10 October 2017

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Today’s top research idea

Tata Steel: Site visit to Jamshedpur and Kalinganagar

A benchmark in operational excellence, sustainability and CSR



We visited Tata Steel’s (TATA) highly profitable 10mtpa plant at Jamshedpur

(JSR), recently commissioned new greenfield 3mtpa plant at Kalinganagar (KPO)

and also met top management.



JSR is a benchmark in operational excellence, sustainability and corporate social

responsibility. It has a rich product mix and has continuously worked toward

branding of its products and retailing, which has helped in de-commoditizing

nearly 50% of revenue. JSR will increase production by 1mtpa over three years

through asset sweating and debottlenecking.



KPO is likely to announce 3-5mtpa expansion in CY17. TATA is also evaluating

inorganic growth to double its capacity in India to 26mtpa in five years. KPO will

be a key growth driver as new projects are attractive. Maintain Neutral.

Research covered

Cos/Sector

Tata Steel

InterGlobe Aviation (ART)

Financials - MCLR

Zee Entertainment

Oil & Gas | Preview 2QFY18

Auto | Preview 2QFY18

Metals Weekly

Key Highlights

Site visit to Jamshedpur and Kalinganagar

High dividend payout; Equity dilution continues

RBI reviews working of MCLR

Acquires 9X Media, expands music portfolio

GRMs up YoY/QoQ; crude prices up YoY/QoQ

Regulatory impact waning – retail improving gradually

India steel exports rise 71% YoY to 1.1mt in September

Piping hot news

September commercial vehicles' sales rise fastest in 6 years, hint at economy

rebound



India’s commercial vehicles sales in September rose at the fastest pace in

nearly six years, suggesting a recovery in the economy…

Chart of the Day: MF industry grows for 16th consecutive quarter in 3QCY17; AUM

up 7.3% QoQ to new high of INR21t

Trend in quarterly average AUM

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

Saudi Aramco sets sight on

India's downstream sector,

plans mega investment

The world’s biggest oil producer,

Saudi Aramco, on Monday said it

would invest in the downstream

oil and gas sector of India through

a joint venture…

2

World Bank reduces India GDP growth forecast to 7% for 2017-18

After remaining the world’s fastest-growing region for eight consecutive

quarters, South Asia has slipped to the third position behind East Asia and

the Pacific regions, as India’s economy slowed to its lowest level in 13

quarters, the World Bank said on Monday. This is at a time when other

South Asian nations like Bangladesh and Nepal have registered strong

economic growth…

3

Disqualification of directors

hits 500 listed companies

Stock exchanges have sent notices

to listed companies that share

directors who have been

disqualified for associating with

other firms which haven’t filed

their financial statements or

annual returns for three years…

4

27% jump in launch of

affordable houses this year

There has been a 27 per cent jump

in the launch of new affordable

housing units in the first nine

months of the year compared to

the corresponding period last

year, says a new study. The study

was done in the top eight cities of

the country…

5

Govt set to bar homeopathy

doctors from selling drugs

Homeopathy doctors will soon be

barred from selling medicines

from the premises they are

practising in, according to new

rules proposed by the government

that are to be notified soon. “No

registered homeopathic medical

practitioner who is practicing

homeopathy in the premises

where homeopathy medicines are

sold, shall deal in homeopathic

medicines,” according to the new

draft rules…

6

Over 4,250 manufacturing units

located in the north-eastern and

Himalayan States are to get a

Diwali gift from the Centre. The

Government will, according to a

scheme framed by the

Department of Industrial Policy

and Promotion…

7

Coal stocks run low at 23

power plants: CEA data

Coal stocks at power plants

continue to be low at a fifth of the

monitored power plants, giving an

opportunity to gas-based projects

to operate. Data available with the

Central Electricity Authority

showed that 23 of the 114 plants

had low coal stocks…

Centre to compensate units

that lost excise-exempt status,

post GST

10 October 2017

2

9 October 2017

Company Update | Sector: Metals

Tata Steel

Neutral

BSE SENSEX

31,847

S&P CNX

9,989

CMP: INR697

TP: INR665(-5%)

Site visit to Jamshedpur and Kalinganagar

A benchmark in operational excellence, sustainability and CSR

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

Avg Val ( INRm)/Vol m

Free float (%)

TATA IN

971

704 / 366

6/36/58

677.1

10.4

3059

68.7

Financials Snapshot (INR b)

Y/E Mar

2017 2018E 2019E

Net Sales

1,123 1,255 1,254

EBITDA

170

211

202

PAT

37

65

62

EPS (INR)

37.9

66.9

63.4

Gr. (%)

394.2

76.5

-5.3

BV/Sh (INR)

330

373

426

RoE (%)

15.7

19.1

15.9

RoCE (%)

9.4

11.6

10.3

P/E (x)

18.4

10.4

11.0

P/BV (x)

2.1

1.9

1.6

Shareholding pattern (%)

As On

Promoter

DII

FII

Others

Jun-17 Mar-17 Jun-16

31.4

30.3

13.7

24.6

31.4

30.6

14.1

23.9

31.4

27.2

13.3

28.2

FII Includes depository receipts

Stock Performance (1-year)

Tata Steel

Sensex - Rebased

690

580

470

360

250

We visited Tata Steel’s (TATA) flagship, highly profitable 10mtpa steel plant at

Jamshedpur, Jharkhand (JSR), recently commissioned new greenfield 3mtpa steel

plant at Kalinganagar, Odisha (KPO) and also met top management during 3-6

October 2017. Key takeaways:



After plugging the cash leakage at Tata Steel Europe (TSE), TATA is now looking

to double its capacity to 26mtpa in India through both organic and inorganic

routes.



TATA has a lion’s share in the most lucrative auto segment at 44%. Autos

comprised 19% of its product mix in FY17. The new hot strip mill (HSM) at KPO

can produce all sizes, grade in tight tolerances, which are required by the highly

demanding auto customers.



TATA has continuously worked to create various brands and retail supply chain.

Branded products now comprise of 50% of JSR’s revenue.



JSR has 10mtpa capacity in a compact area of 1,700 acres. The blast furnaces

operate at high operating efficiencies and at the lowest coke rate of 320kg. It

has state-of-the-art downstream facilities to produce 2.3mtpa products. JSR is

expected to increase steel production by 1mt over three years through

debottlenecking.



KPO’s phase-I with 3mtpa capacity was commissioned in FY17. KPO’s area is

twice that of JSR, and it has created infrastructure for 6mtpa. There will be

material savings in infrastructure and HSM during phase-II expansion.

However, additional capex would be needed in the downstream cold rolling

mills. Management is likely to announce 3-5mtpa expansion in CY17.



TATA has been investing heavily on sustainability, driven by the vision of its

founder. JSR has invested INR25b in the past 10 years on improving the

environment. Some of the achievements in this area are:

Specific dust emission has reduced by 50% in the last four years.

Specific water consumption has reduced by 31% in the last four years.

Specific CO2 emission intensity has reduced by 27%.



TATA has been responsibly discharging its duties toward the society. Some of

its initiatives have helped in reducing infant mortality by 39%, making 1,052

villages child-labor-free, building 30 schools in rural Odisha, etc.



TATA’s expansion projects will increase its Indian capacities by 4-6mtpa to 17-

19mtpa over the next 3-4 years. It is also evaluating value-accretive inorganic

opportunities, which are arising under the Indian bankruptcy code.



We believe that TATA has finally achieved a major milestone by plugging the

cash flow leakages at TSE. The operating environment too is improving on

consolidation and anti-dumping actions against cheaper imports. The Indian

business is benefitting from the strong international market and retail reach.



TATA will pursue growth instead of de-leveraging, as the new projects in India

are attractive. Both Odisha and Jharkhand may raise additional demand toward

past iron ore mining. We value the stock at INR665/share based on SOTP.

Maintain

Neutral.

10 October 2017

3

9 October 2017

A

nnual

R

eport

T

hreadbare

INTERGLOBE AVIATION FY17

INDIGO’s FY17 annual report highlights PBT declining 24% to INR21.4b

due to weak operating performance. PBT was, however, supported by

higher other income at INR7.9b, 37%of PBT). Further, deferred incentive

recognized increased to INR5.3b (FY16:INR3.6b).Operating cash flow

improved to INR37.7b (FY16: INR30.0b) due to rise in supplementary rent

payables by INR8.3b and incentives on aircraft acquisition by INR7.1b.

Sale (at INR6.1b) and lease back of aircraft acquired from IPO proceeds

helped FCF to remain high at INR41.4b (FY16: INR28.5b). Dividend payout

ratio remained high at 89.2% (FY16: 99.7%). In FY18, INDIGO raised

INR25.3b by diluting 6% of the equity to pursue change in its business

strategy to owning more aircraft. This could impact dividend payouts and

return ratios. Net unhedged forex exposure was high at INR57.0b (1.5x of

NW). Non-core assets at INR93.4b (2.4x of NW) led to RoCE of 21.4%

despite high RoIC of 70.0%.

The

ART

of annual report analysis



Other income stood high

at INR7.9b (37% of PBT)



Deferred incentives

recognized increased to

INR5.3b (25% of PBT)



Rising supplementary rents and incentives

boost cash flows by INR15.4b



Aircraft acquired via IPO proceeds, sold and

lease back at INR6.1b

Auditor’s name

B S R & Co LLP

Statutory

Declining yield, rising fuel costs impact EBITDA:

INDIGO’s yield

declined 10% to INR3.5 leading to fall in revenue per available seat

kilometer (RASK); while, the load factor increased 100bps to 85%.

Rising crude oil prices led to increase in aircraft fuel expenses to

INR63.4b,34% of revenue (FY16:INR47.8b,30% of revenue). EBITDA

declined 31% to INR21.4b. Profitability was, however, supported

by recognition higher other income at INR7.9b (FY16:INR5.2b).

Further, deferred incentives recognized increased to INR5.3b

(FY16:INR3.6b).

Rising supplementary rents and incentives boost cash flows:

Contribution of working capital changes to OCF increased to

INR21.1b (FY16: INR3.1b), boosting OCF to INR37.7b. Increased

deferred incentives, supplementary rent payables and forward

sales added INR18.6b to OCF. In the last five years, incentives and

net supplementary rent payables contributed INR12.7b and

INR29.3b, respectively to operating cash flows.

High dividend payout; equity dilution to acquire aircrafts:

INDIGO

has consistently maintained its dividend payout (at 80-100%). The

company has declared dividend of INR14.8b (FY16:INR19.8b)

including dividend tax. Also, it has raised INR12.1b through an IPO

in FY16 (5% dilution) and INR25.3b through a QIP in FY18 (6%

dilution) for the acquisition of aircrafts.

Low R&M and S&D cost a differentiator; may increase:

Short-term

lease of six years and single kind of aircraft in its fleet helped

INDIGO to gain an edge over peers in terms of repair and

maintenance (R&M) expenses. Though 200bp higher for FY17,

INDIGO’s R&M was INR6.9b – 4% of revenue, still the lowest

among peers. Also, its S&D cost at INR1.2b (1% of revenue) are

lowest amongst peers, due to low cost of global distribution

system. Owning of aircraft, introduction of ATR fleet, and foray

into long-haul international operations could increase these costs.

10 October 2017

Stock Info

Bloomberg

CMP (INR)

Equity Shares (m)

52-Week Range (INR)

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

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

INDIGO IN

1,107

383.9

1346/807

422.3/6.3

-12/0/5

Jun-17

85.9

1.6

6.4

6.1

Sep-16

85.9

1.6

5.9

6.6

Shareholding pattern (%)

As on

Promoter

DII

FII

Others

Sep-17

85.9

2.8

5.8

5.5

Stock Performance (1-year)

4

Sector Update | 10 October 2017

Financials - Banks

RBI reviews working of MCLR

The unsatiated desire for perfect lending rate regime

RBI reviews working of MCLR – earnings/margin volatility to increase

The RBI working group has found monetary policy transmission to be inadequate

under the current MCLR/base rate regime. This is more so in the case of outstanding

loans, wherein the longer reset period and the discretionary spreads being charged

by banks have prevented proper pass-through of reduction in lending rates. Besides,

the computation of base rate and MCLR has also been found to be inconsistent

among banks thus putting borrowers at a disadvantage. The group also highlighted

that monetary transmission remains asymmetric over the monetary policy cycles –

higher during the tightening phase and lower during the easing phase, irrespective

of the interest rate methodology being followed. The working group has thus

suggested that banks need to move to one of the following external benchmarks –

(i) T-Bill rate, (ii) CD rate and (iii) repo rate to price their loans, after due

consultation with the RBI and other stakeholders. Also, the group suggested that

the external benchmark should be adopted from 1 April 2018, and thereafter, all

existing loans (BPLR/base rate/MCLR) should be moved to the new benchmark

within one year (i.e. by March 2019).

Our view:

We believe that the migration to the suggested methodology will bring in

more volatility to spreads/profitability of banks across cycles as they transparently

pass on the revised lending rates to the borrowers. Thus, banks’ margins will likely

expand during monetary tightening cycle and vice versa. We believe that in order to

protect profitability across cycles, banks – particularly private banks –will work

toward faster repricing of deposits, which the retail depositors will need to adjust

to. This may result in higher volatility in margins, particularly for retail banks, as they

have higher share of fixed rate assets and CASA deposits. We further note that such

a migration will also have an impact on the strategy of a bank, as by benchmarking

the lending rate to an external variable, the regulator will essentially delineate the

asset and liability profile of a bank. We note that there have been several banks that

have planned for an adequate liability franchise before rolling out the retail asset

products. The suggested migration may take away the interest rate stickiness of

even SA deposits, and thus, may require further strategy deliberations on building

retail franchise by these banks.

Weighted-average lending rate

for private banks has declined

the most

Public Private

Period

Jan 15 to Jun 17

Pre-Demon

(Jan 15 to Oct 16)

Post-Demon

(Nov 16 to Jun 17)

Sector

Banks

-1.09

-0.7

Sector

Banks

-1.52

-1

-0.39

-0.52

Source:

RBI,

MOSL

Over Apr-16 to Jun-17, the

spread on outstanding loans

has increased the most for

PSBs

Period

Apr-Dec 16

Jan 17

Feb - Jun 17

Apr16 - Jun 17

Public Private

Sector Sector

Banks Banks

11

-1

58

16

-23

-32

46

-17

Source:

RBI,

MOSL

10 October 2017

5

Exhibit 1: Credit pricing methodologies introduced by the RBI and their shortcomings

Credit pricing

methodology

PLR

Announced /

Intent

Introduced in

RBI deregulated lending rates in 1994 for credit limits

over Rs0.2mn and asked banks to declare their prime

lending rates (PLR) - interest rate charged for

Oct-94

the most creditworthy borrowers. PLR was expected to

act as a floor for lending above Rs0.2m.

Shortcomings

(i) Both the PLR and the spread

charged over the PLR varied widely across banks,

and, (ii) PLRs of banks were rigid and did not reflect

the movement in policy rates.

BPLR

Apr-03

Base rate

Jul-10

MCLR

Apr-16

Sub-BPLR lending became dominant (77% of loan

book was sub-BPLR in 2008) and impeded monetary

To improve transparency and ensure appropriate pricing

transmission, especially in a declining rate

of loans RBI introduced BPLR, which was supposed to be

environment. Besides, housing loans and the

used as a reference rate.

consumer durable loans were outside the purview

of the BPLR.

Flexibility in determination of funding cost (average,

The base rate was linked to the banks cost of funds and

marginal or blended cost) caused opacity in the

was supposed to act as the floor rate for all loans except

computation of base rate and made the assessment

for some specific categories. This was thus expected to

of monetary transmission difficult. Also, the

facilitate better pricing of loans and enhance

discretion in charging of spreads impacted

transparency in lending rates.

monetary transmission

The lending rate was linked to the marginal cost of

High reset period and discretionary spreads being

funds for banks. MCLR review was supposed to be done charged by banks prevented the desired monetary

every month (quarterly in case of base rate) while reset transmission. Monetary transmission on existing

period can be maximum of one year for floating rate

loans has been found to be inadequate even as

loans (no such limit in base rate methodology)

MCLR has been significantly revised lower by banks

Source: MOSL, RBI

10 October 2017

6

Zee Entertainment

BSE SENSEX

31,814

S&P CNX

9,980

9 October 2017

Company Update | Sector: Media

CMP: INR523

TP: INR630 (+20%)

Buy

Acquires 9X Media, expands music portfolio

Additional channels to contribute 5% of domestic ad revenue









Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INRm

Free float (%)

Zee announced the acquisition of 9X Media’s six music channels for INR1.6b, which

will be paid in cash. These six channels across four languages – 9XM (Latest

Financials & Valuations (INR b)

Bollywood), 9X Jalwa (Evergreen Hindi), 9X Jhakaas (Marathi), 9X Tashan (Punjabi),

Y/E MARCH

2017 2018E 2019E

9XO (English), and 9X Bajao (Hindi Classics) – will allow Zee to expand its portfolio

Net Sales

64.3

64.6

75.9

from the current 33 channels to 39 channels.

EBITDA

Adj. NP

Adj. EPS (INR)

EPS Gr. (%)

BV/Share (INR)

RoE (%)

RoCE (%)

Div. Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

19.3

14.5

13.9

80.7

89.2

19.3

20.7

13.0

37.4

5.8

24.5

0.5

20.3

13.1

12.2

-12.4

95.4

14.7

15.7

22.7

42.6

5.4

22.8

0.5

26.9

18.2

17.8

46.4

106.8

18.7

19.5

19.0

29.1

4.9

16.9

0.6

Z IN

960.5

497.9 / 7.8

575/429

0/-12/-19

1087.0

56.9

Zee has acquired 9X Media’s six music channels for INR1.6b (1x FY17 sales).

9X Media holds ~26% share in the music ad market.

The acquisition allows Zee to widen its TV portfolio and also provides channels to

market its own music/movie production.

We maintain our Buy recommendation for Zee, with a TP of INR630.

Has acquired 9X Media’s six music channels for INR1.6b in cash

Acquired portfolio to contribute 5% of domestic ad revenue

9X Media’s FY17 revenue at INR1.6b is equivalent to 5% of Zee’s domestic ad

revenue and 2% of its consolidated revenue. At the EBITDA level, 9X Media had a

loss of INR51m in FY17. EBITDA margin was 7% in FY16, which turned negative to -

3% in FY17. Over the next 2-3 years, revenue growth coupled with cost synergies

should drive margin accretion.

Benefits for Zee

Shareholding pattern (%)

As On

Jun-17 Mar-17 Jun-16

Promoter

43.1

43.1

43.1

DII

5.7

4.5

3.8

FII

44.7

46.4

48.1

Others

6.6

6.1

5.0

FII Includes depository receipts

Stock Performance (1-year)

Zee Entertainmen

Sensex - Rebased

700

625

550

475

400

1. Deeper inroads to music genre:

Music is 3% of the total TV market, with about

INR6b industry size. 9X Media holds a sizeable ~26% revenue market share. Zee

already has presence in the music genre through Zetc channel, but 9X Media

should allow it to expand reach significantly with a dual brand strategy. It

should also allow it to widen its target market through regional music, with

foray into the Punjabi market.

2. Wider marketing channel for own music/movie production:

These channels

will complement Zee’s music label and movie production business. Currently,

the music production business may be a miniscule 2-3% of total revenue. 9X

Media’s strong distribution will support Zee’s own music and movie production

reach, supporting management guidance of healthy revenue contribution from

movie/music business over the next 3-5 years.

Expect healthy growth; remain positive with TP of INR630

The low revenue/EBITDA contribution does not change our earnings estimates. We

maintain our adjusted EPS estimates of INR12/18 for FY18/19, with CAGR of 13%

over FY17-19. We believe Zee’s efforts to (a) widen TV genre/language presence,

and (b) increased focus on movie/music production and events business should

allow it to sustain healthy earnings growth over the next 3-5 years. RoE of ~20% by

FY19-20 should support healthy valuations.

Buy

with a TP of INR630.

10 October 2017

7

September 2017 Results Preview | Sector: Oil & Gas

Oil & Gas

Company name

BPCL

GAIL

Gujarat Gas

Gujarat State Petronet

HPCL

Indraprastha Gas

IOC

MRPL

Oil India

ONGC

Petronet LNG

Reliance Industries





GRMs up YoY/QoQ; crude prices up YoY/QoQ

Inventory gains to boost refiners’ earnings



Singapore complex GRM was USD8.3/bbl in 2QFY18 v/s USD6.4/bbl in 1QFY18 and

USD5.1/bbl in 2QFY17. Inventory gains are likely to boost earnings further.

Average Brent crude price was up 13% YoY and 3% QoQ to USD51.5/bbl. While the

YoY/QoQ increase would benefit upstream companies, we expect lower operating

costs to further help them. ONGC and Oil India should see YoY EBITDA increase.

RIL is expected to clock a GRM of USD12.6/bbl, led by strong benchmark (premium of

USD4.3/bbl). Petchem segment would do better despite decline in HDPE and LDPE

delta, with RIL being an integrated player and strong volume growth in the segment.

Brent up 13% YoY and 3% QoQ; upstream subsidy nil in 2QFY18





Brent crude increased, primarily due to Hurricane Harvey. The average for the

quarter was up 13% YoY (3% QoQ) at USD51.5/bbl. OMCs are likely to post

inventory gains for the quarter.

We do not build any net under-recovery either for the OMCs or for the

upstream companies.

GRM at USD8.3/bbl, up from USD5.1/bbl in 2QFY17





Reuters Singapore Complex GRM was up 62% YoY (29% QoQ), led by ~25%

refinery outages on US Gulf Coast due to Hurricane Harvey.

PE, PP and PVC delta declined sequentially. While POY spread declined, PSF

spread was flattish sequentially. RIL being an integrated player is less likely to

be affected by lower petchem deltas sequentially.

Exhibit 1:

Expected quarterly performance summary

Sector

CMP

(INR)

Oil & Gas

BPCL

GAIL

Gujarat Gas

Gujarat State Petronet

HPCL

IOC

Indraprastha Gas

MRPL

Oil India

ONGC

Petronet LNG

Reliance Inds.

Oil & Gas Sector Aggregate

Oil & Gas Excl. OMCs

480

431

907

195

436

406

1,438

127

349

171

239

824

RECO

Buy

Sell

Sell

Neutral

Buy

Buy

Neutral

Sell

Buy

Buy

Buy

Neutral

Sales (INR M)

Var % Var %

Sep-17

YoY QoQ

606,020

131,905

14,836

3,569

543,603

1,060,179

11,360

113,907

23,102

199,763

65,436

737,250

3,510,930

1,301,129

35.6

11.2

19.9

39.2

29.3

32.5

18.0

14.3

3.0

9.2

-1.1

23.7

26.4

17.2

6.1

15.6

0.4

20.5

1.8

0.6

8.3

11.0

-0.9

4.7

1.7

14.8

5.6

11.6

EBDITA (INR M)

Var % Var %

Sep-17

YoY

QoQ

35,783

20,585

2,281

3,129

33,364

116,073

2,849

13,578

7,588

104,151

7,793

126,447

473,621

288,400

106.8

35.8

7.2

39.4

79.4

87.1

10.6

72.9

1.5

9.2

7.3

19.8

37.8

17.4

82.9

8.4

-15.4

13.4

3.7

27.3

2.7

133.0

-13.2

5.4

4.7

9.1

16.4

9.3

Net Profit (INR M)

Var % Var %

Sep-17

YoY

QoQ

39,135

12,207

904

1,793

31,860

92,189

1,735

7,338

5,386

43,488

4,932

88,212

329,177

165,993

199.8 425.6

32.0

19.0

25.8

-13.4

38.1

17.5

354.3 244.5

195.3 244.4

11.8

7.6

76.5 213.6

-7.2

19.6

-12.6

11.9

7.3

12.7

14.5

7.6

60.2

73.3

7.7

13.3

Source: MOSL

10 October 2017

8

Higher marketing margins





A rise in crude oil price, noise over increased retail fuel prices and Finance

Ministry stating no cut in excise duties raised concerns about the ability of the

OMCs to raise fuel prices, affecting stock performance. In a move positive for

the OMCs nonetheless, the excise was cut by INR2/liter on petrol and diesel

from October 04, 2017.

OMCs’ gross margins for auto fuels have increased YoY/QoQ. Gross margins

were INR3.2/liter in 2QFY18 v/s INR2.7/liter in 2QFY17 for petrol and

INR3.1/liter in 2QFY18 v/s INR2.5/liter in 2QFY17 for diesel.

After almost a decade of negative-to-flat growth, domestic gas production has

increased by ~5.4% YoY in April-August 2017 v/s 3% YoY decline in FY17. We

expect domestic gas production to grow at 10-15% annually for the next five

years.

Domestic crude oil production declined by 0.27% YoY in April-August 2017.

Production for ONGC grew by 2.52% YoY to 9.6mmt during April-August 2017;

OIL’s production grew by 5.5% YoY to 1.6mmt during April-August 2017.

We expect oil production for ONGC to further increase from WO16, Vasai East,

and Ratna & R-series.

While LNG imports grew by 16% in FY17, they declined by 4% YoY during April-

August 2017 due to lower volumes at Dabhol LNG terminal. We expect LNG

imports to revive and grow in double-digits for the rest of the year.

Strong benchmark GRMs and inventory gains led by rise in crude oil price will

boost OMCs (IOCL/HPCL/BPCL). We expect OMCs’ core earnings to increase

YoY/QoQ in 2QFY18.

RIL is expected to clock a GRM of USD12.6/bbl, led by strong benchmark

(premium of USD4.3/bbl). Petchem segment would do better despite decline in

HDPE and LDPE delta, with RIL being an integrated player and strong volume

growth in the segment.

We expect volume growth to continue for CGD players. We might see margin

compression (YoY/QoQ) in the industrial segment due to competition from

alternate fuels.

Rise in crude oil price and revived production volume growth for oil and gas

would benefit ONGC/OINL.

Bullish on OMCs: We continue to like OMCs on account of (a) improving core

performance which reflects strong GRMs, (b) strong consumption growth of

auto fuels, (c) potential marketing margin expansion, and (c) low competitive

intensity. We prefer IOC among the three due to its high free cash flow

generation.

ONGC looks attractive: We prefer ONGC, as (a) cost efficiency would result in

decline in opex, (b) gas production is likely to grow 10-15% annually for the next

five years, (c) oil production is set to increase, (d) it has no subsidy burden, and

(e) valuations are attractive.

Domestic oil production revived







LNG imports to continue growing



Valuation and view













10 October 2017

9



PLNG – a long-term buy: Visibility on PLNG’s medium/long-term earnings is high,

given (a) the huge gas demand-supply gap in India, (b) volume growth, driven by

gradual capacity addition, and (c) earnings growth boosted by annual re-gas

charge escalation. Poor competition from existing and upcoming terminals and

lower LNG prices add to the Buy case for PLNG.

Exhibit 3:

Relative performance - 1Yr (%)

138

126

114

102

90

Sensex Index

MOSL Oil & Gas Index

Exhibit 2:

Relative performance - 3m (%)

Sensex Index

118

113

108

103

98

MOSL Oil & Gas Index

Source: Bloomberg, MOSL

Exhibit 4:

Comparative valuations

Sector / Companies

Oil & Gas

BPCL

GAIL

Gujarat Gas

Gujarat State Petronet

HPCL

Indraprastha Gas

IOC

MRPL

Oil India

ONGC

Petronet LNG

Reliance Inds.

Sector Aggregate

Ex OMCs

CMP

(INR)

480

431

907

195

436

1,438

406

127

349

171

239

824

RECO

EPS (INR)

PE (x)

EV/EBIDTA (x)

ROE (%)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

49.2

26.5

31.6

12.1

45.9

49.6

51.1

10.7

29.1

17.8

14.1

54.7

52.0

30.0

44.0

13.3

42.9

54.8

46.5

11.6

34.1

19.2

18.0

62.6

55.5

32.0

50.9

15.2

45.7

62.7

49.4

12.3

34.8

18.2

18.3

68.1

9.8

16.3

28.7

16.2

9.5

29.0

7.9

11.9

12.0

9.6

16.9

15.1

11.7

13.5

9.2

14.4

20.6

14.7

10.2

26.3

8.7

10.9

10.2

8.9

13.3

13.2

11.0

12.0

8.7

13.5

17.8

12.8

9.5

22.9

8.2

10.3

10.0

9.4

13.1

12.1

10.5

11.5

7.7

10.2

14.0

9.0

6.1

17.2

4.7

5.8

9.0

4.0

11.4

7.1

6.0

6.1

7.3

9.3

11.2

7.9

6.3

15.3

4.7

5.5

7.7

3.7

8.5

5.4

5.3

5.1

6.9

8.7

9.8

6.8

6.1

13.2

4.3

4.5

7.4

4.2

7.8

4.5

5.0

4.9

28.5

11.3

23.9

14.3

31.0

21.7

21.9

17.3

7.9

10.2

23.9

11.7

13.5

10.9

25.2

22.9

11.9

11.8

27.0

25.3

14.1

14.5

24.2

22.2

20.4

20.0

17.4

16.6

16.5

15.6

8.8

8.6

10.5

9.6

25.5

21.8

12.1

11.9

13.0

12.5

11.4

10.9

Source: MOSL

Buy

Sell

Sell

Neutral

Buy

Neutral

Buy

Sell

Buy

Buy

Buy

Neutral

10 October 2017

10

September 2017 Results Preview | October 2017

Automobiles

Company name

Amara Raja Batteries

Ashok Leyland

Bajaj Auto

Bharat Forge

BOSCH

CEAT

Eicher Motors

Endurance technologies

Escort

Exide Industries

Hero MotoCorp

Mahindra & Mahindra

Maruti Suzuki

Tata Motors

TVS Motor Company







Regulatory impact waning – retail improving gradually

Strengthening commodity prices could exert pressure on margins in 2HFY18





Regulatory actions had materially influenced auto volumes since 3QFY17. However,

given the waning regulatory impact, the automobile sector has witnessed gradual

volume growth August onward, supported by pre-festive inventory build-up and

improving rural sentiment.

Our channel checks indicate healthy retail growth in key segments like PV and 2W.

However, its sustainability can be threatened by below-average monsoon in the key

markets of UP (-29%), Bihar (-9%) and MP (-20%).

EBITDA margin for our auto OEM (ex-JLR) universe is likely to contract (-100bp YoY;

+160bp QoQ) for the fourth consecutive quarter to 13.4%. This is without any impact

of an increase in commodity prices (which is expected to be realized in 2HFY18).

We have lowered our FY19 EPS estimates for AMRJ (-13%), and increased for BJAUT

(+7%) and ENDU (+4%).

Our top picks are TTMT and MSIL among large caps, and AL and AMRJ among mid-

caps. We also believe that MM is the best play on a rural market recovery.

Volume recovery across segments; first quarter post regulatory hiccups

Regulatory actions (demonetization, emission norm changes and pre-GST de-

stocking) had materially influenced auto volumes since 3QFY17. However, given the

waning regulatory impact, the automobile sector has witnessed gradual volume

growth August onward. This was partly led by pre-festive inventory filling and

positive rural sentiment in key markets. Our channel checks suggest above-average

volume growth in key rural markets during this festive season.

Fourth straight quarter of YoY contraction in EBITDA margin; healthy QoQ

recovery

EBITDA margin of our auto OEM (ex-JLR) universe is likely to contract (-100bp YoY;

+160bp QoQ) for the fourth consecutive quarter to 13.4%, impacted by commodity

price inflation. However, operating leverage to some extent limits the contraction in

margins. We expect BJAUT’s margin to shrink the most by 240bp YoY, followed by

MSIL (-190bp), HMCL (-130bp) and AL (-100bp). However, margins are expected to

expand for TVSL (+50bp), EIM S/A (+40bp) and TTMT S/A (+80bp).

Below-normal monsoon may result in slower rural recovery; higher

commodity prices may hurt margins

Our channel checks suggest above-average festive demand growth in key rural

markets. However, its sustainability can be impacted by below-average monsoon in

the key markets of UP (-29%), Bihar (-9%) and MP (-20%). We estimate 2W and PV

volumes CAGR of ~11% over FY17-19E. We estimate M&HCVs to grow at ~8% CAGR

and LCVs to grow ~12.5% CAGR (on low base). Sharp increase in commodity prices

(refer Exhibit 4) may impact EBITDA margin from 2HFY18.

Valuation and view

We have lowered our FY19 EPS estimates for AMRJ (-13%), and increased for BJAUT

(+7%) and ENDU (+4%). Demand environment and changing competitive landscape

would be the key determinants of the stock performance. Our top picks are Tata

Motors, Maruti Suzuki, Ashok Leyland and Amara Raja. We also believe MM is the

best play on a rural market recovery.

10 October 2017

11

September 2017 Results Preview | Sector: Automobiles

Exhibit 1: Summary of expected quarterly performance (INR m)

Sector

CMP

(INR)

Automobiles

Amara Raja Batt.

Ashok Leyland

Bajaj Auto

Bharat Forge

Bosch

CEAT

Eicher Motors

Endurance Tech.

Escorts

Exide Inds.

Hero Motocorp

Mahindra & Mahindra

Maruti Suzuki

Tata Motors

Sector Aggregate

705

123

3,131

632

20,781

1,718

30,788

1,055

665

204

3,757

1,301

7,838

423

Reco

Buy

Buy

Buy

Buy

Neutral

Buy

Buy

Buy

Neutral

Buy

Neutral

Buy

Buy

Buy

Sales (INR m)

Var

Var %

Sep-17

% YoY

QoQ

15,474

61,281

65,803

12,430

34,211

17,515

22,080

16,250

11,944

21,680

86,146

122,241

219,928

690,313

1,437,601

15.0

32.6

8.7

39.5

31.0

9.7

25.8

12.2

20.0

12.7

10.5

20.2

23.3

4.8

12.0

3.3

44.6

20.9

3.5

29.2

7.5

10.4

4.8

2.7

3.1

8.1

10.2

25.3

18.0

17.9

EBDITA (INR m)

Var

Var %

Sep-17

% YoY

QoQ

2,006

6,477

12,537

3,560

6,329

1,839

7,000

2,256

1,069

3,278

15,201

17,543

33,188

72,832

188,589

-12.7

20.7

-3.3

43.8

34.8

-0.8

29.1

12.4

71.1

12.0

2.5

19.5

9.3

15.9

13.5

4.0

111.6

33.6

6.8

44.2

236.5

12.8

5.6

9.6

1.1

8.6

20.7

42.4

46.7

35.9

Net Profit (INR m)

Var

Var %

Sep-17

% YoY

QoQ

1,108

3,787

11,189

1,913

4,384

921

5,509

1,082

657

2,016

10,017

13,591

23,323

12,322

94,029

-18.7

28.6

-0.3

50.8

0.9

-13.9

33.3

21.2

91.3

11.2

-0.3

8.5

-2.7

50.4

9.4

10.9

215.7

18.2

9.2

44.9

8614.6

19.9

12.1

4.8

6.7

9.6

76.9

49.9

304.7

53.5

Exhibit 2: Volume snapshot for 2QFY18 ('000 units)

Two wheelers

Three wheelers

Passenger cars

UVs & MPVs

Total PVs

M&HCV

LCV

Total CVs

Total

2QFY18

6,240

257

759

341

1,100

90

135

225

7,822

2QFY17

5,599

232

711

293

1,004

77

118

195

7,031

YoY (%)

11.4

10.8

6.7

16.4

9.5

16.4

14.3

15.2

11.3

1QFY18

5,544

187

634

273

907

57

110

167

6,806

QoQ (%)

12.5

37.6

19.8

24.9

21.3

56.5

22.8

34.3

14.9

1HFY18

11,784

444

1,393

614

2,007

147

245

392

14,628

1HFY17

10,717

438

1,312

548

1,860

158

231

388

13,403

YoY (%)

10.0

1.5

6.2

11.9

7.9

-6.6

6.4

1.1

9.1

Exhibit 3: Trend in segment-wise EBITDA margins (%)

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

Exhibit 4: Commodity prices remain at higher levels

2QFY17

3QFY17

4QFY17

1QFY18

2QFY18

2W

Cars

CVs

Source: Company, MOSL

Steel

Lead

Alu

Rubber

Source: Company, MOSL

10 October 2017

12

September 2017 Results Preview | Sector: Automobiles

Exhibit 5: Trend in key currencies v/s INR

120

USD

GBP

JPY

Exhibit 6: QoQ Margin expansion (ex-JLR) post three quarters

Aggregate (excld JLR)

17

14

11

Aggregate (incl JLR)

100

80

8

Source: Bloomberg, MOSL

Source: Company, MOSL

Exhibit 7: Revised estimates

Bajaj Auto

Hero MotoCorp

TVS Motor

Maruti *

M&M *

Tata Motors *

Ashok Leyland

Eicher Motors *

Amara Raja

Bharat Forge *

BOSCH

Exide Industries

Endurance Tech*

* Consolidated

Rev

144.4

185.0

15.1

285.5

69.5

20.0

5.3

826.7

25.6

18.3

540.8

8.9

29.6

FY18E

Old

137.2

189.3

14.4

281.7

68.5

22.4

5.2

852.9

28.2

18.2

547.2

9.2

29.3

Chg (%)

5.2

-2.3

4.8

1.4

1.4

-10.7

3.1

-3.1

-9.4

0.3

-1.2

-2.8

1.2

Rev

174.3

197.1

24.5

381.7

81.7

61.3

7.0

1119.2

32.9

25.5

698.6

10.8

39.3

FY19E

Old

163.6

199.1

23.7

374.5

82.4

59.8

7.0

1092.8

37.9

25.3

705.7

11.0

37.9

Chg (%)

6.6

-1.0

3.4

1.9

-0.8

2.5

0.8

2.4

-13.2

0.7

-1.0

-2.1

3.6

Volumes ('000 units)

YoY

QoQ

2QFY18

(%)

(%)

Bajaj Auto

1072

3.8

20.6

Hero MotoCorp

2004

9.9

8.3

TVS Motor

949

16.3

18.3

Maruti Suzuki

492

17.6

24.7

M&M

218

16.3

8.4

Tata Motors (S/A)

153

13.9

39.5

Tata Motors (Cons) 154

10.5

11.1

Ashok Leyland

Eicher(Consol)

41

22.6

43.9

JLR

203

21.5

10.3

Eicher - RE

15

12.0

29.6

Eicher - VECV

Agg. (ex JLR)

5146

11.3

15.1

EBITDA margins (%)

YoY

QoQ

2QFY18

(bp)

(bp)

19.1

-240

180

16.3

-130

0

8.6

50

240

15.1

-190

180

14.4

-10

120

4.5

80

440

10.8

-10

290

10.6

100

210

10.6

-100

330

31.7

40

30

8.5

130

20

31.7

40

30

13.4

-100

160

Adj PAT (INR m)

YoY

QoQ

2QFY18

(%)

(%)

11,189

-0.3

18.2

10,017

-0.3

9.6

2,209

24.5

70.6

23,323

-2.7

49.9

13,591

8.5

76.9

-4,736

NM

-1.4

172

29.6

38.5

12,322

50.4

305

3,787

28.6

215.7

5,043

27.3

2.0

1,095

56.8

68.4

5,509

33.3

19.9

64,890

8.1

46.6

10 October 2017

13

September 2017 Results Preview | Sector: Automobiles

Exhibit 8: Relative performance – Three months (%)

107

104

101

98

Sensex Index

MOSL Automobiles Index

Exhibit 9: Relative performance – One year (%)

120

110

100

90

Sensex Index

MOSL Automobiles Index

Source: Bloomberg, MOSL

Source: Bloomberg, MOSL

Exhibit 10: Comparative valuation

Sector / Companies

Automobiles

Amara Raja Batt.

Ashok Leyland

Bajaj Auto

Bharat Forge

Bosch

CEAT

Endurance Tech.

Eicher Motors

Escorts

Exide Inds.

Hero Motocorp

Mahindra & Mahindra

Maruti Suzuki

Tata Motors

TVS Motor

Auto Sector Aggregate

CMP

(INR)

705

123

3,131

632

20,781

1,718

1,055

30,788

665

204

3,757

1,301

7,838

423

655

Reco.

EPS (INR)

PE (x)

EV/EBIDTA (x)

RoE (%)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

25.6

32.9

43.0

5.3

7.0

9.2

144.4 174.3 202.9

18.3

25.5

32.6

540.8 698.6 820.2

94.2 126.8 145.4

29.6

39.3

49.2

826.7 1119.2 1395.8

37.1

45.8

52.5

8.9

10.8

13.0

185.0 197.1 215.6

69.5

81.7

91.9

285.5 381.7 440.3

20.0

61.3

63.1

15.1

24.5

33.8

27.6

23.0

21.7

34.6

38.4

18.2

35.6

37.2

17.9

22.8

20.3

18.7

27.5

21.1

43.4

25.3

21.4

17.4

18.0

24.8

29.7

13.5

26.9

27.5

14.5

19.0

19.1

15.9

20.5

6.9

26.7

15.9

16.4

13.3

15.4

19.4

25.3

11.8

21.5

22.1

12.7

15.7

17.4

14.2

17.8

6.7

19.4

14.1

14.6

11.9

16.0

18.4

24.1

10.2

16.8

28.2

15.8

11.6

13.0

4.9

16.8

5.0

28.0

10.3

11.3

9.1

12.9

14.5

18.8

8.0

13.9

21.3

12.7

9.5

12.4

4.2

12.4

2.9

18.0

7.2

8.7

6.8

10.9

11.6

15.8

6.8

11.4

16.9

10.4

7.6

11.1

4.0

10.2

2.6

13.1

6.3

15.8

23.8

23.2

19.3

17.8

14.8

21.8

36.1

17.3

13.8

34.0

13.5

20.4

11.0

26.7

17.3

17.7

27.0

25.3

22.9

20.5

17.3

24.0

36.4

18.3

14.8

31.4

14.3

23.0

27.4

34.2

22.8

19.8

29.5

27.1

24.5

21.2

17.1

25.0

33.9

17.9

15.8

29.8

14.8

22.6

22.0

35.5

21.5

Buy

Buy

Buy

Buy

Neutral

Buy

Buy

Buy

Neutral

Buy

Neutral

Buy

Buy

Buy

Buy

10 October 2017

14

Metals Weekly

India steel exports rise 71% YoY to 1.1mt in September



9 October 2017

Update









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

WoW, while domestic scrap prices were unchanged. NMDC cut iron ore fines/lump prices by INR100/t. Pellet

prices were unchanged. Domestic HRC prices were unchanged.

Raw materials: Iron ore prices (China cfr) were unchanged as the market is quiet due to Chinese holidays.

Chinese iron ore port inventories were marginally higher. Thermal coal prices were up ~2% WoW. Coking coal

prices were down ~3% WoW. China's pellet import prices were unchanged.

Europe: HRC prices were unchanged. HRC product spreads were marginally higher. CIS HRC export prices were

up ~1% WoW. Rotterdam scrap prices remain weak, down ~1% WoW.

China: Local HRC and rebar prices were unchanged. Exports HRC were also unchanged amid holidays in China.

Base metals: Aluminum (cash LME) prices were up ~1% WoW. Alumina prices were marginally higher. Zinc

(cash LME) was up 4% WoW. Lead was up ~1% WoW. Copper was up ~2% WoW. Crude oil (Brent) prices were

down ~3% WoW.

10 October 2017

15

In conversation

1. Tata Group: Trying to bring consolidation, synergy, and scale;

Natarajan Chandrasekaran, Chairman













Sprawling Tata Group has to be streamlined - with several businesses needing to

be consolidated, and others scaled up further.

Busy collecting data, formulating strategy, building a team and laying out a

capital allocation plan for the group.

Three big companies Tata Steel, Tata Motors and TCS which have scale.

Remaining number of companies in different sectors, but have not scaled up. So

need to figure out a way of scaling up.

Besides these three, Group will look to focus on five segments: retail and

consumer, financial services, infrastructure, tourism and defence.

All present significant opportunity of growth. Need to see how to consolidate,

synergise where company cannot consolidate and how to scale.

Refrained from saying whether or when the group would decide to take a

serious call on consolidation or shutdown for scores of small firms, many of

which have either similar businesses to other group firms or are under-

performing.

2. BATA: Revenue of USD 1 billion target achievable in next 5-6

years; Rajeev Gopalakrishnan, President - South Asia











Goods and services tax (GST) will help company save some costs in the long-

term.

GST has been neutral for the company so far.

Same-store-sales growth maintained at 6 percent so far. However, saw lower

same-store-sales growth in July and August.

Revenue of USD 1 billion achievable in next five-six years.

Premium products contribute close to 30 percent to sales and it should increase

to 50 percent by end FY18.

3. Satin Credit care: Board approves QIP; HP Singh, Founder and

MD









Have closed Rs 150 crore QIP right now.

QIP is fourth fund raising by the company. First QIP was before demonetisation

in October then Asian Development Bank came in April.

Did a small preferential raise with Capital First and that was a business and a

strategic tie-up.

This raise technically in terms of growth.

4. Sobha Developers: Expect EBITDA margins to be better than

last 3-years; JC Sharma, Vice Chairman & MD





Company posted sales value which was highest in last three years.

Tells us that even while the macro environment was sluggish, if one were to

focus on marketing and believe that underlying demand will be there, one will

do succeed. Has taken place in all their markets in the last 9 months.

10 October 2017

16

From the think tank

1. In Defence of mainstream economics



After the 2008 global financial crisis, nearly every month or so an essay goes viral

that discusses, often at length, how the profession of economics needs an

overhaul. Not that there is no truth in the statement but the offered reasons are

often seriously deficient in their understanding of what economists do and the

strengths and limitations of their tools and methods. The usual criticisms are the

following: 1. Economists ignore the importance of psychology, sociology, history

and culture. 2. Economists think of human beings as some abstract mathematical

machines. 3. Economists write very simplistic models of the economy forgetting

that they don’t exactly depict the real world and that these models rely on very

strong, and perhaps untenable, assumptions. 4. However much the economists

wish it to be, economics is not a natural science. Let us take these in order. A

criticism like “Economists ignore the importance of culture” sounds profound until

we realize that it is banal. For example, for most goods the quantity demanded

decreases if the price increases. This statement is valid both in downtown

Manhattan and in a tiny Indian village. Obviously, in making this statement I did

ignore the cultural aspect but I leave it to you to judge the importance of culture

and history here. Arguably my example was too simplistic, and indeed it was. It is

only when economists are seeking such general principles that they ignore

culture, which is rather rare.

2. Why the government needs to loosen its purse strings



Economists would almost universally agree that fiscal discipline is a good thing.

No government should aspire to live beyond its means. If it does, the

consequences can be severe: higher inflation, higher interest rates, low private

investment and lower growth. India’s current government has justly been

praised for its fiscal restraint. It’s reduced the overall fiscal deficit and

reoriented spending away from wasteful programs such as fuel subsidies and

toward more productive investments in infrastructure. What it hasn’t done,

however, is deliver the sustained high growth of over 8% that India needs. To do

so may require loosening the purse strings. It’s important to remember why the

Indian economy is struggling. Some analysts argue that the slowdown is a recent

phenomenon, sparked by the government’s decision last fall to withdraw 86% of

banknotes from circulation and the introduction this past summer of a

nationwide goods and services tax.

3. The need for doing digital



The need for digital can hardly be overstated. India is particularly poised to take

advantage of digital technologies as they have the potential to add economic

value of $550 billion to $1 trillion per year by 2025, and create millions of well-

paying, productive jobs. The critical need of the hour is to stop thinking and start

doing digital. It is, however, important to recognize that digital leadership is

effective for companies only when it creates value—for their customers,

partners and employees. The traditional view of ‘going digital’ was to first

impact operations and then evolving up the technology pyramid to arrive at a

17

10 October 2017

design change of processes. The primary aim was efficiency and reduction in

costs. The business process improvement strategy was often overlooked as the

technology teams typically jumped into operations deploying a set of digital

tools. This mindset is precisely what led to failed implementation and reduced

business value in the past. Organisations, in their attempt to jump onto the

digital bandwagon, have rushed to adopt various siloed technology components

before defining the problem they were trying to solve.

International

4. EU is pulling punches against tech giants





Margrethe Vestager, the European commissioner for competition, is ordering

Amazon to pay €250 million plus interest to Luxembourg, deemed to have

rendered illegal state aid to the US company. But the European Commission (EC)

should be aiming higher if they want to send a serious message to US tech giants

about doing business there.

The scheme Vestager attacked in Amazon’s case turned on the tax ruling

Luxembourg granted the retailer in 2003 and maintained until 2014. The ruling,

according to the EC, allowed the company to transfer 90% of its European

operating profit as royalties for the use of intellectual property held by a

Luxembourg partnership that was exempt from corporate tax. The US owners of

the partnership then simply deferred their tax liability. The EC said the amount

Amazon paid to the partnership was 50% higher than necessary under the

partnership’s cost-sharing arrangement with the US parent company, under

which Amazon financed its research and development.

10 October 2017

18

Click excel icon

for detailed

valuation guide

Rs

Valuation snapshot

P/E (x)

P/B (x)

ROE (%)

FY17 FY18E FY17 FY18E FY17 FY18E FY19E

24.5

27.3

23.6

49.1

44.9

18.7

51.9

46.1

34.8

25.1

21.8

24.0

43.7

31.7

21.5

57.5

28.9

32.9

26.6

30.6

24.3

31.6

17.8

19.8

35.4

NM

39.1

43.6

14.7

25.4

29.7

23.6

NM

16.8

34.6

9.2

NM

22.0

862.3

16.3

92.8

60.4

46.3

30.7

24.3

18.4

65.0

37.3

18.4

37.6

17.4

26.8

23.3

21.7

35.1

39.3

18.5

38.5

36.6

18.7

22.8

19.9

18.8

23.7

27.6

21.3

44.8

25.3

23.1

22.3

90.8

21.7

26.3

18.8

21.4

27.5

18.9

32.4

30.1

11.2

20.1

24.2

14.8

NM

10.5

8.2

7.9

7.0

23.5

17.6

14.5

16.4

42.7

32.5

23.0

20.0

14.5

53.2

33.5

15.1

28.8

16.0

4.5

5.9

5.3

7.3

7.4

2.9

16.2

8.8

3.5

3.5

7.3

3.0

2.7

6.6

2.5

13.3

4.9

2.2

2.7

2.3

2.3

5.3

2.0

1.4

5.1

0.7

5.1

4.6

1.3

4.0

3.4

0.9

0.6

0.7

0.5

0.9

0.3

0.8

1.2

0.4

0.8

11.6

5.5

3.2

4.0

2.2

19.5

6.9

4.4

4.4

3.1

4.0

5.2

4.8

6.3

6.6

2.6

12.2

7.3

3.0

3.1

6.3

2.8

2.4

5.7

2.2

10.9

4.4

2.1

2.2

2.3

1.9

4.6

1.9

1.3

4.4

0.7

4.5

3.2

1.2

3.4

3.0

0.9

0.6

0.6

0.5

0.8

0.3

0.7

1.1

0.4

0.8

6.8

4.4

2.9

3.4

1.9

15.9

6.3

3.9

3.9

2.7

20.3

23.1

25.3

16.2

15.8

16.9

37.1

20.8

10.6

13.9

35.7

14.2

6.4

20.3

9.8

25.6

17.1

6.9

10.8

9.5

9.9

18.3

10.2

7.2

15.4

-27.0

13.8

12.3

9.5

18.9

11.5

4.0

-6.7

4.2

1.4

10.1

-8.4

3.6

-0.2

2.7

0.9

21.6

15.1

12.0

18.0

14.4

32.5

18.9

25.5

12.4

19.4

15.8

23.8

23.2

19.3

17.8

14.8

36.1

21.8

17.3

13.8

34.0

13.5

10.8

20.4

11.0

26.7

17.2

9.3

11.4

2.5

10.0

18.8

8.6

6.3

17.3

3.5

15.0

13.0

10.8

18.3

12.5

6.1

-5.2

6.2

5.8

10.9

4.6

3.2

7.0

3.0

4.6

20.1

15.1

13.2

18.6

14.1

33.0

18.6

27.6

14.7

18.2

17.7

27.0

25.3

22.9

20.5

17.3

36.4

24.0

18.3

14.8

31.4

14.3

11.5

23.0

27.4

34.2

22.6

14.7

11.8

8.6

10.5

19.7

9.3

6.9

18.5

7.2

16.3

13.3

12.7

19.5

14.2

12.4

3.0

9.1

7.3

11.2

5.4

5.9

11.4

6.1

8.3

20.2

22.4

15.0

19.2

15.6

31.8

17.8

30.6

18.5

18.5

Company

Automobiles

Amara Raja

Ashok Ley.

Bajaj Auto

Bharat Forge

Bosch

CEAT

Eicher Mot.

Endurance Tech.

Escorts

Exide Ind

Hero Moto

M&M

Mahindra CIE

Maruti Suzuki

Tata Motors

TVS Motor

Aggregate

Banks - Private

Axis Bank

DCB Bank

Equitas Hold.

Federal Bank

HDFC Bank

ICICI Bank

IDFC Bank

IndusInd

J&K Bank

Kotak Mah. Bk

RBL Bank

South Indian

Yes Bank

Aggregate

Banks - PSU

BOB

BOI

Canara

IDBI Bk

Indian Bk

OBC

PNB

SBI

Union Bk

Aggregate

NBFCs

Bajaj Fin.

Bharat Fin.

Capital First

Cholaman.Inv.&Fn

Dewan Hsg.

GRUH Fin.

HDFC

Indiabulls Hsg

L&T Fin Holdings

LIC Hsg Fin

Reco

Buy

Buy

Buy

Buy

Neutral

Buy

Buy

Buy

Neutral

Buy

Neutral

Buy

Not Rated

Buy

Buy

Buy

CMP

(INR)

TP

% Upside

EPS (INR)

(INR) Downside FY17 FY18E FY19E

25

17

15

13

7

16

15

13

5

37

5

21

19

32

6

28.0

4.6

132.3

13.1

473.1

93.3

612.7

23.5

20.0

8.1

169.1

54.3

5.4

248.6

19.8

11.7

25.6

32.9

5.3

7.0

144.4 174.3

18.3

25.5

540.8 698.6

94.2 126.8

826.7 1,119.2

29.6

39.3

37.1

45.8

8.9

10.8

185.0 197.1

69.5

81.7

9.9

11.8

285.5 381.7

20.0

61.3

15.1

24.5

685

854

124

145

3,128 3,589

643

726

21,249 22,781

1,743 2,029

31,795 36,487

1,084 1,229

694

732

204

279

3,688 3,868

1,305 1,585

234

-

7,893 9,417

426

562

676

719

Neutral

Neutral

Buy

Buy

Buy

Buy

Neutral

Buy

Neutral

Buy

Buy

Buy

Buy

505

186

154

117

1,795

272

59

1,700

73

1,050

518

32

371

524

188

212

139

2,066

366

56

1,948

91

1,197

651

34

446

4

1

37

19

15

35

-6

15

25

14

26

6

20

15.4

7.0

5.0

4.8

56.8

15.3

3.0

47.9

-31.3

26.8

11.9

2.2

14.6

21.8

8.4

1.7

5.4

68.2

14.5

2.8

61.9

3.9

32.4

17.2

2.9

18.5

38.1

10.4

6.1

6.8

82.6

16.6

3.2

76.8

8.3

41.0

22.5

3.7

22.9

Buy

Neutral

Neutral

Neutral

Buy

Neutral

Buy

Buy

Neutral

142

139

315

53

271

120

137

257

131

217

141

323

49

333

150

184

341

135

53

1

3

-7

23

25

34

33

3

6.0

-14.8

18.8

1.5

29.3

-31.6

6.2

0.3

8.1

9.5

-11.2

30.1

6.4

34.4

17.1

5.8

14.6

9.0

20.8

6.6

47.0

8.6

38.3

21.4

11.0

26.8

19.1

Buy

Neutral

Buy

Buy

Buy

Neutral

Buy

Buy

Buy

Neutral

1,935

972

756

1,117

545

529

1,750

1,272

197

666

2,300

900

925

1,400

690

490

2,020

1,450

230

730

19

-7

22

25

27

-7

15

14

17

10

32.0

21.0

24.6

46.0

29.6

8.1

46.8

69.0

5.2

38.2

45.4

29.9

32.8

56.0

37.7

9.9

52.2

84.2

6.8

41.6

62.9

54.9

42.4

68.1

47.1

11.7

58.2

105.6

10.1

48.9

10 October 2017

19

Company

Manappuram

M&M Fin.

Muthoot Fin

PNB Housing

Repco Home

Shriram City Union

STF

Aggregate

Capital Goods

ABB

Bharat Elec.

BHEL

Blue Star

CG Cons. Elec.

CG Power & Indu.

Cummins

GE T&D

Havells

K E C Intl

L&T

Pennar Eng.

Siemens

Solar Ind

Suzlon Energy

Thermax

Va Tech Wab.

Voltas

Aggregate

Cement

Ambuja Cem.

ACC

Birla Corp.

Dalmia Bharat

Grasim Inds.

India Cem

J K Cements

JK Lakshmi Ce

Ramco Cem

Orient Cem

Prism Cem

Shree Cem

Ultratech

Aggregate

Consumer

Asian Paints

Britannia

Colgate

Dabur

Emami

Godrej Cons.

GSK Cons.

HUL

ITC

Jyothy Lab

Marico

Reco

Not Rated

Buy

Buy

Buy

Buy

Buy

Buy

CMP

(INR)

104

423

487

1,505

644

2,068

1,067

TP

% Upside

EPS (INR)

(INR) Downside FY17 FY18E FY19E

-

8.6

9.2

9.7

481

14

7.1

13.9

17.8

550

13

29.5 38.7

44.4

1,750

16

31.6 48.1

65.1

800

24

29.1 33.7

38.4

2,700

31

84.3 118.3 155.3

1,320

24

55.6 80.0 102.4

P/E (x)

P/B (x)

ROE (%)

FY17 FY18E FY17 FY18E FY17 FY18E FY19E

12.1 11.3

2.6

2.4

24.0 22.3 21.4

59.7 30.5

3.8

3.5

6.5

12.0 14.2

16.5 12.6

3.0

2.5

19.4 21.8 21.2

47.6 31.3

4.6

4.1

13.8 13.8 16.6

22.1 19.1

3.5

3.0

17.4 17.1 16.7

24.5 17.5

2.7

2.4

11.7 14.6 16.8

19.2 13.3

2.2

1.9

11.7 15.0 16.9

31.2 25.2

5.0

4.3

16.1 17.1 18.0

69.4

26.3

64.6

59.9

46.4

19.5

34.3

66.9

53.0

25.5

27.0

14.4

68.4

48.3

24.1

29.9

19.9

33.7

34.5

57.2

47.9

32.9

70.6

17.0

32.4

28.9

56.9

25.7

NM

398.4

48.3

41.3

36.9

55.2

58.9

51.4

43.7

41.8

51.7

32.0

62.1

31.9

35.8

49.9

61.0

24.7

31.8

45.2

43.1

39.4

32.9

41.3

47.2

23.1

24.5

11.3

56.3

41.1

17.3

30.6

17.1

31.0

30.3

40.2

33.9

22.9

43.5

16.4

24.2

24.5

40.7

25.6

35.4

31.2

36.6

43.1

31.3

52.2

50.9

44.6

40.9

41.2

45.4

31.6

53.2

28.9

40.9

46.0

8.8

5.4

1.0

9.7

25.2

1.2

6.7

9.5

9.7

4.9

3.2

1.5

6.4

8.9

-1.4

4.1

3.3

5.2

3.9

2.9

3.7

2.2

4.9

1.7

1.1

3.9

3.4

4.5

3.2

5.7

8.4

4.5

3.5

14.6

19.3

23.3

11.5

14.4

12.6

6.7

40.7

7.2

6.7

17.4

7.7

4.2

1.0

9.1

18.6

1.2

6.2

8.3

8.6

4.2

2.9

1.3

5.5

7.6

-1.5

3.7

2.8

4.6

3.5

2.7

3.6

2.0

4.4

1.6

1.1

3.4

3.1

3.9

3.0

5.0

7.0

4.2

3.2

13.3

15.9

22.1

9.9

12.2

9.8

6.6

40.3

7.1

6.8

14.9

12.7

20.6

1.5

18.0

76.4

6.2

21.2

12.4

18.2

21.2

12.5

10.2

9.3

19.8

NM

14.3

16.8

18.0

11.2

5.1

7.9

7.1

7.2

10.8

3.4

14.4

6.1

19.0

-3.2

1.4

18.4

11.6

9.4

28.5

36.9

50.4

28.4

35.8

24.6

22.2

66.5

23.5

21.1

36.7

12.6

17.1

3.1

20.9

49.7

3.0

19.7

21.5

18.3

19.5

12.4

11.6

9.8

19.8

-8.8

12.7

17.6

15.8

11.6

7.0

10.8

9.2

10.7

10.0

4.4

14.8

8.0

16.1

8.8

17.0

20.8

10.1

10.2

26.7

34.3

50.8

26.0

32.0

24.2

21.1

76.2

24.8

16.5

34.9

15.8

17.0

4.1

28.9

48.8

3.7

22.8

22.7

20.9

20.9

13.8

12.6

13.8

20.9

-11.0

12.8

17.4

16.0

13.1

7.9

13.5

12.2

13.3

12.9

6.1

17.5

12.3

17.5

12.8

22.9

18.8

14.0

12.4

28.1

34.5

58.2

26.3

33.9

22.8

22.6

87.2

26.3

18.4

37.7

Sell

Buy

Sell

Neutral

Buy

Neutral

Buy

Neutral

Neutral

Neutral

Buy

Not Rated

Neutral

Neutral

Not Rated

Neutral

Buy

Sell

1,367

166

86

772

217

80

910

383

507

302

1,141

102

1,220

995

15

922

592

520

1,235

215

75

690

240

80

1,170

395

460

295

1,400

-

1,355

900

-

840

800

470

-10

30

-13

-11

11

0

29

3

-9

-2

23

11

-10

-9

35

-10

19.7

6.3

1.3

12.9

4.7

4.1

26.5

5.7

9.6

11.9

42.3

7.1

17.8

20.6

0.6

30.8

29.8

15.5

22.4

6.7

2.7

17.1

5.0

2.0

27.7

9.3

10.7

13.1

46.5

9.1

21.7

24.2

0.9

30.1

34.6

16.8

31.6

7.4

3.8

25.5

6.3

2.5

35.0

11.3

13.9

16.4

56.6

11.2

33.4

30.0

1.0

33.4

39.8

19.1

Buy

Neutral

Buy

Buy

Neutral

Neutral

Buy

Buy

Buy

Buy

Buy

Buy

Buy

279

317

1,728 1,706

938

1,150

2,736 3,272

1,155 1,276

182

198

973

1,196

396

485

701

832

156

182

109

140

18,569 22,084

3,965 4,937

13

-1

23

20

10

9

23

22

19

16

29

19

25

4.9

7.0

36.1 51.0

28.5 40.9

38.8 62.9

67.8 70.6

5.6

7.5

33.7 39.7

7.0

9.7

27.3 27.4

-1.6

4.4

0.3

3.5

384.4 507.1

96.1 92.1

8.2

66.9

58.9

88.3

101.2

10.8

54.4

16.4

34.4

7.1

5.6

547.8

138.8

Neutral

Buy

Buy

Neutral

Buy

Neutral

Neutral

Buy

Neutral

Neutral

Neutral

1,159

4,343

1,091

317

1,110

978

4,998

1,220

268

402

314

1,315

5,165

1,385

330

1,400

1,005

4,630

1,400

290

410

350

13

19

27

4

26

3

-7

15

8

2

12

21.0 22.2

73.7 85.3

21.2 24.5

7.2

7.7

26.5 26.9

18.9 21.5

156.1 158.1

19.6 22.9

8.4

9.3

11.2

9.8

6.3

6.8

26.5

104.6

29.8

9.1

33.1

24.7

182.1

27.4

10.3

11.1

8.2

10 October 2017

20

Company

Nestle

Page Inds

Parag Milk

Pidilite Ind.

P&G Hygiene

Prabhat Dairy

United Brew

United Spirits

Aggregate

Healthcare

Alembic Phar

Alkem Lab

Ajanta Pharma

Aurobindo

Biocon

Cadila

Cipla

Divis Lab

Dr Reddy’s

Fortis Health

Glenmark

Granules

GSK Pharma

IPCA Labs

Jubilant Life

Lupin

Sanofi India

Shilpa Medicare

Strides Shasun

Sun Pharma

Syngene Intl

Torrent Pharma

Aggregate

Logistics

Allcargo Logistics

Blue Dart

Concor

Gateway

Distriparks

Gati

Transport Corp.

Aggregate

Media

Dish TV

D B Corp

Den Net.

Ent.Network

Hind. Media

HT Media

Jagran Prak.

Music Broadcast

PVR

Siti Net.

Sun TV

Zee Ent.

Reco

Neutral

Buy

Neutral

Neutral

Neutral

Not Rated

Buy

Neutral

CMP

TP

% Upside

(INR) (INR) Downside

7,291 6,160

-16

18,819 21,310

13

256

280

9

804

865

8

8,625 9,200

7

134

-

842

980

16

2,349 2,600

11

FY17

118.0

238.7

3.6

16.7

132.9

3.5

8.7

26.7

EPS (INR)

FY18E FY19E

115.0 133.6

294.7 398.4

9.1

12.5

18.1

20.6

151.6 176.0

3.5

6.4

9.9

14.0

34.5

51.5

P/E (x)

FY17 FY18E

61.8 63.4

78.8 63.9

71.0 28.1

48.0 44.5

64.9 56.9

37.9 38.5

97.0 85.2

87.8 68.1

46.1 41.7

23.3

24.7

20.0

18.6

33.7

34.9

36.8

22.0

33.2

14.7

15.5

17.4

69.9

32.7

18.2

18.4

31.4

46.3

26.3

20.3

37.4

22.8

23.8

17.1

40.0

34.9

35.3

13.8

15.5

30.6

69.5

18.6

NM

71.8

9.6

13.1

16.9

61.2

67.5

NM

32.0

37.9

25.4

25.8

22.1

16.3

35.4

28.3

27.7

25.9

33.2

69.7

15.4

15.8

51.4

31.7

14.3

25.1

30.3

30.7

17.9

35.2

30.2

23.5

26.5

16.3

31.6

31.3

27.3

7.3

12.5

25.9

70.2

16.0

NM

67.3

8.7

13.2

14.8

42.2

52.3

NM

27.6

43.2

P/B (x)

ROE (%)

FY17 FY18E FY17 FY18E FY19E

23.3 21.7 39.0 35.5 38.1

31.5 25.3 40.0 39.6 43.1

3.3

2.9

6.0

11.0 13.3

12.5 10.2 28.2 25.2 23.5

40.6 33.7 39.3 64.9 62.8

1.9

1.8

5.2

4.9

8.5

9.5

8.7

10.2 10.7 13.6

17.6 12.3 21.3 18.0 20.3

12.7 11.8 27.5 28.3 29.3

5.0

5.3

6.6

4.6

4.3

7.3

3.8

4.4

3.3

1.6

3.8

3.2

10.1

2.7

3.1

3.5

5.4

5.7

2.8

3.5

7.6

4.9

4.0

2.3

17.8

3.7

2.6

1.9

2.4

3.8

15.5

4.4

1.8

4.6

1.6

1.0

2.7

4.1

6.7

4.1

7.8

5.9

4.4

4.6

5.3

3.6

3.9

6.1

3.4

4.5

3.1

1.4

3.1

2.2

11.8

2.5

2.6

3.2

5.0

4.8

2.5

3.3

6.2

4.3

3.6

2.1

13.5

3.5

2.5

1.7

2.1

3.5

12.7

3.6

2.0

4.3

1.3

0.9

2.8

3.7

6.0

4.4

7.1

5.5

23.0

23.4

37.7

27.6

12.3

23.0

10.2

22.0

9.7

11.3

24.7

21.1

14.5

8.6

18.1

20.9

17.1

14.4

10.7

18.1

22.2

23.8

16.9

13.7

50.5

10.8

7.3

12.4

16.7

12.3

25.1

25.1

-19.1

6.7

18.2

7.9

18.5

11.2

10.4

-28.7

26.0

19.3

18.4

19.0

26.5

24.8

11.1

23.5

12.1

17.0

9.7

2.1

20.3

17.7

23.0

8.2

19.5

13.2

16.6

17.0

14.7

9.6

22.5

19.5

13.6

13.4

48.6

11.4

9.2

19.4

17.8

13.5

19.9

24.7

-6.4

6.6

16.5

7.3

18.6

9.3

12.1

-7.5

27.0

14.7

20.5

20.9

25.9

22.1

14.5

26.0

13.2

19.5

14.4

4.9

20.4

18.8

30.9

12.2

19.6

16.0

18.1

20.4

20.2

13.8

20.7

21.5

16.0

15.1

46.8

12.4

12.1

25.4

18.6

15.1

35.2

23.9

0.2

10.3

16.6

7.3

19.0

12.4

17.3

6.4

31.6

18.7

Neutral

Neutral

Buy

Buy

Sell

Buy

Neutral

Neutral

Neutral

Buy

Neutral

Buy

Neutral

Neutral

Buy

Buy

Buy

Buy

Buy

Buy

Not Rated

Neutral

502

1,872

1,167

730

344

496

585

879

2,410

152

610

126

2,403

526

675

1,040

4,051

649

849

530

487

1,257

510

1,830

1,605

850

330

555

520

720

2,400

220

775

200

2,500

430

905

1,125

4,850

805

1,300

515

-

1,350

2

-2

37

16

-4

12

-11

-18

0

45

27

59

4

-18

34

8

20

24

53

-3

7

21.6 19.8

75.7 72.5

58.4 52.8

39.3 44.9

10.2

9.7

14.2 17.5

15.9 21.1

39.9 33.9

72.6 72.6

10.3

2.2

39.3 39.7

7.2

8.0

34.4 46.8

16.1 16.6

37.0 47.1

56.6 41.4

129.1 133.6

14.0 21.1

32.3 47.4

26.1 15.1

13.0 16.1

55.2 53.4

25.5

93.3

64.2

50.0

14.2

23.6

26.0

40.4

119.9

5.6

49.1

11.0

54.9

26.8

56.7

56.3

160.6

30.4

74.8

23.3

18.0

67.3

Buy

Not Rated

Neutral

Buy

Not Rated

Not Rated

168

4,107

1,327

240

115

263

206

-

1,214

280

-

-

23

-9

17

9.8

10.3

102.5 129.9

38.0 42.4

6.8

8.4

16.9

8.8

15.9

21.0

12.9

163.2

48.6

12.2

23.9

25.9

Buy

Buy

Neutral

Neutral

Buy

Neutral

Buy

Buy

Buy

Neutral

Neutral

Buy

71

380

87

820

248

97

180

393

1,386

25

794

526

106

450

90

928

350

90

225

469

1,597

32

860

630

49

19

4

13

41

-7

25

19

15

27

8

20

1.0

20.4

-9.3

11.4

25.8

7.4

10.7

6.4

20.5

-1.8

24.9

13.9

1.0

23.7

-2.9

12.2

28.5

7.3

12.2

9.3

26.5

-0.4

28.8

12.2

2.4

28.0

0.1

20.6

33.6

7.8

13.4

14.0

43.6

0.4

36.9

17.8

10 October 2017

21