22 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
36,579
10,962
17,378
Close
2,671
7,157
6,971
11,136
10,713
20,719
Close
62
1,276
5,952
1,848
Close
71.3
1.1
109.7
Close
7.3
8.6
21-Jan
-0.04
0.07
21-Jan
315
5,471
Chg .%
0.5
0.5
-0.8
Chg .%
0.0
0.0
0.0
-0.6
0.7
0.3
Chg .%
0.5
-0.5
-1.3
-0.8
Chg .%
0.1
0.0
-0.1
1MChg
0.04
0.00
MTD
-0.3
0.2
MTD*
289
8,614
CYTD.%
1.4
0.9
-2.3
CYTD.%
7.4
8.7
3.5
5.5
7.2
3.5
CYTD.%
20.2
-0.4
-0.6
-0.5
CYTD.%
1.9
-0.7
-0.5
CYTDchg
-0.1
0.0
CY18
-4.6
15.9
CYTD*
289
8,614
Today’s top research idea
Kotak Mahindra Bank: Loan growth accelerates further,
margin cycle set to reverse
KMB has been reporting strong traction in loan growth, even as it is
consciously not growing the business banking segment. Healthy
capitalization (tier1 of 17.6%) places the bank in a sweet spot to capitalize
on growth opportunities and consistently gain market share.
We expect loan CAGR of 23% over FY19-21 on the back of higher refinancing
opportunities, increased pricing power, healthy customer acquisition run-
rate and cross-sell to existing customers. Further, the bank has maintained
stable asset quality in a challenging environment and is on track to build a
formidable liability franchise. The capital market, securities and asset
management businesses can provide further upside to earnings as the
business cycle improves.
We estimate consol. earnings CAGR of 20% over FY18-21. Maintain
Neutral
with a revised TP of INR1,350 (3.8x Sep’20E ABV for the lending business).
Research covered
Cos/Sector
Key Highlights
Kotak Mahindra Bank Loan growth accelerates further, margin cycle set to reverse
Hindustan Zinc
In-line: On track to achieve 1.2mt mine prod. Capacity
Performance encouraging; Outcome of IL&FS saga key
L&T Fin. Holdings
monitorable
Coromandel Intl
In-line revenue; marginal beat on EBITDA/PAT
MRPL
Expect better refining margins
Zensar Technologies Revenue traction at the expense of profitability
South Indian Bank
Asset quality concerns to ease; valuations reasonable
Metals Weekly
India steel product prices remain weak
ALPM | APNT | HAVELLS | HDFCLIFE | IPRU | OBEROI | SCRM |
Results Expectation
TVSL
Chart of the Day: Kotak Mahindra Bank – Loan growth accelerates further, margin cycle set
to reverse
Auto loans grew 1.1% YoY and -2.6% QoQ
K-Sec market share improved 90bp QoQ to 2.9%
Source: MOSL, Company
Source: MOSL, Company
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
India will grow at a world-
beating 7.5% in 2019-20 amid
slower global expansion, the
International Monetary Fund
(IMF) said, upgrading its October
forecast of 7.4%…
2
Lactalis to buy Prabhat Dairy business for Rs 1,700 crore
French dairy group Lactalis has signed a definitive agreement to buy
the milk-processing business of Maharashtra-based Prabhat Dairy for
about Rs 1,700 crore through a slump sale. Lactalis’ local arm,
Tirumala Milk Products, will acquire Prabhat’s dairy business as well
as its step-down subsidiary Sunfresh Agro Industries through a share
purchase agreement, it said in a statement…
IMF forecasts India’s growth
will improve to 7.5% in the
next fiscal
3
RBI mulls opening up
payment system operators to
private parties, places
discussion paper online
4
IDBI Bank Ltd has said its board
has approved a proposal to
resume the process of divesting
its stake in a life insurance joint
venture. IDBI Federal Life
Insurance Co. Ltd is a three-way
joint venture between IDBI Bank,
Federal Bank and Belgian insurer
Ageas …
IDBI  gets nod to
resume insurance JV stake
sale plan
The Reserve Bank of India has
outlined norms for private
parties to apply for development
of retail payment systems in the
country like IMPS, UPI and
others.…
5
Bajaj Auto to unveil EVs next
year
Bajaj Auto will be introducing
electric vehicles (EVs) next year,
according to Rajiv Bajaj, MD.
Besides electric two-wheelers,
the company was also looking at
launching the electric version of
its quadricycle Qute as well as
electric three-wheelers, Mr.
Bajaj said on Monday…
6
8,000 MW of old thermal
power generation capacity
phased out, says official
Around 8,000 MW of old thermal
power generation capacity has
been phased out till now and will
be replaced by cleaner options
such solar energy in a bid to
clean up the power generation
sector...
7
BHEL, Libcoin consortium to build
Lithium-Ion gigafactory
State-owned Bharat Heavy
Electricals Limited (BHEL), one of
India’s largest power generation
equipment manufacturers, is in
talks with LIBCOIN consortium to
build Indian government’s first
lithium-ion gigafactory as part of
Prime Minister Narendra Modi’s
“Make in India, for India”
programme…
22 January 2019
2
 Motilal Oswal Financial Services
Kotak Mahindra Bank
BSE SENSEX
36,579
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
10,962
KMB IN
Loan growth accelerates further, margin cycle set to reverse
1,907
2417.4 / 33.9
Standalone results:
Provision write-backs and healthy NII helped KMB to
1424 / 1002
report strong 3QFY19 PAT of INR12.9b (+23% YoY, marginally ahead of our
1/-3/17
estimate). NII grew 23% YoY to INR29.4b, led by healthy loan growth of 23%
3320
YoY/6% QoQ and margin expansion of 13bp QoQ to 4.33%. For 9MFY19, PPoP
70.0
21 January 2019
3QFY19 Results Update | Sector: Financials
CMP: INR1,267
TP: INR1,350 (+6%)
Neutral
Financials & Valuations (INR b)
Y/E MARCH
FY18 FY19E FY20E FY21E
NII
95.3 112.4 137.9 170.5
OP
71.6 86.8 108.1 134.0
NP
40.8 48.2 59.9 74.7
Cons. NP
62.0 72.2 87.9 107.5
NIM (%)
4.3 4.2 4.3 4.4
EPS (INR)
21.8 25.3 31.4 39.2
EPS Gr. (%)
17.4 15.9 24.2 24.8
BV. (INR)
196.7 221.0 251.4 289.4
ABV. (INR)
177.6 200.6 228.9 263.3
Cons. BV. (INR) 264.9 302.6 347.9 403.4
Cons. ABV. (INR) 253.5 291.7 336.7 391.5
Cons. RoE (%)
13.9 13.4 14.2 15.0
RoE (%)
12.5 12.1 13.3 14.5
RoA (%)
1.7 1.7 1.7 1.8
Valuations
P/BV (X) (Cons.)
4.8 4.2 3.6 3.1
P/ABV (X) (Cons.) 5.0 4.3 3.8 3.2
P/ABV (X) (Adj)*
5.1 4.5 4.0 3.4
P/E(X) (Adj)*
41.5 35.8 28.8 23.1
*Price adjusted for Investment in subsidiaries
grew 18.0%, while PAT increased 17% YoY.
Loan book grew 23.5% YoY,
led by strong growth in retail loans (+25% YoY)
and corporate loans (+22.5% YoY), while deposits grew 18% YoY (CASA
deposits up 28.5% YoY). SA deposits continue growing strongly by 31% YoY (SA
cost of 5.67%). Core deposit mix (CASA + TD < INR50m) stood at 80% of total
deposits. CASA mix improved to 50.7%.
Asset quality improved,
with NNPA declining by 6.9% QoQ. The bank made
provisions of INR2.5b toward advances v/s our estimate of INR3.6b. However,
KMB reported negative provisions (-INR0.3b) due to write-backs of INR2.7b on
the investment portfolio (AFS and HFT category). GNPL/NNPL ratios stood at
2.07%/0.71% (-8bp/-10bp), while PCR improved by 337bp QoQ to 66.2%.
Subs performance remains mixed:
Kotak Life reported 29% YoY growth in its
net profit, while Kotak AMC reported 100% YoY growth on a low base. Kotak
Prime and Securities, however, reported de-growth of 6/36% YoY. Share of the
bank in consol. profit stood at 70%. Consol. PAT grew 14% YoY to INR18.44b.
Other highlights:
(a) KMB reported a Tier 1 ratio of 17.6%, with a total CAR of
18.1%. (b) SMA-2 advances stood at 18bp of loans. (c) According to Basel III,
the exposure toward NBFCs has come down to 4.5% from 5.2% in 2QFY19.
Exposure toward CRE (ex LRD), too, declined to 1.6% from 1.8% in the previous
quarter. (d) Growth is stagnant in the business bank segment.
Valuation view:
We revise up FY19/20E consol. PAT by 1.4%/2.3% and
estimate consol. earnings CAGR of 20% (FY18-21E). We, thus, project KMB's
FY21E consol. RoA/RoE at 2.2%/15.0%. We continue believing in KMB's
capability to deliver in a challenging environment and appreciate the progress
the bank is making in building a strong liability franchise. We expect KMB to
maintain continued traction in loan growth (FY18-21E CAGR of 23%) and gain
market share across product segments with improving profitability. Maintain
Neutral
with a revised target price of INR1,350 (3.8x Sep’20E ABV for the
lending business).
22 January 2019
3
 Motilal Oswal Financial Services
Quarterly snapshot for standalone bank
Y/E March
Net Interest Income
% Change (Y-o-Y)
Other Income
Total 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
3Q
23,126 23,937
15.9
16.7
9,539 10,398
32,665 34,335
15.6
16.0
15,417 16,135
17,248 18,201
19.8
19.1
2,165
2,128
15,083 16,073
5,140
5,541
9,943 10,532
22.3
19.7
21.1
23.1
47.2
47.0
34.1
34.5
38.1
2.5
19.2
1.3
49.7
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
3Q
26,891 29,391
16.3
22.8
12,053
9,639
38,944 39,030
19.2
13.7
17,994 19,646
20,950 19,384
21.5
6.5
3,538
-323
17,412 19,707
5,995
6,798
11,417 12,909
14.8
22.6
21.2
23.5
46.2
50.3
34.4
34.5
40.3
2.2
15.0
0.8
62.8
41.3
2.1
14.0
0.7
66.2
FY18
FY19E
4QE
30,275 95,317 1,12,386
17.4
17.3
17.9
12,858 40,522 46,195
43,133 1,35,839 1,58,581
15.6
17.1
16.7
16,996 64,257 71,785
26,138 71,582 86,797
29.5
19.6
21.3
5,672
9,400 13,583
20,466 62,182 73,214
6,866
21,339 25,039
13,599 40,843 48,175
21.0
19.7
18.0
23.0
24.7
23.0
39.4
47.3
45.3
33.6
34.3
34.2
42.8
2.1
15.5
0.7
63.9
38.3
2.3
16.7
1.0
56.5
42.8
2.1
15.5
0.7
63.9
3Q
V/s
FY19E Our Est
28,305
4%
18.2 453.6
12,765 -24%
41,070
-5%
19.6 -594.2
18,449
6%
22,621 -14%
24.3
NM
3,659 -109%
18,962
4%
6,447
5%
12,515
3%
18.8 374.4
23.2
28.8
44.9 541.5
34.0
49.4
42.0
2.1
15.3
0.8
63.5
-2%
-4.6
-9%
-7.3
265.7
22 January 2019
4
 Motilal Oswal Financial Services
21 January 2019
3QFY19 Results Update | Sector: Metals
Hindustan Zinc
Neutral
BSE SENSEX
36,579
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
10,962
HZ IN
4,225
1133 / 15.9
Zinc price outlook positive but priced in; Maintain Neutral
316 / 243
EBITDA increased 22% QoQ to INR28.4b (in-line) in 3QFY19, led by higher
-5/-1/-14
volumes and a 4% rise in zinc LME. Other income grew 40% QoQ to INR5.5b,
568
driven by mark-to-market gains. PAT rose 22% QoQ to INR22.1b (in-line).
35.1
CMP: INR268
TP: INR273 (+2%)
In-line: On track to achieve 1.2mt mine prod. capacity
Financials & Valuations (INR b)
Y/E March
2019E 2020E
Sales
216
261
EBITDA
109.1
139.3
NP
82.3
106.9
Adj. EPS (INR)
19.5
25.3
EPS Gr(%)
-7.7
29.8
BV/Sh. (INR)
80.5
95.2
RoE (%)
23.5
28.8
RoCE (%)
32.5
38.2
P/E (x)
13.7
10.6
P/BV
3.3
2.8
2021E
254
133.1
102.5
24.2
-4.1
109.3
23.7
31.1
11.0
2.4
Estimate change
TP change
Rating change
Mine production increased 6% QoQ (3% YoY), while refined metal
production rose 15% QoQ, led by higher concentrate availability.
Zinc/lead/silver sales increased 17%/10%/11% QoQ to 187kt/54kt/178t.
Reported cost of production (CoP) declined USD37/t QoQ to USD997/t
owing to higher volumes and lower diesel cost, partly offset by higher mine
development expenses.
CoP is guided to decline by ~USD50-100/t in 4Q, given higher linkage coal
availability and volumes. Capex guidance is lowered to USD350m from
USD400m due to delays in a few projects. Mine production capacity is
expected to reach 1.2mt by end-FY19.
Expansion projects: Commissioning of the fumer project is expected in
4QFY19. RA mine shaft commissioning is delayed by a few quarters to
2QFY20, while SK mine shaft is expected to commission soon.
Over 9MFY19, EBITDA is down 9% YoY (to INR78.8b) and adj. PAT is down
6% YoY (to INR59.4b).
Zinc price outlook positive but priced in; Maintain Neutral
Zinc market remains tight, even as demand growth is weak. While concentrate
supply is expected to increase, the market is likely to remain in deficit over the
medium term. Price outlook, thus, remains positive. At zinc LME of USD2,700/t
for FY20, the stock trades at 6.2x EV/EBITDA, leaving limited upside potential.
Maintain
Neutral
with a TP of INR273/share, based on 6.5x FY20E EV/EBITDA.
FY19
2Q
3Q
232
247
160
187
49
54
161
178
2,541
2,631
47,770 55,400
-10.0
-6.5
23,340 28,380
-22.8
-12.5
0
510
4,540
4,890
3,940
5,500
22,740 28,480
4,590
6,370
20.2
22.4
18,150 22,110
18,150 22,110
-19.5
-0.9
FY18
4QE
271
212
54
181
2,600
59,745
-4.8
30,286
-16.3
0
4,939
3,636
28,984
6,087
21.0
22,897
22,897
-10.4
947
793
169
555
3,048
220,840
27.7
122,720
26.0
2,830
16,940
18,010
120,960
31,800
25.8
91,560
89,160
7.2
FY19E
962
729
199
661
2,724
216,015
-2.2
109,136
-11.1
660
18,239
16,066
106,304
23,967
22.5
82,337
82,337
-7.7
3QE
255
194
51
170
2,630
55,288
-6.6
28,090
-13.4
0
4,590
4,114
27,613
5,799
21.0
21,814
21,814
-2.2
vs Est.
%
-3
-4
6
5
0
0
1
7
34
3
10
1
1
Quarterly Performance (Standalone) – INR m
Y/E March
Mine prodn. (kt)
Zinc refined (kt)
Lead refined (kt)
Silver (tonnes)
Zinc LME (USD/t)
Net Sales
Change (YoY %)
EBITDA
Change (YoY %)
Finance cost
DD&A
Other Income
PBT (before EO item)
Total Tax
% Tax
Reported PAT
Adjusted PAT
Change (YoY %)
1Q
233
190
34
110
2,589
45,760
80.8
23,840
110.8
1,370
3,600
5,300
24,170
5,410
22.4
18,760
18,760
80.8
FY18
2Q
3Q
219
240
193
200
40
45
146
132
2,950
3,236
53,090 59,220
50.6
18.9
30,240 32,440
45.6
16.5
840
170
3,940
4,810
4,870
2,980
30,330 30,440
7,790
8,140
23.4
26.7
25,450 22,300
22,540 22,300
18.5
-3.9
4Q
255
210
50
167
3,180
62,770
0.3
36,200
-3.4
450
4,590
4,860
36,020
10,460
29.5
25,050
25,560
-16.4
1Q
212
170
42
141
3,108
53,100
16.0
27,130
13.8
150
3,870
2,990
26,100
6,920
26.5
19,180
19,180
2.2
22 January 2019
5
 Motilal Oswal Financial Services
RESULTS
FLASH
BSE SENSEX
36,579
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
L&T Finance Holdings
Buy
21 January 2019
Results Update | Sector: Financials
S&P CNX
10,962
LTFH IN
Performance encouraging; Outcome of IL&FS saga key monitorable
1,988
L&T Finance Holdings’ (LTFH) 3QFY19 PAT grew 81% YoY to INR5.8b, in line with
233.6 / 3.2
our estimate, driven by strong AUM growth (+23% YoY), ‘retailization’ of the
213 / 111
balance sheet, and improving asset quality.
-3/-27/-42
The company has managed its liquidity situation well with a positive ALM gap
1146
of INR60b+ in a stress case scenario as on 31
st
Dec’18.
In addition, LTFH has
36.0
CMP: INR140
Financials & Valuations(INR b)
Y/E March
2018 2019E 2020E
Total Income
51.7
67.9
84.7
PPP
36.4
46.9
58.8
PAT
13.5
22.8
26.6
EPS (INR)
6.8
11.5
13.4
BV/Sh. (INR)
56.2
66.1
77.9
RoAA (%)
1.7
2.3
2.2
RoE (%)
14.2
18.7
18.6
Payout (%)
17.1
13.9
11.6
Valuation
P/E (x)
20.7
12.2
10.5
P/BV (x)
2.5
2.1
1.8
Div. Yield (%)
0.7
1.0
1.0
cash and liquid investments of INR42b (~4% of BS) and undrawn lines (from
banks and the parent) of INR110b+.
LTFH has exposure to six SPVs of subsidiaries of IL&FS, of which one SPV paid
its dues in Jan’19 (amount unknown). Three SPVs communicated that normal
servicing of loans has been stayed by NCLAT, while the other two SPVs are yet
to communicate to its lenders.
However, management is confident of nil
eventual credit losses from the IL&FS exposures.
LTHF clearly prioritized its rural lending business over other businesses during
the quarter.
Disbursements in rural lending were up 40% YoY, while those in
housing finance and wholesale finance were down 23% and 44%, respectively.
We believe this is a prudent strategy. As a result, the share of rural finance
increased 200bp QoQ to 26%.
‘NIM + fees’ remained sequentially stable at 6.8%.
Overall asset quality improved marginally, with the GNPL/NNPL ratio
declining 35bp/15bp QoQ to 6.7%/2.6%.
The reduction in the GNPL ratio has
come on the back of an improvement in asset quality in the rural lending book,
while the housing finance and wholesale finance books witnessed stable asset
quality.
The company also added INR690m to its provision buffer during the
quarter, taking the outstanding amount to INR2.7b.
Valuation view:
Over the past two years, LTFH has delivered a turnaround in
business, with a strong improvement in RoE from 10% to 18%. The company has
focused on ‘retailization’ the balance sheet. Notwithstanding the tight liquidity
in the past quarter, management has been able to grow its focused products
impressively and yet maintain sufficient liquidity on the balance sheet.
22 January 2019
6
 Motilal Oswal Financial Services
RESULTS
FLASH
BSE SENSEX
36,579
S&P CNX
10,962
Coromandel International
TP: INR551(26%)
Buy
21 January 2019
3QFY19 Results Update | Sector: Fertilizers
CMP: INR439
Conference Call Details
Date:
22nd Jan 2019
Time:
14:30pm IST
Dial-in details:
+91-22-6280 1145
In-line revenue; marginal beat on EBITDA/PAT
Revenue increased 11.5% YoY to INR30,495m (our estimate: INR30,645m) in
3QFY19. Crop protection business grew by 3.1% YoY to INR4,464m, while
Nutrient & other allied business grew by 12.1% YoY to INR26,209m. Inter-
segmental sales stood at INR178m.
EBITDA margin contracted 200bp YoY to 10% (our estimate: 9.3%), led by
higher other expenses (+210bp to 8.1%) and raw material cost (+30bp to
69.8%), partly offset by lower employee expenses (-10bp to 3.3%) and freight
cost (-30bp to 8.8%).
EBITDA declined 7.2% YoY to INR3,039m (our estimate: INR2,855m).
EBIT margin contracted by 210bp to 9.2% in Nutrient and other allied business
and by 70bp to 15.7% in Crop protection business.
Adj. PAT declined 14.3% YoY to INR1,546m (our estimate: INR1,447m) due to
lower other income (INR98m v/s INR125m in 3QFY18).
9MFY19 performance:
Revenue grew 22.1% YoY to INR105,862m. EBITDA
increased 10.5% YoY to INR11,841m, with the margin contracting 120bp YoY to
11.2%. Adj. PAT grew 3.6% to INR6,233m.
Financials & Valuations (INR b)
2019E 2020E
Y/E Mar
Sales
135.9
146.4
EBITDA
12.9
14.6
NP
6.5
8.1
Adj EPS (INR)
22.1
27.6
EPS Gr. (%)
-2.5
24.7
BV/Sh (INR)
120.2
139.3
RoE (%)
19.5
21.3
RoCE (%)
13.4
14.2
Valuations
P/E (x)
19.8
15.9
P/BV (x)
3.7
3.2
EV/EBITDA (x)
11.9
10.5
EV/Sales (x)
1.1
1.0
2021E
159.9
16.4
9.3
31.7
15.1
162.7
21.0
14.9
13.8
2.7
1.4
0.1
Valuation view:
Based on our current estimates, at CMP of INR439, the stock
trades at 16x/14x PE on FY20/21E EPS. We have a
Buy
rating on the stock.
22 January 2019
7
 Motilal Oswal Financial Services
21 January 2019
Update | Sector: Oil & Gas
MRPL
BSE SENSEX
36,579
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)
Y/E Mar
Sales
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
15.4
1.1
5.7
1.3
2019E
554.1
28.9
8.0
4.6
(64.3)
66.4
7.0
8.6
23.4
S&P CNX
10,962
MRPL IN
1,753
121.8 / 1.7
133 / 61
-5/-15/-48
151
11.4
CMP: INR70
TP: INR86 (+23%)
Upgrade to Buy
Expect better refining margins
Acquired 80-90% land for Phase-IV expansion for INR6b
We hosted investors to visit MRPL and its subsidiary ONGC Mangalore
Petrochemicals Ltd (OMPL) at Mangaluru, Karnataka. Key takeaways:
MRPL
2020E
595.9
38.6
18.7
10.7
133.9
74.6
15.1
12.4
23.4
6.6
0.9
3.7
3.0
2021E
604.8
39.1
19.5
11.1
4.1
83.1
14.1
12.1
23.4
6.3
0.8
3.5
3.2
Shareholding pattern (%)
As On
Dec-18 Sep-18
Promoter
88.6
88.6
DII
3.2
3.2
FII
1.7
1.6
Others
6.5
6.6
FII Includes depository receipts
Stock Performance (1-year)
MRPL
150
125
100
75
50
Sensex - Rebased
Dec-17
88.6
4.0
1.3
6.1
Until Aug’18, several secondary units of the refinery faced technical issues,
which have been resolved; since then, the refinery is running at its optimal
capacity. If crack spreads are normalized, we expect refining margin at
~USD8/bbl including the benefit from PPU.
There was a landslide during the monsoons in FY18, which affected the
evacuation of products, in turn affecting plant utilization.
For smoother operations, railway sliding is being constructed for evacuation
of petcoke.
The company is planning a shutdown of CDU-2, PFCCU and the PPU in FY20
for transition to BS-VI and for higher production of rich naphtha.
The refinery is ready for consumption of natural gas. It can consume up to
1mmscmd of gas for hydrogen generation and MRPL is open to consumption
for power and heating requirements if it’s an economical option.
It is setting up a desalination plant costing INR5.8b (to be commissioned in
2020) to take care of its water requirement for current and expected
expansions.
There is a marginal benefit in terms of yield for using Iranian crude; credit
terms are higher for Iranian crude v/s other grades, but there are no other
discounts.
Future plans
The refinery is acquiring 1,050acres of land for Phase-IV expansion
(configuration not yet finalized); INR6b has been spent so far to buy 80-90%
of the land.
Most probably, it would be a refinery-petrochem integrated complex. The
expansion would be carried out under its own ownership.
OMPL
MRPL's subsidiary — OMPL, has been working on a host of cost saving
projects. For one, it has changed the way it runs its power plant.
Currently higher utilization helps lower fuel and cut losses.
Revamping MRPL’s FCCU would help generate more naphtha, thus,
eliminating imports and saving costs.
Once gas is available, it would replace the costly diesel used for power
generation, thus, saving INR1b annually.
The blueprint for restructuring of MRPL/OMPL/OPaL is expected to ready by
end-FY19 and execution is expected in FY20.
22 January 2019
8
 Motilal Oswal Financial Services
Valuation view
Post expansion, MRPL’s Nelson complexity improved to ~9.5. Bottom
upgradation through delayed coker and presence of polypropylene plant was
expected to result in a premium of USD2-3/bbl over Singapore complex GRM.
However, operating performance has not reflected the same on a sustainable
basis.
We value MRPL at 5.0x Dec’20 EBITDA of INR39b. We value standalone segment
at INR103/share.
We deduct OMPL’s valuation to arrive at target price of INR86. The stock
appears attractive trading at 3.7x FY20 EV/EBITDA. We upgrade it to
Buy
on the
expectation of improvement in refining margins.
Exhibit 1: SOTP valuation stands at INR86/share
SOTP Valuation
EBITDA @ Dec’20 (INR m)
Target EV/EBITDA (x)
EV (INR m)
Net Debt (INR m)
Equity Value Dec’19 (INR m)
# of shares (m)
Target price (INR/share)
Add valuation of OMPL stake
Total target price (INR)
39,001
5.0
195,003
14,799
180,204
1,753
103
(17)
86
Source: Company, MOSL
22 January 2019
9
 Motilal Oswal Financial Services
RESULTS
FLASH
BSE SENSEX
36,579
S&P CNX
10,962
Zensar Technologies
Buy
21 January 2019
Results Update | Sector: Technology
CMP: INR233
Revenue traction at the expense of profitability
Conference Call Details
Date:
22nd Jan 2019
Time:
14:00pm IST
Dial-in details:
+91-22 6280 1380 /
+91 22 7115 8281
Revenue grew 17% YoY (our estimate: +16% YoY) to USD143.7m, EBITDA increased 5%
YoY (our estimate: +30% YoY) to INR1,104m, while PAT declined 2% YoY to INR565m
(1.5% miss). For 9MFY19, USD revenue grew 17% YoY, EBITDA increased 30% YoY and PAT
was up 39.5% YoY.
Beat on revenues appears a costly one given low margins
Financials & Valuations (INR b)
2019E 2020E
Y/E Mar
Net Sales
39.3
44.4
EBITDA
4.8
5.8
PAT
3.2
3.6
EPS (INR)
14.0
16.1
Gr. (%)
33.4
14.7
BV / Sh (INR)
84.2
96.9
ROE (%)
17.9
17.8
ROCE (%)
21.1
23.0
Valuations
P /E (x)
16.7
14.5
P / BV (x)
2.8
2.4
EV/EBITDA
10.0
7.9
Div. Yield (%)
1.1
1.3
2021E
49.4
6.7
4.3
19.2
19.3
112.0
18.4
23.5
12.2
2.1
6.4
1.5
ZENT’s revenue growth of 4.5% QoQ in CC was above our estimate of +3.2%,
implying YoY CC revenue growth of 17.6%. In dollar terms, revenue stood at
USD143.7m (+4% QoQ, +17% YoY). Excluding the non-core businesses such as
RoW/MVS, dollar growth during the quarter was 6% QoQ and 21.2% YoY.
Digital
continued to be the driver at 5.8% QoQ and 36% YoY CC. It now
contributes 45% of total revenue.
EBITDA margin shrank 210bp QoQ to 10.6%, well below our estimate of 13.3%.
Management attributed this to: [1] furloughs, [2] de-growth in non-core
business and [3] an increase in utilization, partly offset by gain from INR
depreciation.
PAT of INR553m (-40% QoQ) was in line with our estimate, despite the EBITDA
miss, due to INR156m (GBP1.7m) reversal of contingent consideration payable
on business combination consummated in the previous year.
Comments on profitability are key to direction of the stock
3Q was the second consecutive quarter of strong revenue growth at the expense of
margins. While earlier it was the non-core pieces that dragged margins, this time it
was the ramp-up of large deals. The results may drive a meaningful correction in
our estimates (EBITDA margin of 13.1%/13.6% for FY20/21). We await further
clarity from management on the outlook for the same.
Other highlights
US continued gaining momentum post the restructuring undertaken recently.
Growth in 3QFY19 stood at 21.5% YoY, the highest in past 15 quarters. Europe,
too, accelerated, growing at 24.2% YoY.
A blip was seen in ROW business (-41% QoQ) – not surprising considering the
restructuring attempts taken by the company.
Retail decline bottomed out with 1.1% QoQ CC growth, while FS grew at 9.6%
QoQ CC.
Strong growth was seen across top accounts: Top 5 growing by 6.5% QoQ and
Top 6-10 by 27.3% QoQ. Non-top 20 accounts declined 2.3% QoQ.
ZENT announced total bookings of USD500m in 9MFY19, with USD200m+ in 3Q
itself.
22 January 2019
10
 Motilal Oswal Financial Services
22 January 2019
11
 Motilal Oswal Financial Services
South Indian Bank
BSE SENSEX
36,579
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
10,962
SIB IN
1,810
25.7 / 0.4
32 / 12
-10/-22/-59
285
100.0
21 January 2019
3QFY19 Results Update | Sector: Financials
CMP: INR14
TP: INR20 (+43%)
Buy
Asset quality concerns to ease; valuations reasonable
Higher provisions dragged South Indian Bank’s (SIBs) 3QFY19 PAT to INR838m
(27% YoY decline) 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). But, slippages in retail and agri portfolio improved.
Advances growth improved 15% YoY / 5% QoQ while margins improved 5bp
QoQ to 2.66%. However, NII growth stood modest at 2% YoY / 2.6% QoQ. C/I
ratio improved marginally to 53% mainly supported by other income (18% YoY
growth). SIB is yet to provide for INR153m of unamortized MTM provision in
the next quarter.
Loan growth at 15% YoY was led by 29% YoY growth in pure retail loans while
the corporate loan segment grew 14% YoY. The growth in agriculture/SME
book stood relatively modest at 7%/6% YoY. Corporate book now comprises
~35% of the total advances.
Other highlights: (a)
SMA-2 for the bank stands at 2.98% (INR19.9b), (b)
INR1.8b is carved for the MSME dispensation out of the total affected portfolio
of INR9b, (c) the bank has guided for ~1.1% of credit cost for FY20E, and (d)
retail loan growth should remain in the 25-30% range.
Despite elevated slippages (4.7% annualized), impact on NPL ratios was
relatively controlled (27bp/38bp QoQ increase in GNPL/NNPL ratios). This was
driven by healthy reductions of INR3.8b (Cash recoveries of INR0.4b; upgrades
of INR1.2b and w/off of INR2.2b). Slippages in agri were benign at 0.04% v/s
0.22% in 2QFY19. Absolute GNPA increased 10.7% QoQ to INR29.3b and NNPA
increased 17.6% QoQ to INR20.9b, while calculated PCR declined to 28.3%. NSL
stands at INR33b - 5.53% of loans.
Valuation and view:
SIB is focused on improving the granularity in its loan book
along with strengthening its fee income and margin profile. With its balance
sheet getting significantly cleansed and slippage trends in Agri/SME/Retail
segment benign, we expect operating performance to improve, though lower
PCR remains an overhang. We have cut our FY20E/FY21E estimates by
32%/17% respectively to account for higher provisions and arrive at FY21E
ROA/ROE of 0.6% /11.8%.
Maintain Buy
with a TP of INR20 (0.8x Sept-20E
ABV).
Financials & Valuation (INR b)
Y/E March
FY19E FY20E FY21E
NII
21.3
25.3
31.0
OP
13.7
17.3
22.5
NP
3.0
4.8
7.2
NIM (%)
2.7
2.8
2.9
EPS (INR)
1.7
2.7
4.0
BV/Sh (INR)
29.2
31.2
34.4
ABV (INR)
20.7
22.9
25.4
RoE (%)
5.6
8.6
11.8
RoA (%)
0.3
0.5
0.6
Valuations
P/E (x)
P/BV (x)
P/ABV (x)
8.7
0.5
0.7
5.4
0.5
0.6
3.7
0.4
0.6
22 January 2019
12
 Motilal Oswal Financial Services
Quarterly Performance
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
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
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
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
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
6,065
23.2
2,378
8,443
25.9
3,840
4,603
48.1
2,740
1,863
631
1,233
8.0
821.1
635.7
14.0
16.5
31.3
4.9
22.0
3.5
29.8
FY18
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
(INRm)
FY19E
21,268
8.2
7,284
28,552
1.9
14,835
13,717
-7.4
9,133
4,585
1,582
3,003
-10.3
821.1
635.7
14.0
16.5
31.3
4.9
22.0
3.5
29.8
22 January 2019
13
 Motilal Oswal Financial Services
Update | 21 January 2019
Metals Weekly
India steel product prices remain weak
-
Indian steel: Long product (TMT Mumbai) prices were down ~1% WoW. Sponge iron prices were down ~1%
WoW, while scrap prices were down ~2% WoW. Domestic iron ore prices were unchanged. Pellet prices
continued to decline. Domestic HRC prices were down ~2% WoW. Export offers were marginally lower, while
import price offers from FTA countries declined sharply.
Raw materials: Iron ore prices (China CFR) were unchanged. Thermal coal prices were down ~2% WoW. Coking
coal prices were marginally lower. China's pellet import prices were up ~1% WoW. Chinese graphite electrode
prices were lower.
Europe: HRC prices were unchanged. CIS HRC export prices were also unchanged. Rotterdam scrap prices were
down ~2% WoW.
China steel prices: Chinese local rebar and HRC prices were up ~1% WoW. Export price of rebar and HRC
increased by ~2% WoW.
Base metals: Aluminum (cash LME) prices were up ~2% WoW. Alumina prices were lower. Copper (cash LME)
prices were up ~2% WoW. Zinc (cash LME) prices were up ~4% WoW. Lead (cash LME) prices were up ~1%
WoW. Brent crude prices up ~4% WoW.
-
-
-
-
22 January 2019
14
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Healthcare
Alembic Pharma
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
ALPM IN
188.5
110 / 2
664 / 412
-5 / 11 / 4
Neutral
In 3QFY19, we expect Alembic Pharma (ALPM) to report strong
growth of ~21% YoY in sales to INR10.2b, led by the international
segment.
International business is expected to grow ~40% YoY to INR4.3b,
led by strong growth in the US business and favorable currency
movement. The India business is expected to grow by ~11% YoY
to INR3.9b, while the API segment is seen growing by ~10% YoY.
EBITDA margin is expected to remain stable YoY at 22%. Absolute
EBITDA is expected to grow by ~20% YoY to INR2.2b led by
revenue growth.
PAT is expected to grow at a lower rate of ~10% YoY than EBITDA,
mainly due to higher tax rate, to INR1.4b.
We value ALPM at 18x 12M forward earnings to arrive at TP of
INR595. We have Neutral rating on the stock.
Financial Snapshot (INR Billion)
y/e march
2018 2019E 2020E 2021E
Sales
EBITDA
NP
EPS (INR)
EPS Gro. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/Sales (x)
26.5
4.9
15.7
3.2
20.8
4.2
11.8
2.6
19.8
3.6
11.1
2.4
16.8
3.1
9.3
2.0
31.3
6.4
4.1
21.9
2.5
19.6
17.3
39.3
8.5
5.3
28.0
27.7
21.5
17.7
43.1
9.1
5.5
29.4
5.1
19.3
22.4
49.2
10.6
6.5
34.6
17.6
19.5
23.5
117.8 138.6 161.2 189.0
Key issues to watch out for
Contribution of chronic portfolio and growth strategy
Scaling-up of ANDA filings
Capex update and product development outlook
Y/E March
Quarterly Performance
1Q
6,482
-10.8
5,468
1,014
15.6
218
9
2
789
0
789
155
19.6
-33
667
-34.6
10.3
Net Sales
YoY Change (%)
Total Expenditure
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
Extra-Ord expense
PBT
Tax
Rate (%)
MI & P/L of Asso. Cos.
Adj PAT
YoY Change (%)
Margins (%)
E: MOSL Estimates
FY18
2Q
7,893
-9.4
6,101
1,792
22.7
257
4
77
1,608
0
1,608
366
22.7
27
1,216
2.4
15.4
3Q
8,400
9.1
6,525
1,875
22.3
264
8
3
1,606
0.0
1,606
298
18.5
3
1,306
51.6
15.5
4Q
8,533
15.8
6,801
1,732
20.3
316
13
6
1,410
0
1,410
385
27.3
87
938
0.8
11.0
1Q
8,625
33.1
7,115
1,510
17.5
276
16
1
1,219
0
1,219
315
25.9
-1
905
35.7
10.5
FY19E
2Q
3QE
11,271 10,196
42.8
21.4
8,247
7,953
3,023
2,243
26.8
22.0
286
300
58
55
24
20
2,703
1,908
0
0.0
2,703
1,908
703
448
26.0
23.5
-1
21
2,001
1,439
64.6
10.2
17.8
14.1
4QE
9,160
7.4
7,450
1,711
18.7
354
81
34
1,310
0
1,310
318
24.3
64
928
-1.1
10.1
FY18
(INR Million)
FY19E
39,252
25.4
30,765
8,487
21.6
1,217
209
79
7,140
0
7,140
1,785
25.0
83
5,272
27.7
13.4
31,310
-0.1
24,877
6,433
20.5
1,055
34
70
5,415
0
5,415
1,204
22.2
83
4,128
2.5
13.2
22 January 2019
15
 Motilal Oswal Financial Services
December 2018 Results Preview | Consumer
Asian Paints
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
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 (%)
65.4
15.8
40.8
0.9
60.5
14.8
38.0
1.3
50.8
14.2
31.6
1.7
42.3
13.7
26.6
2.1
2018 2019E 2020E 2021E
168.2
32.0
20.3
21.1
1.9
87.7
25.3
21.6
48.7
189.3
34.5
21.9
22.8
7.9
93.4
25.2
21.7
65.7
221.0
41.2
26.1
27.2
19.1
97.2
28.5
24.6
73.6
256.7
48.7
31.3
32.6
20.1
100.6
33.0
28.6
76.6
APNT IN
959.2
1325 / 19
1489 / 1082
4 / 5 / 15
Neutral
We expect revenue to grow 13% YoY to INR48.1b in 3QFY19, with
double-digit volume growth in the domestic decorative business.
We note that crude prices are up 10.3% YoY but down 10.1% QoQ
in 3QFY19. The magnitude of price movement in crude derivatives
is lower vis-à-vis crude prices. But deflation has not yet begun in
3QFY19 either.
We expect gross margin to contract 150bp YoY to 40.7%.
Operating margin is likely to contract by 290bp to 18%, with
EBITDA declining 2.7% YoY in 3QFY19.
We estimate 3.8% adjusted PAT decline for 3QFY19.
The stock trades at 60.5x/50.8x FY19E/20E EPS of
INR22.8/INR27.2. Maintain Neutral.
Key issues to watch for
Volume growth trends and demand scenario in urban and rural
geographies
Market share trends
Outlook for raw materials/pricing actions
Commentary on price increases
Quarterly Performance (Consolidated)
Y/E March
Estimated dom deco volume gr. (%)
Net Sales
Change (%)
Gross Profit
Gross Margin (%)
EBITDA
Margin (%)
Change (%)
Interest
Depreciation
Other Income
PBT
Tax
Effective Tax Rate (%)
Adjusted PAT
Change (%)
E: MOSL Estimates
1Q
4.0
38,152
6.4
16,340
42.8
6,654
17.4
-18.5
80
905
783
6,452
2,160
33.5
4,382
-20.4
FY18
2Q
3Q
9.0
6.0
42,652 42,605
15.0
10.5
17,610 17,995
41.3
42.2
8,011
8,912
18.8
20.9
13.6
17.7
88
92
889
896
534
497
7,569
8,420
2,459
2,913
32.5
34.6
5,262
5,672
7.5
19.6
4Q
10.0
44,836
14.7
19,389
43.2
8,399
18.7
18.7
91
914
392
7,786
2,877
37.0
4,959
4.2
1Q
10.0
43,903
15.1
18,980
43.2
8,744
19.9
31.4
88
905
617
8,368
2,770
33.1
5,713
30.4
FY19
2Q
3QE
11.0
11.5
46,391 48,144
8.8
13.0
18,467 19,612
39.8
40.7
7,842
8,674
16.9
18.0
-2.1
-2.7
121
124
947
1,120
633
546
7,406
7,976
2,427
2,632
32.8
33.0
5,060
5,456
-3.8
-3.8
FY18
4QE
10.0
50,887
13.5
20,902
41.1
9,215
18.1
9.7
126
1,251
409
8,246
2,730
33.1
5,657
14.1
7.3
168,246
11.7
71,334
42.4
31,976
19.0
7.1
351
3,605
2,206
30,227
10,410
34.4
20,275
0.6
FY19E
10.5
189,324
12.5
77,961
41.2
34,475
18.2
7.8
459
4,224
2,205
31,997
10,559
33.0
21,886
7.9
22 January 2019
16
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Capital Goods
Havells India
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
HAVL IN
625.0
432 / 6
729 / 454
2 / 28 / 20
Buy
Revenue is expected to grow 11% YoY, driven by revenue growth
from electrical consumer durables segment (+15% YoY), and
Switchgears (+13% YoY). Lloyd Electric is expected to register
muted growth of 6% YoY given the seasonally weak quarter for the
industry.
We expect the cables segment to register 12.0% YoY growth,
supported by robust demand from government infrastructure
project segment.
We expect gross margin to improve 50bp YoY to 40.2% and
operating margin to decline 60bp YoY to 12.7%, impacted by
margin pressure across segments.
Net profit is expected to register a decline of 10% YoY to INR1.7b.
Maintain
Buy.
Financial Snapshot (INR b)
Y/E March
2018 2019E 2020E 2021E
Net 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 (%)
59.3
11.1
38.1
0.6
50.5
9.9
32.7
0.7
41.1
8.6
26.2
0.9
35.4
7.6
22.4
1.0
81.4
10.5
7.0
11.2
17.4
59.9
18.7
18.8
41.7
97.0 109.2 123.1
12.2
8.2
13.2
17.5
67.5
19.5
19.3
41.9
15.0
10.1
16.2
22.6
76.9
21.0
21.2
41.7
17.1
11.7
18.8
16.4
87.9
21.4
21.9
41.7
Key issues to watch
Commentary on overall demand scenario of the company’s
product portfolio
Impact of decline in copper prices on cables and wires’ segment
Quarterly Performance (Standalone)
Y/E March
Sales
Change (%)
Adj EBITDA
Change (%)
Adj EBITDA margin (%)
Depreciation
Interest
Other Income
Extra-ordinary Items
PBT
Tax
Effective Tax Rate (%)
Reported PAT
Change (%)
Adj PAT
Change (%)
1Q
18,605
26.8
1,743
-13.0
9.4
336
34
348
-
1,703
489
28.7
1,214
-16.6
1,227
-15.7
FY18
2Q
17,774
22.4
2,536
24.7
14.3
349
67
287
-
2,440
730
29.9
1,710
17.3
1,687
15.7
3Q
19,658
30.5
2,622
37.5
13.3
363
55
278
210
2,482
748
30.1
1,944
68.9
1,944
45.0
4Q
25,349
48.2
3,577
55.8
14.1
347
84
257
(91)
3,404
1,055
31.0
2,258
138.4
2,258
31.7
1Q
25,963
39.5
3,208
84.0
12.4
350
26
292
-
3,039
935
30.8
2,104
73.3
2,189
78.4
FY19E
2Q
3QE
21,910 21,800
23.3
10.9
2,578
2,774
1.7
5.8
11.8
12.7
391
370
37
25
343
270
-
-
2,540
2,649
754
900
29.7
34.0
1,786
1,749
4.4
-10.0
1,739
1,749
3.1
-10.0
FY18
4QE
27,323
7.8
3,654
2.2
13.4
340
13
195
-
3,496
944
27.0
2,552
13.0
2,552
13.0
81,386
32.7
10,493
27.3
12.9
1,395
240
1,170
119.1
10,028
3,022
30.1
7,125
32.2
7,006
17.4
FY19E
96,996
19.2
12,214
16.4
12.6
1,452
100
1,100
0.0
11,724
3,533
30.1
8,191
15.0
8,229
17.5
22 January 2019
17
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Financials
HDFC Standard Life Insurance
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
HDFCLIFE IN
2005.4
783 / 11
547 / 354
-1 / -16 / -7
Buy
Financial Snapshot (INRb)
Y/E March
FY18 FY19E FY20E FY21E
Net Premiums
233.7 286.6 353.5 437.8
Surplus / Deficit
10.9 12.1 15.0 19.2
Sh. PAT
11.1 13.0 15.4 18.3
New bus.gr- unwtd (%) 31.7 28.0 26.0 26.0
New bus gr - APE (%)
30.0 24.0 24.2 26.0
Total prem gr-unwtd(%) 21.2 22.8 23.4 23.9
Comm/ GWP (%)
4.6 4.7 4.6 4.5
Tot exp ratio (%)
18.0 16.5 16.4 15.8
Solvency ratio (%)
192 179 172 165
NBP margin (%)
23.2 24.8 25.4 25.6
RoE (%)
25.8 24.9 24.6 24.4
RoEV (%)
22.0 18.6 19.1 21.3
Total AUMs (INRb)
1066 1293 1587 1966
VNB(INRb)
12.8 16.6 21.1 26.8
EV (INRb)
152.1 180.4 214.8 260.5
Valuations
P/EV (x)
5.1 4.3 3.6 3.0
P/EPS (x)
70.6 60.6 51.2 43.0
We expect net premium income to grow by ~27% YoY, largely
driven by first year premium and single premium.
Total commission and operating expense is expected to grow by
4% YoY, largely driven by commission expense to drive new
business sales.
We expect surplus to grow by 61% YoY and shareholder PAT to
grow by 21% YoY.
We expect the margins to expand further as the share of
protection in the overall business goes up further.
HDFCLIFE trades at 3.0x FY21E EV. Maintain
Buy.
Key issues to watch for
Outlook on cost-ratios, new business margins, persistency and
new business growth (as the impact of demon wanes out).
Ramp-up of agency channel and the productivity outlook mainly
through use of digital means.
Quarterly Performance
Policy holder's account
Net premium income
Growth (%)
Commission paid
Operating expense
Surplus/(Deficit)
Growth (%)
Shareholders' Account
Total income
PBT
Tax
PAT
Growth (%)
Key metrics (INRb)
AUM
EV
1Q
36,615
15.3%
1,563
5,638
3,012
72%
3,351
3,267
103
3,164
28%
-
-
FY18
2Q
53,894
22.9%
2,475
7,189
2,169
-30%
2,549
2,450
65
2,385
9%
-
-
3Q
54,200
19.5%
2,625
7,769
1,797
0%
2,117
2,162
89
2,073
15%
1,044.3
144.7
4Q
89,000
24.0%
4,087
10,998
3,968
40%
4,939
3,390
(79)
3,468
40%
1,066.0
152.2
1Q
49,947
36.4%
1,982
7,246
3,388
12%
4,081
3,918
116
3,802
20%
1,096.3
156.9
FY19E
2Q
3QE
67,776 69,094
25.8%
27.5%
2,637
3,274
9,458
7,509
1,946
2,889
-10%
61%
3,073
2,963
93
2,869
20%
1,132.3
163.8
2,865
2,641
140
2,501
21%
1,212.7
172.1
(INRm)
FY18
FY19E
4QE
99,769 2,33,710 2,86,586
12.1%
21.3%
22.6%
5,749
10,749 13,642
9,918
31,593 34,130
3,920
10,946 12,143
-1%
79.9%
10.9%
5,570
4,038
233
3,805
10%
1,293.2
180.4
12,955
11,267
177
11,090
24%
1,066.0
152.1
15,589
13,560
583
12,977
17%
1,293.2
180.4
22 January 2019
18
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Financials
ICICI Prudential Life Insurance
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
IPRU IN
1435.3
459 / 7
461 / 302
-1 / -16 / -21
Buy
We expect net premium income to grow by 14% YoY, with
renewal premium expected to grow by 18% YoY and first-year
premium to grow by 7%, mainly due to ULIP-dominated business
and volatility in the markets.
Total commission and operating expenses are likely to increase by
17% YoY, led by a 5% YoY increase in commission expenses.
We expect surplus to decline by 10% YoY to INR3.03b and PAT in
shareholders' account to decline by 28% YoY to INR3.3b.
IPRULIFE trades at 1.6x FY21E EV. Maintain
Buy.
Financial Snapshot (INR B)
Y/E March
FY18FY19EFY20EFY21E
Net Premiums
268.1 310.0 366.1 434.8
Surplus / Deficit
13.6 10.8 11.4 14.4
Sh.holder's PAT
16.2 12.2 13.0 15.7
New bus.gr-unwtd (%) 16.2 13.0 18.0 21.0
New bus gr- APE (%)
16.0 12.5 16.2 21.8
Total prem gr-unwtd(%) 20.3 16.9 18.2 18.8
Solvency ratio (%)
252 207 175 153
NBP margin (%)
16.5 18.0 18.7 19.1
RoEV (%)
16.1 16.8 16.0 18.7
Total AUMs (INRb)
1395 1604 1825 2082
VNB(INRb)
12.9 15.3 18.4 22.8
EV (INRb)
188 219 254 295
Valuations
P/EV (x)
2.4 2.1 1.8 1.6
P/EPS (x)
28.3 37.7 35.2 29.2
Key issues to watch for
New business growth in ULIP segment due to volatile market
conditions.
Value of new business and the margin trajectory after reporting
sharp expansion in FY18.
Quarterly Performance
Policyholder's account
Net premium income
Growth (%)
Commission paid
Operating expense
Surplus/(Deficit)
Growth (%)
Shareholders' Account
Total income
PBT
Tax
PAT
Growth (%)
Key metrics (INRb)
AUM
EV
1Q
48,202
37.4%
2,162
4,120
3,965
74.7%
4,373
4,281
221
4,059
0%
1,265.9
NA
FY18
2Q
65,395
20.6%
3,632
4,921
3,554
12.5%
4,578
4,491
279
4,212
1%
1,305.9
172.1
3Q
67,951
19.3%
3,773
5,211
3,372
15.2%
4,904
4,810
289
4,521
0%
1,383.0
0.0
4Q
86,558
15.0%
4,466
6,048
2,740
15.0%
4,482
3,614
208
3,406
-17%
1,395.3
187.9
1Q
54,378
12.8%
2,795
5,952
3,009
-24.1%
3,864
2,840
24
2,816
-31%
1,426.6
NA
(INRm)
FY19E
FY18
FY19E
2Q
3QE
4QE
76,012 77,506 1,02,129 2,68,107 3,10,025
16.2%
14.1%
18.0%
21.0%
15.6%
3,951
3,945
5,090 14,033 15,781
6,585
6,541
7,087 20,299 26,165
2,003
3,032
2,723 13,630 10,768
-43.6% -10.1%
-0.6%
27.0% -21.0%
2,910
3,032
24
3,009
-29%
1,461.3
192.5
4,274
3,529
264
3,265
-28%
1,532.5
205.9
3,548
3,813
746
3,067
-10%
1,603.7
219.3
18,362
17,189
997
16,192
-3.7%
1,395.3
187.8
14,596
13,214
1,057
12,157
-24.9%
1,603.7
219.3
22 January 2019
19
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Real Estate
Oberoi Realty
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 RelPerf. (%)
OBER IN
363.6
164 / 2
609 / 352
2 / -8 / -13
Buy
We expect sales volumes to jump over 100% YoY to 4,31,000sf in
3QFY19 on account of increased traction across projects.
We expect revenues to grow to INR5,311m, up 49% YoY— primarily
driven by Sky City and Exquisite III project achieving revenue
recognition threshold.
We expect EBITDA margin to contract by 350bp YoY to 50.6%
primarily on account of Sky City where margins are lower.
We estimate net profit of INR1,777m, up 48% YoY.
We maintain Buy with a target price of INR574.
Financial Snapshot (INR Billion)
Y/E MARCH
2018 2019E 2020E 2021E
Sales
EBITDA
Net Profit
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/ Sales (x)
35.7
2.7
25.0
13.3
19.3
2.0
12.9
6.6
12.2
1.8
11.8
6.1
10.8
1.6
8.0
4.2
12.7
6.8
4.6
12.6
21.2
7.8
6.4
24.6
12.6
8.5
23.3
84.9
12.1
10.2
27.5
14.2
13.4
36.9
58.3
15.7
9.7
37.9
20.0
15.2
41.8
13.0
284.4
15.6
11.8
167.6 219.7 250.1
Key things to watch for
Launch plan for monetizing Thane land parcel, Exquisite III, fifth
tower launch in Sky City
Response to subvention schemes launched and future action
plan
Consolidated - Quarterly Earning Model
Y/E March
Net Sales
YoY Change (%)
Total Expenditure
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
Extra-Ord expense
PBT
Tax
Rate (%)
Minority Interest & P/L of Asso. Cos.
Reported PAT
Adj PAT
YoY Change (%)
Margins (%)
E: MOSL Estimates
1Q
2,607
-18.5
1,252
1,355
52.0
124
16
96
1,312
0
1,312
405
30.9
-7
914
914
-16.1
35.0
FY18
2Q
3,035
20.5
1,398
1,638
54.0
128
16
50
1,544
0
1,544
509
33.0
-9
1,043
1,043
24.6
34.4
3Q
3,562
41.3
1,636
1,926
54.1
122
18
42
1,828
0
1,828
635
34.8
-10
1,202
1,202
41.9
33.7
4Q
3,450
19.1
1,616
1,834
53.1
118
19
79
1,776
0
1,776
357
20.1
-11
1,429
1,429
40.4
41.4
1Q
8,883
240.7
4,266
4,617
52.0
106
49
71
4,533
0
4,533
1,450
32.0
-11
3,094
3,094
238.6
34.8
FY19E
2Q
5,921
95.1
2,963
2,958
50.0
110
58
277
3,067
0
3,067
940
30.7
-12
2,138
2,138
105.0
36.1
FY18
3QE
5,311
49.1
2,623
2,687
50.6
116
35
100
2,636
0
2,636
870
33.0
-11
1,777
1,777
47.9
33.5
4QE
4,492
30.2
2,237
2,255
50.2
120
30
80
2,185
0
2,185
721
33.0
-11
1,475
1,475
3.2
32.8
12,654
13.6
5,901
6,753
53.4
491
69
266
6,459
0
6,459
1,907
29.5
-36
4,588
4,588
21.0
36.3
(INR m)
FY19E
24,606
94.5
12,088
12,517
50.9
452
173
528
12,421
0
12,421
3,981
32.1
-45
8,485
8,485
84.9
34.5
22 January 2019
20
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Cement
Shree Cement
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
SRCM IN
34.8
590 / 8
19842 / 13125
4 / 6 / -12
Buy
Financial Snapshot (INR Billion)
Y/E March
2018 2019E 2020E 2021E
Sales
EBITDA
NP
Adj. EPS (INR)
EPS Gr. (%)
BV/Share (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuation
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/Ton (USD)
43.9
6.6
23.4
215
48.5
6.2
20.2
196
35.3
5.4
14.8
168
27.2
4.6
11.7
152
98.3 116.7 141.1 161.1
24.3
13.4
0.4
16.2
13.7
15.1
27.6
12.2
-9.5
13.2
10.6
24.1
36.4
16.7
37.3
16.2
13.4
13.1
43.9
21.7
29.9
385.8 349.0 479.2 622.4
2,554 2,747 3,163 3,722
18.1
15.1
10.3
We expect 3QFY19 cement volumes to grow 11% YoY to 5.9m tons,
led by healthy growth in underlying markets. Realizations are
expected to increase 1.2% QoQ to INR4,318/ton due to better
pricing in north.
Revenue is estimated at INR26.9b (+17% YoY) and EBITDA at
INR6.6b, translating into margin of 24.4% (+1.4pp YoY; +1.1ppQoQ)
due to better realizations and lower cost curve.
We expect power EBITDA to be ~INR225m.
SRCM should report EBITDA/ton of INR1076 (+INR77 QoQ), led by
QoQ increase in realization. Adjusted PAT is likely to be INR2.46b (-
16% YoY).
The stock trades at a P/E of 35x (FY20E) and 27x (FY21E),
EV/EBITDA of 14.8x (FY20E) and 11.7x (FY21E), and EV/ton of
USD168 (FY20E) and USD152 (FY21E). Maintain Buy.
Key issues to watch out for
Volume and pricing recovery for north India.
Update on various expansion projects.
New expansion plans.
Quarterly Performance - Shree Cement (S/A)
Y/E March
Sales Dispat. (m ton)
YoY Change (%)
Realization (INR/Ton)
YoY Change (%)
QoQ Change (%)
Net Sales
YoY Change (%)
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO Exp
Extra-Ord Expense
PBT
Tax
Rate (%)
Reported PAT
Adj PAT
YoY Change (%)
1Q
5.89
14.8
4,215
8.5
8.9
25,769
17.2
7,133
27.7
2,312
329
974
5,466
0
5,466
1,065
19.5
4,401
4,401
-13.3
FY18
2Q
3Q
4.88
5.33
6.8
8.5
4,181
4,132
2.9
10.4
-0.8
-1.2
21,424 23,027
4.4
23.5
5,605
5,293
26.2
23.0
2,253
2,100
380
207
995
873
3,968
3,858
3
-403
3,965
4,262
1,850
928
46.7
21.8
2,115
3,333
2,118
2,930
-27.4
24.5
4Q
6.44
8.7
4,157
7.4
0.6
28,111
15.3
6,294
22.4
2,330
437
1,049
4,576
0
4,576
584
12.8
3,992
3,992
31.1
1Q
6.99
18.7
4,107
-2.6
-1.2
30,699
19.1
6,452
21.0
3,055
562
936
3,771
676
3,095
301
9.7
2,795
3,471
-21.1
FY19
2Q
3QE
5.64
5.91
15.6
11.0
4,268
4,318
2.1
4.5
3.9
1.2
25,866 26,962
20.7
17.1
6,037
6,587
23.3
24.4
3,295
3,400
618
620
514
510
2,638
3,077
2,618
0
20
3,077
-473
615
-2,343.6
20.0
494
2,461
3,112
2,461
46.9
-16.0
FY18
4QE
7.15
11.0
4,325
4.0
0.2
33,219
18.2
8,558
25.8
3,494
676
500
4,888
0
4,888
1,774
36.3
3,114
3,114
-22.0
22.54
9.7
4,171
6.8
(INR m)
FY19E
25.69
14.0
4,251
1.9
98,331 116,746
14.4
18.7
24,325 27,634
24.7
23.7
8,994 13,244
1,353
2,476
3,891
2,460
17,868 14,374
-403
3,294
18,271 11,080
4,427
2,216
24.2
20.0
13,844
8,864
13,441 12,158
0.4
-9.5
22 January 2019
21
 Motilal Oswal Financial Services
December 2018 Results Preview | Sector: Automobiles
TVS Motor Company
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
TVSL IN
475.1
254 / 4
795 / 479
-3 / -6 / -37
Neutral
Volume increased 19.8% YoY (-9.1% QoQ) to 989.8k units.
Scooter, Motorcycle and Mopeds volume increased YoY by 31.7%,
20.3% and 0.9%, respectively. 3W volumes rose by 46.9% YoY.
Net realization is likely to increase 3.1% YoY (+0.2% QoQ) to
INR45,995 per unit due to price hikes and better product mix.
We estimate net sales to grow by 23.5% YoY (-8.8% QoQ) to
INR45.5b.
EBITDA margin is expected to be 7.7% (-10 bp YoY and -90 bp
QoQ).
We expect PAT to increase 2.8% YoY (-24.9% QoQ) to INR1.6b.
The stock trades at 36x FY19E and 24.5x FY20E EPS; Maintain
Neutral.
Update on demand from rural and urban areas.
Exports outlook for 2W and 3W in key markets.
Response to newly launched Radeon.
New product launches including EV.
Financial Snapshot (INR b)
Y/E March
2018 2019E 2020E 2021E
Sales
EBITDA
Adj. PAT
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA (x)
Div. Yield (%)
38.4
8.8
23.7
0.6
36.0
7.6
17.9
0.7
24.5
6.2
13.2
0.9
17.7
4.8
9.9
0.9
151.3
11.3
6.6
13.9
18.7
60.6
25.1
24.1
183.4
14.9
7.1
14.9
6.7
70.7
22.7
25.1
217.8
20.1
10.4
21.8
46.6
86.5
27.7
32.2
261.5
26.1
14.3
30.2
38.3
110.6
30.6
38.2
Key issues to watch
S/A Quarterly Performance
Y/E March (INR m)
Volumes (units)
Growth (%)
Realization (INR/unit)
Growth (%)
Net Sales
Growth (%)
RM (% of sales)
Emp cost ( % of sales)
Other exp (% of sales)
EBITDA
EBITDA Margin(%)
Interest
Depreciation
Other Income
PBT after EO Exp
Tax rate (%)
Adjusted PAT
Growth (%)
E: MOSL Estimates
1Q
802,108
12.2
42,382
5.2
33,995
18.0
74.6
6.1
13.1
2,114
6.2
107
783
571
1,794
27.8
1,295
6.1
FY18
2Q
3Q
948,584 826,285
16.3
15.0
42,850
44,597
2.0
7.4
40,647
36,850
18.6
23.5
73.2
72.7
5.4
5.7
12.5
13.8
3,626
2,868
8.9
7.8
155
122
836
824
333
182
2,968
2,104
28.2
26.6
2,132
1,543
20.2
16.3
4Q
889,133
32.0
44,906
6.3
39,928
40.4
73.8
5.7
13.5
2,807
7.0
183
944
240
1,921
13.8
1,656
30.6
1Q
928,274
15.7
44,905
6.0
41,685
22.6
75.9
5.7
10.7
3,212
7.7
180
933
26
2,124
31.0
1,466
13.2
FY19E
2Q
3QE
1,088,374 989,787
14.7
19.8
45,880
45,995
7.1
3.1
49,935
45,525
22.8
23.5
75.8
75.8
4.9
5.6
10.7
10.9
4,282
3,505
8.6
7.7
212
200
1,016
1,025
7
20
3,062
2,300
31.0
31.0
2,113
1,587
(0.9)
2.8
FY18
FY19E
4QE
989,178 3,466,110 3,995,613
11.3
18.8
15.3
46,758
43,650
45,899
4.1
5.0
5.2
46,252
151,297
183,397
15.8
24.7
21.2
75.3
73.6
75.7
5.5
5.7
5.4
10.7
13.2
10.8
3,948
11,292
14,947
8.5
7.5
8.2
200
566
792
1,029
3,387
4,003
37
1,448
90
2,756
8,786
10,242
31.0
24.6
31.0
1,901
6,626
7,067
14.8
18.7
6.7
22 January 2019
22
 Motilal Oswal Financial Services
In conversation
1. HUL : COMPANY HAS CROSSED THE 20% THRESHOLD FOR
MARGINS, BEST IS YET TO COME; Sanjiv Mehta, CMD
(Focus is to) drive penetration and increase weighted distribution. It is not easy
to drive penetration especially where the penetration levels are high. One needs
brand saliency. Brand equities have to be strengthened. One has to constantly
innovate and renovate the brand and thirdly, one needs to have purpose-driven
engagement platforms.
Will not curtail investment behind brands and market activities.
Have crossed the 20% threshold. Would like to retain it at this level and then
together with the growth, one gets the multiplier impact. But if today there is
an indiscriminate price war, company will defend its turf whatever it might cost.
HFD (health food drinks) is a very attractive category. This is a category which is
about Rs 8,000 crore in size. GSK Consumer Health is a market leader with 25%
penetration level.
(Regarding Horlicks) there are not many properties in the country of this scale
and size and with this potential.
Company knows how to grow the categories where the penetration is high.
2. L&T : COMPANY MULLS OTHER OPTIONS TO RETURN MONEY
TO SHAREHOLDERS AS SEBI REJECTS BUYBACK PLAN; SN
Subrahmanyan, CEO & MD
Group’s debt to equity ratio is 0.17, hardly Rs 10,000 crore of debt on the scale
of operations that company has. So had taken legal views on this and gone
forward. However, Sebi has ascertained that for the group as a whole, the debt-
equity ratio exceeds 2:1. Group has L&T Finance which is a NBFC and borrows
and lends money. They have got Rs 75,000-80,000 crore of debt. Therefore
taking the group as a whole, they have requested company not to go forward
with the buyback.
The whole idea was to return back money to the shareholders and if there are
other options available, company would look at it very seriously.
Have to continuously enhance shareholder value.
There are other opportunities available. There are places to invest which is all
part of the way to enhance shareholder value. All that will be taken to
consideration before company decides on the way forward.
Will appeal and see how they take it forward.
3. MARICO: ENOUGH HEADROOM FOR GROWTH &
PENETRATION IN CORE BUSINESSES; Saugata Gupta, MD
Believe there is enough headroom for growth and penetration still available for
core businesses.
Believe there are certain significant transformations happening in company’s
CPG (consumer packaged goods) structure in terms of innovations. There is a
significant mass of Internet penetration. While online and e-commerce may be
10-11% of the overall CPG category, in five-six metros it may be 25-30%.
Have identified male grooming, premium hair nourishment and maybe skincare,
and food as the segments that will drive growth. Currently, they may be 10% of
22 January 2019
23
 Motilal Oswal Financial Services
the business, but believe that 30-40% of the incremental growth over the next
four-five years will come from these.
Also getting into nutraceuticals in a big way. Will get into far more superfoods,
which are a focus area.
For Parachute, the scope is still huge from unbranded to branded; company has
a market share of 58% and rural market share is 42%. In value added hair oil,
value share is 26%, so there is enough opportunity. The juice is still very much
there in the existing businesses.
Margins were under pressure last year because of the inflation in copra.
Company is fairly okay for the next 12-18 months now.
4. WIPRO : HEALTH BUSINESS COULD FACE REVENUE
HEADWINDS; Abidali Z Neemuchwala, CEO & ED, Jatin Dalal,
Chief Financial Officer, Bhanumurthy BM, COO and Saurabh
Govil, Chief Human Resources Officer
See a couple of risks; one which is around the health business the HPS platform
has seen about a 10% lower open enrolment and that will translate into a
revenue headwind in HPS business because it is based on a per member basis.
The other risk is overall being watchful about the macro environment wherein
sometimes customers do not continue to spend when they see some of those
uncertainties and prefer to wait for clarity. Have just built that in guidance.
Have improved margin from Q2 to Q3 and before that, had improved margin
from Q1 to Q2. Now company is at a place where it feels comfortable with the
trajectory.
Company has given salary increase to a select set of employees this quarter
which will play out. Also want to do incrementally disproportionate investment
in big bets which company feels very excited about.
Have localised over the last three years. Company anticipated demand locally.
Whilst in some of the biggest markets there is a crunch of STEM talent,
company’s first choice is to be localised and then look further for alternatives.
5. MINDA INDUSTRIES : TWO-WHEELER ALLOY WHEEL MARKET
A RS 3,500 CRORE OPPORTUNITY; NK Minda, CMD
Company’s per car kit value is going to increase multifold because of
environmental norms and safety.
Expect industry growth to pick up going forward.
When company is launching new products, there is always an opportunity for
better margin.
Two-wheeler alloy wheel market is a Rs 3,500 crore opportunity and 90% of this
is imported.
Will take one year to establish the new plant and quality.
22 January 2019
24
 Motilal Oswal Financial Services
From the think tank
1. POWERING THE ECONOMY
The Indian power sector has witnessed many achievements in recent times. In a
huge push, each and every village in the country stands electrified today, a truly
landmark achievement. Under the Saubhagya scheme, power to all rural
households and poor urban households is envisaged, with just 6.5 lakh targeted
households remaining to be electrified. Power supply has improved and energy
deficit has reduced substantially from a negative 4.2% in 2013-14 to just 0.6% in
April-October 2018-19. The UDAY scheme, launched to safeguard the distribution
companies (discoms), led to significant reduction in losses and an increase in their
energy billing by 9% in 2017. The most notable turnaround in the power sector
has been the strong impetus to renewable energy (RE) with an ambitious capacity
target of 175 GW by 2022. Today, RE accounts for as much as a fifth of total
capacity with a doubling of the sector from 35 GW to 70 GW between FY14 and
FY18. To ensure continued progress in the power sector, private investments can
be built up through a beneficial policy ecosystem.
2. TIME TO RATIONALISE STATE PSUS
India’s public sector landscape is littered with a vast number of loss-making and
dysfunctional public sector units (PSUs), particularly in the States, with only a
handful of well performing ones. While the Central Government has 444 PSUs
with total investment ₹15 lakh crore in these, the States have so far invested
₹14.6 lakh crore in 1,136 functional and 319 dysfunctional State PSUs (SPSUs).
The philosophy behind PSUs has undergone a sea change now with redefinition
of the state’s role as a facilitator rather than a producer, but most of our PSUs
still remain trapped in the vast no-man’s land between the state and market. In
2016-17,
Central PSUs had earned net profit of ₹1.3
lakh crore and contributed
₹3.86 lakh crore to revenue in taxes, cess and dividends while providing
employment to 11.31 lakh people. But 1,136 working SPSUs collectively incurred
net loss of ₹84,000 crore during 2016-17
employing 17.3 lakh people, and their
accumulated losses amounted to ₹4.65 lakh crore. Only 531 earned total profit
of ₹18,000 crore.
3. BJP’S 2019 STRATEGY FOCUSES ON UNTOUCHED TERRITORIES
India is immersed in political debates as the Lok Sabha (LS) polls draw near.
During these discussions, we often hear that the 2019 general elections will be
different and tough compared to the one in 2014. Prime Minister Narendra
Modi and the aggressive leader of the Bharatiya Janata Party (BJP), Amit Shah,
too, understand this fact well. That’s why they have opted for a different
strategy this time. According to this strategy, the PM will address 100 rallies
across the country. If you look closely at these rallies, you will find that priority
has been given to West Bengal, Kerala, Telangana, Andhra Pradesh, Odisha and
the North-East. Reason? In the last LS election, the BJP won most of the seats in
the northern and western states. While in the south, in Karnataka and undivided
Andhra Pradesh, they tied up with the Telugu Desam Party and won 17 and 19
seats, respectively. The BJP won one seat in Tamil Nadu, but they couldn’t get
even a single seat in Kerala.
22 January 2019
25
 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
775
91
2685
476
19046
1227
20050
1161
733
244
2795
731
7201
163
181
538
834
136
3186
579
21233
1534
24760
1513
745
306
3040
914
8845
191
246
569
8
50
19
22
11
25
23
30
2
26
9
25
23
17
36
6
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
32.3
1,462 118.6
27.6 30.1
576.5 34.6
29.3 44.5
17.6 20.2
-27.3 151.6
14.3 45.6
16.5 21.6
38.0 32.0
-8.3 58.8
9.8