25 May 2018

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Today’s top research idea

Gail India: EBITDA significantly below estimate; Petchem disappoints

Segmental analysis: Petchem disappoints due to higher input cost



Gas transmission EBIT grew 37% YoY (+6% QoQ) to INR7.1b. Gas transmission

volume stood at 106mmscmd (+5% YoY, -3% QoQ) and implied tariff at

INR1,244/mscm (-8% YoY, -6% QoQ). Base was lower due to one-time pay hike

provisioning.



While petchem sales stood at 191kmt (+3% YoY, +9% QoQ), realization declined

to USD1,322/MT (-6% YoY, +5% QoQ). EBIT stood at INR366m (-46% YoY, -61%

QoQ), hurt by higher input cost in 4QFY18.



Due to higher availability of rich gas, LPG/liq. HC sales stood at 324tmt (+17%

YoY, -1% QoQ). Realization was USD562/mt (+9% YoY, +1% QoQ). EBIT stood at

INR6.6b (+31% YoY, flat QoQ).



Gas trading EBIT fell 41% YoY (-54% QoQ) to INR1.6b, led by trading volumes of

89.2mmscmd (+8% YoY, +2% QoQ) and trading margins of INR197/mscm (-67%

YoY, -53% QoQ). Performance was impacted by higher gas cost in 4QFY18,

which lowers GAIL’s ability to charge higher marketing margin.

Research covered

Cos/Sector

Consumer

GAIL

Pidilite Inds

Key Highlights

Rural consumption gathering pace

EBITDA significantly below estimate; Petchem disappoints

Sales ahead of expectations, EBITDA in-line

Prestige & Above volumes up 15.3% YoY; higher other income drives

United Spirits

adj. PAT beat

United Breweries Stellar numbers, 24% volume growth drives beat on all fronts

L&T Infotech

Traction intact, but upside appears capped for now

Cummins India

Lower-than-expected margins dent results

GSK Pharma

Muted revenue growth; margins stable sequentially

Engineering-led beat; Keeping rating under review until demerger is

KPIT Tech

completed

Other Results

KPIT | REPCO | NELI | KSCL | ENIL | GRAN

Results Expectation BOB | CDH | ENGR | ICEM | JAGP | PAG | PCJL | SHKL | SUNP | TECHM

Chart of the Day: Gail India – EBITDA significantly below estimate; Petchem disappoints

Petchem volumes recovered to 191kt

Realizations up YoY

Source: MOSL, Company

Source: MOSL, Company

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

Govt push for merger of

Vodafone-Idea: new entity can

pay all dues

The government has allowed the

merged entity of Vodafone India

Ltd and Idea Cellular Ltd to clear

dues related to spectrum charges

and licence fees, a departure from

the telecom department’s earlier

stand that the merger will be

approved…

2

Donald Trump cancels 12 June summit with North Korea’s Kim Jong

Un

President Donald Trump cancelled his planned summit with North Korean

leader Kim Jong Un that had been scheduled for 12 June in Singapore,

citing “tremendous anger and open hostility” in recent statements from

Pyongyang. Trump’s decision was communicated on Thursday in a letter to

Kim released by the White House. North Korea hardened its rhetoric

toward the US earlier Thursday, warning it was ready for a “nuclear-to-

nuclear” showdown if the US didn’t follow through on the summit…

3

Windfall oil tax on ONGC in

offing to soften fuel prices

The government may levy a

windfall tax on oil producers like

Oil and Natural Gas Corp (ONGC)

as part of a permanent solution it

is working on for moderating the

spiralling retail prices of petrol and

diesel…

4

The telecom department (DoT) on

Thursday cleared Idea Cellular’s

sale of nearly 9,000-odd

standalone towers to a local arm

of American Tower Corp (ATC) for

Rs 4,000 crore. A top DoT official

told ET that the “Idea-ATC captive

towers deal has been approved”…

DoT clears Idea-ATC tower

deal

5

Bank credit grows at 12.64%,

deposits at 7.61%

Banks’ credit grew by 12.64%

year-on-year to Rs8,551,099

crore in the fortnight ended 11

May 2018, according to Reserve

Bank of India (RBI) data. In the

similar fortnight ended 12 May

2017, banks’ advances stood at

Rs7,590,941 crore…

6

Rs 130 bn tenders withdrawn

or cancelled to promote

Make in India products

Government tenders worth

about Rs 130 billion were either

cancelled or withdrawn and re-

issued after the Department of

Industrial Policy and Promotion

(DIPP) stepped in to change their

conditions for promoting 'made

in India' goods, a top official

said…

7

Govt hikes customs duty on

wheat to 30% to curb cheaper

imports

The government has raised the

customs duty on wheat from 20

% to 30 % in order to curb

cheaper imports and protect

domestic growers. The import

duty on walnut shell has also

been increased from 30 % to 100

%, according to a late night

notification issued by the…

25 May 2018

2

Sector Update | 25 May 2018

Consumer

Rural consumption gathering pace

There has been an

increase in demand

from rural. Rural is

doing very well now. We

saw an improvement in

2017 and in 2018, we

are really gung-ho

about rural. Rural is the

economy that is going

to grow pretty fast, said

Parle Products Category

head BK Rao.

HUVR, HMN, BRIT our top rural picks from a medium-term perspective

Strong rural sales momentum reinforces positive outlook







For the third consecutive quarter, all consumer companies under coverage that

have rural reach of over 30% have stated that rural growth has outpaced urban

growth.

Rural demand had been the fulcrum of the strong volumes witnessed by the

sector in the years leading up to FY14, but had slowed down in FY15 and FY16

because of drought, and in FY17 because the impact of demonetization had

negated the potential positive benefits of a normal monsoon.

While urban volume growth has remained fairly resilient at mid-single-digit

levels, rural growth, which was growing at 1.5-2x urban growth in the years

leading up to FY14, declined to flat and even negative levels in the years that

followed. This continued be the case until 1QFY18, which was also affected by

channel disturbances ahead of GST implementation from July.

What are the factors leading to growth?



Patanjali's

spokesperson, SK

Tijarawala said, "The

rural market has picked

up. Today, someone

from the rural area is

also looking to consume

the same things as the

urban consumer. The

difference between

urban living and rural

living has been reduced.

GST has also played a

role in this as it has

made the entire nation

a single market.

Normal monsoon in FY18



Low base



Increase in MSPs in FY18



Increased rural allocation in recent budgets

Notably, the recovery in the past three quarters has happened despite disruptions in

the wholesale channel due to GST implementation. The wholesale channel acts as a

feeder for almost the entire rural demand in the sector.

Outlook appears promising

Four factors in particular brighten the prospects of a further recovery in rural

demand to earlier high levels:



Initial reports by both Skymet and IMD indicate that the monsoon is likely to be

normal in FY19.



Unlike the preceding two years, there will (hopefully) be no disturbances like

demonetization/GST implementation, impacting purchasing power or product

availability.



Likely spate of new launches in FY19, as demand trajectory is improving.



Distribution expansion by most companies over the past 3-4 years will start

bearing fruit.

Valuation and view

Link for above articles:

http://bestmediainfo.com/2018/

05/ad-spend-may-get-a-boost-as-

consumption-picks-up-in-rural/

We have BUY ratings on all four stocks that have high rural exposure – Hindustan

Unilever (HUVR), Colgate-Palmolive (CLGT), Dabur India (DABUR) and Emami (HMN).

HUVR, HMN and BRIT remain our top rural picks from a medium-term perspective.

While Britannia is currently an urban company (Rural is only around 20% of sales) a

combination of (a) its remarkable efforts in distribution ramp up- both in direct and

total reach over the past four years and (b) its success in its new strategy of Low

Unit Packs of its premium products as well as ‘Tiger’ Creams have resulted in

tremendous growth in the hinterland states in recent years with FY18 being

particularly strong. Management is targeting 33% of sales from rural.

25 May 2018

3

Financial & Valuation (INR b)

Y/E March

2018 2019E

Sales

339.3 387.6

EBITDA

72.8

87.4

Adj. PAT

53.0

62.7

Adj. EPS INR

24.5

29.0

EPS Gr. (%)

24.7

18.3

RoE (%)

78.1

85.5

RoCE (%)

100.2 112.4

P/E (x)

64.0

54.1

2020E

442.1

105.9

76.7

35.4

22.3

96.1

126.3

44.2



Rationale for Hindustan Unilever (HUVR)

Five key trends are particularly relevant for HUVR, resulting in an elevation in its

earnings growth trajectory compared to the past (~20% EPS CAGR over FY17-20E

against 6-10% for the preceding 3/5/10 years before FY17: (i) its rapidly improving

adaptability to market requirements, (ii) its recognition of Naturals as a key sub-

segment across categories, (iii) continuing strong trend towards premiumization; (iv)

extensive plans to employ technology, and (v) renewed emphasis on margin growth

through ZBB and other cost saving efforts. Allied with best-of-breed RoE, HUVR

remains our sole BUY in the large-cap FMCG universe.

Financial & Valuation (INR b)

Y/E March

2018 2019E

Sales

25.3

29.9

EBITDA

7.2

9.0

Adj. PAT

5.5

6.7

Adj. EPS INR

24.3

29.6

EPS Gr. (%)

-8.5

21.9

RoE (%)

29.2

31.3

RoCE (%)

27.8

34.3

P/E (x)

43.2

35.4

Financial & Valuation (INR b)

Y/E March

2018 2019E

Sales

98.3 117.8

EBITDA

14.2

18.6

Adj. PAT

10.0

12.9

Adj. EPS INR

83.6 107.4

EPS Gr. (%)

13.5

28.4

RoE (%)

32.9

35.5

RoCE (%)

28.0

30.5

P/E (x)

68.3

53.2

2020E

34.5

10.5

8.1

35.6

20.4

33.9

39.6

29.4

2020E

139.8

23.0

16.0

133.2

24.0

39.9

34.7

42.9



Rationale for Emami (HMN)

We believe HMN remains a credible long-term play due to (a) healthy growth likely

in existing product categories where it has dominant market share, (b) best-of-breed

R&D spend and A&P spend, resulting innovative products as well as ability to back

up innovation with strong marketing, and (c) much-needed efforts on improving

direct distribution reach. At 29.4x FY20E EPS, HMN is inexpensive relative to peers,

particularly given the healthy long-term earnings growth opportunity and mid-30s

return ratios.



Rationale for Britannia (BRIT)

Rapidly expanding distribution, continuing investments in R&D and significant

expansion of its own manufacturing indicate the immense confidence that

management has on the growth prospects. The opportunity beyond biscuits is also

big. Continuing premiumization, significant incremental cost savings and a favorable

commodity cost outlook indicate the bright prospects for further EBITDA margin

expansion. We have a Buy rating with a TP of INR6,400 (48x Mar’20 EPS, at a 15%

premium to three-year average due to improving visibility on both volume recovery

and margin growth).

Financial & Valuation (INR b)

Y/E March

2018 2019E

Sales

41.9

47.1

EBITDA

11.1

13.0

Adj. PAT

6.8

7.9

Adj. EPS INR

25.0

29.2

EPS Gr. (%)

18.0

16.5

RoE (%)

48.7

50.5

RoCE (%)

47.6

49.4

P/E (x)

49.3

42.3



2020E

53.8

15.2

9.4

34.6

18.5

58.0

56.7

35.7

Rationale for Colgate-Palmolive (CLGT)

We are optimistic on CLGT’s earnings prospects, given (1) its impressive execution

after a delay in the herbal portfolio launch – the two products launched have seen

good response, and more products will be rolled out under the

Vedshakti

umbrella,

and (2) its high rural market share of ~60% (rural contributes 40%+ of its sales),

which makes it a promising play on rural recovery. Patanjali had severely impacted

business initially, but the threat is perceptibly reducing. Even on FY18 EPS, CLGT

trades at ~10% discount to our ex-cigarette and alcohol consumer peer valuations.

With return ratios superior to peers barring HUVR (return ratios will only improve on

better utilization of expanded capacity and with earnings growth apparently back on

track), such discounts are unwarranted, in our view.

Financial & Valuation (INR b)

Y/E March

2018 2019E

Sales

77.5

88.3

EBITDA

16.2

18.7

Adj. PAT

13.7

15.9

Adj. EPS INR

7.8

9.0

EPS Gr. (%)

7.2

16.0

RoE (%)

25.9

26.5

RoCE (%)

22.9

23.8

P/E (x)

47.4

40.8



2020E

100.8

21.5

18.3

10.4

15.5

28.0

25.4

35.3

Rationale for Dabur India (DABUR)

The much-vaunted earnings revival in the sector appears poised to come through,

and rural-dependent plays are likely to be at the vanguard in FY19. DABUR has

addressed the market share loss issue in its two key categories of Juices and Honey,

while Oral Care continues to do very well. With an expected EPS CAGR of ~16%

going forward (v/s less than 12% CAGR over FY14-17), we value the stock at 42x

March 2020E EPS (10% premium to three-year average) and derive a target price of

INR435. Relative to other three rural plays, however, DABUR has a much more

diversified product portfolio and is not dominant in many of them. Weaker

competitive advantage, therefore, results in some risks to earnings projections. RoE

is also weaker than the peers mentioned above.

4

25 May 2018

24 May 2018

4QFY18 Results Update | Sector: Oil & Gas

GAIL India

BSE SENSEX

34,663

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

10,514

GAIL IN

1,691

786.5 / 12.2

389 / 260

-8/-16/-10

1575.0

46.4

CMP: INR317

TP: INR303 (-5%)

Upgrade to Neutral

EBITDA significantly below estimate; Petchem disappoints

Financials & Valuations (INR b)

Y/E Mar

2018 2019E

Net Sales

536.6

568.5

EBITDA

76.3

88.3

PAT

46.0

53.6

EPS (INR)

20.4

23.8

Gr. (%)

20.5

16.6

BV/Sh (INR)

182.1

197.0

RoE (%)

11.8

12.8

RoCE (%)

10.2

11.1

P/E (x)

15.5

13.3

P/BV (x)

1.7

1.6

EV/EBITDA (x)

8.8

7.8

2020E

654.4

95.7

58.6

26.0

9.4

213.3

12.9

11.0

12.2

1.5

7.2

Estimate change

TP change

Rating change

4QFY18 EBITDA stood at INR17b (+11% YoY, -14% QoQ), below our estimate of

INR21b, led by lower petchem earnings. Adj. PAT declined 4% YoY (-20% QoQ) to

INR10b (est. of INR12b) – the difference at PAT level declined due to lower

interest cost of INR333m (est. of INR1b; +50% YoY, -30% QoQ) and higher other

income of INR2.8b (est. of INR1.8b; -45%YoY, -9% QoQ). For FY18, EBITDA grew

by 21% YoY to INR76b and PAT grew by 32% YoY to INR46b.

Segmental analysis: Petchem disappoints due to higher input cost



Gas transmission EBIT grew 37% YoY (+6% QoQ) to INR7.1b. Gas

transmission volume stood at 106mmscmd (+5% YoY, -3% QoQ) and implied

tariff at INR1,244/mscm (-8% YoY, -6% QoQ). Base was lower due to one-

time pay hike provisioning.



While petchem sales stood at 191kmt (+3% YoY, +9% QoQ), realization

declined to USD1,322/MT (-6% YoY, +5% QoQ). EBIT stood at INR366m (-46%

YoY, -61% QoQ), hurt by higher input cost in 4QFY18.



Due to higher availability of rich gas, LPG/liq. HC sales stood at 324tmt

(+17% YoY, -1% QoQ). Realization was USD562/mt (+9% YoY, +1% QoQ). EBIT

stood at INR6.6b (+31% YoY, flat QoQ).



Gas trading EBIT fell 41% YoY (-54% QoQ) to INR1.6b, led by trading volumes

of 89.2mmscmd (+8% YoY, +2% QoQ) and trading margins of INR197/mscm

(-67% YoY, -53% QoQ). Performance was impacted by higher gas cost in

4QFY18, which lowers GAIL’s ability to charge higher marketing margin.

Valuation view:

US volumes for CY18 have been placed through various derivate

contracts, we are concerned about profitable placement of the contracts in light

of the long-term nature of the expensive contracts. The stock trades at 12.2x

FY20E EPS of INR26. We value GAIL using SOTP at INR303/share, implying 5%

downside. The core business is valued at 9x FY20E EPS, adjusted for other

income. The stock has corrected sharply ~10% since last earnings result. Thus,

purely on valuation basis, we upgrade the stock to

Neutral

from Sell.

FY17

FY18

4Q

134,217

15.4

15,250

11.4

3,471

220

4,981

-7,880

8,659

6,058

70.0

2,602

10,482

36.1

4.6

102

186

1Q

114,065

6.7

18,994

16.7

3,451

1,014

1,158

0

15,687

5,431

34.6

10,256

10,256

21.3

4.5

100

131

2Q

124,097

4.7

20,694

16.7

3,425

926

2,929

0

19,273

6,177

32.0

13,096

13,096

41.6

5.8

106

175

3Q

144,143

19.0

19,699

13.7

3,668

479

3,027

0

18,580

5,957

32.1

12,622

12,622

28.4

5.6

109

176

4Q

154,307

15.0

16,953

11.0

3,608

333

2,756

277

16,044

5,835

36.4

10,209

10,060

-4.0

4.5

106

191

FY17

480,743

-6.9

63,152

13.1

13,968

4,794

12,705

-2,987

54,108

19,079

35.3

35,029

38,016

65.4

16.9

100

578

FY18

536,612

11.6

76,339

14.2

14,151

2,751

9,870

277

69,584

23,400

33.6

46,184

46,035

21.1

20.4

105

673

FY18

4QE

147,458

9.9

21,105

14.3

3,724

1,019

1,757

0

18,120

6,161

34.0

11,959

11,959

14.1

5.3

110

158

Quarterly Performance

Y/E March

Net Sales

Change (%)

EBITDA

% of Net Sales

Depreciation

Interest

Other Income

Extraordinary item*

PBT

Tax

Rate (%)

PAT

Adj PAT

Change (%)

EPS (INR)

Key Assumptions

Gas Trans. volume (mmsmd)

Petchem sales ('000MT)

E: MOSL Estimates

1Q

106,866

-14.6

15,732

14.7

3,354

1,774

1,362

4,893

16,858

3,506

20.8

13,352

8,459

99.4

3.8

96

110

(INR Million)

2Q

118,582

-15.8

15,155

12.8

3,563

1,198

3,361

0

13,755

4,508

32.8

9,247

9,247

109.9

4.1

101

136

3Q

121,079

-9.5

17,015

14.1

3,579

1,601

3,002

0

14,836

5,007

33.7

9,829

9,829

48.0

4.4

103

146

Var.

vs est

5%

-20%

-3%

-67%

57%

-11%

-5%

-15%

-16%

-16%

-3%

21%

25 May 2018

5

RESULTS

FLASH

24 May 2018

Results Flash | Sector: Consumer

Pidilite

Buy

BSE SENSEX

34,663

S&P CNX

10,514

CMP: INR1,080

TP: INR1,155

Conference Call Details

Date:

25 May 2018

Time:

4:00pm IST

Dial-in details:

+91-22-6280 1145

th

Sales ahead of expectations, EBITDA in-line

Consolidated performance



Reported net sales grew 14.7% YoY to INR14.9b (est. of INR14.1b). Reported

consumer bazaar segment revenues were up 6% YoY to INR12.3b, with

segmental EBIT growing 10.5% YoY to INR2.8b. Segmental EBIT margin

expanded 80bp YoY to 23.0%. Reported industrial segment grew by 7.3% to

INR2.7b, with segment margin expanding 100bp to 17.2%.



Gross margin shrank 110bp YoY to 52.1%. Lower staff costs (-80bp YoY to

11.7%) were offset by higher other expenses (+120bp YoY to 21.9%). This, along

with a weak gross margin, led to EBITDA margin contraction of 150bp YoY to

18.4% (est. of 19.6%).



EBITDA grew 6.2% YoY to INR2.7b (est. of INR2.8b). Adj. PAT grew 59.3% YoY to

INR2.5b (est. of INR1.9b).



FY18 highlights:

Sales rose 8.2% to INR60.8b. EBITDA increased 6.5% to

INR13.4b. EBITDA margin shrunk 40bp to 22.1%. Adj. PAT rose 12.1% to

INR9.7b.

Standalone performance



Reported net sales grew 12.5% YoY to INR12.7b. Reported consumer bazaar

segment revenues were up 2.4% YoY to INR10.2b, with segment EBIT growing

3.0% to INR2.7b. Segmental EBIT margin grew 20bp YoY to 26.4%.



Domestic consumer bazaar segment volumes are likely to have grown by 14%

YoY. Reported industrial segment grew by 7.3% to INR2.7b, with the segment

margin expanding 100bp to 17.2%.



Gross margin contracted 90bp YoY to 52.9%. Staff costs to sales were flat YoY at

11.0%, and increase in other expenses (+160bp YoY to 21.9%) led to EBITDA

margin contraction of 240bp YoY to 20%.



EBITDA grew 0.4% YoY to INR2.6b. Adj. PAT grew 78.7% YoY to INR2.4b.



4QFY18 imputed subsidiary

revenues increased 29.9% YoY to INR2.2b.

Financials & Valuations (INR b)

2018

2019E

Y/E Mar

Net Sales

60.8

71.3

EBITDA

13.4

15.4

NP

9.6

10.6

18.9

20.8

EPS (INR)

13.2

17.0

EPS Gr. (%)

57.0

51.9

P/E

2020E

82.2

17.7

12.1

23.9

14.9

45.1

Consolidated - Quarterly Earning Model

Y/E March

Net Sales

YoY Cha nge (%)

Tota l Expendi ture

EBITDA

Ma rgi ns (%)

Depreci a ti on

Interes t

Other Income

PBT

Ta x

Ra te (%)

Adj PAT

YoY Cha nge (%)

Ma rgi ns (%)

E: MOSL Estimates

1Q

15,694

6.8

11,754

3,939

25.1

258

35

241

3,887

1,174

30.2

2,713

16.3

17.3

FY17

2Q

3Q

14,177 13,344

7.5

-0.3

10,963 10,477

3,214

2,866

22.7

21.5

303

295

26

30

324

272

3,209

2,814

912

793

28.4

28.2

2,297

2,020

11.9

1.5

16.2

15.1

4Q

12,954

4.9

10,375

2,579

19.9

296

48

286

2,520

971

38.5

1,549

-7.5

12.0

1Q

15,203

-3.1

11,994

3,210

21.1

313

37

432

3,292

1,033

31.4

2,260

-16.7

14.9

FY18

2Q

3Q

15,299 15,429

7.9

15.6

11,538 11,727

3,761

3,703

24.6

24.0

296

292

39

41

337

195

3,763

3,564

1,245

1,193

33.1

33.5

2,518

2,370

9.6

17.3

16.5

15.4

FY17

4Q

14,853

14.7

12,114

2,739

18.4

298

38

521

2,924

457

15.6

2,467

59.3

16.6

56,168

4.8

43,570

12,598

22.4

1,151

139

1,123

12,430

3,851

31.0

8,579

6.7

15.3

FY18

60,784

8.2

47,372

13,412

22.1

1,199

155

1,484

13,542

3,927

29.0

9,615

12.1

15.8

(INR Million)

FY18

4QE

14,122

9.0

11,360

2,762

19.6

322

42

277

2,674

783

29.3

1,891

22.1

13.4

Var.

(%)

5.2

-0.8

9.3

30.5

25 May 2018

6

RESULTS

FLASH

United Spirits

BSE SENSEX

34,663

S&P CNX

10,514

24 May 2018

Results Flash | Sector: Consumer

CMP: INR3,122



TP: INR3,510

Neutral

Conference Call Details

Date:

25 May 2018

Time:

12:00pm IST

Dial-in details:

+91-22-7115 8151

th

Prestige & Above volumes up 15.3% YoY; higher other income drives adj.

PAT beat

UNSP’s standalone net sales grew 7.3% YoY

to INR21.7b (est. of INR20.1b),

with a 2% YoY decline (est. of -9%) in overall volumes on a base of 8.2%

decline.

Prestige & Above volumes grew 15.3% YoY,

while Popular volumes fell 13.3%

YoY. Underlying* overall net sales grew 9% YoY. Underlying* net sales of

Prestige & Above rose 14% YoY and of Popular grew 2% YoY in 4QFY18.

Gross margin expanded 460bp YoY

(+140bp QoQ) to 48.8%, led by price

increase, productivity initiatives, favorable mix and operating model changes,

offsetting the adverse impact of GST. Underlying* gross margin expanded

260bp YoY. High operating costs as % of sales – advertising expenses (+200bp

YoY to 10.2%), staff costs (+250bp YoY to 8.5%) and other expenses (+30bp YoY

to 17.5%) – led to

EBITDA margin contraction of 30bp YoY.

Underlying*

EBITDA margin shrank 280bp YoY.

EBITDA grew 5.1% to INR2.7b (est. of INR2.7b). Adj. PAT grew 83.6% to INR1.9b

(est. of INR1.3b).

FY18 performance:

Volumes declined 13%. Reported sales, EBITDA and adj.

PAT grew -4.4%, -2.3% and 24%, respectively. Gross and EBITDA margin

expanded 460bp and 30bp YoY to 47.5% and 12%, respectively. Underlying*

net sales were up 1%. Underlying gross margin expanded 290bp, while EBITDA

margin stood flat.



Financials & Valuations (INR b)

2018 2019E 2020E

Y/E Mar

Net Sales

81.7

95.7

112.3

EBITDA

10.2

14.4

18.5

NP

5.6

8.3

11.4

EPS (INR)

38.2

56.9

78.5

EPS Gr. (%)

43.0

74.3

38.1

BV/Sh. (INR) 172.3 254.7 350.6

RoE (%)

22.2

22.3

22.4

RoCE (%)

13.5

16.7

18.9

P/E (x)

81.6

57.1

41.4

P/BV (x)

18.1

12.8

9.3







*Underlying movement excludes the one off impact of operating model changes,

customer claim arising out of legacy commercial terms last year and restructuring

costs.

25 May 2018

7

RESULTS

FLASH

United Breweries

BSE SENSEX

34,663

S&P CNX

10,514

24 May 2018

Results Flash | Sector: Consumer

CMP: INR1,180

TP: INR1,450

Buy

Stellar numbers, 24% volume growth drives beat on all fronts

4QFY18 performance



Net sales grew 32% YoY off a weak base to INR14.7b (est. of INR13.7b).

EBITDA more than doubled YoY to INR2.1b (est. of INR1.8b). Adj. PAT grew

from INR67m in 4QFY17 to INR909m (est. of INR693m) in 4QFY18.



Volumes grew by a strong 24% YoY, with continued market share gains

(industry grew at 22%).



Demand was impacted in the base quarter ahead of the highway ban in two

states (with both industry and UBBL reporting 13% volume decline for

4QFY17). Growth was healthy despite the absence of supply in West Bengal

due to the lack of clarity on the new excise structure.



Gross margin expanded 150bp YoY to 52.8% in 4QFY18. Strong sales growth

meant that employee costs were down 50bp YoY to 7.5% and other

expenses were down 300bp to 31.2%. Consequently, EBITDA margin

expanded 510bp YoY to 14.2% (est. of 13.1%).

FY18 performance



Net sales were up 18.6% YoY to INR56.2b. EBITDA was up 40.5% YoY to

INR9b, as the margin expanded 250bp YoY to 16%. PAT was up 71.6% YoY to

INR3.9b.



Full-year volume growth was 10%, ahead of industry growth of 7%. This is

the second consecutive year of market share gain for UBBL.



Market share gains were registered in most large states like Telangana,

Andhra Pradesh, Rajasthan, Orissa, Tamil Nadu and Karnataka.



Company announced in the press release that it expects mid-single-digit

industry volume growth in FY19 as well.



In view of the improved demand scenario, management expects to increase

capex by 50% over the current capex of around INR2b.

Conference Call Details

Date:

30 May 2018

Time:

4:00pm IST

Dial-in details:

+91-22-6280 1384

th

Financials & Valuations (INR b)

Y/E Mar

Net Sales

EBITDA

NP

EPS (INR)

EPS Gr. (%)

P/E (x)

P/BV (x)

2018

56.2

9.0

3.9

14.9

71.5

79.3

11.8

2019E

63.5

10.5

4.6

17.4

23.9

67.7

10.2

2020E

73.0

13.0

6.0

22.9

31.2

51.6

8.7

Standalone - Quarterly Earning Model

Y/E March

Net Sales

YoY Cha nge (%)

Tota l Expendi ture

EBITDA

YoY Cha nge (%)

Ma rgi ns (%)

Depreci a ti on

Interes t

Other Income

PBT

Ta x

Ra te (%)

MI & P/L of As s o. Cos .

Adj PAT

YoY Cha nge (%)

Ma rgi ns (%)

E: MOSL Es ti ma tes

1Q

15,642

7.5

12,733

2,909

17.1

18.6

637

148

136

2,260

790

34.9

0

1,471

20.4

9.4

FY17

2Q

3Q

10,368 10,222

-3.3

-6.8

9,156

8,942

1,212

1,280

-10.3

-28.9

11.7

12.5

702

698

141

153

8

330

376

759

106

274

28.1

36.1

0

0

271

485

-48.1

-31.9

2.6

4.7

4Q

11,127

-8.4

10,116

1,011

-21.3

9.1

833

144

43

76

9

11.7

0

67

-87.1

0.6

1Q

16,742

7.0

13,559

3,184

9.4

19.0

649

142

63

2,456

837

34.1

0

1,619

10.1

9.7

FY18

2Q

3Q

4Q

12,764 11,971 14,693

23.1

17.1

32.0

10,545 10,445 12,611

2,219

1,526

2,082

83.1

19.3

105.9

17.4

12.7

14.2

650

650

648

127

93

114

12

8

48

1,454

791

1,368

515

317

459

35.4

40.1

33.6

0

0

0

938

474

909

246.9

-2.3 1,250.4

7.4

4.0

6.2

FY17

47,341

-2.2

40,930

6,412

-7.3

13.5

2,870

587

516

3,472

1,178

33.9

0

2,293

-23.0

4.8

FY18

56,170

18.6

47,159

9,011

40.5

16.0

2,596

477

130

6,068

2,128

35.1

4

3,936

71.6

7.0

FY18

4QE

13,742

23.5

11,945

1,796

78

13.1

769

146

62

943

249

26.5

0.0

693

930.3

5.0

Variance

6.9%

15.9%

45.1%

31.1%

25 May 2018

8

24 May 2018

4QFY18 Results Update | Sector: Technology

L&T Infotech

BSE SENSEX

34,663

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

10,514

LTI IN

172

259.4 / 3.8

1755 / 725

10/67/103

169.0

17.0

CMP: INR1,690

TP: INR1,700(+1%) Downgrade to Neutral

Traction intact, but upside appears capped for now

Financials & Valuations (INR b)

2018 2019E

Y/E Mar

73.1

91.1

Net Sales

12.5

16.4

EBITDA

10.6

14.4

PAT

66.3

82.3

EPS (INR)

19.6

24.0

Gr. (%)

220.6

283.1

BV/Sh (INR)

33.1

32.7

RoE (%)

31.2

36.4

RoCE (%)

25.1

20.3

P/E (x)

7.6

5.9

P/BV (x)

2020E

104.8

19.2

16.3

92.9

13.0

353.7

29.2

34.0

17.9

4.7

Estimate change

TP change

Rating change

All-round momentum intact…



LTI’s 4.5% QoQ CC revenue growth exceeded our estimate of +3.5%. EBITDA

margin of 17.7% (est. of 17.1%) expanded 60bp QoQ. PAT of INR3.4b was up

20% YoY (in-line), as lower other income offset the operational beat.



For FY18, LTI clocked an industry leading growth rate of 14.7% YoY CC. Due

to currency headwinds, the margin for the year contracted by 180bp to

17.7%. However, hedges at >INR71/USD resulted in foreign exchange gains

of INR3.4b (23% of PBT) in FY18, leading to PAT growth of 20%.

…and traction remains broad-based



Growth in FY18 has been broad-based, with five out of seven verticals (65%

of revenue) growing in strong double-digits (13-30% YoY). Although there

was some weakness in Insurance, it is likely to be short-lived.



This, along with 42% YoY growth in Digital (now 33% of revenue) and

healthy deal wins, provides visibility of continued momentum in FY19 – as

evident from the 18.7% YoY CC run-rate the company is at as of 4Q.

Valuation view – upside capped in the near term



Given the strong exit and the likelihood of continued traction, even a 3%

CQGR (v/s 5% in FY18) would lead to 18% YoY growth in FY19. Furthermore,

INR depreciation would propel margin expansion, although that wanes

because of lower hedge gains.



Given the strong performance and adjustments to our currency estimates

(-3%), we have upgraded our earnings estimate by 12/8% for FY19/20.



Despite this, LTI’s CMP discounts forward earnings by 18x for FY18-20 USD

revenue/earnings CAGR of 16/18%. Although LTI’s performance would be in

the top quartile, in our view, further upside from current levels may be

capped from a one-year-forward perspective. Peers (MPHL, HEXW, MTCL)

demonstrating similarly traction are trading at the same valuation level.



Our price target of INR1,700 discounts forward earnings by 18x – and we are

changing our rating to Neutral, given the implied one-year upside. However,

we would turn buyers on dips.

3Q

245

2.3

16,667

12.1

34.3

16.2

3,020

18.1

15.3

597

21.2

2,481

6.7

10.5

14.2

20,605

78.1

18.1

52.3

4Q

254

3.7

16,772

7.7

35.8

16.8

3,190

19.0

16.5

503

22.3

2,547

2.7

11.4

14.6

21,023

78.3

16.9

51.3

1Q

259

2.0

16,707

7.4

33.8

17.0

2,799

16.8

14.4

1,084

23.4

2,673

4.9

13.3

15.3

22,321

77.7

14.7

53.2

FY18

2Q

271

4.4

17,509

9.3

33.9

17.1

2,943

16.8

14.5

1,017

23.2

2,730

2.1

17.4

15.6

22,554

79.6

15.0

53.4

FY17

3Q

294

8.5

18,837

13.0

33.3

16.2

3,215

17.1

14.9

883

23.4

2,829

3.6

14.0

16.2

23,394

80.3

14.6

53.8

4Q

309

5.3

20,012

19.3

33.5

15.9

3,537

17.7

15.9

1,118

21.3

3,380

19.5

32.7

15.8

24,139

79.9

14.8

54.3

970

9.3

65,009

11.2

35.2

16.3

12,303

18.9

16.2

1,835

21.4

9,709

5.9

55.5

21,023

78.1

48.3

FY18

1,132

16.7

73,065

12.4

33.6

16.5

12,494

17.1

15.0

4,101

22.8

11,609

19.6

66.3

24,139

79.4

53.7

(INR Million)

Est.

Var. (% /

4QFY18

bp)

305

1.2

4.0

127

19,648

1.9

17.1

217

34.1

(53)

17.0

(114)

5.5

3,353

17.1

61

15.6

24

1,330

(16.0)

23.4

0.2

3,373

19.2

25

32.4

28

19.3

24,314

(0.7)

81.0

(110)

54.8

(53)

Quarterly Performance

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Margin (%)

Other income

ETR (%)

Adj PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Util incl. trainees (%)

Attrition (%)

Offshore rev. (%)

E: MOSL Estimates

1Q

231

0.6

15,550

16.6

35.3

15.7

3,050

19.6

16.9

372

21.2

2,359

3.2

35.1

13.5

19,292

77.4

19.5

51.9

FY17

2Q

240

3.7

16,020

9.1

35.4

16.4

3,044

19.0

16.1

365

21.0

2,326

-1.4

21.3

13.3

21,074

78.7

18.5

51.2

25 May 2018

9

RESULTS

FLASH

Cummins India

BSE SENSEX

34,663

S&P CNX

10,514

14 May 2018

Results Flash | Sector: Capital Goods

CMP: INR718





TP:INR1,040(+45%)

Buy

Conference Call Details

Date:

25

May 2018

Time:

11:00am IST

Dial-in details:

+91-22-3945 5000

Pin:39082031#

th

Lower-than-expected margins dent results

Sales of INR12.3b (+4% YoY) were in line with our estimate of INR12.2b

(consensus: INR12.9b).

Gross margin of 34.9% (flat YoY, -200bp QoQ) was below our estimate of

36.4%. The contraction in the margin can be attributed to RM pressures,

inability to take price hikes in domestic DG segment, and adverse product mix.

EBITDA stood at INR1.73b (+2% YoY; miss v/s estimate of INR1.9b), with the

margin of 14% (-40bp YoY) also below our estimate of 15.4%.

Other income stood at INR664m v/s our estimate of INR564m.

Tax rate was at 23% v/s our estimate of 19%.

PAT of INR1.61b (+2% YoY) was below our estimate of INR1.68b (consensus:

INR1.7b).





Financials & Valuations (INR b)

FY18 FY19E

Y/E Mar

Net Sales

50.8

59.6

EBITDA

7.3

9.9

NP

7.1

8.6

EPS (INR)

23.5

30.9

EPS Gr. (%)

-11.2

31.2

BV/Sh. (INR)

143.8 155.7

RoE (%)

18.3

20.6

RoCE (%)

16.1

19.7

Div. Yield

1.9

2.3

FY20E



68.8



11.9

10.1

36.6

Valuation view:

18.6

The stock trades at 23/20x FY19/20E EPS of INR31/36.6. We have a

Buy

rating on

169.8

22.5

the stock with a target price of INR1,040, valuing the business at 25x FY20E EPS.

21.5

2.7

KKC: Quarterly Performance (Standalone)

Y/E March

Sales

Change (%)

EBITDA

Change (%)

As of % Sales

Depreciation

Interest

Other Income

PBT

Tax

Effective Tax Rate (%)

Adjusted PAT

Change (%)

Reported PAT

Change (%)

1Q

12,590

-3.9

2,063

-6.9

16.4

206

21

416

2,252

440

19.5

1,812

(14.3)

1,812

(14.3)

FY17

FY18

FY17 FY18 Vs Est.

2Q

3Q

4Q

1Q

2Q

3Q

4Q

4Q

12,790 13,550 11,844 13,408 11,539 13,547 12,332 50,773 50,825 12,227

7.1

19.0

11.1

6.5

-9.8

0.0

4.1

7.8

0.1

3.2

1,990 2,265 1,700 1,953 1,675 1,967 1,731 8,018 7,325 1,877

-1.4

31.1

-4.9

-5.4 -15.8

-13.2

1.8

14.6 -12.3

10.4

15.6

16.7

14.4

14.6

14.5

14.5

14.0

15.8

14.4

15.4

209

225

208

208

220

237

273

848

938

316

43

55

49

42

38

34

34

168

148

54

692

461

511

583

536

501

664 2,080 2,285

564

2,430 2,446 1,954 2,286 1,953 2,197 2,088 9,082 8,523 2,072

461

19.0

1,969

(0.5)

1,969

(0.5)

466

19.0

1,981

11.3

1,981

11.3

369

18.9

1,585

(5.1)

1,585

(5.1)

625

27.4

1,660

(8.4)

2,222

22.6

424

21.7

1,529

(22.3)

1,529

(22.3)

475

21.6

1,722

(13.1)

1,722

(13.1)

475

22.8

1,612

1.7

1,612

1.7

1,736

19.1

7,346

(2.8)

7,346

(2.8)

2,000

23.5

6,524

(11.2)

6,524

(11.2)

394

19.0

1,678

5.9

1,678

5.9

(INR m)

Var.

(%)

0.9%

-7.8%

0.7%

-3.9%

-3.9%

25 May 2018

10

24 May 2018

Q4FY18 Results Update | Sector: Healthcare

GSK Pharma

Neutral

BSE SENSEX

34,663

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

10,514

GLXO IN

Muted revenue growth; margins stable sequentially

84.7



4QFY18 sales declined ~2% YoY (+6% QoQ) to INR7.5b (est. of INR7.4b).

202.3 / 3.1

Other income came in lower at INR183m v/s INR351m in 4QFY17. EBITDA

2700 / 2040

rose significantly by ~33% YoY to INR1.5b, primarily due to a lower base

-2/-7/-15

29.0

(4QFY17 was impacted by regulatory issues). EBITDA margin stood at 20.7%

25.0

(+540bp YoY). Adj. PAT rose ~21% YoY to INR1.1b, led by operational

CMP: INR2,388

TP: INR2,500(+5%)

Financials & Valuations (INR b)

2018

2019E

Y/E Mar

Net Sales

29.0

32.1

EBITDA

5.1

6.4

PAT

3.3

4.8

EPS (INR)

39.3

56.9

Gr. (%)

14.4

44.9

BV/Sh (INR)

197.8

174.3

RoE (%)

19.9

32.7

RoCE (%)

18.1

30.6

P/E (x)

60.8

42.0

P/BV (x)

12.1

13.7

leverage.

2020E



Margin at healthy level:

Sales declined 2% YoY. Although revenues

declined marginally, adjusting for GST impact and prior-year disposals,

revenue growth was in double-digits with strong volume growth. Margin

improvement of 540bp YoY is primarily due to a lower base, which was

impacted by regulatory issues and price erosion. GLXO’s change in strategy

of focused brands and portfolio led to an improved product mix and a

healthy margin. During the quarter, GLXO launched Biopatch. The company

expects the EBITDA margin of 18-20% over the medium term.

Revenue improvement is key:

GLXO’s manufacturing plant at Vemgal is

nearing completion (expected to be commissioned by mid-CY18), post which

we expect revenues to pick up. The company is also planning to diversify its

product portfolio (currently >90% of top-line comes from the acute

business). According to AIOCD, FDC-related market grew by 17% YoY.

Secondary sales of GLXO rose 5.8%, while market secondary sales increased

8.7% in 4QFY18.

Valuation view:

We believe GLXO has strong parent support, a superior

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

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

Neutral

with a

TP of INR2,500 @ 40x 1HFY20E EPS (v/s INR2,500 @ 43x 1HFY20E PER). We

increase FY19/20E EPS by ~4/2% led by margin improvement. We cut our

target multiple to 40x from 43x due to regulatory uncertainty.

36.0

7.2

5.3

62.3

9.3

174.3

35.7

35.7

38.4



13.7

Estimate change

TP change

Rating change



25 May 2018

11

KPIT Technologies

BSE SENSEX

34,663

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

10,514

KPIT IN

197

53.5 / 0.8

273 / 105

10/51/128

404.0

81.1

24 May 2018

Q4FY18 Results Update | Sector: Technology

CMP: INR271

TP: NA

Under Review

Financials & Valuations (INR b)

2018 2019E

Y/E Mar

36.7

42.3

Net Sales

3.8

5.1

EBITDA

2.6

3.3

PAT

12.7

15.0

EPS (INR)

6.4

18.3

Gr. (%)

82.6

97.6

BV/Sh (INR)

15.4

16.7

RoE (%)

15.8

19.9

RoCE (%)

21.3

18.0

P/E (x)

3.3

2.8

P/BV (x)

2020E

45.9

5.5

3.7

16.6

10.9

114.2

15.7

19.1

16.3

2.4

Estimate change

TP change

Rating change



Strong revenue beat:

4QFY18 revenue growth of 6.5% QoQ was above our

estimate of +2.8%, primarily driven by strength in Product Engineering

(+11% QoQ) and Products & Platforms (+49% QoQ). IT Services business

remained sluggish, with SAP declining by 3% and IES remaining flat QoQ.



Margins bogged down by transaction expenses:

EBITDA margin expanded

60bp QoQ to 11.4%, largely in-line. However, the quarter included expenses

related to the demerger of the Engineering business and the merger with

Birlasoft. Excluding these, EBITDA margin was at 12.7% (+190bp QoQ). PAT

of INR838m was up 35% QoQ (est. of +18%).



Guidance implies lower CQGR:

KPIT guided for 8-10% revenue growth in

FY19, despite the strong exit to FY18, implying a CQGR of 0.8-1.5%, which is

much lower than the 4% achieved in FY18. The profitability guidance of

11.5-12.5% for FY19 is lower than the current adjusted operating margin of

12.7%, but it bakes in the additional transaction-related expenses. We have

upped our earnings by 11/12% for FY19/20 to factor in 3% lower INR, higher

revenue growth and margins.



On the sidelines till the transaction takes place:

KPIT’s merger-demerger

transactions are likely to be executed this year. Birlasoft will be nearly one-

third of the combined entity, and thus, visibility in that segment is key

determinant of KPIT’s value. However, that will remain elusive until the

merger process is completed. As a result, any view on KPIT’s current

disclosures is only on two thirds of the business, which compels us to put

our rating under review.



Awaiting completion of demerger before taking a stance:

That said, we

note that current valuations capture a fairly robust recovery in margins for

KPIT, continued strong growth in Engineering, and also revenue momentum

in Birlasoft (~12-13% CAGR, mid-teens EBITDA margin), based on the

numbers shared at the time of the demerger announcement. Further upside

will be a function of material traction in Birlasoft (which we would not

know) and/or recovery in KPIT’s IT Services segment.

4Q

128

4.4

8,585

2.1

29.2

19.0

870

10.1

7.3

12

0

15.3

537

13.1

-39.3

2.7

12,110

68.3

43.9

35.8

1Q

134

4.8

8,704

8.4

26.6

17.6

788

9.1

6.9

121

26

23.4

555

3.3

0.9

2.8

12,261

68.8

44.8

34.8

FY18

2Q

3Q

142

141

5.7

-0.7

9,160

9,128

10.2

9.9

28.1

30.7

18.2

19.9

902

989

9.9

10.8

7.8

8.6

114

25

26

24

24.4

21.3

603

619

8.7

2.6

7.4

30.3

3.0

3.1

11,946

12,211

70.2

70.8

43.2

43.0

36.2

38.0

FY17

4Q

150

6.5

9,664

12.6

31.3

19.9

1,099

11.4

8.7

191

29

16.5

838

35.4

56.0

3.8

12,527

73.0

44.5

38.4

494

0.8

33,234

3.1

29.1

18.7

3,486

10.5

8.0

207

136

22.2

2,125

-24.5

11.9

12,110

68.3

43.4

FY18

568

14.8

36,656

10.3

29.2

18.9

3,785

10.3

8.0

450

104

21.1

2,616

23.1

12.7

12,527

70.7

43.9

Est. Var. (% /

4QFY18

bp)

145

3.6

2.8

374bp

9,328

3.6

8.7

391bp

31.1

21bp

19.5

44bp

1,083

1.5

11.6

-24bp

9.4

-67bp

123

54.8

24

18.0

25.0

730

14.8

18.0 1745bp

35.9 2010bp

3.7

12,805

-2.2

73.0

-5bp

42.7

181bp

Engineering-led beat; Keeping rating under review until

demerger is completed

Quarterly Performance (Consolidated)

Y/E March

Revenue (USD m)

QoQ (%)

Revenue (INR m)

YoY (%)

GPM (%)

SGA (%)

EBITDA

EBITDA Margin (%)

EBIT Ma rgi n (%)

Other i ncome

Interes t

ETR (%)

PAT

QoQ (%)

YoY (%)

EPS (INR)

Headcount

Uti l excl . tra i nees (%)

Offs hore rev. (%)

Fi xed Pri ce (%)

1Q

120

-3.5

8,032

5.9

28.9

18.3

855

10.7

8.3

116

56

24.3

551

-37.8

24.0

2.8

11,288

68.1

41.5

28.5

FY17

2Q

3Q

123

123

3.0

-0.4

8,310

8,307

2.3

2.2

29.5

29.0

18.5

18.8

914

846

11.0

10.2

8.6

7.9

49

29

14

66

25.1

23.1

562

475

2.0

-15.5

-25.2

-35.4

2.8

3.7

11,666

11,881

69.2

67.8

44.1

44.0

28.0

33.7

25 May 2018

12

Repco Home Finance

BSE SENSEX

34,663

Bloomberg

Equity Shares (m)

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

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

Avg Val,( INR m)

Free float (%)

REPCO IN

Core TN market tepid; improvement in asset quality

62.6



REPCO’s 4QFY18 PAT increased 10% YoY to INR566m (in-line). Modest loan

35.5/0.5

growth, a tapering cost-to-income ratio and a sequential decrease in the GNPL

923 / 515

ratio were the key highlights of the quarter.

-8/-13/-38



Sanctions increased 19% QoQ to INR9.2b, while disbursements rose 29% QoQ

195.0

to INR8.5b. This was modestly below management’s guidance of sanctions of

62.9

2020E

5.3

4.7

2.8

44.3

283.7

2.3

16.8

7.0

12.8

2.0

0.5

S&P CNX

10,514

24 May 2018

4QFY18 Results Update | Sector: Financials

CMP: INR568

TP: INR710 (+25%)

Buy

Financials & Valuations (INR b)

Y/E March

2018 2019E

NII

4.3

4.7

PPP

3.8

4.1

PAT

2.1

2.4

EPS (INR)

32.9

37.7

BV/Sh. (INR)

207.5 242.5

RoAA (%)

2.2

2.2

RoE (%)

16.9

16.7

Payout (%)

8.0

7.0

Valuation

P/E (x)

17.2

15.1

P/BV (x)

2.7

2.3

Div. Yield (%)

0.4

0.4













INR10b in 4QFY18. Management indicated that the core market of Tamil Nadu

(TN) still faces lingering effects of the sand mining ban, as TN loan book growth

was a tepid 6% YoY.

Consequently, loan growth was at 10.3% YoY (v/s 9.6% in 3QFY18), resulting in

a loan book of INR98.6b. LAP book has remained steady at INR17-18b for the

past seven quarters.

Calculated spreads increased 25bp QoQ to 3.4%, driven by stable yields and a

25bp reduction in CoF. We believe cost of funds has bottomed out and this

should have an impact on spreads, going forward.

The mix of CPs in the borrowing mix continues to increase (9.8% in 4QFY18 v/s

7% in 3QFY18 and 4.6% YoY in 4QFY17).

Opex increased 7% YoY to INR138m (4% beat), leading to a 140bp QoQ decline

in the cost-to-income ratio to 17.5%.

GNPA ratio decreased 87bp QoQ to 2.9%, driven by an 80bp QoQ reduction in

the home loans GNPA ratio and a 100bp reduction in LAP GNPLs. However, we

estimate INR150m write-off in the quarter.

Valuation view:

REPCO recorded a loan book CAGR of 26% and earnings CAGR

of 24% over the past five years. Presence in the underserved markets,

reasonable pricing power on the asset side and expanding reach should

support its earnings over the longer term. However, in the recent past, the

company has been plagued with several issues, predominantly on the growth

front. We believe that these issues should get resolved over the next few

quarters. We cut our FY19E/20E EPS by 3%/4% to factor in lower growth.

Buy

with a target price of INR710 (2.5x FY20E BVPS).

FY17

2Q

2,499

1,597

902

22.0

98

1,000

22.0

163

-6.8

837

29.9

127

710

253

457

17.0

22.6

16.3

35.7

3Q

2,589

1,682

907

16.2

67

974

15.5

163

1.9

811

18.7

96

714

250

464

20.4

21.1

16.8

35.0

4Q

2,663

1,635

1,028

20.7

73

1,102

16.8

200

30.7

902

14.1

116

786

280

506

19.8

15.6

18.2

35.6

1Q

2,587

1,628

959

14.2

71

1,030

12.0

171

14.9

859

11.4

167

692

241

452

14.2

11.7

16.6

34.8

FY18

2Q

2,715

1,622

1,093

21.2

95

1,188

18.8

179

9.4

1,009

20.6

166

843

285

559

22.3

8.9

15.0

33.7

3Q

2,694

1,623

1,071

18.1

82

1,153

18.3

217

33.0

935

15.3

194

741

256

485

4.4

6.9

18.9

34.6

4Q

2,774

1,610

1,164

13.2

59

1,223

11.0

214

6.9

1,009

12.0

143

866

300

566

11.9

7.6

17.5

34.6

(INR Million)

FY18

FY17

10,140

6,463

3,677

21.1

319

3,996

19.8

676

5.1

3,320

23.3

519

2,802

979

1,823

21.4

15.6

16.9

35.0

10,771

6,484

4,287

16.6

307

4,594

15.0

781

15.6

3,813

14.8

670

3,143

1,082

2,061

13.1

0.0

17.0

34.4

REPCO: Quarterly performance

Y/E March

Interes t Income

Interes t Expens es

Net Interest Income

YoY Growth (%)

Other i ncome

Total Income

YoY Growth (%)

Opera ti ng Expens es

YoY Growth (%)

Operating Profits

YoY Growth (%)

Provi s i ons

Profit before Tax

Ta x Provi s i ons

Profit after tax

YoY Growth (%)

Borrowi ngs growth (%)

Cos t to Income Ra ti o (%)

Ta x Ra te (%)

E: MOSL Es ti ma tes

1Q

2,390

1,550

840

26.5

80

920

26.0

149

-3.5

771

33.9

179

592

196

395

30.8

25.3

16.2

33.2

25 May 2018

13

Navneet Education

BSE SENSEX

34,663

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

10,514

NELI IN

233.6

30.1 / 0.4

194 / 125

-16/-28/-33

17.0

38.2

May 2018

4QFY18 Results Update | Sector: Publishing

CMP: INR129

TP: INR149 (+15% )

Neutral

Sluggish quarter; policy uncertainty prevails

Financials & Valuations (INR b)

Y/E March

2018 2019E

Net Sales

12.0

13.7

EBITDA

2.2

2.8

NP

1.3

1.7

EPS (INR)

5.4

7.5

EPS Gr. (%)

-26.1

38.0

BV/Sh. (INR)

32.2

36.0

RoE (%)

17.4

21.8

RoCE (%)

14.4

18.9

P/E (x)

23.9

17.3

P/BV (x)

4.0

3.6

Revenues hurt by weak Publishing and Stationery performance

:

Navneet

Education’s (NELI) revenue grew by a sluggish 1.3% YoY to INR2,126m in

4QFY18. EBITDA fell 15% YoY to INR238m, with the margin down 210bp YoY to

11.2%. Adj. PAT declined 10% YoY to INR151m. PAT margin contracted 92bp YoY

to 7.1% in 4QFY18. For FY18, revenue grew 2% to INR12,040m, EBIDTA declined

2020E

21% to INR2,225m and EBIDTA margin contracted 533bp to 18.5%.

14.4

3.0

1.9

8.3

11.3

39.5

22.0

20.8

15.5

3.3

Publishing revenue marred by delay in textbook release:

Publishing revenue

grew at a muted 5% in FY18 due to: (1) a six-month delay in the government

releasing its text books (based on which the supplementary material is created)

and (2) lower-than-estimated government orders for the year. These

government orders are typically placed by the social welfare and tribal

departments, among others, to provide support to underprivileged students.

According to management, the focus of these departments has now shifted to

infrastructure provision, and thus, it does not foresee any government orders

from now.

Stationery growth too disappoints due to delay in a large order:

Execution of a

large stationary order worth INR350m (which was received in 4QFY18) was

deferred to 1QFY19, resulting in sluggish growth (2%) in Stationary in 4Q, which

is a seasonally strong quarter for the segment. Going forward, management

expects high growth in the high-margin exports business, while the domestic

business is expected to continue witnessing competitive pressures.

Policy change brings uncertainty, but no impact seen on margins:

(1)

The

Balbharti Board, which publishes textbooks for the state board of Maharashtra,

has issued an advertisement/information in newspapers that all publishers in

Maharashtra (including coaching classes) will have to procure a license before

publishing any title.

(2)

The publishers association is awaiting the draft policy, as

a result of which none of the publishers have released any supplementary books

for standard X (a key revenue driver). A few standard X textbooks, though, have

been released, while no textbooks for standards 1

st

and 8

th

are released yet.

(3)

Maharashtra Board syllabus change (which is due for standards 1

st

, 8

th

and 10

th

)

was expected to boost revenues by more than 50%; however, the policy change

has now introduced an element of uncertainty over this.

(4)

We note that the

corresponding increase in cost in the form of license fee will be passed on to

consumers and, thus, will not have any impact on margins.

Estimate change

TP change

Rating change

25 May 2018

14

Britannica in transition; one-time expense drags FY18 margins:

Britannica

previously had a single series offering of each title it sold. However, it now plans to

introduce another series in each title in order to increase the addressable market.

Both the offerings will be targeted toward separate grade of schools, thereby

expanding the target market. We expect the new series introduction to drive 55%

growth in revenues to INR860m in FY19. We note that revenues declined 12% YoY to

INR560m in FY18 due to an unforeseen event – key employees of Britannica left the

organization, leading to a temporary dip in revenues, and one-time expense of

INR90m was incurred toward employee compensation.

Valuation view:

Due to the lack of clarity on the final policy, the license fee charges

and the timeline to obtain the licenses, we cut our PAT estimates by 31%/36% for

FY19/20. We, however, see upside risk to our estimates from earlier-than-expected

declaration of the final policy and speedier license approval. We value the stock at

18x FY20E earnings of INR8.3/share and downgrade our rating to Neutral with a

revised target price of INR149/share.

Quarterly Performance (Standalone)

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Interest

Other Income

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

Minority Interest & P/L of Asso. Cos.

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

E: MOSL Estimates

1Q

5,602

8.5

3,853

1,749

31.2

60

23

76

1,743

0

1,743

607

34.8

0

1,136

1,136

15.5

20.3

FY17

2Q

3Q

1,725

1,566

47.0

38.6

1,443

1,363

282

203

16.3

13.0

62

65

0

1

61

55

281

193

0

0

281

193

95

66

33.9

34.3

0

0

186

126

186

126

69.8

68.3

10.8

8.1

FY18

2Q

3Q

1,834

1,744

6.3

11.4

1,553

1,540

281

205

15.3

11.7

56

62

16

1

47

44

256

186

0

0

256

186

89

67

34.9

36.1

0

0

166

119

166

119

-10.5

-6.1

9.1

6.8

FY17

11,813

24.0

9,001

2,813

23.8

284

43

152

2,638

0

2,638

827

31.3

0

1,811

1,811

50.7

15.3

FY18

12,040

1.9

9,816

2,225

18.5

307

77

260

2,100

0

2,100

825

39.3

0

1,275

1,275

-29.6

10.6

4Q

2,098

11.9

1,819

279

13.3

64

11

40

244

0

244

75

30.8

0

169

169

80.1

8.0

1Q

5,652

0.9

4,028

1,624

28.7

53

26

123

1,668

0

1,668

572

34.3

0

1,097

1,097

-3.4

19.4

4Q

2,126

1.3

1,888

238

11.2

64

17

79

236

0

236

84

35.8

0

151

151

-10.3

7.1

25 May 2018

15

RESULTS

FLASH

Kaveri Seeds

BSE SENSEX

34,663

S&P CNX

10,514

24 May 2018

Results Flash | Sector: Others

CMP: INR507





TP: INR664(31%)

Buy

Revenue below estimate; profitability improves YoY but misses estimate

Conference Call Details

Date:

25th May 2018

Time:

2:00pm IST

Dial-in details:

+91-22-6280 1141



Financials & Valuations (INR b)

2018

2019E

Y/E Mar

Sales

8.2

8.9

EBITDA

2.2

2.7

NP

2.1

2.7

Adj EPS (INR)

32.0

40.6

EPS Gr. (%)

67.8

26.8

BV/Sh (INR)

137.2

157.3

RoE (%)

22.0

27.5

RoCE (%)

23.7

29.2

Payout (%)

56.3

50.3

Valuations

P/E (x)

15.8

12.5

P/BV (x)

3.7

3.2

EV/EBITDA (x)

15.7

12.5

Div Yield (%)

2.9

3.2

2020E

10.2

3.2

3.1

47.4

17.0

184.4

27.8

29.4

43.0

10.7

2.7

10.4

3.2



KSCL’s revenue grew 3.4% YoY to INR416m (est. of INR443m) in 4QFY18.

EBITDA stood at INR-133m (est. of INR-15m), as against INR-272m in 4QFY17.

Margin came in at -32.1% (est. -3.3%) v/s -67.5% in 4QFY17 on account of a

significant reduction of 4,712bp in RM cost to 62.8% of sales, offset by a rise of

1,215bp in employee cost to 28.1%.

Consequently, adjusted PAT stood at INR-184m (est. INR-26m) in 4QFY18 v/s

INR-306m in 4QFY17.

For FY18, revenue grew 16% YoY to INR8,192m, margin expanded 730bp to

27.1% and EBITDA grew 59% YoY to INR2,218m. Consequently, adj. PAT

increased 174% to INR2,114m.

Valuation view:

Based on our current estimates, at CMP of INR507, the stock

trades at 13x/11x P/E on FY19/FY20 EPS estimates. We have a Buy rating on the

stock.

25 May 2018

16

Entertainment Network India

BSE SENSEX

34,663

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

10,514

ENIL IN

47.7

31.1 / 0.5

1008 / 630

-5/-19/-25

25.0

28.9

24 May 2018

4QFY18 Results Update | Sector: Media

CMP: INR664

TP: INR770(+16%)

Buy

Subdued quarter; New stations to fuel growth

Revenue continues to disappoint:

Standalone revenue declined 4% YoY (+8%

QoQ) to INR1,594m (2% miss). Yet, EBITDA of INR352m was flat YoY (-1% QoQ;

2% miss), as a steep 22% YoY fall in other expenses offset the impact of revenue

decline. EBITDA margin expanded 80bp YoY to 22.1% (10bp miss). PAT declined

15% YoY to INR117m (13% miss) due to one-offs in taxes. For FY18, revenue

declined 3% YoY to INR5,371m (1% miss), EBITDA declined 7% YoY to INR1,166m

(in-line) and adj. PAT declined 41% YoY to INR324m (5% miss).

Concall highlights:

1) Expect legacy stations to grow in mid-to-low double-

digits/single-high-digits, and new stations (Batch 1 – Phase III) to grow rapidly in

FY19. 2) Expect 7-10% yield improvement from 2HFY19, led by festive season

and a pick-up in economy. 3) New stations are expected to reach 35% EBITDA

margin by FY20 and contribute 20% of overall revenue. 4) Gross margin in the

non-FCT business is expected to be steady at 20-25%.

New stations to fuel growth:

Inventory capping in FY18 led to a steep 18%/10%

volume/revenue decline in legacy stations. We believe that it would take long

for ENIL to recoup the downfall, despite a 7-10% yield improvement (at legacy

stations, which constitute 80-85% of overall revenue), and thus, cut our overall

revenue/EBITDA estimate by 4% for FY19 and 9%/20% for FY20. We expect 18%

revenue CAGR over FY18-20, primarily led by higher utilization at new stations

(Phase III- Batch 1) and support from relatively small Phase III- Batch 2 stations

(post launch in FY19). The acquisition of (three) TV Today radio stations in FY19

should also support growth. We expect 33% EBITDA CAGR over FY18-20, driven

by higher contribution from new (Batch 1) stations (turned profitable in

3QFY18), partly offset by the launch of Batch 2 stations.

Valuation view:

At CMP, ENIL is valued at 14x FY20E EBITDA. Given the cut in our

estimates, we reduce our TP to INR770 (prior: INR820), ascribing 16x to FY20E

EBITDA. Maintain

Buy.

FY17

2Q

1,296

11.5

1,065

231

17.8

140

-22

114

0

114

35

30.5

79

79

-70.7

6.1

3Q

1,506

4.9

1,125

381

25.3

147

-4

239

0

239

76

31.7

163

163

-43.3

10.8

4Q

1,652

12.2

1,300

352

21.3

164

-1

188

0

188

50

26.7

138

138

-31.6

8.3

1Q

1,044

-5.8

877

167

16.0

156

-15

25

42

68

23

34.2

44

17

-89.9

1.6

FY18

2Q

1,257

-3.0

973

284

22.6

159

-9

134

0

134

74

55.5

60

60

-24.5

4.7

FY17

3Q

1,479

-1.8

1,123

356

24.1

161

-6

201

0

201

70

34.9

131

131

-19.8

8.8

4Q

1,594

-3.5

1,242

352

22.1

158

-19

213

0

213

96

45.0

117

117

-15.2

7.3

5,562

9.4

4,304

1,259

22.6

536

-60

783

0

783

238

30.4

545

545

-46.5

9.8

FY18

5,371

-3.4

4,205

1,166

21.7

635

-41

573

42

615

263

42.8

352

324

-40.6

6.0

4Q

Est

FY18E Var (%)

1,618

-1.5

-2.2

1,259

-1.4

359

-2.0

22.2

-11bps

167

-5.1

-6

NM

199

7.1

0

199

7.1

64

32.0

135

-13.4

135

-13.4

-2.1

8.3

-101bps

Financials & Valuations (INR b)

2018 2019E

Y/E Mar

Net Sales

5.4

6.4

EBITDA

1.2

1.7

PAT

0.3

0.7

EPS (INR)

6.8

14.9

Gr. (%)

-40.6

119.5

BV/Sh (INR)

185.5

199.2

RoE (%)

3.7

7.7

RoCE (%)

3.1

6.6

P/E (x)

97.8

44.5

P/BV (x)

3.6

3.3

EV/EBITDA (x)

27.9

18.7

2020E

7.5

2.1

1.0

22.0

47.3

220.0

10.5

9.0

30.2

3.0

14.4

Estimate change

TP change

Rating change

Standalone quarterly performance (INR m)

Y/E March

Net Sales

YoY Change (%)

Total Expenditure

EBITDA

Margins (%)

Depreciation

Net Interest cost

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

Reported PAT

Adj PAT

YoY Change (%)

Margins (%)

1Q

1,107

9.0

813

294

26.6

85

-33

243

0

243

78

32.0

165

165

-36.3

14.9

25 May 2018

17