25 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 theme

THEMATIC | Radio: Well tuned to flourish

v

Over the past 18 months, the Indian radio industry has witnessed a 66% increase in

the number of channels to reach 407, led by phase-III auctions and phase-II license

renewals. This is likely to drive radio industry revenue CAGR of 16% over CY16-21E,

~1.4x of traditional media (ex-digital). Also, despite the evolution of the digital

medium, radio remains a stable advertising medium globally, backed by its localized

and interactive content.

v

Entertainment Network India Limited (ENIL)/Music Broadcast’s (MBL) with market

shares of 30%/14% have strong execution capabilities. Inventory addition should help

ENIL/MBL to record revenue growth of 16%/15% and EBITDA CAGR of 30%/20% over

FY17-20. RoIC too will improve to 20%/25% by FY20, led by improving EBITDA margins

and asset turns. Overall, their FCF yield should improve to ~5% by FY20.

v

We initiate coverage on ENIL with a Neutral rating and a TP of INR 928, assigning 20x

on FY19E EBITDA of INR2.1b. We initiate coverage on MBL with Buy rating and a TP of

INR 469, assigning 18x EV/EBITDA on FY19E EBITDA of INR1.3b.

Market snapshot

Equities - India

Close

Chg .%

Sensex

32,246

0.7

Nifty-50

9,966

0.5

Nifty-M 100

18,304

0.2

Equities-Global

Close

Chg .%

S&P 500

2,470

-0.1

Nasdaq

6,411

0.4

FTSE 100

7,378

-1.0

DAX

12,209

-0.3

Hang Seng

10,821

0.3

Nikkei 225

19,976

-0.6

Commodities

Close

Chg .%

Brent (US$/Bbl)

48

1.8

Gold ($/OZ)

1,257

0.7

Cu (US$/MT)

5,995

0.4

Almn (US$/MT)

1,891

-0.1

Currency

Close

Chg .%

USD/INR

64.3

0.0

USD/EUR

1.2

0.0

USD/JPY

110.7

-0.9

YIELD (%)

Close

1MChg

10 Yrs G-Sec

6.4

0.0

10 Yrs AAA Corp

7.5

0.0

Flows (USD b)

24-Jul

MTD

FIIs

-0.1

0.2

DIIs

0.1

0.4

Volumes (INRb)

24-Jul

MTD*

Cash

306

287

F&O

5,488

5,501

Note: YTD is calendar year, *Avg

YTD.%

21.1

21.8

27.5

YTD.%

10.3

19.1

3.3

6.3

15.2

4.5

YTD.%

-13.0

8.4

8.5

10.9

YTD.%

-5.2

10.4

-5.4

YTDchg

-0.1

-0.1

YTD

8.6

3.7

YTD*

286

4,978

Research covered

Cos/Sector

Radio

HDFC Bank

Avenue Supermarts

Zee Entertainment

Ambuja Cement

Indiabulls Hsg Fin

United Spirits

Ashok Leyland

Cummins India

Info Edge

D B Corp

J&K Bank

Metals Weekly

Results Flash

Results Expectation

Key Highlights

(Thematic) Well tuned to flourish

Stellar performance on all fronts

Results in-line; geographical expansion to drive growth

Ad performance in-line

Sharp pricing improvement drives multi-year-high EBITDA/t

Strong growth, stable performance overall

Highway alcohol sale ban to impact volumes over coming quarters

Higher staff cost, one-off costs, negative operating leverage hurt EBITDA margin

Infrastructure spend to drive domestic growth

Ahead of estimates, but uncertainty clouds near term

In-line quarter; maintain estimates and target price

Balance sheet clean-up phase

Chinese export steel prices continue to trend higher

BHIN| MMFS | TCOM | LTI | DELTA

APNT | AXSB | BHARTI | GETD | GLXO | HMCL | PIDI | VEDL

Piping hot news

DoT, Finance Ministry to ease burden of debt-laden telecom sector

v

The Department of Telecommunications (DoT) and the finance ministry have

broadly agreed on relief measures for the debt-laden telecom sector…

Chart of the Day: Radio – Well tuned to flourish

Phase-III –Total number of channels increased by two thirds

Strong growth expected with addition of new licenses

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

ITC increased cigarette prices by 4-

8% on Monday, a week after the

GST Council imposed a cess to

make up for lower tax incidence

under the new regime on a class

of goods tagged as sin products.

Premium brands like Classic and

Gold Flake Kings have…

2

Tax base widens to 6.26 cr in 2016-17: CBDT

Income taxpayer base moved up substantially to 6.26 crore at the end of

the last fiscal, from nearly 4 crore earlier, CBDT Chairman Sushil Chandra

said today. Clearing the air on disclosure of bank account details of non-

resident Indians (NRIs), expats, as well as foreigners with investments in

private equity in India, Chandra also said that such accounts need to be

disclosed only when a refund is due to the assessee...

ITC increases prices of

cigarette by 4-8% as a result of

higher tax

3

IMF keeps India GDP growth

forecast unchanged at 7.2% for

2017-18

IMF’s World Economic Outlook

report has predicted India GDP

growth rate at 7.2% for 2017-18

and 7.7% for 2018-19, even as it

sees World GDP growth rate at

3.5% in 2017 and 3.6% in 2018…

4

Reliance Jio row: Bharti Airtel

chief Sunil Mittal questions

Trai over IUC on international

calls

5

Indian Overseas Bank, Central

Bank of India downgraded by

Moody’s, says Centre’s

support likely lower than

assumed

Even as the Trai and the

incumbent telcos are locked in an

intense debate over interconnect

usage charge for domestic calls,

Sunil Bharti Mittal, chairman of

Bharti Group, has pointed that the

regulator not debating IUC for

international calls means…

6

SEBI may curb excessive

derivative speculation to boost

tax collection

Capital market regulator SEBI is

seeking major changes to the

structure of equity trading in

India, evidently driven by the

government’s recent realisation

that it may be losing chunks of tax

revenues due to a high

concentration of equity trading

volumes in the derivative

segment…

25 July 2017

7

Indian Railways station

redevelopment scheme to

offer over 144 acres of land to

developers

The Indian Railways, under its

massive station redevelopment

programme, is set to offer more

than 144 acres of land with its 23

stations for commercial

development...

Moody’s Investors Service on

Monday downgraded long-term

bank deposit ratings of two public

sector banks and said that the

introduction of policies like the

Financial Resolution and Deposit

Insurance Bill suggests that the

extent of the government’s …

2

Radio| Well tuned to flourish

Radio

Well tuned to flourish

n

n

n

Radio industry to grow at ~16%

next 5 years

Radio (INR b)

60

40

20

0

Growth

30%

20%

10%

0%

-10%

n

n

Over the past 18 months, the Indian radio industry has witnessed a 66% increase in the

number of channels to reach 407, led by phase-III auctions and phase-II license

renewals. The launch of these channels over the last six months is likely to drive radio

industry revenue CAGR of 16% over CY16-21E, ~1.4x of traditional media (ex-digital).

Despite the evolution of the digital medium, radio remains a stable advertising medium

globally, backed by its localized and interactive content. Notably, radio operators have

introduced digital radio to mitigate the risk of losing share to digital medium. We

believe the radio listenership base in India is likely to increase going forward, driven by

(i) wider footprint and (ii) phase-III-led content differentiation avenues.

Entertainment Network India Limited (ENIL)/Music Broadcast’s (MBL) heavy upfront

investment of INR7.1b/3.4b in phase-III auctions and phase II renewals led to single-

digit return ratios in FY17. However, ENIL/MBL are expected to reach RoIC of 20%/25%

by FY20, led by improving EBITDA margins and asset turns.

Large operators like ENIL/MBL with market shares of 30%/14% have strong execution

capabilities. Inventory addition should help ENIL/MBL to record revenue growth of

16%/15% and EBITDA CAGR of 30%/20% over FY17-20.

We initiate coverage on ENIL with a Neutral rating and a TP of INR 928, assigning 20x

on FY19E EBITDA of INR2.1b, led by its healthy growth and market leadership. We

initiate coverage on MBL with Buy rating and a TP of INR 469, assigning 18x EV/EBITDA

on FY19E EBITDA of INR1.3b, as we believe the company should improve its market

share led by an increasing listenership base.

Asset monetization phase to improve sector RoIC

Phase-III opens up growth opportunities

The Indian radio industry has witnessed significant inventory (advertising time)

growth over the past 18 months. Notably, over this period, the number of radio

channels in the country increased 66% to 407 from 245, while the total number of

cities with presence of private FM operators has grown to 113 from 85. This has led

to steady growth in advertising time in an otherwise inventory-starved radio

industry. Additionally, the renewal of Phase-II licenses in FY16 for 15 years has

provided much-needed clarity on long-term business continuity and mitigated the

risk of high license cost. Also, we note that the radio industry’s current share of

India’s overall ad pie at ~4% has grown from 1.5% during the Phase-I period. The

new frequencies should increase the ad share further, helping catch up with the

world average of 7% and the US’ 11% (ex-digital). With significant inventory

addition, radio (market size of INR23b in CY16) is likely to emerge as the fastest

growing ad market (+16%, 1.4x of the traditional ad market, over CY16-21E, ex-

digital) in India.

Well tuned to flourish

Radio:

Digital unlikely to hurt radio market

+91 22 2261291565

Al i asgar.shakir@MotilalOswal.com

Please click here for video

link

25 July 2017

Radio is largely associated with music/songs in India. With the advent of various

digital platforms, IPods/MP3 players, etc., it was widely expected that the need to

listen to radio would reduce over time. However, we note that radio listenership

and ad market has grown consistently, with radio operators bringing in interactive

RJ talk shows, local city updates and other interesting programs to the table, giving

listeners a feeling of two-way communication. A similar trend is observed globally –

3

Content Differentiation and

Interactive medium

provides radio an edge over

digital media

radio remains a stable advertising medium in most developed markets, despite the

advent of the digital platforms (~7% share of the total ad pie). We believe that the

radio listenership base is likely to improve in India, with (i) an increase in the

number of cities under radio coverage and (ii) content differentiation (multiple

frequencies, allowance of news/current affairs). Also, with increasing internet

penetration, radio operators have started introducing digital radio (offering music of

different genre, mood, artist and time period). We note that due to the lack of

listeners and a viable revenue model in the digital medium, radio operators for now

are only offering limited content (music). However, as digital medium evolves, we

believe the operators should expand their offering to include localized content, RJ

talks, etc., to de-risk their businesses.

ENIL, MBL: Strong execution capability, leadership position to drive

industry-leading revenue growth

CAGR FY17-

20E

Revenue

EBITDA

PAT

ENIL

(%)

16

30

43

MBL

(%)

15

20

41

Entertainment Network India Limited (ENIL) and Music Broadcast (MBL) remain the

top two players in the radio space, with market shares of 30% and 14%, respectively.

At 13% and 17%, ENIL and MBL’s revenue growth has remained resilient over the

last five years. ENIL added 42 stations over the last two years to be the largest

operator with 73 channels (excluding three Oye FM stations), while MBL added 11

channels to take its total channel count to 39. Fresh inventory with the launch of

new channels is likely to help ENIL/MBL record revenue growth of 16%/15% over

the next three years (FY17-20E). Additionally, operating leverage from an inherent

fixed cost structure and networking of new channels are expected to drive profit

margins. We thus expect EBITDA/PAT CAGR (FY17-20) of 30%/43% for ENIL and

20%/41% for MBL.

Heavy lifting concluded; asset monetization mode (RoIC, FCF)

Phase-III has seen overall INR13b cumulative investment in upfront license cost,

which is ~60% of the private FM market size. ENIL and MBL have spent >INR7b and

INR3.4b, respectively, toward Phase-III license acquisition, set-up cost and renewal

of Phase-II licenses (i.e. nearly 60-70% of their balance sheet size). This has resulted

in their RoCE and RoEs plummeting from average 20-25% to currently below cost of

capital. However, incremental maintenance capex should be a meager INR50-60m,

driving steep FCF and RoIC growth. We expect ENIL and MBL to reach RoIC of

20%/25% by FY20, led by improving EBITDA margins and asset turns. Also, their FCF

yield should improve to ~5%, with FCF generation of INR4.3b for ENIL and INR2.6b

for MBL over the next three years (FY17-20).

Meagre incremental

maintenance capex will

drive FCF and RoIC growth

post the huge investments

in phase III

FCF and PAT growth for ENIL

FCF growth

PAT growth (%)

Valuation: ENIL (Neutral); MBL (Buy) – it’s a three-year story

Global radio companies with low-single-digit growth garner ~10-12x EV/EBITDA on a

one-year forward basis. At current price, ENIL is trading at EV/EBITDA of 25x/20x

and P/E of 70x/45x for FY18E/19E. The company’s strong execution capability is

evident from its intact leadership position (30% market share over the last 10 years),

despite operating in a homogeneous product market. We assign 20x on FY19E

EBITDA of INR2.1b, arriving at a target price of 928, which is 2% above CMP. We

initiate coverage with a

Neutral

recommendation. ENIL is expected to witness

super-normal growth over FY18-20, RoIC recovery to ~20% and high FCF generation

25 July 2017

4

with FCF yield of 5%. Subsequently, if we assign 15x EV/EBITDA on weighted-average

1QFY22E EBITDA of INR3.6b, we arrive at a target price of 1,270/share. Including the

valuation of the three ‘Oye’ FM stations (which may be acquired by March’18) of

INR51/share, the combined TP is INR 1,321, implying 45% upside over a three-year

period (+15% annually). We think the current price captures large portion of ENIL’s

growth potential.

MBL is trading at EV/EBITDA of 13x/10x and P/E of 22x/17x for FY18/19E. The

company is trading at ~30-35% discount to ENIL in terms of FY19E EV/EBITDA,

despite its healthy growth and RoIC/FCF potential. We believe there is strong

likelihood of shrinking of this discount. We value the company at 18x EV/EBITDA on

FY19E EBITDA of INR1.3b, arriving at a TP of INR469/share, ~29% upside from the

CMP of INR365. We initiate coverage with

Buy.

The high multiple is provided to

capture the super-normal EBITDA/PAT CAGR opportunity of 20%/41% over the next

three years (FY17-20). MBL’s growth is a three-year story, as RoIC is likely to recover

from current 13% to 25% over the next three years. Subsequently, if we assign 15x

EV/EBITDA on weighted average 1QFY22E EBITDA of INR1.9b, we arrive at a TP of

626/share, implying 72% upside over a three-year period.

25 July 2017

5

24 July 2017

1QFY18 Results Update | Sector: Financials

HDFC Bank

Buy

BSE SENSEX

32,246

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

9,966

CMP: INR1,735

TP: INR2,000(+15%)

HDFCB IN

Stellar performance on all fronts

2,553

n

HDFCB’s 1QFY18 PAT grew 20% YoY (2% miss) to INR38.9b, driven by 29%

3,236.6 / 47.5

YoY PPoP growth (3% beat), partly offset by provisions. HDFCB delivered

1318 / 929

robust loan growth, strong cost control, QoQ improvement in margins and

2/5/11

best-in-class asset quality.

1782

78.7

n

Loans grew 5% QoQ and 23% YoY to INR5.81t. Incremental growth in

2020E

576.0

464.5

253.6

4.5

99.0

20.5

527.1

522.4

20.2

1.8

23.4

17.5

3.3

3.3

1.1

Financials & Valuations (INR b)

Y/E MARCH

2018E 2019E

NII

400.9 479.4

OP

321.7 387.3

NP

174.8 210.4

NIM (%)

4.7

4.6

EPS (INR)

68.2

82.1

EPS Gr. (%)

20.2

20.4

BV/Sh. (INR)

388.2 451.2

ABV/Sh. (INR)

381.7 447.8

RoE (%)

18.8

19.6

RoA (%)

1.8

1.8

Payout (%)

23.4

23.4

Valuations

P/E(X)

25.4

21.1

P/BV (X)

4.5

3.8

P/ABV (X)

4.5

3.9

Div. Yield (%)

0.8

0.9

n

n

n

n

1QFY18 was driven by retail loans (75% incremental share; 66% of overall

loans). In retail loans (+3.5% QoQ, +25% YoY), the main drivers were

business banking/personal loans, which grew 8%/11% QoQ and 27%/37%

YoY.

Fee income picked up in the quarter (+30% YoY). However, adjusted for one-

off fee income from OMCs and exceptionally strong credit card sales, fee

income growth came in at ~18%-20%.

CASA growth was strong at 29% YoY, led by 26% YoY SA growth and 34% YoY

CA growth. CASA ratio stood at 44%, down 400bp from one-off high of 48%

in 4QFY17.

Asset quality stays robust, with

NSL at 54bp.

However, HDFCB incurred

increased provisioning for NPAs resulting from farm loan waivers and also

from additional provisions created against stressed sectors.

Valuation and view:

HDFCB is well positioned in the current environment,

with 44% CASA ratio, opportunities for significant loan market share gains

and least asset quality risk. With tier 1 capital of 13.6%, strong capacity amid

the moderate growth cycle and significant digitization initiatives, the bank is

well placed to benefit from the expected pick-up in the economic growth

cycle. RoE is expected to be ~19-20% in FY18-20.

We arrive at an SOTP-

based valuation of INR2,000 for the bank (4x June 2019E BV for the bank at

INR1,900 and INR100 for subsidiaries) and maintain Buy.

25 July 2017

6

RESULTS

FLASH

Bharti Infratel

BSE SENSEX

32,246

S&P CNX

9,966

24 July 2017

Results Flash | Sector: Telecom

CMP: INR406

n

n

n

n

n

n

n

n

n

n

n

n

n

TP: INR435

Buy

We will revisit our estimates

post earnings call/management

interaction.

Rental revenue/EBITDA up 3.5%/5.5% QoQ

Pro forma consolidated revenue rose 10% YoY (flat QoQ) to INR35.2b, missing

estimate by 2%.

Pro forma consolidated rental revenue remained steady at INR22.6b (+9.8%

YoY, +3.5% QoQ), marginally above estimate.

Energy revenue declined 5.4% QoQ (+10% YoY) to INR12.6b, a seasonal trend

but it missed estimate by 6%.

Consolidated co-location at 218,401 rose 11% YoY (+4% QoQ), 1% above

estimate.

Colocation adds stood at 7,795, significantly higher than est. of +5,536 and also

+5,673 in the last quarter.

We expect co-location adds to remain high over the next four quarters, given

telcos’ healthy data rollout plans.

Total number of towers stood at 90,837 (+192 QoQ).

Consolidated EBITDA rose 12.9% YoY (+0.2% QoQ) to INR15.8b, 2.8% ahead of

estimate of INR15.3b, due to better-than-expected rental EBITDA.

Consolidated EBITDA margin of 44.7% expanded 125bp YoY (flat QoQ; ~200bp

ahead of our estimate).

Rental EBITDA at INR15.2b was up 11.7% YoY (+5.5% QoQ), with rental margin

up 130bp QoQ to 67%.

Energy EBITDA at INR600m was up 54% YoY (-56% QoQ), with energy margin at

4.7% (+140bp YoY, -550bp QoQ).

Capex stood at INR5.7b v/s our full-year estimate of INR17b.

PAT of INR6.6b dropped 12.2% YoY (+11.3% QoQ), largely due to high taxes.

Conference Call Details

Date:

25

th

July 2017

Time:

02:30pm IST

Dial-in details:

+91-22-4444 9999

Financial Snapshot (INR Billion)

Y/E March

FY17 FY18E FY19E

Net Sales

134.2 146.6 159.4

EBITDA

59.0 66.1 71.1

NP

27.5 33.4 37.7

EPS (INR)

14.9 18.0 20.4

EPS Gr. (%)

25.3 21.5 12.9

BV/Sh. (INR)

83.7 97.0 112.7

RoE (%)

16.2 20.0 19.4

RoCE (%)

13.2 14.8 14.1

Payout (%)

125.0 25.7 22.8

Valuations

P/E (x)

27.3 22.5 19.9

P/BV (x)

4.8

4.2

3.6

EV/EBITDA (x)

12.7 10.8

9.5

Div. Yield (%)

3.9

1.0

1.0

EV/Sales (x)

5.6

4.9

4.2

Valuation and view:

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

INR406, the stock trades at 10.7x/9.4x on FY18/19 EBITDA. We have a

Buy

rating

on the stock with a target price of INR435.

25 July 2017

7

Avenue Supermarts

BSE SENSEX

32,246

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

Financials & Valuations (INR b)

Y/E Mar

Net Sales

EBITDA

PAT

EPS (INR)

Gr. (%)

BV/Sh (INR)

RoE (%)

RoCE (%)

P/E (x)

P/BV (x)

2017

2018E

2019E

24 July 2017

1QFY18 Results Update | Sector: Retail

S&P CNX

9,966

CMP: INR919

TP: INR882(-4%)

Neutral

DMART IN

n

624

570.4 / 8.8

964 / 559

11/-/-

-

-

Results in-line; geographical expansion to drive growth

119.0

9.8

4.8

7.7

34.5

61.6

17.9

14.2

119.8

14.9

163.1

13.6

7.9

12.7

65.8

70.5

19.3

16.5

72.3

13.0

217.9

n

18.5

11.0

17.6

38.7

82.8

23.0

23.2

52.1

n

11.1

Estimate change

TP change

Rating change

n

In-line revenue, EBITDA and PAT:

DMART reported overall revenue of

INR35.9b (est. of INR35.6b) in 1QFY18, as against INR26.5b in 1QFY17,

marking growth of 35.7%. EBITDA margin contracted 50bp from 8.9% in

1QFY17 to 8.4% (est. 8.4%) in 1QFY18 on account of minor migration

challenges into the GST regime and higher employee expenses (increase in

manpower for new stores added in 4QFY17). EBITDA stood at INR3b (est. of

INR3b), as against INR2.3b in 1QFY17 (up 29%). Accordingly, adj. PAT grew

47.6% from INR1,184m in 1QFY17 to INR1,748m (est. INR1,775m) in

1QFY18. The sharp increase in PAT was led by higher other income (up from

INR49m in 1QFY17 to INR228m in 1QFY18).

Minor impact of GST during transition:

DMART witnessed margin

contraction of 50bp YoY to 8.4% in 1QFY18 on account of the transitional

impact of GST. However, migration challenges into the GST regime have

been minimal for the company, with only supplies from certain vendors

expected to see short-term disruptions. On the consumer front, the

company did not witness any impact on sales/footfall during the transition

and neither any impact is expected post GST, indicating that the

consumption levels have not changed.

Store addition to pick up in 2HFY18:

DMART added only one store (in

Punjab) in 1QFY18, keeping growth of total trading area muted at 4.1m sq.ft.

However, going by the trend, the company adds majority of its stores in the

second half of the year (2HFY17 witnessed addition of 19 stores; 90.5% of

the annual store addition). The company is expected to expand its footprint

in geographies where it has limited presence, and further add ~24 stores in

FY18, in line with its business strategy.

Valuation and view:

1QFY18 has witnessed robust growth of 35.7% for

DMART. We expect future growth on similar lines, as, in our view, same-

store sales growth is expected to follow the historical trend and continue at

+20% levels. We expect sales and PAT CAGR of 33% and 45%, respectively,

over FY17-20E. However, valuation at present largely captures future

earnings growth, as evident from the continuous run-up in the stock price

since listing. Therefore, we maintain our

Neutral

rating with a TP of INR882

(downside of 4%).

25 July 2017

8

Zee Entertainment

BSE SENSEX

32,246

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

9,966

24 July 2017

1QFY18 Results Update | Sector: Media

CMP: INR550

TP: INR630 (+15%)

Buy

Z IN

960

n

463.9 / 6.8

589 / 429

5/-3/2

1052

56.9

2019E

76.7

n

27.0

18.2

18.9

28.4

18.0

24.5

20.7

29.1

30.6

n

19.0

0.5

Ad performance in-line; subscription surprises positively

Operational performance exceeds expectations:

1QFY18 EBITDA grew 7%

YoY to INR4.84b (3.5% above estimate of INR4.68b). Revenue exceeded our

expectation, led by better-than-expected subscription income and other sales

& services. While revenue declined 2% YoY, it was up 10% YoY to INR15.4b

(3% above our estimate of INR14.94b) on like-to-like basis (ex-sports). Despite

the EBITDA beat, PAT missed estimate by 24% to INR2.5b (+16% YoY). This

was a function of (i) lower-than-expected net other income and (ii) MTM

losses on preference liability and higher-than-expected tax outgo.

Domestic ad growth largely in-line:

Headline ad revenue grew 6% YoY to

INR9.65b (in-line), of which domestic ads contributed INR9.1b (8% YoY; est.

of INR9b).Domestic ad revenue (ex-sports and RBNL) grew 6.9% to INR8.7b.

Softness in ad growth was on expected lines, as advertisers pulled the plug

in June as primary sales suffered in the run up to GST roll-out. Management

expects July to be soft too. International ad revenue fell 18% YoY to

INR578m (est. of INR663m) as international biz was bogged down by

continuation of certain region-specific issues and currency appreciation.

Subscription surprises positively; margins in-line:

Ex-sports, domestic

subscription grew 14.5% YoY to INR3.78b (10% above our estimate of

INR3.43b) and international subscription (ex-sports) remained largely flat YoY

at INR1b (est. of INR0.93b). On a reported basis, domestic and international

subscription declined 9% YoY each. Management is confident of mid-teen

growth in domestic subscription over the next three years – we have modeled

+17%/20% in FY19/FY20. Non-sports margin remained largely flat YoY at

31.4% (in-line). Programming cost on a reported basis declined 11% YoY to

INR5.86b (in-line) due to absence of sports-related content payouts.

Valuation and view:

We expect ad growth to revert to normal post 2Q. We

revise our EPS estimates by 2%/3% for FY19/FY20 to factor in higher

margins, and revise our TP to INR630 (prior: INR585) as we roll over our

valuations to 32x June FY19 EPS (ex-&TV), plus INR27 toward &TV DCF value

less INR11.5 toward pref. share liability. Maintain

Buy.

Financials & Valuations (INR b)

Y/E MARCH

2017 2018E

Net Sales

64.3

66.4

EBITDA

19.3

21.6

NP

12.2

14.1

EPS (INR)

23.1

14.7

EPS Gr. (%)

149.4

-36.2

EPS ex-&TV, INR

24.0

15.3

RoE (%)

24.7

22.6

RoCE (%)

23.1

18.5

P/E (x)

23.8

37.3

P/E ex-&TV (x)

23.0

36.0

EV/EBITDA (x)

26.4

23.5

Div. Yield (%)

0.5

0.5

Estimate change

TP change

Rating change

n

25 July 2017

9

Ambuja Cements

BSE SENSEX

32,246

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

9,966

ACEM IN

1,985.7

531.8 / 8.3

282 / 191

7/2/-15

683

36.9

24 July 2017

2QCY17 Results Update | Sector: Cement

CMP: INR268

n

TP: INR308 (+15%)

Buy

Sharp pricing improvement drives multi-year-high EBITDA/t

Moderate volume growth:

2QCY17 standalone revenue of INR28.23b (+12%

YoY) came in only marginally below our estimate of INR28.49b, led by strong

realization improvement to INR4,651 (+7.6% YoY, +10.5% QoQ; largely in line

with est. of INR4,663) on sharp price increases in the western market (~38% of

ACEM volumes). Volumes increased 3.8% YoY, led by healthy growth in the

east and north markets.

Healthy pricing drives multi-quarter-high EBITDA/t:

EBITDA increased 6% YoY

to INR6.13b, translating into margin of 21.7% (+7.3pp QoQ, -1pp QoQ).

EBITDA/ton increased 2% YoY to INR1,010 (+INR404/t QoQ) due to a sharp

increase in pricing. Other income declined 51% YoY due to receipt of ACC’s

dividend in 2QCY16. Hence, PBT declined 8% YoY to INR5.47b. PAT fell 13% YoY

to INR3.92b due to higher tax rate of 28%.

Unitary cost higher by 9% YoY:

Unitary cost rose 9% YoY to INR3,641/tonne in

2QCY17, led by 8%/16% increase in freight/power & fuel cost. P&F cost/t rose

4% QoQ due to higher petcoke prices.

Valuation and view:

While ACEM’s growth potential remains muted due to its

limited expansion, we believe better utilization headroom in the faster-growing

regions (north and west) should offer some resilience. ACEM’s core strengths

are intact, and its presence in the north and west markets could lead to

meaningful realization improvement. Additionally, the proposed merger of

ACEM and ACC could drive further cost synergies. The stock trades at 15x/12

CY18E/CY19E EV/EBITDA and USD157/ton on CY19 capacity. Maintain

Buy

with

a TP of INR308/share (15% upside).

Financials & Valuations (INR b)

Y/E Dec

2016 2017E 2018E

n

Sales

91.6 102.0 113.0

EBITDA

15.8

18.0

21.8

NP

9.7

13.8

16.3

Adj. EPS (INR)

4.9

7.0

8.2

EPS Gr. (%)

-10.6

42.2

18.4

BV/Sh. (INR)

96.4 101.7 107.6

RoE (%)

5.1

7.0

7.9

n

RoCE (%)

6.9

7.2

8.1

P/E (x)

37.8

26.6

22.5

P/BV (x)

1.9

1.8

1.7

Estimate change

TP change

Rating change

n

25 July 2017

10

24 July 2017

Indiabulls Housing Finance

BSE SENSEX

32,246

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg. Val (INR M)

Free float (%)

S&P CNX

9,966

IHFL IN

421.3

486.6/7.6

1187 / 616

1/36/41

1838

76.4

1QFY18 Results Update | Sector:

Financials

CMP: INR1,155

n

TP: INR1,350 (+17%)

Buy

Strong growth, stable performance overall

Indiabulls Housing Finance's (IHFL) PAT grew 23% YoY to INR7.8b (8% below

our estimate), mainly driven by lower-than-estimated income on investments.

Core operating performance was robust, with strong AUM growth (+33% YoY),

stable spreads and a decline in C/I ratio.

Management alluded to strong growth witnessed in the home loan segment,

especially the mass housing segment. Disbursements were up 39% YoY in

home loans. Yields continue to remain under pressure (down 14bp QoQ and

94bp YoY to 11.49%). However, due to the sharp decline in cost of funds,

reported spreads remained intact at 3.24%. Management continues to guide

for incremental spreads in the range of 2.75-3% and book spreads of 3-3.25%.

We believe the company will continue delivering at the higher end of its guided

range over the foreseeable future.

The share of home loans in the overall book inched up 100bp to 57%.

Management reiterated its guidance of 66% share of home loans by FY20.

The liability mix continued to evolve in favor of NCDs. Management plans to

raise bulk of incremental funding from NCDs, taking the share of NCDs to 60%

by FY20 (currently 52%).

Valuation and view:

IHFL's transformation from a diversified lender to a

focused mortgage player has yielded returns, with RoE/RoA improving from

3%/0.8% in FY09 to 26%/3.4% in FY17. Focus on core mortgage loans and

market share gains should drive AUM growth of 29% over the next three years.

Also, capital consumption will be lower, with a gradual shift toward individual

home loans and increased sell-downs. IHFL is among the lowest-levered HFCs.

Asset quality trend is likely to remain stable. While we marginally increase our

AUM growth estimates, we cut overall EPS estimates for FY18/19 by 4%/5% to

factor in lower investment income. Maintain

Buy

with a TP of INR1,350 (3.7x

FY19E P/B).

n

Financials & Valuations (INR b)

Y/E March

2017 2018E 2019E

Net Fin inc

39.9 54.4 67.3

PPP

45.5 57.4 72.4

EPS (INR)

69.0 86.3 108.4

EPS Gr. (%)

24.0 25.0 25.6

BV/Sh. (INR)

288

324

368

RoA on AUM (%)

3.1

3.0

3.0

RoE (%)

25.5 28.2 31.3

Payout (%)

52.5 50.0 50.0

Valuations

P/E (x)

16.7 13.4 10.7

P/BV (x)

4.0

3.6

3.1

P/ABV (x)

4.0

3.6

3.1

Div. Yield (%)

3.1

3.7

4.7

n

n

n

25 July 2017

11

24 July 2017

Q1FY18 Results Update | Sector: Consumer

United Spirits

Neutral

BSE SENSEX

32,246

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, (INR m)

Free float (%)

S&P CNX

9,966

UNSP IN

145.3

303.7 / 4.7

2773 / 1775

14/2/-6

1129

41.5

CMP: INR2,641

n

TP: INR2,525 (-4%)

Highway alcohol sale ban to impact volumes over coming quarters

UNSP’s standalone revenue declined 12.7% YoY (est. flat) to INR17.8b

in

1QFY18, with volumes down 18.9% YoY (est. of -9%). According to

management, adjusted for operating model changes, sales were down 7% YoY.

Trade down-stocking in anticipation of highway ban also impacted sales by 3-

4%. Gross sales declined 0.6% YoY to INR58.2b, with excise duty as % of sales

up 420bp YoY to 69.4%. Overall 1Q volumes fell 18.9% YoY to 18m cases.

Popular volumes fell 25.6% YoY to 9.6m cases, while Prestige and above

volumes declined 9.7% YoY to 8.4m cases.

Gross margin expanded 270bp YoY to 46%,

driven by price increases in some

states (not disclosed), productivity initiatives, and a change in mix. EBITDA

margin, however, shrunk 160bp YoY to 8.8% (est. of 9.0%), despite sharp gross

margin improvement, as adspend, staff costs and other expenses increased

90bp, 50bp and 290bp YoY to 9.1%, 9.3% and 18.7% of sales, respectively.

EBITDA declined 26.2% YoY to INR1.57b (est. of INR1.82b).

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

favorable rates. Tax rates were lower at 25.8% v/s expectation of 33%.

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

Conference call highlights:

1) Management expects to recoup the margin loss

(on account of GST) over a period of 2-3 years. 2) Company has taken price

increases in certain states; Telangana yet to take hike.

Valuation and view:

The impact of highway ban was greater than expected,

leading to 7.6%/0.6% reduction in FY18/FY19E EPS. Longer-term margin

growth potential remains intact (mainly led by continued mix improvements),

but the trajectory is likely to be affected by extent of GST impact on EBITDA

margins – management has not yet provided clarity on this. Valuations remain

fair, given the risks emanating from a host of factors like (i) GST impact on

profitability, (ii) highway ban and (iii) prohibitions of various degrees

announced by some states over the past two years. We maintain

Neutral

on

the stock with a DCF-based target price of INR2,525.

Financials & Valuation (INR b)

Y/E Mar

2017 2018E

Total Income

85.5

87.4

EBITDA

9.8

10.5

PAT

3.9

5.0

EPS (INR)

26.7

34.5

EPS Gr. (%)

87.1

29.1

BV/Sh.(INR)

133.4 191.4

RoE (%)

21.3

18.0

RoCE (%)

11.8

12.4

P/E (x)

98.8

76.5

P/BV (x)

19.8

13.8

Estimate change

TP change

Rating change

2019E

100.8

n

13.8

7.5

51.5

49.3

254.1

20.3

15.4

n

51.3

10.4

n

n

25 July 2017

12

24 July 2017

1QFY18 Results Update | Sector: Automobiles

Ashok Leyland

Buy

BSE SENSEX

32,246

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

9,966

AL IN

2,927

301.4 / 4.7

110 / 74

9/-1/-8

1075

48.7

CMP: INR103

n

TP: INR118(+15%)

Higher staff cost, one-off costs, negative operating leverage hurt EBITDA

margin

Price increase offsets sharp decline in volumes:

AL’s revenue declined 0.5%

YoY (36% QoQ) to INR42.4b (in-line). The 8.6% YoY (40% QoQ) decline in

volumes to 28.45k units was offset by 8.9% YoY (7% QoQ) increase in

realization to INR1.49m (v/s our estimate of INR1.5m). AL took price increase

of 10-14% to offset BS-4 and commodity cost pressures.

Higher staff cost, one-offs, negative operating leverage impact margins:

EBITDA margin declined 410bp YoY (380bp QoQ) to 7.2% (v/s our estimate of

10%), led by increase in staff cost, one-off marketing costs and negative

operating leverage. EBITDA declined 36.5% YoY (58% QoQ) to INR3.06b (v/s

our estimate of INR4.27b), translating into 59% YoY decline in adjusted PAT to

INR1.2b (v/s our estimate of INR2.07b).

Key takeaways from conference call:

(a)

Outlook

– expects strong recovery in

volumes from August 2017; (b) Planning price

increase

of 1% from August

2017; (c) Exports to grow at 25% in FY18; (d) Planning to double warranty to

four years across product range; (e) Capex for FY18 at ~INR5b + Investments in

subsidiaries and JVs; (f) Spare parts business grew 34% YoY and contributed

~6% to sales; targeting to increase spares contribution to 10-15% in few years;

(g) Operating working capital under control at 8 days.

Valuation and view:

We downgrade FY18/FY19E EPS by 14%/9%, as we (a)

lower margins by 70bp/30bp, and (b) increase depreciation. We value AL at

~INR118 [9x June 2019E EV/EBITDA (in-line with LPA) + INR11/share for stake

in HLF post 20% HoldCo discount]. Maintain

Buy.

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

(INR Million)

FY18

Var.

1QE

(%)

28,484

0.0

-8.6

1,501

-0.9

9.8

42,755

-0.9

0.4

69.8 -40bp

9.2 110bp

11.0 200bp

38,485

4,269

-28.3

10.0 -280bp

375

2.4

375

-2.3

2,869

-39.7

0

2,869

-44.1

803

28.0

2,066

-41.9

-29.0

Financials & Valuations (INR b)

Y/E March

2017 2018E 2019E

Sales

200.2 252.4 292.2

EBITDA

22.0

25.8

31.8

NP

13.3

15.1

20.4

Adj. EPS (INR)

4.6

5.2

7.0

EPS Gr. (%)

8.0

13.6

34.7

BV/Sh. (INR)

20.9

23.7

27.9

RoE (%)

23.1

23.2

27.0

RoCE (%)

21.8

20.5

24.7

P/E (x)

22.6

19.9

14.8

EV/EBITDA (x)

13.5

10.8

8.3

n

n

n

Quarterly Performance

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

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

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

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

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 (%)

E: MOSL Estimates

25 July 2017

13

24 July 2017

Annual Report

Update

| Sector:

Capital Goods

Cummins

Buy

BSE SENSEX

32,246

S&P CNX

9,966

CMP: INR1,028

TP: INR1,200 (+17%)

Infrastructure spend to drive domestic growth

Key takeaways from FY17 annual report

n

Domestic market revival to be driven by infrastructure segment investments

n

Expanding product portfolio to cater to incremental global and local demand

n

Healthy free cash flow generation led by working capital cycle improvement

Domestic market revival driven by infra investments by the government;

has identified new opportunities in exports

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

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

M.Cap. (INR b)

M.Cap. (USD b)

Equity Shares (m)

Avg Val ( INR m)

Free float (%)

KKC IN

277.2

952/423

6/27/53

285.0

4.4

277.2

275

49.0

Financials Snapshot (INR b)

Y/E Mar

2017 2018E 2019E

Net Sales

50.8

56.6

65.5

EBITDA

8.0

9.1

11.4

Adj PAT

7.3

8.1

10.0

EPS (INR)

26.5

29.2

36.0

EPS Gr. (%)

-2.6

10.1

23.4

BV/Sh. (INR)

135.0 146.2 160.1

RoE (%)

21.2

20.7

23.5

RoCE (%)

20.0

19.8

22.5

P/E (x)

38.8

35.2

28.6

P/BV (x)

7.6

7.0

6.4

Shareholding pattern (%)

Jun-17 Mar-17 Jun-16

As On

Promoter

DII

FII

Others

51.0

21.1

15.0

12.9

51.0

20.9

15.0

13.2

51.0

19.4

16.3

13.3

Cummins (KKC) will continue to benefit from the government’s ongoing

investments in infrastructure and the implementation of GST reforms. Moreover,

with revival in the global economy, exports should also revive.

n

Power Generation:

The government’s renewed push on infra and industrial

development should drive demand for DG sets. KKC sees new opportunity as a

supplier of rail under-cars and also sees strong demand in FY18 from the Indian

Navy/Coast Guard alongside other defense opportunities.

n

Industrial:

KKC retains its leadership in construction equipment segments like

excavators, wheel loaders, road machinery equipment, and water well rigs.

n

Distribution:

The company continues to see good growth, driven by healthy

orders for spare parts, improving penetration of service contracts, and demand

for engines from key accounts.

n

Exports:

KKC is strongly positioned, as global markets recover. It has identified

opportunities to supply additional parts to Cummins’ various Engine Plants and

Part Distribution Centers, globally.

Plans to focus on ‘fit for market’ solutions and expansion of product range

to serve local and global markets

n

n

n

n

KKC plans to develop ‘fit for market’ solutions to meet upcoming emission

regulations, and local and rural market needs.

It also plans to focus on technological innovation to add value to products in

the areas of alternate fuels, recycle/re-use, and hybrid engines.

It intends to expand the existing product range to serve the local and global

market needs

KKC is focusing on providing energy-efficient solutions to reduce the carbon

footprint and improve recyclability

Valuation and view

Over the years, KKC has developed (a) a strong product portfolio with superior

technology to meet domestic demand, (b) a wide distribution network to provide

superior after sales service, and (c) cost-effective products to maintain leadership

in a fiercely competitive market. Given strong infrastructure push, initial signs of

pick-up in the power genset segment, and expected revival in the export segment

from 2HFY18, we maintain our Buy rating, with the target price of INR1,200 (32x

June 2019E EPS; 10% premium to 5-year average). The stock trades at 39x FY17E

EPS of INR26.5, 35x FY18E EPS of INR29.2, and 29x FY19E EPS of 36.0.

14

FII Includes depository receipts

25 July 2017

RESULTS

FLASH

24 July 2017

1QFY18 Results Update | Sector:

Financials

Mahindra Financial Services

BSE SENSEX

32,246

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

9,966

MMFS

565.0

192.1 /3.0

405 / 244

4/-14/-2

-

-

CMP: INR364

Operating performance strong, strengthening the balance sheet

n

n

Financials & Valuations (INR b)

Y/E March

2017 2018E 2019E

NII

33.2 38.0 43.4

PPP

19.3 22.1 25.3

PAT

4.0

7.7

9.2

EPS (INR)

7.1 13.6 16.4

BV/Sh.(INR)

114.6 122.7 132.3

ABV/Sh (INR)

94.8 99.2 107.5

RoA on AUM (%)

1.0

1.7

1.7

RoE (%)

6.3 11.4 12.8

Payout (%)

39.8 41.0 41.0

Valuations

P/E (x)

51.7 27.0 22.4

P/BV (x)

3.2

3.0

2.8

P/ABV (x)

3.9

3.7

3.4

Div. Yield (%)

0.8

1.3

1.6

n

n

n

n

Mahindra & Mahindra Financial Services (MMFS) had a strong quarter on the operating

front. However, its 1QFY18 PAT missed estimate by a wide margin due to higher credit

costs. The company increased its provisioning on loans, which were overdue for more

than 24 months, resulting in INR834m incremental provisioning in the quarter.

Value of assets financed increased 16% YoY in 1QFY18 – fourth consecutive quarter

of 15%+ YoY growth.

This comes after a span of over 12 quarters of sluggish growth,

caused by a variety of external factors. We believe the worst is behind, and expect

sustained pick-up in growth over the medium term. Consequently, reported AUM

increased 14% YoY. The product mix remained largely unchanged.

GNPL ratio increased 150bp QoQ, but declined 20bp YoY to 10.5%.

The sequential

increase, which is seasonal, is much lower than that witnessed in the past three

years.

Asset quality data from the past 10 years suggest that in a good economic cycle,

the 4Q-to-1Q GNPL increase is ~50-100bp, while in a bad cycle, it goes to as high as

250+bp. We believe that with improvement in the overall rural cycle, this number is

likely to decline further, given improvement in asset quality.

In order to maintain 100% provision on loans that are more than 24 months due,

MMFS incurred a provisioning cost of INR834m, based on its assessment of underlying

collateral.

As a result, PCR was largely stable at 60-62%. The sequential PCR decline of

mere 130bp is the lowest 4Q-to-1Q decline in the past 11 years (average decline –

600bp). We view this shoring-up of provisions as a positive sign as it strengthens the

balance sheet, despite the negative impact on profitability.

The borrowing mix continues to evolve in favor of market borrowings (its share

increased from 58% to 63% sequentially).

Valuation and view:

The business environment for MMFS seems to be getting better.

After several quarters of sluggish disbursement growth, MMFS has finally delivered

four consecutive quarters of 15%+ growth. Asset quality data too give early signs of a

revival. We like the fact that the company chooses to improve balance sheet quality

over near-term profitability. The company’s long-term prospects remain strong. MMFS

remains highly levered to growth and asset quality. With the environment getting

better, this would have a multiplier effect on the return ratios. We look to revise our

estimates and target price post the concall on 25 July 2017.

25 July 2017

15

RESULTS

FLASH

Tata Communications

TP: INR811

Buy

24 July 2017

Results Flash | Sector: Telecom

BSE SENSEX

32,246

S&P CNX

9,966

CMP: INR646

n

n

n

n

n

We will revisit our estimates

post earnings call/management

interaction.

Core EBITDA in line with expectation

Core revenue at INR43.1b was up 0.4% QoQ (-3.3% YoY), marginally better than

our expectation.

Core EBITDA of INR5.6b increased 12.6% QoQ (-15.6% YoY), in line with

expectation.

PAT stood at INR1b (v/s loss of INR11b in 4QFY17), better than our estimate of

INR624m.

Data revenue of INR27.8b was flat QoQ, up 4.6% YoY (in-line).

Data EBITDA of INR4.7b was up 23% QoQ (-14.9% YoY; in-line). Data EBITDA

margin of 17% jumped 330bp QoQ (-390bp YoY).

Traditional revenue (contributing 71% of revenue) declined 1% QoQ in INR

terms to INR19.7b. Traditional EBITDA grew 18% QoQ to INR5.7b. Rupee

appreciated 4% QoQ, pulling down dollar revenues.

Voice revenue at INR15.3b was up 1.3% QoQ (+14.9% YoY), 3% above estimate.

Voice EBITDA at INR876m dropped 22.7%/19.1% on QoQ/YoY.

Capex for 1QFY18 was USD51m v/s INR63m in 1QFY17 on the back of sale of

data center and Neotel.

Net debt increased USD54m to USD1.2b, largely due to dividend payment and

the bonus payment to employees.

After last quarters of multiple one-offs, the recovery has been slow due to

currency appreciation and high operating cost owning to revamp in internal

restructuring.

Conference Call Details

Date:

25

th

July 2017

Time:

04:00pm IST

Dial-in details:

+91-22 3960 0854

Financials & Valuations (INR b)

INR million

FY17 FY18E FY19E

Sales

176.2 177.1 190.3

EBITDA

24.1 24.7 32.7

NP

7.4

2.4

7.7

EPS (Rs)

26.0

8.3 27.2

EPS Growth (%) 1,573.9 -68.2 229.0

BV/Share (Rs)

55.9 64.1 91.3

P/E (x)

24.8 78.2 23.8

P/BV (x)

11.6 10.1

7.1

EV/EBITDA (x)

11.3 10.8

7.8

EV/Sales (x)

1.5

1.5

1.3

RoE (%)

126.2 13.8 35.0

RoCE (%)

9.7

3.6

8.1

RoIC (%)

9.4

5.1 13.6

n

n

n

n

n

Valuation and view:

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

INR646, the stock trades at 11.2.x/7.8x on FY18/19 EBITDA. We have a

Buy

rating

on the stock with a TP of INR811.

25 July 2017

16

RESULTS

FLASH

24 July 2017

Results Flash | Sector: Technology

L&T Infotech

Buy

BSE SENSEX

27836.51

S&P CNX

8615.25

CMP: INR763

TP: INR850(+11%)

We will revisit our estimates

post earnings call/management

interaction.

In-line revenue despite some pockets of weakness

Margins below estimate; PAT beat led by higher Other Income

n

LTI’s 1QFY18 revenue grew 2% QoQ to USD259m. In CC terms, revenue growth

was 1.5% QoQ, in line with our estimate.

n

Gross profit margin declined by 200bp QoQ to 33.8%, 90bp miss to our

estimate of 34.7%. EBITDA margin declined by 230bp QoQ to 16.8%, below our

estimate of 17.4%. The margin decline was led by currency, aggressive hiring,

visa expenses and increased S&M expenses.

n

PAT at INR2,673m (+4.9% QoQ) beat estimates of INR2,406m on account of

higher Other Income. Other Income at INR1,084m was 57% higher than our

estimate of INR689m.

Conference Call Details

Date:

25 July 2017

Time:

11:00 IST

Dial-in details:

+91-22-3938 1006

th

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Net Sales

65.0

69.7

EBITDA

12.3

12.0

NP

9.7

10.1

EPS (INR)

55.5

58.0

EPS Gr. (%)

5.9

4.5

BV/Sh. (INR)

159.5

203.5

RoE (%)

40.4

31.9

RoCE (%)

42.7

31.1

Payout (%)

17.5

20.0

Div. Yield

1.2

1.5

2019E

Strength seen in IMS and Digital

77.4

n

In terms of verticals, growth in Energy & Utilities (6.7% QoQ CC), CPG, Retail &

13.1

Pharma (5.4% QoQ CC), High-Tech, Media & Entertainment (4.2% QoQ CC) and

10.5

Others (54.4% QoQ CC) bettered company average. BFS growth of 1.0% QoQ

60.2

CC remains resilient tracking at 19% YoY CC.

3.8

249.2

n

On a sequential basis, weakness was seen in the top 6-10 clients, which saw a

26.6

11% QoQ decline. Other weak areas included Manufacturing (13% decline) and

28.1

Europe (5% decline).

20.0

n

In terms of services, the key drivers were IMS (12.5% QoQ CC) and Analytics, AI

1.5

& Cognitive (4.5% QoQ CC) and Enterprise Integration & Mobility (6.3% QoQ

CC).

Quarterly Performance (Consolidated)

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Ma rgi n (%)

Other i ncome

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Uti l i ncl . tra i nees (%)

Attri ti on (%)

Offs hore rev. (%)

1Q

231

0.6

15,550

16.6

35.3

15.7

3,050

19.6

16.9

372

21.2

2,359

3.2

35.1

13.5

19,292

77.4

19.5

51.9

Valuation and view:

We will revisit our estimates post earnings call. Outlook on

growth, especially in BFS, and on profitability would be keenly watched. Based on

current estimates, it trades at 13.2/12.7x FY18/19E EPS. Maintain

Buy.

4Q

254

3.7

16,772

7.7

35.8

16.8

3,190

19.0

16.5

503

22.3

2,547

2.7

11.4

14.6

21,023

78.3

16.9

51.3

1Q

259

2.0

16,707

7.4

33.8

17.0

2,799

16.8

14.4

1,084

23.4

2,673

4.9

13.3

15.3

22,321

77.7

53.2

FY18E

2Q

3Q

266

270

2.5

1.6

17,268 17,684

7.8

6.1

33.4

33.8

16.5

16.5

2,915

3,065

16.9

17.3

13.9

14.4

764

611

22.0

22.0

2,467

2,464

-7.7

-0.1

6.0

-0.7

14.1

14.1

22,641 22,911

77.5

78.0

52.2

52.5

FY17

4Q

274

1.4

18,065

7.7

34.3

16.5

3,212

17.8

14.9

562

22.0

2,541

3.1

-0.2

14.5

23,131

78.5

52.7

970

9.3

65,009

11.2

35.2

16.3

12,303

18.9

16.2

1,837

21.4

9,711

5.9

55.5

21,023

7807.5

48.3

FY18E

1,069

10.2

69,725

7.3

33.8

16.6

11,990

17.2

14.4

3,020

22.4

10,144

4.5

58.0

23,131

77.9

52.6

Est.

1QFY18

260

2.2

16,735

7.6

34.7

17.3

2,912

17.4

14.3

689

22.0

2,406

-5.5

2.0

13.7

21,443

76.5

47.7

Var. (% /

bp)

(0.2)

(18)

(0.2)

(18)

(92)

(28)

(3.9)

(65)

9

57.3

11.1

1,048

1,131

4.1

120

548

FY17

2Q

3Q

240

245

3.7

2.3

16,020 16,667

9.1

12.1

35.4

34.3

16.4

16.2

3,044

3,020

19.0

18.1

16.1

15.3

365

597

21.0

21.2

2,326

2,481

-1.4

6.7

21.3

10.5

13.3

14.2

21,074 20,605

78.7

78.1

18.5

18.1

51.2

52.3

25 July 2017

17

24 July 2017

Q1FY18 Results Update | Sector: Technology

Info Edge India

Buy

BSE SENSEX

32,246

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

9,966

CMP: INR984

TP: INR1,130 (+15%)

INFOE IN

n

121

119.4 / 1.9

1127 / 752

-4/-3/-2

78

57.6

n

Ahead of estimates, but uncertainty clouds near term

1Q beat on 99acres surprise and cost containment:

INFOE’s 1QFY18 standalone

revenue grew 12.6% YoY to INR2,225m (2% beat). While revenue growth in the

Recruitment business showed 10.4% YoY growth (est. of + 13.5%), real estate

portal 99acres.com grew 12.6% YoY, well ahead of our flat revenue estimate.

EBITDA grew 47.2% YoY (11% beat) on the back of a stable cost base (+1.1% YoY).

Risks to near-term growth in key business segments:

INFOE cited that growth

in Recruitment fell below its own expectations for the quarter, and the muted

outlook in IT Services hiring keeps the prospects uncertain for now. Even in the

real estate sector, weakness in the underlying market is compounded by

confusion following the impact of RERA. This may be followed by some

consolidation of the smaller builders and brokers once RERA takes full effect.

Competition at bay for now:

INFOE’s traffic share in Naukri.com was a healthy

74% excluding Indeed and 60% including Indeed. While Google recently

launched its AI-powered job search engine, INFOE expects it to first battle it out

with Indeed in the US, and while it continues to keep a close watch, business

fundamentals at present are not getting challenged by competitive pressures.

Similarly, the launch of UberEats affected Zomato’s traffic share for a fortnight

and online ordering for a month after launching, but both those metrics are

back in place, reinstating Zomato’s dominance in the category.

Valuation view:

Our standalone estimates for FY18/19 saw only marginal

upgrades after 1Q beat, which was offset by a tepid near-term outlook. We

expect INFOE to leverage any growth opportunity on offer from macro tailwind

in Recruitment and Real Estate segments. The situation with respect to hiring in

the IT Services sector remains a risk (~40% of recruitment revenues). We see

Naukri.com (pick-up in economic growth), 99acres.com (lower competitive

intensity) and Zomato.com (focus on driving monetization and profitability) as

the key drivers of valuation at INFO. Our SOTP-based price target of INR1,130

implies 15% upside. Maintain

Buy.

4Q

2,084

8.0

936

217

300

632

30.3

113

56

689

320

46.5

369

-40

329

-15.6

2.7

1Q

2,225

12.6

991

254

276

703

31.6

264

54

913

270

29.6

642

0

642

44.8

5.2

FY18E

2Q

3Q

2,313

2,327

10.2

25.0

1,016

1,041

278

279

279

281

741

725

32.0

31.2

264

258

56

58

948

925

281

274

29.6

29.6

667

651

0

0

667

651

-16.7

38.1

5.4

5.3

FY17

4Q

2,424

16.3

1,066

291

291

776

32.0

266

60

982

291

29.6

691

0

691

110.1

5.6

8,021

12.6

3,752

881

1,114

2,275

28.4

855

241

2,889

978

33.9

1,911

134

2,045

65.7

15.4

FY18E

9,289

15.8

4,114

1,102

1,127

2,946

31.7

1,052

230

3,768

1,116

29.6

2,652

0

2,652

29.7

21.6

1QFY18

2,182

10.4

997

251

301

633

29.0

252

59

826

239

29.0

587

0

587

32.2

4.9

bp)

2.0

220bp

-0.6

1.3

-8.3

11.1

260bp

4.7

-7.8

10.5

13.1

60bp

9.4

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

8.0

9.3

Net Sales

2.3

2.9

EBITDA

1.9

2.7

PAT

15.7

21.8

EPS (INR)

38.2

38.8

Gr. (%)

162.7

179.8

BV/Sh (INR)

10.2

12.7

RoE (%)

10.2

12.7

RoCE (%)

62.8

45.2

P/E (x)

6.0

5.5

P/BV (x)

2019E

10.5

3.4

3.0

24.7

13.4

197.3

13.1

13.1

39.8

5.0

n

Estimate change

TP change

Rating change

n

Quarterly Performance (Standalone)

Y/E March

Revenues

YoY (%)

Sa l a ry cos ts

Ad a nd Promoti on cos ts

Other Expens es

Operating Profit

Ma rgi ns (%)

Other Income

Depreci a ti on

PBT bef. Extra-ordinary

Provi s i on for Ta x

ETR (%)

PAT bef. Minority

EOI

Adjusted PAT

YoY (%)

EPS (INR)

1Q

1,976

13.1

963

258

277

478

24.2

243

60

661

217

32.9

444

0

444

54.9

3.6

FY17

2Q

3Q

2,100

1,861

20.6

7.3

915

938

221

184

269

268

695

471

33.1

25.3

248

250

62

63

881

658

254

187

28.8

28.4

627

471

174

0

801

471

136.0

116.7

5.1

3.9

6.9

25 July 2017

18

24 July 2017

1QFY18 Results Update | Sector: Media

D B Corp

Buy

BSE SENSEX

32,246

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val (INR m)

Free float (%)

S&P CNX

9,966

DBCL IN

183.4

66/1.0

448 / 345

-6/-16/-25

138

30.1

CMP: INR372

n

TP: INR450 (+21%)

In-line quarter; maintain estimates and target price

Operational performance largely in-line:

DBCL’s 1QFY18 EBITDA grew 3%

YoY to INR1.86b, (largely in-line; our estimate: INR1.85b). Revenue grew 4%

YoY to INR5.94b (in-line) as better than expected print ad revenue made up

for the circulation disappointment. PAT grew 6% to INR1.1b (our estimate:

INR1.12b).

Ad growth healthier than expected:

Print ad

revenue grew 4.5% YoY to

INR3.9b (our estimate: INR3.85b), despite the high base of 1QFY17 (20% ad

growth) and the impact of impending GST implementation on print ad

industry. While HMVL saw flat ad revenue, DBCL’s ad growth seems healthy.

The ad growth run rate pre-GST (April and May) was 7.5-8%. We have

modeled 9% CAGR in ad revenue over FY17-19.

Circulation growth moderates, falls short of expectations:

Circulation

revenue grew 5% YoY to INR1.23b (our estimate: INR1.27b). Growth was

largely led by yield improvement in mature markets. The management

intends to rev up circulation growth, given that the ad environment is

improving. We have modeled 9% CAGR in circulation over FY17-19.

Margins contract by 40bp; largely in-line:

Margins declined 40bp YoY to

31.4% (our estimate: 31.1%), despite higher-than-expected RM and SG&A

costs. Lower-than-expected employee costs more than cushioned the spike

in RM and SG&A expenses. RM costs grew 6.8% YoY (price-led) to INR1.71b

(our estimate: INR1.69b), constituting 28.7% of revenue.

Maintain Buy rating, target price:

We maintain our PAT estimates, which

factor in 9% CAGR in ad/circulation revenue. DBCL trades at 15.8x FY18E and

13.6x FY19E EPS. Maintain

Buy,

with a target price of INR450 (16x FY19E

EPS; 11% discount to average P/E of 18x since listing).

(INR Million)

FY18E

24,366

8.6

17,131

7,235

12.7

29.7

896

43

321

6,617

2,250

34.0

4,367

0

4,367

16.6

Financials & Valuation (INR Billion)

Y/E MAR

2017 2018E 2019E

Net Sales

22.4 24.4 26.5

EBITDA

6.4

7.2

8.1

Adj. Net Profit

3.7

4.4

5.1

Adj. EPS (INR)

20.4 23.7 27.6

Adj. EPS Gr. (%)

25.8 16.5 16.1

BV/Sh (INR)

86.7 97.4 109.8

RoE (%)

25.5 25.8 26.6

RoCE (%)

23.0 24.1 25.0

P/E (x)

18.4 15.8 13.6

P/BV (x)

4.3

3.9

3.4

Estimate change

TP change

Rating change

n

n

n

n

Quarterly Performance

Y/E March

Sales

YoY (%)

Operating Expenses

EBITDA

YoY (%)

EBITDA margin (%)

Depreciation

Interest

Other Income

PBT

Tax

Effective Tax Rate (%)

PAT

Minority Interest

Adj PAT

YoY (%)

1Q

5,704

20.5

3,892

1,812

48.7

31.8

211

34

41

1,608

568

35.3

1,040

0

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

0

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

0

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

641

-0.2

1Q

5,942

4.2

4,079

1,863

2.8

31.4

220

16

70

1,698

597

35.1

1,101

0

1,101

5.9

FY18

2Q

5,692

7.7

4,204

1,488

-1.1

26.1

225

9

84

1,338

450

33.6

889

0

889

0.4

FY17

3Q

7,094

13.1

4,527

2,567

29.5

36.2

227

9

84

2,415

811

33.6

1,604

0

1,604

35.8

4Q

5,636

9.0

4,321

1,315

17.2

23.3

224

9

84

1,166

392

33.6

774

0

774

20.7

22,435

9.4

16,013

6,422

19.9

28.6

863

74

170

5,654

1,907

33.7

3,747

0

3,747

25.9

25 July 2017

19

24 July 2017

1QFY18 Results Update | Sector: Financials

J&K Bank

Neutral

BSE SENSEX

32,246

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

9,966

JKBK IN

484.9

35.2/0.5

96 / 55

-4/26/19

104

43.6

CMP: INR91

n

TP: INR91 (+0%)

Balance sheet clean-up phase; PAT turns positive after three quarters

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

three consecutive quarters of losses. Adjusted for excess provisions made by

the bank (which it created from DTAs recognized), PAT came in at INR2.7b.

Slippages of INR5.1b (22% decline from INR6.5b in 4Q) were partly offset by

strong recoveries and upgrades of INR1.9b. Gross/net slippage ratio stood at

4.1%/2.5% v/s 5.2%/2.8% in 4QFY17. Steep provisioning helped increase PCR,

leading to a 7% QoQ decline in NNPAs (4.3% v/s 4.6% of advances in 4Q), with

an increase in reported PCR to 70.26% from 66.9% in 4Q. GNPA stood at 10.6%.

Standard restructured loans stood at INR55.5b (11% of loans). S4A book stood

at INR2.45b at the end of the quarter.

NII grew ~13% YoY (+9% QoQ), led by sharp improvement in NIM 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, as the

bank’s cost of funds declined 22bp/65bp QoQ/YoY.

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

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

PPoP growth.

Other highlights:

(1)

Loan growth was flat YoY (-2% 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 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.

Maintain

Neutral.

n

Financials & Valuations (INR b)

Y/E March

2018E 2019E 2020E

NII

28.0

30.3

34.6

OP

14.0

14.4

16.5

NP

2.0

4.3

6.0

n

NIM (%)

3.6

3.5

3.5

EPS (INR)

3.8

8.2

11.6

EPS Gr. (%)

NA 115.2

40.3

BV/Sh. (INR)

111.8 118.0 126.8

ABV/Sh. (INR)

88.4 100.1 113.9

n

RoE (%)

3.5

7.2

9.4

RoA (%)

0.2

0.4

0.5

P/E(X)

21.9

10.2

7.3

n

P/BV (X)

0.8

0.7

0.7

n

25 July 2017

20

RESULTS

FLASH

24 July 2017

Results Flash | Sector: Entertainment

Delta Corp

Buy

BSE SENSEX

32,246

S&P CNX

9,966

CMP: INR174

n

n

TP: INR215(-23%)

We will revisit our estimates

post earnings call/management

interaction.

Financials & Valuations (INR b)

Y/E Mar

2017 2018E

Net Sales

4.5

6.4

EBITDA

1.6

2.4

NP

0.7

1.5

EPS (INR)

3.1

5.7

EPS Gr. (%)

125.5

86.0

BV/Sh. (INR)

39.7

59.3

RoE (%)

8.1

12.1

RoCE (%)

9.6

12.6

P/E (x)

57.0

30.6

P/BV (x)

4.4

2.9

Revenue beats, but PAT misses estimate

DELTA reported overall revenue of INR1,286m (est. of INR1,180m), as against

INR1,087m in 1QFY17, marking growth of 18.4%.

EBITDA margin shrunk 300bp YoY to 35.2% in 1QFY18 (est. of 38.1%). EBITDA

stood at INR453m (est. INR450m), as against INR415m in 1QFY17.

Consequently, adjusted PAT stood at INR211m in 1QFY18 (est. INR255m), as

against INR170m in 1QFY17, on account of income from exceptional items of

INR18m.

Gaming revenue grew 20% YoY to INR1,157m, while there was marginal growth

of 4% YoY in hospitality revenue to INR175m.

Valuation and view:

We will revisit our estimates post the discussion with

management. Amalgamation of Gauss Network with the company and the Goa

government’s decision of bringing offshore casino operations on land would be

keenly watched. Based on current estimates, it trades at 5.7/7.2x FY18/19E

EPS. Maintain

Buy.

2019E

n

7.8

3.1

1.9

7.2

n

26.0

64.9

11.5

11.8

n

24.3

2.7

Consolidated - Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

Minority Interest &

Profit/Loss of Asso. Cos.

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

E: MOSL Estimates

1Q

1,087

34.6

671

415

38.2

91

87

9

246

-46

292

85

29.2

4

202

170

2,539.9

15.6

FY17

2Q

3Q

1,343

1,036

43.8

3.4

776

723

567

313

42.2

30.2

93

89

87

82

11

11

399

152

2

5

397

91

22.9

-16

322

323

494.1

24.1

147

40

27.2

6

101

105

-9.4

10.1

4Q

1,081

5.3

737

344

31.8

87

94

19

182

0

181

64

35.4

3

114

114

-29.3

10.5

1Q

1,286

18.4

833

453

35.2

89

70

37

332

-18

350

127

36.1

1

223

211

24.4

16.4

FY18

2QE

3QE

1,630

1,745

21.4

68.5

941

1,138

689

607

42.3

34.8

105

112

33

30

36

43

587

508

0

0

587

153

26.0

0

435

435

34.4

26.7

508

122

24.0

0

386

386

269.3

22.1

FY17

4QE

1,844

70.5

1,191

653

35.4

112

30

76

587

0

587

141

24.0

0

446

446

291.7

24.2

4,547

21.2

2,907

1,640

36.1

361

350

49

978

42

936

280

29.9

2

654

683

118.8

15.0

FY18E

6,399

40.7

3,999

2,400

37.5

423

130

180

2,027

0

2,027

507

25.0

3

1,518

1,518

122.1

23.7

(INR Million)

FY18

Var

1QE

%

1,180

9

8.6

730

450

1

38.1

94

37

26

344

-4

0

344

89

26.0

0

255

255

50.1

21.6

2

-12

-17

25 July 2017

21

24 July 2017

Metals Weekly

Chinese export steel prices continue to trend higher

n

n

n

n

n

Indian steel: Long product (TMT Mumbai) prices were unchanged WoW. Sponge iron prices were up ~2%

WoW while domestic scrap prices were up ~5% WoW. Domestic iron ore and pellet prices were unchanged.

Domestic HRC prices were unchanged, but import price offers were up ~2% WoW.

Raw Materials: Iron ore prices (China cfr) were up ~2% WoW. Chinese iron ore port inventories were

unchanged. Thermal coal prices were up ~2% WoW. Coking coal prices were up ~4% WoW on strong buying

activity in China. China pellet import prices were up ~1% WoW, as premium over iron ore remains strong.

Europe: HRC prices were up ~3% WoW, second consecutive week of increase. EU steel spreads improved on

higher steel prices, offset partly by increase in iron ore and coking coal. CIS export HRC prices were up ~1%

WoW. Rotterdam scrap prices were up ~1% WoW.

China: local HRC prices were up ~1% WoW, while rebar prices were down ~1% WoW. Steel inventories are

declining. Export HRC/rebar prices were up ~2/1% WoW, respectively. The mill spreads are at multiyear high.

Base metals: Aluminum (cash LME) was unchanged. Zinc (cash LME) was unchanged while lead was down ~2%

WoW. Copper was up ~2% WoW. Crude oil (Brent) prices were down ~2% WoW.

25 July 2017

22

June 2017 Results Preview | Consumer

Asian Paints

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

APNT IN

959.2

1064 / 16

1230 / 850

-4 / 5 / -4

n

CMP: INR1,109

n

TP: INR1,240 (+12%)

Neutral

We expect revenues to grow 2% YoY to INR37.1b in 1QFY18, with

flattish volumes in the domestic decorative business.

We note that crude prices have been flat YoY and are actually

down 8% QoQ in 1QFY18. The magnitude of price movement in

crude derivatives is lower vis-à-vis crude prices. Gross margin is,

however, likely to contract 300bp YoY to 44.2% in 1QFY18, mostly

due to an unfavorable base.

Operating margin to contract 200bp to 20.6% in 1QFY18.

We thus estimate 6% PAT decline for 1QFY18.

The stock trades at 40.4x FY19E EPS of INR27.4; Maintain Neutral.

Financial Snapshot (INR b)

y/e March

2017 2018E 2019E 2020E

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) Yield (%)

Div.

52.7

14.0

34.2

1.1

47.9

13.4

30.8

1.2

40.4

11.5

26.0

1.2

33.4

9.5

21.5

1.2

152.9 175.7 206.4 242.8

30.2

20.2

21.0

8.7

79.3

28.5

24.3

47.6

33.5

22.2

23.1

10.0

82.7

28.6

24.9

49.7

39.6

26.3

27.4

18.6

30.6

27.0

41.9

47.3

31.8

33.2

20.9

31.1

28.0

34.7

n

n

n

96.7 116.4

Key issues to watch for:

Ø

Volume growth trends and demand scenario in urban and rural

geographies.

Ø

Demand outlook for industrial paints.

Ø

Outlook for raw materials/pricing actions.

Quarterly Performance (Consolidated)

Y/E March

Dom Deco Volume Growth %

Net Sales

Change (%)

Raw Material/PM

Gross Profit

Gross Margin (%)

Operating Expenses

% of Sales

EBITDA

Margin (%)

Change (%)

Interest

Depreciation

Other Income

PBT

Tax

Effective Tax Rate (%)

PAT before Minority

Minority Interest

Adjusted PAT

E: MOSL Estimates

1Q

11.0

36,374

9.1

19,191

17,183

47.2

8,981

24.7

8,203

22.6

20.9

64

855

719

8,003

2,603

32.5

5,400

50

5,351

FY17

2Q

3Q

12.0

2.0

37,633

39,370

9.6

2.6

20,876

22,045

16,758

17,325

44.5

44.0

9,628

9,562

25.6

24.3

7,130

7,763

18.9

19.7

17.3

-1.2

60

92

844

855

791

415

7,017

7,231

2,207

2,465

31.5

34.1

4,810

4,766

51

104

4,759

4,662

4Q

10.0

39,525

7.8

22,194

17,330

43.8

10,211

25.8

7,119

18.0

2.1

90

835

701

6,895

2,205

32.0

4,690

-106

4,796

1QE

0.0

37,101

2.0

20,688

16,414

44.2

8,789

23.7

7,625

20.6

-7.0

64

983

805

7,383

2,289

31.0

5,094

50

5,045

FY18

2QE

15.0

45,160

20.0

25,502

19,657

43.5

11,779

26.1

7,878

17.4

10.5

60

970

886

7,734

2,398

31.0

5,337

51

5,286

3QE

15.0

47,244

20.0

26,218

21,026

44.5

11,710

24.8

9,316

19.7

20.0

92

983

464

8,705

2,699

31.0

6,006

104

5,902

4QE

10.0

46,217

16.9

25,321

20,896

45.2

12,260

26.5

8,636

18.7

21.3

471

954

795

8,006

2,482

31.0

5,524

-426

5,950

(INR Million)

FY17

8.8

152,902

7.1

84,306

68,596

44.9

38,381

25.1

30,214

19.8

9.1

306

3,388

2,626

29,146

9,480

32.5

19,666

98

20,162

FY18

11.0

175,723

14.9

97,729

77,994

44.4

44,539

25.3

33,455

19.0

10.7

687

3,890

2,951

31,829

9,867

31.0

21,962

-222

22,184

25 July 2017

23

December 2015 Results Preview | Sector: Financials

June 2017 Results Preview | Sector: Financials - Banks

Axis Bank

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

AXSB IN

2395.1

1219 / 19

638 / 425

0 / -5 / -21

n

CMP: INR509

n

TP: INR500 (-2%)

Neutral

Financial Snapshot (INR b)

Y/E March

2017 2018E 2019E 2020E

NII

OP

NP

NIM (%)

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoA (%)

Payout (%)

Valuations

P/E(X)

P/BV (X)

P/ABV (X)

Div. Yield (%)

33.1

2.2

2.5

1.0

21.4

2.1

2.3

1.0

12.6

1.8

2.1

1.2

9.9

1.6

1.7

1.5

180.9

175.8

36.8

3.6

15.4

-55.5

226.7

6.9

0.6

32.5

199.4

177.2

57.0

3.5

23.8

54.9

244.6

217.0

10.1

0.9

25.2

232.5

203.0

96.5

3.4

40.3

69.3

277.8

246.2

15.4

1.2

17.6

276.6

240.5

123.3

3.3

51.5

27.8

320.2

295.9

17.2

1.3

17.6

n

ABV/Sh. (INR) 203.3

n

n

We expect AXSB to report ~10% loan growth, driven by continued

strong growth in the retail and SME segments. Overall deposit

growth will continue to be strong at 19%, given a relatively low base

of 1QFY17 (pre-demon).

Yield on loans would remain under pressure following MCLR

cuts/aggressive competition in the refinance market. Margins are

expected to moderate marginally by ~10bp QoQ to 3.6%, coming

off a strong 4Q when margins had expanded 25bp QoQ. Margins

will also be impacted by stress additions.

Current watch-list stands at INR112b (2.2% of customer assets) and

is expected to be done away with completely in FY18. While

slippages should moderate in 1Q, we expect them to remain at

elevated levels (4.5% annualized slippage ratio), leading to high

credit costs.

We estimate PAT at INR12.4b v/s INR15.6b in 1QFY17 (v/s INR12.3b

in 4Q), subdued on a YoY basis owing to high NPA provisioning.

AXSB trades at 1.8x FY19E BV and 12.6x FY19E EPS. Neutral.

Key issues to watch for

Ø

Quantum of corporate slippages from watch-list and any revision in the

size of the same.

Ø

Quantum of loans rescheduled under 5:25, SDR and S4A.

(INR Million)

Quarterly Performance

Net Interest Income

% Change (Y-o-Y)

Other Income

Net Income

Operating Expenses

Operating Profit

% Change (Y-o-Y)

Other Provisions

Profit before Tax

Tax Provisions

Net Profit

% Change (Y-o-Y)

Operating Parameters

NIM (Cal, %)

Deposit Growth (%)

Loan Growth (%)

Tax Rate (%)

Asset Quality

Gross NPA (INR b)

Gross NPA (on cust. assets, %)

E: MOSL Estimates

1Q

45,169

11.4

27,383

72,552

27,858

44,694

9.2

21,172

23,522

7,967

15,555

-21.4

3.8

16.3

21.2

33.9

95.5

2.5

FY17

2Q

45,139

11.1

25,397

70,535

29,534

41,002

13.0

36,227

4,774

1,584

3,191

-83.3

3.7

17.3

18.5

33.2

163.8

4.2

3Q

43,337

4.1

34,002

77,339

30,937

46,402

16.4

37,958

8,444

2,649

5,796

-73.4

3.5

9.6

10.1

31.4

204.7

5.2

4Q

47,286

3.9

30,132

77,418

33,670

43,747

-0.5

25,813

17,935

5,684

12,251

-43.1

3.7

15.8

10.1

31.7

212.8

5.0

1QE

47,965

6.2

26,145

74,110

32,421

41,689

-6.7

23,000

18,689

6,261

12,428

-20.1

3.6

19.3

10.3

33.5

228.6

5.8

FY18E

2QE

3QE

48,918

50,107

8.4

15.6

28,432

30,430

77,350

80,537

34,606

35,810

42,745

44,728

4.3

-3.6

23,000

23,000

19,745

21,728

6,614

7,279

13,130

14,449

311.5

149.3

3.6

17.9

12.6

33.5

243.1

5.9

3.5

26.9

20.8

33.5

252.7

5.8

4QE

52,454

10.9

35,560

88,014

39,955

48,059

9.9

22,537

25,522

8,550

16,972

38.5

3.5

20.0

20.0

33.5

260.1

5.6

FY17

180,931

7.5

116,913

297,844

121,999

175,845

9.2

121,170

54,676

17,883

36,793

-55.3

3.6

15.8

10.1

32.7

212.8

5.0

FY18

199,444

10.2

120,567

320,011

142,791

177,220

0.8

91,537

85,683

28,704

56,979

54.9

3.5

20.0

20.0

33.5

260.1

5.6

25 July 2017

24