*

* Sectors in order of premium /

discount to historical averages

BEST PERFORMERS MoM (%)

WORST PERFORMERS MoM (%)

Highlights of Nov’19 edition



Nifty conquers new lifetime high, up

1.5% in Nov’19



PSU Banks, NBFCs, Metals and Real

Estate top gainers



Capital Goods, Auto, Consumer, Oil and

Tech top losers



FII inflows robust at USD3.1b - highest

in 8 months

Research & Quant Team (Deven@MotilalOswal.com); +91 22 6129 1575

December 2019

Contents



Strategy:

Markets rally for third straight month; FII inflows highest in 8 months



Valuation deep-dive for the month:

Metals



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 29

th

Nov’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 | December 2019

2

Strategy:

Markets rally for third straight month; FII inflows highest in 8 months













Nifty maintains winning streak:

The Nifty surpassed the 12,000 mark in Nov’19 to hit a record high; after a strong 4.1%/3.5% rally in Sep’19/Oct’19,

the Nifty ended 1.5% higher MoM in Nov’19. The rally was on the back of strong FII inflows, improved global backdrop, government efforts to arrest

slowdown with structural reforms and an in-line earnings season. Further, series of policy changes by the government and the RBI helped revive

sentiments. While FIIs continued their buying streak in Nov’19 (inflows increased from USD2.1b in Oct’19 to USD3.1b in Nov’19), DII inflows turned

negative for the first time in 7 months (-USD1.1b). Mid-caps outperformed the Nifty by 0.9% in Nov’19, underscoring the sentiment change. On a 12-

month basis, mid-cap returns (-1.6%) lagged the Nifty’s returns (+10.8%). The Nifty Midcap100 P/E now trades near to the Nifty-50.

2QFY20 earnings season operationally in line; tax cut drives PAT beat:

The 2QFY20 corporate earnings season was in line with our modest

expectations. While the corporate tax rate cuts helped in arresting earnings downgrades, management commentaries do not suggest an imminent

recovery. Demand concerns in the economy are now coming to the fore, the continuation of which can raise the risk for earnings downgrades in

FY21. Nifty sales/EBITDA/PBT/PAT grew -2.5%/2.1%/-3.1%/8.3% YoY (v/s our est. -2.1%/-2.4%/-3.9%/-8%). Excluding Corporate Banks, Nifty PBT was

down 10.6% YoY (v/s our est. -11.8%). For the MOFSL Universe, sales/EBITDA/PBT/PAT grew -2% /2.1%/-0.6%/11.7% (v/s our est. -1.1%/-

1.1%/1.7%/-6.1% YoY). The divergence between PBT and PAT performance can largely be attributed to the corporate tax rate cut. We have

maintained our Nifty FY20 EPS estimate at INR538, growth of 12.5% and entirely led by Financials.

India performs in line with developed markets:

In Nov’19, barring Indonesia (-3%) and China (-2%), all key global markets – the US (+3%), Russia

(+2%), Japan (+2%), India (+2%), the UK (+1%), Taiwan (+1%) and Brazil (+1%) – closed higher in local currency terms. Over the last 12 months, MSCI

India (+7%) outperformed MSCI EM (5%). Notably, over the last 10 years, MSCI India has outperformed MSCI EM by 89%. MSCI India’s P/E is at a

premium of 81% to MSCI EM’s P/E, above its historical average premium of 52%.

PSU Banks/NBFCs outperform; Capital Goods suffer:

PSU Banks (+12%), NBFCs (+6%), Metal (+5%) and Real Estate (+5%) featured among the top

gainers in Nov’19. Capital Goods (-8%), Automobiles (-4%), Consumer (-4%), Oil (-4%), Technology (-3%) and Utilities (-3%) were the top losers.

Bharti Infratel (+45%), IndusInd Bank (+20%), Bharti Airtel (+18%), JSW Steel (+15%) and Zee Ent (+13%) were the top performers on MoM basis.

Titan Co. (-13%), M&M (-13%), IOC (-11%), Hero Moto (-10%) and L&T (-10%) were the key laggards. In this edition, we take a deep-dive into the

valuation metrics of Metals.

Sentiments improve; fundamental backdrop still weak:

Markets have rallied after the Government and the RBI’s co-ordinated efforts to arrest the

slowdown. While global cues are benign, news-flow on the underlying economy remains weak with 2QFY20 GDP growth coming in at multi-year low

of 4.5%, underscoring the well-entrenched economic slowdown. Moreover, 2QFY20 earnings season did not offer much solace except for the tax cut

driven earnings beat. Markets, however, remain buoyant backed by strong global cues and continued FII inflows (USD5b in the last two months).

Further, improved sentiment has resulted in enhanced equity supply (OFS, IPOs, etc.), which has been well absorbed. We expect near-term earnings

to remain sedate. After the recent rally, we believe that the Nifty at 17.6x FY21E earnings is not expensive but discounting the sharp earnings

recovery. Our portfolio construction remains premised on earnings visibility coupled with balance-sheet leadership.

Top Ideas:

Large-caps:

SBI, ICICI Bank, L&T, Infosys, Bharti Airtel, NTPC, HUL, HDFC, UltraTech.

Mid-caps:

Indian Hotels, ABFRL, Ashok Leyland, Colgate, Federal Bank, Jubilant Foodworks, JK Cement, Crompton Consumer.

BULLS & BEARS | December 2019

3

Valuation deep-dive for the month: Metals



Metal prices and earnings of metal producers are highly cyclical and

volatile,

thus their equity value gyrates even more. Hence,

valuations based on P/E(x) are unreliable.

Therefore, many investors rely on P/BV for valuation. Starting 2016,

when Indian companies began acquiring businesses overseas, the

translation losses/gains and impairments started to erode their

reliability. Currently, the book value no longer retains its historical

meaning because of fair valuation under Ind-AS.

Despite volatility in earnings, EV/EBITDA is the only reliable way of

valuing the metals businesses, in our view.

Before 2006, metal stocks traded at 3-5x one-year forward

EV/EBITDA, as the memory of a long recession (1997-2002) was

fresh in investor minds.

Aggressively growing Chinese appetite for commodities and ensuing

consolidation among large names led to re-rating of the sector.

Indian metal companies invested heavily in growth capex during

2009-15, bloating the debt/EBITDA ratio in 2015, which is reflected

in their EV/EBITDA ratios.

Once again the Metal sector has de-rated on deteriorating macros

due to the on-going trade war and weakening global economic

growth. However, the past few weeks has seen domestic steel prices

showing some signs of a rebound as prices have reached near anti-

dumping levels (thereby providing a floor) and on anticipation of

demand recovery post the monsoon season.

Trend in EV/EBIDTA – one-year forward

EV / EBITDA (x)

Min (x)

13.0

10.0

7.0

4.0

6.1

Avg (x)

+1SD

11.3

8.7

7.4

5.1

Max (x)

-1SD



6.6



Trend in P/B – one-year forward

P/B (x)

3.5

2.5

1.5

0.5

1.7

1.3

0.6

Avg (x)

Max (x)

Min (x)

+1SD

3.0

-1SD





0.8

0.9



Trend in Net Debt/EBITDA – one-year forward

5.5

4.0

2.5

1.0

Net Debt/EBITDA (x)

Avg (x)



2.8

3.2

BULLS & BEARS | December 2019

4

Key highlights



Indian equities:

Nifty surges to lifetime peak, up 1.5% in Nov’19









The Nifty conquered a new peak of 12,159, ending 1.5% higher MoM at 12,056 in Nov’19. A better-than-

expected result season and robust FII inflows kept the morale high.



Sector-wise, PSU Banks (+12%), NBFCs (+6%), Metals (+5%) and Real Estate (+5%) featured among the top

gainers in Nov’19.



Capital Goods (-8%), Automobiles (-4%), Consumer (-4%), Oil (-4%), Technology (-3%) and Utilities (-3%)

were the top losers.



FII inflows were robust at USD3.1b, however, net domestic flows turned negative at USD1.1b.

Stock performance:

Breadth negative; 27 Nifty stocks end lower



Bharti Infratel (+45%), IndusInd Bank (+20%), Bharti Airtel (+18%), JSW Steel (+15%) and Zee Ent (+13%)

were the top performers on MoM basis while Titan (-13%), M&M (-13%), IOC (-11%), Hero Moto (-10%) and

L&T (-10%) were the key laggards.

Global equities:

All major markets end higher in Nov’19



Barring Indonesia (-3%) and China (-2%), all key global markets – the US (+3%), Russia (+2%), Japan (+2%),

India (+2%), the UK (+1%), Taiwan (+1%) and Brazil (+1%) – closed higher in local currency terms in Nov’19.



Over the last 12 months, MSCI India (+7%) outperformed MSCI EM (5%). Notably, over the last 10 years,

MSCI India has outperformed MSCI EM by 89%.



MSCI India’s P/E is at a premium of 81% to MSCI EM’s P/E, above its historical average premium of 52%.

Sector valuations:

Financials outperform; Defensives underperform



PSU Banks are trading at P/B of 0.9x, at 2.8% premium to its historical average of 0.9x. In 2QFY20, PSBs

under our coverage continued with the ~35% tax regime and thus no adjustments were required in DTA.

Most PSBs reported modest operating performance led by lower interest reversals, higher treasury profits

and controlled opex.



Capital goods sector is trading at one-year forward P/E multiple of 20.8x, at 23% discount to its 10-year

average of 27.1x. Even on P/B basis, the sector trades at 16% discount to its 10-year average multiple of

3.3x. Valuation premium relative to the Nifty on a P/B and P/E basis has narrowed v/s its 10-year average.

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 | December 2019

5

Indian equities:

Nifty surges to lifetime peak, up 1.5% in Nov’19













The Nifty made a new life time high of 12,159, ending 1.5% higher

Nifty MoM change (%) — third consecutive month of positive return

MoM at 12,056 in Nov’19.

A better-than-expected result season

Nifty MoM Change (%)

7.7

and robust FII inflows kept the morale high.

6.2

6.0

5.6

5.8

4.7

Sector-wise, PSU Banks (+12%), NBFCs (+6%), Metals (+5%) and

4.7

4.6

4.1

3.5

3.73.3 3.4

3.0

Real Estate (+5%) featured among the top gainers in Nov’19.

2.9

1.5

1.5

1.4

1.1

Capital Goods (-8%), Automobiles (-4%), Consumer (-4%), Oil (-

4%), Technology (-3%) and Utilities (-3%) were the top losers.

0.10.3 0.4

0.0 0.2

1.1 0.9

1.0 1.61.3 1.1

For CY19 YTD, the Nifty is up 11%; Private Banks (+28%), Real

3.6

Estate (+21%), PSU Banks (+19%), Oil (10%) and NBFCs (+10%) are

5.0

4.9

5.7

6.4

the top performers.

Metals (-17%), Automobiles (-13%), Capital Goods (-8%) and

Utilities (-4%) are the laggards.

FII inflows were robust at USD3.1b, however, net domestic flows

Sectoral performance—absolute and relative to Nifty (%) — PSU Banks, NBFC and

turned negative at USD1.1b.

Metal top performer

MoM Abs. Performance (%)

CY19

YTD

MoM Relative Perf. (%)

CY19

YTD

Sector

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Chg (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Chg (%)

Institutional flows (USD b) — FII inflows for third successive

months, DII inflows turn negative

FIIs (USDb)

DIIs (USDb)

Banks-PSU

NBFC

Metal

Real Estate

Banks-Pvt

Healthcare

Cement

Utilities

Technology

Oil

Consumer

Auto

Cap. Goods

-2 -5

25

-3

11 2

-11 -15 -3

13 12

-4 -1

-7 -2

-1

1

0

8

5

-1

1

8

-7

6

2

3

2

2

1

-6

1

-8

8

2

4

6

5

1

3

6

5

5

4

3

2

2

-3

-4

-4

-8

2

3

-13 -12

7

-6 -1 -3

1

-3

2

5

2

1

19

10

-17

21

28

-2

-4

3

-4

6

10

-1

-13

-8

11

-1 -5

17

-4

-4 -1

-1

2

0

2

-1

0

8

4

1

1

4

-8

3

-2

0

-4

0

-5

5

-4

5

0

-7 -1 -2

9

7

-8

8

4

1

1

1

-4

1

3

2

4

1

2

-5 -14 -7

-1

0

0

4

-7 -11

2

0

-2

2

-7

6

-7

1

9 11

5

4

1

1

-1

4

1

2

1

-2

3

8

0

-28

10

17

-13

-15

-8

-15

-5

-1

-12

-24

-19

2

-12

5

1 16

-3

10 0

-2

11 1

-1

5

9

9

0

3

0

8

8

0

-4

7

6

0

0

1

-6 -3

10 1

-7 -3 -1

-1 -3 -1 -9 -2

Nifty Midcap

-5 -1

-11

6

8

-1

0

-2 -10 -2

-4 -6 -6

4

-6 -4

1

3

0

-5 -1

-10

6

-6 -2

9

-1

0

2

-1 -4 -1 -2

-3 -1 -5

5

0

0

1

0

6

3

3

0

1

3

-3

0

-6 -3

11

-3

1 11 1

-3 -2 -1 -5

-7 -5 -5

7

2

6

4

-5

1

-6

-3 -9

-3 -1

-3 -2 -3

6

4

-6 -11 -1

11 7

-5 -5

-2 -2

-11

2

-8 -1

0

0

-2 -1 -3

-2 -2 -4 -1 -4

-11

2

-8 -1

0

-3

9

-2 -3 -14

2

1

-1 -6 -1

6 13

-4

4

4

-8 -1 -4 -2 -8

2 10

-6

-2

11

0 -12 -3

10 1

-6 -3

2018

2019

Nifty-50

BULLS & BEARS | December 2019

6

Indian equities:

Breadth negative; 27 Nifty stocks end lower





were the top performers on MoM basis. Titan Co. (-13%), M&M (-13%), IOC (-11%), Hero Moto (-10%) and L&T (-10%) were the main laggards.

top performers. Yes Bank (-62%), Zee Ent (-38%), M&M (-34%), GAIL (-30%) and Vedanta (-29%) were the worst performers.

Nifty – best and worst performers in November:

Bharti Infratel (+45%), IndusInd Bank (+20%), Bharti Airtel (+18%), JSW Steel (+15%) and Zee Ent (+13%)

Nifty – best and worst performers in CY19YTD:

Bajaj Finance (+54%), Bharti Airtel (+54%), ICICI Bank (+42%), BPCL (+40%) and Bajaj Finserv (+40%) were the

Best and worst Nifty performers (MoM) in November’19 (%) – breadth negative, 54% of Nifty stocks traded lower

45

20 18

15 13 12 12

11 9 8

6 6 5 4 4 3 3 3

2 2 2

2

1 0

0 -1 -2 -2 -3 -3 -3 -3 -3 -3 -4 -4

-4 -5 -6 -6 -6 -7 -8 -8

-9 -10 -10 -10-11 -13 -13

Best and worst Nifty performers (YoY) in CY19 YTD (%) – 25 companies in Nifty have delivered positive returns so far

54 54

42 41 40 38

30 29 25 24

20 19 17 17 17 16 13 12

11

11

8 6 6 6 5 4

-1 -1 -2 -2 -3 -3 -4 -4 -5 -6 -6 -8

-10 -11 -12 -13 -15 -15 -18

-22 -29-30 -34

-38

-62

BULLS & BEARS | December 2019

7

Indian equities:

Mid-caps trading near Large-caps





In Nov’19, the Nifty Midcap100 was up 2.4%, as against the Nifty’s rise of 1.5%. However, notably over the past 12 months, Mid-caps were down

1.6% as against the Nifty’s rise of 10.8%.

The Nifty Midcap100 P/E now trades near to the Nifty-50 at just 1% premium to Large-caps.

Mid-caps performance v/s large-caps in last five years

195

Nifty Rebased

Nifty Midcap 100 Rebased

5 Year CAGR |

Nifty: 7.0% |

Midcap: 6.8%

Mid-caps underperformed large-caps in the last 12 months

117

109

101

93

85

Nifty Rebased

Nifty Midcap 100 Rebased

111

98

165

135

105

75

140

139

12-month forward P/E (x)

34

28

22

16

10

Midcap PE (x)

Nifty Avg: 20.5x

Midcap Avg: 20.8x

Nifty PE (x)

Mid-caps’ vs largecaps PE premium/discount (%)

Midcap Vs Nifty PE Prem/(Disc) (%)

45

25

Average: 1%

19.0

19.2

5

-15

-35

1

Source: MOFSL, Bloomberg for Midcap valuation.

BULLS & BEARS | December 2019

8

Indian equities:

Valuations above long-period averages

Valuations of Indian equities were above their long-period averages. The Nifty trades at 12-month forward P/E of 19x, at 5% premium to its long-

period average of 18.1x. The Nifty’s P/B of 2.7x is also above its historical average of 2.6x.



At the current trailing P/E of 23.2x and forward P/E of 19x, we see limited triggers for further re-rating, unless accompanied by a material surprise in

earnings.



12-month forward Nifty P/E (x)

24

21

18

15

12

10 Year Avg: 18.1x

19.0

12-month forward Nifty P/B (x)

3.2

2.9

2.6

2.3

2.0

10 Year Avg: 2.6x

2.7

Trailing Nifty P/E (x)

25

22

19

16

13

10 Year Avg: 19.6x

23.2

Trailing Nifty P/B (x)

3.6

3.2

10 Year Avg: 2.8x

2.8

2.4

2.0

3.0

BULLS & BEARS | December 2019

9

Indian equities:

Market cap-to-GDP at historical average, ROE improves





The Nifty is trading at 12-month-forward RoE of 14.3%, closer to its long-term average of 14.5%.

Market cap-to-GDP ratio is at 75% (FY20E GDP), almost at its long-term average of 76%.

Trend in Nifty RoE (%)

17.0

16.1

14.9

10 Year Avg: 14.5%

12.6

14.3

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

16.9

16.5

15.0

13.5

12.0

13.0

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E

Trend in India’s market cap-to-GDP (%) – trading at its long-period averages

95

Average of 76% for the period

88

71

55

64

66

81

69

79

83

79

75

BULLS & BEARS | December 2019

10

Global equities:

All major economies end higher in Nov’19





Barring Indonesia (-3%) and China (-2%), all key global markets – the US (+3%), Russia (+2%), Japan (+2%), India (+2%), the UK (+1%), Taiwan (+1%)

and Brazil (+1%) – closed higher in local currency terms in Nov’19.

Indian equities are trading at 22.4x FY20E earnings. All key markets continue trading at a discount to India.

India (Nifty) v/s other markets

CY19 YTD Chg (%)

Index

Value

India

US

Japan

Taiwan

Indonesia

Brazil

Korea

MSCI EM

UK

China

Russia

12,056

3,141

23,294

11,490

6,012

108,233

2,088

1,040

7,347

2,872

5,082

Mkt Cap Local

In USD

(USD T) Currency

2.1

33.7

6.2

1.3

0.5

1.0

1.3

15.5

3.3

6.7

0.7

11

25

16

18

-3

23

2

8

9

15

21

8

25

17

18

0

13

-3

8

11

13

31

PE (x)

CY18 /

FY19

25.1

20.7

17.2

16.2

20.5

18.0

10.7

12.9

17.5

13.9

5.9

CY19 /

FY20

22.4

19.2

17.8

17.5

15.6

14.9

14.7

13.8

13.5

11.5

5.6

-18

-32

-35

-18

-28

-58

-49

-30

-45

-77

-15

-21

-22

-30

-33

-34

-38

-40

-49

-75

Prem / Disc

to India PE (%)

CY18 /

FY19

CY19 /

FY20

PB (x)

CY18 /

FY19

3.1

3.7

1.8

1.8

2.2

2.3

0.9

1.6

1.7

1.5

0.9

CY19 /

FY20

2.9

3.4

1.7

1.8

2.1

1.9

0.9

1.6

1.7

1.3

0.8

RoE (%)

CY18 /

FY19

12.5

15.9

10.4

10.8

10.7

12.6

8.2

12.9

11.1

10.6

14.8

CY19 /

FY20

13.0

19.1

9.7

12.0

16.5

15.3

4.8

12.1

9.8

11.4

12.0

Source: Bloomberg/MOFSL

MoM Chg (%)

US

Russia

Japan

India

UK

Taiwan

Brazil

Korea

MSCI EM

China

Indonesia

-3

-2

0

0

2

2

3

2

1

1

1

BULLS & BEARS | December 2019

11

Global equities:

MSCI India outperforms MSCI EM over last 12 months





Over the last 12 months, MSCI India (+7%) outperformed MSCI EM (5%). Notably, over the last 10 years, MSCI India has outperformed MSCI EM by

89%.

MSCI India’s P/E is at a premium of 81% to MSCI EM’s P/E, above its historical average premium of 52%.

MSCI India outperformed MSCI EM by 89% over the last five years

250

MSCI India Rebased

10 Year CAGR:

MSCI India: 7.1%

MSCI EM: 0.9%

5 Year CAGR:

MSCI India: 5.0%

MSCI EM: 0.7%

MSCI EM Rebased

MSCI EM v/s MSCI India performance over 12 months

111

107

103

99

95

MSCI India Rebased

MSCI EM Rebased

107

105

200

150

100

50

198

109

MSCI India v/s MSCI EM trailing P/E (x)

33.0

26.0

MSCI India Avg: 20.5x

MSCI India v/s MSCI EM P/E premium (%)

MSCI EM PE (x)

120

MSCI India Vs EM PE Premium (%)

MSCI India PE (x)

27.2

90

60

19.0

12.0

5.0

81

Average of 52%

15.0

MSCI EM Avg: 13.5x

30

0

Source: Bloomberg

BULLS & BEARS | December 2019

12

Global equities:

India’s share in world market cap above historical average





India’s share in world market cap is at 2.6%, above its historical average of 2.5%.

Over the last 12 months, the world’s market cap has increased 10.5% (USD7.8t), while India’s market cap has increased 4.3% (USD0.1t) YoY.

Market cap change in last 12 months (%)

Mkt cap chg 12M (%)

Russia

Average of 2.5%

Curr Mcap (USD Tr)

23

22

18

13

10

7

0.7

6.7

1.3

33.7

1.0

6.2

2.1

3.3

0.5

1.3

Trend in India's contribution to world market cap (%)

3.5

3.0

2.5

2.0

1.5

1.6

3.3

India's Contribution to World Mcap (%)

2.6

China

Taiwan

US

Brazil

Global market-cap-to-GDP (%)

164

124

118

82

78

51

49

47

43

Current mkt cap to GDP (%)

Japan

India

UK

Indonesia

Korea

* Based on GDP for Dec 2018

4

3

3

-6

Source: Bloomberg

BULLS & BEARS | December 2019

13

Nifty:

Technology - Divergence between deal wins and growth rates





Technology sector is trading at P/E of 18.0x, at 6% premium to its historical average of 16.9x. For 2QFY20, organic growth rate for Tier-1 IT

companies stood at 7.4% v/s 8.4% in the previous quarter.

However, unlike the trend, TCS (USD6.4b), INFY (USD2.8b) and TechM (USD1.5b) reported an uptick in deal wins, which either signifies a leaking

bucket or an uptrend in growth.

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

State Bank

Bajaj Finance

HDFC

Larsen & Toubro

Grasim Inds

Ultratech Cement

Asian Paints

Britannia Inds.

Hind. Unilever

ITC

Nestle India

Sector

Auto

Auto

Auto

Auto

Auto

Auto

Banks - Private

Banks - Private

Banks - Private

Banks - Private

Banks - Private

Banks - PSU

Banks - NBFC

Banks - NBFC

Capital Goods

Cement

Cement

Consumer

Consumer

Consumer

Consumer

Consumer

Current

17.0

26.6

14.5

14.0

31.5

19.8

18.9

22.1

20.3

13.9

30.5

10.8

32.7

40.1

14.4

9.7

24.4

55.5

48.9

53.2

19.1

60.4

PE (x)

10 Yr Avg Prem/Disc (%)

16.3

5

24.4

9

17.7

-18

17.2

-19

21.9

44

12.4

60

30.6

-38

19.7

13

19.3

5

18.5

-25

23.6

29

14.3

-25

14.0

134

34.7

15

22.6

-36

11.1

-12

27.4

-11

39.5

40

33.9

44

38.4

39

26.1

-27

44.3

36

Relative to Nifty P/E (%)

Current

10 Yr Avg

-10

-10

40

35

-23

-2

-27

-5

66

21

4

-31

0

69

16

9

7

7

-27

2

61

30

-43

-21

72

-23

111

92

-24

25

-49

-39

29

51

192

118

158

88

180

112

1

45

218

145

Current

3.5

5.2

3.3

1.6

4.3

0.8

2.2

3.7

2.7

2.6

4.2

1.2

7.9

4.5

2.4

1.2

2.9

14.3

15.9

53.0

4.6

59.4

PB (x)

10 Yr Avg Prem/Disc (%)

5.1

-31

6.3

-17

6.7

-50

2.9

-47

3.4

26

1.9

-56

2.0

7

3.3

12

1.8

51

2.8

-8

3.0

41

1.2

-3

2.8

185

4.5

0

3.0

-18

1.7

-31

2.8

4

11.2

28

12.3

29

32.6

63

7.1

-35

25.7

131

Relative to Nifty P/B (%)

Current

10 Yr Avg

29

97

93

143

24

160

-42

14

58

31

-69

-27

-19

-21

36

27

-2

-31

-5

8

55

15

-57

-53

193

8

67

76

-10

15

-57

-34

6

7

427

332

485

375

1857

1161

69

173

2093

895

BULLS & BEARS | December 2019

14

Nifty:

50% companies are trading at a discount to historical averages





Companies trading at a significant premium to their historical averages:

Tata Motors (+60%), Titan (+47%), Britannia (+44%), Maruti (+44%), Asian

Paints (+40%) and HUL (+39%).

Companies trading at a significant discount to their historical averages:

Tata Steel (-55%), ONGC (-54%), Zee (-50%), Coal (-45%), NTPC (-41%) and

GAIL (-36%).

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

19.0

24.3

21.5

13.1

9.5

9.9

7.1

11.0

11.7

9.0

8.0

4.5

16.3

56.4

14.3

16.6

22.1

14.0

14.0

NA

15.4

7.4

8.0

8.8

14.3

19.0

PE (x)

10 Yr Avg Prem/Disc (%)

28.1

-32

25.6

-5

29.5

-27

26.4

-50

9.8

-3

13.0

-24

15.7

-55

11.1

-2

10.1

16

14.1

-36

9.4

-15

9.8

-54

12.2

33

38.4

47

13.5

6

17.4

-5

19.2

15

12.8

9

15.2

-8

33.7

-

23.1

-33

13.6

-45

13.7

-41

12.2

-28

13.3

8

18.1

5

Relative to Nifty P/E (%)

Current

10 Yr Avg

0

55

28

42

13

63

-31

46

-50

-46

-48

-28

-63

-13

-42

-39

-38

-44

-53

-22

-58

-48

-76

-46

-14

-32

197

112

-25

-25

-13

-4

16

6

-26

-29

-26

-16

-

86

-19

28

-61

-25

-58

-25

-54

-33

-25

-27

Current

2.1

2.7

2.3

2.4

1.0

1.5

0.7

0.8

2.2

1.1

1.0

0.7

2.0

15.2

3.0

4.3

7.1

3.0

2.8

3.4

3.5

4.3

0.9

1.4

2.5

2.7

PB (x)

10 Yr Avg Prem/Disc (%)

3.3

-38

3.9

-29

4.6

-51

5.5

-56

1.3

-26

1.4

6

1.5

-56

2.0

-60

1.7

28

1.8

-38

1.1

-15

1.4

-52

1.4

39

10.1

50

3.2

-7

4.1

5

6.3

12

2.7

10

2.9

-6

2.2

55

3.5

0

6.1

-30

1.5

-38

1.8

-19

2.6

-2

2.6

5

Relative to Nifty P/B (%)

Current

10 Yr Avg

-24

29

1

50

-16

78

-11

113

-64

-49

-46

-47

-75

-40

-70

-22

-20

-35

-59

-31

-64

-56

-76

-47

-27

-45

461

292

10

24

58

57

160

145

9

4

2

13

24

-16

28

34

57

136

-66

-42

-47

-31

-7

-1

Name

Cipla

Dr Reddy’ s Labs

Sun Pharma

Zee Ent.

Hindalco

JSW Steel

Tata Steel

Vedanta

BPCL

GAIL

IOCL

ONGC

Reliance Inds.

Titan Co.

HCL Technologies

Infosys

TCS

Tech Mahindra

Wipro

Bharti Airtel

Bharti Infratel

Coal India

NTPC

Power Grid Corp.

UPL

Nifty

BULLS & BEARS | December 2019

15

Mid-caps outperform Nifty by 0.9% in Nov’19

The Nifty Mid-cap 100 was up 2.4% in Nov’19 as against the Nifty’s rise of 1.5%.



Best mid-cap performers in Nov’19: Ipca Labs (+17%), Birla Corp (+15%), Aegis Logistics (+14%), LIC Hsg Fin (+13%) and Persistent System (+10%).



Company

Ipca Labs.

Birla Corpn.

Aegis Logistics

LIC Housing Fin.

Persistent Sys

Trident

Federal Bank

Phoenix Mills

Delta Corp

MCX

Jyothy Lab.

DCB Bank

Alembic Pharma

Strides Pharma

M & M Financial

Brigade Enterpr.

Indian Hotels

Emami

India Cements

Ajanta Pharma

CESC

Blue Star

Sadbhav Engg.

Sun TV Network

Engineers India

Team Lease Serv.

GE T&D India

PE (x)

Current 10 Yr Avg Prem/Disc (%)

20.8

25.3

-18

10.1

15.6

-35

19.3

22.7

-15

7.8

11.3

-30

12.0

13.6

-11

6.2

8.3

-25

9.3

12.2

-24

27.8

31.4

-11

22.4

33.4

-33

25.5

32.2

-21

25.1

35.9

-30

12.1

15.8

-24

15.8

17.3

-9

12.7

62.0

-80

11.5

17.2

-33

24.7

15.5

59

36.9

54.2

-32

22.3

31.3

-29

15.3

25.9

-41

18.5

16.7

11

7.7

10.6

-27

25.4

29.1

-13

9.0

24.7

-64

12.1

19.8

-39

13.6

19.7

-31

34.1

37.8

-10

29.4

68.6

-57

Relative to Nifty P/E (%)

Current

10 Yr Avg

10

40

-47

-14

1

26

-59

-38

-37

-25

-67

-54

-51

-33

46

73

18

85

34

78

32

98

-36

-12

-17

-4

-33

243

-39

-5

30

-14

94

200

17

73

-19

43

-3

-8

-59

-41

33

61

-52

37

-36

10

-29

9

80

109

55

279

PB (x)

Current 10 Yr Avg Prem/Disc (%)

3.6

3.2

11

1.0

1.1

-12

3.8

3.4

14

1.2

1.9

-38

2.0

2.3

-11

1.0

0.9

3

1.1

1.2

-7

2.9

2.3

27

2.5

2.4

3

4.1

3.7

12

4.5

4.5

0

1.5

1.5

4

2.9

4.2

-33

1.2

3.2

-64

1.7

2.3

-26

1.7

1.2

49

3.6

3.5

3

6.0

10.3

-42

0.5

0.7

-34

3.1

4.4

-31

1.0

0.8

20

6.2

7.7

-20

0.7

2.6

-73

2.7

4.9

-45

2.6

3.8

-31

5.9

6.1

-4

2.7

6.6

-59

Relative to Nifty P/B (%)

Current

10 Yr Avg

32

24

-64

-57

41

30

-57

-27

-25

-12

-65

-64

-58

-53

6

-13

-7

-6

53

44

65

74

-43

-43

5

64

-57

25

-37

-12

-35

-54

33

35

121

299

-83

-73

13

70

-65

-69

127

200

-74

-1

-1

90

-2

49

118

137

0

154

Price Chg (%)

MoM

CY19YTD

17

43

15

9

14

-4

13

-5

10

9

7

-1

6

-5

4

34

4

-15

3

60

2

-16

1

8

1

-8

0

-16

0

-26

-1

40

-2

1

-4

-25

-4

-16

-5

-16

-6

12

-7

27

-7

-40

-8

-21

-12

-16

-15

-13

-22

-46

BULLS & BEARS | December 2019

16

Sector valuations: Financials outperform; Defensives underperform

PSU Banks are trading at P/B of 0.9x, at 2.8% premium to its historical average of 0.9x. In 2QFY20, PSBs under our coverage continued with the ~35%

tax regime and thus no adjustments were required in DTA. Most PSBs reported modest operating performance led by lower interest reversals, higher

treasury profits and controlled opex. While PSBs are trading in line with their long-term average, we do not believe them to be value calls, apart from

SBI and BOB, which have relatively stronger balance sheets.



Capital goods sector trades at one-year forward P/E multiple of 20.8x, at 23% discount to its 10-year average of 27.1x. Even on P/B basis, the sector

trades at 16% discount to its 10-year average multiple of 3.3x. Valuation premium relative to the Nifty on a P/B basis has narrowed, it now trades at

1% premium v/s the 10-year average premium of 26%. On P/E multiple basis, the premium has narrowed to 10% from the 10-year average premium

of 48%.



Auto sector is trading at P/E of 21.7x, above its historical average of 18.2x. In Nov’19, volumes of 2Ws/PVs/CVs declined ~12%/7%/20% YoY and

~15%/7.4%/+7.2% MoM. Though wholesale numbers declined due to Diwali in Nov’19, retail sentiment continues to remain positive after the

festival month. Improved sentiment along with pre-buying due to BS6 implementation could drive demand in the coming quarter.



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

21.7

21.0

11.5

23.8

20.8

20.6

37.7

20.2

8.5

13.3

10.2

11.6

53.9

18.0

Loss

8.2

PE (x)

Relative to

Nifty P/E (%)

Current

2.7

3.1

0.9

3.6

2.7

2.3

11.0

2.6

0.7

2.4

0.9

1.6

9.4

4.6

2.9

1.4

PB (x)

Relative to Nifty

P/B (%)

10 Yr Avg Prem/Disc (%) Current 10 Yr Avg

18.2

19.7

14

-3

11

4

19.1

10.3

-39

-50

9.3

24.5

25

8

19.6

21.4

10

48

27.1

-23.3

8

19

21.9

-5.8

99

87

33.7

11.9

6

34

24.3

-16.8

-55

-32

12.2

-30.7

-30

25

22.5

-40.9

-46

-32

12.2

-16.6

-39

-36

11.3

2.5

184

159

46.0

17.4

-5

-5

16.9

6.3

-

-

-57

-27

12.8

-35.7

10 Yr Avg Prem/Disc (%) Current 10 Yr Avg

3.2

-15.3

0

23

2.4

28.3

15

-6

0.9

2.8

-65

-65

3.1

19.1

34

18

3.3

-16.5

1

26

2.5

-9.8

-16

-1

9.7

13.1

305

279

4.0

-34.6

-2

58

1.7

-57.9

-74

-36

4.2

-43.4

-11

65

1.3

-27.5

-66

-51

1.5

3.4

-43

-42

6.1

54.6

247

135

4.3

6.4

70

68

2.2

30.8

5

-15

2.0

-32.0

-50

-22

BULLS & BEARS | December 2019

17

Autos:

Wholesales weak ahead of BS6 launches, Comfortable inventory across segments



Auto sector is trading at P/E of 21.7x, above its

historical average of 18.2x.



In Nov’19, volumes of 2Ws/PVs/CVs declined

~12%/7%/20% YoY and ~15%/7.4%/+7.2% MoM.



Though wholesale numbers declined due to Diwali in

Nov’19, retail sentiment continues to remain positive

after the festival month.



OEMs have calibrated their wholesales to manage

BS4 inventory ahead of the transition to BS6.



Improved sentiment along with pre-buying due to

BS6 implementation could drive demand in the

coming quarter.

5

4

3

2

3.2

2.7

38

31

24

17

10

3

18.2

21.7

Auto P/E (x)

10 Yr Avg (x)

70

40

10

-20

-50

-2.6

Auto Relative to Nifty PE (%)

14.4

Auto P/B (x)

10 Yr Avg (x)

70

40

10

-20

Auto Relative to Nifty PB (%)

23.3

-0.1

Sector Performance

MoM: -4%

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

19.5

28.0

17.0

22.5

33.6

15.9

26.6

11.1

18.0

14.5

14.0

11.3

31.5

21.4

19.8

28.1

PE (x)

10 Yr Avg

19.4

21.6

16.3

24.8

33.7

12.5

24.4

9.8

22.2

17.7

17.2

29.3

21.9

26.0

12.4

22.0

Prem/Disc (%)

1

30

5

-9

0

27

9

14

-19

-18

-19

-61

44

-18

60

28

1

Relative to Nifty P/E (%)

Current

10 Yr Avg

3

7

47

19

-10

-10

18

37

77

86

-16

-31

40

35

-42

-46

-6

23

-23

-2

-27

-5

-40

62

66

21

13

44

4

-31

48

22

Current

3.1

2.9

3.5

3.4

5.6

1.2

5.2

1.7

2.4

3.3

1.6

1.1

4.3

3.1

0.8

5.3

PB (x)

10 Yr Avg

3.9

2.9

5.1

4.2

5.6

1.3

6.3

1.1

3.2

6.7

2.9

2.8

3.4

5.0

1.9

4.6

Prem/Disc (%)

-19

-2

-31

-19

0

-3

-17

47

-26

-50

-47

-60

26

-38

-56

15

Relative to Nifty P/B (%)

Current

10 Yr Avg

15

49

6

13

29

97

27

64

108

118

-54

-50

93

143

-39

-56

-12

24

24

160

-42

14

-58

8

58

31

14

92

-69

-27

95

78

BULLS & BEARS | December 2019

18

Private Banks:

Asset quality trends mixed; one time DTA charge impacted earnings



Private Banks are trading at P/B of 3.1x, above its

historical average of 2.4x.



In 2QFY20, Private Banks witnessed moderation in loan

growth. System loan growth moderated to ~8.1% for the

fortnight ended 8

th

Nov’19 (v/s 14.2% in Apr’19). The

moderation has been led by muted corporate growth and

cautious stance on lending to MSMEs and the auto sector.



Most Private Banks have reported their 2QFY20 earnings

showing stable/improving margins on the back of higher

proportion of high yielding assets. CASA growth for most

banks (barring KMB) remained muted while growth in

term deposits was robust. Retail banks like HDFCB/KMB

reported healthy earnings. For corporate banks, earnings

were impacted due to one-off DTA, however, operating

profits were strong.



Asset quality trends have been mixed with ICICIBC and

HDFCB reporting better-than-estimated slippages while

YES and RBK reported an increase in stressed assets. PCR

ratio has improved as banks continue to make healthy

provisions to further strengthen the balance sheet.

33

26

19

12

5

19.1

21.0

Private Banks P/E (x)

10 Yr Avg (x)

40

20

0

-20

-40

Private Banks Relative to Nifty PE (%)

3.9

10.7

Private Banks P/B (x)

4

3

2

1

2.4

10 Yr Avg (x)

30

Private Banks Relative to Nifty PB (%)

-6.2

15.1

3.1

10

-10

-30

-50

Sector Performance

MoM: 4%

Company

Axis Bank

DCB Bank

Federal Bank

HDFC Bank

ICICI Bank

IndusInd Bank

Kotak Mah. Bank

South Ind.Bank

Current

18.9

12.1

9.3

22.1

20.3

13.9

30.5

5.0

PE (x)

10 Yr Avg

30.6

15.8

12.2

19.7

19.3

18.5

23.6

8.6

Prem/Disc (%)

-38

-24

-24

13

5

-25

29

-42

Relative to Nifty P/E (%)

Current

10 Yr Avg

0

69

-36

-12

-51

-33

16

9

7

7

-27

2

61

30

-74

-53

Current

2.2

1.5

1.1

3.7

2.7

2.6

4.2

0.4

PB (x)

10 Yr Avg

2.0

1.5

1.2

3.3

1.8

2.8

3.0

0.8

Prem/Disc (%)

7

4

-7

12

51

-8

41

-57

Relative to Nifty P/B (%)

Current

10 Yr Avg

-19

-21

-43

-43

-58

-53

36

27

-2

-31

-5

8

55

15

-87

-68

BULLS & BEARS | December 2019

19

PSU Banks:

Operating performance modest; Continuing with ~35% corporate tax regime



PSU Banks are trading at P/B of 0.9x, at 2.8% premium to

its historical average of 0.9x.



From a long-term perspective, we see the consolidation of

PSBs as a positive move, expecting it to improve their

competitiveness. However, this will come with its own set

of challenges in the near term related to credit growth,

integration issues, etc. In 2QFY20, PSBs under our coverage

continued with the ~35% tax regime, and thus, no

adjustments were required in DTA. Most PSBs reported

modest operating performance led by lower interest

reversals, higher treasury profits and controlled opex.



However, PSBs reflected muted loan growth while guiding

for better trends in 2HFY20. On the asset quality front, SBIN

and INBK reported better than estimated slippages while

BOB and PNB continued to report elevated trends.



PSBs trade in line with their long-term average. However,

we do not believe them to be value calls, apart from SBI and

BOB, which have relatively stronger balance sheets.

PE (x)

10 Yr Avg

12.5

7.9

8.1

10.1

7.5

14.3

8.2

Relative to Nifty P/E (%)

Current

10 Yr Avg

-63

-31

-56

-69

-55

-69

-44

-58

-43

-21

-55

PB (x)

10 Yr Avg

1.0

0.8

0.7

0.7

1.0

1.2

0.8

Relative to Nifty P/B (%)

Current

10 Yr Avg

-76

-62

-82

-71

-83

-72

-86

-72

-72

-62

-57

-53

-83

-70

2

1

1

0

PSU Banks P/B (x)

10 Yr Avg (x)

-40

-50

0.9

PSU Banks Relative to Nifty PB (%)

0.9

-60

-70

-80

-64.8

-65.3

Sector Performance

MoM: 12%

Company

Bank of Baroda

Bank of India

Canara Bank

Indian Bank

Punjab Natl.Bank

St Bk of India

Union Bank (I)

Current

7.0

NA

5.9

5.8

NA

10.8

NA

Prem/Disc (%)

-44

-

-28

-43

-

-25

-

Current

0.6

0.5

0.5

0.4

0.7

1.2

0.5

Prem/Disc (%)

-35

-38

-35

-46

-25

-3

-40

BULLS & BEARS | December 2019

20

NBFCs: Cautionary stance on developer book continues



NBFCs trade at P/B of 3.6x, above its historical average of

3.1x (19% premium).



Margins have remained stable for large HFCs as the

decline in yields (due to growth in low yielding products)

was offset by lower CoF (due to declining incremental

CoF).



Vehicle financiers expect a good rabi crop output in the

coming months.



In addition, the Auto Industry is preparing for BS6

transition. Moreover, Auto volumes in Nov’19 were

incrementally positive.



We continue to like BAF and HDFC given their strong

parentage and stable business performance.

NBFC P/E (x)

29

23

17

11

5

19.6

10 Yr Avg (x)

23.8

40

20

0

-20

-40

NBFC Relative to Nifty PE (%)

25.2

7.8

5

4

3

NBFC P/B (x)

10 Yr Avg (x)

45

3.6

NBFC Relative to Nifty PB (%)

34.3

18.2

30

15

0

-15

3.1

Sector Performance

MoM: 6%

Company

Bajaj Finance

Chola. Invst. & Fin.

HDFC

IndoStar Capital

L&T Fin.Holdings

LIC Housing Fin.

M & M Financial

Muthoot Finance

PNB Housing

Shri.City Union.

Shriram Trans.

Current

32.7

15.3

40.1

6.4

8.9

7.8

11.5

9.3

6.1

7.9

8.3

PE (x)

10 Yr Avg

14.0

14.1

34.7

13.7

15.3

11.3

17.2

8.1

16.4

13.8

12.5

Prem/Disc (%)

134

8

15

-53

-42

-30

-33

15

-63

-43

-33

2

Relative to Nifty P/E (%)

Current

10 Yr Avg

72

-23

-20

-22

111

92

-66

-24

-53

-15

-59

-38

-39

-5

-51

-55

-68

-9

-59

-24

-56

-31

Current

7.9

2.9

4.5

0.5

1.4

1.2

1.7

2.2

1.0

1.1

1.3

PB (x)

10 Yr Avg

2.8

2.2

4.5

1.0

1.9

1.9

2.3

1.6

2.5

2.0

2.0

Prem/Disc (%)

185

29

0

-50

-26

-38

-26

34

-62

-44

-36

Relative to Nifty P/B (%)

Current

10 Yr Avg

193

8

6

-13

67

76

-81

-61

-49

-28

-57

-27

-37

-12

-20

-37

-65

-4

-59

-22

-53

-23

BULLS & BEARS | December 2019

21

Capital Goods:

Tax reforms to aid profitability, expect execution to pick up in 4QFY20



Capital goods sector trades at one-year forward P/E

multiple of 20.8x, at 23% discount to its 10-year average of

27.1x.



Even on P/B basis, the sector trades at 16% discount to its

10-year average multiple of 3.3x.



Valuation premium relative to the Nifty on P/B basis has

narrowed, it now trades at 1% premium v/s the 10-year

average premium of 26%. On P/E multiple basis, the

premium has narrowed to 10% from the 10-year average

premium of 48%.



Valuations for companies have been impacted given (a) the

overall slowdown in business activity, and (b) pressure on

the operational performance due to the prevailing

competitive intensity and cost headwinds (rise in input

cost).

67

47

27

7

27.1

20.8

Capital Goods P/E (x)

10 Yr Avg (x)

190

140

90

40

-10

47.8

Capital Goods Relative to Nifty PE (%)

9.5

7

5

3

1

Capital Goods P/B (x)

10 Yr Avg (x)

170

115

60

Capital Goods Relative to Nifty PB (%)

3.3

2.7

5

-50

25.7

1.0

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

61.0

15.4

25.4

21.0

13.6

29.4

43.2

10.4

14.4

39.5

27.7

28.6

30.4

MoM: -8%

PE (x)

10 Yr Avg

78.8

24.1

29.1

26.8

19.7

68.6

28.5

15.5

22.6

49.5

23.4

31.7

23.5

Prem/Disc (%)

-23

-36

-13

-22

-31

-57

51

-33

-36

-20

18

-10

29

Relative to Nifty P/E (%)

Current

10 Yr Avg

221

336

-19

33

33

61

10

48

-29

9

55

279

127

58

-45

-15

-24

25

108

174

46

29

51

75

60

30

Current

6.2

0.6

6.2

3.3

2.6

2.7

8.0

2.1

2.4

5.4

5.7

3.3

4.7

PB (x)

10 Yr Avg

6.8

2.0

7.7

5.8

3.8

6.6

6.3

2.2

3.0

6.1

4.8

4.1

3.4

Prem/Disc (%)

-10

-70

-20

-43

-31

-59

27

-2

-18

-12

19

-19

40

Relative to Nifty P/B (%)

Current

10 Yr Avg

128

164

-78

-24

127

200

21

123

-2

49

0

154

196

144

-22

-16

-10

15

98

136

110

85

23

59

74

30

BULLS & BEARS | December 2019

22

Cement:

Prices decline in East/West, but remain healthy in North/Central-India



Cement sector trades at an EV/EBITDA of 13.6x, at 5%

discount to its historical average.



All-India cement prices remained flat MoM as the 1%

MoM decline in the East/West was offset by flat MoM

price in the North/Central-India and 2% MoM increase

in the South. In early-Nov’19, cement dealers were

sounded off to a price hike of ~INR10-20/bag in Tamil

Nadu, Karnataka

and Kerala. However, the hike

indicated in Hyderabad was ~INR90-100/bag along

with a dispatch holiday of 4 days. In the later half of

Nov’19, price hike of INR50/bag was rolled back in

Hyderabad and INR10-20/bag was rolled back in other

regions.



RIL reduced petcoke prices by INR860/t in Nov’19

while imported coal prices were up 6% MoM.

Sector Performance

PE (x)

Company

ACC

Ambuja Cem.

Birla Corpn.

Grasim Inds

India Cem.

Sanghi Inds.

Shree Cem.

UltraTech

Current

19.1

28.6

10.1

9.7

15.3

12.9

38.0

24.4

10 Yr Prem/Dis

Avg

c (%)

26.1

-27

29.6

-3

15.6

-35

11.1

-12

25.9

-41

18.1

-29

30.8

24

27.4

-11

43

33

23

13

3

Cement P/E (x)

10 Yr Avg (x)

150

105

60

Cement Relative to Nifty PE (%)

21.9

20.6

15

-30

-75

19.0

8.5

4

3

2

1

Cement P/B (x)

10 Yr Avg (x)

30

10

-10

Cement Relative to Nifty PB (%)

-1.2

-15.6

2.5

2.3

-30

-50

MoM: 2%

Relative to

Nifty P/E (%)

10 Yr

Current

Avg

1

44

51

64

-47

-14

-49

-39

-19

43

-32

0

100

70

29

51

PB (x)

Current

2.3

1.8

1.0

1.2

0.5

0.5

6.1

2.9

10 Yr Prem/Disc

Avg

(%)

2.9

-22

2.6

-32

1.1

-12

1.7

-31

0.7

-34

0.9

-42

4.5

34

2.8

4

Relative to

Nifty P/B (%)

10 Yr

Current

Avg

-16

12

-34

1

-64

-57

-57

-34

-83

-73

-81

-67

124

76

6

7

EV/

EBIDTA (x)

10 Yr Prem/Di

Current

Avg

sc (%)

9.3

12.4

-25

17.2

16.0

7

5.8

7.7

-24

19.1

22.0

-13

7.0

8.2

-14

7.0

9.2

-24

18.1

15.8

15

12.4

13.6

-9

Cement EV/EBDITA (x)

22

17

12

7

2

10 Yr Avg (x)

14.2

13.6

BULLS & BEARS | December 2019

23

Consumer:

Valuations not relenting



Consumer sector P/E of 37.7x in Nov’19 (39.5x in Oct’19) is at

a premium of 12% to its 10-year average of 33.7x. On a P/B

basis, the sector trades at 11.0x, a premium of 13% to its 10-

year average multiple of 9.7x.



From a demand standpoint, despite the festive season,

2QFY20 was a soft quarter. We are hopeful that a good Rabi

crop (due to higher reservoir levels following good

monsoons) and government measures to boost consumer

sentiment would lead to growth from 4QFY20.



Commodity costs are largely benign. While this is good for

margins, it is affecting realization growth.



We expect volume growth to pick up off a low base, aided by

potential improvement in demand post normal monsoons,

government efforts, and a good Rabi crop.

55

45

35

25

15

33.7

Consumer P/E (x)

10 Yr Avg (x)

150

110

37.7

70

30

-10

87.1

Consumer Relative to Nifty PE (%)

98.5

15

13

10

8

5

Consumer P/B (x)

10 Yr Avg (x)

480

380

280

Consumer Relative to Nifty PB (%)

305.5

278.7

11.0

9.7

180

80

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

55.5

48.9

42.1

46.7

22.3

28.1

42.0

53.2

19.1

25.1

39.3

60.4

61.9

50.2

50.7

53.0

39.6

MoM: -4%

PE (x)

10 Yr Avg

39.5

33.9

36.1

33.8

31.3

29.5

35.1

38.4

26.1

35.9

34.6

44.3

47.1

42.7

34.0

70.8

94.7

Prem/Disc (%)

40

44

17

38

-29

-5

20

39

-27

-30

13

36

31

18

49

-25

-58

Relative to Nifty P/E (%)

Current

10 Yr Avg

192

118

158

88

122

100

146

87

17

73

48

63

121

94

180

112

1

45

32

98

107

91

218

145

226

161

164

136

167

88

179

291

108

424

Current

14.3

15.9

30.8

12.0

6.0

7.3

9.5

53.0

4.6

4.5

11.9

59.4

30.9

25.8

11.9

8.3

9.4

PB (x)

10 Yr Avg

11.2

12.3

24.8

10.2

10.3

7.9

7.5

32.6

7.1

4.5

10.5

25.7

18.8

20.2

8.5

9.3

11.9

Prem/Disc (%)

28

29

24

18

-42

-7

26

63

-35

0

13

131

64

28

40

-10

-21

Relative to Nifty P/B (%)

Current

10 Yr Avg

427

332

485

375

1036

860

344

296

121

299

168

204

249

191

1857

1161

69

173

65

74

338

308

2093

895

1040

628

851

681

339

228

207

258

249

362

BULLS & BEARS | December 2019

24