23 February 2016
VOICES
VOICES
India Inc on Call
VOICES, a quarterly product from Motilal Oswal Research, provides a ready reference for all the post results earnings calls attended by
our research analysts during the quarter. Besides making available to readers our key takeaways from these interactions, it also
provides links to relevant research updates and to the transcripts of the respective conference calls.
This quarterly report contains
Key takeaways from the post results management commentary for 104 companies, with links to the full earnings call
transcripts
Links to our Results Updates on each of the companies included
Summary of our Earnings Review for the quarter
Research & Quant Team
(Gautam.Duggad@MotilalOswal.com); Tel: +91 22 3982 5404
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
24 November 2015
1
 Motilal Oswal Financial Services
Contents
Summary
........................................................................................................................................................................................
3
Sectors
......................................................................................................................................................................................
6-89
3QFY16 corporate sector performance
......................................................................................................................................
90
Automobiles
Ashok Leyland.............................. 6
Bajaj Auto .................................... 7
Bharat Forge ................................ 7
Eicher Motors .............................. 8
Hero MotoCorp ........................... 8
Mahindra & Mahindra ................. 9
Maruti Suzuki............................. 10
Tata Motors .............................. .10
TVSMotors ....…………………………. 11
ABB ........................................... .13
Crompton Greaves .................... 13
Havells India .............................. 14
Thermax..................................... 15
6-11
Capital Goods
13-15
Cement
JK Cement……… . ………………………16
Ultratech ................................... 16
Asian Paints ............................... 17
Dabur India ................................ 17
Emami........................................ 18
Godrej Consumer ...................... 19
GSK Consumer ........................... 20
Hindustan Unilever .................... 21
Jyothy Labs ................................ 22
Marico ....................................... 22
United Spirit .............................. 23
16
Axis Bank ................................... 24
Bank of Baroda………… ... ………….25
Cananra Bank............................. 27
DCB Bank ................................... 27
Federal Bank ............................. .28
HDFC Bank ................................ .29
ICICI Bank ................................... 30
IDFC Bank.................................. .31
IndusInd Bank… ......................... 32
Indian Bank…………………… ………..32
Kotak Mahindra Bank ................ 33
Oriental Bank of Commerce . …..35
State Bank of India………… .......... 35
Union Bank… ........................ …..36
Yes Bank……… ........................ ….37
Bajaj Finance.............................. 39
Dewan Housing Finance ........... .39
IndiaBulls Housing Finance ........40
M&M Financial .......................... 41
Muthoot Finance ....................... 42
Shriram Transport Finance ........43
SKS Micro Finance ..................... 44
Alembic Pharma ........................ 46
Alkem Labs................................. 46
Biocon ........................................ 47
Cadila Healthcare....................... 48
Dr Reddy’s Labs ......................... 49
Financials- Banks
24-37
Glenmark Pharma ...................... 49
Lupin ................................. ………50
Sun Pharmaceuticals ................. 50
Torrent Pharma ......................... 52
Media
Dish TV ....................................... 53
Zee Entertainment ..................... 53
53
Hindustan Zinc ........................... 54
Hindalco Inds…………….............. .54
JSW Steel ................................... 55
Vedanta ..................................... 56
Tata Steel ................................... 56
Metals
54-56
Mindtree ....................................69
Mphasis .....................................69
NIIT Technologies ......................70
Persistent Systems .....................71
Tata Elxsi ....................................71
TCS .............................................72
Tech Mahindra...........................73
Wipro .........................................74
Telecom
Utilities
Bharti Infratel ............................75
JSW Energy ................................76
NHPC………………………… .. ………….76
NTPC ..........................................77
Reliance Infrastructures.............77
Arvind Ltd ..................................78
Century Ply ................................78
Coromandel International .........79
Container Corp ..........................80
Eveready Industries ...................80
Gateway Distriparks...................81
Gujarat Pipavav .........................82
Interglobe Aviation ....................82
Just Dial......................................83
Kaveri Seeds...............................83
PVR ............................................84
Sintex Industries ........................85
Symphony ..................................86
SRF .............................................87
TTK Prestige ...............................88
V-Guard Industries .....................88
75
76-77
Oil & Gas
Financials – NBFC
39-44
Cairn India ................................. 58
Gail India .................................... 58
58
Others
78-89
Real Estate
Consumer
17-23
DLF……………………………………… ….60
Mahindra Lifespaces………… . ..….60
Oberoi Realty ............................. 60
60
Retail
Healthcare
46-52
Jubilant Foodworks.................... 62
Shoppers Stop ........................... 62
Titan........................................... 63
HCL Tech .................................... 64
Hexaware Technologies ............. 65
Infosys ....................................... 66
Info Edge (India) ....................... 67
KPIT Technologies ...................... 68
62-63
Technology
64-74
Index (Alphabetical)
Companies
ABB
Alembic Pharma
Alkem Laboratories
Arvind Ltd
Ashok Leyland
Asian Paints
Axis Bank
Bajaj Auto
Bank of Baroda
Bharat Forge
Bajaj Finance
Bharti Infratel
Biocon
Cadila Healthcare
Cairn India
Cananra Bank
Century Ply
Container Corp
Coromandel Internat.
Crompton Greaves
Dabur India
DCB Bank
Dewan Housing Fin.
Dish TV
DLF
Dr Reddy’s Labs
Eicher Motors
Pg
13
46
46
78
06
17
24
07
25
07
39
75
47
48
58
27
78
80
79
13
17
27
39
53
60
49
08
Companies
Emami
Eveready Industries
Federal Bank
Gail India
Gateway Distriparks
Glenmark Pharma
Godrej Consumer
GSK Consumer
Gujarat Pipavav
Havells India
HCL Tech
HDFC Bank
Hero MotoCorp
Hexaware Technologies
Hindalco Inds
Hindustan Unilever
Hindustan Zinc
ICICI Bank
IDFC Bank
IndiaBulls Housing Fin.
Indian Bank
IndusInd Bank
Info Edge (India)
Infosys
Interglobe Aviation
JK Cement
Pg
18
80
28
58
81
49
19
20
82
14
64
29
08
65
54
21
54
30
31
40
32
32
67
66
82
16
Companies
JSW Energy
JSW Steel
Jubilant Foodworks
Just Dial
Jyothy Labs
Kaveri Seeds
Kotak Mahindra Bank
KPIT Technologies
Lupin
Mahindra & Mahindra
M&M Financial
Mahindra LifeSpaces
Marico
Maruti Suzuki
Mindtree
Mphasis
Muthoot Finance
NHPC
NIIT Technologies
NTPC
Oberoi Realty
Oriental Bank of Commerce
Persistent Systems
PVR
Reliance Infrastructures
Shoppers Stop
Pg
76
55
62
83
22
83
33
68
50
09
41
60
22
10
69
69
42
76
70
77
60
35
71
84
77
62
Companies
Shriram Transport Fin.
Sintex Industries
SKS Micro Finance
SRF
State Bank of India
Sun Pharmaceuticals
Symphony
TCS
Tata Elxsi
Tata Motors
Tata Steel
Tech Mahindra
Thermax
Titan
Torrent Pharma
TTK Prestige
TVS Motors
Ultratech
Union Bank
United Spirits
Vedanta
V-Guard Industries
Wipro
Yes Bank
Zee Entertainment
Pg
43
85
44
87
35
50
86
72
71
10
56
73
15
63
52
88
11
16
36
23
56
88
74
37
53
Note:
All stock prices and indices for companies as on 19 February 2016, unless otherwise stated
 Motilal Oswal Financial Services
Voices | India Inc on Call
Voices
Voices
BSE Sensex: 23,709
S&P CNX: 7,211
Demand slowdown nearing its end
However, revival in corporate profitability still some time away
Corporate India believes that the demand slowdown is nearing its end. A revival is on
the horizon – soon for some sectors, later for others.
Most sectors have benefited from lower commodity prices; however, captains across
industries do not expect further fall.
Competitive intensity remains high and profitability is likely to remain under pressure
for a while.
Autos
Demand environment across segments (barring M&HCVs) is weak. Recovery is not
broad-based, as growth is driven by new product launches. Exports for 2Ws, 3Ws
and PVs are under pressure due to weakness in parts of Africa and LatAm. Discounts
/ variable marketing spends have increased further in 3QFY16 (partly seasonal).
Commodity price benefit is largely reflected in 3QFY16, with any further benefit
getting offset by MIP on steel.
Capital Goods
Although execution of orders in hand broadly remains on track, industry captains
remained cautious on the pace of industrial capex recovery. Industrial capex
recovery could be a few quarters away, given the continued poor capacity utilization
levels and is a function of demand improvement. Sectors like Transmission,
Transportation and Renewables continue to witness capex traction. Margins remain
under pressure, as competition remains high.
Cement
Green shoots are visible in select parts – NCR, Rajasthan, UP (ahead of election), etc.
Road investment has been witnessing encouraging pick-up, with execution now at
12-14km/day. Budget should be favorable for rural economy and regulation. 7th Pay
Commission should favorably impact housing demand. East India is the strongest
growing market, followed by North, while West was flat and South continues to de-
grow. Demand growth should accelerate further in 4QFY16. Southern market prices
were stable, with interim fluctuations in Hyderabad. Post Pongal, demand has
picked up. Preliminary work in AP has been moving well, but actual demand offtake
should take 6-9 months more. AP and Telengana should post flat volumes in FY16
and 5-6% growth in FY17, led by government contracts. De-growth in rural housing
may negate uptick in low cost housing and irrigation. Southern market demand
would be flat in FY17, with slight negative bias, as de-growth in Tamil Nadu market
would eat away uptick in AP and Telengana.
Consumer
In Consumer, demand scenario continues to be challenging. Sales growth in 3QFY16
was affected by macro slowdown, supply issues from Nepal, floods in Chennai and
delayed winters. For majority of the coverage companies, there was some
moderation in rural growth, which still remains marginally higher than urban
growth. Companies continue to benefit from benign raw material scenario while
23 February 2016
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 Motilal Oswal Financial Services
Voices
there were signs of inflation in some input prices. For HUL, growth continues to be
volume-led, with subdued pricing environment, while competitive activity remains
high. Consumer companies remain cautious on demand outlook for FY17 and expect
raw material prices to be benign for the next couple of quarters.
Financials
Weak asset quality trends are likely to continue in 4QFY16 as well. FY17 corporate
asset quality outlook remains uncertain, despite the clean-up that happened in
FY16, led by continued moderate growth in global as well as domestic
macroeconomic growth. Retail asset quality remains impeccable. CV, CE and
unsecured loans segments have picked up over the last 2-3 quarters. New MCLR
guidelines are unlikely to impact margins materially. Loan growth outlook remains
moderate due to subdued capex activities at the system level.
Healthcare
In Pharmaceuticals, overall sector sales and EBITDA margin were in line with our
estimates. US growth continues to be muted for large caps due to lower approvals
and regulatory issues. Emerging markets growth for large caps was hit by currency
crisis and political turmoil; registered lower than expected growth. India
formulations sales remained healthy for most of the companies. However, going
ahead, improved pace of product approvals post GDUFA is likely to drive growth in
US market. Emerging market growth is likely to remain subdued on currency
concerns. Overall earnings are expected to pick up over the next few quarters.
Media
Broadcasters:
Ad growth for Broadcasters remains strong. Zee reported its 3rd strong quarter
of ad growth (27% YoY). However, Sun TV’s ad performance was severely
impacted due to the Chennai floods in 3QFY16, as ad inventory consumption
took a beating (37% decline YoY in December).
With BARC recently increasing rural representation in television ratings, major
broadcasters with deep rural distribution networks are expected to monetize
the rural content consumption once the BARC ratings system stabilizes.
Subscription growth is expected to pick up in 4Q. However, significant
momentum is likely only in 1HFY17.
Print companies:
With the exception of HMVL, ad growth for major print companies was ~7%, as
key segments such as Real Estate and Education remain soft. Ad growth is
expected to gain steam in 1HFY17.
Circulation revenue growth is expected to remain steady.
Benign newsprint cost has aided margins in 9MFY16; Print companies believe
that newsprint prices seem to have bottomed out and should remain at current
levels (INR33-34/kg).
E-commerce contribution to ad revenues (albeit small base) is expected to
increase multi-fold, going forward.
Metals
In Steel, the view is that global prices are close to bottom; however, a sharp uptick is
unlikely. MIP will come to the industry's help and gradual price hikes are
23 February 2016
4
 Motilal Oswal Financial Services
Voices
anticipated, based on market dynamics. Zinc prices should improve backed by
supply initiatives globally and indicators from falling zinc Tc/Rcs. In Aluminum, the
market is expected to enter into a deficit in 2016 and would provide support to
prices.
Oil & Gas
In Oil & Gas, GRMs were above estimates, driven by improved auto fuels cracks.
Inventory losses were lower sequentially due to lower crude decline in 3QFY16.
Managements of PLNG and GAIL have highlighted that they benefited from
transmission volume uptick, led by power and fertilizers pooling. They are set to
benefit from awaited hike in transmission tariffs.
Real Estate
Weak demand continued in the festive season across markets. Hyderabad was one
of the better markets while Nagpur and Bangalore were steady. Sales momentum
remained muted in 3QF16 on lack of new launches. Even southern players gave up
their strength, with sharp deterioration in presales of PEPL, Sobha, and BRDG. NCR
market continued to hold the tag of weakest region, barring some resilience of DLF
phase V. Improvement was visible in Mumbai, with successful launches of OBER
(Borivali) and GPL (Vikhroli).
Retail
In Retail, there was no dramatic change in consumer sentiment. Festive season was
mixed for coverage companies. SHOP and TTAN saw good SSS growth; JUBI saw 2%
SSSG (while QSR peers continue to post negative SSSG). Companies continue with
their store expansion, with JUBI opening 40 new Dominos stores, SHOP opening 2
new departmental stores and TTAN opening 5 new Tanishq stores during the
quarter. JUBI’s management highlighted that store expansion will be pragmatic
going forward. Outlook for FY17 remains soft, as customers are seeking value
products, as per SHOP’s management.
Technology
In Technology, industry captains alluded to client budgets being flat to positive for
CY16. Pipeline and incremental demand continue to be driven by
digital/transformational projects. Customers have been optimizing costs in run-the-
business activities, and are ploughing savings/additional spend in Digital. Demand
across verticals is likely to remain sound, barring in Energy, which has been
impacted by drop in oil prices. Continued focus is expected on investing in
augmenting the front end, capability building, expansion of services portfolio and
building digital practice. Simultaneously, efforts to build on automation and enhance
capabilities in artificial intelligence to improve productivity remain. More clarity on
revenue growth for FY17 should emerge after another quarter, as client budgets
crystallize.
Utilities
In Utilities, industry captains expect demand revival in 4QFY16/1HFY17, led by
DISCOMs’ revival. However, recovery is linked to uptick in industrial demand
improvement – revival of economic growth is crucial. Also, the ST prices are
expected to remain benign. Grid constraints would ease in 4QFY16.
23 February 2016
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 Motilal Oswal Financial Services
Voices
Key takeaways from management commentary
AUTOMOBILES
Ashok Leyland
Current Price INR 91
Buy
Target Price INR 107 | 17% Upside
Click below for
Detailed Concall Transcript &
Results Update
It expects robust demand for M&HCV to continue in 4QFY16. M&HCV demand
continues to be driven by pent-up demand, improving financial health of of fleet
operators, pre-buying for infra projects, upgrading to new more efficient fleet in
select industry segments and e-commerce segment.
AL’s market share has improved in all regions. In non-South regions, market
share gain is driven by focus on network expansion to improve competitiveness.
Its strong growth is driven by medium duty vehicles, Tractor-Trailers, 31-37 Ton
segment and strong growth in South.
Discounts further increased marginally to ~INR240k. However, price increase by
AL resulted in ASPs being marginally higher QoQ.
AL is well prepared for BS IV roll-out, with ability to meet new norms with
current mechanical pump engines as well as offer common rail engines. For BS
VI, AL’s is prepared and displayed a Euro VI product at recently concluded Auto
Expo. Its subsidiary Albonair is one of the 4 companies in the world having
Selective Catalytic Reduction (SCR) based solution.
Exports were at ~10% of sales (v/s 8.6% in 2QFY16). Currently, exports are
driven by project orders, but gradually it would like to increase mix of retail
orders. While Africa is important market, it would like to ramp-up in South East
Asia. It is yet to witness any impact of economic pressures in its traditional
markets of ME. It maintained its long term target of deriving 25-30% of revenues
from exports.
It expects spare revenues to grow 20% in FY16 and defence revenues to grow at
10-15% in FY16.
As per the management, commodity price benefit is already fully reflected in
3QFY16. Minimum Import Price (MIP) scheme for steel would off-set any benefit
of other commodities.
It continues to tightly control capex (incl Investments in subs/JVs), with
~INR750m in 9MFY16.
Working capital increased by ~INR7.5b QoQ to ~INR10.5b or 18 days of sales (v/s
7 days in 2QFY16), due to increase in inventory to ~7,887 units(v/s ~7,650 units;
pre-production units for Jan & exports) and large receivables (which might get
realized in 4QFY16).
As of Dec-15, it had net debt of ~INR35.1b (D:E 0.7x), an increase of ~INR4.8b
QoQ (~INR4.6b YoY reduction).
23 February 2016
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 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Bajaj Auto
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 2,457
Target Price INR 2,948 | 20% Upside
Buy
In Nigeria, it is losing out ~15,000/month at wholesale level due to USD
availability issue. In 3Ws, it is losing out 8-9,000 units/month at Nigeria and
Egypt. Retails in Nigeria are flat for 9MFY16.
Inventory levels with Nigerian dealers are very low at 1.5-2 months (incl ~45
days of transit inventory) as against normal inventory of ~3 months.
It has corrected prices in Nigeria, which is fully reflected in 3QFY16.
New markets entered in last 9 months are adding 8-9,000/month. These
markets doesn’t include Brazil and South East Asia, which are yet to be fully
explored, and would be targeting these markets in FY18.
Avenger is expected to ramp-up to 85-90k from ~40k in 3QFY16 (v/s ~11k in
4QFY15). It is currently sold only through main dealers, and has scope to expand
sales through tier-2 dealer. Avenger is substantially more profitable than Pulsar.
It is targeting Domestic 2W exit market share of ~22% (from 18-19%), with
average monthly volumes increasing to 200k from ~150k in 3QFY16, driven by
ramp-up in Avenger and commencement of ‘V’ sales.
In domestic 3W market, it expects 40-50k incremental permits for FY17.
USD/INR rate: For 3QFY16, it realized ~INR66 and expects it to be at 67-67.5 in
4QFY16. For FY17, ba sed on its range forward hedges it is expected at minimum
of INR67.
It believes large part of commodity benefits are reflected in 3QFY16, with
marginal benefits reflecting in 4QFY16. However, it expects scale benefit and
Value Engineering benefit to come through in next few quarters.
Bharat Forge
Current Price INR 771
Buy
Target Price INR 965 | 25% Upside
Click below for
Results Update
It has initiated actions to rationalize cost across all activities to realign with the
prevailing demand environment and put more thrust on operational efficiency,
accelerating New Product Development and New Customer acquisition.
BFL’s sales in the domestic M&HCV segment have grown by 28.0% vis-à-vis
market growth of 21.9% driven by product specific market share increase.
It has identified four sectors for import substitution under ‘Make in India’
program, viz mining, power, railways/marine and defence.
For international M&HCV segment, it expects Europe CV demand to be flat to
slightly positive, whereas US Class 8 trucks are expected to decline to 270,000
units (~306k in CY15) in CY 2016.
In US PV segment, it has grown at 112% in 9MFY16 driven by ramp up of new
orders.
Non-Auto exports have declined by ~36% in 9MFY16, impacted by weakness in
shale gas and mining.
The decline in profitability of the international subsidiaries in 3QFY16 quarter is
a result of one off operational related issues which have now been fixed. We
expect the performance of the subsidiaries to improve driven by market growth
& ramp up of the new aluminum forging business.
23 February 2016
7
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Eicher Motors
Current Price INR 18,625
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 21,561 | 16% Upside
Royal Enfield
Maintains RE’s maximum production for CY16 at ~620k.
Loss of production of 11,200 units in 4QCY15 due to Chennai floods
Order book remains strong, with waiting period of 3-4 months
Targeting to add 100 dealers each in CY16/17 in tier-2/3 cities, as it is having
good coverage of top-100 cities.
New launch Himalayan comes with improved service interval (~10k Kms for oil
change v/s ~2.5k for current RE’s), which is reflection in improvement in quality
over current generation of REs.
Columbia has become RE's no.1 export market in 1st year of entry
Apart from opening of exclusive RE stores in Paris and Madrid, it opening stores
in big motorcycling markets of Indonesia and Thailand in last 2 months
RE price increase of ~1.3% from 15/Jan
VECV
MDEP volumes at 4,728 units (+82% YoY, -2% QoQ)
VECV’s price hike of 1.2-1.3% in LMD in Nov-Dec’15.
Polaris JV:
Sold ~650 units since launch in Aug-15. Currently sold through 33 dealers
in 7 states, but plans to expand to all markets including BSIV states by end CY16.
Hero MotoCorp
Current Price INR 2,705
Target Price INR 3,034 | 12% Upside
BUY
Click below for
Results Update
New scooters would be fully rolled-out on Pan-India basis by end Mar-16. It has
got very good response for Maestro Edge and Duet, driving market share gains
despite new scooters are cannibalizing old Maestro. New scooters enjoy ~10%
conversion (~1m test rides taken by the customers).
Scooters capacity currently stands at ~100k/month or 1.2m pa (ex Gujarat).
Gujarat plant is expected to be operational by end 1HFY17.
LEAP Cost Cutting Program has delivered savings of ~95bp (~INR700m) in
3QFY16 and ~80bp in 9MFY16. The management indicated savings of 105-110bp
for FY16 (v/s guidance of 70-80bp in 2QFY16).
Industry volumes are expected to recover only towards 2HFY17 (assuming
normal monsoons). 1HFY17 industry volumes are expected to growth low single
digit.
HMCL’s dealer inventory stands at ~6 weeks (higher by 1 week).
Spare sales grew by 17-18% in 9MFY16.
Exports: Ongoing currency turmoil in countries like Nigeria, Argentina, Mexico
etc has delayed HMCL’s export plans. It has appointed distributor in Nigeria and
would enter by March end. Similarly, in Mexico it would identify distributor by
end 4QFY16 and start operations by 1QFY17. It sees some downside risk to its
FY16 Exports guidance of 275-300k.
Capex: It is planning for capex of ~INR16-18b in FY16, with ~INR5.5b towards
R&D unit and INR11-12b for Gujarat plant.
8
23 February 2016
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Hero FinCorp (financing arm where it has ~48% stake) currently finances
~45k/month (8-9% of HMCL volumes). Hero FinCorp already has presence at 650
dealership of HMCL (at ~1500 touch points)
Mahindra & Mahindra
Current Price INR 1,231
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 1,286 | 4% Upside
Neutral
Farm Equipment Segment:
Sowing during Rabi season is lower by ~3%, resulting in lower than initial
expected demand for tractors in 2HFY16.
While tractor industry volumes declined by ~14.4% in 9MFY16, UP, MP &
Maharashtra were worst impacted with higher than industry decline. However,
demand for tractors in AP & Tamil Nadu, Orissa and Assam grew.
No price increase in 9MFY16 in tractors.
It reduced company level inventory (usual 3Q phenomena) by 19k units in
3QFY16.
Agri business grew ~47% in 3QFY16 and ~33% in 9MFY16. It has proposed to
consolidate its entire agri business (Ex EPC Ind) in 100% own subsidiary
Mahindra Shublabh, giving more focus and higher synergies by housing all agri
businesses (ex EPC) under one roof. Also, it opens up potential to create value in
future. Agri business is estimated to clock revenues of INR6.5-7b in FY16.
Auto Segment:
KUV1OO strong start: KUV1OO has already got over 18k bookings since launch
last month, implying waiting of over 2 months. It is getting over 350 bookings
per day, as against current capacity of 200/day which will be expanded to
~300/day from Aug-15. It has Diesel-Petrol ratio of 55:45. As per the company’s
feedback, most KUV1OO customers would have considered Swift, Grand i10 etc
as an alternate.
TUV300 stable volumes: TUV3OO had total orders of ~19k since Sep-15 launch.
In Auto business, it took cumulative price increase of ~1.7% in 3QFY16. It has
not taken price increase in Jan-16.
UV Product Pipeline dry: After 9 product launches in FY16, it doesn’t have any
further substantial launches in forseeable future as a) now it has very good
coverage of the UV segment with price range from INR500k (KUV1OO) to INR2m
(XUV5OO) and ~3.67mtr to 4.58mtr length, and b) very young portfolio with
oldest product having age of <1.5 years (Scorpio).
It is yet to evaluate commercial viability of XUV Coupe concept, which it
showcased at Auto Expo 2016. It would be decided in 3 months and might take
2.5 years to commercialize.
HCV gradually scaling up: HCV clocked volumes of ~1,000 units or fourth
consecutive quarter. 3.1% 9M (3.6% in 3Q) market share. At Auto Expo 2016, it
launched new HCV truck series Blazo with offers superior mileage guarantee and
a 48-hours back-on-road breakdown service guarantee.
23 February 2016
9
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Maruti Suzuki
Current Price INR 3,581
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 4,819 | 35% Upside
MSIL’s rural sales grew 15%/12%
in 3Q/9MFY16. Implied Urban growth is 11%/10%
in 3Q/9MFY16. Rural contributes ~35% to MSIL’s domestic volumes (v/s 34% in
2QFY16 v/s 32% in 3QFY15).
Reversal of dieselization continues,
with ~44% share of the industry in 3QFY16
v/s 46% in 3QFY15 v/s peak of 58% in FY13. Petrol model growing at 2x of diesel
models. Diesel contributes ~32% to MSIL’s domestic volumes (v/s ~31% in
2QFY16 v/s ~28% in 3QFY15).
It plans to keep marketing spend high to increase mindshare with customers.
Capacity management key challenge for FY17:
The management expects
producible capacity for FY17 at ~1.6m units. It feels ~1.7m units could be a
stretch, should the demand catch up. Gujarat plant is expected to start by
March 2017, with first phase capacity of 250k.
Commodity Cost Benefit:
3QFY16 benefit 50bps. Going forward doesn’t expect
much benefit based on current commodity prices.
JPY/USD hedge:
4QFY16 natural hedge due to commencement of Baleno
exports to Japan (pricing in JPY). Looking to hedge JPY/USD for 1QFY17. See’s
limited scope to further increase localization and further increase can only
happen in electronics, where India is weak.
Tax rate:
FY17 24-25% due to IndAS implementation as it would result in better
revenue recognition and accrual accounting of tax-free FMP income (from cash
accounting currently).
NEXA:
100 outlets currently, targets 200 by FY17.
FY16 Capex guidance of INR30b (v/s earlier guidance of ~INR30b) in product
development, marketing infrastructure, R&D and maintenance capex.
Tata Motors
Current Price INR 318
Buy
Target Price INR 392 | 24% Upside
Click below for
Detailed Concall Transcript &
Results Update
JLR: Key takeaways from the call
Maintains EBITDA margin guidance of 14%-16%.
Commodity cost benefit will play out over period of time, due to hedging policy.
Variable marketing expense continues to remain high, but no major increase in
3QFY16. However, in China there as a positive trend on QoQ basis.
XE launch in US is delayed by 3 month (due to gasoline engine stabilization
issue) and is now planned for 2QCY16.
The management indicated that Chery JV’s performance was sustainable and
there were no one offs in 3QFY16. Also, locally produced Discovery Sports has
got good response as it was priced right at launch (based on learning from
Evoque launch, it was priced at ~19% discount to imported model).
Capex guidance cut to GBP3.3b in FY16 (v/s GBP3.75b guidance in 2QFY16) is
reflection of timing issue and will spill over to FY17. Capex to remain high at 16-
17% of sales in foreseeable future.
23 February 2016
10
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Slovakia plant with capacity of 150k unit and investment of ~GBP1b investment
would commence production in 2018. Capacity can be expanded to 300k with
further investment of GBP500m.
JLR: What caught our attention in 3QFY16 results, and is being ignored by the
markets
Volume growth back on track:
After last 4-5 quarters of weak volumes due to
transitory issues (model changeover for Freelander & XF and transition to
Chery), volumes have started to normalize with gradual ramp-up in Chery JV and
scale-up of new product launches. FY17 will have full benefit of a) Discovery
Sport (Sep-15 launch), b) XF launch (Aug-15 launch), c) XE (Jun-15 launch, but US
launch only in 2QCY16), d) F-Pace (launch in 2QCY16), and e) ramp-up at Chery
JV (1HFY16 vols of ~9k v/s 2HFY16 est ~30k v/s FY17 est of ~74k). We estimate
~17% growth in FY17 volumes.
Worst of product and market mix:
Worst of product mix (lowest share of
premium segment – Exhibit 2) and market mix (near bottom China contribution
– Exhibit 1) in 3QFY16, as reflected in ~12.5% YoY (3.4% QoQ) decline in
realizations and 420bp YoY decline in margins. While product mix might
deteriorate further, market mix would improve in favor of China as 3QFY16 had
locally made Discovery Sport only from Nov-15 and doesn’t have XF.
Chery JV PAT per car 20% higher (than JLR) at 40% utilization:
At ~40%
utilization in 3QFY16, China JV turns profitable with share of JV profits at
~GBP22m in 3QFY16. Interestingly, implied PAT/car for Chery JV is
~GBP3,400/unit V/S GBP2,845/unit for JLR (after incl royalty & profit on supplies
from UK to China, but excl Chery JVs PAT). We estimate share in Chery JV PAT at
GBP45m/157m/267m for FY16/17/18.
FCF of GBP790m in 9MFY16:
Despite weak operating performance (EBITDA
margins down 500bp in 9MFY16) and capex of GBP2.4b, JLR generated FCF of
~GBP433m in 3QFY16 & GBP790m in 9MFY16. We estimate FCF of
GBP50m/426m/774m for FY16/17/18, based on EBITDA margin assumption of
14.3%/14.5%/15.5% and capex of GBP3.3b/3.75b/4b.
TVS Motors
Current Price INR 287
Buy
Target Price INR 370 | 29% Upside
Click below for
Results Update
Victor to be first launched in South India in February 2016 and pan-India launch
by April 2016. It is targeting ~25,000 units deliveries by March-April 2016. It
expects to gain ~3% market share of the domestic motorcycle due to Victor
launch. It is targeting exit market share of 15.5-16% of domestic 2W Industry.
This would be driven by ~3% market share gain in motorcycle, to ~10% market
share. Further, it is targeting increase in market share in the premium segment
from 17% to 22%, and from 17% to 20% market share in the scooters segment.
BMW Alliance: Project is on-track with no delay, and expected launch in 1QFY17.
African markets are ~50% of its overall exports, and over 70% of 3W exports
(~50% of 3W expor ts to Nigeria). It is gaining market share in 3Ws (4% market
share gain at retail levels). While 3W retails in Africa are going strong, it is facing
challenge at wholesa le level due to shortage of USD.
23 February 2016
11
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Nepal blockade: It has appointed new distributor who can get 30% market share
of 2Ws in Nepal. It sees scope to export 1,500-2,000 units/month to Nepal, once
blockade is lifted.
It maintains EBITDA margin target of ~10% by FY18 (without BMW alliance
benefit).
Capex of ~INR3.5b for FY16.
Indonesia subsidiary performance: EBITDA losses have reduced to USD5m in
9MFY16 v/s USD7m last year. It plans to invest USD5-6m in 4QFY16 in
Indonesian business.
23 February 2016
12
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
CAPITAL GOODS
ABB
Current Price INR 1,100
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 1,380 | 25% Upside
Management remained cautious on the pace of industrial capex recovery and
stated that industrial capex recovery to be at least few quarters away, given the
continued poor capacity utilization levels and is thus a function of demand
improvement.
Positive on sectors such as Transmission, Transportation and renewables
(especially solar). Are seeing a growth in the overall project pipeline which
would translate into orders for ABB 2- 3 quarters down the line.
Prefer cash over sales and would not be pushing sales to customers where they
feel there could be an issue with relation to recovery of payments.
Exports contribute 12% of the revenues and about the same percentage of the
order book. ABB is targeting exports orders from countries such as Sri Lanka,
Africa and the M. East.
Margins expansion is being driven by operational efficiencies, lower raw
material prices, selective order picking, increased localization, fall in the euro
and good execution. Management expects gross margins to remain in the 35%
range
Localization efforts have continued especially in the areas of drives, motors,
switch gear and instrumentation. Higher localization is supporting margins.
Crompton Greaves
Current Price INR 129
Neutral
Target Price INR 165 | 28% Upside
Click below for
Detailed Concall Transcript &
Results Update
Overseas business:
Deal being worked out is for the sale of the Power Products along with the
Belguim Systems business - in exclusive talks with a buyer and not talking to
anyone else at this point in time
Of the overall $60mn of PAT loss annually, $20-25m from system, $15mn from
Hungary so $40m from these two business alone
Overseas Power Systems comprises 3 divisions:
Power Products
in Indonesisa, US, Belguim and Hungary, Incase of no sale,
would either sell/close down Hungary as it’s a pain point
Power Systems
- Belguim(likley to be sold as part of the deal), UK, US, Brazil
Automation
- Spain, Ireland, UK - EBITDA positive
Power products
- Indonesia is doing very well while Belguim has turned EBITDA
positive, US is stable but Hungary is the pain point for them. Belguim has good
orders in hand but will take time to be EBIT positive; EBITDA positive already
and good order book. Hungary is being sold as part of the deal - if deal not done,
will come back to the street with a new plan to close or restructure this plant.
13
23 February 2016
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Power Systems
- This is the pain point for them, Brazil has been shut down, By
August, US will also be shut down or sold and UK by March, 17. Shutting down
of the systems business does not include any plant shutdowns but only people
have to be asked to leave; since its US, UK and Brazil there would not be too
much of severance involved in this. Belguim systems business is profitable and is
being part of the deal.
Debt:
Gross debt is at INR17b and net debt is at INR9b, ZIV debt is INR9b and
balance debt if for the remaining businesses. Interest cost is down to INR0.85b
with average cost of interst at 4-5% for them on gross debt of INR17b. Will sell
some more assets of INR4-5b to bring down the net debt further. Net debt
which was earlier at INR22b has been bought down to INR9b post the asset
sales so INR8b of cash; INR13b reduced as INR7b gone to consumer, INR5b from
Kanjur land sale.
Loans & Advances
to subs at INR16b - Rs2b for ZIV debt. Investment in equity is
primarily for ZIV/Automation, Sweden - a total of INR6-7b invested here
Consumer Segment
Record date is likely to be end of the month for this busines
Arrangement has been done with CG for the tax/treasury/finance piece for 2
years from Oct, 15 for Rs10-15cr
Domestic Power Systems
- will be increasing focus on this business. No slow
down in the power business and it is only a scheduling issue for them in Q316;
lost Rs1bn of sales and INR0.25b of EBITDA and adjusted is 8-9% margin which
will be maintained.
10% YoY growth is the target for them in FY17. Looking to set up a new
transformer facility near Mumbai since Kanijurmarg will not be sufficient.
Acuqisitons in 2005-2010 - Ganz was bought to get the technology
Industrial
- Seeing traction in low traction motors but high traction is sluggish
50% utilization currently and can easily double margins if sales come back.
Havells India
Current Price INR 282
Buy
Target Price INR 360 | 28% Upside
Click below for
Detailed Concall Transcript &
Results Update
Domestic growth at 11% but exports fell by 36% during the quarter; 9M exports
at INR200cr, exports fell in switchgear and lighting and will remain soft for some
time
Havells witnessing improvement in consumer confidence, increased adv spend
during the festival time and will continue to spend to increase presence in
smaller tier 2 and tier 3 towns; focus is also on small distributors and not just
large
Growth is likely to sustain and accelerate from here on in Fy17
Lighting:
50% of sales from LED and overall will see growth in FY17, 100%
growth in LED in Q316 but CFL registered de-growth so overall 9% growth.
Margins in lighting to sustain at 25%; had bottomed in Q1116 and has been
impvroving since there after. Not participating in the EESL tender for lamps but
in streetlights via Promptec - this will have relatively better margins.
23 February 2016
14
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Cables:
Industrial cable seeing 29% volume growth and domestic wires +9% yoY
so overall 15% volume growth but fall in copper so 6% value growth higher
spending in infra and by municipalities so higher underground cable demand
Switchgear:
Margins were better on fall in RM(copper and platic material) and
rationalization of the distribution network. Flat growth overall (7% in domestic
and exports were down 37% YoY) primarily to Africa and Middle east. Trying to
get back volumes in this market from Q4FY16 onwards
Brand to be transferred to Havells from 1st April and will save INR 40 Cr as will
not not pay royalty to QRG trust
Distribution - now have 6000 distributors vs 4800 last year
Gross margins are at highest levels ever
Sylvania had sales of EUR100mn, EBITDA margin of 4-5% and PAT profit of
EUR0.5mn, 9M16 PAT is at EUR7.5m(EUR8mn loss in 1h116) - have adjusted the
FY16 nos. for actuals of sylvania till 9M15
Advertsiing spend to be at 3.5-4% of sales - was higher in Q316 on account of
festive spending
Sylvannia Sale Proceed details
Have received Rs875cr in india and kept EUR18m with Isle of Man for taking care
of any liabilities that may arise in the subs not sold off by them.
Chile closed and US running down, Brazil and Chile max liabliity is EUR18m
which they have kept for this
This will earn interest on short duration maturity instruments of 7-8%
Thermax
Current Price INR 773
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 862 | 12% Upside
Execution of orders in hand continues to remain smooth and is not witnessing
any slow down or cancellation.
Barring few waste heat recovery projects orders in the cement sector, no major
domestic order pipeline.
Recent tightening of the pollution emission norms (Particulate matter, SOX,
NOX) for the thermal power plant can be beneficial for Thermax as it is present
in three segment through its JV partners.
Order execution of in TBW has picked up and management has guided for the
EBIDTA breakeven for FY16.
Base orders from industries like dairy, pharma, textile, tyre, beverages continue
to remain stable. However order inflow from sectors like cement, power, steel
continues to remain muted.
The company will continue with its capex program of ~INR4.5b, comprising
manufacturing facility in Indonesia, chemicals business in Dahej and absorption
chiller factory in Coimbatore.
In the Projects business, Thermax is targeting markets in SE Asia and Africa.
23 February 2016
15
 Motilal Oswal Financial Services
CEMENT | Voices
CEMENT
JK Cement
Current Price INR 453
Buy
Target Price INR 645 | 42% Upside
Click below for
Results Update
Demand outlook in north has improved. New plants are operating at maximum
utilization. Benefits of grinding units, railway siding and pet coke price softening
have been percolating in cost moderations.
Demand and pricing scenario in middle-east for UAE white cement plant is
subdued. Power connectivity from Feb/March 2016 is expected to lead
normalization of profitability. In 3QFY16, the operations made revenue of
INR570m and EBITDA of INR125m.
Pricing in north has been inexplicably low and expected to rationalize in
earterm with demand improvement.
Accident in southern plant has led to stoppage for work for 15 days and 5-10%
lower dispatch. Management expects normalizations of operations in next few
days.
Ultratech Cement
Current Price INR 2,840
Buy
Target Price INR 3,372 | 19% Upside
Click below for
Detailed Concall Transcript &
Results Update
Growth: Green shoots getting brighter but gently
Industry growth in 3QFY16 accelerated to 4.5% v/s 1.6% in 2QFY16. Demand
acceleration to continue in 4QFY16 with rising benefits of spending in roads
infrastrucre & low cost housing, pay commission benefits and low base effect of
previous 4Q. UTCEM is expected to continue its industry outperformance
Trade segment is growing faster than non-trade. Rural contribution in trade
segment has increased to 55% (v/s 52% Yoy). Budget should be favorable for
rural demand.
Pricing is weak now albeit with incremental demand probability of pricing
uptrend is strong in later part of 4QFY16.
Regional outlook
EAST India:
Posting double digit growth with demand from IHB, low cost
housing and government spending on rural roads and infrastructure continues
North India:
QoQ uptick in demand outlook with infrastructure (Road) pick up,
early sign of demand in UP and marginal uptick in rural demand
South India:
No change in outlook given AP demand yet to take-off and Tamil
Nadu rain and poor availability of sand being deterrents. Cement off-take has
started from low cost housing.
West India:
Marginal improvement with activities in highway and rural road in
Maharashtra
Benefits of sharp decline in pet coke prices (on energy cost) and new grinding
units (on lead distance) are yet to percolate completely. Deflationary cost
tailwinds to continue. Rise in pet coke and WHRS mix and optimization of supply
chain would remain a key focus area.
16
Cost tailwinds
23 February 2016
 Motilal Oswal Financial Services
CONSUMER | Voices
CONSUMER
Asian Paints
Current Price INR 854
Neutral
Target Price INR 850 | 0% Upside
Click below for
Detailed Concall Transcript &
Results Update
Domestic demand environment continues to be challenging. Smaller town
growth rates have been better than the urban centers for APNT.
South India was adversely impacted by heavy rainfall (Chennai was shut for 20
days while areas of coastal AP, Kerala and Bangalore were also impacted).
Auto Coatings JV showed improved demand while general industrial business
continued to lag.
Protective Coatings and Powder coatings business did well with segment
benefitting from lower material prices.
International business posted double digit growth with healthy performance in
Middle East and Bangladesh.
Sleek business affected by subdued demand with the pace of business being
slower than initially expected. After internal assessment of the past demand +
prevailing business conditions + revised future outlook, APNT has made a
provision of INR525m (goodwill) + INR653m (on investment made in Sleek).
Ess Ess business profitability impacted due to investments behind expansion of
network and heavy rainfall in Tamil Nadu.
No price cuts initiated in decorative business in Q3FY16. However APNT has
taken some price cuts in the Industrial business for select customers.
Guidance
Cautious on demand outlook with RM prices expected to be lower. However
gross margins are not sustainable at current levels.
FY16 S/L capex of INR7b.
International Business – Nepal and Egypt business are key to sustain growth in
the International domain. Markets such as GCC are facing impact due to crude
price correction and other markets (like Ethiopia and Egypt) are impacted due to
individual country dynamics as well as dependence on crude which is resulting
in shortage of foreign exchange.
Indonesia plant is currently in design phase (should take 3-4 months). Expect
construction to begin by Q1FY17.
Dabur India
Current Price INR 244
Neutral
Target Price INR 290 | 19% Upside
Click below for
Detailed Concall Transcript &
Results Update
Quarterly Performance
Sales growth tepid due to a) macro slowdown, b) supply issues from Nepal and
c) delayed winters.
Toothpaste: Red and Meswak recorded double digit volume growth, market
share up 100bp YoY.
Hair Oil portfolio posted 2% growth in Q3FY16 driven by high single digit volume
growth.
17
23 February 2016
 Motilal Oswal Financial Services
CONSUMER | Voices
Coconut Oil category witnessed good volume growth , however price deflation
in the category led to softer value growth.
International business: Organic International business grew 10.7%, Namaste
posted 35% growth.
Focusing on shampoo bottle format more along with sachet format.
To compete Patanjali: Dabur’s take ‘Strengthen our own value proposition and
cater to premium end of the market’. As per internal calculations, it has lost
some market share (~2%) in Chyawanprash and Honey.
Near term volume growth triggers could be a) Budget (increase in rural stimuli)
and b) Good Monsoons. Demand could thus improve from Q1FY17. For Dabur
expect mid-single digit volume growth after the foods business stabilize.
If Nepal remains shutdown, Dabur will be able to meet 80% of food supply
requirements from other facilities. Impact of margin (INR100m – INR200m
impact) from sourcing from other facilities is on account of higher freight
(sourcing from Srilanka) as foods business is largely in North India.
Nigeria plant will commence in July for manufacturing Namaste products.
Inorganic opportunities would be taken after considering currency depreciation
scenarios for the specific location.
EBITDA margin in the International business was down due to costs pertaining
to Nepal business (INR170m), currency depreciation and A&P increase.
Guidance
International Business: MENA region expect 10% growth in the medium term.
Do not expect significant margin expansion in International business in the
medium term.
Expect low teens growth in the International business.
Expect A&P: 15-17% for Consol business.
Emami
Current Price INR 993
Buy
Target Price INR 1,300 | 31% Upside
Click below for
Detailed Concall Transcript &
Results Update
Overall performance
Overall volumes flat. Demand is on a weaker side; gained market share in key
categories.
Urban growth slightly higher than rural led by Kesh King. Rural demand poor
across India.
Delayed winter impacted 3Q16: Winter portfolio degrown in 3Q (40% of Consol.
sales ex. Kesh King). Though January has seen revival of winter – it can’t offset
lost sales but can liquidate the trade inventory. Winter sales are less than 10% in
4Q.
Green shoots: Have seen some kind of spurt in last 40-45 days. If this
momentum continues, then double digit growth in next year is possible. Winter
has set in late so some demand in Boroplus has returned. Even Balms have seen
traction.
International
International business grew by 11% led by Bangladesh.
CIS countries saw degrowth.
Nepal (6% of revenue) degrew by 55%.
MENA degrown 17% this quarter (Grew by 4% in 9M16).
18
23 February 2016
 Motilal Oswal Financial Services
CONSUMER | Voices
SAARC grown except Nepal which forms 6% of sales (export to Nepal suffered
due to blockage).
Kesh King
Sales for the quarter stood at INR680m (around INR700-750m can be the run
rate for next few quarters). Stocking issues relating to Kesh King are behind;
manufacturing started in Emami plant.
Sales of INR3,300m expected in FY17.
EBITDA margins of 45% on track for KeshKing.
60ml pack launched at INR 70 – to increase the penetration.
Others
Value growth: Boroplus Antiseptic cream 2%, Balms 10%, Navratna -6%, Fair and
Handsome 8%.
Volume growth: Boroplus Antiseptic cream -3%, Balms 3% (Chennai is big
market for balms), Navratna -6%, Fair and Handsome 6%.
Emami launched Zandu Honey pan-India which saw good traction during the
quarter. Prices of Zandu honey are at 100% premium to Patanjali Honey and
25% higher to Dabur Honey.
Healthcare portfolio- Will focus on south market for the healthcare portfolio;
will go slow on national launch.
Guidance
Net debt: INR6b as of Dec’15; Debt repayment in two years.
Ad spends: will remain at 18-19% level for next fiscal.
Gross margin: RM prices benign. Do not expect much problems as far as GM is
concerned – guidance of 68-69% for FY17.
Staff costs might see 10-15% growth going forward.
Godrej Consumer
Current Price INR 1,198
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 1,300 | 9% Upside
India business
Overall demand: FMCG Industry growth has moderated sequentially in 3Q. Rural
growth>Urban growth in domestic business.
HI: HI business posted double digit volume growth led by new launches and on
ground execution. GCPL gained market share during 3Q16 and ended the
quarter with the highest ever market share. During the last 2-3 years, the HI
market has seen increased efforts by various players in terms of branding and
continued market investments.
Soaps:
Soaps business saw mid-single digit volume growth with Cinthol
delivering strong performance. GCPL aims to focus on the premium segment
and has launched Godrej Nature Soft – Glycerin and Honey variant.
Air fresheners:
Aer continuous to do well. ~25% of the Air Fresheners sales (card
format) are in institutional format. Air Fresheners category size is INR4.5b of
which home sprays forms ~50%.
Health and wellness:
Successfully introduced in general trade.
B Blunt
introduced in modern trade and premium general trade.
Innovation:
GCPL introduced multiple products during the quarter, a) Godrej
Expert Rich Crème in a multi-application pack for INR120, b) Godrej No.1 Nature
Soft – Glycerin & Honey and c) Aer pocket (Bathroom Air fresheners).
19
23 February 2016
 Motilal Oswal Financial Services
CONSUMER | Voices
International business
2/3rd price led growth and 1/3rd volume led growth during the quarter.
Megasari (Indonesia):
FMCG market growth continues to be flat impacted by
macro-economic challenges. There will be renewed focus on innovation and
introduction of new categories.
Africa:
Of the 20% constant currency growth in the Darling business, 15% is
organic. Nigeria and South Africa business environment remains challenging.
LatAm: Argentina saw strong performance.
Europe: Strong growth in own brands portfolio.
Others
GCPL is open to acquisitions in existing geographies and is also looking at
increasing holding in its existing JV’s.
Guidance
Input costs: Expect crude led raw material gains to sustain for another two
quarters.
Expect Hair Color category growth to stabilize from 4QFY16.
Project Iceberg – operational cost savings in LatAm: INR2b-INR2.2b target with
GCPL being on track to achieve it.
GSK Consumer
Current Price INR 5,569
Buy
Target Price INR 7,000 | 26% Upside
Click below for
Detailed Concall Transcript &
Results Update
Sales growth primarily driven by price and mix; volumes remain flat.
Company took 5% price hike in July and further 6% in Jan’16 (does not include
sachet portfolio); in-line with the CPI.
Competitive intensity unchanged. Competition usually follows with 4-5% price
increase with a lag of 1-2 months.
Base Horlicks and Horlicks Extensions grew in double digits.
Input cost inflation: Food inflation inching up sequentially (up 2%). Malt is
seeing 6% inflation; Milk up 7%, Sugar up 5% and Wheat 1%.
Gross margin expansion due to mix of cost efficiency, low SMP prices (down 18%
YoY), price hike in July and mix improvement.
Business auxiliary income: 12% growth seen in 3Q (impacted by stock pipeline
correction across brands), saw 20% YTD growth; will see impact of Novartis
portfolio form June-July onwards.
In the chocolate based market, it gained market share in North and West. It now
is the market leader in UP with 27% market share and also has 37% share in
Delhi.
Sachet price increased in October- impact to be seen in next quarter. Sachet
portfolio now forms 7% of the India portfolio.
Employee costs: There is INR450m impact on 3QFY16 employee cost numbers
due to wage settlement in two factories + bonus act.
Base Horlicks to Horlicks extension ratio in 2015 stands at 73:27 (In 2010 it was
80:20).
TN impact: South India forms 90% of Boost sales, of which 50% is from TN.
The company now reaches about 3.3m outlets and 20k villages, added about
108,000 outlets in 3Q16.
20
23 February 2016
 Motilal Oswal Financial Services
CONSUMER | Voices
Consumption by household with children is greater than household without
children. Target is to increase evening consumption.
Strategy for double digit growth- 17% A&P spends; new product pipeline; higher
off takes sequentially and mix improvement.
Guidance
Capex: INR1-1.5b for next 12 months.
A&P to be in the 16-17% range.
Employee costs to see 10% growth in FY17.
Hindustan Unilever
Current Price INR 826
Neutral
Target Price INR 830 | 1% Upside
Click below for
Detailed Concall Transcript &
Results Update
Quarterly Performance
Market growth moderates on Rural slowdown. Growth continues to be led by
volumes. Pricing environment subdued.
Competitive activity remains high.
Impact of phase out of Excise duty benefits: topline is -80bps, EBIT is -35bps.
PP Business growth ex the impact of delayed winter (200bps) and channel
interventions would have been similar to previous quarters.
Realignment of channel spends: HUVR has realigned channel structure (ways to
will aid in sharper design of trade spends and improve competitiveness across
channels. Will see some inventory volatility across channels, which will be
stabilize by 4Q16.
Premium portfolio constitutes ~25% of total.
Ayush: Will make offerings more competitive for the natural care portfolio.
Steps to counter deflation: a) Premiumize Portfolio, b) Have innovations which
are margin accretive, c) Market development of nascent categories (premium
products) which has higher margins.
Category Performance
9MFY16 Performance
Soaps and Detergents: Robust volume growth offset by continued price
degrowth. Home Care delivers double digit volume growth.
Personal Products: Performance impacted by delayed winter and one-time
realignment of channel spends. FAL continues to do well.
Skin Care: Growth impacted by delayed winter and one-time realignment of
channel spends.
Oral Care: Close up growth continues to be led by impactful activation with
Pepsodent performance muted. Pepsodent re-launch underway.
Hair Care: Volume led double digit growth with Dove leading category
performance.
Beverages: Steady volume led growth. Bru achieves volume and value market
leadership (Bru Gold innovation aided performance). Pricing in tea is stable.
Packaged Foods: Ninth successive quarter of double digit growth. Double digit
growth in Kissan, Knorr and Kwality Walls.
Volume growth of 6%.
Impact of phase out of fiscal benefits: Topline (-115 bps), PBIT (-50 bps).
21
23 February 2016
 Motilal Oswal Financial Services
CONSUMER | Voices
Scheme of Arrangement
HUL has proposed a scheme of Arrangement between the Company and its
shareholders. Proposed transfer of the entire balance of INR21.9b from General
Reserves to the Profit & Loss Account. Will wait for approval of Board and
sanction of court post which the transferred amount to be returned to the
shareholders (tentative time frame for the process is ~6 months).
Jyothy Labs
Current Price INR 274
Buy
Target Price INR 350 | 28% Upside
Click below for
Detailed Concall Transcript &
Results Update
Consol volumes grew 8.9% in 3QFY16.
Power brands registered 9.2% YoY growth (volume 8.6%).
Competitive intensity in dishwash and detergents was high in 3QFY16.
Segment wise performance: Fabric Care 0.9% (Ujala grew 5.6% YoY),
Dishwashing 8.9%, Mosquito Repellent 31.8%, Personal Care 16.7%
Maxo is now No.3 in LV segment.
Magic Card posted INR20m YTDFY16.
Direct reach as on FY15 stands at 500,000 (400,000 as on FY14).
Indirect reach is brand wise with Ujala – 3m outlets and for remaining brands
being less than 1m outlets.
Distribution growth is highest in Liquid Vaporizer.
Insects Control – 90% category hold by the leader.
Margo glycerine contributed to 30% of Margo growth, core margo growth will
sustain going ahead.
Guidance
JYL should sustain volume growth around 9% in 4QFY16.
ESOP cost: Q4FY16 23m, Q1FY17 23m, Q2FY17 17m, Q3FY17 and Q4FY17 will be
10m.
Marico
Current Price INR 233
Neutral
Target Price INR 220 | -5% Downside
Click below for
Detailed Concall Transcript &
Results Update
Quarterly Performance
Expect urban consumption to pick up gradually with certain green shoots visible
(modern trade growth this quarter – 20%).
Rural continues to be soft, so Affordability will be key.
Parachute volume growth is soft as trade stocks down during price deflation
scenario. MRCO is intending for trade to stock down (not considering black out
period option) as consumers can avail lower prices (due to RM benefit).
Saffola: Expect 10% volume growth on sustainable basis with continued TG
based marketing and Regional Pricing strategy.
Hair Fall is a INR9b category.
23 February 2016
22
 Motilal Oswal Financial Services
CONSUMER | Voices
Guidance
Going ahead expect copra and crude prices to be soft, MRCO can take strategic
position in this RM’s, so gross margins are intact for FY16 and FY17.
Expect to deliver 8-10% volume growth in FY17. Deflation to be in the base from
3QFY16.
Will tactically protect volume market share by passing out RM price benefit.
FY16 and FY17 - Capex: INR1b – INR1.25b
United Spirits
Current Price INR 2,405
Buy
Target Price INR 4,000 | 66% Upside
Click below for
Detailed Concall Transcript &
Results Update
Quarterly Performance
Prestige and above segment grew by 9% in the quarter, popular posted -5% and
overall volume growth was flattish.
9MFY16 total volumes are 70m cases of which Prestige and above is 26m (1m
cases from Diageo) and Popular is 44m. For Q1FY16 total volumes were 22m
cases of which prestige and above were 8.6m cases (Diageo: 0.1m cases),
Q3FY16 total volumes were 25.7m of which Prestige and above are 9.5m
(Diageo 0.5m cases)
Uttarakhand and Chhattisgarh (operate through co-operation model) are facing
regulatory challenges - UNSP has challenged it in courts.
Gross Margin of USL brands is flat on YoY basis.
Diageo brands: Gross margins at ~50%.
Franchisee operations (Kerala) have been margin neutral.
Contribution at EBITDA level from Diageo brands to be around 11%-12% on
annualized basis.
Royal Challenge posted 58% growth in 3Q16. Re-launched McDowell No.1 in
Oct-Nov: Initial response good.
RM
trends: ENA flattish – productivity improvement across
manufacturing/procurement on anvil.
YoY lower excise as a % of sales: function of combination of brand and state mix.
Guidance
Capex: INR4b-INR5b for FY17. YTD FY16 capex is INR2b.
Tax rate to be 34% in FY17.
Working Capital - INR2b for Diageo brands on annual basis + INR2b for UNSP
brands (volatile on seasonality basis).
A&P is 11% of NSP. Expect it to be in similar range, or slightly trend upwards.
23 February 2016
23
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
FINANCIALS/BANKS
Axis Bank
Current Price INR 393
Buy
Target Price INR 525 | 34% Upside
Click below for
Detailed Concall Transcript &
Results Update
Detailed asset quality disclosure given
Have fully recognized for all the accounts related to RBI observation to be
classified by March 2016 and additional provisions by March 2017
Half of incremental slippages in the quarter are related to RBI observation
(~INR11b). INR7.42b of corporate slippages during the quarter are due to
relapse from restructured loans of this INR2.7b are due to RBI directive.
RBI related directive was towards couple of accounts in power segment but not
in thermal power, Battery manufacture and then rest was well spread out
Total amount in the list sent by RBI works out to be INR11b (to recognized as
NPA) and INR25b (already restructured loans to increase the provisions)
Fresh restructuring of INR1.3b during the quarter is largely due to extension of
DCCO. In 9MFY16 fresh restructuring done by AXSB stood at INR13.4b of which
INR10.3b due to extension of DCCO
On one account SDR was invoked in the quarter (INR5b). This account was
restructured earlier
AXSB did the 5:25 refinancing of INR16b (INR36b till date) during the quarter
Iron and Steel exposure stands at 3.3% of loans of which 65% is rated A and
above
Of the total loan book ~8% is towards highly leveraged group but behavior of
this book is not materially different then rest of portfolio. Large part of this
exposure is towards high rated companies within the group. There would be
marginal overall between recognized stress loans to highly levered corporate
book
Of the overall slippages a)50% came due to RBI rectification b) 25% from
Corporate and c) rest 25% from non-corporate book
Amtek Auto (Bond exposure) is off from books – they have sold it at a discount
to investor
Security receipts outstanding on the balance sheet are only INR5.5b for the
power/infra account sold in 2Q worth INR18.2b
5:25 largely related outstanding loans are largely towards Power, Roads and
Metals (around INR10b)
Guidance on new stress formation
Incremental slippages in 4QFY16 is expected to be INR13b. For FY16, total
slippages expected to be INR92b (including ARC sale of INR18b) of this INR22b
RL (of which INR20 shift in DCCO)
In 9MFY16 total fresh stress addition stood at INR70b (INR57b slippages and
INR13b of RL) including RBI review. Excluding ARC sale total fresh stress addition
stood at INR52b
If one were to exclude RBI directive recognition then fresh stress addition is
INR42b on which INR13b to be added (fresh slippage) and INR9b (extension of
23 February 2016
24
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
DCCO) in 4Q. Thus the total fresh stress addition is expected to be INR64b
(earlier guidance of INR57-60b)
Pipeline of 5:25 stands at INR25b however, no specific quantification related
pipeline of SDR loans (as it is event based)
Shift in DCCO related restructuring expected to be INR9b in 4Q. Here project is
already operational however, some of the phases needs extension in DCCO date
Annualised slippages from RL are expected to remain at 25%
RBI has asked to make additional provision of INR2.5b on the certain
restructured loans (assuming 10% additional thus, amount works out to be
INR25b)
Credit cost (including reversal of contingency provisions) stood at 75bp in 3Q
and 85bp for 9M. AXSB expects this to be ~90bp for FY16
Core Credit cost (without utilization of contingency provisions) stood at 128bp in
9M and expects this to be 125bp in FY16
AXSB will shore up contingent provisions for SDR and 5:25 accounts if
profitability will permit
INR30b worth of accounts are likely to exit moratorium over next 5 quarters
Others
Cautiously optimistic on the macro led by expected acceleration on spending for
planned capex by RBI
Provisions break up a) NPA INR6.3b b) Standard assets INR710m c) MTM
reversals of INR150m and d) others INR310m.
Bank utilized INR2.2b of contingency provisions and balance left is INR1.8b
Domestic NIM stands at 4.04%. Maintains guidance of 3.5% medium term NIMs
Fees are expected to be in mid teen fees in FY16
Business related
2/3rd incremental growth to banks existing customer base. Selling unsecured PL
and CC existing customer
40%+ incremental growth via branches
45% including regulatory SME loans as Retail loans
80%+ of new sanctions to companies rated A and above
FY16 - Cost to Income at ~40%
RWA at INR3.87tr
MCLR will not have material impact on NIMs
Incremental corporate financing is towards segments like acquisition financing
in Tyre industry, additional financing in Pharma, Paper etc. Large part of the
incremental financing is at the corporate level then project level
Bank of Baroda
Current Price INR 140
Buy
Target Price INR 175 | 26% Upside
Asset Quality Related
RBI AQR related list is fully provided in slippages and provisions during the
quarter
Total stressed loans in AQR were INR105b of which INR74b slipped in the
current quarter (balance were already NPA before 3QFY16)
Large parts of the slippages are from Iron and Steel and power sector
23 February 2016
25
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Click below for
Detailed Concall Transcript &
Results Update
Overall nine accounts have been refinanced under 5:25 refinancing scheme
amounting to INR54.3b of this INR19.65b are standard
SDR has been invoked in fourteen account amounting to INR24b of which
INR5.2b are standard
Revalidation of small customers is already done; this lead to INR33b+ of
slippages during the quarter
No ever greening during the quarter. Sale to ARC will happen in the future
quarters. However, current levels of provisions are adequate. 4QFY16 results
will be on the clean slate
Fresh restructuring of INR2.5b during the quarter is largely on account of DCCO
extension
Going forward, focus will be on the average daily business growth then the
quarter/year end business and CASA deposits
Impact of interest reversals on the domestic NIMs was 66bp and global NIMs at
44bp. Interest reversals works out to be INR6.9b (average Yield of 10.9%)
India based exposure GNPAs are at INR40b in the international loans
Focus is on reducing the syndication exposure in international loans; further,
standard restructure loans are INR20b
Total stress loans recognized on the India based exposures (ex. BC business) is
INR60b (20% of the exposure)
Relapse from RL during the quarter are at INR58b
Largest account exposure now is INR20b and they are few in numbers
Taking help of rating agencies for rating and increasing exposure of corporate;
approach is on the portfolio basis
Of the OSRL, INR90b is towards highly rated corporate and government
companies. Management is closely looking at the exposure for the rest of the
book
Other highlights
On the basis of conservative simulation exercise a) CAR will improve in FY17
post factoring in (detailed study already taken) i) 20% domestic loans growth ii)
15% international local credit growth and iii) no addition to net worth b) FY17
ROE 8-12%
As per management, BOB does not require capital for 18-24months and have
clearly communicated the same to the GOI. Concerned about ROE to equity
shareholders
Focus is on efficiency, deploying excess liquidity and low risk business
INR25b gain can be realized from sale of financial investment from NSE, UTI etc
(MF, AMC or Insurance)
INR35b of capital release from existing balance sheet (in our view run down of
international exposure) will help to grow assets by INR400b
Data cleansing exercise will release 50-60bp of CAR
Consolidated accounting will help to release some more capital
Defined management role: Mr. Joshi will work upon the managing the NPA and
corporate banking; Mr. Mehta will focus on Retail, SME and Agri; Another ED
(expected to join by April 2016) will focus on risk
23 February 2016
26
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Canara Bank
Current Price INR 172
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 190 | 11% Upside
RBI AQR impact – 50% of the accounts identified are taken in 3Q. INR33.05b
AQR impact. Similar amount is expected in 4Q. Amount can come down post
performance of certain ac counts – Banks are in discussion with RBI
Under 5:25 refinanced: Total INR33b (including Pipeline). INR16.3b done till date
and bank has INR16.7b pipeline. All 5:25 accounts are standard loans and
nothing is from restructured or NPA
Total SDR outstanding at INR48.8b (of which INR15b NPA). Bank has pipeline of
INR30b
Gross stress loans have increased by 67bp to 11.97%
Focus is on a) Increase in CASA and reduction in bulk deposits b) Cost Control
and c) RAM for loan growth.
Release of 20bp on CET1 led by data cleansing, putting in record of adequate
securities etc.
ARC sale INR1.59b in the quarter (INR34cr). Outstanding SR 1991cr 757cr prov
1200cr net outstanding 965cr
Interest reversals of INR1.4b during the quarter and INR2b impact due to base
rate reduction
INR500b of deposits reprising expected in 4Q which will drive the cost of
deposits lower and will help in improvement in NIMs
Of the SEB exposure of INR270b, INR180b is covered in FRP. Total exposure
which is likely to be covered in UDAY is INR120b of which INR60b is expected to
be converted into bonds by end of the quarter. Going by current situation
(based on states signed for SEB), INR35b will only be converted into bonds in
4QFY16.
FITL is not the major factor behind fall in NII during the quarter.
DCB Bank
Current Price INR 74
Click below for
Detailed Concall Transcript &
Results Update
Not Rated
P&L Related
mpact of cut in Base Rate (happened around 15th December) will be felt in
4QFY16
Initial esti mate on NIM impact from MCLR guidelines to be 25-30bp
Fee income break-up – INR360 CEB, INR45m trading gains, INR40m forex
income, INR10m recoveries and balance others
Expects to open 15-20 branches in 4QFY16; confident on meeting 150 branch
expansion by Sept 2017
Average employee per branch around 10-12 people
come from RBI
No restructuring done during 3QFY16. OSRL stands at INR460m
There was no sale to ARC and 5:25 rescheduling during 3QFY16
23 February 2016
27
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
BS Related
Yield pressure in corporate segment is leading to the de-growth; intention is to
grow max 15-20%; however, in FY16 loan book is likely to de-grow
Current capitalization is sufficient for next one year of capital requirement;
would like to evaluate additional tier 1 and tier 2 capital raising options
Once the branches mature, planning to reach CASA ratio of ~25%
Bank continues to carry floating provisions and have not utilized same so far
65-70% of home loans portfolio is LAP
Other highlights
Has done a marketing tie-up with TVS credit which will be used for sourcing new
car loans
Of the AIB, 80% of the portfolio comes under PSL and 3-4% tractor loans
Currently, working with 3-4 fin-tech companies on digitalization front
Headcount as of Dec-15 stands at 3,981
Federal Bank
Current Price INR 48
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 70 | 45% Upside
Stress addition during the quarter highest ever–
One large account (guided
earlier) in shipping (INR1.08b) and metal (INR0.7b) have been recognized and
sold to ARC during the quarter. Further, Bank also sold INR450m worth of NPA
(recognized in FY15) pertaining to construction/contractor sector. Relapse from
RL stood at INR0.5b during the quarter. During the quarter bank also recognized
INR450m worth of exposure as NPA (although not sold to ARC) - one large metal
exposure for the system.
On expected stress addition:
No major slippages expected in corporate segment
henceforth as bank has already complied with RBI list. Of the accounts coming
out of moratorium (INR0.5b in 4QFY16 and INR2b in FY17) INR1-1.5b pertains to
Metal ancillary account which may come under stress. Ex SEB SMA2 no has
come down to 6.4% vs 7% a quarter ago. INR0.8-1b slippage may continue for
next two quarter in SME.
Middle east issue:
a) Deposit side no arbitrage as interest rates on both NRE and
domestic term deposits remain the same b) Good secured loans portfolio linked
to NR side c) Deposits growth remains strong as of now as FB is gaining Market
share
On growing corporate loans:
Initially team size will be 25-30 people on the large
corporate side. Bank is focusing on growing BBB and above rated category loans.
During the quarter ~90% of the incremental growth came from BBB and above
rated corporate
Data points:
a) INR5.6b outstanding Security Receipts b) Gold loans are INR27b
c) NRE SA at INR96b d) daily average CA growth at 14-15%
Others:
a) NIMs 310-315bp for FY17 b) UDYA scheme will lower NIMs by 2-3bp
23 February 2016
28
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
HDFC Bank
Current Price INR 988
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,350 | 37% Upside
Business growth related
Retail lending business is becoming competitive and aggression from other
lenders has also increased in terms of payouts. Digital initiatives (lower TAT,
offering etc) is helping to outpace the system.
CA outstanding has element of one offs (related to one off tax free bonds).
Adjusted CA growth is 23% YoY
10 second personal loans are ~10% of new origination (some of this may be due
to existing customer moving from branch led to digital)
Used car loans proportion in total vehicle loans at 18-20% v/s 15% a year ago
Kissan Gold card is large ly towards pre-post-harvest farm credit. Average yields
are at 10-12%. Customer profile is largely similar to middle and upper income
customer segment
INR12b of home loan bought back during the quarter
No clarity over MCLR rates. Transition for HDFCB will be relatively easy as HDFCB
is already on marginal cost of funds
95bp spreads on Home loan take over from HDFC ltd
P&L related
Impact of capital raise on NIMs at 5-6bp in 9MFY16
Employee increase largely at the front end staff; backend and support functions
net employee increase is lower than front end employee increase
Fees moderated led by a) Third party distribution (MF – mix shifted from equity
to debt and guidelines related to capping up of upfront fees and moderation in
Insurance sales volumes) b) Fee reduction in some retail products c) CC business
related fees
Pick-up in demand is stronger in Metro and Urban segment. Meaningful
presence required in semi urban and rural market is largely done
Asset quality related
Based on RBI review, no new recognition was required. Only on one large
account some increase (double digit million) in provision was prescribed
Slippages in wholesale book remained healthy. Contributors during 3QFY16
were Agri, Business banking, credit card portfolio (this largely based on the
count of NPLs as pre regulatory requirement)
Floating provision INR16b
No Pipeline for SDR and 5:25
Others
RWA INR5.3 trillion
Increase in tier I ratio was due a) reduction in risk weights of home loans and b)
securitization contracts expired
Capital consumption will continue at around 50-60bp every year
Open for considering additional partner for life insurance business. Board will
have to take the decision
Around 60% of the accounts are operational under PMJDY
23 February 2016
29
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
ICICI Bank
Current Price INR 199
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 320 | 61% Upside
On RBI list
Of the gross addition of INR65.44b, 2/3rd (INR43.5b) of addition related to the
cases highlighted by RBI. One large steel company exposure was asked by RBI to
be recognized as NPA which is bulk of INR43.5b.
For 4QFY16, Slippages and RBI list related identification is likely to remain similar
that of 3QFY16. More than Half of the slippages in 4Q from RBI review is likely to
come from Restructured loans (largely from Power) – INR20b+.
ICICIBC is likely to make accelerated (from 5% to 15% on RL) provision (as asked
by RBI) of INR3.5b in FY17. Hence, INR35b of restructured loans are identified by
RBI showing some weakness but not asked to be classified as NPA
Overall RBI list a) To be classified as NPA (3Q – INR43.5b+4Q – INR40b+) =
INR83.5b b) accelerated provision INR35 = INR115-120b. Of this ~INR60b are
already recognized as stress loans in form of Restructured loans. New stress
recognition on balance sheet is likely to be INR60b (1.4% of loans)
RBI has looked at overall portfolio nothing specific to domestic or overseas
operations
RBI action led upgrade to accounts will happen post satisfactory performance on
cash flow generation. No need to consult RBI at the time of upgrading the
account. Bank and statutory auditor can take the decision
More details on asset quality
Companies in the steel sector are under significant pressure. Watching situation
closely. ~20% of metal exposure classified as stress loans of which ~13% in the
NPA
Other stress loan recognition in the quarter a) INR5.81b restructuring due to
extension of DCCO b) INR4.5b 5:25 refinancing and c) INR16.7b SDR (largely
from RL)
Pipeline for 4QFY16 a) 5.25 refinancing of INR7b and b) SDR of INR12b
Outstanding: 5:25 refinancing INR35b and SDR INR19b
Negligible loans sold to ARC during the quarter - INR0.38b
No material exposure to DISCOM
Relapse from RL (INR13.6b during the quarter) moved directly to D1, D2
category leading to higher provisions
In terms of provisions - no change in policy for new slippages
Standard asset provisions outstanding on balance sheet INR26b
Other highlights
During Retail fees are 2/3rd of overall fees for 3Q (stable QoQ)
INR3.73b dividend income from subs during the quarter
INR21b of gain on stake sales are yet to be recorded
Lower employee expenses led by lower retrials expenses (due to rise in interest
rates) and lower provisions for variable Pay
No material exposure via HK branch
Don’t see much pressure or lag impact of large corporate slippage
Retail growth of 25% and corporate higher than system
30
23 February 2016
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
IDFC Bank
Current Price INR 51
Buy
Target Price INR 70 | 38% Upside
Click below for
Detailed Concall Transcript &
Results Update
P&L Related
Entire trading gains for the quarter related to debt market and not for equity
market
Bank has rolled out CWG offering in 8 cities; offers all fund based and non-fund
based business. In the first quarter non-fund based contributed 5% of total
exposure
Expect to achieve 50-60 branches over next couple of quarter. Bulk of the
branch opening in the rural areas.
Internet banking is live and mobile banking will go live in April 2016
Major investments related to technology has been incurred
Bharat Banking business offering out of 16 branches in 4 districts in M.P
Total personal and business banking customers at 1530 largely internal
employee
Balance Sheet Related
Requirement of PSL INR150b assuming base will be 31st December 2015
If the credit risk is acceptable, bank will be open to grow through credit
substitutes as well. In the last quarter it grew by INR10b
Will continue to grow in infrastructure if the opportunity arises
On the MFI business A) Buying out of portfolio B) Partnering with MFI and C)
MFI does not get SFB license then can get access to IDFC bank platform
Improvement in rating during the quarter largely driven by new acquisition
Asset Quality
Have not received anything from RBI regarding 150 accounts to be recognized
INR88b of stress guidance remains unchanged. Interest accounting on stress
loan portfolio is on the cash basis. Impact of that could be ~INR800m (not clearly
quantified) for the quarter
No Significant development in Infrastructure segment. Beyond Thermal power,
seeing revival in renewal energy. Developments have taken place in road sector.
Some activity on the spectrum side in telecom segment
Other highlights
Not much merit on the RBS portfolio acquisition
As long as IDFCB remains a sub of IDFC ltd there will not be double dividend
taxation
23 February 2016
31
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
IndusInd Bank
Current Price INR 842
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,150 | 37% Upside
Balance Sheet Related
Positive trends in vehicle finance book continue (disbursement +28% YoY, +6%
QoQ to INR52.5b); IIB has been seeing INR11-12b monthly repayment rate; avg.
duration of 22-25 months
Growth in Power sector exposure from transmission side
Have classified all accounts as NPA highlighted by RBI
LTV on LAP book at 48%
P&L Related
Moderation in yields driven by change in CFD loan mix from high yielding
products (2W) to MHCV segment
Strong growth in processing fees driven by diamond portfolio (hefty fee
business) and strong loan growth especially on the consumer/vehicle financing.
Overall retail fees now account for 35% of overall fees
I-banking fees are largely from debt market side – usually 7-9 deals per quarter;
have executed project refinancing (2-3 transactions) and few real estate deals
during 3QFY16
Strong Opex growth driven by hiring, IT spends in treasury operations;
management expects overall C/I ratio to remain around mid-forties +/- 2%
Expects to have 1200 branch network by FY17
NPA provisioning at INR1.41b
Increase in credit card related GNPAs on account of change in definition by RBI
Increase in LAP related NPAs led by 2 cases this quarter. Other than these, LAP
segment GNPA expected to remain under 50 bps
Indian Bank
Current Price INR 85
Buy
Target Price INR 115 | 35% Upside
Click below for
Results Update
Balance sheet related
Guidance FY16 credit growth 10-11% and 14-15% growth in FY17
Loan mix - MSME INR152.2b, Overseas INR60b, Agri INR224.8b, Housing loans
INR90b
P&L related
Reduced deposit rate (25bp) from 10th February 2016; MCLR to have some
impact in FY17
Breakup of other income: Recovery from w/o – INR450m; Trading gains –
INR650m; CEB income – INR1.41b and forex income INR740m
Staff cost should see some moderation led by retirements and lower level hiring
Planning to add 100-150 branches per year (focus on central and western India)
Asset quality
NPA provisions include INR2b of additional provision on account of RBI asset
quality review (AQR)
SDR has been invoked in four accounts amounting to INR7.87b; of which two
accounts were classified as NPA (INR3b) under AQR. Balance SDR accounts were
standard restructured previously. Two accounts are in SDR pipeline (INR4b)
32
23 February 2016
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Two accounts were refinanced in 3QFY16 amounting to INR5b
Cumulatively, seven accounts have been refinanced under 5:25 scheme till
9MFY16 amounting to INR20b (no pipeline); this includes two large accounts
amount for INR15b (standard currently), one account of INR3b which has now
been classified as NPA (led by AQR) and one large restructured account of
INR1.5b
Of the total slippages of INR17.4b, small borrowers account for INR4b, overseas
accounts of INR1b, AQR related slippages of INR11b (of which INR3b of SDR
account, INR3b of 5:25 account and INR2b of textile account which was standard
earlier and one education account) and balance INR1.4b of other large
corporate slippage
Management expects similar quantum of AQR related slippages (INR11b largely
from steel and power sector) in 4QFY16. Two chunky metals exposure (INR8b)
which have been refinanced under 5:25 scheme would be classified as NPA
Outstanding SRs stood at INR13b (no MTM provisions so far)
Segment wise GNPA: Infrastructure (ex. power) INR9b, power INR4.5b, Iron and
steel INR13b and textile INR5.7b
Segment wise restructured loans: Power (ex. SEB) INR20b, SEBs INR40b, Iron
and steel INR9b, engineering and others INR7b
Small amount of restructuring done led by Chennai floods; similar action is
expected in 4QFY16
Relapse from restructured loans was INR7.8b and INR7.5b upgradation
No direct exposure to Jaypee group
Total discom exposure was INR48b of which INR40b related to FRP (five discoms
– Rajasthan, Tamil Nadu, Haryana, Andhra Pradesh and Telengana)
Education loan GNPA ratio at 7.2%.
Bank would be required to make additional INR1.1b provisioning restructured
loans in FY17
For INBK, international exposures have not been included in AQR
Other highlights
CET 1 ratio including profits 11.08% (ex. profits at 10.55%)
No dilution is expected; bank has not requested for any capital infusion
government
Digital transaction now account for 52.7% of total transactions
SMA 2 outstanding was INR140b
Kotak Bank
Current Price INR 631
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 720 | 14% Upside
Macro related
Low commodity price will be significant positive for India. However, it will have
some impact on remittance flows, exports and commodities players
Expect bottoming out period around April-September 2016 at the macro level
Domestic financial savings which moved to risk assets (in 2015) may move to
risk free assets as the markets are not conducive
Business related
23 February 2016
33
 Motilal Oswal Financial Services
FINANCIALS/BANKS |Voices
Focused on creating capacity both on liability and capital to capitalize on growth
opportunity. On loan growth focus remains on better risk adjusted returns and
not compromise on the credit quality
Bulk of decline in Asset management business is due one time operational
expenses
In KMPL lower value car sales is driving the car financing growth. Higher value
car sales growth remains muted
Decline in market volumes and lesser trading days led to drop in securities
business PAT
Guidance
Guidance for FY16 a) Credit cost of 80-85bp, b) 15% loan growth (adjusted for
stress loans of VYSB of ~6%). Cost to Income ratio will go below 50% in FY17.
KMB remains comfortable for loan growth of 1.5-2x of Nominal GDP growth.
Seeing good traction in consumer Urban and moving up the credit rating in
terms of corporate.
NIMs are unlikely change in ensuing quarters despite competition to rise in the
high quality
Looking at raising stress asset fund for potential opportunities in coming months
On integration with VYSB
In the final stages of integration in two major segments a) Technology and b)
Organization Structure
Synergies have started to flow through VYSB - SA deposits are growing by ~30%
YoY. Average quarterly customer additions are going up by ~3%.
Despite adding front line staff employee expenses are well controlled as low
hanging fruits are available at the supervisory level
Expects the full integration to get over by May 2016
Maintains the total integration guidance of INR2b of which INR1.42b already
spent. People, process and technology etc. is proceeding as per plan. Even
integration of support staff is already over
On digital side
Mobile transaction in December 2015 at INR23b in terms of value vs INR10b in
April 2015. Bank has 6.8% market share (in value terms) in November 2015.
Digital value payment transaction have crossed 1.5m in December 2015
50% of Term Deposits are booked online by customers
Mobile volume transactions crossed INR40b per month. No of trades on mobile
app crossed over 0.3m per month
Via App 7% of the brokerage is being contributed
14% of the renewals and 40% of the switch request in the life insurance business
is coming via digital platform
MF provides Factsheet on mobile first of its kind
Others
Strong growth in others in KMPL is due to financing of capital market
transactions (LAS)
Hardly any profits from ARD division in this quarter
23 February 2016
34
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Employee strength on the standalone basis at 31,000 (30,400 in 2Q) and at
employees at front end and getting tighter supervisory role
Oriental Bank of Commerce
Current Price INR 82
Neutral
Click below for
Results Update
RBI AQR – 80% already recognized (INR8b) as NPA and 85% as provision already
taken into account. Iron and Steel contributed INR5-6b for AQR.
In 3QFY16, 5:25 3 accounts amounting to INR3.65b; Outstanding stock INR19b
(INR6-7b as NPA)
In 3QFY16, 9 accounts in SDR amounting to INR15b; Received request from 5
accounts (all are NPA) INR6b. Total stock of SDR at INR29b (all are RL)
INR3.63b sale to ARC in 3QFY16. Outstanding SR are INR7.83b
Of the NPAs during the quarter INR22b came from 3-4 accounts in the quarter.
INR2.2b from G&J account, INR2.4b from 2 textile accounts and rest is from
Metals.
NIM guidance: 2.65% for FY16 and 2.6% in 4QFY16
Interest reversals less than INR2b during the quarter
Total exposure to steel sector INR70b. INR14b I&S 5:25 of which INR7b is NPA
and rest is standard accounts
INR26b relapse from RL; Large part of RBI AQR is from RL.
INR750m additional pension and gratuity provisions during the quarter
State Bank of India
Current Price INR 165
Buy
Target Price INR 215 | 30% Upside
Click below for
Detailed Concall Transcript &
Results Update
NIMs decline led by a) Cut in Base Rate by 70bp and b) Interest reversals on
slippages (INR4.5b)
Capital raising plans a) Raising T2 bonds of INR60b in 4Q b) Approval of CET1
capital raise of INR150b c) Divestment of non-core assets (INR10b post tax) d)
Unlocking of value of subsidiaries (FY17, 10-12b post tax) e) unlocking of value
of Real Estate (INR200b+, RBI may allow revaluation reserve as a part of T1
capital) f) Repatriation of profits from overseas branches (INR7-8b)
RBI AQR related slippages are INR145-150b (similar quantum expected in 4Q) of
which 70% came from 3 large accounts (steel, textile and petrochemical). Of the
RBI list relapse from RL was INR27b, 5:25 INR60b and SDR accounts were INR43b
Tota l amount of RBI AQR related list for subs aggregate was INR170b of which
50% recognized in the current quarter
Excluding RBI AQR slippages were INR59b.
Expect FY17 slippages to be in the range of INR60-70b a quarter
ARC sale during 9MFY16m stood at INR7.9b of which INR4b happened in
3QFY16. Total security receipts outstanding are INR56b of which INR6b received
in 9MFY16
Of the total 5:25 done till date of INR169.5b (13 accounts), INR60b is already
under NPA. INR40b is the pipeline for 5:25
Of the total SDR done till date of INR164.9b (17 accounts), INR43b is already
under NPA. INR84b (12accounts) is the SDR done in 3Q
23 February 2016
35
 Motilal Oswal Financial Services
FINANCIALS/BANKS |Voices
Of the total steel sector exposure of INR790b -56% is stressed. INR130b NPA,
INR50b SDR and rest is either 5:25 or restructured. Of the rest exposure
INR100b can be at risk
Of the top 10 highly levered corporate groups, SBIN has exposure in 7 groups
(total exposure 4.8% of balance sheet). Of this 4 groups, which in the past
featured in the SMA2 category exposure was 2.8% of balance sheet and rest 3
groups never featured in SMA2
Counter cyclical provisions available on the balance sheet stands at INR23b
Total OSRL of subs at INR273.3b
Don’t expect major impact of MCLR guidelines
Sharp increase in power exposure is led by a) higher disbursements to NTPC,
PGCIL etc. b) refinancing 2 large operational power projects.
Union Bank
Current Price INR 116
Buy
Target Price INR 160 | 38% Upside
Click below for
Results Update
Planning to reach ROA 1% over next two years however, capital requirements
will keep ROEs below 15%
Asset Quality
Of the AQR, 57% of accounts (based on quantum) have been recognized as NPA
in 3QFY16 – INR19.2b. Account remaining to be classified as NPA are largely
paying well and performing as of now
Slippage from restructured book related to AQR were INR9.5b
Slippages are largely from steel INR7.4b, Power INR5.55b, roads and infra
INR4.2b, overseas slippages INR4.6b (of which INR2b)
5:25 refinancing – 3 accounts INR12b (all standard) and four accounts in the
pipeline INR33b. SDR is invoked on 11 account (INR27.21b); no pipeline
There was no sale to ARC in 3QFY16
GNPA - Iron and steel INR11920m, infrastructure INR30120m and textile
INR10000m
SEB exposure eligible under ‘Uday’ scheme INR55b; currently, SEB exposure
yielding base rate plus 2%
Other highlights
Mobile banking customers more than doubled in last one year
40+ digital branches in several cities and expected to increase to 100 by FY16
CET1 including profits stands at 7.93% (v/s 7.87% in 2Q)
23 February 2016
36
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Yes Bank
Current Price INR 714
Buy
Target Price INR 1,015 | 42% Upside
Click below for
Detailed Concall Transcript &
Results Update
Guidance
Balance sheet growth is likely to be mid 20’s in FY17
Expects 2-3% CASA mix improvement each year over next few years – targeting
to reach 40% by 2020
Business banking and retail share to increase to 3-4% and to reach 45% by 2020.
By 2020, consumption assets are likely to be higher than income generating
assets in retail loans – giving push the profitability.
Targeting to 2500 branches by 2020
Asset quality
RBI Asset quality review:
RBI audit involved recommendation based on the
FY15 numbers. In 1H in the normal course, Bank had already substantially
recognized/recovered amount involved. By 9MFY16, 75% of the impact from RBI
recommendation is already taken into account (including repayments,
recognizing slippages and increasing provisions). For rest of the exposure bank is
of the view that repayment may take place, else will be recognized in 4QFY16.
Slippages for 4Q will be lower than 3Q.
In 9M bank has received the repayments from large stressed corporate accounts
like Essar, JP Power, Lanco etc
Restructured loans (67bps - INR5.7b) :
12 out of 15 restructured accounts are
showing satisfactory outcomes. In 3 accounts there is some cause of concern
(Total amount involved INR1.4b)
Security receipts (25bp - INR2.1b):
YES expects 35% cash receipt over next two
quarters. Security Receipts are backed by strong underlying assets – don’t
expect much hit on that front
Only one account of INR500m in the below investment grade category in credit
substitutes. In this account bank expects redemption of underlying instrument
very soon
Credit substitute book is externally rated and is in investment grade. RBI review
also includes bond book.
Roads, EPC, cements, construction and Textiles stress loans are in the range of
15-20bp (except for roads 37bp)
During the quarter bank utilized INR200-300m of contingent provisions for
writing off of loans
Retail Business
Savings deposits customer base is 1.2m and are adding 15-20% customers QoQ.
No immediate plan to change savings rate. May review in April post RBI policy
Income generating assets (CV, CE and LAP) are likely to be core focus area for
building retail assets in the next 18 months. For other areas (HL and
consumption loans (PL, GL etc.) focus is building infrastructure, process, and
relationship. Earning assets are currently at 60% of the retail assets.
23 February 2016
37
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
YES is planning to add 150 branches in FY17. Of the last quarter hiring 90% was
towards retail. Significant investment is going into Retail and business banking
and bank is expecting meaningful contribution to profitability from FY18
YES will launch credit card in the next quarter
Other Highlights
MCLR guidelines will be beneficial with respect to building retail loans. YES is not
expecting any impact of MCLR on the margins. Currently bank is computing Base
Rate on the marginal cost of funds. On the contrary bank is expecting further
improvement in NIM in the coming quarters
G-Sec book is at INR340b (INR290b) and Non SLR at INR80-90b
Corporate banking fees have one off contribution during the quarter.
Credit substitutes are at INR93.6b
23 February 2016
38
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
FINANCIALS/NBFC
Bajaj Finance
Current Price INR 6,049
Buy
Target Price INR 7,194 | 19% Upside
Click below for
Detailed Concall Transcript &
Results Update
Growth guidance:
Targets to grow loan book by 25-30% YoY and report 20%-
25% YoY PAT growth over the medium term with new customers to grow at 15-
20% YoY.
Loan book contribution:
Going forward, consumer finance would remain the
customer acquisition engine; however, growth in consumer book would taper
down given the base effect. SME business and rural lending would drive the loan
book over the m edium term. Over the medium term, profile of loan book would
change to consumer finance contributing 35-37%, SME 40-45%, rural lending 7-
8% and rest others.
New products:
BAF would launch a new product category and announce a fee
based opportunity soon. Further, the company has introduced gold loan
products for existing customers, at present company’s customers have taken
gold loans of INR110b from the system and BAF is targeting this opportunity.
LAP and mortgage business:
Company would be offering LAP and mortgage
products only as a cross-sell to existing customers. Expects mortgage book to
grow by 25% in FY17.
Borrowing:
Targets 15-18% borrowing to come from fixed deposit (at present
~6%) over the next three years
BAF would come up with its own flavor of MCLR starting 1st April, in order to
face the banks and in-line with its philosophy of running the company like a
banking firm.
Dewan Housing
Current Price INR 152
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 302 | 99% Upside
Industry Outlook:
Affordable housing to be the growth driver for Real Estate
industry. Increasing number of developer are launching projects LMI and middle
income segment (INR1.5m-4.5m category).
Increasing competition in the mortgage business is putting pressure on yields.
Guidance:
On track to reach AUM of INR1t by FY18 and maintain NIMs of 2.8-
3.0%
Disbursements:
~25% of disbursements during the quarter were towards
project loans. Project loans now constitute 8% of the total loan book v/s 6% in
the last quarter.
Higher repayments:
Repayments were higher due to increased pre-payments
across segments, but project loans witnessed heightened prepayments.
Other expenses:
Other expenses were higher due to increased marketing
expenses during the festive season and legal expenses on back of due diligence
of asset management business.
Capital Raise:
Company to issue convertible warrants of INR5b to Wadhawan
Global Capital (promoter group) during 4QFY16. The warrants would be
convertible into equity after 18 months.
39
23 February 2016
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Pricing of the issue would be decided by the SEBI formula of 5% premium over
average price of last 6 months or 15 days (whichever is higher).
Company is raising equity in order to lower its D/E ratio and fund future growth.
Others:
Company is working towards selling its new HQ building to a third party.
Expects the sale to happen in 4QFY16.
IndiaBulls Housing Fin
Current Price INR 598
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 907 | 52% Upside
Guidance:
1) Loan growth to remain at +25% 2) Maintain GNPA at 70-90bps and
NNPA at 30-50bps. 3) Target loan book share of 60% home loan; in 2 years from
existing 51% 4) would maintain spreads of ~ 300bps. 5) Credit cost to be in the
range of 55-60bps.
Borrowings: Due to uncertain market conditions, IHFL has shored up the cash
levels to INR140b and would keep it at high levels (+INR150b) for next 2-3
quarters.
Targets to reduce bank borrowing to 40% by FY17 this will help further
reduction in cost of funds. Bond issuances have been healthy, and along with
ECBs, contributed to 47% of the incremental borrowings in the last 12 months
Asset quality:
Pala Royale is doing distress sale- paying interest and servicing
debt; while it’s making timely payments to IHFL, the company is not recognizing
the interest on same and has also made provisions on it. Provision breakup
(INR380m standard asset; write-off INR450m (largely CVs) and INR350m of
specific asset.
ZCBs: ZCBs have come down sharply and forms 3.1% of borrowings v/s 4.5%
last year- wont issue further ZCBs.
Dividend Policy:
Dividends to be capped at INR9/sh until reaches 50% dividend
payout (Expected until 4QFY17). Dividend payout would then stabilize at 50%.
Others:
1) Company plans to sell down total 20% of the incremental loans on
steady state basis and expects 20% of funding to come from sell down (3QFY16:
12%) 2) Expect avg tkt size to increase to INR35lac over the medium term. 3)
Sold loans of INR10.4b during the quarter and INR29.15b in 9MFY15.4) Risk
weight changes helped shore up CAR by 170bps
Industry outlook:
Recent reports indicate affordable housing turning around the
industry. There is a divergent trend in 15-75 lac v/s +75lac is very large; while
the former is seeing a healthy growth large ticket home sales are muted.
RoA:
Reduction in credit cost and improving cost to income to add 10bps of
RoAs going ahead.
23 February 2016
40
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
M&M Financial
Current Price INR 216
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 294 | 36% Upside
Macro Environment:
Overall economic activities levels in key states remain weak; moreover erratic
weather conditions have aggravated the pressures across all customer segments
thereby impacting the cash flows.
While Bihar, Andhra, Telangana, Rajasthan, Gujarat, UP doing good (Growth is
seen in these states); Maharashtra, TN, MP, Karnataka and Kerala registered
degrowth (bad monsoon and no major activity); these states continue to remain
problem area and contribute 60% of NPLs.
Uptick in disbursement growth of +19% was due to festival season- triggered by
supporting offers from OEMs- triggered volumes. Don’t expect this growth to
continue in 4Q. Moreover the growth was largely driven by value growth due to
higher ticket size products- volume growth stood at 6-7%.
Asset quality:
While the company remains committed to move to 120dpd reporting norms by
Mar-17 (regulatory requirement), it may shift to these norms only post Mar-16.
Expect GNPA to increase by 100-120bps on movement to 120dpd reporting
norms and by 25% on movement to 90dpd, however, the same is expected to
moderate going forward
Of the total 1.8m customers’ accounts- Around 146K accounts have turned NPA
(v/s 129k contracts in the last quarter).
Higher provisions during the quarter were primarily due to additional provisions
and shifting of buckets and not necessarily due to increased slippages.
Additional provisions of INR510m during the quarter include ~INR190m income
reversal and rest INR310m are additional provisions.
Lead Indicators to watch out for improvement
a) Repayments happen in one visit; instead of multiple visits and part payments;
b) OEMs reducing discounts on vehicles; c) LTVs reducing on asset purchases i.e
buyers willing to put in more equity. d) increase in demand of pre-owned
vehicles
Chennai rains: Company does not have a major exposure to the city; thus no
impact seen. However, on the positive side, due to heavy rains ground water
level in the state has increased and this could bode well for agri output which in
turn would aid recovery.
MSP increase: Increase in MSP especially for Soya is positive for the state of MP.
Subsidiary business
Insurance business to grow at a faster rate than MMFS due to lower penetration
in MMFS network. Expects renewal business to provide significant traction going
forward. The company is setting up a separate team for the same
Rural Housing: Expects rural housing to continue to grow at rapid base of ~50%
YoY (on a low base). Rural housing subsidiary to penetrate deeper in semi-urban
areas. At present, 10% of loan book emanates from semi-urban areas.
23 February 2016
41
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Muthoot Finance
Current Price INR 187
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 234 | 25% Upside
Key Guidance
Company confident of achieving FY16 AUM growth of 10%. Would add 100-120
branches over the next 12 months.
Long term RoA target of 3% and would maintain NIMs at 9%.
AUM Growth
Although AUM has grown at steady rate on YoY basis, however, the broad
weakness in the rural economy and poor monsoon has impacted sequential
AUM growth.
Nearly 90% of loans are bridge financing availed by small businessman and
traders; thus subdued economic environment is impacting incremental AUM
growth. This coupled with average tenure of loans at 5-6 months is also leading
to higher repayments and thus further impacting AUM growth.
Yields and margins
Company has maintained margins at 9% and would continue to do so. However,
it has passed on the benefits of lower cost of funds to borrowers. CoF declined
to 10.34% in 3QFY16 v/s 10.49% in 2QFY16 following reduction in repo rate by
the RBI.
Teaser rates are between 12-13% pa. Average yields for the quarter was at
18.3%. MUTH intends to maintain NIMs are 9%.
Asset Quality
Absolute GNPA declined marginally on back of higher auctions during the
quarter, which were held back in the last quarter due to Onam festival in the key
state of Kerala.
The company would move to 150dpd NPA recognition norms from 4QFY16.
However, it expects its %GNPA to remain at similar levels as the company would
likely increase auctions and focus on other recovery methods.
Operating Expenses
Operating expenses are expected to remain at current levels in absolute terms
or it would increase by 5%. Company has adequate infrastructure in place to
service a much higher clientele than at present and thus opex growth would
remain under control.
23 February 2016
42
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Shriram Transport Finance
Current Price INR 824
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,160 | 41% Upside
Industry scenario and outlook:
Macros largely remain unchanged over the last 2 quarters with little signs of
recovery. Higher disbursements in 3Q were largely due to festive season, typical
3Q phenomena.
Rabi crop is under pressure due to low moisture content in the soil from poor
monsoon and relatively warmer winter. However, there is only marginal decline
in area under cultivation. Lately drop in temperature coupled with rains in
central India has improved prospects slightly, but pressure on Rabi crop
remains.
Vehicle demand: Demand for M&HCV remain strong due to demand in coal
mining and some pickup in road projects. Demand for LCV continue to remain
subdued.
Vehicle utilization remains at 21-23 days for HCVs, which the breakeven point
for operators.
Outlook:
Expect macros to improve over the next 2 quarters, but largely
depends on monsoon and pick up in infra activity on back of government
efforts. NPLs trends to remain at current levels, improvement only seen from
3QFY17.
AUM growth:
AUM to grow by 15% in FY16 and FY17
Asset quality:
Management has indicated that asset quality trends will remain weak due to
rural stress and will increase ~10bp for next 2-3 quarters, see improvement only
post 2HFY17.
Would move to 150dpd provisioning norms from the next quarter. Expect
~150bp increase in NPA due to change in norms
Further, the merger with Equipment financing company would be completed in
4QFY16, and thus GNPAs would further increase (current GNPA at INR10.5b in
equipment financing subsidiary)
From 4QFY16, the company would report numbers on consolidated basis (i.e
equipment financing subsidiary merged with parent), thus reported GNPAs are
expected to be at +6%.
However the management has not yet decided on the treatment of this impact
and the final call will be taken by the board post 4Q.
Yields and margins:
Yields have largely remained stable during the quarter; however, going forward
as the share of new vehicles would increase impacting blended yields might
decline.
Cost of fund declined largely because of higher incremental borrowing from
non-bank sources.
Margins improved during the quarter on back of lower CoF and lower cash
balance (better treasury management). Cash balance of INR21b i.e. 3.3% of
assets v/s average cash balances of + 12% of assets led to lower interest
23 February 2016
43
 Motilal Oswal Financial Services
FINANCIALS/NBFC |Voices
expenses boosting the margins. However, in our view this is the optimum level
of treasury management.
On back of diversified borrowing profile, the company is comfortable with lower
cash balance. Maintains 4%-4.5% cash on the balance sheet going forward.
Margins are expected to remain at similar levels in 4Q as well.
Equipment finance subsidiary
Loan book stands at INR22.5b at present. Focus continues to remain on
recoveries and not on expanding the book.
Collection run rate of ~INR800m-1000m/ month is maintained. With more than
half of the collections coming from accounts that are over 150dpd due.
Current GNPA at INR10.5b, down INR500m in one quarter. Targets to bring
GNPAs below INR10b mark in 4Q. Have already provided ~INR2.8b for GNPA.
Others
Company typically does higher securitization in 4Q and expects to securitize
INR25b-30b in the next quarter.
Employee expenses, higher by INR150m, during the quarter were due to change
in bonus regulation by the government and would normalize in the next quarter.
SHTF does not expect a lot of competition from SFBs as it expects the upcoming
banks to focus more on expanding their existing product portfolio and get
occupied with regulatory requirements in the initial years of their operations.
SKS Micro Finance
Current Price INR 498
Click below for
Results Update
Target Price INR 619 | 24% Upside
Buy
SKSM likely to grow at 70-80%:
Potential in MFI industry still very large with unmet credit demand of INR1.5-
3tn.
SKSM hinted that growth is likely to remain at 70-80%; 50-60% coming from
new client additions and 18-20% from increase in ticket size.
SKSM intends to grow to faster pace primarily because it wants to acquire more
clients before SFBs start operations.
Further, threats from SHGs have largely subsided for SKSM as nearly 60% of
SHGs are operational in AP and TN, areas where SKS has very minimal
operations (some operations in AP and none in TN)
Increased ticket size, raises concerns of over leveraging
SKSM is taking utmost care in ensuring that MFI borrowers are not
overleveraged and is strictly following the JLG principles and performing credit
bureau checks.
Further, as a prudent measure, it provides long term loans, which are loans
above INR30,000 for upto two year tenure, only to customers who have
completed two loan cycles with the company.
With interest rates below 20%, political risks likely mitigated
SKS reduced its interest rates to 19.75% in Dec-15. With this it has become the
most efficient MFI in the world with sub 20% interest rate.
23 February 2016
44
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
The company is of the opinion that political risks associated with MFIs are
largely mitigated by lending below 20%; as their exists many products such as
personal loans by banks which charges more than 20%.
Operating efficiency to kick in with optimal utilization of existing infrastructure
Operating leverage is likely to kick in FY17, as the company has now touched
4.2mn customers v/s 5.2mn before the crisis. It is only now that the company’s
existing infrastructure would be optimally utilized and thus cost efficiencies
would kick in.
Asset Quality to remain st able
Asset quality likely to remain stable. The company being an NBFC is not required
to make floating provisions, thus have not made any.
Cross sell to add 1% to RoA
Increased focus on cross sell is likely to add 1% to RoA
23 February 2016
45
 Motilal Oswal Financial Services
HEALTHCARE | Voices
HEALTHCARE
Alembic Pharma
Current Price INR 617
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 680 | 10% Upside
Domestic business grew 15%YoY to INR2.9b, driven by good traction in specialty
therapies.
Among specialty therapies, Cardiology, Anti-diabetic, Gynecology grew 34%,
43%, and 29% respectively (in 3Q),
In acute, Anti-infective showed flat growth, whereas cough & cold segment
grew 20%YoY during this quarter.
Sales grew 285% YoY to INR 5.2b, led by the US business.
In 1Q, The Company had launched gAbilify in the US. It is a blockbuster product
with USD 6b market size (pre-generic).
Till date, it has filed 74 products (3 in 3Q) and has received 45 approvals (2 in
3Q) from US FDA.
Remaining 29 ANDA filings are primarily para IVs and attractive opportunities for
the company.
Alkem Labs
Current Price INR 1,286
Buy
Target Price INR 1,750 | 36% Upside
Click below for
Results Update
India business (71% of sales)
Alkem’s India sales grew at 28%YoY to INR8.8b, driven by good volume growth
in existing portfolio. Adjusted for Indchemie and cachet, India sales grew
13%YoY during this quarter. Secondary sales growth was at 18.6% (as per IMS).
Alkem has maintained its leadership position in Anti-infective, Gastro, Pain and
Vitamin therapies. It has also improved position in growing therapies like
Derma, CNS, CVS, Anti-diabetic. At present, 24% of India sales come under
NLEM. Going ahead, the company expects additional 6% of India sales to come
under NLEM list, taking total NLEM exposure to 30%.
The management has no plans to add significant field force in near term and
would be more focused on improving MR productivity.
US business (21% of sales)
US sales grew 19%YoY to INR INR2.6b, driven by sustained market share in
existing products. In 3Q, Alkem has filed 2 ANDAs and received approvals for 5
ANDAs from US FDA. Cumulatively, it has filed 70 ANDAs and received 27
approvals till date. However, it has launched only 16 products in US market.
Total pending approvals stands at 43. In addition, it also has 10 in licensed
products. The management expects more than half of pending ANDAs to get
approved over 24 months. Market share in key product like Mycophenolate
Mofetil has also been maintained during this quarter. We expect Alkem to
receive 10-15 approvals over next two years, leading to 34% revenue CAGR over
FY15-18E.
Other international business (8% of sales)
Other international business grew 65%YoY to INR1b. Growth was primarily
driven by Australia and Chile markets. Alkem has presence in 50 countries.
23 February 2016
46
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Other highlights
Gross margin improvement was driven by price hikes in India, better product
mix in both India and US and cost savings across the segments. The
management also believes gross margins are sustainable going ahead.
R&D costs stood at 3-3.5% of sales in 3Q. Management expects R&D cost to
increase going ahead.
The management indicated that results were also impacted by AS-09 accounting
standards.
Standalone PAT was higher due to higher inventories in US subsidiary.
Baddi and two US based facilities were inspected last year. Two facilities (Daman
and Ankleshwar-API) are due for US FDA inspection this year. 60-65% ANDAs are
filed from Ankaleshwar and 30-35% ANDAs are filed from Baddi.
Tax rate is expected to be in range of 15-18% for FY16.
Biocon
Current Price INR 462
Click below for
Detailed Concall Transcript &
Results Update
Sell
Target Price INR 450 | -3% Downside
Malaysia facility
is expected to get commercialized by 2HFY17. Once it receives
approval from Local authority, the company will also stop capitalizing cost
(including interest) for Malaysia facility. Overall capital expenditure incurred is
estimated to be at INR12b for this plant.
ANDA filings:
The company filed two ANDAs during this quarter and expected to
file 25+ ANDAs in coming years.
New facility:
Biocon has also started construction of potent solids facility in
Bangalore and expected to spend INR1.5b for its capex.
Glargine Insulin:
Recruitment of patients has been completed for clinical trials
and Biocon expects to file this product in FY17. Similar as Lilly, Biocon is also
likely to file through 505(b)2 route in US market.
Partnered products:
Biocon is on track to file four monoclonal products in
various markets by FY17. It is confident on the prospects of MAb portfolio and
expects biosimilars product to become predictable growth driver for the
company.
Oral Insulin:
Tregopil Phase I study report has been satisfactory and Biocon itself
will be taking it through phase II clinical trials rather than partner BMS.
R&D guidance:
The company has guided for 10-12% of biopharma sales R&D
expenses for next few years.
Capex:
Biocon has incurred INR5.2b capex till this quarter on the back of
Malaysia phase I construction, Syngene and India business expansion. Going
ahead it is also likely to incur higher capex for new biologic facility in Bangalore,
apart from maintenance capex of INR1.5b.
23 February 2016
47
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Cadila Healthcare
Current Price INR 329
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 380 | 15% Upside
US (45% of sales):
US grew 20% YoY to INR 10.7b in 3Q, driven by greater
traction in AG products and one off contract sales. Going forward, we expect US
sales to grow atleast 18% YoY over FY15-18E on account of rich ANDA pipeline
and key product launches like gAsacol HS, gPrevaid ODT, Toprol XL and few
transdermals post resolution/site transfer. The company has filed 20 ANDAs
with US FDA in 3Q.
Asacol HD:
CDH is in process of filing for site transfer of this product. The
company also has option to launch Asacol HD AG in market on July 2016.
However, in such circumstances it will lose its right to launch generic Asacol HD
under exclusivity. Managemen t also added that generic opportunity could be
extended beyond exclusivity period due to lack of filings. As a result, it may
choose to file for site transfer than launching AG in the market.
Site transfer:
Currently, CDH has transferred eleven products from Moraiya
facility to Ahmedabad based SEZ facility from existing product portfolio. It is also
in process of site transfering four more key products from future pipeline that
includes – Asacol HD and Prevacid ODT..
Revenue exposure:
Currently, Moraiya facility supplies 60% of total US sales. In
terms of pending product approvals, CDH has filed 74 products from Moraiya
facility which includes 40% of total oral solid filings.
Other inspections:
All other four key facilities (Dabasa API, Ankleshwar API,
Baddi Formulations and SEZ formulations) were inspected in 2014/2015 and
have not received critical observations from US FDA. SEZ facility has also
received EIR from US FDA and expected to get product approvals very soon.
India (30% of sales):
Domestic branded business has reported double digit
growth for 2nd consecutive quarter, recording INR 7.1b sales in 3Q. It has
launched 12 new products in 3Q. The management expects INR300m impact on
India business due to recent NLEM policy.
Latam (2% of sales):
In 3Q, LatAm sales declined 11%YoY to INR544m due to
sharp currency depreciation. In Brazil it received two product approvals during
this quarter. The management expects Brazil to business to break-even in FY16.
Europe (3% of sales):
In 3Q, Europe sales also declined 10% YoY to INR762m.
Management expects to grow EU revenues in line with respective market
growth in the coming years (4-6%). We have modeled 4% growth over FY15-18E.
23 February 2016
48
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Dr Reddy’s Lab
Current Price INR 3,062
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 3,300 | 8% Upside
Global generics grew 7%, despite currency challenges.
Growth story is driven by US, India and Europe.
US grew 11%YoY, key molecules retained market share and gaining market
share in Nexium.
PSAI declined 17%YoY, delay in dispatches due to remediation activities
SG&A was higher due to settlement (USD5.4m) and remediation costs.
Emerging market territory hurt by currency.
Russia grew 5%YoY constant currency.
Glenmark Pharma
Current Price INR 747
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 900 | 21% Upside
India (27% of sales)
India sales grew 13% YoY to INR4.9b affected by stoppage of sale of Sitagliptin
products post court order. However, GNP has launched Tenaligliptin in 1Q and
has generated INR230m till date.
US (34% of sales)
In the US, the company received two approvals during this quarter - namely,
Linezolid tablets and Clotrimazole and betamethasone dipropionate topical
cream. In FY16, it has received thirteen product approvals from US FDA and
most of these products are in market. In FY16, GNP has also filed 6 more
products with US FDA, taking total filings to 167.
SRM (13% of sales)
Russia business is growing at ~5% in constant currency, whereas secondary sales
for the quarter were at 16%. Management believes Russia business
environment continues to remain challenging as demand conditions are still
weak. Additionally, Russian currency has also seen 30% depreciation against
USD YoY, that aggravated overall sales impact in rupee terms.
LatAm (7% of sales)
LatAM sales declined 47%YoY to INR 2.3b, affected by lower Venezuela sales
and deprecating Brazilian currency. In 3Q, outstanding sales in Venezuela stand
at USD 20-21m while total cash at subsidiary level is still higher at USD30-35m.
Europe (10% of sales)
Sales in European market grew 2%YoY in 3Q. However, secondary sales growth
was much better as German business continues to perform well for the
company. In CEE region, GNP launched Bortezomib, Pregabalin, Aripiprazole,
23 February 2016
49
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Dexpanthenol, Magnesium Complex B, Eztom (Mometasone) Spray, Rekarnival.
In the western region, It has launched Lansoprazole, Losartan, Memantine oral
drop, Omeprazole in UK.
Other highlight
In 3Q, gross debt was increased to INR34.5b in Dec’15 from INR32b in Sep’15.
Cash was lower at INR6.5b in Dec’15 compared to INR7.9b in Sep’15. As result,
Net debt was increased to INR28b in 3Q from INR24b in 2Q. Debt increase is on
account of Tarka liability.
R&D spend was at INR1.7b during this quarter (9.2% of sales). However, over
next two years management expects R&D to scale up on the back of complexity
of filings and likely to reach to 10-11% of sales.
Net forex losses were at INR270m in 3Q.
Lupin
Current Price INR 1,783
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 2,250 | 26% Upside
US generic business grew 18%QoQ and branded business grew 56%QoQ.
US generic business benefited from flu season.
US branded business grew higher on account of Suprax and Antara .
Gavis acquisition: Hoping for FTC clearance in this month. Expects acquisition to
get closed in Mar’16.
Cosevelam and Sevelamar tabs are likely to be launch in FY17. However,
Suspension could be delayed due to open CRL.
Increasingly lot of new filings are happening from Indore and Nagpur plant.
Higher staff costs to due increment in R&D and manufacturing and addition of
new businesses.
Sun Pharma
Current Price INR 864
India (27% of sales)
Buy
Target Price INR 975 | 13% Upside
Click below for
Detailed Concall Transcript &
Results Update
India branded business grew 8%YoY to INR18.9b, reflecting sequential recovery
from 2QFY16.
SUNP has withdrawn policy of bonus sales and giving discounts on acute
products, resulting lower sales growth over last two quarters. However, going
ahead, it will improve the profitability of the India business.
In 3Q, SUNP continues to rank no 1 in Indian pharma market and has captured
8.8% market share till date. It also market leader in 12 classes of doctors in
India.
Integration with Ranbaxy for domestic formulation business is on track.
23 February 2016
50
 Motilal Oswal Financial Services
HEALTHCARE | Voices
US business (47% of sales)
US sales declined 5.5%YoY to INR32b (USD486m), impacted by pricing and
supply constraints at Halol facility.
SUNP has launched its generic version of Gleevec in US in Feb’16. However,
management believes market share ramp up could be slow as unlike normal
generic products Gleevec is being distributed by different set of specialized
pharmacies in US.
Over last nine months, SUNP has filed 11 products and received 9 approvals
from US FDA. Cumulatively, it has received 435 ANDA approvals till date and 156
ANDAs are still pending with US FDA.
SUNP has taken additional remediation steps after receiving warning letter for
Halol facility in Dec’15. It is likely to request US FDA to re-inspect Halol facility in
1QFY17.
The management clarified that less sales in Sumatriptan injector is on account of
supply constrains at Halol facility and are likely to ramp up going ahead.
However reduction in Doxil sales is on account of competition and not due to
Halol supply constraints.
SUNP has successfully integrated the Opiod business in 3Q. However, it also
indicated that access to raw material in control substances doesn’t ensure
higher quota from DEA. However, it helps to gain more market share due to
competitive pricing.
Emerging markets & RoW business (22% of sales)
The declined in emerging markets and RoW business sales is on account of
currency issues and discontinuance of low margin businesses during last few
quarters.
Tax rates
Tax rates could go up if profitability of subsidiaries in high tax brackets increases
in the future.
Ranbaxy integration
SUNP has started seeing positive impact of Ranbaxy integration from this
quarter and is confident of achieving USD 300m synergy by FY18.
MK-3222
SUNP is expected to file this product in CY17. Currently, it is waiting for Phase III
trial data. Tildrakizumab that is once a quarter product versus Cosentyx which is
once a month product.
23 February 2016
51
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Torrent Pharma
Current Price INR 1,326
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,800 | 36% Upside
India business grew 7%YoY to INR4.5b in 3Q, discontinuances of bonuses led to
slower growth.
However, benefit in margins due to discontinuance of bonus sales are much
higher than the top line loss
Continues to focus on specialty business and improving MR productivity
Price hike impact (Shelcal and Chymoral) would be reflected in 4Q
Third biosimilar is also likely to enter in FY17 in India.
US Base business grew substantially in 3Q aided by Nexium and Detrol LA
launch.
Abilify still remains important product for Torrent in US market
Till date TRP has received 57 approvals and 16 ANDAs are still pending at US FDA
23 February 2016
52
 Motilal Oswal Financial Services
MEDIA | Voices
MEDIA
Dish TV
Current Price INR 73
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 130 | 80% Upside
Subscriber additions:
In spite of relatively weaker additions viz-viz-viz peers in
3Q; management is confident to achieve its net subscriber add guidance of
~1.5m subscribers on the back of increased Cricket Matches and new products
launched in January 2016 (9M net additions: Videocon D2H: 1.09m; Airtel:
1.03m; Dish TV: 1.04m). 9M gross additions for the industry is estimated to have
been ~8m; of which Dish TV gross adds stood at ~2m (~25% market share).
On Competition from Free Dish and Reliance Jio:
Management suggested that
1) Free Dish isn’t a competition and on the contrary helps sample consumers
who eventually upgrade to lower/base packages of Private DTH payers. 2)
Reliance Jio could be disruptive; however bulk of their initial revenue is
expected to be from voice and data and hence video business is expected to be
relatively insulated for quite some time going forward.
New Product Launch:
Management has introduced a slew of new products such
as Dish99 which is an FTA pack; however consumers have to buy three add-on
packs (min INR75); so effectively it’s an INR174 pack. The initial response has
been good and manage ment intends to use this pack as a penetration pack to
make further in-roads in DAS III/IV markets. Regional Offering Zing contributed
~20% of the incremental gross adds this quarter.
HD Offerings:
HD contribution to incremental gross adds for Dish was ~20-22%.
Dish enjoys ~20% market share in HD offerings.
Zee Entertainment
Current Price INR 383
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 466 | 22% Upside
Advertisement growth: Ex-&TV ad growth for Zee outpaces industry which is
growing at ~14-15%. Ad growth visibility is strong for the next 2-3 quarters.
Key performing categories: FMCG, E-Commerce and Consumer Durables
continue to perform well. While Telecom and Auto haven’t fired yet,
management expects these sectors to step up ad spends in the next couple of
quarters.
Subscription growth: 21% YoY growth in domestic subscription also included
some catch up revenues. For FY16, domestic subscription expected to grow in
double-digits.
Zee Anmol: Zee Anmol continues to perform well. Management intends to
improve monetization from this channel going forward.
Content Strategy: Fresh programming hours have increased from 28hours in
3QFY15 to 34hours in 3QFY16 for the flagship Zee TV. &TV’s Original
Programming hours (OPH) remain stable at the 9M average of ~22 hours.
Regional channels’ OPH remain largely flat.
Margin Guidance: EBITDA margin guidance remains unchanged at FY15 EBITDA
margin – 50/100bps.
53
23 February 2016
 Motilal Oswal Financial Services
METALS | Voices
METALS
Hindustan Zinc
Current Price INR 164
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 171 | 4% Upside
Variation in quarterly volumes will continue going ahead. But full year volumes
will be met.
Silver production will be significantly higher. Mine metal will also be higher.
16km of mine development during the quarter, 55% higher from last year
EC received for SK mine expansion from 2mt to 3.7mt
RAM future OC expansion has slowed down the UG expansion
Domestic zinc demand to grow by 4-5% in FY16
Galv steel use in India is an exception rather than a normal in US/Europe and
other developed regions.
16% lower average mine grades during the quarter
INR 48 cr impact of cess, RPO obligation, water and electricity cess
Tax low due to change in accounting to long term capacity gains and benefit of
certain tax free incomes
Deeping of open pit by 50mtrs for RAM
Kayad faster than planned ramp-up to 1mt
SK mines will be ramp-up to 3.5mt in 4Q. From next year to 3.5-3.7mt
Zawar is a group of mines, has many pieces. Will look at individual pieces and
take up projects which are fesible.
Will maintain the plan ramp-up of 1.2mt by Fy20-21 despite the review of Zawar
and Dariba
Cash decline due to - Advances in previous quarter. Special dividend consumed.
Dividend advance tax. Capex was 500 cr
RAM UG regular stopping started in the month of October.
Average grade will come down with years. But due to higher silver content from
mines like SK the contribution will be higher.
200-225mn dollar in Fy16, 80% of this would be in project capex; in Fy17 capex
will be slightly higher
126ppm silver last quarter. Silver content varies from pocket of mines.
MIC will be marignally higher next year
Zinc 30-35% exports currently
Hindalco
Current Price INR 70
Buy
Target Price INR 104 | 50% Upside
The 3rd US auto line and the new Germany line is expected to start in a couple
of quarters. The US line is fully sold-out. The Germany line still has some
capacity open.
US line has commitments from F-150 and Super duty trucks. Once Super duty
shipments start, the margins would see further increase.
23 February 2016
54
 Motilal Oswal Financial Services
METALS | Voices
Click below for
Results Update
Benefit of scrap spreads has declined over the past few quarters on lower LME
and spot premiums. At some stage in future, the trend will reverse.
In the Asian market, although the lower MJP premiums has improved
competitiveness against Chinese players, there is significant pricing pressure due
to moderating demand in the region and over-capacity in China. South Korea,
which represents ~400kt market (of total ~800kt), is relatively less influenced by
competition from China.
FCF is guided to be positive for full year FY16 on major working capital release
and better operating results. Working capital is to benefit from (a) better
management of inventory (b) enhanced payment terms with suppliers and (c)
lower LME.
Capex for F Y17E will be lower than FY16E. Guidance for FY16E is for USD400m.
No further impact from price lag in the coming quarters as premiums have
stabilized.
JSW Steel
Current Price INR 1,084
Buy
Target Price INR 1,393 | 29% Upside
Click below for
Detailed Concall Transcript &
Results Update
If excluding the shutdown, balance capacity operated at 98% utilization
Inventories have come down v/s. 2Q
NSR down 24% YoY. Cost down 17.5% YoY.
INR 300 cr cost due to shutdown.
Operating loss 118cr standalone if excluding the exceptional; in consol INR 438
cr
Difference between exceptional charge in standalone and consol due to INR
3,474 cr accumulated losses in consol results.
INR 39,438 cr debt
delay of 1-1.5months in commissioning of new capacities
5-6% miss to the guidance of 12.9mt due to delay in commissioning
FDT: State government can levy FDT only on state govt controlled entities like
MML, high court order. Max only 8% FDT can be lieved. 3months refund
timeline effective 3rd Dec.
JSW can get INR 1520.93cr cash benefit - INR 825.39cr write-back in PL - benefit
of FDT.
FDT is still levied @ 12%.
Goodwill remaining INR 130m.
Networth INR 21,502 cr
Realization decline INR2,000-2,100 QoQ
Unlikely to prices dropping further
MIP can be extended upto 4 yrs to 18mt with no increase in gross debt.
Power and fuel cost lower due to coal and lower natural gas.
Coal landed cost USD100-105 cfr. In 4Q USD 5/t drop.
23 February 2016
55
 Motilal Oswal Financial Services
METALS | Voices
Vedanta
Current Price INR 75
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 68 | -8% Downside
High cost alumina inventory in 3Q, as this declines aluminum CoP will see a
decline
Superior pricing on oil through diversification of customer base. Started shipping
to new customers which has improved the pricing.
Alumina Lanjigarh to 4mtpa approval received
Aluminum CoP to decline furher on lower alumina and other initiatives
Moving to less ingot and more value-add in aluminum
Imported coal consumption would remain as prices of local coal is rising while
imported remains flat
In Alumininm, fixed cost has come down through employee cost, alumina
moving to one stream.
Evaluating Balco ramp-up next year. Planning ramp-up by 2 pots per day but
plan to accelerate it to 4 pots pe r day.
Cairn SPV debt down due to re-payment of inter-company loan, partly in the
quarter and partly in the 4Q. 0.8b is repaid and balance 1.8b will be repaid
gradually.
Malco debenture is to repay Twin Star debt
Unused credit facility of 4,800cr. can be used to repay the inter-company debt
INR 200cr one-time benefit in copper (target plus benefit) was recognized in the
quarter (relating to past year).
Dedicated auction in CPP e-auction likely.
Tata Steel
Current Price INR 253
Click below for
Detailed Concall Transcript &
Results Update
Sell
Target Price INR 146 | -42% Downside
Demand from construction and infra sector remains weak as private sector has
declined
Imports represent ~50% of free hot roll coil market
Chennai floods impacted sales to auto segment
Ferro realization decline impacted margins of the business, despite higher
volumes
Automotive industry growth picking up
Some greenshoots are visible
More than 80% of EU steel demand growth taken-up by imports
China steel demand to fall 2% in FY16
Some indication in EU commission on rethinking of some protection on EU
imports
Realization drop by INR 2300/t
Seasonally Dec quarter is the weakest quarter in Europe, that also drove the
margins lower
Kalinganagar 1-1.5mt in FY17. This is a single line so if even one chain does not
work there is issue of continuity
56
23 February 2016
 Motilal Oswal Financial Services
METALS | Voices
Translation loss in subsidiaries driving the loss in the subs - INR 198 cr gain of
INR 168 cr in previous quarter.
Has bid for electrosteel. fits into strategy of being into long products about
segment.
FY17 capex significantly lower than FY16 as KPO capex will be largely done.
1.6-1.8mt capacity cut in Europe
USD1.5b guarantee by Tata Steel India for EU operations
Railways and highways seeing some activity
Wire rods, cold rolled and plates papers filed for safeguard
INR 1000-1200 p.a maintenance capex in Jameshdpur
23 February 2016
57
 Motilal Oswal Financial Services
OIL & GAS | Voices
OIL & GAS
Cairn India
Current Price INR 131
Click below for
Detailed Concall Transcript &
Results Update
Neutral
The capex for the quarter stood at USD58m of which 70% was invested in
development, and the balance in exploration activities. On an asset basis, the
core MBA fields accounted for 60% of total investments. Capex for the full year
has been maintained at USD300m.
Rajasthan royalty share stood at INR4.1b (v/s INR6.9b in 3QFY15 and INR4.3b in
2QFY16).
Profit petroleum stood at INR1.1b (v/s 9.4b in 3QFY15 and INR5.3b in 2QFY16).
Other income stood at INR1.4b (v/s INR1.6b 3QFY15 and INR1.2b in 2QFY16).
Other income was flat QoQ on excluding the MTM loss of USD20m on bonds
recognized in the last quarter.
Foreign exchange gain stood at INR488m (v/s gain of INR3.8b in 2QFY16 and
gain of INR3.5b in 3QFY15) primarily due to lower INR/USD depreciation in this
quarter than the previous quarter.
CAIRN India approached the High Court to expedite the PSC extension decision
and to be allowed to export its crude production.
An extension of the PSC term will lower the depreciation expense of the
company, as the assets will then be depreciation over till 2030, instead of 2020.
Gail India
Current Price INR 326
Neutral
Target Price INR 373 | 14% Upside
Click below for
Detailed Concall Transcript &
Results Update
Gas Transmission: In 3QFY16, gas volumes increased due to increased power
pooling volumes (by ~8mmsmcd, can go to ~12mmscmd in the near term).
Spot LNG volumes increased from ~4.7mmscmd in 3QFY15 to ~9.4mmscmd in
3QFY16.
Likely increase in the transmission tariff: Transmission segment profitability will
benefit with the awaited increase in pipelines tariffs. Tariff revision for KG basin
network was expected in December 15 (now delayed); tariffs for others are
expected to be revised by end of the current fiscal year.
Petchem: Profitability for the petchem segment was impacted by higher
depreciation and higher interest costs due to new plants commissioning. Also,
stabilization issues at the plant resulted in lower than expected production
increase. Expect petchem to turn profitable in 1QFY17. By 1QFY17, total pechem
production can be expected to reach 140-150,000MT.
Others: Other income was higher due to (a) INR400m of interest on income tax
refunds, (b) ~INR900m of dividends received from ONGC and (c) foreign
exchange gains or ~INR250m.
Debt/Equity stands at 0.9 and cash as of 3QFY16 stands at INR8-9b.
58
23 February 2016
 Motilal Oswal Financial Services
OIL & GAS | Voices
Capex guidance for FY16/FY17 stands at ~INR17b/INR15b. In FY18 and FY19,
total capex guidance stands at INR40b. The increase in FY18 and FY19 is due to
new pipeline projects.
Update on Kochi-Mangalore-Bangalore pipeline: Management indicated that on
the Mangalore leg, with all the RoW is in place, they are yet to get full consent
on the two districts and some breakthrough is expected soon. Also on the
Bangalore phase the entire RoW was also in place, but even after the favourable
Supreme Court decision, clarity will only emerge after the Tamilnadu
government’s final stand on this project. (Media reports indicate that Tamilnadu
government wants to modify the pipeline route).
23 February 2016
59
 Motilal Oswal Financial Services
REAL ESTATES | Voices
REAL ESTATE
DLF
Click below for
Results Update
Buy
Target Price INR 120 | 35% Upside
Current Price INR 89
Bought back DE Shaw stake in DCCDL as part of preparation of DCCDL CCPS
transaction, which is ready to be shared with prospective investors in Feb 2016.
DCCDL will have near INR120b of debt by March 2016 post unbundling of
existing debt structure where DCCDL has INR73b debt.
Ongoing assets offer net cash flow visibility of INR140b albeit monetization
timeline would be contingent on market dynamics.
DCCDL CCPS transaction doesn’t stuck in SEBI verdict in current format as Hons
Supreme court order has been in favor.
Mahindra Lifespaces
Current Price INR 463
Click below for
Results Update
Neutral
Target Price INR 500 | 8% Upside
Weak demand continued in the festive season across markets. Hyderabad was
one of the better markets while Nagpur and Bangalore were steady. Launch of
the Andheri project was received well by the customers (70% of 0.23msf sold).
MLIFE received the approval for the 500 acres of DTA in MWC Jaipur and master
plan is expected to be completed by 4QFY16.
Sumitomo has picked up 40% stake in MIPL for north Chennai SEZ and land has
been transf erred to new JV.
It acquired 21 acres of land with development potential of 0.89msf at Palghar,
Maharashtra for development of a new affordable housing project under the
Happinest brand.
Oberoi Realty
Current Price INR 226
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 349 | 54% Upside
The largest contributor this time to both the top line, as well as the margins is
Esquire. So the project to date number stands at a little over Rs. 14,000 a square
feet. Whereas if you will look at the numbers for the last couple of quarters, it's
all at about Rs. 20,000 odd a square feet. So when the first time recognition is
coming in, it is on the back of an average number of about Rs. 14,000 a square
feet. So that's why you're seeing slightly lower margins.
The construction expense was as per line with the earlier quarters. What was
critical this quarter was some premiums that they paid. In fact they paid close to
about 400 crores of premiums during this quarter. This is all for the primary
component event in Borivali. Then there was a payment made for the higher
floors in Esquire, as well as for Enigma.
23 February 2016
60
 Motilal Oswal Financial Services
REAL ESTATES | Voices
Exquisite and Esquire, Exquisite was under the old DCR, there were no
fungible premiums or any of those paid.
In Esquire it fall under the new DCR,
so there is the fungible FSI which is getting paid, plus They are also loading some
TDR on this building. So there is also the additional costs coming on account of
that into Esquire. That's why there is higher land costs compared to Exquisite.
Glaxo's also again clear, they also received commencement certificate some
time before the property comes into the market.
Some orders in the Supreme Court, which said that if the state government has
not boundary the boundary then we cannot do any development deal. 10
kilometers. But this is only the applicable to any project, which is about 20
thousand Yes. If you restrict your construction activity to less than 20,000m and
you don't have a problem. In Oberoi’s case, they have just about starting. So,
they haven't yet crossed that 20,000m threshold
The Worli project is to be launched in 4Q and they anticipate Esquire to deliver
by December 2017.
23 February 2016
61
 Motilal Oswal Financial Services
RETAIL | Voices
RETAIL
Jubilant Foodworks
Current Price INR 1,021
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,500 | 47% Upside
Consumer sentiment largely muted. Volume deceleration YoY in 3QFY16 (SSG
for 3QFY16 stood at 2%).
Pricing actions: Dominos took 3.8% weighted average price hike in
September’15 and 3% in Novemeber’15. Dominos have taken differential pricing
after extensive consumer study. Price increase was taken only in those sku’s
where price elasticity was high (as per the study done by the company).
TN flood effect: Thereare currently 50-55 stores in TN; impact not meaningful.
EBITDA margin impacted by 110bps due to one-offs in staff cost (differential
bonus cost impact). Going forward the impact will be around 30bps.
Adverting expenses marginally higher in the quarter (stood at 5% for 3QFY16).
High rental expenses due to new restaurant openings and escalation as per
agreement.
Payback period has been increasing for new stores as the new stores are now
opened in Tier-2 and Tier-3 cities.
Menu additions: During the quarter, Dominos introduced Double Cheese Crunch
Pizza and Custard Bliss. While Dunkin’ Donuts introduced 5 new burger, 6 new
donuts and 4 new coffees.
Technology: OLO now contributes 36% to delivery sales (27% in 3QFY15); Mobile
ordering contributes 38% to OLO sales (21% in 3QFY15).
Discounting: Once a month offers now have increased to twice a month.
Dunkin Donuts: Around 7% weighted average price hike taken on a YTD basis.
200bps drag on profitability for the company on a full year basis. The brand is
expected to contribute to profitability at 120 stores (70 stores as on 3QFY16).
The opportunity in All Day Menu is less in Dominos than Dunkin Donuts.
Some pressure on store signing – more pragmatic expansion
Employee count: 30,328 as on 31st Dec’15.
Guidance:
Target to open 150 new Domino’s restaurants and 20-22 new Dunkin’ Donuts
restaurants.
Capex: INR2.20b for FY16 (INR1.7b for stores and rest for commissaries, office
space, etc).
Shoppers Stop
Current Price INR 346
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 420 | 21% Upside
Quarterly Performance
Demand environment: No dramatic change in consumer sentiment, better SSSG
due to company’s strategic offers & schemes during the quarter.
Gross margin drop in SHOP due to the scheme ‘Choose your Own Gift’ run by
the company during the quarter.
23 February 2016
62
 Motilal Oswal Financial Services
RETAIL | Voices
Online: INR0.20b invested during the year. 2nd phase warehouse management
system now will be worked on as phase 1 of Omni channel initiative is executed
(by April will get to know about its success); refreshed website of SHOP already
on air and new app will be launched in 1-2 weeks.
HyperCITY: Fashion continues to grow but at a slower pace. Drop in customer
entry was due to the reduction of sizes of two big stores.
Others
Debt has increased due to infusion of money in HyperCITY; Debt level to further
increase by INR0.2-0.3b by FY16 end.
8 property options sold for INR 1.25b; 11 property options still left.
SALE period has been getting preponed every year to fight the online players.
SHOP and Femina exclusive brand launched during the quarter.
Guidance
Outlook for FY17 soft; customers asking for value products.
Stores: 2 stores to be opened in 4QFY16. 6 departmental stores and 2 HyperCITY
stores expected to be added in FY17.
8-9% LTL growth for departmental stores estimated for FY17.
SHOP hopes to achieve 8% EBITDA target for departmental stores by 24-
30months from now.
Titan Company
Current Price INR 334
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 360 | 8% Upside
Jewellery Business
Jewellery gross margin improved due to better brand mix.
Spot purchase vs Gold on lease was 25%: 75% in 3QFY16. No material hedging
gains in 3QFY16. Benefit of hedging premium to come in 4QFY16.
Jewellery store expansion continues with 12 stores added with ~ 54k sft. YTD
Pan card regulation impacted studded jewellery sales vs. gold jewellery sales
(witnessed 20% growth) in Jan’2016. However management would wait to see
few more weeks of data to establish any trend.
GHS contribution in sales growth in 3Q16 would be 5%.
1st week of activation account for 25% of total sales
Wedding season in Q3 was very strong. GHS sales through tie up with banks has
not seen any material pick-up yet. Not likely to touch 100k sqft store expansion
target for FY16. Should reach ~80ksqft.
Watches
Helios stores continue to report healthy like to like growth.
Watches margin impacted due to higher adspends and earlier commencement
of discount season vs Q4PY.
Others
Eyewear posted 2.4% growth due to muted performance during festive season
and weather conditions in South India (largest revenue contributor).
Eyewear closed 8 stores and renovated 12 stores in 3QFY16.
Sunglasses industry in India is ~INR3b.
Cash Balance of INR10b. Other segment EBIT losses higher due to precision
engineering incurred losses and fragrance segment incurred higher ad spends.
23 February 2016
63
 Motilal Oswal Financial Services
TECHNOLOGY | Voices
TECHNOLOGY
HCL Tech
Current Price INR 850
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,000 | 18% Upside
Guided for stronger 1HCY16:
HCLT had earlier announced 10 deals in the July-
September quarter, only 2 of which have transitioned to steady state, and the
ramp up in remaining deals will follow in the near term. That lends visibility of
strong revenue pick up over the next couple of quarters. Based on this pick-up
expected in IMS, it has guided for a strong 2HFY16 (erstwhile June-end year).
Retains 21-22% EBIT margin outlook, but for the next half:
HCLT had earlier
retained its full year EBIT margin outlook of 21-22%. However, with multiple
factors that have affected costs in 1Q and 2Q of the current year, the company
has guided for the band to prevail in 1HCY16. It expects to drive the levers of
utilization and G&A expense optimization in order to maintain margins in the
near term. Moreover, the absence of costs associated with the Chennai floods in
3Q, and material pick-up expected in revenue growth, there is visibility on
margin expansion.
Headcount reduction:
The headcount reduction during the quarter was not a
function of lower demand expectation. The company has ample visibility of
ramp up in deals over the next two quarters. Transformational deals can take up
significant costs and resources when acquired, and hence don’t see increased
allocation of manpower as the deal ramps up. Moreover, on account of changes
in technology, reskilling efforts have been ongoing. Additional attrition would be
caused because of the bunch of people who are unable to cope with these
changes.
Various factors playing out in the application services space:
Growth slowing
down in the application services space has been largely on account of pressure
in ERP and packaged applications. The company is seeing negligible growth in
these areas. However, it has been strong growth in the areas of application
modernization, middleware and analytics.
Differentiated positioning in Financial Services:
Financial Services has been
seeing a shift in spending patterns. While budgets continue to grow in the range
of 3-4%, a higher proportion is being captured by Digital/new technologies.
HCLT’s efforts to differentiate include: [1] Creating co-innovation labs with for
customers, [3] Higher use of cognitive and automation tools, [4] Aiding clients
with their transformational/legacy modernization needs, and [5] Outcome
based models.
Volvo deal progressing well:
HCLT’s deal with Volvo has been progressing well.
The LOI was signed when it was announced in the previous quarter. Conversion
to revenue is likely to happen 1QFY17 onwards (March-end year).
23 February 2016
64
 Motilal Oswal Financial Services
TECHNOLOGY | Voices
Hexaware Tech
Current Price INR 231
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 250 | 8% Upside
Guidance for CY16
In CY15, HEXW beat the NASSCOM guidance (12-14%) in both constant currency
and US D. It expects to beat the 10-12% revenue growth guidance for CY16 too.
It guided for profitability in-line with CY15 full year profitability. It expects
2QCY16 and 3QCY16 to deliver the vast majority of the growth and 1QCY16 and
4QCY16 to be seasonally soft quarters. Dividend payout is likely to be similar to
that in CY15.
Strong new deal wins
New deal wins for CY15 stood at USD120m. This has been a significant positive
given the fact that deal wins from new customers in CY14 stood at a fraction of
this amount. This gives the company a better footing to begin CY16 with.
Two fold strategy going ahead
HEXW has simplified its strategy and will focus on two objectives: [1] Shrink IT:
Help clients knock off 30% in commodity IT; Target top30-50 customers of
leading IOPs which are dissatisfied and cannibalize on their revenue and [2]
Grow Digital: Harness all forms of data and modernize IT landscape for key
processes; Investing in solution building.
Focus on larger deals
HEXW has been focusing on building a pipeline of larger deals. It has been
deliberately walking away from smaller deals. This has also reflected in its
revenues from APAC, which have seen a decline/sluggish growth for the last few
quarters. However, the geography has reached the inflection point where work
on new large deals starts to reverse the impact of shrinkage in the portfolio. This
has led to growth in APAC, which can be expected to continue going ahead.
Focus on top 20 customers
HEXW has been focusing on its top 20 customers and this metric to track
progress on client mining. During the quarter, this bracket saw 2 new additions.
These customers were smaller earlier, and have grown through rigorous mining.
Wage hike impact to be seen in 4QCY15 too
The company has altered its wage hike cycles. From now on, the impact of
offshore wage hike will be seen in 3Q and 4Q, and the impact of onsite wage
hike would be felt in 4Q. Hence, 1Q will not see any negative effect, as it used to
earlier.
Demand environment across segments
3Q saw some weakness in verticals like manufacturing and travel &
transportation. The management expects a pick-up in manufacturing in a couple
of quarters. Growth in travel & transportation was muted because 2Q saw a
sharp jump in revenue. The outlook for this vertical remains positive as airlines
have seen huge savings because of subdued oil prices, which are translating into
increased IT spend.
23 February 2016
65
 Motilal Oswal Financial Services
TECHNOLOGY | Voices
Infosys
Current Price INR 1,126
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,350 | 20% Upside
Pricing environment:
Pricing environment in traditional services continues to be
under stress. Pricing is on a structural decline led by cost pressures for clients,
and the massive shift in businesses towards digital.
Bump in India business:
Revenues from India grew by 24% QoQ CC in 3Q. This
wasn’t driven by a one-time or exceptional item, but resulted out of multiple
projects commencing and ramping up. Also, revenues from GST were not a part
of growth during the current quarter.
the quarter, the management was also confident of achieving industry-leading
growth in FY17E. Moreover, the vision for 2020 (USD20b revenue, with 30%
operating margin and revenue productivity of USD80,000 per employee) is
achievable. However, results would start appearing in the form of revenues first,
then margins, and followed by revenue productivity.
No clarity on client budgets just yet:
There is still little clarity on client budgets
for 2017, as budgets are increasingly being decided upon on a quarterly basis.
However, the general belief is that budgets would be flat to downwards. While
cost cutting in the traditional business would be present as usual, spend would
be repurposed towards transformational activities.
Vertical-wise demand outlook:
The momentum in Financial Services has been
strong, and INFO continues to win on vendor consolidation. It has seen three
consecutive strong quarters. Retail could see thrust on smaller innovation
projects as the medium of sales has been seeing a dramatic change towards
mobility, and online. In manufacturing while automotive has been seeing great
momentum in the areas of connected cars and Digital in dealerships, aerospace
has been seeing a downturn as most design cycles have been completed.
Several margin levers in place:
There are several margin levers in place – scope
of improvement in utilization with progress in the ‘Zero Bench’ initiative,
offshoring in areas like IMS and testing, optimization of subcontracting expenses
and onsite employee costs, and automation.
IMS weakness:
Was on the back of one-time effect, but overall IMS will
continue to remain one of the drivers of company growth. The one-time impact
of last quarter sat in this service line.
23 February 2016
66
 Motilal Oswal Financial Services
TECHNOLOGY | Voices
Info Edge
Current Price INR 729
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,060 | 45% Upside
99acres.com
Revenues from 99acres.com declined by 6.7% QoQ (12.6% YoY). While the real
estate market in Bangalore/Pune/Mumbai remained good, Noida/Gurgaon have
taken a big hit. The real estate market remains bogged down by depressed
demand, low transactions, 50-60% decline in new launches and unsold
inventory of 2-4 years.
The segment had losses of INR200m during the quarter, which is lower
compared to INR255m in the previous quarter. The loss was on account of
increased investments in platform, data quality and advertisement.
Competitive intensity has reduced in the real estate market. However, INFOE is
cautious given the Quikr-Commonfloor transaction and fresh capital infusion in
Housing.com. It will continue to spend on advertising, although not as
aggressively as it did in 1H.
As measured by Comscore, 99acres.com has seen an average market share of
42-43% over the last 2-3 months. 45-50% of its total sessions are driven by
mobile.
Naukri.com
Topline grew 19.4% YoY, with continued strength in IT services hiring. However,
non-IT will be directly linked to the revival of the economy; which can
potentially drive even better growth. Sectors like Financial Services and
Infrastructure should see some pick-up as the economy revives.
Corporate sales margins were lower during the quarter on account of the bonus
payments.
INFOE has been focusing heavily on new products. It now has 1500 live
customers on career site manager, and a few hundred customers on referral
hiring manager. It will continue to invest in augmenting features and
functionality on existing platforms to strengthen positioning.
Zomato.com
Zomato.com has been aiming to drive profitability through [1] Ramp up in the
search business, [2] Driving higher ordering revenue and [3] Cost rationalization.
With cost optimization more or less done, it now expects breaking even to be
driven by the first two factors (majorly second).
Monetization in the ordering business is relatively easier for Zomato.com given
the fact that it has traffic flowing on the core business – leading to lower cost of
customer acquisition. Moreover, its model offers higher sustainability as it offers
no discounts/subsidies and has a higher average bill rate compared to peers.
Jeevansathi.com
Jeevansathi.com saw an increase in paid customer by 27% YoY. This resulted in
21% YoY growth in revenue. Profitability also improved in Jeevansathi.com as
the segment reported an EBITDA loss of INR20m in 3Q, compared to INR60m in
the previous quarter.
23 February 2016
67
 Motilal Oswal Financial Services
TECHNOLOGY | Voices
KPIT Tech
Current Price INR 124
Neutral
Target Price INR 165 | 33% Upside
Click below for
Detailed Concall Transcript &
Results Update
Expanded margins at a sustainable level:
EBITDA margins expanded by 500bp
over the last three quarters (60bp in 3Q). The improvement during this quarter
was primarily driven by [1] Operational efficiency: progress in the areas of net
reduction of people across levels, and fresh graduate hiring, and [2] INR
depreciation: 30bp. The management expects further improvement of 50bp in
4Q, and sustenance of margins in FY17. It sees levers in utilization (potential to
im prove by 3-4pp), offshoring (which inched up 3.5pp during the quarter) and
SAP margins reaching company average. It however, expects the headcount
reduction to cease 4Q onwards.
Automotive engineering to continue driving growth:
Performance has been
strong and consistent in automotive engineering (minus PES). The company sees
this continuing as it has a healthy pipeline driven by growth in infotainment,
electronics in powertrain/battery management, and standardization.
Additional avenues for growth in ITS:
ITS has been primarily supplied to
government needs. It was rolled out in ~5,000 buses in the previous year. The
company has an order book of an additional 10,000 buses. However, the
delivery of the order remains uncertain as the government usually notifies on
the same a month prior to delivery. To mitigate the risk of delays and less
visibility, KPIT has been looking at two tangents for growth: [1] Other emerging
geographies, and [2] Private sector orders. Both of these initiatives are expected
to see some progress going ahead.
Revolo seeing progress:
The Prime Minister recently inaugurated buses for the
use of members of Parliament that are equipped with Revolo. KPIT has a
complete range of products from plug-in to hybrid. While the product is being
testing at the moment, initial results have been encouraging. The company is in
discussion with multiple OEMs and body builders and a clear picture is expected
to emerge in the next 3-4 months.
Focus of 2H on driving growth:
KPIT has been making investments in the areas
of products & platforms, IMS, and digital technologies. It expects these
investments to start bearing fruit going ahead. Moreover, focus on growth is
expected to revive as the company has initiated some actions including
investments in account managers, engineering + IT solutions, and acquisition of
new enterprise accounts. The management expects revival in growth.
Multiple issues looming over growth:
While 4Q was affected by project closures
in A&E, and furloughs in IES, there are other issues which have been weighing
on performance lately are: [1] 80% YoY decline in YTD revenues from ITS, [2]
Pressure in revenue from the top client, [3] Spend cuts reflecting in revenue
pressures in the Energy vertical (10% of total revenue). There is uncertainty over
the improvement of any of these issues. The company’s growth initiatives are
likely to find alternate avenues for growth in this scenario.
23 February 2016
68
 Motilal Oswal Financial Services
TECHNOLOGY | Voices
Mindtree
Current Price INR 1,421
Neutral
Target Price INR 1,600 | 13% Upside
Click below for
Detailed Concall Transcript &
Results Update
Po sitive guidance for 4QFY16:
MTCL expects revenue growth in 4Q to be better
than that in 3Q, excluding the acquisition of Magnet360. At the same time, it
also expects utilization to pick-up in the short term and result in margin
expansion in 4Q. However, this too excludes Magnet360, given it operates at a
lower margin than MTCL.
Demand environment:
Although there has been a delay in the freezing of client
budgets for 2016, MTCL sees no negative tone in the demand environment.
Despite price competitiveness in renewals in traditional services, client budgets
overall are not expected to see any negative turn.
Vertical-wise commentary:
The Banking and Financial Services vertical has been
seeing fairly strong competitiveness in terms of pricing. MTCL’s investments in
productivity and platforms are in the mature stage and it has been seeing a
good funnel and traction in the vertical. Insurance has been seeing healthy
demand driven by P&C players wanting to adopt real-time packaged software.
expected to be better. Travel & Hospitality has been seeing increased Digital
investments, and that is being well reflected in MTCL’s deal wins and pipeline.
Technology, Media and Services is expected to see positive single digit growth
post two years of flatness.
Digital continues to see strength and focus:
Multiple clients are currently in the
experimental stage on Digital. This has been characterized by small projects,
which later turn into larger deals. For example, one of MTCL’s customers has
gone to Stage III of Digital (support of Digital initiatives) from Stage I
(experimental) and Stage II (roll out). Stage III deals are usually multi-year,
multimillion dollar and provide annuity based revenue stream. MTCL has a first
mover advantage in Digital and should benefit from this going ahead.
M&A activity to not see the same amount of acceleration:
In order to fill some
of the whitespaces that MTCL had, it acquired four companies in the last year –
addressing various gaps and matching the demand environment. Although it will
continue to address key gaps through inorganic activity, such acceleration is not
likely to continue over the next 12 months.
Mphasis
Current Price INR 421
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 520 | 23% Upside
USD61m TCV deals signed:
MPHL has announced USD61m TCV of deal wins
during the quarter. The entire amount corresponds to new deal wins, and
doesn’t include any renewals. Of the total deal wins during the quarter, 46% was
contributed by MPHL’s focus areas of IMS, AMS, Digital and GRC. This took the
total LTM deal wins to USD309m; which should help grow the direct
international business faster than the market in FY17.
Digital Risk to hurt:
After three consecutive quarters of strong growth in Digital
Risk, the business turned flat during 3Q. On account of a large project being
executed in this quarter, revenue is expected to decline in 4Q. Digital Risk is
expected to head back towards its foundational run-rate of ~USD30m.
69
23 February 2016
 Motilal Oswal Financial Services
TECHNOLOGY | Voices
Direct International revenues to grow above industry in FY17:
MPHL expects to
grow its Direct International business to outgrow industry average in FY17. The
revenue growth momentum, deal wins and pipeline all drive confidence towards
that end.
Target margin band maintained:
With the domestic BPO business off the
portfolio, and higher incremental revenue from the Direct International
business, the company has been seeing a better revenue mix. This leads to
confidence of maintaining its EBIT margin guidance of 13-15%. While the
management aspires to set its long term EBIT margin in the range of 14-16%,
more clarity on execution and time frames will emerge at the end of next
quarter.
NIIT Tech
Current Price INR 470
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 610 | 30% Upside
Digital Push:
Digital currently contributes 15% of NITEC revenues; and has
increased steadily over the last few quarters. NITEC’s focus on Digital is on the
areas of [1] Customer experience, [2] Analytics, [3] Cloud and [4] Digital
integration. It has made significant progress in all these areas. It has been seeing
strong traction in customer experience in the Travel vertical, momentum in
analytics in the Insurance vertical and added capabilities in digital integration on
the account of its acquisition of Incessant.
Outlook by segment
The company has been seeing good growth in BFSI, led by new insurance
deal wins in the US, and strong growth in NITL.
The travel and transportation space has been seeing a good amount of
growth from Digital. Growth has been appearing to be lower because of the
closure of the Airport Authority of India project. However, international has
been growing well (except in 3Q). The situation for airlines has been
favourable as profitability improvement has been led by the decline in oil
prices. The outlook for the vertical looks good and is substantiated by the
fact that the Travel vertical made up for 3 out of the 4 deals won during the
quarter.
4Q to be soft:
Revenue growth in 3Q was weak on account of seasonal
weakness, and completion of projects in the Transport vertical. However, the
softness is expected to continue in 4Q, despite the uptick in fresh order intake.
The management expects projects to ramp up in the beginning of FY17. This
would consequently lead to lower than industry growth in FY16; but the
management is confident of achieving its industry-level-growth target in FY17.
Growth trajectory of margins to continue:
Margin improvement during the
quarter was driven by decline in domestic revenues. Moreover, SG&A spend
declined to 19.1% of total revenue from 19.6% earlier. This was also
accompanied by a reduction in the S&M headcount (excluding GIS) to 136, from
144 in the previous quarter. The reduction was a function of mid-year reviews
and consolidation of the domestic business. Margin expansion however is
23 February 2016
70
 Motilal Oswal Financial Services
TECHNOLOGY | Voices
expected to continue despite the soft revenue growth expected in 4Q, and the
management expects an exit rate of 18.5%.
Persistent System
Current Price INR 651
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 700 | 8% Upside
Adjustments needed in the ISV portfolio:
Business from ISVs has been under
pressure on account of reduced requirement of effort. During the quarter, the
additional factor in play was that the product development work associated
with Aepona was shifted from Intel to within Persistent. Going ahead, PSYS sees
two opportunities for growth in ISVs, by targeting: [1] New customers, [2] New
spend in existing cu stomers. Some adjustments would have to be made to the
current ISV portfolio with respect to these opportunities in order to see
increased momentum.
IP – not only aimed at end-of-life products:
PSYS has traditionally aimed at
acquiring products that are mature and at the end of the lifecycle. However,
recent acquisitions have been of products that are relevant to market conditions
and earlier in the maturity curve.
Deal sizes in Digital getting bigger:
Deal sizes in Digital have consistently grown
larger. While earlier, deal size averaged in a few hundred thousand dollars, the
company is seeing discussions for deals in the range of USD2-3m. The increase in
size is largely a function of more deals in integration and maintenance.
Won’t shy away from investing for growth:
PSYS has been seeing margin
pressure directly proportional to its growth and aspiration in the EDT business.
The company feels the need to continue investing in Sales & Marketing, thought
leadership, and recruitment of tale nt. The opportunity in the next few quarters
is bright and PSYS won’t hesitate in investing to capture long term growth.
Hiring plans on track:
PSYS is on-track in its recruitment plan of 1,000 net
additions in FY16. 4Q should see hiring that achieves the annual target. A large
chunk of the addition is expected to be comprised of freshers.
FY17 outlook:
PSYS sees a continual in the traction it has been seeing in EDT. Its
focus on Data, APIs and experiences has been creating good traction. Moreover,
it has been seeing a shift in positioning with clients – from deployment to
partnering in product development.
Tata Elxsi
Current Price INR 1,898
Buy
Target Price INR 2,000 | 5% Upside
Click below for
Detailed Concall Transcript &
Results Update
JLR still contributes 20% to transportation revenues, which is growing at a pace
similar to the overall revenue growth. Company is consistently making efforts to
de-risk itself from JLR.
Medical electronics still a very small part of business in terms of revenues,
however, there seems to be better visibility, looking at how things are going.
TELX has invested in it since many years.
In terms of competition, management highlighted that TELX doesn’t compete in
areas where TCS is present. In general, TELX doesn’t do IT, but does engineering
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and design – as far as bigger competition is concerned, the size of orders doesn’t
attract them.
Current headcount stands at 4,600 employees and attrition during the quarter
was close to ~15%.
Outlook:
Management highlighted that Business gives visibility over a quarter or
two maximum, but there are leading indicators that are helpful in gauging the
growth rate. Management is confident of continuing this steady pace of growth
led by automotive and broadcast while in future medical electronics and
Internet of Things (IoT) are expected to be big opportunities. Management
highlights that the near term target is to touch 30% growth YoY, with margins
expected to remain at ~24%. Company has an ambitious target to clocking
INR30b revenues in few years.
TCS
Current Price INR 2,320
Neutral
Target Price INR 2,575 | 11% Upside
Click below for
Detailed Concall Transcript &
Results Update
Multiple issues reflecting in revenue growth:
TCS’ revenue growth was
impacted by multiple factors during the quarter. While the regular aspects of
seasonality and furloughs existed during 3QFY16, the company faced additional
issues on account of [1] Increased volatility in India revenues, [2] Declining
revenues in Japan and Diligenta, and [3] Chennai floods.
May not recoup entire loss in 4Q:
TCS lost 5-6 days because of the Chennai
floods, in addition to which it saw increased absenteeism for a few days. This
was expected to cause material impact to revenue growth during the quarter.
The management refrained from quantifying this impact. However, not all of the
lost revenue will be regained in 4Q, as the project-based work can’t be made up
for, and are lost contracts.
Improvement in one out of four pain points:
TCS has been citing stress in three
areas – Diligenta, Japan and Latin America. These areas have drawn overall
performance lower despite strong growth in other areas. While Latin America
stabilized in the previous quarter, it saw 16.3% QoQ growth during 3QFY16.
While one issue has resolved for TCS, the decline in Diligenta and Japan is
expected to continue for at least another quarter. Energy is expected to bottom
out by the end of 4QFY16.
Strongly placed in Digital:
TCS has been making significant progress in digital,
evident from the growth in the area, and deal wins. Digital, which is now ~13.7%
of total revenues, grew by 4.4% QoQ CC. Although the growth was lower than
that in the previous quarter (10.7% QoQ CC), it was strong given seasonal
weakness during the quarter. TCS has been seeing tremendous traction in all of
its platforms, which has been contributing to the pull seen in Digital.
Digital still away from moving the needle on overall metrics:
At the moment
Digital contributes to 13.7% of total revenues. It is expected to grow very rapidly
moment; it is too small to make a difference to overall metrics. For example, the
order book is still dominated by multi-year deals in traditional areas, and there
has been no significant change in the cumulative duration of the order book.
Awaiting clarity on client budgets:
TCS has been citing a strong demand
environment across the board, for most areas that it focuses on. Although it
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doesn’t see any cuts in client budgets, it is still getting inputs on the same; and
would cite an outlook for FY17E only in the next quarter.
Tech Mahindra
Current Price INR 440
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 550 | 25% Upside
Telecom weakness to continue in the near-term:
The trend of delayed decision
making is expected to continue in the near term. The pressure on service
providers in the voice business, budgetary control and newer areas of capital
projects are likely to continue driving volatility for a couple of quarters. The
pressure exists through the industry and TECHM hasn’t lost market share in
telecom service providers.
Positive outlook on Enterprise:
The management sees growth in Enterprise
being driven by large deals and the opportunity in Digital transformation. The
company has been seeing changes in the complexion of deals – led by Digital
playing a part in how deals are structured. With a continual in momentum, it
expects to grow revenue from Enterprise at industry rates.
Weakness in top 5 accounts:
The decline in top 5 customers during the quarter
was led by [1] Negative impact of cross-currency movement, [2] Furloughs and
[3] Ramp down in certain accounts.
Deal pipeline remains healthy:
TECHM won deals with a TCV of UD275m during
the quarter, taking the number to ~USD1b in the last three quarters. This is
inline with deal wins seen in the last few quarters. Deal wins during the quarter
continued to be dominated by Enterprise, which constituted to ~60% of deals
wins in 2Q.
Margins outlook:
Margins are likely to be negatively impacted in 4Q on account
of wage hikes that would be effective January 1. While the appraisal process is
completed, the procedure is on the way to completion. Margins in FY17 are
likely to be driven by productivity improvement, cost optimization and
offshoring. The company intends to mitigate most of the negative impact of
wage hikes in FY17E.
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Wipro
Current Price INR 547
Neutral
Target Price INR 630 | 15% Upside
Click below for
Detailed Concall Transcript &
Results Update
Competitive pricing in large deals:
WPRO cited that there has been increasing
pricing pressure in large deals, led by growing competitive pressures. Both, deal
sizes and value of deals are under pressure. In this environment, WPRO has
been trying to offset the pressure by increasing the use of automation. It has
been reducing the headcount across all traditional deals using HOLMES as the
backbone.
Update on HOLMES:
WPRO is currently running 12 active engagements on
HOLMES, some of which have moved to production. It has seen productivity
gains in the range of 25-35% on account of this platform. It released 4,300
employees as a result, which are now being re-trained and re-deployed to other
areas.
Energy continues to be a pain-point:
The Energy vertical continued to remain
weak on account of the decline in oil prices. Although WPRO has been focusing
on increasing wallet share, and has seen itself on the positive side of vendor
consolidation, overall spend has been under pressure. Accounts have scaled
down to such an extent that the number of E&U accounts above USD100m have
come down from 4 last year to 1 now.
Top account issues:
WPRO expects the top account to continue moderating for
another quarter. Although it has won consolidation deals, and is responsible for
~85% of the technology needs, growth is yet to revive.
Margin levers in place:
On account of the capacity creation, resulting out of the
automation-led freeing up of resources, utilization excluding trainees dropped
to 78% in 3Q, from 82.3% in the previous quarter. In the short-term, as these
employees get re-deployed, utilization will bounce-back and lead to margin
expansion.
Focus on long-term over short-term:
WPRO called out some areas where it will
focus its investments including IMS, Digital and Automation. These spaces
require significant investments, and WPRO won’t hesitate to make them in the
medium to long term to save upon margins.
Client mining strategy beefed up:
The management spoke of several steps that
it has taken strategically in order to solve WPRO’s core issues. In order to
improve its client mining, WPRO has been beefing up its account management,
where it has transformed a large number of account partners including
relationship managers, domain experts, and consultative sales. It has also been
working on making the organization more nimble and agile so it can react to
customer needs faster.
Carved out new unit -
MIT: WPRO has formed a new unit, Marketing,
Innovations and Technology (MIT), which will be headed by its Global
Infrastructure Services Head GK Prasanna. The unit would be involved in
strategically develop IP, and would be central to govern IT and monetize IP in a
non-linear way. HOLMES and robotic automation would also get integrated
here, and the ecosystem would extent to universities, venture capital and
startups.
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TELECOM | Voices
TELECOM
Bharti Infratel
Current Price INR 3,73
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 485 | 30% Upside
Data installations have tripled over last one year but most data sites continue to
come from loading rather than standalone data sites
Site additions were impacted by an operator who could not renew spectrum
There was minor impact on revenue/costs due to Chennai floods
Other income has been impacted due to change in rules related to recognition
of long-term capital gains on debt funds.
Tendering process for smart cities would start soon and might give BHIN an
avenue to utilize its cash.
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UTILITIES | Voices
UTILITIES
JSW Energy
Current Price INR 66
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 78 | 18% Upside
Board approved investment in 240MW Kutehr hydro power project at a cost of
INR29b
Guidance on ST realization for FY17E by 4QFY16.
Large part of merchant capacity is tied-up through ST contracts.
Due-diligence is on for acquiring Monnet Power and JP Bina power project.
The mining performance has been encouraging with the total 1.7 Mn ton of
lignite being mined during the quarter, work on Jalipa is progressing
satisfactorily.
The outlook for the sector is a concerned for a short term as it will be impatcted
in terms of sluggish demand, however the kind of policy that GOvt has taken in
terms of making the fuel availability on domestic side.
NHPC
Current Price INR 20
Neutral
Target Price INR 22 | 8% Upside
Click below for
Results Update
490MW of project will be commissioned by end FY17E, adding INR5b to
regulated equity (INR80b of CWIP to be capitalised). Management guided for
Kishenganga (330MW) project to be commissioned by 3QFY17E.
Debtor position remains elevated at INR33.5b, vs INR29b as at March 2015. Of
this, receivable from state of J&K is INR16.4b.
NHPC is hopeful of recovery of dues from J&K by March 2017 as it is covered
under UDAY scheme.
Capex target of INR52b in FY17E as no major project pipeline. NHPC started
work Teesta IV project in November 2014, while attempt to restart the work at
Subhanshri Lower p roject has not bear fruits.
Parbati II (800MW) and Kishanganga (330MW) would be the projects under
construction, as work on S. Lower remains uncertain (2GW). Parbati II (Dec-18)
and S. Lower are as it is targeted for commissioning in FY19E, limiting any near
term growth options.
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NTPC
Current Price INR 130
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 171 | 32% Upside
Telangana power project approved at a cost of INR100b+ and Mandakini coal
block is issued for the project. Also, in-principal approval is given for linkage in
the interim.
NTPC will be allowed to sell un-requisitioned power and benefit would be
shared between beneficiary and NTPC in the ratio of 50:50.
Capital expenditure required for meeting recent environment norms is
INR50lac/MW.
NTPC targets 3360MW of Solar capacity by 2020. Of this, 760MW of capacity is
already ordered while PPA are signed for 250MW only.
Capacity commercialization target for FY17E stands at 5000MW
Reliance Infra
Current Price INR 418
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 597 | 43% Upside
Mumbai distribution area: Recovered INR2.2b arrears in 3QFY16.
Infrastructure portfolio:
A. Roads: All the eleven projects are revenue generating and traffic growth
is in the range of 6-7%.
B. Metro: Mumbai Metro SPV registered net loss of INR490m in 3QFY16.
Fare fixation committee (FFC) has approved tariff hike from INR10 to INR110
but recommended to explore other option to garner revenue, support from
government.
Cement:
Current installed capacity of 5.8mtpa operated at a utilisation of 65% in
3QFY16. Division reported net loss of INR440m in 3QFY16.
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OTHERS | Voices
OTHERS
Arvind Ltd
Current Price INR 279
Buy
Target Price INR 350 | 25% Upside
Click below for
Results Update
Outlook: The management has guided for 4QFY16 blended revenue growth of 9-
10%, led by 28-29% growth in brands and retail business and 2-3% growth in
textiles business. Management opined that performance for the quarter
satisfactory considering challenging domestic markets. It expects 4QFY16 to
show stronger performance led by improving consumer sentiments. They expect
textiles to grow by 7-8% and brands and retail to grow by 18-20% in FY17.
Brands in 4-5 years should garner 16-17% margins with specialty retail garnering
10-12%.
Management believes consumer sentiment during 3Q was challenging but is
seeing the same improving during 4Q and accordingly expects robust growth led
by investments being in place, demand and ramping up of newly opened brands
and retail stores. Overall as an industry, it is seeing a pickup in demand and
believes L2L growth can go upto 5-7% in next few quarters as against 1-2%
currently.
Debt as at 3QFY16 stood at INR37b and management expects a reduction of
INR1.5b in 4QFY16 since all investments have been done.
Online sales currently contribute around ~6% of revenues which management
expects to grow to 8% next year.
Current capex plans for FY17 stand at INR5b – largely towards brand and retail.
App launch and digitization M obile app for brands and retail is expected to be
rolled out in in Q4FY16 or April 2016.
Century Plyboards
Current Price INR 147
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 190 | 29% Upside
3QFY16 was a season characterized by multiple festivals – Dussehra, Diwali, all
falling in the same quarter (normally it is spread over two quarters), which led to
there being too many holidays, impacting productivity.
Ce ntury Ply exercised restrained on reducing prices, those were maintained as
against competitors which went for price reduction. If prices were reduced by 5-
10%, growth would have been higher at 10-15%.
On a nine month basis, prime segment saw growth of 9%, Sainik segment saw a
volume growth of 12% and others de-grew close to 2%.
Company is passing through very challenging period where there are many
contrastive signals, however it is not just trying to retaining volumes and
profitability, but also making the right investments like products, MDF, particle
board, investing in other countries – Laos, Myanmar, Indonesia and Vietnam so
that in future when the opportunity comes, company is ready for a superior
performance.
Real estate as a sector is slow, especially the ones in the premium apartment
segments, so company concentrated on mid-segment, especially Sainik. There
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was some migration from the premium segment to mid premium segment,
there is some decline in premium brands and growth in the Sainik brand.
Plywood - investing in brands, through advertisements which is there for all to
see, especially for Sainik , which is seeing dedicated advertising.
With the introduction of GST that will be the bigger segment where growth will
come, acting as an entry level product for people migrating from unorganized to
organized segment. Thus, company is tweaking its strategy to focus on this
segment given the slowdown in high-ticket segment. GST is expected very soon,
do not think it should go beyond June 2016. The moment is introduced, CPBI is
ready with the capacity and brand in the mid segment through Sainik, which by
that time shall be household names.
Particle board capacity shall be ready in March this year, 3 months ahead of
schedule while MDF is expected to commence December 2016 or January 2017.
4QFY16 outlook – performance will be on similar lines. Not foreseeing any big
jump in growth. Year should end on close to ~5% growth. On margins front,
should continue to see improvement as raw material prices are
benign. Management highlighted that based on their interactions with various
industry bodies and people close to government, it expects budget to have a
positive impact on the sector.
FY17 growth completely demands upon revival of real estate sector, if it does
revive, growth can touch double digits, else the same shall remain slow. EBITDA
margins of ~17% is sustainable.
Coromandel International
Current Price INR 167
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 260 | 56% Upside
Management highlighted that the new plan of subsidy on organic manure of
INR1500/ton that will be provided by government can be a major positive in
terms of reducing overall costs and driving volume expansion, however the
details of the exact scheme are yet to be notified. Management also expects the
recently announced crop insurance scheme to impact positively.
Management highlighted that net debt to equity as at end of 3QFY16 was 0.06x
as against 0.17x at end of 3QFY15.
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Container Corp
Current Price INR 1,121
Buy
Target Price INR 1,605 | 43% Upside
Click below for
Detailed Concall Transcript &
Results Update
Total empty haulage expenses for 3QFY16 amounted to ~INR715m.
The management has guided that while 4QFY16 volumes would be marginally
higher than the 3QFY16 volumes, they are expected to be lower than 4QFY15
volumes. Near term operating environment for the company continues to look
weak.
Operations at Pantnagar have started, and it was one of the reasons of a QoQ
jump in domestic volumes.
Khatuwas terminal will become operational shortly. The transit operations have
already been started partly. Of the total budgeted capex of ~INR4.8b, upto
INR1.5b have already been invested.
Apart from the 15 projects to be commissioned by FY17, the management has
identified another 10 projects. Land acquisition for these projects has already
started. The total planned capacity will increase to 7-7.5mTEUs.
Of the INR60b capex guidance for FY16, ~INR54b capex investments have
already been made. While the management guided that they do not consider
taking debt on CONCOR’s balance sheet as prudent, they are open to taking
debt on projects being carried out under JVs.
During the quarter, the company had increased its authorized capital. The
management highlighted that this doesn’t mean that they will raise cash in the
near term necessarily; the authorized limit was raised to give some headroom
for capital raising should any investment opportunities arise.
Market share decline: CONCOR’s market share declined in EXIM volumes a little
bit. The management attributed the decline to competition from private players,
particularly integrated operators like APL and Hind Terminals which were able to
cross-subsidize haulage charges. Also, the market share of containers
transported through roads ate into the overall market share of containers
through railways.
Succession: The board has already appointed the new Managing Director of the
company (name not announced).
Eveready
Current Price INR 216
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 387 | 79% Upside
EVRIN’s 3QFY16 revenue was impacted by flattish growth in battery business,
sharp decline in flashlights compensated by healthy growth in LED business.
EBITDA margins expanded due to lower raw material cost and benefits of
operating leverage.
Eveready recently bid for Madhya Pradesh government LED bulb tender which is
its first tender in government order. It has been declared L2 and expects order
of 7m bulb pcs to be executed over 6months. The bid price is INR64.6 per LED
bulb and its impact in revenue is expected to be seen in 1Q and 2QFY17. As per
industry sources, the total LED tender opportunity available in next 12months
stands at 150m pcs of bulb which will be either in 7W or 9W category. The
company intends to participate in more such orders during FY17.
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Flashlights witnessed ~13% volume decline in 3QFY16 as it is largely rural driven
business adversely impacted by poor monsoon. The company has also launched
economy range flashlights which are expected to gradually pick up in terms of
growth in FY17.
Eveready currently is present in appliances segment through products like
rechargeable fans and lanterns. Management plans new launches in the
segment like ceiling fans and kitchen appliances. The products offered will be
comparable with the likes of Bajaj Electricals and Havells. The products will have
a soft launch in March 2016 through ecommerce an modern retail, which
management believes is an effective way of reaching consumers, given the
already strong brand equity of EVRIN.
Gateway Distriparks
Current Price INR 212
Buy
Target Price INR 453 | 114% Upside
Click below for
Detailed Concall Transcript &
Results Update
Update on Gateway rail JV
Management has indicated that it will continue to negotiate buyback of stake
from the Blackstone in its rail business JV.
Rail Division takeaways
3QFY16 operations: Overall the market was impacted due to decline in exports
due to weakness in global trade. Rail double stacking index stood at around
63%. On average, the company is incurring INR10m/month as empty haulage
costs.
Viramgam terminal is expected to commence operations by August 2016. The
management expects 5-7% savings in rail haulage charges due to double
stacking benefits provided by the terminal. We believe this will be a significant
margin booster well ahead of dedicated freight corridor (DFC) commissioning.
At Faridabad ICD, the management expects to exit the current fiscal year with
four digit volumes.
Ludhiana market declined by 18%, led by 25% decline on the export side and
11% decline on the import side. The management highlighted that there were
pricing pressures in the region due to entry of competition.
The management stated that while overall margins and market share in
Ludhiana have improved, the overall market declined impacted the
performance. Market share in Ludhiana stands at ~45%, while market share in
NCR is 11%.
Rail business income tax rate will reduce from FY18 as the company will start
receiving 80-IA benefits.
CFS business takeaways
3QFY16 operations: Overall the volumes declined due to weaker macro
environment and volumes loss due to Chennai floods. Volumes have returned to
normal levels in January.
Chandra CFS in Chennai resumed operations after a period of almost one year.
The company had incurred about INR50m in expenses since the CFS closure.
CFS business growth will be driven by new ports. GDPL had acquired new 48.5
acres land at Krishnapatanam to build a new CFS. GDPL will also provide
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warehousing services at this CFS. The first phase of warehousing is expected to
commence by September 2016, and the CFS businesss by the end of the year.
The management expects to reach more than 10,000 TEU in the first year.
Container capacity of this port is estimated to increase from 1.2m TEU to 6m
TEU in the next five years. Some volumes will also shift from Chennai port which
is over congested.
Gujarat Pipavav
Current Price INR 148
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 198 | 34% Upside
Customers shifting back to Pipavav from the line that moved to the other
competing port in West Coast. This helped Container volume.
Additional coastal service (Shreyas shipping) begun operation and now operate
3 services to South Coast from Pipavav.
Bulk volumes are also lower because of declining coal imports. Also, fertilizers
and minerals volumes too have been seeing moderation.
7 Ro-Ro calls were handled during the car consisting 4,500 cars.
1.35m TEUs of capacity expansion will be operational from 1QFY17. No major
disruption is expected due to commissioning of new cranes.
Interglobe Aviation
Current Price INR 840
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 1,474 | 76% Upside
3 aircraft added this quarter:
IndiGo’s total fleet size increased to 100 aircraft during the quarter. The
management did not give any schedule on the new A320Neo delivery schedule
following recently announced delays.
Indigo has 22 aircraft on short term leases, including aircraft taken from Tiger
Airways. While 17 of the aircraft have already been received, 3 aircraft are
expected to be inducted in 4QFY16.
Shift to component accounting:
The company has shifted to component accounting this fiscal, where in
maintenance costs are taken for aircraft on financing lease and capitalized in the
balance sheet. These additions are then amortized over the expected remaining
life of the lease. The management stated that this had led to a increase in
depreciation rates.
Increase in employee costs:
Employee costs increased by ~50% in 3QFY16 driven particularly by the
recruitment of pilots and cabin crew in anticipation of deliveries of A320Neos.
The management also attributed the increased in costs to allotment of ESOPs to
employees that amounted to ~INR237m in 3QFY16 and ~INR407m in 9MFY16.
Pass-through of decline in fuel expenses:
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Average fare declined to INR4,517 in 3QFY16, down ~15% from INR5,262 in
3QFY15. The management cited that average fares had declined due to the
pass-through of decline in fuel costs to stimulate demand.
Just Dial
Current Price INR 532
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 830 | 56% Upside
Management highlighted slowdown in new campaign additions is due to lack of
emphasis on augmenting the sales force which had impacted 2QFY16
performance as well.
They have initiated to address the issue by adding close to 150 employees in the
sales team in 3QFY16 and will add 2000-2500 in the next 9-10months with close
to 150-200 being added each month, which they believe shall lead to listings
growth, resulting in growth coming back from 1QFY17 and FY17 seeing a 25%
topline growth.
It takes atleast a quarter for the employees joined in one quarter to show
results.
Company plans to have a product launch of the improved version of Search Plus
(improving certain portions such as the transactions user experience) and JD
Omni in February 2016, kicking off the ad campaigns to increase user
engagement through mass communication (spending INR1b over four quarters).
JD Omni and Search Plus will be synergistic with the existing Search business by
transacting, managing vendor’s inventory, logistics and providing him with a
domain.
Search Plus has started contributing to revenues through affiliate transactions,
though it is a miniscule portion currently. Company is receiving good response
regards to the customer satisfaction.
Company has increased Just Dial ambassadors and the increase in employee
numbers should be visible in 4QFY16.
Kaveri Seeds
Current Price INR 354
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Target Price INR 400 | 13% Upside
KSCL plans to manufacture ~9-10m packets of cotton seed in FY17 and has
guided for sales of ~6.5-7m.
Management expects FY17 to see growth bounce back led by normal monsoon,
regaining market share in credit markets like Andhra, Karnataka, Telangana,
market share gains in Maharashtra and Gujarat, due to intensifying sales efforts
and strong product portfolio.
It believes high yielding products like Jadoo, Super Duper and ATM to contribute
significantly over next few years with ATM being as successful as Jadoo.
It expects growth of 20% in cotton and more than 20% in other seeds.
Other conference call highlights
The accounting policy for provision of doubtful debts has been changed from
ageing of 3 years to 2 years now.
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Management highlighted that the pink bollworm has proved to be a concern in
some parts of India li ke Karnataka and Gujarat however the overall places
impacted is less than 1% of total area of India. This might be due to dry season
that places witnessed, which is conducive for pink bollworm. Government and
seed companies are working on a solution to it.
Company gained market share in corn in places like Bihar, Andhra.
Management commented that it is seeing pickup in HDP variety seeds. It sold
around 20,000 packets of the same and expects the number to go upto ~0.8-1m
in next 3-4 years.
Capex done during the nine months was INR150m, which is complete for FY16.
For FY17 and FY18, capex should remain between INR150-200m.
PVR
Current Price INR 737
Buy
Target Price INR 965 | 31% Upside
Click below for
Detailed Concall Transcript &
Results Update
Margins were impacted by increase in entertainment tax - entertainment tax %
of gross box office grew from 20.2% to 22% while as a % of net box office grew
from 25.4% to 28.1% YoY and retrospective cost of INR450m due to impact of
amendment in Payment of Bonus Act.
During the quarter, PVR Pictures has distributed few films on which it has
earned an average commission of 3-5% resulting in lower operating margins for
the quarter on a consolidated basis (Dilwale and Singh is Bling distributed in few
regions).
Footfalls during the quarter posted 3.1% growth to 16.5m impacted by below
par performance of some movies.
Content like ‘Bajirao Mastani’, ‘Prem Ratan Dhan Payo’, ‘Dilwale’, ‘Tamasha’ and
‘Pyaar ka Punchnama 2’ contributed 43% of net box office in 3QFY16 as against
top 5 movies of 3QFY15 which contributed 56% then.
Like to like footfalls de-grew 1%. Occupancy for the quarter stood flat at 34%.
ATP grew 8% YoY to INR200 and SPH was up 10% to INR74. Gross margin in F&B
rose to 75% from 72% in 3QFY15.
Advertising revenue posted robust 28.6% YoY growth to INR693m on account of
the high-profile content.
Management highlighted that 3QFY16 is generally the strongest quarter on
account of festive season, product launches across various industries, which
coupled with the movies starring prominent actors leads to higher yields and
strong advertising.
Bollywood contributed 56% followed by regional content 24% while Hollywood
was at 20%.
3Q is the strongest quarter marked by seasonality of festive season and strong
releases.
Management highlighted that 4Q is generally weak however this year it should
show growth due to low base – 4QFY15 had the Cricket World Cup.
Management has guided for 53 screen additions FY16 and continues to guide for
60 screen additions (ex. DT Cinemas) going forward.
23 February 2016
84
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OTHERS | Voices
Sintex
Current Price INR 75
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 145 | 92% Upside
The management had forecasted 20% revenue growth and 20% profit growth
for the whole year. The commodity prices have dropped substantially, beyond
imagination. No one thought that crude would be trading at $30 and would be
12-year-low. So things happen some times, which is out of their forecast or
exceptions. They do not expect any more decline in commodity prices. In that
scenario, they expect top line growth of about 15% with the better or equivalent
growth on the bottom for the whole year.
China definitely affects everyone, but it affects more on a stock exchange rather
than the – or financial market, debt market rather than immediately affecting
the business. The business impact of China is long term, and initially, for at least,
next two quarters to three quarters, most of the manufacturing industry would
not be affected. As far as Sintex is concerned, currently, they have very little to
do with China, but once the yarn division starts, China is definitely one of the
major customer.
People are switching to compact yarn from the older technology. So the
demand today, if you see, mostly in China has been subdued, but the compact
demand has been quite strong. Basically, on a final counts as well as especially
value-added counts died as well as double yarn or like stretchable yarns. So they
are producing value-added and high-quality yarns, plus they are also going to
produce yarn for different segments like knitting and weaving of textile. And
that would definitely broaden their customer base. They are not looking at
China alone here they expect China to play not more than 25% of their sales in a
best case scenario. And in worst case scenario, maybe 10%. So the world is a
market for this kind of yarns.
The prefab margins have declined in Q3 they have many products and they are
not only classrooms or primary health centers. Current – last quarter, they had a
large volume from toilets and wastebins, CSR-relatedactivity, Clean India-related
activity. So these are definitely low-contributing products. They are low revenue
and low-contributing products when the numbers are huge.
Business on the side of where they [ph] brought supply (22:54) to off-road
OEMs, whose customers are mainly mining, oil, kind of industries have really
taken cuts in their forecasting. In fact, some of the customers, they've reduced
their projections by half, 50%. So since they are impacted, Sintex also get
impacted to an extent in long-term orders.
They are focusing on our business development ability, so that they can get
more orders, more diversified orders into their basket, especially, since the
acquisition of Groupe Simonin, which is a new technology in itself. they have
opened up a kind of quite a growth opportunity for them.
See, other than the retail business, in plastic, retail business is water tank. Other
than the retail business in plastic, depends on the client, the raw material is
pass-through. That means that on three months basis, they would take average
cost of raw material and the sales price would get adjusted accordingly for next
quarter. So, generally, whenever there's a fall or increase in the price, they
account on a assumption that they will get this much of rate and this much of –
85
23 February 2016
 Motilal Oswal Financial Services
OTHERS | Voices
at this exchange rate. And when the accounts are drawn end of the quarter, the
exchange rate is considered average exchange rate for the entire 90 days. And
the sales rate is also considered weighted average of the entire 90 days. So that
automatically gets adjusted every quarter.
The custom molding business is a long-term thinking. They think many, many
product will convert plastic – sorry – metal into composite, and that is where
this particular segment has come up. And they entered into the segment
because of that, saying that many products across the product segment – across
the production customer segment people will convert metal into lighter material
and functional materials. So, that's the theme of this business. And they expect
definitely a reasonable growth. The custom molding business never grew 30%,
never. They have hardly few quarters which have done more than 20% growth.
The growth always had been between 12% to 15% growth. And they are very
confident that as long as the external factors like exchange rate or flood or
things like that doesn't come in this business has always grown steadily between
8% to 18%.
Symphony
Current Price INR 2,003
Sell
Target Price INR 1,830 | -9% Downside
Click below for
Detailed Concall Transcript &
Results Update
Revenue growth led by volume and realizations growth of 18.6% and 2% YoY,
respectively.
Domestic revenues grew 20.5% while exports grew 13%.
Margins expanded on account of lower raw material prices, better operational
efficiency and value engineering.
Sales during the quarter were robust across all geographies and were majorly
through the traditional channel.
The management highlighted that newly launched Window 70 Jet model was
well received by the market and will soon launch two new models from
the Munters collection in the domestic (under Symphony brand) as well as in
the international markets.
The company has successfully completed Munters Keruilia acquisition and it has
become 100% subsidiary.
For the period ended Dec 2015, Munters registered topline of INR500m with
loss of INR100m and management targets to turnaround it in medium to long
term by achieving sales of INR1300m, its earlier peak.
The company has initiated measures to convert Impco to asset light business
model by outsourcing its manufacturing process in line with Indian business
model which will fully materialize in next 18 to 21 months.
Encashment of real estate has led to liquidity of INR130m which will be utilized
to provide advance to Munter through Singapore holding company.
Interim dividend announced up from 200% to 250%
Treasury Funds have given a return of 6.9%.
Many prestigious orders were received by the company in its central cooling
(institutional service) – food processing, factories, textiles, education,
showrooms, etc.
23 February 2016
86
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OTHERS | Voices
SRF
Current Price INR 1,109
Buy
Target Price INR 1,460 | 32% Upside
Click below for
Detailed Concall Transcript &
Results Update
Chemical business registered 24% revenue growth in 3QFY16 driven by specialty
chemical business. The global agrochemical business continues to remain soft but
SRF could utilize its capacity for some opportunistic business from its clients. Some
part of opportunistic business will also flow into 4QFY16.
The company has announced capitalization and commissioning of a plant
(INR430m) which will manufacture raw material for the molecule which will be
supplied to Gilead for Hepatitis C drug. The company has also approved capex of
INR480m for manufacturing the finished good i.e the molecule.
The other part of chemical business which includes fluorochemicals and
refrigerant gases faced some pressure. Realizations of R22 gas in export market
was under pressure due to quota regime. The quota for consuming R22 in India
is 10,000tn whereas quota for manufacturing the same is 40,000tn which led to
high exports bringing realizations under pressure. Chloromethane also reported
subdued revenue growth due to high volatility in its prices.
The company is confident of achieving volume sales of ~7500tn of HFC134a in
FY16 compared t o 4250tn in FY15. Walmart has given repeat order of HFC-134a
which is double the previous order and will reflect in 4QFY16. Additionally, next
year pharma grade HFC134a will also require industrial grade HFC134a for its
RM requirement to the extent of 1200-1300tn.
Specialty chemicals contributed 55% to total chemical business revenue in
9MFY16 compared to 50% in FY15. During the quarter, the company’s sales
came from 13molecules. In FY15, within specialty chemical, Pharma contributed
17% while Agrochem was 83%, in Sept quarter end Pharma was 24% and
Agrochem was 76%, goal is to reach 25% pharma by March 2017. Currently
rough cut mix is 21% Pharma.
The company will continue to invest INR2.5-3bn every year in dahej which will
be largely towards specialty chemicals.
Packaging business continued outperform in subdued environment running at
full capacity in all plants including overseas plant.
Global BOPET market continues to be in high surplus capacity, however SRF has
done well considering its client relationship and value added products. In the
domestic market, the industry ratio of plain vanilla to value added products in
packaging films is 70:30 however incase of SRF it is 30:70 which helps it to
maintain its realization and margins coupled with client stickiness.
The technical textile business was partly impacted due to Chennai floods, lower
realization and pressure on NTCF business. The EBIT level loss due to Chennai
floods was INR100m in the quarter on account of loss of raw material, finished
goods, spares and some machinery. The loss will continue to flow in next two
quarters to the extent of ~INR70m and ~INR40m respectively. However, the
plant is already functional after remaining closed for 1 month. Majority of the
loss is expected to be recovered from insurance.
23 February 2016
87
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OTHERS | Voices
TTK Prestige
Current Price INR 4,187
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 5,150 | 23% Upside
Green-shoots were visible in some markets.
Consumer sentiment improving but not substantially – traction is towards
innovative new products.
South grew slightly lower pace, Chennai floods impacted. Overall consumer
sentiment in non-south better. Loss due to Tamil Nadu floods has been close to
INR200m.
Industry has not grown in double digits, but TTKPT grew due to market share
gains.
This quarter Diwali came in November which helped in registering strong
growth.
Several new products launched during 1HFY16 and 3QFY16 were received
favourably by market.
80% of share of revenues is products launched in last few years.
Ecommerce showing strong growth, fulfillment centre improving. Currently have
four fulfillment centres for it. Share of ecomm in revenues was 5% through
direct Prestige channels (excluding market place data).
Non south: South revenue mix was is 53:47
Capacity utilization across plants is beyond 60%.
Softer material cost and higher capacity utilization helped bottom line through
margin expansion.
Since GST rates are not known, management is unable to comment on the exact
impact. However believe with the widening of tax base, the organized sector
should benefit.
Company is planning to launch certain products exclusively for rural areas in
induction cooktops, cookers, rechargeable lanterns.
Ad Spends have been close to 6.5%.
4QFY16 guidance – Double digit growth in topline.
V-Guard Inds
Current Price INR 842
Click below for
Detailed Concall Transcript &
Results Update
Buy
Target Price INR 910 | 8% Upside
Performance impacted by falling realizations in largest segment – cables and
wires which is linked to international copper prices. In case of benign prices,
even trade destocks the goods.
Cables and wires – contributed 31% of revenues, degrew 2.2% YoY, thus
impacting performance. 12% YoY volume growth, but de-grew in realizations as
a result.
Stabilizers grew 12%, UPS de-grew 4%, pumps grew 16% while water heaters
grew 5%.
Stabilizers contribution 50-55% air cond, 25% by refrig, 20% television
Non-South: South mix is 70:30 vs 68:32 in 3QFY15. Non-south growth was flat.
Non-south PBT margins have broken even. 4% EBITDA margins for nine-months
in nine-south.
23 February 2016
88
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4.9% of revenues spent in ad, 4.9% last year. Shall spend close to 4.5% for FY16
overall, i.e. around 3% for 4QFY16.
Gross debt of INR24cr vs 100cr YoY. Cash including current investments INR26cr
as at 3QFY16.
INR18m bonus provision of last 2 years in 3QFY16
Yet to see a pickup in discretionary spending.
Newer product categories, switchgears and kitchen appliances, are receiving a
good response and seeing healthy growth. The quarter also witnessed a
turnaround in the pumps segment. Stabilizer and fans segments continue to
track well.
Consumer sentiment in Kerala is subdued, rest of south has been good. Tamil
Nadu a grew very well, despite floods in Chennai, all 3 states in south except
Kerala doing well
Moved to hub spoke model in non-south from branch.
Products have copper steel as inputs, not passed on benefits, except in wires
and cables.
Late onset of winter in places like Delhi, so led to slow water heater sales.
Consumer durables channel is healthy, however the electrical segment is slow.
90% of wires and cables is retail- house wiring
Management believes copper prices reached lowest level. Will bottom out –
commodity prices and will start inching up.
Setting new stabilizers manufacturer facility in Sikkim. Primary benefit is excise
duty and income tax exemption for 10 years – Sikkim facility, mainly income tax
benefits – expect close to INR100m for initial years per annum. This is for
stabilizers. Earlier it was outsourced. Expecting to manufacture INR10b worth of
sales value in 24 months – capex max is INR100-150m. Not investing in land and
building.
Expecting strong growth in wires next year.
Forecasts of early summer augur well for V Guard. 4Q is generally a very strong
quarter.
Non south: Focusing on markets like Pune, Ahmd, Bhopal, Ghaziabad, Noida
instead of large cities like Delhi, Mumbai – since cost of retailing is high, these
also act as redistribution markets, so the aim is to focus on suburb markets.
Inorganic opportunities – get into categories that are adjacent, good cash flows
currently, low debt, so will be looking out for inorganic opportunities – across
retailing channels, distribution, brands, products – currently in process of talking
to opportunities, signing NDAs, already landscaped plans.
FY16 topline growth 5-6%, 100bp margin expansion to 9%, 4Q is a stronger
quarter.
23 February 2016
89
 Motilal Oswal Financial Services
Voices
Refer our Dec-15
Quarter Review
3QFY16 corporate sector performance
PSU Banks and Cyclicals drag 3QFY16!
PAT declined 10%, sales de-growth of 3%
Sales YoY (%)
Sensex
15
14
4
MOSL Universe Ex OMCs
6
Aggregate performance of MOSL Universe:
Aggregate sales de-grew 3.2% (est
of 0.6% growth), EBITDA was up 1.4% (est of 4.1% growth), PAT declined 10.3%
(est of 0.2% decline). Excluding OMCs and PSU banks (saw sharp increase in
provisions post RBI mandated AQR), PAT registered 0.5% growth (est of flat
performance).
EBITDA margin (ex-financials & OMCs) expanded 50bp YoY to 19.2% (est of
19.1%). PAT margins expanded 20bp YoY to 9.4% (est of 9%).
63 companies reported PAT higher than estimates, 70 companies below and 43
in-line. On the EBITDA front, 54 companies exceeded estimates and 70
companies were below estimates.
We cut our Sensex EPS FY17E by 5.6% to INR1,550 (growth of 16%).
2
-1
-3
-5 -5 -6-4 -3-3
-7
1Q 2Q 3Q 4Q 1Q 2Q 3Q
FY15
EBIDTA YoY (%)
Sensex
MOSL Universe Ex OMCs
FY16
19
16
6 7
0
2
-4
-1
3 2 1 5 1
0
Sector performance: Healthcare, Oil (Ex OMCs) and Cement led aggregate PAT
growth
Sales growth was led by Private Banks (19%), NBFCs (17%), Technology (12%)
and Cement (8%). Oil & Gas ex OMCs (-27%), Metals (-19%) and PSU Banks (-4%)
reported negative sales growth.
EBITDA growth was led by Cement (35%), Private Banks (24%), NBFCs (17%),
Utilities (22%), Media (22%), Oil & Gas ex OMCs (16%) and Healthcare (15%).
Metals (-61%), Cap Goods (-47%), PSU Banks (-6%) contributed negatively.
PAT growth was led by Healthcare (53%), Oil & Gas ex RMs (37%), Cement
(32%), Private Banks (12%), Media (20%) and Utilities (13%). Metals (Profit to
Loss) , Capital Goods (-56%), PSU Banks (Profit to Loss) & Telecom (-10%) were
the major drags.
PAT excluding Oil & Gas and Metals de-grew 5% v/s expectations of 9.4%
growth.
Sensex performance: PAT growth of 3%; 4 companies saw upgrades in FY17E EPS
(APNT, BJAUT, INFO, SUNP)
Sensex aggregate sales declined 3% (est of 1% growth), EBIDTA grew 5% (in line
with est) and PAT grew 3% (est of 5.5% growth).
10 companies in Sensex reported PAT above estimates; 8 companies below est;
12 reported in-line.
Highest PAT growth companies are Sun Pharma (258%), Reliance Inds (42%),
Asian Paints (40%), Hero Moto (37%), Adani Ports (26%), Maruti (23%), HDFC
Bank (20%) and L&T (19%). Top PAT de-growth companies are Tata Steel
(reported loss), BHEL (reported loss), SBI (-62%), Bharti Airtel (-22%), Lupin (-
12%), Tata Motors (-10%) and NTPC (-9%).
(Refer our detailed Dec-15 Quarter
Review).
Sensex EPS Downgrade De-construct
3QFY16 is marked by the disproportionate pain inflicted by PSU Banks on the
aggregate earnings performance.
We have revised our FY16/17/18 Sensex EPS downwards by 2.5%/5.6%/5.3% to
INR 1332/1550/1890, respectively.
We now expect Sensex EPS to decline 1.6% for FY16 and grow 16.4% for FY17.
90
1Q 2Q 3Q 4Q 1Q 2Q 3Q
FY15
PAT YoY (%)
Sensex
MOSL Universe Ex OMCs
22
18
6 8
0
-8 -6 -8
-9
-5
-1
-5
3
FY16
-10
1Q 2Q 3Q 4Q 1Q 2Q 3Q
FY15
FY16
23 February 2016
 Motilal Oswal Financial Services
Voices
SBI and BHEL account for 77% of FY16E PAT downgrade.
Five stocks contribute 72% of FY17E Sensex PAT downgrade: SBI (32%), ONGC
(19%), ICICI Bank (9%), Coal India (7%), and Tata Motors (6%).
Five stocks contribute 83% of FY18E Sensex PAT downgrade: SBI (39%), ONGC
(27%), ICICI Bank (8%), Maruti (6%) and Tata Motors (4%).
FY17 Sensex EPS growth contributors: Banks (31%), Auto (21%) & Technology
(16%) contribute 2/3rd of the 16.4% FY17E Sensex EPS growth estimate.
Sectoral actual v/s expected - MOSL universe (INR b)
Sector
(no of companies)
High growth sectors
Healthcare (14)
Oil Ex OMCs (9)
Cement (7)
Media (9)
Retail (3)
Real Estate (8)
Med/Low growth sectors
Utilities (10)
Banks - Private (8)
Consumer (16)
NBFC (13)
Technology (11)
PAT de-growth sectors
Capital Goods (11)
Telecom (4)
Others (21)
Automobiles (12)
Metals (9)
Banks - PSU (8)
MOSL Universe (176)
MOSL Ex OMCs (173)
Ex OMCs,PSU Bks (165)
Sensex (30)
Nifty Ex. BPCL (49)
Sales
EBITDA
PAT
EBIDTA Margin
Dec Chg. % Chg. % Var. over Dec Chg. % Chg. % Var. over Dec Chg. % Chg. % Var. over Dec
Chg.
2015 QoQ YoY Exp. (%) 2015 QoQ YoY Exp. (%) 2015 QoQ YoY Exp. (%) 2015(%) YoY bp
1,729
-5
-16
-7
380
0
18
-2
214
2
39
6
22
634
315
-1
9
-2
80
-3
15
3
52
-3
53
6
26
140
1,077 -10
-26
-9
227
-3
16
-4
131
3
37
6
21
773
168
4
8
2
28
4
35
7
12
-7
32
14
17
327
60
13
16
1
19
23
22
0
9
20
20
-3
31
167
49
20
17
1
4
41
15
-5
3
57
19
2
9
-14
59
2,156
627
215
393
136
784
3,615
453
415
221
1,275
954
298
9,232
7,500
7,202
4,477
5,574
9
2
0
4
5
5
2
1
3
1
2
11
-8
-7
0.0
0.1
0.4
2.4
1.6
20
9
4
19
4
17
12
-3
3
5
4
7
-19
-4
-6.8
-3.2
-3.1
-2.7
-2.6
-14
-2
-8
3
-1
-1
0
-3
-5
-2
-4
-2
-3
-7
-2.2
-3.8
-3.6
-3.9
-3.5
22
790
191
201
89
119
190
668
24
147
38
176
82
200
1,933
1,838
1,638
1,085
1,388
27
7
13
16
5
1
-1
-6
-30
2
29
15
-37
-9
4.9
0.6
2.0
3.5
2.2
35
16
22
24
10
17
6
-17
-47
8
6
5
-61
-6
7.6
1.4
2.4
4.6
2.3
-16
2
2
8
0
-2
1
-8
-47
-2
-6
-6
-3
-7
-1.7
-2.6
-2.0
-1.8
-2.0
7
480
90
106
63
69
151
88
9
26
20
83
-11
-39
838
782
821
551
605
12
4
8
9
8
-4
1
-59
-37
14
51
41
17
9
13
12
8
7
7
-68
-56
-10
-1
8
12
1
2
4
-1
-7
4
-55
-59
-6
-7
-6
Loss
PL
-8.3
-10.1
0.5
-2.4
-9.6
36
37
30
93
23
87
24
18
5
36
17
14
9
67
21
25
23
24
25
399
215
446
370
119
46
-153
-330
-514
112
23
-33
-932
-153
280
111
124
170
119
PL
PL
PL
PL
-6.1 -1.1
-12.0 -10.3
-1.7
0.5
-2.5
3.0
-10.1 -8.1
Sensex EPS trend (INR)
FY93-FY15:
14% CAGR
FY01-08: 21%
CAGR
361
446
540
720
FY08-15:
7% CAGR
1,120 1,182
FY15-18E:
12% CAGR
16%
-2%
1,338 1,354
1332
1550
1890
22%
833
820
834
1,024
216
FY01
236
FY02
272
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15 FY16E FY17E FY18E
23 February 2016
91
 Motilal Oswal Financial Services
QUANT RESEARCH & INDIA STRATEGY GALLERY
Voices
23 February 2016
92
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Voices
NOTES
23 February 2016
93