Top Picks 2021 - InvestmentGuruIndiavid.investmentguruindia.com/report/2021/January/YSL... · 2021....

January 2021

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 1

Top Picks 2021

January 07, 2021

Dear Patron,

The stock market recovery is indeed incredible, surpassing previous lifetime high. Notwithstanding the uncertainty on many economic fronts, we believe that the worst is over for the stock market. With regards to the Covid crisis, the market assessment is that rural India is largely unaffected, large number of urban cases are restricted to only few cities and the overall case curve is falling. Commentary from Moderna and Pfizer, the leaders in the vaccine race, is highly encouraging. Mobility has improved across the board, suggesting the economy well poised on the path of recovery.

Coming to the economy, high frequency indicators have been in positive territory. Manufacturing and industrial activity is on a V shaped trajectory. Service sector is back in expansion mode after a prolonged period of weakness. Rural Economy has been the most resilient, thanks to various fiscal measures. The Economist Intelligent Unit believes that economies of India and South Korea will be the first to bounce‐back from this pandemic. We wouldn’t be surprised to see a 15%+ nominal GDP growth in FY22, on the back of low base of FY21. Corporate earnings in Q2 FY21 have been strong, with only a 10% fall in revenues from pre‐covid levels. Disruptions over the past five years have depressed earnings, however, strong expansion is due, as history reckons that an era of strong reforms generally precedes sharp rebound in corporate profitability.

After the Income statement, let’s come to the Balance Sheet. Crisil ratings estimates that 99% of large companies from their study of 3,500+, with a loan exposure of Rs250mn or more, are unlikely to opt for RBI’s one‐time debt restructuring. We agree, since even in the worst Covid hit quarter of Q1 FY21, interest coverage ratios were comfortable for India Inc. What’s more, corporates have strengthened their balance sheets by raising capital in record numbers, surpassing levels achieved in 2017 and 2019. Likewise, the Indian banking system is much stronger and collection efficiency has gone up. Networth of NSE500 companies (ex Financials) has risen 7.6% in H1FY21 and debt/equity has come down to 1.24x from 1.32x.

They say, don’t fight the Fed! What we’re witnessing is a massive liquidity injection globally. Central bankers are pumping in money @ of $1bn+ every hour. Interest rates have been lowered with a promise to keep them subdued, for as long as necessary. With the US Dollar on a sideway or downward journey, capital will flow to emerging markets like India. Even back in India, the RBI, through cuts in Repo rate and several open market operations, have materially lowered the yield curve. Home loan rates, for instance, were possibly never this low, as they are today. Highly rated businesses are borrowing at 7%, versus 12% only few years ago. Besides actively managed funds, Indian equities are also likely to receive passive fund flow after the MSCI rejig in its favour.

Coming to valuations, they don’t appear to be in dangerous territory to us, as widely perceived. Optically, values may appear high, but when seen in context of where the cost of capital is, lack of opportunities in other asset classes, they certainly seem reasonable. If earnings play catch‐up, in the two out of the next four years, then valuations will start looking cheap to the present naysayers. The market structure also looks promising, after a long consolidation since 2018, and volatility coming off from elevated levels.

There are no denying concerns around the fiscal deficit, sustenance of small businesses, jobs and the like, but a market rally hardly ever expects to have all ticks marked in its favour. Importantly, a host of factors lend credible support to the market cycle ‐ besides the positives mentioned above, a benign crude and commodity environment benefits equities. We also expect a big manufacturing push in India with strong government support, lowered taxation and global players looking for an alternative to China. Reports suggest our government is targeting to provide incentives to the tune of US$23bn to draw‐in, corporates to make in India.

All‐in‐all, we believe the market will run up ahead of, and in anticipation of, an ensuing economic recovery. Yes, the year 2020 was largely about survival, both health‐wise and finance‐wise. But, this is also the opportune time to tweak and tighten your portfolio. 2021 could well be akin to the year 2003, from a market standpoint. In our reckoning, the best for the market lies immediately ahead.


Top Picks 2021

January 07, 2021

Exhibit 1: Top Picks 2021

Stock Name CMP* Target % Upside Sector MCap (Mn)*

Sobha Limited 411 640 56% Realty 38,948

Deepak Nitrite 1,033 1,505 46% Chemicals 140,908

PNC Infra 176 246 40% Infra 45,061

TCI Express 980 1,320 35% Logistics 37,670

CreditAcess Grameen 768 1,020 33% Financials 119,402

HDFC Limited 2,639 3,420 30% Financials 4,750,438

ICICI Bank 547 705 29% Financials 3,774,249

Kansai Nerolac 613 785 25% Paints 330,223

Gillette India 5,856 7,280 24% Personal Products

190,803

Source: NSE; YSEC – Research; *As on January 06, 2020

BUY CMP Rs411 12‐mth Target Rs640 Upside 56%


Sobha Limited Sector: Realty January 07, 2021

Play on India’s realty sector recovery Worst behind for industry; several macro tailwinds to support recovery We are positive on realty space aided by sharp demand recovery and higher sales/booking momentum recently witnessed for most players in the industry. We believe, the current demand is largely aided by a) reduced stamp duty by select states b) all‐time low home loan interest rates c) increased pent‐up demand post lockdown d) offers and flexible payment schemes and e) change in consumer behavior post COVID‐era (security of owning a house, WFH, owning house close to workplace, safety, hygiene etc.). While there are market concerns for realty construction players on accounts of a) higher debt levels, b) lack of affordable finance for builders, and c) higher unsold inventory levels, we believe increased sales momentum with normalized Cost of borrowings will lead to higher cash flows and better balance sheet position, in‐turn, re‐rating of industry and most stocks in the sector. Additionally, we note that property prices have largely remained flattish/improved at low single digit growth rate over past 7‐8 years for most markets. However, the upsurge in demand may translate into better pricing going forward.

Sobha, a quality franchise to play with an anticipation for better realty cycle We believe, Sobha is a better placed company in the realty space backed by a) its strong brand, b) better product realizations, c) back‐word integration of processes including in‐house design, architecture, mechanical, electrical, plumbing and engineering, d) superior execution capabilities and 5) diversifications from Bangalore market to pan India player. Also, the company is likely to be a prime beneficiary of consolidation in the industry

Outlook and Financials Despite covid‐19 related issues, Sobha has managed to recognize price realization of Rs 7,737/square feet during Q2FY21(highest in past 5 quarters). Additionally, the company has generated net Operating Cashflow of Rs 1.30 bn and Rs 2.22 bn during Q2FY21 and H1FY21 respectively despite tough operating environment. Management in its commentary had indicated towards better H2FY21 with enquiry reaching to almost the pre‐COVID levels. At present, current cost of borrowing stands at 9.32% and current net Debt stands at Rs 30.5b. We expect, net debt likely to stay at higher levels as management has guided for project launches of ~14msf in next 5‐6 quarters, However, the company may get benefit of lower cost of borrowing (expect to come down by further 75‐100bps by FY23). At CMP, the stock is trading at undemanding valuation of 4.5x FY23E EV/EBITDA and 7x FY23E P/E.

Stock data (as on January 6, 2021) Nifty 14,146 52 Week h/l (Rs) 464 / 121 Market cap (Rs/USD mn) 38948 / 533 Outstanding Shares (mn) 95 6m Avg t/o (Rs mn): 131 Div yield (%): 1.7 Bloomberg code: SOBHA IN NSE code: SOBHA Stock performance

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Absolute return 26.1% 56.7% 5.5%

Shareholding pattern (30‐Sep‐20) Promoter 51.99% FII+DII 28.58% Others 19.41%

YES SECURITIES

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SOBHA Nifty


Sobha Limited

FINANCIALS

Exhibit 2: Balance sheet Y/e 31 Mar (Rs mn) FY17 FY18 FY19 FY20

Share Capital 963 948 948 948

Reserves and Surplus 25,482 26,750 21,342 23,364

Total Shareholder's Fund 26,445 27,698 22,291 24,312

Minority Interest ‐ ‐ ‐ ‐

Non‐Current Liabilities

Long‐Term Borrowings 4423 27,883 48 2,378

Deferred Tax Liabilities (Net) 2,283 2,521 74 311

Other Long Term Liabilities 1 1 ‐ ‐

Long‐Term Provisions 161 183 121 144

Total Non Current Liabilities 6,870 5,494 243 2,894

Current Liabilities

Short‐Term Borrowings 1,7372 2,0300 24,379 28,630

Trade Payables 7,693 7,205 11,328 9,567

Other Current Liabilities 30,007 29,065 48,525 44,230

Short‐Term Provisions 543 485 705 420

Total Current Liabilities 55,615 57,054 84,937 82916

TOTAL EQUITY AND LIABILITIES 88,930 90,245 107,471 110,122

Non‐Current Assets

Fixed Assets 3,178 2,797 2,972 4,862

Goodwill on Consolidation ‐

Non‐Current Investments 2,772 4,430 4,934 5346

Deferred Tax Assets (net) ‐ ‐ 1,009 20

Long‐Term Loans and Advances 4,326 4,393 5,202 5,353

Other Non‐Current Assets 534 480 257 244

Total Non Current Assets 10811 12100 14374 1,5955

Current Assets

Current Investments ‐ ‐ ‐ ‐

Inventories 50,959 48,349 65,173 67,045

Trade Receivables 71,993 84,898 86,779 69,283

Cash & Cash Equivalents 1,468 1,194 1,771 884

Short‐Term Loans and Advances 18,801 21,463 22,297 20,489

Other Current Assets 4,622 3,869 583 2,145

Total Current Assets 78,118 78,147 93097 94,167

TOTAL ASSETS 88930 90245 107471 110122

Source: Company, YES Sec – Research

Exhibit 3: Income statement Y/e 31 Mar (Rs mn) FY17 FY18 FY19 FY20

Revenue 22290 27830 34420 37540

Operating Profit 4,200 5,200 6,730 11,150

Depreciation 640 540 620 720

Finance Costs 1,496 1,978 2,362 6,816

Profit before Exceptional items 2,578 3,171 4,482 4,332

Exceptional Items ‐ ‐ ‐ ‐

Profit before Tax 2,578 3,171 4,482 4,332

Tax Expenses 970 1,002 1,512 1,514


Reported PAT 1,608 2,169 2,970 2,817


Exhibit 4: Ratio analysis Y/e 31 Mar FY17 FY18 FY19 FY20

Debt‐Equity Ratio 0.85 0.84 0.99 1.23

Current Ratio 1.36 1.33 1.19 1.12

Total Asset Turnover Ratio 0.47 0.56 0.69 0.72

Interest Cover Ratio 2.72 2.6 2.9 1.64

Operating Profit Margin (%) 21 20.5 21.7 31.62

PAT Margin (%) 7.16 7.78 8.63 7.5

ROCE (%) 8.44 10.3 13.74 21.39

RONW (%) 6.17 8.01 11.88 12.09

P/E (x) 24.2 17.9 13.1 13.8




Deepak Nitrite Sector: Chemicals January 07, 2021

An impeccable chemical script Diversified chemical player; potential beneficiary of the emerging global trend of CHINA+1 policy Deepak Nitrite Limited (DNL) is a chemical intermediary company having presence in diversified business of Basic Chemicals, Fine & speciality and Performance Products. Additionally, DNL manufactures Phenol, Acetone & Iso‐Propyl Alcohol via its wholly‐owned subsidiary, Deepak Phenolics Ltd. With diversified business segments, and wide applications, DNL acts as an integrated player aided with higher realizations, better cost optimization, increased customer reaffirmation and resilient to economic slowdown. Also, DNL, being Indian company, can be a potential beneficiary of the emerging global trend of CHINA+1 policy owing to its integrated operations and wide products basket. Currently, it has been able to capitalise on the growing demand from large global customers preferring high quality and diversifying their sourcing requirements away from China.

Forward and backward integration, Capacity expansions and debottlenecking provides strong revenue growth visibility DNL has invested ~Rs 2.7bn in FY20 towards capacity expansion, debottlenecking its existing plants and acquisition of several land parcels. Going forward, the company has guided for Rs 4bn of capex to be incurred in FY21 mainly towards brown‐field expansions in basic chemicals and the FSC segment. During Q3 FY21, it has also incorporated a wholly owned subsidiary company namely Deepak Clean Tech Limited (DCTL) to carry out manufacturing of chemical intermediate products. We expect total capex to reach Rs 6bn in FY22 on account of incremental requirements in DCTL. However, capex on forward and backward integration, debottlenecking and capacity expansions will aid the company in higher volumes, increased product portfolio and sustenance of margin profile.

Outlook and Financials We are positive on DNL with a) its import‐ substitute capabilities for domestic players b) alternative to Chinese players for other global manufacturers, c) diversified and de‐risked business model d) improved operational and financial performance on account of ongoing and upcoming CAPEX. Additionally, DNL has delivered healthy financial performance during FY10‐20 (PAT CAGR of ~35%). Going forward, we believe improvement in financial performances across major business units to keep ROEs at 25%+ between FY21‐FY24. Given quality play, the stock is trading at a reasonable valuation of 15.5x FY23E P/E.

Stock data (as on January 06, 2021) Nifty 14,146 52 Week h/l (Rs) 1054 / 310 Market cap (Rs/USD mn) 140,908 / 1927 Outstanding Shares (mn) 136 6m Avg t/o (Rs mn): 1,003 Div yield (%): 0.4 Bloomberg code: DN IN NSE code: DEEPAKNTR Stock performance

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Deepak Nitrite

FINANCIALS







Long‐Term Borrowings 2,184 5,505 8,690 7,790

Deferred Tax Liabilities (Net) 391 454 775 796

Other Long‐Term Liabilities ‐ 170 138 8.5

Long‐Term Provisions 78 79.4 114 144

Total Non‐Current Liabilities 2,653 6,201 9,725 8,878

Current Liabilities

Short‐Term Borrowings 3,766 3,315 2,550 2,484

Trade Payables 2,145 4,899 4,724 3,642



Total Current Liabilities 8073 10475 8836 7489

TOTAL EQUITY AND LIABILITIES

17875 25906 29278 32086

Non‐Current Assets

Fixed Assets 9,351 15,421 17,497 19,890

Goodwill on Consolidation ‐ ‐ ‐ ‐

Non‐Current Investments 37 23 24 24

Deferred Tax Assets (net) ‐ ‐ ‐ ‐

Long‐Term Loans and Advances 967 529 137 454


Total Non‐Current Assets 10,367 15,977 17,661 20,523

Current Assets

Current Investments 1,143 294 ‐ ‐

Inventories 1,671 3,254 4,107 3,945


Cash and Cash Equivalents 145 482 258 314

Short‐Term Loans and Advances 878 1,588 1,456 1,112

Other Current Assets 65 192 43 58

Total Current Assets 7,510 9,929 11,617 11,563

TOTAL ASSETS 17,875 25,905 29,278 32,096


Exhibit 6: Income statement Y/e 31 Mar (Rs mn) FY17 FY18 FY19 FY20

Revenue 13,710 16,510 27,000 42,300


Depreciation Expenses ‐480 ‐530 ‐780 ‐1400

Finance Costs ‐370 ‐470 ‐870 ‐1180

Other Income 810 70 110 290

Exceptional Items ‐ ‐ ‐ ‐

Profit before tax 1,350 1,110 2,680 8,060

Tax Expenses (390) (310) (940) (1,950)

Extraordinary Items ‐ ‐ ‐ ‐


Reported PAT 960 790 1,740 6,110



Debt‐Equity Ratio (x) 1.06 1.04 1.09 0.87

Current Ratio (x) 0.76 0.83 1.03 1.28

Total Asset Turnover Ratio (x) 1.18 0.99 1.28 1.7

Interest Cover Ratio (x) 2.78 3.34 4.1 7.84

Operating Margin M (%) 10.28 12.58 16.01 25.16

PAT Margin (%) 3.2 4.71 6.43 14.45

ROCE (%) 8.27 9.37 16.81 37.14

RONW (%) 7.84 9.65 17.42 46.23

P/E (x) 146 178 81 23




PNC Infratech Ltd Sector: Infra January 07, 2021

Bloated order book to aid performance PNC Infratech Limited (PNC), EPC focused player, commands expertise in construction of roads and highways, airport runways, and other civil projects. It generates decent operating margins backed by in‐house execution and select focus on regions (primarily UP and Bihar). Robust in‐house execution capability has also helped the company by the way of bonuses for early completion of projects, aiding its margins

Strong order book in hand; significant pick up in order activity and execution The order book at the end of Sep’20 stood at ~Rs.158 bn. As per the management, awarding activity from NHAI side has picked up pace and 60% of projects have been awarded on EPC mode till date. NHAI is well on target to award 4500 kms of projects during FY21. The Company has already received orders worth Rs.42 bn during FY21. It is targeting to win Rs.50‐60 bn worth of projects in remaining part of FY21 primarily in Roads and Irrigation segment. The Company has submitted bid for Road project worth Rs.16 bn and ~Rs.50 bn for Water projects. Considering the current pace of execution and better labor availability, the Management now expects to close the year with marginal growth in topline during FY21. This is as against 10% decline guided earlier.

Strong fleet of owned equipment and focus on select regions to drive operating performance PNC is well‐integrated in terms of access to raw material as well as decent fleet of owned equipment. Its focus on select regions has helped achieve one of the strongest profitability levels compared to peers. Given the rising scale of activities, operating performance would remain robust and more than offset any pressure that stems from increasing competitive intensity in the sector. Also, the unexecuted order book contains orders with strong margins of 14‐16% levels, which provide strong earnings visibility in coming years.

Outlook and Financials With monsoon largely behind and better labor availability, execution pace is set to see sharp improvement during H2 FY21. Operating margin is expected to remain healthy at ~13.5% levels. The order book is in a comfortable position with ~ 3x FY20 revenues. Recent order inflows, continued focus on asset monetization and comfortable balance sheet position provide comfort. We believe Company would be one of the big beneficiary of strong project awarding by NHAI. Entry in water segment has also opened new business avenues which would support order book going forward. Given quality play stock trading at inexpensive valuation of 7x FY23 EPS of 25

Stock data (as on January 06, 2021) Nifty 14,146 52 Week h/l (Rs) 215 / 80 Market cap (Rs/USD mn) 45061 / 616 Outstanding Shares (mn) 257 6m Avg t/o (Rs mn): 51 Div yield (%): 0.3 Bloomberg code: PNCL IN NSE code: PNCINFRA Stock performance

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PNC Infratech Ltd

FINANCIALS

Exhibit 8: Balance sheet Y/e 31 Mar (Rs mn) FY19 FY20 FY21E FY22E

Equity capital 513 513 513 513

Reserves 20,639 24,953 27,723 32,171

Net worth 21,152 25,466 28,236 32,684

Other LT Liabilities 3,703 6,463 6,011 8,355

LT provision 88 69 110 131

Borrowings 3,747 3,266 4,194 5,066

Deferred tax liab (net) (1,673) (1,215) (1,215) (1,215)

Total liabilities 27,017 34,050 37,336 45,022

Fixed assets 6,135 5,865 5,746 5,320

Capital Work in progress 62 ‐ ‐ ‐

Investment Property ‐ ‐ ‐ ‐

Intangible assets 20 16 16 16

Investments 5,730 7,355 10,155 14,455

Other Non‐current Asset 3,774 5,354 4,979 6,921

Net working capital 8,202 8,060 8,591 12,120

Current Assets

Inventories 4,036 2,673 5,593 7,429

Sundry Debtors 6,154 8,035 7,954 10,711

Other current assets 2,822 2,565 2,386 3,316

Short‐term Loans and advances 3,655 3,625 3,371 4,686

Cash 3,094 7,401 7,849 6,191

Current Liabilities

Sundry Creditors (4,737) (4,675) (6,836) (8,638)

Other current liabilities (3,699) (4,124) (3,836) (5,332)

Provision (28) (39) (41) (52)

Total assets 27,017 34,050 37,336 45,022


Exhibit 9: Income statement Y/e 31 Mar (Rs mn) FY19 FY20 FY21E FY22E

Revenue 30,969 48,779 45,365 63,057

Operating profit 4,573 7,643 6,349 9,179

Depreciation & Amortization (922) (1,264) (1,319) (1,426)

PBIT 3,651 6,379 5,030 7,753

Interest expense (641) (1,144) (1,192) (1,389)

Other income 430 885 507 563

Exceptional items ‐ ‐ ‐ ‐


Taxes (191) (1,517) (1,498) (2,351)

Minorities ‐ ‐ ‐ ‐

Reported profit 3,249 4,603 2,847 4,577

Adj. Net profit 3,249 4,603 2,847 4,577


Exhibit 10: Ratio analysis Y/e 31 Mar (Rs mn) FY19 FY20 FY21E FY22E

Growth matrix (%)

Revenue growth 66.8 57.5 (7.0) 39.0

Op profit growth 43.4 67.1 (16.9) 44.6

EBIT growth 54.2 78.0 (23.8) 50.2

PBT growth 47.1 77.9 (29.0) 59.5

EPS growth 29.4 41.7 (38.1) 60.7

Profitability ratios (%)

OPM 14.8 15.7 14.0 14.6

EBIT margin 13.2 14.9 12.2 13.2

Net profit margin 10.5 9.4 6.3 7.3

RoCE 17.4 23.8 15.5 20.2

RoNW 16.6 19.7 10.6 15.0

RoA 9.2 10.7 5.9 7.8

Per share ratios (Rs)

EPS 12.7 17.9 11.1 17.8

Dividend per share 0.5 1.0 0.3 0.5

Cash EPS 16.3 22.9 16.2 23.4

Book value per share 82.5 99.3 110.1 127.4

Payout (%)

Dividend payout 4.8 6.7 2.7 2.8

Tax payout 5.6 24.8 34.5 33.9

Liquidity ratios

Debtor days 72.5 60.1 64.0 62.0

Inventory days 47.6 20.0 45.0 43.0

Creditor days 55.8 35.0 55.0 50.0


BUY CMP Rs980 12‐mth Target Rs1,320 Upside 35%


TCI Express Ltd Sector: Logistics January 07, 2021

Delivering with speed TCI Express (TCIE), with its renewed focus on express business after its demerger from Transport Corporation of India Ltd (TCI), has accelerated into the fast‐tracked lane and has been able to expand its operating margin (up ~350bps during FY17‐20 to 11.8%) backed by higher share from B2B clients. The adoption of lease‐based model for most enables company with greater operational flexibilities, manageable profit volatilities, and better return on assets. Also, with no single client contributing >1% to the revenue, it keeps concentration risk at bay. Going forward, we believe, TCIE is one of the better placed express player in the industry with a) its robust position in express industry, b) higher contribution from B2B clients, and c) focus on growing SME sector.

Strong position in express logistics market despite presence of several unorganized players Eyeing bulging opportunities in the express delivery segment largely backed by heightened e‐commerce and SME companies’ requirements, TCIE came into existence as an independent entity in 2016 with its demerger from TCI. Its wide spectrum of services includes Surface Express, Domestic and International Air Express, E‐Com Express, Priority Express and Reverse Express. With its strong parentage and experience it has managed to deliver robust performance. The Company has been able to well manage the competition in the unorganized sector.

Substantial B2B clients’ portfolio advantage TCIE; current clientele blend to continue Given low competition and better margin profile in B2B segment complemented by TCIE’s improved infrastructure capabilities in handling large volumes across multiple locations/verticals, the company has strategically focused on acquiring B2B clients and has been a major contributor (~95%) to the revenue. In addition, TCIE has managed decent margins from B2C clients (highly competitive due to presence of unorganized players, low margin business for many industry players) led by its better network utilization in delivering products in Tier II & Tier III cities, and non‐exclusivity contracts with mid‐sized e‐commerce companies. Going forward, the company’s focus is likely to remain skewed towards addition of B2B clients (with servicing current B2C clients).

Exposure to various industries limits concentration; SME to lead growth Though TCIE has large clientele base towards B2B/B2C segment, these clients (industry‐wise) are spread among SMEs (50%), Automotive (13%), Pharmaceuticals (11%), Engineering (7%) and Telecom (6%) among majors. Also, no single client contributes more than 1% to the revenue, thus, have minimizes concentration risk. In the recent years, the company has put‐on extra effort by focusing more towards addition of SME clients and these are benefiting company with the incremental growth/ better margin profile. Also, the growth in FY21E is likely to be led by SME clientele group as no major corporates are expected to ramp‐up production/logistical spends on the large‐scale due to covid‐19 disruptions. Thus, presence of SME clients with selected large corporates to keep TCIE’s growth intact.

Healthy return ratios; valuation attractive The cost cutting measures, price hikes, opening of owned sorting centres at select locations would ensure improvement in operating margin performance. We believe the asset light model would significantly benefit the Company in the uncertain business scenario. Also, its return ratios remain best among the industry. At CMP, the stock trades at valuation of 34x FY22E P/E.

Stock data (as on January 06, 2021) Nifty 14,146 52 Week h/l (Rs) 999 / 456 Market cap (Rs/USD mn) 37670 / 515 Outstanding Shares (mn) 38 6m Avg t/o (Rs mn): 23 Div yield (%): 0.1 Bloomberg code: TCIEXP IN NSE code: TCIEXP Stock performance

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TCIEXP Nifty


TCI Express Ltd

FINANCIALS

Exhibit 11: Balance sheet Y/e 31 Mar (Rs mn) FY19 FY20 FY21E FY22E

Equity capital 77 77 77 77

Reserves 2,595 3,296 3,922 4,826

Net worth 2,672 3,373 3,999 4,903

Debt 98 39 37 38

Deferred tax liab (net) 55 41 41 41

Total liabilities 2,825 3,454 4,079 4,984

Fixed assets 1,716 1,816 2,525 3,205

Investments 13 295 295 295

Net working capital 795 949 904 1,103

Inventories ‐ ‐ ‐ ‐

Sundry Debtors 1,631 1,658 1,588 2,026

Other current assets 43 60 59 65

Short‐term Loans 85 92 92 92

Cash 171 126 97 92

Sundry Creditors (724) (620) (609) (803)

Other current liabilities (200) (195) (182) (227)

Total assets 2,825 3,454 4,079 4,984


Exhibit 12: Income statement Y/e 31 Mar (Rs mn) FY19 FY20 FY21E FY22E

Revenue 10,238 10,320 9,659 12,748

Operating profit 1,190 1,213 1,129 1,575

Depreciation (65) (78) (95) (124)

PBIT 1,125 1,135 1,034 1,451

Interest expense (38) (9) (9) (5)

Other income 32 44 41 46


Taxes (390) (279) (269) (376)

Reported profit 728 891 797 1,116

Adj. Net profit 728 891 797 1,116


Exhibit 13: Cash flow statement Y/e 31 Mar (Rs mn) FY19 FY20 FY21E FY22E

Profit Before Tax 1,119 1,170 1,066 1,492

Depreciation 65 78 95 124

Tax paid (390) (279) (269) (376)

Working capital Change (122) (171) 52 (234)

Other income and Int expense 6 (35) (32) (41)

Operating cashflow 678 763 912 965

Capital expenditure (190) (299) (800) (800)

Free cash flow 488 465 112 165

Equity raised ‐ ‐ ‐ ‐

Investments (13) (283) ‐ ‐

Debt financing/disposal (308) (59) (2) 1

Dividends paid (134) (213) (193) (212)

Other items 15 45 54 41

Net Change in cash 49 (45) (29) (5)


Exhibit 14: Ratio analysis Y/e 31 Mar FY19 FY20 FY21E FY22E

Growth matrix (%)

Revenue growth 15.7 0.8 (6.4) 32.0

Op profit growth 31.2 1.9 (7.0) 39.6

EBIT growth 32.1 1.9 (8.8) 39.2

Net profit growth 24.7 22.3 (10.5) 40.0

Profitability ratios (%)

OPM 11.6 11.8 11.7 12.4

EBIT margin 11.3 11.4 11.1 11.7

Net profit margin 7.1 8.6 8.3 8.8

RoCE 43.3 37.5 28.5 33.0

RoNW 30.7 29.5 21.6 25.1

RoA 19.2 20.6 16.2 18.4

Per share ratios

EPS 19.0 23.2 20.7 29.0

Dividend per share 2.9 4.6 5.0 5.5

Cash EPS 20.7 25.3 23.2 32.2

Book value per share 69.8 87.9 103.8 127.3

Valuation ratios

P/E 51.7 42.2 47.2 33.8

P/BV 11.3 9.0 7.6 6.2

EV/EBITDA 25.4 24.9 26.9 19.3

Dividend Yield 0.4 0.6 0.6 0.7

Payout (%)

Dividend payout 18.4 23.9 24.2 19.0

Tax payout 34.9 23.9 25.2 25.2

Liquidity ratios

Debtor days 58.2 58.6 60.0 58.0

Inventory days ‐ ‐ ‐ ‐

Creditor days 25.8 21.9 23.0 23.0


BUY CMP Rs768 12‐mth Target Rs1,020 Upside 33%


CreditAccess Grameen Limited Sector: Financials January 07, 2021

Robust franchise; merger efficiencies to accrue While Q3 may see elevated provisions, overall loss assessment could remain intact Collection efficiency continues to improve for both CREDAG (stand‐alone) and MMFL but at a slower pace. Among the larger states, Karnataka (40% of consol. AUM) and Tamil Nadu (25%) are tracking better than Maharashtra (20%). However, issues in Maharashtra are specific to few districts viz. Kolhapur, Solapur, Satara and Sangli. Having one of the most conservative provisioning policy (75% provisioning on PAR 60 loans) would trigger significant provisioning in the current quarter as flow forward would be higher than rollbacks with occupational challenges continuing for certain set of borrowers. Nonetheless, management’s overall assessment of Covid‐related credit loss of around 4% may not change much as the company expects many of the PAR 60 customers to start paying regularly soon. LGD on the current PAR 60 portfolio is expected to be lower than ECL provisions. CREDAG’s LGD experience during the demonetization crisis was <50% on PAR 90 portfolio.

On track to deliver 10‐15% consol. AUM growth in FY21 Focus on collections and a cautious approach on disbursements (negligible in Q1 and only to existing customers in Q2) caused a significant decline in consol. AUM during H1 FY21. In October both CREDAG and MMFL commenced new group formation/new customer acquisition and disbursed significant loans during the month (CREDAG Rs9.7bn v/s Rs14.2bn in Q2 FY21 & MMFL Rs1.6bn v/s Rs2.3bn in Q2 FY21). We understand that the pace of disbursements has accelerated further in November and December, and current quarter disbursements could be well above Q3 FY20 level. CREDAG and MMFL were carrying robust liquidity as of September 30 at 15% and 12% of BS respectively and also could draw‐down significant sums in Q2 FY21. In addition to substantial sanctions at the start of Q3, the portfolio growth is being supported by improving liquidity availability and cost. For MMFL, the size and rating, is no more a constraint for funding access after coming into the fold of CREDAG.

Likely strong rebound in growth and RoA in FY22 With renewed momentum in disbursements to continue, the consol. AUM growth is estimated to accelerate to 25‐30% in FY22. As the growth would be largely sourced by the newly opened branches of CREDAG and existing branches of MMFL (substantial scope for improving AUM/Branch ‐ stands >50% lower than CREDAG), operating efficiencies are likely to be realized which will strengthen PPOP and RoA. We estimate consol. RoA delivery of 4.5‐4.8% over the next two years, manifesting the substantial synergies of MMFL acquisition. Both CREDAG and MMFL had healthy Tier‐1 capital ratio of 26% and 21% as of September 30, and the raising of Rs8bn through a QIP in October by CREDAG would support the combined growth in coming years (MMFL to be merged FY22 onwards). The stock trades at 2.6x FY22 P/ABV (palatable for a best‐in‐class MFI) and it has not moved much in recent months. We see scope for further re‐rating as the investor focus shifts to FY22 delivery.

Stock data (as on January 06, 2020) Nifty 14,146 52 Week h/l (Rs) 1000 / 305 Market cap (Rs/USD mn) 119402 / 1633 Outstanding Shares (mn) 155 6m Avg t/o (Rs mn): 84 Div yield (%): ‐ Bloomberg code: CREDAG IN NSE code: CREDITACC Stock performance

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Absolute return ‐3.4% 2.6% 2.2%


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CREDITACC Nifty


CreditAccess Grameen Limited

FINANCIALS

Exhibit 15: Balance sheet

Y/e 31 Mar (Rs mn) FY20 FY21E FY22E FY23E

Equity and Liabilities

Equity Share Capital 1,440 1,580 1,580 1,580

Other Equity 25,902 38,575 46,018 55,731

Shareholders fund 27,342 40,155 47,598 57,311

Non‐controlling Int. 1,090 0 0 0

Fin. Liabilities 97,105 105,375 128,653 170,704

Trade payables 1,087 1,195 1,554 2,020

Debt Securities 7,757 8,416 10,268 13,656

Borrowings 85,800 93,093 113,573 151,053

Subordinated 1,030 1,118 1,364 1,664

Other Fin. Liabilities 1,432 1,553 1,895 2,312

Non‐Fin. Liabilities 359 461 537 632

Provisions 203 305 381 476

Def. tax liabilities 156 156 156 156

Total Liabilities 125,896 145,991 176,788 228,647

Financial Assets 119,178 139,664 170,692 222,696

Cash and CE. 6,449 15,987 12,378 15,886

Bank balances 728 873 1,048 1,257

Receivables 2 2 2 2

Loans 110,989 121,639 155,864 203,861

Investments 456 524 603 693

Other Financial Assets 555 638 798 997

Non‐Financial Assets 6,718 6,327 6,096 5,950

Current tax assets (Net) 221 221 287 374

Deferred tax assets (Net) 574 574 574 574

Property, Plant and Equipment 317 349 418 502

Intangible Assets 28 28 28 28

Goodwill 4,902 4,412 3,971 3,574

Other Non‐Fin. Assets 675 742 817 898

Total Assets 125,896 145,991 176,788 228,647


Exhibit 16: Income statement

Y/e 31 Mar (Rs mn) FY21E FY22E FY23E

Income from Operations 25,203 29,575 38,062

Interest expense (9,309) (10,408) (13,310)

Net interest income 15,894 19,167 24,752

Non‐interest income 15 18 22

Total op income 15,909 19,186 24,774

Total op expenses (5,973) (7,167) (9,138)

PPOP 9,937 12,018 15,635

Provisions (4,995) (2,068) (2,650)

Profit before tax 4,942 9,950 12,986

Taxes (1,245) (2,508) (3,272)

Net profit 3,697 7,443 9,713


Exhibit 17: Key ratios Y/e 31 Mar FY21E FY22E FY23E

Growth matrix (%)

Net interest income 41.4 20.6 29.1

Operating profit 42.2 20.9 30.1

Net profit 10.8 101.3 30.5

Advances 9.6 28.1 30.8

Borrowings 8.5 22.0 32.9

Total assets 16.0 21.1 29.3

Profitability Ratios (%)

NIM 12.6 12.8 12.8

Non‐int inc/Total inc 0.1 0.1 0.1

Return on Avg Equity 11.0 17.0 18.5

Return on Avg Assets 2.7 4.6 4.8


EPS 23.4 47.1 61.5

BVPS 254.2 301.3 362.8

Other key ratios (%)

Loans/Borrowings 118.5 124.5 122.5

Cost/Income 37.5 37.4 36.9

Credit Cost 4.5 1.7 1.7

Tax rate 25.2 25.2 25.2


BUY CMP Rs2,639 12‐mth Target Rs3,420 Upside 30%


HDFC Limited Sector: Financials January 07, 2021

Underpriced; set for a long stint Business traction picking up; growth commentary getting stronger Traction in individual housing loans improved month‐on‐month during Q2 FY21 for HDFC. For the period, number of loan applications received grew 12% yoy, loan approvals grew 9% yoy and disbursements were at 95% of the level in the corresponding quarter last year. The month of September witnessed the strongest recovery since the outbreak of the pandemic and loan applications (volume), approvals and disbursements were higher 21%, 31% and 11% respectively on yoy basis. As per Management commentary and our interactions with DSAs in major markets, housing demand has further accelerated in the period of October‐to‐December and HDFC has gained market share not just through fresh disbursements but also through Balance Transfers. Large housing markets like MMR, Delhi‐NCR, Bengaluru and Pune have seen a substantial improvement in housing activity and HDFC has robust presence and distribution here. This could be a start of a long business upcycle for HDFC and the industry underpinned by major tailwinds like decadal‐low interest rates, government support, lower housing penetration, expected upswing in economy and income levels, improved affordability post pricing correction/discounts and benign funding environment for the financiers.

Well‐buffered Balance sheet and P&L; support exists for NIM/Spreads HDFC is well‐buffered both from Balance Sheet and P&L standpoint to withstand any asset quality hick‐ups. High capital ratios (Tier‐1 at 20%) and low gearing (DER <4.5x) after the recent capital raise of Rs100bn comforts Balance Sheet and the enhanced ECL cover (2.6% of loan book) cushions future P&L. With abundant funding availability, the company has started pruning excess liquidity being carried and this will reflect positively in the margins. More so, HDFC benefits from the seminal fall in funding rates across sources and this helps in competitive loan pricing and thus in driving growth.

Core mortgage business can re‐rate further; value accretion through subsidiaries and associates too Over the past few months, the core mortgage business has got re‐rated and is currently valued at 2.3x current P/BV. There exists material scope for further valuation re‐rating driven by sustained improvement in disbursement and loan portfolio growth, lesser‐than‐feared Covid impact and stress in non‐individual portfolio and marginal improvement in NIM/Spread supporting steady profitability. Value creation by the banking, insurance and asset management subsidiaries and associates will continue as growth and profitability prospects are improving and they are trading within their historic valuation band.

Stock data (as on January 06, 2021) Nifty 14,146 52 Week h/l (Rs) 2,665 / 1,473 Market cap (Rs/USD mn) 4,750,438 / 64,974 Outstanding Shares (mn) 1,800 6m Avg t/o (Rs mn): 9,549 Div yield (%): 0.8 Bloomberg code: HDFC IN NSE code: HDFC Stock performance

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HDFC Nifty


HDFC Limited

FINANCIALS

Exhibit 18: Balance sheet

Y/e 31 Mar (Rs mn) FY17 FY18 FY19 FY20

Equity and Liabilities

Equity Share Capital 3,177 3,352 3,443 3,464

Other Equity 431,189 649,297 770,112 858,117

Shareholders fund 434,366 652,649 773,555 861,581

Fin. Liabilities 2,908,616 3,327,104 3,802,898 4,355,156

Derivative financial instruments 9,208 5,100 1,648 3,207

Trade payables 1,488 2,076 1,902 1,968

Debt Securities 1,510,140 1,761,446 1,775,669 1,768,687

Borrowings 373,045 468,024 775,485 1,049,086

Deposits 855,360 912,687 1,055,989 1,323,243

Subordinated 55,000 55,000 55,000 50,000

Other Fin. Liabilities 104,375 122,771 137,205 158,965

Non‐Fin. Liabilities 8,910 9,341 11,323 24,199

Provisions 1,770 1,825 2,096 2,605

Other non‐financial liabilities 7,140 7,516 9,227 21,594

Total Liabilities 3,351,892 3,989,096 4,587,776 5,240,936

Financial Assets 3,305,511 3,929,264 4,540,808 5,169,947

Cash and Equi. 42171 12321 3608 31419

Bank balances 23521 2529 12355 2838

Derivative fin. Instr. 3327 4563 14034 57093

Receivables 1060 1035 1869 2301

Loans 2956920 3573809 4007596 4399433

Investments 201812 307167 462404 649444

Other Financial Assets 76700 27841 38943 27420

Non‐Financial Assets 46,381 59,832 46,968 70,989

Current tax assets (Net) 31460 33769 27502 31018

Deferred tax assets (Net) 2801 12795 8309 15679

Investment Property 3995 3951 3213 8904

Property, Plant and Equipment 6382 6397 6442 9861

Other Intangible Assets 41 48 71 3629

Other Non‐Fin. Assets 1701 1171 1431 1898

Assets held for sale 0 1701

Total Assets 3,351,892 3,989,096 4,587,776 5,240,936


Exhibit 19: Income statement

Y/e 31 Mar (Rs mn) FY18 FY19 FY20

Income from Operations 406,892 433,480 497,191

Interest expense (234,980) (278,377) (310,014)

Net interest income 171,912 155,104 187,178

Non‐interest income 183 300 244

Total op income 172,095 155,403 187,422

Total op expenses (19,049) (14,866) (14,980)

PPOP 153,046 140,538 172,442

Provisions (21,150) (9,350) (59,131)

Exceptional Items 0 0 90,198

Profit before tax 131,896 131,188 203,509

Taxes (22,303) (34,863) (25,813)

Net profit 109,593 96,325 177,697


Exhibit 20: Key ratios Y/e 31 Mar FY18 FY19 FY20

Growth matrix (%)

Net interest income ‐ (9.8) 20.7

Total op income ‐ (9.7) 20.6

Op profit (pre‐provision) (8.2) 22.7

Net profit ‐ (12.1) 84.5

Advances 20.9 12.1 9.8

Borrowings 17.9 14.1 10.0

Total assets 19.0 15.0 14.2


NIM 0.0 2.2 2.5

Non‐int inc/Total inc 0.1 0.2 0.1

Return on Avg Equity 20.2 13.5 21.7

Return on Avg Assets 3.0 2.2 3.6


EPS 65.4 56.0 102.6

BVPS 389.4 449.3 497.4

DPS 20.0 21.0 21.0


Loans/Borrowings 156.4 153.8 153.4

Cost/Income 11.1 7.3 7.0

CAR 19.2 18.1 17.3

Tier‐I capital 17.3 16.2 15.4

Gross NPLs/Loans 1.3 1.1 1.1

Credit Cost 1.0 0.1 0.1

Tax rate 16.9 26.6 12.7

Dividend payout 30.6 37.5 20.5




ICICI Bank Sector: Financials January 07, 2021

On strong footing Structural benefits of strategic initiatives to fully manifest in coming years Over the past 4‐5 years, ICICI Bank has impressively de‐risked and re‐balanced its core revenue streams by increasing the contribution of retail loans (65% of loans), de‐emphasizing on international lending (7%), focusing on higher‐rated domestic corporate loans, reducing exposure to stressed sectors/borrower groups, substantially increasing the share of low‐cost sticky deposits and retailizing the fee income to a large extent. These structural benefits could not manifest itself desirably in return ratios of the bank due to recognition of legacy/incipient stress (impacted NIM though income reversals) and strengthening of provisioning cover (kept credit cost elevated). The sustainable core PPOP margin was improved to 2.4% over FY17‐20.

Ready to capture growth opportunities across segments On the Analyst Day in early December, the management sounded upbeat on bank’s growth prospects citing a sharp recovery in demand for consumption loans in recent months and promising opportunities in future underpinned by affluence growth and rising chances of pick‐up in corporate lending including revival in capex. The bank is ready to capture growth opportunities across segments with key enablers being comprehensive digital capabilities in Retail, Business Banking and Agri segments, robust distribution/customer management architecture, internally coherent/ecosystem‐based approach, deepening relationships with high‐rated corporates and sustained focus on low‐cost liabilities. Post the Rs150bn equity capital raise, CET‐1 ratio of the bank stands increased to 15%+. Augmented capital base positions ICICI Bank strongly for pursuing growth. We forecast a sharp growth uptick from FY22.

Earnings to catapult over FY21‐23 With stress recognition and provisioning related to the corporate NPL cycle behind and reasonable provisioning buffer created for likely Covid impact (1.3% of loan book), credit cost should fall significantly in FY22 and FY23. Our confidence stems from comforting management commentary on collection trends and evolving restructuring and delinquency patterns, relatively small ‘BB & Below’ book, restrained exposure to NBFC/HFCs, conspicuous absence/lower exposure of the bank to corporates/groups that have recently got in trouble and a high core PCR of 82% on NPLs.

Trends in asset‐liability mix, improved relative pricing power, reversion of balance sheet liquidity to usual levels and contained net slippages should benefit NIMs over the medium term. A gradual improvement in the cost metric and core cost/income ratio is highly probable from the accelerated digital business acquisition and execution, and an integrated banking strategy (targeting eco‐system opportunities with a coherent approach). Thus, core PPOP margin and growth should get a fillip over FY21‐23. Overall, we estimate RoA to improve from 1% in FY21 to 1.6% in FY23. Core Bank still available at an attractive valuation of 1.8x FY22 P/ABV considering the projected robust profitability and growth delivery.

Stock data (as on January 06, 2021) Nifty 14,146 52 Week h/l (Rs) 551 / 268 Market cap (Rs/USD mn) 3774249 / 51622 Out.Shares (mn) 6,904 6m Avg t/o (Rs mn): 13,477 Div yield (%): ‐ Bloomberg code: ICICIBC IN NSE code: ICICIBANK Stock performance

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ICICIBANK Nifty


ICICI Bank Limited

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Exhibit 21: Balance sheet Y/e 31 Mar (Rs mn) FY20 FY21E FY22E FY23E

Total cash & equivalents

1,191,557 1,491,923 1,521,238 1,708,533

Investments 2,495,315 2,944,471 3,297,808 3,693,545

Advances 6,452,900 6,872,338 7,731,380 8,813,774

Total int‐earning assets

10,139,772 11,308,732 12,550,426 14,215,851

Fixed assets 84,103 88,308 92,723 97,360

Other assets 759,777 835,754 919,330 1,011,263

Total assets 10,983,652 12,232,795 13,562,480 15,324,474

Net worth 1,165,044 1,435,362 1,625,296 1,856,863

Deposits 7,709,690 8,981,789 10,059,603 11,367,352

Borrowings 1,628,968 1,287,699 1,291,562 1,449,778

Total IBLs 9,338,658 10,269,488 11,351,165 12,817,130

Other Non‐IBLs 479,950 527,945 586,019 650,481

Total liabilities 9,818,609 10,797,436 11,937,188 13,467,615

Total liabilities 10,983,652 12,232,795 13,562,480 15,324,474


Exhibit 22: Income statement Y/e 31 Mar (Rs mn) FY20 FY21E FY22E FY23E

Interest income 747,983 781,866 857,469 966,456

Interest expense (415,313) (405,960) (436,816) (488,287)

Net int. income 332,671 375,906 420,653 478,169

Non‐int. income 164,486 188,133 179,759 205,425

Total op income 497,157 564,039 600,412 683,593

Total op expenses (216,144) (222,628) (251,570) (283,016)

PPOP 281,013 341,411 348,842 400,577

Total provisions (140,533) (180,557) (94,924) (90,998)


Taxes (61,172) (40,535) (63,987) (78,014)

Net profit 79,307 120,319 189,932 231,566


Exhibit 23: Ratio analysis Y/e 31 Mar FY20 FY21E FY22E FY23E

Growth matrix (%)

Net interest income 23.1 13.0 11.9 13.7

Total op income 19.7 13.5 6.4 13.9

Op profit (pre‐provision) 19.9 21.5 2.2 14.8

Net profit 135.8 51.7 57.9 21.9

Advances 10.0 6.5 12.5 14.0

Deposits 18.1 16.5 12.0 13.0

Total assets 13.9 11.4 10.9 13.0


NIM 3.5 3.5 3.5 3.6

Non‐int inc/Total inc 33.1 33.4 29.9 30.1

Return on Avg Equity 7.1 9.3 12.4 13.3

Return on Avg Assets 0.8 1.0 1.5 1.6


EPS 12.3 17.5 27.6 33.6

Adj.BVPS 164.3 184.1 211.7 246.4


Credit/Deposits 83.7 76.5 76.9 77.5

Cost/Income 43.5 39.5 41.9 41.4

CASA 31.9 48.6 50.1 50.6

CAR 16.1 18.8 19.0 19.3

Tier‐I capital 14.7 17.3 17.4 17.7

Gross NPLs/Loans 6.4 7.8 6.8 5.7

Total prov/Avg loans 2.3 2.7 1.3 1.1

Net NPLs/Net loans 1.4 2.4 2.2 1.8

Tax rate 43.5 25.2 25.2 25.2




Kansai Nerolac Paints Sector: Paints January 07, 2021

Painting a new story Diversifying into new geographies and products Kansai’s strategic diversification in the newer geographies and products is likely to lead towards next leg of sustainable growth. In the recent past, the company has done various expansions beyond India through various acquisitions in Nepal, Bangladesh and has established a Greenfield JV project in Sri Lanka. Additionally, the company has also forayed into allied market verticals like Adhesives and Construction Chemicals in the mass market through acquisition of Perma Chemicals and JV with Polygel. For high end wood Coating products, company has tied up with ICRO. Moreover, its focus on coil, rebar, floor, pipe coatings and other specialty coatings in Industrial business is likely to ripe‐in long term benefits.

Leadership in Industrial Segment Kansai commands ~40% market share in Industrial segment and has numerous business moats in the division. Its parent company, Kansai Paint Co. Ltd‐ Japan, assists on process design, quality improvement and technology whereas strategic assistance agreements with Oshima Kogyo Co. Ltd. ‐ Japan, Cashew Co. Ltd. ‐ Japan, and Protech Chemicals Limited – Canada aids on specific product and service offerings. Despite this, the segment has underperformed with the disruptions caused by GST, Demonetization and NBFC crises (before Covid‐19). With COVID‐19, the Auto cycle has hit a trough and only set to recover on account of availability of affordable finance, focus on personal mobility and resilient rural economy. As and when economy recovers post COVID‐19, we believe, the segmental performance is likely to improve significantly with its deeper presence in Industrial paints

Outlook and Financials We are positive on Kansai largely backed by expected improvements in structural drivers such as shift towards organized sector, housing push in semi‐urban and rural areas, shorter painting cycles, governments focus on increasing rural income and increased consumer awareness in rural areas. After 5‐6 quarters of continuous gross margin expansion we can see some moderation on account of rising crude prices. However we expect EBIDTA margins to stay in the higher range of 17‐18% between FY22‐FY24 (better than 14%‐16% seen between FY18‐FY20) on account of judicious control on costs and overheads and better fixed cost absorption. We expect ROE to move to reach 17% by FY23E. Given quality play, the stock is trading at an attractive valuation of 34x FY23E P/E.

Stock data (as on January 06, 2021) Nifty 14,146 52 Week h/l (Rs) 663 / 294 Market cap (Rs/USD mn) 330223 / 4517 Outstanding Shares (mn) 539 6m Avg t/o (Rs mn): 146 Div yield (%): 0.2 Bloomberg code: KNPL IN NSE code: KANSAINER Stock performance

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KANSAINER Nifty


Kansai Nerolac Paints

FINANCIALS





Minority Interest 153 164 201 217


Long‐Term Borrowings 182 97 44 234

Deferred Tax Liabilities (Net) 795 814 1,267 1,081

Other Long Term Liabilities ‐ ‐ ‐ 528

Long‐Term Provisions ‐ 1 0 1

Total Non Current Liabilities 977 912 1,310 1,844

Current Liabilities

Short‐Term Borrowings ‐ 168 965 1,498

Trade Payables 5,607 6,999 6,934 5,954



Total Current Liabilities 7,088 8,900 9,504 9,172


Non‐Current Assets ‐

Fixed Assets 11,094 13,791 17,617 19,230

Goodwill on Consolidation 23 23 196 198

Non‐Current Investments 9 9 11 10

Deferred Tax Assets (net) ‐


Other Non‐Current Assets ‐

Total Non Current Assets 12,460 15,449 21,975 23,951

Current Assets ‐

Current Investments 5,308 5,200 1,956 3,051

Inventories 7,032 8,292 11,111 10,084


Cash and Cash Equivalents 2,614 3,636 962 1,920

Short‐Term Loans and Advances 2,891 1,546 1,394 1,673



TOTAL ASSETS 36,363 41,299 45,179 48,836


Income statement Y/e 31 Mar (Rs mn) FY17 FY18 FY19 FY20

Revenue 40,526 46,581 54,243 52,800


Depreciation 701 771 1,063 1,421

PBIT 6,673 7,167 6,462 6,623

Finance Costs ‐

Other Income 980 709 605 255


Tax Expenses 2,552 2,732 2,491 1,512

Minority Interest (12) 7 51 52

Reported PAT 5,088 5,144 4,528 5,210



Debt‐Equity Ratio 0.0 0.0 0.0 0.0

Current Ratio 2.3 2.2 2.1 2.1

Total Asset Turnover Ratio 1.8 1.6 1.6 1.4

Interest Cover Ratio ‐ ‐ 70.9 32.9

Operating Profit Margin (%) 16.7 18.0 15.0 15.7

PAT Margin (%) 10.2 10.7 8.3 9.8

ROCE (%) 28.3 26.2 21.1 18.3

RONW (%) 19.2 17.3 13.7 14.4

P/E (x) 64.9 64.2 72.9 63.4


BUY CMP Rs5,856 12‐mth Target Rs7,280 Upside 24%


Gillette India Sector: Personal Products January 07, 2021

The best an investor can get Market Leader in Grooming Business Robust product portfolio, strengthening brand visibility, improving productivity, focus on superior packaging and distribution strategy has led Gillette to achieving sustainable growth in Grooming Segment. Also, the entire product portfolio has got required push by the renowned “Gillette” brand and increasing visibility over a period of time. During FY19, the company has launched “Gillette Mach 3 Start”, an entry‐level premium systems razor, which has received a good market response. Additionally, Campaigns such as “Gillette Barbershop Girls” and “‘Gillette Barber Suraksha program” have all led to better engagement with consumers.

Gaining traction in Oral Care Business Gillette has introduced various products in recent times to gain traction in the Oral care business. During FY19, it has launched the pro‐health Ultra‐thin toothbrush with Charcoal extract and criss‐cross bristles for consumers with sensitive gums and teeth. Also, the company has expanded the electric toothbrush portfolio with the launch of an entry tier rechargeable electric toothbrush in the market ‘Oral‐B Vitality’. Targeted trial programs and deeper distribution plans have enabled more consumers to have access to its product. We believe, the company has done well with brand awareness and market access through collaboration with dentists, to promote oral health awareness via the free dental checkup program. In the Oral segment, strengthening brand propositions, robust portfolio, innovation, distribution push, collaboration with potential drivers (Doctors) had all led to strong sales (Rs.4bn/Rs.3.5bn in FY19/FY18 respectively). However, revenue remained muted at ~Rs.4bn in FY20 mainly due to the impact of COVID‐19. Going forward, we expect flat revenue growth in FY21 followed by a 16% revenue CAGR during FY22‐25.

Outlook and financials We expect revenue and cost pressure in the short term owing to reduced consumption in the grooming segment. However, we are positive on Gillette over the medium to longer‐term backed by a) its strong brand recall, b) superior activation and go‐to‐market plans, c) innovated products range, d) commercial novelties, e) extension of research facilities and technology support by the parent company, and f) robust distribution strategies. Also, demographic tailwinds, increasing brand consciousness, rapid urbanization, increasing digital connectivity, better demand, and consumption from Tier‐2/3 cities, and rural areas will lead to multi‐year growth opportunities. Post COVID‐19, we have witnessed a steep price correction in the stock. Given quality play and healthy return ratios (expects 30% by FY23E), the stock is currently trading at a reasonable valuation of 54x FY23E P/E.

Stock data (as on January 06, 2021) Nifty 14,146 52 Week h/l (Rs) 6650 / 4450 Market cap (Rs/USD mn) 190803 / 2610 Outstanding Shares (mn) 33 6m Avg t/o (Rs mn): 79 Div yield (%): 1.7 Bloomberg code: GILL IN NSE code: GILLETTE Stock performance

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Absolute return 1.6% 9.4% ‐10.4%


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Gillette India

FINANCIALS

Exhibit 26: Balance sheet (Standalone) Y/e 31 Jun (Rs m) FY16 FY17 FY18 FY19





Long‐Term Borrowings ‐ ‐ ‐ ‐

Deferred Tax Liabilities (Net) ‐ ‐ ‐ ‐

Other Long‐Term Liabilities 0 ‐ ‐ ‐

Long‐Term Provisions 35 338 355 791

Total Non‐Current Liabilities 36 338 355 791

Current Liabilities

Short‐Term Borrowings ‐ ‐ ‐ ‐

Trade Payables 3,211 3,227 3,293 2,812

Other Current Liabilities 956 715 660 647


Total Current Liabilities 4,843 4,640 4,794 3,525


Non‐Current Assets ‐ ‐ ‐ ‐

Fixed Assets 2,663 2,774 3,048 3,247

Non‐Current Investments ‐ ‐ ‐ ‐

Deferred Tax Assets (net) 150 190 164 322



Total Non‐Current Assets 4,512 5,000 5,771 6,127

Current Assets

Current Investments ‐ ‐ ‐ ‐

Inventories 2,446 2,224 2,002 2,340


Cash and Cash Equivalents 5,372 1,157 2,366 1,417

Short‐Term Loans and Advances 798 290 167 392



TOTAL ASSETS 14,245 9,985 12,090 12,100


Exhibit 27: Income statement (Standalone) Y/e 31 Jun (Rs m) FY16 FY17 FY18 FY19

Revenue 17550 17340 16770 18620

Operating Profit 3060 3820 3820 3810

Depreciation Expenses (300) (380) (420) (480)

PBIT 2750 3430 3390 3330

Finance Costs (60) (70) (70) (80)

Other Income 360 380 130 140

Profit before tax 3060 3740 3450 3390

Tax Expenses (1060) (1210) (1160) (860)

Reported profit 1990 2530 2290 2530


Exhibit 28: Key Ratios Y/e 31 Jun FY17 FY18 FY19 FY20

Debt‐Equity Ratio (x) ‐ ‐ ‐ ‐

Current Ratio (x) 1.5 1.2 1.6 1.9

Total Asset Turnover Ratio (x) 2.4 2.7 2.4 2.1

Interest Cover Ratio (x) 44.2 47.2 56.5 58.7

Operating Margin (%) 21.2 23.5 23.5 20.1

PAT Margin (%) 13.6 13.7 14.2 12.1

ROCE (%) 43.7 55.7 51.7 38.7

RONW (%) 34.4 38.3 35.2 25.5

P/E (x) 95 75 83 75



DISCLAIMER

Investments in securities market are subject to market risks, read all the related documents carefully before investing.

The information and opinions in this report have been prepared by YSL and are subject to change without any notice. The report and information contained herein are strictly confidential and meant solely for the intended recipient and may not be altered in any way, transmitted to, copied or redistributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of YSL.

The information and opinions contained in the research report have been compiled or arrived at from sources believed to be reliable and have not been independently verified and no guarantee, representation of warranty, express or implied, is made as to their accuracy, completeness, authenticity or validity. No information or opinions expressed constitute an offer, or an invitation to make an offer, to buy or sell any securities or any derivative instruments related to such securities. Investments in securities are subject to market risk. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. Investors should note that each security's price or value may rise or fall and, accordingly, investors may even receive amounts which are less than originally invested. The investor is advised to take into consideration all risk factors including their own financial condition, suitability to risk return profile and the like, and take independent professional and/or tax advice before investing. Opinions expressed are our current opinions as of the date appearing on this report. Investor should understand that statements regarding future prospects may not materialize and are of general nature which may not be specifically suitable to any particular investor. Past performance may not necessarily be an indicator of future performance. Actual results may differ materially from those set forth in projections.

Technical Analysis reports focus on studying the price movement and trading turnover charts of securities or its derivatives, as opposed to focussing on a company’s fundamentals and opinions, as such, may not match with reports published on a company’s fundamentals.

YSL, its research analysts, directors, officers, employees and associates accept no liabilities for any loss or damage of any kind arising out of the use of 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 YSL and associates 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.

DISCLOSURE OF INTEREST

Name of the Research Analyst : Aditya Agarwala

The analyst hereby certifies that opinion expressed in this research report accurately reflect his or her personal opinion about the subject securities and no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendation and opinion expressed in this research report.

Sr. No. Particulars Yes/No

1 Research Analyst or his/her relative’s or YSL’s financial interest in the subject company(ies) No

2

Research Analyst or his/her relative or YSL’s actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of the Research Report

No

3 Research Analyst or his/her relative or YSL has any other material conflict of interest at the time of publication of the Research Report

No

4 Research Analyst has served as an officer, director or employee of the subject company(ies) No

5 YSL has received any compensation from the subject company in the past twelve months No

6 YSL has received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months

No

7

YSL has received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months

No

8 YSL has received any compensation or other benefits from the subject company or third party in connection with the research report

No

9 YSL has managed or co‐managed public offering of securities for the subject company in the past twelve months

No

10 Research Analyst or YSL has been engaged in market making activity for the subject company(ies) No

Since YSL and its associates are engaged in various businesses in the financial services industry, they may have financial interest or may have received compensation for investment banking or merchant banking or brokerage services or for any other product or services of whatsoever nature from the subject company(ies) in the past twelve months or associates of YSL may have managed or co‐managed public offering of securities in the past twelve months of the subject company(ies) whose securities are discussed herein.

Associates of YSL may have actual/beneficial ownership of 1% or more and/or other material conflict of interest in the securities discussed herein.

YES Securities (India) Limited

Registered Address: Unit No. 602 A, 6th Floor, Tower 1 & 2, One International Center, Senapati Bapat Marg, Elphinstone Road,

Mumbai – 400013, Maharashtra, India Email: [email protected] | Website: https://yesinvest.in

Registration Nos.: CIN: U74992MH2013PLC240971 | SEBI Single

Registration No.: NSE, BSE, MCX & NCDEX : INZ000185632 | Member Code: BSE – 6538, NSE – 14914, MCX – 56355 & NCDEX ‐ 1289 | MERCHANT BANKER: INM000012227 | RESEARCH ANALYST:

INH000002376 |INVESTMENT ADVISER: INA000007331| Sponsor and Investment Manager to YSL Alternates Alpha Plus Fund (Cat III AIF) SEBI Registration No.: IN/AIF3/20‐21/0818 | AMFI ARN Code – 94338 |

Details of Compliance Officer: Vaibhav Purohit (For Broking / Research / Investment Adviser): Email: [email protected] /

Contact No.: 022‐33479208 | Dhanraj Uchil (For Merchant Banking): Email: [email protected] / Contact No.: 022‐33479684

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material.

RECOMMENDATION PARAMETERS FOR FUNDAMENTAL REPORTS

Analysts assign ratings to the stocks according to the expected upside/downside relative to the current market price and the estimated target price. Depending on the expected returns, the recommendations are categorized as mentioned below. The performance horizon is 12 to 18 months unless specified and the target price is defined as the analysts’ valuation for a stock. No benchmark is applicable to the ratings mentioned in this report.

BUY: Potential return >15% over 12 months

ADD: Potential return +5% to +15% over 12 months

REDUCE: Potential return ‐10% to +5% over 12 months

SELL: Potential return <‐10% over 12 months

NOT RATED / UNDER REVIEW

ABOUT YES SECURITIES (INDIA) LIMITED

YES Securities (India) Limited (‘‘YSL’’) is a wholly owned subsidiary of YES BANK LIMITED. YSL is a SEBI registered stock broker holding membership of NSE, BSE, MCX & NCDEX. YSL is also a SEBI registered Category I Merchant Banker, Investment Adviser and a Research Analyst. YSL offers, inter alia, trading/investment in equity and other financial products along with various value added services. We hereby declare that there are no disciplinary actions taken against YSL by SEBI/Stock Exchanges.

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