Motilal Oswal Financial Services

Contents

Summary

........................................................................................................................................................................................

Sectors

....................................................................................................................................................................................

7-113

Automobiles

7-14

Amara Raja Batteries ................... 7

Ashok Leyland.............................. 8

Bajaj Auto .................................... 9

Bharat Forge ................................ 9

BOSCH…………….……………………….10

Eicher Motors ............................ 10

Hero MotoCorp ......................... 11

Mahindra & Mahindra ............... 12

Maruti Suzuki............................. 13

Tata Motors ............................... 13

TVS Motors ...…………………………. 14

Capital Goods

15-20

Crompton Greaves CG ............... 15

Cummins .................................... 16

Havells India .............................. 17

KEC International ....................... 18

Larsen & Tourbo ........................ 19

Thermax..................................... 19

Cement

21-24

Dalmia Bharat ............................ 21

Grasim Inds ................................ 22

India Cements ............................ 22

JK Cements………………………………23

JK Lakshmi Cements…………………23

Ultratech ................................... 24

Consumer

25-37

Asian Paints ............................... 26

Britannia Inds ............................ 26

Dabur India ................................ 28

Emami........................................ 29

Godrej Consumer ...................... 30

GSK Consumer ........................... 31

Hindustan Unilever .................... 32

Jyothy Labs ................................ 33

Marico ....................................... 33

Page Inds ………………………………..34

Parag Milk Foods………………………35

Pidilite Inds ……………………………..36

United Spirit............................... 37

Financials- Banks

38-54

Axis Bank ................................... 39

Bank of Baroda………… ... ………….40

Bank of India …………………………..40

Canara Bank ............................... 41

DCB Bank ................................... 42

Federal Bank ............................. .43

HDFC Bank ................................ .44

ICICI Bank ................................... 45

IDFC Bank.................................. .46

Indian Bank…………………… ………..47

IndusInd Bank… ......................... 48

Kotak Mahindra Bank ................ 49

Oriental Bank of Commerce . …..50

Punjab National Bank ................ 51

State Bank of India………… .......... 51

Union Bank ................................ 52

Yes Bank .................................... 53

Financials – NBFC

55-63

Bajaj Finance.............................. 55

Dewan Housing Finance ........... .56

Equitas Holdings ........................ 57

IDFC Ltd ..................................... 58

IndiaBulls Housing Finance ........59

LIC Housing Finance………………….60

M&M Financial .......................... 61

Muthoot Finance ....................... 62

Shriram Transport Finance ........62

Healthcare

64-71

Alembic Pharma ........................ 64

Alkem Labs................................. 65

Aurobindo Pharma .................... 65

Biocon ........................................ 66

Cadila Healthcare....................... 66

Cipla ........................................... 67

Dr Reddy’s Labs ......................... 68

Glenmark Pharma ...................... 68

IPCA Labs……….………………………..69

Lupin .......................................... 70

Sun Pharmaceuticals ................. 70

Torrent Pharma ......................... 71

Media

72-74

Dish TV………….…………………………72

Hindustan Media Ventures ........73

Zee Entertainment .................... .74

Metals

75-76

Hindalco Inds ............................. 75

JSW Steel ................................... 76

Tata Steel ................................... 76

Oil & Gas

77-79

Cairn India ................................. 77

Petronet LNG ............................. 78

Reliance Inds.............................. 78

Retail

80-83

Jubilant Foodworks.................... 80

Shoppers Stop ........................... 81

Titan........................................... 82

Technology

83-92

Cyient......................................... 84

HCL Tech .................................... 85

Hexaware Technologies ............. 85

Infosys ....................................... 86

KPIT Technologies ...................... 87

Mindtree .................................... 87

Mphasis ..................................... 88

NIIT Technologies ......................88

Persistent Systems .....................89

TCS .............................................89

Tata Elxsi ....................................90

Tech Mahindra...........................91

Wipro .........................................91

Zensar Technologies ..................92

Telecom

93-97

Bharti Airtel ...............................93

Bharti Infratel ............................95

Idea Cellular ...............................96

Utilities

JSW Energy ................................98

Others

99-113

Arvind Ltd ..................................99

Century Plyboards ...................100

Container Corp ........................101

Coromandel Intl .......................102

Dynamatic Technologies ..........103

Escorts Ltd ...............................103

Eveready Industries .................104

Gateway Distriparks.................105

Info Edge (India) ..................... 105

Interglobe Aviation ..................106

Inox Leisure .............................106

Jain Irrigation Systems .............107

Just Dial....................................108

Kitex Garments ........................108

MCX .........................................109

PI Industries .............................110

PVR ..........................................110

Symphony ................................111

TTK Prestige .............................112

V-Guard Industries ...................112

Wonderla Holidays ..................113

Index (Alphabetical)

Companies

Alembic Pharma

Alkem Laboratories

Amara Raja Batteries

Arvind Ltd

Ashok Leyland

Asian Paints

Aurobindo Pharma

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

Century Plyboards

Cipla

Coromandel Internation

Crompton Greaves CG

Container Corp

Cummins

Cyient

Dabur India

Dalmia Bharat

DCB Bank

Dewan Housing Fin.

100

102

101

Companies

Dish TV

Dr Reddy's Labs

Dynamatic Technologies

Eicher Motors

Emami

Equitas Holdings

Escorts

Eveready Inds

Federal Bank

Gateway Distriparks

Glenmark Pharma

Godrej Consumer

Grasim Inds

GSK Consumer

Havells India

HCL Tech

HDFC Bank

Hero MotoCorp

Hexaware Technologies

Hindalco Inds

Hindustan Unilever

HMVL

ICICI Bank

Idea Cellular

IDFC Bank

IDFC Ltd

IndiaBulls Housing Fin.

Indian Bank

India Cements

IndusInd Bank

Info Edge (India)

Infosys

103

104

105

Companies

Inox Leisure

Interglobe Aviation

Ipca Labs

Jain Irrigation Systems

JK Cements

JK Lakshmi Cements

JSW Energy

JSW Steel

Jubilant FoodWorks

Just Dial

Jyothy Labs

KEC International

Kitex Garments

Kotak Mahindra Bank

KPIT Technologies

Larsen & Toubro

LIC Housing Finance

Lupin

M&M Financial

Mahindra & Mahindra

Marico

Maruti Suzuki

MCX

Mindtree

Mphasis

Muthoot Finance

NIIT Technologies

Oriental Bank of Commerce

P I Industries

Page Inds

Parag Milk Foods

Persistent Systems

106

107

108

109

110

Companies

Petronet LNG

Pidilite Inds

Punjab National Bank

PVR

Reliance Inds

Shoppers Stop

Shriram Transport Fin.

State Bank of India

Sun Pharmaceuticals

Symphony Ltd

Tata Elxsi

Tata Motors

Tata Steel

TCS

Tech Mahindra

Thermax

Titan

Torrent Pharma

TTK Prestige

TVS Motors

Ultratech Cement

Union Bank

United Spirits

V-Guard Industries

Wipro

Wonderla Holidays

Yes Bank

Zee Entertainment

Zensar Technologies

110

111

112

113

Note:

All stock prices and indices for companies as on 23rd November 2016, unless otherwise stated

2QFY17 | India Inc on Call

Voices | 2QFY17

Voices

BSE Sensex: 26,052

S&P CNX: 8,033

In-line quarter; mixed commentary

Demonetization-led disruption to impact 2H



2QFY17 saw some pick-up in demand, but this was not broad-based. Capex-

oriented sectors continued to post weak numbers, with management

commentaries not indicating any imminent pick-up.

Corporate leaders had expressed hope that a lagged impact of normal

monsoons and the 7th Pay Commission awards would aid 2HFY17

performance. However, towards the fag end of the results season, the

government demonetized INR500 and INR1,000 notes. Management

commentaries subsequent to this event point towards a tepid 2HFY17.

As the economy and businesses adjust to a period of limited liquidity,

consumption-oriented sectors are likely to be most impacted.

Selectively, input cost pressures are manifesting in the P&L and could impact

operating margins going forward. Fall in interest costs could offset the

operating margins pressure.

Autos

After a prolonged period of muted demand, 2Ws and PVs have witnessed strong

recovery, led by normal monsoon and positive sentiment. However, this recovery is

likely to lose momentum (especially in 3QFY17) due to the impact of

demonetization. Export demand for 2Ws, 3Ws and PVs is likely to bottom out, as the

availability of currency 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 broadly 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 cement sector reported volume growth of 1% YoY in 2QFY17. Volume growth

was strong in the South due to higher demand, led by infrastructure spending in

Andhra Pradesh and Telangana. Northern players were impacted due to heavy

monsoons. Average 2QFY17 realization improved 3% QoQ, driven by better

realizations for North-based players. Cost curve continues to be favorable, with

lower power and fuel cost due to low cost inventory for most players. A large part of

this benefit is expected to reverse over 2HFY17, as fuel prices have moved up

significantly.

Consumer

Market slowdown persists in the consumer sector. Volume growth for majority of

our coverage companies in the sector was below expectations. Industry volume

growth decelerated YoY/QoQ due to slowdown in both urban and rural demand.

The proportion of rural sales is lower than urban sales 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

November 2016

Voices | 2QFY17

better monsoon and benefits from the government’s schemes to boost rural

growth. However, the government’s initiative of demonetization will result in a

liquidity crunch, impacting near-term demand. Raw material costs were benign for

most companies, though there was inflation in some input costs. Gross margins

continued to expand YoY. Promotions continued for majority of our consumer

coverage, passing on the margin gains. While gross margin expansion may have

peaked, hardening material costs, albeit off a low base, could result in resumption in

realization growth. Some companies have already started taking price increases.

Financials

Though slippages and credit costs moderated in 2QFY17, they still remain elevated.

We expect more progress in the resolution mechanisms in 2HFY17, led by stressed

asset sales and greater cooperation between banks and promoter companies. Amid

muted corporate activity and credit growth, retail continued to be the focus area for

banks. Given the competitive landscape and economic scenario, system loan growth

is likely to remain moderate in FY17, with private banks continuing to gain market

share.

Healthcare

In pharmaceuticals, overall sector sales and EBITDA margins were marginally above

estimates. Excluding one-off opportunities, growth in US sales remained muted,

primarily owing to increased pricing pressure. India formulations sales rebounded

strongly in 2QFY17, after being impacted by external factors like FDC ban and NLEM

2013 since 4QFY16. Emerging markets 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 normalize with stable currency movement. Overall, earnings

growth should improve over the next few quarters.

Media

Broadcasters



Ad growth for Zee remained strong at 16% YoY; however, the company

suggested that 2H could see a moderation in FMCG spends (55-60% of ad

revenues).



Domestic subscriptions grew 25% YoY, which was largely a function of early

closure of content deals and some amount of catch-up revenue from 1Q. A

meaningful uptick in domestic revenues from Phase-III digitization is expected

only after subscription/content contracts are finalized. The management

expects mid-teens growth in domestic subscriptions in FY17.



Other sales & services (includes movie business and sports syndication) revenue

more than doubled YoY to INR1.53b (our estimate was INR1.31b), largely led by

strong box-office performance of ZEE co-produced movie, Rustom, and cricket-

related syndication revenue.



Ex-sports margins remained largely in line, improving ~560bp 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



Unlike FY16, the entire

Shradh

season (a period considered inauspicious by the

Hindus, during which they restrict purchases) fell in 2QFY17. Typically,

advertisers limit spends during this season. Print ad revenues grew 7% YoY to

INR3.3b (7.5% below our estimate of INR3.57b). Ad growth in 2Q and 1HFY17

was largely volume-driven.



For DBCL, circulation growth moderated from its 4-year 15% CAGR.

November 2016

Voices | 2QFY17

Print companies believe that newsprint prices have bottomed out and there

could be 3-4% escalation in FY17.

Distribution Platforms:



DITV added 0.26m net subscribers in 2Q. The low net adds were largely a

function of seasonality.



ARPU declined 2% QoQ to INR162. Unlike FY16, the entire

Shradh

season fell in

2QFY17. Typically, advertisers limit spends during this season. Print ad revenues

grew 7% YoY to INR3.3b (7.5% below our estimate of INR3.57b). Ad growth in

2Q and 1HFY17 was largely volume-driven, as (1) 0.5m-0.6m subscribers down-

traded to cheaper packs in 1H, and (2) the cable industry’s inability to increase

monetization in DAS-III markets beyond INR35-40/subscriber/month left no

room for ARPU increase. Notably, ARPU growth has also remained largely flat

QoQ for Airtel (INR232) and Videocon d2h (INR209).



Content payout grew 3% QoQ to INR2.39b (2% above our estimate of INR2.35b).

Despite the company entering the first round of content renewals in 2HFY17,

the management is confident of containing content cost escalation to 10-12%

YoY in FY17 (as against cost increase of ~13%/17% in 1H/2Q). We, however,

factor in a conservative 14% YoY increase, in line with historical renewals.



Margins remained flat QoQ, led by unfavorable operating leverage.

Metals

Ferrous sector results disappointed due to lower realization and impact of increase

in coking coal prices. JSW Steel’s EBITDA declined 10% QoQ, with margins down 24%

QoQ to INR7,077/ton. Tata Steel’s EBITDA was down 8% QoQ to INR29b on lower

realization in India, lower volumes in Europe, and weakness in South East Asia.

Hindalco’s strong performance was on expected lines, driven by cost advantage in

aluminum and volume recovery in copper post the maintenance in 1Q. Novelis’

performance was also strong and on expected lines, with FCF guidance raised by

USD50m-100m. Vedanta reported strong performance, with EBITDA up 36% QoQ on

higher volumes in aluminum and zinc, and sharp price increase in zinc.



Oil & Gas

In oil & gas, RIL posted in-line EBITDA, helped by GRM at USD10.1/bbl and strong

petchem performance. Jio’s trial user base reached 16m and average data usage is

0.8-1.2GB/day/user. OMCs reported lower GRMs due to inventory losses; operating

performance was stable. Petronet reported better than expected results, led by

higher volumes. Lease provision impacted IGL’s reported PAT; however, volume

growth remains robust. ONGC’s EBITDA was aided by lower opex, as service cost for

workover wells reduced with oil price decline.

Retail

Weak SSSG momentum continues for TTAN and SHOP, while JUBI posted better than

expected results. For TTAN, jewelry segment sales grew 0.2% YoY, as depressed

demand environment and fluctuations in gold prices led to postponement of sales

to 3QFY17. Festive season demand has been healthy so far, according to the

management. JUBI’s 4.2% SSSG was a positive surprise, but as per the management,

positive SSSG during the quarter was mostly led by mismatch in festive period in

base; there are no signs of recovery in consumer sentiment. The company opened

Dominos

stores (v/s our expectation of 35) in 2QFY17. Discounting activities

increased during the quarter. As sentiment improves, the pressure on discounting

activities will reduce. SHOP’s sales grew 7.1% YoY to INR9.4b (Ind-AS). On LTL basis,

sales grew 2.2% (on a base of 0.1% growth), with volumes down 3.1%. For stores

less than five years/over five years old, LTL sales grew 5.9%/0.5%. Though 2QFY17

November 2016

Voices | 2QFY17

began with double-digit LTL growth (end of season sale phase of the quarter); the

latter part was slow. Diwali to Diwali comparison was 8-9% LTL growth. There was a

decent pick-up in October (late single-digit SSS growth to early double-digit growth);

November might be a drag to 3QFY17, while December is likely to be similar to

October. The Government of India (GoI), on 8th November 2016, announced

demonetization of existing INR500 and INR1,000 currency notes. In our view, this

landmark initiative will have a short-term adverse impact on the sector, as

discretionary spends are likely to delayed.

Technology

Macroeconomic uncertainty continued impacting discretionary spend. The Brexit

vote, and low interest rate regime have been taking a toll on technology spending,

and impacting vendors. The outlook turned cautious on the retail vertical too, as

consumer spending took a hit in the US. 3Q is expected to be weak on account of a

lower number of working days, and furloughs. With a weaker than usual 1H, and

seasonal impact ahead, we expect 3.5-10% CC organic growth for Tier-I.

Telecom

Telcos mentioned that launch of RJio’s telecom services has led to asymmetric voice

traffic, which has clogged their interconnect points. Data usage of existing

subscribers has been shifting to the new operator’s network, leading to moderate

data traffic growth. Data pricing is witnessing a downward trend and would drive

traffic growth. On the voice front, MOUs have shrunk, led by seasonality and

partially due to the shift towards RJio. Operators are not responding to RJio’s price

plans across customer base. Consolidation of predominantly voice-based operators

is certain, given their weak offering. The recent auction saw the telecom companies

acquire spectrum in multiple bands to fill gap circles and increase spectrum capacity

in some circles. Both Bharti and Idea management indicated that peak capex period

is behind, as large portion of the spectrum and network capex towards data is

already done. Incremental data capex will be conducted on the basis of data

demand. However, we expect industry data capex towards coverage expansion to

remain high.

Utilities

Power Grid continues to outperform, with ~30% PAT growth YoY on strong

capitalization in the previous four quarters. NTPC’s performance was weak, with

single-digit PAT growth YoY, as capacity addition is delayed. NTPC is likely to miss its

capacity guidance of 3.7GW for FY17. JSW Energy suffered on account of lower PLFs

at Vijaynagar; EBITDA declined 4% YoY despite the benefit of Hydro acquisition.

November 2016

AUTOMOBILE | Voices

Key takeaways from management commentary

AUTOMOBILES

After a prolonged period of muted demand, 2Ws and PVs have witnessed strong recovery, led by normal

monsoon and positive sentiment. However, this recovery is likely to lose momentum (especially in 3QFY17) due to

the impact of demonetization. Export demand for 2Ws, 3Ws and PVs is likely to bottom out, as the availability of

currency 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

Festive season demand



Maintains overall volume guidance of 4.6m

units (+16%)

Domestic volumes



~2.6m 2Ws



~300k 3Ws

Export volumes



~1.35m 2Ws



~250k 3Ws



Royal Enfield:

Current exit rate stood

Bajaj Auto

Management expects

festive season growth

for overall motorcycle

segment to be high-

single-digit (v/s

consensus expectation

of double-digit growth).

Commodity cost outlook



RM cost: Material costs have been

reasonably benign, and are

expected to remain so in the next

quarter



Eicher Motors

at 60k units/month. Management

expects first phase of its third plant

at Vallam Vadagal to come up in

2QFY18 with initial capacity of 25-

30k units/month. For FY19, it

maintained target of 900k.

Commodity costs are expected to

marginally harden in 2HFY17.



Hero MotoCorp



Outlook positive for 2HFY17:

Management has guided for double-

digit growth in FY17. Positive trajectory

in urban market, while rural sales are

gradually picking up.

Soft rural sales on account of

unseasonal rains in some parts of the

country.

It expects full benefit of normal

monsoon in coming quarters on account

of cash conversion in the hands of

farmers.



Festive season has picked

up after a soft start. It

expects festive retail

growth to be in double-

digits (with next 4-5 days

being crucial for

demand).

Festive season growth for

FY16 was 11%.



Commodity costs (which were soft

until 1QFY17) have hardened in

2QFY17, impact of which will be

reflected in coming quarters on

account of one quarter lag effect. It

expects increase of INR250-

300/vehicle in 3QFY17 on account of

rise in commodity costs.



Mahindra

& Mahindra



Tractor industry guidance:

Management estimates tractor

industry to grow by 20% in FY17.

Export volumes are expected to be flat

in FY17. Management maintained its

guidance of 50k units of Baleno to

Japan.



Maruti

Festive season volume

growth was about 15-

18%. Rural sales growth is

gradually picking up and

expected to strengthen

further in 2HFY17.



Commodity costs (especially steel

prices) have started hardening, the

impact of which is likely to be

reflected in 2HFY17.

November 2016

AUTOMOBILE | Voices

Amara Raja Batteries

Current Price INR 940



Buy

Click below for

Results Update



Volume growth for the quarter has been ~20% YoY for both 2W and 4W

segments. With strong growth across both OEM and replacement segments,

OEM/replacement mix has remained steady.

In 2QFY17, other expenses were impacted by ~INR160m on restatement of

provision for warranty costs (based on LME lead price increase) and an annual

franchise event.

Some start-up costs for the new tubular plant (consumption of tools and spares)

have also led to an increase in other expenses in the quarter.

Management expects to see the impact of higher lead prices on margins from

next quarter, as there have been no hikes taken in the replacement and inverter

segments in 3QFY17E. Lead price increases do not impact margins for the OEM

and telecom segments due to pass-through arrangement.

Management does not expect LME lead prices to increase beyond

USD2,100/tonne (from current levels of USD2,050/tonne)

The new tubular plant is to ramp-up from end-3QFY17 and would replace

outsourcing, thus boosting inverter segment margins. Management expects that

there would be ~100bp impact in profitability of the inverter segment.

Capex plans for the year remain unchanged at ~INR6b, with ~INR2b of regular

maintenance capex. The capex incurred for 2W expansion will be capitalized

from next year.

Ashok Leyland

Current Price INR 77

Click below for

Detailed Concall Transcript &

Results Update



Buy



Outlook for 2HFY17:

Management expects demand for M&HCVs for 2HFY17 to

be driven by strong growth in 4QFY17 due to pre-buying on BS-IV emission norm

implementations from April 17.

The company expects Nov-16 demand to be healthy, while Dec-16 could

moderate on account of a higher base.

GST rate at 28%, not to affect pre-buying decision:

GST rate at 28% is likely to

be marginally lower (by ~100-150bp) than current tax rate for CVs, thereby not

having any material impact on deferment of pre-buying decisions on account of

GST.

Export target of 25% of revenues in next 2-3 years:

Export revenues for 2QFY17

stood at ~INR 7b (10% of net revenues). Management plans to increase share of

exports to 25% over next 2-3 years. It has set up internal export office in Dubai

to strengthen its presence in African markets.

It is witnessing sharp recovery in tippers and ICVs. There were clear signs of

pick-up in infrastructure segment, driven by initiatives taken by the government.

AL plans to de-leverage its business model by increasing the share of non-

cyclical business, i.e. exports, spare part revenues and defense. Share of

domestic CVs accounted for 50-55% in 2QFY17 v/s 64% in 2QFY16. Non CV

business accounted for 22% of revenues.

Spare parts revenues for the quarter stood at ~INR2.5b, growth of 32% YoY;

while Defense contributed INR2b (~4% of net revenues).

Discounting continues to be high, with average discounts at INR 2.25-2.5k per

vehicle. Discounting was the highest in south India.

Market share in 2QFY17 was at 33% in 2QFY17 and 31% in 1HFY17. It gained

market share in eastern/northern regions. AL continues to remain the market

November 2016

AUTOMOBILE | Voices

leader in southern India, with ~51% market share. It has 24-25% market share in

northern India.

Capex:

YTD capex stood at ~INR1.26b, of which ~INR 380m was for investments.

Management indicated capex was well within forecast.

Hinduja Foundries Limited (HFL):

Management is taking steps to turn around

the business. HFL EBITDA grew 2% on a sequential basis in 2QFY17 from 7%

decline in 1QFY17. Revenues declined QoQ. It expects loss for FY17E to be

significantly lower than FY16.

Nissan JV:

Management expects regulatory approvals for JV takeover to come

by FY17. LCVs post JV buyout should aid margins.

Net debt:

~INR 18.7b or 0.3x Net debt: Equity.

Price hike of 1% in Nov-16. No price hike was taken in 2QFY17.

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 businesses is dependent.



Bajaj Auto

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 2,596

Buy



Dull festive season for motorcycles: Management’s expects festive season

growth for overall motorcycle segment to be in high-single-digit (v/s consensus

expectation of healthy double-digit growth).

BJAUT’s retails for September were ~45k lower than wholesales, while the same

is likely to reverse in October.

Management has maintained FY17 volume growth guidance of ~4.6m units.



Domestic 2 wheelers: ~2.6m units, driven by additional volumes from new

Pulsar, V15 and its new variant, full-year benefit of Avenger.



Domestic 3 wheeler volumes at ~300k units, driven by diesel and cargo

segment (introduced in 4QFY16). It is targeting 25k units in the cargo

segment in FY17. Guidance for FY18 in domestic 3W segment at slightly over

5%.



Exports: ~1.6m units as volumes have started to stabilize in some markets.



Re60 (Qute): Management guided for ~5,000 units in exports in FY17.

Product pipeline: Product pipeline for 2HFY17 includes VS400 (Jan’17), upgrades

of all Pulsar models in 4QFY17, V15 variant (3QFY17). Management expects

VS400 to clock ~7-8k units/month.

Spare part revenues at INR74.1m; growth of 19% YoY in 2QFY17.

RM cost: Material costs have been reasonably benign and expected to remain so

in the next quarter.

Tax rate is likely to increase by 1% from FY18, as Pantnagar plant benefits

expire.

Price increase: Customer level – 3W INR1,000/unit and 2W INR500 in July-16.

No price hikes taken since then.

Bharat Forge



Current Price INR 898

Click below for

Results Update

Buy



Exports business has bottomed out with both automotive and non-auto exports

likely to witness improvement.

2HFY17 outlook: Management anticipates demand to be slightly higher

compared to 1HFY17 with positive demand in India across automotive and

industrial, with exports too bottoming out. Drivers for growth will be the Indian

November 2016

AUTOMOBILE | Voices

PV segment, non-automotive segment and exports, coupled with strong

volumes in M&HCV segment in India.

Addition of two customers in PV segment should aid domestic automotive

revenues. The quarter saw 30% QoQ growth in domestic auto revenues.

The quarter also saw commencement of serial production shipments for

components of electric and hybrid power trains.

BHFC’s board has approved to divest its 49% stake in Alstom JV due to weak

demand for thermal power generation. Investment in the JV had been INR1.7b.

Divestment will fetch USD35m to BHFC.

BHFC has initiated actions to rationalize costs across all activities to realign with

the prevailing demand environment and put more thrust on operational

efficiency, accelerating new product development and new customer

acquisition.



Bosch

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 18,969

Neutral

Management expects opportunity from BSVI implementation in 2Ws to be huge

on account of much higher 2W base.

Diesel systems and after-market segments were flat due to decline in CV and

3W volumes, offset by strong PV demand.

Gasoline systems recorded high-double-digit growth as demand ramped up.

Power tools and security systems witnessed high-double-digit growth in non-

autos. Expects localization to depend on volumes; will be difficult to have high

localization levels initially, but should increase on gradual ramp-up and

concentration of portfolio.

Customer contracts for BSVI are likely to be finalized in FY18.



Eicher Motors

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 20,911

Buy

Royal Enfield



RE waiting period for Classic (which accounts for ~65% of domestic RE volumes)

stood at ~ 3 months, while other models had a waiting period of 1-1.5 months

on an average.



Top 20 cities account for 33% of total RE dealership, recording growth of 15%.



Order flow continues to remain robust, with order book growing MoM and

expected to grow in November as well.



Management indicated that it still has enough headroom to further improve

efficiencies by optimizing sourcing and rationalizing vendors.



Commodity costs are expected to marginally harden in 2HFY17.



Spare part sales growth is largely in line with RE’s motorcycle growth rate for

1HFY17.

November 2016

AUTOMOBILE | Voices

Customer profile: First-time buyers rising with migration happening from 150cc

motorcycle to RE bikes. It estimates 90% RE bikes are used for commuting

purposes.



RE expects to launch a new product in the next financial year (FY18); the

company wants to focus on the newly created category Himalayan.



Management believes the increasing share of its model Classic in overall

portfolio could be due to reducing waiting periods coupled with higher resale

value for the motorcycle.



Pan-India dealer count in Sep-16 stood at 605.



The company’s technology center in the UK is likely to open next quarter, while

its Chennai R&D facility is likely to be commissioned at the start of FY18.



Current exit rate stood at 60k units/month. Management expects the first phase

of its 3rd plant at Vallam Vadagal to come up in 2QFY18, with initial capacity of

25-30k units/month. For FY19, it maintained a target of 900k.



Price increase of 1% was taken in Aug-16.

VECV



Discounts continue to remain high in HD segment, mainly by the market leader.

Management believes higher discounts are primarily to gain market share rather

than to boost demand.



Demand for HD trucks was weak due to subdued coal mining activity impacting

demand for Tippers.



VECV has 280-285 touch points.



JV with Polaris: It is present in 8 states and 60 locations with its personal utility

vehicle Multix.



MDEP engine volumes at ~6,000 units, growth of 26% YoY.



Hero MotoCorp

Current Price INR 3,013



Neutral

Click below for

Detailed Concall Transcript &

Results Update



Outlook positive for 2HFY17: Management has guided for double-digit growth in

FY17. Positive trajectory in urban market, while rural sales are gradually picking

up. Soft rural sales on account of unseasonal rains in some parts of the country.

It expects full benefit of normal monsoon in the coming quarters on account of

cash conversion in the hands of farmers.

Festive season demand: Festive season has picked up after a soft start. It

expects festive retail growth to be in double-digits (with next 4-5 days being

crucial for demand). Festive season growth for FY16 was 11%.

Commodity costs which were soft till 1QFY17 have hardened in 2QFY17, impact

of which will be reflected in the coming quarters on account of 1 quarter lag

effect. It expects increase of INR250-300/vehicle in 3QFY17 on account of higher

commodity costs.

Gujarat Plant construction has been completed with test run in progress. It

expects the plant to be operational from 3QFY17. Gujarat plant will have a

capacity of 0.75m p.a., taking total capacity of HMCL to 9m units.

HMCL’s dealer inventory at the peak of current festive season stood at 6-7.5

weeks. Inventory post the festive season is likely to normalize to 5-5.5 weeks.

LEAP Cost Cutting Program for 1HFY17 was ~INR1b or 1.3-1.4% of EBITDA. It

expects a positive impact of 2.75b due to leap program in FY17

Haridwar plant contributed ~35% of total volumes in 2QFY17. Current Haridwar

capacity stood at 9,000 units/day, which can be scaled up to 9,500 units/day.

Exports:

Management is reviewing its target of 1 million 2Ws by 2020 due to

headwinds in all the export markets. Major export markets of Nigeria, Congo

November 2016

AUTOMOBILE | Voices

and Egypt in Africa and Colombia in Latin America continue to face challenges in

terms of availability of foreign currency as well as currency devaluation affecting

purchasing power.

Capex:

It is planning for capex of ~INR11-13b in FY17, which majorly includes

maintenance capex as well as capacity expansion along with R&D capex of ~

INR1b. It expects capex to be INR 7-9b in FY18.

CBS/ABS

to be mandatory from Apr-18 (Apr-17 for new products). It estimates

impact of ~INR3,500-5,000/unit. ABS is likely to see cost increase of INR

5000/units, while CBS will see cost increase toward the lower band.

Emission norms:

Marginal cost increase of INR 250-300 on account of new

emission norms. The company plans to roll out new models by 4QFY17. Price

hike on cost increase to be decided later.

Hero FinCorp

received funding of INR 10b at valuation of INR51b. Hero’s stake in

Hero FinCorp post the funding has been diluted to 40.2% from 48.2% previously.

Spare parts

revenue increased 8% sequentially during the quarter.

Ind-AS:

Other income higher in 2QFY17 on account of market-to-market

valuation as per Ind-AS.



Mahindra & Mahindra

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 1,193

Farm Equipment Segment



Tractor industry guidance: Management estimates the tractor industry to grow

by 20% in FY17.



Market share: M&M achieved highest market share in tractors in past 10 years,

driven by newly launched products.



New launches: It will launch 50HP tractor of Swaraj and also new sub-30 HP

tractor in next few months.



Inventory position after the festive season has improved significantly, with

tractor inventory going below normal comfort levels due to strong retails in

October.



Management does not anticipate any major capital expenditure in FES in FY17,

apart from routine maintenance capex.



GST impact: It expects 12% GST rate to be neutral.

Auto segment



Demand for Bolero has improved in October owing to strong demand for the

newly launched Bolero Power Plus (which is a hybrid and attracts 12.5% excise

duty v/s Bolero which attracts 30% excise). Management expects personal usage

Bolero users to completely switch to the new Bolero hybrid variant by next year.



New launches: It plans to launch the petrol version of XUV500 by 4QFY17, while

Petrol Scorpio will be out by 2QFY18E. M&M is also working on two new

models. One of them – a new product developed on a new platform at the

Detroit design center – will be launched in 2HFY18E. A product based on Tivoli

will be launched in 2HFY19.



Ssangyong on recovery path: Ssangyong is witnessing recovery in volumes led by

Tivoli. As a result, it reported profits for third consecutive quarter. Next year will

have launch of an important vehicle, which management expects to clock 2500-

3000 units/month.



2 wheeler segment: Cash losses in the division have halved in the quarter on the

back of right sizing of the business, with reduction of employees.



M&HCV segment: Its market share improved in M&HCV to ~3.4% (+100bp YoY)

and is targeting market share of 7-8% over next few years.

Buy

November 2016

AUTOMOBILE | Voices

Maruti Suzuki

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 4,882



Festive season volume

growth was about 15-18%. Rural sales growth is

gradually picking up and expected to strengthen further in 2HFY17.



Petrol: Diesel Mix

for the industry in 2QFY17 stood at 59:41, unchanged

sequentially. MSIL’s share for 2QFY17 was 68% petrol and 32% diesel; 2QFY17

petrol volume growth stood at 16%, while diesel sales grew by 25%.



Export volumes

are expected to be flat in FY17. Management maintained its

guidance of 50k units of Baleno to Japan.



Average discounts stood at INR 16,100

(lower by ~INR700/unit QoQ and by

~INR3,400 YoY).



Capacity

stood at 1.65m units, with Baleno capacity of 15,000 units/month and

Brezza at 9,000-10,000 units/month.



Commodity costs

(especially steel prices) have started hardening, the impact of

which is likely to be reflected in 2HFY17.



Price increase

taken in Aug-16 only on petrol variants



Gujarat plant

is likely to be commissioned in 4QFY17, with an initial capacity of

0.25m units. Management expects six months for full ramp-up. Vendors will

slowly move to Gujarat, with major vendors moving in the first phase.



Pressure on margins

going forward: Post commissioning of Gujarat plant,

margins are likely to be under pressure due to higher fixed costs and higher

depreciation for new plants.



Royalty

in 2QFY17 was INR10.8b or 6.1% of net revenues (v/s 6.6% in 2QFY16).



Capex:

Expects INR45b of capex in FY17, with a) INR20b on maintenance and

R&D capex, b) Marketing investments: INR10b (Stock yards, spare parts, land

procurement), and c) INR15b to be expensed on product development.



Change in depreciation policy:

The company increased the residual life of tools

(from 4 to 5 years), resulting in lower depreciation.



AMT

variants account for about 15% of MSIL’s volumes. Industry AMT share is

expected to be in single-digits.

Buy

Tata Motors

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 471

Buy

JLR: Key takeaways from the call



EBITDA margins adj. for FX and one-time charge for quality and new customer

acquisition charge comes to 12.9%. Expense of the program to improve quality

of car and customer experience had impact of ~100bp.

While other expenses had FX loss on realized hedges of GBP274m (v/s GBP130m

in 1QFY17 v/s GBP16m in 2QFY16), there was commensurate benefit reflecting

in sales of ~GBP251m.

JLR would start benefiting from favorable GBP after 4-5 quarters. Till then, the

adverse impact of MTM on payables would weigh on the operating performance

Capex for FY17E to be lower than earlier guidance of GBP3.75b.

China JV: Long-wheel base variant of XF started production. Sep’16 saw retail

sales of ~600 units. Launch expenses of XFL led to lower profitability QoQ.

There was a major product launch at LA Motor Show today (new XJ like EV –

likely to replace XJ).

The new Discovery is lower in weight by ~500 kg, with significant reduction in

CO2 emissions. The new Discovery launch would be in 4QFY17.

November 2016

AUTOMOBILE | Voices



With strong order-book for F-Pace, XE’s production has been moved from

Solihul to Castle Bromwich, in order to free up capacity at Solihul for F-Pace.

New product pipeline: XJ EV in early FY18-19, RR & RR Sport refresh in 4QFY18,

Mid-size RR in mid-FY18, E-Pace 4QFY18.

TVS Motors

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 354



Management hopeful of robust growth in festive season:

Following strong

growth in Dussera, management is hopeful that Dhanteras volume growth

would also be strong.



Victor/Apache 200

volumes have done well post their pan-India launch in

1QFY17. Management clarified that there is no capacity constraint for ramping

up Apache volumes to meet demand. Management targets 23-24% market

share in this premium motorcycle segment.



As per management,

rural demand

has been impacted by unseasonal rains in

some states and some localized problems in some southern states. Rural

demand is likely to pick up in H2FY17 as these problems recede and macro

factors improve.



Management targets 18% market share in 2W segment,

up from 13.8% YTD

FY17. Management also acknowledged the need to add more products in order

to gain market share (especially in the 125 cc executive segment)



BMW alliance:

Project is on track, with its first product (G310R) to be launched

in FY17 and not specifically during the festive season.



Inventory at dealers increased from 27-28 days to 31-32 days in 1QFY17. Retail

inventory is estimated to be marginally higher QoQ.



Management maintained

EBITDA margin target of ~10%

in next couple of years.



Exports volumes continue to struggle, especially 3W volumes (- 60% in 2QFY17).

Management is hopeful of higher exports in H2FY17 as forex availability in key

export markets improves going forward on crude oil prices recovery.



Debt reduction: With strong cash flows of INR3.6b in H1, there has been a debt

reduction of ~INR3b. Management expects the company to turn debt-free in

next 12-18 months.



Capex:

FY16 capex was at INR4.5b; management has guided for ~INR 4b in FY17,

which includes brownfield expansion at its existing manufacturing plants.



It invested INR500m in its equity shares of TVS Credit Services Limited, a wholly

owned subsidiary of TVS Motor Services. This is a direct equity investment in

TVS Credit Services, as against earlier investment routed through preference

shares of TVS Motor Services. TVS Credit Services has a book of INR45b, with the

portfolio being split equally between a) Two Wheelers and b) Tractors and used

cars.

Buy

November 2016

CAPITAL GOODS | Voices

CAPITAL GOODS

Although execution of orders in hand broadly 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%.

Order book/inflow



Operating margins

15.6% in 2QFY17, as against 16.9%

in 2QFY16.



Consolidated order

book at INR2,518b

(+8%).

Order inflow for

2QFY17 at INR311b

(+11%).



EBITDA margin for 2QFY17 at 9.2%,

as against 9.2% in 2QFY16.

Crompton Greaves Consumer Elec.

Current Price INR 147

Click below for

Detailed Concall Transcript &

Results Update



Neutral



Branding and advertising



Growth has been good across segments - focus on premium fans, agri pumps

and LED lighting have led to significant growth.

Latest retail data show market share gains in ceiling fans and LED lights.

Not seeing any slowdown in demand, except for pumps where good monsoon

has led to some deceleration in demand.

Premium fan growth is very good, while LED lighting is growing very fast.

Standard fans grew very well in 2006-08, but growth in last few years has been

the same.

Initiatives across brand showrooms, store marketing, product display and

branding for local festivals.

Branding campaign is leading to improved awareness.

Market strengthened across regions in India.

The company is changing the distribution model – done in lighting in south, and

now spread in lighting across the country. This will not impact volumes.



Distribution

Margins



Cost and supply chain initiatives started to show in saving, and helped expand

margins, despite increase in brand expenses.

ERP to go live from 4QFY17.

Unallocated expenses in 2QFY17 had INR8cr of non-recurring-SAP

implementation and cost-reduction initiatives.

Agreement with CG on a) transition charges on lawyer fees, b) Service

agreement for use of SAP, HR team, etc.

No significant increase in employee costs to be seen; it has already been

investing in salesforce and will continue to do so.

November 2016

CAPITAL GOODS | Voices



Innovative products



Margin levers to offset ESOP costs: a) continue to drive premiumization, b)

significant focus on reducing cost, c) invest in adverting to increase share of

premium products.

Vendor savings via operational efficiency and logistical savings.

Advertising: Will retain at 2.5-3% of sales, 2QFY17 at INR120m (1.3% of sales);

Q3 will see this go up and Q4 again come down.

Avancer-dust

free fans, which have a special coating, to reduce the hassle of

coating fans.

The company is set to launch new products in existing categories like anti dust

fans or look at adjacent categories as well.

Premium fans grew 50% YoY and now at 13% of sales, gaining share in fans and

LED lights.

Customer excellence achieved by launch of

Avancer - Anti Dust fan.

Increase in ad spends in 3QFY17 to create awareness of

Avancer - Anti Dust fan.

Sales grew faster than the overall company sales of 11%.



Fans



Lighting



Pumps



+2.3% YoY with 10.2% margins; cost initiative to bring down prices has led to

saving of 70% in last six months.

LED segment is now 53% of lighting (+64% YoY); non-LED fell 29% YoY.

LED bulbs +150% YoY and LED fixtures were +30% YoY.

Launched LED tube lights with significant cost savings.

Margin will sustain at 10% for full year and depending on when they spend on

ad, quarterly margins will change.

LED bulbs have been able to maintain margins despite fall in price as costs were

cut - in fixtures, they would be doing the same.



Agri pumps +30% YoY.

Sales grew faster than overall company sales of 11%.

EESL - objective was bigger penetration by cutting prices and costs - facilitated

industry to cut costs.

Fans will see less conversion as a) more mature technology – so cost and price

drop will be lesser, b) needs to be installed vs. lamps, c) LED savings was 70-80%

v/s only 40% in 5-star-rated fans.

CGCEL participated, but will maintain margins like in case of LED bulbs.

Cummins



Current Price INR 762

Click below for

Detailed Concall Transcript &

Results Update

Neutral



Power generation market bottomed out in FY14; will see single-digit growth

going forward. This segment growth is highly correlated with the rate of change

of GDP growth.

Private sector capex is still weak and conditioners are becoming conducive for a

revival in next one year.

Cap utilization is low and running at 60%.

Continues to gain share despite higher competition in the high kVA – stepping

up features in product quality, service, localized product, strong supply and

engineering base, strong parent support.

November 2016

CAPITAL GOODS | Voices



Not seeing any sign of improvement in overseas markets – QoQ growth was

driven by supply chain initiatives and not reflective of the overall market.

Cummins Technical Centre is being set up jointly with CIL and Cummins Inc.,

with investment of INR10b; to be operational from Jan-17; will positively impact

CIL on margins.

Road construction is seeing good growth with the market up 30-40% in 1HFY17.

Govt. is serious on upgrading defense spending - navy orders from ship so

marine engine, alternators for coast guard boats, frigates.

Rail emphasis by government and KK can offer solutions for engine speed,

safety, lower noise, emission.

Margins are near the bottom and should not see much downside. Margin

deterioration is not because of a price cut that is pushing down margins.

Increase in raw material prices is/will be offset by cost savings; 2QFY17 margins

will be sustained in 2HFY17.

Havells India

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 328

Neutral

2HFY17 growth to be in line with 1HFY17



2HFY17 growth is expected to be in line with 1HFY17 (12-13% YoY), despite a

higher base; expect some improvement in overall demand. We build in sales

growth of 15% in FY17.



Consumer and Lighting doing quite well, but Industrial, Infra and Housing

remain weak. Do expect some pick up in 2HFY17; target of low-double-digit

growth for FY17.



Not expecting any strong pick up in 2HFY17; Havells is able to grow primarily

due to channel expansion in Tier 2/3 cities

Inventory



Increase in inventory due to more seasonal products in the portfolio such as

appliances, water heaters and fans.



Working on supply chain to reduce inventory, but given increasing importance

of new products, WC may remain higher than historical levels.

Margins



Continuously investing in the brand, R&D, new products, employees and the

channel. This has led to a jump in expenses; investment is being done from a 1-2

years’ perspective.



Advertisement costs will remain at 3.5% of sales for them – will target to sustain

margins at 14% as in 2QFY17. We build in margins of 14% for FY17.

Exports



Currently at 3-4% of sales and target is to increase to 7-8% of sales in next few

years.



75-80% of sales are switchgear exports, but will bring this down to 50% and

increase exports of lighting and ECD. The company is hiring locals in Africa and

plans to build the Havells brand just like in India.

Electronics consumer durables (fans, appliances, water heaters) to sustain strong

growth



All segments have done very well for them - gained share across all the three

categories.

November 2016

CAPITAL GOODS | Voices

Water heaters were launched four years back. With the start of manufacturing

in Neermrana (INR1b capex), they have the entire product range and can see

very good growth in this for next 6-12 months.



Appliances also stabilizing, and with new product launches and a low base can

do well.



Fans growing in double-digits and faster than market, driven by new product

launches over past few years.

Lighting



16% of lighting is CFL and this has been de-growing. Will sustain 25-26%

contribution margins due to a) Offering solution than just the bulb, b)

Competitive edge in fixtures (60% of sales).



Only player in India to have invested in fixture manufacturing in India in

Neemrana – this is key differentiator for them.

Cables and Wires



Seen a sharp deceleration industrial cables QoQ and volume growth offset by

fall in copper prices.



Demand for industrial cable weak, given subdued industrial and residential

demand.

Switchgears



1QFY17 saw 20% growth driven by exports and a low base (1QFY16 had seen

changes to the distribution system); 2QFY17 exports impacted by currency

devaluation in West African countries.



5% growth in 2QFY17, but able to expand margins as the company is able to

provide at the right price; expect 40-41% contribution margins to sustain.



Pumps – aggressively targeting this segment, but primarily residential segment

as Havells is not into agri pumps. Has launched submersible pumps, whereas

earlier only mono pumps.

EESL



EESL is targeting to replace the unorganized segment; Havells is not present in

that segment and thus not affected by EESL.



Havells will opportunistically participate in EESL tenders; is yet to see any impact

of EESL on pricing.



KEC International

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 135



Management has stated that incremental orders from new verticals of railways,

water and cables will earn higher margins of ~8%+.



Buy

SAE Towers registered operating margin of 14.3% in 2QFY17, led by a pick-up in

dispatches in Brazil and improved demand in Mexico.

For FY17, management has guided for positive PAT contribution from SAE

Towers as product deliveries are expected to pick up.

Railway order book has increased to INR12b.

Solar business has witnessed slowdown on account of cheap thermal power

available.



November 2016

CAPITAL GOODS | Voices



With copper price going up, expect revenues to pick up in cables segment.

Cables segment remains negative at PBT level. However, expect cables segment

to be PBT positive for FY17.

Will try and maintain interest cost at 3% of net sales.



Click below for

Results Update

Current Price INR 1,358



In 2QFY17, consolidated intake stood at INR311b (+11% YoY), marginally below

our estimate of INR330b. Unannounced orders were at INR104b (34% of total

order intake), excluding services business and IDPL. Order inflow growth was

mainly driven by domestic infrastructure and international hydrocarbon vertical.

Order inflow was primarily driven by large orders in transportation, infra

(western DFCC) and power (1980Mw Ghatampur order) getting finalized.



For FY17, management has issued guidance for consolidated intake growth of

15% YoY (INR1.6t). Management guided that incremental order inflow growth

would be supported by pick-up in ordering activity in the power, railways,

hydrocarbon and defense segments.

Management maintains FY17 guidance



L&T has maintained its guidance on orders, revenue and margins for FY17: order

intake is guided to rise 15% YoY, and EBIDTA margin is guided to improve 50bp

YoY to 10% from 9.5% under Ind-AS. Revenue growth guidance at 12-15%.

L&T’s guidance composition: A recap



Revenue and order intake guidance is for consolidated entity.



EBIDTA margin guidance is for consolidated entity, excluding IT services,

financial business and developmental projects. Thus, this largely captures

margins in E&C business, products (including electrical, machinery),

manufacturing business (including ship building, power BTG) and real estate.

Larsen & Toubro

Buy

Thermax



Current Price INR 838

Sell

Click below for

Detailed Concall Transcript &

Results Update



Received order from NTPC, Dadri for concentrated Solar Power plant - first ever

thermal hybridization and discussion over last 3 years. Received sample project

of INR780m, which is expected to be completed over next one year. Overall size

of the opportunity could be 4-5GW.

Thermax would get the technology transfer from Frennel – consortium, and

mirror would be imported from abroad and tested for Indian conditions;

Thermax is the EPC contractor for the installation of the Concentrated Solar

Power plant.

Thailand has issued 19 new licenses for sugar factory, and each would need 200

TPH of boiler (50MW). These would be ordered over a 3-year period.

November 2016

CAPITAL GOODS | Voices



Total opportunity of INR15b (19 sugar factories with 50MW CPP each worth

INR0.7-0.8b) over a 3-year period implies INR20b each year of opportunity.

Standard products heating, cooling, water are better YoY in high single digits,

Enquires have been +ve but conversion not happening at a fast pace.

Food and Food processing has become the largest mainstay, FMCG -

Steel/cement earlier were 20% each and these are not there.

Subsidiaries - FY17 could be at same level as in Thermax Limited.

Zheijang - still negative and come close to EBITDA +ve in FY17 as well.

E&C – constr. of boiler - both are profitable. Reliance project is getting extended

and may not be very profitable.

Instrumentation - constr. of EPC, both are profitable

Danstoker (Danstoker + Boilerworks) - turned around and profitable in 1HFY17

and decently profitable for FY17. FY16 bad because of Omnical closure.

November 2016

CEMENT | Voices

CEMENT

The cement sector reported volume growth of 1% YoY in 2QFY17. Volume growth was strong in the South due to

higher demand, led by infrastructure spending in Andhra Pradesh and Telangana. Northern players were

impacted due to heavy monsoons. Average 2QFY17 realization improved 3% QoQ, driven by better realizations

for North-based players. Cost curve continues to be favorable, with lower power and fuel cost due to low cost

inventory for most players. A large part of this benefit is expected to reverse over 2HFY17, as fuel prices have

moved up significantly.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY17



Cement demand has increased 4% YoY for India. South has grown at 11% and Andhra Pradesh has

grown at 23%.

Dalmia

Bharat



Lower power and fuel prices in Q2 benefited margins; however, margins could be impacted in Q3 from

higher fuel prices in July and August. Fuel prices have reduced by 15% in late October and November,

which could benefit 2HFY17 margins.



Primary demand drivers in 2HFY17 are increase in rural spending due to 23.5% hike in pay for central

government staff and good monsoon. Infra demand likely to be driven by government infrastructure

projects and road construction. Other factors that would influence demand positively in infra segment

are Delhi Mumbai Industrial Corridor, Mumbai metro project, government irrigation spending and the

Vizag Chennai Corridor.



North impacted by consistent rains and sand shortages; East impacted by sand shortages and floods in

Bihar; Positive demand seen in Orissa and Chhattisgarh due to increase in government spending; West

Ultratech

saw subdued demand due to heavy rains and festive season; AP/Telangana meaningful demand yet to

be seen. Rural contribution increased 1% YoY to 38%; Market share in overall sales increased 1.7% to

7.5%.



Petcoke prices have more than doubled to USD80 per ton in last six months. The impact of the same

would be largely seen in 4QFY17.



JK Cement



FY17 JKCE growth to be ~22% and FY18 growth to be ~18%. Post good monsoon in 1HFY17, demand

growth in 2HFY17 to be 7-8%.

In October and November, prices in western Maharashtra have increased INR40/bag, in South have

increased by INR35/bag, and in North have marginally decreased compared to 2QFY17.

From 1-November 2016, Reliance Industries has decreased petcoke prices by INR200/ton.

Cement demand will increase due to elections in UP; growth in rural demand to be led by increase in

government spending and also due to Pradhan Mantra Awas Yojana. Growth in 2HFY17 to be around 7-

8%.

Prices in east have marginally improved in November v/s 2QFY17.

JK Lakshmi

Cement



Dalmia Bharat



Current Price INR 1,491

Buy

Click below for

Results Update



DBEL’s realization increased 4% QoQ, led by price increase in south markets and

higher sales of premium products.

The company improved its reach and established new markets in UP and MP in

order to increase its market share. However, it has maintained its lead distance

of less than 300km.

Market share improvement can be attributed to an increase in customer focus,

provision of branded products to customers, timeliness with contractual

agreements and superior quality.

November 2016

CEMENT | Voices



Domestic petcoke prices by refineries in east market have seen some

moderation in October. Management expects further moderation in petcoke

prices by refineries in the east in November.

Petcoke continues to be the preferred fuel and is cheaper by 15% (on per kcal

basis) compared to imported coal.

Gross debt reduced by INR3b in 2QFY17.

Management is focused on increasing the proportion of premium products in

overall sales.

Deleveraging will be the prime focus for utilization of surplus cash.

Interest cost reduction by way of refinancing at lower interest rates.

Consol. net debt at INR57.8b.

Grasim Inds



Current Price INR 810

Click below for

Results Update

Under Review

VSF:

Pricing in the short term could taper off from present levels, given

weakness in global VSF prices. However, in the medium- to long-term, prices are

expected to be stable with a positive bias, as new capacity addition is slowing

down. Structural decline in acreage of cotton should also help VSF prices in the

longer term.

Capacity expansion:

VSF capacity at Vilayat unit could be increased by 200

tonnes per day by way of debottlenecking exercise.

Capacity addition in caustic soda industry:

Supplies of caustic soda are likely to

increase due to commissioning of new caustic soda capacity in the industry.

However, margins are unlikely to be impacted significantly due to cost-reduction

measures by Grasim.



India Cements



Current Price INR 114

Click below for

Results Update

Neutral



Demand:

All-India demand increased 4.5% in 1HFY17, with south market

volumes increasing 7-8%.

Trade to Non-trade:

Trade to non-trade sales mix for the industry is at 70:30.

Prices:

Prices had been stable in Kerala, Karnataka and Tamil Nadu in 2QFY17.

Andhra Pradesh and Telangana observed price correction in July; however, price

decline was restored after hikes in August-16.

Sales mix:

India cement sells around 75% of its volume in south and rest in

Maharashtra and eastern markets.

Gross debt:

ICEM’s gross debt at end of 30th September 2016 is at

INR28.6b/INR30.4b on standalone/consolidated basis. It intends to repay debt

by INR2.5b (INR700mn in 1HFY17).

Capex:

ICEM intends to incur INR2b toward maintenance capex in FY17 and

another INR4b toward replacement of mills and maintenance capex.

Costs:

Fuel mix consists of 80% petcoke and 20% domestic coal. Petcoke prices

on average at USD50 per ton in 1QFY17. Current petcoke prices at USD83 per

ton.

November 2016

CEMENT | Voices

JK Cement

Click below for

Results Update



Current Price INR 678

Buy

White cement volume is likely to grow at ~22%/15% YoY in FY17/FY18E.

White cement capacity can be enhanced by 0.2m tons at north operations to

cater to higher demand.

West market and Karnataka have witnessed price increases of INR40/bag and

INR20/bag, respectively, since Aug-16. This should bode well for its south

operations.

RIL has reduced petcoke prices by INR200/t, effective 1-Nov-16.



JK Lakshmi Cement

Current Price INR 372

Click below for

Results Update



Buy



Capacity expansion:

Consolidated capacity of the company has increased to

10m tons with the recent commissioning of its Surat grinding unit in 2QFY17. It

is further increasing its Durg capacity by 0.9m tons at estimated capex of

INR300m. The integrated capacity of 1.6m tons at its subsidiary Udaipur unit is

likely to get commissioned by December-16 at estimated capex of INR8b.

Cost-reduction initiatives at eastern unit:

JKLC’s eastern unit has been only

breaking even at EBITDA level, despite operating at close to 100% utilization due

to cost inefficiencies. In order to improve cost efficiencies, management is

putting up a conveyor belt for limestone transportation and waste heat recovery

system to meet 30% of its power requirement, and relocating the captive power

plant from its northern operations. Combined capex toward cost-reduction

programs would be INR4b.

Management expects cost savings for its eastern units to the extent of INR200/t.

INR70–80/ton from WHRs unit that will be operational from September 2017.

INR80–90/ton from thermal power unit that will be operational from March

2017.

INR30–40/ton from conveyor belt that will increase productivity.

Demand expected to grow 8–10% due to pre-Diwali spending, government

initiatives and good monsoon.

North trade mix at 50% v/s 50% non-trade, and east trade mix at 20% v/s 80%

non-trade.

Impact of higher power and fuel costs will not be completely seen in December

quarter; Most of the power and fuel impact will be seen in 4QFY17.

Standalone net debt at ~INR15b at the end of 2QFY17.

Estimate capex for FY17 is INR2b for standalone operations.

November 2016

CEMENT | Voices

Ultratech Cement

Current Price INR 3,451

Click below for

Detailed Concall Transcript &

Results Update

Buy

Volume drivers



Primary demand drivers in 2HFY17 are increase in rural spending due to 23.5%

hike in pay for Central Government Staff and good monsoon. Infra demand to

be driven by government infrastructure projects and road construction.



Other factors that would influence demand positively in infra segment are Delhi

Mumbai Industrial Corridor, Mumbai metro project, government irrigation

spending and the Vizag Chennai Corridor.

Regional Trend



North impacted by consistent rains and sand shortages; east impacted by sand

shortages and floods in Bihar; positive demand seen in Orissa and Chhattisgarh

due to increase in government spending; West saw subdued demand due to

heavy rains and festive season; for AP/Telangana, meaningful demand yet to be

seen.



Rural contribution increased 1% YoY to 38%; Market share in overall sales

increased 1.7% to 7.5%.

Cost Trend



Petcoke prices have more than doubled to USD80 per ton in last six months. The

impact of same would be largely seen in 4QFY17.



Benefits of ramp-up in newly commissioned grinding units to be seen in form of

lower freight cost in subsequent quarters.

Capex



On steady state basis, management intends to incur capex of INR8-9b annually

(ex of JPA).

November 2016

CONSUMER | Voices

CONSUMER

Market slowdown persists in the consumer sector. Volume growth for majority of our coverage companies in the

sector was below expectations. Industry volume growth decelerated YoY/QoQ due to slowdown in both urban

and rural demand. The proportion of rural sales is lower than urban sales 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. However, the government’s initiative of demonetization will result in a liquidity crunch, impacting near-

term demand. Raw material costs were benign for most companies, though there was inflation in some input

costs. Gross margins continued to expand YoY. Promotions continued for majority of our consumer coverage,

passing on the margin gains. While gross margin expansion may have peaked, hardening material costs, albeit off

a low base, could result in resumption in realization growth. Some companies have already started taking price

increases.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY17



Britannia

Management expects rural

demand to recover. There could be

short-term impact on account of

liquidity crunch led by

demonetization. Management

expects the issue to be resolved

soon.

Volumes



Volume impact

expected for full

year due to price

increase and

demonetization.

Price action/offers



They have taken

~6% price hike;

2QFY17 saw around

4% pricing action to

curb double-digit

inflation which they

are expecting for

FY17.

Promotion strategy

likely to continue in

3QFY17 and

4QFY17.

Margins



Impact of residual 2%

price increase (which will

be visible in 3QFY17), a

further 1% price increase

likely in 3QFY17, as well

as cost savings of INR1.7b

targeted in FY17 should

alleviate EBITDA margin

pressure.



Dabur

5% value growth roughly for

2HFY17. It remains to be seen if

demand sustains in FY18 after

benefits of good monsoon, higher

MSPs on pulses, and OROP/7 Pay

Commission recommendations tail

off.

Management

xpects gradual

improvement in demand led by

monsoon.



HUL



Page Industries

3Q onwards

volume growth will

be better. 5-10%

volume growth in

2HFY17 if one

excludes very weak

juice sales base in

3QFY16.

There is no RM

deflation in any

major categories.

RM costs increase

will lead to

rebalancing of price

volume dynamics.

Management has

however revised

full-year volume

growth

expectations to 13-

15% (from 15-17%

indicated in our

conference and

earlier discussions).



Soaps portfolio saw

price increase in

2QFY17.



Realization growth

for full-year FY17

will definitely be

higher than 4.5%

already taken in

June quarter.



Yarn costs have come

down to INR210/kg after

increasing to INR230 -

INR235/kg a couple of

months ago. If this

sustains, then gross

margin outlook will be far

better YoY in 2HFY17.

November 2016

CONSUMER | Voices

Asian Paints

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 943

Neutral

Demand and environment



Low-double-digit volume growth was witnessed in decoratives for the quarter.



In central and western India, demand was weaker due to prolonged monsoon.

Retail demand has improved in these regions since then. Management did not

comment on festive season demand.



Inventory levels were higher in September over March due to late monsoon.

Was also lower than usual in March due to robust demand relative to

expectations.



Rural demand continues to grow faster.

Material costs



Sequential increase in RM costs has been witnessed.



RM costs across a wide range of products including Ti02 are increasing.



Management indicated that if RM costs shoot up, then the company will

increase prices.

Home improvement products



Sleek and ESS are both witnessing good growth with the former growing faster.

In case of ESS, it has a 50:50 mix in demand from new homes and old homes

unlike paints which is more skewed towards repainting.



Both are national brands today in terms of distribution, but remain

underpenetrated categories. Distribution in these brands is not just limited to

APNT’s paint dealer network. The company sources finished products largely in

both these businesses with some assembly at APNT level for some products.



Loctite adhesives still has limited network compared to paint dealer business.

Still learning the business. Will take time to expand to non-paint dealers.

Expansion and Capex



Adding 1000-2000 dealers every year on paints.



INR6b standalone capex guidance maintained in FY17. Capex on two new plants

will be toward 3Q and 4Q.



Indonesia plant will start production in 4Q and more towards March-end instead

of January-end as indicated earlier. INR400 m capex. The company is in process

of testing products for Indonesia before rollout.

GST



Will APNT be classified as a polluting industry and therefore attract a 26% GST

rate? Management declined to comment on expected rate, but did state that

they are not polluting.

Britannia Industries

Current Price INR 2,963

Buy

Click below for

Results Update

Biscuit Industry and outlook



Industry is recovering and reported mid-single-digits revenue growth in 2QFY17.



Management expects rural demand to recover.



Base business volume shared by the company (10% growth) is for biscuits, cake

and rusks.



There could be short-term impact on demand on account of liquidity crunch led

by the withdrawal of INR500 and INR1000 notes. Management is hopeful that

within a fortnight, the currency liquidity issue is likely to be resolved.

November 2016

CONSUMER | Voices

Core categories: 15-18% indirect tax incidence currently. Await clarification of

GST rates on these products.

Distribution, reach increase, performance in weaker states



The company added 80,000 outlets during the quarter on direct distribution and

now reaches 1.4m outlets directly.



Gap on total outlets (direct and indirect) for Britannia v/s Parle is now 1.3m-

1.4m. Biscuit industry reaches 7.7m outlets. Currently, Britannia reaches only

60% of these outlets.



Britannia has 9,000 rural distributors. Added 1,000 distributors recently.



Among the earlier weak states identified as potentially strong growth areas,

Gujarat and Rajasthan doing well. MP and UP are moving in right direction.

Despite last 7-8 quarters of healthy growth in these states, Britannia’s sales are

only 1/5th of Parle’s sales in these markets.



An important carrier brand of growth in these markets is Tiger. Tiger Glucose

and Tiger Creams are doing very well compared to the value brand market

(which is stagnant or declining but Tiger cookies not doing as well.



Premiumization potential is huge. Basic biscuits are available almost in all

villages.



Modern trade is 10% of sales.

New launches



From now on, Britannia will have one new category launch every year. New R&D

center provides great capabilities. So far, Britannia was mainly catching up in

existing businesses.



Management believes that new category pipeline looks very exciting. Product

launches will be in the snacking category.

Other businesses



Bread witnessed 15% decline in volumes and international business declined,

thus resulting in consolidated sales being lower than base business sales.



Bread market is ~INR 40b in size. Britannia is the only brand with pan-India

presence. Second largest is Modern. Bread category has low gross margins.

Profitability is more important for Britannia than growth in this segment where

its focus will be on up scaling the quality and range.



Bread industry hasn’t completely recovered from rumored potassium bromated

issues, and there has been some adverse reaction to price increases of over 6%

taken in 2QFY17.



Going forward, management expect revenue growth in breads to be in positive

territory initially led by price increases and then by volumes.



Kulcha bread has done well in terms of initial response.



Middle East and Africa: Britannia has plants in Oman and Dubai serving MENA

region. Top line in Libya, Syria and Yemen was zero. Other parts of Africa

affected by unfavorable currency movement. Will continue to target countries

with Indian diaspora.



Dairy expansion – no final decision yet.



Dairy is 5% of consol. sales and international business is 7% of consol. sales.



Cake and rusks is an INR18b market. This amount does not include unpackaged

cakes and rusks. A movement is being seen in unorganized to organized in these

segments. Britannia is witnessing strong growth here. Britannia is the largest in

both segments. Competition is local. Management believes that it evolves in



November 2016

CONSUMER | Voices

terms of technology and product quality in these segments, and over next 6- 8

months will see new launches meeting desired standards.

Cost inflation, price increases and cost savings



12% YoY RM cost inflation in 2QFY16, Sugar up 46% and palm oil 19%, Cashews

5% up off a high base. Cost inflation has been 10% in 1HFY16.



4% effective price increase in 2Q, exit price increase 6%, which means that 3Q

will witness the remainder of the flow through. Management is looking at

further price increase of around 1%.



INR1.7b cost savings planned in the current year will aid on operating cost front.



Reduced import duty on wheat and palm oil and controls on sugar by the

government have helped stabilize costs to an extent.



We believe that 10% volume growth was very healthy given 4% price increase.



Pricing is not across the board and took increases in stronger brands.

Competition is also increasing prices.



Because category growth is improving, the ability to push through price

increases is higher.



Price increases in family packs and grammage reductions have both contributed

to effective price increases.



Capex and financials.



Spent INR1.5b in capex in Perundurai and Bidadi in 1HFY17. Capex will be INR3b-

3.5b in FY17.



Capex next year will be similar. The company is setting up plants in North East,

Mundhra and Maharashtra next year.



Effective income tax rate will be similar to last year.

Dabur India

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 281

Neutral

Growth, outlook and strategy



Discretionary part of portfolio is doing better than staples. Home care and juices

doing very well.



While normal monsoon will bring some cheer, demand environment remains

considerably stressed.



3Q onwards volume growth will be better, but it remains to be seen if demand

sustains in FY18 after benefits of good monsoon, higher MSPs on pulses and

benefits of OROP and Pay commission recommendations tail off.



Promotions strategy good for short period of time. Likely in 3Q and 4Q as well.

Hope for pickup in demand and price increase after that.



Focus going forward will be on scientific study backed Ayurveda. Beginning from

4QFY17 should witness launches in this category. As it is science backed, it takes

time to roll out.

Segments



Oral care reported 11% volume growth but sales were flattish. Toothpaste

witnessed 15% volume growth and 4% value growth mainly because of

promotion in 2QFY17. Over 100bp gain in market share YoY.



Volumes in honey were flattish. Input costs were down and hence promotion

intensity is high. Promotion is around 20-25% and yet margins are intact.



Digestive category was under pressure due to subdued demand.

November 2016

CONSUMER | Voices

Foods 15% growth led by strong volumes in juices. Market share has seen a

rebound: was 57% before Nepal issue after dipping to 48% in December 2015

and recovering every quarter since then back to 57%. Anecdotally, Chikangunya

and Dengue epidemic in North may have contributed to strong growth in juice

volumes in September. Need for more hydration may have fuelled growth.



Have gained market share in almond hair oil off a low base. Still has under 10%

market share of the almond hair oil market.



Hair oil volumes flat, value down 6%, mainly due to rural dependence. Still

gaining share in this segment.



60% of Dabur’s sales come from North and West regions – areas that are

Patanjali strongholds. Dabur has been affected on honey and toothpastes to an

extent.

International business



International business margins were affected by decline in Saudi Arabia which is

a very profitable market. Moreover, there was 50% currency depreciation in

Egypt and Nigeria and 30% currency depreciation in Turkey. Believe economic

conditions will improve eventually.



Localization in Africa is more from a competitive standpoint and less from a

margin accretive perspective.

Capex and guidance



5% value growth roughly for 2HFY17 with 5-10% volume growth if one excludes

very weak juice sales base in 3QFY16.



Capex INR5b in FY17, lesser in FY18.



Emami

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 1,050

Buy

Strategy and outlook



On track on new launches despite slow market. A&P up by 30bp YoY in 1HFY17.

Do not expect A&P decline unlike some other FMCG peers.



Progress on recent launches - Fair and Handsome Face wash, He deodorant and

7 in 1 oil all reported healthy growth.



New launches in 3QFY17 - Fair and Handsome launched a variant in face wash

‘100% oil control’ and also launching a Boro Plus variant shortly.



More launches in 4QFY17 as well.



Management expects healthy volume growth going forward.



Raw material costs quite benign. Have not increased prices so far, but will

definitely increase before the end of the year. There has been increase in

mentha prices but in line with expectations.

Guidance



Guided for 14-15% top line growth overall excluding Kesh King.



2-3% of sales will come from new brands.



Capex was INR1b in 1HFY17 and full-year target is INR2b, Net debt 5.6b and is

on track to pare down debt to zero in 5 quarters.



Tax rate will be ~20% MAT rate.



Distribution expansion.



Direct reach 0.65m, 2-year target of 0.8m. Added 40,000-50,000 outlets in

1HFY17.

November 2016

CONSUMER | Voices

Geographies and brands



Domestic volume growth was 11% in 2QFY17.



International business de-grew in 2QFY17, excl. MENA still up double digits.

Middle East could take at least 2-3 quarters for recovery.



In CIS countries, management will be satisfied with~15% growth going forward

as economies have been affected and have witnessed currency depreciation.



Base of Pancharisht growth was over 100% in 2QFY16 and hence de-grew in

2QFY17.



Kesh king oil growth was 73% and shampoos growth was 15%. Split is 80:20 Oils:

Shampoo. Very happy with overall Kesh King brand. Achieving INR750-800m

quarterly target.



Cooling oil sales was affected by monsoon in 2QFY17 which was not as strong in

2QFY16. Oil category has also reported slowdown. Sachets are 36-37% of

Navratna cooling oil volumes. Growth muted in rural areas.



3Q is usually a big quarter for honey sales as well as for Boro plus.



Fairness cream category for men has declined by 2-3%. Expect category revival

only in 2-3 quarters.



Will continue to invest in ‘He’ and ‘7 oils in 1’. If these products grow by 20%,

management will be happy.

Godrej Consumer

Current Price INR 1,423

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Domestic business



Management expects demand to be better in 2H led by rural markets.



Urban sales grew 8%, while rural grew 7% in 2QFY17.



Crème hair color increased in high teens. B Blunt response has been positive.

Overall hair color still declined due to very high base in 2QFY16.



Withdrawal of promotion affected soaps volumes as customer had excess stock.

Trade was looking for promotion stock. Both these factors led to decline in

soaps volumes.



Soaps will see positive growth in 3QFY17. Was 9% deflation in 1Q and 5% in 2Q.



Price increase of 2% in domestic HI taken towards the end of the quarter, expect

competition to follow suit. There has been some increase in crude-related RM

costs.



Aer is doing very well. Was among the earliest brand to make money in around

2 years.

New launches



New launches doing very well domestically. Soaps Insecticides, hair color and

overseas new launches are contributing 25-40% of incremental growth.



B-Blunt will have 2-tier pricing one at the premium end and one at the mass

premium end. Management is excited on growth prospects.

GST



Expect to lower than prevalent indirect rates in GST. In 2-3 weeks, will have

greater details.



Hair color has a lot of unorganized segment and to an extent HI also. Will benefit

from GST due to consolidation.

Cost increases



Domestic staff costs have been lower due to lower performance linked payouts.

November 2016

CONSUMER | Voices

International business



SoN 1.85b sales for the quarter.

GSK Consumer

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 5,157

Neutral

Category view



Slowdown mainly due to macro economy. Rural revival will lead to higher

growth.



Seek to drive penetration using sachets and grow premium segment through roll

out of science-based products.



In South and East, the HFD category has ~40% penetration among households

with kids. In North and West, the penetration is around 21-22%.

GSK Asia Auxiliary commission change, Novartis Commission



In April 2016, rates of commission from GSK Asia for distribution of Sensodyne,

Eno and other products have been changed from 16.75% of sales to 15%. Will

revisit the agreement annually and the next review is April 2017.



Novartis is fully visible on Auxiliary commission from July 2016. Margins are

13.5%. Brands acquired with distributors and hence the rates are lower than

that of GSK Asia.



21% sales growth was witnessed in sales of companies with whom they have

distribution tie-ups and there was only 13% auxiliary commission growth YoY

because of lower commission.

Re-launches and update on new launches



Women’s Horlicks relaunched in Aug 2016; Junior Horlicks also relaunched in

the quarter.



Horlicks Marie biscuits launched in September 2016 only in Eastern India. The

company also manufactures only in the East. Horlicks Glucose biscuits in Eastern

India have 24% of the milk biscuit segment in that region. Good distribution

reach in that region is something that they seek to leverage on.



Boost relaunched in January 2016. Seeing the brand stabilize since then.



Growth Plus is meeting targets. This is in the segment where competitor

PediaSure is doing well. GSK is seeing good momentum for Growth Plus in large

pharmacies and modern trade in Eastern and Southern India.

Price actions, costs and margins



3.5% price increase YoY in HFD.



In September, Sachets prices cut for Horlicks and Boost to INR5 (18 gram) from

INR6. Existing INR 10 sachets (36 gram) continues. Impact of price cut will be

around 1-1.5% of overall realization which will be witnessed in the next quarter.



Sachets volumes were not growing. Sachets share is 7-8% of sales.



Improved SoV and SoM across brands and yet reduced advertising as intensity

has come down.



Earlier service tax credit was not obtained on ad spend. Now getting the same

since April also leading to A&P decline YoY.



Seen some inflation in some commodities like wheat and sugar during the

quarter. Are likely to take further price increase with an eye on competition.

November 2016

CONSUMER | Voices



Will maintain or grow margins going forward. 1) Mix improvement, 2) price

hikes in line with CPI and 3) cost savings will be factors driving margin

improvement.

GST

Management expects most of its products in 18% range in GST and some OTC

products possibly at 12%. Current rates are higher. Other peers will also have a

benefit.

Plans for cash of INR20b



Looking at expansion, IT investments and M&A opportunities.



Hindustan Unilever

Current Price INR 831

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Industry volume and strategy



Underlying volume growth of -1%, with 2% domestic sales growth was

witnessed for the quarter.



Market slowdown persists.



June and July were the toughest, August and September were better.



Expect gradual improvement in demand led by monsoon.



There is no RM deflation in any major categories. RM costs increase will lead to

rebalancing of price volume dynamics. RM increase in LAB has been less than

palm oil cost increase.

Segmental information



Personal Wash: Price increase affected volumes but this was more because of

pipeline issues and not due to price elasticity. Price increases were mainly in

form of reduced grammage.



Among other personal care products, hair care is doing well.



Pepsodent recovering a bit post re-launch. Oral care remains a challenge.



Home care 4% growth. Detergents have done well. Detergents market is

premiumizing. Surf and Surf Excel have been the fastest growing brands in

detergents for many quarters. It does not mean Wheel has done poorly or that

the company has reduced focus on lower-end detergents.



Refreshment 8% growth with good volume growth and WIMI strategy benefits.



Foods only 2% growth witnessed, the second quarter of poor growth. Jams

demand after the bread scare has not fully recovered yet. Atta and Salt were

affected by rains and floods. Do not expect it to take long for recovery of sales in

foods.

New products, extensions and expansions



Dove entered baby products category with baby soaps. Indulekha launched in 4

new states. Now available in 8 states. Delhi, Punjab, Haryana and Gujarat being

the latest ones apart from the 4 Southern states earlier.



St Ives roll out, no further update.



Herbal products will be brought into other categories.



Dollar Shave Club will be brought into India at the appropriate time.

November 2016

CONSUMER | Voices

Jyothy Labs



Current Price INR 339

Click below for

Results Update

Neutral

Overall volume growth stood at 8%, while power brands volumes grew by 7.2%.

Macro



Overall demand yet to pick up. Rural remains sluggish.



Input costs broadly stable.



Competition remains intensive.

Segments and brands



Fabric care: Grew 3.1% YoY, while the category growth stood at 1%. Brand

Henko grew 11.3%. Ujala has remained sluggish with 0.4% growth YoY.



Dishwashing: Grew 12.2%. Pril grew by 11.5% YoY; continues to gain market

share. Exo dish wash bar grew 17.7% YoY.



Household Insecticides: Category improving QoQ after a poor Q1 where both

category & JYL’s growth declined in FY17 due to unfavorable seasonality –

extended summer. Maxo LV is now close to 30% of the total HI business.



Personal care: Category remains sluggish for JYL.

Henkel deal



Disclosure likely to come in 4QFY17.

Guidance and Outlook



Lot of distribution expansion has been done to expand rural growth; expect

rural market to pick up in 2HFY17. 1/3rd of the sales for JYL come from rural

India.



Company expects to maintain gross margins.



Investment behind brands to continue.



Tax rate at MAT for FY17.

Marico

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 255

Neutral

Environment



Harvesting season got delayed in some states in the current year. After 2 years

of poor monsoon the farmer was looking to pay off debt initially before

consuming more. Recovery will thus be gradual.

Domestic performance and outlook



Barring Parachute and Bangladesh good performance overall.



Poor performance in Parachute was a slight aberration. Management expects

positive volume growth in Parachute to resume in 3QFY17.



There was a 5% price hike taken in Parachute anticipating Copra cost increase in

July which did not pan out and costs actually went down for that month.

However, Copra Costs have increased in August and September by 20% over July

levels. But, because price decisions are usually taken 45-60days in advance, the

market had high price inventory of Parachute which was at a premium to peers.

This resulted in 70bp loss of market share sequentially. However with costs

actually increasing, competitors are also increasing prices and lower-end players

who appear during deflation are struggling. This is resulting in gradual recovery

of the small market share lost in Parachute.



Management is confident of getting back 6-8% volume growth on the entire

portfolio (which was 8% and 3.4% in 1QFY17 and 2QFY17 respectively) in

November 2016

CONSUMER | Voices

2HFY17 and also expects price growth will be witnessed in 4QFY17. New

launches between Nov and June will also boost growth.



VAHO growth is broad-based. Both value and volume market share are

increasing.



In Saffola, some new innovations are likely as there has been nothing new in the

past 3-4 years.



Management expects youth portfolio to grow 15-20% going forward. The gel

category doing well. There will be more innovation on the styling products.

Youth portfolio is also improving on profitability. The portfolio does make

decent amount of money at the net contribution level.

International performance and outlook



Bangladesh had issues with Parachute deflation and Eid festival days lost. There

has been a management change since then. Management is confident of

resuming growth in 2HFY17.



Parachute’s sale is 80% of sales in Bangladesh. VAHO market in that country has

been increasing by 20%. Parachute now has a wider portfolio of products

beyond Parachute to boost growth in Bangladesh.



ASEAN business is expected to report double digit constant currency growth.

MENA contribution to sales is low.

Financial guidance



17-18% consol. operating margin guidance maintained.



Management stated that they will not reduce A&P unlike some FMCG peers.



Staff costs will be around 6% of sales ahead.

Page Inds



Current Price INR 12,751

Click below for

Results Update



Buy



Blended volume growth was 10.7%. Men’s Innerwear volumes grew by 10.35%,

Sportswear by 5.5%, Women’s Innerwear by 19.5%, and the smaller Socks and

Speedo segments by 1.6% and 20% respectively in 2QFY17.

Management said that there was some front ending of demand in 1QFY17

which had witnessed 21% YoY volume growth, which they had indicated to us at

the end of the last quarter. Nevertheless volume growth was lower than

expectations.

October has been good with festive season demand healthy.

Management has however revised to full year volume growth expectations from

15-17% that they had indicated in our conference and our discussions earlier to

13-15%.

The CFO admitted that there may be some impact on demand in the current

month because of the prevailing liquidity crunch. They do not intend to increase

credit period of dealers and distributors.

Increase in employee cost YoY has been due to the addition of some senior

management personnel.

Yarn costs have come down to INR210/kg after increasing to INR230-INR 235/kg

a couple of months ago. If this sustains, then the gross margin outlook will be far

better YoY in 2HFY17.

In any case management intends to take another price increase in the March

quarter as is usually the case every year. In the current year they had delayed a

November 2016

CONSUMER | Voices

price increase and taken it in the June quarter as they awaited clarity on

increase in minimum wage from the Karnataka government.

For FY18 too they now believe that the rumored 20% increase in minimum wage

to INR10,000 may not come through.

The quantum of price increase is usually 4-6% but they will wait for further

clarity on GST rates applicable to them before deciding on quantum of price

increase to be taken in the March quarter. Current indirect tax incidence is 9%

and the company is hoping for 12% rate to be applicable to them.

Nevertheless, realization growth for the full year FY17 will definitely be higher

than the 4.5% already taken in June quarter.



Parag Milk Foods

Current Price INR 267

Click below for

Results Update

Neutral

Performance



Sales growth primarily is pricing growth which was taken during the quarter.



Base quarter of milk products had butter which is not present this year. This

along with weak rural demand (25-30% of milk products will be from rural India)

led to subdued growth in milk products in 2QFY17.



Cheese sales growth for the quarter higher than expected while ghee sales

growth was lower than expected due to price hike.



Taken price increase in various products. 8% in ghee in the middle of the quarter

while competition has not taken yet; 6% price hike also taken in fresh milk in

2QFY17 in the early part of the quarter.



Exports business grew by 41.9% mostly due to bulk order from Philippine region.



Other expenses during the quarter were high due to ad spends being higher by

100bp than the average ad spends of the company. Promotions are netted off

from the revenue.

Product launch and innovation



Variants of cheese like cheese spreads and chutney cheese slice are doing well.

Pace of new launches to increase from 4QFY17 onwards.



Milk reach (Dairy whitener) launched with distinct packaging.



Whey protein product for consumers soon to be launched within couple of

quarters.



Sachet of ghee also introduced to cater to rural demand.

Other points



Distribution: 3 depots added YoY; distribution and touch points also increased;

current reach stands at 300k outlets.



Procurement: Purchase of milk increased by 25% compared to last year.



Company also handled semi-finished products in the base last year.



Cheese market growing at 16-18%; PARAG growing ahead of the market.



Ratio from milk purchase directly and aggregator would be 80:20.



Utilization: Manchar optimally utilized. Palamner is at around 50% utilized; can

produce everything other than cheese. Generally in dairy industry 85% is the

optimum utilization level.



GST: 5-14% tax range for value added products; while milk has 0%. If the

average rate for the company comes at a higher rate, then it will absorb as well

as pass on to end consumers.

November 2016

CONSUMER | Voices

Outlook & Guidance



The company maintained revenue growth CAGR of 14% for FY16-FY19, with

growth for FY17 expected to be lower.



Full year ad spends maintained even though it was higher during the quarter.



Tax rate: 31-32% for FY17.

Pidilite Industries

Current Price INR 616

Click below for

Detailed Concall Transcript &

Results Update

Buy

Update on key businesses



Healthy volume growth across domestic businesses, average 8.5% for the

quarter.



7.8% in volume growth in consumer and Bazaar and 12.7% for industrial

business.



Acquisitions- Blue Coat and Falcofix doing well.



Tie up with WD-40 for distribution announced at the end of September.

Management believes that there is huge potential for growth.



Nina waterproofing had soft quarter due to monsoons but 2H is more important

and management is hopeful for good demand.



International business witnessed 6% constant currency growth. SAARC doing

well. North America Arts materials doing well after the product recall. South

American business sales down, but profitability has increased from this quarter.

Middle East has been making losses and the management is now reducing SG&A

expenses in that market.



Elastomer- Now makes adhesives and sealants at Dahej plant. Looking for

strategic options.

Material cost outlook, pricing and other costs



Raw material price appears to be favorable. VAM costs remain in USD 750-800

range. Price decisions will be based on the demand scenario rather than RM

costs.



Part of the increase in other expenses has been because of higher A&P YoY but

this is but mainly because the FY16 A&P to sales was lower than usual.

Distributor reach and competition



Distributor network reaches most towns with population of over 20,000.



Competitive intensity has witnessed no change in the past quarter.



Recent entrants like Astral and Asian Paints will help grow the market.

Management will be vigilant to protect market share.

Black money curbs and GST



Early to comment on effect of the black money reforms on the business.



Indirect tax range is currently 22.5%-23%. Expect some part of the portfolio to

be 18% and some in 12% under GST.

Financials



Capex will be in line with historical range of 2.5% to 3% of sales.



Direct tax rate will be around 30% for the year.

November 2016

CONSUMER | Voices

United Spirits

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 1,897

Buy

Costs, pricing and margins



There has been a 200bp increase in input costs sequentially on account of ENA.

This is in line with management expectations. Glass and paper costs have not

changed materially.



The company has taken 10% price increase in Maharashtra from October 1 2016

to mitigate impact of local body tax which was implemented with retrospective

effect in August. Impact was around INR200m-INR250m in 2QFY17. While these

costs will continue in the quarters going forward, EBITDA will not be affected

going forward owing to the requisite price increases taken. Management

reckons that as the price increase was taken ahead of the key festive season, its

impact on volumes in this key state may not be significantly detrimental.



Staff costs witnessed an extraordinary item of INR280m on account of

restructuring. We have added these costs in our EBITDA calculation.



A&P will go up to 8% in the next 2 quarters from 6.4% in 2QFY17.



Recent regulations in ENA pricing on their own analysis show there will be a

benefit. However quantum is unclear yet and depends on how it plays out.



Cost savings are likely to come from harder negotiations with suppliers, more

efficiency and lighter bottles. On the other hand because the entire prestige and

above segment is grain spirits and is not using recycled bottles, costs increase

and net savings appear small.



Some Popular brands will be franchised, thus margins will improve as it will

contribute directly to EBITDA in the form of royalty. There were already states

like parts like Andhra Pradesh, Kerala and Tamil Nadu where franchising was

already being done. Expanding to new states is on. In 2 months, management

stated that they will have greater clarity on process, quantum as well franchise

partners.



There was INR270m reversal in 1HFY16 as a result of which EBITDA was

overstated.



The company is in regular touch with the state government of Telangana to

grant a price increase. It was mentioned in the 1QFY17 conference call that

Telangana is one of the states that could grant a price increase in a few months.

Guidance



The company aims to save between 100 bps-200 bps off costs every year.

Marketing expenses will be high.



Capex guidance INR3-4bn in FY17. 60% of this investment will be in technologies

and capacity, remaining 40% on environment and safety norms.



INR20b asset monetization plan is still on. While only INR 200m was monetized

in 2QFY17, monetization will be much higher going forward.



Management maintained mid-teens margin guidance in the medium term, but

did not mention exact target is and what is the period defined by medium term.



Prestige and above is now 57% target was 60%.

GST update



Management reckons that states are cognizant of the issue and states do not

want the business to collapse. Management is cautiously optimistic that impact

may not be as high as envisaged earlier as some of the materials may be in the

lower GST slab.

November 2016

FINANCIALS/BANKS | Voices

FINANCIALS/BANKS

Though slippages and credit costs moderated in 2QFY17, they still remain elevated. We expect more progress in

the resolution mechanisms in 2HFY17, led by stressed asset sales and greater cooperation between banks and

promoter companies. Amid muted corporate activity and credit growth, retail continued to be the focus area for

banks. Given the competitive landscape and economic scenario, system loan growth is likely to remain moderate

in FY17, with private banks continuing to gain market share.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY17



Axis Bank



Credit cost in 2H to be similar to 1H.

~40% cost to income ratio for FY17.

Management wants to head in the

direction of ~70% PCR.

Maintained NIM guidance of 3.6%+.

Asset quality



Bank of Baroda



NPA target of INR450-500b still holds.



Targeting NNPA less than 2% by FY19-20.

Maintained slippages guidance of INR150b.

Aspirational target of 12-15% loan CAGR

over a period of 2-3 years.

Bank is planning to open 300 digital

branches.



Asset quality outlook challenging; higher

slippages expected from the watch list

(above the previous 60% guidance). No

changes/additions in the watch list

construct over past six months.

Slippages in 2H to be materially lower than

1H, considering the sheer magnitude as

well as the size of the accounts that have

slipped in this quarter (not many such large

accounts are left).

Non watch-list credit cost ~89bp in the

quarter. Credit cost in 2H to be similar to

1H. FY17 could be the peak in terms of

slippages and credit cost.

Asset quality held up well during the

quarter as net slippages declined

significantly to INR1.7b (lowest in last six

years, last three year average of INR30b+),

led by both lower slippages (INR28.6b) and

better upgrades and recoveries (INR26.9b).

GNPL remained flat QoQ, and led by 330bp

improvement in PCR, NNPLs declined 7%

QoQ.

Net interest margins



Management

expects NIM to

remain 3.6%+ in

FY17 (no

meaningful impact

of MCLR).



NIM improved

6bp/20bp QoQ/YoY

to 2.3%.



HDFC Bank



ICICI Bank



State Bank of

India



Stable asset quality during the quarter, with



slippage during 2Q at INR14b - 1.4%

annualized, recovery and upgrade -

INR7.6b.



Provisions for the quarter INR7.5b (INR6.5b

specific, INR1b was general).



This quarter has not seen any incremental

asset quality challenges in the SME space.

Yield on advances will be impacted by



Exposure to power, iron & steel, mining,



interest income reversals and resolution of

cement and rigs decreased from 16.2% of

assets – will be offset to some extent

total exposure at Mar’12 and 13.3% of total

through reduced cost of funds.

exposure at Mar’16 to 11.9% of total

Expect slippages to remain elevated in next exposure at Sep’16.

two quarters.



Slippages from retail: INR6.5b.



Stress loans (GNPA+OSRL+ watch-list)

declined 15% QoQ. Overall stress loans (net

of NPL provisions and contingency

provisions) declined 9% QoQ, 10.4% of

customer assets.

For FY17, slippages expected is INR400b



Total slippages from watch-list = INR48.5b



(1HFY17 slippages of INR226b).

Corporate slippages at INR66.8b. Small

Growth guidance intact with loan growth of accounts also contributed to slippages.

11-12% for FY17.



Watch-list = INR260b, down from INR310b

Balance-sheet growth has been moderate, in last quarter and INR348b in FY16. Of the

but expects to improve in ensuing quarters. watch-list, INR36.8b comes from power,

Retained earnings + expected government INR34b from Oil & Gas, INR27.8b from iron

infusion would take CAR to 14.4%, of which & Steel and INR2b from construction, road

Tier I would be ~11%.

and engineering segment.



62.2% of corporate portfolio is to A& better

rated corporate/PSUs.



Maintained NIM guidance of 4-4.4%.

Credit growth to remain 1.3x+ of system.

There will be some decline in investment

yields (part of it led by excess liquidity

parked in low-yielding ST instruments).

NIM down 20bp QoQ,

partly due to the

change in calculation

(there is an increase

in denominator) and

the other reason

being excess liquidity

parked by HDFCB.

NIMs was flat QoQ at

3.1%, may be under

pressure in the near

term owing to

interest income

reversals.

Reported NIM

2.77% (-25bp YoY)

November 2016

FINANCIALS/BANKS | Voices

Axis Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 480

Neutral

P/L related



C/I expected to be 40% for the year.



Margin compression because of interest rate reversal depends on the delta in

slippages over the corresponding quarter/year. NIM guidance – above 3.6% for

the full year.



Opex growth will be around the same levels seen currently.

Asset quality



Poor asset quality performance can be attributed to: a) stressed asset quality

environment and b) resolutions not panning out as expected within the

timelines. A few large accounts primarily in iron and steel have led to majority of

slippages.



Difficulties in resolution also arising on account of ticket sizes of loans (NPA

assets) being much higher in this cycle than previous cycles and issues relating

to monetization of securities.



Materially higher slippages expected from the watch list (above the previous

60% guidance). However, no changes/additions in the watch list over past six

months.



Slippages in 2H to be materially lower than 1H, considering the sheer magnitude

as well as the size of the accounts that have slipped in this quarter (not many

such large accounts are left).



5:25 during the quarter - INR3.9b, 5:25 o/s INR50.7b; SDR during the quarter –

INR10.6b. All of SDR included in the watch-list; 90% of 5:25 not included in the

watch-list; 50% of restructured book included in the watch-list.



Non watch-list credit cost ~89bp during the quarter. Credit cost in 2H to be

similar to 1H. FY17 could be the peak in terms of slippages as well as credit cost.



During the quarter, the bank sold assets with gross outstanding of INR23.16b

and net book value of INR11.3b to ARCs against net sale consideration of

INR8.2b, comprising INR1.59b in cash and INR6.63b in security receipts value.



Exposure to top 20 borrowers significantly reduced.



No restructuring in this quarter.



Total SR in books ~INR14b.

Others



Management wants to head in the direction of ~70% PCR. But no specific

guidance given for the year.



INR1.6b contingency provisions o/s.



FCNR outstanding at INR68b.



Average size of branches has come down from 2500sq feet to 800-1200sq feet.

Entire ATM network is outsourced. Therefore, decisions regarding the location,

opening/closing of such ATMs depend on the outsourcing partner.



Capital consumption has been high due to lower return ratios and growth. While

current capital position is comfortable, the bank might consider non-equity fund

raise if required; however, equity raise will not be considered.

November 2016

Bank of Baroda

Current Price INR 162

Click below for

Results Update

FINANCIALS/BANKS | Voices

Buy

Asset Quality



NPA target of INR450-500b still holds. Slippages to be in line with guidance given

earlier. Targeting NNPA less than 2% by FY19-20.



Of total slippages of INR28.6b, fresh slippages were INR22.5b.



SDR during the quarter amounted to INR23.7b; o/s at INR36.4b.



Outstanding SMA-2 portfolio at INR125.7b v/s INR181.2b in 1QFY17.



SMA 1 o/s at ~INR100b.



No 5:25 during the quarter; o/s 5:25 at INR25.8b.



Had planned to sell INR15b in this quarter, but did not do so; asset sale may be

done in coming quarters, though no timeline mentioned.

Other highlights



The bank expects some deceleration in capital owing to increase in risk weights

as a result of the RBI’s guidelines relating to corporate exposures of INR1b and

above.



Expects INR10t to flow back into the banking system as a result of the

government’s demonetization scheme. BoB expects to maintain its market share

of 4-4.5%.



In 2 days succeeding the demonetization scheme, BOB mobilized INR115b in

deposits, of which INR95b was in CASA deposits (SA – INR70 and CA – INR25b).



Aspirational target of 12-15% loan growth CAGR over a period of 2-3 years.



Bank is planning to open 300 digital branches. Owing to low costs and high

customer satisfaction, these branches should be profit accretive after 1 year of

operations.

Bank of India

Click below for

Results Update

Current Price INR 117

Neutral

Asset Quality



The bank has guided for INR175b in slippages for FY17. Slippage guidance for

3QFY17 at ~INR30-35b.



The bank does not expect incremental slippages to exceed the amount of

recoveries and upgradation. Hence, in absolute terms, GNPAs should remain

largely stable. If loan book growth picks up, GNPA as a % may remain at the

same levels/come down.



S4A – 2 accounts with exposure of INR1.8b are approved.



Out of gross slippages of INR39.6b during the quarter, relapse from restructured

book accounted for INR18.6b.



SMA 2 book o/s INR132b.



5:25 o/s INR29b.



Most of slippages have come from SMA2 and restructured book.

Balance sheet-related



The bank is likely to see shrinkage in overseas portfolio owing to FCNR deposits

coming off.



Targeting a 45:55 corporate: retail book mix in next 18-24 months.



Management has guided for advances growth of 12-15% over 2-3 year horizon.

Deposit growth also to be in the range of 12%.



The bank is on the process of recovery with there being a conscious strategy to

consolidate balance sheet, leading to muted loan growth.

November 2016

FINANCIALS/BANKS | Voices

P/L related



See C/I stabilizing at 50-55%; however, a lot depends on other income to take

into account the denominator effect.



Average age of officers ~40 years. The bank is putting systems in place for

effective succession planning.

Canara Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 304

Neutral

Balance sheet related



Focus on consolidation of balance sheet in FY17.



Targeting a 64-65% retail, SME and agriculture portfolio mix in overall loan book

(as this offers better yields as well as lower delinquencies).



In corporate lending segment, the bank feels it has become much more

competitive with MCLR, allowing the company to get access to higher quality

corporates.



No significant FCNR deposits raised.

P/L related



The bank made gain of INR830m through the sale of PSLC certificates (it had

surplus in PSL target). Yield on PSLC certificates ~2.5-3.5%.



NIMs benefiting owing to traction in CASA, coupled with improvement in NPA.

Aim is to bring cost of deposits down to ~6%. Management has set itself a target

of 2.5% domestic NIMs.

Asset Quality



Credit cost guidance: 1.7% in the current year; lower slippages expected, but

PCR may be increased due to which provisioning will be high.



No sale to ARC –bank believes it is more efficient in recovery;



5:25 during the quarter amounted to INR3.37b, overall 5:25 refinancing book

o/s at INR65b. All are standard assets except for 1 account of INR5.63b.



SDR during the quarter INR10b with total book outstanding at INR60b. Within

this, ~INR50b are restructured accounts.



3 accounts in S4A during the quarter - INR7b, just commenced during this

quarter so o/s will be the same amount.



SMA 2 book at INR170b; 4-5 chunky accounts with ~INR100b exposure (all

standard).



Slippages sub INR20b in each of the remaining quarters in FY17.



Aiming to bring GNPAs below 9% by March17, the bank is focused on recovery

through all resolution tools available from the RBI.



Actual recovery is greater by another 500-600m, which has been utilized for

netting off against provisions in P/L.

Capital



Canara bank may plan to raise funds through a rights issue amounting to

INR11.28b, of which INR7.48b will be raised from the government and the

balance amount from the public (~INR3.8b).

November 2016

FINANCIALS/BANKS | Voices

DCB Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 109

Neutral

Loans



Management reiterated focus on non-corporate book and said that corporate

book will grow slower than overall book. Management is hopeful of revived

tractor demand due to good monsoon.



Around 65-70% of mortgage book comprises LAP. Average ticket size is INR4.5m

and maximum is INR30m. While management acknowledged concerns in LAP

industry-wide, it is more in higher-ticket-size segment. However, yields are

under pressure and quantum of balance transfers have increased this year

compared to last year. But lenders rarely have had to take haircuts in case of

NPA. However, DCB continues to maintain stringent underwriting standards and

does not foresee any risk in the portfolio.



~50-60% of SME loans in large cities and 70-75% of SME loans in small cities are

sourced externally.



DCBB’s exposure to the MFI segment comes from a) Loans to MFIs b) MFI loans

from BCs and c) Purchase of PTCs. Overall exposure from all three sources would

be ~INR6-6.5b. The exposure to this segment is purely for PSL purposes.

Asset quality



Management commented that corporate book NPA of INR860m comprises just

4-5 accounts. It would take some time to resolve the issues in those accounts.

Capital



Management is comfortable with their capital position. It may consider raising

AT1 capital. However, it would not need CET1 capital for another 12 months.



Capital consumption spiked in 2QFY17 on account of strong loan growth as well

as investment of float money in short-term PTCs (higher yield than money

market instruments), which carry higher risk weights.

Others



Management is comfortable with 3.7-3.75% NIMs. It also expects run-rate CASA

deposit growth of 20-25% once branches mature.



Management expects other income growth of 16% YoY for FY17.



Management reiterated that branch opening and RoA/RoE targets remain as per

plan. RoE improvement from current levels will primarily be driven by lower C/I

ratio (productivity gains coupled with growth).



Number of employees per branch is high currently, but is expected to decline

gradually.



Management does not see much action from SFBs currently, and does not

expect much competition over next few quarters either.

November 2016

FINANCIALS/BANKS | Voices

Federal Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 70

Buy

Balance sheet related



C/D ratio increased to ~75%, leading to improvement of 20bp YoY in NIM.

Target 78-80% C/D ratio. Guidance for NIMs at 3.2-3.25% for FY17 as a whole.



Gaining MS (%) in mid and large corporates – FB is opportunistically penetrating

highly rated mid and large corporates. Management highlighted 2 key aspects a)

range of offerings comparable to other banks, b) meaningful digital solutions

being deployed with packaging of such solutions better than peers. ~ 30 large

corporate clients added. Looking to be primary bankers in the mid corporate

space.



CA to remain 5-6% of total deposits. Resident saving growth will be replacing

NRE saving growth (due to oil price shocks in M.E.), thereby withstanding

Middle East headwinds. CASA ratio fall attributed to M.E.



Guidance for loan growth 18-20% (plus whatever inorganic opportunities the

bank can get).

P/L related



Other income growth to remain healthy. Both retail and corporates (for eg

salary accounts, products offered as packages) to contribute to fee income.



Planning to exit Q4 at a C/I ratio at ~50%, aspirational target of 47-48% in FY18.

Marked progress on digital front, with lower dependence on physical

infrastructure will help bring down costs.



Loan processing fees correlating with loan growth, so will remain strong.

Moreover, as the relationship management history matures, fee income growth

may pick up.

Asset quality



Fresh stress accretion in corporate to stay at INR400-450m levels (as has been

the case in Q1 and Q2).



Broad-based loan growth with diversification beyond Kerala; however, even the

Kerala portfolio is stable.



1 infra account was added in restructuring book, leading to increase in

restructured book. 1 major account (Air India) – INR2.7bn and another small

SME account coming out of moratorium in the 4th quarter, 1 has come out this

quarter.



SMA1/SMA2 ~5%. S4A done on a couple of accounts amounting to INR80-85cr

for S4A in the quarter.



Credit costs to follow the current trend.



SME portfolio is largely collateralized. Overall value recovery on SME is higher

than corporates, with Kerala recovery higher than other states.



Opening GNPA INR17.5b; Accretion 2.7b; Recovery INR4.4b; Upgrades-

INR720m, write off - INR790m.



Provision break up – Standard assets INR560m, NPA INR980m.

Other highlights



Marked slowdown in Middle East remittances. However, the bank is seeing

other quarters of the remittance matrix other than Middle-East Kerala gaining

traction (for instance: Middle East-Non Kerala, Non Middle East-Kerala). Far east

is a geography being tapped now.



Total FCNR INR65m, redemption only 20% of portfolio.

November 2016

FINANCIALS/BANKS | Voices



Contingent liability - INR221b.

Inorganic portfolio purchase – mainly mortgages – classified as others in the

financials.

Highly rated corporates command significant pricing power.

Gold loan started to pick up after continuous quarters of decline.

Capital raising – Maybe in FY18 if the current pace of growth continues.

HDFC Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 1m185

Buy

Balance sheet related



Overall cost of FCNR deposits ~8.5% (including swap costs).



Lower loan growth is seen on the corporate book (~18%YoY) because of higher

repayment during the quarter. However, the retail book has demonstrated

healthy growth.



The bank is seeing significant opportunities in SME space and the business

banking segment is also primed to grow especially with the added geographical

footprint.

P/L related



NIM declined on a sequential basis: NIM declines 20bp QoQ – 10bp reflects the

change in calculation (whereby there is an increase in the denominator), part of

the NIM contraction reflects the excess liquidity parked by the bank.



HDFCB has done some PSLC in the quarter. The bank has been both buyer and

seller in the sub limits within PSL. However, the bank does not see this as a

challenge as it had been doing PSL internally (qualified portfolio acquisitions to

meet PSL targets) for a while. Will not have significant impact on margins.



Intense competition in high-quality large corporate lending. Retail competition

is reflected in loan yields as well as in terms of fee income (such as loan

processing fees etc.). MCLR banks have become more price competitive.



No floating provisions made during the quarter.



While fee income growth has been in low teens, the quality of fee income is

granular with almost no incremental capital consumption in generating these

fees. Most of the fees are transactional in nature.

Asset quality



This particular quarter has not seen any incremental asset quality challenges in

the SME space.



Provisions for the quarter INR7.5b, INR6.5b specific, INR1b was general.



Incremental lending to infra sector – Bank primarily looking at refinancing

opportunity where project risk is complete.



The bank is not targeting any particular segment or sector. The book is well

diversified and management will opportunistically lend to segments where

there is a large credit appetite (consumption is seeing substantial demand).



Slippage in 2Q was INR14b - 1.4% annualized; recovery and upgrade - INR7.6b.



There will be some decline in investment yields (part of it led by excess liquidity

parked in low-yielding ST instruments).

Others



Some pick up in the credit card segment in this quarter (as there is an element

of seasonality in this product).

November 2016

FINANCIALS/BANKS | Voices



There has been significant growth in branches in past few years. Going forward,

branch addition will be slower. Management is comfortable with territories

covered and footprint.

RWA at INR5.7t.

Around 4,200 employees were added during the quarter, taking staff count to

~95,000 at end-2QFY17.

ICICI Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 265

Buy

Asset Quality related



Management believes overall economy is gearing up for recovery on the back of

a) Encouraging progress in resolution witnessed during the quarter, b)

promoters willing to sell not just stressed assets but also healthy assets to

deleverage, c) bankruptcy act and progress in RBIs resolution schemes, and d)

collaboration between banks and promoters.



Aggregate exposure to power, iron & steel, mining, cement and rigs sectors

decreased from 16.2% of total exposure at Mar 2012 and 13.3% of total

exposure at Mar 2016 to 11.9% of total exposure at Sep 2016.



80% of slippages in SME and corporate were on account of below investment

grade portfolio in key sectors, restructured portfolio and NPAs on 30th June 16.



5:25 - INR27b (standard assets; will be part of watch-list), SDR 29b (will largely

be in the watch-list), S4A nothing implemented so far.



Expect slippages to remain elevated in next 2 quarters.



Sectors slipping outside the watch-list – function of operating environment, not

sector specific. Expect bulk of slippage to come from the watch-list. Watch-list

includes exposures rated BB and below (excludes the existing restructured loan

book and GNPL).



O/s contingent provision ~INR20b.



Slippages from retail during the quarter: INR6.5b. Large quantum of slippages

from power and RIGs.



INR25.6b general provision – bulk of provision would be for standard loans.



S4A – RBI has talked about making positive changes to it. Will see progress going

forward.

Balance Sheet related



Continued focus on lending to better-rated corporates.



Aims to strengthen the balance sheet further.



LAP book – ~20% of home loan book. Very conservative strategy in this portfolio



Floating provision INR15b, additional standard asset provisions of INR16b made

during the quarter.

P/L related



Employee expenses up sharply as a result of decline in yields on government

securities, thereby impacting retirement pensions of employees.



NIM guidance – yield on advances will be impacted by interest income reversals

and resolution of assets where yield could go down – will be offset to some

extent through reduced cost of funds.



Rationale behind creating floating provisions is to improve the coverage ratio on

NPLs.

November 2016

FINANCIALS/BANKS | Voices

Tax rate – nil capital gain tax on sale through IPO; expect tax rate in 2HFY17 to

be broadly on similar lines as in 1H.

Other highlights



Over 0.2m virtual addresses on UPI First bank in India to successfully exchange

and authenticate remittance transaction messages, and original international

trade documents using block chain technology.



Apollo JV for asset reconstruction in the process of regulatory approval –

progress to be seen in the coming quarters.



Through the year, expect more improvement in retail fee income (67-68% of

overall fees).



IDFC Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 69

Neutral

Balance Sheet Related



Retail and mid corporate credit share has increased to 17% from 8%. Funded

retail credit stood at INR18b, of which GVF acquired portfolio amounted

INR13b.



MFI portfolio added at the end of September – adds both product and revenue

diversification, aids the last mile connectivity goals of the bank, and adds to the

customer base. Since MFI business is associated with higher margins, IDFC Bank

could see some positive impact on margins in next few quarters.



Vision FY20 - 60% of advances will be outside large corporates by FY20.

Strategically this makes sense considering pricing pressures in this crowded

segment. Also, larger banks with lower COF will always have an advantage. The

bank will try to build the retail book both organically and inorganically.



Contribution of infrastructure in overall credit has come down to 78% from 88%

in March 16. Management aims to bring down Infrastructure exposure to less

than 50% of advances by FY20.



Has not seen much activity in PSLC. Moreover, the bank prefers to acquire

portfolios to meet PSL target (~INR3b in 2Q).



Targeting 20-25% retail mix in loan book by end-FY17, 50-60% retail mix by

FY20.



Gross advances o/s amounted INR540b.



Year-end credit book will stand at INR750b, of which INR140-150b is acquired

portfolio.

P/L Related



Management expects increase in the opex run rate on account of additional

investments in physical and human infrastructure. Targeting 1,400-1,500 points

of presence by the end of FY17. Employee hiring to be strong in the current

fiscal before the run-rate of hiring moderating in FY18.



NIMs contraction can be attributed to a) higher share of funds deployed in

treasury assets b) stress loans accounting on cash basis, and c) GVK book

entered towards the end of quarter. The bank has higher COF in respect of

legacy fixed rate borrowings. As this gets replaced, margins could improve (due

to improved liability profile).



Fee income – largely from corporate banking – trade and cash management,

loan processing fee, DCM and syndication.



Trading gain includes one-off gain of INR1.66b.

November 2016

FINANCIALS/BANKS | Voices

Asset Quality



Stress loans amounted to INR90b. Net restructured asset -2.6%; SR -0.1%; GNPL-

6%; NNPL 2.4%;



Not seeing any significant change in overall stressed portfolio, while at the same

time not seeing any improvement. Management believes provisioning is

adequate at portfolio level.



Independently managed RM architecture, prudent provisioning norms followed

by the bank. IDFC Bank works in collaboration with partners and decides loan

origination standards. Also, there is some amount of loss sharing agreements

done between the bank and its partner.

Other highlights



Does not expect significant CASA ratio in next three years (aspirational target

15%). Hence, improvement in RoA will primarily be driven by lower cost to

income ratio. Over longer term (5 to 7 years), however, with a sizeable CASA

ratio, ROAs will be at par with the best in the banking system.



Customer acquisition mediums in Bharat Plus – a) Corporate salary accounts

account for 1/3rd of new customer acquisitions b) feet on street and BC and c)

digital mediums.



No need for equity capital raise in next 18-24 months.

Indian Bank

Click below for

Results Update

Current Price INR 244

Buy

Balance Sheet related



Retail growth expected to be around 20-22%. Corporate side – credit outlook is

muted, and thus overall growth may be 5-6% on a YoY basis. If corporate growth

picks up, overall growth may increase to 9-10%.



RWA growth to be in line with growth on the credit side.



No slippages in LAP this quarter, INR490m in MSME, INR450m in agri, INR1.13b

in education.



MSME segregated into two parts: 1) Below INR2.5m: 20-25% of MSME loans,

and 2) Above INR2.5m: ~75% of MSME loans with average ticket size ~INR10m.

Asset quality related



Of fresh slippages of INR9.50b, INR800m was slippage from overseas Singapore

branch (it was unexpected), INR2b was in existing NPA assets, INR2.53b from

restructured assets.



Large NPA of INR100m and above: slippages from these amounted to INR6b.



Fresh restructuring during the quarter amounted to INR3.49b.



Credit costs higher owing to 1) migration provision – 180cr 2) extra provision

(specific) of INR150.



MSME slippages only INR500m, stress has gone up because of large

restructurings in this sector. Moreover, denominator has reduced and hence as

a percentage, the stress appears higher.



During the quarter: 1 S4A: exposure 800m. Nothing in the pipeline.



9 accounts in SDR– all classified as NPLs. One account has been converted in

favor of the bank, and so expect recovery on this front.



Slippages to remain in the same range as in 1H.



INR19b of SR o/s. Nothing sold in this quarter

November 2016

FINANCIALS/BANKS | Voices

O/s 5:25: 10 accounts amounting to INR27.42b; INR18.64b classified as NPA,

rest all standard; nothing in the pipeline.



Outlook in Power: generation capacity greater than demand. With the UDAY

scheme, certain bottlenecks have been removed in DISCOM.



Stressed loans by sector: 68% in iron & steel, 17% in textiles, 7% in construction.



Maximum INR6-7b of power sector that may slip out of restructured book (in

worst case scenario).

P/L related



NIM guidance: 2.7-2.75 for FY17.



Tax rate for the year 25%.



Guidance for employee cost – does not expect any increase in the coming

quarters; no recruitments in the current fiscal – staff rationalization taking place

in branches. IBA linked wage hike.



Other expenses growth not more than 10-12% in 2H.



Account sold to ARC – accounted for as provision reversal, in other income.

Others



RBIs demonetization – positive impact both in terms of money coming into the

formal channel as well as improvements in repayments by SMEs and individuals

(due to greater scrutiny).



IndusInd Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 1,064

Buy

Liability franchise



CA deposit ratio spiked from 15.7% in 1QFY17 to 18.2% in 2QFY17. This was on

account of companies depositing IPO float money as well as deposits from some

government companies’ stock buybacks that happened toward the end of the

quarter.

Provisioning / asset quality



IIB sold loans worth INR410m during the quarter. As a result, outstanding SR

book increased from INR2.21b to INR2.37b.



IIB also has five accounts under the SDR scheme. Management expects four

accounts to be resolved soon. However, overall exposure outstanding is small

(management commented that it is less than restructured book).



Management stated that delinquencies in LAP portfolio have been in the range

of 35-45bp and expects it to stay put. Average ticket size of LAP is INR8m.

Maharashtra contributes to 36% of total LAP book, while NCR comprises 15%.

Yields in this segment are ~11.9%.



PL portfolio has higher delinquencies than LAP at around 75-90bp.



Management clarified that increase in GNPA ratio in 2W segment was due to

customer defaults on account of mandatory switching from PDC to ECS.

However, those customers continue to service loans. Management believes that

GNPA ratio in this segment has peaked.



Loans given to the Punjab government are classified as standard, yet as per RBI

mandate, all banks are holding 15% provisions against it. Banks will be allowed

to release 10% provisions in Jan, 2018 and would have to hold the remaining 5%

till the tenure of the loan.



Management reiterated credit cost guidance of 60bp for the quarter.

November 2016

FINANCIALS/BANKS | Voices

Fee income



The company did 23 investment banking deals in the quarter, resulting in 41%

YoY growth in IB fees.

General



Management expects to sustain 4% NIMs despite MCLR cuts, due to increasing

share of consumer finance portfolio as well as better cost of funds on account of

lower bulk borrowings.



Management is bullish on CV cycle from a 2-3 year perspective. Currently, yields

in CV segment range from 10% to 11.5%. Historically, LGD has been in the range

of 30-35%.



MFI AUM stands at around INR30b. Management continues to be bullish on

prospects in microfinance segment.



The bank has 292 branches in ‘Home Markets’, i.e., markets where it wants to

be a top player with at least 4-5% share in CASA deposits.



Average ticket size in mid-corporate segment is INR150-200m.



The bank is on track to reach their goal of 1200 branches by end-FY17. These

branches are yet to operate at optimal utilization.

Kotak Mahindra Bank

Current Price INR 764

Click below for

Detailed Concall Transcript &

Results Update

Buy

Balance sheet related



Post-merger, integration of systems, processes and people took time to settle

down, which led to moderate growth in business banking segment. However, it

is well primed for growth now.



Bank follows a prudent risk adjusted approach to loan growth and hence,

management maintains 20% loan growth for the full-year guidance. 1H loan

growth was slower at 13% due to implementation reasons. Will pick up in 2H.



Significantly higher than industry growth expected in savings deposits.

P/L related



NIM–Guidance of 4.2-4.3% going forward in spite of expansion this quarter

(10bp QoQ to 4.47%).



Other opex includes purchase and sale of PSL certificates.



Management confident of keeping C/I below 50% during the year.

Asset quality



Gradual improvement in credit cost as integration is complete.



No ARC sale, CDR, 5:25, conversion to balance sheet, SDR.



Credit cost guidance – 50bp on end of year loan book.

Other highlights



Not present in MFI segment currently - recent intent to acquire MF portfolio in

order to learn the business and then scale. The portfolio under consideration is

excellent in terms of asset quality.



Market share is continuously improving in CV/CE segment. Moreover, stress in

this portfolio has reduced, so team is well motivated to drive this business

further.



Significant presence of e-VYSB in the South especially in the states of AP,

Karnataka and Telangana. Management wants to leverage on this and expand to

other geographies.

November 2016

FINANCIALS/BANKS | Voices

CRE strategy focused on partnering with the best quality developers and

builders (considering that there is some stress in this segment).



Home loan and LAP seen growth driven by strong volume growth in last two

months (again a consequence of post integration). Deleveraging by customers

with several loan foreclosures seen in the quarter.



Management comfortable with current capital ratio (tier 1 -16.5%).

Digital Quotient



Mobile usage 3x greater than net banking; 118% YoY growth in mobile

transaction in volumes.



E-commerce now integrated in digital platforms with a shop-through bank-app

feature on Flipkart.



95% YoY traction in digital transactions, 79% YoY growth in payment gateway

transactions, more than 40% payment gateway transactions through mobile.



Lower hurdle of physical infrastructure going forward, considering the progress

of digital initiatives. Also, digital initiatives are being implemented and pushed

across all channels – ATMs, branches, and call centers. So the format is moving

from service to assisted self-service. However, branch presence is very essential

to acquire customers.



Oriental Bank of Commerce

Current Price INR 118

Click below for

Results Update

Neutral

Asset Quality related



Fresh slippages during the quarter: INR21.42b; Major new accounts that have

slipped this quarter - steel INR3b, engineering INR2.48b and infra INR2.37b.



O/S SDR: INR51.29b, of which NPA - INR21.75b, Standard - INR29.54.



O/S 5:25 amounts to INR20.22b (Standard INR7.62b).



O/S NPA in Iron & Steel - INR66.12b, Textiles INR17.41b, Infra INR16.17b (within

this power is INR8.25b).



Stress in infra may see some recovery considering the deal activity happening in

this sector.



Credit costs coming down on an annualized basis, may come down further. Does

not believe the PCR will come down more.



GNPA in % terms to be relatively stable. Hoping to bring it below current levels.



INR6.60b slipped from restructured book to NPA; INR5b adjustment for UDAY

scheme.

Other commentary



Adequately capitalized till 1HFY18. Future capital raisings depend on capital

infusion plans of the government.



Loan book guidance: 10% for 2HFY17.

November 2016

FINANCIALS/BANKS | Voices

Punjab National Bank

Current Price INR 138

Click below for

Results Update



Buy

Loans growth was muted at 3.4% YoY, and shift towards better rated corporate,

MSME, retail and agriculture segment is visible.

Deposits grew +6% YoY and overall CASA ratio improved to 37.6% as compared

to 36.7% in 1QFY17.

GOI infused INR21.1b in 2Q (~2% BV dilution and ~7% Equity dilution), leading to

increase in CET1 to 8.26% (+18bp QoQ).

Operating expenses increased ~8% YoY (+6% QoQ) led by other expenses (+15%

YoY); Employee cost increased 5% YoY.

CASA deposits grew 11% YoY (6% QoQ) led by strong growth in SA deposit

(+14% YoY). CASA ratio stood at 37.6% (v/s 36.7% in 1QFY17).

Retail advances grew 22% YoY (+5% QoQ) led by strong growth in housing (+22%

YoY) and ‘others’ (+26% YoY).

Risk-weighted assets declined 2% YoY (v/s loan growth of 4% YoY) despite sharp

addition in stress loans, indicating the focus of management to grow in low-risk-

weighted assets and conserve capital.

State Bank of India

Current Price INR 259

Click below for

Results Update

Buy

Asset quality



Bank has better visibility on resolution. New guidelines will help in resolution

and provide more flexibility; expects resolution in large accounts. Associate

Banks: Aligning of the recognition of NPL is now behind.



Slippages have come from stress list. Total slippages from watch-list = INR48.5b.

Corporate slippages at INR66.8b. Small accounts also contributed to slippages.

NPL in line with expectation. For FY17, slippages expected at INR400b (1HFY17

slippages of INR226b).



Watch-list = INR260b, down from INR310b in last quarter and INR348b in FY16.

Of the watch-list, INR36.8b comes from power, INR34b from Oil & Gas, INR27.8b

from iron & Steel and INR2b from construction, road and engineering segment.



Demonetization: Early to comment on the impact on asset quality, though there

may be some short-term hit.



INR150m of sale to ARCs.



Countercyclical provisions of ~INR11.5b.



62.2% of the corporate portfolio is to better rated corporate/PSUs.



Exposure to real estate sector (INR256b including loans to HFCs and lease rental

discounting) is low and if at all then given to top rated corporates.



Awaiting details on other form of stressed assets.

Other highlights



Growth guidance intact with loan growth of 11-12% for FY17. Balance-sheet

growth has been moderate, but expects to improve in ensuing quarters. MCLR

has come down by 110bp and led to lower interest income. Focus will be to exit

low-yielding loan portfolio.



Retained earnings + expected government infusion would take CAR to 14.4%, of

which Tier I would be ~11%.



During the quarter, the bank made INR16b for pension as against INR10b run-

rate. This is on account of lower yields.

November 2016

FINANCIALS/BANKS | Voices



INR7.96b was one-off which has come from service tax refund from the

government. Forex income has increased because of Iranian oil payment.

Received USD21m from overseas subsidiary.

Stake sale on general insurance – await clarity; SBI cards (no realization of

funds) deal is expected to complete in Dec-16/Jan-17; SBI Life – will take a call

on IPO; should materialize in 18-24 months.

Stake sale in BSE/NSE = not under consideration.

CP/CD Portfolio = 192b.

In last two days, the bank has mobilized INR330b of deposits, of which INR180b

is in the form of CASA deposits.

Consolidated: GNPL - 8.53; NNPL - 5.13; PCR - 55.58%. YTD associate banks have

improved CASA by 300bp YoY. Operating profits for 1HFY17 has grown by 11%

YoY.

Union Bank

Click below for

Results Update

Current Price INR 149

Buy

Asset quality related



Front loaded recognition of NPAs in 1HFY17.



Slippage: INR4b came from 2 accounts as had been accounted for in the

previous quarter; slippages lower on a sequential basis; to reduce by around

15% in each of next 2 quarters. Slippages broad-based in steel accounts,

pharma, paper. Largest account to slip during the quarter amounts to ~INR4b.



Sale to ARC - INR190m during 2Q.



No slippage out of the 5:25 standard accounts.



5 restructured accounts amounting to INR19b in total SDR book o/s.



Separate DART (Difficult-Asset Recovery Team) team put together for recovery

of amounts greater than INR500m.



SMA2 o/s at INR187.81b (7.6% of loan book), ~INR20b added sequentially.



SR o/s of INR5.78b.



S4A comprises of only standard assets.



Credit cost guidance of 1.7% for the year FY17, 1.5% for FY18. Recoveries ~10%

of the portfolio in 2H (will depend on economic recovery). Credit cost will

primarily be on account of fresh slippages in 2H (60-65% of provisioning in 1H

was owing to seasoning).



Target PCR in H2 at 55%, FY18 - 60%.



From restructured accounts, INR5b/10b coming out of moratorium in

2HFY17/FY18.

Balance Sheet related



Guidance: Loan growth: 9-10%, deposit 6-7% & CASA 32% for FY17, NIMs 2.4%.



FCNR deposits of INR617m.



Housing loan book – 60% falls under priority sector. In the remaining 40%, the

average ticket size is INR4m.



Growth in infra and construction driven by working capital loans. Infra driven by

funding of restructured loans, road projects.



0.25m accounts opened in CASA. Average deposit in new accounts much higher

than the older account.

November 2016

FINANCIALS/BANKS | Voices

Profit & Loss related



NIMs to improve to 2.4% by the end of the year driven by a) 35% of term

deposits (with average rates at 7.5-7.8%) maturing in 6 months. Currently,

Union bank can raise such deposits at 100-150bp lower; and b) impact of

interest reversals will trend lower.



Large treasury gains booked during the quarter. The bank has added more to

AFS book in the short duration.

Capital



Raised INR20b of debt capital and INR10b through additional tier-1 capital.

Board has approved INR35b to be raised in debt and equity instruments within 6

months.

Yes Bank

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 1,126

Buy

Macro commentary



Partial rollout of disbursements by the 7th pay commission should improve

consumption demand in the economy.



Expect GDP growth of 8.1% in FY17.



Tax revenue continues to be buoyant and fiscal deficit should settle around 3.5%

of GDP, CA deficit 0.7%; both at multi-year lows.



BOP expecting USD20b surplus in FY17.



Inflation is likely to undershoot the 5% target. 2nd consecutive year where

inflation has been within the target framework; may give headroom to RBI to

reduce another 25bp in the short term.

Asset Quality



Slippages at the gross level amounted to INR3b, Net slippages amounted to

INR1.8b; Most of the stress and slippages have primarily accrued in the mid

corporate space (constituting 80-90% of slippages).



Trend of moderation in restructured advances to continue.



In relation to exposures to iron & steel and EPC, the underlying portfolio is

showing improvement.



ARC sale: asset costing INR1b sold for INR0.6b – SR book has increased by 4bp to

INR2.6b (23bp of gross advances).

P/L related



Credit cost guidance – 50-60bp for the year.



Provision for NPA at INR1.15b.



Purchased INR700-800cr of PSL certificates; costs will anchor around 2-3%; 38%

PSL fulfillment currently.



Bank is seeing productivity gains, margin expansion and operating leverage,

which is helping to keep costs in check while still maintaining a healthy pace of

growth.

Business strategy



Target proportion for FY20 - retail and SME - 45%, corporate - 55%.



In corporate banking, YES is looking to become mainstream banker to the larger

corporates going forward as the bank’s pricing has become more competitive.



In the SME business, the bank’s focus is on asset-backed secured lending. The

bank may tweak the mix between service and manufacturing sector.

Commercial retail should be the driver of growth in next few quarters.

November 2016

FINANCIALS/BANKS | Voices

Complete consumer retail product offering has now been fully launched.

However, it is the latter part of next 4 years, where this particular segment will

witness a pick-up in growth.

Balance Sheet related



CA deposits had benefits of additional float funds toward the end of the quarter.



The bank aims to increase proportion of [CASA+ retail term deposits] to 70-75%

of overall deposits by FY20.



Cost of deposits 6.8%; Cost of SA: 6-6.5%.



36% of borrowings in foreign currency – completely hedged (including natural

hedging); green and infrastructure bonds constitute 10% of borrowing.



Credit substitutes –INR106b for Sept, INR111b for June.



Pricing benefits to be seen in this quarter from lowering of SA deposit rates;

rates were lowered at the beginning of Sept.



International book at USD700m all built up in last 11 months. This has the

benefit of lower/no tax structure. However, this may not be a permanent thing.



New to bank customers in SA – monthly run rate 40-50k; On incremental basis,

new savings account customer acquired - Salary 40%, non-salary 60%. However,

a salaried customer generates more value since this segment involves cross sell

and full boutique of products.

Capital



Continue to generate strong internal capital. Hence, 20% YoY growth is largely

self-sustained. All permits and approvals to raise further capital are valid till Sept

17.



RWA – inching up due to a) increase in market risk - regulatory ask is up, and b)

increase in loan mix v/s investments, since advances attract higher risk weights.

Digital Quotient



UPI has been launched. 1st bank to create UPI app for e-commerce players.

Already witnessed a million downloads.



IRIS and EMV ready solutions launched in partnership with ‘lastmile.mobi’.



November 2016

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

Asset quality



Overall asset quality trends remain

very healthy.

Margins



Margins might decline

marginally over medium

term with reduction in

share of consumer

durables segment.

SKS is already lowest cost

lender; would not reduce

rates further.

Marginal cost of

borrowings below 10%.

Yields may decline

slightly, given marginally

increasing share of retail

home loans and

conversion to floating

rate 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 guided for

10-11% NIM.

Bharat

Financial

Inclusion



Asset quality trends to remain

healthy.

Not witnessing any signs of stress in

any geography.

Asset quality trends to remain

healthy.

97% of loan book is retail; mitigates

any asset quality shock.



LIC Housing

Expects overall loan book to grow at

15% in FY17; Individual home loan

segment to grow higher.



Expect 10-12% AUM growth for FY17.

Expect pickup in growth in 2HFY17.



Mahindra

Finance

Asset quality deteriorated

sequentially, with GNPA increasing

30bp to 11.0%.



Muthoot

Finance



Expect 18-20%+ AUM growth for FY17.

Will open 100-150 new branches in

2HFY17.



Not witnessing any asset quality

issues.



Bajaj Finance

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 848

Buy

Growth guidance:



AUM growth in 3QFY17 could taper down marginally as the company pulls back

in CD financing as well as due to a high base.



70% of retail business comes from existing clients, depicting the strength of

cross-sell franchise.

Businesses:



Retail EMI business is witnessing good traction. The partnership with Future

group contributes to 30% of business.



BAF is in advanced stages of migration from DSA loan sourcing to own-sourcing.

Mortgage products, now, are primarily sourced in-house. Around 65% of

sourcing in salaried personal loans is in-house (up from 30% one year back).

Management expects this to go to 80% in next 6-9 months. In addition, 70% of

professional loans are sourced in-house.



In business financing, management is cutting back on exposure to NCR region

due to increased signs of stress. A year ago, BAF disbursed INR600m per month

in NCR. This number has come down to INR250m per month now.



They are looking to introduce a comprehensive payments portfolio with credit

card launched with a business partner as well as an online wallet.

November 2016

FINANCIALS/NBFC | Voices

Management is confident of customer addition of 3-4m per year over next 5-10

years.

Capital raise:



The company will consider raising capital in 1HCY18

Borrowing:



Cost of funds could decline 10-15bp (without including further MCLR cuts by

banks) over next few months on account of lower CoF from market borrowings.

Others:



The company raised INR20b of Tier II capital during the quarter. Acquisition cost

was expensed in the quarter itself.



Rural economy in Maharashtra is soft, while other states are doing fine.



Total securitized book of BAF stands at INR23.45b.



LTV in LAP is in the range of 55-65%.



Dewan Housing

Current Price INR 232

Click below for

Detailed Concall Transcript &

Results Update

Buy

Balance sheet related



Retail NCD launched in Aug 2016 – INR140b raised in 1 month – in line with the

liability diversification objective of the company.



Scheduled repayment for next 1-2 quarters is around INR3-4,000crs



Disbursements during Q2 - Home loan INR42.5b; LAP INR7.25b; SME INR2.70b;

Project finance INR14b.



Retail home loan segment – disbursement growth has been 15% YoY.



Targeted liability profile - Bank borrowing to be kept at ~25-30%, capital

markets borrowings to ~40%.

P/L related



COF has come down with the company in the process of substituting high-cost

borrowings. Banks are willing to cut interest rates on loans to prevent pre-

payments. Aiming to improve ROA by 20-30bp from current level in two years,

considering operating leverage and benefit of lower cost of borrowing.



Thirty party distribution fees including processing fee and commission during

the quarter - INR450m; netted against payouts, net fees comes to ~INR170m.



Target of 15-18% dividend payout – dependent on board’s view of the amount

of capital they would like to maintain.



Home loan yield for incremental loans disbursed during the quarter – 10.35-

10.5% (incremental rate).



Saving of 70-80bp in raising money from NCDs (9.1% annualized rate) v/s MCLR

(9.8% annualized)



Segment yields: Housing loans – 10.35-10.55%, LAP 12.75%-13.10%, SME

13.55%-13.80%, Project Loans – 14.75%-15.25%.

Asset quality



NPA - Home loan - 0.8-.85% LAP - 1.1-1.2%, project finance - 1.27-1.3%,

weighted avg. NPA ~0.95%.



Very risk-avert where LAP portfolio is concerned in comparison to peers;

management has guided for conservative growth of ~17% in LAP portfolio.

November 2016

FINANCIALS/NBFC | Voices

Others



Warrant pricing - The warrants (amounting to INR3.75b) were priced at 235.51,

at issuance they were at a 26-27% premium, and a 5% premium to the SEBI

mandated price. Promoters have subscribed to it one year in advance. ROE for

Q2 factors in this infusion of INR375cr.



Developer business is conducted primarily in the affordable housing segment in

outskirts, tier 2 and selective tier 3 markets – not much into luxury housing.



Business from metro locations grew 2%; however, tier 2 and tier 3 markets grew

in excess of 17-20%.



Balance transfer definitely a threat in terms of both lost customers as well as

forced re-pricing of loans.



No plans to sell stake in the life insurance business at this point of time.

Equitas Holdings

Current Price INR 153

Click below for

Detailed Concall Transcript &

Results Update

Buy

Significant investment in liability branches



Management plans to open 412 (unchanged v/s earlier guidance) liability

branches (approval in place from the RBI) over next 12 months. Key senior-level

hiring for liability branches is already done. Management expects average 8-9

employees per branch, initial cost of branch opening to be INR3.5-4m (to be

capitalized) and INR3.5-5m (depending upon location) regular cost. Of the

expected ~3,500 new employee addition (50-55% to be sales personnel) for

liability branches, ~40% were already on payrolls as of September 2016.

Technology-related cost is already capitalized. Of the expected branch

expansion in the first month (September), Equitas opened three branches and

one zonal office. Significant investments into franchise are already factored in

our estimates, and we expect opex to increase 65%/40%+ in FY17/18.

Liability diversification a key focus area



For a bank, no fresh NCD issue is permitted (current will be grandfathered) and

thus its share will come down on maturity (average NCD tenure 22-23 months,

average CP tenure 7-8 months). Of current loans from banks, 22% is refinanced

loans, whereas balance is from banks. High-cost bank loans have already been

repaid in 2Q, and prepayment penalty is thus unlikely to be meaningful. Equitas

expects deposits (mainly bulk deposits initially) to gain share in the liability mix.

Share of bulk deposits to go up



Bulk deposits are likely to replace wholesale borrowings initially; incremental

cost of raising those is ~100bp lower than current cost. The company is seeing

traction at 8-8.5% levels, and for some tenors, Equitas offers additional ~0.5% to

attract customers. The immediate focus of its liability branches is to generate

float/term deposits rather than fee income.

CASA build-up to be gradual



Equitas is focusing on creating branch/BC network as well as training employees

to be customer-ready before accepting CASA deposits. The company has only

three liability branches, which are sourcing FDs and not CASA. Branches are

expected to accept CASA deposits from mid-November, and meaningful build-

up of CASA is expected from January.

Remains comfortable on asset quality; constraining growth in micro-finance

November 2016

FINANCIALS/NBFC | Voices



Equitas focuses on a business model of small ticket-large volume revenue

stream. Its cautious growth strategy in this segment is evidenced from the

following: a) it has refrained from raising ticket sizes (current average ticket size

of INR21,000-22,000) and b) it is sticking to the two institution lending guideline

– refraining from lending to households which are already served by two

players. This is reflective in GNPAs of just 0.25% in the MF segment. As per

management, Equitas has never incurred any cash collection losses (for example

fraud on part of the employee, customer, etc.), while this has been an issue for

other MF players. NPAs have plateaued in the vehicle finance segment, giving

comfort to Equitas to grow rapidly in this business (55% YoY disbursement

growth in 2QFY17).

IDFC Ltd

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 57

Buy

Growth opportunities



The company targets end-FY17 AUM of INR25b for IDF. While growth has been

good, management cautioned that growth would slow down as a result of the

sluggish operating environment. As the number of new projects commissioned

in the past 2-3 years has been subdued, there are not many high quality assets

that have been operating for at least one year. As a result, banks want to hold

on to these assets.

There has also been some spread compression in IDF due to intense competition.



Growth in AUM in the AMC business has lagged industry growth in the past few

months. However, they got a new Head of Equities about 6-7 months ago. They

plan to roll out new equity products and diversify away from only Small &

Midcaps, which has been their niche. The share of equity AUM is expected to

increase over the medium term. Profitability, however, is superior to industry

with PAT/AUM among the Top 5 players as per management.

Capital Allocation



Management mentioned that the board recently approved the dividend policy.

Any cash that is available after accounting for statutory as well as for business

purposes will be distributed to shareholders.



Management is not holding any surplus capital at the moment, barring prior

commitments for the private equity fund or other such commitments.



Management is not averse to buybacks as a means of returning capital, as long

as regulatory shareholding rules are met.

Others



The NOHFC received INR1b in dividend pertaining to FY16 from IDFCB and AMC,

and paid INR0.78b to IDFC. These entries are eliminated upon consolidation.



When IDFC sells its stake in IDFCB (to comply with 40% ownership guidelines by

RBI v/s 53% currently), capital gains tax would be 20% (MAT).



The company is also not averse to offer buyback in lieu of cash dividend.

November 2016

FINANCIALS/NBFC | Voices

IndiaBulls Housing Finance

Current Price INR 672

Click below for

Detailed Concall Transcript &

Results Update

Buy

Loan growth



IHFL launched a new product targeted at home owners in ‘Smart Cities’. This

product was tested over the past three years and is expected to contribute 15%

of total home loan business in the next 12 months.



The company is looking to increase the range of ticket sizes in home loans up to

INR5m, from INR4m currently.



The E-Home Loans launched last quarter has received good response, and is

contributing to 11% of incremental loan sourcing.

Margins



The company is making 316bp incremental spreads, and expects spreads to

remain close to this level.



IHFL raised INR195b from the markets in 1HFY17 – more than the sum of market

borrowings in FY15 and FY16. This includes INR13b from Masala Bonds as well

as INR70b from domestic bonds (30% subscription from retail investors) during

the quarter.



Management targets that 25-30% of incremental loan book growth will be

funded through sell-downs.



Holding of cash and cash equivalents should normalize to 20% of loan book,

which should provide some support to margins.



Incremental spreads: HL – 9.8%, LAP - 12.4%, Corporate – 13.5%

2020 outlook



Management reiterated that retail home loans will comprise 66% of total loan

book by FY20.



Share of bank borrowings is expected to decline to 30% by FY18 and 20% by

FY20.

Asset quality



The company added INR300m to its provision buffer during the quarter. The

buffer stands at INR3.3b as of today. Management commented that the

company will continue to add to the buffer until it reaches INR6b.



Total provisions made during the quarter were INR1.45b, including the INR300m

added to the buffer

Others



The company expects enhanced use of technology, improved productivity and

loan mix shift towards individual home loans to result in C/I ratio to decline to

12% by FY18 and 10% by FY20.



The company has provided 65-70% against its exposure to Palais Royale. The

builder is engaged with the BMC commissioner in revised building plans and the

OC should come in next 6-9 months.



The average pre-payment penalty on LAP is 2-3%

November 2016

FINANCIALS/NBFC | Voices

LIC Housing Finance

Current Price INR 526

Click below for

Results Update

Buy

Outlook



Management reiterated its intention to contain share of LAP at ~10% of overall

loan book. Currently, yield on incremental LAP loans is 11.5% while incremental

yield for builder loans is 13-14%. There is a good pipeline of housing projects,

which should drive growth in the builder loan portfolio. However, it will not

significantly increase the share of builder loans.



Project finance expected to pick up in H2.



Eastern India has shown higher growth in business.



Fee income will remain subdued, as processing fees for home loans is minimal

and management does not intend to increase share of LAP.

To tap cash flow from Pay commission



Management is optimistic on growth in the home loan segment going forward.

LICHF has launched a new product for beneficiaries of the 7th Pay Commission,

and expects this product to generate significant business. The product is priced

at 9.3% v/s 9.4% for other floating rate products.



Pay commission would be opportunity for 6-7 quarters. Could ramp up the book

at faster pace. Lending at 9.3%, borrowing at <8%. (spread of <150bp).



Around 45-50% of borrowers are government employees. This should provide

support to growth with 7th Pay Commission implementation.



Launched special scheme for government employees at 9.30% (Generally: 9.4%)



Pay commission cash flow could actually lead to higher pre-payment (one of the

participant quoted other competitor), but LICHF does not think so.

Movement of fixed rate customers to floating rate



Portfolio getting re-priced this year, INR6,000cr.



Floating rate share is 61% in individual loans. In disb, 70% would be for floating

loans.



Fixed to floating rate converting to 9.9% floating. Waiting for customers to come

to company to further reduce it and not do it upfront.

Resale and under-construction properties



Resale properties: 20%; Rest sourced through builders and agents.



Under construction home would be 60-70%.

Repayments:



Repayment rates have come down, communicating with customers.

Disbursement



Disbursements in individual home loans have grown 13-14% in H1FY17.

Yields:



Yield on builder portfolio (incremental) – 13-14%.



LAP (incremental) – 11.5%.



Companies holding rate benefits to them, leading to NIM expansion. Primarily

because banks are holding on to rates and not passing them to customers.



Targets steady state spread of 2%.

Borrowing:



NCD redeeming in next 2 qtr. – 7000cr and 15000cr in next 1 year.



Leverage: No plans to raise capital as of yet (Tier I at 14%), but leverage is 11-

12x.

November 2016

FINANCIALS/NBFC | Voices

CP: Would increase share of CP going forward.

Margins:



Incremental NCD borrowings are at sub-8%. Around INR70b of NCDs will mature

in 2HFY17 and another 150b will mature in FY18. Management expects steady-

state spreads at 2% going forward.



Management intends to increase the share of public deposits as well as CPs over

the near-to-medium term.



Around INR30b worth of loans moved from fixed rate to floating rate in 2QFY17,

and INR60b is expected to get re-priced in FY17.

Others:



Expenses towards wage arrears in the quarter – INR90m



Around 70% of home loan disbursements are at floating rate.



Management has no plans to raise capital in the near term.



Around 20% of individual home loans are backed by resale properties and 60-

70% from under-construction properties.



Commission to agents on under construction loans is linked to % of disbursals.



Higher processing fees on LAP.



Top 7 cities – 45%.



M&M Financial

Current Price INR 273

Click below for

Detailed Concall Transcript &

Results Update

Buy

Macroeconomic Conditions



Management noted that South India is on the cusp of a turnaround. AP and

Telangana are witnessing increased infrastructure investments. TN has had good

monsoons. Karnataka is good in some districts, while some pockets still remain

weak. Maharashtra, too, is on a positive trend with slippages declining.



Collection efficiency has been improving and averaged 94-95% in September.



Management commented that farm sentiment is good. However, there has not

been much pickup in infrastructure.



Festival demand has been above average.

Business Updates



The company restarted repossession of vehicles on which more than 50%

provisions are already made (i.e. 12 month overdue accounts). The stock of

repossessed vehicles increased from ~5,000 in June to ~10,000 in September.

Average value per vehicles is INR0.3m. Asset valuation of repossessed vehicles is

done twice a year.

Asset Quality



Number of NPL accounts stands at 175,000.



Management believes that current PCR of 52% is sufficient given the collateral

outstanding.



GNPA at 90dpd would be 14-15%.



Write-offs during the quarter were INR1.38b, while the company wrote back

INR70m in 1QFY17.



Management estimated run-rate credit loss to be 2.5-2.75%.

Others



In 1HFY16, there was income of INR380m from provision reversal. Additionally,

migration to 120dod resulted in INR400m impact in 1HFY17.

November 2016

FINANCIALS/NBFC | Voices



In MIB subsidiary, there were investments made in branches as well as BPO for

renewal business. As a result, PAT was down 5% YoY.

Muthoot Finance

Current Price INR 296

Click below for

Results Update

Buy

Demonetization impact



Management expects impact of demonetization to last for next 2-3 weeks, post

which things should return to normalcy slowly.

Business Updates



MUTH has worked on improving ground level sales and marketing efforts, as a

result of which, has won back some old customers who had migrated to banks.

This helped in achieving strong AUM growth during the quarter.



Around 6% of disbursements and repayments are online. Additionally, all loans

above INR100,000 are disbursed by cheque. Such loans account for 30% of total

loan book.



Management increased AUM growth target for FY17 from 15% earlier to 18-

20%.



The company took advantage of falling short-term rates and borrowed heavily

from CPs. Management intends to maintain the proportion of CPs at this level.



MUTH plans to open 100-150 branches in 2HFY17 and would also merge some

existing branches.

Others



ICRA upgraded their NCDs to AA (stable) from AA- (stable).



The company has been focusing on increased technology use for customers.

They have had a tech web-pay portal for last 7-8 months. They also launched a

mobile app one month back.



Maximum LTV offered for six month loan product is 75%, while that for 12

month loan product is 65-70%. Average LTV currently is 63%.

Shriram Transport Finance

Current Price INR 850

Click below for

Detailed Concall Transcript &

Results Update

Buy

Macroeconomic conditions



Expects growth to rebound in 2H (on the back of good monsoon and improving

macroeconomic conditions).



With widespread monsoon and good reservoir levels, expect a very good Rabi

crop.



HCVs sales down were largely seasonal phenomena as there was low activities

level due to good rains.

Growth guidance



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 couple for years more. Not likely

to touch previous highs of 3.5%+ anytime soon (at least until 90dpd provisioning

norms are fully phased in).

November 2016

FINANCIALS/NBFC | Voices

AUM/disbursement



AUM by vintage: <5yr old – 21-22% of book; 5-10yr old: 71-72%; >10yr- ~6-8% of

the book.



Yields: New vehicles: 14-14.5%; <6yrs – 15-18%; >6yrs – 18-26% (depending on

vintage).



Total disbursement: INR98b. New CVs: INR5b; Used: INR93b.

Yields



Decline in yields due to new CV business growing at faster clip. In used CV too,

<10yrs vehicles (4-6 years old vehicles) are increasing.



Company has deliberately decided to finance lower vintage vehicle 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: 4.5% on core CV book and (including CE book 5.8%).



The company will migrate to 120dpd in 4QFY17.



At 120dpd, GNPAs would be 100-150bp higher than 150dpd (i.e. ~8%).



Write-offs: 2QFY17: Write-Offs: INR3.3b (INR130m in CEF).



Expect GNPA to have peaked out, expects improvement going forward.

However, provisions likely to remain at same level.

CEF subsidiary



Written off INR130m loans in CEF during the quarter.



GNPA has increased from INR8.93b to INR9.60b. The company holds INR7.40b

provisions against these NPAs.

November 2016

HEALTHCARE | Voices

HEALTHCARE

In pharmaceuticals, overall sector sales and EBITDA margins were marginally above estimates. Excluding one-off

opportunities, growth in US sales remained muted, primarily owing to increased pricing pressure. India

formulations sales rebounded strongly in 2QFY17, after being impacted by external factors like FDC ban and NLEM

2013 since 4QFY16. Emerging markets 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 normalize with stable currency movement. Overall, earnings growth

should improve over the next few quarters.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY17

Cipla



US Filings



R&D expenses to stay at 8% of sales.

Guided for over 15 launches in the US in 2HFY17.

Plans to file 20-25 ANDAs in FY17 (12 filed in 1HFY17).

Expects sales to recover in 2HFY17, driven by key approvals,

including Gleevec.

Clarity on Aloxi litigation should emerge in 3QFY17.

Remediation plan largely over; DRRD is planning to set face-to-

face meeting with USFDA.

Guidance for Gavis sales brought down to ~USD250m for FY18

(v/s USD300m earlier) due to slow ramp-up.

~10 and 30 ANDA launches expected in 2HFY17 and FY18E,

respectively.

EBITDA margin guidance of 26-28% for next few quarters.

Tax rate guidance of 25%.

Maintained guidance of 8-10% revenue growth in FY17.

Significant synergies from Ranbaxy integration to be realized in

FY17.

R&D expenses to stay at 9% of sales.

Pending ANDAs stand at 83.



Dr Reddy’s Lab



Pending ANDAs at 83 (56 para IV and 19

FTFs).

Pending NDAs (505 (b)(ii)) at 3.



Lupin



Pending ANDAs stand at 142, of which

45 are FTF opportunities, with 25

exclusivities.



Pending ANDAs stand at 144.

Sun Pharma

Alembic Pharma

Current Price INR 644

Click below for

Detailed Concall Transcript &

Results Update



Neutral



Capex for FY17 to be ~INR6b (~INR10b over next two years).

ALPM launched 23 products through own front-end in last 12 months.

R&D to be ~INR4-4.5b in FY17.

Oncology oral solids and injectable facilities to be operational by FY17-end.

Onco injectable filling will start from 2HFY18.

General injectable and Derma filings in the US will start from FY19.

12-16 ANDA approvals expected till FY18-end.

~33 pending ANDAs, of which ~40% are Para IV/ FTFs.

Benicar launch expected in April-17 (expected to be a crowded market).

India formulations (41% of sales):

India’s branded formulation grew 17.2% YoY

to INR3.6b. ALPM’s acute segment witnessed strong 22% YoY growth after being

impacted by external factors like FDC ban and NLEM in 1QFY17. The specialty

segment grew 16% YoY in 2QFY17. Cardiology business witnessed 17% YoY

growth for the quarter, while the Anti-diabetic and Gynecology grew 28% YoY

and 34% YoY, respectively.

International Generics (40% of sales):

International business grew 40% YoY to

INR3.5b, primarily led by higher sales in the US. 23 products have been launched

by Alembic USA under its own brand. Sequential increase in international

November 2016

HEALTHCARE | Voices

business is also attributed to increase in market share of Abilify and launch of

existing products under own front-end (23 in last 12 months).

Alkem Laboratories

Current Price INR 1,695

Neutral

Click below for

Detailed Concall Transcript &

Results Update

India business (76% of sales)



Alkem’s India sales reported INR12.2b sales in 2QFY17, exhibiting 18% YoY

growth. However, 2QFY16 domestic revenues were inflated (Part of 1QFY16

revenues were deferred to 2QFY16) due to change in accounting treatment

(revenue recognition changed from invoicing to shipment). Post normalizing

impact of this, domestic revenue growth was higher than the reported 18% YoY

growth. India sales grew 20%YoY in 1HFY17.

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 ~3% 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 22.9% YoY (as

per IMS), ahead of the IPM which grew 14.5% YoY. Alkem continued its

outperformance in Anti-infective, Gastro-Intestinal, Pain and Vitamin therapies.

Growth was also supported by market outperformance in the emerging

therapeutic segments of Neuro/CNS, Cardiac and Anti-Diabetes. Management

expects India business to deliver mid-teens growth in FY17E/FY18E.

Aurobindo Pharma

Current Price INR 731



Buy

Click below for

Detailed Concall Transcript &

Results Update



Net debt down to USD484m at end-2QFY17 (down ~USD40m QoQ).

Price erosion in US expected to be ~6-8%.

Tax rate to be ~26-27% in FY17E/FY18E.

Depot injectable trials to commence toward end-CY2018 (R&D to rise toward 7-

8%; our est. of 7.5% in FY19).

Injectables sales in US at USD38.3m (poised to achieve USD150m in FY17E;

>50%YoY growth)

EU sales from Vizag expected to start from 4QFY17.

US (46% of sales):

US business grew 17.8% YoY to INR17.3b in 2QFY17, owing to

higher volumes and new product launches during the quarter. 7 oral solids and 4

injectable products were launched in the US in 2QFY17. Going ahead, Aurobindo

is expected to launch 20-25 products every year in US market, sustaining the

current growth momentum over next two years.

Europe & RoW (26% of sales):

In 2QFY17, Europe and RoW business improved

7.6% YoY to INR9.9b. Europe grew 6.4%YoY to INR8.1b, while RoW sales grew

13.3% YoY to INR1.77b in 2Q. Turnaround within the Europe business remains

on track with management’s EBITDA margin guidance 7-8% by FY18. Aurobindo

Pharma transferred manufacturing of 1 product from Europe to India in 2QFY17;

cumulatively manufacturing of 37 products has been site transferred as on 30

November 2016

HEALTHCARE | Voices

September 2016. Overall, we expect EU & RoW segment to exhibit 8% CAGR

over FY16-19E.

Biocon

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 861

Sell



Malaysia facility

is expected to get commercialized by 2HFY17 as it has already

received approval from Malaysian authority. Overall capital expenditure

incurred is estimated to be USD250m for this plant.

Branded Formulations:

The Company maintained its FY19 revenue guidance of

INR10b.

R&D guidance:

Biocon will be incurring gross R&D spends of ~INR4.5b in FY17.

~INR3b will be expensed through P&L, while the company will capitalize the

remaining ~INR1.5b.

Partnered products:

Biocon-Mylan’s biosimilar submission for Trastuzumab

(Herceptin) and Pegfilgrastim (Neulasta) was accepted by the European

Medicines agency in 1HFY17. Biocon is on track to file other two key molecules,

namely, Adalimumab (Humira) and Glargine (Lantus) in FY17 in developed

markets.

Copaxone approval:

Biocon has received queries from the USFDA relating to its

ANDA for generic Copaxone 20 mg and 40mg. The company is yet to respond to

these queries.

gCrestor launch:

Biocon has not yet launched gCrestor in the EU. Biocon will be

launching its generic version in the US in 2HFY17.

Cadila Healthcare

Current Price INR 392

Click below for

Detailed Concall Transcript &

Results Update

Buy

US Formulations (41% of sales)



US revenues declined ~1.5% YoY to INR9.9b in 2Q, as authorized generic sales of

gAsacol HD were largely offset by lower HCQS revenues.



The company launched 4 new products in the US in 2QFY17 and received 1

product approval during the quarter. Cumulatively, the company has received

107 ANDA approvals till date. Management has guided for seven additional

ANDA approvals by Dec-16. Additionally, Cadila filed 4 ANDAs in 2QFY17.

Cumulatively, the company has filed 279 ANDAs in the US market.



According to management commentary, CDH has site transferred 13 products

till date (all approved ANDAs). Additionally, site transfer for key products like

Lansoprazole and Metroprolol has also been completed.



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 (34% of sales)



Domestic branded business exhibited ~8.8% YoY growth in 2QFY17, and

underperformed IPM. Ex WPI linked price adjustments, FDC ban domestic

branded business exhibited ~13.3% YoY growth in 2QFY17. Overall, we project

11% CAGR over FY16-18E for India business.

Europe Formulations (2% of sales)



Europe business continued to underperform as sales declined 14% YoY to

INR557m in 2QFY17. Management had earlier guided for EU revenues exhibiting

November 2016

HEALTHCARE | Voices

growth in line with respective market growth in coming years (4-6%). As per

2QFY17 commentary, CDH is rationalizing its product portfolio in Europe to

improve profitability of the business.

LATAM Formulations (3% of sales)



LatAm business was the only bright spot as revenues increased ~24% YoY to

INR656m in 2QFY17. Growth was aided by 12.5% price hike undertaken in April

2016. In Brazil, CDH filed 1 dossier in 2QFY17 and got approval for 1 product. In

Mexico, the company launched three products.

Other takeaways



Effective tax rate to increase to 22%-25% levels in FY17E, due to lower sale of

goods from India to CDH’s global subsidiaries.



Increase in depreciation is attributed to commissioning of new facility.

Management expects quarterly run-rate of depreciation to remain at 2Q 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).



Biosimilars business stands at INR3b. CDH is undertaking clinical trials for seven

biosimilar products for emerging markets, and two biosimilar products for

regulated markets.

Cipla

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 552

Neutral



R&D as % of sales stood at 8%; as against ~6.5% in FY16.

Invagen sales stood at USD50m (annual run-rate at the time of acquisition of

~USD225m).

Capex was at ~8% of sales.

Net debt/equity stood at ~0.25x.

US filing for Albuterol Sulfate (gProAir) is expected in 3Q.

gAdvair launch in UK expected in 2HFY17; company does not expect to be in first

wave of launch in the US.

Filed 12 ANDAs in 1H (including limited competition product like Nanopaclitaxel,

mkt. size of ~USD700m).

Cipla plans to file 20-25 ANDAs in FY17 (50% done in 1H).

November 2016

HEALTHCARE | Voices

Dr Reddy’s Labs

Current Price INR 3,128



Neutral

Click below for

Detailed Concall Transcript &

Results Update

Effective tax rate to be ~20-22% in FY17.



Net debt/equity post Teva acquisition was 0.34x.



Two proprietary products launched in FY17, expected to generate peak sales of

USD50m each over next three years.



Remediation plan largely over; DRRD is planning to set a face-to-face meeting

with USFDA.



Aloxi district court verdict expected in 3Q.



Gleevec site transfer initiated; approval expected in 4Q.



Copaxone 20mg validation batches completed; DRRD plans to respond to USFDA

by mid-Nov-16.

Business highlights



2Q revenues increased 10.9% QoQ to INR35.8b, driven by strong sequential

growth within the domestic and emerging market businesses. PSAI business also

grew 23.3% QoQ to INR5.8b, while innovator product segment posted 6% QoQ

growth in 2QFY17.



North America (45% of sales):

DRRD North America business grew ~3% QoQ in

constant currency terms to USD245m. Sequential growth was primarily aided by

four new launches in 2QFY17 (including gNitrostat) and ramp-up in gNexium.

DRRD expects a recovery in US sales in 2HFY17, driven by key approvals,

including gGleevec. Clarity regarding gAloxi litigation expected to emerge in

3QFY17.



India (17% of sales):

Domestic formulation revenues grew ~20% QoQ and stood

at INR6.2b in 2QFY17. India business delivered strongest sequential growth in

last 8 quarters. The company has successfully integrated UCB brands.



RoW sales including Russia/CIS (13% of sales):

Revenues in Russia stood at

INR2.7b, up 17% QoQ in 2QFY17. In constant currency, revenues grew 4% QoQ.

Management expects Russia business to deliver strong growth as key tenders

are due in 2HFY17.



Europe (5% of sales):

DRRD registered 10% QoQ increase in Europe sales, which

stood at INR 1.8 b. The company is expected to launch more products in coming

quarters.

Glenmark Pharma

Current Price INR 900

Neutral

Click below for

Detailed Concall Transcript &

Results Update

India (30% of sales)



India sales grew ~11% YoY to INR6.7b, driven by ramp-up in therapies like CVS,

Respiratory and Dermatology. Growth was higher within anti-fungal and

Coughcold therapeutic sub-segments. At present, GNP is ranked 16th in India

market and has 8 brands in top 300. Expect growth to pick up further in 2HFY17,

and full-year growth is likely to normalize at 15% in FY17E. We expect India

business to exhibit 17% CAGR over FY16-19E.

US (35% of sales)



US business grew ~29%YoY to INR7.7b, primarily driven by new launches. GNP

has filed 2 ANDAs in 2QFY17, and cumulatively filed 6 ANDAs in 1HFY17. GNP

plans to file additional 7 ANDAs in 3QFY17. Additionally, GNP also received 6

November 2016

HEALTHCARE | Voices

final approvals in 2QFY17, and 11 approvals in 1HFY17 (which includes 8 final

approvals and 3 tentative approvals). As of end 2QFY17, the company is

marketing ~110 generic products in the US market, while 61 ANDAs are pending

with the USFDA (23 para IVs). US growth is expected to further pick up from

3QFY17, supported by the launch of gZetia, and increased traction within the

recent dermatology launches. We project 26% CAGR growth over FY16-19E,

supported by key product launches, namely, gZetia, gWelchol, gRenvela,

gAzilect.

LatAm (6% of sales)



Latam sales were at INR1.3b (down 19% YoY), primarily due to absence of sales

in Venezuela. Additionally, GNP is scaling down its operations in Brazil

temporarily owing to slower pace of new approvals. Management has guided

for growth in LatAm markets (Ex-Venezuela) to pick up from FY18E.

Europe (6% of sales)



Business declined 16% YoY to INR1.3b, impacted by weak performance in the

Central and Eastern European markets, and depreciation of the GBP. Next leg of

growth is expected to be supported by respiratory product launches (USD700-

800m market in Europe).

Africa, Asia and CIS Region (ROW) (11% of sales)



ROW sales were at INR2.5b, driven by strong outperformance in Russian market.

For 2QFY17, constant currency growth for Russia business was ~20%.

Subsidiaries in Malaysia, Philippines, Vietnam and South Africa also supported

growth.

Other highlights



R&D expenses of INR2.35b in 2QFY17 formed 10.5% of sales. R&D expenses of

INR4.33b in 1HFY17 stood at 10.4% of 1HFY17 revenues. 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 25% for FY17E.

IPCA Laboratories

Current Price INR 560

Click below for

Detailed Concall Transcript &

Results Update



Neutral



Top-line growth for 2HFY17 estimated at ~15% YoY.

EBITDA margin guidance brought down from ~16-16.5% to ~14.5% for FY17

(~150bp impact due to Brexit).

Current tax rate to be at MAT rate; additional deferred tax of ~INR70-

80m/quarter. FDA remediation cost to be ~USD5m in FY17 (1/3rd in 1H and 2/3r

in 2H).

All three plants under import alert by US FDA will be offered for re-inspection

starting Jan-17 (Piparia followed by Pithampur and finally Ratlam); Resolution

expected in 2HFY18.

Higher-than-expected recovery in US sales, led by sharp price hikes in key

products (Hydroxychloroquine sulfate, Propranolol).

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.

November 2016

HEALTHCARE | Voices

Lupin

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 1,487

Buy



US branded business witnessed sales of USD20m (-10% QoQ) primarily

attributable to lower Suprax sales (seasonality factor). Gavis business was

marginally up sequentially, driven by ramp-up in Methergine. Gavis’ generic

business was fairly stable QoQ.

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 2-player market, 2 additional generic companies have received

approval but not launched). With respect to gFortamet, management indicated

1 additional competitor could enter the market in the near term (currently a 3-

player market).

LPC expects 10 new launches in 2HFY17 and 30 new launches in the US in FY18E.

The key material launches in end FY17-FY18 are gMinastrin 24 Fe (FTF, Expected

Mar 2017), gTamiflu (FY18), gFosrenol (FY18), gPrevacid Solutab (FY18) and

gWellbutrin XL, gPaxil. Additionally, dermatology and controlled substances

product launches over FY17-18 to also contribute toward overall US sales

growth.

Additionally, management has guided for niche ANDA approvals of gWelchol,

gRenvela and gRenagel beginning 2HFY18. The company has received CRL’s

outstanding from the USFDA for these products, and intends to respond to the

queries raised in 2HFY17.

Guidance for R&D as % of sales maintained at 12-15% in FY17 (~INR25b). LPC

reported a 47% YoY jump in R&D expenses in 2QFY17 to INR5.7b (13.3% of net

sales) compared to 11.6% of net sales in 2QFY16 as specialty therapy focus

continues for its pipeline.

Lupin intends to file 30 ANDAs in FY17 (6 ANDA’s filed in 1HFY17). The company

intends to file for Albuterol Sulfate (gProair HFA) inhaler in 3QFY17 (USD2b

market). Perrigo has already filed its ANDA.

Capital expenditure outlay of USD250-300m in FY17.

Lower FY17 tax rate guidance of 25%, owing to Ind-AS accounting benefits

Sun Pharma



Current Price INR 701

Click below for

Detailed Concall Transcript &

Results Update

Buy



SUNP has invited USFDA for Halol re-inspection; resolution could take three

months from the time of inspection (resolution expected in FY17).

SUNP on track to achieve USD300m from Ranbaxy synergies by FY18E (large part

of QoQ decline in other expense could be attributed to this).

Ophthalmology team build out is done.

Revenue from acquisition of Novartis’ (Japan) brands is part of other operating

income.

Maintains R&D guidance of ~9% in FY17 (<7% in 1H).

Sun Pharma’s US subsidiary Taro reported 2Q numbers on 9th Nov 2016.

Revenues came in at USD229m, up ~8% YoY (~2% above est.). 2QFY16 net

sales were negatively impacted by USD19.6m provision for price adjustments.

Adjusted for this, sales declined 1.2%YoY. Muted sales growth is attributed to

November 2016

HEALTHCARE | Voices

few new approvals and competition in existing portfolio.

Gross margin declined 210bp YoY to 77.5%. EBITDA of USD140m was up

~14% YoY. EBITDA margin came in at 60.3% (up 310bp YoY) owing to lower R&D

expenses and reduced marketing spend towards Keveyis (Taro has ceased

commercial sales).

Reported PAT of USD 123.7m was aided by forex gain of ~USD13.4m. APAT at

USD110m was up 12% YoY.



Torrent Pharma

Current Price INR 1,339

Click below for

Detailed Concall Transcript &

Results Update



Buy

US (23% of sales):

US business declined ~55% YoY to INR3.2b, primarily owing to

price erosion and increased competition in gAbilify. Additionally, TRP’s US

business (ex-gAbilify) also witnessed pricing pressure.



India (35% of sales):

Domestic business grew 12.5% YoY to INR4.96b as against

INR4.4b in 2QFY16. Growth was primarily led by price increases of ~6% YoY,

while volumes remained muted.



Brazil (8% of sales):

Brazil revenues grew ~20% YoY in INR terms (~8% YoY in

constant currency) on the back of ~12.5% price increase in the portfolio.

Constant currency growth was impacted due to a decline in tender business

(~30% of Brazil business). Additionally, certain constraints with its quality

control lab also impacted its trade business. However, TRP has now undertaken

the required capex and resolved the issue with its QC lab.

Other Key Takeaways



R&D as % of sales expected to increase to ~7-8% in FY17 (~8% in 2Q).



8 products approved in the US from Dahej since April-16.



Glochem acquisition was worth ~INR1.2b, and will help expand API capacity by

~40%.



~13% of portfolio under NLEM.



18-20% tax rate expected in FY17E.



Company has responded to all USFDA queries relating to its ANDA for gRenvela

(Sevelamer).



USFDA has raised one query related to TRPs ANDA for gSeroquel XR (Quetiapine

Fumarate). The company is yet to respond to the US FDA.



TRP has guided for capex of INR15b over next three years.

November 2016

MEDIA | Voices

MEDIA

Broadcasters



Ad growth for Zee remained strong at 16% YoY; however, the company suggested that 2H could see a

moderation in FMCG spends (55-60% of ad revenues).



Domestic subscriptions grew 25% YoY, which was largely a function of early closure of content deals and some

amount of catch-up revenue from 1Q. A meaningful uptick in domestic revenues from Phase-III digitization is

expected only after subscription/content contracts are finalized. The management expects mid-teens growth in

domestic subscriptions in FY17.



Other sales & services (includes movie business and sports syndication) revenue more than doubled YoY to

INR1.53b (our estimate was INR1.31b), largely led by strong box-office performance of ZEE co-produced movie,

Rustom, and cricket-related syndication revenue.



Ex-sports margins remained largely in line, improving ~560bp 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



Unlike FY16, the entire

Shradh

season (a period considered inauspicious by the Hindus, during which they

restrict purchases) fell in 2QFY17. Typically, advertisers limit spends during this season. Print ad revenues grew

7% YoY to INR3.3b (7.5% below our estimate of INR3.57b). Ad growth in 2Q and 1HFY17 was largely volume-

driven.



For DBCL, circulation growth moderated from its 4-year 15% CAGR.



Print companies believe that newsprint prices have bottomed out and there could be 3-4% escalation in FY17.

Distribution Platforms



DITV added 0.26m net subscribers in 2Q. The low net adds were largely a function of seasonality.



ARPU declined 2% QoQ to INR162. Unlike FY16, the entire Shradh season fell in 2QFY17. Typically, advertisers

limit spends during this season. Print ad revenues grew 7% YoY to INR3.3b (7.5% below our estimate of

INR3.57b). Ad growth in 2Q and 1HFY17 was largely volume-driven, as (1) 0.5m-0.6m subscribers down-traded

to cheaper packs in 1H, and (2) the cable industry’s inability to increase monetization in DAS-III markets

beyond INR35-40/subscriber/month left no room for ARPU increase. Notably, ARPU growth has also remained

largely flat QoQ for Airtel (INR232) and Videocon d2h (INR209).



Content payout grew 3% QoQ to INR2.39b (2% above our estimate of INR2.35b). Despite the company entering

the first round of content renewals in 2HFY17, the management is confident of containing content cost

escalation to 10-12% YoY in FY17 (as against cost increase of ~13%/17% in 1H/2Q). We, however, factor in a

conservative 14% YoY increase, in line with historical renewals.



Margins remained flat QoQ, led by unfavorable operating leverage.

Dish TV



Current Price INR 85

Click below for

Detailed Concall Transcript &

Results Update

Buy



Subscriber additions: DITV added 0.67m

net subscribers in 1HFY17 and

continues to maintain its guidance of adding 3-3.5m gross subs and 1.5- 1.9m

net subs in FY17.

ARPU and content cost guidance:

Management remained non-committal on

ARPU growth in FY17 as the focus is to penetrate deeper into the hinterland

with Dish99 – which is ARPU-dilutive. The focus would be to increase revenues

and not ARPUs.

DAS IV opportunity size and expected implementation:

DAS IV has ~84m

subscribers, of which 38m are already digital. The balance 46m is up for grabs.

Management expects the DTH industry to capture half of these untapped 46m

analog subscribers. Expects DAS IV to be fully implemented over a period of 3-4

years.

November 2016

MEDIA | Voices



Product-wise off-take:

HD boxes constituted 30% of gross adds; Dish 99

constituted 20-22%; Zing contributed 12% to gross adds and the balance 34%-

36% of gross adds were SD.

Geographical revenue split:

Top 100 cities/towns accounted for 35% of

revenues with the balance 65% coming from rest of India.

EBITDA margin guidance:

Management has guided for ~35-37% EBITDA margin

for FY17.

License fee:

Management expects the cabinet nod on the license fee

recommendation in a month.

Tax expense:

Guided for ~INR1b of taxes for FY17.

Debt and inventory position:

Gross/net debt stood at INR12.75b and INR6.25b,

respectively. The company as on 2QFY17 has inventory of ~0.75m set-top boxes.

Content cost guidance:

1H’s 13% YoY spike in content cost included INR120m

one-off payment. Management is confident of containing content cost

escalation to 10-12% in FY17.

0.5-0.6m subscribers down-traded packs in 1H:

0.5-0.6m subscribers

downtraded to lower value packs in 1H. However, management is increasing its

HD focus and expects ARPUs to hold up due to increased HD off-take.

Hindustan Media Ventures

Current Price INR 271



Buy

Click below for

Detailed Concall Transcript &

Results Update



Ad growth outlook:

Despite weak ad growth in 1H (4% YoY), the company is

confident of clocking ad-growth of double-digits in 2HFY17. Weak ad growth

was a function of reduced ad spends by select advertisers (BFSI, E-commerce,

and Real Estate) in select geographies due to a weak outlook and high base

effect of Bihar elections last year. 2H looks promising given 1) Entire festive

season falls in 3Q, 2) UP Elections in 2H and 3) Gains of good monsoon and 7th

Pay Commission to trickle down in 2H.

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. In 2Q, ad yields and volumes

contributed evenly to underlying 7% ad growth.

Key performing categories:

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 3% circulation revenue growth

was due to higher circulated copies. HMVL’s blended CP is estimated to be at 1Q

levels of ~INR3.7/copy and avg. realizations at INR2.2. Circulation per day is

estimated at 2.7-2.8m copies. In select markets of Bihar (post DB Corp’s

entrance), HMVL has taken cover price cut to protect its turf. However,

management highlighted that 3Q should mark a reversal of this trend. Expects

increase in circulated copies largely in UP.

Newsprint Outlook:

Management highlighted that while newsprint prices have

marginally inched up by 2-3% in 1H. It expects newsprint prices to stabilize at

current levels of ~INR34.5/kg for coming quarters.

Geographical performance:

NCR/Bihar, Jharkhand/UP and Uttarakhand

contributed 20%, 40% and 40% of revenues, respectively. Mature markets

margin remained north of 30%, while UP margins stood at ~20% in 2Q.

November 2016

MEDIA | Voices



Cash continues to remain idle; maintenance capex to be restricted to ~INR0.2b

in FY17:

HMVL reported net cash position of ~INR7b. Management remains non-

committal on the use of this cash. HMVL’s capex is largely going to be toward

maintenance in FY17 and has guided for capex of ~INR0.2b.

Zee Entertainment

Current Price INR 458



Buy

Click below for

Detailed Concall Transcript &

Results Update



Advertisement outlook:

FMCG segment which accounts for ~55-60% of Zee’s ad

revenues is expected to moderate ad spends in 2H, which could impact industry

growth in coming quarters. E-Commerce spends (albeit a small base) are also

tapering off.

Domestic subscription:

Strong 25%-domestic subscription growth this quarter

was largely a function of early closure of content deals this year v/s previous

years and some catch-up revenues from 1Q. Unlike previous years, in FY17,

domestic subscription skew would be higher in 1HFY17 viz-a-viz 2HFY17.

Domestic subscription guidance of mid-teens growth remains unaltered for

FY17.

Programming strategy and costs:

Zee intends to rev up its original programming

hours (OPH) for its flagship Zee TV to ~30 hours/week (currently: 26

hours/week) and &TV to 24 hours/week (currently 21 hours/week) by end FY17.

A commensurate viewership gain could help in better ad monetization, partially

mitigating any moderation in FMCG ad spends. Telecom ad spends are expected

to pick up in 2H.

Regional portfolio performing well:

Zee’s regional portfolio is performing well.

It has managed to gain significant viewership share in the Tamil market. The

success was attributed to improved distribution of Zee Tamil and success of

several shows. The company has already seen a rate hike, courtesy its improved

performance in the biggest regional market (Tamil) and is expected to see

another round of hikes by the end of the fiscal. In the Kannada market, Ex-

Movie genre, Zee Telugu is now evenly matched with Gemini.

On recent content-carriage regulations:

While the implementation of the new

uniform content regulation remains uncertain, management suggested that in

the event the draft regulations are implemented in its current form,

broadcasters are likely to use carriage fees saved to directly market their

offering to consumers instead of pushing it through distribution platforms

(DPOs).

Re-organization of verticals:

Zee has identified and re-organized the structure

of the company into 5 verticals 1. Broadcasting, 2. International 3. Movies, 4.

Music, 5. Live Events.

New channel launches:

Zee launched 3 new channels in the domestic market –

Zee Anmol Cinema, Zee Yuva and Zee Cinemalu and 2 international channels Zee

One and Zee Mundo.

&TV:

&TV’s 3-year break-even guidance maintained.

November 2016

METALS | Voices

METALS

Ferrous sector results disappointed due to lower realization and impact of increase in coking coal prices. JSW

Steel’s EBITDA declined 10% QoQ, with margins down 24% QoQ to INR7,077/ton. Tata Steel’s EBITDA was down

8% QoQ to INR29b on lower realization in India, lower volumes in Europe, and weakness in South East Asia.

Hindalco’s strong performance was on expected lines, driven by cost advantage in aluminum and volume recovery

in copper post the maintenance in 1Q. Novelis’ performance was also strong and on expected lines, with FCF

guidance raised by USD50m-100m. Vedanta reported strong performance, with EBITDA up 36% QoQ on higher

volumes in aluminum and zinc, and sharp price increase in zinc.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY17



Hindalco



Novelis run-rate of USD1.1b EBITDA likely. FCF generation of USD300-350m.

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.

Coking coal price increase could impact margins.

Maintains volume guidance of ~15mt for the year.

Full-year India volume guidance of 11-11.5mt.

EU margins in 2Q likely to be sustained in 3Q.

Coking coal price increase could impact margins.

Focus on improving profitability at Port Talbot.

Zinc output at Hindustan Zinc to improve in 2H.

Ramp-up in new smelters, as raw material availability improves and regulatory hurdles are cleared.

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.

JSW Steel



Tata Steel



Vedanta



Hindalco Inds

Click below for

Results Update

Current Price INR 174

Buy

Coal cost was slightly higher QoQ due to higher amount of moisture during

monsoon.

Coal sourcing: 65% of the requirement is sourced through linkage/captive, 35%

through e-auction and remaining through imports for copper smelter at Dahej and

alumina refinery at Utkal.

Capex guidance maintained at INR10b. The focus is on increasing mix of value-add

products.

Aluminum exports were little above 50% in 2QFY17. Realization on exports is slightly

lower than in domestic market.

India’s de-monetization measure may impact scrap-based aluminum producers.

Impact on primary producers is likely to be limited.

Exceptional items include (1) INR1.4b gain on divestment of Aditya Birla Minerals

(ABML) and (2) provision of INR600m towards DMF on coal pertaining to previous

year.

November 2016

METALS | Voices

JSW Steel

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 1,651

Buy



Domestic demand remains weak. While JPC data indicate demand is up 5% in

1H, on ground activity suggests otherwise. Demand is expected to improve in 2H

led by the roads and railway sector. Construction and infrastructure activity is

also likely to pick up in 2H, according to management.

JSTL won five iron ore mines in Karnataka. Extractable reserve is ~90mt. Mines

have production capacity of ~4.6mt p.a. Two of the mines would start producing

by March 2017 that can produce ~0.8mt. Remaining three mines would start

producing by December 2017.

On weighted-average basis, across the five mines, JSTL is paying ~90% as bid

price (linked to price of domestic iron ore). Production from these mines would

replace higher-cost imported and Odisha iron ore.

It took ~INR1,500/t increase in flat product prices in October. Quarterly contract

negotiations are ongoing with customers.

Coking coal price increase would impact margins. Optimization is being looked

at – reducing mix of hard coking coal (from 60% to 50%), increase in injection of

PCI and use of pet coke.

Coking coal for JSTL is based on index pricing. Deliveries in October would reflect

prices for August.

Tata Steel

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 392

Sell



Demand and steel pricing in India:

Domestic demand was impacted due to

monsoon in 2Q. Demand has picked-up since September in the flat products

segment. Long product demand remains sluggish. HRC prices were down

~INR1,200/t, while long product prices were down by ~INR4,000/t in 2Q on QoQ

like-to-like basis. Weighted average prices have increased ~INR2,000/t in 3Q v/s.

2Q average. Flat product prices are up by ~INR3,000-4,000/t, while long product

prices remain sluggish in 3Q.

Kalinganagar:

The ramp-up is progressing well. Volume guidance is ~1.3mt in

FY17. Output during the ramp-up phase is of weaker quality that would continue

to impact the mix in 3Q and 4Q. The focus is currently on ramping-up output

with target to achieve exit run-rate of ~3mt by March 2017. Product quality

would start to improve from FY18 onwards as certification is received from

customers.

India’s de-monetization impact:

Transactions with dealers and distributions are

through the banking channel. However, end-customer purchases at times

happen through cash which could impact volumes in the near term. The impact

of de-monetization on real-estate sector is a more critical factor for the steel

industry, though. On the positive side, the curb on cash economy is expected to

lead to a shift to the organized steel sector. More than 60% of long-product

output is by smaller/mini mills.

EU 3Q EBITDA margins are guided to be broadly flat QoQ (2Q is USD67/t). 60-

65% of Europe volumes are on quarterly pricing.

November 2016

OIL & GAS | Voices

OIL & GAS

In oil & gas, RIL posted in-line EBITDA, helped by GRM at USD10.1/bbl and strong petchem performance. Jio’s trial

user base reached 16m and average data usage is 0.8-1.2GB/day/user. OMCs reported lower GRMs due to

inventory losses; operating performance was stable. Petronet reported better than expected results, led by higher

volumes. Lease provision impacted IGL’s reported PAT; however, volume growth remains robust. ONGC’s EBITDA

was aided by lower opex, as service cost for workover wells reduced with oil price decline.

Oil & Gas

Reliance Industries

Outlook for FY17



GRMs



OMCs (IOC/BPCL/HPCL)



RIL’s capital allocation in recent years had been skewed

toward non-core businesses (telecom) to ring-fence its

earnings from cyclical businesses.

With telecom launch round the corner, RIL stock is entering

into a critical juncture as success of telecom venture will

drive the stock performance.

Expect OMCs to benefit from improvements in petrol and

diesel marketing margins.

Inventory losses are largely behind; expect OMCs to benefit

from inventory gains with resurgence in crude oil prices.

With auto-fuels deregulation and DBTL in LPG, expect nil

under-recoveries in FY17; kerosene subsidies to be shared by

government and upstream companies.

RIL’s 2QFY17 GRM at USD10.1/bbl was

benefited by higher production of middle-

distillates whose cracks were higher. Sharp

QoQ drop was due to USD2/bbl inventory gains

in 1QFY17.

IOCL reported GRM at USD4.3/bbl (v/s

USD0.9/bbl in 2QFY16 and USD10/bbl in

1QFY17), partly impacted by negative Paradip

GRM, which is currently ramping up.

HPCL’s reported GRM at USD3.2/bbl (+18%

YoY, -53% QoQ), impacted by inventory loss of

~USD1/bbl (i.e. ~INR2b).

BPCL’s reported GRMs were lower at

USD3.08/bbl (v/s USD3.87 in 2QFY16 and

USD6.3 in 4QFY16).



ONGC and OINL



ONGC and OINL's earnings are contingent on crude oil prices;

expect earnings to be muted, driven by subdued crude oil

prices at USD45/bbl in FY17 (v/s 47.5 in FY16) and gas prices

at USD2.6/mmbtu (v/s USD3.4 in 1HFY17).

Expect subsidy sharing to decline, driven by auto-fuels

deregulation and transfer of LPG to DBTL. Model kerosene

subsidy sharing by government up to INR12/liter and

incremental prices only to be borne by upstream companies.

Post stabilization of new plant, expect petrochemicals to post

higher profits.

Lower APM gas price to benefit LPG, expect overall profits to

improve significantly on low FY16 base.

GAIL



Cairn India



Current Price INR 241

Click below for

Results Update



Neutral



Rajasthan royalty share in 2QFY17 stood at INR4.2b (v/s INR4.2b in 2QFY16 and

INR3.6b in 1QFY17). Profit petroleum stood at INR7.7b (v/s 5.4b in 2QFY16 and

INR5.5b in 1QFY17).

D,D&A stood at INR7.8b (-10% YoY and -4% QoQ). The D,D&A charges

accounted on entitlement interest basis as per Ind-AS computation.

Other income stood at INR5.3b (v/s INR1.2b 2QFY16 and INR5.3b in 1QFY17).

Foreign exchange gain stood at INR644m (v/s gain of INR3.8b in 2QFY16 and loss

of INR1.2b in 1QFY17).

Net capex for 2QFY17 stood at ~INR470m.

Cash and cash equivalent stood at USD3.7b, of which 32% is held in USD

currency.

FY17 guidance:

Management is focused on maintaining production at FY16

level. Planned capex for FY17 is USD100m, with 80% to be invested in

development, primarily for RDG gas and Mangala EOR completion. Remaining

20% would be invested in exploration. Focused to improve the economics of key

November 2016

OIL & GAS | Voices

projects that includes Bhagyam & Aishwariya EOR, Barmer Hill and Satellite

fields.

Petronet LNG



Current Price INR 377

Click below for

Results Update

Neutral

Dahej expansion to 15mmt complete;

further ramp up to 17.5mmt by 2019:

Dahej terminal’s expansion was completed with the commissioning of two LNG

storage tanks on 17 October 2016. Earlier on 4 August 2016, it had

commissioned its vaporizer, which resulted in higher average capacity for the

quarter.



Achieved ~110% utilization in 2QFY17:

Dahej terminal achieved ~110% on pro-

rata-based capacity for the quarter of 3.33mmt (v/s 2.5mmt in 1QFY17).

Throughput for the quarter rose to 184tbtu (v/s 165tbtu in 1QFY17), primarily

led by pure short-term volume at 21tbtu (+109% QoQ), contributing to average

marketing margins.



Dahej terminal will have full capacity of 15mmt for 3QFY17, and it has take-or-

pay contract from 1 October 2016.



Kochi turnover has improved for the quarter and volumes stood at 4.5tbtu (~7%

utilization, +67% YoY, +19% QoQ). Kochi pipeline connectivity continues to

impact Kochi utilization levels. Connectivity to Mangalore could be available by

FY19. BPCL’s Kochi refinery can consume 2.5mmscmd post expansion (currently

taking 0.5mmscmd).



Gorgon will have 1.4mmt off-take capacity by July-17; management has the

flexibility to divert volumes to Kochi (Kochi can take ~50% of Gorgon volumes).

Gorgon volume does not come under Dahej’s take-or-pay contract.



Long-term growth plans:

Management is aiding to develop usage of LNG

(before regasification) as transportation fuel in India. It also has plans to set up

terminals in Bangladesh and Sri Lanka (can build 1mmt terminal).

Other key takeaways:



Other income was higher at INR915m due to Ind-AS adjustments, includes MTM

gain of INR400m.



Revision of contract: RasGas contract’s escalation clause (annual 5%) for regas

tariff happens after every three years, next scheduled in January 2017.



Dividend distribution policy: Management is planning to have 30-40% dividend

payout policy or 5% of networth, whichever is lower.



Spot LNG prices increased to ~USD7.0/mmbtu in 2QFY17 (v/s recent price trend

of USD5/mmbtu).

Reliance Industries

Current Price INR 1,007

Click below for

Results Update

Neutral

REFINING/PETCHEM: GRM at USD10.1/bbl; domestic demand helps petchem



RIL’s 2QFY17 GRM at USD10.1/bbl was benefited by higher production of

middle-distillates, whose cracks were higher. Sharp QoQ drop was due to

USD2/bbl inventory gains in1QFY17.



Throughput stood at 18mmt (116% utilization) and is likely to be peak quarterly

throughput for RIL. Capacity of downstream units can increase, though.

November 2016

OIL & GAS | Voices

In petchem, polymer demand was strong at +11% YoY (PE: +9%, PP: +7%, PVC:

+20%), while polyester was also encouraging at +6% YoY (PSF: +3%, PFY: +8%,

PET: +4%).

TELECOM: Capex by 2020 can reach INR2.5t, INR1.59t till date



Management guided that telecom launch is round the corner, but exact date

will be a function of resolution of interconnect issues.



RIL wants consumers to get adequate Jio experience and can even extend the

trial offer if required. Currently, customers are facing issues in voice

connectivity.



Capex (helped by INR460b debt) reached INR1.59t (v/s INR1.34t on June 2016

and includes INR140b of latest spectrum auction). If consumer demand is high

and to increase the penetration, RIL now guides that it can incur capex of

INR2.5t by 2020.



RIL has sold 3m LYF handsets and its trial customer base reached 16m with

average usage of 30GB/user/month.

Petroleum Marketing: 1,100 of 1,400 outlets opened



RIL has reopened its 1,100 (v/s 950 outlets on March 2016). Versus earlier

guidance of 1,400 by Sept 2016, it now will reach 1,400 by Mar 2017.



Average pump throughput stood at ~216KLPM (v/s 160-190 for PSU’s) and

loyalty card sales account for 33% of diesel sales.



Of 1,100 outlets, ~395 are company owned company operated (COCO) and sales

of INR12b are accounted in organized retail segment.

New projects update: ~6 months effective delay; no change in capex



RIL’s USD18.5b core projects (petcoke gasification, polyester expansion, off-gas

cracker and ethane sourcing) are effectively delayed by ~6 months. (a) Petcoke

gasification will be mechanically complete by 1HCY17 and fully commission by

Jan 2018, (b) Off-gas cracker will start by 4QFY17, but due to delay in gasifier

optimum economics will be delayed by ~6 months.



Ethane sourcing is on track for Dec-16 trials. 100% utilization of new projects

has now shifted to FY19.

Domestic E&P: Development contingent on several factors



KG-D6 production declines: KG-D6 gross production declined to 7.7mmsmcd in

2QFY17 (v/s 11.4mmscmd in 2QFY16). RIL is trying to sustain production

through well optimization.



Development of RIL’s east coast fields – R-series, MJ (D55) and D29/D30 will be

contingent on resolution of arbitration cases and approvals. Optimistically

production from R-series could start in 2020.



CBM production likely in 2HFY17: Expects production start in 3QFY17. Currently

de-watering wells and testing Shahdol-Phulpur pipeline.



November 2016

RETAIL | Voices

RETAIL

Weak SSSG momentum continues for TTAN and SHOP, while JUBI posted better than expected results. For TTAN,

jewelry segment sales grew 0.2% YoY, as depressed demand environment and fluctuations in gold prices led to

postponement of sales to 3QFY17. Festive season demand has been healthy so far, according to the management.

JUBI’s 4.2% SSSG was a positive surprise, but as per the management, positive SSSG during the quarter was

mostly led by mismatch in festive period in base; there are no signs of recovery in consumer sentiment. The

company opened 32

Dominos

stores (v/s our expectation of 35) in 2QFY17. Discounting activities increased during

the quarter. As sentiment improves, the pressure on discounting activities will reduce. SHOP’s sales grew 7.1%

YoY to INR9.4b (Ind-AS). On LTL basis, sales grew 2.2% (on a base of 0.1% growth), with volumes down 3.1%. For

stores less than five years/over five years old, LTL sales grew 5.9%/0.5%. Though 2QFY17 began with double-digit

LTL growth (end of season sale phase of the quarter); the latter part was slow. Diwali to Diwali comparison was 8-

9% LTL growth. There was a decent pick-up in October (late single-digit SSS growth to early double-digit growth);

November might be a drag to 3QFY17, while December is likely to be similar to October. The Government of India

(GoI), on 8th November 2016, announced demonetization of existing INR500 and INR1,000 currency notes. In our

view, this landmark initiative will have a short-term adverse impact on the sector, as discretionary spends are

likely to delayed.

Jubilant Foodworks

Current Price INR 882



Neutral

Click below for

Detailed Concall Transcript &

Results Update

Positive SSSG during the quarter was mostly led by mismatch in festive period

and shows no signs of recovery in consumer sentiment.



Same-store order growth has been positive.



OLO improved to 47%; mobile to OLO 54%; highest ever numbers.

Costs



Employee costs:

Will continue to reduce 1-2 employees per store; flexi hours

manpower initiative to be introduced.



Rent costs:

6% annual hike in rental on average; negotiations with landlords to

either reduce the quantum of rent hike or differ it.



Same-store cost inflation is around 6%, with rent having inflation of around 6%+,

employee cost inflation of 8-10% (minimum wage around 8-10% and new wages

around 10%) + other expenses (including RM) around 6% inflation.

Margins



Gross margin contraction is led by sales promotions rather than increase in

commodity cost.



Impact of Dunkin Donuts (DD) continues to be around 250bp on margins; the

drag is not expected to increase.



No threshold margin level to slowdown restaurant openings.

Initiatives



Successfully integrated the SAP platform in all key functions as well at vendor

facilities.



Greater Noida new commissary will be operational by Mar’17 and will be the

best facility in Dominos world. The company will able to produce some products

(example Buns, breads and some dessert) in-house, which otherwise were

bought from third party. Existing facilities in Noida will move to the new facility.



Promotions:

Discounting activities increased during the quarter. Discounting

tends to increase as the category develops (same as some other developed

November 2016

RETAIL | Voices

countries). As sentiment improves, the pressure on discounting activities will

come down.



Successor planning: Will name the successor before end-CY16; looking at

internal as well as external candidates.



Delivery and dine-in business both doing well. Started initiatives like BOGO on

pick up and Burger Pizza to improve dine-in sales; these are not long-term

initiatives.

Guidance/outlook



Restaurant expansion - 130 Dominos stores guidance for full-year maintained.

Cautiously opening DD stores; 52 stores guidance for full year; closed 6 and

opened 8 during the quarter.



Gross margin to hover around 75%.



Capex: INR2.2b for FY17.

Shoppers Stop

Current Price INR 299

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Highlights from SHOP’s business



Loyalty program members at 4.38m.



Disappointing quarter.



Started the quarter (end of season sale phase) with double-digit LTL growth;

latter part went bad. Diwali to Diwali comparison was 8-9% LTL growth.



Decent pick in October (late-single-digit SSS growth to early-double-digit);

November might be a drag to 3QFY17, while December is likely to be same as

October. Autumn winter collection will drive 4QFY17. Winter wear 12-15% of

sales for the year on average.



Mother care (5-6% of sales) and jewelry business dragged volumes. Non-apparel

growth largely led by cosmetics.



Omni channel will be live by 2QFY17.



>5 years is 60% of sales and <5 years will be the rest.



Gross margins affected due to schemes and promotions.



EBITDA margin: Gets impacted usually when LTL growth slips below 5.5%.

HyperCITY highlights



Fashion share up.



Increase in operating expenses was due to new store additions.



Competition from online



3QFY14 was the only quarter impacted by e-com. Electronics, appliances and

mobiles only impacted by e-com.



No material impact for Shoppers Stop.

GST impact



GST will be good for the company. Overall will be positive. Do not see it margin-

dilutive.

Guidance



6-6.5% company-level EBITDA margin guidance.



SSS for dept. stores would be 6-7% in H2; overall 5.5% for dept. store for FY17.

HyperCITY SSS would be early DD for H2.



Private brands at 13%; plans to take it to 25% in next three years.



Store addition: 2 more additions by end-FY17. 1 SHOP will be shut; not yet

decided which store.

November 2016

RETAIL | Voices



Fund raising: INR1.5-2b to be raised before 31st March’17. Open to all options,

including strategic and financial.

Q3 is the most profitable quarter as it is a full price quarter.

3-4 SHOP stores to be added a year beyond FY17; HyperCITY to be decided later;

7-8 Estee Lauder stores.

Tax rate: 38-39% for FY17.

Titan

Click below for

Detailed Concall Transcript &

Results Update

Current Price INR 312

Neutral

Gold jewelry



2QFY17 – no major change in walk-ins. Gold demand has been weak. There was

significant spot market availability of gold on discount.



Activation during the quarter; thus, net sales gets depressed due to discounts

offered. Flat revenues versus retail growth of 9%.



Gold investment demand is weak.



25% growth in studded jewelry in 1HFY17 added to margins substantially. 42%

of gold sales were studded jewelry in the quarter. Higher gold prices also

contributed to gross margin improvement as making charges are proportion of

gold prices, which have been increasing.



Diwali season: Management knew toward middle of August that festive season

demand will be good and were aggressive with schemes in wooing customers.

There was deferment of purchases in 2Q due to gold price volatility.



Gold prices had dipped during the festive season and are up again now. The dip

may have contributed to better demand.



Gaining share in the industry.



Golden Harvest – 15% of sales targeted. On target so far. INR6.2b now post

Diwali was the YTD proportion of Golden Harvest scheme.



Growth is not regionally divergent. So good demand is being witnessed across

the country in the festive season.



Will get a clearer picture on sustainability of jewelry demand by December.



Ticket size has gone up, but number of buyers is still a challenge.



Diwali quarter will see lot of studded sales, but sales growth will be healthy.



Studded jewelry ~7% market share of total jewelry industry is with Tanishq,

double-digit market share in organized jewelry.



Large part of growth in gross margin was due to increase in studded share.



Likely 16 Tanishq stores in FY17, 6 stores opened in 1HFY17. Likely 20-25 stores

in FY18.

Watches and other businesses



Watches: Saudi Arabia and Services led YoY sales decline. Put together these

two segments are 12% of watch revenues. Low-single-digit growth in domestic

watch sales during the quarter.



Looking at 5-6% overall watch sales growth for the full year.



Sunglasses did poorly in Titan Eye where overall growth was 6% YoY. Sunglasses

are also a high-margin business and thus EBIT declined YoY.

Financials



Receivables higher in September over March, mainly due to seasonal factors.



Staff costs for the remaining quarters will be similar to 2QFY17.

November 2016

TECHNOLOGY | Voices

TECHNOLOGY

Macroeconomic uncertainty continued impacting discretionary spend. The Brexit vote, and low interest rate

regime have been taking a toll on technology spending, and impacting vendors. The outlook turned cautious on

the retail vertical too, as consumer spending took a hit in the US. 3Q is expected to be weak on account of a lower

number of working days, and furloughs. With a weaker than usual 1H, and seasonal impact ahead, we expect 3.5-

10% CC organic growth for Tier-I.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY17



HCL

Technologies



Revenue growth guidance of 12-

14% CC, which translates to 11-

13% in USD terms.

Revenue growth guidance from

the Volvo acquisition, but not

from Geometric and Butler.

EBIT margin range maintained at

19.5-20.5% for FY17.

Digital / New services



Significant investments made in

'BEYONDigital', 'IoT WoRKS' and

DryICE.

Top 25 customers have significant

components implemented of

DryICE.

Margins



Guidance of 19.5-20.5% for

FY17, compared to the earlier

range of 21-22%.

Increased offshoring and

higher adoption of the DryICE

platform are likely to support

margins, despite higher

amortization from newly

signed IP deals.

Maintained medium-term

margin guidance range of 24-

26%.

However, in FY17, margins are

likely to be in the range of 24-

25%, given the performance

so far, and momentum

expectations in 2H.



Infosys



FY17 YoY CC revenue growth

guidance reduced from 11.5-

13.5% earlier to 10.5-12.0%, and

now to 8-9%.

The revision factors in impact of

ramp-down in RBS,

softness/uncertainty in some

other clients, and slower growth

than anticipated in some service

lines.

Expect better than historical 2H as

USD27m contract got deferred

into the next quarter.

Moreover, no deals have been

canceled; softness in 2Q had been

a result of delays in ramp up and

commencement.



More than 95% of projects

covered by Zero Distance.

Adoption of MANA has been

encouraging, and INFO intends to

take it beyond automation, and

generate new use cases

leveraging AI.

2,400 FTEs saved because of

automation.



TCS

Digital grew 1.4% QoQ to

USD704m.

Overall growth weakness rubbed

off on Digital too; however,

annual traction is strong as ~30%

YoY CC growth is likely to

continue.



TCS maintained its margin

band of 26-28%.



TECH Mahindra



Growth has been picking up in

Telecom (ex. LCC).

Enterprise has been growing

faster than industry.

LCC is likely to stabilize at current

levels in terms of revenue.

3QFY17 guidance of 0-2% QoQ CC

includes revenue from Appirio.

However, the amount baked in

from this acquisition has not been

disclosed.



Wipro



Acquisitions like Target and BIO

have been toward augmenting

Digital presence.

Significant portion of TCV of

USD325m deal wins is in the areas

of product engineering, cloud, IoT

and IMS.

Contribution from Digital

increased to 19.6% in 2Q, from

17.9% in the previous quarter.

In 1HFY17, the company trained

17,500 employees in Digital and is

expected to exceed its training

targets for the year.



Expect margins for FY17 to be

maintained at the same level

as the previous year, excluding

the impact of currency

movements.



Expect margin headwinds

going into the next quarter led

by the integration of Appirio,

and ongoing currency

volatility.

November 2016

TECHNOLOGY | Voices

Cyient

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 486

Buy



Maintained outlook for FY17:

The company maintained its guidance of double-

digit revenue growth in the Services business, and 50% growth in Rangsons. This

does not imply a loss in momentum in 2H. Maintenance of guidance is more of

an act of prudence than a loss of momentum.

3Q seasonally soft:

3Q is likely to be soft on account of seasonal weakness

(lesser working days and furloughs), with 3-4% being lost because of lower

capacity. However, the company will try to make up for this loss.

Macro uncertainty not impacting business:

CYL is not seeing any weakness, led

by macroeconomic uncertainties in Europe/UK. It has been working on projects

where infrastructure has been funded or committed (e.g. high-speed rail

networks, signaling for the London Underground). This leads to visibility in

revenue growth, despite macroeconomic conditions.

Strength seen in most verticals:

Most verticals are seeing continued momentum

because of strong growth in anchor accounts. This has led to optimism in the

performance of the Services business being sustainable.

Aerospace & Defense:

Areas like avionics and manufacturing engineering have

been seeing a pick-up. Most of incremental growth for CYL in this vertical has

been driven by manufacturing, as the design cycle has dried up. The company’s

investments have led to the winning of several large deals that have both design

and manufacturing elements.

Transportation:

The vertical offers opportunities for high-growth, despite the

flat sequential performance, led by new projects, new customers and new

opportunities.

Semiconductor:

Performance in this vertical has been soft because of fewer

design projects. CYL is in the process of resetting offerings and expects revenue

to be flattish in the immediate term. Growth is expected to start reviving toward

the end of the year.

Confident of pick-up in DLM business:

The DLM business is seeing traction in

the verticals of Aerospace and Transportation. Order book, deal pipeline and

opportunities in this area lend confidence of a pick-up in 2H, and achievement

of 50% growth guidance for FY17.

Margins up despite wage hikes:

2Q margins expanded 90bp QoQ, despite wage

hike impact (-70bp) and one-time expenses associated with the 25

anniversary

(-70bp). This was largely led by operation efficiencies, including improvement in

utilization by 4.5pp. 3Q margins are likely to be impacted because of seasonal

weakness. However, a rebound in 4Q should help in achieving 100bp YoY

expansion in Services margins in FY17, and flat margins overall.

November 2016

TECHNOLOGY | Voices

HCL Technologies

Current Price INR 763



Buy

Click below for

Detailed Concall Transcript &

Results Update



2Q performance:

HCLT’s 2Q revenue growth was driven by IMS, and Engineering

services (which included some revenue from the IP partnership). Growth in

Application Services remains subdued because of the decline in ERP. However,

this is being offset to a large extent by growth in Digital and in the traditional

ASM business.

Strategy in financial services:

There have been multiple dynamics playing out on

the financial services sector, including cost pressures, newer business models

and macroeconomic uncertainties. HCLT has been generating growth over the

last 12 months by penetrating new accounts and bringing in more mid-sized

banks than earlier. Moreover, investments in labs, near-shore centers and

capabilities have also boosted growth.

Manufacturing hurt by several reasons:

[1] Structured offshoring in a large

Engineering Services client leading to lower revenue and [2] High proportion of

ERP implementation in the vertical.

No worries to call off:

Management is optimistic about business, and sees no

issues emerging out of existing customers because of macroeconomic

uncertainties. The fact that HCLT’s portfolio is well balanced and that it has

presence in several sub-verticals has been helping shield these pressures.

Because of Brexit, customers have been looking at taking costs out. This has

been leading to increased number of conversations around cost optimization

and globalization. Growth in verticals apart from Financial Services has been

strong, and the trajectory is expected to continue going forward.

Changes led by new leadership:

Some changes have been made to the sales

structure post the elevation of C Vijayakumar to the role of President and CEO.

In the applications business, the hunting and mining teams have been

separated, from it being not distinct earlier. There is also opportunity in

expanding the client partner program to as many as 150 accounts. Multiple

large IMS clients have minimal presence in Application Services, and vice versa.

Expansion of the client partner program will help improve cross-selling.

Integration of acquisitions taking place well:

Integration of past acquisitions

has been on track. HCLT has already signed two deals in North America,

leveraging the capabilities it has gained from the Volvo acquisition. Inorganic

growth will continue to be part of HCLT’s strategy, going forward.

Hexaware Technologies

Current Price INR 189

Click below for

Detailed Concall Transcript &

Results Update



Neutral



Increased impact of furloughs in 4Q:

HEXW is confident of seeing volume

growth in 4Q. However, this could be counter-balanced by the impact of lesser

number of working days and furloughs. The company expects more furloughs in

4Q, compared to the same quarter last year. Despite this, YoY growth is

expected to be strong next quarter.

Profitability dependent on furloughs:

Profitability in 4Q is expected to be better

than what it was last year. However, the impact of furloughs will determine the

movement of margins sequentially. The residual impact of wage hikes is also

expected to weigh on profitability in 4Q. Although the quantum of wage hikes

November 2016

TECHNOLOGY | Voices

onsite is yet to be determined, offshore increments are expected to have an

impact of USD100,000.

Pipeline is the highest ever:

New deal wins have been trending well over past

few quarters. The aim for CY16 is to bag more deals compared to the CY,

wherein it won deals worth USD120m. 9MCY16 deal wins of ~USD100m lend

confidence toward that goal. Moreover, the pipeline (and the size of deals being

bid for) is the highest ever in the company’s history.

Profitability improvement expected:

So far, revenue growth has been strong for

HEXW, with profitability growing at a slower pace. The company expects these

two to be more balanced going forward. For the next 2-3 quarters, margin

growth is expected to outpace revenue growth. Although utilization is expected

to be range-bound, SG&A leverage and offshoring can result in margin

expansion.



Infosys Ltd

Click below for

Detailed Concall Transcript &

Results Update



Current Price INR 921

Buy



Guidance:

The revised guidance bakes in challenges around BFSI (ramp down in

RBS, and headwinds in a couple of clients) and the impact of macroeconomic

uncertainty, which has also resulted in sloppy spending in verticals like retail.

Moreover, growth in some of the services has been lower than anticipated.

Execution of strategy - Renew:

INFO’s focus on automation and innovation to

renew services continued to see progress in 2Q. Its zero distance program

covers more than 95% of all projects, and has been leading to newer

opportunities that can be monetized. The adoption of Mana was encouraging,

and INFO intends to go beyond automation and generate new use cases and

leverage AI. Through automation, ~2,400 FTEs were saved in the areas of

application maintenance, infrastructure management, BPM and package

implementation.

Execution of strategy - New:

Design Thinking was made central to every

engagement; new services were launched on Skava; the EdgeVerve business

delivered a strong performance with 48 wins; and 23 go-lives from both Finacle

and Edge suite of solutions.

Reorganization in delivery:

INFO reorganized its delivery organization,

defragmenting service lines, which resulted in a stronger focus on service lines.

Similarly, smaller industry segments have been created on the sales front to

cause greater ownership and a stronger sales organization.

Restructuring consulting:

1Q saw execution-led weakness in Consulting.

Although the service line stabilized in 2Q, INFO continues to restructure it. The

practice in Europe was running on a standalone business, and efforts were made

to integrate this with the rest of the organization. In 2-4 quarters, INFO expects

the changes to be executed, and growth to start reviving.

Margins:

INFO maintained its medium-term EBIT margin guidance of 24-26%.

However, in FY17, margins are expected to be in the range of 24-25%, given the

performance so far and momentum expected over the second half. In the near-

term, operational efficiencies can be further improved, leveraging traditional

levers and thus resulting in margin improvement.

November 2016