27 April 2017

Market snapshot

Equities - India

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YIELD (%)

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1MChg

10 Yrs G-Sec

7.0

0.0

10 Yrs AAA Corp

7.9

0.0

Flows (USD b)

26-Apr

MTD

FIIs

-0.1

-0.2

DIIs

0.2

1.0

Volumes (INRb)

26-Apr

MTD*

Cash

345

301

F&O

7,953

5,107

Note: YTD is calendar year, *Avg

YTD.%

13.2

14.2

25.6

YTD.%

6.6

11.9

2.0

8.6

9.8

0.9

YTD.%

-7.8

9.1

3.0

14.8

YTD.%

-5.5

3.3

-5.0

YTDchg

0.4

0.3

YTD

6.4

1.2

YTD*

281

4,589

Today’s top research theme

Economy: Is fiscal policy reaching limits?

v

Over the past few years, states' tax receipts have weakened sizably, increasing

their reliance on the center. The combined tax-to-GDP ratio budgeted for

2017-18 is still meaningfully lower than the peak seen over a decade ago. Not

surprisingly then, the states have budgeted 13-year lowest growth in their

total spending, in line with the 12-year lowest growth budgeted by the center.

v

Not only the center, but the states too are focused on investments.

Consequently, the states have budgeted for 15-year lowest growth in

consumption spending. As per the second advance estimates, government

consumption spending is estimated to have grown 17% in FY17 and

contributed one-fourth to real GDP growth of 7.1%.

v

With flows from fiscal taps slowing and private investments remaining

lackluster, it might be difficult for private consumption to offset the entire

adverse effect. We would not be surprised if real GDP growth fails to pick up

in FY18.

Research covered

Cos/Sector

Economy

Axis Bank

LIC Housing Fin.

IDFC Bank

Zensar Technologies

KPIT Technologies

Results Expectation

Key Highlights

Is fiscal policy reaching limits?

NIMs surprises positively; Pool of stress loans remain unchanged

Core retail growth remains moderate at <10%YoY; Valuation limits upside

Focusing on retail assets; stressed assets stable

Two steps ahead, one step back; Profitability bogged down by restructuring

In-line performance, excluding the addition of MicroFuzzy

Biocon | Kotak Mah. Bank | Maruti | Shriram Trans | TVS Motor

Quote of the day

Piping hot news

If a financial institution is too big to fail, it

Sebi allows options trading in commodities

v

Capital market regulator the Securities and Exchange Board of India (Sebi) on

is too big to exist.

Wednesday announced the much-awaited commodity market reform of

permitting exchanges to launch options contracts.

Chart of the Day: Economy (Is fiscal policy reaching limits?)

States estimated to borrow INR4.4t in FY18 (INRb) of which ~17% is planned in the first quarter

#Based on our estimate of full-year borrowings by all states

Source: States budgets, RBI, CEIC, MoSL

Research Team (Gautam.Duggad@MotilalOswal.com)

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Investors are advised to refer through important disclosures made at the last page of the Research Report.

In the news today

Kindly click on numbers for the detailed news link

1

Setback to India as

international panel rejects

stay on Cairn arbitration

n a setback to India, an

international arbitration panel has

rejected its demand for a stay on

an arbitration initiated by British

oil explorer Cairn Energy plc

against a Rs 10,247 crore

retrospective tax notice…

2

Tata Motors, the most impacted company by last month's Supreme Court

ban on registration of vehicles meeting BS-III emission standards, said it

might be exporting at least half of its 15,000 impacted light, medium and

heavy commercial vehicles (CVs). For the rest, it is hoping the industry will

get a window of opportunity from the court. "The stock with our dealers is

(now) close to nil. The bulk of the 15,000 vehicles we have in stocks is

skewed towards light CVs. We have done an analysis and can easily export

around 8,000," said Ravindra Pisharody, executive director at the

country's biggest CV company…

Tata Motors aims to export about 8,000 BS-III commercial vehicles

3

Miners warn of 80-mt iron ore

deficit on lease extension

delay

The iron ore mining sector faces a

challenge a little down the line, as

licences of 250 mines are to lapse

in three years from now. Only 50

of these are in operation,

producing 80 million tonnes (mt)

annually, a little over 80 per cent

of these in Odisha…

4

No move to tax farm income,

clarifies Arun Jaitley

The Centre sought to distance

itself from proposals to tax

agricultural income, on

Wednesday, with Finance Minister

Arun Jaitley dismissing any such

plans. “To obviate any confusion

on the subject, I categorically state

that the Central Government has

no plan to impose any tax on

agriculture income,” said Jaitley…

5

We’re cautiously optimistic

about credit growth in FY18,

says Jairam Sridharan CFO,

Axis Bank

6

Kingfisher Looks to Take Beer

Market by Storm

India's largest beermaker United

Breweries (UB) is betting on its

latest strong brew, Kingfisher

Storm, to wean away customers

from rival Carlsberg that has

steadily gained 15% market share

over the past five years. Storm

will directly compete with

Carlsberg Elephant, Tuborg

Strong, and the recently

introduced Tuborg Classic…

7

HDFC may sell realty, digital

units to Quikr for 5% stake

Housing Development Finance

Corp. Ltd (HDFC) is in talks with

online classifieds company Quikr

India Pvt. Ltd to sell its brokerage

business HDFC Realty and its

digital business HDFC Red in an-all

stock deal, four people with direct

knowledge of the matter said…

Axis Bank on Wednesday reported

a 43% year-on-year (y-o-y) fall in

net profit to Rs 1,225 crore for the

March quarter. The bank’s watch

list has reduced 15% over the

previous quarter and stood at Rs

9,436 crore, leading to a rise in

bad loans. CFO Jairam Sridharan

said the bank is cautiously

optimistic about credit growth in

FY18…

27 April 2017

2

Thematic | States Budget

Economy

Is fiscal policy reaching limits?

From our combined study of central and state budgets, it appears so

Though every minute detail of the union budget is examined closely, state budgets do not

receive their due share of attention. Together, state budgets constitute ~150% of the union

budget and the states’ market borrowings are expected to increase from less than 50% of

the center’s in FY16 to 75% in FY18. To better grasp fiscal policy implications, a detailed

analysis of the combined budgets of both the center and the states is essential. Through

this report, we also intend to address the lack of contemporary studies on state budgets.

Our key findings:

n

Over the past few years, states’ tax receipts have weakened sizably, increasing their

reliance on the center. The combined tax-to-GDP ratio budgeted for 2017-18 is still

meaningfully lower than the peak seen over a decade ago. Not surprisingly then, the

states have budgeted 13-year lowest growth in their total spending, in line with the

12-year lowest growth budgeted by the center.

Fiscal deficit of the center and

states in the past three decades

(% of GDP)

Centre

8

6

4

2

0

States*

n

Not only the center, but the states too are focused on investments. Consequently, the

states have budgeted for 15-year lowest growth in consumption spending. As per the

second advance estimates, government consumption spending is estimated to have

grown 17% in FY17 and contributed one-fourth to real GDP growth of 7.1%.

n

With flows from fiscal taps slowing and private investments remaining lackluster, it

might be difficult for private consumption to offset the entire adverse effect. We

would not be surprised if real GDP growth fails to pick up in FY18.

Why should one read this report?

It is widely argued that the Union Budget receives unduly high attention, while state

budgets do not receive their due share of attention. With government consumption

spending accounting for ~10% of GDP and estimated to have contributed more than

20% to real GDP growth in FY17, the general government (center + states) is more

relevant than the center alone.

There are at least three reasons why states’ budgets should be given at least as

much importance as the center’s.

Firstly,

states account for about three-fifth of the

general government’s total consumption (revenue spending excluding interest

payments) and investment (capital spending).

Secondly,

while the center has kept its

gross market borrowings broadly unchanged over the past six years, the states have

almost trebled their borrowings. States’ securities (also known as state development

loans, SDLs) are expected to be more than 75% of the center’s securities in FY18 (as

against less than 50% just three years ago).

Finally,

with states getting about 40% of

the taxes collected by the center (after the recommendation of the fourteenth

finance commission), state budgets are more important than ever.

Apart from Reserve Bank of India (RBI), we are not aware of any other organization

producing comprehensive data or research on states’ budgets. The RBI reports too

are generally released with a lag of 12-14 months (the recent RBI report due for

release will contain data on 2016-17 budget estimates, though 2017-18 budgets

3

* Aggregate data of 17 states

Economy

Is fiscal policy reaching

limits?

Mr Nikhil Gupta

27 April 2017

were presented by states last month). To fill this vacuum, we conducted this in-

depth study, covering 17 major states that account for ~85% of the national GDP,

~90% of gross market borrowings by all states, ~85% of all states’ budgets. The 17

states covered are: Andhra Pradesh (AP), Bihar (BH), Chhattisgarh (CG), Gujarat (GJ),

Haryana (HR), Himachal Pradesh (HP), Jammu & Kashmir (JK), Jharkhand (JH),

Karnataka (KA), Kerala (KL), Madhya Pradesh (MP), Maharashtra (MH), Odisha (OR),

Rajasthan (RJ), Tamil Nadu (TN), Telangana (TG), and West Bengal (WB). Although

we have historical data for three other major states – Punjab (PB), Uttarakhand (UK)

and Uttar Pradesh (UP), they are not included in our study because these states

have not yet presented their 2017-18 budgets.

This report is divided into three sections. Section-I provides five themes for the

financial markets after careful study of the combined budget for the general

government

1

. In section-II, we analyze the combined budget of the center and the

states. In the third and final section, we examine the pooled budgets of 17 states.

Exhibit 1: Trends in states’* fiscal deficit in the past two decades

4.8

5.3

4.6

4.6

Fiscal deficit (INRb)

4.7

4.8

3.7

2.9

2.1

1.7

2.5

3.3

2.3

2.1

2.1

2.4

2.8

3.1

2.9

3.1

% of GDP

2.6

* Combined data for 17 states

Source: State budget documents, CEIC, RBI, MOSL

Exhibit 2: States have increased their reliance on market

borrowings, while the center has reduced it (% of GFD)

120

90

60

30

0

FY91 FY94 FY97 FY00 FY03 FY06 FY09 FY12 FY15FY18BE

* Aggregate data of 17 states

Centre

States*

Exhibit 3: All states have budgeted to borrow INR4.4t in FY18

– up 22% from FY17 (INRb)

5,000

4,000

3,000

2,000

1,000

0

Source: Union/State budget documents, CEIC, RBI, CSO, MOSL

27 April 2017

4

26 April 2017

4QFY17 Results Update | Sector: Financials

Axis Bank

Neutral

BSE SENSEX

27,309

Bloomberg

Equity Shares (m)

M.Cap.(INR b)/(USD b)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

S&P CNX

8,435

AXSB IN

2,382.8

1245.4 / 18.3

638 / 425

3/-1/-8

5068

71.2

CMP: INR517

n

TP: INR525 (+1%)

NIMs surprises positively; Pool of stress loans remain unchanged

Axis Bank’s (AXSB) PAT of INR12.25b beat our estimate of INR8.3b by 47%. Key

positives are a) Core NIMs improved 10bp QoQ to 3.83% b) Strong loan growth

of 7% QoQ c) Share of Retail and SME loans increased to 58.2% vs 55.5% a

quarter ago and d) Average daily CASA growth stood at 26% YoY with SA

growth at 29% YoY; Average CASA ratio stood at 43%

Total pool of gross stress loans was largely unchanged at INR412b (10.2% of

customer assets). Net stress loans proportion stood at INR283b vs INR279b a

quarter ago.

Slippages of INR48b were in line with those in the prior quarter (slippage ratio

of 5.68% annualized). Around 74% of slippages (INR35.7b) were from the

watchlist (70% in 3QFY17). However, this included one cement account of

INR16.6b that slipped into NPL as well as got recovered/upgraded, both, during

the quarter. Excluding this, slippage ratio would be 3.72% annualized.

AXSB also sold loans worth INR23.54b gross (INR18.2b net) to ARCs against net

sale consideration of INR16.9b comprising INR2.7b in cash and INR14.2b in SRs.

FY17 was a tough year for AXSB with the significant balance sheet clean up. We

expect this to continue in FY18 as well. RoE have declined from 17% in FY16 to

7% in FY17.

Valuation and view:

We largely maintain the earnings estimates and expected

benefit of reduction in credit cost is compensated by lower margins. In FY17,

trading gains contributed 20% of operating profits vs FY13-16 average of 6%.

We model this to decline to 15% of PPoP in FY18 leading to flat PPoP. Core

PPoP is expected to grow 5% YoY lower than balance sheet growth of 11% YoY.

Continued clean up and expected pressure on core income is likely to keep

return ratios under pressure. We expect RoAs of ~0.9% and RoEs of ~10% in

FY18. We expect earnings to normalize only in FY19. Maintain Neutral with a

target price of INR525. At our target price, AXSB will trade at 1.9x March 2019

BV and 12.8x earnings

n

Financials & Valuation (INR b)

Y/E March

2016 2017E 2018E

n

NII

168.3 179.8 204.8

OP

161.0 178.0 188.1

NP

82.2

33.5

59.5

NIM (%)

3.8

3.6

3.6

EPS (INR)

34.5

14.1

25.0

BV/Sh. (INR)

216.8 230.8 251.4

n

RoE (%)

17.1

6.3

10.3

RoA (%)

1.7

0.6

0.9

n

P/E(X)

14.0

34.4

19.4

P/BV (X)

2.2

2.1

1.9

n

27 April 2017

5

26 April 2017

4QFY17 Results Update | Sector: Financials

LIC Housing Finance

BSE SENSEX

30,133

Bloomberg

Equity Shares (m)

M.Cap.(INR b)/(USD b)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val. (INR m)

Free float (%)

S&P CNX

9,352

LICHF IN

Core retail growth remains moderate at <10%YoY; Valuation limits upside

505.0

n

LIC Housing Finance (LICHF) reported 4QFY17 PAT of INR5.3b (+18% YoY), in

341.4/5.3

line with our estimate. The quarter was characterized by stable loan growth, a

688 / 432

continued increase in share of LAP/builder loans and stable asset quality.

10/7/31

1260

n

Loan book growth was 15.5% YoY (6.8% QoQ), in line with the trend witnessed

over past 5-6 quarters. Growth continues to be driven by the non-retail

59.7

CMP: INR676

TP: INR723 (7%) Downgrade to Neutral

Financials & Valuations (INR b)

Y/E March

2017 2018E 2019E

NII

36.5

40.4

46.2

PPP

32.4

35.8

41.0

Adj. PAT

19.3

22.5

25.8

Adj. EPS (INR)

38.2

44.6

51.2

EPS Gr. (%)

16.3

16.6

14.8

BV/Sh (INR)

213.2 248.9 289.9

RoAA (%)

1.5

1.5

1.5

RoE (%)

19.4

19.3

19.0

Payout (%)

18.8

19.7

19.7

Valuations

P/E (x)

17.5

15.0

13.1

P/BV (x)

3.1

2.7

2.3

Div. Yield (%)

0.9

1.1

1.3

n

n

n

n

n

n

portfolio (65% YoY growth in LAP and 60% in builder loans). Disbursements in

LAP were INR45b (+18% YoY), while those in builder financing were INR12b

(+93% YoY). The QoQ increase in the LAP book was the highest ever at INR41b.

In line with the trend of past few quarters, the individual home loan book

continues to grow at a modest pace of 9.1% YoY, driven by ~11% disbursement

growth.

Margins (calculated) continued their upward trajectory, improving 11bp QoQ

to 2.97%, driven by 46bp reduction in cost of funds (calculated). Margins are

the highest in past 24 quarters. We expect spreads to remain largely stable at

these levels, with lower yields in home loans offset by higher share of non-core

loans and continued reduction in cost of funds. We believe cost of funds can

decline further from 4QFY17 levels (8.37%).

For full year FY17, PAT grew 16.3% YoY to INR19.3b. RoA/RoE was 1.5%/19.4%.

Operating expenses increased 25% YoY to INR1.97b, 6% more than our

estimate, driven by higher employee as well as establishment costs.

Other highlights:

(a) Share of floating rate loans increased from 62% in 3QFY17

to 70% in 4QFY17. (b) Tier I ratio stood at 14%.

Valuation and view:

Despite being the second largest HFC, LICHF has managed

to grow at ~15% YoY consistently. Large share of incremental growth is now

coming from high-yielding LAP and builder financing, which is helping to

negate yield pressure on the core retail portfolio. We believe growth in these

segments is necessary to sustain spreads. We marginally cut earnings

estimates for FY18/19 to factor in pressure on retail business. The stock has

run up 20% in last three months. At current valuations, we see limited upside.

We thus downgrade to

Neutral

with a TP of INR723 (2.5x FY19E BVPS).

27 April 2017

6

26 April 2017

4QFY17 Results Update | Sector: Financials

IDFC Bank

Neutral

BSE SENSEX

30,133

Bloomberg

Equity Shares (m)

M.Cap.(INR b)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg. Val, INR m

Free float (%)

S&P CNX

9,352

IDFCBK IN

3392.6

207.0 / 3.0

83 / 44

-2/-29/0

621

47.1

CMP: INR61

n

n

TP: INR62 (2%)

Focusing on retail assets; stressed assets stable

IDFC Bank’s (IDFCBK) PAT rose 7% YoY to INR1.76b (12% beat), led by lower-

than-estimated opex and provisioning.

Total income was largely stable YoY at INR5.6b (28% miss), driven by 21% YoY

growth in NII to INR5b, offset by a 59% decline in non-interest income to

INR563m. NII missed our estimate by 5% due to pressure on margins. The

decline in non-interest income was on account of INR258m of trading losses, as

against INR782m of trading gains in 4QFY16.

Operating expenses came in 20% below estimate at INR3.0b (1% YoY, -22%

QoQ), driven by lower employee expenses (-30% YoY). Management has

guided for average 2HFY17 employee cost as a run-rate (without considering

new employee addition). C/I ratio remained largely stable YoY at 53%.

GNPL fell 57% QoQ to INR15.4b, resulting in GNPL ratio declining sequentially

from 7% to 3%. This reduction is due to sale of INR40b NPLs to an ARC.

Loan book growth remains sluggish. Advances grew 8% YoY (+5% QoQ) to

INR494b. Management targets to increase the share of retail loans from 25% to

55-60% in three years via both organic and inorganic opportunities.

Total deposits increased 49% QoQ to INR402b. CASA deposits more than

doubled QoQ to INR20.9b. However, we suspect this could be on account of

one-off float balances in current accounts.

Other highlights:

(1) Tier-1 ratio remains healthy at 18.5%; (2) Core fee income

increased significantly from INR595m in 4QFY16 to INR821m in 4QFY17.

Valuation view:

Near-term earnings are likely to remain volatile due to

transition cost, trading gains volatility and portfolio acquisitions (to fulfill PSL

requirements). Stress loans too remain high. Over medium-to-long term,

higher leverage, low cost-to-assets and higher share of infra bonds will lead to

higher sustainable RoA/RoE. Near-term uncertainty remains high. We value the

bank at 1.3x FY19 BV. Maintain

Neutral

with a revised TP (based on RI model)

of INR62 (1.3x FY19E BV).

Financials & Valuations (INR b)

Y/E March

2017E 2018E 2019E

NII

20.2

23.0

29.8

OP

17.5

18.3

24.0

NP

10.2

11.2

14.5

NIM (%)

2.3

2.0

2.1

EPS (INR)

3.0

3.3

4.3

EPS Gr. (%)

10.1

28.8

BV/Sh. (INR)

43.2

45.7

49

ABV/Sh. (INR)

40.6

42.8

46

RoE (%)

7.2

7.4

9.0

RoA (%)

1.0

0.9

0.9

P/E(X)

20.3

18.5

14.3

P/BV (X)

1.4

1.3

1.2

n

n

n

n

n

n

27 April 2017

7

Zensar Technologies

BSE SENSEX

30,039

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

9,313

ZENT IN

45

37.5 / 0.6

Profitability bogged down by restructuring

1136 / 814

n

Revenue decline led by ramp-up delays:

ZENT’s 4QFY17 revenue declined

-11/-20/-30

4.9% QoQ (est. of +2.7%) to USD112m. The decline was led by absence of

36

Product revenue (~USD8m), which sees a bump-up in 3Q, and delays in

51.4

26 April 2017

Q4FY17 Results Update | Sector: Technology

CMP: INR835

TP: INR1,020(+22%)

Buy

Two steps ahead, one step back

Financials & Valuations (INR b)

2017

2018E

Y/E Mar

30.8

32.8

Net Sales

3.9

4.3

EBITDA

2.5

3.0

PAT

54.9

67.6

EPS (INR)

-19.5

23.1

Gr. (%)

356.9

408.9

BV/Sh (INR)

16.3

17.7

RoE (%)

22.3

21.6

RoCE (%)

15.2

12.4

P/E (x)

2.3

2.0

P/BV (x)

2019E

37.5

5.1

3.5

78.4

16.0

470.2

17.8

22.7

10.6

1.8

n

n

Estimate change

TP change

Rating change

n

Quarterly Performance (Consolidated)

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Margin (%)

Other income

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Utilization (%)

Offshore rev. (%)

1Q

111

5.1

7,046

16.5

31.7

16.4

1,080

15.3

13.8

148

29.8

762

6.2

36.3

17.6

7,895

79.0

35.0

FY16

2Q

116

4.8

7,564

16.8

32.1

16.6

1,171

15.5

14.0

229

26.9

913

19.8

35.7

20.6

8,050

80.0

37.0

3Q

115

-1.4

7,568

5.5

30.6

16.2

1,089

14.4

12.9

95

30.4

715

-21.7

2.9

15.8

8,192

82.0

34.0

ramp-ups leading to some right-shifting of revenue. While this resulted in a

26% decline in IM revenue (19% of total), the Applications business was

stable (+1.7% QoQ). Due to a weak 4Q and ongoing reconstitution of the

business, FY17 revenue grew by 3.5% YoY CC.

Restructuring takes a toll on margins:

EBITDA margin contracted 450bp

QoQ to 9.3%, led by [1] restructuring in Multi-vendor services (MVS)

business (~USD3m), [2] pricing decline in some large customers (USD1.6m)

and [3] one-time expense of USD2m related to property taxes and

provisioning for Indian government projects. Even after excluding one-offs,

margins shrunk 270bp QoQ to 11.1%. PAT at INR217m declined 73.3% QoQ.

Dismal headline, strong undercurrents:

Several phases of ZENT’s

restructuring have been under execution, with progress seen in account

mining, launch of new services, thrust on Digital, addition of leadership,

revamping of sales function and pruning of non-core businesses. This has

taken a toll on FY17 results, with revenue growth of 3.5% YoY CC and margin

contraction of 160bp. While headline numbers look dismal, the underlying

signs of strategy execution remain encouraging.

Valuation view:

Factoring a slower trajectory of turnaround in business, we

have cut revenues by 6.2% / 6.7% and EBITDA margins by 145bp / 116bp,

driving EPS correction of 17% / 15% for FY18E/19E. For revenue/earnings

CAGR of 10/19% over FY17-19E, we maintain Buy with a revised price target

of INR1,020—discounting FY19E EPS by 13x.

4Q

111

-3.7

7,464

13.5

30.8

18.5

922

12.4

10.7

116

21.1

703

-1.7

-2.1

15.5

8,256

81.0

36.0

1Q

114

3.1

7,624

8.2

29.1

15.3

1,053

13.8

12.5

169

30.5

763

8.5

0.1

16.9

8,238

79.8

31.2

FY17

2Q

116

1.8

7,767

2.7

29.7

15.6

1,092

14.1

12.5

37

28.2

687

-10.0

-24.8

15.2

8,316

80.1

33.8

FY16

3Q

118

1.3

7,922

4.7

30.0

16.2

1,090

13.8

12.4

183

29.1

811

18.1

13.4

18.0

8,564

79.5

33.5

4Q

112

-4.9

7,492

0.4

28.0

18.7

697

9.3

7.7

-236

28.9

217

-73.3

-69.1

4.8

8,524

79.2

34.5

453

5.4

29,643

12.8

31.3

16.9

4,262

14.4

12.8

588

27.3

3,094

17.0

68.2

8,256

80.5

35.5

FY17

459

1.4

30,805

3.9

29.2

16.4

3,932

12.8

11.3

153

29.3

2,478

-19.9

54.9

8,524

79.7

33.2

Est.

4QFY17 Var. (% / bp)

121

-7.4

2.7

-756bp

8,037

-6.8

7.7

-730bp

30.6

-263bp

16.0

270bp

1,176

-40.7

14.6

-533bp

13.2

-549bp

-75

213.7

28.0

684

-68.3

-15.7

-5754bp

-2.7

-6642bp

15.2

8,564

-0.5

80.0

-80bp

33.6

88bp

27 April 2017

8

RESULTS

FLASH

KPIT Technologies

BSE SENSEX

30,133

S&P CNX

9,352

26 April 2017

Results Flash | Sector: Technology

CMP: INR130

n

TP: INR150(+15%)

Neutral

We will revisit our estimates

post earnings call/management

interaction.

In-line performance, excluding the addition of MicroFuzzy

4QFY17 revenue grew 4.4% QoQ to USD128m, beating estimate of +1.2%.

Growth in the quarter included USD4m from the integration of MicroFuzzy, a

recently acquired automotive engineering company based in Germany.

Excluding this, revenue was in line with our expectation.

Gross margin expanded 20bp QoQ to 29.2% (est. of 28.9%), while EBITDA

margin contracted 10bp QoQ to 10.1% (est. of 10.0%) due to INR appreciation

(-40bp), integration costs related to MicroFuzzy and increased travelling

expenses.

Adjusted PAT was INR537m (+13.1% QoQ), higher than our estimate of

INR451m (-5.0% QoQ), primarily led by higher revenue.

Conference Call Details

Date:

27 April 2017

Time:

04:00pm IST

Dial-in details:

+91-22-3960 0695

n

Financials & Valuations (INR b)

2016

2017E

Y/E Mar

Net Sales

33.2

35.6

EBITDA

3.5

4.0

NP

2.1

2.7

EPS (INR)

11.9

13.7

EPS Gr. (%)

-15.3

15.1

BV/Sh. (INR)

79.2

93.0

RoE (%)

14.3

16.0

RoCE (%)

15.9

15.7

Payout (%)

16.8

14.6

Div. Yield

1.5

1.5

2018E

th

n

38.8

n

KPIT guided for 6-8% CC growth in FY18. However, this would include

4.2

additional revenue from MicroFuzzy, which implies organic growth of 4-6%.

2.9

14.5

n

The company expects better profitability, led by higher utilization through

5.9

absorption of recently added freshers, delivery excellence and a focus on

107.5

automation. QoQ improvement in profitability is targeted despite headwinds

14.5

on account of INR appreciation.

14.5

13.8

Valuation and view:

We will revisit our estimates post the earnings call. Outlook on

1.5

growth recovery and margin resurrection will be keenly sought. Based on current

Guidance of 6-8% for FY18

estimates, it trades at 9.4/8.9x FY18/19E EPS. Maintain

Neutral.

Quarterly Performance (Consolidated)

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Margin (%)

Other income

Interest

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Util excl. trainees (%)

Offshore rev. (%)

Fixed Price (%)

1Q

118

-3.3

7,583

9.9

28.2

18.7

718

9.5

7.3

106

47

27.9

444

-11.8

-12.6

2.2

10,839

66.4

44.7

26.2

FY16

2Q

3Q

125

123

5.3

-1.0

8,123

8,130

7.2

4.3

32.1

32.9

18.1

18.3

1,139

1,186

14.0

14.6

11.9

12.3

86

36

44

35

25.4

26.5

751

735

69.1

-2.1

6.3

12.5

3.8

3.7

10,659 10,559

69.7

69.1

44.9

41.2

27.1

29.1

4Q

124

0.7

8,407

10.2

35.3

19.1

1,359

16.2

13.6

20

25

13.4

885

20.4

75.7

4.4

10,910

70.2

42.1

26.4

1Q

120

-3.5

8,032

5.9

28.9

18.3

855

10.7

8.3

116

56

24.3

551

-37.8

24.0

2.8

11,288

68.1

41.5

28.5

FY17

2Q

3Q

123

123

3.0

-0.4

8,310

8,307

2.3

2.2

29.5

29.0

18.5

18.8

914

846

11.0

10.2

8.6

7.9

49

29

14

66

25.1

23.1

562

475

2.0

-15.5

-25.2

-35.4

2.8

3.7

11,666 11,881

69.2

69.2

43.3

43.6

28.0

33.7

FY16

4Q

128

4.4

8,585

2.1

29.2

19.0

870

10.1

7.3

12

0

15.3

537

13.1

-39.3

2.7

12,110

69.2

43.4

490

0.3

32,243

7.8

32.2

18.6

4,353

13.5

11.4

248

152

22.8

2,815

18.7

14.1

10,910

68.8

43.2

FY17

494

0.8

33,234

3.1

29.1

18.7

3,486

10.5

8.0

207

136

22.2

2,125

-24.5

11.9

12,110

68.9

43.0

Est.

3QFY17

124

1.2

8,284

-1.5

28.9

18.9

830

10.0

7.6

20

63

23.1

451

-5.0

-49.0

2.3

11,770

70.0

43.8

Var. (% /

bp)

3.2

319bp

3.6

358bp

26bp

14bp

4.9

12bp

-36bp

-36.4

-99.3

19.1

1811bp

972bp

2.9

-80bp

-43bp

27 April 2017

9

March 2017 Results Preview | Sector: Healthcare

Biocon

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

BIOS IN

200.0

224 / 3

1162 / 482

1 / 11 / 92

n

n

CMP: INR1122 TP: INR800 (-29%)

n

Sell

Financial Snapshot (INR Billion)

y/e march

2016 2017E 2018E 2019E

Sales

EBITDA

NP

EPS (INR)

EPS Gro. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA

(x)

Div. Yield (%)

48.3

5.5

28.7

0.4

33.5

5.0

22.3

0.7

31.6

4.5

19.3

0.8

25.2

4.0

15.0

1.0

34.5

7.9

4.6

23.2

15.5

202.7

11.5

15.9

40.8

10.2

6.7

33.5

44.1

226.4

14.8

10.0

49.5

11.9

7.1

35.6

6.2

251.6

14.1

10.1

61.7

15.1

8.9

44.5

25.0

283.0

15.7

14.6

n

n

Key issues to watch out

Biocon’s revenue is likely to increase 6% YoY to INR10b, driven by

muted growth in CRO division, 13% growth in bio-pharma sales

and licensing income at INR67m.

EBITDA is expected to increase 32% YoY to INR2.4b, with EBITDA

margins at 24.6%.

We expect PAT to decline to INR1.6b, primarily owing to one time

gain in 4Q FY16. The key thing to watch would be the impact of

fire at the R&D center of Syngene.

Key growth drivers for FY17E/18E will be 1) commercialization

and ramp-up of the insulin plant in Malaysia, 2) ramp-up in CRO

division, 3) contribution from API/immuno-suppressants supplies

to partners and 4) branded formulations in India. However, capex

for long-term initiatives is likely to exert pressure on profitability

and return ratios in the near term.

The recent run-up in the stock price primarily on the back of

positive developments in the Biosimilars portfolio. Although the

progress is impressive, we believe there are still uncertainties that

cap the upside potential. In the near term, commissioning of the

Malaysia plant would exert pressure on profits. We maintain Sell

with a TP of INR800 @ 20x 1HFY19E EPS

Ø

Update on Middle-East problems.

Ø

Progress on Rh-Insulin/Glargine in Europe/US and other out-

licensing opportunities.

Quarterly Performance Consolidated

Y/E March

FY16

FY17E

3Q

10,290

24.2

7,680

2,610

25.4

710

90

630

2,440

550

22.5

180

1,710

66.0

16.6

4QE

11,286

19.4

8,514

2,772

24.6

714

35

548

2,571

536

20.8

186

1,849

-44.0

16.4

1Q

2Q

3Q

4Q

1Q

2Q

Net Sales

8,105

7,860

8,282

9,450

9,814

9,400

YoY Change (%)

12.8

4.9

8.8

13.8

21.1

19.6

Total Expenditure

6,127

6,270

6,483

7,598

7,276

7,150

EBITDA

1,978

1,590

1,799

1,852

2,538

2,250

Margins (%)

24.4

20.2

21.7

19.6

25.9

23.9

Depreciation

591

610

621

647

661

680

Interest

44

30

15

166

57

70

Other Income

304

-750

289

3,014

502

520

PBT

1,647

200

1,452

4,053

2,322

2,020

Tax

376

290

241

591

552

420

Rate (%)

22.8

145.0

16.6

14.6

23.8

20.8

Minority Interest

33

20

181

159

104

130

Adj PAT

1,238

970

1,030

742

1,466

1,470

YoY Change (%)

20.2

-4.9

13.4

-63.2

34.6

51.5

Margins (%)

15.3

12.3

12.4

7.9

17.0

15.6

E: MOSL Estimates; Note - Quarterly nos will not add up to full-year nos due to restatements

(INR Million)

FY16

34,507

12.8

26,654

7,853

22.8

2,423

102

1,192

6,520

1,131

17.3

744

4,646

-7.0

13.5

FY17E

40,790

18.2

30,620

10,170

24.9

2,765

252

2,200

9,353

2,058

22.0

600

6,695

44.1

16.4

27 April 2017

10

March 2017 Results Preview | Sector: Financials - Banks

Kotak Mahindra Bank

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

KMB IN

1834.4

1629 / 25

896 / 656

6 / 7 / 12

n

CMP: INR888

n

TP: INR1,017 (+15%)

Buy

Financial Snapshot (INR b)

Y/E MARCH

2016 2017E 2018E 2019E

NII

69.0

80.7

90.6 110.3

OP

40.4

58.1

69.3

89.2

NP

20.9

33.2

40.8

53.4

Cons. NP

34.6

48.2

59.2

75.7

NIM (%)

4.1

4.4

4.4

4.4

Cons.

EPS 18.9

26.3

32.3

41.3

(INR) (%)

EPS Gr.

39.2

22.9

27.8

Cons. BV. (INR) 182

207

238

278

Cons. RoE (%)

10.9

13.5

14.5

16.0

RoA (%)

1.1

1.6

1.8

2.0

Payout (%)

5.1

5.8

5.8

5.8

Valuations

P/E(X) (Cons.)

47.1

33.8

27.5

21.5

P/BV

(X) 4.9

4.3

3.7

3.2

(Cons.) (%)

Div. Yield

0.0

0.1

0.1

0.1

n

n

We expect the standalone bank to report 15% loan growth and

12.5% deposit growth in 4QFY17. NIM is likely to decline ~5bp

QoQ, but improve 16bp YoY. Overall, we expect NII growth of 13%

YoY. CASA retention would be a key driver of NII and NIM.

With strong digital initiatives, fast-paced customer acquisition and

merger synergies from eIVBL, fee income would be a key growth

driver for the bank. We factor in fee income growth of 20% in 4Q

and expect an improving trend in the coming quarters.

We expect asset quality to remain stable, with GNPA less than

2.5% and NNPA at 1%, led by high provision coverage ratio.

On a reported basis, we expect standalone bank earnings to grow

28% YoY. The stock trades at 3.2x FY19E consolidated BV and

21.5x FY19E consolidated EPS. Maintain

Buy.

Key issues to watch for

Ø

Guidance on balance sheet growth.

Ø

Performance on CASA, fees and growth – the initial pain of

merger is behind now.

Ø

Performance of non-banking subsidiaries and their contribution

to overall profit.

Quarterly Performance

Y/E March

1Q

FY16

2Q

3Q

4Q

1Q

FY17E

2Q

FY16

3Q

4QE

21,008

13.1

15,312

28.2

8,878

27.6

1,393

497

74

846

240

170

5

804

-190

12,716

20.6

69,004

63.4

40,411

34.8

20,898

12.0

5,025

1,540

320

2,515

1,050

720

50

2,510

-19

34,608

13.7

FY17E

Kotak Bank (standalone)

Net Interest Income

15,982 16,787 17,662 18,572

19,191 19,954

% Change (Y-o-Y)

59.5

61.6

66.7

65.4

20.1

18.9

Operating Profit

5,970 10,448 12,052 11,942

13,150 14,401

% Change (Y-o-Y)

-10.3

42.4

63.4

38.7

120.3

37.8

Net Profit

1,898

5,695

6,347

6,958

7,420

8,133

% Change (Y-o-Y)

-55.8

28.1

36.6

32.0

291.0

42.8

Other Businesses

Kotak Prime

1,190

1,270

1,260

1,300

1,200

1,300

Kotak Mah. Investments

300

360

390

500

400

530

Kotak Mah. Capital Co

30

70

60

170

230

50

Kotak Securities

670

780

550

510

600

960

International subs

250

320

260

220

130

310

Kotak Mah. AMC & Trustee Co.

200

230

40

250

190

70

Kotak Investment Advisors

0

0

-10

50

110

10

Kotak OM Life Insurance

660

480

600

770

710

630

Con.adj and MI

-30

230

-40

-180

-240

30

Conso. PAT

5,168

9,435

9,457 10,548

10,750 12,023

% Change (Y-o-Y)

-25.9

31.5

32.0

15.5

108.0

27.4

E: MOSL Estimates, Quarterly numbers vary from full year number due to difference in reporting

20,503

16.1

15,277

26.8

8,798

38.6

1,330

480

70

850

220

160

0

680

80

12,668

33.9

80,656

16.9

58,140

43.9

33,228

59.0

5,223

1,907

424

3,256

900

590

125

2,824

-320

48,156

39.1

27 April 2017

11

March 2017 Results Preview | Sector: Automobiles

Maruti Suzuki

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

MSIL IN

302.1

1915 / 29

6356 / 3419

4 / 5 / 58

CMP: INR6,285 TP:INR7,299 (+16%)

Buy

Financial Snapshot (INR b)

Y/E MARCH

2016 2017E 2018E 2019E

Sales

EBITDA

Adj. PAT

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/CE (x)

EV/EBITDA (x)

40.3

25.2

19.3

24.7

18.5

16.0

0.7

20.4

15.4

12.2

1.0

16.7

12.9

9.7

1.1

576.5 682.7 816.1 945.3

89.0 104.6 130.7 156.0

53.7

23.4

19.9

27.2

23.7

74.5

62.8

22.4

30.7

22.2

91.2 111.2

21.5

23.0

30.9

23.9

21.6

23.1

30.5

22.9

Con.adj.EPSINR 155.5 253.2 307.6 374.1

894.0 1,083 1,313 1,597

n

Volume grew by ~15% YoY (+7% QoQ) in 4QFY17 to ~414,439

units, led by continuous better performance from Baleno and

Brezza, with ongoing high waiting period.

n

Net realization is likely to improve 6% YoY (+3.3% QoQ) to

INR449,769 per unit, boosting net revenue by ~22% YoY (+10.5%

QoQ) to INR186.4b. Growth in realization is likely to be driven by

improvement in product mix due to compact UV, Vitarra Brezza,

and premium hatchback, Baleno.

n

We expect margin to decline 80 bp YoY (-20bp QoQ) to 14.6% led

by impact of commissioning of Gujarat plant and higher fixed cost

due to same. Higher commodity prices are likely to be offset by

hike in prices.

n

EBITDA is estimated to grow by 15% YoY (+9% QoQ) at INR27.2b.

n

We expect PAT to grow ~17% YoY (+5% QoQ) to INR18.2b led by

pre- operative expenses of Gujarat plant taken as extraordinary

item and lower other income due to higher yield.

n

The stock trades at 16.8x FY18E and 14.7x FY19E EPS. Maintain

Buy.

Key issues to watch

Ø

Update on demand scenario, channel inventory, discounting trends

and new launches.

Div. Yield (%)

0.6

*Consol. & adjusted

Ø

Gujarat plant product pipeline.

Quarterly Performance

1Q

341,329

13.8

391,907

2.8

133,769

17.1

67.4

3.5

12.9

21,673

16.2

2,065

190

6,716

16,832

28.2

12,081

58.5

FY16

2Q

3Q

353,335 374,182

9.8

15.5

392,013 401,227

2.5

3.1

138,512 150,132

12.5

19.1

66.9

68.6

3.0

3.3

13.9

13.8

22,457

21,452

16.2

14.3

4,736

2,425

178

244

6,694

7,221

20,321

16,412

26.3

27.9

14,973

11,830

73.6

42.7

4Q

360,354

3.9

425,002

8.1

153,151

12.4

65.9

3.9

14.7

23,594

15.4

5,384

203

7,608

21,167

26.3

15,602

21.5

1Q

348,443

2.1

428,202

9.3

149,204

11.5

67.9

3.9

13.4

22,157

14.9

4,833

181

6,389

20,420

27.2

14,862

23.0

FY17E

2Q

3Q

418,470 387,251

18.4

3.5

426,382 435,500

8.8

8.5

178,428 168,648

28.8

12.3

67.7

69.2

2.9

3.7

12.4

12.4

30,374

24,890

17.0

14.8

8,126

5,919

197

290

6,300

6,349

32,003

24,170

25.1

27.8

23,980

17,445

60.2

47.5

(INR Million)

FY16

FY17E

4QE

414,439 1,429,200 1,568,603

15.0

10.6

9.8

449,769 403,394 435,217

5.8

4.3

7.9

186,402 576,530 682,682

21.7

15.4

18.4

68.8

67.4

68.4

3.7

3.4

3.5

12.9

13.8

12.7

27,209

88,962 104,630

14.6

15.4

15.3

5,080

14,610

23,958

207

815

875

6,929

28,239

25,967

23,669

74,518 100,262

27.5

28.0

26.8

18,231

53,654

74,529

16.8

44.6

38.9

Total Volumes (nos)

Change (%)

Realizations (INR/car)

Change (%)

Net operating revenues

Change (%)

RM Cost (% of sales)

Staff Cost (% of sales)

Other Cost (% of sales)

EBITDA

EBITDA Margins (%)

Non-Operating Income

Interest

Depreciation

PBT

Effective Tax Rate (%)

Adjusted PAT

Change (%)

E:MOSL Estimates

27 April 2017

12

March 2017 Results Preview | Sector: Financials

Shriram Transport Fin.

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

SHTF IN

226.9

251 / 4

1325 / 778

17 / -16 / -1

CMP: INR1,108 TP: INR1,289 (+16%)

Buy

Financial Snapshot (INR b)

Y/E March

Net Inc.

PPP

PAT

Cons.PAT

EPS (INR)

Cons. EPS (INR)

BV/Sh (INR)

Cons. BV (INR)

RoA on AUM (%)

RoE (%)

Payout (%)

Valuations

P/Cons. EPS (x)

P/Cons. BV (x)

Div. Yield (%)

2016 2017E 2018E 2019E

50.7 54.8 62.8 69.7

38.4 42.8 49.2 54.3

11.8 12.5 18.3 22.4

12.1 12.5 18.6 22.8

51.9 55.1 80.8 98.8

53.3 55.3 81.9 100.5

447 491 554 632.0

450 493 558 637.1

2.1

2.0

2.7

3.0

12.2 11.7 15.5 16.7

22.3 21.2 21.2 21.2

20.8

2.5

0.9

20.0

2.2

0.9

13.5

2.0

1.3

11.0

1.7

1.6

n

SHTF’s AUM is expected to continue to slow down to 11% YoY and

6% QoQ, driven by 21% YoY decline in disbursements (4QFY16

was a high base).

n

Calculated margins on AUMs would decline QoQ, given higher

share of newer vehicles and impact of interest reversals. As a

result, we expect 5% YoY decline in NII.

n

GNPLs would increase from 7.3% in 3Q (excluding RBI

dispensation) to 8.3% in 4Q. Consequently, PCR is expected to

drop from 75% to 61% in 4QFY17.

n

We factor in provisions of INR8.2b, as against INR6.1b in 3QFY17.

n

The stock trades at 2x FY18E and 1.7x FY19E consolidated BV.

Maintain

Buy.

Key issues to watch for

Ø

Business growth and momentum, and management

commentary on the same.

Ø

Movement in borrowing costs and margins.

Ø

Asset quality trends, given impact of demonetization.

Ø

Recoveries in equipment financing portfolio.

SHTF: Quaterly Performance

Y/E March

FY16

FY17

1Q

2Q

3Q

4Q

1Q

2Q

3Q

Interest Income

22,015 22,402 23,677 27,207 24,764 24,626 24,438

Interest expenses

11,972 12,059 12,239 14,474 13,165 13,358 12,825

Net Interest Income

10,043 10,343 11,438 12,733 11,598 11,268 11,613

YoY Growth (%)

39.3

31.3

24.5

34.3

15.5

8.9

1.5

Securitisation income

1,313

1,586

1,768

1,705

1,876

2,262

2,508

Net Income (Incl. Securitization)

11,356 11,929 13,205 14,438 13,474 13,530 14,121

YoY Growth (%)

17.4

18.4

25.4

33.0

18.6

13.4

6.9

Fees and Other Income

162

211

191

197

167

169

183

Net Operating Income

11,519 12,140 13,396 14,635 13,641 13,699 14,304

YoY Growth (%)

16.2

18.6

25.5

32.9

18.4

12.8

6.8

Operating Expenses

2,905

3,001

3,287

3,896

3,341

3,138

2,905

Operating Profit

8,613

9,139 10,110 10,739 10,300 10,561 11,398

YoY Growth (%)

16.4

19.3

26.8

33.9

19.6

15.6

12.7

Provisions

3,823

3,997

4,400

8,567

4,603

4,621

6,105

Profit before Tax

4,790

5,142

5,710

2,172

5,697

5,940

5,293

Tax Provisions

1,579

1,761

1,959

733

1,956

2,063

1,834

Net Profit

3,211

3,381

3,751

1,439

3,741

3,877

3,460

YoY Growth (%)

4.8

11.9

20.1

-54.6

16.5

14.7

-7.8

AUM Growth (%)

11.3

13.8

16.6

23.1

23.6

19.1

14.6

Securitization Inc. / Net Inc. (%)

11.4

13.1

13.2

11.7

13.7

16.5

17.5

Cost to Income Ratio (%)

25.2

24.7

24.5

26.6

24.5

22.9

20.3

Tax Rate (%)

33.0

34.3

34.3

33.7

34.3

34.7

34.6

E: MOSL Estimates; * Quarterly nos and full year nos will not tally due to different way of reporting financial nos

(INR Million)

FY16

FY17

4QE

24,308

13,334

10,974

-13.8

2,717

13,691

-5.2

175

13,866

-5.3

3,241

10,625

-1.1

8,363

2,263

791

1,471

2.2

11.0

19.6

23.4

35.0

95,300

50,744

44,556

32.0

6,171

50,727

23.3

762

51,489

23.1

13,089

38,400

23.7

20,586

17,814

6,032

11,782

-4.8

23.1

12.0

25.4

33.9

98,136

52,683

45,453

2.0

9,362

54,816

8.1

647

55,463

7.7

12,625

42,838

11.6

23,692

19,146

6,644

12,502

6.1

11.0

16.9

22.8

34.7

27 April 2017

13

March 2017 Results Preview | Sector: Automobiles

TVS Motor Company

Bloomberg

Equity Shares (m)

M. Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel Perf. (%)

TVSL IN

475.1

214 / 3

453 / 278

1 / 12 / 23

CMP: INR450

TP:INR500 (+11%)

Buy

Financial Snapshot (INR b)

Y/E March

2016 2017E 2018E 2019E

Sales

EBITDA

Adj. PAT

EPS (INR)

EPS Gr. (%)

BV/Sh (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

51.5

11.5

30.6

0.6

41.8

9.6

25.3

0.6

30.9

7.8

19.3

0.6

21.7

6.1

13.7

0.9

112.4

7.5

4.3

9.1

24.2

40.8

24.1

23.3

33.7

121.2

8.9

5.3

11.2

23.4

48.7

25.1

25.9

29.5

142.0

11.4

7.2

15.2

35.0

60.2

27.8

30.3

23.8

164.6

15.6

10.2

21.6

42.2

77.0

31.4

35.6

22.3

n

Total volume growth moderated to 2.2% YoY (-6% QoQ) to

674,921 units led by increase in Scooter and Moped volume

partially offset by decline in Motorcycle volumes post

demonetization.

n

Moped and scooter volume increased by 14% YoY (-5% QoQ) and

13% YoY (+1% QoQ), respectively, while motorcycle volume

decline 13% YoY (-13% QoQ) led by benign rural growth.

n

Net realization is likely to decline ~2% YoY (+1% QoQ) to

INR41,972 per unit as share of motorcycle decreased. As a result,

net sales would grow marginally by ~1% YoY to ~INR28.3b.

n

Margin should expand 40bp YoY (-60bp QoQ) to 6.7%, driven by

benefit of operating leverage and better product mix YoY. Also

price increase to offset commodity inflation.

n

We expect PAT to decline ~14% YoY (-23% QoQ) to INR1b led by

higher depreciation by 41% YoY and higher tax rate.

n

We are increasing multiple from 18x to 20x.

n

The stock trades at 29.7x FY18E and 20.9x FY19E EPS;

Buy.

Key issues to watch

Ø

Launch of product with BMW tie up

Ø

EBITDA margin target of double digits by FY18

S/A Quarterly Performance

Y/E March (INR m)

Volumes (units)

Growth (%)

Realization (INR/unit)

Growth (%)

Net Sales

Growth (%)

RM (% of sales)

Emp cost ( % of sales)

Other exp (% of sales)

EBITDA

EBITDA Margin(%)

Interest

Depreciation

Other Income

PBT after EO Exp

Tax rate (%)

Adjusted PAT

Growth (%)

1Q

638,033

9.2

40,344

2.2

25,741

11.7

73.0

6.0

14.2

1,728

6.7

130

504

210

1304

23.2

1,001

38.4

FY16

FY17

2Q

3Q

4Q

1Q

2Q

3Q

4QE

FY16

FY17E

678,749 702,044 660,540 717,964 815,562 718,562 674,921 2,678,338 2,927,009

0.4

7.1

9.6

12.5

20.2

2.4

2.2

6.3

9.3

41,803 41,250 42,622 40,127 42,014 41,519 41,972

41,981

41,420

5.3

1.9

4.6

(0.5)

0.5

0.7

(1.5)

5.3

(1.3)

28,374 28,959 28,154 28,809 34,265 29,834 28,328

112,439

121,236

5.8

9.2

14.6

11.9

20.8

3.0

0.6

12.0

7.8

72.1

72.3

70.2

72.6

72.3

72.0

71.2

71.4

72.1

5.7

6.1

5.8

6.3

5.8

6.4

6.8

5.9

6.3

14.2

14.4

17.6

14.2

13.8

14.2

15.3

16.0

14.4

2,270

2,102

1,785

2,004

2,767

2,185

1,895

7,507

8,850

8.0

7.3

6.3

7.0

8.1

7.3

6.7

6.7

7.3

115

98

131

98

94

115

106

462

414

565

621

518

660

724

720

729

1,898

2,833

195

248

243

362

392

348

309

513

1,411

1785

1631

1380

1608

2340

1698

1368

5,660

7015

25.5

26.3

14.7

24.6

24.2

21.9

25.6

23.6

24.0

1,330

1,202

1,178

1,213

1,774

1,327

1,018

4,321

5,331

40.2

33.3

30.1

21.2

33.4

10.4

(13.5)

24.2

23.4

27 April 2017

14

In conversation

1. PVR Cinemas: Expect 8-10% growth in ad revenues going

ahead; Gautam Dutta, CEO

n

n

n

n

Have signed a deal with IMAX for five additional screens. The total cost will be

about Rs 50-55 crore which is close to about Rs 10-10.5 crore per screen.

Out of the five, two screens are being planned to be fitted into cinemas, which

are ready. So the revenue should start trickling-in in about four months' time.

Remaining three screens are planned for new sites of the company in Chennai,

Hyderabad and Delhi. The revenue for these three screens will be garnered by

the year end.

The company has a huge headroom to grow the ad revenues as it will be

utilising 9 minutes per screen per show.

2. HDFC Bank: The best is yet to come in terms of loan growth;

Aditya Puri, MD

n

n

n

n

The bank is in a sweet spot to take benefit of the uptick in the economy because

the bank does not have an non-performing asset (NPA) issue, it is well

capitalized, it has the largest distribution network and is a major in digital

banking.

Don’t think the quarter 4 numbers are stellar, the best is yet to come.

The rural economy is picking up as the government spends more and more

money there. The harvests have been good and if we get a good monsoon, that

would be a roaring area for us which is doing very well.

The low cost deposits have increased from Rs 2.87 lakh crore to Rs 3.09 lakh

crore in 90 days, it is remaining at that level. Do not expect to see any more

withdrawl.

3. Persistent Systems: Expect double-digit revenue growth in

FY18; Anand Deshpande, Founder, MD & CEO

n

n

n

n

Great quarter from the perspective of asset quality as well as collection

efficiency. Collection efficiency stood at 107% in the previous quarter.

Saw disbursement growing at 23% in the quarter, and at 18-19% YoY. AUM

growth stood at 14% over a large base.

Average monsoon coupled with increased spending on infrastructure in the

major states would improve the rural cashflows, which would augur well for the

company.

Have taken 90-day dispensation benefit taken in the past quarter. Out of the

32k customers, 24k have been fully resolved, 4k have been partially resolved

and the rest 4k have been defaults.

27 April 2017

15

From the think tank

1. The Indian Economy is in a sweet spot. by Radhika Rao

n

India’s real GDP growth accelerated from 5.7 per cent y-o-y in FY13 to 7.9 per

cent last year. The economy hit a road bump in FY17 as growth slowed to 7.2

per cent y-o-y in the first three quarters. Fortunately, this will be temporary.

Growth will pick up again to 7.6 per cent this year through an improvement in

consumption, timely rains, higher public sector spending, and better export

growth. Investment growth will however continue to trail because of ongoing

deleveraging in the corporate sector and stressed banks’ balance sheets.

2. The stent fiasco. by PT Jyothi Datta

n

It is alarming and a tad worrying when a couple of top stent makers decide to

withdraw some products from the country — a move, they say, is in response to

the Government’s price control efforts. A stand-off between the Government

and industry is not without precedent; price control on medicines is an example.

But medical devices have come into the Government’s price net for the first

time. And here it would be advisable to learn from the challenges with price

control on medicines rather than tread a similar collision course. Caught in the

crossfire between two power centres, Government and industry, are hapless

patients.

3. The changing face of the urban leisure economy. by Livemint

n

Last week, Uttar Pradesh chief minister Yogi Adityanath recommended that

single-screen-theatre owners who are shutting shop be encouraged to refurbish

their movie halls as miniplexes instead. It is, in the larger scheme of things, a

minor matter for a state’s chief executive. But the changing nature of movie-

going in India also reflects upon urbanization and migration, and the dynamics

of growth and equality. The Indian cinema hall was once a great leveller,

bringing patrons from all socio-economic classes under one roof to engage in a

common activity.

4. Still a mental fiscal exercise. by Swaminathan S Anklesaria

Aiyar

n

The N K Singh Committee has suggested a new Fiscal Responsibility and Budget

Management (FRBM) Act to replace the old one. It has many eminently sensible

proposals. Its most obvious shortcoming is that its recommendations have no

teeth, and rely on good sense and fiscal rules that can easily be broken -as often

happened in the past. This asks a lot of Indian politicians who love spending

sprees. FRBM-1called for the Centre's fiscal deficit to be cut to 3% by 2008. That

target is finally going to be achieved a good 10 years later.

27 April 2017

16

International

5. The creeping influence of nepotism in Trump’s America. by

Edward Luce

n

What exactly is the role of a first daughter? That question in Berlin this week

had Ivanka Trump fumbling for a reply. Without having ever won a vote, Donald

Trump’s elder daughter is now among the world’s most influential people. Her

husband, Jared Kushner, is the Trump administration’s plenipotentiary by virtue

of his marriage. Both appear to be nice people: friends describe them as

“normal”. But their ascent to the pinnacle of US power has no parallel in

modern western democracy. The Germans are not alone in wondering what to

make of it.

27 April 2017

17

Click excel icon

for detailed

valuation guide

CMP

(INR)

884

88

2,888

1,117

22,617

1,548

26,027

818

549

230

3,310

1,351

221

6,407

451

502

TP

% Upside

EPS (INR)

(INR) Downside FY17E FY18E FY19E

1,084

98

3,282

1,266

22,924

1,406

28,811

841

608

270

3,390

1,573

-

7,299

609

500

23

12

14

13

1

-9

11

3

11

17

2

16

14

35

0

29.3

4.2

133.7

25.3

472.3

89.9

615.4

22.3

23.2

8.4

172.2

61.7

5.4

253.2

11.5

11.2

37.3

43.4

5.2

6.6

154.8 174.0

37.2

50.6

667.8 764.1

107.6 140.6

854.5 1,047.6

29.4

37.4

34.1

43.4

9.8

11.9

185.1 188.3

75.4

89.5

9.9

11.8

307.6 374.1

29.4

62.0

15.2

21.6

Valuation snapshot

P/E (x)

P/B (x)

ROE (%)

FY17E FY18E FY17E FY18E FY17E FY18E FY19E

30.2

20.7

21.6

44.2

47.9

17.2

42.3

36.8

23.7

27.4

19.2

21.9

41.3

25.3

39.1

44.8

28.4

37.5

26.2

29.4

21.4

27.3

16.0

20.8

29.2

NM

34.3

43.2

8.7

21.6

26.3

24.1

NM

13.1

48.7

10.5

637.3

31.5

33.0

19.1

29.7

38.1

17.7

14.6

47.2

33.9

14.6

17.7

11.7

46.7

13.1

23.7

17.0

18.7

30.0

33.9

14.4

30.5

27.8

16.1

23.5

17.9

17.9

22.5

20.8

15.3

33.1

20.3

21.7

20.8

27.0

18.0

23.1

15.5

16.0

24.7

6.0

27.9

29.7

7.8

17.1

20.9

9.6

11.3

9.2

11.6

9.2

7.6

13.4

16.9

5.3

12.8

27.6

18.5

11.7

37.4

30.6

12.3

14.8

8.6

25.5

11.3

6.0

4.0

6.0

6.6

9.1

2.6

14.9

6.6

2.7

4.0

7.0

3.3

2.6

5.9

1.8

10.3

4.2

2.2

2.7

2.5

1.9

4.4

1.9

1.4

4.4

0.7

4.3

4.8

0.8

3.3

3.0

1.2

0.7

0.7

0.7

1.0

0.4

0.9

1.3

0.5

1.0

7.9

4.0

1.7

12.6

6.3

3.5

3.2

2.7

2.9

2.4

4.9

3.6

5.3

5.7

7.6

2.3

10.7

5.5

2.4

3.5

6.0

3.0

2.3

4.9

1.6

8.3

3.6

2.1

2.4

2.3

1.7

4.0

1.8

1.3

3.8

0.7

3.8

4.2

0.8

2.9

2.8

1.1

0.7

0.6

0.7

0.9

0.4

0.9

1.2

0.5

0.9

6.3

3.3

1.6

10.5

5.7

3.1

2.7

2.4

2.7

2.1

21.7

20.6

29.5

15.7

18.2

16.4

40.7

19.6

12.1

14.5

39.5

14.5

6.4

22.4

4.7

25.1

14.7

6.2

10.9

10.7

9.0

17.9

10.5

7.1

16.0

-21.1

13.5

12.9

9.7

18.6

11.5

5.0

-2.5

5.2

1.4

10.1

0.1

3.0

3.9

2.8

3.2

22.7

29.6

14.4

30.4

19.1

25.5

19.4

23.9

6.4

19.7

22.9

22.3

30.2

20.5

24.5

16.9

40.9

21.6

15.9

15.0

36.2

13.9

10.8

23.0

11.2

27.8

18.0

9.9

12.4

8.9

10.0

18.2

9.8

8.7

16.5

11.6

14.5

15.2

10.0

18.0

13.3

11.9

6.0

7.0

5.8

10.6

5.2

6.7

7.3

9.7

7.1

25.5

19.3

13.9

30.6

18.1

27.0

19.7

29.0

10.9

20.2

22.0

24.9

30.0

23.7

23.4

18.9

36.7

22.9

17.5

16.0

31.9

14.7

11.5

23.1

20.4

31.4

21.2

15.7

14.0

9.6

11.7

19.0

10.5

10.1

17.3

12.5

16.0

17.4

11.3

19.7

14.8

14.8

9.2

10.5

7.3

11.1

6.1

8.3

9.3

13.0

9.2

27.3

20.4

14.5

30.9

17.1

29.6

20.1

32.2

12.9

20.6

Company

Reco

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Amara Raja

Buy

Ashok Ley.

Buy

Bajaj Auto

Buy

Bharat Forge

Buy

Bosch

Neutral

CEAT

Buy

Eicher Mot.

Buy

Endurance Tech. Buy

Escorts

Buy

Exide Ind

Buy

Hero Moto

Neutral

M&M

Buy

Mahindra CIE Not Rated

Maruti Suzuki Buy

Tata Motors

Buy

TVS Motor

Buy

Aggregate

Banks - Private

Axis Bank

Neutral

DCB Bank

Neutral

Equitas Hold. Buy

Federal Bank

Buy

HDFC Bank

Buy

ICICI Bank

Buy

IDFC Bank

Neutral

IndusInd

Buy

J&K Bank

Neutral

Kotak Mah. Bk Buy

RBL Bank

Under Review

South Indian

Neutral

Yes Bank

Buy

Aggregate

Banks - PSU

BOB

Buy

BOI

Neutral

Canara

Neutral

IDBI Bk

Neutral

Indian Bk

Buy

OBC

Neutral

PNB

Buy

SBI

Buy

Union Bk

Neutral

Aggregate

NBFCs

Bajaj Fin.

Buy

Bharat Fin.

Neutral

Dewan Hsg.

Buy

GRUH Fin.

Neutral

HDFC

Buy

Indiabulls Hsg Buy

LIC Hsg Fin

Buy

Manappuram Not Rated

M&M Fin.

Buy

Muthoot Fin

Buy

517

183

167

94

1,547

277

61

1,466

78

900

550

24

1,580

510

170

220

108

1,790

350

63

1,700

75

1,017

-

21

2,110

-1

-7

32

14

16

26

3

16

-4

13

-13

34

13.8

7.0

5.7

4.4

56.8

17.3

3.0

50.1

-25.2

26.3

12.7

2.8

73.2

23.9

8.8

6.2

5.2

67.1

17.8

3.8

59.4

13.0

32.3

18.5

3.1

92.2

42.2

11.2

7.4

6.7

79.4

20.5

4.8

72.0

15.4

41.6

24.3

3.8

116.2

182

163

330

75

307

160

166

286

161

224

129

310

49

360

138

186

340

174

23

-21

-6

-34

17

-14

12

19

8

7.5

-5.7

25.2

1.5

29.3

0.3

5.3

8.7

8.5

19.0

14.5

35.9

6.4

33.3

21.0

12.4

16.9

30.5

26.1

23.7

57.6

8.6

38.1

26.0

16.6

23.3

45.3

1,312

792

431

384

1,585

1,011

676

96

331

389

1,448

859

500

421

1,752

1,227

723

-

400

465

10

9

16

10

11

21

7

21

19

34.4

44.6

29.6

8.1

46.7

69.0

38.2

8.2

7.1

29.7

47.5

42.8

36.7

10.3

51.7

82.2

45.6

11.1

12.9

34.5

64.0

55.1

42.7

12.5

57.3

101.6

54.6

14.0

16.4

40.0

27 April 2017

18

Click excel icon

for detailed

valuation guide

CMP

(INR)

158

766

205

2,221

1,053

TP

% Upside

EPS (INR)

(INR) Downside FY17E FY18E FY19E

117

-26

25.7

27.2

30.2

831

9

28.6

34.0

40.2

134

-35

31.4

35.0

40.4

2,689

1,289

21

22

91.8

55.3

134.5

81.9

164.6

100.5

Valuation snapshot

P/E (x)

P/B (x)

ROE (%)

FY17E FY18E FY17E FY18E FY17E FY18E

6.1

5.8

1.1

0.9

17.9

17.0

26.8

22.5

4.3

3.6

17.3

17.5

6.5

5.9

1.2

1.0

19.9

19.1

24.2

19.1

18.2

77.4

27.8

31.8

47.9

48.3

21.5

38.0

56.8

54.3

11.1

20.8

32.7

24.9

78.5

42.4

32.9

43.7

25.4

30.3

36.2

50.4

47.5

35.6

68.9

17.0

40.2

29.2

80.0

25.0

NM

NM

52.9

44.0

37.9

53.9

49.4

47.9

40.3

42.0

46.5

33.8

48.8

34.7

51.6

53.1

16.5

12.9

15.6

54.6

24.6

30.8

33.3

40.4

20.1

33.2

31.0

40.2

11.7

17.9

27.5

19.3

51.9

36.1

23.6

36.2

19.5

27.6

30.5

36.7

32.6

18.6

44.5

13.5

23.5

25.5

38.7

23.1

49.9

43.2

40.0

34.9

28.4

48.9

42.7

40.2

35.6

34.4

40.2

30.1

43.7

31.1

45.8

46.0

2.9

2.1

3.2

9.2

5.3

1.3

9.1

36.6

1.1

8.1

6.8

11.0

2.0

3.2

3.4

2.1

7.2

7.3

-1.9

4.9

3.5

5.0

4.1

2.5

3.6

2.1

4.6

1.9

1.7

3.7

4.1

4.5

3.4

6.0

9.6

5.0

3.7

16.6

18.9

25.0

10.5

12.4

9.7

7.7

33.6

9.2

8.2

15.9

2.6

1.9

2.8

7.9

4.6

1.2

7.9

24.9

1.1

7.4

6.1

9.9

1.7

2.8

3.1

1.9

6.2

6.3

-2.1

4.5

3.1

4.4

3.7

2.4

3.6

2.0

4.2

1.7

1.6

3.3

4.0

3.9

3.2

5.4

7.9

4.5

3.4

14.6

15.0

23.4

9.0

10.5

8.3

6.8

35.0

8.1

7.5

13.8

12.7

11.7

17.5

11.9

20.4

4.0

20.2

94.3

5.4

22.6

11.7

20.3

19.2

16.6

10.9

8.6

9.2

18.4

NM

11.6

8.9

17.6

11.2

5.0

7.5

6.0

6.8

11.7

4.0

13.3

5.2

19.6

-3.7

-3.1

19.2

12.0

9.8

32.8

43.1

54.9

28.3

33.8

22.5

24.6

67.6

28.4

16.4

33.3

16.5

15.5

18.0

14.4

18.8

4.0

25.3

73.3

5.5

23.2

20.7

24.6

15.7

16.8

11.9

10.0

11.9

18.6

-8.8

12.9

16.7

17.1

12.1

6.8

11.0

10.9

9.8

13.2

6.2

13.6

10.5

18.0

6.6

13.1

21.7

13.6

11.9

31.8

39.2

60.1

27.2

33.0

22.2

24.0

78.4

27.6

17.1

32.1

FY19E

16.8

17.6

19.1

17.5

16.7

18.1

15.9

19.1

4.0

31.2

66.1

6.0

25.3

19.2

25.1

14.6

16.2

12.7

11.8

14.2

19.0

-11.0

13.2

17.3

17.1

12.8

7.1

14.2

13.2

12.9

14.8

7.7

16.0

14.7

18.5

11.3

20.8

23.5

15.7

13.8

32.4

38.0

68.5

27.1

33.2

21.9

23.1

92.5

28.7

18.1

34.6

Company

Reco

PFC

Neutral

Repco Home

Buy

REC

Neutral

Shriram

City

Buy

Union

STF

Buy

Aggregate

Capital Goods

ABB

Neutral

Bharat Elec.

Buy

BHEL

Sell

Blue Star

Neutral

CG Cons. Elec. Buy

CG Power &

Sell

Indu.

Cummins

Neutral

GE T&D

Neutral

Havells

Neutral

Inox Wind

Neutral

K E C Intl

Buy

L&T

Buy

Pennar Eng.

Not Rated

Siemens

Neutral

Solar Ind

Neutral

Suzlon Energy Not Rated

Thermax

Sell

Va Tech Wab. Buy

Voltas

Sell

Aggregate

Cement

Ambuja Cem. Buy

ACC

Neutral

Birla Corp.

Buy

Dalmia Bharat Buy

Grasim Inds.

Neutral

India Cem

Neutral

J K Cements

Buy

JK Lakshmi Ce Buy

Ramco Cem

Buy

Orient Cem

Buy

Prism Cem

Buy

Shree Cem

Buy

Ultratech

Buy

Aggregate

Consumer

Asian Paints

Neutral

Britannia

Buy

Colgate

Buy

Dabur

Neutral

Emami

Buy

Godrej Cons.

Neutral

GSK Cons.

Neutral

HUL

Neutral

ITC

Buy

Jyothy Lab

Neutral

Marico

Buy

1,425

180

176

676

220

78

1,011

342

485

195

219

1,751

144

1,335

806

21

1,028

673

412

1,190

180

115

680

221

45

990

340

425

175

175

1,750

-

1,340

800

-

781

760

370

-16

0

-35

1

0

-42

-2

0

-12

-10

-20

0

0

-1

-24

13

-10

18.4

6.5

5.5

14.1

4.6

3.6

26.6

6.0

8.9

17.5

10.5

53.6

5.8

17.0

19.0

0.6

23.5

26.5

13.6

26.1

7.3

5.7

20.3

5.5

3.9

30.5

11.0

12.1

16.6

12.3

63.6

7.5

25.7

22.3

0.9

28.4

34.5

14.9

32.6

8.5

5.8

29.5

6.7

4.5

36.5

11.4

14.1

17.7

13.5

74.4

10.0

33.5

26.5

1.0

31.5

40.3

16.9

246

1,603

767

2,112

1,167

205

951

474

696

158

114

19,219

4,233

277

1,521

869

2,392

1,067

152

1,103

526

815

167

118

20,072

4,928

12

-5

13

13

-9

-26

16

11

17

6

4

4

16

4.9

33.7

21.5

30.7

68.7

5.1

32.6

5.9

27.8

-1.8

-0.6

363.2

96.1

6.7

49.2

41.2

47.5

86.6

8.7

37.2

12.2

30.1

3.2

2.6

480.6

121.4

7.2

63.6

54.4

70.1

111.1

11.9

49.3

17.8

36.2

5.8

4.8

642.3

159.1

1,105

3,562

1,037

294

1,028

1,725

5,210

941

291

411

323

1,145

4,065

1,200

310

1,295

1,740

5,410

945

320

380

340

4

14

16

5

26

1

4

0

10

-8

5

20.5

72.2

21.7

7.3

24.5

37.1

153.9

19.3

8.4

8.0

6.1

22.6

83.3

25.8

8.3

29.8

42.9

173.1

21.5

9.3

9.0

7.0

26.7

101.7

31.6

9.7

36.0

49.8

190.8

24.8

11.0

10.5

8.4

27 April 2017

19