*
* Sectors in order of premium /
discount to historical averages
BEST PERFORMERS MoM (%)
WORST PERFORMERS MoM (%)
Highlights of May’19 edition
Nifty’s northbound journey continues,
up 1.5% in May
PSU Banks, Capital Goods, Real Estate,
NBFCs and Private Banks top
performers
Mid-caps outperform Large-caps
Domestic flows regain momentum
Research & Quant Team (Deven@MotilalOswal.com); +91 22 6129 1575
June 2019

Contents
Strategy:
Markets rally for third straight month; Political uncertainty behind
Valuation deep-dive for the month:
Cement
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 31
st
May’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 MOSL coverage
companies
Global equities data
sourced from Bloomberg;
Nifty valuations based on
MOSL estimates
Investors are advised to refer to important disclosures made at the end of this report.
BULLS & BEARS | June 2019
2

Strategy:
Markets rally for third straight month; Political uncertainty behind
Markets applaud political stability, surpass April highs:
The Nifty rallied for the third straight month by 1.5% to 11,923 in May, surpassing its previous
all-time of 11,856 in April. Market sentiment bolstered toward the latter part of May with a single party – the BJP – forming a majority government in
the recently concluded general elections, ending months of political uncertainty. FIIs were net buyers (USD1.4b) for the fourth straight month, while
DIIs too turned net buyers (USD 0.8b) after three tepid months. Mid-caps outperformed large-caps, with the Nifty Midcap100 gaining 2.2%. Notably,
over the last 12 months, the Mid-cap index declined 5% v/s the Nifty’s rise of 11% due to their unsustainable valuation premium v/s large-caps, the
preference for large-caps in a volatile environment and the lack of pick-up in earnings growth.
Fourth-quarter earnings growth in-line:
The 4QFY19 corporate earnings-report season was largely in line with our expectations for both the Nifty and
the MOFSL Universe. The Nifty delivered 15.8% earnings growth v/s our estimate of 16.8%, while MOSL Universe earnings growth stood at 23.6% v/s
our estimate of 29% (dragged by PSU Banks). Of the 19 sectors that we track, 7/4/8 posted profits that were above/in-line/below our estimates.
Automobiles, Cement, Metals, Utilities and Mid-cap universe profits exceeded our estimates, while Private Banks, PSU Banks, Healthcare, Retail and
Telecom missed our profit expectations. Our Nifty EPS forecast for FY20 remained stable at INR604. However, downgrades outweighed upgrades in the
broader markets, with 52 companies under our coverage universe witnessing 5%+ earnings downgrades v/s 27 which saw earnings upgrade of 5%+.
Russia and India top performers among global markets:
In May’19, Russia (+2.3%), India (+1.5%) and Brazil (+0.7%) were the key global markets to
close higher in local currency terms. On the other hand, MSCI EM (-7.5%), Japan (-7.4%), Korea (-7.3%), the US (-6.6%) and China (-5.8%) were the key
laggards. Over the last 12 months, MSCI India (+9%) outperformed MSCI EM (-11%). Notably, over the last 10 years, MSCI India has outperformed MSCI
EM by 107%. MSCI India’s P/E is at a premium of 100% to MSCI EM’s P/E, above its historical average premium of 48%.
Sectoral trends for May – PSU Banks and Capital Goods top performers:
PSU Banks (+11%), Capital Goods (+11%), Real Estate (+10%), NBFCs (+8%)
and Private Banks (+6%) were the top performers in May, while Media (-12%), Healthcare (-7%), Metals (-7%) and Technology (-3%) were the key
laggards. L&T (+16%), SBI (+14%), Indiabulls Hsg (+13%), Bajaj Finance (+12%) and Kotak Mahindra Bank (+10%) were the top performers on an MoM
basis. Tata Motors (-19%), Zee Ent (-17%), Tata Steel (-12%), Yes Bank (-12%) and JSW Steel (-12%) were the top laggards. In this edition of ‘Bulls &
Bears,’ we take a deep dive into the valuation metrics of the Cement sector.
Macro stress evident, but markets could scale up the wall of worry:
Post the NDA government staging a comeback with a thumping majority, market
sentiment seems to have improved, even as underlying macros have weakened with GDP growth coming in at a 20-quarter low. Deceleration in core
sector growth, weakness in high frequency indicators (IIP, Auto Monthly numbers) and slowdown in consumption (as highlighted by consumer
companies in their quarterly commentaries) point towards near-term earnings headwinds. Meanwhile, valuations for the Nifty remain rich at 20x FY20E
EPS. At the margin, crude oil prices have corrected ~USD10/barrel, even as inflation remains under control. The 10-year G-Sec yield has corrected to
around 7%. Near-term market direction will be a function of government policy announcements (rural consumption slowdown, liquidity issues in the
NBFC space, etc.) and the forthcoming Budget to be presented on 5th July. Further, the RBI, in its monetary policy meeting on 6th June, cut repo rates
by 25bp, changing its stance to ACCOMODATIVE from NEUTRAL.
Top ideas — Large-cap bets:
SBI, ICICI Bank, Maruti, L&T, Infosys, Bharti Airtel, Coal India, Titan, UltraTech and HDFC Life.
Mid-cap bets:
Federal Bank,
Indian Hotels, Siemens, ABFRL, Crompton Consumer, Ashoka Buildcon, JK Cement, Godrej Agrovet and Oberoi Realty.
BULLS & BEARS | June 2019
3

Valuation deep-dive for the month: Cement
Since FY13, the cement sector has re-rated significantly due to
improved industry dynamics, led by better demand and
slowing capacity addition. Interestingly, the re-rating was
uniform across mid-caps and large-caps with preference for
companies gaining market share and exhibiting better cost
control.
Average one-year forward EV/EBIDTA multiple of 13.5x, is at
13% premium to the long-period average. The current
valuation of ~13.5x EV/EBITDA has declined from its peak level
of ~18.8x EV/EBITDA about 18 months ago due to lower-than-
estimated improvement in earnings.
The industry recorded double-digit growth of 12% in FY19 (a
first since FY10). Utilizations for the industry increased 6pp
YoY to 71% with the Infra segment driving majority of the
demand. Prices remained moderate for a major part of the
year and started rising only in Feb-March’19. The industry also
faced cost pressure in terms of rising fuel cost during the
initial 2-3 quarters of FY19. As a result, profitability for cement
players declined in FY19. Valuations for the sector remained
almost in line with long-period average till Feb’19.
The last three months have seen sector valuations increase
significantly led by price hike announcements of INR50-60/bag
across most regions. While players should benefit from these
hikes in the near future, we believe that prices will moderate
in the medium-to-long term due to the on-going capacity
expansion programs.
Cement: Trend in P/E (x) – one-year forward
39.0
27.0
15.0
3.0
Cement P/E (x)
5 Yr Avg (x)
10 Yr Avg (x)
28.1
21.4
17.8
15 Yr Avg (x)
24.6
Cement: Trend in P/B – one-year forward
5.0
3.5
2.0
0.5
Cement P/B (x)
5 Yr Avg (x)
2.8
2.7
2.6
10 Yr Avg (x)
15 Yr Avg (x)
2.6
Cement: Trend in EV/EBITDA – one-year forward
24.0
16.0
8.0
0.0
EV/EBITDA (x)
Max (x)
18.8
12.0
4.8
13.5
Min(x)
Avg (x)
BULLS & BEARS | June 2019
4

Key highlights
Indian equities:
Nifty’s northbound journey continues, up 1.5% in May
The Nifty closed higher for the third consecutive month, ending up 1.5% MoM in May at 11,923. In CY19,
the Nifty is up 10% so far.
Sector-wise, PSU Banks (+11%), Capital Goods (+11%), Real Estate (+10%), NBFCs (+8%) and Private Banks
(+6%) were the top positive performers in May, while Media (-12%), Healthcare (-7%), Metals (-7%) and
Technology (-3%) were the key laggards.
Stock performance:
Breadth healthy in May; more than half of Nifty stocks close higher
L&T (+16%), SBI (+14%), Indiabulls Hsg (+13%), Bajaj Finance (+12%) and Kotak Mah. Bank (+10%) were the
top performers on an MoM basis.
Tata Motors (-19%), Zee Ent (-17%), Tata Steel (-12%), Yes Bank (-12%) and JSW Steel (-12%) were the top
laggards.
Global equities:
India among positive performers in May’19
In May’19, Russia (+2.3%), India (+1.5%) and Brazil (+0.7%) were the key global markets to close higher in
local currency terms. On the other hand, MSCI EM (-7.5%), Japan (-7.4%), Korea (-7.3%), the US (-6.6%) and
China (-5.8%) were the key laggards.
Over the last 12 months, MSCI India (+9%) outperformed MSCI EM (-11%). Notably, over the last ten years,
MSCI India has outperformed MSCI EM by 107%.
MSCI India’s P/E is at a premium of 100% to MSCI EM’s P/E, above its historical average premium of 48%.
India’s share in the world market cap is at 2.9%, above its historical average of 2.5%.
Sector valuations:
Financials, Capital Goods top outperformers in May
PSU Banks are trading at a P/B of 1.0x, in line with the historical average of 0.9x. PSB valuations have
recovered gradually due to the recent capital infusion by the government and improving earnings trajectory.
Also, with the strong comeback of the NDA government, we expect further consolidation amongst PSBs.
While valuations are in line with the long-term average, we anticipate an earnings bounce-back FY20
onwards, which should further support stock performances.
Capital Goods are trading at one-year forward P/E multiple of 24.5x, at a discount of 9% to the 10-year
average of 26.9x. Even on P/B basis, the sector trades at a discount of 6% to its 10-year average multiple of
3.4x. Company valuations were impacted by near-term issues. But, with the general election now behind
and a stable government at the Center, focus should now return to business activity. We expect ordering
activity to pick up meaningfully for the sector from 2HFY20.
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 | June 2019
5

Indian equities:
Nifty’s northbound journey continues, up 1.5% in May
Nifty MoM change (%) —third consecutive month of positive return
The Nifty closed higher for the third consecutive month,
ending up 1.5% MoM in May at 11,923.
Nifty MoM Change (%)
7.7
6.2
PSU Banks (+11%), Capital Goods (+11%), Real Estate
6.0
5.6
5.8
4.7
4.7
4.6
(+10%), NBFCs (+8%) and Private Banks (+6%) were the
3.7 3.3 3.4
3.0
2.9
1.5
top performers in May, while Media (-12%), Healthcare (-
1.4
1.1
7%), Metals (-7%) and Technology (-3%) were the key
0.1 0.3 0.4
0.0 0.2
laggards.
1.0 1.6 1.3 1.1
For CY19 YTD, the Nifty is up 10%; PSU Banks (+25%), Real
3.6
5.0
4.9
Estate (+22%), Private Banks (+19%), Oil (+14%) and
6.4
Cement (+12%) were the top outperformers.
Media (-19%), Autos (-11%), Metals (-9%), Healthcare
(-4%) and Consumer (-3%) were the only laggards in CY19
Sectoral performance—absolute and relative to Nifty (%) — Financials, Capital
YTD.
Goods, Real Estate top outperformers
FIIs were net buyers in May with net inflows of USD1.4b.
After remaining lacklustre for three months, domestic
MoM Abs. Performance (%)
CY19 YTD
MoM Relative Performance (%) CY19 YTD
flows too gained momentum with net inflows of USD0.8b.
Sector
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Chg (%) Jan-19 Feb-19 Mar-19 Apr-19 May-19 Chg (%)
Institutional flows (INR b) — domestic flows re-gain momentum
Banks-PSU
-2
-5
25
-3
11
25
-1
-5
17
-4
9
15
FIIs (USDb)
DIIs (USDb)
Cap. Goods
Real Estate
NBFC
Banks-Pvt
Cement
Oil
Nifty Midcap
Utilities
Auto
Consumer
Technology
Metal
Healthcare
Media
Nifty-50
-8
-1
-4
1
-11
-1
-5
-6
-11
-2
8
-7
0
-17
0
-1
1
-1
-2
6
1
-1
-3
2
-2
0
-2
-1
18
0
8
16
8
11
9
11
9
11
0
3
0
5
5
-1
8
-2
-3
-1
1
7
1
-4
-3
0
0
6
1
0
-5
1
11
10
8
6
3
2
2
2
-2
-2
-3
-7
-7
-12
1
6
22
9
19
12
14
0
1
-11
-3
12
-9
-4
-19
10
-8
-1
-4
2
-10
-1
-5
-6
-11
-2
9
-7
0
-17
-1
2
-1
-1
6
2
-1
-2
2
-2
0
-1
-1
18
0
8
0
4
1
3
1
4
-8
-4
-8
-2
-3
-8
-3
-4
-2
0
5
0
-5
-4
-1
-1
5
0
-1
-6
9
8
7
4
1
1
1
1
-4
-4
-4
-8
-9
-14
-4
13
-1
9
3
5
-9
-9
-21
-12
2
-19
-14
-29
2018
2019
BULLS & BEARS | June 2019
6

Indian equities:
Breadth healthy in May; more than half of Nifty stocks close higher
performers on an MoM basis. Tata Motors (-19%), Zee Ent (-17%), Tata Steel (-12%), Yes Bank (-12%) and JSW Steel (-12%) were the top laggards.
Nifty – best and worst performers in May:
L&T (+16%), SBI (+14%), Indiabulls Hsg (+13%), Bajaj Finance (+12%) and Kotak Mah. Bank (+10%) were the top
Nifty – best and worst performers in CY19YTD:
Titan Co (+33%), UPL (+32%), Bajaj Finance (+31%), Axis Bank (+30%) and Bajaj Finserv (+26%) were the top
performers. Zee Ent (-25%), Vedanta (-21%), M&M (-19%), Yes Bank (-19%) and Eicher Motors (-14%) were the worst performers.
Best and worst Nifty performers (MoM) in May’19 (%) – breadth positive, 55% of Nifty stocks traded higher
16 14 13
12
10 9 9 9 8
7 7 6 5 5 5
4 4 3 3 3 2 2 2 2
1
1
1 0
0 0 -1 -2 -2 -2 -2 -3
-4 -4 -4 -4 -4
-8 -8 -9 -9
-10 -12 -12-12
-17 -19
Best and worst Nifty performers (YoY) in CY19 YTD (%) – 33 companies in Nifty delivered positive returns so far
33 32 31 30
26
21 21 21 19 19 19 18
16 16 14 14 14 13
12 11
10
8
8 8 8
7 7 5 5 4
2 2 0 0
0 -1 -2
-5 -5 -6 -7 -8 -8
-11 -13 -14 -14
-19 -19 -21
-25
BULLS & BEARS | June 2019
7

Indian equities:
Mid-caps outperform large-caps in May
In May’19, Nifty Midcap100 was up 2.2%, as against the Nifty’s rise of 1.5%.
Notably, over the last 12 months, mid-caps were down 5% as against the Nifty’s rise of 11%. However, over the last five years, mid-caps have
outperformed large-caps by 12%.
Mid-caps underperformed large-caps in the last 12 months
115
105
95
85
75
Nifty Rebased
Nifty Midcap 100 Rebased
111
95
Mid-caps outperformed large-caps in last five years
250
200
150
100
50
Nifty Rebased
5 Year CAGR |
Nifty: 10.5% |
Midcap: 12.1%
Nifty Midcap 100 Rebased
177
165
BULLS & BEARS | June 2019
8

Indian equities:
Valuations above long-period averages
Valuations of Indian equities are above their long-period averages. The Nifty trades at a 12-month forward P/E of 19.2x, 8% premium to its long-
period average of 17.8x. Nifty’s P/B of 2.8x is also above its historical average.
At the current trailing P/E of 23.8x and forward P/E of 19.2x, 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
9
10 Year Avg: 17.8x
19.2
23.2
12-month forward Nifty P/B (x)
3.2
2.9
10 Year Avg: 2.6x
2.6
2.3
2.0
2.8
12.7
Trailing Nifty P/E (x)
25
22
19
16
13
10 Year Avg: 19.3x
23.8
Trailing Nifty P/B (x)
3.6
3.2
10 Year Avg: 2.8x
2.8
2.4
2.0
3.1
BULLS & BEARS | June 2019
9

Indian equities:
Market cap-to-GDP near its historical average
Nifty trades at a 12-month-forward RoE of 14.4%, near its long-term average of 14.7%.
Market cap-to-GDP ratio is at 73% (FY20E GDP), marginally below its long-term average of 76%.
Trend in Nifty RoE (%)
17.0
16.1
10 Year Avg: 14.7%
14.4
14.9
16.3
16.2
15.4
14.9
Average of 14.8%
13.2
13.6
12.8
12.5
12-month forward Nifty RoE (%)
18.0
16.5
15.0
13.5
12.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Trend in India’s market cap-to-GDP (%) – near its long-period averages
95
88
71
Average of 76% for the period
81
64
66
69
79
83
79
73
55
BULLS & BEARS | June 2019
10

Global equities:
India among positive performers in May’19
In May’19, Russia (+2.3%), India (+1.5%) and Brazil (+0.7%) were the key global markets to close higher in local currency terms. On the other hand,
MSCI EM (-7.5%), Japan (-7.4%), Korea (-7.3%), the US (-6.6%) and China (-5.8%) were the key laggards.
Indian equities are trading at 19.7x FY20E 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.
MoM Chg (%)
Russia
India
Brazil
UK
Indonesia
Taiwan
China
-3.5
-3.8
-4.3
-5.8
2.3
India (Nifty) v/s other markets
CY19 YTD Chg (%)
Index
Value
India
US
Taiwan
Indonesia
Japan
UK
MSCI EM
Korea
Brazil
China
Russia
11,923
2,752
10,498
6,209
20,601
7,162
998
2,042
97,030
2,899
4,647
Mkt Cap Local
In USD
(USD T) Currency
2.2
30.1
1.1
0.5
5.5
3.2
14.1
1.3
0.9
6.5
0.6
10
10
8
0
3
6
3
0
10
16
11
10
10
4
2
5
5
3
-6
9
16
18
PE (x)
CY18 /
FY19
24.8
18.1
14.9
20.8
15.1
16.9
12.0
10.5
16.1
14.3
5.4
CY19 /
FY20
19.7
16.5
15.3
15.2
14.7
12.4
12.4
11.9
11.8
11.1
5.2
-27
-40
-16
-39
-32
-51
-58
-35
-42
-78
-16
-23
-23
-26
-37
-37
-40
-40
-44
-74
Prem / Disc to India
PE (%)
CY18 /
FY19
CY19 /
FY20
PB (x)
CY18 /
FY19
3.1
3.2
1.6
2.2
1.6
1.7
1.5
0.8
2.1
1.5
0.8
CY19 /
FY20
2.8
3.0
1.7
2.3
1.5
1.6
1.5
0.9
1.8
1.3
0.7
RoE (%)
CY18 /
FY19
12.5
16.0
10.7
10.9
10.4
11.1
12.9
8.2
12.4
10.3
14.8
CY19 /
FY20
14.3
19.0
12.3
17.5
9.9
10.2
12.5
6.0
15.8
11.6
12.9
1.5
0.7
US
-6.6
Korea
-7.3
Japan
-7.4
MSCI EM
-7.5
Source: Bloomberg/MOFSL
BULLS & BEARS | June 2019
11

Global equities:
MSCI India outperforms MSCI EM over last 12 months
Over the last 12 months, MSCI India (+9%) outperformed MSCI EM (-11%). Notably, over the last ten years, MSCI India has outperformed MSCI EM
by 107%.
MSCI India’s P/E is at a premium of 100% to MSCI EM’s P/E, above its historical average premium of 48%.
MSCI India outperformed MSCI EM by 107% over the last five years
250
MSCI India Rebased
10 Year CAGR:
MSCI India: 9.0%
MSCI EM: 2.6%
5 Year CAGR:
MSCI India: 8.3%
MSCI EM: -0.6%
MSCI EM Rebased
MSCI EM v/s MSCI India performance over 12 months
115
105
95
85
75
MSCI India Rebased
MSCI EM Rebased
109
236
200
150
89
129
100
50
MSCI India v/s MSCI EM trailing P/E (x)
33.0
26.0
19.0
12.0
5.0
MSCI India Avg: 20.3x
MSCI India v/s MSCI EM P/E premium (%)
MSCI EM PE (x)
120
MSCI India Vs EM PE Premium (%)
MSCI India PE (x)
26.1
100
90
60
MSCI EM Avg: 13.7x
13.0
30
0
Average of 48%
Source: Bloomberg
BULLS & BEARS | June 2019
12

Global equities:
India’s share in world market cap above historical average
India’s share in the world market cap is at 2.9%, above its historical average of 2.5%.
Over the last 12 months, the world’s market cap has decreased 5.9% (USD4.8t), while India’s market cap is flat YoY.
Market cap change in last 12 months (%)
Mkt cap chg 12M (%)
Curr Mcap (USD Tr)
14
7
4
0
-1
-9
-11
-12
-14
-24
0.9
0.6
0.5
2.2
30.1
1.1
6.5
5.5
3.2
1.3
Trend in India's contribution to world market cap (%)
3.5
3.0
2.5
2.0
1.5
1.6
Average of 2.5%
India's Contribution to World Mcap (%)
3.3
2.9
Brazil
Russia
Indonesia
India
US
Global market-cap-to-GDP (%)
155
123
114
85
85
53
49
45
41
Current mkt cap to GDP (%)
Taiwan
China
Japan
UK
Korea
* Based on GDP for Dec 2017
Source: Bloomberg
BULLS & BEARS | June 2019
13

Nifty:
Technology – trades at premium to historic average
Technology sector trades at a P/E of 19.9x, at a 20% premium to its historical average of 16.6x. Trends in revenue growth have been a drag ever
since the macro and consequently, demand for IT services turned the corner. Aggregate CC organic revenue for Tier-I companies grew 9.2% YoY in
4QFY19 v/s 9.1% in 3QFY19, and 6.2% in 4QFY18.
1QFY19 saw the highest growth gap of 8.9% between Tier I and Tier II. But, it has reduced significantly to 3.6% in 4QFY19 despite unsatisfactory
performance of Tier I companies.
PE (x)
Relative to Nifty P/E (%)
10 Yr Avg Prem/Disc (%)
Current
10 Yr Avg
15.9
4
-14
-11
23.2
-4
16
30
17.5
-14
-22
-2
16.6
-16
-27
-7
20.2
18
25
13
11.4
8
-36
-36
29.2
-35
-1
64
20.7
19
29
16
18.8
0
-2
6
18.2
-13
-17
2
23.1
44
73
29
14.3
-31
-49
-20
13.6
-24
-46
-24
16.5
133
100
-8
30.6
41
125
72
9.4
-20
-61
-47
23.1
-16
1
29
10.6
-5
-48
-41
28.0
42
107
57
38.3
50
199
115
32.9
46
150
85
37.2
41
173
109
26.4
-4
31
48
PB (x)
10 Yr Avg Prem/Disc (%)
5.2
-34
6.1
-19
7.0
-47
3.0
-33
3.3
23
2.0
-54
2.0
28
3.4
10
1.8
30
2.7
3
2.9
47
2.2
-51
1.2
1
3.1
161
4.5
-1
2.3
-24
3.1
-1
1.7
-23
3.1
18
10.8
19
12.2
28
31.0
50
7.1
-23
Relative to Nifty P/B (%)
Current
10 Yr Avg
24
101
79
136
34
171
-28
16
48
29
-68
-24
-6
-21
37
33
-17
-32
3
6
55
13
-62
-16
-55
-53
194
20
61
75
-37
-12
10
19
-53
-34
34
21
366
320
463
372
1581
1103
97
176
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
Britannia Inds.
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
Consumer
Current
16.5
22.2
15.1
14.0
23.9
12.3
19.0
24.8
18.9
15.9
33.3
9.9
10.3
38.4
43.3
7.5
19.5
10.0
39.7
57.4
48.1
52.4
25.2
Current
3.4
4.9
3.7
2.0
4.1
0.9
2.6
3.8
2.3
2.8
4.3
1.0
1.2
8.1
4.5
1.7
3.0
1.3
3.7
12.9
15.5
46.4
5.4
BULLS & BEARS | June 2019
14

Nifty:
50% companies trade at a discount to historical averages
Companies trading at a significant premium to their historical averages:
Titan (+64%), Asian Paints (+50%), Britannia Inds (+46%), Reliance Inds
(+44%) and UltraTech (+42%).
Companies trading at a significant discount to their historical averages:
Tata Steel (-59%), ONGC (-40%), Coal India (-38%), Zee Ent (-31%) and
Power Grid (-30%).
PE (x)
10 Yr Avg Prem/Disc (%)
28.1
-15
25.7
-21
29.6
-28
27.2
-31
9.8
-13
13.1
-11
15.1
-59
10.7
-11
9.8
-14
13.5
-12
8.4
5
10.2
-40
12.7
44
35.5
64
13.4
2
17.3
8
18.6
29
12.8
10
15.1
10
32.3
-
24.5
-15
13.8
-38
14.1
-30
12.7
-30
12.8
19
17.8
8
Relative to Nifty P/E (%)
Current
10 Yr Avg
25
58
6
44
11
66
-2
53
-56
-45
-39
-26
-68
-15
-50
-40
-56
-45
-38
-24
-54
-53
-68
-43
-4
-29
202
99
-29
-25
-3
-3
25
5
-27
-28
-14
-15
-
81
8
38
-55
-22
-48
-21
-54
-29
-21
-28
PB (x)
10 Yr Avg Prem/Disc (%)
3.4
-23
3.9
-30
4.7
-54
5.5
-41
1.3
-26
1.4
20
1.7
-53
2.1
-56
1.6
10
1.8
-7
1.1
17
1.5
-38
1.5
24
9.6
75
3.2
-1
4.1
21
6.3
46
2.7
14
2.9
12
2.2
-12
3.5
5
6.1
-18
1.6
-31
1.8
-19
2.5
17
2.6
7
Relative to Nifty P/B (%)
Current
10 Yr Avg
-6
32
-1
52
-22
81
17
113
-64
-49
-41
-47
-72
-36
-67
-19
-35
-36
-41
-32
-55
-59
-67
-43
-34
-43
507
272
14
23
79
58
234
145
13
6
19
13
-31
-16
34
36
82
137
-60
-39
-47
-29
6
-2
Name
Cipla
Dr Reddy’ s Labs
Sun Pharma
Zee Ent.
Hindalco
JSW Steel
Tata Steel
Vedanta
BPCL
GAIL
IOCL
ONGC
Reliance Inds.
Titan
HCL Technologies
Infosys
TCS
Tech Mahindra
Wipro
Bharti Airtel
Bharti Infratel
Coal India
NTPC
Power Grid Corp.
UPL
Nifty
Sector
Healthcare
Healthcare
Healthcare
Media
Metals
Metals
Metals
Metals
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Oil & Gas
Retail
Technology
Technology
Technology
Technology
Technology
Telecom
Telecom
Utilities
Utilities
Utilities
Others
Current
24.0
20.3
21.4
18.8
8.5
11.7
6.2
9.6
8.5
11.9
8.8
6.1
18.4
58.0
13.7
18.7
24.0
14.0
16.6
NA
20.8
8.6
9.9
8.9
15.2
19.2
Current
2.6
2.7
2.2
3.2
1.0
1.6
0.8
0.9
1.8
1.6
1.2
0.9
1.8
16.8
3.1
4.9
9.2
3.1
3.3
1.9
3.7
5.0
1.1
1.5
2.9
2.8
BULLS & BEARS | June 2019
15

Mid-caps outperform Nifty by 0.7% in May
The Nifty Mid-cap 100 was up 2.2% in May’19, as against the Nifty’s rise of 1.5%.
Best mid-cap performers in May: Birla Corp (+30%), Blue Star (+18%), Federal Bank (+16%), Aegis Logistics (+16%) and LIC Hsg (+12%).
Company
Birla Corpn.
Blue Star
Federal Bank
Aegis Logistics
LIC Housing Fin.
Brigade Enterpr.
DCB Bank
Phoenix Mills
Engineers India
Sadbhav Engg.
CESC
Ajanta Pharma
M & M Financial
Trident
Indian Hotels
Team Lease Serv.
GE T&D India
India Cements
Ipca Labs.
Sun TV Network
Jyothy Lab.
MCX
Tata Elxsi
Alembic Pharma
Persistent Sys
Emami
Strides Pharma
Delta Corp
PE (x)
Current 10 Yr Avg Prem/Disc (%)
13.6
15.6
-13
31.6
28.8
10
12.9
12.1
6
21.6
21.1
3
10.0
11.3
-11
15.8
15.0
5
15.8
15.8
0
25.1
31.4
-20
18.4
19.6
-6
18.5
25.7
-28
8.7
12.6
-31
21.1
15.9
33
14.0
16.6
-16
7.2
8.7
-17
46.7
57.9
-19
33.6
32.6
3
27.2
65.1
-58
18.6
29.5
-37
20.0
24.8
-19
13.3
20.0
-33
27.5
35.5
-23
26.1
33.9
-23
17.4
20.1
-13
17.7
17.9
-1
10.7
13.6
-21
25.9
30.9
-16
14.6
61.8
-76
21.3
32.9
-35
Relative to Nifty P/E (%)
Current
10 Yr Avg
-29
-12
65
62
-33
-32
13
18
-48
-37
-18
-16
-18
-11
31
76
-4
10
-4
44
-55
-29
10
-11
-27
-7
-63
-51
143
225
75
83
42
266
-3
65
4
39
-31
12
43
99
36
90
-9
13
-8
1
-44
-23
35
73
-24
247
11
85
PB (x)
Current 10 Yr Avg Prem/Disc (%)
1.0
1.1
-7
7.1
7.9
-10
1.4
1.2
20
4.5
3.2
40
1.5
1.9
-22
1.4
1.2
22
2.1
1.5
42
2.6
2.2
18
3.2
3.9
-18
1.9
2.7
-28
1.0
0.9
15
3.4
4.3
-19
2.2
2.3
-4
1.0
1.0
9
4.0
3.5
15
7.2
5.9
22
4.2
6.8
-39
0.6
0.7
-16
3.2
3.1
2
3.2
5.0
-35
4.4
4.4
1
2.9
3.7
-21
3.7
5.5
-33
3.0
4.3
-31
1.8
2.3
-22
6.7
10.2
-35
1.3
3.2
-59
2.5
2.4
1
Relative to Nifty P/B (%)
Current
10 Yr Avg
-62
-56
158
207
-48
-53
61
23
-46
-26
-49
-55
-25
-44
-6
-15
17
52
-31
3
-64
-66
25
65
-22
-12
-62
-63
44
34
160
128
50
163
-78
-72
16
21
17
95
61
70
5
43
34
114
9
68
-36
-11
142
297
-52
26
-11
-6
Price Chg (%)
MoM
CY19YTD
30
9
18
30
16
15
16
11
12
14
12
14
10
38
9
16
8
-3
7
20
6
11
5
-12
5
-11
4
2
3
7
2
5
2
-11
-1
10
-2
17
-5
-10
-5
-20
-5
10
-6
-15
-7
-14
-9
-7
-10
-17
-12
-8
-18
-21
BULLS & BEARS | June 2019
16

Sector valuations:
Financials, Capital Goods top outperformers in May
PSU Banks are trading at a P/B of 1.0x, in line with the historical average of 0.9x. PSB valuations have recovered gradually due to the recent capital
infusion by the government and improving earnings trajectory. Also, with the strong comeback of the NDA government, we expect further
consolidation amongst PSBs. While valuations are in line with the long-term average, we anticipate an earnings bounce-back FY20 onwards, which
should further support stock performances. Trends in NPL formation, provisions and loan growth remain the key monitorables.
Capital Goods are trading at one-year forward P/E multiple of 24.5x, at a discount of 9% to the 10-year average of 26.9x. Even on P/B basis, the sector
trades at a discount of 6% to its 10-year average multiple of 3.4x. Company valuations were impacted by near-term issues. But, with the general
election now behind and a stable government at the Centre, focus should now return to business activity. We expect ordering activity to pick up
meaningfully for the sector from 2HFY20.
Auto sector is trading at P/E of 18.1x, at a 7% premium to its historical average of 16.9x. While wholesales have declined continuously led by high
base and weak demand sentiments, we believe that the normal monsoon forecast and BS6 related pre-buying should drive volumes from 2QFY20. PV
volumes were weak in May (-20% YoY) with MSIL/MM PV wholesales declining 22%/3% YoY. In 2Ws, wholesales were mixed – up 3% for BJAUT, but
down 7.7% YoY for HMCL. In tractors too, wholesales remained weak with MM/ESC reporting 16%/18% sales decline.
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
18.1
21.4
11.0
25.6
24.5
24.6
40.3
19.8
11.5
16.2
9.9
12.0
53.9
19.9
Loss
9.4
Relative to Nifty
P/E (%)
10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
16.9
6.8
-6
-8
18.3
16.7
12
1
7.4
47.6
-43
-57
19.4
32.0
33
8
26.9
-8.9
28
48
21.4
14.5
28
18
33.3
21.1
110
87
23.9
-17.4
3
33
12.4
-7.6
-40
-30
22.7
-28.5
-15
28
12.3
-19.3
-48
-31
11.3
6.2
-38
-35
43.7
23.2
181
150
16.6
19.6
4
-5
-
-
12.9
-27.2
-51
-26
PE (x)
Relative to Nifty
P/B (%)
10 Yr Avg Prem/Disc (%) Current 10 Yr Avg
3.2
-13.5
0
24
2.4
26.8
8
-9
0.9
5.0
-65
-64
3.0
21.3
32
17
3.4
-5.7
16
30
2.6
1.3
-5
1
10.1
13.2
315
296
4.1
-32.9
-1
58
1.7
-31.5
-57
-34
4.3
-32.8
4
66
1.4
-23.2
-62
-48
1.5
3.2
-43
-41
5.8
77.6
274
126
4.3
28.6
100
67
2.2
-33.5
-48
-15
2.0
-23.0
-44
-22
PB (x)
Current
2.8
3.0
1.0
3.6
3.2
2.6
11.5
2.7
1.2
2.9
1.0
1.6
10.3
5.5
1.4
1.5
BULLS & BEARS | June 2019
17

Autos:
May’19 weak sales continues; volume recovery hinges on normal monsoon
Auto sector is trading at a P/E of 18.1x, at a 7%
premium to its historical average of 16.9x.
While wholesales have declined continuously led
by high base and weak demand sentiments, we
believe that the normal monsoon forecast and BS6
related pre-buying should drive volumes from
2QFY20.
PV volumes were weak in May (-20% YoY) with
MSIL/MM PV wholesales declining 22%/3% YoY.
In 2Ws, wholesales were mixed – up 3% for BJAUT,
but down 7.7% YoY for HMCL.
In tractors too, wholesales remained weak with
MM/ESC reporting 16%/18% sales decline.
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
Mahindra CIE
Maruti Suzuki
Motherson Sumi
Tata Motors
TVS Motor Co.
Current
18.6
12.5
16.5
18.8
29.7
12.9
22.2
10.3
19.2
15.1
14.0
14.0
23.9
18.9
12.3
25.3
PE (x)
10 Yr Avg
19.1
16.8
15.9
25.1
32.1
11.5
23.2
9.7
21.9
17.5
16.6
29.9
20.2
25.1
11.4
20.4
Prem/Disc (%)
-3
-25
4
-25
-7
12
-4
6
-12
-14
-16
-53
18
-25
8
24
Relative to Nifty P/E (%)
Current
10 Yr Avg
-3
7
-35
-6
-14
-11
-2
41
55
80
-33
-36
16
30
-46
-45
0
23
-22
-2
-27
-7
-27
68
25
13
-2
41
-36
-36
32
14
Current
2.8
2.8
3.4
3.5
6.4
1.3
4.9
1.7
2.7
3.7
2.0
1.8
4.1
3.1
0.9
5.5
38
31
24
17
10
3
Auto P/E (x)
10 Yr Avg (x)
70
40
Auto Relative to Nifty PE (%)
16.9
18.1
10
-20
-50
-7.6
-5.9
5
4
3
2
1
Auto P/B (x)
10 Yr Avg (x)
70
40
Auto Relative to Nifty PB (%)
23.8
3.2
2.8
10
-20
0.4
PB (x)
10 Yr Avg
3.8
2.9
5.2
4.2
5.5
1.3
6.1
1.1
3.2
7.0
3.0
2.9
3.3
5.0
2.0
4.4
Prem/Disc (%)
-25
-3
-34
-18
16
3
-19
49
-17
-47
-33
-36
23
-38
-54
26
Relative to Nifty P/B (%)
Current
10 Yr Avg
3
47
1
12
24
101
25
63
131
113
-53
-51
79
136
-40
-57
-2
25
34
171
-28
16
-34
12
48
29
11
92
-68
-24
99
70
BULLS & BEARS | June 2019
18

Private Banks:
Corporate banks at cusp of recovery; retail banks to continue growth trend
Private banks are trading at 3.0x, a 27% premium to its
historical P/B average of 2.4x.
Systemic loan growth moderated slightly to ~13% for the
fortnight ended 10th May (14.2% in Apr’19). Growth was
majorly driven by retail and services segments. Also, loans
to industries/agri picked up to 6.9%/7.9% in Mar’19 (FY19
Avg: 3.1%/7.1%). Private banks appear well-poised to
report higher-than-industry loan growth with further
market share gains.
Despite increase in cost of funds, private banks have
reported margin improvement due to (a) improved pricing
power, (b) re-pricing of back book, and (c) lower interest
reversals aided by moderation in slippages. We expect cost
of funds to stay elevated in the near term given the
sluggish deposit growth trends.
Asset quality trends are stabilizing, as fresh slippages have
moderated across major banks. We expect normalization
in credit cost for private corporate banks as coverage ratio
has improved materially in the last several quarters.
33
26
19
12
5
18.3
Private Banks P/E (x)
10 Yr Avg (x)
40
20
0
-20
-40
Private Banks Relative to Nifty PE (%)
11.6
21.4
1.5
Private Banks P/B (x)
4
3
2
1
2.4
10 Yr Avg (x)
30
Private Banks Relative to Nifty PB (%)
3.0
10
-10
-30
-50
-8.6
8.4
Sector Performance
MoM: 6%
Company
Axis Bank
DCB Bank
Federal Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Kotak Mah. Bank
South Ind.Bank
Yes Bank
Current
19.0
15.8
12.9
24.8
18.9
15.9
33.3
5.9
9.9
PE (x)
10 Yr Avg
29.2
15.8
12.1
20.7
18.8
18.2
23.1
8.4
14.3
Prem/Disc (%)
-35
0
6
19
0
-13
44
-30
-31
Relative to Nifty P/E (%)
Current
10 Yr Avg
-1
64
-18
-11
-33
-32
29
16
-2
6
-17
2
73
29
-69
-53
-49
-20
Current
2.6
2.1
1.4
3.8
2.3
2.8
4.3
0.5
1.0
PB (x)
10 Yr Avg
2.0
1.5
1.2
3.4
1.8
2.7
2.9
0.9
2.2
Prem/Disc (%)
28
42
20
10
30
3
47
-46
-51
Relative to Nifty P/B (%)
Current
10 Yr Avg
-6
-21
-25
-44
-48
-53
37
33
-17
-32
3
6
55
13
-83
-67
-62
-16
BULLS & BEARS | June 2019
19

PSU Banks:
Higher provisions drag earnings ; fresh NPL formation moderates
PSU Banks are trading at a P/B of 1.0x ,in line with the
historical average of 0.9x.
Classification of IL&FS as NPA
has lead to elevated
slippages for some banks. Barring that, net stressed loans
have moderated due to decline in fresh slippages.
Recovery from NCLT accounts and ‘SAMADHAN‘ scheme
has been delayed due to multiple litigations.
Operating performance improved
moderately, led by
better NII growth (low interest reversals) on a calibrated
margin recovery, partially offset by muted fee income.
Valuations for PSBs have recovered gradually
on the
recent capital infusion by the government and improving
earnings trajectory. Also, with the NDA government
making a comeback, we expect further consolidation
amongst PSBs. Valuations remain in line with the long-
term average, and an earnings bounce-back is anticipated
FY20 onwards, which should further support stock
performances. Trends in NPL formation, provisions and
loan growth remain the key monitorables.
PE (x)
Company
Bank of Baroda
Bank of India
Canara Bank
Indian Bank
Punjab Natl.Bank
St Bk of India
Union Bank (I)
Current
10.1
NA
6.2
10.4
NA
10.3
NA
10 Yr Avg
10.5
8.0
6.9
9.5
7.7
13.6
8.0
Prem/Disc (%)
-4
-
-10
10
-
-24
-
-46
-68
-46
2
1
1
0
PSU Banks P/B (x)
10 Yr Avg (x)
-40
-50
PSU Banks Relative to Nifty PB (%)
0.9
1.0
-60
-70
-80
-64.1
-64.6
Sector Performance
MoM: 11%
Relative to Nifty P/E (%)
Current
-48
10 Yr Avg
-41
-55
-61
-47
-57
-24
-55
Current
0.7
0.8
0.5
0.7
0.8
1.2
0.3
PB (x)
10 Yr Avg
1.0
0.8
0.7
0.7
1.0
1.2
0.8
Prem/Disc (%)
-30
-8
-26
-4
-20
1
-60
Relative to Nifty P/B (%)
Current
-75
-72
-80
-75
-71
-55
-89
10 Yr Avg
-61
-68
-72
-72
-61
-53
-71
BULLS & BEARS | June 2019
20

NBFCs:
Vehicle financiers to see growth slowing
NBFCs trade at a P/B of 3.6x, above its historical average
(21% premium).
According to our calculations, the recent RBI guidelines
on ALM and LCR will not have any incremental impact
on any NBFC under our coverage.
In the HFC sector, all players have witnessed a
slowdown in growth; however, the slowdown has been
minimal for HDFC and more for other players.
While vehicle financiers reported strong results on the
growth front, the outlook seems weaker. A strong rural
and infra push by the new government can change this
sentiment.
Debt MFs continue reducing their exposure to NBFCs.
While HFC exposure remains unchanged at the limit of
15%, exposure of MFs to NBFCs has declined from 25%
pre-ILFS crisis to 15% now.
NBFC P/E (x)
29
23
17
11
5
19.4
10 Yr Avg (x)
25.6
40
20
0
-20
-40
NBFC Relative to Nifty PE (%)
33.1
8.0
5
4
3
2
NBFC P/B (x)
10 Yr Avg (x)
45
NBFC Relative to Nifty PB (%)
32.1
16.7
3.6
3.0
30
15
0
-15
Sector Performance
MoM: 8%
Company
Bajaj Finance
Chola. Invst. & Fin.
HDFC
Indiabulls Housing
IndoStar Capital
L&T Fin.Holdings
LIC Housing Fin.
M & M Financial
Muthoot Finance
PNB Housing
Shri.City Union.
Shriram Trans.
Current
38.4
16.9
43.3
7.5
9.6
9.9
10.0
14.0
11.4
11.3
9.1
8.7
PE (x)
10 Yr Avg
16.5
14.3
30.6
9.4
12.0
15.7
11.3
16.6
8.1
18.6
13.8
12.4
Prem/Disc (%)
133
18
41
-20
-20
-37
-11
-16
40
-39
-35
-30
Relative to Nifty P/E (%)
Current
10 Yr Avg
100
-8
-12
-20
125
72
-61
-47
-50
-33
-48
-12
-48
-37
-27
-7
-40
-54
-41
4
-53
-22
-55
-30
Current
8.1
3.1
4.5
1.7
1.0
1.6
1.5
2.2
2.4
1.6
1.3
1.4
PB (x)
10 Yr Avg
3.1
2.1
4.5
2.3
1.1
1.9
1.9
2.3
1.6
2.8
2.0
2.0
Prem/Disc (%)
161
48
-1
-24
-8
-15
-22
-4
48
-41
-34
-31
Relative to Nifty P/B (%)
Current
10 Yr Avg
194
20
14
-17
61
75
-37
-12
-62
-56
-41
-26
-46
-26
-22
-12
-15
-38
-41
7
-51
-21
-50
-22
BULLS & BEARS | June 2019
21

Capital Goods:
Expect business momentum to pick up 2HFY20 onwards
Capital Goods trade at one-year forward P/E multiple of
24.5x, at a discount of 9% to the 10-year average of 26.9x.
67
Even on a P/B basis, the sector trades at a discount of 6% to
47
its 10-year average multiple of 3.4x.
Valuation premium relative to the Nifty on a P/B basis has
27
been eroded; it now trades at 16% premium v/s 10-year
average premium of 30%. On a P/E multiple basis, the
7
premium has narrowed to 28% from the 10-year average
premium of 48%.
Valuations for companies were impacted by near-term issues
like (a) order inflow slowdown given general elections , (b)
pressure on margins given the inability to increase prices and
9
rising cost pressures, and ( c) fierce competition intensity in
the industry given the paucity of orders in the near term.
6
With major event of general election now behind and a stable
government at the Centre , focus should now shift to
4
business activity. We expect ordering activity to pick up
1
meaningfully from 2HFY20, given the Government’s focus to
expedite infrastructure development, and thus, expect
sectoral re-rating to occur.
Capital Goods P/E (x)
10 Yr Avg (x)
190
140
Capital Goods Relative to Nifty PE (%)
26.9
24.5
90
40
-10
48.3
27.6
Capital Goods P/B (x)
10 Yr Avg (x)
170
115
Capital Goods Relative to Nifty PB (%)
3.4
3.2
60
5
-50
30.1
15.7
Sector Performance
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
82.5
17.6
31.6
26.5
18.4
27.2
45.2
12.8
19.5
38.8
32.8
31.3
32.3
MoM: 11%
PE (x)
10 Yr Avg
78.3
24.3
28.8
25.9
19.6
65.1
26.2
15.5
23.1
48.8
22.3
30.9
23.1
Prem/Disc (%)
5
-27
10
2
-6
-58
72
-18
-16
-20
47
1
40
Relative to Nifty P/E (%)
Current
10 Yr Avg
330
340
-8
36
65
62
38
45
-4
10
42
266
135
47
-33
-13
1
29
102
174
71
25
63
73
68
30
Current
7.6
0.8
7.1
4.8
3.2
4.2
9.3
2.6
3.0
4.9
7.0
3.5
4.1
PB (x)
10 Yr Avg
6.8
2.2
7.9
5.8
3.9
6.8
6.0
2.2
3.1
6.1
4.6
4.2
3.3
Prem/Disc (%)
10
-66
-10
-17
-18
-39
54
20
-1
-20
54
-17
24
Relative to Nifty P/B (%)
Current
10 Yr Avg
174
165
-72
-13
158
207
72
123
17
52
50
163
238
134
-5
-15
10
19
77
136
154
77
25
61
50
29
BULLS & BEARS | June 2019
22

Cement:
Partial rollback of prices; Expect further correction in June
Cement trades at EV/EBITDA of 15.4x, at a 11% premium
to its historical average.
Cement players hiked prices in Apr’19 across India.
Further, price hike of another INR10-30 was taken in
May’19, which was partly rolled back.
Current prices are INR26/bag higher than the 4QFY19
average prices on an All-India level. The North saw an
increase of INR40/bag, the South by INR6/bag, Central
India by INR37/bag, the East by INR23/bag and the West
by INR26/bag from 4QFY19 average.
We expect prices to correct in June with the onset of the
monsoons and potential pressure from the government to
reduce prices.
RIL
INR 9,204/t. Diesel prices are flat MoM.
reduced petcoke prices by INR295/ton on 1
st
May to
43
33
23
13
3
24.6
21.4
Cement P/E (x)
10 Yr Avg (x)
150
105
60
15
-30
-75
Cement Relative to Nifty PE (%)
27.9
18.1
5
4
3
2
1
1
Cement P/B (x)
10 Yr Avg (x)
30
10
Cement Relative to Nifty PB (%)
2.6
2.6
-10
-30
-50
1.1
-4.9
Sector Performance
MoM: 3%
PE (x)
Company
ACC
Ambuja Cem.
Birla Corpn.
Grasim Inds
Sanghi Inds.
Shree Cement
UltraTech
10 Yr
Current
Avg
24.3
33.1
13.6
10.0
20.7
43.4
39.7
26.2
28.9
15.6
10.6
29.5
17.8
27.8
28.0
Prem/
Disc (%)
-7
14
-13
-5
-37
16
56
42
Relative to Nifty
P/E (%)
10 Yr
Current
Avg
26
72
-29
-48
-3
8
126
107
47
62
-12
-41
65
0
56
57
10 Yr
Current
Avg
2.7
2.1
1.0
1.3
0.6
1.0
6.6
3.7
2.9
2.6
1.1
1.7
0.7
0.9
4.4
3.1
PB (x)
Prem/
Disc (%)
-6
-19
-7
-23
-16
12
51
18
Relative to Nifty
P/B (%)
10 Yr
Current
Avg
-2
-23
-62
-53
-78
-65
139
34
12
2
-56
-34
-72
-66
69
21
EV/EBIDTA (x)
Current
11.1
19.1
7.2
12.9
7.7
11.8
17.8
16.2
10 Yr
Avg
13.5
15.9
7.7
22.2
8.2
9.4
13.1
13.2
Prem/
Disc (%)
-18
21
-6
-42
-7
25
36
23
Cement EV/EBDITA (x)
22
17
12
7
2
13.9
10 Yr Avg (x)
15.4
India Cements 18.6
BULLS & BEARS | June 2019
23

Consumer:
Valuations not relenting
Consumer sector P/E of 40.3x in May’19 (down from 41.2x
in Apr’19) is at a premium of 21.1% to its 10-year average
of 33.3x. On a P/B basis, the sector trades at 11.5x, a
premium of 13.2% to its 10-year average multiple of 10.1x.
Consumer P/E relative to Nifty P/E has declined and now
stands at 109.9% in May’19 from 115.2% in Apr’19.
Companies across the board called out a slowdown ,
indicating it could persist in 1QFY20.
Companies are hopeful of a recovery post 1QFY20 on
anticipation of normal monsoons and on benefits
announced in the budget reaching rural customers.
Commodity costs are largely benign ; while this is good for
margins, it is affecting realization growth. If volume growth
slowdown persists, promotional intensity could increase
leading to weak sales growth.
55
45
35
25
15
33.3
Consumer P/E (x)
10 Yr Avg (x)
40.3
150
110
70
30
-10
87.2
Consumer Relative to Nifty PE (%)
109.9
15
13
10
8
5
Consumer P/B (x)
10 Yr Avg (x)
480
380
Consumer Relative to Nifty PB (%)
11.5
10.1
280
180
80
296.3
315.1
Sector Performance
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
57.4
48.1
37.7
42.3
25.9
31.7
41.6
52.4
25.2
27.5
40.5
57.1
63.5
49.4
57.8
54.2
42.1
MoM: -2%
PE (x)
10 Yr Avg
38.3
32.9
35.2
32.6
30.9
29.5
34.3
37.2
26.4
35.5
33.3
43.2
44.3
40.9
32.2
68.2
94.6
Prem/Disc (%)
50
46
7
30
-16
7
22
41
-4
-23
22
32
43
21
80
-20
-56
Relative to Nifty P/E (%)
Current
10 Yr Avg
199
115
150
85
96
98
120
83
35
73
65
66
117
92
173
109
31
48
43
99
111
87
197
142
231
149
157
129
201
81
182
283
119
431
Current
12.9
15.5
23.0
11.0
6.7
6.7
8.9
46.4
5.4
4.4
13.2
30.1
31.3
23.7
13.2
9.3
10.2
PB (x)
10 Yr Avg
10.8
12.2
24.6
10.0
10.2
7.8
7.4
31.0
7.1
4.4
10.3
23.2
17.4
19.2
8.1
8.9
11.6
Prem/Disc (%)
19
28
-7
10
-35
-14
20
50
-23
1
28
30
80
24
64
4
-12
Relative to Nifty P/B (%)
Current
10 Yr Avg
366
320
463
372
731
854
297
287
142
297
142
201
224
189
1581
1103
97
176
61
70
377
297
991
799
1032
573
759
643
378
212
236
246
268
349
BULLS & BEARS | June 2019
24

Healthcare:
De-rating lingers after brief pause
After a brief pause, the Healthcare P/E multiple slid with the
discount to its 10-year average broadening to ~17% in
May’19.
This was partly led by subdued YoY growth in domestic
formulation business of pharma companies, largely due to
pushback by trade channel. The trade generics and
Jan
Aushadhi
remained aggressive, further impacting growth in
the domestic formulation segment.
Headwinds in the US market are prominent in terms of
regulatory compliance, which continued to impact potential
launches and the base business. In fact, this also led to
product recall in case of few companies, impacting
profitability.
15 out of 19 stocks are trading at discount to their 10-year
average, thereby factoring sector risk to some extent.
Companies with higher exposure to branded generics in
emerging market, low base in the US market and
consistency in compliance should improve performance and
enjoy better multiples.
Sector Performance
36
30
24
18
12
23.9
Healthcare P/E (x)
10 Yr Avg (x)
90
60
30
19.8
0
-30
Healthcare Relative to Nifty PE (%)
33.5
2.9
Healthcare P/B (x)
7
5
4
2
4.1
10 Yr Avg (x)
140
100
60
Healthcare Relative to Nifty PB (%)
58.3
2.7
20
-20
-1.4
MoM: -7%
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
Laurus Labs
Lupin
Sanofi India
Sun Pharma.Inds.
Strides Shasun
Shilpa Medicare
Torrent Pharma.
Current
11.4
21.1
26.3
13.9
24.0
26.4
20.3
43.0
15.6
10.2
20.0
7.4
19.4
20.5
28.7
21.4
14.6
20.2
27.8
PE (x)
10 Yr Avg
13.8
15.9
24.9
21.6
28.1
21.7
25.7
48.7
23.5
11.0
24.8
13.3
34.6
25.2
29.1
29.6
61.8
24.9
20.1
Prem/Disc (%)
-17
33
6
-35
-15
22
-21
-12
-34
-7
-19
-44
-44
-18
-1
-28
-76
-19
38
Relative to Nifty P/E (%)
Current
10 Yr Avg
-41
-23
10
-11
37
40
-27
21
25
58
37
22
6
44
124
173
-19
32
-47
-38
4
39
-61
-25
1
94
7
41
49
63
11
66
-24
247
5
40
45
13
Current
2.2
3.4
4.6
2.1
2.6
5.1
2.7
9.5
2.3
1.6
3.2
1.3
2.1
2.2
5.1
2.2
1.3
2.1
4.9
PB (x)
10 Yr Avg
2.9
4.3
3.1
4.9
3.4
4.7
3.9
10.4
4.1
1.7
3.1
1.6
3.2
4.5
4.7
4.7
3.2
2.8
4.5
Prem/Disc (%)
-22
-19
46
-57
-23
8
-30
-9
-44
-2
2
-21
-33
-51
9
-54
-59
-25
9
Relative to Nifty P/B (%)
Current
10 Yr Avg
-20
11
25
65
65
22
-24
91
-6
32
85
84
-1
52
243
305
-16
59
-41
-36
16
21
-53
-36
-23
24
-19
76
85
81
-22
81
-52
26
-24
10
76
73
BULLS & BEARS | June 2019
25

Infrastructure:
Expect business momentum to gain strength, valuations to follow
Infrastructure sector trades at a P/B of 1.2x, at a 32%
discount to its historical average.
Post weak ordering activity in FY19 (-67% YoY), we
expect business momentum to now pick up massively
given re-election of a stable government at the Centre,
which has drawn out massive infrastructure
development plans. Expected investment is to the tune
of INR100t by 2024.
Pipeline of projects in the road infrastructure segment
remain strong and players expect momentum to pick up
from 2HFY20.
FY19 had a bright spot with a multi-year high execution
of 30km per day being achieved (+10% YoY), indicating
that government focus ensures timely execution of
projects awarded by them.
IRB Infra, Ashoka and Sadbhav trade at a discount to
historical P/B, while KNR trades at a premium.
32
24
16
8
0
Infrastructure P/E (x)
10 Yr Avg (x)
60
20
11.5
-20
-60
-100
-30.0
-40.1
Infrastructure Relative to Nifty PE (%)
12.4
Infrastructure P/B (x)
4
2
1
0
1.7
10 Yr Avg (x)
0
-25
-50
Infrastructure Relative to Nifty PB (%)
-33.6
1.2
-75
-100
-57.1
PE (x)
Company
Ashoka Buildcon
IRB Infra.Devl.
KNR Construct.
Sadbhav Engg.
Current
10.7
6.8
20.1
18.5
10 Yr Avg
13.6
11.4
8.3
25.7
Prem/Disc (%)
-
-41
143
-28
Relative to Nifty P/E (%)
Current
-
-65
5
-4
10 Yr Avg
-23
-36
-54
44
Current
1.5
0.6
2.4
1.9
PB (x)
10 Yr Avg
1.7
1.7
1.4
2.7
Prem/Disc (%)
-7
-66
72
-28
Relative to Nifty P/B (%)
Current
-44
-79
-13
-31
10 Yr Avg
-36
-33
-46
3
BULLS & BEARS | June 2019
26

Media:
Broadcasters continue to drag overall valuation
Media sector P/E of 16.2x is at ~28% discount to its
10-year historical average of 22.7x.
Moderation in growth outlook due to
implementation of the TRAI’s new tariff order led to
increase in the valuation discount for broadcasters
and in turn, for the overall media sector.
Print companies, however, saw some valuation
support as normalization of high newsprint prices
started becoming evident in 4QFY19 performance.
Media P/E (x)
43
31
19
7
16.2
22.7
10 Yr Avg (x)
100
50
0
-50
-15.4
Media Relative to Nifty PE (%)
27.6
Media P/B (x)
6
5
4
2
4.3
10 Yr Avg (x)
130
90
50
Media Relative to Nifty PB (%)
66.1
2.9
10
-30
3.9
Sector Performance
MoM: -12%
PE (x)
Company
Ent.Network
Jagran Prakashan
PVR
Sun TV Network
Zee Entertainmen
Current
22.2
9.2
42.1
13.3
18.8
10 Yr Avg
38.8
15.3
37.9
20.0
27.2
Prem/Disc (%)
-43
-40
11
-33
-31
1
Relative to Nifty P/E (%)
Current
16
-52
119
-31
-2
10 Yr Avg
118
-14
113
12
53
Current
2.2
1.6
5.1
3.2
3.2
PB (x)
10 Yr Avg
3.1
3.3
3.4
5.0
5.5
Prem/Disc (%)
-28
-52
50
-35
-41
Relative to Nifty P/B (%)
Current
-20
-43
85
17
17
10 Yr Avg
18
27
32
95
113
BULLS & BEARS | June 2019
27

Metals:
Domestic steel prices remain weak
Metals trade at 1.0x, near its historical average P/B
of 1.4x. EV/EBITDA is at 6.2x, at a 33% discount to
historical average.
Domestic flat steel and long steel product prices
trended lower during the month at ~INR42,000 and
~INR36,000, respectively.
Aluminum prices were lower by ~3%. Zinc prices
have decreased ~8% in the month.
We remain positive on JSW Steel given its strong
growth outlook. Hindalco is well placed to benefit
from higher aluminum prices and low-cost captive
raw material.
25
20
15
10
5
12.3
9.9
Metals P/E (x)
10 Yr Avg (x)
15
-5
-25
-45
-65
-30.9
-48.4
Metals Relative to Nifty PE (%)
4
3
2
1
Metals P/B (x)
10 Yr Avg (x)
20
-5
Metals Relative to Nifty PB (%)
1.4
1.0
-30
-55
-80
-48.2
-62.4
Sector Performance
MoM: -7%
PE (x)
Company
Hind.Zinc
Hindalco Inds.
Jindal Steel
JSW Steel
Nalco
NMDC
SAIL
Tata Steel
Vedanta
Current
11.4
8.5
NA
11.7
12.4
8.1
NA
6.2
9.6
10 Yr
Avg
9.8
9.8
16.8
13.1
16.0
12.2
15.3
15.1
10.7
Prem/
Disc (%)
15
-13
NA
-11
-22
-34
NA
-59
-11
Relative to Nifty
P/E (%)
10 Yr
Current
Avg
-41
-45
-56
NA
-39
-35
-58
NA
-68
-50
-45
-6
-26
-10
-31
-14
-15
-40
PB (x)
Current
2.6
1.0
0.5
1.6
0.9
1.1
0.5
0.8
0.9
10 Yr
Avg
2.2
1.3
1.6
1.4
1.3
2.8
1.0
1.7
2.1
0
Prem/
Disc (%)
18
-26
-69
20
-29
-60
-50
-53
-56
Relative to Nifty
P/B (%)
10 Yr
Current
Avg
-5
-14
-64
-82
-41
-67
-59
-82
-72
-67
-49
-38
-47
-51
8
-62
-36
-19
EV/EBIDTA (x)
Current
7.0
5.7
6.7
7.5
4.6
4.5
8.9
5.6
5
10 Yr
Avg
5.8
7.2
10.8
7.6
7.9
8.0
14.7
7.5
4
Prem/
Disc (%)
19
-21
-38
-1
-42
-43
-39
-25
8
Metals EV/EBDITA (x)
10
8
5
3
10 Yr Avg (x)
7.4
6.2
BULLS & BEARS | June 2019
28

Oil & Gas:
Refining margins fail to recover
Oil & Gas trades at 1.6x P/B, at 3% premium to its historical
18
average and P/E of 12.0x (v/s 10-year average of 11.3x).
Increasing US-China tariff war and lack of global economic
15
growth amid high refinery runs in China has resulted in poor
12
refining margins of ~USD3/bbl in May’19.
Despite increasing sanctions on Iran and Venezuela, excess
9
oil supply from rest of OPEC+ and the US has resulted in oil
6
prices stabilizing at ~USD70/bbl.
With clarity increasing over continuity of reforms in the sector,
the oil marketing companies and ONGC saw good buying from
investors.
Continued weakness in refining and petchem margins has
3
largely overshadowed stock performance of RIL in the
2
month.
City gas companies continued their growth momentum with
2
good volumes and stable margins.
1
1
Oil & Gas P/E (x)
10 Yr Avg (x)
-12
-27
12.0
11.3
-42
-57
-72
Oil & Gas Relative to Nifty PE (%)
-35.0
-37.6
Oil & Gas P/B (x)
10 Yr Avg (x)
0
Oil & Gas Relative to Nifty PB (%)
1.5
1.6
-25
-50
-75
-40.6
-42.7
Sector Performance
MoM: 2%
Company
Aegis Logistics
BPCL
GAIL (India)
Guj.St.Petronet
HPCL
IOCL
Indraprastha Gas
MRPL
ONGC
Petronet LNG
Reliance Inds.
Current
21.6
8.5
11.9
14.9
6.3
8.8
25.6
6.0
6.1
13.0
18.4
PE (x)
10 Yr Avg
21.1
9.8
13.5
11.9
17.5
8.4
13.9
13.3
10.2
11.8
12.7
Prem/Disc (%)
3
-14
-12
25
-64
5
84
-55
-40
10
44
Relative to Nifty P/E (%)
Current
10 Yr Avg
13
18
-56
-45
-38
-24
-22
-33
-67
-2
-54
-53
33
-22
-69
-26
-68
-43
-32
-34
-4
-29
Current
4.5
1.8
1.6
1.7
1.4
1.2
4.8
0.9
0.9
3.3
1.8
PB (x)
10 Yr Avg
3.2
1.6
1.8
1.8
1.2
1.1
2.8
1.6
1.5
2.4
1.5
Prem/Disc (%)
40
10
-7
-5
16
17
70
-45
-38
38
24
Relative to Nifty P/B (%)
Current
10 Yr Avg
61
23
-35
-36
-41
-32
-39
-31
-50
-54
-55
-59
74
9
-68
-37
-67
-43
21
-6
-34
-43
BULLS & BEARS | June 2019
29

Retail: Rich v
aluations remain
Retail sector is trading at a P/E of 53.9x, ~23% premium
to its 10-year historical average.
Valuations remain rich despite mixed set of results during
4QFY19 – TRENT, FLFL, FRETAIL reported better than
expected results ,while VMART, SHOP missed estimates.
Given the burgeoning market, focus on being omni –
present and the narrowing price gap v/s online players ,
valuations for retail players would continue to trade at a
premium.
92
70
48
26
4
43.7
Retail P/E (x)
10 Yr Avg (x)
590
53.9
430
270
110
-50
150.0
180.5
Retail Relative to Nifty PE (%)
14
10
6
2
Retail P/B (x)
10 Yr Avg (x)
10.3
5.8
450
300
150
0
-150
Retail Relative to Nifty PB (%)
125.6
274.1
PE (x)
Company
Aditya Birla Fashion
Avenue Supermarts
Future Lifestyle
Future Retail
Jubilant
Shoppers Stop
Titan
Trent
V-Mart Retail
Current
52.7
66.6
40.3
31.1
43.7
35.8
58.0
63.9
50.4
10 Yr Avg
141.7
80.3
44.4
30.4
63.0
45.6
35.5
85.2
29.0
Prem/Disc (%)
-63
-17
-9
2
-31
-21
64
-25
73
Relative to Nifty P/E (%)
Current
175
247
110
62
128
87
202
233
162
10 Yr Avg
695
351
149
71
254
156
99
378
63
Current
9.1
11.7
4.3
4.8
11.9
3.9
16.8
6.9
8.7
PB (x)
10 Yr Avg
10.0
13.5
2.3
5.5
12.3
5.2
9.6
3.8
4.9
Prem/Disc (%)
-8
-13
85
-13
-3
-24
75
82
77
Relative to Nifty P/B (%)
Current
230
325
56
73
329
41
507
150
215
10 Yr Avg
286
422
-10
114
376
100
272
47
91
BULLS & BEARS | June 2019
30

Technology:
Pause in acceleration; Cost pressures an overhang
Technology sector trades at a P/E of 19.9x, at a 20%
premium to its historical average of 16.6x.
Trends in revenue growth have been a drag ever since
macros and consequently, demand for IT services turned
the corner. Aggregate CC organic revenue for Tier-I
companies grew 9.2% YoY in 4QFY19 v/s 9.1% in 3QFY19,
and 6.2% in 4QFY18.
Low unemployment levels in the US, high attrition and a
tightening visa regime have been the main factors behind
the decline in gross margins. For 4QFY19, aggregate gross
margins for Tier I stood at 37.1%, a decline of 60bp
sequentially.
1QFY19 saw the highest growth gap of 8.9% between Tier I
and Tier II, but 4QFY19 saw the gap reduce to 3.6%, despite
unsatisfactory performance of Tier I companies.
We remain positive on INFO and TECHM in Tier I. In mid-
caps, we remain positive on ZENT, CYL, and PSYS.
23
19
15
11
7
16.6
Technology P/E (x)
10 Yr Avg (x)
19.9
40
20
0
-20
-40
Technology Relative to Nifty PE (%)
3.6
-5.4
6
5
4
3
2
Technology P/B (x)
10 Yr Avg (x)
5.5
4.3
150
100
50
0
Technology Relative to Nifty PB (%)
100.4
67.1
Sector Performance
MoM: -3%
PE (x)
Company
Cyient
HCL Technologies
Hexaware Tech.
Infosys
MphasiS
NIIT Tech.
TCS
Tech Mahindra
Wipro
Zensar Tech.
Current
11.3
13.7
16.6
18.7
15.8
16.5
24.0
14.0
16.6
15.0
10 Yr Avg
12.0
13.4
13.5
17.3
12.7
10.1
18.6
12.8
15.1
9.6
Prem/Disc (%)
-6
2
23
8
24
64
29
10
10
56
Relative to Nifty P/E (%)
Current
-41
-29
-13
-3
-18
-14
25
-27
-14
-22
10 Yr Avg
-32
-25
-24
-3
-29
-44
5
-28
-15
-46
Current
2.1
3.1
3.9
4.9
3.0
3.3
9.2
3.1
3.3
2.5
PB (x)
10 Yr Avg
2.1
3.2
3.2
4.1
2.3
1.7
6.3
2.7
2.9
1.9
Prem/Disc (%)
3
-1
23
21
32
93
46
14
12
33
Relative to Nifty P/B (%)
Current
-23
14
42
79
8
19
234
13
19
-10
10 Yr Avg
-20
23
24
58
-12
-34
145
6
13
-28
BULLS & BEARS | June 2019
31

Telecom:
Turnaround in India wireless biz supports premium valuations
The telecom sector is trading at an EV/EBITDA of
10.7x, ~28% premium to its 10-year historical
average.
Turnaround in India wireless business for
incumbents, evident in 4Q performance, acted as a
key catalyst, providing support to premium
valuations. Besides, over subscription of rights issue
too assisted in maintaining momentum.
4
3
2
1
Telecom P/B (x)
2.2
10 Yr Avg (x)
70
35
0
-14.9
-47.6
Telecom Relative to Nifty PB (%)
1.4
-35
-70
15
13
10
8
5
Telecom EV/EBDITA (x)
10 Yr Avg (x)
10.7
8.4
Company
Bharti Airtel
Idea Cellular
Tata Comm
Current
NA
NA
37.8
PE (x)
10 Yr Avg
32.3
16.7
34.8
Prem/Disc (%)
NA
-
9
Relative to Nifty P/E (%)
Current
10 Yr Avg
NA
81
-
-7
97
95
Current
1.9
0.6
53.9
PB (x)
10 Yr Avg
2.2
1.1
9.1
Prem/Disc (%)
-12
-48
494
Relative to Nifty P/B (%)
Current
10 Yr Avg
-31
-16
-79
-56
1853
252
BULLS & BEARS | June 2019
32

Utilities:
Electricity generation increases 5.6% YoY in April
Utilities trade at a P/B of 1.5x, at a 23% discount to
historical average.
NTPC, NHPC, Power Grid, Tata Power, Torrent Power
and JSW Energy trade at a discount to historical
average P/B.
Short-term power prices were slightly higher MoM
at INR3.22/kWh in April.
Conventional electricity generation increased 4.6%
YoY in Apr’19. Including RE, generation growth stood
at 5.6% YoY.
17
14
11
8
12.9
9.4
Utilities P/E (x)
10 Yr Avg (x)
10
-15
-40
-65
-25.9
-51.2
Utilities Relative to Nifty PE (%)
3