4 May 2018

Market snapshot

Equities - India

Close

Chg .%

Sensex

35,103

-0.2

Nifty-50

10,680

-0.4

Nifty-M 100

19,775

-1.1

Equities-Global

Close

Chg .%

S&P 500

2,630

-0.2

Nasdaq

7,088

-0.2

FTSE 100

7,503

-0.5

DAX

12,690

-0.9

Hang Seng

12,019

-1.4

Nikkei 225

22,473

0.0

Commodities

Close

Chg .%

Brent (US$/Bbl)

74

0.8

Gold ($/OZ)

1,312

0.5

Cu (US$/MT)

6,792

0.1

Almn (US$/MT)

2,270

-2.4

Currency

Close

Chg .%

USD/INR

66.6

66.7

USD/EUR

1.2

0.2

USD/JPY

109.2

-0.6

YIELD (%)

Close

1MChg

10 Yrs G-Sec

7.7

0.00

10 Yrs AAA Corp

8.4

0.00

Flows (USD b)

3-May

MTD

FIIs

0.0

-1.0

DIIs

-0.1

1.2

Volumes (INRb)

3-May

MTD*

Cash

354

342

F&O

11,813

7,601

Note: YTD is calendar year, *Avg

YTD.%

3.1

1.4

-6.4

YTD.%

-1.6

2.7

-2.4

-1.8

2.6

-1.3

YTD.%

10.2

0.7

-5.8

0.6

YTD.%

4.3

-0.1

-3.1

YTDchg

0.4

0.5

YTD

1.2

5.1

YTD*

376

8,069

Today’s top research theme

Bulls & Bears: Markets climbing wall of worry; Valuations stay rich



After sliding 4.9% in February and 3.6% in March, the Nifty bounced back

strongly and returned 6.2% in April – its highest monthly gain in 24 months.

After a bout of volatility in the previous two months (rising bond yields,

potential trade war concerns), global markets appear to have settled down.



In India, continued robust domestic flows, an improvement in high-frequency

data and a healthy start to 4QFY18 earnings season have calmed nerves amidst

FII selling, currency depreciation (down 2.2% in April and 4.2% CYTD’18) and

rising crude prices.



Midcaps (up 8.2% in April) outperformed the Nifty in April, but lag the Nifty on

a trailing 12-month basis (12% return v/s Nifty’s 15%). Note that midcaps still

command a rich premium of 23% v/s large caps.



Technology (+12%), Consumer (+10%), Real Estate (+9%), Healthcare (+8%),

Autos (+7%) and Metals (+7%) were the outperformers for April. Oil & Gas (-

1%), PSU Banks (-0.4%) and Telecom (-0.2%) were the laggards.



We reiterate our long-standing positive view on Consumption recovery theme

for CY18, with preference for Rural Consumption in particular. The evidence

around a recovery in Rural Consumption is getting stronger with every passing

quarter and early 4QFY18 result trends bolster this view.

Research covered

Cos/Sector

Bulls & Bears

EcoScope (EAI)

Vedanta

Marico

L&T Fin. Holdings

Emami

Coromandel Inter.

Other Reseults

Automobiles

Results Expectation

Key Highlights

India Valuations Handbook: Markets climbing wall of worry

Fiscal spending boosts economic activity growth in March 2018

Strong operating performance; O&G and HZL capex raised

Domestic volumes and operating margins disappoint; Maintain Neutral

Strong performance continues

High A&P spends lead to margins miss; growth revival in Kesh King

Favorable crop dynamics to fertilize growth

PNBHOUSI | CSTRL | JSW | HEXW | IRB | ORCMNT | HTML | HMVL

Hero Moto April 2018 volumes

Ambuja Cement | Capital First | Indo Count Inds | NIIT Tech | PVR

Chart of the Day: EcoScope (Fiscal spending boosts EAI growth in March 2018)

India’s EAI posts healthy growth for the fifth consecutive

month in March 2018…

…on account of a surge in consumption activity

(percentage point)

Research Team (Gautam.Duggad@MotilalOswal.com)

Please refer to our earlier

report

for details

Contribution of different components to EAI’s growth

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

Tata Motors offloads defense

and aerospace biz portfolio to

Tata Advanced Systems Limited

As part of its effort to reduce debt

and monetise non-core assets,

Tata Motors on Thursday sold its

defense and aerospace portfolio

to Tata Advanced Systems Limited

to unlock their full potential…

2

Godrej, Patanjali among 4 FMCG giants for Ruchi Soya

Patanjali, Adani, Wilmar, Emami Agrotech and Godrej Agrovet have put in

bids to acquire debt-ridden edible oil firm Ruchi Soya. Patanjali Ayurveda,

which already has a tie-up with Ruchi Soya for edible oil refining and

packaging, as well as Godrej Agrovet and Emami Agrotech confirmed that

they have put in bids for Ruchi Soya but did not disclose the value…

3

Bank deposit growth fell to a five-

decade low in fiscal year ended

March 2018 as the

demonetisation bonanza withered

away and the lure of other savings

instruments such as mutual funds

and insurance eroded banking

competitiveness…

4

Walmart moves a step closer

to Flipkart deal

Flipkart has bought back shares

worth $350 million from several

minority investors, including DST

Global, IDG Ventures and ICONIQ

Capital, as India’s most valuable

internet start-up prepares to sell a

majority stake to Walmart Inc...

Growth in bank deposits falls to

five-decade low

5

Glenmark gets notice over

misconduct in clinical trials

Glenmark Pharmaceuticals Ltd is

under regulatory scrutiny for

alleged misconduct in carrying

out clinical trials recently in

Jaipur, two people in the know

said…

6

Iron ore production in India

crosses 200 million tonnes

after 7 years

Iron ore production in India in

2017-18 crossed 200 million

tonnes after seven years. Output

reached 210 million tonnes,

mostly on increased production

in Odisha and Karnataka. This is

9 per cent higher than the 192

million tonnes in 2016-17…

7

ArcelorMittal, the world’s largest

steel company, has offered to

pay the ₹8,500-crore

debt of

both Uttam Galva Steels and KSS

Petron as a “goodwill” gesture if

it is selected as the winning

bidder for the stressed assets of

Essar Steel…

ArcelorMittal offers to clear

dues of Uttam Galva and KSS

Petron

4 May 2018

2

India Valuations Handbook

Strategy: Markets climbing wall of worry; Valuations stay rich



Bulls & Bears

Database Periodical | 3 May 2018









Nifty bounces back with a vengeance in April:

After sliding 4.9% in February and 3.6% in March, Nifty bounced

back strongly and returned 6.2% in April – its highest monthly gain in 24 months. After a bout of volatility in

previous two months (rising bond yields, potential trade war concerns), global markets have settled down. In

India, continued robust domestic flows, improvement in high-frequency data and healthy start to 4QFY18

earnings season has calmed nerves amidst FII selling, currency depreciation (down 2.2% in April and 4.2%

CYTD’18) and rising crude prices. In April, while DII inflows were USD1.3b, FII outflows were USD0.9b. In FY18,

DIIs bought USD17.7b, almost ~4x of FY17, while FII flows were USD3.2b, less than 50% of FY17 flows. Midcaps

(up 8.2% in April) outperformed the Nifty in April, but lag Nifty on a trailing 12 month basis (12% return v/s

Nifty’s 15%). Note that midcaps still command a rich premium of 23% v/s large caps.

Continued macro uptick; expect volatility to stay high:

Notwithstanding the macro concerns on crude, and

consequently, on inflation/currency/CAD, we note that macro data on growth is pointing towards an uptick.

High-frequency data (IIP, core sector growth, monthly vehicle sales, fuel consumption, and GDP print) point

toward bottoming out of macros. Our proprietary Economic Activity Index (EAI) is also pointing at a strong

recovery. After averaging 7% YoY in January-February 2018, it posted a 53-month high growth of 13.8% YoY in

March 2018, implying ~10% YoY growth in 4QFY18, better than in the past few quarters, supported equally by

Consumption and Investments. We expect real GDP growth to increase from 7.2% in 3QFY18 to 7.6% in 4QFY18,

better than 7.3% projected earlier.

India is the best performing market in April 2018:

For April 2018, India-Sensex (+7%), UK (+6%), Japan (+5%),

Korea (+3%), Russia (+2%) and Brazil (+1%) were the key global markets to close higher in local currency terms.

On the other hand, Indonesia (-3%), China (-3%) and Taiwan (-2%) were among the worst performers. Over the

last 12 months, MSCI EM (+19%) has outperformed MSCI India (+15%). However, over the last five years, MSCI

India has outperformed MSCI EM by 81%. MSCI India P/E is at a premium of 54% to MSCI EM P/E, above its

historical average premium of 43%.

Sectoral performance trends for April 2018:

Technology (+12%), Consumer (+10%), Real Estate (+9%),

Healthcare (+8%), Autos (+7%) and Metals (+7%) were the outperformers for April. Oil & Gas (-1%), PSU Banks (-

0.4%) and Telecom (-0.2%) were the laggards. TCS (+24%), Yes Bank (+19%), M&M (+18%), Kotak Mah Bk (+15%),

Adani Ports (+15%) were the top performers on an MoM basis. HPCL (-11%), BPCL (-9%), IOC (-8%), Bharti

Infratel (-7%) and SBI (-2%) were the top laggards. In this edition of ‘Bulls & Bears,’ we take a deep dive into the

valuation metrics of the Metals sector.

Re-iterate Consumption recovery theme for CY18:

We reiterate our long-standing positive view on

Consumption recovery theme for CY18, with preference for Rural Consumption in particular. The evidence

around recovery in Rural Consumption is getting stronger with every passing quarter and early results of 4QFY18

bolster this view. Prediction of third consecutive year of normal monsoon, expectations of higher MSP hikes,

expansion of DBT schemes, and a busy election calendar should ensure a supportive and conducive backdrop for

rural consumption. Valuations, at ~19x one-year forward, are not cheap. We continue to prefer large-caps over

midcaps, given the sharp valuation premium of midcaps. Our recent model portfolio changes in the

4QFY18

Strategy report

highlights our preference for quality with earnings recovery and overarching preference for

domestic growth stories. Our bias for Private Financials, Consumer Discretionary and Automobiles stays. Top

ideas – large cap bets: HDFC, M&M, Shree Cements, Titan, Bajaj Finance, ICICI Bank, L&T and Maruti; midcap

bets: RBL, Exide, Teamlease, Repco, SHTF, Tata Chemicals and Emami.

4 May 2018

3

Valuation deep-dive for the month: Metals















Metal prices and metal producers’ earnings are highly cyclical and volatile – superimpose the capex cycle of

producers, the equity value gyrates even more. Hence, valuations based on P/E(x) are unreliable.

A lot of investors rely on P/BV for valuation. As Indian companies started acquiring companies overseas in 2016,

the translation losses/gains and impairments started eroding its reliability. Now, the book value no longer

retains its historical meaning because of fair valuation under Ind-AS.

Despite volatility in earnings, EV/EBITDA is the only reliable way of valuing metals businesses, in our view.

Before 2016, metal stocks used to trade at 3-5x one-year forward EV/EBITDA, as the memory of a long recession

(1997-2002) was fresh in the minds of investors.

Aggressively growing Chinese appetite for commodities and ensuing consolidation among large names started

re-rating the sector. Though the EV/EBITDA chart indicated extreme multiples of 10x or 4x even after 2016, they

were usually 6-7x on estimated EBITDA.

Indian metal companies invested heavily on growth capex between 2009 and 2015, which bloated debt/EBITDA

ratio in 2015. This is reflected in the EV/EBITDA ratios of the companies as well.

The Metals sector has re-rated over the last couple of years on better demand and supply measures in China.

Multiples are now broadly in line with long-term averages. The global growth outlook remains constructive and

China’s supply measures are expected to continue, which will support multiples. Further re-rating will be driven

by unexpected surge in demand with lags in capacity addition.

Trend in P/B – one-year forward

Max (x)

-1SD

EV / EBITDA (x)

Min (x)

Avg (x)

+1SD

Trend in EV/EBIDTA – one-year forward

9.5

7.0

4.5

2.0

P/B (x)

Min (x)

4.0

3.0

Avg (x)

+1SD

Max (x)

-1SD

8.9

7.1

5.8

4.4

2.7

3.7

2.1

1.4

0.8

0.6

5.3

2.0

1.0

0.0

1.6

Sector valuations: Defensives outperform; Oil & Gas underperforms







Technology sector trades at a P/E of 19.3x, a 22% premium to its historical average of 15.8x. It was the best-

performing sector in April (+12% return MoM). Valuations reflect a premium to the 10-year historical average

and relative to Sensex. All companies in our coverage universe are trading at a premium to their historical

averages (except Wipro). A steep premium is seen in all the companies that have visibility of improvement

compared to the previous year.

Consumer sector P/E remains above its historical average (34% premium). ). Rural growth has been doing better

than urban, and is expected to stay strong in an election year. Worries on both wholesale and CSD sales are

receding – the situation is expected to be back to normal by 1QFY19. 3QFY18 had the benefit of a low base,

which would be missing in 4QFY18. There were no major new launches in the quarter in the FMCG industry. Ad

spend intensity in the market was flattish during the quarter.

Auto sector is trading at a P/E of 17.3x, 18% premium to its historical average of 14.7x. Demand momentum

continues in PV and CV, while pace of 2W sales remains mixed. There have been price increases across OEMs,

with 2W OEMs increasing price by INR300-8,000 per unit, PV OEMs increasing prices by 1-1.5% from May, and

CV OEMs having increased prices by ~1%. The trend of sequential decline in CV discounts has been arrested in

April, following 18-20% decline in discounts since January. Rural-centric OEMs are witnessing healthy retail

growth of 8-16%, as sentiment remains positive.

4 May 2018

4

Snapshot: Sector valuations

Sector

Auto

Banks - Private

Banks - PSU

NBFC

Capital Goods

Cement

Consumer

Healthcare

Infrastructure

Media

Metals

Oil & Gas

Retail

Technology

Telecom

Utilities

Current

17.3

20.8

12.9

25.1

27.5

24.9

41.2

22.1

18.0

26.0

10.4

11.6

43.9

19.3

Loss

10.9

PE (x)

10 Yr Avg Prem/Disc (%)

14.7

18.0

16.7

24.6

7.7

65.9

18.0

39.7

25.9

6.3

20.0

24.5

30.8

33.8

23.1

-4.4

13.3

34.6

22.7

14.3

12.0

-12.9

11.4

1.6

26.6

65.2

15.8

22.1

-

-

14.1

-22.7

Relative to Sensex

P/E (%)

Current 10 Yr Avg

-8

-17

11

-5

-32

-55

33

2

46

45

32

12

119

77

17

32

-5

-24

38

30

-45

-31

-38

-33

133

51

3

-9

-42

-16

PB (x)

Current

3.7

2.8

0.8

3.6

3.2

2.9

12.1

3.2

2.1

4.9

1.6

1.5

9.9

4.5

2.3

1.3

10 Yr Avg Prem/Disc (%)

3.1

20.7

2.2

25.0

0.9

-19.3

2.9

25.0

3.5

-8.6

2.2

28.4

9.6

25.8

3.9

-17.3

1.7

22.6

4.0

21.9

1.4

8.4

1.5

-1.2

6.7

48.4

4.1

10.2

2.4

-6.4

1.6

-14.5

Relative to Sensex

P/B (%)

Current 10 Yr Avg

34

19

0

-15

-73

-64

31

12

17

36

4

-13

335

275

16

51

-23

-34

78

56

-44

-45

-45

-40

256

157

62

58

-18

-5

-52

-39

Nifty: HFCs and vehicle financiers among NBFCs see strong disbursement growth





NBFCs trade at a P/B of 3.6x, above their historical average (25% premium). HFCs are seeing a healthy traction in

both disbursements and loan growth in 4QFY18. For South-based lenders, upcoming Karnataka elections and

land issues in TN are headwinds. Vehicle financiers have been reporting strong growth in CV and PV.

G-Sec yields have been stagnant at 7.7%. While this would impact all NBFCs, those with a higher share of market

borrowings would be impacted more.

Global equities: India best-performing market for April





For April 2018, India-Sensex (+7%), UK (+6%), Japan (+5%), Korea (+3%), Russia (+2%) and Brazil (+1%) were the

key global markets to close higher in local currency terms. On the other hand, Indonesia (-3%), China (-3%) and

Taiwan (-2%) were among the worst performers.

Indian equities are trading at 25.1x FY18E earnings. All key markets continue trading at a discount to India.

However, India’s RoE remains superior to most EMs, an important differentiator for valuation premium.

Global equities: MSCI EM outperforms MSCI India in last 12 months





Over the last 12 months, MSCI EM (+19%) has outperformed MSCI India (+15%). However, over the last five

years, MSCI India has outperformed MSCI EM by 81%.

MSCI India P/E is at a premium of 54% to MSCI EM P/E, above its historical average premium of 43%.

MSCI India outperforms MSCI EM by 83% in last five years

230

180

MSCI India Rebased

10 Year CAGR:

MSCI India: 6.0%

MSCI EM: -0.2%

MSCI EM Rebased

5 Year CAGR:

MSCI India: 10.9%

MSCI EM: 2.3%

MSCI EM outperforms MSCI India over 12 months

MSCI India Rebased

135

125

115

105

95

MSCI EM Rebased

119

115

179

98

130

80

30

4 May 2018

5

E

CO

S

COPE

Fiscal spending boosts EAI growth in March 2018

Estimate 4QFY18 real GDP growth at 7.6%



3 May 2018

The Economy Observer

After averaging 7% YoY in January-February 2018, India’s economic activity index (EAI) grew at a 53-month high of

13.8% YoY in March 2018, implying ~10% YoY growth in 4QFY18, better than in the past few quarters.

Better EAI in March 2018 was primarily supported by more than doubling of core fiscal spending, due to which

consumption activity grew 17.5% YoY, the highest pace since 2009.

Further, March 2018 was the fifth consecutive month of double-digit growth in investments. Strong industrial auto sales

and construction activity supported 8-year high growth of 14.3% in investments in 4QFY18.

Overall, a favorable base supported EAI growth in March 2018. We expect real GDP growth to increase from 7.2% in

3QFY18 to 7.6% in 4QFY18, better than 7.3% projected earlier, implying 6.7% growth in FY18 as against 7.1% in FY17.

Preliminary estimates

reveal that India’s economic

activity grew very strongly

at 13.8% YoY in March

2018, marking the highest

growth in 53 months













We expect real GDP growth

to improve from 7.2% YoY

in 3QFY18 to 7.6% in

4QFY18, better than 7.3%

projected earlier



Economic activity growth at 53-month high in March 2018…:

Preliminary

estimates reveal that India’s economic activity grew strongly at 13.8% YoY in

March 2018, marking the highest growth in 53 months

(Exhibit 1).

It implies that

EAI growth averaged 9.3% YoY in 4QFY18, similar to the growth in 1QFY17

(Exhibit 2).

…almost entirely due to higher consumption:

Our index for consumption

activity grew at 17.5% YoY in March 2018, marking highest growth since 2009

and the third-highest growth since 1999

(Exhibit 4).

Details confirm that

stronger consumption was almost entirely driven by more than doubling of fiscal

spending, while other components remain subdued (see

Exhibit 7

for heat map).

It implies strong 9.4% YoY growth in consumption in 4QFY18 – the highest

growth in seven years.

Investments post double-digit growth for fifth consecutive month:

Strong

industrial auto sales (three-wheelers + CVs) and construction activity supported

investment activity, which grew 12.5% YoY in March 2018

(Exhibit 3

and

Exhibit

8

for the heat map). Notably, this was the fifth consecutive month of double-

digit growth in investments. It implies that investments grew 14.3% YoY in

4QFY18, marking the highest growth in eight years. Trade deficit, however,

widened in March 2018, which acted as a drag on EAI growth

(Exhibit 5).

Expect 4QFY18 real GDP growth to improve to 7.6%:

Overall, almost the entire

pick-up in EAI growth was on account of fiscal spending, due to which

consumption activity grew at the highest pace since 2009. Continued strength in

investments and private consumption – primarily due to fiscal spending –

supported India’s economic activity in 4QFY18. Though there is no one-to-one

correlation between our EAI and official GDP due to

underlying differences,

our

EAI moves in sync with real GDP (ex-discrepancies) estimates

(Exhibit 6).

We

expect real GDP growth to improve from 7.2% YoY in 3QFY18 to 7.6% in 4QFY18,

better than 7.3% projected earlier, implying 6.7% growth in FY18, slower than

7.1% in FY17.

4 May 2018

6

3 May 2018

4QFY18 Results Update | Sector: Metals

Vedanta

BSE SENSEX

35,103

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm/ Vol m

Free float (%)

S&P CNX

10,680

VEDL IN

3,717

1,064.4 / 16.0

356 / 218

-4/-20/2

3315.0

49.9

CMP: INR286

TP: INR345(+20%)

Buy

Strong operating performance; O&G and HZL capex raised

Uncertainty in copper and iron ore; Maintain Buy

Vedanta’s (VEDL)

4QFY18 EBITDA increased 16% QoQ to INR78.4b (est. of

INR73b),

driven by growth in zinc-India, O&G, copper, aluminum, partially offset by

a decline in iron ore and zinc-int. Aluminum EBITDA beat of 69% was largely driven

by capitalization of pot line relining expenses. Cost of production (CoP) at zinc-int

was much higher at USD1976 than the guidance of USD1700/t due to pre-stripping

at Skorpion mine.

Adj. PAT increased 3% QoQ to INR22.8b in 4QFY18.

INR8.2b XO income (INR70b

w/back of O&G impairment – INR23b iron ore impairment on mines closure in Goa

– INR2.5b CWIP w/off – INR15b FCTR reclassification from equity to P&L – INR21b

tax impact) was included in reported PAT.

EBITDA increased by 18% YoY and adj.

PAT by 41% to INR79.2b in FY18.



Aluminum smelters have ramped up to produce 2mt.



Copper and iron ore businesses are facing regulatory uncertainty.



Capex has been stepped up from USD1b to USD1.5b for FY19, driven by zinc-

India and O&G. Additional capex of USD2.7b (USD2b in O&G and UDS700m in

zinc-India) will be incurred over three years to enhance production.



Zinc businesses remain strong. Zinc-India is on track for 1.2mt in FY20. Zinc-

int’s Gamsberg 250kt project, too, is on track for production start in mid-2018.

Raising EBITDA, but reducing PAT; Maintain Buy



We have made changes to our model to account for production loss at copper,

higher CoP at zinc-int, higher CoP and LME for aluminum. EBITDA is up 3%, but

PAT is reduced by 9% due to higher DDA and tax rates for FY20E.



VEDL has a portfolio of high-quality base metals and O&G assets. Buoyancy in

oil prices is an upside risk, but volatility in Zn-lead LME and alumina is a

downside risk. Inorganic ventures can leverage balance sheet again. We value

the stock at INR345/share based on FY20E SOTP.

INR million

4Q

225,113

40.9

73,501

32.7

15,035

16,037

9,208

51,637

1,144

50,493

20,604

40.8

29,889

15,775

15,249

34.8

1Q

182,850

26.7

48,740

26.7

15,920

13,860

10,550

29,510

0

29,510

6,810

23.1

22,700

7,450

15,250

148.0

FY18

2Q

3Q

215,900 243,610

36.1

25.5

56,690 67,630

26.3

27.8

13,840 13,060

14,260 15,490

8,760 5,730

37,350 44,810

-1,860 1,580

39,210 43,230

9,350 13,640

23.8

31.6

29,860 29,590

8,950 9,060

19,050 22,110

52.1

18.5

FY17

4Q

276,300

22.7

78,370

28.4

14,240

16,830

9,930

57,230

-8,190

65,420

25,740

39.3

39,680

8,730

22,760

49.3

722,250

12.4

213,319

29.5

58,550

62,915

45,806

137,660

1,144

136,516

37,783

27.7

98,733

43,584

56,266

-73.8

FY18E

918,660

27.2

251,430

27.4

57,060

60,440

34,970

168,900

-8,470

177,370

55,540

31.3

121,830

34,190

79,170

40.7

vs Est.

4QE

%

246,837

12

9.7

73,355

7

29.7

13,001

10

15,645

8

7,500

32

52,209

10

52,209

14,330

27.4

37,879

8,811

29,083

90.7

25

80

5

-1

-22

Financials & Valuations (INR b)

Y/E Mar

2018 2019E 2020E

Net Sales

919 1,026 1,180

EBITDA

203.1 253.9 297.1

PAT

79.2 105.3 131.3

EPS (INR)

21.3

28.3

35.3

Gr. (%)

40.7

33.0

24.7

BV/Sh (INR)

158.4 172.3 190.0

RoE (%)

13.3

17.1

19.5

RoCE (%)

14.4

17.7

19.5

P/E (x)

13.3

10.0

8.0

P/BV (x)

1.8

1.6

1.5

Estimate change

TP change

Rating change

Quarterly Performance (Consolidated)

Y/E March

Net Sales

Change (YoY %)

EBITDA

As % of Net Sales

Finance cost

DD&A

Other Income

PBT (before EO item)

EO exp. (income)

PBT (after EO item)

Total Tax

% Tax

Reported PAT

Minority interest

Adjusted PAT

Change (YoY %)

1Q

144,371

-15.2

34,396

23.8

13,931

14,920

10,935

16,480

0

16,480

4,914

29.8

11,567

5,417

6,150

-56.4

FY17

2Q

3Q

158,596 194,171

-4.2

30.5

46,674 59,964

29.4

30.9

14,503 15,082

15,289 15,203

12,521

9,160

29,403 38,840

0

0

29,403 38,840

6,623

8,968

22.5

23.1

22,780 29,872

10,261 11,188

12,521 18,663

50.1 -1,124.9

4 May 2018

7

3 May 2018

4QFY18 Results Update | Sector: Consumer

Marico

Neutral

BSE SENSEX

35,103

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm/ Vol m

Free float (%)

S&P CNX

10,680

MRCO IN

1,290.8

404.1 / 6.2

348 / 284

-11/-4/-18

374.0

40.3

CMP: INR312



TP: INR350(+12%)

Domestic volumes and operating margins disappoint; Maintain Neutral

Marico’s (MRCO) 4QFY18 sales grew 12.6% YoY to INR14.8b (est. of

INR14.6b).

Domestic volume growth stood at 1% YoY (est. of +5%), while

overall volume growth was 2% YoY. Domestic revenue grew 12% YoY, while

reported international revenue grew 13% YoY (+16% on a CC basis).

Consol. gross margin contracted 550bp YoY to 46.6%,

mainly as copra costs

increased 61% YoY. Consol. A&P expenses declined 50bp YoY. Other

expenditure declined by 190bp YoY and staff costs by 50bp YoY. EBITDA margin

contracted 260bp YoY (est. of -20bp) to 17%.

EBITDA declined 2.5% YoY

(est. of +9.8% YoY) to INR2.5b (9% miss). Adj. PAT

increased 7.2% YoY (est. of +5.8%) to INR1.8b. Tax rate of 26% came in lower

than our estimate of 30.7%.

FY18 performance:

Consol. sales grew 6.8% YoY to INR63.2b. EBITDA margin

shrunk 160bp YoY to 18%. EBITDA was down 1.8% YoY to INR11.4b, while adj.

PAT was up 2% YoY to INR8.3b.

Balance sheet comments:

Debtors days increased 33% in FY18, probably on

account of the sales mix.

Concall highlights:

1) Expect copra price inflation in 1HFY19, but prices are

expected to soften slightly in 2HFY19. 4QFY19 might see some deflation,

mostly because of a high base. 2) A&P spends expected to increase 100bp over

the next 2-3 years.

Valuation view:

Copra price increase and higher ad spend over a low base

could keep the pace of earnings growth under check over the next few

quarters. EPS CAGR of ~18% over FY18-20 (off a weak base of FY18) could be at

risk if material costs do not come off as expected in 2HFY19 and if the volumes

performance remains lackluster adjusted for a weak base. Valuations are fair at

35x Mar’20E EPS. While MRCO remains best-of-breed among peers in terms

balance sheet and management quality, rising bond yields mean that the

market is likely to be unforgiving for companies with an uncertain earnings

outlook. Valuing the stock at 39x Mar’20E (5% premium to three-year average),

we get a target price of INR350. Maintain

Neutral.

4Q

10.0

13,146

2.2

6,289

6,857

52.2

4,271

32.5

2,586

19.7

23.0

265

47

223

2,497

784

31.4

1,709

25.5

1Q

-9.0

16,815

-4.0

8,782

8,033

47.8

4,790

28.5

3,243

19.3

-13.3

211

35

229

3,226

866

26.8

2,359

-11.9

FY18

2Q

3Q

8.0

9.4

15,363 16,243

6.7

15.1

8,144

8,688

7,219

7,556

47.0

46.5

4,628

4,535

30.1

27.9

2,591

3,021

16.9

18.6

2.4

10.7

235

213

35

39

214

174

2,535

2,943

679

709

26.8

24.1

1,850

2,233

2.5

16.5

4Q

1.0

14,801

12.6

7,896

6,905

46.6

4,382

29.6

2,523

17.0

-2.5

231

53

229

2,468

642

26.0

1,832

7.2

FY17

3.6

59,178

-3.3

28,288

30,890

52.2

19,305

32.6

11,585

19.6

9.7

900

166

978

11,497

3,377

29.4

8,110

14.4

FY18

3.5

63,222

6.8

33,510

29,712

47.0

18,334

29.0

11,377

18.0

-1.8

891

162

846

11,171

2,896

25.9

8,274

2.0

(INR Million)

FY18

Var.

4QE

(%)

5.0

14,612

1.3%

11.1

7,580

7,033

-1.8%

48.1

4,261

29.2

2,772

-9.0%

19.0

9.8

277

83

199

2,611

-5.5%

802

30.7

1,807

1.4%

5.8



Financials & Valuations (INR b)

Y/E Mar

2018 2019E 2020E

Net Sales

63.2

74.0

85.4



EBITDA

11.4

13.7

16.2

PAT

8.3

9.8

11.6

EPS (INR)

6.4

7.6

9.0

Gr. (%)

2.0

18.3

18.2



BV/Sh (INR)

19.7

22.7

24.7

RoE (%)

34.0

35.8

37.9

RoCE (%)

30.9

32.2

34.0



P/E (x)

48.7

41.2

34.8

P/BV (x)

15.8

13.8

12.6



EV/EBITDA (x)

35.0

29.0

24.6

Div. Yield (%)

1.6

2.1

2.7

Estimate change

TP change

Rating change



Y/E March

Quarterly Performance

Domes ti c vol ume growth (%)

Net Sales

YoY Cha nge (%)

COGS

Gross Profit

Gros s ma rgi n (%)

Other Expendi ture

% to Sa l es

EBITDA

Ma rgi ns (%)

YoY Cha nge (%)

Depreci a ti on

Interes t

Other Income

PBT

Ta x

Ra te (%)

Adjusted PAT

YoY Cha nge (%)

E MOSL E ti

t

1Q

8.0

17,523

0.2

8,400

9,123

52.1

5,384

30.7

3,740

21.3

18.2

208

54

275

3,753

1,072

28.6

2,679

17.2

FY17

2Q

3Q

3.4

-4.0

14,395 14,114

-0.8

-7.7

6,815

6,785

7,581

7,328

52.7

51.9

5,050

4,600

35.1

32.6

2,530

2,729

17.6

19.3

11.4

-5.3

209

218

21

44

247

233

2,548

2,700

740

781

29.1

28.9

1,806

1,916

18.0

-6.8

4 May 2018

8

RESULTS

FLASH

BSE SENSEX

35,103

S&P CNX

10,680

L&T Finance Holdings

3 May 2018

Results Flash | Sector: Financials

CMP: INR172

Strong performance continues



Financials & Valuations (INR b)

Y/E March

2018 2019E

NII

46.9

47.3

PPP

36.4

46.2

PAT

14.6

18.2

EPS (INR)

6.7

9.2

BV/Sh. (INR)

61.6

69.4

RoAA (%)

1.7

2.0

RoE (%)

13.4

14.0

Payout (%)

15.2

14.8

Valuation

P/E (x)

25.2

18.5

P/BV (x)

2.8

2.5

Div. Yield (%)

0.5

0.7

2020E

54.4

54.7

23.5



11.8

79.5

2.2

15.9

14.6

L&T Finance Holding’s (LTFH) 4QFY18 PAT grew 29% YoY to INR4.1b (8% above

estimates). The beat was driven by higher-than-expected operating profit and

lower-than-expected provisions.

Rural business:

Disbursements remain on a robust trajectory, driven by all

segments, especially microfinance. The microfinance book now stands at

INR75b, making it among the largest MFI entities in India. The tractor finance

book has also witnessed a clear turnaround in growth over the past few

quarters, with growth coming in at 28% YoY in 4QFY18. RoE in this segment

remained stable at 30% despite lower leverage post capital infusion, as credit

costs which were running high post demon have returned to normal. GNPL

14.4

ratio declined from 8.2% to 6.4% sequentially.

2.1

0.9



Housing business:

Disbursement growth in the retail home loan/LAP segment

has picked up smartly in the past two quarters and stood at 43% YoY.

Disbursement growth in real estate finance, too, was at similar levels. Credit

costs declined sharply from the run-rate levels in the past three quarters (1.7%)

to 0.4%, as a result of which the company delivered 30% RoE in this segment.



Wholesale business:

The trend in the quarter was similar to that in the past

three quarters. Loan growth in infra finance was a moderate 13% YoY led by

35% YoY growth in renewable power. The company is de-emphasizing its supply

chain finance segment, wherein the loan book de-grew 18% YoY. Overall, RoE

remains muted at 9%.

Valuation view:

LTFH has scripted an impressive turnaround over the past two

years, with a renewed focus on profitable segments. It has delivered strong growth

and consistent improvement in profitability. We are also encouraged by the strong

fee income traction– we believe this will play a key role in achieving 18%+ RoE by

FY20/21. We look to revise our estimates and TP post the analyst meet.

4 May 2018

9

3 May 2018

4QFY18 Results Update | Sector: Consumer

Emami

Buy

BSE SENSEX

35,103

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm/ Vol m

Free float (%)

S&P CNX

10,680

HMN IN

227.0

264.4 / 3.7

1428 / 1003

-6/-17/-16

200.0

27.3

CMP: INR1,086

TP: INR1,390(+28%)

High A&P spends lead to margins miss; growth revival in Kesh King





Financials & Valuations (INR b)

Y/E Mar

2018 2019E 2020E

25.3

29.9

34.5

Net Sales

7.2

9.0

10.5



EBITDA

5.5

6.7

8.1

PAT

24.3

29.6

35.6



EPS (INR)

-8.5

21.9

20.4

Gr. (%)

88.7 100.5 109.7

BV/Sh (INR)

29.2

31.3

33.9

RoE (%)

27.8

34.3

39.6



RoCE (%)

44.7

36.7

30.5

P/E (x)

12.2

10.8

9.9



P/BV (x)

Estimate change

TP change

Rating change



Consol. net sales (reported) increased 8.2% YoY

to INR6.2b (est. of INR6.3b).

Domestic revenue, adjusted for GST/ VAT, grew 10% YoY, while international

revenue increased 37% YoY. Domestic volume growth of 8% YoY was in line

with our estimate.

Gross margin contracted 40bp YoY

to 65.2% (est. of 62.2%) in 4QFY18. EBITDA

margin shrunk 320bp YoY to 28.1% (est. of 30%) due to a 270bp YoY increase in

A&P spends and a 30bp YoY rise in employee expenses to sales. Other

expenses were down 20bp YoY.

Cons. EBITDA declined 2.7% YoY

to INR1.7b (est. of INR1.9b) on a low base.

Cons. PAT before amortization declined 15.4% YoY to INR1.2b (est. of INR1.4b).

FY18 performance:

Consol. sales, EBITDA and PAT before amortization grew

1.6%, -5.2% and -8.4% YoY, respectively. EBITDA margin shrunk 200bp YoY to

28.3%.

Comments on balance sheet:

Increased receivables in FY18 are on account of

higher growth in international business and modern trade sales.

Concall highlights:

1) Commodity prices should soften in 2HFY19. 2)

Dependence on wholesale is reducing (now 38% of sales); HMN expects to

bring it down to 35%. 3) A&P spends of 18-18.5% to be maintained in FY19.

Valuation view:

Changes to the model have resulted in a 4.6%/3.6% cut in

FY19/20E EPS. We believe that HMN is a credible long-term play due to (a)

revival of growth in Kesh King and expected revival in Pancharistha, (b) likely

healthy growth in existing product categories, where it has a dominant market

share, (c) best-of-breed R&D and A&P spend resulting in innovative products

and bringing in ability to back up innovation with strong marketing. Valuations

at 31x FY20E EPS are inexpensive relative to peers, particularly given the

healthy long-term earnings growth opportunity and return ratios in the mid-

30s. We maintain our

Buy

rating with a revised target price of INR1,390 (39x

Mar’20E EPS, 5% discount to three-year average).

3Q

0.2

7,138

-1.5

2,227

4,911

68.8

2,325

32.6

2,585

36.2

3.7

112

127

82

2,428

381

15.7

2,047

4.8

705

1,342

4Q

-1.5

5,701

-5.7

1,965

3,736

65.5

1,955

34.3

1,781

31.2

-4.7

167

168

92

1,538

108

7.0

1,429

-8.3

596

833

1Q

-18.0

5,411

-16.2

1,967

3,444

63.6

2,642

48.8

802

14.8

-45.6

153

79

65

635

28

4.4

605

-48.5

598

10

FY18

2Q

10.0

6,281

9.7

2,053

4,228

67.3

2,215

35.3

2,013

32.1

14.9

146

104

53

1,817

227

12.5

1,590

19.0

604

987

3Q

6.0

7,566

6.0

2,334

5,233

69.2

2,586

34.2

2,647

35.0

2.4

195

92

55

2,414

338

14.0

2,077

1.4

604

1,471

4Q

8.0

6,170

8.2

2,149

4,021

65.2

2,288

37.1

1,733

28.1

-2.7

208

68

22

1,479

270

18.2

1,209

-15.4

600

597

FY17

6.9

25,021

4.4

8,327

16,694

66.7

9,103

36.4

7,591

30.3

10.5

496

580

311

6,826

836

12.2

5,987

4.6

2,590

3,403

FY18

1.5

25,428

1.6

8,503

16,926

66.6

9,731

38.3

7,194

28.3

-5.2

702

343

195

6,345

863

13.6

5,482

-8.4

2,407

3,065

(INR

FY18

4QE

8.0

6,291

8.9

2,376

3,916

62.2

2,029

32.3

1,886

30.0

5.9

194

86

57

1,663

256

15.4

1,407

-3.4

593

814

Million)

Var.

(%)

-1.9%

2.7%

Quaterly performance

Y/E MARCH

Dome s ti c vol ume Growth (%)

Net Sales

YoY Cha nge (%)

COGS

Gross Profit

Gros s ma rgi n (%)

Othe r Expe ndi ture

% to s a l e s

EBITDA

Ma rgi ns (%)

YoY Cha nge

De pre ci a ti on

Inte re s t

Othe r Income

PBT

Ta x

Ra te (%)

PAT before Amortization

YoY Cha nge (%)

Amorti za ti on

Reported PAT

E: MOSL Estimates

1Q

18.0

6,454

20.1

2,287

4,167

64.6

2,695

41.8

1,473

22.8

49.2

106

125

51

1,292

117

9.1

1,175

18.0

609

567

FY17

2Q

11.0

5,728

8.0

1,848

3,880

67.7

2,128

37.1

1,752

30.6

15.1

111

160

87

1,568

230

14.7

1,336

9.6

680

661

-8.1%

-11.1%

-14.1%

-26.6%

4 May 2018

10

PNB Housing Finance

BSE SENSEX

35,103

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

10,680

PNBHOUSI IN

Growth trajectory robust; incremental spread pressure

166



PNB Housing Finance’s (PNBHF) 4QFY18 PAT grew robustly by 50% YoY to

219.6/ 3.4

INR2.2b, but missed our estimate by 5%, largely due to higher-than-expected

1715 / 1006

opex. Excluding one-off expense of INR130m related to securitization, PAT

7/-5/-14

would have been largely in line with estimates.

323.0

67.0



AUM grew 50% YoY/8% QoQ to INR623b.

Interestingly, PNBHF sold down

3 May 2018

4QFY18 Results Update | Sector: Financials

CMP: INR1,414

TP: INR1,750 (+24%)

Buy

Financials & Valuations (INR b)

Y/E March

2018 2019E

NII

15.9

21.1

PPP

14.8

19.8

PAT

8.3

10.9

EPS (INR)

49.9

65.7

BV/Sh. (INR)

371.4 422.9

RoAA (%)

1.6

1.5

RoE (%)

14.3

16.5

Payout (%)

21.7

21.6

P/E (x)

28.3

21.5

P/BV (x)

3.8

3.3

Div. Yield (%)

0.6

0.8

2020E

28.5

27.0

14.5

87.3

491.4

1.4

19.1

21.6

16.1

2.9

1.1

INR31b worth of loans during the quarter, taking the total off-BS loan book

to INR52b (8% of AUM). Repayment rate (annualized) was 28.8% in 4QFY18

v/s 24.4% in the year-ago period.



Spreads (calc.) declined 23bp YoY to 2.72% (off a high base), resulting in NII

growth of 36% YoY v/s AUM growth of 50% YoY. Spreads are likely to remain

under pressure, as the increase in home loan rates will not be able to match

the rise in cost of funds, in our view.

Management has guided for a spreads

range of 200-210bp, going forward.



C/I ratio (calculated, excluding one-offs) came in at 28% v/s average of 22-

24% in the past few quarters. We believe a sustained reduction in the C/I

ratio is a must for an improvement in RoE.



Asset quality remained largely stable, with GNPL/NNPL ratios of

0.33%/0.25%.



For FY18, PAT was INR8.3b (+59% YoY) and RoA/RoE stood at 1.6%/14%.

Valuation view:

PNBHF continues delivering strong growth in its loan book.

Increasing geographical spread and new branch openings (110 branches in FY20E

v/s 66 in FY17) are expected to result in the loan book growing to ~INR1t by

FY20. With the pace of investments slowing down, coupled with operating

leverage benefits kicking in, the expense ratio is set to decline. Credit costs,

however, could inch up on account of portfolio seasoning. We expect RoA to

remain ~1.5% over the medium term, while RoE would increase to 19% by FY20

due to increasing leverage. We largely maintain our estimates and our target

price.

Buy with a TP of INR1,750 (3.5x FY20E BV).

4 May 2018

11

RESULTS

FLASH

BSE SENSEX

35,103

S&P CNX

10,680

Castrol India

TP: Under Review

Buy

3 May 2018

Results Flash | Sector: Others

CMP: INR195









EBITDA beat led by strong volume growth

CSTRL’s 1QCY18 revenue of INR9.3b (+5% YoY, -4% QoQ) exceeded our

estimate of INR9.1b, likely driven by higher volumes and better realization.

Reported EBITDA of INR2.7b (+4% YoY, -11% QoQ) was also above our estimate

of INR2.6b.

EBITDA margin stood at 29.6%, as against 31.6% in 4QCY17 and 29.8% in

1QCY17.

PAT stood at INR1.8b (est. of INR1.7b; +2% YoY, -8% QoQ).

Conference Call Details

Date:

4 May 2018

Time:

2:00 PM IST

Dial-in details:

+91-22-7115 8065

th

Financials & Valuations (INR b)

Valuations and view

Y/E Dec

2017 2018E 2019E

Net Sales

35.8

36.8

37.6



CSTRL’s >80% payout policy, RoE/RoCE of ~100% and FCF to PAT conversion at

>80% reflect its superior balance sheet and high-quality cash flows, which

EBITDA

10.3

10.0

9.7

PAT

6.9

6.7

7.0

warrant higher valuation multiples, in our view.

EPS (INR)

7.0

6.8

7.1



CSTRL trades at 28.7x/27.6x CY18/19E EPS of INR6.8/7.1. Maintain

Buy.

Gr. (%)

2.9

-2.8

4.0

BV/Sh (INR)

10.3

11.0

11.7

RoE (%)

69.1

63.8

62.3

RoCE (%)

69.2

63.9

62.4

P/E (x)

27.9

28.7

27.6

P/BV (x)

18.9

17.7

16.7

Quarterly Performance

Y/E December

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

YoY Change (%)

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

PAT

YoY Change (%)

Margins (%)

E: MOSL Estimates

1Q

8,822

3.5

6,189

2,633

4.7

29.8

123

3

185

2,692

902

34

1,790

3.8

20.3

CY17

2Q

8,704

-10.1

6,609

2,095

-33.4

24.1

118

1

155

2,131

752

35

1,379

-33.3

15.8

3Q

8,614

13.1

6,078

2,536

19.1

29.4

111

2

333

2,756

974

35

1,782

27.5

20.7

4Q

9,703

24.5

6,637

3,066

41.7

31.6

103

6

164

3,121

1,154

37

1,967

26.3

20.3

1QE

9,062

2.7

6,473

2,590

-1.7

28.6

115

3

200

2,672

935

35

1,736

-3.0

19.2

1QAct

9,271

5.1

6,528

2,743

4.2

29.6

143

7

228

2,821

1,003

36

1,818

1.6

19.6

CY18E

Var (%)

2%

1%

6%

YoY (%)

5%

5%

4%

(INR M)

QoQ (%)

-4%

-2%

-11%

24%

133%

14%

6%

7%

5%

16%

133%

23%

5%

11%

2%

39%

17%

39%

-10%

-13%

-8%

4 May 2018

12

Coromandel International

BSE SENSEX

35,103

S&P CNX

10,680

3 May 2018

Update | Sector: Fertilizers

CMP: INR461

TP: INR557(+21%)

Buy

Favorable crop dynamics to fertilize growth

Shift in crop mix likely to boost consumption in FY19

Coromandel International (CRIN) manufactures and trades in farm inputs in India. The

company operates in two segments: (1) Nutrient and Other Allied Business and (2) Crop

Protection. It offers phosphatic fertilizers, crop protection products, specialty nutrients

(such as bentonite sulphur, water soluble and organic fertilizers and micronutrients) and

organic compost.

Indian farmers’ preference is likely to shift toward higher-fertilizer-consuming crops such

as paddy, soybean and sugarcane due to their increasing prices. This should spur

consumption of fertilizers, benefiting companies like CRIN. In this report, we look at the

incremental volume prospects for CRIN in its key markets of Andhra Pradesh (AP),

Telangana, Maharashtra, Karnataka, West Bengal (WB) and Odisha. These six states

account for 93% of CRIN’s NPK/DAP volumes and 73% of its overall volumes. The

company also enjoys a leadership position in AP (market share of 59% in NPK fertilizers

and 51% in DAP fertilizers) and Telangana (market share of 57% in NPK fertilizers and 61%

in DAP fertilizers). Key takeaways from our analysis:

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

CRIN IN

292

588 / 364

-19/-14/7

154.9

2.4

128.0

38.2

Financials Snapshot (INR b)

Y/E Mar

2018 2019E

Net Sales

109.5 125.6

EBITDA

12.3

12.4

PAT

6.6

6.9

EPS (INR)

22.7

23.5

Gr. (%)

38.8

3.7

BV/Sh (INR)

106.9 122.0

RoE (%)

22.1

20.6

RoCE (%)

14.2

13.5

P/E (x)

20.3

19.6

P/BV (x)

4.3

3.8

2020E

133.8

14.2

8.1

27.9

18.4

141.5

21.1

14.8

16.5

3.3

Sowing area under paddy, soybean and sugarcane set to increase





Shareholding pattern (%)

As On

Mar-18 Dec-17 Mar-17

Promoter

61.8

61.8

62.0

DII

10.5

9.2

7.6

FII

5.6

5.9

5.2

Others

22.1

23.1

25.3

FII Includes depository receipts

Stock Performance (1-year)

Coromandel Inter

Sensex - Rebased

590

540

490

440

390

340







Prices of key crops like cotton (-8%), gram (-10%), arhar (-34%), moongbean (-

21%) and urdbean (-37%) in India have declined sharply year-on-year in

2HFY18.

On the other hand, paddy prices have increased by 7% and soybean prices have

risen by 3% over the same period, indicating a likely shift in the crop mix

toward paddy and soybean.

Our channel checks across the six key states for CRIN indicate that farmers’

profitability in cotton has been adversely impacted by lower yield due to the

damage caused by the pink bollworm, and profitability in pulses has been

deteriorated due to low prices. We expect cotton and pulses (primarily arhar)

acreages to decline by 10% and 4%, respectively in FY19 across the states

under study.

Paddy and soybean acreages, however, are expected to increase by 4% and

13%, respectively.

Furthermore, stable farm economics for sugarcane are expected to lead to a

12% increase in the crop’s acreage.

Crop mix change to boost fertilizer consumption



Cotton and pulses acreages are expected to decline by 0.7m ha (to 6.6m ha)

and 0.5m ha (to 11.1m ha), respectively in FY19 across the key states for CRIN.

This should lead to a mix shift toward soybean, sugarcane and paddy, the

acreages of which are expected to increase by 0.5m ha (to 4.8m ha), 0.2m ha

(to 1.8m ha), and 0.5m ha (to 14.5m ha), respectively.

4 May 2018

13





Average four-year fertilizer consumption of pulses and cotton across the key

states is 1.4-2.1MT/ha and 1.1-2.0MT/ha, respectively. Fertilizer consumption in

arhar is much lower at 0.1-0.6MT/ha, and among pulses, we expect the largest

decline in acreage to be in arhar. Fertilizer consumption is much higher in paddy

(1.5-2.1MT/ha), soybean (~2.6MT/ha) and sugarcane (1.6-2.7MT/ha).

The mix shift toward high-fertilizer-consuming crops should result in

incremental fertilizer consumption of ~306,000MT (+7% YoY) across CRIN’s six

key states in FY19.

Captive production of phosphoric acid to ease pressure on margins









Prices of phosphoric acid have increased to USD730/MT in 1QFY19 from

USD678/MT in 4QFY18. As phosphoric acid accounts for 40-45% of total raw

material cost for CRIN, it is expected to witness margin contraction of 130bp in

FY19 to 9.9%.

However, the company’s captive production capacity of phosphoric acid is set to

increase by 100,000MT in 2QFY20, leading to margin expansion of ~20bp,

assuming the incremental capacity runs at 65% utilization for 2HFY20 (total

margin expansion is expected to be 70bp to 10.6% over FY19-20).

If incremental capacity runs at optimum utilization through the year, then

incremental margin expansion would be 40bp instead of 20bp, in our view.

Additionally, any favorable movement in raw material prices would ease

pressure on margins. We have assumed phosphoric acid prices in FY20 at

USD660/MT (-6% v/s FY19E average) and ammonia prices at USD280/MT (same

as in FY19). Further, in line with 6% assumed drop in phosphoric acid prices in

FY20, we have also assumed 6% decline in subsidy rate for P.

Valuation and view











We believe the crop shift toward higher-fertilizer-consuming crops (paddy,

soybean and sugarcane) would provide the necessary boost to CRIN’s volumes,

which we expect to increase by 7% in FY19 and 6% in FY20. However, since

cotton consumes higher share of unique grade fertilizers, the overall share of

unique grade for the company is expected to remain flattish (38% in FY18).

The industry has also taken ~12% price hike in DAP and ~7% in NPK. This,

coupled with volume growth is expected to drive 11% sales CAGR over FY18-20

from the fertilizer business (sans subsidy).

We expect overall government subsidy for CRIN to increase at a 10% CAGR over

FY18-20 on the back of a rise in the subsidy rates (expect +17% for P, +23% for S,

-10% for K, and -1% for N over 2018-20).

We expect revenue/PAT CAGR of 11%/11% over FY18-20 and RoE to sustain at

21% over FY19-20E. The run-up in raw material prices of late is expected to lead

to margin contraction of 130bp in FY19 to 9.9%. However, with the expected

commissioning of CRIN’s captive phosphoric acid capacity and a favorable

movement in phosphoric acid prices, we expect the company’s dependency on

external and costly sources of raw material to decrease, leading to margin

expansion of 70bp over FY19-20 to 10.6%.

The stock trades at 19.6x/16.5x FY19/20E EPS. We value the stock at 20x FY20E

EPS, arriving at a target price of INR557 (21% upside). Maintain

Buy.

4 May 2018

14

RESULTS

FLASH

JSW Energy

TP: INR61

Sell

3 May 2018

Results Flash | Sector: Utilities

BSE SENSEX

32,634

S&P CNX

10,231

CMP: INR82

Financials & Valuations (INR b)

Y/E Mar

2018E 2019E

Net Sales

815.4 845.6

EBITDA

28.6

29.0

NP

6.2

5.9

EPS (INR)

3.8

3.6

EPS Gr. (%)

-0.9

-5.6

BV/Sh. (INR)

64.6

65.8

RoE (%)

5.9

5.5

RoCE (%)

7.8

7.5

P/E (x)

21.5

22.7

P/BV (x)

1.3

1.2

Misses estimates; Increases capex plan for EV, announces solar

PV manufacturing capex, plans for solar generation

2020E

918.0

31.3

6.5

4.0

10.5

67.3

6.0

7.5

20.6

1.2

JSW Energy’s 4QFY18 EBITDA declined 28% YoY/QoQ to INR4.2b (below est. of

INR5.2b) due to higher fuel cost and lower profitability at hydro assets. The

company reported a loss of INR634m (est. of profit of INR625m) adjusted for

exceptional items. PAT is adjusted for net provision of INR4.2b against advance

given to JPVL due to the uncertainty of a recovery.



Generation increased 8% YoY to 4.4bu, led by higher generation at Ratnagiri

(on a favorable merchant power market) and Barmer.



Fuel cost in standalone increased 8.2% YoY/6.3% QoQ to INR3.45/kWh, led by

higher imported coal prices.



EBITDA at standalone declined 11% YoY to INR1.3b (on higher fuel cost),

Rajwest declined 27% YoY to INR2.1b (on regulatory disallowances) and hydro

declined 33% YoY to INR1.1b (on regulatory adjustments).



JSWE has increased its capex plan for the EV venture from earlier INR40b to

INR65b as it now looks to foray into electric buses and trucks. It expects to

launch the first bus/truck in 24 months and the first passenger vehicle in 3-4

years.



It has also announced a foray into solar power generation, with capacity of

200MW likely to be added in FY19 at a capex of ~INR10b. It also plans to

backward integrate with a PV module manufacturing facility of ~1GW at a

capex of ~INR2b.

Valuation view:

The company’s strategy and capital allocation are shifting toward

newer business verticals like electric vehicles, solar generation and solar cell, and

module manufacturing. We put our estimates under review until we get a better

understanding on the company’s future growth plans. Maintain

Sell.



4Q

18,621

-30.6

12,752

5,869

31.5

2,379

3,970

732

253

0

253

22

8.6

-11

242

242

-92.1

1Q

22,316

-8.9

13,628

8,688

38.9

2,428

3,963

1,025

3,323

0

3,323

1,114

33.5

36

2,173

2,173

-40.7

FY18

2Q

3Q

20,490 19,932

0.1

4.7

11,667 14,079

8,824

5,853

43.1

29.4

2,449

2,407

3,910

3,406

1,705

879

4,170

920

0

0

4,170

920

1,202

198

28.8

21.5

-1

254

2,969

469

2,969

469

36.6

119.1

4Q

17,751

-4.7

13,536

4,215

23.7

2,377

3,235

1,039

-358

4,179

-4,537

19

-0.4

275

-4,831

-634

-361.9

(INR Million) Previous

FY17

FY18

FY18

4QE

82,634

80,490

18,803

-17.1

-2.6

1.0

49,391

52,909

13,568

33,244

27,580

5,235

40.2

34.3

27.8

9,692

9,661

2,417

16,848

14,513

3,351

2,170

4,649

994

8,875

8,056

461

0

4,179

0

8,875

3,876

461

2,685

2,532

60

30.3

65.3

13.0

-106

564

-224

6,295

780

625

6,295

4,959

625

-51.2

-21.2

158.0

vs Est

(%)

-6

0

-19

-2

-3

5

-178

-1,084

Consolidated performance

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 (%)

MI and Associates

Reported PAT

Adj PAT

YoY Change (%)

1Q

24,500

16.3

13,328

11,173

45.6

2,398

4,293

416

4,899

0

4,899

1,248

25.5

-14

3,665

3,665

32.1

FY17

2Q

3Q

20,470 19,043

-19.1

-28.1

10,843 12,468

9,627

6,575

47.0

34.5

2,471

2,444

4,356

4,229

516

505

3,316

407

0

0

3,316

407

1,167

249

35.2

61.2

-25

-56

2,174

214

2,174

214

-42.3

-93.3

-873

4 May 2018

15

Hexaware Technologies

BSE SENSEX

35,103

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

10,680

HEXW IN

Continued traction, but not enough to justify valuations

297



1QCY18 profitability marginally lower:

HEXW’s 1QCY18 CC revenue growth

133.9 / 2.0

of 3.3% QoQ was in line with our expectation (+3%). EBITDA margin shrunk

457 / 227

40bp QoQ to 15.5%, below our estimate of 16%. The company reinvested

4/39/75

405.0

gross profits in S&M early in the year in anticipation of continued traction.

28.8

PAT grew 11% QoQ to INR1.34b (in-line). On a YoY basis, USD revenue grew

3 May 2018

Q1CY18 Results Update | Sector: Technology

CMP: INR451

TP: INR390(-14%) Downgrade to Sell

Financials & Valuations (INR b)

2017 2018E

Y/E Dec

39.4

45.0

Net Sales

6.6

7.4

EBITDA

5.0

5.7

PAT

16.6

18.9

EPS (INR)

21.2

14.2

Gr. (%)

66.0

77.0

BV/Sh (INR)

26.9

26.4

RoE (%)

24.6

25.1

RoCE (%)

27.2

23.8

P/E (x)

6.8

5.9

P/BV (x)



2019E

51.3

8.4

6.3

21.0

11.0

88.3

25.4

25.0

21.5

5.1



Estimate change

TP change

Rating change

by 12.1% (CC revenue 10.1%), EBITDA by 0.2% and PAT by 17.8%.

Retains guidance for now:

HEXW had a strong start to the year, and

reiterated benefits of seasonality that it expects to accrue in 2Q/3QCY18.

The ask rate to meet the guided band stands at 2.7-3.9%, which is

achievable and perhaps the reason why HEXW intends to wait for at least

another quarter before revisiting the guidance. It expects earnings growth

for the year to mirror revenue growth.

Valuation view – steep multiples drive downgrade:

HEXW’s CMP discounts

forward earnings by 20x. Our CY17-19 USD revenue/earnings CAGR stands at

13/12.6%. We see following challenges to sustenance of valuations at

current levels:

[1]

HEXW plans to grow revenue in ‘teens’ while retaining current

profitability. If achieved, this will be a healthy performance, but, in our view,

does not warrant a multiple in excess of the peer group (comprising the likes

of TCS, MTCL and LTI).

[2]

The company may not benefit as much as peers in the near term from a

depreciating INR, given that it is heavily hedged. Management confirmed the

same via its CY18 commentary of EPS growth mirroring revenue growth

irrespective of currency.

[3]

Dividend yield, which was elevated in earlier years, is now below 2% for

payout of INR8/share in CY18.

Our price target for HEXW is INR390 (14% downside), which discounts

forward earnings by 17x. We would ascribe a higher multiple for a much

higher growth rate in revenue and earnings than current expectations.

Therefore, we are downgrading our rating to

Sell.

CY18

CY17

CY18E

Quarterly Performance (Consolidated)

Y/E Dec

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Ma rgi n (%)

Other i ncome

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Uti l i za ti on (%)

Attri ti on (%)

Offs hore rev. (%)

1Q

144.7

4.2

9,605

17.1

34.1

17.2

1,623

16.9

15.3

28

23.8

1,139

-6.3

35.3

3.8

12,734

78.9

14.9

35.5

CY17

2Q

152.6

5.5

9,836

13.1

33.7

17.4

1,598

16.2

14.6

146

22.9

1,224

7.4

22.5

4.1

13,098

80.8

13.8

35.3

3Q

154.0

0.9

9,931

9.8

35.2

17.7

1,734

17.5

15.8

178

18.9

1,420

16.0

27.5

4.7

13,488

79.7

13.7

34.6

4Q

156.1

1.4

10,048

6.8

32.8

16.9

1,599

15.9

14.3

132

23.0

1,211

-14.7

-0.4

4.0

13,705

80.9

13.1

34.9

1Q

162.2

3.9

10,490

9.2

32.9

17.4

1,626

15.5

14.1

204

20.0

1,343

10.9

17.9

4.5

14,604

81.3

34.6

2Q

169.5

4.5

11,105

12.9

33.1

16.5

1,839

16.6

15.2

74

20.5

1,402

4.4

14.6

4.7

15,518

79.0

33.9

3Q

177.6

4.8

11,633

17.1

33.2

16.0

2,001

17.2

15.9

47

20.5

1,508

7.6

6.2

5.0

16,299

79.0

34.1

4Q

180.1

1.4

11,795

17.4

32.4

16.0

1,934

16.4

15.1

42

20.5

1,450

-3.9

19.7

4.8

16,768

77.0

33.4

607

15.7

39,420

11.5

33.9

17.3

6,554

16.6

15.0

484

22.0

4,994

19.7

16.6

13,705

81.4

35.1

689

13.5

45,023

14.2

32.9

16.4

7,399

16.4

15.1

367

20.4

5,703

14.2

18.9

16,768

81.0

34.0

Est. Var. (% /

1QCY18

bp)

161.8

0.3

3.6

26bp

10,414

0.7

8.4

79bp

32.4

51bp

16.4

97bp

1,662 -3575bp

16.0

-46bp

14.4

-35bp

154

32.5

20.5

1,316

2.1

8.6

226bp

15.5

240bp

4.4

14,489

0.8

78.0

330bp

33.9

69bp

4 May 2018

16

IRB Infrastructure

BSE SENSEX

35,103

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

10,680

IRB IN

Weak BoT revenue drags overall performance

351.5



Operating performance below expectations:

IRB’s revenue declined 15%

82.9 /1.3

YoY to INR13.8b, below our estimate of INR16.4b, due to weaker-than-

286 / 194

8/3/-18

estimated BoT revenue. Operating profit stood at INR6.6b (-19.0% YoY),

596.0

below our estimate of INR8.3b. Operating margin shrunk 280bp YoY to

42.6

3 May 2018

4QFY18 Results Update | Sector: Infrastructure

CMP:INR262

TP:INR290 (+11%)

Neutral

Financials & Valuations (INR b)

FY18 FY19E

Y/E March

Net Sales

56.9

68.1

EBITDA

26.8

32.4

NP

8.4

9.1

EPS (INR)

23.9

26.0

EPS Gr. (%)

17.5

9.0

BV/Sh. (INR)

174.0

195.2

RoE (%)

14.6

14.1

RoCE (%)

8.9

10.0

Payout (%)

16.8

16.9

Div. Yield

1.7

1.7

FY20E

92.6



35.3

9.3

26.5

1.9

219.5

12.8

8.9



16.6

1.7

Estimate change

TP change

Rating change



47.7% due to negative operating leverage and weak margins in the EPC

segment (-180bp YoY to 26.8%). Adj. profit of INR2.4b came in below our

estimate of INR2.7b, led by the revenue miss.

Strong growth in toll revenue from continuing projects:

Toll revenue from

continuing projects grew 17% YoY to INR5.1b, supported by strong traffic

growth across projects. Toll revenue grew by 24% YoY for the Mumbai-Pune

project and by 11% YoY for the Ahmedabad-Vadodara project. Solapur-

Yedseshi and Kishangarh-Gulabpura also started contributing to revenue

from this quarter.

EPC revenue to pick up strongly over FY18-20:

EPC revenue declined 15%

YoY and EBIDTA fell 17% YoY. However, EPC performance is expected to

improve substantially over FY18-20, given robust order inflow of INR81.6b in

FY18. Order book stands robust at INR151b, which is expected to be

executed over the next two years, ensuring revenue CAGR (FY18-20) of 37%

and earnings CAGR of 23%. Management guided for EPC revenue of INR75-

76b in FY20, with operating margin at 17-18% and PAT margin at 10-11%.

Valuation view:

We raise our estimate for FY19/20 by 6/25% to factor in the

expected EPC revenue pick-up. We maintain

Neutral

on the stock with a

revised target price of INR290, valuing the EPC business at INR157 (8x FY20E

EPS), BoT at INR104, INR25 for its stake in InvIT and INR30 for its equity

investment in the HAM project.

4Q

16,271

5.9

8,053

8,218

50.5

2,264

3,260

289

2,983

0

2,983

911

30.5

2,072

2,072

37.1

12.7

1Q

18,169

19.7

9,991

8,178

45.0

1,816

2,854

535

4,044

0

4,044

1,665

41.2

2,379

2,379

30.8

13.1

FY18

2Q

3Q

11,227 12,962

-13.0

-8.1

5,503

6,659

5,724

6,740

51.0

52.0

1,260

1,212

2,356

2,366

424

455

2,532

3,616

1,041

0

3,573

3,616

1,225

1,100

34.3

30.4

2,346

2,514

1,503

2,514

5.7

36.5

13.4

19.4

FY17E

4Q

13,822

-15.1

7,234

6,588

47.7

1,152

2,090

499

3,845

0

3,845

1,447

37.6

2,396

2,396

15.6

17.3

58,459

14.0

27,976

30,483

52.1

8,548

13,327

1,232

9,839

0

9,839

2,685

27.3

7,146

7,146

11.8

12.2

FY18E

56,941

-2.6

30,147

26,794

47.1

5,440

9,667

1,687

13,373

0

13,373

5,444

40.7

7,924

7,924

10.9

13.9

Mosl

4QFY18

16,416

0.9

8,078

8,338

50.8

1,418

3,588

376

3,707

0

3,707

987

26.6

2,718

2,718

31.2

16.6

Var

-16

Quarterly Performance

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 (%)

1Q

15,173

36.8

7,434

7,740

51.0

2,207

3,282

308

2,558

0

2,558

740

28.9

1,818

1,818

10.4

12.0

FY17

2Q

3Q

12,906 14,109

12.3

5.8

5,816

6,674

7,090

7,435

54.9

52.7

2,274

1,803

3,396

3,389

336

298

1,757

2,541

0

0

1,757

2,541

335

699

19.1

27.5

1,422

1,842

1,422

1,842

-4.6

8.6

11.0

13.1

-21

4

4

-12

-12

4 May 2018

17

3 May 2018

4QFY18 Results Update | Sector: Cement

Orient Cement

Buy

BSE SENSEX

35,103

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

10,680

ORCMNT IN

Profitability led by cost efficiencies

204.9



Utilization scales up to 84%:

Revenue grew 4% YoY (+21% QoQ) to INR6.2b

29.6/0.4

(est. of INR6.5b) in 4QFY18, as volumes fell 3% YoY to 1.68mt (est. of 1.8mt).

184 / 133

Realizations stood at INR3,696/ton (-1% QoQ) versus our estimate of

-3/-22/-31

INR3,596 due to better-than-estimated prices in underlying markets.

52.0

62.6



Cost efficiencies drive profitability:

Cost/t declined 6% QoQ (+8% YoY) to

CMP: INR144

TP: INR170 (+18%)

Financials & Valuations (INR b)

2018 2019E

Y/E Mar

Net Sales

22.2

24.7

EBITDA

3.1

3.8

NP

0.4

1.1

EPS (INR)

2.2

5.4

EPS Gr. (%)

-237.8

148.6

BV/Sh. (INR)

49.8

54.5

RoE (%)

4.4

10.3

RoCE (%)

5.4

8.1

EV/EBITDA (x)

13.5

10.4

EV/Ton (USD)

76

75

2020E

27.4

4.8

1.8

8.7

62.2

62.7

14.9

10.3

8.1

73





Estimate change

TP change

Rating change



INR3,251 due to positive operating leverage and lower P&F cost (better

efficiency parameters). Freight cost/t increased 6% QoQ to INR1,055 due to

higher diesel prices. Thus, EBITDA/t stood at INR445 (+2% YoY, +56% QoQ;

est. of INR244), resulting in EBITDA of INR746m (-1% YoY, +91% QoQ) versus

our estimate of INR440m. ORCMNT reported PBT of INR182m and PAT of

INR128m (-23% YoY; est. of a loss of INR38m).

Other key highlights:

(1) PPC sales at 67% of overall operations. (2) Petcoke

usage at 80% in Chittapur and 0% in Devapur on calorific value. (3) Lead

distance up by 2% YoY.

FY18 performance:

FY18 volumes grew 4% to 5.75mt and realizations

increased 14%, resulting in net sales of INR22.2b (+19% YoY). EBITDA

increased 71% YoY to INR3b, resulting in EBITDA/t of INR531. PAT stood at

INR442m, as against a loss of INR321m in FY17.

Valuation view:

The proposed acquisition of JPA’s assets would help

ORCMNT to raise capacity by 38% at reasonable valuation and to

significantly reduce lead time. While the move would be dilutive to earnings

and return ratios over the near term, it will help the company to become a

pan-India player by diversifying into the newer markets of central/east India.

We like the quality of asset, and thus, believe that the combined valuation of

USD80/t (i.e. Orient’s current + proposed asset valuations) is attractive. The

stock trades at EV of 10.4x/8.1x FY19E/20E EBITDA and ~USD73 per ton on

standalone operations on FY20 capacity. We value ORCMNT at EV/ton of

USD83 on FY20E, at ~30% discount to replacement cost, and accordingly

assign a TP of INR170.

Buy.

4Q

1.73

25%

3,442

10%

-6%

5,965

37.0

755

12.7

306

341

39

148

-17

-11.5

165

-10.5

2.8

1Q

1.40

0%

4,063

29%

18%

5,680

29.9

1,169

20.6

310

333

63

589

199

33.9

389

-614.9

6.9

FY18

2Q

3Q

1.31

1.37

11%

9%

3,996

3,737

22%

2%

-2%

-6%

5,231

5,115

35.9

12.1

746

391

14.3

7.6

318

319

336

339

85

20

177

-248

75

-71

42.6

28.6

102

-177

-134.5

51.5

1.9

-3.5

4Q

1.68

-3%

3,696

7%

-1%

6,197

3.9

746

12.0

314

284

34

182

54

29.8

128

-22.5

2.1

FY17

5.55

25.9

3,378

1.8

18,748

28.2

1,781

9.5

1,215

1,353

123

-665

(344)

51.7

-321

-151.5

-1.7

FY18

5.75

3.6

3,865

14.4

22,223

18.5

3,052

13.7

1,262

1,292

202

700

258

36.9

442

-237.8

2.0

(INR Million)

FY18

4QE Var (%)

1.8

-7

4%

3,596

3

4%

-4%

6,498

-5

8.9

440

69

6.8

292

329

32

-149

-112

74.8

-38

-441

-122.7

-0.6

Quarterly Performance

Y/E March

Sales Dispat. (m ton)

YoY Change (%)

Realization (INR/Ton)

YoY Change (%)

QoQ Change (%)

Net Sales

YoY Change (%)

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Adj PAT

YoY Change (%)

Margins (%)

1Q

1.39

43%

3,138

-13%

-5%

4,371

25.3

404

9.3

291

293

35

-145

-69

47.8

-76

-127.1

-1.7

FY17

2Q

3Q

1.17

1.25

16%

19%

3,278

3,646

-4%

9%

4%

11%

3,848

4,565

12.0

30.2

166

456

4.3

10.0

312

307

362

358

21

28

-488

-180

-194

-64

39.7

35.4

-294

-117

-204.9

-10.7

-7.6

-2.6

4 May 2018

18

3 May 2018

4QFY18 Results Update | Sector: Media

HT Media

Neutral

BSE SENSEX

34,592

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

10,681

HTML IN

233

19.2 / 0.3

119 / 78

-4/-18/-10

58.0

30.5

CMP: INR88

TP: INR92(+5%)

Higher other income supports earnings; softer outlook ahead

Financials & Valuations (INR b)

2018 2019E

Y/E Mar

Net Sales

23.5

23.6

EBITDA

4.0

3.6

Adj PAT

3.0

2.4

Adj EPS (INR)

13.2

10.5

Gr. (%)

78.9

-20.8

BV/Sh (INR)

109.8

119.8

RoE (%)

12.8

9.1

RoCE (%)

11.9

9.1

P/E (x)

6.7

8.4

P/BV (x)

0.8

0.7

EV/EBITDA (x)

7.6

7.4

2020E

23.9

3.7

2.7

11.5

10.4

130.8

9.2

9.3

7.6

0.7

6.1

Estimate change

TP change

Rating change

Muted circulation revenue pulls down overall growth:

Consol. revenue fell 4%

YoY to INR5.6b (5% miss), mainly due to a 9% YoY decline in circulation revenue,

partly offset by ad revenue growth. Yet, consol. EBITDA of INR805m grew 10%

YoY (11% miss), driven by a 12% YoY decline in SGA expenses. This, coupled with

a surge in other income (+73% YoY), provided impetus to PAT (+193% YoY to

INR750m). Ad revenue grew marginally by 2% YoY to INR4.2b. For FY18, revenue

declined 4% YoY to INR23.4b (1% miss), EBITDA grew 34% to INR4b (3% miss)

and PAT increased 80% YoY to INR3.1b (12% beat).

Concall highlights:

1) General elections, coupled with a recovery in the Indian

economy, are expected to drive growth. 2) Company expected to face

headwinds over the next three quarters from higher newsprint cost, which is

expected to impact EBITDA margin by at least 200bp. 3) Radio business EBITDA

margin of 35-40% is sustainable.

Softer outlook for both Hindi and English markets:

We expect Hindi print

revenue (~40-45% of overall print revenue) to grow at a muted CAGR of 4% over

FY18-20 due to 1) slow pick-up in local ad spends and 2) lower per copy

realization due to intense competition in key HSP markets. Further, increasing

penetration of digitization is expected to continue impacting English print

business (-4% YoY). Subsequently, we have cut consol. revenue by 4%/6% for

FY19/20E (we expect revenue CAGR of meager 1% over FY18-20). We expect

EBITDA/PAT to decline 11%/21% in FY19, primarily due to higher newsprint

prices, as it would aggravate the impact of lackluster revenue.

Valuation view:

We cut FY19E EBITDA by 11%. However, in FY20, the waning

impact of high newsprint price should lead to 3%/10% YoY growth in

EBITDA/PAT. Maintain

Neutral

with a TP INR92 (prior: INR98), assigning 8x (13%

discount to three-year average) on FY20E EPS of INR11.5.

(INR Million)

4Q

5,853

-7.3

5,122

731

12.5

337

218

488

665

0

665

225

33.8

184

256

256

-40.7

4.4

FY18

1Q

2Q

3Q

5,990 5,606 6,254

-2.5

-6.9

-3.8

5,191 4,561 4,907

799 1,045 1,347

13.3 18.6

21.5

320

317

307

194

199

194

531

435

645

817

965 1,491

0

-31

0

817

997 1,491

239

219

121

29.2 22.0

8.1

162

116

126

415

662 1,244

415

638

933

85.5 106.3

2.1

6.9

11.4

14.9

FY17

4Q

5,612

-4.1

4,807

805

14.3

284

230

843

1,134

0

1,134

280

24.7

103

750

750

193.5

13.4

24,521

-2.0

21,538

2,983

12.2

1,248

951

2,295

3,079

0

3,079

671

21.8

705

1,703

1,703

-1.9

6.9

Est. Var

4QFY18E (%)

23,462 5,894

-5

-4.3

0.7

19,466 4,987

-4

3,996

908

-11

17.0

15.4 -104.9bp

1,228

329

-14

816

202

14

2,455

465

81

4,407

841

35

-31

0

4,438

841

35

859

292

19.4

34.7

507

134

3,072

415

81

3,047

415

81

78.9

62.4

13.0

7.0

632.6

FY18

Consolidated - Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

MI & P/L of Asso. Cos.

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

FY17

1Q

2Q

3Q

6,147 6,022 6,499

4.5

0.2

-4.6

5,504 5,518 5,394

643

505 1,105

10.5

8.4

17.0

295

304

312

247

245

241

478

780

549

579

736 1,100

0

0

0

579

736 1,100

186

224

36

32.2 30.5

3.3

168

202

150

224

309

914

224

309

914

-9.5 -16.1 32.9

3.6

5.1

14.1

4 May 2018

19