India Strategy Get on track
2017
Thematic |
|
November
please !
Rural India
Direct benefit
transfer
MSP hikes
Optimistic
corporate
commentary
Rural Wage
growth
Back on the saddle
Volume - II
Volume - II
Gautam Duggad - Research Analyst (Gautam.Duggad@MotilalOswal.com); + 91 22 3982 5404
Nikhil Gupta - Research Analyst (Nikhil.Gupta@MotilalOswal.com); + 91 22 3982 5405
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

India Strategy | Rural India
Contents
Back on the saddle – Part II ................................................................................... 3
Rural India: Signs of pick-up more evident............................................................. 6
Companies
........................................................................................................... 9
Hindustan Unilever......................................................................................... 10
Dabur ............................................................................................................ 14
Mahindra & Mahindra .................................................................................... 18
M&M Financial Services ................................................................................. 24
Repco Home Finance ...................................................................................... 25
Manpasand Beverages ................................................................................... 25
22 November 2017
2

India Strategy | Rural India
Rural India
Please refer our Volume I
dated August 2017
Back on the saddle – Volume II
Signs of rural pickup more evident
In our Rural Strategy note,
Back on the Saddle,
which we released in August 2017,
we had highlighted the potential consumption revival in Rural India. Now, as we look
back at the just-concluded 2QFY18 earnings season, we note that signs of a pickup in
rural consumption are indeed increasingly evident.
2QFY18 corporate commentaries point towards rural demand pickup
After three years of subdued rural consumption, there are now increasing signs of a
pickup. As we had pointed out in August, catalysts are in place to drive the awaited
revival in rural demand. While two successive years of normal monsoon portend
well for farm output, the combination of MSP hikes, direct benefit transfers and
farm loan waivers should drive up disposable incomes. Corporate commentary
following the 2QFY18 results from B2C sectors like FMCG, Autos, Durables and Retail
reaffirms our view. Quite a few FMCG companies see rural growth outpacing or at
least matching urban growth after many quarters. Auto companies like Hero
MotoCorp, M&M and Escorts also highlighted rural growth recovery. India Inc
expects the demand trends to strengthen as we move into 2HFY18.
Foundations for rural consumption revival in place
The South West monsoon for 2017 was at 95% of the long period average (LPA).
However, in the key sowing months of June and July rainfall was 104% and 102% of
LPA. Even rural wage growth is improving after a long time. After remaining flat YoY
in 1HFY17, real rural wage growth improved to 3.3% in 2HFY17 and further to 4.6%
during April-September 2017, the fastest pace in four years.
The central government is also using direct benefit transfer (DBT) as a tool to
improve the efficiency of money spent on subsidies. This should also aid rural
consumption, in our view. The number of schemes covered under DBT has increased
from 59 in FY16 to 140 in FY17. This number has gone up to 393 in FY18 so far, and
is likely to rise further in the remaining part of the year, as the government targets
to cover all 534 schemes under DBT by March 2018. Along with the number of
schemes covered, the number of beneficiaries receiving payments via DBT has also
increased sharply, from 357m in FY17 to 475m currently. The funds disbursed under
DBT have increased – in FY17, INR746b were disbursed, up ~21% from INR618b in
FY16. In FY18 so far, INR538b has already been disbursed.
Additionally, minimum support prices (MSP) have witnessed another year of healthy
increase – 8.3% hike granted for Rabi crops. MSP for wheat, the most procured Rabi
crop, is up 6.8% – the highest increase in six years.
Normalcy in rural supply chain post GST
1HFY18 was impacted by teething troubles pertaining to GST implementation, as
trade partners were cautious, given the uncertainty around treatment to in-transit
stock, credit for taxes paid on inventory, etc. Supply chains, especially in rural India
were disrupted, as trade adjusted to the new indirect tax regime. This resulted in
22 November 2017
3

India Strategy | Rural India
de-stocking in 1QFY18. 2QFY18 has seen re-stocking; however, inventory levels in
trade are not yet at pre-GST levels. Management commentaries post 2QFY18 results
suggest gradual return to normalcy in supply chains in 2HFY18.
Top rural ideas
Mahindra & Mahindra:
Best bet on rural recovery. Several levers to drive 100bp
EBITDA margin expansion over FY17-20.
Hindustan Unilever:
Has the widest reach in rural India. Optimum product
portfolio to take advantage of rural revival. Expect consistent margin expansion,
backed by volume pickup, GST-led efficiencies and scale benefits.
Dabur:
Worries on the wholesale channel (due to GST implementation) and
rural sales are receding faster than expected.
Mahindra & Mahindra Financial Services:
Built a strong foundation in rural
India over FY12-17. Growth has picked up after 2-3 sluggish years.
Repco Home Finance:
Signs of turnaround after a tough year. Disbursements
have picked up and asset quality has improved.
Manpasand Beverages:
Rural expansion to continue. Capacity expansion
coupled with distribution and product portfolio enhancement to aid earnings.
Exhibit 1: Top ideas to play rural recovery
TP
Company
Reco (INR)
Hind. Unilever
Buy 1,500
M&M
Buy 1,658
Dabur
Buy
410
M&M Financial
Buy
500
Manpasand Bever. Buy
492
Repco Home Fin Buy
800
MCap
EPS (INR)
PE (x)
PB (x)
ROE (%)
EV/EBIDTA (x)
USD b
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
42.6
22.8 27.6 32.4 56.0 46.3 39.4 42.4 39.2 34.1 75.9 88.0 92.5 38.6 32.2 27.4
13.6
75.0 85.7 94.6 18.9 16.6 15.0
3.0
2.7
2.4 14.5 14.6 14.9
5.3
4.6
4.4
9.2
7.7
9.3 10.9 43.9 36.6 31.2 10.6
9.4
9.0 26.0 27.3 29.4 35.8 29.6 25.3
3.8
14.2 19.1 24.0 30.9 22.9 18.2
3.6
3.3
2.9 11.9 14.8 17.0
NA
NA
NA
0.7
9.9 15.4 20.5 41.7 26.9 20.2
3.8
3.4
3.1
8.4 13.5 16.0 22.7 15.1 11.3
0.6
36.0 41.9 50.0 17.2 14.7 12.3
2.8
2.4
2.0 18.0 17.6 17.6
NA
NA
NA
Source: Company, MOSL
22 November 2017
4

India Strategy | Rural India
Please refer our latest report
Voices | India Inc on Call (2QFY18)
Snippets from 2QFY18 conference call commentary on
Rural demand
Hero MotoCorp
HMCL indicated healthy volume growth in urban and rural markets. While urban
markets grew faster than rural markets in 1QFY18, both markets grew at the same
pace in 2QFY18.
M&M
MM expects the tractor industry to grow 12-14% in FY18 (v/s guidance of 10-12%
earlier). Over April-October 2017, the domestic tractor industry grew 15.5%. Positive
rural sentiment and well-spread monsoon should benefit the tractor industry in
FY19, as well.
Maruti
The management indicated double-digit retail demand growth during the festive
season of Navratri and Diwali. Growth from the rural markets remains healthy at
21.5% in 1HFY18.
Consumer volume growth
picked up in rural in 2QFY18
FMCG Rural Volume gr. (%)
FMCG Urban Volume gr. (%)
13
10
4
5
3
Britannia Inds
Rural growth appears better than urban growth.
Dabur
Rural growth at 11% is higher than urban growth of 10%. The management believes
that ongoing and subsequent government schemes will be an important driver.
Rural wholesales and super stockiest are doing well. Modern trade is doing very
well.
Emami
Navratna, Boro Plus
and
Fair & Handsome
are seeing good retail offtake, and rural
sentiment is recovering. This and a weak base give HMN confidence on strong
growth in 2HFY18.
Hindustan Unilever
Expect gradual improvement in rural demand. Rural growth is in line with urban
growth. Rural India needs to grow faster, but for now, it has recovered from lower
levels.
Jyothy Labs
Consumer demand is showing signs of pickup, especially in rural market.
M&M Financials
OEMs are expecting good growth from rural markets.
1
Source: Media, Kantar
22 November 2017
5

India Strategy | Rural India
Rural India: Signs of pick-up more evident
After remaining subdued owing to disruptive macro initiatives like Demonetization,
Rural India is expected to see series of positive catalysts going forward. We remain
sanguine about the prospects of rural economy on the back of second consecutive
year of normal monsoons. We briefly discuss three key triggers for Rural Indian in
the ensuing section before moving to top Rural Ideas to play the theme.
Direct benefit transfer (DBT) - Rising scope, better transparency
Transfer of government subsidies and payments directly into the bank accounts of
beneficiaries has helped cut out middlemen and check leakages in the system. It has
enabled better targeting of subsidies and increased transparency. The use of DBT
continues to expand at a rapid pace in FY18.
The number of schemes covered under DBT had increased from 59 in FY16 to 140 in
FY17. This number has gone up to 393 in FY18 so far, and is likely to rise further in
the remaining part of the year, as the government targets to cover all 534 schemes
(including 300 cash schemes, over 200 in-kind schemes, and over a dozen services)
under DBT by March 2018. Thus, the scope of DBT has widened considerably.
Along with the number of schemes covered, the number of beneficiaries receiving
payments via DBT has also increased sharply, from 357m in FY17 to 475m currently.
PAHAL, which provides subsidy on LPG, accounts for more than half the total
number of beneficiaries receiving money via DBT. The amount of funds transferred
via DBT has also increased every year, with more than INR746b disbursed in FY17,
up ~21% from INR618b disbursed in FY16. As much as INR538b has already been
disbursed through this mechanism in FY18 so far, taking the cumulative amount
disbursed via DBT to INR2.4t over the last four-and-a-half years.
Exhibit 2: Number of schemes covered under DBT
Number of schemes
393
Exhibit 3: Number of beneficiaries covered under DBT
600
450
300
Other Schemes
All Scholarship Schemes
PAHAL (DBTL)
NSAP (IGNOAPS, IGNWPS & IGNDPS)
MGNREGS
28
FY14
34
FY15
59
140
150
0
FY14
FY15
FY16
FY17
FY18*
Source: GOI, MOSL
FY16
FY17
FY18*
*Till date
22 November 2017
6

India Strategy | Rural India
Exhibit 4: Total funds transferred via DBT (INR b)
800
600
400
200
0
FY14
FY15
FY16
FY17
FY18*
*Till date
MGNREGS
NSAP
PAHAL
All Scholarship Schemes
Other
Rural wages - growth picking up for real wage after a flattish FY17
Growth in nominal rural wages has remained stable at 6-6.5% in FY17 and in the first
four months of FY18. However, owing to the sharp fall in inflation, real rural wages
accelerated over the last 12 months. After remaining flat YoY in 1HFY17, growth
improved to 3.3% in 2HFY17 and further to 4.8% during April-July 2017, the fastest
pace in four years. The sustained improvement in real rural wages is a positive for
rural demand.
Exhibit 5: Growth in real rural wages has picked up (% YoY)
(% YoY)
20
15
10
5
0
-5
Nominal wages
Real wages
15.7
7.1
2.9
4.4
-1.6
4.5
*Till date ; Source: Labour Bureau, MOSL
Minimum support prices - another year of healthy MSP hike
The government announced MSPs for rabi crops, last month. On a simple average
basis, MSP hike for rabi crops is 8.3% for FY18. Although this is lower than the 11.3%
hike seen in FY17, it is much better than the average hike of 7.1% seen across the
last five years. Importantly, MSP for wheat, which is the most-procured Rabi crop,
has been increased by 6.8% in FY18, the fastest pace in six years.
22 November 2017
7

India Strategy | Rural India
Exhibit 6: Changes in MSP of Rabi crops over the past six years
% YoY, MSP
Wheat
Barley
Gram
Masur (Lentil)
Rapeseed/Mustard
Safflower
Simple average
2012-13
5.1
0
7.1
3.6
20
12
8.0
2013-14
3.7
12.2
3.3
1.7
1.7
7.1
5.0
2014-15
3.6
4.5
2.4
4.2
1.6
1.7
3.0
2015-16
2016-17
2017-18
5.2
6.6
6.8
6.5
8.2
6.4
10.2
14.3
10.0
10.6
16.2
7.6
8.1
10.4
8.1
8.2
12.1
10.8
8.1
11.3
8.3
Source: Department of Agriculture, MOSL
MSPs for kharif crops had been increased by 6.2% in FY18 – better than the 5% growth in
FY17 and the highest growth in five years.
Exhibit 7: Changes in kharif MSPs over the past six years
% YoY, MSP
Paddy, common
Paddy, Grade A
Jowar, hybrid
Jowar, Maldandi
Bajra
Maize
Ragi
Tur (Arhar)
Moong
Urad
Cotton, Medium staple
Cotton, Long staple
Groundnut in shell
Sunflower seed
Soyabean, yellow
Sesamum
Simple average
2012-13
15.7
15.3
53.1
52.0
19.9
19.9
42.9
20.3
25.7
30.3
28.6
18.2
37.0
32.1
32.5
23.5
27.7
2013-14
4.8
5.1
0.0
0.0
6.4
11.5
0.0
11.7
2.3
0.0
2.8
2.6
8.1
0.0
14.3
7.1
5.1
2014-15
3.8
4.1
2.0
2.0
0.0
0.0
3.3
1.2
2.2
1.2
1.4
1.3
0.0
1.4
0.0
2.2
1.6
2015-16
2016-17
2017-18
3.7
4.3
5.4
3.6
4.1
5.3
2.6
3.5
4.6
2.6
3.8
4.5
2.0
4.3
7.1
1.1
3.0
4.4
6.5
4.5
10.1
6.3
9.2
7.9
5.4
7.7
6.7
6.3
8.1
8.0
1.3
1.6
4.1
1.2
1.5
3.8
0.8
4.7
5.5
1.3
3.9
3.8
1.6
6.7
9.9
2.2
6.4
6.0
3.1
4.9
6.2
Source: Department of Agriculture, MoSL
22 November 2017
8

India Strategy | Rural India
Companies
BSE Sensex: 33,478
S&P CNX: 10,327
November 2017
Hindustan Unilever
Dabur
Mahindra & Mahindra
M&M Financial Services
Repco Home Finance
Manpasand Beverages
TOP RURAL IDEAS
Repco
Home
Finance
Mahindra
&
Mahindra
Manpasand
Beverages
Mahindra&
Mahindra
Financial
Services
Dabur
Hindustan
Unilever
22 November 2017
9

November 2017
India Strategy | Rural India
Update | Sector: Consumer
Hindustan Unilever
BSE SENSEX
33,478
S&P CNX
10,327
CMP: INR 1,277
TP: INR1,500 (+17%)
Buy
Juggernaut moves forward
Well placed to take advantage of rural recovery, which has just begun
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INR m
Free float (%)
Best large cap bet on consumer recovery
HUVR IN
2,163.9
2,793.1 / 42.7
1315 / 783
-2/17/30
1324
32.8
Financials Snapshot (INR b)
Y/E MARCH
2018E 2019E 2020E
Net Sales
336.9 384.2 438.3
EBITDA (INR b)
70.4
83.7
98.0
Net Profit
49.4
59.7
70.1
EPS
22.8
27.6
32.4
EPS gro. (%)
16.2
21.0
17.3
BV/Sh. (INR)
30.1
32.6
37.5
P/E (x)
56.1
46.3
39.5
P/BV (x)
42.4
39.3
34.1
RoE (%)
75.9
88.0
92.5
RoCE (%)
101.1 116.3 122.8
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
67.2
67.2
67.2
DII
5.8
5.6
5.2
FII
13.3
13.5
13.8
Others
13.7
13.8
13.8
FII Includes depository receipts
Stock Performance (1-year)
Hind. Unilever
Sensex - Rebased
1,400
1,200
1,000
800
600
HUVR is the largest FMCG company in India by sales. It has the widest portfolio
of products and the broadest distribution reach (~8m outlets) among its
Consumer peers.
Over 40% of its sales come from rural India, among the highest proportion for
FMCG companies.
HUVR has had the disadvantage of a weak base of rural growth in the past
three years. From double that of urban growth, rural growth has slowed down
to below urban growth after two years of poor monsoon, followed by
demonetization in the third year. In 2QFY18, HUVR stated that for the first time
in three years, rural growth is now in line with urban growth.
We were pleasantly surprised by the smart recovery in 2QFY18 to 4% volume
growth. As the outlook on the rural economy is improving, so would the
potential for healthy sales growth. The latest reduction in GST rates (effective
15th November) from 28% to 18% in key categories like detergents, shampoos
and deodorants will be passed on to consumers, spurring growth further.
HUVR also has the widest product portfolio among peers in most of the FMCG
categories it is present in. It has a superior range of products at the lower end
of the price spectrum, making it better placed than peers to take advantage of
strong rural growth.
The confluence of positive factors indicated above as well as the barriers to
entry that HUVR has created make it strongly positioned for healthy earnings
growth, especially when rural volume recovery is abetted by (a) the return of
price-led sales growth owing to the end of commodity cost deflation, (b)
continued premiumization as well as mix improvement, aiding gross margin,
and (c) zero-based budgeting leading to substantial cost savings over the next
few years, as a result of which EBITDA margins in 4QFY17, 1QFY18 and 2QFY18
have already increased by 100bp, 180bp and 230bp, respectively.
Valuation and view
We expect HUVR to report 18.6% PAT CAGR over FY17-19 against 6.1% CAGR in the
last three years, 10.6% CAGR in the last five years and 10.7% CAGR in the last 10
years. While valuations are not cheap at 46.3x FY19E and 39.5x FY20E EPS, given
the potentially strong earnings growth, we believe premium valuations are
justified, particularly as return ratios and dividend yield remain best of breed. We
maintain our BUY rating on the stock, with a target price of INR1,500 (roll forward
to 48x December 2019E EPS; 10% premium to three-year average valuations).
22 November 2017
10

India Strategy | Rural India
HUVR operating metrics
Exhibit 8: HUVR has a high proportion of rural sales
Urban
30
40
28
Rural
40
40
34
20
20
4.5
80
80
Exhibit 9: Its outlet reach is the highest among peers
Total reach (m outlets)
5.8
5.3
4.0
5.6
8.0
50
50
4.6
3.9
70
60
50
50
72
2.8
60
60
66
Source: Company, MOSL
Source: Company, MOSL
Exhibit 10: Volume growth is expected to revive as a result
of rural revival…
13.0
9.3
6.8
4.0
4.8
7.4
5.8
5.1
0.8
7.4
Volume growth (%)
Exhibit 11: …and abetted by continued premiumization and
end of commodity deflation, sales growth will be high
Total Revenue (INR b)
16.7
11.3 12.1
8.6
9.9
0.8
197
221
258
280
308
311
2.7
319
343
391
446
7.7
Revenue growth (%)
14.0 14.0
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: Strong sales growth, premiumization, mix
improvement and cost savings will boost EBITDA…
EBITDA (INR b)
22.9 21.6
16.4
11.8
(2.6)
27
33
40
45
52
57
60
70
84
98
10.4
5.2
16.4
EBITDA growth (%)
19.0
17.1
Exhibit 13: …and PAT growth
PAT (INR b)
22.6 23.9
11.5
(0.2)
21
26
32
36
2.7
37
42
14.2
1.9
42
49
60
70
16.2
PAT growth (%)
21.0
17.3
Source: Company, MOSL
Source: Company, MOSL
22 November 2017
11

India Strategy | Rural India
Financials and valuations
Income Statement
Y/E March
Net Sales
Other Oper. Income
Total Revenue
Change (%)
COGS
Gross Profit
Gros Margin (%)
Operating Exp
% of sales
EBIDTA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Other Income - Recurring
Profit before Taxes
Change (%)
Margin (%)
Tax
Deferred Tax
Tax Rate (%)
Profit after Taxes
Change (%)
Margin (%)
Non-rec. (Exp)/Income
Reported PAT
FY15
301,705
6,351
308,056
9.9
156,236
151,821
49.3
99,738
32.4
52,082
16.4
16.9
2,867
168
6,184
55,231
15.1
18.3
19,060
-338
33.9
36,510
2.7
12.1
6,643
43,153
FY16
304,990
5,619
310,609
0.8
153,053
157,556
50.7
100,070
32.2
57,486
10.4
18.5
3,208
150
5,640
59,769
8.2
19.6
18,160
-70
30.3
41,679
14.2
13.7
-310
41,369
FY17
312,980
5,920
318,900
2.7
156,850
162,050
50.8
101,580
31.9
60,470
5.2
19.0
3,960
220
5,260
61,550
3.0
19.7
18,650
410
31.0
42,490
1.9
13.6
2,410
44,900
FY18E
336,865
6,512
343,377
7.7
162,866
180,511
52.6
110,154
32.1
70,358
16.4
20.5
4,611
242
5,018
70,522
14.6
20.9
20,663
494
30.0
49,366
16.2
14.7
0
49,366
FY19E
384,228
7,163
391,391
14.0
183,977
207,414
53.0
123,668
31.6
83,746
19.0
21.4
4,818
242
6,633
85,319
21.0
22.2
24,998
597
30.0
59,723
21.0
15.5
0
59,723
(INR Million)
FY20E
438,293
7,880
446,172
14.0
207,392
238,780
53.5
140,736
31.5
98,044
17.1
22.0
4,958
242
7,249
100,094
17.3
22.8
29,327
701
30.0
70,066
17.3
16.0
0
70,066
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investment in Subsidiaries
Current Investments
Deferred Charges
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Account Payables
Other Liabilities
Provisions
Net Current Assets
Application of Funds
FY15
2,164
35,084
37,248
37,248
44,306
-19,731
24,575
4,790
6,541
26,238
1,960
72,236
26,027
7,829
25,376
13,005
99,093
48,515
29,828
20,749
-26,857
37,248
FY16
2,164
60,630
62,794
62,794
50,774
-21,627
29,147
3,860
3,130
24,670
1,680
76,509
25,284
10,645
27,590
12,990
76,202
54,980
12,382
8,840
307
62,794
FY17
2,164
62,740
64,904
64,904
65,827
-25,587
40,240
2,030
2,540
35,250
1,600
65,130
23,620
9,280
16,710
15,520
81,886
60,060
13,106
8,720
-16,756
64,904
FY18E
2,164
63,046
65,210
65,210
67,827
-30,198
37,629
2,030
2,540
35,750
1,600
67,596
28,792
11,927
10,857
16,020
81,934
58,453
13,761
9,720
-14,339
65,211
FY19E
2,164
68,337
70,501
70,501
69,827
-35,016
34,811
2,030
2,540
37,750
1,600
89,683
30,314
13,604
26,107
19,658
97,914
72,744
14,449
10,720
-8,231
70,500
(INR Million)
FY20E
2,164
78,906
81,070
81,070
71,827
-39,974
31,853
2,030
2,540
39,750
1,600
107,376
34,579
15,518
36,957
20,321
104,079
77,187
15,172
11,720
3,297
81,070
22 November 2017
12

India Strategy | Rural India
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
439
FY15
16.9
18.2
17.2
15.0
88.9
501
FY16
19.3
20.7
29.0
15.5
80.5
511
FY17
19.6
21.5
30.0
16.5
84.0
593
FY18E
22.8
24.9
30.1
19.5
85.5
718
FY19E
27.6
29.8
32.6
21.5
77.9
842
FY20E
32.4
34.7
37.5
23.5
72.6
75.7
70.2
9.1
52.4
74.2
1.2
66.3
61.6
9.0
47.5
44.0
1.2
65.0
59.5
8.8
45.4
42.6
1.3
56.1
51.3
8.2
39.1
42.4
1.5
46.3
42.9
7.1
32.7
39.3
1.7
39.5
36.9
6.2
27.8
34.1
1.8
104.3
140.6
4,018.2
9
8.1
83.3
108.5
263.3
13
4.9
66.5
88.5
108.6
11
4.8
75.9
101.1
98.5
13
5.2
88.0
116.3
123.3
13
5.4
92.5
122.8
164.2
13
5.4
0.0
0.0
0.0
0.0
0.0
0.0
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Int./Div. Received
Depreciation
Interest Paid
Direct Taxes Paid
(Incr)/Decr in WC
CF from Operations
FY15
55,231
-6,184
2,867
168
-19,060
2,816
35,839
6,643
-4,269
31,569
-1,838
536
137
1
136
-38,812
5,467
-33,208
3,166
22,210
25,376
FY16
59,769
-5,640
3,208
150
-18,160
-24,949
14,378
-310
-5,537
8,840
4,979
-868
24,262
0
24,262
-40,085
4,528
-11,295
2,215
25,376
27,590
FY17
61,550
-5,260
3,960
220
-18,650
6,183
48,003
2,410
-13,223
34,780
-9,990
-20,803
-150
0
-150
-42,640
4,711
-38,080
-10,880
27,590
16,710
FY18E
70,522
-5,018
4,611
242
-20,663
-8,270
41,425
0
-2,000
39,425
-500
-2,500
310
0
310
-49,369
4,282
-44,777
-5,853
16,710
10,857
FY19E
85,319
-6,633
4,818
242
-24,998
9,142
67,890
0
-2,000
65,890
-2,000
-4,000
0
0
0
-54,433
5,793
-48,640
15,250
10,857
26,107
(INR Million)
FY20E
100,094
-7,249
4,958
242
-29,327
-678
68,039
0
-2,000
66,039
-2,000
-4,000
0
0
0
-59,496
6,307
-53,189
10,850
26,107
36,957
Extraordinary Items
(Incr)/Decr in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from Invest.
Change in Networth
Change in equity
Change in reserves
Dividend Paid
Others
CF from Fin. Activity
Incr/Decr of Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
22 November 2017
13

November 2017
India Strategy | Rural India
Update
| Sector:
Consumer
Dabur
BSE SENSEX
33,478
S&P CNX
10,327
CMP: INR339
TP: INR410 (+21%)
Buy
Rural momentum picking up perceptibly
Market share issues getting addressed
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.INRb/USDb
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
Best midcap bet on Consumer recovery
DABUR IN
1761.5
566.2 / 8.7
360/259
3/13/-5
430
31.9
Financials Snapshot (INR b)
Y/E MARCH
2018E 2019E 2020E
Net Sales
78.7
91.6 104.5
EBITDA (INR b)
15.8
18.8
21.7
Net Profit
13.6
16.4
19.2
EPS
7.7
9.3
10.9
EPS gro. (%)
6.8
20.0
17.1
BV/Sh. (INR)
32.1
35.9
37.9
P/E (x)
43.9
36.6
31.2
P/BV (x)
10.6
9.4
9.0
RoE (%)
26.0
27.3
29.4
RoCE (%)
22.6
24.1
26.3
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
68.1
68.1
68.0
DII
8.8
8.2
5.6
FII
17.3
17.7
19.8
Others
5.8
6.1
6.6
FII Includes depository receipts
Stock Performance (1-year)
Dabur India
Sensex - Rebased
360
330
300
270
240
Dabur is one of India’s top 5 Consumer companies in terms of distribution
reach – it reaches 5.3m outlets. This coupled with the fact that nearly 50% of
its domestic sales comes from rural India – the highest proportion among
FMCG companies – makes it an ideal play on rural revival.
The rural outlook appears buoyant. For the first time in three years, companies
with high rural sales called out faster rural growth than urban growth or
growth at least equivalent to urban growth in 2QFY18. For Dabur, rural sales
grew 11% in 2QFY18 against 10% YoY growth in its urban sales. Rural recovery
from 2QFY18 was earlier than expected – even before the benefits of a near-
normal monsoon and government schemes began percolating from 3QFY18.
Before the drought-and-demonetization-led rural slowdown of the past three
years, rural sales growth was more than double the urban sales growth for
many years, driving sectoral volume growth up rapidly.
Worries on both the wholesale channel due to GST implementation and rural
sales (in both of which Dabur has a disproportionately high exposure compared
to peers) are receding faster than expected. Dabur has the advantage of a
weak base of rural growth in the past three years.
Dabur has also addressed issues of market share losses in two key categories –
juices and honey; oral care continues to do well.
With the rollout of a slew of science-based ayurvedic (herbal/natural) products
from 4QFY18, Dabur is also expected to take advantage of its legacy brand
strength, domain expertise and sourcing advantage on important raw materials
to cater to a rapidly growing set of customers seeking ayurvedic products with
scientifically-proven benefits.
Valuation and view
The much-vaunted earnings revival in the sector appears poised to come through
and rural-dependent plays like Dabur are likely to be at the vanguard. International
business is also expected to revive over the next couple of quarters, which means
that performance of this segment wouldn’t be an overhang, going forward.
Expected EPS CAGR of ~18% compared to less than 12% over FY14-17 is a
significant increase in momentum. RoE is healthy in the late 20s. We roll forward to
December 2019 earnings estimates, and at 39x (5% premium to 3-year average),
we get a target price of INR410. We reiterate
Buy.
22 November 2017
14

India Strategy | Rural India
DABUR operating metrics
Exhibit 14: Dabur has 50% salience of rural sales
Urban
30
40
50
50
28
Rural
40
40
34
20
20
4.5
80
80
Exhibit 15: Its outlet reach is the highest among peers
Total reach (m outlets)
5.8
5.3
4.0
5.6
8.0
4.6
3.9
70
60
50
50
72
60
60
66
2.8
Source: Company, MOSL
Source: Company, MOSL
Exhibit 16: Volume growth is expected to revive as a result
of rural revival in domestic business…
12.5
10.5
Domestic volume growth (%)
10.6
9.5
8.1
4.5
1.5
1.4
Exhibit 17: …and abetted by international growth sales
growth will be high
29.6%
20.3%
Sales (INR b)
16.3%
14.8%
Sales growth (%)
16.3%
10.7%
0.8%
41
53
61
71
78
79
-2.1%
77
2.2%
79
92
104
14.1%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 18: Strong sales growth and cost savings will boost
EBITDA margins…
EBITDA Margin (%)
18.7 19.0
16.4 15.7 16.1 16.6
20.5 20.8
19.3 19.6 20.1
Exhibit 19: …and PAT growth
PAT (INR b)
19.1% 19.1%
12.3% 13.4%
PAT growth (%)
20.0%
17.1%
16.5% 17.4%
6.8%
2.1%
6
6
8
9
11
13
13
14
16
19
Source: Company, MOSL
Source: Company, MOSL
22 November 2017
15

India Strategy | Rural India
Financials and valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
Int. and Fin. Charges
Other Income - Recurring
Profit before Taxes
Change (%)
Margin (%)
Tax
Tax Rate (%)
Profit after Taxes
Change (%)
Margin (%)
Minority Interest
Adjusted PAT
2015
78,065
10.7
65,108
12,957
13.8
16.6
1,150
401
1,788
13,194
16.1
16.9
2,347
19.0
10,685
16.5
13.7
26
10,658
2016
78,688
0.8
63,505
15,183
17.2
19.3
1,332
485
2,172
15,538
17.8
19.7
2,840
19.3
12,539
17.4
15.9
28
12,512
2017
77,014
-2.1
61,925
15,089
-0.6
19.6
1,429
540
2,984
16,104
3.6
20.9
3,110
20.5
12,801
2.1
16.6
31
12,769
2018E
78,740
2.2
62,924
15,816
4.8
20.1
1,539
526
3,282
17,033
5.8
21.6
3,270
19.8
13,661
6.7
17.3
29
13,632
2019E
91,565
16.3
72,790
18,775
18.7
20.5
1,590
523
3,774
20,437
20.0
22.3
3,924
19.8
16,390
20.0
17.9
34
16,357
(INR Million)
2020E
104,457
14.1
82,731
21,726
15.7
20.8
1,641
495
4,340
23,930
17.1
22.9
4,595
19.8
19,192
17.1
18.4
40
19,152
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Loans
Capital Employed
Gross Block
Less: Accum. Depn.
Net Fixed Assets
Capital WIP
Investments
Current
Non-current
Curr. Assets, L&A
Inventory
Account Receivables
Cash and Bank Balance
Others
Curr. Liab. and Prov.
Current Libilities
Provisions
Net Current Assets
Deferred Tax Liability
Application of Funds
E: MOSL Estimates
2015
1,757
31,785
33,541
182
9,608
43,331
25,409
-6,638
18,771
503
18,134
18,120
13
23,655
9,733
7,108
2,760
4,053
17,144
14,122
3,022
6,511
-587
43,331
2016
1,759
39,842
41,601
217
8,043
49,860
27,802
-8,304
19,499
448
25,239
25,225
13
26,020
10,965
8,097
2,204
4,754
20,579
16,739
3,841
5,440
-765
49,860
2017
1,762
46,712
48,473
248
9,115
57,837
29,802
-9,732
20,070
421
32,402
32,402
0
25,886
11,071
6,510
3,009
5,296
20,177
16,313
3,864
5,709
-765
57,837
2018E
1,762
54,761
56,523
277
10,000
66,800
30,802
-11,271
19,531
421
35,642
35,642
0
32,114
11,166
8,397
6,648
5,903
20,142
16,045
4,097
11,971
-765
66,800
2019E
1,762
61,549
63,311
311
9,000
72,621
31,802
-12,862
18,941
421
39,206
39,206
0
41,833
12,972
9,724
12,534
6,603
27,013
20,786
6,227
14,820
-765
72,622
(INR Million)
2020E
1,762
65,016
66,777
350
9,000
76,128
32,802
-14,503
18,300
421
43,127
43,127
0
46,609
14,822
11,173
13,218
7,395
31,563
22,136
9,426
15,046
-765
76,128
22 November 2017
16

India Strategy | Rural India
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout %
Valuation (x)
P/E
Cash P/E
EV/Sales
EV/EBITDA
P/BV
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Debtor (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2015
6.1
6.7
19.1
2.2
37.0
2016
7.1
7.9
23.6
2.0
28.0
2017
7.2
8.1
27.5
2.5
35.0
2018E
7.7
8.6
32.1
2.7
35.0
2019E
9.3
10.2
35.9
4.6
50.0
2020E
10.9
11.8
37.9
7.6
70.0
55.9
50.5
7.5
45.1
17.8
0.7
47.7
43.1
7.3
38.0
14.4
0.6
46.8
42.1
7.4
37.9
12.3
0.7
43.9
39.4
7.2
35.8
10.6
0.8
36.6
33.3
6.1
29.6
9.4
1.4
31.2
28.8
5.3
25.3
9.0
2.2
35.5
27.7
45.5
33
1.8
33.3
27.7
50.9
38
1.6
28.4
24.6
49.4
31
1.3
26.0
22.6
49.7
39
1.2
27.3
24.1
61.9
39
1.3
29.4
26.3
80.9
39
1.4
0.3
0.2
0.2
0.2
0.1
0.1
Cash Flow Statement
Y/E March
OP/(loss) before Tax
Int./Div. Received
Depreciation & Amort.
Interest Paid
Direct Taxes Paid
(Incr)/Decr in WC
CF from Oper.
Extraordinary Items
(Incr)/Decr in FA
Free Cash Flow
(Pur)/Sale of Invt.
CF from Invest.
Issue of Shares
(Incr)/Decr in Debt
Dividend Paid
Others
CF from Fin. Act.
Incr/Decr of Cash
Add: Opening Bal.
Closing Balance
E: MOSL Estimates
2015
13,194
-1,788
1,150
401
-2,347
-917
9,694
0
-1,567
8,127
-7,369
-8,936
2
97
-3,948
658
-3,191
-2,433
5,194
2,761
2016
15,538
-2,172
1,332
485
-2,840
514
12,857
0
-2,338
10,519
-7,105
-9,443
2
-1,566
-3,506
1,100
-3,970
-556
2,760
2,204
2017
16,104
-2,984
1,429
540
-3,110
536
12,515
0
-1,973
10,542
-7,163
-9,136
2
1,073
-4,469
821
-2,573
806
2,204
3,010
2018E
17,033
-3,282
1,539
526
-3,270
-2,623
9,922
0
-1,000
8,922
-3,240
-4,240
2
885
-4,771
1,841
-2,044
3,639
3,009
6,648
2019E
20,437
-3,774
1,590
523
-3,924
3,038
17,889
0
-1,000
16,889
-3,564
-4,564
2
-1,000
-8,178
1,737
-7,439
5,886
6,648
12,534
(INR Million)
2020E
23,930
-4,340
1,641
495
-4,595
458
17,589
0
-1,000
16,589
-3,921
-4,921
2
0
-13,407
1,420
-11,985
684
12,534
13,217
22 November 2017
17

November 2017
India Strategy | Rural India
Update
|
Sector: Automobiles
BSE SENSEX
33,478
S&P CNX
10,327
Mahindra & Mahindra
CMP: INR 1,418
TP: INR 1,658 (+17%)
Buy
Rural recovery visible in operating performance
Several new launches in 2HFY18/FY19 to support growth
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, (INRm)
Free float (%)
MM IN
592.6
807.2 / 12.5
1509 / 1142
-2/-2/-14
1501
74.7
Benefits of government steps to boost rural economy visible
Tractor volumes grew ~14% during the festive season.
UV segment volumes grew ~8% during the festive season.
Inventory levels normal in UVs, lower than normal in tractors.
Multi-year high profitability for autos and tractors.
High dependence on rural markets in both tractors and auto business
MM has the highest dependence on the rural market among key auto OEMs,
making it the best bet on rural market recovery due to good consecutive monsoons
and loan waivers across states. For MM, the rural market contributes ~56% to
revenue, 72% to standalone PAT, and ~68% to SOTP value.
Financials & Valuations (INRb)
2018E 2019E 2020E
Y/E Mar
Sales
478.9 540.1 599.1
EBITDA
59.8
66.6
75.3
NP (incl. MVML)
41.1
46.3
53.0
Adj. EPS (INR) *
68.7
77.4
88.6
EPS Gr. (%)
9.8
12.7
14.5
Cons. EPS (INR)
75.0
85.7
94.6
BV/Sh. (INR)
478
532
596
RoE (%)
14.5
14.6
14.9
RoCE (%)
13.4
13.6
14.0
Cons. P/E (x)
18.9
16.6
15.0
* incl. MVML
Shareholding pattern (%)
Sep-17 Jun-17 Sep-16
As On
Promoter
25.2
25.3
25.4
DII
20.0
20.7
17.8
FII
39.6
39.2
42.1
Others
15.2
14.8
14.7
FII Includes depository receipts
Stock Performance (1-year)
M&M
Sensex - Rebased
1,600
1,450
1,300
1,150
1,000
Normal monsoon, low base to drive growth for tractors
MM’s tractor volumes are likely to recover sharply, with ~11% CAGR over FY17-20,
driven by normal monsoon and low base (FY17 volumes lower than peak of FY14).
The government's target to double farm income in five years will not only help in
reducing volatility in tractors, but also catalyze penetration of implements (~2% of
MM’s FES revenue versus global average of ~66%).
UVs – sharp recovery to continue in pick-ups; passenger vehicles to benefit
from rural recovery and new launches
Pick-ups
(~43% of FY17 volumes) are back on the growth path, though still
below the previous peak of FY14. With 57% market share in LCVs <3.5ton,
MM’s pick-up volumes are estimated to grow at a CAGR of ~14% over FY17-20,
driven by economic recovery.
Passenger vehicle
volumes declined at a compounded annual rate of 6% over
FY13-17, impacted by the emergence of compact SUVs (MM was absent in this
segment) and rural weakness (~50% of volumes). Further, its launches in the
compact SUV segment failed. With expected recovery in the rural market, one
new product launch each in FY18/19, and several refreshes/upgrades, we
expect the passenger UV segment to witness ~7% CAGR. Success of upcoming
launches would drive volumes higher.
EBITDA margin – several levers to improve margins
MM has several margin levers – mix (higher tractor and pick-up volumes), lower CV
and 2W business losses, lower marketing spend, and positive operating leverage,
which are not fully factored in. We expect EBITDA margin to expand 100bp over
FY17-20 to ~14.5%, translating into ~12% CAGR in standalone PAT and ~20% CAGR
in consolidated PAT.
22 November 2017
18

India Strategy | Rural India
Strong earnings cycle beginning; reiterate Buy
We estimate 20.3% consolidated EPS CAGR over FY17-20 (versus ~9% compounded
annual decline over FY14-17). Recovery in rural markets improves visibility of
volume recovery in both core businesses. After a gap of four years, both the
businesses – Tractors and UVs –would be delivering double-digit growth over FY17-
20. MM is one of the cheapest large cap auto stocks, with a valuation of 18x FY19E
and 15.7x FY20E consolidated EPS, and 14x FY19E and 12.1x FY20E core EPS
(adjusted for value in subsidiaries after 20% holding discount). Buy with an SOTP-
based target price of ~INR1,658 (December 2019E-based SOTP).
Exhibit 20: MM: Sum-of-the-parts valuation (INR/share)
Core EPS (excl. subsidiary dividend)
PE attributable (x)
Value of core business
Value of subsidiaries @ Hold Co discount
1. Tech Mahindra
2. M&M Financial Services
3. Mahindra Lifespaces
4. Mahindra Holidays
5. Ssangyong
6. Mahindra CIE
7. CIE Automotive Spain
Target price (after 20% discount)
Upside (%)
FY18E
58.2
16
931
168
161
9
29
42
21
44
1,405
0.8
FY19E
65.8
16
1,053
20
168
161
9
29
42
21
44
1,527
9.6
FY20E
75.8
16
1,213
20
168
161
9
29
42
21
44
1,688
21.1
Source: Company
22 November 2017
19

India Strategy | Rural India
Operating metrics
Exhibit 21: MSP hikes and normal monsoon lead to higher growth for tractor sales in general
MM Tractor volume
Growth (%)
300,000
MSP hike: FY08 -
~11%, FY09 -37%
45.3
30.0
MSP hike: FY11- ~8% & 6%
above normal monsoon,
FY12- 12%, FY13- ~29% &
8% above normal monsoon
MSP hike: FY18-
~6% & two
consecutive
normal monsoon
23.1
60.0
225,000
21.4
40.0
150,000
20.6
22.3
10.2
19.5
20.0
(4.9)
(8.7)
75,000
(3.4)
(12.6)
0.0
0
-20.0
Source: Company, MOSL
Exhibit 22: MM has the highest rural exposure among key OEMs
Rural Contribution (% of revenues)
56
50
30
M&M
HMCL
MSIL
Source: Company, MOSL
Exhibit 23: Rural markets contribute ~56% to MM’s revenue, 69% to PAT, and ~72% to SOTP value
Rural
Urban
Rural
Urban
Rural
Urban
31
44
56
69
28
72
Source: Company, MOSL
22 November 2017
20

India Strategy | Rural India
Exhibit 24: Industry tractor volumes trending below long
term average
800
600
400
200
0
Industry vols ('000 units)
Linear (Industry vols ('000 units))
Exhibit 25: MM’s tractor market share improved
considerably in FY17, on the back successful new launches
M&M Dom. Tractor market share (%)
43.7
43.5
41
40
41
40
41
Source: Company, MOSL
Source: Company, MOSL
Exhibit 26: Key models recovering post demonetization
10,000
7,500
5,000
2,500
0
Bolero
Scorpio
XUV5OO
Exhibit 27: MM’s pick-up+SCV volumes pick up growth (in
‘000 units)
FY16
FY17
FY18
Source: Company, MOSL
Source: Company, MOSL
22 November 2017
21

India Strategy | Rural India
Financials and Valuations
Income Statement
Y/E March
Net Op. Income
Change (%)
Total Expenditure
EBITDA
Margins (%)
Margins (%, incl MVML)
Depreciation
EBIT
Deferred Revenue Exp.
Int. & Finance Charges
Other Income
Non-recurring Expense
Non-recurring Income
Profit before Tax
Tax
Eff. Tax Rate (%)
Profit after Tax
Change (%)
% of Net Sales
Adj. Profit after Tax
Change (%)
Adj. PAT (incl MVML)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Deferred tax
Loans
Capital Employed
Application of Funds
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr.Assets, L & Adv.
Inventory
Inventory Days
Sundry Debtors
Debtor Days
Cash & Bank Bal.
Loans & Advances
Others
Current Liab. & Prov.
Sundry Creditors
Creditor Days
Other Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2015
384,448
-5.1
342,714
41,734
10.9
12.5
9,749
31,985
0
2,143
9,883
0
3,357
43,082
8,478
19.7
34,604
-7.9
9.0
31,908
(14.1)
31,595
2015
2,957
189,594
192,551
9,797
46,615
248,963
2016
408,751
6.3
362,551
46,199
11.3
13.5
10,681
35,518
0
1,861
8,499
0
687
42,845
10,799
25.2
32,046
-7.4
7.8
31,532
(1.2)
33,394
2016
2,963
221,269
224,232
-54
18,436
242,614
2017
437,854
7.1
390,161
47,693
10.9
13.5
13,272
34,421
0
1,456
13,425
0
0
46,390
12,319
26.6
34,072
6.3
7.8
34,072
8.1
37,429
2017
2,968
253,728
256,696
2,057
27,374
286,127
2018E
478,935
9.4
419,141
59,794
12.5
14.4
15,195
44,599
0
1,369
12,693
0
0
55,924
16,833
30.1
39,091
14.7
8.2
39,091
14.7
41,105
2018E
2,968
280,946
283,914
2,057
27,374
313,345
2019E
540,061
12.8
473,495
66,565
12.3
14.2
17,480
49,085
0
1,506
13,923
0
0
61,502
17,836
29.0
43,666
11.7
8.1
43,666
11.7
46,305
2019E
2,968
312,740
315,708
2,057
27,374
345,139
(INR Million)
2020E
599,106
10.9
523,810
75,296
12.6
14.5
19,655
55,641
0
1,506
15,365
0
0
69,500
19,460
28.0
50,040
14.6
8.4
50,040
14.6
53,006
(INR Million)
2020E
2,968
350,908
353,876
2,057
27,374
383,307
117,385
58,091
59,295
21,788
131,382
116,985
24,376
23
25,580
25
20,648
40,054
6,328
80,486
53,655
52
6,143
20,688
36,499
248,963
0
139,386
63,426
75,960
15,622
135,474
123,286
26,879
24
25,116
23
22,870
17,103
31,317
107,728
66,780
60
30,300
10,648
15,558
242,614
153,044
76,698
76,346
20,379
179,022
112,744
27,156
23
29,185
25
16,870
5,398
34,135
102,365
71,581
60
19,380
11,405
10,379
286,127
(0)
188,424
91,893
96,530
10,000
182,955
135,090
31,492
24
31,492
24
28,131
9,841
34,135
111,230
78,729
60
19,380
13,122
23,860
313,345
0
213,424
109,374
104,050
10,000
197,955
156,087
35,511
24
35,511
24
39,833
11,097
34,135
122,953
88,777
60
19,380
14,796
33,135
345,139
0
238,424
129,029
109,395
10,000
212,955
185,234
39,393
24
39,393
24
60,002
12,310
34,135
134,277
98,483
60
19,380
16,414
50,958
383,307
0
22 November 2017
22

India Strategy | Rural India
Financials and Valuations
Ratios
Y/E March
Basic (INR)
Fully diluted EPS
FD EPS (incl MVML)
Consolidated EPS
Cash EPS
Book Value per Share
DPS
Payout (Incl. Div. Tax) %
Valuation (x)
P/E
Consolidated P/E
Cash P/E
EV/EBITDA
EV/Sales
Price to Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
ROIC
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors (Days)
Working Capital (Days)
Asset Turnover (x)
Growth (%)
Sales
Operating Profit
Net Profit
EPS
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Int./Dividends Received
Depreciation & Amort.
Direct Taxes Paid
(Inc)/Dec in Wkg. Capital
Other Items
CF from Oper.Activity
Extra-ordinary Items
Other Items
CF after EO Items
(Inc)/Dec in FA+CWIP
Free Cash Flow
(Pur)/Sale of Invest.
CF from Inv. Activity
Change in Net Worth
Inc/(Dec) in Debt
Interest Paid
Dividends Paid
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2015
53.3
52.8
47.8
70.4
325.6
12.0
24.5
26.9
29.7
20.1
20.1
2.2
4.4
0.8
17.7
14.2
35.4
25
23
52
35
1.5
-5.1
10.9
-14.1
-14.1
0.2
2015
38,332
-3,723
-9,749
-8,468
15,802
32,195
3,357
0
35,552
-20,226
11,969
-4,005
-24,231
26
-3,847
-2,419
-9,609
-15,848
-7,884
29,504
21,788
2016
52.7
55.8
52.1
71.2
378.4
12.0
26.3
25.4
27.2
19.9
17.6
2.0
3.7
0.8
15.1
13.4
37.0
23
24
60
14
1.7
6.3
11.3
-1.2
-1.2
0.1
2016
41,612
-3,027
11,086
-9,279
14,393
54,785
687
0
55,473
-21,597
33,189
-13,865
-35,461
0
-9,500
-2,110
-8,461
-20,071
-747
20,648
20,069
2017
56.9
62.5
54.3
79.8
432.4
13.0
22.7
22.7
26.1
17.8
17.1
1.9
3.3
0.9
14.2
13.3
36.5
25
23
60
9
1.5
7.1
10.9
8.1
8.1
0.1
2017
34,421
13,425
13,272
-10,208
-822
50,088
0
0
50,088
-18,416
31,672
-43,548
-61,964
7,359
8,939
-1,456
-7,885
6,957
-4,918
22,870
18,120
2018E
65.3
68.7
75.0
91.4
478.3
20.0
35.3
20.6
18.9
15.5
13.6
1.7
3.0
1.4
14.5
13.4
38.5
24
24
60
18
1.5
9.4
12.5
14.7
14.7
0.1
2018E
44,599
12,693
15,195
-16,833
-2,220
53,435
0
0
53,435
-25,000
28,435
-3,933
-28,933
1,923
0
-1,369
-12,040
-11,486
13,016
16,870
30,054
2019E
73.0
77.4
85.7
103.0
531.8
20.0
31.6
18.3
16.6
13.8
12.1
1.5
2.7
1.4
14.6
13.6
36.8
24
24
60
22
1.6
12.8
12.3
11.7
11.7
0.1
2019E
49,085
13,923
17,480
-17,836
2,428
65,081
0
0
65,081
-25,000
40,081
-15,000
-40,000
1,923
0
-1,506
-12,040
-11,623
13,458
28,131
41,757
2020E
83.6
88.6
94.6
117.4
596.1
20.0
27.6
16.0
15.0
12.1
9.0
1.1
2.4
1.4
14.9
14.0
40.5
24
24
60
31
1.6
10.9
12.6
14.6
14.6
0.1
(INR Million)
2020E
55,641
15,365
19,655
-19,460
2,346
73,547
0
0
73,547
-25,000
48,547
-15,000
-40,000
1,923
0
-1,506
-12,040
-11,623
21,924
39,833
61,925
22 November 2017
23

November 2017
India Strategy | Rural India
Update
|
Sector: Financials - NBFC
BSE SENSEX
33,478
S&P CNX
10,327
M&M Financial Services
CMP: INR437
TP: INR500 (+14%)
Buy
Green shoots of rural recovery visible
Growth and RoE to pick up meaningfully
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
MMFS IN
565.0
229.4 / 3.5
456 / 244
-1/29/32
860.0
48.8
Financials & Valuations (INR b)
Y/E March
2018E 2019E 2020E
NII
40.1 46.5 54.8
PPP
24.6 28.4 33.7
PAT
8.0 10.8 13.6
EPS (INR)
14.2 19.1 24.0
BV/Sh.(INR)
123.0 134.3 148.6
ABV/Sh (INR)
93.6 105.8 123.1
RoA on AUM (%)
1.8
2.0
2.1
RoE (%)
11.9 14.8 17.0
Payout (%)
41.0 41.0 41.0
Valuations
P/E (x)
30.9 22.9 18.2
P/BV (x)
3.6
3.3
2.9
P/ABV (x)
4.7
4.1
3.5
Div. Yield (%)
1.1
1.5
1.9
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
51.2
51.9
51.9
DII
10.2
10.5
9.8
FII
32.7
30.5
32.5
Others
5.9
7.2
5.8
FII Includes depository receipts
Stock Performance (1-year)
M & M Fin. Serv.
Sensex - Rebased
500
440
380
320
260
200
MMFS is one of the most widely-levered NBFCs to the rural economy. The
government’s focus on rural spending coupled with two successive normal monsoons
(2016 & 2017) bode well for rural incomes, and consequently, MMFS’ fortunes.
Over FY14-16, MMFS had been severely impacted on the growth and asset quality
front due to slowdown in the rural economy. This was largely attributed to two
consecutive subdued monsoons. However, with growth picking up over the past six
quarters and asset quality stabilizing, we believe the worst is behind.
The stock trades at 2.6x two-year forward standalone BV. Subsidiaries have gained
scale and are significant value contributors today. We expect further re-rating to
continue, given improved growth prospects and return ratios. The contribution of
subsidiaries is likely to continue increasing. Buy with a target price of INR500.
Growth has picked up after 2-3 sluggish years
Stress in the Agriculture economy over FY12-16 resulted in subdued farmer cash
flows, despite higher MSP for most crops. Consequently, MMFS’ AUM growth
declined sharply from 37% in FY12 to 11% in FY16. At the same time, GNPL ratio
increased from 3% to 8%+. However, in FY17, agricultural production increased 9%,
coupled with 6.6% WPI inflation. MSP increase was 4% for wheat and 7% for rice in
FY17, resulting in better cash flows for farmers. In addition, the farm loan waivers
could provide respite to stressed farmers. This drove improvement in operating
performance. AUM growth picked up to 14% in FY17 and has sustained at similar
levels in 1HFY18. Similarly, value of assets financed too witnessed a sharp pickup in
FY17 from FY14-16 run-rate levels. Asset quality, on an apples-to-apples basis, has
improved over the past four quarters. Number of NPL contracts declined 7% YoY to
165k, while GNPL ratio declined 70bp to 10.3% on a 120dpd basis in 1HFY18.
Higher government spend to boost rural demand
Over FY13-15, labor expenditure under MNREGA declined ~15% cumulatively to
INR242b. However, labor spending under MNREGA grew at 30% CAGR over FY15-
17 to INR408b. At the same time, state government spending has also increased –
19% CAGR in spending on agriculture and 45% CAGR in spending on rural
development over FY14-17. Improved government spending bodes well for rural
incomes, and thus, rural demand.
Branch network investments to bear fruit
Over FY12-15, MMFS almost doubled its branch count from 607 branches to 1,108
branches. While the company did witness strong AUM growth over FY12-14,
growth slowed down sharply over FY14-16. Branches opened over FY15-16 are yet
to reach optimum utilization levels. C/I ratio increased 300bp over FY14-16 to 36%
and almost 700bp in FY17 to 43%. Among all the major vehicle finance players,
MMFS has the second-largest branch network after STF. Given the strong growth
outlook, MMFS also increased its headcount by 11% over the past four quarters.
We believe MMFS has made the investments necessary for growth and should
witness significant operating leverage benefits over time.
22 November 2017
24

India Strategy | Rural India
Return ratios to improve, going forward
A key feature of the financing business is that growth and asset quality are highly
correlated. With the business environment getting better, there would be an
improvement in revenue as well as credit costs for the company. We expect credit
costs (% of loans) to decline from 3.3% in FY17 to 2% in FY20. This should drive
RoA/RoE improvement from 1%/6.4% to 2.2%/17% over FY17-20.
Valuation and view
Over FY14-15, MMFS witnessed the brunt of a slow rural economy, battered by two
successive deficient monsoons. The GNPL ratio more than doubled from 3% in FY13
to ~7% in FY16. At the same time, AUM growth slowed down to 13% CAGR over
FY13-16, compared to 38% CAGR over the prior 3-year period. However, the
business environment for MMFS seems to be getting better. With improved
macroeconomic conditions (higher farm incomes, increased government spending,
etc), demand is expected to recover. The company witnessed the impact of strong
rural demand over FY09-12 (35% AUM CAGR with GNPL ratio declining from 8.7% to
3%). With an enhanced branch network that MMFS has invested in over the past
five years, it is set to capitalize on the increased demand. This should drive strong
AUM growth. Also, while reported NPLs are high (due to migration to 90dpd NPL
recognition), we expect credit costs to decline sharply, given higher recoveries. This
should drive ~30% PAT CAGR over FY18-20. The stock trades at 2.7x two-year
forward standalone BV.
BUY
with a target price of INR500.
22 November 2017
25

India Strategy | Rural India
Exhibit 28: Trend in AUM
35
22
8
279
341
369
11
409
14
15
17
AUM (INR b)
Growth (%)
9.7
9.6
9.3
9.1
8.8
8.1
Exhibit 29: Declining cost of funds to support margins
NIM - AUM
18
8.6
8.5
8.4
468
538
630
744
Source: MOSL, Company
Source: MOSL, Company
Exhibit 30: Branch network trend among vehicle financiers
Number of branches
STF
- No. of rural centers
SUF
CIFC
MMFS
Magma
542
375
607
200
FY12
502
FY13
539
350
562
518
657
275
FY14
654
629
575
574
893
274
FY15
741
776
589
534
1108
232
FY16
853
803
569
534
1167
234
FY17
918
854
587
703
1182
284
Source: MOSL, Company
Exhibit 31: Asset quality trend
GNPA (%)
8.4
4.4
2.0
5.9
2.5
3.4
3.8
NNPA (%)
9.4
10.2
9.0
Exhibit 32: Write-offs as a % of 2-year lag average loan book
3.6
7.7
Write-offs as % of 2-year lag loans
3.4
3.1
2.3
2.3
2.0
2.4
1.6
1.9
2.7
4.9
3.1
0.7
3.2
1.1
4.0
3.0
Source: MOSL, Company
Source: MOSL, Company
Exhibit 33: Profit growth to be robust
PAT (INR b)
42
1
-6
-19
6.7
YoY Gr. (%) 100
35
Exhibit 34: Return ratios expected to increase
22.8
23.4
18.6
26
15.5
11.4
6.4
8.0
10.8
13.6
11.9
14.8
RoA (AUM, %)
RoE (%)
17.0
-40
4.0
8.8
8.9
8.3
Source: MOSL, Company
Source: MOSL, Company
22 November 2017
26

India Strategy | Rural India
Financials and valuations
Income Statement
Y/E March
Interest Income
Interest Expended
Net Interest Income
Change (%)
Income from Securitisation
Other Income
Net Income
Change (%)
Operating Expenses
Operating Income
Change (%)
Provisions and W/Offs
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Proposed Dividend (Incl Tax)
2015
52,798
24,967
27,831
10.4
2,562
486
30,880
11.7
10,068
20,811
12.4
8,275
12,536
4,219
33.7
8,318
-6.2
2,730
2016
56,468
26,393
30,075
8.1
2,063
519
32,658
5.8
11,781
20,877
0.3
10,495
10,382
3,656
35.2
6,726
-19.1
2,713
2017
60,545
28,574
31,971
6.3
1,194
636
33,801
3.5
14,509
19,292
-7.6
13,091
6,201
2,198
35.5
4,002
-40.5
1,610
2018E
69,754
30,645
39,109
22.3
1,037
827
40,972
21.2
16,369
24,603
27.5
12,434
12,169
4,168
34.3
8,001
99.9
3,263
2019E
80,317
35,031
45,286
15.8
1,236
1,075
47,597
16.2
19,178
28,419
15.5
12,067
16,352
5,560
34.0
10,792
34.9
4,401
(INR Million)
2020E
93,662
40,414
53,248
17.6
1,503
1,398
56,149
18.0
22,487
33,662
18.4
13,073
20,589
7,000
34.0
13,589
25.9
5,541
Balance Sheet
Y/E March
Equity Share Capital
Reserves & Surplus
Net Worth
Borrowings
Change (%)
Total Liabilities
Investments
Change (%)
Loans and Advances
Change (%)
Net Fixed Assets
Net Current Assets
Total Assets
E: MOSL Estimates
2015
1,128
55,566
56,694
262,633
9.7
319,327
10,857
8.0
324,314
11.1
1,101
-16,944
319,327
2016
1,129
59,752
60,881
294,523
12.1
355,404
15,351
41.4
362,189
11.7
1,135
-23,270
355,404
2017
1,130
63,642
64,772
346,704
17.7
411,476
20,017
30.4
421,218
16.3
1,120
-30,879
411,476
2018E
1,130
68,381
69,511
405,320
16.9
474,831
22,019
10.0
488,338
15.9
1,360
-36,885
474,831
2019E
1,130
74,773
75,903
487,192
20.2
563,095
24,221
10.0
576,558
18.1
1,577
-39,261
563,095
(INR Million)
2020E
1,130
82,821
83,951
590,525
21.2
674,476
26,643
10.0
686,656
19.1
1,769
-40,593
674,476
22 November 2017
27

India Strategy | Rural India
Financials and valuations
Ratios
Y/E March
Spreads Analysis (%)
Yield on Portfolio
Cost of Borrowings
Interest Spread
Net Interest Margin (on AUMs)
Profitability Ratios (%)
RoE
RoA (on balance sheet)
RoA on AUM
Average Leverage (x)
Average leverage on AUM (x)
Efficiency Ratios (%)
Int. Expended/Int.Earned
Op. Exps./Net Income
Empl. Cost/Op. Exps.
Secur. Inc./Net Income
Asset-Liability Profile (%)
Loans/Borrowings Ratio
Net NPAs to Adv.
2015E
17.1
9.9
7.1
9.1
2016
16.4
9.5
6.9
8.8
2017E
15.4
8.9
6.4
8.1
2018E
15.3
8.2
7.1
8.6
2019E
15.0
7.9
7.2
8.5
(INR Million)
2020E
14.8
7.5
7.3
8.4
15.5
2.7
2.5
5.7
6.2
11.4
2.0
1.9
5.7
6.1
6.4
1.0
1.0
6.1
6.4
11.9
1.8
1.8
6.6
6.8
14.8
2.1
2.0
7.1
7.4
17.0
2.2
2.1
7.7
8.0
47.3
32.6
45.6
8.3
46.7
36.1
47.4
6.3
47.2
42.9
46.9
3.5
43.9
40.0
47.8
2.5
43.6
40.3
47.0
2.6
43.1
40.0
46.1
2.7
123.5
2.5
123.0
3.4
121.5
3.8
120.5
4.9
118.3
4.0
116.3
3.0
Valuation
Book Value (INR)
BV Growth (%)
Price-BV (x)
Adjusted BV (INR)
Price-ABV (x)
OPS (INR)
OPS Growth (%)
Price-OP (x)
EPS (INR)
EPS Growth (%)
Price-Earnings (x)
Dividend
Dividend Yield (%)
E: MOSL Estimates
100.5
11.2
4.3
90.3
4.8
36.9
12.3
11.8
14.7
-6.4
29.6
4.0
0.9
107.8
7.3
4.1
92.5
4.7
37.0
0.2
11.8
11.9
-19.2
36.7
4.0
0.9
114.6
6.3
3.8
94.8
4.6
34.1
-7.7
12.8
7.1
-40.5
61.7
2.8
0.7
123.0
7.3
3.6
93.6
4.7
43.5
27.5
10.0
14.2
99.9
30.9
5.0
1.1
134.3
9.2
3.3
105.8
4.1
50.3
15.5
8.7
19.1
34.9
22.9
6.7
1.5
148.6
10.6
2.9
123.1
3.5
59.6
18.4
7.3
24.0
25.9
18.2
8.4
1.9
22 November 2017
28

November 2017
India Strategy | Rural India
Update | Sector: Banks - NBFC
Repco Home Finance
BSE SENSEX
33,478
S&P CNX
10,327
CMP: INR617
TP: INR800 (+30%)
Buy
Green shoots of recovery
Disbursements picking up; asset quality woes behind
Stock info
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 (%)
REPCO IN
62.6
38.5/0.6
923 / 500
-6/-27/-16
134
62.9
2020E
6.1
5.6
3.1
50.0
309.7
2.3
17.6
8.0
Financials & Valuations (INR b)
Y/E March
2018E 2019E
NII
4.5
5.1
PPP
4.1
4.7
PAT
2.3
2.6
EPS (INR)
36.0
41.9
BV/Sh. (INR)
217.8 259.7
RoAA (%)
2.3
2.3
RoE (%)
18.0
17.6
Payout (%)
8.0
8.0
Valuation
P/E (x)
17.2
14.7
P/BV (x)
2.8
2.4
Div. Yield (%)
0.4
0.4
FY17 was a tough year for Repco Home Finance on several counts – unfavorable
regulations (Madras High Court order), severe impact of demonetization and
slippage of some high-ticket LAPs into NPL.
With an unfavorable Madras High Court order banning the sale of plots unapproved
by the Municipal Authority coupled with the impact of demonetization on the
unorganized, self-employed segment, disbursements declined sharply. At the same
time, with slippages of some large-ticket LAPs into NPL, the GNPL ratio shot up.
However, there are some signs of a turnaround. Disbursements in 2QFY18 picked up
smartly after three sluggish quarters and were only 14% below pre-demonetization
levels. Asset quality has witnessed some improvement too, and the provision buffer
is healthy now.
Growth to pick up; 1HFY17 presents a favorable base
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
37.1
37.1
37.1
DII
26.3
25.3
21.9
FII
22.3
23.7
27.3
Others
14.2
13.9
13.8
FII Includes depository receipts
Stock Performance (1-year)
Repco Home Fin
Sensex - Rebased
940
830
720
610
500
Over FY12-16, sanctions and disbursements grew at 29% CAGR, driven by a good
rural economy and increasing geographical penetration. However, on account of
external factors such as the Madras High Court order, disbursements declined 7%
in FY17. As a result, loan growth declined from 29% in FY15 to 16% in FY17 (and
10% in 1HFY18). However, there has been some on-the-ground resolution with
12.3
regards property registrations in Tamil Nadu (which accounts for more than 60%
2.0
of Repco’s loan book). This, coupled with a fading impact of demonetization,
0.5
should drive a pick-up in loan growth. We expect loan growth to pick up to 14% in
FY18 and then 18%+ in FY19 and beyond.
NPLs have peaked; provision buffer adequate
Given the impact of demonetization on the informal sector coupled with slippages
in some specific high-ticket LAP accounts, GNPLs increased sharply from INR1b in
FY16 to INR2.3b in FY17 (1.3% to 2.6%). They increased further in 1QFY18 (1Q
being a seasonally weak quarter) with LAP NPLs crossing 6%. However, with
increased collection efforts, the GNPL ratio subsided in 2Q (with LAP GNPLs
declining 120bp sequentially). However, our interaction with the management
suggests that the NPLs are temporary and expected credit losses are minimal.
Cumulative bad debt write-offs since inception have been less than INR60m. This
lends some comfort that while repayments by borrowers may be delayed, Repco
ensures final recoveries. Also, over the past six quarters, the company has more
than doubled its provision buffer to INR1.4b. This implies that if the GNPL ratio
returns to FY16 levels of ~1.5%, the company would have a large enough buffer to
absorb any credit loss. As a result, we believe credit costs should decline from
FY19
22 November 2017
29

India Strategy | Rural India
Strong and consistent return ratios
Over the past five years, Repco has generated strong and consistent RoA of 2.2-2.4%
and RoE of ~17%. Despite the intense competitive pressure in the housing finance
market, the company has been able to hold on to yields well (yields down just 30bp
YoY in 2QFY18 compared to 50-60bp for peers like Can Fin Homes and GRUH
Finance). This is a testament to the niche market that the company operates in and
the strong execution capabilities of the management. We expect Repco to continue
generating such return ratios. Also, if growth picks up, RoE should improve, with
increasing leverage.
Valuation and view
Repco has established a strong presence in southern states and is steadily expanding
to other geographies. Over the last decade, the company has built a scalable
business model with a well-balanced portfolio. The impact of recent issues like the
High Court ban on property registration, lingering impact of demonetization and
asset quality woes in high-ticket LAP seem to be slowly fading. Strong loan growth
momentum, stable margins and contained cost ratios would be strong drivers of
core earnings for the company over the medium term. We use RI model to value the
company to arrive at a TP of INR800 (3x September 2019E BV).
22 November 2017
30

India Strategy | Rural India
Story in charts
Exhibit 35: Disbursement growth to pick up…
Dsibursements (INRb)
47
27
14
10
12
12
17
22
29
26
(7)
31
20
32
25
40
25
50
28
36
46
60
77
90
103
122
147
Growth (%)
Exhibit 36: …leading to stronger loan growth
35
26
Loan book (INRb)
29
31
28
16
15
18
21
Loan Growth (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 37: Keeping share of LAP stable to mitigate risk
Individual Home
20
19
19
19
19
19
20
20
LAP
21
21
20
20
19
Exhibit 38: Diversification of liability profile…
Banks
8
21
9
19
68
8
17
68
NHB
8
16
63
8
14
72
Repco Bank
7
20
63
7
18
62
14
7
17
63
NCDs/CP
15
7
15
63
20
7
14
60
25
6
13
55
81
81
81
81
81
81
80
80
79
79
80
80
81
68
Source: Company, MOSL
Source: Company, MOSL
Exhibit 39: ..will lead to sharp decline in cost of funds
Yields (%)
12.5
12.3
12.5
12.5
12.4
Cost of borrowings (%)
12.2
11.5
11.3
11.3
Exhibit 40: Spreads to improve hereon
Spreads (%)
4.2
4.7
4.0
4.5
4.4
Margins (%)
4.4
4.7
4.5
4.5
9.4
9.6
9.3
9.6
9.4
9.2
8.1
7.9
7.9
3.1
2.8
3.2
2.9
3.0
3.0
3.4
3.4
3.4
Source: Company, MOSL
Source: Company, MOSL
22 November 2017
31

India Strategy | Rural India
Exhibit 41: Stable asset quality…
GNPA (%)
NNPA (%)
1.39
1.50
1.37
1.24
Exhibit 42: ..will result in credit costs moderating
Credit Cost (%)
0.55
0.43
0.43
0.26
0.63
0.50 0.50
0.72
0.50
1.48
1.32
0.48
1.31
2.57
2.74
2.65
2.52
0.15
0.20 0.18
Source: Company, MOSL
Source: Company, MOSL
Exhibit 43: PAT growth to be robust
Net Profit (INR b)
37
30
22
12
1.5
0.8
1.1
1.2
1.8
2.3
2.6
3.1
21
24
17
19
Profit Growth (%)
Exhibit 44: RoA/RoE to remain elevated
RoE (%)
2.5
2.6
2.4
2.3
2.2
2.2
2.3
2.3
2.3
RoA (%)
22.3
17.1
16.0
15.9
17.0
17.4
18.0
17.6
17.6
Source: Company, MOSL
Source: Company, MOSL
22 November 2017
32

India Strategy | Rural India
Financials and Valuations
Income statement
Y/E March
Interest Income
Interest Expended
Net Interest Income
Change (%)
Other Operating Income
Net Income
Change (%)
Operating Expenses
Operating Income
Change (%)
Provisions/write offs
PBT
Tax
Reported PAT
Change (%)
2015
6,695
4,317
2,378
24.6
235
2,613
24.3
547
2,065
20.5
203
1,862
631
1,231
12.1
2016
8,521
5,483
3,039
27.8
297
3,336
27.7
643
2,693
30.4
392
2,301
800
1,501
21.9
2017
10,141
6,463
3,678
21.0
318
3,996
19.8
676
3,320
23.3
518
2,802
979
1,823
21.4
2018E
11,084
6,593
4,491
22.1
318
4,809
20.3
727
4,082
23.0
656
3,426
1,175
2,251
23.5
2019E
12,678
7,547
5,131
14.3
350
5,481
14.0
825
4,656
14.1
663
3,993
1,370
2,623
16.5
(INR Million)
2020E
15,159
9,077
6,081
18.5
420
6,502
18.6
936
5,566
19.5
804
4,762
1,633
3,128
19.3
(INR Million)
2020E
626
18,749
19,375
125,938
21.3
4,002
149,315
147,296
20.5
237
15.0
106
1,676
149,315
Balance sheet
Y/E March
Capital
Reserves & Surplus
Net Worth
Borrowings
Change (%)
Other liabilities
Total Liabilities
Loans
Change (%)
Investments
Change (%)
Net Fixed Assets
Other assets
Total Assets
E: MOSL Estimates
2015
624
7,497
8,121
51,044
30.8
1,592
60,757
60,129
30.8
124
0.0
89
415
60,757
2016
625
8,923
9,548
65,379
28.1
2,705
77,632
77,049
28.1
124
0.0
93
366
77,632
2017
626
10,747
11,372
75,604
15.6
3,457
90,433
89,578
16.3
156
25.8
91
609
90,433
2018E
626
12,998
13,623
87,197
15.3
3,630
104,450
103,192
15.2
179
15.0
96
983
104,450
2019E
626
15,621
16,246
103,861
19.1
3,811
123,918
122,189
18.4
206
15.0
101
1,422
123,918
22 November 2017
33

India Strategy | Rural India
Financials and Valuations
Ratios
Y/E March
Spreads Analysis (%)
Avg Yield on Housing Loans
Avg. Yield on Earning Assets
Avg. Cost-Int. Bear. Liab.
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Int. Expended/Int.Earned
Other Inc./Net Income
Efficiency Ratios (%)
Op. Exps./Net Income
Empl. Cost/Op. Exps.
Asset Quality (%)
Gross NPAs
Gross NPAs to Adv.
Net NPAs
Net NPAs to Adv.
VALUATION
Book Value (INR)
Price-BV (x)
EPS (INR)
EPS Growth YoY
Price-Earnings (x)
Dividend per share (INR)
Dividend yield (%)
E: MOSL Estimates
2015
12.5
12.6
9.6
3.0
4.5
2016
12.4
12.4
9.4
3.0
4.4
2017
12.2
12.2
9.2
3.0
4.4
2018E
11.5
11.5
8.1
3.4
4.7
2019E
11.3
11.2
7.9
3.3
4.5
2020E
11.3
11.2
7.9
3.3
4.5
15.9
2.28
64.5
9.0
17.0
2.17
64.3
8.9
17.4
2.17
63.7
8.0
18.0
2.31
59.5
6.6
17.6
2.30
59.5
6.4
17.6
2.29
59.9
6.5
21.0
61.2
19.3
63.7
16.9
63.8
15.1
65.3
15.0
66.1
14.4
67.0
791
1.3
298
0.5
1,009
1.3
368
0.5
2,328
2.6
1,243
1.4
2,865
2.7
1,547
1.5
3,278
2.6
1,678
1.4
3,767
2.5
1,830
1.2
130.2
19.7
11.8
1.5
152.7
24.0
21.6
1.8
181.8
3.4
29.1
21.4
21.2
2.0
0.3
217.8
2.8
36.0
23.5
17.2
0.0
0.0
259.7
2.4
41.9
16.5
14.7
0.0
0.0
309.7
2.0
50.0
19.3
12.3
0.0
0.0
22 November 2017
34

November 2017
India Strategy | Rural India
Update | Sector: Consumer
Manpasand Beverages
BSE SENSEX
33,478
S&P CNX
10,327
CMP: INR414
TP: INR492(+19%)
Buy
Strong growth led by revival in rural demand
Further expansion into rural geographies to sustain growth
Expansion into rural markets to continue
MANB is primarily focused on the rural market. This is evident in its competitively-
priced small SKUs and continuously-expanding rural distribution network. In the
last one year its rural outlets have doubled to ~500k. Moreover, with access to
4.5m Parle outlets pan-India, MANB is in a sweet spot to penetrate the rural
market across geographies. The pilot project of distribution of Mango Sip (the
company’s flagship product) through Parle’s distribution channel has already
commenced in West Bengal and would gradually be implemented pan-India.
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
MANB IN
57.2
512/253
-12/-7/-8
49.9
0.8
85.0
55.9
Capacity expansion to aid expansion in distribution network
MANB has a total capacity (cases/day) of 42,500 PET CSD, 82,500 PET Juice and
50,000 tetrapack running at a blended utilization of ~54%. However, the utilization
varies from ~100% in 1Q and 4Q to ~30% in 2Q and 3Q. Its existing capacity is
adequate to cater to its own distribution network, but MANB doesn’t have enough
capacity to accommodate Parle’s distribution network in the peak season. MANB is
coming up with new plants in Vadodara, Varanasi, Sri City and in the North East
(location yet to be finalized). Each of these plants will have a capacity of 50,000
cases per day; while two of these (Vadodara and Varanasi) are expected to be
commissioned in FY18, the other two would get commissioned by 2HFY19. The
added capacity would allow the company to cater to Parle’s distribution network
across geographies and the proposed plant in the North East would also aid export
opportunities in Nepal.
Financials & Valuations (INR b)
FY18E FY19E FY20E
Y/E Mar
9.9
14.7
19.2
Net Sales
1.9
2.9
3.8
EBITDA
1.1
1.8
2.3
PAT
9.9
15.4
20.5
EPS (INR)
56.4
54.8
33.1
Gr. (%)
108.3 119.9 135.3
BV/Sh (INR)
8.4
13.5
16.0
RoE (%)
9.5
15.3
18.2
RoCE (%)
42.3
27.3
20.5
P/E (x)
3.9
3.5
3.1
P/BV (x)
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
44.1
44.1
44.1
DII
28.9
30.0
33.0
FII
22.2
21.0
19.4
Others
4.8
4.9
3.5
FII Includes depository receipts
Stock Performance (1-year)
Manpasand Bever.
Sensex - Rebased
550
475
400
325
250
New products to diversify product portfolio
Besides focusing on increasing penetration in its existing markets and expanding
into new geographies, MANB has also been expanding its product portfolio. Apart
from its flagship product, Mango Sip, the company has witnessed strong growth in
its natural fruit-based drink, Fruits Up. This product now constitutes ~25% of its
total revenue, and because of its non-seasonality, MANB is able to maintain
utilization levels at ~55% despite capacity addition of 102,500 cases per day over
FY15-17. Its most recent launch, Jeera Sip has also started gaining traction. MANB
plans to venture into health-based drinks, which would not only raise utilization in
the off season but also aid product diversification. It would continue tapping the
rural market, with competitively-priced small SKUs. The company secures ~57% of
its revenue from smaller SKUs of <250ml.
Valuation and view