17 January 2019

Market snapshot

Equities - India

Sensex

Nifty-50

Nifty-M 100

Equities-Global

S&P 500

Nasdaq

FTSE 100

DAX

Hang Seng

Nikkei 225

Commodities

Brent (US$/Bbl)

Gold ($/OZ)

Cu (US$/MT)

Almn (US$/MT)

Currency

USD/INR

USD/EUR

USD/JPY

YIELD (%)

10 Yrs G-Sec

10 Yrs AAA Corp

Flows (USD b)

FIIs

DIIs

Volumes (INRb)

Cash

F&O

Note: *Average

Close

36,321

10,890

17,686

Close

2,616

7,035

6,863

10,931

10,556

20,443

Close

61

1,294

5,938

1,840

Close

71.2

1.1

109.1

Close

7.3

8.5

16-Jan

-0.01

0.04

16-Jan

299

7,457

Chg .%

0.0

0.0

-0.1

Chg .%

0.2

0.2

-0.5

0.4

0.5

-0.5

Chg .%

1.4

0.3

0.9

1.0

Chg .%

0.3

-0.2

0.4

1MChg

0.29

0.15

MTD

-0.3

0.2

MTD*

284

8,427

CYTD.%

0.7

0.3

-0.6

CYTD.%

5.2

6.8

1.9

3.5

5.6

2.1

CYTD.%

16.7

1.0

-0.8

-0.9

CYTD.%

1.8

-0.5

-1.1

CYTDchg

-0.1

0.0

CY18

-4.6

15.9

CYTD*

284

8,427

Today’s top research theme

India Strategy: Contrarian Investing – Quarterly Update

A review of our contrarian investment strategies

Our thematic strategy note on

Contrarian investing,

published in June’17, gives a

detailed account of the subject matter. In this note, we have reviewed the

performance of our strategies in the last quarter:



Neutral to moderately popular stocks performed the best, beating the

benchmark. On the other hand, the most popular stocks came in third.



Low P/E stocks performed the best, beating the benchmark. On the other

hand, high P/E stocks came in second worst.



High PCF stocks performed the best, beating the benchmark. On the other

hand, low PCF stocks came in third.



Net Sell to Net Buy stocks for 3QFY19: HDFC Life



Contrarian BUYs:

ACC, Ashok Leyland, Bharti Airtel, BoB and HPCL



Contrarian SELLs:

Bajaj Finance, Kotak Mahindra Bank, Tata Power and Zee

Research covered

Cos/Sector

India Strategy

Key Highlights

Contrarian Investing – Quarterly Update; A review of our

contrarian investment strategies

Cholamandalam Invst & Fin Diversifying the asset franchise

Mindtree

Signs of de-risking dependency on top client

DCB Bank

Operationally in line, opex remains the key earnings lever

KPIT Tech

Strong Engineering traction but at the expense of margins

Trident

Sharpened by realization improvement across key segments

EcoScope

Agriculture

Results Expectation

1Q2019: India’s Quarterly Economic Outlook

A year of diverging fortunes for fertilizer industry

AUBANK | CYL | FB | HUVR | RIL

Chart of the Day: India Strategy | Contrarian Investing – Quarterly Update; Out-of favor

stocks have beaten the benchmark convincingly

Performance of our preferred quintiles

Source: Bloomberg

Research Team (Gautam.Duggad@MotilalOswal.com)

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

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

In the news today

Kindly click on textbox for the detailed news link

1

SBI puts loan exposure to

Essar Steel on the block

The State Bank of India (SBI) on

Wednesday put on sale its

₹15,431 crore exposure to Essar

Steel Ltd, as last-minute

litigations continue to delay the

recovery of its loans to the

steelmaker. The bank has set the

aggregate reserve price for the

full-cash sale at ₹9,588 crore…

2

India to bar private refiners from tapping Iran oil quota

India will not share the limited supply of Iranian crude allowed under

a US waiver from sanctions with private refiners, according to people

with knowledge of the matter. That is a departure from the earlier

practice of splitting exempted volumes. The government has asked its

four state refiners led by Indian Oil Corp. to share the entire 9

millions barrels of Iranian oil available every month under a 180-day

waiver from US sanctions, the people said, asking not to be

identified…

3

HC refuses to stay NAA order

to deposit Rs 223 crore

In a setback to FMCG major

Hindustan Unilever (HUL), the

Delhi High Court on Wednesday

refused to stay the National Anti-

profiteering Authority (NAA)

order asking the company to

deposit around Rs 223 crore in

the consumer welfare funds of

the government for failing to

pass on the entire benefit of GST

reduction last year…

4

Baring PE Asia may buy NIIT

at up to ₹10,000 crore

valuation

Baring Private Equity Asia Ltd is

likely to acquire NIIT

Technologies Ltd in a deal that

may value the IT solutions

company at ₹8,000-10,000 crore,

said two people with direct

knowledge of the matter…

5

RBI further simplifies ECB

norms

In an attempt to go one step

ahead in ease of doing business

the overseas borrowing norms

have been simplified. The

Reserve Bank of India has

rationalised the overseas

borrowing norms allowing a

uniform borrowing limit of Rs

750 million a year across tenors…

6

Dilution of promoter stake:

Bombay High Court to hear

Kotak Mahindra plea today

The Bombay High Court is likely

to resume hearing on Thursday

the writ petition filed by private

sector lender Kotak Mahindra

Bank against the Reserve Bank of

India on the issue of dilution of

promoter shareholding norms...

7

Infosys to implement new ITR

filing project

IT major Infosys Ltd has been

selected to implement the next

generation system for processing

income tax return (ITR) filings,

with the Union Cabinet

sanctioning an estimated

₹4,241.97 crore for the project…

17 January 2019

2

Thematic – Contrarian investing | 16 January 2019

Contrarian investing

Contrarian Investing – Quarterly Update

Please refer our report dated

June 2017

A review of our contrarian investment strategies

Our thematic strategy note on

Contrarian Investing

– published in June’17 –

provides a detailed account of the subject matter. In this note, we have reviewed

the performance of our strategies, presenting our key findings and top contrarian

bets. Since we have used the quarterly rebalancing method to test our hypothesis,

we run the updated quintiles as on 31st Dec’18.

Key takeaways from our analysis





Please refer our report dated

October 2018





Neutral-to-moderately popular stocks outperform significantly, even when

compared to the most popular stocks.

In 3QFY19, the quintile encompassing

neutral-to-moderately popular stocks performed the best, significantly

surpassing the performance of the benchmark (BSE-100). The most popular

stocks came in third, while the second-most popular stocks performed the worst.

Out-of-favor low P/E stocks deliver disproportionate returns, significantly

outperforming the benchmark. In contrast, the performance of high P/E stocks

is dismal.

In 3QFY19, low P/E stocks delivered the best returns, while the high P/E

quintile came in second last.

Similarly, out-of-favor low P/CF stocks deliver disproportionate returns, again

significantly outperforming the benchmark. In contrast, the performance of high

P/CF stocks is dismal.

In 3QFY19, high P/CF stocks delivered the best returns,

while the low P/CF quintile came in third.

In some sub-themes, the returns from a quintile deviate from the long-term

pattern, as highlighted in our initial detailed note. However, this is in line with

the trends observed even in the long-term study – where returns can deviate for

a quarter, but the hypothesis is proven right over a long period. For example, in

the ‘price to cash flow’ theme, instead of Quintile-5, Quintile-1 delivered the

best returns in 3QFY19 but has been the worst performing quintile over the last

decade.

Best delta: Consensus change from ‘Net Sell to Net Buy’

As part of our analysis, we

have divided BSE100 in 5

groups of 20 – Quintile-1

(Q1), Quintile-2 (Q2),

Quintile-3 (Q3), Quintile-4

(Q4) and Quintile-5 (Q5) –

with Q1 composed of the

most popular stocks and so

on





Our findings suggest that the simple strategy of investing in stocks for which

analyst consensus has changed from net sell to net buy with a holding period of

one year has delivered 21.1% annual returns over the last 10 years.

Net Sell to Net Buy stocks for 3QFY19:

HDFC Life.

Top Contrarian Picks

We highlight our top contrarian Buy and Sell picks based on the various themes we

have covered in this note as well as in the past –

Popularity, Relative Valuations,

Net Sell to Net Buy, Consensus SELLs.

Contrarian BUYs:

ACC, Ashok Leyland, Bharti Airtel, BoB and HPCL

Contrarian SELLs:

Bajaj Finance, Kotak Mahindra Bank, Tata Power and Zee

17 January 2019

3

Exhibit 1: Performance of our preferred quintiles

700

600

500

400

300

200

100

0

Indexed Returns

Low PE

Neutral Stocks

Performance of different themes

Low PCF

BSE 100

547.5

529.6

465.5

324.6

Source: Bloomberg

Exhibit 2: Top Contrarian BUY ideas

Company

ACC

Ashok Leyland

Bharti Airtel

Bank of Baroda

HPCL

Popularity

score

3.98

4.02

4.27

3.85

2.94

% of

Buy/Hold

Ratings

86

89

90

83

67

Correction

from 52w

high (%)

-20

-43

-33

-32

-43

12 month

return (%)

-20

-25

-33

-27

-43

1 Yr Fwd

PE (x)

22.6

13.8

NA

6.2

8.0

PE -

Prem/Disc

to LPA (%)

-8

-62

NA

-29

-16

1 Yr Fwd

PB (x)

2.8

3.9

1.9

0.6

1.3

PB -

Prem/Disc

to LPA (%)

-7

10

-9

-35

-18

PAT CAGR

FY18-20E

(%)

28.3

20.5

NA

NA

-0.2

Exhibit 3: Top Contrarian SELL ideas

Company

Bajaj Finance

Kotak Mahindra Bank

Tata Power

Zee

Popularity

Score

4.04

4.14

4.14

4.09

% of

Appreciation

12 month

Sell/Hold

from

return (%)

Ratings 52w low (%)

40

61

51

32

17

17

33

26

-18

29

9

-24

1 Yr Fwd

PE (x)

34.4

34.7

11.2

25.9

PE -

Prem/Disc

to LPA (%)

43

-5

-16

-16

1 Yr Fwd

PB (x)

5.8

4.9

1.0

4.4

PB -

Prem/Disc

to LPA (%)

35

-3

-29

-25

PAT CAGR

FY18-20E

(%)

40.4

17.7

14.4

29.3

Exhibit 4: Performance of our Contrarian BUY and Contrarian SELL calls indicated in last

quarterly update

Contra buys

Bajaj Auto

Vedanta

LIC Housing Finance

Container Corporation

Axis Bank

BSE100

Price Return

6.6

-7.1

15.5

12.4

17.2

6.3

Contra Sell

Page Industries

Havells India

JSW Steel

Asian Paints

Shree Cement

BSE100

Price Return

-21.5

10.3

-15.8

16.2

17.1

6.3

Note: Stocks in

bold

are ones that did not perform as per expectations; Source: MOSL, Bloomberg

17 January 2019

4

16 January 2019

Update | Sector: Financials - NBFC

Cholamandalam Inv & Fin

BSE SENSEX

36,321

S&P CNX

10,890

CMP: INR1,193

TP: INR1,525 (+28% )

Buy

Diversifying the asset franchise

Two-wheeler finance and home loans the next growth engine

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 (%)



CIFC IN

156

186.5 / 2.6

1761 / 1039

-4/-20/-15

488

46.9



Financials Snapshot (INR b)

Y/E March

2018 2019E

Total Income

31.2

33.9

PPP

18.3

22.0

Adj. PAT

9.7

12.1

EPS (INR)

62.3

77.2

EPS Gr. (%)

35.5

24.0

BV (INR)

324

393

BVPS Gr. (%)

19

21

RoAA (%)

2.7

2.4

RoE (%)

20.9

21.5

Valuations

P/E (x)

19.2

15.4

P/BV (x)

3.7

3.0

Div. Yield (%)

0.5

0.6

2020E

38.9

25.3

13.5

86.4

11.8

470

20

2.3

20.0

13.8

2.5

0.6





Shareholding pattern (%)

As On

Sep-18 Jun-18 Sep-17

Promoter

53.1

53.1

53.1

DII

15.9

16.1

15.6

FII

20.5

20.7

21.6

Others

10.6

10.2

9.8

FII Includes depository receipts

Stock Performance (1-year)

Cholamandalam Investment and Finance (CIFC) has successfully navigated the

liquidity crisis, which is now a thing of the past. After drawing down bank lines and

borrowing INR60b (approximately one quarter of disbursement) in September, CIFC

refrained from incremental borrowings in October and resumed borrowings only in

November. As per reported data, CIFC recently managed to raise money via CPs at

~7.5%, i.e. at pre-crisis levels. Due to its healthy liquidity position, CIFC has not

needed to cut back on disbursements during the quarter.

In vehicle finance, festive demand has been weaker-than-expected with dealer

inventory piling up. However, management believes this is just a blip and expects

robust volumes over the ensuing months of the financial year. However, given the

high base of the previous year, we expect mid- single-digit disbursement growth in

this segment.

The company has identified two segments that could reap benefits over the medium-

to-long term - two-wheeler finance and home loans. These products were launched

around five years back. However, rather than scaling up the book, management took

the opportunity to understand the nuances of the businesses. CIFC now believes it

has the tools to scale these two segments meaningfully over the next three years.

While the M&HCV cycle is expected to slow down, we note that CIFC has the most

diversified loan book among vehicle financiers. The company has other segments

that could offset the M&HCV slowdown. With good parentage and strong credit

rating, the company has been able to tide over the liquidity situation well. While the

stock trades at a premium to peers, we believe valuations will hold as long as growth

and RoA/RoE remain robust. Key risks to our estimates stem from higher-than-

expected margin impact due to rising cost of funds and slowdown in growth. BUY

with a TP of INR1,525 (2.8x Dec 2020E BVPS).

Liquidity situation well managed; CP rates at pre-crisis levels

CIFC managed its treasury operations well over the past three months.

It drew

down on bank lines and other sources to the tune of INR60b in September, and

hence, did not need to raise more money in October. In addition, as per 2QFY19

result disclosures, CIFC had positive ALM to the tune of INR21b for the month of

October.

This helped the company to not only cater to the festive demand

effortlessly, but also helped in negotiating better rates with lenders, given the

liquid balance sheet. In the past month, CIFC has borrowed money via CPs at 7.5%

- the same rate prior to the IL&FS crisis. We expect overall CoF to increase only

~50bp over 2HFY19 (due to re-pricing of term loans and NCDs).

17 January 2019

5

3Q demand modest; Growth to slow down

In 3QFY19, CV sales were modest with the M&HCV industry recording low single-

digit volume growth. Dealer inventory is still at higher-than-normal levels. However,

management expects demand to pick up to run-rate levels in 4Q. We remain

circumspect on disbursement growth, especially given the high base in 2HFY19.

Hence, we expect low-to-mid single-digit growth in VF disbursements in 2HFY19.

Two-wheeler and home loans – the next focus products

CIFC has identified two segments that could scale up meaningfully over the

medium-to-long term — two-wheeler finance and home loans.

CIFC started the

two-wheeler financing business in 2014 and spent the past few years understanding

the nuances of the business.

The company finances ~10,000 vehicles per month

(the market leader does ~95,000 vehicles per month)

currently, with Royal Enfield

being the most financed vehicle. The home loan business was started in 2011, but

has scaled up to a size of INR15b only. The company recently engaged a consultant

to maximize digitization of its end-to-end processes, which would help in lowering

cost and in better customer selection. For this business, the focus geographies are

the South and West India.

Home Equity at the cusp of an uptrend after a two-year lull

Post demonetization, the home equity business was severely impacted on growth

and asset quality.

Loan growth declined from a run-rate of ~20% to low-single-

digits over the ensuing quarters. At the same time, the GNPL ratio increased from

4% to 6% over the same time period.

The company has started using SARFAESI as a

tool over the past few quarters and has achieved moderate success in recovering

funds. The overall environment is turning favorable with demand improving.

While

margins are likely to remain under pressure, RoA should improve as credit costs

normalize.

This, along with a pick-up in growth, should result in strong PAT growth

in this business over the next two years.

Valuation & view

CIFC has a well-diversified portfolio, both geographically and in terms of product. It

is further expanding into newer segments like home loans and two-wheeler

financing. Over the past three years, the company delivered 25% disbursement

CAGR, 19% AUM CAGR and 31% PAT CAGR. RoE improved meaningfully from 16% to

21% during the same time frame.

However, the correction in valuations over the

past 6-9 months reflects concerns on the CV cycle as well as impact due to the

liquidity crisis. While we acknowledge that M&HCV demand is slowing down, we

believe CIFC has several other products to offset it. Hence, on an overall basis,

AUM growth would still be 18-20%. On the margin front, we believe further

downside to be limited (margins has already contracted 100bp+ YoY in 1HFY19).

Hence, over a two-year period, we believe the stock could give 15%+ CAGR.

BUY

with a TP of INR1,525 (2.8x Dec 2020E BVPS).

17 January 2019

6

16 January 2019

3QFY19 Results Update | Sector: Technology

MindTree

Buy

BSE SENSEX

36,321

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

S&P CNX

10,890

MTCL IN

Signs of de-risking dependency on top client

168



3Q revenue and business momentum:

MTCL’s 3QFY19 revenue grew 2.4%

138.2 / 1.9

QoQ in constant currency (18.6% YoY CC), in line with our estimate of +2.6%

1182 / 616

QoQ. EBITDA margin expanded 50bp QoQ to 15.9%, marginally higher than

-4/-13/31

1753

our estimate of 15.4%. PAT was down 7.3% QoQ to INR1,912m, as against

86.7

our estimate of a 28% QoQ decline, primarily due to lower ETR (14% v/s our

CMP: INR842

TP: INR1,000(+19%)

Financials & Valuations (INR b)

2018 2019E

Y/E Mar

Net Sales

70.4

80.9

EBITDA

10.8

12.6

PAT

7.6

8.7

EPS (INR)

47.3

53.0

Gr. (%)

37.7

11.9

BV/Sh (INR)

195.0

226.3

RoE (%)

25.5

25.1

RoCE (%)

30.7

31.5

P/E (x)

17.8

15.9

P/BV (x)

4.3

3.7

Estimate change

TP change

Rating change

estimate of 26.5%, adjusting for which, PAT was INR1722m) triggered by the

reversal of INR190m under the Scheme of Amalgamation post Magnet360’s

2020E

merger into the company. For 9MFY19, revenue grew 19.7% YoY CC, while

91.1

EBITDA/PAT increased 55.3%/68% YoY.

14.3



4Q outlook hints at a strong exit:

MTCL cited that it expects 4Q revenue

10.3

growth to come in marginally better than that in 3Q. A 3% QoQ CC revenue

62.4

growth would imply YoY CC growth of 17% and FY19 CC growth of 19%. It

17.9

expects margins to be comparable to that in 3Q.

263.3

25.5



Retail/CPG/Manufacturing back after 2Q blip:

3QFY19 growth was led by

Retail/CPG/Manufacturing (+4.9% QoQ) after it dragged the 2Q performance

31.4

with a 4.2% QoQ decline. BFSI was soft (-1.1% QoQ) due to weakness in one

13.5

3.2

client and 3Q seasonality. Growth is expected to return in BFSI in 4Q, led by

a deal with an insurance provider in the Middle East. Top 2-5 clients grew

3.6% QoQ, while top 6-10 declined 4.4% QoQ as one BFSI client slipped out

of top 10.



Valuation view:

Our revenue estimates for FY20/21 are up by 1.5%/1.3% on

the back of the stronger-than-anticipated exit outlook and the improved

confidence in growth compared to the last quarter. We are modeling only

marginal expansion in the EBITDA margin (+40bp over FY19-21), given the

pressures called out by industry leaders on US talent supply. Consequently,

our EPS estimates are little changed after 3Q. Post some disconcerting

commentary on demand after the 2Q miss, MTCL’s 3Q revenue, 4Q outlook

and growth commentary provide some reprieve. The stock trades at

16x/13.5x FY20/21E. Our TP of INR1,000 discounts forward earnings by 16x.

Maintain

Buy.

FY18

2Q

3Q

206

214

3.0

3.9

13,316

13,777

2.8

6.4

32.4

35.1

20.8

20.0

1,541

2,074

11.6

15.1

8.0

11.7

368

8

28.9

31.1

1,017

1,115

9.3

9.6

7.3

8.1

7.4

8.6

16,910

17,200

73.2

72.8

13.0

12.6

55.5

56.4

4Q

226

5.5

14,640

11.1

36.5

20.4

2,355

16.1

13.1

464

28.7

1,695

52.1

74.4

11.1

17,723

73.8

12.5

56.8

1Q

242

6.8

16,395

27.1

36.6

22.5

2,310

14.1

11.5

279

26.8

1,582

-6.7

70.0

9.6

18,990

75.4

12.2

56.4

FY19E

2Q

3Q

246

252

2.0

2.1

17,554

17,872

31.8

29.7

36.4

37.7

21.0

21.8

2,699

2,833

15.4

15.9

13.1

13.6

524

-200

26.8

22.5

2,063

1,722

30.4

-16.5

102.8

54.5

12.6

11.6

19,402

19,908

74.5

74.6

13.0

56.1

FY18

4Q

259

2.8

18,619

27.2

37.7

21.8

2,962

15.9

13.7

480

26.5

2,228

29.4

31.4

13.5

20,488

73.5

847

8.6

54,628

4.3

34.8

21.2

7,405

13.6

10.1

1,208

29.3

4,758

13.7

34.4

17,723

73.3

FY19E

998

17.8

70,440

28.9

37.1

21.8

10,804

15.3

13.0

1,083

25.8

7,595

59.6

47.3

20,488

74.5

(INR Million)

Est. Var. (% /

2QFY19

bp)

251

0.0

2.1

1bp

18,157

-1.6

31.8 -207bp

36.7

95bp

21.3

51bp

2,797

1.3

15.4

45bp

13.2

39bp

-363

-45.0

26.5

1,490

15.6

-27.8 1126bp

9.2 4525bp

9.1

20,022

-0.6

73.3

135bp

Quarterly Performance

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Ma rgi n (%)

Other i ncome

ETR (%)

Adj. PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Uti l i ncl . tra i nees (%)

Attri ti on (%)

Fi xed Pri ce (%)

1Q

200

2.3

12,895

-2.9

34.9

23.8

1,435

11.1

7.3

368

28.6

931

-4.2

-24.6

7.2

16,561

73.2

14.0

52.9

17 January 2019

7

16 January 2019

3QFY19 Results Update | Sector: Financials

DCB Bank

Neutral

BSE SENSEX

36,321

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

10,890

DCBB IN

Operationally in line, opex remains the key earnings lever

309



DCBB’s PAT grew 51% YoY to INR861m (our estimate: INR762m) in 3QFY19,

56.1 / 0.8

driven by higher other income and moderation in opex. PPoP growth of 42%

205 / 140

YoY exceeded our estimate of +28%, largely due to a pick-up in other income

11/11/-11

310

(26% YoY) on the back of treasury gains of INR112m as core fee income grew

85.1

CMP: INR181

TP: INR175 (-4%)

Financials & Valuations (INR b)



Y/E MARCH

FY18 FY19E FY20E FY21E

NII

10.0 11.5 14.1 17.5

OP

5.2

6.5

8.5 11.1

NP

2.5

3.1

4.1

5.4



NIM (%)

4.0

3.7

3.8

3.9

EPS (INR)

8.0 10.2 13.2 17.4

EPS Gr. (%)

13.8 27.6 30.1 31.8

BV/Sh. (INR)

86.7 95.9 108.7 125.6

ABV/Sh. (INR) 83.3 92.0 104.1 120.3

RoE (%)

10.9 11.6 13.4 15.4

RoA (%)

0.9

0.9

1.0

1.1



Valuations

P/E (x)

22.8 17.9 13.7 10.4

P/BV (x)

2.1

1.9

1.7

1.4

P/ABV (X)

2.2

2.0

1.7

1.5





by a modest 5% YoY. NIM was flat QoQ at 3.83%. For 9MFY19, PPoP grew

20% YoY, while PAT rose 26% YoY to INR2.3b (v/s INR1.8b in 9MFY18).

Opex growth moderated to 5.6% YoY to INR2.1b, aided by slower branch

addition and improved productivity. C/I ratio, thus, declined 366bp QoQ to

55%. Provisions came in at INR401m (+17% YoY; in-line).

Loan book grew by 23.1%/3.7% YoY/QoQ (v/s +26.9%/3.9% in 2QFY19) to

INR228.9b, primarily led by AIB (+38%), MSME (+23%) and Corporate (+9%).

Other segments like CV (+72%), Gold (+23%) and Construction finance

(+23%) also showed strong traction, while Mortgages grew marginally

slower at 17% YoY. Deposits grew 29%/5% YoY/QoQ to INR275.1b, with

retail term deposits plus CASA forming ~77% of total deposits.

Slippages increased to INR1.1b (2.5% v/s 2.2% in 2Q) as the bank reported a

fraud amounting to INR124.4m (of which INR28.7m is pending to be

amortized over subsequent quarters). Further, moderation in recoveries and

upgrades at INR630m led to an 8.6% QoQ increase in GNPA to INR4.4b.

NNPA increased 5.3% QoQ to INR1.6b, while the bank shored up its

calculated PCR to 63.3% (62.1% in 2Q). GNPA/NNPA ratio increased 8bp/1bp

QoQ to 1.92%/0.71%. As on 3QFY19, net restructured advances stood at

INR320m, while SR book was at INR483m.

Other highlights:

(a) CASA ratio declined marginally to 24.25%. (b) Tier I

ratio stood at 11.93%, with total CAR of 15.45%. (c) Annualized RoA/RoE for

the quarter came in at 1.03%/12.64%. (d) Management guided for 26% loan

growth (excl. corporate loans), 55% CI ratio and 1% RoA by FY21.

Valuation view:

While we expect loan growth to stay ahead of system loan

growth (24% CAGR over FY18-21), operating leverage is likely to play out

only post FY19, weighing down on the return ratios in the near term.

Management has guided for 2.3% cost to average assets by FY21. We have

raised our PAT estimate by ~10%/13% for FY20/21, and thus, project

RoA/RoE to improve to ~1.1%/~15.4% by FY21. At CMP, the stock trades at

1.6x Sep’20E ABV, which leaves limited upside. Maintain

Neutral

with a TP

of INR175 based on 1.6x Sept-20E ABV.

17 January 2019

8

Quarterly Performance

Net Interest Income

% Change (Y-o-Y)

Other Income

Total Income

Operating Expenses

Operating Profit

% Change (Y-o-Y)

Provisions

Profit before Tax

Tax Provisions

Net Profit

% Change (Y-o-Y)

Operating Parameters

Deposit (INR b)

Loan (INR b)

Asset Quality

Gross NPA (INRb)

Gross NPA (%)

Net NPA (INRb)

Net NPA (%)

PCR (%)

1Q

2,332

31.7

858

3,189

1,825

1,364

47.1

355

1,009

357

652

38.7

191.5

162.7

2.9

1.7

1.5

0.9

47.7

FY18

2Q

2,481

30.4

653

3,134

1,890

1,244

23.4

302

942

353

589

21.5

205.7

174.0

3.2

1.8

1.6

0.9

50.3

3Q

2,505

19.6

749

3,254

2,029

1,225

12.2

343

883

313

570

11.1

213.0

186.0

3.5

1.9

1.6

0.9

54.4

4Q

2,637

19.7

849

3,486

2,070

1,416

22.8

388

1,028

386

642

21.5

240.1

203.4

3.7

1.8

1.5

0.7

60.2

1Q

2,730

17.1

828

3,558

2,144

1,414

3.7

332

1,082

387

695

6.6

250.3

212.4

4.0

1.9

1.5

0.7

61.6

FY19E

2Q

2,818

13.6

735

3,553

2,092

1,461

17.4

319

1,142

408

734

24.7

261.7

220.7

4.1

1.8

1.6

0.7

62.1

FY18

3Q

2,936

17.2

945

3,881

2,143

1,738

41.8

401

1,336

475

861

51.0

275.1

228.9

4.5

1.9

1.6

0.7

63.3

4QE

3,051

15.7

1,091

4,142

2,289

1,853

30.9

599

1,255

415

839

30.7

292.9

252.2

4.7

1.9

1.7

0.7

63.1

9,954

24.9

3,103

13,057

7,807

5,250

25.5

1,388

3,862

1,409

2,453

22.8

240.1

203.4

3.7

1.8

1.5

0.7

60.2

FY19E

11,535

15.9

3,599

15,134

8,668

6,466

23.2

1,651

4,815

1,685

3,130

27.6

292.9

252.2

4.7

1.9

1.7

0.7

63.1

3Q

V/s our

FY19E

Est

2,969

-1.1

18.5

-1.3

846

11.7

3,815

1.7

2,244

-4.5

1,570

10.7

28.2

13.7

407

-1.4

1,163

14.9

401

18.5

762

13.0

33.6

17.4

269.1

232.7

4.2

1.8

1.6

0.7

62.5

2.2

-1.6

5.0

0.1

2.8

0.0

0.8

(INR m)

17 January 2019

9

KPIT Technologies

BSE SENSEX

36,321

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

S&P CNX

10,890

KPIT IN

Strong Engineering traction but at the expense of margins

200



Operating performance below estimate:

KPIT’s USD revenue/EBITA/PAT

42.5 / 0.6

grew 8.3%/45.7%/32.7% YoY in 9MFY19. 3QFY19 revenue declined 1.7%

315 / 186

QoQ in constant currency (3% miss). While Engineering SBU (43% of

-1/-26/2

revenue) grew 6.4% QoQ, IT Business dragged with a decline of 7.5% QoQ

561

81.1

due to completion of a few large projects. EBITDA margin shrank 60bp QoQ

16 January 2019

3QFY19 Results Update | Sector: Technology

CMP: INR215

TP: INR280 (+30%)

Buy

Financials & Valuations (INR b)

Y/E Mar

2018 2019E

Net Sales

42.4

47.5

EBITDA

5.5

6.5

PAT

3.3

4.3

EPS (INR)

14.8

21.0

Gr. (%)

16.9

42.0

BV/Sh (INR)

105.3

126.7

RoE (%)

15.9

18.4

RoCE (%)

19.3

21.7

P/E (x)

14.6

10.3

P/BV (x)

2.1

1.7

2020E

53.4

7.7



5.3

26.0

23.4

153.1

18.8

22.4

8.4

1.4



Estimate change

TP change

Rating change



(excluding translation loss) – 110bp miss – due to weaker revenue. PAT

declined 25% QoQ (+6% YoY) to INR656m, 14% below our estimate due to

the operational miss.

Segmental margin data come as a surprise:

KPIT shared the

3QFY19/9MFY19 data of the IT and Engineering businesses. The key surprise

for us was the 9MFY19 EBITDA margin in Engineering Services, which stood

at 11.8% v/s 15.4% for IT Services. This pegs KPIT’s Engineering margin

below that of peers such as LTTS and TELX, contrary to the impression that

Engineering had better profitability than IT. Management cited ramp-up in

employees, investments in building solutions and hardware procurement

nature of P&P as the key factors behind the same, while the gross margin

remained strong. It expects the margin trajectory to improve, going forward.

No let-off in Engineering demand just yet:

While IT Services may post only

modest growth, Engineering Services continues to thrive. Despite muted

expectations by Auto OEMs globally, KPIT expects growth in FY20 to slow

down to no lower than 20%.

Valuation view:

Starting next quarter, the combined IT Services business of

KPIT and Birlasoft will be a separate company with FY19 revenue of USD472-

476m (12.5-13% EBITDA), while KPIT Engineering will be a separate company

with revenue of ~USD272m. We value the three entities (KPIT-ITS, KPIT-

Engineering and Birlasoft) separately – the IT businesses at a forward

earnings multiple of 10x and Engineering business at 15x – to arrive at a

price target of INR280 (29% upside). Maintain

Buy.

4Q

150

6.5

9,664

12.6

31.3

19.9

1,099

11.4

8.7

191

29

16.5

838

35.4

56.0

3.8

12,527

73.0

36.5

38.4

1Q

151

0.2

10,138

16.5

32.0

19.9

1,229

12.1

9.4

162

54

22.6

826

-1.5

48.7

3.9

12,951

71.2

36.4

39.6

FY19

2Q

3Q

153

149

1.3

-2.3

10,789

10,613

17.8

16.3

33.3

30.7

19.7

17.7

1,466

1,386

13.6

13.1

10.2

8.8

70

3

57

51

21.2

25.8

876

656

6.2

-25.1

45.2

6.0

4.1

3.2

13,169

13,584

72.8

70.1

45.8

37.2

43.0

FY18

4Q

152

2.1

10,832

12.1

30.6

17.8

1,383

12.8

10.0

-8

62

25.8

752

14.6

-10.3

3.6

13,599

71.5

37.2

568

14.8

36,656

10.3

29.3

18.9

3,785

10.3

8.0

450

104

21.1

2,616

9.7

12.7

12,527

70.7

38.0

FY19E

604

6.5

42,372

15.6

31.7

18.8

5,291

12.5

9.6

226

224

23.7

3,110

18.9

14.8

13,599

71.4

36.9

(INR Million)

Est. Var. (% /

3QFY19

bp)

154

-3.2

0.9 -320bp

11,081

-4.2

21.4 -513bp

33.6 -285bp

19.5 -180bp

1,564

-11.4

14.1 -105bp

10.7 -194bp

-135

-101.9

62

-16.8

23.0

764

-14.1

-12.8 -1232bp

23.4 -1744bp

3.7

13,232

2.7

74.3 -417bp

44.6 -741bp

Quarterly Performance

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Ma rgi n (%)

Other i ncome

Interes t

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Uti l excl . tra i nees (%)

Offs hore rev. (%)

Fi xed Pri ce (%)

E: MOSL Es ti ma tes

1Q

134

4.8

8,704

8.4

26.7

17.6

795

9.1

6.9

121

26

23.4

555

3.3

0.9

2.8

12,261

68.8

39.9

34.8

FY18

2Q

3Q

142

141

5.7

-0.7

9,160

9,128

10.2

9.9

28.1

30.7

18.2

19.9

902

989

9.9

10.8

7.8

8.6

114

25

26

24

24.4

21.3

603

619

8.7

2.6

7.4

-15.9

3.0

3.1

11,946

12,211

70.2

70.8

37.7

38.0

36.2

38.0

17 January 2019

10

16 January 2019

3QFY19 Results Update | Sector: Textiles

Trident

BSE SENSEX

36,321

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

Financials & Valuations (INR b)

2019 2020E

Y/E Mar

Net Sales

52.1

55.0

EBITDA

10.5

11.2

PAT

4.2

4.8

EPS (INR)

8.5

9.7

Gr. (%)

60.9

13.7

BV/Sh (INR)

64.0

70.4

RoE (%)

13.8

14.4

RoCE (%)

8.8

9.8

P/E (x)

8.4

7.4

P/BV (x)

1.1

1.0

S&P CNX

10,890

TRID IN

Sharpened by realization improvement across key segments

498

36 / 0.5

Textile volumes impressive; mix/price increase drive paper segment

91 / 51



Revenue/EBITDA in line, PAT exceeds estimate:

TRID’s revenue grew 18%

8/32/-24

YoY to INR12,914m (our estimate: INR12,923m) in 3QFY19. EBITDA adjusted

58

for forex loss increased 21% YoY to INR2,427m (our estimate: INR2,339m).

31.6

EBITDA margin expanded 50bp YoY to 18.8% (our estimate: 18.1%), largely

CMP: INR71

TP: INR94 (+33%)

Buy

Estimate change

TP change

Rating change

driven by inventory gain and better realizations. Adj. PAT grew 74.8% YoY to

INR945m (our estimate: INR849m). For 9MFY19, revenue/adj. PAT grew

2021E

12.8%/78.3% YoY, with margin expansion of 310bp YoY to 20.9%.

57.5



Growth momentum intact:

Volumes grew strongly in both the bed linen

11.7

(+41.7% YoY) and bath linen (10.1% YoY) segments. Realization, too, was up

5.2

by a healthy 15%/8% YoY in bed/bath linen. In the paper segment, a better

10.5

product mix and price increases more than offset the impact of the 10% YoY

8.6

volume decline, resulting in overall value growth of 15.7% YoY (implying

77.3

~26% YoY realization growth). The only drag to the margins came from yarn

14.2

10.3

due to a decline in the spread (as cotton cost rose ~10% YoY, but realization

6.8

increased merely by 5% YoY).

0.9



Valuation view:

TRID sustained its momentum in the bed linen (utilization of

60% in 9MFY19) and paper segments (EBIT margin up 910bp YoY to 38.1% in

3QFY19). However, bath linen utilization remained contained at 48% in

9MFY19 (v/s 49% in 1HFY19). We maintain our estimates: 8%/26%

revenue/PAT CAGR over FY18-21. The stock has traded at 9x one-year

forward P/E over the last five years, and we value it at the same multiple on

FY21E EPS, given (a) sustained growth momentum with a positive outlook

and (b) estimated RoE improvement of 500bp to 14.2% by FY21. Our target

price of INR94 implies a 33% upside. Maintain

Buy.

17 January 2019

11

E

CO

S

COPE

1Q2019: India’s Quarterly Economic Outlook

Combination of weak growth and lower inflation hints at rate cut(s)



16 January 2019

The Economy Observer

After witnessing extreme volatility in mid-2018, the financial markets were relatively calm towards the year-end,

despite the unexpected loss of the BJP in three major state assemblies. The NIFTY index grew over 8% YoY (and ~5%

QoQ) in 3QFY19 (or 4Q2018), while the benchmark bond yield declined from over 8% at Sept-end to 7.5% currently,

and the Indian Rupee (INR) corrected from ~74 against the US Dollar (USD) to sub-70.



The volatility in crude oil prices has certainly aided these movements. When compared with our

Oct’18 QEO,

we have

retained our growth forecasts but sliced inflation and current account deficit expectations. Further, with the

materializing of weak growth and lower inflation in 2HFY19, we believe the Reserve Bank of India (RBI) could deliver

one or two rate cut(s) amounting to 25-50bp in early 2019. This hinges on the assumption that the government will

resist expensive populist schemes ahead of the 2019 general elections and maintains a path of fiscal consolidation.

What has changed since the

Oct’18

Quarterly Economic Update?

Real GDP:

After posting record high growth (in eight quarters) of 8.2% YoY in

1QFY19,

real GDP growth decelerated sharply to 7.1% in

2QFY19,

which was a

negative surprise to market participants, but in line with our non-consensus

expectation. Accordingly, negligible revisions were made in our growth forecasts –

at ~7% each for FY19 and FY20.

We have revised down our

full-year FY19 forecasts

again, from the earlier 4.1%

to 3.6% currently

CPI inflation:

The headline CPI-based inflation has been the biggest surprise this

year. With six successive lower-than-expected readings, we have revised down our

full-year FY19 forecasts again from the earlier 4.1% to 3.6% currently. With the

inflation reading expected to remain sub-4% by Mar’19 and real GDP growth at

~6.5% YoY in 2HFY19, we expect the RBI to deliver a rate cut next month assuming

there is no fiscal profligacy in the run-up to the 2019 general elections.

Foreign trade and exchange rate:

With crude oil prices swinging wildly from

USD85/bbl in Oct’18 to about USD60/bbl currently, fears of very high current

account deficit (CAD) have also receded. We have revised down our CAD forecasts

from earlier 2.9% to 2.4% of GDP for FY19. However, we expect the economy to post

a deficit on its balance of payments (BoP) in FY19. Accordingly, the INR forecasts

have not changed materially and are likely to average 70.4 against the USD. It is

expected to stay in a narrow range of 69.5-71.5 in 4QFY19.

Exhibit 1: Forecasts of key macroeconomic variables for the Indian economy

Macro indicators

Nominal GDP

MP

Real GDP

MP

Real GVA

BP

Consumer price index (CPI)

Policy repo rate (year-end)

INRUSD (average)

Current account balance

Fiscal balance

Unit

% YoY

% YoY

% YoY

% YoY

% pa

unit

% of GDP

% of GDP

FY16

10.4

8.2

8.1

4.9

6.75

65.5

(1.1)

(3.9)

Actual data

FY17

10.8

7.1

7.1

4.5

6.25

67.1

(0.7)

(3.5)

FY18

10.0

6.7

6.5

3.6

6.00

64.4

(1.9)

(3.5)

Jan’19 forecasts

Oct’18 forecasts

FY19F

FY20F

FY19F

FY20F

12.2

12.6

12.0

12.8

7.0

7.0

7.0

7.2

6.8

6.8

6.7

6.9

3.6

3.8

4.1

4.8

6.25

6.00

6.50

6.50

70.4

73.1

70.7

73.3

(2.4)

(2.9)

(2.9)

(2.9)

(3.5)

(3.3)

(3.3)

(3.1)

Source: Various national sources, MOSL

17 January 2019

12

Sector Update | 16 January 2019

Agriculture

Refer to our report published

on 19 December 2018

A year of diverging fortunes for fertilizer industry

Rabi fades Kharif enthusiasm; CRIN outperforms industry

Indian fertilizer industry volumes grew by a muted 1.7% YoY in 9MFY19 (according to the

Ministry of Fertilizers data) due to anemic sowing activity in Rabi across key states. The

Rabi 2018-19 season has turned out to be unfavorable so far, as farmers faced plights in

the form of low reservoir levels (down by 37%, 28% and 23% YoY in Maharashtra, AP and

Telangana, respectively) and reduced moisture content. In this note, we highlight key

trends in the fertilizers industry for FY19:



The situation was much better in 1HFY19 than in recent times, with a significant

tapering in volume growth (from 7.8% YoY in 1HFY19 to -8.4% YoY in 3QFY19),

manufactured NPK growth (from 20% YoY in 1HFY19 to 10.3% in 9MFY19) and

manufactured urea growth (from 4.2% YoY in 1HFY19 to 0.3% in 9MFY19).



The continuous rise in phosphoric acid prices has resulted in a shift in balance from

manufactured DAP (-24.3% YoY in 9MFY19) to traded DAP (+59.3% YoY in 9MFY19).



While hostile conditions have failed to fertilize industry growth, CRIN has bucked the

trend by growing at ~7.9% YoY. The company’s NPK volumes increased 17.9% YoY in

9MFY19, with its market share in NPK expanding by 190bp and phosphatic fertilizer

(NPK+DAP) volumes growing by 13.2% YoY.

Volumes suffer amid a subdued Rabi season







Industry volume growth was flattish at 1.7% YoY in 9MFY19, with subsiding

growth in manufactured NPK (+10.3%), manufactured SSP (+7.6% YoY),

manufactured MOP (-1.7%) and manufactured urea (flat).

We, however, note that this has not been an across-the-year trend. Volume

growth was strong in Kharif 2018, primarily led by increased acreage in key

crops. Volumes of manufactured NPK grew by 20% YoY on average in 1HFY19

(Kharif season), followed by manufactured SSP (+14.9%), manufactured MOP

(+5.9%) and manufactured urea (+4.2% YoY).

The important Rabi season was downcast across key regions, with volumes of

manufactured NPK down by 6.6% YoY in 3QFY19. Manufactured MOP (-18.3%

YoY), SSP (-5.1% YoY) and urea (-6.7% YoY) volumes were also muted.

The key fertilizer-consuming states are Maharashtra (21.7% of NPK volumes),

Karnataka (12.8%), Andhra Pradesh (11.7%), Telangana (11.2%), West Bengal

(10.2%), Gujarat (7.5%), Tamil Nadu (5.9%) and Uttar Pradesh (5.7%).

All the aforementioned states, barring UP and Telangana (where manufactured

NPK volumes grew 6.7% and 2.4% YoY, respectively, in 3QFY19), witnessed a

muted Rabi season.

The NPK volume decline was particularly pronounced in Maharashtra (-31.3%

YoY in 3QFY19), followed by Gujarat (-19.9%), Tamil Nadu (-13.5%), Andhra

Pradesh (-8.7%), West Bengal (-8.2%) and Karnataka (-5.1%).

We note that a good Kharif season was overshadowed by the Rabi

disappointment, leading to soft volume growth in the key states in 9MFY19 –

Andhra Pradesh (flat NPK volumes), Gujarat (-12% YoY), Karnataka (+31.3% YoY),

Maharashtra (-0.6% YoY), Tamil Nadu (+8.9% YoY), Telangana (+6.2% YoY), Uttar

Pradesh (+39.8% YoY) and West Bengal (+10.1% YoY).

The story is dismal across states









17 January 2019

13

High phos acid prices shift balance from manufacturing to traded DAP







The prices of phosphoric acid have remained firm (up 35.4% YoY to USD768/MT)

so far in FY19, exerting pressure on the gross margins, especially for DAP-centric

players. This is because phosphoric acid forms a major portion of DAP raw

material cost.

Consequently, the industry is shifting to trading DAP from manufacturing it. This

is evident from the sharp decline of 24.3% YoY (as of Dec’18) in manufactured

volumes of DAP, as against a whooping rise of 59.3% YoY (as of Dec’18) in traded

volumes.

However, the industry has taken multiple price hikes (~40% aggregate over the

last year) to counter rising input costs. As a result, end-demand has been

gradually shifting to NPK variants, where margins are relatively high.

CRIN bucking the industry trend though









In our

update

on CRIN dated 10

th

Sep’18, we had highlighted that the company

is expected to deliver a healthy performance in FY19, with volume growth of 7%.

CRIN has fared well on our expectations so far, with volume growth of 7.9% in

9MFY19 – 13.2% growth in phosphatic (NPK+DAP) fertilizers over the period

contained by a 5.1% YoY decline in 3QFY19.

CRIN has capitalized on its strong operational capabilities (backward integration

in phos acid) to tackle pressures facing the industry (high input costs, subdued

sowing in Rabi) and in the process gained market shares across key regions.

The company’s NPK volume market share (as of Dec’18) expanded by 550bp in

Andhra Pradesh (to 67.6%), by 370bp each in Telangana/West Bengal (to

66.4%/31.2%), by 300bp in Tamil Nadu (to 11.5%), and remained flattish in

Maharashtra (at 15.2%) and Karnataka (at 21.4%).

This growth was driven by its key products – 20-20-0-13 (+32% YoY), 28-28-0

(+22% YoY), 10-26-26 (+5% YoY) and 14-35-14 (+24% YoY), which collectively

formed 85% of total NPK volumes as of FY18 and 88% as of 9MFY19.

17 January 2019

14

December 2018 Results Preview | Sector: Financials

AU Small Finance Bank

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

AUBANK IN

290.0

180 / 3

747 / 502

10 / -8 / -13





Buy

We expect AU Bank to deliver ~15% QoQ loan growth, while

deposit growth is expected to be ~19% on a sequential basis.

NII is expected to grow 12% QoQ as margins are likely to shrink to

5.8% due to a rise in cost of funds.

Elevated opex due to investment in manpower and technology will

keep operating profit growth at ~32%.

We estimate PAT at INR1.04b v/s INR789m in 3QFY18 (+32% YoY).

GNPA/NNPA is expected to decline to ~1.9%/1.2%.

AU Bank trades at 3.8x FY21E BV.

Buy.

Financial Snapshot (INRb)

Y/E March

FY18 FY19E FY20E FY21E

NII

9.4

13.3

17.8

24.2

PPP

5.8

7.3

9.9

14.1

PAT

2.9

3.8

5.1

7.1

NIM (%)

6.6

5.2

4.5

4.3

EPS (INR)

10.2

13.4

17.3

23.6

EPS Gr. (%)

-79.5

30.4

29.2

37.0

BV/Sh. (INR)

79.2 107.7 138.5 162.2

RoE (%)

13.8

14.3

14.0

15.7

RoA (%)

1.7

1.4

1.3

1.3

Valuations

P/E(X)

60.5

46.4

35.9

26.2

P/BV (X)

7.8

5.8

4.5

3.8









Key issues to watch for



Cost to income ratio remains the key monitorable as the bank

opens more branches and invests in technology.



Slippages in the MSME segment and the impact of recent RBI

guidelines on restructuring of advances to MSMEs.

Quarterly Performance

INRm

Net Interest Income

% Change (Y-o-Y)

Other Income

Total Income

Operating Expenses

Operating Profit

% Change (Y-o-Y)

Other Provisions

Profit before Tax

Tax Provisions

Net Profit

% Change (Y-o-Y)

Asset Quality

GNPA (INRb)

Net NPA (INRb)

GNPA (%)

NNPA (%)

PCR (Computed, %)

1Q

1,835

9.1

579

2,413

1,169

1,245

16.0

291

954

335

618

-89.5

2.2

1.5

3.0

2.1

28.6

FY18

2Q

2,197

12.4

926

3,122

1,689

1,433

-9.1

403

1,030

348

682

-3.0

2.7

1.8

3.1

2.1

32.8

3Q

2,504

24.8

1,060

3,565

2,035

1,529

5.5

329

1,200

411

789

-4.8

2.9

1.9

2.8

1.9

34.4

4Q

2,869

26.7

1,345

4,213

2,668

1,545

6.8

296

1,249

419

830

6.6

2.7

1.7

2.0

1.3

37.2

1Q

2,864

56.1

1,031

3,894

2,370

1,524

22.4

351

1,173

404

768

24.2

3.3

2.1

2.2

1.4

36.8

FY19

2Q

3,210

46.1

1,225

4,435

2,683

1,752

22.2

350

1,402

488

914

34.0

3.7

2.3

2.0

1.3

37.6

3QE

3,595

43.5

1,441

5,035

3,022

2,013

31.7

421

1,592

549

1,043

32.2

4.0

2.4

1.9

1.2

39.0

4QE

3,634

26.7

1,543

5,176

3,117

2,060

33.3

382

1,678

557

1,120

34.9

4.3

2.5

1.8

1.1

40.8

FY18

9,405

20.0

3,881

13,285

7,526

5,759

-53.6

1,326

4,433

1,513

2,920

-12.4

2.7

1.7

2.0

1.3

37.2

(INRm)

FY19E

13,303

41.4

5,239

18,541

11,192

7,349

27.6

1,504

5,845

1,999

3,846

31.7

4.3

2.5

1.8

1.1

40.8

17 January 2019

15

December 2018 Results Preview | Sector: Technology

Cyient

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

CYL IN

113.0

70 / 1

887 / 570

4 / -19 / 2





Buy

After a surprisingly weak 2QFY19, MTCL had guided for 3Q growth

to be similar to that in 2Q. On those lines, our 3QFY19 estimate is

2.6% QoQ CC, and cross-currency headwinds of 50bp would mean

USD revenue growth of 2.1% QoQ to USD251.5m in 3QFY19.

EBITDA margin is expected to remain stable at 15.4% in 3QFY19.

MTCL had guided for YoY expansion of EBITDA margin in FY19

excluding currency, not a challenging task based on 4QFY18 exit.

Expansion on a QoQ basis will need growth to be higher than the

current 2.6% CC.

Our PAT estimate for the quarter is INR1.5b, which implies a

sequential decline of 28%. This is due to foreign exchange loss

during the quarter compared to gains in the previous quarter.

The stock trades at 19.4x FY19E and 16.8x FY20E earnings. Buy.

Financial Snapshot (INR b)

y/e Mar

2018 2019E 2020E 2021E

Sales

EBITDA

PAT

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuation

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div yld (%)

16.2

3.0

11.1

2.1

15.2

2.7

9.2

2.1

12.7

2.4

7.6

2.1

11.6

2.2

6.5

2.4

39.2

5.5

4.3

38.2

24.8

18.3

17.3

34.0

47.1

6.4

4.6

40.6

6.2

17.5

17.3

32.0

53.2

7.4

5.5

48.6

19.6

18.8

18.6

26.8

58.6

8.3

6.0

53.4

9.9

18.7

18.4

28.1



208.9 232.8 258.0 285.8



Key issues to watch for



Update on the weak performing Retail and BFS verticals.



Margin trajectory, going forward, given expected improvement

in organic growth next year too.



Deal wins during the quarter and growth in Digital.

Quarterly Performance (INR m)

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Margin (%)

Other income

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Util incl. trainees (%)

Attrition (%)

Offshore rev. (%)

E: MOSL Estimates

1Q

141

0.0

9,070

8.6

34.9

22.1

1,160

12.8

9.9

350

31.2

876

11.6

18.4

7.8

12,201

74.1

16.6

40.4

FY18

2Q

3Q

150

152

6.5

1.3

9,654

9,834

5.7

7.2

35.4

35.6

20.8

21.1

1,410

1,431

14.6

14.6

11.9

11.8

407

273

28.0

18.3

1,116

1,086

27.4

-2.7

14.7

15.5

9.9

9.7

12,537

12,799

75.9

78.6

14.2

16.8

41.2

42.8

4Q

165

8.3

10,618

12.8

34.8

20.8

1,492

14.1

11.6

409

21.3

1,181

8.7

50.4

10.5

13,087

76.7

16.9

44.0

1Q

161

-2.3

10,800

11.9

34.3

22.1

1,316

12.2

9.5

170

27.2

825

-30.1

-26.1

7.4

13,851

75.0

16.9

41.9

FY19E

2Q

169

5.0

11,870

20.7

34.5

20.8

1,627

13.7

11.3

568

29.8

1,272

54.2

17.1

11.4

13,845

78.0

16.9

42.8

FY18

3QE

165

-2.1

11,933

12.4

35.0

21.2

1,648

13.8

11.7

232

24.0

1,161

-8.7

-1.7

10.4

14,270

75.0

42.8

4QE

174

5.1

12,508

15.8

35.4

21.2

1,785

14.3

12.2

281

24.0

1,301

12.0

57.7

11.6

14,490

77.0

42.8

608

13.0

39,176

8.6

35.2

21.2

5,493

14.0

11.3

1,439

24.4

4,291

16.0

38.2

13,087

FY19E

669

10.0

47,111

20.3

34.8

21.3

6,376

13.5

11.2

1,251

26.3

4,559

6.2

40.6

14,490

17 January 2019

16

December 2018 Results Preview | Sector: Financials

Federal Bank

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

FB IN

1980.6

188 / 3

117 / 67

12 / 15 / -18





Buy

We expect FB to report ~25% YoY (5% QoQ) loan growth, aided by

renewed focus on corporate growth. Traction in SME and retail

loans would be maintained. We expect NIM to be ~3.3% for the

quarter aided by MCLR re-pricing.

Other income is likely to see robust growth aided by treasury

gains and fee income. We expect PPoP growth of ~33% YoY,

significantly higher than opex growth of 13%.

We expect slippages to moderate (1.5% annualized) during the

quarter with most of the dispensation from the Kerala floods

being recognized.

We expect PAT of INR3.1b v/s INR2.6b in 3QFY18 and INR2.7b in

2QFY19. FB trades at 1.2x FY21E ABV. Buy.

Financial Snapshot (INRb)

Y/E Mar

FY18 FY19E FY20E FY21E

NII

35.8

41.4

52.9

65.2

OP

22.9

26.8

36.9

47.9

NP

8.8

11.4

17.0

23.3

NIM (%)

3.1

3.0

3.2

3.2

EPS (INR)

4.8

5.8

8.6

11.8

EPS Gr. (%)

-1.3

21.8

48.5

37.5

BV/Sh. (INR)

61.9

66.8

74.6

85.5

ABV/Sh. (INR)

54.3

58.0

66.1

77.1

ROE (%)

8.3

9.0

12.2

14.8

ROA (%)

0.7

0.8

0.9

1.1

Valuations

P/E(X)

19.9

16.4

11.0

8.0

P/BV (X)

1.5

1.4

1.3

1.1

P/ABV (X)

1.7

1.6

1.4

1.2





Key issues to watch for



Outlook on asset quality and growth opportunities, especially

post the recent floods in Kerala and RBI allowing restructuring of

advances to MSMEs.



Strategy on balance sheet growth, particularly corporate growth

and fee income.

Quarterly Performance

1Q

8,007

15.6

3,291

11,298

5,719

5,579

31.0

4,459

2,364

3,214

1,113

2,102

25.6

958.4

763.1

18.1

29.1

18.7

2.4

10.6

1.4

43.2

FY18

2Q

3Q

8,989

9,500

23.8

20.0

2,872

2,286

11,861 11,786

6,029

6,172

5,832

5,614

22.8

18.2

5,082

5,324

1,768

1,624

4,064

3,990

1,427

1,390

2,637

2,600

31.0

26.4

972.1 1,005.4

806.5

849.5

12.6

9.0

24.7

22.0

19.5

2.4

10.7

1.3

45.3

21.6

2.5

11.6

1.4

46.5

4Q

9,332

10.8

3,142

12,474

6,588

5,886

7.2

5,666

3,715

2,170

721

1,450

-43.5

1,119.9

919.6

14.7

25.4

28.0

3.0

15.5

1.7

44.5

1Q

9,801

22.4

2,709

12,509

6,480

6,029

8.1

5,539

1,992

4,038

1,411

2,627

25.0

1,112.4

943.0

16.1

23.6

28.7

3.0

16.2

1.7

43.5

FY19E

2Q

3QE

10,225 10,791

13.7

13.6

3,229

3,605

13,454 14,397

6,478

6,944

6,976

7,452

19.6

32.7

6,466

6,636

2,888

2,614

4,088

4,838

1,427

1,693

2,660

3,145

0.9

21.0

1,181.8 1,231.9

1,009.4 1,063.4

21.6

22.5

25.2

25.2

31.8

3.1

18.0

1.8

43.6

33.1

3.1

17.9

1.7

46.0

4QE

10,566

13.2

3,671

14,237

7,887

6,351

7.9

6,351

2,011

4,339

1,352

2,988

106.1

1,343.9

1,131.1

20.0

23.0

34.2

3.0

18.8

1.7

45.0

FY18

35,828

17.4

11,591

47,419

24,509

22,910

19.0

20,521

9,472

13,439

4,650

8,789

5.8

1,119.9

919.6

14.7

25.4

28.0

3.0

15.5

1.7

44.5

FY19E

41,383

15.5

13,214

54,596

27,788

26,808

17.0

24,907

9,505

17,303

5,883

11,420

29.9

1,343.9

1,131.1

20.0

23.0

34.2

3.0

18.8

1.7

45.0

Net Interest Income

% Change (YoY)

Other Income

Total Income

Operating Expenses

Operating Profit

% Change (YoY)

Core Operating Profit

Provisions

Profit before Tax

Tax

Net Profit

% Change (YoY)

Deposit (INR b)

Loan (INR b)

Deposit Growth (%)

Loan Growth (%)

Asset Quality

Gross NPA (INR b)

Gross NPA (%)

Net NPA (INR b)

Net NPA (%)

PCR (%)

17 January 2019

17

December 2018 Results Preview | Consumer

Hindustan Unilever

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

HUVR IN

2163.9

3860 / 55

1871 / 1282

3 / 7 / 27













Buy

We expect Hindustan Unilever’s revenue to grow 10% YoY, with

underlying domestic volume growth of 6% in 3QFY19. Base

quarter volumes were high at 11%.

PFAD prices are down 32.3% YoY (down 19.3% QoQ) and LAB

prices are up 16.1% YoY (up 4.7% QoQ).

Gross margins are likely to expand 40bp YoY to 54.9%.

We expect operating margin to expand by 150bp YoY to 21.1% in

3QFY19, leading to EBITDA growth of 18.4% YoY.

Adjusted PAT is likely to grow 17.8% YoY to INR14.1b.

The stock trades at 62x/52x FY19E/20E EPS of INR28.8/INR34.3.

Maintain Buy.

Financial Snapshot (INR b)

Y/E March

Sales

EBITDA

Adj. PAT

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh.(INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

72.9

54.6

52.6

1.1

62.0

52.3

44.1

1.3

52.0

53.0

36.9

1.7

43.6

56.6

31.0

2.1

2018 2019E 2020E 2021E

345.3 383.6 436.4 498.9

72.8

53.0

24.5

24.7

32.7

78.1

98.9

86.6 103.1 122.6

62.3

28.8

17.5

34.1

74.2

34.3

19.2

33.7

88.6

40.9

19.4

31.5

86.1 101.2 125.6

99.8 104.7 108.1

100.2 112.9 133.6 166.6

Key issues to watch for



Comments on volume growth and consumer demand

environment



Pace of rural recovery



Performance of Lever Ayush and WIMI growth

Quarterly performance

Y/E March

Domestic volume growth (%)

Net Sales

YoY Change (%)

Gross Profit

Margin %

EBITDA

YoY Change (%)

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Adjusted PAT

YoY Change (%)

Reported Profit

E: MOSL Estimates

1Q

0.0

85,290

4.9

44,450

52.1

18,660

14.1

21.9

1,140

60

1,130

18,590

5,630

30.3

12,920

14.6

12,830

FY18

2Q

3Q

4.0

11.0

83,090 85,900

5.9

11.5

43,800 46,850

52.7

54.5

16,820 16,800

19.7

23.9

20.2

19.6

1,150

1,210

60

50

2,040

1,520

17,650 17,060

5,250

3,590

29.7

21.0

12,360 11,980

14.2

30.2

12,760 13,260

4Q

11.0

90,970

10.8

47,830

52.6

20,480

24.0

22.5

1,280

40

1,000

20,160

6,010

29.8

14,090

26.0

13,510

1Q

12.0

94,870

11.2

51,230

54.0

22,510

20.6

23.7

1,270

70

1,350

22,520

6,640

29.5

15,670

21.3

15,290

FY19

2Q

3QE

4QE

10.0

6.0

6.0

92,340 94,490 101,864

11.1

10.0

12.0

47,990 51,913 54,124

52.0

54.9

53.1

20,190 19,897 24,038

20.0

18.4

17.4

21.9

21.1

23.6

1,300

1,210

1,242

70

50

30

3,050

1,748

1,389

21,870 20,385 24,155

6,270

6,279

7,490

28.7

30.8

31.0

15,220 14,107 16,665

23.1

17.8

18.3

15,250 14,107 16,665

Ind AS

FY18

6.0

345,250

8.3

182,930

53.0

72,760

20.3

21.1

4,780

200

5,690

73,470

20,480

27.9

52,990

24.7

52,370

Ind AS

FY19E

8.5

383,564

11.1

205,257

53.5

86,636

19.1

22.6

5,022

220

7,537

88,931

26,679

30.0

62,251

17.5

62,251

17 January 2019

18

December 2018 Results Preview | Sector: Oil & Gas

Reliance Industries

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

RIL IN

5922.0

6552 / 93

1329 / 872

-4 / 13 / 15











Buy

We expect RIL to report GRM of USD7.5/bbl v/s USD11.6/bbl in

3QFY18 and USD9.5/bbl in 2QFY19. This implies a premium of

USD3.2/bbl over SG GRM.

Petrochemical segment is expected to do better due to healthy

deltas and strong volume growth in the segment.

We expect RIL to report consolidated EBITDA of INR202.8b (+15%

YoY, -4% QoQ).

We expect RIL to report consolidated PAT of INR95.4b (+1% YoY

and flat QoQ).

RIL trades at 13.8x FY20E EPS of INR83. Positive developments in

the telecom and retail segments should drive growth further for

the company. Maintain Buy.

GRM

Petrochemical margins

Update on telecom venture

Future capex

Financial conso snapshot (INR b)

y/e march

2018 2019E 2020E 2021E

Net Sales

EBITDA

Net Profit

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

EV/Sales (x)

18.9

2.3

13.4

2.2

17.5

2.1

9.8

1.4

13.8

1.8

7.5

1.1

14.1

1.6

6.4

1.0

3,917 5,460 6,530

642

361

60.9

20.7

496

13.0

9.1

11.9

809

388

65.5

7.5

553

12.5

9.7

11.9

947

491

83.0

26.7

626

14.1

10.8

11.9

6,747

1,045

481

81.3

-2.0

698

12.3

10.9

11.9

Key issues to watch for









Consolidated - Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Reported PAT

YoY Change (%)

Margins (%)

Key assumptions

Refining throughput (mmt)

GRM (USD/bbl)

Petchem sales (mmt)

Petchem (EBITDA/mt)

E: MOSL Estimates

1Q

834,710

28.4

125,540

15.0

30,370

11,190

32,250

116,230

25,440

21.9

90,790

28.3

10.9

17.5

11.9

2.4

329

FY18

FY19

2Q

3Q

4Q

1Q

2Q

3QE

4QE

914,810 998,100 1,169,150 1,287,560 1,433,230 1,293,934 1,445,344 3,916,770 5,460,068

20.1

25.7

37.8

54.3

56.7

29.6

23.6

28.3

39.4

155,650 175,880 184,690 206,610 211,080 202,829 188,658 641,760 809,177

17.0

17.6

15.8

16.0

14.7

15.7

13.1

16.4

14.8

42,870 45,300

48,520

51,730

52,290

55,429

55,219 167,060 214,668

22,720 20,950

25,660

35,500

39,320

33,356

28,568

80,520 136,744

23,310 22,180

22,030

17,780

12,500

18,741

32,496

99,770

81,517

113,370 131,810 132,540 137,160 131,970 132,785 137,367 493,950 539,283

32,400 37,750

37,870

42,410

36,490

37,398

35,704 133,460 152,002

28.6

28.6

28.6

30.9

27.7

28.2

26.0

27.0

28.2

80,970 94,450

94,590

94,850

95,480

95,387 101,664 360,800 387,961

12.8

25.5

17.5

4.5

17.9

1.0

7.5

20.9

7.5

8.9

9.5

8.1

7.4

6.7

7.4

7.0

9.2

7.1

18.1

12.0

2.6

355

17.7

11.6

2.8

380

16.7

11.0

3.1

382

16.6

10.5

3.1

447

17.7

9.5

3.3

408

17.5

7.5

3.0

462

17.5

10.8

3.0

350

70.0

11.6

10.9

362

69.3

9.6

12.4

417

(INR Million)

FY18

FY19E

17 January 2019

19

In conversation

1. ZEE ENTERTAINMENT : ON TRACK ON PROMOTER STAKE

SALE AND HOPEFULLY WILL MAKE AN ANNOUNCEMENT VERY

SOON; Punit Goenka, MD & CEO













Going forward, will endeavour to beat the industry growth by a margin even if

market share does not grow.

Have seen increase in viewership share in both Hindi as well as the regional

markets and that has led to this growth. Particularly, want to call out three of

my regional markets; West Bengal, Karnataka and Tamil Nadu.

Further strengthening (portfolio) with the launch of Punjabi channel and

planning a Karnataka movie channel very soon.

On the ZEE5 digital side, will see a significant ramp-up in the content costs in the

next fiscal as well, given that company will be making a lot more high quality

tentpole properties going forward. Endeavour will be to have six original web

series per month in the six languages that company is focussing on.

For the current and next fiscal, pretty comfortable to deliver a 30% plus kind of

an EBITDA margin.

(Regarding stake sale) on track and hopefully will have something to announce

very soon.

2. MCX : HAD A STELLAR QUARTER THANKS TO CRUDE

FOLLOWED BY BULLION; Mrugank Paranjape, MD & CEO











This was the highest ADT company has seen after the imposition of CTT. In

terms of the sectors, it is mainly crude and followed by bullion which has really

done well. Crude, has been outstanding last quarter but also very positively

encouraged by what has been seen in bullion.

The ADT trend has been positive this entire year. Have seen growth

continuously on a quarter on quarter basis. Last quarter, had more than 10%

growth. This quarter have seen more than 8% growth.

The EBITDA margin is now up to about 49% from 38% last year. The EBITDA

margin can even move further. Have always looked at 60% aspirational number

on EBITDA margins and that is the trajectory company sees itself growing

towards in the next four to six quarters.

(Regarding competition) do not think mere incentives or price is the way to go

after in this market especially when you have a product which is so relevant and

which is widely used in the market and is currently used by both.

See index based trading adding a new dimension to this market and also see the

advent of mutual funds and PMS providers to add to the depth of this market.

3. HPCL : NOW ABLE TO ALIGN INTERNATIONAL AND DOMESTIC

PRICES; MK Surana, CMD







Company now able to align its domestic prices to the international prices.

The normal expectation is till March it (crude) will be below $70 only.

On the demand side, there are certain concerns which are also keeping the

prices down. US shale is one element and they have the capacity to produce

more. Next year, the infrastructure constraint which the US had regulated to

Permian Basin, it will get solved as far as pipeline, etc, are concerned and that

will allow oil to flow out of US.

17 January 2019

20