1QFY17 | August 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 106 companies, with links to the full earnings call
transcripts
Links to our Results Updates on each of the companies included
Research & Quant Team
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Investors are advised to refer through important disclosures made at the last page of the Research Report.
24 November 2015
1

Contents
Summary
........................................................................................................................................................................................
3
Sectors
....................................................................................................................................................................................
7-117
Automobiles
7-14
Ashok Leyland.............................. 7
Bajaj Auto .................................... 8
Bharat Forge ................................ 9
BOSCH…………….……………………….10
Eicher Motors ............................ 11
Hero MotoCorp ......................... 11
Mahindra & Mahindra ............... 12
Maruti Suzuki............................. 13
TVS Motors ...…………………………. 14
Capital Goods
15-21
ABB ........................................... .15
Crompton Greaves CG ............... 16
Cummins .................................... 17
Havells India .............................. 18
KEC International ....................... 20
Thermax..................................... 20
Va Tech Wabag…………………………21
Cement
22-23
Grasim Inds ................................ 22
JK Lakshmi Cements…………………23
Ultratech ................................... 23
Consumer
25-40
Asian Paints ............................... 26
Britannia Inds ............................ 27
Dabur India ................................ 29
Emami........................................ 30
Godrej Consumer ...................... 31
Hindustan Unilever .................... 32
Jyothy Labs ................................ 34
Marico ....................................... 35
Page Inds ………………………………..37
Parag Milk Foods………………………37
Pidilite Inds ……………………………..38
United Spirit............................... 40
Financials- Banks
42-59
Axis Bank ................................... 43
Bank of Baroda………… ... ………….44
Bank of India …………………………..44
Canara Bank ............................... 45
DCB Bank ................................... 46
Federal Bank ............................. .46
HDFC Bank ................................ .47
ICICI Bank ................................... 49
IDFC Bank.................................. .50
Indian Bank…………………… ………..51
IndusInd Bank… ......................... 53
Kotak Mahindra Bank ................ 55
Oriental Bank of Commerce . …..56
Punjab National Bank ................ 56
State Bank of India………… .......... 57
Union Bank ................................ 58
Yes Bank .................................... 59
Financials – NBFC
61-68
Bajaj Finance.............................. 61
Dewan Housing Finance ........... .63
IndiaBulls Housing Finance ........64
LIC Housing Finance………………….64
M&M Financial .......................... 66
Repco Home Finance ................. 67
Shriram Transport Finance ........68
Healthcare
70-77
Alembic Pharma ........................ 70
Alkem Labs................................. 71
Biocon ........................................ 71
Cadila Healthcare....................... 72
Cipla ........................................... 73
Dr Reddy’s Labs ......................... 73
Glenmark Pharma ...................... 74
IPCA Labs……….………………………..75
Lupin .......................................... 75
Sun Pharmaceuticals ................. 76
Torrent Pharma ......................... 77
Media
78-81
D B Corp ..................................... 78
Dish TV………….…………………………79
Hindustan Media Ventures ........79
H T Media…………………..…………...80
Jagran Prakashan……………………..80
Zee Entertainment .................... .81
Metals
83-84
Hindalco Inds ............................. 83
Hindustan Zinc………………………….84
JSW Steel………………………………....84
Oil & Gas
86
Cairn India ................................. 86
Reliance Inds.............................. 86
Retail
88-90
Shoppers Stop ........................... 88
Titan........................................... 90
Technology
92-102
Cyient......................................... 93
HCL Tech ....................................93
Hexaware Technologies .............94
Infosys........................................95
KPIT Technologies ......................96
Mindtree ....................................96
Mphasis .....................................97
NIIT Technologies ......................98
Persistent Systems .....................98
TCS .............................................99
Tata Elxsi ....................................99
Tech Mahindra.........................100
Wipro .......................................101
Zensar Technologies….……………102
Telecom
103-106
Bharti Airtel .............................103
Bharti Infratel ..........................105
Idea Cellular .............................106
Utilities
109
JSW Energy ..............................109
Others
110-117
Arvind Ltd………………………….…..110
Castrol India .............................110
Container Corp ........................112
Gateway Distriparks.................113
Interglobe Aviation ..................114
Info Edge (India) ......................115
Kitex Garments ........................116
PVR ..........................................116
V-Guard Industries ...................117
Index (Alphabetical)
Companies
ABB
Alembic Pharma
Alkem Laboratories
Arvind Ltd
Ashok Leyland
Asian Paints
Axis Bank
Bajaj Auto
Bajaj Finance
Bank of Baroda
Bank of India
Bharat Forge
Bharti Airtel
Bharti Infratel
Biocon
Bosch
Britannia Inds
Cadila Healthcare
Cairn India
Canara Bank
Castrol India
Cipla
Container Corp
Crompton Greaves CG
Cummins
Cyient
Dabur India
D B Corp
Pg
15
70
71
110
7
26
43
8
61
44
44
9
103
105
71
10
27
72
86
45
110
73
112
16
17
93
29
78
Companies
DCB Bank
Dewan Housing Fin.
Dish TV
Dr Reddy's Labs
Eicher Motors
Emami
Federal Bank
Gateway Distriparks
Glenmark Pharma
Godrej Consumer
Grasim Inds
Havells India
HCL Tech
HDFC Bank
Hero MotoCorp
Hexaware Technologies
Hindalco Inds
Hindustan Unilever
Hindustan Zinc
HMVL
HT Media
ICICI Bank
Idea Cellular
IDFC Bank
IndiaBulls Housing Fin.
Indian Bank
IndusInd Bank
Pg
46
63
79
73
11
30
46
113
74
31
22
18
93
47
11
94
83
32
84
79
80
49
106
50
64
51
53
Companies
Info Edge (India)
Infosys
Interglobe Aviation
Ipca Labs
Jagran Prakashan
JK Lakshmi Cement
JSW Steel
JSW Energy
Jyothy Labs
KEC International
Kitex Garments
Kotak Mahindra Bank
KPIT Technologies
LIC Housing Fin
Lupin
M&M Financial
Mahindra & Mahindra
Marico
Maruti Suzuki
Mindtree
Mphasis
NIIT Technologies
Oriental Bank of Commerce
Page Inds
Parag Milk Foods
Persistent Systems
Pidilite Inds
Punjab National Bank
Pg
115
95
114
75
80
23
84
109
34
20
116
55
96
64
75
66
12
35
13
96
97
98
56
37
37
98
38
56
Companies
PVR
Reliance Inds
Repco Home Finance
Shoppers Stop
Shriram Transport Fin.
State Bank of India
Sun Pharmaceuticals
TCS
Tata Elxsi
Tech Mahindra
Thermax
Titan
Torrent Pharma
TVS Motors
Ultratech Cement
Union Bank
United Spirits
V-Guard Industries
Va Tech Wabag
Wipro
Yes Bank
Zee Entertainment
Zensar Technologies
Pg
116
86
67
88
68
57
76
99
99
100
20
90
77
14
23
58
40
117
21
101
59
81
102
Note:
All stock prices and indices for companies as on 19th August 2016, unless otherwise stated

1QFY17 | India Inc on Call
Voices | 1QFY17
Voices
BSE Sensex: 27,986
S&P CNX: 8,629
Mixed quarter; selective demand pick-up
Better monsoon and 7th Pay Commission rewards could drive 2H demand
1QFY17 witnessed selective demand pick-up in sectors like decorative paints,
two-wheelers, tractors and cement even as broad-based recovery continues to
be elusive. Corporates in capex-driven sectors have maintained their cautious
outlook on industrial capex recovery as capacity utilization remains weak. In
BFSI space, slippages and credit costs have moderated QoQ but are still at
elevated levels. Also, system loan growth is likely to remain moderate.
Lagged impact of better monsoon and 7th Pay Commission handouts should
support consumption demand in 2HFY17.
Selectively, input costs have picked up QoQ, providing corporates with some
leeway to exercise pricing power.
Autos
Auto demand is picking up, especially in rural pockets, as demonstrated by robust
2W and tractor growth in 1QFY17. Growth in PV segment continues to be driven by
new launches. With monsoon progressing well and a low base, expectations of
demand revival in 2HFY17 have increased. Export demand for 2Ws, 3Ws and PVs is
likely to bottom out as currency situation improves steadily. With commodity prices
hardening, input costs are likely to inch up over the coming quarters.
Capital Goods
Although execution of orders in hand remains on track, the industry maintains its
cautious outlook on the pace of recovery in industrial capex. Industrial capex activity
could be a few quarters away as capacity utilization for most companies – a function
of demand improvement – remains weak. Key infrastructure segments witnessing
demand traction are transmission, renewables, defense, roads and railways.
Cement
The cements sector reported strong volume growth of 8.2% YoY/QoQ in 1QFY17.
Volume momentum remained intact in south, but somewhat lost steam in north.
Companies with expansions continued to lead with 30-40% YoY growth. Southern
players posted 10-20% growth with rising demand in Andhra Pradesh and
Telangana. Strong price recovery was witnessed in north and central parts of the
country, while prices fell substantially in south. Consequently, average 1QFY17
realization improved 5% QoQ (and
-1%
YoY) with greater impact on north-based
players. The sharp price recovery over April-June and sustenance thereafter
translate into spot cement prices being 2-3% higher than 1Q average. This augurs
well for profitability in 2QFY17. Costs continue to offer tailwinds, with (a) a sharp
decline in freight and packaging costs and (b) positive operating leverage.
Consumer
Volume growth remained tepid for most companies in the sector. The rural and
urban segments continued to slow down further, even on a sequential basis. Only
the small modern retail segment posted some recovery. The proportion of rural
sales is lower than urban for all companies, but this segment is crucial for
incremental growth. According to management commentary, while demand in
1HFY17 was muted, it is likely to be stronger in 2HFY17 due to better monsoon and
August 2016
3

Voices | 1QFY17
benefits from the government’s schemes to boost rural growth. Material costs are
now hardening gradually, but crude-related RM and packaging material costs
softened again. Gross margins continued to expand YoY. Some companies chose to
use the headroom to spend more on advertising, while others spent more on price-
offs. While gross margin improvements may have peaked, hardening material costs,
albeit off a low base, present the likelihood of resumption in realization growth.
Some companies have already started taking price increases. Excise benefits started
going off from May 2015, and organic growth is likely to track reported growth for
the remainder of FY17.
Financials
Although slippages and credit costs moderated in 1QFY17, they still remain at
elevated levels. We see this trend continuing in Q2 and expect a recovery from
2HFY17. Amid muted corporate activity and credit growth, retail continued to be the
focus area for banks with strong trends in housing. Given the competitive landscape,
system loan growth is likely to remain moderate in FY17, with private banks
continuing to gain market share. Margins are expected to remain largely stable
(negligible impact from MCLR).
Healthcare
In pharmaceuticals, overall sector sales and EBITDA margins were marginally below
estimates. Excluding one-off opportunities, growth in US sales was muted due to
limited new launches in the past six months. India formulations sales were impacted
in 1QFY17 by various regulatory actions. EM markets business delivered robust
constant currency growth, but FX volatility continues to impact INR growth. We
expect US sales momentum to pick up, given increasing number of approvals for
Indian companies. Emerging market growth should stabilize with currency. We thus
believe overall earnings growth should improve over the next few quarters.
Media
Broadcasters
Ad growth for Zee remained strong at 19% YoY, and the company remains
confident of exceeding ad growth estimates of 14-15% for FY17.
Domestic subscriptions grew 14% YoY. However, a meaningful uptick in
domestic revenues from Phase III digitization is expected only after
subscription/content contracts are finalized. Management expects low-to-mid-
teens growth in domestic subscriptions in FY17.
Other sales and services grew 35% YoY to INR1.31b (our estimate: INR974m).
The beat was largely led by strong box-office performance of the movie ‘Sairat’,
which was co-produced by Zee.
Ex-sports margins remained largely in line, improving ~500bp YoY.
Watch out for developments on interconnect agreements between broadcaster
and distribution platforms, as these could determine how margins play out
across the media value chain.
Print companies
Post a dismal FY16, 1QFY17 marked a recovery in ad volumes and market share
for DB Corp (DBCL). DBCL had lost 16-17% in ad volumes in FY16.
Jagran Prakashan (JAGP) and Hindustan Media Ventures (HMVL) had a soft 1Q in
terms of ad spends as pushback in spends from select categories kept industry
ad environment somber. JAGP/HMVL’s ad revenues grew 9%/7% in 1Q.
August 2016
4

Voices | 1QFY17
Ad growth is expected to gain steam in 2HFY17, underpinned by: 1) good
monsoon, 2) 7
th
Pay Commission, 3) festive season largely falling in 3Q and 4)
upcoming UP elections in 2H.
Circulation growth of DBCL remained robust at 15%, while that of JAGP/HMVL
was 6%/5%.
Print companies believe that newsprint prices have bottomed out and there
could be 3-4% escalation in FY17.
Metals
JSW Steel reported strong results on the back of higher realizations (led by MIP) and
low cost. Standalone EBITDA/t increased to ~INR9,200. Hindalco surprised positively
at both Novelis and standalone level. Novelis benefited from improving product mix
and stabilization of new smelters. Standalone aluminum surprised on lower costs.
We see better outlook for steel (due to price hikes and lower imports) and
aluminum (due to declining coal cost and higher volumes).
Oil & Gas
In oil & gas, GRMs for RIL benefited from inventory gains. We expect OMCs to also
report higher GRMs due to inventory gains. RIL’s large core projects (USD18.5b) are
largely on track; however, full benefits are expected to accrue only in FY19. JIO
launch date still remains uncertain. Vedanta bettered the Cairn swap ratio for
merger. Lower oil price will limit subsidy burden within the announced government
limit, implying no burden on ONGC and OINL.
Retail
Only two retail companies under our coverage – – Titan and Shopper’s Stop – have
announced their results. Weak SSG momentum continues for both. For Titan, sales
growth stood at 3.6% YoY versus our expectations of +15%, with both watches
(adversely affected by a steep decline in exports YoY) and jewelry reporting low-
single-digit sales growth. Tanishq jewelry stores reported decent growth in an
environment where revenues of many unorganized peers fell over 30% owing to
clampdown on black money and weak sentiment. Margins for Titan were better
than expected, but we believe are not sustainable because of absence of spot gold
purchases in 1QFY17 which boosted gross margins. Shopper’s Stop reported 10.4%
YoY sales increase (LTL growth of 5.5%). Operating margins for Shopper’s Stop were
under pressure, which meant that even on a standalone basis, the company has
started reporting losses at the net level. Guidance on top-line growth was largely
maintained by managements of both Titan and Shopper’s Stop. Interestingly,
Shopper’s Stop stated that discounting is the new normal in retail and pressure from
online retail players continues unabated, thereby dampening even medium-term
top-line and earnings growth prospects.
Technology
Demand environment has been strong, with incremental contribution from Digital.
Seasonal strength is expected to play out well in 1HFY17. However, most vendors
are not factoring in any negative impact from Brexit on discretionary spend. The
backdrop of macroeconomic uncertainty leads us to take a wait-and-watch stance,
rather than revising outlook and growth estimates downward. That said, margins in
the next quarter are likely to improve for most players with pressure from wage
hikes, visa expenses and acquisition-integration now behind.
Telecom
Data growth has remained weak due to low volume growth and price declines. To
drive volume growth, data prices need to be reduced. Managements are focused on
overall data revenue growth, and it should not be a concern if price declines drive
August 2016
5

Voices | 1QFY17
demand elasticity. Also, to increase data consumption, there is a need to educate
consumers on benefits of data usage. Capex is likely to remain stable, with large part
of initial 4G-related capex completed. However, we expect capex to remain elevated
with incremental data network-related capex. Upcoming spectrum auction should
see lukewarm response as there is limited spectrum requirement and significant
quantum of spectrum availability. Capitalization of assets and spectrum acquired
from the March-15 auction is completed. Increased smartphone penetration is
creating an ecosystem for data growth. Voice market remains stable for Bharti,
while Idea has seen lower growth in voice due to two quarters of price increases,
which are expected to be partially rolled back.
Utilities
PGCIL’s performance was strong, backed by robust capitalization. Outlook for PGCIL
remains promising on strong capitalization guidance. JSW Energy reported healthy
32% YoY increase in PAT on contribution from acquired hydro assets. Securing the
Karnataka medium-term PPA is the key.
August 2016
6

AUTOMOBILE | Voices
Key takeaways from management commentary
AUTOMOBILES
Auto demand is picking up, especially in rural pockets, as demonstrated by robust 2W and tractor growth in
1QFY17. Growth in PV segment continues to be driven by new launches. With monsoon progressing well and a
low base, expectations of demand revival in 2HFY17 have increased. Export demand for 2Ws, 3Ws and PVs is
likely to bottom out as currency situation improves steadily. With commodity prices hardening, input costs are
likely to inch up over the coming quarters.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY17
Margins
Maintains overall volume guidance of 4.6m
units, up 16%
Domestic volumes
~2.6m 2Ws
~300k 3Ws
Export volumes
~1.35m 2Ws exports
~250k 3Ws
Royal Enfield:
Production guidance of
~675k units (v/s earlier guidance of
~620k units for CY16)
and exit
~20% in FY17
Capex Plans
Maintains INR2.5b-3b in FY17
Bajaj Auto
Eicher Motors
production of over 60,000 units with
ramp-up happening in 2HFY17
rd
For FY19, target of 900k, with 3
plant commissioning operations in
FY19
2QFY17 – Double-digit growth
2HFY17 – High-single-digit growth
Urban market performing better at
present; Trend shifting to rural in
2HFY17
Total capex: INR10b in FY17
Royal Enfield ~INR6b for FY17 for
investment in 3rd plant in Chennai,
technical centers at Chennai and UK
VECV: INR4b in FY17
Hero MotoCorp
In the range of 14-16%
(v/s earlier 14-15%)
INR8-9b in FY17
Mahindra
& Mahindra
Tractor industry growth of ~13-16% in
FY17
Does not expect capacity constraints for
next 2-3 years, even if tractor demand
grows at 15% p.a.
INR45b in FY17, comprising of: a)
~INR10b on maintenance capex
(Manesar & Gurgaon plant); b) ~INR10-
11b on marketing investments (Stock
yards, spare parts, land procurement);
and c) Remaining on product
development
Maruti
Export volumes to be flat in FY17;
Baleno exports to be ~50,000 units in
FY17
Ashok Leyland
Current Price INR 87
Target Price INR 118 | 36% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
FY17 M&HCV industry growth estimated at 15-20%: Volume outlook for FY17
for the industry unchanged. Management expects 4QFY17 to witness strong
growth due to pre-buying on BS-IV emission norm implementations from April-
17.
Export volumes declined 33% YoY in 1QFY17 due to delay in invoicing for some
export orders pending LC, which will be reflected in 2QFY17. Exports account for
August 2016
7

AUTOMOBILE | Voices
7% of AL CV volumes, with management targeting 30% share of exports in the
next five years.
It is witnessing a sharp recovery in tippers, with AL’s tipper volumes growing
100% YoY. There were clear signs of pick-up in the infrastructure segment,
driven by initiatives taken by the government.
This was the ninth straight quarter in a row in terms of market share gains. It
expects further market share gains, driven by new product launches and
augmenting presence in the southern market.
Net debt: ~INR16b or 0.25x Net debt: Equity (v/s ~INR9b in 4QFY16 and INR~35b
as of 1QFY16).
Capex guidance for FY17 unchanged at ~INR5b (incl. investments), as against
~INR2.2b in FY16. Management expects FY18 capex to be materially different,
with large part of capex toward maintenance and de-bottlenecking. It has scope
to expand production from existing facilities by
increasing shifts from 2
to 3,
wherever possible.
Capacity utilization for MHCV at 70-75%, with Pantnagar producing 68,000 units,
which can be scaled to 75,000 units.
Price hike of 1-1.5% in April-16, followed by selective hike in July-16.
Average discounts at 2-2.5%, which were largely unchanged QoQ.
Pricing strategy: AL does not price products to gain market share. It focuses on
gaining market share through differentiated and better products. AL has 11
businesses internally. All these businesses are measured on profitability, on
which compensation of each business is dependent.
Defense: It is targeting revenues from defense to go up 5-6x over next five years
to USD0.75b-1b (from ~USD150m in FY16). It already has won 11 tenders, which
would be executed over next few years. It is focused on making larger play in
defense, rather than just providing trucks for men and material movement. It is
working with technology partners to expand its offering and provide logistical
solutions. Defense accounts for 4-5% of net revenues.
Sharp decline in interest cost has been due to a fall in gross debt (by ~INR3b
QoQ and ~INR14b YoY) and lower interest cost. Management expects it to
sustain, albeit at slightly higher level (v/s FY16 average of INR660m/quarter).
Bajaj Auto
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 2,932
Target Price INR 2,994 | 0.4% Upside
Buy
Management has maintained FY17 volume growth guidance of 4.6m units
Domestic 2 wheeler
volumes at ~2.6m units, driven by additional volumes from
V15, full-year benefit of Avenger and industry growth (9-10% growth).
Domestic 3 wheeler
volumes at ~300k units, driven by diesel and cargo
segment (introduced in 4QFY16). Management expects growth in non-cargo/
diesel to be ~8% YoY. It is targeting 25k units in the cargo segment in FY17.
Guidance for FY18 in domestic 3W segment at 5-10%.
Exports:
~1.6m units (incl. ~250k 3Ws). The company is likely to add 8-9
countries (~16 countries added in FY16).
Re60 (Qute):
Management guided ~10,000 units in exports in FY17.
Export demand and pricing:
Export revenues were down 22% in INR terms to
~INR205.7m in 1QFY17. Management indicated that it had taken price cuts in
certain markets. There has been no major improvement in exports market of
Egypt and Nigeria in terms of currency issues. However, volumes in Nigeria
trending at 20k units/month from a low of 10k units/month.
8
August 2016

AUTOMOBILE | Voices
Inventory in Egypt and Nigeria
trending below base level.
Product pipeline:
Upgrade of all Pulsar models during 2HFY17 (post the festive
season). Pulsar 400cc to be launched in 2-3 months. VS 390 to be launched in
next 1-1.5 months.
Spare part
revenues at INR 63.7m; growth of 15% YoY in 1QFY17.
RM cost:
Material costs have increased as steel and aluminum prices have gone
up QoQ. However, effect of increase (up to 40%) negated due to cost-reduction
measures undertaken by the company. Going forward, management expects a
marginal increase in commodity costs, rationalized by cost reduction.
Tax rate
is likely to be 28-28.5% for FY17, lower than historical tax rate of ~30%
due to change in accounting of tax-free FMP to accrual basis as per Ind-AS.
Subsidiary dividend:
Bajaj received ~INR890m dividend from its subsidiary KTM
in 1QFY16. However, dividend of INR760m from KTM is yet to be received in
1QFY17, resulting in other income reduction by INR760m.
Price increase:
Customer level – 3W INR1,500/unit (IR900 at co. level) and 2W
INR500 (INR300 at co. level) in Apr-16. No price hikes taken in July 16.
Capex:
Management maintained capex guidance of ~INR2.5-3b in FY17.
Ad spends:
Majority of advertisement spends would be toward exports (approx
~INR1000m spent on export markets). Advertisement and marketing expenses
to grow by 10-15 % YoY.
Dealers:
Bajaj has 3500-4000 touch points (dealers+ sub dealers) and 620
dealers. It plans to increase it to 700 dealers during the year.
Impact of Ind-AS:
a) Sales to include excise duty and included in cost. b) Cash
discounts, target discounts on spare part sales to be removed from other
expenses and nullified from sales. c) Financial instruments to be fair valued and
interest to flow through P&L on accrual basis. d) MTM hedges: Time value and
intrinsic value to be routed through other comprehensive income.
Emission and safety norms:
CBS/ABS safety norms from April1 2017 for new
models and existing products from April1 2018. BS IV cost to be more than
INR500-800/vehicle. The time frame to pass on to customers to depend on
market situation and competition.
Bharat Forge
Current Price INR 840
Target Price INR 921 | 10% Upside
Buy
Click below for
Results Update
Inventory levels
for Class 8 trucks in North America have normalized, as per
management, with supply in line with production of OEMs. It expects demand in
CY16 to be flat, while CY17 could see growth as BHFC introduces new products.
Oil & gas:
The contribution of oil and gas vertical in the overall mix has declined
from ~USD100m to almost negligible at present. The management plans to shift
the capacities for oil & gas segment to aerospace to mitigate the downturn in
the oil & gas industry.
New product launches:
BHFC plans to launch new products in the CV, PV and
industrial verticals during 2HFY17.
Strong subsidiary performance: Net revenues grew by 10% YoY in 1QFY17, while
EBITDA margins expanded 10bp QoQ to 7.8%. Growth was mainly driven by
strong performance of its subsidiary BF Aluminiumtechnik.
August 2016
9

AUTOMOBILE | Voices
Domestic CV
growth of 26% YoY for 1QFY17 was primarily on account of existing
products. Going forward, new launches by OEMs along with change in emission
norms are likely to drive growth for BHFC.
PV export
revenues stood at ~INR500m in 1QFY17, growth of 30% YoY. Besides
this, it has won a new order in passenger cars for engine components.
Railway business
contributes about ~INR100m/quarter in revenues, which
management expects to contribute ~INR2500-3000m/quarter in the next 2-3
years.
It expects
Aerospace
revenues of ~INR200-300m over the next 2-3 years, with
growth starting to reflect from 2HFY17.
Machining
contributed 45-50% of revenues in 1QFY17.
USD100m revenue target for new segments:
For newer segments like
Aerospace, Rail etc, it is targeting revenues of USD100m by FY20. While Rail’s
revenues are at USD5-10m and Aerospace’s under USD5m, it expects strong
ramp-up in Rail in FY17 and in Aerospace from FY18 based on new programs it
has on hand.
Capacity utilization
stood at 65-67% in 1QFY17, with its Baramati plant
operating at over ~50% utilization and Pune plant at 65-70% utilization.
Capex:
It invested ~INR5.5b in FY16, and plans to invest INR2-2.5b in FY17 (v/s
~INR1b guidance in 3QFY16). Consol: INR1000cr (incl. JVs) in FY16. It has
incurred investment of ~INR2b in the defense segment, with ~INR1b in capex
and balance ~INR1b for research and development.
Under Ind-AS,
it has reclassified tools
and dies from
RM cost to depreciation.
Bosch Ltd
Current Price INR 23,955
Target Price INR 26,488 | 11% Upside
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Domestic business drives revenues; exports continue declining: 1QFY17 net
revenues increased 9.5% YoY (+2.1% QoQ) to INR25.2b (est. of INR29.9b), driven
by ~8.6% growth in both auto and non-auto segments. Domestic revenues grew
~11.4% YoY, led by 13.1% YoY growth in auto segment and supported by 2.6%
YoY growth in non-auto segment. Exports declined ~12.2% YoY as auto exports
fell 22.2% YoY, partly offset by 84% YoY growth in non-auto exports driven by a
large export order in the packaging division.
Gasoline and diesel businesses grew in double-digits.
Capex guidance of ~INR6.8b, which will include capacity expansion at Nashik
and Bidadi plants.
The company executed the business transfer agreement of its Starter Motor and
Generator business by way of slump sale for ~INR 48.6b to Robert Bosch Starter
Motors Generators India Pvt. Ltd.
Impact of one-off other expenses was ~210bp on margins.
August 2016
10

AUTOMOBILE | Voices
Eicher Motors
Current Price INR 21,759
Target Price INR 27,155 | 25% Upside
Buy
Click below for
Results Update
Royal Enfield
RE waiting period was at ~3 months in 1QFY17. Net order book moving up
gradually. The same store sales growth was ~15% YoY for majority of dealers.
Current dealer count stood at 566 dealers pan India. The company looks to add
2-3 dealers/week. Besides it is not looking at appointing sub dealers as it dilutes
brand value.
The company’s technology centers at UK and Chennai are likely to be
commissioned early next year.
Production guidance maintained at ~675k for FY17 (v/s earlier guidance of
~620k for CY16) and exit production of over 60,000 units with ramp-up
happening in 2HFY17. For FY19, it maintained target of 900k, driven by 3rd plant
commissioning operations in FY19.
Himalayan motorcycle has been launched pan-India with current run rate at
1000 units/month.
Capex of ~INR6b for FY17 for investments in 3rd plant in Chennai, and technical
centers at Chennai and UK.
No price increases were taken during the quarter (last price hike taken in Jan- 6)
VECV
VECV’s is witnessing traction for Pro series in HD, as recovering demand is
enabling fleet operators to try new trucks. 1QFY17 was first quarter in which
they achieved 1,000 units/month.
MDEP engine volumes at ~4,622 units (6.2% YoY, -23% QoQ).
VECV exports to Africa and Middle East. It plans to enter South East Asia and
Latin America.
Hero MotoCorp
Current Price INR 3,359
Target Price INR 3,666 | 9% Upside
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Outlook positive for 2HFY17:
It expects double digit growth in 2QFY17 and
higher single digit growth in 2HFY17. Urban market is performing better at
present but trend is likely to shift to rural growth during 2HFY17.
Retail’s growth
of ~6% was tad lower than dispatches. Rural growth was ~7%
YTD. Sales in Northern and Central India were slightly weaker due to a weak
marriage season. Scooter retails stood at ~70k units, which was steady since the
past 4-5 months.
EBITDA margin guidance:
Management has guided EBITDA margins to be in the
range of 14-16% (v/s 14-15% earlier).
Commodity costs
increased QoQ due to steel and aluminum price increase and
mix impact. Management expects to see marginal cost pressure going forward.
Gujarat Plant
is expected to be commissioned in Sept-16 (v/s earlier
commissioning date of July-16).
Price increase
in the range of INR 200-675 to taken from 6 May 2016 on all the
models. No price increases taken post that.
August 2016
11

AUTOMOBILE | Voices
HMCL’s dealer inventory
stood at 4-4.5 weeks in July-16, with 1-1.5 weeks of
inventory in transit.
LEAP Cost Cutting Program
has delivered savings of ~INR450m in 1QFY17.
Haridwar plant
contributed ~36% of total volumes in 1QFY17.
Proportion of
First time buyers
was ~65% at present.
Exports:
Reviewing exports target of ~10% of volumes by FY20, as headwinds
are very strong in key target markets. Ongoing currency turmoil in countries like
Nigeria, Argentina, Mexico etc has delayed HMCL’s export plans. Its plans to
enter Argentina and Ghana in the next quarter and Mexico in 4QFY17. Despite
weak environment, it has set a target of 300,000 units for FY17.
Capex:
It is planning for capex of ~INR8-9b in FY17.
Hero FinCorp
(financing arm where it has ~48.5% stake) is the largest financier
of HMCL 2Ws. Average run rate of 35-40k units/month of financing done by the
company.
CBS/ABS
to be mandatory from Apr-18 (Apr-17 for new products). It estimates
an impact of ~INR4000/unit. Scooters are likely to have a relatively low impact
as most scooters already have CBS technology. This would in turn boost
scooterization in the future.
Ind-AS:
Trade discounts given to dealers are netted from revenues, as against
the earlier practice of accounting in other expenses.
GST impact:
As per management, any GST rate lower than 23-24% would be
beneficial for the mass market segment.
Mahindra & Mahindra
Current Price INR 1,454
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 1,715 | 18% Upside
Buy
Farm Equipment Segment
Tractor industry guidance:
Management estimates tractor industry to grow by
13-16% in FY17. Industry grew by 14.7% YTD.
Market share:
M&M achieved highest market share in tractors in the past 10
years driven by newly launched products.
New launches:
It will launch a 50HP tractor of Swaraj along with variants of
Yuvo and Nuvo tractors during the year.
Inventory
during 1QFY17 was similar compared to the previous quarter.
However,
receivable
days reduced due to better collection from dealers during
the quarter.
It does not expect any
capacity
constraints at least for the next2-3 years, even if
demand grows by 15% pa.
RM cost
for tractors was flat on a QoQ basis.
Management does not anticipate any major capital expenditure in FES in FY17,
apart from routine maintenance capex.
Sale of Agri business to its fully owned subsidiary is likely to have an impact of
~INR1500m/quarter from revenues. It expects marginal impact on PAT and
capital employed.
GST impact:
It expects a 12% GST rate to be neutral.
August 2016
12

AUTOMOBILE | Voices
Auto Segment
Price increase
of 1% was taken in 1QFY17 to compensate for rising commodity
costs (+1% QoQ).
Management feels that demand for TUV3OO and Bolero have moderated due to
negative sentiment on account of the diesel ban along with price correction
from competitors. For Bolero, it will roll out new initiatives to recover volumes
in next 4-6 weeks.
New launches:
It plans to launch the XUV5OO by end of FY17 and petrol version
of Scorpio in 1QFY18. Management guided one new product launch every year
starting next year till 2020.
Negative sentiment toward Diesel:
Negative sentiment towards diesel engine
reflected in industry share of diesel declining to ~27% (v/s 47% in FY13). It will
offer petrol engine in XUV5OO by end FY17 and in Scorpio by 1QFY18.
SsangYong on recovery path:
SsangYong is witnessing recovery in volumes led
by Tivoli. As a result, it reported profits for 3rd consecutive quarter.
2 wheeler segment:
It has started right sizing the 2W business, with reduction
of employees (given VRS to half of the employees). It plans to focus on niche
areas in the 2W industry, on premium motorcycle Mojo and higher capacity
scooter (Gusto 125cc).
M&HCV segment:
Its market share improved in M&HCV to ~3.6% (+100bp YoY)
and is targeting market share of 7-8% over next few years.
Maruti Suzuki
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 4,899
Target Price INR 5,509 | 12% Upside
Buy
MSIL’s rural sales
for 1QFY17 were flat, implying 2% YoY volume growth coming
from urban areas. Management indicated rural demand was sluggish.
Petrol:Diesel mix
for the industry in 1QFY17 stood at 59:41 (1QFY16 mix of
56:44). MSIL’s share for 1QFY17 was 70% petrol and 30% diesel. Change in
consumer preferences towards petrol is evident.
Export
volumes declined by 27% YoY in 1QFY17 primarily due to high base to Sri
Lanka and production loss in June. Baleno exports for the quarter were at
11,400 units. Management maintained Baleno exports number at 50,000 units
for FY17.
Average discounts stood at INR 16,800
(lower by ~INR800/unit QoQ and higher
by ~INR800 YoY).
Ind-As impact:
For FY16, under Ind-AS it would have a) deferment of service
income of ~INR1b, and b) fair value of gain on mutual funds at ~INR10b. As a
result, net profit for FY16 would be higher by ~INR7.9b or ~17%.
Depreciation expense
for 1QFY17 was lower by INR833m due to change in
amortization policy of dies and intangible assets (from 4 to 5 years)
Waiting period
for Baleno was at 6-7 months, while Vitara Brezza was at 8-9
months. MSIL is trying to increase production of these 2 products to reduce the
waiting period. Capacity has already enhanced to some degree.
Tax rate
for FY17 is likely to be at 27%.
Royalty in 1QFY17
was INR9.6b or 6.6% of net revenues (v/s 5.6% in 1QFY16).
Royalty costs have gone up by ~0.3% due to adverse currency movement.
August 2016
13

AUTOMOBILE | Voices
Capex:
It expects INR45b of capex in FY17, with a) INR10b on maintenance
capex (Gurgaon plant and Manesar plant); b) Marketing investments of INR10-
11b (stock yards, spare parts, land procurement) and c) remaining to be
expensed on product development and R&D.
Gujarat plant
is expected to be operational in 4QFY17.
TVS Motor
Click below for
Results Update
Current Price INR 312
Target Price INR 323 | 4% Upside
Buy
2QFY17 exports to be better:
Issues relating to availability of forex dragged
down exports volumes in 1QFY17 (-13%YoY), especially 3W volumes (- % in
1QFY17). Management sees signs of easing of availability of forex going forward.
It expects 3W export volumes to clock 6-6.5k units/month in the near term,
from the current run rate of 4-4.5k units. Momentum of exports to be better in
H2FY17.
New launches:
Victor and Apache RTR 200 made available pan-India in 1QFY17.
Management expects a 20k/month run rate of Victor for FY17. Jupiter million
edition and Star City chocolate gold versions launched in 1QFY17. The company
has targeted 50-55k units/month for TVS Jupiter for FY17.
As per the management,
rural demand
is moderate and is likely to pick up in
H2FY17 on the back of normal monsoon and festive season.
Capex:
FY16 capex was at INR4.5b; the management has guided ~INR 4b in
FY17, which includes brownfield expansion at its existing manufacturing plants.
BMW alliance:
Project is on track, with its first product (G310R) to be launched
during FY17 and not specifically during the festive season.
It
maintained EBITDA margin
target of ~10% by FY18 (without BMW alliance)
It invested INR40m in its wholly owned subsidiary Sundaram Auto Components
Limited in 1QFY17.
Inventory at dealers increased from 27-28 days to 31-32 days in 1QFY17. Retail
inventory is estimated to be marginally higher QoQ.
Excise duty incentives
at Himachal Pradesh plant will lapse by Mar-17.
Contribution of Himachal plant is 10% of total production.
Finance penetration
for TVS stood at 38% in 1QFY17, with 58% sales coming
from captive finance arm TVS Motor Services Ltd.
Tax rate
to be in the range of ~26-27% in FY17.
August 2016
14

CAPITAL GOODS | Voices
CAPITAL GOODS
Although execution of orders in hand remains on track, the industry maintains its cautious outlook on the pace
of recovery in industrial capex. Industrial capex activity could be a few quarters away as capacity utilization for
most companies – a function of demand improvement – remains weak. Key infrastructure segments witnessing
demand traction are transmission, renewables, defense, roads and railways.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY17
Expect domestic revenues to grow
10-12% in FY17
Cummins
Expect zero to negative export
revenue growth in FY17
Operating margin to remain stable
in FY17
Order intake guidance: 15% growth
Larsen and
Revenue guidance: 12-15% growth
Toubro
Margin improvement of 50bp to
10% from 9.5%
Order book/inflow
Operating Margins
16.4% in 1QFY17 as compared to
16.9% in 1QFY16
Consolidated order
book at INR2,575b (up
8%)
Order inflow for
1QFY17 at INR297b
(up 13%)
EBITDA margin for 1QFY17 at 8.7%,
as against 8.2% in 1QFY16
ABB
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 1,163
Target Price INR 1,262 | 9% Upside
Neutral
Management remained cautious on the pace of industrial capex recovery, given
the continued poor capacity utilization levels, and any pick up depends on
demand improvement.
Positive on sectors such as Railways, Renewable, T&D projects. Railways now
form 4% of the order book as compared to 2% earlier.
Within T&D, traction for high-ended technology products like GIS, HVDC, WAM,
STATCOM has witnessed increasing trend.
Prefers cash over sales and will not push sales to customers in case of possible
issue regarding payment recovery.
Exports contributed 16-17% of revenue and 14-15% of order book. Export order
pipeline continues to remain robust with tenders getting finalized from
countries like Bangladesh and Srilanka
Renewables to contribute 15% of sales, led by strong execution of solar related
orders, and growth is expected to remain robust.
Railways have put in place expansion plans of USD132b over the next 4-5 years.
August 2016
15

CAPITAL GOODS | Voices
Crompton Greaves Consumer Electricals
Current Price INR 167
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 185 | 11% Upside
Buy
Key pillars of growth for the company
Continue to focus on building and investing in the brand. Building organization
excellence via a new ERP.
Innovation in the product portfolio and continuously working on new products
Cost reduction via operational excellence and use saving from here to invest in
the brand/products.
Focus on premium fans and innovation - premium fans grew 60% by volume
during the quarter and form ~10-11% of sales; ~6% of fans growth coming from
premium fans.
Advertising spends and margins
Crompton has spent ~INR250m on advertising in Q1FY17 and on TVCs (INR68m)
in FY16; this is on top of sales promotion expenses.
Been aired for fans and lighting and has helped to increase awareness about
their products.
Crompton has been able to increase adv. spend without any dilution on the
margin front.
Cost-reduction programs are in placed by them - looking at rationalization of the
vendor base.
Looking at higher share of premium products which is leading to better margins.
Stepped up pace of innovation and trying to identify and meet unmet demand
of consumers.
Fans
Focus on premium fans and innovation - premium fans grew 60% by volume
during the quarter and form ~10-11% of sales; ~6% of fans growth coming from
premium fans.
Of the overall fan market, premium fans are ~10-11% and is growing faster than
the market.
Fan industry would not have grown as strong - both Havells and CG would have
taken market share.
Strong summers during Q117 has helped sales for them.
As a category, fans to grow at 8% CAGR and they would grow meaningfully
higher than this no.
Pumps
Grow share of agri pumps where they are relatively weaker compared to
residential pumps.
During Q1FY17, agri pumps grew >25% YoY.
Lighting
Margins are volatile as the share of LED goes up and CFL/GLS comes down; LEDs
grew >90% YoY, CFL is declining.
LED is greater than CFL for them at this point in time.
Margins are QoQ lower because of higher advertising spends during Q1FY17.
August 2016
16

CAPITAL GOODS | Voices
Two segments: B2B and B2C. B2B for them is 50% of sales.
B2C is bulbs, tube lights and fixtures which is primarily LED now.
Have been selling LED bulbs and was the price leader in EESL tenders; now the
focus is on tube lights and fixtures.
Margins - traditional lighting prices and margins are going down as these are
replaced with LED where prices and margins have stabilized; cost reduction have
supported LED margins.
Target to improve margins substantially in the lighting segment and bring it in
line with competition.
EESL
See EESL as an opportunity and not a threat for CG Consumer - it is a new
distribution channel for them .
In Lighting, government gave the scale and this enabled reduction in prices.
EESL program in lighting will continue at the same level and may not increase
substantially from these levels.
Fan supply to EESL will reduce industry-wide price, but CG would supply only if
they make requisite margins.
Cash flow usage
Post investing in the brand, product and capex will use excess cash for dividend
payout - will get know by this quarter-end.
Will enter one more product category and are evaluating this option.
Have INR2b of acceptances which are bill discounted by them and could look to
repay this.
Distribution
Have ~100,000 retail touch points and this is spread across:
a. traditional electrical channel, dealers in large markets, wholesalers
b. Modern trade
c. E Commerce
d. Modern Trade
e. B2B channel
Cummins India
Current Price INR 894
Target Price INR 865 | 3% Downside
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Rail is a big opportunity from the QSK50 series engine which will add INR0.5b in
sales each year and also exploring other options with rail.
Expect industrial segment growth to be much faster than power generation
growth over the medium term.
Domestic power gen demand is being driven by Data centers, Infra (road, ports),
residential realty (not much in commercial), hospital and Pharma
While Q1FY17 was a weak quarter (-4% YoY), do expect growth to revive in the
coming quarters.
Not seeing any sign of improvement overseas markets - QoQ growth was driven
by supply chain initiatives and not reflective of the overall market.
HHP engines exports will remain flat over the medium term as globally capex
remains quite weak.
17
August 2016

CAPITAL GOODS | Voices
To be at INR4b in FY17 as they complete the India Technical center and will
come down to INR2b thereafter.
Rental income from the India Office Campus to start at INR0.10-12b each.
Cummins Technical Centre - this is being set up jointly with CIL and Cummins
Inc. with an investment of INR10b and to be operational from Jan17; will
positively impact CIL on margins
Havells India
Current Price INR 415
Target Price INR 433 | 4% Upside
Buy
Click below for
Results Update
Improvement in demand in Q1FY17 is visible, but Havells is coming off a weak
base in 1HFY16 so may not sustain 17% growth. Helped by market share gains,
new products and channel expansion.
Growth visible across product categories and also helped by new categories
such as Pumps, Standard brand and also a weak base in Q1FY16.
Expanded distribution over the past year with more focus on Tier2/3 town and
better connect with retailers which is starting to now show results.
Have hired senior management people from other companies and also
introduced new product categories alongside Standard brand and REO modular
switches.
Broader market recovery is still patchy and still to see a substantial recovery - its
more because of market share gains for them during the quarter.
No improvement yet in the real estate market in Tier 1 cities but tier 2/3 cities
are doing much better.
Exports +34% YoY which is primarily switchgear but now also started fans,
lighting.
Margin improvement of 60bp driven by royalty cessation by them - FY17 margin
seen in 13.5-14.5% range as savings from royalty would be reinvested in the
business.
Do expect FY17 to be better than FY16 in terms of profitability.
Some increase in prices has taken place, but growth is more volume driven than
pricing
Growth in market share driven by higher distribution in West and South, re-
launch of standard brand, Pumps, Water heaters, Fans due to low base and hot
summers
Switchgear
Exports are primarily switchgear (5% of sales are exports, implying INR70cr of
exports in switchgear, +34% YoY in Q117) which implies 20% of switchgear sales
are exports, 80% is domestic which grew by 17% YoY.
REO Bliss launched in Switches, which along with the push on Standard brand,
has also helped grow sales.
August 2016
18

CAPITAL GOODS | Voices
Lighting
In lighting, 2/3rd is fixtures and 1/3rd is normal lamps.
35% growth in LEDs implies CFL continues to de-grow and now form a very small
portion of overall sales; overall lighting sales +22% YoY.
Price reductions in LED have already taken place so do not expect any significant
fall from hereon - they are not doing EESL sales.
Focus is on technology and brand to grow their LED portfolio.
Consumer Durables
Fans which is the largest category grew by 17-18% YoY driven by a low base and
market share gains for them. They have grown faster than the market in this
category
Will not participate in the EESL fan tenders as these are more economy fans
where Havells does not participate at all.
Appliances has seen new products like geezers, coolers, pumps which have also
grown very well; INR250cr of appliances for them and INR800cr of fans.
Q2FY17 would see fan growth come down since it is a seasonally weak quarter
for them.
Biggest segment in durables is water heater where they are doing well.
Air coolers is still a very small segment for them as they have entered it recently.
Pumps have grown 100% YoY.
Cables
Volume growth of 20% but only 5% value growth due to a continued decline in
copper prices. This will get better from Q2FY17 onwards as copper prices have
seen a rebound.
Industrial cables have been doing better than residential cables for them; low
base and capacity constraint in FY16.
Others segment
This is for the EESL supplies which is being shown as a separate segment.
Making 26% contribution margins since they are focused on streetlights.
Distribution
Focus on connecting with retailers and these changes have been done over the
past 3-4 quarters.
Employee costs seeing a sharp jump as they have hired new employees,
increments come in June and will stay at INR100-120cr.
FY17 guidance of "Lower double digit growth".
August 2016
19

CAPITAL GOODS | Voices
KEC International
Current Price INR 137
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 160 | 17% Upside
Buy
Revenue impacted on account of soft commodity prices and delay in execution
of projects in the SAARC and India region.
KEC international has 20 projects in Saudi Arabia of which 50% is scheduled for
commissioning in FY17. Focus is to complete these projects as retention money
is 20% and thus completion of these projects will help in freeing up retention
money for the company.
Tendering is expected to remain strong in the South East Asia region, whereas
Middle East has witnessed postponement of tenders. Abu Dhabi and Egypt
tendering activity continues to remain stable.
SAE Towers registered operating margins of 9.4% in1QFY17 led by a pick-up in
dispatches in Brazil and improved demand in Mexico.
For FY17, the management has guided for a positive PBT contribution from SAE
Towers as product deliveries are expected to pick-up.
Current order book stands at INR104b. Expect ordering from the SEB to pick up
in FY17. SEBs like Karnataka, Tamil Nadu, West Bengal, Andhra Pradesh and
Telegana have increased their T&D spending to reduce AT&C losses.
Railways have started to witness ordering traction and KEC has already booked
orders worth INR4b and incrementally is L1 in orders worth INR3.5b. KEC
expects order inflow for FY17 to be in the tune of INR8-10b and expects revenue
booking of INR4b in FY17. KEC currently has market share of 25-30% in the
railways segment.
Solar segment has also witnessed strong ordering traction and management
expects order book to improve to INR5b and revenue of INR3.5b in FY17.
Thermax
Current Price INR 842
Target Price INR 730 | 13% Downside
Sell
Click below for
Detailed Concall Transcript &
Results Update
International orders were also weak - are in negotiations with B&W for 2 orders
and these may get finalized in Q3/Q417. No orders for the TB&W JV in Q1FY17.
Won an 80MW solar thermal order from NTPC for INR0.8b and will be the first
to be implemented in the country; potential of 3.5GW of such plants can be
implemented.
The Dangote Refinery order is waiting for FC from the banks and is likely to be
concluded for Thermax only in FY18- the refinery has a planned capex of USD8-
9b. Thermax to book only once advance is received.
Targeting USD20-25m medium-sized project in SE Asia and M East but no hurry
from the promoter to order these projects.
Cement - Some WHRG enquiries have been seen; got one EPC order but not for
full WHRG.
Steel- Sponge Iron makers (50/100ton) need to install WHRG on directive from
Pollution Control Boards and this will happen but composite steel makers are
still in a limbo with no orders expected.
O&G - Expect ordering activity to pick up from PSU refineries, shift to EUROV/BS
VI needs INR1t of investment by FY20.
Power: Ordering activity to remain muted and a likely pick up only from FY18.
August 2016
20

CAPITAL GOODS | Voices
Expect a strong revival in orders from FY19 which is still 1-1.5 years away in
large-sized orders.
Va Tech Wabag
Current Price INR 579
Target Price INR 700 | 21% Upside
Buy
Click below for
Results Update
Focus is to reduce working capital cycle for the company. VATW has been able
to bring down the working capital cycle by 10% as compared to March 2016.
Receivables as on June 2017 stands at INR17b and payables stands at INR10b on
consolidated basis.
Gross debt at consolidate levels stands at INR3.3b and net cash stands at
INR2.7b.
STP plant orders from Maharashtra government have begun. One order has
been awarded on pilot basis. Two orders are under bidding stage and
incremental four orders are yet to be awarded.
Order pipeline visibility of INR200b from states like Maharashtra, Tamil Nadu,
Karnataka, Delhi.
Nemmeli Desalination plant has received all approvals and funding has been
tied up. Expect order to be awarded by year end. Order size could be in excess
of INR15b.
Margins to improve led by pick up in execution of better margin orders in the
international as well as domestic market.
August 2016
21

CEMENT | Voices
CEMENT
The cements sector reported strong volume growth of 8.2% YoY/QoQ in 1QFY17. Volume momentum remained
intact in south, but somewhat lost steam in north. Companies with expansions continued to lead with 30-40%
YoY growth. Southern players posted 10-20% growth with rising demand in Andhra Pradesh and Telangana.
Strong price recovery was witnessed in north and central parts of the country, while prices fell substantially in
south. Consequently, average 1QFY17 realization improved 5% QoQ (and -1% YoY) with greater impact on north-
based players. The sharp price recovery over April-June and sustenance thereafter translate into spot cement
prices being 2-3% higher than 1Q average. This augurs well for profitability in 2QFY17. Costs continue to offer
tailwinds, with (a) a sharp decline in freight and packaging costs and (b) positive operating leverage.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY17
a) Demand growth in south moderated; expect growth to come from other parts like west and central
b) Use of pet coke at 80% in FY17
India Cement
The volume mix was TN and Kerala-46%, Karnataka-12%, AP and Tel-16%, others-26% (increased sales in
Maharashtra and Gujarat)
Strong growth acceleration in 2HFY16 with infrastructure projects, rural housing and road construction
to pick up post monsoon. While North and East remain key contributors, early signs of revival were
visible in AP and Telangana. Maharashtra to show traction with Mumbai metro rail project contracts
being awarded post monsoon. Rural housing demand to pick up on the back of 7th Pay commission
hike and normal monsoon. Management expects demand to grow at 7% in FY17
Cement prices have shown some improvement sequentially with North being the best region. Spot
Ultratech
prices in end of June have been on the higher side and they should remain steady and improve
Management expects 2nd quarter to be weak due to normal monsoon, while 2HFY16 to post
phenomenal growth in volumes
Pet coke prices have seen an upward movement, but they expect prices to correct in the near future.
While current increase will be absorbed by overall efficiency improvement
WHRS mix is likely to increase further with the second phase of 50MW to start in FY17 which would
increase the mix to 11% from current level of 6%. Capex for FY17 to be at INR15b for environment
sustainability and maintenance
Grasim Inds
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 4,618
Under Review
Both VSF and Chemicals businesses are likely to see improved domestic
demand. De-bottlenecking of the Vilayat plant was completed in 1QFY17, which
increased capacity of Chemicals to 8,40,000 tpa from 8,04,000 tpa. Key medium-
term focus areas are:
more premium product mix,
expanding domestic reach,
additional capex in organic and inorganic route in right juncture
improvement in cost efficiencies.
Grasim and AB Nuvo merger
Merger of Aditya Birla Nuvo Limited into Grasim Industries Limited.
Restructuring results in listing of the financial services business 57% owned by
post-merger Grasim and balance being held by its shareholders (post-merger
Grasim) on a proportionate basis.
Merger will provides shareholders with a well-diversified portfolio of cement,
textiles, chemicals, insulators, solar, telecom and financial services.
Grasim and AB Nuvo merger: AB Nuvo has a S/A debt of INR22b and EBITDA of
INR8.7b. Post-merger, net debt of the entity will be INR17b with an EBITDA of
August 2016
22

CEMENT | Voices
INR32b leading to a net debt/EBITDA of 0.5. Management was clear that there
would be no fund raising for idea.
3 equity shares of Grasim for every 10 equity shares of Aditya Birla Nuvo. 7
shares of Aditya Birla Financial Services for every 1 equity share of Grasim (post
merger)
JK Lakshmi Cement
Current Price INR 440
Click below for
Results Update
Target Price INR 503 | 14% Upside
Buy
Surat grinding unit to start production from 2QFY17, Udaipur by 3QFY17, railway
siding at Durg to be commissioned by end of FY18.
WHRS (7MW) will lead to savings of INR100/ton, railway siding in Durg will lead
to savings of INR300/ton.
The work on the grinding unit in Odisha is also in progress; Ramp-up at Durg
plant and Odisha capacity to enhance capacity to 11.5mt by FY18.
Demand in north showing improvement which should drive pricing in near
future.
S/A net debt at 15.5b, down by INR1.5b.
Capex to be INR 2.4b including Surat grinding unit and Durg expansion.
Fundamental strength getting stained by rising concerns in east operations
JKLC has a strong market-mix with recent entry into east further enriching the
same. Capacity addition at Chhattisgarh offers fresh headroom for growth
acceleration.
The company has a superior cost structure due to (a) consistently improving fuel
efficiency (in top quartile among industry players), (b) 100% self-sufficiency in
power in north, and (c) competitive fuel mix with pet coke (85%).
However new market entry has been disappointing with stabilization of
utilization not coming at desired profitability. Inability to replicate northern cost
structure in east raises concerns.
Ultratech Cement
Current Price INR 3,915
Buy
Target Price INR 3,966 | 1% Upside
Click below for
Detailed Concall Transcript &
Results Update
Growth: Positive demand outlook for 2HFY17
Strong growth acceleration in 2HFY16 with infrastructure projects, rural housing
and road construction to pick up post monsoon. While North and East remain
key contributors, early sign of revival was visible in AP and Telengana.
Maharashtra to show traction with Mumbai metro rail project contracts being
awarded post monsoon. Rural housing demand to pick up on the back of 7th Pay
commission hike and normal monsoon. Management expects demand to grow
at 7% in FY17.
Cement prices have shown some improvement sequentially with North being
the best region. The spot prices in end of June have been on the higher side and
they should remain steady and improve.
August 2016
23

CEMENT | Voices
Cost tailwinds to continue
Pet coke prices have seen an upward movement but they expect the prices to
correct in the near future. The current increase will be absorbed by overall
efficiency improvement.
WHRS mix is likely to increase further with the second phase of 50MW to start
in FY17 which would increase the mix to 11% from current level of 6%.
Diesel prices have gone up in the last few months but they expect it to stabilize
and move southwards.
Capex for FY17 to be at INR15b for environment sustainability and maintenance.
August 2016
24

CONSUMER | Voices
CONSUMER
Volume growth remained tepid for most companies in the sector. The rural and urban segments continued to
slow down further, even on a sequential basis. Only the small modern retail segment posted some recovery. The
proportion of rural sales is lower than urban for all companies, but this segment is crucial for incremental growth.
According to management commentary, while demand in 1HFY17 was muted, it is likely to be stronger in 2HFY17
due to better monsoon and benefits from the government’s schemes to boost rural growth. Material costs are
now hardening gradually, but crude-related RM and packaging material costs softened again. Gross margins
continued to expand YoY. Some companies chose to use the headroom to spend more on advertising, while
others spent more on price-offs. While gross margin improvements may have peaked, hardening material costs,
albeit off a low base, present the likelihood of resumption in realization growth. Some companies have already
started taking price increases. Excise benefits started going off from May 2015, and organic growth is likely to
track reported growth for the remainder of FY17.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY17
Britannia
Management believes that due to
good monsoon this year, expected
demand pick-up after two quarters
will result in nearly double-digit
industry growth
Guidance of 15% top line
maintained for FY17
Volumes
Small volume
impact expected
for full year due to
price increase
Price action/Offers
Guidance of 5.5%
overall price hike
for FY17
Margins
Emami
The company is
likely to be back in
double-digit
volume growth in
FY17
Price increase to be
around 2-2.5% for
FY17, as mentioned
in 4QFY16 concall
HUL
Page Industries
Management believes that
commodity prices have bottomed
out, so pricing element will be
higher going forward with the
company already taking price
increases in both soaps and
detergents
Management attributed strong
volume growth to demand revival
and increase in distribution reach
Normal monsoon,
improving crop
sowing and 7th pay
commission should
be positive for
volumes in 2HFY17
Guided for over
15% volume
growth for full year
Price growth likely
to be flat in 2QFY17
compared to
decline in 1QFY17
Pidilite
Steady volume
growth across all
segments. Value
growth is trailing
volume growth for
the first time in
decades
The company took
effective price
increase of 4.6% for
1QFY17, the full
benefits of which
will be witnessed in
2QFY17
If VAM remains at
these levels, then
unlikely to increase
prices
Witnessed 6% inflation in
input cost in 1QFY17;
price increase and
targeted cost savings
should alleviate margin
pressure
Management is expecting
a 100bp increase in gross
margin in FY17; A&P
increase by 100bp YoY on
account of new launches
will restrict EBITDA
margin improvement
The company is
committed to modest
margin improvement
every year.
Premiumization and cost
savings plans will aid
margins
Management guided that
they will maintain
margins YoY for the
remainder of the year
EBITDA margins not likely
to be sustainable if crude
moves up. If crude goes
back to USD70-80, then
19-20% margins at
consolidated level are
likely
August 2016
25

CONSUMER | Voices
Asian Paints
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 1,115
Target Price INR 970 | 13% Downside
Neutral
Demand and outlook
Domestic economy recovery seen, however trajectory is uneven.
Decorative segment reported low double digit volume growth.
There has been a recovery in demand in the last 3 quarters now for Asian Paints
Demand uniformly good all across the country.
There has been no major shift from unorganized to organized (whole industry is
growing at healthy pace) which makes the double digit domestic decorative
volume growth highly creditable especially given 12% volume growth in the
base quarter.
In fact the management stated that if GDP grows faster, then pace of volume
growth will quicken to high double digit (as witnessed in the latter part of the
last decade).
Monsoon progress is a bright spot and bodes well for rural demand.
For Asian Paints, rural growth continues to be consistently higher than urban
growth because of lower base, increase in permanent dwellings and expanding
reach of Asian Paints.
Have seen good demand in all 3 key domestic consumer segments viz paints
kitchen and bath fittings.
Range and reach in kitchen and bath fittings expanding, thereby aiding growth.
Premiumization in paints continuing as it has been in the last decade.
Good demand recovery seen for industrial, auto and powder coating as well.
International business growth aided by healthy growth in Nepal.
Margins
Comfortable with these levels of margins. Will look at growth opportunity and
work on pricing strategy along that. Management believes they are not
sacrificing on growth currently despite sharp margin increases.
Depreciation increase
March 2016 commissioned third phase of Rohtak plant 400,000 kl from 200,000
kl earlier. Also expanded Ankleshwar and Kasna leading to higher depreciation
YoY.
Ind AS impact on sales
Incentive to dealers and cash discount now deducted from sales.
PPG AP Management control with PPG would not be added to sales now.
AP PPG management control with AP, so sales will be added.
New products and expansion
Every year add 2000-3000 retailers.
Will continue to add 60-80 color idea stores a year.
Loctite is moving reasonably well. Localized supply as of now. As they roll out
more, advertisement intensity will increase. The limited products launched so
far expand India wide in the next 2 quarters.
AP Homes Coimbatore experience has been good as has been the learning. Will
update on expansion plans later.
August 2016
26

CONSUMER | Voices
Capex
INR6b capex this year.
Mysore and Vizag plant expansion with INR17.9b capex over 2 years.
Indonesia plant - Have received approvals towards end of June quarter.
For the new businesses, no significant capex plans.
Other points
Labor is 60-70% of cost of painting.
No significant DIY demand improvement.
Egypt, Ethiopia and Trinidad could have exchange related issues in the current
year.
Average painting cycle is now once in 4-5 years.
The company is adding 2000-3000 retailers every year.
Britannia Inds
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 3,346
Target Price INR 3,660 | 9% upside
Buy
Volume growth and outlook
The company witnessed 8% volume growth in biscuits despite 10% volume
growth in base quarter 1QFY16. Industry growth was actually flat, slowing down
further over FY16 and thus volume performance of Britannia was remarkable.
Industry growth actually declined in both April and May 2016 before recovering
in June 2016.
Industry demand weakness was due to 2 years of bad monsoon. Management
believes that due to good monsoon this year, demand will go after two quarters
leading to close to double digit category growth eventually.
Subsidiary performance and dairy expansion
In Dairy, decent topline growth was witnessed in 1QFY17 but bottom line was
affected by higher milk prices and normal tax rate compared to MAT earlier.
In Dairy, Cheese is doing well but cyclicality is affecting margins. Gap v/s peers
still remains on market share.
Management believes that for long term play in dairy, the company needs to
reduce third party dependence significantly by investing in sourcing.
Strategy in Dairy has taken far longer than anticipated and is still in the process.
Deadline is now the end of calendar year. Management believes that delay will
facilitate better decision making as they are looking at all aspects. Ultimately if
they do not feel it makes business sense, they will not invest in dairy.
For the quarter, the company was badly affected in its Middle East and North
Africa business as some markets were shut down because of politics and
terrorism which includes Syria, Libya and Yemen. There were exchange
fluctuation in other markets leading to sales decline and margin impact.
Distribution/Geographical performance
The company added 60,000 outlets to its direct reach during the quarter ending
June 2016 with 1.32m outlets.
Including indirect reach, Britannia now covers around 4.5m outlets across the
country, out of a total universe of 7.7m outlets selling biscuits. Parle reaches
around 5.7m outlets.
August 2016
27

CONSUMER | Voices
Split route distribution is enabling addition of more SKUs across outlets which
mean that there is addition of more outlets as well as more products within
those outlets.
The company now has 8300 rural distributors, sales growth was 33% YoY in rural
in 1QFY17. Rural sales are low for Britannia.
Performance in erstwhile weak states continues to be good. Sales from Gujarat
grew 26% YoY in 1QFY17 and faster than preceding years, Madhya Pradesh is
also steadily improving with YoY growth of 16% in 1QFY17. Rajasthan grew by
double digits again in 1QFY17 but 11% growth was slower than 19% growth in
both FY15 and FY16 in this state. Uttar Pradesh (UP) sales continued to be
disappointing with 7% growth in 1QFY17 compared to 9-10% in the preceding
two years.
UP has had affordability and sentiment issues. Most consumer categories have
witnessed slowdown. However Britannia is very small in the state and thus seek
to grow much faster and not below its national average.
Innovation
Innovation process continues.
Under biscuits recent launches have received good response. 3 in 1 nuts under
the Good Day umbrella have received tremendous response while NutriChoice
Oats Cookies also generated very good response.
In case of Pure Magic Deuce, the national launch will be towards the latter half
of the year.
Non biscuits launches like the highly innovative Cake Biscotti, Vegetarian Cakes
and Milk rusks also attracted good response.
Revenues from innovation are 3.5% of sales currently. Innovation means
products that have been introduced in the past 24 months.
Material cost inflation, Cost savings and pricing
The company has witnessed 6% commodity cost inflation in 1QFY17 with sugar
up 23%, flour up 9%, palm oil up 5%, and crude related cots being flat/ declining.
Cashew nuts costs are also increasing.
However, its cost-saving program is yielding better-than-expected results
enabling some offset to material cost inflation. For the quarter, cost savings
programs yielded benefits worth 2.5% of sales. Cost savings target was 2% for
the year, and is now revised to 2.6%-2.7%.
1-2-1.5% of sales have been average cost savings historically in recent years.
Management is targeting 2% per year beyond FY17.
Material costs for Q2 will be higher than Q1, and Q3 will be higher than Q2.
Management seeks to offset this through cost savings and judicious price
increase.
Standalone volume growth was up 8.3%, sales were up 9.4% YoY and thus there
was ~1% realization growth in 1QFY17 (90bp actual price increase and 20bp mix
impact).
Management guided that 5.5% will be overall price hike for the full year and in
addition they are targeting to have around 2.6-2.7% targeted cost savings.
Bulk of price increases has already been taken but impact was not felt
significantly in 1QFY17 as increase was taken in June.
August 2016
28

CONSUMER | Voices
In Good Day Cashew, the company has taken price increase in family pack as
well as INR10 pack.
Price increase has not adversely affected volumes. No impact on revenue
growth for full year as small volume impact will be offset by price increase.
Other points
Exports are growing at high double digits. Management is hoping that it will
ramp up to offset overseas subsidiary business impact.
Export incentives have gone up due to India exports growing. There was also
some one-off scrap sales and one-off VAT refunds from 2 states.
The company is very close to launching long-term incentive plans for top 20
managers.
Adspends were flat YoY v/s last year and thus down on percentage of sales
basis. The company did not share A&P as part of operating costs in the results.
Conversion costs were also flat YoY. This too was not shared in the results. Flat
absolute A&P and conversion costs explain part of the savings on other
expenses as a percentage of sales YoY.
Current national average of VAT is 14.14.5% and excise is around 2.5%.
Consolidated tax rate for FY17 will be the same as 1QFY17 at around 33%.
Other income increased due to fair valuation of investment. Gains are unlikely
to be as high in the rest of the quarters.
Big growth opportunities for Britannia
Its rural market share is only 2/3rd of urban market share.
In Value segment it is 1/5th share of market leader, Parle G. Value is 45% of
biscuit market.
Capex and investment
Capacity utilization remains at 95% plus. Idle assets cannot generate cost
savings that the company is targeting.
Current mix is 50:50 between own and contract manufacturing. After 2 new
plants (1 in Bangalore and other in TN) are fully operational, the mix will be
60:40. Management is targeting 65:35 in medium term.
Capex target is INR3.5-4b on 3 new plants. Some smaller old factories need
automation.
Large plants enable mechanization and automation and yield scale advantages.
Most new factories are automated, so benefits are obtained on labor, lower fuel
usage, better quality and also use of alternate fuel wherever possible.
Contract manufacturing will be retained as it gives them flexibility.
Dabur India
Current Price INR 300
Target Price INR 300 | 0% Downside
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Quarterly performance
Demand decelerated further; competitive intensity high.
Sharp fall seen in growth rates in most consumer products segments.
Recovery to be seen only after Sptember’16; government stimulus for rural a
key factor to look out for apart from monsoons.
August 2016
29

CONSUMER | Voices
Promotions doubled in India business for the quarter; is likely to increase for
next couple of quarters.
Material cost down during the quarter with inflation cycle benign and overall
agri index deflationary YoY.
UP and MP saw impact of Pan Card (above INR200,000 transaction) requirement
by distributors. 2QFY17 is likely to see some impact of the same.
Company split its distribution into personal and healthcare from June onwards.
Distribution initiatives are being consolidated.
Project Lead: 170 people building doctor reach currently.
MENA remained stressed.
Category performance
DD growth in the toothpaste portfolio.
Oral care category grew 0.9% during the quarter.
Back at peak market share level for juices in modern and retail trade.
Management pointed out the hair oil category de-growth of 1-2%.
Guidance and view
Double digit growth expected from juices.
Likely to maintain overall EBITDA margin for next few quarters; will be investing
raw material benefits behind promotion.
Capex plan: INR5b for FY17 for new production as well as to expand existing
plants in India and abroad.
Emami
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 1,178
Target Price INR 1,335 | 13% Upside
Buy
Performance
Domestic business grew 21% led by volume growth of 18%.
Rural and urban contribution equal. Excellent monsoon across India. Going
forward expect healthy growth.
Re-launched key brands Navratna, He deodorants, Zandu balm with new
packaging and formulation.
Gained market share in Navratna cooling oil, Fair and Handsome fairness cream
as well as face wash and Kesh King during the quarter. For Cooling oil and Kesh
King, Nielsen changed base as it increased number of sampling outlets.
International business grew by 14%.
Gross margin improved by 390bp (Kesh and existing portfolio contributed
equally) and EBITDA 450bp despite high A&P spends.
Amortization at INR600m vs INR135m YoY.
Net debt @ INR2.04b; would retire the debt in next 5 quarters.
Raw material: Menthol 10% of total COGS; prices slightly up in last few months.
Crude derivatives around 25% of COGS; LLP around 8-9% of COGS.
Distribution: 6.4lac direct reach with 2,900 distributors; 8lac by FY18 target.
Ind-AS impact
No significant change in profit; revenue reduced due to sales tax and trade
promotions schemes.
August 2016
30

CONSUMER | Voices
Guidance
15% topline growth in FY17 maintained.
Expecting 1% increase in gross margin in FY17 from last year; A&P to be 19% v/s
18% YoY.
Expecting 20% growth in International market in FY17 led by Bangladesh and
GCC.
Tax rate to be around 20% for FY17.
Capex: INR1.75b for FY17.
Kesh King
All new plans were implemented; change in formulation, and advertising, small
size packs 60 ml (INR 70) (below 5% only now) and improved formulation.
10.4% of total revenue (INR670m as per Ind AS; INR750m as per IGAAP); 23%
growth on QoQ basis. Target of INR2.8b as per Ind AS for FY17. 9 months’
revenue in FY16 as per Ind AS was INR1.72b.
75k retail outlet reach currently; 1lac reach target.
Brand-wise details
Men’s fairness cream market declined during the quarter.
Contribution of HE, F&H face wash and 7 Oils in One contributed 5% to sales.
Planning to come with more male grooming products under HE.
Healthcare’s last 4-5 quarters growth was led by Zandu Pancharist. 60% of
healthcare sales from Pancharist. Test marking new products in South India. Will
wait for around 1 quarter before rolling out nationally. Navratna’s 65% sales
from rural areas; major part of the 8% growth for 1Q from rural. Navratna oil did
well in 1st two months.
INR250m from 7 Oils in One in FY17.
Greater opportunity in Honey compared to Chyawanprash; not competing on
price in Honey category with competitors; targeting niche audience.
Godrej Consumer
Current Price INR 1,544
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 1,490 | 3% Downside
Neutral
Macro outlook
Demand likely to improve in 2HFY17 with good monsoon and pay commission.
India business
Reduced distributor inventory and as a result domestic sales were impacted by
2%. This is part of their program Distributor Delight looking to reduce inventory
at distributor level.
Household insecticides business maintained market share at high levels despite
sales declining 11% due to seasonality. Aerosols were stable but the others
segments were affected. June sales picked up after poor April and May and July
sales have been excellent.
Excluding HI impact due to seasonality, volume growth was 13% domestically.
In soaps continue to build a value added product portfolio.
Low palm oil enabling margin improvement.
Part of the reason why promotion in soaps continues significantly despite
decline in domestic gross margins YoY was attributed to the strategy of the
soaps market leader (HUL).
August 2016
31

CONSUMER | Voices
In 2HFY17 price increases/ lower promotional intensity likely in soaps.
In Hair Color, Expert Rich Crème now reaches 1 cr households.
New media campaign in powder hair color aiming to boost sales.
GCPL is now No 2 in air care.
Cinthol deo stick has received encouraging response.
International business
Indonesia 3% constant currency growth due to weak economic growth.
Indonesia witnessed negative volume growth for industry in Home and Personal
Care. No macro improvement yet. There has been a cabinet reshuffle that has
been well received. Some negative impact of heavy rain in Indonesia was
witnessed in 1QFY17.
Expert Crème launched in Indonesia. Category has only 10% penetration. MNC
peers are largely dumping products.
Strength of Nature (SoN) reported USD1.14b sales in May and June put
together. USD95-100m sales last year.
Africa business growth ex SoN was around 14%.
Nigeria 2-3% of global revenues. Some translation impact on sharp Naira
depreciation.
In LatAm, incremental price hikes cold hopefully improve margins going
forward.
Accounting/ Financials
Jammu plant expansion is largely because the Himachal plant is coming out of
excise benefits.
Staff costs reduction in standalone business due to lower performance payouts
on a YoY basis.
Lower processing charges in Household insecticides due to declining sales and lower
utility costs were behind other expenses decline YoY in standalone numbers.
A&P was low in 1QFY17 as there was focus on more consumer offers
predominantly in soaps category. Launches like B Blunt and neem product based
Household Insecticides will lead to higher advertising going forward.
If not for consumer offers, domestic gross margins would have been higher by
50-60bp.
Indonesia- Key reason for 230bp margin improvement was mainly commodity
tailwinds. Going forward, cost savings from cross pollination of Project Pi likely
but will be invested back into the business.
Africa margins improvement due to SoN margins being higher as well as overall
margin improvement.
Hindustan Unilever
Current Price INR 912
Target Price INR 860 | 6% Downside
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Key highlights
FMCG industry volume growth is getting incrementally worse both YoY and
sequentially
Commodity deflation cycle may have bottomed out.
Price growth likely to be flat in 2QFY17 compared to decline in 1QFY17.
32
August 2016

CONSUMER | Voices
Both Soap and detergents have taken price increase in 1QFY17
Optimistic on potential positive impact of good monsoon progress and 7th CPC
on volumes going forward.
Committed to moderate margin increase every year.
Premiumization and cost savings plans will boost margins
By March 2017, plan to spend INR10b in new unit in Assam, subject to approval,
will get both Income tax and excise benefits if commissioned before March.
Plant mainly for personal care.
Macro indicators
Market growth slowed down further both in volume and value with the former
particularly a big worry
Volume growth was half of March 2016 levels and a quarter of June 2015 levels.
Both urban and rural are slower sequentially as well.
Rural growth lagged urban for another quarter. Still optimistic on rural growth in
the long term.
Demand slow in Maharashtra, AP and Karnataka.
However, Modern trade growth coming back and HUL is doing well there.
Premium is doing well for market and HUL.
Optimistic on medium term impact of monsoon and CPC implementation.
Commodity deflation cycle may have bottomed out
Guidance, outlook, new launches, price actions
Price growth likely to be flat in 2QFY17 compared to decline in 1QFY17.
Channel reorganization progressing at a stable rate.
Fair and Lovely powder launched.
Committed to modest margin improvement every year.
Premiumization and cost savings plans will boost margins.
Both Soap and detergents have taken price increase.
Indulekha will remain a premium product.
Focusing on more throughput per outlet than absolute outlet increase.
In value terms premium will be ~25% of home care and personal care.
1% of sales is from ecommerce. Personal care premium laundry and
refreshment doing well in ecommerce.
Segmental information
Home care healthy volume led growth.
Personal care impacted by lower realizations in soaps.
Fabric wash Wheel also started to do well.
Oral care subdued performance.
Jams impacted by the bread issue thus leading to lower than double digit foods
growth. Was a one off.
Fair and Lovely doing well. FAL Ayurvedic variant activated last quarter and
doing well.
Erstwhile PP doing better but personal care affected by deflation in soaps which
has been added.
Refreshment is slowing down due to coffee segment deflation of 10% YoY.
August 2016
33

CONSUMER | Voices
Pepsodent recovery taking longer than expected. Ensuring aggressive sampling
of what they call the best ever flavor of Pepsodent.
Soap EBIT has declined in the quarter, pricing lags commodity costs increase.
Detergents significant premiumization compared to soaps as a result of which
realization decline is lower. Detergents price differential between base and
premium products high. In soaps not so much.
Washing machine penetration only around 12% in India. Have almost all
washing machine players recommending HUL detergents.
IND AS/ accounting
Excise will be shown net of revenues in June September and December quarter
and will be added to revenues in full year FY17
A&P to sales declined YoY due to high base and relatively lower new launches
Currently A&P is ~80-20 under Ind-AS. Significant part of promotions (which
were under A&P earlier) now being adjusted against sale.
PAT bei for FY16 under IGAAP 13% net margin, 13.5% under Ind-AS.
Capacity expansion/ divestments
Early 2017 plan to spend INR10b in Assam unit close to existing facility, subject
to approval.
Assam IT and excise benefits if commissioned before March 31 2017. Will do as
early as possible.
Assam plant is for personal care (mainly creams, lotions and shampoos). New
facility close to existing facility.
Current factory in Assam has exemptions until FY23.
Jyothy Labs
Current Price INR 284
Target Price INR 355 | 25% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Macro
Much faster growth in Non- South compared to South for the company.
Rural sales have slowed down further. Urban demand a little better. Expect rural
demand to recover.
No impact of slowdown in remittances on demand in their largest state which is
Kerala. Impact is being witnessed in real estate and gold and not in FMCG.
Henkel deal
Management said that there is nothing to report as yet on the Henkel deal.
Henkel has a window from April 1 2016 to March 31 2017.
Segments and brands
Insecticides segment suffered due to stretched summer and delayed rains.
Category degrowth was 9% in coils and 1% for Liquid vaporizer. Maxo of Jyothy
declined in line with category.
For insecticides, with healthy monsoons now, management expects demand
recovery and stated that 2QFY17 sales of Maxo will certainly be better than
1QFY17.
August 2016
34

CONSUMER | Voices
Pril liquid is 70-75% of Pril brand. Has driven growth in the segment during the
quarter.
Margo reported market share gain albeit off a low base. In West Bengal and
Tamil Nadu, the brand is doing very well. Margo also gaining from extended
summer and shift towards herbal.
Faster than usual Ujala growth is being led by success in outreach program for
relevant SKUs of Ujala. Category data for Nielsen will be reported with a lag.
Costs, margins and promotions
Management guided that they will comfortably maintain gross margins at 50%
plus in the coming quarters. Most material costs are soft.
Sales promotions have doubled. These are mainly in fabric wash. Mainly in
Henko. RM costs have dropped so either take steep price decrease or give
promotions. Players opted for the latter. No let-up in promotion intensity even
in July and August either.
Financials
Current year tax rate will be ~23% unless merger happens with 100% subsidiary
which could happen by March 2017 and yield tax benefits but are not currently
taken as part of guidance.
Capex is usually INR150-200m per year but an additional INR500m capex
approved by board as Guwahati has extended tax benefits. Company will make
Margo, Ujala and Maxo liquid vaporizers at this plant.
Marico
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 301
Target Price INR 305 | 1% Upside
Neutral
Observation on results and outlook
Satisfactory quarter with broad-based volume and earnings growth.
Comfortable with medium-term margin decline as long as volume growth is
healthy and they invest in the business.
Rural 34% of sales now and LUPs will be one of the key drivers of growth in
rural.
Pre-2012, both rural and urban growth witnessed strong growth. Between 2012
and 2014, there was much faster growth in rural, which has slowed down in the
past 2 years. Green shoots in urban particularly in modern trade.
Monsoons will lead to lower inflation and also more money in the consumer’s
hands. DBT and 7th Pay Commission implementation will also help rural
demand.
Parachute
In earlier two cycles had struggled to grow volumes in Parachute unlike now.
18% realization decline in India and 9% in Bangladesh.
Have developed extremely sophisticated pricing model and learnt from last two
cycles and also increased rural presence in Parachute. This has led to higher
growth in volumes compared to other hair oil peers. The management did point
out that coconut oil category has also grown unlike other hair oil segments.
August 2016
35

CONSUMER | Voices
Able to maximize volume growth and increase market share through the
sophisticated model with 80-90% accuracy.
Three sets of 6% price decreases in Parachute anniversarizing in 1QFY18.
Guided volume growth of 5-7% for next 3 quarters in Parachute. Was 7% in
1QFY17.
Value growth in Parachute only from 4QFY17.
Why did they take price increase taken in July in Parachute? In anticipation of
cost increases? Copra 6-7% increase in August over July. But crude was softer
than expected and monsoons were good. Was going to take it in September
anyway and was preponed a bit.
Saffola
Volume growth target 10% in second half. Did 11% in 1QFY17.
What have they done right in Saffola? Differential regional pricing and new
communication. If RM costs increase, willing to take up prices.
Exciting and power packed innovation pipeline in Saffola post September.
Oats doing well. Slowed down but still in double digits. Nevertheless,
management mentioned that they need to develop new brands in foods.
VAHO
VAHO broad based growth was witnessed across all brands.
VAHO 8-10% volume growth guidance this year. Was 9% in 1QFY17.
Youth business
Youth business continues to recover. Set Wet on a good wicket; need to do
more work on Livon.
International business
Bangladesh improvement only in 2HFY17.
Middle East stable despite consumption headwinds.
Egypt showing good recovery.
South East Asian business guided for double-digit constant currency growth
going forward.
International business also guided for double-digit constant currency growth in
2HFY17.
Other points
Slight increase in CSD receivables led to increase in receivables.
Believe GST will be beneficial over the long term.
Currently, Edible oils and Parachute excise nil and VAT is 5-6%. VAHO is 12.5%
VAT.
Total number of new ESOPs is capped at 0.6% of share capital over a 5 year
period.
Using technology for (a) Automatic distributor replenishment, (b) Sales system
ensuring all direct distribution models have SKU-wise and outlet-wise sales
enabling, (c) more sophisticated PDAs with ads etc.
A&P guided for 11.5% to 12% of sales. Working on Project H which enables
more bang for the buck. Use data on outlet-wise and SKU-wise sales and will
track performance of A&P schemes.
August 2016
36

CONSUMER | Voices
Employee costs at 5.5% to 6% in the last 3-4 years will be maintained. Will use
ESOPs judiciously so that EPS impact is checked and employees are also
rewarded.
New launch Sarson (mustard) oil brand satisfactory. New brands take time to
grow.
Page Industries
Current Price INR 14,322
Target Price INR 16,930 | 18% Upside
Buy
Click below for
Results Update
Volume growth
- Blended volume growth was ~21%. Men’s Innerwear volumes
grew by 20%, Sportswear by 22%, Women’s Innerwear by 17%, and the smaller
Socks and Speedo segments by 49% and 74%, respectively.
Demand environment- Management attributed strong volume growth to
demand revival and increase in distribution reach. Guided for over 15% increase
in volumes for the full year.
Price increase -
The Company took effective price increase of 4.6% for the
quarter, the full benefits of which will be witnessed in 2QFY17. For 1QFY17 the
impact on realization due to price increase was~2.3%. Last year they had taken
price increase in Jan-March while this year the price increases were taken in the
June quarter and thus full benefits of price increases were not witnessed on a
YoY basis. The reason for relative delay in price increase this year was because
they wanted to see what is the increase in minimum wages in Karnataka where
they have all their factories. Minimum wages were increased by 12% which is
the normal level.
Margin impact
- Management mentioned that if entire price increase had been
taken as usual in March quarter then there would not have been a YoY impact
on margins in 1QFY17. Management guided that they will maintain margins YoY
for the remainder of the year.
Material Costs
- Yarn costs have increased from INR 210/kg in May to INR
220/kg now but have not increased in the last 2 months. Management expects
yarn costs to stabilize. If they increase further then price increases will be
advanced to early January instead of the middle or latter part of the usual Jan-
March range.
GST rate-
The CFO believes that it is highly unlikely that the company’s products
will be under the 40% GST rate as these are not sin/demerit/luxury goods.
Parag Milk Foods
Current Price INR 317
Target Price INR 340 | 7% Upside
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Key business highlights
1st quarter sales and margins are the lowest in terms of full year performance;
summers are also low in terms of sale of milk and milk products.
Segment wise growth:
Fresh milk 25%, SMP -14%, Milk products 5% and others
-79%.
Increase in share of fresh milk as well as growth due to volume growth and price
realization.
Decline in milk products due to sluggish demand in the market.
August 2016
37

CONSUMER | Voices
Exports doubled in 1QFY17; lower base as well as addition of new markets led to
good growth in exports business. Paneer, cheese and ghee, UHT and milk-based
beverages are sold in exports market.
Operating margins increase due to improved revenue mix, increased sale of
fresh milk and decrease in SMP.
Saving in finance cost due to repayment of working capital debt.
NWC days breakup:
Inventory days- 90; debtor 45-50 days; 35-40 creditor days;
therefore 21-23 working capital cycle
Debt level:
repaid INR100cr; INR300cr remains (INR150cr in nature of working
capital and rest long term debt)
Price increase taken at the back end of quarter so the entire growth for 1QFY17
is mostly due to volume growth.
SMP selling price declining YoY; dependence on SMP going down; price
realization 6-7% lower YoY and flat QoQ.
HoReCa:
New players are coming but do not see any pressures.
Distribution:
Reach has increased; benefit to be seen in 2Q and 3Q.
Milk procurement and prices
Milk procurement volumes grew to 1.07m liters for the quarter (3.3% growth).
80% capacity utilization for cheese.
Project for Whey will take 2-3 months; on commissioning stage.
Guidance
3-4 new products launch planned in 2QFY17.
Tax rate for FY17 will be 30%.
Aiming for 5% PAT margin in FY19 led by price increase, product mix, full
utilization of AP facility therefore economies of scale, cost efficiencies and lower
interest cost.
2 new depots in the northern and southern regions in the coming quarter.
Pidilite Industries
Current Price INR 701
Target Price INR 850 | 21% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Performance and outlook
Consumer and Bazaar segment reported 9% volume growth, while there was
11% volume growth for industrial products.
9% volume growth has been in line with average of past 3-4 quarters but
nevertheless a bit lower than expectations according to the management.
There was steady volume growth across all segments.
Domestic acquisitions of the past 2 years doing well. Both waterproofing
services Nina and Percept have healthy order book. Blue coat and Falcofix are
also doing well. Ica JV started to contribute.
Premiumization in adhesive and sealants is a stated objective and management
is happy with the progress. Marine, Hyper variant launches Fevicol are examples
of premium products.
Material pricing and margins
VAM costs- no material change, remain benign around USD 900 range.
August 2016
38

CONSUMER | Voices
Value growth is trailing volume growth for the first time in decades off late.
Management believes they have done the required stimulation in terms of
discounts and price cuts in 3QFY16.
There is no direct correlation in the category between price cuts and demand
growth. Management does not believe demand will improve substantially if they
cut prices.
If VAM remains at these levels then unlikely to increase prices.
EBITDA margins not likely to be sustainable if crude moves up. If crude goes
back to USD70-80 then 19-20% margins at a consolidated level are likely.
Industrial segment
Industrial margin is now structurally high because of better portfolio. Exited low
price commodity products.
Nevertheless, low material costs do aid margins in the industrial segment.
Competition
Imported furniture has been in vogue for many years and has been steadily
growing. However, new customers in woodworking in retail and commercial
also growing. No structural change towards imported furniture.
Management has a strategy and do cater to readymade furniture made in India
as well.
Woodworking, adhesive dependence of Pidilite has anyway reduced over the
years.
On Asian Paints entry, management maintained that it is early to comment.
Large competitors like Henkel and 3M have always been there.
Management believes that distribution and brand are only some parts of their
right to win. Their first to market status, innovation, generations of trust are
other important factors.
There has also been increase in competitive activity in waterproofing. But key
challenge is to grow market. Competition will aid growth of category.
New launches and recent acquisition
In Feviquick have launched a thicker gel type product as a variant.
Recent Kenya acquisition is local entity used for manufacturing.
GST impact
18% GST rate will be beneficial. Excise and VAT put together are around 23%.
GST will also enable them to relook at network and thus take costs out of the
system.
They are however not paying the entire 23% as there are exemptions in some
manufacturing plants which will go off in the next couple of years.
Management did not comment whether the benefits will be passed on.
Overseas business
Happy with growth.
Overseas margins have been impacted as (a) Big business in Bangladesh which
had highly inflated margin base in Q1FY16. (b) Middle East manufacturing
facility commissioned in Q3 last year so lower fixed costs in Q1FY16 and Q2
August 2016
39

CONSUMER | Voices
FY16. Going forward, after a couple of quarters, margins will be back to earlier
high levels and (c) North America inventory provision due to some product
quality issues. Two factors affecting margins were thus one-offs and one should
get addressed after a couple of quarters.
Sri Lanka business acquired in Q3 of last year is reporting steady growth.
Balance Sheet
Can working capital shrink further? Desire to optimize working capital but
project business has higher working capital.
Historical capex 3.5%-4% of sales. Not a capex intensive business.
United Spirits
Current Price INR 2,261
Target Price INR 3,070 | 36% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Summary
Management maintained long term targets. Premiumization process continues. Cost
saving potential remains high. Karnataka and Punjab have allowed price increases
from July 1 and industry has retained price increases in the former state unlike fears
that some of it may be passed on. Couple more states could allow price increases in
the next few months. UP has seen strong volume growth in the first quarter after
excise cuts. Local body tax for alcohol in Maharashtra could be a negative.
Outlook
Premiumization process continues.
With continued renovation of prestige and above and Diageo inclusion within it,
this segment is now 57% of sales. Will continue to grow ahead of market.
Maintained double digit revenue growth target.
On track to do INR7b Diageo annual topline and INR700m EBITDA as per
shareholders agreement.
Prestige and above 44-45% market share for UNSP according to Nielsen data.
Have grown share during the quarter and will consistently gain share going
forward. Desire 50% share but would be happy even if they gain 30-50bp market
share each year.
Volumes
Volumes in 1QFY17 of 22m cases similar to base quarter. Did not share Diageo
volumes separately.
Bihar impact
Last year INR1b sales from Bihar were around 1% of total sales and 1% on PAT.
However, sales in base quarter were higher from Bihar at around 3%.
Bihar and other one offs - One offs impact due to Bihar prohibition (RM hit one
offs) INR17cr, additional tax levies INR13-14cr, one offs investments in business.
INR850m receivables from Bihar corporation, Matter under litigation. Not
related to one-off provisions made.
Cost savings
Believe there is money to be saved everywhere in P&L.
August 2016
40

CONSUMER | Voices
Cost savings likely to be over 1% every year but some part of this in the initial
years will be invested back into the business.
Actually increasing headcount in key areas but it is true that there has been
restructuring where required.
Brand-wise/Segment-wise highlights
Signature returned to growth in 1QFY17 after re-launch.
Diageo brand 40bp contribution to 180bp gross margin improvement.
McDowells Whisky 5% volume and value growth, core variant growing 26% on
volumes.
State price increases/ excise cuts
Price increases in Karnataka and Punjab from July 1. Couple more states in
immediate future.
Lion’s share of price increase in Karnataka has been retained by the industry
unlike fears that some of it may be passed on.
UP could be lead indicator of high excise leading to low demand and
subsequently gaining when excise has been reduced. Growth strong in 1QFY17
but still early days. UP is median to upper half in terms of profitability.
Some concerns
Local Body Tax in Maharashtra is likely to be re-introduced for alcohol in
Maharashtra.
GST
Alcohol may not be included under constitutional amendment for GST.
Ready with work at industry and internal level on GST waiting for fine print.
Competition
Competition has cut prices in competing products to McDowell’s Whisky. Has
not responded with price decreases yet gaining market share. But as they have
grown faster in states where realization is lower, it looks that sales growth is
below volume growth. Net sales growth of 20% is healthy.
Have cut prices of McDowell’s No 1 Luxury in some markets, no cut in core
brand.
Monetization, debt repayment and interest
Sale of 13 properties likely in H2FY17 in addition there is likely to be INR9b
realization from sale of treasury shares and some sale of non-core investments.
Put together, monetization is likely to be around INR20b in FY17 and FY18.
On 31st March 2016, debt was around INR42b which will reduce going forward.
Rates on interest on loans now 9.5% was over 11% over a year ago. Apart from
debt reduction, this is also leading to lower interest costs YoY.
August 2016
41

FINANCIALS/BANKS | Voices
FINANCIALS/BANKS
Although slippages and credit costs moderated in 1QFY17, they still remain at elevated levels. We see this trend
continuing in Q2 and expect a recovery from 2HFY17. Amid muted corporate activity and credit growth, retail
continued to be the focus area for banks with strong trends in housing. Given the competitive landscape, system
loan growth is likely to remain moderate in FY17, with private banks continuing to gain market share. Margins are
expected to remain largely stable (negligible impact from MCLR).
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY17
Axis Bank
Loan growth of 18-20%
CASA ratio at 40%
Credit costs 125-150bp; high teens PPoP
growth
~40% cost to
income ratio for FY17
Plan to open 350-400 new branches
Asset quality
Bank of Baroda
NPA target of INR450-500b and PCR of 60%
still hold
Maintained slippages guidance of INR150b
See INR11-12b nominal staff costs in the
next three quarters
Asset quality outlook challenging; fund-
based outstanding watch list came down
to INR203b from INR226b in FY16, driven
by accelerated slippages. Slippage ratio
ex. watch list remains under control at
1%. Total stressed loans declined 80bp
QoQ to 8.4%. Maintains guidance of ~60%
of the watch list accounts to flow into
NPA until FY18 (slightly higher proportion
in 1HFY17)
Slippages remained elevated at INR61b
(6% of loans, annualized)
Total stressed loans increased 5% in
absolute terms
Net interest margins
Management
expects NIM to
remain 3.6%+ in
FY17 (no
meaningful impact
of MCLR)
Maintained NIM guidance of 4-4.4% range
Credit growth to remain 1.3x+ of system
HDFC Bank
ICICI Bank
Domestic loan growth of 18%, led by retail
loans; international loans to decline further
Punjab
National Bank
Credit growth guidance of 10-12%
Expect INR200b+ in recovery and
upgradation; INR30b+ recovery from
written-off accounts
State Bank of
India
Credit growth guidance at ~12-13%
Global NIM should stabilize at ~2.85%
Medium-term guidance for cost to income
ratio at 45% & opex growth target at 10-11%
Gains from sale of non-core assets at INR30b
for FY17
Slippage ratio of 2.7% v/s ~5% for FY16
Credit cost to be below 1.8% v/s ~2% for
FY16; management expects to improve
coverage ratio
Credit growth guidance of 12-14%
Stable asset quality position; slippages for
the quarter were INR18b (~2% slippage
ratio); GNPA at 1%
Less than one-third of net additions was
from agri portfolio; one-third from retail
and one-third from business banking
Utilized INR1.3b of floating provisions for
Punjab Food Corporation exposure;
outstanding provisions now stand at
INR12.5b
Slippages at INR83b (8.25% of loans,
annualized); relapse from restructured
loans at INR13.2b (16% of slippages)
INR45.6b slipped from outstanding watch
list of INR440b
Retail slippages at INR10b (1.9% of loans,
annualized)
Gross slippages moderated sequentially
though still at high levels at INR92b (~10%
of loans, annualized)
Upgrades and recoveries improved to
INR60b, driven by one-off benefit of
INR16b
Risk of relapse from restructured loans
remains high unless resolution in stressed
segments takes place
Fund-based watch list stands at INR314b;
now includes USD500m ING loans; non-
fund based exposure could be at
~INR100b
Management expects resolution in watch
list accounts to pick up in 2H
Recoveries at INR16.5b during the
quarter; written-off accounts at INR5.3b
Slippages during the quarter at INR103b;
slippages from watch list at INR30b
NIMs improved
10bp QoQ to 2.3%
despite high stress
addition and
interest reversals
due to 31bp QoQ
decline in cost of
funds
NIM improved
10bp QoQ at 4.4%
NIM at 3.16%
declined by 21bp
QoQ driven by
interest income
reversals
NIM expanded
~60bp QoQ to
2.45%
Reported NIM at
2.83% (-22bp QoQ);
improved 10bp
QoQ when
adjusted for
interest on IT
refunds in 4QFY16
August 2016
42

FINANCIALS/BANKS | Voices
Axis Bank
Current Price INR 588
Target Price INR 600 | 2% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Guidance
a) NIM of 3.6%+, (b) C/I ratio of ~40%, (c) credit costs (of net customer assets) 125
bp (Base Case) -150 bp (adverse case) – factors in benefit of contingency provision
reversal if any, (d) PCR at similar levels (~70%), (f) loan growth of 18-20%, (g) CASA
ratio 40%, (h) 350-400 new branches.
Macro-situation commentary
Fragile and unstable global recovery.
Mixed data on domestic growth with a marginal positive bias (deceleration in
service sector activity; better monsoons).
Liquidity situation very comfortable.
Asset quality
Watch list (announced in Apr’16) has trended lower (largely on account of
slippages)
No upgrades from the watch list during the quarter.
Dissolution rate at ~10% during the quarter.
Full-year credit costs expected at 125-150bp (denominator net customer assets
including bonds; guidance excludes general provisioning).
Two cases of accelerated provisioning (incremental 10% provision towards
select accounts INR1.42b provided in one go; 15% provision on SDR case
provided in one go).
5:25 refinancing was applied on 4 accounts during the quarter (INR8b);
outstanding 5:25 exposure at ~INR35b.
61% of restructured/SDR book is in the watch list; rest of the restructured
portfolio (39%) is outside the watch list.
SMA2 volatile and could contribute to noise; hence, not disclosing until it
stabilizes.
Loan portfolio
21% YoY growth (26% YoY growth in retail and SME; corporate advances
portfolio YoY growth at 21%).
Looking to raise the incremental rating profile of corporate borrowers (better-
rated corporates); hence, fee income opportunities will be limited.
~80% of personal loan origination and ~97% of credit card origination to internal
customers.
PL / credit card penetration within existing customer base in low-teens; looking
to raise this to mid-20s.
August 2016
43

Bank of Baroda
Current Price INR 162
Margins
Click below for
Detailed Concall Transcript &
Results Update
FINANCIALS/BANKS | Voices
Target Price INR 190 | 18% upside
Buy
Low yielding overseas loans are trending down hence positive for margins.
Sharp decline in cost of deposits was driven by run-down of high cost bulk
deposits in Q4.
Also, strategic pricing (preferably in the retail portfolio) helped in better loan
yields during the quarter.
Share of total retail deposits in total deposits now stand at ~78%.
Non-interest income and opex
Expect customer FX income to go up going forward, helping trading gains.
YoY decline in staff costs is one-off driven by base effect.
See INR11-12b nominal staff costs in the next 3 quarters.
High cost and super-annuation employees are getting replaced by young, lower
cost employees. Hence, attrition too is helping costs.
International Business
See stress in loan book driven by syndicated loans from Indian corporate.
~30% of international loan book exposure is towards local corporates and look
forward to expand this.
Focus is on differentiated products where fungible credit lines are offered to the
clients.
Asset Quality
NPA target of INR450-500b and PCR of 60% still hold.
Of INR60b slippages, INR12b was due to corrections in tiny accounts.
Slippages from corporate portfolio were at INR13.8b; remaining ~INR36b was
evenly distributed among agri, retail and SME portfolio.
Outstanding SMA-2 portfolio at INR110b v/s. INR131b last quarter.
No 5:25 / SDR done during the quarter.
2 standard accounts are approved under SDR mechanism with total
consideration of ~INR6b.
INR6b upgrade from restructured loan book was ‘UDAY’ driven.
Bank of India
Asset Quality
Click below
Results Update
Current Price INR 113
Target Price INR 105 | 7% Downside
Neutral
The bank has guided for INR175b in upgradations and recoveries for FY17.
Out of the gross slippages of INR62.33b during the quarter, flesh slippages
accounted for INR50b.
17 large accounts aggregating INR32.81b accounted for majority of the slippages
during the quarter. These accounts are well diversified across power, diamond,
textiles, offshore drilling and real estate.
The bank does not expect incremental slippages this quarter to exceed the
amount of recoveries and upgradations (INR175b). Hence in absolute terms
GNPAs should remain largely stable. With 6-8% expected loan book growth,
GNPA as a % is expected to come down.
INR3.95b recovered during the quarter under SARFAESI. The bank’s success rate
is close to 8-9%.
August 2016
44

FINANCIALS/BANKS | Voices
Sector/segment wise NPA: LAP and home loan ~2% NPA, SME ~18-20% NPA,
Steel and metals 27% NPA, Infrastructure 24% NPA.
SMA 2 book o/s INR130b.
Balance Sheet Related
Home loans and mortgage loans (occupying 67% of retail loan book, 9% of total
advances) grew 18.5% YoY and 21.2% YoY respectively. Overall retail book
expanded 12.75% while corporate loans de-grew 8.34% YoY.
The management has guided for blended growth in CASA deposits at 19% for
FY17.
Loan mix targeted at 45:55 between corporate and retail (currently 55:45).
The bank is on the process of recovery with there being a conscious strategy to
consolidate the balance sheet, leading to muted loan growth.
Loan growth for FY17 to be at 6-8%; International loan book to reduce by 9%,
Domestic book to increase by at least 12%.
Canara Bank
Current Price INR 266
Target Price INR 240 | 9% Downside
Neutral
Click below for
Results Update
Guidance
GNPA ratio 8% by Mar-17, (b) NIM 2.3-2.35%, (c) Credit growth 10-12% with 7-
8% corporate credit growth
Asset Quality Related
Upgradation / Recovery performance below management expectation; expect
INR80-100b in FY17.
Bank has recovered INR1b+ from four accounts during the quarter.
Recoveries / Upgradation to be greater than slippages.
Slippages in the current quarter from MSME, textile and steel sector.
LC devolvement was from large corporate steel sector.
Interest reversal during the quarter was INR220m.
Stock of SDR INR65b (9 accounts, all standard) – most of them from restructured
book.
Stock of 5:25 refinancing: INR63b (all standard exposure).
S4A: Five standard accounts amounting to INR23.67b – 50% standard
restructured.
Relapse from restructured loans INR860m.
Stock of SMA2 accounts stood at INR98b.
Provisions include INR889m of excess provision write-back against Punjab Food
Corp.
SRs outstanding: INR19.47b against which bank holds INR7.71b provisions.
Other highlights
Have made organizational structure changes; two-tier sanctioning for large
corporate and regional office (under circle office) for faster TAT for retail
lending.
LAP book is very small (~5% of housing book).
August 2016
45

FINANCIALS/BANKS | Voices
DCB Bank
Current Price INR 117
Target Price INR 117 | 0% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Medium term targets
Incremental branch expansion will happen in batch rather than piecemeal basis
as it will help in penetrating aggressively in new geographies and simplify admin
task. Management continues to target 300+ branches by October-December
2017 from 205 branches currently.
Cost of new branch is INR5-6m. Management continues to guide for 3-5%
increase in C/I ratio v/s 2QFY16 (~60%).
Focus on growing loan book by 23-25% every year.
By the end of 4QFY19, targeting to reach 1%+ ROA and 14%+ ROE. Better than
expected scale benefit will lead to upside.
Targeting to grow core fee income by 15-17% YoY. Key products targeted are
CASA related, Life fees, General Insurance fees, Trade related and Fx (merchant
related) fees from Retail and SME banking.
Business related
DCBB does MFI business via BC route. Focus on MFI is just to fulfill PSL targets.
In mortgages portfolio, 7-8% is contributed by higher than INR30m ticket size
portfolio. Largest two slippage mortgages portfolio came from SME sector
(INR23m and INR15m - Catering and advertising company). 300 mortgages
accounts accounted for INR0.5b slippages. No concentration of slippage from
any large or mid corporate.
70-75% of loans came from LAP portfolio and rest from home loans. ATS in
mortgages has come down to INR3-3.5m vs INR5-5.5m earlier.
Planning to raise INR2b of Tier II capital.
NPAs in Agri is driven by small ticket commodity companies.
Others
Reduced MCLR in the quarter to 10.27-10.65%. Currently MCLR is largely equal
to large banks hence more competitive in large corporate lending.
LAP portfolio LTV is 70% and higher (70%+) in case of home loans.
Provisions break up: a) INR160-170m NPA provision and b) rest is for standard
assets provisions.
Federal Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 66
Target Price INR 79 | 19% Upside
Buy
Asset quality
Slippages halved during the quarter compared to the preceding quarter.
Overall credit costs at 85bp during the quarter.
Large corporate exposures to the tune of ~INR2b emerging out of moratorium
during the next 2 quarters.
Performance of restructured accounts emerging out of moratorium during
2Q/3Q will determine steady-state credit costs.
Will wait for 2Q performance of restructured accounts emerging out of
moratorium before sharing credit cost guidance for FY17.
46
August 2016

FINANCIALS/BANKS | Voices
Almost all lending of recent vintage (over the past 4 years) remains pristine.
INR0.04b slippage from the restructured book during the quarter.
SMA0/1/2 trending better (best position in the past 4 quarters).
Retail slippages driven by some non-resident loans in Kerala - steady-state
slippages at INR0.6-0.7b (nothing has changed incrementally).
Loan book
Most of the corporate loan book growth has come from out of Kerala.
Incremental exposure in power, steel sectors to mid-corporate and well-rated
entities.
Pursuing consistent, predictable and sustainable growth (quality of growth more
important going forward).
Typically working capital loans (average ticket size at INR0.4b-INR0.5b).
Toehold into large corporate accounts as an opportunity to build granularity and
generate leads for SME (vendors) and retail (employees) lending.
Intend to raise business share of wallet with well-rated and large corporates.
Gold loan book movement also a function of retail gold loans de-growing.
Clearly intent on building granular gold loan book rather than bulk.
Deposit franchise
Continued strength in retail and non-resident (NR) deposits.
Deposit growth was consciously calibrated since there is sufficient headroom on
the loan-to-deposit ratio; hence, resource mobilization need not be aggressive.
Margins
Guiding for steady-state NIMs of ~3.2% (risk-adjusted NIMs will trend higher).
Capital
Comfortably capitalized with CET1 at 13%; will possibly explore growth capital
opportunities during early FY18.
Digital quotient
No intent to float a wallet of own.
Tie-up with RJio Money (wallet) presents a large corporate opportunity.
HDFC Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 1,245
Target Price INR 1,450 | 16% Upside
Buy
Asset quality
Net additions for 1QFY17: INR5.7b (Gross slippages 17.61b).
Less than one-third of net additions from agri portfolio; one-third from retail
and one-third from business banking.
Handful of accounts are vulnerable; no patterns (sector color or geographical
color) in slippages from SME / business banking.
CV asset quality is actually witnessing marginal improvements quarter after
quarter.
Standard asset provisioning would be at 40bp on aggregate basis (marginally
lower during the quarter).
Used floating provisions of INR1.3b for FCI exposure (INR0.25b incremental
floating provision during the quarter).
47
August 2016

FINANCIALS/BANKS | Voices
FCNR deposits
FCNR deposits largely maturing during Oct-Dec quarter.
Some balance sheet contraction is obvious (loans to NR customers in foreign
currency to the tune of USD2b); assets and liabilities will come off on the
overseas book by USD2b; total exposure in INR terms at USD3.4b.
Opex
Expenses related to branch expansion may have been front-loaded (late FY16
rather than early FY17); hence, this component could moderate.
Expenses on digital footprint will continue BAU.
Incremental improvements in cost-to-income to be achieved through improved
productivity (branches breaking even PLUS higher usage of digital channels).
Fee income
Forex income remains soft (this can only recover on the back of a pick-up in
forex and trade volumes) - 60% of this fee income is from retail.
Bond gains stronger during the initial part of 1QFY17.
The competitive landscape for fees from POS terminals has not changed
materially because of fintechs - it has been historically competitive even among
banks.
Investment book
Investment portfolio had a one-off element earlier.
Mobilized surplus funds through deposits and other sources, which is being
deployed in short-term investments (T-bills largely).
Unsecured loans
Largest part of the PL book is salaried customers who have salary accounts with
HDFC Bank.
No internal ceiling on the proportion of unsecured lending within the overall
bank.
PL (50% to internal customers); cards (70% to internal customers) - DSA sourcing
in personal loans would be sub-30%.
All MFI origination happens through internal staff (no use of business
correspondents).
600-700 branches offer gold loans.
Risk mitigation measures
Focus on internal customers more than external (Proportion of internal
customers in the personal loan book would be 50%; proportion of internal
customers in the credit card portfolio would be close to 70%).
Internal portfolios generally have 20-40bp lower delinquencies compared to
external portfolios.
Usage of analytics is a lot higher within the bank (event-based triggers and alerts
which are clearly actionable).
Relentless monitoring through use of bureau as well as in-built systems.
Cost of funds
Further room for re-pricing benefits to accrue to the bank.
August 2016
48

FINANCIALS/BANKS | Voices
MCLR
Top 3-4 banks tend to have MCLRs within 5-10bp.
Not a tool for competitive positioning but more for better transmission to
customers.
Wallets / digital banking
Bank wallets are clearly more attractive than non-bank wallets.
Interesting wallet features can typically be replicated, implying little scope for
differentiation amongst peer banks.
Adoption of digital channels in wholesale banking is very high (cash
management product; transaction) - launched recently for SME customers
(proportion of digital transactions tends to rise with customers who adopt
once).
HDB Financial Services
Marginally higher risk - compensated by marginally higher returns.
Loans against property; business banking.
Asset base at INR260b.
Self-employed or other segments (benchmark criteria will be marginally inferior
to the bank’s own standards).
ICICI Bank
Current Price INR 254
Target Price INR 305 | 20% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Strategic initiatives
Strategic changes in association with McKinsey - Strengthening digital
leadership; dedicated credit management group (strengthen monitoring of
corporate & SME exposure).
Strategic priorities for FY17 (reiterated from last quarter’s commentary): (a)
portfolio quality; and (b) franchise quality.
Portfolio quality initiatives around (a) focused monitoring of portfolio; (b)
reducing concentration risk; (c) better portfolio mix towards better-rated
corporates / SMEs and retail; and (d) pursuit of resolution of stress cases.
Credit quality
Slippages from the restructured portfolio at INR13.2b - largely explains the
reduction in the outstanding restructured portfolio.
77% of the wholesale and SME portfolio slippages were from the “drilldown
portfolio.”
Expect 30% upgrades from within the remaining slippages in the wholesale and
SME portfolio during the fiscal year FY17.
Gross NPAs sold to the tune of INR53b during the quarter - net NPAs sold to the
tune of INR22b during the quarter.
Gross shortfall amounting to INR5.3b on sale to ARCs during the quarter -
implies ~70% haircut on exposure that was sold down.
Incremental restructuring of INR50m-60m during the quarter.
Outstanding SDR stands at INR26.39b; outstanding portfolio of 5:25 at
INR27.13b (completely standard portfolio).
August 2016
49

FINANCIALS/BANKS | Voices
Slippages from the retail portfolio - quarterly run rate of ~INR6b (no specific
disclosure for 1QFY17).
P&L performance
Retail fees (68.6% of overall fee income during the quarter) grew 11% YoY.
Higher provisions in ICICI Bank Canada (on impaired loans) dragged profitability.
Lower disbursements during 1QFY17 in ICICI Bank UK on account of uncertainty
(Britain’s exit from the EU).
Fee income growth (2% YoY) running below trend line.
Corporate fee income muted on account of (a) lower growth in non-funded
business; and (b) limited pricing power in higher-rated corporates.
Incremental drag on NIMs will almost entirely be on account of (a) interest
income reversals; and (b) non-accruals of interest income because of NPL
formation.
General commentary around SDR / S4A cases
Selective use of SDR has been beneficial at least in 1 large account.
Incremental SDRs being considered largely to invoke the stand-still clause and
prevent interim sale of owner’s stake (and salvage economic value of the bank’s
exposure).
S4A will be limited to very few cases across the banking system.
Outlook on key asset classes
Higher repayments in the SME portfolio during the quarter; reflected in lower
SME growth during 1QFY17.
Growth in SME portfolio should revive hereon.
Remain confident on growing retail (participating in line with market growth) -
actual portfolio performance better than expected performance of the portfolio.
IDFC Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 53
Target Price INR 65 | 22% Upside
Buy
Macro-economic backdrop
Hyper-competition in large corporate lending - hence, very little pricing power in
this segment. Spreads are very fine and are being secularly driven down
(extreme concentration on the asset side of the balance sheet - 45% of
aggregate credit accrues to the top 300 corporates).
Hyper-competition on the deposit side as well.
Distribution architecture
Less branch-intensive customer touch points.
Cost of funds will be stickier - hence, incremental NIM expansion will largely be
driven by improvement in blended yields (and hence, emanate from changes in
the asset mix) over the next few years.
Asset quality
30%+ provisioning on standard restructured assets as against the regulatory
requirement of 5% rendering the bank adequately cushioned against
August 2016
50

FINANCIALS/BANKS | Voices
delinquencies. Any slippage from this pool is therefore unlikely to spill over to
the P/L.
Balance sheet strategy
Raise the proportion of retail advances within the loan book.
Pursue cost-effective acquisition for CASA.
Diversify corporate customer base beyond the largest corporates.
Generate sticky and predictable non-fund-based corporate fee income.
Targeting an INR750b loan book in FY17, of which INR180b will be retail loans.
Customer acquisition strategies
Identifying product/service gaps for under-served customers.
Under-served constituency within the affluent retail segment (Business Banking
- traders, entrepreneurs with aggregate annual turnover below INR350m).
Focused on salaried “Mass Affluent”, Self-employed women and MSME.
Pricing as an acquisition tool deployed by the bank.
MFI acquisition
Acquired GVMFI with an aggregate MFI loan portfolio of INR15b as of FY16
(FY16 ROA of 3%).
GVMFI acquisition was made at ~2x FY16 BV.
Performance highlights
Non-funded as % of funded at 13% (up from 11% during Mar’16). This is
expected to increase further in favor of non-funded in the coming quarters.
NII growth at 25% QoQ driven by stronger cash realizations on stressed
portfolios.
Trading gains contributed significantly to growth in total income.
Opex is expected to increase in the coming quarters; However, productivity will
improve in terms of cost/customer and cost/employee.
Fee based income to be 35-40% of total non-interest income (10% of total
income).
150 active customers for trade and corporate-linked finance.
85 unique clients for cash management.
409 points of presence (65 branches; 330 micro-ATMs).
60k customers (59k retail; 663 corporate customers; 119 NTB customers).
Monthly customer acquisition run rate at 14k (intention to double this over the
rest of this fiscal).
Indian Bank
Current Price INR 229
Target Price INR 225 | 2% Downside
Buy
Capital soundness
CET1 at 12.33%.
AT1 is a fairly shallow market (hence, better to raise when available) – raised
AT1 at ~11% opportunistically despite comfortable CET1.
Self-sufficient for the next 3 years from equity capital perspective; not looking
for funds from the Government of India.
RWAs lower because of reduction in modified duration.
August 2016
51

FINANCIALS/BANKS | Voices
Asset quality
Marginal rise in gross NPAs during the quarter.
Ongoing recovery efforts (feet on street) focused on small-ticket exposure;
expecting run-rate of recoveries and upgrades to rise QoQ over the rest of the
year.
Very little bargaining power in resolution of large corporate NPLs.
Write-offs pertain to Singapore branch (beyond recovery; completely provided);
total written-off portfolio at INR31.5b.
Outstanding SR at INR13.8b (1QFY17 incrementally only INR0.36b) - no mark-
downs; 2010-11 portfolio completely exhausted; 2011-12 recoveries of
~INR1.8b on portfolio of ~INR8b.
Outstanding SDR INR11b (completely NPA); outstanding 5:25 portfolio INR23b
(INR18b already NPA).
Credit cost expected to be INR12b-INR14b for FY17.
Standard restructured loans at INR62b (Discom exposure at INR15b - TN and
Andhra; a further INR12b of small-ticket loans restructured on account of
floods) should emerge out of the restructured portfolio by the end of this year;
residual OSRL book of ~INR35b (~20% slippage expected from this portfolio this
year to the tune of INR7b-8b).
2 accounts in the food processing industry slipped from restructured portfolio.
1 large standard account (exposure to the tune of INR2b) slipped during the
quarter.
60% slippages in small-ticket loans (less than INR10m).
SMA2 at INR40b, translating to 3% of the portfolio; INR30b big-ticket loans; of
this, INR20b is habitually SMA2 category but pays up before 90dpd.
Provisioning coverage at less than 40% (will look to improve opportunistically
depending on strength of operating profits).
Run rate of slippages from hereon will be neutralized post AQR (expected run
rate of INR5b-INR6b should be ‘business-as-usual’).
Daily monitoring (branch-level and zone-level) of large exposures; separate
team for recovery from written-off accounts.
Dedicated team to follow-up on repayment of small-ticket loans (exploring
dedicated center for housing loans).
Liability mix
INR480b likely to be re-priced during the next two quarters.
Traction in savings deposits emanating from customer addition – targeting
institutional deposits as well as individual deposits (educational institutions).
Outlook on credit appetite
Loan growth of 2% YoY.
Focused on housing (10% YoY) and the MSME segment (25% YoY).
Large corporate decelerating / de-growing - limited growth opportunities
(alternative sources of funding for such large corporates); short-term loans
repaid.
Largely witnessing corporate demand for refinancing.
INR5b of credit substitutes on the book (NBFCs and state/ central PSUs).
Road projects - annuity projects / hybrid annuity projects.
August 2016
52
Click below for
Results Update

FINANCIALS/BANKS | Voices
Renewable energy projects.
Legacy educational loan portfolio posing some NPL issues - on account of lower
employability due to a weaker economy.
Incremental educational loans only to students of premier educational
institutions – withdrawing from educational institutions where repayment
experience has been weak.
Earlier average ticket size of educational loans at INR40m (current ticket size
closer to INR15m-20m).
Dedicated housing finance branches (9 such branches opened this quarter).
Disbursement at INR3.5b during the quarter under MUDRA scheme (targeting
INR15b over the rest of the year).
Other highlights
e-transaction mix at 56%.
Looking for Chief Operating Officers for (a) the mortgage loan book and (b) the
MSME vertical.
IndusInd Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 1,189
Target Price INR 1,300 | 9% Upside
Buy
Asset side
By and large, IIB remains bullish on achieving 30% loan growth in “Consumer
Banking” despite rising competitive intensity in retail asset classes. IIB’s
confidence seems to largely stem from (a) an expanding vehicle finance pie; (b)
IIB’s familiarity with the underlying asset class (some lenders will burn their
fingers in vehicle financing as in any other cycle); and (c) IIB’s increasing range of
non-vehicle retail products. So, the bank can continue to cherry pick its
deployment opportunities.
The bank is ultra-bullish on the microfinance lending opportunity and aspires to
aggressively build an INR100b MFI portfolio (direct) over the next 3 years. The
logic being that the ROA on the MFI portfolio is 2x that of the rest of the bank -
so IIB is generating ROA of close to 1.9% and the bank feels that the MFI
portfolio will generate ROA of close to 4%. All this bullishness seems built on
recent (last 2-3 years) delinquency trends in the MFI business, which are at
record lows - IIB even shared that the bank has witnessed 10bp delinquencies in
its existing INR31b microfinance portfolio over the past 4-5 years (through the
business correspondent route).
Liabilities side
Markets are flush with liquidity as the RBI walks the talk on liquidity neutrality.
Already, the CD rates are being renewed at about 75-80bp lower than they were
originally contracted say 9-12m ago. IIB expects the cost of deposits to fall
further and to benefit from bulk deposit re-pricing over the rest of this fiscal.
IIB’s wholesale term deposits are currently at just over 40% of the total deposits.
In a declining interest rate scenario (and prevailing liquidity neutrality), IIB is
also likely to review the merits of its 6% savings deposit offering (vis-à-vis
prevailing term deposit rates).
August 2016
53

FINANCIALS/BANKS | Voices
Performance on key vectors
NIMs are very close to 4% and ROAs are very close to 2% - by end-FY17 (or even
earlier), both these milestones are likely to be ticked off. The next landmarks on
this journey will be around CASA of 40% (from current levels of 35%).
Detailed takeaways
Outlook on loan growth / loan mix
Capital consumption at only 8bp during the quarter. This was largely a function
of (a) upgrades; (b) quality of incremental lending (rating buckets); and (c)
extent of smart collateralized lending.
Continued traction in vehicle financing - increasingly more broad-based with
participation from 2W, 3W and equipment financing portfolios.
Mix of consumer loans (adjusted for one-off corporate loan to the tune of INR
13b during the quarter) is at 45% of loan book. IIB is keen to achieve a
consumer-corporate mix of 50-50 by the end of this fiscal year.
Lending in non-vehicle retail, new commercial vehicles and car loans generally
happen at lower end of the yield curve.
MFI portfolio resides in the corporate book (run through a business
correspondent) - outstanding MFI exposure at INR 31b (8% sequential growth).
Targeting a direct MFI loan book of INR 100b over 3 years.
Monthly run rate of housing loans at INR2-2.5b. IIB originates only for HDFC IN.
IIB currently has a 16% market share in AL and a 11-12% market share in TAMO
CVs. 15% of the CV portfolio is used CVs (about 20% of disbursements are
usually towards used CVs).
Credit card portfolio: Bought an INR2b portfolio during FY12; portfolio stands at
INR12b now. Looking to grow this book at 30-35% YoY (incentivizing customer
spends). Revolving rate is at 48.2%.
Liability franchise
CASA ratio at 35% (aspiration to get to 40% in the next cycle).
Monthly run-rate of 75,000 NTB (new-to-bank) savings bank customers - a new
high customer acquisition run rate for IIB.
Markets flush with liquidity (in line with the RBI’s stance on liquidity neutrality);
hence, expect cost of deposits to fall further.
Within term deposits, wholesale deposits are at just over 40% of total deposits
(pure retail deposits at about 25%).
Cost of funds for bulk deposits: CD rates 75-80bp lower than about 9 months
ago.
Re-pricing of bulk deposits WIP - yet to be complete.
2 large multi-lateral agencies negotiating foreign currency loans of USD0.5b
each at very fine rates.
Reviewing 6% savings rate (opportunity cost compared to term deposit rates).
Provisioning / Asset quality
INR0.35b provision towards FCI (entire 15% provision made during the quarter
on account of exposure to FCI because of FCI’s sub-exposure to Punjab).
Sale of INR0.17b to ARC during the quarter (recoveries of INR0.23b).
SR (security receipts) book sequentially declined to INR2.21b (net of provisions)
- implying recoveries higher than sales to ARCs during the quarter.
August 2016
54

FINANCIALS/BANKS | Voices
Sold corporate loans to the tune of INR16b during the quarter.
Zero stress in channel finance and MFI segment of the portfolio.
Fee income
Distribution fee income is a mix of 5-6 line items comprising (a) third-party
distribution (45%); (b) brokerage + home loan (25%) and (c) Credit cards +
commercial cards (30%).
General banking fees benefiting from rising interchange fees and general
banking deposit fees.
Digital quotient
Fingerprint banking - higher downloads of mobile apps - 50% growth in mobile
app downloads (daily run rate of 1,500 mobile downloads).
Kotak Mahindra Bank
Current Price INR 776
Target Price INR 866 | 12% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Macro Related
Seeing demand pick-up in construction and road sector; expect faster growth
rate in wholesale and corporate banking business.
Expect improvement in liquidity position.
Expect LCV growth to be better than last year; MHCV growth is likely to
moderate.
Guidance
Credit growth 20%, (b) Credit costs below 50bp and steady state credit costs
would be 30-35bp, (c) NIM 4%+.
Integration Related
Technology and retail integration have been completed; 90%+ integration done.
Relocating 70-75 branches which are currently at similar locations (largely in
metro market) and expect 1,400 branch network by next calendar year.
Working on rationalizing / selling surplus residential apartments.
Currently, overall integration costs are less than INR2b.
BS Related
Commercial vehicles, construction equipment, credit cards, personal loans are
some of the key areas of growth.
P& Related
Half of non-fee income (INR1.7b) is trading gains during the quarter.
MF fees are flat on YoY basis – moved to amortizing trail fee income model
Insurance fee income is 4x in 4Q v/s 1Q.
Asset Quality Related
GNPA position for the bank is close to peak position.
One account amounting to INR1.5b was in SMA2 as of June 30 and has now
been fully recovered.
One restructured account has fully paid back.
August 2016
55

Oriental Bank of Commerce
Current Price INR 118
FINANCIALS/BANKS | Voices
Target Price INR 105 | 11% Downside
Neutral
Click below for
Results Update
Asset Quality
Slippages at INR34.6b during the quarter: Retail - 0.8b, Agri 2.3b, MSME 4.1b
and corporate 26.6b (within corporates I&S and Textiles accounted for 10.7b
and 9.6b respectively).
Slippages guidance of INR25b in the next 3 quarters.
Exposure to I&S at INR107.6b (INR61b NPA and INR15b restructured); textiles
exposure at INR72.7b (INR18.6n NPA and INR1.6b restructured).
Relapse from restructured loan book at INR15.8b.
1 account amounting INR6.9b was resolved under SDR during the quarter;
outstanding book stands at INR27.9b (14 accounts, INR8.9b standard).
Outstanding 5:25 book stands at INR21.9b (INR9.2b standard of which 50% is
restructured).
No sale to ARCs during the quarter.
Outstanding SMA-2 at INR133b.
Targeting PCR at >55% for FY17.
Balance Sheet Related
FY17 credit growth guidance at ~10%.
Muted corporate loan growth not a concern for the bank; growth focus is now
on RAM (retail, Agri and MSME). Prime focus on small corporates (loan size
INR2.5b).
Other highlights
Management estimates INR5-10b capital requirement by the end of FY17.
INR1.6b in interest reversals during the quarter.
Punjab National Bank
Current Price INR 128
Click below for
Results Update
Target Price INR 110| 14% Downside
Neutral
Guidance for FY17
Credit growth 10-12%.
Expect INR200b+ recovery and upgradation.
INR30b+ recovery from written off accounts.
Asset Quality Related
Bank sold INR4.5b of assets to ARC.
Overall slippages are expected to be lower in FY17.
Most of the large exposures in textile, iron and steel and cement have been
recognized as NPA; some lumpy exposures in infra and construction remain
under stress.
INR40b exposures remains under watchlist.
Bank has recovered INR14b so far in 2QFY17.
INR15.24b relapsed from restructured book.
There were eight INR1b+ slippages during the quarter amounting to INR31b.
Recovery in 10-12 large corporate accounts will take time.
Bank has made INR3.3b of provisioning against Punjab food corp. exposure.
August 2016
56

FINANCIALS/BANKS | Voices
Cash recovery during the quarter includes INR16b of recoveries from discom
(bonds received and sold); provisioning against these discom debt has been
reversed during the quarter.
Outstanding discom debt which is part of stressed loans stands at INR47b, of
which INR18b is to TANGENCO.
Gammon is the only successful SDR case at this point.
Recovery roadmap: INR45b of quarterly cash recovery run-rate + sale to ARC.
Other highlights
Treasury has already made INR1.55b in 2QFY16.
Bank wants to be remain a majority shareholder in PNB Housing Finance.
Bank will continue to make at least INR6.25b of AS15 related provisions.
Discount rate currently stands at 8.16%.
State Bank of India
Current Price INR 259
Target Price INR 290 | 12% Upside
Buy
Click below for
Results Update
Balance Sheet
USD1.5b FCNR to redeem; the bank is fully covered.
INR25b moved from loan book to investment book during the quarter (AAA/AA
rated corporates driven).
F17 credit growth guidance at ~12-13%.
Margins
NIM decline during the quarter was due to a) higher slippages and b) 90bp
MCLR decline.
Global NIM should stabilize at ~2.85%.
Asset Quality
The bank did not utilize any counter-cyclical provisions during the quarter.
The fund-based watch list stands at INR310b; now includes USD500m IBG loans.
Resolution in watch list has started but the pick-up has been muted; hope to see
traction in 2H.
Slippages were driven by stress in iron and steel, infra and construction
industries.
The bank recovered INR16.5b during the quarter, written-off accounts for the
quarter at INR5.3b.
The bank did not undertake any project under S4A or 5:25 re-financing during
the quarter.
SDR was implemented for 3 accounts amounting to INR13.7b; outstanding SDR
now stands at INR181.2b (across 21 accounts), of which INR106 is NPA.
The bank has sold INR770m loans to ARC.
Specific provisions on the balance sheet now stand at INR44.4b and
countercyclical provisions at INR11.5b.
OSRL print came in at INR365.5b.
August 2016
57

FINANCIALS/BANKS | Voices
Associate Banks
The bank guided for another subdued quarter at the associate banks and
normalization should take place in 2H. This is driven by difference in AQR
recognition at the Parent and Associates level.
Other highlights
The bank has merged 33 branches during Q1 (vs. 300 last year) at the Parent
level towards branch rationalization. The Group is also working towards the
branch rationalization at the associates.
Sale of non-core assets target at INR30b for full year; have completed INR9.08b
from sale of NSE stake; have used all gains from stake sale for provisioning.
The bank has not repatriated any income from the foreign branches during the
quarter.
Medium-term guidance for C/I at <=45% and opex growth target at 10-11%.
See SBI Life listing in 2-3 years.
The bank is hoping to sell down SBI-Cards by Sep-16.
Union Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 136
Target Price INR 160 | 18% Upside
Buy
Asset quality details
Overall four accounts (all power) refinanced under 5:25 scheme with total
consideration of INR14.2b and one account amounting INR1.5b is in pipeline.
Total 5:25 outstanding amounted to INR44.7b of which INR36b was standard.
SDR was invoked for 3 accounts (two iron and steel and one EPC) totaling
INR13.5b during the quarter. Outstanding standard SDR was INR22.6b. Of this,
one account is part of OSRL book amounting INR2.6b.
The bank sold 1 account to ARC during the quarter for total consideration of
INR470m. Outstanding SR book now stands at INR7.6b.
Outstanding SMA-1 and SMA-2 stood at INR117b and INR163b respectively,
some moderation from last quarter.
The bank guided for ~9% GNPA ratio in FY17 and credit costs at ~1.5%, driven by
increased focus on recoveries and upgradations.
Margins
Lower margins during the quarter were driven by INR900m interest reversals
(INR1.1b in 4QFY16).
The bank has guided for FY17 NIM in the range of 2.4-2.5%, driven by increased
focus on lower funding costs.
Loan Growth
RAM (Retail, Agri and MSME) will continue to remain key focus.
The bank guided for 9-10% YoY loan growth in FY17.
Other Details
The bank will continue to book opportunity based trading gains on its AFS book.
High FX gains during the quarter were driven by a mix of improved merchant
and trading business. The bank expects the traction to continue.
Strong opex growth during the quarter should replicate for the rest of the year.
The management is targeting cost-income ratio at <=50%.
August 2016
58

FINANCIALS/BANKS | Voices
Yes Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 1,337
Target Price INR 1,400 | 5% Upside
Buy
Guidance
(a) Expect Mid-high 20s loan/deposit growth with higher share of CASA and
consumer banking, (b) Looking to maintain 60%+ provision coverage, (c) 10-15bp
NIM expansion in FY17; targeting 4% NIM in next 3-4 years, (d) Expect consumer
banking to reach 20-25% of loans in next 4-5 years with 50:50 mix between
secured/unsecured
Asset Quality Related
No account refinanced under 5:25 scheme; have undertaken one SDR case
amounting to INR343m in EPC sector (consortium exposure).
Telecom sector exposure increase is on account of one large AAA bond
investment made at the end of the quarter.
Electricity sector exposure increase is on account of one captive power plant
taken during the quarter; within the overall electricity exposure proportion of
bond holdings is decreasing and working capital funding for operational projects
is increasing; Share of operational projects in non-renewable sector has
increased to 100% v/s 81% a quarter ago.
Stock of contingent provisions stand at 30bp.
Balance Sheet Related
SA deposits: Incremental SA deposit growth driven by some large government
scheme accounts; however, 80-90% of overall SA deposits driven by branch
banking.
Retail business growth seasonality a function of priority sector compliance.
Break-up of consumer banking: CV, car loans, CE, inventory, healthcare, housing,
LAP and PL are the products which have 0.5-1.5% share. CV/LAP on the higher
side while PL/Healthcare on the lower end of the range.
100% of retail assets available across branches except home loans which are
available only to internal customers.
One CV pool running down which was brought 3-4 years ago.
Credit substitutes currently stand at INR110b.
No impact of FCNR deposit redemption.
MFI portfolio now accounts for 2% of loans; this does not include loans to MFIs
which would be ~2%; looking to consolidate in the near term with incremental
sourcing done in-house v/s outsourcing.
P&L Related
Provision break-up: INR950m specific provisions, INR400m general provisions
and INR700m counter cyclical provisions.
Average cost of SA deposit is 6.5%; looking to rationalize pricing post RBI policy
6-7% of loans are on MCLR rates; majority of loan book should move to MCLR
regime over 2-3 years.
Looking to lower base rate and lower SA deposit rates.
Fee income includes 2-3 transactions with US$3-4m fee per transaction.
August 2016
59

FINANCIALS/BANKS | Voices
INR1-1.2b treasury gains during the quarter v/s normal run-rate of INR300-
500m; management expects gains to be higher than normal run-rate.
Structured financing and IB activity is picking up; loan syndication except
renewable energy remains subdued.
Downward yield movement over past couple of years is a function of rate
movement and better credit risk rating.
Other highlights
Bank has received SEBI approval to setup asset management company; targeting
to launch at the start of next financial year.
August 2016
60

FINANCIALS/NBFC | Voices
FINANCIALS/NBFC
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY17
Bajaj Finance
Expect +25% AUM growth for FY17. In
LAP and home loans, targeting only
existing customers
Bullish on prospects of EMI card and
mobile phone financing
AUM growth to remain +50% for FY17,
with 15-20% increase in ticket sizes
Capital raising of ~INR7.5b in FY17
Asset quality
Overall asset quality trends remain
very healthy
Margins
Bharat
Financial
Inclusion
Asset quality trends to remain healthy
Not witnessing any signs of stress in
any geography
LIC Housing
Expects overall loan book to grow at
15% in FY17; Individual home loan
segment to grow at 17-18%;
Witnessing uptick in Southern and
Western India
Asset quality trends to remain healthy
97% of loan book is retail; mitigates
any asset quality shock
Mahindra
Finance
Expect 10-12% AUM growth for FY17
While the company is not chasing
growth, if monsoon is good, growth
can exceed 15%
Muthoot
Finance
Expect 15%+ AUM growth for FY17
Will open 200 new branches in FY17
Being a seasonally weak quarter, asset
quality deteriorated sequentially.
However, deterioration was less than
in the prior year on 150dpd basis
Expect improvement in 2HFY17, and
the company should migrate to 90dpd
by 4QFY17
Share of overdue accounts has come
down from 25% in 3QFY16 to 13% in
4QFY16 to now 8% in 1QFY16 led by
collection efforts
Not witnessing any asset quality
issues
Margins might decline
marginally over the
medium term with
reduction in share of
consumer durables
segment
SKS is already lowest cost
lender, won’t reduce
rates further
Marginal cost of
borrowings are now 9.9%
v/s 13.6% two years back;
should decline further,
boosting margins
Yields may decline
marginally given
marginally increasing
share of retail home
loans
However, reduction in
cost of funds due to
falling bond yields
mitigates risk to margins
Not reduced lending
rates; margins to
improve, with reducing
cost of funds
Improvement in asset
quality could also give
boost to margins
Management has guided
for 10-11% NIM going
forward
Bajaj Finance
Current Price INR 10,172
Target Price INR 10,712 | 5% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Growth guidance
Continues to guide for 20-25% growth in AUM and PAT over the medium term
FY17 C/I expected to 40-41%. (38-40% in 3-5 years). Improved on back of
operating leverage and reduction in dealer commission, which reduced on the
back of direct to consumer focus.
Businesses
Dental financing:
Have tied up with more than 450 clinics, and expects to
continue to witness strong traction.
Urban Gold loans:
Started Urban gold loans recently and expects this product to
be distributed from all branches in the next three years.
August 2016
61

FINANCIALS/NBFC | Voices
EMI Card:
Launched retail EMI card on June 1. The market size stands at INR1.5t.
The business could potentially be twice that of consumer durables. The
company tied up with Future Group for this product.
Digital product financing:
Mobile phone financing comprises 1/3rd of this
portfolio. Growth is very strong, and so is the market opportunity. This business
could be twice that of consumer durables.
LAP:
Expect growth in LAP to pick up in 2H. The company has moved to the
direct-to-consumer model due to declining loan yields coupled with increasing
broker commissions. As a result, growth has been subdued, but should rebound
from 2HFY17 off a low base. In addition, the average ticket size should come
down from current INR15m to INR9-10m as the LRD book runs off.
Salaried Personal Loans:
The company has been pulling back and moving
towards a direct-to-consumer model. Share of direct loans was only 35% nine
months back. It has increased to 55% now and should increase to 75% by end-
FY17. The business is done in 70 cities as compared to only 25 cities three years
ago.
Business Loans:
The dynamics of the business changes from city to city. The top
15 cities require different credit models, different organizational structures from
the other cities. The lending is generally unsecured in nature with an average
tenure of 18-24 months and an average ticket size of INR1.4-1.5m. In the Top 50
cities, 45% of sourcing is from DSAs while for the other cities, all sourcing is
done in-house.
Professional Loans:
There has been good traction in this segment. The idea is to
acquire the customer with a professional loan and then cross-sell home
loan/LAP to him.
Consumer durables:
Business did well on back of good AC sales, thanks to
prolonged summer. CD business does traditionally well in 1Q and 3Q. 1Q on the
back of summer (AC/cooler sales) and 3Q due to festive sales.
Digital financing
segment has the potential to be 2X of the consumer durable
segment, as the replacement cycle is short much shorter for digital products.
Lifestyle financing
– 33% volume comes from dental segment.( reach of 860
clinics)
Retail EMI
financing could be 2X of CD in 5-7 years.
Home loans:
55% of the business is direct. Expects to close FY17 with 75% direct
business. Expects growth to be back by 3Q on back of base effect.
EMI card
business contributes 55% of the retail book.
Business loans:
45% loans from direct channels in the top 50 cities. Beyond top
50 cities, DSAs are not effective and thus in these areas book is mostly direct.
Business loans is most granular business after CD.
Vehicle financing:
3W growth is on back of lower base.
Capital Raise
Raised INR9.72b in Tier 2 capital in July. Management estimates that there will
not be need for more capital until end-FY18.
Asset quality / Provisioning
Provisioning without one-off is still at 50% growth; this is on back of robust
growth in CD business. As the tenure is lower in this segment, the company
August 2016
62

FINANCIALS/NBFC | Voices
provides aggressively and provides nearly 100% for 90dpd, which is not the case
for other loans. Thus, provisions grew at a faster clip.
30% of total delinquencies come from 2W-3W customers.
Borrowing
With liquidity deficit situation improving in the last few months, bond yields
have come off, and the impact could be there in 2QFY17
Retail and corporate deposit likely to contribute 20% in 3-5 years.
Others
Other income:
No one-offs. INR130m from fee products.
EMI cards are not given to 2W loan customers as many 2W customers are from
far flung areas where propensity to buy on EMI is lower. However, the company
looks to cross-sell other products to these segment of customers.
LAP remains hyper-competitive, but the competitive intensity seems to be
moderating. However, the company is more comfortable with its own
portfolio on the back of direct model and asset quality comfort.
Credit bureau hit rate (score 750 and above) reduces by 10% points once we
move beyond 15 top cities. At top 75% cities, it is just 15-20%. BAF is willing to
give loans to customers who do not have a credit history based on its own
analytics and credit score card, but not to people who have bad CIBIL score.
Approx. 45% of new to BAF customers are with no credit history.
AUM Mix:
Over the next 1-3 years, management believes that the AUM mix will
be as follows – Consumer: 35%, SME: 45%, Commercial: 13% and Rural: 7%. As a
result of lower share from consumer financing business, margins are expected
to decline. However, opex and credit costs shall also decline.
Cost to income ratio:
The C/I ratio is expected to decline to 41-42% for FY17.
Over the medium term, it could go down to 38-40%. However, the company has
to invest to upgrade its technology to handle to significant increase in the
number of customers over the years.
Dewan Housing
Current Price INR 263
Click below for
Results Update
Target Price INR 333 | 27% Upside
Buy
DEWH securitized assets worth INR11.5b during the quarter; off balance sheet
assets now stand at INR84b i.e. 12% of AUM.
The proportion of non-housing loans (Commercial, LAP, Builders and SME
financing) in the overall mix increased to 28% v/s 25% in 1QFY16.
Reported NIMs declined 5bp YoY to 2.91%, despite a 43bp YoY decline in cost of
funds to 9.56%, due to moderating yields on account of competitive pressures.
Management highlighted that despite high yielding non-mortgage share
increasing, yields are under pressure due to intense competition and
incremental mortgage business is happening at 10.25%.
There was a negative impact of INR200m on net worth on account of treatment
of DTL as well as another INR200m impact due to amortization of discount of
zero coupon bonds.
Capital adequacy stands at 17.4%, with tier 1 capital at 12.7%.
August 2016
63

FINANCIALS/NBFC | Voices
IndiaBulls Housing Finance
Current Price INR 800
Target Price INR 866 | 8% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Macro Highlights
There has been good traction in residential home sales in the Top 6 cities in
1HCY16. With YoY growth of 46%, affordable housing comprises 70% of home
sales. Inventory levels with developers have come down in recent months.
Office leasing in CY16 is expected to register YoY growth.
IHFL’s incremental mortgage market share stands at ~6% (including banks)
Business Updates
Launched their online home loan product, e-Home loans, during the quarter.
This would enable much faster application turnaround time and would help
cater to customers in Tier 2 & 3 geographies as well as NRIs.
The company’s subordinate debt was upgraded to AAA in the quarter. Currently,
the company borrows at 40bp above CRISIL AAA rated corporates. With a CRISIL
upgrade to AAA, management expects the spread to reduce to only 20bp.
Continue to maintain ~20-25% loan book and profit growth guidance over the
medium term.
Disbursed INR52.5b in 1QFY17 (16% YoY) (HL-INR27b, LAP-INR14b and
Commercial Credit –INR12b).
Self-employed segment accounts for 30% of home loan book and 24% of LAP
book. Would continue to maintain the proportion.
53% of the loan book now comprise of pure HL. Looking to increase the same to
60% by FY18 and 65% by FY20.
Within the commercial financing segment, 60% of disbursements is towards
LRD, while 40% is construction financing. The main markets for LRD are
Gurgaon, Pune and Bangalore while that for construction financing are Gurgaon
and Mumbai.
Others
Management is hopeful of receiving partial occupancy certificate for the
distressed project, Palais Royale, within the next 4-5 months. Outstanding
customer receivables due from that project amount to INR10b. IHFL’s exposure
to the project stands at INR5.73b.
The break-up of INR8.75b outstanding provisions is as follows – Substandard
asset provisions: INR3.4b, General provisions: INR1.86b, Specific provisions:
INR1.54b, Floating provisions: 0.89b and Standard asset provisions: INR4.46b.
Capital adequacy ratio at quarter end was 23.81%, with Tier I capital at 19.87%.
LIC Housing Finance
Current Price INR 554
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 627 | 13% Upside
Buy
Focus on core mortgage product from hereon; LAP book growth to slow down
Increased focus on core individual home loans to drive loan book growth. Expect
to grow total loan book at 15% YoY with individual home loans growing at 17-
18%+ YoY in FY17.
Target LAP + Developer loans at 13% of the total loan book from existing +12%.
Introduced a new pure floating rate product during the quarter; 70% of
incremental disbursements happened were pure floating loans.
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August 2016

FINANCIALS/NBFC | Voices
Disbursements in individual home loan segment increased 14% YoY from
INR52b in 1QFY16 to INR59b in 1QFY17. Growth in individual home loan
disbursements in FY16 was 10%. The pickup has been led primarily by Southern
and Western India. Moreover there has been a good uptick in customer
inquiries.
Disbursements in LAP segment in 1QFY17 was INR11.42b, of which 40-45% was
from the top 10 cities. LIC agents account for 66% of LAP disbursements, while
DSAs account for another 20%.
Margins improved despite reduction in lending rates
NIMs were up 20bp YoY, driven by changing product mix towards high yielding
LAP and developer loans as well as 30bpYoY reduction in cost of funds.
No change in borrowing mix. Expect share of bank borrowings to be ~10% of
total borrowings. The company intends to borrow INR400b in FY17, of which
80% would be from NCDs.
Margins will be sustained due to the impact of rapid growth in the LAP +
developer loans portfolio last year.
Incremental yield on the LAP book is 11.5% while that for developer loans is 13-
14%. Incremental yield for pure floating rate product is 9.5%, while that for the
other mortgage products is around 10%. Pure floating product will comprise
70% of total individual home loan disbursements.
INR150b worth of loans are expected to be re-priced in FY17, under the fixed-
ofloating conversion product.
Management expects reduction in cost of funds and build-up of LAP book in last
two years to drive margin expansion.
Opex during the quarter increased due to wage arrears and pension provisions
LICHF incurred an extra expense of INR200m due to wage arrears. While the
company expects an impact in 2QFY17 also, it is expected to be small.
Incurred an additional provision expense of INR100m during the quarter
towards pension provisions.
Higher provisions towards ageing developer loan portfolio; Developer portfolio
now largely provided
GNPA increased sequentially from 0.45% in 4QFY16 to 0.59% in1QFY17, while
NNPA increased from 0.22% to 0.28% over the same time period. However, this
is a seasonal trend. Asset quality has been largely stable on a YoY basis.
The company incurred a one-time provision charge of INR920m on one
developer loan. Barring one account, all developer loans that are NPA have been
fully provided for. Management expects the incremental provision charge on
that account to be in the range of INR200-300m.
GNPA in the individual loan segment amounts to INR4.34b, while that for the
developer loans segment amounts to INR3.22b. Provisions held against NPAs in
the LAP + Developer loans segment is around INR2.2b on a portfolio of INR 3.2b.
Other highlights
Average ticket size of LAP is INR1.2m.
Interest rate on reset for existing customers is 9.9%.
August 2016
65

FINANCIALS/NBFC | Voices
M&M Financial
Current Price INR 337
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 393 | 17% Upside
Buy
Asset quality
1Q is a seasonally slow quarter in term of economic activity as well as
recoveries. While the asset quality deterioration (270bp sequentially) is higher
this quarter than last year, it is due to migration to 120dpd. On 150dpd basis,
the asset quality deterioration from Q4FY16 to Q1FY17 was less than that in the
prior year.
Management highlighted that customers serving the existing EMIs but are not
able to pay for overdues; Loans are still being serviced in around 45% of NPLs
accounts; however, borrowers do not have enough cash flows to clear past
overdues.
With good monsoons so far, farmers should witness better cash flows in Q3 and
Q4. Hence, it is likely that GNPLs could reduce to 7-8% by Q4FY17 on a 120dpd
basis.
In all likelihood, MMFS should transition to 90dpd NPA recognition by Q4FY17.
Management expects 2H to be very good for the company and this should be an
end of asset quality woes.
Data points on asset quality:
a) On 90dpd basis, GNPLs as of 1QFY17 would
have been close to 15%, while interest reversal would be INR3b b) Collection
efficiency for the quarter stood at 87%, largely unchanged on a YoY basis. c)
Slippages during the quarter were INR16b, while recoveries were INR3.9b d)
Interest reversal in the quarter was INR1.3b.
Commentary on key states:
a) A.P., Telangana and Tamil Nadu continue to show
improvement, while Karnataka is stabilizing. b) U.P. is witnessing good volume
growth; however, there is delay in payments by government to contractors c)
Maharashtra and M.P. should witness an uptick after 2 years of drought (around
25% of NPLs are from these two states).
Growth
Disbursement growth during the quarter has been driven by CV/CE and SME
segments. These are relatively low yielding segments, hence pressurizing overall
loan yields.
In the housing financing business, the company focuses only on rural areas.
Loans are small-ticket and given for home improvement. The customer is the
same as that for their core financing business. However, over time, the company
plans to generate 20-25% of business from semi-urban areas.
Others
The company has realigned its recovery teams with an exclusive focus on the
NPA bucket. For example, there are different teams handling the 0-2 buckets v/s
3-4 buckets v/s 5+ buckets. Management believes this will streamline recovery
processes and lead to better recoveries.
While employee expenses were up 29% YoY, some of the expenses were one-
time. On a run-rate basis, the expenses were up 18-20% YoY.
In the SME financing business, the company focuses on three segments – Auto,
Agriculture and Engineering. The company uses its extensive relationship
networks to grow the business. Within the auto industry, loans are given to
OEMs as well as suppliers. The ticket sizes range from INR20m to INR50m, while
the tenure is around 5-6 years.
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Repco Home Finance
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 830
Target Price INR 966 | 16% Upside
Buy
Growth Outlook
Continues to maintain 20-25% loan book growth over the medium term.
Maintain spreads largely at 2.8-3.2% band.
C/I Ratio likely to remain at current levels. No mention of new ESOP policy.
Loan book growth
Primary reason for flat sanction and disbursement growth was due to election in
key state of TN (constitute ~65% of the loan book on incremental basis). Due to
elections, people deferred their decision to buy homes and thus sanctions and
disbursements were low. The company said that the next three quarters will
make up for low disbursements.
Loan book mix: Non-salaried now constitute nearly 60% of the book; the
company would like to maintain these levels. Further, share of LAP at 20%
would be maintained.
Growth areas: Growth is primarily driven by South and West India for the
company. Not much growth is coming from East, as company does not have
large presence. 2/3rd of growth is still coming from TN.
Home loan avg. at INR1.3m and median at INR0.8m.
Pradhan Mantri Aawas Yojana
GoI has come up with a scheme for people in EWS (annual income <INR0.3m)
and LIG (annual income <INR0.6m)) for home measuring <30sqm in urban areas
and <50sqm in rural areas. GoI would provide upfront subsidy on INR0.6m,
which is adjusted against the loan outstanding and thus reduces the loan
outstanding. Repco continues to charge its prescribed interest rate to the
borrower.
Repco has disbursed 300 cases during the quarter. Avg tkt size is at about
INR1m.
Interest rates
Have reduced interest rates for the salaried segment (loans now start at 9.6%).
This was done largely because growth in salaried segment is lower than that in
non-salaried and Repco wants to maintain the share of salaried and nonsalaried
at 40:60 split.
Interest rate of non-salaried HL is at 50-100bp higher.
Avg yields in HL is at 11.7% and LAP at 15.7%.
Incremental yields: LAP- 15%; HL-11-11.25%; non-salaried HL-11.12%.
No significant rate reduction apart in the salaried segment. Jun-15: 11.75%; Jun-
16: 11.45%; Origination yields are even lower.
Leverage
Would lever upto 9x and CAR would have to come to 13-14% before looking for
another capital raise.
August 2016
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FINANCIALS/NBFC | Voices
Customer profile/Acquisition
In self-employed segment, relatively more proportion of lending is done to
traders, which results in volatile asset quality. 20% of non-salaried borrowers
are professionals (CA, Doctors etc).
Nearly 45% of houses financed are self-construction, 5% are plot purchases and
30% are apartment or flat purchases.
30% of the borrowers do not have CIBIL scores. And nearly 60-65% of
incremental borrowers are new to Repco.
Origination mix: Branch – 40-50% (walkins and referrals) Loan mela – 50-60%,
DSAs -2% (only in MH and Guj). Largely similar breakup across all states.
Repco is in talks with developers to become a preferred financier for home
buyers. However, no commissions are paid out to developers.
Customers have option to lower interest rate by paying one-time charge. i.e.
largely trying to bargain, else they go in for balance transfer. Not seen as
widespread behavior as yet.
Asset quality/Credit underwriting
For evaluating self-employed borrowers, branch employees prepare BS and
income statements for the borrowers to assess their income levels and
repayment capacity. They do not rely on BS and IS provided by the borrowers.
IIR at 50% on the book LTV is at 62%.
On origination LTV max for salaried-85%; and
LTV for non-salaried-75%; for LAP max LTV is 60% of the agreement value.
Would maintain PCR of 70% by FY17.
Competition
Company agreed to increasing competition, especially in the salaried segment as
banks are increasingly taking over loans (balance transfer) from HFCs.
Branch Expansion
Slowed down branch addition as it is able to achieve same growth with lower
branches and with the company’s decision to milk existing branches more
before opening new branches.
A branch serves an area of 25-30km radius. Beyond that, depending on demand,
satellite center (one man office) is setup. In case the business increases to INR8-
10cr, then satellite office is converted into branch.
Shriram Transport Finance
Current Price INR 1,270
Target Price INR 1,426 | 12% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Macroeconomic Conditions
Expects growth to rebound in 2H (led by good monsoons and improving
macroeconomic conditions).
Impact of government spending is now visible especially in the mining and road
projects; improvement in freight and fleet utilization seen.
Average distance travelled by CVs has improved significantly (highlighting goods
movement has improved due to mining and road projects activity).
Fleet utilization– Has improved from 16-18 days to 20-23 days a month. This
utilization is good enough for driver to payback current EMIs. Positive point is
costs have largely remained stable (diesel costs, a large RM). However, this has
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not translated into better collections and lower NPAs for the company. Vehicle
utilization is at 70-75%.
Utilization in nos. of days may not increase too much from here (25-26 days is
optimum utilization), but freight rates are likely to go up and provide cash flows
for repayment. This scenario is likely to help in better recoveries and lower
NPAs.
AUM to grow at 15% CAGR till FY19.
NIM target of 7.1-7.2%.
C/I at 23.5%, likely to remain range bound.
RoAs likely to remain in the current range for a few more years. Not likely to
touch previous highs of 3.5%+ anytime soon (at least until 90dpd provisioning
norms are fully phased in).
AUM/Disbursement
AUM by vintage: <5 yr old: 21-22% of book; 5-10yr old: 71-72%; >10yr- ~6%.
Yields: New vehicles: 14-14.5%; <6yrs: 15-18%; >6yrs: 18-26% (depending on
vintage).
Total disbursement: INR106.63b. New CVs: INR12.6b; Used: INR94.03b.
Yields
Decline in yields, due to New CV business growing at faster clip. In used CV too,
number of <10yrs vehicles (4-6 years old vehicles) is increasing.
Company has deliberately decided to finance lower vintage vehicles as against
10+yrs old, as recovery effort is same and ticket size is lower in 10+ segments,
resulting in lower RoE/RoA. In <10yr old segment, yields are lower, but is
compensated by volumes and ticket size.
New vehicles (brand new) are financed to existing customers who want to
migrate to newer vehicles.
Asset Quality
GNPA: 180dpd: 4.63% on standalone basis (Consol. book: 5.9%). 4Q standalone
in 180dpd was 4.34%. Increased slippages seen during the quarter on a
sequential basis.
On 150dpd, GNPAs are at 6.38%. The company will migrate to 120dpd in
4QFY17.
At 120dpd, GNPAs would be 100-150bp higher than 150dpd (i.e. ~8%).
Write-offs: 1QFY17: Write-Offs: INR2.66b (INR140m in CEF); Provisions of
INR1.88b and Std asset provisioning of INR50m. vs 1QFY16 Write-Offs:
INR2.25b; Provisions of INR1.51b and Std asset provisioning of INR50m.
GNPA have peaked out, expects improvement going forward. However,
provisions likely to remain at same level.
CEF subsidiary
Written off INR140m loans in CEF during the quarter.
GNPA has increased from INR8.93b to INR9.60b. The company holds INR7.40b
provisions against these NPAs.
INR2.8b collection during the quarter which is slightly below target of INR0.8-1b
per quarter.
August 2016
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HEALTHCARE
In pharmaceuticals, overall sector sales and EBITDA margins were marginally below estimates. Excluding one-off
opportunities, growth in US sales was muted due to limited new launches in the past six months. India
formulations sales were impacted in 1QFY17 by various regulatory actions. EM markets business delivered robust
constant currency growth, but FX volatility continues to impact INR growth. We expect US sales momentum to
pick up, given increasing number of approvals for Indian companies. Emerging market growth should stabilize with
currency. We thus believe overall earnings growth should improve over the next few quarters.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY17
Cipla
R&D expenses to stay at 8% of sales
Guided for over 15 launches in the US in FY17
FY17 capex guidance at ~10% of sales
Guided for muted year on the back of three warning letters
and phase out of product manufacturing deal with McNeil
Pharma
US Filings
Pending ANDAs stand at 78
Dr Reddy's Lab
Pending ANDAs at 79 (52 para IV and 18 FTFs)
Pending NDAs (505 (b)(ii)) at 3
R&D and proprietary business development costs to
remain elevated and restrain margins over FY17
Maintained guidance for strong FY17, driven by 25 new
launches in the US
Guidance for R&D as % of sales maintained at 12-15% in
FY17.
Pending ANDAs stand at 149, of which 45 are FTF
opportunities
Lupin
Higher capital expenditure outlay of INR18-20b in
FY17
Lower FY17 tax rate guidance of 27%, owing to Ind-As
accounting benefits
Maintained guidance of 8-10% revenue growth in FY17
Significant synergies from Ranbaxy integration to be
realized in FY17
Sun Pharma
Pending ANDAs stand at 159
Alembic Pharma
Current Price INR 647
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 640 | 1% Downside
Neutral
India formulations (38% of sales):
India’s branded formulation grew 6% to
INR2777m. The specialty segment grew by 16%. Cardiology business grew by
16%. Anti-diabetic & Gynecology were both up by 31%. The Acute segment
business saw a dip of 10%. Muted growth in domestic market is attributed to
supply disruptions, price control and FDC ban. Alembic expects growth to
recover in domestic market as supply disruption issues have been resolved and
given lower-than-expected impact of FDC ban. Alembic’s Tellzy is the fastest
growing Telmisartan in India and is now ranked 3rd in the Telmisartan market.
In 2Q, ALPM has launched 12 new products in the domestic market. With
increased focus on specialty products and improving MR productivity (MRs:
5000), we model 14% CAGR growth over FY15-18E for domestic business. The
company currently has 170 products and plans to launch 20-25 new products
every year. The company has 33% share in Macrolides, making it the market
leader.
International Generics (42% of sales):
International business grew by 72% to
INR3080m led by US business. 23 products have been launched by Alembic USA
under its own brand. Sequential increase in international business is attributed
to an increase in market share of Abilify and launch of existing products under
August 2016
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own frontend (23 in last 9M). Alembic has 31 pending ANDAs with ~40% as
ParaIV/ FTF fillings. The company expects 6-8 ANDA approvals in FY17.
Alkem Laboratories
Current Price INR 1,539
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 1,800 | 17% Upside
Buy
India business (75% of sales)
Alkem’s India reported sales of INR10.8b in 1QFY17, exhibiting 22% YoY growth.
However, 1QFY16 domestic revenues were suppressed (part of it got deferred
to 2Q) due to change in accounting treatment (revenue recognition changed
from invoicing to shipment). Post normalizing impact of this, domestic revenue
growth stood at ~15-16% YoY in 1QFY17.
Impact of regulatory actions in domestic market
Expanded NLEM list, WPI led price cuts and NPPA led downward price revisions
to adversely impact domestic sales growth by ~4-5%. Half of this impact was
witnessed in 1QFY16, and the remainder will be evident in 2QFY17.
FDC ban impact: Currently, the central government’s ban order has been stayed
in court and the final verdict is pending. However, if the decision does not go in
favor of Alkem, it will adversely impact ~3-4% of sales. Management is already
working on substitute products and the real impact may not be to this extent.
Alkem exhibited robust growth in emerging therapies of Neuro/CNS, Cardiac
and Anti-Diabetic. Secondary sales growth for the quarter was at 10.6% (as per
IMS). Alkem continued its outperformance in Anti-infective and Gastro-
Intestinal, Pain and Vitamin therapies. Management expects India business to
deliver growth of ~15-16% YoY in FY17, despite regulatory headwinds.
Biocon
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 846
Target Price INR 550 | 35% Downside
Sell
Malaysia facility
is expected to get commercialized by 2HFY17, as it has already
received approval from Malaysian authority for production of Rh-insulin. The
company will also stop capitalizing cost above EBITDA line item for Malaysia
facility from 2HFY17. However, capitalization of cost below EBITDA line item
would continue till the time approval from developed markets do not come.
Overall capital expenditure incurred is estimated at USD200m for this plant.
ANDA filings:
The company plans to file 20-25 ANDAs over next two to three
years.
New facility:
The Company has started construction of first oral solid dosage
facility located in Bangalore to support future generic filings with capex of
USD25m. Estimated completion by CY2017.
Partnered products:
Biocon is on track to file 4 key molecules in FY17 across EU
and US.
Capex:
On standalone basis, Biocon is likely to expend INR2-2.5b capex in FY17,
most of which will be used in the construction of oral and formulation facility.
Pegfilgratism launch
in EU is expected in 12-18 months.
Copaxone approval:
Biocon has filed for generic Copaxone 20mg and 40mg in
US. The company expects approval of 20mg filling in FY17.
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Adoption of IND-AS
has led to an increase in revenue in 1Q by ~INR600m on
account of revenue recognition. This would not continue going forward.
Cadila Healthcare
Current Price INR 373
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 400 | 7% Upside
Buy
US Formulations (37% of sales):
US revenues declined 14% YoY to INR8.5b in
1Q, primarily owing to increased generic competition in HCQS. The company
launched 2 new products in the US in 1QFY17 and received 3 product approvals
during the quarter. Cumulatively the company has received 106 ANDA approvals
till date. Additionally Cadila filed 6 ANDAs in 1QFY17; cumulatively the company
has filed 275 ANDAs in the US market. As per the management commentary,
CDH has site transferred 13 products till date (all approved ANDA’s). Cadila has
launched the authorized generic for Asacol HD in August 2016, and is in
discussion with CVS and Express Scripts to secure contracts. Going forward, we
expect US sales to exhibit 11% CAGR over FY16-18E supported by its large ANDA
pipeline and niche product launches like gPrevaid ODT, Toprol XL coupled with
transdermal launches from Zydus Technologies. Additionally niche injectable
launches post resolution of Moraiya facility should also drive growth.
India Formulations (35% of sales):
Ex WPI linked price adjustments, FDC ban
domestic branded business exhibited c8.6% YoY growth in Q1FY17. Additionally
channel disruptions in April 2016 also hampered growth. Management concall
commentary suggested returning to double-digit growth from Q2FY17. Overall,
we project 11% CAGR over FY16-18E for India business.
LatAm Formulations (2% of sales):
LatAm sales declined 4.7% YoY in 1QFY17,
and stood at INR527m. Constant currency sales merely increased 3% YoY in
1QFY17. This is primarily attributable to channel stocking, prior to the 12.5%
price hike allowed in April 2016, as per management commentary.
Europe Formulations (4% of sales):
In 1Q, Europe sales also declined 5% YoY to
INR792m. As per 4QFY16 commentary, CDH is rationalizing product portfolio in
Europe to improve the profitability of the business. Management had earlier
guided for EU revenues to exhibit growth in line with respective market growth
in the coming years (4-6%).
R&D:
R&D expenditure declined 10%QoQ to INR1.6b and accounted for 7.1% of
sales in 1Q. Management expects R&D to remain at 7-8% of sales with increased
filings in complex products in the US. 75% of the R&D costs are expected to be
spent towards generic business, and remaining 25% towards Novel molecules
(vaccines, biosimilars, etc).
Other takeaways
Effective tax rate to remain at 20%-22% levels
in FY17E, due to R&D benefits.
Depreciation increase
is attributed to commissioning of new facility.
Management expects quarterly run rate of depreciation to remain at 1Q levels
for the rest of FY17.
Employee costs to remain elevated
because of two key reasons (new SEZ
facility and increase in quality team size).
August 2016
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Cipla
Current Price INR 556
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 540 | 3% Downside
Neutral
R&D as % of sales stood at 6.6%; it is expected to be ~8% in FY17, as against
~6.5% in FY16;
Invagen sales stood at USD55m (annual run-rate at the time of acquisition of
~USD225m)
No royalty income from Nexium in 1Q.
FY17 capex guidance at ~10% of sales; e) Impact of DPCO and FDC ban on
domestic market was ~INR200-250m in 1Q (expected to double from 2Q).
Excluding Invagen, employee cost grew 2% YoY (~11% YoY reported growth).
Cipla plans to file 20-25 ANDAs in FY17.
Filling of product acquired from Teva will happen in 2Q (mkt. size: USD650m).
Key catalysts to drive stock’s performance over medium term are:
Launch of combination inhaler in UK market (USD 450m mkt size, few players).
Stronger performance in the US with Invagen portfolio.
Margin improvement in Medpro operations (acquired in July 2014)
Robust growth in domestic formulations (42% of sales).
Dr. Reddy’s Lab
Current Price INR 3,011
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 3,000 | 0% Downside
Neutral
Remediation process almost over; DRRD plans to meet US FDA in 2Q to invite
for re-inspection.
Incurred remediation cost of USD16m in 1Q, which should substantially come
down from 2QFY17.
Manufacturing contract (annualized revenues of USD25m) with third party
getting over in 2Q, which should lead to lower US sales.
1Q revenues declined 14% YoY to INR 32.3b due to increased competition, price
erosion, delay in launches in US market (down ~USD50m sequentially) and loss
of business in Venezuela. PSAI business declined 16% YoY to INR4.7b and
Innovator product segment posted 1% YoY growth in 1Q.
North America (48% of sales):
In 1Q, on constant currency basis, DRRD declined
to USD237m (~USD 285m in 4Q FY16) due to increased competition, price
erosion and delay in launches.
India (16% of sales):
Revenue from India was INR5.2b with growth YoY of 10%.
India business delivered weakest QoQ growth in the last 8 quarters on account
of NPPA pricing notifications and WPI based annual price decline.
RoW sales including Russia/CIS (12% of sales):
Revenue in Russia was at
INR2.3b YoY (growth of 2% YoY in INR terms). Moderate growth witnessed on
account of depreciation of Ruble.
Europe (5% of sales):
DRRD registered 16% YoY decline in Europe sales at
INR1.6b. The company is expected to launch more products in coming quarters.
August 2016
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Glenmark Pharma
Current Price INR 863
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 900 | 4% Upside
Neutral
India (27% of sales)
India sales grew 10.4% YoY to INR5.1b driven by ramp up in therapies like CVS,
Respiratory and Dermatology. Growth rate was lower compared to previous
quarters owing to presence of Sitagliptin sales in Q1FY16. At present, GNP is
ranked 17th in India market and has 8 brands in top 300. Expect growth to
rebound from Q2FY17, and full year growth is likely to normalize at 15% in FY17.
We expect India business to exhibit 16% CAGR over FY16-18E.
US (36% of sales)
US business grew 24.4%YoY to INR6.98b driven by new launches and ramp up in
existing products. In 1Q, the company has filed 4 products. GNP plans to file
additional 5 ANDAs in 2QFY17. Additionally, GNP also received 5 approvals in
1QFY17 – which includes 2 final approvals and 3 tentative approvals. As of end
1QFY17, the company is marketing over 100 generic products in the US market
while 62 ANDAs pending with the US FDA (23 para IVs). US growth is expected
to further pickup from Q2FY17, supported by launch of gCrestor, couple of
dermatology products. Going ahead, we project 33% CAGR growth over FY16-
18E, supported by key product launches namely gZetia, gWelchol, gRenvela,
gNitrostat.
LatAm (8% of sales)
LatAm sales were at INR1.6b (down 29% YoY), primarily owing to absence of
sales in Venezuela. The company has stopped shipment since Nov’15.
Additionally, the Brazil and Mexico subsidiary also underperformed the overall
market. Management has guided for growth in Latam markets (Ex-Venezuela) to
pick up from 2QFY17.
Europe (8% of sales)
Business grew 37% YoY to INR1.5b, helped by robust performance in the UK and
Germany markets. Next leg of growth is expected to be supported by
respiratory product launches (USD700-800m market in Europe). Africa, Asia and
CIS Region (ROW) (10% of sales) ROW sales were at INR1.95 b, driven by strong
outperformance in the Russian market. For 1QFY17, constant currency growth
for Russia business was in excess of 50%.
Other highlights
R&D expenses stood at 10.2% of sales in 1QFY17. Generic business spends were
at INR1.1b (5.7% of sales) in 1QFY17. Management maintained its R&D guidance
of 10-11% of sales in FY17.
The company received no repatriations from Venezuela during the quarter.
Venezuela still has USD45m cash on books.
Tax rate is expected to be at 25% for FY17E.
August 2016
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IPCA Laboratories
Current Price INR 514
Target Price INR 525 | 2% Upside
Neutral
Click below for
Results Update
Top-line growth for FY17 estimated at ~11- 12% YoY.
Gross margin expected to be ~65% in FY17.
EBITDA margin expected to be ~16-16.5%.
Current tax rate to be at MAT rate; additional deferred tax of ~INR70m/quarter.
R&D as % of sales stood at 3.7% in 1QFY17.
USD30m debt repayment expected in FY17.
API business to grow ~12-13% YoY in FY17.
Key catalysts to drive stock’s performance over the medium term are:
Higher than expected recovery in US sales, led by sharp price hikes in key
product (Hydroxychloroquine sulfate).
Rebound in Institutional business (anti-malarial tender), which accounted for
only 4% of sales in FY16 compared to 14% in FY14.
Improvement in domestic business growth trajectory, with focus on new
therapy introductions in chronic segments.
Key risks to our investment thesis
Lack of regulatory clearance by other regulators would impact export business
outlook (52% of sales).
Further addition of drugs in DPCO coverage could hurt domestic business.
Weakness in emerging market currencies could impair growth prospects.
Branded generic formulation exports accounted for 9% of business in FY16.
Lupin Ltd
Current Price INR 1,577
Target Price INR 1,850 | 17% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
US branded business witnessed sales of USD21m (up 110%YoY), primarily
attributable to ramp-up in sales of gMethergine (Gavis product).
FY17 US sales should be driven by continued sales momentum of gFortamet,
gGlumetza where competition is expected to remain limited. Management does
not expect additional generic competition in the near term for gGlumetza
(currently a 4 player market). With respect to gFortamet, management
indicated 1-2 additional competitors could enter the market in the near term.
LPC expects 25 new launches in the US in FY17. The key material launches in
FY17 are gEpzicom (Key patent expiry – Sep 2016) and gMinastrin 24 Fe
(Expected Mar 2017). Additionally, dermatology and controlled substances
product launches over FY17-18 to also contribute to overall US sales growth.
Further delays in niche product launches: Management has guided for niche
ANDA approvals of gWelchol, gRenvela and gRenagel only beginning FY18, a
delay of 6 months from the previous estimate.
Guidance for R&D as % of sales maintained at 12-15% in FY17. LPC reported a
60% YoY jump in R&D expenses in 1QFY17 to INR5b (11.6% of net sales)
compared to 9.9% of net sales in 1QFY17 as specialty therapy focus continues
for its pipeline.
August 2016
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Higher capital expenditure outlay of INR18-20b in FY17. Employee expenses and
depreciation & amortization cost to also remain elevated owing to Gavis and
Temmler acquisition.
Lower FY17 tax rate guidance of 27%, owing to Ind-AS accounting benefits.
Working capital: Increase in WC at 4QFY16 end has gone up due to Glumetza
launch and expects to come down going forward.
On remediation of the FDA issues at the Goa facility, Lupin is awaiting an FDA
response on updates provided to the agency, relating to the Form 483 issued in
May 2016. The company is carrying out site transfer of key products from Goa to
other FDA approved facilities to ensure timely launches. At present, 30 pending
fillings are from Goa.
Sun Pharmaceuticals
Current Price INR 783
Target Price INR 925 | 18% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Halol remediation over; SUNP has invited USFDA for re-inspection.
SUNP is on track to achieve USD300m from Ranbaxy synergies by FY18E
(significant amount expected in FY17 as well).
gGleevec sales remained flat QoQ.
NLEM impact to be ~INR1.5b in FY17.
Restructuring exercise in domestic business largely over; growth to recover from
2Q.
Taro’s 1QFY16 results: Muted performance
Sun Pharma’s US subsidiary Taro reported 1Q numbers on 11th Aug 2016. Key
highlights of 1Q results:
Revenues came in at USD234m, up >9% YoY (~6% below est.). The 2015 net
sales were negatively impacted by USD14m provision for price protections.
Adjusted for this, sales were flat YoY. Muted sales growth is attributed to few
new approvals and increased competition in existing portfolio.
Gross margin declined to 78.2% (down 160bps YoY and ~640bps QoQ);
operating profit at USD142.6m was up ~6% YoY. EBITDA margins were partially
aided by lower SG&A expense, and stood at 59.4% (down 120bps YoY) despite
higher R&D expenditure of USD17.9m (~7.7% of sales) in 1QFY17, compared to
USD14.5m (6.8% of sales) in 1QFY16.
Net income of USD110m was unfavorably impacted by a USD5.9m foreign
exchange (FX) loss.
Taro generated FCF of ~USD47m in 1QFY17 and had cash balance of ~USD1.25b
as of end 1QFY17.
Share repurchase program: On March 15, 2016, the company announced that its
Board of Directors approved a USD250m repurchase of ordinary shares. The
company has used proceeds of USD190m up till now to acquire 1.35m shares
(~3.1% of total equity) at average price of ~USD138.84.
August 2016
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Torrent Pharmaceuticals
Current Price INR 1,551
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 1,700 | 10% Upside
Buy
US (28% of sales):
US business declined -51% YoY to INR 4.3b mainly due to
price erosion and increased competition. Previous year included exceptional
revenues on account of launch of new drug with limited competition.
India (32% of sales):
Domestic business grew by 3% YoY to INR 5.04b as against
INR 4.9b in 1Q FY16. TRP has taken price increase in elder brands in Nov’15 and
benefits are expected in reflect in FY17. Discontinuance of certain promotional
schemes and hygiene initiatives has impacted the business in 1Q.
Brazil (10.8% of sales):
Brazil sales grew 21% YoY in INR terms (~31% YoY in
constant currency) on the back of ~12.5% price increase in the portfolio.
R&D as % of sales expected to be ~6-8% in FY17 (~6% in 1Q).
Six products launched in the US from Dahej since April-16.
~10 new ANDA approvals and 15-20 fillings expected in FY17.
Glochem acquisition will help expand API capacity by 35%.
~14-15% of portfolio under NLEM.
Tax rate to stay close to MAT rate in FY17.
Crestor launch expected by Oct-16.
Number of MRs in India remained stable at 2,850.
August 2016
77

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MEDIA
Broadcasters
Ad growth for Zee remained strong at 19% YoY, and the company remains confident of exceeding ad growth
estimates of 14-15% for FY17.
Domestic subscriptions grew 14% YoY. However, a meaningful uptick in domestic revenues from Phase III
digitization is expected only after subscription/content contracts are finalized. Management expects low-to-
mid-teens growth in domestic subscriptions in FY17.
Other sales and services grew 35% YoY to INR1.31b (our estimate: INR974m). The beat was largely led by
strong box-office performance of the movie ‘Sairat’, which was co-produced by Zee.
Ex-sports margins remained largely in line, improving ~500bp YoY.
Watch out for developments on interconnect agreements between broadcaster and distribution platforms, as
these could determine how margins play out across the media value chain.
Print companies
Post a dismal FY16, 1QFY17 marked a recovery in ad volumes and market share for DB Corp (DBCL). DBCL had
lost 16-17% in ad volumes in FY16.
Jagran Prakashan (JAGP) and Hindustan Media Ventures (HMVL) had a soft 1Q in terms of ad spends as
pushback in spends from select categories kept industry ad environment somber. JAGP/HMVL’s ad revenues
grew 9%/7% in 1Q.
Ad growth is expected to gain steam in 2HFY17, underpinned by: 1) good monsoon, 2) 7th Pay Commission, 3)
festive season largely falling in 3Q and 4) upcoming UP elections in 2H.
Circulation growth of DBCL remained robust at 15%, while that of JAGP/HMVL was 6%/5%.
Print companies believe that newsprint prices have bottomed out and there could be 3-4% escalation in FY17.
D B Corp
Current Price INR 407
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 465 | 14% Upside
Buy
Ad growth: Ad growth of 20% YoY in 1Q was largely a function of recovery in ad
volumes post a dismal FY16. DBCL had lost 16-17% in ad volumes in FY16. FY17
ad growth to remain strong led by 1. Good monsoon, 2. 7th pay commission.
Festive season in 3Q and a low base due to ad volume loss in FY16. Rajasthan
Bihar and Gujarat were the key growth drivers in 1Q in terms of markets.
Key performing categories: Key performing categories in 1Q were Education,
Government, Auto, Lifestyle. E-commerce ad spends were soft in 1Q.
Circulation growth: Circulation revenue grew 15% YoY to INR1.17b (in-line), led
by yield improvement in mature markets. Mature markets contributed 13.3% of
the 15% growth. Management expected to increase focus on Gujarat, Rajasthan,
Bihar and Punjab to maintain its strong 15-16% YoY circulation run-rate in FY17.
Radio Biz: The 30% YoY radio rev growth was a function of 1) an 8-9% yield
improvement and 2) volume increase.
Newsprint outlook: Newsprint prices are expected to go up by a couple of
percentage points over the next 2-3 quarters.
Capex guidance: Maintenance capex guided at ~INR250-300m for FY17. DBCL is
expected to incur additional capex on new radio station launches.
August 2016
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Dish TV
Click below for
Results Update
Current Price INR 94
Target Price INR 120 | 27% Upside
Buy
Subscriber additions: DITV added 0.4m net subscribers in 1QFY17 and is
confident of adding another 1.5-1.9m net sub adds in FY17.
ARPU and content cost guidance: Management expects a 3-4% ARPU growth
YoY in FY17 on tha back of strong off-take of higher ARPU HD services which will
more than offset the impact of lower ARPU offerings like Zing and Dish99. ~31%
of the monthly gross subscriber adds in 1Q came from HD, 18-20% came from
Dish99 and ~13% came from Zing.
Impact of accounting treatment change for entertainment tax: DITV is expected
to save ~INR0.35-0.4b on account of license fees and other taxes from the
change in accounting treatment for entertainment tax.
Inventory Position: Company as on 1QFY17 has an inventory of ~0.85m set-top
boxes.
HD Offerings: HD accounts for 11% of total net subscriber base (~1.6m HD
subscribers) and contributes to ~31% of incremental gross adds. Dish enjoys
20+% market share in HD offerings. Most of DITV’s HD subscribers are from top
41 cities.
Capex Guidance: DITV did a capex of INR8b in FY16. FY17 capex guidance
pegged at INR8.5-9b primarily on account of increased seeding of HD boxes.
Hindustan Media Ventures
Current Price INR 268
Target Price INR 360 | 35% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Ad growth Outlook:
Despite the weak ad growth in 1Q (7% YoY), company is
confident of clocking an ad-growth of double digits in FY17. Weak ad growth
was a function of reduced ad spends by select advertisers (BFSI, E-commerce,
entertainment and Real Estate) in select geographies due to a weak outlook. 2Q
too is expected to be relatively soft; as the base would include 1) Bihar elections
last year, 2) Festive season largely falling in 3Q, 3) UP election effect would
largely be seen in 3Q & 4QFY17.
Ad yields:
In terms of ad yields, HMVL continues to command ~55-60% of the
market leader. Management suggested that there is headroom for ad yields to
inch up to 75-80% of the market leader.
Key performing categories:
Government, FMCG and Auto continued to perform
well. As highlighted earlier, the laggards were BFSI, E-commerce and Real
Estate).
Circulation and Cover Price (CP):
Large part of the 5.5% circulation revenue
growth was due to higher circulated copies. HMVL’s blended CP stands at
~INR3.7/copy and avg. realizations at INR2.22. Circulation per day stood at
~2.8m copies. In select markets of Bihar (post DB Corp’s entrance), HMVL has
taken a cover price cut to protect its turf. However, management highlighted
that this is a 2-3 quarter phenomenon and are confident of increasing cover
prices again. They have balanced out blended CP by taking hikes in other
relevant markets
Newsprint Outlook:
Management highlighted that while newsprint prices have
marginally inched up, it would largely be range bound for the next 2-3 quarters.
Cash continues to remain idle;
capex to be restricted to ~INR0.2-0.25b
(maintenance capex) in FY17: HMVL’s gross debt stood at INR1.92b, and
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August 2016

MEDIA | Voices
reported net cash position of ~INR6.6b. Management remains non-committal on
the use of this cash. HMVL’s capex is largely going to be towards maintenance in
FY17 and has guided for capex of ~INR0.2-0.25b.
UP/Uttarakhand market:
UP/Uttarakhand markets continue to enjoy double
digit margins. HMVL’s mature markets clock margins of ~35%+. Hence, there is
significant room for margins to improve from current levels in UP.
H T Media
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 79
Target Price INR 90 | 15% Upside
Neutral
Ad growth:
management highlighted that ad growth in 2Q is expected to remain
weak due to the high base effect of Bihar elections in 2QFY16. 2H is expected to
be strong courtesy 1. Good monsoon, 2. 7th pay commission 3. festive season in
3Q and 4. UP elections in 3Q/4Q.
Category-wise performance:
Education, real estate, e-commerce, BFSI and
FMCG remained laggards. Low-yielding DAVP advertising increased YoY in 1Q.
Circulation:
English Print circulation grew higher at 6.9% (higher vs the run-rate
over the past 3-4 quarters) largely led by improvement in net realizations.
Radio Biz:
Existing radio stations rev growth grew by ~22%. New stations
contributed ~INR30m of the total INR330m radio rev. Strategy for Radio Nasha,
the 2nd radio frequency: If you look at Mumbai, the company is trying to hold
prices for Nasha which are closer to the levels at which Fever 104FM in Mumbai.
Consequently, inventory take off is slow. In Delhi, Radio Nasha is priced at ~60-
65% Fever 104FM’s yield.
Digital losses nearly halve, FY17 digital losses guided at ~INR0.25-0.3b:
1Q
digital losses nearly halved from INR238m to INR132m by restricting losses in
Shine.com. Management is confident of halving digital losses in FY17 from
INR0.64b in FY16.
Gross debt at INR12.5b, FY17 capex pegged at INR0.7-0.8b:
As on 1QFY17, HT
Media’s gross debt stood at INR12.5b. Management has guided for a capex of
~INR0.7-0.8b for FY17.
Jagran Prakashan
Current Price INR 184
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 209 | 13% Upside
Buy
Print Biz
Dainik Jagran: The flagship product clocked 8% revenue growth. Ad/Circulation
growth for Dainik Jagran grew by ~9.5%/6.5%.
Mid-day and Nai Dunia: Mid-day and Nai Dunia clocked 8.5%/5% ad growth. Nai
Dunia continued to be drag on ad growth. However, the product has turned
profitable at the operating level in 1Q.
Newsprint Outlook: Management expects newsprint prices to remain stable at
current levels of ~INR33,500/tonne. JAGP expects to contain RM cost escalation
by improving efficiencies in newsprint consumption.
Geographical performance: UP/Uttarakhand continue to grow in double digits.
Bihar clocked 11-12% growth in 1Q.
JAGP’s struggle in MPCG continued with its presence being around half of DBCL
in terms of circulation. However, management has put up a new team for the
geography and expects performance to improve over the next 2-3 quarters.
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August 2016

MEDIA | Voices
Key performing categories for the quarter were FMCG, Auto and White Goods.
E-commerce and Real Estate remained laggards.
Radio Biz
The new radio stations are expected to be operational by Jan 2017.
Radio ad growth of 21-22% (ex-govt) was aided by an 8% effective rate hike in
1Q and improved inventory utilization in smaller markets.
Net debt for Radio City as on 1QFY17 stood at INR1.5b
OOH
The Jury is still out on whether to shelve the OOH biz as current performance is
satisfactory. OOH and events biz revenues grew 25% YoY in 1Q and margins
nearly double from 3.4% in 1QFY16 to 6.7% in 1QFY17
Guidance
Management expects ad revenues to grow by ~11-12% in FY17.
Maintains EBITDA/PAT growth guidance of 15%/20% respectively.
Radio ad rev guidance from existing stations revised upwards from 15% earlier
to 16-17% for FY17.
FY17 Print Capex pegged at INR400m; (1QFY17 print capex: INR100m). FY17
Radio capex pegged at INR260-270m (1QFY17 Radio capex: INR60-70m).
Recurring radio capex is expected to be ~INR30-40m.
Zee Entertainment
Current Price INR 503
Target Price INR 530 | 5% Upside
Buy
Click below for
Detailed Concall Transcript &
Results Update
Business performance:
Industry ad growth in 1Q was ~13-14% and is expected
to grow at ~14-15% in FY17. Zee is expected to outpace industry growth. FMCG
ad spends expected to hold over the next 2 quarters at least. Telcos expected to
step up ad spends. Ad spends from the Internet segment tapering off.
Flagship Zee TV’s viewership share moderating but expected to be corrected
soon:
The company’s flagship channel Zee TV continued to remain weak.
However, the management is expected to fix this with a step up in fresh
programming hours which currently is at ~24 hours/week. However, the
management highlighted that they will only increase OPH if the content is
compelling enough to add to viewership. It has scrapped its old content pipeline
and is building up a fresh line-up for the next 2-3 quarters.
Domestic subscription:
While the seeding of boxes in done. A meaningful uptick
in domestic revenues from Phase III digitization is expected only once the
subscription/content contracts are finalized. Management expects low-to-mid
teens growth in domestic subscription.
International Biz outlook:
International biz ad growth expected to be strong on
the back of the more ad-supported channel launches in international markets
over the fiscal. International subscription was strong at 17% YoY (INR1.1b)
largely due to Zee’s new offering in Africa and strong performance in UK and
Europe. Zee is expected to continue launching new products during FY17 and
the management has guided for low-double digit growth in international
subscription for FY17.
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August 2016

MEDIA | Voices
On a Film Production biz:
While Zee’s film production biz is at a nascent stage it
did have a strong 1Q courtesy a strong box office performance of its movie
Sairat. Zee aspires to register itself in the top 5 film production houses by 2020
on the back of both Hindi and regional film releases.
Guidance on Sports biz losses:
On the back of a profitable 1Q, management
expects sports losses to be lower than the earlier guided INR1b.
Gross debt and capex guidance:
1QFY17 gross debt stood at INR18.28b and
cash & eq. at INR17.82b. FY17 operational capex pegged at INR0.7-1b. An
additional INR0.1-0.2b is expected to go towards building a studio facility.
August 2016
82

METALS | Voices
METALS
JSW Steel reported strong results on the back of higher realizations (led by MIP) and low cost. Standalone
EBITDA/t increased to ~INR 9,200. Hindalco surprised positively at both Novelis and standalone level. Novelis
benefited from improving product mix and stabilization of new smelters. Standalone aluminum surprised on
lower costs. We see better outlook for steel (due to price hikes and lower imports) and aluminum (due to
declining coal cost and higher volumes).
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY17
Hindalco
Secured ~4.5mt in linkage auction at a price lower than e-auction
coal
Cost factors to remain supportive
Domestic aluminum demand to continue to grow in double-
digits
Domestic steel demand expected to recovery post monsoon
driven by irrigation projects, solar and auto sector
Exports have become competitive with rise in global steel prices
and restriction against a few companies
Ramp-up in new smelters, as raw material availability improves
and regulatory hurdles are cleared
Zinc output to be sluggish in 1H, but recover in 2H as per mine
plan
Talwandi Saboo unit 3 would be commissioned in 2Q
Iron ore production to achieve full capacity of ~7.5mt. Lobbying
the government to increase the limit as other local producers are
not operating at the allowed limit
Volumes
JSW Steel
~3m tons YoY to 15m tons
Vedanta
Hindalco Inds
Current Price INR 158
Click below for
Results Update
Target Price INR 216 | 36% Upside
Buy
India’s aluminum demand is expected to grow at double-digit rate primarily led
by the power sector.
Of the captive coal mines, Gare-Palme-IV/4 & 5 have started production.
Kathautia mine is expected to start production by FY17 end. Dumri coal mine
would start in FY18.
The ~4.5mt coal linkage it secured would meet ~25% of its smelter’s coal
requirement. Deliveries would start from October 1st, 2016.
Lobbying the government for duties against aluminum imports. ~50% of India’s
aluminum demand is met by imports.
Aluminum segment EBITDA/t
was up ~USD90 QoQ to USD435, driven by higher
LME and an increase in import duty from 5% to 7.5%, while costs remained
supportive. Impact of increase of INR200/t cess on coal was offset by further
gains in operating and supply chain efficiencies. While production was flat QoQ
at 308kt, sales were 11% lower QoQ at 291kt on seasonal re-stocking.
Aluminum CoP
moved into first quartile of global cost curve: HNDL has now
secured 75% of its supply with ~4.5mt additional coal linkages in recent Coal
India auction. Nearly 80% of aluminum CoP will be stable on reduced exposure
to market price of coal. At ~USD1400/t, CoP is now in the first quartile of the
global cost curve.
August 2016
83

METALS | Voices
Hindustan Zinc
Current Price INR 228
Target Price INR 208 | 10% Downside
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Ore production from SK reached 3.75mtpa, well ahead of schedule.
RAM underground reached 1mt.
Mine metal production to be higher than FY16.
Silver recoveries were better due to SK mines and higher efficiency.
Silver is becoming increasingly prominent in portfolio.
14km of mine developed achieved during the quarter.
RAM developed crossed 4km benchmark.
SK mines to be increased to 4.5mt from 3.75mt by increasing production from
declines.
Zawar-Kayad mine project is near completion. Achieved 1mt production in
quarter.
Galva sector demand to strengthen.
Expect Silver to remain robust.
Changes in accounting
160cr capitalized including 66 cr in current quarter on other income.
method of depreciation changed from SLM to WDV.
Zinc price rally to sustain.
Silver volumes to be significantly higher than previous year.
Dollar CoP to decline from P.Y on various cost initiatives.
Purchased direct finished good metal due to high TcRCs and as quality
concentrate was also not available.
Setting up new mill of 1.5mt at SK; work to be completed by 3Q-4Q.
Existing SK mine de-bottlenecked from 2 to 2.8mt.
About 24kt of zinc was purchased in the quarter while 19kt was booked.
Capex of USD300-350m on de-bottlenecking and various initiatives.
RAM UG+OC total production to remain unchanged in FY17.
SK mines ore in CY will be 3.75mt from ~3mt in LY.
In FY17, ~20% higher ore production.
JSW Steel
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 1,789
Target Price INR 2,092 | 17% Upside
Buy
India’s steel demand in 1QFY17 grew by just 0.6% YoY (as per JPC) due to weak
construction activity. The management expects 2Q to remain weak but expects
strong recovery in 2H. Solar, automotive and construction activity would be key
demand drivers.
Karnataka’s category C iron ore mines are likely to be auctioned before
September 2016. The process was delayed due to confusion around stamp duty
on leases extending beyond 30 years, which is now resolved. JSTL would
participate in the auctions.
Exports rose to 19% of sales in 1QFY17 from 12% in 4QFY17 as the company
gained from increase in steel prices globally in February. While prices have
declined again, management still sees opportunities in exports in certain specific
geographies were prices are higher due to protectionist measures. Exports are
guided to represent ~15-20% of sales in FY17.
Guidance for 15mt sales volume and 15.7mt crude steel production volume was
re-iterated. While 1H is weak, strong recovery is expected in 2H.
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August 2016

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NMDC is adopting differential prices for iron ore sales in Karnataka. The price
differential v/s. NMDC’s sales in Chhattisgarh is ~INR590/t of iron ore.
Domestic steel prices have corrected after May. The price correction was larger
in long products. Prices for long products would remain weak at least until the
monsoon.
The management is hopeful that MIP measures will be extended beyond the
initial period of six-months. Anti-dumping investigations are also under process
and an announcement is likely soon.
August 2016
85

OIL & GAS | Voices
OIL & GAS
In oil & gas, GRMs for RIL benefited from inventory gains. We expect OMCs to also report higher GRMs due to
inventory gains. RIL’s large core projects (USD 18.5b) are largely on track; however, full benefits are expected to
accrue only in FY19. JIO launch date still remains uncertain. Vedanta bettered the Cairn swap ratio for merger.
Lower oil price will limit subsidy burden within the announced government limit, implying no burden on ONGC and
OINL.
Cairn India
Current Price INR 211
Click below for
Results Update
Neutral
Rajasthan royalty share in 1QFY17 stood at INR3.6b (v/s INR6.0b in 1QFY16 and
INR2.1b in 4QFY16). Profit in petroleum stood at INR5.5b (v/s INR9.0b in 1QFY16
and INR1.9b in 4QFY16).
D,D&A stood at INR8.1b (-8% YoY and +71% QoQ). The QoQ increase was due to
Ind AS adjustment, wherein 2P reserves on entitlement interest basis and
addition of future capex to current asset base for development of these reserves
are considered for D,D&A calculation.
Other income stood at INR5.3b (v/s INR3.8b 1QFY16 and INR6.5b in 4QFY16).
Foreign exchange loss stood at INR1.25b (v/s gain of INR1.8b in 1QFY16 and gain
of INR1.0b in 4QFY16) despite INR/USD depreciation and believe is due to Ind-
AS.
Net capex for 1QFY17 stood at INR700m.
Cash and cash equivalent stood at INR234b (USD3.5b) of which 32% is held in
USD currency.
FY17 guidance: Management is focused on monetizing its Rajasthan resource
base in FY17. Planned capex for FY17 is USD100m, with 80% to be invested
primarily in the development of RDG gas and Mangala EOR completion.
Remaining 20% would be invested in exploration. Focused to improve the
economics of key projects that includes Bhagyam & Aishwariya EOR, Barmer Hill
and Satellite fields.
Reliance Industries
Current Price INR 1,015
Click below for
Results Update
Target Price INR 1,129| 11% Upside
Neutral
REFINING: USD11.5/bbl includes USD2/bbl of inventory and hedging gains
Management indicated that USD11.5/bbl of GRM in 1QFY17 includes USD2/bbl
of product crack risk management and inventory gain benefit.
Historically, RIL had maintained that it hedges its petroleum product cracks and
hence is protected from inventory value changes.
TELECOM: Launch date soon but time undecided; Capex likely to cross INR1.5t
Management guided that telecom launch is round the corner but did not give
any specific timelines (expect in next few months).
Capex reached INR1.34t (v/s INR1.2t on March 2016) including minor growth
capex. We expect believe RIL to cross its guidance of “INR1.5t capex by launch”.
August 2016
86

OIL & GAS | Voices
Of the INR1.34t (spectrum: 500b, physical assets: 400b; network: 350b), RIL’s
equity is INR450b (will be expanded to INR600b), debt is INR440b, spectrum
liability of INR150b and the rest is supplier’s credit.
RIL has sold 2m LYF handsets and its trial customer base reached 1.5m with an
average usage of 26GB/user/month. Employee count at Jio stands at 34,000.
Petroleum Marketing: 1,022 of 1,400 outlets opened
RIL has reopened its 1,022 outlets (v/s 950 outlets on March 2016) versus earlier
guidance of 1,400 by March 2016 (now will reach 1,400 by Sept-16).
Average pump throughput stood at ~230KLPM (v/s 160-190 for PSUs) and
loyalty card sales account to 30% of diesel sales.
Of the 1,022 outlets ~275 are company owned company operated (COCO) and
dealer margin (INR10b in 1QFY17) is accounted in organized retail segment.
New Projects Update: Marginal delays; no change in capex
RIL’s USD18.5b core projects (petcoke gasification, polyester expansion, off-gas
cracker and ethane sourcing) are largely on track and it has spent ~USD16.5b.
While 3QFY17 is the start-up period for all projects, there could be a few weeks
delay. However, management will try to reach 100% throughput by end 4QFY17.
Ethane sourcing is on track for Dec-16 trials and it believes that recent surge in
US ethane price is temporary phenomenon.
E&P: Largely standstill led by adverse macro environment
Shale Gas: Sequential improvement in realization, but rig count is still nil. Took
INR60b write-down under Ind-AS accounting after fair value assessment.
Domestic E&P: If the policy hurdles are resolved, new production (R-series, MJ1
discoveries) in KG-D6 can come in 2020 as development will require two
weather windows. CBM infra under trials and production to start soon.
Others: Net debt to increase in interim; Ind-AS will reduce depletion
Ind-AS accounting will not change above EBITDA financials. But E&P depletion
will reduce, led by INR200b reduction in asset value due to E&P accounting
policy from FCM to SEM.
1QFY17 capex stood at INR260b (vs INR1,130/1,000b in FY15/FY16). This
includes INR80b in Refining/petchem, INR130b in JIO and INR20b due to
exchange rate change. RIL had guided for FY17 at ~USD9b.
RIL expects its consolidated net debt to rise from INR950b in FY16 to
~INR1,200b in FY17.
August 2016
87

RETAIL | Voices
RETAIL
Only two retail companies under our coverage – – Titan and Shopper’s Stop – have announced their results. Weak
SSG momentum continues for both. For Titan, sales growth stood at 3.6% YoY versus our expectations of +15%,
with both watches (adversely affected by a steep decline in exports YoY) and jewelry reporting low-single-digit
sales growth. Tanishq jewelry stores reported decent growth in an environment where revenues of many
unorganized peers fell over 30% owing to clampdown on black money and weak sentiment. Margins for Titan
were better than expected, but we believe are not sustainable because of absence of spot gold purchases in
1QFY17 which boosted gross margins. Shopper’s Stop reported 10.4% YoY sales increase (LTL growth of 5.5%).
Operating margins for Shopper’s Stop were under pressure, which meant that even on a standalone basis, the
company has started reporting losses at the net level. Guidance on top-line growth was largely maintained by
managements of both Titan and Shopper’s Stop. Interestingly, Shopper’s Stop stated that discounting is the new
normal in retail and pressure from online retail players continues unabated, thereby dampening even medium-
term top-line and earnings growth prospects.
Shopper’s Stop
Current Price INR 375
Click below for
Detailed Concall Transcript &
Results Update
Target Price INR 365 | 3% Downside
Neutral
Shoppers Stop standalone business
Loyalty program 4.3m customers contributing 77% of sales.
New stores are new design, cleaner in terms of navigation and also smaller
30000 sq feet or below.
Eastern region continues to grow at double digits LTL and West 7.5%. North
impacted by odd even implementation again in May.
Lack of marriage season also impacted LTL sales growth. Renovation of 4 stores
also affected YoY SSG.
Apparel continues to grow faster than non-apparel. 40% of store is non-apparel
for Shoppers stop.
Home and jewelry segments witnessed degrowth. Management believes Home
segment will see recovery from 3QFY17 onwards.
Sales season slightly earlier by 3 days for loyalty customers, which led to better
LTL sales but affected gross margins.
Maintained 7-8% LTL sales growth for FY17.
Next few quarters growth drivers are (a) monsoons reducing price inflation (b)
festive season beginning; (c) marriage season (d) pay commission
recommendation.
Maintained 100bp EBITDA margin improvement target in standalone for the full
year. 1QFY17 EBITDA margins were down 150bp YoY.
FCF in Shopper Stop by end of year. Debt increase sequentially is mainly due to
new store addition during the quarter. 2Q and 3Q are usually high cash
generation quarters.
Majority of new stores have already opened. 6 stores targeted in FY17 already
opened 4.
In new cities Shoppers Stop stores are over 40,000 sq feet in existing cities,
below 40,000 for second and third stores which enables faster profitability.
5-8% stores go for renovation every year.
Depreciation 80% higher YoY due to 4 new stores and acceleration in
depreciation on likely store closures in the next few quarters. Closing 2 stores, 1
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August 2016

RETAIL | Voices
in Mulund and another in Delhi (Rajouri) and opening in adjacent areas.
Accelerated depreciation impact as well as impact of new stores would not be
there in rest of the year.
Strategy for Shoppers Stop
In apparel focus on differentiated labels as well as private and exclusive brands.
Beauty is a key area of focus in focus in non-apparel.
Core customer 35-45 years range. Targeting younger and retain existing as well.
Global trends coming into India
Specialty retail and fast fashion growing faster.
Value fashion growing faster.
Customer has less time, more money and more options to spend like travel.
Key is to remain relevant in the changing world.
HyperCITY highlights
Guidance of 7-8% LTL growth for 2HFY17 compared to flat for 1QFY17 for
HyperCITY.
Vashi store was closed for 2 weeks else would have reported positive SSSG of
~1.5%.
Likely strong SSSG in 2HFY17.
Believe that assortment will drive growth for HyperCITY. International food
already 5% of sales. Localized region specific food will also aid growth.
Fashion mix up for HyperCITY driving up gross margins.
2 new stores plus 2 stores less than 1 year affecting profitability as these are a
substantial portion of 19 stores in operation.
New HyperCITY at Panvel doing very well from day 1. Great sales per square
feet. Also believe that there is great potential in the other new store at Noida.
Positive EBITDA guidance by 4QFY17 maintained.
3 additions planned in FY17, 2 opened already so going forward margin pressure
will be low.
May close 1 HyperCITY store this year.
Competition from Online, Company’s Online strategy
Myntra and Jabong now coming together increases competitive intensity.
Has not seen discounting by online retailers go down although advertising of the
same may have reduced on TV.
Even online sales are slowing down in 1QFY17 compared to 4QFY16.
New online retail rules are not being implemented well.
Shoppers Stop strategy will be mainly omnichannel unlike peers who are omni
as well as online.
Non apparel strength of physical stores and new exclusive brands for online will
push online sales.
The company has launched new app for android and IOS. Likely to double sales
QoQ for next few quarters.
Looking to migrate loyalty customers to omni channel as the main area of
growth.
August 2016
89

RETAIL | Voices
Management believes that discounting is the new normal not just in online but
also offline as well.
GST impact
GST will get 100bp set off on service tax.
Revenue neutral rate 14%.
At 18% price growth 4-5% not a huge impact on pricing. Average price increase
is also 4-5% annually.
Do not see substantial margin pressure arising from GST implementation.
GST will help streamline entire supply chain in terms of lower delays.
Titan
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 402
Target Price INR 360 | 10% Downside
Neutral
Jewelry
Gold jewelry sales has been impacted by a) price of gold b) clampdown on
spending on unaccounted money and c) weak consumer spending
Jewelry activation July- September this year as per historical track record unlike
last year which started in June. So last year Q2 was weak in jewelry due to lower
activation and thus will be better this year.
Maintained 15% sales growth for jewelry for full year.
Maintained 9-10% margins target for full year in jewelry segment.
Last year April to 3rd week of May was the Wedding season, this year only April.
Jewelry market is moving more and more towards studded and non-
investment.
Tanishq Niloufer diamond jewelry doing well.
Gold exchange scheme worked well. Did not buy any spot gold during the
quarter; met demand through exchange schemes.
Gold rate was higher by 10% in rupee terms.
How is the customer reacting to growing gold price? Good grammage growth
6% but that is also because last year Q1FY16 was bad.
Unaccounted money targeting has affected real estate first and now jewelry.
Unorganized jewelry segment is reporting 35-40% decline. Gold Retailing
landscape is changing rapidly. Gold jewelry 25% in value, studded was doing
15% before declining in June due to absence of activation.
Investment seeking customers has declined due to black money.
In July price of gold high and so sales are down in gold. Studded jewelry sales
back on track. July 22% gold price also up YoY over a low base in July 2015.
PAN card impact now low.
80% of new stores of Tanishq in FY17 will be in new towns.
Tanishq share in total jewelry market is less than 4%.
Contribution of gold coins to jewelry sales is in low single digits and dropping.
Golden Harvest scheme
Government increased networth limit from 25% to 35% increasing opportunity
for GHS scheme.
GHS INR1400 cr for full year. Run rate is adequate to meet that.
New cap will benefit in FY18 and FY19.
August 2016
90