Monthly Report - Dec 2016 - Kotak Securities · tool to support growth activ-ity. ... for foreign...

Investment StrategistDecember 2016

Investment Strategist December 2016 2

GLOBAL & SECTORAL INDICES

Indices As on 30th Nov 2016 As on 28th Oct 2016 % Chg

Sensex 26,653 27,942 -4.6%

Nifty 8,225 8,638 -4.8%

Dow Jones 19,124 18,161 5.3%

Nasdaq 5,324 5,190 2.6%

FTSE 6,784 6,248 8.6%

DAX 10,640 10,696 -0.5%

CAC 40 index 4,578 4,549 0.7%

Hang Seng 22,790 22,955 -0.7%

China 3,250 3,104 4.7%

Japan 18,308 16,666 9.9%

Spain 8,688 9,201 -5.6%

Italy 16,930 17,324 -2.3%

Indices As on 30th Nov 2016 As on 28th Oct 2016 % Chg

CNX midcap 14,907 15,841 -5.9%

BSE midcap 12,499 13,408 -6.8%

BSE small cap 12,330 13,454 -8.4%

FMCG 20,488 21,548 -4.9%

Capital Goods 14,045 14,874 -5.6%

Banking 21,316 22,384 -4.8%

PSU 7,880 7,913 -0.4%

Oil & Gas 11,964 12,296 -2.7%

Auto 20,145 22,168 -9.1%

Tech 9,852 9,995 -1.4%

Healthcare 15,734 16,374 -3.9%

Metal 10,666 10,286 3.7%

Realty 1,282 1,552 -17.4%

Change in the Global Indices

Sectoral Indices

Investment Strategist December 2016

MONTHLY FUNDAMENTAL OUTLOOK

The weakness in sensex during last month was led byGovernment's demonetization move, consistent FIIselling and US election uncertainty. However, globalmarkets defied initial fears of a sell off post the Trumpvictory and rose higher. Trump has promised to investin infrastructure and bring back jobs to the USA, fol-lowing which the US bond yields have strengthenedand USD has risen against most other currencies.

Locally, several consumer oriented industries have re-ported sharp dip in demand post demonetization.While availability of cash inlower denomination is seenimproving in coming days,which should alleviate somehardship for consumers, it isalmost certain that the de-monetization would weighnegatively on the third quar-ter numbers. Given this, thecase for a rate cut hasstrengthened as a necessarytool to support growth activ-ity.

Going into December, thefocus of the markets wouldbe on the Fed meeting andRBI monetary policy meet,apart from the Italy referen-dum. We do see someheadwinds in near term aris-ing from the strengtheningUSD, near term weakness in hitherto strong consumerdemand and uncertainty over implementation of GST.Markets have corrected by about 4% since the de-monetization announcement with several stocks fall-ing steeply. Benchmark indices are currently trading ataround 15.5x FY18 consensus estimates, which ismarginally higher than the long-term average. Thismay provide some cushion to the markets.

We maintain our preference for companies havingstrong balance sheets and ethical managements. Withcontinuous efforts of Government in reviving infra-structure sector, we expect select construction com-

panies and banks to benefit from the same. We arealso positive on select stocks in sectors which couldbe favourably impacted by the implementation of GST(Logistics, Auto, Media, Building Materials, Cements,etc), Government spending (Roads and Railways) andrural demand revival (cement, paints, FMCG, etc).Some of these sectors may see near term headwindsfrom demonetization. Key risks to our recommenda-tion would come from geopolitical concerns globally,continued decline in foreign inflows, sharp currencymovements and a spike in oil prices.

Global events to watchout for -

Fed rate hike in Decemberlargely priced in; Yellen'scommentary to be keenlywatched

In her previous testimony,Yellen had said that, a ratehike could be "appropriaterelatively soon," implying thatthere are risks to waiting toolong to tighten monetarypolicy. Post these comments,according to the CME Group'sFedWatch tool, market expec-tations for a December ratehike have increased to around90%.

US economic data has also pointed towards strengthen-ing economic recovery as reflected by housing starts,which soared more than 25% in October and weeklyjobless claims dropped to their lowest level since No-vember 1973. Meanwhile, October CPI rose 0.4%, inline with expectations.

While a December rate hike is largely priced in, we be-lieve, what would be more important would be the paceof future hikes. A gradual hike in the US interest rateswill not be a negative for India and other EMs as itwould lessen the risk of sharp pullout of funds, whilesustaining the confidence in the US economy.

Going into December, the focus of themarkets would be on the Fed meeting andRBI monetary policy meet, apart from the

Italy referendum. We do see some headwindsin near term arising from the strengtheningUSD, near term weakness in hitherto strong

consumer demand and uncertainty overimplementation of GST continues. Marketshave corrected by about 4% since the de-monetization announcement with several

stocks falling steeply. Benchmark indices arecurrently trading at around 15.5x FY18

consensus estimates, which is marginallyhigher than the long-term average. This may

provide some cushion to the markets.

Market performance - sector wise (November 2016)

Source: Bloomberg

Benchmark indices - India

Source: Bloomberg

2600

4350

6100

7850

9600

14,000

18,000

22,000

26,000

30,000Sensex (LHS) Nifty (RHS)

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%



Trump's policies to be in focus

Traders continue to watch Trump's economic policiesclosely because of the effect it could have on monetarypolicy. The Republican has said that he planned to spendon infrastructure and cut taxes to stimulate theeconomy. Increased fiscal stimulus on roads, rails andtunnels could have an impact on the Federal Reserve'sinterest rate hiking path.

In a related development, Trump expanded on his policyagenda, which includes withdrawing from the Trans-Pa-cific Partnership (TPP). Trump described the TPP as "apotential disaster" for the US and favoured fairer bilat-eral trade deals that bring jobs and industry back ontoAmerican shores. Basically, the Trump victory has raisedconcerns that, trade policies will now tilt in favour ofUSA and less towards global partners.

Trump's election win and Britain's referendum vote toleave the European Union are headwinds for India's ITsector, as clients such as big US and British banks andinsurers defer spending until the dust settles. AmongTrump's early priorities, would be directing "the Depart-ment of Labor to investigate all abuses of visa programsthat undercut the American worker." An indirect refer-ence to the H-1B programme, under which 65,000 tem-porary workers-and 20,000 with advanced degrees intech-related fields from American universities-are al-lowed to work in the US each year. There will be oppo-sition from the Silicon Valley to any proposal of reducingthe visa programme. However, what seems likely is thatthe Trump administration may raise the minimum wagefor foreign workers, which may curb margins for IndianIT vendors. Buying US companies would help Indian ITfirms build their local headcount, increase their on-the-ground presence in key markets and help counter anyprotectionist regulations.

European political risks going into 2017

Starting with Italian Referendum on December 4th, Ger-many, France and Netherlands will be holding generalelections in 2017. If parties opposed to the EuropeanUnion in these countries start gaining popularity, thenthere may be questions about the integrity of the mon-etary union, causing risk-off moves in major asset mar-kets.

Investors are concerned that, a defeat for Italian PrimeMinister Matteo Renzi in the Dec. 4 constitutional-re-form referendum would undermine the nation's fragilepolitical stability. A defeat for Renzi, who proposed thevote and initially pledged to resign if the result didn't gohis way, could lead to early elections and a rise in sup-port for the populist Five Star Movement. This party haspledged to carry out a referendum on whether Italyshould stay in the euro area.

Market observers fear that any credible noise abouteuro exit could induce capital flight and market volatil-ity, so that market pressure might force parties thatcampaigned for euro exit to quickly revise their plans.

Expecting appreciation in USD v/s emerging marketcurrencies like INR

The victory of Republican candidate Donald Trump in USPresidential election, along with Republican majority inboth houses of US Congress, caused significant sell-offin US Treasury bonds, which caused the yields to rise by~50bps to 2.35%. There is expectation that under thenew President, the pace of Fed rate hikes would befaster mostly due to rising inflation expectation,prompting further gains in the US Dollar index. Addition-ally, possibility of fiscal stimulatory policies is expectedto lift US rates further, supportive of Dollar index. Ex-pectations are also for inflation to rise. This has led tostrengthening of the USD and weakening of EM curren-cies.

In the Indian context, we have seen that a combinationof surging Rupee liquidity and some dollar shortage haspushed the forward premium below the levels war-ranted by the rate differentials. A similar collapse in for-ward premia had occurred during 2011 and 2013. Dur-ing both those years, Rupee depreciated against US Dol-lar. Rising yields in the US and a strenthening dollar arenegative for EMs currencies and Rupee is no exception.All in all, Rupee is drifting lower, only countered by spir-ited intervention from the central bank, who is using ex-change traded derivatives and inter-bank market to sellUSD.

OPEC agrees to reduce output

OPEC has finally agreed on crude oil output cut afterSaudi Arabia accepted cutting down its crude oil pro-duction, pushing up crude oil prices by ~10%. Currently,OPEC produces a third of global oil i.e ~33.6 million bpd.With this deal, it would reduce output by around 1.2million bpd to 32.4 million bpd from January 2017 andthat would take its output to January 2016 levels, whenprices fell to over 10 year lows.

Brent Crude (US$/bl)

Source: Bloomberg

20

45

70

95

120



Saudi Arabia will take the lion's share of cuts by reduc-ing output by almost 0.5 million bpd to 10.06 millionbpd. Its Gulf OPEC allies - the United Arab Emirates,Kuwait and Qatar - would cut by a total 0.3 million bpd.Iraq, unexpectedly agreed to reduce production - by 0.2million bpd. We maintain our positive outlook on crudeoil price. This will be positive for upstream players suchas OIL India, ONGC, Cairn India, Selan exploration, andHOEC. We do not rule out the possibility of increase incrude oil production from USA supported by highercrude oil prices.

Domestic events to watch out for -

Demonetisation - Initial reports indicate significantdemand crunch; to impact H2FY17 profits

The Government of India, in a bold move to fight blackmoney, terrorism and counterfeiting, has de-monetisedRs.500 and Rs.1000 notes WEF 9/11/ 2016. As per offi-cial data, till March 2016, Rs.14trn out of Rs.16trn worthcurrency issued by the RBI were in the denominations ofRs.500 and Rs.1,000. This works out to about 10.5% ofGDP. We believe that, the move will immediately re-duce the black money circulation to a significant extentand will make creation of new black money difficult.(Refer our report on "IMPACT OF DE-MONETISATION"dated Nov 17)

Even as the efficacy of this move in catching the bigblack money hoarders is still being debated, it cannot bedenied that, small businesses/retailers/daily wagers etchave continued to face hardships. Sales of discretionaryitems like Auto, Consumer durables, Real Estate andBuilding Products, Travel and Jewellery have been hitharder since demonetisation. Even companies in FMCG,Cement and consumer durable companies have seenslackness in demand. It is almost certain that 3Q profitnumbers for most sectors would get adversely im-pacted.

However, we believe that, the impact will be temporaryfor non-discretionary goods and demand will come backas more cash gets into the system. On the other hand,discretionary consumption (High-end consumer durables,etc) may see and elongated impact and so will sectorswith high cash component (real estate, jewellery, etc).

Rupee/US$

Source: Bloomberg

Winter session of parliament has been unproductiveso far

An expected fallout of the demonetization move hasbeen that the opposition and regional parties havejoined forces against the government's move. The im-mediate casualty has been the winter session of theparliament, which began on 16th Nov and has been acomplete washout so far. In this session, the govern-ment had hoped to make further headway into theimplementation of GST bill by clearing the Central GSTand Integrated GST bills, before its rollout from April 1,2017. However, given present state of political situa-tion, hopes of a productive winter session have dimin-ished.

RBI monetary policy - Case for rate cut has in-creased following demonetisation

As indicated earlier, the demonetization move is leadingto a sharp dent on the consumer spend across the coun-try. Given the significant weightage of consumption inthe GDP, this is expected to decelerate the economicgrowth. Thus, growth projections are being reviseddownwards. Fitch has recently downgraded the GDPgrowth estimate to 6.9% for 2016-17 from 7.4%. Itnotes further that the impact on GDP growth will in-crease the longer the disruption continues.

With higher liquidity in the system, interest rates areexpected to moderate and the currency may also re-main weak. This can be positive for all interest-rate sen-sitive sectors and banks. Export-oriented sectors willbenefit if currency weakens sharply.

However, we believe that the RBI may take a measuredapproach and limit rate cut to 25 bps. This is because ithas to consider several factors like global monetary poli-cies, INR movement, volatility in capital flows, firmingcommodity prices and Future inflation trajectory beforearriving at its monetary policy stance.

IIP growth (%)

Source: Bloomberg; Note: IIP growth since April 2009 has been recompiledusing new series of WPI

35

45

55

65

75

(8.0)

(4.0)

-

4.0

8.0

12.0

16.0



FII's turned net sellers for the monthFIIs were net sellers to the tune of Rs.16bn during No-vember 2016 while they are buyers to the tune ofRs.28bn YTD CY2016. Mutual funds remained net buy-ers for the month and bought stocks worth Rs.12.8bnduring November 2016 while for CYTD, MFs are buyersto the tune of Rs.349bn. Apart from the political turbu-lence following the demonetization move, what hasdented sentiments is a surprise victory of Donald Trumpin the US Presidential elections, and the latest economic(housing and jobless claims) data from the US that couldpush the US Federal Reserve (US Fed) to hike rates inthe upcoming policy review in December.

A sharper-than-expected increase in US interest rateswill pull liquidity out of EMs and may impact India also,despite its relatively better fundamentals. However, agradual increase in rates is already discounted and willensure minimal outflows and stability.

Preferred picks

Domestic Cyclicals / Investment oriented sectors

Sector Stocks

Agri-Products Insecticides India Ltd, Finolex Industries

Automobiles Bajaj Auto, M&M, Maruti Suzuki

Building Material Century Ply, Kajaria Ceremics

Capital Goods, Engineering Voltamp, Cummins India, Greaves Cotton, L&T, Engineers India

Cement Shree Cements, India Cements, Ultratech Cement

Construction IRB Infra, NCC, PNC Infratech, KNR Construction

FMCG ITC

Logistics, Transportation Adani Ports, Allcargo, GPPL

Oil & Gas Petronet LNG, Castrol India, MGL, GSPL

Packaging Mold-Tek Packaging

Source: Kotak Securities - Private Client Research

Export oriented / Defensive sectors

Sector Stocks

IT Infosys, NIIT Ltd

Media TV18 Broadcast

Pharmaceuticals Alembic Pharma, Natco Pharma


FII & Mutual Fund investment (Rs Cr)

Source: Bloomberg

-20,000

-10,000

0

10,000

20,000

30,000FII MF


MONTHLY DERIVATIVE OUTLOOK

Looking Back

Nifty witnessed a range breakout in early trading ses-sion of the Nov series. This was followed by selling pres-sure on account of domestic developments which led tothe index testing 7900-7950 on the downside. Rangeexpansion was seen on account of volatility with rangeseen at 7900-8500.

Stocks fell dramatically as mid-cap lost their shine. Sell-ing pressure was seen across sectors.

Looking Ahead

Volatility is expected to remain extremely high in thenear term.

Currently we are in a pullback mode from the extremeoversold levels. The pullback rally may continue over thenext few days with a possibility of seeing some long un-winding / fresh Short Selling around 8200/8260. On theother hand, a sustain above the same can push the in-dex towards 8450/8520.

Cement stocks are expected to remain in action. Banksshould gain on domestic news flows. Pharma and FMCGcontinue to consolidate with buying opportunities.

Recommendation

Nifty Short Strangle: Sell 8500 Dec call and 7800 Decput option. Total premium inflow Rs. 63 maintain stop-loss of 90 and target of 30/0

Nifty Options Concentration

Nifty options concentration seen at 8300CE and 8000PE

Nifty Options Concentration

Source: nseindia.com

CE - Call EuropeanPE - Put EuropeanStrike Price - Strike price for the contract

Stock Specifics

SECTOR POSITION STOCK/OPTIONS VIEW RATIONALE

Cement BUY AMBUJA CEMENT Buy around 203-205 with Significant OI build up seen in theSL of 190 and target of stock. Volatility parameters have220-235 given a positive breakout

Tyre BUY APOLLOTYRE Buy around 190-191 with After a prolonged Downwarda SL of 185 and target of price correction from the levels197-205. of 235 up to 175, the stock is now

showing signs of strength.

It has broken out from a DecliningChannel above 190.

Auto BUY TVSMOTORS Buy around 360-363 sl Bounce back from a strongof 350 and target of 380 support of 345 levels. The stock is

closing higher every day.Considerable space on the upside.

For queries and feedback you can e-mail us at [email protected]


MONTHLY TECHNICAL OUTLOOK

On monthly basis, the market has tested to 7900, whichwas lowest level of the day of BREXIT event and 50%retracement support based on Fibonacci retracements.After hitting a level of 7900 we saw a gradual up movetowards 8300 but it failed around 8250 that may notlike positional long traders as such type of formationsgenerally keeps market in a trading range.

For the month, we are expecting 7900 and 8300 aregoing to act as a major trading range for the market.As the market is holding around 8050 levels we feelthat nifty may move to 8300 in next few weeks but incase if we see the market reverses sharply from 8250/8300 and breaks 7900 then it would attract major un-winding of long positions

Below 7900 it has support at 7650 and above 8325 itcould jump up to 8420/8440. Nifty-IT, has completedcorrection and it seems it is reversing back sharply topull the recent losses. Expect break out buying above10180 that may take the nifty to 11000/11050. Itseems that bank nifty may spend some between thebroader trading range of 17800 and 19300 with a posi-tive bias.

In brief, we would see nifty beyond 8325 only if US Fedkeeps interest rates unchanged. Till then expecting side-ways and range bound activity. CNX IT looks good andwe should look for buying it with a stop loss at 9750(spot basis).

NIFTY MONTHLY CHART

NIFTY : 8102

Range : 8110-8210

Resistance : 8145-8185-8210-8250-8325-8450-

Support : 8080-8055-7985-7900-7800-7650

BANK NIFTY : 18235

Range : 18140-18350

Resistance : 18350-18470-18590-18690-18800-19300

Support : 18140-18080-18000-17950-178500-17700

TREND WATCH

Nifty Short Term TrendDown (Up above 8260 on a closing basis)

Nifty Medium Term TrendUp (Down below 7900 on a closing basis)

Nifty Long Term TrendUp (Down below 7700 on a weekly closing basis)

MONTHLY SNAPSHOT

Monthly Open : 8653

Monthly High : 8669

Monthly Low : 7916

Monthly Close : 8225

Change : 5%

13:J J A S O N D 14:J F M A M J J A S O N D 15:J F M A M J J A S O N D 16:J F M A M J J A S O N D

Lnr IR IS

Source : www.Sp iderSof twa reInd ia .Com 5250

5500

5750

6000

6250

6500

6750

7000

7250

7500

7750

8000

8250

8500

8750

9000

C r

500

1000

1500

2000

2500

Price

Vol

NSE Nif ty [N59901] 8244.00, 8250 .80, 8056.85, 8209 .40, 4368510464 -0.18%

Mon

3

76284.10

16

7916.40

6319.8430/10/15 Fri

Op 7992.05Hi 8336.30Lo 7930.65Cl 8065.80

Q t 1790.57


ONE MONTH PORTFOLIO - DECEMBER 2016

NIFTY: 8225

Stock Weight MCap Current PE (x)(%) (Rs mn) Price FY17E FY18E Comment

(Rs)

Larsen & Toubro 9 1,288,956 1383 24.3 20.3 Cash flow has been good in the second quarter Asset sales gaining momentum

Sun Pharma 9 1,708,260 710 24.5 19.3 Sun's Halol plant will be possibly inspected in comingmonths post which (if cleared) will lead to pick up inUS revenues

Rich US pipeline, strong domestic growth as well asattractive valuation makes Sun a prefered buy in the largecap pharma space

ITC 9 2,801,359 233 25.9 22.6 Stabilizing cigarette volumes indicate stronger visibility Discount to average FMCG multiples provides protection

from downsides

M&M 9 730,576 1,186 20.3 17.3 Good monsoons is likely to keep tractor demand robust Increased share of tractor revenues will be positive for

overall EBITDA margins

Adani Port 8 560,865 278 16.6 14.7 Volume growth continues to be strong for Adani Port Healthy contribution from subsidiary port projects

TV18 8 65,056 38 23.8 14.9 Strong ratings of Colors bode well for earnings visibility inentertainment; strong IPO piepline to support business news

Valuations inexpensive at 17.6X FY18E PER

Engineers India Ltd 8 98,404 292 22.6 18.1 EIL management shared sharp recovery in business outllokpost Q2FY17 results. Order inflows guidance stands revisedat Rs 35 Bn against Rs 20 Bn earlier. Most of the orders areexpected to be awarded in the PMC division which is a highmargin business for the company.

India Cements 8 36,862 120 21.1 15.8 Demonetization has not impacted southern cement marketas badly as other regions. Prices have remained fairly stablesince the commencement of Q3FY17. Stock is trading atattractive valuations

NIIT Ltd 8 12,578 76 16.9 10.0 NIIT’s revenues grew by double–digits YoY (10%) in 2QFY17for the second successive quarter in past 17 quarters andmargins

improved 37bps. NIIT has launched new programs andadded new clients in CLS, which should supportfuture growth.

MoldTek 8 5,566 202 17.8 12.8 Mold Tek Packaging stands to gains in the coming yearsfrom the increasing share of IML products,backwardintegration and expansion in to food and FMCG industrywhich would aid the profitability.

PNC Infra 8 28,476 110 14.2 12.5 PNC has robust current order book of Rs 64.7 bn and furthertargets to add another ~Rs 40 bn of orders in the rest of theyear based on robust pipeline of orders specifically in roadspace.

PNC is expected to be a strong contender for grabbingfuture opportunity in road construction from poll boundstates like UP and Punjab

GSPL 8 88,077 157 15.4 13.9 We expect the Company to benefit on account of both1). Higher gas transmission volumes and 2). Expectedupward revision in tariffs.

Rising city gas distribution growth opportunities, potentialshift to gas due to environmental/pollution norms andvolumes from Mundra LNG terminal (FY18 onwards)provides support to long term volumes.

Source : Kotak Securities - Private Client research

FUNDAMENTAL STOCK RECOMMENDATION

Stock Recommendations

Latest Price Price as Latest Upside/ Latest Mkt EPS (Rs) PE (x) RoE (%) EV/EBIDTA (x)Name of the Company Reco^ as on on latest price (Down- Report Cap

30-Nov Report target^ side) Date (Rs mn) FY17E FY18E FY17E FY18E FY17E FY18E FY17E FY18E(Rs) (Rs) (Rs) (%)

Agri-Products

Insecticides (India) Ltd BUY 490 516 602 22.9 09-Nov-16 10,123 29.3 40.1 16.7 12.2 13.9 16.6 10.3 8.1

Finolex Industries BUY 442 473 530 20.0 30-Aug-16 54,758 21.4 26.5 20.6 16.7 25.8 27.2 12.7 10.3

Auto & Auto Ancillary

Apollo Tyres ACCUMULATE 191 196 211 10.5 11-Nov-16 96,214 22.6 26.3 8.4 7.3 17.2 17.1 5.5 5.0

Ashok Leyland ACCUMULATE 80 91 99 24.5 10-Nov-16 226,257 4.3 5.5 18.5 14.5 20.6 22.4 10.4 8.3

Bajaj Auto Ltd BUY 2,685 2,830 3,277 22.0 01-Nov-16 777,082 146.4 172.5 18.3 15.6 31.5 30.9 12.8 10.6

Eicher Motors Ltd # SELL 21,620 24,017 23,481 8.6 01-Nov-16 583,735 582.6 797.0 37.1 27.1 57.0 50.0 24.4 17.5

Escorts Ltd ACCUMULATE 323 379 410 27.1 28-Oct-16 39,466 15.3 25.6 21.1 12.6 9.5 14.5 13.7 8.7

Gabriel India Ltd BUY 110 108 124 12.8 16-Nov-16 15,826 6.0 7.7 18.3 14.3 21.1 23.0 10.4 8.1

Hero MotoCorp Ltd ACCUMULATE 3,166 3,314 3,692 16.6 28-Oct-16 633,210 178.5 199.5 17.7 15.9 40.7 38.0 11.8 10.2

Mahindra & Mahindra BUY 1,185 1,240 1,462 23.4 15-Nov-16 730,022 58.3 68.6 20.3 17.3 15.2 16.1 14.5 12.0

Maruti Suzuki India Ltd ACCUMULATE 5,266 5,860 6,236 18.4 28-Oct-16 1,590,332 227.0 283.4 23.2 18.6 23.2 24.0 12.8 10.2

Motherson Sumi Systems Ltd SELL 310 326 298 (3.8) 11-Nov-16 409,865 11.5 14.6 26.9 21.2 31.8 31.6 9.3 7.4

Tata Motors ACCUMULATE 459 507 541 17.8 15-Nov-16 1,457,818 31.9 54.3 14.4 8.5 13.0 18.2 4.9 3.4

TVS Motors SELL 374 412 344 (8.0) 28-Oct-16 177,735 12.5 17.2 29.9 21.8 27.3 29.5 18.5 13.8

Building Material

Century Plyboards (India) Ltd ACCUMULATE 182 227 246 35.4 07-Nov-16 40,428 8.1 10.7 22.4 17.0 28.1 27.7 15.1 11.0

Greenply Industries Ltd ACCUMULATE 262 284 299 14.3 25-Oct-16 31,558 12.0 13.6 21.8 19.2 21.0 19.1 12.2 11.6

Kajaria Ceramics Ltd ACCUMULATE 534 660 706 32.3 21-Oct-16 80,659 20.2 23.5 26.4 22.7 30.2 27.4 14.4 12.3

Supreme Industries Ltd REDUCE 899 903 924 2.8 28-Oct-16 114,173 30.0 38.5 30.0 23.4 28.4 30.0 15.6 12.7

Capital Goods & Engineering

ABB Ltd * REDUCE 1,061 1,063 1,110 4.6 28-Oct-16 224,858 22.1 31.7 48.0 33.5 14.6 18.3 25.5 18.5

AIA Engineering SELL 1,335 1,235 972 (27.2) 16-Nov-16 125,490 49.1 54.1 27.2 24.7 18.9 18.1 17.3 15.4

Bajaj Electricals Ltd ACCUMULATE 223 232 260 16.6 11-Nov-16 22,027 11.6 16.3 19.2 13.7 14.5 18.0 7.9 6.2

Bharat Electronics ACCUMULATE 1,439 1,328 1,435 (0.3) 01-Nov-16 345,372 73.9 75.5 19.5 19.1 20.1 20.4 15.4 13.6

BHEL REDUCE 130 143 146 12.2 09-Nov-16 318,477 4.3 7.3 30.3 17.8 3.2 5.2 12.8 6.9

Blue Star Ltd ACCUMULATE 490 512 547 11.6 15-Nov-16 44,051 16.2 21.8 30.2 22.5 16.5 20.1 19.1 14.1

Carborundum Universal Ltd BUY 276 279 320 15.9 02-Nov-16 51,612 9.7 14.5 28.5 19.0 15.3 20.0 13.1 9.9


Crompton Greaves ACCUMULATE 77 82 88 13.8 31-Aug-16 49,596 3.5 5.2 22.1 14.9 4.8 6.7 6.9 5.2

Cummins India BUY 789 850 970 23.0 28-Oct-16 218,669 28.5 32.3 27.7 24.4 24.7 25.0 26.5 23.1

Elgi Equipment Ltd SELL 181 174 130 (28.1) 17-Nov-16 28,574 5.3 7.0 34.1 25.8 14.8 17.2 17.6 13.9

Engineers India Ltd BUY 293 266 335 14.4 18-Nov-16 98,674 12.9 16.1 22.7 18.2 15.6 17.8 18.0 12.3

Greaves Cotton BUY 126 129 160 27.0 11-Nov-16 30,763 8.3 9.1 15.2 13.8 21.9 20.9 9.0 8.0

Havells India Ltd SELL 344 409 400 16.2 20-Oct-16 214,910 10.1 12.6 34.1 27.3 34.4 35.8 26.8 22.2

Larsen & Toubro BUY 1,383 1,329 1,579 14.2 23-Nov-16 1,288,723 56.6 68.7 24.4 20.1 11.5 12.9 18.3 14.8

Praj Industries Ltd ACCUMULATE 77 81 87 12.6 24-Oct-16 13,673 2.9 4.4 26.6 17.6 7.8 11.2 15.4 8.6

Siemens India * * ACCUMULATE 1,087 1,055 1,170 7.6 24-Nov-16 359,847 33.4 NM 32.5 NM 15.2 NM 21.5 NM

Thermax SELL 864 881 792 (8.3) 15-Nov-16 102,816 21.7 26.4 39.8 32.7 8.5 10.9 22.7 19.4

Time Technoplast Ltd ACCUMULATE 93 91 101 9.0 16-Nov-16 19,364 6.7 8.4 13.8 11.0 11.9 14.1 6.8 5.9

Va Tech Wabag Ltd BUY 496 496 592 19.3 10-Nov-16 26,307 23.3 31.2 21.3 15.9 12.2 14.5 9.6 7.9

Voltamp Ltd BUY 970 809 1,020 5.2 10-Nov-16 9,793 58.0 68.0 16.7 14.3 12.0 13.0 15.9 12.2

Voltas Ltd BUY 316 293 367 16.2 21-Nov-16 104,388 13.5 16.0 23.4 19.7 17.6 18.9 19.9 16.6

Cement

ACC ## SELL 1,342 1,566 1,548 15.3 24-Oct-16 252,143 41.0 70.8 32.7 19.0 8.8 13.7 16.3 11.3

Grasim Industries ACCUMULATE 870 962 1,068 22.7 02-Nov-16 399,033 62.7 81.6 13.9 10.7 11.7 14.1 4.9 3.5

India Cements BUY 120 106 140 17.0 22-Nov-16 36,733 5.7 7.6 21.0 15.7 4.5 5.8 5.8 5.2

Shree Cement BUY 15,501 16,348 19,257 24.2 08-Nov-16 540,055 453.0 615.4 34.2 25.2 25.6 27.0 17.7 13.6

UltraTech Cement ACCUMULATE 3,603 4,009 4,296 19.2 18-Oct-16 987,345 117.8 163.1 30.6 22.1 14.6 17.4 16.9 12.6

Construction

IL&FS Transportation Network UNDER REVIEW 101 88 NA - 14-Sep-16 19,621 7.1 8.1 14.2 12.5 3.4 3.8 12.0 12.7

IRB Infrastructure Developers BUY 187 182 281 50.7 23-Nov-16 61,985 17.4 14.1 10.7 13.2 11.8 8.8 6.6 6.7

KNR Construction BUY 747 696 823 10.2 16-Nov-16 20,991 44.0 50.6 17.0 14.8 15.7 15.6 11.9 9.3

Nagarjuna Construction BUY 80 78 106 32.5 10-Nov-16 44,475 4.8 5.5 16.7 14.5 7.6 8.0 8.0 7.3

NBCC (India) Ltd BUY 228 228 256 12.2 24-Nov-16 144,844 5.3 8.8 43.0 25.9 19.9 27.7 35.4 18.6

PNC Infratech Ltd BUY 110 121 157 42.8 26-Sep-16 28,202 7.8 8.9 14.1 12.4 13.5 13.5 9.1 7.1

Simplex Infrastructures ACCUMULATE 304 344 367 20.7 07-Sep-16 15,100 21.5 28.2 14.1 10.8 6.7 8.2 6.1 5.5

Education

MT Educare Ltd ACCUMULATE 117 121 129 10.5 16-Nov-16 4,645 8.0 9.2 14.6 12.7 19.7 19.7 7.5 6.4





FMCG

Colgate Palmolive (India) Ltd ACCUMULATE 934 971 1,047 12.1 01-Nov-16 253,966 24.0 28.3 38.9 33.0 57.4 67.9 23.0 20.1

Dabur India Ltd ACCUMULATE 284 297 325 14.6 27-Oct-16 492,810 7.9 9.3 35.9 30.5 28.2 28.2 28.6 23.6

Godrej Consumer Products Ltd REDUCE 1,457 1,521 1,536 5.4 08-Nov-16 471,519 39.5 42.7 36.9 34.1 23.9 21.7 25.0 22.3

Hindustan Unilever REDUCE 844 843 861 2.0 27-Oct-16 1,823,040 21.5 23.9 39.3 35.3 124.0 133.3 27.4 24.5

ITC Ltd BUY 233 239 269 15.7 27-Oct-16 2,698,628 9.0 10.3 25.8 22.6 33.1 34.9 17.1 14.7

Marico Ltd ACCUMULATE 253 278 298 17.9 01-Nov-16 325,413 7.1 8.3 35.6 30.4 37.7 37.9 27.8 24.2

Nestle India Ltd SELL 6,290 6,934 6,492 3.2 01-Nov-16 606,453 114.2 147.6 55.1 42.6 35.2 46.9 29.3 23.6

Pidilite Industries SELL 640 665 670 4.6 11-Nov-16 325,323 18.4 19.1 34.8 33.5 30.5 26.8 22.9 22.0

Information Technology

Cyient Ltd (Infotech) SELL 497 539 500 0.7 14-Oct-16 55,167 35.0 43.4 14.2 11.4 18.9 19.9 8.5 6.9

Geometric Ltd RATING SUSPENDED 242 240 NA - 26-Oct-16 15,182 20.4 NM 11.9 NM 24.8 NM 5.2 NM

HCL Technologies REDUCE 804 831 864 7.5 24-Oct-16 1,134,966 58.4 65.6 13.8 12.3 17.6 16.8 10.1 9.0

Infosys Technologies BUY 976 1,027 1,184 21.4 17-Oct-16 2,232,042 62.1 69.7 15.7 14.0 22.4 23.4 11.0 9.6

KPIT Technologies ACCUMULATE 132 142 153 16.0 21-Oct-16 25,219 12.7 15.7 10.4 8.4 16.1 17.1 5.5 4.1

Mphasis Ltd SELL 527 511 492 (6.6) 07-Nov-16 109,949 39.1 41.4 13.5 12.7 13.4 13.3 8.4 7.6

NIIT LTD BUY 76 92 103 35.7 20-Oct-16 12,501 4.5 7.6 16.9 10.0 9.0 18.1 12.5 9.1

NIIT Technologies BUY 425 411 482 13.4 18-Oct-16 24,938 42.5 47.4 10.0 9.0 15.3 15.1 4.3 3.8

Oracle Financial Services Soft REDUCE 3,064 2,965 3,090 0.8 25-Nov-16 256,602 145.5 181.8 21.1 16.9 32.5 36.9 13.3 11.3

Tata Consultancy Services (TCS) REDUCE 2,276 2,329 2,415 6.1 14-Oct-16 4,455,140 132.6 146.4 17.2 15.5 40.0 35.5 12.3 10.7

Wipro Technologies REDUCE 465 499 506 8.8 24-Oct-16 1,138,327 34.7 39.7 13.4 11.7 18.4 19.2 9.3 7.7

Zensar Technologies SELL 998 997 983 (1.5) 19-Oct-16 43,026 67.9 80.0 14.7 12.5 19.6 19.7 8.8 7.1

Logistics

Adani Port & Special Eco Zone ACCUMULATE 278 310 340 22.3 26-Oct-16 560,663 17.2 19.4 16.2 14.3 22.0 20.3 13.8 12.6

Allcargo Global Logistics BUY 178 163 215 20.8 24-Nov-16 44,869 12.1 13.6 14.7 13.1 12.7 12.7 8.3 7.6

Blue Dart Express SELL 4,756 5,335 5,030 5.8 14-Oct-16 112,725 85.1 91.4 55.9 52.0 35.6 29.4 32.5 30.3

Container Corporation of India SELL 1,170 1,285 1,180 0.9 17-Nov-16 228,150 43.8 47.5 26.7 24.6 9.9 10.0 18.9 17.3

Gateway Distriparks Ltd BUY 236 245 280 18.5 15-Nov-16 25,515 10.7 13.9 22.1 17.0 10.1 12.3 10.1 8.4

Gujarat Pipavav Port Ltd (GPPL) BUY 140 167 190 36.1 07-Nov-16 59,190 5.0 5.5 16.5 25.4 11.2 11.3 13.3 12.2





Media

Dish TV India Ltd BUY 91 87 108 18.5 15-Nov-16 96,984 2.5 4.1 36.5 22.2 NM 54.0 8.9 7.9

Entertainment Network (ENIL) SELL 720 727 675 (6.3) 10-Nov-16 34,346 15.6 25.0 46.2 28.8 9.2 13.3 20.7 14.0

HT Media NR 71 - - - - 16,736 NM NM NM NM NM NM NM NM

Hindustan Media Ventures Ltd ACCUMULATE 271 303 325 19.8 02-Nov-16 19,911 26.8 29.6 10.1 9.2 19.7 18.1 7.6 5.8

Sun TV Network BUY 471 500 588 24.9 15-Nov-16 185,495 26.1 29.4 18.0 16.0 31.4 40.2 8.9 8.0

TV18 Broadcast BUY 38 43 56 46.0 18-Oct-16 65,579 1.6 2.5 24.0 15.1 6.9 10.1 58.9 34.3

Zee Entertainment Ent SELL 456 515 476 4.5 26-Oct-16 445,626 11.8 17.0 38.6 26.8 19.6 20.7 22.6 18.0

Metals & Mining

Hindustan Zinc SELL 283 250 230 (18.6) 21-Oct-16 1,194,075 19.1 20.7 14.8 13.7 18.6 17.8 10.0 9.0

JSW Steel REDUCE 1,729 1,637 1,680 (2.8) 28-Oct-16 417,899 132.8 154.4 13.0 11.2 12.9 13.1 6.7 6.1

National Aluminium Co REDUCE 57 47 48 (15.9) 14-Sep-16 147,147 2.4 2.9 23.8 19.7 4.8 5.8 9.4 7.6

NMDC Ltd SELL 122 105 83 (32.0) 14-Sep-16 484,090 7.4 7.9 16.5 15.5 9.6 10.0 11.5 10.8

Tata Sponge Iron Ltd SELL 552 637 615 11.5 25-Oct-16 8,494 43.6 53.7 12.7 10.3 7.8 9.0 3.9 2.6

Oil & Gas

Aban Offshore Ltd SELL 237 239 109 (54.1) 08-Nov-16 13,766 NM 21.2 NM 11.2 NM 2.7 14.0 7.6

Cairn India Ltd SELL 252 231 180 (28.5) 24-Oct-16 471,715 14.1 14.8 17.8 17.0 5.2 5.3 6.4 2.5

Castrol India Ltd * * ACCUMULATE 408 457 481 18.0 01-Nov-16 201,608 14.0 15.7 29.1 26.0 75.0 72.3 18.7 16.6

Chennai Petroleum Corporation REDUCE 279 233 235 (15.7) 16-Nov-16 41,549 48.9 52.2 5.7 5.3 27.9 23.9 4.7 4.5

Gujarat State Petronet Ltd (GSPL) ACCUMULATE 157 152 168 7.1 04-Nov-16 88,021 10.2 11.3 15.4 13.9 13.0 13.0 8.1 7.2

Indraprastha Gas (IGL) ACCUMULATE 829 824 866 4.5 17-Nov-16 116,067 42.7 47.3 19.4 17.5 22.0 20.5 10.6 9.7

Mahanagar Gas Ltd ACCUMULATE 769 771 815 6.0 29-Nov-16 75,992 41.3 44.3 18.6 17.4 25.1 23.9 10.4 9.5

MRPL ACCUMULATE 99 88 93 (6.1) 09-Nov-16 173,536 10.6 11.6 9.3 8.5 27.1 23.1 7.7 6.0

Oil India Ltd ACCUMULATE 419 427 451 7.5 29-Nov-16 252,071 37.4 42.9 11.2 9.8 8.6 9.6 5.9 5.1

Petronet LNG ACCUMULATE 389 376 396 1.9 21-Nov-16 291,525 22.9 25.3 17.0 15.4 20.7 21.8 9.8 8.3

Packaging

Mold-Tek Packing Ltd BUY 202 226 260 28.7 02-Nov-16 5,595 11.3 15.7 17.9 12.9 20.2 22.6 10.6 7.7

Paints

Asian Paints Ltd SELL 970 1,150 1,075 10.8 26-Oct-16 930,134 22.0 23.9 44.1 40.6 34.4 33.4 27.4 24.7

Berger Paints SELL 229 260 250 9.2 07-Nov-16 222,030 4.8 5.5 47.7 41.6 24.6 23.3 29.0 26.2

Kansai Nerolac Paints Ltd SELL 347 385 375 8.1 01-Nov-16 187,060 8.1 9.2 42.8 37.7 18.9 20.2 26.8 23.9





Pharmaceuticals

Alembic Pharma ACCUMULATE 662 673 725 9.5 26-Oct-16 125,099 22.5 30.3 29.4 21.8 24.2 26.8 21.8 15.4

Cadila Healthcare Ltd ACCUMULATE 402 388 425 5.8 27-Oct-16 411,220 15.4 18.0 26.1 22.3 24.0 22.8 17.9 15.2

Cipla REDUCE 567 526 532 (6.1) 10-Nov-16 455,546 19.9 24.6 28.5 23.0 12.7 14.0 17.1 14.5

Dr Reddy's Laboratories Ltd SELL 3,197 3,200 2,770 (13.4) 26-Oct-16 544,112 75.8 138.5 42.2 23.1 10.7 17.5 17.7 12.6

Lupin ACCUMULATE 1,505 1,530 1,664 10.6 10-Nov-16 674,775 66.6 79.2 22.6 19.0 24.5 23.6 14.2 11.8

Natco Pharma Ltd BUY 604 650 750 24.2 16-Nov-16 105,182 14.8 23.4 40.8 25.8 24.2 24.1 17.5 13.5

Sun Pharmaceuticals BUY 710 667 915 28.9 11-Nov-16 1,707,779 29.0 36.7 24.5 19.3 19.8 20.2 15.1 11.6

Torrent Pharmaceuticals SELL 1,377 1,565 1,226 (11.0) 27-Oct-16 232,738 60.5 64.5 22.8 21.4 27.2 24.0 15.9 14.8

Power

NTPC BUY 163 152 184 12.8 01-Nov-16 1,345,335 11.7 12.1 13.9 13.5 10.5 10.2 7.9 6.7

Tata Power Company Ltd ACCUMULATE 74 75 82 10.7 24-Aug-16 175,721 6.9 7.2 10.7 10.3 13.0 12.0 7.2 6.4

Real Estate

Phoenix Mills Ltd BUY 393 305 366 (6.9) 16-Nov-16 56,962 11.8 16.3 33.3 24.1 9.3 11.8 10.0 8.9

Shipping

GE Shipping Company SELL 363 361 320 (11.9) 15-Nov-16 55,199 72.9 62.0 5.0 5.9 11.6 9.1 3.9 4.3

Reliance Defence & Engg Ltd SELL 54 52 48 (10.9) 16-Nov-16 37,256 NM NM NM NM NM NM NM NM

Shipping Corporation of India SELL 59 58 54 (8.2) 18-Nov-16 24,902 9.5 8.7 6.2 6.8 6.0 5.2 5.9 2.4


^ All recommendations are with a 9-12 month perspective from the date of the report/update. Investors are requested to use their discretion while deciding the timing, quantity of investment as wellas the exit.

* Figures for CY16 & CY17** Figures for CY17 & CY18# Figures for CY16 & FY18 (15 month period)## Figures for CY17 & CY18 - September year endingNR Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s) and/or Kotak Securities policies in circum-

stances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.NM Not Meaningful





PREFERRED PICKS - FUNDAMENTAL

ADANI PORT AND SPECIAL ECONOMIC ZONEACCUMULATE

Current Market Price (Rs) 52 Week H/L (Rs) Mkt Cap (Rs mn)278 317 / 169 550563

Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 72,558 83,042 95,083Growth (%) 17.7 14.4 14.5 EBITDA 47,560 55,300 62,184EBITDA margin (%) 64.6 66.6 65.4PBT 31,377 36,899 41,796Net profit 28,108 34,619 39,149EPS (Rs) 13.9 17.2 19.4Growth (%) 20.8 23.2 13.1 CEPS (Rs) 19.3 22.9 25.6Book value (Rs/share) 63.0 78.1 95.5Dividend/share (Rs) 2.0 2.0 3.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 22.1 22.0 20.3ROCE (%) 10.8 11.1 11.0Net cash (debt) (188,187) (208,077) (225,979)Net Worcking Capital (Days) 16.9 17.1 18.9

VALUATION PARAMETERS FY16 FY17E FY18EP/E (x) 19.3 15.6 13.8 P/BV (x) 4.3 3.4 2.8 EV/Sales (x) 10.2 9.2 8.2 EV/EBITDA (x) 15.6 13.8 12.6

PRICE PERFORMANCE (%) 1M 3M 6M(7.6) (0.9) 30.0

Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company

Last report at Rs.310 on 26 October 2016

Analyst: [email protected]

Target Price (Rs)340

Volume Projections (mn tonnes)

Potential Upside (%)22.3%

1 Year Performance

Share Holding Pattern (%)

Quarterly Breakup of volumes (mn tonnes)

Promoter56.3%FII

23.9%

DII14.3%

Others5.5%

50

110

170

230

290 Adani Port & Special Economic Zone Nifty

INVESTMENT ARGUMENT APZ made major announcements in FY16 including development of a new

port at Vizhinjam, acquisition of Kattupalli port and a transshipment hub at Mundra.

The company intends to focus on container and Liquid cargo which adds value to APZ as they have higher margins, lower turnaround time and require lesser investment in terms of infrastructure

We estimate the next phase of growth for the company to come from subsidiary ports, especially the ports of Hazira, Dahej and Dhamra ports.

Management estimates healthy SEZ income over FY16 to FY18E on the back of addition of new assets at the port

Management is also making efforts to enhance non-port revenues, taking measures to bring down cost of debt and other cost and have taken cognizance of investor concerns with respect to third party transactions

RISKS & CONCERNS Competition in the port sector could climb significantly, as major ports

increase capacities and as minor ports come up. Slowing economy and trade Slow capex at SEZs

COMPANY BACKGROUND APZ has entered into an agreement with GMB to build, operate and

maintain the port for a period of 30 years till 2031 extendable by another 20 years.

The port is into providing cargo handling services for bulk, crude and container cargo.

SECTOR BACKGROUND Demand for port infrastructure is driven by the 3Cs: coal, containers and

crude.

0.05.0

10.015.020.025.030.035.0

Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

Mundra Others

0

50

100

150

200

250

FY14 FY15 FY16 FY17E FY18E

Mundra Total



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16E FY17E FY18ESales 14,958 14,883 19,928 Growth (%) (12.7) -0.5 33.9EBITDA 1,600 3,870 5,381 EBITDA margin (%) 10.7 26.0 27.0 PBT 3,921 6,462 7,966 Net profit 2,583 4,330 5,417 EPS (Rs) 7.7 12.9 16.1 Growth (%) (15.3) 67.6 25.1 CEPS (Rs) 8.4 13.5 16.7 BV (Rs/share) 79.1 85.3 94.8 DPS (Rs) 5.0 5.7 5.7 Source: Company, Kotak Securities - Private Client ResearchROE (%) 9.9 15.6 17.8 ROCE (%) 9.8 15.5 17.7 Net cash (debt) 26,238 25,968 30,712 NW Capital (Days) (131.3) (71.2) (84.5)

VALUATION PARAMETERS FY16E FY17E FY18EP/E (x) 38.3 22.9 18.3 P/BV (x) 3.7 3.4 3.1 EV/Sales (x) 4.8 4.9 3.4 EV/EBITDA (x) 45.3 18.8 12.6

PRICE PERFORMANCE (%) 1M 3M 6M18.9 8.4 52.0


Last report at Rs.266 on 18 November 2016

ENGINEERS INDIA LTD Analyst: [email protected]


Revenue Mix (%)


1 Year Performance


Segment Sales (Rs bn)

Promoter59.3%

FII6.6%

DII20.6%

Others13.5%

02468

10121416

FY14 FY15 FY16 FY17E FY18

60

120

180

240 Engineers India Ltd Nifty

INVESTMENT ARGUMENT Engineers India enjoys healthy market share in the Hydrocarbon

consultancy segment. It enjoys prolific relationship with few of the major oil & gas companies like HPCL, BPCL, ONGC and IOC.

Company is well poised to benefit from recovery in the infrastructure spending in the hydrocarbon sector.

We believe that in future, company shall inevitably benefit from MoPNG huge target of nearly Rs 1.2 trillion envisaged for various projects in XII five year plan.

Company has been observing pick up in order inflows/revenue booking in consultancy business space which enjoys healthy margins.

RISKS & CONCERNS Slowdown in domestic Hydrocarbon industry.

COMPANY BACKGROUND A Public sector undertaking. Leading player in domestic market

SECTOR BACKGROUND Hydrocarbon consulting business is a direct leverage on

Hydrocarbon sector. MPoNG has envisaged investments at Rs 1.2 trillion for various projects in 12th five year plan.

Indian Hydrocarbon sector has witnessed substantial capacity addition over the last decade. Refining capacity currently stands at 215 MMT against 62 MMT in 1998.

Refineries14%

Petrochemicals32%

Fertilizers6%

Pipelines19%

Storage Terminals

29%



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16E FY17E FY18ESales 42,269 43,000 45,797 Growth (%) -4.4 1.7 6.5EBITDA 7,697 8,175 8,850 EBITDA margin (%) 18.2 19.0 19.3PBT 2,003 2,590 3,449 Net profit 1,378 1,736 2,311 EPS (Rs) 4.5 5.7 7.6Growth (%) 368.1 25.9 33.7CEPS (Rs) 11.6 12.9 15.0Book value (Rs/share) 121.5 127.1 134.6Dividend per share (Rs) 0.0 0.0 0.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 3.8 4.5 5.8ROCE (%) 8.5 9.0 9.8Net cash (debt) (28,189) (27,175) (26,242) Net Working Capital (Days) 140 155 158

VALUATION PARAMETERS FY16E FY17E FY18EP/E (x) 26.7 21.2 15.9 P/BV (x) 1.0 0.9 0.9 EV/Sales (x) 1.1 1.1 1.0 EV/EBITDA (x) 6.1 5.6 5.1



Volume growth of India Cements (MT)


1 Year Performance


Cement industry capacity (MT)


INDIA CEMENTS LTD Analyst: [email protected]


Promoter28.6%

FII26.4%

DII17.7%

Others27.4%

0

100

200

300

400

500

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

8.0

8.5

9.0

9.5

10.0

10.5

FY11 FY12 FY13 FY14 FY15 FY16

50

110

170

230

290

350 India Cements Ltd Nifty

INVESTMENT ARGUMENT Results of the company were ahead of our estimates led by healthy

improvement in volumes and cost control measures. Lower power and fuel and other expenses helped in mitigating the impact of lower realizations on YoY basis.

Net profits registered an improvement of 62% YoY driven by volume gains as well as low base of last year (on account of higher tax provision in Q4FY16).

We expect prices to recover further in coming months coupled with demand improvement from AP and Telangana. We believe that in near term, demand is likely to get impacted by demonetization. However, medium to long term cement demand growth would be led by continued focus of government on infrastructure and rural economy revival.

RISKS & CONCERNS Steep fall in cement prices may post downward risk to our estimates Lower than expected demand revival can impact our dispatch

growth estimates

COMPANY BACKGROUND India Cements is a leading player in South India. But company's

performance was impacted by demand slowdown in southern india.

SECTOR BACKGROUND Demand scenario in Southern India is likely to improve going

forward with continued focus of government on infrastructure as well as spend towards rural housing. Along with this, incremental demand from AP/Telangana on higher government spending is likely to sustain prices at higher levels.



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 624,410 689,013 760,311 Growth (%) 17.1 10.3 10.3EBIT 156,189 167,199 187,602 EBITDA margin (%) 25.0 24.3 24.7 PBT 187,439 203,049 229,373 Net profit 134,909 144,755 164,002 EPS (Rs) 59.0 62.1 69.7 Growth (%) 9.4 5.2 12.2 CEPS 70.0 73.9 82.6 Book Value (Rs / Share) 270.3 289.2 309.7 Dividend per Share (Rs) 53.8 45.0 50.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 23.2 22.4 23.4 ROCE (%) 32.2 31.4 32.7 Net cash (debt) 328,778 378,757 413,143 Net working capital (Days) 65.0 63.4 63.3


PRICE PERFORMANCE (%) 1M 3M 6M(0.8) (6.7) (24.0)


Geographical Revenue Break up (%)


1 Year Performance


Number of Employees (Nos)


INFOSYS TECHNOLOGIES LTD Analyst: [email protected]


Promoter12.8%

FII40.1%

DII17.8%

Others29.2%

0

50,000

100,000

150,000

200,000

250,000

FY13 FY14 FY15 FY16

80

110

140

170 Infosys Technologies Nifty

INVESTMENT ARGUMENT 1H results have been strong. While the 2H guidance has been impacted by

unexpected headwinds, we believe that, the new strategy should allow Infosys to improve growth rates over the long term with sustained margins.

The long-term strategic plan reflects Infosys' focus on next-generation services and delivery models. Infosys has already made significant progress towards next-generation services and delivery mechanisms.

RISKS & CONCERNS A slower-than-expected recovery in major user economies may impact our

projections. A sharp appreciation of rupee beyond our assumed levels may impact our

earnings estimates for the company.

COMPANY BACKGROUND Infosys was incorporated in 1981 by 7 engineers, led by Mr. Narayana

Murthy. Infosys had been the proxy for the Indian IT sector since its inception.

The company has been an outstanding corporate citizen in terms of corporate governance in India. Infosys services clients in over 30 countries.

SECTOR BACKGROUND IT services exports are expected to amount to nearly $110bn in FY16. Indian companies provide services to several Fortune 500 companies. Banking & Financial services sector accounts for the largest revenues and

USA is the largest geography for the industry

0

20

40

60

80

FY13 FY14 FY15 FY16

USA Europe India Others



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 515,825 573,977 643,028 Growth (%) NM 11.3 12.0 EBITDA 133,558 151,679 172,472 EBITDA margin (%) 25.9 26.4 26.8 PBT 143,396 163,846 188,340 Net profit 92,447 108,138 124,304 EPS (Rs) 7.7 9.0 10.3 Growth (%) NM 17.0 14.9 CEPS (Rs) 8.5 9.9 11.3 Book value (Rs/share) 27.4 27.0 32.2 Dividend per share (Rs) 5.7 4.4 4.4 Source: Kotak Securities - Private Client ResearchROE (%) 29.0 33.1 34.9 ROCE (%) 23.7 27.1 29.7 Net cash (debt) 65,640 103,318 149,786 Net Working Capital (Days) 213 187 208





ITC LTD Analyst: [email protected]


Cigarette EBIT Growth (%, y/y)


1 Year Performance


Cigarette Volume Growth (Est., %, y/y)

Public 100.0%

80

100

120

140

160 ITC Ltd Nifty

INVESTMENT ARGUMENT Trend of cigarette volume growth suggests that, after a reshuffle in

cigarette consumption patterns, there is stability in the cigarette market. ITC, which has c.80% market share in the cigarette market, is likely to see a fair degree of stability in revenue growth going forward.

The cigarette industry has been able to combat structural negatives with a higher mix of <65mm cigarettes. In ITC’s own product mix, <65mm cigarettes now contribute more than 20% (as per our channel checks)

9-10% growth in cigarette EBIT is now the base-case scenario, unless tax trajectory changes significantly. Moreover, other divisions of ITC (paper, hotels, agri-business) have a weak base, and could surprise positively.

Valuations of ITC are attractive relative to large-cap FMCG plays, as well as ITC’s own historical bands.

RISKS & CONCERNS Significant changes in tax trajectory, including potential negatives

from GST rollout

COMPANY BACKGROUND ITC is India's largest cigarette company, with c.80% market share.

The company is also involved in several other segments, which include non-cigarette FMCG goods, paper, paperboards, and packaging, hotel, and agri-business.

SECTOR BACKGROUND Indian FMCG sector’s size is pegged at Rs 2 Trillion with rural India

contributing to about a third of the revenues.

-20

-15

-10

-5

0

5

10

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 1,026,317 1,135,061 1,319,330 Growth (%) 11.6 10.6 16.2EBITDA 123,427 114,742 138,530 EBITDA margin (%) 12.0 10.1 10.5 PBT 80,867 97,138 116,530 Net profit 49,032 53,606 63,995 EPS (Rs) 48.8 57.5 68.7 Growth (%) 2.2 17.9 19.4 CEPS (Rs) 78.3 77.8 91.2 Book value (Rs/share) 472.5 509.9 558.4 Dividend per share (Rs) 17.0 18.0 18.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 10.7 11.7 12.9 ROCE (%) 3.6 3.3 3.7 Net cash (debt) (954,050) (880,090) (874,971) Net Working Capital (Days) 105.4 117.2 114.9



Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research

Revenue mix


1 Year Performance


Order intake Rs bn


LARSEN & TOUBRO LTD Analyst: [email protected]


75

100

125

150

175

200 Larsen & Toubro Nifty

INVESTMENT ARGUMENT L&T is a diversified play on the Indian infrastructure and Industrial sector. The order backlog of Rs 2.51 trn remains strong providing visibility of 34

months of trailing four quarter revenue. The company has given revenue growth guidance in FY17 of 10-15%. Stock performance would be contingent on newsflow on larger order wins,

commodity price trends and general economic and policy datapoints (interest rate cuts and mining and power sector reforms), we opine.

We expect stock to respond favourably to any reforms moves to address the issues that have plagued the power sector

RISKS & CONCERNS

Mainly project execution and commodity price risks. Project investments has slowed down in recent quarters, which may impact

order flow in the coming quarters.

COMPANY BACKGROUND Professionally managed engineering company. Presence across Middle East and Central Asia Diversified across Power, Infrastructure, Hydrocarbons, Railways, Shipbuilding, Nuclear etc

SECTOR BACKGROUND The sector is a play on the growth of industrial and infrastructure investment

in India as well as abroad Government is a significant investor in the sector as it rolls out its investment

plans in road building, railways, power and energy. Sector has in the recent years been bogged down by high interest rates and

delay in decision making at government level.

0

100

200

300

400

500

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17

0%

15%

30%

45%

60%

Public 100%



ACCUMULATE


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 577,463 682,659 830,773 Growth (%) 15.6 18.2 21.7EBITDA 89,785 109,324 132,075 EBITDA margin (%) 15.5 16.0 15.9 PBT 65,350 93,946 117,287 Net profit 45,714 68,581 85,619 EPS (Rs) 151.3 227.0 283.4 Growth (%) 23.3 50.0 24.8 CEPS (Rs) 244.8 320.6 387.4 BV (Rs/share) 894.0 1,066.8 1,296.0 Dividend / share (Rs) 35.0 45.0 45.0 Source: Company, Kotak Securities - Private Client ResearchROE (%) 18.0 23.2 24.0 ROCE (%) 25.2 31.2 32.4 Net cash (debt) 174,241 214,513 285,741 NW Capital (Days) (14.1) (12.8) (12.8)




Market Share (%)


1 Year Performance


Sales Volumes (Units)


MARUTI SUZUKI INDIA LTD Analyst: [email protected]


Promoter56.2%FII

22.1%

DII15.0%

Others6.7%

0200,000400,000600,000800,000

1,000,0001,200,0001,400,0001,600,000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

48.0

45.9 46.5 44.7 45.3

38.4 40.1

42.1

45.0 46.8

35

40

45

50

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

50

150

250

350

450 Maruti Suzuki India Ltd Nifty

INVESTMENT ARGUMENT MSIL's volume growth has been healthy in 1HFY17 and the trend is

expected to continue in 2HFY17 and further strengthen in FY18. Strong demand for new launches, rural recovery, strong focus on urban market and trend shift towards petrol vehicles are the key volume growth drivers.

In recent years, the company made substantial strides in the premium car segment. MSIL has big opportunity to gain market share in the premium segment.

Full capacity utilization, expected decline in average discounts and rising share of premium models are expected to be positive for the margins. We expect MSIL's EBITDA margin over FY16-FY18E to stay at historical highs.

RISKS & CONCERNS Lower than anticipated growth will jeopardize our revenue and profit

estimates. MSIL benefits from yen depreciation. Any unfavorable movement of yen

can have significant impact on the company's profitability.

COMPANY BACKGROUND MSIL, India's largest passenger car company, is a subsidiary of Suzuki

Motor Corporation of Japan. Formed as a government owned company (Maruti Udyog Limited), it entered into a JV with Suzuki Motor Corporation. Over the years the company has been one the most successful player in the Indian car market.

SECTOR BACKGROUND India’s passenger vehicle industry sold ~3mn vehicles in FY14. While

80% of sales happened in the domestic market, balance 20% were exported. Top five players account for ~80% of industry sales volumes.



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 2,757 3,019 3,812 Growth (%) (3.3) 9.5 26.3EBITDA 458 553 754 EBITDA margin (%) 16.6 18.3 19.8 PBT 368 468 654 Net profit 241 314 436 EPS (Rs) 8.7 11.3 15.7 Growth (%) 42.8 30.1 39.0 CEPS (Rs) 11.8 14.5 19.4 BV (Rs/share) 46.5 56.2 69.6 Dividend per share (Rs) 3.3 3.3 3.5 Source: Company, Kotak Securities - Private Client ResearchROE (%) 18.7 20.2 22.6 ROCE (%) 18.6 19.9 23.5 Net cash (debt) (251) (247) (239) Net Working Capital (Days) 85 89 83



Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research


MOLD-TEK PACKAGING LTD Analyst: [email protected]


EBITDA Margin to strengthen


1 Year Performance


IML- share to go up to 60% by FY18E

Promoter42.1%

Others57.9%

0

400

800

1200

1600 Mold-Tek Packaging Nifty

INVESTMENT ARGUMENT Mold Tek Packaging stands to gains in the coming years from the increasing share

of IML, backward integration and expansion in the food and FMC G industry. MTPL was the first company to offer IML technology in 2011, while others were

focusing on screen printing and heat transfer labelling (HTL). IML is a high margin (300-400bps higher) technology compared to the traditional methods.

Emerged as one of the leading manufacturers and suppliers of high quality airtight and pilfer containers/pails in India with an installed capacity of 28,800 tonnes per annum for paints, lubricants and FMCG (includes Edible Oil) industry.

Going ahead, incremental volume is likely to come from IML, thereby taking a proportion of IML shares in the overall revenue mix to 60% by the end of FY18E from 45% currently

Expect MTPL to continue delivering strong growth in the coming years on the back of integrated facilities and increasing revenue from the high margin FMCG industry. The stock trades at 12.6x/11.9x FY17E/FY18E earnings, and on EV/EBITDA, it trades at 8.2x/8.0x FY17E/FY18E. We initiate coverage with BUY rating.

RISKS & CONCERNS Slower than expected pick-up in edible oil business Slower than expected ramp-up at R AK facilit ies

COMPANY BACKGROUND Mold Tek Packaging is a leading manufacturer of high quality rigid plastic packaging products (Rigid plastic packaging) and a pioneer is Inject Mold Labelling for lubr icants, paints and FMCG industry. MTPL is one of the few companies globally to have completely backward integrated facility. It has 7 manufactur ing units in India, with an installed capacity of 2,400 tonnes per month and three stock points spread across India to ensure faster supplies. It has recently set up a plant at RAK, UAE.

SECTOR BACKGROUND Rigid P lastic Packaging Container" means any plastic package having a relatively inflexible finite shape or form, with a minimum capacity of eight fluid ounces or its equivalent volume and a maximum capacity of f ive fluid gallons or its equivalent volume, that is capable of maintaining its shape while hold ing other products, including, but not limited to, bottles, cartons, and other receptacles, for sale or distr ibution in the state. As per the management, the current market size of packaging industry is over Rs700 bn, of which Rigid Packaging industry is about R s212bn, which is expected to grow at 14% in the near future. Management expects flexible packaging industry to likely register ~18% growth rate in the coming years.

0.0

20.0

40.0

60.0

80.0

100.0

FY12 FY13 FY14 FY15 FY16 FY17E FY18E

5.0%

10.0%

15.0%

20.0%

25.0%

500

1,500

2,500

3,500

4,500

FY12 FY13 FY14 FY15 FY16 FY17E FY18E



NAGARJUNA CONSTRUCTION COMPANY LTDBUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 82,634 90,898 98,169 Growth (%) -0.3 10.0 8.0EBITDA 6,756 7,726 8,344 EBITDA margin (%) 8.2 8.5 8.5PBT 2,960 4,047 4,620 Net profit 2,229 2,671 3,049 EPS (Rs) 4.0 4.8 5.5 Growth (%) 99.4 19.8 14.2CEPS (Rs) 6.0 7.0 7.7 Book value (Rs/share) 61.2 65.7 70.7 Dividend per share (Rs) 0.4 0.4 0.4 Source: Company, Kotak Securities - Private Client ResearchROE (%) 6.7 7.6 8.0 ROCE (%) 15.0 14.3 14.6 Net cash (debt) (17,190) (17,276) (16,551) Net Working Capital (Days) 146.0 146.0 146.0





Analyst: [email protected]


Segmentwise Revenue Break up (%)


1 Year Performance


Order book break up (%)

Promoter20.4%

FII26.6%

DII17.5%

Others35.5%

Roads,building,oil

44%

Water and railways

26%

Irrigation12%

Electrical7%

Internatnal10%

Power1%

0

200

400

600

800 Nagarjuna Construction Company Ltd Nifty

INVESTMENT ARGUMENT Strong order book of Rs 186 bn providing visibility for two years. Order book is well diversified across roads, building, oil & gas (44%), water

& railways (26%), irrigation (12%), electrical (7%) & Int'l (10%). Company maintained it FY17 order inflow target of Rs 120 bn. Order inflow

of Rs 77.4 bn in 7MFY17 supports this guidance. It is quite optimistic on order inflows from AP/Telangana in water supply, irrigation and building segment.

Company has repaid nearly Rs 1.5 -2 bn worth of high cost debt and and expects to reduce it further by Rs 2 bn in FY17. Improved Balance Sheet with gross debt at Rs.20.6 bn as on 30th Sep'16 and debt/equity ratio of 0.6:1.

We expect NCC to post a CAGR of 9% on revenues and 17% on reported PAT over FY16-18E.

We maintain positive bias for the stock and recommend BUY on the stock.

RISKS & CONCERNS Delays in order inflow across verticals may impact revenue growth going

forward Delays in stake sale in road/real estate may keep debt at higher levels

COMPANY BACKGROUND Order book currently is diversified across roads, building, oil and gas, water

and railways, irrigation, electrical, mining, international, metals and power.

SECTOR BACKGROUND Order inflow is likely to increase going forward during the fiscal due to

improvement in macro-economic climate. We expect buildings, water supply, and irrigation to continue to witness increased activity thereby leading to better order inflows.

0

25

50

75

100

FY13 FY14 FY15 FY16

Power Metals InternatnalMining Electrical IrrigationWater and railways Roads,building



BUY


Source: Bloomberg

Source: Bloomberg

FINANCIALS (RS MN) FY16 FY17E FY18ESales 10,521 10,351 12,191 Growth (%) NM (1.6) 17.8 EBITDA 1,056 1,164 1,916 EBITDA margin (%) 10.0 11.2 15.7 PBT 1,957 2,829 4,643 Net profit 2,047 2,730 4,356 EPS (Rs) 1.2 1.6 2.5 Growth (%) 30.5 33.4 59.6 CEPS (Rs) 1.4 1.8 2.8 Book value (Rs/share) 22.3 23.8 26.3 Dividend per share (Rs) - - - Source: BARC, Note: Imp. Stands for impressions in the headline aboveROE (%) 5.5 6.9 10.1 ROCE (%) 5.5 7.0 10.2 Net cash (debt) 200 2,191 5,588 Net Working Capital (Days) 74 100 113



Source: Bloomberg, Company, Kotak Securities - Private Client Research Source: Kotak Securities estimates


TV18 BROADCAST LTD Analyst: [email protected]

Target Price (Rs)56

Contribution to PAT (est, FY17)


1 Year Performance


Top 10 Hindi GEC (Urban) Week 44, 2016(Imp., mn)

Promoter60.3%FII

8.9%

DII7.3%

Others23.5%

50

100

150

200

250 TV18 Broadcast Ltd Nifty

NVESTMENT ARGUMENT TV18 owns one of the most attractive bouquets in the Indian TV

Broadcasting industry (news operations, 50% ownership in entertainment/ infotainment operations via JVs), and valuation (mkt. cap ~Rs 70Bn) versus peers (Zee Entertainment ~Rs 520 Bn, Sun TV ~Rs 200 Bn) indicates significant scope for appreciation.

Strong performance in entertainment channels’ ratings points to strong earnings ahead: Colors, the flagship channel of Viacom18, has emerged as the #1 Hindi GEC in several weeks of 2016; regional channels too bringing in strong performance. IPO pipeline being strong is a positive signal for business news performance. Additionally, near-term earnings will benefit from political advertising (UP elections). We expect strong earnings growth with EBITDA CAGR of 47% between FY16-FY18E.

The company is likely to report strong earnings as and when the negative impact of recent launches fades (2HFY17). Valuations are attractive, at 15X FY18E PER (>40% discount to Zee Entertainment). Our price target implies PER of 22X FY18E.

RISKS & CONCERNS Ratings performance of key channels is the key risk.

COMPANY BACKGROUND TV18 Broadcast is amongst the largest TV broadcasting companies in

India, with presence in news as well as entertainment. The company has a 50:50 JV with Viacom ("Viacom18) which operates,

among others, Hindi GEC Colors. TV18 has bought a 50% stake in ETV entertainment channels (other than Telugu) and 100% stake in ETV News channels.

SECTOR BACKGROUND Indian TV Broadcasting is a Rs 540 Bn industry, with Rs 175 Bn in

advertising revenues. The sector is positively exposed to digital addressability, which should bring benefits to broadcasters/ platform providers.

Standalone Operations

25%

ETV -Regional

News4%

Entertainment Operations

71%

-

100

200

300

400

500


Fundamental Desk

Technical Desk

Shrikant Chouhan

Derivatives Desk

Sahaj Agrawal

RESEARCH TEAM

Dipen ShahIT, Economy

Sanjeev ZarbadeCapital Goods, Engineering

Teena VirmaniConstruction, Cement

Arun AgarwalAuto & Auto Ancillary

Ruchir KhareCapital Goods, Engineering

Ritwik RaiFMCG, Media

Sumit PokharnaOil and Gas

Amit AgarwalLogistics, Paints, Transportation

Meeta Shetty, CFAPharmaceuticals

Jatin DamaniaMetals & Mining

Pankaj KumarMidcap

Nipun GuptaInformation Technology

Jayesh KumarEconomy

K. KathirveluProduction

Amol Athawale

Malay Gandhi Prashanth Lalu Prasenjit Biswas


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