12 February 2018

Market snapshot

Equities - India

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1MChg

10 Yrs G-Sec

7.5

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10 Yrs AAA Corp

8.1

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Flows (USD b)

9-Feb

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9-Feb

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Note: YTD is calendar year, *Avg

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-7.7

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1.6

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YTD.%

-6.6

1.0

-6.9

-6.0

YTD.%

0.8

2.1

-3.5

YTDchg

0.2

0.2

YTD

1.5

0.9

YTD*

427

7,744

Today’s top research idea

State Bank of India - Asset quality disappoints

Expect gradual recovery over FY19E



SBIN reported a weak quarter with net slippages spiking up to INR267.8b

(adversely impacted by divergence). Provisioning increased to INR188.8b,

resulting in a loss of INR24.2b. On the positive side, 89% of corporate slippages

came from stressed assets, resulting in a decline in net stressed assets to 8.4%

of total loans. Core PPoP held stable led by modest growth in core other

income while NII growth stood flat on sequential basis. While the core portfolio

performance remains healthy, cleanup of residual stressed assets will remain

an overhang in near term. We cut our FY18E/19E/20E earnings by

75%/20%/22% respectively and build in capital infusion of INR88b as

announced by the government. We revise our PT to INR375 (1.4x FY20E ABV for

bank) and maintain our BUY rating.

Research covered

Cos/Sector

Automobile

State Bank of India

ONGC

Coal India

Hindustan Zinc

BPCL

M&M

Tata Steel

HPCL

Sun TV Network

Aditya Birla Cap

Bank of Baroda

Key Highlights

Auto Expo 2018: Action in 125cc scooters and EVs

Asset quality disappoints; Expect gradual recovery over FY19E

EBITDA below estimate; gas production up 4% YoY

In-line; e-auction offset drag of power sector priority

Getting more aggressive on volume growth

EBITDA significantly below estimate; core GRM at USD6.5/bbl

Operating performance miss led by higher other expense

Lower cost of production driving EBITDA beat

EBITDA significantly below estimate; core GRM at USD6.1/bbl

Ad growth revives; digitization-led subscription revenue to witness robust gr.

Robust growth and healthy asset quality intact

Strong operational performance; stressed assets declining rapidly

SAIL | ABB | OINL | ALKEM | JSP | VOLT | TCOM | MUTH | GNP | NACL |

Other Results

AMRJ | GETD | MAHCL | BCORP | STR | ICEM | KSCL | VATW | GRAN | TTMT

Results Expectation BOI | BRIT | CGPOWER | GAIL | SKB | INBK | NHPC | SADE

Chart of the Day:

State Bank of India - Asset quality disappoints; Expect gradual recovery over FY19E

CASA ratio improved marginally to 45.1%

PCR improved by 80bp sequentially

Source: MOSL, Company

Source: MOSL, Company

Research Team (Gautam.Duggad@MotilalOswal.com)

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

In the news today

Kindly click on textbox for the detailed news link

1

SGX looks to bypass curbs

placed by Indian bourses

The Singapore Stock Exchange

(SGX) on Sunday said it will

develop new products to provide

investors with access to Indian

securities after exchanges in the

country abruptly decided to end

licensing their products and data

to overseas bourses. Indian stock

exchanges, in a joint statement …

2

Tatas want Paper Boat in their fleet to spice up portfolio of group

company Tata Global Beverages

Tata Group has approached key shareholders of Hector Beverages with a

proposal to buy out the company along with its popular brand Paper Boat

to spice up the portfolio of group company Tata Global Beverages Limited

(TGBL), said multiple people aware. Tata Sons chairman N Chandrasekaran

has been keen to add fizz to the group company, wanting them to move

beyond its tea, coffee and water offerings to leapfrog into a holistic food

and beverage powerhouse like Pepsico or Nestle, said group officials.

3

Earnings improve, but not yet in

high gear; India Inc net up

10.6% in Q3

A year after demonetisation-

induced economic disruption,

corporate earnings are yet to

move into high gear as expected

by the Street. Companies focused

on the domestic market,

especially consumer goods

players, have recovered some of

their mojo in the third quarter

ended December 2017 …

4

ONGC Videsh-led consortium

picks up 10% stake in UAE’s

Zakum oilfield

A consortium of Indian companies

led by state-owned Oil and

Natural Gas Corp. Ltd (ONGC)’s

overseas arm, ONGC Videsh Ltd,

has bought a 10% stake in the

UAE’s offshore oil and gas field

Zakum, as India pursues overseas

hydrocarbon assets while oil-rich

nations resort to ways of reducing

risk and balancing their budget …

5

Income Tax panel refuses to

stay Rs 110 crore tax demand

on Flipkart

An income tax panel refused to

stay a demand of Rs 110 crore on

Flipkart, India's largest online

retailing platform, after it was

asked to reclassify discounts and

marketing spend as capital

expenditure. This may have

implications for rival Amazon,

which faces a similar liability,

and others. The Income Tax

Appellate Tribunal (ITAT) in

Bengaluru asked Flipkart to

deposit Rs 55 crore and provide

bank guarantees to the tune of

Rs 55 crore by February 28.

6

Aditya Birla Capital to launch

ARC business this quarter

Aditya Birla Capital Ltd (ABCL), the

financial services business of the

$50 billion Aditya Birla Group, will

begin investing in its asset

reconstruction company (ARC) and

start business this quarter, a top

company executive said. The

company, which has presence

across insurance, asset

management and private equity,

among others, is trying to tap …

12 February 2018

7

NTPC plans to borrow about

₹16,000

crore

State-run power giant NTPC may

borrow about ₹16,000 crore

next

financial year for adding 6,900

MW of fresh electricity

generation capacity by March

2019. “The corporation may hit

the bonds or debt market to

borrow about ₹16,000 crore

during the next financial year for

financing the ongoing projects,”

a source said.

2

8 February 2018

Automobile

Auto Expo 2018: Action in 125cc scooters and EVs

No big new launch in PVs

We attended Auto Expo 2018 held at Greater Noida, NCR. While there were no

major new launches in PVs, the 2W segment witnessed several launches in 125cc

scooters and the premium segment. Also, on expected lines, there was high focus

on EVs in all the segments, with several concepts on display and few launches as

well. Key highlights:



No major new launches in 4Ws:

In PVs, no major new launch was announced

except MSIL’s new Swift, which has already touched bookings of ~40k units and

waiting period of 8-10 weeks. Honda has launched new Amaze, new CR-V, and

new Civic while Toyota has launched Yaris in the mid size sedan segment. M&M

showcased G4 Rexton in the premium SUV segment under the Mahindra badge

while Tata Motors showcased H5X concept (expected launch by 4QFY19; to

compete with Hyundai’s Creta and M&M’s XUV 500) in the mid-SUV segment.



High focus on 125cc scooters and premium motorcycles:

In 2Ws, rising OEM

focus on the 125cc scooter segment was visible, with five new product launches

– TVS’ NTORQ 125, Hero’s Duet 125 and Maestro Edge 125, Suzuki’s Burgman

maxi-scooter and Piaggio Aprillia SR125. The premium motorcycle segment

witnessed further heating up of competition, with HMCL launching xPulse 200

and HMSI unveiling its third 160cc bike, X-Blade, which will be competing with

Bajaj Pulsar 160, Suzuki Gixxer and TVS Apache.



EVs – several concepts, a few launches:

As expected, there was high focus on

EVs across segments, with a slew of concepts unveiled in the PV and 2W

segments. 2W EV start-up, Twenty Two Motors launched lithium-ion based BEV

scooter, Flow at INR74,740 (post subsidy). Mahindra showcased its production-

ready eKUV100 apart from eVerito and e2o plus, which will further strengthen

its position to ride the EV wave. Ashok Leyland unveiled its first electric bus,

Circuit S, powered with Sun Mobility's Swappable Smart Battery.



Mahindra to strengthen EV presence through MESMA, a 380-volt powertrain:

M&M unveiled a range of electric vehicles (EVs) and of significant interest

among these was a preview of MESMA (Mahindra Electric Scalable Modular

Architecture). It’s a flexible platform and will be used to develop EVs – from

hatchbacks to SUVs. It showed concepts of lithium-ion battery powered three-

wheeler – Treo (e-Auto - 1st in India) and Atom – as a part of urban mobility

solutions.



TVS Motors showcased interesting concepts like Zeppelin – a premium 200cc

cruiser, Apache RTR – an ethanol-based concept, and CREON, an e-scooter

concept along with recent launch of NTORQ 125cc scooter.



Royal Enfield – competition gearing up: UM launched two cruiser bikes,

Renegade Duty S and Renegade Duty Ace at competitive price of INR110k (ex-

showroom Delhi). It also launched its first electric cruiser, Renegade Thor with a

price tag of INR490k (ex-showroom Delhi). Also, TVSL's Zeppelin concept is

aimed at cruiser segment.

12 February 2018

3

State Bank of India

BSE SENSEX

34,006

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

10,455

SBIN IN

8,946

2,648.1 / 41.1

352 / 241

-1/-3/-13

5600.0

43.4

9 February 2018

3QFY18 Results Update | Sector: Financials

CMP: INR296



TP: INR375 (+27%)

Buy

Asset quality disappoints; expect gradual recovery over FY19E

SBIN reported a weak quarter, with slippages spiking up to INR267.8b

(adversely impacted by divergence) and revenue missing estimate by 4%.

Provisioning increased to INR188.8b, resulting in a loss of INR24.16b. However,

on a positive side, 89% of the corporate slippages came from stressed assets,

resulting in a decline in net stressed assets to 8.4% of total loans.

Core PPoP held stable (1% QoQ growth),

led by modest growth in core other

income, while NII growth stood flat on a sequential basis. Operating expenses

grew 3% QoQ, led by a rise in employee costs, as management provided

toward potential wage increase. SBIN continues to see a net reduction in its

employee base (down by 8,708 over the past six months).

Loan growth was muted

at 1.3% QoQ due to a continued run-down in large

and mid-corporates, even as retail advances grew 3%/14% QoQ/YoY. SME

portfolio showed some signs of revival, with 6% QoQ growth. Margins

improved 2bp QoQ to 2.45%, aided by a stable CASA mix and re-pricing of the

deposit portfolio. SBIN guided for 10% advances growth over FY19E.

GNPLs/NNPLs increased

by 7%/4.6% QoQ, adversely impacted by a divergence

amount of INR232.3b. GNPL/NNPL ratios, thus, increased 52bp/18bp QoQ to

10.35%/5.61%. The PCR ratio improved 120bp QoQ to 48.6% (65.9% including

technical write-offs). The bank has made 60% provisions on its aggregate NCLT

exposure of INR783.1b (39% of total GNPLs). SBIN guided for 2% slippage and

credit cost each for FY19. We expect asset quality to improve from FY19E

onward and expect net NPL ratio to decline to 2.7% by FY20E.

Other highlights:

a) SBIN reversed revaluation reserves amounting to

INR112.1b in respect of certain leasehold properties. This contributed to a

66bp QoQ fall in Tier-1 to 10.3%. The bank also recognized DTA of INR22.8b.

Valuation view:

While core portfolio performance remains healthy, the purging

of the residual stressed assets will remain an overhang in the near term. We

cut FY18E/19E/20E earnings by 75%/20%/22%, and build in capital infusion of

INR88b, as announced by the government. We revise our PT to INR375 (1.4x

FY20E ABV for bank) and maintain our

Buy

rating.

3Q

177,690

115,070

292,760

148,750

144,010

95,010

89,428

54,582

9,904

44,677

1,082

7.2

614

4.2

43.2

4Q

210,660

122,220

332,880

159,780

173,100

153,130

209,320

-36,220

-1,810

-34,410

1,779

9.1

970

5.2

45.5

1Q

176,060

80,057

256,117

137,376

118,741

101,041

89,295

29,446

9,391

20,055

1,881

10.0

1078

6.0

42.7

FY18E

2Q

3Q

185,857 186,875

160,170

80,842

346,027 267,717

146,028 150,171

199,999 117,546

114,339 115,536

191,374 188,762

8,625 -71,216

-7,198 -47,053

15,823 -24,164

1,861

9.8

979

5.4

47.4

1,991

10.4

1024

5.6

48.6

FY17

FY18

4Q

204,933

753,483

753,726

129,285

428,627

450,354

334,219 1,182,110 1,204,079

154,130

585,150

587,706

180,088

596,960

616,373

180,088

400,983

465,879

160,515

609,844

629,947

19,573

-12,884

-13,573

4,141

7,355

-40,719

15,432

-20,239

27,146

2,041

10.8

1037

5.5

49.2

1,779

9.1

970

5.2

45.5

2,041

10.8

1037

5.5

49.2



Financials & Valuations (INR b)

Y/E March

2018E 2019E 2020E

NII

753.7 910.4 1,011.7

OP

616.4 740.8 817.3

NP

27.1 162.4 271.4

NIM (%)

2.7

2.7

2.7

EPS (INR)

3.2

18.0

29.7

EPS Gr. (%)

NA 459.4

65.3

Cons. BV (INR)

223.6 240.2 265.8

ABV (INR)

127.6 167.2 205.8

RoE (%)

1.6

8.4

12.7

RoA (%)

0.1

0.5

0.7

P/E (x)

92.2

16.5

10.0

P/ABV (x)

1.7

1.3

1.1









Quarterly performance

Y/E March, INRm

Net Interest Income

Other Income

Total Income

Operating Expenses

Operating Profit

Core Operating Profit

Other Provisions

Profit before Tax

Tax Provisions

Net Profit

Asset Quality

Gross NPA (INR b)

Gross NPA (%)

Net NPA (INR b)

Net NPA (%)

PCR (%)

1Q

182,450

87,610

270,060

132,450

137,610

103,240

130,370

7,240

3,510

3,730

1,377

7.4

782

4.4

43.2

FY17

2Q

181,190

101,460

282,650

142,770

139,880

107,120

148,300

-8,420

-2,840

-5,580

1,598

8.5

923

5.1

42.2

12 February 2018

4

9 February 2018

3QFY18 Results Update | Sector: Oil & Gas

ONGC

Buy

BSE SENSEX

34,006

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

10,455

ONGC IN

12,833

2,438.3 / 37.5

213 / 155

-3/8/-23

1476.0

32.3

CMP: INR188



TP: INR230 (+23%)

EBITDA below estimate; gas production up 4% YoY

ONGC’s reported revenue of INR230b (+15% YoY, +21% QoQ) came in below

our estimate of INR243b due to lower production/sales and marginally lower

realization. Reported EBITDA of INR125b (+22% YoY, +20% QoQ) was below our

estimate of INR134b, led by higher other expenditure (USD7.2/boe v/s

estimate of USD6.8/boe).



PAT grew 15% YoY (-2% QoQ) to INR50b, missing our estimate of INR67b, led

by lower other income of INR11b (est. of INR14b; +16% YoY, -42% QoQ) and

higher depreciation of INR58.6b (est. INR44b; +25% YoY, +21% QoQ). D,D&A

was higher led by higher depletion and higher dry well write-offs.



Net realization grew 21% YoY (+18% QoQ) to USD60.6/bbl. Subsidy sharing was

nil; we model nil subsidy sharing for FY18, FY19 and FY20 as well. At USD60-

70/bbl of Brent, we do not see much concern. However, if crude were to rise

further, then it may result in subsidy sharing, thereby adversely impacting the

profitability.



Oil sales declined 1.3% YoY (+1.4% QoQ) to 5.92mmt, and gas sales grew 7.3%

YoY (+1.2% QoQ) to 5.0bcm. Oil production declined ~1% YoY (-1.7% QoQ) to

6.34mmt and gas production grew 1.5% YoY (flat QoQ) to 6.28bcm.



Gas production is expected to increase again, led by completion of its

development projects. We expect gas production to increase 10-15% annually.

Valuation and view



Rising crude oil prices, growth in oil & gas production, and declining opex led

by cost efficiencies place ONGC on a strong footing. We model Brent crude

price at USD60/bbl for FY19/20 and INR/USD at 64.6/66/67.



We expect EPS of INR23.3/24.3 for FY19/20. The stock trades at 7.7x FY20E

EPS, and EV of 3.4x FY19E EBITDA. Using SOTP, we value the stock at

INR230/share, implying a 23% upside. Maintain

Buy.

(INR Million)

FY18E

FY18 Var vs

3QE est (%)

852,271 242,940

-5%

9.8

21.9

387,868 109,389

-4%

464,403 133,551

-6%

54.5

55.0

196,658 44,451

32%

11,643 2,500

24%

53,246 14,060

-20%

309,348 100,660

-26%

100,491 33,550

-27%

32

33.3

208,857 67,110

-25%

208,857 67,110

-25%

16.7

54.2

24.5

27.6

Financials & Valuations (INR b)

2018E 2019E 2020E

Y/E Mar

1,549 1,788 1,840

Net Sales

631

754

780

EBITDA

226

299

311

PAT

17.6 23.3 24.3

EPS (INR)

7.1 32.5

4.1

Gr. (%)

179

187

195

BV/Sh (INR)

10.0 12.8 12.7

RoE (%)

8.8 10.8 10.5

RoCE (%)

10.7

8.1

7.7

P/E (x)

P/BV (x)

1.1

1.0

1.0

EV/EBITDA (x)

4.2

3.6

3.4

Estimate change

TP change

Rating change

Standalone - Quarterly Earning Model

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

FY17

1Q

2Q

3Q

4Q

176,704 182,866 199,338 217,140

-21.5 -11.1

9.2

33.7

83,942 87,476 96,440 149,889

92,761 95,391 102,898 67,252

52.5

52.2

51.6

31.0

36,997 34,529 47,039 53,875

2,920 3,034 3,062 3,202

10,668 12,920 9,727 45,195

63,512 70,748 62,524 55,371

21,186 20,999 19,001 11,969

33.4

29.7

30.4

21.6

42,325 49,749 43,523 43,402

42,325 49,749 43,523 43,402

-21.2

2.7

3.3

-0.3

24.0

27.2

21.8

20.0

FY18

1Q

2Q

3Q

4QE

190,735 189,649 229,959 241,928

7.9

3.7

15.4

11.4

91,929 84,957 104,711 106,271

98,807 104,692 125,247 135,657

51.8

55.2

54.5

56.1

45,204 48,389 58,614 44,451

2,769 3,274 3,099 2,500

8,544 19,315 11,265 14,122

59,378 72,343 74,800 102,828

20,530 21,036 24,653 34,273

34.6

29.1

33.0

33.3

38,847 51,307 50,147 68,555

38,847 51,307 50,147 68,555

-8.2

3.1

15.2

58.0

20.4

27.1

21.8

28.3

FY17

776,048

0.1

417,746

358,302

46.2

172,440

12,217

78,511

252,155

73,155

29.0

179,000

179,000

-8.3

23.1

12 February 2018

5

11 February 2018

3QFY18 Results Update | Sector: Utilities

Coal India

BSE SENSEX

34, 0006

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

10,455

COAL IN

6316.4

1929.6 / 28.6

Earnings CAGR of 30%; valuations attractive; reiterate BUY

332 / 234



Coal India’s (COAL) 3QFY18 revenue grew ~6% YoY to INR216b (2% miss) on

0/18/-27

~7% YoY growth in offtake. FSA realization at INR1,182/t (down 8% YoY / 3%

1338.0

QoQ) missed our estimate of INR1,249/t, which we believe is due to lower

21.5

CMP: INR300

TP: INR401(+33%)

Buy

In-line; e-auction offset drag of power sector priority

Financials & Valuations (INR b)

Y/E Mar

2018E 2019E 2020E

Sales

842.7

941.6 1,002.9

Adj. EBITDA

174.2

251.9

292.8



NP

114.7

166.2

193.0

EPS (INR)

18.5

26.8

31.1

EPS Gr. (%)

23.8

44.9

16.2

BV/Sh. (INR)

41.4

44.0

47.1

RoE (%)

44.7

60.8

66.0

Valuations attractive; reiterate BUY

RoCE (%)

45.5

62.2

67.6



We believe COAL will continue to be the key fuel for electricity generation

P/E (x)

16.2

11.2

9.6

growth in India for 5-10 years at the least. Solar power is the only viable

P/BV (x)

7.3

6.8

6.4

dispatches to non-power customers (these fetch a premium). Preference

was given to the power sector due to spike in demand. E-auction realization

surprised positively, increasing 24% QoQ to INR1,998/t (our estimate:

INR1,800/t), which finally reflected the rising price trend for 6-8 months.

Adjusted EBITDA (ex-OBR) increased 19% YoY to INR55.4b (in-line) aided by

slightly lower cost of production. Though we are keeping overall estimates

unchanged, we have increased e-auction prices at the cost of FSA

realization, accounting for temporary priority to the power sector.

Estimate change

TP change

Rating change



competition but its growth will be capped by land shortage and variability.

Therefore, we believe COAL will be able to achieve 6-7% volume growth.

Concerns around grade slippage and wage hike are now behind. COAL is

planning to move to GCV-based pricing, in line with the global practice. This

is unlikely to impact margins because some consumers may pay less, but

there will be another set of consumers who will have to pay more. Volume

growth, operating leverage, closure of unviable underground mines and high

natural attrition are key drivers of earnings. We expect 30% earnings CAGR

over two years (FY18-20E). Valuations are attractive at 5.4x FY20E

EV/EBITDA and 5-8% dividend yield. We value the stock at INR401/share

based on 7.5x FY20E EV/EBITDA. Reiterate

Buy.

1Q

191,617

4.0

34,151

17.8

6,699

-1,069

1,209

12,066

39,378

15,860

40.3

23,518

23,518

-23.3

FY18

FY17 FY18E

2Q

3Q

4QE

181,483 216,433 252,869 782,206 842,688

11.9

6.0

9.1

0.3

7.7

12,888 55,405 69,961 149,121 172,691

7.1

25.6

27.7

19.1

20.5

7,146

7,511

8,025 29,101 29,380

578

9,226

3,444 26,722 12,180

1,007

974

385

4,117

3,575

6,107

8,409 13,014 55,156 39,596

10,264 46,102 71,121 144,337 167,151

6,576 16,052 15,471 51,660 53,958

64.1

34.8

21.8

35.8

32.3

3,689 30,050 55,649 92,677 113,193

3,689 30,050 55,649 92,677 113,193

-38.5

4.2

104.8

-34.9

22.1

FY18

Var.

3QE

(%)

219,894 (2)

7.7

55,376 0

25.2

7,078 6

3,641

961 1

5,191 62

48,886 (6)

15,644 3

32.0

33,243 (10)

33,243 (10)

15.2

E: MOSL estimates

Quarterly performance INR million

Y/E March

Sales

Change (%)

Adj. EBITDA

As of % Sales

Depreciation

OBR

Interest

Other Income

PBT

Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

1Q

184,219

-5.6

44,879

24.4

6,672

2,331

890

11,306

46,293

15,641

33.8

30,653

30,653

-19.1

FY17

2Q

3Q

4Q

162,125 204,146 231,716

-7.3

4.2

8.3

8,851 46,673 48,719

5.5

22.9

21.0

6,921

7,011

8,498

1,425

8,124 14,843

970

1,107

1,151

14,125 11,167 18,558

13,661 41,598 42,784

7,660 12,754 15,606

56.1

30.7

36.5

6,001 28,845 27,179

6,001 28,845 27,179

-76.2

-21.7

-35.9

12 February 2018

6

Hindustan Zinc

BSE SENSEX

34,006

S&P CNX

10,455

9 February 2018

Update

| Sector:

Metals

CMP: INR304

TP: INR342(+13%)

Getting more aggressive on volume growth

Expect special dividend again; maintain Neutral

Neutral

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

Free float (%)

HZ IN

4,225

331 / 227

-3/3/-24

1,283.9

19.9

674.0

35.1

Financials Snapshot (INR b)

Y/E March

2018E 2019E 2020E

Sales

220

295

285

EBITDA

122.9 181.4 170.5

NP

91.1 140.9 135.6

Adj. EPS (INR)

21.6

33.3

32.1

EPS Gr(%)

9.6

54.6

-3.8

BV/Sh. (INR)

49.2

70.5

91.1

RoE (%)

35.3

55.7

39.7

RoCE (%)

44.8

76.5

52.8

P/E (x)

14.5

9.4

9.8

P/BV

12.2

8.2

8.4

Shareholding pattern (%)

As On

Dec-17 Sep-17 Dec-16

Promoter

64.9

64.9

64.9

DII

31.3

1.7

1.3

FII

2.2

2.2

3.0

Others

1.7

31.2

30.8

FII Includes depository receipts

Stock Performance (1-year)

Hind.Zinc

Sensex - Rebased

440

380

320

260

200

We met the management of Hindustan Zinc (HZ). Key highlights:



HZ’s mine production ramp-up to 1.2mtpa (v/s 907kt in FY17) is on schedule.

The production run-rate is likely to be achieved in any one of the quarters

during FY19 itself.

This makes us more comfortable on our estimates of 1.05mt

for FY19 and 1.16mt for FY20. There is a possibility of some upside in FY19.



As the mix of silver-rich ore increases,

silver production will increase at a

faster rate.

With the commissioning of Fumers and ramp-up at SK mine, HZ

expects silver production to increase to 700-800t and ultimately to 1,000t.



HZ has

strong focus on enhancing Reserves and Resources (R&R).

Exploration

activities are intensifying further, encouraged by the findings so far. HZ is

strengthening its exploration team with the best in the world. Exploratory

drilling is likely to increase from 70km in FY17 to 200km in FY19. R&R has

increased from 146mt in FY04 to 404mt in FY17 and the plan is to increase it to

550mt. Strong focus on enhancing resources has ensured mine life of more

than 30 years at any time despite 10-fold increase in production in 12-13 years.



Cost of production is likely to decline by ~USD100/t to USD850/t

on full ramp-

up of vertical shaft, availability of coal linkage and operating leverage.



HZ is firming up plans to

further increase mine production by 25% to 1.5mt

at

a capex of USD1.5b over the next 3-4 years, as it is getting more confident on

new R&R findings. HZ is also exploring gold (Bagmara mine) and sulfate

resources, and is optimistic of finding sizable economical reserves.



The

pricing outlook for zinc remains bullish,

as demand continues to outstrip

supply. Though few new supplies (Gamsberg, HZ expansion, Century tailings,

etc) will begin in the near future, the market is expected to remain in deficit.



Expect special dividend in FY18:

With strong free cash flows, HZ is likely to

announce special dividend again. However, the dividend payout policy remains

unchanged at minimum of 30% payout. We have increased payout from 36% to

120% for FY18, while keeping it unchanged at 36% for FY19 onwards. At CMP,

the dividend yield is attractive at ~7% for FY18 and at least 3% thereafter.



We believe HZ will continue to deliver strong volumes

due to strong

management focus, investment in drilling and human resources. We maintain a

bullish zinc price outlook and expect LME to average at USD3,800/t in FY19 and

little lower at USD3,200/t in FY20. EBITDA is expected to increase 45-50%,

driven by volume growth, cost reduction and favorable LME.



We roll over our target price to FY20E and adjust for special dividend. New

target price at INR342 (earlier INR354) implies 12-13% upside and 7% dividend

yield.

Maintain Neutral.

Recent volatility in stock price is an opportunity to buy

the stock, as business fundamentals remain strong, in our view.

12 February 2018

7

9 February 2018

3QFY18 Results Update | Sector: Oil & Gas

BPCL

BSE SENSEX

34,006

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

Buy

10,455

BPCL IN

EBITDA significantly below estimate; core GRM at USD6.5/bbl

655.6



BPCL reported core EBITDA of INR15.9b (est. of INR25.9b; -21% YoY, -44%

1,027 / 15.8

QoQ). This was lower than our estimate (despite above-estimate core

550 / 400

marketing margin) due to higher other expenditure (+15% YoY, +10% QoQ).

-3/-11/-22

It reported inventory gain of INR10.3b in refining and INR5.7b in marketing,

1881.0

resulting in EBITDA of INR32b (est. of 34.3b; -8% YoY, -10% QoQ). Forex loss

45.7

CMP: INR475

TP: INR549(+16%)

Financials & Valuations (INR b)

2018E

2019E

Y/E Mar

Sales

2395.2 2651.6

EBITDA

134.5

162.7

Adj. PAT

84.7

102.5

EPS (INR)

43.1

52.1

EPS Gr.%

4.7

7.8

BV/Sh.INR

184.6

218.6

RoE (%)

25.2

25.8

RoCE (%)

13.4

14.2

P/E (x)

11.9

9.8

P/BV (x)

2.8

2.3

2020E

2734.9

171.5

109.3

55.6

29.0

256.8

23.4

13.7

9.2

2.0





Estimate change

TP change

Rating change

Valuation view



stood at INR4.8b, as against a loss of INR1.5b in 3QFY17 and a gain of

INR5.6b in 2QFY18. Lower tax rate resulted in PAT of INR21.4b (-6% YoY, -9%

QoQ), higher than our estimate of INR20.9b.

Core GRM of USD4.9/bbl

was slightly higher than our estimate of

USD4.7/bbl. Core GRM stood at USD3.6/bbl in 3QFY17 and USD6.5/bbl in

2QFY18. Inventory gain stood at USD3/bbl in 3QFY18 v/s USD2.3/bbl in

3QFY17 and USD1.5/bbl in 2QFY18. Kochi refinery reported core GRM of

meager 4.1/bbl, suggesting that expansion there is yet to stabilize.

Domestic sales volume grew 9% YoY

(+9% QoQ) to 10.7mmt in 3QFY18.

Throughput in 3QFY18 stood at 7.3mmt v/s 6.8mmt in 3QFY17 and 7.0mmt

in 2QFY18. Implied gross marketing margin, including inventory gain,

declined 14% YoY and 12% QoQ to INR3.8/lit.

BPCL is expected to stabilize its Kochi expansion over the next few weeks,

which should expand the Kochi refinery GRM by ~USD2/bbl. The OMCs had

not taken commensurate price hikes in auto fuels in the latter part of CY17.

As a result, we have seen margin pressure on marketing margins.

Current decline in crude oil price provides ample room for normalization of

marketing margins. However, keeping in mind that there are several

elections scheduled over the coming months, we cut our assumption of

gross marketing margin on auto fuels from ~INR3/lit to INR2.5/lit in FY19

and INR2.75/lit in FY20.

As a result, we cut our FY19/20 estimates by 21%/17%. We value BPCL

based on an SOTP-based fair value of INR549/share (Mar-19 TP), which

includes INR375/share for its core business and INR175/share for

investments. Maintain

Buy.





12 February 2018

8

Mahindra & Mahindra

BSE SENSEX

34,006

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, (INRm)

Free float (%)

S&P CNX

10,455

MM IN

592.6

807.2 / 12.5

803 / 613

0/2/-4

1813.0

79.5

9 Feb 2018

Q3FY18 Results Update | Sector: Automobiles

CMP: INR750



TP: INR889 (+19%)

Buy

Operating performance miss led by higher other expense

3QFY18 volume grew 6.5% YoY (-3.8% QoQ) to 210.2k units, as tractor, UV and

3W volumes increased 6.3%, 5% and 8.5% YoY, respectively. Net realizations

grew 3.6% YoY (-0.6% QoQ) to INR546.6k (est. of INR553.3k). Net revenue grew

10.3% YoY (-4.4% QoQ) to INR114.9b (est. of INR116.3k).

EBITDA margin expanded 110bp YoY (-130bp QoQ) to 14.7% (est. of 16.1%), led

by higher-than-expected other expense (+21.4% YoY to INR13.9b). EBITDA

grew 19.6% YoY to INR16.9b (est. of INR18.7b). PBIT margin of Auto business

expanded 140bp YoY (-230bp QoQ) to 8.5%, and that of FES expanded 110bp

YoY (-80bp QoQ) to 20.5%. MM reported INR3.85b exceptional gain on

liquidation of its long-term investment in a subsidiary. Adj. PAT grew 22% YoY

(-28.1% QoQ) to INR10.1b (est. of INR10.3b).

Takeaways from the earnings call:

a) FY19 industry growth guidance: Tractor

8-10%, PVs 10-12% and CVs 10% (higher for LCVs). b) Strong product pipeline,

with launch of four new products in PV, two in tractors and one new ICV by

1HFY19. c) Tractor utilization level at ~90% at Mahindra and full utilization at

Swaraj; has enough scope to accommodate 8-10% volume growth in FY19. d)

RM cost pressure in 9MFY18: <2% for Autos (~2% price hike) and 3.5% for

Tractors (price hikes with lag effect). e) EVs – expect fast penetration of electric

3W; E-Alfa contribution ~20% of 3W passenger sales. f) Launching lighter and

efficient BS-6 engine. g) Focus on backward integration for EV.

Valuation and view:

We maintain FY19/FY20E EPS. The stock trades at 17.1x

FY19E and 15.5x FY20E consol. EPS. Maintain

Buy

with an SOTP-based TP of

INR889 (Mar-20 SOTP-based).



Financials & Valuations (INRb)

Y/E Mar

2018E 2019E 2020E

Sales

470.9 531.0 589.0

EBITDA

58.4

66.8

75.5

NP (incl. MVML)

40.1

46.2

52.5

Adj. EPS (INR) *

33.8

38.9

44.2

EPS Gr. (%)

7.2

15.2

13.5

Cons. EPS (INR)

37.7

43.9

48.4



BV/Sh. (INR)

241

268

300

RoE (%)

14.4

14.4

14.7

RoCE (%)

13.2

13.5

13.8

Cons. P/E (x)

19.9

17.1

15.5

* incl. MVML

Estimate change

TP change

Rating change



12 February 2018

9

9 February 2018

Q3FY18 Results Update | Sector: Metals

Tata Steel

BSE SENSEX

34,006

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

10,455

TATA IN

971.4

664/10.4

747 / 404

-5/13/38

3263.0

68.7

CMP: INR684

TP: INR778 (+14%)

Neutral

Lower cost of production driving EBITDA beat

Margin outlook robust, but rights issue drags valuations

TATA reported a strong operating performance in 3QFY18. Consol. EBITDA rose

21% QoQ to INR57b, driven by 7% volumes growth and expansion in EBITDA per

ton for Indian operations (TSI). Other businesses, however, were muted. A 10%

beat to EBITDA estimate was driven by lower-than-expected cost of production at

TSI. Reported PAT was impacted by INR11b provision toward various regulatory

demands against Indian mines. Adj. PAT grew robustly by 86% QoQ to INR24.4b.

Key highlights of results



TSI:

EBITDA per ton rose INR3,066 QoQ to INR14,025/t, led by average net

realization (NSR) increase of INR1,330/t, while the rest is explained by lower

cost of coking coal, specific consumption of coke, and lower purchase of

pellets, among others.



Europe (TSE):

Sales declined 6% QoQ to 2.44mt due to seasonal factors.

EBITDA/t declined USD4 QoQ to USD40 due to manufacturing expenses,

despite an expansion of spreads by EUR34 to EUR270/t.

Margin outlook robust; rights issue drags valuations; Maintain Neutral



Margins for both TSI and TSE are expected to expand further in 4QFY18 due to

expansion of steel spreads in India and operating leverage at TSE. There will be

a loss of 15 days production at the Odisha plant due to a breakdown.



The steel market outlook has improved for the near-to-medium term, led by

declining exports from China and improving industrial production across the

world. This augurs well for TATA.



TATA has launched an INR127b rights issue, which will expand equity by 24%,

and dilute FY20E EPS by 10% and target price by 9% to INR778 (Exhibit 4),

implying a 14% upside. TATA is also bidding for stressed assets under NCLT. It

remains to be seen if it will be value-accretive. Maintain

Neutral.

4Q

6,830

-1.6

338,960

14.9

70,252

218.6

20.7

154

12,631

15,892

1,522

43,250

-45,199

-1,948

9,760

22.6

-11,708

33,435

1Q

5,830

7.8

295,568

17.2

49,740

53.4

16.8

132

13,437

15,011

1,555

22,846

-6,289

16,557

7,405

32.4

9,152

15,352

FY18

2Q

3Q

6,450 6,560

14.2

7.4

324,641 334,466

23.1

19.6

47,207 56,969

58.9

61.0

14.5

17.0

112

134

13,499 13,273

14,733 14,751

2,532 2,259

21,507 31,205

-147 -11,235

21,359 19,969

11,380 9,508

52.9

30.5

9,980 10,461

10,205 24,100

FY17

FY18E

3QE

6,447

5.5

312,131

11.6

51,952

46.8

16.6

124

13,657

15,086

1,343

24,553

24,553

9,109

37.1

15,444

15,517

4QE

6,791 24,000 25,631

-0.6

-7.4

6.8

331,525 1,134,532 1,286,200

-2.2

-3.2

13.4

61,233 167,764 215,149

-13

121.2

28.2

18.5

14.8

16.7

141

104

130

13,694 50,723 53,903

15,113 56,784 59,608

1,932

5,274

8,277

34,358 65,531 109,916

-79,512 -17,672

34,358 -13,981 92,244

12,012 27,782 40,306

35.0

42.4

36.7

22,346 -41,762 51,939

22,399 37,742 72,056

vs Est

(%)

2

33

7

69

10

30

2

8

-3

-2

68

27

-19

4

-18

-32

55

Financials & Valuations (INR b)

Y/E March

2018E 2019E 2020E

Net Sales

1,286 1,279

691

EBITDA

215

228

164

PAT

69

84

74

EPS (INR)

57.7

69.4

61.5

Gr. (%)

51.9

20.4 -11.5

BV/Sh (INR)

397

457

509

RoE (%)

15.9

16.3

12.7

RoCE (%)

11.8

11.7

9.7

P/E (x)

11.9

9.9

11.1

P/BV (x)

1.7

1.5

1.3

Estimate change

TP change

Rating change

Quarterly Performance (Consolidated) INR million

Y/E March

1Q

Sales (k tons)

5,410

Change (YoY %)

-14.5

Net Sales

252,298

Change (YoY %)

-16.7

EBITDA

32,420

Change (YoY %)

16.9

(% of Net Sales)

12.8

EBITDA(USD/tss)

90

Interest

10,707

Depreciation

12,417

Other Income

1,367

PBT (before EO Inc.)

10,662

EO Income(exp)

-35,231

PBT (after EO Inc.)

-24,568

Total Tax

7,405

% Tax

69.4

Reported PAT

-31,973

Adj. PAT (after MI & asso)

3,400

FY17

2Q

3Q

5,650 6,110

-10.2

-4.1

263,710 279,565

-10.0

-0.3

29,700 35,393

62.3 356.3

11.3

12.7

79

86

13,511 13,874

14,677 13,797

1,084 1,301

2,597 9,022

634

284

3,230 9,306

3,634 6,984

139.9

77.4

-403 2,322

-1,127 2,035

12 February 2018

10

9 February 2018

3QFY18 Results Update | Sector: Oil & Gas

HPCL

Buy

BSE SENSEX

34,006

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

10,455

HPCL IN

EBITDA significantly below estimate; core GRM at USD6.1/bbl

1526



HPCL’s reported EBITDA of INR31.6b (+7% YoY, +9% QoQ) in 3QFY18 was

602.6 / 9.5

higher than our estimate of INR27.9b. However, EBITDA adjusted for inventory

493 / 327

gains stood at INR16.9b (-8% YoY, -20% QoQ), much below our estimate of

-4/-17/-17

1903.0

INR23.2b, primarily led by lower core marketing margin and GRM. HPCL

48.9

reported total inventory gain of INR14.8b in 3QFY18: INR6.4b (~USD2.94/bbl)

CMP: INR395

TP: INR530(+35%)

Financials & Valuations (INR b)

Y/E Mar

2018E 2019E

Net Sales

2,185 2,433

EBITDA

102.0 125.3

PAT

55.5

65.3

EPS (INR)

36.4

42.8

Gr. (%)

(10.6)

17.6

BV/Sh (INR)

157.0 184.7

RoE (%)

25.1

25.0

RoCE (%)

14.1

13.9

P/E (x)

11.5

9.8

P/BV (x)

2.7

2.3

EV/EBITDA(x)

8.5

7.1

2020E

2,504

133.9

69.5

45.6

6.5

214.2

22.8

13.1

9.2

2.0

6.8

Estimate change

TP change

Rating change

in refining and INR8.4b in marketing. The quarter witnessed a forex gain of

INR2.7b. PAT rose 11% YoY (+12% QoQ) to INR19.5b (est. of INR14.7b).



Core GRM stood at USD6.1/bbl,

lower than our estimate of USD7.1/bbl. GRM

in 3QFY17 and 2QFY18 stood at USD3.9/bbl and USD5.6/bbl, respectively. After

declining from USD7.3/bbl in 3QFY18 to USD6.2/bbl in Jan’18, SG GRM has

been hovering at ~USD7/bbl over the past few days. We build in GRM of

USD6.5/bbl in FY19-20.



Marketing sales volume grew 2% YoY

(+8% QoQ) to 9.4mmt in 3QFY18.

Refining throughput stood at 4.5mmt in the quarter v/s 4.7mmt in 3QFY17 and

4.6mmt in 2QFY18. Implied gross marketing margin including inventory has

declined 21% YoY (-19% QoQ) to INR3.1/lit. Implied core gross marketing

margin has declined 29% YoY (-33% QoQ) to INR2.3/lit.

Valuation view:

The quarter witnessed a sharp decline in auto fuel margins, as the

OMCs were unable to pass on the increase in crude oil prices to end-consumers in

light of the Gujarat assembly elections. However, they have been increasing their

margins steadily post 3QFY18. A declining crude and stable exchange rate would

help them regain their marketing margins soon. However, we are in for a series of

elections this year. As a result, we cut our assumption for marketing margins from

~INR3/lit to INR2.5/lit in FY19E and INR2.75/lit in FY20E. We cut our EPS estimates

by 26% for FY19 and by 20% for FY20. We roll over our valuation to Mar’19. Valuing

refining at 6x EV/EBITDA, marketing at 8x EV/EBITDA and pipeline at 7.5x

EV/EBITDA, we reiterate

Buy

with a target price of INR530.

12 February 2018

11

10 February 2018

3QFY18 Results Update | Sector: Media

Sun TV

Buy

BSE SENSEX

34,006

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

10,455

SUNTV IN

394

383.2 / 6.0

1097 / 652

-5/29/12

1365.0

25.0

CMP: INR973

TP: INR1,225(+26%)

Ad growth revives; digitization-led subscription revenue to witness

robust growth

EBITDA up 12% YoY:

Standalone revenue grew 16% YoY to INR6.8b (in-line), led

by 22% ad revenue growth and 16% domestic subscription growth. EBITDA grew

12% YoY to INR4.9b (4% miss), with 260bp YoY margin contraction to 72%.

Production cost was high during the quarter due to shift from private to

commission model, and high-value fiction content. PAT grew 11% YoY to INR4.1b

(10% miss), below EBITDA growth, largely on lower other income. Board

declared an interim dividend of INR2.5/share.

Subscription, ad growth to fire:

SUNTV remains a sweet spot, with both

subscription and ad revenue firing on all cylinders. Management indicated that

potentially 10-12m Tamil Nadu analog subscribers are likely to move to digital

cable by FY19, offering INR3.5b incremental revenues. Of these, already 3m set

top boxes are seeded by Arasu and other MSOs. Further improvement in rating

across Tamil Nadu, Malayalam and Kannada channels is allowing healthy ad

growth. We expect revenue/PAT CAGR of 16%/24% over FY18-20.

Concall highlights:

1) Incremental INR3.5b revenue to come from 10-12m

digitized subscribers in TN. Of these, 3m are seeded, so revenues should be

recognized in coming quarter, and the rest by Sept’18 as per ARASU’s

notification to MIB. 2) Healthy ratings across Tamil Nadu, Malayalam and

Kannada genre should lead to double-digit ad revenue growth in FY19. 3)

Presently, two slots each in prime time and non-prime time are on commission

model. Overtime, it will be a 50:50 mix of both commission and PP model.

Maintain Buy with a revised TP of INR1,225:

Despite offering healthy 42%

returns over the past year, SUNTV is trading at attractive valuation of 27x/23x on

FY19E/20E EPS, at ~20% discount to ZEEL. SUNTV has garnered 26% RoCE, which

is likely to jump to over 30% in the next two fiscals. We value SUNTV on 30x on

Dec’19 EPS of INR41, arriving at a TP of INR1,225 (v/s earlier INR1,005). Our 30x

valuation is still at a 17% discount to ZEEL, providing further room as SUNTV

delivers healthy earnings growth.

FY17

FY18

4Q

5,825

3.1

1,889

3,936

67.6

767

2

374

3,541

1,182

33.4

0

2,359

2,359

5.4

40.5

1Q

7,863

3.4

3,380

4,484

57.0

1,035

1

371

3,819

1,302

34.1

0

2,516

2,516

8.0

32.0

2Q

6,759

8.1

1,798

4,961

73.4

1,027

1

372

4,306

1,459

33.9

0

2,847

2,847

5.3

42.1

3Q

6,833

15.9

1,912

4,920

72.0

1,145

1

291

4,066

1,397

34.3

0

2,670

2,670

11.2

39.1

4QE

6,947

19.3

1,938

5,009

72.1

957

3

360

4,408

1,511

34.3

0

2,898

2,898

22.8

41.7

FY17

25,583

6.8

8,221

17,361

67.9

3,911

13

1,466

14,904

5,109

34.3

0

9,794

9,794

14.2

38.3

FY18E

28,402

11.0

9,028

19,374

68.2

4,163

5

1,394

16,599

5,669

34.1

0

10,931

10,931

11.6

38.5

3Q

5,894

2.8

1,497

4,397

74.6

1,107

7

389

3,673

1,272

34.6

0

2,401

2,401

11.0

40.7

Est Var

3QFY18E (%)

6,826

0

15.8

1,708

12

5,118

-4

75.0 -296bp

1,043

10

3

-82

438

-34

4,510

-10

1,547

34.3

0

2,964

-10

2,964

-10

23.4

43.4 -434bp

Financials & Valuations (INR b)

2018E 2019E

Y/E Mar

Net Sales

28.4

33.6

EBITDA

19.4

23.4

PAT

10.9

14.1

EPS (INR)

27.7

35.8

Gr. (%)

11.6

29.1

BV/Sh (INR)

110.2

121.7

RoE (%)

26.1

30.9

RoCE (%)

26.1

30.9

P/E (x)

35.1

27.2

P/BV (x)

8.8

8.0

EV/EBITDA (x)

19.2

15.7

2020E

38.5

26.9

16.7

42.5

18.7

135.3

33.1

33.1

22.9

7.2

13.4

Estimate change

TP change

Rating change

Quarterly Performance (Standalone) (INR m)

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT

Tax

Rate (%)

MI & P/L of Asso. Cos.

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

1Q

7,608

10.4

3,244

4,364

57.4

1,008

1

216

3,571

1,240

34.7

0

2,331

2,331

19.0

30.6

2Q

6,255

10.2

1,592

4,663

74.6

1,030

2

488

4,119

1,415

34.4

0

2,704

2,704

21.7

43.2

12 February 2018

12

Aditya Birla Capital

BSE SENSEX

34,006

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR m)

Free float (%)

Financials & Valuations (INR b)

Y/E Mar

PBT Break-up

NBFC

Housing

AMC

Life Insurance

Consol PBT

Cons. PAT

Post MI

Growth (%)

RoE (%)

2018E

11.0

0.3

4.9

1.8

15.5

8.3

56.7

12.6

2019E

14.1

1.2

6.9

2.0

22.5

12.4

49.8

12.4

2020E

18.1

2.7

9.9

2.3

32.2

18.3

47.4

13.7





S&P CNX

10,455

ABCAP IN

2201

Robust growth and healthy asset quality intact

372/5.7



Aditya Birla Capital (ABCL) reported a healthy quarter, with consolidated PBT

264 / 156

growing 30% YoY to INR4.1b, but reported PAT increasing 12% YoY due to

-8/-/-

normalization of tax rate (36% v/s 21% in the year-ago period). Base quarter

1082.0

had a one-off tax gain of ~INR400m.

27.2



NBFC segment:

Loan book grew 2%/33% QoQ/YoY to INR398b, driven by

10 February 2018

3QFY18 Results Update | Sector: Financials

CMP: INR168

TP: INR225 (+34%)

Buy



35% YoY growth in 9MFY18 disbursements. The share of mid-corporate

loans declined from 17% in 2QFY18 to 15% in the quarter, mainly due to

heavy repayments in the structured finance book. RoA/RoE was stable at

1.9%/14.5%, while the GNPL ratio inched up to 0.7% (from 0.5% in 2QFY18).

AMC segment:

While overall AAUM grew 24% YoY to INR2.4t, equity AAUM

rose by a stupendous 84% YoY to INR800b. Its share is now 33% v/s 22% in

3QFY17. We expect the increasing share of equity AAUM to drive PAT

margin expansion from 10bp in FY17 to 15bp by FY20.

Others:

1) HFC loan growth remains robust (+17% QoQ to INR67b); the

share of home loans continues to inch up (+300bp YoY to 60%). 2) HFC

margins and C/I ratio remain stable at 3%/77%. 3) 13

th

month persistency

(cum.) improved 170bp QoQ to 72.1%. 4) Product mix was stable, with the

share of ULIP/PAR/Non-PAR/Protection at 35%/28%/32%/5%.

Valuation view:

ABCL is a strong play on financialization of savings and low

penetration across the financial services business. The company is expected

to report 25%+ PAT CAGR over FY17-20, driven by strong traction in the

lending and asset management businesses. Lending (>70%) and AMC (~18%)

businesses are the key valuation drivers. Other ventures are at a nascent

stage, and their profit contribution is likely to be marginal in the near term.

We largely maintain our estimates. Buy with a target price of INR225

(SOTP FY20E based).

(INR Million)

Quarterly Performance

* FY17 numbers pro forma merged for Life Insurance business; Hence Annual numb

12 February 2018

13

10 February 2018

3QFY18 Results Update | Sector: Financials

Bank of Baroda

Buy

BSE SENSEX

34,006

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val, INR m

Free float (%)

S&P CNX

10,006

BOB IN

Strong operational performance; stressed assets declining rapidly

2,310.5



BoB reported muted PAT of INR1.18b in 3QFY18 due to elevated

412.8 / 6.4

provisioning expenses, even as revenue growth stood strong. NII stood at

207 / 134

INR43.9b (+40% YoY), although other income declined 6% YoY, led by a 39%

-3/1/-35

YoY decline in treasury gains. However, controlled opex (flat QoQ) enabled

2190.0

41% YoY growth in PPoP to INR36.5b (much ahead of our estimate), leading

41.3

CMP: INR156

TP: INR185 (+19%)

Financials & Valuations (INR b)

Y/E March

2018E

2019E

NII

155.7

175.8

OP

127.2

145.0

NP

NIM (%)

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

ABV/Sh. (INR)

RoE (%)

RoA (%)

Valuations

P/E(X)

P/BV (X)

P/ABV (X)

8.6

2.3

9.8

182.1

161.3

112.4

2.0

0.1

16.0

1.0

1.4

25.9

2.5

16.7

70.7

168.2

124.7

5.5

0.3

9.4

0.9

1.3



2020E

195.3

165.4

44.1

2.5

23.7

42.0

182.1

145.0

8.8

0.5

6.6

0.9

1.1









to a 443bp improvement in the cost-income ratio to ~40%

NII growth was led by (i) continued traction in loan growth, (ii) 135bp QoQ

improvement in domestic CASA mix to 40.6%, (iii) slower growth of 8% YoY

in low-margin international business, and (iv) improvement in asset mix, led

by 33% YoY growth in retail loans. BOB further benefitted from interest on

income tax refund amounting to INR3.3b, adjusting for which,

global/domestic NIM expanded 21/29bp QoQ.

Overall advances portfolio grew 14% YoY (domestic loan book up 16.4% YoY

to INR2.9t), but deposit base fell 3% YoY/2% QoQ. CD ratio, thus, rose 326bp

QoQ to 69.7%.

Slippages were elevated at INR47.97b (annualized slippage ratio of 4.8%,

gross slippages of INR56.3b), led by INR31b of slippages from the

restructured book. Telecom sector NPL rose sharply to INR20.1b from

INR2.14b in 2QFY18. GNPLs, thus, rose 4.7% QoQ, but healthy provisioning

enabled a controlled 1.4% QoQ rise in NNPLs. PCR, thus, improved 200bp

QoQ to 59.7% (68% incl. technical write-offs). O/s restructured assets fell

23% QoQ to INR90.2b, driving net stressed assets lower to

6.7%

of loans.

BOB made provision of INR1.45b toward IBC accounts; has to provide

another INR8.57b in 4QFY18. Total exposure to NCLT account is INR113.4b.

Other highlights:

a) Average daily CASA ratio increased slightly to 38.6%. b)

Tier-1 ratio declined 9bp QoQ to 9.52%, while CET-1 ratio stood at 8.28%.

Valuation and view:

While near-term earnings volatility is likely to continue,

we like management’s focus on cleaning up the balance sheet and laying the

foundation for sustainable growth. We expect stress addition and credit

costs to moderate from FY19, but cut FY18E/FY19E/FY20E earnings by

68%/38%/16%. We build in government capital infusion of INR53.75b in our

estimates. Maintain

Buy

with a revised TP of INR185 (1.3x Mar-20E ABV).

FY17

2Q

34,261

15,614

49,875

22,973

26,902

21,442

17,958

8,944

3,422

5,521

5,675

3,541

429

11.4

193.4

5.5

63.0

3Q

31,344

17,750

49,093

23,141

25,952

17,562

20,795

5,157

2,630

2,527

5,899

3,500

426

11.4

190.1

5.4

64.5

4Q

33,283

19,773

53,056

25,390

27,666

23,432

26,230

1,436

2,425

-989

6,017

3,833

427

10.5

180.8

4.7

66.8

1Q

34,050

15,512

49,561

23,080

26,481

20,951

23,681

2,801

767

2,034

5,706

3,776

462

11.4

195.2

5.2

66.3

FY18

2Q

37,205

17,371

54,576

24,158

30,418

23,968

23,294

7,125

3,571

3,554

5,832

3,873

463

11.2

195.7

5.1

67.2

FY17

3Q

43,940

16,730

60,671

24,170

36,501

31,411

34,265

2,236

1,118

1,118

5,733

3,994

485

11.3

198.5

5.0

68.0

4Q

40,530

19,996

60,525

26,775

33,751

33,751

30,582

3,168

1,289

1,879

5,866

4,235

494

10.9

210.1

5.0

57.5

135,134

67,581

202,715

92,964

109,751

83,571

85,024

24,727

10,896

13,831

6,017

3,833

427

10.5

180.8

4.7

66.8

(INR Million)

FY18

155,725

69,608

225,333

98,182

127,151

104,898

111,821

15,330

6,745

8,585

5,866

4,235

494

10.9

210.1

5.0

57.5

Quarterly Performance

1Q

33,711

14,444

48,155

21,460

26,695

21,125

20,041

6,654

2,418

4,236

5,622

3,628

430

11.2

207.8

5.7

60.2

Net Interest Income

Other Income

Total Income

Opera ti ng Expens es

Operating Profit

Core Operating Profit

Provi s i ons

Profit before Tax

Ta x

Net Profit

Operating Parameters

Depos i t (INR b)

Loa n (INR b)

Asset Quality

Gros s NPA (INR B)

Gros s NPA (%)

Net NPA (INR B)

Net NPA (%)

PCR (%)

12 February 2018

14

9 February 2018

3QFY18 Results Update | Sector: Metals

SAIL

Sell

BSE SENSEX

34,006

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

10,455

SAIL IN

4,130

388.0 / 6.0

101 / 53

-3/57/23

709.0

25.0

CMP: INR94

TP: INR71(-24%)

Turns PAT positive after 10 quarters

Strong earnings momentum, but valuations are rich; Maintain Sell

SAIL turned PAT positive – albeit marginally – after 10 quarters, driven by strong

steel prices and higher volumes. EBITDA increased 58% QoQ to INR14.4b (ahead

of est. of INR11.7b) on higher steel spreads and volumes. Adj. PAT improved

from loss of INR3.2b in 2QFY18 to PAT of INR659m. Interest cost increased 10%

YoY to INR6.7b and depreciation rose by 13% YoY to INR7.6b (both higher than

estimates).



Sales increased 14% YoY (6% QoQ) to 3.8mt on strong domestic demand.



Net sales realization increased 6% QoQ to INR40,646/t. Steel realization rose

~5% QoQ to INR35,800/t. The differential was contributed by by-product

sales, particularly coal chemicals.



EBITDA per ton increased 48% QoQ to INR3,820 on higher steel spreads

(+5% QoQ to INR20,773) and positive operating leverage. Employee cost was

lower (-7% YoY), but offset by higher other operating expenses (+20% YoY).

Strong earnings momentum, but valuations are rich; Maintain Sell



Operating performance has improved over the last few quarters, driven by a

stronger steel market, stabilization of new capacities, and control over

employee cost. The trend is likely to continue in 4QFY18.



Bhilai:

The recently commissioned new 3mtpa blast furnace will reverse the

declining trend in the operating performance. Steel melt shop is likely to get

commissioned in FY19, reducing operating cost.



Although SAIL is guiding for 17.5/19mt sales in FY19/FY20, we believe it is

prudent to expect 16-17mt sales in FY19/20E (8% CAGR). The strong long

product market in India will help SAIL in ramping up volumes.



EBITDA is likely to more than double to ~INR107b by FY20. The stock is

already trading at a rich EV/EBITDA of 7.9x FY20E, leaving little room for

upside. Maintain

Sell.

vs Est

(%)

3

3

6

Financials & Valuations (INR b)

2018E 2019E

Y/E Mar

568.7

666.1

Net Sales

44.7

83.0

EBITDA

-3.6

17.8

PAT

-0.9

4.3

EPS (INR)

-86.1 -589.8

Gr. (%)

87.8

91.6

BV/Sh (INR)

-1.0

4.8

RoE (%)

2.2

6.1

RoCE (%)

-106.5

21.7

P/E (x)

1.1

1.0

P/BV (x)

2020E

689.5

106.9

26.8

6.5

50.2

97.6

6.9

8.7

14.5

1.0

Estimate change

TP change

Rating change

Quarterly Performance (Consolidated)

Y/E March

(Standalone)

Sales (m tons)

Change (YoY %)

Realization (INR per ton)

Change (YoY %)

Net Sales

Change (%)

NSR:RM Spread (INR/t)

EBITDA

Change (YoY %)

EBITDA per ton (INR)

Interest

Depreciation

Other Income

PBT (after EO Inc.)

Total Tax

% Tax

Reported PAT

Adjusted PAT

Change (YoY %)

1Q

2.8

4.1

32,993

-6.6

92,381

-2.8

21,555

2,338

-386.2

835

5,941

6,002

893

-9,254

-3,899

42.1

-5,355

-5,042

56.8

FY17

FY18

FY17

FY18E

FY18E

2Q

3Q

4Q

1Q

2Q

3Q

4QE

3QE

3.6

3.3

3.4

3.0

3.5

3.8

3.8

13.1

14.1

3.65

31.4

13.8

-8.6

8.1

-1.7

14.2

10.3

8.6

7.5

10.6

31,182 34,237 36,827 38,242 38,467 40,646 42,900 33,814 40,191 39,528

-7.7

11.1

22.1

15.9

23.4

18.7

16.5

4.7

18.9

15.5

112,256 112,982 126,905 115,796 136,174 153,237 163,020 444,524 568,226 144,277

21.3

26.4

11.6

25.3

21.3

35.6

28.5

13.8

27.8

27.7

15,462 17,625 16,797 18,065 19,776 20,773 22,635 17,653 20,444

1,114

-428 -2,644

-839

9,143 14,402 21,735

380 44,441 11,695

-114.5

-96.9

-76.5 -135.9

720.5 -3,468.1 -922.0 -101.1 11,582.6 -2,835.1

310

-130

-767

-277

2,583

3,820

5,720

29

3,143

3,204

6,028

6,108

7,202

5,879

6,435

6,745

6,563 25,278 25,622

6,492

6,659

6,699

7,439

6,947

7,622

7,596

7,698 26,800 29,863

7,138

682

688

3,094

893

486

1,195

546

5,356

3,120

549

-12,531 -12,536 -14,188 -12,872 -7,403

823

8,019 -48,509 -11,434 -1,387

-5,215 -4,587 -6,475 -4,859 -2,013

391

1,764 -20,176 -4,716

-42

41.6

36.6

45.6

37.7

27.2

47.5

22.0

41.6

41.2

3.0

-7,316 -7,948 -7,713 -8,014 -5,391

432

6,255 -28,332 -6,718 -1,345

-6,358 -7,956 -7,715 -7,951 -3,224

659

6,255 -27,066 -4,655 -1,345

-18.1

-48.0

-37.3

57.7

-49.3 -108.3 -181.1

-29.8

-82.8

-83.1

23

19

4

6

118

-159

-132

-149

12 February 2018

15

9 February 2018

4QCY17 Results Update | Sector: Capital Goods

ABB

Sell

BSE SENSEX

34,006

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

10,455

ABB IN

211.9

336.9 / 5.2

1744 / 1170

13/10/10

165.0

25.0

CMP: INR1,590



TP: INR1,240(-22%)

Operational performance marginally below expectations

Operational performance below expectations:

4QCY17 revenue rose 11%

to INR27.8b, broadly in line with our estimate of INR27.5b. EBIDTA margin of

10.6% (-100bp YoY) too was below our estimate of 11.2%. EBITDA grew by a

muted 1.4% YoY to INR2.9b, below our estimate of INR3.1b, led by an

adverse revenue mix and execution of lower-margin orders. PAT of INR1.7b

too missed our estimate of INR1.9b.



Gross margin shrinks 340bp YoY to 32.6%:

Gross margin contracted 340bp

YoY to 32.6%. Despite this, EBIDTA margin contraction was controlled to

100bp to 10.6%, led by better control on employee cost (-60bp YoY to 6.6%

of sales) and other expenses (-180bp YoY to 15.4%).



4Q order inflow declines on account of higher base:

Order inflow declined

48% YoY to INR29.1b in 4QCY17 on account of a higher base (4QCY16 had a

large HVDC order finalization of INR36b) and absence of finalization of large

orders. Excluding the large order of INR36b in 4QCY16, order inflow

improved 45% YoY. Key sectors driving order inflow are infrastructure and

transport, metals and mining; some green shoots are also visible on the

industrial capex side. Order backlog stands at INR115b (+5% YoY), providing

revenue visibility of 1.3x its CY17 revenue.

Valuation view:

Management is optimistic on digitalization opportunity on the

industrial side; early green shoots are visible in the industrial capex cycle. It

remains focused on margin expansion via its efforts toward operational

efficiency and localization. We marginally tweak our CY18/19 estimates by

+5/1% to factor in execution pick-up of order book in hand. We maintain

Sell,

given premium valuations, with a TP of INR1,240 (35x Dec’19E EPS of INR35).

(INR M)

Financials & Valuations (INR b)

Y/E Dec

2017 2018E

Net Sales

115.9

123.2

EBITDA

11.2

12.9

Adj PAT

6.4

7.4

Adj EPS (INR)

30.1

35.0

EPS Gr (%)

52.0

16.2

BV/Sh (INR)

195.2

221.0

RoE (%)

15.4

15.8

RoCE (%)

22.9

23.7

P/E (x)

52.8

45.4

P/BV (x)

8.1

7.2

2019E

122.0

15.0

9.2

35.5

1.5

247.3

14.4

21.7

44.7

6.4

Estimate change

TP change

Rating change

Quarterly Performance

Y/E December

Sales

Change (%)

EBITDA

Change (%)

As % of Sales

Depreciation

Interest

Other Income

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Adj. PAT

Change (%)

1Q

20,035

10.4

1,808

25.9

9.0

359

223

149

1,376

442

32.1

854

934

72.0

CY16

2Q

3Q

20,947 20,550

8.4

4.4

1,136

1,183

-29.5

-24.1

5.4

5.8

357

406

197

196

299

299

881

880

324

389

36.8

44.2

556

646

556

706

-18.7

20.1

4Q

25,078

3.4

2,897

10.1

11.6

389

303

254

2,460

833

33.8

1,627

1,627

25.8

1Q

21,689

8.3

1,715

-5.2

7.9

376

212

186

1,312

428

32.6

884

884

-5.3

CY17

2Q

3Q

22,237 19,234

6.2

(6.4)

1,473

1,342

29.7

13.4

6.6

7.0

383

389

231

152

326

378

1,185

1,178

435

344

36.7

29.2

751

1,134

751

834

34.9

18.2

CY16

4Q

27,794

10.8

2,937

1.4

10.6

432

178

188

2,515

800

31.8

1,715

1,715

5.4

85,094

6.2

6,945

-7.0

8.2

1510

919

1216

5,733

1,988

34.7

3,745

3,745

12.2

CY17E

89,614

5.3

7,361

6.0

8.2

1580

773

1210

6,218

2,018

32.5

4,200

4,200

12.1

MOSL

4Q

27,454

10.2

3,088

9.5

11.2

425

205

89

2,547

683

26.8

1,864

1,864

27.0

Var.

(%)

1.2%

-4.9%

-1.2%

-8.0%

-8.0%

12 February 2018

16

10 February 2018

3QFY18 Results Update | Sector: Oil & Gas

Oil India

Buy

BSE SENSEX

34,006

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

10,455

OINL IN

801.5

285.6/4.4

389 / 258

-4/19/-17

204.0

33.9

CMP: INR356



TP: INR425 (+19%)

Significantly beat on EBITDA led by higher sales and lower opex

OINL’s revenue of INR28.5b (+20% YoY, +15% QoQ) was ahead of our estimate

of INR27.2b, led by higher-than-expected sales. Reported EBITDA of INR12.2b

(+84% YoY, +21% QoQ) was significantly above our estimate of INR10.5b, led by

lower other expenditure at USD5.9/boe v/s USD8.8/boe in 3QFY17 and

USD4.6/boe in 2QFY18. PAT came in at INR7.1b (in-line; +55% YoY, +9% QoQ) –

the difference at the PAT level declined due to lower other income of INR2.1b

(est. of INR4.5b; -34% YoY, -36% QoQ).

Realization at USD559.4/bbl:

In 3QFY18, gross realization stood at

USD59.4/bbl (+21% YoY, +19% QoQ), led by rising crude oil prices. Production

of crude oil stood at 0.86mmt (+3% YoY, +1% QoQ) and of gas at 0.73bcm (-1%

YoY, -4% QoQ). Total production grew 1% YoY (-2% QoQ) to 1.59mmtoe. Sales

of oil stood at 0.83mmt (+1% YoY, -1% QoQ) and of gas at 0.6bcm (flat YoY, -5%

QoQ). Total sales grew 1% YoY (-3% QoQ) to 1.44mmtoe.

Valuation view:

We model Brent of USD60/bbl and INR/USD at 65.5/65.7 in

FY19/20. We expect EPS of INR40.9/42.2 in FY19/20. Oil prices have started

declining. We believe USD60-70/bbl should not be a concern for return of

subsidy regime. Rising gas price would be positive for the stock. Our SOTP-

based fair value stands at INR425 (incl. investment value of INR142). We value

the company at 8x FY20E adj. EPS of INR39.6, and add investments of INR142 in

IOCL, NRL and BCPL. The stock trades at 8.4x FY20E EPS of INR42.2. Dividend

yield is attractive at ~5%. Maintain

Buy.

(INR Billion)

FY17

FY18

3Q

23.8

7.1

6.6

28.0

7.1

2.8

1.0

3.2

6.1

0.0

6.1

1.5

25.1

4.5

18.8

4Q

24.4

28.3

5.9

24.4

0.2

3.3

1.0

8.7

10.4

11.5

-1.1

-1.3

-12.5

0.2

-95.9

1Q

23.3

5.0

8.7

37.5

1.3

2.9

1.0

1.5

6.4

0.0

6.4

1.9

29.4

4.5

-8.9

2Q

24.7

6.1

10.1

40.9

21.0

3.2

1.1

3.3

9.1

0.0

9.1

2.7

29.3

6.5

11.3

3Q

28.5

20.0

12.2

42.9

84.2

3.6

1.0

2.1

9.8

0.0

9.8

2.7

28.0

7.1

55.1

4QE

25.8

6.0

7.7

29.8

29.2

3.9

0.8

3.2

6.2

0.0

6.2

2.0

33.0

4.1

2,044

Financials & Valuations (INR b)

2018E 2019E 2020E

Y/E Mar

Sales

102.5 113.9 115.8

EBITDA

38.5

45.8

46.5

Adj. PAT

20.9

32.8

33.8

Adj. EPS (INR)

26.1

40.9

42.2

EPS Gr. (%)

-22.6

56.7

3.3

BV/Sh.(INR)

376.8 398.5 420.9

RoE (%)

7.1

10.5

10.3

RoCE (%)

5.6

7.9

7.7

P/E (x)

13.7

8.7

8.4

P/BV (x)

0.9

0.9

0.8

EV/EBITDA (x)

8.0

6.4

6.0

Div. Yield (%)

2.8

4.5

4.5





Estimate change

TP change

Rating change

Quarterly Performance

Y/E March

1Q

Net Sales

Change (%)

EBITDA

% of Net Sales

Change (%)

D,D&A

Interest

OI (incl. Oper. other inc)

PBT before exceptional

Exceptional item

PBT after exceptional

Tax

Rate (%)

PAT

Change (%)

22.2

-19.2

8.6

38.8

-20.4

2.3

1.0

2.4

7.7

0.0

7.7

2.8

36.2

4.9

-36.2

2Q

23.3

-2.8

8.4

35.9

8.6

2.5

1.0

3.9

8.8

0.0

8.8

2.9

33.7

5.8

-14.0

FY17

93.6

1.1

29.6

31.6

-3.6

10.9

4.0

18.3

33.0

11.5

21.5

6.0

18.1

15.5

-32.8

FY18E

102.4

9.3

38.8

37.9

31.1

13.6

3.9

10.2

31.5

0.0

31.5

9.3

29.6

22.2

43.1

FY18

Var. vs

3QE est (%)

27.2

14.4

10.5

38.7

58.1

3.5

1.0

4.5

10.6

0.0

10.6

3.5

33.0

7.1

55.6

0%

-7%

-21%

2%

8%

-53%

-7%

17%

5%

12 February 2018

17

Alkem Laboratories

BSE SENSEX

34,006

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

10,455

ALKEM IN

Strong numbers; operating leverage impact visible

120



Revenue grew 17% YoY to INR17.4b (est. of INR16.7b) in 3QFY18. EBITDA

263.6 / 4.1

came in at INR3.6b, with the margin at ~20.7% (est. of ~20%). This is despite

2468 / 1578

higher other expense (+410bp QoQ) due to higher promotional charges

0/19/0

related to the OTC business and doctors’ conferences. R&D expense stood at

95.0

INR927m (or 5.3% of sales). PAT was at INR1.7b, lower than our estimate of

34.1

10 February 2018

3QFY18 Results Update | Sector: Healthcare

CMP: INR2,182

TP: INR2,500(+15%)

Buy

Financials & Valuations (INR b)

Y/E Mar

2018E 2019E

Net Sales

63.0

73.1

EBITDA

11.8

14.0

PAT

7.5

10.6

EPS (INR)

63.0

88.9

Gr. (%)

-15.5

41.1

BV/Sh (INR)

422.5

491.5

RoE (%)

15.8

19.5

RoCE (%)

14.9

21.8

P/E (x)

34.6

24.5

P/BV (x)

5.2

4.4

2020E

83.9

16.8

13.1

109.9

23.6

576.6

20.6

23.1

19.9

3.8





Estimate change

TP change

Rating change





INR2.4b due to a higher tax rate. Tax rate includes one-time charge of

~INR448m related to the change in US tax laws.

Strong domestic business growth; expect growth to accelerate further in

2H:

Alkem’s domestic business grew by a robust 22% YoY to INR12.6b, led by

strong inherent growth, a lower base and channel refilling. The company is

expanding its presence in the domestic business via new product launches

and expansion into new therapies. We expect this strong growth

momentum to continue for at least two more quarters, led by a lower base

(related to demonetization and GST impact).

US business: Two thirds of pending portfolio to get approval in next 24

months:

US sales came in at ~USD55m (up 18% QoQ). Sequential increase in

US sales can be attributed to a seasonally strong quarter for Benzonatate

and the launch of Nexium and Prasugrel. US business margins will continue

improving on the back of operating leverage, as ~30 ANDA approvals are

expected for Alkem in the next 24 months.

Key concall takeaways:

a) All six facilities have EIR from the USFDA, with no

pending 483s. b) Tax rate for 3Q (adjusted for one off) was ~32% due to a 2%

increase in FY18E tax rate to ~27%; FY19E tax rate to be ~27%. c) Capex in

FY18E/19E to be ~INR6b/INR5b. d) There was no off in India business sales.

e) Domestic business is expected to grow in mid-teens. f) Sikkim facility will

start manufacturing in the next few months.

Arguing for a multiple re-rating:

We maintain

Buy

with a TP of INR2,500

@24x Dec 19E PER. We argue for a multiple re-rating, given the superior

earnings growth profile (>25% EPS CAGR over FY18-20E), improving return

ratios (RoICs to improve to ~30% by FY20E from ~20% in FY18E), net cash

balance sheet, and high exposure to the domestic business (~90% of profit

comes from the domestic business).

12 February 2018

18

Jindal Steel & Power

BSE SENSEX

34,006

S&P CNX

10,455

9 February 2018

Update

| Sector:

Metals

CMP: INR272

TP: INR361(+33%)

Buy

Production ramp-up encouraging

Volume growth at inflection; maintain Buy

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

Free float (%)

We visited Jindal Steel and Power (JSP)’s Angul, Raigarh and Tamnar facilities. Key

JSP IN

916

294 / 86

11/105/177

248.9

3.7

1945.0

38.0

takeaways from our visit:

Financials Snapshot (INR b)

Y/E Mar

2018E 2019E 2020E

Net Sales

275.3 359.1 386.1

EBITDA

64.0

95.0 100.6

PAT

-10.5

6.6

10.9

EPS (INR)

-11.5

7.3

11.9

Gr. (%)

-44.9 -163.1

63.4

BV/Sh (INR)

315.1 321.9 333.4

RoE (%)

-3.6

2.3

3.6

RoCE (%)

2.8

5.9

6.4

P/E (x)

-23.7

37.5

22.9

P/BV (x)

0.9

0.8

0.8

Shareholding pattern (%)

As On

Dec-17 Sep-17 Dec-16

Promoter

62.0

61.9

61.9

DII

6.4

5.5

1.8

FII

17.6

15.7

17.6

Others

14.1

16.9

18.7

FII Includes depository receipts

Stock Performance (1-year)

Jindal Steel

Sensex - Rebased

320

260

200

140

80

Angul – crude steel production ramping up well:

The newly-commissioned blast

oxygen furnace (BOF) is ramping up well. Hot metal from the blast furnace (BF) is

transferred to the BOF through torpedoes. The BOF is operating at 45 minutes per

batch, which will be gradually optimized to 35-40 minutes per batch. It has already

touched a peak of 27 heats per day (against capacity of 36-41 at optimized rate).

Crude steel production was 165kt in January, and is likely to increase to 280kt in

February, with a target of 400ktpm by May 2018. By this time, the second 2.5mtpa

billet caster will have commissioned. This will take told casting capacity from

3.7mtpa to 6.2mtpa and pave the way for full ramp-up of steel-making capacity.

Bottlenecks will shift to rolling capacity at Angul. However, excess semis will be

rolled in Patratu site in Jharkhand.

Raigarh – production rate improving; awaiting approval from Indian Railways:

Crude steel production was ~280kt in January. A similar production is expected in

February, despite fewer days. A total production of 810kt is expected in 4QFY18.

Rail production is about 200kt against nameplate capacity of 600kt. DFCC and Iran

are key orders. JSP is expecting approval from Indian Railways. If successful,

another 140kt of order is possible. The outlook for plate business is also improving

with increasing activity in gas pipeline orders in India.

Tamnar – very competitive fuel cost under PPAs:

The 2x250MW EUP-1 in

merchant and 2x600MW in EUP-2 in PPA/merchant was operating at full capacity

(~50% utilization on the 3,400MW capacity). In EUP-2, it was running 900MW

under long-term PPAs, while the remaining was sold in merchant market

(IEX/DEEP). The fuel cost under PPAs is very competitive at INR1.6-1.7/kWh. Coal

availability under FSA is good. E-auction coal availability remains an issue, but it is

gradually improving. Prices under e-auction are high, as Coal India has stopped

special e-auction for power sector. Coal supply quality under FSA has improved and

grade slippage is no longer an issue.

Volume growth at inflection; maintain Buy:

Looking at the progress at Angul and

Raigarh, we believe our volume estimates of 1.2mt for 4QFY18 (v/s 970kt in 3Q)

and 5.8mt (v/s 3.8mt in FY18) for FY19 appear comfortable. Steel production is at

inflection – we expect 29% CAGR to 6.4mt over FY18-20. Strong long product prices

in India, operating leverage, and timely volume growth augur well for earnings.

Nearly 25% of raw material cost is insulated from input price risk due to captive iron

ore mines and coal linkage. We remain positive on the stock – Buy with a target price

of INR361 (Exhibit 6).

12 February 2018

19

9 February 2018

3QFY18 Results Update | Sector: Capital Goods

Voltas

Neutral

BSE SENSEX

34,006

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

10,455

VOLT IN

Results exceed expectations driven by strong UCP performance

331



Results above expectations:

Sales grew 17% YoY to INR13.7b (in-line) in

198.4 / 3.1

3QFY18. EBITDA rose 34% YoY to INR1.2b; margin stood at 8.6% (+110bp

675 / 333

YoY) v/s our estimate of 7%, led by higher margins and sales contribution

-7/6/53

791.0

(40% in 3QFY18 v/s 34% in 3QFY17) from the UCP segment. PAT stood at

69.7

INR1b (+23% YoY) v/s our estimate of INR0.9b.

CMP: INR600

TP: INR630(+4%)

Financials & Valuations (INR b)

2018E 2019E

Y/E Mar

Net Sales

66.5

75.7

EBITDA

7.1

7.9

PAT

6.0

6.7

EPS (INR)

18.0

20.2

Gr. (%)

16.4

12.4

BV/Sh (INR)

113.2

128.2

RoE (%)

16.9

16.8

RoCE (%)

16.2

16.1

P/E (x)

33.3

29.7

P/BV (x)

5.3

4.7



2020E

86.7

9.0

7.6

23.0

13.8

145.2

16.8

16.2

26.1

4.1



Estimate change

TP change

Rating change



Quarterly Performance (Consolidated)

Y/E March

Sales

Change (%)

EBITDA

Change (%)

As of % Sales

Depreciation

Interest

Other Income

Extra-ordinary Items

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Change (%)

Adj PAT

Change (%)

1Q

18,500

18.7

1,995

52.0

10.8

66

48

357

-9

2,248

651

28.9

1,597

55.7

1,587

54.8

UCP sales rise 32% YoY to INR5.4b; EBIT margin up 240bp YoY:

Room air

conditioner growth of 32% YoY was ahead of our estimate of +15%, driven

by a) channel restocking post GST and b) pre-buy before the implementation

of the new energy ratings for ACs from Jan’18. Market share stood at 23.7%

v/s 21.7% in 3QFY17. Margin improved 240bp YoY, led by a) operating

leverage on higher volumes and b) lower SG&A costs in a lean quarter.

EMP revenue up 7% YoY; margin at 7.1%:

Sales of INR7.5b (+7% YoY) were

below our estimate of INR8b; however, the margin expanded 320bp YoY to

7.1% due to the focus on profitable orders and good execution in

domestic/overseas jobs. VOLT has exposure of INR1.8b for under

construction/completed jobs in Oman and Dubai, where Carillion PLC

(recently declared bankruptcy) is the main contractor along with local

partners. Orders stood at INR5.5b (+24% YoY), with order book at INR45b.

Maintain Neutral; TP at INR630.

Despite intense competitive pressures in

the room AC segment, VOLT has been able to take market share without

sacrificing margins. We would watch out for the company’s (a)

pricing/positioning on inverters with the ratings changes from Jan’18 – a

successful transition would make us turn positive on the stock and b) launch

of washing machines and refrigerators in 2HFY19. Moreover, the projects

business has also stabilized, with a) margins recovering to 5-6% and b) a

revival in the domestic projects business.

INR Million)

Var.

Vs Est

0%

25%

FY17

FY18

FY17

FY18

FY17

2Q

3Q

4Q

1Q

2Q

3QE

4QE

3QE

9,672 11,805 20,351 19,446 10,367 13,747 22,951 60,328 66,511 13,768

-7.0

-6.7

9.7

5.1

7.2

16.5

12.8

5.5

10.2

16.6

687

890 2,219 2,123

857 1,186 2,926 5,791 7,092

951

6.4

58.0

22.7

6.4

24.8

33.3

31.9

33.8

22.5

6.9

7.1

7.5

10.9

10.9

8.3

8.6

12.8

9.6

10.7

6.9

63

60

56

61

61

61

67

245

250

65

33

22

58

35

22

19

34

160

110

20

658

597

386

550

512

170

352 1,998 1,585

450

0

0

-2

-20

0

0

0

11

0

-

1,249 1,405 2,493 2,596 1,287 1,277 3,177 7,395 8,317 1,316

421

437

496

727

343

301 1,041 2,089 2,412

395

33.7

31.1

19.9

28.0

26.6

23.6

32.8

28.2

29.0

30.0

782

815 2,005 1,879

954 1,004 2,138 5,114 5,955

901

20.9

42.2

22.1

17.7

22.0

23.2

6.6

38.8

16.4

10.5

782

815 2,003 1,859

954 1,004 2,138 5,103 5,955

901

20.9

47.9

45.7

17.1

22.0

23.2

6.7

42.6

16.7

10.5

-3%

11%

11%

12 February 2018

20