21 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
36,387
10,907
17,517
Close
2,671
7,157
6,968
11,206
10,637
20,666
Close
62
1,282
6,030
1,862
Close
71.2
1.1
109.8
Close
7.3
8.6
18-Jan
-0.02
0.00
18-Jan
309
5,133
Chg .%
0.0
0.0
-0.7
Chg .%
1.3
1.0
2.0
2.6
1.2
1.3
Chg .%
2.6
-0.8
1.1
1.0
Chg .%
0.2
-0.2
0.5
1MChg
0.45
0.03
MTD
-0.3
0.2
MTD*
287
8,839
CYTD.%
0.9
0.4
-1.5
CYTD.%
7.4
8.7
3.5
6.1
6.5
3.3
CYTD.%
19.6
0.1
0.7
0.3
CYTD.%
1.8
-0.7
-0.4
CYTDchg
-0.1
0.0
CY18
-4.6
15.9
CYTD*
287
8,839
Today’s top research idea
HDFC Bank: Steady performance continues
Contingent provisions to insulate earnings against any impending stress
We have seen some pickup in the investments in branches and calibration in
the workforce to maintain healthy deposit growth. The C/I of the bank is
continuously improving due to productivity from the existing investments.
The PPoP growth is expected to be healthy at 24%+ and PAT growth is
expected to be 23% over FY18-21E as the bank made contingent provisions
of INR3.2b to insulate itself against any stress in the agri portfolio.
Despite pricing pressure, NIMs moderation is expected to be limited as
high-yielding retail loans contribution continues to rise. HDFCB has been
consistently gaining market share across retail product segments and strong
capitalization and liquidity levels will enable it to sustain this growth
momentum over next few years. We maintain our
Buy
rating with TP of
INR2,500 (3.7x Sep-20E ABV of the bank).
Research covered
Cos/Sector
HDFC Bank
Wipro
L&T Infotech
NMDC
AU Small Finance
NIIT Technologies
Shilpa Medicare
Key Highlights
Steady performance continues; contingent provisions to insulate
earnings against any impending stress
Improving gradually on revenues, steadfastly on margins
Growth momentum intact; transient sluggishness in few top clients
Iron ore dispatches to grow even without Donimalai
Growth continues unabated; operating metrics to improve gradually
Healthy momentum; uptrend in deal wins continue
G-Gleevec to boost profitability
South Indian Bank One-off impairments drags overall performance
Results Expectation CRIN | HZ | KMB | LTFH | ZENT
Chart of the Day: HDFC Bank – Steady performance continues; contingent provisions to
insulate earnings against any impending stress
Share of retail loans (based on internal classification) stood at 68.1%
INRb
Car Loans
CV loans
2 wheeler loans
Sub-total - Auto Loans
Personal loans
Business banking
Loan against shares
Credit Cards
Home loans
Gold loans
Other Retail
Retail Total
Corporate and international
Total loans
3QFY18
825.1
425.5
92.2
1,342.9
674.9
1,008.1
34.6
336.2
381.3
53.0
497.6
4,328.6
1,983.6
6,312.1
2QFY19
919.2
495.5
112.9
1,527.6
841.5
1,170.4
35.8
405.4
478.8
57.0
580.9
5,097.2
2,411.1
7,508.4
3QFY19
930.2
528.8
113.7
1,572.7
895.5
1,204.3
34.6
448.4
518.0
57.6
587.5
5,318.6
2,491.0
7,809.5
YoY (%)
12.7
24.3
23.3
17.1
32.7
19.5
-0.1
33.4
35.8
8.7
18.1
22.9
25.6
23.7
QoQ (%)
1.2
6.7
0.7
3.0
6.4
2.9
-3.5
10.6
8.2
1.0
1.1
4.3
3.3
4.0
% of total
11.9
6.8
1.5
20.1
11.5
15.4
0.4
5.7
6.6
0.7
7.5
68.1
31.9
100.0
Source: Company, MOSL
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.
 Motilal Oswal Financial Services
In the news today
Kindly click on textbox for the detailed news link
1
Sebi rejects L&T's ₹9,000
crore share buyback proposal
Engineering major Larsen &
Toubro (L&T) on Saturday said
market regulator Sebi had
denied permission
for its ₹9,000-
crore share buyback offer. In a
regulatory filing to stock
exchanges, L&T said the
Securities and Exchange Board of
India (Sebi) asked it not to
proceed with the buyback…
2
L&T Infotech seeks to acquire stake in Mindtree
L&T Infotech (LTI) is said to be lining up to acquire VG Siddhartha’s
stake in Mindtree. The Larsen & Toubro unit is closing in on a
potential deal with serial entrepreneur and Café Coffee Day founder
Siddhartha, the single largest shareholder in the Bengaluru-based,
mid-tier IT company, said three people with knowledge of the
matter…
3
RIL to demerge tower and
fibre arms, transfer ₹65,000
crore of Jio’s liabilities
Reliance Industries Limited (RIL),
having outstanding debt of
₹2,74,381 crore ($39.3 billion) as
on December 31, 2018, is looking
to deleverage by transferring
₹65,000 crore worth liabilities
of
its telecom arm Reliance Jio to
its tower and fibre arms which
are proposed to be demerged. …
4
The Serious Fraud Investigation
Office (SFIO) has sought the
cancellation of the banking
licence of DCB Bank for its role in
the National Spot Exchange
Limited (NSEL) scam. Nearly five
years after the scam broke out in
2013, it has now come to light
that India Infoline Commodity
(IICL) and DCB Bank had entered
into an agreement to
...
NSEL scam: SFIO wants DCB
Bank licence cancelled
5
Reliance asks partner Niko to
exit KG-D6 over payment
default
Reliance Industries has asked its
partner Niko Resources to
withdraw from eastern offshore
KG-D6 gas block over default in
payments for field development
cost, but the Canadian firm has
sought to stall the move by
invoking arbitration, the
companies said…
6
Lupin, Sun Pharma, Glenmark
recall products in US
Indian drug majors Lupin, Sun
Pharma and Glenmark
Pharmaceuticals are recalling
various drugs from the US
market for a variety of reasons.
As per the latest Enforcement
Report published by the US Food
and Drug Administration
(USFDA), Lupin is voluntarily
recalling 55,000 vials and
1,60,241 boxes of anti-bacteria...
7
Voda Idea board to meet to
finalise Rs 25k crore fund-raising
plan
Vodafone Idea’s board will meet
on Wednesday to finalise the
contours of the company’s
planned Rs 25,000-crore fundraise
that it desperately needs to take
on competition from Bharti Airtel
and Reliance Jio Infocomm…
21 January 2019
2
 Motilal Oswal Financial Services
19 January 2019
3QFY19 Results Update | Sector: Financials
HDFC Bank
Buy
BSE SENSEX
36,387
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
10,907
HDFCB IN
Steady performance continues; contingent provisions to insulate
2,717
earnings against any impending stress
5795.8 / 81.5
Healthy loan growth and improved other income helped HDFCB to report strong
2219 / 1830
3QFY19 PAT of INR55.9b (20% YoY) in line with our estimates. NII grew by 22%
0/-2/7
YoY to INR125.7b (in line) while margins were stable at 4.3%. Over 9MFY19,
5288
78.6
PPoP grew by 21.5% while PAT grew by 19.7%.
CMP: INR2,131
TP: INR2,500(+17%)
Financials & Valuations (INR b)
Y/E MARCH
FY18 FY19E FY20E
NII
400.9 477.1 589.5
OP
326.2 394.4 497.4
NP
174.9 211.4 259.4
NIM (%)
4.4
4.2
4.3
EPS (INR)
67.8 79.8 95.9
EPS Gr. (%)
19.4 17.6 20.2
BV/Sh. (INR) 409.6 543.1 620.9
ABV/Sh. (INR) 387.8 517.6 589.5
RoE (%)
17.9 16.7 16.5
RoA (%)
1.8
1.8
1.8
Payout (%)
23.1 20.7 18.8
Valuations
P/E(X)
31.4 26.7 22.2
P/BV (X)
5.2
3.9
3.4
P/ABV (X)
5.5
4.1
3.6
Div. Yield (%)
0.7
0.8
0.8
FY21E
719.9
619.8
323.9
4.3
119.7
24.9
721.4
681.6
17.8
1.8
16.1
17.8
3.0
3.1
0.9
Core fee income grew by 27% YoY to INR36.5b led by healthy payments/cash
management fees. Treasury gain of INR4.74b v/s loss of INR0.33b in 2QFY19
boosted other income growth by 27% YOY to INR49.2b.
Opex grew 17% YoY/7% QoQ (higher than estimate by 5%) and resulted in
PPoP growth of 27.5% YoY (26% YoY growth in core PPoP). Cost-income ratio
improved 150bp QoQ to 38.4% (40bp improvement in core cost-income ratio).
Loans grew 24% YoY (+4% QoQ) to INR7.8t. The growth was driven by retail
segment (4.8%/24% QoQ/YoY) – mainly personal loans, credit cards and
home loans. Deposits growth of 22% YoY (+2.3% QoQ) was largely supported
by growth in term deposits at 29% YOY while CASA growth was modest at
13% YOY. CASA mix, thus, reduced to 40.7% (42% in 2QFY19).
Slippages stood at INR40b (2.04% annualized, 1.7% excluding Agri slippages)
leading to 8% QoQ increase in GNPA while NNPA increased 9% QoQ to
INR33b. GNPA/NNPA ratio increased by 5bp/2bp at 1.4%/0.4%. The bank
made contingent provisions of INR3.2b to insulate itself against any stress in
the agri portfolio in view of the impending general elections/recent waivers.
Valuation and view:
HDFCB has been consistently gaining market share across
retail product segments (personal loans, business banking, credit cards and auto
loans). Strong capitalization and liquidity levels should enable HDFCB to sustain
this growth momentum over the next few years. Operating expenses have been
under control and digital initiatives have aided consistent decline in the C/I ratio.
We maintain our Buy rating with TP of INR2,500 (3.7x Sep-20E ABV of the bank).
(INRm)
Quarterly Snapshot
NII
% Change (Y-o-Y)
Other Income
Total Income
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Provisions
Profit before Tax
Tax
Net Profit
% Change (Y-o-Y)
Operating Parameter
Deposit Growth (%)
Loan Growth (%)
Deposit (INR b)
Loan (INR b)
Asset Quality
Gross NPA (INR B)
Gross NPA (%)
Net NPA (INR B)
Net NPA (%)
PCR
1Q
93,707
20.4
35,167
1,28,874
53,675
75,199
29.2
15,588
59,612
20,673
38,938
20.2
17.0
23.4
6,714
5,810
72.4
1.2
25.3
0.4
65.1
FY18
FY19E
FY18
FY19E
3Q V/s our
2Q
3Q
4Q
1Q
2Q
3Q
4QE
FY19E Est
97,521 1,03,143 1,06,577 1,08,136 1,17,634 1,25,768 1,25,522 4,00,949 4,77,059 1,24,178
1.3
22.0
24.1
17.7
15.4
20.6
21.9
17.8
21.0
19.0
20.4
1.5
36,059
38,692
42,286
38,181
40,156
49,210
45,204 1,52,203 1,72,750
44,932
9.5
1,33,580 1,41,835 1,48,863 1,46,316 1,57,790 1,74,978 1,70,726 5,53,152 6,49,810 1,69,111
3.5
55,401
57,322
60,506
59,839
62,991
67,193
65,350 2,26,904 2,55,373
63,818
5.3
78,179
84,513
88,357
86,478
94,800 1,07,784 1,05,376 3,26,248 3,94,437 1,05,293
2.4
29.8
27.9
21.4
15.0
21.3
27.5
19.3
26.8
20.9
24.6
2.9
14,762
13,514
15,411
16,294
18,200
22,115
15,049
59,275
71,658
19,186
15.3
63,417
70,999
72,946
70,184
76,600
85,669
90,327 2,66,973 3,22,779
86,107
-0.5
21,907
24,573
24,953
24,169
26,543
29,810
30,836
92,106 1,11,359
29,707
0.3
41,510
46,426
47,993
46,014
50,057
55,859
59,490 1,74,867 2,11,420
56,400
-1.0
20.1
20.1
20.3
18.2
20.6
20.3
24.0
20.2
20.9
21.5
-1.2
16.5
22.3
6,893
6,049
77.0
1.3
26.0
0.4
66.3
10.1
27.5
6,990
6,312
82.3
1.3
27.7
0.4
66.3
22.5
18.7
7,888
6,583
86.1
1.3
26.0
0.4
69.8
20.0
22.0
8,058
7,086
95.4
1.3
29.1
0.4
69.5
20.9
24.1
8,334
7,508
101.0
1.3
30.3
0.4
70.0
22.0
23.7
8,525
7,810
109.0
1.4
33.0
0.4
69.7
21.0
23.4
9,544
8,124
107.8
1.3
30.4
0.4
71.8
22.5
18.7
7,888
6,583
86.1
1.3
26.0
0.4
69.8
21.0
23.4
9,544
8,124
107.8
1.3
30.4
0.4
71.8
24.4
25.0
8,695
7,893
105.9
1.3
31.2
0.4
70.5
-2.4
-1.3
-2.0
-1.1
3.0
0.0
5.7
0.0
-0.8
21 January 2019
3
 Motilal Oswal Financial Services
19 January 2019
3QFY19 Results Update | Sector: Technology
Wipro
BSE SENSEX
36,387
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
10,907
WPRO IN
Improving gradually on revenues, steadfastly on margins
4,513
1566.6 / 22
Margin recovery even after one-offs was a positive:
WPRO’s 3QFY19 CC
revenue growth of 2.4% QoQ (+7% YoY) was in line with our estimate of
348 / 254
3/23/3
+2.2%. Overall EBIT margin expanded 170bp QoQ/YoY to 18.4%, the highest
1218
in 13 quarters. This was aided by a 140bp QoQ improvement in the adjusted
25.7
CMP: INR346
TP: INR385(+11%)
Neutral
Financials & Valuations (INR b)
2019E 2020E
Y/E Mar
Sales
591.5
649.3
EBITDA
121.5
143.2
PAT
94.1
106.6
EPS (INR)
20.3
23.6
EPS Gr. (%)
13.2
16.5
BV/Sh. (INR)
127.5
139.1
RoE (%)
17.8
17.7
RoCE (%)
15.2
17.0
P/E (x)
17.1
14.7
P/BV (x)
2.7
2.5
Estimate change
TP change
Rating change
IT Services margin to 19.8%. PAT grew 11.3% QoQ (+12.9% YoY) to INR25.4b
(3% beat).
For 9MFY19, WPRO revenues are up 4.2% in constant currency
2021E
terms, EBITDA is up 4% and PAT is up 2.2% YoY.
695.6
E&U adds to BFSI and Consumer traction:
Sequential growth was led by BFSI
152.9
(5.3% QoQ CC), which had impact from full-quarter revenue of the Alight
116.3
deal (~1pp+ contribution to overall growth). All verticals grew barring
25.8
9.2
Technology, which reeled under the impact of seasonality. On a YoY basis,
152.8
E&U added to BFSI and Consumer as drivers of growth (10-17.5% YoY CC).
17.7
4Q guidance factors in macro uncertainty:
For 4QFY19, WPRO guided for
17.1
QoQ CC revenue growth of 0-2%, in line with our expectation of +1.1%.
13.5
While there is no change in demand trends, WPRO’s guidance factors
2.3
potential impact from the ongoing macro uncertainties in the US and
Europe.
Valuation view:
3Q was the second consecutive quarter of a smart recovery
in profitability and broad-based sequential growth. While revenues were in
line, the outperformance on margins and the commentary on its outlook
drive 30-50bp upgrade to our FY20/21E EBIT margin (overall). Also, on a low
base, YoY growth should continue inching up for WPRO over the next few
quarters. We have upgraded our FY20/21E EPS by ~5%. We expect a CAGR of
5.7% in USD revenue and 11.4% in earnings over FY19-21. The stock trades
at 15x FY20E and 13.6x FY21E earnings. Our TP of INR385 discounts forward
earnings by 15x and implies an upside of 11%. Maintain
Neutral.
FY18
2Q
3Q
1,970
2,013
1.9
2.2
134,234 136,690
-1.5
1.8
-2.5
-0.1
29.5
30.1
12.6
13.4
27,788 28,104
20.7
20.6
17.3
17.2
16.8
16.7
5,728
5,054
22.7
19.2
21,895 22,534
5.1
2.9
5.6
6.6
4.5
4.0
159,300 158,865
82.5
81.9
16.0
16.1
46.8
46.5
57.7
57.7
4Q
2,019
0.3
137,686
0.7
-1.6
29.0
13.8
26,610
19.3
16.0
15.2
3,796
18.7
20,086
-10.9
3.5
4.1
159,923
83.4
16.8
47.3
58.7
1Q
1,989
-1.5
139,777
1.5
2.6
28.2
13.9
24,343
17.4
15.6
14.3
4,319
24.1
18,407
-8.4
-11.6
4.6
160,846
85.2
17.1
47.1
58.9
FY19
2Q
2,010
1.0
145,410
4.0
8.3
30.0
13.3
28,641
19.7
18.0
16.7
5,053
22.1
22,860
24.2
4.4
3.9
171,451
85.5
17.5
47.2
58.9
FY18
3Q
2,047
1.8
150,595
3.6
10.2
31.0
12.5
32,929
21.9
19.2
18.4
4,646
21.5
25,444
11.3
12.9
5.6
172,379
83.2
47.8
4Q
2,077
1.5
155,679
3.4
13.1
32.6
13.1
35,563
22.8
20.1
19.4
5,082
22.5
27,375
7.6
36.3
6.1
174,964
83.2
47.8
7,895
2.5
544,871
-1.0
29.3
13.2
109,185
20.0
16.8
16.2
19,657
20.8
85,339
4.2
17.9
159,923
78.1
46.8
FY19E
8,122
2.9
591,461
8.6
30.5
13.2
121,476
20.5
18.3
17.3
19,100
22.5
94,105
10.3
20.3
174,964
79.3
47.5
(INR Million)
Est.
Var.
3QFY19 (% / bp)
2,028
-0.9
0.1
96bp
146,052
-0.4
4.5
-46bp
8.8
-48bp
32.4 -239bp
15.3 -200bp
29,441
-2.7
20.2
-46bp
17.3
66bp
17.1
-39bp
3,812
32.6
22.5
-39bp
22,216
2.9
20.7
350bp
1.5
294bp
4.9
167,774
2.2
85.2
30bp
46.0
118bp
Y/E March
Quarterly Performance (IFRS)
1Q
1,933
-1.1
136,261
-2.6
0.2
28.7
12.8
26,683
19.6
16.8
16.0
5,079
22.3
20,824
7.4
1.1
4.3
161,439
82.1
16.1
46.4
58.2
IT Services Revenue (USD m)
QoQ (%)
Overall Revenue (INR m)
QoQ (%)
YoY (%)
GPM (%)
SGA (%)
EBITDA
EBITDA Margin (%)
IT Serv. EBIT (%)
EBIT Margin (%)
Other income
ETR (%)
PAT
QoQ (%)
YoY (%)
EPS (INR)
Headcount
Util excl. trainees (%)
Attrition (%)
Offshore rev. (%)
Fixed Price (%)
E: MOSL Estimates
21 January 2019
4
 Motilal Oswal Financial Services
19 January 2019
3QFY19 Results Update | Sector: Technology
L&T Infotech
BSE SENSEX
36,387
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
10,907
LTI IN
Growth momentum intact; transient sluggishness in few top clients
172
Continues to lead the pack in growth:
LTI reported robust 3QFY19 results
312.4 / 4.4
with revenues up 20.6% YoY constant currency (CC) (estimate of 18.1%).
1990 / 1078
EBITDA jumped 58.3% YoY (estimate of 52%) and PAT grew 32.7% YoY
6/3/62
(estimate of 23.4%). On a QoQ basis, growth in CC was 6.1% QoQ and ~5.1%
444
in USD terms, excluding the hardware pass-through in the India deal present
25.2
CMP: INR1,801
TP: INR1,950 (+8%)
Neutral
Financials & Valuations (INR b)
2019E 2020E
Y/E Mar
Net Sales
95.1
110.8
EBITDA
19.6
20.9
PAT
15.9
16.5
EPS (INR)
90.9
94.4
Gr. (%)
37.0
3.9
BV/Sh (INR)
289.6
361.4
RoE (%)
35.6
29.0
RoCE (%)
42.5
36.2
P/E (x)
19.9
19.1
P/BV (x)
6.2
5.0
Estimate change
TP change
Rating change
in this quarter. EBITDA margin expanded 10bp QoQ to 20.6%, a beat of
60bp, led by lower SGA (-40bp QoQ). PAT at INR3.75b was a 7.6% beat –
2021E
mainly led by better operating profits and lower forex loss (INR60m v/s
126.6
estimate of INR208m).
For 9MFY19, constant currency revenue growth
23.2
stands at 22.2%, EBITDA growth is 57% and PAT growth is 38%.
18.8
Broad-based, in tune with recent quarters:
Growth during the quarter was
107.4
driven by CPG/Retail/Pharma (10.4% QoQ CC), followed by Manufacturing,
13.7
E&U and Hi-tech/M&E (all segments grew by 6.7-7.9% QoQ CC). In Services,
443.0
Enterprise Solutions stole the show growing +17.2% QoQ CC. But, growth
26.7
from top-5 clients was relatively muted at 0.6% QoQ.
33.1
16.8
Activity and pipeline remain strong, but transient slowness in few top
clients:
LTI cited that Nets, the leading payments company in the Nordic
4.1
region has chosen LTI as its primary IT partner post vendor consolidation.
This is expected to become a significantly large engagement. Also, there are
pockets of tightness in some specific customers in the top-5. LTI believes
these are temporary in nature.
Valuation view:
We expect a CAGR (FY19-21) of 14% in USD revenue and 9%
in earnings. Lower earnings CAGR is due to reinvestment of current high
margins and lesser gains on forex. With revenue growth in the top quadrant
of the industry and operating margins in high teens, LTI is likely to sustain its
industry-leading performance, thereby commanding a premium to peers.
The stock trades at 19.1x/16.8x FY20E/21E earnings. Our price target of
INR1,950 discounts forward earnings by 18x, and implies an upside of 8%.
Maintain
Neutral.
FY18
2Q
271
4.4
17,509
9.3
33.9
17.1
2,943
16.8
14.5
1,017
23.2
2,730
2.1
17.4
15.6
22,554
79.6
15.0
53.4
3Q
294
8.5
18,837
13.0
33.3
16.2
3,215
17.1
14.9
883
23.4
2,829
3.6
14.0
16.2
23,394
80.3
14.6
53.8
4Q
309
5.3
20,012
19.3
33.5
15.9
3,537
17.7
15.9
1,118
21.3
3,380
19.5
32.7
19.3
24,139
79.9
14.8
54.3
1Q
320
3.5
21,557
29.0
35.2
15.7
4,190
19.4
17.7
1,036
25.5
3,612
6.9
35.1
20.6
25,150
79.7
15.1
53.2
FY19
2Q
329
2.7
23,312
33.1
35.1
14.6
4,790
20.5
19.0
943
25.4
4,003
10.8
46.6
22.9
26,414
80.4
15.3
52.4
FY18
3Q
347
5.6
24,729
31.3
34.8
14.2
5,090
20.6
19.1
288
25.2
3,755
-6.2
32.7
21.6
27,513
82.1
16.5
52.2
4Q
354
2.2
25,515
27.5
35.2
15.5
5,036
19.7
18.3
715
25.0
4,038
7.5
19.5
23.3
28,833
80.0
52.9
1,132
16.7
73,065
12.4
33.6
16.5
12,494
17.1
15.0
4,101
22.8
11,612
19.6
66.3
24,139
79.4
53.7
FY19E
1,350
19.2
95,113
30.2
35.6
15.0
19,601
20.6
19.1
2,982
24.7
15,408
32.7
90.9
28,833
80.6
52.7
(INR Million)
Est. Var. (% /
3QFY19
bp)
340
2.0
3.5
210
24,549
0.7
96
30.3
35.5
(71)
15.5
(129)
4,901
3.9
20.0
58
18.4
75
140
105.7
25.0
3,491
7.6
-12.8
23.4
19.9
8.7
27,184
(2.8)
80.4
-
53.2
(100)
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 (%)
Offs hore rev. (%)
E: MOSL Es ti ma tes
1Q
259
2.0
16,707
7.4
33.8
17.0
2,799
16.8
14.4
1,084
23.4
2,673
4.9
13.3
15.3
22,321
77.7
14.7
53.2
21 January 2019
5
 Motilal Oswal Financial Services
18 January 2019
Update
| Sector:
Metals
NMDC
Buy
BSE SENSEX
36,387
S&P CNX
10,907
CMP: INR91
TP: INR111(+22%)
Iron ore dispatches to grow even without Donimalai
17mtpa capacity already renewed; Maintain Buy
We met the management of NMDC for a business update. Key highlights:
Karnataka mining complex:
Donimalai and Kumarswamy are NMDC’s two
mining leases (ML) in Karnataka with permitted annual production of 7mtpa
each. Donimalai operations are temporarily shut pending a hearing in the
High Court regarding unreasonable demand of 80% share in revenue as a
condition for renewing the ML. Management is very confident of winning the
case because (1) this judgment will have unprecedented impact on all Public
Sector Undertakings (PSUs), (2) the mining act doesn’t provide for it, and (3) it
will stifle merchant mining. The next court hearing is on 22 January 2019.
Chhattisgarh mining complex:
Two MLs with total capacity of 17mtpa have
already been renewed, which is half of current production. ML of 7mtpa
deposit 11B is valid up to September 2037 (20 years) and 10mtpa deposit 13
is valid up to 2067 (50 years). Renewal of other leases is in process. NMDC is
currently shipping about 23mtpa iron ore from this complex. In the worst case
if outcome in the Donimalai judgment is not favorable, NMDC will still have
17mtpa profitable capacity. Further, NMDC is confident that the Chhattisgarh
government will not be as demanding as the Karnataka government. The
Chhattisgarh government is aware that MLs will not fetch much price from
private miners in auction because of the Naxal problem in the area.
Targeting 30-31mt dispatches in FY19 even without Donimalai:
NMDC has
already dispatched 22.1mt in nine months and is targeting another 9mt
dispatches in 4Q. A slightly better volume can be achieved in FY20 aided by
higher exports.
Strengthening evacuation infra:
NMDC is creating a storage yard near
Jagdalpur, which will debottleneck dispatches from Chhattisgarh by 4-5mt (to
28mt). This will help dispatches of 35mt even without Donimalai. KK line is
being doubled in phases. The project will be fully completed during FY21.
3mtpa steel plant at Nagarnar
will be commissioned during FY20. About 1000
people have been recruited at various levels (mostly retirees from SAIL, RINL,
NINL), O&M has been outsourced.
Maintain BUY:
We believe that NMDC will eventually get its MLs renewed
without sharing any revenues as per the Mining Act Amendment 2015, but
are not sure how long the legal battle will drag. The steel plant may have
some teething troubles in the initial years, but it is likely to be a valuable
asset. It will enjoy low cost iron ore, economy of scale, high productivity from
state-of-art technology, and it doesn’t have legacy issues like SAIL. We value
the stock at INR111/share based on 3xEV/EBITDA for book value and for CWIP
at end-FY20. Maintain
Buy.
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 (%)
NMDC IN
3,164
287 / 4
152 / 86
-5/-5/-40
434
27.6
Financials Snapshot (INR b)
Y/E March
2019E 2020E 2021E
Sales
108.1
96.2 141.3
EBITDA
62.3
48.8 60.6
Adj. PAT
39.9
31.8 37.7
Adj. EPS (INR)
12.6
10.1 11.9
EPS Gr(%)
-3.6 -20.4 18.6
BV/Sh. (INR)
82.0
84.9 89.6
RoE (%)
15.9
12.0 13.7
RoCE (%)
15.2
11.5 13.1
P/E (x)
7.2
9.1
7.6
P/BV
1.1
1.1
1.0
Shareholding pattern (%)
As On
Dec-18 Sep-18 Dec-17
Promoter
72.4
72.4
74.9
DII
19.0
19.4
17.4
FII
3.9
3.7
3.6
Others
4.7
4.5
4.1
FII Includes depository receipts
Stock Performance (1-year)
21 January 2019
6
 Motilal Oswal Financial Services
AU Small Finance Bank
BSE SENSEX
36,387
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
10,907
AUBANK IN
292
181.5 / 2.6
747 / 502
-3/-1/-15
363
67.8
18 January 2019
3QFY19 Results Update | Sector: Financials
CMP: INR621
TP: INR720 (+16%)
Buy
Growth continues unabated; operating metrics to improve gradually
PAT grew 21% YoY to INR0.95b (our estimate: INR1.04b) in 3QFY19. NII of INR3.5b
(+39% YoY, +8% QoQ) came in 3% below our estimate, with the margins down
40bp QoQ to 5.6%. For 9MFY19, PPoP grew 20% YoY, while PAT increased 26% YoY.
Other income stood muted at INR1.1b (-14% QoQ). Operating expenses increased
35% YoY (+2.6% QoQ) to INR2.7b, leading to a marginal rise in C/I ratio to 60.6%.
AUM grew 62% YoY to INR217b, with strong growth in disbursements in vehicle
and MSME books. Retail assets comprised 81% of gross AUM. Retail AUM grew 9%
QoQ, while wholesale AUM declined 3.3% due to contraction in the NBFC book.
Wheels/secured MSME/secured SME formed 43.0%/31.1%/4.0% of total AUM.
Deposit base increased to INR146.8b, taking the CD ratio to ~136.2%. CASA ratio
moderated further to ~20%. CASA + retail TD now forms 44% of the total liability
franchise. Average cost of funds stood at 7.9% in 3Q (v/s 7.8% in 2QFY19).
Fresh slippages stood at INR1.03b (4.1% annualized), driving a 13% QoQ increase in
GNPLs. GNPL/NNPL ratios, thus, increased 6bp/3bp QoQ to 2.1%/1.3%. Provisions
declined 1.3% YoY to INR325m, while PCR stood at 37.6%. GNPA ratio for
retail/wholesale book stood at 2.5%/0.7%.
Other highlights: (a)
Tier 1 stands at 15.5%, with total CAR of 19%.
(b)
PSLC income
of INR123m has been deferred while INR43.4m of PSLC expense is to be amortized.
Valuation view:
AUBANK is making strong progress in scaling up its business and
alongside making adequate investments to support this momentum. We expect
business momentum to continue, while a gradual recovery in margins and cost
ratios will support earnings over the medium term. The stock may undergo further
time correction in the near term, affected by slower earnings growth. We, thus,
expect returns to be back-ended. Strong credit underwriting, diversified and
granular loan book, and committed management will nevertheless enable AUBANK
to perform ahead of peers. We estimate PAT CAGR of 40% (FY19-21) and revise our
target price to INR720 (4.4x FY21E BV). Maintain
Buy.
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
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
FY19E
13,133
39.6
5,045
18,178
11,192
6,985
21.3
1,330
5,655
1,934
3,721
27.4
4.1
2.5
1.9
1.1
39.6
3QFY19E v/s est.
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
-3.2
-4.6
-26.5
-9.9
-8.9
-11.3
-14.8
-22.9
-8.2
-7.4
-8.6
-11.4
4.9
7.3
0.2
0.1
-1.4
Financials & Valuations (INRb)
Y/E March
FY19E FY20E FY21E
NII
13.1
17.7
24.6
PPP
7.0
9.8
14.3
PAT
3.7
5.0
7.3
NIM (%)
5.2
4.5
4.4
EPS (INR)
12.9
17.1
24.3
EPS Gr. (%)
26.1
32.3
42.1
BV/Sh. (INR)
107.3 137.9 162.2
RoE (%)
13.8
13.9
16.2
RoA (%)
1.3
1.2
1.3
Valuations
P/E(X)
48.1
36.3
25.6
P/BV (X)
5.8
4.5
3.8
Quarterly performance (INR m)
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
3Q
3,480
39.0
1,059
4,539
2,752
1,787
16.8
325
1,462
509
953
20.8
4.2
2.6
2.1
1.3
37.6
4QE
3,579
24.8
1,730
5,309
3,386
1,923
24.4
305
1,618
533
1,085
30.7
4.1
2.5
1.9
1.1
39.6
Source: Company, MOSL
21 January 2019
7
 Motilal Oswal Financial Services
NIIT Technologies
BSE SENSEX
36,387
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
10,907
NITEC IN
Healthy momentum; uptrend in deal wins continue
61
Broad-based strength intact…:
3QFY19 USD revenues grew 16% YoY to
75.6 / 1.1
USD135m (in line), EBITDA grew 39% YoY to INR1,805m (estimate of 37%
1425 / 683
9/11/74
growth) and PAT grew 32% YoY to INR1,002m (estimate of 46% growth).
1525
Constant currency (CC) revenue growth was 4.2% QoQ (in line). EBITDA
69.4
19 January 2019
3QFY19 Results Update | Sector: Technology
CMP: INR1,227
TP: INR1,400 (+14%)
Neutral
Financials & Valuations (INR b)
2019E 2020E
Y/E Mar
Net Sales
37.2
43.9
EBITDA
6.8
8.1
PAT
4.3
5.1
EPS (INR)
69.5
82.2
Gr. (%)
52.6
18.1
BV/Sh (INR)
314.5
366.7
RoE (%)
23.1
24.1
RoCE (%)
21.6
23.7
P/E (x)
17.6
14.9
P/BV (x)
3.9
3.3
Estimate change
TP change
Rating change
margin expanded 60bp QoQ to 18.3%, marginally above our estimate of
30bp. PAT miss was mainly due to higher impact from forex and higher tax
rate emanating from dividend paid by a subsidiary.
NITEC’s 9MFY19 CC
2021E
revenue / EBITDA / PAT are up 15% / 32% / 53%.
49.3
9.0
…led
by Insurance vertical:
Growth was driven by Insurance (+10.8% QoQ)
5.7
and Travel (+7.1% QoQ), and BFS was only relatively slower (+3.1% QoQ).
93.1
Digital grew by 7% QoQ and 34% YoY, and now contributes 29% to total
13.3
revenue.
426.2
Uptrend in deal wins continue:
Order intake was at USD165m, taking the 12-
23.5
month executable order book to USD375m. This was the sixth consecutive
22.7
quarter of improvement in deal wins QoQ. In line with the recent trend, the
13.2
2.9
US dominated deal wins during the quarter, with USD96m TCV. LTM book-to-
bill inched up further to 1.21 from 1.19 in the previous quarter. Thus, revenue
growth of mid-to-high teens appears doable, given the traction in deals. NITEC
expects to sign at least two large deals every quarter.
Valuation View:
Our FY19/20 USD revenue estimates have remained largely
unchanged following a largely in-line 3Q. Marginal profitability uptick drives
3%+ earnings upgrade for FY20E/FY21E. NITEC trades at 15x FY20E earnings.
Our price target of INR1,400 discounts forward earnings by 16x and implies
14% upside. While we remain
Neutral,
we would treat any correction as an
entry opportunity.
21 January 2019
8
 Motilal Oswal Financial Services
19 January 2019
3QFY19 Results Update | Sector: Healthcare
Shilpa Medicare
Buy
BSE SENSEX
36,387
S&P CNX
10,907
CMP: INR400
TP: INR620(+55%)
G-Gleevec to boost profitability
US generics the key growth driver for SLPA over medium term
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
Avg Val, INRm
Free float (%)
SLPA IN
80
32.6 / 0.5
605 / 358
5/10/-34
20
46.2
Financials Snapshot (INR b)
Y/E Mar
FY19E FY20E FY21E
Net Sales
8.2 10.3
12.2
EBITDA
2.0
2.5
3.3
PAT
1.5
2.0
2.2
EPS (INR)
18.7 25.4
26.9
Gr. (%)
45.8 35.7
6.0
BV/Sh (INR)
153.5 177.1 202.2
RoE (%)
12.8 15.1
14.0
RoCE (%)
10.5 12.6
11.9
P/E (x)
21.4 15.7
14.9
P/BV (x)
2.6
2.3
2.0
Shareholding pattern (%)
As On
Sep-18 Jun-18 Sep-17
Promoter
53.8
53.8
54.7
DII
13.2
13.1
13.2
FII
19.0
19.0
18.9
Others
14.0
14.2
13.2
FII Includes depository receipts
Stock Performance (1-year)
Shilpa Medicare
Sensex - Rebased
690
620
550
480
410
340
Shilpa Medicare (SLPA) has received the USFDA’s final approval for Imatinib Mesylate
(g-Gleevec) used in Leukemia in the form of tablets (100mg and 400mg). g-Gleevec
(Imatinib Mesylate) is expected to open business opportunity of USD10-12m for SLPA
in the US generics segment.
With four ANDA approvals (3-final and 1-tentative) in place, SLPA’s ANDA pipeline is
strong with 34 ANDAs pending for approval. This implies strong growth for SLPA over
the next 2-3 years.
We expect SLPA to deliver revenue CAGR of 16% and earnings CAGR of 28% for FY18-21.
We remain positive on SLPA on the back of strong growth in earnings led by forward
integration to formulations and increased business from the regulated markets. We
continue to value SLPA at 23x 12M forward earnings and arrive at a price target of
INR620. Re-iterate BUY.
g-Gleevec to drive revenues; improve operating leverage:
SLPA has received
the USFDA’s final approval for Imatinib Mesylate (g-Gleevec) used in Leukemia
in the form of tablets (100mg and 400mg). Besides having para-IV filing for g-
Gleevec, SLPA had a settlement in place with the innovator, with respect to
litigation on the generic version of Gleevec since FY17. Also, SLPA has
regulatory compliance in place with respect to its formulation and API facility.
Thus, final approval was the last key milestone for g-Gleevec. The drug has a
market size of USD885m (IQVIA MAT Q2 2018) with six other generic
approvals, of which two approvals came in the last six months. Based on the
competitive scenario, we expect SLPA to garner sales of USD10-12m from this
product on annualized basis. This would also enhance operating leverage
thereby improving profitability of SLPA in the US generics business.
Robust outlook on the US business:
For FY18, US sales stood at ~INR1.4b
(USD20m; 19% of total sales), which came in largely from only two products
(Capecitabine and Azacitidine). Thus, on FY18 base business of USD19m, g-Gleevec
would contribute meaningfully in the US generic segment. Currently, SLPA has four
ANDA approvals (including g-Gleevec) and a healthy pipeline of 34 products
pending for approval. We expect US sales to reach INR3.2b in FY20 (32% of sales)
on the back of new launches and better traction in approved molecules.
Good compliance record; minimal regulatory risk over near term:
SLPA’s API
facility located at Raichur received EIR for inspection, which was carried out in
Jan’18. The formulations facility at Jadcherla received EIR in Mar’18 for inspection
carried out in Dec’17. Till date, SLPA’s formulation and API facilities have been
inspected thrice by the USFDA and have been complied within stipulated period of
time. Thus, we expect minimal regulatory risk over the near term.
Valuation and view:
We continue to value SLPA at a P/E multiple of 23x, a 15%
premium to industry average. We have factored in the strong growth in
earnings due to forward integration in formulations and increased business
from regulated markets. We expect SLPA to deliver revenue CAGR of 16% and
earnings CAGR of 28% for FY18-21. Accordingly, we arrive at a price target of
INR620, based on 23x 12M forward earnings and re-iterate BUY on the stock.
9
21 January 2019
 Motilal Oswal Financial Services
RESULTS
FLASH
BSE SENSEX
36,387
st
S&P CNX
10,907
CMP: INR16
TP: INR20 (+25%)
South Indian Bank
21 January 2019
Results Flash | Sector: Financials-Banks
Buy
Conference Call Details
Date:
22 Jan, 2018
Time:
10:30am IST
Dial-in details:
+91-22-7115 8172
Financials & Valuations (INR b)
Y/E March
NII
OP
NP
NIM (%)
EPS (INR)
BV/Sh (INR)
ABV (INR)
RoE (%)
RoA (%)
Valuations
P/E (x)
P/BV (x)
P/ABV (x)
8.4
0.6
0.7
10.7
0.5
0.7
5.6
0.5
0.6
FY18 FY19E FY20E
19.7
21.3
25.3
14.8
13.7
17.3
3.3
2.6
5.1
2.8
2.7
2.8
1.9
1.5
2.8
28.3
29.0
31.1
22.8
21.8
24.2
6.6
4.9
9.1
0.4
0.3
0.5
One-off impairments drags overall performance
SIB reported PAT of INR838m (27% YoY decline) dragged by higher provisions
even as operating profit growth stood flat. Fresh slippages increased to
INR6.59b led by downgrade of IL&FS exposure (INR4b) and one EPC account
(INR1.03b) even as the slippages in retail and agri portfolio improved.
Advances growth improved to 15% YoY / 5% QoQ while margins improved 5bp
QoQ to 2.66%. However NII growth stood modest at 2% YoY / 2.6% QoQ
probably affected by higher interest reversals. C/I ratio improved marginally to
53% mainly supported by other income (18% YoY growth). SIB has yet to
provide INR153m of unamortized MTM provision in the next quarter.
Loan growth of at 15% YoY was led by 29% YoY growth in pure retail loans
while corporate segment grew 14% YoY. The growth in agriculture and SME
book stood relatively modest at 7%/6% YoY respectively. Corporate book now
comprises ~35% of the total advances.
Despite elevated slippages (4.7% annualized) the impact on NPL ratios was
relatively controlled (27bp/38bp QoQ increase in GNPL/NNPL ratios). This was
driven by healthy reductions of INR3.8b (details awaited). Slippages in agri was
benign at 0.04% vs 0.22% in 2QFY19. Absolute GNPA increased 10.7% QoQ to
INR29.3b while NNPA increased 17.6% QoQ to INR20.9b while calculated PCR
declined to 28.3%. NSL (NNPA+Std Restr+SR) stands at INR33b - 5.53% of loans.
Valuation and view:
SIB is focused on improving the granularity in its loan book
and alongside strengthening fee income and margin profile. With balance sheet
getting significantly cleansed and slippage trends in Agri/SME/Retail segment
keeping benign we expect operating performance to improve though lower
PCR remains an overhang. We will revisit our estimates post earnings call.
FY18
2Q
5,032
13.0
2,805
7,837
32.6
3,234
4,603
54.8
4,537
66
23
43
-96.1
671.4
489.5
11.5
12.4
17.7
3.6
12.6
2.6
28.9
FY19E
2Q
5,065
0.6
1,579
6,644
-15.2
3,546
3,098
-32.7
2,047
1,051
350
701
1,523.6
749.1
565.7
11.6
15.6
26.5
4.6
17.8
3.2
32.6
FY18
3Q
5,196
2.0
1,868
7,064
5.7
3,744
3,320
0.6
2,031
1,289
450
838
-27.1
776.7
600.6
14.0
14.5
29.3
4.9
21.0
3.5
28.3
4QE
6,087
23.7
2,378
8,466
26.2
3,840
4,626
48.8
3,343
1,283
431
853
-25.3
821.1
638.4
14.0
17.0
28.6
4.5
18.7
2.9
34.8
19,655
17.3
8,372
28,028
17.2
13,220
14,808
21.9
9,809
4,999
1,650
3,349
-14.7
720.3
545.6
8.9
17.6
19.8
3.6
14.2
2.6
28.5
FY19E
21,291
8.3
7,284
28,575
2.0
14,835
13,740
-7.2
9,736
4,004
1,382
2,623
-21.7
821.1
638.4
14.0
17.0
28.6
4.5
18.7
2.9
34.8
Quarterly performance (INR m)
Net Interest Income
% Change (YoY)
Other Income
Total Income
% Change (YoY)
Operating Expenses
Operating Profit
% Change (YoY)
Provisions
Profit Before Tax
Tax
Net Profit
% Change (YoY)
Operating Parameters
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 (%)
1Q
4,607
23.3
2,193
6,800
24.3
3,005
3,795
46.2
2,243
1,552
537
1,015
6.7
657.9
465.0
13.7
12.8
17.0
3.6
11.8
2.5
30.3
3Q
5,094
22.0
1,588
6,682
-1.2
3,381
3,302
-12.4
1,543
1,759
609
1,150
3.3
681.1
524.5
7.1
18.5
17.7
3.4
12.1
2.3
31.8
4Q
4,922
12.1
1,787
6,709
16.3
3,600
3,109
10.7
1,486
1,623
482
1,141
51.0
720.3
545.6
8.9
17.6
19.8
3.6
14.2
2.6
28.5
1Q
4,943
7.3
1,459
6,402
-5.9
3,705
2,696
-28.9
2,315
381
151
230
-77.3
724.9
554.4
10.2
19.2
25.5
4.5
18.1
3.3
28.9
21 January 2019
10
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Fertilizers
Coromandel International
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
CRIN IN
292.4
131 / 2
586 / 340
11 / 9 / -23
Buy
We expect revenue to grow 13.7% YoY to INR30,645m in 3QFY19.
Fertilizer volumes are seen posting a de-growth of 7% YoY, but
significantly higher realization v/s previous year should more than
off-set the de-growth resulting in a revenue growth of 15.4% YoY
in nutrients and other allied businesses. Crop protection business
is expected to grow 8% YoY.
The volume de-growth is expected to be triggered by a decline in
growth of urea (15% YoY) and manufactured DAP (60% YoY). NPK
volumes are expected to post a minor growth of 2% YoY.
EBITDA margin is likely to contract 250bp to 9.3% due to
continuous rise in phos acid prices and a likely de-growth of 10%
YoY in EBITDA to INR2,855m.
Consequently, adj. PAT is expected to de-grow 15.9% YoY to
INR1,447m in 3QFY19.
The stock trades at 16.3x/14.2x FY20E/FY21E EPS. Maintain Buy.
Financial Snapshot (INR Billion)
Y/E March
2018 2019E 2020E 2021E
Sales
EBITDA
NP
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/Sales (x)
19.8
4.2
12.5
1.4
20.4
3.7
12.2
1.2
16.3
3.2
10.7
1.1
14.2
2.8
1.5
0.1
109.5 135.8 146.3 159.9
12.3
6.6
22.7
38.8
22.1
14.2
12.9
6.4
22.0
-3.0
19.4
13.4
14.5
8.0
27.5
24.9
21.2
14.2
16.4
9.3
31.6
15.0
21.0
14.9
106.9 120.1 139.2 162.4
Key things to watch for
Demand outlook given subdued Rabi sowing so far
Update on capacity expansion of phos acid plant
Quarterly Performance
Y/E March
Consolidated
Net Sales
YoY Change (%)
Total Expenditure
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
Extra-Ord expense
PBT
Tax
Rate (%)
Minority Interest & P/L of Asso. Cos.
Reported PAT
Adj PAT
YoY Change (%)
Margins (%)
E: MOSL Estimates
1Q
22,609
12.1
20,916
1,693
7.5
249
441
125
1,128
0
1,128
396
35.1
6
727
727
870.0
3.2
FY18
2Q
3Q
36,753 26,949
4.4
20.6
31,005 23,765
5,748
3,184
15.6
11.8
253
248
413
422
180
125
5,262
2,638
0
0
5,262
2,638
1,774
916
33.7
34.7
3
1
3,486
1,721
3,486
1,721
63.3
53.9
9.5
6.4
4Q
23,714
5.0
22,023
1,691
7.1
234
506
155
1,106
0
1,106
374
33.8
-3
735
735
-49.0
3.1
1Q
25,285
11.8
23,146
2,139
8.5
256
644
88
1,328
0
1,328
423
31.8
3
902
902
24.2
3.6
FY19
2Q
3QE
50,083 30,645
36.3
13.7
43,420 27,790
6,663
2,855
13.3
9.3
263
292
696
610
98
115
5,802
2,068
197
0
5,605
2,068
1,944
620
34.7
30.0
5
0
3,656
1,447
3,785
1,447
8.6
-15.9
7.6
4.7
(INR m)
FY18
FY19E
4QE
29,826 110,025 135,838
25.8
9.1
23.5
28,629 97,709 122,985
1,197 12,316 12,853
4.0
11.2
9.5
280
984
1,092
641
1,783
2,591
150
585
449
426 10,135
9,620
0
0
197
426 10,135
9,423
128
3,460
3,109
30.0
34.1
33.0
0
6
7
298
6,669
6,306
298
6,669
6,438
-59.5
39.1
-3.5
1.0
6.1
4.7
21 January 2019
11
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Metals
Hindustan Zinc
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
HZ IN
4225.3
1309 / 20
340 / 227
0 / -7 / -5
Neutral
We expect HZL’s EBITDA to increase 20% QoQ (-13% YoY) to
INR28.1b on higher realization and volumes.
LME zinc is expected to increase USD89/t QoQ to USD2,630/t.
Lead is down USD145/t QoQ to USD1,963/t.
Mine metal production is expected to increase 10% QoQ to 255kt.
PAT is expected to increase 20% QoQ to INR21.8b (-2% YoY).
Neutral.
Financial Snapshot (INR Billion)
Y/E March
2018 2019E 2020E 2021E
Sales
221
214
260
253
EBITDA
122.7 107.8 139.3 133.2
NP
89.2 81.5 107.8 103.7
Adj. EPS (INR)
21.1 19.3 25.5 24.5
EPS Gr(%)
7.2
-8.6 32.3
-3.8
BV/Sh. (INR)
85.0 80.3 95.1 109.4
RoE (%)
26.7 23.3 29.1 24.0
RoCE (%)
35.5 31.9 38.6 31.5
Payout (%)
45.5 124.5 42.0 42.0
Valuations
P/E (x)
12.8 14.0 10.6 11.0
P/BV (x)
3.2
3.4
2.8
2.5
EV/EBITDA (x)
7.5
8.8
6.4
6.3
Div. Yield (%)
3.0
7.4
3.3
3.2
Key issues to watch for
Decline in global zinc prices.
Production issues.
Quarterly Performance
Y/E March
Zinc refined (kt)
Lead refined (kt)
Silver (tonnes)
Zinc LME (USD/t)
Net Sales
Change (YoY %)
EBITDA
Change (YoY %)
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
Adjusted PAT
Change (YoY %)
1Q
190
34
110
2,589
45,760
80.8
23,840
110.8
52.1
1,370
3,600
5,300
24,170
0
24,170
5,410
22.4
18,760
18,760
80.8
FY18
2Q
193
40
146
2,950
53,090
50.6
30,240
45.6
57.0
840
3,940
4,870
30,330
-2,910
33,240
7,790
23.4
25,450
22,540
18.5
3Q
200
45
132
3,236
59,220
18.9
32,440
16.5
54.8
170
4,810
2,980
30,440
0
30,440
8,140
26.7
22,300
22,300
-3.9
4Q
210
50
167
3,180
62,770
0.3
36,200
-3.4
57.7
450
4,590
4,860
36,020
510
35,510
10,460
29.5
25,050
25,560
-16.4
1Q
170
42
141
3,108
53,100
16.0
27,130
13.8
51.1
150
3,870
2,990
26,100
0
26,100
6,920
26.5
19,180
19,180
2.2
FY19
2Q
160
49
161
2,541
47,770
-10.0
23,340
-22.8
48.9
0
4,540
3,940
22,740
0
22,740
4,590
20.2
18,150
18,150
-19.5
FY18
3QE
194
51
170
2,630
55,288
-6.6
28,090
-13.4
50.8
0
4,590
4,114
27,613
0
27,613
5,799
21.0
21,814
21,814
-2.2
4QE
206
53
175
2,600
58,027
-7.6
29,247
-19.2
50.4
0
4,636
3,636
28,246
0
28,246
5,932
21.0
22,315
22,315
-12.7
793
169
555
3,048
220,840
27.7
122,720
26.0
55.6
2,830
16,940
18,010
120,960
-2,400
123,360
31,800
25.8
91,560
89,160
7.2
INR m
FY19E
730
195
647
2,724
214,185
-3.0
107,806
-12.2
50.3
150
17,637
14,680
104,700
0
104,700
23,241
22.2
81,459
81,459
-8.6
21 January 2019
12
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Financials
Kotak Mahindra Bank
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR B)
Y/E MARCH
FY18 FY19E
NII
95.3 109.5
OP
71.6 85.9
NP
40.8 47.2
Cons. NP
62.0 71.2
NIM (%)
4.3
4.1
EPS (INR)
21.8 24.8
EPS Gr. (%)
17.4 13.5
BV. (INR)
196.7 220.5
ABV. (INR)
177.6 199.7
Cons. BV. (INR)
264.9 302.1
Cons. ABV. (INR) 253.5 290.9
Cons. RoE (%)
13.9
13.2
KMB IN
1906.1
2365 / 34
1424 / 993
2 / -9 / 18
FY20E
132.0
104.6
57.9
85.9
4.2
30.4
22.6
249.8
226.8
346.3
334.6
13.9
FY21E
161.6
129.1
72.6
105.4
4.2
38.1
25.5
286.7
259.9
400.7
388.0
14.8
Neutral
We expect the standalone bank to report ~23% loan growth and
~21% deposit growth in 3QFY19. NIM is likely to remain stable at
4.3%. Overall, we expect NII growth of 18% YoY. CASA retention
would be a key driver of NII and NIM.
With strong digital initiatives and fast-paced customer acquisition,
fee income would be a key growth driver for the bank. We factor
in other income growth of 23% in 3QFY19, driven mostly by
healthy fee traction and expect the trend to continue.
We expect asset quality to remain stable, with GNPA at ~2.1% and
NNPA at 0.8%, led by improvement in the coverage ratio.
On a reported basis, we expect standalone bank earnings to grow
~19% YoY. The stock trades at 3.1x FY21E consolidated BV.
Maintain
Neutral.
Key issues to watch for
Guidance on balance sheet growth and trend in customer
acquisition post the Aadhar verdict.
Performance on CASA, fees and growth.
GNPAs in the MSME segment.
RoE (%)
12.5 11.9 12.9 14.2
RoA (%)
1.7
1.6
1.7
1.7
Valuations
P/BV (X) (Cons.)
4.7
4.1
3.6
3.1
P/ABV (X) (Cons.)
4.9
4.3
3.7
3.2
P/ABV (X)*
4.9
4.4
3.9
3.4
P/E(X)*
40.3 35.5 28.9 23.0
*Adjusted for Investment in subsidiaries
Quarterly Performance
Y/E March
Net Interest Income
% Change (Y-o-Y)
Other Income
Net Income
% Change (Y-o-Y)
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Loan growth (%)
Cost to Income Ratio (%)
Tax Rate (%)
Asset Quality
Gross NPA (INR b)
Gross NPA (%)
Net NPA (INR b)
Net NPA (%)
PCR (%)
1Q
22,456
17.0
9,069
31,525
18.9
15,571
15,954
21.3
2,037
13,917
4,789
9,128
23.0
17.9
49.4
34.4
37.3
2.6
17.8
1.3
52.3
FY18
2Q
23,126
15.9
9,539
32,665
15.6
15,417
17,248
19.8
2,165
15,083
5,140
9,943
22.3
21.1
47.2
34.1
38.1
2.5
19.2
1.3
49.7
3Q
23,937
16.7
10,398
34,335
16.0
16,135
18,201
19.1
2,128
16,073
5,541
10,532
19.7
23.1
47.0
34.5
37.1
2.3
17.3
1.1
53.5
4Q
25,798
19.4
11,516
37,314
17.9
17,134
20,180
18.6
3,069
17,110
5,870
11,241
15.1
24.7
45.9
34.3
38.3
2.3
16.7
1.0
56.5
1Q
25,829
15.0
11,646
37,475
18.9
17,150
20,325
27.4
4,696
15,629
5,380
10,249
12.3
24.3
45.8
34.4
39.0
2.2
15.3
0.9
60.8
FY19E
2Q
3QE
26,891 28,305
16.3
18.2
12,053 12,765
38,944 41,070
19.2
19.6
17,994 18,449
20,950 22,621
21.5
24.3
3,538
3,659
17,412 18,962
5,995
6,447
11,417 12,515
14.8
18.8
21.2
23.2
46.2
44.9
34.4
34.0
40.3
2.2
15.0
0.8
62.8
42.0
2.1
15.3
0.8
63.5
FY18
(INR m)
FY19E
4QE
28,469 95,317 1,09,494
10.4
17.3
14.9
11,758 40,522 48,221
40,227 1,35,839 1,57,716
7.8
17.1
16.1
18,192 64,257 71,785
22,035 71,582 85,931
9.2
19.6
20.0
2,344
9,400 14,238
19,691 62,182 71,693
6,697 21,339 24,519
12,993 40,843 47,174
15.6
19.7
15.5
22.1
24.7
22.1
45.2
47.3
45.5
34.0
34.3
34.2
43.7
2.1
16.3
0.8
62.7
38.3
2.3
16.7
1.0
56.5
43.7
2.1
16.3
0.8
62.7
21 January 2019
13
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Financials - NBFCs
L&T Finance
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
LTFH IN
1988.1
300 / 4
190 / 111
5 / 1 / -18
Buy
With a strong parentage, LTFH has been able to raise adequate
capital at competitive rates. This has helped it maintain growth
momentum.
The company is likely to report strong numbers in the rural and
housing finance segments. Performance in the wholesale finance
and builder finance segments is a key monitorable. We expect
AUM to growth 25% YoY growth to INR950b.
We expect NII to be at INR16.1b, with margins largely stable
sequentially.
Operating profit should be at INR11.8b vs. INR 11.7b in 2QFY19.
Asset quality is expected to remain stable. We factor in provisions
of INR3.8b v/s INR3.7b in the prior quarter.
PAT is likely to be at INR5.8b in the quarter.
The stock trades at 2.3x FY19E and 1.9x FY20E BV. Maintain
Buy.
Financial Snapshot (INR b)
Y/E March
Total Income
PPP
PAT
EPS (INR)
BV/Sh. (INR)
RoAA (%)
RoE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
Div. Yield (%)
22.1
2.7
0.7
13.1
2.3
0.9
11.2
1.9
0.9
9.3
1.6
1.1
2018 2019E 2020E 2021E
51.7
36.4
13.5
6.8
56.2
1.7
14.2
17.1
67.9
46.9
22.8
11.5
66.1
2.3
18.7
13.9
84.7
58.8
26.6
13.4
77.9
2.2
18.6
11.6
101.4
70.4
32.2
16.2
92.2
2.3
19.1
11.6
Key issues to watch for
Asset quality outlook in the builder book.
Commentary on outlook for rural and housing finance segments.
Competition in the wholesale finance segment, especially
renewables.
Quarterly performance
Y/E March
Interest Income
Interest Expenses
Net Interest Income
YoY Growth (%)
Other income
Total Income
YoY Growth (%)
Operating Expenses
YoY Growth (%)
Operating Profits
YoY Growth (%)
Provisions
Profit before Tax
Tax Provisions
Profit after tax
YoY Growth (%)
Loan growth (%)
Cost to Income Ratio (%)
Tax Rate (%)
E: MOSL Estimates
1Q
23,010
12,703
10,307
22.6
1,262
11,570
32.2
3,565
10.7
8,005
44.8
4,433
3,571
204
3,143
51.5
19.7
30.8
5.7
(INR m)
FY18
2Q
3Q
25,967 26,302
13,137 13,596
12,831 12,706
37.3
36.1
129
709
12,960 13,415
31.1
33.9
4,313
4,006
29.7
27.0
8,647
9,409
31.9
37.1
5,180
4,928
3,467
4,480
14
636
3,447
3,841
38.9
41.8
20.7
22.6
33.3
29.9
0.4
14.2
4Q
27,483
14,373
13,111
30.5
1,901
15,012
39.0
4,671
52.5
10,341
33.6
4,746
5,595
1,504
4,060
28.5
25.3
31.1
26.9
1Q
30,878
15,132
15,747
52.8
648
16,395
41.7
5,543
55.5
10,852
35.6
3,560
7,292
1,894
5,398
71.8
24.3
33.8
26.0
FY19E
2Q
3QE
32,463 33,275
16,497 17,157
15,966 16,118
24.4
26.9
797
850
16,764 16,968
29.3
26.5
5,057
5,208
17.2
30.0
11,706 11,760
35.4
25.0
3,730
3,800
7,976
7,960
2,385
2,149
5,591
5,811
62.2
51.3
24.1
24.9
30.2
30.7
29.9
27.0
FY18
FY19E
4QE
34,879 102,763 131,495
17,987 53,808 66,772
16,893 48,955 64,723
28.8
31.8
32.2
893
4,001
3,189
17,785 52,956 67,912
18.5
34.2
28.2
5,192 16,555 21,001
11.2
29.7
26.8
12,593 36,401 46,911
21.8
36.4
28.9
4,618 19,288 15,708
7,975 17,113 31,203
1,997
2,357
8,425
5,978 15,021 22,779
47.3
44.1
51.6
18.7
27.3
19.9
29.2
31.3
30.9
25.0
13.8
27.0
21 January 2019
14
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Technology
Zensar Technologies
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
ZENT IN
226.0
52 / 1
352 / 146
5 / -11 / 28
Buy
We expect revenue of USD142m, representing growth of 2.9%
QoQ. This breaks-up into 3.2% QoQ CC growth, a cross-currency
headwind of 30bp for ZENT.
Growth would be a function of strength in Digital, a recovery in
the US and ramp-up of recent deal wins.
We expect EBITDA margin to expand by 60bp QoQ to 13.3% due
to higher contribution from digital.
Our PAT estimate is INR562m, a decline of 40% QoQ, despite
higher operational efficiency due to forex losses (as against
translation gains in previous quarter).
The stock trades at 16.6x FY19E and 14.5x FY20E earnings. Buy.
Financial Snapshot (INR b)
y/e mar
2018 2019 2020E 2021E
Sales
31.1
39.2
44.4
49.4
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div Yld (%)
3.6
2.4
10.6
1.3
73.2
15.3
18.2
20.9
22.2
3.2
13.4
0.9
5.0
3.2
14.1
33.6
84.2
17.9
22.5
17.5
16.6
2.8
9.5
1.1
5.8
6.7
3.6
4.3
16.1
19.2
14.6
19.3
96.9 112.0
17.8
18.4
23.0
23.5
18.3
18.4
14.5
2.4
7.9
1.3
12.2
2.1
6.4
1.5
Key issues to watch for
Traction in Digital, large deals and other new initiatives.
Margin outlook, given restructuring of IMS business.
Progress on revival of revenue growth post US turnaround.
Quarterly Performance
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
Utilization (%)
Offshore rev. (%)
1Q
114
2.2
7,367
-2.5
27.6
17.4
748
10.2
7.7
203
32.0
472
354.7
-36.3
2.1
8,567
83.2
37.5
FY18
2Q
3Q
119
123
3.8
3.4
7,626
7,937
-1.0
0.9
28.8
30.1
17.2
16.8
884
1,054
11.6
13.3
9.3
11.3
194
49
26.8
33.7
608
574
29.0
-5.7
-13.6
-28.3
2.7
2.5
8,414
8,597
85.9
84.8
37.5
37.0
4Q
127
3.3
8,147
9.6
29.4
17.6
961
11.8
10.1
268
28.8
726
26.5
599.7
3.2
8,905
83.8
37.3
1Q
135
6.6
9,047
18.6
30.7
16.5
1,163
12.9
10.8
238
27.8
821
13.0
34.9
3.6
9,122
85.8
35.4
FY19
2Q
3QE
138
142
2.3
2.9
9,687 10,231
22.0
25.6
29.0
29.3
16.5
16.0
1,229
1,362
12.7
13.3
10.4
11.1
412
-243
28.1
28.0
934
562
13.8
-39.9
62.7
-22.7
4.1
2.5
9,482
9,832
82.6
80.5
33.6
32.6
(INR m)
FY18
FY19E
4QE
142
0.2
10,249
13.3
28.3
15.7
1,289
12.6
10.4
256
28.0
863
53.7
5.2
3.8
9,732
82.0
32.9
482
5.0
31,077
1.7
29.0
17.2
3,647
11.7
9.6
714
30.2
2,380
1.3
10.6
8,905
84.4
37.3
558
15.6
39,214
26.2
29.3
16.4
5,043
12.9
10.7
663
28.0
3,179
33.6
14.1
9,732
82.7
33.6
21 January 2019
15
 Motilal Oswal Financial Services
In conversation
1. MUTHOOT FINANCE : THERE WILL BE NO IMPACT OF
ELECTIONS ON GOLD LOANS OR RECOVERY; George
Alexander Muthoot, MD
The gold loan business has started going up and many other concerns which
were there are behind especially the funding, ALM issues are behind now.
Should see an uptick in gold loans in the next two-three months as also in the
other verticals.
The gold loan sector has seen flat growth last quarter. But from the second half
of December, seeing an uptick in gold loans. So, better results can be expected
this quarter. Should end the year with a 15% year-on-year growth in AUM.
Home finance sector is having some ALM issues. Because company is fully
backed by Muthoot Finance, it does not have issue there, but overall in the
home finance sector, do not think everybody is growing aggressively. Have only
a muted growth in the next quarter for home finance.
10% of assets managed are not gold loan. The share of non-gold loan should go
up to 14-15% at the end of the year.
Have seen a 100 bps rise in the incremental borrowings from banks but for gold
loan sector, the customers are not that interest sensitive unlike housing finance
etc. So have been able to pass this on to the customers. In last three months,
have raised interest also by 100 bps. Therefore, the net interest margins should
remain as steady as earlier quarters.
Company does not give gold loan to SME. Gold loan NPA is less than 2%.
2. NIIT TECH : OUR ORDER BOOK HAS GROWN Q-O-Q FOR 6
QUARTERS; Arvind Thakur, VC & MD
Order intake has been $165 million and it has improved quarter on quarter in
the previous six quarters. Last quarter it was $160 million, prior to that it was
$151 million. Have good momentum going in the business and the demand
environment also looks bright.
On order wins, one is a completely new engagement which company is doing for
a speciality insurance organisation and another is fresh offshore dedicated
centre (ODC) that company is setting up with one of its large BFS clients. In all
the previous quarters, have been securing at least two large deals. The deal
pipeline is good and at regular intervals seem to be converting two deals every
quarter.
BFS had been growing well in the previous quarters. Quarter-on-quarter, it has
grown 1.7% but not as much as the other industry segments. For example,
insurance has grown 9.8% quarter-on-quarter and travel and transport has
grown 5.4%.
Margins are improving on two accounts. One, of course, is because company is
seeing good momentum in revenues and are driving much more of revenue out
of the SGNA that company has invested in. SGNA as a percentage of revenues
has improved significantly in this quarter.
The US environment is quite buoyant. Seeing good traction in each one of the
segments.
Have about Rs 870 crore in cash and cash equivalents and focus is on investing
in the business.
21 January 2019
16
 Motilal Oswal Financial Services
From the think tank
1. HOW INDIA’S ECONOMY SMOOTHLY NAVIGATED TROUBLED
WATERS
The economic outlook is gloomy. However, let me start on a positive note. The
advance estimates of national income indicate that real gross domestic product
(GDP) will grow at 7.2% in FY 2018, up from 6.7% last year. The advance
estimates, based on data for the first six months and up to November for some
indicators, are a fair assessment of the likely outcome. The earlier projections of
the Reserve Bank of India (RBI), the International Monetary Fund (IMF) and the
World Bank are also all higher than the advance estimates. Hence, barring any
major shock in the next 10 weeks, it is quite likely that the year will end with at
least 7% growth. This robust growth is also fairly diversified with more than 8%
growth in manufacturing and 9% growth or more in electricity and other utilities,
construction, and public services. It is particularly encouraging that the growth
upturn is being led by the recovery of investment instead of debt-financed
consumption as in the recent past. After stagnating for several years, quarterly
growth of gross fixed capital formation (GFCF) has been recovering since the
second quarter of FY 2017.
2. TO INVEST OR NOT TO INVEST
Come January 23, Tamil Nadu will roll out the red carpet for investors as its
much publicised Global Investors Meet (GIM) gets under way. If senior
government officials are to be believed, the second edition of this purportedly
biennial event will see over 140 MoUs being signed, committing an aggregate
investment in excess of ₹2.4 lakh crore (the amount the State claimed the
maiden summit in 2015 attracted). In run-up to the event, investments to the
tune of ₹50,000 crore
have already been approved by the State Cabinet. Tamil
Nadu has been one of India’s most attractive investment destinations for a
variety of reasons. It is the second largest economy State-wise, topping in
industrial performance and housing the largest number of factories in the
country. The State produces the highest number of skilled manpower and
boasts of a workforce that is both productive and docile.
3. AMERICA MUST FACE REALITY ON CHINA
The agreement in Buenos Aires last December between US President Donald
Trump and his Chinese counterpart, Xi Jinping, led many to assume that the two
countries’ trade war would soon be over. Although such optimism is misplaced,
so are fears of a global economic meltdown caused by a rupture in US-China
relations. Frequent bilateral skirmishes will no doubt continue, as we saw with
the arrest in early December of Huawei CFO Meng Wanzhou. But for all the
economic rivalry and political disagreement between the United States and
China, a catastrophic outcome is unlikely, so long as the US faces reality in three
ways. For starters, US policymakers need to accept the “new normal” of a China
that boasts the world’s largest GDP (in purchasing-power parity terms). Just as
the US was the largest economy in the twentieth century, China will be in the
twenty-first. But under any scenario, America will of course remain a major
economic power.
21 January 2019
17
 Motilal Oswal Financial Services
Click excel icon
for detailed
valuation guide
Valuation snapshot
Company
Reco
Automobiles
Amara Raja
Buy
Ashok Ley.
Buy
Bajaj Auto
Buy
Bharat Forge
Buy
Bosch
Neutral
CEAT
Buy
Eicher Mot.
Buy
Endurance Tech. Buy
Escorts
Neutral
Exide Ind
Buy
Hero Moto
Neutral
M&M
Buy
Maruti Suzuki
Buy
Motherson Sumi Buy
Tata Motors
Buy
TVS Motor
Neutral
Aggregate
Banks - Private
AU Small Finance Buy
Axis Bank
Buy
DCB Bank
Neutral
Equitas Hold.
Buy
Federal Bank
Buy
HDFC Bank
Buy
ICICI Bank
Buy
IndusInd
Buy
Kotak Mah. Bk Neutral
RBL Bank
Buy
South Indian
Buy
Yes Bank
Buy
Aggregate
Banks - PSU
BOB
Buy
BOI
Neutral
Canara
Neutral
Indian Bk
Buy
PNB
Neutral
SBI
Buy
Union Bk
Neutral
Aggregate
NBFCs
Aditya Birla Cap Buy
Bajaj Fin.
Neutral
Cholaman.Inv.&F
Buy
n
Dewan Hsg. Fin. Buy
HDFC
Buy
HDFC Stand. Life Buy
ICICI Pru Life
Buy
Indiabulls Hsg
Buy
L&T Fin Holdings Buy
LIC Hsg Fin
Buy
MAS Financial
Buy
M&M Fin.
Buy
CMP
TP % Upside
EPS (INR)
EPS Gr. YoY (%)
P/E (x)
P/B (x)
ROE (%)
(INR) (INR) Downside FY18 FY19E FY20E FY18 FY19E FY20E FY19E FY20E FY19E FY20E FY19E FY20E
781
93
2726
489
19141
1232
20374
1162
734
251
2906
734
7334
159
185
547
834
136
3186
579
21233
1534
24760
1513
745
306
3040
914
8845
191
246
569
7
46
17
18
11
24
22
30
1
22
5
24
21
20
33
4
27.6
5.4
151.3
18.4
469.8
64.0
799.6
29.1
39.5
8.2
185.1
41.0
266.7
5.4
22.7
13.9
29.0
6.0
155.9
22.6
552.1
70.3
856
36.2
51.7
9.2
173.3
44.1
257.3
5.7
3.2
14.9
37.0
7.8
181.5
27.6
679.9
86.4
1,021
46.2
61.1
11.5
187.2
49.6
321.7
8.4
21.8
21.8
-1.5
23.9
7.3
40.7
-0.7
-30.3
27.0
23.8
88.0
0.4
9.5
49.8
7.3
6.0
14.5
18.7
15.1
5.0
27.8
11.0 30.9
3.1
16.4
22.5 22.2
17.5 23.2
9.9
22.8
7.0
19.3
24.5 27.8
30.9 18.0
12.4 25.0
-6.4
8.0
7.4
12.6
-3.6 25.1
6.3
47.4
-85.8 575.8
6.7
46.6
-13.7 39.4
26
1,462
27.6
576.5
21.8
17.6
-27.3
14.3
14.8
38.0
-19.1
9.8
22.7
32.6
118.6
30.1
34.6
48.5
20.2
151.6
45.6
20.6
32.0
86.7
21.7
49.2
72.4
LP
202.9
133.6
LP
270.8
185.8
552.8
27.2
30.1
11.8
1.2
15.0
18.3
7.3
14.7
16.6
22.2
22.0
15.6
27.0
15.6
17.5
21.7
34.7
17.5
23.8
32.1
14.2
27.2
16.8
16.7
28.5
27.8
57.3
36.8
24.1
48.1
39.0
18.3
19.1
15.3
26.7
46.4
22.1
32.7
27.3
10.7
10.0
28.7
12.8
NM
16.1
11.6
NM
34.1
21.2
56.0
23.1
38.5
15.4
4.1
45.2
60.5
41.3
8.6
12.3
10.6
21.8
19.6
21.1
11.9
15.0
17.7
28.2
14.3
20.0
25.1
12.0
21.8
15.5
14.8
22.8
18.9
8.5
25.1
17.3
36.3
17.8
14.1
14.2
10.3
22.2
18.5
15.2
27.1
20.7
5.6
8.2
19.3
7.4
12.1
5.3
5.0
10.6
9.2
7.4
8.6
18.1
29.6
13.8
4.1
39.3
51.1
38.5
7.5
10.6
8.7
17.9
17.0
4.0
3.4
3.7
4.2
5.3
1.7
6.3
6.4
2.5
3.6
4.6
2.6
4.8
4.8
0.7
7.7
3.0
5.8
2.6
1.9
1.7
1.3
3.9
2.2
3.5
4.0
3.2
0.5
1.6
3.1
0.7
0.6
0.6
0.7
0.8
1.2
0.4
0.9
2.1
7.7
3.0
0.7
4.7
4.3
2.3
2.1
2.1
1.5
3.6
2.6
3.5
2.9
3.3
3.6
4.8
1.6
5.1
5.4
2.1
3.2
4.3
2.3
4.4
4.1
0.6
6.3
2.7
4.5
2.3
1.7
1.5
1.2
3.4
2.1
2.7
3.5
2.9
0.5
1.3
2.7
0.7
0.6
0.6
0.6
0.7
1.1
0.4
0.8
1.9
6.3
2.5
0.6
4.3
3.6
2.0
1.8
1.8
1.3
3.2
2.3
15.8
23.0
22.4
20.9
16.1
10.4
29.5
21.5
19.1
13.1
28.3
14.4
17.0
18.2
1.1
22.7
12.4
13.8
6.8
11.6
9.0
9.0
16.7
5.0
16.5
11.9