27 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

India Strategy: Nifty hits 10k mark after a stirring 22-year journey

v

Nifty yesterday crossed and closed above the 10K mark – an all-time high. Against

this backdrop, we take a trip down the memory lane and compare various aspects

of Nifty now and 22 years ago.

v

Since its inception, Nifty has delivered 11% CAGR returns. Over the same period,

Mcap of Nifty companies has expanded at 20% CAGR. Notably, 30% of Nifty

constituents have been part of the index since inception, delivering market cap

CAGR of 18%.

v

Private Banks – which had the lowest weight in Nifty at 0.4% then – now hold the

highest weight of 23.9%. Consumer – which had the highest weight then at 17% –

now accounts for 10%.

v

Meanwhile, valuations are rich, with Nifty trailing P/E at 25% premium to LPA and

trailing P/B at 10% premium to LPA.

Market snapshot

Equities - India

Close

Chg .%

Sensex

32,382

0.5

Nifty-50

10,021

0.6

Nifty-M 100

18,429

0.3

Equities-Global

Close

Chg .%

S&P 500

2,478

0.0

Nasdaq

6,423

0.2

FTSE 100

7,452

0.2

DAX

12,305

0.3

Hang Seng

10,832

0.5

Nikkei 225

20,050

0.5

Commodities

Close

Chg .%

Brent (US$/Bbl)

50

0.3

Gold ($/OZ)

1,248

-0.3

Cu (US$/MT)

6,298

1.6

Almn (US$/MT)

1,921

0.6

Currency

Close

Chg .%

USD/INR

64.4

-0.1

USD/EUR

1.2

-0.1

USD/JPY

111.9

0.5

YIELD (%)

Close

1MChg

10 Yrs G-Sec

6.4

0.0

10 Yrs AAA Corp

7.5

0.0

Flows (USD b)

26-Jul

MTD

FIIs

0.0

0.2

DIIs

0.1

0.6

Volumes (INRb)

26-Jul

MTD*

Cash

331

290

F&O

6,947

5,569

Note: YTD is calendar year, *Avg

YTD.%

21.6

22.4

28.4

YTD.%

10.7

19.3

4.3

7.2

15.3

4.9

YTD.%

-9.0

7.6

14.0

12.7

YTD.%

-5.2

10.4

-4.4

YTDchg

-0.1

-0.1

YTD

8.7

3.9

YTD*

286

4,994

Research covered

Cos/Sector

India Strategy

HDFC

Yes Bank

Bharti Airtel

Nestle India

Pidilite Inds

Federal Bank

Amara Raja Batt.

MphasiS

Bharat Financial

PVR

Delta Corp

Orient Cement

Healthcare

Key Highlights

Nifty hits 10k mark after a stirring 22-year journey

Core operating performance helped by pick-up in non-retail loans

Stellar all-round performance

Decent quarter; light at the end of the tunnel

Results miss estimates, higher RM costs impact margins

Results below expectation; expect normalcy from 3QFY18

Slippages dent profitability; Underlying story intact

Annual Report | Strengthening products and market presence

HP-driven beat topped with deal wins worth USD183m

Up-fronting provisions; stressed loans pool declines

Expansion in southern market to lead growth

Steady growth in gaming drives revenue beat

Profitability uptick led by high pricing

Moderate growth in June 2017

BIOS | CIFC | CROMPTON | DRRD | EXID | GNP | HCLT | ICICIBV | IDEA |

Results Expectation

IDFCBK | ITC| MSIL | ONGC | TELX

Piping hot news

US Federal Reserve keeps benchmark interest rate unchanged

v

The Federal Reserve kept interest rates unchanged on Wednesday and said it

expected to start winding down its massive holdings of bonds "relatively soon"

in a sign of confidence in the U.S. economy.

Chart of the Day: India Strategy - Nifty hits 10k mark after a stirring 22-year journey

The journey of Nifty from 1K to 10K…

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

HPCL-ONGC deal: Govt steps

on the gas

Kicking off the process of stake

sale in Hindustan Petroleum

Corporation (HPCL), the

department of investment and

public asset management (Dipam)

has started the process for

selecting two consultants and a

law firm…

2

Airtel to launch VoLTE service to counter Reliance Jio

Apart from launching VoLTE service by March 2018, Airtel says will partner

phone makers for 4G feature phones, less than a week after Reliance Jio

unveiled the JioPhone…

3

Niti Aayog clears six proposals

for high-tech public transport

Mass rapid transportation

technologies such as hyperloop,

metrino and pod taxis could soon

be a reality in India after Niti

Aayog cleared half-a-dozen

proposals of the transport

ministry exploring options to

improve public transport…

4

Vodafone moves court for

transparent IUC consultations

by Trai

Vodafone has again dragged the

telecom regulator to court, this

time calling for greater

transparency in its consultation

process on the contentious

interconnect usage charge (IUC)…

5

Demonetisation crackdown

round two: Tax sleuths target

corporate accounts

After targeting individuals who

made large cash deposits in banks

during or after demonetisation,

the income-tax department is now

going after businesses that

deposited lots of cash in corporate

accounts in the second round of

demonetisation tax notices…

6

Grand Alliance 2.0: Nitish

Kumar, BJP to form

government in Bihar again

Hours after Nitish Kumar quit as

the chief minister of Bihar, he was

back with the JDU’s old suitor, BJP,

and the new alliance began the

process of forming the next

government that will have Kumar

in the saddle and BJP’s Sushil

Modi as the deputy chief

minister…

27 July 2017

7

Insolvency case: NCLT admits

bankruptcy plea against

Bhushan Steel

The Delhi bench of National

Company Law Tribunal (NCLT)

admits insolvency petition against

Bhushan Steel and Bhushan Power

and Steel. While State Bank of

India filed a petition against

Bhushan Steel, Punjab National

Bank filed a petition against

Bhushan Power and Steel...

2

India Strategy

BSE Sensex: 32,382

NIFTY MILESTONE JOURNEY

Index base period (3

November 1995) value

set at 1,000

S&P CNX: 10,021

Nifty hits 10k mark after a stirring 22-year journey

Taking a trip down the memory lane – Nifty: Then and Now

A flashback – 1995 to 2017

n

Nifty @ 1,000

1995

2004

Journey to 2k was

most excruciating,

taking a total of 2,282

trading days

Nifty @ 2,000

n

2006

Market cap of Nifty

touches 14t

Nifty @ 3,000

2006

Crossed 4k level in Dec

2006; exited the year

with 40% return

Nifty @ 4,000

n

2007

Crossed 5k in Sep

2007, crossed 6k in the

same year

Nifty @ 5,000

For the first time in its history, the Nifty has crossed and closed above the

psychological 10K mark. With this, the Nifty has now become the second Indian

benchmark index to trade in five digits.

The Indian markets remain buoyed by continued liquidity inflow amid a strong

macro backdrop. Domestic MF inflows in CY17 YTD stand at USD7b, matching

inflows recorded in the entire last calendar year. Even more notable are FII

flows of USD8.6b, higher than those recorded in CY15 and CY16. We note that

the macro backdrop remains best in recent times, with inflation under control,

twin deficits in check, stable currency, and policy momentum intact (evident

from the smooth and timely GST implementation). Only missing link in an

otherwise positive set-up is earnings recovery, in our view. Nifty earnings have

remained flat for the last five years (4% CAGR over FY12-17) and hold the key

for further re-rating, in our view.

In markets, one always looks at the future. Today, we make a small departure

to this trend and look back at the past. In this note, we will also share some

interesting tidbits of the Nifty’s journey from 1,000 in 1995 to 10k today.

While traversing its journey from 1K to 10K, the Nifty has delivered 11% CAGR

returns. Meanwhile, the market capitalization of the index has expanded 48x

from INR1.5t to INR70.6t, implying a CAGR of 20%.

The journey of Nifty from 1k to 2k was most excruciating, which took a total

2,282 trading days (almost nine years). The move from 6K to 7K also took some

time (1,589 trading days, 6.5 years), with the markets being stranded in a long

phase of correction in the aftermath of the Global Financial Crisis (GFC) in 2008.

From 26 June 2009, the index shifted its computation to free-float

methodology.

Out of the 50 stocks in Nifty, 15 have been part of the index since its inception -

RIL, HDFC BANK, HDFC, SBI, HUL, ITC, TATA MOTORS, HERO MOTORS, TATA

STEEL, HINDALCO, ACC, AMBUJA, L&T, DR. REDDY and TATA POWER.

The combined market-cap of these 15 stocks increased at 18% CAGR since

inception. These 15 stocks weigh 46% in Nifty today v/s 53% at inception.

Best performers (mkt. cap multiple since Nifty inception, % CAGR): HDFC Bank

(693x – 36%), Hero Motocorp (126x – 26%), HDFC (68x – 22%), ITC (65x – 22%),

Dr Reddy's Lab (65x – 22%) and Reliance Inds (55x – 21%).

Over the years, the sectoral representation in the Nifty has undergone a sea

change, in consonance with the changes in the underlying economy – new

sectors have evolved, while some of the erstwhile dominant sectors of the

economy have lost relative importance in the new India.

3

Nifty up 10x in ~22 years, market cap expands 48x

n

2007

Fastest 1k jump, taking

just 52 trading days

Nifty @ 6,000

n

2014

Journey to 7k was also

agonizing, taking 1,589

trading days

Nifty @ 7,000

n

2014

2 fastest 1k jump,

taking 77 trading days,

post BJP winning Lok

Sabha election

Crossed 9k on strong

buying from FIIs and

mutual funds

nd

Nifty @ 8,000

30% of index constituents unchanged over 22 years

n

Nifty @ 9,000

n

n

2017

2017

Macro backdrop

remains best with

continued strong

inflows in equities

Nifty @ 10,000

Sunrise and Sunset: Some sectors acquire prominence, others fade

n

27 July 2017

n

n

n

Consumer (with 17.6%) had the highest weight in the Nifty at inception. Today, it

stands shoulder-to-shoulder with IT, Oil & Gas and Auto, with ~10-11% weight.

PSU Banks had the second highest weight of 12.2% at inception, while Private

Banks (0.4%) had the lowest weight, with sole representation of HDFC Bank.

Today, at 23.9%, Private Banks have the highest weight, while PSU Banks have

just 3.3% weight.

Textile and Chemicals, which had 8.3% weight at inception, have no

representation today. On the contrary, Information Technology and Telecom,

which had no presence in the index in 1996, today form 14% of the index.

The drivers of market earnings growth have changed over the last decade. While

the large part of the first decade of the 21

st

century was characterized by stronger

earnings performance from Cyclicals and Infrastructure sectors, the story has

changed post the Global Financial Crisis. Financials and Consumer/Consumer

Discretionary have exhibited earnings outperformance over 2008-17. The same is

reflected in the change in their market capitalization ranks.

The disproportionate influence of Financials and Consumer/Consumer

Discretionary in the current cycle has been reinforced – these sectors have

delivered best earnings performance and are re-rated significantly. Naturally,

they have gained in prominence in the market cap rankings.

Biggest gainers in market cap ranks are:

Maruti, IndusInd Bank, Ultratech, Asian

Paints, Eicher Motors, HDFC Bank and HUL.

Similarly, the underperformance of

Cyclicals is reflected in the change in market-cap ranks at the bottom, with

Tata

Steel, Hindalco, ACC and Tata Power

being the key losers.

Key changes in market-cap ranks v/s January 2008 peak

n

n

n

Valuations ~25% above long-period averages; 19% premium to Jan 2008

levels

n

n

The Nifty is trading at a trailing P/E of 22.3x, at a 25% premium to its own long-

period average. Comparing the Nifty’s current valuations with those in January

2008 (earlier peak), we note that the index now trades at a 19% premium.

Nifty trailing P/B, at 3.1x, is at a 10% premium to LAP, but at a 22% discount to

January 2008 P/B of 3.9x.

The journey of Nifty from 1K to 10K…

Number of trading days taken to

achieve key milestones

1,589

52

203

212

2,282

284

77

92

623

5,415 days to achieve 10k milestone

1,000

Nov 1995

2,000

Dec 2004

3,000

Jan 2006

4,000

Dec 2006

5,000

Sep 2007

6,000

Dec 2007

7,000

May 2014

8,000

Sep 2014

9,000

Mar 2017

10,000

July 2017

Source: NSE, MOSL

27 July 2017

4

26 July 2017

1QFY18 Results Update | Sector: Financials

HDFC

Buy

BSE SENSEX

32,382

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

10,021

HDFC IN

1,574

2,571.5 / 39.9

1681 / 1185

-5/5/4

3906

100.0

CMP: INR1,633

n

TP: INR1,900 (+17%)

Core operating performance helped by

pick-up in non-retail loans

n

Financials & Valuations (INR b)

Y/E March

2017 2018E 2019E

NII

99.5 113.2 129.0

PAT

74.4

84.0

95.9

Adj. EPS (INR)

35.7

41.4

47.0

EPS Gr. (%)

9.7

16.0

13.5

BV/Sh. (INR)

253.0 280.0 337.8

ABV/Sh. (INR) 201.2 228.3 287.2

RoAA (%)

2.4

2.3

2.3

Core RoE (%)

18.9

19.3

18.4

Payout (%)

37.1

43.5

43.5

Valuation

AP/E (x)

28.3

21.8

16.9

P/BV (x)

6.5

5.8

4.8

AP/ABV (x)

5.0

4.0

2.8

Div. Yield (%)

1.1

1.2

1.4

n

n

n

HDFC’s 1QFY18 core PBT growth of 15% YoY beat our estimates by 3%.

Reported PAT missed our estimate by 3%, driven by marginally higher taxes.

Continued pick-up in corporate loan growth (+7% QoQ, +22% YoY) helped

HDFC to report healthy core income growth (+16% YoY; 6% beat).

AUM increased 18% YoY to INR3.55t. Retail loan growth of 16% YoY was similar

to growth seen in 4QFY17, but still short of the earlier growth rates of 17-18%.

Corporate loans grew 22% YoY (+7% QoQ). We are encouraged by sustained

pick-up in corporate loan growth over the past four quarters. Share of

corporate loans increased 50bp QoQ to 27.7%.

Asset quality deteriorated, with GNPA % at 1.12% v/s 0.8% a quarter ago, led

by a rise in GNPA % in non-retail loans to 2.1% v/s 1.2% a quarter ago. HDFC

recognized one large steel account (belonging to 12 cases referred to NCLT) of

INR9.1b as NPA. It had already made contingent provisions on this account of

INR2.75b in FY17, which were utilized in the quarter.

Spreads improved by 3bp YoY to 2.29%, helped by mix shift toward non-retail

loans (+100bp YoY to 28.5%) and benefit on cost of funds. Spreads were

impacted (5bp, in our view) by non-recognition of interest on the two large

corporate accounts slipped during last three quarters.

Valuation view:

HDFC’s retail loan growth is impressive, despite intense

competition and a high base. Over the past three quarters, corporate loan

growth has also picked up smartly – this remains a key for overall spreads,

considering individual spreads are under pressure. We upgrade estimates by

~5% to factor in better-than-expected corporate loan growth. We expect core

PBT CAGR ~14% over FY17-20. We expect AUM CAGR of ~16%.

Buy

with an

SOTP-based TP of INR1,900.

27 July 2017

5

26 July 2017

1QFY18 Results Update | Sector: Financials

Yes Bank

Buy

BSE SENSEX

32,382

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb

52-Week

Range

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

S&P CNX

10,021

YES IN

456.5

786.1 / 12.2

1723 / 1091

15/5/27

4021

79.9

CMP: INR1,713

n

TP: INR2,123 (+24%)

Stellar all-round performance

Yes Bank’s (YES) NII grew 45% YoY (+10% QoQ) to INR18.1b, helped by 30bp

YoY NIM improvement (to 3.7%) and customer assets growth of 32% YoY (+5%

QoQ). Strong NII and 13% beat on other income (+17% YoY) drove PPoP

outperformance (+30% YoY; 6% beat). This was partly offset by higher-than-

expected provisioning (INR1b of prudent provisioning), leading to PAT of

INR9.1b (5% beat, 32% YoY).

Asset quality improved during the quarter, with GNPA of 97bp v/s 1.52% in

4Q. In absolute terms, GNPA declined to INR13.6b. This includes one borrower

with gross exposure of 0.26% (INR3.66b; down from INR9.11b in 4Q as the

bank recovered INR5.46b on the account) and net exposure of 0.10%

(INR1.38b). Specific provision held in this account is INR2.27b. Total net

stressed loans stood at 1.6% of advances.

Deposits grew 5%/23% QoQ/YoY to INR1.5t, led by continued CASA inflows.

Strengthening of liability franchise continued, with CASA ratio improving 50bp

QoQ to 36.8%, helped by 66.7%/45.8% YoY growth in CA/SA deposits.

Other highlights: a) NIM improved 10bp QoQ, helped by capital raise benefit.

b) Loans grew 32% YoY to INR1.4t. c) Retail fee income showed robust growth

of 45% YoY. d) RWA/TA declined 300bp+ QoQ to 83% and CET 1 ratio

improved 50bp QoQ to 11.9%.

Valuation and view:

With significant investment in people (20,000+ v/s 3,929

in FY11), branches (1,000 v/s 214 in FY11) and new products, YES is expected

to grow significantly faster than the system. The bank has best-in-class return

ratio, with RoA/RoE of 1.8%/19%+. YES is adequately capitalized for the next

stage of growth (CET1 ~11.9%). We largely maintain earnings estimates and

reiterate

Buy

with a target price of INR2,123 (3.2x June 19) – based on

residual income model.

Financials & Valuations (INR b)

Y/E March

2018E 2019E 2020E

NII

75.7

94.4 121.1

OP

70.4

88.8 116.0

NP

42.1

52.3

65.7

NIM (%)

3.5

3.6

3.7

EPS (INR)

92.3 114.5 143.9

EPS Gr. (%)

26.5

24.1

25.7

BV/Sh. (INR)

542.1 633.3 746.8

ABV/Sh. (INR) 535.1 623.1 736.4

RoE (%)

18.3

19.5

20.9

RoA (%)

1.8

1.8

1.8

Valuations

P/E(X)

18.7

15.0

12.0

P/BV (X)

3.2

2.7

2.3

n

n

n

n

27 July 2017

6

26 July 2017

1QFY18 Results Update | Sector: Telecom

Bharti Airtel

Buy

BSE SENSEX

32,382

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

10,021

CMP: INR426

TP: INR490 (+15%)

BHARTI IN

n

3,997.3

1,709.8 / 26.5

431 / 284

12/20/0

1479

32.9

Decent quarter; light at the end of the tunnel

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

Net Sales

954.7 922.7 1022.0

EBITDA

353.3 336.3 381.4

NP

37.9

17.1

26.6

EPS (INR)

11.1

4.3

6.6

EPS Gr. (%)

-6.4 -54.9

53.1

BV/Sh. (INR)

168.8 171.8 177.3

RoE (%)

6.7

2.5

3.8

RoCE (%)

5.4

3.8

4.5

P/E (x)

38.3

98.2

64.2

P/BV (x)

2.5

2.5

2.4

n

n

Estimate change

TP change

Rating change

n

Consolidated EBITDA drops meager 1% QoQ:

Consol. EBITDA fell 1% QoQ

(-19% YoY) to INR77.6b (4% above estimate) on the back of flat revenue.

Bucking the last two quarter’s declining trend, India wireless revenues

stabilized in 1QFY18 (+0.4% QoQ, -14.2% YoY) to INR129.1b, as traffic

recovered post RJio ending its free usage offer. India wireless EBITDA declined

8% QoQ (-31% YoY) to INR44.3b due to high discretionary costs. Currency

devaluation pulled Africa revenue down by 4% QoQ (-22% YoY) to INR48.5b

(2% below estimates); however, in dollar terms, it increased 1% QoQ. Backed

by efficiency in operating cost, Africa EBITDA increased (+4% QoQ; -3% YoY) for

the second consecutive quarter to INR13.6b. PAT slipped 2% QoQ (-75% YoY) to

INR3.7b.

Resurgence of voice/data revenue:

Data revenue recovered after two quarters

of decline, increasing 3% QoQ (-20% YoY) to INR28.1b. Voice revenue

stabilized, with flat QoQ growth (-12% YoY) to INR92.6b. Both segments

witnessed steep volume growth, offsetting by price decline as industry shifts to

ARPU model. Blended ARPU declined 2% QoQ to INR154.

Growth avenues in sight:

Bharti’s market share improvement in the current

hyper-competitive market highlights its strong network and market standing.

RJio’s gradual reduction of smartphone-oriented freebies should support

growth, in our view. RJio’s VoLTE feature phone should see limited disruption

due to its ARPU-accretive offering and limited product differentiation.

Maintain Buy with revised TP of INR490:

The stock is trading at 6.8x on FY19E

EV/EBITDA, with potential FCFE yield of 6-7% as the market bottoms out. Our

EBITDA factors in 5% decline in FY18 and 13% growth in FY19. We have revised

our TP to INR490 (from INR430 earlier), based on 3.5x EV/EBITDA to Africa

business (3x earlier) and higher EBITDA estimates after two consecutive

quarters of earnings improvement. We assign 7.5x to India excl. tower and 15%

discount to our Bharti Infratel valuations. Maintain

Buy.

FY17

2Q

246,515

3.4

152,113

94,402

38.3

49,560

19,057

1,568

27,353

66

27,287

11,136

40.8

1,544

14,607

FY18

2QE

226,391

-8.2

144,372

82,019

36.2

49,282

21,459

3,698

14,976

0

14,976

8,224

54.9

2,737

4,015

FY17

FY18E

Exhibit 1:

Quarterly Performance

Y/E March

Gross Revenue

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

1Q

255,465

7.9

159,985

95,480

37.4

50,402

19,399

2,787

28,466

3,536

24,930

10,089

40.5

222

14,619

3Q

4Q

1QE

233,357 219,346 219,581

-3.0

-12.1

-14.0

148,542 140,746 141,997

84,815 78,600 77,584

36.3

35.8

35.3

48,350 49,418 48,192

19,356 19,162 18,274

3,487

2,494

3,698

20,596 12,514 14,816

2,040

6,055

503

18,556

6,459 14,313

11,841

1,753

8,136

63.8

27.1

56.8

1,678

972

2,504

5,037

3,734

3,673

3QE

4QE

233,885 242,835 954,683 922,692

0.2

10.7

-1.1

-3.4

147,936 152,107 601,386 586,412

85,949 90,728 353,297 336,279

36.7

37.4

37.0

36.4

51,746 54,210 197,730 203,430

21,459 21,459

76,974 82,652

3,698

3,698

10,336 14,792

16,442 18,756

88,929 64,990

0

0

11,697

503

16,442 18,756

77,232 64,487

9,029 10,300

34,819 35,688

54.9

54.9

45.1

55.3

3,005

3,428

4,416 11,674

4,408

5,029

37,997 17,124

Source: MOSL, Company

27 July 2017

7

26 July 2017

Q2CY17 Results Update | Sector: Consumer

Nestle India

Sell

BSE SENSEX

32,382

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm/ Vol m

Free float (%)

S&P CNX

10,021

NEST IN

96.4

654.4 / 10.2

7390 / 5701

-1/-3/-21

263

37.2

CMP: INR6,787

TP: INR5,740(-15%)

Results miss estimates, higher RM costs impact margins

n

n

Financials & Valuations (INR b)

Y/E Dec

2016 2017E 2018E

n

Net Sales

91.6

98.2 109.8

18.0

17.7

20.6

EBITDA

11.4

11.1

12.9

PAT

118.0 115.1 133.6

EPS (INR)

Gr. (%)

-1.6

-2.5

16.2

BV/Sh (INR)

312.6 336.0 365.8

RoE (%)

39.0

35.5

38.1

n

38.8

35.2

37.8

RoCE (%)

57.5

59.0

50.8

P/E (x)

35.0

35.3

29.9

EV/EBITDA (x)

Estimate change

TP change

Rating change

Net sales were up by only 6.9% YoY (est. of +16%) to INR23.9b

(Ind-AS).

EBITDA (Ind-AS) was down 6.1% YoY (est. of +10%) to INR4.4b. Adj. PAT was

down 11.8% YoY (est. of +5.4% YoY) to INR2.5b (Ind-AS).

Weak base makes revenue performance disappointing:

The base quarter was

weak as Maggi was still recovering in terms of sales and market share. Overall

gross sales grew 7.3% YoY in 2QCY17, but net sales growth was weaker owing

to end of tax holiday at the Pantnagar unit from June 2016.

EBITDA margin shrinks 260bp YoY:

Gross margin contracted 270bp to 54.8%

(est. of -150bp), which management attributed to rising cost of milk

derivatives. Staff costs increased 50bp YoY due to adoption of long-term

approach of compensating most factory employees in line with industry

practice. Other expenses, however, were down 70bp YoY. Consequently

EBITDA margin shrunk 260bp YoY (est. of -100bp) to 18.6%.

Valuation and view:

We have cut our EPS by 3%/4% for CY17/CY18E to model

the revenue and margin miss. It has now been over five long years of abysmal

volumes. While recent new product launches and rebuild of Maggi noodles

should support volumes, double-digit volume-led sales growth seems long time

away. Nestle is no longer the business it was before CY11 (it used to report

consistent double-digit volume growth with over 100% RoCEs) and may never

be so. Considering that valuations are rich at 50.8x CY18E EPS, we maintain

Sell

with a revised target of INR5,740 (INR5,990 earlier; 39x June’19 EPS, 25%

discount to three-year avg. multiple).

CY17

2Q

3QE

23,865 24,414

6.9

5.0

10,791 10,719

13,075 13,696

54.8

56.1

8,645

9,097

4,430

4,598

18.6

18.8

-6.1

-5.1

854

838

229

220

569

629

3,915

4,169

1,408

1,376

36.0

33.0

2,507

2,793

-11.8

-7.5

CY16

4QE

24,651

10.0

11,054

13,596

55.2

8,820

4,776

19.4

4.6

830

210

768

4,504

1,486

33.0

3,018

7.1

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

CY17E

98,214

7.2

43,285

54,929

55.9

37,245

17,684

18.0

-1.5

3,414

38

2,326

16,558

5,464

33.0

11,094

-2.5

(INR Million)

Estimate

Var.

2QCY17E

26,171

-8.8%

16.0

11,407

14,763

-11.4%

56.4

9,971

4,792

-7.6%

18.3

10.0

907

0

600

4,486 -12.7%

1,480

33.0

3,005 -16.6%

5.4

E: MOSL Estimates

Quarterly performance

Y/E December

1Q

22,770

Net Sales

YoY Cha nge (%)

COGS

9,872

9,495

Gross Profit

12,898 12,837

Ma rgi n (%)

56.6

57.5

Opera ti ng Exp

7,375

8,119

EBITDA

5,523

4,718

Ma rgi ns (%)

24.3

21.1

YoY Growth (%)

Depreci a ti on

891

889

Interes t

259

220

Other i ncome

421

524

PBT

4,793

4,132

Ta x

1,722

1,288

Ra te (%)

35.9

31.2

Adjusted PAT

3,071

2,844

YoY Cha nge (%)

22.5

Note: Quarterly numbers are as per Ind-AS

CY16

2Q

3Q

22,332 23,252

9,860

13,392

57.6

8,548

4,844

20.8

69.5

883

220

547

4,289

1,269

29.6

3,020

83.1

4Q

22,410

9,601

12,808

57.2

8,242

4,566

20.4

30.8

873

210

668

4,150

1,332

32.1

2,818

35.1

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

27 July 2017

8

Pidilite Industries

BSE SENSEX

32,382

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg. Val, INR m/Vol m

Free float (%)

S&P CNX

10,021

PIDI IN

512.7

427.6 / 6.6

837 / 569

-7/0/-5

385

30.4

26 July 2017

1QFY18 Results Update | Sector: Consumer

CMP: INR805

n

TP: INR810 (+1%)

Neutral

Results below expectation; expect normalcy from 3QFY18

PIDI’s 1QFY18 results came in below expectations.

Gross sales were down

1.3% YoY to INR16.7b. Net sales declined 2.6% YoY (est. of flat growth) to

INR15.3b, with flattish volume growth (est. of flat growth) in the Consumer

Bazaar segment. EBITDA was down 18.5% YoY (est. of -4% YoY) to INR3.2b,

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

Gross margin contracted 60bp YoY to 51.7%,

led by uptrend in key raw

material costs. Staff costs increased 150bp YoY to 11.8%. Other expenses were

up 200bp YoY to 18.9%, led by 39.6% increase in adspend due to timing

difference between advertisement and promotion spends compared to

1QFY17. EBITDA margin thus contracted 410bp YoY (est. of -150bp YoY) to 21%.

Consolidated segmental performance:

Consumer Bazaar revenues were down

1.6% YoY to INR14.3b. Segmental EBIT margin shrunk sharply by 390bp YoY to

23.0%. Consumer Bazaar EBIT declined 15.7% to INR3.3b. Industrial segment

was flat at INR2.5b, with margin contraction of 360bp to 14.7%.

Concall highlights:

1) No significant schemes launched in 1QFY18 to push stock.

Provided certain amount of money to channel partners for loss on stock due to

GST transition; accounted fully in other expenses in 1QFY18. 2) Company had

taken price hikes in segments that were affected more by RM inflation; no

price hikes taken in bigger products like Fevicol and Fevikwik. 3) Company sees

reasonable pick-up in demand after 1

st

week of July.

Valuation and view:

We cut our EPS numbers by 2%/3% for FY18/FY19 to build

in the miss on revenue and margins. PIDI offers a high-quality discretionary

play with strong competitive positioning, proven in-market excellence, and an

impeccable track record of generating long-term shareholder value over

multiple periods. While we admire the business franchise and long-term

growth prospects, fair valuations at 39x FY19E EPS lead us to maintain our

Neutral

rating with a revised target price of INR810 (INR835 earlier, 38x FY19E

EPS, 5% premium to three-year average).

(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

15,594 16,146

10.0

21.0

12,015 12,516

3,579

3,629

23.0

22.5

318

316

26

30

275

272

3,510

3,556

1,088

1,102

31.0

31.0

2,422

2,454

4.9

21.5

15.5

15.2

FY17

4QE

15,384

18.8

12,250

3,134

20.4

318

34

279

3,061

937

30.6

2,124

37.1

13.8

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

62,414

11.1

48,861

13,552

21.7

1,264

127

1,259

13,419

4,160

31.0

9,259

7.9

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

n

Financials & Valuations (INR b)

Y/E Mar

2017 2018E 2019E

Net Sales

56.2

62.4

72.4

EBITDA

12.6

13.6

15.5

PAT

8.6

9.3

10.6

EPS (INR)

16.7

18.1

20.6

Gr. (%)

6.7

7.9

14.0

BV/Sh (INR)

64.5

79.0

96.1

RoE (%)

28.2

25.2

23.5

RoCE (%)

26.8

24.1

22.7

P/E (x)

48.1

44.6

39.1

EV/EBITDA (x)

32.0

29.4

25.3

n

n

Estimate change

TP change

Rating change

n

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

27 July 2017

9

26 July 2017

1QFY18 Results Update | Sector: Financials

Federal Bank

Buy

BSE SENSEX

32,382

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

10,021

FB IN

1,719.0

139.2/2.1

82/41

13/61/40

414

100.0

CMP: INR115

n

TP:INR139 (+21%)

Slippages dent profitability; Underlying story intact

Federal Bank’s (FB) 1QFY18 PAT declined 18% QoQ (+26% YoY) to INR2.1b (14%

miss), despite in-line PPoP (+2%/31% QoQ/YoY), due to the twin impact on NII

and provisions from a spike in corporate slippages, with a restructured account

slipping into NPA.

NII growth came in at -5%/16% QoQ/YoY (7% miss) owing to interest reversals

of ~INR160m, adjusted for which, calculated NIM would stand at 3.11% instead

of 3.05%. Capital raise benefit (+15bp) will help near-term NIMs. Other income

grew 17%/39% QoQ/YoY due to a lumpy contribution of INR2b of treasury

income. CI ratio improved 60bp QoQ to 50.6%.

Loan growth of 4%/29% QoQ/YoY was broad-based, with strong growth across

segments. Corporate growth was the strongest at 6%/39% QoQ/YoY. Retail &

agri loans grew by 3%/27% QoQ/YoY, and SME loans by 3%/17% QoQ/YoY.

Asset quality deteriorated, with one bulky restructured account of INR1.05b

(62% of corporate slippages) slipping into NPA; GNPA/NNPA increased to

2.42%/1.39% (+9bp/+11bp QoQ), with slippage ratio shooting up to 2.88% v/s

1.68% in 4QFY17. Recoveries and upgrades declined 34% QoQ. During the

quarter, the bank sold ~INR480m from existing accounts to ARCs.

Other highlights: a) CASA increased 33% YoY led by 28% CA growth. b) Growth

picking up outside Kerala with 20%/25% growth in loans/SA, while overall

loans/SA growth was 14%/19%.

Valuation and view:

We believe FB’s asset quality concerns, which are largely

legacy issues, are largely behind. The bank is ahead of corporate lending peer

banks on the asset quality curve, especially with opportunistic entry into the

mid-commercial segment. Considering asset quality distractions in the PSU

space, we believe FB is well positioned to gain market share in highly rated

corporates. Post QIP, the bank is comfortably positioned with respect to capital

(Tier 1 ratio of 14.7%). We largely maintain estimates for FY18/19 and reiterate

Buy

with a target price of INR139 (2x June 2019 BV) based on RI model.

n

Financials & Valuations (INR b)

Y/E Mar

2018E 2019E 2020E

NII

35.4

43.4

52.0

OP

23.4

27.5

33.9

NP

10.4

13.3

16.7

NIM (%)

3.1

3.1

3.0

EPS (INR)

5.4

6.8

8.6

EPS Gr. (%)

11.6

27.0

25.7

BV/Sh. (INR)

62.3

67.7

74.6

ABV/Sh. (INR) 58.9

64.1

71.7

ROE (%)

10.0

10.5

12.1

ROA (%)

0.8

0.9

0.9

Payout (%)

20.3

19.7

19.7

Valuations

P/E(X)

21.3

16.7

13.3

P/BV (X)

1.8

1.7

1.5

n

n

n

n

27 July 2017

10

26 July 2017

Amara Raja Batteries

BSE SENSEX

32,382

S&P CNX

10,021

Annual Report Update | Sector: Automobiles

CMP: INR847

TP: INR1,095(+29%)

Strengthening products and market presence

Expanding technology and offerings to challenge leader

Buy

AMRJ’s FY17 annual report, themed ‘Expanding Horizons’ highlights initiatives on new

technologies, applications and markets. It has prioritized segments such as e-rickshaws,

renewable energy, motive power products and exports to keep its growth momentum

intact in FY18. Further, it is exploring and evaluating possibilities of foraying into other

technologies even as it continues to strengthen its leadership in the lead-acid space.

Expanding horizons across every aspect of business

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

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

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val, INRm

Free float (%)

FY17 was an important year for AMRJ, as it expanded its horizon across every

aspect of business: (a) Technology – absorbed glass mat batteries, flat plate gel,

tubular gel, etc, (b) Products – batteries for micro-hybrid vehicles, customized

AMRJ IN

batteries for UPS segment, etc, and (c) Processes. Further, it is exploring products

170.8

1,077/807

for renewable energy and e-mobility.

-3/-21/-21

144.6

2.2

353.0

47.9

Technological innovations to enhance product offerings

In the lead acid space, AMRJ is targeting to launch flat plate and tubular gel

batteries developed on gel-based platforms in FY18. It expects to launch products

based on EFB (enhance flooded battery) technology for micro hybrid vehicles in

1HFY18. In FY17, it developed products on AGM (absorbed glass mat) platform and

customized batteries for UPS applications. AMRJ expects the domestic battery

industry to grow at a CAGR of 7-9% till 2020.

Financials Snapshot (INR b)

2017 2018E 2019E

Y/E Mar

Sales

53.2

62.1

73.6

EBITDA

8.5

9.9

11.7

NP

4.8

6.0

7.2

EPS (INR)

28

35

42

EPS Gr. (%)

(2.7)

26.1

19.2

BV/Sh. (INR)

152

181

215

RoE (%)

20.3

21.2

21.3

RoCE (%)

19.4

20.3

20.4

P/E (x)

30.2

24.0

20.1

P/BV (x)

5.6

4.7

3.9

Shareholding pattern (%)

Jun-17 Mar-17 Jun-16

As On

Promoter

52.1

52.1

52.1

DII

10.9

8.9

8.2

FII

19.0

19.7

20.6

Others

18.0

19.4

19.2

FII Includes depository receipts

Key priorities for FY18

n

n

n

n

n

n

n

n

n

Implement punch greed technology across segments

Capacity enhancement in 2W and 4W space

Increase in automation levels to handle materials on the shop floor

Expand network and market share in EXID-dominated East and West markets

Strengthen marketing of in-house manufactured tubular batteries for home

UPS and e-rickshaw applications

Establish strong presence in high potential exports markets like Saudi Arabia

and Australia

Launch high warranty and energy-efficient products in industrial segment

Focus on increasing volumes of batteries used in data center applications

Increase focus on renewable energy and motive power segment

Targets to double 2W battery capacity in three years

AMRJ intends to continue its capacity expansion drive, as long-term growth

prospects remain robust. It is establishing a 14m units/year greenfield 2W battery

capacity in four phases over the next five years. This will take its total 2W battery

capacity to 24m units/year. In addition to the recently-commissioned 2.25m

units/year capacity, AMRJ is setting up three additional lines in the 4W segment.

27 July 2017

11

Stock Performance (1-year)

Focus on new segments to fuel growth

AMRJ is targeting new segments like renewable energy, e-mobility, motive power

and data center applications. It is banking on government schemes like FAME, Auto

Mission Plan II and National Electric Mobility Mission Plan (NEMMP) 2020, which are

expected to drive demand for automotive batteries in the future.

On-boarding new customers across segments

In the 2W battery space, AMRJ commenced supplies to Bajaj Auto (BJAUT) in FY17

and has on-boarded Hero MotoCorp (HMCL) as new customer. In 4Ws, AMRJ is the

sole supplier to Renault Kwid, and has added new platforms from existing

customers. It has also begun supplies to Volvo for its earth-moving vehicles.

Exploring India-like export markets to de-risk India exposure

AMRJ is expanding its presence in key markets such as South-East Asia, the Middle

East, Australia and Africa. Its exports grew 48% in FY17 and it targets to raise the

contribution of exports from 6.8% of revenue in FY17. For South-East Asian markets,

AMRJ is targeting telecom and UPS batteries for volume growth.

Double-digit revenue growth in automotive segment (60% of revenue)

In FY17, automotive segment revenue grew in double digits, led by healthy growth

in the 4W and 2W OEM space. AMRJ commenced supplies to BJAUT and will soon

start supplies to HMCL to further boost 2W OEM revenue. On the replacement side,

AMRJ continued its growth momentum, led by strengthening of brands, expansion

of network, and varied product offerings.

Telecom and UPS segments moderated industrial segment growth

AMRJ has highlighted that the entry of Reliance Jio with lithium-ion batteries has

impacted volume off-take for replacement batteries. Additionally, lead inflation

presented challenges in the telecom and UPS segments. However, preferred

supplier status with major OEMs, after sales service, and strong performance of

brands like

PowerStack, Quanta

and

QRS

supported sales.

Valuation and view

With stable competitive environment and demand recovery, we estimate 17.6%

Revenues CAGR, 17.3% EBITDA CAGR and 22.6% PAT CAGR over FY17-19. FCF

generation (INR8.2b over FY17-19E) and RoE of 21% coupled with potential shift

from unorganized to organized players due to GST would continue to drive stock

re-rating. The stock trades at 24x FY18E and 20.1x FY19E EPS. Maintain

Buy

with

a target price of ~INR1,095 (25x June 2019E EPS).

27 July 2017

12

RESULTS

FLASH

26 July 2017

Results Flash | Sector: Technology

Mphasis

Neutral

BSE SENSEX

27836.51

S&P CNX

8615.25

CMP: INR595

TP: INR600(+1%)

We will revisit our estimates

post earnings call/management

interaction.

HP-driven beat topped with deal wins worth USD183m

Strength seen in HP and Direct International

n

MPHL’s dollar revenue of USD231m was up 4.2% QoQ, above our estimate of

USD224m. In INR terms, revenue grew 2.0% QoQ (est. of -1.6%) to INR15.36b.

n

EBITDA margin contracted 90bp QoQ to 14.9%, below our estimate of 15.7%.

Our expectation of stable margins was driven by offsetting of INR appreciation

and visa expenses by a better revenue mix.

n

PAT was INR1,872m, below our estimate of INR2,011m, led by lower margins

and other income.

Deal wins of USD183m in 1QFY18, up 40% YoY LTM

n

A strong rebound was seen in revenue from the HP channel, which grew by

10.3% QoQ. Traction was also seen continuing in the Direct International

business, which grew by 4% QoQ.

n

Growth was dragged lower by further pressure in Digital Risk, which declined

by ~9% QoQ. The run-rate in Digital Risk has reduced by 25% compared to the

previous year.

n

The margin contraction was primarily seen at the gross level, with gross

margins contracting 140bp QoQ. This can be explained by the ~300bp shift of

revenue to onsite.

n

While S&M expenses increased 20bp QoQ, hefty savings were witnessed in

G&A expenses, which declined by 60bp to 5.2% of revenue.

Valuation and view:

We will revisit our estimates post the earnings call. Outlook on

growth in Direct Core, strategy under new leadership and the margin outlook

would be keenly watched. Based on current estimates, it trades at 14.2/13.0x

FY18/19E EPS.

Neutral.

Dec 16

224

-0.3

15,361

1.3

27.8

12.3

2,396

15.6

14.7

617

28.5

2,044

-5.6

17.7

9.7

22,018

-266

24.0

20.6

Mar 17

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

Jun 17

231

4.2

15,360

1.3

27.3

12.4

2,295

14.9

13.8

469

26.9

1,872

-3.2

-8.4

9.1

21,878

-101

25.8

21.3

FY18E

Sep 17

225

-2.8

14,826

-2.3

24.7

12.6

1,798

12.1

10.7

512

26.9

1,518

-18.9

-29.9

7.4

21,023

-855

FY17

Dec 17

229

2.0

15,189

-1.1

23.4

12.3

1,683

11.1

9.7

483

26.9

1,413

-6.9

-30.9

6.9

21,568

545

Mar 18

237

3.4

15,779

4.8

24.3

12.4

1,885

11.9

10.6

546

26.9

1,604

13.5

-17.1

7.8

22,088

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

Est. Var. (% /

Jun 17

bp)

225.9

2.2

2.0

228bp

14,815

3.7

-2.3

360bp

28.2

-88bp

12.5

-12bp

2,323

-1.2

15.7

-74bp

14.5

-74bp

648

-27.6

27.5

-57bp

2,011

-6.9

4.0

-1.6

10.4

20,954

4.4

-1025.0

Conference Call Details

Date:

27 July 2017

Time:

11:00 IST

Dial-in details:

+91-22-3938 1095

th

Financials & Valuations (INR b)

2017

2018E

Y/E Mar

Net Sales

60.8

62.3

EBITDA

9.7

9.9

NP

8.2

8.2

EPS (INR)

38.9

42.3

EPS Gr. (%)

12.9

8.8

BV/Sh. (INR)

292.4

254.6

RoE (%)

13.2

14.2

RoCE (%)

12.4

13.7

Payout (%)

43.7

52.0

Div. Yield

2.9

3.8

2019E

69.2

11.2

8.9

46.2

9.1

272.8

16.1

15.8

47.6

3.8

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

Net Addi ti ons

HP Cha nnel rev. (%)

Fi xed Pri ce (%)

Jun 16

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

Jun 16

224

-0.2

15,176

-2.6

28.1

11.8

2,463

16.2

15.3

711

27.5

2,166

6.0

14.0

10.3

22,284

-90

23.9

19.1

27 July 2017

13

Bharat Financial Inclusion

BSE SENSEX

32,382

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

10,021

BHAFIN IN

138.0

110.9/1.7

939 / 465

-4/-12/10

2496

98.3

26 July 2017

1QFY18 Results Update | Sector: Financials

CMP: INR789

n

TP: INR820 (+4%)

Neutral

Up-fronting provisions; stressed loans pool declines

BHAFIN reported 1QFY18 net loss of INR371m, driven by a provision hit of

INR1.76b. The company up-fronted bulk of the provisions which it plans to

make for the year. We view this as a key positive.

Collection efficiency trends have been encouraging. First month collection rate

improved from 91% in November 2016 to 92% in April and 96.2% in July.

Collection efficiency on a lagged basis also witnessed an improving trend.

Interestingly, the company disclosed collection efficiency trends on loans

disbursed over Jan-Jun 2017 across geographies. The minimum cumulative

collection efficiency in any state is 99.7%.

The pool of overall stressed loans continues to decline. Total overdue portfolio

declined QoQ from INR7.12b to INR5.55b. The company now holds provisions

of INR3.94b as against INR4.64b of 8 weeks+ overdue loans.

Number of loans disbursed increased 8% QoQ, while total disbursements

declined 4% sequentially.

Valuation and view:

Large unmet demand, low competitive intensity,

supportive regulations, strong balance sheet and best-in-class operating

metrics have put BHAFIN on a high-growth path. While there has been a hit

due to demonetization and other external factors, we believe that the long-

term growth story remains unchanged. However, the stock trades at 2.9x

FY19E BVPS, which we believe leaves little room for upside. However, we

acknowledge that upside could accrue with potential events (M&A) and better-

than-expected profit growth. Maintain

Neutral

with a TP of INR820 (3.0x FY19E

P/B).

n

Financials & Valuations (INR m)

Y/E March

2017 2018E 2019E

NII

7,774 9,210 13,920

PPP

5,522 6,860 11,200

PAT

2,897 4,387 9,484

EPS (INR)

21.0

31.8

68.7

BV/Sh (INR)

177.3 218.6 271.6

3.3

3.4

5.3

RoA on AUM(%)

RoE (%)

15.1

16.1

28.0

Valuations

P/E (x)

37.6

24.8

11.5

P/BV (x)

4.4

3.6

2.9

n

n

n

n

27 July 2017

14

26 July 2017

1QFY18 Results Update | Sector: Media

PVR

Buy

BSE SENSEX

32,382

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

10,021

PVRL IN

47

64.6 / 1.0

1660 / 1011

-14/-12/8

261

79.8

CMP: INR1,353

n

TP: INR1,628(+20%)

Expansion in southern market to lead growth

Financials & Valuations (INR b)

2017 2018E 2019E

Y/E Mar

Net Sales

21.2

24.6

29.3

EBITDA

3.1

4.1

5.4

PAT

1.0

1.4

2.2

EPS (INR)

20.5

30.9

46.9

Gr. (%)

-3.8

50.5

51.7

BV/Sh (INR)

206.5 235.5 280.0

RoE (%)

10.4

14.0

18.2

RoCE (%)

9.5

11.5

14.6

P/E (x)

65.9

43.8

28.9

P/BV (x)

6.6

5.7

4.8

n

n

Estimate change

TP change

Rating change

n

Revenue in-line, EBITDA and PAT below estimates:

PVR reported overall

revenue of INR6.4b (est. INR6.3b) in 1QFY18 as against INR5.6b in 1QFY17

marking a YoY growth of 13.2%. EBITDA margins declined to 17.6% in 1QFY18

(est. 20.5%) from 19% in 1QFY17. EBITDA stood at INR1,120m (est. INR1,309m)

as against INR1,065m in 1QFY17. The margins declined on account of higher

movie exhibition cost which increased by 90bp to 22.8% of net sales and higher

employee expenses which increased by 100bp to 10.7%. Consequently,

adjusted PAT stood at INR445m in 1QFY18 (est. INR506m) as against INR444m

in 1QFY17.

Screen additions in South market to aid growth:

PVR added 8 new screens in

1QFY18 out of which 5 were added in Chennai and 3 in Kota. 30 more screens

are ready and await licenses or completion certificate from the developers’

end. The company plans to leverage on the lesser penetrated markets of south

and expand its footprint there. Going forward, the company plans to open 65-

70 new screens in FY18 to leverage on the strong pipeline of upcoming

content.

Advertisement revenue to maintain uptrend:

PVR reported a sponsorship

income of INR674m as compared to INR515m in 1QFY17, a growth of 31%. The

growth was primarily led by strong content which usually fetches significantly

higher advertisement revenue. The strong growth is expected to continue with

strong content in pipeline for 2QFY18. Further, the quarter also witnessed a

growth of 10% in average ticket price (ATP) which went up to INR214 with the

company intending to sustain price at existing levels.

Valuation and view:

We expect long-term growth will be driven by expansion

into under penetrated markets and a robust content pipeline driving

advertisement revenue. Hence, keeping FY18E estimates unchanged, we raise

our PAT estimate of FY19E by 4%. We expect revenue CAGR of 18% and PAT

CAGR of 49% over FY17-19E. We value the stock at 15x EV/EBITDA and

maintain our Buy rating with a target price of INR1,628.

27 July 2017

15

26 July 2017

1QFY18 Results Update | Sector: Others

Delta Corp

Buy

BSE SENSEX

32,382

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

10,021

DELTA IN

267

39.4 / 0.6

218 / 90

8/14/72

790

64.7

CMP: INR170

TP: INR237(39%)

Steady growth in gaming drives revenue beat

Expanding share of online gaming to bolster growth

n

Financials & Valuations (INR b)

Y/E Mar

2017 2018E 2019E

Net Sales

4.5

6.8

8.6

EBITDA

1.6

2.5

3.3

PAT

0.7

1.5

2.1

EPS (INR)

3.1

5.8

7.9

Gr. (%)

125.5

89.1

36.7

BV/Sh (INR)

39.7

59.4

65.7

RoE (%)

8.1

12.3

12.6

RoCE (%)

9.6

12.6

12.6

P/E (x)

55.7

29.4

21.5

P/BV (x)

4.3

2.9

2.6

n

n

Estimate change

TP change

Rating change

n

Revenue exceeds but PAT below estimates:

DELTA reported overall revenue of

INR1,286m (est. of INR1,180m) v/s INR1,087m in 1QFY17, marking an increase

of 18.4%, driven by healthy growth of 20% in gaming. EBITDA margin shrunk

300bp YoY to 35.2% (est. of 38.1%) in 1QFY18, and EBITDA stood at INR453m

(est. of INR450m) v/s INR415m in 1QFY17. Consequently, adj. PAT came in at

INR211m (below est. of INR255m), as against INR170m in 1QFY17, because of

higher tax-rate of 36% v/s 29% in 1QFY17.

Online gaming – the next big opportunity:

Adda52 posted consolidated

revenue of INR290m, with EBITDA of INR80m in 1QFY18, which sets the stage

for robust growth of ~70% in FY18 (FY17 revenue: INR720m). Adda52 has

aggressive plans to ramp-up its online Rummy business and launch Teen Patti

in the UK market, which should drive sustainable long-term growth.

Change in Goa casino policy – a big game changer:

As per media articles, the

cabinet of Goa is likely to make a change in Goa’s casino policy, whereby all the

offshore license holders will be allowed to set up a live onshore gaming casino

on land in lieu of their offshore licenses. We believe this will be a major game-

changer for DELTA as it would not only significantly increase the scale of the

business, but also bring down the cost of operations.

Valuation and view:

Considering significant growth expected in online gaming,

we upgrade our sales estimate for FY18E by 6%, but keep PAT estimate

unchanged. However, we increase sales and PAT estimates for FY19E by 10%

and 11%, respectively. We expect the company to deliver sales/PAT CAGR of

38%/69% over FY17-19E, and value the stock at 30x FY19E EPS to arrive at a TP

of INR237. Maintain

Buy.

27 July 2017

16

26 July 2017

1QFY18 Results Update | Sector: Cement

Orient Cement

Buy

BSE SENSEX

32,382

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

10,021

ORCMNT IN

Profitability uptick led by high pricing

204.9

n

Muted volume growth:

1QFY18 revenue increased 30% YoY (-5% QoQ) to

32.9/0.5

INR5.68b (est. of INR5.92b), as volume growth was flat YoY at 1.40mt (est. of

241 / 115

1.6mt) on account of destocking ahead of GST roll-out. Realizations

8/5/-20

increased 18% QoQ (+30% YoY) to INR4,065/t (est. of INR3,693) due to sharp

58

pricing improvement in AP/Telangana and also Maharashtra (~84% of sales

62.5

CMP: INR160

TP: INR185 (+15%)

Financials & Valuations (INR b)

2017 2018E

Y/E Mar

Net Sales

18.8

23.6

EBITDA

1.8

3.5

NP

-0.3

0.9

EPS (INR)

-1.6

4.4

EPS Gr. (%)

-151.5 -382.2

BV/Sh. (INR)

48.2

52.0

RoE (%)

-3.2

8.8

RoCE (%)

1.4

7.9

EV/EBITDA (x)

24.7

12.4

EV/Ton (USD)

83

81

2019E

26.5

4.3

1.5

7.1

60.5

58.5

12.8

9.0

9.8

79

n

n

Estimate change

TP change

n

Rating change

volume). Realization improvement looks sequentially overstated by

~INR100/t due to lesser proportion of ex-factory sales in 1QFY18.

Favorable pricing improves margins:

Cost/ton rose 7% QoQ (+13% YoY) to

INR3,229 (est. of INR3,029), led by (a) increase of 6% YoY in power/fuel cost

due to higher petcoke prices, partially offset by a rise in proportion of

petcoke consumption, (c) increase of 43% YoY in freight cost/t due a shift in

invoicing toward FOR terms. EBITDA thus rose 189% YoY (+55% QoQ) to

INR1,169m (est. of INR1,065m), with margin at 20.6% (9.3% in 1QFY17).

EBITDA/ton grew INR400 QoQ (+INR546 YoY) to INR836 (est. of INR665).

Other key highlights:

(1) PPC sales at 68% of overall operations. (2) Petcoke

usage at 96% in Chittapur and 32% in Devapur on calorific value. 3) Lead

distance maintained at ~280km. (4) Market mix tilted toward west at 47%,

with south at 37% and others at 16%.

Valuation view:

Proposed acquisition of JPA’s assets would help ORCMNT to

raise capacity by 38% at reasonable valuation and significantly reduce lead

time. While the move would be dilutive to earnings and return ratios over

the near term, it will help the company to become a pan-India player by

diversifying into the newer markets of central/east India. We like the quality

of asset, and thus, believe that the combined valuation of USD84/t (i.e.

Orient’s current + proposed asset valuations) is attractive. The stock trades

at EV of 9.8x FY19E EBITDA and USD79 per ton on standalone operations.

We value ORCMNT at EV/ton of USD88 on FY19E, at a 20% discount to

replacement cost, and accordingly assign a TP of INR185. Maintain

Buy.

27 July 2017

17

Sector Update | 23 June 2017

Healthcare

Performance of top companies:

(June 2017)

Company

MAT

gr (%)

IPM

10.1

Sun Pharma

11.3

Abbott India

10.0

Cipla

6.9

Zydus Cadila

16.8

Mankind

9.1

Alkem

10.6

Lupin

12.7

GSK Pharma

2.3

Pfizer

1.3

Glenmark Pharma

12.7

Sanofi

12.6

Dr Reddy Labs

7.0

Torrent Pharma

12.6

Alembic Pharma

7.3

Ipca Labs

10.8

Natco

(9.5)

Ajanta Pharma

11.5

Merck

7.5

Biocon

11.0

Moderate growth in June 2017

n

n

Jun-17

(%)

7.5

5.7

8.7

3.2

19.4

12.3

(2.0)

16.4

9.2

5.9

3.0

18.3

6.3

0.9

(1.2)

.01

7.8

2.9

9.1

18.3

n

The Indian pharmaceutical market (IPM) grew 7.5% YoY in June 2017 against

7.2% YoY in May. It grew 7.6% YoY for the quarter ended June 2017 (1QFY18).

Volume growth in 1QFY18 was lower at 2.6% compared to 4% in 4QFY17. The

industry saw a moderate rise in price growth to 2.1% after being subdued for 6-

8 months; new product growth in the quarter was 3%. We expect industry

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

Moving annual (MAT) growth for May was 7.2% YoY, primarily driven by muted

volume growth of 2.6% and price growth of 2.1%; while new product growth

contributed 3%.

Cadila, Sanofi, Biocon and Lupin saw highest growth in June

Cadila posted robust growth for the month of June (19.4%), followed by Sanofi and

Biocon (18.3% each), and Lupin (16.4%). Conversely, for Alkem, growth declined by

2%, followed by Alembic Pharma (1.2% down).

Vaccines - Therapeutic (1.9% of IPM) continued to witnessed robust growth at 29%

YoY in June 2017, followed by Anti-Diabetic - Therapeutic (8.9% of IPM) at 18.3%

YoY, and Cardiac - Therapeutic (12.3% of IPM) at 10.7% YoY. Most therapies posted

low to mid-single-digit growth against high-single-digit growth in May. Gynecological

(9%) and Derma (8.1%) posted higher growth than the market.

In value terms, secondary sales of DPCO-listed products declined 3.5% YoY, while

secondary sales of non-DPCO products grew 8.9% YoY. Volume grew 1.6% YoY for

DPCO-listed products and declined 0.3% YoY for non-DPCO products.

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

sales. Secondary sales of proposed FDC-banned drugs declined 10.9% YoY in June

while secondary sales of non-banned drugs grew 7.9% YoY. Secondary sales for

Indian companies grew 2% YoY, while MNCs saw a significant decline of 36.1% YoY

in the FDC segment in the month of June 2017.

Exhibit 1. After remaining subdued for six months, price growth saw marginal

improvement in the month of June 2017

Volume Growth (%)

14.9

3.3

5.1

6.5

10.4

3.1

5.1

2.2

Price Growth (%)

1.4

2.1

20.3

-21

New Product Growth (%)

13.6

3.1

2.6

7.9

10.5

3.5

1.9

5.1

Total Growth (%)

Vaccines, Anti-Diabetic and Cardiac led among therapies

DPCO v/s non-DPCO market (June 2017)

FDC ban impact (June 2017)

8.7

3.3

1.4

4

7.7

3

2.1

2.6

Source: AIOCD, MOSL

27 July 2017

18

Indian Pharma Market - June 2017

Exhibit 2:

Performance of top companies: June 2017

MAT June -17

Value

Market

(INR m)

Share (%)

IPM

1,137,387

100.0

Sun Pharma

97,259

8.6

Abbott India

70,154

6.2

Cipla

53,082

4.7

Zydus Cadila

49,774

4.4

Mankind

41,800

3.7

Alkem

39,236

3.5

Lupin

37,823

3.4

GSK Pharma

34,149

3.0

Pfizer

28,458

2.5

Glenmark Pharma 27,105

2.4

Sanofi

25,339

2.2

Dr Reddy Labs

25,551

2.3

Torrent Pharma

26,450

2.3

Alembic Pharma

15,043

1.3

Ipca Labs

16,695

1.5

Natco

9,796

0.9

Ajanta Pharma

7,072

0.6

Merck

6,710

0.6

Biocon

3,794

0.3

Company

Last 8 Quarters in Growth (%)

Growth

(%)

10.1

11.3

10.0

6.9

16.8

9.1

10.6

12.7

2.3

1.3

12.7

12.6

7.0

12.6

7.3

10.8

(9.5)

11.5

7.5

11.0

Sep-15

14.6

13.9

15.4

9.1

11.8

15.3

6.4

13.7

3.1

10.1

22.6

5.7

13.4

19.8

12.9

21.5

31.5

(14.6)

53.9

(36.0)

Dec-15

17.7

10.7

14.6

17.9

12.7

23.4

16.2

14.4

14.0

5.5

22.7

0.4

26.8

11.6

23.5

34.7

(4.8)

(3.0)

27.9

(29.3)

Mar-16

13.6

13.5

5.9

8.3

11.0

21.9

10.8

17.3

4.0

(2.3)

16.3

(6.1)

21.0

10.8

15.4

22.6

48.1

(5.3)

9.8

(29.2)

Jun-16

9.0

4.0

8.3

5.8

6.8

16.2

15.3

7.9

(4.7)

(1.0)

5.9

(1.2)

(1.2)

4.4

10.3

13.4

20.4

12.5

9.5

(19.2)

Sep-16

14.1

14.8

10.3

15.5

12.0

17.3

25.1

14.5

1.4

4.9

14.1

14.4

15.0

15.3

19.5

20.5

2.0

12.8

4.7

7.4

1M

Dec-16 Mar-17 Jun-17 Jun-17

10.3

14.0

13.6

5.9

16.0

2.6

10.4

14.6

(5.9)

2.0

11.2

12.2

2.8

15.6

4.7

9.0

6.1

11.6

8.3

12.5

8.6

7.6

7.5

9.0

7.8

5.7

9.0

7.2

8.7

3.8

2.6

3.2

21.5

17.5

19.4

6.2

10.2

12.3

7.4

0.0

(2.0)

8.1

13.4

16.4

6.3

8.6

9.2

(0.2)

(1.8)

5.9

15.4

10.1

3.0

9.4

14.3

18.3

2.2

8.4

6.3

11.7

8.3

0.9

2.3

2.5

(1.2)

9.2

3.7

0.1

(29.3) (8.8)

7.8

14.0

7.7

2.9

5.9

10.9

9.1

5.8

18.3

18.3

Source: AIOCD, MOSL

Exhibit 3:

Performance of top therapies: June 2017

Therapy

IPM

Anti-Infectives

Cardiac

Gastro Intestinal

Anti Diabetic

Vitamins / Minerals / Nutrients

Respiratory

Pain / Analgesics

Derma

Neuro / CNS

Gynaecological

Anti-Neoplastics

Vaccines

Ophthal

Hormones

MAT June -17

Last 8 Quarters in Growth (%)

1M

Value

Market Growth

Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Jun-17

(INR m) Share (%) (%)

113,739

100.0

10.1

14.6

17.7

13.6

9.0

14.1

10.3

8.6

7.6

7.5

16,217

14.3

4.6

4.8

16.9

10.4

5.8

18.0

1.1

(2.7)

1.0

3.1

14,025

12.3

11.4

15.3

14.0

13.2

9.2

11.4

14.2

10.8

9.4

10.7

13,198

11.6

9.9

15.9

17.3

14.5

8.9

13.1

9.6

9.7

7.2

6.2

10,148

8.9

19.2

24.2

22.9

18.0

16.5

17.9

21.4

20.2

17.6

18.3

9,951

8.7

8.6

13.1

10.9

12.3

9.9

11.4

11.6

8.0

3.7

1.6

8,478

7.5

9.4

5.6

18.5

7.5

2.2

27.5

4.6

2.9

4.3

3.0

7,832

6.9

9.8

12.4

18.1

12.8

8.1

14.8

9.5

8.2

6.4

5.3

6,859

6.0

12.7

18.6

17.2

16.0

10.1

11.3

13.7

15.4

10.6

8.1

6,847

6.0

8.4

16.7

16.9

17.4

11.2

11.9

11.0

6.2

5.0

5.3

5,926

5.2

11.1

17.5

16.7

14.8

10.9

9.9

13.0

13.2

8.9

9.0

2,391

2.1

7.2

63.2

51.0

43.9

8.7

(3.1) 16.8

8.5

7.9

1.7

2,131

1.9

20.3

24.7

33.6

(2.1)

2.7

14.1

13.5

26.1

28.6

29.0

2,085

1.8

6.4

54.6

10.6

17.6

12.1

7.2

6.6

5.0

6.9

6.5

1,918

1.7

9.0

15.7

19.4

13.9

6.0

8.7

10.0

5.7

11.7

17.2

Source: AIOCD, MOSL

27 July 2017

19

June 2017 Results Preview | Sector: Healthcare

Biocon

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

BIOS IN

600.0

200 / 3

396 / 230

3 / -11 / 20

n

n

n

CMP: INR333

n

TP: INR300 (-10%)

Sell

Financial Snapshot (INR Billion)

y/e march

2017 2018E 2019E 2020E

Sales

EBITDA

NP

EPS (INR)

EPS Gro. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

32.6

4.4

21.6

0.8

32.1

4.1

17.8

0.8

23.1

3.6

13.3

1.1

17.9

3.2

10.4

1.4

38.8

9.3

6.1

10.2

31.7

74.8

13.6

9.3

47.8

11.5

6.2

10.4

1.7

82.1

12.6

9.0

59.3

15.1

8.6

14.4

38.8

15.6

14.7

69.9

18.9

11.1

18.5

29.0

17.6

17.0

92.3 105.4

n

Key issues to watch out

Biocon’s revenue is likely to post muted growth of 2.7% YoY to

INR10b, mainly due to the subdued performance in the small

molecules business (72% of sales).

EBITDA is expected to decline ~8% YoY to INR2.3b, with EBITDA

margins at 23.2%.

We expect PAT to decline to INR1.2b, primarily due to an increase

in depreciation due to the commencement of Malaysian facility.

Key growth drivers for FY18E will be 1) commercialization and

ramp-up of the insulin plant in Malaysia, 2) ramp-up in CRO

division, 3) contribution from API/immuno-suppressants supplies

to partners and 4) branded formulations in India. However, capex

for long-term initiatives is likely to exert pressure on profitability

and return ratios in the near term.

Recent stock price run-up is mainly led by positive developments

in Biosimilars. Although the progress is impressive, we believe

there are some uncertainties capping upside potential. In the

near term, commissioning of the Malaysia plant would pressurize

profits. Maintain Sell with revised a TP of INR300 @ 20x FY19E

EPS

Ø

Update on Middle-East problems.

Ø

Progress on Rh-Insulin/Glargine in Europe/US and other out-licensing

opportunities.

Quarterly Performance Consolidated

Y/E March

1Q

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Minority Interest

PAT

YoY Change (%)

Margins (%)

9,814

21.1

7,276

2,538

25.9

661

57

502

2,322

552

23.8

104

1,666

34.6

17.0

FY17

2Q

9,400

19.6

7,150

2,250

23.9

680

70

520

2,020

420

20.8

130

1,470

51.5

15.6

3Q

10,290

24.2

7,680

2,610

25.4

710

90

630

2,440

550

22.5

180

1,710

66.0

16.6

4Q

9,250

-2.1

7,430

1,820

19.7

730

50

490

1,530

110

7.2

150

1,270

-61.6

13.7

1QE

10,076

2.7

7,738

2,338

23.2

950

68

500

1,820

437

24.0

175

1,208

-27.5

12.0

FY18E

2QE

10,939

16.4

8,313

2,625

24.0

1,000

68

500

2,057

494

24.0

175

1,389

-5.5

12.7

3QE

12,033

16.9

9,145

2,888

24.0

1,050

68

500

2,270

545

24.0

175

1,550

-9.3

12.9

4QE

14,757

59.5

11,131

3,626

24.6

1,080

68

500

2,979

715

24.0

191

2,073

63.2

14.0

38,760

12.3

29,421

9,339

24.1

2,772

260

2,024

8,331

1,616

19.4

597

6,118

31.7

15.8

47,806

23.3

36,328

11,477

24.0

4,080

272

2,000

9,126

2,190

24.0

716

6,219

1.7

13.0

(INR Million)

FY17

FY18E

27 July 2017

20

June 2017 Results Preview | Sector: Financials

Cholamandalam Inv & Fin

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

CIFC IN

156.3

171 / 3

1244 / 805

6 / -4 / -1

CMP: INR1,091 TP: INR1,300 (+19%)

n

Buy

Financial Snapshot (INR b)

Y/E March

NII

PPP

Adj. PAT

EPS (INR)

EPS Gr. (%)

BV (INR)

BVPS Gr. (%)

RoAA (%)

RoE (%)

Valuations

P/E (x)

P/BV (x)

Div. Yield (%)

2017 2018E 2019E 2020E

23.5

28.1

32.8

38.4

14.2

17.6

21.2

25.3

7.2

8.6

10.4

12.4

46.0

55.0

66.4

79.4

26.3

19.7

20.6

19.7

274

322

380

449

17

17

18

18

2.6

2.7

2.8

2.8

18.1

18.5

18.9

19.2

23.7

4.0

0.5

19.8

3.4

0.5

16.4

2.9

0.6

13.7

2.4

0.7

Vehicle finance segment continues to register strong growth. Home

equity too has witnessed some pick-up this quarter.

n

Disbursements are expected to increase 15% YoY, resulting in

15%/4% YoY/QoQ increase in AUM.

n

Margins are expected to increase slightly on a YoY basis, driven by

higher share of vehicle finance loans. We expect NIM of 7.7%.

n

As a result, NII growth is expected to be strong at 20% YoY.

n

Calculated cost-to-income ratio should decline 20bp to 40.2%.

n

We believe GNPLs have topped out and should decline going

forward, as the company has started invoking SARFAESI to

repossess properties. We expect provisions of INR1b v/s INR0.5b in

4QFY17 and INR0.8b in 1QFY17.

n

Net profit is likely to grow 19% YoY to INR1.97b.

n

The stock trades at 3.4x FY18E and 2.9x FY19E BV. Maintain Buy.

Key issues to watch for

Ø

Business growth trends and management commentary on the

same.

Ø

Impact of BS4 and GST on business going forward.

Ø

Trend in opex, given management’s intent to reduce expense ratio

to 2.5% by FY20.

CIFC: Quarterly Performance

Y/E March

FY17

FY18E

1Q

2Q

3Q

4Q

1QE

2QE

3QE

Income from Operations

11,017 11,558 11,698 12,069 12,190 12,677 13,311

Interest Expenses

5,481

5,694

5,658

5,476

5,530

5,751

6,039

Net Interest Income

5,536

5,864

6,040

6,594

6,660

6,926

7,272

YoY Growth (%)

13.8

20.6

20.1

22.5

20.3

18.1

20.4

Other Op. and Other Income

68

69

60

65

69

69

69

Net Operating Income

5,604

5,933

6,100

6,659

6,728

6,995

7,341

YoY Growth (%)

14.3

21.0

20.5

22.6

20.1

17.9

20.3

Operating Expenses

2,264

2,527

2,588

2,754

2,706

2,794

2,885

Operating Profit

3,341

3,405

3,512

3,905

4,023

4,201

4,456

YoY Growth (%)

20.4

22.7

17.9

19.1

20.4

23.4

26.9

Provisions & Loan Losses

804

772

1,003

529

1,000

1,000

1,400

Profit before Tax

2,537

2,634

2,509

3,376

3,023

3,201

3,056

Tax Provisions

880

924

884

1,181

1,058

1,120

1,070

Net Profit

1,657

1,709

1,625

2,196

1,965

2,081

1,987

YoY Growth (%)

50.3

55.0

34.9

50.7

18.5

21.7

22.2

E: MOSL Estimates; * Quaterly nos and full year nos will not tally due to different way of reporting financial nos

(INR Million)

FY17

FY18E

4QE

13,970

6,046

7,925

20.2

77

8,001

20.2

3,042

4,960

27.0

1,005

3,954

1,383

2,572

17.1

45,781

22,308

23,473

13.3

822

24,296

13.4

10,133

14,162

9.1

3,106

11,056

3,868

7,187

26.4

51,463

23,367

28,097

19.7

969

29,065

19.6

11,426

17,639

24.6

4,405

13,234

4,631

8,603

19.7

27 July 2017

21

June 2017 Results Preview | Sector: Capital Goods

CG Consumer Electricals

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1,6,12 Rel Perf. (%)

CROMPTON IN

626.8

141 / 2

246 / 135

-7 / 31 / 43

CMP: INR224

n

n

n

TP: INR255 (14%)

Buy

Financial Snapshot (INR b)

Y/E March

2017 2018E 2019E 2020E

Net Sales

39.8

43.6

49.7

56.7

EBITDA

4.9

5.6

6.5

7.7

Adj. PAT

2.9

3.4

4.1

5.1

EPS (INR)

4.7

5.5

6.6

8.1

EPS Gr. (%)

146.2

17.2

20.2

22.7

BV/Sh. (INR)

8.6

11.9

14.5

17.8

RoE (%)

76.4

53.4

49.8

50.0

RoCE (%)

32.4

30.0

30.9

35.8

Payout (%)

32.7

33.0

50.0

50.0

Valuations

P/E (x)

47.0

40.1

33.4

27.2

P/BV (x)

25.6

18.5

15.1

12.4

EV/EBITDA, x

29.3

25.2

21.5

18.0

Div Yield (%)

0.7

0.8

1.5

1.8

* Consolidated

We expect sales to grow 7% YoY, driven by 9% YoY growth in the

consumer durables segment and 1% YoY in the lighting segment.

We expect operating profit of INR1.7b in 1QFY18, an improvement

of 7% YoY, and stable EBITDA margin of 13.8%.

Net profit is expected to be INR1.0b in 1QFY18, as against INR919m

in 1QFY17, implying growth of 10.7%.

Key issues to watch

Ø

Ø

Ø

Impact on the operating performance of the company on account of the

destocking measures taken by dealers amid GST implementation.

Details of segmental sales, as CROMPTON intends to improve sales of its

premium category products.

Ad spends incurred by the company during the quarter, as CROMPTON

intends to position itself as an electrical consumer durables brand as

against its current positioning as a fans brand.

Crompton: Quarterly Estimates (Standalone)

Y/E March

Sales

Change (%)

EBITDA

Change (%)

As of % Sales

Depreciation

Interest

Other Income

PBT

Tax

Effective Tax Rate (%)

Adjusted PAT

Change (%)

Extra-ordinary Income (net)

Reported PAT

Change (%)

1Q

11,208

1,550

13.8

28

180

34

1,376

457

33.2

919

-

919

FY17

2Q

8,900

974

10.9

27

161

42

827

273

33.0

554

-

554

3Q

8,889

9.7

993

19.9

11.2

26

162

50

855

281

32.9

574

35

-

574

39

4Q

10,762

7.4

1,386

9.0

12.9

29

153

69

1,273

388

30.5

885

16.6

(20.7)

864

29.8

1QE

12,000

7.1

1,650

6.5

13.8

30

153

50

1,517

500

33.0

1,017

10.7

-

1,017

10.7

FY18

2QE

3QE

9,900

10,000

11.2

12.5

1,150

1,190

18.1

19.8

11.6

11.9

30

30

153

153

60

60

1,027

1,067

350

34.1

677

22.3

-

677

22.3

350

32.8

717

25.1

-

717

25.1

FY17

4QE

11,719

8.9

1,624

17.2

13.9

28

163

65

1,499

440

29.3

1,059

19.7

-

1,059

22.5

39,759

119.5

4,902

134.0

12.3

110

655

195

4,332

1,399

32.3

2,933

138.8

2,907

167.0

FY18

43,619

9.7

5,614

14.5

12.9

118

655

235

5,076

1,640

32.3

3,436

17.2

3,436

18.2

27 July 2017

22