant positive.



Premium portfolio is only 25% of total. Thus, there is huge room to grow in the

longer term. Premiumization trend continues even in recent quarters, where

volumes, including in rural, have recovered.



No update of remaining 42% of fiscal benefit that was available earlier as credit.

More highlights from results



Company cut prices even in body lotion to boost growth, despite effective GST

rate for the category at 28%.



8% comparable sales growth in 1HFY17.



Input taxes to be added back to sales in order to arrive at adjusted sales include

octroi, cenvat and CST – many of which were part of costs earlier.



Gross profit also increased strongly, partly because of a weak base.



The quarter saw 15 days of no buying from CSD. Now, CSD back to 85-90% of

normal levels.



Tax reduction on turnover was set-off by price reduction. Hence, 6% YoY

realization growth in 1QFY18 was retained in 2QFY18 as well.



Market shares up in many categories – the only challenge is oral care.



Bulk of growth is coming from the core categories.



Difference between segmental EBIT growth of 11% and overall EBIT growth is on

account of an increase in un-allocable expenses.

New launches



Indulekha has attained clinical results to actually be able to re-grow hair.



Indulekha growing ahead of initial targets.



Pleased with initial response to national rollout of Lever Ayush. It is focused

onurban consumer and across channels.

Guidance



Tax rate will be ~30% in FY18.

Jyothy Labs

Current Price INR 333

Target Price INR 365 | 10% Upside

Neutral

Click below for

Results Update

Demand scenario



Consumer demand showing signs of pick-up, especially in rural market.

RuralacrossIndia has been mostly strong for the company, barring a few districts

thatreceivedlow rains.



CSD expected to be normal sometime in 2HFY18.



3.5% price increase YoY. Volumes were also up 3.5% YoY. Price increase

includesUjala and Margo, and also has the effect of removal of promotions

ondetergents.

November 2017

CONSUMER | Voices

The company witnessed strong 19% YoY growth in October, after 10% like-

tolikesales growth in 2QFY18. Primary and secondary sales were largely similar

forthisperiod.



All distributors are GST-compliant. As yet there has not been any

bigconsolidationof wholesalers, barring a few markets where some

wholesalersthat were adopting await-and-watch approach lost out to those that

werequicker on compliance.

Details on categories and brands

Ujala



Ujala Supreme saw a decline of 12%. Wholesale plays big role and

Keraladistributorissue also affected them. Company is over-indexed in Kerala

relativeto peers.Situation is now normalizing.



For older brands with wide rural presence like Ujala, wholesale proportion

ishigher.



Ujala is available in 3m outlets. The company is planning a new campaign

onUjalaSupreme.



Ujala variants have done very well.

Maxo



Sale of machines saw huge growth of 145%. Proportion of machine sales to

totalliquid sales grew from 7% to 16% in 1 year.



Earlier strategy was to fit it into any machine.



Innovation is more on the machine, as active content of most players is

almostsamein liquid. Now since there is genuine innovation and differentiation

inmachine, theyare focused a lot on increasing machine sales. In their

machines,switching from highmode to low mode is automatic once mosquito

threat islower.



Propensity to use the same brand liquid is high if a customer has a specific

brandofmachine.



Liquid sales are 35% of JLL’s Household Insecticides (HI) sales.



HI category sales have been muted. Maxo is more of a share game for

thecompany.

Other categories



Doing work on the neem toothpaste category, given strong growth in the

herbaltoothpaste category.

Working with Henkel



Mutually exploring options with Henkel to work together. Erstwhile

agreementsonFa and Pril will continue. The period for stake purchase has

however expired.



Pril and Fa are at 2% royalty up to perpetuity as per initial agreement.



Now both are free to work with other partners.

Guidance



Management expects close to double-digit volume growth in 2HFY18, with

~15%sales growth and 16% EBITDA margin.



Tax rate guidance for FY18 is 15%. 2QFY18 tax rate was higher than expected

asscale up in Guwahati tax free zone was slower than expected, an issue that

hasbeenaddressed now. From FY19, tax rates will be ~21%.



November 2017

CONSUMER | Voices

Manpasand Beverages

Current Price INR 404



Target Price INR 492 | 22% Upside

Buy

Click below for

Results Update



2QFY18 witnessed a steep increase of 480bp in other expenses, which stood at

16.5% of net sales, on account of higher advertisement expenses at INR90m v/s

INR30m in 2QFY17.

Revenue from Mango Sip increased by 18% YoY to INR970m and from Fruits up

by 21% to INR290m, with growth largely driven by volumes. The contribution

remained flat at ~77% and ~23% from Mango Sip and Fruits up, respectively.

Depreciation has declined from INR240m in 2QFY17 to INR170m in 2QFY18, as

in lean quarters (Q2,Q3), single shift depreciation is charged v/s double shift

depreciation in Q1 and Q4.

The quarter witnessed commencement of product supply through Parle

distribution network in West Bengal. The supply is witnessing good traction, and

the company expects to expand it to entire eastern zone in FY18.

Capacity expansion plans of the company are on track, with the Vadodara plant

expected to get commissioned by Dec’17 and other plants in a gap of 3-6

months from then.

The company has reduced its focus on Coco Sip as the product requiring

specialized approach and preservation was being manufactured from an

outsourcing agency, and thus, it was getting difficult to manage quality and

supply quantity. Going forward, the company has planned its own line in Sri City

plant and will ramp-up Coco Sip once the plant is commissioned.

The company has developed a new product under the brand name ‘Siznal’,

which is a mix of fruit and vegetables, and contains honey as a sweetener

(doesn’t contain any sugar). The new product is a health-based year-round drink

and is currently in the test market phase. The commercial launch is expected

soon.

Marico

Click below for

Results Update

Current Price INR 304

Target Price INR 340 | 12% Upside

Neutral

Broad outlook/clarifications



There has been a significant recovery in the Indian business, although there are

some pockets of concern on CSD and wholesale.



Management believes wholesale recovery is largely done. In east, the resistance

for compliance is highest and so some channel partners have even moved out of

business.



Over the medium to long term, however, wholesaler’s contribution will

gradually come down. This is good for market leaders and more for organized

players.



Direct distribution, modern retail and wholesale B2B will take share away from

wholesalers.



CSD likely to be normal by 4QFY18. This had an effect on Saffola sales in 1HFY18.



Management believes it has a very strong costs program embedded in the

organization culture to drive up margins in the long term.



Key reason for not taking a very sharp price increase in Parachute beyond 10%

hike taken in October is the very strong opportunity for volume growth in the

medium term and the volatile demand environment currently. Rural market

share is 41% for Parachute v/s around 59% in the national Coconut Oil market,

which provides opportunity for growth.

November 2017

CONSUMER | Voices

GST

GST was neutral to positive for Marico.



Reduced prices by 5% in VAHO and 3.5% in Saffola to pass on benefits.

Segmental details/segmental guidance



Vietnam business had execution issues during the quarter. Looking to improve

on that front. Price increases did not work in that region.



Parachute reported 1.1% market share gain.



Saffola growth in 2HFY18 will definitely be better as CSD channel recovers.



At least 15% YoY growth is likely in Male Grooming in 2HFY18.



Virgin coconut oil a big fad in Western world. May not be very large in India in

terms of category size over the long term, but presents a good opportunity in E-

Commerce as a portfolio addition. Have launched Parachute Naturalz Virgin

Coconut Oil exclusively on e-commerce.



Management believes that new meal replacement product Saffola Active

Slimming Nutri Shake has high growth potential. This is available in 4 flavors,

Swiss Chocolates, French Vanilla, Royal Kesar Pista and Pista Badam in 400g and

50g packs. Saffola food product sales have recovered well.



Parag Milk Foods

Current Price INR 235



Target Price INR 275 | 17% Upside

Neutral

Click below for

Results Update

Institutional cheese and butter dragged milk products business in 2QFY18.

Liquid milk business hurt by discounting by competitors, as PARAG chooses not

to discount.



Mega project incentive: This quarter’s revenue included INR86m of megaproject

incentive for two months. Mega project incentive is available for a period of

eight starting 1st Aug’17, and total admissible amount is INR2.79b (maximum of

INR349m per year).



Gross margin YoY contraction for 2QFY18 led by purchase of butter (to make

ghee) for festive season at higher price, lower realizations on SMP (as SMP

prices declining), and revaluation of inventory at lower prices.



Milk prices declining in 3QFY18; in 2QFY18, only September saw milk price

decline. Expect INR26-27 milk cost for FY18. In Q1, it was INR28. Prices to

stagnate at INR27/liter till Mar’17 due to inventory of SMP in the country and

availability of raw milk.



Sharp reduction in other expenses was due to INR30m saving on octroi, lower

transportation costs, and A&P savings.



Reach: 2.5lac retail outlets reach pan-India.



Exports for the company are 3% of sales.



INR1.5b whey protein market growing at 25-30%.



In cheese, B2B forms 50%.



Higher creditors: Butter purchases during the quarter contributed to higher

creditors.

Guidance and Outlook



A&P spends to be 2.5-3% for FY18.



Growth guidance of 14% CAGR over next 3 years maintained.



Ghee and Cheese will grow at 15%; other VADP at higher rates; SMP and

institutional business to decline.



PARAG expects INR250m revenues from sports nutrition product by March’17.

November 2017

CONSUMER | Voices

Page Inds

Click below for

Results Update

Current Price INR23,082

Target Price INR 25,580 | 11% Upside

Buy

Sales and volumes



Volume growth was around 8% YoY, but there has been a strong mix

improvement across categories, which led to 17% sales growth.



Men’s innerwear volumes were up by around 3.6%, but volume growth in other

categories was in high-single-digits or double-digits.



Management expect sales trajectory to continue going forward.

Material costs, other operating costs and pricing



Yarn costs remain soft. They had been on a downward trend since August (saw a

blip-up in October before declining again).



Management will review pricing in December before rolling out the increase

sometime in February.



There is no update on minimum wage increase for textile workers in Karnataka.

While minimum wages were increased in Karnataka earlier this year, textile

workers were kept out of the ambit of the increase and they had appealed

against the same.

Operating cash flow generation has been strong



We note that the net working capital increase of 16% YoY has been far lower

than the sales increase of over 20% in 1HFY18.



Other current and non-current investments have declined both YoY and QoQ.



Net cash and cash equivalents have thus gone up from INR813m at end-2QFY17

and INR54m at end-FY17, to INR2.27b at end-2QFY18.



Capex for FY18 and FY19 will be around INR600-700m each.

Pidilite Industries

Current Price INR 849

Click below for

Results Update

Target Price INR 975 | 15% Upside

Buy

Macro factors driving growth and company initiatives



Most of relevant contractors that take orders from customers (and give work

carpenters) are covered by Pidilite. They have had a strong outreach program

expansion in the last five years. Management did not share the number of such

contractors.



Geographically, no significant deviation in demand during 2QFY18.



Smaller places are seeing stronger growth for distributors, as wholesale channel

that was serving them has been struggling. Pidilite has been expanding reach in

towns where population is below 200,000.



Management continues to believe on large longer-term growth potential in the

Consumer Bazaar segment

Performance highlights



1QFY18 sales had been affected by delayed purchases; this quarter had restocking

and some segment growth. Too early to call out consumer demand revival.



Volume and mix growth in Consumer and Bazaar segment was in double-digits

in 2QFY18.



Early Diwali could have helped sales, but Diwali sales are not as important for

adhesives as it is for other categories like paints.



Early days on shift to organized players, but dealers are increasingly purchasing

from companies that are fully compliant. It also appears that companies that

comply and have a large distribution network are gaining at the cost of others.

November 2017

CONSUMER | Voices

Distributor inventory back to near normal. Smaller retailer inventory also near

normal. Wholesale inventory not yet normal.



No significant impact on share of newer competition.



There has been some impact on working capital in the near term on GST

implementation. Management does not expect a sustained increase in working

capital because of GST implementation.

Costs and margins



EBITDA margin expansion was largely due to lower-than-normal A&P in 2QFY18.

A&P was 1.7% of sales in 2QFY18, and will normalize over the next two quarters.

A&P will be 3.5-4% of net sales for FY18. Spent INR650-700m on A&P in 1HFY18.



VAM costs have seen increase to USD1000 now. Was, however, flat at USD920

between June and September.



Better product mix was the reason for sequential gross margin improvement.



No significant price increase was taken in 2QFY18.

Subsidiary performance



Nina and Percept (waterproofing subsidiaries) sales growth was 1% and 16%

like-to-like, respectively. Larger players in Construction industry still under

stress, but smaller players outside of large cities are still doing well. Because of

monsoon, 2Q is not an important quarter anyway. Nina had witnessed good

performance in 1QFY18.



ICA Wood Finish – sales grew 17% like-to-like in 2QFY18.

Guidance



Tax rates going forward will remain at 1HFY18 levels.



United Breweries

Current Price INR 1,078

Target Price INR 1,320 | 22% Upside

Buy

Click below for

Results Update

State- and region-wise performance



South saw 20% volume growth for UBBL, with Industry reporting 10% strong

volume growth.



UBBL gained market share in Telangana and AP, which combined was the largest

state for beer earlier.



Last year, they had mid-20% market share in TN and had not supplied in August

and September. Have 30% share now in 2QFY18, and full supplies have

resumed.



In two other key markets (Maharashtra and Karnataka), they have gained share

as well.



East witnessed light dip in market share for UBBL.



West saw 7% volume drop for UBBL, but the company gained market share.



Overall industry volume growth was very healthy at 5% in 2QFY18, despite the

highway ban.

Costs and margins



17% EBITDA margins for the first time after FY07.



There were no one-offs. There was a neutral effect of one-offs on income and

expenses.



Exports impact was very small on sales and volume; less than 1% of full-year

sales and volume.

November 2017

CONSUMER | Voices

State price increases/ distributor model change/ policy changes



11% volume growth and 23% sales growth mean that realization growth was

strong. This comprised of a good mix between price increase and mix

improvement.



No price increases in 2QFY18, but West Bengal, Karnataka and Maharashtra had

granted price increases and therefore prices were up compared to 2QFY17 last

year.



There has been a mid-single-digit price increase granted in Kerala this month.



West Bengal moving to corporation-led distribution model. There has been

some supply disruption. There may be some temporary impact on near-term

market share in the region. Unlike to impact profitability.



Maharashtra excise increases recently will lead to a drop in volumes, which

were dipping in the state anyway.



There has been an increase in receivables as corporations like AP are paying

later than usual. There has also been a change in structure in Telangana.

Strategy



Unlikely to sub franchise as tail-end brand sales are low and all segments make

money.

Competition and new launches



Not too concerned about

BIRA.

They have responded with a bevy of new brands

in the current year.



Initial response on bevy of international brands from Heineken stable has been

good.

United Spirits

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR3,240

Target Price INR 2,970 | -8% Downside

Neutral

Comments on Topline and outlook



Management is very pleased with performance in the quarter.



Renovation and premiumization led to strong growth in Prestige & Above.



Believe that they are growing ahead of competition.



Medium-term objective: Double-digit sales growth and mid-to-high-teens

margins. This quarter gives them confidence that this can be achieved.



The erstwhile worries on highway ban and GST are now behind. Management

has demonstrated its ability to deal with these events with agility. This gives it

confidence about managing any adverse events that may crop up.



1% volume growth in upper part of Prestige & Above (P&A) is far higher than

the lower part of P&A. Therefore, even here it is focusing more on value growth

first and then on volume growth.



Across consumer categories (including alcohol), Diwali demand was muted.



Out of 15,000 outlets that closed after the highway ban, 5,000 were opened.

Out of the remaining 10,000 outlets, 5,000 are in Maharashtra. Believe that

even if 5,000 odd outlets remain closed over the long term, then by March

2018, customers would move to other outlets.

Key highlights on brands



McDowell No 1, Royal Challenge and Signature all reported double-digit sales

growth. Antiquity has also been re-launched, and management expects healthy

growth in this key Prestige & Above brand.



Pleased with initial response to Captain Morgan rum brand of Diageo. 3Q is

crucial as it is the first winter quarter. This is the first attempt to premiumize

November 2017

CONSUMER | Voices

therumcategory, which has only popular brands with sales of 40-45m

cases.Believe CaptainMorgan can become as big as Smirnoff in India.



Launched Black & White 12-year-old recently.

Comments on Margins



Likely moderate effect of GST on margins in FY18.



Staff costs: One-off restructuring costs were INR130m in 2QFY18 v/s INR280m

in2QFY17.



Out of the reported YoY EBITDA margin improvement of 688bp,

franchisingcontributed 75bp and there was one-off of 145bp in the base quarter

2QFY17.Therewere some one-off restructuring costs as well. Thus, there was

underlyingEBITDAmargin growth of 19bp YoY.



Commodity inflation has been less than anticipated so far and may stay thatway.



Worst is over on state pricing drought. Andhra has given a price increase

inSeptember. No rhythm yet to state price increase, but their journey to

convincestate government of regular increase is well on its way.



INR860m was the gain on net sales due to price increases granted.

Balance sheet



Full-year INR1.5-2b capex.



Sale of non-core assets: They will look at sale of residential apartments first.



Benefits of franchising have led to working capital improvement.



Uttar Pradesh was franchised in July and will lead to more margin

andworkingcapital benefits going forward.

November 2017

FINANCIALS/BANKS | Voices

FINANCIALS/BANKS

The government has announced a PSU Bank recapitalization plan amounting to INR2.1t, which comprises of(i)

front-ended capital infusion of INR1.35t to be funded via recapitalization bonds, and (ii) INR760b of capital

infusion from budgetary support and proposed capital raising by the PSU Banks, of which INR180b will be infused

in FY18 as part of the ‘Indradhanush’ plan. Operational performance improved in 2QFY18, with fresh NPL

accretion declining for most PSU and Private Banks (barring divergence-related impact for AXSB and YES).SMA-2

advances have also moderated. Margins for PSU Banks showed early signs of stabilization, with most PSU banks

reporting modest margin expansion on the back of lower interest reversals, as slippages have slowed down. CASA

growth continues uninterrupted despite several large banks lowering their SA rate, which will drive further

reduction in funding cost. However, we are now watchful of the impact of rising bond yields witnessed over the

past one month. The size of watch list/stressed asset pool has declined and most banks have suggested a decline

in slippages over the medium term. However, near-term credit cost is likely to stay elevated on (1) NPL ageing-

related provisions, and(2) loan loss towards NPL resolution via NCLT. We expect earnings growth to show a

healthy bounce from 2HFY19, as core income growth revives, margin pressure eases, and the investment cycle

begins to show some recovery.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY19



Axis Bank

FY19 loans growth to be



5%higher than industry

and retail will be the key



driver

Provisioning Pressure

Expect continued pressure on asset quality in



the near term, as AXSB further purges its books.

AXSB hasINR158.1b of BB & below-rated assets,

of which ~64% are lying under the watch-list

plus other dispensations. We estimate slippages

to remain high over the near term – as AXSB

aggressively cleanses its books – and then

moderate sharply from 2HFY19E, driving a sharp

decline in the net NPL ratio

Asset Quality Stress

Expect warrant

conversion to take place

inFY19, and thus,

estimate AXSB’s

FY18E/19E book value to

increase by 9%-10%.This

will also help improve

bank’s Tier-I ratio by

170bp to 13.8% by

FY18E,providing it with

the necessary growth

capital to pursue

business opportunities.

Strong traction in CASA

(+26.7% YoY) helped

reduce cost of deposits

by 20bp QoQ, helping

NIM expansion, c) Core

fee income registered

21% YoY growth



Bank of Baroda



HDFC Bank

FY19 guidance:



Domestic loan growth –

15% .

Management’s focus is

on cleaning up the



balance sheet and laying

the foundation for

sustainable growth and

expect stress addition



and credit costs to

moderate from FY19.

Management guided to



revenue growth

outpacing expenses

growth over thenext 2-3

years, leading to a

steady decline in the CI

ratio



Slippages moderated significantly to INR34.5b

(67bp) v/s INR40.8b (1.1%) in 1Q, with INR2.5b

of slippages from the restructured book.

Recoveries and upgrades at INR15.5b and write-

offs at INR17.7b led to sequentially flat absolute

GNPA (11.16%, -24bp QoQ).

Overall NSL (NNPA, standard restructured, SDR

and S4A) stood at ~10.1% of total advances.



ICICI Bank



NIM should remain



above 3% in FY18

Domestic loan growth to

Incremental growth in the quarterwas driven by



retail loans (+29% YoY/7% QoQ), resulting in an

increase in itsloan mix share to 55%. Business

banking, personal loans and credit cardcontinue

to report strong growth within the retail

segment.

Crop loan repayments are timed with crop

cycles. The bank has seenimprovement in

waivers, but not meaningful.

Movement in NPA: Slippages – INR24.73b,

recoveries and upgrades – INR12.5b,write-offs –

INR7.61b

Of the total slippages of INR46.74b the total



corporate slippages accounted for~INR40b

while the slippages from retail portfolio came in

Asset quality remained

largely stable; however,

the bank made

contingentprovisions of

INR4b toward an

account that underwent

restructuring in Feb-16

and remains standard in

the books

Domestic margins

declined 5bp QoQ to

~3.57% led by drop in

November 2017

FINANCIALS/BANKS | Voices

be 15%-16%, SME

expected to grow 18% -

20%, retail will grow

18% - 20%, overseas to

be flat



quite controlled atINR6.6b.

Slippages from the watch list stood at INR2.59b

which coupled with repayments and adjusted

for fresh downgrades resulted in slight decline

in watch list size to INR195.9b (4.1% of loans).

While corporate slippages may remain volatile,

the relatively low watch-list (1.2% of loans) and

restructured assets (1.9% of loans) provide

comfort on future slippage trajectory.

The current quarter has addressed the concerns

about management transition, and look forward

to speedy recovery in SBI's asset quality,

particularly as the resolution of NCLT cases

makes further progress, while recapitalization

of PSU bank via recap bonds enable the bank to

further cleanse its books.



yields whileoverseas

NIMs recovered to 95bp

after falling sharply to

73bp in 1QFY18.

State Bank of

India

Management iterated

that while credit costs

will be elevated in FY18,

FY19 will start seeing

significant moderation.

The bank is hopeful of

better asset quality

trend in ensuing years.



The bank appears

positive on the recovery

prospects in steel sector

while expect limited

losses on the troubled

assets in power sector.

EPC sector is where bank

expects relatively higher

losses.

Axis Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 545

Target Price INR 680 | 25% Upside

Buy

Asset quality related



They are the lead bankers in power account (5th largest among divergence

accounts), system exposure to the set of accounts is INR400b



Recovery plan has been built in some of the divergence related accounts, should

reflect over next few quarters



INR600m of contingency provisions have been utilized



Outstanding SR book is INR30b



They have attained 55% PCR on IBC accounts



Expect large recoveries from the IT/ITES divergence account



BB and below exposure sectoral breakup: Power 1/3, infrastructure 11%, iron

and steel 11%, road 8%, mining 5%



Telecom at 1% of overall exposures (fund based INR25b, non-fund based

INR80b)



Non fund based BB and below – INR40b

Guidance for FY18



Divergence related credit cost to be ~40bp for FY18.



Total FY18 credit cost guidance for fiscal 2018 is expected to be 220-260 basis

points.



PCR is expected to be maintained in the 60 to 65% range.

Bank of India

Click below for

Results Update

Current Price INR 205

Target Price INR 201| -2% Downside

Neutral

Guidance for FY18



Expect to achieve 7-8% loan growth in FY18.

Asset quality



NCLT accounts exposure details: INR90b exposure from 11 accounts on 1st

listwith~55% PCR; INR33b exposure to 16 accounts with > 50% PCR.



The bank is expecting resolution in 2-3 major accounts as bidding interest

hasbeennoticed. Also, many promoters have come forward with OTS proposals.

November 2017

FINANCIALS/BANKS | Voices

SMA 2 book stands at INR170b, standard SDR book at INR50b, standard

S4Abook atINR25b. SDR/S4A books have INR30b overlap with

standardrestructured book. SRbook stands at INR28b.



NPA breakup by sector: INR20b in power, INR60b in iron and steel, INR20b

intextiles, and INR50b in other infra.

Others



60% of the loan book is priced at MCLR.



Balance sheet recalibration and impact of de-monetization led to muted

loangrowth of 0% YoY/QoQ. Retail loans, however, increased 17% YoY with

homeloans,mortgage loans and auto loans growing 16%, 21% and 32%

YoYrespectively. Thebank targets to improve the share of retail to 48% in

comingyears.



Net slippages declined QoQ due to controlled slippages. High write-offs led

tosequentially lower GNPA/NNPAs. GNPA % declined 43bp QoQ to 12.6%,

whileNNPA% declined 20bp QoQ to 6.5%.



Opex declined 6% YoY and 35% QoQ on account of 38% QoQ decline

inemployeeexpense.



Fee based income picked up this quarter to 6% QoQ



CASA deposits grew 21% YoY led by strong growth in SA deposits of 23% YoY.

CAdeposits grew 8% YoY. Overall CASA ratio improved ~ 322bp YoY but

declined100bpQoQ, and stood at 39.0%.



Canara Bank

Click below for

Results Update

Current Price INR 393

Target Price INR 386| -2% Downside

Neutral

Asset quality



The bank has INR49b exposure to 16 accounts on the second list given by the

RBI, 37% PCR on both lists combined. Total provision requirement on the two

lists together is INR85b, of which INR60b has already been provided. The bank

will provide another INR20b towards these accounts over the next two quarters.



The bank has not yet received the final RBI audit report.



Restructured: INR200b (INR75b std.), SDR: INR65b (moratorium ends mostly in

FY18 but some will continue to 1QFY19), S4A: INR25b, 5:25: (65b), SMA2 –

INR95.9b.



Total infra exposure at INR500b (6.4% NPA), of which power is INR290b (4.48%).

Power sector exposure of INR291b comprises INR13b of SEBs, distribution

(INR100b), and generation (INR150b). Most generation companies are running

at low PLF.



Steel sector total exposure INR150b (INR10b NPA and INR5b rated A and above).



Textile exposure at INR130b (11% NPA).



Majority of their SDR accounts would expire by 4QFY18, a minor portion may

slip over to 1QFY19.



Written-off account recovery was INR3.8b; the bank aims to increase this to

INR5b/quarter; expecting recoveries and upgrades of INR7.5-8b a quarter.



The bank expects a maximum of INR25b slippages in each of 3QFY18 and

4QFY18, effectively guiding to INR138b of slippages in FY18.



INR33.67b of slippages (MSME – INR8b, agri - INR5b, other priority sector loans

– INR1.5b, medium enterprises – INR3b, non-priority – INR3b, overseas –

INR2.95b. INR8b of slippages in the quarter came from power).

November 2017

FINANCIALS/BANKS | Voices

Other updates



Propose to open 4 more Candy (Canara digital branches) by Mar ’18.



The bank is in the process of discussions to raise capital of INR63b (INR35b

equity, INR18b Tier I and INR10b Tier II).

DCB Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 181

Target Price INR 197| 9% Upside

Neutral

P&L related



Expect some cost of branch addition to be back-end loaded through the next

few quarters, which should be offset by improving productivity from older

branches.



Contingent liability of tax stands at INR190m, down from INR1b 2-3 years back.



Expect margins to stabilize at ~3.75% due to pressure on yields.



The bank targets 14% RoE for 4QFY19.

B/S related



LAP growth has been impacted by redefined credit risk parameters, and also by

balance transfer by HFCs and reduction in ticket size.



The bank is targeting 22%-25% balance sheet growth, continuing focus on SME

(INR4-5m).



More than 80% of their CV loans portfolio qualifies as PSL.

Asset quality



Recoveries and upgrades are from mortgages, gold, agri and SME; no

contribution from corporate



The bank has seen some impact on asset quality from GST, RERA, Demon, floods

and farm loan waivers.

Others



Will open 10-12 branches per year over the next 2 years. Will end FY18 at ~316

branches due to requirement of 25% branches in rural unbanked areas.



The bank is grabbing corporate loan share from PSU banks, but restricting itself

to corporates rated A and above.



Competition has intensified from HFCs, NBFCs, PSU banks for retail loans over

the past 3 years, but DCB’s pricing is competitive.



20-30 new customers added every year in corp. banking (INR200m-250m ticket

size).



The bank has experienced high dropouts in larger ticket loans (INR10m+).



The bank has introduced a new salary product ”NEO” to help HR deliver tax

benefits to employee through card.



The bank has met 14K MSME customers over last 2 months to educate them

about GST. They have a product “GST package” offered for free or at nominal

fee when the customer opens a bank account.



Except for some deposit-only branches in rural areas, all branches are full-

fledgedbank branches.

Federal Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR113

Target Price INR 146 | 29% Upside

Buy

Balance sheet related



The bank registered 45% growth in new business (290K accounts per quarter

compared to 200K per quarter earlier).



Average CA growth at 14%.

November 2017

FINANCIALS/BANKS | Voices

Fed-Fina is contributing INR1.5b of loans per month. Details on Fedfina – INR13b

book, FY17 PAT INR250m, 1HFY18 PAT INR150m.



The bank does not intend to be aggressive in retail unsecured products.



The bank will consume 200bp of capital in next 2 years, post that the bank may

raise bonds.



Average ticket size is INR400-600m in corporate book with yield at ~9.25%.



77% of loan book is priced at MCLR.

Asset quality



The bank recorded INR60m provision for SRs in the quarter.



Retail asset quality challenges are behind them as dispensation-related pains

were over by 1st of half of 2QFY18.



The bank is well provided for its education loan exposure where some negative

impact might result from a government waiver, and is expected to play out

through Oct-Nov.



Breakup of GNPA movement: Upgrades – INR1.63b, write offs INR502m.



One IBC exposure remaining: Amtek Auto – INR150m of investment (50%

provided), INR220m loan (100% provided).

P&L related



Distribution fees and FX etc. and should start showing better growth toward

2HFY18 and FY19 as the bank is putting more efforts in that segment.



Opex growth is partially due to spend on people and marketing.



Provisions breakup: NPA – INR1.4b (1Q), INR2.3b (2Q), std. assets – INR200m

(2Q), INR30m (1Q).



The bank guided for 50-51% CI ratio for next six quarters as it intends to invest

in brand building.



5-6bp benefit to NIM from capital raise; there was some benefit on refinancing

of liabilities.



Renegotiation of employment contracts will happen in November.



Other expenses had one-time service charge of INR250m for buying a portfolio.

Others



Have added feet on street, RMs, digital capabilities, ramping up Fed-Fina, even

though branch count has not increased.



More clarity on fresh capital infusion in Fed-Fina should emerge toward the end

of the quarter.



HDFC Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR1,837

Target Price INR 2,150 | 17% Upside

Buy

P&L related



The bank made INR7b of provisions for the 5:25 account (~INR4b through P&L

and they used INR3b from floating provisions).



Management guided to revenue growth outpacing expenses growth over the

next 2-3 years, leading to a steady decline in the CI ratio.



The bank experienced 10-15bp reduction in yields due to increased competition

in retail, which was partly offset by cost of funds reduction.

B/S related



Risk weights in credit card/PL portfolio are comparable to those for auto loans.

Increase in CC/PL is not contributing to increase in RWA/total assets. Market risk

(not credit risk) has increased due to investments.

November 2017

FINANCIALS/BANKS | Voices

Competition has spread across categories of retail (CC/PL/auto/CV) and SME

from just auto earlier.



Overseas advances stand at INR210b.



Business banking ticket size is in single-digit crores.



Both disbursements and run-offs are high in segments where dealer

dependence is higher (CV, credit cards etc.)

Asset quality



They are yet to hear from regulator on final asset classification on the 5:25

account; meanwhile, have made contingent provisions.



Crop loan repayments are timed with crop cycles. The bank has seen

improvement in waivers, but not meaningful.



Management is comfortable with asset quality in credit card and PL, yields price

in excess credit costs.



The bank used INR3b of floating provisions during the quarter, and has another

INR10b of floating provisions.



Movement in NPA: Slippages – INR24.73b, recoveries and upgrades – INR12.5b,

write-offs – INR7.61b.

Others



Government business is a growth area for them in terms of liabilities.



More and more SMEs are joining organized financing with GST, which opens up

a wider market for banks.



ICICI Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 319

Target Price INR 355 | 11% Upside

Buy

P&L Related



Retail fees grew 13.5% YoY and constituted 70% of the overall fees as of 1QFY18



As per the management high margin retail loans should grow from here.



Management guided to elevated credit cost for the year. Credit cost in 2HFY18

might see some impact from RBI’s 2nd list (if the cases are referred to NCLT)



Management guided to NIM at > 3% for the year. Bank expects benefits from SA

rate reduction to continue in the next quarter.

Balance Sheet Related



As of 1QFY18 the bank had 62% of the domestic loans linked to MCLR



Management expects higher growth in domestic loans. Overseas loan book

decline should be controlled (low base due to impact of FCNR redemptions)



The bank guided to 15% YoY growth in SME book and 20% YoY growth in

business banking

Asset Quality



Restructured accounts have declined 30.9% YoY



Management guided to lower slippages in FY18 as compared to FY17



Out of the total slippages, INR22b slippage were from BBB and below category



RBI’s 2nd list: Working on the resolution plans, failing which provisions will have

to be taken by Mar ‘18. If referred to NCLT the bank will have to provide 50% by

March’18.



Exposure to central PSU owned Power company (INR 8.79b) is under demerger.

Out of INR26.13b of SDR cases, Cases worth INR10b are from drill-down list and

INR17b is to one sugar account (where change in management has been invoked)



BB & below : maximum exposure to single borrower is less than INR6b per

borrower

November 2017

FINANCIALS/BANKS | Voices

Others



51.9% holding in general insurance



Cost of deposits below 5%



Holding in ICICI UK and Canada has reduced

Indian Bank

Click below for

Results Update

Current Price INR 418

Target Price INR 438 | 5% Upside

Buy

P& L Related



Bank sold PSLC certificates worth INR220m for the quarter. Bank achieved the

PSL target of 46% v/s 40% RBI requirement.

Bal. Sheet Related



As of 2QFY18, the bank’s 47.2% of loans are MCLR linked, 20% are fixed rate and

the balance are base rate linked.



Growth in the Infra sector mainly came in from road sector (supported by NHAI

and government) and renewable energy.

Asset Quality



O/S stressed loans: 5:25: INR7,540m (7 A/Cs), SDR: INR2,850m (5 A/Cs), S4A:

INR2,240m (4 A/Cs). The bank has opted for one-time settlement of INR350m in

the last six months (gross amount: INR5b).



As of 2QFY18, SMA2 book stood at INR40b.



IBC referred cases details: First List (8 A/Cs) – Bank has total exposure of INR27b,

on which it has provisions of INR12b. The bank is required to make another

INR1.2b of provisions for the next two quarters. 2nd list (10 A/Cs): Bank has

provisioned INR3,640m on the same, and is required to make INR1.35b of

incremental provisions on the same.

Guidance



The bank guided for > 15% loan growth and 3% NIM for the full year FY18.



Bank would like to maintain PCR of 66-68% by the end of FY18.



The bank guided for a cost-to-income ratio of 35-37% by FY19.

IndusInd Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 1,647

Target Price INR 2,000 | 21% Upside

Buy

Asset quality related



NCLT exposures: Out of the second set of 28 accounts, they have exposure to six

accounts (total 8 cases, one is being restructured and one is very small account

with exposure in single-digit). Exposure to six remaining accounts is INR3.85b on

which they have a PCR of 65%). Most were already recognized as NPA and

provided for; net additional provision of INR360m made in 2QFY18.



Corporate slippages have declined because the last few quarters had one-offs

(INR180m from microfinance in 1Q and 2Q, NCLT accounts have played out fully,

1-2 older CDR cases have slipped).



The bank has no exposure to RCom.



Net SR book is at INR4.07b.

Balance-sheet related



The bank has availed foreign funding (USD250m) for seven years from OPEC and

ECB.



15% of SA is government business book (project accounts), last quarter’s

corresponding figure was 10-12%.

November 2017

FINANCIALS/BANKS | Voices

Corporate book growth is a mix of business transfer from PSUs, as well as new

business, with some contribution from GIFT City



SA rates: 4% up to INR0.5m, 5% between INR0.5m and INR10m; 5.5% between

INR10m and INR100m; 6% above INR100m. Most of the growth is coming from

5% and 5.5% buckets.



SA growth is mostly related to maturing of branches, increase in productivity,

and increase in average ticket size.



Gems and jewellery portfolio is stable, and credit practices are robust; no

stressed assets.

P/L related



Expect INR1.5 impact on EPS from fee income recognition changes under IND-AS

(not clear completely as fees on some products will not be amortized; some are

mainly spent upfront on related expenses, etc.)



NII sensitivity to interest rate is low because of better ALM in terms of maturity

and fixed/floating (vehicle finance book funded through CASA, corporate book

through floating rate deposits).

Other updates



The bank is seeing credit off-take opportunities post de-stocking.



Crossed client base of 10m for the first time, and 100K CASA customers every

month.



MFI merger benefits: a) Cost of funds falls substantially for the MFI from day 1.

b) Capital is released in the books of the bank immediately. c) Entire portfolio is

classified as priority sector which offers PSLC fee potential. d) Huge customer

base to sell liability products to (in addition to tractor loans etc.). e) Rural

distribution network expands.



2W business run-rate at 70K vehicles per month.



Renewables (treading cautiously, book of INR10b) and power transmission (<1%

of book) are sectors in which capacity utilization is building up.



Jammu & Kashmir Bank

Current Price INR 76

Click below for

Detailed Concall Transcript &

Results Update

Buy

Target Price INR 100| 32% Upside

Asset quality related



The bank expects FY19 GNPA to be contained within 9%, and is aiming for a PCR

of 90% within the next 2-3 years. Expect significant NPA recoveries in 2HFY18.



Restructured book is concentrated within 30-40 accounts.



All sectors other than tourism are doing well; the bank does not expect

incremental stress from other sectors.



Tourism industry contribution to restructured book is INR3.3b, (INR5b – 6b

including ancillary industries).



Slippages during the quarter were majorly from one account in South India

(related to export of spices).



Only one account in restructured book overlaps with SMA2 book.



86.4% of GNPAs are outside J&K.



The bank has small exposure to Tata Teleservices, has no exposure to RCom.



SR book stands at INR4.74b.



They expect INR40b to move out of the restructured book to standard book in

Dec. when moratorium ends.

November 2017

FINANCIALS/BANKS | Voices

Balance sheet related



Incremental lending is to retail and highly rated corporates. Loan growth should

reach 18%-20% in FY18 (15% for loan book outside J&K).



CASA ratio should remain at 50%. The bank has reduced deposit exposure

(majorly high cost) to the rest of India.



Yield on advances has gone up because of incremental high yield lending in J&K.



Tourism industry exposure mostly comprises term loans.



90% of loan book outside J&K is to corporates.

P/L related



Guidance for FY19: 1% credit cost for FY19.



Guidance for next 2-3 years: CI ratio of 51% (decline to be driven by investments

in digital infrastructure), NIM 3.5% - 4%, RoA – 1.5%, RoE – 20%.

Other business updates



Tourist inflow in 1HCY18 was lower than expected.



Looking to raise capital – a) QIP (INR6b-7b), b) AT1 capital (total Tier 1

of~INR12b- 15b), c) T2 capital (total capital of ~INR20b).



The bank is waiting for an appropriate time and price for Metlife stake sale.

Kotak Mahindra Bank

Current Price INR1,037

Click below for

Detailed Concall Transcript &

Results Update

Target Price INR 1,179 | 14% Upside

Buy

P&L Related



Credit costs guidance: Credit costs will trend down from 61bp.



The bank has made some income reversals during the quarter on the agri

portfolio.



Sustainable margins: 4.25% due to risk adjusted returns. Fixed rate: 30% , MCLR

linked: 70%



Cost to income: 47% in the quarter (cost on 811, and cost of PLCs). Cost to

income should trend down from here onwards.



Yields: Wholesale lending has witnessed competition from bonds and the CP

market, leading to pressure on yields.

Balance sheet related



RBI inspection report received; no divergence for the bank as of March 2017.



SA growth was supported by some government deposits.



KMCC did equity offerings for SBI, Infy, GIC, Godrej Agrovet.



Growth of CASA due to customer acquisition approx. 1.5m for the quarter; it is

adding to the granularity of the deposits.



Core SA growth (without govt. deposits) is above 40%.

Asset quality



Settlement of the 4 A/Cs in the bank’s books: Bank hopes to resolve soon due to

Recap announcements.



Exposure to 2nd List: Exposure is relatively small, and adequate provisions have

been made by the bank on all the A/Cs.



The bank did not sell to ARCs during the quarter.

Other highlights



ING branches have started to contribute to revenues by cross selling to the

existing customers, attracting deposits from the nearby areas.



Recap of Bonds: 1) Will give potential boost to the economy. 2) Potential

outcomes: aggressive write-offs of loans by PSU, ability to take haircut will

November 2017