8 May 2017

Corporate performance

4QFY17: Expectations v/s delivery

Today’s top research idea

Eicher Motors: In-line; RE margin stable, VECV big positive surprise

v

RE's EBITDA margin expanded ~180bp YoY to 31.4% (est. of ~32%), led by

higher other expenses. Further, lower other income restricted adj. PAT growth

to 8.5% YoY (to INR4.1b v/s est. of ~INR5.5b).

v

EBITDA margin expanded 370bp YoY (+130bp QoQ) to 8.2% (est. of 6.4%) led

by positive operating leverage. Adj. PAT was ~INR1.16b (est. of ~INR674m).

v

Waiting period for Classic 350 stable at ~2 months, with order booking in Top-

20 cities growing at over 15%. RE's producible capacity at ~825k for FY18 and

~960k for FY19. Declared a dividend of ~INR100/share for FY17 (flat YoY).

v

We have upgraded consol. EPS for FY18E/19E by 4%/8% to factor in better-

than-estimated VECV performance. Maintain

Buy

with a TP of INR30,402.

(no of

companies)

Sales

EBIDTA

PAT

Growth (YoY, %)

MOSL

Nifty

Sensex

(55)

(17)

(9)

14.7

16.8

17.5

7.5

10.1

4.4

9.7

2.1

7.7

Research covered

Cos/Sector

Financials

Cement

Cyient

Eicher Motors

Dr Reddy's

P&G Hygiene

Sanofi India

Equitas Holdings

Tata Comm

L&T Infotech

Orient Cement

NIIT Tech.

Results Expectation

Key Highlights

Making RBI captain of the ship

ACC-Ambuja: Board exploring merger opportunities

Good traction across core, adjacencies and DLM

In-line; RE margin stable, VECV performance a big positive surprise

Bachupalli 483 observations-no data integrity issue, but approvals

may get delayed

Payout of INR12b cash a huge boost to return ratios

Weak results; margin improvement is key

Risk aversion mars growth; bank transition dragged profits lower

Expect steady EBITDA growth, RoIC improvement

Stable revenue growth and positive outlook

Profitability uptick led by cost efficiencies

Above-estimate excluding one-offs

ABB | Bharti Infratel | Union Bank

Market snapshot

Equities - India

Close

Chg .%

Sensex

29,859

-0.9

Nifty-50

9,285

-0.8

Nifty-M 100

18,049

-1.0

Equities-Global

Close

Chg .%

S&P 500

2,399

0.4

Nasdaq

6,101

0.4

FTSE 100

7,297

0.7

DAX

12,717

0.5

Hang Seng

9,926

-1.6

Nikkei 225

19,446

-0.7

Commodities

Close

Chg .%

Brent (US$/Bbl)

49

2.4

Gold ($/OZ)

1,222

-0.5

Cu (US$/MT)

5,563

0.8

Almn (US$/MT)

1,896

-0.6

Currency

Close

Chg .%

USD/INR

64.4

0.3

USD/EUR

1.1

0.1

USD/JPY

112.7

0.6

YIELD (%)

Close

1MChg

10 Yrs G-Sec

6.9

0.0

10 Yrs AAA Corp

8.2

0.0

Flows (USD b)

5-May

MTD

FIIs

-0.1

-0.1

DIIs

0.0

0.3

Volumes (INRb)

5-May

MTD*

Cash

335

313

F&O

4,013

4,722

Note: YTD is calendar year, *Avg

YTD.%

12.1

13.4

25.8

YTD.%

7.2

13.3

2.2

10.8

5.7

1.7

YTD.%

-11.8

6.0

0.7

11.3

YTD.%

-5.2

4.6

-3.6

YTDchg

0.4

0.6

YTD

6.1

1.9

YTD*

284

4,640

Piping hot news

Royal Enfield revving up to buy Ducati?

v

Royal Enfield is understood to have been approached to acquire Italian superbike

maker Ducati, owned by Germany's embattled Volkswagen group.

Chart of the Day: Nifty-50: Performance-expectation gap

4QFY17 PAT growth for 17 companies that have declared results

Quote of the day

Keep your eye on the goal, keep moving

toward your target

Research Team (Gautam.Duggad@MotilalOswal.com)

Source: Company, MOSL

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

Emmanuel Macron was elected

French president on Sunday with

a business-friendly vision of

European integration, defeating

Marine Le Pen, a far-right

nationalist who threatened to

take France out of the European

Union…

2

By December last year, state-run power distribution companies (discoms)

saved close to Rs 12,000 crore in interest costs, thanks to the Ujwal

Discom Assurance Yojana (UDAY), but they have had a less than creditable

record so far in meeting the crucial efficiency parameters set under the

scheme…

Emmanuel Macron wins

French presidency, to sighs of

relief in Europe

Discoms’ UDAY results: Rs 12,000 cr saved, but fail to meet

operational goals

3

FM Arun Jaitley hints at larger

bank reforms plan even as

NPA crisis resolution starts

The powers given to the Reserve

Bank of India via the amendments

to the Banking Regulation Act,

1949, to help it deal more

effectively with stressed assets,

may not appear as overarching as

some might have expected…

4

Part of LafargeHolcim, ACC,

Ambuja Cements mull merger

ACC and Ambuja Cements are

exploring the possibilities of a

merger and the boards of the two

companies on Friday decided to

constitute a special committee of

directors with a majority of

independent directors to consider

the matter further…

5

PMO, Jaitley push clears path

for big private role in defence

production

A tussle within the bureaucracy

over what rules the SP model

would follow had resulted in a

stalemate within the ministry

since February 2016, frustrating

leading private sector companies

that were…

6

Projects worth about Rs.

90,000 crore being executed in

northeast India: Suresh

Prabhu

7

Companies to face Minimum

alternate tax on dividend

payout, debt recast

Minimum alternate tax, or MAT, a

levy on book profit of companies

that avail of exemptions and

concessions, is now back to haunt

companies – both Indian and

multinationals operating in the

country.…

Union Railway Minister Suresh

Prabhu, on Sunday, kick-started

surveys of seven new broad-

gauge railway lines in Arunachal

Pradesh. The minister said that

currently projects worth about Rs.

90,000 crore are being executed

in the northeast…

8 May 2017

2

Sector Update | 6 May 2017

Financials

Making RBI captain of the ship

NPA resolution – Is it enough?

§

GoI passed an ordinance to empower the RBI to more effectively deal with bad loans.

Under the new policy, RBI is permitted to a) issue directions to banks to initiate

insolvency resolution process for NPAs, b) issue directions for resolution of stressed

assets, and c) appoint authorities to resolve NPAs.

RBI has issued directions regarding resolution of assets under Corrective Action Plan

(CAP) in Joint Lenders Forum. Modification in the guideline is focused on reducing the

timeline for resolution (no need to re-refer to Board and reduction in majority to

60%/50% by value/number of lenders from 75%/60% earlier) under CAP.

Giving more power to RBI is a welcome step considering PSU bankers were not willing

to take bold decisions (for resolutions and haircut) due to fear of regulatory agencies.

This along with other mechanisms like SDR, S4A, 5:25 and Insolvency and Bankruptcy

code should expedite resolution process.

We are seeing moderation in the new stress loan creation for PSU banks. Giving more

power to RBI may expedite the resolution process. In our view initial lag of the

resolution cycle would be led by Steel (20%+ of industry NPA) and roads/construction

segment (10%+ of industry NPA). PSB valuations are already reflecting the

capitalization, growth and core profitability issues. Big ticket resolutions could lead to

re-rating. Our top picks amongst corporate lenders are ICICIBC, SBIN, PNB and BOB.

§

§

§

Empowering the RBI to

expedite resolution process

in key accounts seen as a

big positive

More power to RBI for NPA resolution

Assigning the RBI more power to issue directions for resolutions, while positive, is

unlikely to result in quick resolution. Modifications in existing RBI guidelines would

likely happen (like CAP and JLF related issued on Friday) very soon. However,

considering the complexity (especially determining the haircuts) of the issues, there

could delays in setting up oversee committees, i.e. forming a committee with the

RBI nominated members would speed up the resolution process in our view. All the

concerned parties will have to expedite the resolution process; else, ageing related

provisioning would mar earnings for corporate lenders in 2HFY18 (RBI AQR led to

higher recognition in 2HFY16).

Modification in CAP

guidelines shows intent to

improve the pace of

resolutions

Modification in CAP guideline – Intent on speedy resolutions (Link)

RBI has issued the first modification in the guidelines related to CAP in JLF. JLF

members were required to come out with the decision within 60days of the

reference for CAP however, due to issues (lack of majority, non-seriousness from

bankers due to fear of investigation agencies, board involvement in final decision

making, etc.) it was not successful. The modified guidelines provide for the

following changes: a) reduction in majority lenders requirement for taking decisions

to a minimum of 60% of creditors by value (earlier 75%) and 50% of creditors by

number (earlier 60%) b) Boards shall empower their executives to implement the JLF

decision without requiring further approval, and c) clarification, that all tools

provided by the RBI (SDR, S4A, etc.), would be covered under the guideline.

8 May 2017

3

Power and steel constitute

the largest share of stress

pool in the system

Few sectors constitute bulk of problems

Corporate lenders have witnessed significant stress additions over the last 4 years -

total system GNPLs standing at ~INR7t+ (~10%+ of bank credit). Industrial sector

stressed advances ratio stood at ~22% with bulk of the corporate stress contributed

by ~40-50 large accounts in metal, power, infrastructure (excluding power),

construction and textiles. These sectors together constitute ~50% of the total

system stressed advances (while commanding 23% of the total system credit).

Overleveraging, and insufficient capacity to pay (ICR <1) has led to the build-up of

stress in these large accounts. Infra and metals constitute stressed advances as high

as 18.6% and 42.9% respectively. The steel sector has been dampened by global

commodity prices and constitutes majority of stressed advances within metals.

Likewise, power sector projects have been stalled because of fuel shortages and lack

of power purchase agreements (PPAs).

Incremental stress additions

moderating; positive

developments in stress

sectors encouraging

Incremental stress creation is moderating; awaiting further resolutions

Bulk of stress has been recognized already during AQR and the post AQR period. We

see a moderating trend in slippages in the past few quarters, whereby GNPLs have

reached peak levels. Moreover, recoveries in small value accounts have accelerated.

There have been sector specific positive developments. For instance, the National

Steel Policy that envisages INR10t investments to create higher capacity in the

sector, and recent policy announcements that mandate use of domestic steel for

public sector infrastructure projects, are seen as significant developments. Reforms

in road sector, deleveraging (in some cases pushed by lenders) by corporate India,

and increased asset sales (INR2.44t sold in FY17) are key positive macro triggers.

Valuations of PSBs

attractive, recoveries in key

accounts could lead to

significant upgrades

Pick up in resolution – a key to valuations

Most negatives are priced in terms of low credit growth, margin pressure, lower

trading gains and issues on capitalization. Any positive news on resolutions would

help to bridge gap between BV and ABV. PSBs are available at 0.9x P/B (driven by

SBIN and BOB with most of the banks still available at even lower valuations of

0.5/0.6x P/B valuations). This means that they are trading at ~25% discount to their

mean valuations and almost 55-60% discount from their peak. This is of particular

significance given that all the levers are supportive of positive correction – credit

growth pick up, moderating slippages, recovery in large accounts. Our top picks

among the corporate lenders are

ICICIBC, SBIN, PNB and BOB.

Exhibit 1. NSL lowest for SBIN, AXSB, ICICIBC and YES amongst corporate lenders (%)

NNPA

7.0

0.2

4.7

9.7

OBC

4.9

2.0

4.5

9.1

PNB

OSRL (Ex SEB and AI)

Other stress loans (net of overlap)

Watchlist

5.4

3.9

3.6

6.7

CBK

5.8

3.3

2.1

6.9

UNBK

3.3

2.2

3.6

7.1

BOI

2.3

4.1

2.9

5.4

BOB

3.0

1.7

4.9

4.9

INBK

4.10

1.30

0.92

5.48

ICICIBC

1.2

1.1

2.4

4.2

SBIN

3.0

0.9

1.5

2.3

AXSB

1.1

0.4

0.8

YES

Source: MOSL, Company

8 May 2017

4

Exhibit 2. System stressed advances by sector - September 2016 (as a % of sector loans)

42.9

27.9

23.7

20

18.7

18.6

17.8

17.6

16

15.9

15

12.5

11.7

Source: MOSL, RBI - FSR

Exhibit 3.

System stressed advance by bank group -September 2016 (as a % of loans)

GNPA

OSRL

NNPA

7.4

4.0

11.8

1.6

1.4

3.2

PVBs

5.5

3.2

9.1

Banking System

Source: MOSL, RBI - FSR

PSBs

Exhibit 4. Iron and Steel exposure as a % of gross credit exposure

6.9%

6.7%

5.5%

4.8%

4.3%

3.9%

3.1%

2.9%

2.2%

1.8%

1.5%

Source: MOSL, Company

8 May 2017

5

Exhibit 5. Textile exposure as a % of gross credit exposure

4.8%

3.5%

3.1%

2.6%

2.6%

2.3%

2.2%

1.8%

1.2%

0.9%

0.5%

Source: MOSL, Company

Exhibit 6. Infrastructure exposure as a % of gross credit exposure

17.7%

17.1%

15.6%

13.1%

12.4%

12.0%

11.6%

10.8%

9.6%

8.7%

8.6%

Source: MOSL, Company

Exhibit 7. Power exposure as a % of gross credit exposure

10.9%

8.7%

7.6%

4.8%

4.7%

3.9%

CNBK

SBIN

BOI

INBK

ICICIBC

AXSB

Source: MOSL, Company

8 May 2017

6

Sector Update | 8 May 2017

Cement

ACC-Ambuja: Board exploring merger opportunities

Event: Board of Ambuja and ACC have announced that they are exploring possibility of

merger of ACC-Ambuja. Please find below our analysis on possible synergy benefits,

earnings impact, valuation of merged entity and certain key issues with the execution of

merger. Key conclusion based on our analysis

§

§

§

§

We have done our earnings analysis based on INR4bn of synergy benefits due to ACC-

Ambuja merger as against expected INR9.2bn of synergy benefits announced in 2013.

We believe the cost savings would be primarily towards employee cost reduction and

logistics cost optimization.

The merged entity could see 10% upside in EBITDA and EPS (adjusted for dilution) due

to synergy benefits. The merged entity would be trading at 14x CY18 EV/EBITDA

including the synergy benefits of INR4bn.

We believe the key issues for consideration of merger would be transfer fees of

INR64/t towards mine transfer under the new MMDR act. The mine transfer fees

would partially offset the expected cost savings from merger of ACC - Ambuja Cement.

ACC- Ambuja merger detailed analysis:

Key assumption:

For our analysis we have assumed ACC gets merged into Ambuja at

current swap ratio of 6.71 (as per closing price on 5

th

May 2017)

ACC-Ambuja merger proposal: Potential synergy benefits of INR9.2bn as

stated in 2013.

n

n

ACC Ambuja in a recent announcement has stated that it has set up committee

to explore the benefits of merger of two companies and based on the

recommendation of the committee it would decide on future course of merger

process.

The idea of merger of ACC-Ambuja was first floated in 2013 where synergy

benefits of INR9.2b was expected to be realized due to logistics cost savings,

fixed cost reduction, procurement savings etc.

Stated merger benefits in 2013

Particular

Cement swaps +Logistics savings

Clinker swaps

Procurement savings

Fix cost reduction

Shared services

Total

(USD m)

56

9

47.5

27

0.5

140

(INR m)

3696

594

3135

1782

33

9240

Potential benefits from synergies in form of lower employee cost

n

The merged entity would have combined capacity of ~63mt which is quite

comparable to Ultratech’s pre JPA capacity of 66mt. The combined volume of

7

8 May 2017

merged entity in CY2016 would be 44.2mt as against Ultratech (ex-JPA) volumes

of ~49mt (including white cement volumes). So we in our analysis have tried to

use Ultratech’s employee cost as benchmark as their operations would be

considered efficient. This could give us clarity over the potential savings that

ACC-Ambuja as merged entity can realize by way of savings in form of lower

employee cost.

No of

employees

7833

5347

13180

14400

Employee

cost

7783

5930

13713

14134

n

Particulars

ACC

Ambuja

Merged entity

Ultratech

Volume

23.0

21.2

44.2

49.5

Employee/t

ratio

341

252

298

291

No of

plants

17

13

30

34

Employee/

plant

461

411

439

424

Employee

cost/t

339

280

310

285

n

As suggested in our working there is a potential employee cost reduction of

INR25/t for ACC-Ambuja merged entity which translates into cost savings of

INR1.1bn. This cost savings of INR1.1 bn corresponds against stated fixed cost

reduction of INR1.78 bn in 2013.

We believe additionally savings from logistic cost and procurement could

potentially result in total cost savings of INR4bn in total due to merger this time

around.

1. Valuations

n

n

n

As highlighted in above section we believe there could be possible cost savings

of INR4bn due to merger of operations.

Incorporating for the synergy benefit of INR4bn due to fixed cost reduction and

logistics cost the implied EV/EBITDA of Ambuja cement would be at 14x on CY18

EBITDA.

Please find below working of valuation of merged entity

INR m

1,655

246

6.7

188

1985

1263

632

2617

246.3

644578

45000

599578

37,781

4000

41,781

14

Share price as of 5th May 2017

ACC share price (INR/share)

Ambuja share price (INR/Share)

Implied swap ratio (x)

ACC present no of shares ( mn)

Ambuja no of shares (mn)

No of shares issued to ACC's shareholders due to merger (mn)

Share cancellation on consolidation for Ambuja's 50% stake in ACC (mn)

Ambuja new no of shares (mn)

Share price of Ambuja (INR/Share)

Market cap

Net cash of combined entity in CY18

EV of merged entity

Combined EBITDA of merged entity w/o synergy -CY18

Expected synergies from merger

Combined EBITDA post synergies

Implied EV/EBITDA on CY18 earnings post merger (x)

8 May 2017

8

2. Earnings Impact due to merger: Earnings upside of 9% post merger of

ACC with Ambuja Cement

n

n

n

We have also analyzed the impact of merger and dilution on Ambuja’s

consolidated earnings

Ambuja cement earnings post merger could see upside of 9% due to

incorporation of merger benefits of INR4bn.

Please find below working for earnings impact of merger on consolidated

earnings of Ambuja cement

INR m

14298

11946

5973

20271

1985

10.21

3000

29244

11.2

9.4%

Calculation on earnings impact of Ambuja Cement

Ambuja standalone CY18 PAT

ACC's CY18 PAT

ACC's proportionate PAT to Ambuja for 50% stake

Ambuja's consolidated PAT (adjusted for 50% stake in ACC)

Ambuja no of shares (mn)

Ambuja consolidated EPS pre merger-CY18

Post tax synergy benefits from merger

Ambuja consolidated PAT (post merger with ACC)-CY18

Ambuja's consolidated EPS (post merger)-CY18

% change in Ambuja's EPS

3. Key issues for consideration of merger benefits

We believe there could be two primary issues which could be considered by the

board for merger of ACC-Ambuja.

a) Transfer charges:

In a scenario of proposed merger of ACC-Ambuja, limestone mines of the entity

getting merged will be required to be transferred to the entity which will be in

existence. Under the new MMDR act this could attract a charge of INR64/t on

limestone extracted resulting into extra cost of INR1.3-1.4 bn which is significant

given that we expect synergy benefits to be in the range of INR4bn.

b) Stamp duty registration charges:

Additionally one time charges related to stamp duty registration would also be

considered for the transaction.

4. Capacity expansion at risk

n

There is a possibility that management focus may be towards realizing synergy

benefits from merger of ACC-Ambuja and execution of issues related to the

same over the next 2-3 years. This could result in delay in capacity expansion

plans which has been the case with the group for the last 3-4 years resulting in

market share loss for them.

Overall view

The proposed merger would be beneficiary for the ACC-Ambuja and could

potentially see earnings upgrade by ~10% for the combined entity depending on

Synergy benefits. However multiple re-rating of the stocks would be function of risk

associated with realization of synergy benefits and clarity over expansion plans of

the group over the next 2-3 years in order to maintain market share.

8 May 2017

9

ACC: Financials and valuations

Income Statement

Y/E December

Net Sales

Change (%)

Total Expenditure

EBITDA

Change (%)

Margin (%)

Depreciation

Int. and Fin. Charges

Other Income - Rec.

PBT Before EO Item

EO Income/(Expense)

PBT After EO Item

Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

Balance Sheet

Y/E December

Share Capital

Reserves

Net Worth

Loans

Deferred Tax Liability

Capital Employed

Gross Block

Less: Accum. Depn.

Net Fixed Assets

Capital WIP

Investments

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Others

Curr. Liab. and Prov.

Account Payables

Other Liabilities

Provisions

Net Current Assets

Application of Funds

E: MOSL Estimates

CY13

109,084

-2.0

95,402

13,683

-30.5

12.5

-5,740

-517

4,573

12,000

2,437

14,437

3,479

24.1

10,958

9,108

-29.5

8.3

CY14

114,811

5.2

102,310

12,501

-8.6

10.9

-5,576

-828

4,561

10,658

3,786

14,444

2,761

19.1

11,683

8,621

-5.3

7.5

CY15

114,328

-0.4

102,597

11,731

-6.2

10.3

-6,521

-673

4,834

9,371

-1,532

7,840

1,924

24.5

5,916

7,071

-18.0

6.2

CY16

109,364

-4.3

97,413

11,951

1.9

10.9

-6,052

-729

3,346

8,517

-428

8,089

2,065

25.5

6,024

6,343

-10.3

5.8

CY17E

123,275

12.7

107,860

15,415

29.0

12.5

-6,608

-700

3,750

11,857

0

11,857

2,609

22.0

9,248

9,248

45.8

7.5

(INR Million)

CY17E

1,880

81,970

83,849

355

4,869

89,074

143,603

72,703

70,900

4,000

9,717

40,932

12,141

4,547

5,742

18,503

36,476

25,330

4,391

6,755

4,456

89,074

(INR Million)

CY18E

137,492

11.5

118,049

19,443

26.1

14.1

-7,025

-700

4,000

15,718

0

15,718

3,772

24.0

11,946

11,946

29.2

8.7

(INR Million)

CY18E

1,880

82,591

84,471

355

5,105

89,931

149,103

79,728

69,375

6,000

11,338

43,524

13,164

4,695

6,404

19,262

40,306

27,875

4,897

7,534

3,218

89,931

CY13

1,880

76,369

78,248

0

5,073

83,321

103,996

48,956

55,040

8,196

21,940

35,760

11,215

3,972

5,034

15,539

37,615

21,849

4,068

11,698

-1,855

83,321

CY14

1,880

80,477

82,356

0

5,356

87,712

109,507

53,523

55,984

19,146

15,730

35,853

12,556

4,107

3,043

16,147

39,002

24,469

4,000

10,532

-3,148

87,712

CY15

1,880

82,551

84,430

355

4,692

89,477

123,603

60,044

63,559

13,000

14,757

37,092

11,886

4,844

916

19,446

38,931

31,339

0

7,592

-1,839

89,477

CY16

1,880

82,913

84,792

355

4,692

89,839

140,603

66,096

74,508

3,000

9,382

38,006

11,070

4,334

5,094

17,508

35,056

23,970

3,895

7,191

2,950

89,839

8 May 2017

10

ACC: Financials and valuations

Ratios

Y/E December

Basic (INR)

EPS

Consolidated EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

EV/Sales

EV/EBITDA

P/BV

Dividend Yield

EV/ton (USD-Cap)

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Debtor (Days)

Asset Turnover (x)

Leverage Ratio

Debt/Equity (x)

* EPS numbers are annualized.

Cash Flow Statement

Y/E December

OP/(Loss) before Tax

Interest/Dividends Recd.

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

EO Income/(Expense)

CF from Op. incl EO Exp.

(inc)/dec in FA

Free Cash Flow

(Pur)/Sale of Investments

CF from Investments

Issue of Shares

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

E: MOSL Estimates

CY13

48.5

48.6

79.0

416.4

30.0

60.2

CY14

45.9

45.9

75.5

438.2

34.0

63.6

CY15

37.6

37.6

72.3

449.3

17.0

65.1

CY16

33.7

33.7

65.9

451.2

25.0

94.0

CY17E

49.2

49.2

84.4

446.2

45.0

110.2

CY18E

63.6

63.6

100.9

449.5

50.0

94.8

34.2

21.0

2.5

20.2

4.0

1.8

135

36.1

21.9

2.4

21.8

3.8

2.1

133

44.0

22.9

2.5

24.1

3.7

1.0

138

49.0

25.1

2.7

24.6

3.7

1.5

133

33.6

19.6

2.4

18.9

3.7

2.7

132

26.0

16.4

2.1

14.8

3.7

3.0

126

12.0

11.6

13.0

13

1

10.7

10.9

11.4

13

1

8.5

8.6

7.1

15

0.8

7.5

7.7

6.6

14

0.8

11.0

10.9

9.7

13

0.7

14.2

13.9

13.9

12

0.7

0.0

0.0

0.0

0.0

0.0

0.0

(INR Million)

CY18E

19,443

4,000

-3,537

1,900

21,806

0

21,806

-7,500

14,306

-1,620

-9,120

0

0

-700

-11,324

-12,024

662

5,742

6,404

CY13

13,683

4,573

-3,576

-7,335

7,345

2,437

9,782

-7,224

121

3,595

-3,628

60

-850

-517

-6,597

-7,904

-1,750

6,784

5,034

CY14

12,501

4,561

-2,478

-697

13,886

3,786

17,672

-17,470

-3,584

6,210

-11,260

-148

0

-828

-7,427

-8,403

-1,991

5,034

3,043

CY15

11,731

4,834

-2,588

-3,436

10,541

-1,532

9,010

-7,950

2,592

973

-6,977

9

355

-673

-3,850

-4,160

-2,127

3,043

916

CY16

11,951

3,346

-2,065

-611

12,621

-428

12,193

-7,000

5,621

5,375

-1,625

0

0

-729

-5,662

-6,391

4,178

916

5,094

CY17E

15,415

3,750

-2,431

-859

15,875

0

15,875

-4,000

11,875

-336

-4,336

0

0

-700

-10,192

-10,892

648

5,094

5,742

8 May 2017

11

Ambuja Cement: Financials and valuations

Income Statement

Y/E December

Net Sales

Change (%)

Total Expenditure

% of Sales

EBITDA

Change (%)

Margin (%)

Depreciation

EBIT

Interest

Other Income - Rec.

PBT before EO Exp.

EO Exp/(Inc)

PBT after EO Exp.

Current Tax

Deferred Tax

Tax Rate (%)

Reported PAT

PAT Adj for EO Items

Change (%)

Balance Sheet

Y/E December

Equity Share Capital

Total Reserves

Net Worth

Def. Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Depn.

Net Fixed Assets

Capital WIP

Investments

Curr. Assets

Inventory

Debtors

Cash & Bank Bal

Others

Curr. Liability & Prov.

Creditors

Provisions

Net Current Assets

Appl. of Funds

E: MOSL Estimates

2013

90,868

-6.1

75,386

83.0

15,482

-37.3

17.0

4,901

10,581

651

4,349

14,280

-3,269

17,549

4,603

0

26.2

12,946

10,464

-32.2

2013

3,092

91,764

94,855

5,643

292

100,790

108,262

47,637

60,625

6,949

17,885

44,187

9,339

2,315

23,411

9,122

28,856

17,845

11,011

15,332

100,790

2014

99,107

9.1

80,497

81.2

18,610

20.2

18.8

5,095

13,515

645

4,964

17,834

-1,757

19,591

4,627

0

23.6

14,964

13,207

26.2

2014

3,100

97,934

101,033

5,890

191

107,115

118,711

52,732

64,173

5,000

21,727

48,108

8,884

2,280

24,581

12,364

31,894

19,806

12,088

16,215

107,115

2015

93,683

-5.5

79,321

84.7

14,362

-22.8

15.3

6,257

8,105

918

4,535

11,722

557

11,165

3,090

0

27.7

8,076

8,478

-35.8

2015

3,104

99,965

103,069

5,649

227

108,945

118,050

58,989

59,062

6,000

22,261

54,297

8,955

2,864

28,484

13,995

32,675

21,477

11,197

21,622

108,945

2016E

91,604

-2.2

75,849

82.8

15,755

9.7

17.2

8,501

7,254

715

6,837

13,376

0

13,376

3,672

0

27.5

9,703

9,703

14.4

2016E

3,971

188,704

192,675

5,649

500

198,824

121,550

67,490

54,060

7,500

120,106

47,154

8,784

2,133

25,696

10,541

29,996

18,702

11,294

17,158

198,824

2017E

100,364

9.6

84,008

83.7

16,356

3.8

16.3

5,894

10,462

800

7,000

16,662

0

16,662

3,499

0

21.0

13,163

13,163

35.7

2017E

3,971

194,897

198,867

5,649

500

205,016

124,050

73,384

50,666

10,000

120,106

57,332

8,249

2,337

34,922

11,824

33,088

20,714

12,374

24,244

205,016

(INR Million)

2018E

112,273

11.9

93,934

83.7

18,338

12.1

16.3

6,224

12,114

850

7,800

19,064

0

19,064

4,385

381

25.0

14,298

14,298

8.6

(INR Million)

2018E

3,971

198,961

202,931

6,030

500

209,462

135,300

79,609

55,691

10,000

120,106

60,668

9,228

2,615

35,599

13,227

37,004

23,162

13,842

23,664

209,462

8 May 2017

12

Ambuja Cement: Financials and valuations

Ratios

Y/E December

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

EV/Ton (Cap) - US$

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Asset Turnover (x)

Debtor (Days)

Inventory (Days)

Work Cap (Days)

Leverage Ratio (x)

Current Ratio

Debt/Equity

Cash Flow Statement

Y/E December

Op. Profit before Tax

Interest/Div. Recd.

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

EO Income

CF from Op. incl EO Exp

(inc)/dec in FA

Free Cash Flow

(Pur)/Sale of Invest.

CF from Investments

Issue of Shares

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Bal.

Closing Balance

E: MOSL Estimates

2013

6.8

9.9

61.8

3.6

49.9

2014

8.5

11.8

65.6

5.0

61.8

2015

5.5

9.5

66.9

2.8

44.9

2016E

4.9

9.2

97.4

2.2

29.6

2017E

6.6

9.6

100.5

4.7

53.0

2018E

7.2

10.3

102.6

6.2

71.6

36.3

24.8

4.0

3.7

21.5

173

1.5

28.9

20.8

3.7

3.3

17.7

167

2.0

45.0

25.9

3.7

3.5

22.6

165

1.1

37.3

19.9

1.9

3.6

20.9

166

0.9

27.5

19.0

1.8

3.2

19.4

161

1.9

25.3

17.6

1.8

2.8

17.3

152

2.5

11.4

11.9

15.3

0.9

9

38

62

13.4

14.3

19.1

0.9

8

33

60

8.3

8.9

10.9

0.9

11.2

35

84.2

5.0

6.9

10.8

0.5

8.5

35

68.4

6.7

7.0

19.3

0.5

8.5

30

88.2

7.1

7.4

21.7

0.5

8.5

30

76.9

1.5

0.0

2013

15,482

4,349

-4,603

-913

14,316

3,269

17,585

-8,650

8,935

-1,326

-9,976

322

57

-651

-6,462

-6,735

874

22,537

23,411

1.5

0.0

2014

18,610

4,964

-4,627

287

19,234

1,757

20,991

-6,694

14,297

-3,843

-10,537

455

147

-645

-9,241

-9,284

1,170

23,411

24,581

1.7

0.0

2015

14,362

4,535

-3,090

-1,505

14,303

-557

13,746

-2,145

11,600

-534

-2,679

-2,412

-206

-918

-3,629

-7,164

3,903

24,581

28,484

1.6

0.0

2016E

15,755

6,837

-3,672

1,676

20,595

0

20,595

-5,000

15,595

-97,845

-102,845

82,779

273

-715

-2,877

79,461

-2,788

28,484

25,696

1.7

0.0

2017E

16,356

7,000

-3,499

2,140

21,997

0

21,997

-5,000

16,997

0

-5,000

0

0

-800

-6,970

-7,770

9,227

25,696

34,922

1.6

0.0

(INR Million)

2018E

18,338

7,800

-4,766

1,257

22,629

0

22,629

-11,250

11,379

0

-11,250

0

381

-850

-10,234

-10,702

677

34,922

35,599

8 May 2017

13

8 May 2017

Update

| Sector:

Technology

Cyient

Buy

BSE SENSEX

29,859

S&P CNX

9,285

CMP: INR513

TP: INR620 (+21%)

Good traction across core, adjacencies and DLM

Visible steps towards long-term aspirations

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

CYL IN

113

564/416

10/1/-8

61.1

0.9

55.0

77.8

Financials Snapshot (INR b)

2017 2018E 2019E

Y/E Mar

36.1

40.2

46.2

Net Sales

4.9

5.5

6.5

EBITDA

3.7

4.2

4.9

PAT

30.6

37.8

44.1

EPS (INR)

-0.2

23.4

16.6

Gr. (%)

188.9 215.4 246.2

BV/Sh (INR)

16.2

17.6

17.9

RoE (%)

15.9

16.2

16.4

RoCE (%)

16.4

13.3

11.4

P/E (x)

2.7

2.3

2.0

P/BV (x)

Shareholding pattern (%)

Mar-17 Dec-16 Sep-16

As On

Promoter

22.18 22.18 22.19

Public

77.82 77.82 77.81

Others

-

-

-

Stock Performance (1-year)

Cyient

Sensex - Rebased

600

560

520

480

440

We attended the analyst meet hosted by Cyient (CYL). Our key takeaways:

n

Tier-I supplier aspirations…:

CYL has laid out a long term strategy to become a

Tier-I supplier to OEMs in its chosen focus verticals. S3 (Services, Systems,

Solutions) would enable it to participate in the Design, Build and Maintain

budgets of its customers. While executing this, it intends to invest in newer

technologies like IoT, analytics, Additive manufacturing and Mobility in order to

further boost growth.

n

…Well under execution:

While the strategy was laid out in 2015, the next two

years saw initial execution. One of the key pillars of implementation was the

change in the organization structure to the eight business units. This resulted in

higher accountability, better execution of strategy and the seepage of DLM

across the organization. A key execution proof-point was that in FY17 CYL

addressed opportunities worth USD1,065b, compared to USD733m in FY16..

n

M&A key to growth:

Over the last two years, several acquisitions have been

made that fill capability gaps and aid building of end-to-end solutions

(including Blom Aerofilms and Certon in FY17). The M&A pipeline continues to

be strong, with a focus on medical, wireless communication, IoT, M2M and

advanced avionics. CYL’s focus on inorganic activity is likely to continue, with it

being a key pillar for driving growth and strategy.

n

Laid out capital allocation strategy:

The company broadly laid out a capital

allocation strategy that would be followed over the next 5-6 years. With an

assumption of USD800m in cash, based on current balance, FCF generated and

leverage; it would return USD150m to shareholders (30% payout ratio), incur

capital expenditure of USD150m (2.5-3% of revenue) and use USD500m for

investments (USD300-350m organic and USD150-200m inorganic).

n

Potential for higher growth than current levels:

Given the strategy execution

and addressable market, CYL sees an opportunity for growth that is much

higher compared to current levels. The rough aspiration is for core services to

grow by 10pp. This would be topped-up by incremental revenue from Strategy

(10pp), New initiatives (5pp), DLM (5pp) and M&A (10pp). That said, near-term

visibility of achieving double-digit growth remains given the continued traction

in key clients, improved outlook for most industry verticals and fructification of

investments made over the last two years

n

Industry leading growth coupled with long-term opportunities:

While CYL has

been delivering industry-leading growth, it has also been positioning itself to

address long-term opportunities in Engineering and Defense. A material

improvement in client metrics and order book instill confidence in delivery.

Given these factors, the stock trading at 13.3/11.4x FY18/19E earnings makes it

attractive in the current scheme of things. Our price target of INR620 discounts

FY19E earnings by 14x.

Buy.

14

8 May 2017

5 May 2017

4QFY17 Results Update | Sector: Automobiles

Eicher Motors

Buy

BSE SENSEX

29,859

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

9,285

EIM IN

In-line; RE margin stable, VECV performance a big positive surprise

27

n

EIM reported in-line 4QFY17 results. Consol. PAT grew by ~34% YoY to

701.7 / 10.5

~INR4.59b (est. of ~INR4.63b) in 4Q and by 56% YoY to ~INR16.7b in FY17.

26700 / 18006

The company declared a dividend of ~INR100/share for FY17 (similar to

2/-2/13

1257

FY16, which, however, was a 15-month period).

49.4

n

Royal Enfield (RE) EBITDA margin at 31.8%:

Net realization increased 1.5%

CMP: INR25,837

TP: INR30,402(+18%)

Financials & Valuations (INR b)

Y/E Mar

2017

2018E

Net Sales

70.0

91.1

EBITDA

21.7

29.7

PAT

18.0

24.2

EPS (INR)

661.3

892.0

Gr. (%)

34.2

34.9

BV/Sh (INR)

1,816.5 2,532.0

RoE (%)

42.8

41.0

RoCE (%)

29.1

30.7

P/E (x)

39.1

29.0

P/BV (x)

14.2

10.2

2019E

109.0

36.4

30.8

1,135.1

27.3

3,463.8

37.9

30.1

22.8

7.5

n

n

Estimate change

TP change

Rating change

n

Quarterly Performance (Consolidated)

Y/E March

Net Operating income

Growth (%)

EBITDA

Recurring PAT

Growth (%)

Standalone (RE)

Royal Enfield (units)

Growth (%)

Net Realn (INR/unit)

Change - YoY (%)

EBITDA Margins (%)

Recurring PAT

Growth (%)

VECV

Total CV Volumes

Growth (%)

Net Realn (INR '000/unit)

Change - YoY (%)

EBITDA Margins (%)

Recurring PAT

Growth (%)

1Q

25,680

33.5

3,660

1,953

40.3

YoY (flat QoQ) to ~INR105.7k (est. of ~INR106.1k). EBITDA margin expanded

~180bp YoY (-40bp QoQ) to 31.4% (est. of ~32%), led by higher other

expenses. Further, lower other income restricted adj. PAT growth to 8.5%

YoY (to INR4.1b v/s est. of ~INR5.5b). FY17 PAT grew 49% YoY to INR15.6b.

VECV’s margin expands on positive operating leverage:

Realization

increased ~11% YoY to ~INR1.48m (est. of ~INR1.5m) due to price hikes and

an improved product mix. EBITDA margin expanded 370bp YoY (+130bp

QoQ) to 8.2% (est. of 6.4%) led by positive operating leverage. Adj. PAT was

~INR1.16b (est. of ~INR674m). FY17 PAT grew ~12% YoY to ~INR3.4b.

Earnings call highlights:

a) Waiting period stable at ~2 months for Classic

350. b) Order booking in Top-20 cities (~50% of volumes) growing at over

15%. c) Added ~150 dealerships in FY17 to ~675; would be adding ~150

dealers/year in next two years; d) Producible capacity at ~825k for FY18 and

~960k for FY19, can further expand at third plant; e) Price increase of ~3% in

RE in 4QFY17; f) MDEP volumes at 7,217 units (+21% YoY, +23% QoQ).

Valuation and view:

We upgrade consol. EPS for FY18E/19E by 4%/8% to

factor in better-than-estimated VECV performance. EIM trades at 29x/22.8x

FY18E/19E EPS. Maintain

Buy

with a TP of INR30,402 (FY19 SOTP-based).

FY16 (15m)

FY17

FY16

FY17 FY17E

2Q

3Q

4Q

5Q

1Q

2Q

3Q

4Q (15m)

4QE VAR (%)

10,959 12,997 12,843 15,322 15,557 17,549 18,348 18,881 61,735 70,334 18,992

-1

-51.2

-42.9

-44.0

-40.3

42.0

35.0

42.9

23.2

NA

42.4

24.0

2,857 3,507 3,577 4,468 4,700 5,422 5,770 5,848 16,891 21,740 6,312

-7

2,372 2,846 2,787 3,431 3,763 4,132 4,182 4,594 13,380 16,671 4,638

-0.9

50.7

72.4

81.3

75.7

58.6

45.2

50.0

33.9

74.0

55.7

28.9

92,021 106,613 127,611 125,744 148,186 147,483 166,941 173,838 178,228 600,175 666,490 178,228

44.4

43.8

55.7

52.9

61.0

38.3

30.8

38.2

20.3

58.7

38.8

20.3

104,450 102,791 101,852 102,139 104,140 105,603 105,576 105,477 105,731 103,073 105,598 106,100

4.7

2.1

1.7

1.4

-0.3

2.7

3.7

3.3

1.5

2.9

2.4

1.8

26.1

26.1

27.2

28.3

29.6

30.8

31.3

31.8

31.4

27.6

31.3

32.0

2,135 1,988 2,569 2,524 3,792 3,371 3,962 4,152 4,116 13,100 15,600 5,467

32.9

49.2

82.2 103.4

77.7

69.6

54.2

64.5

8.5 288.7

48.9

37.5

11,020 12,128 11,657 12,687 15,553 16,071 13,408 11,784 17,230 63,045 58,493 17,230

10.4

6.3

20.8

30.1

41.1

32.5

15.0

-7.1

10.8

23.7

16.0

10.8

1,458.1 1,472.0 1,529.1 1,569.3 1,333.5 1,331.3 1,470.5 1,599.6 1,482.3 1,526.5 1,461.5 1,497.8

13.0

12.0

1.5

4.4

-8.5

-9.6

-3.8

1.9

11.2

8.1

-4.3

4.9

7.1

8.2

8.0

8.5

4.5

9.1

7.2

6.9

8.2

7.9

7.9

6.4

436

768

677

890

60 1,082

698

570 1,160 3,817 3,428

674

20.0

69.5

50.3

56.4

-86.1

40.9

3.1

-36.0 1,820.6

-40.6

12.3

-18.7

0

-14

-70bp

-24.7

0.0

-1.0

180bp

72.0

8 May 2017

15

Dr Reddy’s

BSE SENSEX

29,859

S&P CNX

9,285

4 May 2017

Update

| Sector:

Healthcare

CMP: INR2,602

n

TP: INR2,625(+1%)

Neutral

Bachupalli 483 observations – no data integrity issue, but approvals may

get delayed

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

DRRD IN

170.4

3689 / 2560

-5/-25/-29

443.4

6.8

1219

73.2

n

Financials Snapshot (INR b)

Y/E Mar

2017E 2018E 2019E

Net Sales

142.3 163.6 190.4

EBITDA

26.3

34.3

44.9

PAT

13.0

18.9

24.8

EPS (INR)

76.1 110.9 145.5

Gr. (%)

-42.5

45.7

31.2

BV/Sh (INR)

808

905 1,031

RoE (%)

9.8

12.9

15.0

RoCE (%)

7.2

10.1

12.6

P/E (x)

35.9

24.7

18.8

P/BV (x)

3.4

3.0

2.7

Shareholding pattern (%)

As On

Mar-17 Dec-16 Mar-16

Promoter

32.0

26.8

25.6

DII

12.6

8.2

6.0

FII

38.8

36.3

36.0

Others

16.6

28.8

32.4

FII Includes depository receipts

Stock Performance (1-year)

Dr Reddy's Labs

Sensex - Rebased

3,750

3,500

3,250

3,000

2,750

2,500

n

n

n

n

The USFDA inspected Dr. Reddy’s (DRRD) Bachupalli plant in April 2017, issuing

11 observations. The observation letter reveals no data integrity issues, with

most observations being related to lab control, QC, assurance of back-up data,

etc. Notably, there were two repeat observations.

Revamp in quality control & compliance system may delay approvals:

Bachupalli is the company’s largest formulations facility supplying to the US,

and accounts for 60-65% of US revenue. Although the warning letter does not

pose any major risk, we believe the changes required in the quality control &

compliance system can delay product approvals by six months from this

facility.

Srikakulam clearance provides visibility of Copaxone launch:

The company’s

Srikakulam facility was re-inspected in March 2017 and issued two 483

observations. As the observations were routine in nature, we believe the

facility should soon come back on track. Copaxone API has been filed from this

facility (formulations are filed from Gland Pharma), and resolution of the

warning letter will open doors for approval of this product. Copaxone 20mg

and 40mg sales in the US stand at ~USD3.5b (~84% coming from 40mg, rest

from 20mg). Six generic players (Synthon, DRRD, Mylan, Amneal,

Biocon/Apotex and Sandoz) have filed for this product, with Sandoz already

launching the 20mg generic. We believe DRRD could be the third/fourth player

to launch generic Copaxone 20mg/40mg by 2HFY18.

Will fate of one plant impact another?

Although the Miryalaguda and

Srikakulam inspections concluded with no material 483s, the issues raised at

Duvvada appear concerning, in our view. These facilities contribute ~10-12% of

total US sales (~USD250m), including ~2% from Miryalaguda and ~9-10% from

Srikakulam/Duvvada. Notably, these three plants received the warning letter

simultaneously, and the USFDA has suggested WL global corrective actions. It is

unclear as of now whether all three plants can come back on track together or

each plant will be looked at separately.

High third-party consultant cost not expected to be incurred again:

DRRD has

incurred ~USD40m as third-party consultant cost to take remediation action at

these three plants up till now. However, third-party consultant cost has come

down significantly as remediation is now over. It is necessary for DRRD to not

incur such high cost again to fix observations.

USFDA remediation is key; maintain Neutral:

Although long-term

fundamentals remain intact, the stock will remain range bound in the near

term due to regulatory concerns. We value the company at 18x FY19E PER, at a

10-15% discount to peers due to added regulatory uncertainty related to

Duvvada and Bachupalli. We maintain

Neutral

with a TP of INR2,625 @ 18x

FY19E PER (v/s TP of INR3050 earlier). The cut in target price is largely

attributed to lower target multiple.

16

8 May 2017

P&G Hygiene and

Healthcare

BSE SENSEX

29,859

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm/ Vol m

Free float (%)

S&P CNX

9,285

PG IN

32.5

239.3/3.7

7611 / 6025

-1/-4/-3

49

29.4

5 May 2017

3QFY17 Results Update | Sector: Consumer

CMP: INR 7,373

n

TP: INR 8,760 (+19%)

Buy

Payout of INR12b cash a huge boost to return ratios

Net sales rose 5.5% YoY (est. of +9%) to INR5.73b.

Sales growth, albeit lower

than estimated, is still better than that reported by peers so far. Gross sales

were up by a healthy 7% YoY. The company has not shared segmental data;

however, in our view, close to double-digit sales in Feminine Hygiene was

offset by flat growth and higher excise in Healthcare, leading to moderate net

sales growth. EBITDA margin expanded 230bp YoY to 26.8% v/s estimate of

210bp contraction due to fear of a high base. EBITDA increased by 15.3% YoY

(est. of +0.1%) to INR1.54b and PAT by 2.6% YoY (est. of -2.4%) to INR996m.

EBITDA margin surprises positively:

Gross margin shrunk 60bp YoY to 58.6% in

the quarter. Staff costs rose 100bp YoY to 5.8% of sales, ad spend was down

20bp YoY to 9.4% of sales (far lower decline than that reported by all other

consumer peers so far), and other expenses declined 360bp YoY to 16.6% of

sales (a key factor driving margin expansion).

Dividend payout a huge positive:

The company declared a significant interim

dividend of INR362 per share (5% yield), utilizing entire cash balance built up

over two years via a sharp reduction in inter-group lending, good operating

performance and a low payout. We believe that this portends further decline in

inter-group lending as well as significantly elevated dividend payout.

Valuation and view:

PGHH’s has distinct advantages over FMCG peers: (1) It is

in a much faster-growing category and (2) It enjoys far superior barriers to

entry in its key Feminine Hygiene segment (69% of sales). While there will be

some weakness in earnings over next few years due to low other income, we

note that payout of cash potentially takes RoCE closer to 80% from ~30%,

adding to the attractiveness of the stock. We maintain

Buy

with a target price

of INR8,760 (50x March 2019E EPS, a 10% premium to three-year average due

to far superior return ratios compared to previous levels).

FY17

2Q

3Q

6,432

5,739

-2.4

5.5

4,146

4,201

2,286

1,538

5.7

15.3

35.5

26.8

132

142

43

13

208

232

2,320

1,614

2,320

1,614

814

618

35.1

38.3

1,506

996

1,506

996

2.8

2.6

23.4

17.4

FY16

4QE

5,739

7.6

4,108

1,632

2.8

28.4

156

-5

62

1,543

1,543

380

24.7

1,162

1,162

6.4

20.3

22,754

-2.5

16,701

6,053

26.6

517

60

876

6,353

6,353

2,129

33.5

4,223

4,223

22.0

18.6

FY17

23,915

5.1

16,948

6,967

29.1

556

55

726

7,082

7,082

2,372

33.5

4,709

4,709

11.5

19.7

(INR Million)

FY17

Var.

3QE

(%)

5,927

-3.2%

9.0

4,592

1,335

15.2%

0

22.5

142

4

236

1,425

1,425

13.3%

477

33.5

947

5.2%

947

5.2%

-2.4

16.0

Financials & Valuations (INR b)

FY16 FY17E FY18E

Y/E June

Net Sales

22.8

23.9

27.4

EBITDA

6.1

7.0

7.8

NP

4.2

4.7

5.1

EPS (INR)

129.9 144.9 155.8

EPS Gr. (%)

22.0

11.5

7.5

BV/Sh. (INR)

465.6 175.3 219.9

RoE (%)

30.8

45.3

78.9

RoCE (%)

31.3

46.0

80.5

P/E (x)

56.7

50.9

47.3

P/BV (x)

15.8

42.1

33.5

n

n

Estimate change

TP change

Rating change

n

Standalone - Quarterly Earning Model

Y/E June

Net Sales

YoY Cha nge (%)

Tota l Expendi ture

EBITDA

Growth

Ma rgi ns (%)

Depreci a ti on

Interes t

Other Income

PBT before EO expense

PBT

Ta x

Ra te (%)

Reported PAT

Adj PAT

YoY Cha nge (%)

Ma rgi ns (%)

E: MOSL Es ti ma tes

1Q

5,387

4,418

970

18.0

127

17

212

1,038

1,038

343

33.0

696

696

12.9

FY16

2Q

3Q

6,593

5,438

4,431

2,162

32.8

142

28

206

2,199

2,199

733

33.4

1,465

1,465

61.6

22.2

4,104

1,334

24.5

124

7

236

1,439

1,439

468

32.5

971

971

11.7

17.8

4Q

5,336

3,748

1,588

29.8

124

8

222

1,677

1,677

585

34.9

1,092

1,092

2.0

20.5

1Q

6,004

11.5

4,493

1,512

55.9

25.2

127

4

225

1,605

1,605

561

34.9

1,044

1,044

50.1

17.4

8 May 2017

17

5 May 2017

1QCY17 Results Update | Sector: Healthcare

Sanofi India

Buy

BSE SENSEX

29,859

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

9,285

SANL IN

Weak results; margin improvement is key

23

n

Sanofi India (SANL) reported weak 1QCY17 results. Revenue declined 9.1%

96.3 / 1.5

YoY to INR5.5b (~8% below est.). EBITDA fell ~21% YoY to INR1b (24% below

4930 / 4005

est.), with the margin contracting to 18.4% from 23.7% in 1QCY16. PAT of

-12/-12/-23

48

INR600m (-25.6% YoY) too missed our estimate by ~25% due to lower export

39.6

volumes and an adverse impact of INR appreciation v/s euro.

CMP: INR4,181

TP: INR4,850(+16%)

Financials & Valuations (INR b)

2016

2017E

Y/E Dec

Net Sales

23.7

26.3

EBITDA

5.3

5.5

PAT

3.0

3.0

EPS (INR)

129.1

131.0

Gr. (%)

24.9

1.5

BV/Sh (INR)

754.5

804.3

RoE (%)

17.1

16.3

RoCE (%)

16.5

16.0

P/E (x)

32.4

31.9

P/BV (x)

5.5

5.2

n

2018E

29.7

6.9

4.0

173.4

32.4

896.5

19.3

19.5

24.1

4.7

n

n

Estimate change

TP change

Rating change

n

High-growth brands/new launches to drive revenues:

Sales declined 9%

YoY in 1QCY17. According to AIOCD, secondary sales growth for SANL stood

at ~10% YoY. We expect the company’s revenue growth to sustain at 12%

over CY16-18, in line with industry growth, led by high growth in brands like

Lantus, Combiflam, Allegra

and

Amaryl M,

and new product launches.

Lower margin attributed to high other expenses:

EBITDA margin of ~18.4%

was lower than our estimate of 22%, mainly due to high other expenses

(+44% YoY). We expect EBITDA margin to normalize at 22-23% over CY16-

18E (22.3% in CY16).

Growth impacted by regulatory actions and demonetization:

According to

AIOCD, average industry growth was ~10.5% YoY in 1QCY17, and regulatory

actions (ex-demonetization) will have a negative one-time impact of ~2% on

SANL.

Margin improvement is key:

We model growth of 12% in sales, 14% in

EBITDA and 16% in earnings over CY16-18E. We maintain our

Buy

rating with

a TP of INR4,850 @ 28x CY18E (v/s INR5,000 @ 28x 1HCY18E). We cut

CY17E/CY18E EPS by 17/8.6% on the back of impact of price control and

demonetization.

CY16

2Q

6,080

10.6

1,458

24.0

300

7

164

1,315

0

1,315

462

35.1

853

853

32.9

14.0

CY17E

2Q

7,001

12.2

1,521

21.7

325

4

200

1,392

0

1,392

500

35.9

892

892

10.6

12.7

CY17E

3Q

7,027

18.7

1,544

22.0

325

4

200

1,415

0

1,415

520

36.7

895

895

77.3

12.7

4QE

6,762

14.2

1,439

21.3

569

3

46

912

0

912

286

31.3

626

626

24.1

9.3

26,320

11.1

5,519

21.0

1,472

15

605

4,636

0

4,636

1,623

35.0

3,014

3,014

1.5

11.4

CY18E

29,738

13.0

6,898

23.2

1,577

15

738

6,044

0

6,044

2,055

34.0

3,989

3,989

0.0

13.4

Quarterly Performance

Y/E December

Net Sales

YoY Change (%)

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO Items

Extra-Ord Expense

PBT after EO Items

Tax

Effective tax Rate (%)

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

E: MOSL Estimates

1Q

5,444

11.4

1,291

23.7

301

1

256

1,245

0

1,245

439

35.3

806

806

66.5

14.8

3Q

6,242

6.6

1,447

23.2

300

3

148

1,292

0

1,292

486

37.6

806

806

11.2

12.9

4Q

5,920

4.1

1,073

18.1

412

4

152

809

0

809

304

37.6

505

505

-28.3

8.5

1Q

5,529

-9.1

1,015

18.4

253

4

159

917

0

917

317

34.6

600

600

-25.6

10.9

8 May 2017

18

RESULTS

FLASH

Equitas Holdings

8 May 2017

Results Flash | Sector: Financials

BSE SENSEX

29,859

S&P CNX

9,285

CMP: INR160

Risk aversion mars growth; bank transition dragged profits lower

n

We will revisit our estimates

post earnings call/management

interaction.

Conference Call Details

Date:

8 May 2017

Time:

04:30pm IST

Dial-in details:

+91-22-3938 1003

th

Financials & Valuations (INR b)

Y/E March

2017 2018E

NII

8.6

11.1

OP

3.5

4.5

NP

1.6

2.1

EPS (INR)

4.7

6.3

EPS Gr. (%)

-23.8

33.8

BV/Sh. (INR)

66

72

RoE (%)

8.9

9.2

RoA (%)

2.0

1.9

P/E(X)

33.9

25.3

P/BV (X)

2.4

2.2

2019E

13.2

5.3

2.5

7.3

15.7

79

9.7

1.7

21.9

2.0

In a quarter marred by uncertainty over MFI portfolio, Equitas PAT declined

85% YoY/QoQ to INR69m (~82% miss). Flat AUM QoQ, interest reversal on MFI

loans (INR38m) decline in high yielding loans led to net interest income miss of

7% (down 4% QoQ but grew +30% YoY). NIMs contracted -70/-140bp QoQ/YoY

to 9.8% and high yielding MFI AUM (~50% of AUM as of 3Q) declined 7% QoQ.

n

Continued investments in branches (284 as of 4Q vs 112 in 3Q) led to Opex

growth of 85% YoY (+17% QoQ) to INR1.95b (in line). The bank also on boarded

600+ (+23% QoQ) branch banking employees in 4QFY17.

n

GNPA in MFI portfolio including RBI dispensation (INR620m) stands at INR100m

however bank has proactively classified INR580m worth of accounts as NPA;

Taking NPA in MFI portfolio at INR680m (2% of MFI AUM). Total at PAR stress

on the AUM stands at INR1.9b (INR1.45b on books) and the bank is confident

of recovering 50% leading to total loss of ~INR1b. The bank already has

INR540m of provisions (INR350m specific+INR190m floating) on this portfolio.

n

Overall GNPA stood at 3.5% however, excluding

the

proactive impaired account

recognition it stood at 2.5%. MFI PAR at >90 DPD was at 2.7% v/s 8%for the

industry. Collection efficiency deteriorated to 95.4% v/s 98.4% in 3Q, owing to

drop in collection efficiency in MH (77% v/s 93% in 3Q).

n

FY17 highlights:

a)

AUM growth was moderate at 17% YoY, as the bank chose

to be cautious in MF lending (Flat YoY). UCV/Micro LAP grew 28% and 50% YoY

respectively,

b)

Garnered deposits of INR18.9b; CASA deposits were INR3.3b.

Valuation and view:

Equitas targets to reduce share of MFI in overall loans to ~30%

by FY18. This would be partially offset by high growth in secured products like

micro LAP and VF and newly launched products like housing, business, gold and

agri loans. We expect near-term recalibration of the growth strategy to yield

positive results over medium-to-long term. Fast paced liability branch set up, a

strong BC reach and a large captive MFI customer base will enable EQUITAS to

recalibrate the liability side, lowering CoF, increasing cross-sell and fee income. We

would be revisiting our estimates and TP both the earnings call on 8th May.

FY16

2Q

3Q

1,489

1,560

114

1,602

854

749

138

611

218

393

7.1

53.3

18.4

35.7

208

1,768

948

820

143

677

243

434

11.8

53.6

17.4

35.9

4Q

1,704

221

1,925

1,050

875

146

729

261

468

11.5

54.5

16.7

35.8

1Q

2,043

62.7

230

2,273

1,134

1,139

52.3

176

963

352

612

62.6

10.1

49.9

15.4

36.5

FY17

2Q

2,006

34.8

287

2,293

1,408

885

18.2

149

736

273

463

17.8

12.5

61.4

16.8

37.1

FY16

3Q

2,291

46.8

418

2,709

1,663

1,046

27.5

340

706

256

449

3.5

15.4

61.4

32.5

36.3

4Q

2,214

29.9

205

2,419

1,945

474

-45.8

365

109

40

69

-85.3

8.5

80.4

77.0

37.0

6,008

780

6,788

3,597

3,192

591

2,600

930

1,671

11.5

53.0

18.5

35.8

FY17

8,554

42.4

1,140

9,694

6,150

3,544

11.0

1,029

2,515

922

1,593

-4.7

11.8

63.4

29.0

36.7

Quarterly Performance (INR m)

Net Interest Income

% Change (Y-o-Y)

Other Income

Net Income

Operating Expenses

Operating Profit

% Change (Y-o-Y)

Other Provisions

Profit before Tax

Tax Provisions

Net Profit

% Change (Y-o-Y)

Other Income/Net Income (%)

Cost/Income Ratio (%)

Provisions/PPoP (%)

Tax Rate (%)

E: MOSL Estimates

1Q

1,256

237

1,493

745

748

165

583

207

376

15.9

49.9

22.0

35.5

8 May 2017

19

Tata Communications

BSE SENSEX

30,126

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

9,360

TCOM IN

Expect steady EBITDA growth, RoIC improvement

285

Normalized data EBITDA up 5% QoQ

200.0 / 3.0

784/418

Ex data center and one-offs, core EBITDA up 9% QoQ

-4/3/46

n

During the quarter, four factors impacted the data segment: (1) sale of data

530

center business, (2) one-off expenditure of INR1b, (3) unfavorable ruling of

25.0

the High Court on TRAI’s AFC (access facilitation charges) regulations, and (4)

5 May 2017

4QFY17 Results Update | Sector: Telecom

CMP: INR705

TP: INR811 (+15%)

Buy

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Sales

176.2 180.9

EBITDA

24.1

29.3

NP

7.4

5.6

EPS (Rs)

26.0

19.5

EPS Gr. (%)

1,573.9

-24.8

BV/Sh (INR)

55.9

75.4

RoE (%)

126.2

29.8

RoCE (%)

9.7

6.3

P/E (x)

27.0

35.9

P/BV (x)

12.6

9.3

2019E

194.8

37.3

11.2

39.4

101.3

114.8

41.4

10.6

17.8

6.1

n

n

Leaner balance sheet; 24% data EBITDA CAGR over FY17-19E

impact of demonetization on the ATM business.

Normalized core revenue declined 2% QoQ to INR43.2b (our estimate was

INR44.5b) due to sluggish voice revenue. Normalized data revenue grew

2.3% to INR28.2b (in-line), led by 6% and 12% jump in transformation and

growth segment.

Normalized core EBITDA grew 9% QoQ to INR7b (our estimate was

INR6.25b). Voice EBITDA grew 30% QoQ to INR1.1b. Normalized data EBITDA

grew 4.7% to INR5.85b. Data EBITDA margin jumped 50bp QoQ to 20.8%.

The sale of capital intensive data center and Neotel has reduced debt by 28% in

FY17 to INR77b, and FY18E capex by ~40% from FY16 levels driving FCF. We

expect data EBITDA to grow at 24% CAGR over FY17-19E, led by a.) 13% EBITDA

CAGR in traditional biz, as it recovers from the one-off charges, b.) 50%+ EBITDA

CAGR in the Transformation segment with healthy pipeline, c.) Growth segment

to garner INR1.45b EBITDA in FY19 from an EBITDA loss of INR1.7b in FY17.

Maintain Buy with target price of INR811

We have marginally reduced our data EBITDA estimates for FY18/19 by 2.5-3%,

which constitutes ~85% of the core EBITDA. We maintain our target price of

INR811 (excluding land bank). Given the healthy EBITDA growth potential and

FCF generation driving RoIC of 14% by FY19E, the stock appears attractive at an

EV of 6x FY19E EBITDA (including land bank value) – conventional telcos with

single-digit RoCE are trading at 6-7x EV/EBITDA.

Cons. Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

MI& Profit/Loss of Asso. Cos.

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

1Q

51,796

1.3

44,505

7,291

14.1

4,888

1,966

930

1,367

0

1,367

931

68.1

3

433

433

-302.5

0.8

FY16

2Q

3Q

51,301 50,995

1.2

3.8

43,580 43,397

7,720

7,598

15.0

14.9

5,694

5,908

1,756

1,730

791

108

1,061

69

0

0

1,061

69

998

-154

94.1 -224.1

3

3

60

219

60

219

-93.5

-79.8

0.1

0.4

FY17

2Q

3Q

4QE

45,091 43,601 42,937

-12.1

-14.5

-16.5

38,466 37,910 37,914

6,625 5,691

5,024

14.7

13.1

11.7

4,644 4,677

4,677

960

999

780

728

909

1,012

1,750

924

578

0

0 10,633

1,750

924 -10,055

899

923

-192

51.4

99.9

1.9

6

-7

-40

845

7 -9,824

845

7

607

1,303.7

-96.6

132.4

1.9

0.0

1.4

(INR Million)

FY16

FY17E

205,539

3.2

174,562

30,978

15.1

22,166

7,191

2,958

4,578

1,928

2,650

2,386

90.0

14

250

443

1,986.6

0.2

176,197

-14.3

152,138

24,059

13.7

18,658

3,672

3,603

5,332

11,553

-6,221

2,364

-38.0

-51

-8,534

7,409

1,573.9

4.2

4Q

51,452

6.9

43,343

8,109

15.8

7,259

1,689

1,028

190

1,928

-1,738

695

-40.0

5

-2,438

261

-78.8

0.5

1Q

50,317

-2.9

41,690

8,627

17.1

5,378

1,721

608

2,136

920

1,216

793

65.2

6

418

738

70.5

1.5

8 May 2017

20

5 May 2017

4QFY17 Results Update | Sector: Technology

L&T Infotech

Buy

BSE SENSEX

29,859

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

Financials & Valuations (INR b)

2017

2018E

Y/E Mar

Net Sales

65.0

70.8

EBITDA

12.3

13.0

PAT

9.7

10.4

EPS (INR)

55.5

59.7

Gr. (%)

5.9

7.6

BV / Sh (INR)

159.5

204.8

ROE (%)

40.4

32.8

ROCE (%)

42.7

33.5

P /E (x)

13.2

12.3

P / BV (x)

4.6

3.6

S&P CNX

9,285

LTI IN

Broad-based momentum helps shun seasonality

171

n

4QFY17 revenue beat on broad-based momentum:

LTI’s 4QFY17 revenue

120.9 / 1.9

grew 2.4% QoQ in constant currency (CC) terms, against our expectation of

729 / 595

1.3%. Revenue growth was broad-based across verticals and geographies.

-/-/-

For FY17, CC growth of 10% was at the higher end of the industry. The year

128

was marked by stabilization of the Energy vertical and 8.4% growth in BFS

15.7

CMP: INR733

TP: INR850(+16%)

n

2019E

78.7

14.2

11.4

65.0

8.8

254.2

28.3

30.2

11.3

2.9

n

Estimate change

TP change

Rating change

n

despite this being a pressure-point for the industry.

Healthy momentum drives sanguine FY18 outlook:

Heading into FY18, this

momentum is expected to continue, led by: [1] Visibility from ramp-up in

deals, [2] Broad-based traction with no segment expected to decline, [3]

continued momentum in Digital, which is 28% of revenue.

Margin beat in part from one-time expenses:

Despite seasonality, higher

SGA (+60bp to 16.8%) and INR appreciation, LTI’s EBITDA margin expanded

by 90bp QoQ to 19% against our expectation of 20bp expansion to 18.3%.

Margin expansion was partly led by some accrual accounting at the year-end

around employee leaves encashment. However, with confidence of revenue

growth and multiple traditional levers in hand, there appears limited risk to

our assumption of a cumulative 80bp decline in margins over FY18-19.

4QFY17 PAT at INR2.5b (+2.7% QoQ) was higher than our estimate, led by

operational beat and higher other income.

Valuation view:

LTI is trading at 12.3/11.3x FY18/19E earnings. Our target

price of INR850 (+16%) discounts FY19E earnings by 13x - in the range of as

PSYS and MTCL which have demonstrated potential in newer services, but at

a premium to peers such as MPHL, KPIT and NITEC. This, we believe is

justified given strong positioning, superior cash generation, return ratios and

track record. Maintain Buy.

FY17

FY16

FY17

2Q

3Q

4Q

240

245

254

887

970

3.7

2.3

3.7

9.5

9.3

16,020 16,667 16,772 58,471 65,009

9.1

12.1

7.7

17.5

11.2

35.4

34.3

35.8

33.5

35.2

16.4

16.2

16.8

15.8

16.3

3,044 3,020 3,190 10,359 12,303

19.0

18.1

19.0

17.7

18.9

16.1

15.3

16.5

14.7

16.2

365

597

503 2,802 1,837

21.0

21.2

22.3

19.7

21.4

2,326 2,481 2,547 9,171 9,711

-1.4

6.7

2.7

21.3

10.5

11.4

21.5

5.9

13.3

14.2

14.6

52.4

55.5

21,074 20,605 21,023 20,072 21,023

78.7

78.1

78.3

73.8 7807.5

18.5

18.1

51.2

52.3

51.3

49.7

48.3

(INR Million)

Est. Var. (% /

4QFY17

bp)

249

1.9

1.7

195

16,605

1.0

4.2

348

34.3

153

16.0

79

3,035

5.1

18.3

74

15.3

119

261

92.5

21.0

2,219

14.8

-10.5

1,320

-16.1

2,751

12.7

22,246

(5.5)

76.0

230

52.7

(139)

Quarterly Performance

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

Util incl. trainees (%)

Attrition (%)

Offshore rev. (%)

1Q

209

0.0

13,332

14.5

34.0

18.5

2,068

15.5

12.2

512

18.2

1,746

-21.2

7.5

10.0

20,331

73.8

20.1

51.9

FY16

2Q

3Q

4Q

224

225

230

7.3

0.5

2.1

14,682 14,870 15,579

18.7

12.4

17.8

34.5

36.4

33.5

17.9

16.8

15.4

2,431 2,914 2,820

16.6

19.6

18.1

13.6

16.7

15.3

532

285

526

24.4

18.8

21.6

1,917 2,245 2,286

9.8

17.1

1.8

7.2

12.5

3.2

11.0

12.8

13.1

22,689 22,477 20,072

72.8

74.0

75.9

19.7

18.5

18.4

51.7

51.3

52.4

1Q

231

0.6

15,550

16.6

35.3

15.7

3,050

19.6

16.9

372

21.2

2,359

3.2

35.1

13.5

19,292

77.4

19.5

51.9

8 May 2017

21