19 May 2017

Corporate performance

4QFY17: Expectations v/s delivery

Today’s top research idea

Yes: Annual report analysis - A much stronger liability franchise

v

YES’ annual report analysis suggests strong performance across parameters in

a challenging environment. Liability franchise has strengthened significantly,

with sustained improvement in CASA, improving deposit concentration ratios,

and more favorable ALM profile.

v

YES reported ~76bp GNPA for FY16, whereas the RBI estimated 5% GNPA.

While rule-based accounting (90dpd) allows banks to classify some accounts

as standard, RBI may ask banks to classify accounts with inherent weaknesses

as NPAs. Bank has fully accounted for divergences in FY17.

v

Loan market share increased to 1.7% of the system, while return ratios have

been robust – RoA of 1.8% and RoE of 20%. Recent capital raising (INR49b)

provides cushion for future growth. YES remains our top pick among mid-sized

private banks. Reiterate Buy, with a TP of INR2,110/share.

(no of

companies)

Sales

EBIDTA

PAT

Growth (YoY, %)

MOSL

Nifty

Sensex

(100)

(27)

(16)

13.7

11.5

11.5

15.7

33.4

7.7

14.9

6.2

14.9

Research covered

Cos/Sector

Key Highlights

FY17 annual report analysis – A much stronger liability franchise

Capitalizing on multiple opportunities; NBFC and Pharma are key value drivers

GST council finalizes tax rates

Driving value through simplification

Below est.; BS3-related discount, adverse mix, high RM cost hurt margins

Stress additions remain elevated; provisions mar earnings

Results better on all fronts

Highly uncertain operating environment leads to downgrade to Neutral

Robust operating performance supported by impressive asset quality

Dhariwal starts full supplies to Noida PPA

Demon hangover remains, ad growth under pressure

Subdued performance; Household Insecticides declines again

Rail margins impacted; Maintain Buy

Ad pain continues; contained opex salvages margins

EBITDA disappointment led by lower realizations

IPM delivered moderate growth in April 2017

GSK Pharma | Grasim Inds | HT Media | Just Dial | SBI

Yes Bank

Piramal Enterprises

GST

CESC

Bajaj Auto

Bank of Baroda

Pidilite Inds

United Breweries

Muthoot Finance

CESC

D B Corp

Jyothy Lab

Gateway Distripark

Hindustan Media

JK Lakshmi Cement

Healthcare

Results Expectation

Market snapshot

Equities - India

Close

Chg .%

Sensex

30,435

-0.7

Nifty-50

9,429

-1.0

Nifty-M 100

18,030

-2.3

Equities-Global

Close

Chg .%

S&P 500

2,366

0.4

Nasdaq

6,055

0.7

FTSE 100

7,436

-0.9

DAX

12,590

-0.3

Hang Seng

10,271

-1.1

Nikkei 225

19,554

1.3

Commodities

Close

Chg .%

Brent (US$/Bbl)

52

1.0

Gold ($/OZ)

1,264

1.5

Cu (US$/MT)

5,562

-0.5

Almn (US$/MT)

1,921

0.0

Currency

Close

Chg .%

USD/INR

64.9

1.2

USD/EUR

1.1

0.2

USD/JPY

111.0

-1.4

YIELD (%)

Close

1MChg

10 Yrs G-Sec

6.7

0.0

10 Yrs AAA Corp

7.8

0.0

Flows (USD b)

18-May

MTD

FIIs

-0.1

0.7

DIIs

0.1

0.2

Volumes (INRb)

18-May

MTD*

Cash

325

297

F&O

8,650

4,776

Note: YTD is calendar year, *Avg

YTD.%

14.3

15.2

25.6

YTD.%

5.7

12.5

4.1

9.7

9.3

2.3

YTD.%

-6.2

9.0

0.7

12.7

YTD.%

-4.4

5.6

-5.3

YTDchg

0.2

0.3

YTD

7.0

1.8

YTD*

284

4,655

Piping hot news

12-18% GST rate for most products; foodgrain exempted, 5% tax on coal

v

The Goods and Services Tax (GST) Council, at its meeting in Srinagar on

Thursday, approved rates for about 1,200 items…

Chart of the Day: YES - A strengthening liability franchise:

Incremental CASA market share of 2.5%+

Quote of the day

The real key to making money in stocks is

not to get scared out of them

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

Bankers to take over Jaypee's

land bank to recover loans

Lenders to Jaiprakash Associates

have decided to take control of

the company’s vast land bank to

recover their loans worth Rs

13,000 crore. The land bank will,

however, be liquidated at a later

date, the lenders decided at a

meeting in Mumbai on Thursday…

2

The domestic airlines flew 91.34 lakh passengers in April this year

registering a growth of 15.15 per cent over the 79.32 lakh passengers

flown during the same period last year. The latest data released by the

Directorate General of Civil Aviation shows that IndiGo carried the

maximum number of passengers during the month at 37.79 lakh, followed

by Jet Airways (13.90 lakh) with Air India at the number three spot with

11.80 lakh passengers. SpiceJet flew 11.77 lakh passengers while GoAir

carried 7.40 lakh, AirAsia — 2.98 lakh and Vistara —2.97 lakh passengers

during April…

Domestic airlines carried 15% more passengers in April

3

Kotak Mahindra Bank gets

board nod for raising foreign

investor limit to 43%

The board of directors of Kotak

Mahindra Bank has approved

increasing the shareholding of

foreign portfolio investors (FPIs)

in the lender to 43 per cent from

the current limit of 42 per cent.

The increase in FII/FPI ceiling limit

is subject to statutory/ regulatory

approvals as may be necessary…

4

RP Sanjiv Goenka’s CESC splits

into four companies

The RP-Sanjiv Goenka Group

flagship, CESC Ltd demerged its

businesses into four different

companies — power generation,

electricity distribution, retail

(Spencer’s Retail) and other

ventures. The new entities are to

be listed by October 1...

5

Given the states’ demand that

one-time improvement (OTI)

works on national highways be

funded by the Centre, the

ministry of road transport and

highways (MoRTH) has directed

the National Highways Authority

of India (NHAI) to carry out such

works out of budgetary

allocations or borrowed funds.…

NHAI to take up one-time

upgrade of highways

6

GST Council meeting:

Consensus builds for 1 July

rollout

The goods and services tax (GST)

Council on Thursday backed the 1

July deadline for rolling out the

unified indirect tax that will help

create a single national market,

and ensured that items of mass

consumption bear the least tax

burden…

7

The Reserve Bank of India (RBI) on

Thursday relaxed the branch

authorization policy, bringing all

branches and fixed business

correspondent outlets under the

definition of banking outlets and

removing restrictions on opening

branches in Tier 1 centres…

RBI revises definition of what

constitutes a bank branch

19 May 2017

2

18 May 2017

Annual Report Update | Sector: Financials

Yes Bank

Buy

BSE SENSEX

30,435

S&P CNX

9,429

CMP: INR1,401

TP: INR2,110 (+51%)

FY17 annual report analysis: A much stronger liability franchise

Net stress loans at just ~2.2%, despite accounting for divergence

n

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

12M Avg Val (INR M)

Free float (%)

YES IN

456.5

1653 / 963

-17/2/26

639.5

9.4

3862

79.8

n

n

Financials Snapshot (INR b)

Y/E March

2017 2018E 2019E

NII

58.0

74.8

95.3

OP

58.4

69.7

88.4

NP

33.3

41.3

52.0

NIM (%)

3.4

3.5

3.6

EPS (INR)

73.0

90.5 114.0

EPS Gr. (%)

20.8

24.1

25.9

BV/Sh. (INR)

468.7 540.7 631.5

ABV/Sh. (INR)

453.4 533.7 622.1

RoE (%)

18.9

17.9

19.4

RoA (%)

1.8

1.7

1.8

P/E(X)

19.2

15.5

12.3

P/BV (X)

3.0

2.6

2.2

Shareholding pattern (%)

Mar-17 Dec-16 Mar-16

As On

Promoter

20.2

21.8

21.9

DII

23.3

23.8

24.3

FII

46.7

42.0

41.3

Others

9.9

12.4

12.6

FII Includes depository receipts

Stock Performance (1-year)

Yes Bank

Sensex - Rebased

1,750

1,550

1,350

1,150

950

n

YES’ annual report analysis (AR) suggests strong performance across parameters in a

period marred by significant economic challenges. Liability franchise has

strengthened significantly, with sustained improvement in CASA ratio to 36.3% (up

820bp), improving deposit concentration ratios, and more favorable ALM profile. This

has also benefitted NIM and increased fee income streams.

The bank has increased its loan market share to 1.7% of the system, while

maintaining strong return ratios – RoA of 1.8% and RoE of 20%. YES is consuming

capital at a fast pace – steep increase in RWA; recent capital raising (INR49b)

provides cushion for future growth.

YES reported ~76bp GNPA for FY16, whereas the RBI estimated 5% GNPA. The

divergence was owing to the fact that while rule-based accounting (90dpd) allows

banks to classify some accounts as standard, RBI may ask banks to classify accounts

with inherent weaknesses as NPAs. From FY17 onwards, reporting of the divergence

is a mandatory disclosure in the AR. Bank has fully accounted for divergences in FY17.

YES remains our top pick among mid-sized private banks, with healthy capitalization

(CET1 of 11.4%), strong capital allocation (best in class RoE), and market-leading

growth rates (expect at least 2x industry growth). We reiterate Buy, with a target

price of INR2,110/share.

Divergences fully accounted for; no recognition impact in ensuing quarters

n

n

n

Of the total divergence of ~INR41.8b reported in the AR, INR10.4b is

outstanding as NPA, with the balance amount repaid, exited, or recovered in

some manner. The bank expects recoveries in one large account amounting to

INR9.1b (part of the o/s INR10.4b NPA).

Large part of the recoveries and upgrades (INR12.2b), and ARC sales (INR9.6b)

was driven by divergence-related accounts. Our analysis suggests that over

INR12b have been repaid in the normal course of business during the year

(INR41.8b divergence = INR10.4b still NPA + INR10b recoveries/upgrades +

INR9b sold to ARC + INR12.4b repaid).

We expect other banks, particularly private corporate lenders, to report

significant divergence in their AR, as well – ICICIBC has reported INR53.8b

(1.2% of loans) and AXSB has reported INR94.8b (2.5% of loans) in their results

conference calls. Even after taking ‘divergence accounts’ into consideration,

YES’ o/s net stress loans stand at 2.2% v/s 8% for ICICIBC and 5% for AXSB.

YES has invested heavily in branches (23% 5-year CAGR), employees (3.5x

increase since FY12), and rollout of complete product suite. Improvement in

productivity is evident, with average SA balance per branch increasing to

INR286m in FY17 v/s INR221m in FY16 and INR58m in FY12.

Resultantly, CASA ratio improved sharply in FY17 (up 820bp) to 36.3% (15% in

FY12), led by robust 61% growth in SA deposits. We believe YES’ customer

strategy of targeting cash rich regions is paying off, given that it has maintained

incremental SA market share of 1.5%+ over the last three years.

3

Stark improvement in balance sheet granularity

n

n

19 May 2017

n

n

Concentration ratios of top-20 customers have improved – top-20 deposits at

11.1% (v/s 11.7% in FY16) and top-20 loans at 12.4% (v/s 13.8% in FY16).

Liability profile is improving sharply, with the less than one-year maturity

deposits declining to 56% of total deposits v/s 64% a year ago and ~85% in FY12.

Capital consumption high; sufficient Tier-1 post recent capital raising

n

n

n

Strong loan growth (~35%) has come at high capital consumption – risk-

weighted assets grew 40% and stood at 87% of total assets v/s 80% in FY16 and

71% in FY12.

The recent capital raising of INR49b (~30% of pre-issue net worth) added

~300bp to Tier-1 ratio. YES also raised INR30b in AT1 bonds during the year.

Hence, Tier-1 capital improved to 13.3% v/s 10.3% a year ago, despite 40%

growth in RWA.

The bank has regularly maintained ~2.1% return on risk-weighted assets, which

despite the high risk weights, continues to be on the higher side v/s peers.

Strong core profitability; return ratios remain robust

n

n

n

Net income growth has been robust at 37%, led by strong loan growth (+35%

YoY), stable margin profile (3.4% NIM), and increasing fee income contribution

(1.5% of assets).

Core PPoP as a percentage of assets has increased steadily to 2.7% v/s 2.3% in

FY12; the bank has contained credit costs at less than 0.3% of assets, thereby

ensuring wide gap between operating profitability and NPL provisions.

RoA improved to 1.8% v/s 1.7% in FY16 and 1.5% in FY12 – at par with the

leading banks in the system. YES has been able to maintain industry-leading RoE

of 20%+, despite frequent capital raising over the last five years.

Other takeaways from annual report

n

n

n

n

n

n

n

Share of overseas loans has increased from 1.5% in FY16 to 4.6% in FY17 led by

strong business growth in GIFT City – YES has already crossed the USD1b

transactions mark here. Bulk of overseas loans is syndicated.

Share of non-interest income as a percentage of assets increased to 2.2% v/s

1.8% in FY16, even as the proportion of off-balance sheet items to on-balance

sheet assets decreased to 1.8x v/s 2x in FY16. Fees grew 43% to INR35b, with

share of retail fees increasing to ~30% v/s 25% a year ago. Trading gains as a

percentage of PBT increased to 14% v/s 7% in FY16.

PCR declined to ~47% v/s 62% in FY16, led by divergence-related NPL formation

during the quarter. With expected normalization in slippages in FY18 and

recovery in the large account (INR9.1b), PCR may increase.

Share of secured loans increased to ~74% of loans v/s ~68% in FY16 and just

~45% in FY12.

Outstanding real estate advances (largely residential real estate) stood at

INR109.3b (8% of loans) v/s 10% a year ago.

YES Securities reported PAT of INR98m v/s a loss of INR98m a year ago. Total

revenue grew 1.6x to INR638m.

The bank granted 0.4% of equity as ESOPs during the year; 0.7% of equity is

diluted on account of exercise of ESOPs. Outstanding ESOPs have exhibited a

declining trend and stand at 3.7% v/s 4.6% in FY16 and 5.5% in FY13.

4

19 May 2017

Valuation and view

n

n

n

n

n

n

n

We see divergence-related issues and surrounding noise as transitory. Despite

the significant recognition during the year, YES has best in class net stress loans

of ~2.2% v/s peer corporate lenders like ICICIBC (11.8%) and AXSB (4.7%).

With continued investment in franchise, people and processes, YES is well

positioned to leverage the opportunity that the Indian economy presents. It has

strong capitalization (CET1 of ~11.4%); branch network has increased to 1,000

v/s 214 in FY11, and employee strength is up at 20,000+ v/s 3,929 in FY11.

Comfortable liquidity, low inflation and bulk deposit rates are significant

positives from the perspective of NIM (higher short-term liabilities) and bond

gains (~9% share of corporate bonds in customer assets). Further, the bank has

room to reduce savings deposits rate, leading to margin stability. Stable/

improving NIM and traction in fees will keep core PPP CAGR strong at ~27% over

FY17-20, despite strong investments in building liability franchise.

With an incremental market share of 3.5%+, aggressive roll-out of retail/SME

products and strong corporate relationships, YES is expected to register loan

CAGR (FY17-20) of 28% – at least 2x system loan growth.

YES has a well-laid strategy for growing small business loans (most of which

qualify as priority sector loans) and cross-selling to acquired customers; On the

balance sheet front, the bank’s initial focus will be on growing the liability side

first, and as customer relationships age, focus would be on cross-selling retail

assets. The bank has been expanding its branch network at an increasing pace.

YES’ total stress loans (NNPA+OSLR+SDR+5:25+S4A) remain one of the lowest in

the industry at ~2.2%. Robust loan growth, NIM expansion (~30bp led by capital

raising, higher CASA and share of retail loans), and rising fee income

contribution are expected to drive a ~25% PAT CAGR through FY20. This will see

RoA remaining healthy at 1.8% and RoE being maintained at ~20%.

The stock trades at 2.4x FY19E BV and 13.1x FY19E EPS. We

reiterate Buy

with a

target price of INR2,110 (3.3x FY19E BV), based on residual income model

(average growth of ~18% over FY16-36, terminal growth of 5%, 14.2% cost of

equity – risk-free rate of 7%, beta of 1.4, and 5% market risk premium).

Exhibit 1. We revisit estimates post the annual report analysis

INR B

NII

Other Income

Total Income

Opex

Operating Profits

Provisions

PBT

Tax

PAT

Old Est.

FY18

FY19

76.6

97.6

46.4

57.5

123.0

155.1

52.1

65.1

70.9

89.9

8.5

11.9

62.4

78.0

20.3

25.0

42.1

53.0

New Est.

FY18

FY19

74.8

95.3

46.4

57.5

121.2

152.8

51.5

64.3

69.7

88.4

8.5

11.9

61.2

76.5

19.9

24.5

41.3

52.0

% Change

FY18

FY19

-2.4

-2.4

0.0

0.0

-1.5

-1.5

-1.2

-1.2

-1.7

-1.7

0.0

0.0

-1.9

-1.9

-1.9

-1.9

-1.9

-1.9

19 May 2017

5

Piramal Enterprises

BSE SENSEX

30,435

S&P CNX

9,429

18 May 2017

Update

| Sector:

Financials

CMP: INR2,798

TP: INR3,044 (+9%)

Buy

Capitalizing on multiple opportunities

NBFC and Pharma are key value drivers

Our Initiating coverage report on

Piramal Enterprises

n

n

n

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 (%)

PIEL IN

172.6

2942 / 1322

20/77/81

488.5

7.5

291

48.6

2019E

143.4

43.4

25.6

166.8

34

960

34.0

17.0

2.9

2.0

Piramal Enterprises (PIEL) has carved a niche for itself in wholesale lending, and is

now one of the dominant players in most of the segments in which it operates. In the

lending business, the company has one of the lowest GNPAs and the highest

profitability. Post the initial years of lower-tenure loan book, PIEL is moving toward

secured and higher-tenure products, which provides support to growth. We expect a

40% loan CAGR in the NBFC business.

The Pharma business has demonstrated strong growth and improvement in

profitability in recent years. With its focus on building a portfolio via inorganic

acquisitions and the impending closure of the imaging business, we expect a sharp

improvement in profitability.

Over last five years, the stock has delivered 44% CAGR returns, and since our

initiation three months ago (Initiation

report),

it has run up 54%. Led by strong macro

tailwinds and healthy profitability, we raise the target multiple for financial services

to 3.6x from 2.7x (in line with peers). Our revised SOTP is INR3,044. Our target price

does not factor in the proposed capital raise of INR50b (~10% dilution), which, in our

view, would be largely utilized for the financial services business.

Product diversification – key to its success story in NBFC space

Since its foray into the financial services business in FY12, PIEL has exhibited a loan

book CAGR of over 100%, mainly driven by its focus on catering to all the needs of

developers – right from equity capital for land purchase to last mile inventory

funding. The company has significantly expanded its product suite over the years,

with new products such as construction finance and LRD contributing to

incremental loan growth. We believe this has been the key to Piramal’s success

story, as product diversification reduces dependence on any single product for

growth and mitigates asset quality risks.

Financials Snapshot (INR b)

Y/E March

2017 2018E

Revenues

85.5 116.8

EBITDA

22.5

34.8

PAT

10.8

19.1

EPS (INR)

72.6 124.6

EPS Gr. (%)

38

72

BV/Sh. (INR)

768

850

Payout (%)

33.8

34.0

Valuations

P/E (x)

39.0

22.7

P/BV (x)

3.7

3.3

Div. Yield (%)

0.9

1.5

Pharma business on a turnaround path

We expect Pharma revenue CAGR of ~20% till FY20, driven by (1) recent

acquisitions (leading to an increase in the addressable market size to USD20b in

FY18 from USD1b in FY16), (2) expansion into new areas and ADC manufacturing

capacity and (3) capacity expansion at other facilities. The global pharma business

(90% of revenue) enjoys a strong operating margin of 20%+, but the domestic

business has a low-single-digit margin. Imaging business, which was a drag on

profitability, is likely to wind down by CY17, driving overall margins higher. We

expect a strong turnaround in this business, with the EBITDA margin expanding to

~20.5% by FY19 (up ~600bp v/s FY17) and a revenue CAGR of 20%.

Shareholding pattern (%)

As On

Mar-17 Dec-16 Mar-16

Promoter

51.4

51.4

51.6

DII

3.6

3.5

3.5

FII

28.7

28.5

28.2

Others

16.3

16.5

16.7

FII Includes depository receipts

19 May 2017

6

Stock Performance (1-year)

Proposed capital raise to drive strong growth in financial services business

PIEL is planning to raise up to INR50b (~10% dilution), which, in our view, would

support strong growth in the financial services business. The Pharma and IT

businesses are sufficiently capitalized, with a debt to equity ratio of ~1x (our

estimate). Our back-of-the-envelope calculations suggest that NBFC leverage in this

business is 5x+. Considering the wholesale nature of the business, we believe peak

leverage could be 6-7x. We have not factored in the capital raise, but, if accounted

for, our consolidated BV for FY18/19 would be ~INR1,040/1,150 v/s our estimate of

INR850/960 (under Indian GAAP).

Reiterate Buy; strong foundation for robust growth

PIEL has the distinction of being one of the few companies in India to generate 25%+

book value CAGR over past 25+ years. Post the sale of the domestic formulations

business, management chose to invest and compound the money, rather than

distributing it to shareholders. We believe the company has the DNA to incubate

and grow businesses in niche segments. Significant proportion of capital (INR45.3b

in Shriram Group + INR4b seed investment in PE business + INR40b in Pharma and

IT) generates less than 5% RoE, but could create significant value over the longer

term. Best talent, coupled with stringent underwriting, has enabled PIEL to build a

fast-growing, highly profitable franchise with robust asset quality. The planned

capital infusion (up to INR50b) will provide the much-needed ammunition to

continue on the robust growth path. We use SOTP to arrive at a target price of

INR3,044. Buy.

Exhibit 2. PIEL: SOTP - March 2019 (without factoring in the proposed capital raise of up to ~INR50b)

Value

(INR B)

273

81

7

164

525

483

8.8

Value

(USD B)

4.1

1.2

0.1

2.5

7.8

7.2

8.8

INR per

share

1,583

470

38

952

3,044

2,798

8.8

Source: Company, MOSL

%

To Total Rationale

52

3.6x PBV; ROA/ROE of ~4%/25%+ - Loan CAGR of 40% FY17-20

15

1

31

100

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 3.2x Consolidated BV

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

Exhibit 3. PIEL: SOTP - March 2020 (without factoring in the proposed capital raise of up to ~INR50b)

Value

(INR B)

355

94

8

202

658

483

36.3

Value

(USD B)

5.3

1.4

0.1

3.0

9.8

7

36.3

INR per

share

2,056

542

44

1,170

3,813

2,798

36.3

Source: Company, MOSL

%

To Total Rationale

54

3.6x PBV; ROA/ROE of ~4%/~25%+ - Loan CAGR of 40% FY17-20

14

1

31

100

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 3.5x Consolidated BV

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

19 May 2017

7

Sector Update | 18 May 2017

GST

GST council finalizes tax rates

The 14

th

Goods and Services Tax (GST) Council, on the first day of its crucial two-

day meeting, finalized the tax rates for 1,211 items (except six items – services,

gold, branded & packaged products, footwear, apparel and beedi) with 81% of the

items to be levied duties at 18% or lower. However, we note that the government

has broadly kept the tax rates close to the existing tax rates in most of the cases.

Exhibit 1: 81% of items will be charged at 18% or lower

Rate slab

0%/Exempt items

5%

12%

18%

28%

% of items

7

14

17

43

19

Source: GST council, Media, MOSL

With the change in

effective

indirect taxation, the respective

sectors may see:

1.

Volume-led impact:

If the GST rate is lower than the current effective tax rate,

then thee could be an increase in volumes for the sector, which will drive

earnings and vice versa.

2.

Margin-led impact:

Certain companies owing to their industry dynamics enjoy

pricing power. A lower GST rate could help such companies retain part of the

benefits, which could positively impact their margins. Also, some companies

may witness margin expansion due to the benefits from operating leverage with

an increase in volumes.

3.

Shift from unorganized to organized trade:

The change in current indirect taxes

will lower the product price differential between organized and unorganized

players. This, in turn, could positively impact the revenue and earnings growth

rates of the organized names and vice versa.

19 May 2017

8

In our view, the rates announce so far are likely to benefit the consumer sector (companies in the

toothpaste, adhesive and soap segments)

Sector

Consumers

Paints

Toothpaste

Adhesive

Soaps

Cigarettes

Auto

2 Wheelers

Motorcycles (engine>350cc)

Others

25-26%

25-26%

22-23%

25-26%

28%

18%

18%

18%

Current

Effective tax

rate

GST rate

Remarks

Neutral: The companies will be able to pass the price increase to

the consumers.

Positive: The reduction in the duty rates may be passed on to

generate volume benefits or may be partially retained to

improve margins

Positive: The reduction in the duty rates may be passed on to

generate volume benefits or may be partially retained to

improve margins

Positive: The reduction in the duty rates may be passed on to

generate volume benefits or may be partially retained to

improve margins

28% + Excise 28% + Cess

Neutral: The Tax incidence is broadly maintained at the current

depending on (As per length

level and hence no major impact

length

+ Advolerum)

30-31%

31%

28%

Neutral

Marginally Positive: as entry level two wheelers can derive some

volume benefit on reduction of tax rate by 2-3%

Neutral: Companies will have to pass on the benefit to the

consumer

Neutral: Tax rates are broadly same as current rates. The change

in tax rates whereever applicable will be passed passed through.

3 Wheelers

30-31%

28%

4 Wheelers

Small Cars (length < 4 m ; Petrol<1200 cc )

Small Cars (length < 4 m ; Diesel < 1500 cc)

Mid Segment Cars (engine < 1500 cc)

Large Cars (engine > 1500 cc)

Sports Utility Vehicles (length > 4m ; engine

1500 cc; ground clearance > 170 mm)

Mid Segment Hybrid Cars (engine < 1500 cc)

Hybrid motor vehicles > 1500 cc

Hydrogen vehicles based on fuel cell tech > 4m

31-49%

29%

31%

43%

43%

43%

43%

43%

43%

43%

CV

Batteries

Cement

Metals

Pharma

Capital Goods – Light electrical and aircon

Capital Goods – Project

Home Building

Tiles / Sanitary ware

Ply wood

30-31%

29-30%

22-24%

19-21%

4-14%

22-26%

22%

28%

28%

28%

18%

5-12%

28%

18%

Neutral: Companies will have to pass on the benefit to the

consumer

Slightly positive: companies may retain a portion of the reduced

tax rates which may improve margins

Neutral: The increase in the tax rates will be a pass through and

is unlikely to impact volumes

Neutral: Reduction in duty rates will be passed on to consumers

Neutral: Duty incidence is broadly maintained for the

pharmaceutical products

Neutral: The marginal increase in tax rates are likely to be passed

to the consumers

Neutral: The decrease in the tax rates will be passed on to the

customers

Neutral: This is likely to increase the product price differential

between the unorganised and organised players, leading to

increase in competitiveness of unorganized players

Neutral: This is likely to increase the product price differential

between the unorganised and organised players, leading to

increase in competitiveness of unorganized players

25-28%

25-28%

28%

28%

19 May 2017

9

18 May 2017

Update

| Sector:

Utilities

CESC

Buy

BSE SENSEX

30,435

S&P CNX

9,429

CMP: INR830

TP: INR1,040(+25%)

Driving value through simplification

n

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 (%)

CESC IN

133.2

1002 / 531

-5/23/33

110.6

1.6

358

50.1

Financials Snapshot (INR b)

2017 2018E 2019E

Y/E Mar

Net Sales

139.0 152.3 161.1

EBITDA

31.6

38.1

39.4

PAT

6.9

9.8

10.7

EPS (INR)

51.9

73.4

80.6

Gr. (%)

86.6

41.6

9.8

BV/Sh (INR)

442.2 503.6 572.3

RoE (%)

11.4

15.5

15.0

RoCE (%)

10.1

11.3

11.4

P/E (x)

19.3

13.6

12.4

P/BV (x)

16.0

11.3

10.3

Shareholding pattern (%)

As On

Mar-17 Dec-16 Mar-16

Promoter

49.9

49.9

49.9

DII

20.3

20.2

19.1

FII

21.1

21.8

22.6

Others

8.7

8.1

8.4

FII Includes depository receipts

Stock Performance (1-year)

CESC

Sensex - Rebased

1,100

900

700

500

In a major development, the board of directors of CESC has approved a scheme for

demerger of the company into four separate entities, which would be listed

individually. Economic interest of shareholders in each of the companies would

remain the same as their current holding in CESC. The four entities are carved out

such that they specialize in a particular line of business – distribution (CESC),

generation (Haldia Energy), retail (RP-SP Retail) and others (RP-SP Business Process

Services). For every 10 shares of CESC, shareholders will receive five (of INR10 each)

shares of distribution, five (of INR10 each) of generation, three (of INR5 each) of

retail and two (of INR10 each) of others. The demerger would require approval of the

Company Law Board and the West Bengal Electricity Regulatory Commission.

Management expects the merger process to be completed by 1 October 2017.

We see significant benefits of the demerger:

n

Exposure to the only pure-play distribution business:

It would be the only

pure-play distribution business in India. A regulated distribution business is one

of the best regulated businesses to own, given low gestation period (high IRRs),

steady growth and negative working capital. The Kolkata business is high-RoE

and growing at a steady rate (5-6%). Noida is growing rapidly, with regulated

equity having increased 3x over past five years. Growth will also be driven by

the entry into new circles through the distribution franchise model, which is

low capex and would leverage on CESC’s 100+ years of experience in the

distribution business. The closest comparable peer is Power Grid.

n

Healthy dividends likely from generation business:

The generation business

would have capacity of ~2.5GW. Of this, ~2.3GW is coal-based generation, with

long-term, largely regulated nature PPAs for ~2GW. The untied capacity of

0.3GW at Dhariwal has the potential to enter into a regulated PPA with CESC’s

Noida distribution circle in 2-4 years. In the interim, the untied capacity will

look at opportunities in the merchant power market (Maharashtra is a

possibility). The regulated generation business earns +17% RoE (incl.

incentives) and, with limited growth opportunities, should be a healthy-

dividend-paying business.

n

Pure-play retail chain:

Spencer is a growing retail chain with a store count of

124 and area of 1,176k.sq.f as at end-FY17. The operations expected to turn

profitable in FY18 through focused expansion, optimization and operating

leverage. The organized retail sector represents just 10% of the estimated

market size of USD600b, and provides a huge growth opportunity. Spencer

recently entered the apparels business, which has gathered strong momentum

with the initial launch. Sales increased from INR20m in April 2017 to INR80m by

June 2017. Apparel is a high-margin business and would drive faster

turnaround at Spencer.

19 May 2017

10

n

Reduces risk of business diversification:

In our interactions with investors, we

understood that CESC’s diversification into unrelated businesses in the past

(BPM, cricket) was a key overhang on the stock. The demerger, in effect, tries to

address this risk. Management clarified that new opportunities will be explored

only through the RP-SP Business Process Services (others entity).

Driving value through simplification

A simplified and concentrated portfolio would drive value unlocking. As a

conglomerate, the business demanded higher cost of equity due to a different risk

profile of each business. While generation and distribution are less volatile, the

organized retail and business process management (Firstsource) has a different risk

profile. The risk of unrelated business diversification (if any) would also be now

confined to a smaller portion of the erstwhile business. The negative reaction (the

stock down ~16%) post the announcement of the demerger is probably due to

misunderstanding of the merge terms and/or misreading of the 4QFY17 results

(announced just later), in our view. We will await the final approvals to incorporate

the demerger. Meanwhile, we roll forward our valuation to FY19E, in line with our

other utility sector companies. The SOTP-based target price is INR1,040. Reiterate

Buy. The key risk is delay in (1) the process of demerger and (2) PPA for Dhariwal.

Exhibit 4. CESC’s proposed new structure

Source: Company, MOSL

19 May 2017

11

RESULTS

FLASH

9 May 2017

Results Flash | Sector: Automobiles

Bajaj Auto

Buy

BSE SENSEX

30,435

S&P CNX

9,429

CMP: INR2974

n

TP: INR3282

We will revisit our estimates

post earnings call/management

interaction.

Below est.; BS3-related discount, adverse mix, high RM cost hurt margins

Net realization increased ~1.2% YoY (~4.5% QoQ) to INR62,171/unit (est. of

~INR62,344) due to a higher contribution from premium segment motorcycles,

partly offset by a decline in the 3W segment.

n

Net sales declined ~8.6% YoY to ~INR48.9b (est. of ~INR49.1b).

n

RM cost was higher by 280bp YoY (+150bp QoQ) due to discount on BS3

inventory, adverse mix (lower exports) and higher commodity cost.

n

EBITDA margin contracted 300bp YoY (-210bp QoQ) to 18.5% (est. of 20.5%).

Higher other income restricted PAT decline to 15.5% YoY (to ~INR8b v/s est. of

~INR8.4b).

n

For FY17, net sales declined ~3.6% to ~INR217.6b, led by 6% volumes decline.

EBITDA margin shrunk 90bp to 20.3%. PAT declined ~2.6% to ~INR38.3b.

Dividend was stable at ~INR55/share.

n

Net cash increased 36% to ~INR123.7b (~71% of capital employed).

n

Its associate KTM (~48% stake) reported 11% volumes growth for CY16,

translating into 12% revenue growth, and ~13% PAT growth to ~EUR72m.

Key questions for management

n

Demand situation and outlook at retail level post BS3 push

n

Outlook on exports demand, especially in key markets like Nigeria and Sri

Lanka

n

Update on Fx hedges for FY18 and FY19

n

Quantum of discounts for BS3 inventory liquidation

n

Commodity inflation impact in 4QFY17 and further estimated impact in FY18

Valuation and view:

We will revisit our estimates post the earnings call. The stock

trades at 19.4x/17.3x FY18E/19E EPS. Maintain

Buy

with a TP of INR3,282.

FY17

2Q

3Q

4Q

1,032

852

788

-2.3

-10.5

-9.7

58,676 59,495 62,171

2.0

2.0

1.2

60,545 50,669 48,973

-0.4

-8.7

-8.6

67.0

66.8

67.8

4.3

4.8

4.6

7.4

7.9

9.2

12,961 10,439 9,060

21.4

20.6

18.5

3,420 3,193 2,936

7

3

2

770

772

757

15,605 12,858 11,236

4,378 3,612 3,218

28.1

28.1

28.6

11,228 9,246 8,018

6.7

(4.7) (15.5)

FY16

3,894

2.2

58,010

2.3

225,865

4.5

66.6

4.1

8.2

47,856

21.2

10,736

11

3,072

55,510

16,177

29.1

39,297

28.9

FY17

3,666

(5.8)

59,375

2.4

217,667

(3.6)

67.2

4.6

8.0

44,224

20.3

12,220

14

3,073

53,357

15,081

28.3

38,276

(2.6)

Est.

4Q

787.7

(9.7)

62,344

1.4

49,109

-8.4

66.5

5.2

7.8

10,084

20.5

2,475

-3

778

11,784

3,365

28.6

8,419

-11.3

Var.

(%)

0.0

-0.3

-0.3

Conference Call Details

Date:

19 May 2017

Time:

10:00am IST

Dial-in details:

+91-22-3960 0663

th

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

217.7 249.1

EBITDA

44.2

50.7

NP

38.3

44.3

EPS (INR)

132.3 153.0

EPS Gr. (%)

-2.6

15.7

BV/Sh. (INR)

588.7 651.5

RoE (%)

25.3

24.7

RoCE (%)

24.6

23.9

P/E (x)

22.5

19.4

P/BV (x)

5.1

4.6

2019E

283.5

57.9

49.8

172.2

12.5

720.4

25.1

24.3

17.3

4.1

Quarterly Performance

(INR Million)

Volumes ('000 units)

Growth YoY (%)

Realization (INR/unit)

Growth YoY (%)

Net Sales

Change (%)

RM/Sales %

Staff cost/Sales %

Oth. Exp./Sales %

EBITDA

EBITDA Margins (%)

Other Income

Interest

Depreciation

PBT

Tax

Effective Tax Rate (%)

Adj. PAT

Change (%)

1Q

1,013

2.5

55,273

4.0

55,993

6.6

67.4

4.3

8.0

11,402

20.4

3,063

1

784

13,680

4,106

30.0

9,574

29.4

FY16

2Q

3Q

1,057

951

0.1

-3.4

57,543 58,306

1.9

1.5

60,799 55,478

2.0

-1.9

66.7

66.6

4.0

4.1

7.7

8.2

13,167 11,716

21.7

21.1

2,680 2,425

3

2

780

746

15,063 13,392

4,540 3,686

30.1

27.5

10,524 9,706

26.4

12.7

4Q

872

11.5

61,430

1.4

53,595

13.1

65.9

3.8

8.9

11,534

21.5

2,569

4

761

13,338

3,844

28.8

9,493

52.7

1Q

995

-1.8

57,784

4.5

57,480

2.7

67.2

4.7

7.7

11,763

20.5

2,671

2

775

13,657

3,873

28.4

9,784

2.2

-10.2

-200bp

-4.6

-4.8

19 May 2017

12

18 May 2017

4QFY17 Results Update | Sector: Financials

Bank of Baroda

Buy

BSE SENSEX

30,435

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

9,429

BOB IN

Stress additions remain elevated; provisions mar earnings

2,304

n

Bank of Baroda (BoB) reported PAT of INR1.5b (70% miss) v/s INR2.5b in

433.3 / 6.5

3QFY17. The strong operating performance (+17% YoY; 36% beat) was

202 / 128

driven by robust fee income growth (+50% YoY/QoQ) and controlled opex

3/-10/13

1656

(flat YoY). Elevated NPL provisions (2.7% credit costs annualized) on account

40.8

of continued stress additions led to the PAT miss.

CMP: INR188

TP: INR217(+15%)

Financials & Valuations (INR b)

Y/E March

2017 2018E

NII

135.1

156.3

OP

109.8

119.5

NP

13.8

44.0

NIM (%)

2.2

2.4

EPS (INR)

6.0

19.0

EPS Gr. (%)

NA

218.0

BV/Sh. (INR)

147.8

162.4

RoE (%)

4.1

12.3

RoA (%)

0.2

0.6

P/E(X)

31.4

9.9

P/BV (X)

1.3

1.2

n

2019E

n

180.5

131.5

57.5

2.5

24.9

30.7

n

181.4

14.5

0.7

7.6

n

1.0

n

NIM expanded 11bp QoQ to 2.2% on a low base (3Q had interest income

reversal of ~INR2.6b). Margins were also aided by IT refund of INR1.5b.

Slippages remained elevated at INR40.7b (annualized slippage ratio of 4.3%)

v/s INR41.4b in 3Q, led by relapse of INR22.8b from the restructured book.

While recoveries and upgrades were lower than previous quarters in FY17,

high write-offs of INR15.8b led to flat absolute GNPLs on a sequential basis.

Overall NSL stood at ~9.6%.

FY17 highlights:

BoB reported PAT of INR24.7b v/s loss of ~INR67b in FY16.

This was a year of balance sheet consolidation: loan growth was flat YoY, led

by ~12% decline in overseas loans.

Other highlights:

a) Retail advances grew 13% QoQ and 14% YoY. b) Average

daily CASA ratio improved to 38.8% v/s 37.1% in 3Q. c) CET 1 ratio declined

30bp QoQ to ~9%.

Valuation and view:

We like management’s focus to clean up the balance

sheet and lay the foundation for sustainable growth. We expect stress

addition and credit costs to reduce in FY18/19. Additional buffers like non-

core financial investments among other options will lead to dilution-free

growth in the near term. We largely maintain estimates. Maintain

Buy

with

a TP of INR217 (1.2x FY19BV) – based on RI model.

19 May 2017

13

RESULTS

FLASH

19 May 2017

Results Flash | Sector: Consumer

Pidilite

BSE SENSEX

30,435

S&P CNX

9,429

CMP: INR771

TP: INR740(-4%)

Neutral

We will revisit our estimates

post earnings call/management

interaction.

Results better on all fronts

Conference Call Details

Date:

22 May 2017

Time:

04:00pm IST

Dial-in details:

+91-22-3960 0619

nd

Consolidated results overview

n

Gross sales were up 6.8% YoY to INR14.0b. Net sales increased 4.9% YoY (est.

of flat growth) to INR12.95b, with estimated 7% volume growth (est. flat) in the

Consumer Bazaar segment.

n

Gross margin contracted 210bp YoY to 53.1%. EBITDA was up 8.3% YoY (est. of

-3%) to INR2.58b, with the margin expanding 60bp YoY (est. of -60bp) to

19.9%. PBT also increased by 7.7% YoY.

n

Higher tax rate (38.5% v/s 28.4% in 4QFY16) meant that adj. PAT declined 7.5%

YoY (est. of -8.4%) to INR1.55b.

FY17 performance

n

Net sales grew 4.8% YoY to INR56.2b. EBITDA grew 7.4% YoY to INR12.6b, led

by EBITDA margin improvement of 50bp YoY to 22.4%. Adj. PAT was up 6.7%

YoY to INR8.58b.

Consolidated segmental performance for 4QFY17

n

Consumer Bazaar segment revenues were up 7.6% YoY to INR11.6b. Industrial

segment posted revenue growth of 1.2% YoY to INR2.5b.

n

Consumer Bazaar EBIT grew 28.9% to INR3.6b, with the margin expanding

sharply by 510bp YoY to 31.0%. Industrial segment margin contracted 260bp to

16.1%, driving a 12.8% segmental EBIT decline.

Standalone performance for 4QFY17

n

Gross sales grew 6.5% YoY to INR12.39b. Net sales and EBITDA grew 4.3% and

12.0%, respectively, while adj. PAT was up 6.1% YoY. Gross margin shrunk 80bp

YoY to 53.8%, and EBITDA margin expanded 150bp to 22.4%.

n

Consumer Bazaar segment revenues grew 7.3% YoY. Industrial segment also

posted revenue growth of 1.2% YoY. Consumer Bazaar segmental EBIT margin

expanded 90bp YoY to 26.1%. Consumer Bazaar EBIT grew 11.1% to INR2.6b.

Financials & Valuations (INR b)

2016

2017E

2018E

Y/E Mar

54.1

55.6

63.5

Net Sales

12.2

12.4

13.8

EBITDA

7.6

8.5

9.4

NP

14.8

16.6

18.3

EPS (INR)

47.3

12.5

10.1

EPS Gr. (%)

64.5

79.3

BV/Sh. (INR) 54.3

29.9

27.9

25.4

RoE (%)

28.5

26.5

24.3

RoCE (%)

P/E

52.3

46.5

42.2

EV/EBITDA

31.9

31.1

27.6

19 May 2017

14

United Breweries

BSE SENSEX

30,435

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

Downgrade to Neutral

9,429

UBBL IN

Highly uncertain operating environment leads to downgrade to Neutral

264

n

Net sales declined 8.4% YoY (est. of -4.7%) to INR11.1b

(3.9% below

209.4 / 3.3

estimate) in 4QFY17. During the quarter, the beer industry reported its

976 / 690

sharpest volume fall in a decade (-13% YoY; UB declined 9%) due to the

2/-24/-10

impact of demonetization, store closures ahead of the highway ban and

303

higher excise.

26.1

n

Gross margin contracted 230bp YoY to 51.3%.

Staff costs increased 90bp

18 May 2017

4QFY17 Results Update | Sector: Consumer

CMP: INR792

TP: INR830(+5%)

Financials & Valuations (INR b)

FY17 FY18E

Y/E Mar

Net Sales

47.3

48.7

EBITDA

6.4

6.1

NP

2.3

2.6

EPS (INR)

8.7

9.7

EPS Growth (%)

-23.0

11.6

BV/Sh. (INR)

87.1

94.9

RoE (%)

10.4

10.7

RoCE (%)

10.3

9.4

P/E (x)

91.1

81.6

P/BV (x)

9.1

8.3

FY19E

56.5

8.1

3.9

14.7

51.9

107.3

14.6

12.7

53.8

7.4

n

n

Estimate change

TP change

Rating change

n

YoY. Other expenses, however, declined 170bp YoY, restricting EBITDA

margin contraction to 150bp (est. of +30bp) to 9.1% in 4QFY17. EBITDA

declined 21.3% YoY (est. of -2%) to INR1.01b, 19% below estimate. Due to

high depreciation and much lower other income, PAT declined 87% YoY.

Full-year FY17 performance:

Sales declined 2.2% YoY to INR47.34b. EBITDA

declined by 7.3% YoY to INR6.4b and PAT by 23% YoY to INR2.3b. In FY17,

industry volumes fell 5%, while UB reported a 2.5% decline.

Management call takeaways:

(a) Market is down by 10-15% YoY in April due

to the highway ban. Kerala and Maharashtra have been affected more as

licenses expired in March. (b) Management believes that the absolute worst

impact due the highway ban may be over, but the operating environment

remains tough.

Valuation and view:

Long-term volume and earnings growth opportunity

(FY17 PAT at USD 36m) is immense for India’s largest beer player, with

strong barriers to entry in the form of distribution, brewery reach, scale and

brands. However, the operating environment over the next year is expected

to be challenging, both due to the highway ban (de-notification by state

governments have not been as prompt as expected) and the prevailing

uncertainties over GST. There is a sharp cut to our EPS forecast (by 28%/16%

for FY18/FY19) as a result of the likely pressure on sales and profitability.

Owing to limited upside to our target price of INR830 (despite maintaining

target multiple at 33x FY19E cash EPS), we downgrade the stock to

Neutral.

FY17

2Q

3Q

10,322 10,250

-3.7

-6.6

9,139

8,942

1,183

1,308

-12.4

-27.3

11.5

12.8

702

698

141

153

8

330

348

787

0

0

348

787

106

274

30.4

34.8

0

0

242

513

242

513

-53.5

-28.0

2.3

5.0

Standalone - Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

12,062

EBITDA

2,484

YoY Change (%)

Margins (%)

17.1

Depreciation

583

Interes t

202

Other Income

167

PBT before EO expense

1,866

Extra-Ord expens e

0

PBT

1,866

Tax

645

Rate (%)

34.5

Minority Interes t & Profit/Los s of As s o.

0

Reported PAT

1,221

Adj PAT

1,221

YoY Change (%)

Margins (%)

8.4

E: MOSL Es timates

FY16

1Q

2Q

3Q

14,546 10,723 10,969

9,373

1,350

12.6

598

205

242

789

0

789

268

33.9

0

521

521

4.9

9,169

1,800

16.4

615

224

179

1,140

0

1,140

428

37.5

0

713

713

6.5

4Q

12,150

10,866

1,285

10.6

638

180

273

739

0

739

216

29.2

0

524

524

4.3

1Q

15,642

7.5

12,733

2,909

17.1

18.6

637

148

136

2,260

0

2,260

790

34.9

0

1,471

1,471

20.4

9.4

4Q

11,127

-8.4

10,116

1,011

-21.3

9.1

833

144

43

76

0

76

9

11.7

0

67

67

-87.1

0.6

FY16

48,388

41,470

6,919

14.3

2,435

811

862

4,534

0

4,534

1,556

34.3

0

2,979

2,979

6.2

FY17E

47,341

-2.2

40,930

6,412

-7.3

13.5

2,870

587

516

3,472

0

3,472

1,178

33.9

0

2,293

2,293

-23.0

4.8

4QFY17E

11,583

-4.7

10,334

1,248.6

-2

10.8

600

150

340

838.6

0

839

226

27

0.0

612

612.2

16.9

5.3

Variance

-3.9%

-19.0%

-90.9%

-89.0%

-89.0%

19 May 2017

15

RESULTS

FLASH

Muthoot Finance

18 May 2017

Results Flash | Sector: Financials - NBFC

BSE SENSEX

30,435

S&P CNX

9,429

CMP: INR379

Robust operating performance supported by impressive asset quality

n

Muthoot Finance’s (MUTH) 4QFY17 PAT grew 21% YoY (+11% QoQ) to INR3.2b

(in-line). NII growth was robust at 28% QoQ (+18% YoY), implying 40% beat,

which, in our view, was aided by strong recoveries. We await clarification.

n

Strong operating profits were used to create buffer of 0.87% additional

standard asset provision for gold price fluctuations. We are surprised by this,

considering gold prices were largely stable in 4Q. Hence, despite PPoP beat of

57%, higher provisioning of INR2.3b (v/s INR39m in 3Q) led to in-line PAT.

n

GNPA declined 29% in absolute terms to 2.1% of AUM v/s 2.92% in 3Q. NNPA

declined to 85bp to 1.7% (to INR4.6b). MUTH has INR5b of standard asset

provision (incl. INR2.3b gold fluctuation-related) on the balance sheet.

n

AUM grew 12% YoY (+1% QoQ) to INR273b, lower than management’s

guidance of +17-18%. We await further clarity from MUTH on this. Calculated

margin expanded 620bp QoQ to 17.2% on strong interest income performance.

n

Opex growth was strong at 22% YoY v/s average growth of 7% in last three

quarters. Employee expenses grew 12% YoY (+4% QoQ). Other operating

expenses were significantly higher than our estimate.

Valuation and view:

Given the stable regulatory regime, benign competition and

supportive gold prices, we expect growth to resume, with AUM CAGR of +15% over

next 2-3 years. Given that significant portion of its operating costs is fixed, a growth

recovery will ensure optimum utilization of existing infrastructure, boosting return

ratios. We look to revise our estimates and TP post the conference call.

We will revisit our estimates

post earnings call/management

interaction.

Conference Call Details

Date:

20 May 2017

Time:

03:00pm IST

Dial-in details:

+91-22-3300 1500

th

Financials & Valuations (INR b)

Y/E March

2017 2018E

NII

30.0

34.6

PPP

18.9

21.9

PAT

11.8

13.8

EPS (INR)

29.7

34.5

BV/Sh.(INR)

159.7 181.7

RoE (%)

19.7

20.2

Div. Yld. (%)

2.3

2.7

P/E (x)

12.8

11.0

P/BV (x)

2.4

2.1

2019E

39.3

25.1

16.0

40.0

207.2

20.6

3.2

9.5

1.8

19 May 2017

16

18 May 2017

Results Update | Sector: Utilities

CESC

Buy

BSE SENSEX

30,435

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

9,429

CESC IN

133

110.4 / 1.6

1002 / 531

-5/23/33

358

50.1

CMP: INR841

TP: INR1,040(+15%)

Dhariwal starts full supplies to Noida PPA

Consolidated PAT grew 16% YoY in FY17; Re-iterate Buy

CESC’s 4QFY17 standalone PAT was broadly flat YoY at INR2.9b (ahead of

estimate of INR2.5b) as we estimate that growth in regulated equity was offset

by the impact of negative bid for the captive coal block. For FY17, PAT increased

2.1% YoY to INR8.6b. Consolidated PAT grew 16% YoY to INR6.9b.

Standalone:

Power sales declined ~5% YoY to 2.09BU on a strong base. EBITDA

(including regulatory income/expense) was broadly flat YoY at INR5.4b. For a

distribution business, EBITDA alone (down ~50% YoY) is not representative of

the operating performance of the company, as the mismatch in recovery of cost

for the period is presented separately under ‘Regulatory income/expense’ as per

the accounting standards.

Spencer:

Revenue grew 9.6% YoY to ~INR20b in FY17. Reported sales per sq.ft/m

were up 8.5% YoY to INR1,576. EBITDA loss declined from ~INR596m in 4QFY16

to INR460m in the quarter, led by operating leverage and efficiencies. EBITDA

margin improved from negative 3.2% in the year-ago period to 2.3%. Reported

store EBITDA was up ~INR15 per sq.ft/m YoY to INR101.

Dhariwal:

Supply under the Noida PPA has commenced from 1 April 2017. It has

also secured a 150MW one-month contract to supply to Maharashtra. For FY17,

Dhariwal has a loss of INR4.8b (in-line). We expect this to reduce to INR2.5b with

benefit of the Noida PPA.

Financials & Valuations (INR b)

Y/E Mar

2017E 2018E

Net Sales

139.0

152.3

EBITDA

31.6

38.1

PAT

6.9

9.8

EPS (INR)

51.9

73.4

Gr. (%)

86.6

41.6

BV/Sh (INR)

442.2

503.6

RoE (%)

11.4

15.5

RoCE (%)

10.1

11.3

P/E (x)

16.0

11.3

P/BV (x)

1.9

1.6

2019E

161.1

39.4

10.7

80.6

9.8

572.3

15.0

11.4

10.3

1.4

Estimate change

TP change

Rating change

Unlocking value through simplification of the group structure; Buy

CESC has announced the demerger of its business into four separate businesses

to be listed individually (discussed

in detail in our note here).

We see value

unlocking from simplification and concentrated portfolio exposure. We roll

forward valuation to FY19E. The SOTP-based TP is INR1,040. Re-iterate Buy.

Quarterly Performance (Standalone)

19 May 2017

17

RESULTS

FLASH

18 May 2017

Results Flash | Sector: Media

D B Corp

Buy

BSE SENSEX

30,435

S&P CNX

9,429

CMP: INR369

n

n

TP: INR450

We will revisit our estimates

post earnings call/management

interaction.

Demon hangover remains, ad growth under pressure

Opex levers cushion margins

PAT grew 6% YoY to INR642m (in-line) as higher-than-expected net other

income and lower tax outgo offset the EBITDA miss.

EBITDA declined 3% YoY to INR1.12b (6% below est. of INR1.19b), primarily led

by depressed revenues. EBITDA margin shrunk marginally by ~103bp YoY to

21.7% (46bp lower than est. of 22.2%). Mature editions EBITDA margin stood

at 27% v/s 35% in 3QFY17.

Print ad revenue declined 2.7% YoY to INR3.1b (4.6% lower than est. of

INR3.25b) as ad volumes continued to languish due to demonetization.

Circulation revenue growth was disappointing at 7% YoY (INR1.22b v/s est. of

INR1.24b) – majority was yield-driven growth from the mature markets.

Digital business revenue grew 19% YoY to INR142m this quarter, while radio ad

growth moderated to 11% YoY (to INR330m; in-line) due to demonetization.

RM costs increased 1.6% YoY to INR1.6b (4% below est.). Overall operating

expenses grew 3% YoY to INR4.05b (4% below est. of INR4.2b), led by lower-

than-expected RM, employee and SG&A expenses.

Conference Call Details

Date:

19 May 2017

Time:

01:00pm IST

Dial-in details:

+91-22-3938 1071

th

n

n

Financials & Valuations (INR b)

2017E 2018E

Y/E Mar

Net Sales

22.4

24.9

EBITDA

6.4

7.3

NP

3.7

4.4

EPS (INR)

20.4

24.0

EPS Gr. (%)

25.8

18.0

BV/Sh. (INR)

86.7

97.5

RoE (%)

25.5

26.1

RoCE (%)

23.0

24.3

P/E (x)

18.1

15.4

P/BV (x)

4.3

3.8

2019E

27.7

8.4

5.3

28.8

19.7

110.5

27.7

26.0

12.8

3.3

n

n

Key questions for management

n

Sectors that were laggards and those that are expected to aid in ad revival

n

Update on the new IRS survey

n

Clarity regarding impact of GST on print industry

Valuation and view:

We will revisit our estimates post the earnings call. At CMP of

INR369, the stock trades at an attractive P/E of 16.8x FY18E and 14.6x FY19E.

Buy.

Quarterly Performance

Y/E March

Sales

YoY (%)

Operating Expenses

EBITDA

YoY (%)

EBITDA margin (%)

Depreciation

Interest

Other Income

PBT

Tax

Effective Tax Rate(%)

Adj PAT

YoY (%)

1Q

4,734

-3.2

3,515

1,218

-9.5

25.7

208

21

68

1,057

393

37.2

665

-16.0

FY16

2Q

4,781

-0.4

3,654

1,127

-8.7

23.6

215

27

53

938

337

35.9

601

-11.8

3Q

5,859

5.6

3,991

1,868

1.2

31.9

233

19

37

1,654

585

35.4

1,068

1.6

4Q

5,143

5.9

4,001

1,142

-4.4

22.2

222

24

122

1,017

375

36.8

642

0.4

1Q

5,704

20.5

3,892

1,812

48.7

31.8

211

34

41

1,608

568

35.3

1,040

56.5

FY17

2Q

5,287

10.6

3,782

1,505

33.6

28.5

216

6

41

1,325

440

33.2

885

47.3

3Q

6,273

7.1

4,290

1,982

6.1

31.6

218

30

36

1,771

590

33.3

1,181

10.6

4Q

5,171

0.6

4,049

1,122

-1.7

21.7

218

5

51

950

309

32.5

641

-0.2

FY16

20,516

1.9

15,161

5,355

-5.6

26.1

878

92

281

4,666

1,690

36.2

2,976

-7.3

FY17

MOSLe 4Q

22,435

5,399

9.4

5.0

16,013

4,202

6,422

1,197

19.9

4.8

28.6

22.2

863

216

74

30

170

56

5,654

1,007

1,907

363

33.7

36.1

3,747

644

25.9

0.2

FY17

(INR Million)

Var %

-4.2

-3.6

-6.3

-47bp

1.1

-84.0

-9.2

-5.7

-15.1

-361bp

-0.4

19 May 2017

18

Jyothy Laboratories

BSE SENSEX

30,435

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

9,429

JYL IN

181.2

69.0 / 1.1

427 / 270

-9/-8/0

56

33.1

18 May 2017

4QFY17 Results Update | Sector: Consumer

CMP: INR378

n

TP: INR390(+3.2%)

Neutral

Subdued performance; Household Insecticides declines again

Consolidated net sales were up 4.1% YoY to INR4.5b

(est. of +9.6% YoY to

INR3.76b). Overall volumes grew 5.1% YoY (ex-HI volumes rose 9.7%). Power

brand sales increased 2.6% YoY, with 4.1% volume growth. EBITDA declined

3.5% YoY to INR606m (est. of +21% to INR765m). PAT grew 778.6% YoY to

INR1.1b (est. of +341.4%), led by benefit recognized on account of deferred tax

assets/MAT credit on brought forward losses due to the merger of Jyothy

Consumer Products Marketing with the company.

Consolidated gross margin contracted 180bp YoY to 43.9%

(est. of 43.1%).

EBITDA margin shrunk 110bp to 13.6% (est. of 14.1%).

Segmental performance:

Fabric Care grew by 8.4% YoY, Dishwashing by 4.2%,

Personal Care by 22.5%, while Mosquito Repellent declined by 6.5%. Among

the major brands, Ujala posted 9.8% growth, Exo/Margo/Pril grew

3.3%/19.3%/2.3%, while Maxo/Henko declined 6.5%/2.9% YoY.

FY17 performance:

Sales, EBITDA and adj. PAT grew 5.7%, 14.6% and 176.6%,

respectively. EBITDA margin expanded 110bp YoY to 15.1%.

Analyst meet highlights:

1) Overall demand scenario remains muted for JYL. 2)

The company took price hike of 7-8% (grammage reduction + MRP hike) in Exo

in 4QFY17, and 8-10% in Ujala in 1QFY18. 3) Targeting GDP+4% volume growth,

and also sees margins expanding in FY18.

Valuation and view:

Performance was below expectations, mainly due to a

decline in the HI segment. While the growth outlook appears promising led by

likely normal monsoon, valuations are fair at 34.5x FY19E EPS/21.2x FY19E

EV/EBITDA. Upside to our target price of INR390 (22x Dec-18 EBITDA) is limited.

Potential speculation around Henkel call option will overshadow underlying

fundamentals in the near term, in our view. Maintain

Neutral.

FY16

2Q

3Q

3,894 3,711

6.6

3,900

2,029

1,871

48.0

1,374

498

12.8

72

151

35

310

121

39.0

199

6.3

3,718

1,914

1,803

48.5

1,290

513

13.8

74

150

24

314

121

38.6

202

FY17

2Q

3Q

4,148 3,834

6.5

3.3

4.2

5.2

4,152 3,839

2,132 2,089

2,020 1,750

48.7

45.6

1,383 1,243

637

507

28.0

-1.3

15.3

13.2

73

73

164

144

31

26

430

314

119

108

27.7

34.3

320

215

61.2

6.6

FY16

FY17

(INR Million)

FY17

Var.

4QE

(%)

5,405

-17.5

9.6

8.9

5,414

-17.6

3,080

2,334

-16.0

43.1

1,569

765

-20.7

21.3

14.1

100

162

31

534

-16.6

58

10.8

476

128.1

341.4

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Net Sales

16.8

19.2

EBITDA

2.5

2.9

PAT

2.0

1.6

EPS (INR)

11.2

8.9

Gr. (%)

175.7

-20.4

BV/Sh (INR)

59.9

58.6

RoE (%)

21.1

15.1

RoCE (%)

17.3

12.8

P/E (x)

33.6

42.2

28.7

24.8

EV/EBITDA

2019E

22.1

3.4

2.0

11.0

22.4

60.4

18.4

15.1

34.5

21.2

n

n

n

n

Estimate change

TP change

Rating change

n

Quarterly Performance

Y/E March

Net Sales

YoY Cha nge (%)

Other Opera ti ng Income

Total Sales

COGS

Gross Profit

Ma rgi ns (%)

Tota l Exp

EBITDA

EBITDA Growth %

Ma rgi ns (%)

Depreci a ti on

Interes t

Other Income

PBT

Ta x

Ra te (%)

Adjusted PAT

YoY Cha nge (%)

1Q

4,040

3.4

4,043

2,096

1,947

48.2

1,366

581

14.4

69

164

50

398

149

37.5

258

4Q

4,282

2.0

4,284

2,324

1,960

45.7

1,331

629

14.7

100

153

34

410

302

73.7

124

1Q

4,373

8.3

3.9

4,377

2,219

2,158

49.3

1,364

795

36.8

18.2

71

157

29

596

146

24.6

459

78.2

4Q

4,457 15,927 16,812

4.1

5.6

5.0

18.3

18.3

4,462 15,945 16,830

2,502 8,364 8,941

1,960 7,581 7,889

43.9

47.6

46.9

1,354 5,361 5,344

606 2,221 2,545

-3.5

36.2

14.6

13.6

13.9

15.1

83

314

301

99

618

565

21

143

107

446 1,431 1,786

-629

693

-255

-141.1

48.4

-14.3

1,087

782 2,081

778.6

-36.5 166.2

19 May 2017

19

Gateway Distriparks

BSE SENSEX

30,435

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

9,429

GDPL IN

109

27.0 / 0.4

325 / 209

-14/-11/-36

40

74.9

18 May 2017

4QFY17 Results Update | Sector: Logistics

CMP: INR249

TP: INR310(+25%)

Buy

Rail margins impacted; Maintain Buy

GDPL reported EBITDA (Rail + CFS) of INR523m (est. of INR569m; -8% YoY, -11%

QoQ). PAT (before associate/minority interests) of INR223m (-6% YoY, -13% QoQ)

was above our estimate of INR209m due to lower interest cost at INR61m (est. of

INR81m; +61% YoY, +21% QoQ) and a lower tax rate. Management has started

accounting for Blackstone’s 49% stake in Gateway Rail from FY17 (FY16 numbers

are restated for Blackstone’s stake).

Rail profitability impacted by higher EXIM imbalance

n

Rail reported EBITDA of INR331m (est. of INR376m; -5% YoY, -3% QoQ).

n

Container volumes were 57,641TEU (est. of 54,472TEU; +14% YoY, +6% QoQ).

n

Rail realization stood at INR37,161/TEU (+2% YoY, +8% QoQ). EBITDA/TEU

declined 17% YoY (-8% QoQ) to INR5,736 (est. of INR6,911), led by increased

share of 40 feet containers (45% from 40%), higher discounts driven by

increased competitive intensity and increased EXIM imbalance.

CFS volumes impacted by implementation of DPD at JNPT

n

Consol. CFS EBITDA stood at INR192m (in-line; -12% YoY, -22% QoQ).

n

Consol. volumes were 91,095TEU (est. of 86,895; +7% YoY, -7% QoQ).

n

Realizations stood at INR10,261/TEU (est. of INR9,144; +20% YoY,+1%% QoQ),

while EBITDA/TEU was INR2,110 (est. of INR2,212; -18% YoY; -16% QoQ).

Valuation and view

n

Our FY17-19 volumes CAGR assumptions for Rail/CFS stand at ~12%/9%. We

value GDPL based on SOTP-based fair value of INR310/share, valuing CFS

business at 12x FY19E earnings, 40% stake in Snowman at 50% discount to

market value, and Rail segment at 15x FY19E EV/EBITDA (premium to

CONCOR). The stock trades at 17.4x FY19E EPS of INR14.3. The company’s

dividend yield stands at 2-3%. Maintain

Buy.

Financials & Valuations (INR b)

Y/E Mar

Net Sales

EBITDA

PAT

EPS (INR)

EPS Gr. (%)

RoE (%)

RoCE (%)

P/E (x)

EV/EBITDA(x)

2017 2018E 2019E

11.6

2.2

0.7

6.8

(40.2)

5.9

7.1

36.6

13.1

12.7

2.9

1.3

11.6

70.6

9.9

10.8

21.4

9.9

14.5

3.5

1.6

14.3

23.3

11.7

13.2

17.4

8.2

Estimate change

TP change

Rating change

19 May 2017

20

RESULTS

FLASH

Hindustan Media Ventures

BSE SENSEX

30,659

S&P CNX

9,526

18 May 2017

Results Flash | Sector: Media

CMP: INR278

n

n

n

n

n

TP: INR360

Buy

We will revisit our estimates

post earnings call/management

interaction.

Ad pain continues; contained opex salvages margins

Print ad revenue rose 3% YoY/QoQ to INR1.74b (est. of INR1.8b).

Circulation revenue increased 3.4% YoY to INR0.55b (in-line).

Revenue grew 3% YoY to INR2.34b (3% lower than est. of INR2.41b).

EBITDA margin expanded 144bp YoY to 24.4% (est. of 22.4%), as contained

opex more than offset revenue disappointment.

RM cost declined 6% YoY/5% QoQ to INR0.81b (12% below est. of INR0.93b),

constituting 34.5% of revenues (v/s 38.2% in 4QFY16, 37.3% in 3QFY17 and est.

of 38.4%).

PAT rose 4% YoY to INR0.46b, exceeding our estimate, which was largely a

function of EBITDA beat flowing through and higher-than-expected other

income.

HMVL announced a 12% dividend (INR1.2/share).

Conference Call Details

Date:

19 May 2017

Time:

01:00pm IST

Dial-in details:

+91-22-3938 1071

th

Financials & Valuations (INR b)

2017E 2018E

Y/E Mar

Net Sales

9.33 10.30

EBITDA

2.06

2.31

NP

1.94

1.99

EPS (INR)

26.4

27.1

EPS Gr. (%)

7.3

2.7

BV/Sh. (INR)

149.6 176.7

RoE (%)

19.3

16.6

RoCE (%)

18.1

15.6

P/E (x)

10.5

10.2

P/BV (x)

1.9

1.6

n

2019E

11.21

2.44

2.19

29.9

10.4

206.6

15.6

14.8

9.3

1.3

n

Key questions for the management

n

Sectors that are laggards in terms of ad spend and those that are expected to

aid in revival

n

Update on the new IRS survey

n

Clarity on impact of GST on print industry

Valuation and view:

We will revisit our estimates post the earnings call. At CMP of

INR277, the stock trades at P/E of 10.2x FY18E and 9.3x FY19E.

Buy.

Quarterly Performance

Y/E March

Ad revenue

YoY (%)

Circulation revenue

YoY (%)

Revenue

YoY (%)

Operating expenses

EBITDA

YoY (%)

EBITDA margin (%)

Depreciation

Interest

Other Income

PBT

Tax

Effective Tax Rate (%)

Adjusted net profit

YoY (%)

1Q

1,662

6.9

534

8.3

2,237

6.5

1,692

545

27

24.4

55

29

117

578

161

27.8

417

23.1

FY16E

2Q

1,685

18.5

522

5.2

2,262

13.4

1,739

523

34

23.1

53

30

190

630

178

28.2

452

44.4

3Q

1,812

19.1

523

2.5

2,404

16.2

1,803

601

50

25.0

56

27

112

630

161

25.6

469

28.1

4Q

1,694

15.6

534

5.1

2,272

12.4

1,749

523

17

23.0

61

27

189

624

179

28.6

445

14.4

1Q

1,777

6.9

563

5.4

2,392

6.9

1,823

569

4

23.8

50

47

201

673

186

27.6

487

16.8

FY17

2Q

1,701

0.9

538

3.1

2,295

1.4

1,791

504

-4

22.0

52

41

338

749

202

27.0

547

20.9

3Q

1,688

-6.8

561

7.3

2,303

-4.2

1,894

409

-32

17.8

50

39

215

536

98

18.2

438

-6.5

4Q

1,745

3.0

552

3.4

2,343

3.1

1,770

573

10

24.4

50

34

167

655

191

29.1

424

-4.8

(INR Million)

FY16

6,839

14.7

2,144

8.4

9,185

12.6

7,009

2,177

29.4

23.7

225

113

608

2,446

641

26.2

1,805

26.5

FY17

6,912

1.1

2,213

3.2

9,333

1.6

7,277

2,055

-5.6

22.0

202

161

921

2,612

676

25.9

1,895

7.3

19 May 2017

21

J K Lakshmi Cement

BSE SENSEX

30,435

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

9,429

JKLC IN

EBITDA disappointment led by lower realizations

118

n

Weak realizations in core markets

:

Volumes rose 6% YoY (+24.1% QoQ) to

56.3 / 0.9

2.28mt (est. of 2.27mt) due to ramp-up in its east operations. Realizations

535 / 327

fell 3% QoQ (+3.5% YoY) to INR3,531 (est. of INR3,698) on weak pricing in its

2/20/21

61

focus markets (such as Gujarat and east). EBITDA fell 16% YoY (-13% QoQ) to

54.1

INR0.716b (margin: 8.9%; -2.7pp YoY, -3.5pp QoQ) v/s est. of INR 893m,

18 May 2017

4QFY17 Results Update | Sector: Cement

CMP: INR478

TP: INR550(+15%)

Buy

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Net Sales

29.1

32.9

EBITDA

3.7

5.0

PAT

0.8

1.3

EPS (INR)

7.0

11.4

Gr. (%)

-1,694.8

63.9

BV/Sh (INR)

119.4

129.6

RoE (%)

6.0

9.2

RoCE (%)

8.7

8.1

P/E (x)

68.7

41.9

P/BV (x)

4.0

3.7

2019E

37.4

6.7

n

2.4

20.5

80.1

149.0

14.7

10.5

23.3

n

3.2

Estimate change

TP change

Rating change

n

translating into EBITDA/ton of INR313 (-INR83 YoY, -INR136 QoQ) v/s est. of

INR394. Revenue grew 10% YoY (+20% QoQ) to INR8.1b (est. of INR7.98b),

while net profit was INR207m (est. of loss of INR84m).

Cost measures to improve profitability

:

JKLC has planned various cost-

saving initiatives: (1) Laying conveyor belt over next two quarters to reduce

freight expenses on limestone by INR30 to INR40/ton. (2) Re-allocating

excess captive power (18MW) from Sirohi to Udaipur Cement Works. (3)

Greenfield WHRS with capacity of 7MW and thermal power with capacity of

20MW in Durg to save power cost by INR200/t for eastern operations.

FY17 performance

:

JKLC’s volumes rose 9% YoY to 7.97mt due to higher

volumes from east and ramp-up of operations at recently commissioned

Surat GU. Revenue grew 11% YoY to INR29.1b as realizations rose 2% YoY to

INR3,651/t. EBITDA grew 34% YoY to INR3.65b with EBITDA/t up 24% YoY to

INR458. JKLC reported PAT of INR819m v/s loss of INR51m in FY16.

Market mix favorable

:

We remain positive on JKLC due to its higher

exposure to north/central markets, which are likely to see highest realization

increase due to utilization improvement. However, turnaround of eastern

operations would be a key monitorable. The stock trades at 9.8x FY19E

EV/EBITDA and USD85/ton on FY19E capacity. We value JKLC at 11x FY19E

EV/EBITDA (implied EV of USD95), translating to TP of INR550.

Buy.

Source: MOSL, Company

19 May 2017

22

Sector Update | 18 May 2017

Healthcare

Performance of top companies:

(Apr 2017)

Company

IPM

Sun Pharma

Abbott India

Cipla

Zydus Cadila

Mankind

Alkem

Lupin

GSK Pharma

Pfizer

Glenmark Pharma

Sanofi

Dr Reddy Labs

Torrent Pharma

Alembic Pharma

Ipca Labs

Natco

Ajanta Pharma

Merck

Biocon

MAT Apr-17

gr (%)

(%)

10.5

11.1

10.5

7.4

12.7

10.4

14.3

11.7

0.5

1.1

13.1

11.2

6.1

13.4

6.7

9.2

11.5

13.7

5.8

9.3

8.3

11.3

5.9

0.6

8.5

11.2

0.6

10.8

10.1

(11.0)

(5.8)

17.8

8.5

8.4

15.6

5.1

9.7

10.8

11.9

7.5

20.9

IPM delivered moderate growth in April 2017

Indian pharmaceutical market (IPM) grew 8.3% YoY in April 2017 (9.4% YoY in

March). IPM grew 8.2%YoY for three month period February-April 2017.

n

April-17 quarter witnessed a volume growth of 3.4%, growth due to new

launches at 1.4% and price growth of 3.3%. Price growth was the lowest since

4QFY15, which has been consistently falling down from 1QFY17. We expect

industry growth to remain muted in the coming months due to GST impact.

n

Moving annual (MAT) growth for April stood at 10.5%YoY, primarily driven by

5.3%YoY increase in volume; new products contributed 3.2%YoY growth; while

price growth contributed 1.9% of MAT growth.

Alkem, Ajanta, Torrent and Glenmark witness highest growth in Apr-2017

n

Biocon and Glenmark Pharma posted robust growth for the month of April

growing 20.9% and 17.8% respectively followed by Torrent Pharma at 15.6% and

Ajanta Pharma at 11.9%.

n

Conversely, Pfizer largely underperformed IPM in April 2017 declining 5.8%YoY.

Cipla and Alkem posted muted growth of 0.6% each.

Anti-Diabetic and Anti-Neoplastic lead among therapies

n

Anti-Diabetic therapeutic products (8.9% of IPM) witnessed robust 19.5%YoY

growth in Apr 2017 followed by Anti-Neoplastic therapeutic category (2.1% of

IPM) at 18.1%YoY growth. Most of the other therapies outperformed market

posting mid double digit growth, Sex stimulants/Rejuvenators (+14.7), Urology

(+13%), Derma & Vaccines (+12.2%).

DPCO v/s non-DPCO market (April-17)

n

In value terms, secondary sales of DPCO-listed products declined 4.7%YoY,

whereas secondary sales of non-DPCO products registered 10.5%YoY growth.

Volume growth for DPCO-listed products stood at 6.1%YoY and for non-DPCO

products at 0.5%YoY.

FDC ban impact (April-17)

n

FDC-banned drugs (~2.4% of IPM in value terms) continued to be a key drag on

IPM sales. Secondary sales of proposed FDC-banned drugs declined 18.4%YoY in

April-17 while secondary sales of non-banned drugs grew 8.9%YoY. Secondary

sales for Indian companies declined 7.8% YoY while MNC de-grew by 39.2% YoY

in the FDC segment in the Month of April 2017.

n

Exhibit 1. No sign of improvement in price growth in 6 months ended Apr 2017 (Quarterly

trend)

Volume Growth (%)

14.9

3.3

5.1

6.5

10.4

3.1

5.1

2.2

Price Growth (%)

1.42.1

20.3

New Product Growth (%)

Total Growth (%)

13.6

3.1

2.6

7.9

10.5

3.5

1.9

5.1

8.7

3.31.4

4

8.1

3.31.4

3.4

-21

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

4QFY17

3M-Apr 17

Source: AIOCD, MOSL

19 May 2017

23

March 2017 Results Preview | Sector: Healthcare

GSK Pharma

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

GLXO IN

84.7

232 / 4

3838 / 2600

-3 / -11 / -46

CMP: INR2,738 TP:INR2,700(-1%)

Neutral

Financial Snapshot (INR Billion)

Y/E MARCH

2016 2017E 2018E

Sales

EBITDA

NP

EPS (INR)

EPS Gro. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

D. Yield (%)

62.0

13.7

48.4

2.4

79.3

17.8

67.8

2.6

49.3

21.2

41.9

2.6

27.4

4.5

3.7

44.2

-29.2

200.2

22.1

21.2

28.9

3.3

2.9

34.5

-21.9

154.3

22.4

19.5

32.5

5.4

4.7

55.5

60.9

129.3

43.0

39.1

2019E

36.4

6.7

5.5

64.4

15.9

113.2

56.9

53.0

42.5

24.2

34.3

2.6

n

In 4QFY17, we expect GlaxoSmithKline Pharmaceuticals (GLXO) to

report modest 6.3% YoY increase in revenues to INR7.3b.

n

EBITDA is expected to decline 15% YoY to INR1b, with the margin

contracting 360bp YoY to 14.2%.

n

Decline in EBITDA margin will impact Adj. PAT, which is expected to

decline ~2% YoY to INR881m. Growth and profitability are expected

to gradually improve with volume ramp-up in key NLEM products.

n

We believe GLXO has strong parent support, superior brand

portfolio (competitive advantage), high payout ratio (>100%) and

industry leading return ratios (RoCE of ~50%). However, current

valuations at 49x FY18E is on the higher side of historical P/E.

Maintain Neutral with TP of INR2,700 @ 45x 1HFY19E PER.

Key issues to watch out

Ø

New product introductions in FY17-18E.

Ø

Market performance of products impacted by DPCO 2013.

Quarterly Performance (Consolidated)

Y/E March

(Standalone)

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Other Income

PBT before EO Expense

Tax

Rate (%)

Adjusted PAT

YoY Change (%)

Margins (%)

Extra-Ord Expense

Reported PAT

E: MOSL Estimates

1Q

6,219

-5.1

5,183

1,036

16.7

49

463

1,450

493

34.0

957

-2.7

15.4

24

933

FY16

2Q

7,000

-5.3

5,894

1,105

15.8

53

489

1,541

507

32.9

1,034

-19.6

14.8

78

956

3Q

7,287

12.8

6,260

1,027

14.1

78

334

1,282

450

35.1

832

-8.9

11.4

33

799

4Q

6,861

11.8

5,641

1,220

17.8

67

310

1,463

565

38.6

898

-17.3

13.1

898

1Q

6,852

10.2

6,150

702

10.2

54

441

1,090

386

35.4

705

-26.4

10.3

-18

723

FY17

2Q

7,829

11.8

6,584

1,245

15.9

66

343

1,522

536

35.2

987

-4.5

12.6

-2

988

FY16

3Q

6,893

-5.4

6,543

350

5.1

66

319

603

252

41.8

351

-57.8

5.1

-179

530

4QE

7,292

6.3

6,260

1,033

14.2

74

394

1,353

471

34.8

881

-1.9

12.1

0

881

27,411

N/A

22,895

4,516

16.5

248

1,500

5,769

2,026

35.1

3,742

-29.2

13.7

135

3,607

FY17E

28,866

5.3

25,536

3,330

11.5

259

1,497

4,568

1,644

36.0

2,924

-21.9

10.1

111

2,812

19 May 2017

24

March 2017 Results Preview | Sector: Cement

Grasim Industries

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

GRASIM IN

466.8

498 / 8

1098 / 765

1 / 2 / 19

CMP: INR1067

TP: INR1067 (+0%)

Neutral

Financial Snapshot (INR Billion)

Y/E March

2016 2017E 2018E 2019E

Sales

EBITDA

Adj. PAT

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

EV/Ton (x)

22.1

1.9

12.4

165

15.6

1.7

10.6

149

12.3

1.5

8.5

140

9.6

1.3

9.5

135

365.9

60.2

22.6

48.3

26.8

553.4

9.2

10.0

11.0

375.1

69.9

32.1

68.7

42.1

616.7

11.7

11.9

7.7

400.9

82.1

40.4

86.6

26.2

698.4

13.2

13.9

5.8

444.4

98.4

51.8

111.1

28.2

804.5

14.8

16.2

4.5

n

We expect VSF volumes to decline 4% YoY to 124,406 tons in

4QFY17, while realizations are expected to fall 1% YoY to

INR124,271/ton. Standalone revenues are likely to decline 4% YoY

to INR23.98b.

n

Standalone EBITDA margin is estimated at 20.1% (+2.9pp YoY, -

0.4pp QoQ).

n

EBITDA is estimated to increase 12% YoY to INR4.8b, translating

into PAT of INR2.5b (+20% YoY).

n

The stock trades at 9.6x FY19E consolidated EPS, 9.5x FY19E

EV/EBITDA, and implied cement EV/ton of USD135.

Key issues to watch out for:

Ø

Pick-up in cement demand and pricing thereon.

Ø

Outlook on VSF business, and strategy to utilize upcoming

capacities globally.

Ø

Impact of demonetization on caustic soda demand.

Quarterly Performance

Y/E March

(Standalone)

VSF Volume (ton)

YoY Change (%)

VSF Realization (INR/ton)

YoY Change (%)

QoQ Change (%)

Net Sales

YoY Change (%)

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT after EO Items

Tax

Rate (%)

Reported PAT

Adj. PAT

Margins (%)

YoY Change (%)

E: MOSL Estimates

1Q

102,737

18.9

113,309

-4.8

2.3

19,349

35.9

2,671

13.8

945

409

131

1,447

535

36.9

913

913

4.7

-13.8

FY16

2Q

113,756

12.7

116,708

-1.4

3.0

21,197

34.0

3,354

15.8

1,006

401

2,557

4,504

688

15.3

3,815

3,815

18.0

27.5

3Q

120,700

24.4

126,090

8.0

8.0

23,032

49.1

4,290

18.6

1,233

396

668

3,330

611

18.3

2,719

2,719

11.8

194.9

4Q

130,000

9.7

126,090

13.8

0.0

25,044

47.2

4,298

17.2

1,287

268

635

3,086

1,001

32.4

2,086

2,086

8.3

359.1

1Q

121,000

17.8

128,039

13.0

1.5

23,959

23.8

5,078

21.2

1,104

231

781

4,525

1,317

29.1

3,209

3,209

13.4

251.6

FY17

2Q

123,994

9.0

130,713

12.0

2.1

24,887

17.4

5,301

21.3

1,119

156

3,587

7,612

1,690

22.2

5,923

5,923

23.8

55.2

3Q

122,000

1.1

137,438

9.0

5.1

24,947

8.3

5,116

20.5

1,106

107

865

4,769

1,455

30.5

3,314

3,314

13.3

21.9

4QE

124,406

-4.3

124,271

-1.4

-9.6

23,980

-4.3

4,832

20.1

1,153

201

766

3,953

1,461

37.0

2,492

2,492

10.4

19.5

(INR Million)

FY16

468,000

16.2

121,693

5.0

88,622

41.7

14,613

16.5

4,471

1,474

3,992

12,659

2,835

22.4

9,825

9,825

11.1

81.1

FY17E

491,400

5.0

130,093

6.9

97,772

10.3

20,327

20.8

4,481

694

6,000

21,151

5,922

28.0

15,229

15,229

15.6

55.0

19 May 2017

25