Click to edit Master title style Market Outlook - Sharekhan · Sensex moved from 100 to 21500 level...

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Market Outlook

Equities: In a sweet spot

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Financial Glossary

EPS: Earnings Per Share

Net ProfitNo of Shares

Ex: Profit Rs 5000 & No of Shares 1000

5000 = 51000

PE: Price to Earning Ex: CMP 50 & EPS Rs 5• Third level

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CMPEPS

50 = 105

Essentially P/E gives you an idea of what the market is willing to pay for the company’s earnings



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Sensex moved from 100 to 21500 level in 30 years…

Year Sensex

1978 (base year) 100

From 1978 to 1988 100 600

Sensex multiplies by 6x per decade

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Average annual return of 19.6% between 1978 and 2008; onlyasset class to give such superior returns over a period of 30 years

From 1988 to 1998 600 3600

From 1998 to 2008 3600 21400



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Close to 20% average return in spite of concerns/issues

Period Issues/concerns

1978 - 1988Indira Gandhi’s assassination; USSR-US cold war; Punjab terrorism at peak; Kashmir unrest; Sri Lanka troubles, Bofors scam etc

1988 - 1998

India debt crisis (gold mortgaged in 1991); US sanctions post-nuclear test; three PMs in two years (1996-98);

Superior returns against all odds

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1988 - 1998post-nuclear test; three PMs in two years (1996-98); LTCM default, US-Iraq war; defaults in Latin America, Harshad Mehta scam etc

1998 - 2008Dotcom bubble bust; US slowdown; India’s GDP growth below 4% in 2002; 9/11 attacks; Al-Qaeda as the new face of global terror; Ketan Parekh scam etc

Nothing could be worse; heard it a number of times in 30 years!



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Equity—non-linear cyclical trends

Sub-par performance is followed by exceptionally strong returns, well set for next bull phase…

Sensex Returns Months

Time periods Beginning End

Downturn Sep ’98 – Sep ’02 2,975 3,037 0.8% 48

Upturn Oct '02-Dec ’07 2930 20827 611% 62• Third level

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Non-linear nature of equity = Opportunity for superlative returns

Downturn Jan '08-Jan '14 20,686 20,851 1% 72

Upturn Jan ’14-Jan ’20 20,851 ???



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A case of last bull run (FY02-08)...

216 236 272348

450523

718833

0

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Earnings multiplied by 3.5x over FY02-08

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P/E expanded sharply from 10x to over 20x

Sensex moved up by 7x from base of 3,000 to • Third level

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0

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from base of 3,000 to 21,000 level



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Year Sensex

1978 100

1988 600

1998 3,600

The Big question

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1998 3,600

2008 21,400

2018 ???



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What next?--the Big question

Year1978: 100 Year1988: 600 Year1998: 3600 Year2008: 21400

Ingredients of Bull phase in place

• Dream team at helm: Modi, Rajan,aggressive India Inc well poised to drivegrowth

2018-2020-???

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How this is a RARE event?

Dream team in place…

Modi @ India’s helm—pro-growth, pro-investor focus

Raguram Rajan — Dynamic RBI Governor

India Inc. hungry for growth after the most challenging phase of past 4 years

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2018-2020-???

• Strong earnings CAGR of close to 20%• Third level

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• Strong earnings CAGR of close to 20%expected from next fiscal



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Encouraging signs in place: Higher growth trajectory

Average earnings growth has been close to 14% in the last 4 quarters (Q2FY14 to Q1FY15) vs >5% in the previous 4 quarters (Q2FY13 to Q1FY14)

• Crude is at 2013 lows

• Monsoons have picked up

Consensus estimates are building in Sensex EPS growth of close to 19-20% in FY16; up from an average of close to 8% for the past six years

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0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15

Net profit of Sensex companies (Y-o-Y growth %)



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2018-2020-???


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• Even after strong run-up, marketvaluation is still closer to long-termaverage of 15x, still way below euphoriclevel of 22-24x (re-rating still to happen)



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� Valuations are still at long-term average; leaves lot of scope for re-rating of PE multiples along with earnings growth driven appreciation

IT IS STILL NOT LATE! Sensex’ 1-year forward P/E band

Valuations—available @long-term average

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2018-2020-???


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• Country’s re-rating on card, will drivefurther flows in Indian market



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Phase of consolidation followed with big bull phase

3000

3500

4000

Sensex EPS (Rs)

Phase of Consolidation-

Sub par earnings growth

Consolidation phase again…strong growth to

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0

500

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1500

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2500

FY1997

FY1998

FY1999

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FY2007

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FY2009

FY2010

FY2011

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FY2013

FY14

FY15E

FY16E

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Sensex EPS (Rs) Sub par earnings growth



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2018-2020-???


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• Country’s re-rating on card, will drivefurther flows in Indian market

Sensex set to jump 3-4xin next 4-5 years



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It is not about “IF” but about “WHEN” and “HOW SOON”; Sensex set to move up 3 times or more in the next 4-5 years driven by earnings growth and some re-rating of PE multiples

Sensex set to multiply

Scenario Worst case Base case Bull case

Earnings CAGR 16% 19% 22%

PER (x) 16 19 22

Sensex Target by 2018-19Even in worst case Sensex is set to at least double in next 4-5 years • Third level

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We are likely to get here

by 2018-19

PER (x) 16 19 22

FY2020 54000 71,000 90850

Current Sensex 27000 27000 27000

Upside 100.0% 163.0% 236.5%

Avg returns/annum 16.7 24.0 30.9



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Strong Institutional Interest

� Equity inflows have strengthened in the past few months , total YTD FIIInvestment into Indian equities is about ~ US $ 12 billion and in Debt is morethan ~ US $ 13 billion.

� Also, India's relative attractiveness compared with the other EM may drive moreFII flows into equities

30000

40000

50000

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-40000

-30000

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eb

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Low Indian Ownership

50.40% 49.50% 50.70% 50.30% 49.30%

23.60% 23.90% 23.60% 24.60% 25.00%

14.20% 14.70% 14.20% 13.70% 14.10%

0%

10%

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30%

40%

50%

60%

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80%

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100%

Ownership Trend (top 75 Companies)

Promoters 49.3%

FII 25.0%

Financial Inst 8.4%

Public 14.1%

Ownership Pattern for Mar 14

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� In Q4FY2014, FII stake in top 75 companies further rose 33BPS to 25%

� Retailers have moved away from equities & are looking at exit opporunities

0%

Mar-13 Jun-13 Sep-13 Dec-13 Mar-14

Promoters FII Domestic MF Financial Inst Public & Others

MF 3.2%

Inst 8.4%



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Risks

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Global concerns/positives

Concerns/Issues:

• Geopolitical risk: Disturbance inMiddle-East including Iraq, Israel-Palestine conflict and Ukraine stand-offcould have resulted in spike incommodity prices

• Global liquidity: Interest rate hikesin USA and their impact on equitymarkets globally

Positives (macro scenario):

• Weak crude and commodityprices: In spite of the disturbance in oilproducing countries, crude prices haveslipped; stable or soft prices of crude, coaland gold that form major portion of India’simport bill to reduce pressure on Balance ofPayment (trade deficit) and support INR incase of risk aversion globally

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markets globally

• Euro zone trouble: In addition toweakness in the economy of largeEuropean nations, the UK-Scotland issuecould result in similar demand fromregions of other countries like NorthSpain

• Monsoon recovery: Monsoon deficitreducing to 11% (down from 45% in July)and sowing at 95% of last year reduce therisk to food inflation against earlierexpectations

• Reforms: Incremental steps taken to

improve business confidence and attract

foreign flows; could see bigger

announcement post-state elections



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Risk: Reversal of interest rates in USA

Risk: US Fed is expected to commence rate hikes from summer of 2015. The phasing out of extremely low interest rates in US is seen by some as a risk to foreign inflows and could result in volatility across financial markets globally.

Logically, yes, it could result in a temporary hiccup in the upward journey of the

equity markets. But the impact could be limited and we derive solace from the

following facts:

-In the past two decades, the Indian equity market has actually performed well during the rising interest rate cycle in the USA, largely because rising rates lead a • Third level

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during the rising interest rate cycle in the USA, largely because rising rates lead a large part of the money to move out of government bonds/fixed income markets in the USA; though some volatility cannot be ruled out.

- India has taken steps to correct macro imbalances (like controlling trade and current account deficit; building forex reserves etc). Plus, India’s monetary easing cycle has not reversed yet (unlike most of our peer countries where interest rates have already been cut leaving them limited leeway to fight volatility in global markets).



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Get set to ride the BULL market

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� It is just the beginning of a big bull run for the Indian equity market;equities set to move up by 3-4 times and comprehensively beatreturns from all other asset classes in the next 3-5 years

� It is not late; valuations are still quite comfortable, no better time toincrease exposure to equities substantially

� Use our research for investment trading and investment ideas; followreference investment folios (Wealth Creator—Thematic folio and/oractively managed Top Picks folio that has a proven track record of

Conclusion # Key takeaways

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actively managed Top Picks folio that has a proven track record offive years)

� Get your portfolio cleaned up, Sharekhan could help you withPortfolio Doctor, a free tool that will help you achieve proper balanceacross sectors and obtain right stock ideas for better performanceover a period of time



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Speed bumps—corrections part of market

Bull market

phase

Time periods Sensex Returns No of

corrections

High Low

1998-2000 11th Feb to 12th May 2000 5933 3920 -34% 1

2003-2007 14th Jan to 14th May 2004 6194 4505 -27% 3

15th May to 14th June 2006 12612 8929 -29%• Third level

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Such phases of superlative performance also saw corrections in between, but one

has to withstand such volatility to create wealth

15th May to 14th June 2006 12612 8929 -29%

8th Feb to 5th March 2007 14652 12415 -15%



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• Virtually impossible to time markets and empirical study suggests that such efforts could result in a huge cut in returns

• Missing a few good days could make a sea of difference in returns; so the mantra is “stay invested’

Sensex’ returns in past 35 years

But one needs to “stay invested”

Times investment has multiplied• Third level

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Times investment has multiplied

Always invested 192x

Missed 10 best days 68x






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Start Investing Now• Third level

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� In the previous bull runSensex moved up 7x butclose to 450 stocksappreciated by 20x inthe same period

Enough wealth creatingopportunities

Which Sectors and Stocks are likely to perform?

• Recently In this initial phase of bull run, we already have

many multi-baggers

Return (X) Nos of companyMore than 10x 16More than 5X 85More than 4x 172More than 3x 417• Third level

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Returns (x) Nos of Stocks

More than 100x 83

50-100x 100

20x-50x 268

10x-20x 372

More than 3x 417

This is just the beginning,

we are going to see many

more multi-baggers in next

4-5 years�



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Wealth Creator Portfolio

Scrip Name Weights (%) CMP (25th Sep’14)

Target Rs

(June’17) Upside

Theme: Play on better policy environment (Policy push)

Larsen & Toubro 8.00% 1447 3800 163%

Cummins 8.00% 678 1708 152%

Finolex Cables 4.50% 208 650 213%

IRB Infra 4.50% 231 680 194%

Gateway Distripark 4.50% 245 745 204%

Selan Exploration 4.50% 515 1680 226%

Theme: Early gainers of economic revival (Banks & Auto)

ICICI Bank 8.00% 1465 3850 163%• Third level

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ICICI Bank 8.00% 1465 3850 163%

State Bank of India 8.00% 2378 5800 144%

PTC India Financials 4.50% 41 105 156%

Ashok Leyland 8.00% 38 90 137%

Tata Motors - DVR 8.00% 342 850 149%

Gabriel India 4.50% 79 155 96%

Theme: Evergreen stocks/Other bottom up picks

Sun Pharma 8.00% 774 1550 100%

TCS 8.00% 2708 5100 88%

Dhanuka Agri 4.50% 490 1140 133%

Network 18 Media 4.50% 46 150 226%



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Larsen & Toubro

• Larsen & Toubro is the largest engineering and construction company in India, having a wide presenceacross segments. We believe L&T would be the largest and direct beneficiary of the expected policy push bythe government to kick-start the investment cycle. An unparallel execution track record, diversifiedpresence, high management quality and strong balance sheet are the key advantages L&T enjoys overpeers.

• Despite a slowdown in the domestic environment, the company has exhibited impressive order inflow withexpansion of its operations to overseas markets in the recent past; currently, it has a healthy order book

Company CMPPotential PT (Rs)

June 2017Portfolio weight

Upside Theme

L&T 1447 3800 8% 163% Policy Push

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expansion of its operations to overseas markets in the recent past; currently, it has a healthy order book(book/bill ratio at 2.6x) which could swell further once the domestic environment improves.

• During the last capex cycle (FY03-07), the stock was a ten-bagger (earnings grew 5x) but it largely remainedflattish during the slowdown (FY08-14). It is much stronger now and well placed ahead of the next capexcycle. The stock is a potential multi-bagger in our view.

• An expanding geographical presence, monetization of assets and several efforts to improve returns ratioswould be supportive for the company. L&T is one of our preferred quality cyclical plays.

• Risk: A longer than expected recovery in the domestic capex cycle and execution risks, like cost and timeoverruns, especially for the hydrocarbon projects



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Cummins India

• Cummins India is a dominant player in the power genset segment with superior technology and services. Anexpected recovery in the industrial cycle will regenerate demand for power gensets, especially back-upgensets. The other segments of the company (automotive and industrial) would also benefit from theexpected revival.

• Cummins India is well equipped with the new CPCB-II norms (in effect from July 1, 2014) which would keep itahead of many un-organized peers and help to gain market share. The backing of an MNC parent (CumminsInc, USA) gives a strong brand recall and helps in sweating its assets by sourcing from it products for the



Upside Theme

Cummins 678 1708 8% 152% Policy Push

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Inc, USA) gives a strong brand recall and helps in sweating its assets by sourcing from it products for theEuropean market.

• During the last up-cycle, the stock had multiplied by 5x in 5 years with high earnings growth. We believe ledby a revival in the capex cycle, the company will witness an earnings growth with volume improvement.Hence, we expect the stock to deliver substantial returns in the next few years. Moreover, a strong balancesheet, healthy cash flows and superior return ratios (30%) play in favour of the stock.

• Risk: Elongated delay in recovery of THE capex cycle and improving power deficit situation in the country.



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Finolex Cables

• Finolex Cables is a leading manufacturer of power and communication cables and will benefit from theindustrial revival cycle. The company also plans to launch new product (switchgear) in FY15 which is a high-margin business. Its high-margin consumer business is already set to move to a new growth trajectory withstrong brand recall and increased distribution network.

• Its exposure to derivative contracts in the past had adversely affected its earnings and valuation; however, it’sall history now (settled in FY13). Hence, the valuation multiple may see a gradual re-rating after the maturityof the derivative contracts and reduction in its foreign currency loan.



Upside Theme

Finolex 208 650 4.5% 213% Policy Push

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of the derivative contracts and reduction in its foreign currency loan.

• The new government is keen to revive the infrastructure cycle which would boost the demand for its coreproducts like cables. Moreover, a healthy balance sheet (net cash and investment positive), consistently strongfree cash flows and RoE in high teens make it a strong case for re-rating of the stock.

• Risk: A slower than expected revival in demand and competitiveness as well as volatility in copper prices.



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• Post-general election with a stability in the government functioning, the macro environment for the roadsector players is likely to turn supportive. On the other hand, the competitive intensity has eased outconsiderably with many players reeling under financial stress. IRB is a key beneficiary with strong cash flowsand relatively better balance sheet than its peers.

• Apart from benefiting from the improving macro environment and renewed activity in terms of the projectawards with a better return, IRB is one of the major players to see an improvement in its order booking over



Upside Theme

IRB Infra 231 680 4.5% 194% Policy Push

IRB Infrastructure Developers

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awards with a better return, IRB is one of the major players to see an improvement in its order booking overthe next two years.

• The revival in the construction income along with an upside from the traffic growth is likely to re-rate themultiple given to its EPC business along with an improvement in the valuation of the BOT projects. Weexpect the stock to deliver manifold returns over the next two years.

• Risk: Lower economic activity in the country can lead to lower traffic which could affect the valuation of thecompany’s projects.



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• An improvement in exim trade along with a rise in port traffic at the major ports is pointing to animproving business environment for the logistic companies. Gateway Distriparks being a major player inthe CFS and rail logistic segments is expected to witness an improvement in the volumes of its CFS and raildivisions going ahead.

• The improving trend in the rail freight and cold chain subsidiaries would sustain on account of the recentefforts to control costs and improve utilisation.

Gateway Distriparks



Upside Theme

GDL 245 745 4.5% 204% Policy push wealth creator

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• We continue to have faith in the company’s long-term growth story based on the expansion of each of itsthree business segments, i.e. the CFS, rail transportation and cold storage infrastructure segments.First, we believe the listing of SLL will unlock the inherent value and the potential of the cold chainoperations. Second, the coming on stream of the Faridabad facility and the strong operationalperformance will boost the performance of the rail operations. Third, the expected turnaround in globaltrade should have a positive impact on the CFS operations.

• Risk: Downturn in economic activity may affect exim trade.



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Selan Exploration Technology

• Selan Exploration has five wells in Cambay Basin with significant proven oil & gas reserves. Over FY06-10Selan ramped up its production by 4x but production has stagnated since due to policy paralysis (a delay inapproval for new drilling) in the country. However, it received approval in mid-FY2014 and the explorationprogramme is on track.

• During a recent interaction, the management reaffirmed the potential to increase production volumesmanifold through the ongoing exploration programme. It has already drilled 11 wells which couldpotentially increase the production by 50% over the existing annual production.



Upside Theme

Selan 515 1680 4.5% 226% Policy Push

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potentially increase the production by 50% over the existing annual production.

• The stock had rallied by 400% in the last production ramp-up phase (FY2006-10) with significant earningsgrowth and incremental improvement in the balance sheet. We expect the next phase of the productionramp-up to start soon and the stock price should reflect the same. Apart from the expected high earningsover the next 2-3 years, strong cash flow, healthy RoE and lean balance sheet would continue to make itattractive.

• Risk: A delay or lower than expected ramp-up in production.



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• ICICI Bank is the country’s largest private sector bank with a market share of ~6% in the domestic bankingsector and assets worth Rs100bn. The bank has pan-India presence with ~4,000 branches and significantoverseas presence via subsidiaries and branches. It has successfully transitioned from a development financeinstitution and made deep inroads into the retail segment both on asset and liability fronts.

• It has nurtured subsidiaries which command leadership in most segments these operate in (viz life insurance,general insurance, capital markets etc). Going ahead, monetisation will result in substantial value unlocking

ICICI Bank



Upside Theme

ICICI Bank 1465 3,850 8% 163% Early Gainers of Economic Revival

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general insurance, capital markets etc). Going ahead, monetisation will result in substantial value unlockingfrom the subsidiaries, which are grossly undervalued in the current scenario.

• Going ahead, as PSU banks are likely to lose market share due to weak capital position and other factors,ICICI Bank is set to gain market share supported by a revival in economy. While the bank has given robustreturns in the last decade (up 5.5x), it is among the biggest contenders for rerating in the banking sectorgoing ahead.

• Risk: Any adverse regulations from RBI or delayed recovery in economy will delay the rerating prospects.



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• SBI is India's largest bank in terms of most comparable parameters such as assets size, branch network(18,000) and customer base. As its tagline says, “Banker to every Indian”, it also corners the largestshare of government business and has overseas presence in 34 countries. With a revival in theinvestment cycle and pick-up in consumption, being the largest bank it is likely to benefitdisproportionately.

• SBI has a market share of ~18% and along with associate banks it commands a market share of ~25% inthe banking system. Going ahead, SBI will look to merge its associate banks which will give unmatched

State Bank of India



Upside Theme

SBI 2378 5,800 8% 144% Evergreen wealth creator

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the banking system. Going ahead, SBI will look to merge its associate banks which will give unmatchedhold in the domestic banking sector and boost economies of scale. In addition, the likely monetisationof insurance and other subsidiaries will strengthen the capital position of bank.

• Apart from that SBI also stands to benefit from the pending reforms in government owned banks(autonomy, holding company structure, reduction in government stake, easing of investment norms)which builds genuine case for expansion in valuation multiples. SBI is the best pick among thegovernment owned banks.

• Risk: Sluggish recovery in economy could inhibit improvement in the asset quality.



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• PFS is among the specialised lenders in power sector having a strong presence in renewable energy projectfinancing. As the new government is committed to increasing support to the renewable energy sector(solar, hydro projects etc), there will be immense opportunities going ahead. PFS has diversified into otherinfra related sectors like mine development, railway sidings etc which increases the scope for growth.Given the small book size, there is fair visibility of 40-50% loan growth for next 3-4 years.

• The renewable projects involve lower gestation periods and government support leading to insignificantasset quality issues. Therefore, PFS can sustain its asset quality which already remains the best in the

PTC India Financial Services



Upside Theme

PFS 41 105 4.5% 156% Early gainer of Economic Revival

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asset quality issues. Therefore, PFS can sustain its asset quality which already remains the best in thesystem. Also, despite being a small institution it has access to diverse funding mix (ECBs, NCDs, infra bondsetc) which will cushion the margins.

• The company has equity investments (~25% of net worth) in various projects at preliminary stages whichcould result in substantial value unlocking. Given the consistent increase in the balance sheet size anduptick in return ratios, the stock will trade at higher than its historical valuation.

• Risk: Delay in power sector reforms or adverse interest rate scenario could affect the earnings.



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• Ashok Leyland is the second largest CV manufacturer in India with a market share of 25% in the heavy trucksegment and that of 40% in the bus segment. The CV segment, which had halved over FY2012-14, isexpected to witness a sharp recovery with a pick-up in the economy.

• It entered the LCV segment with the launch of Dost in JV with Nissan. Since then the JV has launched thePartner LCV and Stile van and is expected to gain a foothold in the segment.

• The company is also concentrating on verticals such as exports, diesel genset and defense to de-risk its

Ashok Leyland



Upside Theme

ALL 38 90 8% 137% Early gainer of Economic Revival

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• The company is also concentrating on verticals such as exports, diesel genset and defense to de-risk itsbusiness model. Its defense business is expected to get a leg-up due to the government’s focus on indigenousmanufacture of defense products and FDI in the sector.

• The company’s OPM has recovered from the lows on the back of a reduction in discounts and price hikestaken, and are expected to expand due to operating leverage. The company has raised Rs660 crore via QIPand is in the process of selling non-core assets to pare its debts. With no significant capex planned, weexpect de-leveraging of the balance sheet and improvement in return ratios.

• Risk: A slower than anticipated recovery in the economy.



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• Tata Motors is the market leader in the domestic CV segment with a market share of about 60%. The segmenthas been the hardest hit due to economic slowdown with volumes halving over two years. With the expectedpick-up of the economy the company would be a key beneficiary.

• The company is in the process completely overhauling its loss-making PV division which will play out over thenext five years. With the pipeline of new launches, we expect the division to turn a corner and cut down onlosses.

• The company’s luxury vehicle manufacturing arm, Jaguar Land Rover (JLR), is riding on the success of new

Tata Motors (DVR)



Upside Theme

TAMO (DVR) 342 850 8% 149% Early gainer of Economic Revival

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• The company’s luxury vehicle manufacturing arm, Jaguar Land Rover (JLR), is riding on the success of newvolumes, impressive growth in volumes in China and a strong profitability. We expect the growth to remainbuoyant, given the product pipeline with JLR including an entry into new segments, like compact luxurysedans, which will be a volume driver. Profitability too is expected to remain healthy going forward.

• The TAMO DVR (Differential Voting Rights) is currently trading at a discount of 30-35% to the ordinary share.The discount has narrowed from ~50% earlier. We expect the discount to further narrow on the back offurther acceptance of the DVR shares and a possibility of listing of DVR shares outside India. Hence we likethe TAMO DVR stock.

• Risk: Delay in economic revival in the country; and slowdown in demand for luxury vehicles in key marketssuch as USA, Europe and China.



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• Gabriel India (a leading manufacturer of shock absorbers with a strong market share) would outpace thegrowth in the two-wheeler industry, given its higher revenue share with Honda Motorcycle and Scooter India(HMSI) and TVS Motor Company, which are growing faster than the market (due to a strong presence in thescooter segment). It also plans to invest in Gujarat for HMSI’s upcoming plant.

• A pick-up in the CV and PV segments (due to a revival in the industrial capex cycle), strong diversifiedclientele and the company’s focus on margin attractive aftermarket and export segments would furtherenhance the margin profile. The company targets to increase export revenue share from 3% to 10% in the

Gabriel India



Upside Theme

Gabriel 79 155 4.5% 96% Early gainer of Economic Revival

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enhance the margin profile. The company targets to increase export revenue share from 3% to 10% in themedium term.

• Constant efforts of de-leverage the balance sheet along with better capacity utilisation would lead to strongearnings growth of 30% CAGR over FY14-19.

• Risk: A delay in uptick in the PV and CV segments and any loss in revenue share from HMSI will affect theearnings estimates negatively.



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• Sun Pharma has emerged as the largest generic formulations companies from India. The combination of Sun Pharma with its subsidiaries Taro, Dusa Pharma and the generic business of URL Pharma offers an excellent business model for the US market.

• The anticipated acquisition of Ranbaxy augurs well for Sun Pharma as it will help it establish a leadershipposition in the key markets including India, apart from leading to synergy of $250 million in next two years.We believe that Sun Pharma is the only group that has the capabilities to turnaround the Ranbaxy business

Sun Pharmaceutical Industries


Sept. 2017Portfolio weight

Upside Theme

Sun Pharma 774 1,550 8% 100% Evergreen wealth creator

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We believe that Sun Pharma is the only group that has the capabilities to turnaround the Ranbaxy businessand create value for minority shareholders of both Sun and Ranbaxy.

• With strong cash balance of Rs12,000 crore, it is well positioned to capitalize on the growth opportunitiesby inorganic means.

• Risk: A delay in the merger of Ranbaxy or in the resolution of USFDA issues on Ranbaxy’s India-basedfacilities and Sun Pharma’s Karkhadi facility are the key risks.



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• TCS is the most formidable player among the Indian IT incumbents and has risen to become the most trustedbellwether Indian IT company. It is a leader in most service offerings and has further consolidated itsposition as a full service player by demonstrating consistent financial and operational performance.

• It has created immense wealth since its listing in August 2004, almost going up by 12.5x since its listing.What sets TCS apart from its peers is its management bandwidth, consistently improving business metricsand investments in the emerging technologies in the areas of SMAC (Social, Mobile, Analytics, Cloud; which

Tata Consultancy Services



Upside Theme

TCS 2708 5,100 8% 88% Evergreen Stocks

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and investments in the emerging technologies in the areas of SMAC (Social, Mobile, Analytics, Cloud; whichis a massive area of growth going forward).

• Going ahead, TCS is extremely well positioned to latch on to the opportunities that the market place has tooffer due to its scale while the company’s full service business model will help it stand firm even duringtimes of turbulence. This makes it one of the safest bets in the large-cap Indian IT services space and “amust have” in one’s portfolio for the longer term.

• Risk: A downturn in the focused markets like the USA or Europe will have an impact on the earnings; and asignificant appreciation in the rupee will affect earnings negatively.



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• Dhanuka Agritech’s asset-light business model is one of the unique business models in Indian agro chemicalsbusiness. The company is focusing on tie-ups with global agro-chemical majors to procure active ingredientsfor manufacturing and marketing of specialty molecules. The asset-light model along with exclusive tie-upswith MNCs has worked well for the company and resulted in high return ratios as compared with peers. Thecompany’s marketing network is one of the best in India which penetrates even the interiors of villages. Thishas given the company a distinct edge over competition.

• It has a strong pipeline of new product launches over the next three years which would considerably boost its

Dhanuka Agritech



Upside Theme

Dhanuka 490 1,140 4.5% 133% Bottom up Pick

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• It has a strong pipeline of new product launches over the next three years which would considerably boost itsrevenues and profitability. The company is going to launch 6 exclusive new molecules in the domestic marketin the next 2 years of which two molecules have potential to become a blockbuster.

• In order to produce new and exclusive products the company has started to increase the capacity by the wayof setting up a greenfield project in Rajasthan. The capacity of the project will be double the currentcapacity, so after the greenfield expansion its capacity will become three times its current capacity.Consequently, it would get opportunity to monetise 6 acres of land in Gurgaon (site of its oldest plant).

• Risk: Consumption may get affected by a decline in acreage due to lower rainfall.



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Network 18 Media and Investments

• Network 18 Media and Investments (Network 18) is India's leading media and entertainment company with awide range of interests in television (TV18 Broadcast), Internet (web18/Yatra.com/BookMyShow.com), films(Viacom18), e-commerce (HomeShop18), magazines, and mobile content and allied businesses.

• The company now has a very strong backing and parentage from its new cash-rich promoters, RelianceIndustries Ltd (RIL). We believe that RIL would be able to make the best use of Network18’s strong contentcapabilities across platforms (print, TV, mobile and Internet) by monetising the same through its nationwide4G launch. This, we believe, would trigger a significant amount of value unlocking of Network18’s assets,



Upside Theme

Network 18 46 150 4.5% 226% Bottom Up Pick

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4G launch. This, we believe, would trigger a significant amount of value unlocking of Network18’s assets,like Homeshop 18 and bookmyshow.com amongst others which have large untapped potential.

• With one of the widest ranges of offerings in the media and entertainment space along with a strongparentage (RIL), we believe Network 18 could be the next big success story in the Indian media andentertainment space. Additionally, the fact that consumption of media and entertainment is rapidly movingtowards digital platform could favour Network 18’s business model in a big way in the longer term.



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Thank You



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This document has been prepared by Sharekhan Ltd.(SHAREKHAN) This Document is subject to changes without prior notice and is intended only for the person or entity to which it is addressed to and may contain confidential and/or privileged material and is not for any type of circulation. Any review, retransmission, or any other use is prohibited. Kindly note that this document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.

The information contained herein is from publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. We do not represent that information contained herein is accurate or complete and it should not be relied upon as such. This document is prepared for assistance only and is not intended to be and must not alone betaken as the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this

DISCLAIMER

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Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

SHAREKHAN & affiliates may have used the information set forth herein before publication and may have positions in, may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall

SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. Any comments or statements made herein are those of the analyst and do not necessarily reflect those of SHAREKHAN.

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