29 May 2017
Corporate performance
4QFY17: Expectations v/s delivery
v
Today’s top research idea
ITC: Neutral GST rates boost volume growth prospects;
Maintain Buy
v
ITC’s 4QFY17
net revenues increased 14.0% YoY to INR111.3b. EBITDA margin
decline stood at 210bp YoY. EBITDA still grew 7.5% YoY to INR38.8b while Adj.
PAT grew 12.1% YoY to INR 26.7b.
v
We reckon cig volumes were flat YoY
leading to cigarette gross revenue
growing 4.8% YoY. Cig. EBIT margin expanded 110bp on gross sales.
v
Valuation & View:
With the GST rates coming in neutral, prospects on volume
growth look bright for the next year. For the longer term, the 290% ad-
valorem duty cap remains a worry. Maintain
Buy
with target multiple of 31x
FY19 EPS (10% premium to 3 year average) leading to a target price of INR355
(INR 320 earlier).
(no of
companies)
Sales
EBIDTA
PAT
Growth (YoY, %)
MOSL
Nifty
Sensex
(139)
(42)
(25)
13.8
11.8
9.4
12.2
36.1
4.9
19.1
4.6
10.1
Research covered
Cos/Sector
Key Highlights
Neutral GST rates boost volume growth prospects; Maintain Buy
Adjusted EBITDA marginally above estimate; gas production up 16% YoY
Weak quarter; margin improvement is key
EBITDA above estimate; GRM at ~USD8/bbl
In-line results; approvals to pick-up in FY18
Déjà vu: Significant margin miss (excluding one-offs)
Ad growth disappoints, volumes recovery a quarter away; Maintain EPS and TP
Recognition of export incentives boosts profitability
In-line; HFL’s merger drives tax write-back, boosting PAT; Upgrade EPS
Weak 4Q; domestic business delivers muted performance
Muted performance in key markets impacts results
Impact of import alert to be visible in FY18
EBITDA below estimate; volume growth strong
High opt. cost and employee provision drive miss
Incrementally positive HP channel outlook
GE T&D India | Birla Corp | CG Power & Inds | India Cement | Kaveri Seed
Aurobindo | BHEL | BPCL | Bharat Elect | Coal India | Escorts | Info Edge |
Jagran | Jubilant Food | L&T | Manpasand | NTPC | Oil India | Parag Milk
|Power Grid
ITC
ONGC
Sun Pharma
HPCL
Cadila Health
Tech Mahindra
Sun TV Network
Container Corpn
Ashok Leyland
Alkem Lab
Torrent Pharma
Divi's Lab
Indraprastha Gas
NALCO
MphasiS
More 4Q Updates
Results
Expectation
Market snapshot
Equities - India
Close
Chg .%
Sensex
31,028
0.9
Nifty-50
9,595
0.9
Nifty-M 100
17,586
1.4
Equities-Global
Close
Chg .%
S&P 500
2,416
0.0
Nasdaq
6,210
0.1
FTSE 100
7,548
0.4
DAX
12,602
-0.2
Hang Seng
10,580
0.1
Nikkei 225
19,687
0.6
Commodities
Close
Chg .%
Brent (US$/Bbl)
52
1.8
Gold ($/OZ)
1,267
0.8
Cu (US$/MT)
5,638
-1.2
Almn (US$/MT)
1,949
-0.5
Currency
Close
Chg .%
USD/INR
64.4
-0.3
USD/EUR
1.1
0.0
USD/JPY
111.1
-0.7
YIELD (%)
Close
1MChg
10 Yrs G-Sec
6.7
0.0
10 Yrs AAA Corp
7.8
0.0
Flows (USD b)
26-May
MTD
FIIs
0.0
1.5
DIIs
0.2
0.9
Volumes (INRb)
26-May
MTD*
Cash
304
305
F&O
3,610
5,597
Note: YTD is calendar year, *Avg
YTD.%
16.5
17.2
22.5
YTD.%
7.9
15.4
5.7
9.8
12.6
3.0
YTD.%
-6.6
9.3
2.1
14.4
YTD.%
-5.1
6.4
-5.2
YTDchg
0.1
0.2
YTD
7.8
2.5
YTD*
287
4,820
Chart of the Day: ITC – GST rates coming in neutral, prospects
on volume growth look bright for the next year
Quote of the day
Success is walking from failure to failure
with no loss of enthusiasm
Research Team (Gautam.Duggad@MotilalOswal.com)
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 textbox for the detailed news link
1
Beleaguered Reliance
Communications banking on
Aircel, Brookfield deal
proceeds to avoid NPA tag
2
KG Basin to see $30 billion investment in 10 years: Oil minister
Dharmendra Pradhan
India's gas output and refining capacity is poised to jump in the decade
ahead, oil minister Dharmendra Pradhan said. Indian refineries would
easily switch from transportation fuels to petrochemicals if needed. The
minister also spoke about the proposed merger of state firms and how
India was driving a hard bargain with oil cartel OPEC to extract better
deals. …
The plight of Reliance
Communications is more serious
than what credit rating agencies
believe. The Anil Ambani-owned
mobile phone operator has
defaulted on its loan servicing
obligations with more…
3
EPFO to hike exposure to ETFs
to ₹20,000 crore
As it sees increased returns from
the markets, the Employees’
Provident Fund Organisation
(EPFO) will increase its exposure
to exchange traded funds (ETF)
this financial year to ₹20,000
crore. Minister of State for Labour
Bandaru Dattatreya said the fund
would now raise the exposure to
ETFs to 15 per cent of the.…
4
Fashion retail picks up pace
again as e-commerce sites cut
discounts
Sales at the apparel and fashion
divisions of four of the nation's
top five listed retailers in fiscal
2017 grew at the fastest pace in
three years, as the intensity of
competition ebbed with online
rivals eschewing deep discounts to
shore up finances. …
5
Various tax slabs under GST
worry traders: CAIT
Classification of different items
under various tax slabs of GST has
created an environment of anxiety
and concern among the trading
community across the country,
Confederation of All India Traders
said today. Various verticals of
retail trade are demanding lower
tax on items being dealt by them
since they have been categorised
under higher tax slab in
comparison to tax slab of current
VAT tax regime, CAIT said.…
6
GST blow for solar power to
soften
After fixing rates under the goods
and services tax (GST), the
government is now learnt to be
working full time on settling the
anomalies in the new regime. In
one such surprise clarification,
the Union government has
addressed the concerns of the
solar power sector. Revenue
Secretary Hasmukh Adhia told
Business Standard that the…
29 May 2017
7
NPA crisis: Another year of
woes in offing as ageing bad
loans drag down banks’ profits
With more non-performing assets
(NPAs) ‘ageing’, and consequently
requiring more provisions, banks’
profits could continue to be under
pressure for another year. That’s
unless a meaningful chunk of
these bad loans are recovered...
2

26 May 2017
4QFY17 Results Update | Sector: Consumer
ITC
Buy
BSE SENSEX
31,028
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
9,595
ITC IN
12,147.4
3,749.3 / 57.4
313 / 222
6/17/10
2900
100.0
CMP: INR309
n
TP: INR355 (+15%)
Neutral GST rates boost volume growth prospects; Maintain Buy
4QFY17 performance better than expectations:
Net revenues rose 14.0% YoY
(est. of +1.3%) to INR111.3b. Gross sales were up 6.2% YoY, but net sales
growth was even higher due to an 11.4% YoY decline in excise duty. Higher
inventory in the system ahead of pictorial warning implementation had
resulted in higher excise in the base quarter. EBITDA margin contracted 210bp
YoY (est. of -50bp) in 4QFY17. EBITDA still increased 7.5% YoY to INR38.8b (est.
of flat growth), while adj. PAT grew 12.1% YoY (est. of +8.4%) to INR26.7b.
We reckon cig volumes were flat YoY
(better than est. of -4%), aided by higher
growth in the sub-65mm segment. There also seems to be some initial adverse
impact of price increase in Gold Flake and Navy Cut toward December 2016.
Gross cigarette revenue grew 4.8% YoY, while calculated net sales rose 21.1%
YoY owing to the unusually high excise base of last year. Cigarette EBIT grew
8% (110bp expansion of EBIT margin on gross sales).
Other FMCG net sales were up 6.5% YoY to INR28.8b
(est. of +4%), but the
segment reported EBIT margin contraction due to higher wheat/sugar costs.
Agri, Hotels and Paper revenue grew 6.2%, 6.5% and 5.5% YoY, respectively
FY17 performance:
Net sales grew by 9.6% to INR400.9b, EBITDA by 6.3% to
INR145.8b and adj. PAT by 9.4% to INR102b. Cigarette gross sales rose by 5.1%
and EBIT by 6.5%. Other FMCG sales grew 8%, but EBIT margin shrunk 80bp.
Maintain Buy:
With neutral GST rates, volume growth prospects appear bright
for next year. Over the longer term, the 290% ad-valorem duty cap remains a
worry. Changes to our forecasts lead to an increase of 3.2%/4.5% in FY18/FY19
EPS. At 26.9x FY19E, ITC trades at a significant discount to peers. Maintain
Buy
with a target multiple of 31x FY19 EPS (10% premium to three-year average),
leading to a target price of INR355 (INR320 earlier).
Financials & Valuations (INR b)
Y/E Mar
2017 2018E 2019E
Net Sales
396.4 440.4 509.4
EBITDA
145.8 163.7 196.9
NP
102.0 116.4 139.1
EPS (INR)
8.4
9.6
11.5
EPS Gr. (%)
9.4
14.1
19.6
BV/Sh. (INR)
37.2
37.7
41.5
RoE (%)
23.5
25.6
28.9
RoCE (%)
22.6
24.6
27.9
P/E (x)
36.8
32.2
26.9
P/BV (x)
8.3
8.2
7.4
EV/EBITDA (x)
24.3
21.6
17.8
Div. Yield
1.8
2.2
2.6
n
n
n
Estimate change
TP change
Rating change
n
29 May 2017
3

26 May 2017
4QFY17 Results Update | Sector: Oil & Gas
ONGC
Buy
BSE SENSEX
31,028
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
9,595
ONGC IN
12,833
2,587.8 / 38.1
212 / 138
-7/-23/4
1453
31.9
CMP: INR176
TP: INR229(+31%)
Adjusted EBITDA marginally above estimate; gas production up 16% YoY
n
ONGC reported EBITDA of INR67b (up 6% YoY, but down 35% QoQ), significantly
lower than our estimate of INR107.6b, largely due to higher statutory levies and
increased staff cost. Adjusting for one-offs (royalty payment of INR24b to the state
government and provision of INR19.4b on account of pay revision), EBITDA stands at
INR111b, marginally above our estimate of INR107.6b.
PAT declined 6% YoY (flat QoQ) to INR43b, only marginally below our estimate of
INR45b. Higher other income at INR45b (up 11% YoY and 365% QoQ; our estimate
was INR10b) and lower tax rate at 21.6% (against 30.4% in 3QFY17 and 30.6% in
4QFY16) supported PAT.
Net realization grew 57% YoY and 10% QoQ to USD54.9/bbl (our estimate was
USD55.1/bbl). ONGC’s realization premium to Brent in 4QFY17 was USD0.8/bbl
against the historical trend of USD1/bbl. Subsidy sharing was nil; we model nil
subsidy sharing for FY18 and FY19 as well.
Oil sales grew 2% YoY and 2.3% QoQ to 6.14mmt and gas sales grew 18% YoY (flat
QoQ) to 4.63bcm. Oil production was flat YoY/QoQ at 6.39mmt and gas production
grew 13.4% YoY but declined 1.3% QoQ to 5.94bcm. In FY17, gas production grew
3.3% to 23.3bcm and oil production declined 1.5% to 25.5mmt. Gas production is
expected to increase again, led by completion of its development projects. We
expect gas production to increase 10-15% annually, going ahead.
EBITDA at INR470b was up 4% YoY while adjusted PAT at INR211b was up 21% up
YoY led by lower interest cost and lower effective tax rate. Oil realization in FY17 at
USD50.3 was an improvement from USD47/bbl in FY16 led by higher oil prices and
absence of subsidy in FY17.
n
Financials & Valuations (INR b)
2017
2018E
Y/E Mar
1421
1699
Net Sales
471
688
EBITDA
211
265
PAT
16.4
20.6
EPS (INR)
20.8
25.6
Gr. (%)
172
180
BV/Sh (INR)
10.4
11.7
RoE (%)
8.5
10.2
RoCE (%)
10.7
8.5
P/E (x)
1.0
1.0
P/BV (x)
2019E
1921
801
307
23.9
16.1
188
13.0
11.0
7.3
0.9
n
n
n
Estimate change
TP change
Rating change
Valuation and view
n
Growth in oil and gas production, declining opex led by cost efficiencies, and the
extension of OPEC production cut places ONGC on strong footing.
n
With Brent at USD55/60/bbl in FY18/19 and INR/USD at 68.5/70, we expect EPS of
INR20.6/23.9 for FY18/19. The stock trades at 7.3x FY19E EPS and at an EV of 3.1x
FY19E EBITDA. Using SOTP, we value the stock at INR229/share (31% upside).
Buy.
Standalone - 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 (%)
Reported PAT
Adj PAT
YoY Change (%)
Margins (%)
FY16
1Q
2Q
3Q
4Q
224,988 205,632 182,481 162,372
3.5
1.0
-2.5 -23.8
104,447 101,718 95,556 99,208
120,540 103,914 86,926 63,164
53.6
50.5
47.6
38.9
45,191 46,074 38,495 37,339
3,165
0 3,122 3,674
9,923 12,541 10,155 40,607
82,107 70,380 55,464 62,757
0
0 36,164 -3,898
82,107 70,380 19,300 66,655
28,423 21,960 4,641 20,412
34.6
31.2
24.0
30.6
53,684 48,420 14,659 46,243
53,684 48,420 42,127 43,539
12.3 -11.1
18.0
10.6
23.9
23.5
23.1
26.8
FY17
1Q
2Q
3Q
4Q
176,704 182,866 199,338 217,140
-21.5 -11.1
9.2
33.7
83,942 87,476 96,440 149,889
92,761 95,391 102,898 67,252
52.5
52.2
51.6
31.0
36,997 34,529 47,039 53,875
2,920 3,034 3,062 3,202
10,668 12,920 9,727 45,195
63,512 70,748 62,524 55,371
0
0
0
0
63,512 70,748 62,524 55,371
21,186 20,999 19,001 11,969
33.4
29.7
30.4
21.6
42,325 49,749 43,523 43,402
42,325 49,749 43,523 43,402
-21.2
2.7
3.3
-0.3
24.0
27.2
21.8
20.0
(INR Million)
FY16
FY17
FY17 Var vs
4QE est (%)
775,473 776,048 210,978
3%
-5.6
0.1
30.7
400,930 417,746 103,300
45%
374,543 358,302 107,678
-38%
48.3
46.2
51.0
167,100 172,440 47,000
15%
9,962 12,217 3,000
7%
73,226 78,511 10,132 346%
270,708 252,155 67,810
-18%
0
0
0
270,708 252,155 67,810
-18%
75,436 73,155 22,601
-47%
27.9
29.0
33.3
195,272 179,000 45,209
-4%
195,272 179,000 45,209
-4%
10.1
-8.3
64.6
25.2
23.1
21.4
29 May 2017
4

26 May 2017
4QFY17 Results Update | Sector: Healthcare
Sun Pharma
Buy
BSE SENSEX
31,028
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
9,595
SUNP IN
2,399
1,419.9 / 22.0
855 / 565
-15/-38/-45
2734
45.6
CMP: INR569
n
TP: INR650(+14%)
Weak quarter; margin improvement is key
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
302.6 296.3
EBITDA
87.8
76.7
PAT
69.6
61.1
EPS (INR)
28.9
25.4
Gr. (%)
62.9
61.1
BV/Sh (INR)
26.1
25.4
RoE (%)
48.0 -12.2
RoCE (%)
141.9 160.2
P/E (x)
21.8
22.4
P/BV (x)
4.0
3.5
Estimate change
TP change
Rating change
Weak operating performance:
4QFY17 revenue declined 6.5% YoY to INR71.4b
(~9% below est.). Gross margin contracted ~300bp QoQ/1,300bp YoY, primarily
due to one-time inventory write-off of ~USD45m and muted US revenue (-34%
YoY). EBITDA margin came in at 21.7% (adj. for inventory write-off at 25.7%).
PAT stood at INR12.2b (~16% miss).
n
US continues to underperform; recovery expected from FY19:
US business
declined 25% YoY to USD381m in 4QFY17, led by pricing pressure in the base
2019E
business, competition in gGleevec, gBenicar AG & Taro portfolio, and
338.3
deferment of the launch of gGlumetza. We expect ~15% decline in US sales in
93.0
FY18 due to pricing pressure in SUNP and Taro portfolio, partially offset by key
74.2
30.8
launches such as Xelpros, Elepsia, Glumetza and Odomozo ramp-up. We expect
74.2
a pick-up in US sales from FY19, driven by Halol resolution and
30.8
commercialization of Tildrakizumab (FY19 beginning)/Seciera (2HFY19E).
21.3
n
Earnings call takeaways:
(a) FY18 guidance: Revenue may decline due to
184.0
challenges in the US (assuming no new approval from Halol and no disruption
18.4
at Dadra). (b) Tildrakizumab NDA launch expected by early 2019. (c) Process
3.1
initiated to shift key products like Xelpros and Elepsia from Halol. (d) Two thirds
of Ranbaxy integration benefit came in FY17; rest expected in FY18. (e) Pre-
NDA meeting for Seciera done; SUNP is planning to file in 3QFY18; launch in
2018E. (f) Gleevec launch in FY18E.
n
Challenges persist, but price does not reflect key positives:
Although
challenges in the US market are evident over the near term, we believe the
current stock price does not reflect the key positives like RBXY integration
benefits, Halol/Mohali plant resolution and investments in specialty business.
We maintain
Buy
with a reduced TP of INR650, based on 20x FY19E (v/s 850
@22x 1H FY19E). We cut FY18E/19E EPS by ~16-17% as we build in decline in
US sales and lower margins for FY18E. We cut our target multiple in line with
peers due to the weak industry outlook.
29 May 2017
5

26 May 2017
4QFY17 Results Update | Sector: Oil & Gas
HPCL
Buy
BSE SENSEX
31,028
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
9,595
HPCL IN
1,016
580.6 / 8.7
584 / 275
-3/5/83
1831
48.9
CMP: INR567
TP: INR632(+11%)
EBITDA above estimate; GRM at ~USD8/bbl
4QFY17 EBITDA stood at INR27.8b (est. of INR20.8b; +8% YoY, -3% QoQ), led by (a)
reported GRM of USD7.99/bbl (includes inventory loss of USD0.5/bbl) and (b)
product inventory gain of INR7b. Reported PAT rose 31% YoY (+14% QoQ) to
INR18.2b (est. of INR11.1b) as the impact of higher-than-expected interest cost of
INR2.3b (est. of INR700m; +15% YoY, +328% QoQ) was negated by higher other
income of INR5.2b (est. of INR3.3b; +7% YoY, +126% QoQ) and a lower tax rate at
24% (v/s 34% in 3QFY17 and 37% in 4QFY17). Management has taken a provision
of INR4.5b on account of pay revision.
n
GRM at ~USD8/bbl:
HPCL’s core operating GRM of USD8.5/bbl was above our
estimate, with reported GRM at ~USD8/bbl (est. of USD5.6; +6% YoY, +25%
QoQ). Product inventory gains stood at INR7b in 4QFY17 v/s loss of INR290m in
4QFY16 and INR7b in 3QFY17. Forex gain stood at INR1.5b in 4QFY17 v/s loss of
INR1.6b in 3QFY17 and loss of INR3b in 4QFY16.
n
Marketing volumes including exports down 2% YoY:
While marketing sales fell
2% YoY to 8.9mmt, refinery throughput was at 4.6mmt (-1.3% YoY, flat QoQ).
n
Dividend of INR30/share for FY17:
Management has recommended a final
dividend of INR1.1/share, making total dividend of INR30/share (~5.3%
dividend yield) for FY17.
n
Nil subsidy sharing in 4QFY17:
As expected, subsidy sharing was nil in 4QFY17,
and we model OMCs’ subsidy sharing at nil in FY18/FY19.
Valuation and view:
We value HPCL’s refining segment at 5x, marketing at 8x,
pipeline at 7.5x and add investments to arrive at a target price of INR632, implying
a total return of ~16% (11% + ~5.3% of dividend yield). HPCL trades at 12.4x FY19E
standalone EPS of INR45.8. Maintain
Buy.
FY16
2Q
3Q
4Q
420,036 429,376 410,334
-18.7
-15.9
-7.9
-1,265 21,711 25,809
-0.3
5.1
6.3
5,428
6,960
6,670
1,650
1,639
1,966
3,640
2,725
4,802
-4,704 15,838 21,975
-1,499
5,425
8,096
32
34
37
-3,205 10,413 13,879
-137.7 -420.0
-35.8
-0.8
2.4
3.4
4.2
2.7
7.8
1.9
4.6
7.9
8.7
3.1
4.7
7.5
9.1
4.1
(INR Million)
FY16
FY17
FY17 Var. vs
FY17
2Q
3Q
4Q
4QE
est
420,306 484,856 514,142 1,776,949 1,867,097 517,206
-1%
0.1
12.9
25.3
-13.9
5.1
22.8
11,890 28,636 27,754
76,057 103,933 20,843
33%
2.8
5.9
5.4
4.3
5.6
4.0
6,160
6,336
6,749
26,566
25,353
6,817
-1%
1,164
530
2,268
6,483
5,357
700
224%
6,188
2,276
5,153
14,305
16,985
3,324
55%
10,755 24,046 23,890
57,313
90,208 16,650
43%
3,741
8,143
5,702
20,346
28,120
5,549
3%
35
34
24
36
31
33
7,013 15,903 18,188
36,967
62,088 11,100
64%
-318.8
52.7
31.0
35.2
68.0
-28.5
1.7
3.3
3.5
2.1
3.3
2.1
4.0
3.2
8.0
3.5
4.7
6.4
9.3
3.9
4.6
8.0
8.9
4.0
17.2
6.7
34.1
3.4
17.8
6.1
35.1
4.0
4.3
5.6
8.9
3.5
9%
41%
0%
15%
Financials & Valuations (INR b)
2017 2018E 2019E
Y/E Mar
1,870 1,755 1,952
Net Sales
105.8
94.7
98.9
EBITDA
62.1
46.4
46.6
PAT
61.0
45.6
45.8
EPS (INR)
66.6 (25.3)
0.4
Gr. (%)
200.1 229.6 259.3
BV/Sh (INR)
32.4
21.2
18.7
RoE (%)
18.8
11.6
9.6
RoCE (%)
9.3
12.4
12.4
P/E (x)
2.8
2.5
2.2
P/BV (x)
Estimate change
TP change
Rating change
Standalone - Quarterly Earning Model
Y/E March
Net Sales
YoY Cha nge (%)
EBITDA
Ma rgi ns (%)
Depreci a ti on
Interes t
Other Income
PBT
Ta x
Ra te (%)
Reported PAT
YoY Cha nge (%)
Ma rgi ns (%)
Key Assumptions
Refi ni ng throughput (mmt)
GRM (USD/bbl )
Ma rketi ng s a l es vol ume i ncl exports (mmt)
Ma rketi ng GM per l i tre (INR/l i tre)
E: MOSL Es ti ma tes
1Q
517,204
-12.6
29,802
5.8
7,508
1,227
3,138
24,204
8,324
34
15,880
3,349.3
3.1
3.8
8.6
8.6
4.5
1Q
447,793
-13.4
35,653
8.0
6,108
1,395
3,368
31,518
10,534
33
20,984
32.1
4.7
4.5
6.8
8.9
4.7
29 May 2017
6

Cadila Healthcare
BSE SENSEX
31,028
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
9,595
CDH IN
1,024
436.9 / 6.8
497 / 305
-7/-8/21
412
25.2
25 May 2017
4QFY17 Results Update | Sector: Healthcare
CMP: INR444
TP: INR510 (+15%)
Buy
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
94.3
117.3
EBITDA
19.0
28.1
PAT
14.5
18.6
EPS (INR)
14.2
18.1
Gr. (%)
-7.9
27.6
BV/Sh (INR)
62.5
76.2
RoE (%)
24.8
26.1
RoCE (%)
16.9
18.1
P/E (x)
31.2
24.5
P/BV (x)
7.1
5.8
2019E
141.6
35.4
23.7
23.2
27.9
95.1
27.1
20.1
19.1
4.7
Estimate change
TP change
Rating change
n
Cadila’s 4QFY17 net revenue was largely flat YoY. EBITDA margins came at
18.7% (vs our expectation of ~20%). Miss in EBITDA margin is due to high
R&D at 9% of sales (vs normailized rate of ~7%). Reported PAT came
atINR3.8bn (14% above estimate due to lower tax rate). For FY17 sales,
EBITDA and PAT stood at INR94.3b (-3.3%YoY), INR19b (-17%YoY) and
INR14.5b (-8%YoY) respectively.
n
US grew sequentially; India outpaced industry growth:
US business grew
2% YoY and 11% QoQ to INR9.9b. Sequential pick-up in US sales is attributed
to pick-up in approvals, sales from sentynl acquisition (our est of >USD10m)
partially offset by base business price erosion of ~USD8-10m sequentially.
The company’s India business recorded growth of 11.1% YoY in 4Q.
Management expects domestic business to grow at low teens in FY18E.
n
US business on a high growth trajectory:
Post successful resolution of the
Moraiya facility, we expect ~80 ANDA approvals until FY19 for CDH. Around
~50% of these are expected to come from the Moraiya facility and the rest
from Baddi and SEZ facilities. Driven by these approvals and the contribution
from the acquisition of Sentynl, we expect US sales to grow at ~30% CAGR
till FY19. Strong launch momentum, coupled with limited competition
launches (like Lialda), should drive significant margin improvement (expect
FY19 EBITDA margins to be >24%), in our view. Also, CDH will save
remediation cost of USD5-10m post Moraiya resolution.
n
Earnings call takeaways:
1) Moraiya warning letter closure expected in next
6 months; 2) Lialda launch expected in next 3 months (Mkt size: >USD700m);
3) 17 new products launched in India 4) net debt of INR36.1b at FY17 end; 5)
GST impact will be just for 1 quarter in FY18; domestic growth expected to
be ~13-14%; 6) Capex of INR10b expected in FY18; 7) Tax rate of ~20%
expected in FY18.
n
Premium multiple backed by strong growth outlook:
We believe that
Moraiya resolution is a significant positive for CDH as all the key oral,
injectable and transdermal fillings are from this facility. We maintain our Buy
rating with a target price of INR510 @22x FY19E PER.
In-line results; approvals to pick-up in FY18
29 May 2017
7

26 May 2017
4QFY17 Results Update | Sector: Technology
Tech Mahindra
Buy
BSE SENSEX
31,028
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
9,595
TECHM IN
Déjà vu: Significant margin miss (excluding one-offs)
985
n
Pricing takes its toll on margins:
The unexpected 370bp QoQ collapse in
423.4 / 6.3
4QFY17 EBITDA margin to 12% (est. of 15.4%) defined a disappointing quarter
557 / 405
for TECHM. However, this was not the first such instance of margins
-6/-30/-38
disappointment in the recent past, with 4QFY15 and 1QFY17 exhibiting similar
1277
negative shocks. Even though restructuring of LCC had a one-time impact of
63.8
CMP: INR427
TP: INR500(+17%)
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
291.4 320.4
Net Sales
41.8
45.2
EBITDA
27.5
28.8
PAT
30.9
32.3
EPS (INR)
-11.9
4.7
Gr. (%)
187.9 206.6
BV/Sh (INR)
18.4
16.7
RoE (%)
15.2
14.2
RoCE (%)
13.9
13.3
P/E (x)
2.3
2.1
P/BV (x)
Estimate change
TP change
Rating change
Quarterly Performance (Consolidated)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Ma rgi n (%)
Other i ncome
Interes t expens e
ETR (%)
PAT excl. BT amort & EOI
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Uti l excl . tra i nees (%)
Attri ti on (%)
Offs hore rev. (%)
1Q
989
0.5
62,938
22.9
29.4
15.0
9,050
14.4
11.6
1,244
215
25.6
6,225
31.9
-1.3
7.6
103,673
74.0
19.0
39.0
~180bp, we note that ~130bp came from the renegotiation of legacy contracts,
which needs to be compensated by productivity improvements over the
2019E
coming quarters. Due to the margin miss, PAT declined 31.5% YoY to INR5.9b
353.5
(est. of INR7.3b).
51.0
n
In-line revenue; Enterprise shines again:
CC revenue grew 0.9% QoQ (in-line),
32.8
and cross-currency tailwinds facilitated USD revenue growth of 1.4%. Telecom
36.9
declined 0.8% QoQ and Enterprise grew 3.5% QoQ. FY17 USD revenue growth
14.0
was 7.8%, where Telecom declined by 1%, but Enterprise surged 17% aided by
233.8
inorganic growth (Target, Pininfarina, Bio).
17.0
14.7
n
Any recovery shall only be visible in 2Q:
Exiting on a low base, TECHM faces
the usual 1Q headwinds of visa expenses and Comviva margin contraction,
11.7
compounded with a full-quarter impact of stronger INR this time. While
1.8
pyramid, productivity in legacy segments and cost efficiencies are levers to
margins, any improvement will only start reflecting from 2QFY18.
n
Cutting earnings by 8-9%, margin comfort imperative:
Our revenue estimates
are largely intact, but we have cut FY18E/19E EBITDA by 94/84bp, resulting in
9.3/8.3% cut in earnings. TECHM trades at 13.3x/11.7x FY18E/19E EPS. While
valuations are inexpensive, margins’ execution has been a key concern. Levers
to expand margins will not reflect before 2QFY18, leaving limited valuation
triggers in the near term. We do expect a gradual margin improvement post 1Q
as the levers start to play out. Our price target of INR500 discounts FY19E
earnings by 13x. Maintain
Buy.
FY16
2Q
3Q
1,011
1,015
2.2
0.4
66,155
67,011
20.5
16.5
32.0
31.3
15.4
14.3
11,010
11,358
16.6
16.9
13.7
14.4
1,658
639
173
244
24.8
23.2
7,855
7,592
26.2
-3.3
9.2
-2.3
8.8
8.5
105,235 107,137
77.0
77.0
20.0
20.0
38.3
37.3
4Q
1,023
0.8
68,837
12.5
30.6
13.8
11,510
16.7
13.6
1,603
340
17.0
8,581
13.0
81.8
10.1
105,432
77.0
21.0
36.8
1Q
1,032
0.9
69,209
10.0
29.5
14.6
10,290
14.9
12.0
1,519
274
25.9
6,561
-23.5
5.4
7.4
107,216
78.0
21.0
36.6
FY17
FY16
FY17
2Q
3Q
4Q
1,072
1,116
1,131
4,037
4,351
4.0
4.1
1.4
10.2
7.8
71,674 75,575 74,950 264,941 291,408
8.3
12.8
8.9
17.9
10.0
30.6
30.7
26.9
30.8
29.4
15.7
15.0
14.9
14.5
15.1
10,701 11,865
8,987 43,426 41,843
14.9
15.7
12.0
16.4
14.4
11.5
12.4
8.2
13.5
11.0
1,387
1,552
2,378
5,322
6,836
345
349
318
961
1,286
30.8
20.2
28.2
21.4
26.0
6,447
8,560
5,879 31,180 27,447
-1.7
32.8
-31.3
-17.9
12.8
-31.5
20.0
-12.0
7.3
9.6
6.6
35.1
31.9
111,743 117,095 117,693 103,673 105,235
78.0
77.0
77.0
76.2
77.5
19.0
18.0
17.0
36.5
36.1
35.7
37.8
36.2
Est.
4Q
1,132
1.4
75,399
9.5
30.9
15.5
11,605
15.4
12.0
864
392
22.5
7,302
-14.7
-14.9
8.2
114,549
77.8
35.8
bp)
-0.1
-8bp
-0.6
-65bp
-399bp
-59bp
-22.6
-340bp
-383bp
175.2
-18.8
-19.5
2.7
-75bp
-15bp
29 May 2017
8

26 May2017
4QFY17 Results Update | Sector: Media
Sun TV
Neutral
BSE SENSEX
31,028
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
9,959
SUNTV IN
394
318.6 / 4.8
773 / 312
30/57/92
800
25.0
CMP: INR808
Maintain EPS and TP
n
TP: INR860(+6%)
Ad growth disappoints, volumes recovery a quarter away
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
25.6
29.5
EBITDA
17.4
20.2
PAT
9.8
11.6
EPS (INR)
24.9
29.5
Gr. (%)
18.7
18.9
BV/Sh (INR)
99.5 108.3
RoE (%)
25.0
27.3
RoCE (%)
25.8
28.3
P/E (x)
32.5
27.4
P/BV (x)
8.1
7.5
Estimate change
TP change
Rating change
Revenue misses estimate largely led by ad miss:
4QFY17 PAT was flat YoY at
INR2.36b (est. of INR2.46b). The PAT miss was lower than the operational miss,
as lower depreciation, higher-than-expected other income and lower tax outgo
partially cushioned the EBITDA disappointment. Revenue of INR5.82b (+3%
YoY/-1% QoQ) came in 5% below our estimate of INR6.12b, primarily due to
lower-than-expected ad revenue and digital cable revenue.
2019E
n
Demon continues to hurt ad volumes; subscription misses estimate too:
Ad
35.5
inventory consumption continued to take a beating from demonetization as
25.5
advertisers across categories were yet to loosen their purses. This, coupled
15.1
with SUNTV’s focus of improving ad yields, kept pressure on ad volumes. Since
38.4
29.9
the note-ban drive, SUNTV is estimated to have lost ~2.5-2.7m seconds in ad
120.1
volumes. Ad & broadcast revenue fell ~7% YoY to INR2.92b (est. of INR3.16b).
31.9
Subscription revenue grew 13% YoY/1% QoQ to INR2.44b (3% below est. of
33.4
INR2.51b). Cable declined 3% QoQ to INR0.73b (est. of INR0.81b), while DTH
21.1
grew 2.4% QoQ to INR1.71b (in-line).
6.7
n
Lower movie amortization/higher other income partially cushion operational
miss:
SUNTV reined in movie investments to ~INR0.62b in 4QFY17 (v/s
INR0.97b in 3QFY17). It also guided for lower movie investments of INR3-3.25b
(v/s ~INR3.4b in FY17). Contained depreciation and movie-related
amortization, coupled with higher-than-expected other income, partially offset
the impact of negative operating leverage. Escalation in content cost was
largely a function of new program launches and the shift to commissioned
model of content making.
n
Earnings estimates largely maintained:
While SUNTV improved viewership
share in AP and held on to ratings in flagship channel Sun TV, sustenance of the
same is yet to be established. We model 24% EPS CAGR over FY17-19E. We
largely maintain FY18E/FY19E EPS and TP of INR860, based on P/E of 22x FY19E
EPS. SUNTV trades at 27.4x FY18E EPS and 21.4x FY19E EPS.
Neutral.
29 May 2017
9

Container Corporation
BSE SENSEX
31,028
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
9,595
CCRI IN
195
258.6 / 3.9
1250 / 844
-4/12/-7
356
45.2
26 May 2017
4QFY17 Results Update | Sector: Logistics
CMP: INR1,207
n
TP: INR1,162(-4%)
Neutral
Recognition of export incentives boosts profitability
Profitability improvement led by export incentives:
4QFY17 EBITDA increased
6% YoY (+90% QoQ) to INR4.95b, as export incentives of INR2.3b for full-year
FY17 were booked in the quarter.
n
Originating volumes grow moderately:
EXIM originating volumes rose 6% YoY,
while EXIM handling volume growth was at 8% YoY, possibly due to higher
double-stacking at Kathuwas .Total handling volumes grew 8% YoY to 800k
TEUs (EXIM at 665k TEUs: +8% YoY; domestic at 135k TEUs: +8% YoY).
n
Adjusted for export incentives, EXIM realizations decline:
4Q EXIM revenue
fell 5% YoY to INR12.4b due to 9% YoY lower realizations (calculated on
originating volumes). Realizations have been structurally trending lower due to
a reduction in lead distance by ~11% YoY in EXIM in FY17 and pricing pressure
in industry. Realizations/TEU in EXIM thus fell 9% YoY to INR26,704.
n
EXIM EBIT/TEU on originating volumes (adjusted for export incentives) was at
INR3,808 (+3% YoY, -2% QoQ) due to pricing pressure, despite lower empty
running charges and higher double-stacking benefits. Management expects
margins to improve due to increased proportion of double-stacking at
Khatuwas from present 10% to up to 15% in the medium term.
n
FY17 performance:
Originating volumes increased 2.9% YoY, led by ramp-up of
new MMLPs. Revenue declined 5% YoY to INR56b due to weak pricing. EBITDA
stood at INR12.5b (-7% YoY) as margin contracted 0.4pp YoY.
Valuation view:
While ramp-up of double-stacking volumes is helping save costs,
weak industry pricing is not reflecting in any substantial margin improvement.
Expected completion of the dedicated freight corridor in FY20 will be a significant
efficiency/profitability driver for CONCOR. However, sustained capex into long-
gestation MMLP projects should restrict any rise in return ratios. On DFC-based
valuation (WACC: 12.3%, TGR: 5%), we arrive at a fair value of INR1,162. The stock
trades at 26x FY19E EPS of INR46. Given concerns about subdued return ratios, rich
valuations and limited upside to our fair value, we maintain
Neutral.
FY16
2Q
3Q
15,019 14,046
10.9
-3.3
3,161
2,800
21.0
19.9
1.1
-23.7
876
876
0
0
858
813
3,143
2,737
6
0
3,137
2,737
808
676
25.8
24.7
2,335
2,061
21.7
-31.5
15.5
14.7
4Q
15,952
5.7
4,661
29.2
41.3
891
-1
684
4,455
0
4,455
1,393
31.3
3,062
4.6
19.2
1Q
13,392
-5.7
2,619
19.6
-9.0
841
0
692
2,470
0
2,470
685
27.7
1,785
-13.7
13.3
FY17
2Q
3Q
13,786 13,304
-8.2
-5.3
2,288
2,612
16.6
19.6
-27.6
-6.7
873
927
3
1
763
845
2,175
2,529
0
0
2,175
2,529
596
669
27.4
26.4
1,578
1,860
-32.4
-9.7
11.4
14.0
FY16
4Q
15,579
-2.3
4,950
31.8
6.2
877
32
593
4,634
865
3,768
411
10.9
4,223
37.9
27.1
FY17
(INR Million)
FY17 Variance
4QE
vs Est
13,919
11.9%
-1.6
2,952
67.7%
21.2
49.5
897
-2.3%
0
798 -25.8%
2,853
62.4%
0
2,853
32.1%
837 -50.9%
29.3
2,016 109.5%
43.0
14.5
Financials & Valuations (INR b)
Y/E Mar
2017 2018E 2019E
Net Sales
56.1
63.8
71.1
EBITDA
12.5
11.6
13.1
PAT
9.3
10.0
11.2
EPS (INR)
38.0
41.2
45.8
Gr. (%)
-2.6
8.5
11.2
BV/Sh (INR)
363.0 380.4 399.8
RoE (%)
10.8
11.1
11.7
RoCE (%)
10.5
10.8
11.5
P/E (x)
31.8
29.3
26.3
P/BV (x)
3.3
3.2
3.0
Estimate change
TP change
Rating change
Container Corporation
Y/E March
Net Sales
YoY Cha nge (%)
EBITDA
Ma rgi ns (%)
YoY Cha nge (%)
Depreci a ti on
Interes t
Other Income
PBT before EO expense
Extra -Ord expens e
PBT
Ta x
Ra te (%)
Adj PAT
YoY Cha nge (%)
Ma rgi ns (%)
E: MOSL Es ti ma tes
1Q
14,209
11.9
2,878
20.3
-3.6
907
0
798
2,770
0
2,770
701
25.3
2,069
-21.0
14.6
59,217 56,061
18.8
-5.3
13,384 12,469
22.6
22.2
-6.8
3,478 3,518
0
2
3,175 2,892
13,081 11,841
1
0
13,080 11,841
3,571 2,361
27.3
19.9
9,509 9,481
-3.4
-0.3
16.1
16.9
29 May 2017
10

26 May 2017
4QFY17 Results Update | Sector: Automobiles
Ashok Leyland
Buy
BSE SENSEX
31,028
Bloomberg
Equity Shares (m)
M.Cap.(INR
52-Week
Range
1, 6, 12 Rel. Per (%)
Avg. Val, INR m
Free float (%)
Price increase drives revenues:
AL merged with Hinduja Foundries (HFL) w.e.f.
1 October 2016. Net revenues rose 10.8% YoY to INR66.2b, as volumes grew by
~8% YoY (+45% QoQ) and realizations by ~2.1% YoY to INR1.39m/unit (est. of
INR1.33m) due to price hikes and HFL merger. FY17 revenues grew 6%, driven
by 3.4%/2.3% increase in volumes/realizations.
n
Lower exports, defense revenue restrict EBITDA margin:
EBITDA declined 7%
Financials & Valuations (INR b)
YoY (+61% QoQ) to INR7.3b (in-line), translating into a margin of 11% (est. of
Y/E March
2017 2018E 2019E
11.5%). Adj. for HFL merger, EBITDA margin was in line at 11.2%. Higher
Sales
200.2 248.3 285.3
commodity costs and lower revenues from exports/defense resulted in RM
EBITDA
22.0
27.3
32.3
cost increasing 150bp YoY (+250bp QoQ). AL had tax write-back of ~INR2.16b,
NP
15.6
16.1
20.6
as it fully availed benefit of HFL’s accumulated losses. Adj. PAT declined 16%
Adj. EPS
4.6
5.5
7.1
(INR)
YoY to INR4.28b (in-line). AL provided for non-performing investments (Optare
EPS Gr. (%)
25.8
3.1
28.5
and Albonair), resulting in net EO loss of ~INR3.5b.
BV/Sh. (INR)
20.9
24.0
28.4
n
Key takeaways from the call:
a)
Outlook:
Domestic CV industry to grow 10-
RoE (%)
27.0
24.4
26.9
15% in FY18, based on visibility on infrastructure and mining, although 1Q
RoCE (%)
21.8
21.3
24.5
would be muted. b)
Price increase
of 4% from mid-Feb'17 and ~11.5% from
P/E (x)
20.1
16.7
13.0
Apr-17 which largely covers cost inflation. c) Net debt reduced to ~INR4b (net
EV/EBITDA
12
9.1
7.2
(x)
cash excluding HFL’s debt). d)
BS-3 Inventory:
AL has converted ~2,000 trucks
(1,400 already cleared by ARAI) of total ~12k inventory. e) Capex in FY18 at
INR5-5.5b (including investments).
Estimate change
n
Valuation and view:
We upgrade EPS by 6-7% for FY18E/FY19E as we revise
TP change
volume estimates (higher LCV volumes), factoring in price hikes and the HFL
Rating change
merger. AL trades at 16.7x/13x FY18E/FY19E EPS, and EV of 9.1x/7.2x FY18/19E
EBITDA. We value AL at ~INR117 [9x FY19 EV/EBITDA (in-line with LPA) +
INR11/sh for stake in HLF post 20% HoldCo discount]. Maintain
Buy.
n
Quarterly Performance
1Q
28,154
41.2
1,379
11.0
38,831
56.7
68.4
8.5
13.0
3,925
10.1
78
701
1,984
0
36.3
1,264
-364
FY16
2Q
3Q
37,369 30,928
47.3
21.8
1,329
1,330
4.8
0.5
49,672 41,138
54.4
22.4
69.7
69.9
7.6
8.4
10.2
10.7
6,240
4,493
12.6
10.9
454
298
631
603
4,754
2,976
1,570
50
45.9
27.0
2,571
2,174
527
577
4Q
43,897
28.5
1,361
3.1
59,732
32.6
70.4
5.6
10.9
7,835
13.1
218
541
6,524
6,532
-
5,124
117
1Q
31,165
10.7
1,367
-0.9
42,588
9.7
68.7
8.4
11.6
4,820
11.3
385
338
4,154
0
30.0
2,908
130
FY17
2Q
3Q
33,446 32,838
-10.5
6.2
1,382
1,375
4.0
3.4
46,224 45,163
-6.9
9.8
67.8
69.4
8.0
8.7
12.6
11.8
5,365
4,542
11.6
10.1
316
258
339
453
4,146
2,396
0
0
29.0
32.5
2,944
1,618
14
-26
FY16
FY17
4Q
47,617 140,358 145,066
8.5
33.8
3.4
1,390
1,349
1,380
2.1
4.4
2.3
66,179 189,373 200,187
10.8
39.6
5.7
71.9
69.7
69.7
6.2
7.3
7.6
10.8
11.1
11.6
7,299 22,546 22,025
11.0
11.9
11.0
404
1,176
1,363
423
2,476
1,554
6,114 16,418 16,809
3,508
8,152
3,508
-
52.9
8.0
4,279 12,048 15,457
-16
366.3
28.3
(INR Million)
FY17
Var.
4QE
(%)
0.0
47,621
8.2
4.3
1,332
-1.6
4.3
63,434
6.5
60bp
71.3
10bp
6.1
-20bp
11.1
-0.1
7,307
-50bp
11.5
47.6
273
25.2
338
1.4
6,026
0
-
29.5
0.7
4,249
-6.9
S&P CNX
9,595
AL IN
2,846
268.4 / 4.2
112 / 74
0/1/-30
1093
49.6
CMP: INR92
TP: INR117(+28%)
In-line; HFL’s merger drives tax write-back, boosting PAT; Upgrade EPS
Total Volumes (nos)
Growth %
Realizations (INR '000)
% change
Net operating revenues
Change (%)
RM/sales %
Staff/sales %
Other exp/sales %
EBITDA
EBITDA Margins(%)
Other Income
Interest
PBT before EO Item
EO Exp/(Inc)
Effective Tax Rate (%)
Adj. PAT
Change (%)
29 May 2017
11

Alkem Laboratories
BSE SENSEX
31,028
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
9,595
ALKEM IN
120
263.9 / 4.1
2238 / 1200
-10/-8/31
108
33.0
27 May 2017
4QFY17 Results Update | Sector: Healthcare
CMP: INR1,866
n
TP: INR1,900(+2%)
Neutral
Weak 4Q; domestic business delivers muted performance
Revenues grew 9% YoY to INR12.5b, missing estimate by 10.8%, primarily due
to weak domestic business growth of ~7%. US business sales stood at USD44m
(v/s USD50m in 3QFY17). EBITDA of INR1.5b declined 4% YoY, with the margin
contracting 160bp YoY (-620bp QoQ) to ~11.9%, mainly due to higher R&D
spend (7.3% of sales v/s normalized rate of ~4-4.5%), muted growth in
domestic business and addition of 400-500 MRs in the acute segment.
Domestic business – weak growth:
Domestic business grew by a muted 7% YoY
to INR8.6b due to a decline in the anti-infective market, demonetization impact
and destocking in the channel due to GST. Despite the impact of GST in the near
term, Alkem expects its domestic business to grow at mid-teens in FY18.
US – sequential decline due to seasonality:
US sales declined 12% QoQ (+20%
YoY) to USD44m due to seasonality (Benzonatate sales goes up in winter). We
expect ramp-up in US business in coming quarters on the back of four ANDA
launches in 4Q and expected high-single-digit launches in FY18.
Key concall takeaways:
a) Net cash at end-4Q stood at INR7.2b. b) R&D as % of
sales stood at 7.3% in 4Q (v/s 5.2% in FY17). c) Impact of GST will be ~2.5% of
domestic sales; mitigation of this impact will depend upon price escalation. d)
R&D guidance of ~6% in FY18. e) Planning to file 12-15 ANDAs in FY18. f) Tax
rate guidance of ~MAT rate in FY18 and 12-15% in FY19 (lower in FY19 due to
annual impact of tax benefit from new Sikkim plant). g) Capex expected to be
~INR6b in FY18 (INR6.27b invested in FY17). h) Trade generics account for
>10% of domestic sales.
Maintain Neutral:
We continue believing that Alkem is the best way to play the
domestic growth story (>70% of revenue and >85% of EBITDA came from India
in FY17). Having said that, at current valuations, the stock offers limited upside
potential. Our target price of INR1,900 is based on 20x FY19E PER (v/s INR1,850
@ 20x 1HFY19E PER).
Financials & Valuations (INR b)
Y/E Mar
2017 2018E 2019E
Net Sales
58.5
65.4
76.4
EBITDA
10.0
11.6
13.8
PAT
9.0
9.6
11.3
EPS (INR)
75.7
80.0
94.9
Gr. (%)
7.5
5.8
18.6
BV/Sh (INR)
353.4 415.4 489.0
RoE (%)
23.4
20.8
21.0
RoCE (%)
21.3
18.9
23.1
P/E (x)
24.7
23.3
19.7
P/BV (x)
5.3
4.5
3.8
n
n
n
Estimate change
TP change
Rating change
n
29 May 2017
12

26 May 2017
4QFY17 Results Update| Sector: Healthcare
Torrent Pharma
Buy
BSE SENSEX
31,028
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
9,595
TRP IN
169
207.4 / 3.2
1768 / 1186
-19/-28/-29
381
28.8
CMP: INR1,224
TP: INR1,450(+19%)
Muted performance in key markets impacts results
Financials & Valuations (INR b)
2017
2018E
Y/E Mar
Net Sales
58.6
65.4
EBITDA
13.8
15.9
PAT
9.3
10.1
EPS (INR)
55.2
59.8
Gr. (%)
-7.6
8.3
BV/Sh (INR)
235.5
273.7
RoE (%)
25.3
23.5
RoCE (%)
21.3
21.3
P/E (x)
22.2
20.5
P/BV (x)
5.2
4.5
2019E
76.1
19.0
12.4
73.2
22.4
320.5
24.6
23.7
16.7
3.8
Estimate change
TP change
Rating change
n
TRP reported sales of INR13.8b (-8% YoY; ~8% below est.), with EBITDA of
INR2.95b (est. of ~INR3.4b) and PAT of INR2.1b (-42% YoY; est. of INR2.3b).
The miss in numbers is attributed to weak sales in India and the US due to
pricing pressure and limited launches. For FY17 sales, EBITDA and PAT
stood at INR58.6b (-12.3%YoY), INR13.8b (-49%YoY) and INR9.3b (-48%YoY)
respectively.
n
US, India deliver muted performance:
US business
declined 45% YoY (-10%
QoQ) to INR2.8b due to continued pricing pressure in base business and
limited launches YTD. We expect this business to remain under pressure in
FY18 due to further price erosion in base business, partially offset by 8-10
new launches in FY18E (~25 pending ANDAs; six approved ANDAs that were
not launched in FY17). TRP is also focusing on in-licensing of products in the
US.
India business
grew at ~6% YoY, with chronic and sub-chronic segment
secondary sales outpacing industry growth. The company expects India
business to grow in double-digits, led by strategic initiatives undertaken
since 2QFY16.
n
Earnings call takeaways:
1) 16 ANDAs filed in FY17; re-looking R&D
strategy – will focus on complex products requiring clinical trials. 2) Mid-
teens pricing pressure expected in FY18 in the US. 3) Normalized
depreciation rate of ~INR800-810m/quarter v/s INR970m in 4Q. 4) Capex of
INR4b expected in FY18/FY19 toward Sikkim expansion and Onco block &
Dahej Phase-2. 5) Renagel launch deferred for more than one year. 6) Tax
rate to stay at ~20% in FY18. 7) Germany sales to grow at >15% YoY. 8)
Govt. allowed price increase in Brazil; to be ~3% in FY18 v/s ~12.5% in FY17.
n
Current price more than factors in concerns:
Although growth in the US
and India will continue to be under pressure in FY18 (due to pricing
pressure in the US and GST rollout in India), we believe the impact of these
issues is more than factored in the current price. Maintain
Buy
with a TP of
INR1,450, @20x FY19E PER (v/s INR1,700 @ 20x 1HFY19E EPS). We cut
FY18E/19E EPS by 19-20% as we build in the impact of higher pricing
pressure in the US and lower EBITDA margin.
29 May 2017
13

26 May 2017
4QFY17 Results Update| Sector: Healthcare
Divi’s Lab
Neutral
BSE SENSEX
31,028
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
9,595
DIVI IN
Impact of import alert to be visible in FY18
265
n
Revenues declined 3% YoY (~4% miss), while EBITDA of INR3.6b was 7%
146.4 / 2.3
below our estimate due to lower-than-estimated gross margin of 60.4%
1380 / 541
(~200bp below est.). EBITDA margin contracted ~250bp YoY to 33.7% due to
-19/-71/-65
forex loss of ~INR290m. PAT of INR2.6b (-20% YoY) was ~10% below our
1045
47.9
estimate. Divis received an import alert at Unit-2 at end-March 2017, the
CMP: INR547
TP: INR600(+10%)
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
40.5
40.4
EBITDA
14.3
13.1
PAT
10.5
9.5
EPS (INR)
39.7
35.8
Gr. (%)
-5.3
-9.7
BV/Sh (INR)
176.5
196.2
RoE (%)
23.5
19.2
RoCE (%)
23.3
19.2
P/E (x)
13.8
15.3
P/BV (x)
3.1
2.8
2019E
44.7
15.0
10.6
39.8
11.1
218.1
19.2
19.2
13.7
2.5
n
n
n
Estimate change
TP change
Rating change
n
impact of which will be visible 1QFY18 onward. For FY17 sales, EBITDA and
PAT stood at INR40. 5b (+7.6%YoY), INR14. 3b (+1%YoY) and INR10.5b
(-5.3%YoY) respectively.
Proportion of generics remains similar:
API generics (56% of sales) declined
2% YoY to INR6b in 4Q. CRAMS business (44% of sales) declined ~4% YoY.
Nutraceuticals reported sales of INR570m v/s INR470m in 4QFY16.
Guides for minimal impact from Unit-2 import alert:
DIVIS expects loss of
<5% of sales due to the Unit-2 import alert. Divis has already hired a third-
party consultant to enact remediation measures and help the company to
prepare for Unit-1 inspection. We have witnessed with DRRD and SUNP that
batch-by-batch testing of products leads to a delay in supplies and an
increase in cost.
Buyback/special dividend could be near-term trigger:
Divis has cash of
~INR17b. There is a possibility of a buyback/ special dividend (like DRRD) in
the near term, which could provide near-term support to the stock price.
Regulatory concerns a big overhang in near term; Maintain Neutral:
We
expect the stock to remain range bound in the near term due to uncertainty
related to a) impact of current import alert, 2) resolution timeline and 3)
unit-1 inspection results. We retain
Neutral
with a TP of INR600. On a going
concern basis, large capex addition and delay in commencement of facility
are likely to keep growth under check till FY19. However, a strong balance
sheet (net cash surplus) and high return ratios (RoE at ~29%) provide
valuation cushion.
29 May 2017
14

Indraprastha Gas
BSE SENSEX
31,028
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
9,595
IGL IN
EBITDA below estimate; volume growth strong
140
n
IGL reported EBITDA of INR2.1b (+19% YoY, -17% QoQ), significantly lower
142.2 / 2.1
than our estimate of INR2.5b, led by higher RM cost at INR5.5b (+5% YoY,
1084 / 556
+7% QoQ; our estimate was INR5b) and higher other expense at INR2.2b
-7/4/63
(+34% YoY, +48% QoQ; our estimate was INR1.4b). Higher lease provisioning
599
contributed to higher other expenses. PBT at INR2.1b (+26% YoY, -7% QoQ)
55.0
26 May 2017
4QFY17 Results Update | Sector: Oil & Gas
CMP: INR1,027
TP: INR1,067(+4%)
Neutral
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
38.1
44.6
EBITDA
9.6
10.6
PAT
6.0
6.5
EPS (INR)
43.1
46.7
Gr. (%)
44.0
8.3
BV/Sh (INR)
209.0
245.2
RoE (%)
21.0
20.6
RoCE (%)
19.8
19.5
P/E (x)
23.8
22.0
P/BV (x)
4.9
4.2
Estimate change
TP change
Rating change
was in-line due to lower depreciation at INR244m (+37% YoY, -49% QoQ; our
estimate was INR478m) and higher other income at INR209m (+219% YoY,
+37% QoQ; our estimate was INR176m). Reported PAT was INR1.3b (+23%
2019E
49.5
YoY, -12% QoQ; our estimate was INR1.5b) due to higher tax rate at 35.4%
11.6
(we had estimated 32.5%).
7.2
n
Strong CNG/PNG volumes:
CNG volumes grew 16% YoY and 5% QoQ to
51.8
3.65mmscmd and PNG volumes grew 26% YoY and 5% QoQ to
10.8
1.19mmscmd. Total volumes grew 18% YoY and 5% QoQ to 4.84mmscmd.
285.3
n
PAT for IGL’s subsidiaries (CUGL and MNGL) was INR120m (IGL’s share: ~50%
19.5
at INR60m in 4QFY17).
18.6
19.8
n
FY17 highlights:
In FY17, sales volumes grew ~15% YoY (+13% YoY for CNG
and +19% YoY for PNG) to 4.59mmscmd, with EBITDA/scm growing at ~16%
3.6
YoY to INR5.9/scm. EBITDA increased by ~32% YoY to INR9.8b, with PAT
growing ~37% YoY to INR5.7b. The management has recommended a final
dividend of INR5/share in addition to interim dividend of INR3.5/share, a
total dividend of INR8.5/share for FY17.
Valuation and view
We model FY18/19 volume growth at 11%/9% and EBITDA/scm at INR5.7.
Continued pollution issues in Delhi should keep volume growth strong for IGL,
helping sustain current valuations, in our view. Our SOTP-based fair value stands
at INR1,067 (18.6x FY19E EPS + JV earnings post 20% discount). The stock trades
at 19.8x FY19E EPS of INR51.8. Maintain
Neutral.
Quarterly performance
Y/E MARCH
Net Sales
Change (%)
Adj. EBITDA
EBITDA (Rs/scm)
% of Net Sales
% Change
Depreciation
Interest
Other Income
PBT before EO
EO
PBT after EO
Tax
Rate (%)
PAT
EPS (INR)
1Q
8,994
3.7
1,938
5.6
21.5
-6.3
386
36
79.1
1,596
0
1,596
577
36.2
1,018
7.3
FY16
2Q
9,658
1.8
1,880
5.0
19.5
-12.4
395
27
99.2
1,557
0
1,557
542
34.8
1,016
7.3
FY17
2Q
9,624
-0.3
2,575
6.1
26.8
37.0
483
0
251.4
2,344
-167
2,177
735
33.8
1,442
11.1
FY16
3Q
4Q
9,467 10,019
2.1
13.1
2,554 2,122
6.0
4.9
27.0
21.2
38.0
19.3
479
244
0
12
152.4 208.8
2,227 2,075
-83
0
2,144 2,075
696
734
32.5
35.4
1,448 1,341
10.3
9.6
36,778
0.2
7,446
5.1
20.2
-4.8
1,357
100
378.9
6,369
0
6,369
2,193
34.4
4,176
29.8
FY17
38,081
3.5
9,821
5.9
25.8
31.9
1,671
12
719.1
8,857
-250
8,607
2,896
33.7
5,711
41.6
(INR Million)
FY17 Variance
4QE vs Est
9,196
9.0%
4.3
2,552
-16.9%
6.0
-18.8%
27.8
32.3
478
-49.0%
0
176.3
18.4%
2,251
-7.8%
0
2,251
-7.8%
731
0.5%
32.5
1,520
-11.8%
10.9
-11.8%
3Q
9,269
-1.5
1,850
5.0
20.0
-1.9
399
18
135.1
1,569
0
1,569
517
33.0
1,051
7.5
4Q
8,856
-3.0
1,779
4.8
20.1
3.4
178
19
65.5
1,647
0
1,647
557
33.8
1,091
7.8
1Q
8,970
-0.3
2,570
6.5
28.7
32.7
466
0
106.5
2,211
0
2,211
731
33.1
1,480
10.6
29 May 2017
15

26 May 2017
4QFY17 Results Update | Sector: Metals
Nalco
BSE SENSEX
31,028
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
9,595
NACL IN
1,933
128.3 / 1.9
80 / 41
-2/2/46
142
25.4
CMP: INR68
TP: INR65(-4%)
Downgrade to Neutral
High opt. cost and employee provision drive miss
Competitive adv. deteriorating on higher cost; Downgrade to Neutral
Nalco’s 4QFY17 EBITDA grew by 79% YoY to INR4.3b, but was well below
estimate of INR5.3b on higher operating cost and wage hike provision. Adj. PAT
grew 30% YoY to INR2.7b (est. INR3.1b). For FY17, EBITDA was up 15% YoY to
INR10.7b and adj. PAT by 2% to INR7.1b.
n
Alumina/Aluminum sales were flat YoY at 377kt/105kt, respectively.
n
Alumina realization per ton was up USD106/68 YoY/QoQ, respectively, to
USD345. Aluminum was up USD466/301 YoY/QoQ, respectively, to
USD2,207, higher than the movement in LME probably due to product mix.
st
n
Wage revision provision of INR810m (w.e.f. Jan 1 2017) represented a wage
hike of ~25%. Power cost was up 27% YoY to INR3.75/kWh.
n
Alumina implied cost per ton was up USD24 to USD242. Aluminum cost was
up USD275 to USD2,040 on higher employee, RM and product mix.
Employee and power to drive cost pressure; Downgrade to Neutral
n
While the ramp-up of smelter would drive ~8% volume CAGR to 449kt
(capacity 460kt) by FY19E, the increase in wages will erode any operating
leverage gains. Power cost will increase due to hike in electricity duty on
captive generation by Odisha by INR0.25/kWh (USD50-60/t impact of
aluminum CoP). Nalco already has one of the highest wages in the metal
industry in India. The advantage of low cost captive RM is getting lost.
n
We have cut EBITDA estimates by ~28%/26% to INR13.3/14.4b for FY18/19E
on higher costs. We move to 12m rolling EV/EBITDA, in-line with other metal
companies, with revised TP of INR65/sh. (from INR83/sh. earlier).
Downgrade to Neutral.
FY16
2Q
3Q
4Q
94
96
96
315
285
375
1,593 1,495 1,517
300
261
224
308
263
239
18,151 16,353 18,744
-9.0 -14.2
4.1
3,393 1,363 2,387
-28.5 -74.1 -44.2
18.7
8.3
12.7
0
0
0
1,073 1,046 1,132
1,260 1,240 1,558
3,581 1,558 2,812
3,581 2,092 2,812
1,319
757
733
36.8
36.2
26.1
2,261 1,335 2,079
2,261
994 2,079
FY17
2Q
3Q
4QE
94
99
100
290
311
377
1,619 1,710 1,848
132
196
359
266
277
345
18,461 19,881 25,497
1.7
21.6
36.0
1,723 2,852 4,275
-49.2 109.2
79.1
9.3
14.3
16.8
6
6
10
1,353 1,177 1,086
1,369
759
620
1,733 2,428 3,798
1,733 2,057 3,768
521
618 1,084
30.1
30.0
28.8
1,212 1,439 2,684
1,212 1,699 2,705
FY16
372
1,195
1,593
283
299
68,160
-7.7
9,380
-45.0
13.8
12
4,241
5,366
10,493
11,028
3,718
33.7
7,310
6,956
FY17
387
1,269
1,687
244
260
79,329
16.4
10,796
15.1
13.6
17
4,804
4,083
10,058
10,058
2,962
29.4
7,097
7,097
4QE
101
363
1,848
166
330
21,659
16
5,327
123
24.6
0
1,366
689
4,649
4,649
1,517
33
3,131
3,131
vs Est
(%)
-1
4
0
116
4
18
-20
Financials & Valuations (INR b)
2016
2017E
Y/E Mar
Net Sales
79.3
82.6
EBITDA
10.8
13.3
PAT
7.1
6.9
EPS (INR)
3.7
3.6
Gr. (%)
36.4
-2.9
BV/Sh (INR)
52.8
54.3
RoE (%)
7.2
6.7
RoCE (%)
7.9
8.8
P/E (x)
18.6
19.2
P/BV (x)
1.3
1.3
2018E
84.6
14.4
7.8
4.0
13.0
56.2
7.3
9.7
17.0
1.2
Estimate change
TP change
Rating change
Quarterly Performance – INR million
Y/E March
Aluminium Prod. ('000 tons)
Alumina Sales ('000 tons)
Avg LME Aluminium (USD/ton)
NSR premiums (USD/ton)
Alumina NSR (USD/ton)
Net Sales
Change (YoY %)
EBITDA
Change (YoY %)
As % of Net Sales
Interest
Depreciation
Other Income
PBT (before EO Item)
PBT (after EO Item)
Total Tax
% Tax
Reported PAT
Adjusted PAT
1Q
86
220
1,769
349
306
14,913
-11.2
2,237
-19.1
15.0
12
990
1,308
2,543
2,543
908
35.7
1,634
1,634
1Q
94
291
1,570
290
257
15,490
3.9
1,946
-13.0
12.6
5
1,188
1,336
2,089
2,089
739
35.4
1,350
1,350
-21
-10
-18
-19
-29
-14
-14
29 May 2017
16

26 May 2017
4QFY17 Results Update | Sector: Technology
Mphasis
Neutral
BSE SENSEX
31,028
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
9,595
MPHL IN
Incrementally positive HP channel outlook
210
n
Digital Risk-led revenue miss:
MPHL reported a 0.9% QoQ decline (est. of
120.4 / 1.8
+1.1% QoQ) in revenue to USD222m. While the HP channel saw its third
622 / 425
consecutive quarter of stable performance and Direct Core revenue grew 2.3%
6/-6/6
QoQ, performance was marred by ~10% QoQ decline in Digital.
83
39.6
n
Outlook of revenue growth in HP channel:
MPHL entered into a partnership
CMP: INR573
TP: INR600 (+5%)
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
60.8
63.3
Net Sales
9.7
9.7
EBITDA
8.2
8.1
PAT
38.9
41.7
EPS (INR)
12.9
7.3
Gr. (%)
292.4 254.1
BV/Sh (INR)
13.2
14.0
RoE (%)
12.4
13.5
RoCE (%)
14.7
13.7
P/E (x)
2.0
2.3
P/BV (x)
Estimate change
TP change
Rating change
with DXC Technologies for application modernization, extending the
relationship with HP/DXC, driving the company’s outlook of revenue growth in
2019E
the segment in FY18. Also, the company announced in-roads into the
70.3
Blackstone portfolio of companies, winning its first deal in 4Q and another
11.1
three post that. Direct Core should continue growing above industry average.
8.7
However, overall revenue continues to be weighed upon by Digital Risk and
45.0
Direct Emerging (17% of revenue).
7.9
271.2
n
Margin stability:
In 4Q, EBIT margin shrunk 10bp to 14.6%, despite pressure in
15.7
Digital Risk. PAT at INR1.9b declined 5.4% QoQ. Hedge gains on the top line and
15.5
lower amortization costs drove 180bp FY17 margin expansion. Also, current
12.7
hedges provide visibility of higher gains in FY18 over FY17, assuming INR/USD
2.1
at present levels.
n
Valuation and view:
Direct International (ex. Digital Risk) has been growing
above industry, and drag on overall performance from HP has finally stopped.
However, volatility in Direct Emerging and Digital Risk has been keeping overall
revenue growth under check, and a weak exit implies FY18 too should be soft,
despite better quarterly execution. We expect revenue/earnings CAGR of
7.7/7.6% over FY17-19E. Our target price of INR600 discounts FY19E EPS by
13x, factoring in incremental business in DXC, potential in Blackstone
companies and a likely strong payout.
Neutral.
FY16
Sep 15 Dec 15
237
229
1.2
-3.4
15,575 15,167
6.3
7.5
26.9
25.6
11.9
11.3
2,345
2,166
15.1
14.3
13.9
13.2
492
456
26.4
27.7
1,900
1,736
14.6
-8.6
18.6
5.1
9.0
8.3
24,169 23,563
-9990
-606
26.5
24.2
14.0
19.2
FY17
Jun 16
224
-0.2
15,176
-2.6
28.1
11.8
2,463
16.2
15.3
711
27.5
2,166
6.0
14.0
10.3
22,284
-90
23.9
19.1
FY16
Dec 16
224
-0.3
15,361
1.3
27.8
12.3
2,396
15.6
14.7
617
28.5
2,044
-5.6
17.7
9.7
22,018
-266
24.0
20.6
Mar 17
222
-0.9
15,059
-0.7
28.7
12.8
2,384
15.8
14.6
485
27.5
1,934
-5.4
0.7
8.8
21,979
-39
926
-2.2
60,879
5.1
26.6
11.8
8,970
14.7
13.5
1,954
27.1
7,242
6.9
34.5
22,324
-11735
FY17E
894
-3.5
60,763
-0.2
28.2
12.2
9,688
15.9
15.0
2,385
27.8
8,187
13.0
38.5
21,979
-345
Est. Var. (% /
bp)
Mar 17
227.1
-2.4
1.1
-197bp
15,064
0.0
-0.6
-3bp
27.1
158bp
11.7
106bp
2,315
3.0
15.4
46bp
14.5
14bp
566
-14.3
27.5
1bp
1,973
-2.0
-3.5
2.7
10.2
21,529
2.1
-489.0
Quarterly Performance (Consolidated)
Y/E March
Revenue (USD m)
QoQ (%)
Revenue (INR m)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
EBIT Margin (%)
Other i ncome
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Net Addi ti ons
HP Cha nnel rev. (%)
Fi xed Pri ce (%)
Jun 15
234
1.7
14,945
0.3
26.2
11.9
2,115
14.1
12.7
440
29.2
1,658
-6.7
-5.1
8.3
34,159
100
28.8
12.3
Mar 16
225
-1.7
15,160
6.1
27.9
12.2
2,344
15.7
14.5
490
31.1
1,920
10.6
8.0
9.2
22,324
-1239
24.3
21.1
Jun 16
224
-0.3
15,167
1.5
28.1
12.0
2,445
16.1
15.2
572
27.7
2,043
6.4
23.2
9.7
22,374
50
23.4
19.8
29 May 2017
17

26 May 2017
4QFY17 Results Update | Sector: Capital Goods
GE T&D India
Neutral
BSE SENSEX
31,028
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
Operating performance supported by strong execution:
Sales rose 27% YoY to
INR12.0b in 4QFY17, above our estimate of INR11.0b, led by strong execution
of projects in hand. EBITDA stood at INR1.1b, as against INR604m in the year-
ago period, with the margin expanding 280bp YoY to 9.2%. PAT stood at
INR461m v/s INR270m in 4QFY16.
n
EBIDTA margin expands led by better operating leverage:
EBIDTA increased
Financials & Valuations (INR b)
81.7% YoY to INR1.1b, with the margin expanding YoY to 9.2% from 6.4%.
2017 2018E 2019E
Y/E Mar
Net Sales
40.5
46.5
50.1
Operating margin expansion was driven by better operating leverage and cost-
EBITDA
2.2
4.2
5.0
control measures. Management guided for 6-7% EBIDTA margin on a
PAT
1.5
2.3
2.7
sustainable basis due to high competition in the sector.
EPS (INR)
5.7
8.9
10.6
Gr. (%)
325.3
56.0
18.5
n
Order inflow and book witness muted growth:
Order intake rose 5% YoY to
BV/Sh (INR)
40.3
45.9
52.5
INR11.5b in 4QFY17. Overall T&D ordering remains subdued amid high
RoE (%)
12.4
20.7
21.5
competition, and management expects the segment to register sub-10%
RoCE (%)
15.7
24.5
27.1
growth in FY18. Order backlog stands at INR81.2b, providing revenue visibility
P/E (x)
62.3
39.9
33.7
for next two years. Key orders bagged in 4Q were (1) 765/230kv GIS substation
P/BV (x)
8.9
7.8
6.8
order from BGR Energy (INR1.6b), (2) 400/220/132kv substation order at
Hardoi (INR1.6b), (3) 400kv GIS and AIS BAYS NTPC Telangana STPP (INR1.2b)
Estimate change
and (4) 765kv 80MVAR at Pune (INR1.1b).
TP change
n
Maintaining Neutral; cutting estimates for FY17/18:
We cut EPS for FY18E/19E
Rating change
by 19/7% to INR6/11 to factor in margin pressure on account of prevailing
pricing and competitive pressure in the T&D segment. Maintain
Neutral
with a
TP of INR320, valuing the stock at 30x FY19E EPS of INR10.6. Our target
multiple is based on 10-year average P/E for the stock.
n
Quarterly Performance
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
7,660
1.2
72
-90.4
0.9
212
117
412
0
155
54
34.7
102
-67.5
102
-64.4
FY16
2Q
3Q
8,729
7,141
1.2
1.2
680
-532
-22.4
NA
7.8
-7.4
215
215
143
168
213
326
0
0
536
-589
174
-205
32.6
NA
361
-384
1.8 -1,582.6
361
-384
1.8
NA
4Q
1Q
9,427
8,546
-30.7
11.6
604
21
-42.1
-70.3
6.4
0.2
216
217
479
226
552
326
0
2,330
460 -2,425
191
-455
41.4
18.8
270 -1,970
-50.1 -2,041.0
270
360
-50.1
254.6
FY17
FY16
FY17
2Q
3Q
4Q
8,340 11,623 11,963 33,034 40,521
-4.4
62.8
26.9
-10.8
22.7
339
722
1,097
898 2,230
-50.1 -235.7
81.7
-9.0
-9.0
4.1
6.2
9.2
2.7
5.5
220
221
224
873
873
239
343
344
589
589
435
522
177
427
427
0
0
0
0
0
315
679
705
-137 1,195
109
236
244
508
508
34.6
34.7
34.6 -369.7
42.5
206
443
461
-645
687
-43.0 -215.4
70.9
0.0
0.0
206
443
461
-645
687
-43.0 -215.4
70.9
2.0
2.0
(INR Million)
MOSL
Var.
4QE Vs Est
11,064
8
13.9
1,119
-2
32
10.1
230
268
378
0
1,000
-29
395
39.5
605
-24
102.5
605
-24
102.5
S&P CNX
9,595
GETD IN
256
91.4 / 1.4
384 / 277
1/-4/-13
35
25.0
CMP: INR357
TP: INR320(-10.0%)
Operating performance in-line; Maintain Neutral
29 May 2017
18

26 May 2017
4QFY17 Results Update | Sector: Cement
India Cement
Neutral
BSE SENSEX
31,028
S&P CNX
9,595
CMP: INR198
n
TP: INR194 (-2%)
We will revisit our estimates post
earnings call/management
interaction.
Better than estimates led by higher volumes and realizations
Cement vol. at 2.51mt (ex-trinetra volumes) up 3% YoY (v/s est of
2.39mt) led by strong growth in markets of A.P/ Telanagana partially
offset by weak demand in markets of TamilNadu /Kerala.
Blended realization remained flat QoQ v/s est of 3% decline QoQ. In
1QFY18 realizations are likely to see strong improvement due to strong
price hikes initiated since 1
st
April-2017 in south markets.
Revenue at INR15.2b, +17%YoY (est INR12.5b) due to better than
estimated volumes and pricing.
Blended EBITDA at INR1.9b declined 6%YoY ( vs est INR1.34b). The YoY
decline was mainly on account of increase in costs.
Hence margins at 12.5% (-3pp YoY, -2pp QoQ) declined due to higher
power & fuel and freight cost.
Interest cost at INR820mn declined ~13% both on YoY and QoQ basis due
to lower debt and decline in interest rates.
Hence PAT at INR343mn vs 426mn in 4QFY16 (-20% YoY; est INR56mnn).
FY17 India cements volume increased ~11% YoY to 9.63mt while
revenues for FY17 increased 20% YoY to INR57.8bn. EBITDA for FY17
increased 11% YoY to INR8.6bn. Adj.PAT increased 31% YoY to INR1.73bn
for FY17 led by lower interest cost.
Conference Call Details
Date:
29 May 2017
Time:
3.00pm IST
Dial-in details:
+91-22-3938 1073
rd
n
n
n
Financials & Valuations (INR b)
Y/E March
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
2017
57.8
8.6
1.7
6.0
43.9
123.2
4.7
6.2
33.3
1.6
9.9
2018E
56.4
8.4
2.4
8.7
70.8
129.1
6.2
6.6
22.7
1.5
9.9
2019E
64.2
9.5
3.2
11.9
36.5
139.4
7.7
7.4
16.6
1.4
8.6
n
n
n
n
Key Questions:
n
Tri-netra
volume and profitability details
n
Cement, shipping revenues for 4QFY17/FY17
n
Volume guidance for FY18.
n
Capex guidance for FY18
Valuation and view:
We will revisit our estimates post earnings call. The
stock at CMP of INR198 trades at 8.5x EV/EBITDA on FY19E earnings and
USD90 on EV/tonne.
29 May 2017
19

Birla Corporation
BSE SENSEX
31,028
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
9,595
BCORP IN
Acquired subsidiary Reliance Cement reports strong profitability
77
n
Steady standalone performance for 4QFY17:
Standalone volumes fell 2% YoY
57.4 / 0.8
to 2.15mt (est. of 2.25mt). However, BCORP reported a strong recovery
807 / 391
sequentially (revenues up 23%) post demonetization. Gross cement
-3/-2/73
realizations rose 2.5% QoQ to INR4,514/t (est. of INR4,446) due to price hikes
67
in focus markets. Net sales stood at INR9.3b (+6% YoY; +26% QoQ; est. of
37.1
27 May 2017
4QFY17 Results Update | Sector: Cement
CMP: INR773
TP: INR998(+29%)
Buy
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
43.5
64.6
EBITDA
6.2
10.8
PAT
2.3
3.2
EPS (INR)
29.4
40.9
Gr. (%)
13.7
39.5
BV/Sh (INR)
429.2 458.5
RoE (%)
7.5
9.2
RoCE (%)
7.9
8.3
P/E (x)
26.3
18.9
P/BV (x)
1.8
1.7
n
2019E
70.8
12.6
4.5
58.9
n
43.9
505.8
12.2
9.6
13.1
1.5
n
Estimate change
TP change
Rating change
n
INR9.2b).
Cost push offset by realization increase:
Total cost/t for standalone operations
increased 10% YoY (flat QoQ) to INR3,893 in 4QFY17 due to an increase in
freight costs (on higher diesel prices) and RM costs. Standalone EBITDA/t at
INR477 (-17% YoY,+16% QoQ) was impacted by cost push. Interest expense fell
29% QoQ to INR358m and other income rose 129% QoQ to INR399m.
Strong performance by acquired subsidiary Reliance Cement:
BCORP reported
consol. financials for FY17, implying Reliance Cement for the period under
consideration operated at 80% utilization, clocking volumes of 2.2mt. Our
calculation suggests that EBITDA/t for Reliance Cement is at INR1,135 for the
period under consideration v/s BCORP’s standalone EBITDA/t at INR477 for
4QFY17. Higher profitability for Reliance Cement is due to sales tax benefits
and cost efficiencies.
Valuation view:
BCORP’s consol. operations with capacity of 15.5mt are among
the largest in the Satna cluster, with ~22% market share. Also, it could expand
into other geographies as Reliance Cement has mineral concessions in multiple
states. Blended EBITDA/t profile for consol. operations improved substantially
due to significantly higher profitability of Reliance Cement. BCORP, given its
size and profitability, is trading at a significant discount to peers (both on
EV/tonne and EV/EBITDA) and has strong potential for multiple re-rating, given
its exposure to the lucrative markets of central India. However, the key risk
would be lower profitability from its Chanderia operations on a sustained basis.
The stock trades at 6.6x/7.5x FY18/19E EV/EBITDA and EV/tonne of USD79 on
FY19E capacity. We conservatively value BCORP at INR998 at 8.5x FY19E
EV/EBITDA, a discount of 15%-20% to peers (implies FY19 EV/tonne of USD98).
Maintain
Buy.
29 May 2017
20

CG Power and Industrial
BSE SENSEX
31,028
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
27 May 2017
4QFY17 Results Update | Sector: Capital Goods
Standalone operating performance exceeds expectations:
Sales rose 7% YoY
to INR12.8b (est. of INR11.6b), driven by 16.9% growth in Industrial segment,
while Power segment sales were flat YoY. EBIDTA margin at 6.3% was ahead of
our estimate of 5.8%. Adj. PAT of INR0.5b exceeded our estimate of INR0.3b,
led by higher-than-estimated other income (INR350m v/s est. of INR273m) and
tax write-back of INR101m.
Financials & Valuations (INR b)
Y/E Mar
2017 2018E 2019E
n
Consol. performance includes Indonesian subsidiary from 4QFY17:
Consol.
Net Sales
61.2
61.5
68.1
revenue (incl. Indonesian subsidiary) declined 8% YoY to INR17.1b in 4QFY17
EBITDA
4.7
4.7
5.1
due to a decline in Power Systems (-17% YoY). Industrial segment grew 12%
Adj PAT
-4.2
1.4
1.6
YoY. EBIDTA declined 24% YoY to INR1.2b, with the margin contracting 150bp
EPS(INR)
2.9
2.2
2.5
YoY to 6.9%. Adj. PAT of INR376m was down 64% YoY. An impairment loss of
EPS Gr. (%)
-18.6 -25.4
15.6
BV/Sh. (INR)
65.6
67.6
69.9
INR3b was booked post the sale of ZIV Systems in 4QFY17, while the balance is
RoE (%)
4.2
6.1
6.4
accounted for by overseas Power T&D subs.
RoCE (%)
6.8
7.6
6.8
P/E (x)
31.9
42.8
37.0
n
Sale of ZIV concludes; divestment of power business in US in final stages:
CRG
concluded the ZIV sale in March 2017 for INR7b, and is in advanced stages of
P/BV (x)
1.4
1.4
1.3
sale of its US-based power systems business. It expects the deal to conclude by
June 2017.
Estimate change
n
Maintain Sell; revise TP to INR65:
We raise our estimates for FY17/FY18 by
TP change
28%/9% to factor in: a) sale of ZIV Systems, b) Indonesian subsidiary which is
Rating change
reclassified as continuing operations, c) lower losses from overseas T&D
businesses (INR1.2b/annum). We would revisit our numbers once we get more
clarity on sale/closure of overseas T&D businesses. We roll over to FY19, but
maintain
Sell
with a TP of INR65 (25x FY19E EPS, 20% premium to 5-year
average of 20x). Key upside risks to our rating are: a) sale of overseas T&D
business and b) a sharp fall in competition in domestic T&D segment.
n
S&P CNX
9,595
CRG IN
627
58.9 / 0.9
97 / 56
14/9/36
348
65.6
CMP: INR93
TP: INR65(-31%)
Sell
Standalone performance ahead of estimates
29 May 2017
21

Kaveri Seeds Co.
BSE SENSEX
31,028
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
9,595
KSCL IN
Expect cotton acreages to improve in FY18; Maintain Buy
69
n
EBITDA below estimate:
KSCL reported revenue of INR403m (est. of INR482m)
34.0 / 0.5
in 4QFY17, as against INR411m in 4QFY16, marking a decline of 1.9%. EBITDA
590 / 325
stood at INR-272m (est. of INR-29m) v/s INR-64m in 4QFY16, with the margin at
-5/27/12
-67.4% (est.
of
-6%) v/s -15.7% in the year-ago period. A significant write-off of
313
inventory, which was accounted as part of raw material cost, impacted
45.6
profitability. Adj. PAT stood at INR-306m, as against INR-104m in 4QFY16. The
27 May 2017
4QFY17 Results Update | Sector: Others
CMP: INR570
TP: INR653(+15%)
Buy
Financials & Valuations (INR b)
2017 2018E
Y/E Mar
Net Sales
7.0
8.3
EBITDA
1.4
2.1
PAT
0.8
1.9
EPS (INR)
19.1
29.5
Gr. (%)
-21.4
54.7
BV/Sh (INR)
146.8
134.7
RoE (%)
13.6
20.5
RoCE (%)
16.0
22.1
P/E (x)
29.8
19.3
P/BV (x)
3.9
4.2
Estimate change
TP change
Rating change
write-off of inventory was primarily of cotton, which was carried forward from
previous years for not meeting germination and trait purity standards. For FY17,
2019E
revenue declined 5.4%, EBITDA margin contracted 540bp to 19.8% and adj. PAT
fell 21.4% YoY to INR1,316m.
9.8
2.5
n
Inventory write-off to be in check in FY18:
FY17 saw a sharp increase in
inventory write-off to INR666m from INR431m in FY16 – the major reason for
2.4
this was lower-than-expected sales over past two years, leading to inventory
36.3
build-up. Also, as Kharif production in FY15 was severely impacted by drought
22.9
and pink bollworm, inventory from FY15 production had lower shelf life than
150.5
usual, adding to write-off. However, write-off is expected to hover near industry
25.4
average of 4-5% of sales (v/s ~10% in FY17) due to expectation of: a) better
27.5
quality of Kharif production due to prediction of good monsoon and b) increase
15.7
in cotton acreages, led by a rise in cotton prices across key states (avg. rise of
3.8
20% YoY in April 2017).
n
Higher cotton acreages to lead to growth of 10-15%:
Continued pressure on
prices of pulses and soyabean is expected to increase sowing of cotton. Cotton
seed prices have remained
similar
to last year, and with a continued rise in
commercial cotton prices and RoI of cotton being the highest among crops,
cotton seed production is projected to be better. In spite of write-off, adequate
cotton inventory is available to maintain growth.
n
Valuation and view:
Profitability in 4QFY17 was majorly impacted by inventory
write-offs and legal settlement with Monsanto (exceptional item of INR592m).
Since prices of cotton are up sharply, we expect acreages for the same to go up.
Also, better monsoon is expected to improve the quality of Kharif production.
We thus maintain our
estimates
and value the stock at 18x FY19E EPS. Maintain
Buy
with a price target of INR653.
29 May 2017
22

March 2017 Results Preview | Sector: Healthcare
Aurobindo Pharma
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
ARBP IN
585.2
397 / 6
895 / 622
-3 / -28 / -30
CMP: INR678
n
n
TP:INR915 (+35%)
Buy
Financial Snapshot (INR Billion)
Y/E March
2016 2017E 2018E 2019E
Sales
139.0 152.9 181.0 205.6
EBITDA
32.1
36.1
43.1
49.3
NP
19.8
23.5
27.5
32.0
EPS (INR)
33.9
40.1
47.0
54.6
EPS Gro. (%)
25.5
18.5
17.0
16.3
BV/Sh. (INR)
120.6 158.2 202.7 254.8
RoE (%)
32.5
28.8
26.0
23.9
RoCE (%)
20.8
19.7
19.9
19.5
Valuations
P/E (x)
20.0
16.9
14.4
12.4
P/BV (x)
5.6
4.3
3.3
2.7
EV/EBITDA (x)
13.2
11.7
9.6
8.0
EV/Sales (x)
3.0
2.8
2.3
1.9
Dividend Yield
0.2
0.3
0.3
0.4
(%)
n
n
We expect Aurobindo (ARBP) to post 2.7% YoY sales growth to
INR38.5b in 4QFY17, aided by sustained traction in the US.
We expect US business (~56% of formulation sales) to grow ~9% YoY
in 4Q. Europe and RoW sales are expected to exhibit modest 3% YoY
growth, while API sales are estimated to grow ~3% YoY in 4Q.
EBITDA margin is likely to be at the same level YoY at ~23.3%
(decrease 20bps sequentially). Overall EBITDA is estimated to
increase marginally by ~2% to INR9b. We expect adj. PAT at INR5.8b,
compared to INR5.6b in the corresponding quarter last year.
At its CMP, ARBP trades at 14x FY18E, at >20% discount to its peers.
The valuation gap is expected to narrow down on account of the
company’s increasing profitability, strong earnings growth trajectory
(17% CAGR till FY19E) and improving free cash flow. ARBP remains
one of our top picks in the sector with a target price of INR915 @
18x 1HFY19E PER.
Key issues to watch out
Ø
Debt reduction during the quarter.
Ø
Outlook on US business (~35-40 launches expected over next 12 months).
Ø
Profitability of acquired Actavis business in Europe.
Quarterly Performance Consolidated (INR Million)
Y/E March
Net Sales
YoY Change (%)
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
Extra-Ord expense
PBT
Tax
Rate (%)
Minority Interest
Reported PAT
Adj PAT
YoY Change (%)
Margins (%)
E: MOSL Estimates
1Q
32,989
13.3
7,251
22.0
890
208
294
6,446
106
6,340
1,634
25.8
-19
4,725
4,784
15.8
14.5
FY16
2Q
3Q
33,651 34,955
16.8
10.4
7,791
8,230
23.2
23.5
926
995
241
227
122
69
6,746
7,077
439
-129
6,306
7,206
1,767
1,860
28.0
25.8
4
-3
4,536
5,350
4,856
5,251
20.9
32.3
14.4
15.0
4Q
37,468
18.5
8,824
23.5
1,113
251
206
7,666
-46
7,711
2,097
27.2
-14
5,629
5,582
38.7
14.9
1Q
37,666
14.2
8,890
23.6
1,062
206
159
7,780
-70
7,850
2,008
25.6
-8
5,850
5,789
21.0
15.4
FY17
2Q
3Q
37,755 39,062
12.2
11.7
9,292
8,949
24.6
22.9
1,102
1,111
175
143
83
79
8,098
7,774
-202
-158
8,300
7,932
2,240
2,177
27.0
27.4
3
-31
6,057
5,786
5,912
5,640
21.8
7.4
15.7
14.4
FY16
4QE
38,463
2.7
8,966
23.3
1,093
291
229
7,811
0
7,811
2,026
25.9
-14
5,799
5,785
3.7
15.0
138,961
14.6
32,056
23.1
3,926
927
3,137
30,339
660
29,680
7,444
25.1
-39
22,275
20,304
36.6
14.6
FY17E
152,944
10.1
36,095
23.6
4,368
815
3,496
34,407
-430
34,837
8,451
24.3
-50
26,436
23,174
14.1
15.2
29 May 2017
23

March 2017 Results Preview | Sector: Capital Goods
BHEL
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
BHEL IN
2447.6
419 / 6
172 / 112
4 / 19 / 31
CMP: INR171
n
TP: INR115 (-33%)
Sell
Financial Snapshot (INR b)
Y/E March
2016 2017E 2018E 2019E
Net Sales
256.3 315.6 315.5 344.4
EBITDA
-19.6
18.9
18.8 19.0
PAT
-9.1
13.6
14.0 14.2
EPS (INR)
-3.7
5.5
5.7
5.8
EPS Gr. (%)
-163.6 -249.2
3.3
1.3
BV/Sh. INR
135.0 139.3 143.7 148.2
RoE (%)
-2.7
4.0
4.0
4.0
RoCE (%)
-4.1
2.5
2.4
2.0
Payout (%)
-10.8
20.0
20.0 20.0
Valuations
P/E (x)
-46.2
30.9
30.0 29.6
P/BV (x)
1.3
1.2
1.2
4.0
EV/EBITDA (x) -16.3
16.9
13.7 15.5
Div Yield (%)
0.2
0.6
0.7
0.7
* Consolidated
We expect revenue to grow 29% YoY. We estimate operating profit
at INR14.4b against INR3.6b in 4QFY16 – growth would be driven
by better operating leverage and lower other expenses. We
estimate net profit at INR10.8b against INR3.6b in 4QFY16.
n
During the quarter, BHEL bagged an order worth INR13.6b for
setting up 800KV Raigarh Pugular multi-terminal HVDC link in JV
with ABB. BHEL will supply converter transformers, shunt reactors,
filter bank capacitors and instrument transformers.
n
BHEL also secured an EPC order for the installation of solar
photovoltaic rooftop systems totaling to 3.6MW from Surat
Municipal Corporation.
n
BHEL is L1 in 6.6GW of orders, of which it expects 5GW of orders to
be finalized in FY17.
Key issues to watch
Ø
Ø
Continued constraint on execution due to operational issues.
Trends in provisions, particularly for liquidated damages on project
completion.
Quarterly Performance
Y/E March
Sales (Net)
Change (%)
EBITDA
Change (%)
As a % Sales
Interest
Depreciation
Other Income
PBT
Tax
Effective Tax Rate (%)
Reported PAT
Change (%)
Adj. PAT
Change (%)
E: MOSL Estimates
1Q
43,617
-15.0
-2,093
-196.1
-4.9
33
2,425
4,924
373
34
9.1
339
-82.5
339
-82.5
FY16
2Q
3Q
4Q
59,380 53,272 100,048
-3.4
-14.0
-21.1
-4,379 -16,120
3,638
-250.2
-648.7
-78.4
-7.4
-30.3
3.6
44
52
140
2,249
2,255
2,428
3,739
1,708
4,139
-2,933 -16,719
5,209
-1,125
-5,869
1,555
38.4
35.1
29.8
-1,808 -10,850
3,596
-244.8
-610.3
-59.5
-1,808 -10,850
3,655
-244.8
-610.3
-61.7
1Q
56,225
28.9
710
-133.9
1.3
57
2,182
2,493
965
188
19.4
778
129.5
778
129.5
FY17
2Q
66,645
12.2
1,551
-135.4
2.3
50
2,080
1,961
1,382
292
21.1
1,090
-160.3
1,090
-160.3
3Q
63,254
18.7
2,239
-113.9
3.5
263
2,088
1,358
1,245
310
24.9
935
-108.6
935
-108.6
4Q
129,461
29.4
14,391
295.6
11.1
198
3,605
4,652
15,239
4,484
29.4
10,756
199.1
10,756
194.3
(INR Million)
FY16
256,300
-15.1
-19,597
-193.4
-7.6
268
9,356
14,501
-14,721
-5,633
38.3
-9,088
-164.0
-9,088
-163.6
FY17E
315,585
23.1
18,891
-196.4
6.0
568
9,955
2,899
18,832
5,273
28.0
13,559
-249.2
13,559
-249.2
29 May 2017
24

March 2017 Results Preview | Sector: Oil & Gas
BPCL
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
BPCL IN
1446.2
922 / 14
735 / 440
-3 / -8 / 23
CMP: INR638
n
n
n
n
n
n
n
TP: INR763 (+20%)
Buy
Financial snapshot (INR b)
y/e March
2016 2017E 2018E 2019E
Sales
1884.5 2010.5 1980.6 2224.9
EBITDA
142.1 140.6 148.4 154.8
Adj. PAT
79.8
80.8
77.6
84.5
Adj. EPS (INR)
55.2
EPS Gr.%
104.1
BV/Sh.INR
193.8
RoE (%)
31.6
RoCE (%)
18.8
Payout*(%)
33.0
Valuation
P/E (x)
11.6
P/BV (x)
3.3
EV/EBITDA (x)
8.0
Div. Yld (%)
2.4
*Based on standalone
55.9
68.1
218.6
27.1
16.3
55.6
11.4
2.9
8.3
4.2
53.7
-2.8
253.9
22.7
14.9
34.2
11.9
2.5
7.9
2.5
58.4
4.6
292.6
21.4
15.1
33.7
10.9
2.2
7.3
2.6
We expect OMCs’ (IOCL, BPCL, HPCL) core earnings to decline
YoY/QoQ, led by lower refining and marketing margins in 4QFY17.
We model nil subsidy sharing for OMCs; the subsidy in 4QFY17
would entirely be borne by the government.
We peg BPCL’s refinery throughput at 6.4mmt for 4QFY17 v/s
6.2mmt in 4QFY16 and 6.8mmt in 3QFY17.
We model GRM of USD5.5/bbl (inclusive of inventory gain/loss) for
BPCL during 4QFY17.
We expect BPCL to report EBITDA of INR22.4b (-33% QoQ, -35%
YoY) in 4QFY17.
We estimate PAT at INR14.5b (-34% QoQ, -43% YoY) for 4QFY17.
BPCL trades at 10.9x FY19E EPS of INR58.4 and 2.2x FY19E BV
(adjusted for investments), with ~3% dividend yield. Buy.
Key issues to watch for
Ø
(a) Inventory and forex change impact, (b) GRM, (c) Kochi refinery
expansion, and (d) update on Mozambique/Brazil E&P blocks.