26 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

Axis Bank: Core PPoP helped by healthy fees

v

Axis Bank surprised positively with core PPoP beating estimates due to better

than expected core fee income growth.

v

Asset quality remained under pressure with gross stressed asset pool largely

unchanged QoQ.

v

We largely maintain our earnings estimates as expected benefit of reduced

credit costs should be offset by suppressed margins.

v

We expect PPoP to stay flat in FY18 with moderation in trading gains (one-off

high in FY17).

v

We expect continued balance sheet cleanup to keep return ratios under

pressure.

v

We build in 0.8%/9.3% RoA/RoE for FY18 and maintain neutral with a TP of

INR545.

Market snapshot

Equities - India

Close

Chg .%

Sensex

32,228

-0.1

Nifty-50

9,965

0.0

Nifty-M 100

18,377

0.4

Equities-Global

Close

Chg .%

S&P 500

2,477

0.3

Nasdaq

6,412

0.0

FTSE 100

7,435

0.8

DAX

12,264

0.5

Hang Seng

10,783

-0.4

Nikkei 225

19,955

-0.1

Commodities

Close

Chg .%

Brent (US$/Bbl)

50

4.2

Gold ($/OZ)

1,251

-0.4

Cu (US$/MT)

6,197

3.4

Almn (US$/MT)

1,909

1.0

Currency

Close

Chg .%

USD/INR

64.4

0.1

USD/EUR

1.2

0.0

USD/JPY

111.3

0.5

YIELD (%)

Close

1MChg

10 Yrs G-Sec

6.4

0.0

10 Yrs AAA Corp

7.5

0.0

Flows (USD b)

25-Jul

MTD

FIIs

0.0

0.2

DIIs

0.0

0.3

Volumes (INRb)

25-Jul

MTD*

Cash

297

288

F&O

5,275

5,488

Note: YTD is calendar year, *Avg

YTD.%

21.0

21.7

28.1

YTD.%

10.6

19.1

4.1

6.8

14.8

4.4

YTD.%

-9.3

7.9

12.2

12.0

YTD.%

-5.1

10.5

-5.0

YTDchg

-0.1

-0.1

YTD

8.7

3.6

YTD*

286

4,980

Research covered

Cos/Sector

Axis Bank

Bharti Airtel

Asian Paints

Vedanta

Bharti Infratel

Hero Motocorp

Pidilite

GSK Pharma

M&M Fin. Serv.

Tata Comm

L&T Infotech

GE & T&D India

Results Expectation

Key Highlights

Core PPoP helped by healthy fees

Consolidated EBITDA declines marginally

Impacted by GST-related challenges

Many segments were weak; cost pressure in AL

Growth outlook remains upbeat

GST compensation, RM hurt margin; Volume guidance slightly lowered

Performance impacted by GST-led destocking

GST impacts revenues, margins tank

Operating performance strong; Strengthening the balance sheet

Margin-led EBITDA growth to continue

1Q weakness offset by sanguine FY18 outlook

Strong sales and margin beat; orders up 98% YoY

BHAFIN | FB| MPHL | NEST | PVR | Yes

Piping hot news

Big financial blow for NPA-laden banks on cards as RBI unlikely to ease

provisioning load

v

Banks hoping to escape steep provisions on loans referred to bankruptcy

court, apart from the 12 companies that the Reserve Bank of India (RBI)

recently mandated for the insolvency process, are set to be disappointed.

Chart of the Day: Axis Bank – Core PPoP helped by healthy fees

Pool of net stress loans stands at INR274b (6.6% of customer assets)

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

Sebi may ask companies to

keep bourses in loop on

defaults

The Securities and Exchange Board

of India (Sebi) is planning to make

it mandatory for listed companies

to inform stock exchanges if they

fail to make interest and loan

installment payments on time in

order to ensure greater fiscal

discipline and keep…

2

Trucks cover 30 per cent more distance a day post-GST

The distance travelled by trucks per day has increased by at least 30% post

the rollout of goods and services tax (GST), according to a document

prepared by the road transport ministry on the impact of GST on logistics

sector. Trucks are covering 300-325 km a day on an average against about

225 km a day before GST, it said…

3

Government starts mega drive

to link NREGS a/c with

Aadhaar

The government has started a

drive to bring all active workers of

the National Rural Employment

Guarantee Scheme (NREGS) under

the Aadhaar framework to bring

down duplication under the

scheme and prevent leakage of

funds…

4

LIC to offload excess stake in

firms in 2 years

Insurer needs to dilute stakes

worth Rs 9,000 cr in 12 companies

to comply with 15% shareholding

cap. The Insurance Regulatory and

Development Authority of India

has given Life Insurance

Corporation of India (LIC) two

years to pare shareholdings in

companies in which it owns more

than the permitted 15 per cent…

5

The Sajjan Jindal-promoted JSW

Energy is planning an asset-light

strategy and is evaluating options

in the solar rooftop and energy

storage segments for a stronger

foothold in renewable energy.

“Energy storage is one area where

a paradigm shift is happening…

JSW Energy eyes solar rooftop,

energy storage

6

Vodafone-Idea merger

expected to complete in 2018

The merger of Vodafone India Ltd

and Idea Cellular Ltd is set to be

completed ahead of time in 2018,

the companies said on Tuesday.

The Vodafone-Idea merger will

create India’s largest telecom firm,

eclipsing Bharti Airtel Ltd and pose

a formidable challenge to new

entrant and disruptor Reliance Jio

Infocomm Ltd…

26 July 2017

7

Govt unlikely to demerge Air

India

The government is unlikely to

demerge Air India as it fears such

a move could erode the value of

the national carrier. InterGlobe

Aviation, which runs India's

leading airline IndiGo, has

expressed interest in taking over

the international business of Air

India...

2

25 July 2017

1QFY18 Results Update | Sector: Financials

Axis Bank

Neutral

BSE SENSEX

32,228

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

9,965

AXSB IN

2,395.0

1,304.5 / 20.3

1228 / 849

-4/2/-7

1203

47.2

CMP: INR545

n

TP: INR545 (+0%)

Core PPoP helped by healthy fees; Pool of stress loans remains unchanged

Axis Bank’s (AXSB) PAT came in at INR13.06b (5% beat). Key positives were: a)

continued healthy retail loan growth of 22% YoY; reported loan growth was

lower at ~12% due to FCNR-B linked loans redemption in 2HFY17, b) average

daily CASA growth stood at 24% YoY, with SA growth at 22% YoY; average CASA

ratio stood at 45%, and c) fee income growth improved to 17% v/s average of

~8% over the last two years, driven by strong retail fees (+33% YoY; 48% of fees

v/s 42% a year ago).

Total pool of gross stress loans was largely unchanged at ~INR400b (9.6% of

customer assets), despite high write-offs of INR24.6b (65bp of loans) during the

quarter. Gross slippages were elevated due to a) slippages outside watch-list of

INR15b+ and higher stress in Agri segment. Net stress loans stood at INR274b

(6.6% of customer assets) v/s INR283b (7% of customer assets) a quarter ago.

Absolute GNPA increased 4% QoQ. GNPA/NNPA came in at 5.03%/2.3% (-

1bp/+19bp QoQ). Management commented that stressed assets outside

watch-list may continue to add to slippages.

CET1 ratio/Tier 1 ratio/CAR stood at 11.15%/12.6%/16.6%. During the quarter,

the bank raised INR35b/INR50b of AT1/T2 bonds. Based on expected capital

consumption, we believe AXSB should raise CET1 capital by end of 1HCY18.

Valuation and view:

We largely maintain our earnings estimates. In our view,

the expected benefit of reduction in credit cost should be compensated by

lower margins. In FY17, trading gains contributed 20% of operating profits v/s

FY13-16 average of 6%. We expect this to decline to 15% of PPoP in FY18,

leading to flat PPoP. Core PPoP is expected to stay flat in FY18. Continued

clean-up and expected pressure on core income are likely to keep return ratios

under pressure. We expect RoAs of ~0.8% and RoEs of ~9.3% in FY18. We

expect earnings to normalize only in FY19. We roll forward the TP by a quarter

to June 2019. At our TP, AXSB will trade at 1.9x June 2019E BV and 14x

earnings. Maintain

Neutral.

Financials & Valuation (INR b)

Y/E March

NII

OP

NP

NIM (%)

EPS (INR)

BV/Sh. (INR)

RoE (%)

RoA (%)

P/E(X)

P/BV (X)

2018E 2019E 2020E

192.4 225.5 271.2

172.1 197.7 236.5

52.3

91.2 120.7

3.4

3.4

3.4

21.8

38.1

50.4

242.9 274.3 315.8

9.3

14.7

17.1

0.8

1.2

1.3

24.9

14.3

10.8

2.2

2.0

1.7

n

n

n

n

26 July 2017

3

RESULTS

FLASH

Bharti Airtel

BSE SENSEX

32,228

S&P CNX

9,965

25 July 2017

Results Flash | Sector: Telecom

CMP: INR428

n

TP: INR435

Buy

We will revisit our estimates

post earnings call/management

interaction.

Consolidated EBITDA declines marginally

Consolidated revenue stood at INR219.6b (flat QoQ, -14% YoY; in-line).

Consolidated EBITDA of INR77.6b declined 1% QoQ (-19% YoY; 4% ahead of

estimate). EBITDA margin at 35.3% shrunk 50bp QoQ (-200bp YoY).

India wireless revenue declined by a meager 0.4% QoQ (-14.2% YoY) to

INR129.1b, marginally ahead of expectation. India EBITDA at INR44.3b declined

8% QoQ (-31% YoY; 2% below estimates). India EBITDA margin at 34.3%

contracted 260bp QoQ (-810bp YoY; 100bp miss) due to high SG&A costs.

Africa revenue fell 4% QoQ (-22% YoY) to INR48.5b (2% below estimate) due to

currency movements. Africa EBITDA of INR13.6b rose 4% QoQ (-3% YoY),

exceeding estimate by 2% due to cost efficiency in SG&A and employee cost.

Africa EBITDA margin at 28.1% expanded 220bp QoQ (+570bp YoY).

PAT at INR3.7b declined 2% QoQ (-75% YoY).

Conference Call Details

Date:

26 July 2017

Time:

02:30pm IST

Dial-in details:

+91-22-4444 9999

th

n

n

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

954.7

931.6

EBITDA

353.3

340.8

NP

44.4

17.3

EPS (INR)

11.1

4.3

EPS Gr. (%)

-6.4

-61.1

BV/Sh. (INR)

168.8

171.8

RoE (%)

6.7

2.5

RoCE (%)

5.4

3.7

P/E (x)

38.5

98.9

P/BV (x)

2.5

2.5

2019E

1034.9

391.9

27.6

6.9

59.6

177.5

4.0

4.6

62.0

2.4

n

Key Metrics

India

n

Voice revenue at INR92.6b (in-line) was flat QoQ, but declined 12% YoY. Data

revenue recovered, with 3% QoQ growth (-20% YoY) to INR28.1b. ARPU at

INR154 declined 2%/21% QoQ/YoY (2% better than expectation). Voice ARPU

at INR111 was down 3% QoQ. Data ARPU at INR156 was down 4% QoQ.

Africa

n

ARPU at USD3.1 was flat QoQ (-5% YoY). Voice RPM dropped 7% QoQ to 1.4

cents, partly offset by 6% jump in MOUs.

Valuation and view:

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

INR428, the stock trades at

EV/EBITDA

of 7.6x/6.6x on FY18/19. We have a

Buy

rating on the stock with TP of INR435.

26 July 2017

4

25 July 2017

1QFY18 Results Update | Sector: Consumer

Asian Paints

Neutral

BSE SENSEX

32,228

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

9,965

APNT IN

959.2

1,108.9 / 17.2

1228 / 849

-4/2/-7

1203

47.2

CMP: INR1,152

TP: INR1,200 (+4%)

n

Impacted by GST-related challenges; RM costs pull down margins

Asian Paints (APNT) reported consol. sales growth of 6.4% YoY (est. of +2%)

to INR38.2b,

with volume growth of ~4% (est. of flat growth) in the domestic

decorative paints business. The quarter failed to build on a good start due to

destocking ahead of GST implementation.

Gross margin shrunk sharply by 430bp YoY (est. of +300bp) to 42.8%,

mainly

led by higher RM prices. Increase in RM cost, along with slightly higher other

expenses (+80bp YoY) and employee expense (+20bp YoY), led to EBITDA

margin contraction of 530bp YoY to 17.4% (est. of -200bp). Thus, EBITDA

declined 18.5% YoY to INR6.7b (est. of -7%). Adj. PAT fell 20.4% YoY to INR4.4b

(est. of -6%).

Standalone performance:

Net sales grew 7.3% YoY to INR32b. Gross margin

shrunk by 470bp YoY to 43.8% and EBITDA margin by 580bp YoY to 18.6%.

Thus, EBITDA fell 18.2% YoY to INR6b. Adj. PAT was down 20% YoY to INR4b.

Subsidiary sales grew 1.5% YoY to INR6b,

while EBITDA and adj. PAT declined

21% and 24% YoY, respectively.

Concall highlights:

1) While April saw good demand, May and June were

affected by destocking; APNT sees good pick-up in July. 2) There could be some

hiccups in 2QFY18 due to GST implementation across channels. 3) The

company will take necessary pricing action if RM costs do not stabilize.

Maintain Neutral:

There is 4%/3% downward change to our FY18/FY19E EPS.

While APNT has an enviable business franchise demonstrating healthy volume

growth even during consumer sector downturn, fair valuations (43x FY19 EPS)

prevent us from being more constructive. Maintain

Neutral

with a revised

target price of INR1,200 (43x June FY19’EPS, in line with three-year average).

FY18

2QE

3QE

15.0

15.0

45,160 47,244

20.0

20.0

25,502 26,454

19,657 20,790

43.5

44.0

11,553 11,474

25.6

24.3

8,104

9,316

17.9

19.7

13.7

20.0

80

80

970

983

886

456

7,940

8,708

2,620

2,874

33.0

33.0

5,270

5,731

FY17

FY18

4QE

10.0

8.8

11.0

45,470 152,398 176,026

15.0

6.8

15.5

25,455

84,076 99,224

20,015 68,322 76,802

44.0

44.8

43.6

11,317 38,149 44,031

24.9

25.0

25.0

8,698 30,173 32,772

19.1

19.8

18.6

22.2

9.0

8.6

104

305

344

998

3,378

3,857

742

2,626

2,867

8,337 29,116 31,438

2,720

9,469 10,375

32.6

32.5

33.0

5,907 20,162 21,289

FY18 Var.

1QE

(%)

0.0

37,101

2.8%

2.0

20,688

16,414

-0.4%

44.2

8,789

23.7

7,625

-12.7%

20.6

-7.0

64

983

805

7,383

-12.6%

2,289

31.0

5,045

-13.1%

n

Financials & Valuations (INR b)

Y/E Mar

2017 2018E 2019E

Net Sales

152.9 176.0 206.1

EBITDA

30.2

32.8

39.0

NP

20.2

21.3

25.4

EPS (INR)

21.0

22.2

26.5

EPS Gr. (%)

8.7

5.6

19.5

BV/Sh. (INR)

79.3

87.1 101.3

RoE (%)

28.5

26.7

28.1

RoCE (%)

24.3

23.0

24.7

P/E (x)

54.8

51.9

43.4

P/BV (x)

14.5

13.2

11.4

n

n

n

Estimate change

TP change

Rating change

n

Quarterly Performance (Consolidated)

Y/E March

Dom Deco Volume Growth %

Net Sales

Cha nge (%)

Ra w Ma teri a l /PM

Gross Profit

Gros s Ma rgi n (%)

Opera ti ng Expens es

% of Sa l es

EBITDA

Ma rgi n (%)

Cha nge (%)

Interes t

Depreci a ti on

Other Income

PBT

Ta x

Effecti ve Ta x Ra te (%)

Adjusted PAT

E: MOSL Estimates

1Q

11.0

35,870

7.6

18,961

16,910

47.1

8,748

24.4

8,162

22.8

20.3

63

844

719

7,973

2,593

32.5

5,506

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

4,759

4,662

(INR Million)

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

4,796

1Q

4.0

38,152

6.4

21,812

16,340

42.8

9,686

25.4

6,654

17.4

-18.5

80

905

783

6,452

2,160

33.5

4,382

26 July 2017

5

25 July 2017

1QFY18 Results Update | Sector: Metals

Vedanta

BSE SENSEX

30,322

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

9,445

CMP: INR274

TP: INR316 (+15%)

Buy

VEDL IN

3,717

Zinc outlook remains bullish; Maintain Buy

897.0 / 14.0

n

Cons. EBITDA increased 42% YoY to INR48.7b (est. of INR50.7b), driven by

278 / 154

strong growth in zinc, O&G and aluminum (AL). The iron ore, copper (Cu) and

12/-10/45

power segments, however, reported weak operating performance.

2891

37.1

n

Adjusting for recovery of past costs (not quantified) in O&G revenue, the

Many segments were weak; cost pressure in AL

Financials & Valuations (INR b)

Y/E Mar

2017 2018E 2019E

Net Sales

722.3

842 1,001

EBITDA

175.5 205.6 258.9

PAT

56.3

92.1 123.2

EPS (INR)

15.1

24.8

33.1

Gr. (%)

63.7

33.7

BV/Sh (INR)

162.7 172.6 188.2

RoE (%)

9.7

14.8

18.4

RoCE (%)

12.4

14.8

17.4

P/E (x)

18.1

11.1

8.3

P/BV (x)

1.7

1.6

1.5

n

n

n

Estimate change

TP change

Rating change

n

EBITDA miss stands at 7-10% due to (1) poor Cu by-product credits, (2) slower

growth in commercial production of AL, (3) lower sales quantity of iron ore and

pig iron and (4) less volumes at Skoprion Zinc due to shut down.

Margins in Cu (lower TcRC and by-product), AL (cost pressure) and iron ore

(widening grade discounts) shrunk significantly in the quarter. We have

reduced our estimates for Cu, and maintained for iron ore and AL. Power

EBITDA will recover as TSPL has fully recovered from fire-related damages.

Management maintained guidance for 2mtpa AL production in FY19E, but the

guidance for cost of production (CoP) is raised by USD100/t to USD1,600/t for

2HFY18E on expected lines.

Zinc price outlook remains bullish, which is reflected by the tight concentrate

market and very low treatment charge (TC). We are factoring in stronger LME

at USD3,200/t (13% higher than current LME). Gamsberg project development

too is progressing well, which will start contributing to volumes in FY19E.

Rajasthan O&G production too is expected to be 2-3% higher YoY at 165kboepd

in FY18E, with potential upside next year.

Vedanta (VEDL) has a portfolio of high-quality base metals and O&G asset, and

is well poised to benefit from the bullish price outlook for zinc. We maintain

Buy

with a target price of INR316.

FY18

2QE

3QE

203,365 223,263

28.2

15.0

60,444 73,332

29.5

22.3

29.7

32.8

15,108 14,812

16,427 16,762

10,677 10,421

39,587 52,179

39,587

10,865

27.4

28,721

10

8,482

20,250

61.7

52,179

14,321

27.4

37,858

5

10,892

26,970

44.5

FY17

722,250

12.4

213,319

40.8

29.5

58,550

62,915

45,806

137,660

1,144

136,516

37,783

27.7

98,733

-27

43,584

56,266

-73.8

FY18E

842,439

16.6

257,958

20.9

30.6

59,764

64,816

43,008

176,386

0

176,386

47,123

26.7

129,263

30

37,184

92,109

63.7

FY18 vs Est.

1QE

%

181,109

1

25.4

50,709

-4

47.4

28.0

15,404

3

16,091

-14

9,200

15

28,413

4

28,413

7,798

27.4

20,614

20

7,282

13,352

117.1

4

-13

10

2

14

Quarterly Performance (Consolidated) – INR million

Y/E March

Net Sales

Change (YoY %)

EBITDA

Change (YoY %)

As % of Net Sales

Finance cost

DD&A

Other Income

PBT (before EO item)

EO exp. (income)

PBT (after EO item)

Total Tax

% Tax

Reported PAT

Profit from Asso.

Minority interest

Adjusted PAT

Change (YoY %)

1Q

144,371

-15.2

34,396

-24.2

23.8

13,931

14,920

10,935

16,480

0

16,480

4,914

29.8

11,567

0

5,417

6,150

-56.4

FY17

2Q

3Q

158,596 194,171

-4.2

30.5

46,674 59,964

20.9 106.4

29.4

30.9

14,503 15,082

15,289 15,203

12,521 9,160

29,403 38,840

0

0

29,403 38,840

6,623 8,968

22.5

23.1

22,780 29,872

2

-20

10,261 11,188

12,521 18,663

50.1 -1,124.9

4Q

225,113

40.9

73,501

111.7

32.7

15,035

16,037

9,208

51,637

1,144

50,493

20,604

40.8

29,889

-8

15,775

15,249

34.8

1Q

182,850

26.7

48,740

41.7

26.7

15,920

13,860

10,550

29,510

0

29,510

6,810

23.1

22,700

0

7,450

15,250

148.0

4QE

232,961

3.5

75,441

2.6

32.4

13,923

17,768

11,360

55,110

55,110

15,126

27.4

39,984

15

10,360

29,639

94.4

26 July 2017

6

24 July 2017

1QFY18 Results Update | Sector: Financials

Bharti Infratel

Buy

BSE SENSEX

32,228

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

S&P CNX

9,965

BHIN IN

1,896.7

790.9 / 12.3

CMP: INR417

TP: INR480(+15%)

Growth outlook remains upbeat

Rental EBITDA up 5.5% QoQ, ahead of expectation

¢

Healthy tenancy adds aid earnings growth:

BHIN reported healthy 1QFY18

results. Although consolidated revenue of INR35.2b (+10% YoY, flat QoQ)

439 / 283

8/2/-1

missed estimate by 2%, consolidated EBITDA of INR15.8b (+12.9% YoY, +0.2%

Avg Val, INRm

1474

QoQ) exceeded estimate by 2.8% due to better-than-expected rental EBITDA

Free float (%)

38.4

(+11.7% YoY, +5.5% QoQ to INR15.2b). Consolidated rental revenue remained

Financials & Valuations (INR b)

steady at INR22.6b (+9.8% YoY, +3.5% QoQ). Energy EBITDA rose 54% YoY, but

Y/E Mar

2017 2018E 2019E

declined 56% sequentially to INR600m due to seasonality. Energy margin of

Net Sales

134.2 146.6 159.3

4.7% expanded 140bp YoY (-550bp QoQ). PAT declined 12.2% YoY (+11.3%

EBITDA

59.0

66.1

71.1

QoQ) to INR6.6b, largely affected by interest fluctuations and higher effective

PAT

27.5

33.4

37.7

EPS (INR)

14.9

18.0

20.4

tax.

Gr. (%)

25.3

21.5

12.9

¢

Buoyancy in tenancy should continue:

Tenancy additions should remain high

BV/Sh (INR)

83.7

97.0 112.7

over the next 4-6 quarters, with RJio and Bharti expected to continue data

RoE (%)

16.2

19.8

19.4

RoCE (%)

13.2

14.8

14.1

network expansion. Beyond that period, we believe that the ratio of tenancy

P/E (x)

27.9

23.1

20.5

addition to cell site addition of 1:4 should improve, as a higher proportion of

P/BV (x)

5.0

4.3

3.7

sites will be deployed independently instead of loading on existing 2G sites.

Estimate change

This should keep co-location adds steady. In our view, the risk of rental freeze

TP change

is largely behind, while that of single RAN technology hurting loading revenues

Rating change

is overblown. We estimate Vodafone-Idea merger impact to be ~15% of

EBITDA. The opportunity to increase Indus stake provides a healthy cash

deployment source and should improve RoCE.

¢

Maintain Buy with revised TP of INR480:

We maintain

Buy

(SOTP/DCF-based)

with a revised target price of INR480. With 10% EBITDA CAGR over FY17-19E,

BHIN trades at EV/EBITDA of 9.7x on FY19E. The stock garners over 25% RoIC,

and investment in Indus should also improve RoCE. BHIN offers ~4-5% FCF,

which may offer additional support to the stock.

Quarterly Performance (INR m)

Y/E March

(Consolidated)

Revenue from operations

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

1Q

32,106

6.9

18,159

13,947

43.4

5,648

-1,281

352

9,932

2,369

23.9

7,563

7,563

71.0

23.6

FY17

2Q

3Q

32,919 34,007

8.3

9.5

18,421 19,206

14,498 14,801

44.0

43.5

5,629

5,664

-2,472

-947

333

357

11,674 10,441

3,936

4,237

33.7

40.6

7,738

6,204

7,738

6,204

30.8

25.3

23.5

18.2

4Q

35,204

10.6

19,481

15,723

44.7

5,684

287

414

10,166

4,200

41.3

5,966

5,966

-17.0

16.9

1QE

35,239

9.8

19,489

15,750

44.7

5,905

-627

474

10,946

4,307

39.3

6,639

6,639

-12.2

18.8

FY18

2Q

3Q

36,296 37,105

10.3

9.1

20,069 20,411

16,227 16,694

44.7

45.0

5,933

6,083

-2,655

-2,655

0

0

12,949 13,266

4,403

4,510

34.0

34.0

8,547

8,755

8,547

8,755

10.4

41.1

23.5

23.6

FY17

4Q

37,917

7.7

20,500

17,417

45.9

6,107

-2,655

0

13,965

4,748

34.0

9,217

9,217

54.5

24.3

134,237

8.9

75,268

58,969

43.9

22,626

-4,414

1,455

42,212

14,742

34.9

27,470

27,470

22.2

20.5

FY18E

146,557

9.2

80,469

66,087

45.1

24,028

-8,592

474

51,126

17,968

35.1

33,157

33,157

20.7

22.6

Source: MOSL, Company

26 July 2017

7

25 July 2017

1QFY18 Results Update | Sector: Automobiles

Hero MotoCorp

Neutral

BSE SENSEX

32,228

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

9,965

HMCL IN

200

740.2 / 11.5

3880 / 2844

-2/-2/-2

1384

65.4

CMP: INR3,707

n

TP: INR3,818(+3%)

GST compensation, RM hurt margin; Volume guidance slightly lowered

GST-related dealer compensation and higher RM cost impact margins:

Revenue increased 7.7% YoY to INR79.7b (est. of INR80b) as volumes grew by

6% YoY and realizations by 1.7% YoY to INR43.1k/unit (est. of INR43.3k). Higher

RM costs due to commodity inflation and lower spare sales, and dealer

compensation of ~INR500m impacted EBITDA by ~60bp. However, the impact

of cost inflation was diluted by lower marketing spend. EBITDA margin

contracted 30bp YoY (+250bp QoQ) to 16.3% (est. of 16.9%). PAT grew 3.5%

YoY (+27% QoQ) to INR9.1b, boosted by higher other income.

Earning call highlights:

a) FY18 industry growth outlook lowered to higher-

single-digit (v/s double-digit growth expectations). b) HMCL indicated that

urban markets grew faster than rural in 1QFY18. c) Most of RM cost inflation is

in numbers, which was largely passed through price increase of 1-2% in May-

17. d) Impact of loss of excise exemption at Haridwar (~100bp) would be

diluted by ramp-up at Halol plant (having sales tax incentive). e) ‘Glamour’

volume was impacted by supply constraints, which are now easing. f) Spare

parts sales, which were impacted in 1HCY17 in anticipation of GST roll-out, are

expected to recover in the coming quarters.

Valuation and view:

We cut FY18 EPS by 4.5%, impacted by slower ramp-up of

Halol plant and higher tax rate. However, we keep FY19 estimates unchanged,

as the negative impact of Haridwar excise expiry will be diluted by Halol sales

tax benefit (as full ramp-up now in FY19). Valuations are at 19.5x/18.6x

FY18/FY19 EPS. We maintain

Neutral

with a TP of INR3,818 (18x Jun-19 EPS +

INR163 per share of Hero FinCorp post 20% Hold-Co discount).

FY17

FY18

3Q

1,473

-12.8

43,202

1.1

63,646

-11.9

64.9

5.9

12.3

10,797

17.0

1,319

15

1,249

10,853

28.9

7,720

-2.7

4Q

1,622

-5.8

42,635

-2.2

69,152

-7.9

68.5

4.7

12.9

9,576

13.8

1,182

15

1,353

9,390

23.6

7,178

-13.9

1Q

1,849

6.0

43,104

1.7

79,716

7.7

67.7

4.7

11.4

12,959

16.3

1,317

16

1,330

12,931

29.3

9,140

3.5

2QE

1,970

8.0

43,320

1.3

85,340

9.5

66.3

4.8

12.0

14,486

17.0

1,400

7

1,360

14,519

27.4

10,545

5.0

3QE

1,795

21.8

43,536

0.8

78,148

22.8

66.0

5.1

12.2

13,032

16.7

1,500

6

1,370

13,156

27.4

9,554

23.8

FY17

FY18E

FY18

1QE

1,849

6.0

43,267

2.1

80,016

8.1

66.5

4.6

12.0

13,505

16.9

1,250

6

1,350

13,399

27.4

9,732

10.2

Var.

(%)

0.0

-0.4

-0.4

120bp

10bp

-60bp

-4.0

-60bp

5.4

163.3

-1.5

-3.5

190bp

-6.1

.

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

284.7 321.9

EBITDA

46.3

52.5

PAT

33.8

37.8

EPS (INR)

169.1 189.3

Gr. (%)

6.9

12.0

BV/Sh (INR)

506.3 587.2

RoE (%)

35.7

34.6

RoCE (%)

34.5

33.4

P/E (x)

21.9

19.5

P/BV (x)

7.3

6.3

2019E

346.6

54.0

39.8

199.1

5.1

677.8

31.5

30.5

18.6

5.5

n

n

Quarterly Performance

Y/E March

(INR Million)

Total Volumes ('000 nos)

Growth YoY (%)

Net Realization

Growth YoY (%)

Net Op Revenues

Change (%)

RM Cost (% sales)

Staff Cost (% sales)

Other Exp (% sales)

EBITDA

EBITDA Margins (%)

Other Income

Interest

Depreciation

PBT

Effective Tax Rate (%)

Adj. PAT

Growth (%)

E: MOSL Estimates

1Q

1,745

6.1

42,391

1.0

73,989

7.2

67.1

4.5

11.7

12,301

16.6

1,204

15

1,152

12,337

28.4

8,831

18.1

2Q

1,823

15.8

42,755

-1.1

77,963

14.5

66.5

4.6

11.4

13,689

17.6

1,524

16

1,193

14,004

28.3

10,042

27.7

4QE

1,822

6,664

7,436

12.3

0.5

11.6

44,312 42,729 43,562

3.9

-0.4

1.9

80,716 284,750 323,919

16.7

0.1

13.8

64.9

66.8

66.2

4.8

4.9

4.8

13.4

12.1

12.2

13,670 46,348 54,146

16.9

16.3

16.7

1,633

5,224

5,850

16

61

45

1,326

4,927

5,385

13,960 46,585 54,566

25.6

27.5

27.4

10,390 33,771 39,630

44.8

6.9

17.3

26 July 2017

8

RESULTS

FLASH

25 July 2017

Results Flash | Sector: Consumer

Pidilite

Neutral

BSE SENSEX

32,228

S&P CNX

9,965

CMP: INR828

TP: INR835(+1%)

We will revisit our estimates

post earnings call/management

interaction.

Performance impacted by GST-led destocking

Consolidated results overview

n

Gross sales were down 1.3% YoY to INR16.7b.

n

Net sales were down 2.6% YoY (est. of flat growth) to INR15.3b, with calculated

flat volumes in the Consumer Bazaar segment (est. flat).

n

Gross margin contracted 60bp YoY to 51.7%. Staff costs increased 150bp YoY to

11.8% and other expenses were up 200bp YoY to 18.9%, which led to EBITDA

margin contraction of 410bp YoY (est. of -150bp YoY) to 21%. EBITDA was

down by 18.5% YoY (est. of -4% YoY) to INR3.2b.

n

Other income increased 79.6% YoY to INR432m.

n

Adj. PAT declined 16.7% YoY (est. of -6.1%) to INR2.3b.

Consolidated segmental performance for 1QFY18

n

Consumer Bazaar segment revenues were down 1.6% YoY to INR14.3b.

Industrial segment was flat at INR2.5b. Consumer Bazaar segmental EBIT

margin shrunk sharply by 390bp YoY to 23.0%. Consumer Bazaar EBIT declined

15.7% to INR3.3b.

n

Industrial segment margin contracted 360bp to 14.7%.

Standalone performance for 1QFY18

n

Gross sales declined by a meager 0.2% YoY to INR14.9b.

n

Net sales, EBITDA and adj. PAT declined 1.5%, 20.7% and 20.3%, respectively.

n

Gross margin contracted by 240bp YoY to 51.1% and EBITDA margin by 550bp

to 22.7%. Staff costs increased 120bp YoY to 10.7%, and other expenses were

up 190bp YoY to 17.7%.

n

Consumer Bazaar revenue declined 0.3% YoY. Industrial segment was flat YoY

at INR2.5b. Consumer Bazaar segmental EBIT margin shrunk 560bp YoY to

25.6%. Consumer Bazaar EBIT declined 18.1% to INR3.2b.

n

We will review our estimates post the conference call. We have a

Neutral

rating on the stock.

(INR Million)

4Q

12,954

4.9

10,375

2,579

19.9

296

48

286

2,520

971

38.5

1,549

-7.5

12.0

1Q

15,289

-2.6

12,079

3,210

21.0

313

37

432

3,292

1,033

31.4

2,260

-16.7

14.8

FY18

2QE

3QE

16,303 16,012

15.0

20.0

12,513 12,573

3,791

3,439

23.3

21.5

318

310

24

27

259

218

3,708

3,321

1,131

1,013

30.5

30.5

2,577

2,308

11.6

14.2

15.8

14.4

FY17

4QE

16,107

24.3

12,477

3,630

22.5

276

31

-35

3,288

974

29.6

2,313

49.4

14.4

56,168

4.8

43,570

12,598

22.4

1,151

139

1,123

12,430

3,851

31.0

8,579

6.7

15.3

FY18E

63,711

13.4

49,642

14,070

22.1

1,217

119

874

13,608

4,151

30.5

9,458

10.2

14.8

FY18

1QE

16,008

2.0

12,226

3,782

23.6

270

32

193

3,672

1,120

30.5

2,552

-6.1

15.9

Var.

(%)

-4.5

Conference Call Details

Date:

26 July 2017

Time:

06:30pm IST

Dial-in details:

+91-22-3960 0611

th

Financials & Valuations (INR b)

2017

2018E

2019E

Y/E Mar

Net Sales

56.2

63.7

73.9

EBITDA

12.6

14.1

16.1

NP

8.6

9.5

10.9

EPS (INR)

16.7

18.4

21.2

EPS Gr. (%)

6.7

10.2

14.8

BV/Sh. (INR) 64.5

79.4

97.1

RoE (%)

28.2

25.6

24.0

RoCE (%)

26.8

24.6

23.2

P/E

49.5

44.9

39.1

EV/EBITDA

32.9

29.1

25.0

Consolidated - 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 (%)

E: MOSL Estimates

1Q

15,694

6.8

11,754

3,939

25.1

258

35

241

3,887

1,174

30.2

2,713

16.3

17.3

FY17

2Q

3Q

14,177 13,344

7.5

-0.3

10,951 10,477

3,225

2,866

22.8

21.5

303

295

26

30

324

272

3,209

2,814

912

793

28.4

28.2

2,309

2,020

12.4

1.5

16.3

15.1

-15.1

-10.4

-11.5

26 July 2017

9

25 July 2017

1QFY18 Results Update | Sector: Healthcare

GSK Pharma

Neutral

BSE SENSEX

32,228

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

9,965

GLXO IN

85

212.6 / 3.3

3430 / 2309

-2/-24/-41

38

25.0

CMP: INR2,510

TP: INR2,500 (0%)

GST impacts revenues, margins tank

n

Financials & Valuations (INR b)

Y/E Mar

2017 2018E 2019E

Net Sales

29.3

31.6

35.4

EBITDA

3.5

4.5

5.6

PAT

2.9

4.0

4.7

EPS (INR)

34.4

46.8

54.9

Gr. (%)

-22.2

36.2

17.3

BV/Sh (INR)

236.9 203.2 177.6

RoE (%)

14.5

23.0

30.9

RoCE (%)

15.7

21.3

28.8

P/E (x)

73.0

53.6

45.7

P/BV (x)

10.6

12.4

14.1

n

n

Estimate change

TP change

Rating change

n

GSK Pharma’s (GLXO) 1QFY18 sales declined 14.4% YoY to INR5.9b (24% miss).

It recorded EBITDA loss of INR6m (est. of INR1.2b) due to lower turnover, and

higher other expense (includes one-time expense of INR111m relating to

arrears in payment of State Entry Tax) and employee expense. Reported PAT

declined 63% YoY to INR264m, including INR124m of one-time income from

sale of properties.

GST impact evident, recovery expected in coming months:

Inventory de-

stocking in the run up to GST roll-out impacted primary sales by INR1.3b (~2

weeks of sales). Adjusted for the GST impact, revenue grew ~6% YoY in

1QFY18. Although gross margin remained largely flat YoY and improved

marginally QoQ, GLXO made insignificant EBITDA in 1Q (INR-6m) as operating

cost below GM remained largely flat. Unlike Alembic which reduced its

promotional expense during the quarter, it looks like GLXO has maintained its

marketing expense, and thus, other expense for the company went up during

the quarter despite lower sales.

Margin improvement is key:

Apart from GST, regulatory issues continued to

have a negative impact on margins. We expect recovery in sales and margins

from 2Q, led by channel re-filing. According to AIOCD, FDC-related market

(which declined 10.9%) continued to drag companies. Secondary sales of GLXO

increased 8.6% in 1QFY18 v/s 7.5% for industry.

Valuation and view:

We believe GLXO has strong parent support, superior

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

industry-leading return ratios (RoCE of ~30%). We maintain our

Neutral

rating

with a target price of INR2,500 @ 45x FY19E PER (v/s INR2,700 @ 45x FY19E

PER). We have cut our FY18/19E EPS by ~10/9% as we do not expect full sales

recovery.

26 July 2017

10

25 July 2017

1QFY18 Results Update | Sector:

Financials

Mahindra Financial Services

BSE SENSEX

32,228

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

9,370

MMFS

565.0

225.5 /3.5

405 / 244

17/23/10

-

-

CMP: INR399

n

TP: INR459 (+15%)

Buy

Operating performance strong; Strengthening the balance sheet

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

operating front.

Value of assets financed increased 16% YoY in 1QFY18 – the

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.

Management expects strong growth to sustain or even improve.

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

goes to as high as 250+bp.

The company incurred provisioning cost of INR834m, based on its assessment of

underlying collateral for NPLs, on which 100% provisioning has been made.

As a

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

130bp is the lowest in the past 11 years (average decline of 600bp). We view

this shoring-up of provisions as a positive sign as it strengthens the balance

sheet, despite the negative impact on near-term profitability.

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 signal

early signs of 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. As MMFS is highly levered to growth and asset quality,

this would have a multiplier effect on the return ratios. We upgrade FY18/19 EPS

estimates by 9%/18% and our TP to INR459 (SOTP FY19 based).

Buy.

n

Financials & Valuations (INR b)

Y/E March

2017 2018E 2019E

NII

33.2 40.0 45.1

PPP

19.3 23.9 26.8

PAT

4.0

7.8 10.0

EPS (INR)

7.1 13.9 17.8

BV/Sh.(INR)

111.8 120.1 130.6

ABV/Sh (INR)

92.0 95.4 104.4

RoA on AUM (%)

1.0

1.7

1.9

RoE (%)

6.5 12.0 14.2

Payout (%)

39.2 41.0 41.0

Valuations

P/E (x)

56.3 28.8 22.5

P/BV (x)

3.6

3.3

3.1

P/ABV (x)

4.3

4.2

3.8

Div. Yield (%)

0.7

1.2

1.6

n

n

26 July 2017

11

Tata Communications

BSE SENSEX

32,228

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

9,965

TCOM IN

285

192 / 2.9

782 / 429

-11/-22/30

601

25.0

25 July 2017

1QFY18 Results Update | Sector: Telecom

CMP: INR672

n

TP: INR775(+15%)

Buy

Margin-led EBITDA growth to continue

EBITDA recovers from last quarter’s one-off impact:

Core revenue increased

0.4% QoQ (-3.3% YoY) to INR43.1b (marginal beat). Core EBITDA rose 12.6%

QoQ (-15.6% YoY) to INR5.6b (in-line). PAT of INR1b exceeded our estimate of

INR624m; the company had recorded a loss of INR11b in 4QFY17. Data revenue

was flat QoQ (+4.6% YoY) at INR27.8b (in-line). Data EBITDA increased 23%

QoQ (-14.9% YoY) to INR4.7b (in-line), with the margin expanding 330bp QoQ (-

390bp YoY) to 17%. Traditional EBITDA grew 18% QoQ to INR5.7b. Voice

EBITDA fell 22.7%/19.1% QoQ/YoY to INR876m.

Healthy order pipeline to drive earnings:

According to management, the

recent order wins from global clients led to 20% YoY growth in the order

pipeline. Higher contribution from the Enterprise segment selling customized

solutions should lead to steady EBITDA growth. We have factored in data

EBITDA CAGR of 8% over FY17-19E, net of data center sale. Management

guided for EBITDA breakeven in the Growth Service segment by end-FY17;

however, new product launches should limit profitability. Subsequently, we cut

core EBITDA by 2%/5% for FY18E/19E.

Improving FCF to drive deleveraging

After INR37.9b debt repayment in FY17,

cumulative FCF of INR12.3b over FY18-19E should reduce debt further to

INR65b, thereby lowering net debt to EBITDA to 2x. This should allow the

company to reach ~15% RoIC over the next 2-3 years.

Maintain TP with reduced TP of INR 775:

We believe the Growth Service

segment’s EBITDA breakeven in 4-6 quarters should drive overall earnings

growth. Assuming INR176/share of land value, the stock trades attractively at

~6x on FY19E. EBITDA revision leads us to reduce the target price by 4% to

INR775 (excluding land bank). Maintaining

Buy.

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

176.2 177.1 190.3

Net Sales

EBITDA

PAT

EPS (INR)

Gr. (%)

BV/Sh (INR)

RoE (%)

RoCE (%)

P/E (x)

P/BV (x)

24.1

7.8

27.2

1,653.4

55.9

132.2

10.2

24.7

12.6

24.8

2.5

8.7

-68.0

64.6

14.5

3.7

77.2

10.4

32.4

7.4

26.1

199.2

90.6

33.6

8.0

25.8

7.4

n

n

n

26 July 2017

12

25 July 2017

Q1FY18 Results Update | Sector: Technology

L&T Infotech

Buy

BSE SENSEX

32,228

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

9,965

LTI IN

1Q weakness offset by sanguine FY18 outlook

175.0

n

In-line performance driven by Digital-led growth:

LTI’s 1QFY18 revenue grew

133.7/2.0

1.5% QoQ in constant currency (CC) terms, in line with our estimate. Revenue

840 / 595

growth was impacted by project closures and absence of pass-through

-8/-4/-3

revenue, resulting in a steep decline in Manufacturing (-13.3% QoQ CC) and

110.0

Europe (-4.5% QoQ CC). However, growth was supported by strength in IMS

15.7

CMP: INR764

TP: INR880 (+15%)

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

65.0

70.1

79.2

Net Sales

12.3

12.1

14.1

EBITDA

9.7

10.5

11.9

PAT

55.5

60.2

68.0

EPS (INR)

5.9

8.4

13.1

Gr. (%)

159.5 205.2 256.9

BV/Sh (INR)

40.4

33.0

29.4

RoE (%)

42.7

32.4

31.6

RoCE (%)

13.8

12.7

11.2

P/E (x)

4.8

3.7

3.0

P/BV (x)

n

n

Estimate change

TP change

Rating change

n

and Digital, which is an encouraging sign.

Deal wins lend visibility to sanguine FY18 outlook:

Revenue growth

momentum is expected to pick up in 2HFY18 as the deals won in the previous

quarters ramp-up. The required rate, however, for 10% YoY growth in FY18

stands at 2%, indicating that continuation of the current momentum should be

enough for the company to achieve industry-leading growth. The outlook for

most verticals has been robust, barring Manufacturing (17% of revenue), which

is expected to remain soft in the near term.

Margin miss offset by outlook for 2Q:

EBITDA margin (ex. forex gain) shrunk

220bp QoQ to 16.8% (70bp miss), led by INR appreciation, visa expenses,

aggressive lateral hiring and higher S&M expenses. However, despite a

negative impact of 150-200bp in 2Q from the upcoming wage hike, margin

stability/growth is expected. Net hiring of 1,300 employees resulted in a 60bp

QoQ decline in utilization, the optimization of which, coupled with absence of

visa expenses, should yield positive results.

Valuation view:

LTI is trading at 12.7/11.3x FY18/19E earnings. Our revised

target price of INR880 (+15%) discounts forward earnings by 13x. Although we

have adjusted our margin estimates downward by 90/40bp for FY18/19E to

factor in the miss, revenue growth momentum and favorable hedge positions

have resulted in EPS upgrade of 2/4%. We maintain our positive rating on the

stock, given strong positioning, industry-leading growth, superior cash

generation, return ratios and track record.

Buy.

FY17

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

1,074

10.8

70,099

7.8

33.8

16.5

12,129

17.3

15.0

3,236

23.4

10,529

8.4

60.2

23,481

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

(INR M)

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

Quarterly Performance

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Margin (%)

Other income

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Util incl. trainees (%)

Attrition (%)

Offshore rev. (%)

E: MOSL Estimates

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

FY17

FY18E

2Q

3Q

4Q

1Q

2Q

3Q

4Q

240

245

254

259

266

271

278

3.7

2.3

3.7

2.0

2.5

2.1

2.5

16,020 16,667 16,772 16,707 17,268 17,767 18,358

9.1

12.1

7.7

7.4

7.8

6.6

9.5

35.4

34.3

35.8

33.8

33.4

33.8

34.3

16.4

16.2

16.8

17.0

16.5

16.3

16.3

3,044 3,020 3,190 2,799 2,915 3,115 3,300

19.0

18.1

19.0

16.8

16.9

17.5

18.0

16.1

15.3

16.5

14.4

14.5

15.2

15.8

365

597

503 1,084

828

682

643

21.0

21.2

22.3

23.4

23.4

23.4

23.4

2,326 2,481 2,547 2,673 2,554 2,595 2,707

-1.4

6.7

2.7

4.9

-4.5

1.6

4.3

21.3

10.5

11.4

13.3

9.8

4.6

6.3

13.3

14.2

14.6

15.3

14.6

14.8

15.5

21,074 20,605 21,023 22,321 22,641 23,011 23,481

78.7

78.1

78.3

77.7

77.5

78.0

78.5

18.5

18.1

16.9

14.7

51.2

52.3

51.3

53.2

52.2

52.5

52.7

26 July 2017

13

RESULTS

FLASH

9 May 2017

Results Flash | Sector: Capital Goods

GE T&D

Neutral

BSE SENSEX

32,228

S&P CNX

9,965

CMP: INR330

n

TP: INR320

We will revisit our estimates

post earnings call/management

interaction.

Strong sales and margin beat; orders up 98% YoY

Sales came in at INR12.1b (+42% YoY) v/s our estimate of INR9.5b. The quarter

saw pick-up in execution, driven by strong opening order book of INR82b and

commissioning of the Champa-Kurukshetra Ph1 HVDC line.

Gross margin stood at 30.3% (+320bp YoY), higher than our estimate of 27%.

EBITDA came in at INR1.1b, with margin of 8.7% v/s our estimate of 5.3%.

Despite the sharp rise in sales, employee costs declined 21% YoY to INR0.87b.

Other income stood at INR0.42b v/s INR0.33b in 1QFY17.

PAT of INR0.62b implies a strong beat to our estimate of INR0.32b.

Orders stood at INR15.8b (+98% YoY) and order book at INR84.2b.

Conference Call Details

Date:

31 July 2017

Time:

04:00pm IST

Dial-in details:

+91-22-3960 0603

st

n

n

n

n

n

Financials & Valuations (INR b)

2017E 2018E

Y/E Mar

Net Sales

40.5

46.5

EBITDA

2.2

3.0

NP

1.5

1.8

EPS (INR)

5.7

7.2

EPS Gr. (%)

325.3

24.9

BV/Sh. (INR)

40.3

44.8

RoE (%)

12.4

16.8

RoCE (%)

15.7

20.1

P/E (x)

57.6

46.1

P/BV (x)

8.2

7.4

2019E

50.1

5.0

2.7

10.6

47

50.1

18.0

22.7

27.1

5.9

Valuation and view:

We will revisit our estimates post the earnings call. We

maintain our

Neutral

rating with a TP of INR320 @30x FY19 EPS.

Quarterly Performance

Y/E March

Sales

Change (%)

EBITDA

Change (%)

As of % Sales

Depreciation

Interest

Other Income

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Change (%)

Adj PAT

Change (%)

1Q

8,546

11.6

21

-70.3

0.2

217

226

326

-2,425

-455

18.8

-1,970

-2,041.0

360

254.6

FY17

2Q

3Q

4Q

8,340 11,623 11,963

-4.4

62.8

26.9

339

722 1,097

-50.1 -235.7

81.7

4.1

6.2

9.2

220

221

224

239

343

344

435

522

177

315

679

705

109

236

244

34.6

34.7

34.6

206

443

461

-43.0 -215.4

70.9

206

443

461

-43.0 -215.4

70.9

1Q

12,093

41.5

1,055

4,875.9

8.7

224

278

421

974

358

36.8

616

-131.3

616

71.1

FY18

2Q

3Q

4Q

9,700 13,021 11,689

16.3

12.0

-2.3

672

706 1,219

98.0

-2.2

11.1

6.9

5.4

10.4

224

224

169

194

260

193

421

421

94

675

642

951

202

193

32

30.0

30.0

3.4

472

450

919

129.6

1.5

99.3

472

450

919

129.6

1.5

99.3

FY17

FY18

40,521 46,502

22.7

14.8

2,230 3,027

-9.0

-9.0

5.5

6.5

873

873

589

589

427

427

1,195 1,992

508

508

42.5

25.5

687 1,484

0.0

0.0

687 1,484

2.0

2.0

(INR Million)

MOSL Var.

1QE Vs Est

9,500

27

11.2

500

111

2,258

5.3

210

171

339

458

113

137

30.0

321

92

-116.3

321

92

-10.9

26 July 2017

14

June 2017 Results Preview | Sector: Financials

Bharat Financial Inclusion

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

BHAFIN IN

137.1

106/1.6

939 / 465

-3/-3/-20

CMP: INR718

n

n

n

n

n

n

n

n

TP: INR800 (+11%)

Neutral

Financial Snapshot (INR m)

Y/E March

NII

PPP

PAT

EPS (INR)

BV/Sh. (INR)

RoA on AUM (%)

RoE (%)

Valuations

P/E (x)

P/BV (x)

2017

7,775

5,522

2,897

21.0

177.3

3.3

15.1

34.2

4.0

2018E

11,244

7,986

5,698

41.3

218.6

4.5

20.9

17.4

3.3

2019E

14,991

10,662

7,310

53.0

271.6

4.3

21.6

13.6

2.6

2020E

19,158

13,594

7,664

55.5

327.1

3.6

18.6

12.9

2.2

BFI’s disbursements are likely to grow 10% YoY to INR43b, resulting

in GLP growth of 17% YoY and 8% QoQ.

Net interest income is likely to grow 14% YoY to INR3.2b.

NIM on AUM is likely to decline 50bp YoY to 13.3%.

Cost-to-income ratio is expected to increase 500bp YoY to 50.6%.

Asset quality is likely to remain stable – at-par delinquency has

declined QoQ.

We factor in provisions of INR1b, as against INR3.3b in 4QFY17 and

INR120m in 1QFY17.

Net profit is likely to decline 76% YoY to INR562m, driven by higher

provisions in 1QFY18 as well as a one-time tax gain in 1QFY17.

The stock trades at 3.3x FY18E and 2.6x FY19E BV. Maintain

Neutral.

Key issues to watch for

Ø

Management commentary on growth trends/demand for loans.

Ø

Management commentary on asset quality performance in key

states like UP, Maharashtra and Karnataka.

Ø

Guidance on C/I ratio.

Ø

Movement in borrowing costs and margins.

Quarterly Performance

Y/E March

Income from operations

Other Income

Total income

Y-o-Y Growth (%)

Interest expenses

Other income

Net Income

Y-o-Y Growth (%)

Operating Expenses

Provisions

Profit before tax

Y-o-Y Growth (%)

Tax Provisions

Net Profit

Y-o-Y Growth (%)

E: MOSt Estimates

1Q

3,341

348

3,690

53.2

1,361

452

2,780

52.9

1,269

120

1,391

74.9

-969

2,359

285.8

FY17

2Q

3,692

382

4,074

39.9

1,576

422

2,921

40.9

1,372

90

1,459

44.2

0

1,459

87.4

3Q

3,682

407

4,089

33.1

1,643

460

2,906

37.9

1,440

38

1,428

38.5

0

1,428

79.6

4Q

3,290

388

3,678

61.0

1,646

415

2,447

3.6

1,451

3,346

-2,349

-313.3

0

-2,349

-378.1

1QE

4,113

392

4,505

22.1

1,761

419

3,163

13.8

1,601

1,000

562

-59.6

0

562

-76.2

FY18E

2QE

4,606

396

5,002

22.8

1,867

423

3,559

21.9

1,690

750

1,118

-23.3

0

1,118

-23.3

(INR Million)

FY17

FY18

3QE

5,159

400

5,559

35.9

2,091

427

3,896

34.0

1,856

250

1,790

25.3

0

1,790

25.3

4QE

5,457

803

6,260

61.0

2,372

748

4,636

89.4

2,120

288

2,228

-194.8

0

2,228

-194.8

14,005

1,526

15,531

32.8

6,225

1,748

11,054

32.2

5,533

3,594

1,928

-51.0

-969

2,897

-4.4

19,334

1,992

21,326

37.3

8,090

2,017

15,253

38.0

7,267

2,288

5,698

195.5

0

5,698

96.7

26 July 2017

15

July 2017 Results Preview | Sector: Financials - Banks

Federal Bank

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

FB IN

1719.0

193 / 3

122 / 58

-2 / 53 / 70

n

CMP: INR112

n

TP: INR134 (+19%)

Buy

Financial Snapshot (INR b)

Y/E Mar

2017 2018E 2019E 2020E

NII

30.5

37.3

44.3

53.0

OP

19.2

23.2

27.9

34.6

NP

8.3

10.6

13.2

16.7

NIM (%)

3.3

3.2

3.1

3.0

EPS (INR)

4.8

5.5

6.8

8.6

EPS Gr. (%)

74.1

13.2

24.6

26.6

BV/Sh. (INR)

50.8

62.3

67.7

74.6

ABV/Sh. (INR)

47.2

58.8

64.1

71.9

ROE (%)

9.9

10.2

10.5

12.1

ROA (%)

0.8

0.8

0.9

0.9

Payout (%)

21.5

20.3

19.7

19.7

Valuations

P/E(X)

23.2

20.5

16.5

13.0

P/BV (X)

2.2

1.8

1.7

1.5

P/ABV (X)

2.4

1.9

1.7

1.6

Div. Yield (%)

0.8

0.9

1.0

1.3

n

n

n

n

We expect FB to report ~27% YoY (2.5% QoQ) loan growth, aided

by a renewed focus on corporate growth. Traction in SME and

retail loans would be maintained. We expect NIM to contract

marginally by 8bp QoQ led by lower yields.

Other income growth is likely to moderate to 8% YoY owing to

lower trading gains. Fee income growth would continue to remain

healthy.

Overall PPoP growth is expected to be strong at 28% YoY, led by

strong revenue growth and controlled opex (+13% YoY).

We expect slippages to increase to INR3.3b (at ~1.8% annualized

slippage ratio) v/s INR2.4b in 4Q owing to potential stress in SME.

GNPA in % terms is expected to remain largely stable at ~2.2%.

We have revised our FY18E/FY19E PAT 7%/6% upward to factor in

lower leverage benefit from QIP of INR25b in 1QFY18.

We expect PAT of INR2.4b v/s INR1.7b in 1QFY17 and ~INR2.6b in

4QFY17. FB trades at 1.7x FY19E BV and 16.5x FY19E EPS. Buy.

Key issues to watch for

Ø

Outlook on asset quality.

Ø

Strategy on balance sheet growth, particularly corporate growth.

Quarterly Performance

Net Interest Income

% Change (YoY)

Other Income

Net Income

Operating Expenses

Operating Profit

% Change (YoY)

Other Provisions

Profit before Tax

Tax Provisions

Net Profit

% Change (YoY)

Operating Parameters

NIM (Cal, %)

Deposit Growth (%)

Loan Growth (%)

Tax Rate (%)

Asset Quality

Gross NPA (INR b)

Gross NPA (%)

E: MOSL Estimates

1Q

6,927

14.5

2,370

9,297

5,039

4,259

16.0

1,685

2,574

901

1,673

18.3

3.3

12.5

19.3

35.0

17.5

2.9

FY17

2Q

3Q

7,262

7,914

19.4

30.7

2,616

2,747

9,878

10,661

5,128

5,912

4,750

4,749

41.1

45.9

1,684

1,588

3,066

3,161

1,053

1,104

2,013

2,057

24.8

26.4

3.3

17.0

27.2

34.3

18.2

2.8

3.3

23.3

32.0

34.9

19.5

2.8

4Q

8,424

22.8

2,821

11,245

5,753

5,492

39.2

1,227

4,265

1,699

2,566

2,400.9

3.3

23.4

26.2

39.8

17.3

2.3

1QE

8,591

24.0

2,571

11,161

5,714

5,448

27.9

1,750

3,698

1,294

2,404

43.7

3.2

24.0

27.2

35.0

17.0

2.2

FY18E

2QE

9,330

28.5

2,667

11,997

6,107

5,890

24.0

1,850

4,040

1,414

2,626

30.5

3.4

22.4

22.0

35.0

17.3

2.2

3QE

9,460

19.5

3,047

12,507

6,742

5,764

21.4

1,650

4,114

1,440

2,674

30.0

3.3

21.4

20.2

35.0

18.7

2.2

4QE

9,899

17.5

3,595

13,495

7,370

6,125

11.5

1,671

4,453

1,559

2,895

12.8

3.2

21.0

25.0

35.0

19.6

2.1

(INR Million)

FY17

30,526

21.7

10,818

41,345

22,095

19,249

35.2

6,184

13,065

4,757

8,308

74.7

3.3

23.4

26.2

36.4

17.3

2.3

FY18E

37,279

22.1

11,880

49,159

25,933

23,227

20.7

6,921

16,306

5,707

10,599

27.6

3.3

21.0

25.0

35.0

19.6

2.1

26 July 2017

16

June 2017 Results Preview | Sector: Technology

Mphasis

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

MPHL IN

210.1

126 / 2

654 / 425

-3 / -5 / -8

CMP: INR591

n

n

TP: INR600 (-1%)

Neutral

Financial Snapshot (INR b)

Y/E Mar

2017 2018E 2019E 2020E

Sales

EBITDA

PAT

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA(x)

Div yld (%)

60.8

9.7

8.2

38.9

12.9

292.4

13.2

12.4

43.7

15.2

2.0

10.0

2.9

62.3

9.9

8.2

42.3

8.8

254.6

14.2

13.7

52.0

14.0

2.3

10.7

3.7

69.2

11.2

8.9

46.2

9.1

272.8

16.1

15.8

47.6

12.8

2.2

9.2

3.7

75.7

12.3

9.9

51.1

10.6

292.2

16.6

16.7

48.9

11.6

2.0

8.0

4.2

n

n

n

n

The HP channel has seen three consecutive quarters of steady

performance. We expect this trend to continue in 1QFY18 as well.

However, pressures in Digital Risk and in one of the top clients in

Direct International are expected to partly offset this, and result

in moderation of growth.

We expect CC revenue growth of 1.2% QoQ and cross-currency

tailwinds of 80bp, leading to USD revenue growth of 2% QoQ.

Margins are likely to be stable (-10bp QoQ), with an improved

revenue mix offsetting the headwinds of INR appreciation and

visa expenses.

Our PAT estimate is INR2.01b (+4% QoQ). Higher PAT is also led

by higher other income, due to lower translation losses.

The stock trades at 14x FY18E and 12.8x FY19E EPS. Neutral.

Key issues to watch for

Ø

Outlook for Digital Risk given an interest rate cycle reversal.

Ø

Strategy changes and roadmap under the new leadership.

Ø

Performance in Direct International business, and outlook for

the year.

Quarterly Performance

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Margin (%)

Other income

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Net Additions

HP Channel rev. (%)

Fixed Price (%)

E: MOSL Estimates

1Q

224

-0.3

15,167

1.5

28.1

12.0

2,445

16.1

15.2

572

27.7

2,043

6.4

23.2

9.7

22,374

50

23.4

19.8

FY17

2Q

3Q

224

224

-0.2

-0.3

15,176

15,361

-2.6

1.3

28.1

27.8

11.8

12.3

2,463

2,396

16.2

15.6

15.3

14.7

711

617

27.5

28.5

2,166

2,044

6.0

-5.6

14.0

17.7

10.3

9.7

22,284

22,018

-90

-266

23.9

24.0

19.1

20.6

4Q

222

-0.9

15,059

-0.7

28.7

12.8

2,384

15.8

14.6

485

27.5

1,934

-5.4

0.7

8.8

21,979

-39

24.4

19.3

1QE

226

2.0

14,815

-2.3

28.2

12.5

2,323

15.7

14.5

648

27.5

2,011

4.0

-1.6

10.4

20,954

-1025

FY18E

2QE

233

2.9

15,385

1.4

28.9

12.5

2,517

16.4

15.2

488

27.5

2,035

1.2

-6.1

10.5

21,369

415

FY17

3QE

237

1.9

15,757

2.6

27.7

12.3

2,422

15.4

14.2

479

27.5

1,961

-3.6

-4.1

10.2

21,914

545

4QE

245

3.3

16,362

8.7

28.5

12.3

2,641

16.1

15.0

546

27.5

2,167

10.5

12.0

11.2

22,434

520

894

-3.5

60,763

-0.2

28.2

12.2

9,688

15.9

15.0

2,385

27.8

8,188

13.0

38.5

21,979

-345

(INR m)

FY18E

940

5.2

62,319

2.6

28.3

12.4

9,903

15.9

14.7

2,161

27.5

8,174

-0.2

42.3

22,434

455

26 July 2017

17

June 2017 Results Preview | Consumer

Nestle India

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

NEST IN

96.4

660 / 10

7390 / 5701

3 / -1 / -9

CMP: INR6,849 TP: INR5,990 (-13%)

n

Sell

Financial Snapshot (INR b)

Y/E December

2016 2017E 2018E 2019E

Sales

EBITDA

Adj. PAT

Adj. EPS (INR)

EPS Gr. (%)

BV/Sh.(INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

58.0

21.9

35.3

0.9

57.7

20.2

34.2

1.0

49.1

18.2

29.0

1.2

40.8

16.2

24.4

1.4

91.6 100.4 112.2 128.1

18.0

11.4

-1.6

39.0

38.8

53.4

18.4

11.4

0.6

36.4

36.1

59.0

21.4

13.5

17.6

39.0

38.7

57.3

25.0

16.2

20.2

42.1

41.8

56.6

n

118.0 118.6 139.5 167.7

312.6 339.6 375.3 421.5

n

We expect Nestle India’s net sales to grow 16% YoY to INR26.2b

off a weak base in 2QCY16.

Maggi

re-launch has been successful,

with several new variants. It has already clawed back to >60%

market share. The company also launched an array of other

products across the portfolio.

We estimate EBITDA margin to contract by 100bp YoY to 18.3%.

EBITDA and PAT are projected to grow by 10% YoY (to INR4.8b)

and 5.4% YoY (to INR3b), respectively.

The stock trades at 49.1x CY18E EPS; maintain Sell.

Key issues to watch for:

Ø

Volume trends and management commentary on demand

environment.

Ø

Recovery in sales and market share of Maggi.

Quarterly Performance

Y/E December

Net Sales

YoY Change (%)

COGS

Gross Profit

Margin (%)

Operating Exp

EBITDA

Margins (%)

YoY Growth (%)

Depreciation

Interest

Other income

PBT

Tax

Rate (%)

Adjusted PAT

YoY Change (%)

E: MOSL Estimates

1Q

22,770

9,872

12,898

56.6

7,375

5,523

24.3

891

259

421

4,793

1,722

35.9

3,071

CY16

2Q

22,561

16.7

9,495

13,066

57.9

8,709

4,357

19.3

21.0

889

1

522

3,989

1,136

28.5

2,853

22.9

3Q

23,462

35.1

9,860

13,602

58.0

9,115

4,487

19.1

57.0

882

1

547

4,151

1,273

30.7

2,878

74.5

4Q

22,613

16.2

9,591

13,022

57.6

9,087

3,935

17.4

12.7

873

-5

654

3,721

1,127

30.3

2,594

24.3

1Q

24,757

8.7

10,939

13,818

55.8

8,708

5,110

20.6

-7.5

867

228

578

4,593

1,468

32.0

3,126

1.8

CY17

2QE

26,171

16.0

11,407

14,763

56.4

9,971

4,792

18.3

10.0

907

0

600

4,486

1,480

33.0

3,005

5.4

(INR Million)

CY16

CY17E

3QE

24,635

5.0

10,599

14,036

57.0

9,818

4,218

17.1

-6.0

907

0

629

3,941

1,300

33.0

2,640

-8.3

4QE

24,869

10.0

11,065

13,804

55.5

9,540

4,264

17.1

8.4

947

0

546

3,863

1,386

33.0

2,477

-4.5

91,593

12.8

38,797

52,796

57.6

34,838

17,958

19.6

12.6

3,536

35

2,139

16,526

5,150

31.2

11,376

16.5

100,432

9.7

44,010

56,422

56.2

38,037

18,385

18.3

2.4

3,628

36

2,354

17,074

5,634

33.0

11,440

0.6

26 July 2017

18