12 May 2017

Corporate performance

4QFY17: Expectations v/s delivery

Today’s top research idea

HCL Technologies: Growth woes catch up

v

HCLT’s FY17 revenue grew 13.7% in CC, of which organic CC revenue growth

was ~8.7%, as per our calculations. However, its FY18 guidance reflects

growth alignment with industry.

v

Adjusted for acquisitions, growth appears to be softening further in IMS and

Engineering, which are the company’s competitive edge in the industry.

Failure to reverse the trend will put at risk our thesis of growth visibility

proposition at HCLT.

v

While we remain Buy on depressed valuations, near-term triggers are limited.

Any potential surprise from a series of new investments over last few years

will have some gestation, if we were to go by the company’s FY18 revenue

guidance.

(no of

companies)

Sales

EBIDTA

PAT

Growth (YoY, %)

MOSL

Nifty

Sensex

(73)

(23)

(12)

11.1

12.0

12.1

6.8

18.3

2.0

7.3

-0.8

4.7

Research covered

Cos/Sector

Economy

HCL Technologies

Asian Paints

Havells India

Glenmark Pharma

GSK Consumer

Arvind

Granules India

Hero Motocorp

Dalmia Bharat

Endurance Tech

Blue Star

Results Expectation

Market snapshot

Equities - India

Close

Chg .%

Sensex

30,251

0.0

Nifty-50

9,422

0.2

Nifty-M 100

18,361

0.0

Equities-Global

Close

Chg .%

S&P 500

2,394

-0.2

Nasdaq

6,116

-0.2

FTSE 100

7,387

0.0

DAX

12,711

-0.4

Hang Seng

10,258

0.3

Nikkei 225

19,962

-0.3

Commodities

Close

Chg .%

Brent (US$/Bbl)

50

1.0

Gold ($/OZ)

1,225

0.5

Cu (US$/MT)

5,521

0.8

Almn (US$/MT)

1,870

0.5

Currency

Close

Chg .%

USD/INR

64.4

-0.4

USD/EUR

1.1

0.0

USD/JPY

113.8

-0.2

YIELD (%)

Close

1MChg

10 Yrs G-Sec

6.9

0.0

10 Yrs AAA Corp

8.2

0.0

Flows (USD b)

11-May

MTD

FIIs

0.2

0.2

DIIs

-0.2

0.0

Volumes (INRb)

11-May

MTD*

Cash

294

294

F&O

7,492

4,655

Note: YTD is calendar year, *Avg

YTD.%

13.6

15.1

27.9

YTD.%

7.0

13.6

3.4

10.7

9.2

4.4

YTD.%

-9.4

6.3

0.0

9.7

YTD.%

-5.2

3.3

-2.7

YTDchg

0.4

0.6

YTD

6.5

1.7

YTD*

283

4,637

Key Highlights

Banning alcohol unlikely to meaningfully hurt state finances

Growth woes catch up

Domestic decorative delivers 10% volume growth; EBITDA in-line

Results above estimates; margins hit by demonetization

Wash-out quarter; big miss on US sales and margins

Slight recovery QoQ; Margins salvaged by sharp cut in staff costs

Raw material and currency headwinds ahead; downgrading to Neutral

Margin expansion continues; Strong FY18 guidance

Discounts, RM cost hurt margins; Guides for double-digit growth

A quarter of strong outperformance across all parameters

Op. performance in line; Revenue growth outperforms industry volumes

Results below estimates, UCP segment disappoints

Dr Reddy's | Nestle India | OBC | SH Kelkar | Titan

Piping hot news

Steel, metal firms announce Rs 1.4 lakh-cr capex as fundamentals improve

v

Indian metals companies have started reviving their capacity expansion plans

again as they see demand recovering and since prices have remained elevated

despite a recent fall.

Chart of the Day: Economy - Our sample of 17 states has budgeted

to collect INR833b from alcohol in FY18

Quote of the day

No matter how hard you hug your

money, it never hugs back

Research Team (Gautam.Duggad@MotilalOswal.com)

Source: Aggregate data for 17 states

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Investors are advised to refer through important disclosures made at the last page of the Research Report.

In the news today

Kindly click on numbers for the detailed news link

1

CEA Arvind Subramanian

questions RBI status quo on

rates

Chief Economic Advisor (CEA)

Arvind Subramanian on Thursday

criticised the state of

macroeconomic discourse in India

and said experts involved in

economic discussions were prone

to bias and tried to justify…

2

Stakeholders’ Empowerment Services (SES), the corporate governance

advisory, has asked shareholders of Dish TV India to vote against its

proposed merger with Videocon D2h. The scheme of arrangement to give

effect to the merger is coming for approval at a court-convened meeting

on Friday. About 857.78 million new equity shares of a Rs 1 face value of

Dish TV India will be issued to shareholders of VideoconD2h. A valuation

report and fairness report has been had but SES says there is a lack of

transparency. It argues these fail to disclose the valuation of the transferor

company and the basis of arriving at the share exchange ratio…

Vote against DishTV-Videocon merger: SES asks shareholders

3

Axis Bank scouts for life

insurance tie-up

Private sector lender Axis Bank is

planning to expand its business of

distributing life insurance policies

through a tie-up with one more

insurer. In the case of life

insurance, the bank currently has

a partnership with Max Life and

LIC…

4

‘Open to buying Tata Steel’s

remaining UK assets’

Sanjeev Gupta, the head of the

Liberty House Group, which last

week acquired Tata Steel’s

speciality steel operations in the

UK, said he remained open to

acquiring the steel giant’s

remaining assets in the country

should the opportunity arise...

5

Govt reopens window for GST

enrollment

Businesses that did not enrol for

the Goods and Services Tax in the

first phase will get a second

chance. The government will re-

open the enrolment window from

June 1 for another 15 days…

6

TVS Motor announces foray

into Central American market

TVS Motor Co on Thursday

announced its entry into the

Central American region in

countries such as Guatemala,

Honduras, El Salvador, Costa Rica

and Nicaragua. As part of this

plan, TVS Motor has entered into

an alliance with Guatemala-based

MASESA (Mayor Servicios Socieda

Anonima) for distribution…

7

Rating firms favouring China

over India: CEA

Firing a fresh salvo against credit

rating companies, chief economic

adviser in the finance ministry

Arvind Subramanian on Thursday

said such agencies have been

inconsistent in their treatment of

China and India, favouring the

former…

12 May 2017

2

E

CO

S

COPE

Banning alcohol unlikely to meaningfully hurt state finances

States budgeted to collect INR833b (4.2% of total receipts) from alcohol in FY18

n

11 May 2017

The Economy Observer

Recently, Madhya Pradesh (MP) became the fourth state to ban alcohol production, following Bihar (BH), Tamil Nadu

(TN) and Kerala (KL) in the past two years. Notably, excise collected from alcohol accounts for ~0.5% of total receipts

for MP. A ban on alcohol production is, therefore, unlikely to meaningfully hurt its finances.

n

Interestingly, while BH lost about INR30b due to alcohol ban last year, a partial ban in TN and KL does not seem to

have hurt their excise tax collection, reflecting the ineffectiveness of such measures in these states. (Click

here

for our

analysis on the impact of alcohol ban on listed alcoholic beverage companies).

n

On an aggregate basis, we find that 17 states (covered in our

detailed report

on 2017-18 state budgets) have budgeted

to collect INR833b from alcohol in FY18, up 14% as against 10% growth over the past three years. The share of alcohol

taxes in total receipts has fallen consistently from a peak of 6.3% in FY13 to 4.2% in FY17, and is budgeted to remain so

in FY18 also.

n

Our analysis reveals that Karnataka (KA) is the most dependent state on alcohol. In FY18, it has budgeted to collect

~12% of its total receipts through alcohol.

The share of alcohol taxes

in total receipts for states

has fallen consistently from

a peak of 6.3% in FY13 to

4.2% in FY17, and is

budgeted to remain so in

FY18

States have budgeted to collect INR833b from alcohol in FY18…

Following our

detailed study

on states’ 2017-18 budgets, we have collected data on

taxes from alcohol for 17 major states

1,2

. We find that these states have budgeted to

collect INR833b from alcohol in FY18, up 14% as against ~10% growth in the past

three years

(Exhibit 1).

Further, the share of alcohol taxes in total receipts for states

has fallen consistently from a peak of 6.3% in FY13 to 4.2% in FY17, and is budgeted

to remain there in FY18 also

(Exhibit 2).

Exhibit 2:

…amounting to 4.2% of total receipts by all 17

Exhibit 1:

Our sample of 17 states has budgeted to collect

INR833b from alcohol in FY18…

Excise collected from alcohol

30

20

10

0

(10)

(20)

360

447

531

625

states

INRb

% YoY

(% of total

receipts)

6.0

6.1

Excise collected from alcohol

6.3

6.1

551

611

666

732

833

5.5

5.1

4.8

4.6

4.2

4.2

Aggregate data for 17 states

Source: States budgets, Comptroller and Auditor General of India

(CAG), CEIC, MoSL

1

Andhra Pradesh (AP), Bihar (BH), Chhattisgarh (CG), Gujarat (GJ), Haryana (HR), Himachal Pradesh (HP), Jammu & Kashmir (JK), Jharkhand (JH), Karnataka

Please note that actual data on taxes from alcohol is available up to FY16 for most states (data for HP, JK, TN & WB up to FY15). We have estimated the

(KA), Kerala (KL), Madhya Pradesh (MP), Maharashtra (MH), Odisha (OD), Rajasthan (RJ), Tamil Nadu (TN), Telangana (TR) and West Bengal (WB).

2

alcohol taxes for FY17RE and FY18BE using the share of alcohol in total excise taxes during the previous three years.

12 May 2017

3

HCL Technologies

BSE SENSEX

30,251

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

9,422

HCLT IN

1,427

Advantage ceding as organic growth aligns with industry

1,196.9/18.6

890/707

n

FY17 – mixed year ended on a stable note:

FY17 revenue grew 13.7% CC, of

which organic CC growth was ~8.7%, as per our calculations. EBIT margin of

-2/-3/0

20.3% expanded 20bp YoY, and net income of USD1,216.5m (adjusted for

1600

one-time tax reversal) rose 8.9% YoY. 4Q organic CC revenue growth of 1.3%

40.3

11 May 2017

4QFY17 Results Update | Sector: Technology

CMP: INR839

TP: INR960(+15%)

Growth woes catch up

Buy

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

467.2

512.1

Net Sales

103.1

109.5

EBITDA

84.6

85.4

PAT

59.8

61.9

EPS (INR)

49.2

3.3

Gr. (%)

239.0

241.7

BV/Sh (INR)

27.5

25.4

RoE (%)

25.3

23.3

RoCE (%)

14.0

13.6

P/E (x)

3.5

3.5

P/BV (x)

2019E

561.8

119.9

93.6

67.6

9.3

270.3

26.0

24.0

12.4

3.1

n

n

Estimate change

TP change

Rating change

n

QoQ was in line with our estimate of +1%, and including acquisition

contributions, it was 3.8% QoQ CC. EBIT margin at 20% was in line, and net

income fell 2.2% QoQ to INR20b, a shade above our estimate of INR19.7b.

FY18 – organic revenue guidance is a dampener:

For FY18, HCLT guided for

revenue growth of 10.5-12.5% (CQGR of 1.85-2.6%). This was lower than our

estimate of 12-14%, which embedded ~4.5pp from acquisitions and 7.5-9.5%

organic. However, HCLT’s lower guidance came after two incremental

contributors (UFS and another IBM partnership). Factoring these, organic

growth guidance works out to ~5.5-7.5%. It retained the margin band

outlook of 19.5-20.5%, which we note, includes a fairly benign amortization

schedule of 15 years for USD600m + investments in IPRs licensed from IBM.

Watch out for trend in IMS and ER&D:

Adjusted for acquisitions, growth

appears to be softening further in IMS, which management attributed to

some ramp-up delays. Organically even ER&D services seem to be cooling

off, barring one quarter that saw some spurt in the last year and a half. The

two segments contribute ~59% to HCLT’s revenues and are the company’s

competitive edge in the industry. Failure to reverse the trend will put at risk

our thesis of growth visibility proposition at HCLT.

Valuation view:

After moderating our FY19 revenue estimate by 2% and

FY18/19 earnings estimates by 3.8% each (stronger INR), we expect USD

revenue CAGR of 9.4% and earnings CAGR of 8.2% over FY17-19. The stock

trades at 13.6/12.4x FY18/19E EPS. Our price target of INR960 discounts

FY19E earnings by 14x, implying 15% upside. While we remain

Buy

on

depressed valuations, triggers in the near term are limited. Any potential

surprise from a series of new investments in last few years will have some

gestation, if we were to go by the company’s FY18 revenue guidance.

FY17

1Q

2Q

3Q

1,691

1,722

1,745

6.5

1.9

1.4

113,360 115,190 118,140

15.9

14.1

14.2

34.4

33.6

33.9

12.1

11.8

11.7

25,210 25,110

26,280

22.2

21.8

22.2

20.6

20.1

20.4

2,530

2,350

2,310

21.0

21.1

21.5

20,430 20,150

20,710

6.1

-1.4

2.8

14.6

10.5

7.9

14.5

14.3

14.7

FY16*

4Q

1,817

4.1

120,530

12.7

33.7

11.8

26,490

22.0

20.0

2,150

11.5

20,250

-2.2

5.2

16.5

4,698

7.1

311,360

14.6

34.6

12.7

68,150

21.9

20.5

7,960

20.9

56,670

4.0

40.1

FY17E

6,975

11.9

467,220

14.2

33.9

11.8

103,090

22.1

20.3

9,340

18.8

84,570

13.5

59.8

Est.

4QFY17

1,810

0.4

3.7

41bp

120,518

0.0

12.7

1bp

33.4

32bp

11.5

24bp

26,386

0.4

21.9

0.4

20.2

-20bp

713

201.4

21.5 -1001bp

19,706

2.8

-4.8 262bp

2.4 282bp

13.8

(

/ bp)

Quarterly Performance (Consolidated)

Y/E June

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA (INRm)

EBITDA Margin (%)

EBIT Ma rgi n (%)

Other i ncome

ETR (%)

Adjusted PAT

QoQ (%)

YoY (%)

EPS

FY15

FY16*

4Q

1Q

2Q

3Q

1,538

1,545

1,566

1,587

3.2

0.5

1.4

1.3

97,770 100,970 103,410 106,980

16.1

15.6

11.4

15.4

34.2

34.4

34.6

34.9

12.8

12.5

13.0

12.7

21,000 22,110 22,250 23,790

21.5

21.9

21.5

22.2

20.2

20.6

20.0

20.8

2,120

2,410

3,550

2,000

18.6

21.3

20.9

20.5

17,820 18,230 19,190 19,250

5.8

2.3

5.3

0.3

-2.9

6.1

-0.2

14.3

12.6

12.9

13.6

13.6

*FY16 was a nine month year; Twelve months ended March 2016 are compared with twelve months ended March 2015 to make annual growth comparisons

12 May 2017

4

11 May 2017

Results Update | Sector: Consumer

Asian Paints

Neutral

BSE SENSEX

30,251

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

9,422

APNT IN

959.1978

1,110.4 / 17.2

1230 / 850

8/8/11

1229

47.2

CMP: INR1,168

TP: INR1,210(+4%)

n

Domestic decorative delivers 10% volume growth; EBITDA in-line

Asian Paints reported consol. sales growth of 7.8% YoY

(est. of +4%) to

INR39.5b (Ind-AS), with volumes growth of ~10% (est. of +3%) in the domestic

decorative paints business. Base quarter was unfavorable with 13% volume

growth, and thus, the sales and volume performance was commendable.

Gross margin contracted 150bp YoY to 43.8% (in-line), led by high raw material

costs. EBITDA grew 2.1% YoY to INR7.12b (in-line), with the margin down

100bp YoY (est. of -20bp) to 18% on an increase in raw material cost and

slightly higher other expenses (+10bp YoY), partially offset by lower staff costs

(-60bp). Higher other income of INR701m (+47% YoY) led to PAT growth of

10.1% YoY to INR4.8b (1.9% below estimate).

Standalone performance:

S/A net sales grew 9.4% YoY to INR33.2b. Gross

margin contracted 160bp YoY to 44.5%, while EBITDA margin shrunk 110bp YoY

to 20.4%. EBITDA grew 3.4% YoY to INR6.4b, while adj. PAT increased 9.9% YoY

to INR4.4b.

Subsidiary sales were flat for 4QFY17,

while EBITDA declined by 8%.

FY17 performance:

Consol. revenue, EBITDA and adj. PAT grew 7.1%, 9.1% and

8.7%, respectively. EBITDA margin expanded 40bp YoY to 19.8%.

Analyst meet highlights:

1) Saw some recovery in 4QFY17 – the

demonetization impact was behind in most parts of the country by March,

barring some areas in north India. 2) The company took 3% price increase on 8

March and another 2.7% on 1 May. 3) All-time-high gross margins of past two

years are unlikely to sustain.

Maintain Neutral:

We raise FY18E/19E EPS by 2.4%/2.9%. While APNT has an

enviable business franchise demonstrating healthy volume growth even during

consumer sector downturn, fair valuations (42.6x FY19E EPS) prevent us from

being more constructive. Maintain

Neutral

with a revised target price of

INR1,210 (44x FY19E EPS, in line with three-year average).

n

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

152.9 175.7

EBITDA

30.2

33.5

NP

20.2

22.2

EPS (INR)

21.0

23.1

EPS Gr. (%)

8.7

10.0

BV/Sh. (INR)

79.3

82.7

RoE (%)

28.5

28.6

RoCE (%)

24.3

24.9

P/E (x)

55.6

50.5

P/BV (x)

14.7

14.1

2019E

206.4

39.6

26.3

27.4

18.6

96.7

30.6

27.0

42.6

12.1

n

n

n

n

Estimate change

TP change

Rating change

n

12 May 2017

5

11 May 2017

4QFY17 Results Update | Sector: Capital Goods

Havells India

Neutral

BSE SENSEX

30,251

Bloomberg

Equity Shares (m)

M.Cap.(INR b)/(USD b)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val. (INR m)

Free float (%)

S&P CNX

9,422

HAVL IN

624.6

321.0 / 4.7

501 / 304

7/32/33

656

38.4

CMP: INR514

n

TP: INR480 (-7%)

Results above estimates; margins hit by demonetization

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

Net Sales

61.4

92.8 108.4

EBITDA

8.2

11.6

14.3

Adj PAT

6.0

7.5

9.0

Adj EPS (INR)

9.6

12.1

14.5

EPS Gr. (%)

17.1

26.4

19.7

BV/Sh(INR)

52.4

59.3

67.6

RoE (%)

18.2

20.4

21.4

RoCE (%)

18.3

20.6

22.4

P/E (x)

53.8

42.6

35.6

P/BV (x)

9.8

8.7

7.6

n

n

Estimate change

TP change

Rating change

n

n

Quarterly Performance (Standalone)

Y/E March

Sales

Change (%)

Adj EBITDA

Change (%)

Adj EBITDA margin (%)

Depreciation

Interest

Other Income

Extra-ordinary Items

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Change (%)

Adj PAT

Change (%)

1Q

12,523

-1.9

1,620

-1.4

13.1

248

30

170

0.0

1,489

421

28.2

1,068

-0.4

1,191

9.4

4QFY17 operating performance meaningfully above expectations:

Revenues

grew 17.2% YoY to INR17.1b in 4QFY17, exceeding our estimate of INR15.9b.

Operating profit of INR2.3b (+4% YoY) too was meaningfully above our

estimate of INR1.8b. Similarly, adj. PAT of INR1.7b (+5% YoY) came in higher

than our estimate of INR1.3b. FY17 sales grew 15% YoY to INR61.4b, EBITDA

margin at 13.4%(-60bps YoY) and PAT at INR6b(+17% YoY)

Sales growth driven by demand revival across segments:

The revenue beat

was primarily driven by demand revival across product categories. Cables &

Wires revenue grew 12% YoY to INR7.6b, driven by higher commodity prices.

Electrical Consumer Durables revenue rose 28% YoY to INR4.0b, led by strong

growth in Water Heaters and Fans. Switchgear revenue rose 15% YoY, driven

by growth in Switches. Domestic lighting ex CFL grew 29% YoY. Domestic

business registered 19% growth, while exports declined 9% YoY due to lower

exports to Sylvania.

Margins impacted by support schemes for dealers and higher raw material

prices:

Gross margin contracted 200bp YoY to 39% on account of (1) schemes

launched for dealers (albeit are gradually being withdrawn) to counter the

demonetization impact and (2) deferred price hikes over the quarter to factor

in higher raw material costs. EBITDA margin shrunk 177bp YoY to 13.5%,

exceeding our estimate of 11.4%, driven by lower other expenses. Adspend

stood at 2.3% of sales (2.6% in 4QFY16).

Working capital cycle at multi-year low:

Core net

working capital cycle

contracted to 6 days from 20 days in 4QFY16. Creditors’ days were up to 63

from 54 in 4QFY16.

Valuation and view:

We maintain EPS for FY18E, but raise it marginally by 2%

for FY19E to factor in higher contribution from the Lloyd acquisition. Maintain

Neutral

with a revised TP of INR480, and ascribe 33x P/E (20% premium to five-

year average) multiple on its FY19E EPS of INR14.5.

(INR Million)

Var.

7.6%

26.2%

1Q

14,668

17.1

2,004

23.7

13.7

280

16

307

0.0

2,022

567

28.0

1,456

36.3

1,450

21.8

FY17

2Q

3QE

14,522 15,060

8.7

13.2

2,034

1,907

7.6

4.0

14.0

12.7

308

301

19

15

253

264

0.0

189.5

2,030

1,877

572

537

28.2

28.6

1,458

1,530

22.0

27.6

1,409

1,135

17.0

-4.0

FY16

4Q

17,102

17.2

2,296

3.5

13.4

308

71

419

(768)

2,337

622

26.6

947

-74.1

1,715

5.0

57,754

10.2

7,549

3.8

14.0

1,049

127

694

11,037

1,970

17.8

9,067

95.0

5,105

6.0

FY17E

61,353

6.2

8,241

9.2

13.4

1,196

122

1,343

8,266

2,298

27.8

5,969

-34.2

5,969

16.9

MOSL

4QE

15,896

7.7

1,819

-17.1

11.4

370

0

323

1,773

518

29.2

1,255

-23.5

1,255

-23.4

FY16E

2Q

3Q

4Q

13,359 13,304 14,597

-2.1

6.7

8.2

1,890

1,835

2,218

2.9

1.1

12.2

14.2

13.8

15.2

261

266

274

31

20

46

98

134

298

0.0

0.0 2,024

1,683

1,699

2,195

488

500

562

29.0

29.4

25.6

1,195

1,199

3,657

-0.1

3.2

200.2

1,204

1,183

1,634

-1.0

-0.4

23.3

31.8%

-24.5%

36.7%

12 May 2017

6

RESULTS

FLASH

Glenmark Pharma

BSE SENSEX

30,251

S&P CNX

9,422

11 May 2017

Results Flash | Sector: Healthcare

CMP: INR904

n

TP: INR990(+9.5%)

Neutral

We will revisit our estimates

post earnings call/management

interaction.

Wash-out quarter; big miss on US sales and margins

Net sales grew ~11.5% YoY (-2% QoQ) to ~INR24.2b (est. of ~INR30b). The

strong disappointment can be attributed to lower US sales of INR10b (v/s

INR12b in 3Q).

We expected significant QoQ growth in US sales, as Zetia impact was for 1.5-2

months in 3Q v/s likely full three months in 4Q.

EBITDA grew 110.6% YoY (-40.7% QoQ) to ~INR4.1b (est. of INR9.9b).

EBITDA margin expanded ~800bp YoY (~-1,100bp QoQ) to 17% (est. of 33%).

Muted EBITDA margin is because of weak US and India sales. There is

possibility of write-off related to Venezuela and forex loss, but still the

numbers are well below expectations.

India business delivered muted growth of ~6% YoY. Demonetization would

have had a negative impact on the business.

Conference Call Details

Date:

12th May 2017

Time:

08:30am IST

Dial-in details:

+91-22-3960 0697

n

n

n

Financials & Valuations (INR b)

2017E

2018E

Y/E Mar

Net Sales

95.2

108.3

EBITDA

24.0

26.5

NP

15.4

13.9

EPS (INR)

40.6

49.2

EPS Gr. (%)

63.4

21.1

BV/Sh. (INR)

202.2

259.5

RoE (%)

20.1

19.0

RoCE (%)

20.7

19.0

Payout (%)

6.6

5.9

Div. Yield

0.3

0.3

2019E

124.2

n

27.1

17.1

60.5

23.0

316.4

19.1

17.1

6.0

0.3

Key questions for management:

n

Zetia sales contribution in 4Q

n

Impact of forex loss and Venezuela write-offs above EBITDA

n

Sales proportion because of inventory stocking

n

Ex-Zetia base business growth in the US and outlook

n

Debt position and deleveraging strategy

n

India business delivered muted growth of ~6% YoY in 4Q. If demonetization

had an impact and timeline for recovery

Valuation and view:

We will revisit our estimates post the earnings call. Maintain

Neutral

with a TP of INR990 @ 18x 1HFY19E EPS. Any big in-licensing deal in the

innovation business could act as a positive catalyst.

12 May 2017

7

RESULTS

FLASH

GSK Consumer

BSE SENSEX

27117.34

S&P CNX

8391.50

11 May 2017

Results Flash | Sector: Consumer

CMP: INR 5,251

TP:

INR5,410(+3%)

Slight recovery QoQ; Margins salvaged by sharp cut in staff costs

n

Neutral

We will revisit our estimates

post earnings call/management

interaction.

Conference Call Details

Date:

12 May 2017

Time:

12:00pm IST

Dial-in details:

+91-22-3960 0611

th

n

n

Financials & Valuations (INR b)

2016 2017 2018E

Y/E Mar

Net Sales

41.4 39.9 45.7

EBITDA

8.4

8.3

9.7

NP

6.5

6.6

7.3

EPS (INR)

154.7 156.1 173.1

EPS Gr. (%) 11.5 0.9 10.9

BV/Sh. (INR) 665.5 742.4 770.3

RoE (%)

26.5 22.2 22.9

RoCE (%)

26.6 22.2 22.9

P/E

33.9 33.6 30.3

P/BV (x)

7.9

7.1

6.8

n

2019E

51.2

10.6

8.0

190.8

10.3

880.3

23.1

23.2

27.5

6.0

n

n

GSK Consumer posted 2.3% YoY growth (est. of -1.3%) in net sales

(incl.

operating income) to INR11b. EBITDA grew 1.5% YoY (est. of -3.5%) to

INR2.17b, while adj. PAT rose 8.4% YoY (est. of -1.8%) to INR1.76b. Adj. PAT

growth exceeded EBITDA increase due to higher other income (+42% YoY).

MFD volumes are likely to have declined ~2-3% YoY (est. of -5%).

Gross margin contracted 210bp YoY to 65.8%.

High raw material costs, along

with increased adspend (+130bp YoY to 15.7%) and other expenses (+60bp YoY

to 21%) were offset by a sharp decrease in staff costs (-380bp to 9.4%). EBITDA

margin thus contracted 10bp YoY (est. of -50bp) to 19.7% in 4QFY17.

The board recommended a dividend at the rate of INR70 per equity share of

INR10.

FY17 performance:

Sales, EBITDA and adj. PAT declined 3.6%, 1% and 4.5%,

respectively. EBITDA margin expanded 55bp YoY to 20.9%.

Valuation view:

We will revisit our estimates post the earnings call. Based on

our current estimates, the stock trades at 42.6x/36.5x FY18E/19E EPS. We have

a

Neutral

rating.

12 May 2017

8

11 May 2017

4QFY17 Results Update | Sector: Textiles

Arvind

BSE SENSEX

30,251

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

Downgrade to Neutral

9,422

ARVND IN

Raw material and currency headwinds ahead; downgrading to Neutral

258

n

In-line revenue; EBITDA and PAT below estimates:

Arvind’s (ARVND)

105.4 / 1.6

revenue grew 10.4% YoY to INR24.6b (est. of INR24.9b), led by strong

427 / 283

growth in Brands & Retail (B&R) to INR8.3b (+22% YoY, driven by LTL

0/-3/20

growth of 5.4% in Power brands and 30.2% in Unlimited) and in Textiles to

730

INR14.6b (+8% YoY). EBITDA declined to INR2.3b (est. of INR3b) from

56.9

CMP: INR408

TP: INR382(-6%)

Financials & Valuations (INR b)

2017

2018E

Y/E Mar

Net Sales

92.4

104.8

EBITDA

9.4

10.9

PAT

3.2

4.3

EPS (INR)

12.4

16.6

Gr. (%)

1.2

34.4

BV/Sh (INR)

138.1

151.1

RoE (%)

10.3

11.5

RoCE (%)

8.8

9.0

P/E (x)

32.9

24.5

P/BV (x)

3.0

2.7

2019E

119.5

13.1

6.1

23.6

41.6

169.9

14.7

10.5

17.3

2.4

n

Estimate change

TP change

Rating change

n

INR2.6b in the year-ago period. EBITDA margin shrunk to 9.4% (est. of 12%)

from 11.5% in 4QFY16, mainly due to a) an increase in cotton prices and b)

investments in Arvind Internet. Adj. PAT rose to INR1,048m (est. of

INR1,287m) from INR972m in the corresponding period last year. For full

year FY17, revenue grew by 15.3% to INR92.3b with EBITDA margins

declining by 170bp to 10.2%. Adj. PAT grew by 3.6% to INR3.3b.

Higher cotton price and investment in Arvind Internet impact EBITDA:

EBITDA margin shrunk 210bp due to a 400bp contraction in gross margin,

partly offset by lower other expenses. EBITDA margin in Textile contracted

260bp to 12.7%, mainly due to higher cotton prices (+17%, with average

prices of denim lower by 3% and woven by 2%). According to management,

it is holding two months of cotton inventory and would be slow on buying

cotton. EBITDA margin in B&R improved 350bp to 7.1%, mainly on LTL

growth of 5% and an improvement in emerging brand and specialty retail.

ARVND is also on course to start domestic production to counter the CVD

impact. Moreover, write-offs of investments in Arvind Internet of INR207m

had an impact on margins, which are expected to taper off from 1QFY18.

Valuation view:

Textile margin is likely to come under pressure due to

currency appreciation and higher cotton prices. ARVND exports 40% of total

textiles, which is hedged in the range of 30-50%. Cotton prices are up by

almost 17%, which will further impact margins. Considering this, we cut

EBITDA/PAT by 14%/24% for FY18E and by 14%/21% for FY19E. We expect

revenue/PAT CAGR of 14%/35% over FY17-19E. We value the stock through

SOTP on EV/EBITDA basis, ascribing 5x to Textiles, 20x to B&R and 25x to

share of profit from JV (Tommy and CK), arriving at a PT of INR382.

Downgrading rating to

Neutral.

12 May 2017

9

Granules India

BSE SENSEX

30,251

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

9,422

GRAN IN

Margin expansion continues; Strong FY18 guidance

216.7

n

Sales declined 2.4% YoY to INR3.6b (5% above est.) in 4QFY17. EBITDA came

27.1 / 0.4

in at INR785m (9% above est.), with the margin expanding 60bp YoY (+40bp

154 / 91

QoQ) to 21.6% (est. of 20.8%). Notably, EBITDA margin has improved from a

3/21/-6

197

low of ~11% in FY13 to current levels, led by a change in product mix and

46.5

capacity expansion. PAT rose 68.2% YoY (+17% QoQ) to INR457m (25.6%

10 May 2017

Update

| Sector:

Consumer

CMP: INR146

TP: INR200(+37%)

Buy

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

14.4

17.4

EBITDA

3.0

3.7

PAT

1.7

2.1

EPS (INR)

7.3

8.1

Gr. (%)

32.7

12.0

BV/Sh (INR)

43.5

60.4

RoE (%)

20.0

16.3

RoCE (%)

11.6

9.8

P/E (x)

20.1

18.0

P/BV (x)

2.6

1.9

2019E

n

23.9

5.2

2.8

11.1

37.0

68.9

17.2

n

11.0

13.1

1.7

n

Estimate change

TP change

Rating change

above est.). Associate income posted profit of INR94m v/s loss of INR25.2m

in 4QFY16, mainly due to higher contribution from Omnichem JV.

Strong FY18 guidance; US business commercialization expected from FY19

:

GRAN guided for strong revenue growth of ~20% and >20% PAT growth on

ramp-up of new capacity, strong growth in formulations and Omnichem JV.

Two complex filings were done from its Virginia facility (mkt. size of

USD660m; 3-4 player market at the time of launch). Monetization of these

products is expected in FY19 (target action date of Jan-18 for one product).

Concall takeaways:

1) To file 12 ANDAs in FY18 (incl. six complex filings from

Virginia); 2) To spend INR6b as capex in FY18 (~USD40m in US, rest in India);

3) sales from Auctus at INR1.6b in FY17; 4) USD1.2b incurred in US in FY17.

Earnings acceleration to drive valuation

:

GRAN trades at ~13x FY19E EPS

(despite assuming equity dilution of >10%). We raise target multiple for

GRAN to 18x from 16x (~5-10% premium to peers) on strong EPS CAGR of

~30% till FY20E. Our TP of INR200 is based on 18x FY19E PER (v/s INR160

@16x 1HFY19E PER).

12 May 2017

10

11 May 2017

Q4FY17 Results Update | Sector: Automobiles

Hero MotoCorp

Neutral

BSE SENSEX

30,251

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

9,422

HMCL IN

Discounts, RM cost hurt margins; Guides for double-digit growth

200

n

EBITDA margin hurt by BS-III-related discounts and RM cost:

Net revenue

691.7 / 10.7

declined 7.9% YoY to ~INR69.2b (est. of ~INR68.4b), as volume/realization

3740 / 2844

fell 5.8%/2.2% YoY. Realization of ~INR42.6k/unit (est. of ~INR42.2k) was

6/3/-1

impacted by discounts offered to liquidate BS-III inventory at ~INR1.9b (est.

1367

65.4

of ~INR1.6b). EBITDA margin shrunk 320bp QoQ (-200bp YoY) to 13.8% (est.

CMP: INR3,464

TP: INR3,622(+5%)

Financials & Valuations (INR b)

2017

2018E

Y/E Mar

284.7

320.2

Net Sales

46.3

54.6

EBITDA

33.8

39.6

PAT

169.1

198.1

EPS (INR)

6.9

17.1

Gr. (%)

506.3

596.0

BV/Sh (INR)

35.7

35.9

RoE (%)

34.5

34.7

RoCE (%)

20.5

17.5

P/E (x)

6.8

5.8

P/BV (x)

2019E

343.8

54.7

40.2

201.2

1.6

688.8

31.3

30.4

17.2

5.0

n

Estimate change

TP change

Rating change

n

of 16.3%). RM cost rose 240bp QoQ (360bp YoY) due to discounts (~190bp

impact) and cost inflation (~50bp). Lower tax restricted PAT decline to 14%

YoY (to ~INR7.2b v/s est. of ~INR7.8b). For FY17, revenues were flat, EBITDA

margin expanded 60bp to ~16.3% and PAT grew ~7% to ~INR33.8b. FY17

dividend at INR85/share (v/s INR72 in FY16).

Earning call highlights:

a) Guided for double-digit growth in FY18, driven by

good monsoon, rural recovery, infra spend and recovery post demon. HMCL

targeting market share gain in scooters, led by product actions. b) Strong

double-digit retail sales growth in FY18 YTD, leading to lower inventory at 4-

5 weeks (normal levels at 5-6 weeks). c) Expects further increase in RM cost

in 1QFY18 (over & above 75-100bp inflation in 4QFY17). HMCL has been

taking adequate price increases (~1% each in 4Q and 1QFY18) to cover large

part of cost inflation. d) New product launches: New 200cc motorcycle by

4QFY18. HMCL to launch six new products (incl. refreshes) in FY18. e) HMCL

did not cut marketing spend or employee strength due to weak demand in

4QFY17. e) Capex guidance of INR25b over FY18/19 toward capacity

expansion, upgradation, product development and digitization.

Valuation and view:

We raise FY18E/FY19E EPS by 7% as we raise our

volume assumption with ~60-70bp increase in EBITDA margins (price hikes +

operating leverage). Valuations at 17.5x/17.2x FY18E/19E EPS. Maintain

Neutral

with a TP of INR3,622 (18x FY19 EPS).

FY17

2Q

3Q

1,823

1,473

15.8

-12.8

42,755 43,202

-1.1

1.1

77,963 63,646

14.5

-11.9

66.5

64.9

4.6

5.9

11.4

12.3

13,689 10,797

17.6

17.0

1,524

1,319

16

15

1,193

1,249

14,004 10,853

28.3

28.9

10,042

7,720

27.7

-2.7

FY16

FY17

Var.

(%)

0.0

Quarterly Performance

Y/E March

(INR Million)

Total Volumes ('000 nos)

Growth YoY (%)

Net Realization

Growth YoY (%)

Net Op Revenues

Change (%)

RM Cost (% sales)

Staff Cost (% sales)

Other Exp (% sales)

EBITDA

EBITDA Margins (%)

Other Income

Interest

Depreciation

PBT

Effective Tax Rate (%)

Adj. PAT

Growth (%)

1Q

1,646

-4.1

41,960

2.3

69,048

-1.9

69.7

4.5

10.7

10,420

15.1

1,044

12

1,030

10,422

28.3

7,475

32.8

FY16

2Q

3Q

1,575

1,690

-7.0

2.5

43,237 42,738

5.8

3.0

68,093 72,235

-1.5

5.6

68.5

67.6

4.5

4.7

10.9

12.0

10,956 11,308

16.1

15.7

1,115

902

12

12

1,091

1,139

10,968 11,058

28.3

28.3

7,861

7,932

3.0

36.1

4Q

1,722

9.3

43,595

1.1

75,052

10.5

66.1

4.7

13.3

11,892

15.8

1,168

12

1,147

11,900

30.0

8,333

31.9

1Q

1,745

6.1

42,391

1.0

73,989

7.2

67.1

4.5

11.7

12,301

16.6

1,204

15

1,152

12,337

28.4

8,831

18.1

4Q

1,622

6,632

6,664

-5.8

0.0

0.5

42,635 42,886 42,729

-2.2

3.1

-0.4

69,152 284,427 284,750

-7.9

3.1

0.1

68.5

67.9

66.8

4.7

4.6

4.9

12.9

11.8

12.1

9,576 44,550 46,348

13.8

15.7

16.3

1,182

4,224

5,224

15

49

61

1,353

4,376

4,927

9,390 44,349 46,585

23.6

28.7

27.5

7,178 31,602 33,771

-13.9

24.4

6.9

4QE

1,622

-5.8

42,198

1.0

-3.2

68,437

1.0

-8.8

65.3

320bp

5.6

-80bp

12.8

10bp

11,182

-14.4

16.3

-250bp

1,113

6.2

14

3.5

1,294

4.5

10,987

-14.5

29.1

-560bp

7,788

-7.8

-6.7

12 May 2017

11

11 May 2017

4QFY17 Results Update | Sector: Cement

Dalmia Bharat

Buy

BSE SENSEX

28,439

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

8,801

DBEL IN

A

88.8

n

210.3 / 3.1

2368 / 813

17/25/169

234

42.2

CMP: INR2,523

TP: INR3,162(+25%)

quarter of strong outperformance across all parameters

n

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

Sales

74.0

86.4

97.9

EBITDA

19.0

23.1

25.7

NP

3.4

5.9

7.7

Adj EPS (INR)

38.8

66.7

87.1

EPS Gr. (%)

81.2

72.1

30.6

n

BV/Sh. (INR)

558

623

710

RoE (%)

7.2

11.3

13.1

RoCE (%)

7.3

9.3

10.6

P/E (x)

65.1

37.8

29.0

P/BV (x)

4.5

4.1

3.6

n

Estimate change

TP change

Rating change

n

Superior volume growth v/s peers:

4Q cement volumes grew 17% YoY to

4.55mt (est. of 3.93mt), as volume growth ex-OCL was 28% YoY due to

higher volumes from south/north-east and higher sales in MP/Chhattisgarh.

Pure cement realizations were flat QoQ (-1% YoY) at INR4,725/t, despite

weaker realizations in focus markets, due to higher proportion of premium

sales. Hence, revenues rose 15.6% YoY to INR21.85b (est. of INR18.5b).

EBITDA/t up QoQ despite cost pressures:

EBITDA/t for 4QFY17 rose 3% QoQ

(-8% YoY) to INR1,212, despite higher fuel prices, as unitary cost/t fell

INR112 QoQ on account of: 1) positive operating leverage, 2) lower cost of

power production and higher petcoke consumption (78% v/s 74% in

3QFY17) and 3) lower employee cost on disbursement of bonus in previous

quarters. Hence, EBITDA increased 8% YoY to INR5.52b for 4QFY17.

FY17 performance:

Volumes at 15.3mt rose 20% YoY, led by growth in

southern operations. Realizations declined 3% YoY to INR4,843/t. Hence,

revenues increased 15.5% YoY to INR74b. EBITDA/t was flat at INR1,244, and

thus, EBITDA increased 19% YoY to INR19b. However, a lower tax rate at

40% (v/s 48% in FY16) resulted in PAT growth of 77% YoY to INR3.37b.

Other key takeaways:

(a) Gross debt down INR7.2b in FY17 to INR80.8b. (b)

Received INR5.9b from sale of KKR shares in April-17. (c) Premium brands

constituted ~10% of overall sales. (c) Ex-OCL volumes increased 28% YoY in

4QFY17. (d) Petcoke consumption at 78% v/s 74% in 3QFY17.

Valuation

and

view:

We believe the net debt reduction program of

~INR7.5b in FY17 will continue into FY18/FY19, and expect net debt to

EBITDA to reduce to below 1.5x from 2.8x in FY17. Operating cash flow is

likely to improve strongly, led by margin improvement on the back of

ongoing cost efficiency program and realization improvement by way of

higher proportion of premium sales. OCL-DBL merger synergy benefits

could further improve operating cash flow in FY19. We expect valuation

multiple for the company to catch up with large caps, given improving

balance sheet and earnings CAGR of 50% over FY17-FY19. We value DBEL at

13x FY19E EV/EBITDA, at ~20% discount to peers due to ~50% exposure to

the south market and arrive at a TP of INR3,162, implying 25% upside.

Buy.

12 May 2017

12

10 May 2017

4QFY17 Results Update | Sector: Oil & Gas

Edurance Tech

Buy

BSE SENSEX

30,251

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6 Rel. Per (%)

Avg Val, INR m

Free float (%)

S&P CNX

9,422

ENDU IN

Op. performance in line; Revenue growth outperforms industry volumes

141

n

EBITDA margin hurt by lower utilization and VRS:

Consol. net sales grew

112.0 / 1.7

3.7% YoY to INR13.6b (est. of INR12.9b). Consol. EBITDA margin contracted

855 / 518

30bp YoY (-60bp QoQ) to 12.8% (est. of 13.3%), impacted by weaker India

-6 / 20

413

margins. In FY17, net sales grew by 6.6% and PAT rose 9.9% to INR3.3b.

17.5

n

India business margins disappoint:

S/A revenue grew 3.7% YoY (v/s 2%

CMP: INR796

TP: INR948(+19%)

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

55.7

65.2

Net Sales

7.4

9.1

EBITDA

3.3

4.3

PAT

23.5

30.8

EPS (INR)

9.9

31.1

Gr. (%)

122.9

149.3

BV/Sh (INR)

20.8

22.6

RoE (%)

15.6

19.0

RoCE (%)

33.9

25.9

P/E (x)

6.5

5.3

P/BV (x)

2019E

74.2

10.7

5.3

37.9

23.2

179.0

23.1

20.6

21.0

4.4

n

n

Estimate change

TP change

Rating change

n

decline in 2W industry volumes), driven by strong growth with HMSI and

Royal Enfield. EBITDA margin shrunk 200bp YoY to 10.4% (est. of 10.8%),

impacted by VRS expenses (INR30m) and negative op. leverage. EBITDA

declined 13% to INR986m (est. of INR883m). Higher other income restricted

PAT decline to 7% (to INR525m v/s est. of INR333m).

Better mix in EU business drives margins:

EU revenue grew 3.7% in INR

terms to INR4.2b (est. of INR4.8b). However, in EUR terms, growth was 7.2%

(40% more than PV industry). Margin improved 360bp YoY (+120bp QoQ) to

18.2% (est. of 17.5%) driven by a better mix. EBITDA was INR766m v/s est. of

INR835m). Higher other income boosted PAT to INR310m (est. of INR330m).

Key highlights from earnings call:

a) ENDU expects its ABS product to be

ready by January 2019 (in tie-up with BWI Group). b) Expect VRS at Pune

plant to conclude in 1HFY18, with benefit from 2HFY18. c) It is expecting to

penetrate into products like CVT, brakes and clutch with newer customers

(e.g. HMSI, HMCL) over next two years. Similarly, higher-value-add products

in suspension would drive growth over next 2-3 years.

Valuation and view:

We upgrade EPS by 5% for FY18E and 1.4% for FY19E to

factor in ramp-up with new customers/products. We believe ENDU offers

strong growth potential over a prolonged period of time, driven by newer

products/technology. However, material contribution of this would be

reflected only FY20 onward. Hence, we now assign a higher P/E multiple at

25x FY19E (22.5x earlier; in line with peers like AMRJ, BHFC) due to higher

visibility on growth drivers beyond FY19. Maintain

Buy

with a TP of INR948.

FY17

2Q

3Q

14,482 13,203

7.5

2.4

57.8

57.8

8.9

10.5

19.4

18.3

2,008

1,769

13.9

13.4

699

741

81

88

54

73

1,281

1,014

30.3

26.7

893

743

14.8

13.6

FY16

4Q

13,661

3.7

58.0

10.0

19.1

1,751

12.8

781

49

265

1,186

29.6

835

3.3

52,304

59.5

9.2

18.2

6,795

13.0

2,432

490

330

4,203

28.5

3,005

FY17

55,739

6.6

57.9

9.8

19.0

7,393

13.3

2,905

322

481

4,646

28.9

3,303

9.9

FY17

4QE

12,910

56.9

11.3

18.5

1,717

13.3

775

101

86

927

23.3

711

Var

(%)

5.8

110bp

-130bp

60bp

2.0

-50bp

Consolidated - Quarterly

Y/E March

INR m

Net Sales

YoY Change (%)

RM Cost (% of sales)

Staff Cost (% of sales)

Other Exp (% of sales)

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Eff. Tax Rate (%)

Reported PAT

YoY Change (%)

1Q

12,710

59.5

9.7

18.6

1,543

12.1

549

135

115

974

21.6

764

FY16

2Q

3Q

13,468 12,896

60.5

8.5

17.9

1,772

13.2

598

146

78

1,107

29.7

778

60.3

9.2

17.5

1,683

13.1

628

119

33

968

32.4

654

4Q

13,175

58.3

9.5

19.1

1,726

13.1

656

89

174

1,154

29.9

809

1Q

14,381

13.1

58.1

9.8

19.3

1,844

12.8

684

104

110

1,166

28.7

832

8.9

28.0

630bp

17

12 May 2017

13

11 May 2017

4QFY17 Results Update | Sector: Others

Blue Star

Neutral

BSE SENSEX

30,251

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

9,422

BLSTR IN

96

67.8 / 1.0

n

724 / 408

-1/20/40

35

60.9

n

CMP: INR676

TP: INR650(-2%)

Results below estimates, UCP segment disappoints

4QFY17 performance below expectations:

Revenue increased by 18% YoY

to INR13.8b (est. of INR14.5b) and EBIDTA by 2% YoY to INR0.8b (est. of

INR0.9b). Adj. net profit fell 6.5% YoY to INR372m (est. of INR547m).

UCP

segment’s revenue rose 20% YoY to INR6.5b, below our estimate of

INR7.8b, led by sluggish secondary sales due to continued impact of

demonetization in Jan-17 and weak summer in south India. EBIT margin

shrunk to 10.5% from 10.7% in the year-ago period. BLSTR’s market share in

the Room AC segment expanded 100bp to 11.5% in FY17, which the

company intends to grow by 100bp annually. In the Water Purifier segment,

BLSTR established 135 channel distributors in 80 towns, with a target to

reach 100 towns in FY18. In FY17, the company incurred INR0.3b on brand

building exercise for the Water and Air Purifier segments.

n

EMP

segment’s revenue grew 18% YoY to INR6.8b, led by improved pace of

execution of projects in hand. Traction was witnessed in the Buildings (IT,

ITES, hotels and hospitality) and Infrastructure (power, metro, healthcare)

segments. EBIT margin expanded to 4.8% from 3.1% in 4QFY16.

Valuation and view:

We maintain our

Neutral

rating, with a revised SOTP-based

price target of INR650 (UCP business at 25x FY19E EPS, MEP at 15x, and

Professional Electronics at 20x). We lower FY18/19 estimates by 5%/6% to factor

in higher ad spend on the Water and Air Purifier segments. Current valuations of

36x FY18E/24x FY19E fully capture strong growth over FY18/19.

FY16

FY17

3QE

4Q

1Q

7,875 11,674 12,168

NA

NA

19.3

352

602

765

NA

NA

1.6

4.5

5.2

6.3

156

177

135

108

108

92

81

107

112

0

0

0

169

424

649

11

34

145

6.4

7.9

22.3

159

390

504

NA

NA

35.7

156

398

514

NA

NA

38.3

2Q

8,890

6.0

405

-8.4

4.6

150

88

98

0

266

73

27.6

193

-1.3

200

-4.6

FY16

FY17E

(INR Million)

FY17

Var.

Vs Est

-5

-12

Financials & Valuations (INR b)

2017

2018E

Y/E Mar

44.0

52.4

Net Sales

2.4

3.2

EBITDA

1.2

1.8

PAT

12.9

19.0

EPS (INR)

-0.7

47.5

Gr. (%)

79.2

84.7

BV/Sh (INR)

18.0

23.2

RoE (%)

15.5

20.4

RoCE (%)

52.4

35.5

P/E (x)

8.5

8.0

P/BV (x)

2019E

61.8

4.4

2.7

28.0

47.6

92.7

31.6

29.1

24.1

7.3

Estimate change

TP change

Rating change

Quarterly Performance (Consolidated)

Y/E March

Sales

Change (%)

EBITDA

Change (%)

As of % Sales

Depreciation

Interest

Other Income

Extra-ordinary Items

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Change (%)

Adj PAT

Change (%)

1Q

10,203

NA

753

NA

8.2

115

103

60

0

594

222

37.4

372

NA

372

NA

2Q

8,391

NA

442

NA

5.3

173

113

49

0

206

10

5.0

196

NA

210

NA

3QE

4Q

4Q

9,178 13,756 38,138 44,008 14,537

16.5

17.8

19.9

15.4

24.5

351

756 2,308

2,355

863

-0.3

25.6

38.0

2.0

43.5

3.8

5.5

6.1

5.4

5.9

155

166

571

606

151

85

114

432

378

112

46

37

138

215

44

0

0

-119

0

0

157

514 1,563

1,586

644

15

133

277

367

97

9.7

25.9

17.7

23.1

15.0

142

381 1,048

1,231

547

-10.6

-2.5

22.0

5.5

40.3

146

372 1,167

1,231

547

-6.1

-6.5

22.0

5.5

40.3

-20

-30

12 May 2017

14

March 2017 Results Preview | Sector: Healthcare

Dr Reddy’s Labs

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

DRRD IN

170.5

467 / 7

3689 / 2560

-9 / -19 / -29

CMP: INR2,736 TP:INR3,050 (+11%)

n

n

Neutral

Financial Snapshot (INR Billion)

Y/E March

2016 2017E 2018E 2019E

Sales

EBITDA

NP

EPS (INR)

EPS Gro. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA

(x)

Dividend

Yield (%)

20.7

3.6

11.7

0.6

35.9

3.4

17.5

0.4

24.7

3.0

13.3

0.6

18.6

2.6

9.9

0.8

154.7

39.1

22.6

132.3

1.7

752

18.8

13.9

142.3

26.3

13.0

76.1

-42.5

808

9.8

7.2

163.6

34.3

18.9

110.9

45.7

905

12.9

10.1

190.4

45.3

25.1

147.2

32.7

1,033

15.2

12.7

n

n

n

Dr Reddy’s Lab is expected to report flattish growth in 4QFY17 YoY,

with revenue at INR37.6b.

US business is likely to decline 17% YoY to INR15.6b, while Russia

and CIS region sales are expected to decline in single-digits due to

currency devaluation. However, India business is expected to

report robust growth in 4QFY17

EBITDA is expected to marginally increase ~4% YoY to INR8.6b and

the margin to increase 80bp YoY to 22.8%.

PAT is expected to increase 23.6% YoY to INR4.7b, on back of lower

tax rate of 22.2% as against 70% in 3QFY16.

Though long term fundamentals remain intact, the stock would be

range bound in the near term due to regulator concerns. We value

DRRD at 21x 1HFY19E EPS (in-line with sector average), given its

robust balance sheet, expectation of US FDA resolution over the

next six months and rich product pipeline, We maintain Neutral;

our target price is INR3,050.

Key issues to watch out

Ø

Update on USFDA resolution of warning letters for Srikakulam, Duvvada

and Miryalaguda API plants.

Ø

FY18 outlook for both generics and PSAI businesses.

Quarterly Performance (INR Million)

Y/E March

Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Amortization

Other Income

Profit before Tax

Tax

Rate (%)

Reported PAT

Adjusted PAT

YoY Change (%)

Margins (%)

E - MOSL Estimates

1Q

37,578

6.8

27,723

9,855

26.2

2,268

390

7,977

1,721

21.6

6,256

6,256

13.7

16.6

FY16

2Q

3Q

39,890 39,679

11.2

3.2

28,486 29,646

11,404 10,033

28.6

25.3

2,466

2,577

160

124

9,098

7,580

1,879

1,788

20.7

23.6

7,219

5,792

7,219

5,792

25.7

0.8

18.1

14.6

4Q

37,562

-3.0

29,313

8,249

22.0

3,032

-2,732

2,484

1,739

70.0

745

3,762

-27.5

10.0

1Q

32,345

-13.9

28,572

3,773

11.7

2,681

615

1,707

444

26.0

1,263

1,263

-79.8

3.9

FY17E

2Q

3Q

35,857 37,065

-10.1

-6.6

29,834 28,539

6,023

8,526

16.8

23.0

2,914

2,924

726

320

3,835

5,922

885

1,221

23.1

20.6

2,950

4,701

3,244

4,701

-55.1

-18.8

9.0

12.7

FY16

4QE

37,574

0.0

29,008

8,567

22.8

2,863

275

5,979

1,329

22.2

4,650

4,650

23.6

12.4

154,708

4.4

115,620

39,088

25.3

10,343

-1,605

27,139

7,127

26.3

20,012

20,012

-9.8

12.9

FY17E

142,273

-8.0

115,953

26,321

18.5

11,382

1,926

16,864

3,879

23.0

12,985

12,985

-35.1

9.1

12 May 2017

15

March 2017 Results Preview | Sector: Consumer

Nestle India

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

NEST IN

96.4

638 / 10

7390 / 5360

3 / -8 / -5

CMP: INR6,622

n

TP: INR7,010 (+6%)

Neutral

Financial Snapshot (INR b)

Y/E December

Sales

EBITDA

Adj. PAT

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh.(INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

55.2

22.7

38.9

0.7

55.8

21.0

34.2

1.0

46.0

18.1

27.3

1.0

38.7

14.9

22.9

1.0

2015 2016E 2017E 2018E

81.2

15.9

11.6

-7.3

40.9

40.7

40.5

91.6 109.0 125.0

18.0

11.4

-1.0

38.8

38.6

53.1

22.2

13.9

21.3

42.3

42.3

45.1

25.9

16.5

18.8

42.3

42.3

38.6

n

n

We expect Nestle India’s net sales to grow 20% YoY to INR27.5b,

largely owing to some impact of Maggi issue in the base. Maggi re-

launch has been successful, with several new variants. It has

already clawed back to >60% market share.

We estimate EBITDA margin to expand by 150bp YoY to 24.1%.

EBITDA and PAT are projected to grow by a healthy 28% YoY (to

INR6.6b) and 35% YoY (to INR4b), respectively.

The stock trades at 38.7x CY18E EPS; maintain Neutral.

119.9 118.7 144.0 171.0

292.3 315.7 365.5 443.5

Key issues to watch for:

Ø

Volume trends and management commentary on demand

environment.

Ø

Recovery in sales and market share of Maggi.

Quarterly performance

Y/E December

Net Sales

YoY Change (%)

COGS

Gross Profit

Margin (%)

Operating Exp

EBITDA

Margins (%)

YoY Growth (%)

Depreciation

Interest

Other income

PBT

Tax

Rate (%)

Adjusted PAT

YoY Change (%)

E: MOSL Estimates

1Q

22,957

-8.4

9,851

13,106

57.1

7,927

5,180

22.6

-13.7

891

38

416

4,666

1,614

34.6

3,052

-17.6

CY16

2Q

3Q

22,561

23,462

16.7

35.1

9,495

9,860

13,066

13,602

57.9

58.0

8,709

9,115

4,357

4,487

19.3

19.1

21.0

57.0

889

882

1

1

522

547

3,989

4,151

1,136

1,273

28.5

30.7

2,853

2,878

22.9

74.5

4Q

22,613

16.2

9,591

13,022

57.6

9,087

3,935

17.4

12.7

873

-5

654

3,721

1,127

30.3

2,594

24.3

1QE

27,549

20.0

11,959

15,590

56.6

8,961

6,629

24.1

28.0

959

0

478

6,147

2,029

33.0

4,119

35.0

CY17

2QE

3QE

27,524

26,746

22.0

14.0

11,997

11,507

15,527

15,239

56.4

57.0

9,936

10,659

5,591

4,580

20.3

17.1

28.3

2.1

959

959

0

0

600

629

5,232

4,250

1,726

1,402

33.0

33.0

3,505

2,847

22.9

-1.1

(INR Million)

CY16

CY17

4QE

27,145

20.0

11,531

15,614

57.5

10,235

5,380

19.8

36.7

959

0

672

5,093

1,681

33.0

3,412

31.6

91,585

12.7

38,962

52,623

57.5

34,555

18,068

19.7

13.3

3,521

42

2,127

16,632

5,189

31.2

11,443

17.2

108,965

19.0

46,994

61,970

56.9

39,791

22,179

20.4

22.8

3,838

0

2,380

20,721

6,838

33.0

13,883

21.3

12 May 2017

16

March 2017 Results Preview | Sector: Financials - Banks

Oriental Bank of Commerce

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

OBC IN

346.2

50 / 1

149 / 77

14 / 4 / 42

n

CMP: INR145

n

TP: INR138 (-7%)

Neutral

Financial Snapshot (INR b)

Y/E March

2016 2017E 2018E 2019E

NII

53.7 48.7

51.9

56.4

OP

36.8 42.7

38.2

40.4

NP

1.6

0.1

7.3

9.0

EPS (INR)

4.9

0.3

21.0

26.0

EPS

Growth 0.0

0.0 8,255.1 23.9

(%)

BV/Sh. (INR) 418.0 396.9 413.0 432.9

RoE (%)

1.2

0.1

5.2

6.1

RoA (%)

0.1

0.0

0.3

0.3

Valuations

P/E (x)

0.0 579.2

6.9

5.6

P/BV (x)

0.35 0.37

0.35

0.34

P/ABV (x)

0.72 1.54

1.11

0.71

n

n

n

Net Loans are expected to decline 4% YoY, led by continued balance

sheet consolidation. Deposit growth would be muted at 3.5% YoY.

CD ratio is likely to decline ~520bp YoY and ~110bp QoQ.

NIM is expected to improve ~30bp QoQ (but fall 22bp YoY) owing to

one-time interest income reversals on SDR/S4A accounts in 3Q. NII is

likely to remain subdued (-6% YoY), led by continued moderation in

loan growth and YoY decline in NIM.

Non-interest income is expected to remain subdued, led by lower

investment gains and muted fee income. Opex is expected to decline

~12% YoY (+10% QoQ) due to change in depreciation policy by the

bank in 3Q.

Slippages post AQR have remained at elevated levels, led by the

clean-up exercise taken up by the new management, while

recoveries have been modest. Hence, we remain cautious on asset

quality (~365bp credit costs). We expect a loss of INR1.1b in 4Q.

The stock trades at 0.3x FY19E BV and 5.6x FY19E EPS. Neutral.

Key issues to watch for

Ø

Outlook on asset quality,

Ø

Quantum of loans rescheduled under the 5:25 scheme.

Ø

Balance sheet growth and traction in focus loan segments.

Quarterly Performance

Y/E March

Net Interest Income

% Change (YoY)

Other Income

Net Income

Operating Expenses

Operating Profit

% Change (YoY)

Other Provisions

Profit before Tax

Tax Provisions

Net Profit

% Change (YoY)

Operating Parameters

NIM (Rep, %)

NIM (Cal,%)

Deposit Growth (%)

Loan Growth (%)

Asset Quality

OSRL (INR b)

OSRL (%)

Gross NPA (INR b)

Gross NPA (%)

E: MOSL Estimates

1Q

13,285

6.9

4,539

17,824

7,380

10,445

-8.5

5,777

4,668

2,090

2,578

-29.3

2.7

2.5

5.0

8.3

147.9

9.9

85.8

5.9

FY16

2Q

3Q

4Q

13,831 13,093 13,537

11.0

0.9

4.3

4,246 3,945 4,933

18,076 17,038 18,469

8,151 9,375 9,682

9,925 7,664 8,787

16.1

-24.5

-27.7

5,694 11,831 10,261

4,231 -4,167 -1,474

1,218

80 -1,690

3,013 -4,247

216

3.4

NM

NM

2.8

2.7

6.9

7.0

140.6

9.4

85.6

5.7

2.6

2.5

4.4

7.9

133.0

8.7

118.2

7.8

2.7

2.5

2.4

3.7

95.4

6.2

147.0

9.6

1Q

12,046

-9.3

6,138

18,184

9,013

9,171

-12.2

7,504

1,667

660

1,007

-60.9

2.4

2.2

4.4

4.0

95.4

6.1

172.1

11.5

FY17

2Q

3Q

13,156 10,820

-4.9

-17.4

5,834 9,774

18,991 20,594

9,432 7,793

9,559 12,801

-3.7

67.0

7,745 13,271

1,813

-470

280

830

1,533 -1,300

-49.1

NM

2.7

2.5

1.2

-1.0

76.2

5.1

183.8

12.4

2.1

2.0

2.0

-2.7

66.4

4.5

204.9

13.8

4QE

12,720

-6.0

6,945

19,665

8,536

11,128

26.6

13,965

-2,836

-1,684

-1,153

-633.1

(INR Million)

FY16

53,746

5.7

17,663

71,408

34,588

36,821

-12.9

33,562

3,258

1,698

1,561

-68.6

2.7

2.6

2.4

3.7

95.4

6.2

147.0

9.6

FY17E

48,742

-9.3

28,690

77,433

34,774

42,659

15.9

42,485

174

87

87

-94.4

2.3

3.5

-1.9

2.3

3.5

-1.9

226.9

15.1

226.9

15.1

12 May 2017

17

March 2017 Results Preview | Sector: Commercial vehicles

SH Kelkar

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

Equity Shares (m)

144.6

43 / 1

362 / 201

-1 / -8 / 10

144.6

n

CMP: INR298

n

TP: INR371 (+24%)

Buy

We expect revenue to grow 7% YoY to INR2.8b in 4QFY17, with

some impact of demonetization on customers, which is expected to

lead to lower new launches.

Margins are likely to remain flattish at 17%. EBITDA is expected to

grow 8% YoY at INR483m.

We estimate PAT at INR302m, as against INR260m in 4QFY16,

growth of 17%.

Buy.

Financial Snapshot (INR Billion)

Y/E March

2016 2017 2018E 2019E

Sales

EBITDA

NP

Adj EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

EV/Sales (x)

54.3

5.7

28.1

4.7

39.9

5.2

24.3

4.3

29.6

4.7

18.6

3.5

23.0

4.1

14.5

3.0

9.3

1.5

0.8

5.5

4.2

52.7

12.6

16.9

10.2

1.8

1.1

7.5

36.0

57.8

13.6

19.9

12.2

2.3

1.5

10.2

34.8

64.7

16.6

25.0

14.3

2.9

1.9

13.1

28.7

73.5

18.9

28.7

n

Key issues to watch for

Ø

Growth in HTT, which was acquired in flavor business.

Ø

Management commentary on new client acquisition, and shift of

production from the Netherlands to Vapi.

Consolidated - Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

Minority Interest & Profit/Loss of Asso. Cos.

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

E: MOSL Estimates

1Q

2,211

1,807

404

18.3

74

72

19

278

0

278

83

29.8

0

195

195

8.8

FY16

2Q

3Q

2,082

2,295

17.2

1,827

1,887

255

407

12.3

17.7

74

72

73

44

23

18

131

0

131

61

46.4

0

70

70

3.4

310

0

310

92

29.6

0

218

218

378.3

9.5

4Q

2,658

12.8

2,210

448

16.9

77

14

50

407

0

407

147

36.2

0

260

260

24.0

9.8

1Q

2,559

15.7

2,085

473

18.5

44

19

32

442

0

442

167

37.7

0

275

275

41.3

10.8

FY17

2Q

3Q

2,453

2,319

17.8

1.1

2,036

1,924

416

395

17.0

17.1

49

48

22

2

29

19

375

0

375

132

35.1

0

243

243

246.0

9.9

364

0

364

110

30.2

0

254

254

16.5

11.0

-

-

(INR Million)

FY17E

4QE

2,844

10,174

7.0

10.0

2,360

8,405

483

1,768

17.0

17.4

50

191

2

45

20

100

451

0

451

149

33.0

0

302

302

16.6

10.6

1,632

0

1,632

557

34.1

0

1,075

1,075

44.7

10.6

-

-

12 May 2017

18

March 2017 Results Preview | Sector: Retail

Titan Company

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

TTAN IN

887.8

436 / 7

495 / 296

8 / 15 / 22

CMP: INR491

n

n

TP: INR485 (-1%)

Neutral

We expect TTAN’s revenue to increase 23.3% to INR30b.

2HFY17 was much better than the company had expected despite

demonetization, as consumer demand recovered significantly and

sales were healthy across divisions.

Jewelry division had a very good quarter, led by studded jewelry

activation and favorable base. Tanishq saw retail growth that was

40% higher than the company’s expectation at the beginning of

4QFY17.

During the quarter, TTAN added only 7 Tanishq stores (28ksf).

We factor in EBITDA growth of 36% in 4QFY17, with underlying

margin expansion of 90bp to 8.9%. PAT is expected to decline by

9.4% YoY due to a higher tax rate.

The stock trades at 41.6x FY19E EPS of INR11.8; maintain Neutral.

Financial Snapshot (INR b)

Y/E March

2016 2017E 2018E 2019E

Sales

EBITDA

Adj. PAT

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh.(INR)

RoE (%)

RoCE (%)

Payout (%)

Valuation

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

61.2

12.2

50.6

0.5

52.2

10.5

37.6

0.6

47.1

9.1

33.3

0.6

41.6

7.9

28.7

0.7

111.8 122.9 142.6 164.0

8.6

7.1

8.0

-13.4

40.4

21.3

21.8

30.0

11.6

8.4

9.4

17.1

47.0

21.5

21.6

30.0

13.0

9.3

10.4

10.8

54.1

20.6

20.5

30.0

14.9

10.5

11.8

13.5

62.2

20.3

20.2

30.0

n

n

n

n

Key issues to watch for:

Ø

Comments on consumer demand for Jewelry and Watches.

Ø

Expansion initiatives.

Ø

Update on the new Golden Harvest Scheme.

Quarterly Performance

Y/E March

Net Sales

YoY Change (%)

Total Exp

EBITDA

EBITDA Growth %

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Adjusted PAT

YoY Change (%)

E: MOSL Estimates

1Q

26,868

-7.1

24,872

1,996

-27.3

7.4

227

118

395

2,045

530

25.9

1,516

-14.5

FY16

2Q

26,547

-25.5

24,717

1,830

-39.9

6.9

240

87

326

1,829

365

20.0

1,464

-39.0

3Q

33,984

17.3

31,037

2,811

11.7

8.3

248

114

440

2,889

627

21.7

2,261

18.6

4Q

24,372

-1.5

22,414

1,958

-21.2

8.0

254

104

452

2,052

156

7.6

1,896

-11.9

1Q

27,825

3.6

25,067

2,759

38.2

9.9

261

88

297

2,706

471

17.4

2,236

47.5

FY17

2Q

3Q

26,364

38,713

-0.7

13.9

23,760

35,186

2,604

3,528

42.3

25.5

9.9

9.1

260

269

117

84

277

335

2,504

3,509

667

946

26.6

27.0

1,837

2,563

25.5

13.4

4QE

30,044

23.3

27,378

2,667

36.2

8.9

279

113

448

2,724

1,007

37.0

1,717

-9.4

(INR Million)

FY16

111,770

-5.5

103,179

8,591

-20.4

7.7

971

423

1,612

8,809

1,678

19.0

7,131

-13.4

FY17E

122,947

10.0

111,390

11,557

34.5

9.4

1,068

402

1,356

11,444

3,090

27.0

8,354

17.1

12 May 2017

19