24 July 2017

Motilal Oswal values your support in the

Asiamoney Brokers Poll 2017 for India

Research, Sales and Trading team.

We

request your ballot.

Today’s top research idea

Reliance Industries: Standalone EBITDA/PAT largely in line

v

RIL reported standalone financials in line with expectation. However, GRM of

USD11.9/bbl was higher than our estimate. RIL's GRM has shown strong

resilience towards weak crack spreads, narrowing light-heavy differential and

narrowing Brent -dubai differential due to better yield/crude optimization &

risk management. Petrochem has also shown improvement in margin due to

rise of 69% QoQ delta in PP, 5% QoQ rise in PE delta and almost doubling of

SBR & PBR deltas. Commissioning of ROGC would be done in next 45-60days

while petcoke gasifier is expected to be commissioned fully by Mar-18.

v

RIL announced launch of its Jio phone which is targeting current pool of 530m

feature phone users. Current paid subscriber base has improved to 100m.

Going further, Telecom would be a major driver of stock performance.

Market snapshot

Equities - India

Close

Chg .%

Sensex

32,029

0.4

Nifty-50

9,915

0.4

Nifty-M 100

18,262

-0.2

Equities-Global

Close

Chg .%

S&P 500

2,473

0.0

Nasdaq

6,388

0.0

FTSE 100

7,453

-0.5

DAX

12,240

-1.7

Hang Seng

10,787

-0.6

Nikkei 225

20,100

-0.2

Commodities

Close

Chg .%

Brent (US$/Bbl)

47

-2.7

Gold ($/OZ)

1,248

0.9

Cu (US$/MT)

5,971

0.8

Almn (US$/MT)

1,892

0.0

Currency

Close

Chg .%

USD/INR

64.3

-0.2

USD/EUR

1.2

1.2

USD/JPY

111.8

-0.5

YIELD (%)

Close

1MChg

10 Yrs G-Sec

6.4

0.0

10 Yrs AAA Corp

7.5

0.0

Flows (USD b)

21-Jul

MTD

FIIs

0.0

0.2

DIIs

0.0

0.3

Volumes (INRb)

21-Jul

MTD*

Cash

342

286

F&O

5,736

5,502

Note: YTD is calendar year, *Avg

YTD.%

20.3

21.1

27.2

YTD.%

10.4

18.7

4.3

6.6

14.8

5.2

YTD.%

-14.5

7.6

8.1

11.0

YTD.%

-5.2

10.4

-4.6

YTDchg

-0.1

-0.1

YTD

8.7

3.6

YTD*

285

4,975

Research covered

Cos/Sector

Telecom

Reliance Inds.

Bajaj Auto

United Spirits

Avenue Supermarts

Britannia Industries

Ashok Leyland

MRPL

Divi's Lab

Indian Bank

Dewan Hsg. Fin.

JK Bank

Persistent System

Zensar Tech.

Results Expectation

Key Highlights

RJio’s big-bang VoLTE feature phone launch to expand its target market

Standalone EBITDA/PAT largely in line; GRMs at USD11.9/bbl

Higher RM cost, negative operating leverage results in 8-year low margins

Highway ban impact greater than expected

Revenue, EBITDA and PAT post strong growth

Well positioned in a high-potential market

EBITDA margins disappoint led by increased costs

EBITDA impacted by inventory loss; core GRM at USD7.07/bbl

Regulatory issues impacted revenues

Focus on core operating parameters continues; Asset quality improves

Growth surprises positively; re-rating to continue

Balance sheet clean up phase; PAT positive after 3 quarters

A stern test of our margin recovery thesis

Legacy pressures offset Digital pivot

ACEM | BHIN | DELTA | HDFCB | IHFL | INFOE | LTI | MMFS | TCOM | Z

Piping hot news

ONGC not to make open offer post HPCL acquisition

v

ONGC will not be required to make an open offer to minority shareholders of

HPCL after buying out government’s 51.11 per cent stake as the deal won’t

trigger takeover norms as did the IOC-IBP merger in 2002, a senior

government official said.

Chart of the Day: RJio’s big-bang VoLTE feature phone launch to expand its target market

Exhibit 1:

Revenues & margin to soar

Exhibit 2:

Subscribers & ARPU trends

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 textbox for the detailed news link

1

Debtors have filed over 33% of

insolvency cases

Essar Steel tried to stay insolvency

proceedings against it by moving

the Gujarat High Court. But not all

Indian companies think along

similar lines…

2

Reliance Jio phone: Bharti Airtel, Vodafone, Idea eye unequal

competition; major setback in store

The Volte 4G feature phone launch by Reliance Jio Infocomm will place the

incumbents like Bharti Airtel, Vodafone, and Idea Cellular at a great

disadvantage in the fresh competition which has emerged in the telecom

market. Jio has a fully-4G Volte network and therefore can provide

unlimited voice calls on its feature phones for free. This is not the case

with incumbents, who largely have GSM network which cannot support

unlimited (free) voice calls and also suffers from data capability...

3

After covering the entire country,

the south-west monsoon was

active over the western, central

and eastern parts of the country in

the last few days…

Monsoon in India: Much relief

for nation, rains widespread,

crop sowing satisfactory

4

Colgate can't brush off

Ramdev's Patanjali effect,

admits CEO

In a first, ColgateBSE 0.65 %

Palmolive’s global CEO Ian Cook

named Indian rival Patanjali while

talking to investors about the

need to respond to changing

consumer preferences in India

where the toothpaste giant

recorded its steepest market

share fall in a decade last year…

5

Telcos have red-flagged attempts

by 'some participants' to push for

the scrapping of an inter-network

charge by citing an affidavit filed

by the regulator in the Supreme

Court six years ago …

Telecom companies cite 6 year

old affidavit to red flag request

to scrap IUC

6

Blackstone Group plans to set

up an ARC in India

If Blackstone Group indeed sets up

an ARC, it will be the latest among

foreign private equity investors

who have spotted the opportunity

in stressed assets…

7

PEs build $4-billion war chest

for bad assets

Last week, different Benches of

the National Company Law

Tribunal (NCLT) admitted

bankruptcy proceedings against

Electrosteel Steels, Alok Industries

and Monnet Ispat & Energy. These

were all under the Insolvency and

Bankruptcy Code (IBC) that took

effect last year. PEs have build $4-

billion war chest for bad assets...

2

24 July 2017

Sector Update | 21 July 2017

Telecom

RJio’s big-bang VoLTE feature phone launch to expand its target

market

Device offerings and ARPU-accretive plans indicate limited market

disruption

n

n

n

n

n

In line with its previous strategy, RJio has launched VoLTE feature phone with ARPU-

accretive plan at INR153 (unlimited voice and data). This, in our view, may expand the

market, but challenge the incumbents to match its value offerings. Key positive for

RJio remains its widened target market, from 300m smartphone users to overall 800m

unique subscribers.

We do not expect the launch to cause major industry disruption over the long term.

We believe RJio’s VoLTE device offers limited value proposition for voice-only

subscribers having current average ARPU of INR70-80.

RJio’s feature phone launch, however, may attract entry-level data consumers, given

the wide pricing gap of ~4x between prevailing feature phone and smartphone ARPUs.

Besides this, it may act as a stepping stone for smartphone migration (for 4G usage).

We believe small operators (which hold majority of the second SIM, deal-hunting

users) are at the highest risk of losing subscribers to RJio post the device launch.

Larger operators too may see market share risk until they launch VoLTE network,

potentially in the next 10-12 months.

We have revised RJio’s DCF-based value/share to INR260 from INR110 on the back of

higher subscriber growth, driving 15%/46% revenue/EBITDA revision in FY19E.

Limited price disruption

n

n

n

n

RJio has priced the VoLTE device at INR1,500 (entirely refundable after three

years), which is nearly 50-70% higher than the price of feature phones currently

available in the market. Additionally, there are no bundled offerings.

The dual-SIM handset with 2G capability and three-year lock-in for refund may

pose a challenge for RJio to retain customers for a long period (subscribers may

continue to use services of their primary operator via the dual SIM facility).

Additionally, the VoLTE feature phone is offering unlimited voice and data at

ARPU of INR153, which is double the prevailing feature phone ARPU of INR70-

80, according to industry estimates.

RJio’s VoLTE ARPU floor may not go significantly below its current offerings as it

may increase the proportion of inter-connect costs. This highlights that RJio

continues its previous strategy of ARPU accretion in the industry. We see this as

a major positive for RJio as well as the industry as a whole.

Value proposition high for entry-level data subscribers

n

We believe RJio’s VoLTE device offers limited value proposition for voice-only

subscribers having current average ARPU of INR70-80. Voice services see

relatively mature usage at average 400-500 MOUs, and thus, may not see high

elasticity. Additionally, incumbents can match the voice offerings, given the

current low feature phone ARPU.

24 July 2017

3

n

n

We believe RJio’s data/digital offerings to feature phone users may be a good

value proposition for entry-level data subscribers. Besides this, it may act as a

stepping stone for smartphone migration (for 4G usage). This, in our view, is

because RJio’s INR153 plan allows to bridge the gap of ~4x between prevailing

feature phone and smartphone ARPUs. Thus, it should attract fresh low-hanging

data subscribers.

We do not see the risk of downtrading by smartphone users due to VoLTE

feature phone’s low data handling capability and small screen size. This may

limit data usage despite unlimited data offering, and accelerate faster migration

to smartphone.

RJio’s target market expands with data-enabled VoLTE device

n

n

n

n

We believe the launch of VoLTE device is a key positive for RJio as it expands its

target market from current 300m smartphone users to overall 800m unique

subscribers. This is likely to accelerate its subscriber growth.

Additionally, the INR153 price plan reduces the risk of high IUC-led operating

cost. Even if there is about 90% off-net calling on 400-500 MOUs, the IUC cost

will be restricted to INR50-60/subscriber.

We believe this may also act as a key support to ARPU levels, as any further

ARPU reduction in the quest for higher subscriber market share may become

economically unviable.

We have revised our subscriber estimates by 22%/18% for FY18/19E, leading to

15%/46% increase in FY19E revenue/EBITDA to INR396b/INR64b. We expect

RJio to add ~40m out of the current 89m active subscribers, as per TRAI, led by

VoLTE feature phone consumption.

Smaller operators vulnerable to subscriber share loss

n

n

n

n

We continue to believe that smaller operators (which have a larger proportion

of second-SIM, deal-hunting subscribers) are highly vulnerable to RJio’s price

plans. This is evident from April/May’ 17 subscriber data, which highlighted

active subscriber gains for Bharti, but significantly higher subscriber churn for

smaller operators.

For incumbents, particularly Bharti, the launch of feature phone by RJio may

prolong the risk of subscriber retention over the next 10-12 months, as it may

not have any value proposition for feature phone subscribers looking for low-

ARPU data consumption.

Our channel checks indicate that VoLTE network launch may accelerate among

large operators, but this may take about 10-12 months (this poses a risk of

market share dilution).

We continue preferring Bharti, given its strong network position, which should

allow earnings accretion as the current hyper-competitive market settles. Idea

remains vulnerable in the near term, given its weak competitive footing.

However, over a three-year period, its improved competitive position and

synergy gains should support the stock price.

24 July 2017

4

Update | 21 July 2017

Telecom

Vodafone’s revenue growth stabilizes

Unlimited usage plans drive high volume growth at stable ARPUs

n

Wireless revenue stabilizes after two quarters of decline:

Vodafone India’s

wireless revenue grew 1% QoQ (declined 15% YoY) to INR89b. Revenue

stabilized after last two quarters of 6-7% QoQ decline. ARPU dropped 1% QoQ

(and 20% YoY) to INR141. Launch of commercial offerings by RJio has arrested

the revenue decline, as subscriber usage is recovering. This has offset the ARPU

decline seen on the back of unlimited usage fixed-price plans.

Voice revenue stabilizes:

Voice revenue stabilized, with a 1% QoQ growth to

INR67.6b, led by 1.4% subscriber growth to 212m, partly offset by voice ARPU

decline of 1% to INR107.

Data volumes record significant leap:

Data revenue grew just 0.4% QoQ to

INR21.3b, 24% of total revenue. Data volumes grew 84% QoQ, steered by

unlimited usage plans. The monthly data usage per customer surged 78% QoQ

to 1.1GB, but this was offset by 45% QoQ decline in data price to INR90/GB.

Expect sequentially stable revenue for Bharti and Idea in 1QFY18:

Vodafone’s

sequentially steady revenue indicates that incumbent telcos like Bharti and Idea

should also see revenue stabilization in 1QFY18, on the back of voice and data

volume recovery, partly offset by the decline in ARPUs due to unlimited

offerings.

Capex to be postponed to FY19:

The Vodafone-Idea merger is expected to

conclude by FY18. Until then, we expect both Vodafone and Idea to soften capex

spending. Our channel checks indicate that post-merger, both network

restructuring and fresh capex will accelerate, as complementary networks of

both the companies will be synergized.

Expect market share dilution until the merger:

We continue to believe that

both Vodafone and Idea operate on weak competitive footing. Until the merger,

it might be challenging for them to retain their market share. However, beyond

FY19, better data network should strengthen their competitive position and

arrest market share dilution.

FY15

2Q

97

-0.6

187

-3.1

174

2.3

80

-3.7

FY16

2Q

99

-2.2

178

-3.2

188

1.5

76

-3.9

FY17

2Q

103

-2.3

171

-3.1

201

0.7

76

-3.4

FY18

1Q

89

0.7

141

-1.1

212

1.4

68

0.8

n

n

n

n

n

Exhibit 1:

Vodafone: Key Performance Indicators

Particulars

India Wireless (INR b)

Growth (QoQ)

ARPU (INR)

Growth (QoQ)

Subscriber base (m)

growth

Voice revenues (INR b)

growth (QoQ)

1Q

97

3.1

193

0.5

170

2

83

1.2

3Q

100

3.5

189

1.1

179

2.8

82

2.3

4Q

100

0.2

184

-2.7

184

2.9

81

-0.6

1Q

102

1.5

184

-0.2

185

0.9

79

-2.3

3Q

100

0.6

175

-1.6

194

2.9

76

0

4Q

104

3.9

177

1.1

198

2.2

79

3.8

1Q

105

1

176

-0.3

199

0.7

79

-0.5

3Q

96

-6.3

158

-7.5

205

2

72

-5

4Q

88

-8

142

-9.9

209

2.1

67

-6.9

Source: MOSL, Company

24 July 2017

5

Reliance Industries

BSE SENSEX

32,029

S&P CNX

9,915

21 July 2017

1QFY18 Results Update | Sector: Oil & Gas

CMP: INR1,586

TP: INR1,499 (-5%)

Neutral

Motilal Oswal values your support in

the Asiamoney Brokers Poll 2017 for

India Research, Sales and Trading

team. We

request your ballot.

Standalone EBITDA/PAT largely in line; GRMs at USD11.9/bbl

Reliance Industries’ (RIL) 1QFY18 standalone EBITDA rose 7% YoY (+3% QoQ) to INR116b,

largely in line with our estimate of INR118.5b. Reported PAT rose 9% YoY (flat QoQ) to

INR81.9b, in line with our estimate of INR82.9b. Reported GRM stood at USD11.9/bbl

(est. of USD10) and refining throughput at 17.3mmt (est. of 17.5mmt).

§

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

RIL IN

3,240

4,589/ 68.8

1592 / 932

10/36/42

11542

55.0

§

§

Financials & Valuations (INR b)

Y/E March

2017 2018E

Net Sales

2,420 3,283

EBITDA

433

532

Net Profit

314

376

Adj. EPS (INR)

96.7 115.5

EPS Gr. (%)

14.6

19.5

BV/Sh. (INR)

974 1,083

RoE (%)

11.6

12.3

RoCE (%)

9.1

10.4

Payout (%)

13.3

14.4

Valuations

P/E (x)

16.4

13.7

P/BV (x)

1.6

1.5

EV/EBITDA (x)

14.2

10.0

EV/Sales (x)

2.5

1.6

2019E

3,774

573

417

128.1

10.9

1,204

12.3

10.9

14.4

12.4

1.3

8.3

1.3

§

§

§

Estimate change

TP change

Rating change

Standalone - Quarterly Earning Model

Y/E March

Net Sales

YoY Cha nge (%)

Tota l Expendi ture

EBITDA

Ma rgi ns (%)

Depreci a ti on

Interes t

Other Income

PBT

Ta x

Ra te (%)

Adj PAT

YoY Cha nge (%)

Ma rgi ns (%)

Key Assumptions

Refi ni ng throughput (mmt)

GRM (USD/bbl )

Petchem EBITDA/tonne (USD/MT)

Petchem vol umes (mmt)

E: MOSL Es ti ma tes

§

EBITDA in line:

Refining EBIT stood at INR64b (-3% YoY, +2% QoQ). 1QFY18 GRM

stood at USD11.9/bbl v/s USD11.5/bbl in 1QFY17 and 4QFY17. GRM was much

higher, despite weakening in gasoline/diesel cracks and lower light-heavy and

Brent-Dubai spreads, due to better yield/crude optimization and risk management.

Petchem EBIT was INR40b (+37% YoY, +15% QoQ), with margin of 16.5% coming in

ahead of 13.7% in 4QFY17, primarily due to strengthening PP and PE deltas.

Expect no further delays in core projects:

Management guided for full

commissioning of the ROGC project in another 45-60 days. No change in

commissioning schedule of petcoke gasifier; expecting by 4QFY18.

Domestic E&P continues to shrink:

E&P EBIT stood at -INR2.3b v/s INR480m in

1QFY17 and -INR780m in 4QFY17. KG-D6 gas production stood at 6.4mmscmd (-

27% YoY, -14% QoQ). Shale gas production was down to 34.7bcfe (-22% YoY,-11%

QoQ) due to temporary shut-in at several wells.

Jio capex reaches INR2t:

Capex to date has reached INR2t, with INR210b spent in

1QFY18 and expected INR20b in next 3-4 quarters. Jio’s paid subscribers reached

100m. The company is expected to report RJio financials from 2QFY18.

1QFY18 capex at INR250b:

Consol. gross debt was INR2t with cash of INR721b.

Net debt stood at INR2.5t, including suppliers’ credit and deferred spectrum

liabilities.

Raise estimates:

For the last few quarters, RIL’s GRM has shown great resilience to

(a) weakness in product crack spreads, (b) narrowing of light-heavy and Brent-

Dubai differentials. The same has been possible through aggressive risk

management, crude and yield optimization. On account of this resilience, we raise

our GRM estimate to USD11.2/11.4/bbl v/s USD10.2/10.4/bbl earlier for FY18/19.

Valuation view:

On FY19E basis, the stock trades at 12.4x adj. SA EPS of INR128

and EV/EBITDA of 8.3x. Our SOTP-based fair value stands at INR1,499/share.

Maintain

Neutral.

FY17

2Q

3Q

595,770 618,060

-2.0

9.3

490,220 512,020

105,550 106,040

17.7

17.2

20,290 20,770

6,330

9,310

22,800 30,250

101,730 106,210

24,690 25,990

24

24

77,040 80,220

17.4

11.1

12.9

13.0

18.0

10.1

314.4

2.1

17.8

10.8

329.4

2.0

4Q

671,460

34.4

558,660

112,800

16.8

24,090

2,350

13,710

100,070

18,560

19

81,510

11.4

12.1

17.5

11.5

313.7

2.1

1Q

642,170

20.0

526,280

115,890

18.0

21,580

7,880

19,180

105,610

23,650

22

81,960

8.6

12.8

17.3

11.9

349.4

2.2

FY18E

2QE

3QE

861,603

886,224

44.6

43.4

724,198

745,153

137,405

141,071

15.9

15.9

27,456

27,456

9,355

9,355

25,685

25,685

126,280

129,946

27,782

28,588

22

22

98,498

101,358

27.9

26.3

11.4

11.4

17.5

11.0

300.0

2.9

17.5

11.0

300.0

3.0

FY17

4QE

892,829

33.0

754,771

138,059

15.5

27,456

9,355

25,685

126,933

27,925

22

99,008

21.5

11.1

17.5

11.0

280.0

3.0

2,420,250

3.8

1,987,690

432,560

17.9

84,650

27,230

87,090

407,770

93,520

23

314,250

14.6

13.0

70.1

11.0

315.3

8.1

(INR Million)

FY18E 1QFY18 Var v/s

Est. Est. (%)

3,282,826 574,944

11.7

35.6

7.5

2,750,401 456,421

15.3

532,425 118,523

-2.2

16.2

20.6

103,948 27,456

-21.4

35,944

9,355

-15.8

96,235 24,600

-22.0

488,769 106,313

-0.7

107,945 23,389

1.1

22

22

380,824 82,924

-1.2

21.2

9.9

11.6

14.4

69.8

11.2

307.4

11.1

17.5

10.0

350.0

2.5

-1.1

18.7

-0.2

-10.9

1Q

534,960

-18.7

426,790

108,170

20.2

19,500

9,240

20,330

99,760

24,280

24

75,480

19.5

14.1

16.8

11.5

303.8

1.9

24 July 2017

6

21 July 2017

1QFY18 Results Update | Sector: Automobiles

Bajaj Auto

Buy

BSE SENSEX

32,029

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

9,915

BJAUT IN

289

814.6 / 12.7

3122 / 2510

-2/-14/-14

806

50.7

CMP: INR2,819

TP: INR3,281(+17%)

n

Higher RM cost, negative operating leverage results in 8-year low margins

Volume decline drags revenue; 6% YoY realization growth a surprise:

Net

sales declined 5.3% YoY (grew 11.1% QoQ) to INR54.4b (our estimate:

INR52.3b), as volumes declined 10.7% YoY (grew 12.8% QoQ). In the domestic

market, lower channel inventory and purchase postponement by customers

due to GST impacted wholesale numbers. However, an unexpected ~6% YoY

increase (1.5% QoQ decline) in realization to INR61,258/unit (our estimate:

+2%) aided revenue. Export revenue grew 20.5% YoY to INR24.8b.

EBITDA margin at multi-quarter low on higher RM, operating deleverage:

EBITDA fell 20% YoY to INR9.4b (our estimate: ~INR10b), implying EBITDA

margin of 17.2% (-320bp YoY, -130bp QoQ; our estimate: 19.1%). This was due

to higher RM cost (+280bp YoY, +220bp QoQ) and operating deleverage on

weak domestic volumes. However, adjusted PAT declined just 3.2% to INR9.5b

(our estimate: INR8.8b) due to higher other income. It reported exceptional

cost of INR320m related to GST-related compensation to dealers.

Management commentary:

(a)

Maintained motorcycle industry growth

outlook at 7% in FY18; BJAUT to grow at 10% from July 2017; guided FY18

exports at 1.6m units, (b) Guided EBITDA margin of 19.5-20% v/s 18.3% in

1QFY18, (c) Took price hikes of INR500-1,000/unit in 2W and INR1,500-

2,000/unit in 3W in domestic markets towards the end of May, and indicated a

price hike in exports from July, (d) Aiming at electric 3W launch in two years,

(e) In final stages of announcing a global alliance in 2Ws.

Valuation and view:

We have lowered our EPS estimates by 3-4% for FY18/19

on lower margin assumptions. Valuations at 20.5x/17.2x FY18E/19E standalone

EPS are attractive, considering worst of volumes and margins are behind us.

We value BJAUT at 18x FY19E EPS and add INR214/share for its KTM stake to

arrive at a TP of INR3,281. Maintain

Buy.

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

218

241

271

n

Net Sales

44.2

44.8

53.0

EBITDA

38.3

39.7

47.3

PAT

132

137

164

EPS (INR)

-2.6

3.7

19.2

Gr. (%)

589

648

713

BV/Sh (INR)

25.3

22.2

24.0

RoE (%)

24.6

21.5

23.3

RoCE (%)

21.3

20.5

17.2

n

P/E (x)

4.8

4.4

4.0

P/BV (x)

Estimate change

TP change

Rating change

n

24 July 2017

7

RESULTS

FLASH

20 July 2017

Q1FY18 Results Update | Sector: Consumer

United Spirits

Neutral

BSE SENSEX

32,029

S&P CNX

9,915

CMP: INR2709

n

n

We will revisit our estimates

post earnings call/management

interaction.

Highway ban impact greater than expected; Prestige and Above volumes

decline 9.7% YoY, overall volumes down 18.9%

Conference Call Details

Date:

24 July 2017

Time:

10.00 AM IST

Dial-in details:

+91 22 3960 0651

th

n

n

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Sales

85.5

93.4

EBITDA

9.8

11.8

PAT

3.9

5.4

EPS (INR)

26.7

37.4

EPS Gr. (%)

87.1

39.7

BV/Sh.(INR)

133.4

193.7

RoE (%)

21.3

19.3

RoCE (%)

11.8

13.8

Payout (%)

0.0

0.0

Valuations

P/E (x)

94.1

67.3

P/BV (x)

18.9

13.0

EV/EBITDA (x) 37.0

30.2

Div. Yield (%)

0.0

0.0

2019E

107.8

14.4

7.5

51.8

38.7

263.0

19.7

15.7

0.0

n

n

n

n

48.5

n

9.6

n

24.4

0.0

n

n

n

UNSP posted standalone net sales decline of 12.7% YoY (est.flat sales) to INR

17.8b with 18.9% decline in volumes YoY (est.9% decline).

Management attributed sales decline to highway ban and one off impact of

operating model changes. The management expects the impact of highway ban

in 2QFY18 and 3QFY18 as well, albeit to a lesser extent compared to 1QFY18.

Gross sales declined 0.6% YoY to INR58.2b with excise duty as a percentage of

sales up 420bps YoY to 69.4%. There has been increased tax and excise levies in

Maharashtra and West Bengal.

Overall 1QFY18 volumes declined 18.9% YoY to 18.0m cases - Popular Segment

declined 25.6% YoY to 9.6m cases while Prestige and above segment volumes

declined 9.7% YoY to 8.4m cases.

In 1QFY18, Net sales of Prestige and above portfolio declined 8% YoY while

Popular segment sales declined by 20% YoY in this period.

Gross margin improved 270bp YoY to 46.0% due to improved mix.

Adspends were up 90bp YoY to 9.1% of sales.

EBITDA margin however declined by 170 bps YoY to 8.8% (est9.0%) despite

sharp gross margin improvement. Staff costs increased 50 bp YoY and other

expenses increased by 290bp YoY to 18.7% of sales. EBITDA margin decline was

because of sharp sales decline due to highway ban even as the company

continued to invest in the business.

EBITDA declined 26.2% YoY to INR1.57b (est. INR 1.82b).

Interest costs declined 31.7% YoY to INR703m led by debt reduction and

favourable rates.

PBT was INR859m versus expectation of INR 1.3b. Other income was

significantly lower than expectations at INR309m vs expectations of INR 691m

Tax rates were lower than expected at 25.8% versus expectation of 33%.

Adjusted PAT declined 23.4% YoY to INR637m (est. 13.1% growth to INR869m).

24 July 2017

8

RESULTS

FLASH

Avenue Supermarts

TP: INR804(-12%)

Neutral

20 July 2017

Q1FY18 Results Update | Sector: Retail

BSE SENSEX

32,029

S&P CNX

9,915

CMP: INR914

n

n

Revenue, EBITDA and PAT post strong growth; in-line with estimates;

But

margins declined 50bp led by higher raw material costs

DMART’s 1QFY18 revenue grew 35.7% YoY to INR35.9b as against INR26.5b in

1QFY17, in-line with our estimate of INR35.6b.

EBITDA margin contracted 50bp YoY to 8.4% in 1QFY18 from 8.9% in 1QFY17,

in-line with our estimate of 8.4%, however the transition into GST regime

witnessed minimal migration challenges.

Accordingly, adj. PAT grew from INR1,184m in 1QFY17 to INR1,748m (est.

INR1,775m) in 1QFY18, growing 47.6%. The sharp increase in PAT was led by

higher other income which grew from INR49m in 1QFY17 to INR228m in

1QFY18.

Valuation and view:

We will revisit our estimates post the discussion with

management. Outlook on growth, especially same store sales growth, would be

keenly watched. Based on current estimates, it trades at 12.8/17.9x FY18/19E

EPS. Maintain

Neutral.

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Net Sales

119.0

163.1

EBITDA

9.8

13.7

NP

4.8

8.0

EPS (INR)

7.7

12.8

EPS Gr. (%)

34.5

67.2

BV/Sh. (INR)

61.6

70.5

RoE (%)

17.9

19.4

RoCE (%)

14.2

16.7

119.1

71.2

P/E (x)

14.8

13.0

P/BV (x)

2019E

217.9

n

18.7

11.2

17.9

39.3

n

83.0

23.3

23.4

51.1

11.0

Quarterly Performance

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO expense

PBT

Tax

Rate (%)

MI & Profit/Loss of Asso. Cos.

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

E: MOSL Estimates

1Q

26,524

-

24,176

2,348

8.9

288

281

49

1,828

1,828

643

35.2

0

1,184

1,184

-

4.5

FY17

2Q

FY18

FY17

FY18E

(INR Million)

FY18E

Var

(%)

1

3Q

4Q

1Q

2QE

3QE

4QE

1QE

33,394 31,106 35,981 39,118 45,749 42,616 118,977 163,464 35,650

-

40.6

35.7

-

37.0

37.0

38.6

37.4

30,511 29,029 32,949 35,464 41,678 39,633 109,165 149,723 32,641

2,883 2,077 3,032 3,654 4,072 2,983

9,812 13,741 3,009

8.6

6.7

8.4

9.3

8.9

7.0

8.2

8.4

8.4

314

354

337

380

410

450

1,278

1,577

365

310

308

243

0

0

0

1,220

243

0

85

99

228

46

46

46

286

367

46

2,344

2,344

825

35.2

0

1,519

1,519

-

4.5

1,515

1,515

548

36.2

0

967

967

47.4

3.1

2,680

2,680

932

34.8

0

1,748

1,748

47.6

4.9

3,320

3,320

1,129

34.0

0

2,191

2,191

5.6

3,708

3,708

1,261

34.0

0

2,447

2,447

61.1

5.3

2,579

2,579

877

34.0

0

1,702

1,702

76.1

4.0

7,600

7,600

2,683

35.3

129

4,788

4,788

49.5

4.0

12,287

12,287

4,199

34.2

0

8,088

8,088

68.9

4.9

2,690

2,690

915

34.0

0

1,775

1,775

5.0

1

0

0

-2

-2

24 July 2017

9

21 July 2017

Annual Report Update

| Sector:

Consumer

Britannia

Buy

BSE SENSEX

32,029

S&P CNX

9,915

CMP: INR3,832

TP: INR4,450 (+16%)

Well positioned in a high-potential market

Scouting for more growth opportunities to stay ahead of competition

Key takeaways from Britannia’s (BRIT) FY17 annual report:

n

Considerable investments toward R&D in recent years leading to the

launch of a slew of products

n

Exhibited massive improvements in distribution, particularly direct

distribution

n

Ambitious expansion plans signify management’s confidence on long-term

growth prospects, despite near-term challenges

n

Massive growth opportunity in each of its key product categories, such as

biscuits, cakes, rusks and other adjacencies

n

Company sees potential for joint ventures and distribution tie-ups

n

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1,6,12 Rel. Perf. (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val ( INRm)

Free float (%)

BRIT IN

120.0

3841/2776

5/6/20

459.5

6.8

569

49.3

Financials Snapshot (INR b)

Y/E Dec

2017 2018E

Net Sales

89.6 101.5

EBITDA

11.9

13.8

PAT

8.8

10.3

EPS (INR)

73.7

85.4

Gr. (%)

7.3

16.0

BV/Sh (INR)

224.7 272.4

RoE (%)

36.9

34.4

RoCE (%)

31.1

28.7

P/E (x)

52.0

44.9

P/BV (x)

17.1

14.1

Shareholding pattern (%)

As On

Promoter

DII

FII

Others

Mar-17

50.7

11.7

16.0

21.6

Dec-16

50.7

11.0

17.4

20.9

2019E

118.7

17.2

12.7

105.5

23.5

335.0

34.7

29.5

36.3

11.4

n

Mar-16

50.7

20.8

6.5

22.0

FII Includes depository receipts

Existing categories offer high-growth potential:

(1)

Biscuits:

Low per capita

consumption in India and premiumization are likely to present attractive

growth opportunities, in our view. This is expected to be driven by the

company’s efforts on R&D, distribution expansion, understanding of

consumer behavior, and large-scale capacity expansion. (2)

Cakes:

This

segment is dominated by unorganized players. Thus, BRIT’s capabilities on

innovation/achieving longer shelf life for its products without compromising

on quality place it well to take share away from unorganized names,

especially post GST implementation. (3)

Rusks:

The company is well

positioned to eat into the share of unorganized players in this segment too,

driven by its efforts on innovation, market leadership and manufacturing

scale. We note that both the cakes and rusks categories can also leverage

significantly on BRIT’s wide distribution reach of 4.7m outlets (including

1.55m outlets direct reach) in the biscuits segment.

Focus on R&D, distribution/manufacturing expansion to pay off:

(1) BRIT’s

investment in R&D (including a new R&D center commissioned in FY17), is

paying off handsomely both in terms of new product launches and potential

entry into adjacencies. (2) Distribution expansion has been massive, with its

direct reach doubling over the past three years (overall reach of 4.7m

outlets at end-FY17, including 0.7m outlets added over the past year). (3)

BRIT added eight new lines at five of its plants across south and west India in

FY17, with more capacities being set up in FY18 at Guwahati (Assam),

Ranjangaon (Maharashtra) and Mundra SEZ. This is indicative of

management’s confidence on the long-term growth prospects. To grow its

business, the company incurred capex of INR2.6b in FY17, which is likely to

increase to INR3.5b in FY18.

24 July 2017

10

Stock Performance (1-year)

n

n

n

Working capital increase, higher other assets hurt operating cash flows:

Compared to consolidated sales growth of 13.3% in FY17, inventory increase

stood at 50% (+3 days to 22 days) and other assets growth at 57% to INR14b.

Higher inventory can be partly attributed to import of wheat to take advantage

of cheaper global rates and a sharp reduction in import duty on wheat by the

Indian government last year. Other assets increased due to (i) advances paid on

such contracts and (2) rise in inter-corporate deposits of Wadia Group company,

Bombay Dyeing (offers attractive coupon of 12%, but is not part of best

practices, especially considering the increase in ICD amounting to INR2.5b to

this entity).

Other points worth considering:

(1) Sale of all the shares owned so far by CEO

Varun Berry, (2) absence of disclosure of segment-wise sales break-up in the

FY17 annual report, unlike in the previous years, (3) company no more providing

data on material cost break-up for key commodities and (4) company no longer

sharing data on ad expenses in the quarterly numbers. We note that it is not

mandatory to provide sales/material cost break-up as per regulatory norms, but

best practices demand maintenance of previous high disclosure standards. Also,

the annual report highlights as much as 14% YoY reduction in ad spend in FY17.

This in itself is not a worry as the reduction was largely due to conservatism on

adspend in 2HFY17 following demonetization. However, it means that out of

INR1.55b costs savings YoY in FY17, INR611m (~40%) came from

advertisements, which is unlikely to sustain, in our view. Encouragingly, the

company’s targeted costs saving in FY18 is 40% higher than FY17 levels without

much help from adspend reduction.

Valuation and view:

We are enthused by investments in R&D, distribution

expansion and capacity increase, all of which are essential building blocks for

strong revenue growth. Targeted entry into adjacencies and a slew of potential

strategic tie-ups (leveraging on its enviable and consistently improving

distribution reach, R&D capabilities and marketing skills) present another leg of

growth. There are no changes to our forecasts. We maintain

Buy

with a target

price of INR4,450 (40x June 2019E EPS, 15% premium to three-year average).

24 July 2017

11

RESULTS

FLASH

Ashok Leyland

TP: INR122

BUY

24 July 2017

Results Flash | Sector: Automobiles

BSE SENSEX

29,859

S&P CNX

9,285

CMP: INR86

n

We will revisit our estimates

post earnings call/management

interaction.

EBITDA margins disappoint led by increased costs

Revenues were in line at INR42.4b (est. of INR42.8b), -0.5% YoY (-36% QoQ).

n

Growth in revenues was led by realization growth of 8.9% YoY (+7% QoQ) to

INR1.49b, led by price hikes.

n

However, the benefit of higher realizations was offset by volume decline of

~8.6% YoY (-40% QoQ) to 28.45k units due to pre-buying ahead of BS-IV

emission norms implementation (effective 1 April), postponement in purchase

ahead of GST implementation, and limited availability of BS-IV components

from vendors.

n

AL’s market share increased by 360bp YoY to 34.7% in the domestic M&HCV

segment, and by 96bp YoY to 8.1% in the LCV segment (as of 1QFY18). AL

indicated that the success of iEGR technology for BS-IV vehicles is one of the

drivers of market share gains.

n

EBITDA margin contracted 410bp YoY (-380bp QoQ) to 7.2%, led by an increase

in staff cost (+192bp YoY), RM costs (+76bp YoY) and other operating expenses

(+142bp YoY).

n

AL reported aggregate exceptional loss of ~INR126m.

n

Higher tax led to adj. PAT decline of 59% YoY (-72% QoQ) to ~INR1.2b (est. of

INR2.1b).

Key questions for the management

n

Update on CV demand post GST

n

RM cost guidance and possibility of price hikes to mitigate the impact of the same

n

Update on Hinduja Foundries and its profitability

Valuation and view:

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

trades at 18.7x/14.5x FY18/19E EPS. We have a

Buy

rating with a TP of ~INR122.

FY17

2Q

3Q

33,446 32,838

-10.5

6.2

1,382

1,375

4.0

3.4

46,224 45,163

-6.9

9.8

67.8

69.4

8.0

8.7

12.6

11.8

40,859 40,621

5,365

4,542

11.6

10.1

316

258

339

453

4,146

2,396

0

0

4,146

2,396

1,202

778

29.0

32.5

2,944

1,618

14

-26

FY18

2Q

3Q

40,246 42,591

20.3

29.7

1,480

1,488

7.1

8.2

59,578 63,364

28.9

40.3

70.5

70.6

7.1

7.1

11.0

11.7

52,802 56,666

6,776

6,699

11.4

10.6

425

475

300

225

5,476

5,509

0

0

5,476

5,509

1,533

1,542

28.0

28.0

3,943

3,966

34

145

FY17

FY18E

4Q

57,483 145,066 168,804

20.7

3.4

16.4

1,531

1,380

1,501

10.2

2.3

8.7

88,001 200,187 253,321

33.0

5.7

26.5

71.3

69.7

70.6

5.0

7.6

6.9

11.1

11.6

11.6

76,868 178,161 225,653

11,133 22,025 27,669

12.7

11.0

10.9

546

1,363

1,830

313

1,554

1,204

9,634 16,809 22,376

0

3,508

0

9,634 13,301 22,376

2,697

1,070

6,265

-

8.0

28.0

6,744 13,447 16,111

58

11.6

19.8

FY17

1QE

28,484

-8.6

1,501

9.8

42,755

0.4

69.8

9.2

11.0

38,485

4,269

10.0

375

375

2,869

0

2,869

803

28.0

2,066

-29.0

Var.

(%)

0.0

-0.9

-0.9

-40bp

110bp

200bp

-28.3

-280bp

2.4

-2.3

-39.7

-44.1

Conference Call Details

Date:

24 July 2017

Time:

10.00 AM IST

Dial-in details:

186030131313

th

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

200.2 253.3

EBITDA

22.0

27.7

NP

13.4

16.1

EPS (INR)

4.6

5.5

EPS Gr. (%)

8.1

19.8

BV/Sh. (INR)

20.9

24.0

RoE (%)

23.3

24.5

RoCE (%)

21.8

21.6

P/E (x)

22.4

18.7

P/BV (x)

4.9

4.3

2019E

288.8

32.4

20.8

7.1

29.1

28.4

27.1

24.7

14.5

3.6

Quarterly Performance

(INR Million)

Total Volumes (nos)

Growth %

Realizations (INR '000)

% change

Net operating revenues

Change (%)

RM/sales %

Staff/sales %

Other exp/sales %

Total Cost

EBITDA

EBITDA Margins(%)

Other Income

Interest

PBT before EO Item

EO Exp/(Inc)

PBT

Tax

Effective Tax Rate (%)

Adj. PAT

Change (%)

1Q

31,165

10.7

1,367

-0.9

42,588

9.7

68.7

8.4

11.6

37,768

4,820

11.3

385

338

4,154

0

4,154

1,246

30.0

2,908

130

4Q

47,617

8.5

1,390

2.1

66,179

10.8

71.9

6.2

10.8

58,880

7,299

11.0

404

423

6,114

3,508

2,605

-2,157

-

4,279

-16

1Q

28,484

-8.6

1,488

8.9

42,378

-0.5

69.4

10.3

13.0

39,317

3,061

7.2

384

366

1,730

126

1,605

492

30.7

1,199

-59

-41.9

E: MOSL Estimates

24 July 2017

12

21 July 2017

1QFY18 Results Update | Sector: Oil & Gas

MRPL

BSE SENSEX

32,029

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

MRPL IN

EBITDA impacted by inventory loss; core GRM at USD7.07/bbl

1,753

n

MRPL’s 1QFY18 EBITDA of INR5.8b (excl. forex gain of INR315m; -52% YoY, -

236.8 / 3.5

63% QoQ) came in significantly below our estimate of INR7.5b due to

143 / 74

inventory loss of INR4.4b (USD2.33/bbl) and higher opex (USD3.3/bb) due to

-3/7/43

shut down. While interest cost came in at INR1.1b (est. of INR1.2b, -26%

186

11.4

YoY, -12% QoQ), depreciation stood at INR1.6b (est. INR1.9b; -4% YoY/QoQ).

2019E

488.2

40.3

20.6

11.7

n

24.4

73.7

17.0

13.6

10.8

1.7

n

S&P CNX

9,915

CMP: INR127

TP: INR113(-11%)

Downgrade to Sell

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Net Sales

432.1

433.3

EBITDA

47.1

35.3

PAT

25.9

16.5

EPS (INR)

14.8

9.4

Gr. (%)

95.1 (36.2)

BV/Sh (INR)

57.5

64.7

RoE (%)

31.4

15.5

RoCE (%)

19.6

11.6

P/E (x)

8.6

13.4

P/BV (x)

2.2

2.0

Estimate change

TP change

Rating change

n

Other income of INR204m (-91% YoY, -45% QoQ) missed our estimate of

INR584m. Effective tax rate stood at 29.5% v/s 33% in 4QFY17 and 37% in

1QFY17. Adj. PAT of INR2.3b (-67% YoY, -73% QoQ) was significantly below

our estimate of INR3.3b.

Core GRM at USD7.07/bbl:

Including the inventory impact, the company

reported GRM of USD4.74/bbl (est. of USD5.5) in 1QFY18 v/s USD5.29/bbl in

the year-ago period. Core GRM stood at USD7.07/bbl v/s benchmark

Singapore GRM of USD6.4/bbl. Inventory loss stood at USD2.33/bbl in

1QFY18 v/s gain of USD4.72/bbl in 1QFY17.

Crude throughput stood at 3.98mmt

(-6% YoY, -3% QoQ), implying 106%

utilization in the quarter, as against throughput of 3.66mmt (98% utilization)

in 1QFY17.

Valuation and view:

We believe that the refinery should be able to report

GRM of USD6.2/6.5/bbl in FY18/19. The stock trades at 10.8x FY19E EPS of

INR11.7 and EV of 5.8x FY19E EBITDA. We value the stock at EV of 5.5x

FY19E EBITDA to arrive at a fair value of INR97/share for the standalone

refinery and add INR16 for OMPL. Our fair value stands at INR113. Peak

valuations leave no room for upside, in our view.

Downgrade to Sell.

FY18

2QE

3QE

4QE

109,409 110,241 111,074

9.7

-3.9

-16.7

9,737

9,809

9,881

8.9

8.9

8.9

1,896

1,896

1,896

1,263

1,263

1,263

579

579

579

7,157

7,228

7,300

0

0

0

7,157

7,228

7,300

2,385

2,409

2,433

33

33

33

4,771

4,819

4,867

4,771

4,819

4,867

14.7

-14.9

-44.1

4.4

4.4

4.4

4.0

6.4

4.0

6.4

4.0

6.4

FY17

432,079

9.0

47,076

10.9

6,788

5,188

4,232

39,332

-15,973

55,305

18,877

34

36,428

25,907

98.3

6.0

16.3

6.0

(INR Million)

FY18E

FY18 Var. vs

1QE

est

433,349 106,126

-3%

0.3

25.9

35,253

7,562 -23%

8.1

7.1

7,325

1,896 -14%

4,864

1,263 -15%

1,941

584 -65%

25,005

4,987 -33%

0

0

25,005

4,987 -33%

8,207

1,662 -41%

33

33

16,798

3,325 -30%

16,798

3,325 -30%

-35.2

-53.7

3.9

3.1

16.0

6.6

4.0

5.5

-1%

27%

Standalone - Quarterly earning model

Y/E March

Net Sales

YoY Change (%)

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

Reported PAT

Adj. PAT

YoY Change (%)

Margins (%)

Key Assumptions

Refining throughput (mmt)

Core GRM (USD/bbl)

E: MOSL Estimates

1Q

84,288

-25.5

12,206

14.5

1,703

1,459

2,295

11,340

0

11,340

4,155

37

7,185

7,185

36.0

8.5

3.7

5.3

FY17

2Q

3Q

4Q

99,690 114,753 133,349

-2.5

30.1

43.5

7,855 11,476 15,540

7.9

10.0

11.7

1,681

1,702

1,703

1,115

1,395

1,219

926

636

375

5,984

9,015 12,993

0

0 -15,973

5,984

9,015 28,966

1,826

3,355

9,542

31

37

33

4,159

5,660 19,424

4,159

5,660

8,713

-146.5

91.8

-35.5

4.2

4.9

6.5

4.0

5.5

4.4

5.1

4.2

8.1

1Q

102,624

21.8

5,827

5.7

1,637

1,074

204

3,320

0

3,320

980

30

2,340

2,340

-67.4

2.3

4.0

7.1

24 July 2017

13

24 July 2017

1QFY18 Results Update | Sector: Healthcare

Divi’s Lab

Neutral

BSE SENSEX

32,029

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

9,915

DIVI IN

Regulatory issues impacted revenues

265.5

n

Revenues declined 18%YoY (~16% miss), while EBITDA of INR2.4b was 23%

191.4 / 3.0

below our estimate. EBITDA margin contracted ~1010bpYoY to 29.8% due

1,380 / 533

lower turnover and remediation expense related to import alert at unit II.

10/-18/-55

PAT of INR1.8b (-42%YoY) was ~25% below our estimate. Sales was

1162.0

47.9

impacted by INR1.5b during the quarter due to time required for setting up

CMP: INR721

TP: INR680 (-6%)

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

40.5

37.4

EBITDA

14.3

12.1

PAT

10.5

8.9

EPS (INR)

39.7

33.6

Gr. (%)

-5.3

-15.4

BV/Sh (INR)

176.5

195.0

RoE (%)

23.5

18.1

RoCE (%)

23.3

18.0

P/E (x)

18.2

21.5

P/BV (x)

4.1

3.7

2019E

42.6

14.9

10.6

40.0

19.2

217.0

19.4

19.4

18.0

3.3

n

n

Estimate change

TP change

Rating change

n

n

protocols and procedures for release of export shipment as specified in the

import alert by the US FDA.

Guides for minimal impact from Unit-2 import alert:

DIVIS expects loss of

<5% of sales due to the Unit-2 import alert. Divis has already hired a third-

party consultant to enact remediation measures and help the company to

prepare for Unit-1 inspection. We have witnessed with DRRD and SUNP that

batch-by-batch testing of products leads to a delay in supplies and an

increase in cost.

Unit-1 US FDA inspection is due:

Unit-1 accounts for 35% of total revenue

&its exposure to the US market stands at ~11% of total revenues. This plant

was last inspected in June 14, and an inspection is due over the coming few

days. It will be critical for the company to come out clear in the USFDA

inspection (particularly since the FDA had cited data integrity issues in Unit-

2).

Buyback/special dividend could be near-term trigger:

Divis has cash of

~INR17b. There is a possibility of a buyback/ special dividend (like DRRD) in

the near term, which could provide near-term support to the stock price.

Regulatory concerns a big overhang in near term; Maintain Neutral:

We

retain our Neutral rating with revised target price of INR680 (v/s INR600

earlier), as we increase our target multiple to 17x from 15x earlier on back of

recent positive development on regulatory front (relief on majority of

products and removal of import alert under clause 99-32.

FY18E

2QE

3QE

9,918 9,888

0.0

3.0

3,223 3,214

32.5

32.5

512

512

5

5

345

345

3,051 3,041

3,051 3,041

717

715

23.5

23.5

2,334 2,326

-23.0 -13.3

23.5

23.5

2,334 2,326

FY17 FY18E

FY18E

1QE

9,748

-3.1

3,168

32.5

350

5

250

3,063

3,063

720

23.5

2,343

-22.4

24.0

2,343

Quarterly Performance

Y/E March

FY17

1Q

2Q

3Q

4Q

Net Op Revenue

10,060 9,918 9,600 10,631

YoY Change (%)

24.7

3.1 12.7

-2.8

EBITDA

4,016 3,680 3,777 3,585

Margins (%)

39.9 37.1 39.3 33.7

Depreciation

301

308 310

314

Interest

4

4

4

10

Other Income

184

226 215

245

PBT before EO Income

3,896 3,595 3,678 3,505

PBT

3,896 3,595 3,678 3,505

Tax

878

565 996

912

Rate (%)

22.5 15.7 27.1 26.0

Adj PAT

3,018 3,030 2,683 2,593

YoY Change (%)

23.1

2.5

8.8 -19.5

Margins (%)

30.0 30.5 27.9 24.4

Reported PAT

3,018 2,239 2,683 2,593

E: MOSL Estimates; Quarterly numbers are standalone

(INR M)

1Q

8,212

-18.4

2,448

29.8

323

5

297

2,417

2,417

652

27.0

1,765

-41.5

21.5

1,765

4QE

9,366 40,547 37,384

-11.9

7.6 -7.8

3,265 14,267 12,150

34.9 35.2 32.5

507 1,233 1,855

6

23

22

393

870 1,379

3,144 13,882 11,653

3,144 13,882 11,653

655 3,350 2,738

20.8 24.1 23.5

2,489 10,533 8,914

-4.0 -5.1 -15.4

26.6 26.0 23.8

2,489 10,533 8,914

Var.

(%)

-15.8

-22.7

-21.1

-24.6

-24.6

24 July 2017

14

21 July 2017

1QFY18 Results Update | Sector: Financials

Indian Bank

Buy

BSE SENSEX

32,029

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

9,915

INBK IN

480

130.7 / 1.9

365 / 144

7/17/106

304

17.9

CMP: INR329

n

TP: INR382(+16%)

Focus on core operating parameters continues; Asset quality improves

INBK reported PAT of INR3.7b (in-line) v/s INR3.2m in 1QFY17, led by strong

total income of INR21.1b (+26% YoY led by 48% YoY growth in other income)

and controlled opex (11% YoY, -5% QoQ). Provisioning was 52% higher than

estimate at INR7.2b, as PCR increased 350bp QoQ to 61.65%.

Gross slippages increased 14% QoQ, but strong recoveries and upgrades at

INR3.5b (v/s INR201m in 4QFY17) led to net slippage ratio of 1.1%, the lowest

in seven quarters. Absolute GNPA declined 2% QoQ, while GNPA/NNPA fell

26bp/34bp QoQ to 7.21%/4.05%. Calculated PCR improved to 45.7%. Total

stressed book stood at 8.5% of net advances.

Overall loan book grew 1%/4% QoQ/YoY to INR1.29b. The bank cut down on its

corporate book exposure, with the share of corporate loans declining 200bp

YoY to 49%. With a comfortable capital position (CET1 11.7%), the bank is well

poised to grow its loan book.

Calculated NIM expanded 27bp QoQ to 2.94% (28bp higher than estimate),

driven by lower CoF (5.48% v/s 6.24% YoY), partially offset by lower yield on

advances (8.8% v/s 9.25%). NIM is expected to improve further with

moderation in interest reversals (INR450m in 1QFY18).

Valuation and view:

Focus on balance sheet consolidation and core operating

parameters has led to improving earnings, despite challenging macros.

Capitalization is best-in-class with CET 1 ratio of 11.7%. The bank is planning a

FPO to reduce GoI shareholding to 75%. Improvement in loan growth is

expected to drive operating leverage in the ensuing years. We expect RoAs/RoE

to be the best among PSBs at 0.7%/11.2% (FY19E). Maintain

Buy

with a target

price of INR382 (1x FY19E BV) based on RI model.

n

Financials & Valuations (INR b)

Y/E March

2018E 2019E 2020E

NII

58.7 65.1 74.5

OP

44.8 46.2 50.2

NP

16.5 18.4 20.3

EPS (INR)

34.4 38.3 42.3

EPS Gr. (%)

17.6 11.4 10.3

BV/Sh. (INR)

327

357

389

ABV/Sh (INR)

245

273

306

RoE (%)

10.9 11.2 11.3

RoA (%)

0.7

0.7

0.7

Div. Payout (%)

23.2 23.2 23.2

Valuations

P/E (x)

9.6

8.6

7.8

P/ BV (x)

1.0

0.9

0.8

P/ABV (x)

1.3

1.2

1.1

Div. Yield (%)

2.1

2.3

2.6

n

n

n

24 July 2017

15

21 July 2017

1QFY18 Results Update | Sector: Financials

Dewan Housing

Buy

BSE SENSEX

32,029

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

9,915

DEWH IN

313

143.4 / 2.2

479 / 214

-3/50/95

905

60.8

CMP: INR458

n

TP: INR630 (+38%)

Growth surprises positively; re-rating to continue

Dewan Housing Finance’s (DEWH) 1QFY18 PAT grew 29% YoY to INR2.61b. Strong

AUM growth, YoY reduction in C/I ratio and continued decline in cost of funds

were key highlights of the quarter.

Disbursement growth of 33% YoY, the strongest in 13 quarters, led to AUM

growth of 5.6% QoQ/22.5% YoY in the quarter. We expect DEWH to maintain this

growth rate, given the large untapped opportunity and the sufficient capital it has

to support this growth.

Loan mix was largely unchanged, though there was a 70bp sequential increase in

the share of builder loans. We expect the share of builder loans to continue

increasing at this pace for the remainder of the year, post which it should remain

stable.

The liability mix was largely stable sequentially. Reduction in cost of funds

continues (12bp QoQ), albeit at a slower pace than in the past few quarters.

Opex grew 15% YoY to INR1.6b, resulting in 280bp reduction in the calculated C/I

ratio to 25.3%. We expect prudent cost rationalization to continue over the next

2-3 years. This would be the key driver for strong PAT growth over the medium

term, in our view.

Asset quality was stable. However, credit costs increased 84% YoY to INR830m.

Valuation and view:

DEWH continues capitalizing on its mortgage lending

expertise in an underpenetrated market. Its focuses on being a core mortgage

finance player, as evident from its divestment of non-core assets (such as the life

insurance business). Also, with management’s commitment toward lowering

operating cost, we believe the company has enough room to reduce its C/I ratio

by 200-300bp over the next few years. We believe its gradual transformation to a

core mortgage player with strong growth and healthy return ratios would result in

further re-rating. We upgrade FY18/19 EPS estimates by 2%/4% to factor in

stronger revenue growth.

Buy

with a TP of INR630 (2.0x FY19E BVPS).

n

Financials & Valuations (INR b)

Y/E March

2017 2018E

NII

15.1

19.3

PPP

16.2

21.2

Adj. PAT

9.3

11.8

EPS (INR)

29.6

37.7

EPS Gr. (%)

18.5

27.4

BV (INR)

252

282

RoAA (%)

1.2

1.2

RoE (%)

14.4

14.1

Payout (%)

15.7

17.4

Valuations

P/E (x)

15.5

12.1

P/BV (x)

1.8

1.6

P/ABV (x)

1.8

1.6

Div. Yield (%)

0.9

1.2

2019E

24.9

26.7

14.7

47.1

24.9

321

1.3

15.6

17.4

9.7

1.4

1.4

1.5

n

n

n

n

n

24 July 2017

16

RESULTS

FLASH

17 July 2017

Results Flash | Sector: Financials-Banks

J&K Bank

Neutral

BSE SENSEX

32,029

S&P CNX

9,915

CMP: INR84

n

TP: INR89

We will revisit our estimates

post earnings call/management

interaction.

Balance sheet clean up phase; PAT positive after 3 quarters

Conference Call Details

Date:

24 July 2017

Time:

03:30pm IST

Dial-in details:

+91-22-3960 0818

th

Financials & Valuations (INR b)

2018E 2019E

Y/E Mar

NII

27.1

30.3

OP

13.0

14.3

NP

2.1

4.3

EPS (INR)

4.0

8.2

EPS Gr. (%)

NA 106.3

BV/Sh. (INR)

113.8 120.0

RoE (%)

5.8

7.0

RoA (%)

0.4

0.4

P/E (x)

21.2

10.3

P/BV (x)

0.7

0.7

2020E

34.5

16.5

6.0

11.5

40.6

128.7

9.2

0.5

7.3

0.7

JKBK reported PAT of INR302m in 1QFY18 (+32% YoY on a low base), after 3

consecutive quarters of losses. Adjusted for DTAs recognized against higher

than required provisions, PAT came in at INR2.7b.

n

Strong recoveries and upgrades at INR1.9b helped partly offset slippages of

INR5.1b (22% decline from INR6.5b in 4Q). Gross and net slippage ratio stood

at 4.1%/2.5% vs 5.2%/2.8% in 4Q. Focus on increasing PCR led to 7% sequential

decline in NNPAs (4.3% v/s 4.6% in 4Q) with increase in reported PCR to

70.26% from 66.9% in 4Q. GNPA stood at 10.6%. Std. restructured loans stood

at INR55.5b (11% of loans). S4A book stood at INR2.45b at the end of the

quarter.

n

NII grew ~13% YoY (+9% QoQ) led sharp improvement in NIMs to 3.7% (+20bp

QoQ, +32bp YoY) even as loan book was flat YoY and declined 2% QOQ. NIM

improved on the back of 37bp/36bp QoQ/YoY increase in spreads.

n

Total income growth of 6%/10% QoQ/YoY was partially offset by opex growth

of 13% YoY (-10% QoQ on a one-off high base), resulting in 33%/5% QoQ/YoY

PPoP growth.

n

Other highlights:

(1)

Loan growth was flat YoY (2% decline QoQ; share of J&K

State loans stood at ~51% v/s 50% in FY17,

(2)

CASA ratio stood at 50.9% (-

80bp QoQ).

(3)

Tier 1/CAR stood at 9.16%/11.1%

Valuation and view:

While we like the management’s focus on clean-up of balance

sheet, continued high stress additions and high proportion of restructured book

remain a cause for concern. Recoveries/resolutions in non J&K State corporate

portfolio (19% NPA) will be a significant trigger for the bank. We will revise our

estimates post concall.

FY17

2Q

16,857

10,443

6,414

-7.6

1,309

7,723

3,967

3,756

NA

9,921

-6,165

-141

0

-6,024

NA

3.37

4.0

11.9

45.1

68.0

56.8

11.3

FY18

2Q

3Q

16,878

17,283

10,359

10,773

6,519

6,510

1.6

11.7

1,312

1,276

7,831

7,786

4,752

4,865

3,079

2,921

-18.0

-0.3

2,064

2,139

1,015

782

345

266

0

0

670

516

NA

NA

6.6

7.3

67.6

57.4

10.6

16.9

5.6

67.3

58.8

10.4

FY17

4Q

17,156

10,236

6,921

5.7

1,398

8,318

4,953

3,365

21.8

2,491

874

297

0

577

NANA

12.0

12.0

68.7

59.7

10.0

66,858

41,739

25,119

-7.3

4,929

30,048

17,105

12,943

-22.4

28,003

-15,060

1,263

-16,323

3.3

-0.8

4.4

51.7

68.7

60.0

11.2

(INR M)

FY18

68,121

41,049

27,072

7.8

5,087

32,159

19,109

13,050

0.8

9,480

3,570

-877

2,382

2,065

NA

3.7

12.0

12.0

51.9

68.7

59.7

10.0

Quarterly Performance

Y/E March

Interest Income

Interest Expense

Net Interest Income

% Change (YoY)

Other Income

Net Income

Operating Expenses

Operating Profit

% Change (YoY)

Other Provisions

Profit before Tax

Tax Provisions

Extraordinary items

Net Profit

% Change (YoY)

Operating Parameters

NIM (Reported, %)

Loan Growth (%)

Deposit Growth (%)

CASA Ratio (%)

CD ratio (%)

Asset Quality

Gross NPA (INR b)

Gross NPA (%)

1Q

16,724

10,398

6,326

-9.0

1,167

7,493

4,000

3,493

-23.8

3,137

356

127

0

229

-85.6

3.38

12.9

10.8

43.1

70.8

47.1

9.3

3Q

16,495

10,666

5,830

-13.5

1,207

7,037

4,106

2,930

-25.1

7,263

-4,332

653

0

-4,986

NA

2.99

-3.5

15.3

47.4

60.8

57.1

11.8

4Q

16,782

10,232

6,550

1.2

1,246

7,795

5,032

2,764

-27.4

7,683

-4,919

624

0

-5,543

NA

3.50

-0.8

4.4

51.7

68.7

60.0

11.2

1Q

16,803

9,681

7,122

12.6

1,102

8,224

4,539

3,685

5.5

2,787

898

-1,785

2,382

302

31.9

3.70

-0.2

4.0

50.9

67.9

56.4

10.8

24 July 2017

17

Persistent System

BSE SENSEX

32,029

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

9,915

PSYS IN

80

52.5 / 0.8

710 / 501

-6/-14/-12

87

69.3

20 July 2017

Q1FY18 Results Update | Sector: Technology

CMP: INR657

n

TP: INR750(+14%)

Buy

A stern test of our margin recovery thesis

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

28.8

31.1

35.0

Net Sales

4.7

5.1

5.9

EBITDA

3.1

3.5

4.2

PAT

37.7

43.3

52.0

EPS (INR)

1.4

15.0

20.0

Gr. (%)

244.5 254.1 264.3

BV/Sh (INR)

17.0

17.9

20.7

RoE (%)

16.7

16.0

17.1

RoCE (%)

17.1

14.8

12.4

P/E (x)

2.6

2.5

2.4

P/BV (x)

n

n

n

Estimate change

TP change

Rating change

n

1QFY18 was all about margin contraction:

Persistent Systems’ (PSYS) 1QFY18

revenue of USD113m (+3.6% QoQ, in line) lost relevance to sharp 360bp QoQ

contraction in EBITDA margin to 14.3%, significantly below our estimate of

16.5%. This 220bp miss naturally challenged our thesis of margin recovery-led

earnings growth in the company. Net income grew 3.2% QoQ to INR751m, in

line with our estimate of INR758m. This was facilitated by forex gains of

INR183m.

A plethora of factors led to margin disappointment:

The following factors

contributed to 1QFY18 margin contraction: [1] currency (120bp), [2] onsite

revenue mix shift and investments in new partnerships (90bp), [3] lower

offshore utilization (40bp), [4] visa and costs related to Parx acquisition (70bp),

[5] upfront investment in sales team (30bp) and [5] change in bad debt

provisions (40bp). Part offset came from healthy growth in IT Services revenue.

Services segment took over from Digital:

Onsite mix shift was a contributor to

revenue growth during the quarter, as volume growth was 1.8% QoQ. High

flying Digital segment declined 1.3% QoQ, whereas Services saw growth of 5%

QoQ during the quarter. PSYS cited the brakes on Digital as quarterly

aberration and should resume. Alliance segment was strong (+9% QoQ),

whereas Accelerite dropped from USD10.5m to USD9.4m.

Focus on shifting to solutions:

PSYS continues to strive to break away from the

linearity of revenue growth and headcount additions, even beyond its IP-led

revenues segment. This is reflected in its technical headcount addition of 0.5%

YoY and utilization improvement of 1.7%, as against 9.2% YoY growth in linear

revenues and 8% growth in overall revenues.

Valuation and view:

While 1Q margin miss was a definite dent, we note that a

large part of the same was driven by higher investments in sales, and some of

the GPM impacts (visa and acquisition costs, utilization) are addressable in the

near term. PSYS remains intent on driving growth through solutions, which will

help margins and maintain our thesis of bottoming out of profitability in FY17 –

difference being that we expect expansion in FY19 and FY18 margins to remain

flat YoY. We expect FY17-19 USD revenue/earnings CAGR of 11/15%. Our price

target of INR750 discounts forward earnings by 14x. Maintain

Buy.

3Q

110.0

4.6

7,455

5.9

25.9

36.3

20.4

1,187

15.9

10.7

318

26.7

819

11.4

5.7

10.2

9,229

78.9

15.8

28.4

4Q

109.0

-0.9

7,271

-2.5

7.4

36.1

18.2

1,302

17.9

12.5

143

19.9

842

2.8

4.2

9.1

9,460

77.8

15.7

27.6

1Q

113.0

3.6

7,280

0.1

3.7

34.3

20.0

1,044

14.3

9.0

368

26.3

751

-10.8

2.5

9.4

9,401

77.2

27.2

FY18E

2Q

3Q

117.9

123.9

4.3

5.1

7,660

8,115

5.2

5.9

8.8

8.8

35.4

37.4

19.2

19.2

1,218

1,461

15.9

18.0

10.6

13.1

234

299

25.0

25.0

787

1,019

4.8

29.5

7.0

24.4

9.8

12.7

9,537

9,593

78.0

78.5

26.7

28.0

FY17

4Q

121.9

-1.6

8,044

-0.9

10.6

34.9

18.3

1,330

16.5

11.5

287

25.0

910

-10.6

8.1

11.4

9,724

78.5

26.4

429

22.0

28,784

24.5

35.7

19.5

4,653

16.2

11.0

958

24.1

3,129

5.2

37.7

9,460

76.5

28.0

FY18E

477

11.1

31,099

8.0

35.5

19.3

5,052

16.2

11.1

1,188

25.3

3,467

10.8

43.3

9,724

77.7

27.1

Est. Var. (% /

1QFY18

bp)

112.7

0.2

3.4

25bp

7,269

0.2

0.0

15bp

3.6

16bp

35.2

-89bp

18.7

126bp

1,198

-12.9

16.5

-215bp

11.1 -213bp

206

78.9

25.0

758

-1.0

-9.9

nm

3.5

nm

9.5

9,741

-3.5

78.5 -130bp

28.4

-118bp

Quarterly Performance (Consolidated)

Y/E March

(Consolidated)

Revenue (USD m)

QoQ (%)

Revenue (INR m)

QoQ (%)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Ma rgi n (%)

Other i ncome

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Uti l excl . tra i nees (%)

Attri ti on (%)

IP rev. proporti on(%)

1Q

104.8

4.3

7,018

3.6

40.2

34.7

19.6

1,058

15.1

10.2

253

24.3

733

-9.3

9.0

9.2

9,389

75.3

16.7

28.2

FY17

2Q

105.2

0.4

7,040

0.3

29.7

35.5

19.8

1,108

15.7

10.5

243

25.3

735

0.3

2.3

9.2

9,305

74.2

15.9

27.8

24 July 2017

18

Zensar Technologies

BSE SENSEX

32,029

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

9,915

ZENT IN

45

37.6 / 0.6

1136 / 790

-7/-28/-34

33

51.3

20 July 2017

Q1FY18 Results Update | Sector: Technology

CMP: INR830

n

TP: INR950(+15%)

Buy

Legacy pressures offset Digital pivot

Revenue growth led by Keystone:

ZENT’s 1QFY18 revenue grew 2.5% QoQ CC,

as against our estimate of +5.3%. The quarter also included incremental

revenue of ~USD5m from the integration of Keystone, implying organic

revenue decline of ~2%. Pressure in the organic business was led by ramp-

down in Oracle ATG implementations, delays in the Manufacturing vertical

deal ramp-ups, and conscious rationalizing of the RoW portfolio.

Margin uptick capped despite exercise of levers:

EBITDA margin expanded

230bp QoQ to 10.2% post a drastic 600bp contraction seen in the previous

quarter. Full recovery was not seen in margins, despite the presence of several

one-off costs in the previous quarter, improved utilization (+400bp) and higher

offshoring (+300bp). Led by the overall operational miss, PAT at INR472m was

down 36.3% YoY, compared to our estimate of INR558m (-26.8% YoY).

Sluggishness to span another couple of quarters:

In the near term, we expect

continued moderate growth led by active pruning of long-tail accounts, project

delays and pressures emerging out of the Oracle ATG ecosystem. On the other

hand, impending wage hike, continued investments in S&M and capability

building, and restructuring in the MVS business will keep profitability

expansion in check.

Valuation view:

ZENT’s Digital pivot (36.3% of revenues) contrasts issues in

other parts of the portfolio (MVS, Manufacturing vertical ex hi tech), leading us

to cut revenue estimates for FY18/19E by 4-5%. Additionally, investments and

restructuring expenses drive EPS cut of 16/6%. Our thesis of clean-up

completion by FY17 took a hit due to pressure in Oracle ATG from ORCL’s cloud

push and the overhaul of front-end in the US. Improvement in ZENT’s

performance will now likely commence only in FY19, which will also limit

triggers to valuations. We maintain

Buy

with a revised price target of INR950—

discounting forward EPS by 13x.

4Q

112

-4.9

7,433

-0.4

27.7

19.9

585

7.9

6.2

-228

45.5

104

-87.0

-85.2

2.3

8,524

79.2

34.5

1Q

114

2.2

7,367

-2.5

27.6

17.4

748

10.2

7.7

203

32.0

472

354.7

-36.3

10.5

8,567

83.2

37.5

FY18E

2Q

117

2.6

7,626

-1.0

26.9

16.0

831

10.9

8.6

166

29.0

536

13.7

-23.8

11.9

8,642

83.0

37.0

FY17

3Q

120

2.2

7,854

-0.1

27.8

15.0

1,003

12.8

10.5

164

29.0

658

22.7

-17.8

14.6

8,892

82.0

36.5

4Q

122

2.0

8,071

8.6

27.9

15.0

1,040

12.9

10.6

154

29.0

676

2.7

551.7

15.0

8,942

81.0

35.8

459

1.4

30,556

3.1

29.3

16.8

3,819

12.5

10.9

241

31.6

2,349

-24.1

52.1

8,524

79.7

33.2

FY18E

474

3.2

30,918

1.2

27.5

15.8

3,622

11.7

9.4

686

29.6

2,343

-0.3

51.9

8,942

82.3

36.7

Est.

1QFY18 Var. (% / bp)

118

-3.4

5.9

-362bp

7,610

-3.2

-0.2

-230bp

28.8

-118bp

17.0

44bp

896

-16.5

11.8

-162bp

10.4

-267bp

28

635.8

29.0

558

-15.5

157.2

19747bp

-26.8

-948bp

12.4

8,724

-1.8

81.0

220bp

34.2

326bp

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Net Sales

30.6

30.9

EBITDA

3.8

3.6

PAT

2.3

2.3

EPS (INR)

52.1

51.9

Gr. (%)

-23.7

-0.3

BV/Sh (INR)

325.9 364.8

RoE (%)

17.2

15.0

RoCE (%)

23.2

17.7

P/E (x)

15.9

16.0

P/BV (x)

2.5

2.3

n

2019E

35.5

4.8

3.2

70.0

34.9

418.3

17.9

21.8

11.8

2.0

n

Estimate change

TP change

Rating change

n

Quarterly Performance (Consolidated)

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Margin (%)

Other income

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Utilization (%)

Offshore rev. (%)

1Q

114

3.1

7,554

7.2

29.1

15.4

1,037

13.7

12.3

198

32.6

741

5.4

-2.8

16.4

8,238

79.8

31.2

FY17

2Q

116

1.8

7,703

1.8

30.1

15.6

1,111

14.4

12.8

70

29.6

704

-5.0

-22.9

15.6

8,316

80.1

33.8

3Q

118

1.3

7,865

3.9

30.2

16.4

1,085

13.8

12.3

201

30.2

800

13.7

11.9

17.7

8,564

79.5

33.5

24 July 2017

19

June 2017 Results Preview | Sector: Cement

Ambuja Cements

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

ACEM IN

1985.3

494 / 8

282 / 191

4 / 0 / -16

CMP: INR249

TP: INR291 (+17%)

Buy

Financial Snapshot (INR Billion)

Y/E DEC

2016 2017E 2018E 2019E

Sales

EBITDA

NP

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

EV/Ton (USD)

35.5

1.8

20.8

166

23.9

1.7

17.5

157

21.2

1.6

14.4

145

17.2

1.6

11.4

133

91.6

15.8

9.7

4.9

-10.6

96.4

5.1

6.9

29.6

101.7

17.7

14.4

7.3

48.5

102.0

7.3

7.5

22.6

113.7

20.9

16.3

8.2

12.8

107.9

7.8

8.1

28.6

128.3

26.6

20.1

10.1

23.6

111.9

9.2

9.5

60.2

n

Dispatches in 2QCY17 are estimated to increase 5% YoY to 6.15mt

led by healthy growth both in North and West markets which

constitute ~80% of its focus markets. Average realizations are

expected to increase by 10% QoQ to INR4,633/ton due to strong

pricing uptick in western region. Revenue is estimated at INR28.5b

(+12% YoY).

n

EBITDA margin is expected to be 21% (+6.5pp QoQ, -2.0pp YoY).

EBITDA/ton is estimated at ~INR 968 (+INR362 QoQ, -INR26 YoY).

n

Adjusted PAT is estimated to increase 6% YoY to INR4.2b due to

weak profitability.

n

The stock trades at P/E of 25x on CY18E earnings+, 14x CY18E

EV/EBITDA and CY18E EV/ton of USD134. Maintain Buy.

Key issues to watch out for:

Ø

Volume growth recovery and outlook.

Ø

Cement pricing outlook and sustainability.

Ø

Cost curve trend in CY17.

Quarterly Performance

Y/E December

Sales Volume (m ton)*

YoY Change (%)

Realization (INR/ton)

YoY Change (%)

QoQ Change (%)

Net Sales

YoY Change (%)

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO Item

Rate (%)

Reported Profit

Adj PAT

YoY Change (%)

1Q

5.97

9.9

4,032

-9.7

-6.2

24,060

-0.8

4,255

17.7

3,830

188

1,303

1,541

69.4

535

471

-85.2

CY16

2Q

5.85

-1.7

4,344

3.7

7.7

25,412

1.9

5,813

22.9

1,511

205

1,368

5,465

26.9

3,995

3,995

76.5

3Q

4.58

-6.5

4,376

2.3

0.7

20,043

-4.3

2,760

13.8

1,595

192

2,503

3,477

20.3

2,770

2,770

80.4

4Q

5.09

-7.1

4,316

0.4

-1.4

21,967

-6.8

2,947

13.4

1,563

136

755

2,003

14.3

1,627

1,717

18.1

1Q

6.02

0.9

4,208

4.4

-2.5

25,334

5.3

3,651

14.4

1,460

377

1,310

3,124

21.1

2,465

2,465

423.7

CY17

2QE

6.15

5.1

4,633

6.7

10.1

28,495

12.1

5,953

20.9

1,470

150

1,300

5,633

25.0

4,225

4,225

5.7

3Q

5.10

11.4

4,533

3.6

-2.2

23,120

15.4

3,743

16.2

1,500

150

2,700

4,793

24.0

3,643

3,643

31.5

4QE

5.55

9.0

4,466

3.5

-1.5

24,784

12.8

4,378

17.7

1,464

-88

1,690

4,693

13.1

4,078

4,078

137.5

(INR Million)

CY16

21.49

-1.2

4,263

-1.0

91,604

7.7

15,755

17.2

8,501

715

6,837

13,376

27.5

9,703

9,703

14.4

CY17E

22.82

6.2

4,458

4.6

101,733

5.2

17,725

17.4

5,894

589

7,000

18,243

21.0

14,412

14,412

48.5

24 July 2017

20