*
* Sectors in order of premium /
discount to historical averages
BEST PERFORMERS MoM (%)
WORST PERFORMERS MoM (%)
Highlights of Feb’19 edition
Another harsh ride for the markets;
ends flat for third consecutive month
Media, Autos, Telecom, Oil top positive
performers
PSU Banks, Utilities, Consumer top
laggards
FII flows highest since Nov’17
Research & Quant Team (Deven@MotilalOswal.com); +91 22 6129 1575
March 2019
 Motilal Oswal Financial Services
Contents
Strategy:
Markets – borderline show in a ‘striking’ month; FII flows pick up
Valuation deep-dive for the month:
NBFCs
Indian equities:
Nifty, sector performance and key valuation metrics
Global equities:
Performance and valuation snapshot
Valuations:
Nifty/Mid-cap companies
Sector highlights:
Overview and sector valuations
NOTES:
Prices as on 28
th
Feb’19
BULL icon:
Sectors trading
at a premium to
historical averages
BEAR icon:
Sectors trading
at a discount to historical
averages
AUTO
BANKS / FINANCIALS
CAPITAL GOODS
CEMENT
CONSUMER
HEALTHCARE
INFRASTRUCTURE
MEDIA
METALS
OIL & GAS
RETAIL
TECHNOLOGY
TELECOM
UTILITIES
Valuations are on
12-month forward basis
unless otherwise
mentioned
Sector valuations are
based on MOFSL
coverage companies
Global equities data
sourced from Bloomberg;
Nifty valuations based on
MOFSL estimates
Investors are advised to refer to important disclosures made at the end of this report.
BULLS & BEARS | March 2019
2
 Motilal Oswal Financial Services
Strategy:
Markets – borderline show in a ‘striking’ month; FII flows pick up
Volatility extends into another month:
With no refuge from volatility, the Indian benchmark indices ended flat (-0.4% MoM) for the third consecutive month
in Feb’19. FIIs turned buyers – inflows at USD2.2b were the highest since Nov’17 (a decent number after accounting for KMB stake purchase by FIIs). However,
domestic inflows were muted at USD0.1b. With the markets erratically lurching both ways, investors turned to large-caps as a safe haven. In February, the Nifty
Midcap100 was down 1.1%, as against the Nifty’s decline of 0.4%. Currently, valuation premium of mid-caps versus large-caps stands at 10%.
Earnings season largely in line; domestic cyclicals led by financials stage a solid comeback:
The December corporate reporting season was in line with our
expectations for both Nifty and MOFSL Universe (earnings growth 6% and 2%, respectively). Domestic Cyclicals led by financials picked up the baton from Global
Cyclicals as the driver of earnings growth. Corporate Banks, IT and Consumer delivered a strong performance, while Autos and Cement disappointed. The top-line
growth for the MOFSL Universe and the Nifty was at a multi-quarter-high. However, this failed to translate into EBITDA growth. Notably, EBITDA margin shrank
300-320bp for the MOFSL and Nifty Universe, dragged by OMCs. Corporate Banks showed a material sequential improvement in slippage/asset quality trends.
Consequently, the share of Domestic Cyclicals (led by financials) in the profit pool increased to 39% – the highest since Jun’09. Our FY19/20 Nifty EPS estimates
have been cut by 2.8%/3.0% to INR496/INR629 (prior: INR510/INR648); nearly 81% of the earnings cut was driven by Tata Motors, SBI, HPCL and ONGC. We
expect Nifty EPS to grow 9% in FY19 and 27% in FY20.
Macros largely stable in Feb’19:
In Feb’19, the INR appreciated slightly from 71.08 to 70.74 and crude oil prices climbed up from USD61.89/barrel to
USD66.03/barrel. The 10-year G-sec yield, however, remained stable and now hover around 7.4% despite the repo rate cut by the RBI. Our recently published
proprietary
EAI index
for Jan’19 indicates a strong start to CY19. February’19 also saw heightened tensions at the India-Pakistan border, with the Indian Air Force
launching air strike across the border to take action against the terror camps. Markets got nervous given the rising geopolitical risks but soon stabilized as situation
de-escalated after a week. Politically, it has raised the approval ratings for Prime Minister Modi and could augur well for the incumbent party in the forthcoming
general elections. This, coupled with stable global markets, propelled mid-cap rally in the first week of March.
China top performer among global markets:
In February, China (+14%), Taiwan (+5%), the US (+3%), Japan (+3%), and the UK (+2%) were the key global markets
to close higher in local currency terms. On the other hand, India-Nifty was flat MoM. Over the last 12 months, the MSCI India (+1%) outperformed the MSCI EM (-
12%). The MSCI India’s P/E is at a premium of 97% to the MSCI EM’s P/E, above its historical average premium of 47%.
Sectoral trends for Feb’19 – Media, Cement, Autos and Telecom top performers:
Media (+18%), Cement (+6%), Autos (+2%), and Telecom (+2%) were the
outperformers in Feb’19. PSU Banks (-5%), Utilities (-3%), Consumer (-2%), Metals (-2%), Private Banks (-2%) were the top laggards. Zee Ent (+23%), Yes Bank
(+19%), Tech Mahindra (+14%), Bajaj Auto (+13%) and UPL (+11%) were the top performers on an MoM basis. Vedanta (-14%), SBI (-8%), Hindalco (-6%), M&M (-
5%) and HPCL (-4%) were the top laggards. In this edition of ‘Bulls & Bears,’ we take a deep dive into the valuation metrics of the NBFC sector.
Focus shifts to politics now:
Over the next three months, we expect the focus of market to shift toward politics. Rising popularity of Prime Minister Modi post the
air strikes does shift the narrative incrementally in favor of incumbent, in our view. Shape of the alliances of both the formations (NDA as well as UPA) will be a
crucial monitorable in March’19. Fundamentally, after tepid four years, earnings appear set for a recovery, especially led by Banking (with credit growth pick-up,
return of pricing power, moderation in fresh slippages and lower credit costs). This should drive profit and RoE recovery for Corporate Banks, which remains our
preferred bet. We maintain a positive view on Consumption, with the recent budget handouts reinforcing our view. Also, in an election year, we expect political
spending to act as a quasi-stimulus for consumption-oriented sectors. The correction in Autos does present an opportunity to increase exposure from a medium-
to long-term perspective, although the short-term prospects remain slightly uncertain. We like IT given the sustained healthy earnings growth and reasonable
valuations. The sharp moderation in valuations for mid-caps opens up the space for bottom-up opportunities.
Top ideas:
Large-cap bets:
ICICI Bank, Axis Bank, Titan, Maruti, HUL, Infosys, M&M, Coal India and SBI.
Mid-cap bets:
LIC Housing Finance, Federal Bank,
Persistent, Indian Hotels, Page, Crompton Consumer, MMFS and Ashoka Buildcon.
BULLS & BEARS | March 2019
3
 Motilal Oswal Financial Services
Valuation deep-dive for the month: NBFCs
Since the beginning of the decade, NBFCs have consistently
gained momentum driven by slowing growth of the banking
sector, differentiated product and customer segments, and
deeper rural penetration. As a result, the sector witnessed
significant re-rating over the past 5-7 years. NBFCs currently trade
at a P/B of 3.2x.
Over the years, HFCs have gained market share from banks in the
housing finance segment. NBFCs continue to dominate the 2W
finance market with 70% share, while used CV financing also
remains its forte.
Over the past 12-18 months, HFCs have witnessed a correction in
valuations driven by two key factors, these include (a) rising GSec
yields leading to increase in cost of funds, and (b) the IL&FS issue
leading to tightness in liquidity.
Growth is expected to slow for the sector as a whole, with the
largest impact on wholesale financiers. Additionally, there are
concerns on the trajectory of asset quality of some wholesale
financiers. As a result, HFCs are now trading at 2.9x P/B (~10%
discount to 10-year average), with maximum de-rating coming
from DHFL and IHFL in the past six months.
Vehicle financiers witnessed strong re-rating over FY18, but
subsequently witnessed some correction in valuations. This was
primarily driven by concerns of a slowdown in auto volumes on
increase in prices of 2Ws and 4Ws due to the (a) new insurance
regulation, and (b) new axle load norms for CVs. As a result,
vehicle financiers are now trading at 1.9x P/B, 10% lower than the
10-year average of 2.1x.
Trend in NBFCs’ one-year forward P/B (x)
5.1
3.8
2.5
1.2
NBFC P/B (x)
10 Yrs Avg(x)
3.0
3.2
Trend in HFCs’ one-year forward P/B (x)
5.1
3.8
3.3
2.5
1.2
2.9
HFC P/B (x)
10 Yrs Avg(x)
Trend in vehicle financier’s one-year forward P/B (x)
5.0
4.0
3.0
2.0
1.0
0.0
2.1
1.9
AFC P/B (x)
10 Yrs Avg(x)
BULLS & BEARS | March 2019
4
 Motilal Oswal Financial Services
Key highlights
Indian equities:
Market ends flat for third consecutive month
February saw the Nifty end almost flat (-0.4% MoM to 10,793) for the third consecutive month. Typified by
high geopolitical tensions on the border, the Nifty traded in a range of 532 points, closing 38 points lower.
Sector-wise, Media (+18%), Cement (+6%), Autos (+2%), Telecom (+2%) Oil (+1%) and Real Estate (+1%) were
the positive performers in February. PSU Banks (-5%), Utilities (-3%), Consumer (-2%), Metals (-2%), Private
Banks (-2%) were the top underperformers in February.
Stock performance:
Breadth equally balanced in February; 27 Nifty stocks close higher
Zee Ent (+23%), Yes Bank (+19%), Tech Mahindra (+14%), Bajaj Auto (+13%) and UPL (+11%) were the top
performers on MoM basis. Vedanta (-14%), SBI (-8%), Hindalco (-6%), M&M (-5%) and HPCL (-4%) were the
top laggards.
Global equities:
India underperforms in February
In February, China (+14%), Taiwan (+5%), the US (+3%), Japan (+3%) and the UK (+2%) were the key global
markets to close higher in local currency terms. On the other hand, India-Nifty was flat MoM.
Over the last 12 months, MSCI India (+1%) has outperformed MSCI EM (-12%). Notably, over the last five
years, MSCI India has outperformed MSCI EM by 161%. MSCI India’s P/E is at a premium of 97% to MSCI
EM’s P/E, above its historical average premium of 47%.
Sector valuations:
Banks, Consumer, Metals underperform; Autos — the outperformers
The Auto sector is trading at a P/E of 17.9x, an 8% premium to its historical average of 16.5x. PV volumes
continued to remain weak for the eighth consecutive month in February, however, it partly recovered from
the impact of negative sentiments. New product launches helped MM— with PV wholesales growing 16.6%
YoY. MSIL wholesales were flat YoY.
Consumer sector trades at a P/E of 39.4x (down from 40.7x in Jan’19) at a premium of 20.7% to its 10-year
average of 32.6x. On a P/B basis, the sector trades at 12.5x, a premium of 23.8% to its 10-year average
multiple of 10.1x. Consumer P/E relative to Nifty P/E has declined to 125.3% in Feb’19 from 127.8% in
Jan’19. In the quarter ended 3QFY19, coverage companies cited a stable demand environment with rural
growing ahead of urban (for the sixth consecutive quarter). Launch pipeline remains strong compared to
the preceding two years.
About the product
As the tagline suggests,
BULLS & BEARS
is a
handbook on valuations in
India. Every month, it will
cover:
Valuations of Indian
markets vis-à-vis global
markets
Current valuation of
companies in various
sectors
Sectors that are
currently valued at
premium/discount to
their historical long-
period averages
BULLS & BEARS | March 2019
5
 Motilal Oswal Financial Services
Indian equities:
Market ends flat for third consecutive month
Nifty MoM change (%) — third consecutive month of flat return
The Nifty ended almost flat (-0.4% MoM to 10,793) for the third
consecutive month in February.
Nifty MoM Change (%)
Typified by high geopolitical tensions on the border, February saw
6.2
6.0
5.6
5.8
the Nifty trade in a range of 532 points, closing 38 points lower.
4.7
4.6
Media (+18%), Cement (+6%), Autos (+2%), Telecom (+2%) Oil
3.7 3.3
3.4
3.0
2.9
(+1%) and Real Estate (+1%) were the positive performers.
1.4
PSU Banks (-5%), Utilities (-3%), Consumer (-2%), Metals (-2%),
and Private Banks (-2%) were the top underperformers.
0.0 0.2
1.1
FIIs bought stocks worth USD2.2b (highest FII inflows since
1.0
1.3
1.6
Nov’17). Meanwhile, domestic flows continued to remain weak,
3.6
with the month witnessing outflows of USD0.1b.
4.9
6.4
4.7
0.1 0.3 0.4
5.0
Institutional flows (USDb)
2.0
0.1
FIIs (USDb)
2.8
2.0
1.0
DIIs (USDb)
1.3
2.2 2.1
0.6
0.4
0.2
-0.4
-1.4
-0.3
-1.3
Sectoral MoM change (%) — Media, Cement and Autos top performers
3.5
1.7
2.2
0.9
0.3
0.1 0.0
0.3
-0.1
6
2
2
1
1
0
18
-0.9
-1.9
-0.1
0
-1
-1
-1
-1
-2
-2
-2
-3
-5
-3.8
Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb
2018
2019
BULLS & BEARS | March 2019
6
 Motilal Oswal Financial Services
Indian equities:
Breadth equally balanced in February; 27 Nifty stocks close higher
Nifty – best and worst performers in February:
Zee Ent (+23%), Yes Bank (+19%), Tech Mahindra (+14%), Bajaj Auto (+13%) and UPL (+11%) were the
top performers on MoM basis. Vedanta (-14%), SBI (-8%), Hindalco (-6%), M&M (-5%) and HPCL (-4%) were the top laggards.
Nifty – best and worst performers in CY19YTD:
Yes Bank (+27%), UPL (+16%), Tech Mahindra (+15%), Axis Bank (+14%) and Bharti Infratel (+13%) were the top
performers. Indiabulls Housing (-23%), M&M (-20%), Vedanta (-16%), Adani Ports (-16%) and Hero Motors (-15%) were the worst performers.
23
Best and worst Nifty performers (MoM) in Jan’19 (%) – breadth equally balanced, 54% of Nifty stocks traded higher
19
14 13 11
9 8 7
6 6 5 5 5 5 5
4 3 3 3 3 2 1 1
1 0 0 0 0
0
-1 -1 -1 -2 -2 -2 -2 -2 -2 -2 -3 -3 -3 -3
-4 -4 -4 -4 -5 -6 -8
-14
Best and worst Nifty performers (YoY) in CY19YTD (%) – 20 companies in Nifty delivered positive returns so far
27
16 15 14 13
12 11 10 10 9
7 7 6 5
3 3 2 2 1
0
0
-1
-1 -2 -2 -2 -3 -3
-4 -4 -5 -5 -5 -5 -6 -7 -7
-8 -8 -8 -8 -9 -10
-12 -14 -14 -15-16 -16
-20 -23
BULLS & BEARS | March 2019
7
 Motilal Oswal Financial Services
Indian equities:
Mid-caps underperform large-caps over last 12 months
Mid-caps have struggled over the past few months, resulting in their underperformance v/s the large-caps. Over the last 12 months, mid-caps have
corrected by 15%, as against the Nifty’s rise of 2.9%. However, over the last five years, mid-caps have outperformed by 42%.
In February, Nifty Midcap100 was down 1.1%, as against the Nifty’s fall of 0.4%. Mid-caps still trade at a 10% premium to the Nifty in terms of P/E.
Mid-caps outperformed large-caps in last five years
330
Nifty Rebased
Nifty Midcap 100 Rebased
5 Year CAGR |
Nifty: 11.4% |
Midcap: 16.5%
Mid-caps underperformed large-caps in the last 12 months
115
105
95
85
75
Nifty Rebased
Nifty Midcap 100 Rebased
103
260
190
214
172
85
120
50
12-month forward P/E (x)
34
28
22
16
10
Midcap PE (x)
Nifty Avg: 19.7x
Midcap Avg: 20.8x
Nifty PE (x)
Mid-caps trading at 10% premium to Nifty
Midcap Vs Nifty PE Prem/(Disc) (%)
65
40
Average: 5%
19.2
17.5
15
-10
-35
10
Source: MOFSL, Bloomberg for Midcap valuation.
BULLS & BEARS | March 2019
8
 Motilal Oswal Financial Services
Indian equities:
Valuations at long-period averages
Valuations of Indian equities are at their long-period averages. The Nifty trades at a 12-month forward P/E of 17.5x, at its long-period average. Nifty’s
P/B of 2.6x is also at its historical average.
At the current trailing P/E of 21.9x and forward P/E of 17.5x, we see limited triggers for further re-rating, unless accompanied by a material surprise
in earnings.
12-month forward Nifty P/E (x)
25
21
17
13
11.2
9
10 Year Avg: 17.5x
22.5
17.5
12-month forward Nifty P/B (x)
3.5
3.0
10 Year Avg: 2.6x
2.5
2.0
1.5
3.0
2.6
1.8
Trailing Nifty P/E (x)
25
21
17
13
9
21.9
10 Year Avg: 19.0x
Trailing Nifty P/B (x)
3.5
3.0
2.5
2.0
1.5
10 Year Avg: 2.8x
2.9
BULLS & BEARS | March 2019
9
 Motilal Oswal Financial Services
Indian equities:
Market-cap-to-GDP below historical average
Nifty trades at a 12-month-forward RoE of 14.9%, near its long-term average.
Market-cap-to-GDP ratio is at 75% (FY19E GDP), marginally below its long-term average.
Trend in Nifty RoE (%)
20.7
12-month forward Nifty RoE (%)
18.0
16.5
15.0
13.5
12.0
10 Year Avg: 14.8%
14.9
16.1
17.0
14.9
16.4
16.2
15.4
14.9
Average of 15.6%
13.2
13.6
12.9
13.1
Trend in India’s market-cap-to-GDP (%) – below its long-period averages
103
95
Average of 78% for the period
71
55
64
81
66
69
80
88
85
75
BULLS & BEARS | March 2019
10
 Motilal Oswal Financial Services
Global equities:
India underperforms in February
In February, China (+14%), Taiwan (+5%), the US (+3%), Japan (+3%) and the UK (+2%) were the key global markets to close higher in local currency
terms. On the other hand, India-Nifty was flat MoM.
Indian equities are trading at 21.8x FY19E earnings. All key markets continue trading at a discount to India. However, India’s RoE remains superior to
most EMs, an important differentiator for valuation premium.
India (Nifty) v/s other markets
CY19 YTD Chg (%)
Index
Value
India
US
Japan
Indonesia
Taiwan
UK
MSCI EM
Brazil
China
Korea
Russia
10,793
2,784
21,385
6,443
10,389
7,075
1,051
95,584
2,941
2,195
4,421
Mkt Cap Local
In USD
(USD T) Currency
2.0
30.4
5.7
0.5
1.1
3.3
13.8
1.0
6.7
1.5
0.6
-1
11
7
4
7
5
9
9
18
8
6
-2
11
6
7
6
9
9
12
21
7
12
PE (x)
CY18 /
FY19
21.8
18.3
15.8
20.4
13.9
16.7
12.7
20.0
13.9
10.6
5.7
CY19 /
FY20
17.2
16.7
15.6
15.5
14.4
12.5
12.2
11.8
11.0
10.8
5.1
-16
-27
-6
-36
-23
-41
-8
-36
-51
-74
-3
-9
-10
-16
-27
-29
-31
-36
-37
-70
Prem / Disc to India
PE (%)
CY18 /
FY19
CY19 /
FY20
PB (x)
CY18 /
FY19
2.8
3.3
1.6
2.4
1.6
1.7
1.6
2.0
1.5
0.9
0.8
CY19 /
FY20
2.6
3.1
1.6
2.3
1.6
1.7
1.5
1.8
1.3
0.9
0.7
RoE (%)
CY18 /
FY19
13.1
16.0
10.4
11.3
11.6
10.9
12.9
9.9
11.1
8.7
13.5
CY19 /
FY20
15.0
16.1
10.5
17.7
12.4
10.4
12.4
15.5
11.8
7.4
11.9
MoM Chg (%)
China
Taiwan
US
Japan
UK
MSCI EM
India
Korea
Indonesia
Brazil
Russia
0
5
3
3
2
14
0
0
-1
-2
-2
Source: Bloomberg/MOFSL
BULLS & BEARS | March 2019
11
 Motilal Oswal Financial Services
Global equities:
MSCI India outperforms MSCI EM over last 12 months
Over the last 12 months, MSCI India (+1%) has outperformed MSCI EM (-12%). Notably, over the last five years, MSCI India has outperformed MSCI
EM by 161%.
MSCI India’s P/E is at a premium of 97% to MSCI EM’s P/E, above its historical average premium of 47%.
MSCI India outperformed MSCI EM by 161% over last five years
450
MSCI India Rebased
10 Year CAGR:
MSCI India: 14.0%
MSCI EM: 7.7%
5 Year CAGR:
MSCI India: 9.2%
MSCI EM: 1.7%
MSCI EM Rebased
MSCI EM v/s MSCI India performance over 12 months
118
106
94
82
70
MSCI India Rebased
MSCI EM Rebased
101
88
350
250
150
50
371
210
MSCI India v/s MSCI EM trailing P/E (x)
33.0
26.0
19.0
12.0
5.0
MSCI India Avg: 20.0x
MSCI India v/s MSCI EM P/E premium (%)
MSCI EM PE (x)
120
MSCI India Vs EM PE Premium (%)
MSCI India PE (x)
25.1
90
60
97
MSCI EM Avg: 13.7x
12.7
30
0
Average of 47%
Source: Bloomberg
BULLS & BEARS | March 2019
12
 Motilal Oswal Financial Services
Global equities:
India’s share in world market dips in February
India’s share in the world market cap is at 2.6%, near its historical average of 2.5%.
Over the last 12 months, the world’s market cap has decreased 6.1% (USD5.1t), while India’s market cap is down 12.5%.
Market cap change in last 12 months (%)
Mkt cap chg 12M (%)
US
Average of 2.5%
Curr Mcap (USD Tr)
0
-3
-5
-8
-9
-10
-12
30.4
0.5
1.0
0.6
1.1
3.3
5.7
2.0
1.5
6.7
Trend in India's contribution to world market cap (%)
3.5
3.0
2.5
2.0
1.5
1.6
India's Contribution to World Mcap (%)
3.3
2.6
Indonesia
Brazil
Russia
Taiwan
Global market-cap-to-GDP (%)
157
127
118
96
75
55
Current mkt cap to GDP (%)
UK
Japan
India
Korea
China
51
47
39
-13
-13
-14
* Based on GDP for Dec 2017
Source: Bloomberg
BULLS & BEARS | March 2019
13
 Motilal Oswal Financial Services
Nifty:
Technology – Cautiously optimistic on the on-going traction
The technology sector trades at a P/E of 18.7x, at a 15% premium to its historical average of 16.3x. NASSCOM guided for 9.2% CC YoY growth for FY19.
While traction in demand continues for now, some of the CEOs are a little cautious on a further increase in growth rate for the next fiscal year. Digital
remained the key growth lever. According to NASSCOM, revenue from digital increased 30% in FY19.
Snapshot: Nifty companies’ valuations
Name
Bajaj Auto
Eicher Motors
Hero MotoCorp
Mahindra & Mahindra
Maruti Suzuki
Tata Motors
Axis Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Kotak Mahindra Bank
Yes Bank
State Bank
Bajaj Finance
HDFC
Indiabulls Housing
Larsen & Toubro
Grasim Inds
Ultratech Cement
Asian Paints
Hind. Unilever
ITC
Sector
Auto
Auto
Auto
Auto
Auto
Auto
Banks - Private
Banks - Private
Banks - Private
Banks - Private
Banks - Private
Banks - Private
Banks - PSU
Banks - NBFC
Banks - NBFC
Banks - NBFC
Capital Goods
Cement
Cement
Consumer
Consumer
Consumer
Current
16.5
20.1
14.6
13.8
23.7
11.5
18.8
22.0
18.2
15.1
26.7
10.4
9.6
30.3
35.9
6.0
18.0
9.8
37.2
50.2
51.2
24.9
PE (x)
Relative to Nifty P/E (%)
Current
10 Yr Avg
10 Yr Avg Prem/Disc (%)
-6
-11
15.7
5
15
28
22.4
-10
-16
-1
17.3
-16
-21
-7
16.4
-16
36
13
19.8
20
-34
-38
10.8
6
7
65
28.9
-35
26
17
20.5
8
4
1
17.7
3
-14
-1
17.3
-13
53
28
22.4
19
-41
-33
11.8
-12
-45
-17
14.6
-34
73
-11
15.7
93
105
64
28.8
25
-66
-46
9.5
-36
3
31
23.0
-22
-44
-39
10.7
-8
113
60
28.0
33
187
108
36.4
38
193
108
36.4
41
43
49
26.2
-5
Current
3.6
5.1
3.9
2.1
4.2
0.9
2.4
3.4
1.9
2.7
3.5
1.6
1.0
6.6
4.0
1.5
2.3
1.1
3.1
14.1
51.4
6.3
PB (x)
10 Yr Avg Prem/Disc (%)
5.2
-31
6.0
-15
7.1
-45
3.0
-31
3.3
27
1.9
-56
2.0
19
3.4
0
1.7
13
2.7
1
2.8
24
2.1
-24
1.2
-18
2.9
125
4.5
-13
2.3
-36
3.0
-23
1.7
-35
3.1
1
10.7
32
30.8
67
7.2
-13
Relative to Nifty P/B (%)
Current
10 Yr Avg
37
102
95
133
51
176
-21
16
61
28
-67
-24
-9
-22
30
32
-25
-33
4
5
35
11
-38
-18
-62
-52
153
14
53
77
-43
-10
-10
19
-59
-35
20
20
442
318
1876
1103
142
182
BULLS & BEARS | March 2019
14
 Motilal Oswal Financial Services
Nifty:
50% companies trade at discount to historic averages
Companies trading at a significant premium to their historical averages:
Titan (+47%), UPL (+44%), HUL (+41%), Asian Paints (+38%) and Reliance
Industries (+33%).
Companies trading at a significant discount to their historical averages:
HPCL (-70%), Tata Steel (-52%), ONGC (-52%), Coal India (-44%) and NTPC (-
37%).
Sector
Healthcare
Healthcare
Healthcare
Media
Metals
Metals
Metals
Metals
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Retail
Technology
Technology
Technology
Technology
Technology
Telecom
Telecom
Utilities
Utilities
Utilities
Others
Current
23.5
20.7
19.7
24.1
6.8
13.0
6.8
8.1
8.2
11.5
5.3
9.0
5.0
16.8
50.3
12.8
18.9
22.1
15.3
15.9
NA
21.9
7.9
9.0
9.3
18.4
17.5
PE (x)
10 Yr Avg Prem/Disc (%)
27.8
-16
25.7
-20
29.1
-32
26.8
-10
9.6
-29
13.0
0
14.3
-52
10.8
-25
10.1
-18
13.3
-14
17.8
-70
8.8
2
10.2
-52
12.6
33
34.1
47
13.2
-3
17.1
10
18.2
21
12.5
22
14.8
7
34.3
-
24.5
-11
14.0
-44
14.4
-37
13.0
-29
12.8
44
17.5
0
Relative to Nifty P/E (%)
Current
10 Yr Avg
34
59
18
47
13
66
38
53
-61
-45
-25
-26
-61
-19
-53
-38
-53
-43
-34
-24
-69
1
-48
-50
-72
-42
-4
-28
188
95
-27
-25
8
-2
26
4
-13
-29
-9
-16
-
96
25
40
-55
-20
-48
-18
-47
-26
5
-27
Current
2.6
2.8
2.4
4.4
0.9
2.0
1.1
1.0
1.5
1.6
1.1
1.1
0.8
2.0
15.5
3.1
5.1
8.4
3.5
2.7
2.2
3.4
6.4
1.0
1.4
3.5
2.6
PB (x)
10 Yr Avg Prem/Disc (%)
3.4
-23
3.9
-28
4.7
-49
5.5
-20
1.3
-30
1.4
42
1.7
-38
2.1
-53
1.6
-7
1.7
-10
1.2
-11
1.1
2
1.5
-48
1.5
33
9.6
62
3.1
-1
4.0
26
6.2
37
2.7
31
2.9
-6
2.5
-10
3.4
1
6.5
-2
1.6
-38
1.8
-24
2.6
33
2.6
1
Relative to Nifty P/B (%)
Current
10 Yr Avg
1
33
7
52
-7
83
69
113
-65
-49
-25
-46
-60
-34
-62
-19
-43
-37
-40
-32
-59
-53
-58
-59
-70
-42
-23
-41
497
273
18
22
97
58
224
140
34
4
3
11
-15
-4
32
32
145
154
-61
-37
-47
-28
34
2
Name
Cipla
Dr Reddy’ s Labs
Sun Pharma
Zee Ent.
Hindalco
JSW Steel
Tata Steel
Vedanta
BPCL
GAIL
HPCL
IOCL
ONGC
Reliance Inds.
Titan Inds.
HCL Technologies
Infosys
TCS
Tech Mahindra
Wipro
Bharti Airtel
Bharti Infratel
Coal India
NTPC
Power Grid Corp.
UPL
Nifty
BULLS & BEARS | March 2019
15
 Motilal Oswal Financial Services
Mid-caps underperform Nifty by 1% in February
The Nifty Mid-cap100 declined 1.1% in February, as against the Nifty’s flat performance.
Best mid-cap performers in February: SRF (+15%), Team Lease (+9%), Delta Corp (+6%), Aegis Logistics (+5%) and IPCA Labs (+5%).
Company
SRF
Team Lease Serv.
Delta Corp
Aegis Logistics
Ipca Labs.
India Cements
Phoenix Mills
Blue Star
DCB Bank
Tata Elxsi
CEAT
GE T&D India
Ent.Network
Sanghi Inds.
Jyothy Lab.
Sadbhav Engg.
Birla Corpn.
Ajanta Pharma
Engineers India
PVR
Alembic Pharma
MCX
Shilpa Medicare
Strides Pharma
Trident
Rain Industries
Kaveri Seed
PE (x)
Current 10 Yr Avg Prem/Disc (%)
17.5
10.1
73
32.8
31.2
5
27.0
33.3
-19
21.3
20.7
3
19.4
24.5
-21
19.2
31.4
-39
29.2
32.6
-10
26.8
28.9
-7
14.0
15.9
-12
17.7
19.8
-10
13.5
11.0
23
26.3
64.0
-59
29.3
39.0
-25
25.8
19.2
34
27.9
34.6
-19
13.6
24.8
-45
10.0
16.5
-40
19.0
15.4
24
14.6
19.0
-23
42.1
39.5
6
18.7
16.8
12
22.2
35.1
-37
15.4
23.2
-33
18.2
60.0
-70
6.3
8.9
-29
6.4
4.5
42
11.2
13.9
-20
Relative to Nifty P/E (%)
Current
10 Yr Avg
0
-43
88
78
55
90
22
18
11
40
10
79
67
86
53
65
-20
-9
1
13
-23
-37
50
265
68
122
47
10
60
97
-22
42
-43
-6
9
-12
-17
9
141
126
7
-4
27
100
-12
32
4
242
-64
-49
-63
-74
-36
-20
PB (x)
Current 10 Yr Avg Prem/Disc (%)
2.9
1.5
90
7.0
5.6
25
3.3
2.5
36
4.2
3.1
35
2.9
3.1
-5
0.5
0.7
-30
2.6
2.1
21
5.9
7.8
-24
1.7
1.4
18
4.1
5.5
-25
1.4
1.2
17
4.9
6.9
-29
2.5
3.0
-17
0.8
0.9
-5
5.1
4.3
17
1.4
2.6
-46
0.8
1.1
-31
3.2
4.2
-24
2.7
3.9
-31
4.6
3.3
39
3.4
4.4
-22
2.6
3.8
-32
2.1
2.8
-26
1.4
3.2
-57
0.9
0.9
-6
0.6
0.7
-12
2.3
3.3
-31
Relative to Nifty P/B (%)
Current
10 Yr Avg
12
-40
169
118
28
-4
62
21
12
20
-81
-72
0
-16
126
203
-35
-44
58
114
-45
-52
88
167
-3
18
-68
-66
95
69
-45
3
-70
-56
21
62
2
51
77
29
33
72
-1
47
-21
8
-46
26
-67
-64
-75
-71
-13
27
Price Chg (%)
MoM
CY19YTD
15
15
9
1
6
-3
5
-2
5
1
4
-9
4
11
3
-1
2
8
1
-13
1
-16
-1
-2
-2
-14
-3
-9
-3
-16
-3
-10
-4
-22
-5
-18
-5
-15
-6
-6
-7
-7
-7
-11
-8
-9
-9
-9
-10
-10
-24
-32
-32
-29
BULLS & BEARS | March 2019
16
 Motilal Oswal Financial Services
Sector valuations:
Banks, Consumer, Metals underperform; Autos — the outperformers
Auto sector is trading at a P/E of 17.9x, at an 8% premium to its historical average of 16.5x. PV volumes continued to remain weak for the eighth
consecutive month in February, however, recovering partly from the impact of negative sentiments. New product launch helped MM, with PV
wholesales growing 16.6% YoY. MSIL wholesales were flat YoY.
Private banks are trading at 2.7x, a 16% premium to its historical P/B average of 2.3x. Loan growth remains healthy at 14.5% YoY while deposit
growth stands relatively modest at 9.6% YoY. CD ratio stood at 77.8% (75% in FY18). Private banks continue to report healthy ~20% YoY loan growth
driven by retail and SME segments, while trends for PSU banks remain tepid.
Consumer sector trades at a P/E of 39.4x (down from 40.7x in Jan’19) at a premium of 20.7% to its 10-year average of 32.6x. On a P/B basis, the
sector trades at 12.5x, a premium of 23.8% to its 10-year average multiple of 10.1x. Consumer P/E relative to Nifty P/E has declined to 125.3% in
Feb’19 from 127.8% in Jan’19. In the quarter ended 3QFY19, coverage companies called out for stable demand environment with rural growing
ahead of urban (for the sixth consecutive quarter). Launch pipeline remains strong compared to the preceding two years.
Snapshot: Sector valuations
Sector
Auto
Banks - Private
Banks - PSU
NBFC
Capital Goods
Cement
Consumer
Healthcare
Infrastructure
Media
Metals
Oil & Gas
Retail
Technology
Telecom
Utilities
Current
17.9
19.2
10.1
21.8
22.1
22.2
39.4
20.4
8.7
18.8
9.5
11.0
49.5
18.7
Loss
9.3
Relative to Nifty
P/E (%)
10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
16.5
8.3
3
-8
17.7
8.5
10
0
8.7
15.9
-42
-50
19.1
14.4
25
8
26.6
-16.7
27
48
21.3
4.3
27
18
32.6
20.7
125
86
23.5
-12.9
17
33
12.2
-28.8
-50
-30
22.4
-16.2
8
28
12.1
-21.6
-46
-31
11.3
-2.2
-37
-34
36.7
35.0
183
107
16.3
14.9
7
-6
-
-
14.1
-34.1
-47
-17
PE (x)
Current
2.8
2.7
0.8
3.2
2.6
2.2
12.5
3.0
1.0
3.5
1.2
1.5
14.9
5.1
1.6
1.1
Relative to Nifty
P/B (%)
10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
3.2
-10.5
9
23
2.3
16.2
3
-10
0.9
-12.3
-69
-64
3.0
6.7
24
18
3.4
-22.0
2
31
2.6
-15.2
-16
0
10.1
23.8
382
298
4.0
-26.1
15
58
1.7
-40.9
-61
-33
4.3
-17.7
35
66
1.4
-15.1
-56
-48
1.5
-0.8
-41
-40
9.8
51.5
473
284
4.2
21.4
97
65
2.3
-27.2
-37
-11
1.5
-30.4
-59
-40
PB (x)
BULLS & BEARS | March 2019
17
 Motilal Oswal Financial Services
Autos:
Wholesales in-line across segments
The Auto sector is trading at a P/E of 17.9x, at an 8%
premium to its historical average of 16.5x.
PV volumes continued to remain weak for the eighth
consecutive month, however, recovering partly from
the impact of negative sentiments. New product
launches helped MM, with PV wholesales growing
16.6% YoY. MSIL wholesales were flat YoY.
In 2Ws, wholesales were mixed, wholesales of BJAUT
and TVSL were higher by 10% YoY and 3% YoY
whereas HMCL wholesales declined 2% YoY.
Retail demand for CVs remained mixed in February
with discounting being higher. CV wholesales for AL
was flat YoY, while for TTMT it declined 9%.
38
31
24
17
10
3
16.5
17.9
Auto P/E (x)
10 Yr Avg (x)
70
40
10
-20
-50
-8.2
2.5
Auto Relative to Nifty PE (%)
5
4
3
2
Auto P/B (x)
10 Yr Avg (x)
70
40
Auto Relative to Nifty PB (%)
23.0
9.1
3.2
2.8
10
-20
Sector Performance
MoM: 2%
Company
Amara Raja Batt.
Ashok Leyland
Bajaj Auto
Bharat Forge
Bosch
CEAT
Eicher Motors
Escorts
Exide Inds.
Hero Motocorp
M&M
Maruti Suzuki
Motherson Sumi
Tata Motors
TVS Motor Co.
Current
20.3
11.8
16.5
18.9
30.4
13.5
20.1
11.0
20.5
14.6
13.8
23.7
22.1
11.5
21.0
PE (x)
10 Yr Avg
18.5
16.6
15.7
25.9
31.6
11.0
22.4
9.6
21.6
17.3
16.4
19.8
24.4
10.8
19.2
Prem/Disc (%)
10
-29
5
-27
-4
23
-10
14
-5
-16
-16
20
-10
6
10
1
Relative to Nifty P/E (%)
Current
10 Yr Avg
16
6
-32
-6
-6
-11
8
48
74
80
-23
-37
15
28
-37
-45
18
23
-16
-1
-21
-7
36
13
26
39
-34
-38
20
9
Current
3.2
2.7
3.6
3.8
5.6
1.4
5.1
1.9
2.9
3.9
2.1
4.2
4.3
0.9
5.3
PB (x)
10 Yr Avg
3.7
2.8
5.2
4.1
5.3
1.2
6.0
1.1
3.2
7.1
3.0
3.3
5.0
1.9
4.2
Prem/Disc (%)
-14
-5
-31
-9
7
17
-15
76
-11
-45
-31
27
-14
-56
25
Relative to Nifty P/B (%)
Current
10 Yr Avg
24
46
3
11
37
102
45
61
105
116
-45
-52
95
133
-26
-58
10
25
51
176
-21
16
61
28
64
93
-67
-24
102
65
BULLS & BEARS | March 2019
18
 Motilal Oswal Financial Services
Private Banks:
Growth momentum remains strong
Private banks are trading at 2.7x, a 16% premium to its
historical P/B average of 2.3x.
33
Private Banks P/E (x)
10 Yr Avg (x)
40
20
Private Banks Relative to Nifty PE (%)
Loan growth remained healthy with
14.5% YoY while deposit
26
growth stood relatively modest at 9.6% YoY. CD ratio stood at
19
77.8% (75% in FY18). Private banks continued to report
12
healthy ~20% YoY loan growth driven by retail and SME
segments while the trends for PSU banks remained tepid.
Asset quality trends have shown recovery
signs as fresh
slippages have moderated across key corporate banks.
Coverage ratios have improved while resolution of select
NCLT cases (Essar Steel & Bhushan Power) and asset
resolution under Samadhan scheme will likely drive healthy
provisioning write-backs
Margin cycle has likely bottomed out
and we expect NIMs
to be stable/expand on the back of (a) improved pricing
power, (b) repricing of advances portfolio, and, (c) lower
interest reversals as fresh slippage subsides.
-0.4
17.7
19.2
0
-20
-40
10.0
5
Private Banks P/B (x)
4
3
2
1
2.3
10 Yr Avg (x)
10
-10
-30
-50
Private Banks Relative to Nifty PB (%)
-10.2
3.3
2.7
Sector Performance
MoM: -2%
Company
Axis Bank
DCB Bank
Federal Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Kotak Mah. Bank
South Ind.Bank
Yes Bank
Current
18.8
14.0
9.7
22.0
18.2
15.1
26.7
5.1
10.4
PE (x)
10 Yr Avg
28.9
15.9
11.9
20.5
17.7
17.3
22.4
8.0
11.8
Prem/Disc (%)
-35
-12
-19
8
3
-13
19
-36
-12
Relative to Nifty P/E (%)
Current
10 Yr Avg
7
65
-20
-9
-44
-32
26
17
4
1
-14
-1
53
28
-71
-55
-41
-33
Current
2.4
1.7
1.1
3.4
1.9
2.7
3.5
0.4
1.6
PB (x)
10 Yr Avg
2.0
1.4
1.2
3.4
1.7
2.7
2.8
0.9
2.1
Prem/Disc (%)
19
18
-5
0
13
1
24
-50
-24
Relative to Nifty P/B (%)
Current
10 Yr Avg
-9
-22
-35
-44
-57
-54
30
32
-25
-33
4
5
35
11
-84
-67
-38
-18
BULLS & BEARS | March 2019
19
 Motilal Oswal Financial Services
PSU Banks:
Asset quality woes easing; NCLT resolutions to aid recoveries
PSU Banks are trading at a P/B of 0.8x, at a 12% discount
to its historical average of 0.9x.
Net stressed loans moderated further
buoyed by healthy
recoveries and a decline in fresh slippages. However
downgradation of ILFS account impacted the slippages
trajectory for a few banks (INBK, CBK and BOB). SBIN and
PNB appear well placed to benefit from the upcoming
NCLT resolutions.
Operating performance improved
moderately led by
improved NII growth on calibrated margin recovery
however this got partially offset by muted fee
income/gratuity provisions.
Others:
(a)
Government further announced capital
infusion
of INR482b in 12PSB’s to meet their provisioning
and capital requirements. (b)
RBI relaxed the PCA norms
for BOI, BOM, OBC, ALBK & CRPBK subject to continuous
monitoring. This in our view will help ease the flow of
credit to the MSME sector which has been muted over the
last few years
PE (x)
Company
Bank of Baroda
Bank of India
Canara Bank
Indian Bank
Punjab Natl.Bank
St Bk of India
Union Bank (I)
Current
6.7
NA
5.8
7.7
NA
9.6
NA
10 Yr Avg
9.1
8.0
6.7
7.7
7.5
14.6
7.8
Prem/Disc (%)
-27
-
-14
0
-
-34
-
-45
-67
-56
2
1
1
0
PSU Banks P/B (x)
10 Yr Avg (x)
-40
-50
PSU Banks Relative to Nifty PB (%)
0.9
0.8
-60
-70
-80
-63.9
-68.6
Sector Performance
MoM: -5%
Relative to Nifty P/E (%)
Current
-62
10 Yr Avg
-48
-55
-62
-56
-57
-17
-55
Current
0.6
0.6
0.5
0.6
0.6
1.0
0.3
PB (x)
10 Yr Avg
1.0
0.8
0.7
0.7
1.0
1.2
0.8
Prem/Disc (%)
-44
-22
-34
-20
-38
-18
-62
Relative to Nifty P/B (%)
Current
-78
-75
-81
-78
-77
-62
-89
10 Yr Avg
-61
-67
-71
-72
-62
-52
-70
BULLS & BEARS | March 2019
20
 Motilal Oswal Financial Services
NBFCs:
Debt capital markets tightening up again
NBFCs trade at a P/B of 3.2x, above historical average (7%
premium).
Ever since the DHFL-Cobrapost issue, debt capital markets
again tightened their norms for NBFCs. CP volumes are 30-
40% lower than average. Our discussions with companies
reveal that the NCD market has been slow too, over the
past month.
3QFY19 was a key quarter for our coverage universe.
Performance was divergent across sectors and more so,
across companies within a sector. For vehicle financiers, it
was ‘business as usual’, while the HFCs witnessed some
slowdown.
Most companies managed the liquidity situation well,
although some managed by curtailing disbursements. For
most companies, there has been a sequential reduction in
CPs outstanding in 3Q. It is noteworthy that CIFC did not
borrow much during the quarter as it had already drawn
down INR60b from banks and
Sector Performance
other sources in the last two
MoM: -1%
weeks of 2QFY19.
Company
Bajaj Finance
Chola. Invst. & Fin.
HDFC
Indiabulls Housing
L&T Fin.Holdings
LIC Housing Fin.
M & M Financial
Muthoot Finance
PNB Housing
Shri.City Union.
Shriram Trans.
Current
30.3
14.0
35.9
6.0
9.5
8.8
14.9
9.4
11.6
10.5
8.7
PE (x)
10 Yr Avg
15.7
14.2
28.8
9.5
15.8
11.1
16.8
8.1
20.0
13.9
13.0
Prem/Disc (%)
93
-1
25
-36
-40
-21
-11
16
-42
-24
-33
NBFC P/E (x)
29
23
17
11
5
19.1
21.8
10 Yr Avg (x)
40
20
0
-20
-40
NBFC Relative to Nifty PE (%)
24.8
7.9
4
3
2
1
NBFC P/B (x)
10 Yr Avg (x)
3.2
45
30
15
0
-15
NBFC Relative to Nifty PB (%)
24.1
18.0
3.0
Relative to Nifty P/E (%)
Current
10 Yr Avg
73
-11
-20
-19
105
64
-66
-46
-46
-10
-50
-36
-15
-4
-46
-54
-33
14
-40
-21
-50
-26
Current
6.6
2.6
4.0
1.5
1.6
1.3
2.1
2.0
1.8
1.5
1.4
PB (x)
10 Yr Avg
2.9
2.1
4.5
2.3
1.9
1.9
2.2
1.6
2.8
2.0
2.0
Prem/Disc (%)
125
28
-13
-36
-16
-31
-6
27
-36
-25
-29
Relative to Nifty P/B (%)
Current
10 Yr Avg
153
14
1
-20
53
77
-43
-10
-38
-25
-50
-26
-20
-13
-23
-39
-30
11
-41
-21
-22
-45
BULLS & BEARS | March 2019
21
 Motilal Oswal Financial Services
Capital Goods:
Valuation compress on slow down in business activity
Capital Goods sector trades at one-year forward P/E multiple
of 22.1 at a discount of 17% to its 10-year average P/E of
26.6x.
Even on a P/B basis, the sector trades at a discount of 22% to
its 10-year average multiple of 3.4x.
Valuation premium relative to the Nifty on a P/B basis has
been eroded and now trades at 2% discount v/s 10-year
average of 31%. On a P/E multiple basis, the premium has
narrowed to 27% from the 10-year average of 48%.
Valuation for the companies have witnessed correction given
multiple issues like (a) slow down in ordering, (b) margins
coming under pressure on account of inability to pass on
price hikes. Competition intensity remains fierce in the
industry given the paucity of orders in the near term
67
47
26.6
27
7
22.1
Capital Goods P/E (x)
10 Yr Avg (x)
190
140
90
40
-10
Capital Goods Relative to Nifty PE (%)
48.3
26.6
9
6
4
Capital Goods P/B (x)
10 Yr Avg (x)
210
145
Capital Goods Relative to Nifty PB (%)
Valuation multiples have remained below the long-term
average for some time, given the absence of a broad-
based recovery in the capex
cycle.
Sector Performance
3.4
2.6
80
15
-50
31.2
1.6
1
MoM: -1%
Company
ABB
BHEL
Blue Star
Cummins India
Engineers India
GE T&D India
Havells India
K E C Intl.
Larsen & Toubro
Siemens
Solar Inds.
Thermax
Voltas
Current
38.5
17.3
26.8
23.1
14.6
26.3
44.9
10.9
18.0
32.7
25.9
27.8
31.3
PE (x)
10 Yr Avg
64.7
24.6
28.9
25.3
19.0
64.0
25.1
15.3
23.0
48.3
21.6
30.2
22.2
Prem/Disc (%)
-41
-30
-7
-9
-23
-59
79
-29
-22
-32
20
-8
41
Relative to Nifty P/E (%)
Current
10 Yr Avg
120
269
-1
40
53
65
32
44
-17
9
50
265
157
43
-38
-13
3
31
87
176
48
23
59
72
79
26
Current
5.8
0.7
5.9
4.2
2.7
4.9
9.4
2.3
2.3
4.0
5.6
3.5
4.0
PB (x)
10 Yr Avg
6.7
2.3
7.8
5.7
3.9
6.9
5.9
2.2
3.0
6.1
4.4
4.1
3.2
Prem/Disc (%)
-14
-70
-24
-26
-31
-29
60
7
-23
-35
27
-17
24
Relative to Nifty P/B (%)
Current
10 Yr Avg
124
163
-73
-9
126
203
62
121
2
51
88
167
260
129
-11
-16
-10
19
53
137
115
71
33
61
54
26
BULLS & BEARS | March 2019
22
 Motilal Oswal Financial Services
Cement:
Price hikes across regions; South-India leads the pack
Cement trades at EV/EBITDA of 13.5x, at a 1% discount to
its historical average.
43
Cement P/E (x)
10 Yr Avg (x)
150
105
60
Cement Relative to Nifty PE (%)
February witnessed price hikes across regions. Prices in the
33
North increased by INR 7/bag. South witnessed the
23
maximum price hike ranging from INR 30-60/bag. Our
13
interaction with dealers in the south suggest that players
in the region are curtailing production. Prices of non trade
3
in west , central and north increased by INR 10/bag.
Demand continues to be driven by the infrastructure
segment.
RIL’s petcoke price remained flat at INR8,850/t in Feb’19.
Prices of imported coal (in INR) reduced by 7.4% MoM.
Diesel prices increased 3%MoM.
5
4
3
2
1
1
21.3
22.2
15
-30
-75
18.3
26.9
Cement P/B (x)
10 Yr Avg (x)
30
10
Cement Relative to Nifty PB (%)
2.6
2.2
-10
-30
-50
0.4
-16.5
Sector Performance
MoM: 6%
PE (x)
Company
ACC
Ambuja Cem.
Birla Corpn.
Grasim Inds
India Cem
Sanghi Inds.
Shree Cement
UltraTech
Current 10 Yr Avg
18.6
31.4
10.0
9.8
19.2
25.8
36.2
37.2
25.7
28.3
16.5
10.7
31.4
19.2
26.7
28.0
Prem/
Disc (%)
-28
11
-40
-8
-39
34
36
33
Relative to Nifty
P/E (%)
PB (x)
Prem/
Disc (%)
-20
-25
-31
-35
-30
-5
24
1
Relative to Nifty
P/B (%)
EV/EBIDTA (x)
10 Yr
Avg
13.3
15.5
7.6
22.0
8.2
9.5
12.6
13.2
Prem/
Disc (%)
-34
23
-10
-45
-1
44
19
15
Cement EV/EBDITA (x)
22
17
12
7
2
13.7
10 Yr Avg (x)
Current 10 Yr Avg Current 10 Yr Avg
6
80
-43
-44
10
47
107
113
47
61
-6
-39
79
10
52
60
2.3
2.0
0.8
1.1
0.5
0.8
5.3
3.1
2.9
2.6
1.1
1.7
0.7
0.9
4.2
3.1
Current 10 Yr Avg Current
-11
-24
-70
-59
-81
-68
102
20
12
2
-56
-35
-72
-66
65
20
8.7
19.0
6.9
12.2
8.1
13.7
15.1
15.2
13.5
BULLS & BEARS | March 2019
23
 Motilal Oswal Financial Services
Consumer:
Valuations not relenting
Consumer sector P/E of 39.4x (down from 40.7x in Jan’19) is at
a premium of 20.7% to its 10-year average of 32.6x. On a P/B
basis, the sector trades at 12.5x, a premium of 23.8% to its 10-
year average multiple of 10.1x.
Consumer P/E relative to Nifty P/E has declined to 125.3% in
Feb’19 from 127.8% in Jan’19.
In the quarter ended 3QFY19, coverage companies cited a
stable demand environment with rural growing ahead of
urban (for the sixth consecutive quarter). Launch pipeline is
strong compared to the preceding two years. Favorable
demand also means that companies are largely able to pass on
the RM cost increases. Thus, while ad spends might rise on
new launches, the high margin trajectory can be sustained due
to operating leverage.
55
45
35
25
15
32.6
Consumer P/E (x)
10 Yr Avg (x)
39.4
150
110
70
30
-10
86.2
Consumer Relative to Nifty PE (%)
125.3
15
13
10
8
Consumer P/B (x)
10 Yr Avg (x)
480
380
280
180
80
Consumer Relative to Nifty PB (%)
381.8
12.5
10.1
297.9
Sector Performance
MoM: -2%
Company
Asian Paints
Britannia Inds.
Colgate-Palm.
Dabur India
Emami
GlaxoSmith C H L
Godrej Consumer
Hind. Unilever
ITC
Jyothy Lab.
Marico
Nestle India
P & G Hygiene
Page Industries
Pidilite Inds.
United Breweries
United Spirits
Current
50.2
52.6
39.5
46.2
27.7
32.4
38.6
51.2
24.9
27.9
38.7
53.7
64.9
47.9
52.3
50.8
39.4
PE (x)
10 Yr Avg
36.4
32.3
34.4
31.9
30.1
29.2
33.5
36.4
26.2
34.6
32.4
42.3
43.0
38.6
31.0
66.8
93.3
Prem/Disc (%)
38
63
15
45
-8
11
15
41
-5
-19
19
27
51
24
69
-24
-58
5
Relative to Nifty P/E (%)
Current
10 Yr Avg
187
108
201
84
126
96
164
82
59
72
85
67
121
91
193
108
43
49
60
97
121
85
207
141
271
145
174
120
199
77
191
281
125
432
Current
14.1
18.0
21.1
10.7
7.9
7.6
9.3
51.4
6.3
5.1
13.8
27.4
31.6
25.7
13.6
9.4
10.3
PB (x)
10 Yr Avg
10.7
12.3
24.2
9.6
10.1
7.8
7.4
30.8
7.2
4.3
10.2
23.1
16.7
18.3
7.9
8.7
11.4
Prem/Disc (%)
32
46
-13
12
-22
-3
25
67
-13
17
36
18
89
41
71
8
-10
Relative to Nifty P/B (%)
Current
10 Yr Avg
442
318
593
381
712
842
312
274
204
293
192
205
257
190
1876
1103
142
182
95
69
431
297
952
801
1114
552
888
613
421
208
261
240
295
343
BULLS & BEARS | March 2019
24
 Motilal Oswal Financial Services
Healthcare:
Re-rating still remains a remote possibility
Healthcare P/E multiple has further contracted during the
month with discount increasing to 13% compared to its 10-
year average.
The recent quarterly performance indicates that price
erosion has reduced considerably in the US generic space,
and thus may resist further reduction in P/E.
However, subdued growth outlook due to increased
competition and/or high base effect continues to put
downward pressure on multiples — one of the reasons for
increased discount in case of Cadila and Sun Pharma.
The regulatory headwinds continue to pose downside risk to
the P/E multiple — a key reason for higher discount in case
of Dr. Reddy’s Lab and Lupin.
Domestic formulation (DF) segment remains on healthy
growth track, thereby driving premium for P/E multiple of
Torrent Pharma, Ajanta Pharma and Sanofi India.
Revival in return ratios through faster pace of launches,
consistent compliance in the US market and superior
execution in DF remains the key
Sector Performance
for multiple recovery.
36
30
24
18
12
23.5
20.4
Healthcare P/E (x)
10 Yr Avg (x)
90
60
30
0
-30
Healthcare Relative to Nifty PE (%)
32.8
16.9
Healthcare P/B (x)
7
5
4
2
4.0
10 Yr Avg (x)
140
100
60
Healthcare Relative to Nifty PB (%)
58.4
3.0
20
-20
14.8
MoM: -1%
Company
Aurobindo Pharma
Ajanta Pharma
Biocon
Cadila Health.
Cipla
Divi's Lab.
Dr Reddy's Labs
Glaxosmit Pharma
Glenmark Pharma.
Granules India
Ipca Labs.
Jubilant Life
Lupin
Sanofi India
Sun Pharma.Inds.
Strides Shasun
Shilpa Medicare
Torrent Pharma.
Current
12.3
19.0
29.6
18.0
23.5
27.1
20.7
46.2
17.4
9.5
19.4
11.4
20.5
30.7
19.7
18.2
15.4
27.0
PE (x)
10 Yr Avg
13.5
15.4
24.4
21.5
27.8
21.0
25.7
48.2
23.2
10.7
24.5
13.0
24.4
28.6
29.1
60.0
23.2
18.3
Prem/Disc (%)
-9
24
21
-16
-16
29
-20
-4
-25
-11
-21
-12
-16
7
-32
-70
-33
48
Relative to Nifty P/E (%)
Current
10 Yr Avg
-29
-23
9
-12
70
39
3
22
34
59
55
20
18
47
164
175
0
32
-45
-39
11
40
-35
-26
17
39
76
63
13
66
4
242
-12
32
55
4
Current
2.5
3.2
5.6
2.9
2.6
5.3
2.8
9.9
2.4
1.5
2.9
2.1
2.3
5.7
2.4
1.4
2.1
5.0
PB (x)
10 Yr Avg
2.8
4.2
3.1
4.9
3.4
4.7
3.9
10.3
4.1
1.6
3.1
1.6
4.5
4.6
4.7
3.2
2.8
4.3
Prem/Disc (%)
-13
-24
82
-41
-23
13
-28
-4
-40
-6
-5
29
-49
23
-49
-57
-26
17
Relative to Nifty P/B (%)
Current
10 Yr Avg
-6
10
21
62
116
20
12
92
1
33
104
83
7
52
282
303
-6
58
-41
-36
12
20
-20
-37
-12
77
118
79
-7
83
-46
26
-21
8
91
66
BULLS & BEARS | March 2019
25
 Motilal Oswal Financial Services
Infrastructure:
Awarding activity shows marginal sign of revival on sequential basis
Infrastructure sector trades at a P/B of 1.0x, at a 41%
discount to the historical average.
Multiple discount v/s historical average, despite peak
ordering in FY18, indicates concerns about timely
completion of the projects awarded.
Land acquisition remains a challenging issue for the
government, which has delayed providing appointed
date for the projects already awarded .
NHAI’s awarding stands muted in YTDFY19 with an
expectation that 4QFY19 will see awarding activity
picking up as was the case last year.
IRB Infra , Ashoka and Sadbhav trade at a discount to
historical P/B, while KNR trade at a premium.
32
24
16
8
0
Infrastructure P/E (x)
10 Yr Avg (x)
60
20
-20
8.7
-60
-100
-30.2
-50.1
Infrastructure Relative to Nifty PE (%)
12.2
Infrastructure P/B (x)
4
2
1
0
1.7
10 Yr Avg (x)
0
-25
-50
Infrastructure Relative to Nifty PB (%)
-33.3
1.0
-75
-100
-60.7
Company
Ashoka Buildcon
IRB Infra.Devl.
KNR Construct.
Sadbhav Engg.
Current
NA
5.7
13.9
13.6
PE (x)
10 Yr Avg
12.2
11.3
8.2
24.8
Prem/Disc (%)
-
-50
69
-45
Relative to Nifty P/E (%)
Current
10 Yr Avg
-
-30
-68
-35
-20
-53
-22
42
Current
1.3
0.6
1.8
1.4
PB (x)
10 Yr Avg
1.7
1.7
1.4
2.6
Prem/Disc (%)
-20
-64
35
-46
Relative to Nifty P/B (%)
Current
10 Yr Avg
-49
-35
-76
-32
-29
-47
-45
3
BULLS & BEARS | March 2019
26
 Motilal Oswal Financial Services
Media:
Broadcasters driving overall valuations
Media sector P/E of 18.8x continues to trade at a
discount of ~16% (albeit lower than 26% discount
on a MoM basis) to its 10-year historical average of
22.4x.
Broadcasters saw a strong rally in their stock price.
ZEE bounced back on news of promoter talks with
prospective buyers for stake sale. SUNTV too
recovered after healthy results. Valuation needle for
print companies and for PVR remained steady.
Media P/E (x)
43
31
19
7
22.4
10 Yr Avg (x)
100
50
0
-50
Media Relative to Nifty PE (%)
27.9
7.6
18.8
Media P/B (x)
6
5
4
2
4.3
10 Yr Avg (x)
130
90
Media Relative to Nifty PB (%)
66.0
3.5
50
10
-30
34.7
Sector Performance
MoM: 18%
Company
Ent.Network
Jagran Prakashan
PVR
Sun TV Network
Zee Entertainmen
Current
29.3
7.4
42.1
14.6
24.1
PE (x)
10 Yr Avg
39.0
15.3
39.5
19.7
26.8
Prem/Disc (%)
-25
-51
6
-26
-10
1
Relative to Nifty P/E (%)
Current
10 Yr Avg
68
122
-57
-13
141
126
-17
13
38
53
Current
2.5
1.3
4.6
4.3
4.4
PB (x)
10 Yr Avg
3.0
3.3
3.3
5.1
5.5
Prem/Disc (%)
-17
-60
39
-15
-20
Relative to Nifty P/B (%)
Current
10 Yr Avg
-3
18
-50
28
77
29
65
98
69
113
BULLS & BEARS | March 2019
27
 Motilal Oswal Financial Services
Metals:
Domestic steel prices recover
Metals trade at 1.2x, near its historical average P/B
of 1.4x. EV/EBITDA is at 6.3x, a 14% discount to
historical average.
Domestic long and flat steel product prices were
higher by ~INR1,000-2,000/t during the month,
driven by positive trends in the global steel market.
Chinese steel prices recovered post their new year
holidays.
Aluminum prices were higher. Zinc prices have
increased more than USD100/t during the month.
We remain positive on JSW Steel, as it benefits from
higher steel spreads. Hindalco is well placed to
benefit from higher aluminum prices and low-cost
captive raw material.
Sector Performance
MoM: -2%
PE (x)
Company
Hind.Zinc
Hindalco Inds.
Jindal Steel
JSW Steel
Nalco
NMDC
Rain Inds
SAIL
Tata Steel
Vedanta
Current 10 Yr Avg
11.8
6.8
NA
13.0
9.3
9.7
6.4
NA
6.8
8.1
9.6
9.6
16.2
13.0
16.0
12.7
4.5
14.9
14.3
10.8
Prem/
Disc (%)
24
-29
0
-42
-23
42
-52
-25
Relative to Nifty
P/E (%)
Current 10 Yr Avg Current
-32
-61
-25
-47
-44
-63
-61
-53
-46
-45
-7
-26
-9
-28
-74
-15
-19
-38
2.9
0.9
0.5
2.0
1.0
1.2
0.6
0.5
1.1
1.0
PB (x)
10 Yr
Avg
2.2
1.3
1.6
1.4
1.3
2.9
0.7
1.0
1.7
2.1
Prem/
Disc (%)
34
-30
-70
42
-24
-59
-12
-52
-38
-53
25
20
15
10
5
Metals P/E (x)
10 Yr Avg (x)
15
-5
Metals Relative to Nifty PE (%)
-30.9
12.1
9.5
-25
-45
-65
-45.6
4
3
2
1
0
Metals P/B (x)
10 Yr Avg (x)
20
-5
Metals Relative to Nifty PB (%)
1.4
1.2
-30
-55
-80
-47.6
-55.7
Relative to Nifty
P/B (%)
EV/EBIDTA (x)
Prem/ Disc
(%)
27
-28
-41
4
-46
-32
21
-36
-13
8
Metals EV/EBDITA (x)
10
8
5
3
10 Yr Avg (x)
Current 10 Yr Avg Current 10 Yr Avg
11
-65
-81
-25
-62
-55
-75
-81
-60
-62
-16
-49
-37
-46
-50
13
-71
-61
-34
-19
7.1
5.1
6.3
8.0
4.4
5.5
1.8
9.0
6.6
4.7
5.6
7.1
10.7
7.6
8.1
8.2
1.5
14.2
7.6
4.4
7.3
6.3
BULLS & BEARS | March 2019
28
 Motilal Oswal Financial Services
Oil & Gas:
Refining margins remain weak
Oil & Gas trades in line with historical averages – P/B of 1.5x
18
(v/s 10-year average of 1.5x P/B) and P/E of 11.0x (v/s 10-
year average of 11.3x).
15
Crude oil prices have been very volatile in February. Despite
12
cuts by OPEC+, new sanctions against Venezuela and
increased disruptions elsewhere, lack of recovery in global
9
economy have kept oil prices low.
6
Poor demand is also reflected in benchmark refining
margins – at ~USD2-3/bbl for the month, gasoline crack
continues to suffer the most.
OMCs appear to have normalized their marketing margins.
However, spectre of poor refining margins and sustainability of
3
marketing margins if oil prices were to rise during elections
2
remain the key concerns despite attractive valuations.
With no concern of subsidy sharing in the near term, the
2
stock showed strength in the month but concern on
1
production remains.
1
RIL remains strong on talks of
Sector Performance
deleveraging through asset
restructuring.
MoM: 1%
Company
Aegis Logistics
BPCL
GAIL (India)
Guj.St.Petronet
HPCL
IOCL
Indraprastha Gas
MRPL
ONGC
Petronet LNG
Reliance Inds.
Current
21.3
8.2
11.5
10.6
5.3
9.0
23.2
6.6
5.0
13.0
16.8
PE (x)
10 Yr Avg
20.7
10.1
13.3
11.4
17.8
8.8
13.5
13.8
10.2
11.6
12.6
Prem/Disc (%)
3
-18
-14
-8
-70
2
72
-52
-52
12
33
Oil & Gas P/E (x)
10 Yr Avg (x)
-12
-27
11.3
11.0
-42
-57
-72
-34.2
Oil & Gas Relative to Nifty PE (%)
-37.0
Oil & Gas P/B (x)
10 Yr Avg (x)
0
-25
Oil & Gas Relative to Nifty PB (%)
1.5
1.5
-39.7
-41.2
-50
-75
Relative to Nifty P/E (%)
Current
10 Yr Avg
22
18
-53
-43
-34
-24
-40
-35
-69
1
-48
-50
33
-23
-62
-21
-72
-42
-26
-34
-4
-28
Current
4.2
1.5
1.6
1.4
1.1
1.1
4.3
0.9
0.8
2.9
2.0
PB (x)
10 Yr Avg
3.1
1.6
1.7
1.8
1.2
1.1
2.7
1.6
1.5
2.3
1.5
Prem/Disc (%)
35
-7
-10
-22
-11
2
60
-44
-48
24
33
Relative to Nifty P/B (%)
Current
10 Yr Avg
62
21
-43
-37
-40
-32
-47
-31
-59
-53
-58
-59
67
6
-65
-37
-70
-42
11
-9
-23
-41
BULLS & BEARS | March 2019
29
 Motilal Oswal Financial Services
Retail:
Rich valuations of 50x do not factor in downside risk
Our retail coverage trades at a P/E of 49.5x, at a 35%
premium to historical average of 36.7x.
On a P/B basis, the sector trades at 14.9x, a premium of 51.5%
to its 10-year average multiple of 9.8x.
Valuation premium relative to the Nifty on a P/E basis has
gone up to 183.3% (from 174.3% in Jan’ 19).
The two stocks in our retail coverage have reported strong
revenue growth in the recently reported quarter led by SSSG.
Even margins for both the companies continue to expand as
operating leverage kicked in.
75
57
39
21
3
36.7
49.5
Retail P/E (x)
10 Yr Avg (x)
270
190
110
30
-50
Retail Relative to Nifty PE (%)
183.3
107.1
19
15
11
7
3
Retail P/B (x)
10 Yr Avg (x)
14.9
640
490
340
Retail Relative to Nifty PB (%)
472.6
283.8
9.8
190
40
Company
Jubilant Food
Titan Inds.
Current
45.6
50.3
PE (x)
10 Yr Avg
63.4
34.1
Prem/Disc (%)
-28
47
Relative to Nifty P/E (%)
Current
10 Yr Avg
161
262
188
95
Current
12.2
15.5
PB (x)
10 Yr Avg
12.3
9.6
Prem/Disc (%)
-1
62
Relative to Nifty P/B (%)
Current
10 Yr Avg
370
380
497
273
BULLS & BEARS | March 2019
30
 Motilal Oswal Financial Services
Technology:
Cautiously optimistic on on-going traction
Technology sector trades at a P/E of 18.7x, at an 15%
premium to its historical average of 16.3x.
NASSCOM guided for 9.2% CC YoY growth for FY19. While
traction in demand continues for now, some of the CEOs
are a little cautious on further increase in growth rate for
the next fiscal year.
Digital remained the key growth lever. As per NASSCOM,
revenue from digital increased 30% in FY19.
Higher onsite cost was iterated by almost every company
during the 3Q results . Some relief came in from operational
efficiency and tactical shift of projects at offshore locations.
Valuations for Mid cap IT has cooled off in comparison to
larger peers in 9MFY19. Tier-II IT trades at a 17% discount
to Tier-I’s P/E, after a high of 12% premium nine months
ago.
We remain positive on INFO and TECHM in Tier-I. In mid-
caps, we remain positive on ZENT, MTCL,and PSYS.
23
19
15
11
7
16.3
Technology P/E (x)
10 Yr Avg (x)
40
20
0
-20
-40
-6.0
Technology Relative to Nifty PE (%)
7.2
18.7
6
5
4
3
2
Technology P/B (x)
10 Yr Avg (x)
5.1
4.2
150
120
90
60
30
0
Technology Relative to Nifty PB (%)
97.1
64.8
Sector Performance
MoM: 0%
Company
Cyient
HCL Technologies
Hexaware Tech.
Infosys
MphasiS
NIIT Tech.
TCS
Tech Mahindra
Wipro
Zensar Tech.
Current
13.3
12.8
16.6
18.9
16.8
16.3
22.1
15.3
15.9
13.1
PE (x)
10 Yr Avg
12.0
13.2
13.2
17.1
12.4
9.6
18.2
12.5
14.8
9.3
Prem/Disc (%)
12
-3
26
10
36
69
21
22
7
40
Relative to Nifty P/E (%)
Current
10 Yr Avg
-24
-32
-27
-25
-5
-25
8
-2
-4
-29
-7
-45
26
4
-13
-29
-9
-16
-25
-47
Current
2.5
3.1
4.0
5.1
4.8
3.6
8.4
3.5
2.7
2.1
PB (x)