*
* 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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
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
 Motilal Oswal Financial Services
Healthcare:
Discount to 10-year average on reducing trend
The healthcare index has appreciated ~13% over the past three
months, partly led by positive surprises in 2QFY20 performance.
The discount to 10-year/3-year average multiple of Healthcare
P/E at 16%/25% has been steady for the past five months now.
The product portfolio is well-diversified with at least 5-6
suppliers . Therefore, price erosion is limited to single digits and
provides some respite to business loss in US generics . While
companies are continuing their efforts toward improving
compliance, we are yet to see consistency in it. The approval
pace has been healthy from sites under compliance.
The domestic formulation segment remains robust with
extended seasonality in climate, supporting better prospects in
the Acute segment. Further, better outlook for the domestic
formulation segment is continuing to drive superior multiple for
companies like Torrent, Ajanta, and GSK, while healthy
execution in the CRAMS segment is driving multiple for
companies like Divis.
The increased launch rate in the US coupled with steady growth
in domestic formulation should enable gradual improvement in
multiples. However, inconsistency in compliance remains a
dampener.
36
30
24
18
12
24.3
20.2
Healthcare P/E (x)
10 Yr Avg (x)
90
60
30
0
-30
Healthcare Relative to Nifty PE (%)
34.0
6.4
Healthcare P/B (x)
7
5
4
2
4.0
10 Yr Avg (x)
140
100
60
20
2.6
Healthcare Relative to Nifty PB (%)
57.7
-2.4
-20
Sector Performance
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
Sun Pharma.Inds.
Strides Shasun
Torrent Pharma.
Current
7.9
18.5
31.6
15.7
19.0
28.5
24.3
49.0
12.5
8.7
20.8
7.8
17.3
24.0
21.5
12.7
28.2
MoM: 3%
PE (x)
10 Yr Avg
14.2
16.7
26.4
22.0
28.1
22.3
25.6
49.3
23.8
10.9
25.3
13.3
33.2
26.6
29.5
62.0
21.0
Prem/Disc (%)
-44
11
20
-29
-32
28
-5
-1
-48
-20
-18
-41
-48
-10
-27
-80
35
Relative to Nifty P/E (%)
Current
10 Yr Avg
-58
-22
-3
-8
67
46
-18
22
0
55
50
23
28
42
158
172
-34
32
-54
-40
10
40
-59
-26
-9
84
26
47
13
63
-33
243
49
16
Current
1.4
3.1
4.6
2.2
2.1
5.3
2.7
10.2
1.4
1.7
3.6
1.3
2.0
2.3
2.3
1.2
5.5
PB (x)
10 Yr Avg
2.9
4.4
3.2
4.9
3.3
4.8
3.9
10.4
4.1
1.7
3.2
1.6
3.0
4.5
4.6
3.2
4.6
Prem/Disc (%)
-51
-31
43
-56
-38
10
-29
-2
-65
-2
11
-23
-34
-49
-51
-64
19
Relative to Nifty P/B (%)
Current
10 Yr Avg
-48
11
13
70
71
25
-20
88
-24
29
94
85
1
50
276
303
-47
57
-39
-35
32
24
-53
-36
-27
16
-15
74
-16
78
-57
25
102
78
BULLS & BEARS | December 2019
25
 Motilal Oswal Financial Services
Infrastructure:
Expect NHAI ordering to start 4QFY20 onwards
Infrastructure sector trades at P/B of 0.7x, at 58%
discount to its historical average.
Post weak ordering activity in FY19 (-67% YoY), business
momentum is now likely to pick up given the re-election
of a stable government at the Center. The government
has drawn out massive infrastructure development
plans with expected investment of INR100t by 2024.
Pipeline of projects in the road infrastructure segment
remains strong and players expect momentum to pick
up from 4QFY20.
If plans get implemented in a timely manner, we expect
strong business opportunity for all players in the sector.
This, in turn, should lead to an improvement in
operational performance, and thus, re-rating of the
sector.
IRB Infra, Ashoka and Sadbhav trade at a discount to
their historical P/B, while KNR trades at a premium.
32
24
16
8
0
Infrastructure P/E (x)
10 Yr Avg (x)
60
20
-20
8.5
-60
-100
-32.0
-55.4
Infrastructure Relative to Nifty PE (%)
12.2
Infrastructure P/B (x)
4
2
1
0
1.7
10 Yr Avg (x)
0
-25
-50
Infrastructure Relative to Nifty PB (%)
-35.6
0.7
-75
-100
-73.9
PE (x)
Company
Ashoka Buildcon
IRB Infra.Devl.
KNR Construct.
Sadbhav Engg.
Current
7.9
6.8
12.6
9.0
10 Yr Avg
13.5
10.9
8.4
24.7
Prem/Disc (%)
-
-38
50
-64
Relative to Nifty P/E (%)
Current
-
-64
-34
-52
10 Yr Avg
-26
-40
-53
37
Current
1.0
0.4
1.7
0.7
PB (x)
10 Yr Avg
1.6
1.6
1.4
2.6
Prem/Disc (%)
-38
-76
21
-73
Relative to Nifty P/B (%)
Current
-63
-86
-35
-74
10 Yr Avg
-38
-38
-44
-1
BULLS & BEARS | December 2019
26
 Motilal Oswal Financial Services
Media:
Lower advertisement revenues continue to hurt
Media sector P/E of 13.3x is at ~41% discount to its 10-
year historical average of 22.5x.
Advertisement revenue has been lower due to structural
slowdown in consumer spending, however, subscription
growth remains strong on the back of subscriber
integration into the NTO regime and improved price
realization for broadcasters.
Movie exhibitors have witnessed multiple hits during the
festive season with rising footfalls and impressive F&B
spends by consumers.
Print companies have seen decline in newsprint prices,
on the back
of declining global demand, which should
lead to margin improvement. However, absolute EBITDA
should come in lower due to decline in advertisement
revenues.
Media P/E (x)
43
31
19
7
13.3
22.5
10 Yr Avg (x)
100
50
0
-50
-30.1
Media Relative to Nifty PE (%)
25.1
Media P/B (x)
6
5
4
2
1
4.2
10 Yr Avg (x)
130
90
50
Media Relative to Nifty PB (%)
64.8
2.4
10
-30
-11.4
Company
Ent.Network
Jagran Prakashan
PVR
Sun TV Network
Zee Entertainmen
Current
12.0
4.8
33.5
12.1
13.1
PE (x)
10 Yr Avg
39.6
14.9
36.8
19.8
26.4
Prem/Disc (%)
-70
-68
-9
-39
-50
Relative to Nifty P/E (%)
Current
10 Yr Avg
-37
119
-75
-18
76
103
-36
10
-31
46
Current
1.0
0.7
4.7
2.7
2.4
PB (x)
10 Yr Avg
3.0
3.1
3.6
4.9
5.5
Prem/Disc (%)
-65
-76
32
-45
-56
Relative to Nifty P/B (%)
Current
10 Yr Avg
-62
16
-73
20
75
39
-1
90
-11
113
BULLS & BEARS | December 2019
27
 Motilal Oswal Financial Services
Metals:
Domestic steel prices increase
Metals trade at 0.9x, below its historical average P/B of
1.3x. EV/EBITDA at 6.6x, is at 17% discount to the
historical average.
Average domestic flat steel trended higher during the
month at ~INR35,050. Long steel prices were slightly
higher at an average of ~INR31,500.
Average LME aluminum prices were higher for the
month. Zinc prices ended the month lower.
We remain positive on JSW Steel given its strong growth
outlook. Hindalco is well placed to benefit from low-cost
captive raw materials.
25
20
15
10
5
12.2
10.2
Metals P/E (x)
10 Yr Avg (x)
15
-5
-25
-45
-65
Metals Relative to Nifty PE (%)
-32.1
-46.3
4
3
2
1
0
Metals P/B (x)
10 Yr Avg (x)
20
-5
Metals Relative to Nifty PB (%)
1.3
0.9
-30
-55
-80
-50.9
-65.8
Sector Performance
MoM: 5%
PE (x)
10 Yr Prem/Disc
Company
Current Avg
(%)
Hind.Zinc
10.7
10.1
6
Hindalco Inds. 9.5
9.8
-3
Jindal Steel
NA
16.5
JSW Steel
9.9
13.0
-24
NALCO
13.5
16.3
-17
NMDC
7.3
10.9
-33
SAIL
NA
15.8
Tata Steel
7.1
15.7
-55
Vedanta
11.0
11.1
-2
Relative to Nifty
P/E (%)
10 Yr
Current
Avg
-43
-44
-50
-46
-9
-48
-28
-29
-10
-61
-40
-13
-63
-13
-42
-39
PB (x)
10 Yr Prem/Disc
Current Avg
(%)
2.2
2.3
-3
1.0
1.3
-26
0.5
1.4
-65
1.5
1.4
6
0.8
1.2
-34
1.1
2.4
-55
0.4
0.9
-55
0.7
1.5
-56
0.8
2.0
-60
Prem/Di
Current 10 Yr Avg Current 10 Yr Avg sc (%)
-20
-13
6.1
6.1
0
-64
-49
6.0
7.3
-18
-82
-45
6.3
10.6
-40
-46
-47
7.8
7.7
0
-71
-53
5.5
7.7
-28
-60
-7
4.6
7.0
-34
-85
-65
11.2
17.1
-34
-75
-40
6.6
7.6
-13
-70
-22
5
5
15
Relative to Nifty
P/B (%)
EV/EBIDTA (x)
Metals EV/EBDITA (x)
10
8
5
3
7.4
10 Yr Avg (x)
6.6
BULLS & BEARS | December 2019
28
 Motilal Oswal Financial Services
Oil & Gas:
Diesel cracks revival owing to IMO implementation fails
Oil & Gas sector is trading at P/B of 1.6x and P/E of 11.6x,
near to its historical averages of 1.5x and 11.3x,
respectively.
Brent prices for the month saw slight improvement to an
average of ~USD63/bbl (v/s ~USD60/bbl in Oct’19 and
USD62/bbl in 2QFY20), as refiners increased crude intake
to produce cleaner shipping compliant fuel.
Refining margins declined to an average of USD1.0/bbl
v/s USD4.1/bbl in Oct’19 and USD6.5/bbl in 2QFY20,
largely due to steep decline in Fuel Oil crack, further
aided by decline in Diesel cracks (to USD10.0/bbl),
despite nearing of the IMO 2020 implementation date.
The GRM spurt last quarter was due to an increase in
Gasoline and Fuel Oil cracks, which led to only a marginal
hike in GRMs for Indian refiners.
Oil marketing margins remain healthy; while weakness
continued for petchem margins.
Regulatory risk remains for CGDs, which could see
normalization of EBITDA margins.
18
15
12
9
6
11.3
11.6
Oil & Gas P/E (x)
10 Yr Avg (x)
-8
-23
-38
-53
-68
-35.8
Oil & Gas Relative to Nifty PE (%)
-39.1
3
2
2
1
1
Oil & Gas P/B (x)
10 Yr Avg (x)
0
1.6
Oil & Gas Relative to Nifty PB (%)
1.5
-25
-50
-75
-41.8
-42.6
Sector Performance
Company
Aegis Logistics
BPCL
GAIL (India)
Guj.St.Petronet
HPCL
IOCL
Indraprastha Gas
MRPL
ONGC
Petronet LNG
Reliance Inds.
Current
19.3
11.7
9.0
10.8
6.8
8.0
25.8
11.5
4.5
12.9
16.3
MoM: -4%
PE (x)
10 Yr Avg
22.7
10.1
14.1
11.6
17.5
9.4
15.8
13.5
9.8
12.5
12.2
Prem/Disc (%)
-15
16
-36
-7
-61
-15
63
-15
-54
3
33
Relative to Nifty P/E (%)
Current
10 Yr Avg
1
26
-38
-44
-53
-22
-43
-36
-64
-3
-58
-48
36
-13
-39
-25
-76
-46
-32
-31
-14
-32
Current
3.8
2.2
1.1
1.6
1.2
1.0
5.2
0.8
0.7
3.5
2.0
PB (x)
10 Yr Avg
3.4
1.7
1.8
1.7
1.2
1.1
3.3
1.6
1.4
2.6
1.4
Prem/Disc (%)
14
28
-38
-6
0
-15
57
-51
-52
33
39
Relative to Nifty P/B (%)
Current
10 Yr Avg
41
30
-20
-35
-59
-31
-40
-33
-55
-53
-64
-56
91
28
-72
-40
-76
-47
30
2
-45
-27
BULLS & BEARS | December 2019
29
 Motilal Oswal Financial Services
Retail:
Moderation witnessed post festive season
Retail sector is trading at P/E of 53.9x, which is at ~17%
premium to its 10-year historical average.
Retailers cheered the festive season due to increased
footfalls, however, average bill size and average basket
size were lower.
Post festive season, demand seems to be slowing down,
however, retailers expect discounts and value products
to attract footfalls.
Valuations remain high across the sector given the long-
term growth that the sector is poised for.
92
70
48
26
4
46.0
Retail P/E (x)
10 Yr Avg (x)
590
53.9
430
270
110
-50
158.7
183.9
Retail Relative to Nifty PE (%)
14
10
Retail P/B (x)
10 Yr Avg (x)
9.4